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As filed with the Securities and Exchange Commission on July 10, 1998
REGISTRATION NO. 333-
====================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
AMERICAN COMMUNITY PROPERTIES TRUST
(Exact Name Of Registrant As Specified In Its Charter)
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Maryland 6552 52-2058165
(State Or Other Jurisdiction of (Primary SIC (I.R.S. employer
incorporation or organization) Code Number) identification number)
222 Smallwood Village Center J. MICHAEL WILSON
St. Charles, Maryland 20602 Chairman and Chief Executive Officer
(301) 843-8600 American Community Properties Trust
(Address, including zip code, and telephone 222 Smallwood Village Center
number, including area code, of registrant) St. Charles, Maryland 20602
(301) 843-8600
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
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Copy to:
DAVID N. BROWN
Covington & Burling
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, please check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Amount to maximum maximum Amount of
Title of each class of securities to be be offering price aggregate registration
registered registered per unit(1) offering price(1) fee(2)
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Common Shares 5,250,000 $3.09 $16,218,000 $1,081
=============================================================================================================
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(1) Calculated pursuant to Rule 457(f) based on the estimated book value of
the Common Shares as of March 31, 1998.
(2) Pursuant to Rule 457(b), the registration fee has been reduced by
$3,703, which is the amount of the fee previously paid pursuant to Section 14(g)
of the Securities Exchange Act and Rule 14a-7 and Rule 0-11 thereunder in
connection with the filing of the Proxy Statement/Prospectus that forms a part
of this registration statement and preliminary proxy material on November 14,
1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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AMERICAN COMMUNITY PROPERTIES TRUST
FORM S-4
CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
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LOCATION IN
FORM S-4 ITEM PROXY STATEMENT/PROSPECTUS
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A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus.............................. Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus............................................ Available Information; Table of
Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information..................................... Summary; Risk Factors
4. Terms of the Transaction.............................. Summary; The Restructuring; Income
Tax Considerations
5. Pro Forma Financial Information....................... Summary; Selected Historical and Pro
Forma Financial Information
6. Material Contacts with the Company Being Acquired..... Summary; ACPT; Business of ACPT;
IGC After the Restructuring
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to Be Underwriters......... Not Applicable
8. Interests of Named Experts and Counsel................ Experts; Legal Matters
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities........ Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants........... Not Applicable
11. Incorporation of Certain Information by Reference..... Not Applicable
12. Information with Respect to S-2 or S-3 Registrants.... Not Applicable
13. Incorporation of Certain Information by Reference..... Not Applicable
14. Information with Respect to Registrants Other than S-
2 or S-3 Registrants.................................. Summary; ACPT; Management's
Discussion and Analysis of Results of
Operations and Financial Condition;
Business of ACPT; Capitalization;
Management; Ownership of Common
Shares; Description of Shares of
Beneficial Interest; Certain Provisions
of Maryland Law and of ACPT's
Declaration of Trust and Bylaws;
Comparative Rights of IGC Unitholders
and Shareholders
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C. INFORMATION ABOUT THE COMPANY BEING
ACQUIRED
15. Information with Respect to S-3 Companies............. Not Applicable
16. Information with Respect to S-2 or S-3 Companies...... Not Applicable
17. Information with Respect to Companies Other than S- Summary; ACPT; Management's
2 or S-3 Companies.................................... Discussion and Analysis of Results of
Operations and Financial Condition;
Business of ACPT; IGC After the
Restructuring; Ownership of Common
Shares; Comparative Rights of IGC
Unitholders and Shareholders
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations
Are to be Solicited................................... Outside Front Cover Page; Summary;
The Special Meeting
19. Information if Proxies, Consents or Authorizations
Are Not to be Solicited, or in an Exchange Offer...... Not Applicable
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<PAGE>
INTERSTATE GENERAL COMPANY L.P.
222 Smallwood Village Center
St. Charles, Maryland 20602
Dear IGC Unitholder:
As we announced in December 1996, we propose to transfer the principal
real estate operations of Interstate General Company L.P. ("IGC") to American
Community Properties Trust ("ACPT") and to distribute to the partners of IGC,
including IGC Unitholders, all of the common shares of ACPT (the
"Restructuring"). Accordingly, following the Restructuring, IGC Unitholders
will own both IGC Units and ACPT Common Shares.
The purpose of the Restructuring is to create an attractive investment
vehicle for the principal real estate assets and operations of IGC that will not
be burdened with the operating losses of American Family Homes, LLC ("AFH") and
the capital needs of Interstate Waste Technologies, Inc. ("IWT"), and Caribe
Waste Technologies, Inc. ("CWT") or with the wetlands litigation. In addition,
ACPT, as a type of business trust whose principal income is dividends from
corporations, should be a more attractive investment for pension funds and
mutual funds than is IGC as a master limited partnership. We expect that ACPT
will have greater access to capital markets than IGC has had.
ACPT will act as a self-managed holding company and will own all of
the outstanding equity interests in American Rental Management Company
("American Management"), American Land Development US, Inc. ("American Land"),
and IGP Group Corp. ("IGP Group") and all of the outstanding common stock of
American Rental Properties Trust ("American Rental"). In the Restructuring,
American Rental, through its subsidiary partnership American Housing Properties
L.P. ("American Housing"), will acquire IGC's partnership interests in United
States investment apartment properties and its land in the United States
presently intended for development as apartment properties. American Rental, a
Maryland real estate investment trust, is expected to be taxed as a real estate
investment trust ("REIT"). American Management, which currently is a wholly-
owned subsidiary of IGC, acquired IGC's United States property management
services operations. It is a Delaware corporation and will be taxed as a
corporation. American Land will acquire IGC's principal United States community
development assets and operations, principally land in St. Charles, Maryland.
American Land is a Maryland corporation and will be taxed as a corporation. IGP
Group will acquire substantially all of IGC's interests in its affiliate
Interstate General Properties Limited Partnership S.E. ("IGP"), which will
continue to hold its interests in Puerto Rico investment apartment properties,
Puerto Rico management services and the rights to income, gains and losses
associated with land in Puerto Rico held by an 80% subsidiary
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of IGP, Land Development Associates S.E. ("LDA"), for development as rental
properties. A Class B interest in IGP will be transferred to American Land (the
"Class B IGP Interest"). This interest will represent all of IGP's rights to
income, gains and losses associated with land in Puerto Rico held by LDA that
currently is designated for development as saleable property. IGP Group intends
to qualify as a Puerto Rico pass-through entity that is expected to be taxed as
a corporation for U.S. tax purposes and will not be taxable at the entity level
for Puerto Rico income tax purposes.
After these asset transfers have been completed, IGC will distribute
all of the outstanding common shares of ACPT to the general and limited partners
(including Unitholders) of IGC pro rata in accordance with their percentage
interest in IGC. IGC Unitholders in the aggregate will receive 99% of ACPT's
common shares on the basis of one ACPT common share for every two IGC Units
held. Based on the number of IGC Units currently outstanding, approximately
5,250,000 ACPT common shares will be distributed. As of December 31, 1997 and
March 31, 1998, the Net Asset Value per common share of ACPT is estimated by IGC
to be $21.25 and $21.55, respectively, based on appraisals of land assets and
valuation of interest in apartment properties, management contracts and other
assets. ACPT has received preliminary approval for listing of the common shares
on the American Stock Exchange ("AMEX") and the Pacific Stock Exchange ("PSE").
Also in connection with the Restructuring, subject to prevailing
market conditions, ACPT will seek to raise up to $35 million in additional
equity capital through a private offering of preferred shares (the "Private
Offering"). Proceeds from the Private Offering would be used to pay down
existing bank debt and for working capital. The terms of the preferred shares
will be negotiated with purchasers, but they may include rights to preferred
distributions, cumulative distributions, and/or liquidation preferences. The
preferred shares also may be convertible into common shares at a negotiated
conversion ratio. The Private Offering, if completed, would result in dilution
of the percentage interest of all ACPT shareholders including the Wilson Family,
whose percentage ownership would likely be reduced below 40%. Regardless of the
outcome of the Private Offering, the Wilson Family intends to take such other
actions as may be necessary to reduce its percentage interest to below 40% in
order to permit American Rental to qualify as a REIT.
After the Restructuring, IGC will continue to own certain assets that
in management's view do not fit ACPT's business plan. These include the Towne
Center land in St. Charles, Maryland, which has been the subject of the wetlands
litigation, certain single family home lots in the Dorchester neighborhood in
St. Charles, 14 acres of commercial land in St. Charles, certain land in
Pomfret, Maryland and St. Mary's County, Maryland, a 50% interest in a
partnership that owns land in Brandywine, Maryland, all of the shares of AFH,
rights to collect the principal balance of a note in the amount of $6.77 million
payable by a subsidiary of ACPT, as well as fractional interests in Chastleton
Apartment Associates, L.P. and Coachman's L.P. Substantially
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all of the common stock of IWT and CWT (excluding shares issued as incentive
compensation for employees) will be held in a trust for the benefit of IGC
Unitholders (the "CWT Trust"). Prior to contributing IWT and CWT stock to the
CWT Trust, IGC will capitalize these entities with $1 million cash, certain
residential lots in the Montclair development of Prince William County,
Virginia, and a note payable by a third party in the amount of $1.06 million.
Our goal is to place AFH, CWT and IWT on a sound financial footing so that they
can be sold or distributed to IGC Unitholders. The AMEX and the PSE have
advised that they will continue the listing of IGC Units following the
Restructuring.
We have scheduled a special meeting of the IGC Unitholders to vote on
the Restructuring. The special meeting will be held on _______, __________,
1998, at _____ a.m. (local time), at _______________________________
____________________________________________. The record date for IGC
Unitholders entitled to vote at the special meeting is __________, 1998. The
Restructuring cannot be completed without approval of the IGC Unitholders by a
vote of (i) the holders of a majority of the outstanding IGC Units, and (ii) a
majority of the IGC Units not held by the Wilson Family that are present and
voting at the meeting. The Restructuring also is contingent upon the management
of IGC determining that IGC will be classified as a partnership for federal
income tax purposes for 1998.
THE BOARD OF DIRECTORS OF INTERSTATE GENERAL MANAGEMENT CORPORATION,
IGC'S MANAGING GENERAL PARTNER, BY UNANIMOUS VOTE, HAS APPROVED THE
RESTRUCTURING AND RECOMMENDS THAT THE IGC UNITHOLDERS VOTE FOR APPROVING THE
RESTRUCTURING.
Whether or not you plan to attend the special meeting of IGC
Unitholders, please take the time to vote by completing and mailing the enclosed
proxy card to us. If you sign, date and mail your proxy card without indicating
how you want to vote, your proxy will be counted as a vote in favor of the
Restructuring. If you fail to return your card, your Units will not be voted on
the Restructuring proposal.
This Proxy Statement is first being mailed to IGC Unitholders on
__________, 1998. It provides you with detailed information about the proposed
Restructuring. It is a prospectus for the ACPT common shares and also a Proxy
Statement for the special meeting of IGC Unitholders. We encourage you to read
this entire document carefully.
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Sincerely,
James J. Wilson
Chairman and Chief
Executive Officer
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Subject to completion, July 10, 1998
Proxy Statement/Prospectus
Distribution of up to 5,250,000 Common Shares
of
American Community Properties Trust
to the
Unitholders of Interstate General Company L.P.
________________
This Proxy Statement/Prospectus relates to a proposal to transfer the
principal real estate assets and operations of Interstate General Company L.P.
("IGC") to American Community Properties Trust ("ACPT") and to distribute to the
partners of IGC, including holders (the "IGC Unitholders") of Class A Units of
IGC ("IGC Units"), all of the common shares of beneficial interest of ACPT (the
"Common Shares") (the "Restructuring"). ACPT was formed as a real estate
investment trust under Article 8 of the Maryland Corporations and Associations
Law (the "Maryland Trust Law") but is expected to be taxed as a partnership. At
a special meeting to be held on _______________, 1998, IGC Unitholders of record
on _______________ (the "Record Date") will have an opportunity to vote on the
Restructuring. If the Restructuring is approved, IGC Unitholders will not be
required to surrender their IGC Units or otherwise pay IGC anything to receive
the Common Shares.
ACPT has received preliminary approval for listing of the Common
Shares on the American Stock Exchange (the "AMEX") and the Pacific Stock
Exchange (the "PSE"). IGC Units will continue to be listed on AMEX and the PSE
following the Restructuring.
The Proxy Statement/Prospectus does not cover resales of ACPT Common
Shares received by IGC Unitholders in the Restructuring, and no person is
authorized to make use of this Proxy Statement/Prospectus in connection with any
such resale.
______________________________
SEE "RISK FACTORS" ON PAGE 42 FOR CERTAIN FACTORS RELEVANT TO THE
RESTRUCTURING AND INVESTMENT IN THE COMMON SHARES, INCLUDING:
. ABSENCE OF DISSENTERS' APPRAISAL RIGHTS; ALL IGC UNITHOLDERS WILL BE
BOUND BY THE VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING IGC
UNITS AND A MAJORITY OF THE VOTES CAST BY IGC UNITHOLDERS NOT
AFFILIATED WITH MEMBERS OF THE FAMILY OF JAMES J. WILSON (THE "WILSON
FAMILY").
<PAGE>
. MEMBERS OF THE WILSON FAMILY WILL BE ABLE TO EXERT SUBSTANTIAL CONTROL
OVER VOTES ON MATTERS AFFECTING ACPT THROUGH THEIR CONTROL OF CERTAIN
SHAREHOLDERS. IN ADDITION, ACPT IS SUBJECT TO OTHER CONFLICTS OF
INTEREST ARISING OUT OF ITS RELATIONSHIPS WITH CERTAIN SHAREHOLDERS,
MEMBERS OF MANAGEMENT, AND THEIR AFFILIATES. CERTAIN ACTIONS OR
DECISIONS BY THESE PARTIES MAY HAVE AN ADVERSE EFFECT ON THE INTERESTS
OF SHAREHOLDERS.
. THERE IS NO GUARANTEE THAT A PUBLIC MARKET FOR COMMON SHARES WILL
DEVELOP OR BE SUSTAINED AFTER THE DISTRIBUTION.
. IF IN RESPECT OF CLAIMS BY IGC CREDITORS, IT WERE TO BE DETERMINED
THAT THE DISTRIBUTION RENDERED IGC INSOLVENT OR OTHERWISE CONSTITUTED
A FRAUDULENT TRANSFER OR CONVEYANCE, IGC UNITHOLDERS WHO RECEIVE THE
DISTRIBUTION COULD BE REQUIRED TO RETURN THE COMMON SHARES (OR
EQUIVALENT AMOUNTS) TO IGC OR ITS CREDITORS.
. THE AGGREGATE PRICES AT WHICH THE COMMON SHARES AND IGC UNITS TRADE
AFTER THE DISTRIBUTION MAY BE LOWER THAN THE PRICES AT WHICH THE IGC
UNITS TRADED BEFORE THE DISTRIBUTION.
. THE RESTRUCTURING IS SUBJECT TO OBTAINING THE APPROVALS OF CERTAIN
GOVERNMENT ENTITIES, INCLUDING HUD, CERTAIN IGC LENDERS, AND CERTAIN
LIMITED PARTNER INVESTORS IN THE U.S. APARTMENT PARTNERSHIPS.
. AS A RESULT OF CERTAIN ASSET TRANSFERS PRIOR TO THE RESTRUCTURING,
APPROXIMATELY $6.1 MILLION IN GAIN WILL BE RECOGNIZED BY IGC. IGC
HAS DETERMINED THAT THIS GAIN WILL BE ALLOCATED SOLELY TO A
CORPORATION OWNED BY THE WILSON FAMILY. IF IGC'S ALLOCATION OF SUCH
GAIN IS SUCCESSFULLY CHALLENGED BY THE IRS, A PORTION OF SUCH GAIN MAY
BE ALLOCATED TO IGC UNITHOLDERS.
. THERE ARE SIGNIFICANT TAX ISSUES ASSOCIATED WITH THE REORGANIZATION
FOR WHICH DEFINITIVE GUIDELINES DO NOT EXIST. IF ONE OR MORE OF THESE
ISSUES IS ULTIMATELY DETERMINED CONTRARY TO THE OPINION OF COUNSEL, IT
WOULD RESULT IN INCREASED TAX AT ONE OR MORE ENTITY LEVELS WITHIN THE
ACPT STRUCTURE AND COULD MATERIALLY DECREASE AMOUNTS AVAILABLE FOR
DISTRIBUTION BY ACPT TO SHAREHOLDERS.
. THE BUSINESS OF ACPT WILL BE SUBJECT TO CERTAIN REAL ESTATE FINANCING
RISKS, INCLUDING RISING INTEREST RATES, DEBT FINANCING RISKS, RISKS
ASSOCIATED WITH FINANCING NEW DEVELOPMENTS THROUGH CONSTRUCTION LOANS,
AND RISKS ASSOCIATED WITH SALE AND FORECLOSURE.
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. THE BUSINESS OF ACPT WILL BE SUBJECT TO CERTAIN REAL ESTATE INVESTMENT
RISKS, INCLUDING OPERATING RISKS ASSOCIATED WITH REAL ESTATE,
DEVELOPMENT RISKS, SUCH AS ZONING APPROVALS, THE POTENTIAL APPLICATION
OF FEDERAL AND STATE ENVIRONMENTAL LAWS AND FEDERAL LAWS RELATING TO
DISABLED PERSONS, AND CHANGES IN TAX LAWS AND BUILDING SAFETY
REGULATIONS, AND COMPETITIVE RISKS FROM OTHER ENTITIES.
. ACPT'S U.S. AND PUERTO RICO APARTMENT PROPERTIES, AND ITS DEVELOPMENT
OF FUTURE PROJECTS, COULD BE ADVERSELY AFFECTED BY CHANGES IN
GOVERNMENT REGULATIONS THAT RESTRICT SUBSIDY PROGRAMS FOR NEW
CONSTRUCTION OF LOW AND MODERATE INCOME HOUSING BY DEVELOPERS SUCH AS
ACPT.
. THE TRANSFERABILITY AND OWNERSHIP OF ACPT COMMON SHARES WILL BE
RESTRICTED INSOFAR AS NO SHAREHOLDER (OTHER THAN CERTAIN CURRENT IGC
UNITHOLDERS) MAY OWN MORE THAN 2% OF THE OUTSTANDING COMMON SHARES.
. OTHER PROVISIONS IN ACPT'S ORGANIZATIONAL DOCUMENTS MAY HAVE THE
EFFECT OF DISCOURAGING A CHANGE IN CONTROL.
____________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
____________________________
The date of this Proxy Statement/Prospectus is _______________, 1998.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN OR INCORPORATED BY REFERENCE INTO
THIS PROXY STATEMENT/PROSPECTUS IN CONNECTION WITH THE OFFERING OF SECURITIES
MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ACPT OR IGC. NEITHER THE DELIVERY
OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THE COMMON SHARES
OFFERED HEREBY SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF ACPT OR IGC SINCE THE DATE HEREOF OR THAT
THE INFORMATION SET FORTH OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE. THIS PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY
SECURITIES IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER.
AVAILABLE INFORMATION
IGC is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports and other information filed by IGC can
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices at Seven World Trade Center, 13th Floor, New York,
New York 10048 and CitiCorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60621-2511. Copies of such material can be obtained by mail
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such reports and other information
may also be obtained from the web site that the Commission maintains at
http://www.sec.gov. In addition, reports and other information concerning IGC
may be inspected at the offices of the American Stock Exchange, Inc., 86 Trinity
Place, New York, New York 10006-1829.
Reports and other information concerning IGC may also be obtained
electronically through a variety of databases, including, among others, the
Commission's Electronic Data Gathering and Retrieval ("EDGAR") program, Knight-
Ridder Information Inc., Federal Filing/Dow Jones and Lexis/Nexis.
ACPT has filed with the Commission a Registration Statement on Form S-
4 (together with all amendments, supplements and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities
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Act"), with respect to the Common Shares to be issued pursuant to the
Restructuring. This Proxy Statement/Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which have
been omitted in accordance with the rules and regulations of the Commission.
For further information, reference is hereby made to the Registration Statement.
Any statements contained herein concerning the provisions of any document filed
as an exhibit to the Registration Statement or otherwise filed with the
Commission are not necessarily complete, and in each instance reference is made
to the copy of such document so filed. Each such statement is qualified in its
entirety by such reference.
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Table of Contents
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Available Information............................................................................. 4
Summary........................................................................................... 16
Overview..................................................................................... 16
Organizational Charts........................................................................ 17
Summary Risk Factors......................................................................... 22
Recommendation of the Board of Directors of IGMC............................................. 25
The Special Meeting.......................................................................... 26
Principal Advantages of the Restructuring.................................................... 27
Broader Market for Common Shares than for IGC Units.................................... 27
No History of Wetlands Litigation...................................................... 27
No Adverse Financial Effects from AFH, IWT, and CWT.................................... 27
Simplified Tax Reporting............................................................... 27
Enhanced Financing Opportunities....................................................... 28
Election of Trustees by Shareholders................................................... 28
Principal Disadvantages of the Restructuring................................................. 28
No Cash Distributions to IGC Unitholders............................................... 28
Tax Liabilities........................................................................ 28
Reduction of Required Distributions.................................................... 29
Antitakeover Effects................................................................... 29
Restrictions on Accumulation of Common Shares.......................................... 30
Mechanics of the Restructuring............................................................... 30
The Asset Transfers.................................................................... 30
The Distribution....................................................................... 31
Assets Retained by IGC................................................................. 32
Appraisals................................................................................... 32
Properties Retained by IGC............................................................. 32
Properties Transferred to ACPT......................................................... 32
Background of the Restructuring; Consideration of Alternatives............................... 33
Benefits to Insiders......................................................................... 34
The Private Offering......................................................................... 35
No Dissenters' Appraisal Rights.............................................................. 36
Conflicts of Interest........................................................................ 36
Tax Consequences of the Restructuring for U.S. Unitholders and Shareholders.................. 36
Tax Consequences of the Restructuring for Puerto Rico Unitholders
and Shareholders............................................................................ 37
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Comparison of Operations of ACPT and IGC..................................................... 37
Comparative Rights of IGC Unitholders and Shareholders....................................... 38
Summary Combined Historical and Pro Forma Financial and Operating Data....................... 40
Risk Factors...................................................................................... 42
Restructuring Risks.......................................................................... 42
No Dissenters' Appraisal Rights........................................................ 42
Control of ACPT........................................................................ 42
Conflicts of Interest.................................................................. 42
Absence of Existing Trading Market for Common Shares................................... 43
Change in Value of Securities; Trading Price Less than Net Asset
Value................................................................................. 43
Antitakeover Effects................................................................... 43
Ownership Limitation................................................................... 44
Potential Effects of Issuance of Additional Shares..................................... 44
Dependence on Key Personnel; Withdrawal of James J. Wilson
from Management....................................................................... 45
Change in the Rights of IGC Unitholders................................................ 45
Possible Adverse Effect of Market Interest Rates on Price of
Common Shares......................................................................... 45
Approvals Required to Effect the Restructuring......................................... 46
Potential Return of ACPT Shares........................................................ 46
Real Estate Financing Risks.................................................................. 46
Rising Interest Rates.................................................................. 46
Debt Financing and Potential Adverse Effects on Cash Flows and
Distributions......................................................................... 47
Construction Loans and Risks Associated with Sale or Foreclosure....................... 47
Changes in Policies Without Shareholder Approval....................................... 47
Real Estate Investment Risks................................................................. 48
General Risks.......................................................................... 48
Operating Risks........................................................................ 49
Development of St. Charles............................................................. 50
Litigation Involving St. Charles Development........................................... 50
Termination of HUD Subsidy Contracts; New Apartment Development........................ 51
Competition............................................................................ 52
Possible Environmental Liabilities..................................................... 52
Effect of Americans with Disabilities Act Compliance on
Cash Flow and Distribution............................................................ 53
Change in Tax Laws; Building Safety Regulations........................................ 54
Uninsured Loss......................................................................... 54
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Risks Involved in Property Ownership Through Partnerships,
Limited Liability Companies, and Joint Ventures....................................... 54
Risks Associated with Illiquidity of Real Estate....................................... 55
Risks Associated with Acquisition, Development and
Construction.......................................................................... 55
Tax Related Risks............................................................................ 56
Gain Recognized on Asset Transfers..................................................... 56
Risk of Gain and Reduced Distributions if IGC is not
Classified as a Partnership........................................................... 57
Corporate Level Taxes Reduce Amounts Available
for Distribution...................................................................... 58
Reduced Distributions and Share Value if American Rental
does not Qualify as a REIT............................................................ 59
Reduced Distributions and Loss of Tax Credits Upon
Reclassification of IGP Group......................................................... 60
Possible Tax Liabilities in Excess of Cash Distributions............................... 61
Reduced Dividends and Share Value if ACPT is not
Classified as a Partnership........................................................... 61
Limitations on Availability of Foreign Tax Credits..................................... 62
Sale by ACPT of Subsidiary Entities Could Affect
Fungibility and Value of Shares....................................................... 62
Guidance on Recent Changes in Law and Legislative Proposals
May Have Adverse Consequences......................................................... 62
The Special Meeting............................................................................... 63
Matters Presented for Vote................................................................... 63
Recommendation of the Board of Directors of IGMC............................................. 63
IGC Units Eligible to Vote on the Restructuring.............................................. 64
Required Vote................................................................................ 64
Broker Non-Votes and Abstentions............................................................. 65
Proxies...................................................................................... 65
Revocation of Proxies........................................................................ 65
Solicitations by IGC Management.............................................................. 66
No Dissenters' Appraisal Rights.............................................................. 66
The Restructuring................................................................................. 66
Reasons for the Restructuring................................................................ 66
The Asset Transfers.......................................................................... 66
American Rental........................................................................ 67
American Management.................................................................... 67
American Land.......................................................................... 67
IGP Group.............................................................................. 68
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
The Distribution............................................................................. 69
Relationship between IGC and ACPT after the Distribution..................................... 70
No Overlapping Management.............................................................. 70
Banc One Financing..................................................................... 70
NationsBank Letter of Credit........................................................... 71
Assets Retained by IGC....................................................................... 72
Approvals Required to Effect the Restructuring............................................... 72
Background of the Restructuring; Consideration of Alternatives............................... 72
Disadvantages of Current Structure..................................................... 72
Alternatives Considered................................................................ 72
The Private Offering......................................................................... 75
Principal Advantages of the Restructuring.................................................... 76
Broader Market for Common Shares than for IGC Units.................................... 76
No History of Wetlands Litigation...................................................... 76
No Adverse Financial Effects from AFH, IWT and CWT..................................... 76
Simplified Tax Reporting............................................................... 77
Enhanced Financing Opportunities....................................................... 77
Election of Trustees by Shareholders................................................... 77
Principal Disadvantages of the Restructuring................................................. 77
No Cash Distributions to IGC Unitholders............................................... 77
Tax Liabilities........................................................................ 78
Reduction of Required Distributions.................................................... 78
Antitakeover Effects................................................................... 79
Restrictions on Accumulation of Common Shares.......................................... 79
ACPT Pro Forma Combined Financial Data............................................................ 80
ACPT.............................................................................................. 86
Distribution Policy............................................................................... 86
Capitalization.................................................................................... 87
Market Prices and Distributions................................................................... 87
Selected Combined Historical Financial and Operating Data of American
Community Portfolio Properties.................................................................. 89
Management's Discussion and Analysis of Results of Operations and
Financial Condition.............................................................................. 91
General...................................................................................... 91
Results of Operations........................................................................ 91
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
For the Three Months Ended March 31, 1998 and 1997........................................... 91
Community Development Operations............................................................. 91
Rental Property Revenues, Net of Operating Expenses.......................................... 92
Equity in Earnings from Partnerships and Developer Fees...................................... 92
Management and Other Fees.................................................................... 92
Interest Expense............................................................................. 92
General and Administrative Expense........................................................... 92
Spin-Off Costs............................................................................... 93
For the Years Ended December 31, 1997 and 1996............................................... 93
Community Development Operations....................................................... 93
Rental Property Revenues, Net of Operating Expenses.................................... 93
Equity in Earnings from Partnerships and Developer Fees................................ 93
Management and Other Fees.............................................................. 93
Interest Expense....................................................................... 94
General and Administrative Expense..................................................... 94
Spin-Off Costs......................................................................... 94
For the Years Ended December 31, 1996 and 1995............................................... 94
Community Development Operations....................................................... 94
Rental Property Revenues Net of Operating Expenses..................................... 94
Equity in Earnings from Partnerships and Developer Fees................................ 95
Management and Other Fees.............................................................. 95
Interest Expense....................................................................... 95
General and Administrative Expense..................................................... 95
Liquidity and Capital Resources.............................................................. 95
Debt Summary................................................................................. 96
Material Negative Debt Covenants............................................................. 98
Year 2000.................................................................................... 98
Forward-Looking Statements................................................................... 99
Business and Properties of ACPT................................................................... 99
Rental Apartment Properties.................................................................. 99
United States.......................................................................... 99
Puerto Rico............................................................................ 102
Government Regulation.................................................................. 104
Competition............................................................................ 105
Condominium Conversion....................................................................... 105
Puerto Rico............................................................................ 105
United States.......................................................................... 106
Community Development........................................................................ 106
St. Charles............................................................................ 106
Government Approvals............................................................... 108
Competition........................................................................ 108
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
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Environmental Impact............................................................... 108
Parque Escorial........................................................................ 109
Government Approvals............................................................... 109
Competition........................................................................ 109
Environmental Impact............................................................... 110
Commercial Rental Properties................................................................. 110
Property Management.......................................................................... 110
Homebuilding in Puerto Rico.................................................................. 111
Policies with Respect to Certain Activities.................................................. 111
Investment Policies.................................................................... 112
Investment in Real Estate or Interests in Real Estate.............................. 112
Investment in Real Estate Mortgages................................................ 112
Securities of or Interests in Persons Primarily Engaged in
Real Estate Activities and Other Issuers.......................................... 112
Affiliate Transaction Policy........................................................... 112
Certain Other Policies................................................................. 113
Appraisals........................................................................................ 113
Properties Transferred to ACPT............................................................... 113
Parque Escorial Planned Community, San Juan/Carolina, Puerto Rico...................... 113
Canovanas Property, Canovanas, Puerto Rico............................................. 114
Smallwood Village, Westlake Village, Wooded Glen, and Piney
Reach of the St. Charles Planned Unit Development
and Surrounding Environs, St. Charles, MD............................................. 114
Fairway Village (Residential), St. Charles, MD......................................... 115
Fairway Village (Commercial), St. Charles, MD.......................................... 116
Properties Retained by IGC................................................................... 116
Brandywine Village, Brandywine, MD..................................................... 116
Southlake at Montclair Subdivisions Section S-4, Dumfries, VA.......................... 116
Westbury, Phase II Section I, Lexington Park, MD....................................... 117
Pomfret Property, Waldorf, MD.......................................................... 117
Parcels A-3 & A-4, Westlake Village, St Charles, MD.................................... 118
26 Single Family Lots, Dorchester Village, St. Charles, MD............................. 118
General...................................................................................... 118
Legal Proceedings................................................................................. 119
ACPT......................................................................................... 119
IGC.......................................................................................... 119
Wetlands Litigation.................................................................... 119
Other Litigation....................................................................... 120
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
IGC Consolidated Financial Data................................................................... 121
IGC After the Restructuring....................................................................... 130
No Change in Partnership Structure........................................................... 130
Management of IGC............................................................................ 130
Description of IGC's Continuing Business..................................................... 130
Real Estate Development................................................................ 131
Brandywine......................................................................... 131
Pomfret............................................................................ 131
Westbury........................................................................... 131
St. Charles Commercial Land........................................................ 132
Dorchester......................................................................... 132
Wetlands Properties................................................................ 132
Interstate Waste Technologies; CWT Trust............................................... 132
American Family Homes.................................................................. 132
Listing of IGC Units......................................................................... 133
Creditors Rights............................................................................. 133
Management of ACPT................................................................................ 134
ACPT Board of Trustees....................................................................... 134
ACPT Trustees and Executive Officers......................................................... 134
Committees of the ACPT Board of Trustees..................................................... 136
Audit Committee........................................................................ 137
Compensation Committee................................................................. 137
Nominating Committee................................................................... 137
Compensation of ACPT Trustees................................................................ 137
Executive Compensation....................................................................... 137
Employment Agreements........................................................................ 138
Share Incentive Plans........................................................................ 139
Employee Plan.......................................................................... 139
Trustees Plan.......................................................................... 139
Treatment of IGC Options and Unit Appreciation Rights........................................ 140
Retirement Plans............................................................................. 140
Ownership of Common Shares........................................................................ 141
Transactions with Related Parties................................................................. 143
Staggered Transfer of Partnership Interests to American Housing.............................. 143
Consulting Agreement......................................................................... 144
Banc One Financing........................................................................... 144
Joint Litigation with Charles County......................................................... 145
Services of Whitman, Requardt................................................................ 145
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
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NationsBank Letter of Credit................................................................. 146
Payments to IBC for Services Provided by J. Michael Wilson................................... 146
Land Sale to IBC Affiliate................................................................... 146
Sale of Management Fee Receivables........................................................... 146
Receivables from Land Sales to Former Director............................................... 146
Apartment Management Services................................................................ 147
LDA Receivable............................................................................... 147
Income Tax Considerations......................................................................... 147
Federal Income Tax Considerations............................................................ 147
Federal Income Tax Classification of IGC............................................... 149
Federal Income Tax Classification of ACPT.............................................. 153
Counsel's Opinion of Federal Income Tax Classification of ACPT..................... 156
Federal Income Tax Classification of American Rental................................... 157
REIT Qualification................................................................. 157
General REIT Qualification Requirements, Ownership
Structure, and Stapled Stock Rules................................................ 158
Share Ownership, Reporting......................................................... 160
Sources of Gross Income............................................................ 163
75% Gross Income Test.............................................................. 164
95% Gross Income Test.............................................................. 166
Failing the 75% or 95% Tests; Reasonable Cause..................................... 166
Character of Assets Owned.......................................................... 166
Annual Distributions to Shareholders............................................... 167
Taxation of American Rental as a REIT.............................................. 169
Failure to Qualify as a REIT....................................................... 170
Counsel's Opinion Relating to Qualification of American Rental as a REIT........... 171
Federal Income Tax Classification of American Housing and
American Housing Management Company.................................................... 174
Federal Income Tax Classification of American Land and American Management.............. 174
Federal Income Tax Classification of IGP Group.......................................... 175
Certain Tax Consequences of the Asset Transfers......................................... 175
Federal Income Tax Consequences of the Distribution..................................... 178
Federal Income Taxation of ACPT and Shareholders........................................ 179
General............................................................................ 179
Tax Basis of Common Shares......................................................... 179
Income and Loss Allocations........................................................ 180
Coordination of Allocations and Distributions..................................... 181
Section 704(c) Allocations......................................................... 181
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
Section 754 Election............................................................... 182
Passive Loss and Income............................................................ 182
Taxation of Foreign Investors...................................................... 182
Taxation of Shareholder Distributions Other than in
Liquidation....................................................................... 182
Foreign Tax Credit................................................................. 183
Termination of ACPT for Tax Purposes............................................... 185
Backup Withholding................................................................. 186
Sale or Exchange of Common Shares.................................................. 186
Dissolution of ACPT................................................................ 187
Puerto Rico Shareholders........................................................... 188
Certain Federal Income Tax Consequences to Tax Exempt Organizations................ 190
Information Return Filing Requirements............................................. 190
Electing Large Partnerships........................................................ 191
Audit of Partnership Tax Returns and Further Proceedings........................... 191
Penalty for Substantial Understatement; Deduction of
Interest.......................................................................... 192
Certain State Income Tax and Puerto Rico Income Tax Considerations................................ 192
Certain State Tax Considerations............................................................. 193
Certain Puerto Rico Income Tax Considerations................................................ 193
Puerto Rico Income Tax Classification of ACPT and IGP Group............................ 194
Puerto Rico Income Taxation of the Distribution........................................ 195
United States Shareholders......................................................... 195
Puerto Rico Shareholders........................................................... 195
Puerto Rico Income Taxation of ACPT.................................................... 196
Puerto Rico Income Taxation of IGP Group............................................... 196
Puerto Rico Counsel's Opinions of Puerto Rico Taxation of ACPT
and IGP Group......................................................................... 197
Certain Puerto Rico Income Tax Consequences to Shareholders............................ 197
United States Shareholders......................................................... 197
Puerto Rico Shareholders........................................................... 198
Description of Shares of Beneficial Interest...................................................... 198
General...................................................................................... 198
Common Shares................................................................................ 199
Preferred Shares............................................................................. 200
Transfer Agent............................................................................... 200
Certain Provisions of Maryland Law and of ACPT's Declaration of Trust and Bylaws.................. 200
Classification of the Board of Trustees...................................................... 200
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C>
Independent Trustees......................................................................... 201
Removal of Trustees.......................................................................... 201
Required Minimum Distributions............................................................... 201
Supermajority Voting......................................................................... 202
Business Combinations........................................................................ 202
Control Share Acquisitions................................................................... 203
Amendment of Declaration of Trust and Bylaws................................................. 204
Limitation of Liability and Indemnification.................................................. 204
Dissolution of ACPT.......................................................................... 205
Possible Antitakeover Effect of Certain Provisions of Maryland Law
and of the Declaration of Trust and Bylaws.................................................. 205
Maryland Asset Requirements.................................................................. 206
Comparative Rights of IGC Unitholders and Shareholders............................................ 206
General...................................................................................... 206
Management................................................................................... 206
Required Minimum Distributions............................................................... 207
Voting Rights................................................................................ 207
Meetings..................................................................................... 207
Amendment of Declaration of Trust, Bylaws and Partnership Agreement.......................... 208
Limited Liability............................................................................ 208
Dissolution of the Partnership and ACPT...................................................... 208
Liquidation Rights........................................................................... 209
Limitations of Liability of General Partners and Trustees.................................... 209
Indemnification.............................................................................. 209
Ownership Limitations........................................................................ 209
Legal Matters..................................................................................... 210
Experts........................................................................................... 210
Reports to Shareholders........................................................................... 210
Glossary.......................................................................................... 212
Financial Statements.............................................................................. F-1
Schedule III...................................................................................... S-1
</TABLE>
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<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere
in this Proxy Statement/Prospectus. Reference is made to, and this Summary is
qualified in its entirety by, the more detailed information contained elsewhere
in this Proxy Statement/Prospectus. As used in this Proxy Statement/Prospectus,
the term "IGC" means Interstate General Company L.P., a Delaware limited
partnership, the term "ACPT" means American Community Properties Trust, a
Maryland investment trust, the term "IGMC" means Interstate General Management
Corporation, a Delaware corporation, and the managing general partner of IGC,
the term "IBC" means Interstate Business Corporation, a Delaware corporation and
a general partner of IGC. Unless otherwise defined herein, capitalized terms
used in this Summary have the meanings ascribed to them elsewhere in this Proxy
Statement/Prospectus. IGC Unitholders are urged to read this Proxy
Statement/Prospectus in its entirety.
OVERVIEW
This Proxy Statement/Prospectus relates to a proposal to transfer the
principal real estate operations and assets of IGC to ACPT and to distribute to
the partners of IGC, including the IGC Unitholders, all of the Common Shares of
ACPT. ACPT was organized in March 1997 for purposes of consummating the
Restructuring and currently is a wholly-owned subsidiary of IGC. Prior to
completion of the Asset Transfers (as described below), ACPT will own no assets.
ACPT was formed as a real estate investment trust under Article 8 of the
Maryland Trust Law but is expected to be taxed as a partnership. Under the
Maryland Trust Law, at least 75% of the value of ACPT's assets must be held,
directly or indirectly, in real estate assets, mortgages and mortgage related
securities, government securities, and cash and cash equivalent items.
The purpose of these transactions is to create an investment vehicle
whose principal income is dividends from corporations engaged principally in
real estate businesses. This should be a more attractive investment for pension
funds and mutual funds than is IGC as a master limited partnership engaged in
both real estate and non real estate businesses. ACPT will not have any
operating income. Management expects that ACPT will have greater access to
capital markets than IGC has had.
In addition, ACPT will not be burdened with the operating losses and
capital needs of American Family Homes, LLC ("AFH"), the capital needs of
Interstate Waste Technologies, Inc. ("IWT") and Caribe Waste Technologies, Inc.
("CWT") or the parcels of land encumbered by the IGC wetlands litigation. All
of these assets will be retained by IGC. See "The Restructuring -- Reasons for
the Restructuring." The contemplated transactions include (i) the transfer to
ACPT of substantially all of IGC's U.S. community development assets, investment
apartment property, and property
-16-
<PAGE>
management services assets, its similar assets in Puerto Rico and its Puerto
Rico homebuilding operations (the "Asset Transfers"), and (ii) the distribution
of all of the Common Shares of ACPT to the partners of IGC, including the IGC
Unitholders (the "Distribution"). These transactions are sometimes collectively
referred to herein as the "Restructuring."
In addition, in connection with the Restructuring, and subject to
market conditions, ACPT will seek to raise up to $35 million in additional
equity capital through a private offering of preferred shares (the "Private
Offering"). See "The Restructuring -- The Private Offering."
ORGANIZATIONAL CHARTS.
The following organizational charts graphically depict the
transactions constituting the Restructuring.
-17-
<PAGE>
IGC PRIOR TO THE RESTRUCTURING
The following chart depicts the organizational structure of IGC and
its subsidiaries immediately prior to the Restructuring. St. Charles Operating
Co. LLC owns the Wetlands Properties, including the Towne Center South land, and
IGC directly holds the Westbury and Montclair land.
[CHART APPEARS HERE AS DESCRIBED BELOW]
IGC, which is 99%/1/ owned by limited partners and 1% owned by IBC and IGMC,
owns:
(a) 100%/2/ of IGP, which in turn owns
(i) 50%/3/ of Escorial Builders
(ii) 1%/4/ of El Monte
(iii) 80%/5/ of LDA
(iv) 9 Puerto Rico Apartment Partnerships (in which unaffiliated
investor limited partners also own interests)/6/
-
(b) 100% of St. Charles Operating Co. LLC
(c) 99%/7/ of SCA, which in turn owns 50%/8/ of Brandywine
-
(d) 100% of Pomfret LLC
________________________
/1/ Includes Wilson Family 52% ownership interest, of which 29.75% is
-
attributable to IBC and 11.32% to Wilson Securities Corporation.
/2/ James J. Wilson is a general partner without a percentage interest in IGP
-
and is entitled to certain preferential distributions therefrom.
/3/ Remaining 50% interest owned by VMV Enterprises Corporation, an unrelated
-
third party.
/4/ Remaining 99% interest owned by IBC.
-
/5/ Remaining 20% interest owned by Supra & Co., S.E., an unrelated third
-
party.
/6/ IGP liquidation percentage interest in the 12 apartment facilities owned by
-
the 9 Puerto Rico Apartment Partnerships as follows: 1) San Anton - 49.5%; 2)
Monserrate - 52.5%; 3) Alturas del Senorial - 50%; 4) Jardines de Caparra - 50%;
5) Colinas de San Juan - 50%; 6) Bayamon Gardens - 50%; 7) Vistas del Jurabo -
50%; 8) Monserrate II - 50%; 9) Santa Juana - 50%; 10) Torre De La Cumbres -
50%; 11) De Diego - 50%; and 12) Valle del Sol - 50%.
/7/ Remaining 1% interest owned by IBC.
-
/8/ Remaining 50% interest owned by JCP Realty, Inc., Simon DeBartolo, and
-
Montgomery Ward & Co., unrelated third parties.
-18-
<PAGE>
(e) 13 US Apartment Partnerships (in which unaffiliated investor
limited partners also own interests)/9/
-
(f) .02% of Chastleton/10/
--
(g) 41.0345% of Maryland Cable/11/
--
(h) 100% of AFH
(i) 100% of IWT
(j) 100% of IWT
(k) 100% of St. Charles Community LLC
(l) .1% of Coachman's/12/
--
(m) 100% of American Management
[END OF CHART]
/9/ IGC liquidation percentage interest in U.S. Apartment Partnerships as
-
follows: 1) Bannister Associates - 60%; 2) Brookside Gardens - 1%; 3) Crossland
Associates - 60%; 4) Fox Chase Apartments - 99.9%; 5) Headen House Associates -
75.5%; 6) Huntington Associates - 50%; 7) Lakeside Apartments - 50%; 8) New
Forest Apartments - 99.9%; 9) Palmer Apartment Associates - 75.5%; 10) Wakefield
Terrace Associates - 75.5%; 11) Wakefield Third Age Associates - 75.5%; 12)
Essex Apartment Associates - 50%; and 13) Lancaster Apartments - 50%.
/10/ Remaining 99.98% interest owned by IBC.
--
/11/ Remaining 58.97% interest distributed among 68 unrelated third party
--
limited partners.
/12/ Remaining 99.99% interest owned by IBC.
--
-19-
<PAGE>
ACPT FOLLOWING THE RESTRUCTURING
The following chart depicts the organizational structure of ACPT and
its subsidiaries following completion of the Restructuring.
[CHART APPEARS HERE AS DESCRIBED BELOW]
ACPT, which is 100%/1/ owned by ACPT Shareholders, will own:
-
(a) 100%/2/ of American Rental/6/ (in which 200 preferred
- -
shareholders also will have interests), which in turn will own:
(i) 99% of American Housing,/6/ which will own interests in the US
-
Apartment Partnerships (in which unaffiliated investor limited
partners also will own interests)
(ii) 100% of American Housing Management Company,/6/ which will own
-
1% of American Housing
(b) 100% of American Management
(c) 100% of American Land,/6/ which in turn will own:
-
(i) 100% of St. Charles Community LLC
(ii) 41.0345%/3/ of Maryland Cable
-
(iii) Class B/4/ interest in IGP
-
(d) 100% of IGP Group,/6/ which will own the Class A/4/ interest in
- -
IGP, which in turn will own:
(i) 80%/3//7/ of LDA
- -
(ii) 1%/3/ of El Monte
-
(iii) 50%/3/ of Escorial Builders
-
(iv) the Puerto Rico Apartment Partnerships/5/ (in which
-
unaffiliated investor limited partners also will own interests)
[END OF CHART]
_______________________
/1/ Includes 52% Wilson Family interest immediately following the
-
Distribution, of which 29.75% is attributable to IBC and 11.32% to Wilson
Securities Corporation.
/1/ ACPT holds all of the common shares of American Rental. To meet REIT
-
qualification requirements, 10% cumulative preferred shares with an aggregate
par value of approximately $200,000 will be issued to employees of American
Management and IGP Group.
/3/ For owners of remaining interests in Maryland Cable, LDA, El Monte, and
-
Escorial Builders, see footnotes 11, 5, 4 and 3 of "Organizational Charts -- IGC
Prior to the Restructuring."
/4/ ACPT indirectly, through American Land and IGP Group, owns 100% of IGP.
-
The Class A interest represents all of the interests in IGP other than the Class
B interest, which represents all of IGP's rights to income, gains, and losses
associated with land in Puerto Rico held by LDA that is currently designated for
development as saleable property.
/5/ See footnotes 9 and 6 "Organizational Charts -- IGC Prior to
-
Restructuring" for liquidation percentage interests in the U.S. and Puerto Rico
Apartment Partnerships.
/6/ ACPT subsidiary created in connection with the Restructuring.
-
/7/ On June 25, 1998, LDA exercised its right to acquire the 20% interest in
-
LDA owned by an unrelated third party at a purchase price of $5.5 million to be
fully paid in cash on or before July 25, 1998. Following the purchase, IGP will
own 100% of LDA.
-20-
<PAGE>
IGC FOLLOWING THE RESTRUCTURING
The following chart depicts the organizational structure of IGC and its
subsidiaries immediately following the Restructuring. St. Charles Operating Co.
LLC will continue to own the Wetlands Properties, including the Towne Center
South land, and IGC will directly hold the Westbury land.
[CHART APPEARS HERE AS DESCRIBED BELOW]
IGC, which will be 99%/1/ owned by limited partners and 1% owned by IBC and
-
IGMC, will own:
(a) .1%/2/ of Coachman's
-
(b) .02%/3/ of Chastleton
-
(c) 99%/4/ of SCA, which in turn owns 50%/5/ of Brandywine
- -
(d) 100% of St. Charles Operating Co. LLC
(e) 100% of AFH
(f) 100% of Pomfret LLC
(g) 100%/6/ of the CWT Trust, which in turn owns 100% of IWT and CWT
[END OF CHART]
___________________
/1/ Includes 52% Wilson Family ownership interest, of which 29.75% is
-
attributable to IBC and 11.32% to Wilson Securities Corporation.
/2/ Remaining 99.99% interest owned by IBC.
-
/3/ Remaining 99.98% interest owned by IBC.
-
/4/ Remaining 1% interest owned by IBC.
-
/5/ Remaining 50% interest owned by JCP Realty, Inc., Simon DeBartolo, and
-
Montgomery Ward & Co., unrelated third parties.
/6/ Held for the benefit of IGC Unitholders. IGC will exercise no management
-
control over the CWT Trust, CWT, or IWT.
-21-
<PAGE>
SUMMARY RISK FACTORS.
Restructuring Risks.
-------------------
. Absence of dissenters' appraisal rights; all IGC Unitholders will be
bound by the vote of the holders of a majority of the outstanding IGC
Units and a majority of the votes cast by IGC Unitholders not
affiliated with the Wilson Family.
. Members of the Wilson Family will be able to exert substantial control
over votes on matters affecting ACPT through their control of certain
of the Shareholders and the Wilson Family beneficially owns a majority
of the IGC Units. ACPT is subject to various conflicts of interest
arising out of its relationships with the Wilson Family and their
affiliates including land sales, property management services, office
leases and administrative services. Certain actions or decisions by
these parties may have an adverse effect on the interests of
Shareholders.
. There is no guarantee that a public market for Common Shares will
develop or be sustained after the Distribution.
. The aggregate prices at which the Common Shares and IGC Units trade
after the Distribution may be lower than the prices at which the IGC
Units traded before the Distribution. In addition, it is likely that
the Common Shares will trade at a price substantially lower than the
$21.55 net asset value per share, as of March 31, 1998, determined by
management based on appraisals of land assets and valuations of
interests in apartment properties, management contracts and other
assets.
. The transferability and ownership of ACPT Common Shares will be
restricted insofar as no Shareholder (other than certain current IGC
Unitholders) may own more than 2% of the outstanding Common Shares.
. Other provisions in ACPT's organizational documents may have the
effect of discouraging a change in control.
. ACPT is dependent on the efforts of its executive officers, and the
loss of their services could have an adverse effect on the operations
of ACPT.
. Increases in market interest rates may lead prospective purchasers of
the Common Shares to disinvest in ACPT in favor of higher yielding
investments. Such disinvestment may adversely affect the market price
of Common Shares.
-22-
<PAGE>
. The Restructuring is subject to obtaining the approvals of certain
government entities, including HUD, certain IGC lenders, and a
majority of limited partners in four of the U.S. Apartment
Partnerships.
. If in respect of claims by IGC creditors, it were to be determined
that the Distribution rendered IGC insolvent or otherwise constituted
a fraudulent transfer or conveyance, IGC Unitholders who receive the
Distribution could be required to return the Common Shares (or
equivalent amounts) to IGC or its creditors.
Real Estate Financing Risks.
---------------------------
. The business of ACPT will be subject to certain real estate financing
risks, including rising interest rates, debt financing risks, and
risks associated with financing new developments through construction
loans.
Real Estate Investment Risks.
----------------------------
. The business of ACPT will be subject to certain real estate investment
risks, including operating risks associated with real estate,
development risks, such as zoning approvals, the potential application
of federal and state environmental laws and federal laws relating to
disabled persons, and changes in tax laws and building safety
regulations, and competitive risks from other entities.
. ACPT's U.S. and Puerto Rico apartment properties, and its development
of future projects, could be adversely affected by changes in
government regulations that restrict subsidy programs for new
construction of low and moderate income housing by developers such as
ACPT.
. ACPT may not be able to obtain insurance coverage with respect to
certain perils, such as hurricanes, wars, and earthquakes. Should an
uninsured loss arise, ACPT could lose both its capital invested in a
property, as well as anticipated future revenue.
. Risks associated with illiquidity of real estate, and risks associated
with the acquisition, development and construction may adversely
affect ACPT's profitability.
Tax Related Risks.
-----------------
. IGC has calculated that approximately $6.1 million in gain will be
recognized as a result of the transfer of IGC's interest in the U.S.
Apartment Partnerships to American Housing and on the transfer of the
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Class A interest in IGP to IGP Group. IGC has determined that this
gain is attributable to appreciation in the assets contributed by IBC
upon the formation of IGC and therefore all of such gain will be
allocated solely to IBC. If IGC's calculation or allocation of such
gain is successfully challenged by the IRS, a portion of such gain may
instead be allocated to Unitholders other than IBC.
. In connection with certain transfers made to preserve IGC's
partnership tax status, Shareholders may take a lower tax basis in the
Common Shares than if such transfer had not taken place.
. If ACPT's subsidiary American Rental fails to qualify as a REIT in any
taxable year, it will be taxed as a corporation and therefore subject
to federal income tax at regular corporate rates (the current maximum
rate is 35%) on its taxable income.
. If IGP Group fails to qualify as a special partnership and instead is
treated as a corporation for Puerto Rico income tax purposes it would
be subject to Puerto Rico income tax on its income (at a 29% rate),
and ACPT and the Shareholders would not be allowed a deduction or
credit for taxes paid with respect to Puerto Rico source income of IGP
Group.
. If ACPT is deemed engaged in a trade or business in Puerto Rico it
will be subject to Puerto Rico tax on its income from Puerto Rico
source income effectively connected with its Puerto Rico trade or
business.
. If ACPT were to be classified as an association taxable as a
corporation for any year, ACPT would be taxable on its profits at the
applicable corporate rate (the current maximum rate is 35%),
distributions to Shareholders generally would be taxable as dividends
and non-corporate Shareholders would not be eligible for foreign tax
deductions or credits with respect to Puerto Rico taxes paid by ACPT.
. For the first quarter of 1998, less than 90% of IGC's gross income
constituted "qualifying income" for purposes of preserving IGC's
status as a partnership for tax purposes. IGC intends to take steps
to either increase "qualifying income" or decrease nonqualifying
income to allow IGC to meet the "90% qualifying income" test for 1998.
If IGC were treated as a corporation as of January 1, 1998, IGC would
recognize gain (and the Unitholders would recognize their share
thereof) to the extent that IGC's liabilities exceed the tax basis of
its assets on such date, and the Unitholders would recognize gain to
the extent that money is deemed distributed to a Unitholder in excess
of the Unitholder's tax basis. In addition, the Distribution would be
taxable to IGC to the extent that the
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<PAGE>
fair market value of the Common Shares exceeds IGC's tax basis in such
Common Shares, and an amount equal to the fair market value of the
distributed Common Shares would be taxable to the Unitholders as a
dividend to the extent of IGC's "earnings and profits," the excess as
a return of capital to the extent of the Unitholders' tax basis in
their IGC Units, and lastly, as to any excess remaining, as gain from
the sale or exchange of property.
. If ACPT were to sell its interests in American Land, American
Management, American Rental or IGP Group, the proportionate share of
gain or loss recognized by the Shareholder could vary depending on
whether the Shareholder purchased the Common Shares from a person that
originally contributed property to IGC. In those circumstances, the
trading market for Common Shares could be adversely affected because
Common Shares are not fungible.
. Because of the difference between the federal and Puerto Rico
accounting and entity classification rules, taxes paid by or on behalf
of, ACPT may be different than the foreign tax credit or deduction
allowable to ACPT Shareholders.
. The Taxpayer Relief Act of 1997 (Pub. L. 105-34) (the "1997 Act") made
significant changes to the Code, including changes relating to the
treatment of partnerships and REITs. It may be some time before the
IRS issues regulations or other formal guidance under the 1997 Act.
Such regulations or other formal guidance could interpret the relevant
law in a manner contrary to this discussion and the opinion of
Counsel. Such interpretation could be applied retroactively.
. Each Shareholder generally will be taxed on its share of ACPT's
taxable income, regardless of whether Shareholder distributions are
made by ACPT. If distributions are less than the Shareholder's share
of ACPT's taxable income, Shareholders will pay tax on income they did
not receive. Although ACPT's Declaration of Trust generally requires
distribution of 45% of ACPT's taxable income (less the amount of
certain taxes paid by ACPT), there can be no assurance that ACPT will
always be in a position to make such distributions, and if made, in a
timely manner.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF IGMC.
The Board of Directors of IGMC, by unanimous vote, has approved the
Restructuring, believes that the terms of the Restructuring are in the best
interests of the IGC Unitholders, and recommends that IGC Unitholders vote for
approving the Restructuring. The Board of Directors of IGMC did not make any
determination
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regarding fairness of the Restructuring and there were no arms-length
negotiations regarding the terms of the Restructuring because the Restructuring
consists of internal transfers of assets and the spin-off to limited partners,
including IGC Unitholders, on a pro rata basis of certain IGC assets and because
once it was determined that IGC would continue to be listed on the AMEX and PSE,
no fairness determination was required under the Exchange Act. With respect to
ACPT's employee plans, consulting contracts and other arrangements incidental to
the Restructuring, management may have conflicts of interest. However, such
arrangements were approved by the Board of Directors of IGMC, including
directors who are not members of the Wilson Family or officers or employees of
IGC or ACPT or an entity affiliated with the Wilson Family.
The Board of Directors of IGMC and executive officers of IGC
collectively beneficially own 967,728 IGC Units (9.31% of the outstanding IGC
Units), and intend to vote their IGC Units in favor of the proposed
Restructuring. However, the Restructuring is contingent upon the management of
IGC determining that IGC will be classified as a partnership for federal tax
purposes for 1998. See "The Special Meeting -- Recommendation of the Board of
Directors of IGMC."
THE SPECIAL MEETING.
The special meeting IGC Unitholders will be held on _______________,
1998 at _____ .m. (local time) at _________________________________________,
Maryland. The close of business on _______________, 1998 has been established
as the record date for determining IGC Unitholders entitled to notice of, and to
vote at, the special meeting. On that date there were _____ issued and
outstanding IGC Units. No matters other than the Restructuring (except certain
procedural matters) may be discussed or voted upon at the special meeting. The
presence, in person or by proxy, of IGC Unitholders holding more than 50% of the
total number of outstanding IGC Units will constitute a quorum at the special
meeting. If you beneficially own IGC Units issued to a broker or other nominee
holder, you must instruct such broker or nominee holder how to vote the IGC
Units that you beneficially own. If you do not give such instructions, the
broker or other nominee holder will not vote your IGC Units. For the
Restructuring to take effect, it must be approved by a majority of the
outstanding IGC Units and by a majority of the IGC Units present and voting that
are not beneficially owned by the Wilson Family. The Wilson Family beneficially
owns 5,405,572 IGC Units comprising approximately 52% of the outstanding Units.
Proxyholders will vote the eligible IGC Units represented by valid
proxies at the special meeting in accordance with the directions given on the
Proxy Card concerning whether to approve the Restructuring. IF YOU SIGN AND
RETURN A PROXY CARD WITHOUT GIVING ANY DIRECTIONS ON HOW TO VOTE ON THE
RESTRUCTURING, THE PROXYHOLDER WILL VOTE YOUR IGC UNITS FOR THE APPROVAL OF THE
RESTRUCTURING. You may revoke your proxy at any time prior to the proxyholder's
voting of the IGC Units to which your proxy applies
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by: submitting a later dated Proxy Card, attending the special meeting and
delivering a written revocation of the proxy, or delivering a written notice
stating that you wish to revoke your proxy to IGC, 222 Smallwood Village Drive,
St. Charles, MD 20602 before the date of the special meeting. See "The Special
Meeting."
PRINCIPAL ADVANTAGES OF THE RESTRUCTURING.
Broader Market for Common Shares than for IGC Units.
---------------------------------------------------
Limited partnership interests which require holders to recognize trade
or business income and losses from partnership operations are generally not
regarded as attractive investments for institutions such as mutual funds and
pension funds. ACPT, as a holding company, will receive income principally in
the form of dividends and distributions from its subsidiaries, and its Common
Shares should be a more attractive investment for certain investors than IGC
Units even though ACPT is expected to be treated as a partnership for federal
income tax purposes. Enlarging the group of potential investors for ACPT Common
Shares should produce a more liquid market than currently exists for IGC Units.
However, there is no assurance that a trading market will develop or be
substantial.
No History of Wetlands Litigation.
---------------------------------
IGC, which was convicted of federal Clean Water Act violations (which
conviction was reversed but has been remanded for a new trial), will retain the
four parcels of land that were involved in that litigation and the one
additional parcel that was the subject of a civil suit that was dismissed
without prejudice (collectively, the "Wetlands Properties"). None of the land
to be transferred to ACPT was so implicated and ACPT is not a party to such
proceedings. See "Legal Proceedings -- IGC" and "IGC After the Restructuring --
Creditors Rights."
No Adverse Financial Effects from AFH, IWT, and CWT.
---------------------------------------------------
AFH has had operating losses and has capital needs and IWT and CWT
have capital needs that have had adverse effects upon IGC's operating results
and financial condition. These are expected to continue for the foreseeable
future. AFH will remain a subsidiary of IGC, and IWT and CWT will be held by
the CWT Trust for the benefit of IGC Unitholders. Thus, their financial results
will not affect ACPT. See "The Restructuring -- Assets Retained by IGC." ACPT
will have no obligation to provide financial support to AFH, IWT or CWT. See
"IGC After the Restructuring --Description of IGC's Continuing Business."
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Simplified Tax Reporting.
------------------------
Because ACPT will derive income principally from dividends from
corporations, the items to be reported for federal tax purposes by ACPT
Shareholders generally will be limited to dividends and Puerto Rico taxes paid
by ACPT with respect to the income of IGP Group in Puerto Rico. Shareholders
will not have to report ordinary income or losses from trade or business
activity as is currently the case with IGC. See "Income Tax Considerations --
Federal Income Tax Considerations -- Federal Income Tax Classification of ACPT."
Enhanced Financing Opportunities.
--------------------------------
The removal of the adverse financial effects of AFH, IWT, and CWT and
the absence of involvement in the wetlands litigation should provide ACPT with
opportunities to obtain financing for its operations from banks and other
lenders on terms that generally are more favorable than those currently
available to IGC. See "The Restructuring -- Principal Advantages of
Restructuring." ACPT has not obtained any financing independent of IGC.
However, ACPT has engaged investment bankers to advise and assist in possible
financing activities to be commenced after the completion of the Restructuring.
Election of Trustees by Shareholders.
------------------------------------
ACPT will be managed by its Board of Trustees, the members of which
will be elected by ACPT shareholders. ACPT also will hold annual meetings of
shareholders. See "Comparative Rights of IGC Unitholders and Shareholders."
See "The Restructuring -- Principal Advantages of the Restructuring."
PRINCIPAL DISADVANTAGES OF THE RESTRUCTURING.
No Cash Distributions to IGC Unitholders.
----------------------------------------
Unless IGC ultimately prevails in the wetlands litigation, or the CWT
Trust sells assets and remits proceeds to IGC, the operations and assets
remaining with IGC after the Restructuring may not enable IGC to make quarterly
distributions to the IGC Unitholders. See "IGC After the Restructuring --
Description of IGC's Continuing Business." It is possible that IGC may
recognize taxable income without generating sufficient cash to enable IGC to
make a distribution to the IGC Unitholders in an amount at least equal to the
IGC Unitholders' tax liability arising from their share of IGC taxable income.
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<PAGE>
Tax Liabilities.
---------------
Gain will be recognized by IGC (and the Unitholders will take into
account their allocable share of such gain) on the transfer of IGC's interests
in the U.S. Apartment Partnerships to American Housing to the extent that the
amount of liabilities assumed (or deemed assumed) by American Housing exceeds
the tax basis of the property contributed to American Housing. IGC has
calculated that approximately $4.2 million in gain will be recognized as a
result of the transfer, based on certain estimates and assumptions by IGC,
including IGC's estimates of tax basis and the amount of liabilities at the
time of the transfer. See "Income Tax Considerations -- Federal Income Tax
Considerations -- Federal Income Tax Consequences of the Asset Transfers."
American Management and American Land will be treated as corporations
for federal and state tax purposes and will be subject to federal and state
income tax (including any applicable alternative minimum tax) on their taxable
income at regular corporate tax rates. Payment of such taxes may reduce the
amounts otherwise available for distribution to ACPT, or by ACPT to the
Shareholders.
As a result of the Asset Transfers, Shareholders will not have a
distributive share of the various items of income, gain, loss, deduction or
credit attributable to the operating businesses conducted by partnerships.
Instead, distributions to ACPT from its subsidiaries American Management,
American Land, IGP Group and American Rental generally will be limited to
dividend income (to the extent of current and accumulated earnings and profits),
and, in the absence of earnings and profits, nontaxable return of capital (to
the extent of ACPT's tax basis in the stock of such corporation) or taxable
capital gain (after ACPT's tax basis has been reduced to zero). Distributions
from American Rental that are specifically designated as capital gain dividends
are treated as long term capital gains. Each Shareholder generally will include
its distributive share of ACPT's income in the Shareholder's taxable income. In
the event that American Rental elects to retain all or a portion of its net
capital gain and pay federal income tax on such undistributed amounts, each
Shareholder generally will include in income its distributive share of the
undistributed capital gains and will be deemed to have paid its distributive
share of the income tax paid by American Rental with respect to such
undistributed capital gains.
Reduction of Required Distributions.
------------------------------------
Under its Partnership Agreement, IGC is required to distribute
annually to IGC Unitholders, in cash and/or property, an amount equal to 55% of
the net taxable income of IGC allocated to IGC Unitholders. The terms of ACPT's
Declaration of Trust require ACPT to distribute annually to Shareholders, in
cash and/or property, an amount equal to 45% of the net taxable income of ACPT
allocated to Shareholders less the amount of taxes paid by ACPT in Puerto Rico
and other foreign countries and certain federal taxes paid by American Rental
with respect to undistributed capital gains.
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As is the case with IGC, it is possible that ACPT may recognize
taxable income without generating sufficient cash to enable ACPT to make a
distribution to Shareholders in an amount at least equal to the Shareholders'
tax liability arising from their share of ACPT taxable income.
Antitakeover Effects.
---------------------
The provisions of ACPT's Declaration of Trust on classification of the
Board of Trustees, restrictions on the ownership of Common Shares, the ability
to issue preferred stock, and certain control share acquisition and business
combination statutes applicable to ACPT could have the affect of delaying,
deferring or preventing a transaction or a change in control of ACPT that might
involve a premium price for holders of Common Shares or otherwise be in their
best interest.
Restrictions on Accumulation of Common Shares.
---------------------------------------------
In order to preserve American Rental's qualification as a REIT, ACPT's
Declaration of Trust and Bylaws provide that a person (other than certain
existing IGC Unitholders) may not directly or indirectly own more than 2% of the
outstanding Common Shares. See "Income Tax Considerations -- Federal Income Tax
Classification of American Rental."
See "The Restructuring -- Principal Disadvantages of the
Restructuring."
MECHANICS OF THE RESTRUCTURING.
The Asset Transfers.
-------------------
ACPT acts as a self-managed holding company that will own all of the
outstanding equity interests in American Land, American Management, and IGP
Group and all of the common stock of American Rental. Through the Asset
Transfers, IGC will transfer its principal real estate operations and assets to
ACPT and these subsidiary entities. American Rental, through American Housing,
will acquire IGC's partnership interests in United States investment apartment
properties and its land in the United States presently intended for development
as apartment properties. IGC intends to defer the transfer of its general
partnership interest in nine apartment partnerships until after the Distribution
in order to obtain limited partner consents or to avoid triggering a tax
termination under the Code. IGC intends to obtain such limited partner consent
as soon as practicable after the Distribution. See "Transactions With Related
Parties -- Staggered Transfer of Partnership Interests to American Housing."
American Rental is expected to be taxed as a REIT. American Management holds
the United States property management services operations formerly conducted
directly by IGC. American Management will be taxed as a corporation. American
Land will acquire IGC's principal United States community development assets and
operations, IGC's
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interest in a partnership that is entitled to receive certain fees resulting
from the 1988 sale of a cable television company, and the Class B IGP Interest
that represents IGP's rights to income, gains and losses associated with land in
Puerto Rico held by LDA and designated for development as saleable property.
American Land is a Maryland corporation and will be taxed as a corporation. IGP
Group will acquire IGC's remaining interests in IGP, which will hold its
partnership interests in Puerto Rico investment apartment properties, and in
Puerto Rico management services and rights to income, gains and losses
associated with land in Puerto Rico held by LDA for development as rental
properties. See "The Restructuring -- Asset Transfers."
IGP Group intends to qualify as a Puerto Rico pass-through entity that
will be taxed as a corporation for U.S. tax purposes and will not be taxable at
the entity level for Puerto Rico income tax purposes. The general partner
interest in IGP currently held by James J. Wilson will be transferred to a
subsidiary of ACPT. As a result, ACPT will own indirectly 100% of the
partnership interests in IGP.
See "The Restructuring -- The Asset Transfers," "Business and
Properties of ACPT," and "Income Tax Considerations -- Federal Income Tax
Considerations -- Federal Income Tax Consequences of the Asset Transfers."
The Distribution.
----------------
Following the Asset Transfers, ACPT will issue to IGC sufficient
Common Shares to enable IGC to make the Distribution. In the Distribution, IGC
will distribute all Common Shares held by it to the IGC Unitholders and its
general partners -- IGMC and IBC -- pro rata in accordance with their
percentage partnership interests in IGC. Each IGC Unitholder will receive one
Common Share for every two IGC Units held. The aggregate of approximately
5,250,000 Common Shares distributed to IGC Unitholders will equal 99% of the
Common Shares outstanding immediately following the Distribution, corresponding
to the IGC Unitholders' aggregate 99% partnership interest in IGC. Common
Shares representing the remaining 1% of such Common Shares will be distributed
to IGMC and IBC in accordance with their respective 1/3% and 2/3% partnership
interests in IGC, with IGMC receiving approximately 17,500 Common Shares and IBC
receiving approximately 34,500 Common Shares. See "The Restructuring -- The
Distribution."
No certificates or scrip representing fractional Units will be issued
to IGC Unitholders as part of the Distribution. The Registrar and Transfer
Company (the "Distribution Agent") will aggregate fractional Units into whole
Units and sell them in the open market at then prevailing prices on behalf of
IGC Unitholders who otherwise would be entitled to receive fractional Unit
interests, and such persons will receive a check in payment for the amount of
their allocable share of the total sale proceeds. See "Income Tax
Considerations -- Federal Income Tax Considerations -- Federal Income Tax
Consequences of the Distribution." Such sales are expected to be made as soon
as
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practicable after the Distribution of Common Shares to IGC Unitholders. ACPT
will bear the cost of any commissions incurred in connection with such sales.
Assets Retained by IGC.
----------------------
After the Restructuring, IGC will continue to own certain assets that
in management's view do not fit ACPT's business plan. These include the
Wetlands Properties, certain parcels of land in Pomfret, Maryland, the Westbury
community in St. Mary's County, Maryland ("Westbury"), certain single family
home lots in the Dorchester neighborhood in St. Charles, 14 acres of commercial
land in St. Charles, a 50% interest in Brandywine Investment Associates L.P.,
which owns land in Brandywine, Maryland, the LDA Note, all of the shares of AFH,
as well as fractional interests in Chastleton, and Coachman's L.P., and
beneficial interest in the CWT Trust (collectively, the "Retained Assets"). See
"The Restructuring -- Assets Retained by IGC." As a result of the wetlands
conviction, the Wetlands Properties were encumbered by an obligation to impose a
conservation easement that would prohibit development. The easement was never
recorded and the wetlands conviction was reversed. However, the matter has been
remanded for a new trial and as a practical matter, the Wetlands Properties will
remain undevelopable until the wetlands litigation is finally resolved. See
"IGC After the Restructuring -- Description of IGC's Continuing Business."
APPRAISALS.
Properties Retained by IGC.
--------------------------
Following the Restructuring, IGC intends to retain certain properties.
IGC, through St. Charles Associates Limited Partnership ("SCA") will retain an
interest in Brandywine Village, a 277-acre tract of land in Brandywine, Maryland
having an appraised present "as is" market value of $8,885,000 as of June 9,
1997. IGC will continue to own Section S-4 of the Southlake at Montclair
Subdivision that consists of 77 townhome lots in Dumfries, Virginia having an
aggregate appraised present "as is" market value of $620,000 as of May 12, 1997;
Westbury, Phase II Section I that comprises 26.992 acres of land in Lexington
Park, Maryland having an appraised present "as is" market value of $348,813 as
of May 20, 1997 based on a proposed 51 lot subdivision; 812.2 acres of land in
Pomfret, Maryland having an appraised present "as is" market value of $3,250,000
as of December 31, 1996; 26 single family home lots in the Dorchester
neighborhood having a gross retail value of $1,296,000 as of December 31, 1996,
and a 14 acre parcel in St. Charles, Maryland having a gross retail value
$4,214,000 as of December 31, 1996. See "Appraisals -- Properties Retained by
IGC."
Properties Transferred to ACPT.
------------------------------
ACPT, through IGP Group and its indirect ownership in LDA, will
acquire approximately 431 acres of land currently owned by LDA in the Sabana
Llana
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and San Anton Wards of the municipalities of San Juan and Carolina, Puerto Rico
having an appraised present "as is" market value of $35,900,000 as of December
1, 1996; 542.92 acres of land in Canovanas, Puerto Rico having an appraised
present "as is" market value of $6,100,000 as of June 30, 1997. Through
American Land ACPT also will acquire remnant parcels of land, Wooded Glen and
Piney Reach, in the St. Charles PUD and certain surrounding environs currently
indirectly owned by IGC having an appraised present "as is" market value of
$40,440,000; 1,287 acres of land in St. Charles, Maryland at Fairway Village
having an appraised present "as is" market value of $19,263,000 as of May 25,
1997; and 38 acres of land in St. Charles, Maryland indirectly owned by IGC
having an appraised present "as is" market value of $3,960,000 as of October 31,
1997. See "Appraisals -- Properties Transferred to ACPT."
BACKGROUND OF THE RESTRUCTURING; CONSIDERATION OF ALTERNATIVES.
IGC management began examining various restructuring possibilities
during the Fall of 1996, and, in consultation with IGC legal counsel and tax
advisors, identified the REIT as a possible investment vehicle. In December
1996, IGC management announced that it had determined to implement a plan
placing IGC's multifamily housing assets into a publicly-traded REIT and
disposing of land development assets to Wilson Family entities. Tax
considerations required dividing IGC's multifamily housing assets between
separate U.S. and Puerto Rico REITs. During the first quarter of 1997, a
special committee of the IGMC Board of Directors expressed concern that two
REITs would not have sufficient assets and income to create a strong trading
market for their securities.
In April 1997, IGC management announced a modified plan to convert IGC
into an entity similar to the current proposal for ACPT. The proposed entity
would retain the right to receive shares of CWT and/or IWT as soon as either or
both contracted to begin a solid waste disposal facility and an option to
purchase the Wetlands Properties at book value if the wetlands litigation were
favorably resolved. The plan also contemplated making an offer to the limited
partners in the Apartment Partnerships to exchange their partnership interests
for interests in a U.S. or Puerto Rico partnership that would hold the apartment
properties (the "Exchange Offer").
IGC retained Robert A. Stanger & Co. ("Stanger") on May 8, 1997 to
assist in refining the structure and providing opinions regarding the fairness
of the Exchange Offer and asset transfers. On Stanger's recommendation, IGC
management considered IGC continuing as a separate publicly traded partnership
with AFH, IWT, CWT and the Wetlands Properties, while creating and distributing
to its Unitholders shares of ACPT.
On November 14, 1997, IGC filed with the Commission preliminary proxy
materials relating to the Restructuring (the "November Filing"). On December
24, 1997 IGC received a letter from the staff of the Commission's Division of
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Corporation Finance expressing the view that the Restructuring would constitute
a "going private" transaction unless assurances could be obtained that IGC Units
would remain listed on AMEX and PSE following the Restructuring.
During January 1998, a syndicator of limited partnership interests in
10 of the 22 U.S. and Puerto Rico Apartment Partnerships opined to IGC that the
Exchange Offer likely would not be attractive to a majority of the holders of
limited partnership interests in these partnerships, and IGC management
discontinued plans for the Exchange Offer.
Also in January 1998, Jorge Colon Nevares resigned as a director IGMC
and was replaced by Thomas Shafer. The IGMC Board established a new special
committee comprised of Messrs. Blakeman, Cowan, and Shafer to reevaluate the
terms of the Restructuring.
IGC management proposed a reallocation of certain assets between IGC
and ACPT to enhance the prospects for continued listing of IGC Units on the AMEX
and PSE and to provide greater capital resources for the waste technology
business. The committee examined the management's projected pro forma earnings
and cash flows for ACPT and IGC following the Distribution. Stanger also
reviewed the projected pro forma financial statements. The committee obtained a
commitment of IBC to advance funds to IGC, if needed, to pay wetlands defense
costs.
On March 31, 1998 AMEX advised IGC that based on its review of the
projected pro forma financial statements of IGC, IGC management should expect
that the IGC Units would remain listed following the Distribution. See "The
Restructuring -- Background of the Restructuring; Consideration of
Alternatives."
The Board adopted resolutions formally approving the Restructuring and
recommending that IGC Unitholders approve the Restructuring on July 7, 1998.
BENEFITS TO INSIDERS.
Upon completion of the Restructuring, the Board of Trustees of ACPT
will consist of six persons -- J. Michael Wilson, Edwin L. Kelly, Francisco
Arrivi Cros, Donald G. Blakeman, Thomas Shafer and Thomas B. Wilson -- all of
whom currently are directors of IGMC. However, such persons, except Mr.
Blakeman, will resign from their positions at IGMC prior to completion of the
Restructuring. See "Management -- Trustees and Executive Officers." Immediately
following the Distribution the Board of Directors of IGMC will consist of James
J. Wilson, Mark Augenblick, Mr. Blakeman and Thomas Shafer. Mr. Blakeman intends
to resign as a trustee of ACPT and director of IGMC at such time as another
independent trustee and director is recruited. See "IGC After the
Restructuring -- Management of IGC."
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<PAGE>
In addition, J. Michael Wilson, Mr. Kelly, Mr. Arrivi, Paul Resnik and
Eduardo Cruz Ocasio, who currently are officers of IGC, will serve as executive
officers of ACPT following the Restructuring, but will resign from their
executive positions at IGC prior to completion of the Restructuring. See
"Management -- Trustees and Executive Officers." J. Michael Wilson will remain
on the payroll of IBC but ACPT will reimburse IBC for one-half of his annual
salary, up to $90,000. See "Management --Executive Compensation" and
"Transactions with Related Parties -- Payments to IBC for Services Provided by
J. Michael Wilson." Messrs. Kelly, Arrivi and Resnik will enter into employment
agreements with American Management to become effective on the date of
Distribution that will provide for annual salaries of $275,000, $275,000 and
$200,000 respectively. Such agreements also will provide for severance benefits
equal to up to 24 months base salary under certain conditions. The compensation
payable under these agreements does not reflect any increase from compensation
currently paid by IGC. See "Management -- Employment Agreements." Mr. Cruz
Ocasio will be paid an annual salary of $115,000.
Trustees and officers of ACPT will be entitled to participate in
Common Share incentive plans to be adopted by ACPT to provide incentive
compensation to Trustees, officers and key employees. See "Management -- Share
Incentive Plans." In addition, directors, executives and other employees of IGC
who have been awarded IGC Unit Options and IGC Unit Appreciation Rights prior to
the Distribution will receive corresponding ACPT Options or Rights in connection
with the Restructuring. See "Management -- Treatment of IGC Options and Unit
Appreciation Rights."
James J. Wilson, who will continue as chief executive officer of IGC,
will serve as a consultant to ACPT under a 10-year consulting agreement
providing for payments of $500,000 per year during the first two years and
$200,000 per year for the remaining eight years. See "Transactions with Related
Parties."
IGC will receive no proceeds in connection with the Restructuring and,
consequently, IGMC directors and IGC executive officers and employees will
receive no proceeds in connection with the transactions.
THE PRIVATE OFFERING.
ACPT has engaged investment bankers to advise and assist in possible
financing activities to be commenced after the completion of the Restructuring.
In connection with the Restructuring, subject to market conditions, ACPT will
seek to raise up to $35 million in additional equity capital through the Private
Offering of Preferred Shares. Proceeds from the Private Offering would be used
to pay down existing bank debt and for working capital. The terms of the
preferred shares will be negotiated with purchasers, but they may include rights
to preferred distributions, cumulative distributions, and/or liquidation
preferences. The preferred shares also may be convertible into Common Shares at
a negotiated conversion ratio. The Private Offering,
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<PAGE>
if completed, would result in dilution of the percentage interest of all ACPT
shareholders including the Wilson Family, whose percentage ownership would
likely be reduced below 40%. Regardless of the outcome of the Private Offering,
James J. Wilson and J. Michael Wilson have advised ACPT that the Wilson Family
intends to take such other actions as may be necessary to reduce its percentage
interest to below 40% in order to permit American Rental to qualify as a REIT.
See "Income Tax Considerations -- Federal Income Tax Considerations -- Federal
Income Tax Classification of American Rental -- Share Ownership, Reporting" and
"The Restructuring -- The Private Offering."
NO DISSENTERS' APPRAISAL RIGHTS.
Under the Delaware Revised Uniform Limited Partnership Act (the
"Delaware Act") and the Partnership Agreement of IGC, IGC Unitholders who object
to the Restructuring will have no right to seek a judicial appraisal of the fair
value of their IGC Units and to compel IGC to pay such amount in cash in
exchange for their IGC Units as a consequence of the consummation of the
Restructuring, nor will such rights be voluntarily accorded to IGC Unitholders
by IGC. Thus, approval of the Restructuring by the requisite vote of IGC
Unitholders will bind all IGC Unitholders, including those who object. See "The
Restructuring -- No Dissenters' Appraisal Rights."
CONFLICTS OF INTEREST.
Following the Restructuring the Wilson Family will own a majority of
the Common Shares of ACPT and will continue to own a majority of the IGC Units.
Accordingly, the Wilson Family will be able to exert substantial control over
votes on matters affecting ACPT and IGC. Following the Restructuring, ACPT and
IGC will compete for certain land sales to the extent of the Retained Assets,
and the Wilson Family's interests in ACPT and IGC may pose potential conflicts.
See "Risk Factors -- Control of ACPT; Conflicts of Interest" and "Ownership of
Common Shares."
In addition, ACPT has entered into transactions with certain
Shareholders and members of Management. See "Transactions with Related
Parties."
TAX CONSEQUENCES OF THE RESTRUCTURING FOR U.S. UNITHOLDERS AND SHAREHOLDERS.
IGC will recognize approximately $6.1 million in gain for federal
tax purposes as a result of the Asset Transfers, all of which will be allocated
to IBC. A Shareholder will not recognize gain or loss upon receipt of Common
Shares in the Distribution. A Shareholder's initial tax basis in his Common
Shares generally will be equal to the lesser of IGC's tax basis in those Common
Shares or the Shareholder's adjusted tax basis in his or her IGC Units
immediately before the Distribution. Each Shareholder's adjusted tax basis in
his or her IGC Units will be reduced by an amount equal to his or her initial
basis in the Common Shares. IGC will not recognize gain or loss upon the
Distribution. A Shareholder who receives cash in lieu of fractional
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<PAGE>
Common Shares will recognize gain. The amount of gain recognized will not
exceed the amount of cash received. ACPT will provide Shareholders with
information indicating the amount of any gain which must be recognized on the
receipt of cash in lieu of fractional Common Shares interests. See "Income Tax
Considerations -- Federal Income Tax Consequences of the Distribution."
Following the Distribution, each Shareholder, in general, will take into account
his allocable share of ACPT's taxable income or loss in computing his individual
federal income tax liability. See "Risk Factors -- Tax Related Risks" and
"Income Tax Considerations."
TAX CONSEQUENCES OF THE RESTRUCTURING FOR PUERTO RICO UNITHOLDERS AND
SHAREHOLDERS.
Puerto Rico Shareholders will recognize income upon the receipt of the
Common Shares and cash distributed in lieu of fractional Shares distributed by
IGC. The receipt of the Common Shares and cash will be taxable at ordinary
income tax rates to the extent of earnings and profits of IGC or as non-taxable
returns of capital or as gain from the sale or exchange of property, depending
upon the circumstances of the distribution. See "Income Tax Considerations --
Certain Puerto Rico Income Tax Consequences."
COMPARISON OF OPERATIONS OF ACPT AND IGC.
Following completion of the Restructuring, it is expected that the
operations of ACPT will be substantially similar to the real estate operations
currently conducted by IGC. ACPT will succeed to the principal rental and land
development assets held by IGC and its subsidiaries in the United States and
Puerto Rico as well as the property management operations conducted by IGC's
subsidiary American Management in the United States and by IGP in Puerto Rico.
See "The Restructuring --The Asset Transfers" and "Business and Properties of
ACPT." Management believes that ACPT's business objectives will remain the same
as those pursued by IGC -- to maximize Shareholder value by investing, holding
and developing assets that will generate cash for distribution to Shareholders.
ACPT's policy will be to acquire or develop assets in areas that utilize the
expertise of management, primarily community development and commercial and
residential rental properties. See "Business and Properties of ACPT -- Policies
with Respect to Certain Activities."
Immediately following completion of the Restructuring, the Trustees
and principal executive officers of ACPT will be substantially the same as the
current directors of IGMC and officers of IGC, respectively, except that James
J. Wilson, the founder and Chief Executive Officer of IGC, will not be a Trustee
or officer of ACPT. See "Risk Factors -- Dependence on Key Personnel;
Withdrawal of James J. Wilson from Management." However, in order to provide
continuity of management, Mr. Wilson will serve as a consultant to ACPT under a
ten year consulting agreement. See "Transactions with Related Parties --
Consulting Agreement." Because the Trustees of
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<PAGE>
ACPT will be elected by the Shareholders, management of ACPT may change if the
initial Trustees are not re-elected. See "Management -- Board of Trustees." As
is the case with IGC, Shareholders will not be entitled to obtain a list of
program investors.
COMPARATIVE RIGHTS OF IGC UNITHOLDERS AND SHAREHOLDERS.
As a result of the Restructuring, IGC Unitholders will receive Common
Shares of ACPT and will continue to hold IGC Units. ACPT is a Maryland
investment trust, and IGC is a Delaware limited partnership. The following
table compares certain rights of IGC Unitholders currently to rights of holders
of Common Shares if the Restructuring occurs. See "Comparative Rights of IGC
Unitholders and Shareholders." When used in this table, "majority vote" means a
majority of the IGC Units or Common Shares outstanding.
<TABLE>
<CAPTION>
IGC UNITHOLDERS SHAREHOLDERS
<S> <C> <C>
RIGHT TO ELECT No right to elect directors of IGMC. Shareholders vote to elect Trustees;
MANAGEMENT IGC Unitholder approval by majority classified Board of Trustees with
vote is required to permit the voluntary staggered three-year terms.
withdrawal of, or admission of a
general partner.
RIGHT TO REMOVE The IGC Unitholders may remove any Shareholders may remove members
MANAGEMENT general partner, with or without cause, of the Board of Trustees for cause by
by majority vote. majority vote and for any reason by
two-thirds vote.
REQUIRED MINIMUM IGC is required to distribute in cash or ACPT is required to distribute in
DISTRIBUTION property 55% of the net taxable income cash or property an amount equal to
allocated to IGC Unitholders. 45% of net taxable income allocated
to Shareholders less the amount of
certain taxes paid by ACPT.
OWNERSHIP LIMITATIONS There is no limitation on the number of No Shareholder (except certain
IGC Units that any Unitholder may existing IGC Unitholders) may own
own. more than 2% of the outstanding
Common Shares.
GENERAL VOTING RIGHTS IGC Unitholder approval by majority Shareholder approval by majority
REGARDING GOVERNANCE vote is required for (1) sale of all or vote is required for (i) a sale of all or
substantially all of the assets, substantially all of ACPT's assets,
(ii) merger or consolidation, and (ii) merger or consolidation of
(iii) certain amendments to the ACPT, and (iii) removal of a Trustee
Partnership Agreement, including for cause. The Board of Trustees has
certain issuances of additional limited exclusive authority to increase or
partnership interests. IGMC has decrease the aggregate number of
exclusive authority to issue IGC Units Common Shares that ACPT has
without limitation as to amount. authority to issue.
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
SUPERMAJORITY VOTING Unanimous vote of IGC Unitholders is A two-thirds vote of Shareholders is
RIGHTS required for certain actions, including required to (i) remove Trustees other
actions that would cause loss of limited than for cause, (ii) amend the
liability, treatment of IGC as a Declaration of Trust (including
corporation for tax purposes, or, except required minimum distribution
in the case of merger or dissolution, provisions), and (iii) dissolve ACPT.
delisting of IGC Units from any
national securities exchange. Approval
by two-thirds vote of IGC Unitholders
(excluding general partners and their
affiliates) is required for reduction of
minimum amount of cash flow required
to be distributed to IGC Unitholders.
DISSOLUTION Requires consent of IGC Unitholders Requires approval of Shareholders by
by majority vote, except for two-thirds vote.
involuntary withdrawal of a general
partner.
LIQUIDATION RIGHTS IGC Unitholders share ratably in Shareholders share ratably in any
accordance with percentage interests in assets remaining after satisfaction of
any assets remaining after satisfaction obligations to creditors and any
of obligations to creditors and any liquidation preferences of Preferred
liquidation preferences of preferred Shares.
Units.
</TABLE>
These substantive and procedural differences affect the rights of IGC
Unitholders and holders of Common Shares. Specifically, ACPT's policies with
respect to investments, financings, affiliate transactions, and certain other
activities may be amended or revised from time to time at the discretion of the
Board of Trustees.
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<PAGE>
- --------------------------------------------------------------------------------
SUMMARY COMBINED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA
The following table presents summary combined historical financial data
derived from American Community Portfolio Properties' ("ACPP"as defined in Note
1 to the Combined Historical Financial Statements) for the quarter ended March
31, 1998 and the three most recent years ended December 31, 1997 and summary pro
forma condensed combined financial information derived from ACPT's unaudited Pro
Forma Combined Financial Data. ACPP's Historical Combined Financial Statements
present the financial position, results of operations and cash flows of ACPP as
if it were a separate company operating for all the periods presented. Because
ACPT has no historical operations, for purposes of the audited combined
historical financial statements the assets, liabilities and operations that will
be transferred to ACPT in the Restructuring are referred to as "ACPP." The pro
forma financial data set forth below may not necessarily be indicative of the
results that would have been achieved had the transfer and distribution
transactions been consummated as of the date indicated or that may be achieved
in the future. The net asset values set forth below are management's estimate of
the fair value of ACPP's net assets to its beneficial owners. The information in
the table should be read in conjunction with "Selected Combined Historical
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Pro Forma Combined Financial Data" and the Combined
Historical Financial Statements of American Community Portfolio Properties
included elsewhere herein. ACPP's fiscal year ends on December 31.
<TABLE>
<CAPTION>
(In thousands, except for per share, lot, acre and unit amounts)
Three Months Ended
March 31, Year Ended December 31,
------------------------------- -----------------------------------------------------
Pro Forma (1) Historical (2) Pro Forma (1) Historical (2)
-------------- -------------- ------------- -------------------------------------
1998 1998 1997 1997 1996 1995
-------------- -------------- ------------- ----------- ---------- ----------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues $ 9,788 $ 9,788 $ 28,129 $ 28,129 $ 43,634 $ 27,184
Expenses 8,273 8,263 25,795 25,665 26,139 21,500
Income taxes 825 283 1,377 470 3,424 1,369
Minority interest (241) (241) (600) (600) (444) (511)
Net income (3) 449 1,001 357 1,394 12,695 3,804
Pro forma basic earnings per share (4) 0.09 0.19 0.07 0.27 2.45 0.73
Pro forma weighted average
shares outstanding (4) 5,218 5,218 5,196 5,196 5,180 5,179
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
-------------------
As of March 31, 1998 1997
-------------------------------------- -------------------
Pro Forma (1) Historical (2) Historical (2)
------------------ ------------------- -------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $ 111,283 $ 111,283 $ 115,122
Recourse debt 35,191 35,191 40,926
Total liabilities 95,065 93,431 99,106
Capital 16,218 17,852 16,016
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
Historical (2) Historical (2)
------------------ -----------------------------------------------------
1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Cash flow provided by (used in) -
Operating activities $ 8,884 $ 13,400 $ 26,454 $ 9,462
Investing activities (3,908) (8,372) (11,084) (11,431)
Financing activities (4,977) (5,044) (16,609) 4,273
Cash available for distribution, additional
investment or debt repayment (5) (836) 5,450 3,421 3,071
Cash available for distribution, additional
investment or debt repayment per share (4,5) (0.16) 1.04 0.66 0.59
</TABLE>
<TABLE>
<CAPTION>
As of
------------------------------------------------------------
March 31, December 31,
------------------ -----------------------------------------
1998 1997 1996
------------------ ------------------- -------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Net asset value ("NAV") (6) $112,455 $ 110,870 $ 108,485
Pro forma NAV per share (4,6) 21.55 21.25 20.94
Pro forma shares outstanding (4,6) 5,218 5,218 5,180
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
-------------- ---------------------------------------
1998 1997 1996 1995
-------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Other Operating Data (7):
Rental apartment units managed 8,139 8,139 8,139 8,085
Rental apartment units owned 5,291 5,291 5,291 6,155
Lots sold for residential units 200 231 406 113
Residential lots transferred to joint venture -- 118 98 --
Residential lots transferred to company's
rental property operations -- -- -- 54
Commercial and business park acres sold 31 17 5 (9) 20 (9)
Undeveloped acres sold -- 381 (8) -- 2
</TABLE>
(1) Reflects the consummation of the Distribution. See "ACPT Pro Forma Combined
Financial Data."
(2) Reflects the historical financial data for the operations, assets and
liabilities proposed to be transferred from IGC to ACPT and subsidiaries,
referred to as American Community Portfolio Properties.
(3) The net income for 1996 includes a $932,000 reduction for an extraordinary
item- early extinguishment of debt.
(4) Pro forma basic earnings per share and pro forma NAV per share were based
on pro forma shares outstanding as determined by dividing IGC's weighted average
Units outstanding by the Unitholders' percent ownership, 99%, and dividing the
result by two.
(5) Reflects the cash provided by operating, investing and financing activities
as reported on ACPP's audited statement of cash flows excluding cash
distributions to IGC.
(6) Management's determinations based on appraisals of land assets, valuations
of interests in apartment partnerships, management contracts and other assets
net of liabilities, exclusive of accrued income taxes. Such determinations have
been reviewed and considered by Robert A. Stanger & Co. Inc. in connection with
the issuance of the fairness opinion. See "Appraisals."
(7) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
(8) Includes a sale to an affiliate of 374 acres.
(9) Includes sales to affiliates of 4 acres and 3 acres for the years ended
December 31, 1996 and 1995, respectively.
- --------------------------------------------------------------------------------
<PAGE>
RISK FACTORS
Prospective investors in Common Shares should consider a number of
factors that may bear on the value of the Common Shares, the amount of cash
distributions to the Shareholders, and other matters affecting an investment in
Common Shares. These factors include the matters described below.
RESTRUCTURING RISKS
NO DISSENTERS' APPRAISAL RIGHTS.
IGC Unitholders who object to the Restructuring will have no
dissenters' appraisal rights (i.e., the right, instead of receiving Common
----
Shares, to seek a judicial determination of the "fair value" of their IGC Units
and to compel IGC to purchase IGC Units for cash in that amount) under Delaware
law or the Partnership Agreement of IGC, nor will such rights be voluntarily
accorded to the IGC Unitholders. All IGC Unitholders will be bound by the vote
of IGC Unitholders owning a majority of the outstanding IGC Units and a majority
of the votes cast by IGC Unitholders not affiliated with the Wilson Family, and
objecting IGC Unitholders will have no alternative to receipt of the Common
Shares in the Restructuring other than selling their IGC Units in the market.
See "The Special Meeting -- No Dissenters' Appraisal Rights."
CONTROL OF ACPT.
The Wilson Family will be able to exert substantial control over votes
on matters affecting ACPT which may result in ACPT taking actions that confer
benefits on the Wilson Family not shared by other Shareholders. The Wilson
Family will collectively own 52.24% of the outstanding ACPT Common Shares after
the Restructuring. However, members of the Wilson Family collectively will not
own a majority interest in ACPT following the Private Offering. Following the
Restructuring, ACPT and IGC will compete for certain land sales to the extent of
the Retained Assets, and the Wilson Family's interests in ACPT and IGC may pose
potential conflicts. See "The Restructuring -- The Private Offering" and
"Ownership of Common Shares."
CONFLICTS OF INTEREST.
ACPT is subject to certain conflicts of interest arising out of its
relationships with the Wilson Family and their affiliates. Generally these
relationships involve land sales, property management services, office leases,
and administrative services by or between ACPT and IBC, IGC or their respective
affiliates. See "Transactions with Related Parties." As a result of these
conflicts of interest, certain actions or decisions by these parties may have an
adverse effect on the interests of the Shareholders. ACPT has adopted a policy
that it will not, without the approval of a majority of independent Trustees,
(i) acquire from or sell to any Trustee, officer,
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<PAGE>
employee, or Shareholder who owns more than 2% of the Common Shares (an
"Affiliated Shareholder") or any entity in which a Trustee, officer, employee or
Affiliated Shareholder of ACPT beneficially owns more than a 1% interest, or any
affiliate of any of the foregoing, any property or other assets of ACPT, (ii)
make any loan to or borrow from any of the foregoing persons, or (iii) engage in
any other transaction with any of the foregoing persons. See "Business and
Properties of ACPT --Policies with Respect to Certain Activities -- Affiliate
Transaction Policy."
ABSENCE OF EXISTING TRADING MARKET FOR COMMON SHARES.
Prior to the Distribution, there will be no public market for the
Common Shares or any securities of ACPT. ACPT has applied for listing of the
Common Shares on the AMEX and the PSE. However, no assurance can be given that
such listing will occur and, if so, that a trading market will develop following
the Distribution.
CHANGE IN VALUE OF SECURITIES; TRADING PRICE LESS THAN NET ASSET VALUE.
It is possible that the aggregate of the prices at which the Common
Shares and IGC Units trade after the Distribution may be less than the price at
which the IGC Units traded prior to the Distribution. However, management of
IGC and ACPT believe that the combined trading price of the Common Shares and
the IGC Units after the Distribution will exceed the trading price of the IGC
Units prior to the Distribution. See "The Restructuring -- Principal Advantages
of the Restructuring." Management believes that the combined price of the IGC
and ACPT shares will exceed the current value of IGC shares because (i) ACPT
Common Shares will be regarded as a more attractive investment for institutions
such as mutual funds and pensions funds as it will receive income principally in
the form of dividends and distributions from its subsidiaries, (ii) ACPT
Shareholders have voting rights with respect to the election and removal of
members of the ACPT Board of Trustees under the ACPT Declaration of Trust, and
(iii) ACPT's performance will not be burdened by the wetlands litigation and
certain other assets that in management's view do not fit ACPT's business plan.
In addition, it is likely that the Common Shares will trade at a price
substantially lower than the $21.55 net asset value per share, as of March 31,
1998, determined by management based on appraisals of land assets and valuations
of interests in apartment properties, management contracts and other assets.
ANTITAKEOVER EFFECTS.
The provisions of ACPT's Declaration of Trust on classification of the
Board of Trustees, restrictions on the ownership of Common Shares, the ability
to issue preferred shares, certain control share acquisition and business
combination statutes applicable to ACPT could have the affect of delaying,
deferring or preventing a transaction or a change in control of ACPT that might
involve a premium price for
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<PAGE>
holders of Common Shares or otherwise be in their best interest. See "Certain
Provisions of Maryland Law and of ACPT's Declaration of Trust and Bylaws."
OWNERSHIP LIMITATION.
In order to comply with the ownership limitation and certain other
tests that American Rental must meet to qualify as a REIT under the Code,
ACPT's Declaration of Trust, subject to certain exceptions, authorizes the
trustees to take such actions as are necessary and desirable to preserve
American Rental's qualification as a REIT and to limit any person (other than
certain current IGC Unitholders) to direct or indirect ownership of no more than
2% of the outstanding Common Shares (the "Ownership Limit"). See "Income Tax
Considerations -- Federal Income Tax Considerations -- Federal Income Tax
Classification of American Rental -- Share Ownership, Reporting." The foregoing
restrictions on transferability and ownership will continue to apply until (i)
the Board of Trustees determines that it is no longer in the best interests of
ACPT for American Rental to attempt to qualify, or to continue to qualify, as a
REIT and (ii) there is an affirmative vote of two-thirds of the votes entitled
to be cast on such matter at a regular or special meeting of the Shareholders.
The Ownership Limit may have the effect of delaying, deferring or preventing a
transaction or a change in control of ACPT that might involve a premium price
for the Common Shares or otherwise be in the best interest of the Shareholders.
See "Certain Provisions of Maryland Law and of ACPT's Declaration of Trust and
Bylaws."
POTENTIAL EFFECTS OF ISSUANCE OF ADDITIONAL SHARES.
ACPT's Declaration of Trust authorizes the Board of Trustees to (i)
amend the Declaration of Trust, without Shareholder approval, to increase or
decrease the aggregate number of shares of beneficial interest or the number of
shares of beneficial interest of any class, including Common Shares, that ACPT
has the authority to issue, (ii) cause the company to issue additional
authorized but unissued Common or Preferred Shares and (iii) classify or
reclassify any unissued Common Shares and Preferred Shares and to set the
preferences, rights and other terms of such classified or unclassified shares.
ACPT intends to issue in the Private Offering Preferred Shares, the terms of
which will be negotiated with the purchasers but may include rights to
preferential distributions, cumulative distributions and/or liquidation
preferences. See "The Restructuring -- The Private Offering."
Although the Board of Trustees has no such intention to do so at the
present time, it could establish a class or series of shares of beneficial
interest that could, depending on the terms of such series, delay, defer or
prevent a transaction or a change in control of ACPT that might involve a
premium price for the Common Shares or otherwise be in the best interest of the
Shareholders. See "Description of Shares of Beneficial Interest" and "Certain
Provisions of Maryland Law and of ACPT's Declaration of Trust and Bylaws."
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<PAGE>
DEPENDENCE ON KEY PERSONNEL; WITHDRAWAL OF JAMES J. WILSON FROM MANAGEMENT.
ACPT is dependent on the efforts of its executive officers,
particularly Messrs. J. Michael Wilson, Edwin L. Kelly, Francisco Arrivi Cros
and Paul Resnik. The loss of their services could have an adverse effect on the
operations of ACPT. Prior to the Restructuring, each of Messrs. Kelly, Arrivi
and Resnik will enter into an employment agreement with ACPT. See "Management
- -- Employment Agreements."
In addition, James J. Wilson, the current Chief Executive Officer of
IGC, will not be a Trustee or officer of ACPT. The loss of Mr. Wilson's
management services could have an adverse effect on the operations of ACPT.
However, in order to provide continuity of management Mr. Wilson will enter into
a consulting agreement with ACPT pursuant to which he will provide consulting
services, including strategic planning and transaction advisory services, as
requested from time to time by the Board of Trustees over a period of ten years
following the Restructuring. See "Transactions with Related Parties --
Consulting Agreement."
CHANGE IN THE RIGHTS OF IGC UNITHOLDERS.
The rights of Shareholders will differ from the rights of IGC
Unitholders in several material respects. In particular, Common Shareholders
cannot exercise control over ACPT, as they can over IGC, by removing a general
partner by majority vote. However, Shareholders will vote annually to elect
approximately one third of the Trustees and they can remove any Trustee for
cause by a majority vote and for any reason by two-thirds vote. ACPT is
obligated to distribute annually an amount equal to 45% of net taxable income
allocated to Shareholders less the amount of certain taxes paid by ACPT, whereas
IGC is obligated to distribute 55% of net taxable income. In addition, no
Shareholder (except certain existing IGC Unitholders) may own more than 2% of
the outstanding Common Shares. See "Comparative Rights of IGC Unitholders and
Shareholders" and "Certain Provisions of Maryland Law and of ACPT's Declaration
of Trust and Bylaws."
POSSIBLE ADVERSE EFFECT OF MARKET INTEREST RATES ON PRICE OF COMMON SHARES.
One of the factors that will influence the market price of the Common
Shares in public markets will be the annual distribution rate on the Common
Shares. An increase in market interest rates may lead prospective purchasers of
the Common Shares to disinvest in ACPT in favor of higher yielding investments
which may adversely affect the market price of the Common Shares.
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<PAGE>
APPROVALS REQUIRED TO EFFECT THE RESTRUCTURING.
In addition to obtaining the approval of the IGC Unitholders, the
consummation of the Restructuring is subject to obtaining the approvals of
certain government entities, including HUD, certain of IGC's lenders, and
certain of the limited partner investors in the U.S. Apartment Partnerships.
Management of IGC expects to obtain all necessary approvals in a timely manner.
However there can be no assurance that such approvals will be obtained on terms
and conditions acceptable to IGC. See "The Restructuring -- Approvals Required
to Effect the Restructuring."
POTENTIAL RETURN OF ACPT SHARES.
If in connection with claims by IGC creditors in a bankruptcy
proceeding or otherwise, a court were to find that at the time of the
Distribution IGC was insolvent or was rendered insolvent or that the
Distribution otherwise constituted a fraudulent conveyance or transfer,
Unitholders who receive the Distribution could be required to return the Common
Shares (or equivalent amounts) to IGC or its creditors. See "IGC After the
Restructuring -- Creditors Rights."
REAL ESTATE FINANCING RISKS
Following the Restructuring, the business of ACPT will be subject to
certain real estate financing risks that currently affect the business of IGC,
including the following:
RISING INTEREST RATES.
ACPT has, and may in the future incur, indebtedness that bears
interest at variable rates. Any increase in variable rates would adversely
affect ACPT's cash flow and the amounts available for distributions to
Shareholders. If lower interest rates can be obtained, ACPT may in the future
refinance existing debt as appropriate and cost effective.
In addition, any increase in interest rates generally may have an
adverse effect on the real estate businesses conducted by ACPT. Higher interest
rates generally increase the cost to customers of both commercial and
residential properties which may make real estate purchases less attractive.
Consequently, ACPT's revenues may decrease significantly in higher interest rate
environments.
Should ACPT in the future refinance existing debt, it may consider
using hedges or similar instruments, or purchase interest rate swaps. ACPT's
evaluation of the merits of using hedges or similar instruments will depend in
large part on the cost of such an approach and on federal income tax
restrictions. Further, in determining which, if any, strategy to reduce the
risk of rising interest rates there is no assurance that
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<PAGE>
ACPT's evaluation of interest rate risk will be accurate. ACPT recognizes that
it may not be able to sufficiently lower interest rate exposure through such
measures, and that these measures may create additional costs to ACPT. ACPT has
not used hedges or similar instruments and has not purchased interest rate
swaps. As a result, it has no experience in this area.
DEBT FINANCING AND POTENTIAL ADVERSE EFFECTS ON CASH FLOWS AND DISTRIBUTIONS.
ACPT will be subject to risks normally associated with debt financing,
including the risk that ACPT's cash flow will be insufficient to pay
distributions at expected levels and meet required payments of principal and
interest, and the risk that indebtedness on the apartment properties (which will
not have been fully amortized at maturity in all cases) will not be able to be
refinanced or that the terms of such refinancing will not be as favorable as the
terms of existing indebtedness. Upon consummation of the Restructuring, ACPT
expects to have outstanding indebtedness of approximately $76,000,000 which will
encumber substantially all of its assets. If principal payments due at maturity
cannot be refinanced, extended, or paid with proceeds of other capital
transactions, such as the issuance of Preferred Shares in the Private Offering,
ACPT expects that its cash flow will not be sufficient in all years to pay
distributions at expected levels and to repay all maturing debt. Furthermore,
if prevailing interest rates or other factors at the time of refinancing result
in higher interest rates upon refinancing, the interest expense relating to such
refinanced indebtedness would increase, which would adversely affect ACPT's cash
flow and the amounts available for distributions to its Shareholders. If a
property or properties are mortgaged to secure payment of indebtedness and ACPT
is unable to meet mortgage payments, the property could be foreclosed upon by,
or otherwise transferred to, the mortgagee with a consequent loss of income and
asset value to ACPT.
See "Management's Discussion and Analysis of Results of Operations and
Financial Condition -- Liquidity and Capital Resources" for a summary of ACPT's
outstanding debt and the terms thereof.
CONSTRUCTION LOANS AND RISKS ASSOCIATED WITH SALE OR FORECLOSURE.
If new developments are financed through construction loans, there is
a risk that upon completion of construction permanent financing for newly
developed properties may not be available or may be available only on
disadvantageous terms. In the event that ACPT is unable to obtain permanent
financing for a developed property on favorable terms, it could be forced to
sell such property at a loss or the property could be foreclosed upon by the
lender and result in loss of income and asset value to ACPT.
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CHANGES IN POLICIES WITHOUT SHAREHOLDER APPROVAL.
The investment, financing, borrowing and distribution policies of ACPT
and its policies with respect to all other activities, including growth,
capitalization and operations, will be determined by the Board of Trustees.
Although ACPT's Board of Trustees has no present intention to do so, these
policies may be amended or revised at any time and from time to time at the
discretion of the Board of Trustees without a vote of the shareholders of ACPT.
A change in these policies could adversely affect ACPT's financial condition,
results of operations or the market price of the Common Shares. See "Business
and Properties of ACPT -- Policies with Respect to Certain Activities," and
"Certain Provisions of Maryland Law and of ACPT's Declaration of Trust and
Bylaws."
REAL ESTATE INVESTMENT RISKS
Following the Restructuring, the business of ACPT will be subject to
certain real estate investment risks that currently affect the business of IGC,
including the following:
GENERAL RISKS.
Real property investments are subject to varying degrees of risk. The
yields available from equity investments in real estate depend in large part on
the amount of income generated and expenses incurred. If ACPT's assets do not
generate revenues sufficient to meet operating expenses, including debt service,
development costs, tenant improvements, leasing commissions and other capital
expenditures, ACPT may have to borrow additional amounts to cover fixed costs
and ACPT's cash flow and ability to make distributions to its Shareholders will
be adversely affected.
The community development and homebuilding businesses of ACPT will
continue to be influenced by the risks generally incident to the real estate
business. The availability of materials and labor and changes in the costs
thereof may also affect ACPT's business. Any increase in such expenses without
a corresponding increase in revenues would have an adverse impact on ACPT's
profitability. Any decrease in the availability of adequate land for
residential development, curtailments of access to or unavailability of sewer or
water connections due to local moratoria, and the possible adverse effects of
legislative, regulatory, administrative, judicial or enforcement changes that
may arise in the future at the national, state or local levels in the areas,
among others, involving tax laws, environmental controls and rent regulations
could be expected to decrease demand for real estate and therefore adversely
affect ACPT's business and profitability. These factors also effect, to some
degree, ACPT's management services operations and the value of its real estate
holdings. The business of ACPT also will be affected by competition from other
residential homebuilders and land developers, some of which have greater
experience and resources than ACPT, and from sellers of existing
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homes and developed lots, and from condominium conversions. ACPT may also be
affected adversely by changes in the local economies in Southern Maryland and
Puerto Rico where ACPT retains community development and homebuilding
businesses, although ACPT does not anticipate such changes. See "-- Business
and Properties of ACPT -- Rental Apartment Properties -- Puerto Rico" and "--
Community Development -- St. Charles."
ACPT's revenues and the value of its rental properties may be
adversely affected by real estate conditions (such as oversupply of, or reduced
demand for, space and changes in market rental rates); the perceptions of
prospective tenants of the safety, convenience and attractiveness of the
properties; the ability of the owner to provide adequate management, maintenance
and insurance; the ability to collect on a timely basis all rent from tenants;
the expense of periodically renovating, repairing and reletting spaces; and
increasing operating costs (including real estate taxes and utilities) which may
not be passed through to tenants. Certain significant expenditures associated
with investments in real estate (such as mortgage payments, real estate taxes,
insurance and maintenance costs) are generally not reduced when circumstances
cause a reduction in rental revenues from the property. In addition, real
estate values and income from properties are also affected by such factors as
compliance with laws, including tax laws, interest rate levels and the
availability of financing. Also, the amount of available net rentable square
feet of commercial property is often affected by market conditions and may
therefore fluctuate over time.
For its development activities, ACPT must obtain the approval of
numerous governmental authorities, such as zoning approvals, and State and
county permits, and changes in local circumstances or applicable law may
necessitate the application for additional approvals or the modification of
existing approvals.
OPERATING RISKS.
ACPT's rental apartment properties are subject to operating risks
common to rental apartments in general described below, any and all of which may
adversely affect occupancy or rental rates. The apartment properties are
subject to increases in operating expenses such as cleaning, electricity,
heating, ventilation and air conditioning, elevator repair and maintenance,
insurance and administrative costs, and other general costs associated with
security, landscaping, repairs and maintenance. If operating expenses increase,
the local rental market may limit the extent to which rents may be increased to
meet increased expenses without decreasing occupancy rates. While ACPT
implements cost-saving incentive measures at each of its apartment properties,
ACPT's ability to make distributions to Shareholders could be adversely affected
if operating expenses increase without a corresponding increase in revenues.
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DEVELOPMENT OF ST. CHARLES.
ACPT's interest in St. Charles, in which more than 4,500 acres of land
remain to be developed, is one of ACPT's most valuable assets. ACPT's success in
large part will be dependent upon the continued successful development of St.
Charles. See "Business and Properties of ACPT -- Community Development." In
addition to the risks generally incident to real estate businesses, there are
particular risks associated with the development of St. Charles. These risks
include (i) the need to obtain additional zoning and other approvals of the
Planning Commission and the County Commissioners of Charles County, Maryland
(the "Planning Commission", the "County Commissioners" and the "County,"
respectively) to permit the full development of St. Charles; (ii) the
possibility that the continued and timely development of St. Charles may be
affected by environmental laws and regulations applicable to "wetlands"; and
(iii) the failure or delay of other residential developers active in the area to
proceed with projects that would be beneficial to ACPT. These projects include
the Chapman's Landing and Kingsview residential developments in Charles County.
Chapman's Landing is scheduled to commence development in 1998 on the first
phase of 576 units and Kingsview currently has 640 lots under development.
Although these projects may compete directly with ACPT for homebuying customers,
management of ACPT believes that increased occupancy and interest in residential
developments in the Charles County area in general will have a beneficial effect
on ACPT's ability to market its residential properties.
LITIGATION INVOLVING ST. CHARLES DEVELOPMENT.
St. Charles has been zoned as a planned unit development that allows
construction of approximately 24,730 housing units and 1,390 acres of commercial
and industrial development. The County has agreed to provide sufficient water
and sewer connections for all housing units remaining to be developed in St.
Charles. However, IGC, SCA and ACPT are involved in litigation with the County
regarding the cost of water and sewer fees and impact fees previously paid by
IGC and SCA. The County established fees based on a study that it claims was
appropriate. IGC and SCA claim that the County has failed to conduct an
appropriate water and sewer connection fee study as the basis on which to set
such fees for the St. Charles communities. This matter has been the subject of
extensive previous litigation, and in 1992 the Circuit Court for Charles County
rendered judgment in favor of SCA and IGC requiring the County to conduct an
appropriate study. Litigation filed by SCA and IGC in 1997 seeks to enforce the
prior court orders that requires the County to conduct the appropriate water and
sewer connection fee study, to reduce the connection fees paid prospectively in
the St. Charles communities, and to obtain repayment of excess fees paid in the
past. The matter has not yet been decided by the Circuit Court for Charles
County. See "Legal Proceedings -- IGC -- Other Litigation."
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Management of ACPT internally has raised concerns regarding the future
development of land in St. Charles owned by ACPT and others that may be
classified as wetlands. (The U.S. Army Corps of Engineers (the "Corps")
regulations define "wetlands" as areas saturated by surface or ground water
sufficient to support vegetation typically adapted for life in saturated soil
conditions.) However, ACPT obtains determinations as to whether properties are
within the Corps' jurisdiction as wetlands prior to the development of any
properties, and has developed certain environmental policies and procedures to
avoid violations. While ACPT does not believe that any of the foregoing factors
will materially adversely affect the planned development of St. Charles on a
timely basis, no assurance can be made that this will be the case. See
"Business and Properties of ACPT -- Community Development," and "Legal
Proceedings."
TERMINATION OF HUD SUBSIDY CONTRACTS; NEW APARTMENT DEVELOPMENT.
Changes in government regulations could significantly affect the
status of the ACPT's existing U.S. and Puerto Rico apartment properties and its
development of future projects. Of the 2,246 rental units in the U.S., 993 are
subject to subsidies, and all 2,653 units in Puerto Rico are subject to
subsidies. See "Business and Properties of ACPT -- Rental Apartment
Properties." The federal government has virtually eliminated subsidy programs
for new construction of low and moderate income housing by profit-motivated
developers such as ACPT. No new construction of apartment projects is expected
in Puerto Rico and any new apartment properties developed by ACPT in the United
States most likely will offer market rate rents which may adversely affect the
ability of ACPT to successfully rent such properties. New rental apartment
projects also may be affected by certain newly enacted tax law changes.
The subsidy contracts for ACPT's existing investment apartment
properties are scheduled to expire between 1997 and 2020. See "Business and
Properties of ACPT -- Rental Apartment Properties," for a summary of the terms
of the applicable subsidy contracts. Under a recently enacted law, such
contracts may be renewed by the United States Department of Housing and Urban
Development ("HUD") on a year to year basis and ACPT intends to seek renewal of
expiring subsidy contracts for its U.S. properties. ACPT currently intends to
convert to condominiums those apartment properties in Puerto Rico for which the
subsidy contracts expire over the next several years. Two such conversions are
currently in progress. Because the Federal tax rules governing REITs would
impose a substantial tax penalty on any conversion of ACPT's U.S. apartment
properties into condominiums, ACPT does not intend to convert any U.S. apartment
properties if the subsidy contracts for such properties are not renewed. ACPT
intends to offer units in such properties for rent at market rates, which may
adversely affect the occupancy rates in such properties. See "Business and
Properties of ACPT -- Condominium Conversions."
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COMPETITION.
Real estate development carries risks from competition by other
entities and fluctuations in the housing market. ACPT's apartments in St.
Charles that have market rate rents are impacted by the supply and demand for
competing rental apartments in the area.
Likewise, the local housing market affects performance generally.
When for-sale housing becomes more affordable due to lower mortgage interest
rates or softening home prices, this can adversely impact the performance of
rental apartments. ACPT's land development for home sales also faces
competition. The number of residential building permits issued by Charles
County according to figures released by the county's Department of Planning and
Growth Management has increased yearly from 1993, when 962 permits were issued,
to 1997, when 1,232 permits were issued. In addition, there are approximately
30 subdivisions competing for new home buyers within five miles of St. Charles.
The largest competing housing developments are Kingsview, a 640 unit project
being developed by Miller & Smith, Southwinds, a 367 unit project being
developed by Washington Homes, and Chapman's Landing, a 576 unit project being
developed by Legend Properties. Smaller projects are being developed by more
than 20 other developers. Competition in the San Juan metropolitan area with
ACPT's Parque Escorial planned community for lot sales for residential building
comes primarily from small-scale condominium projects, as Parque Escorial is one
of only two master planned communities currently under development in the area.
See "Business and Properties of ACPT."
POSSIBLE ENVIRONMENTAL LIABILITIES.
Under various federal, state, and local environmental laws, ordinances
and regulations, a current or previous owner or operator of real property may be
liable for the costs of remediation of hazardous or toxic substances on, under
or in such property. Such laws often impose liability whether or not the owner
or operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. At the federal level, the relevant environmental laws include
the Clean Water Act, which generally prohibits persons from polluting waters of
the United States with substances or materials attributable to sewage,
industrial waste or other waste in amounts that are unsightly, malodorous, a
nuisance or that interfere in any way with the water's designated use; the
Resource Conservation and Recovery Act ("RCRA"), which regulates current
hazardous waste handling and disposal; and the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), which regulates the
remediation of past environmental contamination. Applicable Maryland
environmental statutes and regulations include the Maryland National Pollutant
Discharge Elimination System implementing the provisions of the federal Clean
Water Act; the Maryland Nontidal Wetlands Protection Act of 1989 and the
Maryland Wetlands Act of 1970, regulating activities in nontidal and tidal
wetlands respectively; and regulatory authority pertaining
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to non-hazardous solid waste. Puerto Rico environmental legislation includes
the Public Policy Environmental Act, which creates an Environmental Quality
Board (EQB) that has responsibility for implementing regulations under the Clean
Water Act, RCRA, CERCLA, and other federal environmental legislation. The EQB
has promulgated the Water Quality Standards Regulation, Regulations for the
Control of Hazardous and Non-Hazardous Solid Wastes, and Non-Hazardous Solid
Waste Management Regulation.
In addition, the presence of hazardous or toxic substances, or the
failure to remediate such property properly, may adversely affect the owner's
ability to borrow using such real property as collateral. Persons who arrange
for the disposal or treatment of hazardous or toxic substances may also be
liable for the costs of removal or remediation of hazardous substances at the
disposal or treatment facility, whether or not such facility is or ever was
owned or operated by such person. Certain environmental laws and common law
principles could be used to impose liability for release of and exposure to
hazardous substances, including asbestos-containing materials ("ACMs") into the
air, and third parties may seek recovery from owners or operators of real
properties for personal injury or property damage associated with exposure to
released hazardous substances, including ACMs.
Management of ACPT believes that its properties and operations in St.
Charles will not be materially adversely affected by hazardous or toxic
substances on such properties. Phase I Environmental Site Assessments have been
prepared for substantially all undeveloped parcels in St. Charles which revealed
no significant environmental concerns. Remediation has been completed at three
sites in Parque Escorial and the Puerto Rico Department of Natural Resources has
determined that such sites no longer contain environmental hazards. See
"Business and Properties of ACPT --Community Development." In addition,
approximately ten acres of land in Canovanas that is used as a burial ground for
horses may not be developed for a period of five years after burials cease.
Environmental assessments prepared for the remaining undeveloped land in Parque
Escorial and Canovanas revealed no significant environmental concerns. However,
the management of IGC can give no assurance that significant environmental
liability will not arise in the future with respect to the property acquired by
ACPT.
EFFECT OF AMERICANS WITH DISABILITIES ACT COMPLIANCE ON CASH FLOW AND
DISTRIBUTION.
Under the Americans with Disabilities Act of 1990 (the "ADA"), all
public accommodations and commercial facilities are required to meet certain
federal requirements related to access and use by disabled persons. Compliance
with the ADA requirements could require removal of access barriers and non-
compliance could result in imposition of fines by the U.S. government or an
award of damages to private litigants. Although ACPT believes that its
properties are substantially in compliance with these requirements, a
determination that ACPT is not in compliance with the ADA could result
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in the imposition of fines or an award of damages to private litigants. If ACPT
were required to make unanticipated expenditures to comply with the ADA, ACPT's
cash flow and the amounts available for distributions to its shareholders may be
adversely affected.
CHANGE IN TAX LAWS; BUILDING SAFETY REGULATIONS.
Because increases in income, service or transfer taxes are generally
not passed through to tenants under residential leases, as they would be under
commercial leases, any change to current federal, state or local tax laws which
results in an increase in such taxes may have the effect of reducing the
cashflow from ACPT's existing or future apartment and commercial rental
properties. ACPT's rental properties also are subject to various federal, state
and local regulatory requirements regarding building safety, including fire
safety codes and building materials regulations. Failure to comply with these
requirements could result in the imposition of fines by governmental authorities
or awards of damages to private litigants. ACPT believes that its properties
are currently in compliance with all such regulatory requirements. However,
there can be no assurance that these requirements will not be changed or that
new requirements will not be imposed which would require significant
unanticipated expenditures by ACPT. ACPT currently is not aware of any proposed
changes in tax laws or building safety regulations. However, any increase in
expense due to tax increases or increased costs for regulatory compliance could
adversely impact the cashflows of ACPT and thereby reduce the amount
distributable to Shareholders.
UNINSURED LOSS.
ACPT will initially carry comprehensive liability, fire, flood, (where
appropriate), extended coverage and rental loss insurance with respect to its
properties with policy specifications and insured limits customarily carried for
similar properties. There are, however, certain types of losses (such as from
hurricanes, wars or earthquakes) that may be either uninsurable, only partially
insurable, or not economically insurable. Should an uninsured loss or a loss in
excess of insured limits occur, ACPT could lose both its capital invested in a
property, as well as the anticipated future revenue from such property, and
would continue to be obligated on any mortgages indebtedness or other
obligations related to the property. Any such loss would adversely affect the
business of ACPT and its financial condition and results of operations.
RISKS INVOLVED IN PROPERTY OWNERSHIP THROUGH PARTNERSHIPS, LIMITED LIABILITY
COMPANIES, AND JOINT VENTURES.
ACPT may in the future acquire either a limited partnership interest
in a property partnership without partnership management responsibility or a
membership interest in a limited liability company without company management
responsibility or a co-venturer interest, membership interest, or co-general
partnership interest in a property partnership or limited liability company with
shared responsibility for managing the
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affairs of a property partnership, limited liability company, or joint venture
and, therefore, would not be in a position to exercise sole decision-making
authority regarding the property partnership, limited liability company, or
joint venture. Such partnership or joint venture investments may, under certain
circumstances, involve risks not otherwise present, including the possibility
that ACPT's partners, co-members, or co-venturers might at any time have
economic or other business interests or goals that are inconsistent with the
business interests or goals of ACPT, and that such partners, co-members, or co-
venturers may be in a position to take action contrary to the instructions or
the requests of ACPT or contrary to ACPT's policies or objectives, including
ACPT's policy with respect to maintaining American Rental's qualification as a
REIT. ACPT would, however, seek to maintain sufficient control of such
partnerships, limited liability companies, or joint ventures to permit ACPT's
business objectives to be achieved. There is no limitation under ACPT's
organizational documents as to the amount of available funds that may be
invested in partnerships, limited liability companies, or joint ventures.
RISKS ASSOCIATED WITH ILLIQUIDITY OF REAL ESTATE.
Equity real estate investments are relatively illiquid. Such
illiquidity will tend to limit the ability of ACPT to vary its portfolio
promptly in response to changes in economic or other conditions. ACPT's primary
investment criteria is to invest, hold and develop assets that will generate
cash available for distribution to its Shareholders. ACPT acquires or develops
assets where ACPT believes that opportunities exist for acceptable investment
returns in areas that utilize the expertise of its management, primarily
community development and commercial and residential rental properties. In
addition, the Code limits the ability of a REIT to sell properties held for
fewer than four years, including converting apartment properties into
condominiums, which may affect American Rental's ability to sell properties
without adversely affecting returns to holders of Common Shares.
RISKS ASSOCIATED WITH ACQUISITION, DEVELOPMENT AND CONSTRUCTION.
ACPT intends to acquire residential properties to the extent that they
can be acquired on advantageous terms and meet ACPT's investment criteria.
ACPT's primary investment criteria is to invest, hold and develop assets that
will generate cash available for distribution to its Shareholders. ACPT
acquires or develops assets where ACPT believes that opportunities exist for
acceptable investment returns in areas that utilize the expertise of its
management, primarily community development and commercial and residential
rental properties. Acquisitions of residential properties entail risks that
investments will fail to perform in accordance with expectations and that
estimates of the costs of improvements to bring an acquired property up to
standards established for the market position intended for that property may
prove inaccurate.
ACPT intends to continue development and construction of residential
buildings. Risks associated with ACPT's development and construction activities
may
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include: abandonment of development opportunities; construction or development
costs of a property exceeding original estimates, possibly making the property
uneconomical; occupancy rates and rents at a newly renovated or completed
property may not be sufficient to make the property profitable; financing may
not be available on favorable terms for redevelopment or development of a
property; unreliability of the contractor or contractors selected to develop or
construct a project; permanent financing may not be available on lease-up or a
project may not be completed on schedule, resulting in increased debt service
activities. In addition, most development projects, regardless of whether they
are ultimately successful, typically require a substantial portion of
management's time and attention. Development activities are also subject to
risks relating to the inability to obtain, or delays in obtaining, all necessary
zoning, land-use, building, occupancy and other required governmental permits
and authorizations. In addition, there are general investment risks associated
with any new real estate investment. See "-- General Risks".
If a project undertaken by ACPT is subject to one or more of the
foregoing events, it may result in such project being unprofitable or in losses
for ACPT, which would reduce the amount distributable to Shareholders.
TAX RELATED RISKS
GAIN RECOGNIZED ON ASSET TRANSFERS.
Gain will be recognized by IGC on the transfer of certain interests in
the U.S. Apartment Partnerships as a result of American Housing's assumption of
liabilities in excess of the tax basis of the property contributed to American
Housing. IGC has estimated that approximately $3.5 million in gain will be
recognized on this transfer. Gain will also be recognized by IGC on the
transfer of the Class A interest in IGP as a result of IGP Group's assumption of
liabilities in excess of the tax basis of property contributed. IGC has
estimated that approximately $2.6 million will be recognized on this transfer.
All of the gain recognized by IGC on the transfers to American Housing and IGP
Group will be allocated to IBC because IGC has determined that all of such gain
is attributable to appreciated property originally contributed to IGC by IBC.
IGC Unitholders other than IBC will not recognize any portion of such gain
under IGC's method of allocating such gain. However, there can be no assurance
that the Internal Revenue Service ("IRS") will not challenge this allocation
method and seek to allocate a portion of such gain to the Unitholders. See
"Income Tax Considerations -- Federal Income Tax Considerations -- Certain Tax
Consequences of the Asset Transfers."
There can be no assurance that certain transfers that will be delayed
until certain consents are obtained or until a year and a day has elapsed will
qualify for nonrecognition treatment. See "Transactions with Related Parties --
Staggered Transfer of Partnership Interests to American Housing" and "Income Tax
Considerations -- Federal Income Tax Considerations -- Certain Tax Consequences
of the Asset
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Transfers." If such transfers do not qualify, gain would be recognized by IGC
in the amount that the fair market value of the property transferred by IGC in
the nonqualifying transfer exceeds IGC's tax basis in such property and such
gain would be allocated to IBC to the extent that it is attributable to
appreciated property originally contributed by IBC and the remaining gain would
be allocated pro-rata among all of the Unitholders. IGC will include in its
taxable income its share of income, gain, loss, and deduction with respect to
certain retained interests in two U.S. Housing Partnerships even though it is
contractually obligated to transfer all distributions it receives with respect
to such interests to American Housing or American Land. Because these transfers
will be treated as made in connection with, or as, contributions to capital, IGC
will not receive a deduction with respect to such transfers.
Gain generally is recognized when appreciated property is transferred
by a United States person to a foreign corporation in the amount of the excess
of the fair market value over the basis of the transferred property, unless the
transfer qualifies for an exception to this gain recognition rule. See "Income
Tax Considerations -- Federal Income Tax Considerations -- Certain Tax
Consequences of the Asset Transfers" The determination of whether the transfer
of assets by IGC to IGP Group will qualify for such an exception will be made on
the basis of all of the facts and circumstances and will depend on the extent
and nature of services to be provided by employees of IGP in the future, and on
the application of general rules to a more complex ownership structure than was
anticipated in such rules. Thus, there can be no assurances that these asset
transfers will qualify for the exception. In addition, there can be no
assurances that the IRS will not attempt to treat the Class B interests in IGP
as a transfer of appreciated property to a foreign corporation and that IGC must
recognize gain on such transfer in the amount that the fair market value of such
property exceeds its adjusted tax basis.
As a result of the Asset Transfers and other steps taken by IGC to
maintain its status as a partnership for federal tax purposes, it is possible
that Shareholders will have a lower tax basis in their Common Shares than if the
Asset Transfers and such other steps had not been taken. In addition, there can
be no assurances that the positions adopted by IGC in the Asset Transfers and
other steps taken by IGC to reduce its non-qualifying income will not be
successfully challenged by the IRS.
The above-described risks could result in gain being recognized by
Unitholders upon the Asset Transfers. The amount of such gain has not been
determined.
RISK OF GAIN AND REDUCED DISTRIBUTIONS IF IGC IS NOT CLASSIFIED AS A
PARTNERSHIP.
The general rule that publicly traded partnerships are taxed as
corporations does not apply to a publicly traded partnership for a taxable year
if at least 90% of the organization's gross income for such taxable year
constitutes "qualifying income." For
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the first quarter of 1998 less than 90% of IGC's gross income constituted
qualifying income. IGC has represented that it will take steps in order to
increase the percentage of IGC's gross income that constitutes qualifying
income. In addition, the Restructuring is contingent upon the management of IGC
determining that IGC will be classified as a partnership for federal tax
purposes for 1998. See "The Special Meeting --Recommendation of the Board of
Directors of IGMC." However, there can be no assurances that IGC's efforts will
be successful or that IGC will generate sufficient amounts of qualifying income
to prevent being treated as a corporation for tax purposes as of January 1,
1998. It is possible that the determination of whether IGC will be treated as a
corporation as of January 1, 1998, will not be certain until after the
Distribution and it is also possible that the Distribution could adversely
affect the determination of whether IGC will be treated as a corporation as of
January 1, 1998, because the Distribution will remove a potential source of a
significant amount of gross income of the type that would allow IGC to qualify
for an exception from the general rule that publicly traded partnerships are
taxed as corporations.
If IGC is treated as a corporation as of January 1, 1998: (1) gain
would be recognized by the Unitholders to the extent that IGC's liabilities
exceed the adjusted tax basis of its assets; (2) gain would be recognized to IGC
on the Distribution and would be taxable to IGC at corporate tax rates (the
current maximum rate is 35%) to the extent that the fair market value of the
ACPT Common Shares exceed IGC's adjusted tax basis in such Common Shares
immediately before the Distribution; and (3) an amount equal to the value of the
Common Shares generally would be treated as a distribution to the Unitholders
taxable as a dividend to the extent of IGC's "earnings and profits" (for the
period that it was treated as a corporation), then a return of capital to the
extent of the Unitholder's basis in his or her Units, and then gain from the
sale or exchange of property. See "Income Tax Considerations -- Federal Income
Tax Considerations --Federal Income Tax Classification of IGC."
CORPORATE LEVEL TAXES REDUCE AMOUNTS AVAILABLE FOR DISTRIBUTION.
Prior to the Restructuring, IGC has had no significant federal tax
obligations because entities treated as partnerships for federal tax purposes
are not subject to income taxes at the entity level. After the Restructuring,
certain activities that were previously conducted through partnership entities
will be contributed to corporations or other entities treated as corporations
for federal tax purposes. Although Management has attempted in the
Restructuring to reduce the "double" taxation that generally occurs when a
corporation distributes its profits to its Shareholders, significant amounts of
corporate-level taxes may be imposed upon American Land and American Management,
and could be imposed upon American Rental if it does not qualify as a REIT and
upon ACPT if it does not qualify as a partnership for federal tax purposes. See
"Income Tax Considerations -- Federal Income Tax Considerations -- Federal
Income Tax Classification of ACPT" and "-- Federal Income Tax Classification of
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American Land and American Management." Corporate level taxes will reduce the
amounts otherwise available for distribution to the Shareholders
REDUCED DISTRIBUTIONS AND SHARE VALUE IF AMERICAN RENTAL DOES NOT QUALIFY AS A
REIT.
American Rental intends to elect to be treated as a REIT for federal
tax purposes. Subject to the qualifications, assumptions, and representations
set forth under "Income Tax Consequences -- Federal Income Tax Consequences --
Federal Income Tax Classification of American Rental -- Counsel's Opinion
Relating to Qualification of American Rental as a REIT," Counsel is of the
opinion that (i) American Rental will be organized in conformity with the
requirements for qualification as a REIT beginning with its taxable year ending
December 31, 1998, and (ii) its proposed method of operations described in this
Proxy Statement/Prospectus will enable it to satisfy the requirements for such
qualification. See "Income Tax Considerations -- Federal Income Tax
Considerations -- Federal Income Tax Classification of American Rental --
Counsel's Opinion Relating to Qualification of American Rental as a REIT."
The rules governing REITs are highly technical and require ongoing
compliance with a variety of tests. Counsel will not monitor American Rental's
compliance with these requirements. At the time of the Distribution, American
Rental will not meet all of these requirements. Counsel's opinion on American
Rental's REIT status assumes that ACPT, American Rental, and members of the
Wilson Family will take certain steps to comply with the REIT requirements.
However, no assurance can be given that American Rental will qualify as a REIT
for any particular year, or that the applicable law will not change and
adversely affect American Rental, ACPT, and its Shareholders. See "Income Tax
Considerations -- Federal Income Tax Considerations -- Federal Income Tax
Classification of American Rental."
For additional risks relating to American Rental's qualification as a
REIT, see "Income Tax Considerations -- Federal Income Tax Considerations --
Federal Income Tax Classification of American Rental -- General REIT
Qualification Requirements, Ownership Structure, and Stapled Stock Rules," and
"Income Tax Considerations -- Federal Income Tax Considerations -- Federal
Income Tax Classification of American Rental -- Share Ownership, Reporting."
If American Rental does not qualify as a REIT, it would be classified
as an association taxable as a corporation, and American Rental would be taxable
on its income (determined without the deduction for distributions generally
applicable to REITs) at the applicable corporate rate and distributions to ACPT
generally would be taxable to the Shareholders as dividends. Treatment of
American Rental as an association taxable as a corporation could result in a
material reduction in the anticipated cash flow to Shareholders and could have
an adverse effect on the value of the Common Shares. See
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"Income Tax Considerations -- Federal Income Tax Considerations -- Federal
Income Tax Classification of American Rental -- Failure to Qualify as a REIT."
REDUCED DISTRIBUTIONS AND LOSS OF TAX CREDITS UPON RECLASSIFICATION OF IGP
GROUP.
IGP Group will be formed as a Puerto Rico corporation that will be
treated as a corporation for federal tax purposes. IGP Group intends to qualify
as a special partnership that is treated as a "pass-through" entity for Puerto
Rico income tax purposes. As a special partnership for Puerto Rico income tax
purposes, all of IGP Group's Puerto Rico source income will be taxable to its
partner ACPT, which will be treated as a foreign corporation for Puerto Rico tax
purposes. See "Income Tax Considerations --Federal Income Tax Considerations --
Certain Puerto Rico Income Tax Consequences." For United States tax purposes,
each Shareholder will be considered to have paid his or her allocable share of
any Puerto Rico income taxes paid by ACPT on its Puerto Rico source income.
Such taxes may give rise to a foreign tax credit (subject to applicable
limitations) or to a deduction for United States income tax purposes. If IGP
Group fails to qualify as a special partnership and is treated as a corporation
for Puerto Rico income tax purposes it would be subject to Puerto Rico income
tax on its Puerto Rico source income, and ACPT and the Shareholders would not be
treated as having paid any taxes to Puerto Rico with respect to the Puerto Rico
source income of IGP Group. Treatment of IGP Group as a corporation for Puerto
Rico tax purposes could have an adverse effect on the value of the Common
Shares. See "Income Tax Considerations -- Federal Income Tax Considerations --
Federal Income Taxation of ACPT and Shareholders -- Foreign Tax Credit."
The rules governing special partnerships are highly technical and
require ongoing compliance with a variety of tests that depend among other
things, on the nature of future partnership income. Puerto Rico counsel will
not monitor IGP Group's compliance with these requirements. While IGP Group
intends to satisfy these tests, no assurance can be given that IGP Group will
qualify as a special partnership for any particular year, or that the applicable
laws and regulations will not change and adversely affect IGP Group, ACPT and
its shareholders. IGP Group's qualification as a "pass-through" entity for
Puerto Rico tax purposes is based, in part, on private rulings issued by the
Puerto Rico Department of Treasury in connection with IGP. These rulings are
not binding on the Puerto Rico Department of Treasury and there is no guarantee
that their principles will be followed in evaluating IGP Group's situation.
If IGP Group and any domestic corporation were found to be "stapled
entities," IGP Group would be treated as a domestic corporation and would be
subject to federal income tax on its world-wide taxable income at rates
applicable to U.S. corporations (the current highest rate is 35%) and
distributions to ACPT would be taxable as dividends to the extent of earnings
and profits, nontaxable dividends to the extent of basis, and then as capital
gain. See "Income Tax Considerations -- Federal Income Tax
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Considerations -- Federal Income Tax Classification of American Rental --
General REIT Qualification Requirements, Ownership Structure, and Stapled Stock
Rules."
POSSIBLE TAX LIABILITIES IN EXCESS OF CASH DISTRIBUTIONS.
A Shareholder generally will be subject to federal income tax on his
or her allocable share of ACPT's taxable income without regard to distributions.
However, for the treatment of certain Puerto Rico Shareholders, see "Income Tax
Considerations -- Federal Income Tax Considerations -- Federal Income Taxation
of ACPT and Shareholders -- Puerto Rico Shareholders." ACPT will be required to
distribute annually to Shareholders, in cash and/or property, an amount equal to
45% of the net taxable income of ACPT allocated to Shareholders less the amount
of taxes paid by ACPT in Puerto Rico and other foreign countries and certain
federal taxes paid by American Rental with respect to undistributed capital
gains. If ACPT's income consists largely of cash dividends as expected, it is
likely that ACPT will have sufficient cash to distribute to the shareholders.
However, there can be no assurance that ACPT will make distributions in any
given year that provide Shareholders with sufficient cash to meet their federal
income tax liabilities with respect to their share of ACPT's income. See
"Distribution Policy" and "Income Tax Considerations -- Federal Income Tax
Considerations -- Federal Income Tax Classification of ACPT."
In addition, following the Restructuring it is possible that IGC may
recognize taxable income without receiving sufficient cash to enable IGC to make
a distribution to the IGC Unitholders in an amount at least equal to the IGC
Unitholder's tax liability arising from their share of IGC taxable income.
REDUCED DIVIDENDS AND SHARE VALUE IF ACPT IS NOT CLASSIFIED AS A PARTNERSHIP.
The federal income tax treatment contemplated for ACPT and the
Shareholders will be available only if ACPT is classified as a "partnership" for
federal income tax purposes and not as an "association" taxable as a
corporation. Subject to the qualifications, assumptions, and representations
set forth in "Income Tax Considerations -- Federal Income Tax Considerations --
Federal Income Tax Classification of ACPT -- Counsel's Opinion of Federal Income
Tax Classification of ACPT," Counsel is of the opinion that, under current laws
and regulations and interpretations thereof, ACPT will be classified as a
"partnership" for federal income tax purposes. Counsel's opinion, depends upon
the continued satisfaction of certain conditions by ACPT, as described in
"Income Tax Considerations -- Federal Income Tax Considerations -- Federal
Income Tax Classifi cation of ACPT." There can be no assurance that these
conditions will continue to be met.
If ACPT were to be classified as an association taxable as a
corporation for any year, ACPT would be taxable on its profits at the applicable
corporate rate and distributions to the Shareholders generally would be taxable
as dividends. In addition,
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under such circumstances, Shareholders would not be eligible for foreign tax
deductions or credits with respect to Puerto Rico taxes paid by ACPT. See
"Income Tax Considerations -- Federal Income Tax Considerations -- Federal
Income Taxation of ACPT and Shareholders -- Foreign Tax Credit." Treatment of
ACPT as an association taxable as a corporation would result in a material
reduction in the anticipated cash flow to Shareholders and would have an adverse
effect on the value of the Common Shares. See "Income Tax Considerations --
Federal Income Tax Considerations -- Federal Income Tax Classification of ACPT."
LIMITATIONS ON AVAILABILITY OF FOREIGN TAX CREDITS.
For United States tax purposes, each Shareholder will be considered to
have paid his allocable share of any Puerto Rico income taxes paid by ACPT.
Shareholders generally may claim a foreign tax credit (subject to applicable
limitations) or a deduction for federal income tax purposes. The taxes payable
to Puerto Rico by ACPT might not be fully creditable by Shareholders because of
limitations on the use of such credits, and the application of such limitations
to Puerto Rico taxes paid by ACPT may be complex due to differences between the
federal and Puerto Rico tax accounting and entity classification provisions.
See "Income Tax Considerations -- Federal Income Tax Considerations -- Federal
Income Taxation of ACPT and Shareholders -- Foreign Tax Credit. In addition,
Foreign Tax Credits would not be available to Shareholders if IGP Group is
treated as a corporation for Puerto Rico income tax purposes or if Puerto Rico
were to become a state.
SALE BY ACPT OF SUBSIDIARY ENTITIES COULD AFFECT FUNGIBILITY AND VALUE OF
SHARES.
ACPT will not make an election under Section 754 of the Code to adjust
the tax basis of its property upon sales and certain other transfers of Common
Shares. If ACPT sells all or a portion of its interests in American Land,
American Management, American Rental, or IGP Group, the proportionate share of
the gain or loss recognized by a Shareholder could vary depending on whether or
not such Shareholder purchased its Common Shares from a person that originally
contributed property to IGC. It is possible that in certain circumstances, the
trading market for the Common Shares could be adversely affected because the
Common Shares were not fungible. See "Income Tax Considerations -- Federal
Income Tax Considerations -- Federal Income Taxation of ACPT and Shareholders --
Section 754 Election."
GUIDANCE ON RECENT CHANGES IN LAW AND LEGISLATIVE PROPOSALS MAY HAVE ADVERSE
CONSEQUENCES.
The Taxpayer Relief Act of 1997 (Pub. L. 105-34) ("1997 Act") made
significant changes to the Code, including changes relating to the treatment of
partnerships and REITs. It may be some time before the IRS issues regulations
or other formal guidance under the 1997 Act. It is possible that such
regulations or other formal
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guidance could interpret the relevant law in a manner that is contrary to this
discussion or contrary to the opinion of Counsel, and such interpretation could
be applied retroactively. It is also possible that there will be further
significant changes in the applicable law in the future, particularly in the
rules for qualification as a REIT. This activity could have a negative impact
on the determination of whether American Rental qualifies as a REIT.
THE SPECIAL MEETING
MATTERS PRESENTED FOR VOTE.
The special meeting of IGC Unitholders will be held on
_______________, 1998.
This Proxy Statement/Prospectus is being furnished to the holders of
IGC Units in connection with the solicitation by IGMC of proxies from IGC
Unitholders for use at the special meeting.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF IGMC.
The Board of Directors of IGMC, by unanimous vote, has approved the
Restructuring, believes that the terms of the Restructuring are in the best
interests of the IGC Unitholders, and recommends that IGC Unitholders vote in
favor of approving the Restructuring.
The Restructuring is contingent upon management of IGC determining
that IGC will be classified as a partnership for federal income tax purposes for
the year 1998. In making this determination, management of IGC will analyze
IGC's income and seek an opinion of counsel that IGC will be classified as a
partnership for federal income tax purposes. To be classified as a partnership,
at least 90% of IGC's gross income in 1998 must be derived from qualifying
"passive type" sources such as interest, dividends and real property income. As
of May 31, 1998, IGC was not in compliance with the requirement. IGC is in the
process of restructuring certain of its operations to ensure that it will comply
with this 90% test for 1998. However, there is no assurance that these measures
will be successful. See "Income Tax Considerations -- Federal Income Tax
Considerations -- Federal Income Tax Classification of IGC."
The Board of Directors of IGMC did not make any determination
regarding fairness of the Restructuring and there were no arms-length
negotiations regarding the terms of the Restructuring because the Restructuring
consists of internal transfers of assets and the spin-off to limited partners,
including IGC Unitholders, on a pro rata basis of certain IGC assets and because
once it was determined that IGC would continue to be listed on the AMEX and PSC,
no fairness determination was required under the Exchange Act. With respect to
ACPT's employee plans, consulting contract and other arrangements incidental to
the Restructuring management may have conflicts
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of interest. However, such arrangements were approved by the Board of Directors
of IGMC, including directors who are not members of the Wilson Family or
officers or employees of IGC or ACPT or an entity affiliated with the Wilson
Family.
IGC UNITS ELIGIBLE TO VOTE ON THE RESTRUCTURING.
The close of business on _______________, 1998 has been established as
the Record Date for determining IGC Unitholders entitled to notice of, and to
vote at, the special meeting of IGC Unitholders and at any adjournment thereof.
On that date, there were issued and outstanding __________ IGC Units. No
matters other than the Restructuring and certain procedural matters may be
discussed or voted upon at the special meeting of IGC Unitholders.
The presence, in person or by proxy, of IGC Unitholders holding more
than 50% of the total number of outstanding IGC Units will constitute a quorum
at the special meeting of IGC Unitholders.
If you beneficially own IGC Units issued to a broker or other nominee
holder, you must instruct such broker or nominee holder how to vote the IGC
Units that you beneficially own. If you do not give such instructions, the
broker or other nominee holder will not vote your IGC Units. Failure to vote
any IGC Units on the Restructuring will have the same effect as voting against
the proposal because its approval requires a majority of the outstanding IGC
Units eligible to vote in its favor.
REQUIRED VOTE.
The Board of Directors of IGMC unanimously recommends a vote for the
Restructuring. For the Restructuring to take effect, more than 50% of the total
number of outstanding IGC Units eligible to be voted must vote in favor of the
Restructuring at the special meeting. In addition, the Restructuring must be
approved by a majority of the IGC Units present, in person or by proxy, and
voted at the meeting that are not beneficially owned by the Wilson Family. The
Wilson Family beneficially owns more than a majority of the outstanding IGC
Units.
Only record holders are entitled to vote. If you are only the
beneficial owner of IGC Units and you do not hold the IGC Units of record, you
must instruct the record holder of your IGC Units how to vote your IGC Units.
You will have one vote for each IGC Unit you hold. If you vote against the
Restructuring, you will not possess any appraisal rights with respect to your
IGC Units. See "The Restructuring -- No Dissenters' Appraisal Rights."
BROKER NON-VOTES AND ABSTENTIONS.
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Under the rules of the American Stock Exchange, brokers holding IGC
Units on behalf of their clients may not vote the respective IGC Units on
whether to approve the Restructuring without their clients' authorization. A
broker therefore will not vote any IGC Units on whether to approve the
Restructuring without receiving instructions on how to vote from such broker's
client. Accordingly, there will be no broker non-votes to consider at the
special meeting.
With respect to the Restructuring, abstentions will have the same
effect as a vote against approval because more than 50% of the total number of
outstanding eligible IGC Units must approve the Restructuring, rather than just
a majority of those eligible IGC Units present at the special meeting.
PROXIES.
Proxyholders will vote the eligible IGC units represented by valid
proxies at the special meeting in accordance with the directions given on the
Proxy Card concerning whether to approve the Restructuring. Moreover, the
proxyholders intend to vote such IGC Units on any procedural matters coming
before the special meeting in accordance with their best judgment. Proxies voted
in favor of approval of the Restructuring, or proxies as to which no voting
instructions are given, will be voted to adjourn or postpone the special
meeting, if necessary in order to solicit additional proxies in favor of
approval of the Restructuring. IGC does not currently intend to seek an
adjournment or postponement of its special meeting.
Unless indicated to the contrary thereon, the directions you give on a
Proxy Card will be for all of your eligible IGC Units.
IF YOU SIGN AND RETURN A PROXY CARD WITHOUT GIVING ANY DIRECTIONS ON
HOW TO VOTE ON THE RESTRUCTURING, THE PROXYHOLDER WILL VOTE YOUR ELIGIBLE IGC
UNITS FOR THE APPROVAL OF THE RESTRUCTURING.
REVOCATION OF PROXIES.
You may revoke your proxy at any time prior to the proxyholder's
voting of the IGC Units to which such proxy applies by: (i) submitting a later
dated Proxy Card to the IGC Management proxyholders or someone else who attends
the special meeting; (ii) attending the special meeting and delivering a written
notice of revocation of the proxy to the representatives of IGC Management
present at the special meeting; or (iii) delivering a written notice stating
that you wish to revoke your proxy to IGC Management at 222 Smallwood Village
Drive, St. Charles, MD 20602, Attention:
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Edwin L. Kelly, Secretary, which the Secretary receives before the date of the
special meeting.
SOLICITATIONS BY IGC MANAGEMENT.
IGC Management, officers and employees of IGC, and directors of IGMC
may solicit proxies in favor of the Restructuring by mail, personal interview,
telephone, facsimile transmission or other means. They will receive no
additional compensation therefor, but will be reimbursed for any expenses
incurred in connection therewith.
NO DISSENTERS' APPRAISAL RIGHTS.
IGC Unitholders who object to the Restructuring will have no
dissenters' appraisal rights (i.e., the right, instead of receiving Common
----
Shares, to seek a judicial determination of the "fair value" of their IGC Units
and to compel IGC to purchase IGC Units for cash in that amount) under state law
or the Partnership Agreement, nor will such rights be voluntarily accorded to
the IGC Unitholders, and objecting IGC Unitholders will have no alternative to
receipt of Common Shares in the Restructuring other than selling their IGC Units
in the market. The IGC Units are currently listed on the AMEX and the PSE under
the ticker symbol "IGC."
THE RESTRUCTURING
REASONS FOR THE RESTRUCTURING.
The purpose of the Restructuring is to create an attractive investment
vehicle that will not be burdened with the operating losses and capital needs of
AFH, IWT and CWT and will not be a party to IGC's wetlands litigation. In
addition, ACPT, whose principal income is dividends from corporations, should be
a more attractive investment for pension funds and mutual funds than is IGC as a
master limited partnership. Tax reporting for Shareholders will be simplified
compared to that of IGC Unitholders. Management expects that ACPT will have
greater access to capital markets than IGC has had. However, completion of the
Restructuring may result in certain adverse consequences to holders of Common
Shares, including a reduction in mandatory distributions compared to that of
IGC, recognition by IBC of an estimated $6.1 million of taxable gain in
connection with certain of the Asset Transfers, and limitations on ownership of
Common Shares. See "-- Principal Advantages of the Restructuring; -- Principal
Disadvantages of the Restructuring."
THE ASSET TRANSFERS.
ACPT will act as a self-managed holding company and following the
Asset Transfers will own all of the outstanding equity interests in American
Land, American Management and IGP Group and all of the common stock of American
Rental.
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Through the Asset Transfers, IGC will transfer its principal real estate
operations and assets to ACPT and these subsidiary entities. IGC intends to
defer the transfer of its limited and general partnership interest in eight
apartment partnerships until after the Distribution in order to obtain limited
partner consents or to avoid triggering a tax termination under the Code. IGC
intends to obtain such limited partner consent as soon as practicable after the
Distribution.
American Rental.
---------------
American Rental will acquire IGC's partnership interests in United
States investment apartment properties and its land in the United States
presently intended for development as apartment properties. The partnership
interests in 13 investment apartment properties ("U.S. Apartment Partnerships")
will be held by American Rental indirectly through American Housing, in which
American Rental will have a 99% limited partner interest. American Housing
Management Company, a wholly owned subsidiary of American Rental, will have a 1%
general partner interest. See "Business and Properties of ACPT -- Rental
Apartment Properties -- United States" for a description of the United States
apartment properties. American Rental is expected to be taxed as a REIT. In
order to maintain its REIT qualification, American Rental will issue preferred
shares to 200 employees of American Management which in the aggregate will
represent a liquidation value of $200,000 and provide for a 10% cumulative
preferred dividend.
American Management.
-------------------
American Management, which currently is a wholly-owned subsidiary of
IGC, in December 1997 acquired IGC's United States property management
operations which provide management services for the United States apartment
properties and for other rental apartments not owned by IGC. Prior to the
formation of American Management, such operations were conducted directly by
IGC. IGC will transfer all of the outstanding stock of American Management to
ACPT prior to the Distribution. American Management is a Delaware corporation
and will be taxed as a corporation.
American Land.
-------------
American Land will acquire IGC's principal United States property
assets. These will include the following:
1) IGC's 100% interest in St. Charles Community LLC which will hold
approximately 4500 acres of land in St. Charles, Maryland. This
constitutes substantially all of the land formerly held by St. Charles
Associates, a partnership in which IGC holds a 99% partnership interest and
IBC holds a 1% partnership interest, except for a 50% interest in
Brandywine Investment Associates L.P., which holds 277 acres of land held
for development in Brandywine, Maryland,
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that will continue to be held by St. Charles Associates. IGC also will
retain land in Pomfret, Maryland, the Westbury land, the Wetlands
Properties, a 14 acre commercial parcel in St. Charles, and 26 residential
lots in the Dorchester neighborhood in St. Charles. See "Business and
Properties of ACPT -- Community Development".
2) IGC's 41.0346% interest in Maryland Cable Limited Partnership
("Maryland Cable"), which in 1988 sold all of its cable television system
assets in St. Charles. Pursuant to the sales agreement for the cable
assets, Maryland Cable is entitled to receive, until January 2000, a fee
for each residential unit built in St. Charles that becomes available for
installation of cable television. In addition, St. Charles Associates,
which under the sales agreement is entitled to a separate fee for each unit
that becomes available for cable installation, will assign such rights
directly to St. Charles Community LLC.
3) The Class B IGP Interest that represents IGP's rights to income,
gains and losses associated with land in Puerto Rico held by LDA and
designated for development as saleable property.
American Land is a Maryland corporation and will be taxed as a
corporation.
IGP Group.
---------
IGP Group will acquire the Class A Interest in IGP, which represents IGC's
entire 99% limited partnership interest and 1% general partnership interest in
IGP other than the Class B Interest to be held by American Land. Prior to the
Restructuring, James J. Wilson, who currently is a general partner, without a
percentage interest, of IGP and is entitled to preferential cash distributions
and allocations of certain tax items from the partnerships in which IGP holds
interests, will transfer his interest in IGP to a subsidiary of ACPT. As a
result, ACPT, through American Land and IGP Group, will own indirectly 100% of
IGP. IGP Group intends to qualify as a Puerto Rico special pass-through entity
for Puerto Rico tax purposes and is expected to be taxed as a corporation for
U.S. tax purposes. IGP's assets and operations will include:
1) An 80% interest in LDA, a Puerto Rico special partnership, which
holds approximately 312 acres of land in the planned community of Parque
Escorial and 543 acres in Canovanas, Puerto Rico, presently being held for
future development;
2) a 50% partnership interest in Escorial Builders Associates S.E.
("Escorial Builders"), which is engaged in the construction of condominiums
in the planned community of Parque Escorial;
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3) a 1% interest in El Monte Properties S.E., a Puerto Rico special
partnership which owns El Monte Mall Complex, a 169,000 square foot office
and retail complex in San Juan, Puerto Rico; and
4) general partner interests in 9 Puerto Rico apartment partnerships
(the "Puerto Rico Apartment Partnerships"). See "Business and Properties
of ACPT -- Rental Apartment Properties -- Puerto Rico."
THE DISTRIBUTION.
In connection with the Asset Transfers, ACPT will issue to IGC
sufficient Common Shares to enable IGC to make the Distribution. In the
Distribution, IGC will distribute all Common Shares held by it to the IGC
Unitholders and its general partners -- IGMC and IBC -- pro rata in accordance
with each partner's percentage interest in IGC. The aggregate of approximately
5,200,000 Common Shares distributed to IGC Unitholders will equal 99% of the
Common Shares outstanding immediately following the Distribution, corresponding
to the IGC Unitholders' aggregate 99% partnership interest in IGC. Common
Shares representing the remaining 1% of such Common Shares will be distributed
to IGMC and IBC in accordance with their respective 1/3% and 2/3% partnership
interests in IGC, with IGMC receiving approximately 17,500 Common Shares and IBC
receiving approximately 34,500 Common Shares.
IGC will effect the Distribution as soon as practicable following
approval of the Restructuring (such date, the "Distribution Date") by delivering
all outstanding Common Shares to Registrar and Transfer Company (the
"Distribution Agent") for distribution to those persons who are holders of
record of IGC Units as of the close of business on the Record Date. The
Distribution will be made on the basis of one ACPT Common Share for every two
IGC Units outstanding on the Record Date. The actual total number of Common
Shares to be distributed will depend on the number of IGC Units outstanding on
the Record Date. Based upon IGC Units outstanding as of the Record Date,
approximately 5,200,000 Common Shares will be distributed to holders of IGC
Units.
No certificates or scrip representing fractional Common Shares will be
issued to IGC Unitholders as part of the Distribution. The Distribution Agent
will aggregate fractional Common Shares into whole Common Shares and sell them
in the open market at then prevailing prices on behalf of IGC Unitholders who
otherwise would be entitled to receive fractional Common Share interests, and
such persons will receive a check in payment for the amount of their allocable
share of the total sale proceeds. Such sales are expected to be made as soon as
practicable after the distribution of Common Share certificates to IGC
Unitholders.
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Holders of IGC Units on the Record Date will not be required to pay
cash or other consideration, to surrender or exchange certificates representing
IGC Units or to take any other action in order to receive Common Shares pursuant
to the Distribution. All holders of IGC Units will continue to hold their IGC
Units and, if such holders are holders of record on the Record Date, they will
also receive Common Shares. The Distribution will not otherwise change the
number of, or the rights associated with, the outstanding IGC Units.
RELATIONSHIP BETWEEN IGC AND ACPT AFTER THE DISTRIBUTION.
No Overlapping Management.
-------------------------
Following completion of the Distribution, IGMC will remain the
managing general partner of IGC and no changes will be made to the Partnership
Agreement of IGC. No Trustee, officer or employee of ACPT (except Mr. Blakeman
until his successor can be recruited) will also be a director or officer of IGMC
or officer or employee of IGC. However, certain Trustees of ACPT will be
Trustees of the CWT Trust.
Banc One Financing.
------------------
On September 19, 1997, IGC refinanced substantially all of its U.S.
land development recourse indebtedness pursuant to a Master Loan Agreement dated
August 1, 1997 by and among IGC, ACPT, St. Charles Community LLC and Banc One
Capital Partners IV, Ltd. ("Banc One"). To date approximately $14 million in
proceeds of this $20 million facility were used as follows: $6.8 million to
satisfy existing indebtedness to NationsBank, $1.7 million to Puerto Rico income
taxes, $2.5 million for various accounts payable, and $3 million to pay in full
the wetlands fine. In addition, the Banc One facility provides for up to $4
million in community development financing for Fairway Village, and $2 million
for payment of IGC's wetlands remediation expenses.
The loan bears interest at prime plus 2.5% and requires semi-annual
principal payments of $1 million during the first year and $1.5 million
thereafter until maturity at the end of the seventh year. The loan is secured
by substantially all of IGC's assets, excluding (with the exception of one 14
acre parcel of land in St. Charles) the assets that will remain in IGC following
the Restructuring. During the first 3 years of the loan Banc One is generally
entitled to receive 50% of the net sales proceeds of any collateral as a
mandatory principal curtailment with the percentages increasing to 60% in years
4 and 5, 70% in year 6, and 80% in year 7.
In connection with the loan, IGC granted Banc One an option to
purchase 150,000 IGC Units at an exercise price of $3.0016 per unit (the "Strike
Price"). During any year that the loan remains outstanding, IGC is required to
grant Banc One 75,000
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additional options with an exercise price equal to the lesser of the Strike
Price or the market price on the date of grant. The loan with Banc One requires
additional interest payments on each annual anniversary date. The amount due is
1% of the outstanding balance in 1998 and 1999, and increases 1/2% each year
thereafter, through 2003.
Following the Restructuring, and upon approval of Banc One, ACPT will
assume the obligation to grant options. IGC will remain liable to Banc One for
outstanding indebtedness but will be released from its other covenant
obligations. Pursuant to the Restructuring Agreement, ACPT will indemnify and
hold harmless IGC from any liability under the Banc One loan.
NationsBank Letter of Credit.
----------------------------
NationsBank has issued in the name of IGC a standby letter of credit
in the face amount of $4.2 million which serves as collateral for municipal
bonds in the principal amount of $4.2 million issued by a District of Columbia
agency that financed the Chastleton Apartments. IGC's obligations under the
letter of credit are secured by an assignment of certain notes payable by
Brandywine Investment Associates L.P. and by IGP's partnership interests in
three Puerto Rico Apartment Partnerships. Additional collateral has been
provided by IBC and IBC has undertaken to replace the NationsBank letter of
credit with a letter of credit secured only by assets of IBC.
ASSETS RETAINED BY IGC.
After the Restructuring, IGC will continue to own certain assets that
in management's view do not fit ACPT's business plan. These include the
Wetlands Properties, a 14 acre commercial parcel in St. Charles, 25 residential
lots in the Dorchester neighborhood in St. Charles, certain parcels of land in
Pomfret, Maryland, the Westbury community in St. Mary's County, Maryland, a 50%
interest in Brandywine Investment Associates L.P., which owns land in
Brandywine, Maryland, all of the shares of AFH, the LDA Note, as well as
fractional interests in Chastleton and Coachman's L.P. (collectively the
"Retained Assets"). Substantially all of the stock of IWT and CWT (excluding
shares issued as incentive compensation) will be held in the CWT Trust for the
benefit of IGC Unitholders. Prior to contributing IWT and CWT stock to the CWT
Trust, IGC will capitalize these entities with $1 million in cash, certain
residential lots in the Montclair development, and a note in the amount of $1.06
million. As a result of the wetlands conviction, the Wetlands Properties were
encumbered by an obligation to impose a conservation easement that would
prohibit development. This easement was never recorded and the wetlands
conviction was reversed. However, the matter has been remanded for a new trial
and as a practical matter the Wetland Properties remain undevelopable until the
wetlands litigation is fully resolved. See "IGC After the Restructuring --
Description of IGC's Continuing Business."
APPROVALS REQUIRED TO EFFECT THE RESTRUCTURING.
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In addition to obtaining approval of the IGC Unitholders, the
consummation of the Restructuring is subject to obtaining approvals of certain
government entities, including HUD, certain of IGC's lenders, including Banc
One, and certain of the limited partner investors in the U.S. Apartment
Partnerships. Management of IGC expects to obtain all necessary approvals in a
timely manner. However there can be no assurance that such approvals will be
obtained on terms and conditions acceptable to IGC.
BACKGROUND OF THE RESTRUCTURING; CONSIDERATION OF ALTERNATIVES.
Disadvantages of Current Structure.
----------------------------------
Though IGC's limited partnership structure yields significant tax
advantages, certain disadvantages of the structure have increasingly affected
the attractiveness of IGC as an investment vehicle. In developing plans for the
Restructuring, IGC management has sought to minimize disadvantages of the
current structure while preserving many of the tax advantages.
A significant disadvantage of the partnership structure is its
complexity. For example, IGC is managed by its managing general partner, IGMC,
but also has another general partner, IBC, which was necessary initially to
establish IGC as a partnership for federal income tax purposes. Also for
partnership tax reasons, IGC's principal subsidiaries, SCA and IGP, are not
wholly owned by IGC.
As a partnership, IGC also has limited appeal to certain tax-exempt
investors, such as pension funds and many mutual funds. These entities
generally do not invest in limited partnerships because allocations to such
investors of a partnership's active trade or business income are not tax-exempt.
Such tax-exempt investors favor investments in securities that generate only
passive income such as dividends.
In addition, with the expiration on December 31, 1997 of a ten-year
transition period established by the Omnibus Budget Reconciliation Act of 1987,
certain current sources of IGC income (principally management fees) will no
longer be qualifying income for a publicly traded partnership. Thus to remain
classified as a partnership, IGC management recognized the need to restructure
certain of its investments whether or not the Restructuring takes place.
Alternatives Considered.
-----------------------
The structural disadvantages coupled with the 1996 conviction and
sentencing in the wetlands litigation led IGC management to begin examining
various restructuring alternatives.
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<PAGE>
During the Fall of 1996, IGC management consulted with Covington &
Burling and Arthur Andersen LLP and identified the REIT as a possible investment
vehicle.
In December 1996, IGC management announced that it had determined to
pursue development and implementation of a plan to restructure the publicly
traded partnership by placing IGC's multifamily housing assets into a publicly
traded REIT and disposing of land development assets to Wilson Family entities.
On December 17, 1996, the IGMC Board of Directors unanimously approved a
resolution to proceed with implementing a REIT restructuring plan. The
Directors present at the meeting were James J. Wilson, Donald G. Blakeman, Jorge
Colon-Nevares, Joel H. Cowan, Edwin L. Kelly, Thomas B. Wilson, J. Michael
Wilson, and John E. Hans. With the land transfers the Wilson Family would
receive a reduced ownership in the REIT. The announcement explained that the
plan would be considered by a special committee consisting of members of the
IGMC Board of Directors who are neither members of the Wilson Family nor
employees of IGC and that it would be subject to satisfactory resolution of
various U.S. and Puerto Rico tax and legal issues.
During the first quarter of 1997 the special committee and certain
Unitholders expressed concern that it might be difficult to establish a fair
value for assets that would be transferred to Wilson Family entities in exchange
for diminished ownership of the REIT. Also, Puerto Rico tax considerations
dictated dividing IGC's multifamily housing assets between separate U.S. and
Puerto Rico REITs. As a result, the committee expressed concern that two REITs
would lack sufficient assets and income to create a strong trading market for
their securities. Accordingly, the special committee directed IGC management to
develop an alternative plan.
In April 1997, after consideration by the special committee, IGC
management announced a modified plan to convert IGC into an entity that would
benefit from rules that govern REITs. The IGMC Board of Directors met on April
9, 1997, and unanimously agreed to proceed with the modified REIT restructuring
plan, subject to review by a committee consisting of Joel Cowan, Jorge Colon-
Nevares, Michael Wilson, and Edwin L. Kelly. The Directors present at the
meeting were James J. Wilson, Donald G. Blakeman, Jorge Colon-Nevares, Joel H.
Cowan, Edwin L. Kelly, Thomas B. Wilson, J. Michael Wilson, and Francisco
Arrivi. The proposed entity would have been similar to the current proposal for
ACPT, except that only AFH, CWT, IWT and the Wetlands Properties would have been
excluded. However, the proposed entity would retain a right to receive shares
of CWT and/or IWT as soon as either or both contracted to begin a solid waste
disposal facility and an option to purchase the Wetlands Properties at book
value if the wetlands litigation were favorably resolved.
The modified plan also contemplated the possibility of making an offer
to the limited partners in the Apartment Partnerships to exchange their
partnership interests for interests in a U.S. or Puerto Rico partnership that
would hold the apartment
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properties (the "Exchange Offer"). During the first six months of 1997, IGC
management discussed this possibility with the limited partners'
representatives. The plan seemed feasible only if the U.S. and Puerto Rico
partnership interests were convertible into a liquid security that was more
attractive than IGC Units.
On May 8, 1997, IGC retained Stanger to assist in refining the
structure and providing opinions regarding the fairness of the Exchange Offer
and asset transfers. In June 1997, Stanger provided IGC a draft report in
which it proposed that IGC not be converted into ACPT with rights to AFH, CWT,
IWT and the Wetlands Properties. Stanger instead recommended that management
examine the possibility of IGC continuing as a separate publicly traded
partnership with AFH, CWT, IWT and the Wetlands Properties, while creating and
distributing to its Unitholders shares of ACPT.
During the third quarter of 1997, IGC management and the special
committee evaluated Stanger's recommendation and determined that IGC may require
more than AFH, CWT, IWT and the Wetlands Properties to remain a viable publicly
traded company. At the same time, in connection with the Banc One financing,
IGC initiated the Restructuring by organizing ACPT and separating ownership of
the Wetlands Properties and other land development assets into two limited
liability companies owned by IGC and ACPT, respectively. The IGMC Board of
Directors met on June 19, 1997, and unanimously approved resolutions authorizing
IGC to begin preparing the disclosure documents related to the proposed
Restructuring. The Directors present at the meeting were James J. Wilson,
Donald G. Blakeman, Jorge Colon-Nevares, Joel H. Cowan, Edwin L. Kelly, Thomas
B. Wilson, J. Michael Wilson, and Francisco Arrivi.
Also during the third quarter, IGC management began preparing this
Proxy Statement/Prospectus. The IGMC Board of Directors met on August 13, 1997.
At that meeting, the Directors discussed the status of the Proxy
Statement/Prospectus. The Directors present at the meeting were James J.
Wilson, Donald G. Blakeman, Jorge Colon-Nevares, Joel H. Cowan, Edwin L. Kelly,
Thomas B. Wilson, J. Michael Wilson, and Francisco Arrivi. Attorneys from
Covington & Burling also were present. On August 15, 1997, IGC announced that
it intended to file with the Commission in September documents describing the
ACPT Distribution. Postponement of the Banc One financing and resolution of the
treatment of certain tax, legal and accounting issues delayed completion of the
initial filing until November 14, 1997.
On November 14, 1997, IGC filed with the Commission preliminary proxy
materials relating to the Restructuring (the "November Filing"). In addition to
seeking approval of the Distribution, the November Filing proposed to seek
approval of IGC Unitholders to liquidate IGC in the event that, as a result of
the Restructuring, IGC Units would be delisted from either the AMEX or PSE. On
December 24, 1997 IGC received a letter from the staff of the Commission's
Division of Corporation Finance commenting on the November Filing. The staff
expressed the view that the
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Restructuring would constitute a "going private" transaction unless assurances
could be obtained that IGC Units would remain listed on AMEX and PSE following
the Restructuring.
On December 23, 1997 the United States Court of Appeals for the Fourth
Circuit reversed the wetlands convictions of IGC, SCA and James J. Wilson and
remanded the matter for a new trial.
During January 1998, a syndicator of limited partnership interests in
10 of the 22 U.S. and Puerto Rico Apartment Partnerships evaluated the proposed
Restructuring and opined to IGC that the Exchange Offer likely would not be
attractive to a majority of the holders of limited partnership interests in
these partnerships. Accordingly, IGC management determined to discontinue plans
for the Exchange Offer.
Also in January 1998, Jorge Colon Nevares resigned as a director of
IGMC and was replaced by Thomas Shafer. Mr. Colon Nevares was one of the
members of the special committee that had been evaluating the Restructuring.
With Mr. Shafer joining, the IGMC Board established a new special committee
comprised of Messrs. Blakeman, Cowan, and Shafer to reevaluate the terms of the
Restructuring. The committee retained independent legal counsel and met three
times during February and March 1998.
IGC management proposed a reallocation of certain assets between IGC
and ACPT to enhance the prospects for continued listing of IGC Units on the AMEX
and PSE and to provide greater capital resources for the waste technology
business. The committee examined the management's projected pro forma earnings
and cash flows for ACPT and IGC following the Distribution. Stanger also
reviewed the projected pro forma financial statements. The committee obtained a
commitment of IBC to advance funds to IGC, if needed, to pay wetlands defense
costs.
On March 31, 1998 AMEX advised IGC that based on its review of the
projected pro forma financial statements of IGC, IGC management should expect
that the IGC Units would remain listed following the Distribution. See "The
Restructuring -- Background of the Restructuring; Consideration of
Alternatives."
Mr. Cowan resigned as a director effective June 4, 1998.
On July 7, 1998 the Board adopted resolutions formally approving the
Restructuring and recommending that the Unitholders approve the Restructuring.
THE PRIVATE OFFERING.
ACPT has engaged investment bankers to advise and assist in possible
financing activities to be commenced after the completion of the Restructuring.
In
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connection with the Restructuring, subject to market conditions, ACPT will seek
to raise up to $35 million in additional equity capital through the Private
Offering of Preferred Shares. Proceeds from the Private Offering would be used
to pay down existing bank debt and for working capital. The terms of the
Preferred Shares will be negotiated with purchasers, but they may include rights
to preferred distributions, cumulative distributions, and/or liquidation
preferences. The Preferred Shares also may be convertible into Common Shares at
a negotiated conversion ratio. The Private Offering, if completed, would result
in dilution of the percentage interest of all ACPT shareholders including the
Wilson Family, whose percentage ownership would likely be reduced below 40%.
See "Income Tax Considerations -- Federal Income Tax Considerations -- Federal
Income Tax Classification of American Rental -- Share Ownership, Reporting."
PRINCIPAL ADVANTAGES OF THE RESTRUCTURING.
Broader Market for Common Shares than for IGC Units.
---------------------------------------------------
Limited partnership interests which require holders to recognize trade
or business income and losses from partnership operations are generally not
regarded as attractive investments for institutions such as mutual funds and
pension funds. ACPT, as a holding company, will receive income principally in
the form of dividends and distributions from its subsidiaries, and its Common
Shares should be a more attractive investment for certain investors than IGC
Units even though ACPT is expected to be treated as a partnership for federal
income tax purposes. Enlarging the group of potential investors for ACPT Common
Shares should produce a more liquid market than currently exists for IGC Units.
However, there is no assurance that a public market will develop or be
substantial.
No History of Wetlands Litigation.
---------------------------------
IGC, which was convicted of federal Clean Water Act violations (which
conviction was reversed but has been remanded for a new trial), will retain the
four parcels of land that were involved in that litigation and the one
additional parcel that was the subject of a civil suit that was dismissed
without prejudice (collectively, the "Wetlands Properties"). None of the land
to be transferred to ACPT was so implicated and ACPT is not a party to such
proceedings. See "Legal Proceedings -- IGC" and "IGC After the Restructuring --
Creditors Rights."
No Adverse Financial Effects from AFH, IWT and CWT.
--------------------------------------------------
AFH has had operating losses and has capital needs and IWT and CWT
have capital needs that have had adverse effects upon IGC's operating results
and financial condition. These are expected to continue for the foreseeable
future. AFH will remain a subsidiary of IGC, and IWT and CWT will be held by
the CWT Trust for the benefit of IGC Unitholders. Thus, their financial results
will not affect ACPT. See
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"The Restructuring -- Assets Retained by IGC." ACPT will have no obligation to
provide financial support to AFH, IWT or CWT. See "IGC After the Restructuring
- -- Description of IGC's Continuing Business."
Simplified Tax Reporting.
------------------------
Because ACPT will derive income principally from dividends from
corporations, the items to be reported for federal tax purposes by ACPT
Shareholders generally will be limited to dividends and credits for withholding
taxes paid by IGP Group in Puerto Rico. Shareholders will not have to report
ordinary income or losses from trade or business activity as is currently the
case with IGC. See "Income Tax Considerations -- Federal Income Tax
Considerations -- Federal Income Tax Classification of ACPT."
Enhanced Financing Opportunities.
--------------------------------
The removal of the adverse financial effects of AFH, IWT, and CWT and
the absence of involvement in the wetlands litigation should provide ACPT with
opportunities to obtain financing for its operations from banks and other
lenders on terms that generally are more favorable than those currently
available to IGC. ACPT has not obtained any financing independent of IGC.
However, ACPT has engaged investment bankers to advise and assist in possible
financing activities to be commenced after the completion of the Restructuring.
Election of Trustees by Shareholders.
------------------------------------
ACPT will be managed by its Board of Trustees, the members of which
will be elected by ACPT shareholders. ACPT also will hold annual meetings of
shareholders. See "Comparative Rights of IGC Unitholders and Shareholders."
PRINCIPAL DISADVANTAGES OF THE RESTRUCTURING.
No Cash Distributions to IGC Unitholders.
----------------------------------------
Unless IGC ultimately prevails in the wetlands litigation, or the CWT
Trust sells assets and remits proceeds to IGC, the operations and assets
remaining with IGC after the Restructuring may not enable IGC to make quarterly
distributions to the IGC Unitholders. See "IGC After the Restructuring --
Description of IGC's Continuing Business." It is possible that IGC may
recognize taxable income without generating sufficient cash to enable IGC to
make a distribution to the IGC Unitholders in an amount at least equal to the
IGC Unitholders' tax liability arising from their share of IGC taxable income.
Tax Liabilities.
---------------
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Gain will be recognized by IGC (and the Unitholders will take into
account their allocable share of such gain) on the transfer of IGC's interests
in the U.S. Apartment Partnerships to American Housing to the extent that the
amount of liabilities assumed (or deemed assumed) by American Housing exceeds
the tax basis of the property contributed to American Housing. IGC has
calculated that approximately $6.1 million in gain will be recognized by IBC as
a result of the transfer, based on certain estimates and assumptions by IGC,
including IGC's estimates of tax basis and the amount of liabilities at the time
of the transfer. See "Income Tax Considerations -- Federal Income Tax
Considerations -- Federal Income Tax -- Consequences of the Asset Transfers."
American Management and American Land will be treated as corporations
for federal and state tax purposes and will be subject to federal and state
income tax (including any applicable alternative minimum tax) on their taxable
income at regular corporate tax rates. Payment of such taxes may reduce the
amounts otherwise available for distribution to ACPT, or by ACPT to the
Shareholders.
As a result of the Asset Transfers, Shareholders will not have a
distributive share of the various items of income, gain, loss, deduction or
credit attributable to the operating businesses conducted by partnerships.
Instead, distributions to ACPT from its subsidiaries American Management,
American Land, IGP Group and American Rental generally will be limited to
dividend income (to the extent of current and accumulated earnings and profits),
and, in the absence of earnings and profits, nontaxable return of capital (to
the extent of ACPT's tax basis in the stock of such corporation) or taxable
capital gain (after ACPT's tax basis has been reduced to zero). Distributions
from American Rental that are specifically designated as capital gain dividends
are treated as long term capital gains. Each Shareholder generally will include
its distributive share of ACPT's income in the Shareholder's taxable income. In
the event that American Rental elects to retain all or a portion of its net
capital gain and pay federal income tax on such undistributed amounts, each
Shareholder generally will include in income its distributive share of the
undistributed capital gains and will be deemed to have paid its distributive
share of the income tax paid by American Rental with respect to such
undistributed capital gains.
Reduction of Required Distributions.
-----------------------------------
Under its Partnership Agreement, IGC is required to distribute
annually to IGC Unitholders, in cash and/or property, an amount equal to 55% of
the net taxable income of IGC allocated to IGC Unitholders. The terms of ACPT's
Declaration of Trust require ACPT to distribute annually to Shareholders, in
cash and/or property, an amount equal to 45% of the net taxable income of ACPT
allocated to Shareholders less the amount of taxes paid by ACPT in Puerto Rico
and other foreign countries and certain federal taxes paid by American Rental
with respect to undistributed capital gains.
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As is the case with IGC, it is possible that ACPT may recognize
taxable income without generating sufficient cash to enable ACPT to make a
distribution to Shareholders in an amount at least equal to the Shareholders'
tax liability arising from their share of ACPT taxable income.
Antitakeover Effects.
--------------------
The provisions of ACPT's Declaration of Trust on classification of the
Board of Trustees, restrictions on the ownership of Common Shares, the ability
to issue preferred stock, and certain control share acquisition and business
combination statutes applicable to ACPT could have the affect of delaying,
deferring or preventing a transaction or a change in control of ACPT that might
involve a premium price for holders of Common Shares or otherwise be in their
best interest.
Restrictions on Accumulation of Common Shares.
---------------------------------------------
In order to preserve American Rental's qualification as a REIT, ACPT's
Declaration of Trust and Bylaws provide that a person (other than certain
existing IGC Unitholders) may not directly or indirectly own more than 2% of the
outstanding Common Shares. See "Income Tax Considerations -- Federal Income Tax
Classification of American Rental."
ACPT PRO FORMA COMBINED FINANCIAL DATA
The unaudited Pro Forma Combined Financial Data of ACPT include the consolidated
accounts of its subsidiaries American Management, American Land, IGP Group and
American Rental and reflect the following transactions and adjustments in the
case of the Pro Forma Combined Statements of Operations for the three months
ended March 31, 1998 and for the fiscal year ended December 31, 1997 as if such
transactions and adjustments had been completed January 1, 1997 and, in the case
of the Pro Forma Combined Balance Sheet as of March 31, 1998, as if such
transactions and adjustments occurred or such agreements were in effect as of
such date:
* Consummation of the distribution of the Common Shares of beneficial
interest of ACPT.
* The future receipt of mitigation draws under the Banc One loan.
* Increased general and administrative costs to operate ACPT on a stand-
alone basis.
The Pro Forma Combined Financial Data of ACPT are unaudited and presented
for informational purposes only and may not reflect ACPT's future results of
operations and financial position or what the results of operations and
financial position of ACPT would have been had such transactions occurred as of
the date indicated. Such pro forma information is based upon the combined
historical balance sheets and statements of
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operations of ACPP. ACPT's unaudited Pro Forma Combined Financial Data and
notes thereto should be read in conjunction with ACPP's Combined Financial
Historical Statements and notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained elsewhere
herein as well as the pro forma financial statements of IGC which reflect the
accounts of both IGC and ACPT subsequent to the Restructuring and the
Distribution.
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AMERICAN COMMUNITY PROPERTIES TRUST ("ACPT")
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
ACPT Restructure ACPT After
Historical Adjustments Restructure
----------- -------------- ------------
<S> <C> <C> <C>
REVENUES
Community development-land sales $ 5,961 $ -- $ 5,961
Equity in earnings from partnerships
and developer fees 505 -- 505
Rental property revenues 2,209 -- 2,209
Management and other fees, substantially
all from related entities 976 -- 976
Interest and other income 137 -- 137
---------- ----------- -----------
Total revenues 9,788 -- 9,788
---------- ----------- -----------
EXPENSES
Cost of land sales 3,608 -- 3,608
Selling and marketing 21 -- 21
General and administrative 1,600 10 (A) 1,610
Interest expense 910 -- 910
Rental properties operating expense 896 -- 896
Depreciation and amortization 471 -- 471
Write-off of deferred project costs -- -- --
Spin-off costs 757 -- 757
---------- ----------- -----------
Total expenses 8,263 10 8,273
---------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME
TAXES AND MINORITY INTEREST 1,525 (10) 1,515
PROVISION FOR INCOME TAXES 283 542 (B) 825
---------- ----------- -----------
INCOME BEFORE MINORITY INTEREST 1,242 (552) 690
MINORITY INTEREST (241) -- (241)
---------- ----------- -----------
NET INCOME $ 1,001 $ (552) $ 449
========== =========== ===========
BASIC NET INCOME PER SHARE $ .09
===========
WEIGHTED AVERAGE SHARES OUTSTANDING (C) 5,218
===========
</TABLE>
The accompanying notes are an integral part of this pro forma combined statement
of income.
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AMERICAN COMMUNITY PROPERTIES TRUST ("ACPT")
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
ACPT Restructure ACPT After
Historical Adjustments Restructure
----------- ------------ ------------
<S> <C> <C> <C>
REVENUES
Community development-land sales $ 13,165 -- $ 13,165
Equity in earnings from partnerships
and developer fees 1,509 -- 1,509
Rental property revenues 8,737 -- 8,737
Management and other fees, substantially
all from related entities 3,775 -- 3,775
Interest and other income 943 -- 943
---------- ----------- -----------
Total revenues 28,129 -- 28,129
---------- ----------- -----------
EXPENSES
Cost of land sales 8,494 -- 8,494
Selling and marketing 127 -- 127
General and administrative 6,607 130 (A) 6,737
Interest expense 3,820 -- 3,820
Rental properties operating expense 3,597 -- 3,597
Depreciation and amortization 1,850 -- 1,850
Write-off of deferred project costs 6 -- 6
Spin-off costs 1,164 -- 1,164
---------- ----------- -----------
Total expenses 25,665 130 25,795
---------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME
TAXES AND MINORITY INTEREST 2,464 (130) 2,334
PROVISION FOR INCOME TAXES 470 907 (B) 1,377
---------- ----------- -----------
INCOME BEFORE MINORITY INTEREST 1,994 (1,037) 957
MINORITY INTEREST (600) -- (600)
---------- ----------- -----------
NET INCOME $ 1,394 $(1,037) $ 357
========== =========== ===========
BASIC NET INCOME PER SHARE $ .07
===========
WEIGHTED AVERAGE SHARES OUTSTANDING (C) 5,196
===========
</TABLE>
The accompanying notes are an integral part of this pro forma combined statement
of income.
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AMERICAN COMMUNITY PROPERTIES TRUST ("ACPT")
PRO FORMA COMBINED BALANCE SHEET
AS OF MARCH 31, 1998
(In thousands)
(Unaudited)
ASSETS
------
<TABLE>
<CAPTION>
Pro Forma Pro Forma
ACPT Restructure ACPT After
Historical Adjustments Restructure
---------- ----------- -----------
<S> <C> <C> <C>
CASH AND CASH EQUIVALENTS
Unrestricted $ 2,126 $ -- $ 2,126
Restricted 2,002 -- 2,002
--------- --------- -----------
4,128 -- 4,128
--------- --------- -----------
ASSETS RELATED TO RENTAL PROPERTIES
Operating properties, net 38,174 -- 38,174
Investment in unconsolidated rental
property partnerships 7,015 -- 7,015
Other receivables, net 665 -- 665
--------- --------- -----------
45,854 -- 45,854
--------- --------- -----------
ASSETS RELATED TO COMMUNITY DEVELOPMENT
Land and development costs
Puerto Rico 32,202 -- 32,202
St. Charles, Maryland 22,437 -- 22,437
Notes receivable on lot sales and other,
substantially all due from affiliates 3,604 -- 3,604
--------- --------- -----------
58,243 -- 58,243
--------- --------- -----------
ASSETS RELATED TO HOMEBUILDING
Investment in joint venture 853 -- 853
--------- --------- -----------
853 -- 853
--------- --------- -----------
OTHER ASSETS
Receivables and other 1,782 -- 1,782
Property, plant and equipment, net 423 -- 423
--------- --------- -----------
2,205 -- 2,205
--------- --------- -----------
TOTAL ASSETS $ 111,283 $ -- $ 111,283
========= ========= ===========
</TABLE>
The accompanying notes are an integral part of this pro forma combined balance
sheet.
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AMERICAN COMMUNITY PROPERTIES TRUST ("ACPT")
PRO FORMA COMBINED BALANCE SHEET
AS OF MARCH 31, 1998
(In thousands)
(Unaudited)
LIABILITIES AND CAPITAL
-----------------------
<TABLE>
<CAPTION>
Pro Forma Pro Forma
ACPT Restructure ACPT After
Historical Adjustments Restructure
---------- ----------- -----------
<S> <C> <C> <C>
LIABILITIES RELATED TO RENTAL PROPERTIES
Recourse debt $ 918 $ -- $ 918
Non-recourse debt 38,995 -- 38,995
Accounts payable and accrued liabilities 3,067 -- 3,067
---------- ----------- -----------
42,980 -- 42,980
---------- ----------- -----------
LIABILITIES RELATED TO COMMUNITY
DEVELOPMENT
Recourse debt 34,128 -- 34,128
Non-recourse debt 2,324 -- 2,324
Accounts payable, accrued liabilities
and deferred income 4,444 -- 4,444
---------- ----------- -----------
40,896 -- 40,896
---------- ----------- -----------
OTHER LIABILITIES
Accounts payable and accrued liabilities 3,467 1,634 (D) 5,101
Notes payable and capital leases 145 -- 145
Accrued income tax liability-current 2,452 -- 2,452
Accrued income tax liability-deferred 3,491 -- 3,491
---------- ----------- -----------
9,555 1,634 11,189
---------- ----------- -----------
TOTAL LIABILITIES 93,431 1,634 95,065
---------- ----------- -----------
CAPITAL (E) 17,852 (1,634) (D) 16,218
---------- ----------- -----------
TOTAL LIABILITIES AND CAPITAL $ 111,283 $ -- $ 111,283
========== ============ ============
</TABLE>
The accompanying notes are an integral part of this pro forma combined balance
sheet.
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<PAGE>
AMERICAN COMMUNITY PROPERTIES TRUST ("ACPT")
NOTES TO PRO FORMA COMBINED FINANCIAL DATA
(A) Reflects the increase in general and administrative expenses to operate
ACPT on a stand-alone basis. Yearly general and administrative expense
increase consists of the following: executive salary, tax compliance
services and an annual shareholder meeting.
(B) Reflects provision for corporate level income taxes for American Management
and American Land. The income tax provision included in these pro forma
statements reflects the income tax provision and temporary differences
attributable to the operations of American Land and American Management on
a stand alone basis assuming combined federal and state tax rates
graduating from 22% to 45%. A deferred tax asset for American Management
and American Land exists and relates to SCA land and IGC land as it did in
connection with IGC's original organizational structure. The deferred tax
asset consists of three pieces. The first piece relates to interest
capitalized for tax purposes and expensed for book purposes that will only
be realized when the accompanying land is sold. The second piece relates
to deferred profit on IGC's books and will be realized as the accompanying
land is sold to a third party. The third piece relates to IGC's investment
in SCA and will be realized when the investment is sold. The deferred tax
asset has not been recorded in the accompanying pro forma combined balance
sheet as it has been reduced by a valuation allowance of an equal amount.
(C) The pro forma weighted average number of shares outstanding was determined
by dividing IGC's weighted average Units outstanding by the Unitholders'
percent ownership, 99%, and dividing the result by two.
(D) Reflects total future mitigation draws available to IGC under the Banc One
loan. ACPT will assume the repayment responsibility for the amounts drawn
by IGC for remediation purposes.
(E) Capital account consists of investment in and advances from parent.
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<PAGE>
ACPT
ACPT was formed under the Maryland Trust Law as a real estate
investment trust but is expected to be taxed as a partnership. The provisions
of the Maryland Trust Law require at least 75% of the value of ACPT's assets to
be held, directly or indirectly, in real estate assets, mortgages or mortgage-
related securities, government securities, cash and cash equivalent items,
including high-grade short term securities and receivables. ACPT was organized
on March 17, 1997, to carry out the Restructuring and, if the Restructuring is
completed, will continue in effect perpetually unless dissolved by action of the
Shareholders. ACPT will be wholly-owned by IGC until completion of the
Distribution. Following the completion of the Restructuring, ACPT will be
engaged in four principal lines of business formerly conducted by IGC: (i)
ownership of rental apartment properties in the United States and Puerto Rico,
(ii) community development in the United States and Puerto Rico, (iii) property
management services in the United States and Puerto Rico, and (iv) development
of commercial rental properties and/or ground leases in Puerto Rico. In
addition, ACPT will be engaged in limited condominium building operations in
Puerto Rico.
The mailing address of ACPT is 222 Smallwood Village Center, St.
Charles, Maryland 20602 and its telephone number is (301) 843-8600.
DISTRIBUTION POLICY
Under the terms of its Declaration of Trust, ACPT is required to make
minimum annual distributions to Shareholders such that the minimum aggregate
amount of all distributions made each year will equal 45% of the net taxable
income allocated to Shareholders in such year, provided that the amount of the
required minimum distribution will be reduced by the amount of taxes paid by
ACPT in Puerto Rico and other foreign countries and certain federal taxes paid
by American Rental with respect to undistributed capital gains. The minimum
distribution may consist of cash dividends and/or distributions of other
property. Any distributions in addition to the required minimum distribution
will be made at the discretion of the Board of Trustees. In making such
determinations, the Board of Trustees will take into account various factors,
including ACPT's anticipated needs for cash for future expansion and
development, current and anticipated expenses, obligations and contingencies,
and other similar working capital considerations.
ACPT and its subsidiaries expect to coordinate the declaration and
payment of dividends and other distributions from such entities in such a manner
that all dividends will be paid by the lower tier entities to ACPT on the same
day that ACPT declares a distribution to Shareholders of record on such date.
Thus, each Shareholder's distribution from ACPT will correspond with its
allocable share of taxable income associated with ACPT's receipt of dividends
from the other entities. See "Income Tax
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<PAGE>
Considerations -- Federal Income Tax Considerations -- Federal Income Taxation
of ACPT and Shareholders -- Coordination of Allocations and Distributions."
CAPITALIZATION
The following table sets forth the capitalization of ACPT as of March
31, 1998, and pro forma capitalization as of March 31, 1998, after giving effect
to the transactions described in the "ACPT Pro Forma Combined Financial Data."
The capitalization of ACPT should be read in conjunction with ACPP's Combined
Historical Financial Statements and the notes thereto, the "ACPT Pro Forma
Combined Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," each contained elsewhere herein.
<TABLE>
<CAPTION>
As of March 31, 1998
--------------------
(In thousands)
Actual Pro Forma (1)
------- -------------
(Unaudited)
<S> <C> <C>
Recourse debt $35,191 $35,191
Non-recourse debt 41,319 41,319
Capital (2) 17,852 16,218
------- -------
Total capitalization $94,362 $92,728
======= =======
</TABLE>
(1) Pro forma for (i) the consummation of the Distribution, (ii) the receipt of
mitigation draws under the Banc One loan and (iii) increased general and
administrative costs to operate ACPT on a stand-alone basis. See "ACPT Pro
Forma Combined Financial Data."
(2) Capital consists of investment in and advances from parent.
MARKET PRICES AND DISTRIBUTIONS
At the date hereof, there is no public trading market for the Common
Shares. ACPT intends to apply for listing of the Common Shares offered hereby
on the AMEX and the PSE.
The IGC Units are listed for trading on the AMEX and the PSE under the
ticker symbol "IGC." The following table sets forth, for the periods indicated,
the closing sale price of the IGC Units as reported on the AMEX in such periods
(and paid
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<PAGE>
in the subsequent period). As of October 1, 1997, the record number of IGC
Unitholders was approximately 300.
<TABLE>
<CAPTION>
1995 High Low Distribution
- ---- ---- --- ------------
<S> <C> <C> <C>
1st Quarter 7-1/2 3-1/4 (1)
2nd Quarter 4-3/8 3-1/4 $ ---
3rd Quarter 4-3/4 3-1/2 $ ---
4th Quarter 4-1/8 2-15/16 $ ---
<CAPTION>
1996 High Low Distribution
- ---- ----- --- ------------
<S> <C> <C> <C>
1st Quarter 4 3 $ ---
2nd Quarter 3-7/8 2-3/4 $.06
3rd Quarter 3 2-3/8 $.05
4th Quarter 3-1/2 2-5/16 $ ---
<CAPTION>
1997 High Low Distribution
- ---- ---- --- ------------
<S> <C> <C> <C>
1st Quarter 3-7/8 2-7/8 $ ---
2nd Quarter 3-13/16 2-15/16 $ ---
3rd Quarter 4 2-7/8 $ ---
4th Quarter 5-3/8 3-1/4 $ ---
<CAPTION>
1998 High Low Distribution
- ---- ---- ---- ------------
<S> <C> <C> <C>
1st Quarter 5-1/2 4-1/8 $.02
2nd Quarter to 5-1/8 4 $ ---
May 27, 1998
</TABLE>
_________________
(1) On February 6, 1995, IGC distributed to its Unitholders 5,128,372 Equus
Units, representing in the aggregate beneficial ownership of a 99% limited
partnership interest in Equus Gaming Company L.P.
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<PAGE>
SELECTED COMBINED HISTORICAL FINANCIAL AND OPERATING DATA OF
AMERICAN COMMUNITY PORTFOLIO PROPERTIES
The following table sets forth financial and operating information of ACPP
(as defined in Note 1 to the Combined Historical Financial Statements) on a
historical combined basis.
The combined historical income statement data for 1993 and the combined
historical balance sheet data for 1994 and 1993 have been derived from unaudited
combined historical financial statements of ACPP which, in the opinion of
management, include all material adjustments necessary for those periods and
were prepared as if ACPP were a separate entity for all periods presented. The
historical combined financial and operating data is not necessarily indicative
of ACPP's future results of operations or financial condition. The data set
forth below should be read in conjunction with the unaudited Pro Forma Financial
Data of ACPT and the notes thereto; the audited Combined Historical Financial
Statements of ACPP and the notes thereto; and Management's Discussion and
Analysis of Financial Condition and Results of Operations of ACPP included
elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------------ ---------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data
Land sales $5,961 $1,519 $13,165 $13,674 $15,441 $21,168 $16,434
Rental property revenues 2,209 2,158 8,737 7,577 4,642 4,537 2,113
Equity in earnings from partnerships
and developer fees 505 398 1,509 16,585 2,514 4,878 3,736
Management and other fees 976 1,343 3,775 4,816 3,894 3,507 4,494
Interest and other income 137 143 943 982 693 649 757
Total revenues 9,788 5,561 28,129 43,634 27,184 34,739 27,534
Cost of land sales 3,608 970 8,494 9,378 7,801 12,934 11,066
Interest expense 910 961 3,820 4,433 4,263 4,337 2,042
General and administrative expense 1,600 1,530 6,607 6,810 6,769 6,619 6,288
Other operating expenses 2,145 1,325 6,744 5,518 2,667 2,676 2,419
Total expenses 8,263 4,786 25,665 26,139 21,500 26,566 21,815
Minority interest (241) (94) (600) (444) (511) (680) (122)
Income tax provision
(benefit) 283 60 470 3,424 1,369 3,304 (1,120) (2)
Net income 1,001 621 1,394 12,695 (1) 3,804 4,189 6,717 (2)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
As of March 31, Year Ended December 31,
--------------- ------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ----- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data
Assets related to rental properties $ 45,854 $ 52,771 $ 47,421 $ 52,011 $ 35,561 $35,107 $38,936
Assets related to community
development 58,243 62,228 61,647 63,000 59,309 49,490 55,173
Cash and other assets 7,186 4,291 6,054 5,565 7,083 7,491 5,716
Total assets 111,283 119,290 115,122 120,576 101,953 92,088 99,825
Debt related to rental properties
Recourse 918 1,098 969 1,139 1,334 1,559 1,857
Non-recourse 38,995 39,409 39,101 39,508 22,650 22,771 22,457
Debt related to community
development
Recourse 34,128 37,022 39,784 38,943 49,941 42,351 47,217
Non-recourse 2,324 2,212 2,295 2,153 2,034 4,270 14,775
Other liabilities 17,066 19,080 16,957 18,745 12,781 10,961 9,840
Total liabilities 93,431 98,821 99,106 100,488 88,740 81,912 96,146
Capital 17,852 20,469 16,016 20,088 13,213 10,176 3,679
Operating Data
Rental apartment units
managed at end of period 8,139 8,139 8,139 8,139 8,085 8,085 8,029
Units under construction -- -- -- -- 54 -- 56
Community Development
Residential lots sold 200 23 231 406 113 101 180
Residential lots transferred
to joint venture -- -- 118 98 -- -- --
Residential lots transferred
to Company's rental
property operations -- -- -- -- 54 -- 56
Commercial and business
park acres sold 31 9 17 5 20 76 12
Undeveloped acres sold -- -- 381 -- 2 20 27
</TABLE>
(1) Includes a $932,000 reduction for an extraordinary item-early
extinguishment of debt.
(2) Includes a $1,371,000 benefit for the cumulative effect of a change in
accounting principle to reflect the adoption of SFAS No. 109,
"Accounting for Income Taxes".
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
The following discussion should be read in conjunction with the Selected
Combined Historical Financial and Operating Data, Pro Forma Combined Financial
Data of ACPT and the Combined Historical Financial Statements of ACPP and the
related notes included elsewhere in this Proxy Statement/Prospectus.
GENERAL.
ACPT was formed on March 17, 1997 as a new business without prior
operations in order to succeed to the principal real estate assets and
businesses of IGC as a result of the Restructuring and is referred to as
American Community Portfolio Properties ("ACPP"). The following discussion and
analysis of results of operations of ACPP for the three months ended March 31,
1998 and 1997 and the years ended December 31, 1997, 1996 and 1995 reflects the
actual results of operations for such periods associated with the assets and
businesses of IGC that will be transferred to ACPT in the Restructuring. This
discussion should be read in conjunction with the Combined Historical Financial
Statements of ACPP and accompanying notes appearing elsewhere in this Proxy
Statement/Prospectus. In particular, Note 1 to the Combined Historical
Financial Statements of ACPP details the assets and businesses that are the
subject of the following discussion and analysis.
Historically, ACPP's operations and financial results have been
significantly affected by the cyclical nature of the real estate industry.
Accordingly, ACPP's combined historical financial statements may not be
indicative of future results.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997.
Community Development Operations.
--------------------------------
Community development land sales revenue increased $4,442,000 to
$5,961,000 (none of which were to affiliates) during the first three months of
1998, compared to sales of $1,519,000 (of which $70,000 were to affiliates)
during the first three months of 1997. This increase was attributable to a sale
of residential lots in Puerto Rico of $4,000,000. Residential lots in Puerto
Rico are sold to homebuilders in bulk creating fluctuations in lot sales revenue
when compared on a quarterly basis. The gross profit margin for the first three
months of 1998 increased to 39%, as compared to 36% in the same period of 1997.
This increase was due primarily to the sales mix. During the first quarter of
1998, the U.S. division sold a large industrial parcel, located
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<PAGE>
in an undeveloped industrial park, which had a low cost basis. There were no
similar sales during the comparable quarter of 1997.
Rental Property Revenues, Net of Operating Expenses.
---------------------------------------------------
Rental property revenues, net of operating expenses, decreased less
than 1% to $1,313,000 during the first three months of 1998, as compared to
$1,323,000 in the same period in 1997. The decrease is primarily attributable
to a 7% increase in operating expenses offset by a 2% increase in rental
revenues. The increase in operating expenses is a result of an increase in
overhead and timing difference of utility costs.
Equity in Earnings from Partnerships and Developer Fees.
-------------------------------------------------------
Equity in earnings increased 27% to $505,000 during the first three
months of 1998 as compared to $398,000 during the first three months of 1997.
This increase is primarily due to earnings generated from the homebuilding joint
venture during the first quarter of 1998, with no such earnings in the first
quarter of 1997, offset in part by reduced earnings from partnerships that paid
refinancing fees or had reduced income due to temporary reduction in occupancy
in the first quarter of 1998 as compared to the same period in 1997.
Management and Other Fees.
-------------------------
Management and other fees decreased 27% to $976,000 in the first
quarter of 1998, as compared to $1,343,000 in the first quarter of 1997. The
decrease is primarily attributable to a reduction of $457,000 in fees earned
from the refinancing of certain apartment complexes, offset by $100,000 of
incentive fees earned during the first quarter of 1998 as compared to the same
period in 1997.
Interest Expense.
----------------
Interest expense decreased 5% to $910,000 during the first three months of
1998, as compared to $961,000 for the first three months of 1997. This decrease
is primarily attributable to a $3,379,000 decrease in outstanding debt from
March 31, 1998 as compared to March 31, 1997.
General and Administrative Expense.
----------------------------------
General and administrative expenses increased 5% to $1,600,000 for the
first three months of 1998, as compared to $1,530,000 for the same period of
1997. This increase was a result of general inflation and timing differences
offset in part by management's continued focus on cost efficiency and the
reduction of expenses.
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<PAGE>
Spin-off Costs.
--------------
Costs of $757,000 related to the Restructuring were recognized as an
expense during the first three months of 1998. There were no such costs in the
first quarter of 1997.
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996.
Community Development Operations.
--------------------------------
Community development land sales revenue decreased 4% to $13,165,000
(of which $3,105,000 were to affiliates) during 1997 compared to $13,674,000 (of
which $10,066,000 were to affiliates) during 1996. This decrease was caused by
a reduction in residential lot sales in Puerto Rico, offset by increases in
residential and commercial lot sales in the U.S. The timing of the various
sales causes fluctuations when comparing annual results. Even though the sales
revenues were down, the gross margin during 1997 increased to 35% compared to
31% in 1996. This increase is primarily due to the mix of sales. During 1997,
23% of the sales revenue was generated by an undeveloped bulk parcel with a low
acquisition cost. There were no similar sales during 1996.
Rental Property Revenues, Net of Operating Expenses.
---------------------------------------------------
Rental properties revenues, net of operating expenses, increased 19%
to $5,140,000 during 1997 as compared to $4,332,000 during 1996. This increase
is due to the consolidation of four additional partnerships when they became
majority owned through an acquisition of additional limited partnership
interests on April 1, 1996.
Equity in Earnings from Partnerships and Developer Fees.
-------------------------------------------------------
Equity in earnings decreased $15,076,000 to $1,509,000 during 1997
from $16,585,000 during 1996. During March 1996, ACPP completed the sale of
four Puerto Rico apartment projects. The properties, totalling 918 rental
units, were sold under the 1990 Low Income Housing Preservation and Resident
Homeownership Act ("LIHPRHA"). This decrease was primarily due to the
$14,637,000 earned on the LIHPRHA sale during the 1996 period and the
elimination of the equity in earnings in the four partnerships consolidated
during the 1997 period.
Management and Other Fees.
-------------------------
Management and other fees decreased $1,041,000 or 22% during 1997
compared to 1996. This decrease was due primarily to special management fees of
$1,362,000 earned in the first quarter of 1996 from the LIHPRHA transaction and
the elimination of the management fees in the four partnerships consolidated
during 1997,
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<PAGE>
offset in part by fees of $724,000 earned from the refinancing of two apartment
complexes in 1997.
Interest Expense.
----------------
Interest expense decreased $613,000 to $3,820,000 during 1997 compared
to $4,433,000 during 1996. This decrease is primarily attributable to $500,000
of late fees incurred during 1996 and reduced outstanding debt balances during
1997, offset in part by interest attributable to the additional four properties
consolidated April 1, 1996, as discussed above.
General and Administrative Expense.
----------------------------------
General and administrative expenses decreased by $203,000 to
$6,607,000 during 1997 compared to $6,810,000 during 1996 as a result of
management's continued focus on cost efficiency.
Spin-off Costs.
--------------
Costs of $1,164,000 related to the Restructuring were recognized as an
expense in 1997. There were no such costs in 1996.
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995.
Community Development Operations.
--------------------------------
Community development land sales decreased in 1996 as compared with
1995 by approximately $1,767,000 due primarily to reduction of commercial lot
sales, offset in part by increased residential lot sales in Puerto Rico. The
U.S. residential lot sales volume has continued to be unfavorably impacted by
competitive market conditions.
The gross profit margins for 1996 and 1995 were 31% and 49%,
respectively. This decrease in gross profit margin was due primarily to the
change in the mix of sales. U.S. commercial sales, which generally have higher
gross margins, as a percent of land sales revenue were 0% in 1996 as compared to
24% in 1995. U.S. commercial land sales produce the highest gross margins since
their sales prices are higher and they require less development than business
park and residential land.
Rental Property Revenues Net of Operating Expenses.
--------------------------------------------------
Rental property revenues, net of operating expenses, increased 47% to
$4,332,000 during 1996 as compared to $2,947,000 during 1995. This increase is
due
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<PAGE>
to the consolidation of four additional partnerships when they became majority
owned through an acquisition of limited partnership interests on April 1, 1996.
Equity in Earnings from Partnerships and Developer Fees.
-------------------------------------------------------
Equity in earnings from partnerships increased to $16,585,000 during
1996 from $2,514,000 during 1995. This increase is attributable to ACPP's share
of a 1996 gain from the LIHPRHA sale. There were no similar transactions in
1995.
Management and Other Fees.
-------------------------
Management and other fees increased 24% to $4,816,000 during 1996 from
$3,894,000 during 1995. This increase was primarily due to $1,362,000 of fees
earned in 1996 from the LIHPRHA sale, offset by the elimination of $153,000 of
management fees earned from the four partnerships consolidated as of April 1,
1996, the negotiated reduction of $100,000 per year effective June 1, 1996 on
one of the management contracts and an additional $197,000 of deferred
management fees that were recognized in 1995.
Interest Expense.
----------------
Interest expense increased $170,000 to $4,433,000 during 1996 from
$4,263,000 during 1995 primarily due to the consolidation of the four additional
rental properties partnerships, offset in part by the reduction of non-rental
property loan balances.
General and Administrative Expense.
----------------------------------
General and administrative expenses increased less than 1% to
$6,810,000 during 1996 as compared to $6,769,000 in 1995 primarily as a result
of management's continued focus on cost efficiency of these expenses.
LIQUIDITY AND CAPITAL RESOURCES.
Cash and cash equivalents were $2,126,000 and $2,127,000 at March 31,
1998 and December 31, 1997, respectively. This decrease was attributable to
$8,884,000 provided by operating activities, offset by $3,908,000 and $4,977,000
used in investing and financing activities, respectively. The cash inflow from
operating activities was primarily attributable to land sales, collection of
notes receivable and distributions from unconsolidated partnerships. The cash
outflow for investing activities was primarily attributable to land improvements
put in place for future land sales and deposits into escrow accounts. During
the first three months of 1998, $7,400,000 of debt repayments were made as
compared to $1,588,000 of debt advances received.
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<PAGE>
ACPP has historically met its liquidity requirements principally from
cash flow generated from land sales, property management fees, distributions
from residential rental partnerships and from bank financing providing funds for
development and working capital.
Over the past several years, cash flows have been constrained because
of the terms of its existing debt agreements and the reluctance of new lending
opportunities as a result of the wetlands litigation (see "Legal Proceedings --
IGC -- Wetlands Litigation"). As a result, substantially all of the cash
generated has been used to pay debt service requirements with existing lenders.
This resulted in limited opportunities for new construction and development.
The recently closed Banc One financing provided funding to commence construction
in Fairway Village, the third village in St. Charles, and will allow ACPP to
retain a greater portion of its U.S. land sales proceeds. ACPP currently has
other development projects in various stages of completion. Substantially all
of the projects under construction have sufficient development loans in place to
complete the construction.
ACPP's principal demands for liquidity are expected to be the
continued funding of its current debt service and operating cost requirements.
After the Distribution, management expects to obtain additional funding which
can be used to fund new community development projects. Such sources of funding
may include, but are not limited to, excess operating cash flows, secured or
unsecured financings, private or public offerings of debt or equity securities,
extension or refinancings of $10,152,000 of loans that are due in 1998 and
proceeds from sales of properties. However, there are no assurances that these
funds will be generated.
DEBT SUMMARY
Substantially all of ACPP's assets, $111,000,000, are encumbered by
$35,000,000 of recourse debt and $41,000,000 of non-recourse debt; $39,000,000
of the non-recourse debt is attributable to the mortgages of consolidated rental
property partnerships. The significant terms of ACPP's other debt financing
arrangements are shown below (dollars in thousands):
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<PAGE>
<TABLE>
<CAPTION>
Balance
Maximum Interest Maturity Outstanding
Descriptions Borrowings Rate Date 3/31/98
------------ ---------- -------- -------- -----------
<S> <C> <C> <C> <C>
Banc One-term loan (a) $11,000 P+2.5% 7/31/04 $ 10,000
Banc One-development loan (a) 4,000 P+2.5% 7/31/04 1,170
Banc One-remediation loan (a) 5,000 P+2.5% 7/31/04 3,366
First Bank-term loan (b) 9,865 P+1.5% 8/31/98 7,399
First Bank-construction loan (b) 5,500 P+1.5% 6/30/98 2,113
IGC (c) 7,908 P+1.5% 8/2/09 6,956
RG-Premier Bank (d) 1,641 P+1.5% 4/30/99 1,479
Citibank (e) 969 (e) demand 918
Banco Santander (f) 887 P+1 % 9/29/98 640
Washington Savings Bank (g) 1,317 9.5% 9/30/99 818
Other Miscellaneous 188 Various Various 188
------- --------
$48,275 $ 35,047
======= ========
</TABLE>
(a) The three notes are cross-collateralized by substantially all of the U.S.
land and the U.S. and Puerto Rico future cash entitlements pursuant to its
ownership interest in the housing partnerships. Interest is paid monthly. The
loan agreement calls for a minimum of $2,000,000 principal curtailments in 1998,
and $3,000,000 in each of the following six years. In addition, ACPT is to
establish a $1,000,000 development reserve during 1998 of which $500,000 has
been funded. It is ACPT's intention to meet the required payments from land
sales and proceeds from the refinancing of a rental property. On each
anniversary date, ACPT is to pay an additional fee, 1% in 1998 and 1999,
increasing 1/2% in the following four years, and grant an option to the lender
to purchase an additional 75,000 shares at a strike price to be determined after
the restructure. The loan agreement covenants include restrictions on
additional indebtedness of ACPT and St. Charles Community LLC. The loan
agreement contains a cross default provision for any amounts in excess of
$1,000,000 past due for 45 days after demand notification.
(b) The two notes are cross-collateralized by the Puerto Rico land assets.
The interest is paid monthly from an interest reserve. Principal payments are
funded through the partial release prices of the collateral. ACPT expects to
extend the maturity date of these loans. The loan agreement covenants include
restrictions on distributions by LDA and additional indebtedness of LDA and
cross default provisions for other loan payment defaults.
(c) The interest rate is subject to a 9% ceiling and a 6% floor. Principal
and interest are paid from available cash flow as determined by management.
(d) The note requires monthly principal payments of $27,000 and is secured by
three mortgage notes receivable totalling $2,717,600. Interest is paid monthly
by advances under the loan agreement.
(e) The note requires monthly payments of interest calculated at 250 basis
points over the cost of funds, 8.406% at December 31, 1997. The note was
secured by a letter of credit that expired in January 1998. Management is
currently renegotiating the terms of this loan.
(f) The loan is collateralized by a pledge of two mortgage notes receivable
totalling $2,760,000. Monthly principal payments of $27,000 are required.
Additional principal is paid from the sale of residential parcels in Phase II of
Parque Escorial.
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<PAGE>
(g) The note requires monthly payments of interest and is collateralized by
the land under development for 115 townhome lots in St. Charles, Maryland. The
loan is to be repaid from the sale of townhome lots that are currently under an
option contract.
MATERIAL NEGATIVE DEBT COVENANTS
ACPP is subject to certain restrictive covenants by its debt
instruments. The material negative covenants are as follows:
ACPP is required to obtain prior approval before incurring any liens
on its assets or incurring any additional indebtedness. ACPP is prohibited from
making distributions in excess of the minimum distributions required by ACPT's
Declaration of Trust without prior lender approval. Lender approval is also
required by LDA prior to making cash distributions in excess of distributions to
pay income taxes on LDA generated taxable income unless certain cash flow
conditions exist that provide adequate working capital for debt service and
operations for the following twelve months. Lender approval is required prior
to ACPP making any guarantee or loan out of the normal course of business. ACPP
is prohibited from selling or disposing substantially all of its assets outside
the ordinary course of business or entering into any significant new line of
business. LDA may not enter into any transaction with any affiliate out of the
normal course of business and for terms less favorable than would be obtained in
an arm's-length transaction without prior lender approval. Prior approval is
also required for any change in the ownership of LDA, any amendments to LDA's
partnership agreement, or any merger, reorganization or acquisition of LDA.
YEAR 2000
ACPP has assessed and continues to assess the impact of the Year 2000
issue on its reporting systems and operations. The Year 2000 issue exists
because many computer systems and applications and other systems using computer
chips currently use two-digit fields to designate a year. As the century date
occurs, date sensitive systems may recognize the year 2000 as 1900 or not at
all. This inability to recognize or properly treat the year 2000 may cause the
systems to process critical financial and operations information incorrectly.
ACPP's reporting systems are Year 2000 compliant with the exception of
one module. The Company has engaged a programmer at a nominal cost to bring
this module into compliance. Management is continuing to review the remaining
operating systems and computer systems that affect the properties ACPP manages.
This review is continuing and management has not yet determined whether these
remaining systems are Year 2000 compliant, and if not, whether the failure to
correct them would have a material effect on the operations or financial
performance of ACPT.
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<PAGE>
FORWARD-LOOKING STATEMENTS
Certain matters discussed and statements made within this Registration
Statement are forward-looking statements within the meaning of the Private
Litigation Reform Act of 1995 and as such may involve known and unknown risks,
uncertainties, and other factors that may cause the actual results, performance
or achievements of ACPP to be different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Although
ACPP believes the expectations reflected in such forward-looking statements are
based on reasonable assumptions, it can give no assurance that its expectations
will be attained. These risks will be detailed from time to time in ACPP's
filings with the Securities and Exchange Commission or other public statements.
BUSINESS AND PROPERTIES OF ACPT
Following completion of the Restructuring, ACPT will be engaged in
four principal lines of business formerly conducted by IGC: (i) ownership of
rental apartment properties in the United States and Puerto Rico, (ii) community
development in the United States and Puerto Rico, (iii) property management
services in the United States and Puerto Rico, and (iv) development of
commercial rental properties and/or ground leases in Puerto Rico. In addition,
ACPT will be engaged in limited condominium building operations in Puerto Rico.
Set forth below is a brief description of these businesses as they will be owned
and conducted following the Restructuring.
RENTAL APARTMENT PROPERTIES.
United States.
-------------
ACPT, indirectly through its REIT subsidiary American Rental and
American Rental's limited partnership subsidiary American Housing, will hold
interests in 13 U.S. Apartment Partnerships that own and operate apartment
facilities in Maryland and Virginia. The U.S. Apartment Partnerships own a
total of 2,246 rental units. Each of the apartment properties is financed by a
mortgage that is non-recourse to the apartment partnership. As non-recourse
mortgages, the partners are not jointly and severally liable for the debt. HUD
provides rent subsidies to residents of 993 of the apartment units. In
addition, 110 units are leased pursuant to HUD's Low Income Housing Tax Credit
program, and 200 other units are leased under income guidelines set by the
Maryland Community Development Administration. The remaining units are leased
at market rates.
The partnership agreements of the U.S. Apartment Partnerships provide
that American Housing will receive between 50% and 99.9% of distributable
surplus cash from operations, refinancings or dispositions as general partner in
seven of the partnerships. In two of these partnerships, American Housing also
will receive 25.5%
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of the distributable surplus cash from operations as a limited partner. In five
of the partnerships, American Housing will receive 0% to 5% of the distributable
surplus cash from operations as general partner until the limited partners have
received cash distributions equal to their contributed capital. Thereafter,
American Housing as general partner will share in 50% of the distributable cash
flow from operations, refinancings and dispositions. In two of these
partnerships, American Housing also will receive 51% of the cash distributions
as limited partner. Once the limited partners have received cash distributions
equal to their contributions and American Housing's general partner's
distributions increase to 50%, American Housing's limited partnership
distributions will decrease to 25.5%. American Housing directly and indirectly
will receive 100% of the distributable cash flow from operations in one of the
partnerships.
The table below sets forth the name of each U.S. Apartment
Partnership; the number of rental units in the property owned by such
partnership; the project cost; the percentage of such units under lease; and the
expiration date for any subsidy contract:
<TABLE>
<CAPTION>
3/31/98 Expiration
No. of Apt. Project Cost Occupancy at of Subsidy
Units (in thousands) 3/31/98 Contract
----- -------------- ------- --------
<S> <C> <C> <C> <C>
Bannister Associates Limited
Partnership (1) 208 $ 5,076 96% 1998 41 units
2017 167 units
Brookside Gardens Limited
Partnership (2) 56 2,688 73% N/A
Crossland Associates Limited
Partnership (3) 96 3,269 82% N/A
Fox Chase Apartments General
Partnership (4) 176 7,895 91% N/A
Headen House Associates Limited
Partnership (5) 136 5,990 96% 2000
Huntington Associates Limited
Partnership (6) 204 10,303 93% 2000
Lakeside Apartments Limited
Partnership (7) 54 4,169 98% N/A
Lancaster Apartment Limited
Partnership (8) 104 4,949 89% N/A
New Forest Apartments General
Partnership (4) 256 13,768 88% N/A
Palmer Apartments Associates
Limited Partnership (9) 152 5,696 90% 2000
</TABLE>
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<TABLE>
<CAPTION>
3/31/98 Expiration
No. of Apt. Project Cost Occupancy at of Subsidy
Units (in thousands) 3/31/98 Contract
----- -------------- ------- --------
<S> <C> <C> <C> <C>
Wakefield Terrace Associates
Limited Partnership (10) 204 6,339 92% 1998 40 units
2020 164 units
Wakefield Third Age Associates
Limited Partnership (11) 104 3,120 97% 1998 20 units
2019 84 units
Essex Apartments Associates
Limited Partnership (12) 496 19,250 97% 2000
----- --------
2,246 $ 92,512
===== ========
</TABLE>
(1) Receives subsidies under the National Housing Act up to a maximum of
$184,020 per year.
(2) Not subsidized, but all units are set aside for low to moderate income
tenants over 62 years of age under provisions set by the Low Income Housing
Tax Credit ("LIHTC") program.
(3) Not subsidized.
(4) Not subsidized, but 20% of the units are subject to income guidelines set
by Sections 4a and 103b of the Internal Revenue Code of 1954.
(5) Receives subsidies under the National Housing Act up to a maximum of
$1,369,008 per year.
(6) Receives subsidies under the National Housing Act up to a maximum of
$2,066,040 per year.
(7) Not subsidized, but all units are set aside for low to moderate income
tenants over 55 years of age under provisions set by the LIHTC program.
(8) Not subsidized, but 51% of the units are subject to income guidelines set
by the Maryland Community Development Administration ("MCDA").
(9) 56 units are subsidized and receive subsidies under the National Housing
Act up to a maximum of $474,432 per year. 96 units are not subsidized, but
51% of these are subject to income guidelines set by MCDA.
(10) Receives subsidies under the National Housing Act up to a maximum of
$194,220 per year.
(11) Receives subsidies under the National Housing Act up to a maximum of
$90,480 per year.
(12) Receives subsidies under the National Housing Act up to a maximum of
$3,326,592 per year.
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Puerto Rico.
-----------
In addition, ACPT, indirectly through its partnership subsidiary IGP
Group, and IGP Group's partnership subsidiary IGP, will hold interests in 9
Puerto Rico Apartment Partnerships that own and operate a total of 12 apartment
facilities in Puerto Rico. The Puerto Rico Apartment Partnerships own a total
of 2,849 rental units, all of which are subject to rent subsidies from HUD. The
properties held by the Puerto Rico Apartment Partnerships are financed by
mortgages that are non-recourse to the partners.
Two of the partnership agreements of the Puerto Rico Apartment
Partnerships provide that IGP currently receives 50% of the net cash flow from
operations. In the remaining seven partnerships, IGP receives a 0% to 5%
interest in profits, losses and net cash flow from operations until such time as
the limited partners have received cash distributions equal to their capital
contributions. Thereafter, IGP will share in 50% to 60% of cash distributions
from operations, refinancing and disposition. As a result of loans made to six
of the Puerto Rico Apartment Partnerships, IGP also holds notes payable by such
partnerships that are required to be paid prior to the making of distributions
to the partnership from refinancing, sale or other capital events.
ACPT intends to benefit from certain projected trends in Puerto Rico.
Puerto Rico is estimated to have approximately 3.7 million inhabitants at
present, and its population is projected to grow annually at a rate of between
.56% and .97% between 1995 and 2010, as determined by the Puerto Rico Planning
Board. The typical Puerto Rico family has decreased in size from 3.8 in 1987 to
3.5 in 1996, which has caused the number of families and households to grow at a
faster rate than the population, a trend that is expected to continue and have a
positive effect in demand for housing. Puerto Rico's growing population has
resulted in greater construction activity in the residential sector, and has
shifted construction from single-family homes to multi-family construction such
as walk-up condominiums. Per capita personal income increased to $7,882 in
fiscal year 1996 from $7,374 in 1995 and $7,079 in 1994. The economy of Puerto
Rico registered a real growth of 3.1% during fiscal year 1996 in its gross
product, compared with increases of 3.4% in 1995 and 2.5% in 1994.
The table below sets forth the name of each apartment property owned
by the Puerto Rico Apartment Partnerships; the number of rental units in the
property owned by such partnership; the project cost; the percentage of such
units under lease; and the expiration date for any subsidy contract:
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<PAGE>
<TABLE>
<CAPTION>
3/31/98
No. of Project Expiration
Apt. Cost Occupancy of Subsidy
Units (in thousands) at 3/31/98 Contract
----- -------------- ---------- ----------
<S> <C> <C> <C> <C>
San Anton (1) 184 $ 4,610 99% 1998
Monserrate I (2) 304 11,469 99% 1999
Alturas del Senorial (3) 124 4,674 99% 1999
Jardines de Caparra (4) 198 7,371 100% 2000
Colinas de San Juan (5) 300 12,059 99% 2001
Bayamon Gardens (6) 280 13,609 99% 2011
Vistas del Turabo (7) 96 3,369 100% 2021
Monserrate II (8) (9) 304 12,276 99% 2020
Santa Juana (8)(10) 198 7,480 100% 2020
Torre De Las Cumbres (8) (11) 155 6,589 100% 2020
De Diego (8) (12) 198 7,514 100% 2020
Valle del Sol (13) 312 15,291 99% 2003
----- --------
2,653 $106,311
===== ========
</TABLE>
(1) Receives subsidies under the National Housing Act up to a maximum of
$1,339,200 per year.
(2) Receives subsidies under the National Housing Act up to a maximum of
$1,916,464 per year.
(3) Receives subsidies under the National Housing Act up to a maximum of
$570,672 per year.
(4) Receives subsidies under the National Housing Act up to a maximum of
$891,048 per year.
(5) Receives subsidies under the National Housing Act up to a maximum of
$1,339,200 per year.
(6) Receives subsidies under the National Housing Act up to a maximum of
$1,512,144 per year.
(7) Receives subsidies under the National Housing Act up to a maximum of
$477,148 per year.
(8) This property is owned by Carolina Associates L.P., a Maryland limited
partnership in which IGP holds a 50% interest.
(9) Receives subsidies under the National Housing Act up to a maximum of
$1,541,260 per year.
(10) Receives subsidies under the National Housing Act up to a maximum of
$994,032 per year.
(11) Receives subsidies under the National Housing Act up to a maximum of
$813,444 per year.
(12) Receives subsidies under the National Housing Act up to a maximum of
$994,032 per year.
(13) Receives subsidies under the National Housing Act up to a maximum of
$2,196,792 per year.
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<PAGE>
Government Regulation.
---------------------
HUD subsidies are provided principally under Sections 8 and 236 of the
National Housing Act. Under Section 8, the government pays to the applicable
apartment partnership the difference between market rental rates (determined in
accordance with government procedures) and the amounts that the government deems
the residents are able to afford. Under Section 236, the government provides
interest subsidies directly to the applicable apartment partnership through a
reduction in the property's mortgage interest rate and with a corresponding
reduction in resident rental rates. In order to comply with the requirements of
Section 8 and Section 236, residents are screened by American Management or IGP
for eligibility under HUD guidelines. Subsidies are provided according to the
terms of long-term contracts between the federal government and the apartment
partnerships.
Cash flow from those projects whose mortgage loans are still insured
by the Federal Housing Authority ("FHA"), or financed through the housing
agencies in Maryland, Virginia, Puerto Rico or Washington, D.C. (the "State
Financing Agencies") are subject to guidelines and limits established by the
apartment partnerships' regulatory agreements with HUD and the State Financing
Agencies. The regulatory agreements also require that if the cash from
operations generated by certain apartment properties has exceeded the allowable
cash distributions, the surplus must be deposited into restricted escrow
accounts held by the mortgagee of the property and controlled by HUD or the
applicable State Financing Agency. Funds in these restricted escrow accounts
may be used for maintenance and capital improvements with the approval of HUD
and/or the State Finance Agency.
The federal government has virtually eliminated subsidy programs for
new construction of low and moderate income housing by profit-motivated
developers such as ACPT. As a result, no new construction of apartment projects
is expected in Puerto Rico and any new apartment properties developed by ACPT in
the U.S. most likely will offer market rate rents.
The subsidy contracts for ACPT's investment apartment properties are
scheduled to expire between 1997 and 2020. In addition, the long term subsidy
contracts for six Puerto Rico properties that are scheduled to expire in 2011,
2020 or 2021 may be cancelled by the applicable Puerto Rico Apartment
Partnership in 2000 (for contracts to expire in 2020) or 2001 (for contracts to
expire in 2011 or 2021) and thereafter every five years until expiration. Under
a recently enacted law, HUD may renew expiring subsidy contracts on a year to
year basis, and ACPT intends to seek the renewal of expiring subsidy contracts
for its U.S. properties. Depending on market conditions, ACPT intends to
convert to condominiums apartment properties in Puerto Rico that have subsidy
contracts that expire over the next several years. Two such conversions are
currently in progress. See "-- Condominium Conversion."
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<PAGE>
HUD also is seeking Congressional authority to convert expired
contracts to resident-based vouchers. This would allow residents to choose
where they wish to live. This can potentially impact the income stream of
certain properties. However, ACPT will actively maintain its properties in a
manner designed to preserve their values and retain residents.
HUD also is exploring a program known as "portfolio re-engineering" or
"mark-to-market." This would assist owners of Section 8 and HUD-insured
properties that could not meet loan obligations under the proposed resident-
based voucher system. ACPT will monitor the progress of this proposal and its
impact on the properties in which it holds interests through the apartment
partnerships.
Competition.
-----------
ACPT's investment properties that receive rent subsidies are not
subject to the market conditions that affect occupancy at properties with market
rate rents. These subsidized properties average approximately 99% occupancy
rates year round. ACPT's apartments in St. Charles that have market rate rents
are impacted by the supply and demand for competing rental apartments in the
area, as well as the local housing market. When for sale housing becomes more
affordable due to lower mortgage interest rates or softening home prices, this
can adversely impact the performance of rental apartments. Conversely, when
mortgage interest rates rise or home prices increase, the market for rental
units may benefit.
CONDOMINIUM CONVERSION.
Puerto Rico.
-----------
Most of the apartment properties in Puerto Rico were designed, located
and maintained with the expectation that they might be converted into
condominiums upon the expiration of subsidy contracts 20 to 40 years after
construction. The existing debt on most of the Puerto Rico apartment properties
is low when compared to present values. In addition, the demand for centrally
located residential units within the San Juan metropolitan area, coupled with
the acceptance of the condominium concept in Puerto Rico, make condominium
conversions of the Puerto Rico apartment units an attractive strategy.
ACPT's indirect subsidiary IGP has a record of success in this
conversion procedure, having previously converted 1,800 units in Puerto Rico
owned by IGP and certain affiliates. These were properties which proved to be
unsuccessful as market rent apartments. Their conversion to condominiums
permitted IGP and the affiliates to profit from these properties despite a
relatively high debt structure.
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<PAGE>
Currently, IGP is in the process of converting two former apartment
properties, Monte de Oro and New Center, into condominiums. Construction of the
improvements to be made at the properties is expected to commence no later than
May 1998 and is expected to be completed by the end of 1998. Interim financing
required to complete the improvements is in the process of being obtained. All
units at both properties are targeted to be sold by late 1999.
The subsidy contracts for eight of the properties owned by the Puerto
Rico Apartment Partnerships expire no later than 2003, and the contracts for the
remaining properties may be cancelled by the applicable partnership in either
2000 or 2001 and every five years thereafter. ACPT currently intends to convert
some or all of such properties into condominiums upon the expiration or
cancellation of the contracts.
United States.
-------------
Because of the risk that sales of condominium units by American
Housing would constitute "prohibited transactions" under the rules governing
REITs, which would subject the profits from such sales to a 100% tax, ACPT
currently does not intend to convert any of the properties owned by the U.S.
Apartment Partnerships into condominiums. See "Income Tax Considerations --
Federal Income Tax Considerations -- Federal Income Tax Classification of
American Rental -- Taxation of American Rental as a REIT."
COMMUNITY DEVELOPMENT.
ACPT's community development assets will consist of more than 4,700
acres of developed and undeveloped land located in the master planned
communities of St. Charles, Maryland, and Parque Escorial, in Carolina, Puerto
Rico. The land in both communities will be developed by ACPT and its affiliates
for a variety of residential uses, including single-family homes, townhomes,
condominiums and apartments, and commercial and industrial uses. ACPT may also
develop for residential use certain land adjacent to the site of a planned
commercial development in Canovanas, Puerto Rico.
St. Charles.
-----------
ACPT, indirectly through American Land, will own the more than 4,500
acres remaining for development in the planned community of St. Charles. St.
Charles contains a total of approximately 9,100 acres (approximately 14 square
miles) located in Charles County, Maryland, 23 miles southeast of Washington,
D.C.
Based on figures prepared by the Charles County Department of Planning
and Growth Management ("DPGM"), the current population of Charles County is in
excess of 115,000, up from 101,000 in 1990, and is projected to increase from
123,200 in 2000 to 166,500 in 2015. The real property tax base has increased
from $547 million
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<PAGE>
in 1980 to $2.4 billion in 1996, with the residential base accounting for 77% of
the total. The median household buying income in Charles County is estimated at
$48,225, ranking it second in Maryland and seventh in the Baltimore-Washington
area. The DPGM has determined that the number of residential building permits
have increased yearly from 1993, when 962 permits were issued, to 1997, when
1,232 permits were issued.
St. Charles is comprised of five separate villages: Smallwood
Village, completed, Westlake Village, which has been substantially completed,
Fairway Village, currently under construction, and Piney Reach and Wooded Glen.
Each village consists of individually planned neighborhoods, and includes
schools, churches, recreation centers, sports facilities, and a shopping center.
Other amenities include parks, lakes, hiking trails and bicycle paths. St.
Charles also includes an 18-hole public golf course. Each community is planned
for a mix of residential housing, including detached homes, townhomes, multiplex
units and rental apartments. Typical lot sizes for detached homes range from
5,000 to 8,000 square feet.
IGC's development of St. Charles as a planned unit development ("PUD")
began in 1972 when a comprehensive planned unit development for St. Charles was
approved by the County. This master plan contemplates construction of
approximately 24,730 housing units and 1,390 acres of commercial and industrial
development. As of September 30, 1997, there were approximately 11,000
completed housing units in St. Charles, including Carrington Neighborhood which
began prior to 1972 and is not included in the PUD. In addition there are
schools, recreation facilities, commercial, office and retail space in excess of
4.2 million square feet. In St. Charles, ACPT, through outside planners,
engineers, architects and contractors, obtains necessary approvals for land
development, plans individual neighborhoods in accordance with regulatory
requirements, constructs roads, utility facilities and community facilities.
ACPT develops lots for sale for detached homes, townhomes, apartment complexes,
and commercial and industrial development.
The third village, Fairway Village, so named for the existing 18-hole
public golf course which it surrounds, is currently being developed. Its master
plan provides for 3,346 dwelling units consisting of 1,287 acres of land
including an industrial park and 40-acre commercial center.
The last two villages, Wooded Glen and Piney Reach, which include
approximately 3,000 acres, are planned for development after the completion of
Fairway Village. The total number and mix of residential units must be approved
by the County Commissioners before development can begin on these two villages
and there can be no assurances that the total of 24,730 units in the master plan
can be attained.
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<PAGE>
Government Approvals
The St. Charles master plan has been incorporated in Charles County's
comprehensive zoning plan. In addition, the Charles County government has
agreed to provide sufficient water and sewer connections for the balance of the
housing units to be developed in St. Charles. Specific development plans for
each village in St. Charles is subject to approval of the County Planning
Commission. Such approvals have previously been received for the villages of
Smallwood, Westlake and Fairway. Approvals have not yet been sought on the
final two villages.
Competition
Competition among residential communities in Charles County is
intense. Currently, there are approximately 30 subdivisions competing for new
home buyers within five miles of St. Charles. The largest competing housing
developments are Kingsview, a 640 unit project being developed by Miller &
Smith, Southwinds, a 367 unit project being developed by Washington Homes, and
Chapman's Landing, a 576 unit project being developed by Legend Properties.
Smaller projects are being developed by more than 20 other developers. This is
the result of several major national and regional homebuilders having been
attracted by the growing marketplace. According to DPGM, Charles County
residential building permits have increased yearly from 1993, with 962 in 1993,
964 in 1994, 965 in 1995, 1,090 in 1996 and 1,232 in 1997. In this very price
sensitive market, IGC attempts to position St. Charles to provide among the
lowest priced building lots and homes while offering more amenities than the
competition. ACPT intends to continue this strategy.
Environmental Impact
Management of ACPT believes that the St. Charles master plan can be
completed with respect to ACPT's properties without material adverse
environmental impact and in compliance with governmental regulations. In
preparation for immediate and future development, Phase I Environmental Site
Assessments have been prepared for substantially all of the undeveloped parcels.
The historical use of the land has been farming and forestry and no significant
environmental concerns were found. Jurisdictional determinations for wetlands
have been approved by the Corps for Sheffield Neighborhood, the next phase of
residential development containing 1,642 dwelling units. Management has
developed an Environmental Policy Manual and has established an Environmental
Review Committee and an Environmental Compliance Officer to anticipate
environmental impacts and avoid regulatory violations. However, development can
be delayed while plans are being reviewed by local, state and federal agencies
for environmentally sensitive areas.
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<PAGE>
As a result of the Restructuring, the property held by ACPT in St.
Charles will not be subject to the wetlands litigation of IGC. See "The
Restructuring -- Reasons for the Restructuring."
Parque Escorial.
---------------
ACPT, indirectly through American Land, IGP Group and IGP will hold an
80% interest in LDA, the partnership that in 1989 acquired the 431 acre site of
the former El Comandante Race Track. The master plan for Parque Escorial was
approved in 1992 and contemplates the construction of 2,700 dwelling units of
various types on 312 acres and the development of 120 acres for commercial,
office and light industrial uses. LDA has developed and sold 119 acres, and
continues to own 312 acres of developed and undeveloped land at this site which
has been established as the planned community of Parque Escorial. Parque
Escorial is located approximately six miles from the central business district
in San Juan, Puerto Rico.
Development of Parque Escorial began in 1994 with the sale of 61 acres
of commercial land to Wal-Mart. The second phase is now being designed for a
480,000 square feet shopping center on the tract. Wal-Mart and Sam's Club
stores, each consisting of 125,000 square feet, opened in 1995. An additional
12 acres of commercial land have been sold subsequently by LDA for prices up to
$1.1 million per acre. Residential development began in 1996 after contracts
for 516 housing units were settled. The first 216 of these units will be "walk-
up" condominiums built and sold by a joint venture that will be 50% owned by IGP
Group.
Government Approvals
Parque Escorial's master plan has been approved but specific site
plans are subject to planning commission review and approval. LDA has secured
agreements with the Puerto Rico Aqueduct and Sewer Authority to provide for
adequate water and sewer capacity for the first 1400 units, which includes the
commercial space.
ACPT believes that in addition to developing commercial land for sale,
opportunities exist for ACPT to develop commercial rental properties in Puerto
Rico. In late 1997, LDA, the owner of Parque Escorial, formed a partnership to
construct and lease to the State Insurance Fund of Puerto Rico a 150,000 square
foot office facility on a 7.2 acre parcel in Parque Escorial.
Competition
The scarcity of developable land in the San Juan metropolitan area
creates a favorable market for home sales at Parque Escorial. Competition for
home sales is expected primarily from small scale condominium projects in areas
considered to be similar or less desirable than Parque Escorial. Furthermore,
it is one of only two master
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planned communities currently under development in the San Juan metropolitan
area. The other is the 500-acre Encantada, which is marketed toward higher
income homebuyers. Parque Escorial's home prices appeal primarily to entry
level purchasers. In addition, Encantada's developer is building all the homes
in the community, while Parque Escorial features four separate homebuilders in
its first phase, providing more selections for the consumer.
Environmental Impact
Management of IGC believes that the Parque Escorial master plan can be
completed without material adverse environmental impact and in compliance with
government regulations. All of the necessary agencies have endorsed Parque
Escorial's environmental impact statement. Wal-Mart has provided mitigation for
11.87 acres of wetlands impacted by its development of the shopping center site
and other land.
COMMERCIAL RENTAL PROPERTIES.
LDA also owns a parcel of land of approximately 540 acres adjacent to
the El Comandante Race Track in Canovanas, Puerto Rico. At present, LDA is
evaluating the viability of developing and/or leasing the land for a fully
integrated entertainment complex consisting of movie studios, an amphitheater
with a capacity of 20,000, and an amusement park. With respect to land only,
LDA has acquired all necessary zoning approvals, utilities endorsements and
approvals for infrastructure for development of all sites. Approvals for
building construction have not yet been obtained. On June 3, 1998, LDA entered
into an agreement pursuant to which LDA will construct and lease movie studio
facilities to an entity specializing in renting such facilities. Portions of
the land may also be developed for residential use if commercial development or
leasing is not feasible.
PROPERTY MANAGEMENT.
ACPT, indirectly through its subsidiary American Management, will own
and operate the United States property management business currently operated by
IGC. In connection with this business, American Management will earn fees from
the management of 4,176 rental apartment units, including 2,246 units owned by
the U.S. Apartment Partnerships. Management fees for the U.S. apartment
properties are based on a percentage of rents ranging from 2.5% to 10.4%. The
management contracts for these properties have terms of one or two years and are
customarily renewed upon expiration but may be terminated on 30 days notice by
either party. Management fees for other apartment properties range from 2.5% to
4.5% of rents.
In addition, IGP will earn fees from the management of 2,653 rental
apartment units owned by the 9 Puerto Rico Apartment Partnerships. Management
fees for the apartment properties owned by the Puerto Rico Apartment
Partnerships, like
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<PAGE>
those in the U.S., are based on a percentage of rents ranging from 2.25% to 7.5%
and the management contracts for these properties have terms of one or two years
and are customarily renewed upon expiration. IGP also is entitled to receive up
to an aggregate of $192,000 annually in certain incentive management fees with
respect to six properties owned by the Puerto Rico Apartment Partnerships. Upon
the conversion of such units to condominiums, the number of units under
management, and the corresponding management fees, will be reduced. However,
IGP would receive fees in connection with managing the conversion process.
IGP currently manages 918 rental apartments owned by a non-profit
entity which acquired the units from IGP in 1996 under the provisions of
LIHPRHA. The management agreements for these properties expire April 1, 2001
but management expects the agreement to be renewed for an additional five year
period. In addition, IGP manages 511 units owned by the Puerto Rico Housing
Finance Agency. These units are expected to be converted to condominiums in
1998 by other entities under the management of IGP, which would receive a fee
for its services.
HOMEBUILDING IN PUERTO RICO.
ACPT, through IGP Group, holds a 50% interest in Escorial Builders
S.E., a Puerto Rico partnership ("Escorial Builders"), which is a construction
joint venture at Parque Escorial. The remaining interest in the joint venture
is held by an unrelated third party which is the general contractor for the
project. Escorial Builders has acquired lots at Parque Escorial on which it is
building 216 "walk-up" condominium units. Delivery of the units is expected to
occur over an 18 month period that commenced in November 1997. Escorial
Builders is not expected to develop any additional projects. However, IGP
Group, on its own or through joint ventures, may construct additional projects
if an appropriate opportunity arises.
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES.
The following is a discussion of ACPT's policies with respect to
investment in real estate, affiliate transactions and certain other activities.
ACPT's policies with respect to these activities have been established by the
ACPT Board of Trustees and may be amended or revised from time to time at the
discretion of the ACPT Board of Trustees without a vote of the Shareholders. No
assurance can be given that ACPT's investment objectives will be attained or
that the value of ACPT will not decrease.
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Investment Policies.
-------------------
Investments in Real Estate or Interests in Real Estate
ACPT's primary business objective is to maximize Shareholder value by
investing, holding and developing assets that will generate cash available for
distribution to its Shareholders. ACPT's policy is to acquire or develop assets
where ACPT believes that opportunities exist for acceptable investment returns
in areas that utilize the expertise of its management, primarily community
development and commercial and residential rental properties.
ACPT may also participate with other entities in property ownership,
through joint ventures or other types of common ownership. Equity investments
may be subject to existing mortgage financing and other indebtedness which have
priority over the equity interests of ACPT.
Investment in Real Estate Mortgages
While ACPT intends to emphasize equity real estate investments, it
may, in its discretion, invest in mortgages or other real estate interests
consistent with its general business strategy. ACPT may also invest in
participating or convertible mortgages if the ACPT Board concludes that ACPT and
its Shareholders may benefit from the cash flow or any appreciation in the value
of the subject property. Such mortgages are similar to equity participations.
The mortgages in which ACPT may invest may be either first mortgages or junior
mortgages and may or may not be insured by a governmental agency.
Securities of or Interests in Persons Primarily Engaged in Real Estate
Activities and Other Issuers
ACPT also may invest in securities of entities engaged in real estate
activities or securities of other issuers, including for the purpose of
exercising control over such entities.
Affiliate Transaction Policy.
----------------------------
ACPT has adopted a policy that it will not, without the approval of a
majority of independent Trustees, (i) acquire from or sell to any Trustee,
officer, employee, or Shareholder who owns more than 2% of the Common Shares (an
"Affiliated Shareholder") or any entity in which a Trustee, officer, employee or
Affiliated Shareholder of ACPT beneficially owns more than a 5% interest, or any
affiliate of any of the foregoing, any property or other assets of ACPT, (ii)
make any loan to or borrow from any of the foregoing persons, or (iii) engage in
any other transaction with any of the foregoing persons.
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Certain Other Policies.
----------------------
ACPT intends to operate in a manner that will not subject it to
regulation under the Investment Company Act of 1940. ACPT does not intend to
(i) invest in the securities of other issuers for the purpose of exercising
control over such issuer, (ii) underwrite securities of other issuers, or (iii)
actively trade in loans or other investments.
ACPT may make investments other than as previously described, although
it does not currently intend to do so. ACPT has authority to purchase or
otherwise reacquire shares Common Shares or any of its other securities in the
open market or otherwise and may engage in such activities in the future. The
ACPT Board of Trustees has no present intention of causing ACPT to repurchase
any Common Shares, and any such action would be taken only in conformance with
applicable federal and state laws.
ACPT may in the future make loans to third parties, including, without
limitation, loans to joint ventures in which it participates. ACPT has not
engaged in trading, underwriting or agency distribution or sale of securities of
other issuers, and ACPT does not intend to do so in the future. ACPT's policies
with respect to such activities may be reviewed and modified from time to time
by the ACPT Board of Trustees without the vote of the Shareholders.
APPRAISALS
IGC has obtained appraisals of certain land assets being transferred
to ACPT and certain land assets that will be retained by IGC following the
Restructuring. The appraisal reports (the "Appraisal Reports") prepared for
these properties have been included as exhibits to the Registration Statement of
which this Proxy Statement/Prospectus is a part. The following discussion is
qualified in its entirety by reference to such Appraisal Reports.
PROPERTIES TRANSFERRED TO ACPT.
Parque Escorial Planned Community, San Juan/Carolina, Puerto Rico.
------------------------------------------------------------------
Parque Escorial consists in its entirety of 439.79 cuerdas, or 431
acres, located south of 65th Infantry Avenue and Ramal Este Avenue in the Sabana
Llana and San Anton Wards of the municipalities of San Juan and Carolina, Puerto
Rico. Robert F. McCloskey Associates ("McCloskey Associates") appraised the
value of 202.83 cuerdas, or 198.15 acres, of saleable land of Parque Escorial at
$39,926,039 as of August 1, 1997. Subsequent to the appraisal, five parcels of
land, comprising approximately 18.52 cuerdas and appraised by McCloskey
Associates as having a total aggregate value of $9,858,500, were sold to
purchasers for $9,613,500.
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McCloskey Associates employed the sales comparison approach, described
above, to determine the "as is" market value of the 198.15 acres of Parque
Escorial property under development. McCloskey Associates assumed the
completion of all infrastructure and facilities planned in connection with the
subject property and all approvals and endorsements for the development.
McCloskey Associates valued the Parque Escorial property based on an existing
five phase construction plan: Phase I - commercial center & service commercial;
Phase II, III and V - residential; and Phase IV - office park/commercial.
McCloskey Associates calculated the "as is" market value of the subject
property, inclusive of development, financing and sales costs, to be $18,400,000
for Phase I and IV and $25,100,000 for Phase II, III, and future development.
Applying the necessary discount for present value considerations, McCloskey
Associates determined the present "as is" market value of the subject property
to be $35,900,000.
Canovanas Property, Canovanas, Puerto Rico.
------------------------------------------
The Canovanas Property consists of 559.71 cuerdas, or 542.92 acres, of
undeveloped property located south of State Road No. 3 Km. 16.2 in Canovanas,
Puerto Rico. The subject land comprises three contiguous parcels surrounding
the El Comandante racetrack. McCloskey Associates appraised the Canovanas
Property on July 2, 1995 as having a present "as is" value of $6,100,000 as of
June 30, 1995.
McCloskey Associates used the sales comparison approach to calculate
the present "as is" market value of the subject property based on its present R-
I (low density residential) zoning and verified financing terms and sales
conditions of comparable properties, and then adjusted its calculations to
reflect the characteristics of the subject property. McCloskey Associates
assessed the subject property as comprised of three separate parcels. The
adjusted comparable sales of each parcel were then reconciled into a single
value estimate for the entire subject property. The aggregate prospective
market value of the parcels was calculated to be $10,525,000. Discounting the
prospective market value of the subject property to present "as is" market
value, McCloskey Associates, calculated the value of the subject property to be
$6,100,000. McCloskey Associates report does not address the development of
this property as an entertainment complex as presently envisioned.
Smallwood Village, Westlake Village, Wooded Glen, and Piney Reach of the
------------------------------------------------------------------------
St. Charles Planned Unit Development and Surrounding Environs, St. Charles, MD.
- ------------------------------------------------------------------------------
The subject property consists of remnant parcels in two completed
villages and two undeveloped villages, Wooded Glen and Piney Reach, in the St.
Charles PUD, and various surrounding environs including the Middletown Property
that were subsequently sold. The subject property comprises residential land
that includes finished lots, raw recorded lots, and raw acreage; industrial land
that includes finished sites and raw land; and commercial land. Wooded Glen and
Piney Reach total 3,079 acres, for
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which 10,000 residential units are planned. Smail Associates, Inc. ("Smail"),
appraised the property on February 14, 1997 as having an "as is" present market
value of $40,440,000 as of December 31, 1996.
Smail employed the sales comparison approach to estimate the retail
value of finished single-family and townhouse lots, an apartment site on the
subject property, all raw acreage, and commercial and industrial land parcels.
Smail applied the subdivision analysis method to calculate the "as is" market
value of 60 finished single-family lots in the Dorchester Neighborhood of
Westlake Village, 98 remaining townhouse lots in Huntington Ridge, and finished
industrial and commercial sites on the subject property. The subdivision
analysis approach is a hybrid of the cost, sales comparison and income
approaches to valuation in which the present value of the property is estimated
by projecting periodic income from the sale of finished lots, subtracting land
development, sales, carrying costs, and profit, and discounting the resultant
periodic cash flows to provide an indication of present value. For purposes of
its appraisal, Smail identified the subject property according to whether it was
residential, industrial or commercial land.
Fairway Village (Residential), St. Charles, MD.
----------------------------------------------
Fairway Village (Residential) consists of approximately 1,287 acres of
land containing a total of 3,346 residential units to be developed in five
stages containing 837 townhouse units, 922 large single-family lots, 499 medium
single-family lots, 252 small single-family lots, and 836 apartment units
located on the east and west sides of St. Charles Parkway near its southern
terminus at White Plains Regional Park in Waldorf, Maryland. James B. Hooper,
P.A. ("Hooper") appraised the property on May 25, 1997 as having an aggregate
"as is" present market value of $19,263,000 as of that date.
Hooper employed the market data approach, a variant of the sales
comparison approach, whereby the appraiser analyses recent sales of similar
properties to estimate the value of the apartment units on the subject property.
The relevant sales are then adjusted for dissimilarities between sale properties
and the subject property to arrive at an indication of value. Using this
approach, Hooper determined the apartment units to have an overall gross retail
value of $7,524,000, which was discounted to present "as is" market value of
$3,014,000. Hooper used the market data approach to calculate the value of the
837 townhouse units on the subject property to be $11,300,000. This figure was
then discounted to an "as is" present market value of $4,888,000 to reflect a
16-year absorption period, sales expenses, and soft costs. Applying the same
methodology, Hooper appraised the gross retail value of the single-family
detached residence units to be $31,308,000, which was then discounted to an "as
is" present market value of $11,361,000. Accordingly, Hooper calculated the
total aggregate "as is" market value of the subject property to be $19,263,000.
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Fairway Village (Commercial), St. Charles, MD.
---------------------------------------------
Fairway Village (Commercial) consists of approximately 38 acres of
land, more or less within the Sheffield and Gleneagles Neighborhoods, that has
been designated for commercial, office, and business usage within the Fairway
Village Neighborhood. Hooper appraised the property as having an aggregate "as
is" present market value of $3,960,000 as of October 31, 1997.
Hooper used the market data approach discussed above to determine the
value of the subject property. Relying on sales of comparable properties, and
then adjusting the data to reflect relevant dissimilarities with the subject
property, Hooper estimated the gross retail value of the property to be
$8,276,000. Hooper then discounted the gross retail value based on an initial
3-year carrying period and an anticipated 4-year absorption period once sales
commence. Hooper employed a discount factor of 14% for the 3-year holding
period, which, along with a discount for the absorption period, generated an "as
is" market value of $3,960,000.
PROPERTIES RETAINED BY IGC.
Brandywine Village, Brandywine, MD.
----------------------------------
SCA is the general partner of, and holds a 50% interest in, Brandywine
Investment Associates, L.P., which owns Brandywine Village, a 277 acre tract of
land in Brandywine, Prince George's County, Maryland. The property was acquired
in 1985 and comprises two approved comprehensive design zones that permit
residential, retail commercial, office commercial and light industrial uses.
The Gatewood Company, Inc. ("Gatewood") appraised the property on June 30, 1997
as having a total undiscounted prospective value of $11,900,000, which, when
discounted to present "as is" market value, produced an estimated market value
of $8,885,000 as of June 9, 1997. Pursuant to the terms of the partnership
agreement, SCA is entitled to a recovery of its advances, a priority return and
50% of the remaining cash flow. Accordingly, IGC's indirect interest in the
Brandywine property has an appraised "as is" value of $8,885,000 as of June 9,
1997.
Gatewood employed the sales comparison approach to calculate present
"as is" market value whereby value is determined by comparison of sales of
reasonably similar properties to the subject properties. Gatewood also assumed
that final approvals for the construction of 234 lots and a local access road
would be obtained by developers within one year. Five separate property
components were identified by Gatewood based on applicable zoning restrictions:
8.53 acres commercial; 64.74 acres medium density residential; 7.87 acres high
density residential; and 46 acres office/light industrial. The sales comparison
approach produced an aggregate undiscounted value of $11,900,000, which was then
discounted to a present "as is" market value of $ 8,885,000 to reflect the
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time and costs required to support marketability, e.g., local infrastructure,
and a 10% discount rate.
Southlake at Montclair Subdivisions Section S-4, Dumfries, VA.
-------------------------------------------------------------
Section S-4 of Southlake at Montclair Subdivision consists of 77 raw,
recorded townhouse lots located along the east side of South Lake Boulevard
north of its intersection with Waterway Drive in the Southlake Montclair planned
community in Dumfries, Virginia. NBValuation Group, Inc. ("NBV") appraised
Section S-4 as having a total undiscounted prospective value of $1,925,000,
which, when discounted to present "as is" market value, produced an estimated
market value of $620,000 as of May 12, 1997.
NBV employed the developmental or anticipated use method whereby the
present "as is" market value of property is based on an estimate of the gross
sell-out of the subject lots on a finished, retail basis. The total of all
direct and indirect costs necessary to complete the land development required in
order to market the finished lots on a retail basis, in addition to all holding
period expenses that may reasonably be anticipated in connection with the
development and marketing process, are deducted from the estimated sale
proceeds. Further, the methodology takes into account absorption, related
holding period costs and anticipated profit. NBV assumed that Section S-4 would
produce 77 finished townhouse lots.
Westbury, Phase II Section I, Lexington Park, MD.
------------------------------------------------
Westbury, Phase II Section I comprises 26.992 acres of undeveloped
land off the north side of Pegg Road and Westbury Boulevard West in Lexington
Park, Maryland. Brick House Realty, Inc. ("Brick House") appraised the property
on May 30, 1997 as having a total undiscounted prospective market value of
$1,632,000 based on a proposed 51-lot subdivision on the property. Brick House
discounted this figure to a present "as is" market value of $348,813 as of May
20, 1997. Brick House, on request, further appraised the property as recorded
but undeveloped "paper lots" to be worth $678,000, and the value of the subject
property "as is" raw land to be worth $250,000.
Brick House employed the sales comparison approach discussed above to
determine present "as is" market value of the subject property. Brick House
estimated an average of $32,000 per lot for the 51 potential lots determined
from comparison to sales of reasonably similar type properties in the area.
Brick House calculated an aggregate prospective market value of $1,632,000,
which was then discounted to $348,813 to reflect the time expected to sell all
lots, the carrying cost during the sellout period, the marketing expense,
developer's profit, other completion costs, and a 13% discount rate.
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Pomfret Property, Waldorf, MD.
-----------------------------
The Pomfret Property comprises 812.2 acres of land designated for
residential low density development located on the southern and northern sides
of Pomfret Road. The total assemblage is broken down into a Northern Section,
which contains 202.79 acres, and the Southern Section, which contains 609.38
acres. Smail appraised the property on February 14, 1997 as having a present
"as is" market value of $3,250,000 as of December 31, 1996.
Smail used the sales comparison approach using the most comparable
date to arrive at a projected "as is" market value estimate per land use for the
Pomfret Property. Under this approach, recent sales of similar properties are
analyzed and each sale adjusted to reflect pertinent dissimilarities with the
subject property, including cash equivalency, market conditions, and other
factors warranting adjustment. Smail then calculated the net present value of
the projected income stream over the estimated lot sellout period based on the
retail value of finished lots, the projected absorption of finished lots, and
deductions representing the installation of infrastructure, costs of sales,
administrative costs, real estate taxes and an appropriate entrepreneurial
profit. Smail concluded that development of these parcels was not feasible at
that time and that the property should be held over for future development.
Smail, after making the appropriate adjustments, valued each acre at $4,000 to
yield an aggregate "as is" market value of $3,250,000 for the entire Pomfret
Property.
Parcels A-3 & A-4, Westlake Village, St. Charles, MD.
----------------------------------------------------
Parcels A-3 & A-4 consist of 14 acres of commercial land located in
the horseshoe created by Smallwood Drive West and St. Patricks Drive immediately
west of St. Charles Regional Mall. Both parcels abut O'Donnell Lake to the
east. Smail appraised the value of the parcels on February 14, 1997 as having a
gross retail value of $4,214,000 as of December 31, 1996.
26 Single Family Lots, Dorchester Village, St. Charles, MD.
----------------------------------------------------------
Smail appraised the value of these 26 lots on February 16, 1997 as
having a gross retail value of $1,296,000 as of December 31, 1996.
GENERAL.
The appraisers of the properties described above generally made a
number of assumptions, including that the title was marketable and that the
properties were free and clear of all liens and encumbrances (except certain
mortgages thereon), and in compliance with applicable building, environmental,
zoning and similar laws. In preparing their Appraisal Reports, the appraisers
relied upon operating, financial and other information provided by IGC and other
sources. The appraisers assumed the legal
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description of the parcel given to the appraiser was correct, and the completion
of any proposed improvements in a workmanship-like manner within a reasonable
period of time. The appraiser assumed that there were no latent defects or
unapparent conditions of the property, subsoil or structures. Information and
data supplied to the appraiser by others were assumed to be from reliable
sources.
Care should be exercised in evaluating the conclusions of the
Appraisal Reports. An appraisal is only an estimate of value and should not be
relied upon as a measure of realizable value. As with any appraisal, methods
and assumptions used by the appraisers in preparing the Appraisal Reports were
those that the appraisers, in their professional judgment, concluded were
appropriate. There can be no assurance, however, that such assumptions will
materialize or that other or different methods or assumptions might not be
appropriate. Moreover, the current appraised value of the property is not a
prediction of the value that the property may have at any time in the future.
Future values of property will depend on a variety of factors, including the
economic success of the property, the impact of inflation on property values,
local competitive circumstances and general economic conditions.
LEGAL PROCEEDINGS
ACPT.
None.
IGC.
Wetlands Litigation.
-------------------
In 1994, the U.S. Attorney for the District of Maryland ("U.S.
Attorney") commenced a federal grand jury investigation regarding actions by IGC
in developing certain parcels in St. Charles, Maryland. The parcels were
identified by the U.S. Army Corps of Engineers (the "Corps") as wetlands within
its regulatory jurisdiction. In October 1995, the grand jury issued an
indictment charging IGC, SCA and IGC's Chairman, James J. Wilson, with four
felony and four misdemeanor counts of violations of Section 404 (wetlands) of
the U.S. Clean Water Act. The charges related to discharge of fill materials
into wetlands within the Corps' regulatory jurisdiction without a permit. The
violations charged were to have occurred on four parcels totaling approximately
50 acres out of the approximately 4,400 acres IGC had developed in St. Charles.
At the same time, the U.S. Attorney filed a civil action charging nine separate
civil violations of the U.S. Clean Water Act with respect to the four parcels
involved in the criminal action and one additional parcel. The civil action was
dismissed without prejudice, and thus may be refiled.
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On February 29, 1996, IGC, SCA and Mr. Wilson were convicted in the
U.S. District Court for the District of Maryland (the "District Court") on the
four felony counts. On June 17, 1996, Mr. Wilson was sentenced to 21 months
imprisonment, one year of supervised release and a $1,000,000 fine. IGC and SCA
were fined $2,000,000 and $1,000,000, respectively, placed on probation for five
years and ordered to implement a wetlands restoration and mitigation plan, which
IGC's engineers estimate would cost $2,000,000 to $3,000,000. IGC paid the
aggregate $3,000,000 in fines on behalf of itself and SCA. The Wetlands
Properties subject to this litigation are being retained by IGC which will
remain responsible for restoration and mitigation costs. As a result of the
conviction, the Wetlands Properties were encumbered by an obligation to impose a
conservation easement.
On December 23, 1997 a three judge panel of the U.S. Court of Appeals
for the Fourth Circuit (the "Appeals Court") reversed the convictions of IGC,
SCA and Mr. Wilson and remanded the matter to the District Court for a new
trial. On January 26, 1998 the three-judge panel denied the U.S. Attorney's
petition for rehearing. On February 28, 1998 the government returned the fine
that IGC had paid.
In reversing the convictions, the Appeals Court voided regulations
that defined "waters of the United States" to include intrastate wetlands that
could affect interstate commerce. However the appellate decision did not
foreclose a determination upon retrial that IGC's Wetlands Properties are
"waters of the United States" because they are "adjacent" to "navigable waters"
within the meaning of the Clean Water Act. Other courts have construed
"adjacent" to mean "reasonably proximate" or "closely related." IGC's Wetlands
Properties are over 9 miles from the nearest "navigable waters."
The ultimate outcome of this litigation remains uncertain.
Representatives of the U.S. Attorney's office have stated publicly that the
government intends to retry the criminal case.
Other Litigation.
----------------
St. Charles has been zoned as a planned unit development that allows
construction of approximately 24,730 housing units and 1,390 acres of commercial
and industrial development. The County has agreed to provide sufficient sewer
and water connections for all housing units remaining to be developed in St.
Charles. IGC and SCA are involved in litigation with the County regarding (1)
the level of sewer and water fees that may be imposed and (2) the level of
school construction impact fees that may be imposed. In addition, IGC and SCA
are asserting claims against the County for the repayment of excessive sewer and
water fees and school construction impact fees paid by them in the past.
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The sewer and water litigation is entitled St. Charles Associates
Limited Partnership, et al. v. County Commissioners of Charles County, et al.,
No. 89-720, Circuit Court for Charles County, Maryland. That litigation was
filed in June 1989 and is continuing. The litigation originally sought a court
ruling that the County was not entitled to impose sewer and water fees at the
then-existing level upon residential units in the St. Charles Communities. That
aspect of the litigation was settled by a Settlement Agreement dated November
1989, which was confirmed in a Consent Decree entered in March 1990. Subsequent
aspects of the litigation have resulted from disputes over the interpretation of
the Settlement Agreement and Consent Decree. The principal issues that are
presently being contested between the county, IGC, and SCA are (1) whether a
study procured by the County in 1996 justifies the level of sewer and water
connection fees which it imposes upon the St. Charles Communities; (2) whether
SCA and IGC are entitled to an injunction against future excessive sewer and
water fees; and (3) to what degree SCA and IGC are entitled to recover what they
regard as excessive sewer and water fees they have paid in the past. The
Circuit Court has ruled in SCA and IGC's favor that the County's 1996 study did
not comply with the applicable restrictions and that SCA and IGC are entitled to
an injunction against future excessive sewer and water fees. The Court further
ruled that SCA and IGC must pursue claims for excess sewer and water fees paid
in the past in Maryland's Tax Court. The Court's rulings are on appeal to
Maryland's Court of Special Appeals. SCA has commenced an action in Maryland
Tax Court, which is a State administrative agency, to recover what it regards as
excessive sewer and water fees that have been paid in the past. That case is
titled St. Charles Associates Limited Partnership, et al. v. Charles County, et
al., No. 1205, and was filed in February 1997.
SCA's and IGC's claims for the refund of excessive school impact fee
claims paid to the County in the past are being pursued in the Maryland Tax
Court as well, in actions entitled St. Charles Associates Limited Partnership,
et al. v. County Commissioners of Charles County, et al., Case Nos. 961 (filed
March 1994), 1038 (filed October 1994), and 98-MI-0083 (filed February 6, 1998).
In those cases SCA and IGC are seeking both repayment of past excessive school
impact fees paid to the County and a ruling as to the nature of their rights to
credits against school impact fees for school sites that they have donated to
the County.
IGC CONSOLIDATED FINANCIAL DATA
The audited consolidated financial statements of IGC as of December
31, 1997 and 1996 and for the years then ended and the section captioned
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in IGC's Annual Report on Form 10-K for the year ended
December 31, 1997 (the "IGC 10-K") and Form 10-Q for the quarter ended March 31,
1998 are incorporated herein by reference. The IGC 10-K and 10-Q are attached
as Annex 1 to this Proxy Statement/Prospectus.
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The Selected Financial and Operating Data of IGC have been derived
from the consolidated financial statements of IGC incorporated herein by
reference and should be read in conjunction therewith.
The unaudited Pro Forma Consolidated Financial Data of IGC reflects
IGC and its continuing businesses subsequent to the Restructuring and the
Distribution for the three months ended March 31, 1998 and for the year ended
December 31, 1997, as if the Restructuring and the Distribution had been
completed January 1, 1997 and as if the Restructuring and the Distribution were
in effect as of such date. The Pro Forma Consolidated Financial Data of IGC are
unaudited and provided for informational purposes only and do not purport to be
indicative of the results that actually would have been obtained if the
Restructuring and the Distribution had been effected on the dates indicated or
of the results that may be obtained in the future.
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SELECTED FINANCIAL AND OPERATING DATA OF
INTERSTATE GENERAL COMPANY L.P.
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------ -------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
(unaudited) (In thousands, except per unit amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data
Revenues
Land sales (a) $ 5,992 $ 1,449 $ 13,357 $ 14,717 $ 14,824 $ 22,296 $ 13,809
Home sales 2,030 1,895 7,805 9,715 10,826 20,265 21,884
Investment in gaming
properties -- -- -- 4 (78) 7,288 2,358
Equity in earnings from
partnerships and
development fees 505 396 1,494 16,530 2,647 4,941 3,279
Apartment rental revenues 2,209 2,158 8,737 7,577 4,642 4,538 2,113
Management and other fees 976 1,343 3,775 4,816 3,894 3,507 4,493
Interest and other income 246 146 1,044 1,015 945 687 1,395
-------- -------- -------- -------- -------- -------- --------
Total revenues 11,958 7,387 36,212 54,374 37,700 63,522 49,331
Provision for wetlands
litigation expenses -- -- 1,772 973 4,107 498 --
Other expenses 10,576 7,020 37,419 39,922 35,108 52,872 42,973
Income taxes 335 112 606 3,634 1,452 3,511 (835) (2)
Net income (loss) 1,047 255 (3,585) 9,845 (1) (2,967) 6,641 7,193 (2)
Basic net income (loss) per unit .10 .02 (.35) .95 (1) (.29) .65 .71 (2)
Cash distributions per unit -- -- -- .11 -- .10 --
(a) Includes sales to affiliates -- -- 3,000 9,086 3,233 -- --
Balance Sheet Data
Assets related to
community development $ 79,677 $ 82,599 $ 82,509 $ 83,085 $ 79,558 $ 70,061 $ 78,876
Assets related to
investment properties 45,733 52,888 47,291 52,698 36,722 35,608 42,707
Assets related to home
building projects 2,553 2,355 2,573 2,491 3,819 4,998 7,566
Total assets 139,619 147,077 145,038 148,568 132,093 123,513 140,314
Debt related to community development
Recourse 29,535 32,538 35,176 34,077 47,841 36,661 50,137
Non-recourse 2,324 2,212 2,295 2,153 2,034 4,268 2,762
Debt related to investment properties
Recourse 918 1,098 969 1,139 1,322 1,559 1,857
Non-recourse 38,995 39,409 39,101 39,508 22,650 22,771 22,457
Debt related to homebuilding
Recourse 211 284 159 502 981 2,398 3,320
Total liabilities 95,284 100,228 101,750 101,974 94,184 82,808 108,069
Partners' equity 44,335 46,849 43,288 46,594 37,909 40,705 32,245
Book value per Unit 4.25 4.52 4.15 4.50 3.66 3.94 3.17
</TABLE>
(1) Includes a $932,000 or $.09 per Unit reduction for the
extraordinary item-early extinguishment of debt.
(2) Includes a $1,500,000 or $.15 per Unit benefit for the cumulative
effect of a change in accounting principle to reflect the adoption
of SFAS No. 109 "Accounting for Income Taxes".
-123-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
--------------- ------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(unaudited) (In thousands, except per unit amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data
Community Development
Residential lots sold 200 23 250 523 134 228 295
Residential lots used by
Company's homebuilding operations -- -- 5 27 25 44 91
Residential lots transferred to
joint venture operations -- -- 118 98 -- -- --
Residential lots transferred to
Company's rental property operations -- -- -- -- 54 -- 56
Commercial and business park
acres sold 31 9 17 5 20 76 12
Undeveloped acres sold -- -- 381 -- 2 20 27
Homebuilding, all locations
Contracts for sale, net of
cancellations 33 16 73 67 133 134 232
Number of homes sold 35 25 112 156 190 200 216
Backlog at end of period 74 65 58 68 92 86 152
Rental apartment units
managed at end of period 8,139 8,139 8,139 8,139 8,085 8,085 8,029
Units under construction -- -- -- -- 54 -- 56
</TABLE>
QUARTERLY SUMMARY (UNAUDITED)
IGC's quarterly results are summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1997
------------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Revenues $7,387 $10,809 $7,174 $10,842 $36,212
Income (loss) before taxes and minority interest 415 1,763 (246) (4,472) (2,540)
Net income (loss) as previously reported 255 1,798 (808) (4,830) (3,585)
Adjustment for Coachman's Landing (1) -- (576) -- 576 --
Adjustment for spin-off costs (2) -- -- (300) 300 --
Net income (loss) as revised 255 1,222 (1,108) (3,954) (3,585)
Basic earnings per Unit as previously reported:
Net income (loss) .02 .18 (.08) (.47) (.35)
Basic earnings per Unit as revised:
Net income (loss) .02 .12 (.10) (.39) (.35)
</TABLE>
(1) Adjustment made in the fourth quarter for Coachman's Landing is to
reverse gain recorded on sale of a portion of IGC's investment in
Coachman's Landing.
(2) Adjustment made in the fourth quarter for spin-off costs is to
expense spin-off costs which were capitalized as start-up costs
during the quarter.
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<PAGE>
INTERSTATE GENERAL COMPANY L.P. ("IGC")
PRO FORMA CONSOLIDATED STATEMENT OF (LOSS) INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
RECLASSI- PRO
IGC FICATION IGC FORMA
HISTORICAL ENTRIES RECLASSIFIED ACPT (D) IGC (E)
----------- ------------- ------------- -------- --------
<S> <C> <C> <C> <C> <C>
REVENUES
Community development-land sales $ 5,992 $ -- $ 5,992 $5,961 $ 31
Homebuilding-home sales 2,030 -- 2,030 -- 2,030
Equity in earnings from partnerships
and developer fees 505 43 (B) 548 505 43
Rental property revenues 2,209 -- 2,209 2,209 --
Management and other fees, substantially
all from related entities 976 -- 976 976 --
Interest and other income 246 184 (C) 430 137 293
------- ------- ------- ------ -------
Total revenues 11,958 227 12,185 9,788 2,397
------- ------- ------- ------ -------
EXPENSES
Cost of land sales 3,504 151 (C) 3,655 3,608 47
Cost of home sales 1,834 -- 1,834 -- 1,834
Selling and marketing 333 -- 333 21 312
General and administrative 1,695 -- 1,695 1,600 95
Interest expense 866 57 (C) 923 910 13
Rental properties operating expense 896 -- 896 896 --
Depreciation and amortization 493 -- 493 471 22
Spin-off costs 757 -- 757 757 --
------- ------- ------- ------ -------
Total expenses 10,378 208 10,586 8,263 2,323
------- ------- ------- ------ -------
INCOME BEFORE PROVISION FOR
INCOME TAXES AND MINORITY INTEREST 1,580 19 1,599 1,525 74
PROVISION FOR INCOME TAXES 335 -- 335 283 52
------- ------- ------- ------ -------
INCOME BEFORE MINORITY INTEREST 1,245 19 1,264 1,242 22
MINORITY INTEREST (198) (43) (B) (241) (241) --
------- ------- ------- ------ -------
NET (LOSS) INCOME $ 1,047 $ (24) $ 1,023 $1,001 $ 22
======= ======= ======= ====== =======
BASIC NET INCOME
PER SHARE $ .10 $ -- $ .10 $ .19 $ --
======= ======= ======= ====== =======
WEIGHTED AVERAGE SHARES OUTSTANDING 10,332 10,332 10,332 5,218 10,332
======= ======= ======= ====== =======
</TABLE>
The accompanying notes are an integral part of this pro forma consolidated
statement of income.
-125-
<PAGE>
INTERSTATE GENERAL COMPANY L.P. ("IGC")
PRO FORMA CONSOLIDATED STATEMENT OF (LOSS) INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
RECLASSI- PRO
IGC FICATION IGC FORMA
HISTORICAL ENTRIES RECLASSIFIED ACPT (D) IGC (E)
----------- ------------- ------------- -------- --------
<S> <C> <C> <C> <C> <C>
REVENUES
Community development-land sales $13,357 $ 105 (A) $13,462 $13,165 $ 297
Homebuilding-home sales 7,805 -- 7,805 -- 7,805
Equity in earnings from partnerships
and developer fees 1,494 161 (B) 1,655 1,509 146
Rental property revenues 8,737 -- 8,737 8,737 --
Management and other fees, substantially
all from related entities 3,775 -- 3,775 3,775 --
Interest and other income 1,044 716 (C) 1,760 943 817
------- ------- ------- ------- -------
Total revenues 36,212 982 37,194 28,129 9,065
------- ------- ------- ------- -------
EXPENSES
Cost of land sales 8,881 71 (A) 9,139 8,494 645
187 (C)
Cost of home sales 7,486 (23)(A) 7,463 -- 7,463
Selling and marketing 1,232 -- 1,232 127 1,105
General and administrative 7,034 -- 7,034 6,607 427
Interest expense 3,609 270 (C) 3,879 3,820 59
Rental properties operating expense 3,597 -- 3,597 3,597 --
Depreciation and amortization 2,128 -- 2,128 1,850 278
Wetlands litigation expenses 1,772 -- 1,772 -- 1,772
Write-off of deferred project costs 6 -- 6 6 --
Write-off of goodwill 1,843 -- 1,843 -- 1,843
Spin-off costs 1,164 -- 1,164 1,164 --
------- ------- ------- ------- -------
Total expenses 38,752 505 39,257 25,665 13,592
------- ------- ------- ------- -------
(LOSS) INCOME BEFORE PROVISION FOR
INCOME TAXES AND MINORITY INTEREST (2,540) 477 (2,063) 2,464 (4,527)
PROVISION FOR INCOME TAXES 606 -- 606 470 136
------- ------- ------- ------- -------
(LOSS) INCOME BEFORE MINORITY INTEREST (3,146) 477 (2,669) 1,994 (4,663)
MINORITY INTEREST (439) (161) (B) (600) (600) --
------- ------- ------- ------- -------
NET (LOSS) INCOME $(3,585) $ 316 $(3,269) $ 1,394 $(4,663)
======= ======= ======= ======= =======
BASIC NET (LOSS) INCOME
PER SHARE $ (.35) .03 $ (.32) $ .27 $ (.45)
======= ======= ======= ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING 10,289 10,289 10,289 5,196 10,289
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of this pro forma consolidated
statement of income.
-126-
<PAGE>
INTERSTATE GENERAL COMPANY L.P. ("IGC")
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(In thousands)
(Unaudited)
ASSETS
------
<TABLE>
<CAPTION>
RECLASSI- PRO
IGC FICATION IGC FORMA
HISTORICAL ENTRIES RECLASSIFIED ACPT (D) IGC (E)
---------- ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
CASH AND CASH EQUIVALENTS
Unrestricted $ 3,234 $ -- $ 3,234 $ 2,126 $ 1,108
Restricted 2,136 -- 2,136 2,002 134
-------- ------ -------- -------- --------
5,370 -- 5,370 4,128 1,242
-------- ------ -------- -------- --------
ASSETS RELATED TO COMMUNITY DEVELOPMENT
Land and development costs
Puerto Rico 30,877 1,325 (C) 32,202 32,202 --
St. Charles, Maryland 29,124 -- 29,124 22,437 6,687
Other United States locations 15,197 -- 15,197 -- 15,197
Notes receivable on lot sales and other,
substantially all due from affiliates 4,479 -- 4,479 3,604 875
-------- ------ -------- -------- --------
79,677 1,325 81,002 58,243 22,759
-------- ------ -------- -------- --------
ASSETS RELATED TO RENTAL PROPERTIES
Operating properties, net 37,860 314 (B) 38,174 38,174 --
Investment in unconsolidated rental
property partnerships 7,015 -- 7,015 7,015 --
Other receivables, net 858 -- 858 665 193
-------- ------ -------- -------- --------
45,733 314 46,047 45,854 193
-------- ------ -------- -------- --------
ASSETS RELATED TO HOMEBUILDING
Homebuilding construction and land 1,598 -- 1,598 -- 1,598
Investment in joint venture 853 -- 853 853 --
Receivables and other 102 -- 102 -- 102
-------- ------ -------- -------- --------
2,553 -- 2,553 853 1,700
-------- ------ -------- -------- --------
OTHER ASSETS
Receivables, deferred costs regarding waste
technology and other projects and other 5,218 6,956 (C) 12,174 1,782 10,392
Property, plant and equipment, net 1,068 -- 1,068 423 645
-------- ------ -------- -------- --------
6,286 6,956 13,242 2,205 11,037
-------- ------ -------- -------- --------
TOTAL ASSETS $139,619 $8,595 $148,214 $111,283 $36,931
======== ====== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this pro forma consolidated
balance sheet.
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<PAGE>
INTERSTATE GENERAL COMPANY L.P. ("IGC")
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(In thousands)
(Unaudited)
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
<TABLE>
<CAPTION>
RECLASSI- PRO
IGC FICATION IGC FORMA
HISTORICAL ENTRIES RECLASSIFIED ACPT (D) IGC (E)
---------- --------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
LIABILITIES RELATED TO COMMUNITY
DEVELOPMENT
Recourse debt $ 29,535 $6,956 (C) $ 36,491 $ 34,128 $ 2,363
Non-recourse debt 2,324 -- 2,324 2,324 --
Accounts payable, accrued liabilities
and deferred income 4,582 -- 4,582 4,444 138
-------- ------ -------- -------- --------
36,441 6,956 43,397 40,896 2,501
-------- ------ -------- -------- --------
LIABILITIES RELATED TO RENTAL PROPERTIES
Recourse debt 918 -- 918 918 --
Non-recourse debt 38,995 -- 38,995 38,995 --
Accounts payable and accrued liabilities 3,663 314 3,977 3,067 910
-------- ------ -------- -------- --------
43,576 314 43,890 42,980 910
-------- ------ -------- -------- --------
LIABILITIES RELATED TO HOMEBUILDING
Recourse debt 211 -- 211 -- 211
Accounts payable, accrued liabilities
and deferred income 2,196 -- 2,196 -- 2,196
-------- ------ -------- -------- --------
2,407 -- 2,407 -- 2,407
-------- ------ -------- -------- --------
OTHER LIABILITIES
Accounts payable and accrued liabilities 5,893 -- 5,893 3,467 2,426
Notes payable and capital leases 604 -- 604 145 459
Accrued income tax liability-current 2,454 -- 2,454 2,452 2
Accrued income tax liability-deferred 3,909 -- 3,909 3,491 418
-------- ------ -------- -------- --------
12,860 -- 12,860 9,555 3,305
-------- ------ -------- -------- --------
TOTAL LIABILITIES 95,284 7,270 102,554 93,431 9,123
-------- ------ -------- -------- --------
PARTNERS' CAPITAL 44,335 1,325 (C) 45,660 17,852 27,808
-------- ------ -------- -------- --------
TOTAL LIABILITIES AND PARTNERS'
CAPITAL $139,619 $8,595 $148,214 $111,283 $36,931
======== ====== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this pro forma consolidated
balance sheet.
-128-
<PAGE>
INTERSTATE GENERAL COMPANY L.P. ("IGC")
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL DATA
(A) Land sales occurred during the year ended December 31, 1997, as IGC's land
business sold lots to its homebuilding business. Gross profit on these
sales, historically eliminated in consolidation, has been included in IGC
and ACPT's historical results for these periods based upon the estimated
fair market value of the land (based on comparable sales to third parties).
(B) As of March 31, 1998 and during the first quarter of 1998 and the year
ended December 31, 1997, the investment in the four rental properties are
eliminated upon consolidation. Sixty percent of the general partners'
interest in these partnerships will remain in IGC until one year and one
day after the Restructure, at which time they will be transferred to ACPT.
IGC will not consolidate these partnerships, creating a need to reclassify
sixty percent of the general partners' investment from operating assets and
the applicable minority interest expense to equity in earnings from
unconsolidated subsidiaries. The basis in the general partners interest is
negative and further reclassified to accrued liabilities.
(C) As of March 31, 1998 and during the first quarter of 1998 and the year
ended December 31, 1997, an intercompany note receivable and intercompany
debt existed between IGC and LDA. Interest income and expense and the note
receivable and payable amounts, historically eliminated in consolidation,
have been included in IGC's and ACPT's historical results.
(D) Reflects the registration, initiation of operations, and distribution of
all Common Shares of American Community Properties Trust ("ACPT"). ACPT,
which was formed on March 17, 1997, is expected to carry out the
restructuring of IGC. IGC expects to transfer its principal operations to
ACPT's subsidiaries and distribute to the partners of IGC, including its
Unitholders, all the Common Shares of ACPT.
(E) Column balances equal "IGC Reclassified" column balances less "ACPT" column
balances. IGC's remaining operations include the U.S. homebuilding
business, waste technology business, land subject to the wetlands
litigation and certain other parcels of land.
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<PAGE>
IGC AFTER THE RESTRUCTURING
NO CHANGE IN PARTNERSHIP STRUCTURE.
After the Restructuring, IGC will remain a publicly-traded limited
partnership under the existing Partnership Agreement. No amendments to the
Partnership Agreement are being made as a part of the Restructuring. IGC's
executive offices are located at 222 Smallwood Village Center, St. Charles,
Maryland 20602.
MANAGEMENT OF IGC.
IGMC will continue as the managing general partner of IGC after the
Restructuring, and James J. Wilson will continue as the Chairman of the Board of
IGMC and the Chief Executive Officer of IGC. Except for Donald Blakeman,
following the Distribution, no Trustee or officer of ACPT will serve as a
director or officer of IGMC. Consequently, J. Michael Wilson, Thomas Wilson,
Thomas Shafer, Edwin Kelly, Paul Resnik, Eduardo Cruz Ocasio, Carlos R.
Rodriguez and Francisco Arrivi Cros, who currently are directors and/or officers
of IGMC and who are or will be Trustees and/or officers of ACPT will resign from
their positions at IGC prior to the Distribution. Donald Blakeman will remain
as director of IGMC until an independent director has been recruited, at which
time Mr. Blakeman intends to resign. Following the Distribution, the directors
of IGMC, in addition to James Wilson, will be Mark Augenblick, Donald G.
Blakeman, and Thomas Shafer, and the principal executive officers of IGC will be
James Wilson, Mark Augenblick, and __________.
Following the Restructuring, Mark Augenblick will serve as president
and chief operating officer of IGC, and will continue to serve as a director,
chairman and chief executive officer of AFH, CWT and IWT, and as a director of
IGMC. Mark Augenblick presently serves as a vice chairman of IGC, as well as
chairman and chief executive officer of AFH, CWT and IWT. Mr. Augenblick will
receive an annual base salary of $400,000, annual directors' fees, various
employment-related bonuses, and 70,000 common shares in IWT and CWT subject to
forfeiture in the event of early termination of his employment contract.
DESCRIPTION OF IGC'S CONTINUING BUSINESS.
After the Restructuring, IGC will continue to own the Retained Assets,
which in management's view do not fit ACPT's business plan. These assets
include the Wetlands Properties, the LDA Note, all of the shares of AFH, certain
single family home lots in the Dorchester neighborhood in St. Charles, 14 acres
of commercial land in St. Charles, an indirect 50% interest in Brandywine
Investment Associates L.P., which owns land in Brandywine, Maryland, a 100%
interest in Pomfret LLC, which owns land in Pomfret, Maryland, the Westbury
land, Chastleton and Coachman's L.P. and the beneficial interest in the CWT
Trust. Management of IGC believes that the Retained
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<PAGE>
Assets will enable IGC to continue significant operations following the
Distribution. As a result of the wetlands conviction, the Wetlands Properties
were encumbered by an obligation to impose a conservation easement that would
prohibit development. The easement was never recorded and the wetlands
conviction was reversed. However, the matter has been remanded for a new trial
and as a practical matter, the Wetlands Properties remain undevelopable until
the wetlands litigation is finally resolved. IGC will also retain, until
limited partner consents are obtained, the general partnership interests in nine
apartment partnerships in order to avoid a tax termination under the Code.
Real Estate Development.
-----------------------
Brandywine
SCA, in which IGC holds a 99% interest, owns a 50% interest in
Brandywine Investment Associates L.P., a Maryland limited partnership.
Brandywine Associates owns Brandywine Village, a 277 acre tract in Prince
George's County, Maryland. The property currently is in the planning,
engineering and approval phase, and consists of two approved comprehensive
design zones that permit residential, retail commercial, office commercial and
light industrial uses. The value of IGC's interest in Brandywine Village has
been appraised at $8,885,000 as of June 9, 1997.
Pomfret
IGC holds a 100% interest in Pomfret LLC, which owns an 812 acre tract
in Charles County, Maryland. The site, which currently is in the planning
phase, is zoned for low density residential use, which would permit 812 one-acre
home sites or up to 1,420 single family detached units with a central sewer
system. The value of IGC's interest in the Pomfret land has been appraised at
$3,250,000 as of December 31, 1996.
Westbury
IGC owns approximately 340 lots for residential use in the master
planned community of Westbury in St. Mary's County, Maryland. IGC's holdings
consist of 38 townhome and 54 single family lots that currently are under
development, plus an additional 250 lots that have been approved for single
family use that IGC anticipates will be developed over the next several years.
The value of IGC's interest in 51 of the Phase II single family lots has been
appraised at $210,000 as of May 20, 1997.
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<PAGE>
St. Charles Commercial Land
IGC owns an approximately 14 acre parcel adjacent to the St. Charles
Towne Center that is currently zoned for commercial development. The parcel has
been appraised as having a gross retail value of $ 4,214,000 as of December 31,
1996.
Dorchester
IGC owns 26 single family home lots in the Dorchester neighborhood of
St. Charles. The lots have been appraised at $48,000 per lot as of December 31,
1996.
Wetlands Properties
As a result of the wetlands conviction, the Wetlands Properties were
encumbered by an obligation to impose a conservation easement that would
prohibit development. The easement was never recorded and the wetlands
conviction was reversed. However, pending final resolution of the wetlands
litigation, as a practical matter, the Wetlands Properties may not be developed.
The Wetlands Properties include the Towne Center South land in St. Charles,
which prior to the wetlands litigation was held by IGC for commercial
development.
Interstate Waste Technologies; CWT Trust.
----------------------------------------
Following the Distribution, IGC plans to continue the development and
expansion of the waste treatment facility development business currently
conducted by IWT. All of the outstanding stock of IWT and of CWT will be
contributed to the CWT Trust. Before contributing CWT and IWT to the CWT Trust,
IGC will capitalize these entities with (i) a third party note receivable in the
amount of $1.06 million resulting from the sale by IGC of 53 single family lots
in the Montclair neighborhood of Prince William County, Virginia, (ii) 77
townhome lots in the Montclair neighborhood with an estimated value of $700,000
to $1 million, and (iii) $1 million of cash. IGC's objective is to establish
the waste treatment business in a single viable operating company that can be
sold or spun off as a separate company to IGC Unitholders in the future. CWT
has been invited by the government of the Caribbean nation of St. Maarten to
submit a proposal for the development of a waste treatment facility that would
use IWT's innovative waste disposal and conversion technology.
American Family Homes.
---------------------
Management of IGC intends to seek a buyer, merger candidate or
strategic investing partner for AFH. However, there can be no assurance that
any such transaction will be consummated on terms acceptable to IGC. In the
interim, AFH will continue its homebuilding activities in Virginia, North
Carolina and South Carolina.
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<PAGE>
LISTING OF IGC UNITS.
Management of IGC believes that the assets retained by IGC after the
Distribution will enable IGC to continue significant operations, and permit the
continued listing of the IGC Units on the AMEX and the PSE. The AMEX has
considered the matter and advised that following the Restructuring it expects
the IGC Units to meet the criteria for continued AMEX listing. To increase the
post-Restructuring trading price of IGC Units immediately following the
Distribution, IGC will implement a 1 for 5 reverse Unit split.
CREDITORS RIGHTS.
If, in a lawsuit by an unpaid creditor or representative of creditors
of IGC, such as a trustee in bankruptcy, a court were to find that, at the time
IGC made the Distribution, IGC (i) was insolvent, (ii) was rendered insolvent by
reason of the Distribution, (iii) was engaged in a business or transaction for
which IGC's assets constituted unreasonably small capital, or (iv) intended to
incur, or believed that it would incur, obligations beyond its ability to pay
such obligations as they matured, such court could void the Distribution as a
fraudulent transfer or conveyance and require recipients of Common Shares to
return them (or equivalent amounts) to IGC or to a fund for the benefit of its
creditors.
As described below, IGC's management believes that following the
Distribution IGC will be solvent, will have sufficient capital for carrying on
its business and will be able to pay its obligations, including those related to
the wetlands litigation, as they become due. There can be no assurance,
however, that a court would value IGC's assets on the same basis to determine
whether IGC was insolvent at the time of, or after giving effect to, the
Distribution, or that, regardless of the method of valuation, a court would not
determine that IGC was insolvent at such time, that it was engaged in a business
for which its remaining assets constituted unreasonably small capital or that
IGC was generally unable to pay its obligations as they became due.
In addition, the Delaware Act prohibits limited partnerships from
making distributions to limited partners to the extent that, after giving effect
to such distribution, certain liabilities of the partnership exceed the fair
value of its assets. The Delaware Act further provides that recipients of a
distribution who knew at the time of such distribution that such distribution
violated the Delaware Act are liable to the partnership for the amount of the
distribution. However, limited partners receiving an unlawful distribution who
were unaware at the time of such distribution that it was unlawful are not
liable to the partnership. IGC's management believes that after giving effect
to the Distribution, IGC's liabilities will not exceed the fair value of its
assets and therefore that the Distribution will not violate the Delaware Act.
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<PAGE>
MANAGEMENT OF ACPT
ACPT BOARD OF TRUSTEES.
The business and affairs of ACPT will be managed under the direction
of the Board of Trustees. At the effective time of the Restructuring, the Board
of Trustees will have four members, all of whom will be persons who will be
employees of ACPT or a member of the Wilson Family. In addition, two other
persons who will not be employees of ACPT or any affiliated company or a member
of the Wilson Family have agreed to serve as Trustees beginning immediately
after the completion of the Restructuring.
Pursuant to the terms of the Declaration of Trust, the Trustees are
divided into three classes. One class will hold office initially for a term
expiring at the annual meeting of Shareholders to be held in 1999, a second
class will hold office initially for a term expiring at the annual meeting of
Shareholders to be held in 2000, and a third class will hold office initially
for a term expiring at the annual meeting of Shareholders to be held in 2001.
At each annual meeting of Shareholders, the successors to the class of Trustees
whose terms expire at that meeting will be elected to hold office for a term
continuing until the annual meeting of Shareholders held in the third year
following the year of their election and the election and qualification of their
successors. See "Certain Provisions of Maryland Law and ACPT's Declaration of
Trust and Bylaws."
ACPT TRUSTEES AND EXECUTIVE OFFICERS.
The following table sets forth certain information with respect to the
persons who will be the Trustees and the executive officers of ACPT at the
effective time of the Restructuring and the persons who have agreed to serve as
Trustees immediately following the completion of the Restructuring. Additional
biographical information follows the table. All executive officers are elected
by the Board of Trustees and may be removed, with or without cause, at the
discretion of the Board of Trustees. Management is considering adding up to two
additional independent trustees.
NAME AGE POSITION TERM EXPIRES
---- --- -------- ------------
J. Michael Wilson 32 Trustee, Chairman and
Chief Executive Officer 2001
Edwin L. Kelly 56 Trustee, President and
Chief Operating Officer 2000
Francisco Arrivi Cros 53 Trustee, Executive Vice
President and Treasurer 1999
Donald G. Blakeman 66 Trustee(1) 1999
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<PAGE>
NAME AGE POSITION TERM EXPIRES
---- --- -------- ------------
Thomas Shafer 68 Trustee(1) 2001
Thomas B. Wilson 36 Trustee 2000
Paul A. Resnik 50 Senior Vice President
and Secretary
Eduardo Cruz Ocasio 52 Vice President and
Assistant Secretary
_______________________________
(1) To become Trustees immediately following completion of the Restructuring.
J. MICHAEL WILSON has been a Director of IGMC since December 1996 and
in January 1997 was named its Vice Chairman, Chief Financial Officer and
Secretary, and Chief Financial Officer of IGC. He has been President and Chief
Operating Officer of IBC since 1994 and a Director since 1991. He served as
Vice President of IBC from 1991 to 1994. He has been a director of Wilson
Securities Corporation since 1991, and President since March 1996. He was Vice
President of Wilson Securities Corporation from 1991 to 1996. He has been Vice
President of IWT since 1994. He served as Real Estate Finance Division Loan
Administrator for Chase Manhattan Bank in New York from 1989 to 1991. He
graduated from Manhattan College, New York with a degree in Business Finance in
1989. He is the brother of Thomas B. Wilson.
EDWIN L. KELLY was named President and Chief Operating Officer of IGMC
and IGC in January 1997. He previously served as Senior Vice President and
Treasurer of IGC and Senior Vice President of IGMC since their formation in
1986. He has served in various executive positions with IGC and its predecessor
companies since 1974, including as a Director of IGMC from 1986 to present.
Prior to joining Interstate, he was a manager in the Consulting Division of
Arthur Andersen & Co.
FRANCISCO ARRIVI CROS was Senior Vice President of IGC from 1990 to
1996 and since 1997 has been Executive Vice President of IGC. He was named as a
director of IGMC in April 1997. He also has served as President of IGP since
1996. Before joining IGC, he was Vice President of The Chase Manhattan Bank
N.A. in Puerto Rico from 1977 to 1990, and manager of its Real Estate Finance
Division from 1985 to 1990.
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DONALD G. BLAKEMAN has been a Director of IGMC since its inception in
1986. He served as Executive Vice President of IGMC and IGC from 1986 to 1996.
He was Secretary of IGMC from 1990 to 1995. He served in various executive
positions with IGC and its predecessor companies from 1968 to 1996. In
connection with those roles he resigned as an officer of IGC in August 1996, he
was named President of Equus and Equus Management Company ("EMC") in January
1996, and served until his retirement in December 1998. He served as a
Director of EMC until his retirement in May 1998.
THOMAS SHAFER is a registered Professional Engineer specializing in
real estate evaluation and land development. He was a partner of Whitman,
Requardt and Associates, LLP ("Whitman Requardt"), an engineering and
architectural firm, since 1976 and its managing partner since 1989. He retired
from the Whitman, Requardt firm effective December 31, 1997. Mr. Shafer serves
on the Business Advisory Committee of Mayor Kurt Schmoke of Baltimore and as the
President and Chairman of the Board of the Charles Village Community Benefits
District and the Charles Village Community Foundation, Inc. Mr. Shafer is a
member of the Urban Land Institute, the National Society of Professional
Engineers and the American Water Works Association. His firm has provided
engineering services to IGC in connection with the St. Charles development for
thirty years.
THOMAS B. WILSON has been a Director of IGMC since December 1995. He
has been a Vice President of IBC since 1994. Since 1994, he has been President
of El Comandante Operating Company, Inc. ("ECOC"), which leases El Comandante
Race Track in Puerto Rico from a subsidiary of Equus. Since January 1998, he
has served as Chairman, Chief Executive Officer, and President of Equus and EMC.
He is the brother of J. Michael Wilson.
PAUL A. RESNIK has been Senior Vice President of IGC since 1993 and
Vice President of IGMC since 1989. He served as Vice President of IGC from 1987
to 1993. From 1986 to 1987 he was Vice President of Multi-Management, Inc., a
property management and real estate development company in Cleveland, Ohio.
From 1978 to 1986 he was General Manager of Naiman Development Company, a
developer of commercial properties and property management company in Cleveland,
Ohio.
EDUARDO CRUZ OCASIO has been Vice President and Assistant Secretary of
IGMC since June of 1997. He has also been Vice President of IGC since 1991 and
Assistant Treasurer since 1987. He has served in various positions with IGC and
its predecessor companies since 1971, including Comptroller of IGP from 1977-
1990.
COMMITTEES OF THE ACPT BOARD OF TRUSTEES.
Following the Restructuring, the Board of Trustees will have the
following committees:
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Audit Committee.
---------------
The Audit Committee will consist of no fewer than two members, each of
whom will be an Independent Trustee. The responsibilities of the Audit
Committee will include making recommendations concerning the engagement of
independent public accountants, reviewing with the independent public
accountants the plans for and results of the annual audit engagement, approval
of any other professional services provided by the independent public
accountants, approval of the fees paid to the independent public accountants for
audit and non-audit services, and periodically reviewing, with the assistance of
the independent public accountants, the adequacy of ACPT's internal accounting
controls.
Compensation Committee.
----------------------
The Compensation Committee will consist of no fewer than two members,
each of whom will be an Independent Trustee. The Compensation Committee will be
responsible for the administration of the Share Incentive Plan and for approving
the compensation of the executive officers of ACPT.
Nominating Committee.
--------------------
The Board of Trustees does not have a standing committee for the
recommendation of nominees for election to the Board of Trustees. This function
is performed by the entire Board of Trustees.
COMPENSATION OF ACPT TRUSTEES.
Trustees that will not receive salaries from ACPT will receive
directors' fees established by the Board of Trustees. Initially, these Trustees
will be compensated at a rate of $5,000 per quarter, $1,400 per meeting and out
of pocket travel reimbursements for meeting attendance. Trustees who are not
employees of ACPT also are eligible to receive Share-based incentive
compensation under the Trustees Share Plan described below.
EXECUTIVE COMPENSATION.
The following table sets forth the estimated annualized base salary
expected to be paid following the Restructuring to each of ACPT's executive
officers:
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POSITION ESTIMATED ANNUAL
NAME BASE SALARY
J. Michael Wilson Chairman, Chief Executive $ 90,000
Officer
Edwin L. Kelly President, Chief Operating $275,000
Officer
Francisco Arrivi Cros Executive Vice President, $275,000
Treasurer
Paul Resnik Senior Vice President and $200,000
Secretary
Eduardo Cruz Ocasio Vice President $115,000
All Executive Officers
as a Group $955,000
Subsequent to completion of the Restructuring ACPT intends to adopt one or more
incentive plans for its key employees in addition to the Share Incentive Plan
described below.
EMPLOYMENT AGREEMENTS.
Each of Messrs. Kelly, Arrivi and Resnik will enter into an employment
agreement (the "Employment Agreements") with American Management to become
effective on the date of the Distribution. The Employment Agreement of Messrs.
Kelly and Arrivi will replace employment agreements that they currently have
with IGC. Pursuant to the Employment Agreements, Mr. Kelly will serve as
President and Chief Operating Officer and will be paid an annual base salary of
$275,000, Mr. Arrivi will serve as Executive Vice President and will be paid an
annual base salary of $275,000, and Mr. Resnik will serve as Senior Vice
President and will be paid an annual base salary of $200,000. The Employment
Agreements will provide for salary raises at the discretion of the Board of
Trustees. Each of the Employment Agreements is annually renewable by the Board
of Trustees.
Under the terms of the Employment Agreements, if the executive's
employment with American Management is terminated by American Management other
than for "cause" (as defined in the Employment Agreement), or is terminated by
the executive for "good reason" (as defined in the Employment Agreement) the
terminated executive will be entitled to continue to receive his base salary for
24 months following the date of termination.
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SHARE INCENTIVE PLANS.
ACPT has adopted the 1997 Share Incentive Plan (the "Share Incentive
Plan") and the 1997 Trustee Share Incentive Plan (the "Trustee Share Plan") to
provide for Common Share-based incentive compensation for officers, key
employees and Trustees. The Share Incentive Plan and the Trustee Share Plan
will be substantially similar to the existing plans of IGC. The summaries of
the Share Incentive Plan and Trustee Share Plan set forth below are qualified in
their entirety by reference to the text of the Plans, copies of which have been
filed as exhibits to the Registration Statement of which this Proxy
Statement/Prospectus is a part.
Employee Plan.
-------------
Under the Share Incentive Plan, the Compensation Committee of the
Board of Trustees may grant to key employees the following types of Share-based
incentive compensation awards ("Awards"): (i) options to purchase a specified
number of Common Shares ("ACPT Options"), (ii) forfeitable Common Shares that
vest upon the occurrence of certain vesting criteria ("Restricted Shares"), or
(iii) Share Appreciation Rights ("ACPT Rights") that entitle the holder to
receive upon exercise an amount payable in cash, Common Shares or other property
(or any combination of the foregoing) equal to the difference between the market
value of Common Shares and a base price fixed on the date of grant. A total of
208,000 Common Shares has been reserved for issuance under the Share Incentive
Plan.
The Share Incentive Plan authorizes the Compensation Committee to
determine the exercise price and manner of payment for ACPT Options and the base
price for ACPT Rights. The Compensation Committee also is authorized to
determine the duration and vesting criteria for Awards, including whether
vesting will be accelerated upon a change in control of ACPT.
Rights of key employees under Awards are not transferable other than
to immediate family members or by will or the laws of intestate succession.
Trustees Plan.
-------------
The Trustee Share Plan authorizes the Board of Trustees, in its
discretion, to grant to eligible Trustees Awards of the same types and terms of
Awards as provided under the Share Incentive Plan. Only Trustees who are not
employees of ACPT or any affiliated company are eligible to receive Awards under
the Trustee Share Plan. A total of 52,000 Common Shares have been reserved for
issuance under the Trustee Share Plan.
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TREATMENT OF IGC OPTIONS AND UNIT APPRECIATION RIGHTS.
In connection with the Distribution, holders of options to purchase
IGC Units ("IGC Options") which have been awarded prior to the Distribution
Date, whether or not such IGC Options have vested, will receive ACPT Options to
purchase one Common Share for every two IGC Options. Likewise, holders of IGC
Unit Appreciation Rights ("IGC Rights") awarded prior to the Distribution Date,
whether vested or not, will receive one ACPT Right for every two IGC Rights.
Holders of IGC Rights or Options will not be required to pay any additional
consideration for, and will not be required to surrender or exchange their IGC
Rights or Options to obtain such ACPT Rights or Options. Any ACPT Options or
Rights issued in respect of IGC Options or Rights that have not vested at the
time of the Distribution will vest at the same time as the corresponding IGC
Options or Rights.
Consequently, the following Trustees and officers of ACPT who
currently hold IGC Options or Rights will be issued the following number of ACPT
Options or Rights in connection with the Distribution: Francisco Arrivi Cros --
5,000 ACPT Options and 45,000 ACPT Rights; Paul Resnik -- 25,000 ACPT Rights;
and Edwin L. Kelly -- 20,000 ACPT Rights.
The exercise price for each such ACPT Option, or the base price for
each such ACPT Right, as the case may be, will be equal to (a) the exercise
price of the IGC Options or base price of the IGC Rights in respect of which
such ACPT Options or Rights were issued, multiplied by (b) the percentage
obtained by dividing (i) the average closing price of Common Shares on the AMEX
for the 20 trading days immediately following, but not including, the
Distribution Date (the "ACPT Average") by (ii) the sum of (A) the ACPT Average
and (B) the average closing sale price of IGC Units on the principal exchange on
which they are traded, or, if not traded on an exchange, in the over-the-counter
market, for the 20 trading days immediately following, but not including, the
Distribution Date (the "IGC Average") multiplied by two. In addition, the
exercise price or base price of each such IGC Option or Right will be adjusted
to equal (a) such exercise price or base price, multiplied by (b) the percentage
obtained by dividing (i) two times the IGC Average by (ii) the sum of (A) two
times the IGC Average and (B) the ACPT Average.
The costs associated with the adjusted IGC Rights and Options
following the Distribution will continue to be borne by IGC, and the cost
associated with the ACPT Rights and Options issued will be borne by ACPT.
RETIREMENT PLANS.
In connection with the Restructuring, all of the current employees of
IGC (except employees of AFH, IWT, CWT, Mark Augenblick and James J. Wilson)
will become employees of American Management. American Management will continue
and
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assume all of IGC's obligations under the retirement savings plan currently
maintained by IGC (the "Retirement Plan"). Employees are generally eligible to
participate when they complete one year of service. The Retirement Plan is a
defined contribution plan which provides for contributions by American
Management for the accounts of eligible employees in amounts equal to 4% of base
salaries and wages not in excess of the U.S. Social Security taxable wage base,
and 8% of salaries (limited to $150,000) that exceeded that wage base. Eligible
employees also may make voluntary contributions to their accounts and self-
direct the investment of their account balances in various investment funds that
may be selected under the plan.
OWNERSHIP OF COMMON SHARES
The following table sets forth certain information with regard to the
beneficial ownership of IGC Units as of May 31, 1998 and the projected
beneficial ownership of Common Shares after giving effect to the Restructuring
based on beneficial ownership of IGC Units as of May 31, 1998, by: (i) each
person who beneficially owns more than 5% of the outstanding IGC Units or would
beneficially own more than 5% of the outstanding Common Shares, (ii) each
Trustee and each named executive officer of ACPT, (iii) each director and named
executive officer of IGMC, (iv) all Trustees and executive officers of ACPT as a
group and (v) all directors and executive officers of IGMC as a group. Except
as otherwise indicated, each person named in the table will have sole voting and
sole investment power with respect to all of the Common Shares shown as
beneficially owned by such person.
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<TABLE>
<CAPTION>
Beneficial Ownership (1)
----------------------------------
Number of Number of
Name of Beneficial Owner IGC Units Common Shares Percent
- ------------------------------------------ --------- ------------- -------
<S> <C> <C> <C>
J. Michael Wilson (2) 215,495 107,747 2.08
Edwin L. Kelly 111,214 55,607 1.07
Francisco Arrivi Cros (3) 10,000 5,000 *
Donald G. Blakeman 373,884 186,944 3.61
Thomas Shafer - - *
Thomas B. Wilson 172,795 86,397 1.67
Paul Resnik 10,000 5,000 *
Eduardo Cruz Ocasio - - *
All Trustees and executive officers of ACPT 893,393 446,697 8.67
as a group (8 persons) (2) (3)
Mark Augenblick - - *
James J. Wilson (4) 30,579 15,289 *
All Directors and executive officers of IGMC
as a group (11 persons) (2) (3) 967,728 483,864 9.35
Bessemer Interstate Corporation
245 Peachtree Center Avenue #804
Atlanta, GA 30303 522,208 261,104 5.04
Interstate Business Corporation
222 Smallwood Village Center
St. Charles, MD 20602 (5) 3,080,515 1,540,257 29.75
Wilson Securities Corporation
222 Smallwood Village Center
St. Charles, MD 20602 (5) 1,172,203 586,101 11.32
</TABLE>
__________________________
* less than 1%
(1) The beneficial ownership of IGC Units and Common Shares is determined on
the basis of IGC Units directly and indirectly owned by directors and
executive officers of IGMC and Trustees and executive officers of ACPT and
IGC Units to be issued to such persons under options which are exercisable
within the next 60 days. The percentage of ownership is based on the
aggregate number of IGC Units outstanding as of May 31, 1997, plus all IGC
Units issuable upon exercise of options within the next 60 days, for a
total of 10,354,185. At a distribution ratio of one to two, the number of
Common Shares expected to be outstanding immediately following the
Distribution is approximately 5,200,000. The total number of outstanding
ACPT shares does not reflect the results of the Private Offering.
(2) Includes 42,700 IGC Units (.42%) attributable to IGC Units held by the
Wilson Family Limited Partnership, a partnership for which J. Michael
Wilson serves as a general partner.
(3) Includes IGC Units subject to options exercisable under the IGC Employees
Plans of 10,000 for Francisco Arrivi Cros.
(4) Includes 100 IGC Units (0%) held by his wife, Barbara A. Wilson.
(5) Owned by certain members of the Wilson Family, including J. Michael Wilson
and Thomas B. Wilson.
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TRANSACTIONS WITH RELATED PARTIES
STAGGERED TRANSFER OF PARTNERSHIP INTERESTS TO AMERICAN HOUSING
Prior to the Distribution IGC will not have completed the transfer to
American Housing of portions of IGC's general partnership interests in nine U.S.
Apartment Partnerships. These transfers will be deferred to permit IGC to
obtain limited partner consents or to avoid certain of the partnerships from
triggering a tax termination pursuant to Section 708 of the Code. The
partnership interests temporarily retained by IGC until consent of a majority of
limited partners can be obtained will be:
Essex Apartment Associates Limited Partnership - a 1% general partnership
interest
Bannister Associates Limited Partnership - a 5% general partnership
interest
Brookside Gardens Limited Partnership - a 1% general partnership interest
Crossland Associates Limited Partnership - a 5% general partnership
interest
Huntington Associates Limited Partnership - a 1% general partnership
interest.
IGC will use its best efforts to obtain limited partner consent for
such transfers as soon as practicable. Pending such consent IGC will assign to
American Housing the beneficial interest in Bannister, Brookside Gardens, and
Crossland and any distributions received from Essex and Huntington to the extent
that such distributions would not disqualify American Rental as a REIT. Any
distributions received by IGC from Essex and Huntington that cannot be assigned
to American Housing will be assigned to American Land.
The partnership interests temporarily retained by IGC to avoid a
technical termination of the partnership under Section 708 of the Code will be:
Headen House Associates Limited Partnership - a .6% general partnership
interest
Palmer Apartments Associates Limited Partnership - a .6% general
partnership interest
Wakefield Terrace Associates Limited Partnership - a .6% general
partnership interest
Wakefield Third Age Associates Limited Partnership - a .6% general
partnership interest.
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IGC will transfer its retained interest in these Apartment
Partnerships on the first anniversary of the Distribution. Prior to that time
IGC will retain the economic benefits associated with the retained interests.
ACPT will indemnify and hold IGC harmless from any liability to any
third party arising after the initial transfer of partnership interests that
might be imposed upon IGC in its capacity as a general partner of any of the
nine Apartment Partnerships in which it temporarily retains an interest.
CONSULTING AGREEMENT.
American Management will enter into a consulting and retirement
compensation agreement with IGC's founder and Chief Executive Officer, James J.
Wilson, to become effective on the date of the Restructuring (the "Consulting
Agreement"). The Consulting Agreement will provide for annual cash payments
during the first two years of $500,000 and annual cash payments for eight years
thereafter of $200,000. However, if Mr. Wilson dies or ACPT is sold during the
term of the Consulting Agreement, the agreement provides for a lump sum payment
equal to the lesser of $400,000 or the aggregate of annual payments then payable
under the agreement. During the Consulting Agreement term, Mr. Wilson will
remain available to provide consulting services requested from time to time by
the Board of Trustees including strategic planning and transaction advisory
services. Pursuant to the Consulting Agreement, American Management will
reimburse the reasonable costs and expenses incurred by Mr. Wilson in providing
requested consulting services. The Consulting Agreement would remain in effect
in the event that Mr. Wilson is convicted of any charges related to the wetlands
litigation. Mr. Wilson is the father of J. Michael Wilson and Thomas B. Wilson.
BANC ONE FINANCING.
On September 19, 1997, IGC refinanced substantially all of its U.S.
land development recourse indebtedness pursuant to a Master Loan Agreement dated
August 1, 1997 by and among IGC, ACPT, St. Charles Community LLC and Banc One.
To date approximately $14 million in proceeds of this $20 million facility were
used as follows: $6.8 million to satisfy existing indebtedness to NationsBank,
$1.7 million to pay Puerto Rico income tax, $2.5 million for various accounts
payable, and $3 million to pay in full the wetlands fine. In addition, the Banc
One facility provides for up to $4 million in community development financing
for Fairway Village, and $2 million for payment of wetlands remediation
expenses.
The loan bears interest at prime plus 2.5% and requires semi-annual
principal payments of $1 million during the first year and $1.5 million
thereafter until maturity at the end of the seventh year. The loan is secured
by substantially all of IGC's
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assets, excluding (with the exception of one 14 acre land parcel in St. Charles)
the assets that will remain in IGC following the Restructuring. During the
first 3 years of the loan, Banc One is generally entitled to receive 50% of the
net sales proceeds of any collateral as a mandatory principal curtailment with
the percentages increasing to 60% in years 4 and 5, 70% in year 6, and 80% in
year 7. The loan with Banc One requires additional interest payments on each
annual anniversary date. The amount due is 1% of the outstanding balance in
1998 and 1999, and increases 1/2% each year thereafter, through 2003.
In connection with the loan, IGC granted Banc One an option to
purchase 150,000 IGC Units at an exercise price of $3.0016 per unit. During any
year that the loan remains outstanding, IGC is required to grant Banc One 75,000
additional options with an exercise price equal to the lesser of the Strike
Price or the market price on the date of grant.
Following the Restructuring, and upon approval of Banc One, ACPT will
assume the obligation to grant options. IGC will remain liable to Banc One for
outstanding indebtedness but will be released from its other covenant
obligations. Pursuant to the Service Agreement, ACPT will indemnify and hold
harmless IGC from any liability under the Banc One loan.
JOINT LITIGATION WITH CHARLES COUNTY.
In connection with the land transfers, SCA has assigned to ACPT its
rights under the 1989 settlement agreement with Charles County. However, with
respect to pending litigation to enforce the settlement agreement, SCA has
retained its claim for any monetary damages for excess sewer connection fees and
impact fees paid prior to the Distribution that may be awarded as a result of
such litigation. See "Legal Proceedings -- IGC -- Other Litigation."
SERVICES OF WHITMAN, REQUARDT.
Whitman, Requardt, an engineering and consulting firm of which Thomas
Shafer recently retired as the managing partner, has regularly performed
engineering, surveying, inspection and environmental assessment services for IGC
and its predecessors with respect to the St. Charles land assets for over 30
years and will continue to provide such services for ACPT following the
Restructuring. Mr. Shafer will become a Trustee of ACPT upon completion of the
Distribution. Whitman, Requardt has charged IGC $300,000 for services performed
in 1997, and as of March 15, 1998, IGC owes Whitman, Requardt $137,000 for
services rendered. Following the Distribution ACPT will assume any outstanding
amounts payable to Whitman, Requardt.
NATIONSBANK LETTER OF CREDIT.
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NationsBank has issued in the name of IGC a standby letter of credit
in the face amount of $4.2 million which serves as collateral for municipal
bonds in the principal amount of $4.2 million issued by a District of Columbia
agency that finance the Chastleton Apartments. IGC's obligations under the
letter of credit are secured by an assignment of certain notes payable by
Brandywine Investment Associates L.P. and by IGP's partnership interests in
three Puerto Rico Apartment Partnerships. Additional collateral has been
provided by IBC and IBC has undertaken to replace the NationsBank letter of
credit with a letter of credit secured only by assets of IBC.
PAYMENTS TO IBC FOR SERVICES PROVIDED BY J. MICHAEL WILSON.
J. Michael Wilson, the Chairman of ACPT and President of IBC, will
remain on the payroll of IBC following the Restructuring. ACPT will reimburse
IBC for one half of Mr. Wilson's salary, up to $90,000, plus the amount of
related costs, including FICA and FUTA taxes, incident to such salary.
LAND SALE TO IBC AFFILIATE.
On June 30, 1997, an affiliate of IBC purchased 374 acres for
$3,000,000. The sales price was determined based on an independent appraisal
value of $2,800,000 for the land plus the cost of engineering work provided by
IGC. The sales price was paid with a 20% down payment and a note receivable for
$2,400,000. On February 27, 1998 IBC assumed a $3,000,000 note payable due
Banco Popular in satisfaction of payables due from IBC to IGC totalling
$3,000,000 comprised of the $2,400,000 note, accrued interest thereon and other
payables. Management believes the terms of these transactions are comparable to
those that could have been negotiated with an independent third party.
SALE OF MANAGEMENT FEE RECEIVABLES.
During the second quarter 1997, an affiliate of IBC purchased the
management fees receivable due from four apartment projects owned by affiliates
of IGC or IBC at their aggregate face value of $190,000. Management believes
the sales price of the receivable is at least as favorable to IGC than what
could have been negotiated with an independent third party which likely would
have required a discount to face value.
RECEIVABLES FROM LAND SALES TO FORMER DIRECTOR.
LDA holds three notes receivable totalling $2,131,000 due from an
affiliate of Jorge Colon Nevares, a former IGC director. Two of these notes
totalling $1,252,000 contain provisions delaying the commencement of interest
until the earlier of the completion of certain infrastructure or a specified
date. The completion of the infrastructure was delayed and the interest
commencement provisions of the notes were
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modified accordingly. Management believes that the terms of this transaction
are comparable to those that could be negotiated with an independent third
party.
APARTMENT MANAGEMENT SERVICES.
IGC provides management services to five apartment rental projects and
two commercial properties in which ACPT is not the general partner and IBC or an
IBC related entity holds an ownership interest. ACPT will assume these
management contracts after the Restructuring. The management contracts provide
for fees ranging from 2.5% to 3.5% of rents. Total fees in 1997 were $560,000.
Management believes that the terms of these transactions are comparable to those
that could be negotiated with an independent third party.
LDA RECEIVABLE.
IGC will retain a portion of a $9 million receivable due from LDA
after the completion of the Restructuring. The note receivable is payable from
LDA's first available cash flow determined by ACPT after debt service,
operations and working capital requirements. ACPT will retain the right to
collect the first $2,400,000 paid on this note.
INCOME TAX CONSIDERATIONS
FEDERAL INCOME TAX CONSIDERATIONS.
This "Federal Income Tax Considerations" section summarizes the
material federal income tax considerations applicable to the Distribution,
holding and disposition of Common Shares. This discussion is not a complete
analysis of all the tax considerations and, in particular, does not address all
aspects of taxation that may be relevant to certain types of Shareholders
subject to special treatment under federal income tax laws (for example, life
insurance companies, tax exempt organizations, financial institutions, foreign
corporations, and non-resident alien individuals). This discussion and the
discussions that follow relating to certain State and Puerto Rico tax
considerations do not address the tax considerations applicable to (1) the Asset
Transfers, (2) the issuance, holding, or disposition of American Rental
Preferred Shares, (3) the issuance, holding, or disposition of ACPT Preferred
Shares under the Private Offering, or (4) the exchange of limited partnership
interests held by investors in the U.S. Apartment Partnerships or the Puerto
Rico Apartment Partnerships for limited partnership interests in American
Housing or IGP pursuant to the Exchange Offer. This discussion also does not
address foreign tax laws or any United States federal, state, or Puerto Rico tax
laws other than those pertaining to income tax. This discussion assumes that
the Shareholders will hold their Units and the Common Shares as capital assets
within the meaning of Section 1221 of the Code. Except as noted, the discussion
further assumes that Shareholders will not be Puerto Rico resident individuals,
entities organized
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under the laws of Puerto Rico, persons engaged in a trade or business in Puerto
Rico or trusts resident in Puerto Rico (a "Puerto Rico Shareholder").
PROSPECTIVE SHAREHOLDERS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISERS
REGARDING THE TAX CONSEQUENCES OF THE DISTRIBUTION, HOLDING AND DISPOSITION OF
COMMON SHARES.
No rulings have been requested from the IRS with respect to the
matters discussed in this section. Counsel's opinion with respect to federal
income tax matters is contained in a letter to ACPT dated ____, 1998 ("Counsel's
Tax Opinion") which is filed as an Exhibit to the Registration Statement of
which this Proxy Statement/Prospectus is a part. All references to Counsel's
opinion on any federal income tax matter expressed in this Proxy
Statement/Prospectus is subject to the qualifications, assumptions, and
representations set forth in Counsel's Tax Opinion, and is expressly conditioned
on the representations made by the officers of ACPT, American Management,
American Land, American Rental and IGP Group in a letter to Counsel dated
_______ (the "ACPT Letter") and the representations made by the officers of
IGMC, the managing general partner of IGC, in a letter to Counsel dated ______
(the "IGC Letter").
All computations, projections, estimates, and forecasts, including all
estimates and computations of the amount and character of income, gain, loss, or
deduction, and any underlying estimation or computation of tax basis and value,
have been furnished to Counsel by IGC. Counsel has not independently reviewed
these computations or the underlying projections, estimates, and forecasts upon
which they are based.
Counsel has assisted in the preparation of, and has reviewed, the
discussion in this "Federal Income Tax Considerations" section. Counsel is of
the opinion that the discussion in this "Federal Income Tax Considerations"
section fairly summarizes the federal income tax considerations that are likely
to be material to a Shareholder. Although the opinion of Counsel represents
Counsel's best judgement as to the matters discussed herein, it does not bind
the IRS or in any way constitute an assurance that the federal income tax
consequences described herein will be followed by the IRS. Counsel expresses no
opinion on the discussion contained in "Income Tax Considerations -- Certain
State Income Tax and Puerto Rico Income Tax Considerations -- Certain State Tax
Considerations" or "Income Tax Considerations -- Certain State Income Tax and
Puerto Rico Income Tax Considerations -- Certain Puerto Rico Income Tax
Considerations."
The summary of federal income tax consequences is based on the
provisions of the Code, the United States Department of the Treasury regulations
(the "Regulations"), published rulings of the IRS and judicial decisions as
currently in effect, all of which are subject to change and could be applied
retroactively at any time. Particularly, the Taxpayer Relief Act of 1997 (Pub.
L. 105-34) ("1997 Act") made
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significant changes to the Code, including changes relating to the treatment of
partnerships and REITs. It may be some time before Regulations or other formal
guidance is issued under the 1997 Act. Such Regulations could interpret the
relevant law in a manner that is contrary to this discussion or contrary to the
opinion of Counsel and such interpretation could be applied retroactively. In
addition, President Clinton has made several legislative proposals relating to
REITs as part of the revenue provisions contained in the President's Fiscal Year
1999 Budget Proposal which, as discussed below, could have a significant
negative impact on the proposed transactions. Bills containing a version of at
least one of these REIT proposals have been introduced in both the House of
Representatives and the Senate. It is possible that issues relating to
qualification as a REIT will be the subject of significant legislative and
administrative activity in the near future.
All references in this "Federal Income Tax Considerations" section to
Puerto Rico law or the treatment of ACPT and IGP Group under Puerto Rico law,
including, without limitation, references to the treatment for Puerto Rico
income tax purposes, are based on the discussion under "Income Tax
Considerations -- Certain State Income Tax and Puerto Rico Income Tax
Considerations -- Certain Puerto Rico Income Tax Considerations" and the opinion
of Puerto Rico Counsel described therein.
FEDERAL INCOME TAX CLASSIFICATION OF IGC.
IGC is a Delaware limited partnership. The initial public offering of
IGC Units was completed in February 1987. The basic source of criteria for
classification of an entity for federal tax purposes is Sections 301.7701-1
through 301.7701-4 of the Regulations. Under the Regulations, business entities
such as IGC that have been in existence prior to 1997 generally retain the same
classification that they claimed under the former Regulations that were in
effect prior to 1997, unless they elect otherwise. Thus, IGC will retain its
partnership status so long as it does not elect to be treated as an association
taxable as a corporation and so long as it is not a "publicly traded
partnership" that is taxed as a corporation under Code Section 7704. Even if it
satisfies the other requirements to be treated as a partnership, an organization
generally will be taxed as a corporation if it is a "publicly traded
partnership." A partnership is publicly traded if, among other things, its
interests are traded on an established securities market.
As discussed below, if the Distribution occurs at a time when IGC is
treated as a corporation for tax purposes, the Distribution will result in
significant adverse tax consequences to IGC and the Unitholders. It is possible
that the determination of whether IGC will be treated as a corporation as of
January 1, 1998, will not be certain until after the Distribution and it is also
possible that the Distribution could adversely affect the determination of
whether IGC will be treated as a corporation as of January 1, 1998, because the
Distribution will remove a potential source of a significant amount of gross
income of the type that would allow IGC to qualify for an
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exception from the general rule that publicly traded partnerships are taxed as
corporations.
Entities such as IGC that were publicly traded partnerships on
December 17, 1987 ("Existing Partnerships") were not subject to the general
rules for treatment as a corporation under Code Section 7704 until taxable years
beginning after December 31, 1997. The 1997 Act generally permitted an Existing
Partnership to make an irrevocable election ("Electing Existing Partnership") to
continue to avoid treatment as a corporation (even if it did not qualify for the
exception for partnerships with passive-type income, described below) if the
Electing Existing Partnership consented to, and paid, a tax equal to 3.5% of its
gross income for the taxable year from the active conduct of trades or
businesses of the Electing Existing Partnership. This tax generally is treated
as an income tax, but no credit is available to any partner for federal income
tax purposes. For purposes of computing the gross income subject to this tax,
the Electing Existing Partnership must include its distributive share of the
gross income of any lower-tier partnership from the active conduct of trades of
businesses of such other partnership.
The general rule that publicly traded partnerships are taxed as
corporations does not apply to a publicly traded partnership for a taxable year
if at least 90% of the organization's gross income for such taxable year (and
all prior taxable years) constitutes "qualifying income." Qualifying income
includes interest, dividends, "real property rents," gain from the sale or other
disposition of real property (including property held for sale and other
property described in Code Section 1221(1)), certain income derived in
connection with certain natural resources, and gain from the sale or disposition
of a capital asset (or property described in Code Section 1231(b) held for the
production of qualifying income). Qualifying income generally includes income
that qualifies under the regulated investment company or REIT qualification
rules (see "-- Federal Income Tax Classification of American Rental -- 95% Gross
Income Test"). However, the term "real property rents" (see "-- Federal Income
Tax Classification of American Rental -- 75% Gross Income Test") is expanded by
removing the independent contractor requirements for certain services provided
to tenants and limiting the application of certain constructive ownership
provisions by adding a 5% ownership "floor" to certain constructive ownership
rules that generally apply to all partners and their partnerships. Qualifying
income does not include interest derived in the conduct of a financial or
insurance business or any interest that would not constitute qualifying income
for purposes of the REIT qualification rules.
Less than 90% of IGC's gross income for the first quarter of 1998
constitutes qualifying income. After the Distribution, it is unlikely that IGC
will have sufficient amounts of gross qualifying income to have a significant
effect on this computation. IGC has represented that it will closely monitor
the amount and character of IGC's gross income and will take necessary steps,
including transferring certain assets that generate non-qualifying income to
corporate entities, in order to increase the
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percentage of IGC's gross income that constitutes qualifying income. In
addition, the Restructuring is contingent upon the management of IGC determining
that IGC will be classified as a partnership for federal tax purposes for 1998.
See "the Special Meeting -- Recommendation of the Board of Directors of IGMC."
However, there can be no assurance that these efforts will be successful or that
IGC will generate sufficient amounts of qualifying income relative to non-
qualifying income to meet the "90% qualifying income" exemption from the general
treatment of publicly held partnerships as corporations.
Some of the steps that IGC has taken or expects to take in order to
reduce its non-qualifying gross income include: (1) IGC has transferred an
interest in IGP to IGP Group and amended the partnership agreement of IGP to
specially allocate certain non-qualifying management fee income to IGP Group and
to transfer IGC's interests in certain Puerto Rico Apartment Partnerships that
are generating non-qualifying rents from personal property to IGP Group; (2)
certain sale and leaseback arrangements have been made with respect to personal
property on behalf of certain U.S. Apartment Partnerships that IGC expects will
result in a decrease in non-qualifying rents from such personal property that
will then be subleased to tenants; and (3) taking other steps to reduce non-
qualifying income such as transferring assets that are generating non-qualifying
income, such as IGC's interest in Housing Development Associates, S.E. ("HDA").
IGC also has taken or expects to take steps that will increase its
qualifying income, such as the liquidation of AFH into IGC. The liquidation of
AFH is expected to increase IGC's qualifying income because tax items such as
income from the sale of real property formerly held by AFH will now be included
in IGC's gross income. However, such income will likely increase IGC's taxable
income and therefore each Unitholder's distributive share of IGC's taxable
income. IGC's taxable income will also be increased as a result of the Asset
Transfers. As discussed below, IGC may not distribute sufficient cash to allow
Unitholders to satisfy their federal tax liability with respect to the
Unitholder's share of IGC's taxable income. See "-- Federal Income Tax
Consequences of the Asset Transfers."
As a result of the Asset Transfers and other steps taken by IGC to
maintain its status as a partnership for federal tax purposes, it is likely that
IGC will have a lower tax basis in its assets than if the Asset Transfers and
such other steps had not been taken. This decrease in basis may be reflected in
IGC's basis in the Common Shares. This decrease may also be reflected in the
tax basis that the Shareholders take in their Common Shares because Shareholders
will take a tax basis in their Common Shares equal to the lesser of IGC's tax
basis in the Common Shares or the Shareholders' adjusted tax basis in their IGC
Units immediately before the Distribution. In addition, there can be no
assurance that the positions adopted by IGC in the Asset Transfers and other
steps taken by IGC either to reduce its non-qualifying income or increase its
qualifying income will not be successfully challenged by the IRS.
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If IGC were to fail to meet the "90% qualifying income" test for 1998,
it may be able to seek relief from the IRS whereby it would be treated as if it
met such tests for that period. Such relief would be available only if IGC
could establish to the satisfaction of the IRS that such failure was
inadvertent, if it takes timely steps so that the gross income requirements are
subsequently met, and if it agrees to make such adjustments (including
adjustments with respect to the Unitholders) or pay such amounts as may be
required by the IRS. The amounts of the adjustments or payments are intended to
represent the portion of the tax liability that would be imposed on a
partnership if it were treated as a corporation during the period of failure to
meet the "90% qualifying income" test.
Alternatively, if IGC failed to meet the "90% qualifying income" test
it could also avoid being treated as a corporation by making the election and
paying the tax as an Electing Eligible Partnership, as described above.
If IGC failed to meet the "90% qualifying income" test for 1998 and
did not take any of the actions described above to avoid being treated as a
corporation, the following events would be deemed to occur on January 1, 1998:
(1) IGC would be deemed to transfer all of its assets (subject to its
liabilities) to a newly formed corporation in exchange for the stock of the
corporation, and (2) IGC would be deemed to distribute its stock to its partners
(including Unitholders) in liquidation of their interests in IGC. Such deemed
events generally should not give rise to gain except that (i) gain would be
recognized by IGC (and such gain would be allocated to the Unitholders) to the
extent that the aggregate amount of liabilities deemed to be assumed by the new
corporation exceed the adjusted tax basis of the assets deemed contributed to
the corporation; and (ii) gain would be recognized by a Unitholder to the extent
that cash is deemed to be distributed to the Unitholder in excess of such
Unitholder's adjusted tax basis in his or her Units immediately before such
deemed distribution.
If IGC were treated as a corporation as of January 1, 1998, then the
Distribution would be taxable to IGC to the extent that the fair market value of
the ACPT Common Shares exceed IGC's adjusted tax basis in such Common Shares
immediately before the Distribution and an amount equal to the value of the
Common Shares generally would be treated as a distribution to the Unitholders
taxable as a dividend to the extent of IGC's "earnings and profits" (for the
period that it was treated as a corporation), then a return of capital to the
extent of the Unitholder's basis in his or her Units, and then gain from the
sale or exchange of property.
The following discussion assumes that IGC will be treated as a
partnership for 1998.
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FEDERAL INCOME TAX CLASSIFICATION OF ACPT.
ACPT has been organized as an entity that will be treated as a
partnership for tax purposes, in part to avoid the "double" taxation that occurs
when a corporation distributes its profits to its Shareholders and to minimize
the aggregate Puerto Rico and federal income tax imposed on the Puerto Rico
source income of IGP Group and its subsidiaries. Under current law, a
partnership is not a taxable entity and incurs no federal income tax liability.
Instead, each partner is required to take into account in computing such
partner's income tax liability such partner's allocable share of the
partnership's income whether or not the partnership makes a distribution of cash
corresponding to such income. Because American Land and American Management
will be classified as corporations for federal income tax purposes, it generally
will not be possible to avoid this "double" federal income taxation with respect
to amounts distributed by American Land or American Management to ACPT.
However, as discussed in greater detail below, so long as American Rental
qualifies as a REIT for federal income tax purposes, ACPT and its Shareholders
will be able to avoid such "double" taxation with respect to amounts distributed
by American Rental to ACPT and, so long as IGP Group will not be subject to
federal income tax and will be treated as a partnership for Puerto Rico tax
purposes, ACPT and its Shareholders effectively may be able to avoid a portion
of such "double" taxation through foreign tax credits (or deductions) with
respect to Puerto Rico taxes paid by ACPT with respect to IGP Group's Puerto
Rico source income. See "-- Federal Income Taxation of American Rental," "--
Puerto Rico Income Tax Classification of IGP Group," and "-- Federal Income
Taxation of ACPT and Shareholders -- Foreign Tax Credit." The achievement of
these objectives, however, depends entirely upon ACPT being classified as a
partnership (rather than being classified as a "corporation" or an "association"
taxable as a corpora tion) for federal tax purposes, American Rental being
classified as a REIT for federal tax purposes, and IGP Group being treated as a
partnership for Puerto Rico tax purposes.
If it were determined that ACPT is taxable as a corporation or that
American Rental does not qualify as a REIT, the anticipated tax advantages to
ACPT and the Shareholders would be materially and adversely affected. If ACPT
were classified as a corporation or as an association taxable as a corporation,
the profits of ACPT would be taxed to ACPT as if it were a corporation at the
rates applicable to corporations (the current highest federal tax rate
applicable to corporations is 35%). In determining its taxable income, ACPT
would be eligible for a dividends received deduction with respect to the
dividends it receives from American Land and American Management (but not
American Rental so long as it qualifies as a REIT). Moreover, distributions to
the Shareholders would be treated as corporate distributions, taxable at
ordinary income tax rates to the extent of earnings and profits, or as non-
taxable returns of capital or distributions taxable at capital gains rates,
depending upon the circumstances of the distribution.
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If American Rental did not qualify as a REIT, the taxable income of
American Rental would be determined without regard to the deduction for
distributions applicable to REITs and such taxable income would be subject to
tax at the rates applicable to corporations. Thus, classification of ACPT as a
corporation or the failure of American Rental to qualify as a REIT for federal
income tax purposes would frustrate the objective of eliminating "double"
taxation on American Rental profits that are distributed to ACPT.
Classification of ACPT as a corporation would also preclude
Shareholders from taking into account their allocable share of any Puerto Rico
income taxes paid by ACPT for purposes of the foreign tax credit or an
associated deduction for federal tax purposes. See "-- Federal Income Taxation
of ACPT and Shareholders -- Foreign Tax Credit."
The basic source of criteria for classification of an entity for
federal tax purposes is Sections 301.7701-1 through 301.7701-4 of the
Regulations. The Regulations provide that for federal tax purposes, a
partnership is a "business entity" with at least two members that is not treated
as a corporation under Section 301.7701-2(b) of the Regulations. A "business
entity" is any entity recognized for federal tax purposes that is not properly
classified as a trust under Section 301.7701-4 of the Regulations or otherwise
subject to special treatment under the Code. The Regulations clarify that
although some arrangements are called trusts under local law, the term "trusts"
for federal tax purposes generally is limited to arrangements to protect or
conserve property for beneficiaries, and does not include other arrangements,
often known as business or commercial trusts, which are created by the
beneficiaries simply as a device to carry on a profit-making business that
normally would have been carried on though business organizations that are
classified as partnerships or corporations under the Code.
U.S. business entities formed pursuant to a State statute are
classified as corporations under Section 301.7701-2(b) of the Regulations if
such statute describes or refers to the entity as "incorporated" or as a
"corporation," "body corporate," "body politic," "joint stock company," or
"joint stock association." In addition, corporations include all insurance
companies, certain entities conducting banking activities, entities wholly owned
by a State or political subdivision thereof, certain designated foreign
entities, business entities that are specifically taxable as corporations under
another provision of the Code, and certain entities that "elect" under the
Regulations to be treated as associations taxable as corporations for federal
tax purposes.
A business entity that is not classified as a corporation under
Section 301.7701-2(b) generally is treated as an "eligible entity" for purposes
of electing its classification for federal tax purposes under Section 301.7701-
3. Unless it elects otherwise, a domestic eligible entity formed after January
1, 1997, is classified as a
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partnership if it has two or more members or is disregarded as an entity
separate from its owner if it has a single owner.
Even if it satisfies the other requirements to be treated as a
partnership, an organization generally will be taxed as a corporation if it is a
"publicly traded partnership." A partnership is publicly traded if, among other
things, its interests are traded on an established securities market. The
general rule that publicly traded partnerships are taxed as corporations does
not apply to a publicly traded partnership for a taxable year if at least 90% of
the organization's gross income for such taxable year (and all prior taxable
years) constitutes "qualifying income." Qualifying income includes interest,
dividends and "real property rents."
ACPT is a Maryland investment trust which has been organized to carry
on a profit-making business. Therefore, ACPT will qualify as a "business
entity" for purposes of the Regulations. Further, ACPT does not come within
those entities classified as corporations under Section 301.7701-2(b) of the
Regulations, and, subject to the discussion below, is not treated as a
corporation under any provision of the Code other than Code Section 7701. Thus,
as a domestic eligible entity with more than one member, it will be classified
as a partnership absent an affirmative election to be treated as a corporation
for tax purposes.
If the Common Shares are traded on AMEX and/or the PSE, ACPT will be
regarded as a publicly traded partnership. Therefore, for ACPT to qualify as a
partnership for federal income tax purposes, at least 90% of ACPT's gross income
must be "qualifying income," which includes dividends, interest, real property
rents and gain from the sale or other disposition of real property. Because
ACPT initially will hold only interests in American Rental, American Land,
American Management and IGP Group, it is anticipated that virtually all of
ACPT's income will be in the form of dividends, including REIT dividends. The
officers of ACPT have represented that at least 90% of ACPT's income will
consist of "real property rents," interest and dividends.
Certain amounts will be transferred by IGC to American Housing on
behalf of ACPT pursuant to IGC's contractual obligation to transfer
distributions received from certain partnerships pending receipt of consent to
transfer IGC's interest in such partnerships. See "Transactions with Related
Parties -- Staggered Transfer of Partnership Interests to American Housing."
Because ACPT and American Housing will treat amounts received pursuant to such
transfers as made in connection with, or as, contributions to capital, ACPT will
not include such amounts in gross income. However, there can be no assurance
that such treatment will not be successfully challenged. If such amounts were
recharacterized as taxable income to ACPT, such income may not be treated as
qualifying income for purposes of the 90% of income test, and, depending on the
amount and character of ACPT's gross income from this and
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other sources, could cause ACPT to fail the 90% income test and thereby fail to
qualify as a partnership for federal tax purposes.
Counsel's Opinion of Federal Income Tax Classification of ACPT.
--------------------------------------------------------------
Covington & Burling is of the opinion, subject to the following
assumptions and representations, that under the Code, the Regulations, published
rulings of the IRS, and judicial decisions, ACPT will be treated as a
"partnership" for federal income tax purposes. In rendering this opinion,
Counsel has reviewed ACPT's Declaration of Trust, Bylaws, and such other
documents as Counsel has considered necessary for purposes of this opinion.
This opinion is based on the assumption that 90% or more of ACPT's
income will be "qualifying income" within the meaning of Section 7704 of the
Code. Under the current organizational structure, virtually all of ACPT's
income will consist of "qualifying income" in the form of dividends. However,
Counsel has relied on the representations in the ACPT Letter that at least 90%
of ACPT's income will continue to consist of dividends and other "qualifying
income." There can be no assurance that this representation accurately predicts
the sources of ACPT's income and that at least 90% of ACPT's income will be
qualifying income for any taxable year.
Counsel's opinion relies upon the representations made by the
officers of ACPT, American Management, American Land, American Rental and IGP
Group in the ACPT Letter. Counsel's opinion is based on the assumption that any
successor officers of such entities will make and satisfy these representations.
These representations include, but are not limited to, the following
representations:
(i) ACPT will be operated in accordance with applicable provisions of
the Act, the Declaration of Trust, and this Proxy Statement/Prospectus,
including, without limitation, compliance with the representations of ACPT
herein.
(ii) ACPT shall not make an election to be classified as an association
taxable as a corporation for federal tax purposes.
(iii) ACPT shall take no action that would cause it to be treated other
than as a partnership for federal tax purposes under Treasury Regulations
Sections 301.7701-1 through 301.7701-4.
(iv) At least 90% of ACPT's gross income will constitute "qualifying
income," as that term is defined in Code Section 7704(d).
Counsel's opinion further relies upon the following representations
made with respect to IGP Group:
(i) IGP Group will be operated in accordance with applicable provisions
of its Articles of Incorporation, Bylaws, and this Proxy Statement/Prospectus,
including, without limitation, compliance with the representations of IGP Group
herein.
(ii) IGP Group shall take such actions as may be necessary to obtain and
preserve its status as a special partnership under applicable Puerto Rico law.
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(iii) IGP Group shall take such action as may be necessary to obtain and
preserve its classification as a corporation (or an association taxed as a
corporation) for federal tax purposes (including, if necessary, an election on
IRS Form 8832).
Counsel's opinion further relies upon the following representations
made with respect to American Land:
(i) American Land will be operated in accordance with applicable
provisions of its Articles of Incorporation, Bylaws, and as described in this
Proxy Statement/Prospectus, including, without limitation, compliance with the
representations of American Land herein.
(ii) American Land shall take such action as may be necessary to obtain
and preserve its classification as a corporation (or an association taxable as a
corporation) for federal tax purposes.
Counsel's opinion further relies upon the following representations
made with respect to American Rental:
(i) American Rental will be operated in accordance with applicable
provisions of its Articles of Incorporation, Bylaws, and as described in this
Proxy Statement/Prospectus, including, without limitation, compliance with the
representations of American Rental under "Federal Income Tax Classification of
American Rental -- Counsel's Opinion Relating to Qualification of American
Rental as a REIT."
FEDERAL INCOME TAX CLASSIFICATION OF AMERICAN RENTAL.
American Rental will be formed as a Maryland real estate investment
trust and will elect to be treated as a REIT for federal tax purposes for its
taxable year ending December 31, 1998, and for each subsequent taxable year. An
eligible entity that files an election under Code Section 856(c)(1) to be
treated as a REIT is treated as having made an election under the Regulations to
be classified as an association taxable as a corporation, effective as of the
first day the entity is treated as a REIT. The following is a summary of the
material federal income tax considerations affecting ACPT and its Shareholders
relating to American Rental's treatment as a REIT for federal tax purposes. See
also "-- Federal Income Taxation of ACPT and Shareholders."
REIT Qualification.
------------------
American Rental may elect to be treated as a REIT if it satisfies
certain detailed requirements imposed by the Code. If American Rental qualifies
for taxation as a REIT, it generally will not be subject to corporate income tax
to the extent American Rental currently distributes its REIT taxable income to
its shareholders. This treatment effectively eliminates the "double" taxation
(i.e., taxation at both the corporate and shareholder levels) imposed on
----
investments in most regular corporations. A qualifying REIT, however, may be
subject to certain excise and other taxes, as well as to normal corporate tax on
taxable income that is not currently distributed to its shareholders. See
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"-- Taxation of American Rental as a REIT." In addition, if American Rental
fails to qualify as a REIT in any taxable year, it will be subject to federal
income tax at regular corporate rates on all of its taxable income. The current
maximum federal tax rate for corporations is 35%.
General REIT Qualification Requirements, Ownership Structure,
-------------------------------------------------------------
and Stapled Stock Rules.
-----------------------
American Rental must be organized as an entity that would, if it does
not maintain its REIT status, be taxable as a domestic corporation. It cannot
be a financial institution or an insurance company, and it must be managed by
one or more trustees or directors. American Rental expects to meet each of
these requirements. Subject to the following discussion, American Rental also
expects to satisfy the requirements that are described below concerning share
ownership and reporting, the nature and amounts of American Rental's gross
income and assets, and the levels of required annual distributions. However,
the ability of American Rental to satisfy these requirements will not always be
within the control of ACPT or American Rental.
Unlike most other REITs in which the public owns direct interests in
the REIT entity, the Shareholders will own Common Shares in ACPT, a Maryland
real estate investment trust that is expected to be treated as a partnership for
federal tax purposes and as a corporation for Puerto Rico tax purposes, which in
turn owns all of the common stock of American Rental (a Maryland real estate
investment trust which will elect to be taxed as a REIT), IGP Group (a Puerto
Rico "hybrid" entity that is expected to be treated as a corporation for federal
tax purposes and a special partnership for Puerto Rico tax purposes), American
Land and American Management (both are domestic corporations). This complex
structure raises a greater number of interpretative issues, including those
under the REIT qualification rules, and more such issues which lack clear
guidance, than generally would be encountered in most other direct investments
in REITs, domestic corporations, or foreign corporations.
Under the "stapled stock" rules, if a domestic corporation and a
foreign corporation are "stapled entities," the foreign corporation is treated
as a domestic corporation and, for purposes of applying the REIT qualification
rules, all "stapled entities" are treated as a single entity. The term "stapled
entities" means any group of two or more entities if more than 50 percent of the
value of the beneficial interest of such entities consists of "stapled
interests." Two or more interests are "stapled interests" if "by reason of form
of ownership, restrictions on transfer, or other terms or conditions, in
connection with the transfer of one of such interests, the other such interests
are also transferred or required to be transferred." If American Rental and any
other corporations were found to be "stapled entities," it is unlikely that
American Rental would qualify as a REIT because the REIT qualifications rules
(including those relating to sources of gross income, types of assets, and
annual distribution requirements) would be applied as if all such "stapled
entities" were a single entity. If IGP Group and any
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domestic corporation were found to be "stapled entities," IGP Group would be
treated as a domestic corporation and would be subject to federal income tax on
its world-wide taxable income at rates applicable to U.S. corporations (the
current highest rate is 35%) and distributions to ACPT would be taxable as
dividends to the extent of earnings and profits, nontaxable dividends to the
extent of basis, and then as capital gain.
There are no restrictions, terms, or conditions on the stock (or other
beneficial ownership interests) of American Rental, American Land, American
Management or IGP Group that would require the transfer of any one in connection
with the transfer of any other. Thus, ACPT is free to transfer all or any
portion of the stock of each of American Rental, American Land, American
Management, or IGP Group without regard to the transfer of all or any portion of
the stock of any other of such entities. However, it is possible that the IRS
could argue that such stock comes within the stapled stock rules due to the
common ownership of such stock by ACPT, whereby a transfer of a Common Share
results in the indirect transfer of the beneficial ownership of a portion of the
stock owned by ACPT. It does not appear that Congress intended to apply the
"stapled stock" rules merely because an upper-tier entity owns stock in several
lower-tier entities that are not subject to transfer restrictions. For example,
the legislative history to the enactment of the "stapled stock" rules in 1984
indicates that Congress did not intend to treat stock of a parent corporation as
stapled to the stock of a subsidiary corporation. Although ACPT is expected to
be treated as a partnership and not a corporation, there is no indication that
Congress intended to apply different rules merely because the "parent" is a
publicly traded partnership.
It appears that in enacting the "stapled stock rules" with respect to
REIT stock, Congress was primarily concerned that the pairing of the stock of an
active business with that of a REIT would result in the avoidance of corporate
level tax with respect to the real property used in the active business,
particularly when such real property is leased by the REIT to the active
business. The constructive ownership rules which generally prevent rents from
related parties from qualifying as "rents from real property" for REIT
qualification purposes generally do not apply to two corporations whose stock
are merely required to be traded together. See "-- 75% Gross Income Test." In
the case of ACPT, American Rental has represented that it (and its subsidiaries)
will not lease any property to American Land, American Management, IGP Group, or
any entity related thereto. More importantly, any rental income received
directly or indirectly by American Rental from such entities would not qualify
as "rents from real property" such term does not include rents received from an
entity in which American Rental or ACPT directly or indirectly through the
constructive ownership rules owns a 10% or greater interest.
However, the legislative history also suggests that Congress may have
intended to apply the "stapled stock" rules in a broader context, even if there
is no potential for avoidance of corporate-level taxes by the active business.
For example, the legislative history provides that in enacting the REIT
provisions Congress did not intend
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the "dilution" in the investment of qualified real estate activities that occurs
when small investors buy shares in another corporation stapled to REIT shares.
There is little guidance available on the intended scope of the stapled stock
rules with respect to the potential dilution of investment in qualified real
estate activities.
Although there is little guidance on the application of the stapled
stock rules to REITs there is legislative activity in this area. President
Clinton has made several legislative proposals relating to REITs as part of the
revenue provisions contained in the President's Fiscal Year 1999 Budget
Proposal. One legislative proposal, a version of which has been introduced in
both the House of Representatives and the Senate, generally would limit the
protection currently provided to certain REITs that were excepted from the
general application of the stapled stock rules under the Tax Reform Act of 1984
to certain property acquired on or before March 26, 1998. H.R. 3558, 105th
Cong. 2d Sess. (1998); 144 Cong. Rec. E488-89 (daily ed. March 26,
1998)(Statement of Rep. Archer); "General Explanation of the Administration's
Revenue Proposals" (February 1998). Although the current legislative proposals
do not directly address the ACPT structure, these proposals may result in
increased legislative or administrative scrutiny in this area, and could lead to
new provisions, or new guidance on existing provisions, that could result in the
application of the stapled stock rules to American Rental and the other
corporations owned by ACPT. The current statutory provisions grant the Treasury
Department broad authority to prescribe "such regulations as may be necessary to
prevent avoidance or evasion of Federal income tax through the use of stapled
entities."
In light of the lack of existing guidance in this area and the
possibility of legislative and/or administrative activity in this area, there
can be no assurance that the IRS would not seek to apply the "stapled stock"
rules to the entities owned by ACPT under current law or under future
legislative proposals, and if so, that such application by the IRS would not be
upheld by a court of competent jurisdiction.
As discussed below under "-- Share Ownership, Reporting" another
legislative proposal included in the "General Explanation of the
Administration's Revenue Proposals" (February 1998) would add an additional
requirement for REIT qualification. It appears that American Rental would not
qualify as a REIT if it were subject to this requirement as proposed, because
under the current ownership structure, ACPT would own more than 50% of the value
and voting rights with respect to American Rental's stock.
Share Ownership, Reporting.
--------------------------
Beneficial ownership of a REIT must be evidenced by transferable
shares or transferable certificates of beneficial interest, which must be held
by 100 or more persons, determined without reference to any rules of
attribution. The "100 person" test must be met for approximately 92% of the
days in each taxable year. All of the voting
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common stock of American Rental will be held by ACPT, and voting preferred stock
will be issued to 320 employees of American Management and IGP. The preferred
stock will represent a liquidation value of $192,000 ($600 per share) and will
have a 9% cumulative preferred dividend. Thus, at the time of the Distribution,
the stock of American Rental will be held by more than 100 persons. The
preferred stock cannot be transferred to any person who already owns ACPT
preferred shares and is subject to other restrictions on transfer.
In addition, not more than 50% of the value of the American Rental
stock may be held, directly or indirectly, applying certain constructive
ownership rules, by five or fewer individuals at any time during the last half
of each of American Rental's taxable years (the "closely held" test). At the
time of the Distribution, American Rental would not meet the "closely held" test
because of the percentage ownership of the Wilson Family. American Rental is
not required to satisfy the "100 person" and "closely held" tests until its
second taxable year for which an election is made to be taxed as a REIT. It is
not anticipated that American Rental will meet the "closely held" test for its
taxable year ending December 31, 1998 (the first taxable year for which it will
elect to be a REIT) due to the percentage ownership of the Wilson Family. The
Private Offering, if completed, would result in dilution of the percentage
interest of all ACPT shareholders including the Wilson Family, whose percentage
ownership would likely be reduced below 40%. James J. Wilson and J. Michael
Wilson have advised ACPT that the Wilson Family will take such actions as may be
necessary to reduce its percentage ownership to below 40% before or during the
first half of American Rental's second taxable year in order to permit American
Rental to qualify as a REIT. However, no member of the Wilson Family is under
an obligation to do so. Thus, no assurance can be given that American Rental
will qualify as a REIT. Sales of a significant number of Common Shares by the
Wilson Family or others could affect the market price of Common Shares. See "--
Federal Income Taxation of ACPT and Shareholders -- Section 754 Election."
ACPT's Declaration of Trust, subject to certain exceptions, authorizes
the trustees to take such actions as are necessary and desirable to preserve
American Rental's qualification as a REIT and to limit any person (other than
certain current IGC Unitholders) to direct or indirect ownership of no more than
2% of the outstanding Common Shares (the "Ownership Limit"). No transfer of
Common Shares will be permitted to the extent that such transfer will cause the
Trust to cease to qualify as a partnership for federal tax purposes or cause
American Rental to cease to qualify as a REIT. The foregoing restrictions on
transferability and ownership will continue to apply until (i) the Board of
Trustees determines that it is no longer in the best interests of ACPT for
American Rental to attempt to qualify, or to continue to qualify, as a REIT and
(ii) there is an affirmative vote of two-thirds of the votes entitled to be cast
on such matter at a regular or special meeting of the Shareholders.
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Any transfer of Shares in violation of the transfer restrictions shall
be null and void, and the intended transferee will acquire no rights to the
Common Shares (Common Shares the transfer of which would be null and void under
these restrictions are hereinafter referred to as "Excess Shares"). Any Excess
Shares not otherwise exempted will be treated as transferred to one or more
organizations selected by the Board of Trustees ("Charitable Beneficiary"). Any
dividends payable with respect to the Excess Shares will be held in trust for
the Charitable Beneficiary. The Excess Shares may be retransferred by the
Charitable Beneficiary to any person. Any economic benefits accruing from a
transfer of such Excess Shares will be borne by the Charitable Beneficiary, and
the intended transferee will generally receive upon such retransfer the lesser
of the value of the Excess Shares at the time of the purported transfer and the
value of the Excess Shares at the time of the subsequent retransfer.
To monitor American Rental's compliance with the share ownership
requirements discussed above, American Rental is required to maintain records
disclosing the actual ownership of its stock. To do so, American Rental must
demand written statements each year from the record holders of certain
percentages of its stock in which the record holders are to disclose the actual
owners of the shares (i.e., the persons required to include in gross income the
REIT dividends). ACPT and American Rental will treat Common Shares as if they
were direct stock in American Rental for purposes of these requirements and
therefore will demand such statements from Shareholders as well as from ACPT and
the persons holding the preferred stock in American Rental. A list of those
persons failing or refusing to comply with this demand must be maintained as
part of American Rental's records. Shareholders who fail or refuse to comply
with the demand must submit a statement with their tax returns disclosing the
actual ownership of the shares and certain other information.
The 1997 Act replaced the rule that disqualified a REIT for any year
in which the REIT failed to comply with the above-described Regulations relating
to ascertaining ownership, with a penalty for such failure ($25,000, or $50,000
for intentional violations). Further, the 1997 Act provides that a REIT that
complies with such Regulations to ascertain ownership and which did not know, or
have reason to know, that it failed the "closely held" test will be treated as
having met the "closely held" test.
One of the legislative proposals contained in the "General
Explanations of the Administration's Revenue Proposals" issued by the Department
of the Treasury in February 1998, in connection with President Clinton's 1999
Budget Proposals, would add an additional requirement for REIT qualification
that no person can own stock of a REIT possessing more than 50% of the total
combined voting power of all classes of voting stock or more than 50% of the
total value of shares of all classes of stock. Constructive ownership rules
would apply for purposes of determining a person's stock ownership. It appears
that American Rental would not qualify as a REIT if it were subject to this
requirement, as proposed, because ACPT owns more than 50% of the
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voting power and total value of American Rental's stock. This new requirement
is proposed to apply to entities electing REIT status for taxable years
beginning on or after the date of first committee action. If legislation based
on this proposal is enacted, the determination of whether American Rental will
qualify as a REIT may depend on whether American Rental is subject to such
legislation based on the effective date of such legislation as enacted.
A second legislative proposal contained in the Administration's
Revenue Proposals would limit the current exceptions from the "stapled stock"
rules for certain REITs that were in existence prior to the 1984 enactment of
those rules. Bills containing a version of this proposal have been introduced
in both the House of Representatives and the Senate. See " -- General REIT
Qualification Requirements, Ownership Structure, and the Stapled Stock Rules."
A third legislative proposal contained in the Administration's Revenue Proposals
would expand the current prohibition that REITs cannot own more than 10% of the
voting interests of a corporation to also exclude ownership of more than 10% of
the value of all classes of stock of a corporation. Although these proposals
may not directly affect ACPT or American Rental in their current form, they
indicate the possibility that there may be significant legislative and
administrative activity relating to the qualification of an entity as a REIT in
the near future.
Sources of Gross Income.
-----------------------
In order to qualify as a REIT for a particular year, American Rental
also must meet three tests governing the sources of its income. These tests are
designed to ensure that a REIT derives its income principally from passive real
estate investments. In evaluating a REIT's income, the REIT will be treated as
receiving its proportionate share of the income produced by any partnership in
which the REIT invests, and any such income will retain the character that it
has in the hands of the partnership. American Rental will hold virtually all of
its real property indirectly through American Housing and the U.S. Apartment
Partnerships in which American Housing holds an interest. American Rental owns
a 99% limited partner interest in American Housing. American Housing Management
Company, a Delaware corporation that is wholly owned by American Rental, will
have a 1% general partner interest in American Housing. As a wholly-owned
subsidiary of American Rental, American Housing Management Company will be a
"qualified REIT subsidiary." A qualified REIT subsidiary is not treated as a
separate corporation for federal tax purposes, and all of American Housing
Management Company's assets (including its 1% general partner interest in
American Housing), liabilities and items of income, deduction and credit are
treated as assets, liabilities and such items of American Rental. Because
American Housing will have a single owner, it will be disregarded as a separate
entity for tax purposes. For federal income tax purposes, all of the properties
held by American Housing (including its interests in the U.S. Apartment
Partnerships) will be treated as if they were held directly by American Rental
because both American Housing Management Company and American Housing
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are single owner entities that are disregarded for tax purposes as entities
separate from their owners.
75% Gross Income Test.
---------------------
At least 75% of a REIT's gross income for each taxable year must be
derived from specified classes of income that principally are real estate
related. The permitted categories of principal importance to American Rental
are: (i) rents from real property, (ii) interest on loans secured by real
property, (iii) gain from the sale of real property or loans secured by real
property (excluding gain from the sale of property held primarily for sale to
customers in the ordinary course of American Rental's trade or business,
referred to below as "dealer property"), (iv) income from the operation and gain
from the sale of certain property acquired in connection with the foreclosure of
a mortgage securing that property ("foreclosure property"), (v) distributions
on, or gain from the sale of, shares of other qualifying REITs, (vi) abatements
and refunds of real property taxes, and (vii) "qualified temporary investment
income" (described below). In evaluating American Rental's compliance with the
75% income test (as well as the 95% income test described below), gross income
does not include gross income from "prohibited transactions." A prohibited
transaction is one involving a sale of dealer property, not including
foreclosure property and certain dealer property held by the REIT for at least
four years.
American Rental expects that substantially all of its share of the
operating gross income of American Housing will be considered rent from real
property. Rent from real property is qualifying income for purposes of the 75%
income test only if certain conditions are satisfied. Rent from real property
includes charges for services customarily rendered to tenants and rent
attributable to personal property leased together with the real property as long
as the personal property rent is less than 15% of the total rent. Rent from
real property generally does not include rent based on the income or profits
derived from the property. American Rental and American Housing do not intend
to lease property and receive rentals based on the tenants' net income or
profit. However, rent based on a percentage of gross income is permitted as
rent from real property, and American Rental and American Housing may have
leases where rent is based on a percentage of gross income. Also excluded is
rent received from a person or corporation in which American Rental (or American
Housing or ACPT or any of either entity's 10% or greater owners) directly or
indirectly through the constructive ownership rules contained in Section 318 of
the Code owns a 10% or greater interest.
Also excluded from rent from real property is "impermissible tenant
services income" in excess of a one percent de minimis rule discussed below,
which is not treated as allowable rent from real property for purposes of the
75% income test (as well as the 95% income test described below). Generally,
impermissible tenant service income includes any amounts received directly or
indirectly by a REIT for services furnished or rendered by the REIT to its
tenants or for managing or operating the rental
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property. However, impermissible tenant service income does not include amounts
received by the REIT for services performed by an "independent contractor" from
whom the REIT does not derive any income or any amounts received by the REIT for
any services provided by the REIT that are "usually or customarily rendered" in
connection with the rental of space for occupancy only and are not considered
rendered primarily for the convenience of the tenant (applying standards that
govern in evaluating whether rent from real property would be unrelated business
taxable income when received by a tax-exempt owner of the property). If the
REIT's impermissible tenant services income from a property exceeds one percent
of all amounts received or accrued from such property, all the amounts received
by the REIT from that property fail to qualify as rent from real property for
purposes of the 75% and 95% income tests.
As discussed above, American Rental will hold its interests in the
U.S. Apartment Partnerships indirectly through American Housing and American
Housing Management Company, but will be treated as if it owned such interests
directly for federal tax purposes. Property management services for the U.S.
Apartment Partnerships and for other rental apartments not owned by IGC or ACPT
will be provided by American Management, a Delaware corporation in which ACPT
owns all of the stock. American Rental, American Housing, American Housing
Management, and American Management have represented that the only material
services to be provided by them to tenants will be those services usually or
customarily rendered in connection with the rental of space for occupancy only
and that they will not provide services that might be considered rendered
primarily for the convenience of tenants, such as hotel, health care or
extensive recreational or social services. Counsel has relied upon these
representations (along with other representations) in issuing its opinion on the
qualification of American Rental as a REIT. American Rental believes that
substantially all of its proportionate share of American Housing's rental income
will be qualifying income under the 75% income test, and that the provision of
services by American Rental, American Housing, American Housing Management
Company, or American Management will not cause such rental income to fail to be
included under that test.
Upon American Rental's ultimate sale of properties, any gains realized
also are expected to constitute qualifying income, in the form of gain from the
sale of real property (not involving a prohibited transaction).
American Housing will receive certain amounts pursuant to IGC's
contractual obligation to transfer distributions received from certain
partnerships pending receipt of consent to transfer IGC's interest in such
partnerships. See "Transactions with Related Parties -- Staggered Transfer of
Partnership Interests to American Housing." Because American Housing will treat
amounts received pursuant to such transfers as made in connection with, or as,
contributions to capital, American Rental will not include such amounts in gross
income. However, there can be no assurance that such treatment will not be
successfully challenged. If such amounts were recharacterized as taxable income
to American Housing, such income may not be treated as qualifying
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income for purposes of the 75% income test, and, depending on the amount and
character of American Rental's gross income from this and other sources, could
cause American Rental to fail the 75% income test. See "-- Failing the 75% or
95% Tests; Reasonable Cause."
95% Gross Income Test.
---------------------
In addition to earning 75% of its gross income from the sources listed
above, at least an additional 20% of American Rental's gross income for each
taxable year must come either from those sources, or from dividends, interest or
gains from the sale or other disposition of stock or other securities that do
not constitute dealer property. The 1997 Act expanded the types of income
qualifying for the 95% test (but not the 75% test) to include income from
certain hedging instruments and gain on the disposition of such instruments.
The 95% test permits a REIT to earn a significant portion of its income from
traditional "passive" investment sources that are not necessarily real estate
related. The term "interest" (under both the 75% and 95% tests) does not
include amounts that are based on the income or profits of any person. American
Rental believes it will meet the 95% Gross Income Test on an annual basis.
Failing the 75% or 95% Tests; Reasonable Cause.
----------------------------------------------
As a result of the 75% and 95% tests, REITs generally are not
permitted to earn more than 5% of their gross income from active sources (such
as brokerage commissions or other fees for services rendered). This type of
income will not qualify for the 75% test or 95% test but it is not expected that
American Rental would have a significant amount of such income and other
nonqualifying income is expected to be at all times less than 5% of American
Rental's annual gross income. While American Rental does not anticipate that it
will earn substantial amounts of nonqualifying income, if nonqualifying income
exceeds 5% of American Rental's gross income, American Rental could lose its
status as a REIT.
If American Rental fails to meet either the 75% or 95% income tests
during a taxable year, it may still qualify as a REIT for that year if (i) it
reports the source and nature of each item of its gross income in its federal
income tax return for that year; (ii) the inclusion of any incorrect information
in its return is not due to fraud with intent to evade tax; and (iii) the
failure to meet the tests is due to reasonable cause and not to willful neglect.
However, in that case, American Rental would be subject to a 100% tax based on
the greater of the amount by which it fails either the 75% or 95% income tests
for such year. See "-- Taxation of American Rental as a REIT."
Character of Assets Owned.
-------------------------
On the last day of each calendar quarter, American Rental must meet
two tests concerning the nature of its investments. For these purposes,
American Rental will
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be deemed to own all of American Housing's assets (including American Housing's
proportionate share of the U.S. Apartment Partnerships). First, at least 75% of
the value of the total assets of American Rental generally must consist of real
estate assets, cash, cash items (including receivables) and government
securities. For this purpose, "real estate assets" include interests in real
property, interests in loans secured by mortgages on real property or by certain
interests in real property, shares in other REITs and certain options, but
exclude mineral, oil or gas royalty interests. The temporary investment of new
capital in debt instruments also qualifies under this 75% asset test, but only
for the one-year period beginning on the date American Rental receives the new
capital. Second, although the balance of American Rental's assets generally may
be invested without restriction, American Rental will not be permitted to own
(i) securities of any one non-governmental issuer that represent more than 5% of
the value of American Rental's total assets or (ii) more than 10% of the
outstanding voting securities of any single issuer. A REIT, however, may own
100% of the stock of a qualified REIT subsidiary, in which case the assets,
liabilities and items of income, deduction and credit of the subsidiary are
treated as those of the REIT. American Housing Management Company expects to be
a qualified REIT subsidiary because American Rental will own all of its stock.
Thus, all of American Housing Management Company's assets, including its 1%
interest in American Housing, will be treated as being owned by American Rental.
Generally, a REIT's "total assets" means the gross assets of the REIT
determined in accordance with generally accepted accounting principles. A REIT
generally is required to revalue its assets at the end of a quarter in which it
acquires any security or property other than cash and similar items. However, a
revaluation of assets generally is not required at the end of any quarter during
which there has been no such acquisition. A REIT is required to keep sufficient
records of its investments so as to be able to show that it has complied with
these requirements during the taxable year.
American Rental expects that it will comply with these asset tests.
Annual Distributions to Shareholders.
------------------------------------
To maintain REIT status, American Rental generally must distribute to
its shareholders in each taxable year at least 95% of its net ordinary income
(capital gain is not required to be distributed). More precisely, American
Rental must distribute at least an amount equal to (i) 95% of the sum of (a) its
"REIT Taxable Income" before deduction of dividends paid and excluding any net
capital gain and (b) any net income from foreclosure property less the tax on
such income, minus (ii) certain limited categories of "excess noncash income."
REIT Taxable Income is defined to be the taxable income of the REIT, computed as
if it were an ordinary corporation with certain modifications. For example, the
deduction for dividends paid is allowed, but neither net income from foreclosure
property, nor net income from prohibited transactions, is
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included. In addition, the REIT may carry over, but not carry back, a net
operating loss for 20 years following the year in which it was incurred.
The 1997 Act permits a REIT to elect to retain and pay income tax on
net long-term capital gains it receives during the tax year. If American Rental
were to make such an election, ACPT and the Shareholders would include in their
income as long-term capital gains their proportionate share of the undistributed
long-term capital gains as designated by American Rental. Generally, the
shareholders of an electing REIT are deemed to have paid their share of the tax
paid by the REIT with respect to the undistributed capital gains. Also, the
basis of the shareholders' shares in the REIT are increased by the amount of the
undistributed capital gains (less the amount of capital gains tax paid by the
REIT) included in the shareholders' long-term capital gains. These new
provisions (in particular, the shareholder credit for taxes paid and the
resulting shareholder basis adjustment) should apply to the Shareholders if
American Rental were to make such an election even though the Shareholders hold
their interests in the REIT indirectly through ACPT. However, formal guidance
on this issue has not yet been provided.
A REIT may satisfy the 95% distribution test with dividends paid
during the taxable year and with certain dividends paid after the end of the
taxable year. Dividends paid by American Rental in January that were declared
during the last calendar quarter of the prior year and were payable to
shareholders (including ACPT) on a date during the last calendar quarter of that
prior year are treated as paid on December 31 of the prior year. Other dividends
declared before the due date of American Rental's tax return for the taxable
year (including extensions) also will be treated as paid in the prior year for
American Rental, if they are paid (i) within 12 months of the end of such
taxable year and (ii) no later than American Rental's next regular distribution
payment. Dividends that are paid after the close of a taxable year and do not
qualify under the above-mentioned rule governing payments made in January will
be taxable to ACPT and the Shareholders in the year paid, even through they may
be taken into account by American Rental for a prior year. A nondeductible
excise tax equal to 4% will be imposed on American Rental for each calendar year
to the extent that dividends declared and distributed or deemed distributed
before December 31 are less than the sum of (a) 85% of American Rental's
"ordinary income" for such year, plus (b) 95% of American Rental's capital gain
net income for such year, plus (c) income not distributed in earlier years minus
(d) distributions in excess of income in earlier years.
American Rental will be taxed at regular corporate rates to the extent
that it retains any portion of its taxable income (e.g., if American Rental
distributes only the required 95% of its taxable income, it would be taxed on
the retained 5%). Under certain circumstances, American Rental may not have
sufficient cash or other liquid assets to meet the distribution requirement.
This could arise because of competing demands for American Rental's funds, or
because of timing differences between tax reporting and cash receipts and
disbursements (i.e., income may have to be reported
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before cash is received, or expenses may have to be paid before a deduction is
allowed). In addition, cash associated with taxable income may be used to make
non-deductible payments of principal on liabilities, resulting in taxable income
without associated funds to make a distribution. Although this may be
alleviated to some extent by depreciation deductions, such deductions will not
be available after property is fully depreciated for tax purposes (that is,
after the applicable cost recovery period). Although American Rental has
represented that it will meet the 95% distribution requirement, no assurance can
be given that necessary funds will be available.
If American Rental fails to meet the 95% distribution requirement
because of an adjustment to American Rental's taxable income by the IRS,
American Rental may be able to cure the failure retroactively by paying a
"deficiency dividend" (as well as applicable interest and penalties) within a
specified period.
American Rental is required to make the distributions described above
to its shareholders, including ACPT, in order to retain its status as a REIT.
Although ACPT is required under the terms of ACPT's Declaration of Trust to
distribute annually to Shareholders, in cash and/or property, an amount equal to
45% of the net taxable income of ACPT allocated to Shareholders less the amount
of taxes paid by ACPT in Puerto Rico and other foreign countries and certain
taxes paid by American Rental with respect to undistributed capital gains, there
can be no assurance that each Shareholder will receive sufficient cash
distributions to satisfy such Shareholder's tax liability arising from the
ownership of Common Shares. See "Distribution Policy."
Taxation of American Rental as a REIT.
-------------------------------------
American Rental will adopt the calendar year for federal income tax
purposes and will use the accrual method of accounting. For each taxable year
in which American Rental qualifies as a REIT, it generally will be taxed only on
the portion of its taxable income that it retains (which will include
undistributed net capital gain), because American Rental will be entitled to a
deduction for its dividends paid to shareholders during the taxable year. A
dividend-paid deduction is not available for dividends that are considered
"preferential" within any given class of shares or as between classes. Although
American Rental's preferred and common shares are subject to different
distribution rights for each class of stock, dividends paid by American Rental
will not be disqualified as "preferential" so long as every shareholder is
treated the same as all other shareholders in the same class (common or
preferred) and all distributions are made in accordance with the dividend rights
of each class of stock. Thus, American Rental does not anticipate that it will
pay any such "preferential" dividends.
American Rental would be subject to tax on any income or gain from
foreclosure property at the highest corporate rate (currently 35%). A
confiscatory tax of 100% applies to any net income from prohibited transactions.
In addition, if American Rental fails to meet either the 75% or 95% source of
income tests described above but
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still qualifies for REIT status under the reasonable cause exception to those
tests, a 100% tax would be imposed equal to the amount obtained by multiplying
(i) the greater of the amount, if any, by which it failed either the 75% income
test or the 95% income test, by (ii) the ratio of American Rental's REIT Taxable
Income to American Rental's gross income (excluding capital gain and certain
other items). American Rental also will be subject to the minimum tax on items
of tax preference (excluding items specifically allocable to ACPT Shareholders).
Finally, under regulations that are to be promulgated, American Rental also may
be taxed at the highest regular corporate tax rate on any built-in gain (i.e.,
the excess of value over adjusted tax basis) attributable to assets that
American Rental acquires in certain tax-free corporate transactions, to the
extent the gain is recognized during the first ten years after American Rental
acquires such assets.
Failure to Qualify as a REIT.
----------------------------
For any taxable year in which American Rental fails to qualify as a
REIT, it would be taxed at the usual corporate rates on all of its taxable
income. Distributions to its shareholders would not be deductible in computing
that taxable income, and distributions would no longer be required. Any
corporate level taxes generally would reduce the amount of cash available to
American Rental for distribution to ACPT and the Shareholders and, because the
shareholders would continue to be taxed on their proportionate share of the
taxable dividends received by ACPT, the net after tax yield to the Shareholders
from their investment in ACPT likely would be reduced substantially. As a
result, American Rental's failure to qualify as a REIT during any taxable year
could have a material adverse effect upon ACPT and its Shareholders. If
American Rental loses its REIT status, unless certain relief provisions apply,
American Rental will not be eligible to elect REIT status again until the fifth
taxable year which begins after the first year for which American Rental's
election was terminated.
If, after forfeiting its REIT status, American Rental later qualifies
and elects to be taxed as a REIT again, American Rental may face significant
adverse tax consequences. Prior to the end of the year in which American Rental
sought to qualify again as a REIT, American Rental would be required to make
distributions sufficient to eliminate any earnings and profits accumulated
during its period of non-REIT status. Moreover, immediately prior to the
effectiveness of the election to return to REIT status, American Rental would be
treated as having disposed of all of its assets in a taxable transaction,
triggering taxable gain with respect to American Rental's appreciated assets.
In that event, however, American Rental would be permitted to elect an
alternative treatment under which those gains would be taken into account only
as and when they actually are recognized upon sales of the appreciated property
occurring within a ten-year period. American Rental would be required to
distribute at least 95% of any such recognized gains, but it would not receive
the benefit of a dividends paid deduction to reduce those taxable gains. Thus,
any such gains on appreciated assets would be subject to "double" taxation
(i.e., at the corporate level as well as the Shareholder level when
distributed).
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Counsel's Opinion Relating to Qualification of American Rental as a REIT.
------------------------------------------------------------------------
Subject to the following paragraphs and the qualifications,
assumptions and representations in Counsel's Tax Opinion and the ACPT Letter and
the IGC Letter, Counsel is of the opinion that (i) American Rental will be
organized in conformity with the requirements for qualification as a REIT
beginning with its taxable year ending December 31, 1998, and (ii) its proposed
method of operations described in this Proxy Statement/Prospectus will enable it
to satisfy the requirements for such qualification.
The rules governing REITs are highly technical and require ongoing
compliance with a variety of tests that depend, among other things, on future
operating results and beneficial ownership of American Rental. One of the
ownership requirements is that not more than 50% of the Common Shares may be
held, directly or indirectly, applying certain constructive ownership rules, by
five or fewer individuals at any time during the last half of each of American
Rental's taxable years (the "closely held" test), beginning with the second
taxable year for which American Rental elects to be taxed as a REIT. At the
time of the Distribution, American Rental will not meet the "closely held" test
because of the percentage ownership of the Wilson Family. James J. Wilson and
J. Michael Wilson have advised ACPT that the Wilson Family will take such
actions as may be necessary to reduce its percentage ownership to below 40%
before the last half of American Rental's second taxable year in order to permit
American Rental to qualify as a REIT. However, no member of the Wilson Family
is under an obligation to do so. Subject to the following paragraphs, Counsel's
opinion with respect to American Rental's qualification as a REIT assumes that
the Wilson Family's percentage ownership will be reduced in such a manner that
ACPT meets the "closely held" test at all times during and after American
Rental's second taxable year for which it elects to be taxed as a REIT.
However, the Wilson Family is under no obligation to do so. Thus, no assurance
can be given that American Rental will qualify as a REIT.
Counsel will not monitor American Rental's compliance with the REIT
requirements under the Code including those relating to ownership, types of
gross income, types of assets and annual distributions. While American Rental
expects to satisfy these requirements and will use its best efforts to do so, no
assurance can be given that American Rental will qualify as a REIT for any
particular year, or that the applicable law will not change and adversely affect
American Rental, ACPT, and its Shareholders. See "-- Failure to Qualify as a
REIT."
As discussed above, there are several legislative proposals relating
to REIT qualification, one of which, if it were applied in its current form to
ACPT and American Rental, would prevent American Rental from qualifying as a
REIT because ACPT would own over 50% of American Rental's stock. In addition,
it appears likely that there will be administrative and legislative activity in
areas such as the application of the "stapled stock" rules to REITs. See "--
General REIT Qualification Requirements, Ownership Structure, and Stapled Stock
Rules." Counsel's opinion as to American
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Rental's qualification as a REIT is based, in part, on Counsel's view that
ACPT's ownership of the common stock of American Rental, American Land, American
Management, and IGP Group will not cause the "stapled stock" rules to apply to
American Rental and the other corporations owned by ACPT. However, in light of
the lack of existing guidance in this area and the possibility of legislative
and administrative activity in this area, there can be no assurance that the IRS
will not seek to apply to "stapled stock" rules to the entities owned by ACPT
under current law or under future legislative proposals and, if so, that such
application by the IRS would not be upheld by a court of competent jurisdiction.
Counsel's opinion relies upon the representations made by the
officers of ACPT, American Management, American Land, American Rental, and IGP
Group in the ACPT Letter. Counsel's opinion is based on the assumption that any
successor officers of such entities will make and satisfy these representations.
These representations include, but are not limited to, the following
representations:
(i) American Rental will be operated in accordance with applicable
provisions of its Declaration of Trust and Bylaws, and as described in this
Proxy Statement/Prospectus, including, without limitation, compliance with the
representations of American Rental herein.
(ii) At all times while acting as general partner of American Housing,
American Rental will operate American Housing or cause American Housing to be
operated in accordance with the applicable provisions of applicable law, the
American Housing Partnership Agreement, and as described in this Proxy
Statement/Prospectus, including, without limitation, compliance with the
representations of American Housing herein.
(iii) At all times while acting as a member of American Housing Management
Company, American Rental will operate American Housing Management Company or
cause American Housing Management Company to be operated in accordance with
applicable provisions of applicable law, the Operating Agreement of American
Housing Management Company, and as described in this Proxy Statement/Prospectus,
including, without limitation, compliance with the representations of American
Housing Management Company herein.
(iv) American Rental will make a timely election on IRS Form 8832 to be
classified as an association taxable as a corporation for its first taxable year
and each subsequent taxable year.
(v) American Rental, American Housing, and American Housing Management
Company shall take all actions necessary to maintain American Housing's and
American Housing Management Company's status for federal income tax purposes
either as an entity that is disregarded as an entity separate from its owner or
as a partnership and neither American Housing nor American Housing Management
Company will elect to be treated as an association taxable as a corporation for
federal tax purposes.
(vi) American Management will be operated in accordance with the
applicable provisions of its Articles of Incorporation and Bylaws and as
described in this Proxy
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Statement/Prospectus, including, without limitation, compliance with the
representations of American Management herein.
(vii) ACPT, American Rental, American Housing, and American Housing
Management Company will take such actions as is necessary to cause the U.S.
Apartment Partnerships or any other entity in which American Rental or American
Housing own an interest directly or indirectly through one or more other
entities (American Housing, American Housing Management Company, the U.S.
Apartment Partnerships and such other entities hereinafter referred to as the
"REIT Subsidiaries") to comply with the representations of the REIT Subsidiaries
herein.
(viii) American Rental will elect to be treated as a REIT for federal
income tax purposes for its taxable year ending December 31, 1998, and for each
subsequent year.
(ix) American Rental and the REIT Subsidiaries shall take such actions
as are necessary to preserve American Rental's status as a REIT, including,
without limitation:
(1) Compliance with all of the requirements set forth in Code
Section 856(a), including those relating to management, beneficial ownership,
and type of entity;
(2) Compliance with the "95% of Gross Income" requirements set
forth in Code Section 856(c)(2);
(3) Compliance with the "75% of Gross Income" requirements set
forth in Code Section 856(c)(3);
(4) Compliance with the limitations on total assets requirements
set forth in Code Section 856(c)(4);
(5) Compliance with the "95% Distribution" requirements set forth
in Code Section 857(a)(1); and
(6) Compliance with such other requirements as may be necessary
in order to maintain American Rental's status as a REIT for federal tax
purposes.
(x) American Rental, American Management, and the REIT Subsidiaries
each represent that all services rendered by such entities or their agents or
employees to tenants of American Rental or the REIT Subsidiaries shall be
limited to those usually or customarily rendered in connection with the rental
of rooms or other space for occupancy only, as those terms are defined for
purposes of applying Code Section 856(d)(2) and Treasury Regulation Section
1.512(b)-1(c)(5).
(xi) American Rental and the REIT Subsidiaries shall not engage in any
"prohibited transactions" as defined in Code Section 857(b)(6)(B)(iii),
involving a sale or other disposition of property described in Code Section
1221(1), which is not "foreclosure property," as defined in Code Section 856(e).
(xii) ACPT, American Management, American Land, American Rental, and the
REIT Subsidiaries shall take no action that would cause or result in any income
constituting rents from interests in real property (or other related amounts
described in paragraphs (B) and (C) of Code Section 856(d)(1)) that is included
in the gross income of American Rental to not qualify as "rents from real
property" for purposes of Code Sections 856(c)(2)(C) and 856(c)(3)(A).
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FEDERAL INCOME TAX CLASSIFICATION OF AMERICAN HOUSING AND AMERICAN HOUSING
MANAGEMENT COMPANY.
American Housing is a Delaware limited partnership with American
Rental holding a 99% limited partner interest and American Housing Management
Company holding a 1% general partner interest. American Rental owns all of the
shares of American Housing Management Company, a Delaware corporation.
So long as all of the stock of American Housing Management Company is
owned by American Rental and American Rental qualifies as a REIT, American
Housing Management Company will be disregarded as an entity separate from
American Rental for federal tax purposes and all of the assets of American
Housing Management Company (including its 1% interest in American Housing) will
be treated as assets of American Rental. Because all of the limited and general
partnership interests of American Housing will be considered as held by American
Rental, American Housing will also be disregarded as an entity separate from
American Rental, absent an election by American Housing to be taxed as a
corporation. So long as American Rental qualifies as a REIT and owns all of the
shares of American Housing Management Company, there are no other partners in
American Housing, and American Housing and American Rental do not elect the be
treated as associations taxable as corporations, American Housing and American
Housing Management Company will not be recognized for federal tax purposes as
entities separate from American Rental and will instead be treated as branches
or divisions of American Rental for federal tax purposes.
FEDERAL INCOME TAX CLASSIFICATION OF AMERICAN LAND AND AMERICAN MANAGEMENT.
American Land and American Management are Maryland and Delaware
corporations, respectively, which will be treated as corporations for federal
tax purposes. Neither corporation will be eligible to elect to be treated as a
partnership or to be disregarded as a separate entity for federal tax purposes
under the Regulations.
FEDERAL INCOME TAX CLASSIFICATION OF IGP GROUP.
IGP Group is a Puerto Rico corporation that intends to qualify as a
special partnership under the Puerto Rico Code. See "Income Tax Considerations
- -- Certain State Income Tax and Puerto Rico Income Tax Considerations -- Certain
Puerto Rico Income Tax Considerations." As a Puerto Rico corporation, IGP Group
will be classified as a corporation under Section 301.7701-2(b)(8) of the
Regulations, and therefore it will not qualify as an "eligible entity" and
cannot elect to change its classification for federal tax purposes under Section
301.7701-3 of the Regulations (see discussion under "-- Federal Income Tax
Classification of ACPT").
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CERTAIN TAX CONSEQUENCES OF THE ASSET TRANSFERS.
Gain generally is not recognized on the transfer of property to a
partnership, or to a corporation, in exchange for an interest in such
partnership, or stock of such corporation. However, as discussed below, there
are exceptions to this general nonrecognition rule.
Gain will be recognized by IGC on the transfer of certain interests in
the U.S. Apartment Partnerships as a result of American Rental's assumption of
liabilities in excess of the tax basis of the property contributed to American
Rental indirectly through American Housing. IGC has estimated that
approximately $3.5 million in gain will be recognized on this transfer. Gain
will also be recognized by IGC on the transfer of the Class A interest in IGP as
a result of IGP Group's assumption of liabilities in excess of the tax basis of
property contributed. IGC has estimated that approximately $2.6 million will
be recognized on this transfer. IGC has determined that all of the gain
recognized by IGC on the transfers to American Housing and IGP Group will be
allocated to IBC because such gain is attributable to unrealized gain with
respect to property originally contributed to IGC by IBC.
Under Section 704(c) of the Code, gain recognized on the sale or other
disposition of property contributed by a partner to a partnership generally must
be allocated back to the contributing partner to the extent that the fair market
value of such property exceeded its tax basis at the time of contribution. The
rules for determining whether, or to what extent, gain or loss recognized by a
partnership with respect to contributed property must be allocated back to the
contributing partner are complex, and there is little guidance on applying such
rules in situations such as the recognition of gain by IGC upon the transfers to
American Housing and IGP Group. The allocation of such gain to IBC should be
recognized as a reasonable method of applying the rules under Code Section
704(c) that is consistent with the purposes of such rules. However, no
assurance can be given that IGC's allocation method will not be successfully
challenged. If IGC's method of allocating this gain to IBC was determined not
to be a "reasonable" method of applying Code Section 704(c), then a portion of
such gain could be reallocated to Unitholders other than IBC.
With respect to certain transfers made in exchange for stock or a
partnership interest pursuant to the Asset Transfers, IGC will transfer a
contractual obligation to transfer distributions received from certain
partnerships to American Housing (except for certain distributions that will be
transferred to American Land) on behalf of ACPT and an obligation to transfer
its interest in such partnerships to American Housing on behalf of ACPT upon the
receipt of consent to the transfers of such interests. With respect to other
transfers pursuant to the Asset Transfers, IGC will transfer a portion of its
interest in certain partnerships and an obligation to transfer the remaining
portion of its interest in such partnerships to American Housing on behalf of
ACPT a year and a day after such initial transfers. See "Transactions with
Related
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Parties -- Staggered Transfer of Partnership Interests to American Housing."
Except as discussed above, IGC will take the position that these transfers in
exchange for stock or a partnership interest will qualify for nonrecognition
treatment. However, such nonrecognition treatment is not free from doubt and
there can be no assurance that this position will not be successfully challenged
by the IRS. The IRS could take the position that the transfer of such
contractual obligations or the subsequent transfer of distributions or a
partnership interest pursuant to such obligations will not qualify for
nonrecognition treatment. If any such transfer does not qualify, gain would be
recognized by IGC in the amount that the fair market value of the property
transferred by IGC in the nonqualifying transfer exceeds IGC's tax basis in such
property. Such gain would be allocated to IBC to the extent that it is
attributable to appreciated property originally contributed by IBC and to the
extent such gain is not attributable to such property it would be allocated pro
rata among all of the Unitholders.
Gain generally is recognized when appreciated property is transferred
by a United States person to a foreign corporation in the amount of the excess
of the fair market value over the basis of the transferred property. There is
an exception to this gain recognition rule in the case of property transferred
to a foreign corporation for use by that foreign corporation in the active
conduct of a trade or business outside of the United States. However, this
"active conduct" exception does not apply to certain property, such as certain
intangible property and inventory (and similar property described in Code
Section 1221(1) and (3)). For purposes of applying these rules to a transfer of
a partnership interest, such transfer generally is treated as a transfer of a
pro-rata share of the assets of the partnership represented by such interest.
IGC will transfer property to IGP Group, directly and indirectly
through subsidiary partnerships, that is currently used or is expected to be
used in a rental business in Puerto Rico. Puerto Rico land that will not be
used in the rental business and that is instead held for sale to customers will
not qualify for the "active conduct" exception to the general gain recognition
rule. Such land has been transferred to American Land, a domestic corporation,
indirectly through the Class B interest in IGP.
The determination of whether appreciated assets that are transferred
to a foreign corporation qualify for the "active conduct" exception to the
general gain recognition rule is made on the basis of all of the facts and
circumstances. Property generally will be considered to be used in the "active
conduct" of a leasing business for purposes of this exception if: (1) the
lessor, through its own officers or staff of employees, performs substantial
marketing, customer service, repair and maintenance, and other substantial
operational activities with respect to the leased property; (2) the property is
not used in the United States; and (3) the transferee has need for substantial
investment in assets of that type. ACPT, IGP Group and IGP have represented
that IGP and its employees will continue to provide management and operational
services for the Puerto Rico Apartment Partnerships in substantially the same
manner as they do at present. Counsel will not monitor compliance with such
representations. Whether the
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transfer will qualify for the "active conduct" exception will depend on the
extent and nature of the services to be provided in the future, and on the
application of general rules to a more complex ownership structure than was
anticipated in such rules. For example, it is clear that in the case of a
transfer of a partnership interest, the "active conduct" test is applied by
"looking through" the partnership to the underlying assets. It is less clear
whether the "look through" approach also applies to the activities conducted by
the employees of the partnership, and how such a rule would apply in the case of
tiered partnerships.
There can be no assurance that the IRS will not successfully challenge
whether all, or a portion, of the appreciated assets transferred directly or
indirectly to IGP Group will qualify for the "active conduct" exception and seek
to apply the general rule that gain is recognized on such transfers to the
extent that the fair market value of such property exceeds its adjusted tax
basis. In addition, there can be no assurance that the IRS will not
successfully challenge whether any of the LDA assets transferred to American
Land indirectly through the Class B interests in IGP will be treated as a
transfer to a foreign corporation that is subject to the recognition of gain to
the extent that the fair market value of such property exceeds its adjusted tax
basis. In either event, the amount of gain that would be recognized by IGC
would be significant and each IGC Unitholder would be required to include its
share of such gain.
IGC will include in its taxable income its share of income, gain,
loss, and deduction with respect to certain retained interests in two U.S.
Housing Partnerships even though it is contractually obligated to transfer all
distributions it receives with respect to such interests to American Housing or
American Land. See "Transactions with Related Parties -- Staggered Transfer of
Partnership Interests to American Housing." Because these transfers will be
treated as made in connection with, or as, contributions to capital, IGC will
not receive a deduction with respect to such transfers.
Although IGC generally is required to distribute at least 55% of its
taxable income to the Unitholders, IGC may satisfy this obligation with a
distribution of property other than cash (such as the Common Shares). If IGC
does not distribute sufficient cash to pay the Unitholder's tax liabilities with
respect to the Unitholder's share of IGC's taxable income, the Unitholder may
have to use funds from other sources or sell the property distributed by IGC,
including Common Shares. Sale of Common Shares may give rise to taxable gain.
See "Income Tax Considerations -- Federal Income Tax Considerations -- Federal
Income Taxation of ACPT and Shareholders -- Sale or Exchange of Common Shares."
In addition, following the Restructuring it is possible that IGC may
recognize taxable income without receiving sufficient cash to enable IGC to make
a distribution to the IGC Unitholders in an amount at least equal to the IGC
Unitholder's tax liability arising from their share of IGC taxable income.
Further, it is possible that
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IGC may not make a cash distribution regardless of whether significant cash is
available or regardless of any obligations to make such a distribution.
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION.
A Shareholder will not recognize gain or loss upon receipt of Common
Shares in the Distribution. Gain is not recognized on a distribution of
property from a partnership to a partner except to the extent that any money
distributed exceeds the adjusted basis of such partner's interest in the
partnership immediately before the distribution.
Generally, a distribution of a "marketable security" is treated as a
distribution of money equal to the fair market value of such marketable
security, for purposes of determining whether gain is recognized on such
distribution. The amount treated as money upon a distribution of a marketable
security is reduced by the excess of the distributee partner's proportionate
share of (i) net gain that would be recognized if all of the partnership's
marketable securities would have been sold immediately before the distribution,
over (ii) net gain that would be recognized if all of the partnership's
marketable securities would have been sold immediately after the distribution.
However, these provisions do not apply to the distribution of a marketable
security if the security was acquired by the partnership in a nonrecognition
transaction and (1) the value of any marketable securities and money exchanged
by the partnership in the nonrecognition transaction is less than 20% of the
value of all the assets exchanged by the partnership in the nonrecognition
transaction, and (2) the partnership distributed the security within five years
of either the date the security was acquired by the partnership or, if later,
the date the security became marketable. The Common Shares should qualify for
this exception because they were acquired by IGC in nonrecognition transactions
pursuant to the Asset Transfers within the applicable five year period and IGC
has represented that the value of money and marketable securities was less than
20% of the value of all assets exchanged. If so, the Distribution of Common
Shares will not be treated as a distribution of money under these provisions.
A Shareholder's initial tax basis in his or her Common Shares
generally will be equal to IGC's tax basis in those Common Shares. If, however,
IGC's tax basis in those Common Shares exceeds the Shareholder's adjusted tax
basis in his or her IGC Units, the Shareholder's initial tax basis in his Common
Shares generally will be equal to his or her adjusted tax basis in his or her
IGC Units immediately before the Distribution reduced by any money received in
the Distribution. Each Shareholder's adjusted tax basis in his or her IGC Units
will be reduced by an amount equal to his or her initial basis in the Common
Shares.
A Shareholder's holding period for the Common Shares will include
IGC's holding period for those Common Shares. ACPT will provide Shareholders
with
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information on the holding period of Common Shares received in the Distribution.
IGC will not recognize gain or loss upon the Distribution.
A Shareholder who receives cash in lieu of fractional Common Shares
will recognize gain. The amount of gain recognized will not exceed the amount
of cash received. ACPT will provide Shareholders with information indicating the
amount of any gain which must be recognized on the receipt of cash in lieu of
fractional Common Shares.
FEDERAL INCOME TAXATION OF ACPT AND SHAREHOLDERS.
General.
-------
As a partnership for federal income tax purposes, ACPT is not subject
to federal income tax. ACPT has adopted the accrual method of accounting and
has adopted the calendar year as its taxable year.
Each item of ACPT's income, gain, loss, deduction or credit will flow
through to the Shareholders. Each Shareholder must report his or her allocable
share of these items on his or her individual tax return. Such items generally
are allocated among the Shareholders in proportion to the number of Common
Shares held by each Shareholder and for the period for which each Shareholder
holds such Common Shares. ACPT must furnish each Shareholder of record, on the
form prescribed by the IRS, the information necessary to prepare the
Shareholder's federal income tax returns with respect to income derived from his
or her interest in ACPT.
Each Shareholder is taxed on his or her allocable share of ACPT's
taxable income or loss, without regard to distributions of cash or property from
ACPT to the Shareholder. Although ACPT is obligated under its Declaration of
Trust to distribute annually to Shareholders, in cash and/or property, an amount
equal to 45% of the net taxable income of ACPT allocated to Shareholders less
the amount of certain taxes paid by ACPT, there can be no assurance that ACPT
will distribute to a Shareholder sufficient cash for the Shareholder to satisfy
his or her federal income tax liability with respect to his or her allocable
share.
It is anticipated that ACPT's income will consist almost entirely of
dividends from American Rental, American Land, American Management, and IGP
Group.
Tax Basis of Common Shares.
--------------------------
A Shareholder's initial tax basis in his or her Common Shares
generally will be equal to IGC's tax basis in those Common Shares (unless IGC's
tax basis in the Common Shares exceeds the Shareholder's tax basis in his or her
IGC Units). See "--
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Federal Income Tax Consequences of the Distribution." The Shareholder's tax
basis will be increased by (i) his or her allocable share of ACPT's income
(including income that is not taxable) and (ii) his or her share of any increase
in non-recourse liabilities incurred by ACPT (i.e., any liability of ACPT for
which no partner has any personal liability). The Shareholder's tax basis will
be reduced (but not below zero) by (i) any cash distributed to the Shareholder;
(ii) ACPT's tax basis in any property distributed to the Shareholder; (iii) the
Shareholder's allocable share of ACPT's losses; (iv) his or her share of any
decrease in non-recourse liabilities incurred by ACPT; and (v) his or her share
of non-deductible expenditures of ACPT that are not properly chargeable to
capital. There may be other special situations affecting the tax basis.
Income and Loss Allocations.
---------------------------
The manner in which items of ACPT's income, gains, losses, deductions,
credits and other tax items are allocated among the partners (including the
Shareholders) pursuant to the provisions of the Declaration of Trust is
described in detail above. Such allocations are recognized for federal income
tax purposes if (i) they are in accordance with the partners' respective
interests in ACPT or have "substantial economic effect" within the meaning of
the Code and applicable Regulations, and (ii) they are applied without
retroactive effect.
ACPT's allocations to the Shareholders pursuant to the Declaration of
Trust will be recognized for federal income tax purposes to the extent that
such allocations do not result in the Shareholders having deficits in their
capital accounts. It is not anticipated that ACPT will generate, nor is it an
objective of ACPT to generate, losses that could result in deficit capital
accounts. However, it is possible that ACPT could make a distribution that
causes a Shareholder to have a deficit capital account.
If any allocation of ACPT's items pursuant to the Declaration of Trust
is determined not to be in accordance with the Shareholders' interests in ACPT
(or otherwise not to have "substantial economic effect" under the Code and
Regulations), then ACPT's items would be allocated among the partners in
accordance with their "interests in ACPT" based on all the relevant facts and
circumstances. Such a determination could result in the income, gains, losses,
deductions, or credits allocated under the Declaration of Trust being
reallocated. Such reallocation, however, would not affect distributions under
the Declaration of Trust. Thus, such a reallocation could result in an
increased share of taxable income being allocated to a Shareholder, without any
corresponding increase in cash distributions over those contemplated in the
Declaration of Trust.
The Declaration of Trust authorizes the Board of Trustees to make any
changes in ACPT's allocation provisions determined to be necessary under the
Regulations in order for ACPT's allocation provisions to be respected for
federal income tax purposes. It is possible that such a change in the
allocation provisions could result in
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additional taxable income being allocated to existing Shareholders, without any
corresponding increase in cash distributions to such Shareholders. However, no
provision may be added that would require the Shareholders to restore negative
capital accounts. In addition, in implementing any such change, the Board of
Trustees is to use its best efforts to ensure that the underlying economic
arrangement intended by the Declaration of Trust -- that all distributions and
allocations be in accordance with percentage interests in ACPT -- is preserved
to the extent practicable.
Coordination of Allocations and Distributions.
----------------------------------------------
ACPT has adopted the daily closing-of-the-books convention in
allocating ACPT's income and loss. In addition, ACPT, American Land, American
Management, American Rental, and IGP Group expect to coordinate the declaration
and payment of dividends and other distributions from such entities in such a
manner that all dividends will be paid by the lower-tier entities to ACPT on the
same day that ACPT declares a dividend to the Shareholders of record on such
date. Thus, each Shareholder's dividend distribution from ACPT will correspond
with their allocable share of ACPT's taxable income associated with the receipt
of dividends from the other entities. If dividends are not so coordinated, it
is possible that if a Shareholder sells or otherwise disposes of his or her
Common Shares prior to a record date, ACPT would make the cash distributions to
the Shareholder's transferee even though the Shareholder would be taxed on the
income.
U.S. Shareholders that own (after application of certain attribution
rules) 10% or more of the Common Shares ("10% Shareholders") may be required to
include in income certain amounts earned by IGP Group even where IGP Group does
not actually distribute these amounts to ACPT. Therefore, 10% Shareholders
should consult their own tax advisors regarding the tax consequences of the
Distribution, holding and disposition of Common Shares.
Section 704(c) Allocations.
--------------------------
Under Section 704(c) of the Code, tax items relating to the unrealized
gain (or loss) ("Precontribution Gain (or Loss)") with respect to property
contributed ("Contributed Property") by a partner ("Contributing Partner") to a
Partnership must be allocated to the Contributing Partners when the partnership
sells or otherwise disposes of its interests in the Contributed Property. The
Precontribution Gain (or Loss) is generally equal to the difference between the
fair market value of the Contributed Property at the time of the contribution
and the Contributing Partner's tax basis in the property at that time. See "--
Certain Tax Consequences of the Asset Transfers."
The Board of Trustees will determine the amount of Precontribution
Gain (or Loss) allocable to each asset originally contributed to IGC or
contributed by IGC to ACPT, and each Shareholder's share thereof. These
determinations may affect
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substantially the amount and timing of gain or loss recognized by Shareholders
in the event that ACPT were to sell its interest in American Land, American
Management, American Rental, or IGP Group.
Section 754 Election.
--------------------
ACPT will not make an election under Section 754 of the Code to adjust
the tax basis of its property upon sales and certain other transfers of Common
Shares (Section 743 of the Code) or in the event of a distribution of property
to the Shareholders (Section 734 of the Code). Therefore, persons who purchase
Common Shares from Shareholders will not receive a special basis adjustment with
respect to their share of property held by ACPT to reflect the purchase price of
such Common Shares. Thus, if ACPT sells all or a portion of its interests in
the lower-tier entities, a Shareholder who purchases Common Shares after the
Distribution will recognize his or her proportionate share of ACPT's gain or
loss regardless of whether such gain or loss is attributable to appreciation or
depreciation in the value of the interests sold by ACPT that occurred before the
Shareholder acquired its Common Shares. If ACPT were to sell its interests in
American Land, American Management, American Rental, or IGP Group, the
proportionate share of the gain or loss recognized by a Shareholder could vary
depending on whether or not such Shareholder purchased its Common Shares from a
person that originally contributed property to IGC. It is possible that in
certain circumstances, the trading market for the Common Shares could be
adversely affected because the Common Shares were not fungible.
Passive Loss and Income.
-----------------------
It is not anticipated that ACPT will have a taxable loss for any
taxable year. All of ACPT's gross income from dividends (including all
distributions from American Rental) or from the disposition of ACPT's interests
in the lower-tier entities will constitute "portfolio income" and will not be
included in "passive activity gross income" under the rules relating to
restrictions on passive activity losses.
Taxation of Foreign Investors.
-----------------------------
The rules governing federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships and other foreign
Shareholders (collectively, "Non-U.S. Shareholders") are complex and no attempt
will be made herein to discuss such rules. Prospective Non-U.S. Shareholders
should consult with their own tax advisers to determine the impact of federal,
state and local income tax laws with regard to an investment in Common Shares,
including any reporting requirements, as well as the tax treatment of such an
investment under the laws of their home country.
Taxation of Shareholder Distributions Other than in Liquidation.
---------------------------------------------------------------
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A Shareholder will not recognize taxable income when he or she
receives a cash distribution from ACPT if the amount of the distribution does
not exceed the Shareholder's tax basis in his or her Common Shares. See "-- Tax
Basis of Common Shares." Because of the expected coordination of the
declaration and payment of dividends and other distributions between ACPT and
the entities in which it holds an interest, each Shareholder's basis in its
Common Shares should be increased by the Shareholder's share of ACPT's taxable
income associated with the receipt of a cash distribution from ACPT. See "--
Coordination of Allocations and Distributions." Generally, ACPT anticipates
that the increase in basis should be equal to the amount of the cash
distribution. However, if the cash distributed to the Shareholder exceeds the
Shareholder's tax basis in his or her Common Shares, the excess will be taxable
to the Shareholder as though it were gain on the sale or exchange of his or her
Common Shares. See "-- Sale or Exchange of Common Shares." A Shareholder
generally will not recognize income upon receipt from ACPT of a distribution of
property other than a distribution of money or a disproportionate distribution
of marketable securities. A distribution may reduce the Shareholder's tax basis
in his or her Common Shares. See "-- Tax Basis of Common Shares."
Foreign Tax Credit.
------------------
If IGP Group and the Puerto Rico Apartment Partnerships qualify for
"pass-through" treatment as special partnerships for Puerto Rico income tax
purposes under Puerto Rico law, they will not be subject to income tax in Puerto
Rico. Instead, IGP Group's income (primarily in the form of rental payments
with respect to apartments and other real property located in Puerto Rico and
including IGP Group's share of the income of each of the Puerto Rico Apartment
Partnerships) will be taxable to ACPT. ACPT will be treated as a foreign
corporation for Puerto Rico income tax purposes and will be subject to Puerto
Rico income tax on its allocable share of IGP Group's income. See "Certain
State Income Tax and Puerto Rico Income Tax Considerations -- Certain Puerto
Rico Income Tax Considerations." To the extent that ACPT pays Puerto Rico taxes
with respect to its Puerto Rico source income, the Shareholders will be
considered to have paid their allocable share of such Puerto Rico tax which, as
discussed below, may give rise to a foreign tax credit or a deduction for
federal income tax purposes. However, if IGP Group were treated as a
corporation for Puerto Rico tax purposes, it would be subject to Puerto Rico
income tax on its Puerto Rico source income and the Puerto Rico income tax paid
by IGP Group would not be treated as taxes paid by ACPT and would not give rise
to foreign tax credits or deductions to the Shareholders. In addition, such
foreign tax credits or deductions generally would not be available to the
Shareholders if ACPT were treated as a corporation for U.S. tax purposes,
regardless of how IGP Group is treated for Puerto Rico tax purposes.
For United States tax purposes, each Shareholder will be considered to
have paid his or her allocable share of any Puerto Rico income taxes paid by
ACPT.
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Puerto Rico taxes treated as paid by such Shareholder or allocable to such
Shareholder will be considered foreign income taxes paid by such Shareholder
with respect to which such Shareholder may claim a foreign tax credit (subject
to applicable limitations) or a deduction for United States federal income tax
purposes. The limitation on the foreign tax credit is designed to ensure that a
United States taxpayer cannot use foreign taxes to offset more of that
taxpayer's United States tax liability for a taxable year than is attributable
to foreign source income (e.g., because the effective rate is higher than United
States rates). For certain Shareholders, the marginal Puerto Rico income tax
rate may be higher than the marginal United States tax rate. Accordingly, for
Shareholders whose only source of foreign income is ACPT, the taxes payable to
Puerto Rico by ACPT might not be fully creditable as a result of this limitation
under the Code. Taxable income of ACPT for federal income tax and Puerto Rico
income tax purposes also may differ because each tax is calculated under the
respective tax accounting and entity classification provisions of the
jurisdictions that in some cases are not the same. For example, for Puerto Rico
income tax purposes IGP Group intends to qualify as a special partnership and
the tax items of IGP Group would then flow through to ACPT for Puerto Rico
income tax purposes as a distributive share of income whether or not cash is
distributed. However, for federal tax purposes, IGP Group is treated as a
corporation and none of IGP Group's tax items will flow through to ACPT and ACPT
generally will treat cash distributed from IGP Group as a dividend.
The foreign tax credit limitations must also be computed separately
for certain categories of income. For example, separate computations generally
would be made for passive income such as dividends and for "active" income
earned in the conduct of a trade or business. The basic limitation is that the
foreign tax credit claimed with respect to a particular category of income
cannot exceed the amount of United States taxes imposed with respect to the
taxpayer's worldwide income multiplied by a fraction, the numerator of which is
the total foreign source taxable income in that category and the denominator of
which is the total amount of the taxpayer's worldwide income.
A Shareholder's Puerto Rico source income with respect to his or her
ownership of Common Shares likely will consist of the Shareholder's distributive
share of dividends from IGP Group under federal income tax rules. In contrast,
the Shareholder's distributive share of ACPT's Puerto Rico taxes will have been
paid in accordance with applicable Puerto Rico tax rules with respect to ACPT's
distributive share of the rental and other income earned by IGP Group and the
Puerto Rico Apartment Partnerships. For foreign tax credit limitation purposes,
the amount and category of foreign source income is determined under United
States tax principles even though Puerto Rico taxed the income earned there
according to its own rules. Since the United States recognizes IGP Group as a
corporation and not as a partnership, the Shareholders' foreign source income
from ACPT for foreign tax credit limitation purposes likely will be passive
income in the amount of the Shareholder's distributive share of the dividends
paid to ACPT by IGP Group. It is possible, however, that if the
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Puerto Rico tax rate imposed on the dividends exceeds the U.S. tax rate the
dividends would be subject to the "high tax kick out rule" and be included in
the overall limitation category.
The amount of foreign taxes paid with respect to a particular category
of income includes only those foreign taxes related to income in that category.
The IRS will likely associate the Shareholders' distributive shares of the
Puerto Rico taxes paid by ACPT with the Shareholders' shares of the dividends
paid by IGP Group to ACPT. Thus, a Shareholder's distributive share of Puerto
Rico taxes likely will be allocated to the passive income category for purposes
of determining the foreign tax credit limitation.
However, there is a risk that the Puerto Rico taxes would be
associated with the "general limitations" category (and not the passive income
category) because it is associated with "active" income that generally would not
be subject to tax under United States tax rules (i.e., because the United States
----
does not generally tax shareholders on the undistributed income of the
corporations in which they invest). In this case, the Puerto Rico tax would be
treated as imposed with respect to "general limitations" income, but a
Shareholder may not be eligible for a foreign tax credit with respect to this
tax unless he or she has other foreign source taxable "general limitations"
income against which to apply the credit.
Termination of ACPT for Tax Purposes.
------------------------------------
If 50% or more of the capital and profits interests in ACPT are sold
or exchanged within a twelve-month period, ACPT will be deemed to have been
terminated for federal income tax purposes. In this regard, however, a Common
Share that changes hands several times during a twelve-month period will be
counted only once for purposes of determining whether a termination has
occurred.
If ACPT is considered to have terminated, ACPT would be deemed to have
contributed its assets and liabilities to a new partnership in exchange for an
interest in the new partnership, and immediately thereafter the terminated
partnership would be deemed to have distributed the interests in the new
partnership to the Shareholders of record as of the date of the termination.
Generally, a Shareholder would not recognize any taxable gain or loss
as a result of the deemed pro rata distribution of new partnership interests
incident to a constructive termination of ACPT. See "-- Federal Income Tax
Considerations -- Federal Income Taxation of ACPT and Shareholders --Dissolution
of ACPT." If the Shareholder's taxable year were other than the calendar year,
the inclusion of more than one year of ACPT's income in a single taxable year of
the Shareholder could result. Finally, a termination of ACPT could cause ACPT or
its assets to become subject to any unfavorable statutory or regulatory changes
enacted prior to the termination but previously not applicable to ACPT or its
assets because of protective "transitional" rules.
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There could be other federal income tax consequences, favorable and unfavorable,
resulting from a termination of ACPT.
Under the 1997 Act, regulatory authority was granted to provide for
gain recognition on a transfer of appreciated property to a partnership in cases
where unrealized gain could be transferred to a foreign partner. It does not
appear that this provision would apply to ACPT or the Shareholders. However, no
regulations have been issued under this provision.
Backup Withholding.
------------------
Distributions to Shareholders whose Common Shares are held on their
behalf by a "broker" may constitute "reportable payments" under the federal
income tax rules regarding "backup withholding." Backup withholding, however,
would apply only if (i) the Shareholder failed to furnish his or her Social
Security number or other taxpayer identification number ("TIN") to the "payor"
(e.g., the "broker"), (ii) the IRS notified the payor that the Shareholder
furnished an incorrect TIN, (iii) there were a "notified payee certification
failure" as described in the Code, or (iv) there were a failure by the
Shareholder to certify that he or she is not subject to backup withholding. If
backup withholding were applicable to a Shareholder, the payor would be required
to withhold 31% of each distribution to such Shareholder and to pay such amount
to the IRS on behalf of such Shareholder. The amount withheld pursuant to
backup withholding is not itself an additional tax. Rather, the tax liability
of the Shareholder subject to backup withholding will be credited with the
amount of tax withheld.
Sale or Exchange of Common Shares.
---------------------------------
A Shareholder will realize gain or loss on a sale or other disposition
of his or her Common Shares based on the difference between the amount realized
on the sale and the Shareholder's adjusted tax basis for the Common Shares. The
amount realized includes the Shareholder's share of ACPT's liabilities. A
selling Shareholder's tax basis in the Common Shares will be adjusted for the
amount of income or loss allocable to, and distributions made to, such
Shareholder in the taxable year in which the disposition occurs. See "-- Tax
Basis of Common Shares." To the extent the gain or loss is not treated as
ordinary income or loss under the rules described below, the gain or loss
ordinarily will be treated as capital gain or loss and a long-term capital gain
or loss if the holding period for the Common Shares is more than one year.
The gain or loss may give rise to ordinary income or loss to the
extent it is attributable to "inventory items" or "unrealized receivables" (as
defined in Section 751 of the Code). "Unrealized receivables" include rights to
payment for services rendered or to be rendered, franchises, trademarks, Section
1245 property, Section 1250 property and stock in certain foreign corporations
as described in Section 1248.
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Under an IRS ruling, a Shareholder might be required to maintain an
aggregate adjusted tax basis in all of his or her Common Shares even if the
Shareholder acquired Common Shares in separate transactions. If this rule
applies to Shareholders, when a Shareholder disposes of a portion of his or her
Common Shares, the Shareholder would have to allocate his or her aggregate tax
basis between the disposed-of Common Shares and the retained Common Shares by
some equitable apportionment method. In that case, it effectively would
preclude a Shareholder from controlling the timing of the recognition of the
inherent gain or loss in his or her Common Shares by selecting specific Common
Shares for sale. It is unclear how a Shareholder would determine the holding
period of the disposed-of Common Shares in such circumstances. Because of the
uncertainties relating to the holding period and basis, a Shareholder
considering a subsequent purchase of additional Common Shares should consult his
or her own tax advisor as to the possible consequences of the subsequent
purchases.
The trading market for Common Shares could be adversely affected by
the lack of a special basis adjustment for purchasers of Common Shares because
ACPT will not make an election under Code Section 754.
Dissolution of ACPT.
-------------------
Upon the dissolution and liquidation of ACPT, any assets remaining
after payment of, or provision for payment of, ACPT's debts and liabilities will
be distributed to ACPT's partners (including Shareholders) of record first in
proportion to the positive balances in their capital accounts and then pro rata
in accordance with their percentage interests. It is anticipated that the
Shareholders' capital accounts and percentage interests will be in proportion to
the Shareholders' Common Shares and that liquidating distributions will
therefore be pro rata in accordance with Common Shares.
A Shareholder generally will not recognize gain or loss on a
liquidating distribution. However, a Shareholder will recognize gain to the
extent that the shareholder receives money (including his proportionate share of
any reduction in ACPT's non-recourse liability) in excess of his or her basis in
the Common Shares. The gain will be a capital gain, except to the extent of any
"unrealized receivables" and "inventory items." See "-- Federal Income Tax
Considerations -- Federal Income Taxation of ACPT and Shareholders -- Sale or
Exchange of Common Shares."
A Shareholder may recognize a capital loss on liquidation only if the
Shareholder receives only money, "unrealized receivables," and "inventory
items." The loss may not exceed the difference between (i) the Shareholder's
adjusted tax basis in his or her Common Shares and (ii) the sum of (x) the
amount of money received and (y) his or her tax basis of such unrealized
receivables and inventory items. If the Shareholder also receives any property
other than money, unrealized receivables or inventory items, he or she will not
recognize any loss upon the distribution. He will have a tax basis in
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the property received in liquidation equal to his or her adjusted tax basis in
his Common Shares reduced by any money distributed to the Shareholder.
Puerto Rico Shareholders.
------------------------
Individuals who are bona fide residents of Puerto Rico during the
entire taxable year ("Puerto Rico Residents") will be subject to United States
income tax at applicable United States rates with respect to their allocable
share of ACPT's income derived from United States sources. A corporate
Shareholder organized under the laws of Puerto Rico ("Puerto Rico Corporation")
will be subject to United States income tax at applicable United States rates
with respect to its allocable share of ACPT's income that is effectively
connected with the conduct of a United States trade or business. A Puerto Rico
Corporation will generally be subject to a 30% tax on its allocable share of
ACPT's "fixed or determinable annual or periodic gains, profits, and income"
from United States sources. Distributions made by IGP Group to ACPT should not
be United States source income or effectively connected with a United States
trade or business. ACPT generally is required to withhold U.S. tax at the rate
of 30% with respect to a Puerto Rico Resident's or a Puerto Rico Corporation's
allocable share of dividends received from American Land, American Management,
or American Rental.
Under the Foreign Investment in Real Property Tax Act of 1980, as
amended ("FIRPTA"), ACPT must withhold 35% of the amount of a Puerto Rico
Corporation's allocable share of ACPT's gain from the sale of a United States
real property interest ("USRPI"), including a disposition of an interest in
certain entities where over 50 % of the value of such entity's assets consist of
U.S. real property interests. A USRPI generally is an interest in real property
located in the United States or Virgin Islands. An interest in a "domestically-
controlled REIT" is not a USRPI. The term "domestically-controlled REIT" means
a REIT in which at all times during a specified testing period (generally, the
lesser of the 5-year period ending on the date of the disposition or the period
in which the REIT was in existence) less than 50% in value of the stock was held
directly or indirectly by foreign persons.
Any distribution by a REIT to a non-resident alien individual or
foreign corporation, to the extent attributable to gain from sales or exchanges
by the REIT of USRPI, is treated as gain recognized by such non-resident alien
individual or foreign corporation from the sale or exchange of a USRPI. Puerto
Rico Residents and Puerto Rico Corporations will be subject to withholding on
amounts attributable to capital gains dividends distributed by American Rental.
In certain circumstances, a distribution of a USRPI to the Shareholders could
give rise to a recognition of any unrealized gain (the excess of the fair market
value over basis) of the USRPI distributed, multiplied by the "foreign ownership
percentage". The term "foreign ownership percentage" means that percentage of
the stock of the REIT which was held (directly or indirectly) by foreign persons
at the time during the applicable testing period during which the direct and
indirect ownership of stock by foreign persons was greatest.
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The United States Department of the Treasury may promulgate
Regulations reducing the withholding rate to 28%, probably only in the case of
individuals. Future Regulations also may require ACPT to withhold 10% of the
fair market value of any USRPI that is distributed to a foreign person if the
transaction would constitute a taxable distribution under FIRPTA.
A Puerto Rico Resident generally will be subject to United States tax
on the gain or loss resulting from the disposition of a Common Share only to the
extent that the gain or loss is from United States sources. As a general rule,
any gain or loss from the disposition of personal property is not United States
source income if the seller is not a United States resident. For most purposes,
partnership interests are regarded as personal property. However, it is possible
that a disposition of a partnership interest would be considered a disposition
of partnership assets rather than partnership interests. The IRS has ruled that
a partner was subject to United States tax on the gain or loss resulting from
the disposition of a partnership interest to the extent that the partner's
allocable share of the partnership's unrealized gain or loss is effectively
connected with a United States trade or business when the partnership was
engaged in a United States trade or business through a fixed place of business
or a permanent establishment and was not a publicly traded partnership. The
ruling does not indicate whether the same holding would obtain in the case of a
disposition of an interest in a publicly traded partnership or whether gain or
loss on such an interest would be sourced as United States or foreign, based on
the assets and activities of the partnership. If the holding were to apply,
Puerto Rico Residents and Puerto Rico Corporations disposing of Common Shares
could be subject to tax with respect to unrealized gain or loss in the stock of
one or more of the four entities whose stock ACPT controls but only to the
extent that more than 50% of the entity's assets consist of USRPIs. Generally,
the determination of the residence of the seller is made at the partner level,
except as provided in Regulations that have not yet been promulgated.
Legislative history indicates that Regulations may provide that the
determination will be made at the partnership level in the case of a publicly
traded partnership.
In general, Puerto Rico Corporations that have gain from the sale of
Common Shares are subject to United States taxation at capital gains rates only
if the gain is effectively connected with the conduct of a United States trade
or business. Under FIRPTA, if a Common Share is considered a USRPI, the gain or
loss from the disposition of the Common Share is treated as effectively
connected with a trade or business conducted in the United States. A Common
Share will be considered a USRPI generally if at any time during the five-year
period preceding the disposition (i) the Puerto Rico Corporation owns directly
or by attribution more than 5% of ACPT's Common Shares and (ii) the fair market
value of ACPT's USRPIs was at least 50% of the fair market value of ACPT's
worldwide real property interests and ACPT's other assets used in a trade or
business.
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As discussed above, if ACPT becomes engaged in a United States trade
or business through a fixed place of business or a permanent establishment, any
gain or loss recognized by a Puerto Rico Corporation upon the disposition of a
Common Share may be treated as effectively connected with the conduct of a
United States trade or business to the extent that the Shareholder's allocable
share of ACPT's unrealized gain or loss is effectively connected with such
United States trade or business.
Certain Federal Income Tax Consequences to Tax Exempt Organizations.
-------------------------------------------------------------------
It is anticipated that virtually all of ACPT's taxable income will
consist of dividends (including REIT dividends). See "-- Federal Income Tax
Classification of ACPT." Therefore, a tax exempt entity that is a Shareholder
generally will not be subject to tax on distributions from ACPT or gain realized
on the sale of Common Shares. However, there are circumstances where a tax
exempt entity may be subject to tax. For example, a tax exempt entity may be
subject to tax to the extent that it has financed the acquisition of its Common
Shares with "acquisition indebtedness" within the meaning of the Code.
Consequently, tax exempt entities should consult their own tax advisors
regarding the Distribution, and the holding and disposition of Common Shares.
Information Return Filing Requirements.
--------------------------------------
A Shareholder who sells or exchanges a Common Share must notify ACPT
of such transaction in writing within 30 days of the transaction (or, if
earlier, by January 15 of the year following the calendar year in which the
transaction occurs). The transferor Shareholder does not have to notify ACPT if
a broker must provide an information return under Section 6045 of the Code. The
transferor Shareholder must provide (i) his name and address and the name and
address of the transferee; (ii) his TIN and, if known, the transferee's TIN; and
(iii) the date of the sale or exchange. If a transferor Shareholder fails to
notify ACPT, he or she may be subject to a $50 penalty for the failure.
In addition, ACPT must notify the IRS of any sale or exchange of a
Common Share (of which ACPT was notified or had knowledge). ACPT does not have
to notify the IRS if a broker must provide an information return under Section
6045 of the Code. If ACPT knows of a sale or exchange but does not know who is
the beneficial owner of the Common Shares, it may treat the record-holder as the
transferor or the transferee as the case may be. ACPT must report to the IRS the
names, addresses, and TINs of ACPT, the transferee and the transferor, the date
of the transaction, and any additional information required by the applicable
information return or its instructions. ACPT also must provide that information
to the transferor and the transferee. In addition, ACPT must inform the
transferor and the transferee that this information has been given to the IRS,
that a portion of any gain or loss must be treated
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as ordinary income or loss and that the transferor is required to attach a
statement relating to the sale or exchange to his or her income tax return.
If ACPT fails to furnish the required information to the transferor or
the transferee, it may be subject to a penalty of $50 per failure up to an
annual maximum of $100,000. If ACPT fails to provide the required information to
the IRS, ACPT would be subject to a penalty of $50 per failure up to an annual
maximum of $100,000. Because ACPT will be a publicly traded partnership, it is
uncertain whether ACPT will be able to comply with these requirements in every
instance.
Electing Large Partnerships.
---------------------------
Partnerships with 100 or more partners generally are permitted to make
an irrevocable election ("Electing Large Partnerships") to be subject to certain
simplified "flow through," reporting, and audit provisions for federal income
tax purposes for partnership tax years beginning after December 31, 1997.
Electing Large Partnerships are subject to special rules for the computation,
treatment, and reporting of certain partnership tax items. In addition, Electing
Large Partnerships are subject to special rules relating to the administrative
and judicial review of adjustments with respect to partnership tax items, and
relating to the liability of partners for the payment or refund of federal
income taxes resulting from such an adjustment. ACPT has no current plans to
make an election to be subject to the rules applicable to Electing Large
Partnerships.
Audit of Partnership Tax Returns and Further Proceedings.
--------------------------------------------------------
Although ACPT is not required to pay any federal income tax, it is
required to file an information tax return for each taxable year setting forth
its income, gains, losses, deductions, credits, tax preference items and its
other applicable tax attributes. The IRS may audit the tax treatment of ACPT's
items of income, loss, deduction, and credit at the partnership level in a
unified administrative proceeding. The IRS will make any adjustments it believes
to be appropriate. An audit of ACPT may also result in the audit of a
Shareholder's tax return, which may not be restricted to adjustments to items of
ACPT.
The IRS is required to mail a notice at the outset of the
administrative proceeding and at the time of any adjustment to: (i) any
Shareholder who has at least a 1% interest in ACPT's profits, (ii) any
Shareholder designated by a "notice group," and (iii) the "Tax Matters Partner"
of ACPT. A notice group is any group of Shareholders who have an aggregate
profits interest in ACPT of at least 5% and have designated a Shareholder to
receive separate notice on behalf of the group. The Trustee will be ACPT's Tax
Matters Partner. As the Tax Matters Partner, the Trustee will receive notice on
behalf of, and will provide notice to, those Shareholders who have an interest
of less than 1% in ACPT's profits. The Trustee may extend the statutory period
of limitations for assessment of adjustments attributable to "partnership items"
and may
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enter into a binding settlement with the IRS. The Trustee's settlement will be
binding on a Shareholder unless the Shareholder (i) has at least a 1% interest
in ACPT's profits, (ii) is a member of a notice group, or (iii) notifies the IRS
that the Trustee is not authorized to act on the Shareholder's behalf.
If the IRS and the Trustee fail to settle an audit proceeding, then
the Trustee may choose to litigate the matter. In that event, the Trustee would
select the court in which such litigation would occur (including a court where
prepayment of the taxes is required). A Shareholder would have the right to
participate in such litigation and would be bound by the outcome of the
litigation even if the Shareholder elected not to participate. Because the
Shareholders would be affected by the outcome of any administrative or judicial
proceedings with respect to ACPT, the Trustee will provide the Shareholders with
appropriate notices of federal income tax proceedings with respect to ACPT.
Shareholders who wish to pursue their own contest are free to do so at their own
expense. Each Shareholder should consult with his or her tax advisor with
respect to the impact of these procedures on his or her particular case.
Penalty for Substantial Understatement; Deduction of Interest.
-------------------------------------------------------------
If there is a "substantial understatement" of his or her tax
liability, a Shareholder may be liable for a penalty equal to 20% of the
underpayment of tax resulting from the substantial understatement. There will be
substantial understatement if the Shareholder fails to report the greater of
$5,000 ($10,000 for certain corporations) or 10% of the tax required to be shown
on the return for the taxable year. In determining whether a Shareholder's tax
liability has been substantially understated, a Shareholder's items of income
and loss arising from ACPT, as well as items of income and loss from other
activities, will be taken into account. For this purpose, the amount of an
understatement does not include any portion of the understatement (i) for which
there existed "substantial authority" for the position of the taxpayer or (ii)
for which the taxpayer "adequately disclosed" the relevant facts on his or her
return and there was a "reasonable basis" for the tax treatment.
ACPT anticipates that its tax returns will be prepared in a manner
that will not result in the imposition of the 20% penalty. However, due to the
complexity involved in applying the tax laws to particular transactions and the
fact that the determination of whether a particular Shareholder's tax liability
is substantially understated is dependent on the Shareholder's individual
circumstances, there can be no assurance that the substantial understatement
penalty could not be imposed on a Shareholder with respect to items arising from
ACPT. Any interest imposed on the tax deficiencies of individuals is "personal"
interest that will be nondeductible.
CERTAIN STATE INCOME TAX AND PUERTO RICO INCOME TAX
CONSIDERATIONS
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This section discusses certain state income tax and Puerto Rico income
tax considerations applicable to the Distribution, holding and disposition of
Common Shares. The following discussion of taxation is intended only as a
descriptive summary and does not purport to be a complete analysis or listing of
all potential state and Puerto Rico income tax effects. Shareholders may be
subject to Puerto Rico, state or local tax based on their residence or ACPT's
activities. INVESTORS ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS AS TO
THEIR INDIVIDUAL TAX STATUS WITH RESPECT TO THE COMMON SHARES AND ANY
DISTRIBUTIONS RECEIVED THEREFROM.
CERTAIN STATE TAX CONSIDERATIONS.
ACPT and the Shareholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which ACPT or the
Shareholder transacts business or resides. The state and local tax treatment of
ACPT and the Shareholders may not conform to the federal income tax consequences
discussed above. Consequently, Shareholders should consult their own tax
advisors regarding the effect of state and local tax laws on the Distribution,
and the holding and disposition of Common Shares.
In general, nonresident individuals holding interests in partnerships
whose activities and assets are limited to investments in stocks and similar
assets are not subject to Maryland State income tax merely because investment
and similar decisions are conducted by the partnership from a Maryland location.
If ACPT is found to be "doing business" in Maryland, however, nonresident
Shareholders would be required to pay tax in Maryland on their distributive
shares of ACPT income. Although the tax would be owed by the Shareholder,
Maryland law imposes a tax similar to a withholding tax at the partnership level
to ensure compliance. Any partnership doing business in Maryland generally is
required to pay this "withholding tax" equal to the top marginal individual tax
rate (currently 5%) of each item of net income includable in the nonresident
partners' distributive share of income attributable to business carried on in
Maryland.
If ACPT is treated as having income from Maryland sources a
Shareholder may be required to file a Maryland income tax return. ACPT will
advise Shareholders of the amount, if any, of their share of ACPT's income that
is attributable to Maryland sources.
CERTAIN PUERTO RICO INCOME TAX CONSIDERATIONS.
This summary of Puerto Rico income tax consequences is based on the
provisions of the Puerto Rico Internal Revenue Code of 1994 ("Puerto Rico
Code"), as amended, applicable to taxable years after June 30, 1995, Puerto Rico
Department of the Treasury ("Puerto Rico Treasury") regulations, published and
private rulings and judicial decisions as currently in effect. These sources
are all subject to change and such change
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could be applied retroactively at any time. In addition, it may be some time
before Regulations or other formal guidance is issued under the Puerto Rico
Code. Such Regulations could interpret the relevant law in a manner that is
contrary to this discussion or contrary to the opinion of Puerto Rico Counsel
(defined below) and such interpretation could be applied retroactively. Insofar
as this section of the Proxy Statement/Prospectus describes Puerto Rico law, it
represents the opinion of Fiddler, Gonzalez & Rodriguez, LLP ("Puerto Rico
Counsel").
No rulings have been requested from the Puerto Rico Treasury with
respect to the matters discussed in this section. Puerto Rico Counsel has
assisted in the preparation of, and has reviewed, the discussion in this
section. Although the opinion of Puerto Rico Counsel represents Puerto Rico
Counsel's best judgment as to the matters discussed herein, it does not bind the
Puerto Rico Treasury or in any way constitute an assurance that the Puerto Rico
income tax consequences described herein will be followed by the Puerto Rico
Treasury. Puerto Rico Counsel does not purport to be expert in, or generally
familiar with, the laws of any jurisdiction other than the applicable laws of
the Commonwealth of Puerto Rico and, therefore, expresses no opinion as to
matters not governed by such laws.
Puerto Rico Income Tax Classification of ACPT and IGP Group.
-----------------------------------------------------------
IGP Group has been formed as a corporation under the General
Corporation Law of 1995 of the Commonwealth of Puerto Rico. IGP Group intends to
file an election and to qualify for special partnership status under the Puerto
Rico Code. As a special partnership IGP Group would be treated as a partnership
for Puerto Rico income tax purposes. Under current law, a special partnership is
not a taxable entity and incurs no income tax liability. Instead, each partner
is required to take into account in computing such partner's income tax
liability such partner's allocable share of the partnership's income whether or
not the partnership makes a distribution corresponding to such income. Treatment
as a special partnership for Puerto Rico income tax purposes avoids the "double"
income taxation that occurs when a corporation distributes its profits to its
shareholders and minimizes the aggregate Puerto Rico income tax imposed on IGP
Group and its subsidiaries.
If it were determined that IGP Group is taxable as a corporation,
however, the anticipated tax advantages to ACPT and the Shareholders would be
materially and adversely affected. If IGP Group were classified as a
corporation, the profits of IGP would be taxed to IGP Group at the applicable
corporate tax rate. Moreover, distributions to ACPT would be treated as
corporate distributions, taxable at ordinary income tax rates to the extent of
earnings and profits, or as non-taxable returns of capital or distributions
taxable at capital gains rates, depending upon the circumstances of the
distribution.
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If IGP Group does not qualify as a special partnership, (i) it would
be classified as a corporation under the Puerto Rico Code, (ii) it would be
taxable on its profits at the applicable corporate rate, and (iii) distributions
to ACPT, to the extent they arise from earnings and profits, would be taxable to
the Shareholders as dividends. Treatment of IGP Group as a corporation would
result in a material reduction in the anticipated cash flow to Shareholders and
would have a significant adverse effect on the value of the Common Shares.
Puerto Rico Income Taxation of the Distribution.
-----------------------------------------------
United States Shareholders
Puerto Rico Counsel understands that IGC is not and will not be
engaged in a trade or business in Puerto Rico for Puerto Rico income tax
purposes. Accordingly, a Shareholder who is (i) either an individual resident of
the United States or a corporation or partnership organized under the laws of a
state of the United States, (ii) not engaged in a trade or business in Puerto
Rico (a "United States Shareholder"), and (iii) not a Puerto Rico Shareholder
will not recognize income upon receipt of Common Shares in the Distribution or
cash in lieu of fractional shares.
Puerto Rico Shareholders
A Puerto Rico Shareholders is (i) an individual, estate or trust
resident of Puerto Rico, or a corporation or partnership organized under the
laws of Puerto Rico, or (ii) an individual, estate or trust not a resident of
Puerto Rico and engaged in a trade of business in Puerto Rico, or (iii) a
corporation or partnership not organized under the laws of Puerto Rico and
engaged in a trade or business in Puerto Rico. To a Puerto Rico Shareholders the
distribution of Common Shares and cash in lieu of fractional Share interests
will be treated as a taxable distribution for Puerto Rico income tax purposes.
If the value of the Common Shares and cash received in the Distribution is equal
to or less than the current or accumulated earnings and profits of IGC, the
value of the Common Shares and cash received will be treated as a taxable
dividend. If the value of the Common Shares and cash received in the
Distribution exceeds the current or accumulated earnings and profits of IGC, a
portion of the value of the Common Shares and cash received in the Distribution
by a Puerto Rico Shareholder will be treated as a taxable dividend. The value of
the Common Shares and cash received in the Distribution in excess of the amount
treated as a taxable dividend will be treated first as a return of capital to
the extent of the Puerto Rico Shareholder's adjusted tax basis for Puerto Rico
income tax purposes in his or her IGC Units, and then as gain from the sale or
exchange of property.
If IGC's tax basis in ACPT and cash distributed in lieu of Common
Share interests is equal to or less than the current or accumulated earnings and
profits of IGC, then the entire value of the Common Shares and cash received in
the Distribution by a
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Puerto Rico Shareholder will be treated as a taxable dividend to the Puerto Rico
Shareholder.
Puerto Rico Income Taxation of ACPT.
-----------------------------------
Under the Puerto Rico Code, ACPT is and will be taxable as a foreign
corporation. As such, it will pay Puerto Rico income tax on certain of its
Puerto Rico source income, including its distributive share of IGP Group's net
taxable income. ACPT may seek rulings from the Treasury to establish that under
the Puerto Rico Code (i) it will be considered not to be engaged in a Puerto
Rico trade or business, (ii) the tax rate at which its distributive share of IGP
Group's net income will be taxed (presumably 29%) and (iii) that distributions
by ACPT to United States Shareholders will not be subject to income and
withholding taxes.
Under the Puerto Rico Code ACPT will not be considered to be engaged
in a Puerto Rico trade or business solely by reason of being a partner in IGP
Group, and, accordingly, (i) the tax rate at which its distributive share of IGP
Group's taxable income will be taxed is twenty-nine percent (29%), and (ii) the
distributions by ACPT to United States Shareholders will not be subject to
income and withholding taxes.
If for purposes of the Puerto Rico Code, ACPT were treated as engaged
in a trade or business in Puerto Rico, then ACPT would be subject to Puerto Rico
income tax (and in certain circumstances a branch profits tax) on its
distributive share of income or loss (subject to certain limitations) of IGP
Group (and any other income derived by ACPT from sources within Puerto Rico or
income which is effectively connected with a trade or business in Puerto Rico)
at the regular graduated tax rates. Under certain circumstances, United States
Shareholders would be subject to income and withholding tax on the distribution
by ACPT of its earnings and profits and the redemption of Common Shares.
Puerto Rico Income Taxation of IGP Group.
----------------------------------------
IGP Group intends to qualify as a special partnership under the Puerto
Rico Code. As a special partnership, IGP Group would not be subject to Puerto
Rico income tax. Instead, IGP Group's partners, including ACPT, would be subject
to taxation on their distributive share of IGP Group's taxable income or loss.
To maintain its status as a special partnership under the Puerto Rico Code, IGP
Group must derive 70% or more of its gross income from Puerto Rico sources and
70% or more of its gross income must be derived from the sale and/or lease of
buildings and structures to third parties and land development, among other
activities.
Puerto Rico Counsel's Opinions of Puerto Rico Taxation of ACPT and IGP
----------------------------------------------------------------------
Group.
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Puerto Rico Counsel is of the opinion, subject to the following
assumptions and representations, that under the Puerto Rico Code, regulations
promulgated thereunder, applicable private and published rulings, and judicial
decisions, that IGP Group will be treated as a special partnership.
This opinion is based on the following assumptions (i) that IGP Group
duly elects to be treated as a special partnership under the Puerto Rico Code;
(ii) that at least 70% of IGP's income is and will continue to be income from
the source and nature set forth in Section 1330(a) as described in the rulings
issued by the Puerto Rico Treasury on November 7, 1988 and December 11, 1996;
(iii) that IGP Group's sole asset and source of income will be its interests in
IGP; (iv) that IGP Group will be operated in accordance with its Articles of
Incorporation, Bylaws, and this Proxy Statement/Prospectus; and (v) that IGP
Group shall take such actions as may be necessary to preserve its status as a
special partnership under Section 1330(a).
The rules governing special partnerships are highly technical and
require ongoing compliance with a variety of tests that depend among other
things, on the nature of future partnership income. Puerto Rico counsel will not
monitor IGP Group's compliance with these requirements. While IGP Group intends
to satisfy these tests, no assurance can be given that IGP Group will qualify as
a special partnership for any particular year, or that the applicable laws and
regulations will not change and adversely affect IGP Group, ACPT and its
shareholders. IGP Group's qualification as a "pass-through" entity for Puerto
Rico tax purposes is based, in part, on private rulings issued by the Puerto
Rico Department of Treasury in connection with IGP. These rulings are not
binding on the Puerto Rico Department of Treasury and there is no guarantee that
their principles will be followed in evaluating IGP Group's situation. Puerto
Rico Counsel does not purport to be expert on, or generally familiar with, the
laws of any jurisdiction other than the applicable laws of the Commonwealth of
Puerto Rico, and, therefore, expresses no opinion as to matters not governed by
such laws.
Certain Puerto Rico Income Tax Consequences to Shareholders.
-----------------------------------------------------------
United States Shareholders
The Puerto Rico Code provides that distributions by a foreign
corporation or partnership (i.e. ACPT) which is not engaged in a trade or
----
business in Puerto Rico will not constitute income from sources within Puerto
Rico. Accordingly, under the Puerto Rico Code and provided ACPT is not engaged
in a trade or business in Puerto Rico, distributions to United States
Shareholders will not be subject to income and withholding taxes in Puerto Rico.
Any gain recognized by a United States Shareholder upon a sale or
other disposition of a Common Share will not be subject to Puerto Rico income
tax under the Puerto Rico Code if the sale or exchange takes place outside of
Puerto Rico (all rights
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title and interest must be transferred outside Puerto Rico, any exchange must
take place outside Puerto Rico). Consequently, any gain realized by a United
States Shareholder from a disposition of a Common Share on AMEX and/or the PSE
will not be subject to Puerto Rico income tax under the Puerto Rico Code.
Puerto Rico Shareholders
Under the Puerto Rico Code, a Puerto Rico Shareholder will be taxed on
a distribution from ACPT to the extent of the current or accumulated earnings
and profits of ACPT. Distributions in excess of current or accumulated earnings
and profits of ACPT will be treated as a return of capital to the extent of the
Puerto Rico Shareholder's adjusted tax basis in his or her Common Shares, and
then as gain from the sale or exchange of property. Provided that the Common
Share is a capital asset in the hands of a Shareholder, the gain or loss will be
a capital gain or loss and a long-term capital gain or loss if the Common Share
is held for more than six months.
Upon a sale or other disposition of a Common Share, a Puerto Rico
Shareholder generally will recognize gain or loss equal to the difference
between the amount realized and his or her adjusted tax basis in the Common
Share, both computed applying the income tax principles of the Puerto Rico Code.
Provided that the Common Share is a capital asset in the hands of a Puerto Rico
Shareholder, the gain or loss will be a capital gain or loss and a long-term
capital gain or loss if the Common Share is held for more than six months.
Because ACPT will be treated as if it were a corporation for Puerto
Rico income tax purposes, a Puerto Rico Shareholder's tax basis in his or her
Common Shares will not be adjusted as a result of income or loss recognized by
ACPT.
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
The following summary of the terms of the shares of beneficial
interest of ACPT does not purport to be complete and is subject to and qualified
in its entirety by reference to the Declaration of Trust and Bylaws of ACPT,
copies of which are exhibits to the Registration Statement of which this
Prospectus is a part. See "Additional Information."
GENERAL.
The Declaration of Trust of ACPT provides that ACPT may issue up to
10,000,000 Common Shares and 10,000,000 Preferred Shares of beneficial interest,
$0.01 par value per share. Upon completion of the Restructuring, 5,200,000
Common Shares will be issued and outstanding. Assuming completion of the Private
Offering, Preferred Shares also will be issued and outstanding following the
Restructuring. As permitted by the Maryland Trust Law, the Declaration of Trust
contains a provision
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permitting the Board of Trustees, without any action by the Shareholders, to
amend the Declaration of Trust to increase or decrease the aggregate number of
shares of beneficial interest or the number of shares of any class of shares of
beneficial interest that ACPT has authority to issue. ACPT believes that the
power of the Board of Trustees to issue additional shares of beneficial interest
will provide ACPT with increased flexibility in structuring possible future
financings and acquisitions and in meeting other needs that might arise.
Although the Board of Trustees currently does not intend to do so, the
Declaration of Trust permits it, without the consent of the Shareholders, to
authorize ACPT to issue a class or series that could, depending on the terms of
such class or series, delay, defer or prevent a transaction or a change in
control of ACPT that might involve a premium price for the Common Shares and
might otherwise be in the best interests of the shareholders.
Both the Maryland Trust Law and ACPT's Declaration of Trust provide
that no Shareholder of ACPT will be personally liable for any obligation of ACPT
solely as a result of his status as a Shareholder of ACPT. ACPT's Bylaws further
provide that ACPT shall indemnify each Shareholder against any claim or
liability to which the Shareholder may become subject by reason of his being or
having been a Shareholder or former Shareholder and that ACPT shall pay or
reimburse each Shareholder or former Shareholder for all legal and other
expenses reasonably incurred in connection with any claim or liability.
COMMON SHARES.
All Common Shares offered hereby will be duly authorized, fully paid
and nonassessable. Holders of Common Shares are entitled to receive dividends on
Common Shares if, as and when authorized and declared by the Board of Trustees
of ACPT out of assets legally available therefor. Subject to the preferential
rights of any other class or series of shares of beneficial interest, holders of
Common Shares are entitled to share ratably in the assets of ACPT legally
available for distribution to its Shareholders in the event of its liquidation,
dissolution or winding-up after payment of, or adequate provision for, all known
debts and liabilities of ACPT.
Each outstanding Common Share entitles the holder to one vote on all
matters submitted generally to a vote of Shareholders, including the election of
Trustees. Except as may be provided by the Board of Trustees with respect to any
other class or series of shares of beneficial interest, the holders of such
Common Shares possess the exclusive voting power. There is no cumulative voting
in the election of Trustees, which means that the holders of a majority of the
outstanding Common Shares can elect all of the Trustees then standing for
election and the holders of the remaining Common Shares will not be able to
elect any Trustees.
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Holders of Common Shares have no preference, conversion, sinking fund,
redemption or appraisal rights and have no preemptive rights to subscribe for
any securities of ACPT. All Common Shares have equal dividend, distribution,
liquidation and other rights.
To ensure that American Rental will not fail to qualify as a REIT
under the Code, the Declaration of Trust also authorizes the Trustees to take
such actions as are necessary and desirable to preserve American Rental's REIT
qualification and to limit any person (other than certain current IGC
Unitholders) to direct or indirect ownership of no more than 2% of the
outstanding Common Shares.
PREFERRED SHARES.
The Declaration of Trust authorizes the Board of Trustees to classify
any unissued Preferred Shares and to reclassify any previously classified but
unissued Preferred Shares of any series from time to time in one or more series.
Prior to issuance of shares of each series, the Board of Trustees is required to
set for each such series the terms, the preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption for each such series. ACPT
currently plans to issue Preferred Shares in the Private Offering. See "The
Restructuring -- The Preferred Offering."
TRANSFER AGENT.
The transfer agent and registrar for ACPT's Common Shares and
Preferred Shares is Registrar and Transfer Company.
CERTAIN PROVISIONS OF MARYLAND LAW
AND OF ACPT'S DECLARATION
OF TRUST AND BYLAWS
The following summary of certain provisions of Maryland laws
applicable to ACPT and of the Declaration of Trust and Bylaws of ACPT is subject
to and qualified in its entirety by reference to such laws and to the
Declaration of Trust and Bylaws of ACPT.
CLASSIFICATION OF THE BOARD OF TRUSTEES.
The Declaration of Trust and Bylaws provide that the number of
Trustees of ACPT may be established by the Board of Trustees but may not be
fewer than three nor more than nine. At the completion of the Restructuring, it
is expected there will be seven Trustees. The Board of Trustees may increase or
decrease the number of Trustees by a vote of at least two-thirds of the members
of the Board of Trustees, provided that the number of Trustees shall never be
less than the number required by law and the
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Declaration of Trust and that the tenure of office of a Trustee shall not be
affected by any decrease in the number of Trustees. Any vacancy on the Board of
Trustees, including a vacancy created by an increase in the number of Trustees
(but excluding a vacancy caused by removal of a Trustee by Shareholders), will
be filled by vote of a majority of the remaining Trustees.
Pursuant to the Declaration of Trust, the Board of Trustees is divided
into three classes of Trustees. The initial terms of the first, second and third
class will expire in 1999, 2000 and 2001, respectively. At each succeeding
Annual Meeting of Shareholders beginning in 1999, Shareholders will elect, by a
plurality of all votes entitled to be cast, Trustees for a term of three years
to succeed the Trustees whose terms are expiring. ACPT believes that
classification of the Board of Trustees will help to assure the continuity and
stability of ACPT's business strategies and policies. Holders of Common Shares
will have no right to cumulative voting in the election of Trustees.
The classified board provisions could have the effect of making the
replacement of incumbent trustees more time consuming and difficult. At least
two Annual Meetings of Shareholders, instead of one, will generally be required
to effect a change in a majority of the Board of Trustees. The staggered terms
of Trustees may reduce the possibility of a tender offer or an attempt to change
control of ACPT or other transaction that might involve a premium price for
holders of Common Shares, even though a tender offer, change of control or other
transaction might be in the best interest of the Shareholders.
INDEPENDENT TRUSTEES.
ACPT's Declaration of Trust requires that no fewer than two of the
members of the Board of Trustees must not be employees of ACPT or any affiliated
company or a member of the Wilson Family.
REMOVAL OF TRUSTEES.
The Declaration of Trust provides that a Trustee may be removed for
cause upon the affirmative vote of a majority, and for any reason upon the
affirmative vote of two-thirds, of the votes entitled to be cast in the election
of Trustees. Any vacancy created by removal of a Trustee will be filled by vote
of the Shareholders.
REQUIRED MINIMUM DISTRIBUTIONS.
Under the Declaration of Trust, ACPT is required to make minimum
annual distributions to Shareholders such that the minimum aggregate amount of
all distributions made each year will equal 45% of the net taxable income
allocated to Shareholders in such year, provided that the amount of the required
minimum distribution will be reduced by the amount of taxes paid by ACPT in
Puerto Rico and
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other foreign countries and certain federal taxes paid by American Rental with
respect to undistributed capital gains. The minimum distribution may consist of
cash dividends and/or distributions of other property.
SUPERMAJORITY VOTING.
Generally, a majority of the votes entitled to be cast by Shareholders
is necessary to approve matters submitted to a vote of Shareholders other than
the election of Trustees, which requires a plurality vote. However, ACPT's
Declaration of Trust provides that a vote of two-thirds of all the Shareholder
votes entitled to be cast on the matter is required to approve the following
matters: (a) the revocation of ACPT's election to be taxed as a partnership; (b)
the removal of Trustees other than for cause; (c) the amendment of the
Declaration of Trust; and (d) the dissolution of ACPT. As permitted by the
Maryland Trust Law, the Declaration of Trust contains a provision permitting the
Board of Trustees, without any action by the Shareholders, to amend the
Declaration of Trust to increase or decrease the aggregate number of shares of
beneficial interest or the number of shares of any class of shares of beneficial
interest that ACPT has authority to issue.
BUSINESS COMBINATIONS.
The provisions of the Maryland General Corporation Law (the "MGCL")
governing certain types of business combinations (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer or
issuance or reclassification of equity securities) (a "Business Combination"),
which also apply to real estate investment trusts formed under the Maryland
Trust Law such as ACPT, prohibits certain Business Combinations between a
Maryland investment trust and either (i) any person who beneficially owns,
directly or indirectly, ten percent or more of the voting power of the trust's
shares or is an affiliate of the trust who beneficially owned ten percent or
more of the voting power of the outstanding trust shares within the two-year
period prior to the date in question (an "Interested Shareholder") or (ii) an
affiliate of such an Interested Shareholder for five years after the most recent
date on which the Interested Shareholder became an Interested Shareholder. Any
Business Combination thereafter must be recommended by the board of trustees of
such trust, and approved by the affirmative vote of at least (a) 80% of the
votes entitled to be cast by outstanding voting shares of the trust and (b) two-
thirds of the voting shares entitled to be cast by holders of voting shares of
the trust other than shares held by the Interested Shareholder or an affiliate
of an Interested Shareholder, who will be a party to the Business Combination.
Such recommendation and approval is not necessary where the trust's common
shareholders receive a minimum price per share (as defined in the MGCL) for
their trust shares and the consideration is received in cash or in the same form
as previously paid by the Interested Shareholder for its shares. These
provisions of the MGCL do not apply, moreover, to Business Combinations that are
approved or exempted by a trust's board of trustees prior to the time that the
Interested Shareholder
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becomes an Interested Shareholder. The Business Combination statute permits an
investment trust to elect not to be governed by its provisions. However, ACPT's
Board of Trustees does not intend to elect not to be governed by the Business
Combination provisions of the MGCL.
CONTROL SHARE ACQUISITIONS.
The provisions of the MGCL which govern certain acquisitions of
Control Shares (as defined below), which also apply to real estate investment
trusts formed under the Maryland Trust Law such as ACPT, provides that Control
Shares of a Maryland investment trust acquired in a Control Share Acquisition
(as defined below) have no voting rights except to the extent approved by the
affirmative vote of two-thirds of the shares entitled to vote on the matter,
excluding shares of beneficial interest owned by the acquiror, or by officers or
trustees employed by the trust. "Control Shares" are defined by the MGCL as
voting shares of beneficial interest (which, in the case of ACPT would include
Common Shares) that, if aggregated with all other such shares of beneficial
interest previously acquired by the acquiror or in respect of which the acquiror
is able to exercise or direct the exercise of voting power (except solely by
virtue of a revocable proxy), would entitle the acquiror to exercise voting
power in electing trustees within one of the following ranges of voting power:
(i) one-fifth or more but less than one-third of all voting power, (ii) one-
third or more but less than a majority of all voting power, or (iii) a majority
or more of all voting power. Control Shares include shares of the trust only to
the extent that the acquiror is entitled to exercise or direct the exercise of
voting power. A "Control Share Acquisition" is defined by the MGCL as the
acquisition of Control Shares, subject to certain exceptions.
A person who has made or proposes to make a Control Share Acquisition,
upon satisfaction of certain conditions (including an undertaking to pay
expenses), may compel the Board of Trustees of the trust to call a special
meeting of shareholders to be held within 50 days of the demand to consider the
voting rights of the shares. If no request for a meeting is made, the trust may
itself present the question for consideration at any shareholders meeting.
If voting rights are not approved at the meeting or if the acquiring
person does not deliver an acquiring person statement as required by statute,
then the trust may redeem any or all of the Control Shares (except those for
which voting rights, at its option, previously have been approved) for fair
value determined as of the date of the last Control Share Acquisition by the
acquiror or of a special shareholder meeting held to consider the voting rights
to be accorded such shares, without regard to the absence of voting rights for
the Control Shares. If voting rights for Control Shares are approved at a
shareholders meeting and the acquiror becomes entitled to vote a majority of the
shares entitled to vote, all other shareholders may exercise appraisal rights.
The fair value of the shares as determined for purposes of such appraisal rights
may not be less than the highest price per share paid by the acquiror in the
Control Share Acquisition.
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The Control Share statute does not apply (a) to shares acquired in a
merger, consolidation or share exchange if the trust is a party to the
transaction or (b) to acquisitions approved or exempted by the Declaration of
Trust or Bylaws of the trust.
The Control Share statute permits an investment trust to elect not to
be governed by its provisions. However, ACPT's Board of Trustees does not
intend to elect not be governed by the Control Share provisions of the MGCL. In
addition, the restriction on ownership of Common Shares set forth in ACPT's
Declaration of Trust also would restrict the ability of any person to engage in
a Control Share Acquisition with respect to the Common Shares.
AMENDMENT OF DECLARATION OF TRUST AND BYLAWS.
The Declaration of Trust may only be amended upon the affirmative vote
of two-thirds of all of the votes entitled to be cast on any such proposed
amendment. In addition, the Declaration of Trust may be amended by the Board of
Trustees, without Shareholder approval, to conform the Declaration of Trust to
the Maryland Trust Law. ACPT's Bylaws may be amended or altered exclusively by
the Board of Trustees.
LIMITATION OF LIABILITY AND INDEMNIFICATION.
The Maryland Trust Law permits a Maryland investment trust to include
in its declaration of trust a provision limiting the liability of its trustees
and officers to the trust and its shareholders for money damages except where
(a) it is proved that the person actually received an improper benefit or profit
in money, property or services, or (b) a judgment or other final adjudication
adverse to the person is entered in a proceeding based on a finding material to
the cause of action that the person engaged in active and deliberate dishonesty.
The Declaration of Trust of ACPT contains such a provision that limits liability
to the maximum extent permitted by Maryland law.
The Declaration of Trust and Bylaws of ACPT also obligate it, to the
maximum extent permitted under Maryland law, to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to
(a) any present or former Trustee or officer who is made a party to the
proceeding by reason of his service in that capacity and (b) any individual who,
while a Trustee of ACPT and at the request of ACPT, serves or has served another
investment trust corporation, partnership, joint venture, trust, employee
benefit plan or any other enterprise as a trustee, director, officer or partner
and who is made party to the proceeding by reason of his service in that
capacity, against any claim or liability to which he may become subject by
reason of such status. The Declaration of Trust and Bylaws also permit ACPT to
indemnify and advance expenses to any person who served a predecessor of ACPT in
any of the capacities described above and to any employee or agent of ACPT or a
predecessor of ACPT. The Bylaws require ACPT to indemnify each Trustee or
officer who has been
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successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity.
The Bylaws of ACPT require it, as a condition to advancing expenses,
to obtain (a) a written affirmation by the Trustee or officer of his good faith
belief that he has met the standard of conduct necessary for indemnification by
ACPT as authorized by the Bylaws and (b) a written statement by or on his behalf
to repay the amount paid or reimbursed by ACPT if it shall ultimately be
determined that the standard of conduct was not met.
The Maryland Trust Law permits a Maryland investment trust to
indemnify and advance expenses to its trustees, officers, employees and agents
to the same extent as permitted under the MGCL for directors and officers of
Maryland corporations. The MGCL authorizes a corporation to indemnify its
present and former directors and officers, among others, against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by them
in connection with any proceeding to which they may be made a party by reason of
their service unless it is established that (a) the act or omission was material
to the matter giving rise to the proceeding and (i) was committed in bad faith
or (b) was the result of active and deliberate dishonesty, (b) the director or
officer actually received an improper personal benefit in money, property or
services or (c) the director or officer in the case of any criminal proceeding
had reasonable cause to believe that the act or omission was unlawful. A
Maryland corporation, however, may not indemnify a director or officer for an
adverse judgment in a suit brought by or on behalf of the corporation.
DISSOLUTION OF ACPT.
Pursuant to ACPT's Declaration of Trust, ACPT may be dissolved upon
the affirmative vote of two-thirds of all of the votes entitled to be cast on
such matter.
POSSIBLE ANTITAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
DECLARATION OF TRUST AND BYLAWS.
The Control Share and Business Combination provisions of the MGCL and
the provisions of ACPT's Declaration of Trust relating to classification of the
Board of Trustees, the removal of Trustees, restrictions on ownership of Common
Shares, and the ability of the Board of Trustees to prescribe the terms of and
issue Preferred Shares could have the affect of delaying, deferring or
preventing a transaction or a change in control of ACPT that might involve a
premium price for holders of Common Shares or otherwise be in their best
interest.
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MARYLAND ASSET REQUIREMENTS.
The Maryland Trust Law pursuant to which ACPT was formed requires at
least 75% of the value of ACPT's assets to be held, directly or indirectly, in
real estate assets, mortgages or mortgage related securities, government
securities, cash and cash equivalent items, including high-grade short term
securities and receivables. The Maryland Trust Law also prohibits ACPT from
using or applying land for farming, agricultural, horticultural or similar
purposes.
COMPARATIVE RIGHTS OF IGC UNITHOLDERS AND SHAREHOLDERS
GENERAL.
IGC is a limited partnership formed under the Delaware Act and ACPT is
organized as a real estate investment trust under the Maryland Trust Law that
will be taxable as a partnership. The discussion of the comparative rights of
IGC Unitholders and Shareholders of ACPT set forth below does not purport to be
complete and is subject to and qualified in its entirety by reference to the
Maryland Trust Law, the Delaware Act, the Partnership Agreement of IGC and the
Declaration of Trust and Bylaws of ACPT. Copies of these documents have been
filed as exhibits to the Registration Statement of which this Proxy
Statement/Prospectus is a part.
MANAGEMENT.
The Partnership Agreement of IGC provides that, with certain limited
exceptions, the Managing General Partner of IGC (which currently is IGMC) has
exclusive discretion to manage and control the business and affairs of IGC. The
Managing General Partner may be removed upon the affirmative vote of more than
fifty percent of the IGC Unitholders. The IGC Unitholders do not have any right
to elect the directors of the Managing General Partner.
The Declaration of Trust of ACPT provides that the management and
control of the business and affairs of ACPT are vested in its Board of Trustees
which is elected by the Shareholders. The Declaration of Trust of ACPT provides
for a classified Board consisting of three classes as nearly equal in number as
possible. At each Annual Meeting of Shareholders, one class of Trustees will be
elected for a term of three years. Trustees may be removed for cause upon a
majority vote, and for any reason by a two-thirds vote, of the Shares entitled
to vote in the election of Trustees. Vacancies created by removal will be
filled by Shareholder vote. Any other vacancy will be filled by a majority of
the Board of Trustees remaining in office.
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REQUIRED MINIMUM DISTRIBUTIONS.
Under the Partnership Agreement, IGC generally is required to make
annual distributions in cash or property to IGC Unitholders equal to 55% of the
net taxable income (as defined in the Partnership Agreement) allocated to such
IGC Unitholders for such year.
Under the Declaration of Trust, ACPT is required to make minimum
annual distributions to Shareholders such that the minimum aggregate amount of
all distributions made each year will equal 45% of the net taxable income
allocated to Shareholders in such year, provided that the amount of the required
minimum distribution will be reduced by the amount of taxes paid by ACPT in
Puerto Rico and other foreign countries and certain federal taxes paid by
American Rental with respect to undistributed capital gains. The minimum
distribution may consist of cash dividends and/or distributions of other
property.
VOTING RIGHTS.
Under the Partnership Agreement of IGC, IGC Unitholder approval by
majority vote is required for (i) sale of all or substantially all of the assets
of IGC, (ii) merger or consolidation, and (iii) certain amendments to the
Partnership Agreement, including issuances of additional limited partnership
interests. The Managing General Partner has the exclusive authority to issue
IGC Units without limitation as to amount.
In addition, certain actions including actions that would cause loss
of limited liability, treatment of IGC as a corporation for tax purposes, or,
except in the case of merger or dissolution, delisting of IGC Units from any
national securities exchange require a unanimous vote of IGC Unitholders.
Under the Declaration of Trust of ACPT, Shareholders have voting
rights with respect to (i) termination of partnership tax status, (ii) the
election and removal of Trustees, (iii) amendments of the Declaration of Trust,
(iv) the merger or consolidation of ACPT or the sale of substantially all of
ACPT's assets; and (v) the dissolution of ACPT, and (vi) such other matters with
respect to which the Board of Trustees may deem to require a Shareholder vote.
Each Common Share entitles its holder to cast one vote on all matters presented
generally to the Shareholders.
MEETINGS.
The Partnership Agreement of IGC does not provide for annual meetings
of the IGC Unitholders.
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The Declaration of Trust of ACPT and the Maryland Trust Law require
that an Annual Meeting of Shareholders be duly held. The Bylaws of ACPT also
provide for the calling of special meetings under certain circumstances.
AMENDMENT OF DECLARATION OF TRUST, BYLAWS AND PARTNERSHIP AGREEMENT.
Under the Partnership Agreement, holders of IGC Units representing at
least 10% of the outstanding limited partnership interests may propose
amendments to the Partnership Agreement. Any proposed amendments require a
majority vote, except for amendments which (i) would adversely affect in any
material aspect the rights of the IGC Unitholders to exercise any right granted
to the Assignor Limited Partner by the Delaware Act (such as the right to
maintain a derivative action, the right to exercise voting power, and the right
to inspect and photocopy IGC's books and records) and assigned to the IGC
Unitholders, (ii) would result in the loss of limited liability of the Limited
Partners or IGC Unitholders, (iii) would cause IGC to be treated as an
"association" taxable as a corporation for purposes of federal income taxation,
or (iv) would result in the delisting of the IGC Units by any securities
exchange on which the IGC Units are traded; all of which require unanimous
approval. In addition, any amendment that would reduce the minimum cash
distributions that IGC is required to make must be approved by a two-thirds vote
of IGC Unitholders.
The Declaration of Trust of ACPT may only be amended by the
affirmative vote of two-thirds of the outstanding Common Shares. The Bylaws of
ACPT may be amended exclusively by majority vote of the Board of Trustees.
LIMITED LIABILITY.
Under the Partnership Agreement, unless an IGC Unitholder participates
in the control of the business or in certain other limited circumstances, it
will not be responsible for the liabilities of IGC.
The personal liability of the Shareholders of ACPT is limited to the
fullest extent permitted from time to time by Maryland law. However, certain
jurisdictions may not recognize limitations on personal liability of
Shareholders to the extent such claims are not satisfied by ACPT. The Board of
Trustees believes that any risk of personal liability would generally be limited
to situations in which ACPT's public liability insurance coverage would be
insufficient to satisfy claims.
DISSOLUTION OF THE PARTNERSHIP AND ACPT.
Under the Partnership Agreement, dissolution of IGC requires the
consent of a majority of the IGC Unitholders.
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<PAGE>
Under the terms of the Declaration of Trust of ACPT, the Shareholders
may compel the dissolution of ACPT by the affirmative vote of two-thirds of the
votes entitled to be cast.
LIQUIDATION RIGHTS.
Under the Partnership Agreement, IGC Unitholders share ratably in
accordance with their percentage interests in any assets remaining after
satisfaction of obligations to creditors and any liquidation preferences of
preferred units.
In the event of liquidation of ACPT, the holders of Common Shares
would be entitled to share ratably in any assets remaining after satisfaction of
obligations to creditors and any liquidation preferences on any series of
Preferred Shares that may then be outstanding.
LIMITATIONS OF LIABILITY OF GENERAL PARTNERS AND TRUSTEES.
The Partnership Agreement of IGC sets certain limits on the liability
of the General Partners and their affiliates to IGC and the IGC Unitholders.
The Declaration of Trust of ACPT provides that Trustees shall not be
liable to ACPT or the Shareholders for losses sustained or liabilities incurred
as a result of any acts or omissions of the Board of Trustees if the conduct of
the applicable person did not constitute active and deliberate dishonesty as
adjudicated by a court of competent jurisdiction, or if the Trustee actually
received an improper benefit or profit in money, property or services.
INDEMNIFICATION.
The Partnership Agreement of IGC indemnifies the General Partners and
their affiliates under certain circumstances.
The Declaration of Trust and Bylaws of ACPT provides that ACPT will
indemnify present and former Trustees and officers to the maximum extent
permitted by Maryland law.
OWNERSHIP LIMITATIONS.
There is no limitation on the number of IGC Units that any Unitholder
may own. In order to maintain the REIT status of American Rental, no
Shareholder (except certain existing IGC Unitholders) may own more than 2% of
the outstanding Common Shares.
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<PAGE>
LEGAL MATTERS
The validity of the issuance of the Common Shares being offered hereby
will be passed upon for ACPT by Covington & Burling. The federal income tax
consequences in connection with the Restructuring will be passed upon for ACPT
by Covington & Burling and the Puerto Rico income tax consequences in connection
with the Restructuring will be passed upon for ACPT by Fiddler, Gonzalez &
Rodriguez LLP.
EXPERTS
The combined historical statements of assets and liabilities of ACPP
as of December 31, 1997 and 1996, the related combined historical statements of
operations and cash flows for each of the three years in the period ended
December 31, 1997, included in this Proxy Statement/Prospectus and elsewhere in
the Registration Statement, and the financial statements of IGC incorporated by
reference in this Proxy Statement/Prospectus and elsewhere in the Registration
Statement, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the reports of said firm and upon the authority
of said firm as experts in accounting and auditing in giving said reports.
REPORTS TO SHAREHOLDERS
ACPT will furnish to each Shareholder of record, within 90 days of the
close of each fiscal year, an annual report containing information substantially
as submitted by ACPT to the SEC on its annual report on Form 10-K, including a
report of the activities of ACPT and a statement showing any cash from
operations or proceeds of capital transactions distributed or to be distributed
in respect of such fiscal year. Such annual report also will contain certain
financial statements of ACPT for such fiscal year, including a balance sheet and
statements of income, and changes in financial position, each of which will be
audited by a nationally recognized firm of independent public accountants. In
addition, within 45 days after the end of each fiscal quarter (except the fourth
quarter), ACPT will furnish to each Shareholder of record a quarterly report
containing information substantially as submitted by ACPT to the SEC on its
quarterly report on Form 10-Q, including an unaudited balance sheet and
statements of income and changes in financial position. Each such annual and
quarterly report also will include a statement setting forth (i) any
transactions between IGC and ACPT, or any affiliate of either of them; (ii) the
amount of any fees, commissions, compensation and other remuneration paid or
accrued to ACPT; and (iii) a description of any services rendered to IGC by
ACPT, or any affiliate of either of them. The financial information contained
in all such reports will be prepared on the accrual basis of accounting in
accordance with generally accepted accounting principles and, where appropriate,
will include a reconciliation to information furnished to Shareholders for tax
purposes.
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<PAGE>
Within 75 days after the close of each taxable year, ACPT will furnish to
each Shareholder of record information required for federal and state income tax
reporting purposes. Such information will be furnished in summary form so that
certain complex calculations normally required of partners can be avoided.
ACPT's ability to furnish such summary information may depend on the cooperation
of Shareholders in supplying certain information to ACPT.
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<PAGE>
GLOSSARY
The meanings of certain capitalized and specialized terms used in this
Prospectus are set forth below. Terms defined in the singular form shall
similarly refer to the plural and vice versa.
"1997 Act" means the Taxpayer Relief Act of 1997.
"ACM" means asbestos-containing materials.
"ACPP" means American Community Portfolio Properties, which, for
purposes of the audited combined historical financial statements included
herein, refers to the assets, liabilities and operations that will be
transferred to ACPT in the Restructuring.
"ACPT" means American Community Properties Trust, a Maryland real
estate investment trust formed under the Maryland Trust Law.
"ACPT Average" means the average closing price of ACPT Common Shares
on the AMEX for the 20 trading days immediately following, but not including,
the Distribution Date.
"ACPT Options" means options to purchase a ACPT Common Shares under
the Share Incentive Plan.
"ADA" means the Americans with Disabilities Act of 1990.
"Affiliate Shareholder" means any holder of more than 2% of the Common
Shares of ACPT.
"AFH" means American Family Homes, LLC, a Delaware limited liability
company.
"American Housing" means American Housing Properties, L.P., a Delaware
limited partnership.
"American Land" means American Land Development US, Inc., a Maryland
corporation.
"American Management" means American Rental Management Company, a
Delaware corporation and the property manager for the properties owned by
American Rental.
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<PAGE>
"American Rental" means American Rental Properties Trust, a Maryland
real estate investment trust.
"AMEX" means the American Stock Exchange.
"Appeals Court" means the U.S. Court of Appeals for the Fourth
Circuit.
"Asset Transfers" means the transfers of IGC's principal real estate
operations and assets to ACPT.
"Banc One" means Banc One Capital Partners IV, Ltd.
"Brick House" means Brick House Realty, Inc.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Common Shares" means the common shares of beneficial interest of
ACPT.
"Consulting Agreement" means the consulting agreement by and between
American Management and James J. Wilson.
"County" means Charles County, Maryland.
"County Commissioners" means the County Commissioners of Charles
County, Maryland.
"CWT" means Caribe Waste Technologies, Inc.
"CWT Trust" means the trust holding the common stock of IWT and CWT
for the benefit of IGC Unitholders.
"Delaware Act" means the Delaware Revised Uniform Limited Partnership
Act.
"Distribution" means the distribution of all of the Common Shares of
ACPT to the partners of IGC including the IGC Unitholders.
"Distribution Agent" means Registrar and Transfer Company.
"Distribution Date" means the date on which ACPT will issue to IGC
sufficient Common Shares of ACPT to enable IGC to make the Distribution.
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<PAGE>
"District Court" means the U.S. District Court for the District of
Maryland.
"EDGAR" means the Commission's Electronic Data Gathering and Retrieval
program.
"EMC" means Equus Management Company.
"Employment Agreements" means the employment agreements by and between
American Management and each of Edwin Kelly, Francisco Arrivi, and Paul Resnick.
"Equus" means Equus Gaming Company L.P., a Virginia limited
partnership.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations thereunder.
"Escorial Builders" means Escorial Builders Associates S.E., a Puerto
Rico partnership principally engaged in the construction of condominiums.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"FHA" means the Federal Housing Administration.
"FIRPTA" means the Foreign Investment in Real Property Tax Act of
1980.
"Gatewood" means the Gatewood Company, Inc.
"Hooper" means James B. Hooper, P.A.
"HUD" means the United States Department of Housing and Urban
Development.
"IBC" means Interstate Business Corporation, a Delaware corporation
and a general partner of IGC.
"IGC" means Interstate General Company, L.P., a Delaware limited
partnership.
"IGC Average" means the average closing sale price of IGC Units on the
principal exchange on which they are traded, or, if not traded on an exchange,
in the
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<PAGE>
over-the-counter-market, for the 20 trading days immediately following, but not
including, the Distribution Date.
"IGC Options" means options to purchase a ACPT Common Shares under the
Trustee Share Plan.
"IGC Unit" means a Class A unit of beneficial interest in IGC.
"IGC Unitholder" means a holder of IGC Units.
"IGMC" means Interstate General Management Corporation, a Delaware
corporation and the managing general partner of IGC.
"IGP" means Interstate General Properties Limited Partnership, S.E., a
Maryland limited partnership.
"IGP Group" means Interstate General Corp.
"Independent Trustees" means members of the Board of Trustees of ACPT
who are not employees of ACPT or any affiliated company or members of the Wilson
Family.
"IRS" means the Internal Revenue Service.
"IWT" means Interstate Waste Technologies, Inc., a Delaware
corporation.
"LDA" means Land Development Associates S.E., a Puerto Rico
partnership.
"LDA Note" means the $6.77 million note payable by LDA in favor of
IGC.
"LIHPRHA" means the Low Income Housing Preservation and Resident
Homeownership Act of 1990.
"Majority Vote" means the vote or consent of the holders of IGC Units
representing a majority of all issued and outstanding IGC Units entitled to
vote.
"Management" means the management of IGC.
"Maryland Cable" means Maryland Cable Limited Partnership.
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<PAGE>
"Maryland Trust Law" means Article 8 of the Maryland Corporations and
Associations Law.
"McClosky Associates" means Robert F. McClosky Associates.
"MGCL" means Maryland General Corporation Law.
"NBV" means the NBValuation Group, Inc.
"Ownership Limit" shall mean 2% of the outstanding Common Shares of
ACPT.
"Parque Escorial" means the planned community of Parque Escorial
located approximately six miles from the central business district in San Juan,
Puerto Rico.
"Plan" means a pension, profit-sharing, employee benefit, or
retirement plan, or individual retirement account under ERISA.
"Plan Asset Regulations" means regulations of the Department of Labor
that define the assets of a Plan under ERISA.
"Planning Commission" means the Charles County Planning Commission.
"Preferred Shares" means preferred shares of beneficial interest in
ACPT.
"Private Offering" shall have the meaning set forth on page 45 of the
document.
"PUD" means planned unit development.
"Puerto Rico Apartment Partnerships" means the 9 Puerto Rico apartment
partnerships in which IGP holds partnership interests.
"Puerto Rico Code" means the Puerto Rico Internal Revenue Code of
1994.
"Puerto Rico Counsel" means the law firm of Fiddler, Gonzalez &
Rodriguez, LLP.
"Record Date" means ____, 1998.
"Registration Statement" means the Form S-4 Registration Statement
filed by ACPT with the Commission.
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<PAGE>
"Regulations" means Regulations of the Treasury Department
interpreting the Code.
"REIT" means a real estate investment trust within the meaning of
Section 856 of the Code.
"Restructuring" means the series of transactions constituting the
Asset Transfers and the Distribution.
"Retained Assets" means the Wetlands Properties, the LDA Note, all of
the shares of AFH, 14 acres of commercial land in St. Charles, 26 single family
home lots in the Dorchester neighborhood, an indirect 50% interest in Brandywine
Investment Associates L.P., which owns land in Brandywine, Maryland, a 100%
interest in Pomfret LLC, which owns land in Pomfret, Maryland, the Westbury
land, fractional interests in Chastleton and Coachman's L.P., and the beneficial
interest in the CWT Trust.
"Retirement Plan" means the IGC retirement savings plan currently in
effect.
"SCA" means St. Charles Associates Limited Partnership.
"Securities Act" means the Securities Act of 1933, as amended, and
applicable regulations thereunder.
"Share Incentive Plan" means the 1997 ACPT Share Incentive Plan
providing Common Share-based incentive compensation for ACPT officers and key
employees.
"Smail" means Smail Associates, Inc.
"St. Charles" means the planned community in Charles County, Maryland,
that has been under development by IGC and its predecessors since 1968.
"Stanger" means Robert A. Stanger & Co.
"State Finance Agencies" means the FHA, or housing finance agencies in
Puerto Rico, Washington, D.C., Virginia or Maryland.
"Strike Price" means $3.0016 per IGC Unit.
"Trustee Share Plan" means the 1997 ACPT Trustee Share Incentive Plan
to provide Common Share-based incentive compensation for ACPT Trustees.
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<PAGE>
"U.S. Apartment Partnerships" means the 13 investment apartment
properties in which IGC holds partnership interests that will be transferred to
American Rental under the Restructuring.
"U.S. Attorney" means the U.S. Attorney for the District of Maryland.
"Wetlands" means (following the definition in the U.S. Army Corps of
Engineers regulations) areas saturated by surface or ground water sufficient to
support vegetation typically adapted for life in saturated soil conditions.
Wetlands generally include swamps, marshes, bogs and similar areas.
"Wetlands Properties" means those IGC properties that are the subject
of litigation with the federal government concerning violations of the Clean
Water Act.
"Whitman Requardt" means Whitman Requardt Associates LLP.
"Wilson Family" means collectively J. Michael Wilson; Thomas B.
Wilson; Kevin Wilson; Elizabeth Weber; Mary Pat Wilson; Brian Wilson; James J.
Wilson; Barbara A. Wilson; Interstate Business Corporation; Wilson Securities
Corporation; and Wilson Family Limited Partnership.
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<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Owners of
American Community Portfolio Properties:
We have audited the accompanying combined historical statements of assets
and liabilities (defined in Note 1 and referred to as "American Community
Portfolio Properties") to be transferred by Interstate General Company L.P. and
subsidiaries to American Community Properties Trust (a newly formed investment
trust that intends to be taxed as a partnership) and subsidiaries as of December
31, 1997 and 1996, and the related combined historical statements of operations
and cash flows for each of the three years in the period ended December 31,
1997. These combined historical financial statements are the responsibility of
the management of American Community Portfolio Properties. Our responsibility
is to express an opinion on these combined historical financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The accompanying combined historical financial statements were prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the registration statement on Form S-4 of
American Community Properties Trust), as described in Note 1, and are not
intended to be a complete presentation of the financial position, results of
operations or cash flows of Interstate General Company L.P. and affiliated
entities or American Community Properties Trust.
In our opinion, the combined historical financial statements referred to
above present fairly, in all material respects, the financial position of
American Community Portfolio Properties as of December 31, 1997 and 1996, and
the results of its operations and its cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Washington, D.C.
June 26, 1998
F-1
<PAGE>
AMERICAN COMMUNITY PORTFOLIO PROPERTIES
COMBINED HISTORICAL STATEMENTS OF OPERATIONS OF ASSETS
AND LIABILITIES TO BE TRANSFERRED TO
AMERICAN COMMUNITY PROPERTIES TRUST AND SUBSIDIARIES
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------ ------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES
Community development-land sales
to non-affiliates $ 5,961 $ 1,449 $ 10,060 $ 3,608 $ 11,333
to affiliates -- 70 3,105 10,066 4,108
Equity in earnings from partnerships
and developer fees 505 398 1,509 16,585 2,514
Rental property revenues 2,209 2,158 8,737 7,577 4,642
Management and other fees, substantially
all from related entities 976 1,343 3,775 4,816 3,894
Interest and other income 137 143 943 982 693
------- ------- -------- ------- --------
Total revenues 9,788 5,561 28,129 43,634 27,184
------- ------- -------- ------- --------
EXPENSES
Cost of land sales 3,608 970 8,494 9,378 7,801
Selling and marketing 21 15 127 226 131
General and administrative 1,600 1,530 6,607 6,810 6,769
Interest expense 910 961 3,820 4,433 4,263
Rental properties operating expense 896 835 3,597 3,245 1,695
Depreciation and amortization 471 470 1,850 1,726 841
Write-off of deferred project costs -- 5 6 321 --
Spin-off costs 757 -- 1,164 -- --
------- ------- -------- ------- --------
Total expenses 8,263 4,786 25,665 26,139 21,500
------- ------- -------- ------- --------
INCOME BEFORE PROVISION FOR INCOME
TAXES AND MINORITY INTEREST 1,525 775 2,464 17,495 5,684
PROVISION FOR INCOME TAXES 283 60 470 3,424 1,369
------- ------- -------- ------- --------
INCOME BEFORE MINORITY INTEREST 1,242 715 1,994 14,071 4,315
MINORITY INTEREST (241) (94) (600) (444) (511)
------- ------- -------- ------- --------
INCOME BEFORE EXTRAORDINARY ITEM 1,001 621 1,394 13,627 3,804
EXTRAORDINARY ITEM-EARLY
EXTINGUISHMENT OF DEBT -- -- -- (932) --
------- ------- -------- ------- --------
NET INCOME $ 1,001 $ 621 $ 1,394 $12,695 $ 3,804
======= ======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these combined historical
statements.
F-2
<PAGE>
AMERICAN COMMUNITY PORTFOLIO PROPERTIES
COMBINED HISTORICAL STATEMENTS OF ASSETS
AND LIABILITIES TO BE TRANSFERRED TO
AMERICAN COMMUNITY PROPERTIES TRUST AND SUBSIDIARIES
(In thousands)
A S S E T S
-----------
<TABLE>
<CAPTION>
March 31, December 31,
----------- ------------------
1998 1997 1996
----------- -------- --------
(unaudited)
<S> <C> <C> <C>
CASH AND CASH EQUIVALENTS
Unrestricted $ 2,126 $ 2,127 $ 2,143
Restricted 2,002 374 895
-------- -------- --------
4,128 2,501 3,038
-------- -------- --------
ASSETS RELATED TO RENTAL PROPERTIES
Operating properties, net of accumulated
depreciation of $21,707, $21,392 and $20,658,
as of March 31, 1998, December 31, 1997 and 1996,
respectively 38,174 38,143 39,533
Investment in unconsolidated rental property
partnerships 7,015 8,657 11,693
Other receivables, net of reserves of $285, $223 and $52
as of March 31, 1998, December 31, 1997
and 1996, respectively 665 621 785
--------- -------- --------
45,854 47,421 52,011
--------- -------- --------
ASSETS RELATED TO COMMUNITY DEVELOPMENT
Land and development costs
Puerto Rico 32,202 34,268 35,068
St. Charles, Maryland 22,437 21,750 21,043
Other United States locations -- -- 1,636
Notes receivable on lot sales and other,
substantially all due from affiliates 3,604 5,629 5,253
--------- -------- --------
58,243 61,647 63,000
--------- -------- --------
ASSETS RELATED TO HOMEBUILDING
Investment in joint venture 853 591 275
--------- -------- --------
OTHER ASSETS
Receivables and other 1,782 2,514 1,765
Property, plant and equipment, less accumulated
depreciation of $1,615, $1,675 and $1,770 as of
March 31, 1998, December 31, 1997 and 1996,
respectively 423 448 487
--------- -------- --------
2,205 2,962 2,252
--------- -------- --------
TOTAL ASSETS $111,283 $115,122 $120,576
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these combined historical
statements.
F-3
<PAGE>
AMERICAN COMMUNITY PORTFOLIO PROPERTIES
COMBINED HISTORICAL STATEMENTS OF ASSETS
AND LIABILITIES TO BE TRANSFERRED TO
AMERICAN COMMUNITY PROPERTIES TRUST AND SUBSIDIARIES
(In thousands)
LIABILITIES AND CAPITAL
-----------------------
<TABLE>
<CAPTION>
March 31, December 31,
--------- --------------------
1998 1997 1996
--------- ------ ------
(unaudited)
<S> <C> <C> <C>
LIABILITIES RELATED TO RENTAL PROPERTIES
Recourse debt $ 918 $ 969 $ 1,139
Non-recourse debt 38,995 39,101 39,508
Accounts payable and accrued liabilities 3,067 2,779 2,217
-------- -------- --------
42,980 42,849 42,864
-------- -------- --------
LIABILITIES RELATED TO COMMUNITY DEVELOPMENT
Recourse debt 34,128 39,784 38,943
Non-recourse debt 2,324 2,295 2,153
Accounts payable, accrued liabilities
and deferred income 4,444 5,100 4,678
-------- -------- --------
40,896 47,179 45,774
-------- -------- --------
OTHER LIABILITIES
Accounts payable and accrued liabilities 3,467 3,246 2,676
Notes payable and capital leases 145 173 157
Accrued income tax liability - current 2,452 1,539 3,976
Accrued income tax liability - deferred 3,491 4,120 5,041
-------- -------- --------
9,555 9,078 11,850
-------- -------- --------
TOTAL LIABILITIES 93,431 99,106 100,488
-------- -------- --------
CAPITAL 17,852 16,016 20,088
-------- -------- --------
TOTAL LIABILITIES AND CAPITAL $111,283 $115,122 $120,576
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined historical
statements.
F-4
<PAGE>
AMERICAN COMMUNITY PORTFOLIO PROPERTIES
COMBINED HISTORICAL STATEMENTS OF CASH FLOWS OF ASSETS
AND LIABILITIES TO BE TRANSFERRED TO
AMERICAN COMMUNITY PROPERTIES TRUST AND SUBSIDIARIES
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
----------------- ------------------------------
1998 1997 1997 1996 1995
-------- ------- -------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,001 $ 621 $ 1,394 $ 12,695 $ 3,804
Adjustments to reconcile net income
to net cash provided by
operating activities:
Extraordinary item -- -- -- 932 --
Depreciation and amortization 471 470 1,850 1,726 841
(Benefit) provision for deferred income taxes (629) 93 (920) 419 646
Equity in earnings from unconsolidated
partnerships and developer fees (243) (419) (1,417) (16,660) (2,514)
Distributions from
unconsolidated partnerships 1,750 331 5,155 15,574 980
Cost of sales-community development 3,608 970 8,494 9,378 7,801
Equity in (earnings) loss from homebuilding
joint venture (262) 21 (92) 75 --
Write-off of deferred project costs -- 5 6 321 --
Changes in notes and accounts
receivable 2,422 (860) (186) (3,065) (1,738)
Changes in accounts payable,
accrued liabilities and deferred
income 766 251 (884) 5,059 (358)
------- ------ ------- -------- --------
Net cash provided by operating activities 8,884 1,483 13,400 26,454 9,462
------- ------ ------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in land development for future sales (2,229) (335) (6,764) (10,658) (15,066)
Change in assets related to unconsolidated
rental property partnerships 135 36 (708) (84) 555
Change in restricted cash (1,628) (125) 521 1,150 3,588
(Additions to) dispositions of rental
operating properties (458) (257) 141 (1,275) 658
Dispositions (acquisitions) of other assets, net 272 534 (1,338) (117) (746)
Contributions to homebuilding joint venture -- (224) (224) (100) (250)
Acquisition of rental property partnership
interests -- -- -- -- (170)
------- ------ ------- -------- --------
Net cash used in investing activities (3,908) (371) (8,372) (11,084) (11,431)
------- ------ ------- -------- --------
</TABLE>
The accompanying notes are an integral part of these combined historical
statements.
F-5
<PAGE>
AMERICAN COMMUNITY PORTFOLIO PROPERTIES
COMBINED HISTORICAL STATEMENTS OF CASH FLOWS OF ASSETS
AND LIABILITIES TO BE TRANSFERRED TO
AMERICAN COMMUNITY PROPERTIES TRUST AND SUBSIDIARIES (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
---------------------- -------------------------------
1998 1997 1997 1996 1995
---- ---- ------- ------- -------
(unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Cash (payments on) proceeds from debt
financing, net (5,812) (1,509) 422 (10,809) 5,040
Cash distributions to Unitholders -- -- -- (1,140) --
Cash contributions from (distributions to) IGC, net 835 (742) (5,745) (4,660) (938)
Issuance of warrants -- -- 279 -- --
Exercise of employee IGC Unit options -- -- -- -- 171
------- ------- ------- -------- ------
Net cash (used in) provided by
financing activities (4,977) (2,251) (5,044) (16,609) 4,273
------- ------- ------- -------- ------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (1) (1,139) (16) (1,239) 2,304
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD 2,127 2,143 2,143 3,382 1,078
------- ------- ------- -------- ------
CASH AND CASH EQUIVALENTS
END OF PERIOD $ 2,126 $ 1,004 $ 2,127 $ 2,143 $3,382
======= ======= ======= ======== ======
</TABLE>
The accompanying notes are an integral part of these combined historical
statements.
F-6
<PAGE>
AMERICAN COMMUNITY PORTFOLIO PROPERTIES
NOTES TO COMBINED HISTORICAL FINANCIAL STATEMENTS OF ASSETS
AND LIABILITIES TO BE TRANSFERRED TO
AMERICAN COMMUNITY PROPERTIES TRUST AND SUBSIDIARIES
(1) ORGANIZATION AND BASIS OF PRESENTATION
Interstate General Company L.P. ("IGC") was formed as a Delaware limited
partnership in 1986. Directly and through predecessors, IGC has been engaged in
business since 1957. IGC has traded publicly as a master limited partnership
since February 1987 on the American Stock Exchange and Pacific Stock Exchange.
Company Management and the Board of Directors of IGC's Managing General Partner
are presently undertaking steps to restructure IGC.
IGC is a diversified real estate organization specializing in community
development, investment apartment properties, property management services and
homebuilding. IGC owns and participates in these operations directly and
through the following subsidiaries: Interstate General Properties, S.E.
("IGP"); St. Charles Associates Limited Partnership ("SCA"); Land Development
Associates, S.E. ("LDA"); and American Family Homes, Inc. ("AFH"). IGC's assets
and operations are concentrated primarily in the metropolitan areas of
Washington, D.C. and San Juan, Puerto Rico. Additionally, its homebuilding
operations are active in Virginia, North Carolina and South Carolina. Through
its wholly owned subsidiary Interstate Waste Technologies, Inc. ("IWT"), IGC is
involved in the pre-development of municipal waste treatment facilities.
American Community Properties Trust ("ACPT"), American Rental Properties
Trust ("American Rental"), American Rental Management Company ("American
Management"), American Land Development U.S., Inc. ("American Land") and
Interstate General Properties Group, S.E. ("IGP Group") are or will be formed to
carry out the restructuring of IGC. These entities and their subsidiaries
collectively represent American Community Portfolio Properties ("ACPP"). IGC
expects to transfer its principal operations to ACPT and distribute to the
partners of IGC, including its Unitholders, all the common shares of ACPT (the
"Restructuring"). Due to these companies being commonly controlled entities,
the transfers to ACPT will occur at book value.
ACPT is a Maryland real estate investment trust that is expected to be
taxed as a partnership. It is a self-managed holding company that owns all of
the outstanding equity interests in American Management, American Land, and IGP
Group and all of the common stock of American Rental.
American Rental.
- ---------------
IGC expects to transfer to American Rental its partnership interests in
United States investment properties and its land in the United States presently
intended for development as apartment properties. The partnership interests in
13 investment apartment properties ("U.S. Apartment Partnerships") will be held
by American Rental indirectly through American Housing Properties L.P.
("American Housing"), a Maryland partnership, in which American Rental will have
a 99% limited partner interest and American Housing Management Company, a wholly
owned subsidiary of American Rental, will have a 1% general partner interest.
The transfer of the general partner interest in five partnerships requires
limited partner approval which is not expected to be obtained prior to the
Restructure. Therefore, IGC has assigned to ACPT beneficial ownership in these
partnerships ACPT has agreed to indemnify IGC against any losses it may suffer
as a result of being the general partner and IGC will be obligated to remit
to
F-7
<PAGE>
ACPT any cash received from these five partnerships. To avoid termination of the
partnership for tax purposes, sixty percent of the general partners' interest in
four additional partnerships will not be transferred to ACPT until twelve months
and one day after the date of Restructure. Where control does not exist the cost
method of accounting will be used.
American Management.
- -------------------
IGC expects to transfer to American Management its United States property
management operations. The United States property management operations provide
management services for the United States apartment properties and for other
rental apartments not owned by IGC.
American Land.
- -------------
IGC expects to transfer to American Land its principal United States
property assets and operations. These will include the following:
1. A 100% interest in St. Charles Community LLC which holds 4,500 acres
of land in St. Charles, Maryland. This constitutes all of the land
formerly held by SCA, a partnership in which IGC holds a 99%
partnership interest and Interstate Business Corporation ("IBC") holds
a 1% partnership interest, except for a 50% interest in Brandywine
Investment Associates L.P., which holds 277 acres of land held for
development in Brandywine, Maryland, that will continue to be held by
SCA. IGC also will retain Parcel A-3 in Dorchester, a neighborhood in
St. Charles, 26 remaining single-family lots in Dorchester and an 800
acre tract held for development in Pomfret, Maryland, 90 acres and 27
acres, respectively, in the communities of Montclair and Westbury and
the Wetlands Properties.
2. A 41.0346% interest in Maryland Cable Limited Partnership which holds
receivables from the 1988 sale of IGC's cable television assets.
3. The Class B IGP interest that represents IGP's rights to income, gains
and losses associated with land in Puerto Rico held by LDA and
designated for development as saleable property.
IGP Group.
- ---------
IGC expects to transfer to IGP Group its entire 99% limited partnership
interest and 1% general partner interest in Interstate General Properties
Limited Partnership S.E., a Maryland partnership ("IGP") other than the Class B
IGP interest to be held by American Land. IGP's assets and operations will
continue to include:
1. an 80% partnership interest in LDA, a Puerto Rico special partnership,
which holds 312 acres of land in the planned community of Parque
Escorial and 543 acres of land in Canovanas;
2. a 50% partnership interest in Escorial Builders Associates S.E.
("Escorial Builders"), which is engaged in the construction of
condominiums in the planned community of Parque Escorial;
F-8
<PAGE>
3. a 1% interest in El Monte Properties S.E., a Puerto Rico special
partnership which owns El Monte Mall Complex, a 169,000 square foot
office complex in San Juan, Puerto Rico; and
4. general partner interests in 11 Puerto Rico apartment partnerships.
After these asset transfers have been completed, IGC expects to distribute
all of the outstanding common shares of ACPT to the general and limited partners
(including Unitholders) of IGC pro rata in accordance with their percentage
interest in IGC (the "Distribution"). Unitholders in the aggregate will receive
99% of ACPT's common shares.
BASIS OF PRESENTATION
- ---------------------
The accompanying historical financial statements of ACPP have been
presented on a combined historical cost basis because of affiliated ownership,
common management and because assets and liabilities of IGC are expected to be
transferred to ACPT, a newly formed entity with no prior operations. IGC's
historical basis in the assets and liabilities of ACPP has been carried over to
the combined historical financial statements. Certain assets and liabilities of
IGC will not be contributed to ACPP and, therefore, these financial statements
are not intended to represent the financial positions and results of operations
of IGC or any entity included therein. In management's opinion, these financial
statements include the assets, liabilities, revenues and expenses associated
with the portions of IGC intended to be transferred to ACPT. All significant
intercompany balances and transactions have been eliminated in the presentation.
Changes in the capital account represent the net income of ACPP, the exercise of
employee and director options, asset transfers less cash distributions to
Unitholders and net cash (distributions to) contributions from IGC.
The combined historical financial statements include the accounts of ACPP
and its majority owned partnerships and subsidiaries, after eliminating
intercompany transactions. All of the entities included in the combined
historical financial statements are hereinafter referred to collectively as the
"Company" or "ACPP". As of December 31, 1997, the combined group includes ACPT,
American Rental, American Management, American Land and IGP Group. The
following entities are consolidated with American Rental: Lancaster Apartments
Limited Partnership, New Forest Apartments Partnership, Fox Chase Apartments
General Partnership, Palmer Apartments Associates Limited Partnership, Headen
House Associates Limited Partnership, Wakefield Terrace Associates Limited
Partnership and Wakefield Third Age Associates Limited Partnership.
F-9
<PAGE>
An analysis of the activity in the capital account for each of the three
years ended December 31, 1997 is as follows (in thousands):
<TABLE>
<S> <C>
Balance, December 31, 1994 $10,176
Net income 3,804
Employee and director IGC Unit options exercised 171
Cash (distributions to) contributions from IGC, net (938)
--------
Balance, December 31, 1995 $13,213
Net income 12,695
Exchange of assets between Company and Unitholder (20)
Cash distributions to Unitholders (1,140)
Cash (distributions to) contributions from IGC, net (4,660)
--------
Balance, December 31, 1996 $20,088
Net income 1,394
Issuance of warrants 279
Cash (distributions to) contributions from IGC, net (5,745)
--------
Balance, December 31, 1997 $16,016
========
</TABLE>
Certain general and administrative costs of IGC are allocated to ACPP,
principally based on IGC's specific identification of individual cost items and
otherwise based upon estimated levels of effort devoted by its general and
administrative departments to individual entities or relative measures of size
of the entities based on assets or operating profit. Such allocated amounts are
included in general and administrative expenses. In the opinion of management,
the methods for allocating corporate general and administrative expenses and
other direct costs are reasonable. It is not practicable to estimate the costs
that would have been incurred by ACPP if it had been operated on a stand-alone
basis. ACPP has estimated that the general and administrative annual expense
levels would increase approximately $130,000 annually after the Restructuring.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies is as follows:
Sales and Profit Recognition and Cost Capitalization
----------------------------------------------------
Community development land sales are recognized at closing only when
sufficient down payments have been obtained, possession and other attributes of
ownership have been transferred to the buyer, and ACPP has no significant
continuing involvement.
The costs of acquiring and developing land are allocated to these assets
and charged to cost of sales as the related inventories are sold. ACPP's
interest costs related to land assets are allocated to these assets based on
their development stage and relative book value. The portion of interest
allocated to land during
F-10
<PAGE>
the development and construction period is capitalized. Remaining interest
costs are expensed. ACPP carries rental properties, land and development costs
at the lower of cost or net realizable value.
Quarterly, ACPP evaluates the carrying value of its long-lived assets in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." In cases where management
is holding for sale particular properties, ACPP assesses impairment based on
whether the net realizable value (estimated sales price less costs of disposal)
of each individual property to be sold is less than the net book value. A
property is considered to be held for sale when ACPP has made the decision to
dispose of the property. Otherwise, ACPP assesses impairment of its real estate
properties based on whether it is probable that undiscounted future cash flows
from each individual property will be less than its net book value. If a
property is impaired, its basis is adjusted to its fair market value.
SELLING AND MARKETING EXPENSES
------------------------------
Selling and marketing expenses consist primarily of advertising costs,
which include costs of printed materials, signs, displays, and general marketing
costs. These costs are expensed as incurred.
MANAGEMENT FEES
---------------
ACPP records management fees in the period in which services are rendered.
DEPRECIATION AND AMORTIZATION
-----------------------------
Buildings are depreciated over 35 to 40 years using the straight-line
method. Furniture, fixtures and equipment are depreciated over five to seven
years using the straight-line method. Deferred expenses are amortized over the
period of estimated benefit using the straight-line method.
INVESTMENT IN RENTAL PROPERTY PARTNERSHIPS
------------------------------------------
ACPP's investment in rental property partnerships consists of long-term
receivables, nominal capital contributions, working capital loans and ACPP's
share of unconsolidated partnership income and losses. The working capital
loans receive priority distributions from the cash flow generated from the
operations of the partnerships. The long-term receivables represent loans to
the partnerships for payment of construction and development costs in excess of
the project mortgages. Substantially all of the long-term receivables are non-
interest bearing and have been discounted at an effective rate of 14% based on
the projected maturity date which will occur upon the refinancing, sale or other
disposition of the partnerships' properties. The discount, which represents
deferred sponsor and developer fees, is netted in the combined historical
financial statements against the long-term receivables.
Certain partnerships are accumulating cash from operations in excess of the
maximum distribution amounts permitted by U.S. Department of Housing and Urban
Development ("HUD") and other regulatory authorities. This cash, accumulated in
restricted cash accounts, will be available to pay the long-term receivables due
to ACPP and to make cash distributions to ACPP and the limited partners when the
partnerships' projects are refinanced or sold.
Pursuant to the partnership agreements, the general partners of the
unconsolidated partnerships are prohibited from selling or refinancing the
apartment complexes without majority limited partner approval.
F-11
<PAGE>
Due to the absence of control and non-majority ownership, these partnerships are
accounted for under the equity method of accounting. For those partnerships
which ACPP does not have control, the cost method of accounting will be used.
CASH AND CASH EQUIVALENTS
-------------------------
Cash and cash equivalents include cash on hand, unrestricted deposits with
financial institutions and short-term investments with original maturities of
three months or less.
INCOME TAXES
------------
ACPP does not expect to be subject to U.S. income taxes under current law.
Its Unitholders are expected to be taxed directly on their share of ACPP's
income. Subsequent to the completion of the Distribution, American Land and
American Management are expected to be subject to tax at the applicable
corporate rates. American Rental, which expects to qualify as a real estate
investment trust, does not expect to be subject to tax under current law.
Furthermore, IGP is expected to be subject to Puerto Rico income tax on its
Puerto Rico source income.
The combined historical financial statements of ACPP have been presented
without effect for income taxes of American Land, American Management and
American Rental because IGC is not currently subject to U.S. income tax on its
U.S. source income.
USE OF ESTIMATES
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
----------------------------------------------
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings Per Share", which is effective for fiscal years ending after
December 15, 1997, including interim periods. ACPP adopted SFAS No. 128 in the
fourth quarter of 1997 and the impact was not significant.
During 1997, ACPP adopted the provisions of SFAS No. 129 "Disclosure of
Information about Capital Structure." The adoption of SFAS No. 129 did not have
a material effect on ACPP's financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130
"Reporting Comprehensive Income", which is effective for fiscal years beginning
after December 15, 1997. The statement establishes standards for reporting and
display of comprehensive income and its components. ACPP plans to adopt SFAS
No. 130 in 1998 and the impact is not expected to be significant.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information", which is
effective for fiscal years beginning after December 15, 1997. ACPP plans to
adopt SFAS No. 131 in 1998.
F-12
<PAGE>
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits."
The statement revises employers' disclosures about pension and other
postretirement benefit plans and is effective for fiscal years beginning after
December 15, 1997. ACPP plans to adopt SFAS No. 132 in 1998 and the impact is
not expected to be significant.
(3) FINANCING AND CASH MANAGEMENT MATTERS
ACPP has historically met its liquidity requirements principally from cash
flow generated from home and land sales, property management fees, distributions
from residential rental partnerships and from bank financing providing funds for
development and working capital.
Over the past several years, cash flows have been constrained because of
the terms of its existing debt agreements and the reluctance of new lending
opportunities as a result of the Wetlands litigation (see Note 6). As a result,
substantially all of the cash generated has been used to pay debt service
requirements with existing lenders. This resulted in limited opportunities for
new construction and development. The recently closed Banc One financing
provided funding to commence construction in Fairway Village, the third village
in St. Charles, and will allow ACPP to retain a greater portion of its U.S. land
sales proceeds. ACPP currently has other development projects in various stages
of completion. Substantially all of the projects under construction have
sufficient development loans in place to complete the construction.
ACPP's principal demands for liquidity are expected to be the continued
funding of its current debt service and operating requirements. After the
Distribution, management expects to obtain additional funding which can be used
to fund new community development projects. There is no assurance that
sufficient funding will be obtained to meet its future debt service or other
operating cash flow needs.
(4) INVESTMENT IN UNCONSOLIDATED PARTNERSHIPS
HOUSING PARTNERSHIPS
--------------------
The following information summarizes financial data and principal
activities of unconsolidated housing partnerships which ACPP accounts for under
the equity method (in thousands).
<TABLE>
<CAPTION>
SUMMARY OF FINANCIAL POSITION: AS OF DECEMBER 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Total assets $111,974 $113,514
Total non-recourse debt 118,002 109,593
Total other liabilities 10,016 9,751
Total equity (16,043) (5,800)
Company's investment 8,657 11,693
</TABLE>
F-13
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF OPERATIONS: FOR THE YEAR ENDED
----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Total revenue $27,913 $30,872 $36,858
Net income 328 1,698 2,500
Company's recognition of equity
in earnings and developer fees 1,417 2,023 2,514
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF OPERATING CASH FLOWS: FOR THE YEAR ENDED
---------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities $ 3,412 $ 7,358 $ 8,613
Company's share of cash flows from
operating activities 1,051 2,814 3,435
Operating cash distributions 10,648 1,620 2,607
Company's share of operating cash
distributions 5,155 409 980
SUMMARY OF 1996 SALES TRANSACTION:
Gain on sale $39,934
Company's equity and earnings recognition 14,637
Total distribution of sales proceeds 36,235
Company's share of sales proceeds distribution 15,165
</TABLE>
COMPARABLE PARTNERSHIP RESULTS: The unconsolidated rental properties
partnerships as of December 31, 1997 include 17 partnerships owning 4,159 rental
units in 20 apartment complexes. ACPP holds a general partner interest in these
partnerships and generally shares in zero to 5% of profits, losses and cash flow
from operations until such time as the limited partners have received cash
distributions, equal to their capital contributions. Thereafter, ACPP generally
shares in 50% of cash distributions from operations.
Lakeside Apartments was placed in service in 1996. The remaining complexes
owned by Alturas Del Senorial Associates Limited Partnership, Bannister
Associates Limited Partnership, Bayamon Gardens Associates Limited Partnership,
Brookside Gardens, Carolina Associates Limited Partnership, Colinas de San Juan
Associates Limited Partnership, Crossland Associates Limited Partnership, Essex
Apartments Associates, Huntington Associates Limited Partnership, Jardines de
Caparra Associates Limited Partnership, Monserrate Associates Limited
Partnership, Monte de Oro Associates Limited Partnership, New Center Associates
Limited Partnership, San Anton Associates Limited Partnership, Turabo Limited
Dividend Partnership and Valle del Sol Limited Partnership were placed in
service prior to 1995.
ACTIVITY PRIOR TO CONSOLIDATION OF FOUR PARTNERSHIPS: On April 1, 1996,
ACPP acquired a controlling interest in four partnerships owning 596 rental
units, Wakefield Third Age L.P., Wakefield Terrace Associates L.P., Palmer
Apartments L.P. and Headen House Associates L.P. Effective April 1, 1996, the
results of operations and balance sheets of these partnerships are consolidated
in the accompanying combined historical financial statements.
F-14
<PAGE>
ACTIVITY PRIOR TO SALE OF FOUR APARTMENTS: In March 1996, ACPP completed
the sale of four Puerto Rico apartment properties. The four properties, Las
Americas I, Las Americas II, Las Lomas and Monacillos, totaling 918 units were
purchased by non-profit organizations with financing provided by HUD through
capital grants authorized by the Low Income Housing Preservation and Resident
Homeownership Act ("LIHPRHA"). ACPP retained the management contract for these
properties. Prior to the sale, the properties were accounted for using the
equity method of accounting.
HOMEBUILDING JOINT VENTURE
--------------------------
ACPP holds a 50% joint venture interest in Escorial Builders S.E. Escorial
Builders was formed in 1995 to purchase lots from ACPP and construct homes for
resale. During 1997 and 1996, it purchased 118 and 98 lots, respectively. The
profit on these lots are deferred until sold by Escorial Builders to a third
party. ACPP's share of the income (loss) and its investment are included with
ACPP's assets related to homebuilding in the accompanying combined historical
financial statements. The table summarizes Escorial Builders' financial
information (in thousands):
<TABLE>
<CAPTION>
SUMMARY OF FINANCIAL POSITION: AS OF DECEMBER 31,
--------------------
1997 1996
---- ----
<S> <C> <C>
Total assets $13,719 $ 5,586
Total liabilities 12,536 5,047
Total equity 1,183 539
Company's investment 591 275
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF OPERATIONS: FOR THE YEAR ENDED
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Total revenue $ 2,491 $ -- $ --
Net income (loss) 183 (151) --
Company's recognition of equity
in earnings 92 (75) --
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF OPERATING CASH FLOWS: FOR THE YEAR ENDED
--------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities $(7,326) $(4,361) $ --
Company's share of cash flows from
operating activities (3,663) (2,181) --
Operating cash distributions -- -- --
Company's share of operating cash
distributions -- -- --
</TABLE>
(5) DEBT AND EXTRAORDINARY ITEM - EARLY EXTINGUISHMENT OF DEBT
DEBT
----
F-15
<PAGE>
ACPP's outstanding debt is collateralized primarily by land, land
improvements, housing, receivables, investments in partnerships, and rental
properties. In certain cases, there are cross-collateral and cross-default
provisions pursuant to the debt agreements. The following table summarizes the
indebtedness expected to be transferred to ACPP as of December 31, 1997 and 1996
(in thousands):
<TABLE>
<CAPTION>
Maturity Interest Outstanding
----------------
Dates Rates December 31,
----------------
From/To From/To 1997 1996
--------- --------- ------- -------
<S> <C> <C> <C> <C>
Related to community
development:
Recourse debt Demand/ 9.0%/ $39,784 $38,943
07-31-04 10.0%
Non-recourse debt 08-02-09 P+1.5% 2,295 2,153
Related to rental
properties:
Recourse debt Demand 7.35% 969 1,139
Non-recourse debt 10-01-19/ 6.85%/ 39,101 39,508
10-01-28 8.50%
General:
Notes payable and capital leases 04-30-98/ 7.4%/ 173 157
------- -------
08-01-02 12.00%
Total debt $82,322 $81,900
======= =======
</TABLE>
P = Prime lending interest rate.
ACPP's loans contain various financial, cross-default and technical
provisions.
ACPP's weighted average interest rate during 1997 on its variable rate debt
was 10.07%
As of December 31, 1997, the $39,784,000 of recourse debt related to
community development assets is fully collateralized by substantially all of the
community development assets. Approximately $15,054,000 of this amount is
further secured by investments in apartment rental partnerships.
As of December 31, 1997, recourse investment property debt is secured by a
letter of credit issued to ACPP pursuant to the terms of a sales contract. The
non-recourse investment properties debt is collateralized by apartment projects.
Mortgage notes payable of $7,244,000 have stated interest rates of 7.5% and
7.75%. After deducting interest payments provided by HUD, the effective interest
rate over the life of the loan is 1%.
ACPP's loan with Banc One, obtained during 1997, requires additional
interest payments on each annual anniversary date. The additional amount due is
1% of the outstanding balance in 1998 and 1999, and increases 1/2% each year
thereafter, through 2003.
The stated maturities (assuming no accelerations) of ACPP's indebtedness at
December 31, 1997 are as follows (in thousands):
F-16
<PAGE>
<TABLE>
<S> <C>
1998 $19,422
1999 5,511
2000 3,552
2001 3,601
2002 3,681
Thereafter 46,555
-------
$82,322
=======
</TABLE>
The interest costs incurred were accounted for as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1996 1995
------ ------- ------
<S> <C> <C> <C>
Expensed $3,820 $ 4,433 $4,263
Capitalized 3,434 4,394 3,665
------ ------- ------
$7,254 $ 8,827 $7,928
====== ======= ======
</TABLE>
EXTRAORDINARY ITEM - EARLY EXTINGUISHMENT OF DEBT
-------------------------------------------------
On December 23, 1996, ACPP completed the restructuring of two non-recourse
mortgages that will provide an interest savings of approximately $12,000,000
over the life of the loan. The new mortgage notes payable of $18,700,000 bear
average annual interest rate over the life of the loans at approximately 6.8%
compared to approximately 9.7% for the old loans. Prepayment fees of $932,000
were paid to the prior lender and charged as an extraordinary item in the
accompanying financial statements. The loans are secured by the rental
properties owned by two consolidated partnerships.
(6) OTHER COMMITMENTS AND CONTINGENT LIABILITIES
WETLANDS LITIGATION
-------------------
On February 29, 1996, IGC, SCA and James J. Wilson were convicted on four
felony counts of violations of Section 404 (wetlands) of the U.S. Clean Water
Act relating to discharge without a permit of fill material into wetlands within
the U.S. Army Corps of Engineers' regulatory jurisdiction. The nine civil
violations of the U.S. Clean Water Act filed by the U.S. Attorney were dismissed
without prejudice. On June 17, 1996, IGC and SCA were fined $2,000,000 and
$1,000,000, respectively, placed on probation for five years and ordered to
implement a wetlands restoration and mitigation plan proposed by the government.
Mr. Wilson was fined $1,000,000 and sentenced to 21 months imprisonment and one
year of supervised release. Appeals were filed and Mr. Wilson's sentence was
stayed pending appeal by the Court of Appeals. The wetlands properties subject
to this litigation are being retained by IGC which remain responsible for
restoration and mitigation costs. IGC has paid the aggregate $3,000,000 in fines
on behalf of itself and SCA.
On December 23, 1997, the United States Court of Appeals for the Fourth
Circuit reversed the 1996 wetlands convictions of IGC, SCA and James J. Wilson,
IGC's Chief Executive Officer. The Court's action eliminates the $3,000,000 fine
and remediation obligation that had been imputed as part of IGC's criminal
sentence. On January 26, 1998, the U.S. Attorney's office petitioned for the
Court of Appeals'
F-17
<PAGE>
panel to rehear the case. The Court of Appeals denied their request. The U.S.
Attorney can retry the case or pursue the civil violations subject to the Court
of Appeals published opinions. As a result of the convictions being reversed by
the Court of Appeals, the fine of $3,000,000 which was previously paid has been
refunded to IGC.
In reversing the convictions, the Appeals Court voided regulations that
defined "waters of the United States" to include intrastate wetlands that could
affect interstate commerce. However, the appellate decision did not foreclose a
determination upon retrial that IGC's Wetlands Properties are "waters of the
United States" because they are "adjacent" to "navigable waters" within the
meaning of the Clean Water Act. Other courts have construed "adjacent" to mean
"reasonably proximate" or "closely related." IGC's Wetlands Properties are over
9 miles from the nearest "navigable waters."
In the event that IGC is convicted should there be a retrial, IGC may be
responsible for paying the costs incurred in implementing a restoration and
remediation plan. The terms of the Banc One credit facility provide that IGC may
borrow up to $2,000,000 solely for use to pay remediation costs resulting from
the wetlands litigation. However, ACPP will assume the repayment responsibility
for the amounts drawn by IGC for remediation purposes. Management of IGC intends
to dispose of the retained land or borrow against its value to the extent
necessary to pay remediation costs.
The ultimate outcome of this litigation remains uncertain. Representatives
of the U.S. Attorney's office have stated publicly that the government intends
to retry the criminal case.
OTHER
-----
As of December 31, 1997, ACPP is guarantor of $7,178,000 of letters of
credit and surety bonds for land development completion.
IGP Group has assigned the receivables and cash proceeds from three
apartment properties to serve as collateral for a letter of credit in the amount
of $4,569,000 issued for the benefit of Chastleton Apartment Associates Limited
Partnership, an entity related to IBC and IGC.
ACPP will enter into a consulting and retirement compensation agreement
with IGC's founder and Chief Executive Officer, James J. Wilson, to become
effective on the date of the Restructuring (the "Consulting Agreement"). The
Consulting Agreement will provide for annual cash payments during the first two
years of $500,000 and annual cash payments for eight years thereafter of
$200,000.
In the normal course of business, ACPP is involved in various types of
pending or unasserted claims. In the opinion of management, these will not have
a material impact on the financial condition or future operations of ACPP.
(7) LEASES
ACPP operates certain property and equipment under leases, some with
purchase options that expire at various dates through 2005. ACPP is also
obligated under several non-cancelable operating leases for office space and
equipment. Future minimum lease payments are as follows (in thousands):
Operating Capitalized
F-18
<PAGE>
<TABLE>
<CAPTION>
Leases Leases
--------- -----------
<S> <C> <C>
1998 $ 413 $ 65
1999 396 54
2000 381 46
2001 298 26
2002 149 15
Thereafter 370 --
------ ----
Total minimum lease payments $2,007 206
Less amount representing interest 33
----
Present value of lease payments $173
</TABLE>
Rental expense under noncancelable operating leases was $417,000 in 1997,
$441,000 in 1996 and $393,000 in 1995 and is included in general and
administrative expenses in the accompanying combined historical statements of
operations.
(8) RETIREMENT PLAN
ACPP will continue and assume all of IGC's obligations under the retirement
plan currently maintained by IGC (the "Retirement Plan"). Employees are
generally eligible to participate when they complete one year of service. The
Retirement Plan is a defined contribution plan which provides for contributions
by ACPP for the accounts of eligible employees in amounts equal to 4% of base
salaries and wages not in excess of the U.S. Social Security taxable wage base,
and 8% of salaries (limited to $160,000) that exceeded that wage base. Eligible
employees also may make voluntary contributions to their accounts and self-
direct the investment of their account balances in various investment funds that
may be selected under the plan.
Contributions to the Retirement Plan were $467,000, $407,000 and $349,000
for the years ended December 31, 1997, 1996 and 1995, respectively.
F-19
<PAGE>
(9) RELATED PARTY TRANSACTIONS
Certain officers, trustees and one consultant of ACPP, Interstate General
Company L.P. ("IGC") and Interstate Business Corporation ("IBC"), a general
partner of IGC, have ownership interests in various entities that conduct
business with ACPP. The financial impact of the related party transactions on
the accompanying combined historical statements of operations and combined
historical statements of assets and liabilities are reflected below (in
thousands):
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS IMPACT: 1997 1996 1995
------- ------- -------
<S> <C> <C> <C> <C>
Community Development - Land Sales (A)
- ---------------------
IGC $ 105 $ 980 $ 875
Affiliate of IGC former director (A1) -- 2,984 3,233
Affiliate of IGC former director (A1) -- 2,720 --
IBC, general partner of IGC -- 1,869 --
Affiliate of IBC, general partner of IGC -- 1,513 --
Affiliate of IBC, general partner of IGC and
James Michael Wilson, IGC director (A2) 3,000 -- --
------ ------- -------
$3,105 $10,066 $4,108
====== ======= =======
Cost of Land Sales
- ------------------
IGC $ 74 $ 686 $ 613
Affiliate of IGC former director -- 1,813 1,539
Affiliate of IGC former director -- 2,310 --
IBC, general partner of IGC -- 586 --
Affiliate of IBC, general partner of IGC -- 680 --
Affiliate of IBC, general partner of IGC and
James Michael Wilson, IGC director (A2) 1,689 -- --
------ ------- -------
$1,763 $ 6,075 $2,152
====== ======= =======
Management and Other Fees (B)
- -----------------------------
Unconsolidated subsidiaries $2,790 $ 3,993 $2,908
Affiliate of IBC, general partner of IGC (B1,2) 343 248 650
Affiliates of James Michael Wilson, trustee and IGC
director, Thomas B. Wilson, trustee and
IGC director, and James J. Wilson, IGC director 148 193 239
Affiliate of James Michael Wilson, trustee and IGC
director, Thomas B. Wilson, trustee and IGC director,
James J. Wilson, IGC director and an affiliate of IBC,
general partner of IGC 68 113 67
IBC, general partner of IGC -- 12 30
------ ------- -------
$3,349 $ 4,559 $3,894
====== ======= =======
Interest and Other Income
- -------------------------
Unconsolidated subsidiaries $ 49 $ 49 $ 90
Affiliate of IGC former director 263 429 197
Affiliate of IBC, general partner of IGC 120 -- --
IBC, general partner of IGC -- 8 33
Affiliate of Thomas B. Wilson, trustee, IGC director 16 17 18
------ ------- -------
$ 448 $ 503 $ 338
====== ======= =======
General and Administrative Expense
- ----------------------------------
Affiliate of IBC, general partner of IGC (C1) $ 339 $ 361 $ 369
Reserve additions (reductions) and other write-offs
Affiliate of IGC former director (A1) 388 319 32
Affiliate of IBC, general partner of IGC (B) 117 69 --
Affiliate of Thomas B. Wilson, trustee and IGC director 83 -- --
Unconsolidated subsidiary 213 101 91
------ ------- -------
$1,140 $ 850 $ 492
====== ======= ========
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
Increase Increase
(Decrease) (Decrease)
Balance in Balance in
December 31, Reserves December 31, Reserves
1997 1997 1996 1996
------------ ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF ASSETS AND LIABILITIES:
Assets Related to Rental Properties - Receivables (B) all unsecured and
- -----------------------------------
due on demand
Unconsolidated subsidiaries $ 539 $111 $ 668 $(315)
Affiliates of IBC, general partner of IGC (B1,2) 51 (9) 65 69
Affiliates of James Michael Wilson, trustee and IGC
director and James J. Wilson, IGC director 20 -- 64 --
Affiliate of James J. Wilson, IGC director -- -- -- --
------ ----- ------- ------
$ 610 $102 $ 797 $(246)
====== ===== ======= ======
Assets Related to Community Development
- ---------------------------------------
Notes receivable and accrued interest
Affiliate of IGC former director interest 10% (A1)
secured by land payments per month
$27,000 matures
April 1, 1998 $ 980 $ -- $1,042 $ 222
Affiliate of IGC former director interest 10% (A1)
secured by land payments per month
$27,000, matures
April 1, 1999 2,088 388 2,502 97
Affiliates of IBC, general partner of IGC interest 8% -- -- 1,193 --
secured by land matured December
15, 1997, paid
Affiliate of IBC, general partner of IGC interest P+1.5%
secured by land matures
June 29, 1998 (A2) 2,520 -- -- --
------ ----- ------- ------
$5,588 $388 $4,737 $ 319
====== ===== ======= ======
Other Assets - Receivables all unsecured
- --------------------------
IBC, general partner of IGC payable from IGC
distributions (C2) $ 681 $ -- $ 881 $ --
Affiliate of Thomas B. Wilson, trustee, payable from
IGC director surplus cash
matures -- -- 281 --
Affiliates of IBC, general partner of IGC demand (B) 12 -- 79 --
------ ----- ------- ------
$ 693 $ -- $1,241 $ --
====== ===== ======= ======
Liabilities Related to Community Development
- --------------------------------------------
Accounts payable
Whitman Requardt (C3) $ 121 $ -- $ 324 $ --
====== ===== ======= ======
</TABLE>
(A) LAND SALES
----------
ACPP sells land to affiliates and non-affiliates with similar terms on a
routine basis. The sales prices to affiliates are based on third party
appraisals, payable in cash or a combination of a 20% cash down payment and a
note for the balance. The notes receivable are secured by deeds of trust on the
land sold, bear an interest rate equal to those charged at that time for land
sales. The notes mature in one year
F-21
<PAGE>
or mature in five or less years with annual amortizations. As circumstances
dictate, the maturity dates and repayment terms of the notes receivable due from
affiliates or non-affiliates have been modified. Any sales transactions that
vary from these terms are described below:
(1) The notes receivable due from an affiliate of Jorge Colon-Nevares, a
former director of IGC, did not bear interest until certain
infrastructure improvements were completed. This infrastructure was
delayed and the interest commencement dates modified. These delays
created the additional discounts reflected above.
(2) On June 30, 1997, ACPP sold 374 acres to an affiliate of IBC for
$3,000,000 and recognized a profit of $1,311,000. As payment for this
parcel, ACPP received a 20% down payment and assumption of a note
payable.
(B) MANAGEMENT AND OTHER SERVICES
-----------------------------
ACPP provides management and other support services to its unconsolidated
subsidiaries and other related entities in the normal course of business. These
fees are typically collected on a monthly basis, one month in arrears. These
receivables are unsecured and due upon demand. Certain partnerships
experiencing cash shortfalls have not paid timely. As such, these receivable
balances are reserved until satisfied or the prospects of collectibility
improves. Decreases to the reserves for other than routine cash payments are
discussed below:
(1) On April 1, 1996, IBC transferred its remaining 1.1% limited
partnership interest in four housing partnerships to ACPP for its
market value of $69,000 as partial satisfaction of a note receivable.
The balance of this note receivable and other receivables were
purchased by an affiliate of James Michael Wilson for a cash payment
of $1,279,000. The collection of the majority of these receivables was
uncertain and $390,000 had been reserved. This transaction resulted in
income recognition of these reserves during the second quarter of
1996.
(2) During the second quarter of 1997, an affiliate of IBC purchased the
management fees receivable due from Chastleton, Coachman's, Rolling
Hills, and Village Lake for a cash payment of $190,000. The collection
of these receivables had previously been questionable and they had
been fully reserved. This transaction resulted in income recognition
of $190,000.
(C) OTHER
-----
Other transactions with related parties are as follows:
(1) ACPP rents executive office space and other property from affiliates
both in the United States and Puerto Rico pursuant to leases that
expire through 2005. In management's opinion, all leases with
affiliated persons are on terms generally available from unaffiliated
persons for comparable property.
(2) During 1996, the sale of four properties in Puerto Rico triggered a
taxable gain, a portion of which is passed through to the predecessor
of IGC that contributed those assets. IGC's partnership agreement
provides for (1) an allocation to that predecessor of the income tax
F-22
<PAGE>
payable in Puerto Rico on such portion of the gain and (2) a reduction
from its cash distributions in an amount equivalent to the Puerto Rico
income tax specifically allocated to the predecessor. In accordance
with these provisions, ACPP recorded a receivable from IBC of $881,000
and will recover the amount from future distributions due to IBC.
(3) Thomas J. Shafer will become a Trustee of ACPP subsequent to his
retirement from Whitman, Requardt, where he is currently a Senior
Partner. Whitman, Requardt provides engineering services to ACPP. In
management's opinion, services performed are on terms available to
other clients.
(4) James J. Wilson, as a general partner of IGP, is entitled to priority
distributions made by each housing partnership in which IGP is the
general partner. If IGP receives a distribution which represents 1% or
less of a partnership's total distribution, Mr. Wilson receives the
entire distribution. If IGP receives a distribution which represents
more than 1% of a partnership's total distribution, Mr. Wilson
receives the first 1% of such total. Prior to the Restructuring, Mr.
Wilson will transfer his general partner interest in IGP to a
subsidiary of ACPP.
(10) OPTIONS AND APPRECIATION RIGHTS
ACPP expects to adopt a share incentive plan (the "Share Incentive Plan")
and a Trustees share incentive plan (the "Trustee Share Plan") to provide for
Share-based incentive compensation for officers, key employees and Trustees.
Under the Share Incentive Plan, the Compensation Committee of the Board of
Trustees may grant to key employees the following types of share-based incentive
compensation awards ("Awards") (i) options to purchase a specified number of
shares ("Options"), (ii) forfeitable shares that vest upon the occurrence of
certain vesting criteria ("Restricted Shares"), or (iii) Share Appreciation
Rights ("Rights") that entitle the holder to receive upon exercise an amount
payable in cash, shares or other property (or any combination of the foregoing)
equal to the difference between the market value of shares and a base price
fixed on the date of grant. A total of 500,000 shares will be reserved for
issuance under the Share Incentive Plan.
The Share Incentive Plan authorizes the Compensation Committee to determine
the exercise price and manner of payment for Options and the base price for
Rights. The Compensation Committee also is authorized to determine the duration
and vesting criteria for Awards, including whether vesting will be accelerated
upon a change in control of ACPP.
Rights of key employees under Awards are not transferable other than to
immediate family members or by will or the laws of intestate succession.
The Trustee Share Plan authorizes the Board of Trustees, in its discretion,
to grant to eligible Trustees awards of the same types and terms of Awards as
provided under the Share Incentive Plan. Only Trustees who are not employees of
ACPP or any affiliated company are eligible to receive Awards under the Trustee
Share Plan. A total of 100,000 Shares will be reserved for issuance under the
Trustee Share Plan.
Since no Awards have been issued under these Plans, no liability has been
recorded in the accompanying combined historical statements of assets and
liabilities. However, ACPP may be required to recognize compensation expense
under APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
F-23
<PAGE>
associated with Options and Rights issued to holders of IGC Options and Rights.
The primary factor that will determine the amount of compensation expense ACPP
may be required to recognize is ACPT's market price per share subsequent to the
Distribution. Whereas such information cannot be readily determined, no
compensation expense for Options and Rights issued to holders of IGC Options and
Rights has been recorded in the accompanying combined historical statements of
operations.
(11) INCOME TAXES
As a U.S. Company doing business in Puerto Rico, ACPP is subject to Puerto
Rico income tax on its Puerto Rico based income. The taxes reflected below are a
result of that liability.
The calculation below for the provision for income taxes does not include
the income from U.S. operations which is not subject to income taxes. It does
include the Puerto Rico source income which is subject to income taxes in Puerto
Rico at the statutory rate of 29%. The following table reconciles the effective
rate solely attributable to Puerto Rico source income:
F-24
<PAGE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1997 1996 1995
-------------- -------------- ---------------
% of % of % of
Amount Income Amount Income Amount Income
------ ------ ------ ------ ------ ------
(In thousands, except amounts in %)
<S> <C> <C> <C> <C> <C> <C>
Provision for income taxes at the
statutory income tax rate $ 470 29% $3,424 29% $1,369 29%
Reduction of provision for partnership
income not taxable to Company -- -- -- -- -- --
Other items -- -- -- -- -- --
----- --- ------ --- ------ ---
$ 470 29% $3,424 29% $1,369 29%
===== === ====== === ====== ===
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Currently payable
United States $ -- $ -- $ --
Puerto Rico 1,390 3,005 723
Deferred (920) 419 646
------ ------ ------
$ 470 $3,424 $1,369
====== ====== ======
</TABLE>
The components of deferred taxes payable include the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1997 1996
---- ----
<S> <C> <C>
Tax on amortization of deferred income related to long-term
receivables from partnerships operating in Puerto Rico $ 556 $ 499
Tax on equity in earnings of partnerships operating in Puerto Rico 1,232 2,337
Tax on land development costs capitalized for book purposes but
deducted currently for tax purposes 2,465 2,313
Tax on sale to related party deferred for book purposes
but currently taxable (133) (108)
------ ------
$4,120 $5,041
====== ======
</TABLE>
Deferred income taxes reflect the "temporary differences" between amounts
of assets and liabilities for financial reporting purposes as determined in
accordance with SFAS No. 109 and such amounts as measured by tax laws.
F-25
<PAGE>
The reconciliation between net income per books and net taxable income is as
follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1996 1995
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Net income
per books $ 1,394 $12,695 $ 3,804
Built-in gain allocable
to Predecessors:
Current (464) (3,526) (466)
Deferred (529) (415) (364)
Difference in income or
losses from subsidiary
partnerships (429) (826) (20)
Capitalization of general
and administrative
expenses under the
Uniform Capitalization
Rules 49 (246) 315
Differences in deferred
income 175 (1,431) 349
Difference in cost of sales
due to interest related to
the acquisition of land,
deducted for tax purposes 390 513 505
Deferred income taxes (920) 419 646
Losses from restructuring (225) (200) (61)
Other book to tax
reconciling items, none
of which is individually
significant 3,526 (889) (1,269)
------- ------- -------
Net taxable income
per federal return $ 2,967 $ 6,094 $ 3,439
======= ======= =======
</TABLE>
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, receivables and other
current assets approximate fair value due to the short-term nature of these
items. Fair value of long-term debt instruments was determined by discounting
future cash flows using ACPP's current market rates. As of December 31, 1997
and 1996, the fair value of long-term debt instruments was $78,307,000 and
$78,632,000, respectively.
(13) SUPPLEMENTAL CASH FLOW INFORMATION
F-26
<PAGE>
Interest paid and income taxes paid were as follows for the years ended
December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Interest paid $5,583 $7,004 $5,359
Income taxes paid $3,828 $ 371 $2,227
</TABLE>
Significant non-cash financing and investing activities included the
following:
(a) In 1996, ACPP received partnership interests from a Unitholder valued
at $69,000 in satisfaction of $69,000 of notes receivable.
(b) In 1995, ACPP received land in exchange for land sold with a $134,000
book value.
F-27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Owners of
American Community Properties Trust:
We have audited the accompanying balance sheet of American Community
Properties Trust (a Maryland trust) as of March 31, 1998. This financial
statement is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in
all material respects, the financial position of American Community Properties
Trust as of March 31, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Washington, D.C.
June 26, 1998
F-28
<PAGE>
AMERICAN COMMUNITY PROPERTIES TRUST
BALANCE SHEET
AS OF MARCH 31, 1998
ASSETS
------
<TABLE>
<S> <C>
Total Assets $ --
=========
LIABILITIES AND OWNERS' EQUITY
------------------------------
Owners' Equity
Common Stock $1 par value,
1,000 shares authorized
No shares outstanding $ --
=========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-29
<PAGE>
AMERICAN COMMUNITY PROPERTIES TRUST
NOTES TO BALANCE SHEET
MARCH 31, 1998
ORGANIZATION
On March 17, 1998, American Community Properties Trust ("ACPT") was
formed as a real estate investment trust under Article 8 of the Maryland Trust
Law. The trust is currently a wholly owned subsidiary of Interstate General
Company L.P. ("IGC"). The trust was formed to succeed to most of IGC's real
estate operations.
Under the proposed transaction IGC will transfer the principal real
estate operations and assets to ACPT and will distribute to the partners of IGC
all of the common shares of ACPT. Subject to market conditions, ACPT will seek
to raise up to $35 million in additional equity capital through a private
offering of preferred shares.
The trustees of ACPT are Edwin L. Kelly, J. Michael Wilson and Thomas B.
Wilson.
As of March 31, 1998, the trust had not commenced operations, and
therefore no statements of operations or cash flows have been presented. There
has been no activity since March 31, 1998.
F-30
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Registrant's Restated Declaration of Trust provides that, to the
fullest extent permitted by Maryland law, trustees of the Registrant will not be
liable to the Registrant or its shareholders for monetary damages for any act or
omission occurring in their capacity as a trustee. Maryland law does not
currently authorize the elimination or limitation of the liability of a director
to the extent the director is found liable for (i) actual receipt of an improper
benefit or profit in money, property, or services or, (ii) actions or failures
to act that are the result of active and deliberate dishonesty and that are
material to the cause of action, a breach of duty of the director of the
Registrant or which involve intentional misconduct or a knowing violation of
law.
The Registrant's Restated Declaration of Trust and its Bylaws grant
mandatory indemnification to trustees and officers of the Registrant to the
fullest extent authorized under the Maryland Corporations and Associations Code
(the "MCAC"). In general, a Maryland real estate investment trust may indemnify
a trustee or officer who is made a party to any proceeding by reason of service
in that capacity unless it is established that (i) the act or omission of the
trustee or officer was material to the matter giving rise to the proceeding and
either was committed in bad faith or was the result of active and deliberate
dishonesty, (ii) the trustee or officer actually received an improper personal
benefit, or (iii) in the case of criminal proceedings, the trustee or officer
had no reasonable cause to believe his conduct was unlawful. A Maryland real
estate investment trust may indemnify a trustee or officer in an action brought
by or in the right of the corporation only if such trustee or officer was not
found liable to the trust, unless or only to the extent that a court finds him
to be fairly and reasonable entitled to indemnity for such expenses as the court
deems proper.
The above discussion of Registrant's Restated Declaration of Trust and
Bylaws and of the MCAC is not intended to be exhaustive and is qualified in its
entirety by the Restated Declaration of Trust and Bylaws and the MCAC.
Registrant maintains trustee and officer liability insurance providing
insurance protection for specified liabilities under specified terms.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers or persons controlling the Registrant pursuant to the foregoing
provisions, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
II-1
<PAGE>
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------ ----------------------
<S> <C>
2 Form of Restructuring Agreement dated as of _______________, 1998
between the Registrant and Interstate General Company L.P. ("IGC").
3.1 Form of Restated Declaration of Trust of the Registrant.
3.2 Bylaws of the Registrant.
4.1 Form of Common Share Certificate.
5 Opinion of Covington & Burling./(1)/
8.1 Form of Opinion of Covington & Burling regarding tax matters.
8.2 Form of Opinion of Fiddler, Gonzalez & Rodriguez.
10.1 Employment Agreement, dated , 1998, between Registrant and
Edwin L. Kelly./(1)/
10.2 Employment Agreement, dated , 1998, between Registrant and
Francisco Arrivi Cros./(1)/
10.3 Employment Agreement, dated , 1998, between Registrant and
Paul A. Resnick./(1)/
10.4 Form of Consulting Agreement, dated , 1998, between
Registrant and James J. Wilson.
10.5 Employees' Share Incentive Plan of Registrant.
10.6 Trustee's Share Incentive Plan of Registrant.
10.7 Housing Management Agreement, dated May 12, 1994, between IGC and
Capital Park Associates.
10.8 Housing Management Agreement, dated January 1, 1987, between IGC
and Chastleton Apartments Associates.
10.9 Housing Management Agreement, dated September 30, 1983, between
IGC and G.L. Limited Partnership.
23.1 Consent of Covington & Burling (included in Exhibit 5 opinion to be
filed by amendment).
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Fiddler, Gonzalez & Rodriguez (included in Exhibit 8.2
opinion filed herewith).
23.4 Consent of Robert A. Stanger & Co., Inc. ("Stanger").
23.5 Consent of Robert F. McCloskey Associates.
23.6 Consent of Smail Associates, Inc.
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
23.7 Consent of James B. Hooper, P.A.
23.8 Consent of Gatewood Company, Inc.
23.9 Consent of NBValuation Group, Inc.
23.10 Consent of Brick House Realty, Inc.
99.1 Form of Proxy.
99.2 Appraisal Report on Parque Escorial.
99.3 Appraisal Report on Canovanas Property.
99.4 Appraisal Report on All Remaining Land Inventory in and around the St.
Charles Planned Unit Development.
99.5 Appraisal Report on Fairway Village (Residential).
99.6 Appraisal Report on Fairway Village (Commercial).
99.7 Appraisal Report on Brandywine Village.
99.8 Appraisal Report on Southlake at Montclair.
99.9 Appraisal Report on Westbury.
99.10 Appraisal Report on Pomfret./(2)/
99.11 Net Asset Valuation Report of Stanger, dated as of December 31, 1996,
for Registrant.
99.12 Net Asset Valuation Report of Stanger, dated as of December 31, 1997,
for Registrant.
99.13 Net Asset Valuation Report of Stanger, dated as of March 31, 1998, for
Registrant.
</TABLE>
________________________
/(1)/ To be filed by amendment.
/(2)/ Incorporated in Exhibit 99.4.
II-3
<PAGE>
(b) Financial Statement Schedules
Schedule
Number
- --------
11 Real Estate and Accumulated Depreciation
Item 22. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
provided, however, that paragraphs (i) and (ii) do not apply if the Registration
Statement is on Form S-3 or Form S-8, and the information required to be
included in a post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by the Registrant
pursuant to Section 13 or section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new
II-4
<PAGE>
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) That prior to any public reoffering of the securities registered
hereunder through the use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be a underwriter within the
meaning of Rule 145(c), the Registrant undertakes that such reoffering
prospectus will contain the information called for by Form S-4 with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of Form S-4.
(5) That every prospectus (i) that is filed pursuant to paragraph (4)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the Registration
Statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(6) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(7) To supply by means of the post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it became
effective.
(8) To provide to the Shareholders the financial statements required by
Form 10-K for the first full fiscal year of operations of the Registrant.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing of this Registration Statement on Form S-4 and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the city of St. Charles, State of
Maryland, on the 10th day of July, 1998.
AMERICAN COMMUNITY PROPERTIES TRUST
By: /s/ J. Michael Wilson
-------------------------------
Name: J. Michael Wilson
Title: Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ------ ----
<S> <C> <C>
/s/ J. Michael Wilson Chairman and Chief July 10, 1998
- -------------------------------
J. Michael Wilson Executive
Officer and Trustee
(Principal Executive and
Financial Officer)
/s/ Edwin L. Kelly President and Trustee July 10, 1998
- -------------------------------
Edwin L. Kelly
/s/ Francisco Arrivi Cros Executive Vice President July 10, 1998
- -------------------------------
Francisco Arrivi Cros and
Trustee
/s/ Thomas B. Wilson Trustee July 10, 1998
- -------------------------------
Thomas B. Wilson
</TABLE>
II-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To the Owners of
American Community Portfolio Properties:
We have audited in accordance with generally accepted auditing standards,
the combined historical financial statements of American Community Portfolio
Properties, included in this Proxy Statement/Prospectus and have issued our
report thereon dated June 26, 1998. Our audits were made for the purpose of
forming an opinion on the basic combined historical financial statements taken
as a whole. The schedules appearing on pages S-1 through S-4 are the
responsibility of the Company's management and are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic combined historical financial statements. These schedules have
been subjected to the auditing procedures applied in our audits of the basic
combined historical financial statements and, in our opinion, are fairly stated
in all material respects in relation to the basic combined historical financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
Washington, D.C.
June 26, 1998
<PAGE>
AMERICAN COMMUNITY PORTFOLIO PROPERTIES SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
Initial Costs Gross Amount
------------------------- ----------------------------------
Cost Capitalized
Buildings & Subsequent Buildings &
Description Encumbrances Land Improvements to Acquisition Land Improvements
- ----------- ------------ ----- ------------ -------------- ----- ------------
<S> <C> <C> <C> <C> <C> <C>
Bannister Apartments $ 3,625 $ 410 $ 4,180 $ 450 $ 410 $ $ 4,630
Garden Apartments
St.Charles, Md.
Palmer Apartments 4,186 471 4,788 417 471 5,205
Garden Apartments
St.Charles, Md.
Brookmont Apartments 2,304 162 2,677 274 162 2,951
Garden Apartments
St.Charles, Md.
Brookside Gardens 873 156 2,487 44 156 2,531
Garden Apartments
St.Charles, Md.
Headen Apartments 4,826 205 4,765 995 205 5,760
Garden Apartments
St.Charles, Md.
Huntington Apartments 7,631 350 8,513 1,420 350 9,933
Garden Apartments
St.Charles, Md.
Crossland Apartments 2,130 350 2,697 215 350 2,912
Garden Apartments
St.Charles, Md.
Terrace Apartments 4,940 497 5,377 452 497 5,829
Garden Apartments
St.Charles, Md.
<CAPTION>
Total Date
Capitalized Accumulated Constructed Depreciable Life in Years
Description Costs Depreciation or Acquired Building Equipment
- ----------- ------ ------------ ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Bannister Apartments $ 5,040 $ 3,732 11/30/76 40 5-7
Garden Apartments
St.Charles, Md.
Palmer Apartments 5,676 4,079 3/31/80 40 5-7
Garden Apartments
St.Charles, Md.
Brookmont Apartments 3,113 2,318 5/18/79 40 5-7
Garden Apartments
St.Charles, Md.
Brookside Gardens 2,687 303 11/10/94 40 5-7
Garden Apartments
St.Charles, Md.
Headen Apartments 5,965 4,059 10/30/80 40 5-7
Garden Apartments
St.Charles, Md.
Huntington Apartments 10,283 5,043 10/7/80 40 5-7
Garden Apartments
St.Charles, Md.
Crossland Apartments 3,262 1,847 1/13/78 40 5-7
Garden Apartments
St.Charles, Md.
Terrace Apartments 6,326 4,562 11/1/79 40 5-7
Garden Apartments
St.Charles, Md.
</TABLE>
Page 1
<PAGE>
AMERICAN COMMUNITY PORTFOLIO PROPERTIES SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
Initial Costs Gross Amount
----------------------- ------------------------------------
Cost Capitalized Total
Building & Subsequent Buildings & Capitalized
Description Encumbrances Land Improvements to Acquisition Land Improvements Cost
- ----------- ------------ ------- ------------ -------------- ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Lakeside Apartments 2,239 440 3,649 80 440 3,729 4,169
Garden Apartments
St. Charles, Md.
Lancaster Apartments 4,289 484 4,292 169 484 4,461 4,945
Garden Apartments
St. Charles, Md.
Fox Chase Apartments 6,491 745 7,014 127 745 7,141 7,886
Garden Apartments
St. Charles, Md.
New Forest Apartments 12,065 1,229 12,102 421 1,229 12,523 13,752
Garden Apartments
St. Charles, Md.
Essex Village Apartments 15,896 2,667 21,381 (4,833) 2,667 16,548 19,215
Garden Apartments
Richmond, VA
Alturas Del Seniorial 3,214 345 4,185 139 345 4,324 4,669
Highrise Apartments
Rio Piedras, PR
Bayamon Gardens 9,364 1,153 12,050 390 1,153 12,440 13,593
Highrise/Garden Apartments
Bayamon, PR
De Diego 6,413 601 6,718 191 601 6,909 7,510
Highrise Apartments
Rio Piedras, PR
<CAPTION>
Date
Accumulated Constructed Depreciable Life in Years
Description Depreciation or Acquired Building Equipment
- ----------- ------------ ----------- -------- ---------
<S> <C> <C> <C> <C>
Lakeside Apartments 125 7/1/96 40 5-7
Garden Apartments
St. Charles, Md.
Lancaster Apartments 1,481 12/31/85 40 5-7
Garden Apartments
St. Charles, Md.
Fox Chase Apartments 1,967 3/31/87 40 5-7
Garden Apartments
St. Charles, Md.
New Forest Apartments 3,050 6/28/88 40 5-7
Garden Apartments
St. Charles, Md.
Essex Village Apartments 14,778 1/31/82 40 5-7
Garden Apartments
Richmond, VA
Alturas Del Seniorial 2,030 11/17/79 40 5-7
Highrise Apartments
Rio Piedras, PR
Bayamon Gardens 5,186 7/6/81 40 5-7
Highrise/Garden Apartments
Bayamon, PR
De Diego 3,147 3/20/80 40 5-7
Highrise Apartments
Rio Piedras, PR
</TABLE>
Page 2
<PAGE>
AMERICAN COMMUNITY PORTFOLIO PROPERTIES SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
Initial Costs Gross Amount
------------------------- ----------------------------
Cost Capitalized
Buildings & Subsequent Buildings &
Description Encumbrances Land Improvements to Acquisition Land Improvements
- ----------- ------------ ---- ------------ -------------- ----- ------------
<S> <C> <C> <C> <C> <C> <C>
Monserrate II 11,000 731 11,172 364 731 11,536
Highrise Apartments
Carolina, PR
Santa Juana 7,134 509 6,748 219 509 6,967
Highrise Apartments
Caguas, PR
Torre De Las Cumbres 5,603 466 5,954 162 466 6,116
Highrise Apartments
Rio Piedras, PR
Colinas De San Juan 8,336 900 10,742 402 900 11,144
Highrise Apartments
Carolina, PR
Jardines De Caparra 4,983 546 5,719 1,103 546 6,822
Garden Apartments
Bayamon, PR
Monserrate I 1,103 543 10,436 464 543 10,900
Highrise Apartments
Carolina, PR
Monte De Oro 5,672 562 5,217 740 562 5,957
Highrise Apartments
Rio Piedras, PR
New Center 5,940 589 5,702 311 589 6,013
Highrise Apartments
San Juan, PR
<CAPTION>
Total Date
Capitalized Accumulated Constructed Depreciable Life in Years
Description Costs Depreciation or Acquired Building Equipment
- ----------- ------ ------------ ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Monserrate II 12,267 5,222 1/30/80 40 5-7
Highrise Apartments
Carolina, PR
Santa Juana 7,476 3,163 2/8/80 40 5-7
Highrise Apartments
Caguas, PR
Torre De Las Cumbres 6,582 2,827 12/6/79 40 5-7
Highrise Apartments
Rio Piedras, PR
Colinas De San Juan 12,044 4,775 3/20/81 40 5-7
Highrise Apartments
Carolina, PR
Jardines De Caparra 7,368 3,105 4/1/80 40 5-7
Garden Apartments
Bayamon, PR
Monserrate I 11,443 5,128 5/1/79 40 5-7
Highrise Apartments
Carolina, PR
Monte De Oro 6,519 2,936 12/1/77 40 5-7
Highrise Apartments
Rio Piedras, PR
New Center 6,602 2,980 3/15/78 40 5-7
Highrise Apartments
San Juan, PR
</TABLE>
Page 3
<PAGE>
AMERICAN COMMUNITY PORTFOLIO PROPERTIES SCHEDULE III
REAL ESTATE AND ACCUMULATION DEPRECIATION
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
Initial Costs Gross Amount
-------------------------------------- -----------------------------
Cost Capitalized
Buildings & Subsequent Buildings &
Description Encumbrances Land Improvements to Acquisition Land Improvements
- ----------- ------------ ----- ------------ -------------- ----- ------------
<S> <C> <C> <C> <C> <C> <C>
San Anton 2,890 313 3,525 768 313 4,293
Highrise Apartments
Carolina, PR
Valle Del Sol 10,967 992 14,017 270 992 14,287
Highrise Apartments
Bayamon, PR
Vistas Del Turabo 2,261 354 2,508 496 354 3,004
Highrise Apartments
Caguas, PR
==================================================================================================
Total Properties $ 156,375 $16,770 $ 188,615 $ 6,250 $16,770 $ 194,865
==================================================================================================
<CAPTION>
Total Date
Capitalized Accumulated Constructed Depreciable Life in Years
Description Costs Depreciation or Acquired Building Equipment
- ----------- ------ ------------ ------------ -------- ----------
<S> <C> <C> <C> <C> <C>
San Anton 4,606 2,346 12/10/74 40 5-7
Highrise Apartments
Carolina, PR
Valle Del Sol 15,279 5,333 3/15/83 40 5-7
Highrise Apartments
Bayamon, PR
Vistas Del Turabo 3,358 1,141 12/30/83 40 5-7
Highrise Apartments
Caguas, PR
============================
Total Properties
$ 211,635 $ 96,663
============================
</TABLE>
NOTE TO TOTAL CAPITALIZED COSTS:
THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES FOR U.S. AND P.R.
PROPERTIES IS $ 179,511
<TABLE>
<CAPTION>
Real Accumulated
Estate Depreciation
------------------ -----------------
<S> <C> <C>
REVISED BALANCE 12/31/96, 10-K $ 211,399 $ 92,323
Additions during the period:
Improvements 1,554
Land
Depreciation Expense 5,551
Deductions during the period:
Dispositions (1,318) (1,211)
=================== =================
Balance at December 31, 1997 $ 211,635 $ 96,663
=================== =================
</TABLE>
Page 4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------ ----------------------
<S> <C>
2 Form of Restructuring Agreement dated as of _______________, 1998
between the Registrant and Interstate General Company L.P. ("IGC").
3.1 Form of Restated Declaration of Trust of the Registrant.
3.2 Bylaws of the Registrant.
4.1 Form of Common Share Certificate.
5 Opinion of Covington & Burling./(1)/
8.1 Form of Opinion of Covington & Burling regarding tax matters.
8.2 Form of Opinion of Fiddler, Gonzalez & Rodriguez.
10.1 Employment Agreement, dated , 1998, between Registrant and
Edwin L. Kelly./(1)/
10.2 Employment Agreement, dated , 1998, between Registrant and
Francisco Arrivi Cros./(1)/
10.3 Employment Agreement, dated , 1998, between Registrant and
Paul A. Resnick./(1)/
10.4 Form of Consulting Agreement, dated , 1998, between
Registrant and James J. Wilson.
10.5 Employees' Share Incentive Plan of Registrant.
10.6 Trustee's Share Incentive Plan of Registrant.
10.7 Housing Management Agreement, dated May 12, 1994, between IGC and
Capital Park Associates.
10.8 Housing Management Agreement, dated January 1, 1987, between IGC
and Chastleton Apartments Associates.
10.9 Housing Management Agreement, dated September 30, 1983, between
IGC and G.L. Limited Partnership.
23.1 Consent of Covington & Burling (included in Exhibit 5 opinion to be
filed by amendment).
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Fiddler, Gonzalez & Rodriguez (included in Exhibit 8.2
opinion filed herewith).
23.4 Consent of Robert A. Stanger & Co., Inc. ("Stanger").
23.5 Consent of Robert F. McCloskey Associates.
23.6 Consent of Smail Associates, Inc.
23.7 Consent of James B. Hooper, P.A.
23.8 Consent of Gatewood Company, Inc.
23.9 Consent of NBValuation Group, Inc.
23.10 Consent of Brick House Realty, Inc.
99.1 Form of Proxy.
99.2 Appraisal Report on Parque Escorial.
99.3 Appraisal Report on Canovanas Property.
99.4 Appraisal Report on All Remaining Land Inventory in and around the St.
Charles Planned Unit Development.
99.5 Appraisal Report on Fairway Village (Residential).
99.6 Appraisal Report on Fairway Village (Commercial).
99.7 Appraisal Report on Brandywine Village.
99.8 Appraisal Report on Southlake at Montclair.
99.9 Appraisal Report on Westbury.
99.10 Appraisal Report on Pomfret./(2)/
99.11 Net Asset Valuation Report of Stanger, dated as of December 31, 1996,
for Registrant.
99.12 Net Asset Valuation Report of Stanger, dated as of December 31, 1997,
for Registrant.
99.13 Net Asset Valuation Report of Stanger, dated as of March 31, 1998, for
Registrant.
</TABLE>
________________________
(1) To be filed by amendment.
(2) Incorporated in Exhibit 99.4.
<PAGE>
EXHIBIT 2
RESTRUCTURING AGREEMENT
THIS RESTRUCTURING AGREEMENT (the "Agreement") is made and entered
into as of ______________, 1998 by and between Interstate General Company L.P.,
a Delaware limited partnership ("IGC"), and American Community Properties Trust,
a Maryland real estate investment trust ("ACPT").
WITNESSETH:
----------
WHEREAS, the Board of Directors of Interstate General Management
Corporation ("IGMC"), the managing general partner of IGC, has determined that
it is in the best interests of IGC to consolidate the principal real estate
operations and assets of IGC (the "Assets") into a separate, publicly traded
entity (the "Restructuring");
WHEREAS, in March 1997 IGC formed ACPT as a wholly-owned subsidiary of
IGC for purposes of consummating the Restructuring;
WHEREAS, in connection with the Restructuring IGC wishes to transfer
to ACPT its ownership interest certain subsidiaries which currently own and
operate the Assets (the "Asset Transfers"); and
WHEREAS, following completion of the Asset Transfers, IGC intends to
distribute (the "Distribution") to its partners, including the holders (the
"Unitholders") of IGC's units (the "Units"), all of the common shares of
beneficial interest of ACPT, par value $.01 per share (the "Common Shares");
NOW THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and intending to be legally bound
hereby, IGC and ACPT hereby agree as follows:
<PAGE>
ARTICLE I. DEFINITIONS.
-----------
Section 1.01. General. As used in this Agreement, capitalized
-------
terms defined immediately after their use shall have the respective meanings
thereby provided and the following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
Action: any action, claim, suit, arbitration, inquiry, proceeding or
------
investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal.
Affiliate: with respect to any specified person or entity, a person
---------
or entity that, directly or indirectly, through one or more intermediaries,
controls, or is controlled by, or is under common control with, such specified
person or entity; provided, however, that IGC and ACPT shall not be deemed
Affiliates of each other for purposes of this Agreement.
Agent: the Registrar and Transfer Company, the distribution agent
-----
appointed by IGC to register the transfer of Common Shares to IGC Unitholders.
Books and Records: the books and records of IGC (or true and complete
-----------------
copies thereof), including all computerized books and records, owned by IGC
relating to the Assets.
Code: the Internal Revenue Code of 1986, as amended.
----
Distribution Date: the date and time as of which the Distribution of
-----------------
the Common Shares shall be effected as determined by the Board of Directors of
IGMC.
-2-
<PAGE>
Form S-4: the registration statement on Form S-4 to be filed by ACPT
--------
with the SEC to effect the registration of the Common Shares pursuant to the
Securities Act.
Indemnifiable Losses: with respect to any claim by an Indemnitee for
--------------------
indemnification authorized pursuant to Article IV hereof, all losses,
liabilities, claims, damages, obligations, payments, costs and expenses
(including, without limitation, the costs and expenses of any and all Actions,
demands, assessments, judgments, settlements and compromises relating thereto
and reasonable attorneys' fees and expenses in connection therewith) suffered by
such Indemnitee with respect to such claim.
Indemnifying Party: any party who is required to pay any other person
------------------
pursuant to Article IV hereof.
Indemnitee: any party who is entitled to receive payment from an
----------
Indemnifying Party pursuant to Article IV hereof.
Indemnity Payment: the amount an Indemnifying Party is required to
-----------------
pay an Indemnitee pursuant to Article IV hereof.
Meeting: The special meeting of IGC Unitholders called by the Board
-------
of Directors of IGMC to vote on the Distribution.
Meeting Record Date: The record date established by the Board of
-------------------
Directors if IGMC for determining holders of IGC Units eligible to vote at the
Meeting.
Record Date: the date determined by the Board of Directors of IGMC as
-----------
the record date for determining holders of IGC Units eligible to receive Common
Shares in the Distribution.
-3-
<PAGE>
SEC: the Securities and Exchange Commission.
---
Securities Act: the Securities Act of 1933, as amended.
--------------
ARTICLE II. THE RESTRUCTURING.
-----------------
Section 2.01. IGMC Board Action.
-----------------
(a) This Agreement and the consummation of each of the transactions
provided for herein shall be subject to approval by (i) the Board of Directors
of IGMC, (ii) the record holders of a majority of the IGC Units outstanding as
of the Meeting Record Date and (iii) the record holders of a majority of IGC
Units present and voting at the Meeting that are not beneficially owned by
members of the family of James J. Wilson, the Chairman of the Board of IGMC and
the Chief Executive Officer of IGC.
(b) The Board of Directors of IGMC, in its discretion, shall establish
the Meeting Record Date and the date, time and place of the Meeting.
(c) The Board of Directors of IGMC, in its discretion, shall
establish the Record Date. IGC shall provide notice of the Distribution and the
Record Date to record holders of IGC Units at least 15 days prior to the Record
Date.
(d) The Board of Directors of IGMC shall establish the Distribution
Date and all appropriate procedures in connection with the Distribution,
provided that in no event shall the Distribution Date occur prior to such time
as all of the following have occurred: (i) the conditions set forth in
subsection (a) above have been satisfied, (ii) the Form S-4 shall have been
declared effective by the SEC, and (iii) all of the transactions contemplated in
Section 2.02 shall have been consummated.
Section 2.02. The Asset Transfers.
-------------------
-4-
<PAGE>
IGC, on or prior to the Distribution Date, shall transfer to ACPT the
following interests in the subsidiaries of IGC identified below:
(a) 100% of the outstanding common shares of American Rental
Properties Trust, a Maryland real estate investment trust;
(b) 100% of the outstanding capital stock of American Land
Development US Inc., a Maryland corporation;
(c) 100% of the outstanding capital stock of American Rental
Management Company, a Delaware corporation; and
(d) 100% of the outstanding capital stock of IGP Group Corp., a
Puerto Rico corporation.
Section 2.03. The Distribution.
----------------
(a) On or as promptly as practicable following the Distribution Date,
IGC shall deliver to the Agent a Common Share certificate, endorsed in blank,
representing all of the ______________ outstanding Common Shares of ACPT.
(b) IGC shall instruct the Agent to distribute, on or as promptly as
practicable following the Distribution Date, to each holder of record of IGC
Units on the Record Date, one ACPT Common Share for every two IGC Units held by
such holder of record. Each Common Share so distributed shall be evidenced by a
Common Share certificate issued in registered form.
(c) No certificates or scrip representing fractional Common Shares
will be issued to IGC Unitholders as part of the Distribution. IGC shall
instruct the Agent to aggregate fractional Common Shares into whole Common
Shares and sell
-5-
<PAGE>
them, as soon as practicable after the distribution of Common Share certificates
to IGC Unitholders, in the open market at then prevailing prices on behalf of
IGC Unitholders who otherwise would be entitled to receive fractional share
interests. IGC shall instruct the Agent to distribute to such IGC Unitholders a
check in payment for the amount of their allocable share of the total sale
proceeds.
Section 2.04. Distribution of Common Shares to Holders of IGC
-----------------------------------------------
Options.
(a) ACPT agrees that it shall reserve for issuance from time to time
to IGC upon IGC's request and at no cost to IGC up to 8,200 Common Shares to be
distributed by IGC from time to time in respect of options to acquire IGC Units
or IGC Unit appreciation rights outstanding as of the Distribution Date under
the IGC Employee Unit Incentive Plan and the IGC Director Unit Option Plan
("Option Shares").
(b) Upon IGC's request and at IGC's expense, ACPT shall prepare and
file any necessary amendment to any listing agreement with respect to the Common
Shares to authorize listing of the Option Shares on the American Stock Exchange
and the Pacific Stock Exchange or any other national securities exchange or
market on which the Common Shares are listed.
(c) If at any time prior to the issuance to IGC of the Option Shares,
ACPT shall increase the aggregate number of Common Shares outstanding by means
of any split, dividend, distribution, recapitalization, reclassification or the
like, the number of Common Shares that ACPT shall reserve for issuance to IGC
pursuant to this Section 2.04 shall be adjusted so that the aggregate number of
Common Shares reserved for issuance to IGC shall be increased by that number of
Common Shares which a holder
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<PAGE>
of 8,200 Common Shares as of the record date for such event would have been
entitled to receive by virtue of such split, dividend, distribution,
recapitalization, reclassification or the like.
ARTICLE III. ASSUMPTION OF INDEMNIFICATION OBLIGATIONS.
-----------------------------------------
Section 3.01. Assumption and Discharge. From and after the
------------------------
Distribution Date, ACPT agrees to assume and discharge all obligations of IGC,
whether arising by statute, contract, or otherwise, to indemnify any current or
former director of IGMC or officer of IGMC or IGC for actions or omissions taken
by such persons prior to the Distribution Date in respect of the Assets.
ARTICLE IV. SURVIVAL AND INDEMNIFICATION.
----------------------------
Section 4.01. Survival of Agreements. Except as otherwise
----------------------
contemplated by this Agreement, all covenants and agreements of the parties
contained in this Agreement shall survive the Distribution Date.
Section 4.02. Indemnification.
---------------
(a) ACPT shall indemnify, defend and hold harmless IGC, each of its
officers, employees and agents and each Affiliate of IGC from and against any
and all Indemnifiable Losses of IGC or any of its Affiliates arising out of or
due to, directly or indirectly, any failure to perform, or violation of, any
provision of this Agreement or any other agreement to be entered into in
connection with this Agreement, which is to be performed or complied with by
ACPT.
(b) IGC shall indemnify, defend and hold harmless ACPT, each of its
officers, employees and agents and each Affiliate of ACPT from and against any
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<PAGE>
and all Indemnifiable Losses of ACPT or any of its Affiliates arising out of or
due to, directly or indirectly, any failure to perform or violation of any
provision of this Agreement or any other agreements to be entered into in
connection with this Agreement, which is to be performed or complied with by
IGC.
(c) The amount which any party (an "Indemnifying Party") is required
to pay to any other party (an "Indemnitee") under this Article IV shall be
reduced (including, without limitation, retroactively) by any insurance proceeds
and other amounts actually recovered by such Indemnitee in reduction of the
related Indemnifiable Loss. Amounts required to be paid are hereafter sometimes
collectively called "Indemnity Payments" and are individually called an
"Indemnity Payment." If an Indemnitee shall have received an Indemnity Payment
with respect to an Indemnifiable Loss and shall subsequently actually receive
insurance proceeds or other amounts in respect of such Indemnifiable Loss, then
such Indemnitee shall pay to such Indemnifying Party a sum equal to the lesser
of the amount of such insurance proceeds or other amounts actually received or
the net amount of Indemnity Payments actually received previously. The
Indemnitee agrees that the Indemnifying Party shall be subrogated to such
Indemnitee under any insurance policy and that the Indemnitee shall not waive
any right of subrogation.
Section 4.03. Procedure for Indemnification.
-----------------------------
(a) If an Indemnitee shall receive notice of the assertion by a person
who is not a party of this Agreement of any claim or of the commencement by any
such person of any Action (a "Third Party Claim") with respect to which an
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Indemnifying Party is or may be obligated to make an Indemnity Payment, such
Indemnitee shall give such Indemnifying Party prompt notice thereof after
becoming aware of such Third Party Claim, specifying in reasonable detail the
nature of such Third Party Claim and the amount or estimated amount thereof to
the extent then feasible (which estimate shall not be conclusive of the final
amount of such claim); provided, however, that the failure of any Indemnitee to
give notice as provided in this Section 4.03 shall not relieve the related
Indemnifying Party of its obligations under this Article IV, except to the
extent that such Indemnifying Party is actually prejudiced by such failure to
give notice.
(b) An Indemnifying Party may elect to defend, at such Indemnifying
Party's own expense and by such Indemnifying Party's own counsel, any Third
Party Claim. If an Indemnifying Party elects to defend a Third Party Claim, it
shall, within 10 days of notice of such Third Party Claim (or sooner, if the
nature of such Third Party Claim so requires), notify the related Indemnitee of
its intent to do so, and such Indemnitee shall cooperate in the defense of such
Third Party Claim. Such Indemnifying Party shall pay such Indemnitee's actual
out-of-pocket expenses (other than officers' or employees' salaries) reasonably
incurred in connection with such cooperation. After notice from an Indemnifying
Party to an Indemnitee of its election to assume the defense of a Third Party
Claim, an Indemnifying Party shall not be liable to such Indemnitee under this
Article IV for any legal or other expenses subsequently incurred by such
Indemnitee in connection with the defense thereof; provided, however, that such
Indemnitee shall have the right to employ separate counsel to represent such
Indemnitee
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<PAGE>
if, in such Indemnitee's reasonable judgment, a conflict of interest between
such Indemnitee and such Indemnifying Party exists with respect to such claim,
and in that event the reasonable fees and expenses of such separate counsel
shall be paid by such Indemnifying Party. Except as so provided, if an
Indemnitee desires to participate in the defense of a Third Party Claim, it may
do so but it shall not control the defense and such participation shall be at
its sole cost and expense. If an Indemnifying Party elects not to defend against
a Third Party Claim, or fails to notify an Indemnitee of its election as
provided in this Section 4.03, such Indemnitee may defend, compromise and settle
such Third Party Claim; provided, however, that no such Indemnitee may
compromise or settle any such Third Party Claim without prior written notice to
such Indemnifying Party and except by payment of monetary damages or other money
payments. No Indemnifying Party shall consent to entry of any judgment or enter
into any compromise or settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnitee of a
release from all liability in respect to such Third Party Claim.
(c) If an Indemnifying Party chooses to defend any claim, the
Indemnitee shall make available to such Indemnifying Party any books, records or
other documents within its control that are necessary or appropriate for such
defense (the cost of copying thereof to be paid by the Indemnifying Party).
(d) Notwithstanding anything else in this Section 4.03, if an offer of
settlement or compromise for non-monetary damages is received by an Indemnifying
Party with respect to a Third Party Claim and such Indemnifying Party
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<PAGE>
notifies the related Indemnitee in writing of such Indemnifying Party's
willingness to settle or compromise such Third Party Claim on the basis set
forth in such notice and such Indemnitee declines to accept such settlement or
compromise, such Indemnitee may continue to contest such Third Party Claim, free
of any participation by such Indemnifying Party, at such Indemnitee's sole
expense.
(e) Upon any final determination of a Third Party Claim pursuant to
this Section 4.03, except as provided by Section 4.03(d), the Indemnifying Party
shall pay promptly on behalf of the Indemnitee, or to the Indemnitee in
reimbursement of any amount therefore required to be paid by it, the amount so
determined. Upon the payment in full by the Indemnifying Party of any such
amount, the Indemnifying Party shall be subrogated to the rights of such
Indemnitee, to the extent not waived in settlement, against the persons who made
such Third Party Claim with respect to the subject matter of such claim.
(f) Notwithstanding the foregoing provisions of this Section 4.03,
there may be Third Party Claims which reasonably could result in both IGC and
ACPT being liable to the other under indemnification provisions of this
Agreement. In any such events, the parties shall endeavor, acting reasonably
and in good faith, to agree upon a manner of conducting the defense of or
settlement of the Third Party Claim with a view to minimizing the legal expense
and associated costs that might otherwise be incurred by the parties, including
the use of the same legal counsel for the defense of such claim.
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<PAGE>
(g) Except to the extent expressly provided otherwise in this Section
4.03, the indemnification provided for by this Section 4.03 shall not inure to
the benefit of any third party or parties and shall not relieve any insurer who
would otherwise be obligated to pay any claim of the responsibility with respect
thereto or, solely by virtue of the indemnification provisions hereof, provide
any subrogation rights with respect thereto.
(h) Any claim on account of an Indemnifiable Loss which does not
result from a Third Party Claim shall be asserted by written notice given by the
related Indemnitee to the related Indemnifying Party. Such Indemnifying Party
shall have a period of sixty (60) days within which to respond thereto. If such
Indemnifying Party does not respond within such sixty-day period, such
Indemnifying Party shall be deemed to have accepted responsibility to make
payment and shall have no further right to contest the validity of such claim.
ARTICLE V. ACCESS TO INFORMATION AND SERVICES.
----------------------------------
Section 5.01. Provision of Corporate Records. As soon as practicable
------------------------------
after the Distribution Date, IGC shall deliver to ACPT all Books and Records.
Such Books and Records shall be the property of ACPT, but shall be retained and
made available readily to IGC for review and duplication until the earlier of
(i) notice from IGC that such records are no longer needed by IGC or (ii) the
tenth anniversary of the Distribution Date.
Section 5.02. Production of Witnesses. From and after the
-----------------------
Distribution Date, IGC and ACPT shall use reasonable efforts to make available
to each other, upon
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<PAGE>
written request, its officers, employees and agents as witnesses to the extent
that any such person may reasonably be required in connection with any legal,
administrative or other proceedings in which the requesting party may from time
to time be involved. IGC and ACPT agree to reimburse each other for reasonable
out-of-pocket expenses (but not labor charges or salary payments) incurred by
the other in connection with providing witnesses pursuant to this Section 5.02.
ARTICLE VI. MISCELLANEOUS.
-------------
Section 6.01. Complete Agreement. This Agreement shall constitute
------------------
the entire agreement between IGC and ACPT with respect to the subject matter
hereof and shall supersede all previous negotiations, commitments and writings
with respect to such subject matter.
Section 6.02. Further Assurances; Subsequent Transfers. Each of IGC
----------------------------------------
and ACPT will execute and deliver such further agreements, notes and instruments
of transfer and assignment and will take such other actions as each of them may
reasonably request of the other in order to effectuate the purposes of this
Agreement and to carry out the terms hereof. Notwithstanding the foregoing, IGC
and ACPT shall not be obligated, in connection with the foregoing, to expend
monies other than reasonable out-of-pocket expenses and attorneys' fees.
Section 6.03. Expenses. Except as otherwise provided in this
--------
Agreement, all costs and expenses of IGC or ACPT incurred in connection with the
Restructuring (whether or not payable as of the Distribution Date) and with the
consummation of the transactions contemplated by this Agreement shall be borne
by ACPT and/or its
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consolidated subsidiaries. Such costs and expenses shall include, without
limitation, legal, accounting and printing costs and expenses and transfer
taxes.
Section 6.04. Governing Law. This Agreement shall be governed by and
-------------
construed and enforced in accordance with the laws of the State of Delaware
(regardless of the laws that might otherwise govern under applicable principles
of conflict law) as to all matters, including, without limitation, matters of
validity, construction, effect, performance and remedies.
Section 6.05. Notices. All notices, requests, demands and other
-------
communications under this Agreement shall be in writing and shall be deemed to
have been duly given (i) on the date of service if served personally on the
party to whom notice is given, (ii) on the day of transmission if sent via
facsimile transmission to the facsimile number given below, provided telephonic
confirmation of receipt is obtained promptly after completion of transmission,
(iii) on the business day after delivery to a recognized overnight courier
service provided receipt of delivery has been confirmed, or (iv) on the fifth
day after mailing, provided receipt of delivery is confirmed, if mailed to the
party to whom notice is to be given, by first class mail, registered or
certified, postage prepaid, properly addressed and return-receipt requested, to
the party as follows:
If to IGC: Interstate General Company L.P.
222 Smallwood Village Center
Waldorf, MD 20602
Attention: President
Fax: (301) 870-8481
If to ACPT: American Community Properties Trust
222 Smallwood Village Center
Waldorf, MD 20602
Attention: President
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Fax: (301) 870-8481
Any party may change its address by giving the other party written notice of its
new address in the manner set forth above.
Section 6.06. Amendment and Modification. This Agreement may be
--------------------------
amended, modified or supplemented only by written agreement of the parties.
Section 6.07. Termination. This Agreement may be terminated at any
-----------
time prior to the Distribution Date by and in the sole discretion of IGC without
the approval of ACPT. In the event of such termination, no party hereto shall
have any liability of any kind to any other party hereto.
Section 6.08. Successors and Assigns. This Agreement and all of the
----------------------
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by either party hereto without the prior written consent of the other
party.
Section 6.09. No Third Party Beneficiaries. This Agreement is solely
----------------------------
for the benefit of the parties hereto and is not intended to confer upon any
other person except the parties hereto any rights or remedies hereunder.
Section 6.10. Counterparts. This Agreement may be executed in two or
------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 6.11. Interpretation. The Article and Section headings
--------------
contained in this Agreement are solely for the purpose of reference, and not
part of the agreement
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<PAGE>
of the parties and shall not in any way affect the meaning or interpretation of
this Agreement.
Section 6.12. Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provision hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this agreement to
be executed and delivered as of the day and year first above written.
INTERSTATE GENERAL COMPANY, L.P.
By: Interstate General Management Corporation, its
managing general partner
By: _____________________________________
Name:
Title:
AMERICAN COMMUNITY PROPERTIES TRUST
By: _____________________________________
Name:
Title:
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EXHIBIT 3.1
AMERICAN COMMUNITY PROPERTIES TRUST
AMENDED AND RESTATED DECLARATION OF TRUST
DATED AS OF [___________], 1998
American Community Properties Trust, a Maryland real estate investment
trust (the "Trust") under Title 8 of the Corporations and Associations Article
of the Annotated Code of Maryland ("Title 8"), desires to amend and restate its
Declaration of Trust as currently in effect and as hereinafter amended.
The following provisions are all the provisions of the Declaration of Trust
currently in effect and as hereinafter amended:
ARTICLE I
DEFINITIONS
The terms used in this Agreement shall have the following meanings:
"Adjusted Capital Account Balance" means a Shareholder's Capital Account
balance (i) increased by any amount that such Shareholder is obligated to
restore under Treasury Regulation (S) 1.704-1(b)(2)(ii)(c) (including any
addition thereto pursuant to the next to last sentences of Treasury Regulation
(S) 1.704-2(g)(1) and (i)(5)); and (ii) decreased by any adjustments,
allocations, and distributions specified in Treasury Regulation (S) 1.704-
1(b)(2)(ii)(d)(4), (5), and (6) as are reasonably expected to be made to such
Shareholder.
"Agreed Value" means, with respect to property, the fair market value of
that property on the date it is contributed to the Trust, as determined by the
Board in good faith and by reasonable methods (including the employment of
independent professional appraisers).
"American Rental" means American Rental Properties Trust.
"Board" or "Board of Trustees" means the Board of Trustees of the Trust.
"Capital Account" means the capital account to be maintained by the Trust
for each Shareholder in accordance with the rules for maintaining capital
accounts set forth in the Treasury Regulations under Section 704(b) of the Code.
Any question concerning a Shareholder's Capital Account shall be resolved by the
Board of Trustees, applying principles consistent with this Declaration of Trust
and the regulations promulgated under Section 704 of the Code in order to assure
that to the extent practicable (i) the balances of the Capital Accounts of the
Shareholders with respect to a class of Shares will at all times be in
proportion to the number of Shares of that class held by each Shareholder and
(ii) all allocations herein will have substantial economic effect or will
otherwise be respected for federal income tax purposes.
<PAGE>
"Capital Contribution" means the sum of cash and the Agreed Value of other
property, if any, contributed to the Trust by each Shareholder. The initial
Capital Contributions made by IGC are set forth in Schedule A. Any reference in
this Declaration of Trust to the Capital Contribution of a Shareholder shall
include the contributions to the capital of the Trust made by any predecessor in
interest of such Shareholder, as determined by the Board of Trustees.
"Cash Flow" means the amount of cash distributable to the Shareholder as
determined in accordance with Article V.
"Charitable Beneficiary" has the meaning set forth in Section 4.4.2(a).
"Code" means the Internal Revenue Code of 1986, as it may be amended from
time to time.
"Common Share" shall have the meaning set forth in Section 4.1.
"Common Shareholder" means any person who is a record holder of Common
Shares.
"Contributed Property" means any property other than cash contributed to
the Trust as a Capital Contribution or any property (or portion thereof) treated
as having been contributed for purposes of adjusting the Capital Accounts to
reflect the fair market value of the Trust property under the terms of this
Declaration of Trust.
"Declaration of Trust" means this Amended and Restated Declaration of Trust
of American Community Properties Trust.
"Entity" means any general partnership, limited partnership, corporation,
limited liability company, joint venture, trust, business trust, or association.
"Excess Shares" has the meaning set forth in Section 4.4.2(a).
"Excluded Shareholders" has the meaning set forth in Section 4.4.1(a).
"Fiscal Quarter" means the first, second, third, or fourth quarter of any
Fiscal Year.
"Fiscal Year" means the accounting period used by the Partnership for
federal income tax purposes. The first Fiscal Year of the Trust shall end on
December 31, 1998.
"IGC" means Interstate General Company L.P.
"National Securities Exchange" means any securities exchange registered
pursuant to Section 6(a) of the Securities Exchange Act of 1934, as amended, or
the Nasdaq National Market System.
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<PAGE>
"Net Profits" and "Net Losses" mean, respectively, the net income and loss
of the Trust for federal income tax purposes determined as of the close of the
Fiscal Year, except that items of income, gain, loss, and deduction relating to
Contributed Property shall be computed as if the basis of the property to the
Trust at the time of contribution were equal to its Agreed Value on that date
and all other adjustments are made as necessary or appropriate (as determined by
the Board of Trustees) under the Treasury Regulations under Sections 704(b) and
704(c) of the Code.
"Operating Expenses" means all the non-capital costs and expenses of any
type incurred incident to the operation of the Partnership, including, without
limitation, taxes and the cost of operations, maintenance, and repairs.
"Ownership Limit" has the meaning set forth in Section 4.4.1(a).
"Person" means any individual natural person or Entity.
"Preferred Share" has the meaning set forth in Section 4.1.
"Preferred Shareholder" means any person who is a Record Holder of
Preferred Shares.
"Pro Rata" means, with respect to Shareholders holding Shares of a
particular class, in proportion to the number of Shares of that class held by
all Shareholders holding Shares of such class.
"Record Date" means the date established by the Board of Trustees for
determining the identity of (i) Shareholders entitled to exercise rights in
respect of any lawful action of Shareholders, (ii) Shareholders entitled to
receive any reports pursuant to the terms of this Declaration of Trust (iii)
Shareholders to whom the income, gains, losses, deductions, and credits of the
Trust are to be allocated pursuant to Section 5.1, (iv) Shareholders to whom
Cash Flow is distributable pursuant to Section 5.3, (v) Shareholders to whom
distributions in liquidation are to be made pursuant to Section 10.2, or (vi)
Shareholders for any other purposes pertaining to this Trust.
"Record Holder" means, in the case of Shareholders, the Persons identified
as Shareholders on the records of the Trust as of the close of business on the
determination date.
"REIT" means a real estate investment trust as defined in Code Section 856.
"Regulatory Allocation" has the meaning set forth in Section 5.1.4(a).
"Securities Act" means the Securities Act of 1933, as amended.
"Share" has the meaning set forth in Section 4.1.
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<PAGE>
"Shareholder" means any person who is a Record Holder of Common Shares or
Preferred Shares.
"Title 8" means Title 8 of the Corporation and Associations Article of the
Annotated Code of Maryland.
"Transfer" means any sale, assignment, hypothecation, gift, or other
disposition, whether voluntary or by operation of law.
"Transfer Agent" means any bank, trust company, or other Person appointed
by the Board from time to time to act as transfer agent of the Shares.
"Transferee Shareholder" has the meaning set forth in Section 5.3.4(b).
"Trust" means American Community Properties Trust.
"Trustees" has the meaning set forth in Section 2.4.2(a).
ARTICLE II
FORMATION, NAME, AND LOCATION
SECTION 2.1 Formation of the Trust. The Trust is a real estate investment
----------------------
trust within the meaning of Title 8. The Trust shall not be deemed to be a
general partnership, limited partnership, joint venture, joint stock company or
a corporation (but nothing herein shall preclude the Trust from being treated as
a partnership for tax purposes). Except as expressly provided herein to the
contrary, the administration and termination of the Trust shall be governed by
Title 8.
SECTION 2.2 Name and Principal Office. The name of the Trust is "American
-------------------------
Community Properties Trust." Under circumstances in which the Board of Trustees
of the Trust (the "Board of Trustees" or "Board") determines that the use of the
name of the Trust is not practicable, the Trust may use any other designation or
name for the Trust. The location of the principal office of the Trust shall be
at such place as the Board may from time to time designate. The Board may, in
its sole discretion, establish additional places of business of the Trust within
or outside the State of Maryland when and where required by the Trust business.
SECTION 2.3 Registered Agent. The name of the resident agent of the Trust
----------------
in the State of Maryland is The Corporation Trust Incorporated whose post office
address is 32 South Street, Baltimore, Maryland 21202. The Board, in its sole
and absolute discretion, may select any Person permitted by applicable law to
act as registered agent for the Trust in each jurisdiction in which it is
necessary or appropriate for the Trust to have a registered agent and may
replace any such person from time to time.
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<PAGE>
SECTION 2.4 Board of Trustees.
-----------------
Section 2.4.1 Powers.
------
(a) Subject to any express limitations contained in this Declaration
of Trust or in the Bylaws, (i) the business and affairs of the Trust shall be
managed under the direction of the Board of Trustees and (ii) the Board shall
have full, exclusive and absolute power, control and authority over any and all
property of the Trust. The Board may take any action as it, in its sole
judgment and discretion, deems necessary or appropriate to conduct the business
and affairs of the Trust.
(b) The Declaration of Trust shall be construed with a presumption in
favor of the grant of power and authority to the Board. Any construction of the
Declaration of Trust or determination made in good faith by the Board concerning
its powers and authority hereunder shall be conclusive. The enumeration and
definition of particular powers of the Trustees included in the Declaration of
Trust or in the Bylaws shall in no way be construed or deemed by inference or
otherwise in any manner to exclude or limit the powers conferred upon the Board
of Trustees under the general laws of the State of Maryland or any other
applicable laws.
(c) Except as otherwise provided in the Bylaws, the Board, without any
action by the Shareholders of the Trust, shall have and may exercise, on behalf
of the Trust, without limitation, the power to adopt, amend and repeal Bylaws;
to elect, appoint or employ such officers in the manner prescribed in the
Bylaws; to solicit proxies from holders of shares of beneficial interest of the
Trust; and to do any other acts and deliver any other documents necessary or
appropriate to the foregoing powers.
Section 2.4.2 Classification and Number.
-------------------------
(a) The Trustees of the Trust (hereinafter the "Trustees") shall be
classified, with respect to the terms for which they severally hold office, into
three classes, as nearly equal in number as possible, one class to hold office
initially for a term expiring at the annual meeting of Shareholders to be held
in 1999, another class to hold office initially for a term expiring at the
annual meeting of Shareholders to be held in 2000, and another class to hold
office initially for a term expiring at the annual meeting of Shareholders to be
held in 2001, with the Trustees of each class to hold office until their
successors are duly elected and qualified. At each annual meeting of
Shareholders, the successors to the class of Trustees whose term expires at such
meeting shall be elected to hold office for a term expiring at the annual
meeting of Shareholders held in the third year following the year of their
election. The election of a Trustee shall require the affirmative vote of the
holders of not less than a majority of the Shares then outstanding and entitled
to vote generally in the election of Trustees.
(b) The number of Trustees shall be determined pursuant to the
Bylaws of the Trust.
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Section 2.4.3. Independent Trustees. Notwithstanding anything herein
--------------------
to the contrary, at all times (except during a period not to exceed one hundred
and eighty (180) days following the death, resignation, incapacity or removal
from office of a Trustee prior to expiration of the Trustee's term of office),
no fewer than two of the members of the Board of Trustees must not be employed
by (i) the Trust, (ii) any Affiliate of the Trust, or (iii) a member of the
family of James J. Wilson, the President and Chief Executive Officer of
Interstate General Company L.P., as of the date hereof.
Section 2.4.4 Definition of Affiliate. For purposes of this
-----------------------
Agreement, "Affiliate" shall mean (i) any person that, directly or indirectly
controls or is controlled by the Trust, (ii) any other person that owns,
beneficially, directly or indirectly, five percent (5%) or more of the
outstanding capital shares, shares or equity interests of the Trust, or (iii)
any officer, director, employee, partner or trustee of the Trust or of any
person controlling or controlled by the Trust (excluding trustees and persons
serving in similar capacities who are not otherwise an Affiliate of such
person). For the purpose of this definition, the term "person" means and
includes individuals, corporations, general and limited partnerships, stock
companies or associations, joint ventures, associations, companies, trusts,
banks, trust companies, land trusts, business trusts, or other entities and
governments and agencies and political subdivisions thereof. For the purpose of
this definition, "control" (including the correlative meaning of the term
"controlled by"), as used with respect to any person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such person, through the ownership of voting
securities, partnership interests or other equity interests.
Section 2.4.5 Vacancies and Newly Created Trusteeships. Vacancies,
----------------------------------------
and newly created positions on the Board of Trustees resulting from any increase
in the authorized number of Trustees, shall be filled by the affirmative vote of
a majority of the Trustees then in office, and the Trustees so chosen shall hold
office until their successors are duly elected and qualified, unless sooner
displaced. If there are no Trustees in office, then an election of Trustees may
be held in the manner provided by statute. Notwithstanding anything herein to
the contrary, any vacancy in the Board of Trustees caused by the removal of a
Trustee by Shareholders pursuant to Section 2.4.7 hereof, shall be filled by the
affirmative vote of a majority of the Shares then outstanding and entitled to
vote generally in the election of Trustees.
Section 2.4.6 Resignation. Any Trustee of the Trust may resign at
-----------
any time upon written notice to the Board of Trustees, the Chairman of the
Board, the President or the Secretary of the Trust. Unless otherwise specified
in such written notice, a resignation shall take effect upon delivery thereof to
the Board of Trustees or the designated officer, and the acceptance of such
resignation shall not be necessary to make it effective.
Section 2.4.7 Removal. Any Trustee may be removed for cause, by the
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affirmative vote of the holders of a majority of the Shares then entitled to
vote at an election of Trustees. Any Trustee may be removed without cause, by
the affirmative vote of not less than two-thirds of the Shares then outstanding
and entitled to vote generally in the election of Trustees.
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Section 2.4.8 Business Activities by Trustees. Unless otherwise
-------------------------------
agreed between the Trust and the Trustees, each individual Trustee, including
each Independent Trustee, may engage in other business activities of the type
conducted by the Trust and is not required to present to the Trust any
investment opportunities presented to them even though the investment
opportunities may be within the scope of the Trust's investment policies.
SECTION 2.5 Subsequent Filings. If the laws of any jurisdiction require in
------------------
connection with the conduct of the Trust's business (for any jurisdiction with
respect to which the conduct of the Trust's business could create liabilities
for the Trust), the Board shall file, at the appropriate office in such
jurisdiction, a copy of this Declaration of Trust, as it may be amended, and/or
any other documents so required to be filed in such jurisdiction.
ARTICLE III
PURPOSES, POWERS, AND TERM
SECTION 3.1 Businesses and Purposes. The purposes for which the Trust is
-----------------------
formed are to invest in and to acquire, hold, manage, administer, control and
dispose of real property and interests in real property and to engage in other
activities, directly or indirectly, in support thereof.
SECTION 3.2 Powers. The Trust shall have all of the powers granted to
------
Maryland real estate investment trusts by Title 8 and all other powers set forth
in the Declaration of Trust which are not inconsistent with law and are
appropriate to promote and attain the purposes set forth in this Declaration of
Trust.
SECTION 3.3 Term. The Trust shall continue perpetually unless terminated
----
pursuant to Article IX of this Declaration of Trust or pursuant to any
applicable provision of Title 8.
ARTICLE IV
SHARES OF BENEFICIAL INTEREST
SECTION 4.1 Authorized Shares. The beneficial interest of the Trust shall
-----------------
be divided into shares of beneficial interest (the "Shares"). The Trust has
authority to issue ten million (10,000,000) common shares of beneficial
interest, $.01 par value per share ("Common Shares") ten million (10,000,000)
preferred shares of beneficial interest, $.01 par value per share ("Preferred
Shares"), and such other types or classes of securities of the Trust as the
Trustees may create and authorize from time to time and designate as
representing a beneficial interest in the Trust. Shares may be issued for such
consideration as the Trustee determines or, if issued as a result of a Share
dividend or Share split, without any consideration, in which case all shares so
issued shall be fully paid and nonassessible by the Trust. The Board of
Trustees, without any action by the Shareholders of the Trust, may
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amend the Declaration of Trust from time to time to increase or decrease the
aggregate number of Shares or the number of Shares of any class that the Trust
has authority to issue.
SECTION 4.2 Common Shares. Each Common Share shall entitle the holder
-------------
thereof to one vote on each matter upon which holders of Common Shares are
entitled to vote and shares of a particular class of issued Common Shares shall
have equal dividend, distribution, liquidation and other rights, and shall have
non-preference, preemptive, appraisal, conversion or exchange rights. The
Trustees may classify or reclassify any unissued Common Shares by setting or
changing the number, designation, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or terms or conditions
of redemption of any such Common Shares and in such event, the Trust shall file
for record with the State Department of Assessments and Taxation of Maryland
articles supplementary in substance and form as prescribed by Maryland law.
SECTION 4.3 Preferred Shares. The Board of Trustees are hereby expressly
----------------
granted the authority to authorize from time to time the issuance of one or more
series of Preferred Shares, and with respect to any such series to fix the
numbers, designations, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms or
conditions of redemption of such series. The Trustees may classify or
reclassify any unissued Preferred Shares by setting or changing the number,
designation, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or terms or conditions
of redemption of any such Preferred Shares and in such event, the Trust shall
file for record with the State Department of Assessments and Taxation of
Maryland articles supplementary in substance and form as prescribed by Maryland
law.
SECTION 4.4 Ownership Limits and Transfer Restrictions.
------------------------------------------
Section 4.4.1 Ownership Limits and Transfer Restrictions. Except as
------------------------------------------
otherwise provided in Section 4.4.3:
(a) With the exception of certain Shareholders (the "Excluded
Shareholders"), no Shareholder shall beneficially or constructively own more
than two percent (2%) of the issued and then outstanding Common Shares of the
Trust (the "Ownership Limit"). Any transfer of Common Shares that, if
effective, would result in any person (other than an Excluded Shareholder with
respect to Common Shares) beneficially or constructively owning Common Shares in
excess of the Ownership Limit shall be void ab initio as to the transfer of that
-- ------
number of Common Shares that otherwise would be beneficially or constructively
owned by such person in excess of the Ownership Limit, and the intended
transferee shall acquire no rights in such excess Common Shares. For purposes
of this Section 4.4: (1) the term "Excluded Shareholder" shall mean J. Michael
Wilson, Donald G. Blakeman, Bessemer Interstate Corporation, Interstate Business
Corporation, and Wilson Securities Corporation; and (2) a person will be treated
as beneficially or constructively owning Shares to the extent that such person
would be treated as owning such Shares (directly or constructively) for purposes
of applying the "closely held" test under Code Section 856(h).
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<PAGE>
(b) No transfer of Common Shares or Preferred Shares will be permitted
to the extent that such transfer will cause the Trust to cease to qualify as a
partnership for federal tax purposes or cause American Rental to cease to
qualify as a REIT. In addition, no transfers of Preferred Shares shall be
permitted unless accompanied by an opinion of counsel in form satisfactory to
the Board of Trustees that such transfer will not disqualify the Trust as a
partnership and will not disqualify American Rental as a REIT under the Code.
(c) The Board of Trustees is authorized to take such actions as it
determines are necessary and desirable to preserve the Trust's status as a
partnership for federal income tax purposes and to preserve the status of
American Rental as a REIT.
4.4.2 Violation of Ownership Limitations or Transfer Restrictions.
-----------------------------------------------------------
Except as otherwise provided in Section 4.4.3:
(a) Any transfer of Shares in violation of the transfer restrictions
under Section 4.4.1, including any transfer that would cause the Trust to cease
to qualify as a partnership for federal tax purposes or American Rental to cease
to qualify as a REIT, shall be null and void, and the intended transferee will
acquire no rights to the Shares (shares the transfer of which is null and void
under this sentence are hereinafter referred to as "Excess Shares"). Any Excess
Shares not otherwise exempted will be treated as transferred to one or more
organizations selected by the Board of Trustees ("Charitable Beneficiary"). Any
dividends payable with respect to the Excess Shares will be held in trust for
the Charitable Beneficiary. The Excess Shares may be retransferred by the
Charitable Beneficiary to any person. Any economic benefits accruing from a
transfer of such Excess Shares will be borne by the Charitable Beneficiary, and
the intended transferee will generally receive upon such retransfer the lesser
of the value of the Excess Shares at the time of the purported transfer and the
value of the Excess Shares at the time of the subsequent retransfer.
(b) If the Trust, or its designees, shall at any time determine in
good faith that a transfer of Shares has taken place in violation of Section
4.4.1 hereof, or that a person intends to acquire or has attempted to acquire
beneficial ownership or constructive ownership of any Shares in violation of
Section 4.4.1, the Trust shall take such action as it deems advisable to refuse
to give effect to or to prevent such transfer or acquisition, including, but not
limited to, refusing to give effect to such transfer on the books of the Trust
or instituting proceedings to enjoin such transfer or acquisition.
(c) Any Person who acquires or attempts to acquire Shares in violation
of Section 4.4.1 hereof, shall immediately give written notice to the Trust of
such event and shall provide to the Trust such other information as the Trust
may request in order to determine the effect, if any, of such transfer on the
Trust's status as a REIT.
Section 4.4.3. Exemptions and Duration
-----------------------
(a) Notwithstanding Sections 4.4.1 and 4.4.2, the Company's Board of
Trustees, upon receipt of a ruling from the Internal Revenue Service, an opinion
of counsel, or other evidence satisfactory to the Board of Trustees, and upon
such other conditions as
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the Board of Trustees may direct, may exempt a proposed transferee from any
restrictions on transfer under Section 4.4.1.
(b) The restrictions and limitations on ownership and transfers under
this Section 4.4, and the limitations described in Section 4.10 shall remain in
effect until (i) the Board of Trustees determines that it is no longer in the
best interests of the Trust for American Rental to qualify, or to continue to
qualify, as a REIT, and (ii) there is an affirmative vote of two-thirds of the
votes entitled to be cast on such matter at a regular or special meeting of the
Shareholders.
SECTION 4.5 Authorization by Board of Share Issuance. The Board of
----------------------------------------
Trustees may authorize the issuance from time to time of Shares of any class or
series, whether now or hereafter authorized, or securities or rights convertible
into Shares of any class or series, whether now or hereafter authorized, for
such consideration (whether in cash, property, past or future services,
obligation for future payment or otherwise) as the Board of Trustees may deem
advisable (or without consideration in the case of a Share split or Share
dividend), subject to such restrictions or limitations, if any, as may be set
forth in this Declaration of Trust or the Bylaws of the Trust.
SECTION 4.6 Dividends and Distributions. The holders of all Common Shares
---------------------------
will participate equally in dividends payable to holders of Common Shares when
and as authorized and declared by the Board of Trustees and in net assets
available for distribution to holders of Common Shares upon liquidation or
dissolution. The Board of Trustees may from time to time authorize and declare
to Shareholders such dividends or distributions, in cash or other assets of the
Trust or in securities of the Trust or from any other source as the Board of
Trustees in its discretion shall determine. The exercise of the powers and
rights of the Board of Trustees pursuant to this Section shall be subject to
Article V and to the provisions of any class or series of Shares at the time
outstanding.
SECTION 4.7 Capital Accounts. A separate Capital Account shall be
----------------
established and maintained for each Shareholder. Any transferee of a Share
shall succeed to the Capital Account relating to the Share so transferred.
SECTION 4.8 General Nature of Shares. All Shares shall be personal
------------------------
property entitling the Shareholders only to those rights provided in the
Declaration of Trust and Title 8. The Shareholders shall have no interest in
the property of the Trust and shall have no right to compel any partition,
division, dividend or distribution of the Trust or of the property of the Trust.
The death of a Shareholder shall not terminate the Trust. The Trust is entitled
to treat as Shareholders only those persons in whose names Shares are registered
as holders of Shares on the beneficial interest ledger of the Trust.
SECTION 4.9 Fractional Shares. The Trust may, without the consent or
-----------------
approval of any Shareholder, issue fractional Shares, eliminate a fraction of a
Share by rounding up or down to a full Share, arrange for the disposition of a
fraction of a Share by the person entitled to it, or pay cash for the fair value
of a fraction of a Share.
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SECTION 4.10 Limitations. Notwithstanding any other provision in this
-----------
Declaration of Trust, no determination shall be made by the Board of Trustees
nor shall any transaction be entered into by the Trust which would cause the
Trust to cease to qualify as a partnership for federal tax purposes or American
Rental to cease to qualify as a REIT unless such limitations are no longer in
effect under Section 4.4.3(b).
SECTION 4.11 Declaration of Trust and Bylaws. All Shareholders are
-------------------------------
subject to the provisions of the Declaration of Trust and the Bylaws of the
Trust.
ARTICLE V
PROFITS, LOSSES, TAX ALLOCATIONS AND DISTRIBUTIONS
SECTION 5.1 Profits and Losses.
------------------
Section 5.1.1 Allocation of Net Profits. Except as otherwise
-------------------------
provided in the Declaration of Trust, the Net Profits of the Trust shall be
allocated as follows:
(a) First, Net Profits shall be allocated to the Preferred
Shareholders Pro Rata in an aggregate amount not to exceed the amount of cash or
the fair market value of other property distributed to such Preferred
Shareholders under Section 5.3.2(a); and
(b) Second, Net Profits less any amounts allocated under Section
5.1.1(a) shall be allocated to the Common Shareholders Pro Rata.
Section 5.1.2 Allocation of Net Losses. Except as otherwise provided
------------------------
in the Declaration of Trust, the Net Losses of the Trust shall be allocated as
follows:
(a) First, Net Losses shall be allocated to the Common Shareholders
Pro Rata; provided, however, that no allocation shall be made under this Section
5.1.2(a) that would cause or increase a deficit balance in any Shareholder's
Adjusted Capital Account Balance, after taking into account any adjustments made
by the Trustees to such Capital Accounts under Section 5.1.4(c).
(b) Second, Net Losses less any amounts allocated under Section
5.1.2(a) shall be allocated to the Preferred Shareholders Pro Rata; provided,
however, that no allocation shall be made under this Section 5.1.2(b) that would
cause or increase a deficit balance in any Shareholder's Adjusted Capital
Account Balance and any allocation of Net Losses made under this Section
5.1.2(b) shall be offset, to the extent possible, by subsequent allocations of
Net Profits made before any allocations of Net Profits under Section 5.1.1.
Section 5.1.3 Qualified Income Offset. If, in any Fiscal Year, a
-----------------------
Shareholder unexpectedly receives an adjustment, allocation, or distribution
described in Treasury Regulation (S) 1.704-1(b)(2)(ii)(d)(4), (5), or (6), that
causes or increases a deficit in such Shareholder's Adjusted Capital Account
Balance, such Shareholder shall be allocated items of income and gain
(consisting of a Pro Rata portion of each item of Trust income, including gross
income, and gain for such Fiscal Year) in an amount and manner sufficient to
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eliminate, to the extent required by Treasury Regulation (S) 1.704-1(b), any
deficit balance in the Shareholder's Adjusted Capital Account Balance resulting
from such adjustment, allocation, or distribution.
Section 5.1.4 Other Allocation Rules.
----------------------
(a) To the extent that a Shareholder receives an allocation under
Section 5.1.3 or is required to receive an allocation under Treasury Regulation
(S) 1.704-2 (relating to allocations attributable to nonrecourse liabilities),
such allocation (hereinafter referred to as a "Regulatory Allocation") shall, to
the extent practicable, be included in the items allocated to that Shareholder
pursuant to Sections 5.1.1 and 5.1.2 and shall not change the net amount of
items allocated to such Shareholder pursuant to such Sections. In addition, the
Board of Trustees shall make allocations under this Section 5.1 in such a manner
that the Board determines to be appropriate so that, after such allocations are
made, each Shareholder's Capital Account balance is, to the extent possible,
equal to the Capital Account balance such Shareholder would have had if no
Regulatory Allocations were made (or were required to be made) to any
Shareholder.
(b) Notwithstanding Section 5.1.1, if the aggregate amount of Net
Profits to be allocated to Shareholders for any period is not equal to the
aggregate amount of Cash Flow distributed to Shareholders under Section 5.3 for
that period, the Board of Trustees shall be authorized to make such offsetting
allocations of Net Profits or other items for the current or subsequent periods
as it determines to be necessary or appropriate to properly reflect the economic
arrangement among the Shareholders as reflected in this Declaration of Trust
(including the relative rights of holders of each class of Shares issued and
outstanding).
(c) Notwithstanding Sections 5.1.1 and 5.1.2, in the event of any
allocation of Net Losses under Section 5.1.2, above, the Board of Trustees: (1)
shall make such offsetting allocations of Net Profits or other items as it
determines to be necessary or appropriate to properly reflect the economic
arrangement among the Shareholders as reflected in this Declaration of Trust
(including the relative rights of holders of each class of shares issued and
outstanding); and (2) before making any allocations of Net Losses under Section
5.1.2(b), may make adjustments to the Capital Accounts pursuant to Treasury
Regulation (S) 1.704-1(b)(2)(iv)(f) to reflect each Shareholder's share of
unrealized appreciation in the Trust's property that is not yet reflected in the
Capital Accounts.
(d) Notwithstanding Sections 5.1.1 and 5.1.2, in the event of
liquidation of the Trust, any gain or loss arising in connection with such
liquidation (including, without limitation, unrealized gain or loss) shall be
allocated among the Shareholders in a manner such that, to the extent
practicable, the Capital Account balances of the Shareholders immediately prior
to any distribution pursuant to Section 10.2 will be equal to the amount that
such Shareholder would receive if such distributions were instead made under
Section 5.3 (and, for purposes of applying the terms of any Preferred Shares
under Section 5.3, taking into account any applicable liquidation preferences).
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(e) In applying this Section 5.1 the Board of Trustees shall have as a
primary objective that, to the extent practicable, Shares (of the same class)
that are outstanding and are subsequently sold at the same time and for the same
price will have identical characteristics for federal income tax purposes
without regard to the identity of the transferor of the Shares and is authorized
to make such allocations of Trust income, gain, loss, or deductions as may be
necessary to achieve this result; provided, however, that nothing in this
Section 5.1.4(e) shall be interpreted as requiring the Board of Trustees to make
an election under Code Section 754 on behalf of the Trust. In applying this
Section 5.1.4, the Board of Trustees shall attempt, to the extent possible, to
allocate Trust income to each Shareholder in an amount equal to the cash (or the
fair market value of other property) distributions paid to such Shareholder.
Section 5.1.5 No Obligation to Restore Negative Capital Accounts. No
--------------------------------------------------
Shareholder shall, at any time, have any obligation to contribute any amount to
the Trust to restore any deficit balance in his Capital Account.
SECTION 5.2 Allocation of Tax and Other Items. Except as otherwise
---------------------------------
provided in this Declaration of Trust, all items of income, deduction, gain,
loss, or credit that must be allocated to the Shareholders for federal income
tax purposes (including foreign taxes paid by the Trust) and all items that must
be allocated for proper maintenance of Capital Accounts shall be allocated to
the Shareholders in proportion to their respective allocations of Net Profits or
Net Losses. Each item of taxable income, gain, loss, and deduction with respect
to property contributed to the Trust shall be allocated among the Shareholders
so as to take into account any variation between the tax basis of the
Contributed Property and its fair market value at the time of the contribution
in accordance with Section 704(c) of the Code. In taking such variation into
account the Board shall have as a primary objective that Shares (of the same
class) that are outstanding and are subsequently sold at the same time and for
the same price will have identical characteristics for federal income tax
purposes without regard to the identity of the transferor of the Shares and is
authorized to make such allocations of Trust income, gain, loss, or deduction as
may be necessary to achieve this result, to the extent possible.
SECTION 5.3 Distributions.
-------------
Section 5.3.1 Determination of Cash Flow.
--------------------------
(a) Not later than seventy-five (75) days after the end of each Fiscal
Quarter during the term of this Declaration of Trust, the Board shall determine
the amount of Cash Flow for such Fiscal Quarter. Cash Flow shall mean the
amount of cash which the Board, in its sole and absolute discretion, determines
is available for distribution to the Shareholders with respect to such Fiscal
Quarter, after taking into consideration the anticipated needs of the Trust for
working capital and future expansion, amounts needed to pay or reserve against
existing and anticipated Operating Expenses and obligations, and such other
factors as the Board deems relevant, including a reserve for contingencies. In
determining the amount of Cash Flow to be distributed with respect to any Fiscal
Quarter, the Board shall have authority to apportion expenses and revenues and
to take into consideration anticipated revenues or expenses of the Trust in any
reasonable manner,
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consistent with the foregoing provisions of this Section 5.3, in order to
minimize significant quarterly variations in Cash Flow to be distributed.
Section 5.3.2 Distributions of Cash Flow. Except as provided in
--------------------------
Section 10.2 for distributions on liquidation, the Cash Flow of the Trust shall
be distributed to all Shareholders within ninety (90) days after the end of each
Fiscal Quarter, as follows:
(a) First, Cash Flow shall be distributed to the Preferred
Shareholders Pro Rata to the extent of and in accordance with the terms of the
Preferred Shares; and
(b) Second, Cash Flow less any amounts distributed under Section
5.3.2(a) shall be distributed to the Common Shareholders Pro Rata.
Section 5.3.3 Required Minimum Distributions. The Board of Trustees
------------------------------
shall make minimum annual distributions to Shareholders of each class such that
the minimum aggregate amount of all distributions made each year to Shareholders
in that class will equal at least forty-five percent (45%) of the net taxable
income allocated to Shareholders of such class in such year; provided, however,
that the amount of the required minimum distribution for each class will be
reduced by an amount equal to the portion, if any, assigned to such class by the
Board of Trustees of the amount of Puerto Rico income tax payable by the Trust
arising from its holdings in Puerto Rico, income tax payable in other foreign
countries, and any U.S. federal income taxes paid by American Rental with
respect to undistributed capital gains. The minimum distribution may consist of
cash dividends and/or distribution of other property. The Board shall make a
good faith appraisal of the fair market value of any property to be distributed
to Shareholders in accordance with this Section 5.3.3.
Section 5.3.4 Other Rules Governing Distributions.
-----------------------------------
(a) When any distribution is to be made with respect to any class of
Shares traded on any exchange, the Board shall determine the amount and date of
such distribution and the Record Date for determining the Shareholders to whom
such distribution is to be made no less than ten (10) days before such Record
Date.
(b) Whenever any distribution is to be made with respect to any Share
held by a Shareholder ("Transferee Shareholder") who did not hold such share on
the Record Date with respect to that distribution, such distribution shall be
made to the Record Holder on the Record Date for such distribution, and not to
such Transferee Shareholder.
(c) If the Board, in its sole discretion, shall determine that a
portion of the Partnership's non-cash assets should be distributed to the
Shareholders, the Board shall obtain an appraisal as of a date reasonably close
to the date of distribution. Any unrealized appreciation (loss) with respect to
such assets shall be included in and allocated as Net Profits and Net Losses in
accordance with this Article V and for Capital Account purposes.
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ARTICLE VI
SHAREHOLDERS
SECTION 6.1 Meetings. There shall be an annual meeting of the
--------
Shareholders, to be held on proper notice at such time (after the delivery of
the annual report) and convenient location as shall be determined by or in the
manner prescribed in the Bylaws, for the election of the Trustees, if required,
and for the transaction of any other business within the powers of the Trust.
Except as otherwise provided in this Declaration of Trust, special meetings of
Shareholders may be called in the manner provided in the Bylaws. If there are
no Trustees, the officers of the Trust shall promptly call a special meeting of
the Shareholders entitled to vote for the election of successor Trustees. Any
meeting may be adjourned and reconvened as the Trustees determine or as provided
in the Bylaws.
SECTION 6.2 Voting Rights. Subject to the provisions of any class or
-------------
series of Shares then outstanding, the Shareholders shall be entitled to vote
only on the following matters: (i) election or removal of Trustees as provided
in Sections 2.4.2(a), 2.4.5, and 2.4.7; (ii) amendment of the Declaration of
Trust as provided in Section 8.2; (iii) termination of the Trust as provided in
Section 10.2; (iv) merger or consolidation of the Trust, or the sale or
disposition of substantially all of the Trust Property, as provided in Article
IX; and (v) such other matters with respect to which a vote of the Shareholders
is required by applicable law or the Board of Trustees has adopted a resolution
declaring that a proposed action is advisable and directing that the matter be
submitted to the Shareholders for approval or ratification. Except with respect
to the foregoing matters, no action taken by the Shareholders at any meeting
shall in any way bind the Board of Trustees.
SECTION 6.3 Preemptive and Appraisal Rights. Except as may be provided by
-------------------------------
the Board of Trustees in setting the terms of classified or reclassified Shares
pursuant to Sections 4.1, 4.2, or 4.3, no holder of Shares shall, as such
holder, (i) have any preemptive or preferential right to purchase or subscribe
for any additional Shares of the Trust or any other security of the Trust which
it may issue or sell or (ii), except as expressly required by Title 8, have any
right to require the Trust to pay him the fair value of his Shares in an
appraisal or similar proceeding.
SECTION 6.4 Extraordinary Actions. Except as specifically provided in
---------------------
Sections 2.4.2(a), 2.4.5, 2.4.7, 4.4.3(b), 8.2, and 10.2, notwithstanding any
provision of law permitting or requiring any action to be taken or authorized by
the affirmative vote of the holders of a greater number of votes, any such
action shall be effective and valid if taken or authorized by the affirmative
vote of holders of a majority of Shares entitled to cast on such matter.
SECTION 6.5 Board Approval. The submission of any action to the
--------------
Shareholders for their consideration shall first be approved by the Board of
Trustees.
SECTION 6.6 Action By Shareholders Without a Meeting. The Bylaws of the
----------------------------------------
Trust may provide that any action required or permitted to be taken by the
Shareholders may be taken without a meeting by the written consent of the
Shareholders entitled to cast a sufficient number of votes to approve the matter
as required by statute, the Declaration of Trust or the Bylaws of the Trust, as
the case may be.
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ARTICLE VII
LIABILITY LIMITATION, INDEMNIFICATION
AND TRANSACTIONS WITH THE TRUST
SECTION 7.1 Limitation of Shareholder Liability. No Shareholder shall be
-----------------------------------
liable for any debt, claim, demand, judgment or obligation of any kind of,
against or with respect to the Trust by reason of his being a Shareholder, nor
shall any Shareholder be subject to any personal liability whatsoever, in tort,
contract or otherwise, to any person in connection with the property or the
affairs of the Trust by reason of his being a Shareholder.
SECTION 7.2 Limitation of Trustee and Officer Liability. To the maximum
-------------------------------------------
extent that Maryland law in effect from time to time permits limitation of the
liability of trustees and officers of a real estate investment trust, no Trustee
or officer of the Trust shall be liable to the Trust or to any Shareholder for
money damages. Neither the amendment nor repeal of this Section, nor the
adoption or amendment of any other provision of the Declaration of Trust or
Bylaws of the Trust inconsistent with this Section, shall apply to or affect in
any respect the applicability of the preceding sentence with respect to any act
or failure to act which occurred prior to such amendment, repeal or adoption.
In the absence of any Maryland statute limiting the liability of trustees and
officers of a Maryland real estate investment trust for money damages in a suit
by or on behalf of the Trust or by any Shareholder, no Trustee or officer of the
Trust shall be liable to the Trust or to any Shareholder for money damages
except to the extent that (i) the Trustee or officer actually received an
improper benefit or profit in money, property, or services, for the amount of
the benefit or profit in money, property, or services actually received; or (ii)
a judgment or other final adjudication adverse to the Trustee or officer is
entered in a proceeding based on a finding in the proceeding that the Trustee's
or officer's action or failure to act was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding.
SECTION 7.3 Express Exculpatory Clauses in Instruments. Neither the
------------------------------------------
Shareholders nor the Trustees, officers, employees or agents of the Trust shall
be liable under any written instrument creating an obligation of the Trust, and
all persons shall look solely to the Trust Property for the payment of any claim
under or for the performance of that instrument. The omission of the foregoing
exculpatory language from any instrument shall not affect the validity or
enforceability of such instrument and shall not render any Shareholder, Trustee,
officer, employee or agent liable thereunder to any third party, nor shall the
Trustees or any officer, employee or agent of the Trust be liable to anyone for
such omission.
SECTION 7.4 Indemnification. The Trust shall have the power, to the
---------------
maximum extent permitted by Maryland law in effect from time to time, to
obligate itself to indemnify, and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to, (i) any individual who is a
present or former Shareholder, Trustee or officer of the Trust or (ii) any
individual who, while a Trustee of the Trust and at the request of the Trust,
serves or has served as a director, officer, partner, trustee, employee or agent
of another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise from and against any claim or liability to which such person
may become subject or which such person may
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incur by reason of his status as a present or former Shareholder, Trustee or
officer of the Trust. The Trust shall have the power, with the approval of its
Board of Trustees, to provide such indemnification and advancement of expenses
to a person who served as a predecessor of the Trust in any of the capacities
described in (i) or (ii) above, and to any employee or agent of the Trust or a
predecessor of the Trust.
SECTION 7.5 Transactions Between the Trust and its Trustees, Officers,
----------------------------------------------------------
Employees and Agents. Subject to any express restrictions in the Declaration of
- --------------------
Trust or adopted by the Trustees in the Bylaws or by resolution, the Trust may
enter into any contract or transaction of any kind with any person, including
any Trustee, officer, employee or agent of the Trust or any person affiliated
with a Trustee, officer, employee or agent of the Trust, whether or not any of
them has a financial interest in such transaction.
ARTICLE VIII
AMENDMENTS
SECTION 8.1 General. The Trust reserves the right from time to time to
-------
make any amendment to the Declaration of Trust, now or hereafter authorized by
law, including any amendment altering the terms or contract rights, as expressly
set forth in the Declaration of Trust, of any Shares. All rights and powers
conferred by this Declaration of Trust on Shareholders, Trustees and officers
are granted subject to this reservation.
SECTION 8.2 Shareholder Vote. Any amendment to this Declaration of Trust
----------------
shall be valid only if approved by the affirmative vote of the holders of at
least two-thirds of all the Shares entitled to be cast on the matter; provided
that the Board of Trustees may increase the number of authorized Shares without
approval of the Shareholders.
ARTICLE IX
MERGER, CONSOLIDATION OR SALE OF TRUST PROPERTY
Subject to the provisions of any class or series of Shares at the time
outstanding, the Trust may (i) merge the Trust into another entity, (ii)
consolidate the Trust with one or more other entities into a new entity or (iii)
sell, lease, exchange or otherwise transfer all or substantially all of the
Trust Property. Any such action must be approved by the Board of Trustees and,
after notice to all Shareholders entitled to vote on the matter, by the
affirmative vote of a majority of all the Shares entitled to be cast on the
matter.
ARTICLE X
DURATION AND TERMINATION OF TRUST
SECTION 10.1 Duration. The Trust shall continue perpetually unless
--------
terminated pursuant to Section 10.2 or pursuant to any applicable provision of
Title 8.
-17-
<PAGE>
SECTION 10.2 Termination.
-----------
(a) Subject to the provision of any class or series of Shares at the time
outstanding, the Trust may be terminated at any meeting of Shareholders, by the
affirmative vote of two-thirds of all the Shares entitled to be cast on the
matter. Upon the termination of the Trust:
(i) The Trust shall carry on no business except for the purpose of
winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the Trust
and all of the powers of the Trustees under the Declaration of Trust shall
continue, including the powers to fulfill or discharge the Trust's contracts,
collect its assets, sell, convey, assign, exchange, transfer or otherwise
dispose of all or any part of the remaining property of the Trust to one or more
persons at public or private sale for consideration which may consist in whole
or in part of cash, securities or other property of any kind, discharge or pay
its liabilities and do all other acts appropriate to liquidate its business.
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and agreements as
they deem necessary for their protection, the Trust may distribute the remaining
property of the Trust among the Shareholders in proportion to the positive
balances in each Shareholder's Capital Account, after taking into account all
adjustments to such Capital Accounts to reflect the activities of the Trust up
to and including the liquidation.
(b) After termination of the Trust, the liquidation of its business and
the distribution to the Shareholders as herein provided, a majority of the
Trustees shall execute and file with the Trust's records a document certifying
that the Trust has been duly terminated, and the Trustees shall be discharged
from all liabilities and duties hereunder, and the rights and interests of all
Shareholders shall cease.
* * * * *
IN WITNESS WHEREOF, this Amended and Restated Declaration of Trust has been
signed on this __ th day of [_________], 1998, by the undersigned President of
the Trust and by the undersigned Secretary of the Trust, each of whom
acknowledges that this document is his free act and deed, and that to the best
of his knowledge, information, and belief, the matters and facts set forth
herein are true in all material respects and that the statement is made under
the penalties for perjury.
__________________
Edwin L. Kelly
President
__________________
Secretary
-18-
<PAGE>
SCHEDULE A
PROPERTY CONTRIBUTED BY IGC
---------------------------
[To be inserted]
-19-
<PAGE>
SCHEDULE B
INITIAL TRUSTEES
----------------
<TABLE>
<CAPTION>
Name Address Year Term Ends under (S) 2.4.2
- ---- ------- ------------------------------
<S> <C> <C>
J. Michael Wilson
Edwin L. Kelly
Francisco Arrivi Cros
Donald G. Blakeman
Thomas Shafer
Thomas B. Wilson
</TABLE>
-20-
<PAGE>
EXHIBIT 3.2
AMERICAN COMMUNITY PROPERTIES TRUST
BYLAWS
ARTICLE I
OFFICES
Section 1. Principal Office. The principal office of the Trust shall be
----------------
located in St. Charles, Maryland.
Section 2. Additional Offices. The Trust may have additional offices at
------------------
such places as the Trustees may from time to time determine or the business of
the Trust may require.
Section 3. Fiscal and Taxable Years. The fiscal and taxable years of the
------------------------
Trust shall begin on January 1 and end on December 31.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Place. All meetings of shareholders shall be held at the
-----
principal office of the Trust or at such other place within the United States as
shall be stated in the Notice of the meeting.
Section 2. Meetings of Shareholders. Time and Place. The annual meeting
------------------------
of shareholders as provided in Article VII, Section 1 of the Declaration of
Trust shall be held between March 1 and June 30 each year. The hour and
location of each meeting shall be fixed by the Trustees and included in the
Notice of the meeting. If for any reason the annual meeting is not held on the
date herein provided, a subsequent meeting may be held in place thereof, and any
business transacted or elections held at such meeting shall be as valid as if
transacted or held at the annual meetings.
Section 3. Special Meetings. The Chairman of the Board or the President
----------------
or one-third of the Trustees may call special meetings of the shareholders.
Special meetings of shareholders shall also be called by the Secretary upon the
written request of the holders of shares entitled to cast not less than twenty-
five percent (25%) of all the votes entitled to be cast at such meeting. Such
request shall state the purpose of such meeting and the matters proposed to be
acted on at such meting. The Secretary shall inform such shareholders of the
reasonably estimated cost of preparing and mailing Notice of the meeting and,
upon payment by such shareholders to the Trust of such costs, the Secretary
shall give notice to each shareholder entitled to notice of the meeting.
<PAGE>
Unless requested by shareholders entitled to cast a majority of all the votes
entitled to be cast at such meeting, a special meeting need not be called to
consider any matter which is substantially the same as a matter voted on at any
meeting of the shareholders held during the preceding twelve months.
Section 4. Notice. Not less than ten nor more than 90 days before each
------
meeting of shareholders, the Secretary shall give to each shareholder entitled
to vote at such meeting and to each shareholder not entitled to vote who is
entitled to notice of the meeting written or printed notice stating the time and
place of the meeting and, in the case of a special meeting or as otherwise may
be required by any statute, the purpose for which the meeting is called, either
by mail or by presenting it to such shareholder personally or by leaving it at
his residence or usual place of business. If mailed, such notice shall be
deemed to be given when deposited in the United States mail addressed to the
shareholder at his post office address as it appears on the records of the
Trust, with postage thereon prepaid.
Section 5. Scope of Notice. Any business of the Trust may be transacted
---------------
at an annual meeting of shareholders without being specifically designated in
the notice, except such business as is required by any statute to be stated in
such notice. No business shall be transacted at a special meeting of
shareholders except as specifically designated in the notice.
Section 6. Organization. At every meeting of the shareholders, the
------------
Chairman of the Board, if there be one, shall conduct the meeting or, in the
case of vacancy in office or absence of the Chairman of the Board, one of the
following officers present shall conduct the meeting in the order stated: the
Vice Chairman of the Board, if there be one, the President, the Vice Presidents
in their order of rank and seniority, or a Chairman chosen by the shareholders
entitled to cast a majority of the votes which all shareholders present in
person or by proxy are entitled to cast, shall act as Chairman, and the
Secretary, or, in his absence, an Assistant Secretary, or in the absence of both
the Secretary and Assistant Secretary a person appointed by the Chairman shall
act as Secretary.
Section 6. Quorum. At any meeting of shareholders, the presence in person
------
or by proxy of shareholders entitled to cast a majority of all the votes
entitled to be cast at such meeting shall constitute a quorum; but this Section
shall not affect any requirement under any statute or the Declaration of Trust
for the vote necessary for the adoption of any measure. If, however, such
quorum shall not be present at any meeting of the shareholders, the shareholders
entitled to vote at such meeting, present in person or by proxy, shall have the
power to adjourn the meeting from time to time to a date not more than 120 days
after the original record date without notice other than announcement at the
meeting. At such adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at the meeting as
originally notified.
Section 8. Voting. A plurality of all the votes cast at a meeting of
------
shareholders duly called and at which a quorum is present shall be sufficient to
elect a Trustee. A majority of the votes cast at a meeting of shareholders duly
called and at which a quorum is present shall be
2
<PAGE>
sufficient to approve any other matter which may properly come before the
meeting, unless more than a majority of the votes cast is required herein or by
statute or by the Declaration of Trust. Unless otherwise provided in the
Declaration, each outstanding share, regardless of class, shall be entitled to
one vote on each matter submitted to a vote at a meeting of shareholders.
Section 9. Proxies. A shareholder may cast the votes entitled to be cast
-------
by the shares owned of record by him, either in person or by proxy executed in
writing by the shareholder or by his duly authorized attorney in fact. Such
proxy shall be filed with the Secretary of the Trust before or at the time of
the meeting. No proxy shall be valid after eleven months from the date of its
execution, unless otherwise provided in the proxy.
Section 10. Voting of Shares by Certain Holders. Shares of the Trust
-----------------------------------
registered in the name of a corporation, partnership, trust or other entity, if
entitled to be voted, may be voted by the president or a vice president, a
general partner or trustee thereof, as the case may be, or a proxy appointed by
any of the foregoing individuals, unless some other person who has been
appointed to vote such shares pursuant to a bylaw or a resolution of the
governing board of such corporation or other entity or agreement of the partners
of the partnership presents a certified copy of such bylaw, resolution or
agreement, in which case such person may vote such shares. Any trustee or other
fiduciary may vote shares registered in his name as such fiduciary, either in
person or by proxy.
Shares of the Trust directly or indirectly owned by it shall not be voted
at any meeting and shall not be counted in determining the total number of
outstanding shares entitled to be voted at any given time, unless they are held
by it in a fiduciary capacity, in which case they may be voted and shall be
counted in determining the total number of outstanding shares at any given time.
Section 11. Inspectors. At any meeting of shareholders, the Chairman of
----------
the meeting may, or upon the request of any shareholder shall, appoint one or
more persons as inspectors for such meeting. Such inspectors shall ascertain
and report the number of shares represented at the meeting based upon their
determination of the validity and effect of proxies, count all votes, report the
results and perform such other acts as are proper to conduct the election and
voting with impartiality and fairness to all the shareholders.
Each report of an inspector shall be in writing and signed by him or by a
majority of them if there is more than one inspector acting at such meeting. If
there is more than one inspector, the report of a majority shall be the report
of the inspectors. The report of the inspector or inspectors on the number of
shares represented at the meeting and the results of the voting shall be prima
facie evidence thereof.
Section 12. Reports to Shareholders. The Trustees shall submit to the
-----------------------
shareholders at or before the annual meeting of shareholders a report of the
business and operations of the Trust during such fiscal year, containing a
balance sheet and a statement of income and surplus of the
3
<PAGE>
Trust, accompanied by the certification of an independent certified public
accountant, and such further information as the Trustees may determine is
required pursuant to any law or regulation to which the Trust is subject.
Within the earlier of 20 days after the annual meeting of shareholders or 120
days after the end of the fiscal year of the Trust, the Trustees shall place the
annual report on file at the principal office of the Trust and with any
governmental agencies as may be required by law and as the Trustees may deem
appropriate.
Section 13. Nominations and Shareholder Business.
------------------------------------
(a) Annual Meetings of Shareholders. (1) Nominations of persons for
election to the Board of Trustees and the proposal of business to be considered
by the shareholders may be made at an annual meeting of shareholders (i)
pursuant to the Trust's notice of meeting, (ii) by or at the direction of the
Trustees or (iii) by any shareholder of the Trust who was a shareholder of
record at the time of giving of notice provided for in this Section 13(a), who
is entitled to vote at the meeting and who complied with the notice procedures
set forth in this Section 13(a).
(2) For nominations or other business to be properly brought before an
annual meeting by a shareholder pursuant to clause (iii) of paragraph (a)(1) of
this Section 13, the shareholder must have given timely notice thereof in
writing to the Secretary of the Trust. To be timely, a shareholder's notice
shall be delivered to the Secretary at the principal executive offices of the
Trust not less than 60 days nor more than 90 days prior to the first anniversary
of the preceding year's annual meeting; provided, however, that in the event
that the date of the annual meeting is advanced by more than 30 days or delayed
by more than 60 days from such anniversary date, notice by the shareholder to be
timely must be so delivered not earlier than the 90th day prior to such annual
meeting and not later than the close of business on the later of the 60th day
prior to such annual meeting or the tenth day following the day on which public
announcement of the date of such meeting is first made. Such shareholder's
notice shall set forth (i) as to each person whom the shareholder proposes to
nominate for election or reelection as a Trustee all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of Trustees, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (including such person's written consent to being named in the
proxy statement as a nominee and to serving as a Trustee if elected); (ii) as to
any other business that the shareholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such shareholder and of the beneficial owner, if any, on whose
behalf the proposal is made; and (iii) as to the shareholder giving the notice
and the beneficial owner, if any, on whose behalf the nomination or proposal is
made, (x) the name and address of such shareholder, as they appear on the
Trust's books, and of such beneficial owner and (y) the number of each class of
shares of the Trust which are owned beneficially and of record by such
shareholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (a)(2) of
this Section 13 to the contrary, in the event that the number of Trustees to be
elected to the Board of Trustees
4
<PAGE>
is increased and there is no public announcement naming all of the nominees for
Trustee or specifying the size of the increased Board of Trustees made by the
Trust at least 70 days prior to the first anniversary of the preceding year's
annual meeting, a shareholder's notice required by this Section 13(a) shall also
be considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Trust not later than the close of business on
the tenth day following the day on which such public announcement is first made
by the Trust.
(b) Special Meetings of Shareholders. Only such business shall be
conducted at a special meeting of shareholders as shall have been brought before
the meeting pursuant to the Trust's notice of meeting. Nominations of persons
for election to the Board of Trustees may be made at a special meeting of
shareholders at which Trustees are to be elected (i) pursuant to the Trust's
notice of meeting (ii) by or at the direction of the Board of Trustees or (iii)
provided that the Board of Trustees has determined that Trustees shall be
elected at such special meeting, by any shareholder of the Trust who was a
shareholder of record at the time of giving of notice provided for in this
Section 13(b) and at the time of the special meeting, who is entitled to vote at
the meeting and who complied with the notice procedures set forth in this
Section 13(b). In the event the Trust calls a special meeting of shareholders
for the purpose of electing one or more Trustees to the Board of Trustees, any
such shareholder may nominate a person or persons (as the case may be) for
election to such position as specified in the Trust's notice of meeting, if the
shareholder's notice containing the information required by paragraph (a)(2) of
this Section 13 shall be delivered to the Secretary at the principal executive
offices of the Trust not earlier than the 90th day prior to such special meeting
and not later than the close of business on the later of the 60th day prior to
such special meeting or the tenth day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Trustees to be elected at such meeting.
(c) General. (1) Only such persons who are nominated in accordance with
the procedures set forth in this Section 13 shall be eligible to serve as
Trustees and only such business shall be conducted at a meeting of shareholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 13. The presiding officer of the meeting shall have
the power and duty to determine whether a nomination or any business proposed to
be brought before the meeting was made in accordance with the procedures set
forth in this Section 13 and, if any proposed nomination or business is not in
compliance with this Section 13, to declare that such defective nomination or
proposal be disregarded.
(2) For purposes of this Section 13, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable news service or in a document publicly filed by the Trust
with the Securities and Exchange Commission pursuant to Sections 12, 14 or 15(d)
of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 13, a
shareholder shall also comply with all applicable requirements of state law and
of the Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 13. Nothing
5
<PAGE>
in this Section 13 shall be deemed to affect any rights of shareholders to
request inclusion of proposals in the Trust's proxy statement pursuant to Rule
14a-8 under the Exchange Act.
Section 14. Informal Action by Shareholders. Any action required or
-------------------------------
permitted to be taken at a meeting of shareholders may be taken without a
meeting if a consent in writing, setting forth such action, is signed by each
shareholder entitled to vote on the matter and any other shareholder entitled to
notice of a meeting of shareholders (but not to vote thereat) has waived in
writing any right to dissent from such action, and such consent and waiver are
filed with the minutes of proceedings of the shareholders.
Section 15. Voting by Ballot. Voting on any question or in any election
----------------
may be viva voce unless the presiding officer shall order or any shareholder
shall demand that voting be by ballot.
ARTICLE III
TRUSTEES
Section 1. General Powers; Qualifications; Trustees Holding Over. The
-----------------------------------------------------
business and affairs of the Trust shall be managed under the direction of its
Board of Trustees. A Trustee shall be an individual at least 21 years of age
who is not under legal disability. In case of failure to elect Trustees at an
annual meeting of the shareholders, the Trustees holding over shall continue to
direct the management of the business and affairs of the Trust until their
successors are elected and qualify.
Section 2. Annual and Regular Meetings. An annual meeting of the
---------------------------
Trustees shall be held immediately after and at the same place as the annual
meeting of shareholders, no notice other than this Bylaw being necessary. The
Trustees may provide, by resolution, the time and place, either within or
without the State of Maryland, for the holding of regular meetings of the
Trustees without other notice than such resolution.
Section 3. Special Meetings. Special meetings of the Trustees may be
----------------
called by or at the request of the Chairman of the Board or the President or by
a majority of the Trustees then in office. The person or persons authorized to
call special meetings of the Trustees may fix any place, either within or
without the State of Maryland, as the place for holding any special meeting of
the Trustees called by them.
Section 4. Notice. Notice of any special meeting shall be given by
------
written notice delivered personally, telegraphed or mailed to each Trustee at
his business or residence address. Personally delivered or telegraphed notices
shall be given at least two days prior to the meeting. Notice by mail shall be
given at least five days prior to the meeting. Telephone or facsimile-
transmission notice shall be given at least 24 hours prior to the meeting. If
mailed, such notice shall be deemed to be given when deposited in the United
States mail properly addressed, with
6
<PAGE>
postage thereon prepaid. If given by telegram, such notice shall be deemed to
be given when the telegram is delivered to the telegraph company. Telephone
notice shall be deemed given when the Trustee is personally given such notice in
a telephone call to which he is a party. Facsimile-transmission notice shall be
deemed given upon completion of the transmission of the message to the number
given to the Trust by the Trustee and receipt of a completed answer-back
indicating receipt. Neither the business to be transacted at, nor the purpose
of, any annual, regular or special meeting of the Trustees need be stated in the
notice, unless specifically required by statute or these Bylaws.
Section 5. Quorum. A majority of the entire Board of Trustees shall
------
constitute a quorum for transaction of business at any meeting of the Trustees,
provided that, if less than a majority of such Trustees are present at said
meeting, a majority of the Trustees present may adjourn the meeting from time to
time without further notice, and provided further that if, pursuant to the
Declaration of Trust or these Bylaws, the vote of a majority of a particular
group of Trustees is required for action, a quorum must also include a majority
of such group.
The Trustees present at a meeting which has been duly called and convened
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough Trustees to leave less than a quorum.
Section 6. Voting. (a) Except as provided in subsection (b) of this
------
Section 6, the action of the majority of the Trustees present at a meeting at
which a quorum is present shall be the action of the Trustees, unless the
concurrence of a greater proportion is required for such action by applicable
statute.
(b) Notwithstanding anything in these Bylaws to the contrary, any action
pertaining to any transaction involving the Trust, including the purchase, sale,
lease, or mortgage of any real estate asset or any other transaction, in which a
Trustee or officer of the Trust, or any Affiliate (as defined in the Declaration
of Trust of the Trust) of any of the foregoing persons, has any direct or
indirect interest other than solely as a result of his status as a Trustee,
officer, or shareholder of the Trust, must be approved by a majority of the
Independent Trustees (as defined in the Declaration of Trust), even if the
Independent Trustees constitute less than a quorum.
Section 7. Telephone Meetings. Trustees may participate in a meeting by
------------------
means of a conference telephone or similar communications equipment if all
persons participating in the meeting can hear each other at the same time.
Participation in a meeting by these means shall constitute presence in person at
the meeting.
Section 8. Informal Action by Trustees. Any action required or permitted
---------------------------
to be taken at any meeting of the Trustees may be taken without a meeting, if a
consent in writing to such action is signed by each Trustee and such written
consent is filed with the minutes of proceedings of the Trustees.
Section 9. Vacancies. If for any reason any or all the Trustees cease to
---------
be Trustees,
7
<PAGE>
such event shall not terminate the Trust or affect these Bylaws or the powers of
the remaining Trustees hereunder (even if fewer than two Trustees remain). Any
vacancy (excluding a vacancy created by the removal of a Trustee by shareholder
vote) shall be filled, at any regular meeting or at any special meeting called
for that purpose, by a majority of the remaining Trustees. Any individual so
elected as Trustee shall hold office for the unexpired term of the Trustee he is
replacing.
Section 10. Compensation. Trustees that are not employees of the Trust or
------------
any of its affiliates shall receive fees of $5000 per quarter and $1400 per
meeting attended. Trustees may be reimbursed for expenses of attendance, if
any, at each annual, regular or special meeting of the Trustees or of any
committee thereof; and for their expenses, if any, in connection with each
property visit and any other service or activity performed or engaged in as
Trustees; but nothing herein contained shall be construed to preclude any
Trustees from serving the Trust in any other capacity and receiving compensation
therefor. Trustees are eligible to participate in any share incentive plan
adopted for such purpose by the Trust.
Section 11. Resignation and Removal of Trustees. (a) Any Trustee may
-----------------------------------
resign by providing written notice to that effect to the Secretary, the
President or the Board of Trustees.
(b) The shareholders may, at any time, remove any Trustee in the manner
provided in the Declaration of Trust.
Section 12. Loss of Deposits. No Trustee shall be liable for any loss
----------------
which may occur by reason of the failure of the bank, trust company, savings and
loan association, or other institution with whom moneys or shares have been
deposited.
Section 13. Surety Bonds. Unless required by law, no Trustee shall be
------------
obligated to give any bond or surety or other security for the performance of
any of his duties.
Section 14. Reliance. Each Trustee, officer, employee and agent of the
--------
Trust shall, in the performance of his duties with respect to the Trust, be
fully justified and protected with regard to any act or failure to act in
reliance in good faith upon the books of account or other records of the Trust,
upon an opinion of counsel or upon reports made to the Trust by any of its
officers or employees or by the adviser, accountants, appraisers or other
experts or consultants selected by the Trustees or officers of the Trust,
regardless of whether such counsel or expert may also be a Trustee.
Section 15. Number and Qualifications. The number of Trustees of the
-------------------------
Trust shall not be less than three (3) nor more than nine (9). The Trustees
shall be classified, with respect to the terms for which they severally hold
office, into separate classes, in the manner prescribed in the Trust's
Declaration of Trust. At any regular meeting or at any special meeting called
for that purpose, at least two thirds of the members of the Board of Trustees
shall establish, increase or decrease the number of Trustees, provided that the
number thereof shall never be less than required by Maryland law and further
provided that the tenure of office of a Trustee shall not be
8
<PAGE>
affected by any decrease in the number of Trustees. Trustees need not be
shareholders of the Trust.
Section 16. Interested Trustee Transactions. Section 2-419 of the
-------------------------------
Maryland General Corporation Law (the "MGCL") shall be available for and apply
to any contract or other transaction between the Trust and any of its Trustees
or between the Trust and any other trust, corporation, firm or other entity in
which any of its Trustees is a trustee or director or has a material financial
interest.
ARTICLE IV
COMMITTEES
Section 1. Number, Tenure and Qualifications; Vacancies. The Board of
--------------------------------------------
Trustees may appoint from among its members an Audit Committee, Compensation
Committee and other committees comprised of two or more Trustees. Notice of
committee meetings shall be given in the same manner as notice for special
meetings of the Board of Trustees.
Subject to the provisions hereof, the Board of Trustees shall have the
power at any time to change the membership of any committee, to fill all
vacancies, to designate alternative members to replace any absent or
disqualified member, or to dissolve any such committee.
Section 2. Powers. The Trustees may delegate to committees appointed
------
under Section 1 of this Article any of the powers of the Trustees, except as
prohibited by law.
Section 3. Meetings. In the absence of any member of any such committee,
--------
the members thereof present at any meeting, whether or not they constitute a
quorum, may appoint another Trustee to act in the place of such absent member.
One-third, but not less than two, of the members of any committee shall be
present in person at any meeting of such committee in order to constitute a
quorum for the transaction of business at such meeting, and the act of a
majority present shall be the act of such committee. The Board of Trustees may
designate a chairman of any committee, and such chairman or any two members of
any committee may fix the time and place of its meetings unless the Board shall
otherwise provide. In the absence or disqualification of any member of any such
committee, the members thereof present at any meeting and not disqualified from
voting, whether or not they constitute a quorum, may unanimously appoint another
Trustee to act at the meeting in the place of such absent or disqualified
members; provided, however, that in the event of the absence or disqualification
of an Independent Trustee, such appointee shall be an Independent Trustee.
Each committee shall keep minutes of its proceedings and shall report the
same to the Board of Trustees at the meeting next succeeding, and any action by
the committees shall be
9
<PAGE>
subject to revision and alteration by the Board of Trustees, provided that no
rights of third persons shall be affected by any such revision or alteration.
Section 4. Telephone Meetings. Members of a committee of the Trustees may
------------------
participate in a meeting by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means shall
constitute presence in person at the meeting.
Section 5. Informal Action by Committees. Any action required or
-----------------------------
permitted to be taken at any meeting of a committee of the Trustees may be taken
without a meeting, if a consent in writing to such action is signed by each
member of the committee and such written consent is filed with the minutes of
proceedings of such committee.
ARTICLE V
OFFICERS
Section 1. General Provisions. The officers of the Trust (who may be
------------------
employed by any affiliate thereof) shall consist of a Chairman of the Board (who
shall be a Trustee), one or more Chief Operating Officers, a President, one or
more Vice Presidents, a Treasurer, one or more Assistant Treasurers, a
Secretary, and one or more Assistant Secretaries. In addition, the Trustees may
from time to time appoint such other officers with such powers and duties as
they shall deem necessary or desirable. The officers of the Trust shall be
elected annually by the Trustees at the first meeting of the Trustees held after
each annual meeting of shareholders. If the election of officers shall not be
held at such meeting, such election shall be held as soon thereafter as may be
convenient. Each officer shall hold office until his successor is elected and
qualified or until his death, resignation or removal in the manner hereinafter
provided. Any two or more offices except President and Vice President may be
held by the same person. In their discretion, the Trustees may leave unfilled
any office except that of President and Secretary. Election of an officer or
agent shall not of itself create contract rights between the Trust and such
officer or agent.
Section 2. Removal and Resignation. Any officer or agent of the Trust may
-----------------------
be removed by the Trustees if in their judgment the best interests of the Trust
would be served thereby, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed. Any officer of the Trust may
resign at any time by giving written notice of his resignation to the Trustees,
the Chairman of the Board, the President, or the Secretary. Any resignation
shall take effect at any time subsequent to the time specified therein or, if
the time when it shall become effective is not specified therein, immediately
upon its receipt. The acceptance of a resignation shall not be necessary to make
it effective unless otherwise stated in the resignation. Such resignation shall
be without prejudice to the contract rights, if any, of the Trust.
10
<PAGE>
Section 3. Vacancies. A vacancy in any office may be filled by the
---------
Trustees for the balance of the term.
Section 4. Chief Executive Officer. The Trustees may designate a Chief
-----------------------
Executive Officer from among the elected officers. The Chief Executive Officer
shall have responsibility for implementation of the policies of the trust, as
determined by the Trustees, and for the administration of the business affairs
of the Trust. In the absence of the Chairman the Chief Executive Officer shall
preside over the meetings of the Trustees and of the shareholders at which he
shall be present.
Section 5. Chief Operating Officer. The Trustees may designate one or
-----------------------
more Chief Operating Officers from among the elected officers. Said officer
will have the responsibilities and duties as set forth by the Trustees.
Section 6. Chief Financial Officer. The Trustees may designate a Chief
-----------------------
Financial Officer from among the elected officers. Said officer will have the
responsibilities and duties as set forth by the Trustees or the Chief Executive
Officer.
Section 7. Chairman of the Board. The Chairman of the Board shall preside
---------------------
over the meetings of the Trustees and of the shareholders at which he shall be
present and shall in general oversee all of the business and affairs of the
Trust. In the absence of the Chairman of the Board, the Chief Executive Officer
shall preside at such meetings at which he shall be present. The Chairman may
execute any deed, mortgage, bond, contract or other instrument, except in cases
where the execution thereof shall be expressly delegated by the Trustees or by
these Bylaws to some other officer or agent of the Trust or shall be required by
law to be otherwise executed. The Chairman of the Board shall perform such other
duties as may be assigned to him or them by the Trustees.
Section 8. President. In the absence of the Chairman and the Chief
---------
Executive Officer, the President shall preside over the meetings of the Trustees
and of the shareholders at which he shall be present. In the absence of a
designation of a Chief Executive Officer by the Trustees, the President shall be
the Chief Executive Officer and shall be ex officio a member of all committees
that may, from time to time, be constituted by the Trustees. The President may
execute any deed, mortgage, bond, contract or other instrument, except in cases
where the execution thereof shall be expressly delegated by the Trustees or by
these Bylaws to some other officer or agent of the Trust or shall be required by
law to be otherwise executed; and in general shall perform all duties incident
to the office of President and such other duties as may be prescribed by the
Trustees from time to time.
Section 9. Vice President. In the absence of the President or in the
--------------
event of a vacancy in such office, the Vice President (or in the event there be
more than one Vice President, the Vice Presidents in the order designated at the
time of their election or, in the absence of any designation, then in the order
of their election) shall perform the duties of the President and when so acting
shall have all the powers and be subject to all the restrictions upon the
President; and
11
<PAGE>
shall perform such other duties as from time to time may be assigned to him by
the President or by the Trustees. The Trustees may designate one or more Vice
Presidents as Executive Vice President or as Vice President for particular areas
of responsibility.
Section 10. Secretary. The Secretary shall (i) keep the minutes of the
---------
proceedings of the shareholders, the Trustees and committees of the Trustees in
one or more books provided for that purpose; (ii) see that all notices are duly
given in accordance with the provisions of these Bylaws or as required by law;
(iii) be custodian of the trust records and of the seal of the Trust; (iv) keep
a register of the post office address of each shareholder which shall be
furnished to the Secretary by such shareholder; (v) have general charge of the
share transfer books of the Trust; and (vi) in general perform such other duties
as from time to time may be assigned to him by the Chief Executive Officer, the
President or by the Trustees.
Section 11. Treasurer. The Treasurer shall have the custody of the funds
---------
and securities of the Trust and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Trust and shall deposit all
moneys and other valuable effects in the name and to the credit of the Trust in
such depositories as may be designated by the Trustees.
He shall disburse the funds of the Trust as may be ordered by the Trustees,
taking proper vouchers for such disbursements, and shall render to the President
and Trustees, at the regular meetings of the Trustees or whenever they may
require it, an account of all his transactions as Treasurer and of the financial
condition of the Trust.
If required by the Trustees, he shall give the Trust a bond in such sum and
with such surety or sureties as shall be satisfactory to the Trustees for the
faithful performance of the duties of his office and for the restoration to the
Trust, in case of his death, resignation, retirement or removal from office, of
all books, papers, vouchers, moneys and other property of whatever kind in his
possession or under his control belonging to the Trust.
Section 12. Salaries. The salaries of the officers shall be fixed from
--------
time to time by the Trustees and no officer shall be prevented from receiving
such salary by reason of the fact that he is also a Trustee.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. The Trustees may authorize any officer or agent to
---------
enter into any contract or to execute and deliver any instrument in the name of
and on behalf of the Trust and such authority may be general or confined to
specific instances. Any agreement, deed, mortgage, lease or other document
executed by one or more of the Trustees or by an authorized person shall be
valid and binding upon the Trustees and upon the Trust when authorized or
ratified by action of the Trustees.
12
<PAGE>
Section 2. Checks and Drafts. All checks, drafts or other orders for the
-----------------
payment of money, notes or other evidences of indebtedness issued in the name of
the Trust shall be signed by such officer or officers, agent or agents of the
Trust in such manner as shall from time to time be determined by the Trustees.
Section 3. Deposits. All funds of the Trust not otherwise employed shall
--------
be deposited from time to time to the credit of the Trust in such banks, trust
companies or other depositories as the Trustees may designate.
ARTICLE VII
SHARES
Section 1. Certificates. Each shareholder shall be entitled to a
------------
certificate or certificates which shall represent and certify the number of
shares of each class of beneficial interests held by him in the Trust. Each
certificate shall be signed by the Chief Executive Officer, the President or the
Vice President, countersigned by the Secretary or an Assistant Secretary, the
Treasurer or an Assistant Treasurer and may be sealed with the seal, if any, of
the Trust. The signatures may be either manual or facsimile. Certificates
shall be consecutively numbered; and if the Trust shall, from time to time,
issue several classes of shares, each class may have its own number series. A
certificate is valid and may be issued whether or not an officer who signed it
is still an officer when it is issued. Each certificate representing shares
which are restricted as to their transferability or voting powers, which are
preferred or limited as to their dividends or as to their allocable portion of
the assets upon liquidation or which are redeemable at the option of the Trust,
shall have a statement of such restriction, limitation, preference or redemption
provision, or a summary thereof, plainly stated on the certificate. In lieu of
such statement or summary, the Trust may set forth upon the face or back of the
certificate a statement that the Trust will furnish to any shareholder, upon
request and without charge, a full statement of such information.
Section 2. Transfers. Certificates shall be transferable, and title
---------
thereto and to the shares they represent shall be transferred by delivery
thereof to the same extent as those of a Maryland stock corporation. No
transfers of shares of the Trust shall be made if the Board of Trustees,
pursuant to any provision of the Declaration of Trust, shall have refused to
permit the transfer of such shares. Permitted transfers of shares of the Trust
shall be made on the share records of the Trust only upon the instruction of the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary or with a transfer agent or
transfer clerk, and upon surrender of the certificate or certificates, if
issued, for such shares properly endorsed or accompanied by a duly executed
share transfer power and the payment of all taxes thereon. Upon surrender to
the Trust or the transfer agent of the Trust of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, as to any transfers not prohibited by any provision of
the Declaration of Trust or by action of the Board of Trustees thereunder, it
shall be the duty of the
13
<PAGE>
Trust to issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books.
Section 3. Replacement Certificate. Any officer designated by the
-----------------------
Trustees may direct a new certificate to be issued in place of any certificate
previously issued by the Trust alleged to have been lost, stolen or destroyed
upon the making of an affidavit of that fact by the person claiming the
certificate to be lost, stolen or destroyed. When authorizing the issuance of a
new certificate, the officer designated by the Trustees may, in his discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or the owner's legal representative to
advertise the same in such manner as he shall require and/or to give bond, with
sufficient surety, to the Trust to indemnify it against any loss or claim which
may arise as a result of the issuance of a new certificate.
Section 4. Closing of Transfer Books or Fixing of Record Date. The
--------------------------------------------------
Trustees may set, in advance, a record date for the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
determining shareholders entitled to receive payment of any dividend or the
allotment of any other rights, or in order to make a determination of
shareholders for any other purpose. Such date, in any case, shall not be prior
to the close of business on the day the record date is fixed and shall be not
more than 90 days and, in the case of a meeting of shareholders not less than
ten days, before the date on which the meeting or particular action requiring
such determination of shareholders of record is to be held or taken.
In lieu of fixing a record date, the Trustees may provide that the share
transfer books shall be closed for a stated period but not longer than 20 days.
If the share transfer books are closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders, such
books shall be closed for at least ten days before the date of such meeting.
If no record date is fixed and the share transfer books are not closed for
the determination of shareholders, (i) the record date for the determination of
shareholders entitled to notice of or to vote at a meeting of shareholders shall
be at the close of business on the day on which the notice of meeting is mailed
or the 30th day before the meeting, whichever is the closer date to the meeting;
and (ii) the record date for the determination of shareholders entitled to
receive payment of a dividend or an allotment of any other rights shall be the
close of business on the day on which the resolution of the Trustees, declaring
the dividend or allotment of rights, is adopted.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof, except when (i) the determination has been
made through the closing of the transfer books and the stated period of closing
has expired or (ii) the meeting is adjourned to a date more than 120 days after
the record date fixed for the original meeting, in either of which case a new
record date shall be determined as set forth herein.
14
<PAGE>
Section 5. Stock Ledger. The Trust shall maintain at its principal
------------
office or at the office of its counsel, accountants or transfer agent, an
original or duplicate share ledger containing the name and address of each
shareholder and the number of shares of each class held by such shareholder.
Section 6. Fractional Shares; Issuance of Units. The Trustees may issue
------------------------------------
fractional shares or provide for the issuance of scrip, all on such terms and
under such conditions as they may determine. Notwithstanding any other
provision of the Declaration of Trust or these Bylaws, the Trustees may issue
units consisting of different securities of the Trust. Any security issued in a
unit shall have the same characteristics as any identical securities issued by
the Trust, except that the Trustees may provide that for a specified period
securities of the Trust issued in such unit may be transferred on the books of
the Trust only in such unit.
ARTICLE VIII
SEAL
Section 1. Seal. The Trustees may authorize the adoption of a seal by the
----
Trust. The seal shall have inscribed thereon the name of the Trust and the year
of its formation. The Trustees may authorize one or more duplicate seals and
provide for the custody thereof.
Section 2. Affixing Seal. Whenever the Trust is required to place its
-------------
seal to a document, it shall be sufficient to meet the requirements of any law,
rule or regulation relating to a seal to place the word "(SEAL)" adjacent to the
signature of the person authorized to execute the document on behalf of the
Trust.
ARTICLE IX
INDEMNIFICATION AND ADVANCE FOR EXPENSES
To the maximum extent permitted by Maryland law in effect from time to
time, the Trust, without requiring a preliminary determination of the ultimate
entitlement to indemnification, shall indemnify (i) any Trustee, officer or
shareholder or any former Trustee, officer or shareholder (including among the
foregoing, for all purposes of this Article X and without limitation, any
individual who, while a Trustee, officer or shareholder and at the express
request of the Trust, serves or has served another corporation, partnership,
joint venture, trust, employee benefit plan or any other enterprise as a
director, officer, shareholder, partner or trustee of such corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise)
who has been successful, on the merits or otherwise, in the defense of a
proceeding to which he was made a party by reason of service in such capacity,
against reasonable expenses incurred by him in connection with the proceeding,
(ii) any Trustee or officer or any former Trustee or officer against any claim
or liability to which he may become subject by reason of such status unless it
15
<PAGE>
is established that (a) his act or omission was material to the matter giving
rise to the proceeding and was committed in bad faith or was the result of
active and deliberate dishonesty, (b) he actually received an improper personal
benefit in money, property or services or (c) in the case of a criminal
proceeding, he had reasonable cause to believe that his act or omission was
unlawful and (iii) each shareholder or former shareholder against any claim or
liability to which he may become subject by reason of such status. In addition,
the Trust shall pay or reimburse, in advance of final disposition of a
proceeding, reasonable expenses incurred by a Trustee, officer or shareholder or
former Trustee, officer or shareholder made a party to a proceeding by reason
such status, provided that, in the case of a Trustee or officer, the Trust shall
have received (a) a written affirmation by the Trustee or officer of his good
faith belief that he has met the applicable standard of conduct necessary for
indemnification by the Trust as authorized by these Bylaws and (b) a written
undertaking by or on its behalf to repay the amount paid or reimbursed by the
Trust if it shall ultimately be determined that the applicable standard of
conduct was not met. The Trust may, with the approval of its Trustees, provide
such indemnification or payment or reimbursement of expenses to any Trustee,
officer or shareholder or any former Trustee, officer or shareholder who served
a predecessor of the Trust and to any employee or agent of the Trust or a
predecessor of the Trust. Neither the amendment nor repeal of this Article, nor
the adoption or amendment of any other provision of the Declaration of Trust or
these Bylaws inconsistent with this Article, shall apply to or affect in any
respect the applicability of this Article with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption.
Any indemnification or payment or reimbursement of the expenses permitted
by these Bylaws shall be furnished in accordance with the procedures provided
for indemnification or payment or reimbursement of expenses, as the case may be,
under Section 2-418 of the MGCL for directors of Maryland corporations. The
Trust may provide to Trustees, officers and shareholders such other and further
indemnification or payment or reimbursement of expenses, as the case may be, to
the fullest extent permitted by the MGCL, as in effect from time to time, for
directors of Maryland corporations.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the Declaration of
Trust or Bylaws or pursuant to applicable law, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be deemed equivalent to the giving of such
notice. Neither the business to be transacted at nor the purpose of any meeting
need be set forth in the waiver of notice, unless specifically required by
statute. The attendance of any person at any meeting shall constitute a waiver
of notice of such meeting, except where such person attends a meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting is not lawfully called or convened.
16
<PAGE>
ARTICLE XI
AMENDMENT OF BYLAWS
The Trustees shall have the exclusive power to adopt, alter or repeal any
provision of these Bylaws and to make new Bylaws.
ARTICLE XII
MISCELLANEOUS
All references to the Declaration of Trust shall include any amendments
thereto.
17
<PAGE>
EXHIBIT 4.1
Number Shares _____________
AMERICAN COMMUNITY PROPERTIES TRUST
Organized Under the Laws of the State of Maryland
This Certifies that ___________________ is the registered holder of
_____________ Shares transferable only on the books of ACPT by the holder hereof
in person or by Attorney upon surrender of this Certificate properly endorsed.
IN WITNESS WHEREOF, ACPT has caused this Certificate to be signed by
its duly authorized officers and its seal to be hereunto affixed this ____ day
of _________ 1998.
__________________________ ___________________________
President Secretary
<PAGE>
ACPT will furnish to any shareholder, on request and without charge, a
full statement of the information required by Section 8-203(D) of the
Corporations and Associations Articles of the Annotated Code of Maryland with
respect to the designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends and other
distributions, qualifications, and terms and conditions of redemption of the
shares of each class of beneficial interest which ACPT has authority to issue
and, if ACPT is authorized to issue any preferred or special class in series,
(i) the differences in the relative rights and preferences between the shares of
each series to the extent set, and (ii) the authority of the Board of Trustees
to set such rights and preferences of such subsequent series. The foregoing
summary does not purport to be complete and is subject to and qualified in its
entirety by reference to the Declaration of Trust of ACPT a copy of which will
be sent without charge to each shareholder who requests. Such request must be
made to the Secretary of ACPT at its principal office.
The Common Shares represented by this certificate are subject to
restrictions on transfer for the purpose of ACPT's maintenance of its status as
a real estate investment trust under the Internal Revenue Code of 1986, as
amended (the "Code"). Subject to certain further restrictions and except as
provided in the Declaration of Trust of ACPT, no Person may own more than two
percent (2%) of the outstanding Common Shares. Any person who attempts to
beneficially or constructively own shares in excess of the above limitation must
immediately notify ACPT in writing. Attempted transfers in violation of the
restrictions described shall be void ab initio. All capitalized terms in this
legend have the meaning defined in ACPT's Declaration of Trust, as the same may
be further amended from time to time, a copy of which, including the
restrictions on transfer, will be sent without charge to each shareholder who so
requests. Such requests must be made to the Secretary of ACPT at its principal
office.
The following abbreviations, when used in the inscription of the face
of this Certificate, shall be construed as though they were written out in full
according to applicable laws and regulations. Additional abbreviations may also
be used though not in the list.
<TABLE>
<S> <C>
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and
not as tenants in common
UNIF GIFT MIN ACT -- ___________Custodian ________________
(Cust) (Minor)
</TABLE>
-2-
<PAGE>
under Uniform Gifts to Minors Act ___________________________________________
(State)
For value received, __________________________ hereby sell, assign and
transfer unto
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
_______________________________________________
_______________________________________________
_______________________________________________
(PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE)
___________ Shares represented by this within certificate, and do hereby
irrevocably constitute and appoint __________________________ Attorney to
transfer the said shares on the books of the within-named Trust with full power
of substitution in the premises.
Dated this ____ day of _________ 1998.
In presence of:
__________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT, OR ANY CHANGE.
-3-
<PAGE>
EXHIBIT 8.1
[Covington & Burling Letterhead]
____________, 1998
American Community Property Trust
222 Smallwood Village Drive
St. Charles, Maryland 20602
Ladies and Gentlemen;
We have acted as counsel to Interstate General Company L.P., a
Delaware limited partnership ("IGC"), and American Community Properties Trust, a
Maryland real estate investment trust ("ACPT"), in connection with the
preparation of its Proxy Statement and Prospectus which forms part of the
Registration Statement on Form S-4 of ACPT as initially filed with the
Securities and Exchange Commission (the "Commission") on November 11, 1997 (as
thereafter amended from time to time and together with all exhibits thereto, the
"Proxy Statement/Prospectus") relating to the proposed transfer of the principal
real estate assets and operations of IGC to ACPT and the distribution (the
"Distribution") of common shares ("Common Shares") of ACPT to the IGC
Unitholders (the "Restructuring").
ACPT will own all of the outstanding equity interests in American
Rental Management Company ("American Management"), American Land Development US,
Inc. ("American Land"), and IGP Rental Properties Trust ("American Rental")
(American Rental, American Land, American Management and IGP Group hereinafter
collectively referred to as the "Companies" or individually as a "Company"). In
this connection, we have been asked to provide our opinions regarding certain
federal income tax matters related to the Restructuring. This opinion is being
furnished in accordance with the requirements of Item 21(a) of Form S-4 and Item
601(b)(8) of Regulation S-K under the Securities Act of 1933, as amended (the
"Act"). Capitalized terms used but not otherwise defined herein have the
respective meanings set forth in the Proxy Statement/Prospectus.
Our opinions are based on our understanding of the relevant facts
concerning IGC, ACPT and the proposed transactions as set forth in the Proxy
Statement/Prospectus. In this regard, we have examined and are familiar with:
(i) the Proxy Statement/Prospectus; (ii) the Declaration of Trust and Bylaws of
ACPT as amended and restated as of [date]; (iii) the Declaration of Trust and
Bylaws of American Rental as amended and restated as of [date]; (iv) the
Partnership Agreement of American Housing as amended and restated as of [date];
(v) the Articles of Incorporation and Bylaws of American Housing Management
Company as amended and restated as of [date]; (vi) the Articles of Incorporation
and Bylaws of IGP Group as amended and restated as of [date]; (vii) the Articles
of Incorporation and Bylaws of American Land as
<PAGE>
amended and restated as of [date]; (viii) the Articles of Incorporation and
Bylaws of American Management as amended and restated as of [date]; (ix) the
Second Amended and Restated Certificate and Agreement of Limited Partnership of
Interstate General Properties Limited Partnership S.E. as amended as of [date];
(x) any other documents furnished to us by IGC or you in connection with the
issuance of the Opinion Letter; and (xi) such other documents as we have deemed
necessary or appropriate for rendering our opinion. In our examination, we have
assumed, with your consent, the accuracy of all information contained in these
documents, the legal capacity of all natural persons, the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified,
conformed, or photostatic copies, and the authenticity of the originals of such
copies. In our review, we have also assumed that all of the obligations imposed
by any such documents examined on the parties thereto have been and will
continue to be performed or satisfied in accordance with their terms.
THE OPINIONS SET FORTH IN THIS LETTER RELY UPON THE DETAILED
STATEMENTS, CERTIFICATIONS, AND REPRESENTATIONS OF THE OFFICERS OF ACPT AND OF
THE COMPANIES AS SET FORTH IN THEIR LETTER TO US DATED TODAY (THE "ACPT LETTER")
AND OF THE OFFICERS OF INTERSTATE GENERAL MANAGEMENT CORPORATION ("IGMC"), THE
MANAGING GENERAL PARTNER OF IGC AS SET FORTH IN THEIR LETTER TO US DATED TODAY
(THE "IGC LETTER"), WHICH LETTERS ARE ATTACHED HERETO AND INCORPORATED BY
REFERENCE HEREIN, AND AS SET FORTH IN THE PROXY STATEMENT/PROSPECTUS, INCLUDING
THOSE SET FORTH UNDER THE CAPTION "INCOME TAX CONSIDERATIONS -- FEDERAL INCOME
TAX CONSIDERATIONS." We have not attempted to verify independently such
statements, certifications, and representations. Our opinion is premised on the
accuracy of such statements, certifications, and representations, and no facts
have come to our attention that would cause us to question the accuracy and
completeness of such statements, certifications, and representations. With
your consent, we have assumed that any successor officers of ACPT, any of the
Companies, or the Managing General Partner of IGC will make and satisfy the
statements, certifications, and representations of their respective
predecessors. In addition, with your consent, we have assumed and relied upon
the correctness of all computations, projections, estimates, and forecasts,
including all estimates and computations of the amount and character of income,
gain, loss, or deduction, and any underlying estimation of computation of tax
basis and value, that have been furnished to Counsel by IGC. Counsel has not
independently reviewed these computations or the underlying projections,
estimates, and forecasts upon which they are based. We have also assumed that
the transactions described in the Proxy Statement/Prospectus will be consummated
at the time and in the manner contemplated in the Proxy Statement/Prospectus.
At the date of this letter, certain events set forth in the Proxy
Statement/Prospectus regarding the Restructuring have not yet occurred and this
opinion is expressly contingent upon the occurrence of all such events.
American Rental's qualification and taxation as a REIT depend upon its
ability to meet on a continuing basis, through actual annual operating and other
results,
-2-
<PAGE>
the various requirements under the Code and described in the Proxy
Statement/Prospectus with regard to, among other things, the sources and amounts
of its gross income, the composition of its assets, the level of its
distributions to stockholders, and the diversity of its share ownership.
Counsel's opinions set forth in this letter relating to American Rental's
qualification and taxation as a REIT rely, among other things, on the
representations set forth in the ACPT Letter as to the sources and amounts of
American Rental's gross income, the composition of its assets, level of
distributions to its stockholders, and the diversity of its share ownership on a
continuing basis. Counsel will not review American Rental's compliance with
these requirements on a continuing basis. Accordingly, no assurance can be
given that the actual results of the operations of American Rental, the sources
of its income, the nature of its assets, the level of its distributions to
stockholders and the diversity of its stock ownership for any given taxable year
will satisfy the requirements under the Code for qualification and taxation as a
REIT.
One of the requirements for the treatment of American Rental as a REIT
under the Internal Revenue Code of 1986, as amended (the "Code"), is that not
more than 50% of the Common Shares may be held, directly or indirectly, applying
certain constructive ownership rules, by five or fewer individuals at any time
during the last half of each of American Rental's taxable years (the "closely
held" test), beginning with the second taxable year for which American Rental
elects to be taxed as a REIT. At the time of the Distribution, American Rental
would not meet the "closely held" test because of the percentage ownership of
the Wilson Family. We understand that James J. Wilson and J. Michael Wilson
have advised ACPT that the Wilson Family will take such actions as may be
necessary to reduce its percentage ownership to below 40% before the last half
of American Rental's second taxable year in order to permit American Rental to
qualify as a REIT. However, the Wilson Family is under no obligation to do so.
With your consent, we have assumed for purposes of the opinions expressed in
this letter that the Wilson Family's percentage ownership will be reduced in
such a manner that ACPT meets the "closely held" test as all times during and
after American Rental's second taxable year for which it elects to be taxed as a
REIT. If this assumption turns out not to be correct, American Rental will not
qualify as a REIT.
The Restructuring is contingent upon the management of IGC determining
that IGC will be classified as a partnership for federal income tax purposes for
1998. In making this determination, the management of IGC expects to analyze
IGC's income and seek an opinion of counsel that IGC will be classified as a
partnership for federal income tax purposes (the "IGC Classification Opinion").
This letter does not constitute the IGC Classification Opinion, and Counsel
expresses no opinion herein as to the classification of IGC as a partnership for
federal tax purposes. With your consent, we have assumed for purposes of the
opinions expressed in this letter that IGC will be treated as a partnership for
federal income tax purposes. If this assumption turns out not to be correct,
the Distribution will result in significant adverse tax consequences to IGC and
the Unitholders and the discussion contained in the "Income Tax Considerations
- -- Federal
-3-
<PAGE>
Income Tax Considerations" Proxy Statement/Prospectus will not fairly summarize
the federal income tax considerations likely to be material to a shareholder and
the discussion of the legal matters contained therein will not be accurate in
all material respects to the extent that such discussions assume or rely upon
the classification of IGC as a partnership for federal tax purposes.
The opinions set forth in this letter are based on relevant provisions
of the Code, Regulations promulgated thereunder (including proposed and
temporary Regulations) by the United States Department of the Treasury (the
"Regulations"), and interpretations of the foregoing as expressed in court
decisions, the legislative history, and existing administrative rulings and
practices of the Internal Revenue Service (the "IRS") (including its practices
and policies in issuing private letter rulings, which are not binding on the
Internal Revenue Service except with respect to the taxpayer that receives the
ruling), all as of the date hereof. These provisions and interpretations are
subject to change, which may or may not be retroactive in effect, that might
result in modifications of our opinion. Opinions of counsel are not binding on
the IRS or on any court. Accordingly, no assurance can be given that the IRS
will not challenge the propriety of one or more of the opinions set forth in the
following paragraphs, or that such a challenge would not be successful in a
court of competent jurisdiction.
Based upon, and subject to, the foregoing and the paragraphs below
(including, but not limited to, the assumptions, representations, qualifications
and exceptions set forth therein), we are of the opinion that:
1. American Rental has been organized in conformity with the
requirements for qualification and taxation as a real estate
investment trust ("REIT") under the Code beginning with its
taxable year ending December 31, 1998, and American Rental's
proposed method of operation as described in the Proxy
Statement/Prospectus will enable it to meet the requirements for
qualification and taxation as a REIT under the Code.
2. ACPT will be treated as a partnership for federal income tax
purposes and will not be subject to federal income tax as a
corporation or an association taxable as a corporation.
3. A Shareholder will not recognize gain or loss upon receipt of
Common Shares in the Distribution. A Shareholder who receives
cash in lieu of fractional Common Shares will recognize gain in
an amount not to exceed the amount of cash received. IGC will
not recognize gain on the Distribution.
4. Subject to the qualifications and limitations set forth herein
and in the Proxy Statement/Prospectus, the discussion contained
in the
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<PAGE>
"Income Tax Considerations -- Federal Income Tax Considerations"
section of the Proxy Statement/Prospectus fairly summarizes the
federal income tax considerations that are likely to be material
to a Shareholder and the discussion of the legal matters
contained therein as they relate to the United States federal
income tax matters is accurate in all material respects as of the
date hereof.
We are expressing our opinion only with respect to the foregoing
matters and no other opinion should be inferred as to any other matters.
For a discussion relating the law to the facts and the legal analysis
underlying the opinions set forth in this letter, we incorporate by this
reference and confirm our opinions set forth in the discussions of federal
income tax issues, which we prepared, in the section of the Proxy
Statement/Prospectus under the heading "Income Tax Considerations -- Federal
Income Tax Considerations."
We assume no obligation to advise you of any changes in the foregoing
subsequent to the date of this opinion letter, and we are not undertaking to
update the opinion letter from time to time. The opinions expressed in this
letter are limited to the matters expressly set forth herein and no opinions are
to be implied or may be inferred beyond the matters expressly so stated. This
opinion letter has been prepared solely for your use in connection with the
filing of the Proxy Statement/Prospectus on the date of this opinion letter and
should not be quoted in whole or in part or otherwise referred to, nor filed
with or furnished to any governmental agency or other person or entity, without
the prior written consent of this firm. We hereby consent to the filing of this
opinion as an exhibit to the Proxy Statement/Prospectus and to the use of the
name of our firm therein. In giving this consent, we do not thereby admit that
we are "expert" within the meaning of the Act or that we are within the category
of persons whose consent is required under Section 7 of the Act or the rules or
regulations of the Commission promulgated thereunder.
This opinion does not address specific requirements and limitations
applicable to particular Shareholders that may modify the analysis set forth
herein and is not generally applicable to non-resident aliens and foreign
corporations and has limited application to domestic corporations. Prospective
Shareholders should consult their own tax advisors as to the tax consequences of
acquiring, holding, and disposing of Common Shares.
Furthermore, we are not expressing any opinion with respect to the
deductibility or treatment of any particular item by IGC or ACPT or the actual
amount of each Unitholder's or Shareholder's share of those items. We also
express no opinion as to the accuracy of the financial statements or of any of
the financial information set forth in the Proxy Statement/Prospectus. This
opinion should not be construed as passing on
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<PAGE>
the business merits of investment in IGC or ACPT, or on whether or not a
Unitholder should consent to the Restructuring.
Even if no changes in the relevant facts or applicable law occur, any
position taken by IGC, ACPT, or Shareholders may be challenged by the IRS
notwithstanding the opinions expressed in this letter and there can be no
assurance that, if subjected to judicial review, the courts would not uphold
such a challenge. In this regard, certain matters on which we have expressed
opinions have not been definitively answered by statute, Regulations, ruling or
court decisions, and no assurance can be given that those questions might not be
resolved adversely. No opinion is expressed as to any matter not addressed
explicitly herein.
Very truly yours,
Covington & Burling
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<PAGE>
[INTERSTATE GENERAL MANAGEMENT CORPORATION]
[LETTERHEAD]
___________, 1998
Covington & Burling
1201 Pennsylvania Ave. N.W.
Washington, D.C. 20044
Re: Tax Opinion Letter
------------------
Ladies and Gentlemen:
In connection with the opinion letter (the "Opinion Letter") dated
today provided by Covington & Burling in connection with the preparation of the
Proxy Statement/Prospectus which forms part of the Registration Statement on
Form S-4 of American Community Properties Trust ("ACPT"), as initially filed
with the Securities and Exchange Commission on November 11, 1997 (as thereafter
amended from time to time and together with all exhibits thereto, the "Proxy
Statement/Prospectus") and recognizing that Covington & Burling will rely on
this letter in providing the Opinion Letter, the undersigned, authorized
officers of Interstate Management Corporation ("IGMC"), the Managing General
Partner of Interstate General Company L.P. ("IGC"), and acting as such, hereby
consents to the assumptions set forth in the Opinion Letter and certifies the
following, to the best of our knowledge and belief, as of this date.
Insofar as the certification refers to IGC, the undersigned officers
of IGMC represent that they shall cause IGC to comply with such certification.
Insofar as such certification refers to any entity directly or indirectly
controlled (either through its ownership or through its voting or management
rights with respect to such entity) by IGC (such entity hereinafter a
"Controlled Entity"), the undersigned represent that they will cause IGC to take
such actions as are necessary to cause such Controlled Entity to comply with
such certification. Insofar as such certification pertains to any person other
than IGMC, IGC, or a Controlled Entity, such certification is only as to the
knowledge of the undersigned without specific inquiry. Capitalized terms used
but not defined herein have the meaning provided in the Proxy
Statement/Prospectus. We have furnished to you all computations, projections,
estimates, and forecasts, including all estimates and computations of the amount
and character of income, gain, loss, or deduction, and any underlying estimation
or computation of tax basis and value upon which the discussion in the "Income
Tax Considerations -- Federal Income Tax Considerations" section of the Proxy
Statement/Prospectus is based.
1. The Partnership Agreement of IGC as amended and restated as of
February 6, 1987, has been duly authorized, executed, and delivered,
and has not and will not be amended or further amended after the noted
date in any manner that would affect your Opinion Letter.
<PAGE>
2. During each taxable year ending after December 31, 1997, IGC will
cause itself and each Controlled Entity to operate in such a manner
that will make each representation set forth below true for such years
or for the period set forth in such representation.
3. No actions will be taken by IGC or any Controlled Entity that would
have the effect of altering the facts upon which the Opinion Letter is
based.
4. IGC has a valid legal existence, and each Controlled Entity has full
power, authority, and legal right to enter into and perform the terms
of any agreements between or among other entities or other third
parties, and the transactions contemplated thereby.
5. At all times, material transactions among IGC, ACPT, American Rental,
American Housing, IGP Group, American Land, American Management,
American Housing Management Company, or any of them, have been and
will be negotiated and structured with the intention of achieving an
arm's-length result.
6. The payment of cash in lieu of fractional Common Shares was not
separately bargained for consideration and will be made solely for the
purpose of saving ACPT the expense and inconvenience of issuing
fractional Common Shares.
7. IGMC, IGC, and all Controlled Entities each maintain separate books
and records.
8. IGC is operated and will continue to be operated in accordance with
the Delaware Revised Uniform Limited Partnership Act, as codified in
Chapter 17, Title 6 of the Delaware Code Annotated and, without
limitation, the representations set forth in the Proxy
Statement/Prospectus and this letter.
9. IGC will take no action that would cause it to be taxed as a
corporation for federal tax purposes, including making an election to
be treated as an association taxable as a corporation.
10. IGMC and IGC will closely monitor the amount and character of IGC's
gross income and will take necessary steps in order to insure that
during taxable years ending after December 31, 1997, 90% or more of
IGC's gross income will consist of:
a. Interest;
b. Dividends;
c. "Real property rents", as that term is defined in Section
7704(d)(3) of the Internal Revenue Code of 1986, as amended (the
"Code");
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<PAGE>
d. Gain from the sale of other disposition of real property
(including property described in Code Section 1221(1));
e. Income and gains derived from the exploration, development,
mining or production, processing, refining, transportation
(including pipelines transporting gas, oil, or products thereof),
or the marketing of any mineral or natural resource (including
fertilizer, geothermal energy, and timber);
f. Any gain from the sale or disposition of a capital asset (or
property described in Code Section 1231(b) held for the
production of a type of income described above;
g. And any other types of income set forth in Code Section 7704(d),
such that at least 90% of IGC's gross income will consist of
"qualifying income" under Code Section 7704(c)(2).
11. The value of any marketable securities and money transferred directly
or indirectly by IGC to ACPT in exchange for Common Shares prior to
the Distribution was less than 20 percent of the value of all assets
so transferred by IGC in exchange for such Common Shares.
12. IGMC, IGC, and any Controlled Entity will take all such actions
necessary for ACPT to preserve its status as a partnership (or that is
not recognized as an entity separate from its owner) for federal tax
purposes, and will not take any actions that would cause ACPT to be
treated as an association taxable as a corporation for federal tax
purposes.
13. IGMC, IGC, and any Controlled Entity will take all such actions
necessary for American Rental to preserve its status as a REIT, and
will not take any actions that would adversely affect American
Rental's qualification as a REIT as defined in Code Section 856(a).
14. IGP is operated and will continue to be operated in accordance with
the applicable Puerto Rico law, its Partnership Agreement, and,
without limitation, the Proxy Statement/Prospectus and the
representations set forth in this letter.
15. IGP is taking and will take any and all such actions as may be
necessary to obtain and preserve its status as a special partnership
under Puerto Rico law.
16. IGP will take no action that would cause IGP to be taxed other than as
a corporation for Federal income tax purposes.
Where the foregoing representations involve matters of law, you have
explained to us the relevant and material legal authority to which such
representations relate. The
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<PAGE>
undersigned fully understand that Covington & Burling will be relying on the
accuracy and completeness of the statements made in this letter in rendering the
opinions contained in the Opinion Letter, and the undersigned have examined such
records and other documents and made such inquiries and investigation as the
undersigned deemed necessary to obtain sufficient actual knowledge to support
the representations made herein.
Very truly yours,
INTERSTATE GENERAL MANAGEMENT CORPORATION
BY:
--------------------------------------
James J. Wilson, Chairman of the
Board and Chief Executive Officer
--------------------------------------
J. Michael Wilson
Vice Chairman
--------------------------------------
Edwin L. Kelly
President and Chief Operating Officer
--------------------------------------
Cynthia L. Hedrick
Chief Accounting Officer
--------------------------------------
Roberta Peterson
Vice President
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<PAGE>
___________, 1998
Covington & Burling
1201 Pennsylvania Ave. N.W.
Washington, D.C. 20044
Re: Tax Opinion Letter
------------------
Ladies and Gentlemen:
In connection with the opinion letter (the "Opinion Letter") dated
today provided by Covington & Burling in connection with the preparation of the
Proxy Statement/Prospectus which forms part of the Registration Statement on
Form S-4 of American Community Properties Trust ("ACPT"), as initially filed
with the Securities and Exchange Commission on November 11, 1997 (as thereafter
amended from time to time and together with all exhibits thereto, the "Proxy
Statement/Prospectus") and recognizing that Covington & Burling will rely on
this letter in providing the Opinion Letter, the undersigned, authorized
officers of ACPT, American Rental Properties Trust ("American Rental") American
Rental Management Company ("American Management"), American Land Development US,
Inc. ("American Land"), and IGP Group Corp. ("IGP Group"), hereby consent to the
assumptions set forth in the Opinion Letter and certify on behalf of the entity
or entities indicated above their signatures below the following, to the best
knowledge and belief of such entity or entities on behalf of which they are
certifying.
Insofar as the certification refers to ACPT, the undersigned officers
of ACPT represent that they shall cause ACPT to comply with such certification.
Insofar as such certification refers to American Rental, American Land, American
Management, or IGP Group (collectively referred to as the "Companies" and
individually as a "Company"), the officer signing this letter on behalf of such
Company represents that such officer shall cause such Company to comply with
such certification. Insofar as such certification refers to any other entity
directly or indirectly controlled (either through its ownership or through its
voting or management rights with respect to such entity) by a Company (such
entity hereinafter a "Subsidiary Company"), the undersigned officers of that
Company represent that they shall take such actions as is necessary to cause
such Subsidiary Company to comply with such certification. Insofar as such
certification pertains to any person other than ACPT, or a Company or Subsidiary
Company, such certification is only as to the knowledge of the undersigned
without specific inquiry. Capitalized terms used but not defined herein have
the meaning provided in the Proxy Statement/Prospectus. References to American
Rental's taxable year ending December 31, 1998, shall include American Rental's
first taxable year for which it has elected to be treated as a REIT and
references to American Rental's taxable years ending after December 31, 1998,
shall include American Rental's second taxable year for which it has elected
REIT status, regardless of the actual date on which such taxable years end.
<PAGE>
GENERAL REPRESENTATIONS
1. Each of the following documents has been or will be duly authorized,
executed, and delivered, and has not and will not have been amended or
further amended after the noted date in any manner that would affect
your Opinion Letter:
a. The Declaration of Trust and Bylaws of ACPT as amended and
restated as of [date].
b. The Declaration of Trust and Bylaws of American Rental as amended
and restated as of [date].
c. The Partnership Agreement of American Housing as amended and
restated as of [date].
d. The Articles of Incorporation and Bylaws of American Housing
Management Company as amended and restated as of [date].
e. The Articles of Incorporation and Bylaws of IGP Group as amended
and restated as of [date].
f. The Articles of Incorporation and Bylaws of American Land as
amended and restated as of [date].
g. The Articles of Incorporation and Bylaws of American Management
as amended and restated as of [date].
h. The Second Amended and Restated Certificate and Agreement of
Limited Partnership of Interstate General Properties Limited
Partnership S.E. as amended as of [date];
i. Any other documents we have furnished you in connection with the
issuance of the Opinion Letter.
2. During each taxable year ending after December 31, 1997, ACPT will
cause itself, each Company and each Subsidiary Company to operate in
such a manner that will make each representation set forth below true
for such years or for the period set forth in such representation.
3. No actions will be taken by ACPT, any company, or any Subsidiary
Company that would have the effect of altering the facts upon which
the Opinion Letter is based.
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<PAGE>
4. ACPT, American Rental, American Housing, IGP Group, American Land,
American Management, and American Housing Management Company each has
a valid legal existence, and each entity has full power, authority,
and legal right to enter into and perform the terms of any agreements
between or among other entities or other third parties, and the
transactions contemplated thereby.
5. At all times, material transactions among ACPT, American Rental,
American Housing, IGP Group, American Land, American Management,
American Housing Management Company, or any of them, have been and
will be negotiated and structured with the intention of achieving an
arm's-length result.
6. The payment of cash in lieu of fractional Common Shares was not
separately bargained for consideration and will be made solely for the
purpose of saving ACPT the expense and inconvenience of issuing
fractional Common Shares.
7. ACPT, American Rental, American Housing, IGP Group, American Land,
American Management, and American Housing Management company each
maintain separate books and records.
8. ACPT, American Rental, IGP Group, and American Management, expect to
coordinate the declaration and payment of dividends and other
distributions from such entities in such a manner that all dividends
will be paid by the lower-tier entities to ACPT on the same day that
ACPT declares a dividend to the Shareholders of record on such date.
9. ACPT and American Rental will use the calendar year as their taxable
year.
REPRESENTATIONS WITH RESPECT TO ACPT
10. ACPT is operated and will continue to be operated in accordance with
the Maryland Real Estate Investment Trust Act, as codified in Section
8 of the Maryland Corporations and Associations Article, ACPT's
Declaration of Trust, and, without limitation, the representations set
forth in the Proxy Statement/Prospectus and this letter.
11. ACPT will take no action that would cause it to be taxed as a
corporation for federal tax purposes, including making an election to
be treated as an association taxable as a corporation.
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<PAGE>
12. During taxable years ending after December 31, 1997, 90 percent of
ACPT's gross income will consist of:
a. Interest;
b. Dividends;
c. "Real property rents", as that term is defined in Section
7704(d)(3) of the Internal Revenue Code of 1986, as amended (the
"Code");
d. Gain from the sale of other disposition of real property
(including property described in Code Section 1221(1));
e. Income and gains derived from the exploration, development,
mining or production, processing, refining, transportation
(including pipelines transporting gas, oil, or products thereof),
or the marketing of any mineral or natural resource (including
fertilizer, geothermal energy, and timber);
f. Any gain from the sale or disposition of a capital asset (or
property described in Code Section 1231(b) held for the
production of a type of income described above;
g. And any other types of income set forth in Code Section 7704(d),
such that at least 90% of ACPT's gross income will consist of
"qualifying income" under Code Section 7704(c)(2).
13. Upon the dissolution and liquidation of ACPT, ACPT anticipates that
the Shareholders' capital accounts and percentage interests will be in
proportion to the Shareholders' Common Shares and that liquidating
distributions will therefore be pro rata in accordance with Common
Shares.
REPRESENTATIONS WITH RESPECT TO AMERICAN RENTAL
AND AMERICAN HOUSING
14. American Rental is operated and will continue to be operated in
accordance with the Maryland Real Estate Investment Trust Act,
American Rental's Declaration of Trust, and, without limitation, the
representations set forth in the Proxy Statement/Prospectus and this
letter.
15. American Rental will timely file IRS Forms 1120-REIT for its taxable
years ending December 31, 1998, and American Rental will timely elect
to be taxed as a Real Estate Investment Trust ("REIT") for such year
and all subsequent years and will not terminate or revoke such
election.
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<PAGE>
16. American Housing is operated and will continue to be operated in
accordance with the applicable provisions of applicable laws, the
Delaware Revised Limited Partnership Act (codified in Title 6, Section
17-1102 of the Delaware Code), American Housing's Partnership
Agreement, the Proxy Statement/Prospectus, and, without limitation,
the representations set forth in the Proxy Statement/Prospectus and
this letter (including the representations of "REIT Subsidiaries").
17. American Housing Management Company is operated and will continue to
be operated in accordance with the applicable provisions of applicable
laws, the General Corporations Law of Maryland (as codified in
Sections 1-7 of the Maryland Corporations and Associations Article),
American Housing Management Company's Articles of Incorporation and
Bylaws, and, without limitation, the representations set forth in the
Proxy Statement/Prospectus and this letter (including the
representations of "REIT Subsidiaries").
18. Neither American Housing nor American Housing Management Company will
take any action that would cause them to be treated as an association
taxable as a corporation for federal tax purposes.
19. ACPT, American Rental, American Housing Management Company, and
American Housing will take such actions as are necessary to cause the
U.S. Apartment Partnerships or any other entity in which American
Rental, American Housing Management Company, or American Housing own
an interest directly or indirectly through one or more other entities
(American Housing Management Company, American Housing, the U.S.
Apartment Partnerships, and such other entities hereinafter referred
to as the "REIT Subsidiaries") to comply with all of the
representations of the REIT Subsidiaries set forth in this letter.
20. American Rental and the REIT Subsidiaries will take all such actions
as are necessary for American Rental to preserve its status as a REIT,
and neither ACPT, American Rental, nor American Housing will make any
amendments to their organizational documents after the date hereof
that would affect American Rental's qualification as a REIT as defined
in Code Section 856(a).
21. American Rental will not take any action that would (but for the REIT
provisions under the Code) cause it to be taxed other than as a
domestic corporation for federal tax purposes.
22. American Rental and the REIT Subsidiaries will take such actions as
are necessary to ensure that the following requirements are now and
will
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<PAGE>
continue to be met by any person that provides services with respect
of or to any tenant of a property in which, commencing with the
taxable year ending December 31, 1998, American Rental owns an
interest directly or indirectly through the REIT Subsidiaries:
a. Such person does not and will not own, directly or indirectly
(within the meaning of Code Section 856(d)(5)), more than 35
percent of the shares of beneficial interest of ACPT, the stock
of American Rental or the ownership interests in any REIT
Subsidiary;
b. If such person is a corporation, not more than 35 percent of its
stock, measured by voting power or number of shares, or, if such
person is a non-corporate entity, not more than a 35 percent
interest in its assets or net profits is or will be owned,
directly or indirectly (within the meaning of Code Section
856(d)(5)), by one or more persons who own or owns 35 percent or
more of the beneficial interests of ACPT, the stock of American
Rental or the ownership interests in any REIT Subsidiary;
c. Neither ACPT, American Rental, any REIT Subsidiary, nor any
Controlled Entity presently derives or receives, or will derive
or receive, any income from such person;
d. Such person was, is and will be adequately compensated for its
services; and
e. If such person is an individual, he or she is not and will not be
an officer of ACPT, American Rental, a REIT Subsidiary or any
Controlled Entity.
23. Beneficial ownership of American Rental will be held by 100 or more
persons for at least 335 days of each taxable year ending after
December 31, 1998.
24. At no time during the last half of each of American Rental's taxable
years ending after December 31, 1998, will more than 50 percent in
value of American Rental shares be owned, directly or indirectly
(within the meaning of Code Section 544, as modified by Code Section
856(h)(1)(B)), by or for the benefit of five or fewer individuals.
25. At no time during the last half of each of American Rental's taxable
years ending after December 31, 1998, will more than 50 percent in
value of Common Shares be owned, directly or indirectly (within the
meaning of
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<PAGE>
Code Section 544, as modified by Code Section 856(h)(1)(B)), by or for
the benefit of five or fewer individuals.
26. During each of American Rental's taxable years ending after December
31, 1997, at least 95 percent of the gross income of American Rental,
determined after application of Treas. Reg. Section 1.856-3(g),
excluding gross income from the sale of property held as inventory or
held primarily for sale to customers in the ordinary course of the
trade or business of American Rental or a REIT Subsidiary ("Prohibited
Income"), was and will be derived from:
a. Dividends;
b. Interest;
c. "Rents from real property", as that term is defined in Code
Section 856(d);
d. Gain from the sale or other disposition of stock, securities, and
real property (including interests in real property and interests
in mortgages on real property) that is not Prohibited Income;
e. Abatements and refunds of taxes on real property;
f. Income and gain derived from foreclosure property as defined in
Code Section 856(e) ("Foreclosure Property");
g. Amounts (other than amounts the determination of which depends in
whole or in part on the income or profits of any person) received
or accrued as consideration for entering into agreements (i) to
make loans secured by mortgages on real property or on interests
in real property or (ii) to purchase or lease real property
(including interests in real property and interests in mortgages
on real property);
h. Gain from the sale or other disposition of real estate assets
(including regular and residual interests in real estate mortgage
investment conduits ("REMICs")) that is not Prohibited Income;
i. Payments under any bona fide interest rate swap or cap agreement,
option, futures contract, forward rate agreement, or any similar
financial instrument, entered into by American Rental or a REIT
Subsidiary in a transaction to reduce the interest rate risks
with respect to any indebtedness incurred or to be incurred to
acquire or
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<PAGE>
carry real estate assets (including regular and residual
interests in REMICs, to the extent provided in Code Section
856(c)(5)(E)) ("Qualified Hedging Contracts"); and
j. Gain from the sale or other disposition of Qualified Hedging
Contracts.
27. During American Rental's taxable years ending after December 31, 1997,
at least 75 percent of the gross income of American Rental, determined
after application of Treas. Reg. Section 1.856-3(g) (excluding
Prohibited Income) was and will be derived from:
a. "Rents from real property", as that term is defined in Code
Section 856(d) (excluding any interest accrued on such rents);
b. Interest on obligations secured by mortgages on real property or
on interests in real property (including interests on regular or
residual interests in REMICs, to the extent provided in Code
Section 856(c)(5)(E));
c. Gain from the sale or other disposition of real property
(including interests in real property and interests in mortgages
on real property) that was not Prohibited Income;
d. Dividends or other distributions on, and gain (other than
Prohibited Income) from the sale or other disposition of,
transferable shares in other REITs;
e. Abatements and refunds of taxes on real property;
f. Income and gain (other than Prohibited Income) derived from
Foreclosure Property;
g. Amounts (other than amounts the determination of which depends in
whole or in part on the income or profits of any person) received
or accrued as consideration for entering into agreements (i) to
make loans secured by mortgages on real property or on interests
in real property or (ii) to purchase or lease real property
(including interests in real property and interests in mortgages
on real property);
h. Gain (other than Prohibited Income) from the sale or other
disposition of real estate assets (including regular and residual
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<PAGE>
interests in REMICs, to the extent provided in Code Section
856(c)(5)(E)); and
i. Income that is (i) attributable to stock or a debt instrument,
(ii) attributable to the temporary investment of amounts received
in exchange for American Rental Shares (other than American
Rental Shares issued pursuant to a dividend reinvestment plan) or
in a public offering of debt obligations of American Rental which
have maturities of at least five years, and (iii) received or
accrued during the one-year period beginning on the date on which
American Rental received such amounts.
28. American Rental expects nonqualifying income, that is, income that
does not qualify under the 95 percent and 75 percent tests already
described, to total at all times less than 5 percent of American
Rental's annual gross income.
29. During each of American Rental's taxable years ending after December
31, 1997, at the close of each quarter of each taxable year, as
required by Code Section 856(c)(4): (i) at least 75 percent of the
value of the total assets of American Rental were and will be
represented by real estate assets (including interests in mortgages on
real property and interests in REMICs, to the extent provided in Code
Section 856(c)(5)(E)), cash and cash items (including receivables),
and government securities (the "75 Percent Test") and (ii) with
respect to the securities of American Rental not included under the 75
Percent Test, (A) not more than five percent of the value of American
Rental's total assets did and will consist of the securities of any
one issuer (excluding American Rental's interest in any corporation
with respect to which American Rental holds directly 100 percent of
the stock) and (B) not more than 10 percent of the outstanding voting
securities of any one issuer (excluding the American Rental's interest
in any corporation with respect to which American Rental holds
directly 100 percent of the stock) will be held by American Rental.
With respect to this representation, the assets of American Rental
will be as determined pursuant to Treas. Reg. Section 1.856-3(g) and
the term "value" means (i) fair value as determined in good faith by
the Board of Trustees of American Rental, or (ii) in the case of
securities for which market quotations are readily available, the
market value of such securities.
30. During any of American Rental's taxable years beginning after December
31, 1997, American Rental and the REIT Subsidiaries will not engage in
any "prohibited transactions" as defined in Code Section
857(b)(6)(B)(iii), involving a sale or other disposition of property
described in Code Section 1221(1), which is not foreclosure property.
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<PAGE>
31. To the extent that the leases entered into by American Rental or a
REIT Subsidiary (the "Leases") provide that rent is the greater of a
fixed amount or a percentage amount that is either fixed or based on a
percentage of receipts or sales derived with respect to the property
(the "Percentage Rent"), the percentages used to compute the
Percentage Rent (i) will not be renegotiated during the term of the
Leases in a manner that has the effect of basing the Percentage Rent
on income or profits of any person and (ii) will conform with normal
business practices.
32. The parties to each Lease intend for their relationship to be that of
lessor and lessee, or sublessor and sublessee, as the case may be, and
each current relationship is and each future relationship shall be
documented by a lease agreement; the lessees or sublessees, as the
case may be, have and shall have the right to exclusive possession and
use and quiet enjoyment of the leased premises during the term of the
Leases; the lessees bear and will bear the cost of, and are or will be
responsible for, day-to-day maintenance and repair of the leased
premises, other than the cost of certain capital expenditures, and
dictate and will dictate how the leased premises are operated and
maintained; the lessees or sublessees, as the case may be, bear and
will bear all of the costs and expenses of operating the leased
premises during the term of the Leases; the term of each Lease is less
than the economic life of the leased premises and the lessees do not
have purchase options with respect to the leased premises; the lessees
or sublessees, as the case may be, are required to pay substantial
fixed rent during the term of the Leases; and each lessee or
sublessee, as the case may be, stands to incur substantial losses or
reap substantial profits depending on how successfully it operates the
leased premises.
33. ACPT will monitor the terms of each Lease entered into by American
Rental or a REIT Subsidiary to ensure that the amount of rent
attributable to personal property received or accrued by American
Rental or a REIT Subsidiary does not cause American Rental to fail to
satisfy the gross income tests of Code Sections 856(c)(2) and (3).
34. During each of American Rental's taxable years ending after December
31, 1997, determined after application of Treas. Reg. Section 1.856-
3(g), American Rental will not receive or accrue, directly or
indirectly through a REIT Subsidiary, any rent, interest, contingency
fees, or other amounts that are determined in whole or in part with
reference to the income or profits derived by any person (excluding
amounts received (i) as rents that are (A) based solely on a
percentage or percentages of receipts or sales and the percentage or
percentages are fixed at the time the leases are entered into, are not
renegotiated during the term of the leases in a manner that has the
effect of basing rent on income or profits, and conform with normal
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<PAGE>
business practices or (B) attributable to qualified rents from
subtenants as provided in Code Section 856(d)(6), and (ii) as interest
that was (X) based solely on a fixed percentage or percentages of
receipts or sales or (Y) attributable to qualified rents received or
accrued by debtors as provided by Code Section 856(f)(2)).
35. During each of American Rental's taxable years ending after December
31, 1997, American Rental will not own, directly or indirectly (within
the meaning of Code Section 856(d)(5)), 10 percent or more, by voting
power, value or number, of the shares of any corporation or other
entity except that American Rental may directly own 100 percent of the
stock of a subsidiary corporation. American Rental will not receive
or accrue, directly or indirectly through a REIT Subsidiary, any rents
from any of the following:
a. A corporation of which American Rental owns, directly or
indirectly (within the meaning of Code Section 856(d)(5)), 10
percent or more of the stock, by voting power or number of
shares; or
b. A non-corporate entity in which American Rental owns, directly or
indirectly (within the meaning of Code Section 856(d)(5)), 10
percent or more of the assets or net profits.
36. With respect to each loan secured by real estate held by American
Rental or a REIT Subsidiary, the amount of the loan has not exceeded
and does not exceed the fair market value of the real property
security therefor, except by amounts which would not cause American
Rental to fail to satisfy the asset tests of Code Section 856(c)(4) or
the gross income test of Code Section 856(c)(3).
37. ACPT, American Rental and the REIT Subsidiaries shall maintain and
will continue to maintain, until the expiration of any applicable
statute of limitations period, sufficient records as to their
investments to be able to show that American Rental complies with the
asset tests of Code Section 856(c)(4).
38. During each of American Rental's taxable years ending after December
31, 1997, the deduction for dividends paid (as defined in Code Section
561, but without regard to capital gain dividends, as defined in Code
Section 857(b)(3)(C)) will equal or exceed (i) the sum of (A) 95
percent of American Rental's real estate investment trust taxable
income (as defined in Code Section 857(b)(2), but without regard to
the deduction for dividends paid and excluding any net capital gain)
and (B) 95 percent of
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<PAGE>
the excess of its net income from Foreclosure Property over the tax
imposed on such income by Code Section 857(b)(4)(A), minus (ii) any
excess noncash income (as determined under Code Section 857(e)). For
purposes of this paragraph, the deduction for dividends paid shall be
determined after the application of Code Section 857(d)(3).
39. At all times after December 31, 1997, the dividends paid by American
Rental have been paid and will be paid in respect of each class of
stock pro rata, with no preference to any share as compared with other
shares of the same class.
40. Within 30 days after the end of American Rental's taxable year ended
December 31, 1998, American Rental will demand written statements from
each record shareholder of one percent or more of its stock (or, if
American Rental has 2,000 or more shareholders of record of its stock
on any dividend record date, each record shareholder of five percent
or more of its stock) setting forth the following information:
a. The actual owners of American Rental's stock (i.e., the persons
----
who are required to include in gross income in their returns the
dividends received on the stock); and
b. The maximum number of shares of American Rental (including the
number and face value of securities convertible into stock of
American Rental) that were considered owned, directly or
indirectly (within the meaning of Code Section 544, as modified
by Code Section 856(h)(1)(B)), by each of the actual owners at
any of American Rental's stock at any time during the last half
of American Rental's taxable year ended December 31, 1998.
41. Within 30 days after the end of ACPT's taxable year ended December 31,
1998, ACPT will demand written statements from each record shareholder
of one percent or more of its stock (or, if ACPT has 2,000 or more
shareholders of record of its stock on any dividend record date, each
record shareholder of five percent or more of its stock) setting forth
the following information:
a. The actual owners of ACPT stock (i.e., the persons who are
----
required to include in gross income in their returns the
dividends received on the stock); and
b. The maximum number of shares of ACPT (including the number and
face value of securities convertible into stock of ACPT) that
were considered owned, directly or indirectly (within the meaning
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<PAGE>
of Code Section 544, as modified by Code Section 856(h)(1)(B)),
by each of the actual owners at any of ACPT's stock at any time
during the last half of ACPT's taxable year.
42. American Rental and ACPT will maintain, respectively, the written
statements described in the preceding two paragraphs and American
Rental and ACPT will keep and maintain all records required pursuant
to Treas. Reg. Section 1.857-8 in the Internal Revenue district in
which they are required to file their Federal income tax returns, and
the statements and records will be available for inspection by the IRS
until the expiration of any applicable statute of limitations period.
43. Neither ACPT, nor any entity controlled by ACPT, will furnish or
render any services to American Rental with the exception of
management services provided by American Management.
44. Neither American Rental nor any of its REIT or other subsidiaries will
lease any property to American Land, American Management, American
Housing Management company, IGP Group, or any entity related thereto,
or to any C corporation, nor will any C corporation make any payments
to American Rental in the ordinary course of business.
45. In addition to what has been already set forth in this letter,
American Rental will take any other such actions, or refrain from
taking such actions, as the case may be, in order to preserve its
status as a REIT for Federal income tax purposes.
REPRESENTATIONS WITH RESPECT TO AMERICAN HOUSING AND
AMERICAN HOUSING MANAGEMENT COMPANY
46. American Housing meets the "95 percent" test set forth in Code Section
856(c)(2), and described above in Paragraph [24] of this letter, the
"75 percent" test set forth in Code Section 856(c)(3), and described
above in Paragraph [25] of this letter, and the "total assets" test
set forth in Code Section 856(c)(4), and described above in Paragraph
[26] of this letter.
47. All services rendered by American Housing or American Housing
Management Company through their respective officers, agents or
employees are limited to those services usually or customarily
rendered in connection with the rental of rooms or other space for
occupancy only, as those terms are defined for purposes of applying
Code Section 856(d)(2) and Treas. Reg. (S)1.512(b)-1(c)(5) and they
will not provide services that might be considered rendered primarily
for the convenience of tenants, such as hotel, health care or
extensive recreational or social services.
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<PAGE>
REPRESENTATIONS WITH RESPECT TO IGP GROUP
48. IGP Group is operated and will continue to be operated in accordance
with the applicable Puerto Rico law, its Articles of Incorporation and
Bylaws, and, without limitation, the Proxy Statement/Prospectus and
the representations set forth in this letter.
49. IGP Group is taking and will take any and all such actions as may be
necessary to obtain and preserve its status as a special partnership
under Puerto Rico law.
50. IGP Group will take no action that would cause IGP Group to be taxed
other than as a corporation for Federal income tax purposes.
51. With respect to Puerto Rico rental properties that are held directly
or indirectly through partnerships, interests in which are held by
IGP, IGP Group performs active and substantial management activities,
and causes IGP to perform active and substantial operational
activities, all within the meaning of Treas. Reg. (S) 1.367(a)-
2T(b)(3) and Treas. Reg. (S) 1.954-2(c)(1).
52. No more than 80 percent of the assets of IGP Group consist or will
consist of:
a. money,
b. stocks and other equity interests in a corporation, evidences of
indebtedness, options, forward or futures contracts, notional
principal contracts and derivatives,
c. any foreign currency,
d. any interest in a real estate investment trust, a common trust
fund, a regulated investment company, a publicly-traded
partnership (as defined in section 7704(b)) or any other equity
interest (other than in a corporation) which pursuant to its
terms or any other arrangement is readily convertible into, or
exchangeable for, any asset described in any preceding clause,
this clause or clause (v),
e. any interest in a precious metal, unless such metal is used or
held in the active conduct of a trade or a business,
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<PAGE>
f. interests in any entity if substantially all of the assets of
such entity consist (directly or indirectly) of any assets
described in any preceding clause; or
g. any other property treated as stock and securities under Code
Section 351(e)(1)(B).
For purposes of this determination, stock and securities in
corporations in which IGP Group owns directly or indirectly 50 percent
or more of (i) the combined voting power of all classes of stock
entitled to vote, or (ii) the total value of all classes of stock
outstanding, shall be disregarded and IGP Group shall be deemed to own
its rateable share of such corporation's assets.
53. Less than 50 percent of the value of IGP Group is and will be stock
and securities or less than 80 percent of the value of IGP Group is
and will be held for investment and IGP Group is not and will not
otherwise be an investment company as defined in Code Section
368(a)(2)(F)(iii). In making the 50-percent and 80-percent
determinations under the preceding sentence, stock and securities in
any subsidiary corporation shall be disregarded and IGP Group shall be
deemed to own its rateable share of the subsidiary's assets. A
corporation shall be considered a subsidiary if IGP Group owns
directly or indirectly 50 percent or more of the combined voting power
of all classes of stock entitled to vote, or 50 percent of the total
value of shares of all classes of stock outstanding. Furthermore, in
determining total assets there shall be excluded cash and cash items
(including receivables), Government Securities, and assets acquired
(through incurring indebtedness or otherwise) for purposes of meeting
the requirements of the first sentence of this representation. Stocks
and securities will be considered to be held for investment unless
they are (i) held primarily for sale to customers in the ordinary
course of business, or (ii) used in the trade or business of banking,
insurance, brokerage, or a similar trade or business.
REPRESENTATIONS WITH RESPECT TO AMERICAN LAND
54. American Land is operated and will continue to be operated in
accordance with its Articles of Incorporation and Bylaws, the
applicable provisions of applicable laws, the General Corporation Law
of Maryland (as codified in Sections 1-7 of the maryland Corporations
and Associations Article) and, without limitation, the Proxy
Statement/Prospectus, and the representations set forth in this
letter.
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<PAGE>
55. American Land will take no action that would cause American Land to be
taxed other than as a corporation for Federal income tax purposes.
56. No more than 80 percent of the assets of American Land consist or will
consist of:
a. money,
b. stocks and other equity interests in a corporation, evidences of
indebtedness, options, forward or futures contracts, notional
principal contracts and derivatives,
c. any foreign currency,
d. any interest in a real estate investment trust, a common trust
fund, a regulated investment company, a publicly-traded
partnership (as defined in section 7704(b)) or any other equity
interest (other than in a corporation) which pursuant to its
terms or any other arrangement is readily convertible into, or
exchangeable for, any asset described in any preceding clause,
this clause or clause (v),
e. any interest in a precious metal, unless such metal is used or
held in the active conduct of a trade or a business,
f. interests in any entity if substantially all of the assets of
such entity consist (directly or indirectly) of any assets
described in any preceding clause; or
g. any other property treated as stock and securities under Code
Section 351(e)(1)(B).
For purposes of this determination, stock and securities in
corporations in which American Land owns directly or indirectly 50
percent or more of (i) the combined voting power of all classes of
stock entitled to vote, or (ii) the total value of all classes of
stock outstanding, shall be disregarded and American Land shall be
deemed to own its rateable share of such corporation's assets.
57. Less than 50 percent of the value of American Land is and will be
stock and securities or less than 80 percent of the value of American
Land is and will be held for investment and American Land is not and
will not otherwise be an investment company as defined in Code Section
368(a)(2)(F)(iii). In making the 50-percent and 80-percent
determinations under the preceding sentence, stock and securities in
any subsidiary
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<PAGE>
corporation shall be disregarded and American Land shall be deemed to
own its rateable share of the subsidiary's assets. A corporation
shall be considered a subsidiary if American Land owns directly or
indirectly 50 percent or more of the combined voting power of all
classes of stock entitled to vote, or 50 percent of the total value of
shares of all classes of stock outstanding. Furthermore, in
determining total assets there shall be excluded cash and cash items
(including receivables), Government Securities, and assets acquired
(through incurring indebtedness or otherwise) for purposes of meeting
the requirements of the first sentence of this representation. Stocks
and securities will be considered to be held for investment unless
they are (i) held primarily for sale to customers in the ordinary
course of business, or (ii) used in the trade or business of banking,
insurance, brokerage, or a similar trade or business.
REPRESENTATIONS WITH RESPECT TO AMERICAN MANAGEMENT
58. American Management is and will continue to be operated in accordance
with the applicable provisions of its Articles of Incorporation and
Bylaws, the applicable provisions of applicable laws, the Delaware
Corporations Law (as codified in Title 8 of the Delaware Code) and,
without limitation, the Proxy Statement/Prospectus, and the
representations set forth in this letter.
59. All services rendered by American Management through its officers,
agents or employees are limited to those services usually or
customarily rendered in connection with the rental of rooms or other
space for occupancy only, as those terms are defined for purposes of
applying Code Section 856(d)(2) and Treas. Reg. (S)1.512(b)-1(c)(5).
60. American Management will neither manage nor operate any assets owned
directly or indirectly by American Rental or a REIT Subsidiary.
61. No more than 80 percent of the assets of American Management consist
or will consist of:
a. money,
b. stocks and other equity interests in a corporation, evidences of
indebtedness, options, forward or futures contracts, notional
principal contracts and derivatives,
c. any foreign currency,
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<PAGE>
d. any interest in a real estate investment trust, a common trust
fund, a regulated investment company, a publicly-traded
partnership (as defined in section 7704(b)) or any other equity
interest (other than in a corporation) which pursuant to its
terms or any other arrangement is readily convertible into, or
exchangeable for, any asset described in any preceding clause,
this clause or clause (v),
e. any interest in a precious metal, unless such metal is used or
held in the active conduct of a trade or a business,
f. interests in any entity if substantially all of the assets of
such entity consist (directly or indirectly) of any assets
described in any preceding clause; or
g. any other property treated as stock and securities under Code
Section 351(e)(1)(B).
For purposes of this determination, stock and securities in
corporations in which American Management owns directly or indirectly
50 percent or more of (i) the combined voting power of all classes of
stock entitled to vote, or (ii) the total value of all classes of
stock outstanding, shall be disregarded and American Management shall
be deemed to own its rateable share of such corporation's assets.
62. Less than 50 percent of the value of American Management is and will
be stock and securities or less than 80 percent of the value of
American Management is and will be held for investment and American
Management is not and will not otherwise be an investment company as
defined in Code Section 368(a)(2)(F)(iii). In making the 50-percent
and 80-percent determinations under the preceding sentence, stock and
securities in any subsidiary corporation shall be disregarded and
American Management shall be deemed to own its rateable share of the
subsidiary's assets. A corporation shall be considered a subsidiary
if American Management owns directly or indirectly 50 percent or more
of the combined voting power of all classes of stock entitled to vote,
or 50 percent of the total value of shares of all classes of stock
outstanding. Furthermore, in determining total assets there shall be
excluded cash and cash items (including receivables), Government
Securities, and assets acquired (through incurring indebtedness or
otherwise) for purposes of meeting the requirements of the first
sentence of this representation. Stocks and securities will be
considered to be held for investment unless they are (i) held
primarily for sale to customers in the ordinary course of business, or
(ii) used in the trade or business of banking, insurance, brokerage,
or a similar trade or business.
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<PAGE>
Where the foregoing representations involve matters of law, you have
explained to us the relevant and material legal authority to which such
representations relate. The undersigned fully understand that Covington &
Burling will be relying on the accuracy and completeness of the statements made
in this letter in rendering the opinions contained in the Opinion Letter, and
the undersigned have examined such records and other documents and made such
inquiries and investigation as the undersigned deemed necessary to obtain
sufficient actual knowledge to support the representations made herein.
Very truly yours,
AMERICAN COMMUNITY PROPERTIES TRUST
BY:
-----------------------------------
J. Michael Wilson
Trustee, Chairman, and
Chief Executive Officer
-----------------------------------
Edwin L. Kelly
Trustee, President, and
Chief Operating Officer
-----------------------------------
Francisco Arrivi Cros
Trustee, Executive Vice President
and Treasurer
-----------------------------------
Cynthia L. Hedrick
Chief Accounting Officer
-----------------------------------
Roberta Peterson
Vice President
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<PAGE>
AMERICAN RENTAL PROPERTIES TRUST
BY:
-----------------------------------
[Chief Executive Officer]
-----------------------------------
[Chief Financial Officer]
AMERICAN RENTAL MANAGEMENT COMPANY
BY:
-----------------------------------
J. Michael Wilson
Chairman, Chief Financial Officer,
and Treasurer
-----------------------------------
Edwin L. Kelly
President
AMERICAN LAND DEVELOPMENT US, INC.
BY:
-----------------------------------
J. Michael Wilson
President
-----------------------------------
Cynthia L. Hedrick
Secretary and Treasurer
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<PAGE>
IGP GROUP CORP.
BY:
-----------------------------------
[Chief Executive Officer]
-----------------------------------
[Chief Financial Officer]
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<PAGE>
EXHIBIT 8.2
[Fiddler, Gonzalez & Rodriguez Letterhead]
_____________, 1998
Mr. Francisco Arrivi
Executive Vice President
Interstate General Company, L.P.
PO Box 363908
San Juan, PR 00936-3908
Dear Mr. Arrivi:
We have acted as Puerto Rico tax counsel to Interstate General Company,
L.P., a Delaware limited partnership ("IGC"), American Community Property Trust,
a Maryland corporation ("ACPT"), IGP Group Corp., a Puerto Rico corporation
("IGP Group"), Interstate General Properties Limited Partnership , S.E., a
Maryland limited partnership ("IGP"), Land Development Associates, S.E., a
Puerto Rico partnership ("LDA"), and American Land Development US, Inc., a
Maryland corporation ("American Land"), relating to a proposal to: (i) transfer
the principal operations of IGC to ACPT (the "Restructuring"), (ii) distribute
to the partners of IGC all of the common shares of ACPT (the "Common Shares"),
(iii) issue to IGC IGP Class B partnership interests representing all of IGP's
rights to income, gains and losses associated with land held by LDA in Puerto
Rico and designated for development as saleable property, (iv) transfer the IGP
Class B partnership interests from IGC to American Land, and (iii) transfer
IGC's remaining partnership interests in IGP to IGP Group.
The Common Shares are to be issued pursuant to the Registration Statement
(Form S-4) dated _________, 1997 (the "Registration Statement"). This opinion
is being furnished to you pursuant to section __ of the Registration Statement.
Capitalized terms used and not otherwise defined herein are used as defined in
the Registration Statement. References herein to any document shall mean such
document as in effect on the date hereof.
Our opinion is conditioned on, among other things, the initial and
continuing accuracy of the facts, information, covenants, and representations
made by officers or other representatives of IGC or IGP. In our examination, we
have assumed that the transactions related to the Restructuring and the issuance
of the Common Shares will be consummated in the manner contemplated by the
Registration Statement. We also assume that: (i) IGP will meet the 70% gross
income requirements contained in section 1330(a) of the Puerto Rico Internal
Revenue Code of 1994, as amended (the "Puerto Rico Code"), as described in the
rulings issued by the Secretary of the Treasury of Puerto Rico ("Treasury") on
November 7, 1988 and December 11, 1996; (ii) IGP Group's only asset and source
of income will be its partnership interests in IGP; (iii) both IGP and IGP Group
will elect to be treated as special
<PAGE>
partnerships under the Puerto Rico Code; (iv) IGC, ACPT and American Land will
not be engaged in any trade or business in Puerto Rico; (v) the Shareholders
will not be individuals, estates or trusts that are residents of Puerto Rico, or
corporations or partnerships that are organized under the laws of Puerto Rico,
and in any case will not be engaged in any trade or business in Puerto Rico;
(vi) any transfer of property, including partnership interests and shares of
stock, made by IGC, ACPT or American Land pursuant to the transactions
contemplated hereby will take place outside Puerto Rico (i.e., all of IGC's,
ACPT's and American Land's rights, title and interest in the property will be
transferred by them outside Puerto Rico, they will deliver the property for
transfer outside Puerto Rico, and any exchanges connected with any such property
will take place outside Puerto Rico); and (vii) IGP Group will receive IGC's
partnership interests in IGP in exchange for shares of stock of IGP Group issued
to IGC.
In rendering our opinion, we have considered the current provision of the
Puerto Rico Code, regulations promulgated, and judicial decisions and rulings
rendered thereunder, all of which are subject to change, which changes may be
retroactively applied. A change in the authorities upon which our opinion is
based could affect our conclusions. There can be no assurances, moreover, that
any of the opinions expressed herein will be accepted by Treasury or, if
challenged, by a court.
Based solely upon the foregoing, we are of the opinion that:
(1) IGP Group should qualify as a special partnership under the Puerto Rico
Code.
(2) IGC and American Land should not be subject to income tax on the
receipt of IGP Class B partnership interests.
(3) IGC should not be subject to income tax on the transfer of IGP Class B
partnership interests to American Land in exchange for shares of stock in
American Land.
(4) IGC should not be subject to income tax on the transfer of partnership
interests in IGP to IGP Group in exchange for shares of stock in IGP Group.
(5) IGC should not be subject to income tax on the transfer of shares of
stock in IGP Group to ACPT in exchange for shares of stock in ACPT.
(6) IGP Group should not be subject to income tax on the receipt of the
partnership interests in IGP from IGC in exchange for shares of stock of IGP
Group.
(7) The Shareholders should not be subject to income tax on the receipt of
cash distributions from ACPT.
(8) IGP should not lose its status as a special partnership under the
Puerto Rico Code solely by reason of the issuance of the IGP Class B partnership
interests.
(9) Treasury should respect the allocation of IGP's income and loss to IGP
Group
<PAGE>
and American Land if the allocation is provided in the partnership agreement of
IGP and responds to economic realities.
(10) ACPT, and not IGP Group or IGP, will be subject to Puerto Rico income
tax with respect to the income derived by IGP Group and IGP. The income derived
by ACPT or American Land that is attributable to their distributive shares in
IGP Group or IGP, respectively, should be subject to income tax and withholding
at the source at the rate of 29%.
(11) The discussion set forth in the Registration Statement, under the
heading "Puerto Rico Income Taxation", to the extent that it addresses matters
of law or legal conclusions, is accurate in all material respects and, subject
to the limitations stated therein, presents a fair summary of the matters
addressed therein, based upon current law and the assumptions stated or referred
to therein.
Except as set forth above, we express no opinion to any party as to the tax
consequences of the Restructuring or the issuance of the Common Shares, or of
any transaction related to or contemplated thereby. This opinion is furnished to
you solely for your benefit in connection with the offering of the Common Shares
and is not to be used, circulated, quoted, or otherwise referred to for any
other purpose, or relied upon, by any other person without our prior written
consent. We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of the name of our firm therein. We also
hereby consent to the reliance by Covington & Burling on this opinion with
respect to the references to Puerto Rico Law or the treatment of ACPT and IGP
Group under Puerto Rico law, in the "Income Tax Considerations --- Federal
Income Tax Considerations" section of the Registration Statement. This opinion
is expressed as of the date hereof, and we disclaim any undertaking to advise
you of any subsequent changes of the facts stated or assumed herein or any
subsequent changes in applicable law. We do not purport to be experts on, or
generally familiar with, the laws of any jurisdiction other than the laws of the
Commonwealth of Puerto Rico and, therefore, we express no opinion as to matters
not governed by such laws. This opinion is specifically limited to the income
tax laws of the Commonwealth of Puerto Rico. This opinion is further subject to
the caveats and warnings contained in the Registration Statement.
Very truly yours,
<PAGE>
EXHIBIT 10.4
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT ("Agreement") is made and entered into this
___ day of _________ 1998, by and between American Rental Management Company, a
Delaware corporation (the "Company"), and James J. Wilson (the "Consultant").
RECITALS
WHEREAS, the Company is a wholly-owned subsidiary of American
Community Properties Trust ("ACPT") and provides management and other services
to ACPT;
WHEREAS, Interstate General Company L.P. ("IGC") has transferred its
principal real estate assets and operations to ACPT (the "Transferred Business")
and distributed all of the common shares of beneficial interest of ACPT to its
partners;
WHEREAS, the Consultant has be the chief executive officer of IGC for
over 30 years and therefore possesses unique and valuable experience and
expertise relating to the Transferred Business;
WHEREAS, in order to provide continuity of management and to take
advantage of the Consultant's expertise, ACPT, through the Company, wishes to
secure the services of the Consultant, and the Consultant wishes to provide such
services, in accordance with the terms and subject to the conditions provided
herein;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree to be bound by the following terms and conditions:
<PAGE>
I. POSITION
The Company hereby engages the Consultant, and the Consultant hereby
agrees, to serve as principal business consultant to ACPT and the Company, and
shall be available to provide consulting services as requested from time to time
by the Board of Trustees of ACPT (the "Board"). The Consultant shall report
directly to the Board and shall render such services to ACPT as are customarily
rendered by a consultant, including, but not limited to, advising ACPT on
general business strategies, strategic opportunities, and other matters related
to the business of ACPT and its affiliates.
II. TERM
The term of this Agreement (the "Term") shall commence on the date
hereof, and shall continue thereafter, unless sooner terminated as provided
herein, until the tenth anniversary hereof (the "Expiration Date"). The
Consultant's engagement may terminate prior to the Expiration Date if one or
more of the following circumstances occur:
A. If the Consultant dies, the Consultant's engagement and this
Agreement shall terminate automatically upon such date of death and the Company
shall have no further obligations hereunder, subject to Section IV.B.
B. In the event that the Consultant becomes Disabled during the
Term, the Company at its option may terminate Consultant's engagement and this
Agreement, in which case the Company shall have no further obligations
hereunder. For purposes of this Agreement, the Consultant shall become
"Disabled" at such time as the Consultant has a physical or mental condition,
verified by a physician designated by the Company, which in the
<PAGE>
judgment of the Board prevents the Consultant from carrying out one or more of
the material aspects of his assigned duties for at least 270 consecutive days.
The Consultant agrees, upon request of the Board, at a time convenient to the
Consultant during a 30-day period designated by the Board, to submit to any
medically reasonable examination by a physician designated by the Company.
C. The Company may, at its election, terminate the Consultant's
engagement and this Agreement for cause. For purposes hereof, "cause" shall be
defined as (1) engaging in fraud or conduct with the intent of causing
substantial harm to ACPT or the Company; (2) conviction of a felony, other crime
involving theft or fraud, or other crime of moral turpitude involving ACPT or
the Company; (it being understood that "cause" shall not include any conviction
of charges pending against Consultant as of the date of this Agreement) and/or
(3) any material breach of a term of the Agreement. In the event the Company
elects to terminate the Consultant's engagement for cause, such termination may
be made effective immediately, and no advance notice shall be required. The
decision to terminate the Consultant's engagement for cause must be approved by
the Board.
D. Either the Company or the Consultant may elect to terminate this
Agreement without cause. In such a case, advance written notice of termination
shall be delivered by the terminating party to the non-terminating party at
least ninety (90) days prior to the date of termination. In addition, if the
Company terminates the engagement without cause or the Consultant terminates the
engagement for "Good Reason," the Company agrees to pay the Consultant the
remaining fee payments due hereunder for the balance of the Term. The decision
to terminate the Consultant's engagement without cause must be approved by the
Board.
<PAGE>
For purposes of this Section II.D., the Consultant shall have
terminated the engagement for a Good Reason if the Consultant terminates the
engagement within six (6) months following the occurrence of (i) the Company
instructing the Consultant despite his written objection delivered to the Board
to take any action which is in violation of any law, ordinance or regulation or
would require any act of dishonesty or moral turpitude; or (ii) the Company
committing a material breach of any of the provisions of this Agreement.
E. In the event that ACPT sells all, or substantially all, of its
assets, this Agreement shall terminate automatically upon the date of such sale,
and neither party shall have any further obligations hereunder, subject to
Section IV.B.
III. DUTIES AND RESPONSIBILITIES
A. During the period of his engagement hereunder, and for a period
of three (3) years thereafter, the Consultant shall not, without the written
consent of the Board or a person authorized by the Board, disclose to any person
other than as required by law or court order, or other than to an authorized
employee of the Company or its affiliates, or to a person to whom disclosure is
necessary or appropriate in connection with the performance by the Consultant of
his duties as an Consultant of ACPT and the Company any confidential information
obtained by him while serving as a consultant to the Company with respect to any
of ACPT's or its affiliates' products, services, customers, suppliers, marketing
techniques, methods or future plans; provided, however, that confidential
information shall not include any information known generally to the public
(other than as a result of unauthorized disclosure by the Consultant) or any
information of a type not otherwise considered confidential by persons engaged
in the same business or a business similar to that conducted by ACPT or the
Company. The Consultant shall be allowed to disclose confidential information to
his attorney solely for the purpose of ascertaining whether such information is
confidential within the intent of this Agreement; provided, however, that the
Consultant (a) discloses to his attorney the provisions of this subsection A and
(b) agrees not to waive the attorney-client privilege with respect thereto.
<PAGE>
B. Nothing in this Agreement shall be deemed to restrict the
Consultant from pursuing or engaging in other business activities provided that
such activities do not unreasonably interfere with the performance of his
responsibilities hereunder. Without restricting the generality of the
foregoing, the Company recognizes that Consultant will serve in executive
capacities with Interstate General Company L.P. and affiliated entities.
IV. COMPENSATION
A. For the first two (2) years of the Term, the Company shall pay
the Consultant an annual fee of Five Hundred Thousand Dollars (US $500,000).
For all subsequent years that this Agreement remains in force, the Company shall
pay the Consultant an annual fee of Two Hundred Thousand Dollars (US $200,000).
In the event that the Consultant is engaged under this Agreement for any portion
of a year, the Consultant shall be entitled to receive a pro rata amount of the
applicable annual fee. The Consultant's fee shall be paid in semi-monthly
installments on the fifteenth (15th) day and last day of each calendar month or
on such other basis as shall be convenient for the Company.
B. Notwithstanding anything in this Agreement to the contrary, in
the event that this Agreement terminates on account of the death of the
Consultant or the sale of all, or substantially all, of the assets of the
Company, Consultant (or his estate, as the case may be) shall be entitled to
receive the lesser of (i) Four Hundred Thousand Dollars ($400,000), and (ii) the
total aggregate annual fees then payable under this Agreement if the Agreement
were to expire on the Expiration Date.
C. The Company shall promptly reimburse Consultant for the cost of
all expenses reasonably incurred by him in rendering services hereunder.
<PAGE>
V. INDEPENDENT CONTRACTOR
Consultant is retained by the Company solely for the purposes set
forth herein. Consultant shall not have the power to bind ACPT or the Company
nor shall he make any such representation. Consultant's relation to Company
shall be that of an independent contractor.
VI. ARBITRATION
A. Any dispute or controversy arising between the Consultant and the
Company relating to this Agreement shall be submitted to private, binding
arbitration, upon the written request of either the Consultant or the Company,
before a panel of three arbitrators, under the administration of and in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association ("AAA"), such arbitration to be held in Washington, D.C., or as
otherwise determined by the arbitrators. In the event of such dispute or
controversy, the Company and the Consultant shall independently and
simultaneously select and identify one arbitrator each, both of whom must have
no past or present familial or business relationships with the parties and must
possess expertise in the area of compensation of senior management employees in
the real estate industry. In the event that a party has not selected its
arbitrator within 60 days of initiation of the arbitration, the AAA shall select
such arbitrator. These two arbitrators shall jointly agree upon and select a
third arbitrator who also possesses such credentials. These three arbitrators
shall hear and decide the dispute or controversy by majority vote, and their
decision and award shall be final and conclusive upon the parties, and their
heirs, administrators, executors, successors, and assigns. The arbitrators shall
have no power or authority to add to, subtract from, or otherwise modify the
terms of this Agreement. Wherever the Commercial Arbitration Rules of the AAA
conflict with the procedures set forth in this section, the terms of this
section shall govern. The Consultant and the Company agree that the arbitration
must be initiated by personally delivering a statement of claim to the AAA and
to the party against whom the claim is asserted no later than ninety (90) days
after the basis of the claim becomes known, or reasonably should have been known
or discovered, by the party asserting the claim. In the event arbitration is not
initiated within such ninety (90) day period, such claim, dispute, or
controversy shall be irrevocably time-barred. A judgment based upon such
arbitration award may be entered in any court having jurisdiction thereof.
<PAGE>
B. Notwithstanding the foregoing, any action brought by the Company
seeking a temporary restraining order, temporary and/or permanent injunction,
and/or a decree of specific performance of the terms of this Agreement may be
brought in a court of competent jurisdiction without the obligation to proceed
first to arbitration.
VII. ASSIGNABILITY AND BINDING EFFECT
The Consultant may not assign this Agreement, or any obligation or
rights hereunder, to any other person or entity without the express written
consent of the Company. This Agreement shall be binding upon the Consultant and
his heirs, executors, administrators, and successors.
VIII. GOVERNING LAW
This Agreement shall be governed by the laws of the State of Delaware
(excluding the choice-of-law rules thereof).
IX. CAPTIONS
All captions contained in this Agreement are for convenience only and
in no way define or describe the intent of the parties or specific terms hereof.
X. SEVERABILITY
If any provision of this Agreement shall to any extent be held invalid
or unenforceable, the remaining terms and provisions shall not be affected
thereby.
<PAGE>
XI. ENTIRE AGREEMENT
This Agreement contains the entire agreement between the parties
relating to the subject matter hereof. All prior negotiations or stipulations
concerning any matter which preceded or accompanied the execution hereof are
conclusively deemed to be superseded hereby.
No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Consultant and such officer or director as may be specifically designated by
the Board.
XII. NOTICES; MISCELLANEOUS
For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be duly given when
delivered by hand or facsimile transmission or when mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Company:
American Rental Management Company
[222 Smallwood Village Center]
[St. Charles, Maryland 20602]
Attention: President
If to the Consultant:
Mr. James J. Wilson
Dresden Farm
39997 Snickersville Turnpike
Middleburg, Virginia 22117
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first set forth above.
AMERICAN RENTAL MANAGEMENT COMPANY
Date:
------------------------ -----------------------------------------
By: [_____________________]
President
Date:
------------------------ -----------------------------------------
James J. Wilson
<PAGE>
EXHIBIT 10.5
AMERICAN COMMUNITY PROPERTIES TRUST
EMPLOYEES' SHARE INCENTIVE PLAN
1. Purpose
-------
The purpose of this Employees' Share Incentive Plan is to promote the
growth and general prosperity of American Community Properties Trust, a Maryland
real estate investment trust, (the "Company"), by permitting the Company, by
grant of Awards to acquire proprietary interests therein, to attract and retain
the best available personnel for the Company and its Affiliates for positions of
substantial responsibility and to provide certain key employees with an
additional incentive to contribute to the success of the Company and its
Affiliates.
2. Definitions
-----------
In this Plan document, unless the context clearly indicates otherwise,
words in the masculine gender shall be deemed to refer to females as well as
males, any term in the singular also shall refer to the plural, and the
following capitalized terms shall have the following meanings set forth in this
Section 2:
(a) "Affiliate" means, with respect to a designated person, any other
person controlled by the designated person. As used in this definition of
"Affiliate," "control" of a person means the ownership, directly or indirectly,
of fifty percent (50%) or more of the voting securities or general partnership
interests of the person or fifty percent (50%) or more of the value of the
equity interests in the person.
(b) "Agreement" means an agreement entered into between the Company and a
Grantee, setting forth the terms and conditions applicable to the Award granted
to the Grantee.
<PAGE>
(c) "Award" means an Option, a Right, or an award of a type authorized by
Section 9 hereof.
(d) "Committee" means the board of trustees of the Company, not including
trustees who are eligible to participate in the Plan.
(e) "Declaration of Trust" means the Declaration of Trust of American
Community Properties Trust, dated as of [___________], as amended from time to
time.]
(f) "Employee" means an employee of the Company or an Affiliate of the
Company.
(g) "Exercise Date" means a date on which some or all of the Shares subject
to an Exercise Date Share Option may be purchased.
(h) "Exercise Date Share Option" means an Option that, pursuant to Section
7(d) hereof, is exercisable only on specified Exercise Dates.
(i) "General Share Option" means an Option with respect to which available
Installments are, pursuant to Section 7(c) hereof, exercisable at any time and
from time to time.
(j) "Grantee" means an individual to whom an Award is granted under the
Plan.
(k) "Installment" means the portion of the total number of Shares subject
to an Option that the Grantee may purchase during each of the several periods of
the term of a General Share Option or on each of the Exercise Dates of an
Exercise Date Share Option.
(l) "Legal Representative" means the executor, administrator, guardian or
other
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<PAGE>
legal representative of a Grantee who dies or becomes incapacitated.
(m) "Option" means a right granted under the Plan to purchase Shares.
Unless the context clearly indicates otherwise, the term "Option" shall include
both Exercise Date Share Options and General Share Options.
(n) "Plan" means the American Community Property Trust Employees' Share
Incentive Plan as set forth herein and as amended from time to time.
(o) "Right" means a right granted under the Plan to receive payment in
accordance with Section 8 hereof.
(p) "Share" means a common share of the Company, as described in the
Declaration of Trust.
3. Administration
--------------
-3-
<PAGE>
The Plan shall be administered by the Committee. Subject to the provisions
of the Plan, the Committee shall have sole authority, in its absolute
discretion, to determine which eligible Employees shall receive Awards, the time
when Awards shall be granted, the type of each Award, the terms of such Awards
(which may differ from one another), the number of Shares subject to each Award
and the exercise price or purchase price of an Award (if any) per Share (which
may be less than, equal to, or greater than the fair market value of a Share on
the date of grant), and shall have authority to do everything necessary or
appropriate to administer the Plan including, without limitation, interpreting
the Plan. All decisions, determinations, and interpretations of the Committee
shall be final and binding for all purposes and upon all persons. Any action
that the Committee may take through a written instrument signed by all of its
members then in office shall be as effective as though taken at a meeting duly
called and held.
4. Eligibility
-----------
The Committee may grant Awards to any key Employee, including an
Employee who is a Trustee of the Company or a director or trustee of any
Affiliate of the Company presently existing or hereinafter organized or
acquired. All determinations by the Committee as to the identity of the persons
to whom Awards may be granted hereunder shall be conclusive. An individual
Grantee may receive more than one Award.
-4-
<PAGE>
5. Shares Subject to the Plan
--------------------------
(a) Subject to the provisions of subsection (b), below, the Company may
grant Awards under the Plan with respect to not more than the least of the
following numbers of Shares: (i) the number of Shares authorized under the
Declaration of Trust; or (ii) the number of Shares specified by any other limit
upon the issuance of Shares as compensation imposed by the rules of any
securities exchange on which the Shares are listed.
(b) If an Award is cancelled, surrendered, lapses, or is terminated, in
whole or in part, without being exercised (if applicable), for any reason other
than the exercise of a related Award or of another portion of the Award, in such
manner that all or some of the Shares subject to the Award are not issued to a
Grantee (and cash, Shares, or any other form of payment is not paid in lieu
thereof), the Shares subject to the Award shall be restored to the aggregate
maximum number of Shares (specified in subsection (a), above) with respect to
which Awards may be granted under the Plan.
6. Term
----
The Plan shall become effective as of [________]. It shall continue
in effect for a term of ten (10) years from the date that it becomes effective,
unless it is sooner terminated in accordance with Section 13 hereof. Awards may
be granted at any time prior to the earlier of the expiration of the ten-year
term of the Plan, as described above, or the termination of the Plan pursuant to
Section 13 hereof.
-5-
<PAGE>
7. Options
-------
(a) Duration of Option
------------------
No Option shall be exercisable before the expiration of six (6) months
from the date it was granted or such longer period as the Committee may
establish as to any and all Shares subject to any Option. Subject to extension
as provided in subsection (d)(iv), below, no Option shall be exercisable after
the expiration of ten (10) years from the date it is granted or such shorter
period as the Committee may establish as to any and all Shares subject to any
Option, and, subject to the provisions of subsections (c) and (d) hereof, each
Option shall terminate on the date on which the Grantee ceases to be an
Employee.
(b) Exercise of Option
------------------
(i) The Shares subject to an Option shall be exercisable in
Installments, as may be determined by the Committee.
(ii) In the event that the Company enters into an agreement to dispose
of all or substantially all of the assets of the Company, or the Shares therein,
by means of a sale, a reorganization, a liquidation, or otherwise, an Option
shall become immediately exercisable with respect to the full number of Shares
subject to that Option, notwithstanding any other provision of the Plan, during
the period commencing as of the date of such agreement and ending immediately
prior to the closing contemplated by the agreement or when the agreement is
terminated, and, notwithstanding any other provision of the Plan, all Options
shall terminate and cease to be exercisable from and after such closing. The
Company shall provide each Grantee with notice of the contemplated closing
-6-
<PAGE>
promptly after the agreement to dispose of all or substantially all of the
assets of the Company, or the Shares therein, is reached, but in no event less
than forty-eight (48) hours prior to the closing.
(iii) An Option shall be exercised when written notice of such
exercise has been given to the Company at its principal business office by the
person entitled to exercise the Option and full payment for the Shares with
respect to which the Option is exercised has been received by the Company.
(iv) Until the issuance of Share certificates therefor, no right to
direct the vote or receive distributions or any other rights as a shareholder
shall exist with respect to optioned Shares notwithstanding the exercise of an
Option. No adjustment shall be made for distribution or other rights for which
the record date is prior to the date a Share certificate is issued except as
provided in Section 14 hereof.
(c) General Share Options
---------------------
(i) The Committee may grant General Share Options with respect to
which the Grantee may purchase an available Installment or any portion thereof
at any time and from time to time. Installments or portions thereof not
purchased in earlier periods shall accumulate and shall be available for
purchase in later periods within the term of the Option.
(ii) If the Grantee dies or becomes incapacitated while an Employee,
the Grantee's Legal Representatives shall have the right to exercise, to the
extent the Option was exercisable on the date that the Grantee died or became
incapacitated, a General Share Option for six (6) months after such date as the
Company shall have
-7-
<PAGE>
notified the Grantee's Legal Representatives of their right (if any) to exercise
the Option, or such shorter period as the Committee may establish. As soon as
practicable after the Company has learned of the death or incapacity of a
Grantee and the identity of the Grantee's Legal Representatives, the Company
shall notify the Legal Representatives of their right (if any) to exercise the
Option.
(iii) If the Grantee ceases to be an Employee for any reason other
than death or incapacity, the Grantee shall have the right to exercise, to the
extent the Option was exercisable on the date the Grantee ceased to be an
Employee, a General Share Option for thirty (30) days after such date, or such
shorter period as the Committee may establish.
(iv) Notwithstanding any other provision of this subsection (c), in no
event shall any General Share Option be exercisable after the term of the
Option.
(d) Exercise Date Share Options
---------------------------
(i) The Committee may grant Exercise Date Share Options, which are
exercisable only on Exercise Dates designated by the Committee. The Committee
shall designate Exercise Dates at the time of the grant of an Exercise Date
Share Option and may designate additional Exercise Dates at any time and from
time to time. The Grantee may purchase less than the full Installment available
under the Option on any Exercise Date. Installments or portions thereof not
purchased on earlier Exercise Dates shall accumulate and shall be available for
purchase on later Exercise Dates within the term of the Option.
(ii) If the Grantee ceases to be an Employee, for any reason other
than
-8-
<PAGE>
death or incapacity, on a day that is not an Exercise Date, an Exercise Date
Share Option may be exercised, to the extent the Option could be exercised on
the Exercise Date immediately preceding the termination of his status as an
Employee, on the Exercise Date immediately following the termination of his
status as an Employee. The Option may not be exercised on any other Exercise
Date. For example, assume that the Committee has designated July 1, 1993, and
August 1, 1994, as Exercise Dates with respect to an Exercise Date Share Option
granted to a Grantee. Assume further that the Grantee ceases to be an Employee
on September 30, 1993, he had the right to exercise the Option with respect to
2,000 Shares on July 1, 1993, and had not exercised his Option on that date.
Then such Grantee may exercise the Option with respect to these 2,000 Shares on
August 1, 1994.
-9-
<PAGE>
(iii) If the Grantee ceases to be an Employee on a day that is an
Exercise Date, an Exercise Date Share Option may not be exercised after the
Grantee ceases to be an Employee.
(iv) If the Grantee dies or becomes incapacitated while an Employee or
while all or a portion of an Exercise Date Share Option could have been
exercised pursuant to paragraph (ii), above, his Legal Representatives shall
have the right to elect to exercise, to the extent the Option would have been
exercisable on the Exercise Date immediately subsequent to the Grantee's death
or incapacity, the Option on the first Exercise Date occurring after such death
or incapacity, provided that there is a Legal Representative appointed to
represent such Grantee or his estate and if not, on the first Exercise Date
thereafter on which there is then a Legal Representative to act for such Grantee
or his estate. Provided, further, in all events such Legal Representative shall
have the right to exercise such Option for a period of ninety (90) days
following the delivery of notice by the Company to the Legal Representatives.
8. Rights
------
(a) General
-------
The Committee shall have authority, in its sole discretion, to provide
for the grant of Rights either (i) in tandem with all or a portion of an Option
granted under the Plan or (ii) independent of any Option granted under the Plan.
A Right shall permit the Grantee to receive, upon exercise of the Right, an
amount (to be paid in cash, in Shares in property or in any combination thereof,
as specified in the Agreement or, if not, as determined by the Committee in its
sole discretion at any time prior to or after
-10-
<PAGE>
exercise) equal in value to the excess of (i) the fair market value of the
Shares with respect to which the Right is exercised on the date of exercise,
determined as specified in the Agreement, over (ii) either (A) the Option price
of the related Option in the case of a tandem Right, or (B) the base price
specified in the Agreement in the case of an independent Right, whichever is
applicable. A tandem Right shall be exercisable only at such times, and to such
extent, as the related Option is exercisable. An independent Right shall be
exercisable at such time and to such extent as the Committee shall determine. A
tandem Right may be granted coincident with or after the grant of any related
Option.
(b) Exercise of Rights
------------------
(i) With respect to Rights, the Committee may establish such waiting
periods, exercise dates and other limitations (including restrictions on any
Shares received upon the exercise of a Right) as it shall deem appropriate in
its sole discretion.
(ii) A Right shall be exercised when written notice of such exercise
has been given to the Company at its principal business office by the person
entitled to exercise the Right.
(iii) The right of a Grantee to exercise a tandem Right shall be
canceled if and to the extent that the Shares subject to the Right are purchased
upon the exercise of the related Option, and the right of a Grantee to exercise
an Option shall be canceled if and to the extent that the Shares subject to the
Option are used to calculate the amount to be received upon the exercise of a
tandem Right.
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<PAGE>
(iv) Until the issuance of Share certificates therefor, if any, no
right to direct the vote or receive distributions or any other rights as a
Shareholder shall exist with respect to Shares subject to the Right
notwithstanding the exercise of a Right. No adjustment shall be made for
distribution or other rights for which the record date is prior to the date a
Share certificate is issued except as provided in Section 14 hereof.
-12-
<PAGE>
9. Other Share-Based Awards
------------------------
The Committee may, from time to time, grant Awards (in addition to
Options and Rights) under the Plan that consist of, are denominated in or
payable in, are valued in whole or in part by reference to, or otherwise are
based on or related to, Shares, provided that such grants comply with applicable
law. The Committee may subject such Awards to such vesting or earnout
provisions, restrictions on transfer, and/or other restrictions on incidents of
ownership as the Committee may determine, provided that such restrictions are
not inconsistent with the terms of the Plan. The Committee may grant Awards
under this Section 9 that require no payment of consideration by the Grantee
(other than services previously rendered or, as may be permitted by applicable
law, services to be rendered), either on the date of grant or the date any
restriction(s) thereon are removed. Awards granted under this Section 9 may
include, by way of example, restricted Shares, phantom Shares, performance
Shares, performance bonus awards, and other awards that are payable in cash, or
that are payable in cash or Shares or other property (at the election of the
Committee or, if the Committee so provides, at the election of the Grantee),
provided that such Awards are denominated in Shares, valued in whole or in part
by reference to Shares, or otherwise based on or related to Shares.
-13-
<PAGE>
10. Tax Withholding
---------------
The Company shall have the right to collect an amount sufficient to
satisfy any federal, state, Puerto Rico and/or local withholding tax
requirements that may apply with respect to any Award granted to a Grantee. The
Company shall have the right to require Grantees to remit to the Company an
amount sufficient to satisfy any such withholding tax requirements. The Company
also shall, to the extent permitted by law, have the right to deduct from any
payment of any kind (whether or not related to the Plan) otherwise due to a
Grantee any such taxes required to be withheld.
11. Nonassignability
----------------
An Award may be exercised only by the Grantee and an Award may not be
assignable or transferable by him other than by will or the laws of descent and
distribution.
12. Cancellation and Reissuance
---------------------------
The Committee, at any time and from time to time, in its discretion,
may offer Grantees the opportunity to elect to surrender, or to have the Company
cancel and terminate, any outstanding Award (or any portion thereof), and may
grant in substitution for the cancelled and terminated Award (or portion
thereof) a new Award under the Plan. The type, terms and magnitude of the new
Award may be similar to or different from the original Award.
-14-
<PAGE>
13. Amendment or Termination of the Plan
------------------------------------
(a) Amendment
---------
The Company may amend the Plan from time to time in such respects as
the Company may deem advisable. Any such amendment shall apply to any
outstanding Awards that were granted before the date such amendment is adopted,
provided that no such amendment shall adversely affect any right acquired by any
Grantee, under the terms of any Award granted before the date of such amendment,
unless such Grantee shall consent; but it shall be conclusively presumed that
any adjustment for changes in capitalization in accordance with Section 14
hereof shall not adversely affect such right. No such amendment shall affect
any Award that has been exercised or earned before the date such amendment is
adopted.
(b) Termination
-----------
The Company may at any time terminate the Plan. Any such termination
of the Plan shall not affect Awards previously granted and such Awards shall
remain in full force and effect as if the Plan had not been terminated.
14. Adjustments Upon Changes in Capitalization
------------------------------------------
(a) Adjustments to Award Amounts
----------------------------
In the event of any Share distribution, split-up, recapitalization,
combination, exchange of interests in the Company or any other entity, merger,
consolidation, acquisition of property, separation, reorganization, or
liquidation, as a result of which interests of any class in the Company or any
other entity shall be issued in respect of outstanding Shares, or if Shares
shall be changed into the same or a different
-15-
<PAGE>
number of the same or another class or classes of interests in the Company or
any other entity ("interests") prior to a distribution to a Grantee under an
Award, the Committee shall adjust, as it deems equitable in its sole and
absolute discretion, the aggregate number and type of Shares (or other
interests) available for Awards under Section 5, the number of Shares or
interests (or, if applicable, the amount of cash (or other property)) to be
distributed to the Grantee and/or the exercise price or purchase price of Shares
subject to an Award, to avoid any significant dilution or enlargement of the
benefits intended to be made available under the Plan.
(b) Adjustments to Shares Subject to Plan
-------------------------------------
In the event of any change in the outstanding Shares of the Company as
described in subsection (a), above, the aggregate number and class of interests
remaining available under the Plan shall be that number and class that a person
would be holding if: the person had been granted an Option on the date
preceding such change for all of the available Shares under the Plan, all such
Shares had been purchased at the date of the grant of the Award and had not been
disposed of, and a change in the outstanding Shares as described in subsection
(a), above, had occurred.
15. Agreement and Representations of Grantee
----------------------------------------
(a) As a condition to receiving Shares under the Plan, the Company may
require the person receiving such Shares to represent and warrant at the time of
any such exercise that the Shares are being acquired only for investment and
without any present intention to sell or distribute such Shares. The Shares
shall not be offered, sold, transferred, or otherwise disposed of in the absence
of registration, or the availability of
-16-
<PAGE>
an exemption from registration, under the Securities Act of 1933. No such
offer, sale, transfer, or other disposition may be made without the prior
written opinion of counsel for the Company that such offer, sale, transfer, or
other disposition will not violate the Securities Act of 1933 or other
applicable securities law, rule, or regulation of any jurisdiction. The
foregoing restriction may be indicated by legend on the Share certificates
representing such Shares.
(b) Any Shares received under the Plan shall be subject to such
restrictions as may be contained in any agreement previously entered into by the
Company with respect to Shares and applicable to such Shares. The foregoing
restrictions, if any, shall be indicated by legend on the Share certificates
representing such Shares.
(c) The Company shall execute and deliver to each Grantee a written
Agreement that shall contain such provisions as the Committee in each instance
shall deem appropriate and not inconsistent with any of the provisions of the
Plan.
-17-
<PAGE>
16. Reservation of Shares
---------------------
The Company, during the term of this Plan, shall at all times reserve
and keep available, and shall seek or obtain from any regulatory body having
jurisdiction any requisite authority in order to issue and sell, such number of
Shares as shall be sufficient to satisfy the requirements of the Plan.
Inability of the Company to obtain from any regulatory body having jurisdiction
the authority deemed by the Company's counsel to be necessary for the lawful
issuance and sale of any Shares hereunder shall relieve the Company of any
liability in respect of the non-issuance or sale of such Shares as to which such
requisite authority shall not have been obtained.
17. Use of Funds
------------
The proceeds of the sale of Shares, whether newly issued or previously
acquired, shall be added to and administered as a part of the general assets of
the Company.
-18-
<PAGE>
18. Notice
------
All notices delivered pursuant to the Plan shall be in writing,
delivered by hand, by facsimile or by first class certified mail, return receipt
requested, postage prepaid. If notice is delivered to the Company, it shall be
delivered to the Company, in care of the President of the Company, at the
Company's principal place of business. If notice is delivered to the Grantee,
it shall be delivered at the most recent address of Grantee shown on the records
of the Company. The Company and/or the Grantee may change by notice (delivered
in accordance with this Section 18) the address for delivery set forth in this
Section 18. The date of notice for all purposes under the Plan shall be the
date of delivery of the notice. As soon as practicable after the Company has
learned of the death or incapacity of a Grantee and the identity of the
Grantee's Legal Representatives, the Company shall notify, in accordance with
this Section 18, the Legal Representatives of their right (if any) to exercise
any Award granted hereunder, provided that notice to any of Grantee's Legal
Representatives shall be deemed to be notice to all of Grantee's Legal
Representatives.
19. Governing Law
-------------
The Plan shall be construed and its provisions enforced and
administered in accordance with the laws of the State of Delaware except to the
extent that such laws may be preempted by any Federal law.
-19-
<PAGE>
EXHIBIT 10.6
AMERICAN COMMUNITY PROPERTIES TRUST
TRUSTEES' SHARE INCENTIVE PLAN
1. PURPOSE
-------
The purpose of this Trustees' Share Incentive Plan (the "Plan") is to
promote the growth and general prosperity of American Community Properties
Trust, a Maryland real estate investment trust (the "Company"), by permitting
the Company, by grant of Awards to acquire proprietary interests therein, to
attract and retain the best available personnel to serve as outside trustees of
the Company and to provide certain outside trustees of the Company with an
additional incentive to contribute to the success of the Company.
2. DEFINITIONS
-----------
In this Plan document, unless the context clearly indicates otherwise,
words in the masculine gender shall be deemed to refer to females as well as
males, any term in the singular also shall refer to the plural, and the
following capitalized terms shall have the following meanings set forth in this
Section 2:
(a) "Affiliate" means, with respect to a designated person, (i) any person
directly or indirectly controlling, controlled by, or under common control with
the designated person; (ii) any person directly or indirectly owning,
controlling, or holding power to vote ten percent (10%) or more of the
outstanding voting securities of the designated person; (iii) any officer,
director, partner, or trustee of the designated person or of any entity
controlling the designated person; and (iv) if the designated person is an
<PAGE>
officer, director, partner, or trustee, any entity for which such person acts in
any such capacity. As used in this definition of "Affiliate," the term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a person, whether
through the ownership of voting securities, by contract, or otherwise, and the
term "voting securities" includes, without limitation, limited partnership
interests in any partnership.
(b) "Agreement" means an agreement entered into between the Company and a
Grantee, setting forth the terms and conditions applicable to the Award granted
to the Grantee.
(c) "Award" means an Option, a Right, or an award of a type authorized by
Section 9 hereof.
(d) "Committee" means the board of trustees of the Company, not including
trustees who are eligible to participate in the Plan.
(e) "Declaration of Trust" means the Declaration of Trust of the American
Community Properties Trust , dated as of [___________] as amended from time to
time.
(f) "Exercise Date" means a date on which some or all of the Shares subject
to an Exercise Date Share Option may be purchased.
(g) "Exercise Date Share Option" means an Option that, pursuant to Section
7(d) hereof, is exercisable only on specified Exercise Dates.
(h) "General Share Option" means an Option with respect to which available
-2-
<PAGE>
Installments are, pursuant to Section 7(c) hereof, exercisable at any time and
from time to time.
(i) "Grantee" means an individual to whom an Award is granted under the
Plan.
(j) "Installment" means the portion of the total number of Shares subject
to an Option that the Grantee may purchase during each of the several periods of
the term of a General Share Option or on each of the Exercise Dates of an
Exercise Date Share Option.
(k) "Legal Representative" means the executor, administrator, guardian or
other legal representative of a Grantee who dies or becomes incapacitated.
(l) "Option" means a right granted under the Plan to purchase Shares.
Unless the context clearly indicates otherwise, the term "Option" shall include
both Exercise Date Share Options and General Share Options.
(m) "Plan" means the American Community Properties Trust Trustees' Share
Incentive Plan as amended from time to time.
(n) "Right" means a right granted under the Plan to receive payment in
accordance with Section 8 hereof.
(o) "Share" means a common share of the Company, as described in the
Declaration of Trust.
(p) "Trustees" means a trustee of the Company, who is not (i) an Affiliate
of
-3-
<PAGE>
the Company, or (ii) a present officer or employee of (A) the Company or (C) any
Affiliate of the Company.
3. ADMINISTRATION
--------------
The Plan shall be administered by the Committee. Subject to the provisions
of the Plan, the Committee shall have sole authority, in its absolute
discretion, to determine which eligible Trustees shall receive Awards, the time
when Awards shall be granted, the type of each Award, the terms of such Awards
(which may differ from one another), the number of Shares subject to each Award
and the exercise price or purchase price (if any) of each Award per Share (which
may be less than, equal to, or greater than the fair market value of a Share on
the date of grant), and shall have authority to do everything necessary or
appropriate to administer the Plan including, without limitation, interpreting
the Plan. All decisions, determinations, and interpretations of the Committee
shall be final and binding for all purposes and upon all persons. Any action
that the Committee may take through a written instrument signed by all of its
members then in office shall be as effective as though taken at a meeting duly
called and held.
4. ELIGIBILITY
-----------
The Committee may grant Awards to any Trustee. All determinations by the
Committee as to the identity of the persons to whom Awards may be granted
hereunder shall be conclusive. An individual Grantee may receive more than one
Award.
-4-
<PAGE>
5. SHARES SUBJECT TO THE PLAN
--------------------------
(a) Subject to the provisions of subsection (b), below, the Company may
grant Awards under the Plan with respect to not more than the least of the
following numbers of Shares: (i) the number of Shares authorized under the
Declaration of Trust; or (ii) the number of Shares specified by any other limit
upon the issuance of Shares as compensation imposed by the rules of any
securities exchange on which the Shares are listed.
(b) If an Award is cancelled, surrendered, lapses, or is terminated, in
whole or in part, without being exercised, for any reason other than the
exercise of a related Award or of another portion of the Award, in such manner
that all or some of the Shares subject to the Award are not issued to a Grantee
(and cash, Shares, or any other form of payment is not paid in lieu thereof),
the Shares subject to the Award shall be restored to the aggregate maximum
number of Shares (specified in subsection (a), above) with respect to which
Awards may be granted under the Plan.
6. TERM
----
The Plan shall become effective as of [________]. It shall continue
in effect for a term of ten (10) years from the date that it becomes effective,
unless it is sooner terminated in accordance with Section 13 hereof. Awards may
be granted at any time prior to the earlier of the expiration of the ten-year
term of the Plan, as described above, or the termination of the Plan pursuant to
Section 13 hereof.
-5-
<PAGE>
7. OPTIONS
-------
(a) Duration of Option
------------------
No Option shall be exercisable before the expiration of six (6) months
from the date it was granted or such longer period as the Committee may
establish as to any and all Shares subject to any Option. No Option shall be
exercisable after the expiration of ten (10) years from the date it is granted
or such shorter period as the Committee may establish as to any and all Shares
subject to any Option.
(b) Exercise of Option
------------------
(i) The Shares subject to an Option shall be exercisable in
Installments, as may be determined by the Committee.
(ii) In the event that the Company enters into an agreement to
dispose of all or substantially all of the assets of the Company, or the Shares
therein, by means of a sale, a reorganization, a liquidation, or otherwise, an
Option shall become immediately exercisable with respect to the full number of
Shares subject to that Option, notwithstanding any other provision of the Plan,
during the period commencing as of the date of such agreement and ending
immediately prior to the closing contemplated by the agreement or when the
agreement is terminated, and, notwithstanding any other provision of the Plan,
all Options shall terminate and cease to be exercisable from and after such
closing.
(iii) An Option shall be exercised when written notice of such
exercise
-6-
<PAGE>
has been given to the Company at its principal business office by the person
entitled to exercise the Option and full payment for the Shares with respect to
which the Option is exercised has been received by the Company.
(c) General Share Options
---------------------
(i) The Committee may grant General Share Options with respect to
which the Grantee may purchase an available Installment or any portion thereof
at any time and from time to time. Installments or portions thereof not
purchased in earlier periods shall accumulate and shall be available for
purchase in later periods within the term of the Option.
(ii) If the Grantee dies or becomes incapacitated while a Trustee,
the Grantee's Legal Representatives shall have the right to exercise, to the
extent the Option was exercisable on the date that the Grantee died or became
incapacitated, a General Share Option for six (6) months after such date as the
Company shall have notified the Grantee's Legal Representatives of their right
(if any) to exercise the Option, or such shorter period as the Committee may
establish.
(iii) If the Grantee ceases to be a Trustee for any reason other than
death or incapacity, the Grantee shall have the right to exercise, to the extent
the Option was exercisable on the date that the Grantee ceased to be a Trustee,
a General Share Option for thirty (30) days after such date, or such shorter
period as the Committee may establish.
(iv) Notwithstanding any other provision of this subsection (c), in
no
-7-
<PAGE>
event shall any General Share Option be exercisable after the expiration of ten
(10) years from the date that the Option was granted.
(d) Exercise Date Share Options
---------------------------
(i) The Committee may grant Exercise Date Share Options, which are
exercisable only on Exercise Dates designated by the Committee. The Committee
shall designate Exercise Dates at the time of the grant of an Exercise Date
Share Option and may designate additional Exercise Dates at any time and from
time to time. The Grantee may purchase less than the full Installment available
under the Option on any Exercise Date. Installments or portions thereof not
purchased on earlier Exercise Dates shall accumulate and shall be available for
purchase on later Exercise Dates within the term of the Option.
-8-
<PAGE>
(ii) If the Grantee ceases to be a Trustee for any reason other than
death or incapacity, an Exercise Date Share Option may be exercised, to the
extent the Option could be exercised on the last Exercise Date on which the
Grantee was a Trustee. The Option may not be exercised on any other Exercise
Date. For example, assume that the Committee has designated July 1, 1993, and
August 1, 1994, as Exercise Dates with respect to an Exercise Date Share Option
granted to a Grantee. Assume further that the Grantee ceases to be a Trustee on
September 30, 1993, that he had the right to exercise the Option with respect to
2,000 Shares on July 1, 1993, and that he had not exercised his Option on that
date. Then such Grantee may exercise the Option with respect to these 2,000
Shares on August 1, 1994.
(iii) If the Grantee dies or becomes incapacitated, while a Trustee,
his Legal Representatives shall have the right to elect to exercise his Option,
to the extent the Option would have been exercisable on the Exercise Date
immediately subsequent to the termination of his status as a Trustee, for a
period of ninety (90) days following the delivery of notice by the Company to
the Legal Representatives. In the event that the Grantee's Legal Representatives
elect pursuant to the preceding sentence to exercise the Grantee's Option, the
Option shall be deemed exercised on the Exercise Date next following the date of
the election.
(iv) Notwithstanding any other provision of this Plan, an Exercise
Date Share Option shall not be exercisable after the earliest of (1) the
expiration of ten (10)
-9-
<PAGE>
years from the date the Option was granted, (2) the final Exercise Date with
respect to the Option, (3) six (6) months after the Grantee ceases to serve as a
Trustee, or (4) such shorter period as the Committee may have established.
8. RIGHTS
------
(a) General
-------
The Committee shall have authority, in its sole discretion, to provide
for the grant of Rights either (i) in tandem with all or a portion of an Option
granted under the Plan or (ii) independent of any Option granted under the Plan.
A Right shall permit the Grantee to receive, upon exercise of the Right, an
amount (to be paid in cash, in Shares, in property or in any combination
thereof, as specified in the Agreement or, if not, as determined by the
Committee in its sole discretion at any time prior to or after exercise) equal
in value to the excess of (i) the fair market value of the Shares with respect
to which the Right is exercised on the date of exercise, determined as specified
in the Agreement, over (ii) either (A) the Option price of the related Option in
the case of a tandem Right, or (B) the base price specified in the Agreement in
the case of an independent Right, whichever is applicable. A tandem Right shall
be exercisable only at such times, and to such extent, as the related Option is
exercisable. An independent Right shall be exercisable at such time and to such
extent as the Committee shall determine. A tandem Right may be granted
coincident with or after the grant of any related Option.
-10-
<PAGE>
(b) Exercise of Rights
------------------
(i) With respect to Rights, the Committee may establish such waiting
periods, exercise dates and other limitations (including restrictions on any
Shares received upon the exercise of a Right) as it shall deem appropriate in
its sole discretion. Unless the Committee provides otherwise, a Right shall
remain exercisable, to the extent the Right was exercisable on the date the
Grantee ceased to be a Trustee (1) for six (6) months after the Company delivers
notice to the Grantee's Legal Representative, if the Grantee ceased to be a
Trustee due to death or incapacity or (2) for thirty (30) days after the Grantee
ceased to be a Trustee if the cessation was due to any other reason.
(ii) A Right shall be exercised when written notice of such exercise
has been given to the Company at its principal business office by the person
entitled to exercise the Right.
-11-
<PAGE>
(iii) The right of a Grantee to exercise a tandem Right shall be
canceled if and to the extent that the Shares subject to the Right are purchased
upon the exercise of the related Option, and the right of a Grantee to exercise
an Option shall be canceled if and to the extent that the Shares subject to the
Option are used to calculate the amount to be received upon the exercise of a
tandem Right.
(iv) Until the issuance of Share certificates therefor, if any, no
right to direct the vote or receive distributions or any other rights as a
Shareholder shall exist with respect to Shares subject to the Right
notwithstanding the exercise of a Right. No adjustment shall be made for
distribution or other rights for which the record date is prior to the date a
Share certificate is issued except as provided in Section 14 hereof.
9. OTHER SHARE-BASED AWARDS
------------------------
The Committee may, from time to time, grant Awards (in addition to Options
and Rights) under the Plan that consist of, are denominated in or payable in,
are valued in whole or in part by reference to, or otherwise are based on or
related to, Shares, provided that such grants comply with applicable law. The
Committee may subject such Awards to such vesting or earnout provisions,
restrictions on transfer, and/or other restrictions on incidents of ownership as
the Committee may determine, provided that such restrictions are not
inconsistent with the terms of the Plan. The Committee may grant Awards under
this Section 9 that require no payment of consideration by the Grantee (other
than services previously rendered or, as may be permitted by applicable law,
services to be rendered),
-12-
<PAGE>
either on the date of grant or the date any restriction(s) thereon are removed.
Awards granted under this Section 9 may include, by way of example, restricted
Shares, phantom Shares, performance Shares, performance bonus awards, and other
awards that are payable in cash, or that are payable in cash or Shares or other
property (at the election of the Committee or, if the Committee so provides, at
the election of the Grantee), provided that such Awards are denominated in
Shares, valued in whole or in part by reference to Shares, or otherwise based on
or related to Shares.
10. TAX WITHHOLDING
---------------
The Company shall have the right to collect an amount sufficient to satisfy
any federal, state, Puerto Rico and/or local withholding tax requirements that
may apply with respect to any Award granted to a Grantee. The Company shall
have the right to require Grantees to remit to the Company an amount sufficient
to satisfy any such withholding tax requirements. The Company also shall, to
the extent permitted by law, have the right to deduct from any payment of any
kind (whether or not related to the Plan) otherwise due to a Grantee any such
taxes required to be withheld.
11. NONASSIGNABILITY
----------------
An Award may be exercised only by the Grantee and an Award may not be
assignable or transferable by him other than by will or the laws of descent and
distribution.
-13-
<PAGE>
12. CANCELLATION AND REISSUANCE
---------------------------
The Committee, at any time and from time to time, in its discretion, may
offer Grantees the opportunity to elect to surrender, or to have the Company
cancel and terminate, any outstanding Award (or any portion thereof), and may
grant in substitution for the cancelled and terminated Award (or portion
thereof) a new Award under the Plan. The type, the terms and magnitude of the
new Award may be similar to or different from the original Award.
13. AMENDMENT OR TERMINATION OF THE PLAN
------------------------------------
(a) Amendment
---------
The Company may amend the Plan from time to time in such respects as
the Company may deem advisable. Any such amendment shall apply to any
outstanding Awards that were granted before the date such amendment is adopted,
provided that no such amendment shall adversely affect any right acquired by any
Grantee, under the terms of any Award granted before the date of such amendment,
unless such Grantee shall consent; but it shall be conclusively presumed that
any adjustment for changes in capitalization in accordance with Section 14
hereof shall not adversely affect such right. No such amendment shall affect
any Award that has been exercised or earned before the date such amendment is
adopted.
(b) Termination
-----------
The Company may at any time terminate the Plan. Any such termination
-14-
<PAGE>
of the Plan shall not affect Awards previously granted and such Awards shall
remain in full force and effect as if the Plan had not been terminated.
14. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
------------------------------------------
In the event of any Share distribution, split-up, recapitalization,
combination, exchange of interests in the Company or any other entity, merger,
consolidation, acquisition of property, separation, reorganization, or
liquidation, as a result of which interests of any class in the Company or any
other entity shall be issued in respect of outstanding Shares, or if Shares
shall be changed into the same or a different number of the same or another
class or classes of interests in the Company or any other entity ("interests")
prior to a distribution to a Grantee under an Award, the Committee shall adjust,
as it deems equitable in its sole and absolute discretion, the aggregate number
and type of Shares (or other interests) available for Awards under Section 5,
the number of Shares or interests (or, if applicable, the amount of cash (or
other property)) to be distributed to the Grantee and/or the exercise price or
purchase price of Shares subject to an Award, to avoid any significant dilution
or enlargement of the benefits intended to be made available under the Plan.
15. AGREEMENT AND REPRESENTATIONS OF GRANTEE
----------------------------------------
(a) As a condition to receiving Shares under the Plan, the Company may
require the person receiving such Shares to represent and warrant at that time
that the Shares are being acquired only for investment and without any present
intention to sell
-15-
<PAGE>
or distribute such Shares. The Shares shall not be offered, sold, transferred,
or otherwise disposed of in the absence of registration, or the availability of
an exemption from registration, under the Securities Act of 1933. No such
offer, sale, transfer, or other disposition may be made without the prior
written opinion of counsel for the Company that such offer, sale, transfer, or
other disposition will not violate the Securities Act of 1933 or other
applicable securities law, rule, or regulation of any jurisdiction. The
foregoing restriction may be indicated by legend on the Share certificates
representing such Shares.
(b) Any Shares received under the Plan shall be subject to such
restrictions as may be contained in any agreement previously entered into by the
Company with respect to Shares and applicable to such Shares. The foregoing
restrictions, if any, shall be indicated by legend on the Share certificates
representing such Shares.
(c) The Company shall execute and deliver to each Grantee a written
Agreement that shall contain such provisions as the Committee in each instance
shall deem appropriate and not inconsistent with any of the provisions of the
Plan.
16. RESERVATION OF SHARES
---------------------
The Company, during the term of this Plan, shall at all times reserve and
keep available, and shall seek or obtain from any regulatory body having
jurisdiction any requisite authority in order to issue and sell, such number of
Shares as shall be sufficient to satisfy the requirements of the Plan.
Inability of the Company to obtain from any
-16-
<PAGE>
regulatory body having jurisdiction the authority deemed by the Company's
counsel to be necessary for the lawful issuance and sale of any Shares hereunder
shall relieve the Company of any liability in respect of the non-issuance or
sale of such Shares as to which such requisite authority shall not have been
obtained.
17. USE OF FUNDS
------------
The proceeds of the sale of Shares, whether newly issued or previously
acquired, shall be added to and administered as a part of the general assets of
the Company.
-17-
<PAGE>
18. NOTICE
------
All notices delivered pursuant to the Plan shall be in writing, delivered
by hand, by facsimile or by first class certified mail, return receipt
requested, postage prepaid. If notice is delivered to the Company, it shall be
delivered to the Company, in care of the President of the Company, at the
Company's principal place of business. If notice is delivered to the Grantee, it
shall be delivered at the most recent address of Grantee shown on the records of
the Company. The Company and/or the Grantee may change by notice (delivered in
accordance with this Section 18) the address for delivery set forth in this
Section 18. The date of notice for all purposes under the Plan shall be the date
of delivery of the notice. As soon as practicable after the Company has learned
of the death or incapacity of a Grantee and the identity of the Grantee's Legal
Representatives, the Company shall notify, in accordance with this Section 18,
the Legal Representatives of their right (if any) to exercise any Award granted
hereunder, provided that notice to any of Grantee's Legal Representatives shall
be deemed to be notice to all of Grantee's Legal Representatives.
19. SHAREHOLDER RIGHTS
------------------
Until the issuance of Share certificates therefor, no right to direct the
vote or receive distributions or any other rights as a Shareholder shall exist
with respect to any Shares subject to an Award even if the Grantee has exercised
the Award. No adjustment shall be made for distribution or other rights for
which the record date is prior to the date
-18-
<PAGE>
a Share certificate is issued except as provided in Section 14 hereof.
20. GOVERNING LAW
-------------
The Plan shall be construed and its provisions enforced and administered in
accordance with the laws of the State of Delaware except to the extent that such
laws may be preempted by any Federal law.
-19-
<PAGE>
EXHIBIT 10.7
AMENDED AND RESTATED
HOUSING MANAGEMENT AGREEMENT
----------------------------
WHEREAS, CAPITOL PARK ASSOCIATES, an Illinois limited partnership
("Owner") and Interstate General Corporation, a Delaware corporation ("IGC"),
have executed those two (2) certain Restated Housing Management Agreements (the
"Restated Housing Management Agreements"), each dated December 3, 1984, covering
the apartment buildings located at 301 "G" Street, Southwest, 101-103 "G"
Street, Southwest, and 201 "I" Street, Southwest, all in Washington, D.C. (the
"Property"); and
WHEREAS, Owner and Interstate Properties, a Maryland limited
partnership ("IP") have executed that certain Amendment to Management Agreements
(the "Amendment") dated as of December 31, 1984;
NOW, THEREFORE, Owner and INTERSTATE GENERAL COMPANY, L.P., a Delaware
limited partnership ("Agent), as successor to IP hereby enter into this AMENDED
AND RESTATED HOUSING MANAGEMENT AGREEMENT (this "Agreement") as of the 12th day
of May, 1994 subject to the following provisions:
1. APPOINTMENT AND ACCEPTANCE. The Owner appoints the Agent as
--------------------------
exclusive agent for the management of the property described in Section 2 of
this Agreement, and the Agent accepts the appointment, subject to the terms and
conditions set forth in this Agreement.
2. DESCRIPTION OF PROJECT. The Property to be managed by the Agent
----------------------
under this Agreement (the "Project") is a housing development, consisting of the
land, buildings, and other improvements which make up FHA Project No. 000-
11107PM. The Project is further described as follows:
Name: Capitol Park Apartments
Location: Washington, D.C.
Number of dwelling units: 936
3. DEFINITIONS. As used in this Agreement:
-----------
(a) "HUD" means the United States Department of Housing and Urban
Development.
(b) "Regulatory Agreement" means that certain regulatory agreement,
dated May 12, 1994, between the Owner and the Secretary and recorded
in Washington, D.C.
<PAGE>
(c) "Secretary" means the Secretary of the United States Department
of Housing and Urban Development.
(d) "First Mortgage" means that certain Deed of Trust, dated May
12, 1994, by and between the owner of the Project as Grantor, and the
First Mortgagee as hereinafter defined, with respect to the Project,
which mortgage secures the Loan and is insured by the Secretary.
(e) "Loan" means that certain loan made by First Mortgagee to Owner
in the amount of $22, 100,000 insured by HUD under Section 207,
pursuant to Section 223(f) of the National Housing Act and the
regulations promulgated thereunder.
(f) "Loan Documents" means the Deed of Trust Note, the Deed of
Trust, and any other collateral documents entered into by the Owner
and the First Mortgagee in connection with the Loan.
(g) "First Mortgagee" means Continental Wingate Associates, Inc.,
its successors and/or assigns.
(h) "Principal Parties" means the Owner and the Agent.
4. HUD REQUIREMENTS. The Project is subject to the First Mortgage
----------------
which is insured by HUD under Section 207, pursuant to Section 223(f) of the
National Housing Act and the regulations promulgated thereunder, pursuant to
which the Owner has entered into the Regulatory Agreement. The Regulatory
Agreement obligates the Owner to provide for management of the Project in-a
manner satisfactory to the Secretary. In performing its duties under this
Management Agreement, the Agent will comply with all pertinent requirements of
the Regulatory Agreement, copies of which Owner has furnished to Agent, and the
directives of the Secretary pertaining thereto. In the event of any instruction
from the Owner which is in contravention of such requirements, such requirements
will prevail.
5. MANAGEMENT CERTIFICATION (HUD FORM-9839-B). The Owner and the Agent
------------------------------------------
hereby agree to execute and deliver to the Secretary, as required, a Management
Certification (HUD Form 9839-B) which conforms to all applicable HUD
requirements. The Principal Parties acknowledge and agree that the Secretary
shall have the right to require a termination of this Agreement due to the
failure on the part of either the Owner or the Agent to comply with the terms
and provisions of the Management Certification as further provided in Section
26(c) of this Agreement.
6. BASIC INFORMATION. The Agent hereby represents and warrants to the
-----------------
Owner that the Agent has a working knowledge of the character, location,
construction, layout, plan and operating of the Project, including, but not
limited to, the electrical, heating, plumbing, air-conditioning and ventilating
systems, the elevators, and all other mechanical equipment, which
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such working knowledge (i) was acquired by Agent during Agent's prior management
of the Project pursuant to a previous Management Agreement and (ii) shall be
sufficient for the Agent to effectively carry out its duties and obligations in
connection with the management of the Project.
7. MARKETING. The Agent will carry out the marketing activities in
---------
connection with the management of the Project as requested by Owner from time to
time, observing all requirements of the Affirmative Fair Housing Marketing Plan
for the Project approved by the Secretary. Subject to the Owner's prior
approval, advertising expenses will be paid out of the Rental Agency Account as
Project expenses.
8. RENTALS. The Agent will offer for rent and will rent the dwelling
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units, parking spaces, commercial space and other rental facilities and
concessions in the Project. Incident thereto, the following provisions will
apply:
(a) The Agent will follow the tenant selection policy described in
the Regulatory Agreement and the directives of the Secretary.
(b) The Agent will follow the marketing plan as approved by the
Owner, which marketing plan shall include, but may not be limited to,
credit and other tenant eligibility criteria for the Project.
(c) The Agent will show the premises to prospective tenants.
(d) The Agent will take and process applications for rentals. If an
application is rejected, the applicant will be told the reason for
rejection, and the rejected application, with reason for rejection
noted thereon, will be kept on file for one (1) year. A current list
of prospective tenants will be maintained.
(e) The Agent will prepare all dwelling leases and parking permits,
and will execute the same in its name, identified thereon as agent for
the Owner. The terms of all leases will comply with the pertinent
provisions of the Regulatory Agreement and the directives of the
Secretary. Dwellingleases will be in a form approved by the Owner and
the Secretary, but individual dwelling leases and parking permits need
not be submitted for the approval of the Owner or the Secretary
provided the Agent adheres to the rental plan and the marketing plan
approved by Owner.
(f) The Agent will furnish the Owner with rent schedules, in a form
from time to time approved by the Secretary, showing fair market rents
and basic rents for dwelling units, and other charges for facilities
and services. In no event will such fair market rents and other
charges be exceeded. Agent shall not agree to charge an amount less
than such rents and other charges set forth on any rent schedule then
in effect without obtaining Owner's prior written consent. Eligibility
for dwelling rents which are less
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than such fair market rents, and the amount of such lesser rents, will
be determined in accordance with the Regulatory Agreement and the
directives of the Secretary.
(g) The Agent will collect, deposit, and disburse security
deposits, if required, in accordance with the terms of each tenant's
lease. The amount of each security deposit will be as specified in the
Regulatory Agreement and the directives of the Secretary. Security
deposits will be deposited by the Agent in an interest-bearing account
(hereinafter referred to as the "Security Deposit Account") separate
from all other accounts and funds, with a bank or other financial
institution whose deposits are insured by an agency of the United
States Government, and a pro-rata share of interest earned will be
credited to each tenant's security deposit and administered in
accordance with all applicable Federal, State and local laws. This
account will be carried in the Agent's name and designated of record
as "Capitol Park Security Deposit Account." The Owner shall at all
times during the term of this Agreement be a permitted signatory on
the Security Deposit Account; provided, however, Agent shall not be
required to obtain Owner's signature to any checks or other
disbursements made by Agent from the Security Deposit Account except
as otherwise provided in this Agreement or as Owner may hereafter
direct. The Owner shall designate the financial institutions in which
the Security Deposit Account shall be maintained; provided that Owner
shall give consideration in making such designation to the convenience
of location of any such financial institution and to the requirements
of applicable law, if any, pertaining to the maintenance of the
Security Deposit Account in a financial institution located in the
District of Columbia.
9. COLLECTION OF RENTS AND OTHER RECEIPTS. The Agent will collect when
--------------------------------------
due all rents, charges and other amounts receivable on the Owner's account in
connection with the management and operation of the Project. Such receipts
(except for tenants' security deposits which will be handled as specified in
Subsection 8(f) above) will be deposited in an account (hereinafter referred to
as the "Rental Agency Account"), separate from all other accounts and funds,
with a bank whose deposits are insured by the Federal Deposit Insurance
Corporation. This account will be carried in the Agent's name and designated of
record as "Capitol Park Rental Agency Account"; provided, however, Agent shall
not be required to obtain Owner's signature to any checks or other disbursements
made by Agent from the Rental Agency Account except as otherwise provided in
this Agreement or as Owner may hereafter direct. Owner shall at all times during
the term of this Agreement be a permitted signatory on the Rental Agency
Account. The Owner shall designate the financial institutions in which the
Rental Agency Account shall be maintained; provided that Owner shall give
consideration in making such designation to the convenience of location of any
such financial institution and to the requirements of applicable law, if any,
pertaining to the maintenance of the Rental Agency Account in a financial
institution located in the District of Columbia.
10. ENFORCEMENT OF LEASES. The Agent will secure full compliance by
---------------------
each tenant with the terms of such tenant's lease. Voluntary compliance will be
emphasized, and the Agent
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will counsel tenants and make referrals to community agencies in cases of
financial hardship or under other circumstances deemed appropriate by the Agent,
to the end that involuntary termination of tenancies may be avoided to the
maximum extent consistent with sound management of the Project. Nevertheless,
and subject to pertinent procedures, the Agent may lawfully terminate any
tenancy when, in the Agent's judgment, sufficient cause (including, but not
limited to, nonpayment of rent) for such termination occurs under the terms of
the tenant's lease. For this purpose, the Agent is authorized to consult with
legal counsel to be designated by the Owner, to bring actions for eviction and
to execute notices to vacate and judicial pleadings incident to such actions;
provided, however, that the Agent will keep the Owner informed of such actions
and will follow such instructions as the Owner may prescribe for the conduct of
any such action. Subject to the Owner's approval, attorney's fees and other
necessary costs incurred in connection with such actions will be paid out of the
Rental Agency Account as Project expenses.
11. MAINTENANCE AND REPAIR. The Agent will cause the Project to be
-----------------------
maintained and repaired in accordance with local codes, and in a condition at
all times acceptable to the Owner and the Secretary, including, but not limited
to, cleaning, painting, decorating, plumbing, carpentry, grounds care, and such
other maintenance and repair work as may be necessary, subject to any
limitations imposed by the Owner in addition to those contained herein.
Incident thereto, the following provisions will apply:
(a) Special attention will be given to preventive maintenance, and
to the greatest extent feasible, the services of regular maintenance
employees will be used.
(b) Subject to the Owner's prior approval the Agent will contract
with qualified independent contractors for the maintenance and repair
of building systems and elevators, and for extraordinary repairs
beyond the capability of regular maintenance employees.
(c) The Agent will systematically and promptly receive and
investigate all service requests from tenants, take such action
thereon as may be justified, and will keep records of the same.
Emergency requests will be received and serviced on a twenty-four (24)
hour basis. Complaints of a serious nature will be reported to the
Owner after investigation.
(d) The Agent is authorized to purchase all materials, equipment,
tools, appliances, supplies and services necessary to effectuate
proper maintenance and repair.
(e) Notwithstanding any of the foregoing provisions, the prior
approval of the Owner will be required for any expenditure which
exceeds Fifteen Thousand Dollars ($15,000.00) in any one instance for
labor, materials, or otherwise in connection with the maintenance and
repair of the Project; provided, however, that Owner's prior
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approval shall not be required for any expenditure in connection with
maintenance and repair which exceeds Fifteen Thousand Dollars
($15,000.00), so long a such expenditure is for (i) recurring expenses
within the limits of the operating budget, (ii) emergency repairs
involving manifest danger to persons or property or (iii) repair or
maintenance work required to avoid suspension of any necessary service
to the Project. In the latter event, the Agent will inform the Owner
of the facts necessitating the excessive expenditure as promptly as
possible.
12. UTILITIES AND SERVICES. In accordance with the operating budget,
----------------------
the Agent will make arrangements for water, electricity, gas, fuel oil, sewage
and trash disposal, vermin extermination, decorating, laundry facilities, and
telephone service. Subject to the Owner's prior approval, the Agent will make
such contracts as may be necessary to secure such utilities and services.
13. EMPLOYEES. The Agent will prescribe the number, qualifications and
---------
duties of the personnel to be regularly employed in the management of the
Project, including a maintenance superintendent. All such personnel will be
employees of the Agent, and will be hired, supervised, and discharged by the
Agent, subject to the following conditions; provided, however, the Agent shall
obtain the Owner's prior written approval of any and all decisions or actions
which materially impact the staffing of the Project:
(a) Agent shall develop a staffing plan for the Project, which
plan shall require the Owner's prior written approval, and shall be
included in the annual budget for the Project developed by Agent, and
approved by Owner, pursuant to Section 16 of this Agreement.
(b) The compensation (including fringe benefits) of maintenance
employees will be as approved by Owner. Compensation of bookkeeping,
clerical, and other managerial personnel will be within the Agent's
sole discretion provided that minimum wage standards will be met;
however, Owner may determine the compensation for certain key
employees in Owner's sole discretion without Agent's approval which
such key employees shall also be determined in Owner's sole
discretion.
(c) The Owner will reimburse the Agent for compensation (including
fringe benefits) payable to the maintenance employees and for all
local, State, and Federal taxes and assessments (including, but not
limited to, Social Security taxes, unemployment insurance, and
workman's compensation insurance) incident to the employment of such
personnel. Such reimbursements will be paid out of the Rental Agency
Account and will be treated as Project expenses.
(d) The Agent will establish and follow an employment policy which
affords residents of the Project maximum opportunities for employment
in the management and operation of the Project and, to the extent
consistent with that consideration, affords
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employment opportunities to lower-income persons in the area. While
personnel will be employed primarily on the basis of ability, the
Agent will make conscientious effort to provide special assistance and
training for Project residents and members of minority groups who are
not initially qualified.
14. DISBURSEMENTS FROM RENTAL AGENCY ACCOUNT.
----------------------------------------
(a) From the funds collected and deposited by the Agent in the
Rental Agency Account pursuant to Section 9 above, the Agent will make
the following disbursements promptly when payable:
(1) Reimbursement to the Agent for compensation payable to
the employees specified in Subsection 13(c) above, and for the
taxes and assessments payable to local, state, and federal
governments in connection with the employment of such personnel.
(2) The aggregate payments required to be made monthly by the
Owner to the First Mortgagee, including the amounts due under the
mortgage for principal amortization, interest, mortgage insurance
premium, taxes and assessments, fire and other hazards insurance
premiums, and the amount specified in the Regulatory Agreement for
allocation to the Reserve for Replacements.
(3) Expenses of operation and maintenance, including repairs
and other improvements, to the Project due and payable by the
Owner or by the Agent as directed by Owner under the terms of this
Agreement, including compensation payable to the Agent, pursuant
to Section 26 below, for its services hereunder.
(b) Except for the disbursements mentioned in Subsection 14(a)
above, funds will be disbursed or transferred from the Rental Agency
Account only as the Owner may from time to time direct in writing. All
disbursements or transfers of any funds made by Agent shall be
undertaken strictly in accordance with this Agreement and the
Regulatory Agreement.
(c) In the event that the balance in the Rental Agency Account is
at any time insufficient to pay disbursements due and payable under
Subsection 14(a) above, the Agent will inform the Owner of that fact
and the Owner shall advise the Agent as to the disposition and
utilization of the balance of funds remaining in the Rental Agency
Account. In no event will the Agent be required to use its own funds
to pay such disbursements nor shall the Owner be obligated to provide
its own funds to cover any deficiency in the Rental Agency Account.
15. EXPENDITURES. Notwithstanding any other provisions in this
------------
Agreement. any expenditure in connection with the Project which exceeds fifteen
thousand dollars ($15,000.00)
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shall require the prior written approval by Owner; provided, however, that
Owner's prior approval shall not be required for any expenditure which exceeds
Fifteen Thousand Dollars ($15,000) so long as such expenditure is for recurring
operating expenses within the limits of the operating budget.
16. BUDGETS. Annual operating budgets for the Project will be as
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approved by the Owner. Except as permitted under Subsection 11(e) above, annual
disbursements for each type of operating expenses itemized in the budget will
not exceed the amount authorized by the approved budget. The Agent will prepare
a recommended operating budget for each subsequent fiscal year beginning during
the term of this Agreement, and will submit the same to the Owner at least
thirty (30) days before the beginning of the fiscal year. The Owner will
promptly inform the Agent of changes, if any, incorporated in the approved
budget, and the Agent will keep the Owner informed of any anticipated deviation
from the receipts or disbursements stated in the approved budget. The budget
shall contain a management and maintenance plan for the Project for the ensuing
year.
17. RECORDS AND REPORTS. The Agent will have the following
-------------------
responsibilities with respect to records and reports:
(a) The Agent will establish and maintain a-comprehensive system
of records, books, and accounts in a manner conforming to the
directive of the Secretary, and otherwise satisfactory to the Owner,
the Secretary and the First Mortgagee, as applicable. All records,
books, and accounts will be subject to examination at reasonable hours
by any authorized representative of the Owner, the Secretary or the
First Mortgagee, as applicable.
(b) With respect to each fiscal year ending during the term of
this agreement, the Agent will cause an annual financial report of the
Project and partnership tax returns of the Owner (including Capitol
Park Land Corporation) to be prepared by a Certified Public Accountant
or other person acceptable to the Owner and Secretary, based upon the
preparer's examination of the books and records of the Owner and the
Agent. The report will be prepared in accordance with the directives
of the Secretary, will be certified by the preparer and the Agent, and
will be submitted to the Owner within (60) days after the end of the
fiscal year, for the Owner's further certification and submission to
the Secretary and the First Mortgagee as required. Compensation for
the preparer's services will be paid out of the Rental Agency Account
as an expense of the Project
(c) The Agent will prepare a monthly report comparing actual and
budgeted figures for receipts and disbursements, and will submit each
such report to the Owner within fifteen (15) days after the end of the
month covered.
(d) The Agent will furnish weekly such information (including
occupancy reports, checks paid and accounts payable) as may be
requested by the Owner or the
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Secretary from time to time with respect to the financial, physical,
or operational condition of the Project.
(e) By the fifteenth (15th) day of each month, the Agent will
furnish the Owner with an itemized list of all delinquent accounts,
including rental accounts, as of the tenth (10th) day of the same
month.
(f) By the fifteenth (15th) day of each month, the Agent will
furnish the Owner with a statement of receipts and disbursements
during the previous month, and with a schedule of accounts receivable
and payable, and reconciled bank statements for the Rental Agency
Account and Security Deposit Account as of the end of the previous
month.
(g) Except as otherwise provided in this Agreement, Agent's
overhead expenses, including, but not limited to, costs in connection
with the operation of any of the Agent's offices not located on the
Project, compensation of Agent's employees (other than those employed
exclusively to service the Project), compensation of any other
off-site personnel of the Agent, bookkeeping expenses, clerical
expenses, and other management overhead expenses (including, but not
limited to, costs of office supplies and equipment, data processing
services, postage, transportation for managerial personnel, and
telephone services) will be borne by the Agent out of his own funds
and will not be treated as Project expenses.
18. FIDELITY BOND. The Agent will furnish, at its own expense, a
-------------
fidelity bond in an amount, which is at least equal to the gross potential
income for two months and is conditioned to protect the Owner, the Secretary and
the First Mortgagee, as is applicable, against misapplication of Project funds
by the Agent and its employees. The other terms and conditions of the bond, and
the surety thereof, will be subject to the approval of the Owner, the Secretary
and the First Mortgagee, as applicable. The Agent agrees to maintain such
fidelity bond coverage at all times in accordance with the requirements of the
Secretary and the First Mortgagee.
19. ACCOUNTS. In addition to any other requirements set forth in this
--------
Agreement, Owner shall be a permitted signatory on any and all accounts with
respect to the Project and subject to this Agreement. All such accounts shall
remain separate and no funds in any account provided for herein shall be
permitted to be commingled with any funds from another account provided for
under this Agreement or otherwise.
20. BIDS AND PURCHASE DISCOUNTS OR COMMISSIONS. The Owner and Agent
------------------------------------------
agree to obtain contract materials, supplies and services, including the
preparation of the annual audit, at the lowest possible cost and on the terms
most advantageous to the Project and to secure and credit to the Project all
discounts, rebates or commissions obtainable with respect to purchases, service
contracts and other transactions on behalf of the Project. The Owner and the
Agent
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agree that all goods and services purchased from individuals or companies having
an identity-of-interest with Owner or Agent shall be purchased at costs not in
excess of those that would be incurred in making arms-length purchases on the
open market. In addition, Agent shall obtain Owner's approval prior to entering
into any contract with any party having an identity-of-interest with Agent.
The Agent shall solicit written cost estimates (i.e., bids) from at
least three contractors or suppliers for any work items which the Owner or the
Secretary estimates will cost 55,000 or more and for any contract or ongoing
supply or service arrangement which is estimated to exceed $5,000 per year. The
Agent agrees to accept the bid which represents the lowest price taking into
consideration the bidder's reputation for quality of workmanship or materials
and timely performance, and the time frame within which the service or goods are
needed. For any contract or ongoing supply or service arrangement obtainable
from more than one source and estimated to cost less than $5,000, the Agent
shall solicit verbal or written cost estimates, as necessary to assure that the
Project is obtaining services, supplies and purchases at the lowest possible
cost. The Agent must make a written record of any verbal estimate obtained.
Copies of all required bids and documentation of all other written or verbal
cost comparisons made by the Agent shall be made part of the Project's records
and shall be retained for three years from the date the work was completed. This
documentation shall be subject to inspection by the Secretary or his/her
designee and the Agent agrees to submit such documentation upon request.
The Agent further agrees to include the following clause in any
contract entered into with any provider of goods or services to the
Project, the cost of which services are to be paid from Project funds:
"Upon request by (Owner or Agent) or the Secretary, (name of
contractor or supplier) will make available to the Secretary at a
reasonable time and place: (name of contractor or supplier's) records which
relate to goods or services provided to the project. Records and
information will be sufficient to permit the Secretary to determine the
services performed, the location at which the services were performed, the
time consumed in providing the services, the charges made for
materials, and the per unit and total charges levied for said services."
The Agent agrees to request such records from the contractor or
supplier within seven days of receipt of a written request
from the Secretary or his/her designee.
The Agent agrees to make available to the Secretary, the General
Accounting Office and their respective representatives, all records of the
Agent's management company and its identity-of-interest company(s), if any,
which relate to the provision of goods or services to the Project whenever
Project funds have been used to pay for such goods and/or services (other
than management services).
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In the event charges levied by an identity-of-interest firm exceed
charges which were or would have been levied by an identity-of-interest firms
taking into consideration the quality of work and materials and timely
performance for similar services or materials, the Agent, at the request of the
Secretary, shall refund, at its sole cost and expense, any excessive amounts
which were paid from the Project funds; provided, however, the Owner shall
refund, at its sole cost and expense, any excessive amounts which were paid from
the Project funds if and only if such excessive amounts were paid to an
identity-of-interest firm pursuant to a contract for which Owner granted its
prior written approval. If the Agent or Owner, as the case may be, and the
appropriate HUD Field Office acting on behalf of the Secretary cannot agree as
to the amount of refund due, the Chief of the Loan Management Branch of such HUD
Field Office shall request HUD's Office of the Inspector General to review the
Agent's, Owner's or identity-of-interest firm's records related to the
transactions under review. The Inspector General shall provide the Chief of the
Loan Management Branch of the HUD Field Office with an estimate of the amount of
refund due. The Deputy Director for Housing Management and the Chief of the Loan
Management Branch of the HUD Field Office shall review the Inspector General's
report and shall notify the Owner or Agent, as the case may be, in writing of
the amount of refund due. Within 20 days of receipt of the HUD Field Office's
letter, the Owner or Agent, as the case may be, shall refund any amounts found
to be excessive.
21. TENANT-MANAGEMENT RELATIONS. The Agent will encourage and assist
---------------------------
residents of the Project in forming and maintaining representative organizations
to promote their common interest, and will maintain good-faith communication
with such organizations to the end that problems affecting the Project and its
residents may be avoided or solved on the basis of mutual self-interest.
22. ON-SITE MANAGEMENT FACILITIES. Subject to the further agreement of
-----------------------------
the Owner and Agent as to more specific terms, the Agent will maintain a
management office within the Project to be located in 301 "G" Street, S.W.,
Washington, D.C.
23. INSURANCE. The Owner will inform the Agent of insurance to be
---------
carried with respect to the Project and its operations, and the Agent will cause
such insurance to be placed and kept in effect at all times. The Agent will pay
premiums out of the Rental Agency Account, and premiums will be treated as
operating expenses. All insurance will be placed with such companies, on such
conditions, in such amounts, and with such beneficial interests appearing
thereon as shall be acceptable to the Owner, the Secretary and the First
Mortgagee, as applicable, and shall be otherwise in conformity with the First
Mortgage; provided that the same will include public liability coverage, with
the Agent designated as one of the insured, in amounts acceptable to the Agent
as well as the Owner, the Secretary and the First Mortgagee, as applicable. The
Agent will investigate and furnish the Owner with full reports as to all
accidents, claims, and potential claims for damage relating to the Project, and
will cooperate with the Owner's insurers in connection therewith.
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24. COMPLIANCE WITH GOVERNMENTAL ORDERS. The Agent will take such
-----------------------------------
actions as may be necessary to comply promptly with any and all governmental
orders or other requirements affecting the Project, whether imposed by federal,
state, county or municipal authority, subject, however, to the limitation stated
in Subsection 11(e) with respect to repairs. Nevertheless, the Agent shall take
no such action so long as the Owner is contesting, or has affirmed its intention
to contest, any such order or requirement. The Agent will notify the Owner in
writing of all notices of such orders or other requirements within seventy-two
(72) hours from the time of Agent's receipt of such notices.
25. NON-DISCRIMINATION. In the performance of its obligations under
------------------
this Agreement, the Agent will comply with the provisions of any Federal, State
or local law prohibiting discrimination against any persons on grounds of race,
color, creed, sex, national origin, handicap or age, including Title VI of the
Civil Rights Act of 1964. Title VIII of the Civil Rights Act of 1968, Executive
Order 11063, Section 504 of the Rehabilitation Act of 1973, the Age
Discrimination Act of 1975, and all regulations and administrative instructions
implementing those Jaws, as applicable.
26. AGENT'S COMPENSATION. The Agent will be compensated for its
--------------------
services under this Agreement by monthly fees, to be paid out of the Rental
Agency Account and treated as Project expenses. Such fees will be payable on the
10th day of each month of the term of this Agreement. Each monthly fee will be
in (a) an amount equal to three and one-half percent (3-1/2%) of gross
collections of the Project received during the preceding month, and (b) an
amount not to exceed Five Thousand Five Hundred and 00/100 Dollars ($5,500) on a
monthly basis in reimbursement of such documented expenses which Agent may incur
during the preceding month in connection with its management of the Project in
accordance with this Agreement. For purposes hereof, gross collections shall be
deemed to include residential rental income received from Project residents and
income of the Project from other sources, as permitted under the Regulatory
Agreement, such as coin-operated laundry equipment, and the rental of parking
spaces located within the Project. The Agent, from its fee hereunder, shall pay
to Multistate Realty Services, Inc. or such other consulting service designated
by Owner a fee not to exceed one percent (1%) of gross collections for such
consultant's advice with respect to the management of the Project.
27. Term of Agreement. The initial term of this Agreement (the
-----------------
"Initial Term") shall be in effect for a period of approximately two (2) years,
beginning on and ending on the last day of the calendar month which is twenty-
four (24) calendar months after the calendar month in which the term of this
Agreement begins (unless the term of this Agreement begins on the first day of a
calendar month, in which case the term of this Agreement shall end on the last
day of the calendar month which is twenty-four (24) calendar months from the
beginning of the Term). Thereafter, the term shall be from year to year unless
otherwise terminated pursuant to this Agreement. Notwithstanding anything
contained herein to the contrary, this Agreement and the obligations of the
Principal Parties hereunder shall be subject to the following conditions:
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(a) This Agreement may be terminated by Owner upon thirty (30)
days written notice for any reason with or without cause after the
"Initial Term.
(b) This Agreement may be terminated by Agent upon sixty (60) days
written notice for any reason with or without cause after the "Initial
Term".
(c) It is expressly understood and agreed by and between the
Principal Parties that the Secretary shall have the right to terminate
this Agreement at the end of any calendar month for failure on the
part of either the Owner or the Agent to comply with the provisions of
the Management Certification, or other good cause, on thirty (30) days
advance written notice to the Owner and the Agent, except in the event
of a default by the Owner under the First Mortgage, the Regulatory
Agreement or any subsidy contract for the Project in which case this
Agreement shall be deemed terminated immediately upon the issuance by
the Secretary of written notice of termination to the Owner and the
Agent. If the Secretary terminates the Agreement as aforesaid, the
Owner will promptly make arrangements for providing management
satisfactory to the Secretary and no liability will attach to either
of the Principal Parties in the event of such termination.
(d) It is expressly understood and agreed by and between the
Principal Parties that the First Mortgagee shall have the right to
terminate this Agreement upon thirty (30) days written notice to the
Principal Parties in the event of a default under the Loan Documents
by the Owner.
(e) Upon termination, the Agent will submit to the Owner any
financial statements required by the Secretary, and will turn over to
the Owner all of the Project's cash, trust accounts, investments and
records within five (5) days of the termination of this Agreement.
After the Principal Parties have accounted to each other with respect
to all matters outstanding as of the date of termination, the Owner
will furnish the Agent security, in form and principal amount
satisfactory to the Agent, against any obligations or liabilities
which the Agent may properly have incurred on behalf of the Owner
hereunder.
(f) Agent hereby waives any contractual, statutory or other
management lien on the Project which such right to lien Agent may hold
as of the date hereof and hereafter.
28. INDEMNIFICATION. Agent shall indemnify and hold harmless Owner,
---------------
its officers, directors, and employees from and against any and all claims,
damages, losses, and expenses (including attorney fees) arising out of or
resulting from negligence or misconduct on the part of Agent, its officers,
agents and employees in the performance of Agent's duties under this Agreement,
except when same occurs as a result of the express direction of Owner, or
Multistate Realty Services, Inc. or such other consulting service designated by
Owner and engaged by Agent pursuant to Section 26 of this Agreement with respect
to any matters undertaken by any
13
<PAGE>
such consultant pursuant to its applicable written agreement with Agent, as
approved by Owner; provided, however, the foregoing exculpation shall not apply
in the event of any negligence or misconduct of Agent in carrying out the
express direction of Owner, Multistate Services, Inc. or any other applicable
consulting service engaged by Agent as aforesaid.
29. INTERPRETATIVE PROVISIONS.
-------------------------
(a) In the event of a conflict between any provision of this
Agreement and any rights and requirements as may be imposed by the
Secretary, the rights and requirements of the Secretary shall prevail
and the conflicting provision in this Agreement shall be deemed to
have no further force or effect.
(b) At all times, this Agreement will be subject and subordinate
to all rights of the Secretary, and will inure to the benefit of and
constitute a binding obligation upon the Principal Parties and their
respective successors and assigns.
(c) This Agreement constitutes the entire agreement between the
Owner and the Agent with respect to the management and operation of
the Project, and no change will be valid, unless made by supplemental
written agreement, executed and approved by the Principal Parties.
(d) This Agreement has been executed in several counterparts, each
of which shall constitute a complete original Agreement, which may be
introduced in evidence or used for any other purpose without
production of any of the other counterparts.
30. EFFECT OF AGREEMENT ON PRIOR HOUSING MANAGEMENT AGREEMENT. This
Agreement is intended to and shall be deemed to supersede in its entirety that
certain Restated Housing Management Agreements and the Amendment. Pursuant to
the terms of this Agreement, the Amended and Restated Housing Management
Agreement is hereby terminated.
Notwithstanding the execution of this Agreement by the Principal
Parties, this Agreement shall only become effective upon the execution of a
consulting agreement for the Project by and between the Principal Parties.
14
<PAGE>
IN WITNESS WHEREOF, the Principal Parties by their duly
authorized officers have executed this Agreement as of the
12th day of May, 1994.
OWNER:
CAPITOL PARK ASSOCIATES, an
Illinois limited partnership
BY: A.I.M. Partnership No. 1, an Illinois
limited partnership, Managing
General Partner
By: /s/ Aaron I. Michaelson
--------------------------------
Aaron I. Michaelson,
General Partner
15
<PAGE>
AGENT:
INTERSTATE GENERAL COMPANY,
L.P., a Delaware limited partnership
By: /s/ Kimberly H. Carroll
-----------------------------------
Name: Kimberly H. Carroll
----------------------------
Its: Vice President
----------------------------
16
<PAGE>
ADDENDUM TO
AMENDED AND RESTATED
HOUSING MANAGEMENT AGREEMENT
----------------------------
This Addendum is entered into this _____ day of May, 1994 between
Interstate General Company, L.P., as Agent and Capitol Park Associates, an
Illinois limited partnership, as Owner for the purpose of amending that certain
Amended and Restated Housing Management Agreement of even date herewith (the
"Management Agreement").
The Management Agreement is amended and modified as follows;
1. In Section 8(d) of the Management Agreement, the second sentence
shall be deleted.
2. Whenever the Management Agreement provides for Owner to be a
permitted signatory on the Security Deposit Account and the Rental Agency
Account, Owner 'nay exercise such right to draw monies from such accounts only
to pay the same amounts and for the same purposes as Agent may draw monies from
said accounts under the Management Agreement or in the event that Agent shall be
in default under the Management Agreement.
3. In Section 13(b) of the Management Agreement, the determination of
compensation for certain key employees shall be made in Owner's discretion with
Agent's approval, which approval shall not he unreasonably withheld.
4. In Section 17(b) of the Management Agreement, the cost for
partnership tax returns of Owner shall not exceed Five Thousand Dollars
($5,000.00) per year and agent shall not have any responsibility for preparing
Owner's partnership tax returns.
5. In Section 26 of the Management Agreement, the monthly
reimbursement shall be increased to Six Thousand Dollars ($6,000.00).
6. Owner shall indemnify, defend and hold Agent and its officers,
directors and employees harmless from any claims, damages, losses and expenses
asserted against Agent as a result of any matters undertaken by Agent at the
specific direction of Owner or Multi-State Realty Services, Inc. (or any other
consultant designated by Owner) in violation of the Management Agreement or
applicable HUD regulations.
<PAGE>
7. In all other respects, the Management Agreement shall be unmodified
and in full force and effect.
CAPITOL PARK ASSOCIATES, INTERSTATE GENERAL COMPANY,
an Illinois limited partnership L.P., a Delaware limited partnership
By: A.I.M. Partnership No. 1, By: /s/ Kimberly H. Carroll
Managing General Partner ------------------------------
Name: Kimberly H. Carroll
By: /s/ Aaron I. Michaelson -----------------------
-------------------------- Its: Vice President
Name: Aaron I. Michaelson -----------------------
---------------------
Its: General Partner
----------------------
<PAGE>
HOUSING MANAGEMENT AGREEMENT AMENDMENT
As of January 1, 1998, the Management Agreement for Capitol Park
Associates, dated December 31, 1984, is to be amended as follows:
1. Delete Interstate General Company L.P. as Managing Agent.
2. Add American Rental Management Company as Managing Agent.
IN WITNESS WHEREOF, the Principal Parties (by their duly authorized Officers)
have executed this Amendment to the Agreement on the 1st day of December, 1997.
WITNESS: INTERSTATE GENERAL COMPANY L.P.
SPONSOR:
/s/ Lisa D. Sweeney
- --------------------- By: /s/ Edwin L. Kelly
--------------------------
Edwin L. Kelly, President
MANAGING AGENT: AMERICAN RENTAL
WITNESS: MANAGEMENT COMPANY
/s/ Lisa D. Sweeney By: /s/ Edwin L. Kelly
- -------------------- --------------------------
Edwin L. Kelly, President
<PAGE>
EXHIBIT 10.8
HOUSING MANAGEMENT AGREEMENT
This Agreement is made this 1st day of January 1987, between Chastleton
Apartments Associates (Owner) and Interstate General Company L.P. (Agent).
1. Appointment and Acceptance. The Owner appoints the Agent as exclusive
--------------------------
agent for the management of the property described in Section 2 of
this Agreement, and the Agent accepts the appointment, subject to the
terms and conditions set forth in this Agreement.
2. Description of Project. The property to be managed by the Agent under
----------------------
this Agreement (the "Project") is a housing development, consisting
of the land, buildings, and other improvements which make up Project
No. 052-35452-PM. The Project is further described as follows:
Name: Chastleton Apartments
---------------------
Location: City: Washington
----------
State: District 20009
---------------
Number of dwelling units: 300
3. Definitions. As used in this Agreement:
a. "HUD" means the United States Department of Housing and Urban
Development.
b. "Secretary" means the Secretary of the United States Department
of Housing and Urban Development.
c. "Mortgage" means that certain Deed of Trust between the Owner, as
mortgagor, and the mortgagee, with respect to the Project, which
mortgage is insured by the United States Department of Housing
and Urban Development.
d. "Mortagee" means any holder of the Mortgage.
e. "Principal Parties" means the Owner and the Agent.
f. "Consenting Parties" means the Secretary and the Mortgagee.
4. HUD Requirements. The Project is subject to a mortgage which will be
----------------
or is insured by HUD under Section 221(d)4 of the National Housing
Act, and the Owner has or will accordingly enter into a Regulatory
Agreement with the Secretary, whereby the Owner is obligated to
provide for management of the project in a manner satisfactory to the
Secretary. The Owner has or will furnish the Agent with copies of the
Regulatory Agreement. In performing its duties under this Management
Agreement, the Agent will comply with all pertinent requirements of
the Regulatory Agreement and the directives
<PAGE>
of the Secretary. In the event any instruction from the Owner is in
contravention of such requirements, the latter will prevail.
5. Management Plans Form HUD-9405. Attached hereto as an Exhibit and
------------------------------
hereby incorporated herein, is a copy of the Management Plan for the
Project, which provides a comprehensive and detailed description of
the policies and procedures to be followed in the management of the
Project. In many of its provisions, this Agreement briefly defines the
nature of the Agent?s obligations, with the intention that reference
be made to the Management Plan for more detailed policies and
procedures. Accordingly, the Owner and the Agent will comply with all
applicable provisions of the Management Plan, regardless of whether
specific reference is made thereto in any particular provision of this
Agreement.
6. Management Input During HUD Processing. The Agent will advise and
--------------------------------------
assist the Owner with respect to management input during the remaining
stages of HUD mortgage insurance processing. The Agent's specific
tasks will be as follows:
a. Preparation and submission to the Owner of a recommended
operating budget for the initial operating year of the Project;
b. Participation in the pre-occupancy conference with HUD officials;
c. Preparation and submission to the Owner (for the Owner's
signature and submission to HUD) of the monthly Statement of
Income and Expenses (Forms HUD-931479, HUD-93480, HUD 93481)
throughout the period from initial occupancy through the
achievement of sustaining (95%) occupancy;
d. Participation in the on-site inspection of the Project, required
by HUD approximately ninety (90) days subsequent to initial
occupancy; and
e. Continuing review of the Management Plan, for the purpose of
keeping the Owner advised of necessary or desirable changes.
7. Basic Information. As soon as possible, the Owner will furnish the
-----------------
Agent with a complete set of plans and specifications approved by the
Secretary and copies of all guarantees and warrantees pertinent to
construction, fixtures and equipment. With the aid of this
information and through inspection by competent personnel, the
Agent will thoroughly familiarize itself with the character, location,
construction, layout, plan and operation of the Project, and
especially the electrical, heating, plumbing, air-conditioning and
ventilating systems, and all other mechanical equipment.
8. Liaison with Architect and General Contractor. During the planning
---------------------------------------------
and construction phases, the Agent will maintain direct liaison with
the architect and general contractor, in order to coordinate
management concerns with the design and
<PAGE>
construction of the Project, and to facilitate completion of any corrective
work and the Agent's responsibilities for arranging facilities and services
pursuant to Section 14 of this Agreement. The Agent will keep the Owner
advised of all significant matters in this connection.
9. Marketing. The Agent will carry out the marketing activities prescribed in
---------
the Management Plan, observing all requirements of the Affirmative
Marketing Plan. Subject to the Owner's prior approval, advertising expenses
will be paid out of the Rental Agency Account as Project expenses.
10. Rentals. The Agent will offer for rent and will rent the dwelling units,
-------
parking spaces, commercial space and other rental facilities and
concessions in the Project. Incident thereto, the following provisions will
apply:
a. The Agent will make preparation for initial rent-up, as described in
the Management Plan.
b. The Agent will follow the tenant selection policy described in the
Management Plan, giving preference to families who have certificates
of eligibility as displaced persons.
c. The Agent will show the premises to prospective tenants.
d. The Agent will take and process applications for rentals. If an
application is rejected, the applicant will be told the reason for
rejection, and the rejected application, with reason for rejection
noted thereon, will be kept on file for one (1) year. A current list
of prospective tenants will be maintained.
e. The Agent will prepare all dwelling leases and parking permits, and
will execute the same in its name, identified thereon as Agent for the
Owner. The terms of all leases will comply with the pertinent
provisions of the Regulatory Agreement and the directives of the
Secretary. Dwelling leases will be in a form approved by the Owner and
the Secretary, but individual dwelling leases and parking permits need
not be submitted for the approval of the Owner or the Secretary.
f. The Owner will furnish the Agent with rent schedules showing fair
market rents for dwelling units and other charges for facilities and
services. In no event will such fair market rents and other charges be
exceeded. Eligibility for dwelling rents that are less than such fair
market rents, and the amount of such lesser rents, will be determined
in accordance with the Regulatory Agreement and the directives of the
Secretary.
g. The Agent will negotiate commercial leases and concession agreements,
and will execute the same in its name, identified thereon as agent for
the Owner, subject to the Owner's prior approval of all terms and
conditions. Commercial rents will not be less than the minimums from
time to time approved by the Secretary.
<PAGE>
h. The Agent will collect, deposit, and disburse security deposits,
if required, in accordance with the terms of each tenant's lease.
The amount of each security deposit will be as specified in the
Management Plan. Security deposits will be deposited by the Agent
in an interest-bearing account, separate from all other accounts
and funds, with a bank or other financial institution whose
deposits are insured by an agency of the United States
Government. This account will be carried in the Agent's name
and designated of record as "Security Deposit Account for New
Forest".
11. Collection of Rents and Other Receipts. The Agent will collect when
--------------------------------------
due all rents, charges, and other amounts receivable on the Owner's
account in connection with the management and operation of the
Project. Such receipts (except for tenant's security deposits, which
will be handled as specified in Subsection 10 h above) will be
deposited in an account, separate from all other accounts and funds,
with a bank whose deposits are insured by the Federal Deposit
Insurance Corporation. This account will be carried in the Agent's
name and designated of record as "Rental Agency Account for New
Forest".
12. Enforcement of Leases. The Agent will secure full compliance by each
---------------------
tenant with the terms of his lease. Subject to the pertinent
procedures prescribed in the Management Plan, the Agent may lawfully
terminate any tenancy when, if in the Agent's judgment, sufficient
cause (including but not limited to nonpayment of rent) for such
termination occurs under the terms of the tenant's lease. For this
purpose, the Agent is authorized to consult with legal counsel to be
designated by the Owner, to bring actions for eviction and to execute
notices to vacate and judicial pleadings incident to such actions;
provided, however, the Agent keeps the Owner informed of such actions
and follows such instructions as the Owner may prescribe for the
conduct of any such action. Subject to the Owner's approval, attorney
fees and other necessary costs incurred in connection with such
actions will be paid out of the Rental Agency Account as Project
expenses.
13. Maintenance and Repair. The Agent will cause the Project to be
----------------------
maintained and repaired in accordance with the Management Plan and
local codes, and in a condition at all times acceptable to the Owner
and the Secretary, including but not limited to cleaning, painting,
decorating, plumbing, carpentry, grounds care, and such other
maintenance and repair work as may be necessary, subject to any
limitations imposed by the Owner in addition to those contained
herein:
Incident thereto, the following provisions will apply:
a. Special attention will be given to preventive maintenance and, to
the greatest extent feasible, the services of regular maintenance
employees will be used.
b. Subject to the Owner's prior approval, the Agent will contract
with qualified independent contractors for the maintenance and
repair of air-conditioning systems and for extraordinary repairs
beyond the capability of regular maintenance employees.
<PAGE>
c. The Agent will systematically and promptly receive and investigate all
service requests from tenants, take such action thereon as may be
justified, and will keep records of the same. Emergency requests will
be received and serviced on a twenty-four (24) hour basis. Complaints
of a serious nature will be reported to the Owner after investigation.
d. The Agent is authorized to purchase all materials, equipment, tools,
appliances, supplies, and services necessary to proper maintenance and
repair.
e. Notwithstanding any of the foregoing provisions, the prior approval of
the Owner will be required for any expenditure which exceeds One
Thousand Dollars ($1,000.00) in any one instance for labor, materials,
or otherwise in connection with the maintenance and repair of the
Project, except for recurring expenses within the limits of the
operating budget or emergency repairs involving manifest danger to
persons or property, or required to avoid suspension of any necessary
service to the Project. In the latter event, the Agent will inform the
Owner of the facts as promptly as possible.
14. Utilities and Services. In accordance with the Management Plan and the
----------------------
operating budget, the Agent will make arrangements for water, electricity,
gas, fuel oil, sewage and trash disposal, vermin extermination, decorating,
laundry facilities, and telephone services. Subject to the Owner's prior
approval, the Agent will make such contracts as may be necessary to secure
such utilities and services.
15. Employees. The Management Plan prescribes the number, qualifications and
---------
duties of the personnel to be regularly employed in the management of the
Project, including a Leasing Agent, a Resident Relations Agent, a
Maintenance Man, bookkeeping, clerical, and other managerial employees. All
such personnel will be employees of the Project and not the Agent and will
be paid directly by the Project out of the Rental Agency Account, but will
be hired, supervised and discharged through the Agent, subject to the
following conditions:
a. As more particularly described in the Management Plan, the Leasing
Agent will have duties of the type usually associated with that
position, and the Resident Relations Agent will be responsible for the
daily operations of the Project. Each will be directly responsible to
the Agent's Project Manager or other officer, and neither will have
authority to supervise or discharge the other. Nevertheless, they will
coordinate their activities in the interest of good overall
management.
b. Unless otherwise specified in the Management Plan, the compensation
(including fringe benefits) of all personnel will be within the
Agent's sole discretion, provided minimum wage standards are met.
c. The Owner will reimburse the Agent for any compensation (including
fringe benefits) paid to the Project
<PAGE>
management and maintenance employees, as prescribed in the Management
Plan, not otherwise paid directly by the Project, and for all local,
state, and Federal taxes and assessments (including but not limited to
Social Security taxes, unemployment insurance, and workman's
compensation insurance) incident to the employment of such personnel.
Such reimbursements will be paid out of the Rental Agency Account and
will be treated as Project expenses.
d. Compensation (including fringe benefits) payable to the Project staff
and other assessments incident to the employment of such personnel,
will be borne solely by the Project, and will not be paid out of the
Agent's fee.
e. The Agent will establish and follow an employment policy that affords
residents of the Project maximum opportunities for employment in the
management and operation of the Project and, to the extent consistent
with that consideration, employment opportunities to lower-income
persons in the area. While personnel will be employed primarily on the
basis of ability, the Agent will make conscientious efforts to provide
special assistance and training for Project residents and members of
minority groups who are not initially qualified.
f. Notwithstanding any of the foregoing provisions, direct payments may
be made to all employees and personnel and for expenses of the Project
in accordance with HUD Handbook 4381.5 and this Section 15 shall be
construed in conformity with and shall be controlled by the provisions
of such Handbook as amended or administratively interpreted by the
Secretary.
16. Disbursements from Rental Agency Account.
----------------------------------------
a. From the funds collected and deposited by the Agent in the Rental
Agency Account pursuant to Section 11 above, the Agent will make
the following disbursements promptly when payable:
1. Compensation payable to Employees in accordance with Section
15 above, including reimbursement to the Agent for
compensation paid to employees in accordance with Subsection
15c above, and for the taxes and assessments payable to
local, state, and Federal governments in connection with the
employment of such personnel.
2. The total aggregate payment required to be made monthly, by
the Owner to the Mortgagee,including the amounts due under
the mortgage for principal amortization, interest, mortgage
insurance premium, ground rents, taxes and assessments, fire
and other hazards insurance premiums, and the amount
specified in the Regulatory Agreement for allocation to the
Reserve for Replacements.
<PAGE>
3. All sums otherwise due and payable by the Owner as expenses
of the Project authorized to be incurred by the Agent under
the terms of this Agreement, including compensation payable
to the Agent, pursuant to Section 26 below, for its service
hereunder.
b. Except for the disbursements mentioned in the Subsection 16a
above, funds will be disbursed or transferred from the Rental
Agency Account only as the Owner may from time to time direct in
writing.
c. In the event that the balance in the Rental Agency Account is at
any time insufficient to pay disbursements due and payable under
Subsection 16a above, the Agent will inform the Owner of that
fact and the Owner will then remit to the Agent sufficient funds
to cover the deficiency. In no event will the Agent be required
to use its own funds to pay such disbursements.
17. Budgets. Annual operating budgets for the Project will be as approved
--------
by the Owner. Except as permitted under Subsection 13e above, annual
disbursements for each type of operating expense itemized in the
budget will not exceed the amount authorized by the approved budget.
In addition to preparation and submission of a recommended operating
budget for the initial fiscal year (as provided in Subsection 6a
above), the Agent will prepare a recommended operating budget for each
subsequent fiscal year beginning during the term of this Agreement,
and will submit the same to the Owner at least thirty (30) days before
the beginning of the fiscal year. The Owner will promptly inform the
Agent of any changes incorporated in the approved budget, and the
Agent will keep the Owner informed of any anticipated deviation from
the receipts or disbursements stated in the approved budget.
18. Records and Reports. In addition to the requirements specified in the
-------------------
Management Plan or in other provisions of this Agreement, the Agent
will have the following responsibilities with respect to records and
reports:
a. The Agent will establish and maintain a comprehensive system of
records, books, and accounts in a manner conforming to the
directives of the Secretary, and otherwise satisfactory to the
Owner and the Consenting Parties. All records, books, and
accounts will be subject to examination at reasonable hours by
any authorized representative of the Owner or either of the
Consenting Parties.
b. With respect to each fiscal year ending during the term of this
Agreement, the Agent will have an annual financial report
prepared by a Certified Public Accountant or other person
acceptable to the Owner and Secretary, based upon the preparer's
examination of the books and records of the Owner and the Agent.
The report will be prepared in accordance with the directives of
the Secretary, will be certified by the preparer and the Agent,
and will be submitted to the
<PAGE>
Owner within sixty (60) days after the end of the fiscal year, for the
Owner's further certification and submission to the Secretary and the
Mortgagee. Compensation for the preparer's services will be paid out
of the Rental Agency Account as an expense of the Project.
c. The Agent will prepare a monthly report comparing actual and
budgeted figures for receipts and disbursements, and will submit
each such report to the Owner within fifteen (15) days after the
end of the month covered.
d. The Agent will furnish such information (including occupancy
reports) as may be requested by the Owner or the Secretary from
time to time with respect to the financial, physical, or
operational condition of the Project.
e. By the fifteenth (15th) day of each month, the Agent will furnish
the Owner with an itemized list of all delinquent accounts,
including rental accounts, as of the tenth (10th) day of the same
month.
f. During rent-up (the period it takes a project to reach 95%
occupancy) the Agent will furnish by the tenth (10th) day of each
month, the Owner and HUD with a statement of receipts and
disbursements during the previous month, and with a schedule of
accounts receivable and payable, and reconciled bank statements
for the Rental Agency Account and Deposit Account as of the end
of the previous month.
g. If, after the Project reaches sustaining (95%) occupancy, the
rental collections fall below operating expenses for a subtained
period of sixty (60) days, the Agent will immediately send
written notification of the same to the appropriate HUD
Area/Insuring Office.
h. Except as otherwise provided in the Agreement, all indirect
bookkeeping, clerical, and other management overhead expenses
(including but not limited to costs of office supplies and
equipment, data processing services, postage, transportation for
managerial personnel, and telephone services) will be borne by
the Agent out of his own funds and will not be treated as Project
expenses.
19. Fidelity Bond. The Agent will furnish at its own expense, a fidelity
-------------
bond in the principal sum of $431,340, which is at least equal to the
gross potential income for two months and is conditioned to protect
the Owner and the Consenting Parties against misappropriation of
Project funds by the Agent and Agent's employees and on-site employees
expressed in Section 15. The terms and conditions of the bond, and
the surety thereon, will be subject to the approval of the Owner and
the Consenting Parties.
20. Bids and Purchase Discounts, Rebates or Commissions. The Project
---------------------------------------------------
Owner and Management Agent agree to obtain contract materials,
supplies and services at the lowest possible cost
<PAGE>
and on the terms most advantageous to the project and to secure and credit
to the project all discounts, rebates or commissions obtainable with
respect to purchases, service contracts and other transactions on behalf of
the project. The Project Owner and the Management Agent agree that all
goods and services purchased from individuals or companies having an
identity-of-interest with the Agent, Project Owner or Management Agent
shall be purchased at costs not in excess of those that would be incurred
in making arms-length purchases on the open market.
The Management Agent shall solicit written cost estimates (i.e., bids)
from at least three contractors or suppliers for any work item which
the Project Owner or the Secretary estimates will cost $5,000 or more
and for any contract or ongoing supply or service arrangement which is
estimated to exceed $5,000 per year. The Management Agent agrees to
accept the bid which represents the lowest price taking into
consideration the bidder's reputation for quality of workmanship or
materials and timely performance, and the time frame within which the
service or goods are needed. For any contract or ongoing supply or
service arrangement obtainable from more than one source and estimated
to cost less than $5,000, the Management Agent shall solicit verbal or
written cost estimates, as necessary to assure that the project is
obtaining services, supplies and purchases at the lowest possible
cost. The Management Agent must make a written record of any verbal
estimate obtained. Copies of all required bids and documentation of
all other written or verbal cost comparisons made by the Management
Agent shall be made part of the project's records and shall be
retained for three years from the date the work was completed. This
documentation shall be subject to inspection by the Secretary or
his/her designee and the Management Agent agrees to submit such
documentation upon request.
The Management Agent further agrees to include the following clause in
any contract entered into with an identity-of-interest firm for
provision of goods or services to the project, the cost of which
services are to be paid from project funds: "Upon request by the
(Project Owner or Management Agent) or the Secretary, (name of
contractor or supplier) will make available to the Secretary at a
reasonable time and place; (name of contractor or supplier) records
which relate to goods or services provided to the project." The
Management Agent agrees to request such records from the contractor or
supplier within seven days of receipt of a written request from the
Secretary or his/her designee.
The Management Agent agrees to make available to the Secretary all
records of the Agent's management company and its identify-of-interest
company(s), if any, which relate to the provision of goods or services
to the project whenever project funds have been used to pay for such
goods and/or services (other than management services).
In the event charges levied by an identity-of-interest firm exceed
charges which were or would have been levied by non-identity-of-
interest firms for similar services or
<PAGE>
materials, the Project Owner, at the request of the Department shall refund
any excessive amounts which were paid from the project funds. If the
Project Owner and Field Office cannot agree as to the amount of refund due,
the Loan Management Branch Chief shall request the Office of the Inspector
General to review the Management Agent's or identity-of-interest firm's
records related to the transactions under review. The Inspector General
shall provide the Loan Management Branch Chief with an estimate of the
amount of refund due. The Deputy Director of Housing Management and the
Chief shall notify the Project Owner of the amount of refund due. Within 20
days of the receipt of the Field Office's letter, the Project Owner shall
refund any amounts found to be excessive.
21. Tenant-Management Relations. The Agent will encourage and assist
---------------------------
residents of the Project in forming and maintaining representative
organizations to promote their common interests, and will maintain
good faith communication with such organizations to the end that
problems affecting the Project and its residents may be
avoided or solved on the basis of mutual self-interest.
22. On-site Management Facilities. Subject to the further agreement of
-----------------------------
the Owner and Agent as to more specific terms, the Agent will maintain
a management office within the project.
23. Insurance. The Owner will inform the Agent of insurance to be
---------
carried with respect to the Project and its operations, and the Agent
will cause such insurance to be placed and kept in effect at all
times. The Agent will pay premiums out of the Rental Agency Account,
and premiums will be treated as a Project expense. All insurance will
be placed with such companies, on such conditions, in such amounts and
with such beneficial interests appearing thereon as shall be
acceptable to the Owner and Consenting Parties, and shall be
otherwise in conformity with the mortgage; provided that the name will
include public liability coverage, with the Agent designated as one of
the insured, in amounts acceptable to the Agent as well as the Owner
and the Consenting Parties. The Agent will investigate and furnish
the Owner with full reports as to all accidents, claims, and potential
claims for damage relating to the Project, and will cooperate with the
Owner's insurers in connection therewith.
24. Compliance with Government Orders. The Agent will take such actions
---------------------------------
as may be necessary to comply promptly with any and all governmental
orders or other requirements affecting the Project, whether imposed by
Federal, state, county or municipal authority, subject, however to the
limitation stated in Subsection 13e with respect to repairs.
Nevertheless, the Agent shall take no such action so long as the owner
is contesting, or has affirmed its intention to contest, any such
order or requirement. The Agent will notify the Owner in writing of
all notices of such orders or other requirements, within seventy-two
(72) hours from the time of their receipts.
<PAGE>
25. Nondiscrimination. In the performance of its obligations under this
-----------------
Agreement, the Agent will comply with the provisions of any Federal,
state or local law prohibiting discrimination in housing on the
grounds of race, color, sex creed or national origin, including Title
VI of the Civil Rights Act of 1964 (Public Law 88-352, 78 Stat. 241),
all requirements imposed by or pursuant to the Regulations of the
Secretary (24 CFR: Subtitle A, Part 1) issued pursuant to that Title;
regulations issued pursuant to Executive Order 11063, and Title VIII
of the 1968 Civil Rights Act.
26. Agent's Compensation.
--------------------
a. The Agent will be compensated for its services under this
Agreement by monthly fees, to be paid out of the Rental Agency
Account and treated as Project expenses. Such fees will be
payable on the 1st day of each month. Each such monthly fee will
be an amount equal to 4.0 percent of gross collections received
during the preceding month. Gross collections include rental
income and income from other sources such as coin-operated
laundry equipment.
27. Term of Agreement. This Agreement shall be in effect for a period of
-----------------
two years beginning on the date of initial closing and shall
automatically renew for one year periods, subject, however to the
following conditions:
a. This Agreement will not be binding upon the Principal Parties
until endorsed by the Consenting Parties.
b. This Agreement may be terminated by the mutual consent of the
Principal Parties as of the end of any calendar month, provided
at least thirty (30) days advance written notice thereof is given
to each of the Consenting Parties.
c. In the event a petition in bankruptcy is filed by or against
either of the Principal Parties, or in the event either makes an
assignment for the benefit of creditors or takes advantage of
any insolvency act, the other party may terminate this Agreement
without notice to the other, provided prompt written notice of
such termination is given to each of the Consenting Parties.
d. It is expressly understood and agreed by and between the
Principal Parties that the Secretary or the Mortgagee shall have
the right to terminate this Agreement at the end of any calendar
month, with or without cause, on thirty (30) days advance written
notice to each of the Principal Parties, except that in the event
of a default by the Owner under its Articles of Incorporation
under the obligation of the mortgage, the Secretary or the
Mortgagee may terminate this Agreement immediately upon the
issuance of a notice of cancellation to each of the Principal
Parties. It is further understood and agreed that no liability
will attach to either of the Principal parties in the event of
such termination.
<PAGE>
e. Upon termination, the Agent will submit to the Owner any
financial statements required by the Secretary and, after the
Principal Parties have accounted to each other with respect to
all matters outstanding as of the date of termination, the Owner
will furnish the Agent security, in form and principal amount
satisfactory to the Agent, against any obligations or liabilities
the Agent may properly have incurred on behalf of the Owner
hereunder.
28. Interpretative Provisions.
-------------------------
a. At all time, this Agreement will be subject and subordinate to
all rights of the Secretary, and will inure to the benefit of and
constitute a binding obligation upon the Principal Parties and
their respective successors and assigns. To the extent that
this Agreement confers rights upon the Consenting Parties, it
will be deemed to inure to their benefit, but without liability
to either, in the same manner and with the same effect as though
the Consenting Parties were primary parties to the Agreement.
b. This Agreement constitutes the entire agreement between the Owner
and the Agent with respect to the management and operation of the
Project, and no change will be valid unless made by supplemental
written agreement, executed and approved by the consenting
Parties as well as the Principal Parties.
c. This Agreement has been executed in four (4) counterparts, each
of which shall constitute a complete original Agreement, which
may be introduced in evidence or used for any other purpose
without production of any other counterparts.
d. The provision of this Agreement shall be subject to and construed
in conformity with the provision of HUD Handbook 4381.5 as
amended or administratively interpreted by the Secretary. In
the event of a conflict between the provisions of this Agreement
and the said handbook, the provisions of the Handbook shall
control.
IN WITNESS WHEREOF, the Principal Parties (by their authorized officers)
have executed this Agreement on the date first above written.
<PAGE>
INTERSTATE GENERAL CORPORATION, General Partner
for Chastleton Apartments Associates
OWNER: Interstate General Corporation
BY: /s/ Edwin L. Kelly
-------------------------------------
Edwin L. Kelly
MANAGING AGENT: Interstate General Company L.P
BY: /s/ Charles E. Stuart
-------------------------------------
Charles E. Stuart
MORTGAGEE: National Bank of Washington
<PAGE>
HOUSING MANAGEMENT AGREEMENT AMENDMENT
As of January 1, 1987, the Management Agreement for Chastleton Associates,
currently under submission to and being reviewed by the Department of
Housing and Urban Development (as of 9-30-86), is to be amended as follows:
1. Delete Interstate General Properties Limited Partnership as Managing
Agent.
2. Add Interstate General Company L.P. as Managing Agent.
IN WITNESS WHEREOF, the Principal Parties (by their duly authorized
Officers) have executed this Amendment to the Agreement on the 12th day of
December, 1986.
WITNESS: INTERSTATE GENERAL PROPERTIES
LIMITED PARTNERSHIP
/s/ ^^ILLEGIBLE?? SPONSOR:
- ------------------------
By: /s/ Raymond E. Keeney
---------------------------------
Raymond E. Keeney, Vice President
WITNESS: MANAGING AGENT: INTERSTATE GENERAL
COMPANY L.P.
/s/ ^^ILLEGIBLE??
- ------------------------ By: INTERSTATE GENERAL CORPORATION,
General Partner
By: /s/ Edwin L. Kelly
----------------------------------
Edwin L. Kelly, Sr. Vice President
<PAGE>
HOUSING MANAGEMENT AGREEMENT AMENDMENT
As of January 1, 1987, the Management Agreement for Chastleton Associates,
currently under submission to and being reviewed by the Department of
Housing and Urban Development (as of 9-30-86), is to be amended as follows:
1. Effective January 1, 1987, the term of the Management Agreement shall
be annual (January 1 through December 31) with automatic yearly renewals.
The agreement may be cancelled at any time after thirty (30) days written
notice by either party.
2. Effective January 1, 1987, the Agent's compensation, as outlined under
Section 26(a), shall be computed at 5.0% of gross collections.
IN WITNESS WHEREOF, the Principal Parties (by their duly authorized
Officers) have executed this Amendment to the Agreement on the 26th day of
February, 1987.
WITNESS: INTERSTATE GENERAL COMPANY L.P.
SPONSOR:
/s/ Gerald Morosek
- ---------------------------- By: /s/ Raymond E. Keeney
---------------------------------
Raymond E. Kenney, Vice President
WITNESS: MANAGING AGENT: INTERSTATE GENERAL
COMPANY L.P.
/s/ Gerald Morosek By: /s/ Edwin L. Kelly
- ---------------------------- ----------------------------------
Edwin L. Kelly, Sr. Vice President
<PAGE>
HOUSING MANAGEMENT AGREEMENT AMENDMENT
As of January 1, 1993, the Management Agreement for Chastleton Associates,
dated January 1, 1987, is to be amended as follows:
Effective January 1, 1993, the Agent's compensation, as outlined under
Section 26(a), shall be computed at 2.5% of gross collections.
IN WITNESS WHEREOF, the Principal Parties (by their duly authorized
Officers) have executed this Amendment to the Agreement on the 11th day of
March 1993.
WITNESS: CHASTLETON ASSOCIATES
BY: INTERSTATE BUSINESS CORPORATION
GENERAL PARTNER
SPONSOR:
/s/ Linda Horty By: /s/ J. Michael Wilson
- -------------------------- ------------------------------
J. Michael Wilson
Vice President
WITNESS: MANAGING AGENT: INTERSTATE GENERAL
COMPANY L.P.
/s/ Linda Horty By: /s/ Paul Resnik
- --------------------------- -------------------------------
Paul Resnik
Senior Vice President
<PAGE>
HOUSING MANAGEMENT AGREEMENT AMENDMENT
As of January 1, 1998, the Management Agreement for Chastleton Apartments
Associates dated January 1, 1987, is to be amended as follows:
1. Delete Interstate General Company L.P. as Managing Agent.
2. Add American Rental Management Company as Managing Agent.
IN WITNESS WHEREOF, the Principal Parties (by their duly authorized
Officers) have executed this Amendment to the Agreement on the 1st day of
December, 1997.
WITNESS: INTERSTATE GENERAL COMPANY L.P.
SPONSOR:
/s/ Lisa D. Sweeney By: /s/ Edwin L. Kelly
- ----------------------- --------------------------
Edwin L. Kelly, President
WITNESS: MANAGING AGENT: AMERICAN RENTAL
MANAGEMENT COMPANY
/s/ Lisa D. Sweeney
- ------------------------ By: /s/ Edwin L. Kelly
---------------------------
Edwin L. Kelly, President
<PAGE>
EXHIBIT 10.9
HOUSING MANAGEMENT AGREEMENT
This Agreement is made this 30th day of September, 1983, between G.L.
Limited partnership (Owner) and Interstate General Corporation (Agent).
1. Appointment and Acceptance. The Owner appoints the Agent as exclusive
--------------------------
agent for the management of the property described in Section 2 of this
Agreement, and the Agent accepts the appointment, subject to the terms
and conditions set forth in this agreement.
2. Description of Project. The property to be managed by the Agent under
----------------------
this Agreement (the "Project") is a housing development, consisting of
the land, buildings, and other improvements which make up Project No. The
Project is further described as follows:
Name: ROLLING HILLS APARTMENTS
-----------------------------------------------------
Location: City: Germantown County: Montgomery
-----------------------------------------------------
State: Maryland 20767 Census Tract: 7038-08
-----------------------------------------------------
Number of dwelling units: 468
-----
3. Definitions. As used in this Agreement:
a. "HUD" means the United States Department of Housing and Urban
Development.
b. "Secretary" means the Secretary of the United States
Department of Housing and Urban Development.
c. "Mortgage" means that certain Deed of Trust between the Owner,
as mortgagor, and the mortgagee, with respect to the Project,
which mortgage is insured by the United States Department of
Housing and Urban Development.
d. "Mortgagee" means any holder of the Mortgage.
e. "Principal Parties" means the Owner and the Agent.
f. "Consenting Parties" means the Secretary and the Mortgagee.
4. HUD Requirements. The project is subject to a mortgage which will
----------------
be or is insured by HUD under Section 221(d)4 of the National Housing
Act, and the owner has entered or will accordingly enter into a
Regulatory Agreement with the Secretary, whereby the Owner is obligated
to provide for management of the project in a manner satisfactory to the
Secretary. The owner has furnished or will furnish the Agent with copies
of the Regulatory Agreement and the Rent Supplement Contract. In
performing its duties under this Management Agreement, the Agent will
comply with all pertinent requirements of the Regulatory Agreement, the
Rent Supplement Contract, and the directives of the Secretary. In the
event any instruction from the Owner is in contravention of such
requirements, the latter will prevail.
<PAGE>
5. Management Plans Form HUD-9405. Attached hereto as an Exhibit and
------------------------------
hereby incorporated herein, is a copy of the Management Plan for the
Project, which provides a comprehensive and detailed description of the
policies and procedures to be followed in the management of the Project.
In many of its provisions, this Agreement briefly defines the nature of
the Agent's obligations, with the intention that reference be made to the
Management Plan for more detailed policies and procedures. Accordingly,
the owner and the Agent will comply with all applicable provisions of the
Management Plan, regardless of whether specific reference is made thereto
in any particular provision of this Agreement.
6. Management Input During HUD Processing. The Agent will advise and
--------------------------------------
assist the Owner with respect to management input during the remaining
stages of HUD mortgage insurance processing. The Agent's specific tasks
will be as follows:
a. Preparation and submission to the Owner of a recommended
operating budget for the initial operating year of the
Project;
b. Participation in the pre-occupancy conference with HUD
officials;
c. Preparation and submission to the Owner (for the Owner's
signature and submission to HUD) of the monthly Statement of
Income and expenses (Forms HUD-93479, HUD-93480, HUD 93481)
throughout the period from initial occupancy through the
achievement of sustaining (95%) occupancy;
d. Participation in the on-site inspection of the Project,
required by HUD approximately ninety (90) days subsequent to
initial occupancy; and
e. Continuing review of the Management Plan, for the purpose of
keeping the Owner advised of necessary or desirable changes.
7. Basic Information. As soon as possible, the Owner will furnish the
-----------------
Agent with a complete set of plans and specifications approved by the
Secretary and copies of all guarantees and warrantees pertinent to
construction, fixtures and equipment. With the aid of this information
and through inspection by competent personnel, the Agent will thoroughly
familiarize itself with the character, location, construction, layout,
plan and operation of the Project, and especially the electrical,
heating, plumbing, air-conditioning and ventilating Systems, and all
other mechanical equipment.
8. Liaison with Architect and General Contractor. During the planning
---------------------------------------------
and construction phases, the Agent will maintain direct liaison with the
architect and general contractor, in order to coordinate management
concerns with the design and construction of the Project, and to
facilitate completion of any corrective work and the Agent's
responsibilities for arranging facilities and services pursuant to
Section 14 of this Agreement. The Agent will keep the Owner advised of
all significant matters in this connection.
-2-
<PAGE>
9. Marketing. The Agent will carry out the marketing activities
---------
prescribed in the Management Plan, observing all requirements of the
Affirmative Marketing Plan. Subject to the Owner's prior approval,
advertising expenses will be paid out of the Rental Agency Account as
Project expenses.
10. Rentals. The Agent will offer for rent and will rent the dwelling
-------
units, parking spaces, commercial space and other rental facilities and
concessions in the Project. Incident thereto, the following provisions
will apply:
a. The Agent will make preparation for initial rent-up as
described in the Management Plan.
b. The Agent will follow the tenant selection policy described in
the Management Plan, giving preference to elderly Individuals
and families who have certificates of eligibility as displaced
persons.
c. The Agent will show the premises to prospective tenants.
d. The Agent will take and process applications for rentals. If
an application is rejected, the applicant will be told the
reason for rejection, and the rejected application, with
reason for rejection noted thereon, will be kept on file for
one (1) year. A current list of prospective tenants will be
maintained.
e. The Agent will prepare all dwelling leases and parking
permits, and will execute the same in its name, identified
thereon as Agent for the Owner. The terms of all leases will
comply with the pertinent provisions of the Regulatory
Agreement, the Rent Supplement Contract, and the directives of
the Secretary. Dwelling leases will be in a form approved by
the Owner and the Secretary, but individual dwelling leases
and parking permits need not be submitted for the approval of
the Owner or the Secretary.
f. The Owner will furnish the Agent with rent schedules, as from
time to time approved by the Secretary. showing fair market
rents and basic rents for dwelling units, and other charges
for facilities and services. In no event will such fair
market rents and other charges be exceeded. Eligibility for
dwelling rents that are less than such fair market rents, and
the amount of such lesser rent, will be determined in
accordance with the Regulatory Agreement and the directives of
the Secretary.
g. The Agent will counsel all prospective tenants regarding
eligibility for dwelling rents that are less than fair market
rents, and will prepare and verify eligibility certifications
and recertifications in accordance with the Regulatory
Agreement, the Rent Supplement Contract, and the Directives of
the Secretary.
h. The Agent will negotiate commercial leases and concession
agreements, and will execute the same in its name, identified
thereon as agent for the Owner, subject to the Owner's prior
approval of all terms and conditions. Commercial rents will
not be less than the minimums from time to time approved by
the Secretary.
-3-
<PAGE>
i. The Agent will collect, deposit, and disburse security
deposits, if required, in accordance with the terms of each
tenant's lease. The amount of each security deposit will be
as specified in the Management Plan Security deposits will be
deposited by the Agent in an interest-bearing account,
separate from all other accounts and funds, with a bank or
other financial institution whose deposits are insured by an
agency of the United States Government. This account will be
carried in the Agent's name and designated of record as
"Security Deposit Account".
11. Collection of Rents and Other Receipts. The Agent will collect when
--------------------------------------
due all rents, charges, and other amounts receivable on the Owner's
account in connection with the management and operation of the Project.
Such receipts (except for tenant's security deposits, which will be
handled as specified in Subsection 101 above) will be deposited in an
account, separate from all other accounts and funds. with a bank whose
deposits are insured by the Federal Deposit Insurance Corporation. This
account will be carried in the Agent's name and designated of record
as "Rental Agency Account".
12. Enforcement of Leases. The Agent will secure full compliance by
---------------------
each tenant with the terms of his lease. Voluntary compliance of the
Social Services Director when available, will counsel tenants and make
referrals to community agencies in cases of financial hardship or under
other circumstances deemed appropriate by the Agent, to the end that
involuntary termination of tenancies may be avoided to the maximum extent
consistent with sound management of the Project. Nevertheless, and
subject to the pertinent procedures prescribed in the Management Plan,
the Agent may lawfully terminate any tenancy when, if in the Agent's
judgment, sufficient cause (including but not limited to nonpayment of
rent) for such termination occurs under the terms of the tenant's lease.
For this purpose, the Agent is authorized to consult with legal counsel
to be designated by the Owner, to bring actions for eviction and to
execute notices to vacate and judicial pleadings incident to such
actions; provided, however, the Agent keeps the Owner informed of such
actions and follows such instructions as the Owner may prescribe for the
conduct of any such action. Subject to the Owner's approval. attorney
fees and other necessary costs incurred in connection with such actions
will be paid out of the Rental Agency Account as Project expenses.
13. Maintenance and Repair. The Agent will cause the Project to be
----------------------
maintained and repaired in accordance with the Management P]an and local
codes, and in a condition at all times acceptable to the Owner and the
Secretary, including but not limited to cleaning, painting, decorating,
plumbing, carpentry, grounds care, and such other maintenance and repair
work as may be necessary, subject to any limitations imposed by the Owner
in addition to those contained herein:
Incident thereto, the following provisions will apply:
a. Special attention will be given to preventive maintenance and,
to the greatest extent feasible, the services of regular
maintenance employees will be used.
-4-
<PAGE>
b. Subject to the Owner's prior approval, the Agent will contract
with qualified independent contractors for the maintenance and
repair or air-conditioning Systems and for extraordinary
repairs beyond the capability of regular maintenance
employees.
c. The Agent will systematically and promptly receive and
investigate all service requests from tenants, take such
action thereon as may be justified, and will keep records of
the same. Emergency requests will be received and serviced on
a twenty-four (24) hour basis. Complaints of a serious nature
will be reported to the Owner after investigation.
d. The Agent Is authorized to purchase all materials, equipment,
tools, appliances. supplies, and services necessary to proper
maintenance and repair.
e. Notwithstanding any of the foregoing provisions, the prior
approval of the Owner will be required for any expenditure
which exceeds One Thousand Dollars ($1,000.00) in any one
instance for labor, materials, or otherwise in connection with
the maintenance and repair of the Project, except for
recurring expenses within the limits of the operating budget
or emergency repairs involving manifest danger to persons or
property, or required to avoid suspension of any necessary
service to the Project. In the latter event, the Agent will
inform the Owner of the fact; as promptly as possible.
14. Utilities and Services. In accordance with the Management Plan and
----------------------
the operating budget, the Agent will make arrangements for water,
electricity, gas, fuel oil, sewage and trash disposal, vermin
extermination, decorating, laundry facilities, and telephone services.
Subject to the Owner's prior approval, the Agent will make such contracts
as may be necessary to secure Such utilities and services.
15. Employees. The Management Plan prescribes the number, qualifications
---------
and duties of the personnel to be regularly employed in the management of
the Project, including a Rental Manager, a Tenant Relations Manager, and
maintenance, bookkeeping, clerical, and other managerial employees. All
such personnel will be employees of the Project and not the Agent and
will be paid directly by the Project out of the Rental Agency Account,
but will be hired, supervised and discharged through the Agent, subject
to the following conditions:
a. As more particularly described in the Management Plan, the
Rental Manager will have duties of the type usually associated
with his position, and the Tenant Relations Manager will be
responsible for the conduct of the social services program for
the Project. Each will be directly responsible to the Agent's
Project Manager or other officer, and neither will have
authority to supervise or discharge the other. Nevertheless,
the Rental Manager and Social Services Director will coordinate
their activities in the interest of good overall management.
b. Unless otherwise specified in the Management Plan, the
compensation (including fringe benefits) of the
-5-
<PAGE>
Rental Manager, Social Services Director, maintenance, bookkeeping,
clerical, and other personnel will be within the Agent's sole
discretion, provided minimum wage standards are met.
c. The Owner will reimburse the Agent for any compensation
(including fringe benefits) paid to the Project management and
maintenance employees, as prescribed in the Management Plan,
not otherwise paid directly by the Project, and for all local,
state, and federal taxes and assessments (including but not
limited to Social Security taxes, unemployment, insurance, and
workman's compensation insurance) incident to the employment
of such personnel. Such reimbursements will be paid out of the
Rental Agency Account and will be treated as Project expenses.
d. Compensation (including fringe benefits) payable to the
Project staff, such as the Rental Manager, Social Services
Director, Maintenance, Tenant Relations Manager and all
bookkeeping, clerical, and other assessments incident to the
employment of such personnel, will be borne solely by the
Project, and will not be paid out of the Agent's fee. The
rental value of any dwelling unit furnished rent-free to the
project staff will be treated as a cost to the Project.
e. The Agent will establish and follow an employment policy that
affords residents of the Project maximum opportunities for
employment in the management and operation of the Project and,
to the extent consistent with that consideration, employment
opportunities to lower-income persons in the area. While
personnel will be employed primarily on the basis of ability,
the Agent will make conscientious efforts to provide special
assistance and training for Project residents and members of
minority groups who are not initially qualified.
f. Notwithstanding any of the foregoing provisions, direct
payments may be made to all employees and personnel and for
expenses of the Project in accordance with HUD Handbook 4391.5
and this Section 15 shall be construed in conformity with and
shall be controlled by the provisions of such Handbook as
amended or administratively interpreted by the Secretary.
16. Disbursements from Rental Agency Account.
----------------------------------------
a. From the funds collected and deposited by the Agent in the
Rental Agency Account pursuant to Section 11 above, the Agent
will make the following disbursements promptly when payable:
(1) Compensation payable to Employees in accordance with
Section 15 above, including reimbursement to the Agent
for compensation paid to employees in accordance with
Subsection 15c above, and for the taxes and assessments
payable to local, state, and Federal governments in
connection with the employment of such personnel.
-6-
<PAGE>
(2) The aggregate payment required to be made monthly by
the Owner to the Mortgage, including the amounts due
under the mortgage for principal amortization,
interest, mortgage insurance premium, ground rents,
taxes and assessments, fire and other hazards insurance
premiums, and the amount specified in the Certificate
of Incorporation or Regulatory Agreement for allocation
to the Reserve for Replacements.
(3) For projects insured under Section 236, the monthly
remittance to the Secretary of all dwelling rents
collected in excess of the "basic rents" approved by
the Secretary, Form 3l04, Monthly Report of Excess
Income, will be prepared each month and submitted to
the Secretary whether or not there are such excess rent
collection; for the month. The original form covering
each month and the excess Tent collections made during
that month (if any) will be mailed within ten (10) days
after the end of that month directly to the Assistant
Commissioner-Comptroller. Department of Housing and
Urban Development, Washington, D.C. 20412.
(4) All sums otherwise due and payable by the Owner as
expenses of the Project authorized to be incurred by
the Agent under the terms of this Agreement, including
compensation payable to the Agent, pursuant to Section
27 below,for its service hereunder.
b. Except for the disbursements mentioned in the Subsection 16A
above, funds will be disbursed or transferred from the Rental
Agency Account only as the Owner may from time to time direct
in writing.
c. In the event that the balance in the Rental Agency Account is
at any time insufficient to pay disbursements due and payable
under Subsection 16a above, the Agent will inform the Owner of
that fact and the Owner will then remit to the Agent
sufficient funds to cover the deficiency. In no event will the
Agent be required to use its own funds to pay such
disbursements.
17. Budgets. Annual operating budgets for the Project will be as
-------
approved by the Owner. Except as permitted under Subsection l3e above,
annual disbursements for each type of operating expense itemized in the
budget will not exceed the amount authorized by the approved budget. In
addition to preparation and submission of a recommended operating budget
for the initial fiscal year (as provided in Subsection 6a above), the
Agent will prepare a recommended operating budget for each subsequent
fiscal year beginning during the term of this Agreement, and will submit
the same to the Owner at least thirty (30) days before the beginning of
the fiscal year. The Owner will promptly inform the Agent of any changes
incorporated in the approved budget, and the Agent will keep the Owner
informed of any anticipated deviation from the receipts or disbursements
stated in the approved budget.
-7-
<PAGE>
18. Records and Reports. In addition to the requirements specified in
-------------------
the Management Plan or in other provisions of this Agreement, the Agent
will have the following responsibilities with respect to records and
reports:
a. The Agent will establish and maintain a comprehensive system
of records, books, and accounts in a manner conforming to the
directives of the Secretary, and otherwise satisfactory to the
Owner and the Consenting Parties. All records, books, and
accounts will be subject to examination at reasonable hours by
any authorized representative of the Owner or either of the
Consenting Parties.
b. With respect to each fiscal year ending during the term of
this Agreement, the Agent will have an annual financial report
prepared by a Certified Public Accountant or other person
acceptable to the Owner and Secretary, based upon the
preparer's examination of the books and records of the Owner
and the Agent. The report will be prepared in accordance with
the directives of the Secretary, will be certified by the
preparer and the Agent, and will be submitted to the Owner
within sixty (60) days after the end of the fiscal year, for
the Owner's further certification and submission to the
Secretary and the Mortgagee. Compensation for the preparer's
services will be paid out of the Rental Agency Account as an
expense of the Project.
c. The Agent will prepare a monthly report comparing actual and
budgeted figures for receipts and disbursements, and will
submit each such report to the Owner within fifteen (15) days
after the end of the month covered.
d. The Agent will furnish such information (including occupancy
reports) as may be requested by the Owner or the Secretary
from time to time with respect to the financial, physical, or
operational condition of the Project.
e. By the fifteenth (15th) day of each month, the Agent will
furnish the Owner with an Itemized list of all delinquent
accounts, including rental accounts, as of the tenth (lOth)
day of the same month.
f. During rent-up (the period it takes a project to reach 95%
occupancy) the Agent will furnish by the tenth (10th) day of
each month, the Owner with a statement of receipts and
disbursements during the previous month, and with a schedule
of accounts receivable and payable, and reconciled bank
statements for the Rental Agency Account and Deposit Account
as of the end of the previous month.
g. If, after the Project reaches sustaining (95%) occupancy, the
rental collections plus HUD subsidy fall below operating
expenses for a subtained period of sixty (60) days the Agent
will immediately send written notification of the same to the
appropriate HUD Area/Insurance Office.
-8-
<PAGE>
i. Notwithstanding any of the foregoing provisions. this Section
18 shall be construed in conformity with and shall be
controlled by the provisions of HUD Handbook 4381.S as amended
or administratively interpreted by the Secretary.
19. Fidelity Bond. The Agent will furnish, at its own expense, a
-------------
fidelity bond in the principal sum of $534,456, which is at least equal
to the gross potential income for two months and is conditioned to
protect the Owner and the Consenting Parties against misappropriation of
Project funds by the Agent and Agent's employees and on-site employees
expressed in Section 15. The share of the cost of the bond attributable
to on-site employees shall be paid for from project income. The other
terms and conditions of the bond, and the surety thereon, will be subject
to the approval of the Owner and the Consenting Parties.
20. SEE ATTACHMENT # 2
21. Tenant-Management Relations. The Agent will encourage and assist
---------------------------
residents of the Project in forming and maintaining representative
organizations to promote their common interests, and will maintain good-
faith communication with such organizations to the end that problems
affecting the Project and its residents may be avoided or solved on the
basis of mutual self-interest.
22. On-site Management Facilities. Subject to the further agreement of
-----------------------------
the Owner and Agent as to more specific terms, the Agent will maintain a
management office within the Project.
23. Insurance. The Owner will inform the Agent of insurance to be
---------
carried with respect to the Project and its operations, and the Agent
will cause such insurance to be placed and kept in effect at all times.
The Agent will pay premiums out of the Rental Agency Account, and
premiums will be treated as operation expenses. All insurance will be
placed with such companies, on such conditions, in such amounts and with
such beneficial interests appearing thereon as shall be acceptable to the
Owner and Consenting Parties, and shall be otherwise in conformity with
the mortgage; provided that the name will include public liability
coverage, with the Agent designated as one of the
-9-
<PAGE>
insured, on amounts acceptable to the Agent as well as the Owner and the
consenting Parties. The Agent will investigate and furnish the Owner with
full reports as to all accidents, claims, and potential claims for damage
relating to the Project, and will cooperate with the Owner's insurers in
connection therewith.
24. Compliance with Government Orders. The Agent will take such actions
---------------------------------
as may be necessary to comply promptly with any and all government orders
or other requirements affecting the project, whether imposed by Federal,
state, county or municipal authority, subject, however, to the limitation
stated in Subsection 13c with respect to repairs. Nevertheless, the Agent
shall take no such action so long as the owner is contesting, or has
affirmed its intention to contest, any such order or requirement. The
Agent will notify the Owner in writing of all notices of such orders or
other requirements, within seventy-two (72) hours from the time of their
receipt.
25. Nondiscrimination. In the performance of its obligations under this
-----------------
Agreement, the Agent will comply with the provisions of any Federal,
state or local law prohibiting discrimination in housing on the grounds
of race, color, sex, creed or national origin, including Title VI of the
Civil Rights Act of 1964 (Public Law 88-352, 78 Stat. 241), all
requirements imposed by or pursuant to the Regulations of the Secretary
(24 CFR; Subtitle A, Part 1) issued pursuant to that Title; regulations
issued pursuant to Executive Order 11053, and Title VIII of the 1968
Civil Rights Act.
26. Agent's Compensation
--------------------
a. The Agent will be compensated for its services under this
Agreement by monthly fees, to be paid out of the Rental Agency
Account and treated as Project expenses. Such fees will be
payable on the 1st day of each month. Each such monthly fee
will be an amount equal to 4.O percent of gross collections
received during the preceding month. Gross collections
include rental income, rent supplement receipts, Section 23
leasing receipts from a Local or State Housing Authority, and
income from other sources such as coin-operated laundry
equipment. In Section 236 projects, any rents collected from
the rental units in excess of basic rents do not count as part
of gross collections, and the assistance payment made by HUD
to the mortgagee is not included in gross collections.
b. In addition to the compensation mentioned in paragraph 27(a)
above and in accordance with HUD Handbook 4381.5 the Agent
shall be entitled to receive the Supplemental Management Fund
of N/A for the services performed of reviewing the project
application from the standpoint of project manageability,
preparing the Management Plan and the extra work involved in
carrying out a successful rent-up program. Said Fund shall be
disbursed to the Agent in the manner specified in said HUD
Handbook 4381.5, together with such additional reimbursement
of project expenses as is permitted in said Handbook as
amended or administratively interpreted by the Secretary.
-10-
<PAGE>
27. Term of Agreement. This Agreement shall be in effect for a period
-----------------
of two years beginning on the date of initial closing, subject, however,
to the following conditions:
a. This Agreement will not be binding upon the Principal Parties
until endorsed by the Consenting Parties.
b. This Agreement may terminated by the mutual consent of the
Principal Parties as of the end of any calendar month,
provided at least thirty (30) days advance written notice
thereof is given to each of the Consenting Parties.
c. In the event a petition in bankruptcy is filed by or against
either of the Principal Parties, or in the event either makes
an assignment for the benefit of creditors or takes advantage
of any insolvency act, the other party may terminate this
Agreement without notice to the other, provided prompt written
notice of such termination is given to each of the Consenting
Parties.
d. It is expressly understood and agreed by and between the
Principal Parties that the Secretary or the Mortgagee shall
have the right to terminate this Agreement at the end of any
calendar month, with or without cause, on thirty (30) days
advance written notice to each of the Principal Parties,
except that in the event of a default by the Owner under its
Articles of Incorporation under the obligation of the
mortgage, the Secretary or the Mortgagee may terminate this
Agreement immediately upon the issuance of a notice of
cancellation to each of the Principal Parties. It is further
understood and agreed that no liability will attach to either
of the Principal parties in the event of such termination.
e. Upon termination, the Agent will submit to the Owner any
financial statements required by the Secretary and,after the
Principal Parties have accounted to each other with respect to
all matters outstanding as of the date of termination, the
Owner will furnish the Agent security. in form and principal
amount satisfactory to the Agent, against any obligations or
liabilities the Agent may properly have incurred on behalf of
the Owner hereunder.
28. Interpretative Provisions.
-------------------------
a. At all times, this Agreement will be subject and subordinate
to all rights of the Secretary. and will inure to the benefit
of and constitute a binding obligation upon the Principal
Parties and their respective successors and assigns. To the
extent that this Agreement confers rights upon the Consenting
Parties, it will be deemed to inure to their benefit, but
without liability to either, in the same manner and with the
same effect as though the Consenting Parties were primary
parties to the Agreement.
b. This Agreement constitutes the entire agreement between the
Owner and the Agent with respect to the management and
operation of the Project, and no change will be valid unless
made by supplemental written agreement, executed and approved
by the Consenting Parties as well as the Principal Parties.
-11-
<PAGE>
c. This Agreement has been executed in five (5) counterparts,
each of which shall constitute a complete original Agreement,
which may be introduced in evidence or used for any other
purpose without production of any other counterparts.
d. The provisions of this Agreement shall be subject to and
construed in conformity with the provisions of HUD Handbook
4381.5 as amended or administratively interpreted by the
Secretary. In the event of a conflict between the provisions
of this Agreement and the said handbook, the provisions of the
Handbook shall control.
IN WITNESS WHEREOF, the Principal Parties (by their authorized officers)
have executed this Agreement on the date first above written.
INTERSTATE GENERAL CORPORATION
General Partner for G. L. Limited
Partnership
OWNER: Interstate General Corporation
---------------------------------
By: /s/ Edwin L. Kelly
------------------------------------
Edwin L.Kelly
MANAGING AGENT: Interstate
------------------------
General Corporation
----------------------------------------
By: /s/ Edwin L. Kelly
------------------------------------
Edwin L.Kelly
MORTGAGEE: Community Development
-----------------------------
Administration a division of the
---------------------------------------
Department of Economic and Community
---------------------------------------
Development of the State of Maryland
---------------------------------------
BY: /s/ Vivian Benjamin
-----------------------------------
Vivian Benjamin
SIGNED AND ATTESTED ______________________________________________________
<PAGE>
Witness:
/s/ Charlotte E. Robinson
- --------------------------
Secretary's Endorsement:
Date: Dec.15, 1983
------------
The Secretary of the Department of Housing and Urban Development hereby
consents to the foregoing Management Agreement, dated _____________________
by and between ___________________________________________________ and
__________________________________________.
---------------------------------------
Secretary of Housing and Urban
Development
By: /s/ ^^??
-----------------------------------
Title: Director Housing Management
Division
---------------------------------
<PAGE>
HOUSING MANAGEMENT AGREEMENT
On the 30th day of September, 1985, the Management Agreement for G.L.
Limited Partnership, dated September 30, 1983, is amended as follows:
1. The opening statement is deleted and the following statement is
Substituted:
"This Agreement is made this 30th day of September, 1985, between
G.L. Limited Partnership(Owner) and Interstate General Properties
Limited Partnership (Manager)."
2. Delete Interstate Properties as Managing Agent.
3. Add Interstate General Properties Limited Partnership as Managing
Agent.
4. The term of the Management Agreement is hereby renewed for an
additional two year period.
IN WITNESS WHEREOF, the Principal Parties (by their duly authorized
officers) have executed this Amendment to the Agreement on the 30th day of
September, 1985.
WITNESS: INTERSTATE GENERAL PROPERTIES
LIMITED PARTNERSHIP
SPONSOR:
/s/ ^^ L. Roberts By: /s/ Charles E. Stuart
- ------------------------- ------------------------------
WITNESS: MANAGING AGENT: INTERSTATE GENERAL
PROPERTIES LIMITED
PARTNERSHIP
/s/ ^^ L. Roberts By: /s/ Charles E. Stuart
- ------------------------- ------------------------------
<PAGE>
HOUSING MANAGEMENT AGREEMENT AMENDMENT
As of January 1, 1987, the Management Agreement for G. L. Limited
Partnership, dated September 30, 1983, is to be amended as follows:
1. Delete Interstate General Properties Limited Partnership as Managing
Agent.
2. Add Interstate General Company L. P. as Managing Agent.
IN WITNESS WHEREOF, the Principal Parties (by their duly authorized
Officers) have executed this Amendment to the Agreement on the 12th day of
December, 1986.
WITNESS: INTERSTATE GENERAL PROPERTIES
LIMITED PARTNERSHIP
SPONSOR:
/s/ ^^ By: /s/ Charles E. Stuart
- ------------------------- ---------------------------------------
Charles E. Stuart, Sr. Vice President
WITNESS: MANAGING AGENT: INTERSTATE GENERAL
COMPANY L. P.
/s/ ^^ By: INTERSTATE GENERAL CORPORATION,
- -------------------------- General Partner
By: /s/ John J. Bohner
--------------------------------------
John J. Bohner, Asst. Vice President
<PAGE>
HOUSING MANAGEMENT AGREEMENT AMENDMENT
As of January 1, 1987, the Management Agreement for G. L. Limited
Partnership, dated September 30, 1983, is to be amended as follows:
1. Effective January 1, 1987, the term of the Management Agreement shall
be annual (January 1 through December 31) with automatic yearly renewals.
The agreement may be cancelled at any time after thirty (30) days written
notice by either party.
2. Effective January 1, 1987, the Agent's compensation, as outlined under
Section 26(a), shall be computed at 6.5% of gross collections.
IN WITNESS WHEREOF, the Principal Parties (by their duly authorized
Officers) have executed this Amendment to the Agreement on the 26th day of
February, 1987.
WITNESS: INTERSTATE GENERAL COMPANY L.P.
SPONSOR:
/s/ ^^?? By: /s/ Raymond E. Keeney
- -------------------------- ---------------------------------
Raymond E. Keeney, Vice President
WITNESS: MANAGING AGENT: INTERSTATE GENERAL
COMPANY L. P.
/s/ ^^??
- -------------------------- By: /s/ Edwin L. Kelly
-----------------------------
Edwin L. Kelly, Vice President
<PAGE>
HOUSING MANAGEMENT AGREEMENT AMENDMENT
As of December 27, 1988, the Management Agreement for G. L. Limited
Partnership, dated September 30, 1983, is to be amended as follows:
Effective December 1, 1988, the Agent's compensation, as outlined under
Section 26(a), shall be computed at 4.5% of gross collections, plus
applicable fee "add ons" as permitted by HUD.
IN WITNESS WHEREOF, the Principal Parties (by their duly authorized
Officers) have executed this Amendment to the Agreement on the 1st day of
March 1989.
WITNESS: INTERSTATE BUSINESS CORPORATION
SPONSOR:
/s/ Gerald R. Morosek By: /s/ Kimberly H. Carroll
- --------------------- ----------------------------
Kimberly H. Carroll
Vice President, Finance
WITNESS: MANAGING AGENT: INTERSTATE GENERAL COMPANY L. P.
/s/ Gerald R. Morosek By: /s/ Kimberly H. Carroll
-----------------------------
Vice President, Finance
<PAGE>
HOUSING MANAGEMENT AGREEMENT AMENDMENT
As of January 1, 1993, the Management Agreement for G. L. Limited
Partnership, dated September 30, 1983, and amended March 1, 1989, is
amended as follows:
Effective January 1, 1993, the Agent's compensation, as outlined under
Section 26(a), shall be computed at 2.5% of gross collections.
IN WITNESS WHEREOF, the Principal Parties (by their duly authorized
Officers) have executed this Amendment to the Agreement on the 11th day of
March 1993.
WITNESS: INTERSTATE BUSINESS CORPORATION
SPONSOR:
/s/ Linda Horty By: /s/ J. Michael Wilson
- ------------------------- ----------------------------
J. Michael Wilson
Vice President
WITNESS: MANAGING AGENT: INTERSTATE GENERAL
COMPANY L.P.
/s/ Linda Horty By: /s/ Paul Resnik
- ------------------------- ----------------------------
Paul Resnik
Senior Vice President
<PAGE>
HOUSING MANAGEMENT AGREEMENT AMENDMENT
As of January 1,1998, the Management Agreement for G.L. Limited
Partnership, dated September 30, 1983, is to be amended as follows:
1. Delete Interstate General Company L.P. as Managing Agent.
2. Add American Rental Management Company as Managing Agent.
IN WITNESS WHEREOF, the Principal Parties (by their duly authorized
Officers) have executed this Amendment to the Agreement on the 1st day of
December, 1997.
WITNESS: INTERSTATE GENERAL COMPANY L.P.
SPONSOR:
/s/ Lisa D. Sweeney By: /s/ Edwin L. Kelly
- --------------------- --------------------------
Edwin L. Kelly, President
WITNESS: MANAGING AGENT: AMERICAN RENTAL
MANAGEMENT COMPANY
/s/ Lisa D. Sweeney By: /s/ Edwin L. Kelly
- --------------------- --------------------------
Edwin L. Kelly, President
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report included in this registration statement and to the incorporation by
reference in this registration statement of our report dated March 25, 1998
included in Interstate General Company LP's Form 10-K for the year ended
December 31, 1997 and to all references to our Firm included in this
registration statement.
Washington, D.C.
July 8, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF FINANCIAL CONSULTANTS
As an independent certified financial consultant, I hereby consent to
the incorporation by reference in this registration statement of our
reports dated December 31, 1996, December 31, 1997, and March 31, 1998,
included in American Community Properties Trust's Form S-4, Registration
No. 33-_____, and to all references to "Robert A. Stanger & Co., Inc."
included in this registration statement.
ROBERT A. STANGER & CO., INC.
/s/ Robert A. Stanger & Co., Inc.
_________________________________
June 30, 1998
<PAGE>
EXHIBIT 23.5
CONSENT OF CERTIFIED APPRAISER
As an independent certified appraiser, I hereby consent to the
incorporation by reference in this registration statement of our report
dated July 7, 1995 of Parque El Comandante included in American Community
Properties Trust's Form S-4, Registration No. 33-_____, and to all
references to Robert M. McCloskey Associates included in this registration
statement.
/s/ Robert M. McCloskey
_________________________________ October 22, 1997
Robert M. McCloskey, MAI, CRE
Appraiser
<PAGE>
EXHIBIT 23.6
CONSENT OF CERTIFIED APPRAISER
As an independent certified appraiser, I hereby consent to the
incorporation by reference in this registration statement of our report
December 31, 1996 included in American Community Properties Trust's Form
S-4, Registration No. 33-_____, and to all references to "Smail Associates,
Inc." included in this registration statement.
SMAIL ASSOCIATES, INC.
/s/ Arthur Y. Smail
____________________
Arthur Y. Smail, MAI
June 26, 1998
<PAGE>
EXHIBIT 23.7
CONSENT OF CERTIFIED APPRAISER
As an independent certified appraiser, I hereby consent to the
incorporation by reference in this registration statement of our reports
dated May 25, 1997 and October 31, 1997 included in American Community
Properties Trust's Form S-4, Registration No. 33-_____, and to all
references to "James B. Hooper, P.A." included in this registration
statement.
JAMES B. HOOPER, P.A.
/s/ James B. Hooper
___________________
James B. Hooper
June 25, 1998
<PAGE>
EXHIBIT 23.8
CONSENT OF CERTIFIED APPRAISER
As an independent certified appraiser, I hereby consent to the
incorporation by reference in this registration statement of our report
dated June 9, 1997 included in American Community Properties Trust's Form
S-4, Registration No. 33-_____, and to all references to "Gatewood Company,
Inc." included in this registration statement.
GATEWOOD COMPANY, INC.
/s/ Isabelle Gatewood
______________________
Isabelle Gatewood, MAI
June 25, 1998
<PAGE>
EXHIBIT 23.9
CONSENT OF CERTIFIED APPRAISER
As an independent certified appraiser, I hereby consent to the
incorporation by reference in this registration statement of our reports
dated May 12, 1997 and May 30, 1997 included in American Community
Properties Trust's Form S-4, Registration No. 33-_____, and to all
references to "NBValuation Group, Inc." included in this registration
statement.
NBValuation Group, Inc.
/s/ Susan M. Browning
_____________________
Susan M. Browning
June 26, 1998
<PAGE>
EXHIBIT 23.10
CONSENT OF CERTIFIED APPRAISER
As an independent certified appraiser, I hereby consent to the
incorporation by reference in this registration statement of our report
dated May 20, 1997 included in American Community Properties Trust's Form
S-4, Registration No. 33-_____, and to all references to "Brick House
Realty, Inc." included in this registration statement.
BRICK HOUSE REALTY, INC.
/s/ John W. Quade, Jr.
______________________
John W. Quade, Jr.
June 25, 1998
<PAGE>
EXHIBIT 99.1
INTERSTATE GENERAL COMPANY L.P.
CONSENT OF UNITHOLDERS TO PROPOSED
IGC RESTRUCTURING
----------------------------------
This consent card is being furnished by Interstate General Management
Corporation ("IGMC"), the managing general partner of Interstate General Company
L.P. ("IGC"), to the holders of IGC Units in connection with the solicitation of
consents to (i) the proposed transfer to IGC's principal real estate operations
and assets to American Community Properties Trust ("ACPT"), (ii) the pro rata
distribution of all of the Common Shares of ACPT to the partners of IGC
(including the IGC Unitholders), and (iii) if necessary, the liquidation of IGC,
(collectively the "Restructuring"), all as set forth more fully in the
accompanying Consent Solicitation Statement/Prospectus dated _____________. No
meeting of IGC Unitholders will be held in connection with the Restructuring,
thus IGC Unitholders may vote on the Restructuring only by completing this
----
consent card.
Please complete, sign, and date this consent card and return it
promptly to the Secretary of IGMC at 222 Smallwood Village Center, St. Charles,
Maryland 20602, but no later than ___________. If this consent card is returned
without voting instructions, the holder of IGC Units represented by this consent
card will be considered to have consented to the Restructuring. Any consent
card completed and returned may be revoked by delivering notice of revocation of
such consent, or a duly executed consent card bearing a later date, to the
Secretary of IGMC prior to ___________________.
PLEASE MARK THE APPROPRIATE BOX:
[ ] APPROVE OF THE PROPOSED RESTRUCTURING.
[ ] DO NOT APPROVE OF THE PROPOSED RESTRUCTURING.
________________________________________ _____________________
NAME OF UNITHOLDER NUMBER OF UNITS HELD
________________________________________ _____________________, 1998
SIGNATURE DATE
___________________________________
TITLE OR AUTHORITY, IF APPLICABLE
NOTE: IF UNITS ARE REGISTERED IN MORE THAN ONE NAME, THE SIGNATURES OF ALL SUCH
PERSONS ARE REQUIRED. A CORPORATION SHOULD SIGN IN ITS FULL CORPORATE
NAME BY A DULY AUTHORIZED OFFICER, GIVING HIS OR HER TITLE. A PARTNERSHIP
SHOULD SIGN IN THE PARTNERSHIP NAME BY AN AUTHORIZED PERSON. TRUSTEES,
GUARDIANS, EXECUTORS AND ADMINISTRATORS SHOULD SIGN IN THEIR OFFICIAL
CAPACITY, GIVING FULL TITLE AS SUCH.
PLEASE COMPLETE, SIGN AND DATE THIS CONSENT CARD AND RETURN IT PROMPTLY.
CONSENT CARDS RETURNED AFTER ______________ WILL NOT BE COUNTED.
<PAGE>
EXHIBIT 99.2
APPRAISAL REPORT
PARQUE ESCORIAL
PLANNED URBAN DEVELOPMENT
65th INFANTRY AVENUE
SAN JUAN/CAROLINA, PUERTO RICO
ROBERT F. McCLOSKEY ASSOCIATES
REAL ESTATE APPRAISERS AND CONSULTANTS
<PAGE>
ROBERT F. McCLOSKEY ASSOCIATES
REAL ESTATE APPRAiSERS AND CONSULTANTS
UPDATE APPRAISAL REPORT
PARQUE ESCORIAL
PLANNED URBAN DEVELOPMENT
65th INFANTRY AVENUE
SAN JUAN/CAROLINA, PUERTO RICO
PREPARED
- --------
For : FirstBank Puerto Rico
c/o Ms. Milagros Duran' Benitez
P.O. Box 9146
San Juan, Puerto Rico 00908
By : Robert F. McCloskey, MAI, CRE
Federal Certified
General Real Estate Appraiser
William A. Medina
Federal Certified
General Real Estate Appraiser
Effective Date of Appraisal : August 1, 1997
Date of Report : August 1, 1997
<PAGE>
ROBERT F. McCLOSKEY ASSOCIATES
REAL ESTATE APPRAISERS AND CONSULTANTS
August 22, 1997
FirstBank Puerto Rico
c/o Ms. Milagros Duran Benitez
P.O. Box 9146
San Juan, Puerto Rico 00908
Dear Ms. Duran:
In accordance with your request, we have prepared an update of our most
recent full narrative appraisal report of the Parque Escorial Planned Urban
Development currently being developed south of 65th Infantry Avenue and
Ramal Este Avenue in the Sabana LIana and San Anton Wards of the
Municipalities of San Juan (Rio Piedras Sector) and Carolina
(respectively), Puerto Rico.
The purpose of this update appraisal is to estimate the market value in fee
simple of the subject project to a single purchaser as of August 1, 1997,
under specific development assumptions and use limitations as established
by the Planning Board Consultation No. 90-17(20)-0813 JPU Case Number 93-1
7(20)A-104-CPD and updated plans dated August 14, 1996 prepared by
Consulting Engineer Luis F. Franqui, P. E.. The appraisal is also
contingent upon the assumptions, limiting conditions and certificates
herein.
In view of the scope of this assignment and the intended use of this
appraisal, we selected the summary appraisal report as the preferred
reporting option for this appraisal assignment. For additional information
concerning the subject property, its neighborhood, and the highest and best
use analysis, please refer to the appraisal report of the same property
dated September 1, 1993.
After a personal inspection of the property and of the Master Development
Plan submitted; and, after a thorough investigation and analysis of the
factors affecting values in the area, the market value in fee simple of the
subject project to a single purchaser as of August 1, 1997, was estimated
at:
<PAGE>
FirstBank Puerto Rico
c/o Ms. Duran Benitez
Page 2
- --------------------------------------------------------------------------------
$4O,OOO,OOO.OO
(FORTY MILLION DOLLARS)
The undersigned have not prepared a feasibility study for the ongoing
subject project, nor have we been contracted for it. The reported market
value estimate assumes the economic feasibility of the project, and is
therefore, contingent upon it.
The supporting data and the results of our investigation and analysis upon
which this value is based are contained in the accompanying summary a
Very truly yours,
/s/ William A Medina /s/ Robert F. McCloskey
William A Medina Robert F. McCloskey, MAI, CRE
Federal Certified General Federal Certified General
Certified Appraiser Certified Appraiser
<PAGE>
UPDATE APPRAISAL REPORT
PARQUE ESCORIAL
PLANNED URBAN DEVELOPMENT 65th INFANTRY AVENUE
SAN JUAN/CAROLINA, PUERTO RICO
ROBERT F. McCLOSKEY ASSOCIATES
<PAGE>
Table of Contents
-----------------
Summary of Salient Facts and Conclusions i
General Assumptions iv
Specific Assumption v
General Limiting Conditions vi
General Information 1
Type of Appraisal Report 1
Identification of the Property 1
Purpose of the Appraisal 1
Intended Use of the Appraisal 2
Property Rights Appraised 2
Definition of Fee Simple 2
Definition of Market Value 2
ValueTerms 2
Definition of Aggregate of Retail Values (ARV) 2
Definition of Discounted Value 3
Analysis of the Property - Parque Escorial Planned Community 3
Description of Development Phases 3
Phase I 4
Phases II and III 5
Phase IV 10
Future Residential Development (Lot Q-1 11
Conclusion of Site Analysis 12
Land Valuation Techniques 12
Yield Capitalization: Discounted Cash Flow Analysis 13
Part One: Valuation of the Commercial Section 14
Analysis of the Comparable Site Sales 26
Parque Escorial Out-Parcel Pads 26
Current Options 28
Reconciliation 28
Commercial Sites Absorption Rate 31
Part Two: Valuation of the Residential Section 31
Analysis of the Comparable Residential Site Sales 43
Adjustment Process 45
Absorption Rate 47
Yield Capitalization: Discounted Cash Flow Analysis 51
Land Construction Hard Costs 51
Indirect Development Costs 51
Administrative, Legal and Tax Expenses 52
Marketing and Sales Expenses 52
Financing Costs 52
Entrepreneurial Profit 52
Discount Rate 53
Reconciliation and Final Value Estimate 55
Certificate of the Appraiser 56
QUALIFICATION DATA - ROBERT F. McCLOSKEY 58
QUALIFICATION DATA - WILLIAM A. MEDINA 64
ADDENDUM 68
<PAGE>
i
Summary of Salient Facts and Conclusions
----------------------------------------
Subject Property
- ----------------
The subject property is known as the Parque Escorial Planned Urban Development,
and it is under development and is located in the Sabana Llana and San Anton
Wards of the Municipalities of San Juan (Rio Piedras) and Carolina, Puerto Rico.
The size of the entire tract prior to segregation was 439.79 cuerdas, however,
once all the segregations are completed, the size of the areas that could have
sold would have reduced to approximately 321.011 cuerdas (1,261,700.03 square
meters) according to the survey(1) information originally submitted to the
appraisers.
As of the effective date of this report, a total of 207.3396 cuerdas are for
sale and are the subject of this appraisal report. These are distributed into
several phases, as follows: Phase 1, the service commercial centers at both
sides of the Plaza Escorial Shopping Center currently being developed; Phases II
and III, the residential areas to the south of the commercial sectors; Phase IV,
an office park/commercial area located to the east of the larger parcel; and,
Lot Q-l, located at the southern hilly part of the larger parcel that is
expected to be developed into additional residential units. At present,
construction is under way in various Phases in addition to an overpass of Ramal
Este Avenue over the 65th Infantry Avenue and into the project. The following
table summarizes all the sites that are subject to valuation in this report,
excluding all those that have been sold within the past 2.5 years (see valuation
sections for details on past sales).
- --------------------
(1) Prepared by Luis F. Franqui, P.E. and dated August 14, 1996
<PAGE>
ii
- ---------------------------------------------------------------------------
PARQUE ESCORIAL
PLANNED URBAN DEVELOPMENT
65th INFANTRY AVENUE
SAN JUAN/CAROLINA, PUERTO RICO
- ---------------------------------------------------------------------------
Summary of Sites subject to this Report
- ---------------------------------------------------------------------------
Parcel Identification Site Area (Sq. Mts.) Site Area (Cdas.)
- ---------------------------------------------------------------------------
Phase I
- ---------------------------------------------------------------------------
E-1 (formally school site) 15,721.58 4.0000
- ---------------------------------------------------------------------------
I-6W 15,239.90 3.8774
- ---------------------------------------------------------------------------
I-7W 5,500.00 1.3994
- ---------------------------------------------------------------------------
I-8W 4,100.19 1.0432
- ---------------------------------------------------------------------------
Phase II
- ---------------------------------------------------------------------------
II-3 13,728.44 3.4900
- ---------------------------------------------------------------------------
II-4-5 20,324.08 5.1700
- ---------------------------------------------------------------------------
II-6 15,768.29 4.0119
- ---------------------------------------------------------------------------
II-7 15,768.29 4.0119
- ---------------------------------------------------------------------------
II-8 29,730.09 7.5641
- ---------------------------------------------------------------------------
Phase III
- ---------------------------------------------------------------------------
III-1 13,589.02 3.4600
- ---------------------------------------------------------------------------
III-2 23,728.45 3.4900
- ---------------------------------------------------------------------------
III-3 13,728.45 3.4900
- ---------------------------------------------------------------------------
III-4-5 20,324.08 5.1700
- ---------------------------------------------------------------------------
III-6 18,746.20 4.7700
- ---------------------------------------------------------------------------
III-7 18,746.20 4.7700
- ---------------------------------------------------------------------------
III-8 30,784.71 7.8300
- ---------------------------------------------------------------------------
III-9 20,726.82 5.2700
- ---------------------------------------------------------------------------
Phase IV
- ---------------------------------------------------------------------------
IV-1 7,846.48 1.9964
- ---------------------------------------------------------------------------
IV-2 8,127.31 2.0678
- ---------------------------------------------------------------------------
IV-3 14,672.86 3.7332
- ---------------------------------------------------------------------------
IV-4 6,911.94 1.7586
- ---------------------------------------------------------------------------
IV-5 8,833.28 2.2474
- ---------------------------------------------------------------------------
IV-6 10,736.08 2.7316
- ---------------------------------------------------------------------------
IV-7 8,202.57 2.0870
- ---------------------------------------------------------------------------
IV-8 9,608.10 2.4446
- ---------------------------------------------------------------------------
IV-9 8,782.90 2.2346
- ---------------------------------------------------------------------------
Phase V
- ---------------------------------------------------------------------------
Lot Q-1 427,267.93 108.7100
- ---------------------------------------------------------------------------
Total 797,244.25 202.8289
- ---------------------------------------------------------------------------
Purpose of the Appraisal
- ------------------------
The purpose of this update appraisal is to estimate the market value in fee
simple of the subject project to a single purchaser as of August 1, 1997,
under specific development assumptions and use limitations as established
bythe Planning Board Consultation No. 90-17(20)-0813 JPU Case Number 93-
17(20)A-104-CPD and updated plans dated August 14, 1996 prepared by
Consulting
<PAGE>
iii
Engineer Luis F. Franqui, P. E.. The appraisal is also contingent upon the
assumptions, limiting conditions and certificates herein. The availability of
capacity and/or connection rights to any or all public utilities has not been
determined by the appraisers, but the value reported herein is contingent upon
said capacity and right of connection.
Real Property Interest Appraised
- --------------------------------
Fee Simple
Type of Appraisal Report
- ------------------------
Summary Appraisal Report complying with the reporting requirements set forth
under Standard Rule 2-2(b) of the Uniform Standards of Professional Appraisal
Practices for a Summary Appraisal Report.
Flood Zone Classification
- -------------------------
Zone "C" (Outside flood prone areas), according to Flood Insurance Rate Map,
Panels 720000-0054C and 720000-0058C.
Present Use
- -----------
Vacant parts of Phase I of the project are currently under construction as well
as parts of Phases II and III.
Indication of Value by the Sales Comparison Approach
- ----------------------------------------------------
$40,000,000.00 (Forty Million Dollars)
Effective Valuation Date
- ------------------------
August 1, 1997
Date of Report
- --------------
August 1, 1997
<PAGE>
iv
General Assumptions
-------------------
This appraisal report has been made with the following general assumptions:
* No responsibility is assumed for the legal description or for matters
including legal or title considerations. Title to the property is
assumed to be good and marketable unless otherwise stated.
* The property is appraised fee and clear of any or all liens or
encumbrances unless otherwise stated. All taxes are assumed to be
current. In specific cases, at the request of the client, the
appraiser(s) may present data on past due ad valorem taxes. However,
this data is not certified and is only a verbal confirmation by the
tax authority. This data should not be relied upon by the client and
has no effect on the final value estimate.
* The property is appraised as though under responsible, adequately
capitalized ownership and competent property management.
* The information furnished by others is believed to be reliable.
However, no warranty is given for its accuracy.
* All engineering is assumed to be correct. The plot plans and
illustrative material in this report are included only to assist the
reader in visualizing the property.
* It is assumed that there are no hidden or non-apparent conditions of
the property, subsoil, or structures that render it more or less
valuable. No responsibility is assumed for such conditions or for
arranging for engineering studies that may be required to discover
them.
* It is assumed that there is full compliance with all applicable
federal, state, and local environmental regulations and laws unless
noncompliance is stated, defined, and considered in the appraisal
report.
* It is assumed that all applicable zoning and use regulations
and restrictions have been complied with, unless a nonconformity has
been stated, defined, and considered in the appraisal report.
* It is assumed that all required licenses, certificates of occupancy,
consents, or other legislative or administrative authority from any
local, state, or national government or private entity or organization
have been or can be obtained or renewed for any use on which the value
estimate contained in this report is based.
<PAGE>
v
* It is assumed that the utilization of the land and improvements is
within the boundaries or property lines of the property described and
that there is no encroachment or trespass unless noted in the report.
* The availability of capacity and/or connection rights to any or all
public utilities has not been determined by the appraiser(s). The
value estimate reported herein is contingent upon and limited to said
capacity and right of connection.
Specific Assumption
- -------------------
* The preceding estimate of the market value in fee simple of the
subject property to a single purchaser is made based on information
available and market conditions prevailing as of August 1, 1997. The
appraisal also assumes full approval of the subject project by the
Puerto Rico Planning Board and/or the Regulations and Permits
Administration (ARPE), based on the plans and specifications
submitted. Any change would render the reported values null and void.
In addition, the availability of capacity and/or connection rights to
any and all public utilities has not been determined by the
appraisers. The value estimates reported herein are contingent upon
and limited to said capacity and right of connection.
* The value provided in this report also assumes that approvals for
the development of Lot Q-l will allow the construction of another
747 residential units in harmony with Phase II and III of the subject
development.
* The discounted cash flow analysis takes into consideration the
existing sale prices of the options of the two residential sites and
the two commercial sites which are expected to close within the next
several months.
<PAGE>
vi
General Limiting Conditions
---------------------------
* The appraiser(s) will not be required to give testimony or appear in
court because of having made this appraisal, with reference to the
property in question, unless arrangements have been previously made
thereof.
* Any cause of action resulting between the appraiser(s) and the client
in conjunction with this appraisal, either directly or indirectly,
will be limited in damages to the amount of the appraisal fee received
for the assignment. Furthermore, it is agreed that you will indemnify
Robert F. McCloskey Associates, Inc. for any damages, costs, expense,
and attorney's fees resulting from any cause of action by any
interested party, other than the client, concerning the appraisal or
report.
* Possession of this report, or a copy thereof, does not carry with it
the right of publication. It may not be used for any purpose by any
person other than the party to whom it is addressed without the
written consent of the appraiser(s), and in any event only with proper
written qualification and only in its entirety.
* In the case where an improvement is considered, the distribution of
the total valuation between land and improvements applies only under
the reported highest and best use of the property. The allocations of
value for land and improvements must not be used in conjunction with
any other appraisal and are invalid if so use.
* Disclosure of the contents of this report is governed by the By-laws
and Regulations of the Appraisal Institute. Neither all nor any part
of the contents of this report, or copy thereof, shall be conveyed to
the public through advertising, public relations, news, sales or any
other media without written consent and approval of the appraiser(s).
Nor shall the appraiser(s), firm or professional organization of which
the appraiser(s) is (are) a member be identified without prior written
consent of the appraiser(s).
* The physical condition of the improvements described herein is based
on visual inspection only. No liability is assumed for the soundness
of structural members including roof (wear and leakage), foundation
(settling or leakage), footings, exterior and interior walls,
partitions, floors, or any other part of the structure, since no
engineering tests were made of same and no termite inspection was
conducted. Furthermore, we accept no legal responsibility for the
efficiency of the plumbing and electrical systems, the heating and air
conditioning equipment, or any major appliances. Unless otherwise
noted, all of these items appeared adequate and operational.
* In this appraisal assignment, the existence of potentially hazardous
material used in the construction or maintenance of the building, such
as the presence of urea formaldehyde fbam insulation or asbestos,
and/or existence of toxic waste, which may or may not be present on
the property, has not been considered. The appraiser(s) is (are) not
qualified to detect such substances. We urge the client to retain an
expert in this field if desired.
<PAGE>
vii
* The Americans with Disabilities Act (ADA) became effective January 26,
1992. We have not made a specific compliance survey or analysis of this
property to determine whether or not it is in conformity with the various
detailed requirements of the ADA. The appraisers considered some of the
major requirements of ADA that the subject property lacks and that affect
its market value. These include the need to install an elevator, remodel
the bathrooms, and outfit the entrance doors, all to accommodate the
physically challenged. It is possible that a compliance survey of the
property, together with a detailed analysis of the requirements of the ADA,
could reveal that the property is not in compliance with other requirements
of the Act. If so, this fact could have a negative impact upon the value of
the property. Since we have no direct evidence relating to this issue, we
did not consider possible non-compliance with other requirements of ADA in
estimating the value of the property.
* The appraisers are not aware of the presence of archeological deposits
and/or artifacts within the subject or in adjacent properties. The physical
inspection of the property did not reveal any evidence of such deposits
and/or artifacts; however, the appraisers are not qualified to detect
archeological deposits and/or artifacts and assume no responsibility in
this respect. The value reported herein and the estimated construction
and/or marketing time for the property are predicated on the assumption
that the subject does not have any such archeological artifacts.
<PAGE>
1
General Information
-------------------
Type of Appraisal Report
- ------------------------
In view of the scope of this assignment and the intended use of this appraisal
the Summary Appraisal Report was selected as the preferred reporting option. The
Summary Appraisal Report is intended to comply with the reporting requirements
set forth under Standard Rule 2-2(B) of the Uniform Standards of Professional
Appraisal Practice for a Summary Appraisal Report. As such it presents only
summary discussions of data, reasoning and analysis that were used in the
appraisal process to develop the appraiser's opinion of value. Only significant
differences between the facts presented in the most recent report and the actual
status of the project are included herein. It is also clarified that one of the
main differences between this appraisal and the previous reports is that the
previous reports assumed infrastructure in place. For additional information
concerning the subject property, its neighborhood, and the highest and best use
analysis, refer to the self contained appraisal report of September 1, 1993 and
to the market value update of said report dated February 20, 1995.
Identification of the Property
- ------------------------------
The subject of this appraisal consists of the Parque Escorial Planned Urban
Development being developed south of 65th Infantry Avenue in the Sabana Llana
Ward of San Juan (Rio Piedras Sector) and the San Anton Ward of Carolina, Puerto
Rico. The current saleable land area of the subject project is 202.8289
cuerdas/2/, according to the information submitted. The sellable land area has
been divided into several construction phases and sections, as follows: Phase I,
the Fast and West Service Centers at the sides of Parque Escorial; Phases II and
III to the south of the former where 1,953 residential units are to be
constructed; Phase IV, an office/commercial area to the east of the project;
Future Residential Development at the southern sectors of the larger parcel
where 747 residential units are expected to be built in the future. In total,
once completed, Parque Escorial Planned Urban Development is expected to have a
total of 2,700 residential units.
Purpose of the Appraisal
- ------------------------
The purpose of this update appraisal is to estimate the market value in fee
simple of the subject project to a single purchaser as of August 1, 1997, under
specific development assumptions and use limitations as established by the
Planning Board Consultation No. 90-I 7(20)-08 13 JPU Case Number 93-17(20)A-104-
CPD and updated plans dated August 14, 1996 prepared by Consulting Engineer Luis
F. Franqui, P. E.. The appraisal is also contingent upon the assumptions,
limiting conditions and certificates herein.
- -------------------
/2/ A cuerda is a unit of land measurement used in Puerto Rico that is
equivalent to 3,930.3956 square meters or 0.97 acres.
<PAGE>
2
Intended Use of the Appraisal
- -----------------------------
The function of this appraisal is for underwriting purposes.
Property Rights Appraised
- -------------------------
This appraisal report is prepared with the understanding that the ownership
of the project includes all the rights that may be lawfully owned, fee
simple interest.
Definition of Fee Simple
- ------------------------
Absolute ownership unencumbered by any other interest or estate, subject
only to the limitations imposed by the governmental powers of taxation,
eminent domain, police power and escheat.
Definition of Market Value
- --------------------------
Market value is defined as the most probable price which a property should bring
in a competitive and open market under all conditions requisite to a fair sale,
the buyer and the seller each acting prudently and knowledgeably, and assuming
the price is not affected by undue stimulus. Implicit in this definition is the
consummation of the sale as of a specified date and the passing of title from
seller to buyer under conditions whereby:
* Buyer and seller are typically motivated;
* Both parties are well informed or well advised and acting in what they
consider their own best interests;
* A reasonable time is allowed for exposure in the open market;
* Payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and the price represents
the normal consideration for the property sold unaffected by special
or creative financing or sales concessions granted by anyone
associated with the sale.
Value Terms
- -----------
Value in this report is in terms of cash, U.S. dollars ($).
Definition of Aggregate of Retail Values (ARV)
- ----------------------------------------------
The sum of the appraised values of the individual units in a subdivision,
as if all of the units were completed and available for retail sale, as of
the date of the appraisal. The sum of the retail sales includes an
allowance for lot premiums, if applicable, but excludes all allowances for
carrying costs.
<PAGE>
3
Definition of Discounted Value
- ------------------------------
This figure represents a concept of time preference, which holds that future
income or benefits are worth less than the same income or benefits now, and that
they decrease in value systematically as the time of their receipt is further
deferred into the future. Typically, marketing, overhead (if applicable), legal
fees (if applicable), taxes (if applicable), construction loan interest (if
applicable), and sales expenses, in addition to expected entrepreneurial profit,
are subtracted from the aggregate of retail values of the project. The resulting
discounted value is representative of the market value of the project, to a
single purchaser, as of the effective date of the appraisal.
Analysis of the Property - Parque Escorial Planned Urban Development
- --------------------------------------------------------------------
The Parque Escorial Development is an integral Planned Urban Development project
currently being developed across from Ramal Este Avenue and to the south of the
65th Infantry Avenue. The project is being developed over an original 439.79
cuerda tract, formerly the site of the old El Comandante racetrack.
The project is being developed in accordance with the master regulatory plan
approved by the Puerto Rico Planning Board "Consulta de Ubicacion" #90-17-(20)-
0813-JPU resolution dated October 27, 1992 with subsequent amendments. The
design of the project locates the commercial and support facilities areas on the
flat lands facing 65th Infantry Avenue. The residential sections of the project
are located south of the main South Avenue. Further to the south is an area
designated as Future Development. At the eastern end of the property is an
office park section and exterior parcels facing 65th Infantry Avenue. The
planning of the residential uses on the site responds to the topographic
characteristics of the tract. The project is scheduled to be built over a period
of time by different developers who will purchase the land from the master
developer (owner) of the project.
The Master Plan delineates access to Parque Escorial through three entrances,
all leading to 65th Infantry Avenue. One of the entrances is Parque Escorial
Avenue located to the west of the project. The main access shall be provided by
an extension of the existing Ramal Este Avenue by way of a bridge over 65th
Infantry Avenue. At the eastern extreme of the project is the other access by
way of De Diego Avenue which links the center of the project with 65th Infantry
Avenue passing through the lot designated as Phase IV.
Description of Development Phases
- ---------------------------------
As presented in the submitted Master Development Plan, dated December 9, 1996,
the project consists of four (4) phases plus an area identified as for Future
Residential Development (Lot Q-1). These are identified as follows: Phase I -
Commercial Center & Service Commercial; Phase II - Residential; Phase III -
Residential; Phase IV - Office/Commercial Park.
<PAGE>
4
According to the "Amended Alternate Preliminary Development Plan" prepared by
local consulting engineers, Luis F. Franqui, P.E., the total sellable area of
the entire project is 321.011 cuerdas out of which 202.8289 cuerdas are
currently available and as such, are the subject of this report. These are
distributed into: 102.61 cuerdas for commercial service centers and 213.89
cuerdas for residential use. A description of the different construction phases
of the project follow:
Phase I of the project includes the commercial and service areas located at the
northern section of the project. This section will include a mix of retail,
office and service uses. A commercial center anchored by Wal-Mart was
constructed on a 59.85 cuerda portion of land (adjacent to the avenue). This
commercial tract is to the south of a greenbelt area and the channeling of the
San Anton Creek which runs along its front. The commercial center, once fully
developed will include plus/minus 486,000 square feet. Incluced in this section
are two large retail stores of plus/minus 130,000 sq. ft. currently occupied by
Wal-Mart and Sam's Warehouse. In addition, six other free-standing stores are to
be constructed in this section, several of which have already been built.
The East and West Service Centers are located at the sides of Plaza Escorial
fronting the two main arteries into the development named Parque Escorial Avenue
to the west and PR#8 also known as Ramal Este to the East. The sites in this
section that are subject of this appraisal report include the following
commercial lots.
- --------------------------------------------------------------------------------
Parque Escorial
Planned Urban Development
65th Infantry Avenue
San Juan/Carolina, Puerto Rico
Phase I - Commercial
- --------------------------------------------------------------------------------
West Service Center
- --------------------------------------------------------------------------------
Parcel Identification Site Area (Sq. Mts.) Site Area (Cdas.)
- --------------------------------------------------------------------------------
E-1 (formally school site) 15,721.58 4.0000
- --------------------------------------------------------------------------------
I-6W 15,239.90 3.8774
- --------------------------------------------------------------------------------
I-7W 5,500.00 1.3994
- --------------------------------------------------------------------------------
I-8W 4,100.19 1.0432
- --------------------------------------------------------------------------------
Totals 40,561.67 10.3200
- --------------------------------------------------------------------------------
The regulatory development plan of the commercial areas (East and West Service
Centers) of Phase I are as follows:
Zoning : C-2 Commercial
Land Use : General
Service Commercial and Office
Other uses as per approval by Master Developer
Building Height : 5 Stores Maximum
<PAGE>
5
Building Footprint : Interior Parcels: 75% of parcel area
Corner Parcels: 85% of parcel area
Floor Area Ratio : Interior Parcels: 375% of parcel area
Corner Parcel: 425% of parcel area
Front Setback : 3.0m Minimum setback
24.0m Maximum setback
At Corner Parcel 1-3e : 3.0m Minimum setback
18.80m Maximum setback
Site Setbacks : 3.0m or 1/5 of building height
Rear Setbacks : 3.0m
Mandatory Planting Strip : 3.0m at all parcel frontages
2.0 at all rear boundaries
All site areas not occupied by building, sidewalks
or parking areas shall be landscaped.
Parking : Parking requirements shall conform with Topic 9 of
the Puerto Rico Planning Board's zoning code.
(Reglamento No. 4)
Commercial Uses 1 Parking space per 15 s/m
Off. Uses 1 Parking space per 25 s/m
Off. Uses (intensive) 1 Parking space per 15 s/m
Storage Area 1 Parking space per 70 s/m
* All parking areas shall be accessed from within parcels. No individual
parking stalls shall be accessed from the street.
* Curbs and sidewalks along Ramal Este shall be continuous except at
designated access points.
* There shall be a 6 meter reciprocal easement (3m each boundary)
between individual projects which share common parking areas.
Phases II and III are to be dedicated to residential use with approximately
1,953 dwellings in several adjacent but individual projects of different
densities, designs and prices. The following tables summarize the most recent
information related to the available parcels subject of this report. The table
that follows includes both available and optioned sites. Phase II is summarized
as follows:
<PAGE>
6
- -------------------------------------------------------------------------
Parque Escorial
Planned Urban Development
65th Infantry Avenue
San Juan/Carolina, Puerto Rico
- -------------------------------------------------------------------------
Phase II - Residential
- -------------------------------------------------------------------------
Parcel Identification Site Area Site Area Density Units
(Sq. Mts.) (Cdas.)
- -------------------------------------------------------------------------
II-3* 13,728.44 3.49 22.92 80
- -------------------------------------------------------------------------
II-4-5* 20,324.08 5.17 23.21 120
- -------------------------------------------------------------------------
II-6 15,768.29 4.01 24.93 100
- -------------------------------------------------------------------------
II-7 15,768.29 4.01 24.93 100
- -------------------------------------------------------------------------
II-8* 29,730.09 7.56 23.80 165
- -------------------------------------------------------------------------
Totals 95,319.19 24.24 23.60 565
- -------------------------------------------------------------------------
*Optioned sites
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Parque Escorial
Planned Urban Development
65th Infantry Avenue
San Juan/Carolina, Puerto Rico
- -------------------------------------------------------------------------
Phase III - Residential
- -------------------------------------------------------------------------
Parcel Identification Site Area Site Area Density Units
(Sq. Mts.) (Cdas.)
- -------------------------------------------------------------------------
III-1 13,589.02 3.46 23.121 80
- -------------------------------------------------------------------------
III-2 13,728.45 3.49 22.923 80
- -------------------------------------------------------------------------
III-3 13,728.45 3.49 22.923 80
- -------------------------------------------------------------------------
III-4-5 20,324.08 5.17 23.211 120
- -------------------------------------------------------------------------
III-6 18,746.20 4.77 25.157 120
- -------------------------------------------------------------------------
III-7 18,746.20 4.77 25.157 120
- -------------------------------------------------------------------------
III-8 30,784.71 7.83 25.543 200
- -------------------------------------------------------------------------
III-9 20,726.82 5.27 13.662 72
- -------------------------------------------------------------------------
Phase III - Totals 150,373.93 38.25 22.712 872
- -------------------------------------------------------------------------
The details of Phases II and III of the project are as follows:
General Description of Residential Areas (As per regulatory Plan) Phases II and
- --------------------------------------------------------------------------------
III
- ---
Building types, density and heights
- -----------------------------------
Zoning and Density : High-medium density residential. Design
parameters of R-3 number of units and density as
shown on parcel data table on II/III-2.
Allowed Uses : Residential
Selected communal facilities and accessory
buildings
<PAGE>
7
Building Types : Walk-up apartments
Apartment building
Townhouses
Mid-rise apartment building (on Parcel III-9 only)
Building Height : Walk-up apts: 3 stores min./4 stores max.
Apt. bldg: 4 stores min./6 stores max.
Townhouses: 2 stories min./3 stories max.
Mid-rise apartment bldg.: 6 stories min./12 max.
(on parcel III-9 only)
1/3 of roof floor area may be utilized as enclosed
structure opening to a roof terrace when part of
top floor apartment unit.
Slopes : Embankment slopes shall be 2: 1 (min.) horizontal
to vertical ratio.
Parking : Parking requirements shall conform with topic 9 of
the Puerto Rico Planning Board's Zoning Code
(Reglamento No. 4).
1.5 parking spaces/unit minimum required
2.0 parking spaces/unit recommended
Single parking spaces shall be 2.5m x 5.5m (min.)
Tadem parking spaces are permitted these shall be
2.5m x 10.10m (min.)
Building Placement
- ------------------
Front Setback : Measured from fence alignment 10.0m (min.)
mandatory build to line at Boulevard de la Media
Luna. 8.0m (min.) mandatory build to line at Great
Lawn Park. 6.0M (min.) mandatory build to line at
Boulevard del Parque.
Main facade line of buildings shall align
continuously along build to lines staggering or
units along build to lines is not permitted.
Side Setback : 5.0m (min.) except at areas with mandatory build
to lines.
Rear Setback : 5.0m (min.)
<PAGE>
8
Building Separation : 15.0m (min.) between buildings with same
development.
3.0m (min.) landscape area between bldg. and
sidewalk, recreation and parking areas.
Architectural Elements
- ----------------------
Private Gardens : Ground floor apartments may have access and use of
a private yard. Yard area shall be 3m (mm.) to Sm
(max.) deep the width of the apartment unit within
a single development fences delimiting yard areas
shall be of similar design. Only fence types I, II
& III permitted yards may be partially covered as
part of original design. Yards may not be covered
or enclosed by individual homeowners without
previous approval by homeowners association.
Base : At least one unit per building shall be
handicapped accessible. Ground floor units may be
raised on a 1.0m optional base for privacy and/or
response to site conditions.
Wall or floor mounted air conditioning units and
condensers shall not be visible. These may be
installed when shielded from view by architectural
elements, building mass or landscaping.
Middle : Balconies, eaves and other projected elements may
extend 1.20m. from facade line. Wall or floor
mounted air conditioning units and condensers
shall not be visible. These may be installed when
shielded from view by architectural elements,
building mass or landscaping.
Roof : Use of roof terrace required Pergolas and eaves
may extend 1.20m from facade line 1/3 roof floor
area may be utilized as enclosed structure opening
to a roof terrace when part of top floor apartment
unit.
Air conditioning units and condensers, cisterns,
solar heaters, antennas, vent stacks and other
roof elements shall not be visible from below or
from apartment buildings in higher elevations.
These may be installed when shielded from view by
architectural elements, building mass or
landscaping.
<PAGE>
9
Phases II/III Residential-Regulatory Plan
- -----------------------------------------
Zoning : R-3 high medium density residential
Land Use : Residential Park, active recreation and communal
facilities in designated parcels.
Number of Units : 1,953
Building Height : Walk-up apts: 3 stories min./4 stories max.
Apartment bldg.: 4 stories min./6 stories max.
Townhouses: 2 stories min./3 stories max.
Mid-rise apartment bldg.: 6 stories min./12 max.
Front Setback : 10.Om (mm.) mandatory build to line at Boulevard
de la Media Luna.
8.Om (mm.) mandatory build to line at Great Lawn
Park.
6.Om (mm.) mandatory build to line at Boulevard
del Parque
Side Setbacks : 6.Om (mm.) except at areas with mandatory build
to lines.
Rear Setbacks : 5.Om (mm.)
Mandatory Easements : 7.5m at all parcel frontages along Boulevard de
la Media Luna for visitor parking. 20m drainage
easements at designated parcels.
Mandatory Planting Strip : 6.Om along frontage with Great Lawn Park 1.5m
(min.) at boundaries with other developments
(see landscape standards for required planting)
All site areas not occupied by building,
sidewalks or parking areas be landscaped.
Mandatory Gardens and
Access to Great Lawn Park
: At parcels II-I, II-2, II-3, II-4, II-5, III-1,
III-2, III-3, III-4, III-5, there shall be a
mandatory landscaped garden along center line of
parcel with a continuous visual corridor to the
Great Lawn Park. Building entrances shall open
directly to this garden. This shall be an
exclusively pedestrian area with no access or
parking areas. There shall be a pedestrian
access to the Great Lawn Park on axis with this
corridor.
<PAGE>
10
Parking : Parking requirements shall conform with topic 9
of the Puerto Rico Planning Board's Zoning Code
(Reglamento No.4).
1.5 parking spaces/unit minimum required
2.0 parking spaces/unit recommended
Single parking spaces shall be 2.5m x 5.5m
Tandem parking spaces are permitted, these shall
be minimum of 2.5m x 10.10 m.
Guard Houses : Guard houses to be each individual project are
optional. Projected guardhouses shall be
permitted to the master developer for approval.
Garbage Areas : Garbage pick-up areas from Boulevard de la Media
Luna shall be from visitor parking access at
designated points. There shall be no garbage
pick-up areas from Boulevard del Parque. Waste
bins inside development parcels shall be located
along common drives.
Communal Facilities : The Great Lawn Park fulfills the basic code
requirements for communal facilities. However,
each community is to be provided with a passive
recreation area for the residents. Additional
facilities such as pools, gazebos, basketball
courts are at the discretion of individual
developers. Parcels along the Great Lawn Park
have designated areas for passive garden and
communal facilities.
Phase IV
- --------
The submitted master plan does not include the development and construction
specifications of the office/commercial park (Phase IV). However, from original
renderings of the project, it is apparent that these phases will conform to
medium density commercial zonings such as C-1 or C-2. Originally, the concept
consisted of creation of nine lots of various sizes, however, recent plans are
unclear and, furthermore, a most recent plot plan for the area only divides the
area into two lots of 13.27 and 8.04 cuerdas respectively. When this area was
originally planned as nine lots, it had a total area of approximately 18.24
cuerdas, however, recent plot plans have increased this area to the reported
21.3 cuerdas.
One of the prime objectives of any development company is to develop a project
that will maximize profits. With this in mind, it would be reasonable to assume
that the developers would subdivide these larger tracts into smaller sites that
can then be sold to other individual developers. This would not only be
consistent with the ongoing development of Parque Escorial as a whole, but it is
also consistent with the theory of maximizing company profits.
<PAGE>
11
In view of the fact that the total allocated area of this phase has increased by
approximatley 3.07 cuerdas over the area reported in previous appraisal reprots,
the appraisers will allocate an equal portion to the areas of the nine lots that
were previously planned. The individual areas of the sites in these phases are
then as follows:
- --------------------------------------------------------------------
Parque Escorial
Planned Urban Development
65th Infantry Avenue
San Juan/Carolina, Puerto Rico
Phase IV - Commercial
- --------------------------------------------------------------------
Parcel Identification Site Area (Sq. Mts.) Site Area (Cdas)
- --------------------------------------------------------------------
IV-1 7,846.48 2.00
- --------------------------------------------------------------------
IV-2 8,127.31 2.07
- --------------------------------------------------------------------
IV-3 14,672.86 3.73
- --------------------------------------------------------------------
IV-4 6,911.94 1.76
- --------------------------------------------------------------------
IV-5 8,833.28 2.25
- --------------------------------------------------------------------
IV-6 10,736.08 2.73
- --------------------------------------------------------------------
IV-7 8,202.57 2.00
- --------------------------------------------------------------------
IV-8 9,608.10 2.44
- --------------------------------------------------------------------
IV-9 8,782.90 2.23
- --------------------------------------------------------------------
Total 83,721.53 21.30
- --------------------------------------------------------------------
Future Residential Development (Lot Q-1)
- ----------------------------------------
In relation to the land designated as for Future Residential Development, no
change from the most recent appraisal report is noted, except for the overall
size of the parcels. For the detailed information relating to this section of
the property, please refer to the most recent appraisal report of September 1,
1993 and to the update dated February 20, 1995. It should be stated that
approvals for Parque Escorial Development call for the development of 2,700
residential units. Within development phases II and III, a total of 1,953
residential units are expected to be developed which therefore leaves Parcel Q-1
available for the future development of another 747 residential units. In a
recent conversation with company representatives, we were told that this site is
also to be entirely developed with medium density residential walk-up units and
therefore, it will be considered within the valuation process of parcels II and
III.
- -------------------------------------------------------------------
Parque Escorial
Planned Urban Development
65th Infantry Avenue
San Juan/Carolina, Puerto Rico
Future Development
- -------------------------------------------------------------------
Parcel Identification Site Area (Sq. Mts.) Site Area (Cdas)
- -------------------------------------------------------------------
Lot Q-1 427,267.93 108.7100
- -------------------------------------------------------------------
<PAGE>
12
Conclusion of Site Analysis
- ---------------------------
In this section of this report, only significant differences with the report of
September 1, 1993 have been presented. As it stands today, the Parque Escorial
Planned Development is already providing a legitimate alternative for the
residential and commercial development of the San Juan Metropolitan Area. The
subject is currently one of the few large tracts suitable for this type of
development within the urban core of San Juan. No significant adverse conditions
that could restrain the development potential of the subject have been
identified and the subject is considered suitable for continued development.
Land Valuation Techniques
- -------------------------
The procedures used to value land are:
* Sales Comparison Approach
* Allocation
* Extraction
* Income Capitalization, divided into
Direct Capitalization
Land Residual
Ground Rent Capitalization
* Yield Capitalization Techniques
Discounted Cash Flow Analysis (subdivision development analysis)
All these procedures are derived from the three traditional approaches to value.
Sales comparison and income capitalization are listed; the allocation and
extraction procedures indicated reflect the influence of the sales comparison
and cost approaches.
In the case at hand, we are faced with task of estimating the market value in
fee simple of the subject project to a single purchaser as of August 1, 1997,
under specific development assumptions and use limitations as established by the
Planning Board Consultation No.90-17(20)-0813 JPU Case Number 93-17(20)A-104-CPD
and updated plans dated August 14, 1996 prepared by Consulting Engineer Luis F.
Franqui, P. E.. As such, the appraisers will utilize the Yield Capitalization
Technique and, therefore, develop a discounted cash flow analysis which in this
case is commonly known as the Subdivision Development Method/1/.
- ------------------------
/1/ According to the third edition of the Dictionary of Real Estate Appraisal,
published by the Appraisal Institute subdivision development analysis is defined
as a method of estimating land value when subdivision and development are the
highest and best use of the parcel of land being appraised. All direct and
indirect costs and entrepreneurial profit are deducted from an estimate of the
anticipated gross sales price of the finished lots., the resultant net sales
proceeds are then discounted to present value at a market derived rate over the
development and absorption period to indicate the value of the raw land.
<PAGE>
13
Yield Capitalization: Discounted Cash Flow Analysis
- ---------------------------------------------------
Discounted cash flow analysis (subdivision development analysis) is used to
value vacant land that has the potential for development as a subdivision when
that use represents the likely highest and best use of the land. The development
of any project extends over two stages: the construction stage and the marketing
stage.
To perform subdivision development analysis, data on development sales and costs
for the developed lots must be available. Subdivision development analysis may
involve residential, commercial, or industrial tracts of land that are large
enough to be subdivision into smaller lots or parcels and sold to builders or
end users. A planned subdivision can create a higher, better, and more intense
use of the property when zoning, available utilities, access, and other
influential elements are favorably combined.
An appraiser begins the analysis of a subdivision development by determining the
number and size of the lots that can be created from the appraised land
physically, legally, and economically. The proposed lots must conform to
jurisdictional and zoning requirements with regard to size, frontage,
topography, soil quality, and off-site improvement - e.g., water facilities,
drainage, sewage, streets and curbs. The lots must also meet the demands of the
market in which the property is located. Without surveys and engineering
studies, an appraiser cannot know exactly how many lots can be created from a
particular parcel of land. However, a reasonable estimate of the number of
potential lots can be deduced from zoning and subdivision ordinances or,
preferably, from the number of lots created in similar subdivisions. Allowances
must also be made for the land needed for streets and green space.
The appraiser obtains a preliminary development plan for the hypothetical
subdivision of the vacant land being appraised. The development plan specifies
the number and size of the lots, the construction work to be accomplished, the
hard and soft construction costs, the probable time required to subdivide the
land and construct the on-site and off-site infrastructure, and the expenses to
be incurred during the marketing period. The appraiser then undertakes a
preliminary marketability analysis to assess the supply and demand situation and
the probable absorption rate and marketing period for the lots. The appraiser
estimates the projected retail prices of the lots by applying the sales
comparison approach. The appraiser also estimates the amount of profit a typical
developer would require to develop the land or, alternatively, to both develop
and market the lots.
In the next phase of subdivision development analysis, the appraiser projects
cash flows for income and expenses, noting the periods in which they will occur
(i.e., either in annual, semiannual or quarterly periods, depending on the
market). The projection periods begin with the property as is and continue until
sellout is completed or stabilized occupancy is achieved. The net cash flow for
each period is discounted back to point zero to arrive at the present value of
the net cash flows. The discount rate applied, which is derived from and
supported by the market. should reflect the risk involved.
<PAGE>
14
For organizational purposes, we will subdivide this valuation section into three
parts. Part one will provide detailed information that will support an
indication of value for the remaining commercial sites that are located in Phase
I and IV. In this section, we will discuss all the aspects that are relevant to
these sites including market extracted absorption that will serve as base for
the discounted cash flow analysis.
In similar fashion, part two will focus on all the residential sites that are
included in Phases II, III and parcel Q-l. Absorption rates and market
conditions adjustments that will be used in the discounted cash flow analysis
will also be presented in this section.
Part three will include a brief description of the items and variables that are
used in the discounted cash flow analysis that have not been previously
described in the report. Included in this section will be items associated with
the land construction hard costs, indirect development costs and other expenses
associated with the administration~ sales and financing of the project.
Part One: Valuation of the Commercial Section
- ---------------------------------------------
The following table includes a summary of the commercial sites that are located
in both Phase I and Phase IV:
- -------------------------------------------------------------------------
Parque Escorial
Planned Urban Development
65th Infantry Avenue
San Juan/Carolina, Puerto Rico
Phase I and IV - Commercial
- -------------------------------------------------------------------------
Parcel Identification Site Area (Sq. Mts.) Site Area (Cdas)
- -------------------------------------------------------------------------
E-1 (formally school site) 15,721.58 4.0000
- -------------------------------------------------------------------------
I-6W 15,239.90 3.8774
- -------------------------------------------------------------------------
I-7W 5,500.00 1.3994
- -------------------------------------------------------------------------
I-8W 4,100.19 1.0432
- -------------------------------------------------------------------------
Totals 40,561.67 10.3200
- -------------------------------------------------------------------------
Parcel Identification Site Area (Sq. Mts.) Site Area (Cdas)
- -------------------------------------------------------------------------
IV-1 7,846.48 2.00
- -------------------------------------------------------------------------
IV-2 8,127.31 2.07
- -------------------------------------------------------------------------
IV-3 14,672.86 3.73
- -------------------------------------------------------------------------
IV-4 6,911.94 1.76
- -------------------------------------------------------------------------
IV-5 8,833.28 2.25
- -------------------------------------------------------------------------
IV-6 10,736.08 2.73
- -------------------------------------------------------------------------
IV-7 8,202.57 2.09
- -------------------------------------------------------------------------
IV-8 9,608.10 2.44
- -------------------------------------------------------------------------
IV-9 8,782.90 2.23
- -------------------------------------------------------------------------
Total 83,721.53 21.30
- -------------------------------------------------------------------------
<PAGE>
15
In order to estimate the market value of these sites, the appraisers have
collected a series of comparable commercial sites that will serve as base. The
information related to each sale is summarized in the following pages:
Commercial Site Sale No. 1
- --------------------------
Location : Parcels I-lE and I-2E, East Service Center
Parque Escorial Planned Urban Development
State Road No. 3
Rio Piedras/Carolina, Puerto Rico
Seller : Land Development Associates, S. E.
Buyer : Compri Caribe Hospitality Group Corp.
represented by Jorge Colon Nevares.
Date of Sale : March 31, 1995
Area of Site : 5,317.01 (I-1E)
7,395.77 (I-2E)
---------
12,712.78 Square Meters
Sales Price : $1,616,000.00 (I-1E)
1,837,000.00 (I-2E)
-------------
$3,453,000.00
Price per Sq. Mt. : $271.50
Property Rights Conveyed : Fee Simple
Terms of Sale : Equivalent to cash
Shape : Regular
Topography : Flat
Flood Zone : Outside of flood prone areas
Zoning : C-2 (according to Master Plan)
Legal Data : Deed No. 3 before Jose A. Ledesma Vivaldi, Esq.
<PAGE>
16
Commercial Site Sale No. 2
- --------------------------
Location : Parcel I-l0W, West Service Center
Parque Escorial Planned Urban Development
State Road No. 3
Rio Piedras/Carolina, Puerto Rico
Seller : Land Development Associates, S. E.
Buyer : Western Auto
Date of Sale : December 19, 1995
Area of Site : 6,467.39 Square Meters
Sales Price : $1,681,000.00
Price per Sq. Mt. : $259.92
Property Rights Conveyed : Fee Simple
Terms of Sale : Equivalent to cash
Shape : Regular
Topography : Flat
Flood Zone : Outside of flood prone areas
Zoning : C-2 (according to Master Plan)
Legal Data : Deed before Arnaldo Villamil, Esq.
Comments : This site was purchased for a Western Auto Store
<PAGE>
17
Commercial Site Sale No. 3
- --------------------------
Location : Parcel I-9W, West Service Center
Parque Escorial Planned Urban Development
State Road No. 3
Rio Piedras/Carolina, Puerto Rico
Seller : Land Development Associates, S. E.
Buyer : Banco Popular
Date of Sale : December 22, 1995
Area of Site : 4,000.00 Square Meters
Sales Price : $1,080,000.00
Price per Sq. Mt. : $270.00
Property Rights Conveyed : Fee Simple
Terms of Sale : Equivalent to cash
Shape : Regular
Topography : Flat
Flood Zone : Outside of flood prone areas
Zoning : C-2 (according to Master Plan)
Legal Data : Deed before Manolo Ortiz, Esq.
Comments : This site was purchased for the construction
of a bank branch.
<PAGE>
18
Commercial Site Sale No. 4
- --------------------------
Location : Parcels I-3E, I-4E and I-5E, East Service Center
Parque Escorial Planned Urban Development
State Road No. 3
Rio Piedras/Carolina, Puerto Rico
Seller : Land Development Associates, S. E.
Buyer : Compri Caribe Hospitality Group Corp. represented
by Jorge Colon Nevares.
Date of Sale : April 1, 1996
Area of Site : 5,840.17 (I-3E)
4,949.82 (I-4E)
6,553.04 (I-5E)
---------
17,343.03 Square Meters
Sales Price : $1,286,100.00 (I-3E)
908,400.00 (I-4E)
1,202,500.00 (1-5E)
-------------
$3,397,000.00
Price per Sq. Mt. : $195.87
Property Rights Conveyed : Fee Simple
Terms of Sale : Equivalent to cash
Shape : Regular
Topography : Flat
Flood Zone : Outside of flood prone areas
Zoning : C-2 (according to Master Plan)
Legal Data : Deed No.8 before Ivette M. Lopez Figueroa, Esq.
<PAGE>
19
Commercial Site Sale No. 5
- --------------------------
Location : Parcel I-11W, West Service Center
Parque Escorial Planned Urban Development
State Road No. 3
Rio Piedras/Carolina, Puerto Rico
Seller : Land Development Associates, S. E.
Buyer : Firstbank
Date of Sale : December 29, 1995
Area of Site : 1,611.46 Square Meters
Sales Price : $375,000.00
Price per Sq. Mt. : $232.71
Property Rights Conveyed : Fee Simple
Terms of Sale : Equivalent to cash
Shape : Triangular
Topography : Flat
Flood Zone : Outside of flood prone areas
Zoning : C-2 (according to Master Plan)
Legal Data : Deed No. 47 before Alexis Mattei, Esq.
<PAGE>
20
Commercial Site Sale No. 6
- --------------------------
Location : Parcel I-12W, West Service Center
Parque Escorial Planned Urban Development
State Road No. 3
Rio Piedras/Carolina, Puerto Rico
Seller : Land Development Associates, S. E.
Buyer : Montano Corporation
Date of Sale : December 27, 1994
Area of Site : 5,926.72 Square Meters
Sales Price : $1,244,000.00
Price per Sq. Mt. : $210.00
Property Rights Conveyed : Fee Simple
Terms of Sale : Equivalent to cash however, it should be mentioned
that the buyer is the owner of the adjacent
property used as an automobile dealership.
Shape : Irregular
Topography : Flat
Flood Zone : Outside of flood prone areas
Zoning : C-2 (according to Master Plan)
Comments : The existing structures at the time of the sale
were demolished by the buyer.
<PAGE>
21
Commercial Site Sale No. 7
- --------------------------
Location : Lot D-1, Los Romeros Road
fronting Montehiedra Town Center
Caimito Ward
Rio Piedras, Puerto Rico
Seller : A. H. Development, represented by Eduardo
Ramirez de Arellano
Buyer : Banco Popular de Puerto Rico represented by
Hector Santiago Gomez
Date of Sale : February 17, 1995
Area of Site : 9,750.0834 S/M (legal description including
steep area)
4,875.0417 S/M (survey of Flat Usable Area)
Sales Price : $834,560.00
Price per Sq. Mt. : $85.60 (including steep area) $171.17 (Flat
Usable Area)
Property Rights Conveyed : Fee Simple
Terms of Sale : Equivalent to cash
Shape : Irregular
Topography : Level and Steep
Flood Zone : Outside of flood prone areas
Zoning : C-2 approvals
Legal Data : Deed No. 5 before Jose R. Jimenez del Valle, Esq.
Comments : This site was purchased for the construction of a
bank branch.
<PAGE>
22
Commercial Site Sale No. 8
- --------------------------
Location : Remnant after segregation of Lot D-1, Los Romeros
Road fronting Montehiedra Town Center Caimito Ward
Rio Piedras, Puerto Rico
Seller : A. H. Development, represented by Eduardo Ramirez
Buyer : Inversiones Metro, S. E., represented by Pedro J.
Gomez
Date of Sale : February 17, 1995
Area of Site : 11,404.3298 S/M (including steep area)
5,871.1435 S/M (survey of Flat Usable Aera)
Sales Price : $1,013,255.64
Price per Sq. Mt. : $88.85 (including steep area) $172.58 (Flat Usable
Area)
Property Rights Conveyed : Fee Simple
Terms of Sale : Equivalent to cash
Shape : Irregular
Topography : Level and Steep
Flood Zone : Outside of flood prone areas
Zoning : C-2 approvals
Legal Data : Deed of Consolidation and Conveyance No. 7 before
Jose R. Jimenez del Valle, Esq.
Comments : This site was purchased for speculation. A survey
of the site including steep areas resulted in
9,786.4231 square meters. The difference between
the survey and the legal description is
attributable to shifting conditions of the river
bed bordering the site on the west. Part of this
site was segregated into Sale No. 9.
<PAGE>
23
Commercial Site Sale No. 9
- --------------------------
Location : McDonald's lot, Los Romeros Road fronting
Montehiedra Town Center
Caimito Ward
Rio Piedras, Puerto Rico
Seller : Inversiones Metro, S. E. represented by Pedro
Juan Gomez Garcia
Buyer : Golden Arch Development
Date of Sale : December 12, 1995
Area of Site : 4,206.0159 S/M (including steep area)
2,511.2348 S/M (Flat Usable Aera)
Sales Price : $820,000.00
Price per Sq. Mt. : $194.96 (including steep area)
$326.53 (Flat Usable Area)
Property Rights Conveyed : Fee Simple
Terms of Sale : Equivalent to cash
Shape : Regular
Topography : Level and Steep
Flood Zone : Outside of flood prone areas
Zoning : C-2 approvals
Legal Data : Deed No.135 before Raul J. Vila, Esq.
Comments : This site was purchased for a McDonals's fast
food restaurant.
<PAGE>
24
Commercial Site Option No. 1
- ----------------------------
Location : Parcels I-7W, West Service Center
Parque Escorial Planned Urban Development
State Road No. 3
Rio Piedras/Carolina, Puerto Rico
Grantor : Land Development Associates, S.E.
Buyer : Berwind Realty S.E.
Date of Option : April 22, 1997
Area of Site : 5,500 Square Meters (Approximately)
Expected Sales Price : $1,500,000.00
Price per Sq. Mt. : $272.73
Property Rights Conveyed : Fee Simple
Terms of Sale : Equivalent to cash
Shape : Regular
Topography : Flat
Flood Zone : Outside of flood prone areas
Zoning : C-2 (according to Master Plan)
Proposed Use : 12,000 square foot drugstore
Legal Data : Legal deeds and transfer of ownership are
contractually agreed to be no later than August
30, 1997.
<PAGE>
25
Commercial Site Option No. 2
- ----------------------------
Location : Parcels I-8W, West Service Center
Parque Escorial Planned Urban Development
State Road No.3
Rio Piedras/Carolina, Puerto Rico
Grantor : Land Development Associates, S.E.
Buyer : Montano Corporation
Date of Option : May 1997
Area of Site : 4,100.19 Square Meters
Expected Sales Price : $1,127,500.00
Price per Sq. Mt. : $275.00
Property Rights Conveyed : Fee Simple
Terms of Sale : Equivalent to cash
Shape : Regular
Topography : Flat
Flood Zone : Outside of flood prone areas
Zoning : C-2 (according to Master Plan)
Proposed Use : Full Service Gasoline Station including car wash
and a limited retail outlet for the sale of
comestibles and other conveniences.
Legal Data : Legal deeds and transfer of ownership are
contractually agreed to be no later than December
15, 1997.
<PAGE>
26
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Parque Escorial
Planned Urban Development Community
65th. Infantry Avenue
San Juan/Carolina, Puerto Rico
Summary of Comparable Site Sales
- --------------------------------------------------------------------------------
Sale No. Date of Sale Usable Area in S/M Rounded Price per S/M Approvals
- --------------------------------------------------------------------------------
Plaza Escorial Out-Parcel Pads
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Mar-95 12,713.00 $272.00 Commercial
2 Dec-95 6,467.00 $260.00 Commercial
3 Dec-95 4,000.00 $270.00 Commercial
4 Apr-96 17,343.00 $196.00 Commercial
5 Dec-95 1,611.46 $233.00 Commercial
6 Dec-94 5,926.72 $210.00 Commercial
- --------------------------------------------------------------------------------
Montehiedra Town Center Out-Parcel Pads
- --------------------------------------------------------------------------------
7 Feb-95 4,875.00 $171.00 Commercial
8 Feb-95 5,871.00 $173.00 Commercial
9 Dec-95 2,511.00 $327.00 Commercial
- --------------------------------------------------------------------------------
Options
- --------------------------------------------------------------------------------
Option 1 Apr-97 5,500.00 $273.00 Commercial
Option 2 May-97 4,100.00 $275.00 Commercial
- --------------------------------------------------------------------------------
</TABLE>
ANALYSIS OF THE COMPARABLE SITE SALES
- -------------------------------------
The nine comparable sales and two Options, of out-parcel pads included in the
table above provide unit price indications ranging from $171.00 to $327.00 per
square meter. The properties were transferred in fee simple estate with typical
conditions of sale. According to the information obtained, the transactions had
all cash to seller terms, or typical financing terms equivalent to all cash to
the seller. The comparable sales were transacted during the past two and a half
years and are considered indicative of current market conditions.
Based on the previous analysis, the appraisers conclude that none of the
comparable sales requires adjustments for property rights transferred, financing
terms, conditions of sale or market conditions. However, some of the sales do
differ with the subject in terms of location and certain physical
characteristics, and require adjustments for these differences. Since there was
insufficient data to quantify the required adjustments by paired sales analysis,
they were applied qualitatively.
PARQUE ESCORIAL OUT-PARCEL PADS
- -------------------------------
SALES NO.1 THROUGH NO.6 AND THE TWO OPTIONS are located within Phase I of the
master plan for the Parque Escorial Planned Urban Development, the same location
as the subject sites. These comparable sales were bought for the development of
free standing commercial establishments in the service centers at both sides of
the community's commercial center (Plaza Escorial). All six indications include
site grading, access roads, connection for utilities, and approvals. They all
(including the options) have been purchased prior to the full development of
<PAGE>
27
the Parque Escorial Planned Urban Development, with Plaza Escorial Shopping
Center being only partially developed so far. However, the University of Puerto
Rico's Carolina Regional College, with an enrollment of about 5,000 students, is
located adjacent to the community which in effect provides additional demand for
the intended uses at the comparable sales. It should be mentioned that Site
Sales Nos. 1 and 4 were both purchased by the same entity. Despite the fact
that the closing dates of both transactions took place a year apart, the
contract of sale and meeting of the mind took place at the same time. In
addition, the conditions of the sale are not considered to be typical of the
market because according to the developers, these live sites were sold to a
member of the Board of Directors of Interstate General Properties at a discount
because the purchase was made one year before the completion of the
infrastructure. An additional discount was made because the buyer purchased five
lots rather than one which was considered a wholesale price according to the
developers. Because of these factors, reduced weight was given to the indicators
set forth by these two sales.
Another indication of value that has been given limited weight relates to the
first sale of a commercial site, Site Sale No.6. This site was transacted at
approximately $210 per square meter on December 1994, however, the developers
stressed that this site was originally contemplated as a green belt mainly
because of the less than desirable shape of the site among other considerations.
In addition, we were informed that at the time of the sale, the development
company was close to a financial deadline and therefore they had to sell the
site within 30 days in order to obtain required cash for the payment of bank
installments.
MONTEHIEDRA TOWN CENTER OUT PARCEL PADS
- ---------------------------------------
SALES NO.7 THROUGH NO.9 are located fronting the recently developed Montehiedra
Town Center within the Montehiedra Community Project, which, in addition to the
mall, includes several existing and proposed single-family and multi-family
residential developments. The sites bound on the east with Los Romeros Road,
which is the main access road to the shopping center, and on the west with the
Rio Piedras River.
Montehiedra Town Center has approximately 525,000 square feet of leasable area
and is accessed directly from Las Americas Expressway. This enclosed mall is
anchored by K-Mart, Builder's Square, and Marshalls. A movie theater complex was
recently inaugurated with facilities for 14 theaters. While K-Mart opened during
October 1994, small stores started to occupy the mall after November 1994.
The three comparable sales at this location have level topography at the portion
of the site fronting Los Romeros Road, and steep topography at the portion of
the site bordering the Rio Piedras River. Because of the steep slope of the rear
portions of these lots, and the fact that they border a river, it would not be
feasible to fill the entire lot areas to street level. Therefore, the steep
portions of the sites are not usable and were not considered when estimating the
unit price indicators of these comparable sales. Sales No.7 and No.8 have
differences between their legal descriptions and their surveys which is also
common in parcels bounding with rivers or creeks. which typically will vary
their course and alter their boundary from time to time. Although the
<PAGE>
28
sites are irregular in shape, the flat portions of the sites are almost
rectangular in shape. As opposed to the sales from Parque Escorial, none of the
Montehiedra sales included site grading. In addition, the buyers of Sales No.7
and No.8 agreed to pay a proportionate share for the embellishment of Los
Romeros Road during a period of 10 years. Furthermore, Sale No.9 was optioned
August 18, 1995 when Montehiedra Town Center had reached approximately 95%
occupancy, and its success was evident.
CURRENT OPTIONS
- ---------------
Finally, the appraisers have listed the two most recent options of two sites
that are located within the commercial areas of Parque Escorial. These two
sites, optioned in April and May of this year, are currently under the planning
stages for two business ventures that are compatible with the neighborhood: a
drugstore and a gasoline service station. At around $275 per square meter, these
two sites are expected to be closed within the months of August and December of
1997 and the respective improvements are expected to be in place within the
following 18 months. Despite the fact that these sites have good commercial
exposure within the created avenue in Parque Escorial, the location is still
considered to be inferior when compared to the three sites in Phase IV that
front 65th Infantry.
RECONCILIATION
- --------------
In making a final analysis of the listed sales, it is only fair to categorize
the subject sites in three distinct categories. The first category would have to
include all the sites that have frontage to the 65th Infantry Avenue, a superior
major commercial thoroughfare. The second category would include the parcels
that are located within the Parque Escorial Development major roads and the
third and final category would include those sites that are commercial but with
a less favorable commercial exposure such as most of those located within Phase
IV and site E-1.
In the case of the four sites that are located at the West Service Center, there
are three sites that have a location and exposure that is considered somewhat
superior and therefore more attractive that the remaining fourth (Lot E-1) site.
Within the nine sites located in Phase VI, one can easily come to the conclusion
that there are 3 sites fronting 65th Infantry that have a superior location when
compared to the other six sites. It is therefore fair to say that a well
informed investor should be willing to pay extra for this superior commercial
exposure. The following table is a summary of these three categories according
to the location of each within Parque Escorial.
<PAGE>
29
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Parque Escorial
Planned Urban Development
65th. Infantry Avenue
San Juan/Carolina, Puerto Rico
Summary of Available Commercial Sites by Category
- --------------------------------------------------------------------------------
Parcel Identification Site Area (Sq. Mts.)
- --------------------------------------------------------------------------------
Superior Commercial Exposure
- --------------------------------------------------------------------------------
<S> <C>
IV-7 8,202.57
IV-8 9,608.10
IV-9 8,782.90
- --------------------------------------------------------------------------------
Average Commercial Exposure
- --------------------------------------------------------------------------------
I-6W 15,239.90
I-7W (optioned) 5,500.00
I-8W (optioned) 4,100.19
- --------------------------------------------------------------------------------
Inferior Commercial Exposure
- --------------------------------------------------------------------------------
E-1 (formally school site) 15,721.58
IV-1 7,846.48
IV-2 8,127.31
IV-3 14,672.86
IV-4 6,911.94
IV-5 8,833.28
IV-6 10,736.08
- --------------------------------------------------------------------------------
</TABLE>
The Out-Parcel pads at Parque Escorial provide value indications ranging from
$260 to $272 per square meter with the two most recent options indicating
approximately $275 per square meter. Sale No.4 at $200.00 per square meter is
for a larger parcel comprising three sites, located on a street having less
commercial exposure than where the other sales are located. Out-Parcel pads at
Montehiedra Town Center provide value indications ranging from $171.00 to
$327.00 per square meter.
Sales No.1-3, and 5-6 have frontage to the main arteries that provide access to
Plaza Escorial. Sales No.7-9 have frontage to the street that provides access to
Montehiedra Town Center. In frontage characteristics, these comparable sales are
considered similar and competitive to the subject sites of the first group which
are those with a superior frontage and exposure. The sites in this group have
frontage to either Parque Escorial Avenue, which is the case of Lots I-6W-8W. On
the other hand, Sale No.4 is located on a street with less exposure within
Parque Escorial, which is confirmed with its lower unit price when compared to
the other sales within this development. The comparable sales from Parque
Escorial have areas ranging from approximately 1,600 to around 17,350 square
meters, with no indication of a change in unit price because of size difference
up to about 12,700 square meters.
It was stated before that the sales from Montehiedra Town Center did not include
site grading, which is proposed to be included in the subject lots. If we
consider these costs, that were borne by the buyers at Montehiedra, the value
indications provided by these sales for graded sites would be of at least
$200.00 per square meter. This is then considered the low-end indication for
graded out-parcel pads. The sales from Parque Escorial are considered the most
competitive with
<PAGE>
30
the subject site. When these factors are considered, it is then fair to say that
the sites that have a superior frontage should fall within the upper limit of
the listed sales while the sites that fall within the category of a less
attractive frontage should fall within the lower end of the listed sales.
Finally, sites IV7-9 are considered superior to all other sites mainly because
of the favorable exposure and location with frontage to 65th Infantry Avenue,
therefore, these should sell for a prime.
Based on the previous analysis, the appraisers concluded with a unit price
indication rounded at $275.00 per square meter for the sites that have
average commercial exposure, $200.00 per square meter for the sites that have
inferior frontage. For the sites within Phase W that have a superior commercial
exposure, we effected a 10% positive adjustment to quantify for this attribute
which results in an indication of value of approximately $300 per square meter.
Based on these figures we have the following results.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Parque Escorial
Planned Urban Development
65th. Infantry Avenue
San Juan/Carolina, Puerto Rico
Commercial Sites Aggregate of Retail Values
- --------------------------------------------------------------------------------
Site Area Indication/SM Total Value Rounded
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
E-1 (formally school site) 15,721.58 $200 $3,144,316 $3,144,000
IV-1 7,846.48 $200 $1,569,296 $1,569,000
IV-2 8,127.31 $200 $1,625,462 $1,625,000
IV-3 14,672.86 $200 $2,934,572 $2,935,000
IV-4 6,911.94 $200 $1,382,388 $1,382,000
IV-5 8,833.28 $200 $1,766,656 $1,767,000
IV-6 10,736.08 $200 $2,147,216 $2,147,000
I-6W 15,239.90 $275 $4,190,973 $4,191,000
I-7W (optioned) 5,500.00 $275 $1,512,500 $1,513,000
I-8W (optioned) 4,100.19 $275 $1,127,552 $1,128,000
IV-7 8,202.57 $300 $2,460,771 $2,461,000
IV-8 9,608.10 $300 $2,882,430 $2,882,000
IV-9 8,782.90 $300 $2,634,870 $2,635,000
- --------------------------------------------------------------------------------
Total 124,283.20 $29,379,004 $29,379,000
- --------------------------------------------------------------------------------
ROUNDED TOTAL $29,400,000
- --------------------------------------------------------------------------------
</TABLE>
The figure above represents the aggregate of retail values under the assumption
that these all sold as of the effective date of this report. However, the fact
is that only two of the sites have been optioned and are expected to close
within the next several months. Therefore, in the discounted cash flow analysis,
these two optioned sites will be considered as revenues to be received as of the
effective date of the report and it will therefore not be discounted. The other
expected revenues are expected to be realized within a time period, not all at
once which leads us to estimate an appropriate absorption rate.
<PAGE>
31
COMMERCIAL SITES ABSORPTION RATE
- --------------------------------
According to the information provided, the entire commercial sections consisted
in 27 commercial sites including five (5) on the east side, twelve (12) on the
west side, nine (9) in Phase IV and the site that was formerly the school site.
The sale and marketing efforts of these sites started approximately 3.5 years
ago and to date nine (9) sites have been sold and another two (2) are optioned
and expected to close within this year. This provides for an absorption of
approximately 3.14 sites per year. Given that sixteen sites remain to be sold,
this 3.14 site per year indication provides for an absorption of approximately 5
years. (16 sites at 3.14/yr = 5.10 years)
PART TWO: VALUATION OF THE RESIDENTIAL SECTION
- ----------------------------------------------
The following table includes a summary of the residential sites that are located
in both Phase II and Phase III as well as Lot Q-1:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Parque Escorial
Planned Urban Development
65th. Infantry Avenue
San Juan/Carolina, Puerto Rico
Summary of Units Available - Residential
- --------------------------------------------------------------------------------
Phase II
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Parcel Number Area (Sq. Mts.) Area (Cdas.) Approved Units
- --------------------------------------------------------------------------------
II-3 (optioned) 13,728.44 3.4900 80
- --------------------------------------------------------------------------------
II-4-5 (optioned) 20,324.08 5.1700 120
- --------------------------------------------------------------------------------
II-6 15,768.29 4.0119 100
- --------------------------------------------------------------------------------
II-7 15,768.29 4.0119 100
- --------------------------------------------------------------------------------
II-8 (optioned) 29,730.09 7.5641 165
- --------------------------------------------------------------------------------
Subtotal 95,319.19 24.2479 565
- --------------------------------------------------------------------------------
Phase III
- --------------------------------------------------------------------------------
III-1 13,589.02 3.4600 80
- --------------------------------------------------------------------------------
III-2 13,728.45 3.4900 80
- --------------------------------------------------------------------------------
III-3 13,728.45 3.4900 80
- --------------------------------------------------------------------------------
III-4-5 20,324.08 5.1700 120
- --------------------------------------------------------------------------------
III-6 18,746.20 4.7700 120
- --------------------------------------------------------------------------------
III-7 18,746.20 4.7700 120
- --------------------------------------------------------------------------------
III-8 30,784.71 7.8300 200
- --------------------------------------------------------------------------------
III-9 20,726.82 5.2700 72
- --------------------------------------------------------------------------------
Subtotal 150,373.93 38.2500 872
- --------------------------------------------------------------------------------
Lot Q-1 427,267.93 108.71 747
- --------------------------------------------------------------------------------
Total 672,961.05 171.2079 2184
- --------------------------------------------------------------------------------
</TABLE>
In the following pages, we will provide a list of several site sales that have
taken place within the past several years that are in the opinion of the
appraisers competitive with the subject properties. In addition, we have
included the two most recent options of sites within Parque Escorial which
provide additional market support that not only indicates the highest and best
use of the sites, but
<PAGE>
32
that also provides an indication of value for the rest of the sites within the
project as well as absorption indications. The following pages summarize our
findings.
RESIDENTIAL SITE SALE NO. 1
- ---------------------------
Location : Parcel II-9, Phase I, Parque Escorial
Development Km. 6.8, 65th Infantry Avenue
(State Road No.3) Carolina, Puerto Rico
Grantor : Land Development Associates
Grantee : Escorial Builders, S. E., represented by
Francisco Arrivi and Julio Vizcarrondo
Area of Site in Sq. Mts. : 19,882.0209
Zoning : As per Parque Escorial Master Plan: R-3
Highest and Best Use : Multi-Family Residential
Infrastructure : As per sales agreement infrastructure
will be in place for the construction of
the development.
Topography : Gently sloping
Configuration : Irregular
Flood-Zone Classification : Zone "C"; minimal flooding probability
Date of Sale : March 29, 1996
Sales Price : $1,666,000.00
Financing Terms : All cash to seller
Unit Price : $83.79 per square meter
Number of Units : 98 3-bedroom
Density (Sq. Mt. per Unit) : 202.88
Price per Unit : $17,000.00
<PAGE>
33
RESIDENTIAL SITE SALE NO. 1 (CONTINUED)
- --------------------------------------
Location : Parcel II-9, Phase I, Parque Escorial
Development Km. 6.8, 65th Infantry Avenue
(State Road No.3) Carolina, Puerto Rico
Legal Data : Deed No.139 before Alexis D. Mattei
Barrios, Esq.
Comments : On March 29, 1995 Escorial Builders,
S. E., a 50A% owned venture of IGP, acquired
Parcel II-9 and on April 26, 1996, opened
its sales offices. Through September 16,
1996, 129 units of the 216 comprising the
project have been optioned with a $2,500.00
deposit each. Construction of the first 98
units commenced in May 1996.
<PAGE>
34
RESIDENTIAL SITE SALE NO. 2
- ---------------------------
Location : Parcel II-10, Parque Escorial Development
65th Infantry Avenue (State Road No.3)
Carolina, Puerto Rico
Grantor : Land Development Associates
Grantee : Parque de las Flores, S. E. by Edwin
Loubriel Ortiz
Area of Site in Sq. Mts. : 22,906.87
Zoning : As per Parque Escorial Master Plan: R-3
Highest and Best Use : Multi-Family Residential
Infrastructure : As per sales agreement infrastructure
will be in place for the construction of
the development.
Topography : Gently sloping
Configuration : Irregular
Flood-Zone Classification : Zone "C"; minimal flooding probability
Date of Sale : March 29, 1996
Sales Price : $2,380,000.00
Financing Terms : All cash to seller
Unit Price : $103.90 per square meter
Number of Units : Equivalent to 140 3-bedroom
Density (Sq. Mt. per Unit) : 163.62
Price per Unit : $17,000.00
Legal Data : Deed No.25 before Jose M. Gonzalez
Momanal, Esq.
<PAGE>
35
RESIDENTIAL SITE SALE NO. 3
- ---------------------------
Location : Parcel II-1-2, Parque Escorial Development
65th Infantry Avenue (State Road No.3)
Carolina, Puerto Rico
Grantor : Land Development Associates
Grantee : Twenty First Century Homes, S. E. a
joint venture of Jorge Colon Nevarez,
Eduardo Nevarez and Harry Villavicencio
Area of Site in Sq. Mts. : 27,306.4186
Zoning : As per Parque Escorial Master Plan: R-3
Highest and Best Use : Multi-Family Residential
Infrastructure : As per sales agreement infrastructure
will be in place for the construction of
the development.
Topography : Level
Configuration : Regular
Flood-Zone Classification : Zone "C"; minimal flooding probability
Date of Sale : June 29, 1996
Sales Price : $2,720,000.00
Financing Terms : All cash to seller
Unit Price : $99.61 per square meter
Number of Units : Equivalent to 160 3-bedroom
Density (Sq. Mt. per Unit) : 170.67
Price per Unit : $17,000.00
Legal Data : Not available but it was all confirmed
with the se11er/developers.
<PAGE>
36
RESIDENTIAL SITE SALE NO. 4
- ---------------------------
Location : Parcel II-9, Phase II, Parque Escorial
Development Km. 6.8, 65th Infantry Avenue
(State Road No.3) Carolina, Puerto Rico
Grantor : Land Development Associates
Grantee : Escorial Builders, S. E., represented by
Francisco Arrivi and Julio E.
Vizcarrondo Ramirez de Arellano
Area of Site in Sq. Mts. : 17,728.8508
Zoning : As per Parque Escorial Master Plan: R-3
Highest and Best Use : Multi-Family Residential
Infrastructure : As per sales agreement infrastructure
will be in place for the construction of
the development.
Topography : Level
Configuration : Irregular
Flood-Zone Classification : Zone "C"; minimal flooding probability
Date of Sale : January 17, 1997
Sales Price : $2,006,000.00
Financing Terms : All cash to seller
Unit Price : $113.15 per square meter
Number of Units : 118 3-bedroom
Density (Sq. Mt. per Unit) : 150.24
Price per Unit : $17,000.00
Legal Data : Deed No.4 before Alexis D. Mattei
Barrios, Esq.
<PAGE>
37
RESIDENTIAL SITE SALE NO. 5
- ---------------------------
Location : Site of Chalets de Plaza Bayamon
Ramon Rodriguez Avenue
Bayamon, Puerto Rico
Grantor : Municipal Government and Commonwealth of
PR
Grantee : Chalets de Plaza Bayamon, S. E.
Area of Site in Sq. Mts. : 30,971.4732
Zoning : Residential
Highest and Best Use : Multi-Family Residential
Infrastructure : All typical utilities and services of an
urban parcel available.
Topography : Level
Configuration : Almost rectangular
Flood-Zone Classification : Zone "C"; minimal flooding probability
Date of Sale : May 4, 1993
Sales Price : $3,243,040.00
Financing Terms : Cash to seller
Unit Price : $104.71 per square meter
Number of Units : 200
Density (Sq. Mt. per Unit) : 154.86
Price per Unit : $16,215.00
Legal Data : Deeds Nos. 6 and 10 before Pedro J. Diaz
Garcia, Esq.
<PAGE>
38
RESIDENTIAL SITE SALE NO. 6
- ---------------------------
Location : Site of the Malaga Park, Walk-up
Condominium
Juan Martinez Road, Santa Rosa and Los
Frailes Wards
Bayamon, Puerto Rico
Grantor : Rafael Concepcion Vazquez
Grantee : Granada Park, S. E.
Area of Site in Sq. Mts. : 19,416.1266
Zoning : Residential
Highest and Best Use : Multi-Family Residential
Infrastructure : All typical utilities and services of an
urban parcel available.
Topography : Level to Sloping
Configuration : Almost rectangular
Flood-Zone Classification : Zone "C"; minimal flooding probability
Date of Sale : October 15, 1993
Sales Price : $1,300,000.00
Financing Terms : Equivalent to Cash. This transaction
included a consideration of $500,000
payment to Frank Cue Garcia, who held
the option to buy the property. The
payment to the property's owner was then
$800,000.
Unit Price : $66.95 per square meter
Number of Units : 86
Density (Sq. Mt. per Unit) : 225.77
Price per Unit : $15,116.00
Legal Data : Deed No. 52 before Mario Oronoz, Esq.
<PAGE>
39
RESIDENTIAL SITE SALE NO. 7
- ---------------------------
Location : Site of Colina Real Condominium,
Walk-up, Walk-Down Condominium
Las Cumbres Avenue
Rio Piedras, Puerto Rico
Grantor : Iglesia Barbara Ann Roessler
Grantee : Tres M Development, S. E.
Area of Site in Sq. Mts. : 25,547.60
Zoning : Residential (R-1)
Highest and Best Use : Multi-Family Residential
Infrastructure : All typical utilities and services of an
urban parcel available.
Topography : Rolling topography downward towards the
south.
Configuration : Regular
Flood-Zone Classification : Zone "C"; minimal flooding probability
Date of Sale : April 17, 1991
Sales Price : $1,600,000.00
Financing Terms : All cash to seller.
Unit Price : $62.63 per square meter
Number of Units : 140
Density (Sq. Mt. per Unit) : 182.48
Price per Unit : $11,429.00
Legal Data : Deed No. 7 before Francisco Vega Velez,
Esq.
<PAGE>
40
RESIDENTIAL SITE SALE NO. 8
- ---------------------------
Location : Site of the Alborada El Condominio
Walk-up Condominium, Km. 8.6, Road No.2
Bayamon, Puerto Rico
Grantor : Inversiones Bayamon, Inc./Courts at
Caparra, S.E.
Estate of Silva Geigel
Grantee : Alborada, S. E. represented by A & M
Contractors, Inc.
Area of Site in Sq. Mts. : 23,609.00+12,938.06 = 36,547.06
Zoning : Residential
Highest and Best Use : Multi-Unit Residential
Infrastructure : All typical utilities and services of an
urban parcel
Topography : Level but below the level of State Road
No. 2.
Configuration : Irregular
Flood-Zone Classification : Zone "C"; minimal flooding probability
Date of Sale : August 15, 1995/August 15, 1995
Sales Price : $1,878,000.00
905,000.00
-------------
$2,783,000.00
Financing Terms : This transaction involves partial seller
financing, at interest rates similar to
those available from third party
lenders. It is therefore expected to
have similar terms to an all cash
transaction.
Unit Price : $76.14 per square meter
Number of Units : 252
Density (Sq. Mt. per Unit) : 145.03
Price per Unit : $11,043.00
<PAGE>
41
RESIDENTIAL OPTION NUMBER ONE
- -----------------------------
Location : Parcel II-8, Parque Escorial Development
65th Infantry Avenue (State Road No.3)
Carolina, Puerto Rico
Grantor : Land Development Associates
Prospective Buyer : J.A.K. Partnership, S.E. represented by
Joel Katz
Area of Site in Sq. Mts. : 29,730.09
Zoning : As per Parque Escorial Master Plan: R-3
Highest and Best Use : Multi-Family Residential
Infrastructure : As per sales agreement infrastructure
will be in place for the construction of
the development.
Topography : Gently sloping
Configuration : Irregular
Flood-Zone Classification : Zone "C"; minimal flooding probability
Date of Option : April 1997
Expected Sale Price : $3,217,500.00
Financing Terms : All cash to seller
Unit Price : $117.79 per square meter
Number of Units : Equivalent to 165 3-bedroom
Density (Sq. Mt. per Unit) : 165.17
Price per Unit : $19,500.00
Legal Data : Closing is contractually expected to
take place between November 30 and
December 31, 1997
<PAGE>
42
RESIDENTIAL OPTION NUMBER TWO
- -----------------------------
Location : Parcel II-3 and 4/5, Parque Escorial
Development 65th Infantry Avenue (State Road
No.3) Carolina, Puerto Rico
Grantor : Land Development Associates
Prospective Buyer : Parque de las Vistas, S.E.
Area of Site in Sq. Mts. : 13,728.4473 and 20,324.0806 square meter
Zoning : As per Parque Escorial Master Plan: R-3
Highest and Best Use : Multi-Family Residential
Infrastructure : As per sales agreement infrastructure
will be in place for the construction of
the development.
Topography : Gently sloping
Configuration : Irregular
Flood-Zone Classification : Zone "C"; minimal flooding probability
Date of Option : May 1997
Expected Sale Price : $4,000,000.00
Financing Terms : All cash to seller
Unit Price : $117.47 per square meter
Number of Units : Equivalent to 200 3-bedroom
Density (Sq. Mt. per Unit) : 170.26
Price per Unit : $20,000.00
Legal Data : Closing is contractually expected to
take place between November 30, 1997 and
January 31, 1998.
<PAGE>
43
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Parque Escorial
Planned Urban Development
65th. Infantry Avenue
San Juan/Carolina, Puerto Rico
Summary of Comparable Site Sales
- --------------------------------------------------------------------------------
Sale No. Date of Sale Usable Area in S/M Rounded Price Unit Zoning
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Mar-96 19,882 $17,000 Residential
- --------------------------------------------------------------------------------
2 Mar-96 22,907 $17,000 Residential
- --------------------------------------------------------------------------------
3 Jun-96 27,306 $17,000 Residential
- --------------------------------------------------------------------------------
4 Jan-97 17,729 $17,000 Residential
- --------------------------------------------------------------------------------
Option 1 Apr-97 34,053 $19,500 Residential
- --------------------------------------------------------------------------------
Option 2 May-97 29,730 $20,000 Residential
- --------------------------------------------------------------------------------
5 May-93 30,971 $16,200 Residential
- --------------------------------------------------------------------------------
6 Oct-93 19,416 $15,100 Residential
- --------------------------------------------------------------------------------
7 Apr-91 25,548 $11,400 Residential
- --------------------------------------------------------------------------------
8 Aug-95 36,547 $11,000 Residential
- --------------------------------------------------------------------------------
</TABLE>
ANALYSIS OF THE COMPARABLE RESIDENTIAL SITE SALES
- -------------------------------------------------
The first four transactions are the most recent sales listed, and the most
representative of market behavior for the subject vacant parcel. These sales are
located within the Parque Escorial Community and enjoy the same amenities and
surrounding characteristics as the subject.
The other comparable transactions listed are the most competitive transactions
of vacant parcels bought for development of walk-up and walk-up, walk-down
condominium projects located in what can be considered similar areas. Typical
units of comparison for vacant parcels include sales price per square meter,
sales price per unit (residential unit or square foot of improvements), sales
price per front foot, and sales price per cuerda (one cuerda equals 0.97 acres
or 3,930.47 square meters).
The appraisers have gleamed from active residential developers that the typical
purchaser of a parcel for a condominium or an urbanization looks at it from the
perspective of the number of units that can be built on the parcel, and the
price of the land per unit. For this reason, the appraiser chooses a unit of
comparison for analysis equal to the sales price per unit.
SITE SALE NO.1 is the site where Villas de Parque Escorial (Phase I) walk-up
condominium is currently being developed. This site is located within Phase II
residential development of the Parque Escorial Planned Urban Development. The
walk-up condominium to be developed on this parcel comprises a total of 98
three-bedroom units, which indicates a unitary sales price per three-bedroom of
$17,000. As is the case of the subject parcel, the unitary sales prices of the
walk-up condominium residential developments within Parque Escorial are
established on the basis of the amount of three-bedroom or equivalent to three-
bedroom units that can be developed. In terms of topography, configuration,
infrastructure, flood-zone classification and location this parcel is similar to
the subject sites. SITE SALE NO.4 is the sister sale of Sale No. 1
<PAGE>
44
which also sold for a reported $17,000 per unit during the early part of 1997.
According to plans, this site will be developed with another 118 residential
walk up residential units.
SITE SALE NO.2 is the site where the Parque de las Flores walk-up condominium is
expected to be constructed. This site is also located within the second phase of
the Parque Escorial Planned Urban Development. This development will consists of
140 three-bedroom units. The unitary indication of this sale is $17,000 per
three-bedroom unit, as is the comparative indication of the residential
condominium projects within Parque Escorial. In terms of its physical
characteristics this site is similar to the subject in all other aspects.
SITE SALE NO.3 is the most recent site that has been sold within the Parque
Escorial residential sites. This 27,306 square meter site is also located within
Phase II of the Parque Escorial Planned Urban Development. The site was sold to
Twenty First Century Homes, S. E. and according to plans, the buyer is
developing the site with 160 residential walk-up units providing once again and
indication of value of $17,000 per residential unit. The site is similar in most
aspects when compared to the subject sites.
OPTIONS 1 AND 2, refer to the two most recent sites of Parque Escorial that have
been optioned to local developers. These sites of over 7 cuerdas each, are
located within the development and demonstrate the market acceptance of these
for the development of medium density walk-up projects. These two most recent
indications of value oscillate between $19,500 to $20,000 per developable unit
and provide additional indications as to absorption and market conditions
adjustments that will be discussed in the next section.
These three sales and two options are considered to be the best and true
indicatives of market behavior for the subject project, however, additional
market activity will be shown for information purposes only as additional
indications of the overall walk-up condominium development market of the area.
SITE SALE NO.5 is the site of the Chalets de Plaza Bayamon walk-up residential
development located in the Municipality of Bayamon. This development includes
200 units and was transferred in fee simple with all cash to seller financing
terms, three years ago. This parcel, although located in another municipality,
enjoys a comparable location characteristics with immediate access to the major
thoroughfares of the area, which is considered similar to the subject. This
property enjoyed level topography when sold thereby not requiring major earth
movement. This sale is considered similar to the subject in terms of highest and
best use, zoning and flood-zone classification. The unitary indication of this
transaction amounts to a rounded $16,200 per developed unit.
SITE SALE NO.6 is the site where the Malaga Park Condominium development is
located. This development, which was just recently finished, includes 86 walk-up
apartments. The sale included typical sales conditions, equivalent to cash,
transacted three years ago. The parcel has a partially sloping topography which
required some earth movement. It is located in the Municipality of Bayamon in an
area developed with many similar type developments, however
<PAGE>
45
considered inferior in terms of location and access. This parcel is considered
similar in terms of zoning, flood classification and highest and best use. The
unitary indication of this transaction is a rounded $15,000 per developed unit.
SITE SALE NO. 7 is the site of Colina Real, a 140-unit walk-up, walk-down
condominium development finished several years ago near the intersection of
State Road No. 199 and State Road No. 176 in Rio Piedras. The parcel was
transferred in fee simple under typical sales conditions and all cash to seller
terms, five years ago. This comparable is located in another area of Rio
Piedras, near Paseos Planned Urban Development and has adequate access to major
roads and expressways. The parcel has a similar area to those of the subject,
which is the main reason for which it was listed. The parcel had sloping
topography, and required substantial earth movement operations which is inferior
when compared to the topography of the subject sites at Parque Escorial. The
comparable is considered similar to the subject in zoning, flood-zone
classification and highest and best use, and reflects a unitary indication of a
rounded $11,400 per developed unit.
SITE SALE NO.8 is the site of the Alborada El Condominio a 252-unit walk-up
condominium, a project built in stages where development currently under way,
located at Km. 8.6 of State Road No.2 in Bayamon. Physically, this is
approximately 12 kilometers west of the subject property. The parcel was
transferred in fee simple under typical sales conditions, approximately one year
ago. Sales terms included partial seller financing at terms that are considered
to be similar to those available in the open market from third party lenders.
For this reason, the comparable sale is considered to have financing terms
similar to all cash to seller terms. This comparable, although located in
another municipality, is considered similar in location to the subject due to
its proximity to major roads and expressways, as well as to supporting
facilities.
This parcel has a larger site area when compared to the majority of the subject
site areas, yet has a similar unit price in terms of sales price per unit as the
other listed sales out of Parque Escorial. This confirms the assertion that the
market does not appear to recognize a difference in unit price due to size in
residential urban parcels with good locations.
The same reasoning applies to the parcel's topographic characteristics. Even
though this parcel has level topography, it is located below the level of State
Road No.2 and requires extensive earth fill. In addition, an open storm sewer
system running though the parcel will have to be channeled and concrete piles
are required in the buildings. These conditions did not affect the parcel's unit
price when compared to that of parcels with superior topography, so again the
market does not recognize such differences if the parcels have good location and
are developable. The comparable is considered similar to the subject in zoning,
flood-zone classification and highest and best use, and indicates a unitary
indication of a rounded $11,000.
ADJUSTMENT PROCESS
- ------------------
It is a basic characteristic of real estate that no two properties are exactly
alike. To estimate the value of the subject, the comparable sales have to be
adjusted for their differences with the
<PAGE>
46
subject. The six common elements of comparison are: real property rights
conveyed, financing terms, conditions of sale, market conditions, location and
physical characteristics.
The adjustment process requires that the sales first be adjusted for real
property rights conveyed, then for financing terms, then for conditions of sale,
and then for market conditions. After these adjustments are applied, the sales
can then be adjusted for differences in location and physical characteristics.
The adjustments are estimated by comparative analysis, with the use of
quantitative or qualitative techniques. In quantitative analytical techniques,
mathematical processes are used to identify which elements of comparison require
adjustment and to measure the amount of these adjustments. These processes
include paired data analysis, statistical analysis, graphic analysis, trend
analysis, cost-related analysis and secondary data analysis.
Qualitative techniques study relationships indicated by market data without
recourse to quantification. This technique reflects the imperfect nature of real
estate markets. Qualitative techniques include relative comparison analysis,
ranking analysis or personal interviews.
The adjustment process described above is developed in the following pages.
REAL ESTATE TRANSFERRED ADJUSTMENT
- ----------------------------------
All comparable sales involved the transfer of the fee simple estate of the
properties. For this reason, none of them required an adjustment for property
rights conveyed.
FINANCING TERMS ADJUSTMENT
- --------------------------
According to information obtained by the appraisers, all transactions involved
cash to seller terms, or terms similar thereto. For this reason, all sales are
considered as cash to seller and no adjustments were required.
CONDITIONS OF SALE ADJUSTMENT
- -----------------------------
This adjustment calls for analysis and positive or negative adjustments to the
sales where either the seller or buyer were motivated by undue stimulus. No
undue stimulus was present in any of the sales so adjustments for the element of
comparison were not required.
MARKET CONDITIONS ADJUSTMENT
- ----------------------------
Adjustments for market conditions are sometimes necessary to reflect the fact
that since the time the comparable sales were transacted, general values may
have appreciated or depreciated due to inflation or deflation and investor's
perceptions of market conditions may have changed. The appraiser listed sales
dating from 1991 to 1995, of properties similar in their own terms (excluding
the first four sales). The most recent transactions are reflective of the market
within
<PAGE>
47
the Parque Escorial Planned Urban Development. The meeting of the minds for the
first four sales took place at around October 1994 despite the actual closing
dates. The fact that this meeting of the minds took place well over a year ago
makes it reasonable to expect some sort of increase in value specially when the
sold sites have started development with good reception from prospective buyers.
This also provides some indication of market acceptance and justifies an
increase in value.
In order to justify this argument, the appraisers have included the most recent
options of two sites within the Parque Escorial Development as support. These
sites were optioned between April and May 1997 for a reported expected sale
price between the $19,500 and $20,000 per unit. When this is compared with the
sale prices of the other three sales within Parque Escorial, which sold at
$17,000 per unit, we can extract an annual compounded adjustment of
approximately 5.6% per year. Based on this, the appraisers are of the opinion
that the extracted market condition adjustment of 5.6% that is obtained from the
latest options within Parque Escorial is reasonable which will be applied to the
$20,000 base of May 1997.
LOCATION AND PHYSICAL ADJUSTMENTS
- ---------------------------------
Once the sales were adjusted for the four elements of comparison described
above, they were adjusted for differences in location and physical
characteristics with the subject.
One important consideration of our analysis is the fact that the subject sites
are located within a Planned Urban Development which includes amenities that
only Sales Nos. 1, 2, 3 and the Options (1 and 2) include and none of the other
site sales listed include.
As stated, the transactions are either similar to the subject in physical
elements of comparison, or any differences were not recognized by the market in
terms of unit prices. It is for this reason the appraiser concludes that the
comparable transactions listed in this report do not require adjustments for
physical elements of comparison.
The major difference and most important consideration is the location
characteristic of the subject site; and as was stated, the only three
transactions considered by the appraiser to be indicative of market of the
subject sites are Sales Nos. 1, 2, 3 and the options which are located within
Parque Escorial.
Therefore, considering the above presented, the appraiser concludes that Sales
Nos. 4 through 7 are eliminated from further analysis, and sales Nos. 1-3 are
the indicative of market behavior for the subject.
ABSORPTION RATE
- ---------------
It has been stated within this report, that the key unit of comparison relates
to the number of units that can be developed within each particular parcel. It
was also stated that a total of 2,700 residential units were approved for the
project and out of these a total of 516 of these have
<PAGE>
48
already been sold and are in the process of construction and delivery while two
other sites with another 365 approved units have been optioned and are expected
to be delivered within the latter part of this year.
This market information from the Parque Escorial project itself is the best
indication of absorption for our projection. As we stated, the earliest sites
were originally optioned at around October 1994 and until April 1997 a total of
881 units were either sold or committed. In estimating a reasonable absorption,
we will consider the expected closing date (December 1997) as the date to be
used to extract the absorption. With these figures, (approximately 881 units in
40 months) an absorption rate of approximately 22 units per months is obtained.
This figure would provide then an full project absorption of approximately 6.89
years provided that the remaining 1,819 units are absorbed at a rate of 22 per
month. This would also imply that the entire project would be absorbed in a
little over 11 years which is consistent with Paseos. Paseos is Puerto Rico's
first Planned Urban Development which started development in 1985. The last
project, a 10 unit townhouse development by the name of Paseo Sereno, is
currently in the process of being delivered, thus approximately 12 years later.
RECONCILIATION
- --------------
The appraiser listed seven transactions of sites purchased for the development
of walk-up residential condominium developments as well as the two most recent
options of sites that are expected to be developed within the immediate future.
It was concluded that the only true indications of market value for the subject
sites were presented by the unitary sales price of Sales Nos. 1-4 and the option
agreements which help quantify and justify within reasonable parameters, the
market condition changes that have taken place within Parque Escorial. The four
additional sales were presented a support evidence of the walk-up residential
market behavior of properties not located within a Planned Urban Development.
After considering the above evidence, the appraiser concluded with a most
probable unit price for the subject sites rounded at $20,300 per three-bedroom
unit (this accounts for a market adjustment from May-August, 1997, the effective
date of this report). Therefore, the value of the subject site is estimated as
per the number of approved three bedroom units on each site according to the
following table:
<PAGE>
49
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Parque Escorial
Planned Urban Development
65th. Infantry Avenue
San Juan/Carolina, Puerto Rico
Estimated Aggregate of Retail Values
- --------------------------------------------------------------------------------
Site Number Area in SM Number of Units Estimated Value
- --------------------------------------------------------------------------------
Phase II Residential
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
II-3 (optioned) 13,728.44 80 $ 1,600,000
- --------------------------------------------------------------------------------
II-4-5 (optioned) 20,324.08 120 $ 2,400,000
- --------------------------------------------------------------------------------
II-6 15,768.29 100 $ 2,030,000
- --------------------------------------------------------------------------------
II-7 15,768.29 100 $ 2,030,000
- --------------------------------------------------------------------------------
II-8 (optioned) 29,730.09 165 $ 3,217,500
- --------------------------------------------------------------------------------
Subtotal $11,277,500
- --------------------------------------------------------------------------------
Phase III - Residential
- --------------------------------------------------------------------------------
III-1 13,589.02 80 $ 1,624,000
- --------------------------------------------------------------------------------
III-2 13,728.45 80 $ 1,624,000
- --------------------------------------------------------------------------------
III-3 13,728.45 80 $ 1,624,000
- --------------------------------------------------------------------------------
III-4-5 20,324.08 120 $ 2,436,000
- --------------------------------------------------------------------------------
III-6 18,746.20 120 $ 2,436,000
- --------------------------------------------------------------------------------
III-7 18,746.20 120 $ 2,436,000
- --------------------------------------------------------------------------------
III-8 30,784.71 200 $ 4,060,000
- --------------------------------------------------------------------------------
III-9 20,726.82 72 $ 1,461,600
- --------------------------------------------------------------------------------
Subtotal $17,701,600
- --------------------------------------------------------------------------------
Lot Q-1 427,267.93 747 $15,164,100
- --------------------------------------------------------------------------------
TOTAL $44,143,200
- --------------------------------------------------------------------------------
</TABLE>
The figure above represents the aggregate of retail values under the assumption
that these all sold as of the effective date of this report. However, the fact
is that only two of the sites have been optioned and are expected to close
within the next several months. Therefore in the discounted cash flow analysis,
these two optioned sites will be considered as revenues to be received as of the
effective date of the report and it will therefore not be discounted. The other
expected revenues are expected to be realized within the time period that was
estimated in the absorption rate section.
SUMMARY
- -------
In part one of the valuation process, the appraisers estimated first the
aggregate of retail values for the commercial areas with a conclusion of
$29,400,00 million. Part two on the other hand, focused on the residential sites
and a conclusion representing the aggregate of retail values was concluded at
$44,143,200. In both these sections we also estimated absorption rates and we
also made market conditions adjustments. In the final part of the valuation
process, we will consider all the inherent expenses of the project in order to
estimate the net cash flow that will be discounted to arrive at the present
worth of the expected income stream. The following table is a summary of the
expected revenues from the residential and commercial sites:
<PAGE>
50
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Proposed Parque Escorial
Planned Community
65th Infantry Avenue
San Juan/Carolina, Puerto Rico
Summary of Revenues - Residential and Commercial
- ------------------------------------------------------------------------------------------------------------------------------------
Period Variables 0 1 2 3 4
- ------ --------- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Total Number of Approved Units 2700
Number of Units Sold and Delivered 516
----
Number of Remaining Units 2184
Units to be Absorbed per Period 365 260 260 260 260
Remaining Units/Period 1819 1559 1299 1039 779
----------------------------------------------------------------------------
Annual Residential Sellout $20,300 $7,217,500 $ 5,278,000 $ 5,278,000 $ 5,278,000 $ 5,278,000
Annual Rate of Increase in Value 1.056 1.000 1.056 1.115 1.178 1.244
-------------------------------------------------------------------------------------------
Total Residential Revenues $7,217,500 $ 5,573,568 $ 5,885,688 $ 6,215,286 $ 6,563,342
Annual Commercial Sellout $2,627,500 $ 5,354,500 $ 5,354,500 $ 5,354,500 $ 5,354,500
-------------------------------------------------------------
Annual Rate of Increase in Value 1.056 1.056 1.115 1.178 1.244
-------------------------------------------------------------
Total Commercial Revenues $ 5,654,352 $ 5,970,996 $ 6,305,371 $ 6,658,472
- -----------------------------------------------------------------------------------------------------------------------------------
Revenues Residential and Commercial $9,845,000 $11,227,920 $11,856,684 $12,520,658 $13,221,815
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Period 5 6 7 Total
- ------ --- --- --- -----
<S> <C> <C> <C> <C>
Total Number of Approved Units
Number of Units Sold and Delivered
Number of Remaining Units
Units to be Absorbed per Period 260 260 259
Remaining Units/Period 519 259 0
------------- -------------- -----------
Annual Residential Sellout $ 5,278,000 $5,278,000 $5,257,700
Annual Rate of Increase in Value 1.313 1.387 1.464
-------------------------------------------------------------
Total Residential Revenues $ 6,930,890 $7,319,019 $7,699,158 $53,404,451
Annual Commercial Sellout $ 5,354,500
-----------
Annual Rate of Increase in Value 1.313
-----------
Total Commercial Revenues $ 7,031,347 $31,620,538
- -----------------------------------------------------------------------------------------------------
Revenues Residential and Commercial $13,962,236 $7,319,019 $7,699,158 $87,652,489
- -----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
51
YIELD CAPITALIZATION: DISCOUNTED CASH FLOW ANALYSIS
- ---------------------------------------------------
The table of the previous page is a summary of the expected revenues from both
the commercial and the residential sites at the Parque Escorial Planned Urban
Development. The table takes into consideration the previously expressed
absorption rates and increase in value that is expected within the projection
period.
In order to determine the expected Net Cash Flow for the project, the appraisers
must consider the expected expenses that are associated with the development of
Parque Escorial. These expenses are divided into several categories summarized
as follows:
* Land Construction Hard Costs
* Indirect Development Costs
* Administrative, Legal and Tax Expenses
* Marketing and Sales Expenses
* Financing Costs
* Entrepreneurs Motivation
The developers provided the appraisers with a series of cash flows where the
expected expenses were distributed throughout the projection period of the
developer. With this information as base, the appraisers made several
adjustments since our projection was estimated at eight (8) years.
LAND CONSTRUCTION HARD COSTS
- ----------------------------
The land construction hard costs are all the costs that are directly associated
with the creation of the sites. These expenses include among other items the
earthwork, roads and utilities, communal facilities, street landscaping, entry
gates and features, fences and other miscellaneous expenses. In our projection,
we utilized the gross amount estimated by the developer as a base, however, we
evenly distributed them throughout the first four to six years of development.
This is the period when most of the development will take place.
INDIRECT DEVELOPMENT COSTS
- --------------------------
The indirect development costs include appraisal fees, engineering and design
fees, geological studies, mapping and surveying, security services, maintenance
costs, and an onsite office. As in the previous section, the appraisers
distributed most of these expenses throughout the first four years, however,
expenses that are expected to last throughout the entire development were
projected in all eight years. It should also be stated that some services were
estimated at year one and projected with a 5% increase in order to keep up with
expected inflation rates.
<PAGE>
52
ADMINISTRATIVE, LEGAL AND TAX EXPENSES
- --------------------------------------
These expenses included legal costs, accounting, audit and taxes, property
owners association, excise taxes, property taxes and hazard insurance. These
were estimated by the developer and considered appropriate to the appraisers. In
addition, some of these expenses were projected to increase at a rate of 5% in
order to keep up with inflation. In the case of the excise taxes, these were
estimated as .5% of the total revenues of the previous year.
MARKETING AND SALES EXPENSES
- ----------------------------
These expenses are directly associated with the sales of the sites and include
commissions on the sales, legal costs, title and recording fees, and the sales
brochure. The commissions were estimated at 1.5% of the annual revenues, the
legal costs were estimated at 1% of the total revenues, and the title and
recording fees were estimated at .5% of the total revenues for each period. The
sales brochures were estimated at $4,000 per month of $48,000 per year for the
first five years and half that for the last three years.
FINANCING COSTS
- ---------------
In order to estimate the financing costs associated with the development of the
sites, the appraisers made the assumption that the developer would seek interim
financing on a yearly base for the area under development, rather than to seek
financing for the entire project all at once. Under this assumption, the
appraisers estimated an annual loan equivalent to 70% of the total expected
annual expenses at an interest rate of 2% over LIBOR(2) (London interbank
offered rate) which is currently at around 5.88%. The financing commissions on
the other side have been estimated at 1% of the bank loan.
ENTREPRENEURIAL PROFIT
- ----------------------
In the discounted cash flow analysis the purpose is to determine the market
value to a single purchaser which also means that there will be a seller as
well. It could be argued that a line item expense should be around 20%, which is
the typical entrepreneurial profit for a project similar to the subject, again,
however, it is not reasonable to expect a seller to sell his/her project without
making a profit. In the specific case of the subject property, this assumption
is considered even more reasonable since most of the infrastructure has already
been completed, plus several sites have already been sold and are currently
being developed as of the effective date of this report. With this scenario, it
is rather unlikely that the seller will sell the project without keeping part of
the profits and therefore, a 10% for entrepreneurial profit will be included as
a line item expense rather than the 20%. This 10% entrepreneurial profit will
also be used in the discounted cash flow analysis of the last section of this
report.
- ------------------------------------
(2) The average of interbank rates for dollar deposits in the London
market on quotations at five major banks.
<PAGE>
53
DISCOUNT RATE
- -------------
The discount rate is the rate of return on the investment. Every discount rate
must incorporate four elements of compensation which every investor is seeking.
A rate of return must be paid to the investor for overcoming time preference,
giving up liquidity, assuming investment management burdens and assuming the
risks of investment and ownership. The discount rate is based principally on
what other alternative opportunities exist for the investor, and these
opportunities are weighed against the relative risks which ownership that those
opportunities involve. The higher the risk, the higher the discount rate should
be, for the typical investor would expect a greater return on an investment
where there is a higher possibility of loss.
The recent "Real Estate Report", Volume 26, #1 published by the Real Estate
Research Corporation (RERC), included a table of real estate vis-a-vis capital
market returns based on a survey conducted, which reflected desired returns of
the first quarter 1997 investments, with the capital market rates being the
first week of each quarter. The reported real estate yield for the first quarter
of 1997 was reported at 11.5%, remaining stable from the previous quarter. The
following table shows a spread of 4.6% in the real estate yield if compared to
other investments alternatives, as shown in the following table that is a
reproduction of the RERC Real Estate Report.
- ---------------------------------------------------------------
Real Estate Vis-a-vis Capital Market Returns
- ---------------------------------------------------------------
Quarter 1Q1997 4Q1996 1Q1996 1Q1995 1Q1994
- ---------------------------------------------------------------
Real estate yield (%) 11.50% 11.50% 11.50% 11.60% 11.70%
Moody's Aa Utilities (%) 8.10% 7.90% 8.10% 8.60% 7.10%
Moody's Aaa Corporate (%) 7.50% 7.30% 7.40% 8.10% 7.50%
10-Year Treasuries (%) 6.60% 6.40% 6.30% 7.10% 6.50%
- ---------------------------------------------------------------
In this case, based on the preceding and after analyzing various other
investment opportunities and publications that report expected yields in various
investment opportunities, including real estate investments, a 12% discount rate
is selected by the appraisers to discount the future proceeds of sale.
Therefore, based on the previous analysis the discounted cash flow procedure
leading to the market value of the subject sites to a single purchaser as of
August 1, 1997 is as follows:
<PAGE>
54
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Proposed Parque Escorial
Planned Community
65th Infantry Avenue
San Juan/Carolina, Puerto Rico
Discounted Cash Flow Analysis - Residential and Commercial
- ------------------------------------------------------------------------------------------------------------------------------------
Period Variables 0 1 2 3 4
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues Residential and Commercial $ 9,845,000 $11,227,920 $11,856,684 $12,520,658 $13,221,815
- ------------------------------------------------------------------------------------------------------------------------------------
Land Construction Hard Costs
- ----------------------------
Entry Gates and Features ($ 62,380) ($ 62,380) $0 $0
Fences ($ 214,580) ($214,580) ($ 214,580) ($ 214,580)
Street Landscaping ($ 93,353) ($93,353) ($ 93,353) ($ 93,353)
Additional Costs ($ 213,388) ($213,388) ($ 213,388) ($ 213,388)
Earthwork, Roads and Utilities ($1,909,887) ($1,909,887) ($1,909,887) ($1,909,887)
Communal Facilities $0 ($500,000) ($ 500,000) $0
Contingencies ($ 260,891) ($260,891) ($ 260,891) ($ 260,891)
----------------------------------------------------------------------
Total Hard Costs ($2,754,478) ($3,254,478) ($3,192,098) ($2,692,098)
Indirect Development Costs
- --------------------------
Appraisal Fees ($ 15,000) ($ 15,000) ($ 15,000) ($ 15,000)
Engineering and Design Fees ($ 140,095) ($140,095) ($ 140,095) ($ 140,095)
Geological Studies ($ 16,958) ($ 16,958) ($ 16,958) ($ 16,958)
Mapping/Surveying ($ 11,093) ($ 11,093) ($ 11,093) ($ 11,093)
Security Services ($ 34,720) ($ 36,456) ($ 38,279) ($ 40,193)
Maintenance Costs ($ 69,480) ($ 72,954) ($ 76,602) ($ 80,432)
Site Office ($ 42,240) ($ 44,352) ($ 46,570) ($ 48,898)
----------------------------------------------------------------------
Total Indirect Development Costs ($ 329,585) ($336,907) ($ 344,595) ($ 352,668)
Administrative, Legal, Tax
- --------------------------
Legal Costs ($ 16,560) ($ 17,388) ($ 18,257) ($ 19,170)
Accounting, Audit and Taxes ($ 34,736) ($ 36,473) ($ 38,296) ($ 40,211)
Property Owners Association ($ 13,240) ($ 13,902) ($ 14,597) ($ 15,327)
Excise Taxes 0.50% ($ 3,900) ($ 56,140) ($ 59,283) ($ 62,603)
Property Taxes ($ 60,000) ($ 50,000) ($ 40,000) ($ 30,000)
Hazards Insurance ($ 8,680) ($ 9,114) ($ 9,570) ($ 10,048)
----------------------------------------------------------------------
Total Administrative, Legal and Taxes ($ 137,116) ($183,016) ($ 180,004) ($ 177,360)
Marketing/Sales
- ---------------
Commissions 1.50% ($ 147,675) ($ 168,419) ($177,850) ($ 187,810) ($ 198,327)
Legal Costs - Sales Deals 1.00% ($ 98,450) ($ 112,279) ($118,567) ($ 125,207) ($ 132,218)
Title and Recording Fees 0.50% ($ 49,225) ($ 56,140) ($ 59,283) ($ 62,603) ($ 66,109)
Sales Brochure ($ 48,000) ($ 48,000) ($ 48,000) ($ 48,000)
----------------------------------------------------------------------
Total Marketing/Sales ($ 384,838) ($403,701) ($ 423,620) ($ 444,654)
- -----------------------------------------------------------------------------------------------------------------------------------
Expense Sub-total ($ 295,350) ($3,606,017) ($4,178,102) ($4,140,317) ($3,666,780)
- -----------------------------------------------------------------------------------------------------------------------------------
Financing Costs
- ---------------
Interest Payable on Bank Loans ($ 198,908) ($230,464) ($ 228,380) ($ 202,260)
Financing Costs ($ 36,060) ($ 41,781) ($ 41,403) ($ 36,668)
----------------------------------------------------------------------
Total Financing Costs ($ 234,968) ($272,245) ($ 269,783) ($ 238,927)
Less Entrepreneurs Motivation 10.00% ($1,122,792) ($1,185,668) ($1,252,066) ($1,322,181)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Cash Flow $6,264,143 $6,220,668 $6,858,492 $7,993,926
Present Worth Factor 12.00% 0.892857 0.797194 0.711780 0.635518
----------------------------------------------------------------------
Present Worth $9,549,650 $5,592,985 $4,959,078 $4,881,739 $5,080,284
- -----------------------------------------------------------------------------------------------------------------------------------
Rounded to
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Proposed Parque Escorial
Planned Community
65th Infantry Avenue
San Juan/Carolina, Puerto Rico
Discounted Cash Flow Analysis - Residential and Commercial
- -----------------------------------------------------------------------------------------------------------------------------------
Period 5 6 7 Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues Residential and Commercial $13,962,236 $ 7,319,019 $ 7,699,158 $87,652,489
- -----------------------------------------------------------------------------------------------------------------------------------
Land Construction Hard Costs
- -----------------------------------------
Entry Gates and Features $0 $0 $0
Fences $0 $0 $0
Street Landscaping $0 $0 $0
Additional Costs $0 $0 $0
Earthwork, Roads and Utilities ($1,909,887) ($1,909,887) $0
Communal Facilities $0 $0 $0
Contingencies ($260,891) ($ 260,891) ($ 260,891)
-------------------------------------------------------------------------------------------------
Total Hard Costs ($2,170,778) ($2,170,778) ($ 260,891) ($16,495,599)
Indirect Development Costs
- --------------------------
Appraisal Fees ($ 15,000) ($ 10,000) ($ 10,000)
Engineering and Design Fees $0 $0 $0
Geological Studies $0 $0 $0
Mapping/Surveying $0 $0 $0
Security Services ($ 42,202) ($ 44,312) ($ 46,528)
Maintenance Costs ($ 84,453) ($ 88,676) ($ 93,110)
Site Office ($ 51,343) ($ 53,910) ($ 56,606)
-------------------------------------------------------------------------------------------------
Total Indirect Development Costs ($192,999) ($ 196,899) ($ 206,244) ($ 1,959,896)
Administrative, Legal, Tax
- --------------------------
Legal Costs ($ 20,129) ($ 21,135) ($ 22,192)
Accounting, Audit and Taxes ($ 42,222) ($ 44,333) ($ 46,550)
Property Owners Association ($ 16,093) ($ 16,898) ($ 17,743)
Excise Taxes ($ 66,109) ($ 69,811) ($ 36,595)
Property Taxes ($ 20,000) ($ 15,000) ($ 10,000)
Hazards Insurance ($ 10,551) ($ 11,078) ($ 11,632)
-------------------------------------------------------------------------------------------------
Total Administrative, Legal and Taxes ($175,104) ($ 178,255) ($ 144,712) ($ 1,175,567)
Marketing/Sales
- ---------------
Commissions ($209,434) ($ 109,785) ($ 115,487)
Legal Costs - Sales Deals ($139,622) ($ 73,190) ($ 76,992)
Title and Recording Fees ($ 69,811) ($ 36,595) ($ 38,496)
Sales Brochure ($ 48,000) ($ 24,000) ($ 24,000)
-------------------------------------------------------------------------------------------------
Total Marketing/Sales ($466,867) ($ 243,571) ($ 254,975) ($ 2,622,225)
- -----------------------------------------------------------------------------------------------------------------------------------
Expense Sub-total ($3,005,747) ($2,789,503) ($ 866,821) ($22,253,287)
- -----------------------------------------------------------------------------------------------------------------------------------
Financing Costs
- ---------------
Interest Payable on Bank Loans ($165,797) ($ 153,869) ($ 47,814)
Financing Costs ($ 30,057) ($ 27,895) ($ 8,668)
-------------------------------------------------------------------------------------------------
Total Financing Costs ($195,854) ($ 181,764) ($ 56,482) ($ 1,450,024)
Less Entrepreneurs Motivation ($1,396,224) ($ 731,902) ($ 769,916) ($ 7,780,749)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Cash Flow $9,364,411 $3,615,851 $6,005,940
Present Worth Factor 0.567427 0.506631 0.452349
-------------------------------------------------------------------------------------------------
Present Worth $5,313,618 $1,831,903 $2,716,782 $39,926,039
- -----------------------------------------------------------------------------------------------------------------------------------
Rounded to $39,900,000
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
55
RECONCILIATION AND FINAL VALUE ESTIMATE
---------------------------------------
The purpose of this update appraisal is to estimate the market value in fee
simple of the subject project to a single purchaser as of August 1, 1997, under
specific development assumptions and use limitations as established by the
Planning Board Consultation No. 90-17(20)-0813 JPU Case Number 93-17(20)A-104-
CPD and updated plans dated August 14, 1996 prepared by Consulting Engineer Luis
F. Franqui, P. E. The appraisal is also contingent upon the assumptions,
limiting conditions and certificates herein. In order to carry out this
assignment, the appraisers estimated the market value in fee simple of the
commercial and residential sites as of the effective date of this report. The
result, representative of the aggregate of retail values provided the following
indications:
Commercial Sites . $29,400,000.00
Residential Sites . $44,140,000.00 (rounded)
In each of the valuation sections for the above indications, the appraisers
estimated the value using the sales comparison approach. A series of competitive
site sales were presented that served as support for the values concluded and in
addition, absorption rates and market conditions adjustments were extracted. In
the second section of this report, we then utilized the Income Capitalization
Approach in order to estimate the value sought. By using the subdivision
development technique, the appraisers were able to prepare a market supported
discounted cash flow analysis that considered the direct and indirect costs
associated in the development of Parque Escorial. Finally, the appraisers used a
market extracted discounted rate in order to obtain the present worth of the
expected net cash flow which represents the value sought.
In conclusion, the estimated market value in fee simple of the subject project
to a single purchaser as of August 1, 1997, under specific development
assumptions and use limitations as established by the Planning Board
Consultation No. 90-17(20)-0813 JPU Case Number 93-17(20)A-104-CPD and updated
plans dated August 14, 1996 prepared by Consulting Engineer Luis F. Franqui,
P.E. was:
$40,000,000.00
(FORTY MILLION DOLLARS)
The appraisers have not prepared a feasibility study for the subject project,
nor have they been contracted for it. The reported market value assumes the
economic feasibility of the project, and is therefore, contingent upon it.
Furthermore, the availability of capacity and/or connection rights to any or all
public utilities has not been determined by the appraisers. The value reported
herein is contingent upon and limited to said capacity and right of connection
among other assumption as capacity and right of connection among other
assumptions as stated. In effect, the Master Plan for the Parque Escorial
denotes sufficient capacity for electrical power and for water and sewer
connections.
<PAGE>
56
CERTIFICATE OF THE APPRAISER
----------------------------
I certify, that to the best of my knowledge and belief,......
- - The statement of fact contained in this report are true and correct.
- - The reported analyses, opinions and conclusions are limited only by
the reported assumptions and limiting conditions, and are my personal,
unbiased professional analyses, opinions and conclusions.
- - 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.
- - 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 stipulated
result, or the occurrence of a subsequent event.
- - My analyses, opinions, and conclusions were developed, and this report
has been prepared, in conformity with the Uniform Standards of
Professional Appraisal Practice; and, in conformity with the
requirements of the Code of Professional Ethics and the Standards of
Professional Appraisal Practice of the Appraisal Institute.
- - The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
- - As of the date of this report, I, Robert F. McCloskey have completed
the requirements under the continuing education program of the
Appraisal Institute.
- - My value conclusion as well as other opinions expressed herein are not
based on a requested minimum value, a specific value or approval of a
loan.
- - I have not made a personal inspection of the property that is the
subject of this report.
- - No one provided significant professional assist to the persons signing
this report.
/s/ Robert F. McCloskey
ROBERT F. McCLOSKEY, MAI, CRE
Appraiser
<PAGE>
57
CERTIFICATE OF THE APPRAISER
----------------------------
I certify, that to the best of my knowledge and belief
- - The statement of fact contained in this report are true and correct.
- - The reported analyses, opinions and conclusions are limited only by
the reported assumptions and limiting conditions, and are my personal,
unbiased professional analyses, opinions and conclusions.
- - 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.
- - 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 stipulated
result, or the occurrence of a subsequent event.
- - My analyses, opinions, and conclusions were developed, and this report
has been prepared, in conformity with the Uniform Standards of
Professional Appraisal Practice; and, in conformity with the
requirements of the Code of Professional Ethics and the Standards of
Professional Appraisal Practice of the Appraisal Institute.
- - The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
- - My value conclusion as well as other opinions expressed herein are not
based on a requested minimum value, a specific value or approval of a
loan.
- - I have made a personal inspection of the property that is the subject
of this report.
- - No one provided significant professional assistance to the persons
signing this report.
/s/ William A. Medina
WILLIAM A. MEDINA
Appraiser
<PAGE>
58
QUALIFICATION DATA - ROBERT F. McCLOSKEY
DESIGNATIONS
- ------------
MAI - Appraisal Institute
CRE - Society of Real Estate Counselors
SRA - Appraisal Institute
MIE - Institute of Evaluators of Puerto Rico
EDUCATION
- ---------
Cornell University, Ithaca, New York
University of Puerto Rico, Rio Piedras, Puerto Rico - B.B.A.
LICENSES
- --------
Puerto Rico Appraiser License No. 19
Certified Real Estate Appraiser
Commonwealth of Puerto Rico
Certificate No.17
(Compliance with Title XI of FIRREA)
REAL ESTATE APPRAISAL COURSES/SEMINARS AND/OR EXAMINATIONS
- ----------------------------------------------------------
Special Purpose Properties:
The Challenges of Real Estate
Appraising in Limited Markets
November 1995
Orlando, Florida Appraisal Institute
Advanced Applications Appraisal Institute
March 3-11,1995
Pompano Beach, Florida
How to Appraise FHA-Insured Property Appraisal Institute
February 13, 1995
Orlando, Florida
<PAGE>
59
Understanding Limited Appraisals Appraisal Institute
and Appraisal Reporting Options
(1994)
Standards of Professional Practice Appraisal Institute
410/420 (November 1993)
Atlanta, Georgia
Appraisal Regulations of the Appraisal Institute
Federal Banking Agencies from the
Lenders Perspective (November 1992)
Rosemont, Illinois
Advanced Income Capitalization Appraisal Institute
Workshop (1992)
San Juan, Puerto Rico
Advanced Income Capitalization Appraisal Institute
Hotel/Motel Valuation Seminar Appraisal Institute
May 12, 1992
North Jersey Chapter
Appraisal Theory Update Seminar Appraisal Institute
April 13, 1992
South Florida Chapter
Standards and Professional Practice American Institute of Real
and Exam - Estate Appraisers
December 12-16, 1990
Fort Lauderdale, Florida
Exam Prep for Commercial Society of Real Estate
Appraisal Certification Appraisers
Columbus, Georgia
Oct.19 and 20, 1990
Investment Analysis Seminar American Institute of Real
(2/11/89) Estate Appraisers
Subdivision Analysis Seminar American Institute of Real
(2/10/89) Estate Appraisers
<PAGE>
60
Valuation of Lease Interest American Institute of Real
Part I Seminar (2/9/89) Estate Appraisers
Capitalization Overview: American Institute of Real
Part B Seminar (2/8/89) Estate Appraisers
Capitalization Overview: American Institute of Real
Part A Seminar (2/7/89) Estate Appraisers
Cash Equivalency Seminar American Institute of Real
(2/6/89) Estate Appraisers
The Appraiser as an Expert Society of Real Estate
Witness Seminar (1/17/89) Appraisers
HP 12C Seminar Society of Real Estate
(6/13/86) Appraisers
Depreciation Analysis Seminar Society of Real Estate
(3/25/86) Appraisers
Standards of Professional American Institute of Real
Practice Seminar (5/1/86) Estate Appraisers
Income Capitalization Workshop American Institute of Real
Seminar (3/24/86) Estate Appraisers
R41-B and the Appraisers Seminar Society of Real Estate
(1985) Appraisers
Math-Stat Seminar Society of Real Estate
Appraisers
Real Estate Appraisal VII American Institute of Real
Industrial Properties
<PAGE>
61
Real Estate Appraisal II American Institute of Real
Urban Properties Estate Appraisers
Principles of Income Property Society of Real Estate
Appraising 201 Appraisers
Mortgage Equity Capitalization Society of Real Estate
Seminar Appraisers
Narrative Report Seminar Society of Real Estate
Appraisers
Real Property Appraisal 1-A American Institute of Real
Estate Appraisers
Narrative Report Seminar Society of Real Estate
Income Producing Property Appraisers
R-2 Examination Society of Real Estate
Appraisers
Principles and Techniques Society of Real Estate
of Residential Appraising Appraisers
Qualified Appraiser
- -------------------
Banco Bilbao Vizcaya, S. A.
Banco Central Hispano P.R.
Banco Cooperativo de P.R.
Banco del Comercio
Banco Financiero de P.R.
Banco Popular de Puerto Rico
Banco Santander de Puerto Rico
Bank and Trust of Puerto Rico
Bank of Boston
Bank of Nova Scotia
Chase Manhattan Bank, N. A.
Chase Manhattan Bank, N. A. - New York
Chase Manhattan Bank, N. A. - St. Thomas, U.S.V.I.
Citibank, N. A.
Eurobank
Fajardo Federal Savings Bank
Federal Deposit Insurance Corporation
<PAGE>
62
Federal National Mortgage Association
FirstBank
First National Bank of Chicago
Independence Bank, Providence, Rhode Island
Knickerbocker Federal Savings
Mellon Bank of Pittsburgh
Mortgage Guaranty Insurance Corporation
Oriental Bank and Trust
PonceBank
Puerto Rico Industrial Development Corporation
RG Federal Savings Bank
Roig Commercial Bank
Royal Bank of Canada
Santander National Bank
Scotiabank de P.R.
Western Federal Bank
Some of Major Industrial Clients Served
- ---------------------------------------
Abbot Laboratories Merck, Sharp & Dohme
American Chemical Co. Monsanto Chemical
Avianca Airlines Pepsi Cola
Daniel Construction PPG Industries
David M Corporation Phelps Dodge
Eastern Airlines Puerto Rico Cement Co.
El Mundo Enterprises Puerto Rican Container
El Nuevo Dia Newspaper San Juan Racing
Esso Standard Oil Co. Shell Oil Co. of P.R.
Federal Aviation Administration Stathem Gould
Ingersoll Rand Texaco Oil Company
International Harvester Time, Ltd.
Johnson & Johnson Wagner Communications
Kane Caribbean
Kraft Foods
<PAGE>
63
Superior Court of Justice
- Expert Qualified Witness
United States Bankruptcy Court for the District of P.R.
- Expert Qualified Witness
United States District Court for the Southern District of Florida
United States District Court for the District of Puerto Rico
United States of America - General Services Administration
Real Estate Appraisal Experience
- --------------------------------
Single Family Residential, Apartment Houses, Condominium Projects, Income
Producing Properties, Industrial Properties, Special Purpose Properties,
Hotels, Hospitals, Residential Developments, Pharmaceuticals, etc.
Offices Held
- ------------
Appraisal Institute
Puerto Rico Chapter - President Current Term
Appraisal Institute - 1992-1993
Puerto Rico Chapter - Board of Directors
Society of Real Estate Appraisers - Vice Governor
District 13 1976-1978
Society of Real Estate Appraisers - President
Puerto Rico Chapter No.171 1974-1975
Appointments
- ------------
Appointed by the Governor of - 1978-1982
Puerto Rico to the Real Estate
Appraiser Licensing Board for the
Commonwealth of Puerto Rico
<PAGE>
64
OUALIFICATION DATA - WILLIAM A. MEDINA
--------------------------------------
Mailing Address
- ---------------
Villas de Paseosol 40
200 Boulevard de la Fuente
San Juan, Puerto Rico 00926-5990
Telephone (787) 283-2934
e-mail: [email protected]
Education
- ---------
University of Puerto Rico
Rio Piedras Campus
Rio Piedras, Puerto Rico
Bachelors Degree in General Sciences (Cum Laude)
Licenses
- --------
Federal Certified General Real Estate Appraiser
Commonwealth of Puerto Rico
Certification Number 15
(Compliance with Title XI of FIRREA)
Professional Real Estate Appraiser License
Commonwealth of Puerto Rico
License Number 616
(Compliance with local Law 277 of July 31, 1974 as amended)
Real Estate Broker License
Commonwealth of Puerto Rico
License Number 05201 (Active)
Professional Affiliations
- -------------------------
The Appraisal Institute - General Associate Member
National Association of Realtors - Member
Puerto Rico Association of Realtors - Member
San Juan Board of Realtors - Member
Puerto Rico Chamber of Commerce - Member
<PAGE>
65
Real Estate Appraisal Courses and Seminars
- ------------------------------------------
Accrued Depreciation Appraisal Institute
San Juan, Puerto Rico (1997)
Rates, Ratios and Reasonableness Appraisal Institute
San Juan, Puerto Rico (1994)
Introduction to Machinery and American Soc. of Appraisers
Equipment Valuation
Atlanta, Georgia (1993)
Course 310: Basic Income Capitalization Appraisal Institute
San Juan, Puerto Rico (1993)
Feasibility Analysis and Highest and Appraisal Institute
Best Use
Non Residential Properties
Chicago, Illinois (1993)
Real Estate Risk Analysis Appraisal Institute
Chicago, Hlinois (1993)
Introduction to Commercial Real Estate Commercial Investment Real
Analysis Estate Institute
Dorado, Puerto Rico (1993)
Litigation Valuation Seminar Appraisal Institute
Atlanta, Georgia (1993)
Case Studies in Real Estate Valuation Appraisal Institute
Florida State University
Tallahassee, Florida (1992)
Appraisal Report Writing and Valuation Appraisal Institute
Analysis
Florida State University
Tallahassee, Florida (1992)
Advanced Income Capitalization Workshop Appraisal Institute
San Juan, Puerto Rico (1992)
Standards of Professional Practice Part A Appraisal Institute
San Juan, Puerto Rico (1991)
<PAGE>
66
Exam-Prep Seminar for the Residential Appraisal Institute
State Certification Exam
San Juan, Puerto Rico (1991)
Exam-Prep Seminar for the General Appraisal Institute
State Certification
San Juan, Puerto Rico (1991)
Discounted Cash Flow Analysis Appraisal Institute
Boca Raton, Florida (1991)
Standards of Professional Practice Part B Appraisal Institute
San Juan, Puerto Rico (1991)
Income Property Valuation for the 1990's Society of Real Estate
San Juan, Puerto Rico (1990) Appraisers
Course 101 Society of Real Estate
San Juan, Puerto Rico (1990) Appraisers
Course 201 Society of Real Estate
San Juan, Puerto Rico (1990) Appraisers
Course 202 Society of Real Estate
Indianapolis, Indiana (1990) Appraisers
Real Estate Principles and Laws Alberto Hernandez Real
San Juan, Puerto Rico (1989) Estate, Inc.
Mathematics for Appraisers Institute of Real Estate
San Juan, Puerto Rico (1989) Appraisers of Puerto Rico
Appraising Principles Institute of Real Estate
San Juan, Puerto Rico (1989) Appraisers of Puerto Rico
Subdivision Analysis Society of Real Estate
San Juan, Puerto Rico (1989) Appraisers
Introduction to Income Capitalization Society of Real Estate
San Juan, Puerto Rico (1989) Appraisers
Appraising Condominium Properties Society of Real Estate
San Juan, Puerto Rico (1989) Appraisers
<PAGE>
67
Eminent Domain in Puerto Rico Institute of Real Estate
San Juan, Puerto Rico (1988) Appraisers of Puerto Rico
Course 102 Society of Real Estate
San Juan, Puerto Rico (1988) Appraisers
Real Estate Principles and Laws Real Estate Institute
New York University
New York, New York (1987)
Principles of Appraisal Theory Real Estate Institute
New York University
New York, New York (1987)
Professional Experience
- -----------------------
Independent Real Estate Appraiser
in association with
Robert F. McCloskey & Associates, Inc. Oct.1990 - Present
Type of Appraisal Experience
- ----------------------------
Single Family Residential, Condominium Units, Apartment Houses, Parcels of
Land, Agricultural Land, Shopping Centers, Industrial Properties, Office
Buildings, Hotels, Pharmaceutical and Electronic Manufacturing Plants,
Hospitals, Thoroughbred Race Tracks and other Special Purpose Properties.
Offices Held
- ------------
Young Advisory Council of the Appraisal Institute 1997
Young Advisory Council of the Appraisal Institute 1996
Director of the Puerto Rico Chapter of the
Appraisal Institute 1995
Young Advisory Council of the Appraisal Institute 1995
Secretary of the Puerto Rico Chapter of the
Appraisal Institute 1994
<PAGE>
68
ADDENDUM
--------
<PAGE>
AGREEMENT OF SALE
THIS AGREEMENT, made and entered into this 22nd day of April 1997 made by
and between LAND DEVELOPMENT ASSOCIATES S.E., a Puerto Rico special
Partnership, having an office at the Doral Building, Suite 700, 650 Munoz
Rivera Avenue, Hato Rey, Puerto Rico (hereinafter referred to as the
"Seller",) and BERWIND REALTY S.E., a Puerto Rico special partnership,
having an office at 1086 Munoz Rivera Avenue, San Juan, P.R. 00927
(hereinafter referred to as the Buyer)
PRELIMINARY STATEMENT
---------------------
WHEREAS Seller owns one (1) parcel of land of approximately 5,500 square
meters in the San Anton Ward of Carolina, Puerto Rico, which parcel of land
is identified as Parcel I-7W in a survey Prepared by Engineer Luis F.
Franqul on April 7, 1997 a copy of which is attached hereto as Exhibit A
(hereinafter referred to as the ("Parcel").
WHEREAS the Parcel is an integral and important part of Parque Escorial, a
master planned residential and commercial community (hereinafter referred
to as "Parque Escorial") being developed by Seller in a parcel of land of
approximately 439 cuerdas located in the municipalities of San Juan and
Carolina, Puerto Rico (hereinafter referred to as "Main Farm"), best
described in the attached copy of the Pargue Escorial master plan (the
"Master Plan"), which is made Exhibit B hereto, and as such, Lhe Parcel
shall, at the Time of Settlement, as said term is defined in Paragraph 4
hereof, be subject to (i) certain restrictive covenants Pursuant to a Deed
of Declaration of Covenants, Conditions and Restrictions and Establishment
of Pargue Escorial Commercial Owners Association (hereinafter referred to
as the "Restrictive Covenants) , a draft of which is attached hereto as
Exhibit C, (ii) the design standards for the Commercial Zone of Parque
Escorial, as said term is defined hereinafter, (hereinafter referred to as
the "Design Standards"), attached hereto as Exhibit D, (iii) certain use
restrictions best
1
<PAGE>
described in Paragraph 2 (xii) of this Agreement (hereinafter referred to as the
Wal-Mart Use Restrictions) and (iv) other use restrictions best described in
Paragraph 2 (i) (hereinafter referred to as the "Use Restrictions").
WHEREAS, the Parcel is one of approximately nine (9) parcels of land
located in the West Service Center of Parque Escorial and one of fifteen
(15) parcels of land of various Sizes comprising the total commercial area
of Parque Escorial (herein referred to as the "Commercial Zone"), as said
term is defined in the Master Plan and the Design Standards, zoned for
commercial use and on which approximately 800,000 square feet of commercial
space are planned to be constructed in accordance with the Provisions of
the Restrictive Covenants, the Design Standards, and any other restriction
specified in this Agreement, and subject to the approval of Seller and the
Architectural Review Committee, as said term is defined in the Restrictive
Covenants (hereinafter referred to as the "Architectural Review
Committee").
WHEREAS, pursuant to the Master Plan and unless otherwise approved by
Seller, the Parcel can only be used for the development of one (1)
commercial outlet to be designed and built in accordance with the
Restrictive Covenants, the Design Standards and subject to the approval of
the Architectural Review Committee and to he operated as a full service
drugstore having a gross area of approximately 12,000 square feet
(hereafter referred to as the "Project")
WHEREAS, Seller has agreed to sell and Buyer agrees to Purchase the Parcel
under the terms and conditions hereinafter set forth, together with all
rights, titles, improvements and any and all things appertaining thereto
and or forming part thereof.
WHEREAS, Subject to the provisions hereof, this agreement shall without
further action of Seller and Buyer be a binding Agreement of Sale
(hereinafter referred to as the "Agreement") enforceable at law or in
equity for the sale by Seller and purchase by Puyer of the Parcel at the
Purchase Price provided in Paragraph 1 hereof, upon the terms and
conditions contained
2
<PAGE>
herein.
WHEREAS, it is the expressed intention of the parties that this Agreement
is solely for the benefit of the parties hereto and shall give rise to no
rights to any other party, and under no circumstances shall Buyer transfer
or assign this Agreement to another party except with the written consent
of the Seller, provided, however, that if, such transfer or assignment
shall be to a party related to Buyer through common ownership and that
reasonable evidence of such relationship is provided by Buyer to Seller to
the effect that such transfer or assignment in no way alters the intent,
terms, conditions and guarantees of this Agreement, Seller shall not unduly
withhold its consent to the assignment Any such assignment or transfer
will not release Buyer from the obligations and responsibilities assumed
under the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants set forth below,
the parties agree as follows:
1. Purchase Price; Reimbursement of Impact Fees; Escrow Agent: Subject to
-----------------------------------------------------------
the provisions of Paragraphs 4 thru 11 hereof, the Purchase Price of the
Parcel shall be One Million Five Hundred Thousand Five Hundred Dollars
($1,500,000), equivalent to $272.72 per square meter, and shall be payable
as follows:
(i) One Hundred Thousand Dollars ($100,000) as earnest money (hereinafter
referred to as the "Earnest Money"), to be deposited with Seller upon
the execution of this Agreement, the receipt and adequacy of which is
hereby acknowledged;
(ii) A certified check to he delivered to Seller at the Time of Settlement
in the amount by which the Purchase Price, as determined pursuant to
the provisions of this Paragraph together with any other amounts due
from Buyer as provided hereunder, exceeds the Earnest Money.
2. Warranties and Rerresentations of Seller. Seller warrants and
-----------------------------------------
represents to Duyer the following:
(i) That Seller is, and on the Time of
3
<PAGE>
Settlement will be the lawful owner of the Parcel to be sold and
delivered by it hereunder and has full right and authority to sell and
deliver the same in accordance with this Agreement. Upon the delivery
of the Parcel to Buyer pursuant to the provisions of this Agreement,
Seller will convey and transfer to Buyer by Public Deed a valid, fee
simple (pleno dominio) insurable and recordable title to the Parcel,
free and clear of all mortgage liens and of any encumbrances and other
charges or restrictions which presently affect the Parcel, subject
only to those easements shown in Exhibit A hereto and those matters
set forth herein including but not limited to the (a) the Restrictive
Covenants; (b) the Design Standards; (c) the Wal-Mart Use
Restrictions; (d) a covenant in the deed of sale providing that the
Parcel can only be developed for commercial purposes and that the
design and construction of the Project have to be in conformity with
the Restrictive Covenants, the Design Standards, as determined by the
Architectural Review Committee, (herein referred to as the "Use
Restrictions"); and (e) to those normal and ordinary liens,
encumbrances and easements required by governmental authorities for
public services and which a search at the Registry of the Property
would reveal hereto;
(ii) That Seller shall not take any action during the term of this
Agreement which
4
<PAGE>
would impair title to the Parcel or further encumber the Parcel,
except for (a) the mortgage liens securing financing arrangements
required by Seller for the development of Parque Escorial, from
which the Parcel will be released upon its acquisition by Buyer, (b)
encumbrances and easements required by the qovemmental authorities
for the furnishing of public services, (c) the Restrictive Covenants
(d) the Design Standards (e) the Wal-Mart Use Restrictions and (f)
the Use Restrictions.
(iii) That Seller shall not willfully take any action which would impair
the physical condition of the Parcel during the term of this
Agreement;
(iv) That Seller has not made and does not make any representations or
warranties whatsoever concerning the physical condition of the
Parcel, accesses, zoning, soil or subsoil condition, availability of
utilities, construction or use permits, or any other permits issued
by the government agencies affecting or related to or necessary for
the development or use of the Parcel or any other matter or thing
affecting or related to the Parcel or the Project, other than those
specifically referred to in (a) this Agreement, (b) the Master Plan,
(c) the "Consulta de Ubicacion" for Pargue Escorial issued by the
Planning Board of Puerto Rico dated October 27, 1992, as amended on
December 23, 1994 and February 28, 1997, copies of
5
<PAGE>
which are attached hereto as Exhibits E, F and G (hereinafter
referred to as the "Consulta de Ubicacion"), (d) the "Desarrollo
Preliminar" of Parque Escorial approved by the Administraci6n de
Reglamentos y Permisos of Puerto Rico ("ARPE") on June 18, 1993, as
amended on August 25, 1993 and October 6, 1995, copies of which are
attached hereto as Exhibit H, I and J (hereinafter referred to as
the "Desarrollo Preliminar") (e) the Wal-Mart Use Restrictions, (f)
the Use Restrictions and (g) the warranties and representations made
herein by Seller regarding the Infrastructure Improvements, as said
term is defined in Paragraph 2 (vi) hereof, and that the
contemplated development and use of Parcel as a drugstore, as set
forth in the preamble of this Agreement, is in general agreement and
conformity with the terms and conditions of the Agreement and in
general agreement and conformity with ExhibIts A through J hereof,
including but not limited to the fact that the Parcel is presently
approved for commercial use under the parameters of a C-2 zoning
which allows for the construction and operation of a typical
drugstore and for the Installation of a pylon sign which shall
identify the store, which pylon sign shall comply with the
provisions of Sections 99.00 and 91.00 of the Zoning Regulations
prolnulgated by the Planning Board of Puerto Rico on September 16,
1992.
6
<PAGE>
(v) That Seller shall provide Buyer as soon as possible but in no event
later than fifteen (15) calendar days before the Time of Settlement
with (a) a written report prepared by a qualified geotechnical
engineer to the effect that the compaction of the fill material
placed on the Parcel by Seller is in accordance with ASTM-D 2922
standard test methods for density of soil and soil aggregate in
place by nuclear methods (shallow depth) to no less than ninety five
percent (95%) of the maximum dry density as defined in ASTMD698
standard test methods for moisture density relations of soils and
soil aggregate mixtures using 5.5 pound rammer and 12 inch drop
("standard proctor tests"); and at least fifteen (15) days before
the Time of Settlement with (b) a certification from Seller to the
effect that all the improvements to the Commercial Zone required for
the construction and operation of the Project, including but not
limited to all the utilities needed to serve the Project, shall have
been substantially completed and accepted by the pertinent
government agencies; (c) in the event a subdivision approval is
required, Seller agrees to obtain any and all subdivision approvals
ot the Parcel as may be required by any governmental entity having
jurisdiction thereover, and (d) a certificate issued to Buyer by an
engineer duly licensed to practice in Puerto Rico stating that the
7
<PAGE>
Parcel is free of any "environmental hazard" and of any release or
threat of release of any "Hazardous Substance" as defined in sub-
paragraph (xviii) of this Paragraph.
The above conditions are hereinafter referred to as the
"Conditions Precedent".
(vi) That Seller has completed all the improvements to the infrastructure
of Parque Escorial described in the plans and specifications
prepared by Engineer Luis F. Franqui, dated March 1, 1994, as
amended from time to time, made an exhibit hereto by reference only
(hereinafter referred to as "Exhibit K") including but not limited
to all the utilities needed to serve the Project. The improvements
to the infrastructure of Pargue Escorial described in Exhibit J
hereto shall be collectively referred to herein as the
"Infrastructure Improvements".
(vii) That this Agreement and the documents to be executed by Seller
pursuant to the terms thereof constitute the legal, valid and
binding obligation of Seller enforceable in accordance with its
terms.
(viii) That all necessary actions have been taken by the Board of Directors
of Seller to authorize the execution and delivery of this Agreement
and the consummation of all transactions contemplated hereunder.
(ix) That all information owned or available to Seller as of the date of
this document or at any time, prior, during or after the
construction of the Project such as plans,
8
<PAGE>
studies, soil tests1 deeds and government agencies' approvals of any
kind pertaining to the development of the Parcel or Parque Escorial
shall be made available at no cost to Buyer for the purpose of
designing the Project and seeking the necessary approvals from
governmental agencies for the proposed development of'the Project or
for any other reasonable use.
(x) That other than (a) the Restrictive Covenants (b) the Design
Standards, (c) the Wal-Mart Use Restrictions, (d) the Use
Restrictions and (e) those restrictions or conditions imposed by the
government agencies as described in Exhibits E thru J or other
restrictions or requirements typical of the development of a master
planned community, there are no other restrictions regarding the use
of the Parcel as the site of the Project to be developed as intended
in the Master Plan.
(xi) That upon the sale of a parcel of land of 63 cuerdas to Wal-Mart
Puerto Rico, Inc, ("Wal-Mart") on March 27, 1991, certain
restrictions were imposed on the Main Farm but excluding the parcel
acquired by Wal-Mart (herein referred to as the "Wal-Mart Use
Restrictions"), which restrictions, as a result of subsequent
amendments, the last one dated March 31, 1995, are now as follows:
(a) Unless otherwise waived by Wal-Mart, no portion of Parque
Escorial, including but not limited to the Parcel, shall b~ used for,
nor shall there be permitted
9
<PAGE>
upon Parque Escorial the operation of
1. Any type of department store,wholesale club or
supermarket store; or
2. Any other type of single retail store containing
more than twenty five thousand (25,000) square feet of
gross floor area.
(xii) That Wal-Mart has secured zoning approval from the Planning Board of
Puerto Rico for a 480,000 sq. ft. shopping center to be built on the
parcel of 63 cuerdas in Parque Escorial sold to Wal-Mart, which
approval is evidenced in Exhibits E thru J hereto, of which a first
phase of approximately 260,000 sq. ft. is already built, and that
Wal-Mart has indicated that it intends to solicit at least 120,000
sq. ft. more of commercial space at a later date for a total square
footage of approximately 600,000 sq.ft.
(xiii) That the parcel of land sold to Wal-Mart is not subject to the
Restrictive Covenants or the Design Standards and is not obligated
to become a member of the Parque Escorial Commercial Owners
Association (hereinafter referred to as the "Association").
(xiv) That Seller shall dedicate, in accordance with the various stages of
development of Parque Escorial and as required by the pertinent
governmental agencies, to the proper governmental agencies the
avenues, utilities systems and community facilities that will be
built by Seller in Pargue
10
<PAGE>
Escorial, including the Commercial Zone, pursuant to the
requirements of the Planning Board of Puerto Rico, as specified in
the "Consulta de Ubicacion" and the "Desarrollo Preliminar".
(xv) That Seller shall preserve and promote the Concept of Parque
Escorial as a master plan community am envisioned in the Master
Plan.
(xvi) That Seller shall release Buyer of any responsibility from the
construction by Seller of the Infrastructure Improvements.
(xvii) The Seller shall protect, indemnify and save harmless the Buyer from
and against all liabilities, obligations, damages, penalties,
claims, causes of action, costs, charges and expenses (including
without limiting the generality of the foregoing, court costs,
attorneys' and consultants' fees, environmental cleanup costs,
natural resources damages, fines, penalties and damages to persons,
personal property, real property and business enterprises, including
any and all past, present and future claims and liability arising
out of or relating to the environmental condition of the Parcel as
of the Time of Settlement, existence of any environmental hazard on
the Parcel as of the Time of Settlement and any release or threat of
release of any Hazardous Substance (as hereinafter defined) of any
kind in, on, under or from the Parcel at any time resulting from a
Condition existing as of the Time of Settlement
11
<PAGE>
which may be imposed upon or incurred by or asserted against the
Buyer by reason of (i) any accident, injury or damage to any person
or property occurring on or about the Parcel or any part thereof,
(ii) any use, non-use or condition of the Parcel or any part
thereof, or (iv) any necessity to defend any of the rights, title or
interest conveyed to Buyer by virtue of the Deed of Sale. Any
amounts payable to the Buyer under this paragraph which are not paid
within thirty (30) days after written demand therefor by the Buyer
shall bear interest from the date of such demand until full payment
thereof at a fluctuating annual rate computed on the basis of a
three-hundred-sixty-day (360-day) year and the actual number of days
elapsed) equal to the "prime rate" publicly announced by Citibank,
N.A. in New York, New York, as its reference, base or prime rate
(herein the "prime rate") such fluctuating rate to change
simultaneously with the changes in the prime rate. In no event shall
the interest rate to be charged hereunder exceed the maximum
permissible legal rate. In case any action, suit or proceeding is
brought against the Buyer by reason of any such occurrence, the
Seller upon request by the Buyer, will at the Seller's expenses
resist and defend such action, suit or proceeding or cause the same
to be resisted or defended, either by counsel designated by the
Seller and approved by
12
<PAGE>
the Buyer or, where such occurrence is covered by liability
insurance, by counsel designated by the insurer. Notwithstanding
anything to the contrary in this Agreement, the provisions of this
indemnity and all other representations, warranties and covenants
contained in this Agreement shall survive the Time of Settlement. As
used in this Agreement the term Hazardous Substance has the
following meaning; (i) any "hazardous substance", "pollutant" or
"contaminant" as said terms are defined in clauses fourteen (14) and
thirty-three (33) of Section one hundred one (101) of the
Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA) [Title Forty-Two (42) United States Code (U.S.C.) Section
nine thousand six hundred one (9,601), clauses fourteen (14) and
thirty-three (33)], or Title Forty (40) Code of Federal Regulation
(C.F.R.) Part three hundred two (302), as said act and regulation
may be amended from time to time; (ii) any "hazardous waste" as said
term is defined in the Puerto Rico Environmental Quality Board
Regulation for the Control of Hazardous and Non-Hazardous Solid
Wastes, as said regulation may be amended from time to time; (iii)
any toxic or hazardous substance, material or waste (whether solid,
liquid or gaseous); (iv) any substance containing "petroleum", as
that term is defined in Section nine thousand one (9001) , clause
eight (8) of the
13
<PAGE>
Resource Conservation and Recovery Act (RCRA), as amended [Title
Forty-Two (42) U.S.C. Section six thousand nine hundred ninety-one
(6,991), clause eight (8)], or Title Forty (40) C.F.R. Part two
hundred eighty point one (280.1), as said act and regulation may
be amended from time to time; or (v) any other substance for which
any governmental entity now or hereafter requires special handling
in its collection, storage, treatment or disposal.
(xviii) That Seller shall immediately notify Buyer of any actual or
threatened condemnation or taking of the Parcel. Buyer shall have
the right, in the event that subsequent to the effective date of
this Agreement and prior to the Time of Settlement, all or part of
the Parcel is subjected to a bona fide threat of condemnation by a
body or entity, or is taken in the exercise of the power of
eminent domain, or by way of sale in lieu thereof, by written
notice to Seller, to elect to terminate this Agreement prior to
the Time of Settlement, in which event both Buyer and Seller shall
be released from any further liability hereunder and the Earnest
Money will be returned to Buyer. If no such election is made by
Buyer, this Agreement shall remain in full force and effect and
the purchase and sale contemplated herein less any interest taken
by condemnation or sale in lieu of condemnation shall be effected
with no further adjustment and Seller
14
<PAGE>
shall, at the Time of Settlement, assign, transfer and set over to
Buyer all Seller's rights, title and interest in and to any awards
that have been or that may thereafter be made for such taking.
Buyer may cancel this Agreement in the event of any damage to the
land by earthquake or flood prior to the Time of Settlement and
the Earnest Money will be returned to Buyer.
(xix) That Seller hereby expressly agrees that it shall not sell in the
future any other parcel of land within the West Service Center, as
said term is identified in the Master Plan, for the construction
and operation of a full service drugstore and upon the request by
Buyer, Seller shall impose and record in the Registry of the
Property any such use restrictions on the presently unsold parcels
comprising the West Service Center and shall diligently take all
reasonable measures and efforts to maintain in force any such use
restrictions.
(xx) That the Parcel, as improved, is not located within the 100 year
flood plain of the jurisdiction in which the Parcel is located.
3. Warranties and Representations of Buyer.
----------------------------------------
Buyer warrants and represents to Seller the following:
(i) That Buyer hereby expressly acknowledges and accepts that other
than the representations and warranties made herein by Seller no
other such representations or warranties have been made or implied
by
15
<PAGE>
Seller and agrees that the Parcel will be acquired by Buyer on an
"as is where is" condition. It shall be Buyer's sole
responsibility to satisfy itself, at its sole cost, expense and
risk, as to all aspects regarding the physical condition of the
Parcel and, accordingly, does herein specifically renounce and
waive any and all rights, claims and/or causes of action against
Seller as to the Parcel, forever releasing, relieving and holding
harmless Seller from any and all liability or legal responsibility
in connection therewith. Notwithstanding anything to the contrary
herein, Seller shall not be released from its liability or legal
responsibility for any representations made by Seller herein.
(ii) That Buyer shall bear all the costs, expenses and risks related to
any request filed by Buyer with any government agency for the
approval of the Project provided that all the warranties and
representations made herein by Seller remain valid.
(iii) That Buyer shall not seek during the term of this Agreement or at
any time after its acquisition of the Parcel any changes to the
presently permitted uses or zoning of the Parcel. This restriction
shall also apply to all the successors of Buyer in the ownership
of the Parcel.
(iv) That the Parcel constitutes an integral and important part of
Pargue Escorial and as such the Parcel shall always remain
16
<PAGE>
subject to and the Project shall be constructed pursuant to (a)
the Restrictive Covenants, as amended from time to time by the
governing body of the Association, a non profit corporation
organized under the laws of Puerto Rico by Seller as an
association of all the owners of real property in the Commercial
Zone in order to insure the orderly development of the Commercial
Zone and to provide for the efficient preservation of the
facilities and amenities to be constructed in the Commercial Zone,
(b) the Design Standards, as amended from time to time by Seller
or the Architectural Review Committee, (c) the Wal-Mart Use
Restrictions and (d) the Use Restrictions.
(v) That the plans for the development of the Parcel and construction
of the Project, as well as any changes made thereafter which may
modify the character, layout, elevations or density of the
Project, shall be submitted by Buyer to the Architectural Review
Committee for its review and approval prior to submitting them to
the pertinent government agencies.
(vi) That Buyer agrees that its employees, agents, contractors and sub-
contractors will only utilize the access to the Parcel to be
reasonably provided by Seller for the transportation of
construction equipment, supplies and construction
materials and that Buyer will reimburse Seller for the cost of any
required repairs caused by those parties as a
17
<PAGE>
result of the unauthorized use of roads or other improvements
within Parque Escorial.
(vii) That Buyer shall hold Seller safe and harmless from any claim from
third parties resulting from the construction by Buyer of the
improvements comprising the Project.
(viii) That Buyer shall hold Sellet safe and harmless from any claim by
third parties arising out of any breach by Buyer of the (a) the
Design Standards, (b) Restrictive Covenants, (c) the Use
Restrictions, (d) the Wal-Mart Use Restrictions, (e) any other
restriction or condition to which the Parcel is subject pursuant
to the terms and conditions of this Agreement or, (e) any
misrepresentations made by Buyer to any party.
(ix) That Buyer acknowledges and accepts that Seller, as the master
developer of Pargue Escorial, holds the exclusive right to seek
amendments to the Master Plan in the interest of the overall
development of Pargue Escorial provided that any such amendments
shall not be in violation of the representations made by Seller
herein.
(x) That Buyer acknowledges and agrees that other than the soil
compaction tests referred to in Paragraph 2 (v) hereof, it sball
be the sole responsibility of Buyer to conduct Its own soil and
subsoil studies prior to the execution of this Agreement or at any
time during the term of this Agreement and Buyer hereby releases
Seller from any condition
18
<PAGE>
regarding the soil or sub-soil of the Parcels that might surface
after the Time of Settlement. Notwithstanding the above, Seller
shall make available to Buyer, at Buyer's request, any other soil
or subsoil tests that Seller may have conducted on the Parcel; it
being understood that the submittal by Seller of said reports to
Buyer shall not impose any obligation or liability upon Seller and
shall not amend or modify the obligations of Buyer hereunder.
(xi) That Buyer acknowledges and agrees that the timely and orderly
construction of the Project as an integral part of the Commercial
Zone is of utmost importance to the successful development of
Parque Escorial as a master plan community; therefore, Buyer or
any of its successors in the ownership of the Parcel shall have
until the 31st day of April 1999 to, force majeure excepted, in
accordance with the Design Standards, commence construction of the
Project on the Parcel (hereinafter referred to as the
"Commencement of Construction Date") . In the event that Buyer or
any of its successors in the ownership of the Parcel does not
comply with the provisions of this Paragraph, Seller shall, upon
the expiration of said term, have the first option to repurchase
the Parcel at the Purchase Price; said option to be exercised by
Seller within one hundred and twenty (120) days from tbo date of
expiration of such term. For the
19
<PAGE>
purpose of this Paragraph, the Commencement of Construction Date
shall refer to such date on which the Buyer has complied with all
of the following:
(i) obtain the Construction Permit for the Project, as
previously approved by the Architectural Review Committee;
(ii) a bonafide construction contract has been executed for
the construction of the Project;
(iii) financing arrangements for the construction of the
Project have been completed;
(iv) earth movement over the Parcel has commenced.
(xii) That this Agreement and the documents to be executed by Buyer
pursuant to the terms thereof constitute the legal, valid and
binding obligations of Buyer enforceable in accordance with its
terms; and
(xiii) That all necessary actions have been taken by the Board of
Directors of Buyer to authorize the execution and delivery of this
Agreement and the consummation of all transactions contemplated
hereunder.
(xiv) The Buyer shall protect, indemnify and save harmless the Seller
from and against all liabilities, obligations, damages, penalties,
claims, causes of action, costs, obarges and expenses (including
without limiting the generality of the foregoing, court costs,
attorneys' and consultants' fees, environmental cleanup costs,
natural resources damages, fines, penalties and damages to
persons, personal
20
<PAGE>
property, real property and business enterprises, including any
and all past, present and future claims and liability arising out
of or relating to the existence of any environmental hazard on the
Parcel resulting from acts attributable to Buyer and any release
or threat of release of any Hszardous Substance (as said term is
defined in Paragraph 2 sub paragraph (xxi) hereof) of any kind in,
on, under or from the Parcel at any time after the Time of
Settlement resulting from acts attributable of Buyer which may be
imposed upon or incurred by or asserted against the Seller by
reason of (i) any accident, injury or damage to any person or
property occurring on or about the Parcel or any part thereof or,
(ii) any use, non-use or condition of the Parcel or any part
thereof, Any amounts payable to the Seller under this paragraph
which are not paid within thirty (30) days after written demand
therefor by the Seller shall bear interest from the date of such
demand until full payment thereof at a fluctuating annual rate
computed on the basis of a three-hundred-sixty-day (360 day) year
and the actual number of days elapsed) equal to the "prime rate"
publicly announced by Citibank, N.A. in New York, New York, as its
reference, base or prime rate (herein the "prime rate") such
fluctuating rate to change simultaneously with the chanqes in the
prime rate. In no event shall the
21
<PAGE>
interest rate to be charged hereunder exceed the maximum
permissible legal rate. In case any action, suit or proceeding is
brought against the Seller by reason of any such occurrence, the
Buyer upon request by the Seller, will at the Buyer's expense
resist and defend such action, suit or Proceeding or cause the
same to be resisted or defended, either by counsel designated by
the Seller and approved by the Buyer or, where such occurrence is
covered by liability insurance, by counsel designated by the
insurer. Notwithstanding anything to the contrary in this
Agreement, the provisions of this indemnity and all other
representations, warranties and covenants contained in this
Agreement shall survive the Time of Settlement.
4. Time for Settlement. Execution under the terms of the Agreement for
--------------------
sale by Seller and purchase by Buyer of the Parcel shall be made not later than
August 30, 1997 (herein referred to as the "Time of Settlement") The settlement
shall be at a place designated by Seller in San Juan, Puerto Rico.
At the Time for Settlement, title to the Parcel shall be conveyed to Buyer
by a public deed pursuant to the terms and conditions contained herein.
(i) The payment by Buyer of the Purchase Price and any other amounts of
money owed to Seller by Buyer under this Agreement shall be made at
the Time of Settlement, in exchange for the delivery by the Seller to
Buyer of the deed referred to in Paragraph 7 hereof (hereinafter
referred to as the "Deed of Sale"), by means of
22
<PAGE>
a manager's check drawn on a banking institution doing business in
Puerto Rico in the amount by which the Purchase Price and any such
other amounts owed to Seller by Buyer under this Agreement exceed the
Earnest Money.
5. Allocation of Certain Costs and Charges. Seller shall pay the
----------------------------------------
notarial fees of the Deed of Sale and those incurred by Seller in the
preparation of the Agreemen~ and the Restrictive Covenants, and the internal
revenue stamps of the original of the Deed of Sale, Buyer shall pay for the
internal revenue stamps corresponding to the certified copies of the Deed of
Sale and the stamps to be cancelled in the registration of said certified
copies. Buyer shall be responsible for any premium to be paid on a title
insurance policy Solicited by Buyer. The Deed of Sale will be prepared by a
Notary Public selected by Buyer and will be approved by Seller as to form and
substance. Seller shall be responsible for all the unpaid property taxes on the
Parcel up to the time of execution of the Deed of Sale and Buyer shall be
responsible thereafter. Buyer will reimburse Seller for any portion of the
property taxes paid in advance by Seller for the Parcel at the Time of
Settlement.
Seller and Buyer warrant and represent to each other that no broker has
participated in the transaction contemplated under this Agreement or is
interested hereby, through or on account of Seller or Buyer. Should any claim
for commissions be made by any broker to Seller or Buyer on account of any acts
of Seller or Buyer, Seller and Buyer will indemnify and hold the other party
free and harmless from any and all liabilities and expenses in connection
therewith, including but not limited to, all legal expenses incurred by the
party to this Agreement not responsible for any such fees.
6. Delivery of Possession. Actual possession of
-----------------------
23
<PAGE>
the Parcel shall be delivered by Seller to Buyer at the Time of Settlement.
7. Deed to be Delivered bv Seller at Settlement. The conveyance of the
---------------------------------------------
Parcel under this Agreement shall be by deed (herein referred to as the "Deed of
Sale"). Such deed shall be prepared by Notary Public selected by Buyer and
approved by Seller as to form and substance.
8. Title Defects; Breach by Seller. In the event that Seller cannot
--------------------------------
transfer title to the Parcel to Buyer as represented in this Agreement for
reasons attributable to Seller but excluding those acts to be performed by
Buyer, Buyer shall have the right to either (i) demand the return of the Earnest
Money from the Escrow Agent whereby this Agreement shall be terminated and
Seller and Buyer shall not have any further rights, claims, causes of action or
obligations under this Agreement or (ii) demand specific performance from Seller
under the provisions of this Agreement.
9. Default by Buyer. Thirty (30) days after notice thereof has been
-----------------
given to Buyer, the Seller, at its sole option, may terminate all of its
obligations under this Agreement, without liability in the event of any of the
following events:
1) With respect to the Buyer or any assignee of the Agreement duly
approved by Seller (hereinafter referred to as the "Assignee"), (i)
the filing by or against it or any case or other proceedings for any
relief pursuant to the bankruptcy or insolvency laws of the United
States, of any State, of the United States, Virgin Islands, or of the
Commonwealth of Puerto Rico; (ii) the filing of an answer admitting
insolvency or inability to pay debts as they became due; (iii) a
material adverse change in the financial condition of Buyer or
24
<PAGE>
any of the assumptions and representation8 under which Seller was
induced to enter into this Agreement;
2) The attachment, seizure, levy upon, or taking possession by any
receiver, custodian or assignee for the benefit of creditors of a
substantial part of any property of the Buyer or the Assignee.
3) If Buyer assigns this Agreement to another party without the
expressed written consent of Seller, which consent shall not be
unreasonably delayed or withheld.
4) If Buyer or the Assignee shall default beyond any applicable
grace period in the performance of any of the obligations and
agreements on its part to be performed under this Agreement.
Notwithstanding the above, failure by Buyer to pay the Purchase
Price and all other amounts owed to Seller hereunder in the manner and
at the time provided in this Agreement shall not require thirty (30)
days notice from Seller to become an event of default under this
Agreement. Upon the occurrence of such event of default, Seller shall
be entitled to exercise its rights under this Agreement immediately.
In the event that Seller decides, at its sole option, to
terminate its obligations under this Agreement upon the happening of
any of the events of default described above, the Earnest Money shall
be retained by Seller as additional consideration and liquidated
damages for such breach, whereupon Buyer and Seller, and the Assignee,
if any, shall be released and
25
<PAGE>
relieved from all liability towards each other and this Agreement,
shall become null and void; it being understood that if Seller chooses
to terminate its obligations under this Agreement on account of any of
the defaults listed hereinbefore, the right to retain the Earnest
Money, as compensation and liquidated damages, shall be the sole
remedy available to Seller.
In the event that Seller chooses not to terminate its obligations
under this Agreement upon the occurrence of any of the events of
default listed hereinbefore, Seller shall retain its right to demand
specific performance under this Agreement and to seek legal and
monetary remedies from Buyer and the Assignee, if any, in an amount
equal to the sum of the Purchase Price and any monetary damages
suffered by Seller, including but not limited to legal costs incurred
by Seller.
10. Survival of Acyreement. Notwithstanding any presumption to the
-----------------------
contrary, all agreements contained in this Agreement which by their nature
impliedly or expressly involve performance at any particular time after the Time
of Settlement shall survive the Time of Settlement.
11. Seller not Bound. The Seller is not liable in any manner by any oral
-----------------
or written statements, representations, or other information pertaining to the
Parcel by any broker, agent, employee, account, or any other person, whether or
not associated with or employed by Seller, unless the same are specifically set
forth herein.
12. Right of Access. During the term of this Agreement, Buyer and his
----------------
authorized representatives shall be entitled to enter the Parcel for the purpose
of inspecting the same, making
26
<PAGE>
appraisals and Conducting engineering investigations. Buyer agrees to hold
Seller safe and harmless from any claim or liability arising out of any injury
to Buyer, or to any of his officers, agents or employees while in the Parcel,
and shall indemnify and hold Seller harmless from any and all damages, losses,
expenses, claims suits, judgments and liabilities (including claims and suits by
and judgment and liabilities to Buyer's employees) resulting in any way from the
acts to Buyer, his agents, or employees as herein provided. During all times
that Buyer enters upon and/or conducts any surveys, studies, tests, etc. on the
Parcel, Buyer shall have and maintain, at his cost, public liability and
property damage insurance in form and substance acceptable to Seller with a
minimum, single, combined liability limit of $1,000,000.00 insuring Buyer and
Buyer's authorized representatives, agents, employees, etc., against all
liability arising out of or in connection with Buyer's use or occupancy of the
Parcel. The insurance required herein shall (i) be issued by an insurance
company authorized to do business in Puerto Rico with a financial rating of at
least plus 3 status as reported in the most recent edition of Best's Report;
(ii) be issued as a primary policy; and (iii) contain endorsements naming Seller
as additional insuree and requiring thirty days written notice from the
insurance company to Seller and Buyer before cancellation or changing coverage,
scope or amounts. Each policy or a certificate of insurance, together with
evidence of payment of premiums, shall be delivered to Seller prior to entry
upon the Parcel.
Likewise, Seller and its authorized representatives shall be entitled to
enter the Parcel after its acquisition by Buyer for the purpose of conducting
engineering investigations and completing tbe improvements to the Parcel or the
Infrastructure Improvements that Seller is obligated to do pursuant to the terms
and conditions of this Agreement. Seller agrees to hold Buyer safe and harmless
from any claim or liability arising out of any injury to Seller, or to any of
his officers, agents or employees
27
<PAGE>
while in the Parcel, and shall indemnify and hold Buyer harmless from any and
all damages, losses, expenses, claims suits, judgments and liabilities
(including claims and suits by and judgment and liabilities to Seller's
employees) resulting in any way from the acts to Seller, his agents, or
employees as herein provided. During all times that Seller enters upon and/or
conducts any surveys, studies, tests, etc. on the Parcel, Seller shall have and
maintain, at his cost, public liability and property damage insurance in form
and substance acceptable to Buyer with a minimum, single, combined liability
limit of $1,000,000.00 insuring Seller and Seller's authorized representatives,
agents, employees, etc., against all liability arising out of or in connection
with Seller's use or occupancy of the Parcel. The insurance required herein
shall (i) be issued by an insurance company authorized to do business in Puerto
Rico with a financial rating of at least plus 3 status as reported in the most
recent edition of Best's Report; (ii) be issued as a primary policy; and (iii)
contain endorsements naming Buyer as additional insuree and requiring thirty
days written notice from the insurance company to Buyer and Seller before
cancellation or changing coverage, scope or amounts. Each policy or a
certificate of insurance, together with evidence of payment of premiums, shall
be delivered to Buyer prior to entry upon the Parcel.
13. Time to be of Essence. It is distinctly understood and agreed that
----------------------
time wherever specified in this Agreement is made and declared to be of the
essence thereof.
14. Notices. Any notice required or permitted to be given under this
--------
Agreement must be in writing and sent by certified or registered mail, return
receipt requested, to the respective addresses of the parties stated at the
outset of this Agreement or to such other single address as either party may
designate from time to time with the terms of this Paragraph. In the case of
Seller, all notices shall be addressed to Mr. Francisco Arrivi, Senior Vice
President - 650 Munoz Rivera Avenue, Doral
28
<PAGE>
Building, Suite 700, Hato Rey, P. R. 00918 with a copy to Mr. Carlos R.
Rodriguez, Vice President at the same address. In case of Buyer, all notices
shall be addressed to Mr. Saleh Yassin, President, Berwind Realty S.E., P.O. Box
29166, San Juan, P.R. 00929-9166, with a copy to Ms. Diana Azizi, Esquire, P.O.
Box 361726, San Juan, P.R. 00936-1728.
15. Construction. This Agreement shall be construed in accordance with
-------------
and governed by the laws of the Commonwealth of Puerto Rico and Seller and Buyer
and their assignees hereby submit themselves to the exclusive jurisdiction of
the San Juan Section of the Superior Court of Puerto Rico for any and all
controversies that may arise thereunder.
16. Miscellaneous. Each of the parties acknowledges that it has not
--------------
relied on any agreements or commitments by the other party or any of their
affiliates with respect to the subject matter hereof except the agreement and
commitments specifically set forth herein. This Agreement supersedes and
nullifies all prior agreements and sets forth the entire understanding of the
parties with respect to the Parcel. The provisions of this Agreement may not be
waived, extended or modified by subsequent conduct, correspondence or otherwise.
Each of the parties agrees that it or he shall not obtain, seek to obtain, or
rely on any waiver extension, modification, or approval unless the waiver,
extension, modification or approval is evidenced in writing, and (b) is
specifically approved in writing by the Seller or by Buyer. No delay or failure
of the Seller in exercising any right or privilege hereunder shall affect such
right or privilege; nor shall any single or partial exercise thereof or any
abandonment or discontinuance of steps to enforce such right or privilege
preclude any further exercise thereof or of any other right or privilege Any
waiver, extension, modification or approval related to this Agreement shall be
effective only to the extent and subject to the terms and conditions in writing
evidencing the same. Any waiver, extension, modification or approval may be made
subject to additional terms and conditions from time to time
29
<PAGE>
after it is given or agreed to by the Party giving or agreeing to it, whether or
not such waiver, extension, modification or approval has been relied on in the
meantime by the other party. Approval by Seller on any matter for which approval
is required shall not be unreasonably withheld. Whenever any reference is made
in this Agreement to an event of default, other than the event of default caused
by Buyer's failure to pay the Purchase Price and any other amounts of money owed
to Seller hereunder in the manner provided in this Agreement, it shall be
understood that no such event of default has occurred until thirty (30) days
have lapsed since notice thereof has been given to Buyer provided therein.
IN WITNESS WHEREOF, the parties have executed this agreement by their
respective duly authorized officers on the day and year first above written.
SELLER: BUYER:
LAND DEVELOPMENT ASSOCIATES S.E., BERWIND REALTY S.E.
a Puerto Rico special partnership a Puerto Rico special
partnership
By: INTERSTATE GENERAL PROPERTIES By: /s/ ^^
LIMITED PARTNERSHIP, S.E., a -------------------------
Maryland limited Partnership, Title: ^^ - Administrator
its managing partner _________________________
By: INTERSTATE GENERAL COMPANY, L.P.
a Delaware limited Partnership,
a general partner
By: INTERSTATE GENERAL MANAGEMENT
CORPORATION, a Delaware corporation,
its managing general partner
By: /s/ Francisco Arrivi Cros
-----------------------------------
Francisco Arrivi Cros
Title: Senior Vice President
-----------------------------------
30
<PAGE>
AGREEMENT OF SALE
THIS AGREEMENT, made and entered into this day of May 1997 made by and
between LAND DEVELOPMENT ASSOCIATES S.E., a Puerto Rico special partnership,
having an office at the Doral Building, Suite 700, 650 Munoz Rivera Avenue, Hato
Rey, Puerto Rico (hereinafter referred to as the "Seller") and Montano Corp., a
Puerto Rico corporation, having an office at 65th Infantry Avenue, Km. 5.4, Rio
Piedras, Puerto Rico 00929 (hereinafter referred to as the Buyer).
PRELIMINARY STATEMENT
---------------------
WHEREAS Seller owns one (1) parcel of land of approximately 4,100 square
meters, equivalent to 1.0432 cuerdas, the San Anton Ward of Carolina, Puerto
Rico, which parcel of land is identified as Parcel 1-8W in a survey prepared by
Engineer Luis F. Franqui on April 7, 1997, a copy of which is attached hereto as
Exhibit A (hereinafter referred to as the ("Parcel").
WHEREAS the Parcel is an integral and important part of Parque Escorial, a
master planned residential and commercial community (hereinafter referred to as
"Parque Escorial") being developed by Seller in a parcel of land of
approximately 439 cuerdas located in the municipalities of San Juan and
Carolina, uerto Rico (hereinafter referred to as "Main Farm"), best described in
the attached copy of the Parque Escorial master plan (the "Master Plan") , which
is made Exhibit B hereto, and as such, the Parcel shall, at the Time of
Settlement, as said term is defined in Paragraph 4 hereof, be subject to (i)
certain restrictive covenants pursuant to a Deed of Declaration of Covenants,
Conditions and Restrictions and Establishment of Parque Escorial Commercial
Owners Association (hereinafter referred to as the "Restrictive Covenants), a
draft of which is attached hereto as Exhibit C, (ii) the design standards for
the Commercial Zone of Parque Escorial, as said term is defined hereinafter,
(hereinafter referred to as the "Design Standards"), attached hereto as Exhibit
D, (iii) certain use restrictions best
1
<PAGE>
described in Paragraph 2 (xi) of this Agreement (hereinafter referred to as the
"Wal-Mart Use Restrictions") (iv) certain use restrictions described in
Paragraph 2 (xxi) (hereinafter referred to as the "Western Auto Restrictions")
and (v) other use restrictions best described in Paragraph 2 (i) (hereinafter
referred to as the "Use Restrictions").
WHEREAS, the Parcel is one of approximately nine (9) parcels of land
located in the West Service Center, as said term is defined in Exhibit B hereto,
of Parque Escorial and one of fifteen (15) parcels of land of various sizes
comprising the total commercial area of Parque Escorial (herein referred to as
the "Commercial Zone"), as said term is defined in the Master Plan and the
Design Standards, zoned for commercial use and on which approximately 800,000
square feet of commercial space are planned to be constructed in accordance with
the provisions of the Restrictive Covenants, the Design Standards, and any other
restriction specified in this Agreement, and subject to the approval of Seller
and the Architectural Review Committee, as said term is defined in the
Restrictive Covenants (hereinafter referred to as the "Architectural Review
Committee")
WHEREAS, pursuant to the Master Plan and unless otherwise approved by
Seller, the Parcel can only be used for the development of one (1) commercial
outlet to be designed and built in accordance with the Restrictive Covenants,
the Design Standards and subject to the approval of the Architectural Review
Committee.
WHEREAS, Buyer has indicated that it intends to build and operate on the
Parcel a full service gas station, including a car wash operation, a car rental
operation and a limited retail outlet for the sale of conestibles and other
conveniences (hereinafter referred to as the "Project"), and that it shall be
solely responsible for securing the permits, endorsements and approvals required
for the construction and operation of the Project; it being understood that the
Parcel can be used for the development of any other commercial use subject to
(i) the approval of the Architectural
2
<PAGE>
Review Committee, (ii) compliance with the Design Standards, and (iii) the
restrictions imposed on the Parcel by the Wal-Mart Use Restrictions, the Western
Auto Restrictions and the Use Restrictions.
WHEREAS, Seller has agreed to sell and Buyer agrees to purchase the Parcel
under the terms and conditions hereinafter set forth, together with all rights,
titles, improvements and any and all things appertaining thereto and or forming
part thereof.
WHEREAS, subject to the provisions hereof, this agreement shall without
further action of Seller and Buyer be a binding Agreement of Sale (hereinafter
referred to as the "Agreement"), enforceable at law or in equity for the sale by
Seller and purchase by Buyer of the Parcel at the Purchase Price provided in
Paragraph 1 hereof, upon the terms and conditions contained herein.
WHEREAS, it is the expressed intention of the parties that this Agreement
is solely for the benefit of the parties hereto and shall give rise to no rights
to any other party, and under no circumstances shall Buyer transfer or assign
this Agreement to another party except with the written consent of the Seller,
provided, however, that if, such transfer or assignment shall be to a party
related to Buyer through common ownership and that reasonable evidence of such
relationship is provided by Buyer to Seller to the effect that such transfer or
assignment in no way alters the intent, terms, conditions and guarantees of this
Agreement, Seller shall not unduly withhold its consent to the assignment. Any
such assignment or transfer will not release Buyer from the obligations and
responsibilities assumed under the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants set forth below,
the parties agree as follows:
1. Purchase Price: Subject to the provisions of Paragraphs 4 thru 11
---------------
hereof, the Purchase Price of the Parcel shall be One Million One Hundred Twenty
Seven Thousand Five Hundred Dollars ($1,127,500), equivalent to $275.00 per
square meter, and shall
3
<PAGE>
be payable as follows..
(i) One Hundred Thousand Dollars ($100,000) as earnest money (hereinafter
referred to as the "Earnest Money"), to be deposited with Seller upon the
execution of this Agreement, the receipt and adequacy of which is hereby
acknowledged;
(ii) A certified check to be delivered to Seller at the Time of Settlement
in the amount by which the Purchase Price, as determined pursuant to the
provisions of this Paragraph together with any other amounts due from Buyer
as provided hereunder, exceeds the Earnest Money.
2. Warranties and Representations of Seller. Seller warrants and
----------------------------------------
represents to Buyer the following:
(i) That Seller is, and on the Time of Settlement will be the lawful
owner of the Parcel to be sold and delivered by it hereunder and has
full right and authority to sell and deliver the same in accordance
with this Agreement. Upon the delivery of the Parcel to Buyer
pursuant to the provisions of this Agreement, Seller will convey and
transfer to Buyer by Public Deed a valid, fee simple (pleno
dominio), insurable and recordable title to the Parcel, free and
clear of all mortgage liens and of any encumbrances and other
charges or restrictions which presently affect the Parcel, subject
only to those easements shown in Exhibit A hereto and those matters
set forth herein including but not limited to the (a) the
Restrictive Covenants; (b) the Design Standards; (c) the Wal-Mart
Use Restrictions; (d) the Western Auto Restrictions; (e) a covenant
in the deed of sale providing that the
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Parcel can only be developed for commercial purposes and that the
design, and construction and operation of the Project have to be in
conformity with the Restrictive Covenants, the Design Standards, as
determined by the Architectural Review Committee, (herein referred
to as the "Use Restrictions"); and (f) to those normal and ordinary
liens, encumbrances and easements required by governmental
authorities for public services and which a search at the Registry
of the Property would reveal hereto;
(ii) That Seller shall not take any action during the term of this
Agreement which would impair title to the Parcel or further encumber
the Parcel, except for (a) the mortgage liens securing financing
arrangements required by Seller for the development of Parque
Escorial, from which the Parcel will be released upon its
acquisition by Buyer, (b) encumbrances and easements required by the
governmental authorities for the furnishing of public services, (c)
the Restrictive Covenants (d) the Design Standards (e) the Wal-Mart
Use Restrictions (f) the Western Auto Restrictions and (g) the Use
Restrictions.
(iii) That Seller shall not willfully take any action which would impair
the physical condition of the Parcel during the term of this
Agreement;
(iv) That Seller has not made and does not make any representations or
warranties
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whatsoever concerning the physical condition of the Parcel,
accesses, zoning, soil or subsoil condition, availability of
utilities, construction or use permits, or any other permits issued
by the government agencies affecting or related to or necessary for
the development or use of the Parcel or any other matter or thing
affecting or related to the Parcel or the Project, other than those
specifically referred to in (a) this Agreement, (b) the Master Plan,
(c) the "Consulta de Ubicacion" for Parque Escorial issued by the
Planning Board of Puerto Rico dated October 27, 1992, as amended on
December 23, 1994 and February 28, 1997, copies of which are
attached hereto as Exhibits E, F and G (hereinafter referred to as
the "Consulta de Ubicacion"), (d) the "Desarrollo Preliminar" of
Parque Escorial approved by the Administraci6n de Reglamentos y
Permisos of Puerto Rico ("ARPE") on June 18, 1993, as amended on
August 25, 1993 and October 6, 1995, copies of which are attached
hereto as Exhibit H, I and J (hereinafter referred to as the
"Desarrollo Preliminar") (e) the Wal-Mart Use Restrictions, (f) the
Western Auto Restrictions, (g) the Use Restrictions and (h) the
warranties and representations made herein by Seller regarding the
Infrastructure Improvements, as said term is defined in Paragraph 2
(vi) hereof, and that the contemplated development and use of Parcel
as the site
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of the Project, as set forth in the preamble of this Agreement, is
in general agreement and conformity with the terms and conditions of
the Agreement and in general agreement and conformity with Exhibits
A through J hereof, including but not limited to the fact that the
Parcel is presently approved for commercial use under the parameters
of a C-2 zoning, except that the construction and operation of the
Project requires specific approvals from various government
agencies, the procurement and obtainment of which shall be the sole
responsibility of Buyer.
(v) That Seller shall provide Buyer as soon as possible, but in no event
later than thirty (30) calendar days before the Time of Settlement,
with (a) a written report prepared by a qualified geotechnical
engineer to the effect that the compaction of the fill material
placed on the Parcel by Seller is in accordance with ASTM-D 2922
standard test methods for density of soil and soil aggregate in
place by nuclear methods (shallow depth) to no less than ninety five
percent (95%) of the maximum dry density as defined in ASTM-D698
standard test methods for moisture density relations of soils and
soil aggregate mixtures using 5.5 pound rammer and 12 inch drop
("standard proctor tests"); and at least fifteen (15) days before
the Time of Settlement with (b) a certification from Seller to the
effect that all the improvements to the
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Commercial Zone required for the construction and operation of the
Project, including but not limited to all the utilities needed to
serve the Project, shall have been substantially completed and
accepted by the pertinent government agencies; (c) in the event a
subdivision approval is required, Seller agrees to obtain any and
all subdivision approvals of the Parcel as may be required by any
governmental entity having jurisdiction thereover, and (d) a
certificate issued to Buyer by an engineer duly licensed to practice
in Puerto Rico stating that the Parcel is free of any "environmental
hazard" and of any release or threat of release of any "Hazardous
Substance" as defined in sub-paragraph (xviii) of this Paragraph.
The above conditions are hereinafter referred to as the
"Conditions Precedent".
(vi) That Seller has completed all the improvements to the infrastructure
of Parque Escorial described in the plans and specifications
prepared by Engineer Luis F. Franqui, dated March 1, 1994, as
amended from time to time, made an exhibit hereto by reference only
(hereinafter referred to as "Exhibit K") including but not limited
to all the utilities needed to serve the Project. The improvements
to the infrastructure of Parque Escorial described in Exhibit J
hereto shall be collectively referred to herein as the
"Infrastructure Improvements".
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<PAGE>
(vii) That this Agreement and the documents to be executed by Seller
pursuant to the terms thereof constitute the legal, valid and
binding obligation of Seller enforceable in accordance with its
terms.
(viii) That all necessary actions have been taken by the Board of Directors
of Seller to authorize the execution and delivery of this Agreement
and the consummation of all transactions contemplated hereunder.
(ix) That all information owned or available to Seller as of the date of
this document or at any time, prior, during or after the
construction of the Project such as plans, studies, soil test, deeds
and government agencies' approval of any kind pertaining to the
development of the Parcel or Parque Escorial shall be made available
at no cost to Buyer for the purpose of designing the Project and
seeking the necessary approvals from governmental agencies for the
proposed development of the Project or for any other reasonable use.
(x) That other than (a) the Restrictive Covenants (b) the Design
Standards, (c) the Wal-Mart Use Restrictions, (d) the Use
Restrictions and (e) those restrictions or conditions imposed by the
government agencies as described in Exhibits E thru J or other
restrictions or requirements typical of the development of a master
planned community, there are no other restrictions regarding the use
of the Parcel as the Site of the Project to be developed as intended
in the Master Plan.
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<PAGE>
(xi) That upon the sale of a parcel of land of 63 cuerdas to Wal-Mart
Puerto Rico, Inc. ("Wal-Mart") on March 27, 1991, certain
restrictions were imposed on the Main Farm but excluding the parcel
acquired by Wal-Mart (herein referred to as the "Wal-Mart Use
Restrictions"), which restrictions, as a result of subsequent
amendments, the last one dated March 31, 1995, are now as follows:
(a) Unless otherwise waived by Wal-Mart, no portion of Parque
Escorial, including but not limited to the Parcel, shall be used
for, nor shall there be permitted upon Parque Escorial the operation
of
1. Any type of department store, wholesale club or supermarket
store; or
2. Any other type of single retail store containing more than
twenty five thousand (25,000) square feet of gross floor area.
(xii) That Wal-Mart has secured zoning approval from the Planning Board of
Puerto Rico for a 480,000 sq. ft. shopping center to be built on the
parcel of 63 cuerdas in Parque Escorial sold to Wal-Mart, which
approval is evidenced in Exhibits E thru J hereto, of which a first
phase of approximately 260,000 sq. ft. is already built, and that
Wal-Mart has indicated that it intends to solicit at least 120,000
sq. ft. more of commercial space at a later date for a total square
footage of approximate1y 600,000 sq. ft.
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<PAGE>
(xiii) That the parcel of land sold to Wal-Mart is not subject to the
Restrictive Covenants or the Design Standards and is not obligated
to become a member of the Parque Escorial Commercial Owners
Association (hereinafter referred to as the "Association").
(xiv) That Seller shall dedicate, in accordance with the various stages of
development of Parque Escorial and as required by the pertinent
governmental agencies, to the proper governmental agencies the
avenues, utilities systems and community facilities that will be
built by Seller in Parque Escorial, including the Commercial Zone,
pursuant to the requirements of the Planning Board of Puerto Rico,
as specified in the "Consulta de Ubicacion" and the "Desarrollo
Preliminar".
(xv) That Seller shall preserve and promote the concept of Parque
Escorial as a master plan community as envisioned in the Master
Plan.
(xvi) That Seller shall release Buyer of any responsibility from the
construction by Seller of the Infrastructure Improvements.
(xvii) The Seller shall protect, indemnify and save harmless the Buyer from
and against all liabilities, obligations, damages, penalties,
claims, causes of action, costs, charges and expenses (including
without limiting the generality of the foregoing, court costs,
attorneys' and consultants' fees, environmental cleanup costs,
natural resources damages, fines,
11
<PAGE>
penalties and damages to persons, personal property, real property
and business enterprises, including any and all past, present and
future claims and liability arising out of or relating to the
environmental condition of the Parcel as of the Time of Settlement,
existence of any environmental hazard on the Parcel as of the Time
of Settlement and any release or threat of release of any Hazardous
Substance (as hereinafter defined) of any kind in, on, under or from
the Parcel at any time resulting from a condition existing as of the
Time of Settlement which may be imposed upon or incurred by or
asserted against the Buyer by reason of (i) any accident, injury or
damage to any person or property occurring on or about the Parcel or
any part thereof, (ii) any use, non-use or condition of the Parcel
or any part thereof, or (iv) any necessity to defend any of the
rights, title or interest conveyed to Buyer by virtue of the Deed of
Sale. Any amounts payable to the Buyer under this paragraph which
are not paid within thirty (30) days after written demand therefor
by the Buyer shall bear interest from the date of such demand until
full payment thereof at a fluctuating annual rate computed on the
basis of a three-hundred-sixty-day (360-day) year and the actual
number of days elapsed) equal to the "prime rate" publicly announced
by Citibank, N.A. in New York, New York, as its reference, base
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<PAGE>
or prime rate (herein the "prime rate") such fluctuating rate to
change simultaneously with the changes in the prime rate. In no
event shall the interest rate to be charged hereunder exceed the
maximum permissible legal rate. In case any action, suit or
proceeding is brought against the Buyer by reason of any such
occurrence, the Seller upon request by the Buyer, will at the
Seller's expenses resist and defend such action, suit or proceeding
or cause the same to be resisted or defended, either by counsel
designated by the Seller and approved by the Buyer or, where such
occurrence is covered by liability insurance, by counsel designated
by the insurer. Notwithstanding anything to the contrary indemnity
and all other representations, warranties and covenants contained in
this Agreement shall survive the Time of Settlement. As used in this
Agreement the term Hazardous Substance has the following meaning;
(i) any "hazardous substance", "pollutant" or "contaminant" as said
terms are defined in clauses fourteen (14) and thirty-three (33) of
Section one hundred one (101) of the Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA) [Title Forty-Two
(42) United States Code (U.S.C.) Section nine thousand six hundred
one (9,601), clauses fourteen (14) and thirty-three (33), or Titel
Forty (40) Code of Federal
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Regulations (C.F.R.) Part three hundred two (302), as said act and
regulation may be amended from time to time; (ii) any "hazardous
waste" as said term is defined in the Puerto Rico Environmental
Quality Board Regulation for the Control of Hazardous and Non-
Hazardous Solid Wastes, as said regulation may be amended from tine
to tine; (iii) any toxic or hazardous substance, material or waste
(whether solid, liquid or gaseous); (iv) any substance containing
"petroleum", as that term is defined in Section nine thousand one
(9001), clause eight (8) of the Resource Conservation and Recovery
Act (RCRA), as amended [Title Forty-Two (42) U.S.C. Section six
thousand nine hundred ninety-one (6,991), clause eight (8)], or
Title Forty (4a) C.F.R. Part two hundred eighty point one (280.1),
as said act and regulation may be amended from time to time; or (v)
any other substance for which any governmental entity now or
hereafter requires special handling in its collection, storage,
treatment or disposal.
(xviii) That Seller shall immediately notify Buyer of any actual or
threatened condemnation or taking of the Parcel. Buyer shall have
the right, in the event that subsequent to the effective date of
this Agreement and prior to the Time of Settlement, all or part of
the Parcel is subjected to a bona fide threat of condemnation by a
body or entity, or is taken in the exercise of the
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<PAGE>
power of eminent domain, or by way of sale in lieu thereof, by
written notice to Seller, to elect to terminate this Agreement
prior to the Time of Settlement, in which event both Buyer and
Seller shall be released from any further liability hereunder and
the Earnest Money will be returned to Buyer. If no such election is
made by Buyer, this Agreement shall remain in full force and effect
and the purchase and sale contemplated herein less any interest
taken by condemnation or sale in lieu of condemnation shall be
effected with no further adjustment and Seller shall, at the Time
of Settlement, assign, transfer and set over to Buyer all Seller's
rights, title and interest in and to any awards that have been or
that may thereafter be made for such taking. Buyer may cancel this
Agreement in the event of any damage to the land by earthquake or
flood prior to the Time of Settlement and the Earnest Money will be
returned to Buyer.
(xix) That Seller hereby expressly agrees that it shall not sell in the
future any other parcel of land within the West Service Center, as
said term is identified in the Master Plan, for the construction
and operation of a gas station, and upon the request by Buyer,
Seller shall impose and record in the Registry of the Property any
such use restrictions on the presently unsold parcels comprising
the West Service center and shall diligently take all
15
<PAGE>
reasonable measures and efforts to maintain in force any such use
restrictions.
(xx) That the Parcel, as improved, is not located within the 100 year
flood plain of the jurisdiction in which the Parcel is located.
(xxi) That upon the sale of Parcel I-10W to Western Auto Supply Company
on December 19, 1995 Seller agreed not to sell any other parcel of
land in the West Service Center to any other entity engaged in the
sale of auto parts, other than a full service gas station, and to
that effect Seller is obligated to impose and record in the
Registry of the Property any such use restrictions on any such
parcels and shall diligently take all reasonable measures and
efforts to maintain in force any such use restriction (herein
referred to as the "Western Auto Restrictions."
3. Warranties and Representations of Buyer.
----------------------------------------
Buyer warrants and represents to Seller the following:
(i) That Buyer hereby expressly acknowledges and accepts that other
than the representations and warranties made herein by Seller no
other such representations or warranties have been made or implied
by Seller and agrees that the Parcel will be acquired by Buyer on
an "as is where is" condition. It shall be Buyer's sole
responsibility to satisfy itself, at its sole cost, expense and
risk, as to all aspects regarding the physical condition or the
Parcel and, accordingly, does
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<PAGE>
herein specifically renounce and waive any and all rights, claims
and/or causes of action against Seller as to the Parcel, forever
releasing, relieving and holding harmless Seller from any and all
liability or legal responsibility in connection therewith.
Notwithstanding anything to the contrary herein, Seller shall not
be released from its liability or legal responsibility for any
representations made by Seller herein.
(ii) That Buyer shall bear all the costs, expenses and risks related to
any request filed by Buyer with any government agency for the
approval of the Project provided that all the warranties and
representations made herein by Seller remain valid.
(iii) That Buyer shall not seek during the term acquisition of the Parcel
any changes to the presently permitted uses or zoning of the Parcel
other than those required for the development and operation of the
Project. This restriction shall also apply to all the successors of
Buyer in the ownership of the Parcel.
(iv) That the Parcel constitutes an integral and important part of
Parque Escorial and as such the Parcel shall always remain subject
to and the Project shall be constructed pursuant to (a) the
Restrictive Covenants, as amended from tine to time by the
governing body of the Association, a non profit corporation
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<PAGE>
organized under the laws of Puerto Rico by Seller as an association
of all the owners of real property in the Commercial Zone in order
to insure the orderly development of the Commercial Zone and to
provide for the efficient preservation of the facilities and
amenities to be constructed in the Commercial Zone, (b) the Design
Standards, as amended from time to time by Seller or the
Architectural Review Committee, (c) the Wal-Mart Use Restrictions,
(d) the Western Auto Restrictions and (e) the Use Restrictions.
(v) That the plans for the development of the Parcel and construction
of the Project, as well as any changes made thereafter which may
modify the character, layout, elevations or density of the Project
or the use of the Parcel, shall be submitted by Buyer to the
Architectural Review Committee for its review and approval prior to
submitting them to the pertinent government agencies, which
approval shall not be unreasonably withheld; it being understood
that except for force majeure, the Architectural Review Committee
shall provide Buyer with a written response not later than forty
five (45) days after the submittal by Buyer.
(vi) That Buyer agrees that its employees, agents, contractors and
subcontractors will only utilize the access to the Parcel to be
reasonably provided by Seller for the transportation of
construction equipment, supplies and construction
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<PAGE>
materials and that Buyer will reimburse Seller for the cost of any
required repairs caused by those parties as a result of the
unauthorized use of roads or other improvements within Parque
Escorial.
(vii) That Buyer shall hold Seller safe and harmless from any claim from
third parties resulting from the construction by Buyer of the
improvements comprising the Project.
(viii) That Buyer shall hold Seller safe and harmless from any claim by
third parties arising out of any breach by Buyer of the (a) the
Design Standards, (b) Restrictive Covenants, (c) the Use
Restrictions, (d) the Wal-Mart Use Restrictions, (e) the Western
Auto Restrictions, (f) any other restriction or condition to which
the Parcel is subject pursuant to the terms and conditions of this
Agreement or, (g) any misrepresentations made by Buyer to any
party.
(ix) That Buyer acknowledges and accepts that Seller, as the master
developer of Parque Escorial, holds the exclusive right to seek
amendments to the Master Plan in the interest of the overall
development of Parque Escorial provided that any such amendments
shall not be in violation of the representations made by Seller
herein.
(x) That Buyer acknowledges and agrees that other than the soil
compaction tests referred to in Paragraph 2 (v) hereof, it shall be
the sole responsibility of Buyer to conduct the soil and sub-soil
studies
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<PAGE>
that are required for the development of the Project and Buyer
hereby releases Seller from any condition regarding the soil or
sub-soil of the Parcels that might surface after the Time of
Settlement. Notwithstanding the above, Seller shall make available
to Buyer, at Buyer's request, any other soil or sub-soil tests that
Seller may have conducted on the Parcel; it being understood that
the submittal by Seller of said reports to Buyer shall not impose
any obligation or liability upon Seller and shall not amend or
modify the obligations of Buyer hereunder.
(xi) That Buyer acknowledges and agrees that the timely and orderly
construction of the Project as an integral part of the the
successful development of Parque Commercial Zone is of utmost
importance to Escorial as a master plan community; therefore, Buyer
or any of its successors in the ownership of the Parcel shall have
until the 31st day of April 2002 to, force majeure excepted, in
accordance with the Design Standards, commence construction of the
Project on the Parcel (hereinafter referred to as the "Commencement
of Construction Date") . In the event that Buyer or any of its
successors in the ownership of the Parcel does not comply with the
provisions of this Paragraph, Seller shall, upon the expiration of
said term, have the first option to repurchase the Parcel at the
Purchase Price; said
20
<PAGE>
option to be exercised by Seller within one hundred and twenty
(120) days from the date of expiration of such term. For the
purpose of this Paragraph, the Commencement of Construction Date
shall refer to such date on which the Buyer has complied with all
of the following:
(i) obtain the Construction Permit for the Project, as
previously approved by the Architectural Review Committee;
(ii) a bonafide construction contract has been executed for
the construction of the Project;
(iii) financing arrangements for the construction of the
Project have been completed;
(iv) earth movement over the Parcel has commenced.
(xii) That this Agreement and the documents to be executed by Buyer
pursuant to the terms thereof constitute the legal, valid and
binding obligations of Buyer enforceable in accordance with its
terms; and
(xiii) That all necessary actions have been taken by the Board of
Directors of Buyer to authorize the execution and delivery of this
Agreement and the consummation of all transactions contemplated
hereunder.
(xiv) The Buyer shall protect, indemnify and save harmless the Seller
from and against all liabilities, obligations, damages, penalties,
claims, causes of action, costs, charges and expenses (including
without limiting the generality of the foregoing, court costs,
attorneys' and
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consultants' fees, environmental cleanup costs, natural resources
damages, fines, penalties and damages to persons, personal
property, real property and business enterprises, including any and
all past, present and future claims and liability arising out of or
relating to the existence of any environmental hazard on the Parcel
resulting from acts attributable to Buyer and any release or threat
of release of any Hazardous Substance (as said term is defined in
Paragraph 2 sub paragraph (xxi) hereof) of any kind in, on, under
or from the Parcel at any time after the Time of Settlement
resulting from acts attributable of Buyer whcih may be imposed upon
or incurred by or asserted against the Seller by reason of (i) any
accident, injury or damage to any person or property occurring on
or about the Parcel or any part thereof or, (ii) any use, non-use
or condition of the Parcel or any part thereof. Any amounts payable
to the Seller under this paragraph which are not paid within thirty
(30) days after written demand therefor by the Seller shall bear
interest from the date of such demand until full payment thereof at
a fluctuating annual rate computed on the basis of a three hundred
sixty day (360 day) year and the actual number of days elapsed)
equal to the "prime rate" publicly announced by Citibank, N.A. in
New York, New York, as its reference, base or prime rate (herein
the "prime rate")
22
<PAGE>
such fluctuating rate to change simultaneously with the changes in
the prime rate. In no event shall the interest rate to be charged
hereunder exceed the maximum permissible legal rate. In case any
action, suit or proceeding is brought against the Seller by reason
of any such occurrence, the Buyer upon request by the Seller, will
at the Buyer's expense resist and defend such action, suit or
proceeding or cause the same to be resisted or defended, either by
counsel designated by the Seller and approved by the Buyer or,
where such occurrence is covered by liability insurance, by counsel
designated by the insurer. Notwithstanding anything to the contrary
in this Agreement, the provisions of this indemnity and all other
representations, warranties and covenants contained in this
Agreement shall survive the Time of Settlement.
4. Time for Settlement. Execution under the terms of the Agreement for
--------------------
sale by Seller and purchase by Buyer of the Parcel shall be made not later than
December 15, 1997 (herein referred to as the "Time of Settlement") The
settlement shall be at a place designated by Seller in San Juan, Puerto Rico.
At the Time for Settlement, title to the Parcel shall be conveyed to Buyer
by a public deed pursuant to the terms and conditions contained herein.
(i) The payment by Buyer of the Purchase Price and any other amounts of
money owed to Seller by Buyer under this Agreement shall be made at the
Time of Settlement, in exchange for the
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delivery by the Seller to Buyer of the deed referred to in Paragraph 7
hereof (hereinafter referred to as the "Deed of Sale"), by means of a
manager's check drawn on a banking institution doing business in Puerto
Rico in the amount by which the Purchase Price and any such other
amounts owed to Seller by Buyer under this Agreement exceed the Earnest
Money.
5. Allocation of Certain Costs and Charges. Seller shall pay the notarial
----------------------------------------
fees of the Deed of Sale and those incurred by Seller in the preparation of the
Agreement and the Restrictive Covenants, and the internal revenue stamps of the
original of the Deed of Sale. Buyer shall pay for the internal revenue stamps
corresponding to the certified copies of the Deed of Sale and the stamps to be
cancelled in the registration of said certified copies. Buyer shall be
responsible for any premium to be paid on a title insurance policy solicited by
Buyer. The Deed of Sale will be prepared by a Notary Public selected by eller
and will be approved by Buyer as to form and substance. Seller shall be
responsible for all the unpaid property taxes on the Parcel up to the tine of
execution of the Deed of Sale and Buyer shall be responsible thereafter. Buyer
will reimburse Seller for any portion of the property taxes paid in advance by
Seller for the Parcel at the Time of Settlement.
Seller and Buyer warrant and represent to each other that no broker has
participated in the transaction contemplated under this Agreement or is
interested hereby, through or on account of Seller or Buyer. Should any claim
for commissions be made by any broker to Seller or Buyer on account of any acts
of Seller or Buyer, Seller and Buyer will indemnify and hold the other party
free and harmless from any and all liabilities and expenses in connection
therewith, including but not
24
<PAGE>
limited to, all legal expenses incurred by the party to this Agreement not
responsible for any such fees.
6. Delivery of Possession. Actual possession of the Parcel shall be
-----------------------
delivered by Seller to Buyer at the Time of Settlement.
7. Deed to be Delivered by Seller at Settlement. The conveyance of the
---------------------------------------------
Parcel under this Agreement shall be by deed (herein referred to as the "Deed of
Sale"). Such deed shall be prepared by Notary Public selected by Seller and
approved by Buyer as to form and substance.
8. Title Defects: Breach by Seller. In the event that Seller cannot
--------------------------------
transfer title to the Parcel to Buyer as represented in this Agreement for
reasons attributable to Seller but excluding those acts to be performed by
Buyer, Buyer shall have the right to either (i) demand the return of the Earnest
Money whereby this Agreement shall be terminated and Seller and Buyer shall not
have any further rights, claims, causes of action or obligations under this
Agreement or (ii) demand specific performance from Seller under the provisions
of this Agreement.
9. Default by Buyer. Thirty (30) days after notice thereof has been
-----------------
given to Buyer, the Seller, at its sole option, may terminate all of its
obligations under this Agreement, without liability in the event of any of the
following events:
1) With respect to the Buyer or any assignee of the Agreement duly
approved by Seller (hereinafter referred to as the "Assignee"), (i)
the filing by or against it or any case or other proceedings for any
relief pursuant to the bankruptcy or insolvency laws of the United
States, of any State, of the United States Virgin Islands, or of the
Commonwealth of Puerto Rico; (ii) the filing of an answer
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<PAGE>
admitting insolvency or inability to pay debts as they became due;
(iii) a material adverse change on any of the assumptions and
representations under which Seller was induced to enter into this
Agreement;
2) If Buyer assigns this Agreement to another party without the
expressed written consent of Seller, which consent shall not be
unreasonably delayed or withheld.
3) If Buyer or the Assignee shall default beyond any applicable grace
period in the performance of any of the obligations and agreements on
its part to be performed under this agreement.
Notwithstanding the above, failure by Buyer to pay the Purchase
Price and all other amounts owed to Seller hereunder in the manner and
at the time provided in this Agreement shall not require thirty (30)
days notice from Seller to become an event of default under this
Agreement. Upon the occurrence of such event of default, Seller shall
be entitled to exercise its rights under this Agreement immediately.
In the event that Seller decides, at its sole option, to terminate
its obligations under this Agreement upon the happening of any of the
events of default described above, the Earnest Money shall be retained
by Seller as additional consideration and liquidated damages for such
breach, whereupon Buyer and Seller, and the Assignee, if any, shall be
released and relieved from all liability towards each other and this
Agreement, shall become null and void; it being understood that if
Seller chooses to
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terminate its obligations under this Agreement on account of any of
the defaults listed hereinbefore, the right to retain the Earnest
Money, as compensation and liquidated damages, shall be the sole
remedy available to Seller.
In the event that Seller chooses not to terminate its obligations
under this Agreement upon the occurrence of any of the events of
default listed hereinbefore, Seller shall retain its right to demand
specific performance under this Agreement and to seek legal and
monetary remedies from Buyer and the Assignee, if any, in an amount
equal to the sum of the Purchase Price and any monetary damages
suffered by Seller, including but not limited to legal costs incurred
by Seller.
10. Survival of Agreement. Notwithstanding any presumption to the
----------------------
contrary, all agreements contained in this Agreement which by their nature
impliedly or expressly involve performance at any particular time after the Tine
of Settlement shall survive the Time of Settlement.
11. Seller not Bound. The Seller is not liable in any manner by any oral
-----------------
or written statements, representations, or other information pertaining to the
Parcel by any broker, agent, employee, account, or any other person, whether or
not associated with or employed by Seller, unless the same are specifically set
forth herein.
12. Right of Access. During the term of this Agreement, Buyer and his
----------------
authorized representatives 4hall be entitled to enter the Parcel for the purpose
of inspecting the same, making appraisals and conducting engineering
investigations. Buyer agrees to hold Seller safe and harmless from any claim or
liability arising out of any injury to Buyer, or to any of his
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officers, agents or employees while in the Parcel, and shall indemnify and hold
Seller harmless from any and all damages, losses, expenses1 claims suits,
judgments and liabilities (including claims and suits by and judgment and
liabilities to Buyer's employees) resulting in any way from the acts to Buyer,
his agents, or employees as herein provided. During all times that Buyer enters
upon and/or conducts any surveys, studies, tests, etc. on the Parcel, Buyer
shall have and maintain, at his cost, public liability and property damage
insurance in form and substance acceptable to Seller with a minimum, single,
combined liability limit of $1,000,000.00 insuring Buyer and Buyer's authorized
representatives, agents, employees, etc., against all liability arising out of
or in connection with Buyer's use or occupancy of the Parcel. The insurance
required herein shall (i) be issued by an insurance company authorized to do
business in Puerto Rico with a financial rating of at least plus 3 status as
reported in the most recent edition of Best's Report; (ii) be issued as a
primary policy; and (iii) contain endorsements naming Seller as additional
insuree and requiring thirty days written notice from the insurance company to
Seller and Buyer before cancellation or changing coverage, scope or amounts.
Each policy or a certificate of insurance, together with evidence of payment of
premiums, shall be delivered to Seller prior to entry upon the Parcel.
Likewise, Seller and its authorized representatives shall be entitled to
enter the Parcel after its acquisition by Buyer for the purpose of conducting
engineering investigations and completing the improvements to the Parcel or the
Infrastructure Improvements that Seller is obligated to do pursuant to the terms
and conditions of this Agreement. Seller agrees to hold Buyer safe and harmless
from any claim or liability arising out of any injury to Seller, or to any of
his officers, agents or employees while in the Parcel, and shall indemnify and
hold Buyer harmless from any and all damages, losses, expenses, claims suits,
judgments and liabilities (including claims and suits by and
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judgment and liabilities to Seller's employees) resulting in any way from the
acts to Seller, his agents, or employees as herein provided. During all times
that Seller enters upon and/or conducts any surveys, studies, tests, etc. on the
Parcel, Seller shall have and maintain, at his cost, public liability and
property damage insurance in form and substance acceptable to Buyer with a
minimum, single, combined liability limit of $1,000,000.00 insuring Seller and
Seller's authorized representatives, agents, employees, etc., against all
liability arising out of or in connection with Seller's use or occupancy of the
Parcel. The insurance required herein shall (i) be issued by an insurance
company authorized to do business in Puerto Rico with a financial rating of at
least plus 3 status as reported in the most recent edition of Best's Report;
(ii) be issued as a primary policy; and (iii) contain endorsements naming Buyer
as additional insuree and requiring thirty days written notice from the
insurance company to Buyer and Seller before cancellation or changing coverage,
scope or amounts. Each policy or a certificate of insurance, together with
evidence of payment of premiums, shall be delivered to Buyer prior to entry upon
the Parcel.
13. Time to be of Essence. It is distinctly understood and agreed that
----------------------
time wherever specified in this Agreement is made and declared to be of the
essence thereof.
14. Notices. Any notice required or permitted to be given under this
--------
Agreement must be in writing and sent by certified or registered mail, return
receipt requested, to the respective addresses of the parties stated at the
outset of this Agreement or to such other single address as either party nay
designate from time to time with the terms of this Paragraph In the case of
Seller, all notices shall be addressed to Mr. Francisco Arrivi, Senior Vice
President - 650 Munoz Rivera Avenue, Doral Building, Suite 700, Hato Rey, P. R.
00918 with a copy to Mr. Carlos R. Rodriguez, Vice President at the same
address. In case of Buyer, all notices shall be addressed to Mr. Eduardo
Montano,
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President, Montano Corp., 65th Infantry Avenue, Km. 5.4, Rio Piedras, Puerto
Rico 00929, with a copy to Mr. Jesus Montano at the same address.
15. Construction. This Agreement shall be construed in accordance with and
-------------
governed by the laws of the Commonwealth of Puerto Rico and Seller and Buyer and
their assignees hereby submit themselves to the exclusive jurisdiction of the
San Juan Section of the Superior Court of Puerto Rico for any and all
controversies that may arise thereunder.
16. Miscellaneous. Each of the parties acknowledges that it has not relied
--------------
on any agreements or commitments by the other party or any of their affiliates
with respect to the subject matter hereof except the agreements and commitments
specifically set forth herein. This Agreement supersedes and nullifies all prior
agreements and sets forth the entire understanding of the parties with respect
to the Parcel. The provisions of this Agreement may not be waived, extended or
modified by subsequent conduct, correspondence or otherwise. Each of the parties
agrees that it or he shall not obtain, seek to obtain, or rely on any waiver
extension, modification, or approval unless the waiver, extension, modification
or approval is evidenced in writing, and (b) is specifically approved in writing
by the Seller or by Buyer. No delay or failure of the Seller in exercising any
right or privilege hereunder shall affect such right or privilege; nor shall any
single or partial exercise thereof or any abandonment or discontinuance of steps
to enforce such right or privilege preclude any further exercise thereof or of
any other right or privilege. Any waiver, extension, modification or approval
related to this Agreement shall be effective only to the extent and subject to
the terms and conditions in writing evidencing the same. Any waiver, extension,
modification or approval may be made subject to additional terms and conditions
from time to time after it is given or agreed to by the party giving or agreeing
to it, whether or not such waiver, extension, modification or approval has been
relied on in the meantime by the other party.
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Approval by Seller on any matter for which approval is required shall not be
unreasonably withheld. Whenever any reference is made in this Agreement to an
event of default, other than the event of default caused by Buyer's failure to
pay the Purchase Price and any other amounts of money owed to Seller hereunder
in the manner provided in this Agreement, it shall be understood that no such
event of default has occurred until thirty (30) days have lapsed since notice
thereof has been given to Buyer provided therein.
IN WITNESS WHEREOF, the parties have executed this agreement by their
respective duly authorized officers on the day and year first above written.
SELLER: BUYER: MONTANO CORP.
LAND DEVELOPMENT ASSOCIATES S.E.
a Puerto Rico special partnership
By: INTERSTAE GENERAL PROPERTIES By: /s/
LIMITED PARTNERSHIP, S.E., a ------------------------
Maryland limited partnership, Title: President
its managing partner _______________________
By: INTERSTATE GENERAL COMPANY,
L.P., a Delaware limited
partnership, a general partner
By: INTERSTATE GENERAL MANAGEMENT
CORPORATION, a Delaware corporation,
its managing general partner
By: /s/ Francisco Arrivi Cros
----------------------------------
Francisco Arrivi Cros
Title: Senior Vice President
----------------------------------
31
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AGREEMENT OF SALE
THIS AGREEMENT, made and entered into this 16th day of April 1997 made by
and between LAND DEVELOPMENT ASSOCIATES S.E., a Puerto Rico limited partnership,
having an office at the Doral Building, Suite 700, 650 Mufioz Rivera Avenue1
Hato Rey, Puerto Rico (hereinafter referred to as the "Seller",) and J.A.K.
Partnership S.E., having an office at ESJ Towers, Isla Verde Road, Carolina,
Puerto Rico 00979 hereinafter referred to as the Buyer).
PRELIMINARY STATEMENT
---------------------
WHEREAS Seller owns one (1) parcel of land of approximately 29,730.09
square meters (7.56 cuerdas) and in the San Anton Ward of Carolina, Puerto Rico,
which parcel of land is identified as Parcel II-8, in a survey prepared by
Engineer Luis F. Franqui on January 24, 1997, copy of which is attached hereto
as Exhibit A, (hereinafter referred to as the ("Parcel").
WHEREAS the Parcel is an integral and important part of Parque Escorial, a
master planned residential, commercial and light industrial community
(hereinafter referred to as "Pargue Escorial") being developed by Seller in a
parcel of land of approximately 439 cuerdas located in the municipalities of San
Juan and Carolina, Puerto Rico (hereinafter referred to as "Main Farm"), best
described in the attached copy of the Parque Escorial master plan (the "Master
Plan"), which is made Exhibit B hereto, and as such, the Parcel shall, at the
Time of Settlement, as said term is defined hereinafter, be subject to (i)
certain restrictive covenants pursuant to a Deed of Declaration of Covenants,
Conditions and Restrictions and Establishment of Parque Escorial Homeowners
Association (hereinafter referred to as the "Restrictive Covenants), a draft of
which is attached hereto as Exhibit C, (ii) the design standards for Parque
Escorial (hereinafter referred to as the "Design Standards"), attached hereto as
Exhibit D, (iii) certain use restrictions best described in Paragraph 2 (xiii)
of this Agreement hereinafter
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referred to as the Wal-Mart Use Restrictions) and (iv) other use restrictions
best described in Paragraph 2 (i) (hereinafter referred to as the "Use
Restrictions").
WHEREAS, the Parcel is one (1) of approximately nine (9) parcels of land of
various sizes comprising Phase II, as said term is defined in the Master Plan
and the Design Standards, (hereinafter referred to as "Phase II"), on which
approximately one thousand eighty one (1,081) residential units are planned to
be constructed in accordance with the provisions of the Restrictive Covenants,
the Design Standards, and any other restriction specified in this Agreement, and
subject to the approval of Seller and the Architectural Review Committee, as
said term is defined in the Restrictive Covenants (hereinafter referred to as
the "Architectural Review Committee")
WHEREAS, Phase II is one of several phases in which Seller plans to develop
the areas designated for residential use in the Master Plan, (hereinafter
referred to as the "Residential Zone").
WHEREAS, pursuant to the Master Plan and unless otherwise approved by
Seller, the Parcel can only be used for the development of one (1) residential
project totalling not more than one hundred eighty (150) three bedroom units, or
its equivalency in units with less or more bedrooms as determined by Seller in
accordance with the standards of the Planning Board of Puerto Rico, to be
designed and built in accordance with the Restrictive Covenants, the Design
Standards and subject to the approval of the Architectural Review Committee,
(hereinafter referred to as the "Project").
WHEREAS, Seller has agreed to sell and Buyer agrees to purchase the Parcel
under the terms and conditions hereinafter set forth, together with all rights,
titles, improvements and any and all things appertaining thereto and or forming
part thereof.
WHEREAS, subject to the provisions hereof, this agreement shall, upon the
placing by Buyer of the full amount of the Earnest Money, as said term is
defined hereinafter, be a binding Agreement of Sale (liereinafter referred to as
the "Agreement"),
2
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enforceable at law or in equity for the sale by Seller and purchase by Buyer of
the Parcel at the Purchase Price provided in Paragraph 1 hereof, upon the terms
and conditions contained herein.
WHEREAS, it is the expressed intention of the parties that this Agreement
is solely for the benefit of the parties hereto and shall give rise to no rights
to any other party, and under no circumstances shall Buyer transfer or assign
this Agreement to another party except with the written consent of the Seller,
provided, however, that if such transfer or assignment shall be to a party
related to Buyer through common ownership and that reasonable evidence of such
relationship is provided by Buyer to Seller to the effect that such transfer or
assignment in no way alters the intent, terms, conditions and guarantees of this
Agreement, Seller shall not unduly withhold its consent to the assignment. Any
such assignment or transfer will not release Buyer from the obligations and
responsibilities assumed under the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants set forth below,
the parties agree as follows:
1. Purchase Price; Reimbursement of Impact Fees. Subject to the
---------------------------------------------
provisions of Paragraphs 4 thru 11 hereof, the Purchase Price of the Parcel
shall be equal to the sum of the (i) Three Million Two Hundred Seventeen
Thousand Five Hundred Dollars ($3,217,500), and (ii) the amount obtained by
multiplying Nineteen Thousand Dollars ($19,000) times the number of three (3)
bedroom units, or its equivalency in units with less or more bedrooms, to be
built by Buyer on the Parcel that exceeds one hundred sixty five (165) units and
shall be payable as follows:
(i) One Hundred Thousand Dollars ($100,000) as a good faith deposit
(hereinafter referred to as the "Earnest Money"), upon the execution of
this Agreement, the receipt and adequacy of which is hereby acknowledged;
(ii) A certified or bank manager's check from a banking institution to be
delivered to Seller at the Time of
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Settlement in the amount by which the Purchase Price, as determined
pursuant to the provisions of this Paragraph, exceeds the Earnest Money.
The obligation of Buyer to pay (i) Seller Nineteen Thousand Five
Bundred Dollars ($19,500) for each of the first one hundred sixty five
(165) three (3) bedroom unit, or its equivalency in units with more or less
bedrooms, and (ii) Nineteen Thousand Dollars ($19,000) for each of any
three (3) bedroom units, or its equivalency in units with less or more
bedrooms, in excess of one hundred sixty five (165) shall survive the Time
of Settlement, it being understood that in order to calculate the Purchase
Price any unit which is deemed to be convertible to a unit with additional
bedrooms shall be considered as a unit having the maximum number of
bedrooms that it could be converted into.
In addition to the Purchase Price, upon the obtainment of the Use
Permits for the units, Buyer shall pay Seller, an amount equal to Five
Hundred and Twenty Dollars ($520.00) multiplied by the number of three (3)
bedroom units, or its equivalency in units with less or more bedrooms, in
the Project as a reimbursement of advances made by Seller on the $1,000 per
unit impact fee charged by the Puerto Rico Aqueduct and Sewer Authority
("PRASA") on each three (3) bedroom unit, or its equivalency in units with
less or more bedrooms, built at Parque Escorial pursuant to an agreement
entered into by Seller and PRASA on May 27, 1994, by means of which (i)
PRASA endorsed Parque Escorial and (ii) established the obligations of each
developer of commercial and residential land in Parque Escorial towards
PRASA including, but not limited to, the payment of tap-in fees for the
connection of the water and sewer systems and an impact fee of $1,000 per
each three (3) bedroom unit, a copy of which is attached hereto as Exhibit
E. The remaining portion of the impact fee, that is, $480.00 per each three
(3) bedroom unit, is to be paid by Buyer to PRASA upon the
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procurement of the Use Permits for the units comprising the Project.
2. Warranties and Representations of Seller. Seller warrants and
-----------------------------------------
represents to Buyer the following:
(i) That Seller is, and on the Time of Settlement will be, the lawful
owner of the Parcel to be sold and delivered by it hereunder and
has full right and authority to sell and deliver the same in
accordance with this Agreement Upon the delivery of the Parcel to
Buyer pursuant to the provisions of this Agreement, Seller will
convey and transfer to Buyer by Public Deed a valid, fee simple
(pleno dominio) insurable and recordable title to the Parcel, free
and clear of all mortgage liens and of any encumbrances and other
charges or restrictions which presently affect the Parcel, subject
only to those matters set forth herein including but not limited
to the (a) the Restrictive Covenants; (b) the Design Standards;
(c) the Wal-Mart Use Restrictions; (d) the requirements of PRASA
as defined in Exhibit E hereto; (e) the requirements of the
Highway Authority of Puerto Rico, as defined in Exhibit F hereto
including an impact fee in the amount of $1,000 per each three (3)
bedroom unit payable upon the procurement of the Use Permit for
the units; (f) a covenant in the deed of sale providing that the
Parcel can only be developed for residential purposes and that
unless otherwise approved by Seller, the density of development on
the Parcel
5
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may not exceed one hundred eighty (180) three bedroom units, and
that the design and construction of the Project have to be in
conformity with the Restrictive Covenants, the Design Standards,
as determined by the Architectural Review Committee, (herein
referred to as the "Use Restrictions"); and (g) to those normal
and ordinary liens, encumbrances and easements required by
governmental authorities for public services and which a search at
the Registry of the Property would reveal hereto;
(ii) That Seller shall not take any action during the term of this
Agreement which would impair title to the Parcel or further
encumber the Parcel, except for (a) the mortgage liens securing
financing arrangements required by Seller for the development of
Parque Escorial, from which the Parcel will be released upon its
acquisition by Buyer, (b) encumbrances and easements required by
the governmental authorities for the furnishing of public
services, (c) the Restrictive Covenants (d) the Design Standards
(e) the Wal-Mart Use Restrictions and (f) the Use Restrictions.
(iii) That Seller shall not willfully take any which would impair the
physical condition of the Parcel during the term of this
Agreement;
(iv) That Seller has not made and does not make any reprosentations or
warranties whatsoever concerning the physical
6
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condition of the Parcel, accesses, zoning, soil or subsoil
condition, availability of utilities, construction or use permits,
or any other permits issued by the government agencies affecting
or related to or necessary for the development or use of the
Parcel or any other matter or thing affecting or related to the
Parcel or the Project, other than those specifically referred to
in (a) this Agreement, (b) the Master Plan, (c) the "Consulta de
Ubicacion" for Parque Escorial issued by the Planning Board of
Puerto Rico dated October 27, 1992, as amended on December 23,
1994, copies of which are attached hereto as Exhibits G and H
(hereinafter referred to as the "Consulta de Ubicacion") and (d)
the "Desarrollo Preliminar" of Parque Escorial approved by the
Administracion de Reglamentos y Permisos of Puerto Rico ("ARPE")
on October 6, 1995, as amended on August 25, 1993 and October 6,
1995 copies of which are attached hereto as Exhibit I, 1(a) and I
(b) , (hereinafter referred to as the "Desarrollo Preliminar") (e)
an agreement between Seller and PRASA, a copy of which is attached
hereto as Exhibit E, (f) the agreement entered into by Seller and
the Puerto Rico Highway Authority dated November 22, 1991, as
ratified on Auyust 22, 1994, which states among other things, that
each developer of residential units in Parque Escorial has to pay
a $1,000 impact fee to the Highway Authority for
7
<PAGE>
each three (3) bedroom unit to be developed, including those to be
developed in the Parcel, a copy of which is attached hereto as
Exhibit F, (g) the Wal-Mart Use Restrictions, (h) the Use
Restrictions and (i) the warranties and representations made
herein by Seller regarding the Infrastructure Improvements, as
said term is defined in Paragraph 2 (vi) hereof, the Phase II
Infrastructure Improvements, as said term is defined in Paragraph
2 (vii), and that the Parcels are presently approved for "high
medium density" residential use under the parameters of a R-3
zoning.
(iv) That Seller shall provide Buyer at least thirty (30) calendar days
before the Time of Settlement with (i) a written report prepared
by a qualified geotechnical engineer to the effect that the
compaction of the fill material placed on the Parcel by Seller is
in accordance with ASTM-D 2922 standard test methods for density
of soil and soil aggregate in place by nuclear methods (shallow
depth) to no less than ninety five percent (95%) of the maximum
dry density as defined in ASTM-D698 standard test methods for
moisture density relations of soils and soil aggregate mixtures
using 5.5 pound rammer and 12 inch drop ("standard proctor
tests"); (ii) a certification by a licensed civil engineer or
surveyor to the effect that the rough grading, as said term is
known in the land development
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industry, of the Parcel at the Time of Settlement is the one
specified in the grading plan of the Parcel that is part of
Exhibit N hereof, as said exhibit is identified in Paragraph 2
(vii) hereof; and (iii) a certification from Seller to the effect
that the Parcel, including the access to the Parcel to be provided
by Seller for the transportation of materials and construction
equipment to be used in the construction of the Project, shall be
in such physical condition at the Time of Settlement that Buyer
shall be able to commence the development of the Project
immediately thereafter.
The above conditions are hereinafter referred to as the
"Conditions Precedent".
(vi) That prior to (i) the date in which the Project has been issued a
Use Permit by the regulatory governmental agencies or (ii) the
date in which such Use Permit could been reasonably expected to
have been issued had the work specified hereinafter had been
completed on a timely and satisfactory manner, absent any acts of
God or force majeure, Seller shall have substantially completed
(a) all the improvements to the 65th Infantry Avenue described in
the plans and specifications prepared by Engineer Lois F. Franqui,
dated February 11, 1994, as amended from time to time, made an
exhibit hereto by reference only (hereinafter referred to as
"Exhibit J") which plans and specifications constitute the object
of a
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construction contract awarded to Rexach Construction Company on
October 21, 1994 made an exhibit hereto by reference only
(hereinafter referred to as Exhibit K), (b) all the improvements
to the infrastructure of Parque Escorial described in the plans
and specifications prepared by Engineer Luis F. Franqul, dated
March 1, 1994, as amended from time to time, made an exhibit
hereto by reference only (hereinafter referred to as "Exhibit L"),
which plans and specifications constitute the object of a
construction contract awarded to Rexach Construction Company on
October 21, 1994, made Exhibit M hereto by reference only. The
improvements to the 65th Infantry Avenue described in Exhibit J
hereto and the improvements to the infrastructure of Parque
Escorial described in Exhibit L hereto shall be collectively
referred to herein as the "Infrastructure Improvements".
(vii) That prior to the date in which the Project has been issued a Use
Permit by the pertinent regulatory governmental agencies or the
date in which such Use Permit could had been reasonably expected
to have been issued had the work described hereinafter been
completed on a timely and satisfactory manner, absent any act of
God or force majeure, Seller shall have completed (a) those
improvements to Phase II shown in the plans and specifications
prepared by Engineer Lois F. Franqui,
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dated May 24, 1995, as amended from time to time, made Exhibit N
hereto by reference only, which are the object of a construction
contract awarded to Constructora Santiago, Inc., on August 24,
1995, made an exhibit hereto by reference only (hereinafter
referred to as Exhibit 0), and (b) the improvements described
hereinafter, none of which is part of the work contemplated under
Exhibits J, L, N and 0:
1) Cyclone wire fence along the exterior perimeter of Phase II
and a concrete fence along the north boundary of the Residential
Zone to be built in stages. The first stage will run from the east
boundary of Parcel 11-10 to the east section of the Great Lawn
Park, as said area is identified in the Master Plan.
2) Gate and guard house at the East entrance of Boulevard Media
Luna, as said road is identified in the Master Plan.
3) Extension of Avenida Sur, as said road is identified in the
Master Plan, from the east entrance of the Residential Zone to the
site of the Carolina Regional College of the University of Puerto
Rico.
4) Landscaping of Avenida Este, as said road is identified in the
Master Plan.
5) Off site electrical work required to service Phase II.
Those improvements described in Exhibit N, which are part of
the construction contract referred to herein as Exhibit 0 and the
improvements listed
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herein under Paragraph 2 (vii) (b) hereof are referred to herein
as the "Phase II Infrastructure Improvements".
(viii) That Seller shall have available for inspection by Buyer at all
times at its offices copies of Exhibits J, K, L, M, N and 0.
(ix) That this Agreement and the documents to be executed by Seller
pursuant to the terms thereof constitute the legal, valid and
binding obligation of Seller enforceable in accordance with its
terms.
(x) That all necessary actions have been taken by the Board of
Directors of Seller to authorize the execution and delivery of
this Agreement and the consummation of all transactions
contemplated hereunder.
(xi) That all information owned or available to Seller as of the date
of this document or at any time, prior, during or after the
construction of the Project such as plans, studies and government
agencies approvals of any kind pertaining to the development of
the Parcel or Parque Escorial shall be made available at no cost
to Buyer for the purpose of designing the Project and seeking the
necessary approvals from governmental agencies for the proposed
development of the Project or for any other reasonable use.
(xii) That other than (a) the Restrictive Covenants (b) the Design
Standards, (c) the Wal-Mart Use Restrictions, (d) the Use
Restrictions and (e) those restrictions or conditions imposed by
the government
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agencies as in Exhibits E thru I or other restrictions or
requirements typical of the development of a master planned
community, there are no other restrictions regarding the use of
the Parcel as the site of the Project to be developed as intended
in the Master Plan.
(xiii) That upon the sale of a parcel of land of 63 cuerdas to Wal-Mart
Puerto Rico, Inc. ("Wal-Mart") on March 27, 1991, certain
restrictions were imposed on the Main Farm but excluding the
parcel acquired by WalMart (herein referred to as the "Wal-Mart
Use Restrictions") which restrictions, as a result of subsequent
amendments, are now as follows:
(a) Unless otherwise waived by Wal-Mart, no portion of Parque
Escorial, including but not limited to, the Parcel, shall be used
for, nor shall there be permitted upon Parque Escorial the
operation of: (i) any type of department store, wholesale club or
supermarket store; or (ii) any other type of single retail store
containing more than twenty five thousand (25,000) square feet of
gross floor area.
(xiv) That Wal-Mart has secured zoning approval from the Planning Board
of Puerto Rico for a 480,000 sq. ft. shopping center to be built
on the parcel of 63 cuerdas in Parque Escorial sold to Wal-Mart,
which approval is evidenced in Exhibits N and H hereto, of which a
first phase of approximately 260,000 sq. ft. was opened to the
public in 1995, and that Wal-Mart
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intends to solicit approximately 120,000 sq. ft. more of
commercial space at a later date for a total square footage of
approximately 600,000 sq.ft. Seller approved the construction of
said shopping center subject to the terms and conditions contained
in an agreement entered into by Seller and Wal-Mart on March 27,
1991, as subsequently amended, a copy of which is available for
review by Buyer at the offices of Seller.
(xv) That Seller shall dedicate, in accordance with the various stages
of development of Parque Escorial and as required by the pertinent
governmental agencies, to the proper governmental agencies the
main avenues, recreational areas and community facilities that
will be built by Seller in Parque Escorial, including Phase II,
pursuant to the requirements of the Planning Board of Puerto Rico,
as specified in the "Consulta de Ubicacion" and the "Desarrollo
Preliminar".
(xvi) That Seller shall construct, in phases and as required by the
Planning Board of Puerto Rico during the various stages of
development of Parque Escorial, the main recreational area of
Parque Escorial, identified in the Master Plan as the "Great Lawn
Park", and the community facilities identified as such in the
Master Plan, required under the "Consulta de Ubicacion" and the
"Desarrollo Preliminar" for Phase II.
(xvii) That Seller shall provide an adequate area
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within Parque Escorial for the location by Buyer, subject to the
approval of the Architectural Review Committee, of a temporary
structure to be used as the sales office for the Project, the
construction and operating costs of which shall be for the sole
account of Buyer. Said temporary structure shall be removed
immediately after it has served the purpose for what it was
erected.
(xviii) That Seller shall preserve the concept of Parque Escorial as a
master planned community as envisioned in the Master Plan.
(xix) That unless otherwise permitted hereunder, Seller shall release
Buyer from any responsibility for the construction by Seller of
the Infrastructure Improvements, and Phase II Infrastructure
Improvements.
(xx) That other than those parcels already sold in 1996 comprising 516
three (3) bedroom units, and those to be sold on or before
December 30, 1997 comprising 565 three (3) bedroom units, Seller
shall not sell on or before December 15, 1998 additional parcels
of land within the Residential Zone or its equivalency in units
with less or more bedrooms. Notwithstanding the above, upon the
occurrence of any of the events listed hereinafter Seller shall be
entitled to sell other parcels of land within the Residential Zone
and permit the commencement of construction of residential units
thereon as long as the total number of units so approved by
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<PAGE>
Seller to commence construction prior to the 1st day of December
1998 on any such parcel(s) shall not exceed the same number of
units previously approved for any parcel(s) whose buyer(s) fail(s)
to comply with the following conditions:
(A) A buyer of any of the parcels of land within the Residential
Zone on which Seller has initially agreed to the commencement of
construction of the first five hundred and sixteen (516)
residential units or the second five hundred sixty five (565)
units fails, for reasons not attributable to Seller, to acquire
any such parcels of land within four (4) months from the
expiration of the term provided under their respective agreements
of sale including this Agreement;
(B) After acquiring any of such parcel(s) of land its buyer(s)
fail(s), for reasons not attributable to Seller, to commence the
construction of the units to be erected upon any such parcel
before the 15th day of December 1998, or
(C) After commencing construction of the residential units to be
erected on any such parcels of land, construction work is stopped
for a period of more than four (4) months for reasons not
attributable to Seller or acts of God or force majeure.
Furthermore, Seller shall be entitled to sell at any time
prior to December 15, 1998 additional parcels of land within the
Residential Zone, including Phase II, that upon their development
would exceed one
16
<PAGE>
thousand eighty one (1,081) residential units, provided that the
respective agreements of sale and the deeds of sale shall
specifically restrict the commencement of construction of the
residential units to be erected thereon to a date which will not
be in violation of the warranties and representations made by
Seller herein.
(xxi) The Seller shall protect, indemnify and save harmless the Buyer
from and against all liabilities, obligations, damages, penalties,
claims, causes of action, costs, charges and expenses (including
without limiting the generality of the foregoing, court costs,
attorneys' and consultants' fees, environmental cleanup costs,
natural resources damages, fines, penalties and damages to
persons, personal property, real property and business
enterprises, including any and all past, present and future claims
and liability arising out of or relating to the environmental
condition of the Parcel as of the Time of Settlement, existence of
any environmental hazard on the Parcel as of the Time of
Settlement and any release or threat of release of any Hazardous
Substance (as hereinafter defined) of any kind in, on, under or
from the Parcel at any time resulting from a condition existing as
of the Time of Settlement which may be imposed upon or incurred by
or asserted against the Buyer by reason of (i) any accident,
injury or damage to any
17
<PAGE>
person or property occurring on or about the Parcel or any part
thereof, (ii) any use, non-use or condition of the Parcel or any
part thereof, or (iv) any necessity to defend any of the rights,
title or interest conveyed to Buyer by virtue of the Deed of Sale.
Any amounts payable to the Buyer under this paragraph which are
not paid within thirty (30) days after written demand therefor by
the Buyer shall bear interest from the date of such demand until
full payment thereof at a fluctuating annual rate computed on the
basis of a three-hundred-sixty-day (360-day) year and the actual
number of days elapsed) equal to the "prime rate" publicly
announced by Citibank, N.A. in New York, New York, as its
reference, base or prime rate (herein the "prime rate") such
fluctuating rate to change simultaneously with the changes in the
prime rate. In no event shall the interest rate to be charged
hereunder exceed the maximum permissible legal rate. In case any
action, suit or proceeding is brought against the Buyer by reason
of any such occurrence, the Seller, upon request by the Buyer,
will at the Seller's expenses resist and defend such action, suit
or proceeding or cause the same to be resisted or defended, either
by counsel designated by the Seller and approved by the Buyer or,
where such occurrence is covered by liability insurance, by
counsel designated by the insurer.
18
<PAGE>
Notwithstanding anything to the contrary in this Agreement, the
provisions of this indemnity and all other representations,
warranties and covenants contained in this Agreement shall survive
the Time of Settlement. As used in this Agreement the term
Hazardous Substance has the following meaning; (i) any "hazardous
substance", "pollutant" or "contaminant" as said terms are defined
in clauses fourteen (14) and thirty-three (33) of Section one
hundred one (101) of the Comprehensive Environmental Response,
Compensation and Liability Act (CEECLA) [Title Forty-Two (42)
United States Code (U.S.C.) Section nine thousand six hundred one
(9,601), clauses fourteen (14) and thirty-three (33)], or Title
Forty (40) Code of Federal Regulations (C.F.R.) Part three hundred
two (302), as said act and regulation may be amended prior to the
Time of Settlement; (ii) any "hazardous waste" as said term is
defined as of the Time of Settlement in the Puerto Rico
Environmental Quality Board Regulation for the Control of
Hazardous and Non-Hazardous Solid Wastes; (iii) any toxic or
hazardous substance, material or waste (whether solid, liquid or
gaseous); (iv) any substance containing "petroleum", as that term
is defined as of the Time of Settlement, in Section nine thousand
one (9001), clause eight (8) of the Resource Conservation and
Recovery Act (RCRA), [Title Forty-Two (42) U.S.C Section six
19
<PAGE>
thousand nine hundred ninety-one (6,991), clause eight (8)], or
Title Forty (40) C.F.R. Part two hundred eighty point one (280.1);
or (v) any other substance for which any governmental entity shall
be entitled, pursuant to all presently existing rules, regulations
and laws, require special handling in its collection, storage,
treatment or disposal.
3. Warranties and Representations of Buyer. Buyer warrants and represents
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to Seller the following:
(i) That Buyer hereby expressly acknowledges and accepts that no other
such representations or warranties have been made or implied and
agrees that other than the (a) Infrastructure Improvements, as
they relate to the Parcel, to be completed by Seller, (b) the
Phase II Infrastructure Improvements to be completed by Seller,
and (c) the representations and warranties made herein by Seller,
the Parcel will be acquired by Buyer on an "as is where is"
condition. It shall be Buyer's sole responsibility to satisfy
itself, at its sole cost, expense and risk, as to all aspects
regarding the physical condition of the Parcels and, accordingly,
does herein specifically renounce and waive any Seller as to the
Parcel, and all rights, claims and/or causes of forever releasing,
relieving and holding from any and all liability responsibility in
connection therewith. Notwithstanding anything to
20
<PAGE>
the contrary herein, Seller shall not be released from its
liability or legal responsibility for any representations made by
Seller herein.
(ii) That Buyer shall bear all the costs, expenses and risks related to
any request filed by Buyer with any government agency for the
approval of the Project provided that all the warranties and
representations made herein by Seller remain valid.
(iii) That Buyer shall not seek during the term of this Agreement or at
any time after its acquisition of the Parcel any changes to the
presently permitted density, uses or zoning of the Parcel. This
restriction shall also apply to all the successors of Buyer in the
ownership of the Parcel.
(iv) That the Parcel constitutes an integral and important part of
Parque Escorial and as such the Parcel shall always remain subject
to and the Project shall be constructed pursuant to (a) the
Restrictive Covenants, as amended from time to time by the
governing body of the Parque Escorial Residential Owners
Association, a non profit corporation to be organized under the
laws of Puerto Rico by Seller as an association of all the owners
of real property in the residential area of Parque Escorial in
order to insure the orderly development of the Residential Zone
and to provide for the efficient preservation of the facilities
and dmenities to be constructed in the
21
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Residential Zone (hereinafter referred to as the "Association"),
(b) the Design Standards, as amended from time to time by Seller
or the Architectural Review Committee, (c) the Wal-Mart
Restrictions and (d) the Use Restrictions.
(v) That the plans for the development of the Parcel and construction
of the Project, as well as any changes made thereafter which may
modify the character, layout, elevations or density of the
Project, shall be submitted by Buyer to the Architectural Review
Committee for its approval prior to submitting them to the
pertinent government agencies.
(vi) That the average sales price of the three (3) bedroom units
comprising the Project shall not be less than One Hundred
Seventeen Thousand Dollars ($117,000).
(vii) That Buyer agrees that its employees, agents, contractors and sub-
contractors will only utilize the access to the Parcel to be
provided by Seller for the transportation of construction
equipment, supplies and construction materials and that Buyer will
reimburse Seller for any damages caused by those parties from the
unauthorized use of roads or other improvements within Parque
Escorial.
(viii) That Buyer shall impose upon the Parcel its own restrictive
covenants to be administered by a homeowner association composed
of all the owners of units in the Project which shall be
responsible, among other things, for the collection of the
22
<PAGE>
fees to be paid to the Association, as provided in the Restrictive
Covenants, for the services rendered by the Association to the
Residential Zone, including but not limited to the maintenance of
the recreational areas, the fences, the green areas, and the
roads, the security of the Residential Zone and any other services
that the Association deems fit to render pursuant to provisions of
its Certificate of Incorporation and By-Laws.
(ix) That Buyer shall pay one hundred percent (100%) of the cost of
the fence to be built on the boundary line of the Parcel with
Bulevar Media Luna and Bulevar Del Parque, as said roads are
identified in the Master Plan.
(x) That Buyer shall hold Seller safe and harmless from any claim from
third parties resulting from the construction by Buyer and its
agents of the improvements and residential units comprising the
Project including but not limited to those claims arising from
accidents or damages caused by Buyer or its agents outside of the
Parcel.
(xi) That Buyer shall hold Seller safe and harmless from any claim by
third parties arising out of any breach by Buyer of the (a) the
Design Standards, (b) Restrictive Covenants, (c) the Use
Restrictions, (d) any other restriction or condition to which the
Parcel is subject pursuant to the terms and conditions of this
Agreement or, (e) any misrepresentations made by
23
<PAGE>
Buyer to any party.
(xii) That Buyer shall submit to Seller, for Seller's approval, a copy
of the form of option agreement or agreement of sale to be
executed between Seller and the buyers of units within the Project
and shall not enter into any such option agreement or agreement of
sale with any such buyers until such time as Seller has issued its
approval, which approval Seller shall not unreasonably deny.
(xiii) That Buyer acknowledges and accepts that Seller, as the master
developer of Parque Escorial, holds the exclusive right to seek
and make amendments to the Master Plan in the best interest of the
overall development of Parque Escorial, as provided that any such
amendments shall not be in violation of the representations made
by Seller herein.
(xiv) That Buyer acknowledges and agrees that other than the soil
compaction tests referred to in Paragraph 2 (iv) hereof and those
representations and warranties made by Seller as to environmental
matters and Hazardous Substances, as stated in Paragraph 2
sub~paragraph (xxi) hereof, it shall be the sole responsibility of
Buyer to conduct its own soil and sub-soil studies on the Parcel
prior to the execution of this Agreement or at any time during the
term of this Agreement and Buyer hereby releases Seller from any
condition regarding the soil or sub-soil of the Parcel that might
surface prior to
24
<PAGE>
the execution of this Agreement, during the term of the Agreement,
or after the Time of Settlement. Notwithstanding the above, Seller
shall make available to Buyer, at Buyer's request, any other soil
or sub-soil tests that Seller may have conducted on the Parcel; it
being understood that the submittal by Seller of said reports to
Buyer shall not impose any obligation or liability upon Seller and
shall not amend or modify the obligations of Buyer hereunder.
(xv) That Buyer acknowledges and agrees that the timely and orderly
construction of the Project as an integral part of the Residential
Zone is of utmost importance to the successful development of
Parque Escorial as a master planned community; therefore, Buyer or
any of its successors In the ownership of the Parcel shall have
until the later of (i) the 31st day of December 1998 or (ii)
twelve (12) months after the Time of Settlement should the Time of
Settlement take place after the 31st day of March 1998 for reasons
attributable only to Seller, (hereinafter referred to as the
"Commencement of Construction Date"), to, in accordance with the
Design Standards, commence construction of the Project on the
Parcel. In the event that the Commencement Date does not occur
within the term specified hereinbefore in this Paragraph, for
reasons not attributable to Seller or acts of God or force
majeure.
25
<PAGE>
Seller shall have, upon the expiration of said term and without
the need of executing any other document, a valid and binding
first option to repurchase the Parcel at the Purchase Price, as
defined hereinbefore; said option to be exercised by Seller within
one hundred and twenty (120) days from the date of expiration of
such term. Failure by Seller to exercise said option as provided
hereinbefore shall render said option null and void whereby Buyer
shall have no further obligation to sell the Parcel to Seller. For
the purpose of this Paragraph, the Commencement of Construction
Date shall refer to such date on which the Buyer has complied with
all of the following:
(a) the Construction Permit for the Project, as previously
approved by the Architectural Review Committee, has been obtained;
(b) a bonafide construction contract has been executed for
the construction of the Project;
(c) a financing agreement for the construction of the
Project has been executed;
(d) earth movement over the Parcel has commenced.
(xvi) The Buyer shall protect, indemnify and save harmless the Seller
from and against all llabilirlos, obligations, damages, penalties,
claims, causes of action, rests, charges and expenses (including
without limiting the generality of the
26
<PAGE>
foregoing, court costs, attorneys' and consultants' fees,
environmental cleanup costs, natural resources damages, fines,
penalties and damages to persons, personal property, real property
and business enterprises, including any and all past, present and
future claims and liability arising out of or relating to the
existence of any environmental condition on the Parcel resulting
from acts attributable to Buyer and any release or threat of
release of any Hazardous Substance (as said term is defined in
Paragraph 2 sub paragraph (xxi) hereof) of any kind in, on, under
or from the Parcel at any time after the Time of Settlement
resulting from acts attributable of Buyer which may be imposed
upon or incurred by or asserted against the Seller by reason of
(i) any accident, injury or damage to any person or property
occurring on or about the Parcel or any part thereof or, (ii) any
use, non-use or condition of the Parcel or any part thereof. Any
amounts payable to the Seller under this paragraph which are not
paid within thirty (30) days after written demand therefor by the
Seller shall bear interest from the date of such demand until full
payment thereof at a fluctuating annual rate computed on the basis
of a three-hundred-sixty-day (360-day) year and the actual number
of days elapsed) equal to the "prime rate" publicly announced by
Citibank, N.A. in New York, New York, as its reference, base
27
<PAGE>
or prime rate (herein the "prime rate") such fluctuating rate to
change simultaneously with the changes in the prime rate. In no
event shall the interest rate to be charged hereunder exceed the
maximum permissible legal rate. In case any action, suit or
proceeding is brought against the Seller by reason of any such
occurrence, the Buyer upon request by the Seller, will at the
Buyer's expense, resist and defend such action, suit or proceeding
or cause the same to be resisted or defended, either by counsel
designated by the Seller and approved by the Buyer or, where such
occurrence is covered by liability insurance, by counsel
designated by the insurer.
Notwithstanding anything to the contrary in this Agreement, the
provisions of this indemnity and all other representations,
warranties and covenants contained in this Agreement shall survive
the Time of Settlement.
(xvii) That this Agreement and the documents to be executed by Buyer
pursuant to the terms thereof constitute the legal, valid and
binding obligations of Buyer enforceable in accordance with its
terms; and
(xviii) That all necessary actions have been taken by the Board of
Directors of Buyer to authorize the execution and delivery of this
Agreement and the consummation of all transactions contemplated
hereunder.
4. Time for Settlement. Unless otherwise provided for in Paragraph 8
--------------------
hereof, the closing under the terms of
28
<PAGE>
this Agreement for sale by Seller and purchase by Buyer of the Parcel shall be
made not later than fifteen (15) calendar days after Seller has given written
notice to Buyer that the Conditions Precedent, as said term is defined in
Paragraph 2 (v), have been satisfied but in no event sooner than the 30th day of
November 1997 or later than the 31st day of December 1997 (herein referred to as
the "Time of Settlement"). The settlement shall be at a place designated by
Seller.
At the Time for Settlement, title to the Parcel shall be conveyed to Buyer
by a public deed pursuant to the terms and conditions contained herein. The
payment by Buyer of the Purchase Price and any other amounts of money owed to
Seller by Buyer under this Agreement shall be made at the Time of Settlement, in
exchange for the delivery by the Seller to Buyer of the deed referred to in
Paragraph 7 hereof (hereinafter referred to as the "Deed of Sale"), in (i) cash
or cashier's check drawn on a banking institution doing business in Puerto Rico
in favor of Seller in the amount by which the Purchase Price and any such other
amounts owed to Seller by Buyer under this Agreement exceeds the Earnest Money.
5. Allocation of Certain Costs and Charges. Seller shall pay the notarial
----------------------------------------
fees of the Deed of Sale and those incurred by Seller in the preparation of the
Agreement and the Restrictive Covenants, and the internal revenue stamps of the
original of the Deed of Sale. Buyer shall pay for the internal revenue stamps
corresponding to the certified copies of the Deed of Sale and the stamps to be
cancelled in the registration of said certified copies Buyer shall be
responsible for all costs of a title insurance policy solicited by Buyer. Seller
shall be responsible for all the unpaid property taxes on the Parcel up to the
time of executlon of the Deed of Sale
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<PAGE>
and Buyer shall be responsible thereafter. Buyer will reimburse Seller at the
Time of Settlement for any portion of the property taxes for the Parcel paid in
advance by Seller.
Buyer warrants and represents that no broker has participated in the
transaction contemplated under this Agreement or is interested hereby, through
or on account of Buyer. Should any claim for Commission be made by any broker on
account of any acts of Buyer, Buyer will indemnify and hold Seller free and
harmless from any and all liabilities and expenses in connection therewith,
including but not limited to, all legal expenses incurred by Seller as a
consequence thereof.
6. Delivery of Possession. Actual possession of the Parcel shall be
-----------------------
delivered by Seller to Buyer at the Time of Settlement.
7. Deed to be Delivered by Seller at Settlement. The conveyance of the
---------------------------------------------
Parcel under this Agreement shall be by deed (herein referred to as the "Deed of
Sale"). Such deed shall be prepared by Notary Public selected by Seller and
approved by Buyer as to form and substance.
8. Title Defects; Breach by Seller. In the event that (i) the Conditions
--------------------------------
Precedent have not been satisfied or (ii) that Seller cannot transfer title to
the Parcel to Buyer as represented in this Agreement on the dates provided in
Paragraph 4 hereof for reasons attributable to Seller or on account of acts of
God or force majeure, but excluding those acts to be performed by Buyer, the
term of this Agreement shall be automatically extended until such time as the
Conditions Precedent have been satisfied and ritie to the Parcel can be
transferred to Buyer as represented in the Agreement but in no event shall the
Time of Settlement occur later than the 31st day of December 1997.
In the event that as of the 31st day of December
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<PAGE>
1997 Seller has not satisfied the Conditions Precedent or if it is still unable
to transfer title to the Parcel to Buyer as represented in this Agreement for
reasons attributable or not to Seller, but excluding those acts to be performed
by Buyer, Buyer shall have the right to demand from Seller the immediate return
of the Earnest Money to Buyer together with a check in the amount of the costs
incurred by Buyer with third parties, as determined through bonafide evidence
made available to Seller by Buyer, in the preparation of the plans and
geological investigations for the Project in which case all the rights to such
plans and geological investigations shall be acquired by Seller but in no event
shall any such reimbursement of costs be greater than FOUR HUNDRED THOUSAND
DOLLARS ($400,000.00) (hereinafter referred to as the "Reimbursement of Actual
Costs") whereby this Agreement shall be terminated and Seller and Buyer shall
not have any further rights, claims, causes of action or obligations under this
Agreement.
In the event that Buyer does not exercise any such right, the term of this
Agreement shall be further extended to the 30th day of March 1998 and if as such
date, the Conditions Precedent have not been satisfied for any reason not
attributable to Buyer or if Seller is unable to transfer title to the Parcel to
Buyer as represented herein, Seller shall immediately return the Earnest Money
to Buyer together with a check in the amount of the Reimbursement of Actual
Costs whereby this Agreement shall be terminated and Seller and Buyer shall not
have any other rights, claims, causes, actions or obligations under this
Agreement.
9. Default by Buyer. Thirty (30) days after notice thereof has been given
----------------
to Buyer, the Seller, at its sole option, may termiriate all of its obligations
under this Agreement, without liability in the event of any of the
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<PAGE>
following events:
1) With respect to the Buyer or any assignee of the Agreement duly approved
by Seller (hereinafter referred to as the "Assignee"), (i) the filing by or
against it or any case or other proceedings for any relief pursuant to the
bankruptcy or insolvency laws of the United States, of any State, of the
United States Virgin Islands, or of the Commonwealth of Puerto Rico; (ii)
the filing of an answer admitting insolvency or inability to pay debts as
they became due; (iii) a material adverse change in the financial condition
of Buyer or any of the assumptions and representations under which Seller
was induced to enter into this Agreement;
2) The attachment, seizure, levy upon, or taking possession by any
receiver, custodian or assignee for the benefit of creditors of a
substantial part of any property of the Buyer or the Assignee.
3) If Buyer assigns this Agreement to another party without the expressed
written consent of Seller.
4) If Buyer or the Assignee shall default in the performance of any of the
obligations and agreements on its part to be performed under this
Agreement.
Notwithstanding the above, failure by the Seller to pay the Purchase
Price and all other amounts owed to Seller hereunder in the manner and at
tho time provided in this Agreement shall not require thirty (30) days
notice from Seller to become an event of default under this Agreement. Upon
the occurrence of such event
32
<PAGE>
of default, Seller shall be entitled to exercise its rights under this
Agreement immediately.
In the event that Seller decides, at its sole option, to
terminate its obligations under this Agreement, upon the happening of
any of the events of default described above, then the Earnest Money
shall be retained by Seller as additional consideration and liquidated
damages for such breach, whereupon Buyer and Seller, and the Assignee,
if any, shall be released and relieved from all liability towards each
other and this Agreement, shall become null and void; it being
understood that if Seller chooses to terminate its obligations under
this Agreement on account of any of the defaults listed hereinbefore,
the right to retain the Earnest Money, as compensation and liquidated
damages, shall be the sole remedy available to Seller.
In the event that Seller chooses not to terminate its obligations
under this Agreement upon the occurrence of any of the events of
default listed hereinbefore, Seller shall retain its right to demand
specific performance under this Agreement and to seek legal and
monetary remedies from Buyer and the Assignee, if any, in an amount
equal to the sum of the Purchase Price and any monetary damages
suffered by Seller, including but not limited to legal costs incurred
by Seller.
10. Survival of Agreement. Notwithstanding any presumption to the
---------------------
contrary, all agreements contained in this Agreement which by their nature
impliedly or expressly involve performance at any particular time after the Time
of Settlement shall survive the Time of
33
<PAGE>
Settlement.
11. Seller not Bound. The Seller is not liable in any manner by any
----------------
oral or written statements, representations, or other information pertaining to
the Parcel by any broker, agent, employee, servant, account, or any other
person, whether or not associated with or employed by Seller, unless the same
are specifically set forth herein.
12. Right of Access. During the term of this Agreement, Buyer and his
---------------
authorized representatives shall be entitled to enter the Parcel for the purpose
of inspecting the same, making appraisals and conducting engineering
investigations. Buyer agrees to hold Seller safe and harmless from any claim or
liability arising out of any injury to Buyer, or to any of his officers, agents
or employees while in the Parcel, and shall indemnify and hold Seller harmless
from any and all damages, losses, expenses, claims suits, judgments and
liabilities (including claims and suits by and judgment and liabilities to
Buyer's employees) resulting in any way from the acts to Buyer, his agents, or
employees as herein provided. During all times that Buyer enters upon and/or
conducts any surveys, studies, tests, etc. on the Parcel, Buyer shall have and
maintain, at Buyer's cost, public liability and property damage insurance in
form and substance acceptable to Seller with a minimum, single, combined
liability limit of $1,000,000.00 insuring Buyer and Buyer's authorized
representatives, agents, employees, etc., against all liability arising out of
or in connection with Buyer's use or occupancy of the Parcel. The insurance
required herein shall (i) be issued by an insurance company authorized to do
business in Puerto Rico with a financial rating of at least plus 3 status as
reported in the most recent edition of Best's Report; (ii) be issued as a
primary policy; and (iii) contain endorsements naming Seller as additional
insuree and requiring thirty days written notice from the insurance cempany to
Seller and Buyer before cancellation or changing coverage, scope or
34
<PAGE>
amounts. Each policy or a certificate of insurance, together with evidence of
payment of premiums, shall be delivered to Seller prior to entry upon the
Parcels.
Likewise, Seller and its authorized representatives shall be entitled to
enter the Parcel after its acquisition by Buyer for the purpose of conducting
engineering investigations and completing the improvements to the Parcel or the
Phase II Infrastructure Improvements that Seller is obligated to do pursuant to
the terms and conditions of this Agreement. Seller agrees to hold Buyer safe and
harmless from any claim or liability arising out of any injury to Seller, or to
any of his officers, agents or employees while in the Parcel, and shall
indemnify and hold Buyer harmless from any and all damages, losses, expenses,
claims suits, judgments and liabilities (including claims and suits by and
judgment and liabilities to Seller's employees) resulting in any way from the
acts to Seller, his agents, or employees as herein provided. During all times
that Seller enters upon and/or conducts any surveys, studies, tests, etc. on the
Parcel, Seller shall have and maintain, at his cost, public liability and
property damage insurance in form and substance acceptable to Buyer with a
minimum, single, combined liability limit of $1,000,000.00 insuring Seller and
Seller's authorized representatives, agents, employees, etc., against all
liability arising out of or in connection with Seller's use or occupancy of the
Parcel. The insurance required herein shall (i) be issued by an insurance
company authorized to do business in Puerto Rico with a financial rating of at
least plus 3 status as reported in the most recent edition of Best's Report;
(ii) be issued as a primary policy; and (iii) contain endorsements naming Buyer
as additional Insuree and requiring thirty days written notice from the
insurance company to Buyer and Seller before cancellation or changing coverage,
scope or amounts. Each policy or a certificate of insurance, together with
evidence of payment of premiums, shall be delivered to Buyer prior to entry upon
the Parcels.
35
<PAGE>
13. Time to be of Essence. It is distinctly understood and agreed that
---------------------
time wherever specified in this Agreement is made and declared to be of the
essence thereof.
14. Notices. Any notice required or permitted to be given under this
-------
Agreement must be in writing and sent by certified or registered mail, return
receipt requested, to the respective addresses of the parties stated at the
outset of this Agreement or to such other single address as either party may
designate from time to time with the terms of this Paragraph. In the case of
Seller, all notices shall be addressed to Mr. Francisco Arrivi, Senior Vice
President, Interstate General Properties Limited Partnership S.E. - 650 Munoz
Rivera Avenue, Doral Building, Suite 700, Hato Rey, P. R. 00918 with a copy to
Mr. Donald G. Blakeman, Executive Vice President at the same address. In case of
Buyer, all notices shall be addressed to Mr. Joel Katz, Managing Partner, ESJ
Towers - Box 2200, Carolina, P.R. 00979.
15. Construction. This Agreement shall be construed in accordance with
------------
and governed by the laws of the Commonwealth of Puerto Rico and Seller and Buyer
and their assignees hereby submit themselves to the exclusive jurisdiction of
the San Juan Section of the Superior Court of Puerto Rico for any and all
controversies that may arise thereunder.
16. Miscellaneous. Each of the parties acknowledges that it has not
-------------
relied on any agreements or commitments by the other party or any of their
affiliates with respect to the subject matter hereof except the agreements and
commitments specifically set forth herein. This Agreement supersedes and
nullifies all prier agreements and sets forth the entire understanding of the
parties with respect to the Parcel. The Provisions of this Agreement may not be
waived, extended or modified by subsequent conduct, correspondence or otherwise.
Each of the parties agrees that it or he shall not obtain, seek to obtain, or
rely on any waiver, extension, modification, or approval unless the waiver,
extension, modification or approval is evidenced in writing, and
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(b) is specifically approved in writing by the Seller or by Buyer. No delay or
failure of the Seller in exercising any right or privilege hereunder shall
affect such right or privilege; nor shall any single or partial exercise thereof
or any abandonment or discontinuance of steps to enforce such right or privilege
preclude any further exercise thereof or of any other right or privilege. Any
waiver1 extension, modification or approval related to this Agreement shall be
effective only to the extent and subject to the terms and conditions in writing
evidencing the same. Any waiver, extension, modification or approval may be made
subject to additional terms and conditions from time to time after it is given
or agreed to by the party giving or agreeing to it, whether or not such waiver,
extension, modification or approval has been relied on in the meantime by the
other party. Approval by Seller on any matter for which approval is required
shall not be unreasonably withheld. Whenever any reference is made in this
Agreement to an event of default, other than the event of default caused by
Buyer's failure to pay the Purchase Price and any other amounts of money owed to
Seller hereunder in the manner provided in this Agreement, it shall be
understood that no such event of default has occurred until thirty (30) days
have lapsed since notice thereof has been given to Buyer provided therein.
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IN WITNESS WHEREOF, the parties have executed this agreement by their
respective duly authorized officers on the day and year first above written.
SELLER: BUYER: JAK Partnership
S.E., a Puerto Rico
LAND DEVELOPMENT ASSOCIATES S.E., Special Partnership
a Puerto Rico special Partnership
By: INTERSTATE GENERAL PROPERTIES
LIMITED PATNERSHIP, S.E., a By: /s/ Joel Katz
Maryland limited Partnership, ----------------------
its managing partner Joel Katz, managing
general partner
By: INTERSTATE GENERAL COMPANY,
L.P., a Delaware limited
partnership, a general partner
By: INTERSTATE GENERAL MANAGEMENT CORPORATION,
a Delaware corporation, its managing
general partner
By: /s/ Francisco Arrivi Cros
-----------------------------------------
Francisco Arrivi Cros
Title: Senior Vice President
---------------------
38
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AGREEMENT OF SALE
THIS AGREEMENT, made and entered into this 1st day of May 1997 made by and
between LAND DEVELOPMENT ASSOCIATES S.E., a Puerto Rico limited partnership,
having an office at the Doral Building, Suite 700, 650 Munoz Rivera Avenue, Hato
Rey, Puerto Rico (hereinafter referred to as the "Seller",) and PARQUE DE LAS
VISTAS S.E., having an Office at Suite 209, P.O. Pox 194000, San Juan, Puerto
Rico 00919-4000 hereinafter referred to as the Buyer).
PRELIMINARY STATEMENT
---------------------
WHEREAS Seller owns two (2) parcels of land of approximately 13,728.4473 and
20,324.0806 square meters (3.4929 and 5.1709 cuerdas, respectively) in the San
Anton Ward of Carolina, Puerto Rico, which parcels of land are identified as
Parcel II-3 and 4/5 in a survey prepared by Engineer Luis F. Franquf on December
13, 1996, a copy of which is attached hereto as Exhibit A, (hereinafter
collectively referred to as the "Parcel").
WHEREAS the Parcel is an integral and important part of Parque Escorial, a
master planned residential, commercial and light industrial community
(hereinafter referred to as "Parque Escorial") being developed by Seller in a
parcel of land of approximately 439 cuerdas located in the municipalities of San
Juan and Carolina, Puerto Rico (hereinafter referred to as "Main Farm"), best
described in the attached copy of the Parque Escorial master plan (the "Master
Plan") which is made Exhibit B hereto, and as such, the Parcel shall, at the
Time of Settlement, as said term is defined hereinafter, be subject to (i)
certain restrictive covenants pursuant to a Deed of Declaration of Covenants,
Conditions and Restrictions and Establishment of Parque Escorial Homeowners
Association (hereinafter referred to as the Restrictive Covenants) , a draft of
which is attached hereto as Exhihit C, (ii) the design standards for Parque
Escorial (hereinafter referred to as the "Design Standards"), attached hereto as
Exhibit D, (iii) certain use restrictions best
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described in Paragraph 2 (xiii) of this Agreement (hereinafter referred to as
the Wal-Mart Use Restrictions) and (iv) other use restrictions best described in
Paragraph 2 (i) (hereinafter referred to as the "Use Restrictions")
WHEREAS, the Parcel comprises two (2) of approximately nine (9) parcels of
land of various sizes comprising Phase II, as said term is defined in the Master
Plan and the Design Standards, (hereinafter referred to as "Phase II"), oh which
approximately one thousand eighty one (1,081) residential units are planned to
be constructed in accordance with the provisions of the Restrictive Covenants,
the Design Standards, and any other restriction specified in this Agreement, and
subject to the approval of Seller and the Architectural Review Committee, as
said term is defined in the Restrictive Covenants (hereinafter referred to as
the "Architectural Review Committee")
WHEREAS, Phase II is one of several phases in which Seller plans to develop
the areas designated for residential use in the Master Plan, (hereinafter
referred to as the "Residential Zone").
WHEREAS, pursuant to the Master Plan and unless otherwise approved by Seller,
the Parcel can only be used for the development of one (1) residential project
totalling not more than two hundred (200) three bedroom units, or its
equivalency in units with less or more bedrooms as determined by Seller in
accordance with the standards of the Planning Board of Puerto Rico, to be
designed and built in accordance with the Restrictive Covenants, the Design
Standards and subject to the approval of the Architectural Review Committee,
(hereinafter referred to as the "Project")
WHEREAS, Seller has agreed to sell and Buyer agrees to purchase the Parcel
under the terms and conditions hereinafter set forth, together with all rights,
titles, improvements and any and all things appertaining thereto and or forming
part thereof
WHEREAS, subject to the provisions hereof, this agreement shall, upon the
placing by Buyer of the full amount of the Earnest Money, as said term is
defined hereinafter, be a binding
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Agreement of Sale (hereinafter referred to as the "Agreement"), enforceable at
law or in equity for the sale by Seller and purchase by Buyer of the Parcel at
the Purchase Price provided in Paragraph 1 hereof, upon the terms and conditions
contained herein.
WHEREAS, it is the expressed intention of the parties that this Agreement
is solely for the benefit of the parties hereto and shall give rise to no rights
to any other party, and under no circumstances shall Buyer transfer or assign
this Agreement to another party except with the written consent of the Seller,
provided, however, that if such transfer or assignment shall be to a party
related to Buyer through common ownership and that reasonable evidence of such
relationship is provided by Buyer to Seller to the effect that such transfer or
assignment in no way alters the intent, terms, conditions and guarantee of this
Agreement, Seller shall not unduly withhold its consent to the assignment. Any
such assignment or transfer will not release Buyer from the obligations and
responsibilities assumed under the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants set forth below,
the parties agree as follows:
1. Purchase Price: Reimburseinent of Impact Fees. Subject to the
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provisions of Paragraphs 4 thru 11 hereof, the Purchase Price of the Parcel
shall be equal to the sum of the (i) Four Milion Dollars ($4,000,000), and (ii)
the amount obtained by multiplying Nineteen Thousand Dollars ($20,000) times the
number of three (3) bedroom units, or its equivalency in units with less or more
bedrooms, to be built by Buyer on the Parcel that exceeds two hundred (200)
units and shall be payable as follows:
(i) Two Hundred Thousand Dollars ($200,000) as a good faith deposit
(hereinafter referred to as the "Earnest Money") upon the execution of this
Agreement, the receipt and adequacy of which to hereby acknowledged;
(ii) A certified or bank manager's check from a banking institution to be
delivered to Seller at the Time of
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Settlement in the amount by which the Purchase Price, as determined pursuant to
the provisions of this Paragraph, exceeds the Earnest Money.
The obligation of Buyer to pay (i) Seller Twenty Thousand Dollars ($20,000)
for each three (3) bedroom unit, or its equivalency in units with more or less
bedrooms to be built in the Project, shall survive the Time of Settlement, it
being understood that in order to calculate the Purchase Price any unit which is
deemed to be convertible to a unit with additional bedrooms shall be considered
as a unit having the maximum number of bedrooms that it could be converted into.
In addition to the Purchase Price, upon the obtainment of the Use Permits
for the units, Buyer shall pay Seller, an amount equal to Five Hundred and
Twenty Dollars ($520.00) multiplied by the number of three (3) bedroom units, or
its equivalency in units with less or more bedrooms, in the Project as a
reimbursement of advances made by Seller on the $1,000 per unit impact fee
charged by the Puerto Rico Aqueduct and Sewer Authority ("PRASA") on each three
(3) bedroom unit, or its equivalency in units with less or more bedrooms, built
at Parque Escorial pursuant to an agreement entered into by Seller and PRASA on
May 27, 1994, by means of which (i) PRASA endorsed Parque Escorial and (ii)
established the obligations of each developer of commercial and residential land
in Parque Escorial towards PRASA including, but not limited to, the payment of
tap-in fees for the connection of the water and sewer systems and an impact fee
of $1,000 per each three (3) bedroom unit, a copy of which is attached hereto as
Exhibit E. The remaining portion of the impact fee, that is, $480.00 per each
three (3) bedroom unit, is to be paid by Buyer to PRASA upon the procurement of
the use Permits for the units comprising the Project.
2. Warranties and Representations of Seller. Seller
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warrants and represents to Buyer the following:
(i) That Seller is, and on the Time of Settlement will be, the lawful owner
of the Parcel to be sold and delivered by it hereunder and has full right
and authority to sell and deliver the same in accordance with this
Agreement. Upon the delivery of the Parcel to Buyer pursuant to the
provisions of this Agreement, Seller will convey and transfer to Buyer by
Public Deed a valid, fee simple (pleno dominio), insurable and recordable
title to the Parcel, free and clear of all mortgage liens and of any
encumbrances and other charges or restrictions which presently affect the
Parcel, subject only to those matters set forth herein including but not
limited to the (a) the Restrictive Covenants; (b) the Design Standards; (c)
the Wal-Mart Use Restrictions; (d) the requirements of PRASA as defined in
Exhibit E hereto; (e) the requirements of the Highway Authority of Puerto
Rico, as defined in Exhibit F hereto including an impact fee in the amount
of $1,000 per three (3) bedroom unit payable upon procurement of the Use
Permit for the (f) a covenant in the deed of sale providing that the Parcel
can only be developed for residential purposes and that unless otherwise
approved by Seller, the density of development on the Parcel may not exceed
two hundred (200) three bedroom units, and that the design and construction
of the Project have to be in
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conformity with the Restrictive Covenants, the Design Standards, as
determined by the Architectural Review Committee, (herein referred to as
the "Use Restrictions"); and (g) to those normal and ordinary liens,
encumbrances and easements required by governmental authorities for
public services and which a search at the Registry of the Property would
reveal hereto;
(ii) That Seller shall not take any action during the term of this Agreement
which would impair title to the Parcel or further encumber the Parcel,
except for (a) the mortgage liens securing financing arrangements
required by Seller for the development of Pargue Escorial, from which the
Parcel will be released upon its acquisition by Buyer, (b) encumbrances
and easements required by the governmental authorities for the furnishing
of public services, (c) the Restrictive Covenants (d) the Design
Standards (e) the Wal-Mart Use Restrictions and (f) the Use Restrictions.
(iii) That Seller shall not willfully take any action which would impair the
physical condition of the Parcel during the term of this Agreement;
(iv) That Seller has not made and does not make any representations or
warranties whatsoever concerning the physical condition of the Parcel,
accesses, zoning, soil or subsoil condition, availability of utilities,
construction or use permits, or
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any other permits issued by the government agencies affecting or related
to or necessary for the development or use of the Parcel or any other
matter or thing affecting or related to the Parcel or the Project, other
than those specifically referred to in (a) this Agreement, (b) the Master
Plan, (c) the "Consulta de Ubicacion" for Parque Escorial issued by the
Planning Board of Puerto Rico dated October 27, 1992, as amended on
December 23, 1994 and February 28, 1997, copies of which are attached
hereto as Exhibits G, H and I (hereinafter referred to as the "Consulta
de Uhicacion") and (d) the "Desarrollo Preliminar" of Parque Escorial
approved by the Administracion de Reglamentos y Permisos of Puerto Rico
("ARPE") on October 6, 1995, as amended on August 25, 1993 and October 6,
1995 copies of which are attached hereto as Exhibit J, J(a) and J(b)
(hereinafter referred to as the "Desarrollo Preliminar") (e) an agreement
between Seller and PRASA, a copy of which is attached hereto as Exhibit
E, (f) the agreement entered into by Seller and the Puerto Rico Highway
Authority dated November 22, 1991, as ratified on August 22, 1994, which
states among other things, that each developer of residential units in
Pargue Escorial has to pay a $1,000 impact fee to the Highway Authority
for each three (3) bedroom unit to be developed, including those to be
developed in the Parcel, a copy ot which is attached
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hereto as Exhibit F, (g) the Wal-Mart Use Restrictions, (h) the Use
Restrictions and (i) the warranties and representations made herein by
Seller regarding the Infrastructure Improvements, as said term is defined
in Paragraph 2 (vi) hereof, the Phase II Infrastructure Improvements, as
said term is defined in Paragraph 2 (vii), and that the Parcel is
presently approved for "high medium density" residential use under the
Parameters of a R-3 zoning.
(iv) That Seller shall provide Buyer at least one hundred fifty (150) calendar
days before the Time of Settlement with (i) an "as built" topographic map
of the Parcel and (ii) a written report prepared by a qualified
geotechnical engineer to the effect that the compaction of the fill
material placed on the Parcel by Seller is in accordance with ASTM-D 2922
standard test methods for density of soil and soil aggregate in place by
nuclear methods (shallow depth) to no less than ninety five percent (95%)
of the maximum dry density as defined in ASTM-D698 standard test methods
for moisture density relations of soils and soil aggregate mixtures using
5.5 pound rammer and 12 inch drop ("standard proctor tests"); (ii) a
certification by a licensed civil engineer or surveyor to the effect that
the rough grading, as said term is known in the land development
industry, of the Parcel at the Time of Settlement is the one specified in
the grading plan of the
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Parcel that is part of Exhibit N hereof, as said exhibit is identified in
Paragraph 2 (vii) hereof; and (iii) a certification from Seller to the
effect that the Parcel, including the access to the Parcel to be provided
by Seller for the transportation of materials and construction equipment
to be used in the construction of the Project, shall be in such physical
condition at the Time of Settlement that Buyer shall be able to commence
the development of the Project immediately thereafter.
The above conditions are hereinafter referred to as the "Conditions
Precedent".
(vi) That prior to (i) the date in which the Project has been issued a Use
Permit by the regulatory governmental agencies or (ii) the date in which
such Use Permit could been reasonably expected to have been issued had
the work specified hereinafter had been completed on a timely and
satisfactory manner, absent any acts of God or force majeure, Seller
shall have substantially completed (a) all the improvements to the 65th
Infantry Avenue described in the plans and specifications prepared by
Engineer Luis F. Franqui, dated February 11, 1994, as amended from time
to time, made an exhibit hereto by reference only (hereinafter referred
to as "Exhibit K") which plans and specifications constitute the object
of a construction contract awarded to Rexach Construction Company on
October 21, 1994
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made an exhibit hereto by reference only (hereinafter referred to as
Exhibit L), (b) all the improvements to the infrastructure of Parque
Escorial described in the plans and specifications prepared by Engineer
Luis F. Franqui, dated March 1, 1994, as amended from time to time, made
an exhibit hereto by reference only (hereinafter referred to as "Exhibit
M"), which plans and specifications constitute the object of a
construction contract awarded to Rexach Construction Company on October
21, 1994, made Exhibit M hereto by reference only.
The improvements to the 65th Infantry Avenue described in Exhibit K
hereto and the improvements to the infrastructure of Parque Escorial
described in Exhibit M hereto shall be collectively referred to herein as
the "Infrastructure Improvements".
(vii) That prior to the date in which the Project has been issued a Use Permit
by the pertinent regulatory governmental agencies or the date in which
such Use Permit could had been reasonably expected to have been issued
had the work described hereinafter been completed on a timely and
satisfactory manner, absent any act of God or force majeure, Seller shall
have completed (a) those improvements to Phase II shown in the plans and
specifications prepared by Engineer Luis F. Franqui, dated May 24, 1995,
as amended from time to time, made Exhibit N hereto by
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reference only, which are the object of a construction contract awarded
to Constructora Santiago, Inc., on August 24, 1995, made an exhibit
hereto by reference only (hereinafter referred to as Exhibit 0), and (b)
the improvements described hereinafter, none of which is part of the work
contemplated under Exhibits K, M, N and 0.
1) Cyclone wire fence along the exterior perimeter of Phase II and a
concrete fence along the north boundary of the Residential Zone to be
built in stages. The first stage will run from the east boundary of
Parcel 11-10 to the east section of the Great Lawn Park, as said area is
identified in the Master Plan.
2) Gate and guard house at the East entrance of Boulevard Media Luna, as
said road is identified in the Master Plan.
3) Extension of Avenida Sur, as said road is identified in the Master
Plan, from the east entrance of the Residential Zone to the site of the
Carolina Regional College of the University of Puerto Rico.
4) Landscaping of Avenida Este, as said road is identified in the Master
Plan.
5) 0ff site electrical work required to service Phase II.
Those improvements described in Exhibit N, which are part of the
construction contract referred to herein as Exhibit 0 and the
improvements listed herein under Paragraph 2 (vii) (b) hereof are
referred to herein as the "Phase II
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Infrastructure Improvements".
(viii) That Seller shall have available for inspection by Buyer at all times
at its offices copies of Exhibits K, L, M, N and 0.
(ix) That this Agreement and the documents to be executed by Seller pursuant
to the terms thereof constitute the legal, valid and binding obligation
of Seller enforceable in accordance with its terms.
(x) That all necessary actions have been taken by the Board of Directors of
Seller to authorize the execution and delivery of this Agreement and
the consummation of all transactions contemplated hereunder.
(xi) That all information owned or available to Seller as of the date of
this document or at any time, prior, during or after the construction
of the Project such as plans, studies and government agencies'
approvals of any kind pertaining to the development of the Parcel or
Parque Escorial shall be made available at no cost to Buyer for the
purpose of designing the Project and seeking the necessary approvals
from governmental agencies for the proposed development of the Project
or for any other reasonable use.
(xii) That other than (a) the Restrictive Covenants (b) the Design Standards,
(c) the Wa1-Mart Use Restrictions, (d) the Western Auto Restrictions,
(e) the Use Restrictions and (f) those restrictions or conditions
imposed by the government agencies as described in Exhibits E thru J
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(B) or other restrictions or requirements typical of the development of
a master planned community, there are no other restrictions regarding
the use of the Parcel as the site of the Project to be developed as
intended in the Master Plan.
(xiii) That upon the sale of a parcel of land of 63 cuerdas to Wal-Mart Puerto
Rico, Inc. ("Wal-Mart") on March 27, 1991, certain restrictions were
imposed on the Main Farm but excluding the parcel acquired by Wal-Mart
(herein referred to as the "Wal-Mart Use Restrictions") which
restrictions, as a result of subsequent amendments, are now as follows:
(a) Unless otherwise waived by Wal-Mart, no portion of Parque Escorial,
including but not limited to, the Parcel, shall be used for, nor shall
there be permitted upon Parque Escorial the operation of: (i) any type
of department store, wholesale club or supermarket store; or (ii) any
other type of single retail store containing more than twenty five
thousand (25,000) square feet of gross floor area.
(xiv) That Wal-Mart has secured zoning approval from the Planning Board of
Puerto Rico for a 480,000 sq. ft. shopping center to be built on the
parcel of 63 cuerdas in Pargue Escorial sold to Wal-Mart, which
approval is evidenced in Exhibits G, H and I hereto, of which a first
phase of approximately 260,000 sq. ft. was opened to the public in
1995, and that Wal-Mart intends to solicit approximately 120,000
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sq. ft. more of commercial space at a later date for a total square
footage of approximately 600,000 sq.ft. Seller approved the
construction of said shopping center subject to the terms and
conditions contained in an agreement entered into by Seller and Wal-
Mart on March 27, 1991, as subsequently amended, a copy of which is
available for review by Buyer at the offices of Seller.
(xv) That Seller shall dedicate, in accordance with the various stages of
development of Parque Escorial and as required by the pertinent
governmental agencies, to the proper governmental agencies the main
avenues, recreational areas and community facilities that will be built
by Seller in Parque Escorial, including Phase II, pursuant to the
requirements of the Planning Board of Puerto Rico, as specified in the
"Consulta de Ubicacion" (Exhibit G, H and I) and the "Desarrollo
Preliminar" (Exhibit J, J(a) and J(b).)
(xvi) That Seller shall construct, in phases and as required by the Planning
Board of Puerto Rico during the various stages of development of Parque
Escorial, the main recreational area of Pargue Escorial, identified in
the Master Plan as the "Great Lawn Park", and the community facilities
identified as such in the Master Plan, required under the "Consulta de
Ubicacion" and the "Desarrollo Proliminar" for Phase II.
(xvii) That Seller shall provide an adequate area
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within Parque Escorial for the location by Buyer, subject to the
approval of the Architectural Review Committee, of a temporary
structure to be used as the sales office for the Project, the
construction and operating costs of which shall be for the sole account
of Buyer. Said temporary structure shall be removed immediately after
it has served the purpose for what it was erected.
(xviii) That Seller shall preserve the concept of Parque Escorial as a master
planned community as envisioned in the Master Plan.
(xix) That unless otherwise permitted hereunder, Seller shall release Buyer
from any responsibility for the construction by Seller of the
Infrastructure Improvements, and Phase II Infrastructure Improvements.
(xx) That other than those parcels already sold through January 31, 1997
comprising 516 three (3) bedroom units, or its equivalency in units
with more or less bedrooms, and those 565 three (3) bedroom units now
being offered for sale, or its equivalency in units with less or more
bedrooms Seller shall not sell on or before December 15, 1998 any
additional parcels of land within the Residential Zone. Notwithstanding
the above, upon the occurrence of any of the events listed hereinafter
Seller shall be entitled to sell other parcels of land within the
Residential Zone and permit the commencement of construction of
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residential units thereon as long as the total number of units so
approved by Seller to commence construction prior to the 31st day of
December 1998 on any such parcel(s) shall not exceed the same number of
units previously approved for any parcel(s) whose buyer(s) fail(s) to
comply with the following conditions:
(A) A buyer of any of the parcels of land within the Residential Zone
on which Seller has initially agreed to the commencement of
construction of the first five hundred and sixteen (516) residential
units or the second five hundred sixty five (565) units fails, for
reasons not attributable to Seller, to acquire any such parcels of land
within four (4) months from the expiration of the term provided under
their respective agreements of sale, including this Agreement;
(B) After acquiring any of such parcel(s) of land its buyer(s) fail(s),
for reasons not attributable to Seller, to commence the construction of
the units to be erected upon any such parcel before the 15th day of
January 1999, or
(C) After commencing construction of the residential units to be
erected on any such parcels of land, construction work is stopped for a
period of more than four (4) months for reasons not attributable to
Seller or acts of God or force majeure.
Furthermore, Seller shall be entitled to sell at any time prior to
December 15, 1997 additional parcels of land within the
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Residential Zone, including Phase II, that upon their development would
exceed one thousand eighty one (1,081) residential units, provided that
the respective agreements of sale and the deeds of sale shall
specifically restrict the commencement of construction of the
residential units to be erected thereon to a date which will not be in
violation of the warranties and representations made by Seller herein.
(xxi) The Seller shall protect, indemnify and save harmless the Buyer from
and against all liabilities, obligations, damages, penalties, claims,
causes of action, costs, charges and expenses (including without
limiting the generality of the foregoing, court costs, attorneys' and
consultants' fees, environmental cleanup costs, natural resources
damages, fines, penalties and damages to persons, personal property,
real property and business enterprises, including any and all past,
present and future claims and liability arising out of or relating to
the environmental condition of the Parcel as of the Time of Settlement,
existence of any environmental hazard on the Parcel as of the Time of
Settlement and any release or threat of release of any Hazardous
Substance (as hereinafter defined) of any kind in, on, under or from
the Parcel at any time resulting from a condition existing as of the
Time of Settlement which may be imposed upon or incurred by
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or asserted against the Buyer by reason of (i) any accident, injury or
damage to any person or property occurring on or about the Parcel or
any part thereof, (ii) any use, non-use or condition of the Parcel or
any part thereof, or (iv) any necessity to defend any of the rights,
title or interest conveyed to Buyer by virtue of the Deed of Sale. Any
amounts payable to the Buyer under this paragraph which are not paid
within thirty (30) days after written demand therefor by the Buyer
shall bear interest from the date of such demand until full payment
thereof at a fluctuating annual rate computed on the basis of a three-
hundred-sixty-day (360-day) year and the actual number of days elapsed)
equal to the "prime rate" publicly announced by Ciibank, N.A. in New
York, New York, as its reference, base such fluctuating rate to change
or prime rate (herein the "prime rate") simultaneously with the changes
in the prime rate. In no event shall the interest rate to be charged
hereunder exceed the maximum permissible legal rate. In case any
action, suit or proceeding is brought against the Buyer by reason of
any such occurrence, the Seller, upon request by the Buyer, will at the
Seller's expenses resist and defend such action suit or proceeding or
cause the same to be resisted or defended, either by counsel designated
by the Seller and approved by the Buyer or, where such occurrence is
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covered by liability insurance, by Counsel designated by the insurer.
Notwithstanding anything to the contrary in this Agreement, the
Provisions of this indemnity and all other representations, warranties
and covenants contained in this Agreement shall survive the Time of
Settlement. As used in this Agreement the term Hazardous Substance has
the following meaning; (i) any "hazardous substance", "pollutant" or
"contaminant" as said terms are defined in clauses fourteen (14) and
thirty-three (33) of Section one hundred one (101) of the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) [Title
Forty-Two (42) United States Code (U.S.C.) Section nine thousand six
hundred one (9,601), clauses fourteen (14) and thirty-three (33)], or
Title Forty (40) Code of Federal Regulations (C.F.R.) Part three
hundred two (302), as said act and regulation may be amended prior to
the Time of Settlement; (ii) any "hazardous waste" as said term is
defined as of the Time of Settlement in the Puerto Rico Environmental
Quality Board Regulation for the Control of Hazardous and Non-Hazardous
Solid Wastes; (iii) any toxic or hazardous substance, material or waste
(whether solid, liquid or gaseous); (iv) any substance containing
"petroleum", as that term is defined as of the Time of Settlement, in
Section nine thousand one (9001), clause eight (8) of the Resource
19
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Conservation and Recovery Act (RCRA), [Title Forty-Two (42) U.S.C.
Section six thousand nine hundred ninety-one (6,991), clause eight
(8)], or Title Forty (40) C.F.R. Part two hundred eighty point one
(280.1); or (v) any other substance for which any governmental entity
shall be entitled, pursuant to all presently existing rules,
regulations and laws, require special handling in its collection,
storage, treatment or disposal.
3. Warranties and Representations of Buyer. Buyer warrants and
---------------------------------------
represents to Seller the following:
(i) That Buyer hereby expressly acknowledges and accepts that no other such
representations or warranties have been made or implied and agrees that
other than the (a) Infrastructure Improvements, as they relate to the
Parcel, to be completed by Seller, (b) the Phase II Infrastructure
Improvements to be completed by Seller, and (c) the representations and
warranties acquired by Buyer on an "as is where is" made herein by
Seller, the Parcel will be condition. It shall be Buyer's sole
responsibility to satisfy itself, at its sole cost, expense and risk,
as to all aspects regarding the physical condition of the Parcels and,
accordingly, does herein specifically renounce and waive any and all
rights, claims and/or causes of action against Seller as to the Parcel,
forever releasing, relieving arid holding harmless Seller from any and
all liability
20
<PAGE>
or legal responsibility in Connection therewith. Notwithstanding
anything to the contrary herein, Seller shall not be released from its
liability or legal responsibility for any representations made by
Seller herein.
(ii) That Buyer shall bear all the costs, expenses and risks related to any
request filed by Buyer with any government agency for the approval of
the Project Provided that all the warranties and representations made
herein by Seller remain valid.
(iii) That Buyer shall not seek during the term of this Agreement or at any
time after its acquisition of the Parcel any changes to the presently
permitted density, uses or zoning of the Parcel. This restriction shall
also apply to all the successors of Buyer in the ownership of the
Parcel.
(iv) That the Parcel constitutes an integral and important part of Pargue
Escorial and as such the Parcel shall always remain subject to and the
Project shall be constructed pursuant to (a) the Restrictive Covenants,
as amended from time to time by the governing body of the Pargue
Escorial Residential Owners Association, a non profit corporation to be
organized under the laws of Puerto Rico by Seller as an association of
all the owners of real property in the residential area of Pargue
Escorial in order to insure the orderly development of the Residential
Zone and to provide for the efficient
21
<PAGE>
preservation of the facilities and amenities to be constructed in the
Residential Zone (hereinafter referred to as the "Association"), (b)
the Design Standards, as amended from time to time by Seller or the
Architectural Review Committee, (c) the Wal-Mart Restrictions and (d)
the Use Restrictions.
(v) That the plans for the development of the Parcel and construction of
the Project, as well as any changes made thereafter which may modify
the character, layout, elevations or density of the Project, shall be
submitted by Buyer to the Architectural Review Committee for its
approval prior to submitting them to the pertinent government agencies.
(vi) That the average sales price of the three (3) bedroom units
comprising the Project shall not be less than One Hundred Seventeen
Thousand Dollars ($117,000).
(vii) That Buyer agrees that its employees, agents, contractors and sub-
contractors will only utilize the access to the Parcel to be provided
by Seller for the transportation of construction equipment,
construction materials and that Buyer will reimburse Seller for any
damages caused by those parties from the unauthorized use of roads or
other improvements within Pargue Escorial.
(viii) That Buyer shall impose upon the Parcel its own restrictive covenants
to be administered by a homeowner association composed of all the
owners of units in the
22
<PAGE>
Project which shall be responsible, among other things, for the
collection of the fees to be paid to the Association, as provided in
the Restrictive Covenants, for the services rendered by the Association
to the Residential Zone, including but not limited to the maintenance
of the recreational areas, the fences, the green areas, and the roads,
the security of the Residential Zone and any other services that the
Association deems fit to render Pursuant to provisions of its
Certificate of Incorporation and By-Laws.
(ix) That Buyer shall pay one hundred percent (100%) of the cost of the
fence to be built on the boundary line of the Parcel with Bulevar Media
Luna and Bulevar Del Parque, as said roads are identified in the Master
Plan, and the fence bordering with the Great Lawn Park, which fences
must conform with the Design Standards and be subject to the approval
of the Architectural Review committee.
(x) That Buyer shall hold Seller safe and harmless from any claim from
third parties resulting from the construction by Buyer and its agents
of the improvements and residential units comprising the Project
including but not limited to those claims arising from accidents or
damages caused by Buyer or its agents outside of the Parcel.
(xi) That Buyer shall hold Seller safe and harmless from any claim by third
parties arising out of any breach by Buyer of the
23
<PAGE>
(a) the Design Standards, (b) Restrictive Covenants1 (c) the Use
Restrictions, (d) any other restriction or condition to which the
Parcel is subject pursuant to the terms and conditions of this
Agreement or, (e) any misrepresentations made by Buyer to any party.
(xii) That Buyer shall submit to Seller, for Seller's approval, a copy of the
form of option agreement or agreement of sale to be executed between
Seller and the buyers of units within the Project and shall not enter
into any such option agreement or agreement of sale with any such
buyers until such time as Seller has issued Its approval, which
approval Seller shall not unreasonably deny.
(xiii) That Buyer acknowledges and accepts that Seller, as the master
developer of Pargue Escorial, holds the exclusive right to seek and
make amendments to the Master Plan in the best interest of the overall
development of Pargue Escorial, as provided that any such amendments
shall ot be in violation of the representations made by Seller herein.
(xiv) That Buyer acknowledges and agrees that other than the "as built"
topographic map of the Parcel and the soil compaction tests referred to
in Paragraph 2 (iv) hereof and those representation and warranties made
by Seller as to environmental matters and Hazardous Substances, as
stated in Paragraph 2 subparagraph (xxi) hereof, it shall be the
24
<PAGE>
sole responsibility of Buyer to conduct its own soil and sub-soil
studies on the Parcel prior to the execution of this Agreement or at
any time during the term of this Agreement and Buyer hereby releases
Seller from any condition regarding the soil or sub-soil of the Parcel
that might surface prior to the execution of this Agreement, during the
term of the Agreement, or after the Time of Settlement. Notwithstanding
the above, Seller shall make available to Buyer, at Buyer's request,
any other soil or subsoil tests that Seller may have conducted on the
Parcel; it being understood that the submittal by Seller of said
reports to Buyer shall not impose any obligation or liability upon
Seller and shail not amend or modify the obligations of Buyer
hereunder,
(xv) That Buyer acknowledges and agrees that the timely and orderly
construction of the Project as an integral part of the Residential Zone
is of utmost importance to the successful development of Pargue
Escorial as a master planned commuity; therefore, Buyer or any of its
successors in the ownership of the Parcel shall have until the later of
(i) the l5th day of January 1999 or (ii) twelve (12) months after the
Time of Settlement should the Time of Settlement take place after the
31st day of March 1998 for reasons attributable only to Seller,
(hereinafter referred to as the "Commencement of
25
<PAGE>
Construction Date"), to, in accordance with the Design Standards,
commence construction of the Project on the Parcel. In the event that
the Commencement of Construction Date does not occur within the term
specified hereinbefore in this Paragraph, for reasons not attributable
to Seller or acts of God or force majeure. Seller shall have, upon the
expiration of said term and without the need of executing any other
document, a valid and binding first option to repurchase the Parcel at
the Purchase Price, as defined hereinbefore; said option to be
exercised by Seller within one hundred and twenty (120) days from the
date of expiration of such term. Failure by Seller to exercise said
option as provided hereinbefore shall render said option null and void
whereby Buyer shall have no further obligation to sell the Parcel to
Seller. For the purpose of this Paragraph, the Commencement of
Construction Date shall refer to such date on which the Buyer has
complied with all of the following:
(a) the Construction Permit for the Project, as previously
approved by the Architectural Review Committee, has been obtained;
(b) a bonafide construction contract has been executed for the
construction of the Project;
(c) a financing agreement for the construction of the Project has
been executed;
26
<PAGE>
(d) earth movement over the Parcel has commenced.
(xvi) That the final grading of the Project in its boundaries with Bulevar
Media Luna, Bulevar Del Parque, the Great Lawn Park and the residential
project being developed in Parcels II-1 and 2 named Portales de Parque
Escorial must have the same elevations as those of the adjacent parcels.
(xvii) The Buyer shall protect, indemnify and save harmless the Seller from and
against all liabilities, obligations, damages, penalties, claims, causes
of action, costs, charges and expenses (including without limiting the
generality of the foregoing, court costs, attorneys' and consultants'
fees, environmental cleanup costs, natural resources damages, fines,
penalties and damages to persons, personal property, real property and
business enterprises, including any and all past, present and future
claims and liability arising out of or relating to the existence of any
environmental condition on the Parcel resulting from acts attributable
to Buyer and any release or threat of release of any Hazardous Substance
(as said term is defined in Paragraph 2 sub paragraph (xxi hereof) of
any kind in, on, under or from the Parcel at any time after the Time of
Settlement resulting from acts attributable of Buyer which may be
imposed upon or incurred by or asserted against the Seller by reason
27
<PAGE>
of (i) any accident, injury or damage to any person or property
occurring on or about the Parcel or any part thereof or, (ii) any use,
non-use or condition of the Parcel or any part thereof. Any amounts
payable to the Seller under this paragraph which are not paid within
thirty (30) days after written demand therefbr by the Seller shall bear
interest from the date of such demand until full payment thereof at a
fluctuating annual rate computed on the basis of a (360-day) year and
the actual number of days elapsed) equal to the "prime rate" publicly
announced by Citibank, N.A. in New York, New York, as its reference,
base or prime rate (herein the "prime rate") such fluctuating rate to
change simultaneously with the changes in the prime rate. In no event
shall the interest rate to be charged hereunder exceed the maximum
permissible legal rate. In case any action, suit or proceeding is
brought against the Seller by reason of any such occurrence, the Buyer
upon request by the Seller, will at the Buyer's expense, resist and
defend such action, suit or proceeding or cause the same to be resisted
or defended, either by counsel designated by the Seller and approved by
the buyer or, where such occurrence is covered by liability insurance,
by counsel designated by the insurer. Notwithstanding anything to the
contrary in this Agreemont, the provisions of this
28
<PAGE>
indemnity and all other representations, warranties and covenants
contained in this Agreement shall survive the Time of Settlement.
(xviii) That this Agreement and the documents to be executed by Buyer pursuant
to the terms thereof constitute the legal, valid and binding
obligations of Buyer enforceable in accordance with its terms; and
(xix) That all necessary actions have been taken by the Board of Directors of
Buyer to authorize the execution and delivery of this Agreement and the
consummation of all transactions contemplated hereunder.
4. Time for Settlement. Unless otherwise provided for in Paragraph 8 hereof,
-------------------
the closing under the terms of this Agreement for sale by Seller and purchase by
Buyer of the Parcel shall be made not later than fifteen (15) calendar days
after Seller has given written notice to Buyer that the Conditions Precedent, as
said term is in Paragraph 2 (v), have been satisfied but in no sooner than the
30th day of November 1997 or later than the 15th day of January 1998 (herein
referred to as the "Time of Settlement"). The settlement shall be at a place
designated by Seller.
At the Time for Settlement, title to the Parcel shall be conveyed to Buyer by
a public deed pursuant to the terms and conditions contained herein. The payment
by Buyer of the Purchase Price and any other amounts of money owed to Seller by
Buyer under this Agreement shall be made at the Time of Settlement, in exchange
for the delivery by the Seller to Buyer of the deed referred to in Paragraph 7
hereof (hereinafter referred to as the "Deed of Sale"), in (i) cash or cashier's
check drawn on a banking institution doing
29
<PAGE>
business in Puerto Rico in favor of Seller in the amount by which the Purchase
Price and any such other amounts owed to Seller by Buyer under this Agreement
exceeds the Earnest Money.
5. Allocation of Certain Costs and Charges. Seller shall pay the notarial
---------------------------------------
fees of the Deed of Sale and those incurred by Seller in the preparation of the
Agreement and the Restrictive Covenants, and the internal revenue stamps of the
original of the Deed of Sale. Buyer shall pay for the internal revenue stamps
corresponding to the certified copies of the Deed of Sale and the stamps to be
cancelled in the registration of said certified copies. Buyer shall be
responsible for all costs of a title insurance policy solicited by Buyer. Seller
shall be responsible for all the unpaid property taxes on the Parcel up to the
time of execution of the Deed of Sale and Buyer shall be responsible thereafter.
Buyer will reimburse Seller at the Time of Settlement for any portion of the
property taxes for the Parcel paid in advance by Seller.
Buyer warrants and represents that no broker has participated in the
transaction contemplated under this Agreement or is interested hereby, through
or on account of Buyer. Should any claim for commissions be made by any broker
on account of any acts of Buyer, Buyer will indemnify and hold Seller free and
harmless from any and all liabilities and expenses in connection therewith,
including but not limited to, all legal expenses incurred by Seller as a
consequence thereof.
6. Delivery of Possession. Actual Possession of the Parcel shall be
----------------------
delivered by Seller to Buyer at the Time of Settlement.
7. Deed to be Delivered by Seller at Settlement. The conveyance of the
--------------------------------------------
Parcel under this Agreement shall be by deed (herein referred to as the
"Deed of Sale").
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<PAGE>
Such deed shall be prepared by Notary Public selected by Buyer and approved by
Seller as to form and substance.
8. Title Defects: Breach by Seller. In the event that (i) the Conditions
-------------------------------
Precedent have not been satisfied or (ii) that Seller cannot transfer title to
the Parcel to Buyer as represented in this Agreement on the dates provided in
Paragraph 4 hereof for reasons attributable to Seller or on account of acts of
God or force majeure, but excluding those acts to be performed by Buyer, the
term of this Agreement shall be automatically extended until such time as the
Conditions Precedent have been satisfied and title to the Parcel can be
transferred to Buyer as represented in the Agreement but in no event shall the
Time of Settlement occur later than the 15th day of January 1998.
In the event that as of the 15th day of January 1998 Seller has not
satisfied the Conditions Precedent or if it is still unable to transfer title to
the Parcel to Buyer as represented in this Agreement for reasons attributable or
not to Seller, but excluding those acts t be performed by Buyer, Buyer shall
have the right to demand from Seller the immediate return of the Earnest Money
to Buyer together with a check in the amount of the costs incurred by Buyer with
third parties, as determined through bonafide evidence made available to Seller
by Buyer, in the preparation of the plans and geological investigations for the
Project in which case all the rights to such plans and geological investigations
shall be acquired by Seller but in no event shall any such reimbursement of
costs be greater than THREE HUNDRED THOUSAND DOLLARS ($300,000.00) (hereinafter
referred to as the "Reimbursement of Actual Costs") whereby this Agreement shall
be terminated and Seller and Buyer shall not have any further rights, claims,
causes of action or obligations under this Agreement.
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<PAGE>
In the event that Buyer does not exercise any such right, the term of this
Agreement shall be further extended to the 30th day of March 1998 and if as such
date, the Conditions Precedent have not been satisfied for any reason not
attributable to Buyer or if Seller is unable to transfer title to the Parcel to
Buyer as represented herein, Seller shall immediately return the Earnest Money
to Buyer together with a check in the amount of the Reimbursement of Actual
Costs whereby this Agreement shall be terminated and Seller and Buyer shall not
have any other rights, claims, causes, actions or obligations under this
Agreement.
9. Default by Buyer. Thirty (30) days after notice thereof has been given
----------------
to Buyer, the Seller, at its sole option, may terminate all of its obligations
under this Agreement, without liability in the event of any of the following
events:
1) With respect to the Buyer or any assignee of the Agreement duly approved
by Seller (hereinafter referred to as the "Assignee"), (i) the filing by or
against it or any case or other proceedings for any relief pursuant to the
bankruptcy or insolvency laws of the United States, of any State, of the
United States Virgin Islands, or of the Commonwealth of Puerto Rico; (ii)
the filing of an answer admitting insolvency or inability to pay debts as
they became due; (iii) a material adverse change in the financial condition
of Buyer or any of the assumptions and representations under which Seller
was induced to enter into this Agreement;
2) The attachment, seizure, levy upon, or taking possession by any
receiver, custodian or assignee for the benefit of creditors of a
32
<PAGE>
substantial part of any property of the Buyer or the Assignee.
3) If Buyer assigns this Agreement to another party without the expressed
written consent of Seller.
4) If Buyer or the Assignee shall default in the performance of any of the
obligations and agreements on its part to be performed under this Agreement.
Notwithstanding the above, failure by Seller to pay the Purchase Price and
all other amounts owed to Seller hereunder in the manner and at the time
provided in this Agreement shall not require thirty (30) days notice from Seller
to become an event of default under this Agreement. Upon the occurrence of such
event of default, Seller shall be entitled to exercise its rights under this
Agreement immediately.
In the event that Seller decides, at its sole option, to terminate its
obligations under this Agreement, upon the happening of any of the events of
default described above, then the Earnest Money shall be retained by Seller as
additional consideration and liquidated damages for such breach, whereupon Buyer
and Seller, and the Assignee, if any, shall be released and relieved from all
liability towards each other and this Agreement, shall become null and void; it
being understood that if Seller chooses to terminate its obligations under this
Agreement on account of any of the defaults listed hereinbefore, the right to
retain the Earnest Money, as compensation and liquidated damages, sha11 be the
sole remedy available to Seller.
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<PAGE>
In the event that Seller chooses not to terminate its obligations
under this Agreement upon the occurrence of any of the events of
default listed hereinbefore, Seller shall retain its right to demand
specific performance under this Agreement and to seek legal and
monetary remedies from Buyer and the Assignee, if any, in an amount
equal to the sum of the Purchase Price and any monetary damages
suffered by Seller, including but not limited to legal costs incurred
by Seller.
10. Survival of Agreement. Notwithstanding any presumption to the
---------------------
contrary, all agreements contained in this Agreement which by their nature
impliedly or expressly involve performance at any particular time after the Time
of Settlement shall survive the Time of Settlement.
11. Seller not Bound. The Seller is not liable in any manner by any oral
----------------
or written statements, representations, or other information pertaining to the
Parcel by any broker, agent, employee, servant, account, or any other person,
whether or not associated with or employed by Seller, unless the same are
specifically set forth herein.
12. Right of Access. During the term of this Agreement, Buyer and his
---------------
authorized representatives shall be entitled to enter the Parcel for the purpose
of inspecting the same, making appraisals and conducting engineering
investigations. Buyer agrees to hold Seller sate and harmless from any claim or
liability arIsing out of any injury to Buyer, or to any of his officers, agents
or employees while in the Parcel, and shall indemnify and hold Seller harmless
from any and all damages, Losses, expenses, claims, suits, judgments and
liabilities (including claims and Suits by and judgment and liabilities to
Buyer's employees) resulting in any way from the acts to Buyer,
34
<PAGE>
his agents, or employees as herein provided. During all times that Buyer enters
upon and/or conducts any surveys, studies, tests, etc. on the Parcel, Buyer
shall have and maintain, at Buyer's cost, public liability and property damage
insurance in form and substance acceptable to Seller with a minimum, single,
combined liability limit of $1,000,000.00 insuring Buyer and Buyer's authorized
representatives, agents, employees, etc., against all liability arising out of
or in connection with Buyer's use or occupancy of the Parcel. The insurance
required herein shall (i) be issued by an insurance company authorized to do
business in Puerto Rico with a financial rating of at least plus 3 status as
reported in the most recent edition of Best's Report; (ii) be issued as a
primary policy; and (iii) contain endorsements naming Seller as additional
insuree and requiring thirty days written notice from the insurance company to
Seller and Buyer before cancellation or changing coverage, scope or amounts.
Each policy or a certificate of insurance, together with evidence of payment of
premiums, shall be delivered to Seller prior to entry upon the Parcels.
Likewise, Seller and its authorized representatives shall be entitled to
enter the Parcel after its acquisition by Buyer for the purpose of conducting
engineering investigations and completing the improvements to the Parcel or the
Phase II Infrastructure Improvements that Seller is obligated to do pursuant to
the terms and conditions of this Agreement. Seller agrees to hold Buyer safe and
harmless from any claim or liability arising out of any injury to Seller, or to
any of his officers, agents or employees while in the Parcel, and shall
indemnify and hold Buyer harmless from any and all damages, losses, expenses,
claims suits, judgments and liabilities (including claims and suits by and
judgment and liabilities to Seller's employees) resulting in any way from the
acts to Seller, his agents, or employees as herein provided. During all times
that Seller enters upon and/or conducts any surveys, studies, tests, etc. on the
Parcel, Seller shall have and maintain, at his
35
<PAGE>
cost, public liability and property damage insurance in form and substance
acceptable to Buyer with a minimum, single, combined liability limit of
$1,000,000.00 insuring Seller and Seller's authorized representatives, agents,
employees, etc., against all liability arising out of or in connection with
Seller's use or occupancy of the Parcel. The insurance required herein shall (i)
be issued by an insurance company authorized to do business in Puerto Rico with
a financial rating of at least plus 3 status as reported in the most recent
edition of Best's Report; (ii) be issued as a primary policy; and (iii) contain
endorsements naming Buyer as additional insuree and requiring thirty days
written notice from the insurance company to Buyer and Seller before
cancellation or changing coverage, scope or amounts. Each policy or a
certificate of insurance, together with evidence of payment of premiums, shall
be delivered to Buyer prior to entry upon the Parcels.
13. Time to be of Essence. It is distinctly understood and agreed that
---------------------
time wherever specified in this Agreement is made and declared to be of the
essence thereof.
14. Notices. Any notice required or permitted to be given under this
-------
Agreement must be in writing and sent by certified or registered mail, return
receipt requested, to the respective addresses of the parties stated at the
outset of this Agreement or to such other single address as either party may
designate from time to time with the terms of this Paragraph. In the case of
Seller, all notices shall be addressed to Mr. Francisco Arrivi, President,
Interstate General Properties Limited Partnership S.E. - 650 Munoz Rivera
Avenue, Doral Building, Suite 700, Hato Rey, P. R. 00918 with a copy to Mr.
Carlos Rodriguez, Vice President at the same address. In case of Buyer, all
notices shall be addressed to Mr. Edwin Loubriel, Suite 209, P.O. Box 194000,
San Juan, Puerto Rico 00919-4000.
15. Construction. This Agreement shall be construed in accordance with
------------
and governed by the laws of the Commonwealth of Puerto Rico and Seller and
Buyer and their assignees hereby
36
<PAGE>
submit themselves to the exclusive jurisdiction of the San Juan Section of the
Superior Court of Puerto Rico for any and all controversies that may arise
thereunder.
16. Miscellaneous. Each of the parties acknowledges that it has not
-------------
relied on any agreements or commitments by the other party or any of their
affiliates with respect to the subject matter hereof except the agreements and
commitments specifically set forth herein. This Agreement supersedes and
nullifies all prior agreements and sets forth the entire understanding of the
parties with respect to the Parcel. The provisions of this Agreement may not be
waived, extended or modified by subsequent conduct, correspondence or otherwise.
Each of the parties agrees that it or he shall not obtain, seek to obtain, or
rely on any waiver extension, modification, or approval unless the waiver,
extension, modification or approval is evidenced in writing, and (b) is
specifically approved in writing by the Seller or by Buyer. No delay or failure
of the Seller in exercising any right or privilege hereunder shall affect such
right or privilege; nor shall any single or partial exercise thereof or any
abandonment or discontinuance of steps to enforce such right or privilege
preclude any further exercise thereof or of any other right or privilege. Any
waiver, extension, modification or approval related to this Agreement shall be
effective only to the extent and subject to the terms and conditions in writing
evidencing the same. Any waiver, extension, modification or approval may be made
subject to additional terms and conditions from time to time after it is given
or agreed to by the party giving or agreeing to it, whether or not such waiver,
extension, modification or approval has been relied on in the meantime by the
other party Approval by Seller on any matter for which approval is required
shall not be unreasonably withheld. Whenever any reference is made in this
Agreement to an event of default, other than the event of default caused by
Buyer's failure to pay the Purchase Price and any other amounts of money owed to
Seller hereunder in the manner provided in this Agreement, it shall be
understood
37
<PAGE>
that no such event of default has occurred until thirty (30) days have lapsed
since notice thereof has been given to Buyer provided therein.
IN WITNESS WHEREOF, the parties have executed this agreement by their
respective duly authorized officers on the day and year first above written.
SELLER: BUYER: PARQUE DE LAS VISTAS
S.E., a Puerto Rico
LAND DEVELOPMENT ASSOCIATES S.E., Special Partnership
a Puerto Rico special partnership
By: INTERSTATE GENERAL PROPERTIES
LIMITED PARTNERSHIP, S.E., a By:/s/ ^^
Maryland limited partnership, ----------------------------
its managing partner
By: INTERSTATE GENERAL COMPANY, L.P.
a Delaware limited partnership,
a general partner
By: INTERSTATE GENERAL MANAGEMENT
CORPORATION, a Delaware corporation,
its managing general partner
By: /s/ Francisco Arrivi Cros
-------------------------------------
Francisco Arrivi Cros
Title: Senior Vice President
---------------------
38
<PAGE>
EXHIBIT 99.3
ROBERT F. McCLOSKEY ASSOCIATES
REAL ESTATE APPRAISERS AND CONSULTANTS
APPRAISAL REPORT OF A
559.7142 CUERDA PARCEL
LOCATED AT KM. 16.2, STATE ROAD NUMBER 3
MUNICIPALITY OF CANOVANAS, PUERTO RICO
PREPARED
For: First Bank of Puerto Rico
Mr. Luis Beauchamp
Executive Vice President
Santurce, Puerto Rico
By: Robert F. McCloskey, MAI, CRE
Federal Certified
General Real Estate Appraiser
William A. Medina
Federal Certified
General Real Estate Appraiser
As Of: June 30,1995
<PAGE>
ROBERT F McCLOSKEY ASSOCIATES
REAL ESTATE APPRAISERS AND CONSULTANTS
July 7, 1995
First Bank of Puerto Rico
Mr. Luis Beauchamp
Executive Vice President
Santurce, Puerto Rico
Dear Mr. Beauchamp:
In accordance with your request, we have prepared a narrative appraisal report
of a tract of land located south of State Road No. 3 Km. 16.2, Municipality of
Canovanas, Puerto Rico.
The purpose of the appraisal was to estimate the market value in fee simple of
the property, assumed vacant and available for use, according to the
definition stated in the report and subject to the assumptions, limiting
conditions and certificates herein, as of June 30, 1995.
The subject property consists of three contiguous vacant, irregular shaped
parcels of land with varied topography and with a total area of 559.7142
cuerdas. For purposes of this report, the three parcels are considered as one.
Following inspection of the subject property; and, after a thorough
investigation and analysis of the economic factors affecting values in the
area, it is our opinion that the estimated market value in fee simple of the
subject property, as of June 30 1995 was:
$6,100,000.00
(SIX MILLION ONE HUNDRED THOUSAND DOLLARS)
The supporting data and the results of our investigation and analysis upon
which this value is based are contained in the accompanying narrative
appraisal report.
Very truly yours,
/s/ Robert F. McCloskey
Robert F. McCloskey, MAI, CRE
Federal Certified General
Real Estate Appraiser
<PAGE>
APPRAISAL REPORT OF A
559.7142 CUERDA PARCEL
LOCATED AT
KM. 16.2, STATE ROAD NUMBER 3
MUNICIPALITY OF CANOVANAS, PUERTO RICO
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[MAP APPEARS HERE]
THE MUNICIPALITY OF CANOVANAS
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Table of Contents
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Page
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Summary of Salient Facts and Conclusions.....................................i
General Assumptions.........................................................ii
General Limiting Conditions.................................................iv
Introduction.................................................................1
Area Analysis - The Island of Puerto Rico....................................4
The Municipality of Canovanas...............................................15
Introduction to the Valuation Process.......................................25
The Sales Comparison Approach...............................................26
Reconciliation and Final Value Estimate.....................................57
Certificate of the Appraiser................................................59
Qualification Data - Robert F. McCloskey....................................61
Qualification Data - William A. Medina......................................67
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i
Summary of Salient Facts and Conclusions
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<TABLE>
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Location : State Road Number 3, Kilometer 16.2,
Canovanas Ward of the Municipality of
Canovanas, Puerto Rico
Owner of Record : Land Development Associates, S.E.
Property Rights Appraised : Fee Simple as defined
Area of Parcels : Parcel A 473.7202 cuerdas
Parcel B 79.2200 cuerdas
Parcel C 6.7740 cuerdas
--------- ----------------
Total 559.7l42 cuerdas
Improvements : Assumed vacant and available for use
Zoning : Residential (R-1)
Highest and Best Use : Planned Unit Development
Value Indicated by the
Sales Comparison Approach : $6,100,000.00
Final Value Estimate : $6,100,000.00
Date of Value Estimate : June 30,1995
Additional Comments : The subject property is the land that sur-
rounds the New El Comandante Racetrack. It
consist of a total of 559.7142 cuerdas of
vacant, undeveloped land formed by three
contiguous parcels. The overall property is
irregular in shape and contains varying
topographic configurations from level to
highly steep slopes.
</TABLE>
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ii
General Assumptions
-------------------
This appraisal report has been made with the following general assumptions:
. No responsibility is assumed for the legal description or for
matters including legal or title considerations. Title to the
property is assumed to be good and marketable unless otherwise
stated.
. The property is appraised free and clear of any or all liens or
encumbrances unless otherwise stated. All taxes are assumed to be
current. In specific cases, at the request of the client, the
appraiser(s) may present data on past due ad valorem taxes. However,
this data is not certified and is only a verbal confirmation by the
tax authority. This data should not be relied upon by the client and
has no affect on the final value estimate.
. The property is appraised as though under responsible, adequately
capitalized ownership and competent property management.
. The information furnished by others is believed to be reliable.
However, no warranty is given for its accuracy.
. All engineering is assumed to be correct. The plot plans and
illustrative material in this report are included only to assist the
reader in visualizing the property.
. It is assumed that there are no hidden or non-apparent conditions of
the property, subsoil, or structures that render it more or less
valuable. No responsibility is assumed for such conditions or for
arranging for engineering studies that may be required to discover
them.
. It is assumed that there is full compliance with all applicable
federal, state, and local environmental regulations and laws unless
noncompliance is stated, defined, and considered in the appraisal
report.
. It is assumed that all applicable zoning and use regulations and
restrictions have been complied with, unless a nonconformity has
been stated, defined, and considered in the appraisal report.
. It is assumed that all required licenses, certificates of occupancy,
consents, or other legislative or administrative authority from any
local, state, or national government or private entity or
organization have been or can be obtained or renewed for any use on
which the value estimate contained in this report is based.
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iii
. It is assumed that the utilization of the land and improvements is
within the boundaries or property lines of the property described
and that there is no encroachment or trespass unless noted in the
report.
. The availability of capacity and/or connection rights to any or all
public utilities has not been determined by the appraiser(s). The
value estimate reported herein is contingent upon and limited to
said capacity and right of connection.
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iv
General Limiting Conditions
---------------------------
The appraiser(s) will not be required to give testimony or appear in court
because of having made this appraisal, with reference to the property in
question, unless arrangements have been previously made thereof.
. Any cause of action resulting between the appraiser(s) and the
client in conjunction with this appraisal, either directly or
indirectly, will be limited in damages to the amount of the ap-
praisal fee received for the assignment. Furthermore, it is agreed
that you will indemnify Robert F. McCloskey Associates, Inc. for any
damages, costs, expense, and attorney's fees resulting from any
cause of action by any interested party other than the client,
concerning the appraisal or report.
. Possession of this report, or a copy thereof, does not carry with
it the right of publication. It may not be used for any purpose by
any person other than the party to whom it is addressed without the
written consent of the appraiser(s), and in any event only with
proper written qualification and only in its entirety.
. In the case where an improvement is considered, the distribution of
the total valuation between land and improvements applies only under
the reported highest and best use of the property. The allocations
of value for land and improvements must not be used in conjunction
with any other appraisal and are invalid if so used.
. Disclosure of the contents of this report is governed by the by-laws
and Regulations of the Appraisal Institute. Neither all nor any part
of the contents of this report, or copy thereof, shall be conveyed
to the public through advertising, public relations, news, sales or
any other media without written consent and approval of the
appraiser(s). Nor shall the appraiser(s), firm or professional
organization of which the appraiser (s) is (are) a member be
identified without prior written consent of the appraiser(s).
. The physical condition of the improvements described herein is based
on visual inspection only. No liability is assumed for the soundness
of structural members including roof (wear and leakage), foundation
(settling or leakage), footings, exterior and interior walls,
partitions, floors, or any other part of the structure, since no
engineering tests were made of same and no termite inspection was
conducted. Furthermore, we accept no legal responsibility for the
efficiency of the plumbing and electrical systems, the heating and
air conditioning equipment, or any major appliances. Unless
otherwise noted, all of these items appeared adequate and
operational.
. In this appraisal assignment, the existence of potentially hazardous
material used in the construction or maintenance of the building,
such as the presence of urea formaldehyde foam insulation or
asbestos, and/or existence of toxic waste, which may or may not be
present on the property, has not been considered. The appraiser(s)
is (are) not qualified to detect such substances. We urge the client
to retain an expert in this field if desired.
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v
. The Americans with Disabilities Act (ADA) became effective January
26, 1992. We have not made a specific compliance survey or analysis
of this property to determine whether or not it is in conformity
with the various detailed requirements of the ADA. The appraisers
considered some of the major requirements of ADA that the subject
property lacks and that affect its market value. These include the
need to install an elevator, remodel the bathrooms, and outfit the
entrance doors, all to accommodate the physically challenged. It is
possible that a compliance survey of the property, together with a
detailed analysis of the requirements of the ADA, could reveal that
the property is not in compliance with other requirements of the
Act. If so, this fact could have a negative impact upon the value of
the property. Since we have no direct evidence relating to this
issue, we did not consider possible noncompliance with other
requirements of ADA in estimating the value of the property.
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vi
Scope of the Assignment
-----------------------
The purpose of this appraisal analysis and report was to estimate the market
value of the fee simple interest in the subject property as of June 30, 1995.
The subject property is located south of State Road No. 3 Km. 16.2,
Municipality of Canovanas, Puerto Rico. It consists of 559.7142 cuerdas of
vacant, undeveloped land formed by three contiguous parcels. The overall
property is irregular in shape and contains varying topographic configurations
from level to highly steep slopes.
This section of the appraisal report delineates the steps of research and
analysis necessary to prepare an appraisal in accordance with the intended
use, the Standards of Professional Practice of the Appraisal Institute and the
Uniform Standards of Professional Appraisal Practice of the Appraisal
Foundation.
This appraisal assignment required several steps. First, all pertinent
information and documents were requested and obtained from Mr. Francisco
Arrivi, representative of Land Development Associates, S. E. (LDA), owners of
the property.
The next step was to visit the subject neighborhood. Vehicular and pedestrian
access was evaluated around the subject. The subject property was inspected on
June 15, 1995. The parcels were inspected to identify physical
characteristics, amenities and possible adverse physical easements.
The appraisers performed a market area analysis, a region analysis and a
neighborhood analysis. Information for these sections of the appraisal was
obtained from government agencies and from field inspections.
The Planning Board was visited to obtain the zoning classification of the
property. The flood maps prepared by the Federal Emergency Management Agency
were also verified to determine the subject's flood zone classification. The
San Juan Municipal Revenue Collection Center (CRIM for its Spanish acronym)
was visited and a Tax Code Map was procured in order to identify the subject
property's Tax Code Number. Then the assessment book was checked to determine
the assessment and the yearly property taxes of the subject property.
The subject parcel was thoroughly inspected by the appraisers to examine its
most important characteristics, especially its topography and any evident
easements, encroachments or rights of way affecting it. In estimating the
highest and best use of the property an analysis was made of all available
data including size, location, shape, zoning and other relevant
considerations.
In the appraisal process, the appraisers considered the three typical
approaches to value, namely the cost approach, the sales comparison approach
and the income capitalization approach which will be described in the Method
of Valuation section of this report. However, given the fact that the purpose
of this report was to determine the market value in fee simple of a parcel of
vacant land, the Cost and Income Capitalization Approaches to value were
considered not applicable.
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vii
The Cost Approach is a good method of valuation on new improved properties
where estimating accrued depreciation is less subjective. On the other hand,
the income Capitalization Approach is best when there is an adequate amount of
market rent information that can enable the appraisers to estimate a Net
Operating Income. In the specific market where the subject is located, there
is not an active rent market of vacant parcels and it was, therefore, also
considered not applicable in this assignment.
Finally, the appraisers considered and used the Sales Comparison Approach to
estimate the value of the parcel. Financing terms and sales conditions were
verified, and the comparable sales were then adjusted for any differences with
the subject. The adjusted comparable sales were then reconciled into a single
value estimate for the subject parcel. After assembling and analyzing the data
defined in this scope of appraisal, a final estimate of value was concluded.
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PUERTO RICO AREA MAP
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Introduction
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Identification of the Subject Property
- --------------------------------------
The subject property is the land that surrounds the New El Comandante
Racetrack. It consists of 559.7142 cuerdas of vacant, undeveloped land
subdivided into three different parcels. Parcel A is the largest tract with a
total area of 473.7202 cuerdas; Parcel B has a total area of 79.2200 cuerdas
and Parcel C has a total of 6.7740 cuerdas. For purposes of this appraisal,
the three parcels are considered as a whole.
The overall property is irregular in shape and contains varying topographic
configurations from level to highly steep slopes. Said parcel were formerly
divided into seven (7) separate parcels. When the property was acquired by the
current owners, they assembled five of the parcels into one 473.7202 cuerda
tract and the other two remained unchanged.
According to the information provided, the five parcels that were assembled
into the larger property are described as follows:
<TABLE>
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Parcel Number Area in Cuerdas
---------------------------------------------
<S> <C> <C>
A-1 (formerly Parcel B) 183.8612
---------------------------------------------
A-2 (formerly Parcel D) 76.601
---------------------------------------------
A-3 (formerly Parcel E) 55.207
---------------------------------------------
A-4 (formerly Parcel F) 63.29
---------------------------------------------
A-S (formerly Parcel G) 94.761
---------------------------------------------
Total 473.7202
---------------------------------------------
</TABLE>
The parcels as described above were labeled parcels B, D, E, F, and G because
they were categorized according to their possible uses and or physical features
such as topography, among others. Given that these areas simplify the valuation
process of the larger tract, the appraisers will refer to this larger tract
according to the parcel numbers listed above.
Definition of Market Value /1/
- --------------------------
Market value means the most probable price which a property should bring in a
competitive and open market under all conditions requisite to a fair sale, the
buyer and the seller each acting prudently and knowledgeably, and assuming the
price is not affected by undue stimulus. Implicit in this definition is the
consummation of the sale as of a specified date and the passing of title from
seller to buyer under conditions whereby:
. Buyer and seller are typically motivated;
__________________
/1/ Definition of market value accepted by the National Credit Union
Administration, Office of Thrift Supervision, Federal Reserve Bank,
Federal Deposit Insurance Corporation, and Resolution Trust Corporation.
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2
. Both parties are well informed or well advised and acting in what
they consider own best interests
. A reasonable time is allowed for exposure in the open market;
. Payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
. the price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions
granted by anyone associated with the sale."
Value Terms
- -----------
Value in this report is in terms of cash, U.S. dollars ($).
Purpose of the Appraisal
- ------------------------
The purpose of this appraisal was to estimate the market value of the fee simple
interest in the subject property considered as a single parcel as of June 30,
1995.
Function of the Appraisal
- -------------------------
The appraisal was requested by FirstBank to be used as loan collateral purposes.
Property Rights Appraised
- -------------------------
This appraisal is made with the understanding that the ownership of the real
estate of the subject property includes all the rights that may be lawfully
owned, and is therefore title in fee simple.
Definition of Fee Simple /2/
- ------------------------
Absolute ownership unencumbered by any other interest or estate, subject only to
the limitations imposed by the government powers of taxation, eminent domain,
police power, and escheat.
Effective Date of the Appraisal
- -------------------------------
The effective date of this report was the last time that the appraisers
physically inspected the premises. This date has been established as June 30,
1995.
_____________________
/2/ Dictionary of Real Estate Appraisal, Third Edition, published in 1993 by
the Appraisal Institute
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3
Date of the Report
- ------------------
June 30 1995
Estimated Exposure Time /3/
- -----------------------
Reasonable exposure time is one of a series of conditions in most market value
definitions. Exposure time is always presumed to precede the effective date of
the appraisal. Exposure time may be defined as follows:
The estimated length of time the property interest being appraised would have
been offered on the market prior to the hypothetical consummation of sale at
market value on the effective date of the appraisal; retrospective estimate
based upon an analysis of past events assuming a competitive and open market.
Exposure time is different for various types of real estate and under various
market conditions. It is noted that the overall concept of reasonable exposure
encompasses not only adequate, sufficient and reasonable time but also adequate,
sufficient and reasonable efforts. The definition of market value used in this
appraisal allows for a reasonable exposure time in the open market to find a
purchaser.
As it will be explained further on in this report the subject property is
divided into four different categories according to the physical characteristics
of the parcels. The area that is in category I consists of the site that has
commercial exposure. Category II on the other hand, relates to the parcels that
can be potentially developed into residential developments and that also have
the best physical features such as adequate topography. The parcels located
under category III are those that have steep and undevelopable areas. According
to the information obtained from the market as well as from conversations with
active developers the appraisers conclude that an adequate marketing period for
the categories is 2, 5, 7 and 10 years respectively. Appropriate discounting
procedures will be utilized in the valuation section of this report.
HISTORY OF THE PROPERTY
- -----------------------
The Uniform Standards of Professional Appraisal Practice indicate that in
developing a real property appraisal, an appraiser must:
. Consider and analyze any current agreement of sale, option, or listing of
the property being appraised, if such information is available in the
normal course of business.
. Consider and analyze any prior sale of the property being appraised that
occurred during the following periods; one year for one to four family
residential properties: and three years for all other property types.
__________________
/3/ Statement of Appraisal Standards No. 6 (SMT-6) issued by the Appraisal
Standards Board of the Appraisal Foundation on September 16, 1992.
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4
The subject property was part of the landmark site of the new El Comandante
Racetrack. As per Deed No. 46 & 47 of Consolidation and Conveyance, dated
December 14, 1989 before Jose R. Jimenez Del Valle, Esq.; Banco Popular de
Puerto Rico, acting as Trustee for San Juan Racing Association, Inc., sold to
Land Development Associates, S. E. the subject parcels, including the site of
the new track, for a total price of $9.57 million. A reduced copy of this deed
is included in the Addendum of this report.
UNITS OF COMPARISON
- -------------------
In Puerto Rico, land area is measured in square meters while improvements are
measured in square feet. One square meter is equal to 10.76 square feet. Farm
land and large tracts of land are measured in "cuerdas". One cuerda is
equivalent to 42,306.27 square feet or 0.9712 acres. It can be said that this
measurement became a hybrid system, as it contains elements from the Metric
and English system. In our analysis of comparable land sales, price per cuerda
will be the unit of comparison that will be used.
AREA ANALYSIS - THE ISLAND OF PUERTO RICO
- -----------------------------------------
The purpose of the area analysis is to analyze all pertinent historical and
projected economic and demographic data to determine if the subject's area is
likely to experience growth, stability or decline.
GENERAL INFORMATION
- -------------------
Puerto Rico was a Spanish colony for approximately four centuries shortly after
being discovered by Columbus in 1493. In 1898, the Island came under the
sovereignty of the United States as part of the Treaty of Paris which ended the
Spanish-American war. Puerto Ricans hold U.S. citizenship since 1917. In 1952,
the Island approved its own constitution and since then it has been a U.S.
Commonwealth. Puerto Rico shares a common defense, economic market and currency
with the United States. The official languages are Spanish and English, but not
all inhabitants are bilingual. Puerto Ricans do not pay federal taxes, except
for Social Security taxes and income taxes on federal workers.
GOVERNMENT
- ----------
The Commonwealth of Puerto Rico depends heavily on fiscal and monetary decisions
adopted by the U.S. Congress. As an example, we have Section 936 of the U.S.
Internal Revenue Code. Under this Section, U.S. companies meeting certain
requirements can obtain a 100% tax credit against U.S. federal income taxes for
earnings derived from a Puerto Rican operation.
Due to some local tax incentives and restrictions, many of these "936 companies"
deposit their profits in local financial institutions. These deposits
constituted 35% of private deposits and 29% of total bank deposits in 1990. They
provide a source of low-cost funding for the economic development of the island.
Besides the ease of financing, recent studies indicate that "936
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5
companies" generate, directly and indirectly, 300,000 jobs in Puerto Rico. The
majority of the direct employment is generated in the manufacturing sector,
specifically in the professional instruments, electronic equipment, and
pharmaceutical industries.
The trend of the present U.S. Government administration has been to reduce the
income tax benefits of 936 companies established in Puerto Rico, which
economists say will have a negative effect whose magnitude depends in the speed
and depth of the cuts.
TRANSPORTATION
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San Juan Port
- -------------
The Port of San Juan is the busiest ocean terminal in the Caribbean and ranks
among the leading ports of the world in terms of volume and cargo. This deep
water harbor lies within San Juan Bay. It is three miles long, and varies in
width from 0.6 to 1.3 miles. This harbor also services many cruise ships docking
in San Juan, of which approximately 20 call San Juan its home port.
Hoteliers are divided among those who think that cruise ships are destinations
of their own and take away from hotel business, and those who think that they
provide marketing for the individual islands, as passengers return for an
extended stay after a cruise that briefly visited the island. The fact is that
area hotels benefit from overnight visitation generated from incoming cruise
ships. Many cruises begin or end in San Juan, an passengers often spend one or
more nights on the Island prior or after the voyage.
The following table illustrates the substantial recent increases in the annual
number of visitors to Puerto Rico in cruise ships.
<TABLE>
<CAPTION>
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CRUISE SHIP ARRIVALS - PUERTO RICO
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Year Cruise Ships Visitors #Change Expenditures (Millions)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1980-81 713 531,222 (----) $23.70
- --------------------------------------------------------------------------------
1981-82 603 444,148 -16.40% $21.60
- --------------------------------------------------------------------------------
1982-83 545 411,150 -7.40% $20.30
- --------------------------------------------------------------------------------
1983-84 553 436,008 9.00% $21.80
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1984-85 531 419,297 -3.80% $21.20
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1985-86 569 448,973 7.10% $23.10
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1986-87 696 584,429 30.20% $30.40
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1987-88 768 723,724 23.80% $39.00
- --------------------------------------------------------------------------------
1988-89 776 777,405 7.40% $43.30
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1989-90 906 866,090 11.40% $50.30
- --------------------------------------------------------------------------------
1990-91 911 891,348 2.90% $54.40
- --------------------------------------------------------------------------------
1991-92 943 1,073,370 20.42% $66.30
- --------------------------------------------------------------------------------
1992-93 850 1,014,490 -5.49% $66.90
- --------------------------------------------------------------------------------
1993-94 793 980,220 -3.38% $66.70
- --------------------------------------------------------------------------------
</TABLE>
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6
As indicated in the preceding table, cruise ship visitors to the Island almost
doubled during the past twelve years, and indicate an average compounded growth
of 4.83% per year. However, visitors have decreased during the past two years in
a row, a trend that has government officials worried. Expenditures have almost
tripled during the past twelve years same period, with an average annual
compounded growth of 8.28% per year. Tourism Company officials expect the
previous upward trend to resume and continue for two reasons; first because the
Ports Authority is in the midst of an improvement program of its docking
facilities, and second because the new Paseo Portuario project (a mixed-use
master plan for the development of the Marina Ward near the dock areas) will
make the area more attractive.
Considering the effect cruise ships have in the hotel business (passengers spend
one or more nights at the beginning or end of cruises) it is expected that this
segment of the tourist industry will generate additional demand for hotel rooms,
especially in regions near docking facilities.
Luis Munoz Marin International Airport
- --------------------------------------
The following table illustrates the number of arriving passengers
to the Island.
<TABLE>
<CAPTION>
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AIR ARRIVALS - PUERTO RICO
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Year Passenger per Year % Change
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<S> <C> <C>
1985-86 2,543,096 (----)
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1986-87 3,351,045 31.80%
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1987-88 3,864,430 15.30%
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1988-89 4,064,762 5.20%
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1989-90 4,282,324 5.40%
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1990-91 4,244,745 -0.90%
---------------------------------------------------
1991-92 4,452,816 4.90%
---------------------------------------------------
1992-93 4,732,001 6.40%
---------------------------------------------------
1993-94 4,948,344 4.57%
---------------------------------------------------
</TABLE>
It can be seen how the number of arriving passengers increased sharply from 1985
to 1988, which coincides with the period when American Airlines made Puerto Rico
its Caribbean Hub. Passenger movement then had a sharp decline in 1991,
attributable to the Gulf War. It then picked up again in 1991-92 and 1992-93, a
trend which is expected to continue now that the U.S. economy is growing again.
American Airlines is now in the midst of an expansion program that when finished
will have the airline occupying more than half the terminal space at the
airport. This carrier should continue to have a significant positive impact on
tourism to the Island of Puerto Rico, since it will make it accessible to many
points in Latin America, United States and Europe.
POPULATION
- ----------
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7
There are approximately 3.5 million people in Puerto Rico, and a third of the
population lives in the San Juan Metropolitan Area. The following table shows
the population of the island during the last four decades and a projection for
years 1995, 2000 and 2005 prepared by the Puerto Rico Planning Board.
<TABLE>
<CAPTION>
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PUERTO RICO POPULATION STATISTICS
--------------------------------------------------
Year Population per Year % Change per year
--------------------------------------------------
<S> <C> <C>
1960 2,349,544 ----
--------------------------------------------------
1970 2,712,033 15.40%
--------------------------------------------------
1980 3,196,520 17.90%
--------------------------------------------------
1990 3,522,037 10.20%
--------------------------------------------------
1995p 3,671,373 4.20%
--------------------------------------------------
2000p 3,792,023 3.30%
--------------------------------------------------
2005p 3,895,916 2.70%
--------------------------------------------------
</TABLE>
According to the Puerto Rico Planning Board, the reduction in the population
growth rate is due to a reduction in the birth rate, and a net emigration into
the United States. The Island's population is also getting older. From 1980
to 1990, the median age increased from 24.6 to 29.4. The median age is
projected to increase to 32.2 years by the year 2005. This is logical is we
consider that the size of the typical family is also shrinking, so there are
less children.
The most important conclusion from the above data is that the Island's
population continues to grow, which is a healthy economic trend that often
reflects increased business activity and a growing labor supply. Also, this
is a positive trend for the housing industry since population increases result
in demand for additional housing units.
PERSONAL INCOME
- ---------------
The standard of living in Puerto Rico is higher than in most Latin America, but
lower than in the United States. In 1992, the per capita personal income of the
Island, in current dollars, was $6,608. This represents 1/3 of the U.S. average.
However, it is argued that the per capita personal income of the Island might be
higher than $6,608 due to the underground economy.
GROSS PRODUCT
- -------------
A reliable indicator of an area's economic health is its gross product. The
following table illustrates the gross product of the Island in constant dollars,
as reported by the Planning Board. Constant dollars was chosen for analysis
since it eliminates the uncertainty brought by inflation.
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8
GROSS PRODUCT IN CONSTANT DOLLARS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Year Constant $(Millions) Annual %Change Annual %Change (US)
--------------------------------------------------------------------------
<S> <C> <C> <C>
--------------------------------------------------------------------------
1989 $4,807.70
--------------------------------------------------------------------------
1990 $4,929.80 2.50%
--------------------------------------------------------------------------
1991 $4,972.80 0.90% -0.70%
--------------------------------------------------------------------------
1992 $5,027.80 1.10% 0.30%
--------------------------------------------------------------------------
1993p $5,183.60 3.10% 2.80%
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</TABLE>
As illustrated in the preceding table, Puerto Rico's gross product has
experimented a reduction in growth when compared with the average annual growth
of 3.2% during the period of 1988 to 1990. This is logical since the Island's
economy is tied to that of the United States, which entered a recessionary
period in the late 1980's.
Still, the Island's growth during the last two years has been slightly higher
than that of the United States which indicates that the former economy is not
entirely dependent upon the latter. The most important conclusion from the above
data is that Puerto Rico's economy because of its association to that of the
United States, is less volatile that other economies in Latin America and the
Caribbean. For 1994, a growth of 3.0% to 3.3% was forecasted for Puerto Rico by
the Planning Board.
The extend drought and resulting water crisis has affected the Island's economy
to a point where government growth projections were revised downward to 2.6% for
1994.
INFLATION
- ---------
The table that follows illustrates the behavior of the Consumer Price Index for
all families in Puerto Rico during the past years, as published by the
Commonwealth's Department of Labor and Human Resources.
<TABLE>
<CAPTION>
CONSUMER PRICE INDEX
------------------------------
YEAR INDEX CHANGE (%)
------------------------------
<S> <C> <C>
------------------------------
1986 252.8
------------------------------
1987 259.7 2.73
------------------------------
1988 267.2 2.89
------------------------------
1989 277.1 3.71
------------------------------
1990 292.9 5.7
------------------------------
1991 301.6 3
------------------------------
1992 309.8 2.72
------------------------------
1993 318.5 2.81
------------------------------
1994 330.9 3.89
------------------------------
</TABLE>
It can be seen how there was a sharp increase from 1989 to 1990, attributable to
the aftermath of Hurricane Hugo, which hit the Island in late 1989. For the most
part, the average yearly increase in the index has been between 2.5% and 3.0%,
except for this year where there has been a sharp increase. Considering the fact
that the U.S. economy is growing again, and also that the Puerto
<PAGE>
9
Rican economy is tied to that of the mainland, the appraisers forecasted an
increase in the index of approximately 3% for the next few years. Some local
economists think that figures obtained from the consumers price index of Puerto
Rico are not reliable.
These economists argue that the consumer's price index has not been revised in
many years. The consumer basket, on which the price index is based, still has
black and white televisions and other obsolete products. It does not contain
newer products used by local consumers, like videocassette and microwaves.
Therefore, it is not updated to follow actual consumer patterns.
WORK FORCE CHARACTERISTICS
- --------------------------
The following tables, based on statistics from the Labor Department, set forth
Puerto Rico's work force distribution by industrial sector since 1988. As the
tables illustrate, the most rapid growth during this period occurred in the
Services and FIRE (financial, insurance and real estate) sectors.
In fact, these were the only two sectors with uninterrupted growth.
Construction also had a net increase, aided by a large jump in employment from
1991 to 1993. Total employment experienced moderate overall growth during the
period.
EMPLOYMENT BY INDUSTRIAL SECTOR
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Employment by Industrial Sector
- ------------------------------------------------------------------------------------------------------------------------------------
Year Agriculture Manufacturing Construction Trade FIRE TCPU Services Government Mining Other Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1988 17,854 165,974 42,415 147,651 37,386 52,671 189,363 167,231 830 3,340 824,715
- ------------------------------------------------------------------------------------------------------------------------------------
1989 17,757 169,968 45,212 151,900 38,289 54,421 197,004 168,198 984 3,111 846,844
- ------------------------------------------------------------------------------------------------------------------------------------
1990 19,470 168,089 44,769 158,309 38,406 55,708 203,262 169,255 978 3,113 861,359
- ------------------------------------------------------------------------------------------------------------------------------------
1991 19,262 161,749 44,231 154,792 39,042 55,216 209,480 170,427 906 2,142 857,247
- ------------------------------------------------------------------------------------------------------------------------------------
1992 18,356 162,522 47,850 159,761 39,422 55,105 219,039 165,007 928 1,736 869,726
- ------------------------------------------------------------------------------------------------------------------------------------
1993 17,456 161,749 47,056 168,034 41,348 54,727 228,515 161,942 908 1,508 883,323
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Employment by Industrial Sector - Percentage of Total Employment
- ------------------------------------------------------------------------------------------------------------------------------------
Year Agriculture Manufacturing Construction Trade FIRE TCPU Services Government Mining Other Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1988 2.20% 20.10% 5.10% 17.90% 4.50% 6.40% 23.00% 20.30% 0.10% 0.40% 100.00%
- ------------------------------------------------------------------------------------------------------------------------------------
1989 2.10% 20.10% 5.30% 17.90% 4.50% 6.40% 23.30% 19.90% 0.10% 0.40% 100.00%
- ------------------------------------------------------------------------------------------------------------------------------------
1990 2.30% 19.50% 5.20% 18.40% 4.50% 6.50% 23.60% 19.60% 0.10% 0.40% 100.00%
- ------------------------------------------------------------------------------------------------------------------------------------
1991 2.20% 18.90% 5.20% 18.10% 4.60% 6.40% 24.40% 19.90% 0.10% 0.20% 100.00%
- ------------------------------------------------------------------------------------------------------------------------------------
1992 2.10% 18.70% 5.50% 18.40% 4.50% 6.30% 25.20% 19.00% 0.10% 0.20% 100.00%
- ------------------------------------------------------------------------------------------------------------------------------------
1993 2.00% 18.30% 5.30% 19.00% 4.70% 6.20% 25.90% 18.30% 0.10% 0.20% 100.00%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
10
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Employment by Industrial Sector - Percentage Change from Previous Period
- ------------------------------------------------------------------------------------------------------------------------------------
Year Agriculture Manufacturing Construction Trade FIRE TCPU Services Government Mining Other Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1988 -- -- -- -- -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
1989 -0.50% 2.40% 6.60% 2.90% 2.40% 3.30% 4.00% 0.60% 18.60% -6.90% 2.70%
- ------------------------------------------------------------------------------------------------------------------------------------
1990 9.60% -1.10% -1.00% 4.20% 0.30% 2.40% 3.20% 0.60% -0.60% 0.10% 1.70%
- ------------------------------------------------------------------------------------------------------------------------------------
1991 -1.10% -3.80% -1.20% -2.20% 1.70% -0.90% 3.10% 0.70% -7.40% -31.20% -0.50%
- ------------------------------------------------------------------------------------------------------------------------------------
1992 -5.70% -3.30% 6.90% 0.90% 2.60% -1.10% 7.80% -2.50% -5.10% -44.20% 1.00%
- ------------------------------------------------------------------------------------------------------------------------------------
1993 -9.40% 0.00% 6.40% 8.60% 5.90% -0.90% 9.10% -5.00% 0.20% -29.60% 3.00%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The previously indicated employment growth patterns, which are expected to
continue into the current decade, indicate a positive overall trend. Another
positive characteristic is the diversification of the Puerto Rican Economy.
Although the government sector accounts for approximately 20% of all
employment the services, trade and manufacturing sectors control approximately
25%, 18% and 19%, respectively.
This distribution cushions the overall impact of normal business cycles on the
economy since a significant employment drop in one industry is not bound to
greatly affect the economy in general. Regarding the manufacturing sector, it
can be seen how employment has been declining since its peak in 1989.
According to the Department of Labor and Human Resources the latest unemployment
rate for the Island was 13.7% as of November 1994.
The latest development in the labor landscape refers to a study commissioned by
the Puerto Rico Manufacturers Association and prepared by Corplan, Inc., an
economic consultants firm. According to a media report in a local newspaper in
April of this year, manufacturing employment is down 6,000 jobs compared to
1992, and the number of new jobs being promoted by PRIDCO was down by nearly
50%. The report went on to describe the direct impact of recent cuts in Section
936: a $14 million expansion by Medtronic canceled, a $10 million expansion by
Owens-Illinois cut to $6 million.
The Corplan report indicates that 25,800 manufacturing jobs will be lost by
1998, a result of Section 936 cuts and the recent signing of NAFTA (which will
have a negative effect in the needle industry). The current Administration is
basing its economic model on the service industries beginning with tourism.
These industries; however, would have a difficult time absorbing such a large
number of lost jobs, added to additional persons coming into the labor pool. If
Corplan's predictions come true, the industrial real estate market in Puerto
Rico, as well as the entire economy, will be negatively affected.
CONSTRUCTION INDUSTRY
- ---------------------
The value of construction permits for fiscal year 1993 increased 13.5%, after
an 11% decrease in the previous fiscal year. Although this is a considerable
achievement, the sector's compounded growth rate for the last four fiscal
years has been limited to 3.7%. Permits' value from 1985 to 1989 grew at a
compounded growth rate of 17.4%, almost five times faster than the last few
<PAGE>
[MAP APPEARS HERE]
THE SAN JUAN METROPOLITAN AREA
<PAGE>
11
years. This phenomenon indicates weakness in the sector. This weakness can be
attributed to the recessionary period in the U.S. and the Island.
One component of the construction industry, residential construction, has seen
increased activity in many Island towns with the several federal programs
available for sales and rental of social-interest housing.
CONCLUSION
- ----------
Puerto Rico has experienced a dramatic economic growth during the last 50 years.
It changed from an agricultural to an industrial economy. However, the Island
depends heavily on the United States economy, and on the policies adopted by the
U.S. Congress, as is the case of the 936 Section. Puerto Rico must design and
implement an economic model that does not depend so heavily on decisions taken
by the U.S. Congress.
The population on the Island is expected to continue growing, but at a slower
growth rate than previous years due to a reduced birth rate and a net emigration
of island residents to the United States.
The economy of Puerto Rico was originally forecasted to grow between 3.0% and
3.3% during 1994, but these figures were revised downward as a result of the
extended drought and resulting water rationing affecting the Island during the
past months. The new estimate for growth was approximately 2.6%.
After nearly two years of declining interests, they increased several times
during 1994, as the Federal Reserve Board tried to keep inflation in check. The
last increase was early this year. If inflationary tendencies continue this year
(1995), we might see additional increases, but they are expected to come slowly
so as not to interrupt the growth of the economy.
REGION ANALYSIS - THE SAN JUAN METROPOLITAN AREA
- ------------------------------------------------
The greater San Juan Metropolitan Area encompasses the municipalities of San
Juan, Carolina, Bayamon, Trujillo Alto, Guaynabo, Catano, Toa Baja, Loiza and
Canovanas. This area is the center of Puerto Rico's economic activity, and it
located on the northern coast of the Island. It occupies an area of
approximately 266 square miles. The topography of the San Juan Metropolitan Area
is mostly level, for the greater portion of the area is located within the
northern coastal plains of the Island. The southern limits of SJMA coincide to
an extent with the central mountain region, which has been the controlling
factor of urban expansion.
Even though the SJMA is considered a single population center, the
municipalities found within its boundaries act as independent political
entities, with their own mayor, property tax systems, etc.
TRANSPORTATION
- --------------
<PAGE>
12
The San Juan Metropolitan Area is linked by an extensive road network. The
Island has a constant traffic problem since public transportation is not too
reliable and too many people have to drive their own cars. To alleviate this
situation, the Acua Expreso was developed approximately two years ago. It
consisted of ferry boats that traveled from Hato Rey to San Juan through the
Martin Pena Channel. The operation then closed down due to financial
difficulties.
The newest initiative to solve the mass transit problem in the San Juan
Metropolitan Area is the Light Urban Train. At the present time, the
government is asking funds from Congress to start the project, which will
cover San Juan, Bayamon, Santurce and Rio Piedras. In the mean time, mass
transportation is handled by the Metropolitan Bus Authority and by private
mini-buses and taxis.
<PAGE>
13
POPULATION
- ----------
Economic development in Puerto Rico has been accompanied, as in other developing
countries, with an accelerated urban growth. Declining agriculture and the
increased emphasis on manufacturing have motivated a mass migration to the
cities. According to the U.S. Census Bureau, the population of the SJMA
increased from 695,808 in 1960 to 1,179,983 in 1990.
POPULATION GROWTH /4/
<TABLE>
<CAPTION>
---------------------------------------------------------------------
Municipality 1990 % Increase 1980 % Increase 1970
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
---------------------------------------------------------------------
Bayamon 220,262 12.30% 196,206 25.60% 156,192
---------------------------------------------------------------------
Canovanas 36,816 15.50% 31,880 -- --
---------------------------------------------------------------------
Carolina 177,806 7.10% 165,954 54.20% 107,643
---------------------------------------------------------------------
Catano 34,587 31.80% 26,243 -0.80% 26,459
---------------------------------------------------------------------
Guaynabo 92,886 15.00% 80,742 20.40% 67,042
---------------------------------------------------------------------
Loiza 29,307 40.40% 20,867 -46.60% 39,062
---------------------------------------------------------------------
San Juan 437,745 0.70% 434,849 -6.10% 463,242
---------------------------------------------------------------------
Toa Baja 89,454 14.30% 78,246 67.10% 46,834
---------------------------------------------------------------------
Trujillo Alto 61,120 17.90% 51,839 69.00% 30,669
---------------------------------------------------------------------
Total 1,179,983 8.60% 1,086,826 16.00% 937,143
---------------------------------------------------------------------
</TABLE>
The previous table illustrates that the population in the subject region has had
constant growth during the past two decades, but with a slower growth rate
experienced from 1980 to 1990. The overall growth rate was somewhat lower than
that experienced in the Island as a whole, which was 10.2% during the 1980-1990
decade.
The following table contains the population growth projections prepared by the
Puerto Rico Planning Board for the subject region up to the year 2005.
POPULATION PROJECTIONS
<TABLE>
<CAPTION>
Municipality 1995 % Increase 2000 % Increase 2005
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Bayamon 232,828 3.80% 241,730 3.20% 249,358
------------------------------------------------------------------------
Canovanas 38,961 4.60% 40,758 3.90% 42,365
------------------------------------------------------------------------
Carolina 185,592 2.90% 190,989 2.00% 194,840
------------------------------------------------------------------------
Catano 38,503 9.40% 42,140 9.10% 45,955
------------------------------------------------------------------------
Guaynabo 99,407 5.20% 104,587 4.60% 109,407
------------------------------------------------------------------------
Loiza 33,754 12.90% 38,113 12.30% 42,813
------------------------------------------------------------------------
San Juan 437,241 -1.20% 432,038 -1.80% 424,143
------------------------------------------------------------------------
Toa Baja 95,271 5.00% 100,072 4.50% 104,556
------------------------------------------------------------------------
Trujillo Alto 66,706 7.40% 71,659 6.80% 76,513
------------------------------------------------------------------------
Totals 1,228,263 12.80% 1,262,086 2.20% 1,289,950
------------------------------------------------------------------------
</TABLE>
- -----------------------
/4/ Source: 1990 Census of Population and Housing.
<PAGE>
14
It can be seen how growth in the subject region is expected to continue, but at
a much slower pace than in the previous two decades.
WORK FORCE CHARACTERISTICS
- --------------------------
The following table illustrates the industrial composition by employment sector
of the San Juan Metropolitan Area, for the year of 1993.
<TABLE>
<CAPTION>
EMPLOYMENT BY INDUSTRIAL SECTOR
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Bayamon 99 6,000 1,698 13,189 1,466 2,386 16,065 6,660 0 118 47,681
- ------------------------------------------------------------------------------------------------------------------------------------
Canovanas 76 1,206 157 512 50 167 1,324 617 13 8 4,130
- ------------------------------------------------------------------------------------------------------------------------------------
Carolina 97 6,451 1,999 12,470 1,594 6,663 8,643 4,625 41 96 42,679
- ------------------------------------------------------------------------------------------------------------------------------------
Catano 3 1,996 482 3,687 88 953 1,729 915 0 3 9,856
- ------------------------------------------------------------------------------------------------------------------------------------
Guaynabo 130 4,769 5,297 8,312 1,318 2,735 4,879 3,832 80 31 31,383
- ------------------------------------------------------------------------------------------------------------------------------------
Loiza 11 187 23 103 56 29 575 608 0 0 1,592
- ------------------------------------------------------------------------------------------------------------------------------------
San Juan 618 9,411 17,756 57,358 25,120 22,426 82,791 66,795 12 682 282,969
- ------------------------------------------------------------------------------------------------------------------------------------
Toa Baja 36 3,243 454 2,043 188 995 1,986 1,394 69 13 10,421
- ------------------------------------------------------------------------------------------------------------------------------------
Trujillo Alto 61 712 1,083 1,584 215 180 1,831 896 41 9 6,612
- ------------------------------------------------------------------------------------------------------------------------------------
Total 1,131 33,975 28,949 99,258 30,095 36,534 119,823 86,342 256 960 437,323
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF TOTAL EMPLOYMENT
- ------------------------------------------------------------------------------------------------------------------------------------
Municipality Agriculture Manufacturing Construction Trade Fire TCPU Services Government Mining Other Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bayamon 0.21% 12.58% 3.56% 27.66% 3.07% 5.00% 33.69% 13.97% 0.00% 0.25% 100.00%
- ------------------------------------------------------------------------------------------------------------------------------------
Canovanas 1.84% 29.20% 3.80% 12.40% 1.21% 4.04% 32.06% 14.94% 0.31% 0.19% 100.00%
- ------------------------------------------------------------------------------------------------------------------------------------
Carolina 0.23% 15.12% 4.68% 29.22% 3.73% 15.61% 20.25% 10.84% 0.10% 0.22% 100.00%
- ------------------------------------------------------------------------------------------------------------------------------------
Catano 0.03% 20.25% 4.89% 37.41% 0.89% 9.67% 17.54% 9.28% 0.00% 0.03% 100.00%
- ------------------------------------------------------------------------------------------------------------------------------------
Guaynabo 0.41% 15.20% 16.88% 26.49% 4.20% 8.71% 15.55% 12.21% 0.25% 0.10% 100.00%
- ------------------------------------------------------------------------------------------------------------------------------------
Loiza 0.69% 11.75% 1.44% 6.47% 3.52% 1.82% 36.12% 38.19% 0.00% 0.00% 100.00%
- ------------------------------------------------------------------------------------------------------------------------------------
San Juan 0.22% 3.33% 6.27% 20.27% 8.88% 7.93% 29.26% 23.61% 0.00% 0.24% 100.00%
- ------------------------------------------------------------------------------------------------------------------------------------
Toa Baja 0.35% 31.12% 4.36% 19.60% 1.80% 9.55% 19.06% 13.38% 0.66% 0.12% 100.00%
- ------------------------------------------------------------------------------------------------------------------------------------
Trujillo Alto 0.92% 10.77% 16.38% 23.96% 3.25% 2.72% 27.69% 13.55% 0.62% 0.14% 100.00%
- ------------------------------------------------------------------------------------------------------------------------------------
Total 0.26% 7.77% 6.62% 22.70% 6.88% 8.35% 27.40% 19.74% 0.06% 0.22% 100.00%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
As can be seen form the previous tables, the services, FIRE (Finances,
Insurance, and Real Estate), trade, TCPU (Transportation, Communications, and
Public Utilities) and Government sectors account for 85 % of total employment.
These sectors are contribute directly or indirectly to office space demand. The
services, FIRE, and Government sectors which account for 54 % of the total
employment are the major contributors to office space demand.
UNEMPLOYMENT
- ------------
According to the Department of Work and Human Resources, the latest unemployment
rate figure for the San Juan MSA (which includes 30 municipalities) was 11.6% as
of March 1995. Total work force amounted to 666,700 persons, out of which 77,400
were unemployed. The average unemployment rate for 1994 was 12.0 %. Both of
these figures are lower than figures for the Island of Puerto Rico as a whole.
<PAGE>
15
THE MUNICIPALITY OF CANOVANAS
- -----------------------------
The subject property as mentioned is located within the Municipality of
Canovanas. The Municipality of Canovanas lies just 4 miles east of Carolina and
14 miles east of San Juan, covering 14 square miles. It bounds in the north with
the Municipality of Loiza, on the south with the Municipality of Juncos, on the
east with Rio Grande and on the west with Carolina.
As per the 1990 census, Canovanas had a population of 36,816; 25,301 in urban
areas and 11,515 in suburban areas. These 1990 figures compare with the previous
figures as shown in the following table below:
<TABLE>
<CAPTION>
------------------------------------------------
Decade Urban Suburban Total
------------------------------------------------
<S> <C> <C> <C>
1990 25,301 11,515 36,816
------------------------------------------------
1980 22,943 8,937 31,880
------------------------------------------------
Percent Change 10.28% 28.85% 15.48%
------------------------------------------------
</TABLE>
No data is available for Canovanas for periods before 1980, since up until 1972,
it was part of the Loiza Municipality. The Puerto Rico Planning Board projects a
population of 40,758 for the year 2000.
The immediate neighborhood of the subject is dominated by the presence of the
New El Comandante Racetrack, a 265 cuerdas facility comprising a Grandstand -
Club House building, a one (1) mile oval racing strip with exercise track, barn,
stables, parking for approximately 7,250 vehicles and other support facilities.
The original El Comandante Track originally located about 6.5 miles east, gave
place to these developments since 1976.
Other uses in the neighborhood include residential (Loiza Valley, Quintas de
Canovanas, Haciendas de Canovanas, Los Colobos, Parque Ecuestre and Lomas de
Carolina), PRIDCO sponsored light industrial parks and sparse commercial uses.
The Canovanas town core is just northeast of subject. The neighborhood is
separated from the more developed region of Carolina by the Rio Grande de Loiza.
The limit between the Carolina and Canovanas Municipalities is located just west
of the subject property.
Main access to the neighborhood is by State Road No.3. State Road No.185 which
runs south from the latter into Juncos, also serves the area. The proposed Route
66 is designed to cut across the center of the southern portion of the subject.
Again, this freeway, if built, will be a welcome addition to the area
infrastructure and would positively affect the growth of the neighborhood. On
the other hand, any development on the subject would have to provide or dedicate
the required areas for this road.
The Rio Grande de Loiza flows to the west and north of the subject, making most
of these areas floodable. The Canovanillas River flows west of subject, but its
flood areas do not affect the property. However, the Canovanas River which flows
east of subject, across from State Road No. 185 does affect the southeastern
portion of subject through one of its stream beds.
<PAGE>
16
TAX DATA AND ASSESSMENT ANALYSIS
- --------------------------------
Under the present property tax system, the "Centro de Recaudaciones e Ingresos
Municipales", or CRIM for its acronym in Spanish, collects all property taxes on
behalf of each individual municipality. Each municipality has the power to
regulate the amount of property tax to be imposed.
Property taxes are imposed on each property on the first day of the year.
However, these taxes are not due for payment until the fiscal year running from
July to June of the following year. Since fiscal year 1974, property taxes are
invoiced and paid on a semi-annual basis. A 10% discount is granted for payment
within 30 days after the issuance of the tax invoice.
The current property tax (real estate) rate for the municipality of Canovanas
for fiscal year 1994-1995 is 8.08%, meaning a tax of $80.80 for $1,000 of
assessed valuation. There are a total of 78 municipalities in Puerto Rico having
property tax rates ranging from 5.07% (Catano) to 8.33% (Carolina) with 31
municipalities with rates under 7.00% and 34 above 8.00%.
For the purpose of property tax determination, all properties on the Island are
assessed based on values of similar properties as established in the years 1957-
58. This means that a property built during 1994 would have its assessment based
on the value of the property as if it had been built in 1957-58. Consequently,
the values established by the Government for taxation are considerably lower
than the true market values of the properties.
Puerto Rico's property tax rates are based on two distinct factors: (1) The rate
fixed by the Legislature of Puerto Rico which is standard for all areas of the
Commonwealth, and; (2) The rate set by the Municipality wherein the property is
located.
The following is the Property Tax and Assessment Data for the subject property:
<TABLE>
<CAPTION>
----------------------------------------------------
Excess Land
New El Comnadante Farm
State Road Number 3 Km 16.2
Canovanas Ward, Canovanas, Puerto Rico
Tax Data and Assessment Valuation
----------------------------------------------------
Tax Assessment # Valuation R. E. Taxes
----------------------------------------------------
<S> <C> <C>
80-117-000-002-02-998 $ 158,530.00 $ 12,809.22
----------------------------------------------------
80-117-000-002-48-901 $ 46,290.00 $ 3,740.23
----------------------------------------------------
80-117-000-002-50-000 $ 5,190.00 $ 419.35
----------------------------------------------------
80-117-000-003-03-998 $ 8,360.00 $ 675.49
----------------------------------------------------
80-117-000-002-49-901 $ 7,430.00 $ 600.34
----------------------------------------------------
80-117-000-003-05-901 $ 4,160.00 $ 336.13
----------------------------------------------------
80-117-000-008-02-901 $ 10,650.00 $ 860.52
----------------------------------------------------
80-117-000-003-01-000 $ 215,500.00 $ 17,412.40
----------------------------------------------------
80-117-005-217-01-000 $ 29,860.00 $ 2,412.69
----------------------------------------------------
Totals $ 485,970.00 $ 39,266.38
----------------------------------------------------
</TABLE>
<PAGE>
17
The above data is assumed to be correct. However, the appraisers do not
represent themselves as experts in tax matters and assume no liability in this
respect. Confirmation of current tax conditions should be verified with
pertinent tax authorities.
SITE ANALYSIS
- -------------
LOCATION AND ACCESS
- -------------------
The land north and south of the New El Comandante Racetrack was originally
comprised of seven (7) un-assembled (legally separate) parcels of land with
areas in a range between about 6.0 to 185.0 cuerdas located at and in the
interior of Km. 16.2, State Road No. 3 within the Canovanas Ward of the
Municipality of Canovanas, Puerto Rico. Access to some of the parcels is through
State Road Number 3 while others have access through state road number 185.
LEGAL DESCRIPTION
- -----------------
The legal description of the subject property as it appears in the Spanish
language is as follows:
<PAGE>
18
Parcel A:
---"RUSTICA: Parcela de terreno situada en el Barrio Canovanas, del
termino municipal de Canovanas, antes Loiza, Puerto Rico, con un area de
Cuatrocientos Setenta y Tres Cuerdas con siete mil doscientos dos diez
milesimas de cuerda (473.7202 cdas.), equivalentes a ciento ochenta y seis
(186) hectareas, diecinueve (19) areas, tres (3) centiareas y veinte (20)
miliareas, o sea, un millon ochocientos sesenta y un mil novecientos tres
metros cuadrados con veinte centesimas de metro cuadrado (1,861,903.20
m.c.). En lindes por el NORTE: con la Calle Astromelia (B) de la
Urbanizacion Loiza Valley y la faja de area verde de dicha Urbanizacion,
parcela de Housing Development Associates, S. E., antes San Juan Racing
Association, Inc.; y parcela de Esteban Vargas; por el SUR, con terrenos
de Abraham Diaz Gonzalez, los de Regino Rios, los de la Sucesion de Juan
Rios, los de Esteban Vargas, los de Juan Santos y los de Ramon Reyes; por
el ESTE: con terrenos de Housing Development Corporation, antes, hoy San
Juan Racing Association, Inc., con la Carretera Numero ciento ochenta y
cinco (185) que conduce de Canovanas a Juncos, con los de Esteban Vargas,
los de Ramon Rios Reyes, los de la Sucesion Regino Rios y los de Marcano
Machuca; y por el OESTE, con el Rio Canovanas, con terrenos de Land
Development Associates, antes Toma de Agua Corporation, con los de Sofia
Alvarez, con los de Ramon Rios Reyes, los de Juan Agosto, con los de la
Sucesion Roman Rios y los de Juan Santos. Esta atravesada en su extremo
Sur por un camino privado."-------
Parcel B:
---"RUSTICA: Parcela de terreno sita en el Barrio Canovanillas, del
termino municipal de Canovanas, antes Loiza, Puerto Rico, con una cabida
de setenta y nueve cuerdas con veintidos centesimas de cuerdas (79.22
cds.), equivalentes a treinta y un (31) hectareas, trece (13) areas,
cuarenta y seis (46) centiareas o ocho miliareas, o sea, trescientos once
mil trescientos cuarenta y seis metros cuadrados con ocho decimas de metro
cuadrado (311,346.8), en lindes por el NORTE: con la Carretera Estatal
Numero tres (3) que conduce de Carolina a Rio Grande; por el SUR: con la
parcela segregada para traspasar a San Juan Racing Association, Inc.; por
el ESTE: con terrenos de Canovanas Industrial Development Corporation,
separados en parte de la extension de la colindancia por el nuevo cauce
del Cano Bocaforma y con la parcela segregada para traspasar a San Juan
Racing Association, Inc.; y por el OESTE: con la parcela segregada para
pasar a San Juan Racing Association, Inc."-------------
Parcel C:
---"RUSTICA: Parcela de terreno sita en el Barrio Canovanillas, de
Canovanas, con una cabida superficial de seis punto setecientos setenta y
cuatro cuerdas (6.774 cdas.), equivalentes a dos (2) hectareas, sesenta y
seis (66) areas, cuarenta y cuatro (44) centiareas y siete (7)
diezmiliareas, o sea, veintiseis mil seiscientos
<PAGE>
19
cuarenta y cuatro punto cero siete (26,644.07) metros cuadrados, en lindes
por el NORTE: con parcela expropiada por la Autoridad de Fuentes
Fluviales; SUR: en un punto, con Campo Canovanas Corp.; ESTE: con parcela
de la finca principal que se segrega para traspasar a San Juan Racing
Association, Inc.; y; OESTE: con terrenos en los que se construyo la
Urbanizacion Loiza Valley."---------
The above legal descriptions provide the areas for the three parcels that are
subject of this report. Parcel A calls for a total area of 473.7202 cuerdas
which is equivalent to 460.0771 acres. Parcel B has a total area of 79.22
cuerdas or 76.9385 acres and finally Parcel C is described as a 6.774 cuerda
parcel or 6.5789 acres. The combined area of the subject property is therefore
estimated at 559.7142 which is equivalent to 543.5944 acres.
SURVEY
- ------
No survey of the subject site was submitted to the appraisers. The area is based
on the information extracted from the above legal descriptions.
SHAPE AND TOPOGRAPHY
- --------------------
The overall 559.7142 cuerda tract is irregular in shape and contains highly
varying topographies from level to very steep slopes. There are two (2) parcels
that are located north of the racetrack (Lot B & C), one of which fronts 65th
Infantry Highway. The remaining parcel, Parcel A, is located south of the racing
facility. This southern section can be accessed by State Road No. 185. The
overall property bounds to the north with State Road No.3 and the Loiza Valley
Subdivision, to the south with vast open farm areas, to the east with State Road
No.185 and a small residential site development and to the west with vast open
areas crossed by the Canovanillas River.
In addition to topographical issues, the overall property has some physical
drawbacks that must be considered.
Parcel C is severely affected by high tension electrical cables and towers,
leading from an Electric Power Authority sub-station at the entrance to the El
Comandante. This parcel is separated from the larger northern track (Parcel B)
by the El Comandante Parkway, the wide avenue-like road which circles the racing
track facility. Parcel C must remain as a green area, since it lacks any
utility. Parcel B, the larger northern tract bounding with 65th Infantry Highway
is affected by the small Bocaforma Creek.
A portion of the southeastern sector of Parcel A (A-5) falls under a flood prone
area resulting from a stream bed of the Canovanas River which flows to the West
of State Road No.185.
Finally, the proposed Route 66 which will lead east from Rio Piedras into
Canovanas, is scheduled to cut across the mountain range of the subject southern
sections. Again, although the construction reality of this artery remains
debatable, any development on subject would probably require the dedication of
the required areas. This area would obviously have to be expropriated
<PAGE>
20
by the government through just compensation. Furthermore, this route would
dramatically increase subject's attractiveness as a metropolitan location by
improving the overall neighborhood infrastructure and reducing the heavy traffic
on 65th Infantry Highway.
The appraisers were presented with and reviewed a document titled "El
Comandante-A Preliminary Development Suitability Study of Two Sites" prepared by
HOH Associates, Inc. on June 1986. At the time said report was prepared, the
purpose was to describe the excess land surrounding the El New Comandante as
well as all the lands surrounding the former facilities of El Hipodromo El
Comandante. As of the effective date of this report, the former Comandante site
in Carolina in a developing stage, however, the New Comandante land has remained
unchanged.
In the above mentioned report prepared by HOH Associates, Inc., the previous
land area sections were considered as reasonable parameters of different
development attractiveness and as such influencing the eventual valuation
analysis of the subject.
In the analysis of this subject site, the appraisers have followed a similar
sequence as that presented for Subject No. 1. Again, input from the H.O.H.
Associates, Inc. study was taken into consideration. Subject property can be
physically and topographically separated into four (4) major areas:
. the northern Parcel B which fronts State Road No.3 on the north and the
racetrack on the south
. a central section of Parcel A, made up mostly of Parcels A-1, A-2, A-3 and
A-4. This section bounds on the north and east with the racetrack
. the southeastern portion of Parcel A, (Parcels A-5) which fronts State
Road No. 185
. Undevelopable land comprised of steep hillside and hilltop land section
from the central and southeastern portions of subject; and those flood
sections of Parcel A (Parcel A-5)
Physically, the first three sections represent the major developable bowls
formed within the mountainous ranges crossing the overall subject property. Each
of these bowls is geographically and visually separated from each other; and
each has sub-areas with special topographical characteristics. In effect, the
largest of these bowls is the El Comandante Racetrack itself, which comprises
approximately 265 cuerdas but is not part of this appraisal report.
It is important to note, however, that the racetrack parcel is under common
ownership with those parcels comprising the subject 559.71 cuerda parcel. In
effect, the infrastructure and amenity considerations in place at the racetrack
parcel significantly affect the overall subject property.
<PAGE>
21
After analyzing the physical nature of the overall subject, the following land
area sections were concluded to represent the most supportable basis for the
valuation of the property directly related to their respective development
possibilities:
CATEGORY I - PARCEL B (North Bowl)
- ---------- --------
As indicated, this is the subject portion located between 65th Infantry Highway
and the El Comandante Racetrack. It is visually separated from the racetrack and
the access parkway by a range of rocky hills to the south and west limits of the
parcel. Parcel B has been the object of severe gravel operations, with its
vegetation and terrain having been greatly disturbed. Development wise however,
these hills could be utilized to screen the property from the race track and the
parkway giving it a more exclusive environment. These hills may be also used to
offset any green area - density requirement from the Planning Board. In terms of
use, this property might combine some commercial with residential development as
its exposure to State Road No.3 is a major asset. The Bocaforma Creek would
probably need channeling, but again, its design might prove an added site
amenity (i.e., lake, pond, etc.). Estimated area: 70.00 cuerdas.
The remaining northern Parcel C (6.774 cuerdas) is severely affected by an
Electric Power Authority easement in the form of high powered cable and towers
and cannot be considered in the development plan of the subject. However it may
form part of the green area, density requirement.
CATEGORY II - PARTS OF PARCEL A (A-1, A-2, A-3, A-4) (CENTRAL BOWL)
- ----------- -----------------------------------------------------
FORMERLY B, D, E, AND F
-----------------------
This is the largest of the subject bowls as it contains the flattest land. It is
visibly separated from the racetrack to the north and east by a mountain range,
again providing a buffer zone for residential exclusivity. A hilltop also
separates this central bowl from the Loiza Valley Development to the north. This
section provides good views from its hilltop range locations, north and south.
Part of the northeast portion of this bowl is presently used by the racetrack
for burying horses and their biological. Access to this central bowl would
probably have to be through the El Comandante Parkway, an infrastructure factor
already in place. Estimated area: 165.0 cuerdas.
CATEGORY III - PART OF PARCEL A (PARCELS A-5) FORMERLY G (South Bowl)
- ------------ -----------------------------------------
Located at the southeastern section of the overall subject, this is the most
difficult terrain of the developable bowls, as it contains the steepest slopes.
Also, it contains a flood prone sector, which must be dealt with. Again,
designing some water retention ponds or lakes might not only solve this
constraint, but also provide an added amenity. This bowl fronts State Road
No.185. Access might also be achieved through the central bowl section.
Estimated area: 80.0 cuerdas.
CATEGORY IV - GREEN AREAS Part of Parcels A (A-1, A-2, A-3, A-4, A-5), B, C
- ----------- -----------
(formerly C, B, D, E, F, G, and H respectively)
This section consists of undevelopable lands within the subject mountain range
and flood prone areas. It also includes the area to be reserved and dedicated to
the proposed Route 66. The high
<PAGE>
22
elevations on these sections of sometimes over 100.00 meters preclude any
feasible development. However, their dense vegetation and attractive mountain
top views provide an attractive environmental amenity for any conceivable PUD.
Again, these green areas could be used to offset Planning Board density and
green area zoning requirements. Estimated area: 244.0 cuerdas.
<TABLE>
<CAPTION>
---------------------------------
Land Utilization Summary
Category Number Area in Cuerdas
---------------------------------
<S> <C>
I 70
---------------------------------
II 165
---------------------------------
III 80
---------------------------------
VI 244
---------------------------------
Total 559
---------------------------------
</TABLE>
The subject parcels are served by all utilities provided by the Federal,
Commonwealth and Municipal governments. Adequate water and sewer capacity is
assumed at no extraordinary development cost.
ZONING
- ------
The overall subject property is presently under an R-1 zoning category as per
Maps No.3 and no. 117-000 of Canovanas. In conversations with a representative
of the Puerto Rico Planning Board, a higher density zoning of R-3 would probably
apply to the core of the subject developable bowls, with R-1 densities in the
hill sides or steeper sections allowing for larger sites with good view
amenities. A re-zoning of the north bowl (Parcel C) may also take place in the
future. The racetrack site is currently under C-5 zoning.
Alternate surrounding zoning include R-1, R-3, R-4 and R-5, as well as
commercial and light industrial zoning.
FLOOD CONDITION
- ---------------
As per HUD Flood Insurance Rate Maps No. 720000-0059-C (August 1992) and
No.720000-0120-B (July 2, 1981) most of the subject property falls under a Zone
C Area (minimum flooding). However, Map 120-B delineates a portion of the
southeastern subject limits as falling under a Zone A, which is a 100-year flood
area.
EASEMENTS, EXPROPRIATIONS AND ENCROACHMENTS
- -------------------------------------------
As indicated, there is an Electric Power Authority easement on Subject Parcel
C. Furthermore, the section for the proposed Route 66 must be reserved. Also,
there is a right-of-way paved road which leads to Haciendas de Canovanas from
Loiza Valley and which cuts across a northwestern section of the subject. This
road may probably have to be relocated to allow for more effective development
of this section of subject.
Except for the preceding information, the appraisers assume that the land,
subject of this report, is free of easements, encroachments and contemplated
expropriations.
<PAGE>
23
ENVIRONMENTAL IMPACT
- --------------------
No environmental impact studies have been made in conjunction with this
appraisal. The value estimate contained herein could be affected by subsequent
environmental impact studies, research, investigation and resulting governmental
actions.
HAZARDOUS MATERIALS
- -------------------
The presence of certain materials, such as asbestos, urea formaldehyde, radon
gas, toxic waste and others can have a significant negative impact upon the
value of unimproved and improved properties. The appraisers are not qualified to
detect such substances nor to certify if a parcel is contaminated. For purposes
of this appraisal, it is assumed that there are no potential pollutants in or on
the property subject of this report.
PROXIMITY TO NUISANCES, HAZARDS OR DETRIMENTAL CONDITIONS
- ---------------------------------------------------------
In order to determine the proximity to nuisances, hazards or detrimental
influences, the appraiser inspected the subject's immediate neighborhood. In
this inspection, the appraiser did not find any item that might be considered a
nuisance nor that could have a negative impact on the subject property at the
present time.
HIGHEST AND BEST USE
- --------------------
In all cases an appraiser must consider which uses are legally permissible.
Private restrictions, zoning, building codes, historic district controls, and
environmental regulations must be investigated before since they may preclude
many potential uses.
The subject site has no private restrictions and does not lie within an historic
district. According to the zoning maps of the Municipality of Canovanas, the
subject property is located within a residential and commercial zoning area.
Despite the fact that the current zoning is that of primarily low density, it is
fair to say that given that the Metropolitan Area is expanding, these areas can
be re-zoned into more dense zonings in order to maximize the land use.
CONCLUSION OF HIGHEST AND BEST USE
- ----------------------------------
The subject property is a tremendously large tract of land which in itself may
become an enclosed neighborhood. Its large size precludes a total immediate
development, since this must be timed to demand expectancies based on population
and urban growth.
Being under single ownership, the subject can be the product of a well conceived
staged development plan, similar to the proposed Parque Escorial Planned Unit
Development currently being developed at the former El Comandante site. More so,
the El Comandante Racetrack may provide a singular theme concept for
development.
<PAGE>
24
In conclusion, the appraisers are of the opinion that, based upon the subject
physical, location and zoning characteristics and considering actual market
and neighborhood trends, the highest and best use of the subject is a Planned
Unit Development (PUD) for most of the north, central and southern bowls; with
mixed residential densities distributed among the different topographies of
the land. The mountain ranges can serve as buffer zones and provide stronger
controlled access and security fixtures, along with attractive green areas.
For part of Parcel B fronting 65th Infantry Highway a commercial highest and
best use is concluded. Again, the market facts, as presented in the valuation
section of this report will more than adequately support these conclusions.
<PAGE>
25
INTRODUCTION TO THE VALUATION PROCESS
-------------------------------------
There are three basic approaches that may be used by the appraisers in the
estimation of market value. These three approaches rely on data from the market
from three different areas when all are applicable. They are the Cost Approach,
the Sales Comparison Approach and the Income Capitalization Approach.
The cost approach has as its premise the valuation of a site by comparison with
similar sites that have sold in the recent past, making adjustments for
differences to indicate a site value estimate. To this site value, the
depreciated cost of the improvements is added. This depreciated cost is found by
adding the direct costs, indirect costs and entrepreneurial profit (if
applicable); and subtracting any loss of value (depreciation) that might have
accrued. The final amount is the market value indicator by the cost approach.
The sales comparison approach has as its premise the comparison of the subject
with others of similar design, utility and use that have sold in the recent
past. To indicate a value for the property, adjustments are extracted and
applied to the comparable sales to compensate for their differences with the
subject. After applying these adjustments, an unit price indicator for the
subject's unit of comparison is found which when multiplied by the subject's
area results in an indication of market value.
The income capitalization approach as used for income-producing properties has
as its premise the estimation of the net operating income of the subject
property for the year following the appraisal date. This net operating income is
then capitalized by a market derived overall capitalization rate into an
indication of market value. The approach can also be developed using a
discounted cash flow model in which the net operating income for each year of
the holding period is forecasted. This net operating income is then brought to
present value by a discounting process. Finally, the present value of the
reversion at the end of the period is added to arrive at a value indication by
discounted cash flow analysis.
In the case at hand, due to the vacant land condition of the subject, only the
Sales Comparison Approach is applicable in this instance.
<PAGE>
26
THE SALES COMPARISON APPROACH
-----------------------------
The sales comparison approach is a process in which a value estimate is obtained
by analyzing and adjusting sales of properties similar to the subject. The
comparative analysis in this approach focuses on differences in property rights
transferred vs. appraised, financing terms, conditions of sale, market
conditions at the time of sale, location, and physical characteristics.
The concepts of anticipation and change, together with the principles of supply
and demand, substitution, balance and externalizes, are basic to the sales
comparison approach. Investors buy properties with the anticipation of receiving
future benefits, and take into consideration the effect of changes in income,
the economy and other factors affecting the value of properties.
Supply and demand determine prices since increased demand for a particular
property type tends to increase its price and vice-versa. The principle of
balance is reflected in the fact that the forces of supply and demand move
toward equilibrium, or balance, in the market. Positive and negative
externalizes influence all types of properties and their values.
The sales comparison approach is applicable to all property types and interests
when there are sufficient, reliable transactions to indicate value patterns or
trends in the market. When data is available, this is the most direct and
systematic approach to value estimate.
A general outline of the sales comparison approach follows:
. Research the market to obtain information on sales transactions,
listings, and offers to purchase and sell properties that are similar to
the subject in terms of property type, date of sale, size, location,
etc.
. Verify the information by confirming that the data is factually accurate
and that the transactions reflect arm's-length market considerations.
. Select relevant units of comparison and develop a comparative analysis
for each unit.
. Compare the sale properties with the subject using the elements of
comparison and adjust the sale price of each comparable appropriately to
the subject.
. Reconcile the various indications estimated from the analysis of the
comparable into a single value indication or a range of values.
The subject property is consist of several parcels of mixed use that have a
combined are of 559.7142 cuerdas. It was previously determined that the
valuation procedure would be based on the particular characteristic of the
parcel, be it, the topography, zoning or any other characteristic. For
organizational purposes, and given the wide number of sales that are included in
this report, the analysis will be segmented in groups according to the
characteristics as mentioned.
<PAGE>
27
ANALYSIS OF COMPARABLE SALES
- ----------------------------
Twenty two transactions have been listed and from which an indication of value
for the subject parcel in its present undeveloped state is to be determined.
They are located within areas that are considered to be competitive areas within
the Metropolitan Area. Most of the listed sales are located in the Municipality
of Carolina, however, other towns include Canovanas, Rio Grande and Luquillo
towards the east and westward are Bayamon and Toa Alta. It is the appraisers
opinion that these sales are adequate to determine the value sought for the
subject property.
<PAGE>
28
COMPARABLE LAND SALE NO.1
- -------------------------
<TABLE>
<S> <C>
Location : Fast Food Court, Km. 23.6, State
Road No. 3, Guzman Abajo Ward,
Rio Grande, Puerto Rico
Grantor : Harry Hainds
Grantee : Rio Grande Properties Developers
Date of Sale : September 19, 1985
Area of Parcel : 17.0706 Cuerdas
Sales Price : $527,062.00
Price per Cuerda : $30,875.42 say $30,900.00
Zoning : IL-1 (light industrial)
Registry/Legal Data : Diary 168/ Page 210/ Farm No.277
Deed No.2 and No.5 before Herman
W. Colberg, Esq.
</TABLE>
<PAGE>
29
COMPARABLE LAND SALE NO.2
- -------------------------
<TABLE>
<S> <C>
Location : Modular Parcel - Site of Lomas de Carolina III
Residential Development, Carolina, Puerto Rico
Grantor : The Chase Manhattan Bank, N.A.
Grantee : Mora Development Corporation
Date of Sale : February 28, 1986
Sales Price : $698,680.00
Size : 19.9623 Cuerdas
Price per Cuerda : $35,000.00
Legal Data : Deed #1 before Aurelio Emmanuelli Belaval, Esq.
Inscription Data : Volume 946 / Page 31 / Property #13654
Zoning : R-3
Terms : Cash to Sellers
Shape : Irregular (Adequate for Development)
Flood Plains : Zone "C" - Minimal Flood Hazard
Utilities : All available to site
Boundaries : North - Yunquesito Street
South - Mount Britton Street
East - Mansiones de Carolina Dev.
West - Cerro Chico Street
Comments : A 169 unit residential development has been
approved on this site as per Case No. 68-075-URV.
</TABLE>
<PAGE>
30
COMPARABLE LAND SALE NO.3
- -------------------------
<TABLE>
<S> <C>
Location : Km. 2.5, State Road No. 185, Canovanas Ward,
Canovanas, Puerto Rico
Grantor : Rafael Colon Viera
Grantee : Jose Rodriguez Ramirez
Date of Sale : February 12, 1986
Area of Parcel : 17.99 Cuerdas
Sales Price : $350,000.00
Price per Cuerda : $19,455.25 say $19,500.00
Zoning : R-1
Registry/Legal Data : Book 75/ Page 2/ Farm No. 2801 Deed No.27
before Ignacio Santos Sierra, Esq.
</TABLE>
<PAGE>
31
COMPARABLE LAND SALE NO.4
- -------------------------
<TABLE>
<S> <C>
Location : Site of the proposed Bahia Beach Plantation, East
of State Road No. 187 and south of the Atlantic
Ocean, Herrera Ward, Rio Grande, Puerto Rico
Grantor : Joaquin Antonio Villamil Pagan
Grantee : Bahia Beach Plantation, Inc.
Date of Sale : May 30, 1986
Area of Parcel : 483.0359 gross Cuerdas
Sales Price : $2,100,000.00
Price per Cuerda : $4,347.50 say $4,300.00
Zoning : A-3 (agricultural) and B-2 (forest)
Legal Data : Deed No.5 before Vionette Benitez Quinones, Esq.
</TABLE>
<PAGE>
32
COMPARABLE LAND SALE NO.5
- -------------------------
<TABLE>
<S> <C>
Location : Parcel AX - Site of Parque Ecuestre Development
Canovanillas Ward, Carolina, Puerto Rico
Grantor : The Chase Manhattan Bank, N.A.
Grantee : Vifont Builders, Inc.
Date of Sale : August 22, 1986
Size : 26.9791 Cuerdas
Sales Price : $813,000.00
Price per Cuerda : $30,134.43 say $30,000.00
Legal Data : Deed No.14 before Jorge A. Pierluisi, Esq.
Inscription Data : Volume 1072 & 976 / Pages 10, 20, 69 Properties 44865, 44866, 36594
Zoning : R-3
Terms : Cash to Seller
Shape : Basically rectangular
Utilities : All available to site
Boundaries : North - Parque Ecuestre Development
South - Main Farm
East - Ocean Wave, Inc. Property
West - Commonwealth of Puerto Rico
Comments : A 398-unit low cost residential subdivision was constructed at this
site as per Case No. 74-5-1215-SPU
</TABLE>
<PAGE>
33
COMPARABLE LAND SALE NO.6
- -------------------------
<TABLE>
<S> <C>
Location : State Road No.3, corner State Road No.857,
Canovanillas Ward, Carolina, Puerto Rico
Grantor : Housing Investment Corporation
Grantee : Inter-american University of P.R., Inc.
Date of Sale : August 20, 1986
Sales Price : $1,500,000.00
Size : 30.0868 Cuerdas
Price per Cuerda : $49,855.75 say $49,900.00
Legal Data : Deed # 19 before Aurelio Emmanuelli Belaval, Esq.
Inscription Data : Volume 1066 / Page 224 / Property #44732
Zoning : Residential (R-1)
Terms : Cash to Sellers
Shape : Trapezoidal
Terrain : Level
Flood Plains : Zone "C" - Minimal Flood Hazard
Utilities : Electricity & water in the area
Comments : Tax code No.089-000-006-18 (part)
</TABLE>
<PAGE>
34
COMPARABLE LAND SALE NO.7
- -------------------------
<TABLE>
<S> <C>
Location : Part of Los Colobos Farm Km. 13.5, 65th Infantry
Highway Residential Development Canovanillas
Ward, Carolina, Puerto Rico
Grantor : The Chase Manhattan Bank, N. A.
Grantee : Dow Group Investment Corporation
Date of Sale : May 20, 1987
Sales Price : $3,107,235.00
Size : 103.5745 Cuerdas
Price per Cuerda : $ 30,000.00
Zoning : R-1 (Residential)
Term : Cash to Seller
Shape : Irregular (adequate for development)
Topography : Level at front / rolling-sloping at rear
Flood Classification : Zone C - Minimal flood hazard
Utilities : All available to site
Boundaries : North - 65th Hiqhway South: Parque Ecuestre Dev.
East - Right of way of proposed State Road No. 874
West - State Road No. 857
Legal Data : Deed No.9 before Ramon Moran Loubriel, Esq.
Inscription Data : Volume 1077 / Pages 280 and 287 / Properties
46048 and 46039
</TABLE>
<PAGE>
35
COMPARABLE LAND SALE NO.8
- -------------------------
<TABLE>
<S> <C>
Location : Part of Los Colobos Farm, State Road No.3, Km.
14.7 Canovanillas Ward, Carolina, Puerto Rico
Grantor : The Chase Manhattan Bank, N.A. & Shoecentre
Associates, S.E.
Grantee : First S.B.S. Associates Limited Partnership
Date of Sale : May 29, 1987
Sales Price : $1,078,000.00
Size : 25.0416 Cuerdas
Prize per Cuerda : $43,048.37 Say $43,000.00
Legal Data : Deed # 24 before Alberto Cayetano Rodriguez, Esq.
Inscription Data : Volume 1119 / Page 140 / Property #48618
Zoning : Residential (R-1)
Terms : $25,000 cash and a $798,000 mortgage payable
4/15/1988 at 9.0%
Shape : Rectangular
Terrain : Level
Flood Plains : Zone " C" - Minimal Flood Hazard
Utilities : Water & Electricity available in area
Comments : Tax code No. 117-000-002-01-000 (part) The
property fronts 65th Infantry towards the north
and Dow Group Investments Corporation towards the
south.
</TABLE>
<PAGE>
36
COMPARABLE LAND SALE NO.9
- -------------------------
<TABLE>
<S> <C>
Location : Mountain View - Site of Lomas de Carolina V
Residential Development, Carolina, Puerto Rico
Grantor : The Chase Manhattan Bank, N.A.
Grantee : Mora Development Corporation
Date of Sale : November 10, 1987
Sales Price : $1,049,400.00
Size : 35.471210 Cuerdas
Price per Cuerda : $29,584.56 say $29,600.00
Financing Terms : Cash to Seller
Zoning : R-3
Topography : Level to hilly with rocky formations
Highest and Best Use : Residential - A281 unit residential development
has been approved on this site as per Case No. 68-075-URB.
Boundaries : North: St. #58 Lomas de Carolina Dev.
South: Gerardo Maesso Estate, Ezequiel Castro,
Carlos J. Sanchez and others.
East: Gregorio Velez Guzman, Ezequiel Castro
West: Commonwealth of Puerto Rico
Tax Code No. : 116-020-105-20-000
Legal Data : Deed No. 10 before Leopoldo Cabassa Sauri, Esq.
</TABLE>
<PAGE>
37
COMPARABLE LAND SALE NO.10
- --------------------------
<TABLE>
<S> <C>
Location : Parcel A, Los Colobos Farm. State Road No.3,
corner Cambute Road, Km. 14.9, Canovanillas Ward,
Carolina, Puerto Rico
Grantor : The Chase Manhattan Bank, N.A.
Grantee : Empresas Nativas, Inc. rep. by Pedro Ramirez
Soltero
Date of Sale : December 21, 1987
Sales Price : $800,000.00
Size : 20.1488 Cuerdas
Price per Cuerda : $39,704.60 say $39,700.00
Legal Data : Deed # 9 before Pedro A. Cantero Frau, Esq.
Inscription Data : Volume 1119/Page 154/ Property #48620
Zoning : Residential (R-1)
Terms : $212,500 down payment; balance at market interest
Shape : Rectangular
Terrain : Level
Flood Plains : Zone "C"-Minimal Flood Hazard, small area in zone "B"
Utilities : Electricity & water in the area
Comments : Frontage to State Road No.3. Tax No.117-000-002-01
(part) Property has the 65th Infantry in the
north boundary and State Road Number 853 (Camino
Cambute) towards the east boundary.
</TABLE>
<PAGE>
38
COMPARABLE LAND SALE NO.11
- --------------------------
<TABLE>
<S> <C>
Location : State Road No. 940, 983 and 984, Pitahaya and
Juan Martin Wards, Luquillo, Puerto Rico
Grantor : Inmobiliaria Margarita, Inc.
Grantee : Domingo Sadurni Casas
Date od Sale : June 14, 1988
Area of Parcel : 447.6457 Cuerdas
Sales Price : $1,300,000.00
Price per Cuerda : $2,904.08 say $2,900.00
Zoning : R-1/R-0
Legal Data : Deed No.66 before Julio M. Rodriguez Isalque,
Esq.
</TABLE>
<PAGE>
39
COMPARABLE LAND SALE NO. 12
- ---------------------------
<TABLE>
<S> <C>
Location : Parcel AY Adjacent to the Parque Ecuestre
Development, Carolina, Puerto Rico
Grantor : The Chase Manhattan Bank, N.A.
Grantee : Godelco Development Corporation
Date of Sale : October 28, 1988
Area of Property : 23.5161
Sales Price : $575,000.00
Price per Cuerda : $24,451.33 say $24,500.00
Legal Data : Deed #16 before Pedro Cantero Frau, Esq.
Zoning : R-1
Terms : Cash to Sellers
Shape : Irregular (Adequate for development)
Terrain : Gently sloping to level
Floodplain : Zone "C" Minimal Flood Hazard
Comments : A 160 unit residential development is being
developed at this site.
</TABLE>
<PAGE>
40
COMPARABLE LAND SALE NO. 13
- ---------------------------
<TABLE>
<S> <C>
Location : Paseo de La Alhambra Development Florentino
Roman Avenue San Anton Ward Carolina, Puerto Rico
Grantor : Inversiones Miramar, Inc.
Grantee : Sana, S. E.
Date of Sale : June 22, 1989
Sales Price : $415,000.00
Size : 9.75 Cuerdas
Price per Cuerda : $42,564.10, say $42,600.00
Zoning : R-l (Residential)
Term : Cash to Seller
Shape : Gently sloping, irregular
Flood Classification : Zone C - Minimal flood hazard
Utilities : All available to site
Boundaries : North: Pelayo Roman, Arcadio Canales et al
South: Eulogio Ferrer, Mateo Vicenty et al
East: Rio Piedras to Caguas Road and Mateo Community
West: Florentino Roman Avenue
Legal Data : Deed No. 207 before Tomas Correa Acevedo, Esq.
Inscription Data : Volume 47/ Page 126/ Property 1521
Comments : This parcel was later developed with a
project that has a total of 44 residential units.
</TABLE>
<PAGE>
41
COMPARABLE LAND SALE NO. 14
- ---------------------------
<TABLE>
<S> <C>
Location : Adjacent to Brisas de Loiza Development, North of Road
874, Torrecillas Ward, Canovanas, Puerto Rico
Grantor : Desarrollos Modernos S.E.
Grantee : M.R. Investments, S.E.
Date of Sale : August 28, 1989
Area of Property : 15.710 Cuerdas
Sales Price : $625,000.00
Price per Cuerda : $39,783.00 say $39,800.00
Legal Data : Deed #207 before Tomas Correa Acevedo, Esq.
Inscription Data : Volume 248 / Page 252 / Property 11262
Zoning : R-3
Terms : Cash to Sellers
Shape : Irregular
Terrain : Flat to rolling
Floodplain : Zone "C" - Minimal Flood Hazard
Utilities : All available to site
Boundaries : North - Principal Farm
South - Brisas de Loiza Development
East - Santa Barbara Community
West - Principal Farm
</TABLE>
<PAGE>
42
COMPARABLE LAND SALE NO. 15
- ---------------------------
<TABLE>
<S> <C>
Location : G Street, Km. 2.1 State Road No. 861, Flamingo Hills
Residential Subdivision Pajaros Ward, Bayamon, Puerto
Rico
Grantor : Mr. Jose G. Ramirez Mas
Grantee : Lazoff and Son, S. E.
Date of Sale : October 10, 1989
Area of Property : 32.9072 Cuerdas
Sales Price : $1,276,800.00
Price per Cuerda : $38,800.02 say $38,800.00
Zoning : R-1 (Residential)
Legal Data : Deed No. 25 before Rodolfo Gluck Figueroa, Esq.
Comments : At this same date the grantee also purchased
the adjacent property from Mr. Alfredo Ramirez Moragan.
Said parcel had a total area of 7.2284 cuerdas and was
purchased in consideration of $343,900 or $47,600 per
cuerda. It should also be pointed out that said property
had a dilapidated structure that added no value to the
property. If both transactions are considered together
the indication would then be $40,400.
</TABLE>
<PAGE>
43
COMPARABLE LAND SALE NO. 16
- ---------------------------
<TABLE>
<S> <C>
Location : Site of San Rafael Estates Residential Subdivision,
Km. 2.2 State Road No. 862, Hato Tejas Ward, Bayamon,
Puerto Rico
Grantor : Magnum Heritage, Inc.
Grantee : San Rafael Estates, S. E.
Date of Sale : October 1990
Area of Property : 37.4058 Cuerdas
Sales Price : $1,350,000.00
Price per Cuerda : $36,090.00 say $36,100.00
Zoning : R-1 (Residential)
Legal Data : N/A
Comments : Magnum Heritage, Inc., composed by the
Fournier Torres Estate, sells the corporation
to San Rafael Estates, S. E. for $1,350,000.00
on October, 1990.
</TABLE>
<PAGE>
44
COMPARABLE LAND SALE NO. 17
- ---------------------------
<TABLE>
<S> <C>
Location : Site of the Quintas de Campeche Residential
Development, Carolina, Puerto Rico
Grantor : Isabel Colon Ortega
Grantee : Quintas de Campeche
Date of Sale : October 17, 1991
Sales Price : $480,000.00
Area of Property : 9.75 Cuerdas
Price per Cuerda : $49,230.77 say $49,200.00
Zoning : R-1
Term : Cash to seller
Shape : Basically rectangular
Topography : Mostly level to gently sloping
Flood Classification : Zone C - Minimal flood hazard
Legal Data : Deed No. 44 before Wilfredo Mendez Matos, Esq.
Inscription Data : Presented at Diary 53 / Notation 431
</TABLE>
<PAGE>
45
COMPARABLE LAND SALE NO. 18
- ---------------------------
<TABLE>
<S> <C>
Location : Future site of Villas del Monte Residential Subdivision,
Km. 1.4 south of State Road No. 861, Hato Tejas Ward,
Toa Alta, Puerto Rico
Grantor : David Efron and Montecasino Development
Grantee : Villas del Monte, S. E.
Date of Sale : May 27, 1992
Area of Property : 48.2366 Cuerdas
Sales Price : $1,929,464.00
Price per Cuerda : $40,000.00
Zoning : R-1 (Residential)
Legal Data : Deed No. 14 before Edilberto Berrios Davila, Esq.
Comments : The transaction consists of two (2) adjacent parcels
purchased the same day under the same therefore being
considered as one sale.
</TABLE>
<PAGE>
46
COMPARABLE LAND SALE NO. 19
- ---------------------------
<TABLE>
<S> <C>
Location : State Road No. 185 (Int.), Canovanas Ward, Canovanas,
Puerto Rico
Grantor : Sandra Calderon Bird et al
Grantee : Grupo Catalan de Inversiones, Inc. S.A.
Date of Sale : January 25, 1993
Sales Price : $725,000.00
Size : 36.2757 Cuerdas
Price per Cuerda : $19,985.83 say $20,000.00
Legal Data : Deed # 14 before Maria del Carmen Martinez Lugo, Esq.
Inscription Data : Volume 282 / Page 100 / Property # 12663
Zoning : A-3
Terms : 6 Equal payments of 75,000 and a final payment of
$55,000 in year 2000 at 7%
Shape : Irregular
Terrain : Mixed including level and hilly.
Flood Plains : Zone "C" - Minimal Flood Hazard
Utilities : All available to site
Comments : Tax code No. is 117-000-004-11-000
</TABLE>
<PAGE>
47
COMPARABLE LAND SALE NO. 20
- ---------------------------
<TABLE>
<S> <C>
Location : State Road No. 185 (Int.) Canovanas Ward, Canovanas,
Puerto Rico
Grantor : Rolando R. Calderon Cabrera
Grantee : Grupo Catalan de Inversiones, Inc. S.A.
Date of Option : January 25, 1993
Sales Price : $1,000,000.00
Size : 53.6028 Cuerdas
Price per Cuerda : $18,655.74 say $18,700.00
Legal Data : Deed # 17 before Maria del Carmen Martinez
Lugo, Esq.
Inscription Data : Volume 282 / Page 92 / Property # 12662
Zoning : A-3
Terms : 3 payments of 125,000; 3 payments of 100,000;
1 payment of 75,000 (year 2000 at 7%)
Shape : Irregular
Terrain : Mixed including level and hilly.
Flood Plains : Zone "C" - Minimal Flood Hazard
Utilities : All available to site
Comments : Tax code No. is 117-000-004-03-901
</TABLE>
<PAGE>
48
LAND OPTION NO. 1
- -----------------
<TABLE>
<S> <C>
Location : South side of State Road No. 3, Canovanas
Ward, Canovanas, Puerto Rico
Grantor : Jose Alberto Gabriel Calderon
Grantee : Rainforest Factory Outlet, Inc.
Date of Option : July 6, 1993
Sales Price : $2,758,132.05
Size : 82.3323 Cuerdas
Price per Cuerda : $33,500.00
Legal Data : Deed # 5 before Luis Morales, Esq.
Inscription Data : Volume 282 / Page 35 / Property # 12654
Zoning : A-1 / A-3 / R-1
Terms : To be negotiated at closing.
Shape : Irregular
Terrain : Level
Flood Plains : Zone "C" - Minimal Flood Hazard
Utilities : All available to site
Main Boundary : North - State Road No. 3
Comments : Tax code No. 089-000-010-33-000 $30,000 option was secured by the
seller. An additional $15,000 option is due in 18 months.
</TABLE>
<PAGE>
49
LAND OPTION NO. 2
- -----------------
<TABLE>
<S> <C>
Location : South side of State Road No. 3, Canovanas
Ward, Canovanas, Puerto Rico
Grantor : Ruben Dario Estefan Calderon
Grantee : Rainforest Factory Outlet, Inc.
Date of Sale : July 6, 1993
Sales Price : $1,305,763.80
Size : 39.5686 Cuerdas
Price per Cuerda : $33,000.00
Legal Data : Deed # 4 before Luis Morales, Esq.
Inscription Data : Volume 282 / Page 28 / Property # 12653
Zoning : A-1 / A-3
Terms : To be negotiated at closing.
Shape : Irregular
Flood Plains : Zone "C" - Minimal Flood Hazard
Utilities : All available to site
Main Boundary : North - State Road No. 3
Comments : Tax code No. 089-000-010-34-000 a $20,000
deposit was secured by the seller.
</TABLE>
<PAGE>
50
Analysis of the Listed Comparable Sales
---------------------------------------
Twenty two indications of value have been presented by the appraisers to
estimate the market value of the subject property as if vacant and available
for development. The included comparable sales are summarized as follows:
- --------------------------------------------------------------------------------
Excess Land Valuation
New El Comandante Racetrack
Km. 18.2 State Road Number 3
Municipality of Canovanas, Puerto Rico
Summary of Listed Sales
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Sale # Location Date of Sale Sales Price Size Price per Cuerda Zoning Highest & Best Use
<S> <C> <C> <C> <C> <C> <C> <C>
1 Rio Grande Sep-85 $527,062 17.0706 $30,900 Residential Commercial
2 Carolina Feb-86 $698,680 19.9623 $35,000 Residential Residential
3 Canovanas Feb-86 $350,000 17.99 $19,500 Residential Residential
4 Rio Grande May-86 $2,100,000 483.0359 $4,300 Agricultural Resort/Golf
5 Carolina Aug-86 $813,000 26.9791 $30,100 Residential Residential
6 Carolina Aug-86 $1,500,000 30.0868 $49,900 Residential Commercial
7 Carolina May-87 $3,107,234 103.5745 $30,000 Residential Residential
8 Carolina May-87 $1,078,000 25.0416 $43,000 Residential Commercial
9 Carolina Nov-87 $1,049,400 35.4712 $29,600 Residential Residential
10 Carolina Dec-87 $800,000 20.1488 $39,700 Residential Commercial
11 Luquillo Jun-88 $1,300,000 447.6457 $2,900 Residential Residential
12 Carolina Oct-88 $575,000 23.5161 $24,500 Residential Residential
13 Carolina Jun-89 $415,000 9.75 $42,600 Residential Residential
14 Canovanas Aug-89 $625,000 15.71 $39,800 Residential Residential
15 Bayamon Oct-89 $1,276,800 32.9072 $40,400 Residential Residential
16 Bayamon Oct-90 $1,350,000 37.4058 $36,100 Residential Residential
17 Carolina Oct-91 $480,000 9.75 $49,200 Residential Residential
18 Toa Alta May-92 $1,929,464 48.2366 $40,000 Residential Residential
19 Canovanas Jan-93 $725,000 36.2757 $20,000 Agricultural Residential
20 Canovanas Jan-93 $1,000,000 53.6028 $18,700 Agricultural Residential
Opt1 Canovanas Jul-93 $2,758,132 82.3323 $33,500 Agr./Res. Res./Com.
Opt2 Canovanas Jul-93 $1,305,764 39.5686 $33,000 Agr./Res. Res./Com.
</TABLE>
The included comparable sales provide for a range of value indications from a
low of $2,900 to a high of $49,900 per cuerda with a mean of $31,414 per
cuerda. Due to the lack of other recent transactions within the immediate
neighborhood of the subject, the search was extended to other sectors such as
the Municipality of Luquillo, Rio Grande, Carolina and Bayamon, where
additional sales information will compliment those found within the immediate
subject area. The first twelve (12) listed sales in spite of the fact that
they may be considered to be dated, they have been included by the appraisers
because they are true representatives of the development and trends that have
taken place within the area in the past ten years. It should also be mentioned
that the residential and commercial activity of parcel that sell for future
development is one that is not as active as other real estate markets. As it
was mentioned in the area analysis the population growth that has been
experienced in the Metropolitan Area within the past decade is now reaching
the surrounding municipalities such as Caguas and Gurabo towards the south,
Toa Alta and Dorado towards the west and the suburban sections of Carolina and
Canovanas towards the east. The following pages is a brief summary of the most
relevant real estate activity that will serve as a base to estimate the value
of the subject property.
<PAGE>
51
Comparable Sales no's 1 and 4 are from the adjacent Rio Grande Municipality.
Sale No. 1 is a commercial transaction involving a site that fronts State Road
No. 3. Actually, Sale No. 1 is the site of a fast food court. This 17.0
cuerda parcel sold for $30,000 per cuerda on September 1985. Comparable Sale
no. 4 on the other hand is one of the largest listed transaction at 483
cuerdas. It is a Rio Grande beach front farm purchased for $4,300 per cuerda
in 1986 for development of a tourist-resort hotel. At the current time there
is an 18 hole par 72 golf course that will be part of the Bahia Beach
Plantation Complex facilities that will include villas, hotel facilities and
marinas. As of the effective date of the report, the appraisers have learned
that there are certain approvals, however, exact plans on behalf of the owner
are not available at this time.
Comparable Sales No. 2 and No. 9 are two parcels of land located adjacent to
the Lomas de Carolina development, a single-family middle income residential
subdivision located about 1 mile west of the subject. Access to these tracts
is through the interior streets of the original Lomas de Carolina Development.
The sites comprise 20 and 35 cuerdas, respectively, that were purchased by the
same developer during consecutive years (1986-87) for $35,000 and $30,000 per
cuerda, respectively. The lower indication of comparable #9 is due to the
inferior topography and additional earth movement that was required on this
property. These two tracts have since been developed into middle-income
residential developments. The two comparable sites are considered very similar
to the subject.
Comparable Sale no. 3 is the only comparable transaction discovered in the
Canovanas municipality. Significantly, however, this 18.0 cuerda tract is
located adjacent to subject parcel A (A-5), at its southeastern limits
bounding with State Road No. 185. In effect, the subject property encloses
Sale No. 3. Purchased for $20,000 per cuerda during 1986, this parcel has
been improved with streets, lights, etc. and vacant residential sites in the
900-1,500 square meters range were sold. Most of these sites have already
been improved with single family dwellings most of which have over 2,500
square feet and price range from around $175,000 to over $500,000.
Comparable Sales No. 5 refers a remnant tract of the original Los Colobos
Farm, located to the south of Parque Ecuestre Development and the subject.
Access to this property is through the original development. The comparable
tract has almost level topography and was adjacent to the infrastructure
available at the adjacent subdivision. The property was developed with a low-
cost residential subdivision by the grantee. The property was sold for $30,000
per cuerda in August 1986.
Comparable Sale No. 6 is one of the oldest listed sales within the surrounding
area. This 30 cuerda parcel was purchased during 1986 by the Interamerican
University. The Interamerican University is the largest private university in
Puerto Rico with various campuses through the Island, including municipalities
such as San German, Humacao and the Metropolitan Area. This property has a
favorable corner position with excellent commercial exposure. This parcel
abuts Comparable Sale Number 7.
<PAGE>
52
Comparable Sale No. 7 is comprised of two adjacent vacant parcels of land
totaling 103.5745 cuerdas (83.7632 and 19.8113 cuerdas, respectively) located
south of Km. 13.5 of the 65th Infantry Avenue, east of State Road 857. These
sites are also remnants of the original Los Colobos Farm and are located north
of and abutting with Parque Ecuestre Residential Subdivision.
The front part of this property comprises approximately 30 to 31 cuerdas of
land area while the remaining parcel area which is located towards the rear
has received preliminary approvals for a residential development consisting of
approximately 450 lots and 128 town houses. As of the effective date of this
report the property is being developed with a residential community known as
Jardin Margarita. In addition, a portion of the front part of approximately 15
cuerdas facing 65th Infantry Avenue was reportedly being considered at one
time by the Puerto Rico Industrial Development Company (PRIDCO) for
construction of a light industrial subdivision. Given the recent trend by
PRIDCO to sell some of its industrial assets, it is rather unlikely that the
development of this light industrial park will break ground. The overall
property was purchased for $30,000 per cuerda during mid 1987.
Comparable Sales No. 8 and No. 10 refer to two almost adjacent sites of 25.04
and 20.15 cuerdas, respectively, facing 65th Infantry Avenue. The comparable
properties enjoy level topography, rectangular configuration and adequate
frontage to the thoroughfare. Comparable Sale No. 8 was transacted in May of
1987 for $43,000 per cuerda to First SBS Associates, a company that have
developed several shopping centers around the Island. According to the plans
recently unveiled the site is currently being developed with a shopping center
that already houses Kmart, Builders Square and Office Max. This parcel abuts
Comparable Sale No. 7. Comparable Sale No. 10 was transacted in December 1987
for $39,700 per cuerda by a well known local developer. The temporary
facilities of the sales office of Los Colobos Park were constructed at this
site.
Comparable Sale No. 11 is the next largest single listed transaction. It
refers to a 448 cuerda farm in Luquillo, the next eastern most municipality to
the subject, after Rio Grande. This property was originally purchased for the
development of large country sites (1.0 to 2.0 cuerdas) for $3,000 per cuerda
during June 1988. The most recent plans however, according to the developer,
is to develop 215 units in a developable area, use 120 cuerdas to be used for
pasture and the remaining land to be developed in 3,000 square meter sites.
Sale no's 4 and 11 have been listed primarily to establish the value for very
large tracts of land outside the Metro Area, which would consequently imply a
lower limit of value for some of the worst portions of the subjects.
Comparable Sale No. 12 refers to a 23.52 cuerda tract located south and
adjacent to Comparable #2. This property was also part of the original Los
Colobos Farm. The property was transacted in October 28, 1988 for $24,500 per
cuerda, reflecting the lowest indication of value. This property has access
through the extension constructed at Sale #9, considered to be inconvenient
due to narrow streets.
<PAGE>
53
Comparable Sale No. 13 refers to the site of the 44 unit Paseo Alhambra
Residential Project just north of the Villas San Anton Residential Subdivision
and south of the University of Puerto Rico's Carolina Regional Campus, near
the boundary with the San Juan and Trujillo Alto Municipalities. This project
offers 3BR and 4BR units with minimum sites of 450 sq. mts. within a
controlled access project enjoying recreational facilities. This parcel was
acquired for $43,000 per cuerda in mid-1989.
Comparable Sale No. 14 refers to a 15.710 cuerda parcel of vacant land located
adjacent to the existing Brisas de Loiza Development, about two miles of
subject with access through Road 874. The location of the comparable property
is inferior to the subject as it is located in a more suburban sector. The
comparable property which consists of 15.71 cuerdas is a segregation of a
larger parcel of approximately acquired by Desarrollos Modernos S.E. from
Banco Popular de Puerto Rico over which the first section of Brisas de Loiza
residential subdivision was developed. The property was transacted for
$40,000 per cuerda in August 1989, but the property included some improvements
such as partial street curbs and some earth movement. The property is
currently being developed with a low-cost subsidized single family residential
subdivision similar to the one developed at Comparable #5. Inspection of the
site revealed a hilly section which is currently being removed by bulldozer to
allow for the construction of additional houses.
Comparable Sale No. 15 is a 32.9072 cuerda parcel that was sold for a reported
$1,276,800 representing an indication of $38,800 per cuerda. However, as
mentioned in the comments section of the sale the grantee also purchased the
adjacent property the same day. If both transactions are considered as one the
indication of value would be $40,400 per cuerda. Despite the fact that this
property is located within the limits of Bayamon, it has bee presented by the
appraiser because it represents a sale of suburban parcels purchased within
the outskirts of the Metropolitan Area for residential development.
Comparable Sale No. 16 is the transaction involving a 37.4058 cuerda parcel of
land located at Km. 2.2 of State Road No. 862 at the Hato Tejas Ward of
Bayamon, Puerto Rico. A residential subdivision known as San Rafael Estates
has been developed at the site. Conversations with Realtor Noel Antongiorgi
several years ago revealed that problems have been encountered selling those
units facing a rather large warehouse facility at the southeastern boundary of
the property, and those units facing a blighted low income residential area
located at the northern boundary of the property. Reductions in price of
about $30,000 for those units mentioned, have received very limited acceptance
by the market. This property can be considered inferior to the subject in
surrounding neighborhood, an influence which crosses over into locational
characteristics. The property was transacted in October 1990 for $36,000 per
cuerda.
Comparable Sale No. 17 is located to the west of the subject along route 860
in Carolina. The property was acquired for its development into a single
family residential development, Quintas de Campeche. The 9.75 cuerda tract is
smaller than the subject but it is included since it reflects the current
trends in the values of properties susceptible for development into
residential
<PAGE>
54
subdivisions. At $50,000 per cuerda, the comparable sets the upper limit of
value for this type of property.
Comparable Sale No. 18 is the most recent of the listed sales. This is the
purchase of a 48.0 cuerda parcel of land located south of the recently built
Madelaine Residential Subdivision, located just south of State Road No. 861
(Km. 1.4) at the Hato Tejas Ward of Bayamon. Conversations with Mr. Cuello, a
representative of Villas del Monte, S. E. reveals that 313 units are presently
being developed upon this site in what is to be known as Villas del Monte
residential subdivision. This transaction reflects a 1992 sales price of
$40,000 per cuerda.
Comparable Sale No. 19 and Comparable Sale No. 20 are two sites previously
owned by the Calderon family a well known landlord of Canovanas. In
combination these parcels have a total area of almost 90 cuerdas. They are
located near State Road Number 185 across the street from part of the subject
property. This is the most recent transaction within the immediate area and
represents an indication for the subject property category III parcels.
According to the topographic maps of the area the features are similar to the
subject property. The plans for the property are still unknown.
Land Option No. 1 and 2 have a combined area of approximately 120 cuerdas. The
parcels have exposure to State Road Number 3 however, the zoning is
agricultural. These two options are subject to the approvals of a Shopping
Center Outlet Mall of approximately 736,000 gross area. According to plans.
The rentable area will be 341,517 and the property will also have a 394,483
open area arcade, lakes waterfalls and other amenities. In addition, a cistern
of 1.5 million gallons will be constructed, two out parcels of 30,000 sq. ft.
and 5,000 sq. ft. will be reserved and the center will have parking facilities
for 5,500 vehicles. Future plans include a 200 room hotel that will be located
on a 75 cuerdas parcel. The rest of the land will be reserved for future
development. The most recent information on these options was obtained in 1995.
After all the sales analysis has been performed, the next step will be the
valuation itself. Value conclusions for each category within each subject will
be estimated, with a summary following this process. General comments on these
conclusions will follow.
<TABLE>
<CAPTION>
Category I
- ----------
<S> <C>
Parcel : B (North Bowl)
Area : 70 cuerdas
Main Feature : Fronts 65th Infantry and has commercial potential and exposure
</TABLE>
At Los Colobos Farm Sales Nos'. 6, 8 and 10, refer to parcels of 30, 25 and 20
cuerdas respectively which front 65th Infantry Highway and which sold (1986-
1987) in the $39,700 to $49,900 per cuerda range. Sale No. 7, a 103.5 cuerda
tract, also fronting State Road No. 3, sold for $30,000 per cuerda during
1987, however, the fact that it refers to a larger tract coupled with the fact
that a fraction of the property has the commercial exposure is what provides
for a lower indication. Sales No. 1 is another indication of the parcels with
commercial potential, however, located in Rio
<PAGE>
55
Grande fronting 65th Infantry Highway. This area of 17 cuerdas carries an
indication of $30,000 per cuerda which is consistent with an inferior location
as well as the fact that it was also transacted in 1985.
Based on the previous sales it is fair to say that the subject parcel should
fall within the limits of $30,000 and $50,000, however, the lower limit
represents inferior features. In addition to the sales the appraisers also
provided information on the most recent option available. Options 1 and 2, as
mentioned, provide an indication of parcel that have some commercial exposure.
Both parcels combined have an area of around 120 cuerdas. As mentioned above,
these transactions cover an area were part of the site has the commercial
exposure (zoned residential) while the other section has a residential
exposure (zoned agricultural). Given this mixture of possible commercial and
residential uses provides a hybrid indication of value. Therefore, based on
these sales the appraisers conclude the following.
Based on the above analysis and with no other indications as hand, the
appraisers are of the opinion that the market value of the 70 cuerdas tract
identified as Parcel "B" should fall within the indicated range at $40,000 per
cuerda. Therefore, the rounded indicated market value for the subject
property as of June 30, 1995 was:
$2,800,000.00
(TWO MILLION EIGHT HUNDRED THOUSAND DOLLARS)
<TABLE>
<CAPTION>
Category II
- -----------
<S> <C>
Parcel : Part of parcel A (A-1, A-2, A-3, A-4, and A-5) (Central Bowl)
Area : 165.0 cuerdas
Main Feature : Largest of subject bowls containing the flattest lands
</TABLE>
Sales at Los Colobos, Parque Ecuestre, Lomas de Carolina and Brisas de Loiza
are strong determinants of value for this subject portion. The best
topographies at these locations are in the $25,000 to $40,000 per cuerda
(1986-1989). Other transactions within Carolina involve the sites of San Anton
and Campeche which are considered superior to the subject property. In
addition, the appraisers presented several sales from Bayamon and Toa Alta
that ranged between $36,100 and $40,000 per cuerda. These locations are also
located in superior sectors with a strong residential market base and superior
infrastructure. Therefore, it is fait to say that the indication of value for
this section should fall within the highest indications of the sites located
closer to the subject.
Based on the above analysis and with no other indications as hand, the
appraisers are of the opinion that the market value of the 165 cuerdas tract
identified as Parcel "A" should fall within the indicated range, at $35,000
per cuerda. Therefore, the rounded indicated market value for the subject
property as of June 30, 1995 was:
$5,775,000.00
(FIVE MILLION SEVEN HUNDRED AND SEVENTY FIVE THOUSAND DOLLARS)
<PAGE>
56
<TABLE>
<CAPTION>
Category III
- ------------
<S> <C>
Parcel : Part of parcel A (A-5) (South Bowl)
Area : 80 cuerdas
Main Feature : Most difficult terrain to develop. Contains steepest slopes.
</TABLE>
Sale No. 3, a 18.0 cuerda Canovanas parcel located adjacent to this section is
a strong value indicator. It sold for $20,000 per cuerda during 1986. The two
most recent indications of value that have taken place within the subject area
are the two sites recently sold for around $20,000 per cuerda. (Comparable
Sales No. 19 and 20) As mentioned these involve sites that have good
developable areas however others are steeper and more difficult to develop.
Therefore, it would be consistent to say that the subject should fall under
the $20,000 mark.
Based on the above analysis and with no other indications as hand, the
appraisers are of the opinion that the market value of the 80 cuerdas tract
identified as Part of Parcel "A" (A-l) should fall within the indicated range,
at $15,000 per cuerda. Therefore, the rounded indicated market value for the
subject property as of June 30, 1995 was:
$ 1,200,000.00
(ONE MILLION TWO HUNDRED THOUSAND DOLLARS)
<TABLE>
<CAPTION>
Category IV
- -----------
<S> <C>
Parcel : Green Areas Part of Parcels A, B & C (A-1, A-2, A-3, A-4, A-5)
Area : 244.0 cuerdas
Main Feature : Undevelopable lands in mountain range and flood prone areas.
</TABLE>
Sale No. 4 and 11 at Rio Grande and Luquillo respectively (483 & 447 cuerdas)
for an average indication of $3,600 per cuerda (1986-1988) provides insight to
this large green area section.
Based on the above analysis and with no other indications as hand, the
appraisers are of the opinion that the market value of the 250 cuerdas tract
identified as the undevelopable and flood prone areas within all the parcels
should fall within the indicated range, at $3,000 per cuerda. Therefore, the
rounded indicated market value for the subject property as of June 30, 1995
was:
$750,000.00
(SEVEN HUNDRED AND FIFTY THOUSAND DOLLARS)
<PAGE>
57
Reconciliation and Final Value Estimate
---------------------------------------
This appraisal assignment considered the valuation of a large vacant parcel of
urban land under single ownership within the outskirts of the San Juan
Metropolitan Area. The subject property, is located in the path of urban
growth to the East. Because of the size and topographical characteristics of
the subject property, the valuation was divided in sub-areas or categories of
land. Each area was considered based on its own merits but in relation to
overall property itself.
Twenty (20) deeded transactions were listed in order to support value
estimates for the subject. In addition, two options were considered, as they
offered strong insight as to the valuation process. Also, sales representing
different uses of land were included to accommodate a similar possibility on
the large portion of the subject.
The appraisers consider that the listed data not only strongly supports the
market value concluded for each of the subjects, but also provides adequate
table represents a summary of the conclusions made by the appraisers.
<TABLE>
<CAPTION>
Category Area in Cuerdas Estimated Values
<S> <C> <C>
I 70 $ 2,800,000
II 165 $ 5,775,000
III 80 $ 1,200,000
IV 244 $ 750,000
Totals 559 $10,525,000
</TABLE>
In the marketing time section of this report it was concluded that the
categories above would be discounted 2, 5, 7 and 10 years respectively.
Once the time period has been estimated, the second decision that has to be
made is the discount rate that is to be used. The discount rate is the rate of
return on the investment. Every discount rate must incorporate four elements
of compensation which every investor is seeking. A rate of return must be paid
to compensate the investor for overcoming time preference, giving up
liquidity, assuming investment management burdens and assuming the risks of
investment and ownership.
Discounting
- -----------
Discounting is defined as a concept of time preference which holds that future
income or benefits are worth less than the same income or benefits now, and
that they decrease in value systematically as the time for their receipt is
further deferred into the future. In appraisal analysis, discounting is the
arithmetic procedure of applying a specific rate (usually) derived from the
market to the anticipated future income stream in order to develop a present
worth estimate.
<PAGE>
58
This discount rate is based principally on what other alternative
opportunities exist for the investor, and these opportunities are weighed
against the relative risks which ownership of those opportunities involve. The
higher the risk the higher the discount rate should be, for the typical
investor would expect a greater return on an investment where there is a
higher possibility of loss.
The recent "Real Estate Report", Volume 24, No. 1-1995, published by the Real
Estate Research Corporation (RERC), included a table of real estate vis-a-vis
capital market returns based on a survey conducted, which reflected desired
returns for the First Quarter 1995 acquisitions. The following table is a
summary of the rates indicated.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Real Estate vis a vis Capital Market Returns
- --------------------------------------------------------------------------------
1Q 1995 4Q 1994 1Q 1994 1Q 1993 1Q 1992 1Q 1991
<S> <C> <C> <C> <C> <C> <C>
Real Estate Yield 11.6 11.7 11.7 12.2 12.1 11.8
Moody's Baa Corporate 8.6 9.1 8.1 8.2 9.3 10.1
Moody's Aaa Corporate 8.1 8.5 7.5 7.6 8.4 8.9
10-Year Treasuries 7.1 7.8 6.5 6 7.5 8.1
</TABLE>
The range has remained rather stable in the recent past, as desired returns
were reported in the ranges of 11.6% to 12.2%. Considering that the present
economic situation in Puerto Rico has remained stable in the past several
years it would be fair to say that the discount rate should fall within the
parameters listed above. However, the effect of the additional risk, shown by
the market to exist in the case of Island investment properties versus
mainland (USA) properties, requires that we adjust for this perception.
Therefore, the upper end of the yields indicated will be adjusted by 1% or
approximately 13.0%. The following table represents the discounting process
based on the figures mentioned above.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Excess Land
New El Comandante Race Track
Marketing Time Discounting
- --------------------------------------------------------------------------------
Year Market Value per Year Discount Factor Present Worth
<S> <C> <C> <C>
2 $ 2,800,000 0.783146683 $ 2,192,811
5 $ 5,775,000 0.542759936 $ 3,134,439
7 $ 1,200,000 0.425060644 $ 510,073
10 $ 750,000 0.294588348 $ 220,941
Total Present Worth $ 6,058,263
Rounded to........................................................ $ 6,100,000
</TABLE>
In conclusion, then, based upon the nature of the subject property (their
location, size, topography and highest and best use), and considering the
quantity and the quality of the market data listed; the appraisers are of the
opinion that the estimated market value in fee simple for the subject
property, assumed vacant and available for use, as of June 30, 1995 was:
$6,100,000.00
(SIX MILLION ONE HUNDRED THOUSAND DOLLARS)
<PAGE>
59
Certificate of the Appraiser
----------------------------
I certify, that to the best of my knowledge and belief,.......
- - The statement of fact contained in this report are true and correct.
- - The reported analyses, opinions and conclusions are limited only by the
reported assumptions and limiting conditions, and are my personal,
unbiased professional analyses, opinions and conclusions.
- - 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.
- - 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 stipulated result, or the
occurrence of a subsequent event.
- - My analyses, opinions, and conclusions were developed, and this report
has been prepared, in conformity with the Uniform Standards of
Professional Appraisal Practice; and, in conformity with the requirements
of the Code of Professional Ethics and the Standards of Professional
Appraisal Practice of the Appraisal Institute.
- - The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
- - As of the date of this report, I, Robert F. McCloskey have completed the
requirements under the continuing education program of the Appraisal
Institute.
- - My value conclusion as well as other opinions expressed herein are not
based on a requested minimum value, a specific value or approval of a
loan.
- - I have made a personal inspection of the property that is the subject of
this report.
- - No one provided significant professional assistance to the persons
signing this report.
/s/ Robert F. McCloskey
ROBERT F. McCLOSKEY, MAI, CRE
Appraiser
<PAGE>
60
Certificate of the Appraiser
----------------------------
I certify, that to the best of my knowledge and belief,.......
- - The statement of fact contained in this report are true and correct.
- - The reported analyses, opinions and conclusions are limited only by the
reported assumptions and limiting conditions, and are my personal,
unbiased professional analyses, opinions and conclusions.
- - 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.
- - 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 stipulated result, or the
occurrence of a subsequent event.
- - My analyses, opinions, and conclusions were developed, and this report
has been prepared, in conformity with the Uniform Standards of
Professional Appraisal Practice: and, in conformity with the requirements
of the Code of Professional Ethics and the Standards of Professional
Appraisal Practice of the Appraisal Institute.
- - The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
- - My value conclusion as well as other opinions expressed herein are not
based on a requested minimum value, a specific value or approval of a
loan.
- - I have made a personal inspection of the property that is the subject of
this report.
- - No one provided significant professional assistance to the persons
signing this report.
/s/ William A. Medina
WILLIAM A. MEDINA
Appraiser
<PAGE>
61
Qualification Data - Robert F. McCloskey
----------------------------------------
Designations
- ------------
MAI - Appraisal Institute
CRE - Society of Real Estate Counselors
SRA - Appraisal Institute
MIE - Institute of Evaluators of Puerto Rico
Education
- ---------
Cornell University, Ithaca, New York
University of Puerto Rico, Rio Piedras, Puerto Rico - B.B.A.
Member
- ------
Appraisal Institute
San Juan Board of Realtors - Active
Society of Real Estate Counselors
License
- -------
Puerto Rico Appraiser License No. 19
Certified Real Estate Appraiser
Commonwealth of Puerto Rico
Certificate No. 17
(Compliance with Title XI of FIRREA)
<PAGE>
62
Appraisal Courses and/or Examinations
- -------------------------------------
Principles and Techniques Society of Real Estate
of Residential Appraising Appraisers
R-2 Examination Society of Real Estate
Appraisers
Narrative Report Seminar Society of Real Estate
Income Producing Property Appraisers
Real Property Appraisal American Institute of
1-A Real Estate Appraisers
Narrative Report Seminar Society of Real Estate
Appraisers
Mortgage Equity Society of Real Estate
Capitalization Seminar Appraisers
Principles of Income Society of Real Estate
Property Appraising 201 Appraisers
Real Estate Appraisal II American Institute of
Urban Properties Real Estate Appraisers
Real Estate Appraisal IV American Institute of
Eminent Domain Valuation Real Estate Appraisers
(Expropriation)
Real Estate Appraisal VI American Institute of
Investment Analysis Real Estate Appraisers
Real Estate Appraisal VII American Institute of
Industrial Properties Real Estate Appraisers
Math-Stat Seminar Society of Real Estate
Appraisers
R41-B and the Appraisers Seminar (1985) Society of Real Estate
Appraisers
Income Capitalization American Institute of
Workshop Seminar (3/24/86) Real Estate Appraisers
<PAGE>
63
Standards of Professional American Institute of
Practice Seminar (5/1/86) Real Estate Appraisers
Depreciation Analysis Society of Real Estate
Seminar (3/25/86) Appraiser
HP 12C Seminar Society of Real Estate
(6/13/86) Appraisers
The Appraiser as an Expert Society of Real Estate
Witness Seminar (1/17/89) Appraisers
Cash Equivalency Seminar American Institute of
(2/6/89) Real Estate Appraisers
Capitalization Overview: American Institute of
Part A Seminar (2/7/89) Real Estate Appraisers
Capitalization Overview: American Institute of
Part B Seminar (2/8/89) Real Estate Appraisers
Valuation of Lease Interest American Institute of
Part I Seminar (2/9/89) Real Estate Appraisers
Subdivision Analysis Seminar American Institute of
(2/10/89) Real Estate Appraisers
Investment Analysis Seminar American Institute of
(2/11/89) Real Estate Appraisers
Exam Prep For Commercial Society of Real estate
Appraiser Certification Appraisers
Oct. 19 & 20, 1990 Columbus, Georgia
Standards & Professional Practice American Institute of
and Exam - December 12 - 16, 1990 Real Estate Appraisers
Fort Lauderdale, Florida
Appraisal Theory Update Seminar Appraisal Institute
April 13, 1992 South Florida Chapter
Hotel/Motel Valuation Seminars Appraisal Institute
May 12, 1992 North Jersey Chapter
Advanced Income Capitalization Appraisal Institute
<PAGE>
64
Workshop (1992) San Juan, Puerto Rico
Appraisal Regulations of the Appraisal Institute
Federal Banking Agencies from the Rosemont, Illinois
Lenders Perspective (November 1992)
Standards of Professional Practice Appraisal Institute
410/420 (November 1993) Atlanta, Georgia
Understanding Limited Appraisals Appraisal Institute
and Appraisal Reporting Options (1994) San Juan, P.R.
Qualified Appraiser
- -------------------
Banco Bilbao Vizcaya, S. A.
Banco Central Hispano P.R.
Banco Cooperativo de P.R.
Banco del Comercio
Banco Financiero de P.R.
Banco Popular de Puerto Rico
Banco Santander de P.R.
Bank and Trust of P.R.
Bank of Boston
Bank of Nova Scotia
Chase Manhattan Bank, N.A.
Chase Manhattan Bank, N.A., New York
Chase Manhattan Bank, N.A., St. Thomas. US VI
Citibank, N.A.
Eurobank
Fajardo Federal Savings Bank
Federal Deposit Insurance Corporation
Federal National Mortgage Association
FirstBank
First National Bank of Chicago
Government Development Bank of Puerto Rico
Independence Bank, Providence, Rhode Island
Knickerbocker Federal Savings
Las Americas Trust
Mellon Bank of Pittsburgh
Mortgage Guaranty Insurance Corporation
Oriental Bank and Trust
PonceBank
Puerto Rico Industrial Development Corporation
RG Federal Savings Bank
<PAGE>
65
Roig Commercial Bank
Royal Bank of Canada
Santander National Bank
Scotiabank de P.R.
Western Federal Bank
Some of Major Industrial Clients Served
- ---------------------------------------
Abbot Laboratories Merck, Sharp & Dohme
American Chemical Co. Monsanto Chemical
Avianca Airlines Pepsi Cola
Daniel Construction PPG Industries
David M. Corporation Phelps Dodge
Eastern Airlines Puerto Rico Cement Co.
El Mundo Enterprises Puerto Rican Container
El Nuevo Dia Newspaper San Juan Racing
Esso Standard Oil Co. Shell Oil Co. of PR
Gulf and Western Realty Stathem Gould
Ingersoll Rand Texaco Oil Company
International Harvester Time, Ltd.
Johnson & Johnson Wagner Communications
Kane Caribbean Atari
Kraft Foods
Superior Court of Justice
- Expert Qualified Witness
United States Bankruptcy Court for the District of P.R.
- Expert Qualified Witness
United States District Court for the Southern District of Florida
United States District Court for the District of Puerto Rico
United States of America - General Services Administration
<PAGE>
66
Experience
- ----------
Single Family Residential, Apartment Houses, Condominium Projects, Income
Producing Properties, Industrial Properties, Special Purpose Properties.
<TABLE>
<CAPTION>
Offices Held
- ------------
<S> <C>
Society of Real Estate Appraisers President
Puerto Rico Chapter No. 171 1974-1975
Society of Real Estate Appraisers Vice
Governor
District 13 1976-1978
Appraisal Institute 1992-1993
Puerto Rico Chapter
Board of Directors
Appointed by the Governor of Puerto Rico 1978-1982
to the Real Estate Appraiser Licensing Board for
the Commonwealth of Puerto Rico
</TABLE>
<PAGE>
67
Qualification Data - William A. Medina
--------------------------------------
Personal Information
- --------------------
Villas de Paseosol 40
200 Boulevard de la Fuente
San Juan, Puerto Rico 00926
Telephone: (809) 283-2934
Education
- ---------
University of Puerto Rico
Rio Piedras Campus
Rio Piedras, Puerto Rico
Bachelors Degree in General Sciences (Cum Laude)
Licenses and Certifications
- ---------------------------
Federal Certified General Real Estate Appraiser
Commonwealth of Puerto Rico
Certification Number 15
(Compliance with Title XI of FIRREA)
Professional Real Estate Appraiser License
Commonwealth of Puerto Rico
License Number 616
(Compliance with local Law 277 of July 31, 1974 as amended)
Real Estate Broker License
Commonwealth of Puerto Rico
License Number 05201 (Active)
Professional Affiliations
- -------------------------
MAI Candidate Appraisal Institute
<PAGE>
68
Appraisal Courses and/or Examinations
- -------------------------------------
Real Estate Principles and Laws Real Estate Institute
New York University
New York, New York (1987)
Principles of Appraisal Theory Real Estate Institute
New York University
New York, New York (1987)
Eminent Domain in Puerto Rico Institute of Real Estate
San Juan, Puerto Rico (1988) Appraisers of Puerto Rico
Course 102 (Test approved) 39 Credits Society of Real Estate
San Juan, Puerto Rico (1988) Appraisers
Real Estate Principles and Laws Alberto Hernandez Real Estate,
San Juan, Puerto Rico (1989) Inc.
Mathematics for Appraisers Institute of Real Estate
San Juan, Puerto Rico (1989) Appraisers of Puerto Rico
Appraising Principles Institute of Real Estate
San Juan, Puerto Rico (1989) Appraisers of Puerto Rico
Subdivision Analysis Society of Real Estate
San Juan, Puerto Rico (1989) Appraisers
Introduction to Income Capitalization Society of Real Estate
San Juan, Puerto Rico (1989) Appraisers
Appraising Condominium Properties Society of Real Estate
San Juan, Puerto Rico (1989) Appraisers
Income Property Valuation for the 1990's Society of Real Estate
San Juan, Puerto Rico (1990) Appraisers
Course 101 (Test Approved) 60 Credits Society of Real Estate
San Juan, Puerto Rico (1990) Appraisers
Course 201 (Test Approved) 60 Credits Society of Real Estate
San Juan, Puerto Rico (1990) Appraisers
Course 202 (Test Approved) 39 Credits Society of Real Estate
Indianapolis, Indiana (1990) Appraisers
<PAGE>
69
Standards of Professional Practice Part A Appraisal Institute
(Test Approved) 16 Credits
San Juan, Puerto Rico (1991)
Exam-Prep Seminar for the Residential Appraisal Institute
State Certification (Test Approved)
15 Credits
San Juan, Puerto Rico (1991)
Exam-Prep Seminar for the General Appraisal Institute
State Certification (Test Approved)
15 Credits
San Juan, Puerto Rico (1991)
Discounted Cash Flow Analysis Appraisal Institute
Boca Raton, Florida (1991)
Standards of Professional Practice Part B Appraisal Institute
(Test Approved) 11 Credits
San Juan, Puerto Rico (1991)
Case Studies in Real Estate Valuation Appraisal Institute
(Test Approved) 39 Credits
Florida State University
Tallahassee, Florida (1992)
Appraisal Report Writing and Valuation Appraisal Institute
Analysis
(Test Approved) 36 Credits
Florida State University
Tallahassee, Florida (1992)
Advanced Income Capitalization Workshop Appraisal Institute
San Juan, Puerto Rico (1992)
Introduction to Machinery and American Soc. of Appraisers
Equipment Valuation
Atlanta, Georgia (1993)
Course 310: Basic Income Capitalization Appraisal Institute
(Test Approved) 36 Credits
San Juan, Puerto Rico (1993)
Feasibility Analysis and Highest and Best Appraisal Institute
Use Non Residential Properties
Chicago, Illinois (1993)
<PAGE>
70
Real Estate Risk Analysis Appraisal Institute
Chicago, Illinois (1993)
Introduction to Commercial Real Estate Commercial Investment Real
Analysis (Test Approved) 2 Credits Estate Institute
Dorado, Puerto Rico (1993)
Litigation Valuation Seminar Appraisal Institute
Atlanta, Georgia (1993)
Rates, Ratios and Reasonableness Appraisal Institute
San Juan, Puerto Rico (1994)
Professional Experience
- -----------------------
Independent Real Estate Appraiser
in association with
Robert F. McCloskey & Associates Oct. 1990 - Present
Canino, Romaguera, Morales & Associates
Hato Rey, Puerto Rico
Assistant to the Appraiser Feb. 1988-Oct. 1990
Weichert Realtors
New York, New York
Licensed Real Estate Salesperson Apr. 1986 - Dec. 1987
Office Held
- -----------
Secretary of the Puerto Rico Chapter of the
Appraisal Institute 1994
Director of the Puerto Rico Chapter of the
Appraisal Institute 1995
Young Advisory Council of the Appraisal
Institute
May 3l-June 2, 1995 1995
Experience
- ----------
Single Family Residential, Condominium Units, Apartment Houses, Parcels of
Land, Agricultural Land, Shopping Centers, Industrial Properties, Office
Buildings, Hotels, Pharmaceutical and Electronic Manufacturing Plants,
Hospitals, Thoroughbred Race Tracks and other Special Purpose Properties.
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT 99.4
Complete, Self-Contained
Appraisal Of
ALL REMAINING LAND INVENTORY
In And Around The
ST. CHARLES PLANNED UNIT DEVELOPMENT
Located In The
Waldorf Area of Charles County, Maryland
Prepared For
Ms. Cynthia L. Hendrick
Vice President
Interstate General Company
Executive Offices
222 Smallwood Villlage Center
St. Charles, MD 20602
As Of
December 31, 1996
Submitted By
Arthur Y. Smail, MAI
Smail Associates, Inc.
4317 Northview Drive
Bowie, Maryland 20716
- --------------------------------------------------------------------------------
<PAGE>
Smail Associates, Inc.
Real Estate Appraising and Consulting
- --------------------------------------------------------------------------------
4317 NORTHVIEW DRIVE. BOWIE, MARYLAND 20716
TELEPHONE 301-464-1002
FACSIMILE 301-464-4562
February 14, 1997
Ms.Cynthia L. Hedrick
Vice President
Interstate General Company
Executive Offices
222 Smallwood Village Center
St. Charles, MD 20602
Re: Update Appraisal of Remaining Land Inventory In and Around
the St. Charles PUD
Dear Ms. Hedrick:
You have requested that I provide an update full narrative, complete, self-
contained appraisal of all the remaining land inventory owned by Interstate
General Company (IGC), in and around the St. Charles Planned Unit Development
(PUD), in the Waldorf area of Charles County, Maryland. A description and
analysis of the properties' neighborhood and general environs is presented in
the following report.
The subject property consists of a multitude of vacant parcels designated for a
variety of uses. In addition, the various parcels or lots are in various stages
of development, ranging from completely finished to absolutely raw. With the
exception of two properties, all parcels are within the St. Charles PUD. It
should be noted that there are also five parcels, totalling 578.33 acres,
included within the Wooded Glen and Piney Reach Villages, which are not
currently zoned PUD. For the purpose of this report, the appraiser has
determined that there is no immediate demand now or in the near future for
development of these five parcels. Therefore, they have been included for
valuation within the raw land contained within the Wooded Glen and Piney Reach
Villages. It is highly likely that as these villages are developed, these five
parcels will be rezoned with a PUD designation.
The value estimates presented in this report will be divided into three
sections: residential, industrial and commercial land. The current market value
for each of the lots or parcels within these three sections will be illustrated
throughout this report and an aggregate value of all the parcels will be
presented.
The residential land section will include finished lots, raw lots and all raw
acreage. The finished lots are all located within the Dorchester Neighborhood of
Westlake Village. The lots are scattered among Parcels A, B, D, G, H, L, N and
P. The 60 lots contained within these parcels will be valued to present one "as
is" market value based on the estimated retail prices, absorption and cost of
sales.
<PAGE>
The raw recorded lots include the first section of the Sheffield Neighborhood in
Fairway Village (400 single-family and townhouse lots) and the balance of a 115-
unit townhouse subdivision currently being developed by Ryland Homes.
The raw acreage will include that land area designated for the future
development of Fairway, Wooded Glen and Piney Reach Villages. Included in the
raw acreage will be the five parcels previously noted as not being officially
designated with a PUD zoning category. The raw acreage values for these villages
will include all the land designated for any uses proposed. In other words,
residential, industrial or commercial uses will not be segregated for valuation
purposes. Purchasers of large tracts of land for mixed-use residential
development typically include a small commercial and/or industrial area for
convenience uses. Not included in the raw acreage are those acres allocated for
the first phase of the Sheffield Neighborhood designated for 400 single-family
and townhouse lots. Fairway Village has been approved by Charles County,
however, preliminary plan approval for the first 400 lots in the Sheffield
Neighborhood has not been granted as of the date of this report. It is likely
that this approval will be in place within the next 12 months; therefore, these
lots are referred to as approved throughout this report.
The raw acreage valuation will also include the two properties not located
within the St. Charles Planned Unit Development. The Middletown Property (374
acres) is situated on the west side of Middletown Road. The Pomfret Property
(812 acres) is located on the southern and northern sides of Pomfret Road.
The industrial land section will include finished sites within Business Parks
East and North, as well as raw industrial land within the Middle Industrial Park
and Piney Reach Industrial / Business Park. Business Parks East and North are
situated southwest of Maryland Route 5 (Leonardtown Road) on both sides of Post
Office Road. The Middle Business Park is situated on the southwest side of
Billingsley Road, southeast of U.S. Route 301.
The commercial land is scattered throughout the Westlake and Smallwood Villages.
The majority of the parcels are situated within Westlake Village adjacent to or
nearby the St. Charles Towne Center. Several smaller parcels, totalling 13.12
acres, are scattered throughout the Smallwood Village area on the east side of
U.S. Route 301.
As you have requested, I have inspected the subject properties and have analyzed
the surrounding environs, including the residential housing market, industrial
market and commercial market in Charles County, and have considered other facts
and data which were important for the completion of this appraisal assignment.
This appraisal has been prepared to conform with the requirements of the
Appraisal Institute, and the Uniform Standards of Professional Appraisal
Practice (USPAP), as promulgated by the Appraisal Foundation.
Based on my investigation and analysis, and by virtue of my experience, it is my
opinion that the following value estimates best reflect the individual market
values for the designated sections of the St. Charles Planned Unit Development
and surrounding parcels.
-ii-
<PAGE>
<TABLE>
<S> <C>
Residential Land
Finished Lots (Dorchester Neighborhood) $2,440,000
Raw Recorded Lots
Huntington Ridge (98 Townhouse Lots) $1,675,000
Fairway (246 Single-Family Lots & 154 Townhouse Lots)
Raw Acreage
Outside PUD - Middletown Property $2,800,000
- Pomfret Property
Fairway Village
Wooded Glen and Piney Reach Villages $7,700,000
Industrial Land
Finished Sites (Business Parks East and North) $2,200,000
Raw Land - Middle Industrial Park $4,750,000
Piney Reach Industrial/Business Park $8,320,000
Commercial Land
Westlake and Smallwood Parcels $10,950,000
-----------
Aggregate Value of St. Charles Remaining Inventory* $56,135,000
</TABLE>
*Includes Middletown and Pomfret Properties
Accompanying this letter is a complete appraisal report setting
forth the pertinent facts and data upon which these valuations have
been based.
Respectfully submitted,
/s/ Authur Y. Smail
- -------------------
Arthur Y. Smail, MAI
-iii-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Pertinent Facts and Valuation Synopsis.................................1
Subject Property Photographs...........................................3
Assumptions and Limiting Conditions....................................6
Certification of the Appraiser.........................................9
Scope of the Appraisal................................................10
Introduction..........................................................12
Neighborhood and Area Analysis........................................18
Subject Site Description..............................................26
Zoning................................................................43
Assessment and Taxes..................................................45
Highest and Best Use..................................................46
The Valuation Process.................................................72
Estimate of Finished Lot Retail Value..........................75
Estimate of "As Is" Market Value...............................81
Estimate of Industrial Land...................................101
Estimate of Finished Commercial Lot Value.....................108
Reconciliation of Final Value Estimates..............................113
Qualifications of the Appraiser......................................114
</TABLE>
ADDENDA
- -------
Finished Dorchester Lots
Breakdown of Sheffield and Gleneagles Neighborhoods
<PAGE>
PERTINENT FACTS AND VALUATION SYNOPSIS
<TABLE>
<S> <C>
Property Identification: St. Charles PUD
Waldorf, Maryland
Charles County
Date of the Appraisal: December 31, 1996
Property Rights Appraised: Fee Simple Interest
Land Area:
Number of Lots/Units/Acres
Finished Lots 60 Lots
Raw Approved Lots
Huntington Ridge 98 Lots
Fairway 400 Lots
Raw Acreage
Outside the PUD 1,186 Acres
Inside the PUD
-Fairway Village 804 Acres
-Wooded Glen and Piney Reach 3,079 Acres
Industrial Land
Finished Sites 42 Acres
Raw Land
Fairway Village 118.74 Acres
Wooded Glen and Piney Reach 416 Acres
Commercial Land
Westlake Parcels 209.9 Acres
Smallwood Parcels 13.12 Acres
Zoning: PUD (Planned Unit Development)
R-L (Residential Low Density)
Highest and Best Use: Continued development under PUD zoning.
Valuation Estimate:
Aggregate Value of St. Charles Remaining Inventory $56,135,000
</TABLE>
-1-
<PAGE>
<TABLE>
<S> <C>
Residential Land
Finished Lots (Dorchester Neighborhood) $2,440,000
Raw Recorded Lots
Huntington Ridge (98 Townhouse Lots) $1,675,000
Fairway (246 Single-Family Lots & 154 Townhouse Lots) $3,200,000
Raw Acreage
Outside PUD - Middletown Property $2,800,000
- Pomfret Property $3,250,000
Fairway Village $8,850,000
Wooded Glen and Piney Reach Villages $7,700,000
Industrial Land
Finished Sites (Business Parks East and North) $2,200,000
Raw Land - Middle Industrial Park $4,750,000
- Industrial/Business Park (Wooded Glen/Piney Reach) $8,320,000
Commercial Land
Westlake and Smallwood Parcels $10,950,000
-----------
Aggregate Value of St. Charles Remaining Inventory* $56,135,000
</TABLE>
*Includes Middletown and Pomfret Properties
-2-
<PAGE>
PHOTO IDENTIFICATION
1) St. Charles Towne Center
2) St. Charles Towne Plaza
3) TARGET Site
4) Dorchester Neighborhood (Westlake Village)
5) Hampshire Neighborhood (Westlake Village)
6) Lancaster Neighborhood (Westlake Village)
7) Middletown Properties
8) Smallwood Village
9) Intersection of Smallwood Drive & U.S. Route 301
10) Business Park North
<PAGE>
[MAP APPEARS HERE]
<PAGE>
PHOTO IDENTIFICATION
1) St. Charles Towne Center
2) Smallwood Village
3) Fairway Village
4) Wooded Glen Village
5) Piney Reach Village
6) White Plains Golf Course
7) Business Park North & East
8) Middle Business
9) Intersection of Smallwood Drive & U.S. Route 301
<PAGE>
[MAP APPEARS HERE]
<PAGE>
[MAP APPEARS HERE]
1) Intersection of U.S. Route 301 and MD Route 5
2) Intersection of MD Route 5 and Post Office Road
3) St. Charles Towne Center Mall
4) Business Park North
5) Business Park East
6) Hunting Ridge Townhouse Site
<PAGE>
ASSUMPTIONS AND LIMITING CONDITIONS
This appraisal report has been made with the following general assumptions and
limiting conditions:
Assumptions:
1. No responsibility is assumed for the legal description or for matters
including legal or title considerations. Title to the property is assumed
to be good and marketable unless otherwise stated.
2. The property is appraised free and clear of any or all liens or
encumbrances unless otherwise stated.
3. Responsible ownership and competent property management are assumed.
4. The information furnished by others is believed to be reliable, but no
warranty is given for its accuracy.
5. All engineering studies are assumed to be correct. The plot plans and
illustrative material in this report are included only to assist the
reader in visualizing the property.
6. It is assumed that there are no hidden or unapparent conditions of the
property, subsoil, or structures that render it more or less valuable. No
responsibility is assumed for such conditions or for arranging for
engineering studies that may be required to discover them.
7. It is assumed that there is full compliance with all applicable federal,
state, and local environmental regulations and laws unless noncompliance
is stated, defined, and considered in the appraisal report.
8. It is assumed that all applicable zoning and use regulations and
restrictions have been complied with, unless a nonconformity has been
identified, described and considered in the appraisal report.
9. It is assumed that all required licenses, certificates of occupancy,
consents, or other legislative or administrative authority from any
local, state, or national government or private entity or organization
have been or can be obtained or renewed for any use on which the value
estimate in this report is based.
10. It is assumed that the utilization of the land and improvements is within
the boundaries or property lines of the property described and that there
is no encroachment or trespass unless noted in the report.
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11. Unless otherwise stated in this report, the existence of hazardous
materials, which may or may not be present on the property, was not
observed by the appraiser. The appraiser has no knowledge of the
existence of such materials on or in the property. The appraiser,
however, is not qualified to detect such substances. The presence of
substances such as asbestos, urea-formaldehyde foam insulation, and other
potentially hazardous materials may affect the value of the property. The
value estimated is predicated on the assumption that there is no such
material on or in the property that would cause a loss in value. No
responsibility is assumed for such conditions or for any expertise or
engineering knowledge required to discover them. The client is urged to
retain an expert in this field, if desired.
12. It is assumed that the developer of the subject lots will
proceed with land development in a timely manner that will
not impede development, absorption or use of the property.
LIMITING CONDITIONS:
1. The allocation, if any, of the total valuation in this report between
land and improvements applies only under the stated program of
utilization. The separate allocations for land and buildings must not be
used in conjunction with any other appraisal and are invalid if so used.
2. Possession of this report, or a copy thereof, does not carry with it the
right of publication. It may not be used for any purpose by any person
other than the party to whom it is addressed without the written consent
of the appraiser, and in any event only with proper written qualification
and only in its entirety. This limitation is not intended to restrict the
named client from using the report in the normal course of business, nor
distributing the report to an outside audit firm or governmental
regulating agency with the permission of the client.
3. If this appraisal is made available to any third party (anyone but the
addressed client), the appraisal is provided without any warranty or
representation, express or implied, as to its contents, it suitability
for any purpose, its accuracy, truthfulness, or completeness. any
reliance on the contents shall be solely at the recipient's risk. Without
a direct client-appraiser relationship, possession of this report implies
no responsibilities, warranties, representation, cooperation or liability
by the appraiser.
4. The appraiser herein by reason of this appraisal, is not required to give
further consultation, testimony, or be in attendance in court with
reference to the property in question unless arrangements have been
previously made.
5. Neither all or any part of the contents of this report (especially any
conclusions as to value, the identity of the appraiser, or the firm with
which the appraiser is connected) shall be disseminated to the public
through advertising, public relations, news, sales, or other media
without the prior written consent and approval of the appraiser.
6. Unless stated elsewhere in this report, I have not been provided with
information and/or an engineering report concerning potential
contamination of the building improvement(s) by asbestos. The appraiser
makes no warranties as to this condition.
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7. Unless stated elsewhere in this report, I have not been provided with
information and/or an engineering report concerning potential
contamination of the building improvement(s) by radon gas. The appraiser
makes no warranties as to this condition.
8. The forecasts, projections, or operating estimates contained herein are
based on current market conditions, anticipated short-term supply and
demand factors, and a continued stable economy. These forecasts are,
therefore, subject to changes with future conditions.
9. The market conditions from which any prospective values, assumptions or
economic conditions were made are clearly stated throughout the report. I
cannot be held responsible for unforeseeable events that may alter future
market conditions. It should be understood that the further you get into
the future from the date of inspection, the less certainty exists.
10. The Americans with Disabilities Act ("ADA") became effective January 26,
1992. I have not made a specific compliance survey and analysis of this
property to determine whether or not it is in conformity with the various
detailed requirements of the ADA. It is possible that a compliance survey
of the property, together with a detailed analysis of the requirements of
the ADA, could reveal that the property is not in compliance with one or
more of the requirements of the Act. If so, this fact could have a
negative effect upon the value of the property. Since I have no direct
evidence relating to this issue, I did not consider possible
noncompliance with the requirements of ADA in estimating the value of the
property.
11. The owner/developer of the subject property will spend only the amount
indicated in this report for infrastructure development. The land
development estimate is based on a budget provided by the developer, and
the appraiser is not responsible should the estimate prove to be
inaccurate.
12. The aggregate value presented in this report is the summation of the
market values of all components making up the whole. The aggregate value
is not the market value of the whole, since a potential purchaser of all
the inventory presented throughout this report would likely expect a
greater discount in addition to that noted in each of the market value
estimates.
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CERTIFICATION OF THE APPRAISER
The undersigned does hereby certify that, to the best of my knowledge and
belief:
1. The statements of fact contained in this report are true and correct.
2. The reported analyses, opinions, and conclusions are limited only by
the reported assumptions and limiting conditions, and are my personal,
unbiased professional analyses, opinions, and conclusions.
3. I have no present or prospective interest in the property that is the
subject of this report, and I have no personal interest or bias with
respect to the parties involved as of the date of appraisal.
4. Neither the awarding of this appraisal assignment nor my compensation
is contingent upon the reporting of a predetermined value or direction
in value that favors the cause of the client, the amount of the value
estimate, the attainment of a stipulated result, or the occurrence of
a subsequent event.
5. My analyses, opinions, and conclusions were developed, and this report
has been prepared, in conformity with the Uniform Standards of
Professional Appraisal Practice, and the requirements of the Appraisal
Institute.
6. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
7. I have made a personal inspection of the property that is the subject
of this report.
8. No one provided significant professional assistance in the gathering
and assemblage of data presented throughout this report, as well as
the analysis and valuation of the subject parcels.
9. This appraisal assignment was not based on a requested minimum
valuation, a specific valuation, or the approval of a loan.
10. As of the date of this report, Arthur Y. Smail has completed the
requirements of the continuing education program of the Appraisal
Institute.
/S/ Arthur Y. Smail, Mai
-----------------------------
Arthur Y. Smail, MAI
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SCOPE OF THE APPRAISAL
(Extent of Investigation and Data Collection Process)
In order to complete this appraisal assignment, I have made independent
investigations for the purpose of formulating my analysis. In addition, I have
depended upon data which is retained within my office and upgraded regularly for
use in future appraisal assignments. The appraisal report is a full narrative
report, and all appropriate approaches to value are prepared and presented. The
scope of the investigation undertaken and sources of the majority of data are
presented below.
AREA AND NEIGHBORHOOD ANALYSIS
During the scope of my investigating the area and neighborhood, I have relied on
reports prepared by the Office of Planning and Zoning and the Office of Economic
Development of Charles County. I have also reviewed the Adopted Master Plan for
the planning area containing the subject property. For additional demographic
information, labor related information, taxes, income, transportation,
utilities, major employers, and education, I have referred to the Fact Sheet as
prepared by the Business Development Bureau of the Greater Washington Board of
Trade. Other demographic data was provided by Information Decision Systems, who
provided facts regarding population, education, occupations and housing.
The latest released data from the 1990 Census has also been reviewed and
analyzed. Also, articles in popular publications such as The Washington Post,
Washington Business Journal, Baltimore Business Journal and Corridor Real Estate
Journal were reviewed. Reference to Housing Data Reports provided valuable
information regarding residential home sales and market conditions.
SITE DESCRIPTION AND ANALYSIS
In formulating the analysis of the site description, I have consulted various
agencies within Charles County, including the Office of Planning and Zoning. I
have also reviewed site plans and plats prepared by the engineer, Whitman,
Requardt & Associates, as of August 21, 1995. Physical
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inspection of the site occurred on the date of appraisal and photographs were
taken of the subject site, surrounding area and street scenes.
The appraiser, during the course of inspection, looked for evidence of past or
current contamination by hazardous materials. No evidence of such contamination
was apparent, but the appraiser is not qualified to detect such substances and
the client and/or property owner is encouraged to retain an expert in this
field, if so desired. Please review item 11 of the appraisal assumptions.
MARKET DATA ANALYSIS
It is standard practice of this appraisal firm to estimate the value of
properties, when appropriate, by all three recognized valuation methods: the
cost, sales comparison and income approaches. The subject property consists of
finished residential, industrial and commercial lots, raw residential,
industrial and commercial lots and raw acreage. The cost, sales comparison and
income approaches, as normally encountered, are deficient to estimate the market
value of all parts of the subject property. A combination and modification of
the three approaches, known as the subdivision analysis method (or anticipated
use method), has been developed in this appraisal to value the raw and finished
approved residential lots. The sales comparison approach has been used to derive
retail values for vacant finished lots, as well as all the other subject
parcels.
The transfers of comparable vacant finished residential lots were obtained by
researching recent transfers in Charles County. Large acreage sales were also
researched in neighborhood counties.
Copies of the deeds and financing instruments were also reviewed and an attempt
was made to contact one of the parties involved in each sale to verify the
transaction data and ensure that the sales were made at arms-length. The details
of the verified sales can be found in the Valuation section of this report. Each
land sale was researched for previous transfers; no arms-length transfer for a
three-year period prior to the date of appraisal was discovered by the
appraiser, unless indicated in the "Remarks" section of the sale summary.
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INTRODUCTION
Purpose / Function of the Appraisal
The primary purpose of this appraisal is to provide an opinion of the market
value for the various sections contained within the St. Charles Planned Unit
Development and two properties outside St. Charles. The report provides the
appraiser's opinion of value for finished lots, raw recorded lots, raw acreage,
finished industrial sites, raw industrial land and a variety of commercial
sites. The valuation considers the typical purchaser and likely motivation of a
bulk purchase of the various sections of the subject property as they exist on
the date of appraisal.
I have been requested by Interstate General Company (IGC), the owner of the
subject property, to estimate the current market value of the various sections
in and around the St. Charles Planned Unit Development. The update appraisal has
been requested for asset management purposes.
DEFINITION OF MARKET VALUE (USPAP DEFINITION)
The most probable price which a property should bring in a competitive and open
market under all conditions requisite to 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 each 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
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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/
DEFINITION OF RETAIL VALUE
The retail value is the retail sales price of the separate units being
appraised, with no allowance for carrying costs, taxes, insurance, interest
charges, marketing costs, sales commissions, financing or profit. The retail
value does not incorporate the time value of money through a discounting process
or by any other means.
ANALYSIS OF A REASONABLE EXPOSURE PERIOD
It is your appraiser's opinion that the third condition of the stated definition
of market value requires that the final estimate of value take into
consideration a reasonable exposure period. Implicit in the definition is that
typical marketing of the property shall occur, over whatever time period is
ordinary, given the market conditions as of the date of appraisal. There is no
cast-in-stone minimum or maximum limits to a reasonable exposure period, and it
varies depending on property type, local market conditions and the communicated
"asking" or "listing" price of a property.
The residential market has experienced a less severe decline in demand, prices
and marketability than other segments of the real estate market, particularly
office, hotel and some segments of the retail and industrial classifications.
The bottom line is that well-priced new homes can be sold at a reasonable sales
pace by competent builders. In fact, if sufficient value is perceived, there is
a ready market for well priced finished lots and completed homes.
Currently, there is an active market for residential lots, both unfinished and
finished. Based on recent sales that have occurred in Charles County, it the
appraiser's opinion that it would be relatively easy to find a new purchaser for
the subject property. The reasonable exposure period is
______________________
/1/ The Appraisal Foundation, Uniform Standards of Professional Appraisal
-------------------------------------------
Pratice (Washington, D.C., 1990) 1-7.
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<PAGE>
defined as the period of active marketing that is presumed to have occurred
prior to the date of appraisal and is necessary to sell the subject property in
its entirety to one purchaser at a transfer price at or near the appraised
value.
It is the appraiser's conclusion that the surrounding development, location,
topography and other features of the subject property support the economically
feasible development of the property. If the subject property were offered for
purchase in its entirety at this time, there would likely be at least several
interested purchasers, given a price that was reasonable in relation to
anticipated benefits and costs of development. Knowledgeable brokers report that
developers and homebuilders are aware that volume sales of new homes are
possible in today's market if sufficient value is provided to buyers.
The subject property has been broken down into various sections based on use,
location and level of finish. For example, the property includes finished lots,
raw lots, raw acreage, finished industrial and commercial lots and raw
industrial and commercial sites. The individual values communicated in this
report are consistent with a reasonable exposure period of 12 months or less.
DATE OF THE APPRAISAL (INSPECTION)
The date of this appraisal is December 31, 1996, the last inspection date.
PROPERTY RIGHTS APPRAISED
The property rights appraised represent the unencumbered fee simple interest.
Only the real property is appraised; any personal property is excluded from this
analysis.
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FEE SIMPLE ESTATE
Absolute ownership unencumbered by any other interest or estate subject only to
the four powers of government./2/
LEGAL DESCRIPTION OR PROPERTY IDENTIFICATION
The subject properties have been identified on numerous plats and site plans as
follows:
Finished Lots
Parcel A, Lots 63, 84 and 85
Parcel B, Lots 1-4, 28-30, 41, 42, 44, 45, 47-50 and 55
Parcel D, Lot 35
Parcel G, Lots 8 and 49
Parcel H, Lots 1, 5, 6, 9, 12, 13, 35, 52 and 53
Parcel L, Lots 3 and 10
Parcel N, Lots 1, 16, 18, 20, 26-31, 33, 35, 36, 39, 42, 45,
67, 68, 69, 70, 72 and 74-78
Parcel P, Lot 31
Huntington Ridge (98 Remaining Townhouse Lots)
Raw Recorded Lots
Sheffield Neighborhood, Phase I (400 Single-Family and
Townhouse Lots)
Raw Acreage
Middletown Property - Parcels 118, 256 and 335
Tax Map Page 7, Grids 15, 20 and 21
Pomfret Property - Parcels 36, 37, 41, 50, 60 and 177
Tax Map Page 22, Grids 3, 9 14, 15, 20 and 21
__________________________
/2/ American Institute of Real Estate Appraisers, The Dictionary of Real Estate
-----------------------------
Appraisal, (Chicago, 1989), P. 177.
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Industrial Land
Finished Sites
Business Park East (Henry Ford Circle) - Parcels 1, 2, 3, 5-14, 16, 19-
24 and 27
Business Park North (Rockefeller Court) - Lots 12C, 12F, 12L,12M, 21F
and 23A
Raw Industrial Lots
Middle Industrial Park - Lots B, C2, C3 and D1-D14
Piney Reach Industrial/Business Park
Commercial Land
Westlake Parcels - Parcels A-3, A-4, F2, F3, F5, F6, F9, G1-G7 and G9, B2,
Q-1, Q-2 and M
Smallwood Parcels - Parcels A-1, K, C, A, D-2, D-4, H and L
HISTORY OF THE SUBJECT PROPERTY
In 1972, a comprehensive planned unit development (PUD) was approved by the
Charles County Government for the construction of over 20,000 housing units on
over 1,300 acres. The acreage included land for roads, open space and stormwater
management facilities. St. Charles has come a long way since 1972. The following
is a brief chronological history of the past 20 years.
YEAR DEVELOPMENTS
===============================================================================
1974 White Plains Regional Park opened with
lighted athletic fields, tennis courts and an
18-hole golf course. Two hundred acres of
land was donated by IGC.
1976 First apartment complex opened in St.
Charles. Currently there are almost 1,800
rental units in this area.
1977 Smallwood Village continues to be developed
with the opening of Wakefield, the third
neighborhood.
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YEAR DEVELOPMENTS
================================================================================
1978 The first of eight current child care
facilities opens in St. Charles.
1980 A senior citizens facility, known as Headen
Apartments, opened in the Wakefield
Neighborhood.
1981 Smallwood Village Center, the first
retail/office center in St. Charles opens.
1986 Melvin Simon & Associates purchases 169
acres from IGC for the development of
St. Charles Towne Center, a 1.1 million
square foot regional mall.
1989 Fairway Village, the third village of
St. Charles, is approved by Charles
County and the University of Maryland
opens an educational center at
Smallwood Village Center.
1990 St. Charles Towne Center regional mall
opens in Westlake, with the first
phase.
1994 St. Charles is home to 32,000 residents in
10,659 households, with 8,511 families, with
an average family income of $59,148.
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[MAP OF WASHINGTON, D.C. - MARYLAND - VIRGINIA METROPOLITAN STATISTICAL AREA]
<PAGE>
NEIGHBORHOOD AND AREA ANALYSIS
The subject property is located east and west of U.S. Route 301 (Blue Star
Memorial Highway) in the Sixth Election District of Charles County, Waldorf,
Maryland. This location is about two miles south of the Prince George's County
boundary line and 13 miles southeast of the District of Columbia.
The immediate neighborhood is the unincorporated town of Waldorf. The land uses
in this area include a variety of commercial, residential, industrial, and
public uses. U.S. Route 301, from southern Waldorf north to the Prince George's
County border line, is primarily commercial in nature and includes many retail
and commercial uses. This corridor of Charles County has experienced tremendous
commercial growth in the past 10 years.
The most significant development in this area is the Planned Unit Development
(PUD) known as St. Charles. This PUD encompasses 9,100 acres with a neighborhood
village concept of development and maintains a current population of
approximately 32,000. St. Charles is comprised of five separate "villages":
Smallwood Village, Westlake Village, Fairway Village, Piney Reach and Wooded
Glen. Each village consists of individually planned neighborhoods which include
schools, recreation centers, churches, sporting facilities and commercial
support facilities or employment centers.
Smallwood Village is essentially complete with 4,722 housing units with the
exception of 115 townhouse lots now being developed along Post Office Road.
Westlake Village includes 4,274 total housing units as the final neighborhood,
Dorchester, is being built-out. Westlake Village also includes the St. Charles
Towne Center, a 1.1 million square foot regional, indoor mall. Fairway Village
is the next area of St. Charles to be developed and is master plan approved for
3,346 units and 42 acres of commercial development. The final two villages,
Wooded Glen and Piney Reach, are proposed for the future development of 10,000
additional housing units.
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[MAP APPEARS HERE]
<PAGE>
Among the 32,000 person population in St. Charles are over 10,600 households,
with an average household size of 2.99. The average family income is almost
$60,000 and the median age in the St. Charles community is 27.6, relatively
young in comparison to Charles County and the State of Maryland.
Additional amenities at St. Charles include parks, lakes, bike paths and hiking
trails. An 18-hole public golf course is also available. Each community contains
a mix of residential housing such as single-family detached homes, townhomes,
multi-plex units and rental garden apartments. Almost 1,500 acres have been set
aside as permanent space for the preservation of natural surroundings.
Several major commercial retail developments have recently been constructed
along U.S. Route 301 in the immediate Waldorf area. At the edge of the PUD of
St. Charles is St. Charles Town Plaza, a 440,000 square foot, L-shaped community
shopping center developed in phases by Melvin Simon & Associates from 1987 to
1990. This off-price center is anchored by Hechinger, Ames, Service Merchandise
and T.J. Maxx, and is situated on the southwest corner of U.S. Route 301 and
Smallwood Drive, at the entrance to St. Charles. The center is 97 percent leased
to multiple tenants.
In the northwest quadrant of U.S. Route 301 and Smallwood Drive is St. Charles
Towne Center. This super-regional mall was developed in 1990-91 by Melvin Simon
& Associates and contains 1.1 million square feet of retail space on 169 acres.
The four department store anchors include Hecht's, Montgomery Wards, Sears and
J. C. Penney.
Other community shopping centers in the immediate area include Festival at
Waldorf, Smallwood Village Center, and Waldorf Shoppers World. The Festival at
Waldorf is a 450,000 square foot community center recently constructed by the
Trammel Crow Company. Major tenants include A&P Super Fresh, Circuit City,
CVS/Pharmacy, Sears Outlet Store, Ross Dress for Less, Famous Footwear, MJ
Designs and Roses Department Store. The original 100,000 square feet of the
center fronts along U.S. Route 301 at its intersection with Maryland Route 228.
The balance of the development is set to the rear of the site and has very
limited visibility from U.S. Route 301.
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[MAP OF ST. CHARLES APPEARS HERE]
<PAGE>
Smallwood Village Center, developed by Interstate General Company (IGC) is
within the new town development of St. Charles on St. Charles Parkway. This
community center contains 190,000 square feet and is anchored by a Safeway and
CVS/Pharmacy. The center is over 90 percent leased. Waldorf Shoppers World is a
20-year-old center, last renovated in 1990. The center contains 252,000 square
feet and is anchored by F&M Drug Store and Peebles. This center's occupancy has
been devastated by the opening of the new centers and is struggling to lease-up.
Charles County Plaza is a 20-year-old center built in two phases. The center
includes 142,557 square feet and is anchored by Giant Foods, Inc. and K-Mart.
Although the center has limited visibility from U.S. Route 301 due to a buffer
of trees, the center remains fully leased due to two excellent anchors.
There are numerous other small strip shopping centers up and down U.S. Route 301
in Waldorf. Most of these centers contain between 9,000 and 30,000 square feet
of leasable area and are anchorless. The overall retail vacancy in Waldorf is
estimated at about 10 percent, although the older and smaller centers typically
feature more vacancy than the newer and larger centers. Freestanding "big box"
retailers have come to Waldorf and continue to be interested, as are family
chain restaurants. Price Club, BJ's Warehouse, Wal-Mart, Lowe's, Hechinger,
K-Mart, Circuit City, Pizzeria Uno, Taco Bell, Boston Chicken, Olive Garden,
Kenny Rogers Chicken, Ground Round, Applebee's, and Friendly's are already
operating in Waldorf, and it is confirmed or reported that Target, Luskin's,
Best Buy, and others will soon come to town.
Office use is not a major factor in Waldorf. Although there are scattered
single-story and multi-story office buildings and flex space buildings
throughout Waldorf, the subject neighborhood is not recognized as an office
employment center. Office space in Waldorf tends to be occupied by professionals
and service-oriented businesses existing to serve the nearby residential base.
There is an existing oversupply of office space. Demand for office space in
Waldorf is expected to grow slowly.
There is an expansive network of major roadways in the general neighborhood.
U.S. Route 301 is a six-lane, median divided highway which runs in a north/south
direction and bisects Charles County, providing excellent access to major
highways to the north and south. This highway was
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[MAP OF ST. CHARLES SMALLWOOD VILLAGE APPEARS HERE]
<PAGE>
recently widened to three lanes with a shoulder lane from the Prince George's
County line to Smallwood Drive at St. Charles Towne Center.
To the south, U.S. Route 301 extends to Richmond and Interstate 95 in Virginia.
To the north, U.S. Route 301 accesses Maryland Route 5 into the District of
Columbia and also continues through Prince George's County, where it becomes
Maryland Route 3, and extends to the Baltimore Metropolitan Area.
Traffic congestion is a problem on U.S. Route 301 during rush hour and on
weekends (retail traffic). The average traffic volume on U.S. Route 301 (as of
1992) is 59,000 to 62,000 vehicles per day between Brandywine and Maryland Route
228/Maryland Route 5 in Waldorf. It is not uncommon to sit through several
traffic light cycles during peak periods.
Several plans have been suggested to help alleviate the existing traffic
congestion during rush hours on U.S. Route 301 in the immediate area of the
subject property. Suggested solutions include an overpass or bypass at the
intersection of U.S. Route 301 and Maryland Route 228, as well as a new western
parkway, which would run parallel to U.S. Route 301. These additional road
improvements remain in the planning stage of development.
U.S. Route 301 is the subject of considerable controversy in Charles, Anne
Arundel and Prince George's Counties. The future of the highway is of great
importance for the growth of eastern Prince George's County and all of Charles
County. To help map a strategy to handle future growth, a task force was formed
to provide recommendations to the state. The task force consisted of 75 members
and 60 non-member advisors who considered the opinions of experts and 1100
concerned citizens. The U.S. Route 301 Transportation Study Task Force worked
for over three years before making its final recommendations to the governor in
November 1996. The task force examined traffic and growth patterns along U.S.
Route 301 between Bowie and the Potomac River and Maryland Route 5 from the
Capital Beltway south to Brandywine where it connects with U.S. Route 301.
In brief, the task force reports that 40 percent of the state's population
growth by 2020 is projected to occur in five counties served by U.S. Route 301:
Anne Arundel, Calvert, Charles, Prince George's
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[MAP OF ST. CHARLES WESTLAKE VILLAGE APPEARS HERE]
<PAGE>
and St. Mary's. Within the U.S. Route 301 Corridor (as defined by the task
force), the number of households is expected to increase by 90 percent (a
compounded annual growth rate of 2.2 percent between 1990 and 2020) and the
number of jobs will increase by 50 percent (a compounded growth rate of 1.4
percent). This growth will lead to a doubling of traffic volume on U.S. Route
301, on average. At the Prince George's/Charles County line, the traffic volume
is projected to increase from 60,000 vehicles per day in 1990 to 160,000 in
2020, a 168 percent increase. If no major improvements are completed heavy
traffic congestion is likely in Waldorf for six hours each workday and heavy
weekend traffic during most daytime hours.
As an example, a trip from La Plata to Washington, D.C. that now takes about one
hour would then take 67 percent longer at one hour and forty minutes. Without
improvements, nearly every signalized intersection on U.S. Route 301 will fail
by 2020, and accidents will triple. Such congestion would naturally lead to a
decline in quality of life, restrain property values and hamper further economic
development.
As indicated by the disparity in home development and the number of new jobs,
the task force expects Southern Maryland (Calvert, Charles and St. Mary's
Counties) to remain bedroom communities, for the most part. With mass transit
unlikely due to the area's sprawled development, most workers in Southern
Maryland will continue to commute to the closer-in Washington region.
The task force made several recommendations in its final report, including:
1. Direct development to designated growth areas where public water
and sewer services exist or are planned. Also, development in
rural areas should be discouraged. These suggestions are made for
environmental as well as transportation reasons.
2. Attract mixed-use development that supports and encourages mass
transit, carpooling, walking and biking. The thought is that
mixed-use development reduces trips on surrounding streets and
highways.
3. Attract jobs to the county that match the skills of current and
future residents. Obviously, if a resident stays in county for his
job, he does not need to commute on U.S. Route 301 northward.
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[MAP OF DORCHESTER NEIGHBORHOOD APPEARS HERE]
<PAGE>
4. Construct a six-lane U.S. Route 301 Bypass around Waldorf with
controlled access to improve safety and reduce congestion. If a
limited-access U.S. Route 301 bypass is constructed, fewer
accidents and better traffic management should result.
5. Plan on HOV lanes for the U.S. Route 301 Bypass around Waldorf as
well as Maryland Route 5 in Prince George's County. Although
carpooling is currently insufficient to support HOV lanes, their
future presence should encourage carpooling and busing.
6. U.S. Route 301 should be widened by one lane in each direction in
LaPlata. Traffic volumes are expected to increase in La Plata and
between La Plata and Waldorf, but not to the extent expected in
Waldorf and to the north. No significant increases are expected
south of La Plata.
7. County master plans should be revised to encourage compact
development, especially mixed-use development, within one half
mile of proposed future light rail stations. Current development
patterns do not result in densities that are suitable for mass
transit, and the county should encourage dense development in
nodes where future light rail stations can be developed.
Eventually, there should be light rail connecting Waldorf with the
Branch Avenue Metro Station that is being constructed just inside
the Capital Beltway off Maryland Route 5.
As of today, the above represents recommendations only, and there is little
funding in place for any of the referenced infrastructure development. Prince
George's and Charles Counties (as well as the State Highway Administration) are
likely to use the task force study to try and solve some of the recognized
transportation inadequacies. As is typical throughout the region, funding is the
major obstacle.
Light rail is recommended by the task force, as it often is by transportation
planners. Most experts agree, however, that Waldorf is too distant and not
nearly populated enough to warrant rail service. Funding is also a major factor
that would tend to suggest that any light rail development is far off in the
future.
Commuting time from home to the workplace varies throughout Charles County, as
does the number of vehicles owned by the immediate residents. Congestion
discussed on major roadways in the area is a function of the number of vehicles
and affects commuting time to employment centers. A profile has been done and
compared to six different areas. The first three areas relate to a one, two
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and three mile radius from the intersection of U.S. Route 301 and Smallwood
Drive in Waldorf. The second three areas relate to Charles County, the State of
Maryland and the United States. The following chart outlines different commuting
times and number of vehicles owned per household.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
COMMUTE
- ---------------------------------------------------------------------------------------------------------------
1.0 Mile 3.0 Mile 5.0 Mile Charles State of United
Radius Radius Radius County Maryland States
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
% Commute Under 15 Minutes 19.9 19.0 18.1 18.6 21.8 32.2
- ---------------------------------------------------------------------------------------------------------------
% Commute 15-29 Minutes 16.8 15.7 17.9 22.2 34.5 37.2
- ---------------------------------------------------------------------------------------------------------------
% Commute 30-44 Minutes 21.6 22.2 22.0 20.2 23.7 18.1
- ---------------------------------------------------------------------------------------------------------------
% Commute 45-59 Minutes 20.9 21.0 20.1 16.9 11.0 6.5
- ---------------------------------------------------------------------------------------------------------------
% Commute 60+ Minutes 20.8 22.1 22.0 22.1 9.0 6.1
- ---------------------------------------------------------------------------------------------------------------
Average Commute to Work in
Minutes 35 36 36 35 27 22
- ---------------------------------------------------------------------------------------------------------------
Median Commute to Work in
Minutes 39.2 40.4 39.6 36.9 27.3 22.2
- ---------------------------------------------------------------------------------------------------------------
% With No Vehicles 3.2 3.0 2.6 4.4 11.7 11.1
- ---------------------------------------------------------------------------------------------------------------
% With 1 Vehicle 24.2 26.2 23.3 22.0 31.3 33.5
- ---------------------------------------------------------------------------------------------------------------
% With 2 Vehicles 46.9 49.6 47.3 43.4 38.3 37.8
- ---------------------------------------------------------------------------------------------------------------
% With 3+ Vehicles 25.7 21.3 26.8 30.2 18.8 17.6
- ---------------------------------------------------------------------------------------------------------------
Number of Vehicles 5,132 28,928 41,817 78,533 3,228,243 166,430,527
- ---------------------------------------------------------------------------------------------------------------
Average Number of Vehicles 2.2 2.1 2.3 2.3 1.8 1.8
- ---------------------------------------------------------------------------------------------------------------
Median Number of Vehicles 2.0 1.9 2.0 2.0 1.7 1.6
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
It is obvious from the above chart that congestion delays commuting time when
compared to the State of Maryland and the United States. For example, between
one, three and five miles from the intersection of Smallwood Drive and U.S.
Route 301, the percentage of commuting time under 15 minutes ranges from about
18 to 20 percent, compared to about 22 percent to 32 percent between the State
of Maryland and the United States, respectively. Likewise, commuters over 60
minutes range from about 21 to 22 percent, compared to only 9.0 percent in the
State of Maryland and 6.1 percent in the United States. Accordingly, average
commuting times are greater in Charles County.
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<PAGE>
The housing market in this area views this as a trade-off, where home buyers are
willing to trade a greater commute for more affordable housing.
Away from U.S. Route 301, service-oriented and industrial uses dominate the non-
residential land uses. There are several industrial parks a short distance from
the major highways. Maryland Route 925 runs parallel with U.S. Route 301 and
includes a mixture of industrial, commercial and residential uses. Major
industrial parks in reasonable proximity include the Waldorf South Industrial
Park, Pika Industrial Park, and the White Plains Industrial Park. The
predominant office park is the 300-acre St. Charles Business Park, which is
about 85 percent occupied.
The bulk of new residential housing within the subject neighborhood is
concentrated within the Waldorf, St. Charles and White Plains area along U.S.
Route 301. Within St. Charles, there is a diverse mix of detached homes,
townhouses, condominiums and rental apartments. Detached single-family homes
dominate in the remainder of Waldorf.
In summary, the excellent road network available to the subject neighborhood
provides convenient access to the Washington Metropolitan Area, although
troublesome congestion plagues U.S. Route 301 for the stretch where it shares
the Maryland Route 5 label. Although still growing economically, residential
development is at a lower level than several years ago. Home prices in the
subject neighborhood have increased to the point that sales have dropped.
Waldorf has always been thought of as an affordable alternative to Prince
George's and Anne Arundel Counties. The primary reason new residents have moved
to Waldorf is to seek housing that is less expensive than in these nearby
counties. With prices increasing to near those in Prince George's and Anne
Arundel Counties, sales volumes have dropped off somewhat in the subject
neighborhood, causing a slower population growth than was typical during the
1970's and 1980's.
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<PAGE>
SUBJECT SITE DESCRIPTION
The St. Charles PUD consists of 9,100 acres. In addition, from 1987 to 1990, IGC
acquired 1,186 additional acres in Charles County for future development. IGC
currently owns 5,659 acres of land in Charles County. This land is planned for
more than 15,000 housing units and about 398 acres of commercial/industrial
land, including land for roads, open space and stormwater management. A brief
description of the villages and the remaining inventory follows. Further, an in-
depth discussion of each use, residential, industrial and commercial, is
detailed.
Smallwood Village, the first of the five planned villages, contains 2,700 acres.
Smallwood Village includes about 6,700 housing units in four neighborhoods, a
270,000 square foot shopping center, and 250 acres of developed commercial and
industrial land. Virtually all available land has been developed and sold,
except for 63 commercial and industrial acres, and land for 115 townhouse units,
currently being developed by Ryland Homes.
Westlake Village, the second to come on line, contains approximately 1,700
acres. Development started in 1983, with a planned build-out of about 4,300
units of single-family homes, townhomes and apartments in Westlake. As of
December 31, 1996, lots for 4,223 housing units had been sold to third-party
homebuilders or sold by IGC in its own homebuilding operations. Westlake Village
originally had 538 acres of land designated for commercial use, of which 216.3
acres remain to be sold.
Fairway Village, the third village in St. Charles, contains 1,287 acres,
including land for roads, open space and stormwater management. Development is
in the planning stage. The plan for Fairway Village has preliminary county
approval for two neighborhoods (Sheffield and Gleneagles), with a total of 3,346
units. Thirty-five acres are planned for commercial development, in addition to
a 215-acre business park adjacent to Fairway Village, of which 119 acres remain
to be sold. IGC received preliminary plan approval for Fairway Village from
Charles County in August of 1994.
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<PAGE>
Wooded Glen and Piney Reach, the remaining two villages, will be the final
phases of development for St. Charles. These villages total 3,079 acres,
including land for open space, roads and stormwater management. Approximately
10,000 residential units are planned for the two villages.
This appraisal's focus is the remaining land inventory of the St. Charles PUD,
as of December 31, 1996. The residential land inventory, as of December 31,
1996, is presented on the facing page and will be discussed accordingly. A
detailed breakdown of the 60 finished lots in Dorchester can be seen in the
Addenda. The following discussions are structured to each use as they relate to
site characteristics such as: physical attributes, access, visibility, frontage,
utilities and surrounding land uses.
RESIDENTIAL LAND INVENTORY
PHYSICAL CHARACTERISTICS
Sixty finished lots are contained within Parcels A, B, E, G, H, L, N and P, and
cover 10.94 acres, suggesting an average lot size of 7,940 square feet. The lots
are primarily arranged around several cul-de-sacs and a circular roadway known
as Dorchester Circle, with two entrances from Smallwood Drive and one entrance
from St. Patricks Drive. The terrain of the 60 finished single-family lots is
cleared and ready for development.
The Huntington Ridge townhouse site is identified as Parcels 20A, 4B and 4C,
within larger parcels (717, 633), as identified on Tax Map 15, Grid 8, within
the Sixth Election District of Charles County, Maryland. This site is being
developed with 115 townhouse lots. The description of the site is predicated on
the information provided on a recorded subdivision plan, as prepared by the
engineer, Whitman, Requardt & Associates, as presented in the Addenda.
The site contains a total of 15.86 acres. The recorded subdivision plan was
approved August 25, 1995, for the development of 115 townhouse lots. The lot
area, as stated on the recorded plan, shows interior lots of 1,600 to 1,800
square feet and the end lots 2,000 square feet. The 18 townhouse buildings are
arranged around a central cul-de-sac, with four spine roads radiating off the
main cul-
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<PAGE>
de-sac. The site is situated on the east side of Post Office Road, just south of
its intersection with Industrial Park Circle.
The topography of the site is relatively flat, ranging from about 200 to 240
feet above sea level. The terrain is currently wooded along the perimeter, with
the majority of the portion of the parcels already cleared.
The site plan does not indicate any areas of wetlands, however, in the northwest
portion of the site, there is a 100-year back water and drainage easement. In
addition, there is a 70' x 75' wide natural and/or reforested buffer which runs
from the northwest portion of the site to Post Office Road. According to Flood
Insurance Rate Map No. 240089 0027 B, last revised June 5, 1985, by the Federal
Emergency Management Administration, the site is not located in a flood hazard
area.
ACCESS, VISIBILITY AND FRONTAGE
The Dorchester 60 finished lots front on several internal streets and cul-da-
sacs. The main spine road is a 60-foot right-of-way known as Dorchester Circle.
The remaining roadways leading to the different cul-de-sacs are primarily 50-
foot right-of-ways. Dorchester Circle has three entrances along Smallwood Drive
and St. Patricks Drive.
Although visibility and frontage to major highways is of secondary concern with
residential subdivisions, ease of access to commuter routes is of considerable
importance. Commuter access is excellent to the remaining single-family lots.
These sites are located a short distance (approximately one mile) from Crain
Highway (U.S. Route 301). Crain Highway provides north/south access to Waldorf,
Upper Marlboro, Washington and Baltimore.
The Huntington Ridge townhouse lots front on five internal streets. One main
spine road, ending in a cul-de-sac, is a 30-foot right-of-way accessing the five
internal streets. The main road will have one entrance point along Post Office
Road. The entire site has almost 600 feet of frontage along Post Office Road.
Again, visibility and frontage to major highways is of secondary concern with
residential subdivisions, while ease of access to commuter routes is of
considerable importance.
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<PAGE>
UTILITIES
All necessary utilities are available to the remaining finished single-family
lots. Within the subdivisions, utilities are installed underground as part of
the infrastructure development. Each of the subject lots will have utilities
available at the lot line.
All necessary utilities are available to the townhouse lots. Within the
subdivision, utilities will be installed underground as part of the
infrastructure development along the spine road. Each of the subject lots will
have utilities available at the lot line. Existing water and sewer lines are
currently available along Post Office Road. Electricity and telephone service is
also immediately available.
SURROUNDING LAND USES
The remaining finished single-family lots are surrounded by other newly-
developed residential subdivisions to the north and northeast. To the east of
the remaining lots are primarily commercial developments that are part of the
St. Charles community and front on or have easy accessibility to U.S. Route 301.
The Huntington Ridge townhouse site is surrounded by other newly-developed
residential subdivisions to the south. To the west, north and east of the
subject site are primarily commercial developments that are part of the St.
Charles community and front on or have easy accessibility to Post Office Road,
Maryland Route 5 and U.S. Route 301.
BULK LAND (RAW ACREAGE)
POMFRET ASSEMBLAGE
This property is comprised of seven parcels totaling 812.2 acres. The total
assemblage is broken down into the Northern Section, which contains 202.79
acres, and the Southern Section, which contains 609.38 acres. These parcels are
to the west of U.S. Route 301, and identified as Parcels 36, 37, 41, 50, 60, 177
and 275, as seen on Charles County Tax Map Page 22.
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<PAGE>
[MAP APPEARS HERE]
<PAGE>
The Northern Section is comprised of Parcel 275, located on Tax Map Page 22,
Grid 3. This parcel contains 202.79 acres, with good road frontage on Pomfret
Road. The terrain of Parcel 275 ranges from relatively level on the eastern
side, to rolling in the northwestern portion where the stream traverses the
parcel. The stream, which runs in an east/west and south/north direction,
divides the parcel into three sections. According to a study prepared by HOH
Associates, Inc., for IGC, the site is comprised primarily of mature hardwoods
and second growth vegetation.
According to FEMA Flood Insurance Rate Map 240089 0046 B, last revised June 5,
1985, Parcel 275 is not within a designated 100-year floodplain. It is noted,
however, that 201 acres of the total assemblage is located in
wetlands/floodplain land, according to the 1994 Development Study by Whitman,
Requardt & Associates.
The six contiguous parcels that makeup the Southern Section contain 609.38 acres
of land area. The Southern Section is comprised of Parcels 36, 37, 41, 50, 60
and 177, located on Tax Map Page 22. These parcels are on the south side of
Pomfret Road, west of Marshall Corner Road and north of Bumpy Oak Road. The
topography of these parcels is mostly level, with some sloping occurring near
the three streams which traverse the parcel in an east/west direction. The site
is predominately occupied by mature hardwoods, in addition to some second growth
vegetation, as well as open field space.
According to FEMA Flood Insurance Rate Maps 240089 0046 B and 240089 0048 B,
both last revised June 5, 1985, none of the parcels which comprise the Southern
Section are located within a designated 100-year floodplain.
Based on the study completed by Whitman, Requardt & Associates, the entire
assemblage contains 20 acres of wetlands and 181 acres of floodplain, slopes and
buffers. The study did not breakdown the division of these areas between the
Northern and Southern Sections.
The Northern Section has frontage and access to Pomfret Road, providing a link
between U.S. Route 301 to the east and Indian Head Highway (Maryland Route 210)
to the northwest. The Southern Section is accessed by three roads which include
Pomfret Road to the north, Marshall Corner Road
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<PAGE>
to the east, and Bumpy Oak Road to the south. All access to the Southern Section
contains very limited road frontage. According to development plans, primary
entrances for the two sections would be jointly shared by a Pomfret Road
entrance. Another entrance for the Southern Section would include a primary
entrance from the south, off of Bumpy Oak Road. In addition, the right-of-way
acquired with the purchase of Parcel 41 will permit access to Marshall Corner
Road by way of Raphael Drive. This would create an eastern entrance with access
to the middle of the Southern Section. The surrounding roads provide both the
Northern and Southern Sections with adequate access to major highways and
linkages.
Utilities currently available to the seven parcels are limited to electricity
and telephone services. Public water and sewer services are not immediately
available at this time. The parcels are currently in the S5 Planning Zone, which
provides for sewer service in six to 10 years. Although central water service
exists to the Pomfret Estates Subdivision, located between the two parcels at
the intersection of Pomfret Road and Marshall Corner Road, the parcels are
located in a W6E Zone, which calls for no immediate planned water service. An
alternative would be the use of a privately-maintained water system involving
several wells and water towers.
The seven parcels are all zoned R-L, a low density residential classification,
and most of the surrounding parcels have this same distinction. The surrounding
land uses include residential, agricultural and educational. To the east, the
primary land use is for residential subdivisions, which include the Pomfret
Estates and Oakwood Subdivisions. The Charles County Vo-Tech Center is also
located to the east, occupying approximately 90 acres. The predominate land use
to the west of these parcels is agricultural and large-lot residential homes.
Additional land uses in the area include the Maryland Airport to the northwest
and the Myrtle Grove Wildlife Management Area, which provides hunting and
fishing for local residents.
MIDDLETOWN PARCELS
This property is comprised of five tax parcels totaling 373.663 acres. The
parcels are to the west of U.S. Route 301, and identified as Parcels 118, 256
and 335 on Charles County Tax Map Page 7, and Parcels 48 and 81 on Page 14.
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<PAGE>
[MAP APPEARS HERE]
<PAGE>
The property is comprised of two non-contiguous parcels, referred to as the
"North Assemblage" and "South Assemblage." These two areas are separated by
three tax parcels that were previously owned by St. Charles Associates, L. P.,
but were taken back by a lender. St. Charles Associates, L. P. hopes to
eventually buy back the middle land (totalling about 105 acres) to complete the
Middletown Assemblage. The following description is based on tax records, tax
maps, planning studies and personal inspection.
The North Assemblage contains 252.986 acres of land area. The site enjoys
frontage on both Middletown Road and Mill Hill Road. The terrain of the North
Assemblage is gently rolling in nearly all areas except along the stream that
bisects the site. According to topographic map information, the elevations range
from about 180 feet above sea level in the stream valley near the northeast part
of the site to 237 feet near the northwest corner. Other than the stream valley,
nearly all of the site is between 200 and 230 feet above sea level.
According to FEMA Flood Insurance Rate Maps 240089 0026 B and 240089 0027 B,
both last revised June 5, 1985, none of the site is within a designated 100-
year floodplain. Based on information extracted from the HOH and Whitman,
Requardt & Associates' planning studies, about 46 acres of the North Assemblage
is determined to be floodplain, wetlands and/or buffers.
The South Assemblage is comprised of three tax parcels totalling 120.677 acres.
The South Assemblage also enjoys frontage on both Middletown Road and Mill Hill
Road. The topography of the South Assemblage is nearly level, with very little
elevation change. The elevation of the south parcel appears to range from
approximately 200 to 218 feet above sea level. There are no areas of steep
slopes. Most of the South Assemblage is wooded.
According to FEMA Flood Insurance Rate Maps 240089 0026 B, 0027 B and 0028 B,
all last revised June 5, 1985, none of the property is within a designated 100-
year floodplain. The Whitman, Requardt & Associates' study indicates
approximately 28 acres of unusable land area in the South Assemblage.
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<PAGE>
As mentioned previously, both parts of the property enjoy frontage on both
Middletown Road and Mill Hill Road. The North Assemblage enjoys approximately
450 feet of frontage on the west side of Middletown Road, as well as about 550
feet of frontage on the east side of Mill Hill Road. The South Assemblage enjoys
about 1,000 feet of frontage on the west side of Middletown Road and a little
more than 400 feet of frontage on the east side of Mill Hill Road. Currently,
both of these fronting streets are narrow, two-lane, rural roads. Middletown
Road, however, is scheduled to be improved to a four-lane arterial between Berry
Road and Billingsley Road. This widening is at the county's expense, and is
scheduled for the next three years.
Utilities currently available to the property are limited to electricity and
telephone service. Public water and sewer service is available nearby, however,
and could be extended to the property as part of a development plan at the
owner's expense. A sewer main is currently installed along Piney Branch, a
stream located approximately 2,400 feet northeast of the North Assemblage.
The land between the property and the stream is owned by Lewis R. Vest, who is
developing the property as a residential subdivision to be built-out with
townhouses and single-family detached homes. Once development of this
subdivision, to be known as Berry Valley, is established, the northern parcel
could obtain sewer service from the Berry Valley sewer line. Water service could
also be obtained from this adjacent proposed subdivision. The South Assemblage
can be supplied with water service from the high school across Middletown Road.
Due to the topography of the property, sewer service would be easiest to supply
from the north, across the middle assemblage of Middletown that is no longer
under the ownership of Interstate General Corporation.
Public water and sewer services are expected to be immediately available to the
property over the next three to five years, as Middletown Road is widened and
Berry Valley gets underway. Repurchase of the middle assemblage would make
development of the south parcel easier, but is not absolutely necessary for
utility purposes and other infrastructure development.
The site is surrounded by vacant agricultural and wooded land, as well as
scattered single-family detached residential homes on large lots. The St.
Charles PUD is located to the immediate east of
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<PAGE>
[MAP APPEARS HERE]
<PAGE>
the south parcel, across Middletown Road. The Westlake High School is
established just southeast of the South Assemblage.
FAIRWAY VILLAGE
Fairway Village, the next village in St. Charles planned for development,
contains 1,287 acres, including land for roads, open space and stormwater
management. Two planned neighborhoods (Sheffield and Gleneagles) will have a
total of 3,346 units. Thirty-five acres are planned for commercial development,
along with a 213-acre business park adjacent to Fairway Village, of which 119
acres remains to be sold. This village also includes a 114 acre state-of-the-art
landfill owned and operated by Charles County. IGC received preliminary plan
approval for Fairway Village from Charles County in August of 1994.
The first phase of the Sheffield Neighborhood is proposed for development
beginning in Fall of 1997. This phase will include 246 single-family lots and
154 townhouse lots. While the entire village of Fairway has been approved by the
county, the first phase of Sheffield has not actually been granted preliminary
plan approval for the townhouse units and must be resubmitted to obtain this
mix. For the purpose of this report, since it is likely that this approval will
be obtained within the next 12 months, a subdivisions analysis method has been
employed for the valuation of this first phase of the Sheffield Neighborhood.
The table presented on the facing page breaks down the village area totals by
use. Individual neighborhoods (Sheffield and Gleneagles) are broken down by
parcel, type, dwelling unit and density, and is presented in the Addenda.
Fairway Village is bound by St. Charles Parkway to the west (a 120-foot right-
of-way), St. Pauls Drive to the north, the southern boundary of the Bannister
Neighborhood, and by Piney Church Road to the east, as well as the transmission
line which traverses St. Charles in a northeast-to-southeast direction. Maryland
Route 488 (La Plata-Bryantown Road) forms the southern boundary of Fairway
Village. Maryland Route 488 provides east/west travel from Maryland Route 5 to
the east and the township of La Plata to the west, intersecting with U.S. Route
301. St. Charles Parkway currently
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<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FAIRWAY VILLAGE AREA TOTALS
- --------------------------------------------------------------------------------
SHEFFIELD GLENEAGLES FAIRWAY
NEIGHBORHOOD NEIGHBORHOOD TOTALS
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Residential 243.4 316.5 559.9
- --------------------------------------------------------------------------------
Wetlands 35.3 12.8 48.1
- --------------------------------------------------------------------------------
Lakes 16.2 13.4 29.6
- --------------------------------------------------------------------------------
Upland Open Space 62.4 49.9 112.3
- --------------------------------------------------------------------------------
Major Roads 48.5 26.4 74.9
- --------------------------------------------------------------------------------
Village & Neighborhood Centers 5.0 46.8 51.8
- --------------------------------------------------------------------------------
School 20.0 0.0 20.0
- --------------------------------------------------------------------------------
Subtotal 430.8 465.8 896.6
- --------------------------------------------------------------------------------
White Plains Park -- -- 7.0
- --------------------------------------------------------------------------------
Middle Business Park -- -- 213.4
- --------------------------------------------------------------------------------
Landfill -- -- 114.0
- --------------------------------------------------------------------------------
Stetham Park -- -- 56.0
- --------------------------------------------------------------------------------
TOTAL ACRES -- -- 1,287.0
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
ends at the White Plains Regional Golf Course and extends through to Maryland
Route 5 to the northeast. Billingsley Road traverses Fairway Village in a
northwest to a southeasterly direction, terminating in the Middle Business Park
and extending through to Maryland Route 5. As Fairway Village begins
development, Billingsley Road will be extended from the end of Middle Business
Park through to U.S. Route 301 to the northwest. In addition, as Fairway Village
gets developed through the southwest portion of the site, St. Charles Parkway
will be extended down to its intersection with Rosewick Road.
The topography of the site is relatively flat, ranging from about 190 to 210
feet above sea level. The terrain is currently heavily-wooded, with some
portions of the site already cleared. The preliminary site plan indicates
several areas of wetlands, which accounts for 48.1 acres of the entire site.
According to Flood Insurance Rate Map No. 240089 0027 B, last revised June 5,
1985, by the Federal Emergency Management Administration, the site is not
located in a flood hazard area.
St. Charles Parkway (120-foot right-of-way) is the main spine road providing
access to five or six secondary roadways within the Sheffield and Gleneagles
Neighborhoods of Fairway Village. Commuter access to the proposed village is
excellent, due to St. Charles Parkway's connection with Maryland Route 5 to the
north and Smallwood Village to the northwest, both leading to intersections with
U.S. Route 301. As stated previously, Crain Highway provides north/south access
to Waldorf, Upper Marlboro, Washington and Baltimore. All necessary utilities
are available to the proposed Fairway Village. There are easements along St.
Charles Parkway which will provide water access to all the neighborhoods. Within
the subdivisions, utilities will be installed underground as part of the
infrastructure development. Each of the proposed lots will have utilities
available at the lot line. Electricity and telephone service will also be
immediately available to the site.
WOODED GLEN AND PINEY REACH
Wooded Glen and Piney Reach are the remaining two villages, which will be the
final phases of development for St. Charles. These villages contain 3,495 acres,
including land for open space, roads and stormwater management. About 10,000
residential units are planned for the two villages and include approximately 416
acres of industrial property (business park). I have been provided
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[MAP OF ST. CHARLES WOODED GLEN AND PINEY REACH APPEARS HERE]
<PAGE>
with a Master Plan Study for the Wooded Glen and Piney Reach proposed villages,
prepared by HOH Associates, Inc. This master plan gives the general layout of
the future neighborhoods, along with gross and net developable acreage. A copy
of this Master Plan Study can be found in the Addenda.
The terrain of this southern section of St. Charles is relatively level, with
some gently rolling terrain along the southeast boundary of the site. The
topography of the site ranges from 180 feet above sea level to roughly 240 feet
above sea level. The site is comprised primarily of mature hardwoods and second
growth vegetation.
According to Flood Insurance Rate Map No. 240089 0027 B, last revised June 5,
1985, by the Federal Emergency Management Administration, these sites are not
located in a flood hazard area. The net developable area accounts for wetlands,
slopes, buffers and open space.
These two villages have frontage and access to St. Charles Parkway and
Billingsley Road. These roadways provide links to U.S. Route 301, via Smallwood
Drive and Maryland Route 5. Billingsley Road, upon completion, will be a cross-
county connector from Maryland Route 5 to the east until its terminus with
Maryland Route 210 in the west along Indian Head. Currently, Billingsley Road
terminates in the Middle Business Park in Fairway Village. The next phase of
development is from this point west to its intersection with U.S. Route 301,
beginning Fall of 1996. St. Charles Parkway is a north/south primary arterial
which currently ends at White Plains Regional Park to the south and Maryland
Route 5 to the north. This four-lane divided roadway will eventually connect
with Maryland Route 488 in La Plata. Primary entrances to these remaining two
villages will be primarily from St. Charles Parkway and Billingsley Road, along
with secondary spine roads.
All necessary utilities are available to these villages. Utilities will be
installed underground as part of the infrastructure development along the
primary and spine roads. Existing water and sewer lines are currently available
along St. Charles Parkway and Billingsley Road. Electricity and telephone
service are also immediately available.
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<PAGE>
Wooded Glen and Piney Reach are bound by Fairway Village to the north and are
bordered to the east and south by large agricultural parcels. To the southwest
of Wooded Glen, the site will eventually abut the incorporated town of La Plata.
Commercial and industrial uses are located to the northwest of these villages,
as are the developed residential uses within the St. Charles PUD.
Included within the Wooded Glen and Piney Reach villages are five parcels of
land which are not zoned PUD. The five parcels contain a total of 578.33 acres
and are zoned R-L, a low to medium density development zone, not restricted by
the development covenants of the PUD zoning. This implies that these parcels
could be developed immediately. These five parcels are the only remaining
properties which could be rezoned as PUD and will be discussed in the Highest
and Best Use section of the report.
COMMERCIAL / INDUSTRIAL LAND INVENTORY
The remaining commercial land is located in Westlake Village (Towne Center North
and South) and Smallwood Village. IGC currently owns 223.06 acres of
commercially-zoned land. About 212 acres of this land is situated immediately
surrounding the St. Charles Regional Mall, along St. Patricks Drive and
Smallwood Drive. The remaining parcels are located on the east side of U.S.
Route 301, at Smallwood Drive, and smaller out-parcels surrounding Smallwood
Village Center.
The remaining industrial land, 160.71 acres, is located in Smallwood Village and
the western boundary of Fairway Village. The Middle Industrial Park of Fairway
Village, which contains a majority of the remaining inventory (118.74 acres),
abuts the ConRail line on its northwest boundary. The remaining 45 acres are
located within Business Parks North and East of Smallwood Village, with direct
access from Post Office Road and Maryland Route 5. In addition, 416 acres
designated for industrial (business park) use is situated in the Wooded Glen and
Piney Reach area and will be valued separately.
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<PAGE>
[MAP OF ST. CHARLES TOWNE CENTER APPEARS HERE]
<PAGE>
COMMERCIAL LAND - WESTLAKE VILLAGE (TOWNE CENTER NORTH)
Parcels A-3 and A-4 are irregular in shape and are located in the horseshoe
created by Smallwood Drive West and St. Patricks Drive. These parcels are
immediately west of the St. Charles Regional Mall. In addition, these two
parcels abut O'Donnell Lake to the east and have excellent visibility from the
primary roadways encompassing the mall. The terrain of these two parcels is
clear and they are covered with low lying vegetation. The topography is gently
sloping from west to east towards the lake. All utilities are available to the
sites.
Parcels F2, F3, F5, F6, F9, G1, G2, G3, G4, G5, G6, G7 and G9 are located along
the northern boundary of St. Patricks Drive and their intersection with Western
Parkway and Smallwood Drive West. The parcels are irregular to rectangular in
shape, with excellent frontage and visibility from St. Patricks Drive. The
terrain of these sites is relatively clear with a tree buffer along their
northern boundary with the Lancaster Neighborhood. The ground is covered with
low lying vegetation and the topography is relatively level. All utilities are
available to these parcels.
Parcel H2 is located in the northwest quadrant of St. Patricks Drive and U.S.
Route 301, adjacent to the Holiday Inn. This rectangular parcel is level and
covered with low lying vegetation. This 9.0-acre site has excellent access and
visibility, with approximately 700 feet of frontage on U.S. Route 301, however,
only 6.0 acres are considered developable. Several pad sites are located
directly south of the site surrounding the St. Charles Regional Mall. The St.
Charles County Plaza Shopping Center is located on its northern boundary, while
the new Target Store has recently been developed to the immediate northwest of
the site, on Western Parkway and Plaza Drive. Development to the west is
primarily commercial and residential in nature. All utilities are available to
the site.
COMMERCIAL LAND - WESTLAKE VILLAGE (TOWNE CENTER SOUTH)
These parcels are located on the south side of St. Patricks Drive and west of
U.S. Route 301. Parcel M is an irregular-shaped, 1.85-acre parcel that was
subdivided from the larger Parcel Q, which will be developed residentially. This
site is located on the northeast corner of Billingsley Road and St. Patricks
Drive. The terrain is partly covered with mature trees and low lying vegetation.
The
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<PAGE>
ST. CHARLES COMMERCIAL LAND
REMAINING INVENTORY
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
======================================================= =========================================================
WESTLAKE VILLAGE SMALLWOOD VILLAGE
- ------------------------------------------------------- ---------------------------------------------------------
SECTION PARCEL GROSS ACRES SECTION PARCEL GROSS ACRES
======================================================== ==========================================================
<S> <C> <C> <C> <C> <C>
Towne Center North A-3& 4 13.82 A-1 0.77
K 7.93
Towne Center North F2 1.14 C 0.60
Towne Center North F3 1.88 A 0.84
Towne Center North F5 1.98 D-2 1.06
Towne Center North F6 1.93 D-4* 0.75
Towne Center North F9 2.07 H 0.17
---- L 1.00
----
Total 22.82 Total 13.12
Towne Center North G1 1.19
Towne Center North G2 1.19
Towne Center North G3 1.19 *This parcel has been rezoned for residential use allowing
Towne Center North G4 1.29 development of multi-family and assisted living. For the
Towne Center North G5 1.19 purpose of this report, the parcel will remain under the
Towne Center North G6 1.19 commercial classification.
Towne Center North G7 1.19
Towne Center North G9 1.89
----
Total 10.32
Towne Center South B2 0.28
H2 6.00
Q-1 17.50
Q-2 4.69
M 1.85
----
Total 30.32
Total Westlake Acreage 63.46
TOTAL COMMERCIAL ACREAGE 76.58
</TABLE>
<PAGE>
topography is level and at-grade with its surroundings. Access and visibility
are excellent from either roadway. All utilities are available to the site.
Parcel B2, an irregular-shaped parcel, is located on the south side of Smallwood
Drive, just west of the boundary for the St. Charles Town Plaza. This 0.28-acre
site sits in front of the SMECO pad site. The site is beneficial only to this
user and IGC has been trying to sell it so there is one contiguous parcel
fronting Smallwood Drive. The terrain is clear and the topography is level. The
site has excellent visibility from Smallwood Drive, while it is surrounded by
existing commercial uses. All utilities are available to the site.
Parcels Q-1 and Q-2 are located on the southeast and northeast corners,
respectively, of Smallwood Drive and Middletown Road. Both parcels are
rectangular in shape, level and at-grade with their surroundings, while the
terrain is partially clear with low lying vegetation and mature trees. Access
and visibility are excellent from both roadways. Either site is approximately
2.2 miles from the Towne Center. The Waldorf V.F.D. is located within Parcel Q-
1, while Foxchase Apartments are located to the east, Westlake High School and
Hampshire Neighborhood to the north, and open space to the west and south. All
utilities are available to the sites.
COMMERCIAL LAND - SMALLWOOD VILLAGE
Parcels A-1 (0.77 acre), K (7.93 acres), and Parcel L (5.09 acres) are located
just east of U.S. Route 301 and west of the ConRail tracks. Parcel A-1 can be
found between Maryland Route 925 and U.S. Route 301. The topography is level and
at-grade with surrounding properties, while the terrain is clear with some
vegetation and buffer of trees along the rail line. Parcels K and L have
approximately 1,150 feet of frontage along Smallwood Drive East. All utilities
are available to the parcels. Surrounding uses include fast-food restaurants and
service stations to the west, heavily-wooded parcels to the south, the St.
Charles Business Park to the north, and Smallwood Village neighborhoods to the
east.
Parcels C and A are located in the southwest quadrant of St. Charles Parkway and
St. Marks Drive, while Parcel D-4 is located on the east side of Smallwood
Village Shopping Center. Parcel H is
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<PAGE>
located on the northeast corner of Smallwood Village Shopping Center's access
road. All of these parcels are at-grade with their surroundings and the terrain
is clear, with low lying vegetation and trees along the perimeter. These parcels
have good accessibility and visibility from St. Charles Parkway and secondary
roads within Smallwood Village. They also have accessibility to Maryland Route 5
and U.S. Route 301. Surrounding uses include residential neighborhoods, retail
(Smallwood Village Shopping Center), and commercial/industrial uses to the west.
All utilities are available to the sites.
Parcel D-2 is located near the Wakefield neighborhood center, off of St. Marks
Drive and Huntington Woods Drive. This 1.06-acre site is level and at-grade with
its surroundings, while the terrain is clear with low lying vegetation. The site
has adequate access and visibility from the secondary roadways located just off
of St. Charles Parkway. The surrounding area is primarily residential in nature,
with the Wakefield Village neighborhood center to the southwest. All utilities
are available to the site.
INDUSTRIAL LAND - SMALLWOOD VILLAGE (BUSINESS PARKS NORTH AND EAST)
Parcels 1-3, 5-14, 16, 19-24 and 27 are located in Business Park East, along
Henry Ford Circle. These parcels are primarily rectangular in shape and contain
approximately 24.05 acres of land area. The topography of these sites is level
and at-grade with their immediate surroundings. Low lying vegetation
predominates the terrain, while mature trees buffer the perimeter of the
business park. Henry Ford Circle (60-foot right-of-way) has immediate access
from Post Office Road. Post Office Road provides direct access to Maryland Route
5 to the north and St. Charles Parkway to the south. To date, only three parcels
have been developed within this business park.
Parcels 12C, 12F, 12L, 12M, 21F and 23A are located in Business Park North,
along Rockefeller Court and Industrial Drive. Together, these seven parcels
contain approximately 18 acres and vary in size and shape. The majority of the
sites are rectangular in nature, while the remaining parcels are irregularly
shaped. The topography of the sites is primarily level to gently sloping and at-
grade with surrounding properties. Terrain consists of mature trees, low lying
vegetation and partially cleared lots.
-40-
<PAGE>
[MAP OF ST.CHARLES BUSINESS PARK NORTH AND EAST APPEARS HERE]
<PAGE>
The majority of the roadways connecting the business park are 60 to 80-foot
right-of-ways allowing good access to all sites. Industrial Park Drive allows
access to U.S. Route 301, via Copley Avenue and Smallwood Drive to the south,
and Maryland Route 5, via Post Office Road to the east. There is an abundance of
open space and tree buffers between the commercial and residential neighborhoods
to make a transition between the two. Water and sewer easements are found along
these buffer areas. All utilities are immediately available to those sites
located within the business park.
Surrounding land uses are predominantly commercial in nature on the northern and
western boundaries. Most of these uses are situated on U.S. Route 301 and
Maryland Route 5. To the south and east are located residential neighborhoods
within Smallwood Village. The most recent development is the planned Huntington
Ridge townhouse project by Ryland, to contain 115 units. This project is located
on the northeast quadrant of Post Office Road and Copley Avenue, just south of
the eastern entrance to the business park.
INDUSTRIAL LAND - FAIRWAY VILLAGE (MIDDLE INDUSTRIAL PARK)
Middle Industrial Park is located in the northwest quadrant of Fairway Village,
the third village to be developed in St. Charles, by IGC. This village received
preliminary plan approval in August 1994, for its master plan of the village.
The industrial park is to be located to the west of St. Charles Parkway and
Billingsley Road.
The site contains a total of 213.4 acres, of which 20.7 acres is delineated for
roadways, 15.1 acres for open space, and 177.6 acres for development. To date,
approximately 59 acres have been sold, leaving a remaining inventory of roughly
119 acres of industrial land. The remaining parcels include Parcels B, C2, C3
and D1-D14. The topography of the site is generally level, ranging from 195 to
220 feet above sea level. The terrain is partially cleared, with low lying
vegetation and mature trees along the perimeter.
These lots are located on the south side of Billingsley Road and, upon
development, will have a parallel roadway to Billingsley Road known as
Enterprise Drive. This roadway will have two
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<PAGE>
ingress/egress points along Billingsley Road. Currently, Billingsley Road, at
its intersection with St. Charles Parkway, is a two-line paved roadway which
dead ends in the middle of the business park. As the park is developed,
Billingsley Road will become a 150-foot-wide right-of-way, with direct access
from U.S. Route 301 and continue through to Indian Head Highway to the west.
This industrial park will have good access to the main thoroughfares via St.
Charles Parkway, Smallwood Drive and the completion of Billingsley Road to U.S.
Route 301.
All utilities are immediately available to the park. A 16-inch water main will
run the length of Billingsley Road, while a 100-foot SMECO easement runs in an
east/west manner along the southern boundary of the site.
Surrounding land uses include other industrial and large agricultural parcels to
the south, White Plains Regional Park to the east, various residential
neighborhoods which makeup Smallwood Village to the north, and open space to the
west bordering on U.S. Route 301.
SUMMARY
The subject property consists of a multitude of parcels ranging in all sizes and
anticipated for many uses including, but not limited to, residential, industrial
and commercial. The physical nature of the site also varies from completely raw
to completely finished. The valuations presented in this report consider these
various stages of development. In addition to the industrial area described in
this section, 416 acres designated for industrial/business park use in the
Wooded Glen and Piney Reach area will be valued separately.
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<PAGE>
ZONING
Most of the subject property is zoned PUD, a Charles County Planned Unit
Development zone. This zoning category covers the land within the St. Charles
Planned Unit Development. No defined restrictions have been outlined for this
zone such as setback requirements, height restrictions, floor area ratio, lot
coverage, etc., which are common for the other Charles County zoning categories.
As reported by Elizabeth Wilcox, a Charles County Planning Technician, no
specific zoning requirements exist for the PUD zone. Each proposed project is
reviewed by the Charles County Planning Department and Planning Design Review
Board on a case-by-case basis.
Overall, the entire 9,100-acre St. Charles Planned Unit Development has been
designed and planned as an economically self-sufficient community, and is
required to have not less than 10 percent nor more than 25 percent of its land
area developed as commercial or industrial uses. In addition, it shall be
designed and planned as an independent area for community service, having no
less than 18 percent of its total area reserved for recreational, open space and
community facilities. This zoning classification allows zoning permits and
certificates of occupancy to be issued even though the use of the land, the
location and height of the buildings to be erected in the area, minimum lot
size, yards and open space contemplated by the plans do not conform in all
respects to a specific use as set forth in other zones. Thus, the Planned Unit
Development zone is flexible with regard to the number of uses and requirements
regulating the proposed improvements within this category.
There are five parcels, containing a total of 578 acres, located within the
Wooded Glen and Piney Reach Villages, which are not located in the PUD
designation of St. Charles. These parcels are zoned R-L, a low to medium density
residential zoning classification. In addition, two parcels (Pomfret and
Middletown Parcels) to the west of the St. Charles PUD, containing approximately
1,191 acres, are also zoned R-L.
The R-L zone provides for low to medium density residential development in areas
where public water and sewer, roads and other public facilities are not
currently available, adequate or planned for the immediate future, but might be
provided through design and construction of the sewer waste treatment facilities
or roads, or through extension of public water or sewer utilities at some future
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<PAGE>
time. These areas include portions of the Development District where settlement
patterns are generally established, but sewer and water systems may not be in
place to service new residential development.
Permitted uses within the R-L zone include most agricultural uses; forestry;
single-family detached homes; mobile homes; religious uses such as churches,
synagogues and temples; privately-owned outdoor recreational facilities such as
golf and country clubs, which are approved as part of a residential development;
fire stations; neighborhood essential services such as public utilities; and
park-and-ride facilities. Certain other residential uses are permitted by
special exception or permitted with conditions.
Clearly, agricultural and single-family detached residential uses are the
primary uses permitted by zoning in the R-L zone. The permitted base density of
the development in the R-L zone is 1.1 dwelling units per acre, which can be
increased to 1.22 dwelling units with affordable housing density bonuses. This
zone can have a maximum density of up to 5.72 dwelling units per acre, with an
application for a planned development and with maximum transferable development
rights and affordable housing density bonuses.
The minimum lot requirement for agricultural use in the R-L zone is three acres,
18,000 square feet for residential, and one acre for institutional/commercial
use. The maximum height for an agricultural structure is 40 feet, and 36 feet or
three stories for other structures. The maximum lot coverage for residential is
30 percent and for institutional/commercial use is also 30 percent. The minimum
amount of open space required for residential use is 15 percent.
The five parcels located within Wooded Glen and Piney Reach are located within
the St. Charles PUD, however, the future development of these two parcels is
approximately 10 to 15 years away. At that time, it is conceivable that these
five parcels will be annexed into St. Charles and, therefore, be required to
follow development uses based on the PUD zoning. The other two parcels located
west of the St. Charles PUD remain vacant, and there are no immediate
development plans.
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<PAGE>
<TABLE>
<CAPTION>
----------------------------
REMAINING LAND INVENTORY
1996 REAL ESTATE TAXES
----------------------------
- -----------------------------------------------------------------------------------------------------------------------------
1996
Assessment 1995/1996 1996
Neighborhood Parcel Acres From Tax Bill Tax Rate Taxes
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Towne Center North A-3 13.82 $2.65
A-4 1.86 173,000 $2.65 $4,584.50
F2 1.14 123,010 $2.65 $3,259.77
F3 1.88 122,010 $2.65 $3,233.27
F5 1.98 181,280 $2.65 $4,803.92
F6 1.93 142,170 $2.65 $3,767.51
F9 2.07 184,710 $2.65 $4,894.82
G1 1.00 $2.65
G2 1.10 $2.65
G3 1.10 $2.65
G4 1.00 $2.65
G5 1.00 $2.65
G7 1.00 $2.65
G9 1.70 $2.65
G10 1.20 $2.65
H-2 9.00 $2.65
Towne Center South I 69.10 1,052,940 $2.65 $27,902.91
J 75.00 $2.65
J1 3.20 214,290 $2.65 $5,678.69
J2 1.00 113,250 $2.65 $3,001.13
B2 0.28 100 $2.65 $2.65
Q-1 17.50 717,640 $2.65 $19,017.46
Q-2 4.69 177,350 $2.65 $4,699.78
Q 1.85 $2.65
Smallwood Village A-1 0.77 $2.65
K 7.93 148,720 $2.65 $3,941.08
C 0.60 47,880 $2.65 $1,268.82
A 0.84 66,590 $2.65 $1,764.64
D-2 1.06 100 $2.65 $2.65
D-4 0.75 32,620 $2.65 $864.43
H 0.17 $2.65
L 5.09 10,180 $2.65 $269.77
Huntington Ridge 20A,4B,4C 15.86 479,610 $2.65 $12,709.67
Industrial Park North 12A 1.00 43,560 $2.65 $1,154.34
12F 2.02 61,340 $2.65 $1,625.51
12L 1.05 45,780 $2.65 $1,213.17
12M 1.57 6,880 $2.65 $182.32
23A 2.28 133,580 $2.65 $3,539.87
21F 10.00 1,660 $2.65 $43.99
Industrial Park East 1 1.60 54,080 $2.65 $1,433.12
2 0.99 43,330 $2.65 $1,148.25
3 0.89 39,030 $2.65 $1,034.30
5 0.90 39,610 $2.65 $1,049.67
6 1.11 45,600 $2.65 $1,208.40
7 1.54 53,080 $2.65 $1,406.62
8 1.28 48,520 $2.65 $1,285.78
9 1.33 49,400 $2.65 $1,309.10
10 1.46 51,640 $2.65 $1,368.46
11 1.23 47,630 $2.65 $1,262.20
12 1.16 46,430 $2.65 $1,230.40
13 1.03 44,100 $2.65 $1,168.65
14 1.04 44,270 $2.65 $1,173.16
16 1.01 43,750 $2.65 $1,159.38
17 1.01 44,260 $2.65 $1,172.89
18 1.00 43,560 $2.65 $1,154.34
19 1.18 46,800 $2.65 $1,240.20
20 0.99 43,160 $2.65 $1,143.74
21 1.06 44,770 $2.65 $1,186.41
22 1.13 45,880 $2.65 $1,215.82
23 1.11 45,550 $2.65 $1,207.08
24 1.03 50,750 $2.65 $1,344.88
27 0.98 42,940 $2.65 $1,137.91
Middle Business Park-Fairway Village 118.74 27,570 $2.65 $730.61
Dorchester A-3 Lots $2.65
Dorchester B-16 Lots 254,150 $2.65 $6,734.98
Dorchester D-1 Lot $2.65
Dorchester G-2 Lots 32,980 $2.65 $873.97
Dorchester H-9 Lots 148,310 $2.65 $3,930.22
Dorchester L-2 Lots 32,000 $2.65 $848.00
Dorchester N- 26 Lots 297,820 $2.65 $7,892.23
Dorchester P-1 Lot 14,100 $2.65 $373.65
Fairway Village 1,287.00 $2.65
N of RT 488 Piney Reach/WdGln 1,855.35 617,291 $2.65 $16,338.21
Bland Parcel 14- Piney Reach 119.78 153,900 $2.65 $4,078.35
Mitchell Parcel- Wooded Glen 30.45 47,540 $2.65 $1,259.81
Krempasky Parcel 110.19 31,591 $2.65 $837.16
Naylor Parcel 227.83 42,080 $2.65 $1,115.12
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ASSESSMENT AND TAXES
The assessment of real property in Charles County and in the State of Maryland
is established by a tri-annual assessment system. This method is based on a
three-year cycle in which one-third of all real property is reviewed and
assessed every year. The assessment is based on an estimate of market value
which is known as full cash value.
The taxable assessment is the product of the full cash value multiplied by the
year's growth factor for the State of Maryland. The fiscal year runs from July 1
through June 30. The growth factor for 1996-97 is 0.40.
The 1996-97 tax rate for Charles County and the State of Maryland is $2.650 per
$100 of assessed value. A breakdown of the tax rate is listed below:
BREAKDOWN OF TAX RATE
<TABLE>
<CAPTION>
CLASS 8
JURISDICTION TAX RATE
------------ --------
<S> <C>
Charles County $2.2800
State of Maryland $0.2100
Fire Protection $0.1600
-------
Total $2.6500
</TABLE>
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<PAGE>
HIGHEST AND BEST USE
DEFINITION
According to the Tenth Edition of The Appraisal of Real Estate, published by the
----------------------------
Appraisal Institute, the highest and best use may be defined as:
The reasonably probable and legal use of vacant land or an improved
property, which is physically possible, appropriately supported,
financially feasible, and that results in the highest value.
The estimate of highest and best use can better be described as the foundation
on which market value is supported. The theory of highest and best use is
considered to be a market-driven concept. This concept is fundamental in real
estate valuation, as it focuses the market analysis on the subject property and
assists the appraiser in estimating the property's optimum use in light of
market conditions as of the effective date of the appraisal.
Nonetheless, an opinion of highest and best use is just that, an opinion, and is
not an absolute fact to be found. The determination of highest and best use for
a given property reflects the appraiser's judgment and skill, and is presented
as an opinion arising from an analysis of possible uses for a property. Other
terms which have similar meanings are most probable use and most profitable use.
The highest and best use should be determined separately for the land or site as
though vacant and available to be put to its highest and best use, and for the
property as improved, because the use of land can sometimes be limited by the
existing improvements. The first estimate, for the purposes of analysis, assumes
that the subject site is vacant.
A determination is then made as to the highest and best use or what new
improvement should optimally be constructed on that specific site.
Considerations would include the size and type of building as well as other
improvements that should be constructed on the site.
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<PAGE>
The second determination, the highest and best use of the property as improved,
refers to the optimal use that should be made of the property as it exists. The
existing use on the site may or may not be the highest and best use of the site
if it were vacant. However, before a determination is made that the existing use
should be demolished, an appraiser must consider whether the value of the vacant
land less the cost of razing the current improvements is greater than the value
of the existing property. The existing use continues to be the highest and best
use unless and until land value in its highest and best use (as vacant) exceeds
the sum of the value of the existing improvements and land and the cost to
remove the improvements.
STATEMENT OF HIGHEST AND BEST USE
In developing an opinion of highest and best use for an improved property, it is
necessary to analyze the property as if vacant and as improved. The subject site
is vacant, so an analysis as improved is not necessary. In the determination of
highest and best use as vacant or highest and best use as improved, the
following criteria must be considered:
1) What uses are physically possible?
2) What uses are legally permissible?
3) What uses are financially or economically feasible?
4) Which use is the most profitable and maximally
productive?
These criteria are generally considered in succession, as it would be of no
benefit to determine the financial or economic feasibility of a use if it were
not physically possible to construct an improvement or if that specific use were
not legally permissible.
The first criterion, physically possible, must be considered because size,
shape, area, soil quality and terrain affect the uses to which land may be
developed. Also, the utility of a parcel may depend on its frontage, shape, area
or depth. The subject property within St. Charles consists of various parcels to
be developed residentially, commercially and industrially. In addition, there
are 1,186 acres of raw land not situated in the PUD but located west of U.S.
Route 301. A majority of these parcels
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<PAGE>
have been platted, while the remaining parcels are considered raw or unfinished
land. The remaining inventory consists of about 5,200 acres of raw acreage, 60
finished single- family lots, 637 raw recorded lots comprising a mixture of
single-family and townhouse lots, 164 acres of industrial land (raw and finished
sites), and 235 acres of commercial land to be developed. A complete description
of the remaining land inventory can be found in the Subject Site Description
section of this report.
Several wetlands and 100-year floodplain areas have been identified on
preliminary and final plats, prepared by the engineer, Whitman, Requardt &
Associate; these areas do not appear to impact the development of the remaining
land inventory. The valuation presented in this report is predicated on the
preliminary and final plans of the various uses within the St. Charles PUD. If
any future investigations suggest that the various densities would change as a
result of more or less wetlands, a reassessment of the valuation may be
required. All utilities are immediately available to the various sites and the
remaining inventory enjoys excellent accessibility to major highways such as
U.S. Route 301. Therefore, the first criterion, physically possible, appears to
be met by any number of uses, as the remaining land inventory is judged to be
developable with standard construction techniques.
Because the subject sites are unaffected by unusual physical conditions, such as
an extreme slope or unworkable shape or size, the next step is to explore the
legally permissible uses of the site. Zoning regulations, building codes,
historic district controls, public and private restrictions and environmental
regulations must be considered because they may preclude many possible highest
and best uses. The most often encountered and widespread legal restriction is
applicable zoning regulations, which may regulate the uses allowed on a site,
limit allowable density, regulate building height, parking requirements, traffic
circulation within a property, and other requirements that must be satisfied
during development.
Depending upon the nature and location of a specific site, the other regulations
mentioned above may also have important consequences on highest and best use. In
the case of the subject site, zoning regulations do indeed play the largest part
in determining those uses that meet the second criterion, legally permitted.
-48-
<PAGE>
The subject property is zoned PUD, a Planned Unit Development designation. This
designation is primarily throughout the St. Charles community and each
subdivision submission to Charles County is analyzed on a case-by-case basis.
The 1,186 acres of land located outside the PUD (Pomfret and Middletown
Properties) are zoned R-L, a low to medium density designation. Furthermore,
there are five parcels, totalling 578 acres, that are located within the Piney
Reach and Wooded Glen Villages of St. Charles that are similarly zoned. It is
possible that when these villages are developed, these parcels will be annexed
into the PUD. Given the current approvals and preliminary plans, it is my
opinion that the remaining land, by its various uses, meets the second
criterion, legally permissible.
The third and fourth criteria are usually considered together after determining
that it is physically possible and legally permissible to construct one or more
uses. A financially feasible use considers that the improvements are able to
produce enough income to satisfy the normal operating expenses, financial
expenses, and a specific return on investment capital. When considering the
financially feasible uses, that use which provides the highest rate of return is
generally that use which is maximally productive.
The following market study and analysis focuses on the supply, demand and trends
associated with housing and apartment markets, industrial and commercial markets
in Charles County, and, to a greater extent, in the subject neighborhood itself.
The analysis allows the appraiser to provide a knowledgeable opinion of the
different uses most appropriate for the subject property.
RESIDENTIAL LOTS
Like most of the outer-suburban counties, Charles County is known as one of the
more affordable jurisdictions in the Washington Metropolitan Area. Price, in
fact, is often a primary reason that new residents choose Charles County over
closer-in Prince George's, Anne Arundel, Howard and Montgomery Counties. Cheaper
land and less stringent development and construction codes have given Charles
County a price advantage over the more urban neighboring counties. The breadth
of the housing market is much narrower in Charles County, with fairly rigid
price ceilings.
-49-
<PAGE>
The following chart illustrates the affordability of Charles County based on
sales by price distribution; Prince George's County and the Suburban Maryland
figures are provided for comparison purposes. Suburban Maryland is comprised of
Montgomery, Prince George's, Howard, Frederick, Charles and Anne Arundel
Counties.
SALES BY PRICE DISTRIBUTION
SINGLE-FAMILY HOMES PERCENTAGE OF TOTAL
JANUARY - DECEMBER 1996
<TABLE>
<CAPTION>
SALES CHARLES PRINCE GEORGE'S SUBURBAN
PRICE COUNTY COUNTY MARYLAND
<S> <C> <C> <C>
$130,000-$160,000 19% 7% 7%
$160,000-$190,000 41% 25% 20%
$190,000-$220,000 24% 33% 20%
$220,000-$250,000 6% 17% 16%
$250,000-$300,000 1% 9% 15%
Over $300,000 0% 4% 22%
</TABLE>
SOURCE: Housing Data Reports.
The chart provides a good indication of the affordability of Charles County
compared to Prince George's County, which enjoys a more immediate proximity to
the Washington Metropolitan Area. The higher-priced homes throughout Suburban
Maryland are much a result of the affluent housing in Montgomery County, which
indicates 55 percent of all homes sold in 1995 were over $300,000. It should be
noted, however, that the conservative market in Charles County draws largely
from local prospects, as the sales price differential has dwindled over the past
several years when compared to Prince George's County. Housing Data Reports
believes that Charles County has made modest gains in its market share as an
emerging growth market and that new subdivision development opportunities exist,
which will position the county to vie for housing competition with Prince
George's and Howard Counties on price and product. The following chart is a
breakdown of the market share of new home sales for single-family and townhouse
products in the Washington Metropolitan Area.
-50-
<PAGE>
NEW HOME SALES - CUMULATIVE TOTALS
SINGLE-FAMILY/TOWNHOUSE/PLEX
JANUARY - DECEMBER 1995 VS. 1996
<TABLE>
<CAPTION>
1995 1996 % CHANGE %MARKET SHARE
---- ---- -------- -------------
<S> <C> <C> <C> <C>
DISTRICT OF COLUMBIA 220 290 31.82% 1.27%
Montgomery County 2,545 2,760 8.45% 12.10%
Howard County 1,228 1,408 14.66% 6.18%
Prince George's County 3,154 3,111 -1.36% 13.64%
Frederick County 1,286 1,411 9.72% 6.19%
Charles County 659 590 -10.47% 2.59%
Anne Arundel County 2,437 2,282 -6.36% 10.01%
- ------------------- ------ ------ ------ ------
MARYLAND 11,309 11,562 2.24% 50.71%
Arlington/Alexandria 743 529 -28.80% 2.32%
Fairfax County 4,520 4,175 -7.63% 18.31%
Prince William County 2,420 2,472 2.15% 10.84%
Loudoun County 2,566 2,793 8.85% 12.25%
Stafford County 723 717 -0.83% 3.14%
Spotsylvania County 233 263 12.88% 1.25%
- ------------------- ------ ------ ------ ------
VIRGINIA 11,205 10,949 -2.28% 48.02%
REPORT TOTALS 22,734 22,801 0.30% 100.00%
</TABLE>
SOURCE: Housing Data Reports.
The previous chart indicates Charles County dropped its volume of new home sales
by 10.47 percent from 1995 to 1996. The Virginia market is much more volatile
and ranges from a decline of 28.8 percent in Arlington/Alexandria areas to an
increase of almost 9.0 percent in Loudoun County. The following chart further
breaks down the units sold during 1996, and the remaining unsold inventory.
-51-
<PAGE>
CURRENT MARKETING PROJECTS
SOLD/UNSOLD/REMAINING INVENTORY
DECEMBER 1996
<TABLE>
<CAPTION>
SINGLE-FAMILY TOWNHOUSE/PLEX
NUMBER OF NUMBER OF
YTD MONTHS YTD MONTHS
AREA SOLD UNSOLD UNSOLD SOLD UNSOLD UNSOLD
- ---- ---- ------ ------ ---- ------ ------
<S> <C> <C> <C> <C> <C> <C>
DISTRICT OF COLUMBIA 46 117 31 40 110 33
Montgomery County 1,239 3,095 30 970 1,765 22
Howard County 730 1,169 19 645 481 9
Prince George's County 1,919 5,502 34 1,063 1,729 20
Frederick County 813 2,529 37 415 916 26
Charles County 354 1,067 36 236 1,236 63
Anne Arundel County 814 954 14 1,071 1,649 18
- ------------------- ----- ------ -- ----- ----- --
MARYLAND 5,869 14,316 4,400 7,776 26
Arlington/ Alexandria 2 0 0 329 540 20
Fairfax County 1,442 1,795 15 1,759 2,339 16
Prince William County 1,180 2,359 24 1,107 2,633 29
Loudoun County 1,427 3,494 29 1,089 2,186 24
Stafford County 593 1,306 26 124 538 52
Spotsylvania County 157 684 52 106 437 49
- ------------------- ------ ------ -- ----- ----- --
VIRGINIA 4,801 9,638 24 4,514 8,673 23
REPORT TOTALS 10,716 24,071 8,954 16,559
</TABLE>
SOURCE: Housing Data Reports.
The chart presenting the remaining inventory throughout the Washington
Metropolitan Area begins to paint a very competitive picture. The previous chart
suggests that there are almost 1,067 single-family units currently available,
representing three years of inventory based on an absorption rate of
approximately 36 units per month. Ironically, Howard and Anne Arundel Counties
have the smallest inventories in comparison to the rest of the State of
Maryland, yet record the largest decline
-52-
<PAGE>
in overall sales. Of more concern, Charles County shows a substantial unsold
inventory of townhouse product (1,236 units) indicating over five years
absorption. In addition to a three-year inventory, Charles County has suffered
the largest differential between sales price and asking price for the 1996 (with
the exception of the District of Columbia).
SALES PRICE* VS. ASKING PRICE**
SINGLE-FAMILY
JANUARY - DECEMBER 1996
<TABLE>
<CAPTION>
SALES PRICE ASKING PRICE % DIFFERENCE
----------- ------------ ------------
<S> <C> <C> <C>
DISTRICT OF COLUMBIA 401,775 622,862 -55.03%
Montgomery County 321,481 355,368 -10.54%
Howard County 263,997 287,253 -8.81%
Prince George's County 204,835 216,732 -5.81%
Frederick County 211,431 217,062 -2.66%
Charles County 185,030 209,042 -12.98%
Anne Arundel County 225,360 254,504 -12.93%
- ------------------- ------- ------- -------
MARYLAND 235,356 256,660 -8.30%
Arlington/Alexandria 499,500 N/A N/A
Fairfax County 359,318 399,516 -11.19%
Prince William County 208,739 230,978 -10.65%
Loudoun County 242,179 264,540 -9.23%
Stafford County 165,515 176,061 -6.37%
Spotsylvania County 173,033 184,601 -6.69%
- ------------------- ------- ------- ------
VIRGINIA 229,757 251,139 -8.51%
</TABLE>
*Average Base Asking Price: A simple average of all available listed base
selling prices.
**Average Base Sales Price: The average of base asking price, as tracked by
model to model sales.
Source: Housing Data Report.
According to the 1995 Review by Housing Data Reports, the supply of lots and
prices are holding steady, causing builders to be a little more apprehensive
about carrying significant inventory. A second factor regarding lots suggests
that PUD's continue to be popular, with lot prices typically
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<PAGE>
commanding higher prices than non-PUD communities. This is an important factor
when considering subdivisions within the planned unit development of St.
Charles. Single-family lot prices in Charles County are typically between
$38,000 and $49,000 per lot, compared to the Suburban Maryland average of
$63,000 up to $91,500 per lot. Townhouse lots reportedly ranged from about
$29,000 up to $33,000 per lot compared to the Maryland average of $39,400 to as
high as $52,500 per lot. Again, this lot pricing reflects the affordability of
Charles County.
Housing Data further reports that as major regional and national builders enter
the Charles County marketplace, the tradeoff of "distance for dollars" advantage
over Prince George's County has dwindled in recent years. The Maryland Route 5
Corridor submarket (Waldorf and La Plata) account for 86 percent of the active
county projects. Although not generating large volume sales, the established St.
Charles PUD (Dorchester area) continues to offer steady absorption of units.
According to Housing Data Reports, the supply of lots and prices are holding
steady, causing builders to be a little more apprehensive about carrying
significant inventory. A second factor regarding lots suggests that PUDs
continue to be popular, with lot prices typically commanding higher prices than
non-PUD communities.
Direct competition for the subject property comes from about six communities in
and around the Dorchester neighborhood of St. Charles. The six housing
communities offer homes ranging from $139,900 to about $195,900. The most
prevalent range seems to be between $145,000 and $180,000. The communities
surveyed opened between 1987 and 1995, with no new subdivisions coming on line
in this price range in the past 12 months. Absorption figures range from a low
of below one unit per month to a high of over three units per month. The most
active communities are the Hallmark Series being built by Oakridge Housing (3.4
units per month) and Washington Homes at Dorchester, built by Washington Homes,
with an average absorption of 2.2. The Washington Homes project is in the
immediate proximity of the subject property and is a good indication of
anticipated absorption.
Indirect competition shows 11 single-family projects outside the planned unit
development of St. Charles. Average pricing is obviously a little higher,
ranging from $167,523 up to $208,485.
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<PAGE>
Average absorption is also higher at 1.93 units per month compared to 1.6 units
per month within the Dorchester area of St. Charles. The PUD developments
compared to non-PUD projects are generally a tradeoff between smaller lot size
and an abundance of community amenities versus larger lot sizes with limited
amenities. The lower pricing in the St. Charles area reflects the smaller lot
sizes.
A typical purchaser, such as a developer and homebuilder, would likely arrange a
lot take-down schedule aggressive enough to stay slightly ahead of actual home
sales. When assuming an absorption of about 2.5 to 3.0 units per month, it would
be reasonable for a homebuilder to want to stay one step ahead of the market and
not get "squeezed" on deliveries. Therefore, lot take-downs have been estimated
at about five units per month, for the 60 finished lots.
In summary, when considering the location, accessibility, the overall growth
trends in Charles County, zoning of the sites and recorded approvals of the
single-family lots both finished lots throughout the Dorchester Neighborhood, it
is my opinion that the highest and best use of these sites is to be developed,
as proposed, with single-family detached homes within price ranges similar to
the surrounding housing stock.
The following table summarizes the total number of new townhouse sales in the
county from 1992 to 1996. The data is broken down among the three submarkets
(Waldorf, La Plata and Indian Head) starting in 1992.
TOWNHOUSE SALES
<TABLE>
<CAPTION>
Submarket 1992 1993 1994 1995 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Waldorf 229 210 201 188
La Plata 35 40 25 37
Indian Head 0 47 38 38
-----------------------------------------------------------
Total 264 297 264 263 236
</TABLE>
-55-
<PAGE>
As indicated above, new townhouse sales have been relatively stable in Charles
County, ranging between 237 and 297 sales per year, however, the last year
showed a 10.26 percent decline. There were two extreme years (1988 and 1991)
when sales were 397 and 348 respectively, however, the last four years show a
slightly tighter range. Waldorf is by far the biggest townhouse submarket in
Charles County, accounting for 71 percent of the new townhouse sales in 1995.
As several townhouse subdivisions have completed sales of the bulk of their
inventory, others have opened the doors in 1996. In fact, even with the number
of projects remaining about the same (12), the remaining inventory has increased
substantially between 1995 and 1996 (58%). At year end 1995 Charles County
posted 263 net sales with 780 units remaining unsold; at year end 1996 net sales
were 236 with 1,236 units unsold. Obviously, competition has picked up
considerably and will likely lead to lower absorption figures in the foreseeable
future. This assumption is supported by the previous chart which indicates a
decline over recent years.
The next table summarizes the average monthly absorption per townhouse
subdivision in each of the three submarkets, as well as the overall average for
Charles County. The overall average remained relatively stable between 2.7 and
3.0 sales per month per subdivision in Charles County with the exception of
1995.
AVERAGE MONTHLY ABSORPTION PER SUBDIVISION
<TABLE>
<CAPTION>
Submarket 1992 1993 1994 1995 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Waldorf 2.86 2.92 1.86 2.09 1.47
La Plata 1.46 1.67 1.04 1.54
Indian Head 0 4.70 3.18 1.58 2.11
------------------------------------------------------------
Total 2.69 2.95 2.95 1.83 1.58
</TABLE>
The Waldorf submarket has been fairly stable during the 1992 -1995 period. The
Indian Head submarket is very new, but has showed impressive results in 1993 and
1994. La Plata is proving to be an inferior townhouse submarket due to its
location farther south in Charles County. La Plata is relatively far for
commuting purposes and is a small town surrounded by farms and woods. The
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<PAGE>
location and rural nature of La Plata is not particularly well suited for
townhouse development. The sales pace in La Plata has been relatively low over
the past three years.
Direct competition for townhouse units in Charles County currently consists of
seven projects, summarized on the facing page. Only one of these projects is in
St. Charles. Huntington Ridge is situated in the Smallwood Village of the St.
Charles PUD and has recently opened with six units sold in 1996. The overall
absorption rate indicated is one unit per month, considered low for competitive
townhouse projects as compared to other developments available in Charles
County.
Overall, according to Housing Data Reports, at year end 1995 Charles County had
sold 263 units with 780 remaining unsold at an estimated 36 months for
absorption. In 1996, only 236 townhouse units transferred in Charles County and,
as a result of new townhouse developments, 1,236 units remain unsold with an
estimated absorption of over five years (63 months). Obviously, attracting
potential townhouse purchasers to any one development has become very
competitive.
In recent years, the supply and demand factors within the townhouse market in
Charles County appeared to be in equilibrium. However, the supply side factor is
now the dominant force and now reflects a very competitive market where prices
and absorption rates are likely to remain stable (or slightly decline) in the
foreseeable future.
Overall, given the builders' experiences, lot widths, location, current and
future competition and other factors, an average absorption rate of 2.5 to 3.0
sales per month is expected for the subject townhouses. This absorption rate is
predicated on an expected base price level of $115,000 to $120,000 for the
townhouses built at the subject property. This price level correctly positions
the subject townhouses in relation to nearby competition and provides for a
reasonable sales pace.
In summary, when considering the location, accessibility, the overall growth
(population and employment) trends in Charles County, zoning of the site,
recordation approvals and the character of the immediate area, it is my opinion
that the highest and best use of the subject site is to be developed as proposed
with single-family attached homes.
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<PAGE>
RAW ACREAGE
POMFRET AND MIDDLETOWN PARCELS
The subject parcels are situated within a suburban area, near employment and
population centers, with development demand for vacant land. The Charles County
Comprehensive Plan actively encourages most residential and commercial
development to take place in the northern portion of the county, in and around
Waldorf.
Nearly all housing growth in Charles County is occurring in the Development
District, as outlined by the 1990 Comprehensive Plan. According to the plan, 75
percent of all growth is designated to occur in this district. However, 1995
totals estimate that development in these areas will exceed 90 percent. The
Middletown and Pomfret properties ares located adjacent to St. Charles and are
within the same census tract and election district. From 1990 through March
1995, 64 percent of new home construction has been in Election District Six. As
the neighborhoods of St. Charles complete construction, demand for residential
housing is pushing into the surrounding areas. Specifically, new home
development is underway and planned along Billingsley Road, Middletown Road and
Berry Road west of U.S. Route 301. Demand for new homes is not expected to
exceed supply, however, as abundant vacant land is available and utilities are
being expanded to serve development. Overall, the elements of supply and demand
are expected to remain in balance, as new communities will likely come on line
only as needed to serve demand for new housing.
As IGC finishes the portion of St. Charles west of U.S. Route 301, demand on
this side of Waldorf will likely be met by nearby subdivisions outside the PUD.
The next planned PUD to be located west of U.S. Route 301 is Chapman's Landing
located on the west side of Indian Head Highway and Bryan Road. This planned
subdivision will contain approximately 3,000 acres and will be developed with a
mix of residential (single-family and townhouses) and commercial development.
According to the Charles County Department of Planning & Growth Management, the
first phase consisting of 330 acres and 576 lots has been approved through the
preliminary planning stage. Of the 576 residential lots, 403 are designated
single-family and 103 for townhomes.
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<PAGE>
The two parcels are well located to serve this demand, but other properties can
be developed sooner, including Vest's Berry Valley located to the immediate
northeast of the subject North Assemblage. Overall, the subject is within the
expected path of development, and is convenient to neighborhood recreation,
shopping, employment and highways. Development will likely be feasible once
utilities are made available in three to five years. The highest and best use is
to hold these sites until development becomes feasible, and then develop with
single-family homes.
FAIRWAY VILLAGE, WOODED GLEN AND PINEY REACH
There are several remaining villages to be developed in the St. Charles PUD.
Fairway Village has received preliminary subdivision approval and is
anticipating to begin development on the first of two neighborhoods. This first
phase of development will include 400 single-family and townhouse lots. Fairway
Village will also contain commercial and industrial development in the form of a
118-acre industrial park to be located on Billingsley Road west of Charles
Parkway and neighborhood commercial centers for the retail needs of the
neighborhoods.
Dictated by the PUD zoning ordinance, development of a village can only begin
when the previous village is 85 percent completed. Westlake and Smallwood
Villages, the first two to be developed, are 90 percent or more completed as of
December 31, 1996.
As discussed previously, there is a tremendous amount of new residential
development (of which the subject is part) in the pipeline for Charles County.
Within the development district, as of year end 1996, there are 37 proposed
subdivisions with over 3,800 acres of land available for the development of
8,767 residential lots. This represents roughly 12 years worth of inventory
based on previous data from Housing Data Reports regarding sales of single-
family and townhouse product. These figures are only preliminary plan
subdivisions and don't include the final plat projects of 1,744 acres (3,167
lots).
Wooded Glen and Piney Reach will be the last two villages to be developed IGC.
These villages would not begin development until sometime after the Year 2000.
To date there is no preliminary plan for these villages. However, within these
two villages are five parcels totaling approximately
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<PAGE>
578.333 acres which are not zoned PUD but R-L, low to medium density
residential. These parcels have access from Maryland Route 488 and Piney Church
Road. Theoretically, these parcels could be developed today as the PUD
restrictions are not binding even though they lie within the PUD itself.
However, to develop these parcels separately would entail substantial
infrastructure costs including widening existing roadways, new spine roads,
bringing utilities, and water and sewer lines to the sites. Because development
feasibility is not in the foreseeable future, I believe it is in the best
interest to develop these five parcels with their respective villages when the
appropriate time comes. I also believe that at the time of development these
parcels will be annexed into the PUD so they enjoy all the amenities afforded
the previous villages.
The three remaining village are well located within the southeastern portion of
St. Charles with Fairway Village the next to come on-line to serve the demand of
this PUD. As discussed earlier, there are several properties outside the PUD and
within the development district which will be developed sooner. Overall, the
remaining villages are within the expected path of development, and are
convenient to neighborhood recreation, shopping, employment and major highways.
Fairway Village, which has received preliminary plan approval, will likely begin
development in 1997 while the remaining villages will not be developed until
Fairway Village is 90 percent complete. Therefore, the highest and best use is
to hold these sites until development becomes feasible, and then develop with a
mixture of residential and commercial.
INDUSTRIAL LAND
Charles County is home to eight primary industrial parks: Acton Lane Industrial
Center, St. Charles Business Parks (North and East), White Plains Commerce
Center, Pika Industrial Center, DeMarr Road Business Park, Southern Maryland
Trade Center and the Hughesville Industrial Park.
Industrial activity in the Waldorf area is primarily concentrated in the St.
Charles Industrial Park, along Post Office Road. The park includes Business
Parks North and East (Henry Ford Circle). Owner user buildings account for at
least 70 percent of the industrial inventory, with the remaining space multi-
tenant and speculative space. Large contiguous areas are limited since the
immediate market caters to smaller users. Limited activity has occurred over the
past five years.
-60-
<PAGE>
On the facing page is a list of industrial sales occurring from as early as
December 1987 through 1996. The past five years, starting from 1992 to the
present, reflects an annual absorption of 6.27 acres per year at an average
price per square foot of $1.96. The subject property has 24 acres available in
Business Park East and 17.92 acres available in Business Park North, for 42
acres of finished industrial ground. Based on industrial activity and the
historical absorption of land for industrial uses throughout Charles County, an
eight-year sellout has been estimated at 5.25 acres per year.
Market analysis reports have been performed with data provided from Teleres RE-
Search, indicating 519,700 square feet of industrial and flex space in Charles
County. Statistics on this type information may differ significantly depending
upon the source. Current vacancies for both types of space are pretty low, if
one extremely poorly designed and executed project is excluded.
Teleres indicates an industrial vacancy rate of 6.0 percent, with only one
available space over 10,000 square feet. Most of the vacancies are small bays of
only 1,500 to 5,000 square feet. Brokers report an even lower industrial vacancy
of two percent if owner-occupied and build-to-suit space is included. Brokers
also report that users regularly express interest in Charles County, but often
on an immediate-need basis. Several users have recently looked for 5,000 to
20,000 square feet of space needed quickly, but none is available; in several
cases, the users went to Prince George's County where space is available.
Charles County was preferred for cost and lifestyle reasons, but the users did
not want or were unable to commit to a build-to-suit.
Brokers suggest that spec industrial space would be quickly filled. Recent rents
have been in the $5.00 to $6.00 range (triple-net) for newer modern warehouse
and distribution space. Montgomery Ward is going to occupy a build- to-suit
35,000 square foot warehouse (with almost no office build-out) in St. Charles
Business Park at $5.60 per square foot.
Teleres indicates a high vacancy rate of 20.0 percent for flex product, but
32,500 out of the total 48,050 square feet of vacant space is in the Park
Waldorf complex. This project was built in 1989 and has never leased above about
50 percent. Poorly planned, with terrible access and visibility, the vacant
space at Park Waldorf is not reflective of the market. If this project is
excluded from the
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<PAGE>
SUMMARY OF INDUSTRIAL LAND SALES
<TABLE>
<CAPTION>
==============================================================================
Location Date Size(SF) Price $/SF
==============================================================================
<S> <C> <C> <C> <C>
Pike Industrial Park-Lot3 Oct-96 65,340 $ 100,000 $1.53
DeMarr Road Ind.-Lots 11&12 Aug-96 129,373 $ 342,000 $2.64
DeMarr Road Ind.-Lot 24 Aug-96 86,249 $ 85,000 $0.99
Paul Mellon Ct.-Lot 15J Mar-96 42,465 $ 90,000 $2.12
Rockefeller Ct.-Lot 12K Sept-95 43,560 $ 100,000 $2.30
Middle Business Park-Lot C2 Jul-95 130,680 $ 261,360 $2.00
Henry Ford Circle-Lot 15 Feb-95 47,480 $ 128,000 $2.70
Post Office Rd/Ind.Park Dr. Sep-94 82,764 $ 198,634 $2.40
26 Henry Ford Circle Feb-94 69,696 $ 174,240 $2.50
Middle Business Park-Lot B1 Feb-94 217,800 $ 450,000 $2.07
Industrial Park East -Lots 25 & 2 Jan-94 89,472 $ 174,240 $1.95
Post Office Rd.-Par. 289 & 465 Mar-92 317,160 $ 447,000 $1.41
White Plains - Par. R-2 Aug-92 43,778 $ 125,000 $2.86
White Plains - Par. 23 Dec-91 64,904 $ 126,017 $1.94
Mellon Court-Par.678 Aug-91 41,818 $ 115,000 $2.75
Rockefeller Ct-Lot 12K Dec-90 43,560 $ 125,000 $2.87
Mellon Court - Par.15 Jun-90 219,978 $ 544,500 $2.48
Henry Ford Circle Apr-90 39,352 $ 117,612 $2.99
Acton Mill Rd.-Lot 2 Mar-90 441,102 $ 217,800 $0.49
W/S Old Wash Rd.-Par 754 Mar-90 81,814 $ 346,569 $4.24
Mellon Court - Lots 15C-G Jun-89 219,856 $ 544,500 $2.48
Rockefeller Ct.-Par.10,12&14 Apr-89 175,111 $ 437,778 $2.50
--------- ---------- -----
2,693,312 $5,250,250 $1.95
</TABLE>
<PAGE>
market, the indicated vacancy rate drops to 9.2 percent. Much of the available
space is in older buildings that do not suit modern flex users. Still, this
product is not in terrific demand in Charles County. Unlike other Washington MSA
counties, where flex space is often used as a low- cost alternative for office
space, office rents in Charles County are reasonable, and users do not have to
settle for flex buildings.
Absorption is difficult to project due to the consistent lack of available
space. As indicated previously, finished industrial sites have been bought at an
average pace of 7.7 acres per year. Based on a reasonable FAR of 0.35, one can
extrapolate a build-to-suit and owner-occupied demand for 120,000 square feet
per year over the past six years. If spec space had been available, there might
have been less user-oriented development, but probably more overall development.
Brokers suggest that the industrial market is very strong, with consistent
demand and reasonable rents.
There is considerable inventory of finished industrial lots in the county. IGC
has 30 finished lots totalling 45.0 acres within the St. Charles Business Park.
There is one remaining lot of 0.7 acres in the Waldorf Business Park off Acton
Lane. The Pika Industrial Center, off Maryland Route 5, has six finished vacant
lots totalling 12.9 acres. Moving south, there are five finished lots in the
White Plains/DeMarr parks totalling 9.8 acres. Further south, south of La Plata,
the La Plata Business Park (also known as Southern Maryland Trade Center) has
been a dismal failure, with only one improved lot out of 13 finished sites. The
12 vacant lots total 32.2 acres, with another 56 acres of net lot area ready for
development should the need materialize. There are 12 finished industrial sites
in Hughesville east of La Plata totalling 36.5 acres.
In total, there are 66 vacant finished lots within industrial parks in the
county. The total combined acreage is 137.1 acres. It would appear that there is
an oversupply of finished industrial lots in the county, representing an 18 year
supply based on recent absorption. Some of the lots are located in areas where
there is no more sewer capacity, however, restricting use and development of the
sites. Industrial land in White Plains, for example, cannot be served with
public sewer due to overcapacity. All of the St. Charles and La Plata lots have
sewer capacity.
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<PAGE>
Most of the parks were developed in the 1980's with prices of $3.00 to $4.50 per
square foot in mind. Industrial land prices have declined to the $2.20 to $2.50
range in Waldorf, and even lower elsewhere. It is my understanding that it is
not economically feasible to develop an industrial park, where development costs
normally total $1.25 per square foot (plus the cost of the land, marketing,
costs of sales, etc.), and sell lots for less than $3.50 to $4.50 per square
foot.
Some very large distribution users have looked in Charles County, but have
wanted sites with direct access to U.S. Route 301, not sites away from U.S.
Route 301 like in the St. Charles parks. I would expect that this demand will be
met in Brandywine, however.
It is apparent that business park development is not economically feasible for
either office or industrial uses, due to existing finished lot inventories and
finished lot prices. Development of buildings, however, appears to be a
possibility, based on demand, current rents and finished site values. Most of
the demand is, again, in the Waldorf area, with access to U.S. Route 301 a
primary consideration. Sites available in the Waldorf area feature pretty
reasonable access.
The subject property also includes 118.74 acres of raw land designated for
industrial use in the Fairway Village section of St. Charles. This section
presently suffers from circuitous access, however, it has been reported that
financing has become available for the connection of Billingsley Road to U.S.
Route 301. This connection would significantly enhance the demand for this
parcel and large users would likely be targeted.
In summary, the industrial sites appear to be physically buildable, based on a
visual inspection and the preliminary plans, as prepared by the engineers,
Whitman, Requardt & Associates. Legally, the parcels are zoned PUD and adhere to
the individual requirements of Charles County for planned unit developments.
Middle Industrial Park, located in Fairway Village, will be the next industrial
park to be developed. However, until the inter-connector highway, Billingsley
Road, is completed, the industrial sites located off of Post Office Road will
have a location advantage for accessibility. The sites' location in St. Charles,
with immediate access to U.S. Route 301 and many commercial and
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residential supporting uses, is a primary advantage. As vacant, the highest and
best use of the subject sites is for the development of light industrial uses,
with a mix of owner-occupied and speculative properties.
COMMERCIAL LAND
RETAIL MARKET ANALYSIS
Contrary to commonly held beliefs, Charles County residents feature high
household incomes, as indicated in the following table. The average and mean
household income is higher than in neighboring Prince George's County (as well
as state- and country-wide) and similar to the Washington MSA figures. Tapping
into this high household income are numerous retail centers located along U.S.
Route 301 in Waldorf. There is relatively little retail space in the county
outside of Waldorf. Small commercial areas are established in La Plata and
Bryans Road, but the vast majority of retail space in the county is in Waldorf.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
EMPLOYMENT INCOME & RETAIL SALES
- --------------------------------------------------------------------------------
Charles P. G. Washington State of United States
County County MSA Maryland
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 Average HH Income $58,609 $56,839 $60,326 $55,908 $45,793
- --------------------------------------------------------------------------------
1996 Median HH Income $52,680 $49,143 $48,304 $44,954 $34,981
- --------------------------------------------------------------------------------
Unemployment Rate (9/96) 3.3 % 4.9 % 3.8 % 4.9 % 5.0 %
- --------------------------------------------------------------------------------
Unemployment Rate (9/95) 3.8 % 5.3 % 4.2 % 5.2 % 5.4 %
- --------------------------------------------------------------------------------
Retail Sales per Capita $10,292 $10,185 N/A N/A N/A
- --------------------------------------------------------------------------------
Average Commute to Work 40 34 31 30 25
(Minutes)
- --------------------------------------------------------------------------------
</TABLE>
The Waldorf retail supply draws business from a broad area, although local-
oriented retail draws from a radius which would incorporate the Waldorf area
population of approximately 67,329. Numerous retailers draw from a much broader
area, incorporating Charles County as a whole with a population of 121,566, plus
St. Mary's County to the south, Calvert County to the south and east,
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the southern parts of Prince George's and Anne Arundel Counties to the north,
and King George and Westmoreland Counties in Virginia, accessible from the U.S.
Route 301 Bridge. According to the Simon Group, who manages the St. Charles
Regional Mall, their primary and secondary trade areas contain 250,000 persons.
The most recently-constructed centers include the St. Charles Towne Center Mall
and the St. Charles Town Plaza, both developed by Melvin Simon & Associates; the
Festival at Waldorf, developed by the Trammell Crow Company; Acton Commerce
Center, developed by Furman Associates; Waldorf Plaza, developed by Douglas
Development Corporation; Tower Plaza Shopping Center, developed by Mr. Vagheri;
Washington Square, developed by Hugo DeCesaris; Pinefield South Shopping Center,
developed by the Rappaport Companies; Waldorf Business Park, developed by
Foundus Century 21 Realty; Charles Station at Waldorf, developed by L. K.
Farrall Realty; Pinefield Shopping Center, developed by the Besche Oil Company;
St. Patrick's Inn, developed by Barrett-Kret Development; and the Route 301
Shopping Center, developed by Uniwest Realty, Inc.
According to knowledgeable brokers at Baldus Real Estate and L.K. Farrell, the
two major brokerage firms active in Charles County, the overall retail vacancy
in the county is approximately seven percent. Smail Associates conducted a
detailed vacancy analysis as of January 1996, which indicated an overall retail
vacancy rate of 10.2 percent in Waldorf. The brokers confirmed that occupancy is
up from a year ago. Most of the vacancy a year ago was in the mall, Festival at
Waldorf, Waldorf Shoppers World and various smaller centers. Occupancy gains
have occurred at each of the above named centers, and retailers are reporting
improved gross sales.
The lingering vacancy is in older centers that are constrained to adapt to the
needs of retailers that are active in locating or expanding in Waldorf. Smaller
centers also indicate higher than average vacancy, in most cases due to poor
visibility, poor access or a lack of anchors that draw customers. One would
suspect that Waldorf must be saturated from a retail standpoint. After all, with
an inventory of approximately 3.8 million square feet (including freestanding
stores), there is 36.1 square feet of retail space for each resident of Charles
County. This ratio is higher than the generally accepted "in balance" ratio of
17 to 25 square feet per person. The considerable market range of the
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<PAGE>
Town Center Mall greatly expands the market area, as indicated by the owner's
reported market area population of 250,000.
Brokers report that major retailers continue to look at Waldorf for new or
expanded facilities. Wal-Mart plans to add 40,000 square feet to their 100,000
square foot store due to demand that is greater than projected. K-Mart has
expressed interest in building a modern, larger store (or expand if possible) to
replace their outdated 60,000 square foot store. Other "currently-hot" retailers
such as Sports Authority, Border Books and Best Buy are actively looking for
sites or centers that can accommodate them. Although preferring to be as close
to the mall as possible, but not south unless necessary, these retailers are
reportedly looking northward on U.S. Route 301.
St. Charles Towne Center is a 1.1 million square foot facility which opened in
March 1990. As stated in the October 11, 1991 Corridor Real Estate Journal,
"more than five million people visited the mall in the first year and the
tenants realized $329 in sales per square foot, 24 percent higher than the
national average for malls. Attributing to this success is its location of
approximately 250,000 people residing in a 30-mile radius." After the opening in
1990, sales declined during the early 1990's recession to about $280 per square
foot. Gross sales at the mall are reported to be back up to about $315 per
square foot.
"Ground central" for retail use is the area around the regional mall. A very
strong merchant can achieve success away from the mall, but most stores prefer
to be in close vicinity to the mall. With little vacant land left near the mall,
some retailers are now taking harder looks north of Route 228 (Berry Road). Once
thought to be too far from the mall, some retailers are suggesting that enough
development has occurred that this north area is becoming very attractive.
Specifically, Wal-Mart, Lowe's and Sam's Club have been successful in the north
end of town.
The area south of the mall has not traditionally been as attractive for retail
development, although again, perhaps a very strong retailer can pull traffic
south of the Smallwood Road intersection. According to brokers, physical
limitations and owner reticence have limited development south of St. Charles
Towne Plaza. There are also factors associated with sewer extensions to some
sites south of Smallwood Road.
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<PAGE>
A survey of commercial land sales has been performed, indicating almost 16 acres
absorbed per year for the past five years. Most of the land was for freestanding
big box users, as opposed to multi-tenant strip centers. Given the continued
interest in Waldorf, especially in light of expected population gains
(particularly the high-paid government and contractor employees that will
relocate to PAX) in all three Southern Maryland counties, continued retail
growth can be expected.
Brokers report that retailers (both stores and restaurants) consistently report
high sales volumes in Waldorf. In many cases, Waldorf stores are in the top 10
percent of the country in terms of sales volumes, a clear indication of the
disposable income and large market area enjoyed by the Waldorf retail market.
Future retail land absorption of 15 acres a year can be expected over the next
several years, based on recent trends. At a typical FAR of 0.22, total annual
GBA development of about 140,000 per year is indicated for Waldorf. Typical
prices for sites over two acres have been in the $5.00 to $7.50 per square foot
range.
The above absorption figure does not include smaller prime pad sites which have
typically transferred for $250,000 to $600,000. In addition to outright sales to
users, others have been improved with restaurants, banks and gas stations on a
rental basis with ground rent (or building rent) paid to the land owner with no
sale transaction. Brokers report that restaurants are crowded and generating
sales volumes exceeding owners' projections in most cases.
The inventory of vacant commercial land includes several large sites that are
vacant or improved with old motels or commercial uses along U.S. Route 301.
Interstate General Corporation (IGC) also has numerous commercial sites located
off U.S. Route 301 that could be developed with most commercial uses, including
retail. In total, IGC has over 200 acres of finished or nearly-finished
commercial sites that could legally be developed with office, service or retail
uses. Most of the finished lots are located away from U.S. Route 301 in the
vicinity of the mall, with others located within the Westlake and Smallwood
Villages.
Beyond Waldorf, there is expected to be limited demand. La Plata, in particular,
is viewed as a small tertiary market that is suitable for convenience-type
retail use (groceries, dry cleaning, drug store, bank) only. A new center was
just delivered (next to the Food Lion supermarket), and five out of
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15 bays are leased. Brokers report that rents are only about $10.00 to $12.00
triple-net, however. Population growth in and around La Plata is expected to
occur, however, allowing some potential for additional demand.
Bryans Road is an area of the county that is perhaps better suited for
additional retail development, particularly over the next five to ten years.
Anywhere from 2,000 to 8,000 new homes are expected to be developed in the
Bryans Road area over the next ten years or so. A small amount of commercial
development is present along Indian Head Highway, centered around the Indian
Head Highway/Marshall Hall Road (Maryland Route 227) intersection. Commercial
development at this location consists of a community shopping center anchored by
a supermarket and drug store, a freestanding supermarket, two fast-food
restaurants, two gasoline service stations and scattered freestanding commercial
and service buildings.
Recent development in the immediate subject neighborhood includes a McDonald's
fast-food restaurant, a Food Lion supermarket and a freestanding restaurant.
Brokers report that two banks intend to open branches in Bryans Road in the near
future.
Away from the Route 210/227 intersection, the Bryans Road neighborhood quickly
turns agricultural and residential, with farms, woods and scattered single-
family detached residential subdivisions. The Town of Indian Head is located
approximately five miles southwest of Bryans Road on the shores of the Potomac
River. The U.S. Naval Surface Warfare Center is located to the immediate west of
Indian Head on a peninsula that juts out into the Potomac River.
The U.S. Naval Surface Warfare Center is the main employer in Western Charles
County, employing 3,848 workers. Fortunately for Western Charles County, the
Indian Head Navy Warfare Center is actually benefitting from the recent military
base closing legislation that is taking effect over the next several years.
Approximately 3,000 employees are scheduled to be placed at Indian Head,
transferred from other Navy facilities.
The total population in the relatively large Bryans Road area is 15,059 people,
indicating a density of 0.37 persons per acre. There are a total of 5,474
dwelling units within the two election districts
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that make up this area, indicating a density of 0.14 dwelling units per acre.
The following figures summarize the official county projections for Bryans Road:
BRYANS ROAD DWELLING PROJECTION
<TABLE>
<CAPTION>
YEAR NO. DWELLING UNITS ANNUAL INCREASE
---- ------------------ ---------------
<S> <C> <C>
1990 5,474 --
2000 6,912 2.4%
2010 8,431 2.0%
</TABLE>
The Charles County Planning Department projects that the number of dwelling
units will steadily increase in Election Districts 7 and 10 to 6,912 in 2000 and
8,431 in 2010. Although the numbers are relatively small, the annual percentage
increase is healthy. The number of dwelling units is expected to increase by 2.4
percent on an annual compounded basis between 1990 and 2000, followed by a 2.0
percent increase between 2000 and 2010.
It is likely that these numbers are extremely conservative, as two large planned
developments are proposed for the area between Bryans Road and Indian Head.
Chapman Landing has been on the drawing board for years, but now a developer is
proceeding through the planning stages and hopes to get underway within the next
year. Chapman Landing is a 2,200-acre site proposed for a mixed-use planned
community containing 2,000 townhomes, 2,000 single-family homes, 90 acres of
commercial land, a golf course and recreation and schools.
The community has garnered considerable controversy, with opponents citing
concerns regarding the Potomac River, availability of drinking water, sewage
capacity and traffic congestion. The property developer keeps winning most
battles, and it is likely that development will eventually get underway at
Chapman Landing, but the timing is difficult to predict. Reports are surfacing
that another large 2,000 unit community is being planned in the area, as well.
The convenient highway access north on Route 210 is a primary factor in the
attraction of the Bryans Road area for residential development. New rooftops
should, in turn, provide demand for additional commercial development beyond
what currently exists.
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<PAGE>
Zoning is an issue in Bryans Road, but not a significant hindrance, according to
developers and brokers. There is virtually no vacant commercial-zoned land in
Bryans Road, and it appears that commercial zoning has been granted on a spot
basis to accommodate development. Market participants report that the county
government would likely look favorably upon rezoning in the Bryans Road area for
quality commercial uses on a demand-driven basis.
Based on the expected population growth in the western part of the county,
industry guidelines suggest that demand for an additional 180,000 to 200,000
square feet of retail space will be generated. Not all of this will be built in
Bryans Road, however, as much shopping by Bryans Road residents will take place
in Waldorf. Some portion can be served by local retailers, however, keeping
dollars in the neighborhood.
OFFICE MARKET ANALYSIS
The Waldorf office market caters predominately to small tenants. Large office
buildings in Charles County are rare and most office space consists of small
complexes. According to a market analysis extracted from the Teleres RE-Search
data base, Charles County currently has 20 buildings totalling 825,270 square
feet, with an overall vacancy factor of 4.40 percent. This vacancy rate is down
substantially from 9.51 in the fourth quarter of 1995 and 11.99 in the fourth
quarter of 1994. An additional 260,000 square feet is proposed in four
buildings, which will be built only if demand is sufficient.
Full-service office rental rates in the newest and best buildings typically
range from $16.00 to $18.00 per square foot, with older buildings mostly in the
$10.00 to $14.00 range. Office rents have increased by about $2.00 per square
foot over the past year, reflecting the tightening market. The drop in vacancy
is due to positive net absorption of 43,113 square feet over the past 12 months
and 18,769 square feet during the preceding 12 months.
Some demand for office space is being driven by defense contractors working with
the Patuxent Naval Warfare Center in Lexington Park. To accommodate some
Washington-area employees that do not wish to move, some contractors have looked
in Charles County rather than closer to the base
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in St. Mary's County. Brokers report at least one ratified lease and several
other companies looking for office space. It is likely that the shortage of
available space will add continued upward pressure on rents.
Charles County is not recognized as an established office submarket. Development
typically occurs on a demand-driven basis on a build-to-suit basis or with
significant pre-leasing. Very little development has occurred since 1991 due to
high vacancies and rents lower than the level needed to economically support
development of new space. The appraiser has run calculations that indicate that
rents must be about $19.00 or $20.00 to economically support development of an
average quality office building. After several years of rents that were nowhere
near that level, the market is improving to where such rents may be possible in
a new building.
Brokers report the office market to be somewhat undersupplied. It was rumored
that developers are planning two new buildings in St. Charles to test the
market. Even though vacancies have decreased and rents have increased, it is
still a small market that can easily be overdeveloped. Spin-off demand from the
two nearby naval bases may provide some basis for new space, but requirements
are typically pretty precise in terms of leased area and start and stop dates.
Medical office is also in balance. Additional medical buildings are proposed
along Route 925 when demand and rents make development feasible.
In terms of location, Waldorf is the primary area for nearly any type of office
development in the future. Again, the area near the mall is the favored
location, and IGC has a considerable inventory of finished and not-yet-finished
sites in this location. Brokers mention that La Plata has possibility for
defense contractors who do work at all three of the nearby military
installations: PAX in Lexington Park (St. Mary's County), Naval Surface Warfare
Center (Indian Head (western Charles County) and Dahlgren Naval Weapons Center
(King George County, Virginia directly across U.S. Route 301 bridge). The size
of this market is not known, but some companies have expressed interest in a La
Plata location.
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THE VALUATION PROCESS
There are typically three accepted approaches to valuation. These approaches are
the cost approach, the sales comparison approach, and the income approach.
The cost approach involves five steps in arriving at an estimate of value. The
first step is to estimate the value of the land as if vacant and available for
development to its highest and best use. The next step is to estimate the
reproduction or replacement cost of the improvements as of the date of this
appraisal. The third step is to estimate any accrued depreciation for physical
deterioration, functional obsolescence, or economic obsolescence.
The next step is to subtract the accrued depreciation from the reproduction cost
new (RCN) to arrive at the depreciated reproduction cost new of the
improvements. And finally, the last step is to add the depreciated value of the
improvements to the estimated land value, resulting in an estimated market value
by the cost approach. The cost approach is appropriate in the valuation of
improved properties, particularly when the building is relatively new. This
report does not include any improved properties, therefore, this approach has
not been employed.
The sales comparison approach compares recent sales of similar properties to the
subject property. Each sale is adjusted to reflect any dissimilarities as
compared to the subject property. The sales comparison approach is generally
pertinent in the valuation of all real estate since it interprets the actual
behavior of buyers and sellers in the marketplace. This is particularly true
when ample and adequate comparable sales data can be found within the market
area for equal substitute properties. The sales comparison approach has been
utilized to estimate the retail value of finished single-family and townhouse
lots, the apartment site, all raw acreage, the commercial and industrial land
parcels.
The income approach measures the quality, quantity, and durability of a
property's income stream and is very important in the valuation of income-
producing properties, as they are typically purchased for investment purposes.
This approach is comprised of several related techniques and procedures that are
designed to produce a convincing and reliable estimate of value. In one way or
another, all income approach techniques attempt to accurately forecast future
benefits and calculate
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the present value of the benefits to a typical investor. Vacant land and
improved residential properties are not generally thought of as income-producing
property, so the income approach has not been used in this appraisal.
The "as is" market value for the 60 finished single-family lots in Dorchester;
the first phase of the Sheffield Neighborhood in Fairway Village (400 single-
family and townhouse lots), and the 98 remaining townhouse lots (Huntington
Ridge) located on Post Office Road, have been estimated by a valuation technique
known as the subdivision analysis method. This method has also been employed to
determine the appropriate market value of the finished industrial and commercial
sites.
The subdivision analysis approach is a hybrid of the cost, sales comparison and
income approaches in which the present value of the property is estimated by
projecting periodic income from the sale of finished lots; subtracting land
development costs, costs of sales, carrying costs and profit; and discounting
the resultant periodic cash flows to provide an indication of present value.
In accordance with the definition of market value, the valuation of the subject
property is intended to estimate the market value of the property as it exists
on the date of appraisal to one purchaser. A likely purchaser would be a
developer who would take over the project, complete the necessary on-site
infrastructure (if required) and either sell finished lots to homebuilders or
construct and market homes on the finished lots. For industrial and commercial
lots, sales would typically be to end-users.
The first Valuation section is the Estimate of Finished Lot Retail Value, in
which I have estimated the retail value of finished single-family and townhouse
lots. This valuation provides a basis for the market value estimate.
The next Valuation section, Estimate of "As Is" Market Value, calculates the net
present value of a net income stream over the projected lot sellout period based
on the retail value of finished lots, the projected absorption of finished lots
estimated in the Highest and Best Use section, and making deductions for
installation of infrastructure, costs of sales, administrative costs, real
estate taxes and an appropriate entrepreneurial profit.
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<PAGE>
The second half of the Valuation section will focus on the remaining subject
land to include: Raw Acreage - Outside PUD (Middletown and Pomfret Properties);
Fairway, Wooded Glen and Piney Reach Villages; Industrial Land - Finished Sites
(Business Parks North and East); Raw Land (Middle Industrial Park), and
Commercial Land - Westlake and Smallwood Village Parcels. These parcels will be
valued by the sales comparison approach using the most comparable data to arrive
at an "as is" market value estimate per land use. The retail values for the
industrial and commercial sites will then be implemented into a subdivision
analysis format for market valuation.
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<PAGE>
ST. CHARLES RESIDENTIAL LAND
REMAINING INVENTORY
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
================================================================================
NO. OF GROSS
USE NEIGHBORHOOD PARCEL LOTS ACRES
================================================================================
<S> <C> <C> <C> <C>
SINGLE-FAMILY
Dorchester A 3 0.40
Dorchester B 16 2.43
Dorchester D 1 0.21
Dorchester G 2 0.43
Dorchester H 9 1.76
Dorchester L 2 0.37
Dorchester N 26 5.21
Dorchester P 1 0.12
- ----
TOTAL SF LOTS 60 10.94
AVERAGE LOT SIZE (SQUARE FEET) 7,934
TOWNHOUSE
Smallwood 20A, 4B &C 98 15.86
BULK LAND (RAW)
Fairway Village 1,287
Wooded Glen 2,047
Piney Reach 1,392
Pomfret Assemblage 812
Middletown N/A Parcels 374
---
TOTAL RAW LAND ACRES 5,912
</TABLE>
<PAGE>
ESTIMATE OF FINISHED LOT RETAIL VALUE
The sales comparison approach has been used to estimate the retail value of the
vacant subject lots as if all infrastructure were completed as of the date of
appraisal. The best procedure in the valuation of unimproved sites is usually
the sales comparison approach. This approach is considered the most practical
and reliable approach in the valuation of unimproved sites when adequate and
verifiable land sale data is available because each transaction is a reflection
of the market and the actions of buyers and sellers in the marketplace. The
abstraction (or allocation) procedure and the land residual procedure are
typically used only when no meaningful comparable sales data is available.
Recent sales of finished lots have been researched to arrive at estimates of
retail value for finished lots at the subject property. For the development of
the subdivision analysis approach, the subject lots are valued as if in a
completely finished state as of the date of appraisal, ready for sale to
homebuilders.
The chosen finished lot sales were the most comparable and representative of the
value of the subject lots as if finished. The sales are presented in
chronological order, with the most recent sales first.
The remaining 60 finished lots in Dorchester have an average size of almost
8,000 square feet. On the following facing pages are summaries of recent
transfers of finished single-family lots which have been used to estimate the
retail value of the subject lots as if finished. The unit of comparison employed
in estimating the value of the subject lots is the price paid per finished lot.
Finished lots are typically contracted in bulk, but purchased piecemeal in
periodic "take-downs" by homebuilders. The unadjusted unit price for the
comparable sales (most recent take-down) ranges from $35,672 to $48,000 per lot.
60 FINISHED LOTS (THROUGHOUT DORCHESTER NEIGHBORHOOD)
Adjustments to each of the comparable land sales have been considered for
dissimilarities as compared to the subject property. The first possible
adjustment is for property rights transferred;
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<PAGE>
FINISHED SINGLE-FAMILY LOT SALES
Dorchester Subdivision
60 FINISHED LOTS
<TABLE>
<CAPTION>
============================================================
SALE NO. SALE NO. SALE NO. SALE NO. SALE NO.
1 2 3 4 5
============================================================
<S> <C> <C> <C> <C> <C>
- ------------
Location St.Charles St.Charles St.Charles St.Charles St.Charles
Subdivision Dorchester Dorchester Dorchester Dorchester Dorchester
============================================================
Parcel N N & G N N N
ADC Map Coordinate 9-K4 9-K4 9-K4 9-K4 9-K4
============================================================
Total Lots Contracted 1 1 5 4 1
No. Lots This Purchase 1 1 5 4 1
============================================================
Date of Sale 12-96 10-96 5-9/96 5-96 4-96
Grantor St.Charles St.Charles St.Charles St.Charles St.Charles
Associates Associates Associates Associates Associates
LP LP LP LP LP
Grantee Brandt Steven D. Royal Oakridge Royal
Construc- Randall Homes Associates Homes
tion Co.
Deed Consideration $48,000 $47,000 $243,800 $142,689 $48,000
Finished Price Per Lot $48,000 $47,000 $48,760 $35,672 48,000
============================================================
Lowest SF Base Price N/A N/A $149,900 $146,990 $149,900
Average SF Price N/A N/A $165,273 $152,247 $165,273
Lot/Base Price Ratio N/A N/A 32.5% 24.3% 32.0%
Lot/Average Price Ratio N/A N/A 29.5% 23.4% 29.0%
Lot Size (Avg. SF) 8,789 7,514 8,887 6,369 12,304
- ------------ -----------------------------------------------------------
</TABLE>
<PAGE>
in all cases, the normal fee simple interest was transferred, so no adjustment
is required. The next possible adjustment is for cash equivalency (financing).
All of the sales were paid in cash to the seller; any financing for the sales
was provided by third-party lenders at typical market rates. No adjustment is
necessary for cash equivalency.
Adjustments have also been considered for differences in zoning, location, lot
size, lot width, physical conditions, surrounding development, highway access
and other factors. For the most part, all of the comparable sales are located in
the Dorchester Neighborhood, of the St. Charles community in Charles County,
Maryland. No location adjustments were warranted.
Adjustments have been considered for lot sizes and widths. The sales range in
size from 6,369 to 12,304 square feet, and for the most part have lot widths of
50 to 75 feet. The lot width is important to local builders, since this
characteristic stipulates the size home and footprint of various models and,
ultimately, the final price. The remaining finished lots are located in various
parcels, on cul-de-sacs with narrow lot widths to those with typical lot widths
fronting the primary streets. The size and width of subject lots are considered
similar to the comparables, therefore, no adjustments are required.
A review of the table reveals that the average lot/house price ratio, based on
the lowest base price of the projects presented as land sales, is 29.6 percent.
The individual ratios range from 24.3 to 32.5 percent.
This ratio is based on the model with the lowest base price at each subdivision,
which is not really reflective of the average home price that a builder can
expect to achieve. The table also indicates the lot/house price ratio based on
the average home price achieved by each builder. This calculation results in a
ratio range of 23.4 to 29.5 percent for the land sales, averaging 27.3 percent.
Two conclusions should be emphasized. First, the appraiser is concluding that
the remaining finished lots should be transferred on a take-down basis to
multiple builders rather than a single homebuilder, because the lots are
scattered over several parcels. Second, the location, amenities and
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<PAGE>
surrounding development indicate that lot prices should be near the upper end of
the market due to their lot size.
After review and analysis of the preceding data, a unit value of $48,000 per lot
is the best indication of finished lot retail value. With a lowest base retail
value of approximately $150,000, a lot/house price ratio of 32.0 percent is
indicated. With an estimated average home sales price of $168,000, a lot/house
price ratio of 28.6 percent is calculated, a ratio very similar to the averages
indicated on the summary table.
FINISHED TOWNHOUSE LOT SALE ANALYSIS
On the facing page is a summary of recent transfers of finished townhouse lots
which have been used to estimate the retail value of the subject lots as if
finished. The unit of comparison employed in estimating the value of the subject
lots is the price paid per finished lot.
As indicated on the table, finished lots are typically contracted in bulk, but
purchased piecemeal in periodic "take-downs" by homebuilders. Transfers of four
to 15 lots at a time are most common. The unadjusted unit price for the
comparable sales (most recent take-down) ranges from $30,727 to $34,278 per lot.
Comparables No. 1 and No. 2 represents the subject property. The three other
comparable subdivisions are located in Waldorf, within four miles of the subject
property. For Sales 3 through 5, there was consideration that is not reflected
in the transfer deed. As is typical in the Washington Metropolitan Area over the
past several years, it is common for lot finishing costs to be paid separately
from the buyer to the seller and not included in the deed consideration. There
are transfer costs and taxes that must be paid on the deeded consideration and
it is cheaper for both the buyer and seller to have some of the consideration
kept off the deed. Sales 3, 4 and 5 all include off-deed finishing costs,
resulting in total considerations as indicated on the table.
Adjustments to each of the comparable land sales have been considered for
dissimilarities as compared to the subject property. The first possible
adjustment is for property rights transferred;
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<PAGE>
FINISHED SINGLE-FAMILY LOT SALES
HUNTINGTON RIDGE SUBDIVISION
<TABLE>
<CAPTION>
==============================================================================================
SALE NO. SALE NO. SALE NO. SALE NO. SALE NO.
1 2 3 4 5
==============================================================================================
- ---------------------------
<S> <C> <C> <C> <C> <C>
Location St.Charles St.Charles Waldorf Waldorf Waldorf
Subdivision Huntington Huntington Somerset Aspen Lakewood
Ridge Ridge Woods Estates
==============================================================================================
Street Post Office Road Post Office Road Berry Road Billingsley Road Waldorf
Tax Map / Parcel 15-10-717 15-10-717 7-4-392 14-17-304 15-12-752
==============================================================================================
Total Lots Contracted 115 115 120 234 5
No. Lots This Purchase 11 6 8 8 5
==============================================================================================
Date of Sale U/C - 12-95 U/C - 12-95 9 - 95 8 - 95 1 - 95
Grantor St.Charles St.Charles K Edelen Farm John J. Lenhart NVR Homes Inc.
Associates LP Associates LP
Grantee The Ryland The Ryland Richmond Pulte Porten
Group Group American Home Corp. Sullivan
Deed Consideration $338,000 $192,000 $107,487 $154,223 $85,000
Off-Deed Finishing Cost $0 $0 $160,000 $120,000 $85,000
-- -- -------- -------- -------
Total Consideration $338,000 $192,000 $267,487 $274,223 $170,000
Finished Price Per Lot $30,727 $32,000 $33,436 $34,278 $34,000
==============================================================================================
Lowest TH Base Price $114,990 $114,990 $112,990 $121,990 $129,990
Average TH Price $125,000 $125,000 $116,175 $129,210 $130,075
Lot/Base Price Ratio 26.7% 27.8% 29.6% 28.1% 26.2%
Lot/Average Price Ratio 24.6% 25.6% 28.8% 26.5% 26.1%
Lot Width (Feet) 20 20 20 20 20
- -------------------------- ----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
in all cases, the normal fee simple interest was transferred, so no adjustment
is required. The next possible adjustment is for cash equivalency (financing).
All of the sales were paid in cash to the seller; any financing for the sales
was provided by third- party lenders at typical market rates. No adjustment is
necessary for cash equivalency.
A conditions of sale adjustment has also been considered. All of the take- downs
represent normal arms-length transfers of finished lots that are ready for use,
and no unusual conditions of sale were reported by the buyers or sellers. No
adjustment is necessary for conditions of sale. An adjustment for market
conditions has also been entertained. The most recent take-down for each of the
comparable sales occurred very recently, and all of the sales are representative
of the market as of the date of appraisal. No adjustment for market conditions
is necessary.
Adjustments have also been considered for differences in zoning, location,
visibility, frontage, lot size, topography, physical conditions, surrounding
development, highway access and other factors. Overall, the subject lots are
very similar to the comparable lots, and it is unnecessary to adjust for the
minor differences due to location, project amenities, site aesthetics and other
factors.
In addition to the price per lot, the table indicates the relationship between
lot price paid by the builder, price range of homes sold by the builder at each
subdivision, and the resulting lot/house price ratio. A review of the table
reveals that the average lot/house price ratio, based on the lowest base price
at the projects presented as land sales, is 27.7 percent. The individual ratios
range from 26.2 to 29.6 percent.
This ratio is based on the model with the lowest base price at each subdivision,
which is not really reflective of the average home price that a builder can
expect to achieve. The table also indicates the lot/house price ratio based on
the average home price achieved by each builder. This calculation results in a
ratio range of 24.6 to 28.8 percent for the land sales, averaging 26.3 percent.
Two conclusions should be emphasized. First, the appraiser is concluding that
the vacant subject lots should be transferred on a take-down basis to a single
homebuilder, rather than multiple sales
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<PAGE>
to multiple builders. Second, the location, amenities and surrounding
development indicate that lot prices should be near the middle of the market.
After review and analysis of the preceding data, a unit value of $32,000 per lot
is the best indication of finished lot retail value. With a lowest base retail
value of approximately $115,000, a lot/house price ratio of 27.8 percent is
indicated. With an estimated average home sales price of $125,000, a lot/house
price ratio of 25.6 percent is calculated. These ratios are very similar to the
averages indicated on the summary table.
SHEFFIELD PHASE I (246 SINGLE-FAMILY AND 154 TOWNHOUSE LOTS)
In addition to the finished lots in the Dorchester Neighborhood and the
Huntington Ridge townhouse subdivision, I have also been requested to examine
the value of the first phase of the Sheffield Neighborhood in Fairway Village.
This will be the first residential development in this neighborhood and will
include 246 single-family and 154 townhouse lots. Although the entire Village of
Fairway has been approved by Charles County, each individual section must gain
further approvals for preliminary plans and record plat. These 400 lots are not
yet preliminary plan approved, although it is anticipated this would occur
within the next six to eight months. Accordingly, it is likely development would
begin within the next eight to 12 months in this neighborhood.
This area of St. Charles is south of the Smallwood Village, in the general
vicinity of the White Plains Golf Course and Regional Park. The subject lots are
not situated on or around the golf course and no premiums have been entertained.
In order to determine a finished lot value in Phase I of the Sheffield
Neighborhood, I have examined both the single-family lot sales and townhouse lot
sales used to value the Dorchester lots and Huntington Ridge townhouse lots.
The Sheffield single-family lots will be of similar size to the 60 finished lots
scattered throughout the Dorchester Neighborhood. The Dorchester Neighborhood is
established and convenient to commercial services along U.S. Route 301. The
Sheffield Neighborhood is slightly removed from
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<PAGE>
U.S. Route 301 in a more remote area of St. Charles. Accordingly, the single-
family lot values have been estimated at $45,000 per lot.
The Huntington Ridge townhouse subdivision is situated on Post Office Road, in
the Smallwood Village, and is convenient to Maryland Route 5 and U.S. Route 301,
as well as immediate commercial services. The townhouse portion of the Sheffield
Neighborhood will have similar access once Billingsley Road is connected to U.S.
Route 301, and a finished lot value for townhouses has been estimated at $32,000
per lot.
The downward adjustments for location within St. Charles and proximity to U.S.
Route 301 are slight, since Fairway is a newly-developing neighborhood and is
anticipated for over 3,000 housing units. Also, it is not uncommon for
developers and builders to offer lots or houses at a slightly lower price in
order to attract purchasers to a new area.
CONCLUSION
After analyzing and researching single-family and townhouse lots sales
throughout the St. Charles and County area, the following finished lot values
have been allocated to their respective areas:
<TABLE>
<CAPTION>
FINISHED
LOCATION USE NUMBER OF LOTS LOT VALUE
================================================================
<S> <C> <C> <C>
Dorchester Single-Family 60 $48,000
Smallwood Townhouse 98 $32,000
(Huntington Ridge)
Sheffield Single-Family 246 $45,000
Sheffield Townhouse 154 $32,000
</TABLE>
-80-
<PAGE>
ESTIMATE OF "AS IS" MARKET VALUE
The prior valuation of the finished lots is called retail value, because it is
the appraiser's opinion that the value presented represents the value of small
blocks of finished lots as sold to homebuilders. The subject properties, as they
exist as of the date of appraisal, would likely be sold to a developer/
homebuilder who would purchase at a discount from retail value. Finished single-
family and townhouse lots are typically purchased in smaller blocks and not the
large group of vacant lots being appraised.
To arrive at an estimate of market value (to one purchaser), it is necessary to
not only adjust for the size of the subject property, but also to fully consider
the remaining development work that needs to be completed. Although an extensive
amount of planning, engineering and county-related approval work has been
completed as of the date of appraisal, the physical work -- clearing, grading,
installation of streets, curbs, gutters and sidewalks, and installation of the
stormwater management system -- has yet begun for the Sheffield Neighborhood;
the 60 lots scattered throughout the Dorchester Neighborhood are considered
finished.
Arriving at an opinion of "as is" market value for the subject properties is
accomplished by the subdivision analysis method and results in a conclusion of
market value in an "as is" condition to a bulk purchaser. This analysis takes
into consideration not only the planning and physical status of the lots, but
the expected absorption of the lots to a builder. The analysis is identical
whether it is assumed the lots will be built upon by the developer/homebuilder
or spun off as finished lots to an independent homebuilder.
The foundation of the subdivision analysis method (also known as the anticipated
use method) is that the current value of the subject property is based on the
expected income that can be generated through sales of finished lots. Factors
that must be taken into consideration include the retail value of finished
sites, the expected absorption of finished lot sales, projected remaining land
development costs, cost of sales, administrative costs, carrying costs and an
appropriate discount rate that reflects the risk of the ownership and
development of the property, as well as rewarding the developer for
entrepreneurial risk.
-81-
<PAGE>
60 FINISHED DORCHESTER SINGLE-FAMILY LOTS
The first step in the analysis is to estimate the absorption of finished vacant
lots. The lots are assumed to be "sold" or "used" according to the conclusions
of the highest and best use analysis and based on an absorption of vacant lots
at an overall average of about 3.3 lots per month. Sales begin in January 1997
and continue through June 1998, with a sellout of 60 lots in an 18-month period.
Finished lot sales are projected to take place at $48,000 per lot, the retail
finished lot value conclusion presented earlier in this report.
During the sellout period, price appreciation is projected for the finished
lots. Based partially on a survey of regional developers and builders, and
partially on the appraiser's perception of the market, it is expected that lot
prices will appreciate at a moderate rate. The retail lot values are projected
to appreciate at 1.50 percent per quarter (6.0% per year) during the analysis.
The gross sales income in each period of the analysis is based on the absorption
multiplied by the appropriate retail value. From the projected gross sales
revenue must be deducted the remaining land development costs, sales expenses,
overhead costs, carrying costs and other expenses that a developer would expect
to pay. Those expenses deducted from the gross sales revenue include land
development costs, real estate taxes, costs of sales (marketing, commissions,
transfer costs), and general/administrative expenses. These lots are considered
finished, so no development costs have been deducted.
A deduction has also been made for real estate taxes. The appraiser estimated
the reasonable and likely tax bill. The finished retail lot value was estimated
at $48,000 and, when multiplied by the State of Maryland growth factor of 0.40,
results in an assessed value of $19,200. Applying the current tax rate of $2.65
per $100 of assessed value results in an annual tax of $508 per finished lot.
During each period, the proper deduction is made for the lots owned by the
developer. As development proceeds, however, it is assumed that completed houses
will be sold and finished lots will be transferred to builders, reducing the
holdings of the owner/developer. For this reason, as lot and home sales take
place, fewer lots will still be owned by the developer, and the tax expense is
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<PAGE>
projected to decrease. The taxes per lot escalate at 0.75 percent per quarter
(3% per year) for the lots still owned by the developer, to allow for possible
tax increases.
A costs of sales allowance of 5.0 percent of lot sales income is included in the
development costs. This item allows for marketing costs, commissions and
transfer costs as lots are presumed to be sold to builders.
An expense has also been deducted for general and administrative (G&A) costs.
This category is intended to cover all general administrative, bookkeeping,
management and other expenses. The G&A expense has been estimated at 2.0 percent
of sales income.
The calculation of market value requires a discounting procedure over the six
period (quarterly) assumed take-down. The discount rate is selected to
compensate for the opportunity cost of the capital invested and is based on
perceived risk of the project. Historically, the risk rate employed in real
estate development is somewhat higher than safer alternative investment
opportunities such as treasury bills and corporate bonds.
Inherent in the discount rate are the factors for the return on capital, return
of capital, and for risk due to the uncertainty of realizing projected future
benefits. Also included is an allowance for entrepreneurial profit. Essentially,
the discount rate should consider the quality, quantity and durability of the
income stream which the property is capable of producing. For the appraiser, the
rate chosen should be consistent with available evidence derived from prevailing
market attitudes and economic indicators.
It is difficult to establish a discount rate with a great deal of precision. To
aid in the selection, this appraiser has conducted a survey of regional
developers that have developed PUDs and large residential subdivisions. The
results indicate that a yield in the 15 to 20 percent range is most appropriate,
including entrepreneurial profit. Several respondents indicated that if a
leveraged scenario were assumed, with financing costs separated out and
deducted, a return to equity yield rate of 20 to 30 percent would be
appropriate. The 15 to 20 percent yield rate is correctly identified as a
blended, weighted overall yield rate assuming normal market financing for
acquisition and
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<PAGE>
MARKET VALUE BY THE SUBDIVISION ANALYSIS METHOD
Dorchester Neighborhood - 60 Finished Single-Family Lots
Analysis Starting January 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Period Jan-Mar April-June Jul-Sept Oct-Dec Jan-Mar April-June
Year 1997 1997 1997 1997 1998 1998 TOTAL
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ABSORPTION OF LOTS 10 10 10 10 10 10 60
CUMULATIVE SALES 10 20 30 40 50 60 60
BASE PRICE OF FINISHED LOTS $48,000 $48,720 $49,451 $50,193 $50,945 $51,710
YEARLY SALES INCOME $480,000 $487,200 $494,508 $501,926 $509,455 $517,096 $2,990,184
REMAINING COSTS
Lot Costs of Sales (5%) 24,000 24,360 24,725 25,096 25,473 25,855 149,509
Real Estate Taxes 7,620 6,350 5,080 3,810 2,559 1,289 26,708
G & A (2%) 9,600 9,744 9,890 10,039 10,189 10,342 59,804
-------- -------- -------- -------- -------- -------- ---------
Total ($41,220) ($40,454) ($39,696) ($38,945) ($38,221) ($37,486) ($236,021)
CASH FLOW $438,780 $446,746 $454,812 $462,981 $471,234 $479,610 $2,754,163
DISCOUNT RATE 3.50% per Quarter (14% annual rate)
NET PRESENT VALUE $2,441,590
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
development. The rates also incorporate entrepreneurial profit, as contrasted
with a separate line item deduction for profit.
Additional support used to choose an appropriate discount rate is the Korpacz
Real Estate Investor Survey, in the fourth quarter of 1996. Nationwide investors
were queried as to the required yields that they would expect for different
types of real estate investment. The highest required yields were reported for
office investments at 10.00 to 15.00 percent, with an average response of 11.82
percent. The purchase of a vacant parcel of land and development of
infrastructure is among the riskier types of real estate investment, certainly
riskier than the purchase of an improved income-producing property. On the other
hand, development of entry-level single-family homes, with realistic pricing and
expected absorption, reduces the risk substantially. Further reducing the risk
in this scenario is the fact that these 60 lots are finished and immediately
available for homebuilding.
With the preceding in mind, it is my opinion that the most appropriate yield or
discount rate is 14 percent; a quarterly discount rate of 3.50 percent is used
in the spreadsheet. The next step is to discount the cash flows over the
projected holding period. The present value of the discounted cash flows
represents the "as is" market value of the 60 finished single-family lots based
on the methodology utilized in this appraisal report. As can be seen in the
exhibit on the facing page, the present value of the expected cash flows
discounted at 3.50 percent per period is $2,441,590.
This valuation represents the price that a developer could pay for the subject
property. It is my conclusion that the "as is" market value of the above-
described 60 lots, as of December 31, 1996, is $2,441,590, which is rounded to:
TWO MILLION FOUR HUNDRED FORTY THOUSAND DOLLARS
($2,440,000)
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<PAGE>
98 TOWNHOUSE LOTS- HUNTINGTON RIDGE
Like the single-family subdivision analysis, the first step is to estimate the
absorption of finished vacant lots. The lots are assumed to be "sold" or "used"
at an absorption of about 4.0 lots per month. Sales activity begins in January
1997 and continues through December 1999, with a sellout of 98 lots in a 36-
month period (average absorption of 2.72 lots per month). Finished lot sales are
projected to take place at $32,000 per lot, the retail finished lot value
conclusion presented earlier in this report.
Price appreciation is projected based partially on a survey of regional
developers and builders, and partially on the appraiser's perception of the
market, it is expected that lot prices will appreciate at a moderate rate; 2.0
percent per six months (4.0% per year) during the analysis.
From the projected gross sales revenue must be deducted the remaining land
development costs, sales expenses, overhead costs, carrying costs and other
expenses that a developer would expect to pay. Those expenses deducted from the
gross sales revenue include land development costs, real estate taxes, costs of
sales (marketing, commissions, transfer costs), and general/administrative
expenses.
According to the developer, it is necessary to spend $837,550 in development
costs to complete infrastructure for Parcels 20A, 4B and 4C, which makeup the
townhouse lots. Some engineering work has already been completed, since the
subject has preliminary plan approval. Development costs have been allocated
evenly for the first four (6-month) periods and escalated at 3.0 percent
annually. The development activities include, but are not limited to, pavement
installation, curb and sidewalk installation, landscaping, utility extension and
other activities.
A deduction has also been made for real estate taxes. The appraiser estimated
the reasonable and likely tax bill. The finished retail lot value was estimated
at $32,000 and, when multiplied by the State of Maryland growth factor of 0.40,
results in an assessed value of $12,800. Applying the current tax rate of $2.65
per $100 of assessed value results in an annual tax of $339 per finished lot.
-85-
<PAGE>
MARKET VALUE BY THE SUBDIVISION ANALYSIS METHOD
Huntington Ridge - 98 Townhouse Lots
Analysis Starting January 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
PERIOD JAN - MAY JUNE - DEC JAN - MAY JUNE - DEC JAN - MAY JUNE - DEC
YEAR 1997 1997 1998 1998 1999 1999 TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ABSORPTION OF LOTS 18 18 18 18 13 13 98
CUMULATIVE SALES 18 36 54 72 85 98 98
BASE PRICE OF FINISHED LOTS $32,000 $32,960 $33,949 $34,967 $36,016 $37,097
YEARLY SALES INCOME $576,000 $593,280 $611,078 $629,411 $468,212 $482,258 $3,360,239
REMAINING COSTS:
Land Development $209,387 $212,528 $215,716 $218,951 $0 $856,582
Lot Costs of Sales (5%) 28,800 29,664 30,554 31,471 23,411 24,113 168,012
Real Estate Taxes 16,660 13,600 10,856 7,920 4,820 2,405 56,262
G&A (2%) 11,520 11,866 12,222 12,588 9,364 9,645 67,205
-------- -------- -------- -------- -------- -------- ----------
Total ($266,367) ($267,657) ($269,347) ($270,930) ($37,595) ($36,163) ($1,148,060)
CASH FLOW $309,633 $325,623 $341,731 $358,481 $430,616 $446,095 $2,212,179
DISCOUNT RATE 8.00% per half year (16% annual rate)
NET PRESENT VALUE $1,674,823
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
As development proceeds, it is assumed that completed houses will be sold and
finished lots will be transferred to builders, reducing the holdings of the
owner/developer. Accordingly, as lot and home sales take place, fewer lots will
still be owned by the developer, and the tax expense is projected to decrease.
The taxes per lot escalate at 1.5 percent per semi-annual period for the lots
still owned by the developer, to allow for possible tax increases.
A costs of sales allowance of 5.0 percent of lot sales income is included in the
development costs. This item allows for marketing costs, commissions, and
transfer costs as lots are presumed to be sold to builders. An expense has also
been deducted for general and administrative (G&A) costs at 2.0 percent of sales
income.
The calculation of market value requires a discounting procedure over the six
period (semi-annual) assumed take-down. Inherent in the discount rate are the
factors for the return on capital, return of capital, and for risk due to the
uncertainty of realizing projected future benefits. Also included is an
allowance for entrepreneurial profit. Essentially, the discount rate should
consider the quality, quantity and durability of the income stream which the
property is capable of producing. For the appraiser, the rate chosen should be
consistent with available evidence derived from prevailing market attitudes and
economic indicators. On the other hand, development of attached single-family
homes, with realistic pricing and expected absorption, reduces the risk
substantially.
It is my opinion that the most appropriate yield or discount rate is 16.0
percent; a semi-annual discount rate of 8.0 percent is used in the spreadsheet.
The next step is to discount the cash flows over the projected holding period.
The present value of the discounted cash flows represents the "as is" market
value of the 98 proposed townhouse lots. The facing page demonstrates the
present value of the expected cash flows, discounted at 8.0 percent per period,
or $1,674,823.
-86-
<PAGE>
This valuation represents the price that a developer could pay for the subject
property, expecting to complete development of the property based on the
parameters of this analysis. It is my conclusion that the "as is" market value
of the subject property, as of December 31, 1996, is $1,674,823, which is
rounded to:
ONE MILLION SIX HUNDRED SEVENTY-FIVE THOUSAND DOLLARS
($1,675,000)
SHEFFIELD NEIGHBORHOOD (246 SINGLE-FAMILY AND 154 TOWNHOUSE LOTS)
Absorption of single-family vacant lots has been estimated at about 1.7 lots per
month (with 3 builders) and 1.6 lots per month (with 2 builders) for the
townhouse lots. Finished lot sales must await the initial land development,
however. The Charles County Planning Department reports that six to 12 months is
a reasonable estimate to obtain final approval and grading permits after
preliminary plan for this next village in St. Charles PUD. Therefore, the first
12 months will be used for gaining final approvals and initial land development,
with sales activity beginning in January 1998 and continuing through December
2001, with a sellout of 400 lots in a six-year period (including the first 12
months). Finished single-family lot sales are projected to commence at $45,000
per single-family lot and $32,000 per finished townhouse lot; the retail
finished lot value conclusions presented earlier in this report. The retail lot
values are projected to appreciate at 3.0 percent per year during the analysis.
The gross sales income in each period of the analysis is based on the absorption
multiplied by the appropriate retail value. From the projected gross sales
revenue must be deducted the remaining land development costs, sales expenses,
overhead costs, carrying costs and other expenses that a developer would expect
to pay. Those expenses deducted from the gross sales revenue include land
development costs, real estate taxes, costs of sales (marketing, commissions,
transfer costs), and general/administrative expenses.
-87-
<PAGE>
MARKET VALUE BY THE SUBDIVISION ANALYSIS METHOD
Sheffield Neighborhood (Fairway Village)
246 Single-Family Lots and 154 Townhouse Lots
Analysis Starting January 1997
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PERIOD JAN - DEC JAN - DEC JAN - DEC JAN - DEC JAN - DEC
YEAR 1997 1998 1999 2000 2001 TOTAL
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ABSORPTION OF LOTS
Single-Family Lots 0 60 90 48 48 246
Townhouse Lots 0 36 48 35 35 154
CUMULATIVE SALES 0 96 234 317 400 400
BASE PRICE OF FINISHED LOTS
Single-Family Lots $45,000 $46,350 $47,741 $49,173 $50,648
Townhouse Lots $32,000 $32,960 $33,949 $34,967 $36,016
YEARLY SALES INCOME $0 $3,967,560 $5,926,187 $3,584,145 $3,691,669 $17,169,561
REMAINING COSTS
Land Development $1,976,722 $2,036,024 $2,097,104 $1,080,009 $1,112,409 $8,302,268
Lot Costs of Sales (5%) 0 198,378 296,309 179,207 184,583 $858,478
Real Estate Taxes 169,337 128,896 71,792 36,614 0 $406,638
G&A (2%) 0 79,351 118,524 71,683 73,833 $343,391
---------- ---------- ---------- ---------- ---------- ----------
Total ($2,146,059) ($2,442,649) ($2,583,729) ($1,367,513) ($1,370,826) ($ 9,910,776)
CASH FLOW ($2,146,059) $1,524,911 $3,342,458 $2,216,632 $2,320,843 $7,258,785
DISCOUNT RATE 20.00% per year
NET PRESENT VALUE $3,206,549
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
According to costs provide by the developer, it is necessary to spend $7,906,888
in development costs to complete infrastructure for Sheffield Village, for the
development of 246 single-family and 154 townhouse lots. Some engineering work
has already been completed, since the subject is approaching preliminary plan
approval. A majority of the land development costs have been allocated for the
first three years and the balance of costs allocated over the remaining four
years of the analysis. The costs are escalated at 4.0 percent annually. The
development activities include, but are not limited to cutting roads, pavement
installation, curb and sidewalk installation, landscaping, utility extension and
other activities.
A deduction has also been made for real estate taxes. The appraiser estimated
the reasonable and likely tax bill. The finished retail lot values were
estimated at $45,000 for single-family and $32,000 for townhouses and, when
multiplied by the State of Maryland growth factor of 0.40, results in an
assessed value of $6,399,200. Applying the current tax rate of $2.65 per $100 of
assessed value results in an annual tax of $169,579, or an average of $424 per
finished lot.
As lot and home sales take place, fewer lots will still be owned by the
developer, and the tax expense is projected to decrease. The taxes per lot
escalate at 3.0 percent per year for the lots still owned by the developer, to
allow for possible tax increases. A costs of sales allowance of 5.0 percent of
lot sales income is included in the development costs, allowing for marketing
costs, commissions and transfer costs as lots are presumed to be sold to
builders.
An expense has also been deducted for general and administrative (G&A) costs, to
cover all general administrative, bookkeeping, management and other expenses.
The G&A expense has been estimated at 2.0 percent of sales income.
The calculation of market value requires a discounting procedure over the five-
year assumed take-down. It is my opinion that the most appropriate yield or
discount rate is 20.0 percent. This rate seems reasonable considering the
current stage of development, anticipated absorption and competing housing
projects. The present value of the discounted cash flows represents the "as is"
market value of the 246 proposed single-family and 154 townhouse lots, based on
the methodology
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<PAGE>
utilized in this appraisal report. As can be seen in the exhibit on the facing
page, the present value of the expected cash flows, discounted at 20.0 percent,
is $3,206,549.
This valuation represents the price that a developer could pay for the subject
property, expecting to complete development of the property based on the
parameters of this analysis. It is my conclusion that the "as is" market value
of the subject property, as of December 31, 1996, is $3,206,549, which is
rounded to:
THREE MILLION TWO HUNDRED THOUSAND DOLLARS
($3,200,000)
RAW ACREAGE ANALYSIS
The land in the remaining inventory considered raw acreage includes two
properties outside the Planned Unit Development of St. Charles. The first
property consists of two non-contiguous tracts of land situated along the west
side of Middletown Road. The north tract includes Parcels 118 and 256; the south
tract includes Parcels 48, 81 and 335. The North Assemblage contains 253 acres
and the south section includes 121 acres, for a total land area of 374 acres of
raw land zoned for residential low density development. For the purpose of this
report, these parcels will be identified as the Middletown Property.
The second property outside the planned unit development is referred to as the
Pomfret Property, like Middletown, it is also divided as north and south
sections, separated by Pomfret Road. The north section consists of Parcel 275,
containing 202.79 acres. The southern portion consists of Parcels 36, 37, 41,
50, 60 and 177, totalling 609.38 acres. The entire Pomfret Property contains
812.2 acres of land designated for residential low density development.
The remaining raw acreage is contained within the St. Charles community and
includes the future villages of Fairway, Wooded Glen and Piney Reach. Fairway
Village is the next to come on line and
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<PAGE>
has received preliminary approval for 3,346 residential units to include 1,673
single-family dwellings, 837 townhouses and 836 multi-family units. Fairway
Village contains 1,287 acres, although it should be noted that only 1,187 acres
will be valued in this section. The balance of 100 acres has previously been
addressed as the first section of the Sheffield Neighborhood, proposed for the
development of 400 residential units (246 single-family and 154 townhouse lots).
The Wooded Glen and Piney Reach Villages are slated for future development
following the substantial completion of Fairway Village. It is uncertain as to
the exact timing these villages will come on line and each will contain small
components of commercial uses supporting the high density mix. It should be
noted that there are five parcels throughout these two villages which are
currently not zoned for PUD development, but for low density development. After
analysis of these five parcels, it has been concluded that development in the
foreseeable future is unlikely and that the more likely scenario is to hold
these parcels and incorporate them as part of the ultimate planned unit
development within Wooded Glen and Piney Reach Villages. Accordingly, these
parcels are included in this valuation and contained within the 3,079 acres in
the two proposed villages.
MIDDLETOWN PROPERTIES
Residential development of the Middletown Parcels appears feasible within
several years. These parcels are outside the planned unit development and are
not restricted by the conditions affecting the St. Charles PUD. Accordingly,
development can take place at any time, assuming the demand for such development
is feasible. The developer has submitted and gained approval to upgrade the
water/sewer category from W5/S5 to W3/S3, allowing immediate development with
utilities available. Six land sales have been analyzed on a price per acre basis
and are summarized in the following chart. A detailed breakdown of each sale can
be found in the Addenda.
-90-
<PAGE>
<TABLE>
<CAPTION>
Location Date No. of Acres Price Price Per
Acre
<S> <C> <C> <C> <C>
Summit Creek
Clinton, MD 06-27-96 105.99 AC $2,500,000 $23,586
Baileys Plantation
Accokeek, MD 11-15-95 878.72 AC $2,949,750 $3,356
Kingsview
Bryans Road, MD 08-31-95 420.65 AC $2,200,000 $5,230
Annapolis Road
Bowie, MD 11-14-94 254.14 AC $1,850,000 $7,279
Maryland Route 225
Indian Head, MD 04-19-94 191.07 AC $ 685,000 $3,585
</TABLE>
Adjustments to the comparable land sales have been made for dissimilarities as
compared to the subject property. The first possible adjustment is for property
rights transferred; in all cases the normal fee simple interest was transferred,
and no adjustments are required. The next possible adjustment is for cash
equivalency. Because the cost and availability of financing helps to determine
the demand and supply of real estate, financing affects real estate values. Cash
equivalency analysis is a procedure in which the sale prices of comparable
properties sold with atypical financing terms are adjusted to reflect typical
market terms. All five comparable land sales were sold using cash or typical
market financing terms and required no adjustment.
The next consideration is referred to as conditions of sale, pertaining to the
motivation of the buyers and sellers. When non-market conditions of sale results
in a sale at an above-market or below-market price, an adjustment is necessary.
Non-market conditions are typically created by duress for special relationships,
unusual tax considerations, lack of market exposure, or eminent domain
procedures. Sales 1, 3 and 4 involved typical motivation and negotiations
between the buyers and sellers, warranting no conditions of sale adjustments.
Sales 2 and 5 were bank sales that resulted in a favorable price to the buyer.
An upward adjustment is made for conditions of sale.
Market conditions generally change over time and are caused by inflation,
deflation, fluctuations in supply and demand, or other factors. Market
conditions which have not changed over time require
-91-
<PAGE>
no adjustment. The market for raw land in the subject neighborhood has been
fairly stable over the past four years, and all of the sales occurred within the
past 36 months, so no market conditions adjustments are required.
Adjustments have also been considered for differences in location, access,
frontage, zoning, density (or yield), expected lot sizes, sale size,
shape/utility, floodplain, stage of development, and the availability of
utilities, along with other factors affecting value. The first indicated
adjustment is for location. Sales 1 and 4 feature locations that are superior in
terms of distance from employment centers, shopping facilities, transportation
routes and other primary locational characteristics. These factors allow higher
home prices, resulting in higher land values. Sales 3 and 5, on the other hand,
are located in western Charles County near Indian Head and Bryans Road, where
substantial competition has evolved. Consequently, an upward adjustment is
appropriate for location for Sales 3 and 5.
A size adjustment has been entertained for each comparable sale. A small
downward adjustment is warranted for Sale 1, which is significantly smaller than
the subject property. Sale No. 2 warrants an upward adjustment. No size
adjustment is necessary for the other three sales.
The next two adjustments are somewhat related: density and lot size. The subject
parcels are zoned R-L, with an expected development density of 1.75 lots per
gross acre; the single-family lots are expected to average 9,000 square feet. An
adjustment has been made to each comparable land sale for density, based on the
expected yield. Upward adjustments are made to Sales 1, 2 and 3. The magnitude
of the density adjustment is based on the difference between the expected
density of each comparable sale and the 1.75 dwelling units per acre density
expected for the subject property.
The subject property is irregular in shape, but has reasonable frontage and
utility. A downward adjustment was made for shape/utility to Sale No. 4, which
features a very regular shape that will likely simplify design and development.
Adjustments have been made to each sale for the presence and proximity of public
utilities, specifically, public water and sewer service. Utility lines are
located near the subject property, but
-92-
<PAGE>
================================================================================
EXHIBIT 99.5
APPRAISAL REPORT
OF
THE PROPOSED FAIRWAY VILLAGE RESIDENTIAL SECTIONS
CONTAINING A TOTAL OF 3,346 RESIDENTIAL UNITS
DESIGNATED AS 837 TOWNHOUSE UNITS, 922 LARGE LOT
SINGLE-FAMILY DETACHED UNITS, 499 MEDIUM LOT SINGLE-FAMILY
DETACHED UNITS, AND 252 SMALL LOT SINGLE-FAMILY DETACHED
UNITS, AS WELL AS 836 APARTMENT UNITS
TAX MAP 15, PART OF PARCEL 149
CONTAINING A TOTAL OF APPROXIMATELY 1,288.85 ACRES OF
PUD ZONED LAND, AND 38+/- ACRES OF NEIGHBORHOOD COMMERCIAL
LAND, EXCLUDED FROM VALUATION IN THIS REPORT
SIXTH (6TH) ELECTION DISTRICT, CHARLES COUNTY
WALDORF, MARYLAND 20602
Value as of
May 25, 1997
Appraised for
Mr. Edwin L Kelly, President
Chief Operating Officer
Interstate General Company, L.P.
Executive Offices
222 Smallwood Village Center
St. Charles, Maryland 20602
Appraised by
James B. Hooper
James B. Hooper, P.A.
P.O. Box 125
Waldorf, Maryland 20604-0125
================================================================================
<PAGE>
James B. Hooper, P.A.
P.O. Box 125
Waldorf, Maryland 20604
---------------
932-9410 870-5841
May 25,1997
Mr. Edwin Kelly
President
Interstate General Company, L.P.
222 Smallwood Village Center
St. Charles, Maryland 20602
Dear Mr. Kelly:
At your request, I have inspected and appraised the following described
property:
The Proposed Fairway Village Residential Sections
designated as the Sheffield Neighborhood and Gleneagles Neighborhood
containing a total of 3,346 residential units to be developed in five stages
containing 837 townhouse units, 922 large lot single-family detached units
499 medium lot single-family detached units, and 252 small lot single-family
detached lots as well as 836 apartment units
located on the east and west sides of St. Charles Parkway
near the White Plains Golf Course
Tax Map 15, Part of Parcel 149
Part of Liber 454, Folio 21
containing a total of approximately 1,288.85 acres of PUD zoned
planned unit development acreage
Sixth (6th) Election District, Charles County
Waldorf, Maryland 20602
This appraisal is of the Fair Market Value for the fee simple interest in
the property. The effective date of the valuation is May 25, 1997. I have
considered the pertinent data affecting the valuation, including location, type,
use and potential of the property, trends of the neighborhood and comparable
sales. As a result of this study and analysis, I am of the opinion that the Fair
Market Value of real estate as of May 25, 1997, is:
gross retail value of the apartment units
SEVEN MILLION FIVE HUNDRED TWENTY-FOUR THOUSAND DOLLARS
($7,524,000.00)
<PAGE>
gross retail value of the townhouse units
ELEVEN MILLION THREE HUNDRED THOUSAND DOLLARS
($11,300,000.00)
gross retail value of the single-family detached residential units
THIRTY-ONE MILLION THREE HUNDRED EIGHT THOUSAND DOLLARS
($31,308,000.00)
TOTAL GROSS RETAIL VALUE OF ALL OF THE UNITS
FIFTY MILLION ONE HUNDRED THIRTY-TWO THOUSAND DOLLARS
($50,132,000.00)
discounted or "as is" value of the apartment units
THREE MILLION FOURTEEN THOUSAND DOLLARS
($3,014,000.00)
discounted or "as is" value of the townhouse units
FOUR MILLION EIGHT HUNDRED EIGHTY-EIGHT THOUSAND DOLLARS
($4,888,000.00)
discounted or "as is" value of the single-family detached residential units
ELEVEN MILLION THREE HUNDRED SIXTY-ONE THOUSAND DOLLARS
($11,361,000.00)
TOTAL DISCOUNTED OR "AS IS" VALUE OF ALL OF THE UNITS
NINETEEN MILLION TWO HUNDRED SIXTY-THREE THOUSAND DOLLARS
($19,263,000.00)
An appraisal report is attached hereto and made a part hereof. The
valuations are expressly made subject to the conditions and comments appearing
in this report. I certify that I have personally prepared this appraisal report.
This appraiser certifies that to the best of his knowledge, this report
meets all requirements as set forth by the Federal Home Loan Bank Board
Memorandum dated February 3, 1992.
Respectfully submitted,
/s/ James B. Hooper
James B. Hooper
JBH/tlw
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
TRANSMITTAL LETTER....................................................... 1
QUALIFICATIONS........................................................... 3
EXECUTIVE SUMMARY OF SALIENT FACTS AND CONCLUSIONS....................... 6
PURPOSE/FUNCTION OF THE APPRAISALS....................................... 8
UNDERLYING ASSUMPTIONS AND LIMITING CONDITIONS........................... 9
SCOPE OF THE APPRAISAL................................................... 11
ENVIRONMENTAL STATEMENTS................................................. 12
SITE IDENTIFICATION/LEGAL DATA........................................... 12
SALE/RENTAL HISTORY...................................................... 13
ASSESSMENT AND TAXES..................................................... 13
ZONING................................................................... 14
PROPERTY LOCATION........................................................ 15
REGIONAL ANALYSIS........................................................ 16
COUNTY ANALYSIS.......................................................... 17
NEIGHBORHOOD DATA........................................................ 20
SITE DESCRIPTION......................................................... 21
PROPOSED IMPROVEMENTS.................................................... 22
HIGHEST AND BEST USE ANALYSIS............................................ 24
THE APPRAISAL PROCESS.................................................... 30
VALUATION................................................................ 31
VALUATION OF THE APARTMENT UNITS......................................... 32
VALUATION OF THE TOWNHOUSE UNITS......................................... 43
VALUATION OF THE SINGLE-FAMILY UNITS..................................... 70
CORRELATION AND CONCLUSION............................................... 105
CERTIFICATION............................................................ 107
ADDENDUM
</TABLE>
<PAGE>
James B. Hooper
P.O. Box 125
Waldorf Maryland 20604
---------------
932-9410 870-5841
QUALIFICATIONS
--------------
MARYLAND Certified General Status
LICENSE License No. 1128
STATUS:
VIRGINIA Certified General Status
LICENSE License No. 4001-003745
STATUS:
EDUCATION: B.S. Degree - Business Management
University of Maryland
Post Graduate Courses
American University
Continuing Education Courses
Charles County Community College
SPECIALIZED AlREA - Course 1A - Appraisal Theory
APPRAISAL AIREA - Course 1B - Basic Appraisal Tech.
COURSES: AIREA - Course 2A - Capitalization Theory & Tech.1.
AlREA - Course 2B - Capitalization Theory & Tech.2.
AIREA - Course 2C - Capitalization Theory & Tech.3.
AIREA - Course 3A - Case Studies in Valuation
AIREA - Course 3B - Report Writing
AIREA - Course SPP - Standard Professional Practices
Appraiser Institute Course 550 - Advanced Valuation
Applications
EXPERIENCE: President, Hooper & Associates, P.O. Box 125, Waldorf,
Maryland January 1989, to present
Staff Appraiser for Matthews Realty Corporation, P.O.
Box 506, Waldorf, Maryland 1984 to 1988
Staff Appraiser for Delta Realty, Inc., P.O. Box 35,
Waldorf, Maryland 1976 to 1984
Maryland Real Estate Salesman - 1975 to 1979
Maryland Real Estate Broker - 1979 to present
3
<PAGE>
Qualified Expert Witness - United State Bankruptcy Court of
Appeals; United States Bankruptcy Court; Maryland Tax
Appeals Court; Prince George's and Charles Counties Tax
Appeals Boards; and Circuit Court for Charles County;
Circuit Court for St. Mary's County; and District Court of
Charles County; Circuit Court for Calvert County; District
Court for St. Mary's County
PARTIAL LIST Mercantile Safe Deposit & Trust Company
OF CLIENTS: 1st National Bank of Maryland
I T & T Corporation
United Bank & Trust Company
Bank of Southern Maryland
Thomas C. Carrico, Esq.
Law Offices of Zanecki, Braddock & Silber
Law offices of Blumenthal & Delavan
Law Offices of Wechsler, Seizer & Gurvitch
Law Offices of Giordano, Bush & Villareale
Law Offices of Semmes, Bowen & Semmes
Law Offices of Loyd & Moreland
State of Maryland Department of General Services
Thomas F. Mudd, Esquire
1st Virginia Mortgage Corporation
Western Electric Corporation
Maryland Money Market Mortgage Corporation
Washington Savings Bank
State of Maryland, Department of General Services
State Highway Administration
Various Relocation Services
Security National Bank
Nations Bank
Southern Maryland Oil Company
Veterans Administration, Panel Appraiser
Norwest Mortgage, Inc.
Charles County Government
St. Mary's County Government
Federal Housing Administration, Panel Appraiser
1st National Bank of St. Mary's
First Virginia Bank
Developers and private individuals
ORGANIZATIONS: Southern Maryland Board of Realtors
Prince George's County Board of Realtors
Institute of Real Estate Management (designated title
of CPM)
Membership as candidate in the American Institute of
Real Estate Appraisers MAI Program
Member International Right-of-Way Association
National Association of Real Estate Appraisers (CREA
Designation)
TYPES OF Income producing properties such as office buildings,
APPRAISALS: warehouses, other commercial establishments, condominiums,
residential, subdivisions, houses, farms, vacant land, etc.
4
<PAGE>
PREFACE
-------
An appraisal is a type of research and analysis into the law of
probabilities with respect to real estate valuation. Through the appraiser's
education, training, experience, and professional philosophy, he/she is able to
render an estimated value of real estate based on the activities of buyers,
sellers, and other property owner. Because of the unique characteristics of each
parcel of real estate, adjustments typically have to be made for differences
between properties.
A value estimate cannot be guaranteed and generally cannot be proved.
However, the final estimate of value by a professional appraiser should be
substantiated and justified by a detailed analysis of both the physical
characteristics of the subject real estate and the social, economic, and
governmental forces which exert pressure on the subject property.
The final estimate of value in a professional appraisal report must not be
considered to be absolute but rather an opinion of value resulting from reliable
market data which was collected, analyzed, and adjusted to reflect the elements
of comparison between and comparables and the subject. The professional
appraiser cannot be an advocate, else he/she belies the principles of the
profession.
With the aforementioned in mind, you are encouraged to read this report
which sets forth the purpose for which the appraisal was made and the
appraiser's analysis and conclusions.
5
<PAGE>
EXECUTIVE SUMMARY OF SALIENT FACTS AND CONCLUSIONS
--------------------------------------------------
Name of Property: The Proposed Fairway Village of the St.
Charles Planned Unit Development
Date of Appraisal: May 25, 1997
Property Location: off of the east and west sides of St. Charles
Parkway, Sixth (6th) Election District, Tax
Map 15, Part of Parcel 149, Waldorf, Charles
County, Maryland 20602
Census Tract No.: 8509.02, 8509.03 and 8509.04
Property Type: residential planned unit development,
townhouse, single-family detached and
apartment usage
Property Size: 1,288.85 acres (+/-) of residentially zoned
property
Units: 837 townhouse units
922 single-family large lot detached units
499 single-family medium lot detached units
252 single-family small lot detached units
836 apartment units
-----
3,346 total units
Assessment: As part of Tax Map 15, Parcel 149,
$515,540.00
Taxes: $7,846.73
Zoning: PUD - Planned Unit Development -
Residential/Commercial
Present Use: vacant land
Highest and Best Use: Its ultimate development as a predominantly
residential community featuring attached and
detached units as part of the Planned Unit
Development of St. Charles.
Property Rights Appraised: fee simple interest subject to PUD
restrictions
Defined Value: market value
6
<PAGE>
Indicated Value by the:
Cost Approach: N/A
Market Data Approach:
Gross Retail Value of the $ 7,524,000.00 or $ 9,000.00 per unit
Apartment Units:
Gross Retail Value of the $11,300,000.00 or $13,500.00 per unit
Townhouse Units:
Gross Retail Value of the
Single-Family Residential Units: $17,518,000.00 or $19,000.00 per large unit
$ 9,481,000.00 or $19,000.00 per medium unit
$ 4,309,200.00 or $17,100.00 per small unit
--------------
$31,308,000.00 (rounded)
TOTAL GROSS RETAIL VALUE
OF ALL OF THE UNITS: $50,132,000.00
Discounted or "As Is" Value of
the Apartment Units: $ 3,014,000.00 or $3,605.00 per unit
Discounted or "As Is" Value of
the Townhouse Units: $ 4,888,000.00 or $5,840.00 per unit
Discounted or "As Is" Value of
the Single-Family
Residential Units: $11,361,000.00 or $6,791.00 per unit
--------------
TOTAL DISCOUNTED OR "AS IS" VALUE
OF ALL OF THE UNITS: $19,263,000.00
Income Approach: N/A
It should be noted that the overall valuation of the subject property is in
its current "as is" state of approved, but undeveloped units. Therefore, there
currently exists no improvements or cash flow streams associated with the land
that would offer any insight as to the value of the property. Therefore, the
Cost Approach, as well as the Income Approach have been disregarded in the final
valuation.
7
<PAGE>
PURPOSE/FUNCTION OF THE APPRAISAL
---------------------------------
The purpose of this appraisal is to establish fair market value for the
subject property as of May 25, 1997.
The function of the appraisal is to establish market value for the subject
property that will ultimately be used as collateral in a federally guaranteed
loan transaction.
DEFINITIONS
-----------
APPRAISAL ASSIGNMENT is defined as those appraisal services where the
appraiser is employed or retained to act (or would be perceived by third parties
or the public as acting) as a disinterested third party in rendering an unbiased
estimate or opinion of the nature, quality, value, or specified interests in or
aspects of identified real estate./1/
MARKET VALUE is defined as the most probable price which a property should
bring in a competitive and open market under all conditions requisite to a fair
sale, the buyer and seller, each acting prudently, knowledgeably and assuming
the price is not affected by undue stimulus. Implicit in this definition is
consummation of a sale as of a specified date and passing of title from seller
to buyer under conditions whereby:
-- Buyer and seller are typically motivated;
-- Both parties are well informed or well advised and each
acting in what he considers his own best interest;
-- A reasonable time is allowed for exposure in the open
market;
-- Payment is made in terms of cash in U.S. dollars or in
terms of financial arrangements comparable thereto: and
-- The price represents the normal consideration of the
property sold unaffected by special or creative financing
or sales concessions granted by anyone associated with the
sale./2/
FEE SIMPLE ESTATE is defined as absolute ownership unencumbered by any
other interest and subject only to the governmental powers of taxation, police
power, eminent domain and escheat.
___________________________
1 Code of Professional Ethics & Standards of Professional Practice;
----------------------------------------------------------------
American Institute of Real Estate Appraisers; 1/90.
2 NCUA, OTS, OCC, FDIC, FRS, AND RTC.
8
<PAGE>
UNDERLYING ASSUMPTIONS AND LIMITING CONDITIONS
----------------------------------------------
IDENTIFICATION OF THE PROPERTY: The legal description given to the
------------------------------
appraiser and found in the land records is presumed to be correct, but has not
been confirmed by a survey. The appraiser assumed no responsibility for such a
survey or for encroachments or overlapping that might be revealed thereby.
The appraiser renders no opinion of legal nature, such as to ownership of
the property or condition of the title.
The appraiser assumed the title to the property to be marketable, that the
property is an unencumbered fee, and that the property does not exist in
violation of any applicable codes, ordinances, statutes, or other governmental
regulations.
Any other plats, maps or drawings shown in this report may show approximate
dimensions and may not be drawn to scale. These are included strictly to assist
the reviewer of this report in visualizing the property. Although I have made a
physical inspection of the property, no precise survey was made by this
appraiser.
The appraiser assumes completion of the improvements in a workmanship-like
manner within a reasonable period of the and in accordance with final plans and
specifications, as summarized in this report.
UNAPPARENT CONDITIONS: The appraiser assumed that there are no latent
---------------------
defects or unapparent conditions of the property, subsoil or structures which
would render it more or less valuable than otherwise comparable property. The
appraiser assumed no responsibility for such conditions, or for engineering
which might be required to reveal such things.
INFORMATION AND DATA: Information and data supplied to the appraiser by
--------------------
others, and which have been considered in the valuation, are from sources
believed to be reliable, but no further responsibility is assumed for its
accuracy.
USE OF THE APPRAISAL: Possession of the appraisal report or a copy thereof
--------------------
does not carry with it the right of publication. It should be considered a
privileged document.
The appraisal report may not be used for any purpose except substantiation
of the value estimated without written permission from the appraiser. All
valuations in the report are applicable only under the stated program of Highest
and Best Use, and are not necessarily applicable under other programs of use.
The valuations of a component part of the property are applicable only as part
of the whole property.
COURT TESTIMONY: Testimony or attendance in Court by reason of this
---------------
appraisal with reference to the property in question, shall not be required
without prior agreement.
9
<PAGE>
It is assumed that current economic conditions will remain reasonably
stable into the foreseeable future without major fluctuations both upward or
downward in the overall economy.
A diligent effort was made to verify each comparable sale used in the
evaluation process in this report. However, since many of the sellers or
purchasers are from areas outside of the immediate locality, or no agent could
be contacted within a reasonable time for the completion of this report, certain
sales may not have been verified through communication with the purchaser or
seller.
This appraiser has not been informed, nor has the appraiser any knowledge
of the existence of any environmental or health implement which, if known, could
have a negative impact on the market value of the subject property. Therefore,
it is assumed by this appraiser that there are no hazardous waste storage or
environmental hazards on the subject property The valuation herein contained is
not valid if any hazardous items are found on the subject property; including,
but not limited to, urea formaldehyde insulation, radon gas, asbestos products,
lead or lead base products, toxic waste and other contaminants.
It is assumed by this appraiser, unless otherwise noted in this appraisal
report, that there do not exist any tidal or non-tidal wetlands that will hinder
the overall development of the subject parcel.
It is assumed by this appraiser that the proposed subdivision will be
developed and completed according to site plans and overview plans as presented
to this appraiser.
It is assumed by this appraiser that all information pertaining to lot
sizes, configurations, unit numbers and overall dimensions have been accurately
portrayed in information supplied to this appraiser, and any substantial
variation from these plans may substantially alter the final valuation of the
property.
10
<PAGE>
SCOPE OF THE APPRAISAL
----------------------
The purpose of this appraisal is to provide a full narrative manuscript
report using the known conventional and accepted appraisal processes, practices
and traditional approaches in existence as of the date of the valuation.
Additionally, it is intended within the scope of this appraisal to report that
the prepared appraisal be in compliance with all Federal banking and other
related guidelines.
This appraiser, within the scope of the appraisal, will endeavor to arrive
at a Fair Market Value of the subject property in its "as is" condition using
the three traditional approaches to value as outlined in the Valuation section
of this report. Additionally, this appraiser will make a detailed investigation
of the subject property and will report any actual or suspected evidence of
environmental hazards or contaminants relative to the subject property.
Included in the scope of the appraisal will be the overall valuation of the
subject property as real property, as well as any fixed improvements, excluding,
unless otherwise mentioned, any and all trade fixtures located on the property.
Further included within the scope of the appraisal report, this appraiser
will analyze the subject property in comparison to comparable sales or leases
that have been found in the marketplace and have transpired within the past
several years. Additionally, this appraiser will research the history of the
subject property for the prior three years and report any transfers or
transactions involved on the subject property that may offer any insight as to
the overall Fair Market Value of the property.
In summary, the scope of this appraisal includes, but is not limited to
- an inspection of the property which is the subject of this
appraisal assignment,
- the searching, collection, verification, and analysis of relevant
data,
- the Highest and Best Use conclusion,
- the consideration of the Cost, Income Capitalization and Sales
Comparison Approaches to Value and the implementation of the
applicable approaches to value for estimating the market value of
the property as a whole, and
- the reconciliation of the applicable approaches to value and the
final estimates of market value.
11
<PAGE>
ENVIRONMENTAL STATEMENTS
------------------------
The market value conclusion in this report is based upon the presumption
that there are no conditions of environmental concern which affect the value of
--
the subject property, including, but not limited to, hazardous or toxic wastes,
wetlands, buried storage tanks, PCB's, and radon gas.
During my physical property inspection on May 25, 1997, I did not observe
any signs of potential problems. However, as we have no expertise in
environmental matters, we strongly recommend that any related questions or
concerns be evaluated by a qualified expert prior to finalizing decisions
regarding the subject property.
SITE IDENTIFICATION
-------------------
The subject property is located on the east and west sides of St. Charles
Parkway, near its southern terminus at the White Plains Regional Park. The
subject parcel is designated as being found on Tax Map 15, Parcel 149, which
according to the Tax Maps contains a total of 1,288.85 acres of land, more or
less.
This particular parcel is recorded in the Charles County Land Records at
Liber 454, Folio 21. It should be noted that the residential portions of the
property, according to information supplied to this appraiser, contains
approximately 1,288.85 acres, with the remaining acreage designated as
commercial use property, which has been excluded from the valuation of this
report. Also, the subject property's census tract is designated to be found in
Census Tract Numbers 8509.02, 8509.03 and 8509.04.
DATE OF APPRAISAL
-----------------
The estimated value within this appraisal shall be as of May 25, 1997, the
date upon which the assessor's full cash value and assessment is based.
LEGAL DATA
----------
Ownership to the subject property is currently vested in the name of the
St. Charles Associates, 222 Smallwood Village Center, Waldorf, Maryland 20602.
The deed indicating this ownership is dated April 28, 1981, and is recorded in
the Charles County Land Records at Liber 454, Folio 21.
12
<PAGE>
SALES/RENTAL HISTORY
--------------------
In accordance with the Appraisal Institute, as well as the Federal Home
Loan Bank Board, this appraiser has researched transfers of the subject property
for the prior 5-year period and has noted no transfers within this period of
time. It should be noted that the subject property is a portion of a
considerably larger tract that over the past 25 to 30 years has been developed
into the Carrington, Smallwood, Bannister, Wakefield, Huntington, Lancaster,
Hampshire, Dorchester and St. Charles Industrial Park neighborhoods. Within
these various neighborhoods, a considerable number of lots have transferred, the
most recent and most pertinent sales will be found later in this report as part
of the Market Data analysis of the various types of lots found in the designated
subject parcel.
ASSESSMENT AND TAXES
--------------------
The subject property is currently assessed as Part of Tax Map 15, Parcel
149. Current assessments on the subject property, as of the date of this
appraisal report, are as follows:
<TABLE>
<S> <C>
Land $515,440.00
Improvements -0-
----------
Total $515,440.00
</TABLE>
The subject property is currently assessed in the name of:
St. Charles Associates
222 Smallwood Village Center
Waldorf, Maryland 20601
The subject property is assessed as 1,288.85 acres of land. Current real
estate taxes are in the amount of $7,846.73. These taxes were paid on May 12,
1997.
The current tax rate for Charles County is $2.65 per $100.00 of assessed
value. The $2.65 is inclusive of all County, fire and State taxes associated
with real estate revenues. Current assessments on the subject property are based
on 40 percent of the assessors estimated Fair Market Value of the real estate
property taxes in Charles County, and as in other portions of Maryland, are
based on a tri-annual assessment period with base values of properties
reassessed every 3 years and increases during this period of time based on
market rates, which in the past few years have typically ranged from 6 to 8
percent but can increase upward to a 10 percent cap.
Tax rates for the subject property are deemed typical of other properties
located in the Charles County region and are not deemed to be excessive.
13
<PAGE>
ZONING
------
The subject property is currently zoned for either commercial or
residential development under the Planned Unit Development Overlay zone of the
St. Charles Subdivision and in particular, the Fairway Village Neighborhood. The
unit mix within the Fairway Village Subdivision, as proposed, has been approved
by the appropriate governmental authorities, to the best of this appraiser's
knowledge, and allows for the unit mix of residential development, as previously
discussed, as well as approximately 38 acres of commercial developable acreage
as well.
The Planned Unit Development classification is a zoning intended to provide
an environment suitable for both residential and commercial usage within the
Fairway Village Neighborhood, that will not create appreciable nuisances,
hazards, or threats to the natural environment or surrounding development. This
zone provides for a variety of residential usages, as well as commercial support
facilities for the neighborhood, and allows for considerable areas of open
space, park land and recreational facilities.
In addition to the predominantly residential activity found in this zone,
the zone also permits limited commercial, retail and office usage complementary
to the neighborhood. Additionally, areas are designated for recreational
activities, as well as open space reserves. Some of the uses permitted within
this zoning are residential, single-family attached and detached units,
commercial retail centers, office buildings, day care centers, nursery schools,
banks and financial institutions, etc.
The subject property in its current form as a large tract of vacant acreage
is well within the legal constraints of the planned unit zoning. The proposed
usage of the subject property along unit guidelines as set forth in this
appraisal, also appears to be a conforming use as well once completed.
The minimum lot sizes for townhouses are approximately 1,500 square feet
per interior units; minimum lot sizes for single-family dwellings are
approximately 6,000 square feet.
Please find in the Addendum of this appraisal, a list of appropriate sizes
and densities as set forth for planned unit developments.
14
<PAGE>
[MAP APPEARS HERE]
<PAGE>
PROPERTY LOCATION
-----------------
The subject property is located off of the east and west sides of St.
Charles Parkway, near its southern terminus at White Plains Regional Park. Via
St. Charles Parkway and several alternative routes, the subject property is
within approximately 1 mile of both U.S. Route 301 and Maryland Route 5. U.S.
Route 301 is considered the major north/south bisector of this portion of
Charles County and affords the subject property easy access to major
metropolitan market areas to the north and south of the subject neighborhood.
Maryland Route 5 is considered the major east/west bisector of this portion of
Charles County and affords the subject property access to major employment and
population areas, as well as to other Southern Maryland jurisdictions.
From the subject location, driving times to Washington, Annapolis,
Baltimore and Richmond are 30 minutes, 45 minutes, 60 minutes and 90 minutes,
respectively. However, for purposes of the trucking/warehousing industries, the
subject location is less desirable than a location further north. The trucking
industry considers thirty miles to be the perimeter from a major city. The
subject is just outside that distance from Washington, D.C.; however, it is
somewhat centrally located if one's market includes Washington, D.C., Baltimore,
Richmond and Norfolk.
15
<PAGE>
[LOCATION MAP APPEARS HERE]
<PAGE>
REGIONAL ANALYSIS
-----------------
The appraised property is located in Charles County, part of the
Washington Metropolitan area which also includes Montgomery, Prince George's,
Frederick and Calvert Counties in Maryland, and Fairfax, Loudon, Prince William
and Arlington Counties in Virginia.
The District of Columbia is surrounded by the Capital Beltway, which
is crossed by a number of arterial highways radiating from the District.
Maryland Routes 210 and 5 provide direct access from Charles County to the
Beltway and the District. Three major airports serve the area: Dulles
International, 40 miles northwest of Charles County, and Washington National, 25
miles to the northwest, both in northern Virginia, and Baltimore-Washington
International, 50 miles to the north in Anne Arundel County. Baltimore Harbor,
60 miles north of Waldorf, has a channel depth of 42 feet and accommodates more
than 100 steamship lines.
The Washington Metropolitan Area leads the nation in the proportion of
the professional, executive, managerial and administrative people. Among the
colleges and universities in the Washington area are American, George
Washington, Georgetown, Catholic and Howard Universities in the District of
Columbia, the University of Maryland and Bowie State University in Prince
George's County.
The Federal Government is the largest employer in the region. Federal
agencies in and around the District of Columbia provide more than 350,000 jobs.
Nearly 200,000 state and local government jobs increase the non-military
government payroll to more than 500,000. Private companies supplying contract
services and related products employ about 30% of the civilian labor force.
Services, retail trades, and the construction industry constitute a large part
of the remaining work force.
The Washington area has been one of the most rapidly developing
regions in the nation. Current population estimates exceed 3,850,000. Federal
officials have recently approved the consolidation of the Washington and
Baltimore metropolitan areas, with a combined metropolitan population of over
6.7 million.
The economic recession of the early 1990's affected all areas of the
regional economy. However, in the past couple of years, there have been growing
signs of recovery in all sectors of the economy with residential real estate
showing the greatest strength. Surveys of land and housing prices in the
metropolitan area show that these costs are typically lower in southern Maryland
in general and Charles County in particular, than those of the more populous
jurisdictions. This relative affordability is one of the primary conditions
fueling growth in the county.
16
<PAGE>
COUNTY ANALYSIS
---------------
Charles County is a 458 square mile peninsula with approximately 150
miles of shoreline. Although about 40% of the county's land is still devoted to
agriculture, the Route 301 corridor through Waldorf has assumed a suburban
character.
A relatively low tax rate, plentiful land inventory, and good highway
access, together with the administration's policy of encouraging growth and
industry, have promoted residential and commercial expansion. Between 1980 and
1990, the county's population increased by 39% to 101,154 residents, with about
43% of the county's population concentrated in the 6th Election District, which
includes Waldorf. Current population is estimated to be 111,200 and is expected
to increase to 128,700 by 2005.
La Plata and Indian Head are the only two incorporated towns in the
county. La Plata, centered at the intersection of Routes 301 and 6 near the
geographical center of the county, is the seat of county government. The town
limits have recently extended northward along U.S. Route 301 to include about
1,000 acres slated for planned unit development. Indian Head, about 12 miles
northwest of La Plata, is the site of a United States Naval Ordnance Station,
recently renamed the Naval Surface Warfare Center, and is a major employer for
the region. The most heavily populated part of the county is the Waldorf/St.
Charles area located in the north central part of the county about seven miles
north of La Plata. The Waldorf/St. Charles area contains about half of the
county residents.
The unemployment rate in Charles County has remained constant at about
3% until 1991 when it increased to more than 7%. However, there has been steady
improvement during the last few years. As of December 1995 the rate was 2.7%. As
of December 1994 the rate was 3.2%; and as of December 1993 the rate was 3.7%.
Local industries that provide employment opportunities include the construction
trade, government, health related professions, real estate and associated
fields, power generation, lumbering and manufacturing of wood products, metal
and steel fabrication, manufacture of concrete products, computer operations,
engineering and research nurseries and harvesting of seafood.
Five high schools, six middle schools and eighteen elementary schools
serve more than 19,000 students in the county's public school system.
Handicapped students attend the F.B. Gwynn Educational Center in La Plata, and
vocational studies are provided by the Charles County Vocational-Technical
Center in Pomfret. In addition, the county has 12 private schools. The Charles
county Community College, about 15 miles south, has over 4,500 students and
offers a two-year program leading to an Associate of Arts Degree. Other courses
of study include transfer programs and certification in certain trade programs
requiring less than two years of study. The college maintains an extension
center in the Smallwood Village of St. Charles, with a selection of course
offered there and at other nearby locations.
17
<PAGE>
Electricity for the county is supplied by Southern Maryland Electric
Cooperative, Inc.; the Washington Gas Light Company provides natural gas to some
parts of the county. The Charles County Department of Public Works provides
water for St. Charles and other parts of Waldorf; many smaller communities have
private water systems. The north part of the county is served by the Mattawoman
Sewerage Treatment Plant, which was completed about 10 years ago, and has
recently been expanded.
U.S. Route 301 is the main thoroughfare through Charles County and a
major traffic artery for the east coast. It parallels I-95 about 15 miles to the
west and is the principal alternative to that heavily congested corridor between
Richmond and Baltimore. Route 5, leading from St. Mary's County on the south
through eastern Charles and Prince George's Counties into the District of
Columbia, is a heavily-traveled commuter route. Route 5 is in the process of
being re-routed around Waldorf. Route 6 connects with Route 5 in northern St.
Mary's County about 16 miles east of La Plata, and is the county's primary east-
west route connecting the development corridors east of La Plata with rural
areas to the south and west. The only public transportation available is
provided by private bus firms. Most residents commute in private vehicles.
A comprehensive rezoning plan for Charles County, adopted in September
of 1990 calls for much of the northern and central part of the county, including
La Plata, to be rezoned for more intensive development, while most other areas
of the county will stay in the "Rural Agricultural" zone. The plan assigns
development districts designed to limit urban sprawl and concentrate growth in
clearly defined development areas, projecting that the greatest concentration of
growth through 2010 (68% of new residential units) will be in the Waldorf/St.
Charles area and La Plata. The comprehensive plan was codified with the adoption
of the new zoning ordinance in October of 1992. Despite generally declining
economic conditions during the recent recession, growth in Charles County has
remained stronger than in many other parts of the Washington area. In the past
couple of years, there have been growing signs of recovery in all segments of
the local economy.
Because of the rapid growth in the past, the major problem confronting
the Charles County region has been traffic gridlock, particularly along the
major commuter routes to Washington, D.C., as well as on the secondary roads
through the major employment centers of the area; namely, Waldorf, La Plata, and
Indian Head. To help alleviate some of this traffic congestion, numerous road
upgrades, as well as expansions, are currently being proposed or approved. In
Waldorf, the western and eastern bypasses are designed to eliminate large
amounts of traffic on U.S. Route 301 and Route 5 corridors, as well as in
conjunction with the Prince George's County upgrade of Route 5 and Route 301 as
they cross over through those jurisdictions. Additionally, the State Highway
Administration is also expanding portions of Route 5, as well as Route 205, in
the Waldorf area. Once these bypasses and upgrades are completed, a considerable
amount of the traffic congestion is expected to be alleviated for a number of
years.
18
<PAGE>
Charles County is fortunate enough to be located, as previously
mentioned, near the Chesapeake Bay, or on the tributaries leading to the
Chesapeake Bay, which offers numerous recreational opportunities to the
residents of the County. The County has provided recreational services in the
form of numerous parks. One is the White Plains Regional Park, which has an
eighteen hole golf course. This enhances the livability and desirability of the
County. Because of these facts, the County has enjoyed a steady population
growth and riding on its coat-tails has been an increase in jobs, income levels
of employment and property values in both the residential and commercial sectors
throughout the area.
The Charles county Government and other local jurisdictions in the
area of Southern Maryland have avoided a large number of the problems associated
with rapid growth. These local Governments continue to plan for and allocate
resources to meet future needs. Therefore, it appears that the basis has been
laid for the continuing orderly expansion of the area of Charles County, as well
as the maintenance and preservation of the historic, recreational and service
attributes required to maintain a high standard of living.
Based on the aforementioned data, it is this appraiser's opinion that
the Charles County area will continue to provide the services needed at
reasonable levels to attract the quality growth it has seen in the past few
years. Along these lines, Charles County should remain a desirable place both
for residential, as well as commercial, expansion into the foreseeable future.
19
<PAGE>
[INDEX TO MAPS APPEARS HERE]
<PAGE>
NEIGHBORHOOD DATA
-----------------
The subject property is located in the unincorporated township of
Waldorf/White Plains, in the northern most portion of Charles County, Maryland.
This area is the most densely populated and developed zone of the County. As it
has in the recent past, the Waldorf area is experiencing both rapid residential
and commercial growth.
Well over a third of Charles County's population is located in the
Sixth (6th) Election District, which encompasses Waldorf and the surrounding
neighborhoods.
"St. Charles," a very successful planned unit community, and in which
the subject neighborhood is located, is in the southern portion of Waldorf, and
along with Pinefield, another large cluster community located in the northern
portion, serves as a basis for the rapid commercial expansion in the Waldorf
area.
Major commercial development in Waldorf has concentrated on the U.S.
Route 301/Maryland Route 5 corridor. Several large shopping centers lie within a
1/4 mile of the Route 301/Route 5 intersection with other smaller retail strip
shopping centers and individual stores expanding outward along the different
highways from these large centers. In addition to retail centers, a good mix of
office buildings, automobile dealerships, hotels, restaurants, service stations,
banks and medical centers service the community and surrounding areas.
Industrial and warehouse uses are located along Maryland Route 925,
Old Washington Avenue. This road parallels U.S. Route 301 to the east and
supplies suitable areas for the heavier retail and industrial needs of the
neighborhood.
20
<PAGE>
SITE DESCRIPTION
----------------
The subject site, in its entirety, contains approximately 1,288.85
acres of land, more or less, which encompasses the proposed Fairway Village
Subdivision. The subject property will be divided into two residential
neighborhoods, one designated as the Gleneagles Neighborhood, and the other the
Sheffield Neighborhood.
The subject property is irregularly shaped, though it appears to lend
itself well to the proposed Fairway Village Neighborhood development concept
plan. Please refer to a copy of the overall Concept Plan, as prepared by
Whitman, Requart & Associates of Baltimore, Maryland for Interstate General
Company, L.P. for an overview and conceptual plan of the proposed location and
site of the subject property.
This particular parcel is part of a larger parcel that has been
developed as an ongoing Planned Unit Development over the past 25 to 30 years.
The subject neighborhood will have direct access to St. Charles Parkway. The
main portion of the site, which will house the residential development, will lie
on both the east and west sides of St. Charles Parkway.
The subject property is a level to moderately rolling topography and
for the most part, the subject property is entirely wooded at time of
inspection. Portions of the property have been recently timbered over the past
few years, though this does appear to impact the overall valuation of the
property.
All utilities are available to the site, which include both public
water and sewer, as supplied by the Charles County Department of Public Works.
Electricity is furnished by the Southern Maryland Electric Coop. Local phone
service is available through the Bell Atlantic Phone Company, with long
distance service available through a number of competitive long distance
companies. Gas is also available through the Washington Gas Company network.
On the northern-most portion of the neighborhood, there currently
exists a overhead high tension line power right-of way system, and also an
underground gas utility right-of-way as well. These transmission lines for both
electric and gas do not appear to adversely impact the subject property and the
overall development plan has taken these into consideration and no major
commercial or residential improvements lie within close proximity to these
right-of-ways.
No other adverse easements or encroachments were observed other than
the standard utility easements that would effect the overall valuation of the
subject property. It should be noted that for the most part, the subject
property lies outside of any HUD designated flood plain as delineated on Flood
Map No. 240059-0035B, Zone C.
In terms of subsoil conditions, we have not been provided data
relative to any subsoil conditions, nor did we observed any adverse subsoil
conditions that would impact the overall valuation of the subject property or
preclude development of the site as projected.
21
<PAGE>
[SITE LOCATION APPEARS HERE]
<PAGE>
[MAP OF SUBJECT PROPERTY APPEARS HERE]
<PAGE>
[MAP OF ST. CHARLES APPEARS HERE]
<PAGE>
A detailed legal description of the subject property, as noted earlier
in this report, may be found in the Charles County Land Records at Liber 454,
Folio 21. It is further described as being found in the Charles County Tax Maps
at Map 15, Parcel 149.
PROPOSED IMPROVEMENTS
---------------------
The Fairway Village section of the St. Charles Community, which
contains approximately 1,288.85 acres of land, more or less, is proposed for
development as a combination of commercial and residential planned unit
development. The commercial portion, which contains approximately 38 acres, has
been excluded from the overall valuation of this report.
The residential section, as proposed, will be divided into 837
townhouse units, to be developed in four phases; 922 large single-family
detached units, which will be developed in three phases; 499 medium single-
family detached lots, which will be developed in four phases; 252 small single-
family detached lots, which will be developed in two phases; and 836 total
apartment units, which will be developed in two phases. The entire total
density, as designated for the Fairway Village neighborhoods of Gleneagles and
Sheffield, will contain a total of 3,346 residential units.
As projected by the developer, finished townhouse lots will have an
estimated market value of $32,000.00; single-family detached large lots will
have an estimated value of $49,000.00; single-family detached medium lots will
have an estimated value of $42,000.00; and single-family detached small lots
will have an estimated value of $36,400.00. Apartment units are estimated to
have a market value of $7,000.00 per unit.
The Fairway Village Neighborhood will be developed with two community
centers, one for the Gleneagles section and one for the Sheffield section.
Additionally, an area has been designated as a location for an elementary school
and as proposed, large areas of open space will be provided as well as a number
of man-made lakes and ponds.
Also, the Fairway Village Neighborhood is projected for office and
retail needs. Two recreational community centers are proposed. In addition, it
should be noted that the subject property, to a large extent, wraps around the
White Plains Regional Park, which is the site of an 18-hole golf course. Access
will be provided for both pedestrian and vehicular traffic to the golf course
facilities.
As proposed, residential townhouse units will range in size from a
minimum of 1,500 square feet upwards; single-family detached units will range in
size from 6,000 square feet upwards to 1/4 to 1/3 acre.
Apartment densities are estimated to have minimum square footages per
density unit of from 3,000 to 5,000 square feet per apartment type or an average
of 4,000 square feet per development unit.
22
<PAGE>
As proposed, the Fairway Village Neighborhood will be developed in five
stages, and is delineated as follows:
<TABLE>
<CAPTION>
=======================================================================================
UNIT PACE BY PHASE PHASE I PHASE 2 PHASE 3 PHASE 4 PHASE 5 TOTAL
=======================================================================================
<S> <C> <C> <C> <C> <C> <C>
Townhouse 154 149 372 -0- 162 837
- ---------------------------------------------------------------------------------------
Single-Family-70ft. 247 170 -0- 505 -0- 922
- ---------------------------------------------------------------------------------------
Single-Family-60ft. 149 41 215 -0- 94 499
- ---------------------------------------------------------------------------------------
Single-Family-52ft. 73 179 -0- -0- -0- 252
- ---------------------------------------------------------------------------------------
Apartment -0- 359 -0- -0- 477 836
--- --- --- --- --- ---
- ---------------------------------------------------------------------------------------
623 898 587 505 733 3,346
=======================================================================================
</TABLE>
Overall absorptions of the various lots in terms of unit pace will be
discussed in the overall valuation section of this report.
As proposed, townhouse lots, residential units and apartment units would be
deemed typical of most competitive units found in the marketplace, though
Fairway Village will offer more of a diverse single-family detached lot package,
which will allow for a number of builders to be building homes in the
neighborhood at varying price levels.
23
<PAGE>
[MAP APPEARS HERE]
<PAGE>
[MAP APPEARS HERE]
<PAGE>
HIGHEST AND BEST USE ANALYSIS
-----------------------------
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.
When considering the highest and best use concept it is important to
realize several essential factors. Typically, the purpose of an appraisal is to
estimate market value. The highest and best use analysis identifies the most
profitable, competitive use to which the property can be put. Therefore, the
highest and best use concept is a market driven concept and as such is not
dependent on subjective analysis by the owner, a developer, or the appraiser.
Highest and best use may change with time and conditions. For example, a
particular Site might be zoned for single family dwelling; however, because of
shifting economic and social patterns, the highest present utilization of this
site might be achieved by conversion to commercial uses; or it may be possible
to anticipate developments which will bring about a change in highest and best
permitted use, and endow a site with future value even though there is no
current demand for such use.
Uses permitted by zoning regulations may be less valuable than the
potential use to which the land is adapted. Purchasers of land will sometimes
pay more for a parcel for its potential use than could be supported by its
legally permitted use. Such purchasers buy in anticipation of a reasonable
expected change in the permitted use. Accordingly, a market value estimate takes
into account not only current zoning, but the market's estimate of the added
value with the probability of a zoning change permitting the highest and best
use.
The highest and best use of land, if vacant and available for use, may be
different from the highest and best use of property, if improved. To render a
sound estimate of highest and best use, the appraiser, in all cases, must
consider the location and physical characteristics of the subject site,
condition, and probable economic life of any existing improvements, character of
the neighborhood, and zoning, in light of the basic economic principles of real
property valuation.
In estimating highest and best use, there are four criteria for analysis
and they must be analyzed sequentially. They are:
1. Physically Possible Use - What uses of the site are physically
possible?
2. Legally Permissible Use - What uses are permitted by zoning and deed
restrictions on the site in question?
24
<PAGE>
3. Financially Feasible Use - Which possible and permissible uses will
produce a net return to the owner of the site?
4. Maximally Profitable Use - Among the feasible uses, which will produce
the highest net return or the highest present worth or which use will
maximally productive?
Following are the tests for aforementioned criteria as applied to the
subject property.
AS VACANT
PHYSICALLY POSSIBLE USE
The subject property in its entirety is a tract of land containing
approximately 1,288.85 acres of land, more or less. The subject site has a level
to moderately rolling topography. All utilities are available to the site, and
with the site's location within the St. Charles Community, the subject site
would be suitable for a broad range of development activities, as allowable
under the Planned Unit Development Overlay of the St. Charles Subdivision, and
in particular the Fairway Village Neighborhood, which allows for both business,
commercial, as well as residential activity.
LEGALLY PERMISSIBLE USE
The zoning for the subject property is currently for either commercial or
residential development under the Planned Unit Development zone of St. Charles.
The overlay zoning of Planned Unit Development allows for a combination of
residential, multi-tenant, industrial, commercial and office type usages.
However, the area of the subject property has predominantly been designated for
either residential or community commercial or office type development.
Therefore, were the property vacant, the development of the subject property
along the lines of a residential subdivision with appropriate commercial support
would be deemed most appropriate. For further details on the Planned Unit
Development zoning and appropriate usages, as well as land size, allocation, lot
size and development densities. Please refer to the Zoning section of this
report for further details.
Furthermore, it should be noted that this appraiser is not aware of any
private deed restrictions, which would limit the use of the subject property as
proposed. Also, there are no anticipated changes in zoning or utility
availability that would effect the overall valuation of the property at this
time.
25
<PAGE>
FINANCIALLY FEASIBLE USE
This section of the highest and best use analysis pertains to development
costs at the subject site, as well as the demand for uses physically and legally
possible. The entire subject site will have a level to slightly rolling
topography which should, in terms of residential development and road
development, allow for the installation of these amenities at reasonable
development cost levels. As proposed, residential lot development costs, as
projected, will total approximately $41,962,000.00 or an average lot development
cost of approximately $12,541.00. An additional $48,160,000.00 of community-wide
development will also be incurred, though this allocation must be divided
between the business park, the commercial parks, and infrastructure leading to
additional future communities to be developed. Allowing for a 50 percent
allocation of these services to the commercial business parks, as well as to
adjoining neighborhoods, the added development costs per residential unit within
the Fairway Village Neighborhood approximates $7,196.00 or $7,200.00 +/-, or
development cost potentials of approximately S19,700.00 (+/-) per unit.
This places the overall development costs of the subject property within
development ranges as indicated by comparable subdivisions used as overall
support, though somewhat to the higher scale of costs. However, the inclusion of
neighborhood community centers, associated pool and recreational facilities, as
well as the extensive road systems, trails, paths, park area, etc., which are
included in these costs, in this appraiser's opinion, further enhance the
overall marketability of the subject neighborhood.
MAXIMALLY PROFITABLE USE
The maximally profitable use conclusion for the subject~property, as
vacant, is equivalent to the highest and best use for the subject site. All the
foregoing factors are distilled into a conclusion of use which would generate
the highest net income to the site. The site size dictates significant
development, although at present a single user, in all likelihood, would not be
the purchaser of the site. As in the past sections of St. Charles, namely, the
Bannister, Wakefield, Carrington, Westlake Neighborhoods, etc., the subject lots
were marketed to a number of end-user or builders. At any given time, from a
handful to upwards of 20 builders have developed houses in both attached and
detached units in varying price ranges within previously developed neighborhoods
of St. Charles. Although the extensive numbers as in the last 1980's are not
expected in terms of builder diversity at this time, a number of major builders
could market properties within the neighborhood in various sections and still
maintain, in this appraiser's opinion, profitable levels of sale and absorption
activity.
The overall unit mix appears to be appropriate for the maximum yield of
lots within the neighborhood, and this mix also allows for a modification of
development plans if economic conditions call for development of one type of
unit more quickly than another. This flexibility is important, particularly in
regards to the amount of competition in the single-family detached
26
<PAGE>
and townhouse units in the northern portion of Charles County. Additionally, if
apartment units require a quicker absorption, more units can be brought into the
development mode quicker than projected in the aforementioned schedules.
Because of this flexibility, it appears that the subject property should be
considered a well planned and well thought out multi faced planned unit
development community, which should be in a position to maximize profit and
yields to the developer.
AS IMPROVED
The subject property will be developed along traditional lot sizes and
types as found in the previous sections of the St. Charles Planned Unit
Development, as well as in other residential communities found in the Southern
Maryland area. For the most part, St. Charles will be in direct competition with
a number of single-family detached subdivisions along the Berry Road corridor,
as well as townhouse communities found throughout the northern portion of
Charles County.
The added amenities associated with the community centers, parks and
recreational facilities located throughout the Fairway Village Neighborhood as
proposed should be considered on levels equal to, if not far surpassing those
offered by most other residential communities in the marketplace. Also, the lot
size and price range of residential detached lots will allow for the development
of the subject property in different price ranges and thus a number of builders
may be placed in the neighborhood, which will allow for higher absorption rates,
but allow for sufficient enough difference in pricing such as not to be in
direct competition with one another. The townhouse lots are also scattered
throughout the neighborhood and thus several builders could market different
price ranges of townhouse units within the Fairway Village Neighborhood and not
be in direct competition to hamper one another's profitability to a large
extent.
Therefore, it is this appraiser's conclusion that the "as is" highest and
best use of the site is the continuing development of the subject property on a
proposed residential and commercial format as found in this report.
The subject property will be improved into single-family attached and
detached residential units, as well as commercial, retail and office facilities.
This basic concept plan is the traditional concept plan found in the previous
neighborhoods of the St. Charles Planned Unit Development Community and has been
implemented, for the most part, successfully in all of the previous
neighborhoods. The format allows for, as previously mentioned, considerable open
space, park lands, recreational facilities, as well as easy access to the White
Plains Regional Park, which is the location of an 18-hole golf course. The
recreational facilities associated with the neighborhood and the White Plains
Regional Park can only help facilitate the final development of the property.
Once completed, the subject lots should be deemed traditional building lots
similar to those found in the Southern Maryland community as a whole.
27
<PAGE>
PHYSICALLY POSSIBLE
The subject property will be completed as a multi-stage
residential/commercial neighborhood within the Planned Unit Developed. As
currently proposed, the subject site is well suited for this combined usage. The
subject site could be further developed for a number of alternative
residential/commercial designs, all of which would be considered alternative
highest and best uses of the site. However, it appears that the product mix, in
terms of residential attached and detached units, as well as commercial units
will generate sufficient profit and return to the developers, such that it
should be considered the highest and best use of the site.
LEGALLY PERMISSIBLE USE
Those uses noted in the "as vacant" legally permissible section of the
Highest and Best Use analysis remain pertinent. The subject zoning is somewhat
restricted under the PUD of St. Charles, though the residential development
units, both attached and detached as projected, as well as commercial usages are
all allowed within the neighborhood. For the most part, however, the development
of the Fairway Village will be predominantly residential in nature.
FINANCIALLY FEASIBLE USE
The financial factors affecting the subject property are quite straight
forward since there is a long term marketing plan associated with the uses of
the property. The project itself will be developed as predominantly residential
lots or units, which will be, for the most part, sold to individual builders or
development companies and then ultimately developed as single-family improved
units and sold to the retail clientele. Based on current market conditions, it
appears that an absorption of lots within the neighborhood would be sufficient
to achieve reasonable returns or profit levels to the developer, as well as to
maintain consistent repayment of debt service. Additionally, as the neighborhood
becomes more and more developed, the demand for the commercial components of the
neighborhood will increase and additional profit levels will be achieved at this
time as well. Therefore,based on absorption levels and profitability levels,
which will further be discussed later in this report, the subject operation
should be considered both a financially feasible, as well as economically viable
undertaking in this appraiser's opinion.
MAXIMALLY PROFITABLE USE
The maximally profitable use conclusion for the subject, as improved, is
equivalent to the Highest and Best Use conclusion for the subject, as improved.
The foregoing considerations indicate that: the subject property is designed and
intended for a multi phase development, residential and commercial plan that is
considered the highest and best use of the property. Should market conditions
change, there is sufficient flexibility in the plan to allow for development of
those phases or types of product that are in most demand at any given time.
28
<PAGE>
In light of these conditions, it is this appraiser's opinion that the
maximally profitable use of the properly and hence the highest and best use of
the subject property as improved is its continuing development as an attached
and detached residential community with neighborhood commercial support
facilities.
29
<PAGE>
THE APPRAISAL PROCESS
---------------------
The appraisal process is a systematic method of gathering data regarding
sociological, physical, economic and governmental forces for the purpose of
analyzing and interpreting their influence, in terms of value, on a specific
real properly. In this process, three basic valuation techniques are used: the
Cost, Income Capitalization and Sales Comparison Approaches. A brief description
of each approach and its relevance to the appraisal of the subject property is
listed below.
In the Cost Approach, the site is valued as if vacant and available to be
put to its highest and best use. The reproduction costs new of the improvements
is estimated less accrued depreciation from all causes, physical, functional and
economic. The land value is estimated by the Market Approach which involves
comparing the subject site with similar parcels which have recently sold. The
depreciated value of the improvements is then added to the site value for an
indication of value by the Cost Approach.
In developing the Income Capitalization approach, the appraisers are
concerned with the present worth of the future potential financial benefits
anticipated through the ownership of real property. In this process, the
potential gross income is estimated from market rentals less an allowance for
vacancy and collection loss. The result is an effective gross income limo which
the operation expenses are deducted to arrive at a net operating income. By
using the appropriate method and rate, this net operating income is capitalized
into an indication of value.
The Sales Comparison Approach is essential in almost every appraisal of
real property. This approach involves the collection and analysis of recent
sales of similarly improved properties. These sale are then compared directly to
the subject and are adjusted to value influencing elements of comparison, such
as time, location, physical characteristics and other factors affecting value.
The resulting adjusted sales indicate a range of value for the subject property.
The reliability of this approach is predicated upon the acquisition of
sufficient and relevant comparable sales data.
All the possible approaches to value are essentially based on the
"principle of substitution". This principle is predicated on the assumption that
an informed prudent purchaser would pay no more for a property than the cost to
him of acquiring an equally desirable substitute property with comparable
utility. Substitution may assume the form of the purchase of an existing
property with the same utility or of acquiring a substitute investment which
will produce an equivalent income stream.
The last step in the appraisal process is the reconciliation of value
estimates derived by each approach into a final estimate of value for the
subject property. Each approach will be discussed with respect to its relevancy
to the appraisal problem at hand and developed where appropriate.
30
<PAGE>
VALUATION
---------
The three traditional approaches to value have been considered in the final
valuation of the subject property. These approaches are as follows:
(1) the Cost Approach, where the land is considered as if vacant,
plus the cost of improvements, less depreciation;
(2) the Market Data Approach, which is otherwise known as the direct
sales approach, where the appraiser compares the subject property
to that of comparable sales; and
(3) the Income Approach, where the appraiser capitalizes the
potential income stream of the subject property.
Because there is currently no income stream, nor improvements located on
the subject property that would offer any appreciable insight as to the value of
the property, the Cost Approach and Income Approach have been disregarded. The
Cost Approach, however, will be used in the evaluation of the development costs
in this report where appropriate.
31
<PAGE>
VALUATION
OF THE
APARTMENT UNITS
32
<PAGE>
VALUATION OF THE APARTMENT UNITS
--------------------------------
The Market Data Approach is an approach to value wherein the appraiser
seeks out sales of similar properties that have occurred recently. These sales
are then adjusted for dissimilarities between sale properties and the subject
property to arrive at an indication of value. Theoretically, the Market Data
Approach reflects the actions of buyers and sellers in the marketplace.
COMPARABLE SALE #1
Grantor: Edward R. Curley, Jr.
Grantee: Prince Buzzuto, L.P.
Date of Sale: 12/30/91
Location: south side of Armory Road
Prince Frederick, Maryland
Tax Map 24, Grid 10, Parcel 647
Legal: Liber 585, Folio 446
Acreage: 13.3847 acres
Units: 180
Price: $1,080,800.00
Price per unit: $6,004.00
Comments: This is the purchase of a parcel of land zoned for apartments that
has been developed into the Silverwood Farm Apartment complex. At the time of
sale, approvals were in place for 180 multi-family residential apartment units.
This property is serviced with public water and sewer and was zoned TC. The
location of this comparable is deemed considerably inferior to the subject
property's location in St. Charles.
Adjustments for comparison:
- --------------------------
Location +30%
----
Total adjustment +30%
$6,004.00 x 1.30 = $7,805.00 per unit
33
<PAGE>
[MAP APPEARS HERE]
<PAGE>
COMPARABLE SALE #2
Grantor: Patuxent Point Partnership
Grantee: Ashbury Methodist Homes, Inc.
Date of Sale: 3/92
Location: off of Route 4, Solomons/Lusby
Tax Map 44, Grid 9, Parcel 468
Legal: Liber ABE 777, Folio 395
Units: 450
Price: $3,650,000.00
Price per unit: $8,111.00
Comments: This is a purchase by the Ashbury Methodist Homes, Inc., a
retirement community organization that has purchased a total of 450 units,
which are a combination of attached single-family townhouse units, as well
as a portion of these units being commercial hotel/motel unit density. The
intended development plan of the project is to convert these units into a
450 unit retirement/senior citizens community, featuring both independent,
as well as assisted care facilities. It should be noted that although this
is a waterfront parcel of land, it is the appraiser's opinion that the St.
Charles location of the appraised property offsets the waterfront location
of this comparable and no adjustments have been made.
Adjustments for comparison:
- --------------------------
- 0 -
-----
Total adjustment - 0 -
$8,111.00 x 1.00 = $8,111.00 per unit
34
<PAGE>
[MAP APPEARS HERE]
<PAGE>
COMPARABLE SALE #3
Grantor: Resolution Trust Corporation
Grantee: Walker Mill Towne
(Community Preservation Development)
Date of Sale: 2/10/95
Location: off of Walker Mill Road
Capital Heights, Maryland
Legal: Liber 10018, Folio 317
Acreage: 27.814 acres (12 units per acre)
Units: 211
Price: $1,340,000.00
Financing: $1,139,000.00, First Deed of Trust,
Resolution Trust Company, fixed at 9.5%
with a 20-year amortization
Price per unit: $6,350.00
Comments: Buyer is not a non-profit organization and intends to build low
to moderate priced income housing on the subject site. This transaction was
purchased from the RTC in raw, but engineered land form and set-up as the
Addison Arm Apartments, Plat Book WWW47, Plat 94. Overall location of this
sale in an older, somewhat lower income neighborhood is rated inferior to
the subject.
Adjustments for comparison:
- --------------------------
Location +20%
----
Total adjustment +20%
$6,350.00 x 1.20 = $7,620.00 per unit
35
<PAGE>
[MAP APPEARS HERE]
<PAGE>
COMPARABLE SALE #4
Grantor: Parcel U Associates Limited Partnership
Grantee: Washington Homes, Inc.
Date of Sale: 12/31/94
Location: off the south side of Evergreen Parkway
east of Everest Drive, Bowie, Maryland
Legal: Liber 9961, Folio 338
Acreage: 14.450 acres
Units: 262 proposed condominium units
Price: $3,100,000.00
Financing: $2,480,000.00, First Citizens Savings Bank
Price per unit: $11,832.06
Comments: This is the sale of 262 mid-rise condominium units in the Bowie
Towne Center area of Prince George's County. Overall location in a rapidly
expanding residential area, with both high quality and associated office
and multi-tenant residences is rated superior to that of the subject
property. Additionally, the close proximity to Maryland Route 50 and easy
access to the metropolitan beltway is also rated superior.
Adjustments for comparison
- --------------------------
Location - 20%
-----
Total adjustment - 20%
$11,832.06 x .80 = $9,466.00 per unit
36
<PAGE>
[MAP APPEARS HERE]
<PAGE>
COMPARABLE SALE #5
Grantor: Bob Title XIX, Inc.
Grantee: Jefferson at College Park, L.P.
Date of Sale: 6/2/97
Location: 10203-10207 Baltimore Avenue
College Park, Maryland
Tax Map 18, Grid E4-A, Parcel 0298
Legal: Liber 11200, Folio 003
Acreage: 9.624 acres
Units: 299
Price: $2,025,000.00
Financing: $1,500,000.00, First Union National
Bank, Credit Line Deed of Trust
Price per unit: $6,773.00
Comments: This is the recent re-sale of a property that was originally
purchased on March 1, 1994 for $2,100,000.00. Overall location in the
older, more commercially orientated area of College Park is rated somewhat
inferior to the subject property. However, this is modulated somewhat due
to the close proximity to the University of Maryland, which offers some
additional market absorption potential.
Adjustments for comparison:
Location +10%
----
Total adjustment +10%
$6,773.00 x 1.10 = $7,450.00 per unit
37
<PAGE>
[MAP APPEARS HERE]
<PAGE>
COMPARABLE SALE #6
Grantor: Walter A. Straughan
Grantee: Henson Creek Manor II Associates
Date of Sale: 11/1/96
Location: off the east side of Everhart Place
at Brinkley Towers, Ft. Washington, MD
Tax Map 97, Grid A2, Parcel 294
Legal: Liber 11097, Folio 451
Acreage: 9.405 acres
Units: 105 apartment units
Price: $1,045,000.00
Financing: 100%, Seller
Price per unit: $9,952.00
Comments: This is the sale of a site in the Ft. Washington area of Prince
George's County, which is rated to be a somewhat similar neighborhood as that of
the subject property. Financing, which is 100 percent by Seller at an
undisclosed interest rate, is rated slightly superior to normal market financing
because of lack of down-payment. The buyers previously purchased and developed
an adjoining site and had this property under option. This site is proposed for
45 three-bedroom units, 60 two-bedroom units, as well as a community building
and swimming pool.
Adjustments for comparison:
- --------------------------
Preferential Financing - 10%
-----
Total adjustment - 10%
$9,952.00 x .90 = $8,957.00 per unit
38
<PAGE>
[MAP APPEARS HERE]
<PAGE>
COMPARABLE SALE #7
Grantor: Preference Homes
Grantee: JMG Development Corp.
Date of Sale: 7/30/90
Location: off St. Barnabas Road
Oxon Hill, Maryland
Legal: Liber 7716, Folio 715
Acreage: 20.76 acres
Units: 96 apartments
Price: $1,024,000.00
Price per unit: $10,667.00
Comments: This is the recent sale of a parcel off the northwest side of St.
Barnabas Road in Prince George's County, just off the Beltway in Oxon Hill.
Overall close proximity to the Washington Beltway and easy access to other
metropolitan areas is rated slightly superior to that of the subject
property. Overall location in a moderate priced residential neighborhood
near shopping, is also rated similar to the subject.
Adjustments for comparison:
- --------------------------
Location - 20%
-----
Total adjustment - 20%
$10,667.00 x .80 = $8,543.00 per unit
39
<PAGE>
[MAP APPEARS HERE]
<PAGE>
COMPARABLE SUMMARY GRID
-----------------------
<TABLE>
<CAPTION>
================================================================================
COMP LOCATION PREF. TOTAL PRICE ADJ.
FINANCING ADJ. PRICE
================================================================================
<S> <C> <C> <C> <C> <C>
#1 +30% +30% $ 6,004.00 $7,805.00
- --------------------------------------------------------------------------------
#2 -0- $ 8,111.00 $8,111.00
- --------------------------------------------------------------------------------
#3 +20% +20% $ 6,350.00 $7,620.00
- --------------------------------------------------------------------------------
#4 -20% -20% $11,832.00 $9,466.00
- --------------------------------------------------------------------------------
#5 +10% +10% $ 6,773.00 $7,450.00
- --------------------------------------------------------------------------------
#6 -10% -10% $ 9,952.00 $8,957.00
- --------------------------------------------------------------------------------
#7 -20% -20% $10,667.00 $8,534.00
================================================================================
</TABLE>
Based on the aforesaid comparable sales, and weighing all comparable
sales equally in the final valuation, it is this appraiser's opinion that the
apartment units of the subject property, were they ready for immediate
development, would have a market value of approximately $9,000.00 per unit. This
places the valuation of the subject units in the mid-range of values as
indicated by the comparable sales contained in this report.
In reviewing the comparable sales, it should be noted that these sales
reflect bulk purchases of residential attached units, either condominium or
apartment type units, with sales ranging from 100 units (+/-) in a transaction
well over 400 units in a transaction. For the most part, prices therefore are
reflective of developers discounting for absorption during the final
development, rental or sales periods of these transactions. Therefore, it is
felt by this appraiser that the aforementioned value is reflective of internal
absorption computations.
Based on absorption trends in the multi-family unit purchases over the
past few years, it does not appear that there is any evidence that supports any
appreciation of property values in the recent past, nor is there any indication,
in this appraiser's opinion, that the market is such that prices will increase
substantially in the future. Therefore, in the overall valuation of the
apartment units, this appraiser has computed overall appreciation of the units
to be flat during the marketing period or holding period of the subject units.
In referring to the development schedule by Interstate General
Company, L.P., the apartment units will not be available until the third year of
development of the Fairway Village Neighborhood, with 40 units being available
in Year 3, 159 units coming on line in Year 4, 160 units in Year 5, 125 units in
Year 8, 200 units in Year 9, and 152 units in Year 10. Because of the block
nature of development of apartment type projects, it appears that this unit
schedule would be appropriate and absorption of these units could occur in a
reasonably timely manner.
40
<PAGE>
Along these lines, it should be noted that St. Charles Communities
holds the preponderance of the apartment units in the northern portion of
Charles County, and since their initial phase of apartment development within
the St. Charles Communities, St. Charles has absorbed 2,047 units over 25 years.
Given this absorption, it appears that the schedule as set forth for
Fairway Village should meet expectations. Along these lines, based on a 2,047
unit absorption over the past 20 years, St. Charles has averaged an absorption
of 89 units per year. Given the 836 units projected for the subject property,
were it a 10-year absorption, this reflects to approximately 84 units per year
or basically on-line with indicated historical absorptions.
It should be further noted that apartment competition outside of St.
Charles in the northern portion of Charles County is relatively limited, with
only 2 or 3 major projects in competition inside of St. Charles, and with these
projects, for the most part, maintaining 95 to 100 percent occupancy on a re-
lease basis. There are several parcels of apartment zoned property located in
the northern portion of Charles County that this appraiser is aware of. However,
for the most part, none of these are expected to be developed in the immediate
future, and nor would their development create an adverse impact on the market
or create an oversupply in the marketplace, in this appraiser's opinion.
Therefore, based on this analysis, it is this appraiser's opinion that
the 836 units of the subject property have an overall gross retail value of
$9,000.00 per unit, or $7,524,000.00.
The current "as is" value of the units, however, must reflect the
anticipated time for absorption or time to develop the units for the ultimate
sale or use of these units. As noted currently, according to St. Charles Fairway
Village development schedule, it is not expected for the initial units to be
available until Year 3, when 40 apartment units are brought on line; 159 in Year
4160 in Year 5; 125 in Year 8, 200 in Year 9; and 152 in Year 10.
Based on this development schedule, and based on the bulk lot
configuration of most of the comparable sales, as well as market evidence in
terms of absorption factors for the northern portion of Charles County, it
appears that the overall number of units could be sold in the projected time
frame.
Regardless, the overall valuation of the apartment units or multi-
family units must be discounted for the anticipated absorption time and carrying
costs during the holding period. In referring to the Appraisal Institute's
Valuation Insights and Prospective magazine, 2nd quarter 1997, Volume 2, No. 2,
- ----------------------------------
discount rates or internal rates of return for apartments have ranged from 10 to
12.5 percent in the first quarter of 1997, or an overall average of 11.23
percent. Internal rates of return, as extrapolated from the NationsBank
Valuation Criteria, mid-year 1996, have ranged from 8.75 to 10.5 percent for
apartment grade properties, with an overall average of approximately 9.75
percent. Typically, properties in raw land state command a higher return, with
rates ranging from 14 to 17 percent.
41
<PAGE>
As part of the Fairway Village complex, the apartment units, to a
large extent, share the amenities associated with the neighborhood and thus
would be able to use the various community centers, hiking trails, etc. that
will be built within the neighborhood. Thus, to a large extent, the Fairway
Village Apartments have a competitive advantage over some of the other potential
projects not located in St. Charles, since these amenities would not be
intrinsic to this site development, but must be constructed and thus add to
higher ultimate development costs.
Based on this evidence, it is this appraiser's opinion that a 14
percent discount rate is appropriate in the overall determination 6f developer
yields in the final "as is" value of the units.
In developing the attached ARGUS format, a discounted cash flow
analysis of the apartment units has been prepared. Real estate taxes of $95.00
per unit have been factored into the development holding period; 3 percent sales
expense has been factor into the analysis; and administrative costs of 1/2 of 1
percent have also been factored into the overall analysis of the discounted cash
flow. Based on a 14 percent discount rate or internal rate of return, the
estimated "as is" market value of the apartment units is $3,014,172.00, rounded
to $3,014,000.00.
42
<PAGE>
FAIRWAY VILLAGE
ST. CHARLES PKWY.
WALDORF, MARYLAND
PROSPECTIVE PRESENT VALUE
Cash Flow Before Debt Service
Discounted Annually (End-point on Cash Flow) over a 10-Year Period
<TABLE>
<CAPTION>
For the Discounted Total Total
Discount Cash Flow Value Value
Rates Before Debt per Unit per Size
- --------- ----------- -------- --------
<S> <C> <C> <C>
12.00% $3,371,687 $4,033 $4,033.11
12.50% 3,277,334 3,920 3,920.26
13.00% 3,186,399 3,811 3,811.48
13.50% 3,098,725 3,707 3,706.61
14.00% 3,014,172 3,605 3,605.47
14.50% 2,932,607 3,508 3,507.90
15.00% 2,853,904 3,414 3,413.76
15.50% 2,777,942 3,323 3,322.90
16.00% 2,704,607 3,235 3,235.18
</TABLE>
<PAGE>
FAIRWAY VILLAGE
ST. CHARLES PKWY.
WALDORF, MARYLAND
SCHEDULE OF PROSPECTIVE CASH FLOW
In Inflated Dollars for the Fiscal Year beginning 6/1/1997
<TABLE>
<CAPTION>
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
For the Years Ending May-1998 May-1999 May-2000 May-2001 May-2002 May-2003 May-2004
---------- ---------- ---------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
UNIT SALES REVENUE
Sales Revenue $360,000 $1,431,000 $1,440,000
Selling Costs (10,800) (42,930) (43,200)
---------- ---------- ---------- ---------- ---------- -------- -------
NET SALES REVENUE 349,200 1,388,070 1,396,800
---------- ---------- ---------- ---------- ---------- -------- -------
TOTAL POTENTIAL REVENUE 349,200 1,388,070 1,396,800
---------- ---------- ---------- ---------- ---------- -------- -------
MISCELLANEOUS EXPENSES
REAL ESTATE TAXES 9,530 9,530 9,287 8,097 6,278 5,438 5,438
MISC.& ADMIN. 2,257 2,257 2,200 1,918 1,481 1,288 1,288
---------- ---------- ---------- ---------- ---------- -------- -------
TOTAL MISCELLANEOUS EXPENSES 11,787 11,787 11,487 10,015 7,765 6,726 6,726
---------- ---------- ---------- ---------- ---------- -------- -------
TOTAL REVENUE BEFORE COSTS (11,787) (11,787) (337,713) 1,378,055 1,389,035 (6,726) (6,726)
CASH FLOW BEFORE DEBT SERVICE
---------- ---------- ---------- ---------- ---------- -------- -------
& INCOME TAX ($11,787) ($11,787) $337,713 $1,378,055 $1,389,035 ($6,726) ($6,726)
========== ========== ========== ========== ========== ======== =======
<CAPTION>
Year 8 Year 9 Year 10
For the Years Ending May-2005 May-2006 May-2007
---------- ---------- ---------
<S> <C> <C> <C>
UNIT SALES REVENUE
Sales Revenue $1,125,000 $1,800,000 $1,368,000
Selling Costs (33,750) (54,000) (41,040)
---------- ---------- ----------
NET SALES REVENUE 1,091,250 1,746,000 1,326,960
---------- ---------- ----------
TOTAL POTENTIAL REVENUE 1,091,250 1,746,000 1,326,960
---------- ---------- ----------
MISCELLANEOUS EXPENSES
REAL ESTATE TAXES 4,671 2,782 798
MISC.& ADMIN. 1,106 659 189
---------- ---------- ----------
TOTAL MISCELLANEOUS EXPENSES 5,777 3,441 987
---------- ---------- ----------
TOTAL REVENUE BEFORE COSTS 1,085,473 1,742,559 1,325,973
CASH FLOW BEFORE DEBT SERVICE
---------- ---------- ----------
& INCOME TAX $1,085,473 $1,742,559 $1,325,973
========== ========== ==========
</TABLE>
<PAGE>
FAIRWAY VILLAGE
ST. CHARLES PKWY.
WALDORF, MARYLAND
SCHEDULE OF SOURCES & USES OF CAPITAL
Equity is Based on Property Value, Leverage and Operating Requirements
<TABLE>
<CAPTION>
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
For the Years Ending May-1998 May-1999 May-2000 May-2001 May-2002 May-2003 May-2004 May-2005
---------- -------- -------- ---------- ---------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SOURCES OF CAPITAL
Net Operating Gains $337,713 $1,378,055 $1,389,035 $1,085,473
Initial Equity Contribution 2,704,607
---------- -------- -------- ---------- ---------- -------- --------- ---------
DEFINED SOURCES OF CAPITAL 2,704,607 337,713 1,378,055 1,389,035 1,085,473
---------- -------- -------- ---------- ---------- -------- --------- ---------
REQUIRED EQUITY CONTRIBUTIONS 11,787 11,787 6,726 6,726
---------- -------- -------- ---------- ---------- -------- --------- ---------
TOTAL SOURCES OF CAPITAL $2,716,394 $11,787 $337,713 $1,378,055 $1,389,035 $6,726 $6,726 $1,085,473
========== ======== ======== ========== ========== ======== ========= =========
USES OF CAPITAL
Property Present Value $2,704,607
Net Operating Loss 11,787 11,787 6,726 6,726
---------- -------- -------- ---------- ---------- -------- --------- ---------
DEFINED USES OF CAPITAL $2,716,394 11,787 6,726 6,726
---------- -------- -------- ---------- ---------- -------- --------- ---------
CASH FLOW DISTRIBUTIONS 337,713 1,378,055 1,389,035 1,085,473
---------- -------- -------- ---------- ---------- -------- --------- ---------
TOTAL USES OF CAPITAL $2,716,394 $11,787 $337,713 $1,378,055 $1,389,035 $6,726 $6,726 $1,085,473
========== ======== ======== ========== ========== ======== ========= =========
UNLEVERAGED CASH ON CASH RETURN
Cash to Purchase Price (0.44%) (0.44%) 12.49% 50.95% 51.36% (0.25%) (0.25%) 40.13%
<CAPTION>
Year 9 Year 10
For the Years Ending May-2006 May-2007
---------- --------
<S> <C> <C>
SOURCES OF CAPITAL
Net Operating Gains
Initial Equity Contribution $1,742,559 $1,325,973
---------- ---------
DEFINED SOURCES OF CAPITAL 1,742,559 1,325,973
---------- ---------
REQUIRED EQUITY CONTRIBUTIONS
---------- ---------
TOTAL SOURCES OF CAPITAL $1,742,559 $1,325,973
========== =========
USES OF CAPITAL
Property Present Value
Net Operating Loss
---------- ---------
DEFINED USES OF CAPITAL
---------- ---------
CASH FLOW DISTRIBUTIONS 1,742,559 1,325,973
---------- ---------
TOTAL USES OF CAPITAL $1,742,559 $1,325,973
========== =========
UNLEVERAGED CASH ON CASH RETURN
Cash to Purchase Price 64.43% 49.03%
</TABLE>
<PAGE>
VALUATION
OF THE
TOWNHOUSE UNITS
43
<PAGE>
VALUATION OF THE TOWNHOUSE UNITS
--------------------------------
Once again, the Market Data Approach has been used in the
establishment of value of the townhouse lots within the Fairway Village portion
of St. Charles Communities.
In referring to the proposed development schedule for townhouse units
in the Fairway Village, as proposed, 50 townhouse units will be developed in
Year 1; 54 units in Year 2; 50 units in Year 3; 74 units in Year 4; 104 units in
Year 5; 201 units in Year 6; 141 units in Year 7; 48 units in Year 8; 60 units
in Year 9; and 54 units in Year 10; for a total of 837 units.
In the overall analysis of the townhouse units, this appraiser has
selected sales of units in the same market area as that of the subject property.
This appraiser has reviewed both sales of bulk, undeveloped units, as well as
those of finished units, less the estimated costs to development to arrive at a
final indication of value for the subject property. Once again, as found in the
apartment unit valuation, there will be both a gross retail value, as well as a
value allowing for the market indicated absorption rates.
In the case of the townhouse units, as will be seen in the case of the
single-family detached units, St. Charles over the past years has typically sold
townhouse units to more than one builder. In Dorchester Neighborhood, for
example, St. Charles built upscale models themselves in one area and then had
the lots that were developed for lower end townhouse units sold to Oakridge
Homes. In the Hampshire Neighborhood, St. Charles developed both high end, as
well as low end units. In Westlake Village, Pulte and Oakridge, as well as St.
Charles developed townhouse units within the same neighborhood at the same time,
with some various in price range in townhouse size. In the older neighborhoods
of Wakefield, Bannister and Carrington, similar types of transactions occurred.
Therefore, in the overall analysis of absorption, it is this appraiser's opinion
that absorption rates will be enhanced if a two pronged marketing schedule
occurs, with say one builder targeting the three level higher end and larger
units class of $130,000 upwards, while another builder develops a two-story
smaller unit in the $100,000 to $125,000 class price range. This would not only
allow the builders to take advantage of two different market segments that are
available, but also allows a higher or quicker absorption for St. Charles.
A number of communities are marketing townhouse lots as of the date of
this report, and although competition levels have increased substantially, it
still appears to be a viable alternative to market townhouse lots in the
northern portion of Charles County. The Fairway Village, with the close
proximity of the White Plains Regional Park, the inherent neighborhood amenities
such as the tennis facilities, the pool facility and the community facilities
associated with the Planned Unit Development, are all conducive to marketing
townhouse type units, particularly with the off-site advantages associated with
the community facilities. Additionally, the close proximity to shopping and
other community needs should also enhance the salability of the units within the
Fairway Village.
44
<PAGE>
VALUATION OF THE SUBJECT PROPERTY'S TOWNHOUSE UNITS
---------------------------------------------------
AS PAPER LOTS
-------------
COMPARABLE SALE #1
LOCATION: Lakewood Estates
Waldorf, Maryland
GRANTOR: Lakewood Limited Partnership
GRANTEE: Equity Income Partners Limited Partnership
DATE OF SALE: October 12, 1989
LEGAL: Liber 1418, Folio 537
ACREAGE: 33.59 acres
NUMBER OF LOTS: 264 townhouse lots
FINANCING: $5,000,000.00, development acquisition loan,
Scottish Her. Trust
PRICE: $3,400,000.00
UNIT PRICE: $12,879.00
COMMENTS: This is the original purchase of the land that has been developed
into the Lakewood Estates Townhouse project. This property was purchased with
264 approved townhouse lots. This phase of the Lakeview project has been
marketed for several years with unit prices from approximately $110,000 up to
the mid $100,000's.
ADJUSTMENTS FOR COMPARISON:
- --------------------------
- 0 -
-----
Total adjustment - 0 -
$12,879.00 x 1.00 = $12,879.00 per unit
45
<PAGE>
[MAP APPEARS HERE]
<PAGE>
COMPARABLE SALE #2
LOCATION: Homestead Commons
Waldorf, Maryland
GRANTOR: Tanglewood Joint Venture
GRANTEE: Oakridge Housing Corporation
DATE OF SALE: April 15, 1991
LEGAL: Liber 1542, Folio 177
ACREAGE: 6.468 acres
NUMBER OF LOTS: 56 townhouse lots
FINANCING: Cash
PRICE: $780,000.00
UNIT PRICE: $13,928.00
COMMENTS: This sale pertains to the sale of part of the Tanglewood project
(Comparable Sale #3) off of Acton Lane. These were raw lots with an approved
plan. The sale price included $700.00 per unit for tap fees which were paid by
Seller. Since tap fees are not typically paid by Seller in the market area, the
adjusted sales price equals $13,228.00.
ADJUSTMENTS FOR COMPARISON:
- --------------------------
- 0 -
-----
Total adjustment - 0 -
$13,228.00 x 1.00 = $13,228.00 per unit
46
<PAGE>
[MAP APPEARS HERE]
<PAGE>
COMPARABLE SALE #3
LOCATION: Tanglewood
Waldorf, Maryland
GRANTOR: Tanglewood Joint Venture
GRANTEE: FEFM, Inc.
DATE OF SALE: November 1989
LEGAL: Liber 1424, Folio 01
ACREAGE: 14.24 acres
NUMBER OF LOTS: 100 townhouse lots
FINANCING: $3,125,000.00, Maryland National Bank
PRICE: $1,350,000.00
UNIT PRICE: $13,500.00
COMMENTS: This is the sale of a 100 lot townhouse subdivision off of Acton Lane
in the central portion of Waldorf. The purchaser was required to install feeder
roadways, as well as subdivision roads.
ADJUSTMENTS FOR COMPARISON:
- --------------------------
- 0 -
Total adjustment - 0 -
$13,500.00 x 1.00 = $13,500.00 per unit
47
<PAGE>
[MAP APPEARS HERE]
<PAGE>
COMPARABLE SALE #4
LOCATION: Capital View
Tax Map 67, Section 4, Blk. A
Lots 1-7; Blks. B, C, D Lots 1-7; Blks. G, H,
Lots 1-10 and Blk I, Lots 1-9
GRANTOR: Preference Home II Limited Partnership
GRANTEE: UTC Properties #6 Incorporated
DATE OF SALE: April 26, 1991
LEGAL: Liber 7931, Folio 55
ACREAGE: average lot size 1,875 sq. ft. per lot
NUMBER OF LOTS: 33 townhouse lots
FINANCING: none reported
PRICE: $500,000.00
UNIT PRICE: $15,151.00
COMMENTS: This is the sale of a 10 house subdivision off of Hill Road near
Hyattsville. Overall average lot size is approximately 1,875 square feet and
townhouse prices ranged in 1991 from $89,800.00 to $105,000.00, and in 1992 from
$84,900.00 $106,000.00. Overall location, utility availability and other
physical characteristics are rated somewhat similar to the subject property.
ADJUSTMENTS FOR COMPARISON:
- --------------------------
- 0 -
-----
Total adjustment - 0 -
$15,151.00 x 1.00 = $15,151.00 per unit
48
<PAGE>
[MAP APPEARS HERE]
<PAGE>
COMPARABLE SALE #5A
LOCATION: Forest Run
Tax Map 81, Lots 1-7, 125-126,129,
131-133, 138-142, 149 and 152-154
GRANTOR: Pennsylvania Avenue Associates
GRANTEE: Washington Homes
DATE OF SALE: November 21, 1991
LEGAL: Liber 8125, Folio 223
ACREAGE: average lot size 2,250 sq. ft.
NUMBER OF LOTS: 15 townhouse lots
FINANCING: market terms and conditions, Charleston
National Bank
PRICE: $228,000.00
UNIT PRICE: $15,200.00
ADJUSTMENTS FOR COMPARISON:
- --------------------------
-0-
-----
Total adjustment -0-
$15,200.00 x 1.00 = $15,200.00 per unit
49
<PAGE>
COMPARABLE SALE #5B
LOCATION: Forest Run
Tax Map 81
GRANTOR: Pennsylvania Avenue Associates
GRANTEE: Washington Homes
DATE OF SALE: November 12, 1991
LEGAL: Liber 8116, Folio 157
ACREAGE: average lot size 2,250 sq. ft.
NUMBER OF LOTS: 21 townhouse lots
FINANCING: market terms and conditions, Charleston
National Bank
PRICE: $252,000.00
UNIT PRICE: $12,000.00
ADJUSTMENTS FOR COMPARISON:
- --------------------------
-0-
---
Total adjustment -0-
$12,000.00 x 1.00 = $12,000.00 per unit
50
<PAGE>
COMPARABLE SALE #5C
LOCATION: Forest Run
Tax Map 81, Lots 8-15 and 25-32
GRANTOR: Pennsylvania Avenue Associates
GRANTEE: Washington Homes
DATE OF SALE: May 14, 1992
LEGAL: Liber 8308, Folio 852
ACREAGE: average lot size 2,250 sq. ft.
NUMBER OF LOTS: 16 townhouse lots
FINANCING: market terms and conditions, Charleston
National Bank and Signet Bank
PRICE: $192,000.00
UNIT PRICE: $12,000.00
ADJUSTMENTS FOR COMPARISON:
- --------------------------
-0-
---
Total adjustment -0-
$12,000.00 x 1.00 = $12,000.00 per unit
51
<PAGE>
COMPARABLE SALE #5D
LOCATION: Forest Run
Tax Map 81, Lots 33-100
GRANTOR: Pennsylvania Avenue Associates
GRANTEE: Washington Homes
DATE OF SALE: September 30, 1992
LEGAL: Liber 8468, Folio 312
ACREAGE: average lot size 2,250 sq. ft.
NUMBER OF LOTS: 67 townhouse lots
FINANCING: none reported
PRICE: $816,000.00
UNIT PRICE: $12,178.00
COMMENTS: This is the sale of paper lots within the Forest Run Subdivision
located just to the north of Penn Marr shopping center on the south side of
Marlboro. Overall lot sizes are slightly larger than the subject property,
though this does not appear to have a major impact on value. Overall location,
utility availability and other physical characteristics are rates equal.
ADJUSTMENTS FOR COMPARISON:
- --------------------------
-0-
---
Total adjustment -0-
$12,178.00 x 1.00 = $12,178.00 per unit
52
<PAGE>
[MAP APPEARS HERE]
<PAGE>
COMPARABLE SALE #6A
LOCATION: Royal Plaza
Tax Map 80, Blk. B, Lots 46-48
GRANTOR: Royal Plaza Associates Limited Partnership
GRANTEE: Washington Homes
DATE OF SALE: April 20, 1992
LEGAL: Liber 8277, Folio 499
ACREAGE: average lot size 2,250 sq. ft.
NUMBER OF LOTS: 23 townhouse lots
FINANCING: none reported
PRICE: $310,500.00
UNIT PRICE: $13,500.00
ADJUSTMENTS FOR COMPARISON:
- --------------------------
-0-
---
Total adjustment -0-
$13,500.00 x 1.00 = $13,500.00 per unit
53
<PAGE>
COMPARABLE SALE #6B
LOCATION: Royal Plaza
Tax Map 80, Block B, Lots 69-101
GRANTOR: Royal Plaza Associates Limited Partnership
GRANTEE: Washington Homes
DATE OF SALE: April 28, 1992
LEGAL: Liber 8286, Folio 959
ACREAGE: average lot size 2,250 sq. ft.
NUMBER OF LOTS: 33 townhouse lots
FINANCING: none reported
PRICE: $445,500.00
UNIT PRICE: $13,500.00
COMMENTS: These are the sales of townhouse lots in the Prince George's County
area. This particular subdivision is located off of Silver Hill Road in the
Forestville area. Lot sizes average approximately 2,250 square feet and overall
price range of dwellings within the subdivision range from $100,000.00 to
$128,000.00 in 1991, and from $10l,000.00 to $125,000.00 in 1992. The physical
characteristics and location of this subdivision are rated similar to the
subject.
ADJUSTMENTS FOR COMPARISON:
- --------------------------
-0-
---
Total adjustment -0-
$13,500.00 x 1.00 = $13,500.00 per unit
54
<PAGE>
[MAP APPEARS HERE]
<PAGE>
COMPARABLE SALE #7
LOCATION: Highgrove Subdivision
off Billingsley Road, Waldorf
GRANTOR: David H. Posey Associates
GRANTEE: Robert Schick, et al.
DATE OF SALE: 7/96
LEGAL: contract purchase
NUMBER OF LOTS: 100 townhouse lots
PRICE: $1,450,000.00 or $14,500.00 per unit
COMMENTS: This is the current contract on the townhouse portion of
Highgrove Estates for the takedown of 100 units. Overall location and
physical features are identical and therefore no adjustment is warranted.
ADJUSTMENTS FOR COMPARISON:
- --------------------------
-0-
---
Total adjustment -0-
$14,500.00 x 1.00 = $14,500.00 per unit
55
<PAGE>
[MAP APPEARS HERE]
<PAGE>
<TABLE>
<CAPTION>
COMPARABLE SUMMARY GRID
-----------------------
================================================================================
COMP TOTAL PRICE ADJUSTED
ADJUSTMENT PRICE
================================================================================
<S> <C> <C> <C>
#1 -0- $12,879.00 $12,879.00
- --------------------------------------------------------------------------------
#2 -0- $13,228.00 $13,228.00
- --------------------------------------------------------------------------------
#3 -0- $13,500.00 $13,500.00
- --------------------------------------------------------------------------------
#4 -0- $15,151.00 $15,151.00
- --------------------------------------------------------------------------------
#5A -0- $15,200.00 $15,200.00
- --------------------------------------------------------------------------------
#5B -0- $12,000.00 $12,000.00
- --------------------------------------------------------------------------------
#5C -0- $12,000.00 $12,000.00
- --------------------------------------------------------------------------------
#5D -0- $12,178.00 $12,178.00
- --------------------------------------------------------------------------------
#6A -0- $13,500.00 $13,500.00
- --------------------------------------------------------------------------------
#6B -0- $13,500.00 $13,500.00
- --------------------------------------------------------------------------------
#7 -0- $14,500.00 $14,500.00
================================================================================
</TABLE>
Based on the aforesaid comparable sales, which have an overall mean average
of approximately $13,421.00, it is this appraiser's opinion that the fair market
value of the subject property as a typical paper lot is estimated to be
$13,500.00 per unit. This places the subject property not only in the mid-range
of values as indicated by the comparable sales, but also within the medium range
of the most recent sales in the Southern Maryland area.
Therefore, based on a paper lot basis, the total estimated market gross
retail value of the 837 townhouse units is as follows: 837 units at $13,500.00
per unit equals $11,299,500.00, rounded to $11,300,000.00.
56
<PAGE>
As a further test of the overall value of the "as is" value of the paper
townhouse lots, the residual technique is used to further support this value,
taking the indicated value of finished units, less development costs, sales
expense, and entrepreneur costs back to the paper lot valuation. The comparable
sales used in this analysis are as follows:
COMPARABLE SALE #1
LOCATION: Aspen Woods
GRANTOR: Lenhart Development Corporation
GRANTEE: Pulte Homes Corporation
DATE OF CONTRACT: December 10, 1993
LEGAL: contract
ACREAGE: 34.01 acres
NUMBER OF LOTS: 234 townhouse lots
FINANCING: n/a
UNIT PRICE: $19,000.00 for each recorded lot
13,000.00 finishing allowance
---------
$32,000.00 total sales price
+6% increase per annum
COMMENTS: This is several contracts in the 234 townhouse development known as
Ashford Oaks. This project is located off of Billingsley Road. The initial above
price reflected an allocation of $13,000.00 for paper lots and $19,000.00 per
lot finish allowance, making the base price $32,000.00. The original contract
with Pulte Homes, who has since pulled Out of the contract, called for a 12 unit
takedown per quarter and an annual escalator of 6 percent. Richmond American
recently purchased 14 lots in June 1996 under similar terms, but a slightly
higher lot cost, which reflects a total indicated value of $33,106.00. Richmond
American has not taken any lots down in this project since.
ADJUSTMENTS FOR COMPARISON:
- --------------------------
-0-
---
Total adjustment -0-
$33,106.OOx 1.00 = $33,106.00 per unit
57
<PAGE>
[MAP APPEARS HERE]
<PAGE>
COMPARABLE SALE #2
LOCATION: Huntington Ridge Townhouses
St. Charles
GRANTOR: St. Charles Associates Limited Partnership
GRANTEE: Ryland Group
DATE OF SALE: May 8, 1996
LEGAL: varying
NUMBER OF LOTS: 130 townhouse lots
FINANCING: all cash
UNIT PRICE: $32,000.00
COMMENTS: This is the sale of finished townhouse lots in the Huntington Ridge
Subdivision off of Post Office Road. This is within the St. Charles Communities,
and is one of the remaining townhouse subdivisions in St. Charles. This is in
the older section, near more of a commercial development than townhouse
development. Ryland Homes is taking down townhouse lots at a contract rate of 3
units per month or 12 per quarter. Financing is reported at all cash for
finished lots. Townhouse prices range from $125,000.00 to $145,000.00. It should
be noted that price increase of CPI of 6 percent per annum.
<TABLE>
<CAPTION>
MOST RECENT TRANSFERS:
===========================================================================================================================
GRANTOR/GRANTEE DATE OF LEGAL # OF LOTS PRICE
SALE
===========================================================================================================================
<S> <C> <C> <C> <C>
St. Charles Associates to Ryland Group 05/08/96 2225/588 6 Lots $192,000.00 or $32,000.00 per lot
===========================================================================================================================
St. Charles Associates to Ryland Group 0l/I5/96 2328/163 10 lots $326,400.00 or $32,640.00 per lot
===========================================================================================================================
</TABLE>
ADJUSTMENTS FOR COMPARISON:
- --------------------------
-0-
---
Total adjustment -0-
$32,000.00 to $32,640.00 x 1.00 = $32,000.00 to $32,640.00 per unit
58
<PAGE>
[MAP APPEARS HERE]
<PAGE>
COMPARABLE SALE #3
LOCATION: Lakewood Estates
Maryland Route 5, Waldorf
GRANTOR: Lakewood A-1 Limited Partnership
GRANTEE: NVR Homes, Inc.
DATE OF SALE: 2/21/96
LEGAL: Liber 2190, Folio 287
NUMBER OF LOTS: 7 townhouse lots
UNIT PRICE: $256,410.00
PRICE PER UNIT: $36,630.00 (current price w/increases)
COMMENTS: This is the most recent sale within the Lakewood Estates Subdivision
off of Maryland Route 5. Overall lot size, location and type of townhouse units
is rated similar to that of the subject property. Also within this property,
Ryland has contracted to purchase 67 lots at a base price of $34,000.00, with a
takedown scheduled at 9 lots per quarter or 1.5 percent per quarter increase.
<TABLE>
<CAPTION>
MOST RECENT TRANSFERS:
===========================================================================================================================
GRANTOR/GRANTEE DATE OF LEGAL # OF LOTS PRICE
SALE
===========================================================================================================================
<S> <C> <C> <C> <C>
Lakewood A-I, L.P. to NVR Homes, Inc. 2353/359 3 lots $106,050.00 or $35,350.00 per unit
===========================================================================================================================
Lakewood A-I, L.P. to NVR Homes, Inc. 4/10/97 2360/366 6 lots $214,221.00 or $35,704.00 per unit
===========================================================================================================================
</TABLE>
ADJUSTMENTS FOR COMPARISON:
- ---------------------------
-0-
---
Total adjustment -0-
$35,350.00 to $36,630.00 x 1.00 = $35,350.00 to $36,630.00 per unit
59
<PAGE>
[MAP APPEARS HERE]
<PAGE>
COMPARABLE SALE #4
LOCATION: Somerset
Maryland Route 228, Waldorf
GRANTOR: E.K. Edelen Farm Limited Partnership
GRANTEE: Richmond American Homes
DATE OF SALE: 12/8/94 (under a phase contract)
LEGAL: contract purchase
NUMBER OF LOTS: 121 townhouse lots
FINANCING: commercial land acquisition thru a commercial lender
UNIT PRICE: $32,000.00 base unit price
+ 6% per annum or $5.26 per day escalator
COMMENTS: This is a contract purchase contract of 121 lots in the Somerset
Subdivision featuring townhouse and single-family units off of Berry Road
(Maryland Route 228). The initial takedown started on December 8, 1994, with a
base price of lots established at $32,000.00, with $12,000.00 being lot cost and
$20,000.00 construction allocation.
<TABLE>
<CAPTION>
MOST RECENT TRANSFERS:
=================================================================================================================
GRANTOR/GRANTEE DATE OF LEGAL # OF LOTS PRICE
SALE
=================================================================================================================
<S> <C> <C> <C> <C>
E.K. Edelen LP to Richmond American 3/14/96 2195/370 8 lots $114,473 ($14,309 + $ 20,000 for
Homes of Maryland completion, or $34,309 per unit)
=================================================================================================================
E.K. Edelen LP to Richmond American 5/21/96 2230/532 6 lots $ 88,316 ($14,719 + $ 20,000 for
Homes of Maryland completion or $34,719 per unit)
=================================================================================================================
E.K. Edelen LP to Richmond AMerican 04/08/97 2359/87 8 lots $130,716 ($16,340 + $ 20,000 for
Homes of Maryland completion or $36,340 per unit)
=================================================================================================================
E.K. Edelen LP to Richmond American 7/26/96 2257/590 4 lots $60,350 ($15,088 + $20,000 for
Homes of Maryland completion or $35,088 per unit)
=================================================================================================================
</TABLE>
ADJUSTMENTS FOR COMPARISON:
- --------------------------
-0-
---
Total adjustment -0-
$34,309.00 to $36,340.00 x 1.00 = $34,309 to $35,340.00 per unit
60
<PAGE>
[MAP APPEARS HERE]
<PAGE>
COMPARABLE SALE #5
LOCATION: Victoria Park, located off the north side
of Western Parkway, north of Berry Road
GRANTOR: Hamilton, et al.
GRANTEE: Richmond American Homes
DATE OF SALE: 4/97
LEGAL: contract purchase
NUMBER OF LOTS: 100 townhouse units
FINANCING: conventional lender, market terms & conditions
PRICE: $36,500.00 per unit (finished)
TAKEDOWN: current negotiated takedown schedule calls
for 12 units per quarter
PROJECT DATE: summer of 1997
COMMENTS: This is a townhouse subdivision currently under construction. Contract
has been signed by Richmond American to take down 12 units per quarter at
$36,500.00. A contract, however, is currently being negotiated at a slightly
lower takedown of 9 units per quarter due to current competition levels. The
townhouse units are of typical size, and base price for finished units is from
$125,000 to $145,000.
ADJUSTMENTS FOR COMPARISON:
- --------------------------
-0-
---
Total adjustment -0-
$36,500.00 x 1.00 = $36,500.00 per unit
61
<PAGE>
[MAP APPEARS HERE]
<PAGE>
COMPARABLE SALE #6
LOCATION: Wood/Deer Creek Subdivision
Tax Map 8, Grid 11, Parcel 805
GRANTOR: Dreadnaught Limited Partnership
GRANTEE: Regency Homes Corporation
DATE OF SALE: 4/16/97
LEGAL: Liber 2363, Folio 103
NUMBER OF LOTS: 7 finished townhouse units
FINANCING: CASH
PRICE: $196,000.00
UNIT PRICE: $28,000.00
COMMENTS: This is a newer townhouse subdivision located near the Sam's Wholesale
Warehouse house and other commercial establishments off of the west side of U.S.
Route 301 in Waldorf. Overall location in this more commercial sector is rated
inferior to that of the proposed neighborhood of the subject property. In terms
of community improvements, this subdivision is also projected to have a
clubhouse, pool, etc., which are rated similar to the subject.
ADJUSTMENTS FOR COMPARISON:
- --------------------------
Location +10%
---
Total adjustment +10%
$28,000.00 x 1.10 = $30,800.00 per unit
62
<PAGE>
[MAP APPEARS HERE]
<PAGE>
COMPARABLE SALE #7
LOCATION: Berry Valley Subdivision
s/s of Bunker Hill Road and Davis Road
Waldorf, Maryland
GRANTOR: Lewis R. and Barbara L. Vest
GRANTEE: Barry Steward L.P. Company
DATE OF SALE: 3/13/97
LEGAL: Liber 2348, Folio 594
NUMBER OF UNITS: 6 townhouse units
PRICE: $154,000.00
UNIT PRICE: $25,667.00
COMMENTS: This is the sale of 6 townhouse units in the Berry Valley
Subdivision. This is a new, recently opened subdivision 3 to 4 miles west
of U.S. Route 301 near Berry Road. Overall location in an older
neighborhood with some commercial enterprises and close proximity is rated
inferior to that of the subject property. Overall lot size and utility
availability are rated similar. General geographic location is also rated
equal.
ADJUSTMENTS FOR COMPARISON:
- --------------------------
Location +10%
----
Total adjustment +10%
$25,667.00 x 1.10 = $28,233.00 per unit
63
<PAGE>
[MAP APPEARS HERE]
<PAGE>
<TABLE>
<CAPTION>
COMPARABLE SUMMARY GRID
-----------------------
================================================================================
COMPARABLE LOCATION TOTAL PRICE ADJUSTED PRICE
SALE ADJUSTMENT
================================================================================
<S> <C> <C> <C> <C>
#1 -0- $33,106 $33,106
- --------------------------------------------------------------------------------
#2 -0- $32,000 to $32,650 $32,000 to $32,640
- --------------------------------------------------------------------------------
#3 -0- $35,350 to $36,630 $35,350 to $36,630
- --------------------------------------------------------------------------------
#4 -0- $34,309 to $36,340 $34,309 to $36,340
- --------------------------------------------------------------------------------
#5 -0- $36,500 $36,500
- --------------------------------------------------------------------------------
#6 +10% +10% $28,000 $30,800
- --------------------------------------------------------------------------------
#7 +10% +10% $25,667 $28,233
================================================================================
</TABLE>
Based on the aforesaid comparable sales, it is this appraiser's opinion
that the fair market value of the proposed townhouse units. within the St.
Charles Subdivision is estimated to be approximately $33,000.00 per unit. This
places the subject property in the mid-range of value as indicated by the
comparable sales, but several thousand dollars behind the higher priced unit in
the market. A number of the higher priced units were negotiated prior to the
added levels of competition and it appears that, for the most part, in this
appraiser's opinion, price levels should remain consistent over the next few
years and some modulation over the higher prices units should be expected.
Based on estimated hard costs, as supplied by the developer, of
approximately $15,579.00 per unit, and neighborhood overall development costs of
approximately $7,200.00 per unit, sales and administrative expenses of
$1,250.00, the indicated residual amount reflects a value per paper lot of
approximately $8,971.00, rounded to $9,000.00. This is somewhat below the
indicated value via the Market Data Approach and is reflective of what appears
to be somewhat higher development costs in the St. Charles Neighborhood, due in
part to the community centers and associated infrastructure.
Because of an ongoing market for townhouses in the Southern Maryland area,
it is this appraiser's opinion that the Market Data Approach should be weighted
most heavily in the final valuation and thus the previously indicated value of
$13,500.00 should be construed as the market value for the subject property's
proposed 837 townhouse units.
In regards to the higher development costs of the subject property, it
appears that some profitability levels would be effected by these costs,
however, the overall land acquisition costs for Interstate General and St.
Charles Associates is extremely low and thus profitability levels should be
achieved even though development costs are somewhat higher than normal, as
indicated for townhouse lots in the marketplace.
64
<PAGE>
DISCOUNTED VALUE OF THE SUBJECT PROPERTY'S PAPER LOTS
-----------------------------------------------------
The discounted or "as is" value of Fairway Village's 837 single-family
attached townhouse units must also take into consideration the time to
development and market the units during the phased development of the Fairway
Village. The gross retail value of the townhouse units in paper lot form must be
discounted to reflect the anticipated development time, carrying costs and sales
period, as well as carrying expenses during the holding period.
The absorption rate to determine the development and sales rates for the
subject subdivision has been extrapolated using sales of other competitive
subdivisions in the same market area as that of the subject property. Along
these lines, there are a number of competitive townhouse subdivisions in the
immediate market area, these include townhouse units being developed in St.
Charles, Lakewood Estates, Aspen Woods, Somerset, etc. The subdivisions used in
the overall ascertation of the subject property's potential absorption are as
follows:
Somerset Subdivision: This particular subdivision has been developed by
the same developers as that of the subject property. Takedown schedules within
this subdivision are 10 units per quarter for both single-family and townhouse
or 3.3 units per month. The initial price for lots within this subdivision are
$12,000.00 each, plus $20,000.00 finishing allowance or $32,000.00 as a base
price, with an overall price increase per day of $5.26 or 6 percent annual
increase over the total sales price. This particular subdivision features
townhouses from $115,000.00 on up to approximately $135,000.00. Overall quality
of construction of this subdivision is rated similar to that of the subject.
Recent sales in the subject subdivision for the first 6 months of 1997 are
reflective of 8 units that have settled and 5 that are under contract, for a
total of 13 units in the first 6 months, or an absorption of slightly over 2
units per month. There are 28 remaining townhouse units in the Somerset
Subdivision.
Lakewood Estates Subdivision: This subdivision is located off of Maryland
Route 5. Two builders, both Ryan Homes, as well as NVR Homes, Inc. are located
in the project. NVR Homes is almost sold out of units and has only 1 remaining
unit. Based on lot contracts written in 1993, takedowns within this subdivision
for Ryland Homes is based on a 9 unit per quarter takedown or 3 units per month.
It should be noted that Ryan Homes' tract record, with sales starting in January
1995, reflect a total of 85 units sold in a 27 month period, or an absorption of
approximately 3.15 units per month.
Aspen Woods, which is located off of Billingsley Road and is currently
being developed by the Lenhart Group, has sold lots to Pulte Homes over the past
year. Pulte, commencing in June 1995, took down 39 lots and is contracted to
take an additional 8 lots in April, for a total of 47 lots in 10 months, or an
absorption of 4.7 units per month. Of these 47 lots, 11 have settled as finished
townhouse units and an additional 15-17 are currently under contract, according
to Mr. Lenhart. CPI are passed through within this subdivision at a rate of 6
percent per annum, and the most recent takedown in November 1995 reflects sales
prices of $32,955.00 per unit, while the April takedown is scheduled at
$33,450.00 per unit.
65
<PAGE>
Pulte has since vacated this subdivision. Richmond American and Mohier are
two townhouse builders currently developing in the project. Over a 2 year span,
total absorptions are at a rate of approximately 30 units per year average, or
2.5 units per month.
Within St. Charles, the Ryland Group is currently marketing townhouses in
the Hudson Ridge townhouse section. They Ryland Group has reported to this
appraiser to have placed under contract or settled 30 units since original
marketing commenced May 1996. This reflects to an overall average absorption of
approximately 2.5 units per month. This particular subdivision features
townhouses from the $125,000.00 to $140,000.00 price range, or what should be
considered the upper end type unit, most of which have basements. The overall
location from Post Office Road is within St. Charles itself and should be rated
somewhat similar to that of the projected units.
Makielski Soba Development Group in Acton Village off of Acton Lane,
approximately 1 mile north of St. Charles, has marketed since the initial sales
period of Phase 3, which commenced August 1995, a total of 100 units, of which
57 have settled, 9 are low priced units subject to a lottery, and 34 are under
contract. This reflects to an overall absorption of approximately 4.55 units per
month.
Kingsview Subdivision, which currently markets a combination of both
attached and detached units, has marketed since May 1996, 35 townhouse units, 20
of which are reported to have settled. This reflects to an overall absorption of
approximately 2.69 units per month. Kingsview Subdivision is very similar to St.
Charles in terms of community and neighborhood amenities, including pools,
tennis courts, clubhouse, etc. Overall location in northern Charles County is
also rated similar.
For the most part, with the exception of Aspen Woods which now has two
builders and Lakewood Estates, which has two builders, the subdivisions are
reflective of one townhouse builder within the same subdivision. A large
majority of the three level townhouse units are all being marketed in the
$130,000 upwards price range, while only one of these particular subdivisions
mentioned features smaller, two-story units and that is the Acton Village, which
also has the highest absorption rate. It is this appraiser's opinion that two
builders, one specializing in low end price range of dwelling, the other in a
slightly higher price range of dwelling, and would be estimated that these
builders should be able to absorb approximately 2.5 units per month per builder,
or 5 units per month total. This is somewhat lower than the indicated
absorptions of the competitive subdivisions, but also allows for some additional
competition coming on line, which is occurring with one recently opened
subdivision developed by Regency Homes, an 108 unit subdivision off of Hamilton
Road and several other projected townhouse projects in the northern Charles
County area.
The subject townhouse units have therefore been discounted for an
anticipated 5 units per month absorption, with allowances given for the
projected development schedule as noted for the Fairway Village Center. The
following ARGUS discounted cash flow analysis has been prepared to arrive at the
final indicated "as is" value of the 837 proposed lots.
66
<PAGE>
Based on a $13,500.00 indicated market value of a paper lot, and with a tax
rate of $2.65 per $100.00 of assessed value, the indicated real estate taxes for
the subject paper lots is estimated at approximately $143.00 per year;
miscellaneous and administrative are estimated at 1/2 of 1 percent; sales
expense is estimated at 3 percent; and an absorption of 5 units per month when
available. The overall discount rate or internal rate of return has been
selected using the following criteria:
BASED ON THE AFORESAID ANALYSIS AND PROJECTIONS, THE TOTAL ABSORPTION OF
THE 837 LOTS WITHIN THE SUBJECT SUBDIVISION IS EXPECTED TO OCCUR OVER A 16-YEAR
ABSORPTION PERIOD. THIS REFLECTS NOT ONLY THE MARKET INDICATED ABSORPTIONS PER
YEAR, BUT ALSO THE DEVELOPMENT SCHEDULE AS PROJECTED FOR TOWNHOUSE LOTS WITHIN
THE FAIRWAY VILLAGE SUBDIVISION.
THE GROSS RETAIL VALUE OF THE 837 LOTS OR $11,300,000.00 HAS BEEN
DISCOUNTED TO REFLECT THE ANTICIPATED TIME THAT WOULD BE REQUIRED TO MARKET ALL
OF THE LOTS, AS WELL AS THE SALES EXPENSES AND SOFT COSTS INCURRED DURING THE
HOLDING PERIOD.
In reviewing the Appraisal Institute's Appraisal News Investment Guide, the
-------------------------------
most recent volume dated August 1995, the 3rd quarter 1995, internal rates of
return for residential class properties range from 11 percent to 13 percent. In
addition, in speaking and reviewing regional data supplied by NationsBank's mid-
year 1995 Washington, D.C. MSA Analysis estimates short term subdivision
discount rates for those subdivisions that have an absorption period from 1 to 3
years to have an overall discount rate for finished lots of approximately 14
percent. Given these perimeters, it is this appraiser's opinion that the
discount rate for the subject property based on its current condition and time
frame of marketing should be estimated at approximately 14 percent.
Please refer to the following ARGUS format prepared for the discounted cash
flow analysis for the discounted or "as is" value of the 837 lots.
67
<PAGE>
FAIRWAY VILLAGE
ST. CHARLES PKWY.
WALDORF, MARYLAND
PROSPECTIVE PRESENT VALUE
Cash Flow Before Debt Service
Discounted Annually (End-point on Cash Flow) over a 20-Year Period
<TABLE>
<CAPTION>
For the Discounted Total Total
Discount Cash Flow Value Value
Rates Before Debt per Unit per Size
--------- -------------- ---------- ------------
<S> <C> <C> <C>
12.00% $5,589,926 $6,679 $6,678.53
12.50% 5,401,743 6,454 6,453.70
13.00% 5,222,339 6,239 6,239.35
13.50% 5,051,220 6,035 6,034.91
14.00% 4,887,923 5,840 5,839.81
14.50% 4,732,013 5,654 5,653.54
15.00% 4,583,084 5,476 5,475.61
15.50% 4,440,755 5,306 5,305.56
16.00% 4,304,670 5,143 5,142.97
</TABLE>
<PAGE>
FAIRWAY VILLAGE
ST. CHARLES PKWY.
WALDORF, MARYLAND
SCHEDULE OF PROSPECTIVE CASH FLOW
In Inflated Dollars for the Fiscal Year beginning 6/1/1997
<TABLE>
<CAPTION>
For the Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
Years Ending May-1998 May-1999 May-2000 May-2001 May-2002 May-2003
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
UNIT SALES
REVENUE
Sales Revenue $702,000 $788,486 $759,283 $947,585 $969,064
Selling Costs (21,060) (23,655) (22,778) (28,428) (29,071)
-------- -------- -------- -------- -------- --------
NET SALES REVENUE 680,940 764,831 736,505 919,157 939,993
-------- -------- -------- -------- -------- --------
TOTAL POTENTIAL
REVENUE 680,940 764,831 736,505 919,157 939,993
-------- -------- -------- -------- -------- --------
MISCELLANEOUS
EXPENSES
REAL ESTATE
TAXES 14,363 14,380 14,015 13,546 13,059 12,346
MISC & ADMIN 6,830 6,838 6,664 6,441 6,210 5,871
-------- -------- -------- -------- -------- --------
TOTAL
MISCELLANEOUS
EXPENSES 21,193 21,218 20,679 19,987 19,269 18,217
-------- -------- -------- -------- -------- --------
TOTAL REVENUE
BEFORE COSTS (21,193) 659,722 744,152 716,518 899,888 921,776
-------- -------- -------- -------- -------- --------
CASH FLOW
BEFORE DEBT
SERVICE &
INCOME TAX ($21,193) $659,722 $744,152 $716,518 $899,888 $921,776
======== ======== ======== ======== ======== ========
<CAPTION>
For the Year 7 Year 8 Year 9 Year 10 Year 11 Year 12
Years Ending May-2004 May-2005 May-2006 May-2007 May-2008 May-2009
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
UNIT SALES
REVENUE
Sales
Revenue $1,024,908 $1,065,905 $1,108,541 $1,152,883 $1,218,981 $1,246,958
Selling Costs (30,747) (31,977) (33,256) (34,586) (36,569) (37,409)
---------- ---------- ---------- ---------- ---------- ----------
NET SALES
REVENUE 994,161 1,033,928 1,075,285 1,118,297 1,182,412 1,209,549
---------- ---------- ---------- ---------- ---------- ----------
TOTAL POTENTIAL
REVENUE 994,161 1,033,928 1,075,285 1,118,297 1,182,412 1,209,549
---------- ---------- ---------- ---------- ---------- ----------
MISCELLANEOUS
EXPENSES
REAL ESTATE
TAXES 11,540 10,647 9,664 8,585 7,387 6,089
MISC & ADMIN 5,488 5,063 4,595 4,082 3,513 2,896
---------- ---------- ---------- ---------- ---------- ----------
TOTAL
MISCELLANEOUS
EXPENSES 17,028 15,710 14,259 12,667 10,900 8,985
---------- ---------- ---------- ---------- ---------- ----------
TOTAL REVENUE
BEFORE COSTS 977,133 1,018,218 1,061,026 1,105,630 1,171,512 1,200,564
---------- ---------- ---------- ---------- ---------- ----------
CASH FLOW
BEFORE DEBT
SERVICE &
INCOME TAX $977,133 1,018,218 $1,061,026 $1,105,630 $1,171,512 $1,200,564
========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE>
FAIRWAY VILLAGE
ST. CHARLES PKWY.
WALDORF, MARYLAND
SCHEDULE OF PROSPECTIVE CASH FLOW
In Inflated Dollars for the Fiscal Year beginning 6/1/1997
<TABLE>
<CAPTION>
Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 Year 19 Year 20
For the Years Ending May-2010 May-2011 May-2012 May-2013 May-2014 May-2015 May-2016 May-2017
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
UNIT SALES REVENUE
Sales Revenue $1,318,450 $1,078,968 $1,402,658 $826,633
Selling Costs (39,553) (32,369) (42,080) (24,799)
---------- ---------- ---------- -------- ---------- ---------- ---------- --------
NET SALES REVENUE 1,278,897 1,046,599 1,360,578 801,834
---------- ---------- ---------- -------- ---------- ---------- ---------- --------
TOTAL POTENTIAL
REVENUE 1,278,897 1,046,599 1,360,578 801,834
---------- ---------- ---------- -------- ---------- ---------- ---------- --------
MISCELLANEOUS EXPENSES
REAL ESTATE TAXES 4,675 3,293 1,828 255
MISC & ADMIN 2,223 1,566 869 121
---------- ---------- ---------- -------- ---------- ---------- ---------- --------
TOTAL MISCELLANEOUS
EXPENSES 6,898 4,859 2,697 376
---------- ---------- ---------- -------- ---------- ---------- ---------- --------
TOTAL REVENUE
BEFORE COSTS 1,271,999 1,041,740 1,357,881 801,458
---------- ---------- ---------- -------- ---------- ---------- ---------- --------
CASH FLOW BEFORE
DEBT SERVICE &
INCOME TAX $1,271,999 $1,041,740 $1,357,881 $801,458
========== ========== ========== ======== ========== ========== ========== ========
</TABLE>
<PAGE>
FAIRWAY VILLAGE
ST. CHARLES PKWY.
WALDORF, MARYLAND
SCHEDULE OF SOURCES & USES OF CAPITAL
Equity is Based on Property Value, Leverage and Operating Requirements
<TABLE>
<CAPTION>
For the Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
Years Ending May 1998 May 1999 May 2000 May 2001 May 2002 May 2003
========== ======== ======== ======== ======== ========
<S> <C> <C> <C> <C> <C> <C>
SOURCES OF CAPITAL
Net Operating Gains $659,722 $744,152 $716,518 $899,888 $921,776
Initial Equity Contributions 4,304,670
---------- -------- -------- -------- -------- --------
DEFINED SOURCES OF CAPITAL 4,304,670 659,722 744,152 716,518 899,888 921,776
---------- -------- -------- -------- -------- --------
REQUIRED EQUITY
CONTRIBUTIONS 21,193
---------- -------- -------- -------- -------- --------
TOTAL SOURCES OF CAPITAL $4,325,863 $659,722 $744,152 $716,518 $899,888 $921,776
========== ======== ======== ======== ======== ========
USES OF CAPITAL
Property Present Value 4,304,670
Net Operating Loss 21,193
---------- -------- -------- -------- -------- --------
DEFINED USES OF CAPITAL $4,325,863
---------- -------- -------- -------- -------- --------
CASH FLOW DISTRIBUTIONS 659,722 744,152 716,518 899,888 921,776
---------- -------- -------- -------- -------- --------
TOTAL USES OF CAPITAL $4,325,863 $659,722 $744,152 $716,518 $899,888 $921,776
========== ======== ======== ======== ======== ========
UNLEVERAGES CASH ON CASH
RETURN
Cash to Purchase
Price (0.49%) 15.33% 17.29% 16.65% 20.90% 21.41%
<CAPTION>
For the Year 7 Year 8 Year 9 Year 10 Year 11 Year 12
Years Ending May 2004 May 2005 May 2006 May 2007 May 2008 May 2009
-------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
SOURCES OF CAPITAL
Net Operating Gains $977,133 $1,018,218 $1,061,026 $1,105,630 $1,171,512 $1,200,564
Initial Equity Contributions
-------- ---------- ---------- ---------- ---------- ----------
DEFINED SOURCES OF CAPITAL 977,133 1,018,218 1,061,026 1,105,630 1,171,512 1,200,564
-------- ---------- ---------- ---------- ---------- ----------
REQUIRED EQUITY CONTRIBUTIONS
-------- ---------- ---------- ---------- ---------- ----------
TOTAL SOURCES OF CAPITAL $977,133 $1,018,218 $1,061,026 $1,105,630 $1,171,512 $1,200,564
======== ========== ========== ========== ========== ==========
USES OF CAPITAL
Property Present Value
Net Operating Loss
-------- ---------- ---------- ---------- ---------- ----------
DEFINED USES OF CAPITAL
-------- ---------- ---------- ---------- ---------- ----------
CASH FLOW DISTRIBUTIONS 977,133 1,018,218 1,061,026 1,105,630 1,171,512 1,200,564
-------- ---------- ---------- ---------- ---------- ----------
TOTAL USES OF CAPITAL $977,133 $1,018,218 $1,061,026 $1,105,630 $1,171,512 $1,200,564
======== ========== ========== ========== ========== ==========
UNLEVERAGES CASH ON CASH RETURN
Cash to Purchase Price 22.70% 23.65% 24.65% 25.68% 27.21% 27.89%
</TABLE>
<PAGE>
FAIRWAY VILLAGE
ST. CHARLES PKWY.
WALDORF, MARYLAND
SCHEDULE OF SOURCES & USES OF CAPITAL
Equity is Based on Property Value, Leverage and Operating Requirements
<TABLE>
<CAPTION>
For the Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 Year 19 Year 20
Years Ending May-2010 May-2011 May-2012 May-2013 May-2014 May-2015 May-2016 May-2017
---------- ---------- ---------- -------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SOURCES OF CAPITAL
Net Operating Gains $1,271,999 $1,041,740 $1,357,881 $801,458
Initial Equity Contributions
---------- ---------- ---------- -------- ---------- ---------- ---------- --------
DEFINED SOURCES OF CAPITAL 1,271,999 1,041,740 1,357,881 801,458
---------- ---------- ---------- -------- ---------- ---------- ---------- --------
REQUIRED EQUITY CONTRIBUTIONS
---------- ---------- ---------- -------- ---------- ---------- ---------- --------
TOTAL SOURCES OF CAPITAL $1,271,999 $1,041,740 $1,357,881 $801,458
========== ========== ========== ======== ========== ========== ========== ========
USES OF CAPITAL
Property Present Value
Net Operating Loss
---------- ---------- ---------- -------- ---------- ---------- ---------- --------
DEFINED USES OF CAPITAL
CASH FLOW DISTRIBUTIONS 1,271,999 1,041,740 1,357,881 801,458
---------- ---------- ---------- -------- ---------- ---------- ---------- --------
TOTAL USES OF CAPITAL $1,271,999 $1,041,740 $1,357,881 $801,458
========== ========== ========== ======== ========== ========== ========== ========
UNLEVERAGED CASH ON CASH
RETURN
Cash to Purchase Price 29.55% 24.20% 31.54% 18.62%
</TABLE>
<PAGE>
Based on this analysis, and using a 14 percent discount rate, the indicated
"as is" value of the 837 townhouse lots is $4,887,923.00, rounded to
$4,888,000.00.
It should be noted that in this analysis, the absorption rate is 5 units
per month, assuming the units are available and if the units are not available
as developed, absorptions will max-out at available units. It is also assumed by
this appraiser that if units within any given development period are not
absorbed, then the next phase of development will not occur until absorption has
taken place.
Therefore, based on the overall townhouse analysis and based on the
aforesaid calculations, the indicated gross retail value of the townhouse lots
is estimated at $11,300,000.00; and the discounted or "as is" value is estimated
at $4,888,000.00.
69
<PAGE>
VALUATION
OF THE
SINGLE-FAMILY UNITS
70
<PAGE>
As with the previous apartment units and townhouse units, the single-family
detached units of the proposed Fairway Village will also be assigned an
estimated value, both at a gross retail level, as well as a discounted "as is"
value.
As proposed, the single-family lots will be divided into three sale
categories of basically small, medium and large lots, with the small lots being
52 foot width lots; the medium size lots in the 60 to 70 foot width category;
and the larger lots 70 foot and up.
Based on the proposed development schedules, there will be 252 designated
small units; 499 designated medium units; and 922 designated larger lot sizes.
Based on the projected development schedule, the units will be developed as
follows:
<TABLE>
<CAPTION>
============================================================================
SF-Units YR1 YR2 YR3 YR4 YR5 YR6 YR7 YR8 YR9 YR10 TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
============================================================================
60 Unit
Sales 15 75 79 21 30 122 63 24 36 36 499
- ----------------------------------------------------------------------------
70 Unit
Sales 59 112 126 80 40 0 101 242 162 0 922
- ----------------------------------------------------------------------------
52 Unit
Sales 0 60 43 75 74 0 0 0 0 0 252
============================================================================
</TABLE>
In the overall valuation of the subject property's detached lots, this
appraiser uses both sales of paper lots in the Southern Maryland area, as well
as the residual technique of establishing an "as is" value via the residual
method using finished lots, less development costs and entrepreneur profit to
arrive at a further indication of value for the subject property's single-
family detached units.
Sales of recorded, but undeveloped lots have been relatively few in the
Southern Maryland area, with most developers either taking the communities to
finished lot stage or developing the property themselves. The comparable sales
of paper lots found in this report are the best available for comparison.
The paper lot sales are a combination of lots that would characterized in
sizes of categories and only minor differentials in size are noted at this level
of development.
71
<PAGE>
VALUATION OF THE SUBJECT PROPERTY AS APPROVED.
----------------------------------------------
BUT YET DEVELOPED PAPER LOTS
----------------------------
COMPARABLE SALE #1
Grantor: Tippett
Grantee: Mill Hill Limited Liability Company
Date of Sale: 4/27/95
Location: off Mill Hill Road
Tax Map 7, Grid 2, Parcel 37
Legal: Liber 2154, Folio 252
No. of Lots: 23 recorded lots
Financing: First Deed of Trust, given back at market
terms and conditions through Washington
Savings Bank
Price: $270,000.00
Price per lot: $11,739.00
Comments: This is the sale of a tract of land west of the subject property
off of Mill Hill Road, just to the south of Berry Road (Maryland Route
228). The original purchase of the property was for 23 units, with an
additional 16 units included in the overall final development with
transferrable development rights. This particular sale was purchased in
unit form and requires upward adjustments for preliminary approvals and
platting. Additionally, an upward adjustment is warranted for the proposed
infrastructure/community centers that will be associated with the subject
property.
Adjustments for comparison:
- --------------------------
Engineering/
Development +25%
PUD Infrastructure +10%
---
Total adjustment +35%
$ll,739.000 x 1.35 = $15,848.00 per lot
72
<PAGE>
[MAP APPEARS HERE]
<PAGE>
COMPARABLE SALE #2
Grantor: St. Charles Associates
Grantee: Community Homes Incorporated
Date of Sale: 6/28/91
Location: St. Charles Subdivision
Tax Map 15, Parcel 695
Legal: Liber 1653, Folio 349
No. of Lots: 62 purchased, final plat 56
Price: $1,302,000.00
Price per lot: $21,000.00 for 62 lots
$23,250.00 for 56 lots
Comments: This is the sale of originally 62 paper lots in St. Charles,
which were ultimately re- platted to be 56 lots. The purchase price was
based on 62 lots at $21,000.00 per lot, though the ultimate yield reflects
a tot value of $23,250.00. Portions of the infrastructure were in place,
such as major access roads, recreational areas and green space, which
requires a downward adjustment in comparison to the Fairway Village lots.
These, for the most part, are medium size lots, similar to the "60's" as
proposed for the subject subdivision.
Adjustments for comparison:
- --------------------------
Infrastructure - 10%
---
Total adjustment - 10%
$21,000.00 x .90 = $18,900.00 per lot
73
<PAGE>
[MAP APPEARS HERE]
<PAGE>
COMPARABLE SALE #3
Grantor: St. Charles Associates
Grantee: Oakridge Housing Corp.
Date of Sale: 7/90
Location: St. Charles Subdivision
Tax Map 15, Grid 11, Parcel 728
Legal: Liber 1479, Folio 379
No. of lots: 100
Price: $2,000,000.00
Price per lot: $20,000.00
Comments: This is the sale of 100 paper lots, approved, but undeveloped units
in the Huntington Neighborhood of St. Charles. Overall lot sizes range from
small to medium size lots, with the average being approximately 1/5th acre each.
Overall location is rated equal to the subject property. A downward adjustment
for site improvements, with the Huntington Neighborhood infrastructure, for the
most part, in place.
Adjustments for comparison:
- --------------------------
PUD Infrastructure - 10%
----
Total adjustment - 10%
$20,000.00 x .90 = $18,000.00 per lot
74
<PAGE>
[MAP APPEARS HERE]
<PAGE>
COMPARABLE SALE #4
Grantor: FVC-IV Marshalls Landing LLC
Grantee: Oakridge Homes
Date of Sale: 6/21/96
Location: off of Maryland Route 227,
Marshall Hall Road
Tax Map 5, Grid 12, Parcel 327
Legal: Liber 2247, Folio 445
No. of Lots: 34
Price: $550,800.00
Price per lot: $ 16,200.00
Comments: This is a recent purchase of property by Oakridge Homes of 34 single-
family detached lots in the Bryans Road area. Overall location in the Bryans
Road area, where property values are lower, is rated inferior to the subject
property. An additional upward adjustment for the PUD infrastructure associated
with the community centers that will ultimately service the subject lots is
warranted. Overall lots of approximately 1/4 acre each, is rated somewhat
similar to the medium size lots in the subject subdivision. Estimated
development costs for this subdivision ranged from $16,000.00 to $19,000.00,
which is somewhat similar to that of the subject.
Adjustments for comparison:
- --------------------------
Location + 5%
PUD Infrastructure +10%
---
Total adjustment +15%
$16,200.00 x 1.15 = $18,630.00 per lot
75
<PAGE>
[MAP APPEARS HERE]
<PAGE>
COMPARABLE SALE #5A
Grantor: Parker Meadows Associates
Grantee: Oak Fair Corporation
Date of Sale: 6/27/96
Location: Hillantrae Subdivision
Tax Map 133, Lots 122 & 124, Block B
Legal: Liber 10866, Folio 0046
No. of Lots: 2
Price: $33,900.00
Price per lot: $16,995.00
COMPARABLE SALE #5B
Grantor: Parker Meadows Associates
Grantee: Oak Fair Corporation
Date of Sale: 6/18/96
Location: Hillantrae Subdivision
Tax Map 133, Lots 38, 44 & 153
Legal: Liber 10846, Folio 0060
No. of Lots: 3
Price: $50,985.00
Price per lot: $16,995.00
76
<PAGE>
COMPARABLE SALE #5C
Grantor: Parker Meadows Associates
Grantee: Oak Fair Corporation
Date of Sale: 5/6/96
Location: Hillantrae Subdivision
Tax Map 133, Lots 41-42, Block D
Legal: Liber 10758, Folio 0506
No. of Lots: 2
Price: $33,990.00
Price per lot: $16,995.00
Comments: Sales 5A through 5C are located in the Clinton area of Prince
George's County, just off of Piscataway Road. The lots have an average size of
approximately 12,000 square feet or 1/4 acre (+/-). Although located in Prince
George's County, location, topography and size are somewhat similar to the
medium size lots in the subject subdivision. An upward adjustment is required
for intrinsic neighborhood improvements associated with the lots of the subject
property. This is a phase takedown of a number of units within the Hillantrae
Subdivision.
Adjustments for comparison:
- --------------------------
-0-
---
Total adjustment -0-
$16,995.00 x 1.00 = $16,995.00 per lot
77
<PAGE>
[MAP APPEARS HERE]
<PAGE>
COMPARABLE SALE #6
Grantor: Realty Investment
Grantee: Joy Morgan
Date of Sale: 9/27/91
Location: Cimarron Woods, Tax Map 106, Block A,
Lots 1-8 and 48-50, and Blocks B & C
with 13 lots and Outlot A
Legal: Liber 8074, Folio 367
No. of Lots: 24
Price: $444,000.00
Price per lot: $ 18,500.00
Comments: This is a subdivision located off of Allentown Road in Temple Hills in
the Camp Springs area of Prince George's County. Overall location, type of lot,
and lot size are rated similar to the subject property. Upward adjustments are
warranted for the intrinsic PUD amenities associated with the subject.
Adjustments for comparison:
- --------------------------
Site Amenities +10%
---
Total adjustment +10%
$18,500.00 x 1.10 = $20,350.00 per lot
78
<PAGE>
[MAP APPEARS HERE]
<PAGE>
COMPARABLE SALE #7
Grantor: Ashford Joint Venture
Grantee: Chadwick American
Date of Sale: 5/3/89
Location: Route 228
Tax Map 7, Part of Parcel 152
Legal: Liber 1406, Folio 124
No. of Lots: 124
Price: $2,480,000.00
Price per lot: $20,000.00
Comments: This is the original sale of Phase One of the Ashford Oaks
Subdivision, which was sold in paper lot form. The phases thereafter were
sold as finished lots. However, Phase One was purchased in paper lot form
by Chadwick American. Overall development costs at the time averaged
$12,000.00 to $14,000.00, which with regulation changes are considerably
superior than those of today. Overall lot size is somewhat superior, with
most being 1/4 to 1/3 acre. Neighborhood amenities are rated inferior to
those proposed for the subject.
Adjustments for comparison:
- --------------------------
Lot Size - 10%
Infrastructure + 10%
---
Total adjustment -0-
$20,000.00 x 1.00 = $20,000.00 per lot
79
<PAGE>
[MAP APPEARS HERE]
<PAGE>
COMPARABLE SUMMARY GRID
-----------------------
<TABLE>
<CAPTION>
===========================================================================================
COMP ENG/DEV PUD INTR. LOC SITE AMEN. LOT SIZE TOTAL ADJ. PRICE ADJ. PRICE
===========================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
#1 +25% +10% +35% $1l,739 $15,848
- ------------------------------------------------------------------------------------------
#2 -10% -10% $21,000 $18,900
- ------------------------------------------------------------------------------------------
#3 -10% -10% $20,000 $18,000
- ------------------------------------------------------------------------------------------
#4 +10% +5% +15% $16,200 $18,630
- ------------------------------------------------------------------------------------------
#5 -10% $16,995 $16,995
- ------------------------------------------------------------------------------------------
#6 +10% +10% $18,500 $20,350
- ------------------------------------------------------------------------------------------
#7 +10% -10% -0- $20,000 $20,000
==========================================================================================
</TABLE>
For the most part, the comparable sales aforesaid are of paper lot sales
purchased in bulk form, which in this appraiser's opinion, are reflective of
some price adjustment for absorption. However, none of the sales are of the size
or of the numbers associated with the total lots within the subject subdivision,
and further discounting for absorption is required.
Based on the aforesaid comparable sales, it is this appraiser's gross
retail value is best estimated to be approximately $19,000.00 per unit for the
large and medium size lots. This takes into consideration that the larger lots
will probably command a higher premium at retail level as opposed to the
unfinished state that they are currently in. The overall indicated price range
of the smaller units is estimated at $36,400.00, allowing for the price
deduction associated with these large lots, it is felt that the paper lot units
associated with the smaller lots should be discounted a further 10 percent.
Therefore, the indicated gross retail value of the lots are as follows: With the
medium and larger lots, the indicated value is estimated to be at $19,000.00 per
unit; for the smaller lots, taking into consideration a 10 percent deduction for
size, the indicated value of the paper lots is $17,100.00. Therefore, based on
the total number of proposed units, which amount to 252 small units, 499 medium
units and 922 large units, the gross retail value of the paper lots is as
follows:
922 large units @ $19,000.00 per lot $17,518,000.00
499 medium units @ $19,000.00 per lot $ 9,481,000.00
252 small units @ $17,100.00 per lot $ 4,309,200.00
--------------
Total $31,308,200.00
Rounded to $31,308,000.00
As a further test of the current "as is" value of the subject property's
detached units, please refer to the following sales of finished single-family
detached lots in the market area of the subject property. The comparable sales
of finished units are of comparable detached units serviced by water and sewer
in the northern portion of Charles County, which is deemed to be the same market
area as the subject property. These comparable sales reflect indicated values
for finished lots as purchased by various builders and individuals in the
Southern Maryland area. The comparable sales are as follows:
80
<PAGE>
VALUATION OF THE SUBJECT PROPERTY AS FINISHED LOTS
--------------------------------------------------
SUBDIVISION PROFILE ONE
PROJECT NAME: St. Charles (various neighborhoods)
SITE DEVELOPER: IGC - Interstate General Corp.
LOCATION: off of St. Charles and Smallwood Parkways
Waldorf, Charles County, Maryland
6th Election District
LEGAL DESCRIPTION: Tax Map: 15, 24, 14, various parcels
TOTAL UNITS PROPOSED: 2,000 per neighborhood (+/-)
AVERAGE LOT SIZE: less than 1/4 acre
ZONING: PUD
HOUSE PRICE: $150,000 to $200,000
LOT TO HOUSE PRICE RATIO: 25 to 28 percent
PROJECT DENSITY: varying per neighborhood
DATE PROJECT OPENED: 1966
ABSORPTION PACE: January 1, 1995 through October 1995 - 10
units per month
VERIFIED: Lusk, Charles County Assessment Records
DATE OF INSPECTION: July 1996
REMARKS:
These are various neighborhoods in the St. Charles Planned Unit
Development, both in Dorchester, Huntington, as well as Hampshire
Neighborhoods. These are the three most recent neighborhoods in the Planned
Unit Development of St. Charles. Lot sales reflect purchases by multiple
builders, of which there are five major builders within St. Charles,
including Ryland, Washington Homes, Pulte, Royal Homes and American Dream
Homes. Lot sizes vary from as small as 1/6th of an acre to approximately
1/4 acre. Differentials and lot price are typically reflected in size, as
well as location within specific neighborhoods. Upward adjustments are
81
<PAGE>
warranted for overall lot size in comparison to that of the proposed lots for
the subject property. Recent absorption rates have slowed somewhat. However,
this is due mainly to the limited amount of lots available until the new Fairway
Village neighborhood is developed.
A sampling of recent sales within the Dorchester and Hampshire
Neighborhoods of St. Charles is as follows:
Grantor: Interstate General Corporation
<TABLE>
<CAPTION>
========================================================================================
# of Lots Neighborhoods Lot # Date Deed Ref. Price/Lot Total Price
========================================================================================
<S> <C> <C> <C> <C> <C> <C>
1 Dorchester 54 10/07/94 2020/474 $48,300 $ 48,300
- ----------------------------------------------------------------------------------------
2 Dorchester 39,43 09/19/94 2012/388 $49,410 $ 98,820
- ----------------------------------------------------------------------------------------
3 Dorchester 12,21,26 06/03/94 1939/139 $47,550 $142,650
- ----------------------------------------------------------------------------------------
4 Dorchester 17,22,30, 05/10/94 1963/018 $48,170 $192,680
47
- ----------------------------------------------------------------------------------------
3 Dorchester 24,32,46 04/12/94 1947/569 $47,860 $192,680
- ----------------------------------------------------------------------------------------
2 Dorchester 7,15 07/20/93 1816/570 $44,250 $ 88,500
- ----------------------------------------------------------------------------------------
3 Dorchester 19,23,35 08/27/93 1832/576 $46,000 $138,000
- ----------------------------------------------------------------------------------------
9 Dorchester 56,58,60, 05/25/93 1789/510 $46,000 $644,000
64,69,78,
80,82,83
- ----------------------------------------------------------------------------------------
4 Huntington 15,17,18, 02/05/93 1748/390 $34,079 $136,314
32
- ----------------------------------------------------------------------------------------
2 Huntington 14,44 10/15/93 1855/427 $35,179 $ 70,737
- ----------------------------------------------------------------------------------------
7 Hampshire 73,74,75, 10/16/91 1592/554 $40,833 $245,000
76,77,78,
79
- ----------------------------------------------------------------------------------------
2 Hampshire 105,106 11/13/91 1599/388 $37,000 $ 74,000
- ----------------------------------------------------------------------------------------
2 Hampshire 58,68 10/16/91 1592/552 $40,000 $ 80,000
- ----------------------------------------------------------------------------------------
1 Dorchester 22 10/17/94 2023/496 $40,000 $ 40,000
- ----------------------------------------------------------------------------------------
3 Dorchester 34,36,42 10/05/94 2019/515 $40,000 $120,000
- ----------------------------------------------------------------------------------------
1 Dorchester 57 09/24/94 2013/386 $45,000 $ 45,000
- ----------------------------------------------------------------------------------------
2 Dorchester 39,43 09/19/94 2012/388 $49,410 $ 98,820
- ----------------------------------------------------------------------------------------
1 Dorchester 18 12/10/93 1887/092 $45,500 $ 45,500
- ----------------------------------------------------------------------------------------
2 Dorchester 25,48 07/16/93 1815/364 $46,000 $ 92,000
- ----------------------------------------------------------------------------------------
1 Dorchester 16 03/14/94 1923/073 $46,000 $ 46,000
- ----------------------------------------------------------------------------------------
</TABLE>
82
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6 Dorchester 11,19,22, 01/24/95 2055/487 $34,227 $205,362
25,31,37
- ------------------------------------------------------------------------------------------
1 Dorchester 15 02/15/95 2062/339 $47,500 $ 47,500
- ------------------------------------------------------------------------------------------
1 Dorchester 51 02/16/95 2062/542 $46,000 $ 46,000
- ------------------------------------------------------------------------------------------
1 Dorchester 86 02/13/95 2061/483 $45,500 $ 45,500
- ------------------------------------------------------------------------------------------
1 Dorchester 51 02/24/95 2064/533 $49,500 $ 49,500
- ------------------------------------------------------------------------------------------
1 Dorchester 50 03/16/95 2070/329 $49,800 $49,800
- ------------------------------------------------------------------------------------------
1 Dorchester 54 03/13/95 2069/274 $44,500 $44,500
- ------------------------------------------------------------------------------------------
1 Dorchester 47 03/31/95 2074/246 $49,000 $49,000
- ------------------------------------------------------------------------------------------
1 Dorchester 48 04/07/95 2077/330 $50,100 $50,100
- ------------------------------------------------------------------------------------------
2 Dorchester 37, 38 04/06/95 2076/553 $40,000 $80,000
- ------------------------------------------------------------------------------------------
1 Dorchester 10 05/23/95 2090/356 $45,500 $45,500
- ------------------------------------------------------------------------------------------
1 Dorchester 46 07/07/95 2106/521 $50,400 $50,400
- ------------------------------------------------------------------------------------------
1 Dorchester 37 07/20/95 2110/296 $50,400 $50,400
- ------------------------------------------------------------------------------------------
1 Dorchester 40 09/15/95 2133/493 $50,400 $50,400
- ------------------------------------------------------------------------------------------
1 Dorchester 11A 03/12/96 2199/20 $39,200 $39,200
- ------------------------------------------------------------------------------------------
1 Dorchester 67 03/20/96 2202/124 $48,000 $48,000
- ------------------------------------------------------------------------------------------
1 Dorchester 24 04/09/96 2213/1 $48,000 $48,000
- ------------------------------------------------------------------------------------------
1 Dorchester 1 04/29/96 2220/446 $47,500 $47,500
- ------------------------------------------------------------------------------------------
1 Dorchester 64 04/29/96 2220/362 $37,000 $37,000
- ------------------------------------------------------------------------------------------
1 Dorchester 35 05/09/96 2226/3 $46,000 $46,000
- ------------------------------------------------------------------------------------------
1 Dorchester 60 05/06/96 2224/43 $47,000 $47,000
- ------------------------------------------------------------------------------------------
1 Dorchester 68 05/06/96 2224/82 $47,000 $47,000
- ------------------------------------------------------------------------------------------
1 Dorchester 70 05/06/96 2224/94 $47,000 $47,000
- ------------------------------------------------------------------------------------------
1 Dorchester 43 05/30/96 2234/291 $50,400 $50,400
- ------------------------------------------------------------------------------------------
1 Dorchester 22 06/14/96 2241/560 $48,000 $48,000
- ------------------------------------------------------------------------------------------
1 Hampshire 62 04/22/96 2217/586 $35,000 $35,000
- ------------------------------------------------------------------------------------------
1 Hampshire 68 04/22/96 2218/13 $35,000 $35,000
- ------------------------------------------------------------------------------------------
1 Hampshire 73 04/22/96 2218/1 $35,000 $35,000
- ------------------------------------------------------------------------------------------
8 Dorchester 1-4, Parcel B 05/13/97 2375/537 $39,938 $319,504
42, 44, 45 &
48
- ------------------------------------------------------------------------------------------
</TABLE>
83
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 Dorchester 9, Parcel H 04/15/97 2362/503 $44,000 $44,000
- ------------------------------------------------------------------------------------------
1 Dorchester 33 04/04/97 2357/520 $50,400 $50,400
- ------------------------------------------------------------------------------------------
1 Dorchester 3, Parcel L 03/07/97 2347/96 $47,500 $47,500
- ------------------------------------------------------------------------------------------
2 Dorchester* 50 & 54 03/11/97 2348/249 $47,500 $95,000
- ------------------------------------------------------------------------------------------
1 Dorchester 49 11/06/96 2300/239 $47,000 $47,000
==========================================================================================
* Foltyn Brothers (Grantor)
</TABLE>
Comments: Overall, the lots within the aforementioned neighborhoods are very
similar to those as projected for the Fairway Village Neighborhood, with the
smaller lots commanding the lower prices and obviously the higher lots receiving
the upper prices. In reviewing the retail lot sales noted previously, for the
most part, the lower units are indicative of sale prices from $35,000.00 to
$37,000.00; the mid-sized lots have sold from $39,000.00 to approximately
$45,000.00; and the larger lots have sold from $45,000.00 and up, with the
preponderance of the value of the larger lots in the $47,500.00 to $50,000.00
price range. Based on the aforesaid comparables, it appears that the projected
lot values for base lot prices for Fairway Village is consistent with those
received in other neighborhoods within the St. Charles Community.
84
<PAGE>
[MAP APPEARS HERE]
<PAGE>
SUBDIVISION PROFILE TWO
PROJECT NAME: Sun Valley Estates
SITE DEVELOPER: Larson
LOCATION: Stavors Road, Waldorf
Charles County, Maryland
LEGAL DESCRIPTION: Tax Map 8, Grid 13, Parcel 575 & 546
AVERAGE LOT SIZE: 15,000 to 20,000 sq. ft.
ZONING: RM
HOUSE PRICE: $160,000+
LOT TO HOUSE PRICE RATIO: 31 percent
PROJECT DENSITY: 1.6556 units per acre
DATE PROJECT OPENED: January 1995
ABSORPTION PACE: 11 lot sales since 6/94 or an average
absorption .50 units per month +/-
VERIFIED: Lusk, Charles County Assessment Records
DATE OF INSPECTION: July 1996
REMARKS: This is the sale of lots ranging from 1/4 to 1/3 of an acre, of
somewhat similar size to the larger components within the Fairway Village
Neighborhood. This is somewhat reflective of an average price of
$50,000.00. This developer originally marketed lots at $53,000.00 to
$54,000.00, which was at the high end for typical tract home type lots and
ultimately because of competition, revised the prices to the most recent
sales of approximately $50,000.00 per unit. In terms of comparison to the
subject lots, these lots are slightly larger than that of the subject,
though the amenities in terms of clubhouses, pools, and tennis courts
associated within the neighborhood offset some size differential on the
lots.
85
<PAGE>
<TABLE>
<CAPTION>
========================================================================================
# of Lots Grantee Lot # Legal Date Price/Lot Total Price
========================================================================================
<S> <C> <C> <C> <C> <C> <C>
1 Lee Homes 1 2136/336 09/22/95 $53,000 $53,000
- ----------------------------------------------------------------------------------------
1 R.E. Miller 7 2217/367 04/02/96 $50,000 $50,000
- ----------------------------------------------------------------------------------------
1 R & R Dev. Co. 13 2144/151 10/11/95 $54,000 $54,000
- ----------------------------------------------------------------------------------------
1 Lee Homes 2 2171/448 12/21/95 $50,000 $50,000
- ----------------------------------------------------------------------------------------
1 Lee Homes 8C 249/323 12/30/94 $53,000 $53,000
- ----------------------------------------------------------------------------------------
1 Benefield 9C 2022/413 10/13/94 $53,000 $53,000
- ----------------------------------------------------------------------------------------
1 Gentile lOC 2029/240 11/01/94 $53,000 $53,000
- ----------------------------------------------------------------------------------------
1 R.E. Miller 8H 1980/218 06/22/94 $53,000 $53,000
- ----------------------------------------------------------------------------------------
1 F&T Builders 9H 2018/377 10/03/94 $53,000 $53,000
- ----------------------------------------------------------------------------------------
1 R&R Dev. Co. Sec. 4A 2202/184 03/20/96 $50,000 $50,000
Lot 10
- ----------------------------------------------------------------------------------------
1 R&R Dev. Co. Sec. 4 2227/38 05/13/96 $50,000 $50,000
Lot 1
- ----------------------------------------------------------------------------------------
1 Lee Homes Sec. 4 2226/115 05/09/96 $50,000 $50,000
Lot 42
- ----------------------------------------------------------------------------------------
1 R.E. Miller Sec. 4A 2217/367 04/22/96 $50,000 $50,000
Lot 7H
- ----------------------------------------------------------------------------------------
</TABLE>
86
<PAGE>
[MAP APPEARS HERE]
<PAGE>
SUBDIVISION PROFILE THREE
PROJECT NAME: Springhaven Woods Subdivision
SITE DEVELOPER: Barley, Schick Associates
LOCATION: North side of Berry Road
Waldorf, Charles County, Maryland
6th Election District
LEGAL: Tax Map 8, Parcel 620 & 646
Springhaven Woods Subdivision
DESIGNER: FSI Design Group - Fedco Systems
TOTAL SITE AREA: 41.2 acres
TOTAL UNITS PROPOSED: 78 Lots
AVERAGE LOT SIZE: 1/4th to 1/3rd acre
ZONING: . R-15
HOUSE PRICE: $170,000s +
LOT TO HOUSE PRICE RATIO:26%
DATE PROJECT OPENED: June 1993
NUMBER OF LOTS SOLD: 80 (1/94 thru 10/95)
ABSORPTION PACE OF LOTS: 3.14 units per month
VERIFIED: Charles County Land Records, Lusk and Dennis Vaira
DATE OF INSPECTION: July 1996
REMARKS: Springhaven Woods is located on the north side of Berry Road. The
developers have sold lots from a low of $42,000.00 to its most recent high
of $50,000.00 per unit. In reviewing the Lusk Reports from January 1994
through January 1995, 46 lots were sold or approximately an absorption of
1.84 units per month. This particular subdivision features homes in the
$175,000 to $210,000 price range, with the predominance of homes in the
$180,000 to $190,000 range. Location off of Berry Road is somewhat similar
to that of the subject property and is located in the Waldorf area. Overall
quality of construction of this subdivision is rated
87
<PAGE>
similar to the proposed subdivision of the subject property. In reviewing the
Lusk Reports from January 1994 through October 1995, a total of approximately 80
lots have been sold, or in this 22-month period an average absorption.of 3.64
units per month. Initial lots were sold in this subdivision at $48,000 to a high
of $50,000 per unit. Location is rated about similar to the subject property and
overall lot sizes are just slightly smaller, which requires a slight upward
adjustment for overall size. Lot sales slowed in 1996 due to the delay in
opening Section 4, with basically just residual lots selling through the early
part of 1996. The most recent sales are reflective of a price of $50,000.00 per
unit. In speaking with Mr. Warren Barley, developer of the project, from initial
marketing in June 1993, 17 lots were sold in the first year, 49 lots in 1994, 43
in 1995 and 4 lots through 1996, or an average absorption of slightly over 3
units per month. Absorption rates have slowed somewhat in 1996 through 1997 due
to the fact that most of the premium lots have been sold in the subdivision and
what is left are mostly flag lots, lots that back to Berry Road or are rougher
topography lots. For the most part, the 1996-1997 are residual lot sales that
reflect absorptions at the tail end of the sell-out period. Overall lot sizes
are 1/4 to 1/3 acre, which are somewhat larger than that of the subject
property, though this is offset by the superior amenities associated with the
community centers, pools and tennis courts associated with the St. Charles
Neighborhoods.
SUBDIVISION BREAKDOWN:
<TABLE>
<CAPTION>
==========================================================================================================
# of Grantee Lot # Date Price/ Lot Total Price
Lots
==========================================================================================================
<S> <C> <C> <C> <C> <C>
1 Apex Builders 9 06/22/93 $48,000 $48,000
- ----------------------------------------------------------------------------------------------------------
1 Apex Builders 11 08/12/93 $48,000 $48,000
- ----------------------------------------------------------------------------------------------------------
1 Apex Builders 26 09/01/93 $48,000 $48,000
- ----------------------------------------------------------------------------------------------------------
1 R&R Developers 28 09/01/93 $48,000 $48,000
- ----------------------------------------------------------------------------------------------------------
1 Cole Developers,Inc. 72 09/16/95 $50,000 $50,000
- ----------------------------------------------------------------------------------------------------------
1 R & R Developers 75 05/94 $49,000 $49,000
- ----------------------------------------------------------------------------------------------------------
1 Lee Homes 84 12/94 $50,000 $50,000
- ----------------------------------------------------------------------------------------------------------
1 Lee Homes 85 09/94 $50,000 $50,000
- ----------------------------------------------------------------------------------------------------------
1 New Colony Homes LLC 31 10/95 $50,000 $50,000
- ----------------------------------------------------------------------------------------------------------
1 Richardson Homes,Inc. 5 01/01/95 $50,000 $50,000
- ----------------------------------------------------------------------------------------------------------
1 R & R Developers 55 01/19/95 $50,000 $50,000
- ----------------------------------------------------------------------------------------------------------
1 Lee Homes (2059/540) 8 02/06/95 $50,000 $50,000
- ----------------------------------------------------------------------------------------------------------
1 Savage (2061/01) 44 02/08/95 $50,000 $50,000
- ----------------------------------------------------------------------------------------------------------
1 Lee Homes (2070/413) 114 03/17/95 $50,000 $50,000
- ----------------------------------------------------------------------------------------------------------
3 Lee Homes (2083/434) 20, 36, 62 05/01/95 $50,000 $150,000
- ----------------------------------------------------------------------------------------------------------
2 R&R Developers (2096/505) 56, 124 06/13/95 $50,000 $100,000
- ----------------------------------------------------------------------------------------------------------
</TABLE>
88
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2 Lee Homes (2103/303) 18,113 06/30/95 $50,000 $100,000
1 Crown Construction (2119/51) 41 08/09/95 $50,000 $50,000
1 Haynes Enterprises (2134/532) 97 09/19/95 $50,000 $50,000
1 Richardson Homes,Inc. (2148/472) 111 10/23/95 $50,000 $50,000
2 Lee Homes (2177/544) 16A/22 01/11/96 $50,000 $100,000
1 Lee Homes (2307/563) 125 11/26/96 $42,000 $42,000
===========================================================================================================
</TABLE>
89
<PAGE>
[MAP APPEARS HERE]
<PAGE>
SUBDIVISION PROFILE FOUR
PROJECT NAME: Ashford Oaks
SITE DEVELOPER: Metro Land Limited Partnership
and Ashford Oaks Joint Venture
LOCATION: . S/S Berry Road
Waldorf, Charles County, Maryland
6th Election District
LEGAL DESCRIPTION: Tax Map: 7
Grid: 12
Ashford Oaks Subdivision
SUBDIVISION BREAKDOWN:
<TABLE>
<CAPTION>
===========================================================================
Parcel Lots Plat Page Sec Plat Lot Street Open Total
Area Size
===========================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
376 19 40 306 1 1 7.2020 2.9782 0 10.1850
376 24 40 307 1 2 8.9347 2.1198 0 11.0545
376 18 40 308 I 3 6.6597 0.6448 3.58 10.8930
376 25 40 309 1 4 9.0012 2.6680 0 11.6692
376 20 40 310 1 5 7.7873 0.9649 0 08.7522
376 15 40 311 1 6 6.1741 1.1046 2.56 09.8406
===========================================================================
</TABLE>
TOTAL SITE AREA: Lot Area 45.7592 Acres
Street Area 10.4803 Acres
Open Area 6.1504 Acres
--------------
Total Area 62.3899 Acres
TOTAL UNITS PROPOSED: 122 Single Family Detached:
Section 1
AVERAGE LOT SIZE: 16,060 Square Feet (Net/Total Units)
ZONING: R-15
HOUSE PRICE: $180,000s +
LOT TO HOUSE PRICE RATIO: .30: 1
90
<PAGE>
PROJECT DENSITY: 1.96 units per acre
DATE PROJECT OPENED: November, 1990
ABSORPTION PACE: 12-month period running January 1994 through
December 1994, or 3.333 units per month
January 1994 through October 1995 (53 lots) or
an average of 2.41 units per month
VERIFIED: David Luecke, Salesperson
DATE OF INSPECTION: June 1995
REMARKS: Ashford Oaks is located on the south side of Berry Road just west of
the subject property. This subdivision will contain 289 single-family detached
units contained within three phases. The homes that are being constructed in
this subdivision are single-family detached dwellings selling in the $170,000 to
$240,000 base price range. The total site area in Section 1 contains 62.3899
acres and the entire subdivision should contain 119 acres according to the two
engineers, D.H. Steffens and F.S.I., both located in La Plata, Maryland. There
are approximately 20 acres of open space associated with this site.
There are two builders constructing homes in the Ashford Oaks Subdivision.
Chadwick American and Ryland Homes have been taking down lots and selling homes
at this site. Section I consisted of 94 lots of which Ryland Homes sold 53 in 22
months for an absorption rate of 2.41 units per month. Below is a breakdown of
the lots that have transferred in the subdivision. This is only a sample of the
lots that have been taken down, but still indicate the current pricing and
absorption pace. Overall absorption rates in the Ashford Oaks Subdivision is
1.833 lots per month. However, this is due in fact to a large extent that the
lots in Section 1 have, for the most part, sold out. There has been some time
delay in completing the next section of the project because of inclimate weather
during the winter and therefore some lag in lot transfers during this period of
time.
The first section of Ashford Oaks subdivision was, for the most part, sold out
in 1993 and the second section in 1994. It is this appraiser's understanding
that Phase 3 is being marketed as well.
The Ashford Oaks Subdivision has marketed from a high of $60,000.00 in 1992 to
current most recent prices, which are reflective of the price range of most lot
sales in the $50,000.00 to $52,000.00 price range. All lot sizes are 1/3 to 1/2
acre, which is rated about equal to the subject property. Within this
subdivision, two main builders are developing most of the homes. These are
Regency and Bozzuto Builders. However, Haynes Enterprises and Richard Homes are
also marketing dwellings within this subdivision. Overall topography of these
lots is rolling and rated somewhat similar to the subject. This community
originally started
91
<PAGE>
with two builders and there are now 4 or 5 builders in this subdivision,
Chadwick American, Bozzuto Builders, and Haynes Enterprises, Ryland Homes,
along with Regency and Richards Homes have all been taking down and selling
homes at this site. All lot sizes are from 1/4 to 1/2 acre, which are
somewhat larger than the larger lots within St. Charles, but neighborhood
facilities, which do not include a community center nor pools and tennis
courts, are rated slightly inferior and offset.
Grantor: Metro Land Limited Partnership
<TABLE>
<CAPTION>
===================================================================================================
# of Grantee Lot # Date Deed Ref. Price/Lot Total Price
Lots
===================================================================================================
<S> <C> <C> <C> <C> <C> <C>
2 Ryland 12, 24 08/91 1578/480 $49,920 $ 99,840
4 Chadwick 7, 38, 109, 113 08/91 1577/464 $49,500 $198,000
6 Chadwick 6, 87, 120 09/91 1588/88 $49,920 $149,760
1 Chadwick 8 11/91 1602/88 $50,880 $ 50,880
4 Chadwick 49, 88, 90, 108 12/91 1605/1 $51,360 $205,440
1 Chadwick 115 03/92 1631/421 $53,320 $ 53,320
1 Ryland 117 04/92 1641/463 $53,280 $ 53,280
2 Chadwick 89, 101 04/92 1641/380 $53,280 $106,560
4 Ryland 2-14, 23, 79, 68 04/92 1646/605 $54,360 $217,440
1 Chadwick 89, 101 04/92 1641/380 $53,280 $106,560
1 Ryland 117 04/92 1641/463 $53,280 $ 53,280
1 Ryland 115 05/92 1631/421 $52,320 $ 52,320
1 Ryland 115 05/92 1631/421 $52,320 $ 52,320
1 Ryland 115 05/92 1631/421 $52,320 $ 52,320
1 Ryland 25 07/92 1677/454 $54,720 $ 54,720
3 Chadwick 70, 86, 93 08/92 1688/377 $57,866 $173,600
2 Chadwick 62, 73 08/92 1683/582 $59,200 $118,400
5 Ryland 15, 36, 37, 63, 66 09/92 1691/454 $56,064 $280,320
2 Chadwick 91, 92 09/92 1699/223 $55,680 $111,360
2 Chadwick 18, 59 12/92 1730/230 $58,200 $116,400
1 Chadwick 100 12/92 1733/520 $57,600 $ 57,600
1 Ryland 50 12/92 1724/112 $61,120 $ 61,120
1 Chadwick 95 02/93 1753/124 $58,080 $ 58,080
1 Ryland 228, 250 02/93 1749/247 $47,500 $ 95,000
- ---------------------------------------------------------------------------------------------------
</TABLE>
92
<PAGE>
- -------------------------------------------------------------------------
1 Ryland 53 03/93 1759/525 $55,000 $ 55,000
- -------------------------------------------------------------------------
1 Chadwick 72 03/93 1758/534 $62,080 $ 62,080
- -------------------------------------------------------------------------
2 Ryland 41, 256 03/93 1758/560 $47,500 $ 95,000
- -------------------------------------------------------------------------
3 Ryland 44, 52, 77 03/93 1757/572 $55,000 $165,000
- -------------------------------------------------------------------------
1 Chadwick 110 05/93 1653/171 $53,760 $ 53,760
- -------------------------------------------------------------------------
3 Ryland* 229,237,246 01/94 1901/085 $47,500 $142,500
- -------------------------------------------------------------------------
1 Ryland* 242 02/94 1914/222 $50,000 $ 50,000
- -------------------------------------------------------------------------
1 Ryland* 243 11/93 1877/241 $47,500 $ 47,500
- -------------------------------------------------------------------------
1 BCH Partners 11 07/94 1990/204 $60,000 $ 60,000
LP
- -------------------------------------------------------------------------
1 Curtis Regency 12 10/94 2022/377 $60,000 $ 60,000
LLC
- -------------------------------------------------------------------------
1 Ryland Group 2 07/94 1993/419 $60,000 $ 60,000
- -------------------------------------------------------------------------
1 Am. Building 51 01/94 1901/038 $55,000 $ 55,000
Systems
- -------------------------------------------------------------------------
1 Am. Building 96 04/94 1952/161 $55,000 $ 55,000
Systems
- -------------------------------------------------------------------------
8 Ryland* 226,227,234, 06/94 1978/575 $48,000 $384,000
235,236,240,
245,258
- -------------------------------------------------------------------------
5 Ryland* 231,238,239, 06/94 1978/574 $48,000 $240,000
255,259
- -------------------------------------------------------------------------
2 Am. Building 244,254 04/94 1952/165 $50,000 $100,000
Systems
- -------------------------------------------------------------------------
1 BCH Partners 244 07/94 1990/206 $60,000 $ 60,000
LP**
- -------------------------------------------------------------------------
1 Ryland** 254 07/94 1993/420 $55,000 $ 55,000
- -------------------------------------------------------------------------
4 BCH Partners 180,182,209, 11/94 2033/298 $52,000 $208,000
LP** 221
- -------------------------------------------------------------------------
5 BCH Partners 210,211,219, 07/94 1990/202 $52,000 $260,000
LP** 220, 260
- -------------------------------------------------------------------------
4 Ryland* 213,214,218,
264 08/94 2002/526 $50,000 $200,000
- -------------------------------------------------------------------------
1 BCH Partners 222 11/94 2035/455 $52,000 $ 52,000
LP*
- -------------------------------------------------------------------------
1 BCH Partners 185 02/95 2059/351 $52,121 $ 52,121
LP*
- -------------------------------------------------------------------------
12 Curtis Regency 12,42,43, 01/95 2056/297 $52,500 $630,000
LLC 75,80,82,
83,84,85,
94,97 & 102
- -------------------------------------------------------------------------
1 BCH Partners 181 03/95 2069/294 $52,412 $ 52,412
LP*
- -------------------------------------------------------------------------
93
<PAGE>
- -------------------------------------------------------------------------
1 BCH Partners 183 05/95 2088/141 $52,640 $ 52,640
LP*
- -------------------------------------------------------------------------
1 BCH Partners 262 06/95 2094/547 $52,982 $ 52,982
LP*
- -------------------------------------------------------------------------
1 BCH Partners 273 06/95 2094/549 $53,075 $ 53,075
LP*
- -------------------------------------------------------------------------
1 Curtis Regency 189 08/95 2122/508 $52,000 $ 52,000
LLC
- -------------------------------------------------------------------------
1 Curtis Regency 187 09/95 2131/484 $52,000 $ 52,000
LLC
- -------------------------------------------------------------------------
1 Curtis Regency 270 01/96 2182/428 $52,000 $ 52,000
LLC
- -------------------------------------------------------------------------
1 BCH Partners 215 02/96 2187/41 $52,000 $ 52,000
LP*
- -------------------------------------------------------------------------
4 BCH Partners 186/205/ 03/96 2198/251 $52,000 $208,000
LP* 274/275
- -------------------------------------------------------------------------
2 Regency Homes 190/199 03/96 2194/118 $52,000 $104,000
Corp.
- -------------------------------------------------------------------------
1 Hayne 259 05/96 2227/250 $50,000 $ 50,000
Enterprises***
- -------------------------------------------------------------------------
1 Richardson 277 06/96 2236/296 $52,000 $ 52,000
Homes, Inc.*
- -------------------------------------------------------------------------
4 Regency Homes Sec.3A, 06/96 2241/263 $52,000 $208,000
Corp. Lot 271
- -------------------------------------------------------------------------
1 BCH Partners Sec. 3B, 04/97 2358/286 $51,500 $ 51,500
L.P. Lot 35
- -------------------------------------------------------------------------
1 Richardson Sec. 3B, 04/97 2368/26 $52,000 $ 52,000
Homes, Inc. Lot 11
- -------------------------------------------------------------------------
2 Richardson Sec. 3B, 03/97 2344/564 $52,000 $104,000
Homes, Inc. Lots 8 & 38
- -------------------------------------------------------------------------
1 Regency Sec. 3B, 03/97 2349/18 $52,000 $ 52,000
Frederick LLC Lot 45
- -------------------------------------------------------------------------
1 Richardson Sec. 3B, 02/97 2339/364 $52,000 $ 52,000
Homes, Inc. Lot 43
- -------------------------------------------------------------------------
1 Richardson Sec. 3B, 11/96 2306/518 $52,000 $ 52,000
Homes, Inc. Lot 49
- -------------------------------------------------------------------------
1 Richardson Sec. 3B, 11/96 2306/533 $52,000 $ 52,000
Homes, Inc. Lot 10
- -------------------------------------------------------------------------
* Grantor: Ashford Oaks Joint Venture
** Grantor: American Building Systems
*** Grantor: Ryon Group
94
<PAGE>
[MAP APPEARS HERE]
<PAGE>
SUBDIVISION PROFILE FIVE
PROJECT NAME: Rolling Meadows
SITE DEVELOPER: Blynn Kuhstoss
LOCATION: Raby Road
Waldorf, Charles County, Maryland
6th Election District
LEGAL DESCRIPTION: Tax Map: 8
Parcel: 798
Rolling Meadows Subdivision
AVERAGE LOT SIZE: 1/4 to 1/3 acre
ZONING: RM
TOTAL SITE AREA: 49.66 acres
TOTAL UNITS PROPOSED: Section I: 40 lots, 130 total lots
HOUSE PRICE: $130,000+
DATE PROJECT OPENED: January 1996
ABSORPTION RATE: .44 units per month (+/-)
VERIFIED: Lusk/Assessment Records/Center 21 H.T. Brown
DATE OF INSPECTION: July 1996
REMARKS:
This is a subdivision location in an older neighborhood in Waldorf. Overall
location is rated slightly inferior to that of the subject property, though
overall topography and lot sizes, which average from 6,000 to 7,000 square
feet, would be deemed similar to the medium size lots of the subject
property. According to a representative from Century 21 - H.T. Brown, lots
are currently not sold to any other builders other than Mil-Mar & Sons, and
to date, 18 units have been marketed at an absorption of slightly over 1
unit per month. Overall house type, configuration, house design may have
hurt overall absorptions of sales since the builder elected to pick styles
of homes that are similar to those that were built in the mid-1980's and
may be somewhat outdated.
95
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================
# OF LOTS GRANTEE LOT # DATE LEGAL PRICE/LOT TOTAL PRICE
=====================================================================================
<S> <C> <C> <C> <C> <C> <C>
2 Mil-Mar & Sons 96 & 98 04/22/96 2218/38 $40,000 $ 80,000
- -------------------------------------------------------------------------------------
1 Mil Mar & Sons 114 11/15/95 2157/534 $40,000 $ 40,000
- -------------------------------------------------------------------------------------
1 Mil-Mar & Sons 12/27/95 2173/169 $40,000 $ 40,000
- -------------------------------------------------------------------------------------
1 Mil-Mar & Sons 104 01/29/96 2183/19 $40,000 $ 40,000
- -------------------------------------------------------------------------------------
5 Mil-Mar & Sons 6-8, 93
& 94 04/09/97 2359/426 $40,000 $200,000
- -------------------------------------------------------------------------------------
1 Mil-Mar & Sons 3 12/05/96 2312/103 $40,000 $ 40,000
- -------------------------------------------------------------------------------------
1 Mil-Mar & Sons 1 11/08/96 2301/424 $40,000 $ 40,000
=====================================================================================
</TABLE>
96
<PAGE>
[MAP APPEARS HERE]
<PAGE>
SUBDIVISION PROFILE SIX
PROJECT NAME: Misc. lots in the area
SITE DEVELOPER: various
LOCATION: Waldorf area
LEGAL: various
DESIGNER: various
ABSORPTION: 5.833 units per month
<TABLE>
<CAPTION>
========================================================================================================
# of
Lots Grantee Lot# Legal Date Price/Lot Total Price
========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
1 Constitution Hills
to Laverick 11 1875/541 11/22/93 $52,775.00 $ 52,775.00
- --------------------------------------------------------------------------------------------------------
1 Brookhaven-Crowder
to Tri-Star
Construction 48 1940/448 03/30/94 $48,500.00 $ 48,500.00
- --------------------------------------------------------------------------------------------------------
1 Eutaw Forest-Murphy
to Eight Star Est. 56 1938/306 03/25/94 $47,500.00 $ 47,500.00
- --------------------------------------------------------------------------------------------------------
4 Meadowland- FEH JV
to Pulte 4/53/60/64 1922/467 02/23/94 $42,500.00 $170,000.00
- --------------------------------------------------------------------------------------------------------
4 Meadowland- FEH
JV to Pulte 54/55/56/57 1900/416 01/06/94 $42,500.00 $170,000.00
- --------------------------------------------------------------------------------------------------------
2 Meadowland- FEH
JV to Pulte 1/3 1972/295 06/03/94 $42,500.00 $ 85,000.00
- --------------------------------------------------------------------------------------------------------
7 Meadowland- FEH
JV to Pulte 16/17/18/ 1986/78 07/07/94 $42,500.00 $297,500.00
19/20/70/71
- --------------------------------------------------------------------------------------------------------
1 Waldorf Estates
to Tri-Star 7A 1948/282 04/12/94 $38,500 $ 38,500
- --------------------------------------------------------------------------------------------------------
2 Somerset- E.K.
Edelen Farm LP to
Richmond American 47, 54 2126/412 08/30/95 $53,323 $106,646
- --------------------------------------------------------------------------------------------------------
3 Meadowland- FEH
JV to Pulte 33, 34, 32 2121/415 08/16/95 $45,217 $135,650
- --------------------------------------------------------------------------------------------------------
1 Bel Air Acres-
Moore & Martin to
Tri Star Construction 11 2085/187 05/03/95 $47,500 $ 47,500
- --------------------------------------------------------------------------------------------------------
1 Brookhaven- Gunston
Road JV to
Tri-Star Construction 47 2178/138 01/01/96 $44,000 $ 44,000
- --------------------------------------------------------------------------------------------------------
1 Berkman Subdivision
to Kerr 4 2228/337 05/15/96 $47,500 $ 47,500
- --------------------------------------------------------------------------------------------------------
1 Berkman Subdivision
to Wilson 6 2225/577 05/08/96 $48,000 $ 48,000
- --------------------------------------------------------------------------------------------------------
1 Billingsley Park-
Donovan to Buck 19 2225/295 05/08/96 $48,000 $ 48,000
- --------------------------------------------------------------------------------------------------------
1 Fox Hall- Posey
to Taylor 20A 2224/21 05/06/96 $55,000 $ 55,000
- --------------------------------------------------------------------------------------------------------
2 Kingsview
(Kingsview Patriot I, LLC 69/70 2224/151 05/06/96 $51,000 $102,000
- --------------------------------------------------------------------------------------------------------
</TABLE>
97
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
1 Billingsley Park.
Donovan to Willett 17 2201/263 03/18/96 $42,500 $ 42,500
- --------------------------------------------------------------------------------------------------------
1 Meadowland (Pulte
Home Corp.) 37 2200/207 03/14/96 $50,000 $ 50,000
- --------------------------------------------------------------------------------------------------------
1 Berkman Subdivision
to Leitner 5 2186/73 02/07/96 $46,500 $ 46,500
- --------------------------------------------------------------------------------------------------------
1 Brooks Haven to
Benefield 46 2173/267 01/11/96 $44,000 $ 44,000
- --------------------------------------------------------------------------------------------------------
1 Brooks Haven to
Tri-Star Const. 47 2178/138 01/11/96 $44,000 $ 44,000
- --------------------------------------------------------------------------------------------------------
1 Berry Valley-Vest
to Haynes Enterprises 27, Blk A 2359/194 04/08/97 $46,000 $ 46,000
- --------------------------------------------------------------------------------------------------------
1 Berry Valley-Vest
to Haynes Enterprises 12, Blk A 2359/315 04/08/97 $46,000 $ 46,000
- --------------------------------------------------------------------------------------------------------
3 Highgrove - Posey, et al. 17, 19 & 20 2355/384 04/01197 $47,000 $141,000
to Lee Homes Blk A
- --------------------------------------------------------------------------------------------------------
1 Greenmont - Custom Homes of 12 2362/486 04/15/97 $47,000 $ 47,000
So. Md. to Carlson
- --------------------------------------------------------------------------------------------------------
1 Berry Valley - Vest to 6, Blk B 2338/293 02/14/97 $46,000 $ 92,000
Crystal Homes, Inc. 21, Blk C
- --------------------------------------------------------------------------------------------------------
1 Covington - Covington 5 2359/212 04/08/97 $57,177 $ 57,177
J.V. to J & G
J.V. Company
- --------------------------------------------------------------------------------------------------------
1 Covington - Covington 8 2315/98 12/11/96 $51,000 $ 51,000
J.V. to Royal Homes
- --------------------------------------------------------------------------------------------------------
1 Covington - Covington 10 2316/539 12/17/96 $51,000 $ 51,000
J.V. to BCH Partners L.P.
- --------------------------------------------------------------------------------------------------------
1 Kingsview - Miller 68, Blk B 228/344 05/15/96 $48,000 $ 48,000
& Smith to Kingsview
Patriot I, LLC
- --------------------------------------------------------------------------------------------------------
1 Kingsview - Miller 69, 70 224/151 05/06/96 $51,000 $102,000
& Smith to Kingsview Blk B
Patriot I, LLC
- --------------------------------------------------------------------------------------------------------
</TABLE>
REMARKS: These are sales of miscellaneous lot from various subdivisions in
the Charles County area. Comparables are from Miller & Smith's Kingsview,
Berry Valley, Meadowlands and Somerset, and are of lots that are deemed to
be quite similar to that of the mid-size lots to be located in the subject
subdivision. For the most part, all of the aforementioned sales are in the
1/5 to 1/2 acre lot size, which is in a size range similar to that of the
subject property. For the most part, these lots are of similar class as
that of the subject property, in terms of location, utility availability
and price range potential of dwellings, though for the most part, most of
the lots are larger than the subject property's indicated size, but once
again the size differential is offset by the community amenities associated
with the property. One exception to this is Miller & Smith's Kingsview
where lot size, as well as neighborhood amenities are rated very similar to
that of the subject property.
98
<PAGE>
Given the aforementioned subdivision profiles, it is this appraiser's
opinion that the projected indicated market values for the various lots in the
subject subdivision, namely, $36,400.00 for the smaller lots; $42,000.00 for the
mid-size lots; and $49,000.00 for the larger lots should be considered as
appropriate market values for the subject lots. It should be noted that the
developers are projecting to sell a number of these lots with long term
takedowns with 4 percent escalators attached to the schedules. In reviewing the
marketplace, it appears that this appears to be somewhat of a common practice in
the single-family market, and a number of subdivisions in the Southern Maryland
area or north Waldorf area have had escalators attached to the base sales prices
for lots on an elongated takedown schedule. These escalators have ranged from a
low of 2 percent to a high of approximately 6 percent. Additionally, there are
subdivision such as Springhaven Woods, Ashford Oaks, Rolling Meadows and others
that have, for the most part, fixed prices at base levels which have kept the
price range relatively flat. However, these particular subdivisions have sold to
builders on a spot basis and it appears that the larger scale tract home builder
takedown such as those to Ryland, Pulte, Ryan, Washington Homes, etc. prefer to
set-up longer term marketing concepts that require large volumes of sales, and
thus, are willing to pay increases in prices, assuming they are relatively
moderate to compensate for the expenses incurred for marketing, particularly for
relocation of sales offices, phone expenses, etc.
Therefore, in the overall analysis of the discounted value, this appraiser
has imputed a 4 percent escalator through the marketing period.
Based on estimated hard costs of development of the single-family detached
units of approximately $17,300.00, as projected by Interstate General
Corporation, and additionally adding overall neighborhood development costs of
$6,800.00 per unit, plus sales and administrative expenses of $1,250.00 per
unit, the indicated residual reflects a value per paper lot of $19,550.00.
Based on an average lot cost of small, medium and large lots of $45,000.00
(+/-), the indicated residual lot value is approximately $19,950.00. This is
within approximately $1,000.00 of the indicated parameters as set forth by the
bulk purchase of paper lots in the market area and is offered as further support
for the indicated gross retail value of the paper lots within the subject
subdivision.
A discounted or "as is" value of the Fairway Village's 1,673 single-family
detached units must take into consideration the time to develop and market the
units during the phase development of Fairway Village. The gross retail value of
the detached units in paper lot form must be discounted to reflect the
anticipated time to market all of the units, as well as the carrying costs
associated with the holding period.
The absorption rate to determine development and sales rates for the
subject property has been extrapolated using sales and absorption rates from
other competitive subdivisions, as well as from previous neighborhoods in the
subject property. Along these lines, information supplied to this appraiser
reflects average lot sales from 1990 through 1996 to be approximately 200 units
99
<PAGE>
per year. Allowing a discount of 50 single-family attached units within this
total, average monthly absorptions are approximately 12.5 units per month. Of
the 6 years, 1996 appears to be the slowest years (please refer to the attached
sales charts as supplied by IGC in the Addendum of this report). This is
reflective of the Dorchester neighborhoods nearing sell-out and thus lot sales
slowed because of lower inventories and as in the case of most subdivision, with
the lots that have the worst topography being the remaining lots with builders,
requiring longer sales periods to sell these lots.
For the most part, in reviewing the past few years history, it appears that
most major builders within the St. Charles Subdivisions have absorbed at a rate
of approximately 2 units per month. Allowing for a minimum of 2 builders in each
class of lot or price range of dwelling, which has been typical in the past few
years in the St. Charles development. As an example, Community Homes and
Oakridge Homes took down a number of smaller lots and marketed dwellings in a
lower price range negotiated with these lots. At the same time, Oakridge,
Washington Homes, and Ryland were selling units in the mid-price range on the
mid-size lots in Dorchester and Hampshire Neighborhoods. Similarly, Royal Homes,
Foltyn Brothers, Pulte, Washington Homes sold on the larger lots, the upper
price range of dwellings for the St. Charles Communities.
Allowing for sufficient quantities of inventory, it is this appraiser's
opinion that an absorption per month should be established at approximately 14
units per month for the single-family detached, with a minimum of 2 builders in
the lower to mid-priced range of dwellings, and a minimum of 3 builders in the
larger or premium price range of dwellings.
A further subdivision analysis of additional competitive subdivisions in
terms of absorption are as follows:
Comparable #1 - Northwood Subdivision: The remaining lots in this
subdivision were purchased entirely by Ryland Homes. The absorption for fiscal
year 1994, which completed the full sell-out of this subdivision, reflected a
lot absorption of approximately 1.67 units. This subdivision featured homes in a
similar price range as expected for the subject property.
Comparable #2 - Sun Valley Subdivision: This subdivision is located off of
the south side of Berry Road and has absorbed approximately .5 units per month.
However, overall lot sales are reflective of somewhat higher priced lots in
comparison to some of the competition, and with the dropping of lot prices in
1995 and early 1996, absorption rates have increased somewhat.
Comparable #3 - Springhaven Woods Subdivision: January 1994 through October
1995, which was a major selling period for this subdivision, sold 3.14 units per
month. This rate was down slightly for the remaining months of 1995 and the
early months of 1996 due to limited lot inventory. However, a new section is
currently being developed and it is reported by Mr. Warren Barley that
additional interest and higher lot absorptions are being reflected.
100
<PAGE>
Comparable #4 - Rolling Meadows Subdivision: This is a new subdivision off
of the west end of Raby Road. Through today's date, unit absorption within this
subdivision is approximately 1.714 units per month.
Comparable #5 - Ashford Oaks Subdivision: Overall absorption within this
subdivision have averaged 2.41 units per month through October 1995, whereupon
most of the marketable lots were sold, pending the spring completion of a new
section. Absorption rates have increased since the opening of the new section to
levels similar to those as projected previously.
Comparable #6 - Constitution Hills Subdivision: In communicating with the
developers of this subdivision, absorption rates within this subdivision from
January 1994 through December 1995 were established at 64 units or just less
than 3 units per month.
Comparable #7 - Kingsview Subdivision: Within the Kingsview Subdivision,
Miller & Smith and Patriot Homes have sold 51 units in the first 13-month period
from May 1996 through May 1997. Of the 30 homes sold by Miller & Smith,
approximately 20 have settled. A similar percentage has also occurred with
Patriot Homes. This reflects to a total of 51 units sold in a 13-month period,
or an absorption of 3.923 units per month for an average absorption of almost
2.0 units per builder within the subject subdivision.
Of the comparable sales other than that of the older neighborhoods in the
subject community, this subdivision is most similar to that of the subject
property, both in terms of lot size, quality of construction, price range of
dwellings, as well as community facilities, including clubhouse, pool, tennis
courts, etc.
For the most part, builders in the past have marketed homes on the smaller
lots from $135,000.00 to $160,000.00, with the predominance of values falling in
the $150,000.00; the mid-priced units typically sold from $150,000.00 to
$180,000.00, with a large majority of the price range being in the $160,000.00
to $165,000.00 range; and the price range of the premium lots reflected sales
from $170,000.00 to over $200,000.00, with $180,000.00 being a medium price
range. Assuming builders market similarly in the future, then the projected
absorptions should be obtained.
It should be noted that the subject property obtained higher absorptions in
the 1980's. However, due to a sewer moratorium in the Charles County area, the
subject property had considerably less competition at that time and thus more
builders purchased lots within the various communities of St. Charles and thus
higher absorptions were achieved.
It should also be noted at this time that for the most part, with the
exception of a few remaining lots in the Dorchester Neighborhood, single-family
detached units are completely sold out in the older neighborhoods of St.
Charles.
101
<PAGE>
The subject property's single-family detached units have been discounted
for the anticipated 14 units per month absorption, with allowances given for the
projected development time schedule, as noted for Fairway Village. Throughout
these calculations, this appraiser has made the assumption that two competitive
builders will be in the small and mid-lot and price range of dwellings, while a
minimum of three builders will be in the premium or larger lot section. This
allows for a total of seven builders at approximately 2 units per builder or 14
units per month. It is assumed that the 14 unit per lot absorption will be
maintained, assuming the development schedule allows for each class of lots to
have sufficient quantities to market during each annual period.
The following ARGUS Discounted Cash Flow Analysis has been prepared to
arrive at a final indicated "as is" value for the 1,673 detached units.
Based on a $19,000.00 indicated market value per paper lots, an indicated
tax rate of $2.65 per $100.00 of assessed value, the indicated taxes for the mid
to large paper lots are estimated at $201.00 per unit per annum; the indicated
taxes for the smaller units, which have an indicated market value of $17,100.00,
is $181.00 per annum (the overall average real estate tax for computation is
$198.00 per lot); sales expenses are estimated at 3 percent of gross sales
price; and miscellaneous and administrative are estimated at 1/2 of 1 percent.
Base absorptions are for 2 units in the small and mid size lots or 4 units per
month until sold out, and average absorption throughout the holding period of 14
units per month.
102
<PAGE>
ST. CHARLES
ST. CHARLES PARKWAY
WALDORF, MARYLAND
PROSPECTIVE PRESENT VALUE
Cash flow Before Debt Service
Discounted Annually (End-point on Cash Flow) over a 20-Year Period
<TABLE>
<CAPTION>
For the Discounted Total Total
Discount Cash Flow Value Value
Rates Before Debt per Unit per Size
-------- ----------- -------- ---------
<S> <C> <C> <C>
12.00% $12,931,471 $7,730 $7,729.51
12.50% 12,512,684 7,479 7,479.19
13.00% 12,112,037 7,240 7,239.71
13.50% 11,728,574 7,011 7,010.50
14.00% 11,361,397 6,791 6,791.03
14.50% 11,009,661 6,581 6,580.79
15.00% 10,672,573 6,379 6,379.30
15.50% 10,349,385 6,186 6,186.12
16.00% 10,039,395 6.001 6,000.83
</TABLE>
<PAGE>
ST. CHARLES
ST. CHARLES PARKWAY
WALDORF, MARYLAND
SCHEDULE OF PROSPECTIVE CASH FLOW
In Inflated Dollars for the Fiscal Year beginning 5/1/1997
<TABLE>
<CAPTION>
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
For the Years Ending Apr-1998 Apr-1999 Apr-2000 Apr-2001 Apr-2002 Apr-2003 Apr-2004 Apr-2005
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
UNIT SALES REVENUE
Sales Revenue $1,406,000 $3,100,800 $2,865,200 $3,335,330 $3,255,019 $3,494,133 $1,798,456
Selling Costs (42,180) (93,024) (85,957) (100,061) (97,650) (104,824) (53,954)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
NET SALES REVENUE 1,363,820 3,007,776 2,779,243 3,235,269 3,157,369 3,389,309 1,744,502
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL POTENTIAL REVENUE 1,363,820 3,007,776 2,779,243 3,235,269 3,157,369 3,389,309 1,744,502
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
MISCELLANEOUS EXPENSES
REAL ESTATE TAXES 397,505 385,506 358,301 333,632 306,266 275,575 241,824 214,639
MISC & ADMIN 187,911 182,239 169,379 157,717 144,780 130,272 114,317 101,466
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL MISCELLANEOUS EXPENSES 585,416 567,745 527,680 491,349 451,046 405,847 356,141 316,105
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL REVENUE BEFORE COSTS (585,416) 796,075 2,480,096 2,287,894 2,784,223 2,751,522 3,033,168 1,428,397
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
CASH FLOW BEFORE DEBT SERVICE
& INCOME TAX ($585,416) $ 796,075 $2,480,096 $2,287,894 $2,784,223 $2,751,522 $3,033,168 $1,428,397
========== ========== ========== ========== ========== ========== ========== ==========
<CAPTION>
Year 9 Year 10 Year 11 Year 12
For the Years Ending Apr-2006 Apr-2007 Apr-2008 Apr-2009
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
UNIT SALES REVENUE
Sales Revenue $2,884,927 $2,825,305 $3,094,334 $3,245,151
Selling Costs (86,548) (84,758) (92,830) (97,354)
---------- ---------- ---------- ----------
NET SALES REVENUE 2,798,379 2,740,547 3,001,504 3,147,797
---------- ---------- ---------- ----------
TOTAL POTENTIAL REVENUE 2,798,379 2,740,547 3,001,504 3,147,797
---------- ---------- ---------- ----------
MISCELLANEOUS EXPENSES
REAL ESTATE TAXES 195,717 167,849 136,084 101,115
MISC & ADMIN 92,521 79,347 64,331 47,800
---------- ---------- ---------- ----------
TOTAL MISCELLANEOUS EXPENSES 288,238 247,196 200,415 148,915
---------- ---------- ---------- ----------
TOTAL REVENUE BEFORE COSTS 2,510,141 2,493,351 2,801,089 2,998,882
---------- ---------- ---------- ----------
CASH FLOW BEFORE DEBT SERVICE
& INCOME TAX $2,510,141 $2,493,351 $2,801,089 $2,998,882
========== ========== ========== ==========
</TABLE>
<PAGE>
ST. CHARLES
ST. CHARLES PARKWAY
WALDORF, MARYLAND
SCHEDULE OF PROSPECTIVE CASH FLOW
In Inflated Dollars for the Fiscal Year beginning 5/1/1997
<TABLE>
<CAPTION>
Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 Year 19 Year 20
For the Years Ending Apr-2010 Apr-2011 Apr-2012 Apr-2013 Apr-2014 Apr-2015 Apr-2016 Apr-2017
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
UNIT SALES REVENUE
Sales Revenue $2,812,465 $2,105,973 $2,190,212
Selling Costs (84,373) (63,179) (65,706)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
NET SALES REVENUE $2,728,092 $2,042,794 2,124,506
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL POTENTIAL REVENUE $2,728,092 $2,042,794 2,124,506
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
MISCELLANEOUS EXPENSES
REAL ESTATE TAXES 64,890 38,406 12,553
MISC. & ADMIN 30,675 18,156 5,934
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL MISCELLANEOUS EXPENSES 95,565 56,562 18,487
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL REVENUE BEFORE COSTS 2,632,527 1,986,232 2,106,019
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
CASH FLOW BEFORE DEBT SERVICE
& INCOME TAX $2,632,527 $1,986,232 $2,106,019
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE>
ST. CHARLES
ST. CHARLES PARKWAY
WALDORF, MARYLAND
SCHEDULE OF SOURCES & USES OF CAPITAL
Equity is Based on Property Value, Leverage and Operating Requirements
<TABLE>
<CAPTION>
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
For the Years Ending Apr-1998 Apr-1999 Apr-2000 Apr-2001 Apr-2002 Apr-2003 Apr-2004 Apr-2005
----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SOURCES OF CAPITAL
Net Operating Gains $ 796,075 $2,480,096 $2,287,894 $2,784,223 $2,751,522 $3,033,168 $1,428,397
Initial Equity Contribution 10,039,395
----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
DEFINED SOURCES OF CAPITAL 10,039,395 796,075 2,480,096 2,287,894 2,784,223 2,751,522 3,033,168 1,428,397
----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
REQUIRED EQUITY CONTRIBUTIONS 585,416
----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL SOURCES OF CAPITAL $10,624,811 $ 796,075 $2,480,096 $2,287,894 $2,784,223 $2,751,522 $3,033,168 $1,428,397
=========== ========== ========== ========== ========== ========== ========== ==========
USES OF CAPITAL
Property Present Value $10,039,395
Net Operating Loss 585,416
----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
DEFINED USES OF CAPITAL $10,624,811
----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
CASH FLOW DISTRIBUTIONS 796,075 2,480,096 2,287,894 2,784,223 2,751,522 3,033,168 1,428,397
----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL USES OF CAPITAL $10,624,811 $ 796,075 $2,480,096 $2,287,894 $2,784,223 $2,751,522 $3,033,168 $1,428,397
=========== ========== ========== ========== ========== ========== ========== ==========
UNLEVERAGED CASH ON CASH RETURN
Cash to Purchase Price (5.83%) 7.93% 24.70% 22.79% 27.73% 27.41% 30.21% 14.23%
<CAPTION>
Year 9 Year 10 Year 11 Year 12
For the Years Ending Apr-2006 Apr-2007 Apr-2008 Apr-2009
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SOURCES OF CAPITAL
Net Operating Gains $2,510,141 $2,493,351 $2,801,089 $2,998,882
Initial Equity Contribution
---------- ---------- ---------- ----------
DEFINED SOURCES OF CAPITAL 2,510,141 2,493,351 2,801,089 2,998,882
---------- ---------- ---------- ----------
REQUIRED EQUITY CONTRIBUTIONS
---------- ---------- ---------- ----------
TOTAL SOURCES OF CAPITAL $2,510,141 $2,493,351 $2,801,089 $2,998,882
========== ========== ========== ==========
USES OF CAPITAL
Property Present Value
Net Operating Loss
---------- ---------- ---------- ----------
DEFINED USES OF CAPITAL
---------- ---------- ---------- ----------
CASH FLOW DISTRIBUTIONS 2,510,141 2,493,351 2,801,089 2,998,882
---------- ---------- ---------- ----------
TOTAL USES OF CAPITAL $2,510,141 $2,493,351 $2,801,089 $2,998,882
========== ========== ========== ==========
UNLEVERAGED CASH ON CASH RETURN
Cash to Purchase Price 25.00% 24.84% 27.90% 29.87%
</TABLE>
<PAGE>
ST. CHARLES
ST. CHARLES PARKWAY
WALDORF, MARYLAND
SCHEDULE OF SOURCES & USES OF CAPITAL
Equity is Based on Property Value, Leverage and Operating Requirements
<TABLE>
<CAPTION>
Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 Year 19 Year 20
For the Years Ending Apr-2010 Apr-2011 Apr-2012 Apr-2013 Apr-2014 Apr-2015 Apr-2016 Apr-2017
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SOURCES OF CAPITAL
Net Operating Gains $2,632,527 $1,986,232 $2,106,019
Initial Equity Contributions
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
DEFINED SOURCES OF CAPITAL $2,632,527 $1,986,232 2,106,019
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
REQUIRED EQUITY CONTRIBUTIONS
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL SOURCES OF CAPITAL $2,632,527 $1,986,232 $2,106,019
========== ========== ========== ========== ========== ========== ========== ==========
USES OF CAPITAL
Property Present Value
Net Operating Loss
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
DEFINED USES OF CAPITAL
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
CASH FLOW DISTRIBUTIONS 2,632,527 1,986,232 2,106,019
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL USES OF CAPITAL 2,632,527 1,986,232 2,106,019
========== ========== ========== ========== ========== ========== ========== ==========
UNLEVERAGED CASH ON CASH RETURN
Cash to Purchase Price 26.22% 19.78% 20.98%
</TABLE>
<PAGE>
Based on the aforesaid analysis, using a 14 percent discount rate, the
indicated "as is", value of the 1,637 lots is $11,361,397.00, rounded to
$11,361,000.00. It should be further noted that in the analysis, the absorption
rate is estimated at 6 units per month for the premium lots and 4 units per
month on the medium and smaller lots, assuming the units are available. If the
units are not available as developed, absorptions will max-out at the available
units as projected. It is also assumed by this appraiser that if units within
any given period are not absorbed, then the next phase will not occur until
absorption has taken place.
Therefore, based on the overall detached lot analysis and based on the
aforesaid calculations, the estimated gross retail value of the single-family
detached lots is $31,308,000.00, and the discounted or "as is" value is
estimated to be $11,361,000.00.
104
<PAGE>
CORRELATION AND CONCLUSION
--------------------------
It appears that the Southern Maryland area will remain one of the fastest
developing areas on the East Coast of the United States. With relatively easy
access to both employment and recreational activities, Charles County
development and demand for additional units should continue to remain strong.
The subject property is within commuting distance of both metropolitan
Washington, D.C. and Annapolis areas, as well as to many large military and
governmental installations. Because of the country setting of the neighborhood
of the subject property, as well as its relatively near proximity to employment,
the location should remain popular to the buying public into the foreseeable
future.
With market interest rates projected to stabilize or to drop slightly,
demand should remain constant and may improve in the very near future for added
single-family dwellings.
The existing and proposed subdivisions in the neighborhood of the subject
property continue to sell well and therefore it is this appraiser's opinion that
sales of residential lots should meet or exceed development expectations and
demand for residential lots should remain extremely high.
It should be noted that the St. Charles Community's various neighborhoods,
whether they be Smallwood, Carrington, Bannister, Wakefield, Huntington,
Dorchester, Lancaster or Hampshire, during their periods have been successful
undertakings. It is expected that the Fairway Village will continue this
tradition and although competition has stiffened somewhat over the 1980 levels,
the amenities associated with the subject neighborhoods should help sales and
generate absorptions as expected.
Therefore, as of May 25, 1997, the Fair Market Value of the subject
property is as follows:
gross retail value of the apartment units
SEVEN MILLION FIVE HUNDRED TWENTY-FOUR THOUSAND DOLLARS
($7,524,000.00)
gross retail value of the townhouse units
ELEVEN MILLION THREE HUNDRED THOUSAND DOLLARS
($11,300,000.00)
gross retail value of the single-family detached residential units
THIRTY-ONE MILLION THREE HUNDRED EIGHT THOUSAND DOLLARS
($31,308,000.00)
105
<PAGE>
TOTAL GROSS RETAIL VALUE OF ALL OF THE UNITS
FIFTY MILLION ONE HUNDRED THIRTY-TWO THOUSAND DOLLARS
($50,132,000.00)
discounted or "as is" value of the apartment units
THREE MILLION FOURTEEN THOUSAND DOLLARS
($3,014,000.00)
discounted or "as is" value of the townhouse units
FOUR MILLION EIGHT HUNDRED EIGHTY-EIGHT THOUSAND DOLLARS
($4,888,000.00)
discounted or as is value of the single-family detached residential units
ELEVEN MILLION THREE HUNDRED SIXTY-ONE THOUSAND DOLLARS
($11,361,000.00)
TOTAL DISCOUNTED OR "AS IS" VALUE OF ALL OF THE UNITS
NINETEEN MILLION TWO HUNDRED SIXTY-THREE THOUSAND DOLLARS
($19,263,000.00)
106
<PAGE>
CERTIFICATION
-------------
I, James B. Hooper, certify that to the best of my knowledge and belief:
the statements of fact contained in this report are true and correct;
the reported analysis, opinions, and conclusions are limited only by
the reported Assumptions and Limiting Conditions and are my personal, unbiased
professional analysis, opinions, and conclusions;
I have no present nor prospective interest in the property that is the
subject of this report and no personal interest or bias with respect to the
parties involved;
my compensation is not contingent on an action or event resulting from
the analysis, opinions, or conclusions in, or the use of, this report;
I have made a personal inspection of the property that is the subject
of this report;
no one provided significant professional assistance to the person
signing this report, unless otherwise stated in this report.
this appraisal assignment was not based upon a requested minimum
valuation, a specific valuation, or the approval of a loan;
my analysis, opinions and conclusions were developed, and this
appraisal report has been prepared in conformity with the Code of Professional
Appraisal Practice of the Appraisal Institute;
I certify that the use of this report is subject to the requirements
of the Appraisal Institute relating to review by its duly authorized
representatives.
In view of the foregoing, I estimate the Market Value of the subject
property to be, as of May 25, 1997:
gross retail value of the apartment units
SEVEN MILLION FIVE HUNDRED TWENTY-FOUR THOUSAND DOLLARS
($7,524,000.00)
107
<PAGE>
gross retail value of the townhouse units
ELEVEN MILLION THREE HUNDRED THOUSAND DOLLARS
($11,300,000.00)
gross retail value of the single-family detached residential units
THIRTY-ONE MILLION THREE HUNDRED EIGHT THOUSAND DOLLARS
($31,308,000.00)
TOTAL GROSS RETAIL VALUE OF ALL OF THE UNITS
FIFTY MILLION ONE HUNDRED THIRTY-TWO THOUSAND DOLLARS
($50,132,000.00)
discounted or "as is" value of the apartment units
THREE MILLION FOURTEEN THOUSAND DOLLARS
($3,014,000.00)
discounted or "as is" value of the townhouse units
FOUR MILLION EIGHT HUNDRED EIGHTY-EIGHT THOUSAND DOLLARS
($4,888,000.00)
discounted or "as is" value of the single-family detached residential units
ELEVEN MILLION THREE HUNDRED SIXTY-ONE THOUSAND DOLLARS
($11,361,000.00)
TOTAL DISCOUNTED OR "AS IS" VALUE OF ALL OF THE UNITS
NINETEEN MILLION TWO HUNDRED SIXTY-THREE THOUSAND DOLLARS
($19,263,000.00)
/s/ James B. Hooper
-------------------
James B. Hooper
108
<PAGE>
A D D E N D U M
<PAGE>
Figure VII-2
SCHEDULE OF ZONE REGULATIONS: PLANNED RESIDENTIAL DEVELOPMENT (PRD) ZONE
<TABLE>
<CAPTION>
Minimum Lot Criteria
--------------------
Sq.ft. Width Depth Frontage
Uses Area per du (feet) (feet) (feet)
<S> <C> <C> <C> <C> <C>
====================================================================
Agricultural 3
1.00.000 acres 150 200
- --------------------------------------------------------------------
Single-family
detached 6,000
3.01.100 sq.ft. 55 75 30
- --------------------------------------------------------------------
Lot Line 3,000
3.01.200 sq.ft. 45 30
- --------------------------------------------------------------------
Patio/Court/
Atrium 3,000
3.01.300 sq.ft. 45 30
- --------------------------------------------------------------------
Duplex 8,000
3.02.100 sq.ft. 4,000 50 100 30
- --------------------------------------------------------------------
Townhouse 1,500
3.02.200 sq.ft. 18 18
- --------------------------------------------------------------------
Multiplex 10,000
3.02.300 sq.ft. 3,000 50 100 30
- --------------------------------------------------------------------
Garden apartments
3.03.100 5,000 400 400 400
- --------------------------------------------------------------------
Mid-rise
3.03.200 4,000 600 600 400
- --------------------------------------------------------------------
Hi-rise
3.03.300 3,000 50 100 30
- --------------------------------------------------------------------
All other
permitted 1
uses acre 100 150
- --------------------------------------------------------------------
<CAPTION>
Minimum Yard
Requirements (feet) Max Height
--------------------------------------------------------
Uses Front Side Total Rear Feet Stories
<S> <C> <C> <C> <C> <C>
============================================================================
Agricultural
1.00.000 75 40 80 50 40
- ----------------------------------------------------------------------------
Single-family
detached
3.01.100 20 8 20 20 36 3
- ----------------------------------------------------------------------------
Lot Line
3.01.200 20 0-6 15 15 36 3
- ----------------------------------------------------------------------------
Patio/Court/Atrium
3.01.300 20 0-6 15 15 36 3
- ----------------------------------------------------------------------------
Duplex
3.02.100 30 15 40 20 36 3
- ----------------------------------------------------------------------------
Townhouses
3.02.200 15 0 0 20 36 3
- ----------------------------------------------------------------------------
Multiplex
3.02.300 30 15 40 20 36 3
- ----------------------------------------------------------------------------
Garden apartments
3.03.100 100 100 200 100 40 3
- ----------------------------------------------------------------------------
Mid-rise
3.03.200 100 100 200 100 60 5
- ----------------------------------------------------------------------------
Hi-rise
3.03.300 30 15 40 20 60 5
- ----------------------------------------------------------------------------
All other
permitted uses 75 40 80 50 50 3
- ----------------------------------------------------------------------------
Abbreviations:
- --------------
FAR - Floor area ratio. An intensity measured as a ratio derived by dividing the
total floor area of a building by the base site area.
ISR - Impervious surface ratio. The ratio derived by dividing the area of
impervious surface by the base site area. Impervious surfaces are those
which do not absorb water.
They consist of all buildings, parking areas, driveways, roads, and
sidewalks.
<CAPTION>
Min. Min.
Lot Open Max Tract
Uses Coverage Intensity Space ISR Size
<S> <C> <C> <C> <C> <C>
==============================================================================
Agricultural
1.00.000
- ------------------------------------------------------------------------------
Single-family
detached
3.01.100 50%
- ------------------------------------------------------------------------------
Lot Line
3.01.200 60% 30% 0.30
- ------------------------------------------------------------------------------
Patio/Court/
Atrium
3.01.300 60% 30% 0.30
- ------------------------------------------------------------------------------
Duplex
3.02.100 35% 0.25
- ------------------------------------------------------------------------------
Townhouses
3.02.200 60% 45% 0.35
- ------------------------------------------------------------------------------
Multiplex
3.02.300 45% 0.35
- ------------------------------------------------------------------------------
Garden apartments
3.03.100 55% 0.45
- ------------------------------------------------------------------------------
Mid-rise
3.03.200 60% 0.40
- ------------------------------------------------------------------------------
Hi-rise
3.03.300 70% 0.30
- ------------------------------------------------------------------------------
All other
permitted uses 0.30 FAR 0.70
- ------------------------------------------------------------------------------
</TABLE>
82
<PAGE>
INTERSTATE GENERAL COMPANY L.P.
FAIRWAY VILLAGE
ST. CHARLES, MD.
PROJECT ASSUMPTIONS
GENERAL
Community Development(Off-site) and In-Tract Cost estimates provided by the
professional engineering firm Whitman, Requart and Associates of Baltimore,
Maryland.
Phase cost and sales unit pace provided by the professional engineering
firm Whitman, Requart and Associates of Baltimore, Maryland.
Each phase is for approximately 36 months.
All development cost is incurred in first 24 months of each phase.
Annual 4% cost escalator begins in the second month of the project.
Closing cost are $200 per unit
Soft Cost include: Engineering, Legal, Review & Permit fees, Bonding, Land
Planning Architecture, Inspections, Lot corners and as
builts
Operating Cost include: Property taxes, HOA subsidy, maintenance, PDRB
Marketing Cost are 3.00% of sales.
SALES
Initial pricing for fully developed parcels
Townhouse $32,000
Single Family - 70 ft. $49,000
Single Family - 60 ft. $42,000
Single Family - 52 ft. $36,400
Apartment $ 7,000
Commercial Acre Sq. ft. $ 5
<TABLE>
<CAPTION>
Unit Pace by Phase Phase 1 Phase 2 Phase 3 Phase 4 Phase 5 Total
------- ------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Townhouse 154 149 372 0 162 837
Single Family-70ft. 247 170 0 505 0 922
Single Family-60ft. 149 41 215 0 94 499
Single Family-52ft. 73 179 0 0 0 252
Apartment 0 359 0 0 477 836
-----------------------------------------------------------
623 898 587 505 733 3,346
Year 3 Year 4 Year 5 Year 6 Total
------ ------ ------ ------ -----
Commercial Acres 9.5 9.5 9.5 9.5 38
</TABLE>
Unit sales begin in month seven of each phase
Annual 4% sales escalator begins in the second month of the project.
FINANCING
Prime plus 1% (Currently 10%)
Community Development loan continues over project development and is
released at approximately 110% of draw.
In-Tract Development loans are paid off in each phase at approximately 110%
of draw.
<PAGE>
<TABLE>
<CAPTION>
Fairway Village Proforma
Summary of All Phases
---------------------------------------------------------------------------------------------------------------
% of TOTAL
Revenue PROJECT Year1 Year2 Year3 Year4 Year5
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Units
- -----
Townhouse
Unit Sales 837 50 54 50 74 105
Single Family
-60 Unit Sales 499 15 75 79 21 30
Single Family
-70 Unit Sales 922 59 112 126 80 40
Single Family
-52 Unit Sales 252 0 60 43 75 74
Apartments Unit
Sales 836 0 0 40 159 160
---------------------------------------------------------------------------------------------------------------
Total Units 3,346 124 301 338 409 409
Revenue (includes 4%
- -------
escalator annually)
Townhouse Sales
Proceeds 33,114,545 1,646,480 1,832,050 1,763,917 2,720,094 4,024,766
Single Family
60's Sale
Proceeds 25,547,413 648,732 3,339,026 3,669,516 1,014,141 1,520,661
Single Family
70's Sale
Proceeds 56,049,176 2,974,409 5,82,261 6,140,067 4,497,061 2,331,911
Single Family
52's Sale
Proceeds 10,395,890 0 2,315,117 1,732,450 3,132,359 3,211,964
Apartments
Proceeds 7,602,643 0 0 312,501 1,261,251 1,325,111
Commercial
sale
Proceeds 8,276,400 0 0 2,069,100 2,069,100 2,069,100
---------------------------------------------------------------------------------------------------------------
Total Gross
Sales 140,986,137 5,269,621 l3,207,484 16,387,620 14,701,714 14,495,034
Less:Closing
Cost (653,200) (24,800) (60,200) (67,600) (81,800) (81,800)
---------------------------------------------------------------------------------------------------------------
Net Sales
Proceeds 100% 140,332,937 5,244,821 13,247,214 16,320,020 14,619,914 14,4l3,234
Construction Cost
- -----------------
Community Wide
Development Cost
Drive A
($260/LF) 361.000 270.000 91.000 0 0 0
Sheffield
Circle
($225/LF) 1,892,000 0 869,000 767,000 256,000 0
PS 2A Improve
-ments 300,000 300,000 0 0 0 0
PS 5 Improve
- -ments 245,000 0 245,000 0 0 0
Miscellaneous
Sewer 154,000 50,000 20,000 64,000 0 0
SCP Sewer
for future
PS 2A
Deletion 275,000 275,000 0 0 0 0
St.Pauls
Lake Improv-
ments 149,000 149,000 0 0 0 0
SWM Ponds 3,339,000 313,000 620,000 766,000 0 312,000
Wetland
Pretreat
-ment 221,000 100,000 121,000 0 0 0
Billingsley
Rd. 4,194,000 1,700,000 891,000 570,000 553,000 590,000
Piney Church
Rd 152,000 0 112,000 0 0 0
Drive D 237,000 0 237,000 0 0 0
Drive F 334,000 0 0 334,000 0 0
P.O.RoadFM 521,000 525,000 0 0 0 0
PS3a Temp 310,000 0 0 350,000 0 0
PS 3b 2,100,000 0 0 0 0 1,250,000
Lagonn G 350,000 0 0 350,000 0 0
Lagoon Mit 550,000 0 0 550,000 0 0
SD Convey 150,000 0 0 150,000 0 0
I2"SCPwater 186,000 0 0 0 0 186,000
16"SCPSewer 460,000 0 0 0 0 230,000
20"SCPSewer 225,000 0 0 0 0 0
St Charles
PkyInters. 959,000 0 0 0 0 0
St.Charles
Pkwy 4,300,000 0 0 0 0 775,000
Demar Rd. 118,000 0 0 0 0 0
GleneaglesDr 714,000 0 0 0 0 0
---------------------------------------------------------------------------------------------------------------
Total Comm
Wide
Infra-
structure 17% 24,010,000 3,722,000 3,246,000 3,901,000 109,00 3,313,000
In-Tract Cost
Single Family
Minor and
Localroads 12,144,000 1,461,000 2,050,000 1,100,000 1,142,000 1,613,000
Lot Clearing
and Grading 199,000 77,000 164,000 169,000 119,000 0
Single Family
Contingency 1,020,000 0 223,000 160,000 230,000 107,000
Minor Collect 698,000 0 0 0 0 135,000
---------------------------------------------------------------------------------------------------------------
Total Single
Family 14,461,000 1,145,000 2,437,000 1,429,000 1,961,000 1,155,000
Townhouse
Lot
development 6,520,000 550,000 351,000 645,000 481,000 713,000
<CAPTION>
Fairway Village Proforma
Summary of All Phases
-------------------------------------------------------------------------------------------
% of Year6 Year7 Year8 Year9 Year10
Revenue -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Units
Townhouse
Unit Sales 201 141 48 60 54
Single Family
-60 Unit Sales 122 63 24 36 34
Single Family
-70 Unit Sales 0 101 242 162 0
Single Family
-52 Unit Sales 0 0 0 0 0
Apartments Unit
Sales 0 0 125 200 152
--------------------------------------------------------------------------------------------
Total Units 323 305 439 458 240
Revenue (includes
4% escalator
annually)
Townhouse Sales
Proceeds 7,995,273 5,831,690 2,092,303 2,691,670 2,516,202
Single Family
60's Sale
Proceeds 6,370,470 3,421,749 1,271,363 2,119,690 2,071,427
Single Family
70's Sale
Proceeds 0 6,477,632 15,970,695 11,129,059 0
Single Family
52's Sale
Proceeds 0 0 0 0 0
Apartments
Proceeds 0 0 1,192,382 1,965,978 1,537,980
Commercial
sale
Proceeds 2,069,100 0 0 0 0
-------------------------------------------------------------------------------------------
Total Gross
Sales 16,434,843 15,731,071 20,626,743 17,906,398 6,125,609
Less:Closing
Cost (64,600) (61,000) (71,800) (91,600) (48,000)
-------------------------------------------------------------------------------------------
Net Sales
Proceeds
100% 16,370,243 15,670,071 20,554,943 17,814,798 6,077,609
Construction Cost
Community Wide
Development Cost
Drive A
($260/LF) 0 0 0 0 0
Sheffield
Circle
($225/LF) 0 0 0 0 0
PS 2A Improve
-ments 0 0 0 0 0
PS 5 Improve
- -ments 0 0 0 0 0
Miscellaneous
Sewer 20,000 0 0 0 0
SCP Sewer
for future
PS 2A
Deletion 0 0 0 0 0
St.Pauls
Lake Improv-
ments 0 0 0 0 0
SWM Ponds 194,000 246,000 470,000 338,000 0
Wetland
Pretreat
-ment 0 0 0 0 0
Billingsley
Rd. 590,000 0 0 0 0
Piney Church
Rd 0 0 0 0 0
Drive D 0 0 0 0 0
Drive F 0 0 0 0 0
P.O.RoadFM 0 0 0 0 0
PS3a Temp 0 0 0 0 0
PS 3b 1,250,000 0 0 0 0
Lagonn G 0 0 0 0 0
Lagoon Mit 0 0 0 0 0
SD Convey 0 0 0 0 0
I2"SCPwater 0 0 0 0 0
16"SCPSewer 230,000 0 0 0 0
20"SCPSewer 225,000 0 0 0 0
St Charles
PkyInters. 0 959,000 0 0 0
St.Charles
Pkwy 2,000,000 1,525,000 0 0 0
Demar Rd. 0 118,000 0 0 0
Gleneagles Dr 0 332,000 452,000 0 0
17% -------------------------------------------------------------------------------------------
Total Comm
Wide Infra
structure 4,509,000 3,250,000 922,000 338,000 0
In-Tract Cost
Single Family
Minor and
Local roads 0 1,819,000 2,373,000 179,000 0
Lot Clearing
and Grading 0 0 0 0 0
Single Family
Revenue Contingency 0 107,000 146,000 47,000 0
Minor Collect 225,000 0 135,000 203,000 0
-------------------------------------------------------------------------------------------
Total Single
Family 225,000 1,926,000 2,654,000 429,000 0
Townhouse
Lot
development 1,500,000 1,056,000 0 834,000 390,000
</TABLE>
<PAGE>
ST. CHARLES COMMUNITIES
Total Dwelling Units Sold
YEAR TOTAL W/O APARTMENTS
1970 236 236
1971 194 194
1972 132 132
1973 131 131
1974 248 144
1975 249 145
1976 462 366
1977 692 456
1978 873 649
1979 635 295
1980 214 214
1981 224 224
1982 522 522
1983 310 310
1984 425 425
1985 391 391
1986 526 422
1987 566 390
1988 775 519
1989 524 420
1990 200 200
1991 216 216
1992 170 170
1993 372 250
1994 371 317
1995 153 153
1996 144 90
AVG 369 296
<PAGE>
[PIE CHART OF FAIRWAY PROFORMA DEVELOPMENT COST SUMMARY APPEARS HERE]
-10-
<PAGE>
[PIE CHART OF FAIRWAY PROFORMA REVENUE MIX APPEARS HERE]
-11-
<PAGE>
HOOPER & ASSOCIATES
FAIRWAY VILLAGE
[PICTURE APPEARS HERE]
[PICTURE APPEARS HERE]
<PAGE>
HOOPER & ASSOCIATES
FAIRWAY VILLAGE
[PICTURE APPEARS HERE]
[PICTURE APPEARS HERE]
<PAGE>
HOOPER & ASSOCIATES
FAIRWAY VILLAGE
[PICTURE APPEARS HERE]
[PICTURE APPEARS HERE]
<PAGE>
HOOPER & ASSOCIATES
FAIRWAY VILLAGE
[PICTURE APPEARS HERE]
<PAGE>
================================================================================
EXHIBIT 99.6
APPRAISAL REPORT
OF
THE PROPOSED COMMERCIAL, OFFICE AND INDUSTRIAL
SECTIONS OF FAIRWAY VILLAGE
CONTAINING A TOTAL OF 38.0 ACRES OF NEIGHBORHOOD
COMMERCIALLY ZONED PROPERTY
PART OF TAX MAP 15, PARCEL 149
SIXTH (6TH) ELECTION DISTRICT, CHARLES COUNTY
WALDORF, MARYLAND 20602
Value as of
October 31, 1997
Appraised for
Mr. Edwin L. Kelly, President
Chief Operating Officer
Interstate General Company, L.P.
Executive Offices
222 Smallwood Village Center
St. Charles, Maryland 20602
Appraised by
James B. Hooper
James B. Hooper, P.A.
P.O. Box 125
Waldorf, Maryland 20604-0125
================================================================================
<PAGE>
James B. Hooper, P.A.
P.O. Box 125
Waldorf, Maryland 20604
__________
932-9410 870-5841
October 31, 1997
Mr. Edwin L. Kelly, President
Chief Operating Officer
Interstate General Company, L.P.
Executive Offices
222 Smallwood Village Center
St. Charles, Maryland 20602
Dear Mr. Kelly:
At your request, I have inspected and appraised the following
described property:
The Proposed Fairway Village Commercial Sections
designated as 38.0 acres of land, more or less
within the Sheffield and Gleneagles Neighborhoods
Tax Map 15, Part of Parcel 149
Part of Liber 454, Folio 21
designated for commercial, office and business usage
within the Fairway Village Neighborhood
Sixth (6th) Election District, Charles County
Waldorf, Maryland 20602
This appraisal is of the Fair Market Value for the fee simple interest
in the property. The effective date of the valuation is October 31, 1997. 1 have
considered the pertinent data affecting the valuation, including location, type,
use and potential of the property, trends of the neighborhood and comparable
sales. As a result of this study and analysis, I am of the opinion that the Fair
Market Value of real estate as of October 31, 1997, is:
38.0 ACRES OF COMMERCIAL INTENDED USE PROPERTY
WITHIN THE PLANNED UNIT DEVELOPMENT
OF THE FAIRWAY VILLAGE SECTION
GROSS RETAIL VALUE
EIGHT MILLION TWO HUNDRED SEVENTY-SIX THOUSAND DOLLARS
($8,276,000.00)
<PAGE>
DISCOUNTED OR "AS IS" PRESENT VALUE
THREE MILLION NINE HUNDRED SIXTY THOUSAND DOLLARS
($3,960,000.OO)
An appraisal report is attached hereto and made a part hereof. The
valuations are expressly made subject to the conditions and comments appearing
in this report. I certify that I have personally prepared this appraisal report.
This appraiser certifies that to the best of his knowledge, this report
meets all requirements as set forth by the Federal Home Loan Bank Board
Memorandum dated February 3, 1992.
Respectfully submitted,
/s/ James B. Hooper
James B. Hooper
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
TRANSMITTAL LETTER....................................................... 1
QUALIFICATIONS........................................................... 3
PREFACE.................................................................. 5
EXECUTIVE SUMMARY OF SALIENT FACTS AND CONCLUSIONS....................... 6
PURPOSE/FUNCTION OF THE APPRAISAL........................................ 8
UNDERLYING ASSUMPTIONS AND LIMITING CONDITIONS........................... 9
SCOPE OF THE APPRAISAL................................................... 11
ENVIRONMENTAL STATEMENTS................................................. 12
SITE IDENTIFICATION/LEGAL DATA........................................... 12
SALES/RENTAL HISTORY..................................................... 13
ASSESSMENT AND TAXES..................................................... 13
ZONING................................................................... 14
PROPERTY LOCATION........................................................ 15
REGIONAL ANALYSIS........................................................ 16
COUNTY ANALYSIS.......................................................... 17
NEIGHBORHOOD DATA........................................................ 20
SITE DESCRIPTION - NEIGHBORHOOD OVERALL VIEW............................. 21
PROPOSED IMPROVEMENTS.................................................... 23
HIGHEST AND BEST USE ANALYSIS............................................ 24
THE APPRAISAL PROCESS.................................................... 30
VALUATION................................................................ 31
MARKET DATA APPROACH - VALUATION OF THE COMMERCIAL PORTION............... 32
CORRELATION AND CONCLUSION............................................... 43
CERTIFICATION............................................................ 45
ADDENDUM
</TABLE>
<PAGE>
JAMES B. HOOPER
P.O. BOX 125
WALDORF MARYLAND 20604
_________
932-9410 870-5841
QUALIFICATIONS
--------------
MARYLAND Certified General Status
LICENSE License No. 1128
STATUS:
VIRGINIA Certified General Status
LICENSE License No. 4001-003745
STATUS:
EDUCATION: B.S. Degree - Business Management
University of Maryland
Post Graduate Courses
American University
Continuing Education Courses
Charles County Community College
SPECIALIZED AIREA - Course 1A - Appraisal Theory
APPRAISAL AIREA - Course 1B - Basic Appraisal Tech.
COURSES: AlREA - Course 2A - Capitalization Theory & Tech. 1.
AIREA - Course 2B - Capitalization Theory & Tech. 2.
AIREA - Course 2C - Capitalization Theory & Tech. 3.
AIREA - Course 3A - Case Studies in Valuation
AIREA - Course 3B - Report Writing
AIREA - Course SPP - Standard Professional Practices
Appraiser Institute Course 550 - Advanced Valuation
Applications
EXPERIENCE: President, Hooper & Associates, P.O. Box 125, Waldorf,
Maryland January 1989, to present
Staff Appraiser for Matthews Realty Corporation, P.O.
Box 506, Waldorf, Maryland 1984 to 1988
Staff Appraiser for Delta Realty, Inc., P.O. Box 35.
Waldorf, Maryland 1976 to 1984
Maryland Real Estate Salesman - 1975 to 1979
Maryland Real Estate Broker - 1979 to present
3
<PAGE>
Qualified Expert Witness - United State Bankruptcy
Court of Appeals; United States Bankruptcy Court;
Maryland Tax Appeals Court; Prince George's and
Charles Counties
Tax Appeals Boards; and Circuit Court for Charles
County; Circuit Court for St. Mary's County; and
District Court of Charles County; Circuit Court for
Calvert County; District Court for St. Mary's County
PARTIAL LIST Mercantile Safe Deposit & Trust Company
OF CLIENTS: 1st National Bank of Maryland
I T & T Corporation
United Bank & Trust Company
Bank of Southern Maryland
Thomas C. Carrico, Esq.
law Offices of Zanecki, Braddock & Silber
Law Offices of Blumenthal & Delavan
law Offices of Wechsler, Selzer & Gurvitch
law Offices of Giordano, Bush & Villareale
law Offices of Semmes, Bowen & Semmes
law Offices of Loyd & Moreland
State of Maryland Department of General Services
Thomas F. Mudd, Esquire
1st Virginia Mortgage Corporation
Western Electric Corporation
Maryland Money Market Mortgage Corporation
Washington Savings Bank
State of Maryland, Department of General Services
State Highway Administration
Various Relocation Services
Security National Bank
Nations Bank
Southern Maryland Oil Company
Veterans Administration, Panel Appraiser
Northeast Mortgage, Inc.
Charles County Government
St. Mary's County Government
Federal Housing Administration, Panel Appraiser
1st National Bank of St. Mary's
First Virginia Bank
Developers and private individuals
ORGANIZATIONS: Southern Maryland Board of Realtors Prince George's
County Board of Realtors Institute of Real Estate Management
(designated title of CPM) Membership as candidate in the
American Institute of Real Estate Appraisers MAI Program
Member International Right-of-Way Association National
Association of Real Estate Appraisers (CREA Designation)
TYPES OF Income producing properties such as office buildings,
APPRAISALS: warehouses, other commercial establishments, condominiums,
residential, subdivisions, houses, farms, vacant land, etc.
4
<PAGE>
PREFACE
-------
An appraisal is a type of research and analysis into the law of
probabilities with respect to real estate valuation. Through the appraiser's
education, training, experience, and professional philosophy, he/she is able to
render an estimated value of real estate based on the activities of buyers,
sellers, and other property owner. Because of the unique characteristics of each
parcel of real estate, adjustments typically have to be made for differences
between properties.
A value estimate cannot be guaranteed and generally cannot be proved.
However, the final estimate of value by a professional appraiser should be
substantiated and justified by a detailed analysis of both the physical
characteristics of the subject real estate and the social, economic, and
governmental forces which exert pressure on the subject property.
The final estimate of value in a professional appraisal report must not be
considered to be absolute but rather an opinion of value resulting from reliable
market data which was collected, analyzed, and adjusted to reflect the elements
of comparison between and comparables and the subject. The professional
appraiser cannot be an advocate, else he/she belies the principles of the
profession.
With the aforementioned in mind, you are encouraged to read this report
which sets forth the purpose for which the appraisal was made and the
appraiser's analysis and conclusions.
5
<PAGE>
EXECUTIVE SUMMARY OF SALIENT FACTS AND CONCLUSIONS
--------------------------------------------------
Name of Property: The Proposed Fairway Village of the St.
Charles Planned Unit Development
Date of Appraisal: October 31, 1997
Property Location: off of the east and west sides of St.
Charles Parkway, Sixth (6th) Election
District, Tax Map 15, Part of Parcel
149, Waldorf, Charles County, Maryland
20602
Census Tract No.: 8509.02, 8509.03 and 8509.04
Property Type: neighborhood commercial, office and business
designated land
Property Size: Total acreage of Fairway Village is
1,288.85 acres (+/-) of residentially
and commercially zoned property, of
which 38.0 acres (+1-) of proposed
commercial/office/retail type use
property, which is the subject property
of this appraisal.
Assessment: As part of Tax Map 15, Parcel 149,
$515,540.00
Taxes: 57,846.73
Zoning: PUD - Planned Unit Development -
Residential/Commercial
Present Use: vacant land
Highest and Best Use: Its ultimate development for
neighborhood type office, retail, commercial
and service related development.
Property Rights Appraised: fee simple interest subject to PUD
restrictions
Defined Value: market value
6
<PAGE>
Indicated Value by the: Cost Approach: N/A
Market Data Approach: see below
Income Approach: N/A
gross retail value: $8,276,000.00
discounted "as is" present value $3,960,000.00
It should be noted that the overall valuation of the subject property is in
its current "as is" state of approved commercial/office/service use property.
Therefore, there currently exists no improvements or cash flows associated with
the land that would offer any insight as to the value of the property.
Therefore, the Cost Approach, as well as the Income Approach have been
disregarded in the final valuation.
7
<PAGE>
PURPOSE/FUNCTION OF THE APPRAISAL
---------------------------------
The purpose of this appraisal is to establish fair market value for the
subject property as of October 31, 1997.
The function of the appraisal is to establish market value for the subject
property that will ultimately be used as collateral in a federally guaranteed
loan transaction.
DEFINITIONS
-----------
APPRAISAL ASSIGNMENT is defined as those appraisal services where the
appraiser is employed or retained to act (or would be perceived by third parties
or the public as acting) as a disinterested third party in rendering an unbiased
estimate or opinion of the nature, quality, value, or specified interests in or
aspects of identified real estate./1/
MARKET VALUE is defined as the most probable price which a property should
bring in a competitive and open market under all conditions requisite to a fair
sale, the buyer and seller, each acting prudently, knowledgeably and assuming
the price is not affected by undue stimulus. Implicit in this definition is
consummation of a sale as of a specified date and passing of title from seller
to buyer under conditions whereby:
-- Buyer and seller are typically motivated;
-- Both parties are well informed or well advised and each
acting in what he considers his own best interest;
-- A reasonable time is allowed for exposure in the open market;
-- Payment is made in terms of cash in U.S. dollars or in
terms of financial arrangements comparable thereto: and
-- The price represents the normal consideration of the
property sold unaffected by special or creative financing
or sales concessions granted by anyone associated with the
sale./2/
FEE SIMPLE ESTATE is defined as absolute ownership unencumbered by any
other interest arid subject only to the governmental powers of taxation, police
power, eminent domain and escheat.
__________________
1 Code of Professional Ethics & Standards of Professional
-------------------------------------------------------
Practice; American Institute of Real Estate Appraisers;
--------
1/90.
2 NCUA, OTS, OCC, FDIC, FRS, AND RTC.
8
<PAGE>
UNDERLYING ASSUMPTIONS AND LIMITING CONDITIONS
----------------------------------------------
IDENTIFICATION OF THE PROPERTY: The legal description given to the
------------------------------
appraiser and found in the land records is presumed to be correct, but has not
been confirmed by a survey. The appraiser assumed no responsibility for such a
survey or for encroachments or overlapping that might be revealed thereby.
The appraiser renders no opinion of legal nature, such as to ownership of
the property or condition of the title.
The appraiser assumed the title to the property to be marketable, that the
property is an unencumbered fee, and that the property does not exist in
violation of any applicable codes, ordinances, statutes, or other governmental
regulations.
Any other plats, maps or drawings shown in this report may show approximate
dimensions and may not be drawn to scale. These are included strictly to assist
the reviewer of this report in visualizing the property. Although I have made a
physical inspection of the property, no precise survey was made by this
appraiser.
The appraiser assumes completion of the improvements in a workmanship-like
manner within a reasonable period of time and in accordance with final plans and
specifications, as summarized in this report.
UNAPPARENT CONDITIONS: The appraiser assumed that there are no latent
---------------------
defects or unapparent conditions of the property, subsoil or structures which
would render it more or less valuable than otherwise comparable property. The
appraiser assumed no responsibility for such conditions, or for engineering
which might be required to reveal such things.
INFORMATION AND DATA: Information and data supplied to the appraiser by
--------------------
others, and which have been considered in the valuation, are from sources
believed to be reliable, but no further responsibility is assumed for its
accuracy.
USE OF THE APPRAISAL: Possession of the appraisal report or a copy thereof
--------------------
does not carry with it the right of publication. It should be considered a
privileged document.
The appraisal report may not be used for any purpose except substantiation
of the value estimated without written permission from the appraiser. All
valuations in the report are applicable only under the stated program of Highest
and Best Use, and are not necessarily applicable under other programs of use.
The valuations of a component part of the property are applicable only as part
of the whole property.
COURT TESTIMONY: Testimony or attendance in Court by reason of this
---------------
appraisal, with reference to the property in question, shall not be required
without prior agreement.
9
<PAGE>
It is assumed that current economic conditions will remain reasonably
stable into the foreseeable future without major fluctuations both upward or
downward in the overall economy.
A diligent effort was made to verify each comparable sale used in the
evaluation process in this report. However, since many of the sellers or
purchasers are from areas outside of the immediate locality, or no agent could
be contacted within a reasonable time for the completion of this report, certain
sales may not have been verified through communication with the purchaser or
seller.
This appraiser has not been informed, nor has the appraiser any knowledge
of the existence of any environmental or health implement which, if known, could
have a negative impact on the market value of the subject property. Therefore,
it is assumed by this appraiser that there are no hazardous waste storage or
environmental hazards on the subject property. The valuation herein contained is
not valid if any hazardous items are found on the subject property; including,
but not limited to, urea formaldehyde insulation, radon gas, asbestos products,
lead or lead base products, toxic waste and other contaminants.
It is assumed by this appraiser, unless otherwise noted in this appraisal
report, that there do not exist any tidal or non-tidal wetlands that will hinder
the overall development of the subject parcel.
It is assumed by this appraiser that the proposed subdivision will be
developed and completed according to site plans and overview plans as presented
to this appraiser.
It is assumed by this appraiser that all information pertaining to lot
sizes, configurations, unit numbers and overall dimensions have been accurately
portrayed in information supplied to this appraiser, and any substantial
variation from these plans may substantially alter the final valuation of the
property.
10
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ENVIRONMENTAL STATEMENTS
------------------------
The market value conclusion in this report is based upon the presumption
that there are no conditions of environmental concern which affect the value of
the subject property, including, but not limited to, hazardous or toxic wastes,
wetlands, buried storage tanks, PCB's, and radon gas.
During my physical property inspection on October 31,1997,1 did not observe
any signs of potential problems. However, as we have no expertise in
environmental matters, we strongly recommend that any related questions or
concerns be evaluated by a qualified expert prior to finalizing decisions
regarding the subject property.
SITE IDENTIFICATION
-------------------
The subject property is located on the east and west sides of St. Charles
Parkway, near its southern terminus at the White Plains Regional Park. The
subject parcel is designated as being found on Tax Map 15, Part of Parcel 149,
which according to the Tax Maps of Charles County contains a total of 1,288.85
acres of land, more or less, of which 38.0 acres is designated as the subject
property for commercial, office and retail usage.
This particular parcel is recorded in the Charles County Land Records at
Part of Liber 454, Folio 21. It should be noted that the
commercial/office/retail sections of this property contains approximately 38.0
acres, more or less, and is designated as the subject property of this report,
which is part of a larger portion of the property designated as the Fairway
Village Residential sections containing a total of 1,288.85 acres, more or less.
The residential sections have been valued separately in a separate report and
are not intended to be part of this valuation. Also, the subject property's
census tract is designated to be found in Census Tract Numbers 8509.02, 8509.03
and 8509.04.
DATE OF APPRAISAL
-----------------
The estimated value within this appraisal shall be as of October 31, 1997,
the date upon which the assessor's full cash value and assessment is based.
LEGAL DATA
----------
Ownership to the subject property is currently vested in the name of the
St. Charles Associates, 222 Smallwood Village Center, Waldorf, Maryland 20602.
The deed indicating this ownership is dated April 28, 1981, and is recorded in
the Charles County Land Records at Liber 454, Folio 21.
12
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SALES/RENTAL HISTORY
--------------------
In accordance with the Appraisal Institute, as well as the Federal Home
Loan Bank Board, this appraiser has researched transfers of the subject property
for the prior 5-year period and has noted no transfers within this period of
time. It should be noted that the subject property is a portion of a
considerably larger tract that over the past 25 to 30 years has been developed
into the Carrington, Smallwood, Bannister, Wakefield, Huntington, Lancaster,
Hampshire, Dorchester and St. Charles Industrial Park neighborhoods. Within
these various neighborhoods, a considerable number of lots have transferred, the
most recent and most pertinent sales will be found later in this report as part
of the Market Data analysis of the various types of lots found in the designated
subject parcel.
ASSESSMENT AND TAXES
--------------------
The subject property is currently assessed as Part of Tax Map 15, Parcel
149. Current assessments on the subject property, as of the date of this
appraisal report, are as follows:
Land $515,440.00
Improvements -0-
-----------
Total $515,440.00
The subject property is currently assessed in the name of:
St. Charles Associates
222 Smallwood Village Center
Waldorf, Maryland 20601
The subject property is assessed as 1,288.85 acres of land. Current real
estate taxes are in the amount of $7,846.73. These taxes were paid on May 12,
1997.
The current tax rate for Charles County is $2.65 per $100.00 of assessed
value. The $2.65 is inclusive of all County, fire and State taxes associated
with real estate revenues. Current assessments on the subject property are based
on 40 percent of the assessors estimated Fair Market Value of the real estate
property taxes in Charles County, and as in other portions of Maryland, are
based on a tri-annual assessment period with base values of properties
reassessed every 3 years and increases during this period of time based on
market rates, which in the past few years have typically ranged from 6 to 8
percent but can increase upward to a 10 percent cap.
Tax rates for the subject property are deemed typical of other properties
located in the Charles County region and are not deemed to be excessive.
13
<PAGE>
ZONING
------
That portion of the subject property which is designated as the subject
property within this report, is currently zoned for
commercial/office/retail/service usage under the Planned Unit Development
Overlay Zone of the St. Charles Subdivision and particularly the Fairway Village
Section. The overall mix within the Fairway Village Section has been approved by
appropriate governmental authorities, to the best of this appraiser's knowledge
and allows not only for the 38.0 acres of commercial/retail/office usage, but
also for the remaining portion of the property to be developed into
approximately 3,346 residential units, designated as 837 townhouse units, 922
large lot, single-family detached units, 499 medium lot, single-family detached
units, 252 small lot, single-family detached units, as well as 836 units of
apartment zoning.
The Planned Unit Development classification is a zoning intended to provide
an environment suitable for both residential and commercial usage within the
Fairway Village Neighborhood, that will not create appreciable nuisances,
hazards, or threats to the natural environment or surrounding development. This
zone provides for a variety of residential usages, as well as commercial support
facilities for the neighborhood, and allows for considerable areas of open
space, park land and recreational facilities.
In addition to the predominantly residential activity found in this zone,
the zone also permits limited commercial, retail and office usage complementary
to the neighborhood. Additionally, areas are designated for recreational
activities, as well as open space reserves. Some of the uses permitted within
this zoning are residential, single-family attached and detached units,
commercial retail centers, office buildings, day care centers, nursery schools,
banks and financial institutions, etc.
The subject property in its current form as a large tract of vacant acreage
is well within the legal constraints of the planned unit zoning. The proposed
usage of the subject property along unit guidelines as set forth in this
appraisal, also appears to be a conforming use as well once completed.
The minimum lot sizes for townhouses are approximately 1,500 square feet
per interior units; minimum lot sizes for single-family dwellings are
approximately 6,000 square feet.
Please find in the Addendum of this appraisal, a list of appropriate sizes
and densities as set forth for planned unit developments. It should be noted
that for the most part, although zoned PUD,the commercial/retail/office/service
portions of the property conform very close to the appropriate Charles County
classifications for commercial, office and service related development. For
further details concerning this, please refer to the Addendum of this report.
14
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[MAP APPEARS HERE]
<PAGE>
PROPERTY LOCATION
-----------------
The subject property is located off of the east and west sides of
St. Charles Parkway, near its southern terminus at White Plains Regional
Park. Via St. Charles Parkway and several alternative routes, the subject
property is within approximately 1 mile of both U.S. Route 301 and Maryland
Route 5. U.S. Route 301 is considered the major north/south bisector of
this portion of Charles County and affords the subject property easy access
to major metropolitan market areas to the north and south of the subject
neighborhood. Maryland Route 5 is considered the major east/west bisector
of this portion of Charles County and affords the subject property access
to major employment and population areas, as well as to other Southern
Maryland jurisdictions.
From the subject location, driving times to Washington, Annapolis,
Baltimore and Richmond are 30 minutes, 45 minutes, 60 minutes and 90 minutes,
respectively. However, for purposes of the trucking/warehousing industries, the
subject location is less desirable than a location further north. The trucking
industry considers thirty miles to be the perimeter from a major city. The
subject is just outside that distance from Washington, D.C.; however, it is
somewhat centrally located if one's market includes Washington, D.C., Baltimore,
Richmond and Norfolk.
15
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[LOCATION MAP APPEARS HERE]
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REGIONAL ANALYSIS
-----------------
The appraised property is located in Charles County, part of the
Washington Metropolitan area which also includes Montgomery, Prince George's,
Frederick and Calvert Counties in Maryland, and Fairfax, Loudon, Prince William
and Arlington Counties in Virginia.
The District of Columbia is surrounded by the Capital Beltway, which
is crossed by a number of arterial highways radiating from the District.
Maryland Routes 210 and 5 provide direct access from Charles County to the
Beltway and the District. Three major airports serve the area: Dulles
International, 40 miles northwest of Charles County, and Washington National, 25
miles to the northwest, both in northern Virginia, and Baltimore-Washington
International, 50 miles to the north in Anne Arundel County. Baltimore Harbor,
60 mites north of Waldorf, has a channel depth of 42 feet and accommodates more
than 100 steamship lines.
The Washington Metropolitan Area leads the nation in the proportion of
the professional, executive, managerial and administrative people. Among the
colleges and universities in the Washington area are American, George
Washington, Georgetown, Catholic and Howard Universities in the District of
Columbia, the University of Maryland and Bowie State University in Prince
George's County.
The Federal Government is the largest employer in the region. Federal
agencies in and around the District of Columbia provide more than 350,000 jobs.
Nearly 200,000 state and local government jobs increase the non-military
government payroll to more than 500,000. Private companies supplying contract
services and related products employ about 30% of the civilian labor force.
Services, retail trades, and the construction industry constitute a large part
of the remaining work force.
The Washington area has been one of the most rapidly developing
regions in the nation. Current population estimates exceed 3,850,000. Federal
officials have recently approved the consolidation of the Washington and
Baltimore metropolitan areas, with a combined metropolitan population of over
6.7 million.
The economic recession of the early 1990's affected all areas of the
regional economy. However, in the past couple of years, there have been growing
signs of recovery in ail sectors of the economy with residential real estate
showing the greatest strength. Surveys of land and housing prices in the
metropolitan area show that these costs are typically lower in southern Maryland
in general and Charles County in particular, than those of the more populous
jurisdictions. This relative affordability is one of the primary conditions
fueling growth in the county.
16
<PAGE>
COUNTY ANALYSIS
---------------
Charles County is a 458 square mile peninsula with approximately 150
miles of shoreline. Although about 40% of the county's land is still devoted to
agriculture, the Route 301 corridor through Waldorf has assumed a suburban
character.
A relatively low tax rate, plentiful land inventory, and good highway
access, together with the administration's policy of encouraging growth and
industry, have promoted residential and commercial expansion. Between 1980 and
1990, the county's population increased by 39% to 101,154 residents, with about
43% of the county's population concentrated in the 6th Election District, which
includes Waldorf. Current population is estimated to be 111,200 and is expected
to increase to 128,700 by 2005.
La Plata and Indian Head are the only two incorporated towns in the
county. LaPlata, centered at the intersection of Routes 301 and 6 near the
geographical center of the county, is the seat of county government. The town
limits have recently extended northward along U.S. Route 301 to include about
1,000 acres slated for planned unit development. Indian Head, about 12 miles
northwest of LaPlata, is the site of a United States Naval Ordnance Station,
recently renamed the Naval Surface Warfare Center, and is a major employer for
the region. The most heavily populated part of the county is the Waldorf/St.
Charles area located in the north central part of the county about seven miles
north of LaPlata. The Waldorf/St. Charles area contains about half of the county
residents.
The unemployment rate in Charles County has remained constant at about
3 % until 1991, when it increased to more than 7%. However, there has been
steady improvement during the last few years. As of December 1995 the rate was
2.7%. As of December 1994 the rate was 3.2%; and as of December 1993 the rate
was 3.7%. Local industries that provide employment opportunities include the
construction trade, government, health related professions, real estate and
associated fields, power generation, lumbering and manufacturing of wood
products, metal and steel fabrication, manufacture of concrete products,
computer operations, engineering and research nurseries and harvesting of
seafood.
Five high schools, six middle schools and eighteen elementary schools
serve more than 19,000 students in the county's public school system.
Handicapped students attend the F.B. Gwynn Educational Center in LaPlata, and
vocational studies are provided by the Charles County Vocational-Technical
Center in Pomfret. In addition, the county has 12 private schools. The Charles
county Community College, about 15 miles south, has over 4,500 students and
offers a two-year program leading to an Associate of Arts Degree. Other courses
of study include transfer programs and certification in certain trade programs
requiring less than two years of study. The college maintains an extension
center in the Smallwood Village of St. Charles, with a selection of course
offered there and at other nearby locations.
17
<PAGE>
Electricity for the county is supplied by Southern Maryland Electric
Cooperative, Inc.; the Washington Gas Light Company provides natural gas to some
parts of the county. The Charles County Department of Public Works provides
water for St. Charles and other parts of Waldorf; many smaller communities have
private water systems. The north part of the county is served by the Mattawoman
Sewerage Treatment Plant, which was completed about 10 years ago, and has
recently been expanded.
U.S. Route 301 is the main thoroughfare through Charles County and a
major traffic artery for the east coast. It parallels 1-95 about 15 miles to the
west and is the principal alternative to that heavily congested corridor between
Richmond and Baltimore. Route 5, leading from St. Mary's County on the south
through eastern Charles and Prince George's Counties into the District of
Columbia, is a heavily-traveled commuter route. Route 5 is in the process of
being re-routed around Waldorf. Route 6 connects with Route S in northern St.
Mary's County about 16 miles east of La Plata, and is the county's primary east-
west route connecting the development corridors east of La Plata with rural
areas to the south and west. The only public transportation available is
provided by private bus firms. Most residents commute in private vehicles.
A comprehensive rezoning plan for Charles County, adopted in September
of 1990 calls for much of the northern and central part of the county, including
La Plata, to be rezoned for more intensive development, while most other areas
of the county will stay in the "Rural Agricultural" zone. The plan assigns
development districts designed to limit urban sprawl and concentrate growth in
clearly defined development areas, projecting that the greatest concentration of
growth through 2010 (68% of new residential units) will be in the Waldorf/St.
Charles area and La Plata. The comprehensive plan was codified with the adoption
of the new zoning ordinance in October of 1992. Despite generally declining
economic conditions during the recent recession, growth in Charles County has
remained stronger than in many other parts of the Washington area. In the past
couple of years, there have been growing signs of recovery in all segments of
the local economy.
Because of the rapid growth in the past, the major problem confronting
the Charles County region has been traffic gridlock, particularly along the
major commuter routes to Washington, D.C., as well as on the secondary roads
through the major employment centers of the area; namely, Waldorf, La Plata, and
Indian Head. To help alleviate some of this traffic congestion, numerous road
upgrades, as well as expansions, are currently being proposed or approved. In
Waldorf, the western and eastern bypasses are designed to eliminate large
amounts of traffic on U.S. Route 301 and Route 5 corridors, as well as in
conjunction with the Prince George's County upgrade of Route 5 and Route 301 as
they cross over through those jurisdictions. Additionally, the State Highway
Administration is also expanding portions of Route 5, as well as Route 205, in
the Waldorf area. Once these bypasses and upgrades are completed, a considerable
amount of the traffic congestion is expected to be alleviated for a number of
years.
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Charles County is fortunate enough to be located, as previously
mentioned, near the Chesapeake Bay, or on the tributaries leading to the
Chesapeake Bay, which offers numerous recreational opportunities to the
residents of the County. The County has provided recreational services in the
form of numerous parks. One is the White Plains Regional Park, which has an
eighteen hole golf course. This enhances the livability and desirability of the
County. Because of these facts, the County has enjoyed a steady population
growth and riding on its coat-tails has been an increase in jobs, income levels
of employment and property values in both the residential and commercial sectors
throughout the area.
The Charles county Government and other local jurisdictions in the
area of Southern Maryland have avoided a large number of the problems associated
with rapid growth. These local Governments continue to plan for and allocate
resources to meet future needs. Therefore, it appears that the basis has been
laid for the continuing orderly expansion of the area of Charles County, as well
as the maintenance and preservation of the historic, recreational and service
attributes required to maintain a high standard of living.
Based on the aforementioned data, it is this appraiser's opinion that
the Charles County area will continue to provide the services needed at
reasonable levels to attract the quality growth it has seen in the past few
years. Along these lines, Charles County should remain a desirable place both
for residential, as well as commercial, expansion into the foreseeable future.
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[INDEX TO MAPS APPEARS HERE]
<PAGE>
NEIGHBORHOOD DATA
-----------------
The subject property is located in the unincorporated township of
Waldorf/White Plains, in the northernmost portion of Charles County, Maryland.
This area is the most densely populated and developed zone of the County. As it
has in the recent past, the Waldorf area is experiencing both rapid residential
and commercial growth.
Well over a third of Charles County's population is located in the
Sixth (6th) Election District, which encompasses Waldorf and the surrounding
neighborhoods.
"St. Charles," a very successful planned unit community, and in which
the subject neighborhood is located, is in the southern portion of Waldorf, and
along with Pinefield, another large cluster community located in the northern
portion, serves as a basis for the rapid commercial expansion in the Waldorf
area.
Major commercial development in Waldorf has concentrated on the U.S.
Route 301/Maryland Route 5 corridor. Several large shopping centers lie within a
1/4 mile of the Route 301/Route 5 intersection with other smaller retail strip
shopping centers and individual stores expanding outward along the different
highways from these large centers. In addition to retail centers, a good mix of
office buildings, automobile dealerships, hotels, restaurants, service stations,
banks and medical centers service the community and surrounding areas.
Industrial and warehouse uses are located along Maryland Route 925,
Old Washington Avenue. This road parallels U.S. Route 301 to the east and
supplies suitable areas for the heavier retail and industrial needs of the
neighborhood.
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SITE DESCRIPTION - NEIGHBORHOOD OVERALL VIEW
--------------------------------------------
The subject site, in its entirety, contains approximately 1,288.85
acres of land, more or less, which encompasses the proposed Fairway Village
Subdivision. The subject property will be divided into two residential
neighborhoods, one designated as the Gleneagles Neighborhood, and the other the
Sheffield Neighborhood.
The subject property is irregularly shaped, though it appears to lend
itself well to the proposed Fairway Village Neighborhood development concept
plan. Please refer to a copy of the overall Concept Plan, as prepared by
Whitman, Requart & Associates of Baltimore, Maryland for Interstate General
Company, L.P. for an overview and conceptual plan of the proposed location and
site of the subject property.
This particular parcel is part of a larger parcel that has been
developed as an ongoing Planned Unit Development over the past 25 to 30 years.
The subject neighborhood will have direct access to St. Charles Parkway. The
main portion of the site, which will house the residential development, will lie
on both the east and west sides of St. Charles Parkway.
The subject property is a level to moderately rolling topography and
for the most part, the subject property is entirely wooded at time of
inspection. Portions of the property have been recently timbered over the past
few years, though this does appear to impact the overall valuation of the
property.
All utilities are available to the site, which include both public
water and sewer, as supplied by the Charles County Department of Public Works.
Electricity is furnished by the Southern Maryland Electric Coop. Local phone
service is available through the Bell Atlantic Phone Company, with long distance
service available through a number of competitive long distance companies. Gas
is also available through the Washington Gas Company network.
On the northern-most portion of the neighborhood, there currently
exists a overhead high tension line power right-of-way system, and also an
underground gas utility right-of-way as well. These transmission lines for both
electric and gas do not appear to adversely impact the subject property and the
overall development plan has taken these into consideration and no major
commercial or residential improvements lie within close proximity to these
right-of-ways.
No other adverse easements or encroachments were observed other than
the standard utility easements that would effect the overall valuation of the
subject property. It should be noted that for the most part, the subject
property lies outside of any HUD designated flood plain as delineated on Flood
Map No. 240089-0035B, Zone C.
In terms of subsoil conditions, we have not been provided data
relative to any subsoil conditions, nor did we observed any adverse subsoil
conditions that would impact the overall valuation of the subject property or
preclude development of the site as projected.
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The subject property itself is defined as 38.0 acres of
commercial/office/retail usage within the neighborhood located at various areas
throughout the neighborhood as delineated on the attached concept plan for
Fairway Village. For the most part, this will ultimately be divided into
commercial use lots as small as 1/2 acre (+/-) and upward depending on the type
of usage.
In the overall valuation of the commercial portion of the property,
this appraiser has valued the subject property as a single entity in raw land
form. Although some of the parcels are separated and are at different locations
throughout the neighborhood and because of location, some may command premium
values at retail level, in its current form, it is too difficult to assign these
premiums at this time. Ultimately, as the Fairway Village neighborhoods are
developed and as potential clients for the property are further delineated by
size or type of use, or in terms of specific location, then more appropriate
values may be assigned to each individual portion of the commercial portion.
A detailed legal description of the commercial portion of the property
that is designated as the subject property within this report, may be found in
the Charles County Land Records as Part of Liber 454, Folio 21. It is further
described as being found in the Charles County Tax Maps at Map 15, Part of
Parcel 149.
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[SITE LOCATION APPEARS HERE]
<PAGE>
[MAP APPEARS HERE]
<PAGE>
[MAP OF ST. CHARLES APPEARS HERE]
<PAGE>
PROPOSED IMPROVEMENTS
---------------------
The Fairway Village Section of St. Charles, which will contain
approximately 1,288.85 acres of land, more or less, in its entirety is proposed
for development, not only for the commercial/office/retail portion of the
property as designated as the subject, but also for residential planned
development as well. The commercial portion, which will be located at various
sections throughout the neighborhood, as defined on the attached Concept Plan,
contains in its entirety 38.0 acres. The remaining portion of the property will
be developed for residential units featuring 3,346 total units, which will be
divided into 837 townhouse units, 922 large lot detached single-family units,
499 medium lot detached single-family units, 256 small lot detached single-
family units, as well as 836 total apartment units. The Fairway Village Section
will also be developed with two community centers, one for the Gleneagles
Neighborhood and the other for the Sheffield Neighborhood. Additionally, an area
has been designated as a location for an elementary school, and large areas of
open space shall be provided as well, including a number of man-made lakes and
ponds. In addition, it should be noted tat the subject neighborhood, to a large
extent, wraps around the White Plains Regional Park, which is the site of an 18-
hole golf course. Access will be provided for both pedestrian and vehicular
traffic to this golf course facility.
As proposed by the developer, the commercial portions of the property will
be initially available in the third year of the developer's 10-year development
schedule for the Fairway Village complex. Therefore, in the overall final
analysis of the "as is" value for the subject property, it is assumed that at
least a 3-year holding period will be required before any of the commercial,
retail or service related portions of the subject property will be available for
sale to ultimate retail users.
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[MAP APPEARS HERE]
<PAGE>
[MAP APPEARS HERE]
<PAGE>
[MAP APPEARS HERE]
<PAGE>
HIGHEST AND BEST USE ANALYSIS
-----------------------------
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.
When considering the highest and best use concept it is important to
realize several essential factors. Typically, the purpose of an appraisal is to
estimate market value. The highest and best use analysis identifies the most
profitable, competitive use to which the property can be put. Therefore, the
highest and best use concept is a market driven concept and as such is not
dependent on subjective analysis by the owner, a developer, or the appraiser.
Highest and best use may change with time and conditions. For example, a
particular site might be zoned for single family dwelling; however, because of
shifting economic and social patterns, the highest present utilization of this
site might be achieved by conversion to commercial uses; or it may be possible
to anticipate developments which will bring about a change in highest and best
permitted use, and endow a site with future value even though there is no
current demand for such use.
Uses permitted by zoning regulations may be less valuable than the
potential use to which the land is adapted. Purchasers of land will sometimes
pay more for a parcel for its potential use than could be supported by its
legally permitted use. Such purchasers buy in anticipation of a reasonable
expected change in the permitted use. Accordingly, a market value estimate takes
into account not only current zoning, but the market's estimate of the added
value with the probability of a zoning change permitting the highest and best
use.
The highest and best use of land, if vacant and available for use, may be
different from the highest and best use of property, if improved. To render a
sound estimate of highest and best use, the appraiser, in all cases, must
consider the location and physical characteristics of the subject site,
condition, and probable economic life of any existing improvements, character of
the neighborhood, and zoning, in light of the basic economic principles of real
property valuation.
In estimating highest and best use, there are four criteria for analysis
and they must be analyzed sequentially. They are:
1. PHYSICALLY POSSIBLE USE - What uses of the site are physically
possible?
2. LEGALLY PERMISSIBLE USE - What uses are permitted by zoning and deed
restrictions on the site in question?
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3. FINANCIALLY FEASIBLE USE - Which possible and permissible uses will
produce a net return to the owner of the site?
4. MAXIMALLY PROFITABLE USE - Among the feasible uses, which will produce
the highest net return or the highest present worth or which use will
maximally productive?
Following are the tests for aforementioned criteria as applied to the
subject property.
AS VACANT
PHYSICALLY POSSIBLE USE
The subject property in its entirety is a tract of land containing
approximately 1,288.85 acres of land, more or less. The subject site has a level
to moderately rolling topography. All utilities are available to the site, and
with the site's location within the St. Charles Community, the subject site
would be suitable for a broad range of development activities, as allowable
under the Planned Unit Development Overlay of the St. Charles Subdivision, and
in particular the Fairway Village Neighborhood, which allows for both business,
commercial, as well as residential activity.
LEGALLY PERMISSIBLE USE
The zoning for the subject property is currently for either commercial or
residential development under the Planned Unit Development zone of St. Charles.
The overlay zoning of Planned Unit Development allows for a combination of
residential, multi-tenant, industrial, commercial and office type usages.
However, the area of the subject property has predominantly been designated for
either residential or community commercial or office type development.
Therefore, were the property vacant, the development of the subject property
along the lines of a residential subdivision with appropriate commercial support
would be deemed most appropriate. For further details on the Planned Unit
Development zoning and appropriate usages, as well as land size, allocation, lot
size and development densities. Please refer to the Zoning section of this
report for further details.
Furthermore, it should be noted that this appraiser is not aware of any
private deed restrictions, which would limit the use of the subject property as
proposed. Also, there are no anticipated changes in zoning or utility
availability that would effect the overall valuation of the property at this
time.
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FINANCIALLY FEASIBLE USE
This section of highest and best use analysis pertains to development costs
at the subject property, as well as demand for uses physically and legally
possible. The entire subject site, which has a level to slightly rolling
topography and which should in terms of residential and commercial development,
as well as road development, allow for the installation of proposed road
amenities, water and sewer lines, and other physical features at relatively
reasonable development levels.
As proposed, approximately $90,122,000.00 is projected for community-wide
development. Of this $90,122,000.00, approximately $41,962,000.00 is allocated
to residential neighborhood development, while $48,160,000.00 is allocated for
community-wide development, which includes allocations to the business parks,
the commercial parks, infrastructure leading to additional future communities to
be developed, as well as the extension of Billingsley Road through the
neighborhood.
For the most part, development costs have been allocated, to a large
extent, to the residential portions of the neighborhood and to adjoining
business parks, industrial neighborhoods and future communities. However, it
appears that in speaking with representative of Interstate General Company, it
appears that approximately $1.00 per square foot should be a reasonable
allocation for site development and sewer extension to the
commercial/office/service parcels located within the Fairway Village.
This places development costs for the subject property within development
ranges as indicated by other comparable commercial properties throughout the
area. However, the inclusion of neighborhood centers, associated pool and
recreational facilities, as well as the extensive road systems, trails, paths,
park areas, and inherent residential basis development in and around the
commercial properties further enhance the overall marketability of the
commercial office properties within the subject neighborhood.
MAXIMALLY PROFITABLE USE
The maximally profitable use conclusion for the subject property, namely,
the commercial portions, as vacant is equivalent to the highest and best use of
the subject site. All of the foregoing factors are distilled into a conclusion
of use which would generate the highest net income for the site.
The subject site indicates sufficient development potential on a retail or
finished level for both a small, single user or a multi-tenant facility such as
a neighborhood retail center.
The potential of well over 3,300 additional residential units in the
immediate area of the commercial portions of the property will further offer the
residential support needed for the expansion of commercial, office and related
facilities in the neighborhood. Obviously, as the residential units are
developed, needs will be strengthened for retail uses such as a neighborhood
26
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center featuring a drug store and probably a grocery store, as well as movie
theaters, convenience store, office facilities for dentists, doctors,
accountants, etc. The overall neighborhood itself is not only convenient to the
proposed Fairway Village Section, but also to existing neighborhoods already
found in the St. Charles Subdivision. Additionally, the location in the northern
portion of Charles County is relatively convenient to additional residential
areas just outside of the neighborhood and additional residential development in
the northern development district of Charles County.
The overall sizes of the parcels available allows for a flexible
development plan, which would allow for, in most instances, the sale of property
in sizes or locations as needed by specific clients. Because of this
flexibility, it appears that the subject property should be considered a well
planned and well thought out multi-faceted commercial development, which should
be in position to maximize profits and yields to the developer.
For the most part, the commercial and village centers associated with the
neighborhood will be aligned near the Billingsley Road corridor, which will be
one of the major east/west bisectors of this portion of the County and should
allow for good visibility for potential commercial, office or retail uses within
the neighborhood. This will also add visibility of these uses for residents
located outside of the neighborhood and easy accessibility by these potential
customers as well.
AS IMPROVED
The subject property, which is within the Fairway Village Section, will be
developed along traditional lines of the St. Charles Planned Unit Development,
as well as other communities found in Southern Maryland. For the most part, the
residential structures will feature a multi-faceted residential development,
with the commercial, office and residentially zoned properties, which are
designated as the subject property within this report, situated to service the
needs of this proposed community, as well as existing communities in the Waldorf
and St. Charles area.
The ultimate development of the site takes into consideration the enhanced
traffic patterns along the Billingsley Road corridor and the development as such
allows for the sale of lot sizes to meet most customer needs.
Therefore, it is this appraiser's conclusion that the "as is" highest and
best use of the site is its continuing development for commercial, retail and
office uses, as projected for the Fairway Village Community.
27
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PHYSICALLY POSSIBLE
The subject neighborhood in its entirety will be completed as a multi-stage
residential and commercial neighborhood within the Planned Unit Development of
St. Charles. As currently proposed, the subject site is well suited for the
combined usage. The commercial portion of the property can be developed for a
number of alternative residential, office and retail designs, all of which
should be considered alternative highest and best uses for the site. Because of
the development flexibility offered the developer, final lot sizes or parcel
sizes can be sized to fit appropriate customer needs, and it appears that the
product mix associated with the Fairway Village Community, not only in terms of
commercial, but also in terms of residential attached and detached units should
generate sufficient profit and return to the developer such tat the continuing
development of the Fairway Village Community as a whole, and additionally the
commercial portion of the property should be considered the highest and best use
of the site.
LEGALLY PERMISSIBLE USE
Those uses noted in the "as vacant" legally permissible section of the
Highest and Best Use analysis remain pertinent. The subject zoning is somewhat
restricted under the PUD of St. Charles, though the residential development
units, both attached and detached as projected, as well as commercial usages are
ail allowed within the neighborhood. For the most part, however, the development
of the Fairway Village will be predominantly residential in nature.
FINANCIALLY FEASIBLE USE
The financial factors affecting the subject property are quite straight
forward since there is a long term marketing plan associated with the uses of
the property. The project itself will be developed as predominantly residential
lots or units, which will be, for the most part, sold to individual builders or
development companies and then ultimately developed as single-family improved
units and sold to the retail clientele. Based on current market conditions, it
appears that an absorption of lots within the neighborhood should achieve
reasonable returns or profit levels to the developer. As these units are
developed and built, demand levels for the commercial, retail and office
portions of the neighborhood will be enhanced and thus any financial commitments
for the development of this portion of the property should be further
strengthened and added profit levels will be achieved from the sale of these
commercial units.
Therefore, based on absorption levels and profitability levels, as noted in
the original appraisal of the residential portions of the property, the subject
property should be considered both a financially feasible, as well as
economically viable undertaking in this appraiser's opinion. The commercial
portions of the property are basically ancillary usages in conjunction with
residential development. It does not appears that extremely high development
costs will be incurred in the development of the commercial portions of the
property and thus this will further enhance the feasible use of this portion of
the subject neighborhood.
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MAXIMALLY PROFITABLE USE
The maximally profitable use conclusion for the subject, as improved, is
equivalent to the Highest and Best Use conclusion for the subject, as improved.
The foregoing considerations indicate that: the subject property is designed and
intended for a multi phase development, residential and commercial plan that is
considered the highest and best use of the property. Should market conditions
change, there is sufficient flexibility in the plan to allow for development of
those phases or types of product that are in most demand at any given time.
In light of these conditions, it is this appraiser's opinion that the
maximally profitable use of the property and hence the highest and best use of
the subject property is the continuing use of the commercial portions of the
property in conjunction with the expansion of the Fairway Village residential
neighborhood of the planned unit development of St. Charles.
29
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THE APPRAISAL PROCESS
---------------------
The appraisal process is a systematic method of gathering data regarding
sociological, physical, economic and governmental forces for the purpose of
analyzing and interpreting their influence, in terms of value, on a specific
real property. In this process, three basic valuation techniques are used: the
Cost, Income Capitalization and Sales Comparison Approaches. A brief description
of each approach and its relevance to the appraisal of the subject property is
listed below.
In the Cost Approach, the site is valued as if vacant and available to be
put to its highest and best use. The reproduction costs new of the improvements
is estimated less accrued depreciation from all causes, physical, functional and
economic. The land value is estimated by the Market Approach which involves
comparing the subject site with similar parcels which have recently sold. The
depreciated value of the improvements is then added to the site value for an
indication of value by the Cost Approach.
In developing the Income Capitalization approach, the appraisers are
concerned with the present worth of the future potential financial benefits
anticipated through the ownership of real property. In this process, the
potential gross income is estimated from market rentals less an allowance for
vacancy and collection loss. The result is an effective gross income from which
the operation expenses are deducted to arrive at a net operating income. By
using the appropriate method and rate, this net operating income is capitalized
into an indication of value.
The Sales Comparison Approach is essential in almost every appraisal of
real property. This approach involves the collection and analysis of recent
sales of similarly improved properties. These sale are then compared directly to
the subject and are adjusted to value influencing elements of comparison, such
as time, location, physical characteristics and other factors affecting value.
The resulting adjusted sales indicate a range of value for the subject property.
The reliability of this approach is predicated upon the acquisition of
sufficient and relevant comparable sales data.
All the possible approaches to value are essentially based on the
"principle of substitution". This principle is predicated on the assumption tat
an informed prudent purchaser would pay no more for a property than the cost to
him of acquiring an equally desirable substitute property with comparable
utility. Substitution may assume the form of the purchase of an existing
property with the same utility or of acquiring a substitute investment which
will produce an equivalent income stream.
The last step in the appraisal process is the reconciliation of value
estimates derived by each approach into a final estimate of value for the
subject property. Each approach will be discussed with respect to its relevancy
to the appraisal problem at hand and developed where appropriate.
30
<PAGE>
VALUATION
---------
The three traditional approaches to value have been considered in the final
valuation of the subject property. These approaches are as follows:
(1) the Cost Approach, where the land is considered as if vacant,
plus the cost of improvements, less depreciation;
(2) the Market Data Approach, which is otherwise known as the direct
sales approach, where the appraiser compares the subject property
to that of comparable sales; and
(3) the Income Approach, where the appraiser capitalizes the
potential income stream of the subject property.
Because there is currently no income stream, nor improvements located on
the subject property that would offer any appreciable insight as to the value of
the property, the Cost Approach and Income Approach have been disregarded. The
Cost Approach, however, will be used in the evaluation of the development costs
in this report where appropriate.
31
<PAGE>
VALUATION
OF THE
COMMERCIAL PORTION OF THE
FAIRWAY VILLAGE COMMUNITY
The Market Data Approach is an approach to value wherein the appraiser
seeks out sales of similar properties that have occurred recently. These sales
are then adjusted for dissimilarities between sale properties and the subject
property to arrive at an indication of value. Theoretically, the Market Data
Approach reflects the actions of buyers and sellers in the marketplace.
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COMPARABLE SALE #1
Grantor: Acton Lane LP
Grantee: Wal-Mart Stores, Inc.
Date of Sale: April 5, 1991
Location: Corner of the northeast quadrant of the
intersection of Acton Lane with U.S.
301, Tax Map 8, Grid 16, Parcel 102
Legal: Liber 1540, Folio 346
Acreage: 15.925 acres or 693,693 sq. ft.
Financing: Cash transaction
Price: $3,308,382.00
Price per sq. ft.: $4.77
Comments: This sale pertains to a tract of land at the corner of U.S. Route 301
and Acton Lane in central Waldorf. This property was purchased and ultimately
developed as a Walmart Retail Store location. An upward adjustment is warranted
for topography because 2.5 to 3.0 acres of this property was in what was
considered as wetlands and could not be developed. Overall land loss due to
wetlands is approximately 15 percent of the total acreage. Additionally, added
development costs in the form of either sediment control or bulkheading in and
around these wetlands was required, which added additional costs to the overall
development of the property. This is a major corner intersection, however, with
good exposure to the U.S. Route 301 corridor, which is rated superior to that of
the commercial property associated with the subject property.
Adjustments for comparison:
- --------------------------
Corner Location - 10%
U.S. Route 301
Corridor - 10%
Topography + 15%
----
Total adjustment - 5%
$4.77 x .95 = $4.53 per sq. ft.
33
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[MAP APPEARS HERE]
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COMPARABLE SALE #2
Grantor: St. Charles Associates LP
Grantee: Nautick Fifth Realty Corp.
Date of Sale: June 25,1993
Location: St. Nicholas Drive
Tax Map 15, Grid 2, Parcel 742
Legal: Liber 1806, Folio 197
Acreage: 10.7896 acres or 469,995 sq. ft.
Price: $2,350,000.00
Price per sq. ft.: $5.00
Comments: This is the sale of a tract of land near the Hampshire Neighborhood
of St. Charles and also in similar close proximity to the Regional Mall. This
particular sale was purchased for the location of the BJ's Membership Warehouse.
Overall vicinity in proximity to the Regional Mall is rated slightly superior to
the subject. This particular sale, however, had some wetlands that required some
higher development costs.
Adjustments for comparison:
- --------------------------
Mail Influence - 10%
Wetlands/Topo + 10%
----
Total adjustment - 0 -
$5.00 x 1.00 = $5.00 per sq. ft.
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[MAP APPEARS HERE]
<PAGE>
COMPARABLE SALE #3
Grantor: Xolar Corporation
Grantee: Lowes Home Center
Date of Sale: May 1992
Location: Tax Map 8, Parcel 684
Lots 1 through 7
Holly Tree Commercial Park
Route 301, Waldorf, Maryland
Legal: Liber 1653, Folio 11
Acreage: 12.8210 acres or 558,483 sq. ft.
Zoning: CC - Community Commercial
Financing: Cash
Price: $4,000,000.00
Price per sq. ft.: $7.16
Comments: This is the sale of a large tract of retail land located off of U.S.
Route 301 near Comparable Sale #1. Overall location on the U.S. Route 301
corridor is rated superior to that of the subject property. Additionally, this
was a corner location, which is also rated, for the most part, superior to that
of the subject property as well.
Adjustments foR comparison:
- --------------------------
Corner Influence - 10%
U.S. Route 301
Corridor - 10%
Total adjustment - 20%
----
$7.16 x .80 = $5.73 per sq. ft.
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[MAP APPEARS HERE]
<PAGE>
COMPARABLE SALE #4
Grantor: St. Charles Associates L.P.
Grantee: Dayton Hudson Corp.
Date of Sale: July 12,1995
Location: Western Parkway and St. Patrick's
Drive Tax Map 15, Grid I, Parcel 748
Legal: Liber 2108, Folio 245
Acreage: 9.707 acres or 422,837 sq. ft.
Utilities: all public utilities are available
Zoning: PUD
Price: $3,380,250.00
Price per sq. ft.: $7.99
Comments: This is the sale of a parcel of land that was developed into a 120,000
square fool Target Department Store. This particular sale is located across the
street from the Regional Mall, which is rated superior to that of the subject
property. This is also is a mail influenced sale within St. Charles, but in a
location that would be rated very similar to the subject, with the exception of
the proximity of the Regional Mall.
Adjustments for comparison:
- --------------------------
Mall Influence - 10%
----
Total adjustment - 10%
$7.99 x .90 = $7.19 per sq. ft.
36
<PAGE>
[MAP APPEARS HERE]
<PAGE>
COMPARABLE SALE #5
Grantor: Maryland Bank and Trust
Grantee: Food Lion, Inc.
Date of Sale: March 11, 1993
Location: E/S Old Washington Road (MD Route 925)
Tax Map 15, Grid 3, Parcel 250
Legal: Liber 1759, Folio 557
Acreage: 3.64 acres or 158,588 sq. ft.
Price: $800,000.00
Utilities: all public utilities are available
Zoning: CB - Central Business
Price per sq. ft.: $5.05
Comments: This is the sale of a tract of land located off of Maryland Route 925,
which was developed into a 32,000 square foot Food Lion grocery store. The
comparable is located near the intersection of Maryland Route 925 and Maryland
Route 5, in one of the secondary commercial corridors of Waldorf. Overall
location of a majority of the subject property on Billingsley Road, which will
be a major east/west bisector, is rated similar to this location. Overall
topography and zoning are rated similar to the subject.
Adjustments for comparison:
- --------------------------
- 0 -
-----
Total adjustment - 0 -
$5.05 x 1.00 = $5.05 per sq. ft.
37
<PAGE>
[MAP APPEARS HERE]
<PAGE>
COMPARABLE SALE #6
Grantor: George R. & Susan C. Morris
Grantee: Food Lion, Inc.
Date of Sale: July 28, 1992
Location: S/S Heritage Green Parkway
Tax Map 33, Grid 81, Parcel 508
Legal: Liber 1679, Folio 96
Acreage: 3.675 acres or 160,083 sq. ft.
Utilities: all public utilities are available
Zoning: CC - Community Commercial
Price: $850,000.00
Price per sq. ft.: $5.31
Comments: This is the sale of a parcel of land developed into a 32,000 square
foot Food Lion grocery store near La Plata. This parcel is located off of the
east side of U.S. Route 301, just north of the incorporated Township of La
Plata. Overall location and the lower market rents associated with this area is
rated inferior to the Waldorf market area, particular in terms of investment
type properties. However, the visibility and access from U.S. Route 301 is rated
superior to that of the subject property's location.
Adjustments for comparison:
- --------------------------
Location + 10%
U.S. Route 301
Corridor - 10%
----
Total adjustment - 0 -
$5.31 x 1.00 = $5.31 per sq. ft.
38
<PAGE>
[MAP APPEARS HERE]
<PAGE>
COMPARABLE SALE #7
Grantor: Peed
Grantee: M.D.P.A. Partnership
Date of Contract: May 1997
Location: off Maryland Route 925
Tax Map 15, Parcel 479
Legal: contract pending
Acreage: 3.5 acres or 152,460 sq. ft.
Zoning: RO - Residential Office
Price: $686,000.00 (+/-)
Price per sq. ft.: $4.50
Comments: This is the pending purchase due to settle in November 1997 of a
tract of land purchased for office development on the Maryland Route 925
corridor in Waldorf. Overall location is rated somewhat similar to that of the
proximity of the subject property. This particular sale is offered as a
comparable for a multi-tenant office facility, which would be one of the
concurrent highest and best uses of the subject property. Overall topography is
rated somewhat similar to that of the subject property. Overall zoning is rated
inferior to the PUD zoning, but no adjustments are warranted due to the
potential highest and best use of the property. The developers will be
responsible for the upgrading of the Maryland Route 5 intersection at a maximum
estimated cost of approximately $75,000.00 or an additional $.50 per square
foot.
Adjustments for comparison:
- --------------------------
Added Development
Costs + 10%
---
Total adjustment + 10%
$4.50x 1.10 = $4.95 per sq. ft.
39
<PAGE>
[MAP APPEARS HERE]
<PAGE>
COMPARABLE SUMMARY GRID
-----------------------
<TABLE>
<CAPTION>
=================================================================================
COMP CNR RT 301 DEV TOPO/ MALL GEN TOTAL PRICE ADJ.
LOC CORR. CSTS WTLMDS INFL. LOC ADJ. PRICE
=================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
#1 - 10% - 10% + 15% - 5% $4.77 $4.53
- ---------------------------------------------------------------------------------
#2 + 10% - 10% - 0 - $5.00 $5.00
- ---------------------------------------------------------------------------------
#3 - 10% - 10% - 20% $7.16 $5.73
- ---------------------------------------------------------------------------------
#4 - 10% - 10% $7.99 $7.19
- ---------------------------------------------------------------------------------
#5 - 0 - $5.05 $5.05
- ---------------------------------------------------------------------------------
#6 - 10% + 10% - 0 - $5.31 $5.31
- ---------------------------------------------------------------------------------
#7 + 10% + 10% $4.50 $4.95
=================================================================================
</TABLE>
Based on the aforesaid comparable sales, it is this appraiser's opinion
that the Fair Market Value of the subject property on a gross retail basis of
the 38.0 acres in its entirety is best estimated to be approximately $5.00 per
square foot. This places the subject property in the mid to lower range of
values as indicated by the comparable sales used in this report.
It appears as the residential basis of Southern Maryland continues to
expand, more and more large "box" type retailers are looking for prime space in
the area. The commercial, retail and office land available is very similar to
that purchased by Target Markets, BJ's Wholesalers, and the Food Lion sale on
Maryland Route 925, as well as the M.D.P.A. Purchase on Maryland Route 925,
which are secondary commercial locations.
Because of the extensive road frontage associated with the subject property
on the Billingsley Road corridor and with relatively flexible access points, it
is this appraiser's opinion that the subdivision of the parcel into desired
sizes, particularly in terms of larger, multi-tenant facilities such as shopping
centers, large retailers or office centers could be accomplished relatively
easily. Therefore, although the subject property encompasses 38.0 acres in three
parcels, this appraiser has made no size adjustments.
As previously mentioned in this report, this appraiser has estimated a
$1.00 per square foot for site development costs in the overall final finished
commercial sites. For the most part, this is allocated for ingress and egress
sites, engineering work, street systems, etc. For the most part, however, with
the completion of the Billingsley Road corridor and the extension of St. Charles
Parkway and utility lines within the Fairway Village to service the residential
portions to a large extent, the access, ingress, egress and utility availability
to the commercial portions will be completed. Therefore, for the most part, only
access street systems, in the case of smaller subdivided parcels, and the
extension of utilities to building sites is required to complete the subject
sites or subdivide the subject sites.
40
<PAGE>
Given these facts, it is this appraiser's opinion that the fair market
value of the subject commercial parcels or the 38.0 acres in its entirety is
best estimated to have a gross retail value of approximately $5.00 per square
foot. Therefore, 38.0 acres or 1,655,280 square feet at $5.00 per square foot
equals $8,276,400.00, rounded to $8,276,000.00.
This should be construed as a gross retail value as of the date of this
appraisal report since the major thoroughfares, namely, St. Charles Parkway and
Billingsley Road have not been completed. In fact, the developer, according to
their schedule, does not contemplate these parcels as being on-line for sale or
usage until 3-years into a development plan. Therefore, the gross retail value
of the subject parcels must be discounted for the 3-year holding period prior to
any development of the property. Thereafter, it is not expected by this
appraiser that all of the property will be purchased in a lump sum by a single
entity and therefore the property must be further discounted to the anticipated
absorption periods to arrive at a final "as is" market value of the property.
In order to estimate the discounted "present" value for this component for
this time period, this appraiser has reviewed the Southern Maryland marketplace
for retail absorptions. The first step of the analysis sales are summarized as
follows:
<TABLE>
<CAPTION>
Property Sale Date Building Size
-------- --------- -------------
<S> <C> <C>
Wal-Mart April 1991 114,324 sq. ft.
Lowes May 1992 110,000 sq. ft.
Food Lion July 1992 32,000 sq. ft.
BJ's June 1993 113,000 sq. ft.
Target July 1995 120,000 sq. ft.
</TABLE>
Elapsed Time - 5-1/2 years +/- Total Building Area 489,324 sq. ft.
Average annual absorption of this study period is approximately 88,968
square feet per year. However, this does not take into consideration the number
of smaller commercial properties, such as restaurants, gas stations and office
space developed during this period of time. Nevertheless, it appears that demand
for commercial development may have been partially met by all this development.
These two factors are generally offset and it is also known by this appraiser
that at least three additional major national chains are looking in the area for
space. Whether or not these companies find space before the subject property is
available, it further supports the levels of demand for properties of this
nature.
41
<PAGE>
Based on an average floor area ratio to land ratio of approximately 20
percent in most commercial development properties, 38.0 acres of the subject
property would yield space availability of approximately 331,000 square feet of
office, retail or commercial type space. This, when taking into consideration
absorption of approximately 89,000 square feet per year, will warrant an
absorption once sales commence of approximately 3.72 years, rounded to 4- years.
Therefore, once the gross retail value has been discounted for the initial 3-
year carrying time, the subject property must be further discounted for an
anticipated 4-year absorption period once sales commence.
Given an absorption of the space equally over a 4-year period for valuation
purposes, the expected return will be approximately $2,069,100.00 per year.
In reviewing the Appraisal Institute's Valuation Insight, Third Quarter
1997, Volume 2, No. 3, commercial, retail and office properties command an
internal rate of return from 10.5 to 14 percent for retail and 10.5 to 15
percent for office, with average internal rates of return approximating 11.75
percent. Additionally, in reviewing the Nations Bank, Washington, D.C. MSA,
Valuation Criteria for year ending 1996 (last available figures), internal rates
of return for retail investment grade properties range from 12 to 12.25 percent.
For the most part, these services reflect internal rates of return for both
improved and unimproved properties. Given the raw land nature of the subject
property, it is felt by this appraiser that an added upward adjustment is
warranted due to the more speculative nature of the raw land.
Discount rates for land vary considerably depending on the stage of
development. However, for the most part, commercial land does not require the
more heavy discounts associated with residential properties. Based on these
rates, it is this appraiser's conclusion that an appropriate discount rate,
taking into consideration an added factor for the risk factor associated with
the undeveloped nature of the subject property, the discount rate appropriate is
estimated at 14 percent per annum. The computations taking the gross retail
value of the subject property to discounted present value is presented as
follows:
The Gross Retail Value of $8,276,000.00 multiplied by the discount factor
for the 3-year holding period of 14 percent or .657047* equals $5,437,721.00,
rounded to $5,438,000.00.
Assuming 4-years of equal absorption once initial sales have commenced,
this reflects to an annual income of $1,359,500, rounded to $1,360,000.00,
discounted for 4-years of absorption. The computations are as follows:
$1,360,000.00 x 2.913712* equals $3,962,648.00, rounded to $3,960,000.00.
* Present Value of $1.00 received, 3-years in the future, discounted at 14
percent.
** Present value of $1.00 received per period, discounted at 14 percent.
42
<PAGE>
CORRELATION AND CONCLUSION
--------------------------
It appears that the Southern Maryland area will remain one of the fastest
developing areas on the East Coast of the United States. With relatively easy
access to both employment and recreational activities, Charles County
development and demand for additional units should continue to remain strong.
The subject property is within commuting distance of both metropolitan
Washington, D.C. and Annapolis areas, as well as to many large military and
governmental installations. Because of the country setting of the neighborhood
of the subject property, as well as its relatively near proximity to employment,
the location should remain popular to the buying public into the foreseeable
future.
With market interest rates projected to stabilize or to drop slightly,
demand should remain constant and may improve in the very near future for added
single-family dwellings.
The proposed residential units of the subject community, as well as other
projects currently under construction in the northern Waldorf area, as well as
existing homes should supply an ever-expanding residential basis from which
demand for commercial, office or retail space is derived. With approximately
3,300+ units available immediately in the vicinity of the subject property and
with most of the commercial land of Fairway Village aligning itself with the
Billingsley Road corridor, which is one of the major east/west bisectors of
Charles County, the subject offers not only competitively priced property,
assuming the land is marketed at rates indicated to be the estimated market
values within this report, but also offers convenience of access, flexibility
and development.
All utilities are available to the subject property and appropriate zoning
is in place. It is expected that Fairway Village follow in the tradition
established by the Smallwood, Carrington, Bannister, Wakefield, Huntington,
Dorchester, Lancaster and Hampshire Neighborhoods on a commercial basis, as well
as a residential basis, all of which have been successful undertakings in the
past.
Therefore, as of October 31, 1997, the Fair Market Value of the subject
property is as follows:
38.0 ACRES OF COMMERCIAL INTENDED USE PROPERTY
WITHIN THE PLANNED UNIT DEVELOPMENT
OF THE FAIRWAY VILLAGE SECTION
GROSS RETAIL VALUE
EIGHT MILLION TWO HUNDRED SEVENTY-SIX ThOUSAND DOLLARS
($8,276,000.00)
43
<PAGE>
DISCOUNTED OR "AS IS" PRESENT VALUE
THREE MILLION NINE HUNDRED SIXTY ThOUSAND DOLLARS
($3,960,000.00)
44
<PAGE>
CERTIFICATION
-------------
I, James B. Hooper, certify that to the best of my knowledge and belief:
the statements of fact contained in this report are true and correct;
the reported analysis, opinions, and conclusions are limited only by
the reported Assumptions and Limiting Conditions and are my personal, unbiased
professional analysis, opinions, and conclusions;
I have no present nor prospective interest in the property tat is the
subject of this report and no personal interest or bias with respect to the
parties involved;
my compensation is not contingent on an action or event resulting from
the analysis, opinions, or conclusions in, or the use of, this report;
I have made a personal inspection of the property that is the subject
of this report;
no one provided significant professional assistance to the person
signing this report, unless otherwise stated in this report.
this appraisal assignment was not based upon a requested minimum
valuation, a specific valuation, or the approval of a loan;
my analysis, opinions and conclusions were developed, and this
appraisal report has been prepared in conformity with the Code of Professional
Appraisal Practice of the Appraisal Institute;
I certify that the use of this report is subject to the
requirements of the Appraisal Institute relating to review by its duly
authorized representatives.
In view of the foregoing, I estimate the Market Value of the subject
property to be, as of October 31, 1997:
38.0 ACRES OF COMMERCIAL INTENDED USE PROPERTY
WITHIN THE PLANNED UNIT DEVELOPMENT
OF THE FAIRWAY VILLAGE SECTION
GROSS RETAIL VALUE
EIGHT MILLION TWO HUNDRED SEVENTY-SIX THOUSAND DOLLARS
($8,276,000.00)
45
<PAGE>
discounted or "as is" present value
THREE MILLION NINE HUNDRED SIXTY THOUSAND DOLLARS
($3,960,000.00)
/s/ James B. Hooper
---------------------
James B. Hooper
46
<PAGE>
ADDENDUM
<PAGE>
HOOPER & ASSOCIATES
PHOTOGRAPHS OF THE SUBJECT PROPERTY
[PICTURE APPEARS HERE]
[PICTURE APPEARS HERE]
<PAGE>
HOOPER & ASSOCIATES
PHOTOGRAPH OF THE SUBJECT PROPERTY
[PICTURE APPEARS HERE]
[PICTURE APPEARS HERE]
<PAGE>
INTERSTATE GENERAL COMPANY L.P.
FAIRWAY VILLAGE
ST. CHARLES, MD.
PROJECT ASSUMPTIONS
GENERAL
Community Development(Off-site) and In-Tract Cost estimates provided by
the professional engineering firm Whitman, Requart and Associates of
Baltimore, Maryland.
Phase cost and sales unit pace provided by the professional engineering
firm Whitman, Requart and Associates of Baltimore, Maryland.
Each phase is for approximately 36 months.
All development cost is incurred in first 24 months of each phase.
Annual 4% cost escalator begins in the second month of the project.
Closing cost are $200 per unit
Soft Cost include: Engineering, Legal, Review & Permit fees, Bonding,
Land Planning, Architecture, Inspections, Lot
corners and as builts
Operating Cost include: Property taxes, HOA subsidy, maintenance, PDRB
Marketing Cost are 3.00% of sales.
SALES
Initial pricing for fully developed parcels
Townhouse $32,000
Single Family - 70 ft. $49,000
Single Family - 60 ft. $42,000
Single Family - 52 ft. $36,400
Apartment $7,000
Commercial Acre Sq. ft. $5
<TABLE>
<CAPTION>
Unit Pace by Phase Phase 1 Phase 2 Phase 3 Phase4 Phase 5 Total
------- ------- ------- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C>
Townhouse 154 149 372 0 162 837
Single Family - 70 ft. 247 170 0 505 0 922
Single Family - 60 ft. 149 41 215 0 94 499
Single Family - 52 ft. 73 179 0 0 0 252
Apartment 0 359 0 0 477 836
-------------------------------------------------
623 898 587 505 733 3,346
Year 3 Year 4 Year 5 Year 6 Total
------ ------ ------ ------ -----
Commercial Acres 9.5 9.5 9.5 9.5 38
</TABLE>
Unit sales begin in month seven of each phase
Annual 4% sales escalator begins in the second month of the project.
FINANCING
Prime plus 1% (Currently 10%)
Community Development loan continues over project development and is
released at approximately 110% of draw.
In-Tract Development loans are paid off in each phase at approximately
110% of draw.
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
FAIRWAY VILLAGE PROFORMA
SUMMARY OF ALL PHASES % of TOTAL
Revenue PROJECT Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Units
Townhouse Unit Sales 837 60 54 50 74 105 201
Single Family - 60 Unit Sales 499 15 75 79 21 30 122
Single Family - 70 Unit Sales 922 59 112 126 80 40 0
Single Family - 52 Unit Sales 252 0 60 43 75 74 0
Apartments Unit Sales 836 0 0 40 159 160 0
--------------------------------------------------------------------------------------
Total Units 3,346 124 301 338 409 409 323
Revenue (includes 4% escalator annually)
- -------
Townhouse Sale Proceeds 33,114,545 1,646,480 1,832,080 1,763,987 2,720,094 4,024,766 7,995,273
Single-Family 60's Sale Proceeds 25,547,483 648,732 3,339,026 3,669,516 1,014,845 1,520,665 6,370,470
Single-Family 70's Sale Proceeds 56,049,176 2,974,409 5,821,261 6,840,067 4,497,065 2,338,988 0
Single-Family 52's Sale Proceeds 10,395,890 0 2,315,117 1,732,450 3,132,359 3,215,964 0
Apartments Proceeds 7,602,643 0 0 312,501 1,268,251 1,325,551 0
Commercial Sale Proceeds 8,276,400 0 0 2,069,100 2,069,100 2,069,100 2,069,100
--------------------------------------------------------------------------------------
Total Gross Sales 140,986,137 5,269,621 13,307,484 16,387,620 14,701,714 14,495,034 16,434,843
Less: Closing Cost (653,200) (24,800) (60,200) (67,600) (81,800) (81,800) (64,600)
--------------------------------------------------------------------------------------
Net Sales Proceeds 100% 140,332,937 5,244,821 13,247,284 16,320,020 14,619,914 14,413,234 16,370,243
Construction Cost
- -----------------
Community Wide Development Cost
Drive A ($260/LF) 361,000 270,000 91,000 0 0 0 0
Sheffield Circle ($225/LF) 1,892,000 0 869,000 767,000 256,000 0 0
PS 2A Improvements 300,000 300,000 0 0 0 0 0
PS 5 Improvements 245,000 0 245,000 0 0 0 0
Miscellaneous Sewer 154,000 50,000 20,000 64,000 0 0 20,000
SCP Sewer for future PS 2A Deletion 275,000 275,000 0 0 0 0 0
St. Pauls Lake Improvements 149,000 149,000 0 0 0 0 0
SWM Ponds 3,339,000 353,000 620,000 766,000 0 352,000 194,000
Wetland Pretreatments 221,000 100,000 121,000 0 0 0 0
Billingsley Rd. 4,894,000 1,700,000 891,000 570,000 553,000 590,000 590,000
Piney Church Rd. 152,000 0 152,000 0 0 0 0
Drive D 237,000 0 237,000 0 0 0 0
Drive F 334,000 0 0 334,000 0 0 0
P.O. Road FM 525,000 525,000 0 0 0 0 0
PS 3a Temp 350,000 0 0 350,000 0 0 0
PS 3b 2,500,000 0 0 0 0 1,250,000 1,250,000
Lagoon G 350,000 0 0 350,000 0 0 0
Lagoon Mit 550,000 0 0 550,00 0 0 0
SD Convey 150,000 0 0 150,00 0 0 0
12" SCP water 186,000 0 0 0 0 186,000 0
16" SCP sewer 460,000 0 0 0 0 230,000 230,000
20" SCP sewer 225,000 0 0 0 0 0 225,000
St. Charles Pky Inter s. 959,000 0 0 0 0 0 0
St. Charles Pkwy 4,300,000 0 0 0 0 775,000 2,000,000
Demarr Rd. 188,000 0 0 0 0 0 0
Gleneagles Dr. 784,000 0 0 0 0 0 0
--------------------------------------------------------------------------------------
Total Comm Wide Infrastruture 17% 24,080,000 3,722,000 3,246,000 3,901,000 809,000 3,383,000 4,509,000
In-Tract Cost
Single Family
Minor and Local roads 12,144,000 1,468,000 2,050,000 1,100,000 1,542,000 1,613,000 0
Lot Cleaning and Grading 599,000 77,000 164,000 169,000 189,000 0 0
Single Family Contingency 1,020,000 0 223,000 160,000 230,000 107,000 0
Minor Collect 698,000 0 0 0 0 135,000 225,000
--------------------------------------------------------------------------------------
Total Single Family 14,461,000 1,545,000 2,437,000 1,429,000 1,961,000 1,855,000 225,000
Townhouse
Lot Development 6,520,000 550,000 351,000 645,000 481,000 713,000 1,500,000
<CAPTION>
FAIRWAY VILLAGE PROFORMA
-------------------------------------------------
SUMMARY OF ALL PHASES % of
Revenue Year 7 Year 8 Year 9 Year 10
-------------------------------------------------
<S> <C> <C> <C> <C>
Units
Townhouse Unit Sales 141 48 60 54
Single Family - 60 Unit Sales 63 24 36 34
Single Family - 70 Unit Sales 101 242 162 0
Single Family - 52 Unit Sales 0 0 0 0
Apartments Unit Sales 0 125 200 132
-------------------------------------------------
Total Units 305 439 454 240
Revenue (includes 4% escalator annually)
- -------
Townhouse Sale Proceeds 5,831,690 2,092,303 2,691,670 2,516,202
Single-Family 60's Sale Proceeds 3,421,749 1,371,363 2,119,690 2,071,427
Single-Family 70's Sale Proceeds 6,477,632 15,970,695 11,129,059 0
Single-Family 52's Sale Proceeds 0 0 0 0
Apartments Proceeds 0 1,192,382 1,965,978 1,537,980
Commercial Sale Proceeds 0 0 0 0
-------------------------------------------------
Total Gross Sales 13,731,071 20,626,743 17,906,398 6,125,609
Less: Closing Cost (61,000) (71,800) (91,600) (48,600)
-------------------------------------------------
Net Sales Proceeds 100% 15,670,071 20,554,943 17,814,798 6,077,609
Construction Cost
- -----------------
Community Wide Development Cost
Drive A ($260/LF) 0 0 0 0
Sheffield Circle ($225/LF) 0 0 0 0
PS 2A Improvements 0 0 0 0
PS 5 Improvements 0 0 0 0
Miscellaneous Sewer 0 0 0 0
SCP Sewer for future PS 2A Deletion 0 0 0 0
St. Pauls Lake Improvements 0 0 0 0
SWM Ponds 246,000 470,000 338,000 0
Wetland Pretreatments 0 0 0 0
Billingsley Rd. 0 0 0 0
Piney Church Rd. 0 0 0 0
Drive D 0 0 0 0
Drive F 0 0 0 0
P.O. Road FM 0 0 0 0
PS 3a Temp 0 0 0 0
PS 3b 0 0 0 0
Lagoon G 0 0 0 0
Lagoon Mit 0 0 0 0
SD Convey 0 0 0 0
12" SCP water 0 0 0 0
16" SCP sewer 0 0 0 0
20" SCP sewer 0 0 0 0
St. Charles Pky Inter s. 959,000 0 0 0
St. Charles Pkwy 1,525,000 0 0 0
Demarr Rd. 188,000 0 0 0
Gleneagles Dr. 332,000 452,000 0 0
-------------------------------------------------
Total Comm Wide Infrastruture 17% 3,250,000 922,000 338,000 0
In-Tract Cost
Single Family
Minor and Local roads 1,819,000 2,373,000 179,000 0
Lot Cleaning and Grading 0 0 0 0
Single Family Contingency 107,000 146,000 47,000 0
Minor Collect 0 135,000 203,000 0
-------------------------------------------------
Total Single Family 1,926,000 2,654,000 429,000 0
Townhouse
Lot Development 1,056,000 0 834,000 390,000
</TABLE>
<PAGE>
ST. CHARLES COMMUNITIES
Total Dwelling Units Sold
<TABLE>
<CAPTION>
YEAR TOTAL W/O APARTMENTS
<S> <C> <C>
1970 236 236
1971 194 194
1972 132 132
1973 131 131
1974 248 144
1975 249 145
1976 462 366
1977 692 456
1978 873 649
1979 635 295
1980 214 214
1981 224 224
1982 522 522
1983 310 310
1984 425 425
1985 391 391
1986 526 422
1987 566 390
1988 775 519
1989 524 420
1990 200 200
1991 216 216
1992 170 170
1993 372 250
1994 371 317
1995 153 153
1996 144 90
AVG 369 296
</TABLE>
<PAGE>
[PIE CHART OF FAIRWAY PROFORMA DEVELOPMENT COST SUMMARY APPEARS HERE]
-11-
<PAGE>
[PIE CHART OF FAIRWAY PROFORMA REVENUE MIX APPEARS HERE]
-10-
<PAGE>
Figure VI-6
SCHEDULE OF ZONE REGULATIONS: INDUSTRIAL ZONES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Minimum Lot Criteria
--------------------------------------------------------
Sq.ft. Width Depth Prontage
Uses Area per du (feet) (feet) (feet)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
IG Zone
- -------------------------------------------------------------------------------
Agricultural 3
1.00.000 acres 150 200
- -------------------------------------------------------------------------------
Marine 3
2.00.000 acres 150 200 120
- -------------------------------------------------------------------------------
Residential 1
3.00.000 acre 100 150 80
- -------------------------------------------------------------------------------
Inst./Util./Rec. 1
4.00.000 acre 100 150 80
- -------------------------------------------------------------------------------
Serv.Comm.& Comm&Indus 1
5, 6, & 7.00.000 acre 100 150 80
- -------------------------------------------------------------------------------
IH Zone
- -------------------------------------------------------------------------------
Agricultural 3
1.00.000 acres 150 200
- -------------------------------------------------------------------------------
All except Ag. & Indus. 1
2, 3, 4, 5 & 6.00.000 acre 100 150
- -------------------------------------------------------------------------------
Industrial 3
7.00.000 acres 150 200
- -------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------
Minimum Yard
Requirements (feet) Max. Height
-----------------------------------------------
Uses Front Side Total Rear Feet Stories
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
IG Zone
- -----------------------------------------------------------------------
Agricultural
1.00.000 75 40 80 50 36 3
- -----------------------------------------------------------------------
Marine
2.00.000 75 40 80 36 3
- -----------------------------------------------------------------------
Residential
3.00.000 75 30 60 50 36 3
- -----------------------------------------------------------------------
Inst./Util./Rec.
4.00.000 50 6 12 10 36 3
- -----------------------------------------------------------------------
Serv.Comm.& Comm&Indus
5, 6, & 7.00.000 50 6 12 10 36 3
- -----------------------------------------------------------------------
IH Zone
- -----------------------------------------------------------------------
Agricultural
1.00.000 75 40 80 50 50 4
- -----------------------------------------------------------------------
All except Ag. & Indus.
2, 3, 4, 5 & 6.00.000 50 6 12 10 50 4
- -----------------------------------------------------------------------
Industrial
7.00.000 50 6 12 10 50 4
- -----------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------
Min Min
Lot Open Max Tract
Uses Coverage Intensity Space ISR Size
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
IG Zone
- ---------------------------------------------------------------------
Agricultural
1.00.000
- ---------------------------------------------------------------------
Marine
2.00.000 0.40 FAR 0.5
- ---------------------------------------------------------------------
Residential
3.00.000 0.40 FAR 0.3
- ---------------------------------------------------------------------
Inst./Util./Rec.
4.00.000 0.40 FAR 0.3
- ---------------------------------------------------------------------
Serv.Comm.& Comm&Indus
5, 6, & 7.00.000 0.35 FAR 0.5
- ---------------------------------------------------------------------
IH Zone
- ---------------------------------------------------------------------
Agricultural
1.00.000
- ---------------------------------------------------------------------
All except Ag. & Indus.
2, 3, 4, 5 & 6.00.000 0.40 FAR 0.6
- ---------------------------------------------------------------------
Industrial
7.00.000 0.35 FAR 0.6
- ---------------------------------------------------------------------
</TABLE>
Abbreviations:
- -------------
du -- Dwelling unit.
FAR -- Floor area ratio. An intensity measured as a ratio derived by dividing
the total floor area of a building by the base site area.
ISR -- Impervious surface ratio. The ratio derived by dividing the area of
impervious surface by the base site area. Impervious surfaces are those
which do not absorb water. They consist of all buildings, parking areas,
driveways, roads, and sidewalks.
<PAGE>
SECTION 93: PLANNED UNIT DEVELOPMENT (PUD) ZONE
(a) Purposes. The purpose of this zone is to recognize the existing Planned
Unit Development (PUD) Zone known as St. Charles. This zone shall apply only to
the area within the PUD on the effective date of this Ordinance, except for the
following specific parcels described in the following deeds: 110.192 acre parcel
at Liber 251, Folio 158; 30.45 acre parcel at Liber 257, Folio 382; 90.085 acre
parcel at Liber 265, Folio 116; 119.778 acre parcel at Liber 251, Folio 52;
227.826 acre parcel at Liber 640 Folio 134; and a 6.311 acre parcel at Liber
1586, Folio 603. These parcels may be included upon approval by the County
Commissioners as an amendment to Docket 9). No additional sites shall be
considered for PUDs after the adoption of this Ordinance. Activity within the
zone is based on Docket 90, as amended.
(b) Requirements. The PUD Zone shall meet the following requirements:
i. It shall be designed and planned as an economically self-sufficient
community, and to this end, shall have not less than 10 percent nor more
than 25 percent of its total area developed as commercial and industrial
use.
ii. It shall be designed and planned as an independent area for
community services and to this end, shall have County approved public
water and sewer systems, and not less than 18 percent of its total area
reserved for recreation, open space, and community facilities.
iii. It shall be designed and planned to be consistent with the purpose
of this Ordinance in order to protect and promote the health, safety and
welfare of present and future inhabitants of Charles County.
(c) Permits. Following the approval of the Master Plan for the entire zone,
Preliminary Plans, Improvement Plans, and Final Record Plats shall be prepared
in accordance with the County Subdivision Regulations and shall be approved by
the Planning Commission for each stage of development. Zoning permits and
Certificates of Occupancy may be issued even though the use of land, the
location and height of buildings to be erected in the area, minimum lot sizes.
yards. and open space contemplated by the plans do not conform in all respects
to specific uses as set forth in other zones. Nothing herein shall render
inapplicable any regulations of the County relating to construction requirements
and/or subdivision approval to the extent that any of the same are not
inconsistent with the provisions of this Section.
SECTION 94: WATERFRONT PLANNED COMMUNITY (WPC) ZONE
(a) The purpose of this zone is to recognize the existing the Waterfront
Planned Community (WPC) known as Swan Point. This zone shall apply only to the
area within the WPC on the effective date of this Ordinance, except for the
following specific parcels described as a 185.29 acre parcel and a 15.59 acre
parcel in a deed recorded at Liber 1503, Folio 295. These parcels may be
included upon approval by the County Commissioners as an amendment to Docket
250. No additional sites shall be considered for WPCs after the adoption of this
Ordinance. Activity within the zone is bused on Docket 250, as amended.
(b) Uses permitted. The WPC provides suitable sites for varied residential
developments such as single-family attached and detached dwellings, townhouses,
marinas, recreation, or any other uses considered appropriate to a waterfront
planned community development.
(c) Requirements. The WPC Development shall be served by an approved public
water and sewer facility and not less than 40 percent of its total area shall be
devoted to recreational development, open space, and community facilities. The
total number of dwelling units permitted for the entire WPC Zone will be set
74
<PAGE>
by the Planning Commission and approved by the County Commissioners, but under
no circumstances shall the total number of dwelling units exceed three (3) units
per acre.
(d) Permits. Following the approval of the General Development Plan for the
entire Zone, Preliminary Plans. Improvement Plans, the Final Record Plats shall
be prepared tn accordance with the County Subdivision Regulations for approval
by the Planning Commission for each stage of development. Zoning permits and
certificates of occupancy' may be issued even though the use of land, the
location and height of buildings to be erected in the area, minimum lot sizes,
yards, and open space contemplated by the plans do not conform in all respects
to specific uses as set forth in other zones. Nothing herein shall render
inapplicable any regulations of the County relating to construction requirements
and/or subdivision approval to the extent that any of the same are not
inconsistent with the provisions of this Section.
SECTION 95 THROUGH 102: RESERVED
75
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK.
76
<PAGE>
ARTICLE VII: PLANNED DEVELOPMENT ZONES
PART 1: PLANNED DEVELOPMENT ZONE REGULATIONS
Section 101: Objectives
These zones, Planned Residential Development (PRD), Mixed Use Development (MX),
Planned Employment Park (PEP), and Planned Manufactured Home Park (PMH),
encourage innovative and creative design of residential, commercial, and
industrial development; and, provide a broad range of housing and economic
opportunities to present and future residents of the County consistent with the
Charles County, Comprehensive Plan.
SECTION 102: GENERAL REGULATIONS
(a) Location. Figure VII-I indicates the only appropriate locations for each of
the planned development zones based on the objectives of the Comprehensive Plan
which are referenced in each of the purposes clauses of the respective planned
development zone. The reclassification from the base zone to the indicated
planned development zone. in the local map amendment process established in this
Ordinance, additionally requires that the application comply with the other
provisions of each purpose clause, the compatibility requirement and all other
relevant standards contained in the respective planned development zone and this
Ordinance.
(b) Permitted uses. All uses permitted in these zones shall conform to the uses
permitted in the Table of Permitted Uses. Approval of a planned development zone
shall not exempt property from compliance with all other requirements of this
Ordinance.
(c) Procedures.
i. Master Plan review required. The purpose of a master plan is to
assure detailed compliance with the applicable provisions of the
Ordinance and to provide the planning staff and the Planning Commission
with the necessary information to fully evaluate the proposed development
and to award points under Step 1 of the Development Guidance System
Section 116. All development projects seeking a planned development zone
require Master plan approval.
ii. Submission requirements for planned development zones. A zoning
amendment application shall be completed and filed with the Zoning
Officer. Step I of the Development Guidance System requires the following
additional steps that may be achieved concurrently with other review
procedures:
A. Upon receipt of the application and Master Plan, the Zoning Officer
will review them for completeness, and solicit comments from other
departments, agencies, and any officials deemed appropriate to determine
if the selected criteria can be met. Incomplete applications will be
returned with comments within 30 days of submission.
B. Following a complete submission, the Zoning Officer will review the
Master Plan and provide comments to the applicant, and will indicate the
initial score of the project and provide the score and recommendations to
the applicant.
C. After revising the Master Plan and other supporting information based
on the initial review, the applicant may re-submit the application. The
Zoning Officer will then review and score the
77
<PAGE>
proposed development project Figure VII-1
and submit its recommendations LOCATION OF
to the Planning Commission. The PLANNED DEVELOPMENT
Planning Commission will hold a ZONES
public meeting on all submissions
which shall include the following: ----------------------------------
Base Planned Development Zones
1. Presentation of the project by ---------------------------
the applicant; Zone PRD MX PEP PMH
2. Staff analysis review comments ==================================
and scoring; and, AC P
----------------------------------
3. Public comments. RC P
----------------------------------
D. The Planning Commission will then RR P
score each proposed development project ----------------------------------
and forward this information and the RV P
report, scoring, and recommendations of ----------------------------------
the Zoning Officer to the County RL P P P P
Commissioners. Based on either Planning ----------------------------------
Commission, staff, or public comments, RM P P P P
the applicant may amend the project at ----------------------------------
this point. RH P P P P
----------------------------------
iii. Public Hearing. The County RO P
Commissioners will hold a public hearing ----------------------------------
on the reclassification from the base CN P
zone to the requested planned ----------------------------------
development zone for the proposed CC P P
development project, which includes: ----------------------------------
CB P P
A. Presentation of the project by the ----------------------------------
applicant; CV P
----------------------------------
B. Staff review, comments, scoring and BP P P
recommendation; ----------------------------------
IG P P
C. Planning Commission review, ----------------------------------
comments, scoring, and recommendation; IH P P
----------------------------------
D. Public testimony.
Notes:
-----
1. A blank indicates the Planned
Development is not allowed in
the base zone.
2. P=Permitted
iv. Final Decision. Following the public hearing, the County Commissioners will
make the final decision in accordance with Section 105 of this Article as
to whether the reclassification should be granted and the density or
intensity ranges permitted.
73
<PAGE>
SECTION 103: MASTER PLAN
(a) Any application for the designation to a planned development zone that
proceeds to Step 2 of the Development Guidance System (DGS), detailed in Part II
of this Article, shall be accompanied by a proposed Master Plan which contains
all of the information required in Appendix A. In addition, the proposed Master
Plan shall include any information necessary to evaluate the proposal regarding
the criteria addressed and the following based on, but not limited to, the
following criteria:
I. Schedule and phasing with approximate dates for beginning and
completion of each phase of construction and projected market
absorption.
II. Architectural sketches of typical proposed structures, typical
recreation areas, typical landscaping and screening areas, and typical
development clusters.
III. A report showing the fiscal impact of the proposed development
on the County.
IV. A statement showing the relationship of the proposed development
to the Comprehensive Plan.
V. A report giving a preliminary analysis of the impact of the
proposal on public facilities such as roads, schools, water, sewer,
fire, police services, and parks and any measures proposed to address
these impacts.
VI. A statement of which categories and point values the applicant
seeks to achieve in Step 1 of the DGS.
VII. A description of the surrounding area of the subject property
that will be affected by the requested reclassification.
(b) At the time of approval of a planned development zone, the County
Commissioners shall approve a Master Plan. The approved Master Plan should be
recorded in the County Land Records.
SECTION 104: GENERAL DEVELOPMENT PLAN
(a) Any application for reclassification to a planned development zone that
proceeds to Step 2 of the DOS shall be accompanied by a proposed General
Development Plan which contains all of the information required by Appendix A.
In addition, the proposed plan shall include any information necessary to
evaluate the proposal regarding the criteria addressed.
(b) At the time of completion of Step 2 of the DOS, the Planning Commission
shall approve a General Development Plan based on the following standards:
I. The General Development Plan must conform to the Master Plan
approved by the County Commissioners as part of the request to rezone
a property to a planned development zone.
II. The General Development Plan shall provide an outward orientation
which is physically and visually integrated with existing adjacent
development.
III. The General Development Plan shall provide for a mix of uses and
the arrangement and design of building and other improvements
reflecting a cohesive development capable of sustaining an independent
environment of continuing quality and stability.
79
<PAGE>
SECTION 105: APPROVAL
(a) In order to approve a planned development zone. the County Commissioners
must find that the proposed project, with its Master Plan, is sufficient to
achieve the purposes of the zone requested, is compatible with the surrounding
area. and is consistent with the Comprehensive Plan. The minimum and maximum
density (DUs/Ac) or intensity (floor area ratio (FAR)) for the project shall be
specified by the Commissioners in the grant of zoning approval based on Step 1
of the DGS. The specific maximum density of the project shall be approved by the
Planning Commission based upon conformance with the conditions of the zoning
approval and the project score in Step 2 under the DGS.
(b) The approval of a planned development zone shall establish:
I. The density or intensity range permissible within the
development.
II. The proportional mix of dwelling units by type when residential
development is allowed.
III. Special conditions to be satisfied during the development process
including, hut not limited to, the timing of construction, on-site and
off-site infrastructure improvements, buffering, architectural
standards or review boards, environmental standards or requirements,
and fiscal impact limitations.
SECTION 106: PLANNED RESIDENTIAL DEVELOPMENT (PRD) ZONE
(a) Purpose. It is the purpose of the Planned Residential Development (PRO)
Zone to implement standards and recommendations of the Charles County
Comprehensive Plan by permitting unified residential development consistent
with the densities recommended in the Comprehensive Plan. It is intended that
this zone provide a means of regulating development which can achieve
flexibility of design, the integration of mutually compatible residential uses,
optimum land planning with greater efficiency, environmental sensitivity,
convenience, and amenity than the procedures and regulations would permit as a
right under the base zones. In so doing, it is intended that this zone be
utilized to implement the recommendations and other pertinent County policies
in a manner closely compatible with said County plans and policies. Additional
purposes of this zone are:
I. To ensure that all developments will positively contribute to the
County's historic and cultural heritage, as reflected in the
Comprehensive Plan, by preserving historic structures, sites and
vistas.
II. That development be so designed and constructed as to facilitate
and encourage a maximum of social and community interaction and
activity among those who live and work within an area and to encourage
the creation of a distinctive visual character and identity for each
development. It is intended that development in this zone produce a
balanced and coordinated mixture of residential.
III. To provide and encourage a broad range of housing types,
comprising of owner and rental occupancy units, with single-family,
multiple-family, and other structural types.
IV. To preserve and take the greatest possible aesthetic advantage of
trees, and to achieve this objective through minimal grading necessary
for construction of a development.
V. To encourage and provide for open space not only for use as
bufferyards and yard surrounding structures and related walkways, but
also conveniently located with respect to areas of residential and
commercial concentration so as to function for the general benefit of
the community and public at large as places of relaxation, recreation,
and social activity; and, furthermore, open
80
<PAGE>
ARTICLE IV: PERMISSIBLE USES
SECTION 61: USE OF THE DESIGNATIONS P, PC, AND SE IN THE TABLE OF PERMISSIBLE
USES
When used in connection with a particular use in the Table of Permissible Uses,
the letter "P" means that the use is permissible in the indicated zone with a
zoning permit. The letters "PC" mean a use is permitted in the indicated zone
subject to the conditions outlined in Article IX. The letters "SE" mean a
Special Exception permit must be obtained from the Board of Appeals and that
there are additional regulations applicable In Article IX. A blank means the use
is not permitted in the zone.
SECTION 62: PERMISSIBLE USES AND SPECIFIC EXCLUSIONS
(a) The list of permissible uses set forth in the Table of Permissible Uses are
all inclusive; those uses that are listed shall be interpreted by the Zoning
Officer to include other uses that have similar impacts to the listed uses.
(b) The Table of Permissible Uses shall not be interpreted to allow a use in
one zone when the use in question is more closely related to another specified
use that is permissible in other zones.
(c) Uses such as incinerators. private prisons, private landfills and
rubblefills, toxic and hazardous waste disposal facilities, private sludge
storage facilities, and other uses that have similar impacts that are not listed
in the Table of Permissible Uses are not allowed.
(d) Whenever a proposed use could fall within more than one use classification
in the Table of Permissible Uses, the Zoning Officer shall interpret the
proposed use to be included in that classification which most closely and most
specifically describes the proposed use.
SECTION 63: TABLE OF PERMISSIBLE USES
The table is located on the following pages.
SECTIONS 64 THROUGH 74: RESERVED.
43
<PAGE>
FIGURE IV-1
TABLE OF PERMISSIBLE USES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
ZONES
-----------------------------------------
USES DESCRIPTION AC RC RR RV RL RM RH
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
1.00.000 AGRICULTURAL
- --------------------------------------------------------------------------------------------------------------------------------
1.01.000 Agricultural operations, farming
1.01.100 Excluding livestock--horticultural, hydroponic, chemical, or general
farming, truck gardens, cultivation of field crops,orchards, groves, or P P P P P P P
nurseries for growing or propagation of plants, trees and shrubs
1.01.200 Including livestock on a parcel greater than 5 acres--dairy farming,
keeping or raising for sale large or small animals not confined in P P P P P P P
a feed-lot, or compound of 10 acres or less, reptiles, fish, birds,
poultry, or aquaculture
1.01.300 Keeping of livestock on less than 5 acres
1.01.310 Horses livestock maintained as pets and 4-H or school projects PC PC PC PC PC PC PC
1.01.320 Cattle, swine, goats and sheep, rabbits, poultry or fowl raised for sale SE SE SE
1.01.400 Uses located greater than 200 feet from the nearest boundary line of the land on which located
1.01.410 Grain dryers and related structures P P
1.01.420 Fertilizer storage in bags or bulk storage of liquid or dry fertilizer in P P
tanks or in a completely enclosed building
1.01.430 Commercial assembly and repair of all equipment normally used in agriculture P P
1.01.440 RESERVED
1.01.450 Poultry houses, hog operations with 6 or more hogs PC SE
1.01.460 Slaughterhouses SE SE
1.01.470 Processing and selling products raised on-site P P
1.01.500 Commercial tables P P SE SE SE
1.01.600 Ferrier services P P
1.01.700 Use of heavy cultivating machinery, spray planes or irrigating machinery P P P PC PC
1.02.000 Forestry P P P P P P P
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
ZONES
-----------------------------------------
USES DESCRIPTION RO GN CC CB CV DP IC
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
1.00.000 AGRICULTURAL
- --------------------------------------------------------------------------------------------------------------------------------
1.01.000 Agricultural operations, farming
1.01.100 Excluding livestock--horticultural, hydroponic, chemical, or general
farming, truck gardens, cultivation of field crops,orchards, groves, or P P P P P P P
nurseries for growing or propagation of plants, trees and shrubs
1.01.200 Including livestock on a parcel greater than 5 acres--dairy farming,
keeping or raising for sale large or small animals not confined in P P P P P P P
a feed-lot, or compound of 10 acres or less, reptiles, fish, birds,
poultry, or aquaculture
1.01.300 Keeping of livestock on less than 5 acres
1.01.310 Horses livestock maintained as pets and 4-H or school projects PC PC PC PC PC PC PC
1.01.320 Cattle, swine, goats and sheep, rabbits, poultry or fowl raised for sale
1.01.400 Uses located greater than 200 feet from the nearest boundary line of the land on which located
1.01.410 Grain dryers and related structures P P P
1.01.420 Fertilizer storage in bags or bulk storage of liquid or dry fertilizer in P P P
tanks or in a completely enclosed building
1.01.430 Commercial assembly and repair of all equipment normally used in agriculture P P
1.01.440 RESERVED
1.01.450 Poultry houses, hog operations with 6 or more hogs
1.01.460 Slaughterhouses
1.01.470 Processing and selling products raised on-site
1.01.500 Commercial tables P P SE
1.01.600 Ferrier services P P P P P
1.01.700 Use of heavy cultivating machinery, spray planes or irrigating machinery
1.02.000 Forestry P P P P P P P
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
ZONES
-----------------------------------------
USES DESCRIPTION III PRO PEP MX PMII
================================================================================================================================
<S> <C> <C> <C> <C> <C>
1.00.000 AGRICULTURAL
- --------------------------------------------------------------------------------------------------------------------------------
1.01.000 Agricultural operations, farming
1.01.100 Excluding livestock--horticultural, hydroponic, chemical, or general
farming, truck gardens, cultivation of field crops,orchards, groves, or P P P P P
nurseries for growing or propagation of plants, trees and shrubs
1.01.200 Including livestock on a parcel greater than 5 acres--dairy farming,
keeping or raising for sale large or small animals not confined in P P P P P
a feed-lot, or compound of 10 acres or less, reptiles, fish, birds,
poultry, or aquaculture
1.01.300 Keeping of livestock on less than 5 acres
1.01.310 Horses livestock maintained as pets and 4-H or school projects PC PC PC PC PC
1.01.320 Cattle, swine, goats and sheep, rabbits, poultry or fowl raised for sale
1.01.400 Uses located greater than 200 feet from the nearest boundary line of the land on which located
1.01.410 Grain dryers and related structures P P
1.01.420 Fertilizer storage in bags or bulk storage of liquid or dry fertilizer in P
tanks or in a completely enclosed building
1.01.430 Commercial assembly and repair of all equipment normally used in agriculture P P P
1.01.440 RESERVED
1.01.450 Poultry houses, hog operations with 6 or more hogs
1.01.460 Slaughterhouses SE
1.01.470 Processing and selling products raised on-site
1.01.500 Commercial tables SE SE
1.01.600 Ferrier services
1.01.700 Use of heavy cultivating machinery, spray planes or irrigating machinery
1.02.000 Forestry P P P P P
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
P = Permitted PC = Permitted with Conditions SE = Special Exception
Blank = Not Permitted
44
<PAGE>
Figure IV-1
TABLE OF PERMISSIBLE USES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ZONES
------------------------------------------------------------------------------------------
USES DESCRIPTION AC RC RR RV RL RM RH RO CN CC CD CV DP IG HI PRD PEP MX PMH
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.03.000 Open-air markets and
horticultural sales
- ------------------------------------------------------------------------------------------------------------------------------------
1.03.100 Open-air markets
- ------------------------------------------------------------------------------------------------------------------------------------
1.03.110 Farm and craft markets,
flea markets P P P P P
- ------------------------------------------------------------------------------------------------------------------------------------
1.03.120 Open-air produce markets PC PC PC P P P P P
- ------------------------------------------------------------------------------------------------------------------------------------
1.03.200 Horticultural sales with
outdoor display SE SE P P P P
- ------------------------------------------------------------------------------------------------------------------------------------
1.03.300 Livestock markets SE SE PC
- ------------------------------------------------------------------------------------------------------------------------------------
1.04.000 Hunting and fishing cabins PC
- ------------------------------------------------------------------------------------------------------------------------------------
1.05.000 Commercial greenhouse operation
- ------------------------------------------------------------------------------------------------------------------------------------
1.05.100 No on-premises sale P P P P P P P P P P
- ------------------------------------------------------------------------------------------------------------------------------------
1.05.200 On-premise sales permitted P SE SE P P P P P P P
- ------------------------------------------------------------------------------------------------------------------------------------
1.06.000 Kennel, commercial PC SE PC PC PC PC
- ------------------------------------------------------------------------------------------------------------------------------------
2.00.000 MARINE
- ------------------------------------------------------------------------------------------------------------------------------------
2.01.000 Marina, including boat sales
and repair and boat rental
including sailboards and jet skis PC PC PC PC
- ------------------------------------------------------------------------------------------------------------------------------------
2.02.000 Seafood processing
- ------------------------------------------------------------------------------------------------------------------------------------
2.02.100 Seafood processing and
seafood operations with products
raised or harvested off-site PC P P SE PC
- ------------------------------------------------------------------------------------------------------------------------------------
2.02.200 Seafood processing and seafood
operations with premises products
raised on the Premises PC PC
- ------------------------------------------------------------------------------------------------------------------------------------
2.03.000 Marine terminal SE P P P SE
- ------------------------------------------------------------------------------------------------------------------------------------
2.04.000 Commercial fishing P P P
- ------------------------------------------------------------------------------------------------------------------------------------
3.00.000 RESIDENTIAL
- ------------------------------------------------------------------------------------------------------------------------------------
3.01.000 Single-family detached
- ------------------------------------------------------------------------------------------------------------------------------------
3.01.100 Single-family P P P P P P P P P P P P
- ------------------------------------------------------------------------------------------------------------------------------------
3.01.200 Lot line PC PC PC PC PC
- ------------------------------------------------------------------------------------------------------------------------------------
3.01.300 Patio/Court/Atrium PC PC PC PC PC
- ------------------------------------------------------------------------------------------------------------------------------------
3.01.400 Class A mobile home P P P P P P P P
- ------------------------------------------------------------------------------------------------------------------------------------
3.01.500 Class B mobile home P P SE SE P
- ------------------------------------------------------------------------------------------------------------------------------------
3.01.600 Tenant house PC PC PC PC
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
P= Permitted PC= Permitted with Conditions SE= Special Exception
Blank = Not Permitted
<PAGE>
<TABLE>
<CAPTION>
Figure IV-1
TABLE OF PERMISSIBLE USES
- ------------------------------------------------------------------------------------------------------------------------------------
ZONES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
USES DESCRIPTION AC RC RR RV RL RM RH RO CN CC CD CV BP IG HI PRD PEP MX PMH
====================================================================================================================================
3.01.700 Primary residence with accessory PC PC PC PC PC PC P PC
apartment
- ------------------------------------------------------------------------------------------------------------------------------------
3.01.800 Single Room Occupancy Units P P P P P P P P
- ------------------------------------------------------------------------------------------------------------------------------------
3.02.000 Single-Family attached
- ------------------------------------------------------------------------------------------------------------------------------------
3.02.100 Duplex P PC PC PC PC PC
- ------------------------------------------------------------------------------------------------------------------------------------
3.02.200 Townhouse PC PC PC PC PC
- ------------------------------------------------------------------------------------------------------------------------------------
3.02.300 Multiplex PC PC PC PC PC
- ------------------------------------------------------------------------------------------------------------------------------------
3.03.000 Multi-family
- ------------------------------------------------------------------------------------------------------------------------------------
3.03.100 Garden apartment PC PC PC PC
- ------------------------------------------------------------------------------------------------------------------------------------
3.03.200 Mid-rise PC PC PC PC
- ------------------------------------------------------------------------------------------------------------------------------------
3.03.300 Hi-rise SE P P
- ------------------------------------------------------------------------------------------------------------------------------------
3.03.400 Commercial apartment P P P P P P
- ------------------------------------------------------------------------------------------------------------------------------------
3.04.000 Homes emphasizing special services, treatments, or supervision, and residential elderly care homes
- ------------------------------------------------------------------------------------------------------------------------------------
3.04.100 Group homes
- ------------------------------------------------------------------------------------------------------------------------------------
3.04.110 Not more than 8 people PC PC PC PC PC PC PC PC PC PC PC
- ------------------------------------------------------------------------------------------------------------------------------------
3.04.120 With between 9 and 16 people SE SE SE SE SE SE SE P P P SE SE SE
- ------------------------------------------------------------------------------------------------------------------------------------
3.04.200 Day care
- ------------------------------------------------------------------------------------------------------------------------------------
3.04.210 Day care home (having fewer than P P P P P P P P P P P P P
7 care recipients)
- ------------------------------------------------------------------------------------------------------------------------------------
3.04.220 Day care center, day nursery SE SE SE SE SE SE SE P P P P P P SE P P P SE
(between 7 and 30 care recipients)
- ------------------------------------------------------------------------------------------------------------------------------------
3.04.300 Halfway house SE SE SE SE SE SE SE P SE SE SE
- ------------------------------------------------------------------------------------------------------------------------------------
3.04.400 Elderly care homes
- ------------------------------------------------------------------------------------------------------------------------------------
3.04.410 Elderly care homes (1-8 people) P P P P P P P P P P P
- ------------------------------------------------------------------------------------------------------------------------------------
3.04.420 Elderly care homes (9-16 people) SE SE SE SE SE SE SE SE SE SE SE
- ------------------------------------------------------------------------------------------------------------------------------------
3.04.500 Retirement housing complex SE SE SE P P
- ------------------------------------------------------------------------------------------------------------------------------------
3.05.000 Miscellaneous rooms for rent
situations
- ------------------------------------------------------------------------------------------------------------------------------------
3.05.100 Rooming houses, boarding houses PC PC PC PC SE SE SE PC PC PC PC PC SE SE
rented by the month
- ------------------------------------------------------------------------------------------------------------------------------------
3.05.200 Bed and breakfast, tourist homes PC PC PC PC SE SE SE PC PC PC PC PC SE PC
- ------------------------------------------------------------------------------------------------------------------------------------
3.05.300 Hotels, motels, convention centers, SE SE P P P P P P
conference centers and similar businesses
or institutions providing overnight
accommodations
- ------------------------------------------------------------------------------------------------------------------------------------
3.06.000 Shelters, permanent SE SE SE SE SE SE SE SE SE P P P P
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
P = Permitted PC = Permitted with Conditions SE = Special Exception Blank = Not
Permitted
<PAGE>
Figure IV-1
TABLE OF PERMISSIBLE USES
<TABLE>
<CAPTION>
====================================================================================================================================
ZONES
- ------------------------------------------------------------------------------------------------------------------------------------
USES DESCRIPTION AC RC RR RV RL RM RII RO CN CC CB CV BP IG III PRD PEP MX PMII
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3.07.000 Migrant workers PC PC
housing
====================================================================================================================================
4.00.000 INSTITUTIONAL/UTILITIES/RECREATION
- ------------------------------------------------------------------------------------------------------------------------------------
4.01.000 Educational, cultural, religious, philanthropic, social and fraternal uses
- ------------------------------------------------------------------------------------------------------------------------------------
4.01.100 Schools
- ------------------------------------------------------------------------------------------------------------------------------------
4.01.110 Private elementary
and secondary (including
pre-school, kindergarden, SE SE SE SE SE SE SE SE SE SE SE P P P P
associated grounds,
athletic, and other
facilities)
- ------------------------------------------------------------------------------------------------------------------------------------
4.01.120 Trade or vocational
schools P P P P P P P P P P SE
- ------------------------------------------------------------------------------------------------------------------------------------
4.01.130 Private colleges,
universities, community
colleges (including
associated facilities SE SE SE SE SE SE SE SE SE SE P SE P P
such as dormitories,
office buildings,
athletic fields, etc.)
- ------------------------------------------------------------------------------------------------------------------------------------
4.01.200 Churches,
synagogues and temples
(including associated
cemetaries, associated
residential structures
for religious personnel P P P P P P P P P P P P P P P P P P P
and associated buildings
with religious classes
not including elementary
or secondary school
buildings)
- ------------------------------------------------------------------------------------------------------------------------------------
4.01.300 Private libraries, museums, art centers, and similar uses (including associated educational and instructional activities)
- ------------------------------------------------------------------------------------------------------------------------------------
4.01.310 Located within a
building designed and
previously occupied as SE SE SE SE SE SE SE P P P P P P P P P P P P
a residence or
institutional use
- ------------------------------------------------------------------------------------------------------------------------------------
4.01.320 Located within any
other structure SE SE SE SE SE SE SE SE SE P P P P P P P P P P
- ------------------------------------------------------------------------------------------------------------------------------------
4.01.400 Social, fraternal
clubs and lodges,
union halls, meeting SE SE SE P SE P P P P P P P P P P
halls and similar uses
- ------------------------------------------------------------------------------------------------------------------------------------
4.02.000 Recreation, amusement and entertainment
- ------------------------------------------------------------------------------------------------------------------------------------
4.02.100 Activity conducted
entirely within building
or substantial structure
- ------------------------------------------------------------------------------------------------------------------------------------
4.02.110 Indoor recreation.
For example, bowling
alleys, skating rinks,
indoor tennis and squash
courts, billard and pool
halls, rifle and pistol SE P P P P PC P P
ranges, indoor athletic
and exercise facilities
and similar uses, not
part of a residential
project
- ------------------------------------------------------------------------------------------------------------------------------------
4.02.120 Movie theatres,
theatres, colesiums
and stadiums
- ------------------------------------------------------------------------------------------------------------------------------------
4.02.121 Seating capacity
of not more than 300 P P P P P P P P
- ------------------------------------------------------------------------------------------------------------------------------------
4.02.122 Seating capacity
up to 1000 P P P P P
- ------------------------------------------------------------------------------------------------------------------------------------
4.02.123 Coliseums and
stadiums with seating SE SE P P
capacity more than 1,000
====================================================================================================================================
</TABLE>
P = Permitted PC = Permitted with Conditions
SE = Special Exception Blank = Not Permitted
47
<PAGE>
Figure IV-1
Table of Permissible Uses
<TABLE>
<CAPTION>
=================================================================================================================================
ZONES
- ---------------------------------------------------------------------------------------------------------------------------------
USES DESCRIPTION AC RC RR RV RL RM RH RO CN CC CB CV BP IG
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4.02.130 Migrant workers housing SE SE SE SE SE
- ---------------------------------------------------------------------------------------------------------------------------------
4.02.140 Off-track betting facilities SE SE P P P SE P
- ---------------------------------------------------------------------------------------------------------------------------------
4.02.200 Activity conducted primarily outside
enclosed buildings or structures
- ---------------------------------------------------------------------------------------------------------------------------------
4.02.210 Privately owned outdoor recreational
facilities such as golf and country clubs,
swimming or tennis clubs, not constructed SE SE SE SE SE SE SE P P P P
pursuant to a permit authorizing the
construction of a residential development
- ---------------------------------------------------------------------------------------------------------------------------------
4.02.220 Privately owned outdoor recreational P P P P P P P P
facilities such as golf and country clubs,
swimming or tennis clubs, approved as part
of a residential development
- ---------------------------------------------------------------------------------------------------------------------------------
4.02.230 Recreation vehicle parks SE SE PC PC
- ---------------------------------------------------------------------------------------------------------------------------------
4.02.240 Campgrounds and camps SE SE
- ---------------------------------------------------------------------------------------------------------------------------------
4.02.250 Automobile and motorcycle racing tracks SE SE SE
- ---------------------------------------------------------------------------------------------------------------------------------
4.02.260 Drive-in move theatres, open-air SE SE SE
theatres and amphitheatres
- ---------------------------------------------------------------------------------------------------------------------------------
4.02.270 Amusement and theme parks SE SE SE
- ---------------------------------------------------------------------------------------------------------------------------------
4.02.280 Golf driving ranges not accessory
to golf couses, par 3 golf courses, SE SE SE P P P
miniature golf courses, skateboard parks,
waterslides, batting cages and similar uses
- ---------------------------------------------------------------------------------------------------------------------------------
4.02.290 Rifle and pistol ranges, war games,
archery ranges, or other recreational SE SE SE SE SE SE
activities using weapons
- ---------------------------------------------------------------------------------------------------------------------------------
4.03.000 Institutional residence or care or
confinement facilities
- ---------------------------------------------------------------------------------------------------------------------------------
4.03.100 Hospital and other inpatient medical
(including mental health treatment) SE SE PC PC PC PC PC
facilities in excess of 10,000 square feet
of floor area
- ---------------------------------------------------------------------------------------------------------------------------------
4.03.200 Nursing care, intermediate care,
handicapped, infirm. and child care SE SE SE SE SE SE SE SE P P P P P
institutions
- ---------------------------------------------------------------------------------------------------------------------------------
4.04.000 Emergency services
- ---------------------------------------------------------------------------------------------------------------------------------
4.04.100 Fire stations P P P P P P P P P P P P P P
- ---------------------------------------------------------------------------------------------------------------------------------
4.04.200 Rescue squads, ambulance services P P P P P P P P P P P P P P
- ---------------------------------------------------------------------------------------------------------------------------------
4.05.000 Miscellaneous public and semi-public
facilities
- ---------------------------------------------------------------------------------------------------------------------------------
4.05.100 Post office
=================================================================================================================================
<CAPTION>
=================================================================================================================================
ZONES
- ---------------------------------------------------------------------------------------------------------------------------------
USES DESCRIPTION III PRD PEP MX PMII
=================================================================================================================================
<S> <C> <C> <C> <C> <C>
4.02.130 Migrant workers housing SE SE
- ---------------------------------------------------------------------------------------------------------------------------------
4.02.140 Off-track betting facilities P P
- ---------------------------------------------------------------------------------------------------------------------------------
4.02.200 Activity conducted primarily outside
enclosed buildings or structures
- ---------------------------------------------------------------------------------------------------------------------------------
4.02.210 Privately owned outdoor recreational
facilities such as golf and country clubs,
swimming or tennis clubs, not constructed P P P P
pursuant to a permit authorizing the
construction of a residential development
- ---------------------------------------------------------------------------------------------------------------------------------
4.02.220 Privately owned outdoor recreational
facilities such as golf and country clubs, P P P
swimming or tennis clubs, approved as part
of a residential development
- ---------------------------------------------------------------------------------------------------------------------------------
4.02.230 Recreation vehicle parks
- ---------------------------------------------------------------------------------------------------------------------------------
4.02.240 Campgrounds and camps
- ---------------------------------------------------------------------------------------------------------------------------------
4.02.250 Automobile and motorcycle racing tracks SE
- ---------------------------------------------------------------------------------------------------------------------------------
4.02.260 Drive-in move theatres, open-air
theatres and amphitheatres
- ---------------------------------------------------------------------------------------------------------------------------------
4.02.270 Amusement and theme parks SE
- ---------------------------------------------------------------------------------------------------------------------------------
4.02.280 Golf driving ranges not accessory
to golf couses, par 3 golf courses, P P
miniature golf courses, skateboard parks,
waterslides, batting cages and similar uses
- ---------------------------------------------------------------------------------------------------------------------------------
4.02.290 Rifle and pistol ranges, war games,
archery ranges, or other recreational SE SE
activities using weapons
- ---------------------------------------------------------------------------------------------------------------------------------
4.03.000 Institutional residence or care or
confinement facilities
- ---------------------------------------------------------------------------------------------------------------------------------
4.03.100 Hospital and other inpatient medical
(including mental health treatment) PC PC
facilities in excess of 10,000 square feet
of floor area
- ---------------------------------------------------------------------------------------------------------------------------------
4.03.200 Nursing care, intermediate care, P P
handicapped, infirm. and child care
institutions
- ---------------------------------------------------------------------------------------------------------------------------------
4.04.000 Emergency services
- ---------------------------------------------------------------------------------------------------------------------------------
4.04.100 Fire stations P P P P P
- ---------------------------------------------------------------------------------------------------------------------------------
4.04.200 Rescue squads, ambulance services P P P P P
- ---------------------------------------------------------------------------------------------------------------------------------
4.05.000 Miscellaneous public and semi-public
facilities
- ---------------------------------------------------------------------------------------------------------------------------------
4.05.100 Post office
=================================================================================================================================
</TABLE>
P = Permitted PC = Permitted with Conditions
SE = Special Exception Blank = Not Permitted
48
<PAGE>
<TABLE>
<CAPTION>
Figure IV-1
TABLE OF PERMISSIBLE USES
- ----------------------------------------------------------------------------------------------------------------------
ZONES
-----------------------------------------------------------------------------------
USES DESCRIPTION AC RC RR RV RL RM RH RO CN CC CB CV BP IG III PRD PEP MX PMII
======================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4.05.110 Local SE P P P P P P P P P
- ----------------------------------------------------------------------------------------------------------------------
4.05.120 Regional P P P P P P
- ----------------------------------------------------------------------------------------------------------------------
4.05.200 Airport
- ----------------------------------------------------------------------------------------------------------------------
4.05.210 Private use SE SE SE
- ----------------------------------------------------------------------------------------------------------------------
4.05.300 Helicopter facilities
- ----------------------------------------------------------------------------------------------------------------------
4.05.310 Heliports SE SE SE SE PC PC SE SE
- ----------------------------------------------------------------------------------------------------------------------
4.05.320 Helistops SE SE SE SE SE SE SE SE SE PC PC PC PC
- ----------------------------------------------------------------------------------------------------------------------
4.06.000 Public utilities
(including towers
and related structures)
- ----------------------------------------------------------------------------------------------------------------------
4.06.100 Neighborhood essential
service P P P P P P P P P P P P P P P P P P P
- ----------------------------------------------------------------------------------------------------------------------
4.06.200 Electric power, gas
transmission and
telecommunication buildings
and structures SE SE SE SE SE SE SE SE SE P P SE SE
- ----------------------------------------------------------------------------------------------------------------------
4.06.300 Towers and antennas
more than 50 feet tall SE SE SE SE SE SE SE SE SE SE SE SE SE SE SE SE SE SE SE
- ----------------------------------------------------------------------------------------------------------------------
4.06.400 Towers and antennas
50 feet tall or less P P P P P P P P P P P P P P P P P P P
- ----------------------------------------------------------------------------------------------------------------------
4.07.000 Satellite dishes and
earth stations
- ----------------------------------------------------------------------------------------------------------------------
4.07.100 Earth stations SE SE SE SE SE SE SE SE SE SE SE SE SE PC PC SE PC SE SE
- ----------------------------------------------------------------------------------------------------------------------
4.07.200 Satellite dishes PC PC PC PC PC PC PC PC P P P PC P P P PC P PC PC
- ----------------------------------------------------------------------------------------------------------------------
4.08.000 Cemetaries and
crematoriums
- ----------------------------------------------------------------------------------------------------------------------
4.08.100 Cemetaries
- ----------------------------------------------------------------------------------------------------------------------
4.08.110 Family burial sites PC PC PC PC PC PC PC PC PC PC PC PC PC PC PC
- ----------------------------------------------------------------------------------------------------------------------
4.08.120 Other cemetaries SE SE SE SE SE SE SE P SE P
- ----------------------------------------------------------------------------------------------------------------------
4.08.200 Crematoriums SE SE SE SE SE SE SE PC PC PC PC PC SE PC PC
- ----------------------------------------------------------------------------------------------------------------------
4.09.000 Transportation
- ----------------------------------------------------------------------------------------------------------------------
4.09.100 Bus stations, train
stations P P P P P P P P P P
- ----------------------------------------------------------------------------------------------------------------------
4.09.200 Park and ride
facilities P P P P P P P P P P P P P P P P P P P
- ----------------------------------------------------------------------------------------------------------------------
5.00.000 SERVICE ORIENTED
COMMERCIAL
- ----------------------------------------------------------------------------------------------------------------------
5.01.000 All operations
conducted entirely
within fully enclosed building
- ----------------------------------------------------------------------------------------------------------------------
5.01.100 Operations designed to
attract and serve customers
or clients on the premises
---------------------------------------------------------------------------------------------------------------------
</TABLE>
P = Permitted PC = Permitted with Conditions SE = Special Exception
Blank = Not Permitted
49
<PAGE>
Figure IV-1
Table of Permissible Uses
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ZONES
---------------------------------------------------------------------
USES DESCRIPTION AC RC RR RV RL RM RH RO CN CC CB CV DR IG IO PRD
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5.01.111 Professional offices (examples are
attorneys, architects, engineers, insurance
and stock brokers, travel agents, government P P P P P P P
office buildings, etc.)
- ------------------------------------------------------------------------------------------------------------------------------------
5.01.112 Personal services (see definitions) P P P P P P
- ------------------------------------------------------------------------------------------------------------------------------------
5.01.113 Dry cleaning/laundry and laundromats P P P P P
- ------------------------------------------------------------------------------------------------------------------------------------
5.01.114 Banks and financial institutions P P P P P P
- ------------------------------------------------------------------------------------------------------------------------------------
5.01.115 Business services P P P P P P
- ------------------------------------------------------------------------------------------------------------------------------------
5.01.116 Office or clinics of physicians, P P P P P P
dentists and chiropractors
- ------------------------------------------------------------------------------------------------------------------------------------
5.02.000 Operations conducted within and/or outside fully enclosed building
- -----------------------------------------------------------------------------------------------------------------------------------
5.02.100 Construction services and supplies P P P P
- -----------------------------------------------------------------------------------------------------------------------------------
5.02.200 Retail concrete mixing PC PC P P
- -----------------------------------------------------------------------------------------------------------------------------------
5.02.300 Funeral homes SE PC PC PC PC PC PC
- -----------------------------------------------------------------------------------------------------------------------------------
5.02.400 Veterinarians and veterinary
hospitals P P SE SE SE PC PC PC PC
- -----------------------------------------------------------------------------------------------------------------------------------
5.02.500 Nursery schools and day care centers
with more than 30 children SE SE SE SE SE SE SE P P P P P P SE SE
- -----------------------------------------------------------------------------------------------------------------------------------
6.00.000 COMMERCIAL
- -----------------------------------------------------------------------------------------------------------------------------------
6.01.000 Commercial sales and rental of goods, merchandise and equipment
- -----------------------------------------------------------------------------------------------------------------------------------
6.01.100 Retail sales
- -----------------------------------------------------------------------------------------------------------------------------------
6.01.110 Building floor space less than 15,000
sq. ft./parcel
- -----------------------------------------------------------------------------------------------------------------------------------
6.01.111 Shoppers merchandise stores (see
definitions) P P P P
- -----------------------------------------------------------------------------------------------------------------------------------
6.01.112 Specialty shops (see definitions) P P P P P
- -----------------------------------------------------------------------------------------------------------------------------------
6.01.113 Antique shops, art galleries SE SE SE P P P P P
- -----------------------------------------------------------------------------------------------------------------------------------
6.01.120 Building floor area greater than
15,000 sq. ft./parcel
- -----------------------------------------------------------------------------------------------------------------------------------
6.01.121 Shoppers merchandise store (see
definitions) P P SE
- -----------------------------------------------------------------------------------------------------------------------------------
6.01.122 Specialty shops (see definition) P P SE
- -----------------------------------------------------------------------------------------------------------------------------------
6.01.123 Antique shops, art galleries SE SE P P SE
- -----------------------------------------------------------------------------------------------------------------------------------
6.01.130 General merchandise (see
definition) P SE PC P
- -----------------------------------------------------------------------------------------------------------------------------------
6.01.140 Convenience stores SE P P SE
- -----------------------------------------------------------------------------------------------------------------------------------
6.01.200 Wholesale sales (see definitions) P P P P P
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ZONES
------------------------------
USES DESCRIPTION PEP MX PMII
==============================================================================================================
<S> <C> <C> <C>
5.01.111 Professional offices (examples are
attorneys, architects, engineers, insurance P P
and stock brokers, travel agents, government
office buildings, etc.)
- --------------------------------------------------------------------------------------------------------------
5.01.112 Personal services (see definitions) P P
- --------------------------------------------------------------------------------------------------------------
5.01.113 Dry cleaning/laundry and laundromats P P
- --------------------------------------------------------------------------------------------------------------
5.01.114 Banks and financial institutions P P
- --------------------------------------------------------------------------------------------------------------
5.01.115 Business services P P
- --------------------------------------------------------------------------------------------------------------
5.01.116 Office or clinics of physicians, P P
dentists and chiropractors
- --------------------------------------------------------------------------------------------------------------
5.02.000 Operations conducted within and/or outside fully enclosed building
- --------------------------------------------------------------------------------------------------------------
5.02.100 Construction services and supplies P P
- --------------------------------------------------------------------------------------------------------------
5.02.200 Retail concrete mixing
- --------------------------------------------------------------------------------------------------------------
5.02.300 Funeral homes PC PC
- --------------------------------------------------------------------------------------------------------------
5.02.400 Veterinarians and veterinary
hospitals PC PC
- --------------------------------------------------------------------------------------------------------------
5.02.500 Nursery schools and day care centers
with more than 30 children P P SE
- --------------------------------------------------------------------------------------------------------------
6.00.000 COMMERCIAL
- --------------------------------------------------------------------------------------------------------------
6.01.000 Commercial sales and rental of goods, merchandise and equipment
- --------------------------------------------------------------------------------------------------------------
6.01.100 Retail sales
- --------------------------------------------------------------------------------------------------------------
6.01.110 Building floor space less than 15,000
sq. ft./parcel
- --------------------------------------------------------------------------------------------------------------
6.01.111 Shoppers merchandise stores (see
definitions) P P
- --------------------------------------------------------------------------------------------------------------
6.01.112 Specialty shops (see definitions)
- --------------------------------------------------------------------------------------------------------------
6.01.113 Antique shops, art galleries P P
- --------------------------------------------------------------------------------------------------------------
6.01.120 Building floor area greater than
15,000 sq. ft./parcel
- --------------------------------------------------------------------------------------------------------------
6.01.121 Shoppers merchandise store (see
definitions) P P
- --------------------------------------------------------------------------------------------------------------
6.01.122 Specialty shops (see definition) P P
- --------------------------------------------------------------------------------------------------------------
6.01.123 Antique shops, art galleries P P
- --------------------------------------------------------------------------------------------------------------
6.01.130 General merchandise (see
definition) P P
- --------------------------------------------------------------------------------------------------------------
6.01.140 Convenience stores P P
- --------------------------------------------------------------------------------------------------------------
6.01.200 Wholesale sales (see definitions) P P
- --------------------------------------------------------------------------------------------------------------
</TABLE>
P = Permitted PC = Permitted with Conditions
SE = Special Exceptions Blank = Not Permitted
50
<PAGE>
Figure IV-1
Table of Permissible Uses
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ZONES
--------------------------------------------------
USES DESCRIPTION AC RC RR RV RL RM RH RO CN
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6.02.000 Restaurants
- ----------------------------------------------------------------------------------------------------------------------------------
6.02.100 Restaurant, standard, fast food, bars, nightclubs, dinner theaters PC SE
- ----------------------------------------------------------------------------------------------------------------------------------
6.02.200 Restaurant, fast food carry-out and delivery SE
- ----------------------------------------------------------------------------------------------------------------------------------
6.02.300 Restaurant, fast food drive-in and drive-thru
- ----------------------------------------------------------------------------------------------------------------------------------
6.02.310 With direct highway access to a public road
- ----------------------------------------------------------------------------------------------------------------------------------
6.02.320 Part of a shopping center with no direct access to a public road
- ----------------------------------------------------------------------------------------------------------------------------------
6.03.000 Motor vehicle-related and service operations
- ----------------------------------------------------------------------------------------------------------------------------------
6.03.100 Motor vehicle sales or rental; mobile home sales
- ----------------------------------------------------------------------------------------------------------------------------------
6.03.200 Sales with installation of motor vehicle parts or accessories such PC
as tires and mufflers
- ----------------------------------------------------------------------------------------------------------------------------------
6.03.300 Motor vehicle repair and maintenance, fuel sales, car wash (not PC
including auto body work)
- ----------------------------------------------------------------------------------------------------------------------------------
6.03.400 Motor vehicle painting and body work
- ----------------------------------------------------------------------------------------------------------------------------------
6.03.500 Automotive parks
- ----------------------------------------------------------------------------------------------------------------------------------
7.00.000 INDUSTRIAL
- ----------------------------------------------------------------------------------------------------------------------------------
7.01.000 Manufacturing, processing, creating, repairing, renovating, painting, cleaning, and assembling of goods, merchandise,
and equipment
- ----------------------------------------------------------------------------------------------------------------------------------
7.01.100 All operations conducted entirely within fully enclosed building
- ----------------------------------------------------------------------------------------------------------------------------------
7.01.110 Buildings less than 10,000 sq. ft. per parcel SE
- ----------------------------------------------------------------------------------------------------------------------------------
7.01.120 Buildings greater than 10,000 sq. ft. per parcel
- ----------------------------------------------------------------------------------------------------------------------------------
7.01.200 Operations conducted within or outside fully enclosed building
- ----------------------------------------------------------------------------------------------------------------------------------
7.01.210 Blacksmith shops, welding shops, ornamental iron works, machine
shops (excluding drop hammers and punch presses over 20 tons rated SE
capacity), and sheet metal shops
- ----------------------------------------------------------------------------------------------------------------------------------
7.01.220 Bottling, confectionary, food products except fish and meat,
sauerkraut, vinegar, yeast, or the rendering fats and oils
- ----------------------------------------------------------------------------------------------------------------------------------
7.01.230 Saw mills P P
- ----------------------------------------------------------------------------------------------------------------------------------
7.01.240 Alcoholic beverage manufacturing
- ----------------------------------------------------------------------------------------------------------------------------------
7.01.250 Winery PC PC
- ----------------------------------------------------------------------------------------------------------------------------------
7.01.260 Fertilizer mixing plants SE
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ZONES
--------------------------------------------------
USES DESCRIPTION CC CB CV BP IG III PRD PEP MX PMII
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6.02.000 Restaurants
- ----------------------------------------------------------------------------------------------------------------------------------
6.02.100 Restaurant, standard, fast food, bars, nightclubs, dinner theaters P P P SE P P P
- ----------------------------------------------------------------------------------------------------------------------------------
6.02.200 Restaurant, fast food carry-out and delivery P P SE PC P P P
- ----------------------------------------------------------------------------------------------------------------------------------
6.02.300 Restaurant, fast food drive-in and drive-thru
- ----------------------------------------------------------------------------------------------------------------------------------
6.02.310 With direct highway access to a public road SE SE SE SE SE
- ----------------------------------------------------------------------------------------------------------------------------------
6.02.320 Part of a shopping center with no direct access to a public road P P P P P
- ----------------------------------------------------------------------------------------------------------------------------------
6.03.000 Motor vehicle-related and service operations
- ----------------------------------------------------------------------------------------------------------------------------------
6.03.100 Motor vehicle sales or rental; mobile home sales PC PC PC PC PC
- ----------------------------------------------------------------------------------------------------------------------------------
6.03.200 Sales with installation of motor vehicle parts or accessories such PC PC PC PC PC PC
as tires and mufflers
- ----------------------------------------------------------------------------------------------------------------------------------
6.03.300 Motor vehicle repair and maintenance, fuel sales, car wash (not PC PC PC PC PC PC PC
including auto body work)
- ----------------------------------------------------------------------------------------------------------------------------------
6.03.400 Motor vehicle painting and body work PC PC PC PC PC SE
- ----------------------------------------------------------------------------------------------------------------------------------
6.03.500 Automotive parks PC PC PC PC PC
- ----------------------------------------------------------------------------------------------------------------------------------
7.00.000 INDUSTRIAL
- ----------------------------------------------------------------------------------------------------------------------------------
7.01.000 Manufacturing, processing, creating, repairing, renovating, painting, cleaning, and assembling of goods, merchandise,
and equipment
- ----------------------------------------------------------------------------------------------------------------------------------
7.01.100 All operations conducted entirely within fully enclosed building
- ----------------------------------------------------------------------------------------------------------------------------------
7.01.110 Buildings less than 10,000 sq. ft. per parcel P SE P P P P P
- ----------------------------------------------------------------------------------------------------------------------------------
7.01.120 Buildings greater than 10,000 sq. ft. per parcel SE P P P P P
- ----------------------------------------------------------------------------------------------------------------------------------
7.01.200 Operations conducted within or outside fully enclosed building
- ----------------------------------------------------------------------------------------------------------------------------------
7.01.210 Blacksmith shops, welding shops, ornamental iron works, machine
shops (excluding drop hammers and punch presses over 20 tons rated P P P P P
capacity), and sheet metal shops
- ----------------------------------------------------------------------------------------------------------------------------------
7.01.220 Bottling, confectionary, food products except fish and meat, P P P P
sauerkraut, vinegar, yeast, or the rendering fats and oils
- ----------------------------------------------------------------------------------------------------------------------------------
7.01.230 Saw mills P P P
- ----------------------------------------------------------------------------------------------------------------------------------
7.01.240 Alcoholic beverage manufacturing P
- ----------------------------------------------------------------------------------------------------------------------------------
7.01.250 Winery P P
- ----------------------------------------------------------------------------------------------------------------------------------
7.01.260 Fertilizer mixing plants P SE
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
P = Permitted PC = Permitted with Conditions SE = Special Exception
Blank = Not Permitted
51
<PAGE>
FIGURE IV-1
TABLE OF PERMISSIBLE USES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ZONES
-----------------------------------------------------------
USES DESCRIPTION AC RC RR RV RL RM RH RO CN CC
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7.01.270 Brick of block manufacturing
- ------------------------------------------------------------------------------------------------------------------------------------
7.01.280 Asphalt plants/concrete plants, sand and gravel SE SE
washing, crushing, and screening
- ------------------------------------------------------------------------------------------------------------------------------------
7.02.000 STORAGE AND PARKING
- ------------------------------------------------------------------------------------------------------------------------------------
7.02.100 Automobile parking garages or parking lots not P
located on a lot where there is another principal use to
which the parking is related
- ------------------------------------------------------------------------------------------------------------------------------------
7.02.200 Storage of goods not related to sale or use of those
goods on the same lot where they are stored (warehousing)
- ------------------------------------------------------------------------------------------------------------------------------------
7.02.210 All storage within completely enclosed structures P
- ------------------------------------------------------------------------------------------------------------------------------------
7.02.220 Warehouse storage inside or outside completely enclosed
structures
- ------------------------------------------------------------------------------------------------------------------------------------
7.02.230 Mini-warehouses PC
- ------------------------------------------------------------------------------------------------------------------------------------
7.02.240 Storage of petroleum products
- ------------------------------------------------------------------------------------------------------------------------------------
7.02.300 Parking of vehicles or storage of equipment outside
enclosed structures where: (i) vehicles or equipment are SE
owned and used by the person making use of the lot and
(ii) parking or storage occupies more than 75 percent of the
developed area (contractor's yard)
- ------------------------------------------------------------------------------------------------------------------------------------
7.03.000 SCRAP MATERIALS, SALVAGE YARDS, JUNKYARDS, AND AUTOMOBILE
GRAVEYARDS
- ------------------------------------------------------------------------------------------------------------------------------------
7.04.000 RESEARCH FACILITIES AND LABORATORIES
- ------------------------------------------------------------------------------------------------------------------------------------
7.04.100 Without processing of materials SE SE SE
- ------------------------------------------------------------------------------------------------------------------------------------
7.04.200 With processing or manufacturing of materials SE
- ------------------------------------------------------------------------------------------------------------------------------------
7.05.00 MINERAL EXTRACTION
- ------------------------------------------------------------------------------------------------------------------------------------
7.05.100 Surface mining
- ------------------------------------------------------------------------------------------------------------------------------------
7.05.110 Of less than 10 acres SE SE SE SE SE SE SE SE
- ------------------------------------------------------------------------------------------------------------------------------------
7.05.120 Of greater than 10 acres SE SE SE SE SE SE SE SE
- ------------------------------------------------------------------------------------------------------------------------------------
7.05.200 Wells for oil, natural gas, or petroleum SE SE SE SE SE SE SE SE
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ZONES
---------------------------------------------------------
USES DESCRIPTION CB CV BP IG III PRD PEP MX PMH
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7.01.270 Brick of block manufacturing P
- ------------------------------------------------------------------------------------------------------------------------------------
7.01.280 Asphalt plants/concrete plants, sand and gravel P P
washing, crushing, and screening
- ------------------------------------------------------------------------------------------------------------------------------------
7.02.000 STORAGE AND PARKING
- ------------------------------------------------------------------------------------------------------------------------------------
7.02.100 Automobile parking garages or parking lots not P SE P P P P P
located on a lot where there is another principal use to
which the parking is related
- ------------------------------------------------------------------------------------------------------------------------------------
7.02.200 Storage of goods not related to sale or use of those
goods on the same lot where they are stored (warehousing)
- ------------------------------------------------------------------------------------------------------------------------------------
7.02.210 All storage within completely enclosed structures P P P P P P P
- ------------------------------------------------------------------------------------------------------------------------------------
7.02.220 Warehouse storage inside or outside completely enclosed SE P P P P
structures
- ------------------------------------------------------------------------------------------------------------------------------------
7.02.230 Mini-warehouses SE PC P P PC PC
- ------------------------------------------------------------------------------------------------------------------------------------
7.02.240 Storage of petroleum products SE SE
- ------------------------------------------------------------------------------------------------------------------------------------
7.02.300 Parking of vehicles or storage of equipment outside
enclosed structures where: (i) vehicles or equipment are SE SE P P P SE
owned and used by the person making use of the lot and
(ii) parking or storage occupies more than 75 percent of the
developed area (contractor's yard)
- ------------------------------------------------------------------------------------------------------------------------------------
7.03.000 SCRAP MATERIALS, SALVAGE YARDS, JUNKYARDS, AND AUTOMOBILE SE SE
GRAVEYARDS
- ------------------------------------------------------------------------------------------------------------------------------------
7.04.000 RESEARCH FACILITIES AND LABORATORIES
- ------------------------------------------------------------------------------------------------------------------------------------
7.04.100 Without processing of materials P P P P P
- ------------------------------------------------------------------------------------------------------------------------------------
7.04.200 With processing or manufacturing of materials P P P P P
- ------------------------------------------------------------------------------------------------------------------------------------
7.05.00 MINERAL EXTRACTION
- ------------------------------------------------------------------------------------------------------------------------------------
7.05.100 Surface mining
- ------------------------------------------------------------------------------------------------------------------------------------
7.05.110 Of less than 10 acres SE SE SE SE SE SE SE
- ------------------------------------------------------------------------------------------------------------------------------------
7.05.120 Of greater than 10 acres SE SE SE SE SE SE SE
- ------------------------------------------------------------------------------------------------------------------------------------
7.05.200 Wells for oil, natural gas, or petroleum SE SE SE SE SE SE SE
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
P = Permitted PC = Permitted with Conditions SE = Special Exception
Blank = Not Permitted
<PAGE>
EXHIBIT 99.7
SELF CONTAINED APPRAISAL REPORT OF THE
CURRENT MARKET VALUE
OF
BRANDYWINE VILLAGE
277 +/- Acres of Unimproved Land
Tax Map 154, Parcels 24, 25, 66 and 69
Eleventh Election District
Prince George's County
Brandywine, Maryland 20613
Valued as of
June 9, 1997
Appraised for
Mr. Edwin L. Kelly, President
Interstate General Company Limited Partnership
222 Smallwood Village Center
Waldorf, Maryland 20602
Appraised by
Isabelle Gatewood, MAI
and
John D Massey, Associate Appraiser
Gatewood Company, Inc.
P.O. Box 56
(2C Industrial Park Drive)
Waldorf, Maryland 20604-0056
<PAGE>
[LETTERHEAD OF GATEWOOD COMPANY, INC. APPEARS HERE]
June 30, 1997
Mr. Edwin L. Kelly, President
Interstate General Company Limited Partnership
222 Smallwood Village Center
Waldorf, Maryland 20602
Re: Proposed Brandywine Village Site
277 +/- Acres Between Route 301 and McKendree Road
Brandywine, Maryland 20613
Dear Mr. Kelly:
At your request, we have inspected the property identified above, and have
appraised the market value of the fee simple interest in the real estate.
In our opinion, the final estimate of the market value of the unencumbered
fee simple interest in the land, "As Is", subject to the cited limiting
conditions, as of June 9, 1997, is reported below. This value estimate is
based on the assumption that final approvals for the Route 301 Access Road
and 234 lots will be obtained within approximately one year from the date
of the report, and that development plans for the commercial and
residential components will proceed consistent with the outline contained
within this report. On this basis, the estimated value is:
EIGHT MILLION EIGHT HUNDRED EIGHTY FIVE THOUSAND DOLLARS
($8,885,000)
The attached report details the data gathered and the reasoning underlying
this value conclusion. We certify that this is our personal, unbiased
professional opinion, and that we have neither present nor contemplated
financial interest in the appraised property. No one other than the
undersigned has prepared the analyses, conclusions or opinions set forth in
this letter or in the accompanying report. The appraisal, this letter and
the appraisal report have been prepared in conformance with, and are
subject to, the Code of Professional Ethics and Standards of Professional
Conduct of the Appraisal Institute and the Uniform Standards of
Professional Appraisal Practice of the Appraisal Foundation.
Respectfully,
/s/ Isabelle Gatewood
Isabelle Gatewood, MAI
Md. Certified General Appraiser #158
/s/ John D. Massey
John D. Massey, Associate Appraiser
Md. Certified General Appraiser #4468
<PAGE>
<TABLE>
<CAPTION>
CONTENTS
- --------
<S> <C>
QUALIFICATIONS OF THE APPRAISERS 1
EXECUTIVE SUMMARY 3
IDENTIFICATION OF THE PROPERTY 4
Taxes and Assessments 4
PURPOSE OF THE APPRAISAL 4
FUNCTION OF THE APPRAISAL 4
Tax Map Location 5
SCOPE OF THE APPRAISAL 6
DEFINITION OF MARKET VALUE 7
LIMITING ASSUMPTIONS 8
ECONOMIC BACKGROUND 9
Area Data 9
Regional Location Map 12
Prince George's County 13
Location Map 16
Neighborhood Description 17
Neighborhood Map 21
Proposed Road Network Map 22
DESCRIPTION OF THE LAND 23
Preliminary Road Plan 29
Preliminary Plan for 65 Acres 30
Photographs of the Appraised Site 31
ZONING 36
Zoning Map 40
Zoning Overlay 41
HIGHEST AND BEST USE 42
</TABLE>
<PAGE>
<TABLE>
<S> <C>
VALUATION 47
Component 1: 8.53 Acres/Commercial 48
Comparable Sales Map 56
Component 2: 64.74 Acres/234 Lot Approvals 57
Comparable Sales Map 64
Component 3: 7.87 Acres/LAC 65
Comparable Sales Map 74
Component 4: 149 Acres/RM Acreage 75
Comparable Sales Map 82
Component 5: Office Light Industrial 83
Comparable Sales Map 91
Comparable Sales Map (sales 1-21) 92
Correlation and Conclusion of Value 93
CERTIFICATION 96
</TABLE>
<PAGE>
QUALIFICATIONS: ISABELLE GATEWOOD
- -----------------------------------
EDUCATION:
- ----------
Bachelor of Arts, Stephen F. Austin University; AIREA Courses I (Appraisal
Theory), IB (Capitalization Theory and Techniques), II (Appraisal
Practice), IV (Condemnation), and VI (Investment Analysis); Various
Professional Seminars. The Appraisal Institute conducts a voluntary program
of continuing education; I am certified under this program.
EXPERIENCE:
- -----------
Principal, The Gatewood Company, Inc., 1980-Present; Appraiser, ABS
Associates, 1977-1979; Associate Appraiser, Reynolds & Reynolds, Inc., 1974-
1977; Associate Appraiser, Eugene Shaw, MAI, 1973-1974; Associate Appraiser,
Beers Brothers, 1969-1970, 1972-1973; Independent Fee Appraiser, 1970-1972.
QUALIFIED EXPERT WITNESS:
- -------------------------
Circuit Courts of Berkeley County, West Virginia, Alexandria, Virginia and
Calvert, Charles, St. Mary's and Prince George's Counties, Maryland; Boards
of Property Review, Prince George's, Calvert, Charles and St. Mary's
Counties, Maryland; U.S. Bankruptcy Court.
PARTIAL LIST OF CLIENTS:
- ------------------------
Government Agencies, including the Alexandria Redevelopment and Housing
Authority, Calvert County Commissioners, Charles County Commissioners, City
of College Park, Federal Aviation Administration, Federal Deposit Insurance
Commission, Maryland Department of General Services, Maryland-National
Capital Park and Planning Commission, Maryland State Highway
Administration, Prince George's County Economic Development Committee,
Resolution Trust Corporation, St. Mary's County Government, TriCounty
Community Development Corporation, United States Department of Justice,
U.S. Park Service, Veterans Administration, and the Washington Suburban
Sanitary Commission;
Financial Institutions, including AMRESCO, Annapolis Federal Savings Bank,
Bank of California, Bank of Southern Maryland, Citizens Bank of Maryland,
Citizens Bank of Washington, DC, Citizens Savings Bank, Columbia First
Federal Bank, Continental Federal Savings Bank, County First Bank, Crestar
Bank, First Union National Bank, FWB Bank, Home Federal Savings Bank, Key
Federal Savings Bank, Maryland Federal Savings and Loan, Maryland National
Bank, NationsBank, The Riggs National Bank, Second National Federal Savings
Association, Signet Bank, Southern Financial FSB, Tri-County Federal
Savings Bank, Washington Federal Savings Bank, Westview Federal Savings
Bank and York Federal Savings Bank;
Corporations, including the Potomac Electric Power Company, U S Steel,
Washington Homes, and Westinghouse;
Attorneys, Developers and Other Individuals.
TYPES OF APPRAISALS:
- --------------------
Office Buildings, Warehouses, Restaurants, Shopping Centers, Marinas and
Other Commercial and Industrial Properties, Motels and Other Transient
Accommodations, Apartments and Condominiums, Residential Subdivisions,
Houses, Farms, Special Use Properties, Properties with Historic
Significance, Eminent Domain, Urban Renewal Acquisition and Re-Use,
Easements and Partial Interests.
MEMBERSHIP:
- -----------
Appraisal Institute (MAI No. 5802), (Society of Real Estate Appraisers
Chapter 29 President 1986-1987), International Right of Way Association,
Southern Maryland and Prince George's County Associations of Realtors,
Maryland Real Estate Broker, License #36889.
CERTIFICATIONS:
- ---------------
State of Maryland Certified General Real Estate Appraiser #158
Gatewood Company, Inc. is a Minority Woman Owned Business as certified by
the State of Maryland Department of Transportation.
1
<PAGE>
QUALIFICATIONS: John D. Massey
- ---------------
EDUCATION:
- ----------
Bachelor of Arts, Centre College, Danville, Kentucky 1973. Appraisal Institute
Courses: 1A-1 (Real Estate Appraisal Principles); 1A-2 (Real Estate Appraisal
Procedures); 1B-A (Capitalization Theory and Techniques, Part A); 1B-B
(Capitalization Theory and Techniques, Part B); Course 6 (Computer Assisted
Investment Analysis); Standards of Professional Practice Part A, and Part B.
Appraisal Institute Seminars: Subdivision Analysis; Appraising Troubled
Properties. Realtors Land Institute Seminar: Chesapeake Bay Critical Area Laws
and Regulations; McKissock Data Systems Courses: Theoretical Foundations of
Regression Analysis; Practical Applications of Regression Analysis; Introduction
to Environmental Considerations.
EXPERIENCE:
- -----------
Associate Appraiser, The Gatewood Company, 1987-Present; Residential and
Historic Property Renovation, Cincinnati Ohio, 1974-1987
TYPES OF APPRAISALS:
- --------------------
Vacant Land, Rights-of-Way, Historic Properties, Subdivisions, Commercial and
Industrial Properties, Shopping Centers, Office Buildings, Condominiums,
Automotive Service Centers
CERTIFICATIONS:
- ---------------
State of Maryland Certified General Real Estate Appraiser #4468
Gatewood Company, Inc. is a Minority Woman Owned Business as certified by
the State of Maryland Department of Transportation
2
<PAGE>
EXECUTIVE SUMMARY
- -----------------
Property and Location: Brandywine Village
277 +/- Acres of Unimproved Land
Between Route 301 and McKendree Road
Brandywine, Maryland 20613
Tax Map Identification: Tax Map 154, Parcels 24, 25, 66 and 69
Eleventh Election District
Prince George's County
Ownership: Brandywine Investment Associates, LP
Census Tract: 8010.01
Interest Appraised: Unencumbered Fee Simple
Zoning: RM, LAC, EIA
Land Area: Pcl # Size
----- ----
24 92.75 ac (RM, EIA)
25 111.57 ac (RM, EIA, LAC)
66 20.00 ac (RM)
69 52.63 ac (RM)
------
276.95 ac
Highest and Best Use: Staged development in accordance with
relevant District Council Resolutions
and documented approvals including
CB-56-DR3-1996
Date of Value: June 9, 1997
Date of Report: June 30, 1997
Estimate of Market Value: $8,885,000*
*Assuming that final approvals for the Route 301 Access Road and 234 lots
will be obtained within approximately one year from the date of the report,
and that development plans for the commercial and residential components
will proceed consistent with the outline contained within this report
Estimated Marketing Time: 2 to 3 Years
3
<PAGE>
IDENTIFICATION OF THE PROPERTY
- ------------------------------
The appraised property is a 277 +/- acre tract of vacant land between U. S.
Route 301 and McKendree Road, in Brandywine, Maryland. The land is identified
on Prince George's County Tax Map 154 as Parcels 24, 25, 66 and 69. This is in
the county's Eleventh Election District.
The land is assessed in the name of Brandywine Investment Associates, Limited
Partnership; title was transferred to the current owners by a deed from
Mattawoman Associates recorded November 20, 1985 in Deed Book 6219 at page 582.
The reported price was $5,400,000, financed with the assumption of an existing
deed of trust having an undisclosed balance.
The property is currently being offered for sale. The asking price listed
in the Carey-Winston prospectus is $17,900,000.
TAXES AND ASSESSMENTS
- ---------------------
Properties in Prince George's County are assessed triennially, with the new
assessments phased in over three years. The 1996-97 county tax rate, per $100 of
assessed value, is $3.446, which is down slightly from $3.458 in FY-1995-96, and
$3.472 in FY-1994-95. Taxes are based on a phase in assessment of 40 percent of
full cash value. The current reported taxes and assessments are listed below:
<TABLE>
<CAPTION>
Full Cash Assessed 96-97
Acct # Pcl # Size Land Value Value Taxes
- ------ ----- ---- ---------- ----- -----
<S> <C> <C> <C> <C> <C>
1161389 24 92.75 ac $559,120 $223,640 $7,438.27
1187780 25 111.57 ac $691,200 $276,480 $9,195.72
1161397 66 20.00 ac $128,920 $ 51,560 $1,714.89
1149764 69 52.63 ac $344,210 $137 680 $4,579.24
------ -------- -------- ---------
Totals 276.95 ac $1,723,450 $689,360 $22,928.12
</TABLE>
According to the Prince George's County Treasury Division, the current
taxes have been paid.
PURPOSE OF THE APPRAISAL
- ------------------------
The purpose of this appraisal is to estimate the market value of the
unencumbered fee simple interest in the identified land, as of June 9,
1997.
FUNCTION OF THE APPRAISAL
- -------------------------
The function of the appraisal is for an analysis as part of the owner's
investment portfolio.
4
<PAGE>
[MAP APPEARS HERE]
<PAGE>
SCOPE OF THE APPRAISAL
- ----------------------
In estimating the market value of the appraised property, the following
procedures have been followed:
The property has been identified and inspected and the general social,
economic, governmental and environmental factors that affect value have
been researched. The general economic and background data included in the
report is based on information provided by the United States Department of
Labor Statistics, the Census Bureau, and the Maryland Department of
Economic and Employment Development, and the reported activity related to
development of other parcels in the neighborhood.
Information on area planning and the general zoning and regulatory factors
affecting the subject was based on an examination of the adopted Subregion
V Master Plan, Sectional Map Amendment, and on amendments contained in
Council Resolutions CR-17-1993 and CR-60-1993, and the recently enacted
CB-56-DR3-1996. Information on specific approvals regarding the subject was
obtained from Gail Love and Kathy Winters of the Subdivision Office of the
Maryland-National Capital Park and Planning Commission. Files on the
subject and nearby properties were reviewed in their office.
Additional information on factors affecting potential development of the
subject were discussed with other officials with the Park and Planning
Commission including Tom Masog and Doug Thaden with the Transportation
Department, Rodney Harrell with Public Facilities regarding school capacity
issues, and Wendy Irminger, area planner.
Information on road and utility issues affecting the subject were discussed with
Jerry Dougherty with the Department of Public Works, Max Azizi, planner for the
area with the State Highway Department, and Elizabeth Forbes with the Water
Resources and Planning Department in the Washington Suburban Sanitary
Commission.
Information on specific physical characteristics of the property and related
cost issues were obtained from plans and specifications submitted by Greenhorne
and O'Mara, the firm handling engineering and development issues for the
subject, and on conversations with officials with the firm including Arthur
Atencio, Gary Rubino, and Jane Egan.
These data constitute the basis of an opinion of the highest and best use
of the components of the subject property.
The Sales Comparison Approach is used as the basis for the valuation of the
land. County land records, property owners, developers, brokers, government
officials, and information updated and maintained in our files over the
last 15 years have been used as sources for comparable data. Confirmation
data and updated information on the variety of sales considered is shared
among the appraisal staff. An analysis has been made of sales of other land
planned for comparable development in order to estimate value.
The data gathered has been reconciled into a final estimate of the current
"As Is" value based on the aggregate of the prospective and current value
estimates after deducting relevant development expense and discounting,
when required, for time.
6
<PAGE>
DEFINITION OF MARKET VALUE
- --------------------------
As used in this report the term "Market Value" is defined as:
"the most probable price which a property should bring in a competitive and
open market under all conditions requisite to a fair sale, the buyer and
seller each acting prudently and knowledgeably, and assuming the price is
not affected by undue stimulus. Implicit in this definition is the
consummation of a sale to buyer under conditions whereby:
1. Buyer and seller are typically motivated;
2. Both parties are well informed or well advised, and acting in what
they consider their own best interests;
3. A reasonable time is allowed for exposure in the open market;
4. Payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
5. The price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions granted by
anyone associated with the sale." *
________________________________________________________________________________
*Title XI, Financial Institutions Reform Recovery and Enforcement Act of
1989 (FIRREA), August 23, 1990, Section 564.4, Appraisal Standards.
7
<PAGE>
LIMITING ASSUMPTIONS AND CONDITIONS
- -----------------------------------
The reported value estimate is limited by the following assumptions and
contingent conditions.
1) The value estimate assumes that the property will be developed in stages
consistent with the outline in the report and in conformity with time
requirements set forth in the recent amendments to the zoning ordinance
regarding "grandfathering" provisions.
2) We assume no responsibility for matters legal in character, nor do we
render any opinion as to title, which is assumed to be marketable. All
existing liens, assessments or other encumbrances have been disregarded,
and the property is appraised as though free and clear and under
responsible ownership and competent management.
3) Information and estimates contained in this report have been obtained
from government officials and public records, recognized authorities and
other sources considered reliable, but their accuracy is not guaranteed.
Opinions expressed in the appraisal report are those of the appraisers.
4) Any sketches, plats, maps or drawings reproduced in this report may
show approximate dimensions and may not be to scale. These are included to
assist the reader in visualizing the property. Although we have physically
inspected the property, we have made no precise survey.
5) It is assumed that the subject property is in full compliance with all
federal, state and local environmental regulations unless the lack of
compliance is stated, described and considered in the appraisal report.
6) We assume that there are no hidden or unapparent conditions of the
property, subsoil or structures, which would render it more or less
valuable. No responsibility is assumed for such conditions or for
engineering which might be required to discover such factors. The
appraisers have not been informed, nor have the appraisers any knowledge of
the existence of any environmental or health impediment, which if known,
could have a negative impact on the market value of the subject property.
The valuation contained herein is not valid if any hazardous items are
found in the subject property and not stated within the appraisal report,
including but not limited to: Urea-formaldehyde Foam Insulation, Radon
Gas, Asbestos Products, Lead or Lead Based Products or Toxic Waste
Contaminants.
7) The appraisers are not required to give testimony or appear in court
because of having made the appraisal with reference to the property in
question unless arrangements have been previously made.
8) Acceptance and/or use of this report by the client constitutes
acceptance of all limiting conditions and assumptions set forth herein.
8
<PAGE>
ECONOMIC BACKGROUND
- -------------------
AREA DATA
- ---------
The appraised property is located in the unincorporated area of Brandywine,
in southern Prince George's County, about twelve miles southeast of the
District of Columbia and approximately one mile north of the Charles County
line.
Prince George's County is part of the Washington Metropolitan Statistical
Area which also includes the counties of Charles, Calvert, Frederick and
Montgomery in Maryland, Arlington, Loudoun, Fairfax and Prince William in
Virginia, and the District of Columbia. In the 1980s, this was one of the
fastest growing metropolitan areas in the nation and this growth, together
with that of the Baltimore area, has steadily created a common market for
goods and services. Factors that have contributed to the growth of the area
include proximity to the nation's capital, strategic location in the center
of the Atlantic seaboard and excellent highways and rail, sea and air
transportation.
Jurisdictions surrounding the District of Columbia have traditionally
been economically dependent on the Federal Government and its support
agencies. A large part of population growth results from importation of
workers from other parts of the country to fill jobs.
Federal officials recently decided to consolidate the Baltimore and
Washington areas into a single metropolitan statistical area with current
population approaching approximately 6.7 million.
Statistics published by the Metropolitan Washington Council of Governments
reported 2.48 million jobs in 1990, an increase of about 35 percent in the
last decade, and projected increases in the work force of about 49 percent
to 3.7 million by the year 2020. Federal agencies constitute the region's
largest employer, providing more than 365,000 jobs, exclusive of military
personnel. By 1990, more than 215,000 state and local government jobs had
increased the nonmilitary government payroll to more than 582,000.
Recent administration policies have reduced the number of new federal
employees. While the labor force increased by about 35 percent in the last
decade, the federal government's percentage of the total declined from over
22 percent to under 17 percent.
9
<PAGE>
Population throughout the region has increased steadily over the past
twenty years, and is forecast to continue to increase. Washington area
statistics are summarized below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
WASHINGTON AREA POPULATION
- ------------------------------------------------------------------------------------------------------------------------------------
Forecast %Change %Change Forecast
1970 1980 1990 2000 1970-80 1980-90 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SHSA (Standard Metropolitan Statistical Area):
DISTRICT OF
COLUMBIA 756,668 638,432 606,900 634,000 -15.6% -4.9% +4.5%
MARYLAND:
Calvert County 20,682 34,638 51,372 ** +67.5% +48.3%
Charles County 47,678 72,751 101,154 132,600 +52.6% +39.0% +31.1%
Frederick County 84,927 114,792 150,208 203,200 +35.2% +30.9% +35.3%
Montgomery County 522,809 579,053 757,027 836,700 +10.8% +30.7% +10.5%
Prince George's County 661,719 665,071 829,268 772,400 +O.5% + 9.7% +5.9%
VIRGINIA:
Alexandria 110,927 103,217 111,183 125,900 -7.0% + 7.7% +13.2%
Arlington County 174,284 152,599 170,936 173,400 -12.4% +12.0% +1.4%
Fairfax City 22,727 20,537 19,622 21,000 -9.6% -4.7% +7.0%
Fairfax County 454,275 595,754 818,584 954,000 +31.1% +37.4% +16.5%
Falls Church 10,772 9,515 9,578 10,800 -11.7% + 0.7% +12.8%
Loudoun County 37,150 57,427 86,129 145,700 +54.6% +50.0% +69.2%
Manassas & Manassas Park 16,008 22,029 34,691 45,100 +37.6% +57.5% +30.0%
Prince William County 95,094 144,636 215,686 317,000 +52.1% +49.1% +47.0%
Stafford County 24,587 40,470 61,236 ** +64.6% +51.3%
- ----------------------------------------------------------------------------------------------------------------------------------
SMSA AREA TOTAL 3,040,307 3,250,921 3,923,486 +6.9% +20.7% +12.9%
- ----------------------------------------------------------------------------------------------------------------------------------
PROXIMATE COMMUNITIES OUTSIDE SMSA:
Anne Arundel
County 298,042 370,775 423,941 ** +24.4% +14.3%
Baltimore City 786,741 720,100 ** - 8.5%
Baltimore County 370,775 423,941 ** +14.3%
Howard County 62,394 118,572 186,131 ** +57.0%
St. Mary's County 47,388 59,895 75,062 ** +26.4% +25.3%
- -------------------------------------------------------------------------------
Source: The Census Bureau, as quoted in The Washington Post, October 15, 1988;
October 25, 1990; and in the Metropolitan Washington Council of
Governments' "Economic Trends in Metropolitan Washington", August 1991
** Not included in MWCOG forecast.
- --------------------------------------------------------------------------------
</TABLE>
The most rapid growth is in outer suburban communities in formerly rural
countries. Maryland these include Frederick, Calvert, Howard and
nearby Charles Counties. Area population is expected to continue to increase
in the 1990's. While the rate of increase attributed to new residents moving
to the area from other parts of the United States has slowed, in recent
years, this decline has been largely offset by increasing numbers of foreign
immigrants.
Washington Metropolitan Area leads the nation in the proportion of professional,
executive, managerial and administrative people. Among the colleges and
universities in the Washington area are American, George Washington, Georgetown,
Catholic and Howard Universities in the District of Columbia, the University of
Maryland and Bowie State University in Prince George's County.
10
<PAGE>
The region's road network is constantly expanding to accommodate the growing
population. The District of Columbia is surrounded by the Capital Beltway which
connects all of the most densely populated suburban districts. The portion of
the Beltway traversing Prince George's County, passing about 10 miles north of
the subject, carries 1-95, the major interstate highway on the eastern seaboard.
The Beltway is crossed by a number of major interstate and arterial highways
extending outward from the District to regional and suburban jurisdictions.
Among these is Route 5 which runs concurrently with Route 301 on the east side
of the subject. Route 301 generally parallels 1-95 about 10 to 15 miles to the
west and is the primary alternative to that congested route between Richmond and
Baltimore.
Prior to the onset of the economic recession of the early 1990's, the steady
increase in jobs and income in the Washington Metropolitan Area led to
continuing increases in real estate prices, both for residential and commercial
uses. The recession, overbuilding is some sectors, and problems with the banking
industry depressed the values of vacant land and suppressed new construction
activity in the first half of the decade. A steady, if measured, recovery from
these effects has been ongoing for the last 3 to 4 years and is expected to
continue for the foreseeable future.
11
<PAGE>
[REGIONAL LOCATION MAP APPEARS HERE]
12
<PAGE>
PRINCE GEORGE'S COUNTY
- ----------------------
Prince George's County adjoins the northeast and southeast sides of the District
of Columbia, extending almost 40 miles from north to south and encompassing 488
square miles. Upper Marlboro, about ten miles northeast of Brandywine, is the
Seat of county government. The county has a charter form of government and is
governed by a 9-member County Council and a County Executive who are elected for
4-year terms.
Major employers in the county include Andrews Air Force Base in Camp Springs,
about 8 miles north of the subject; Southern Maryland Hospital in Clinton, 6
miles north; the U.S. Census bureau in Suitland, 11 miles north; Giant Food, the
Dart Group and Digital Equipment Company in Landover, 17 miles north; the
Goddard Space Flight Center in Greenbelt, and the National Agriculture Research
Center of the U.S. Department of Agriculture in Beltsville, all about 23 miles
north; the University of Maryland and Amecon Division of Litton Systems in
College Park, 24 miles northwest, the Washington Suburban Sanitary Commission in
Hyattsville, 20 miles northwest, and United Parcel Service in Laurel, 30 miles
north.
In Prince George's County, the Capital Beltway runs concurrently with 1-95 and
traverses the county for about 30 miles. During the past two decades, newer
suburban communities have developed outside the Beltway, in formerly rural
areas, and many new office and industrial parks were developed around Beltway
interchanges. Expansion of government agencies intO the suburbs and growth of
private contracting firms encouraged a boom in office construction during the
1970's and '80's. County administration efforts to attract national and
international business investments furthered this trend. By 1990, new office
construction was virtually halted due to the combined effects of the recession
and overbuilding during the late 1980's. Steady absorption of vacant space over
the past three years has significantly reduced vacancy levels though they have
not returned to the formerly low levels of the mid to late 1980's.
The unemployment rate in the county was 4.2 percent in April 1997, down slightly
from 4.3 percent in April last year. The average household effective buying
income for 1995 was $54,100.
With the exception of the city of Bowie, the most densely populated areas are
generally located inside or near the Beltway and include a mixture predominated
by older suburbs in unincorporated areas and some incorporated communities. The
majority of the incorporated communities are strung along the old corridor
framed by Route 1 and the Baltimore-Washington Parkway in the north central part
of the county. The largest incorporated community inside the Beltway is College
Park, the location of the University of Maryland. The largest incorporated
community in the county is Bowie located about 17 miles north of the subject on
Route 301. Bowie, Upper Marlboro, about 10 miles north of the subject, and
Waldorf in Charles County about a mile to the south, are focal points of outer
suburban growth connected by the Route 301 corridor.
13
<PAGE>
According to Census Bureau figures quoted in the Washington Post on February 3,
1995, Prince George's County has a population of 764,053. This represents an
increase of about 34,785 over the 1990 census count of 729,268, at a rate of
just under 1 percent per year, generally consistent with the 9.7 percent
increase recorded between 1980 and 1990. In comparison to the 1980's which
showed a steady influx of residents from other parts of the country, foreign
immigrants have comprised a higher percentage of population growth, comprising
almost a third of the increase since 1990. This growth in population has been
accompanied by trends showing a decrease in the average household size.
Although the figures show an overall growth rate of just under 10 percent for
the county during the last census period, growth patterns are not consistent
countywide.
The population of most communities inside the Beltway was stable or showed only
slight increases or declines during the last decade. Many of these communities
lost population to outlying areas of Prince George's or to the outer suburbs in
adjacent counties, during the last decade. Nevertheless, the potential for
population decline caused by this out-migration was offset by the influx of
District residents. The District of Columbia was the only major metropolitan
area jurisdiction that lost population during the 1980's and 1990's. New
residents relocating from the District have moved into all areas of Prince
George's County, but most have moved into new residential developments. Over the
last 5 years the out migration has roughly equaled the influx of new residents
and the birth rate is responsible for much of the population growth.
The highest growth rates in the county were recorded in areas located on major
arterial routes outside the Beltway where population increases of between 30 and
60 percent were not uncommon. Outside the Beltway, the southern half of the
county is still one of the most sparsely populated areas in close proximity to
Washington, due primarily to the fact that until recently there was no public
water and sewer available. Expansion of the public water and sewer lines has
encouraged denser development in these neighborhoods. The northern half of the
county is central to the District of Columbia, Baltimore, Annapolis and the
connecting transportation network, and growth is fueled by the proximity to
these areas and the steady consolidation of the Baltimore/Washington corridor.
The predominant prices in most of the subdivisions of detached houses outside
the Beltway range between $180,000 and $220,000. Areas dominated by this type of
development include Largo-Kettering, unincorporated areas of Bowie, and Accokeek
in southwestern Prince George's County. Prices ranging between $250,000 and
$375,000 are common for homes on large lots in numerous large lot developments
in outlying areas throughout the county.
14
<PAGE>
A Washington Post survey dated April, 1993, showed that the lowest priced
housing in the County was located in communities inside the Beltway, with the
exception of the areas in the vicinity of the University of Maryland. Median
prices typically range between $100,000 and $115,000 in these areas which are
predominated by free standing homes (both old and new) on smaller lots, and
townhouses; many apartment houses are also found in these areas. In communities
outside the Beltway containing a mixture of old and new homes, as well as
townhouses, median prices generally range between $135,000+/- and $145,000+/-.
Comparisons of various county neighborhoods over the last seven years show that
the average house prices have increased more rapidly in the Accokeek/Brandywine
area of southern Prince George's County than in other neighborhoods with average
prices now the highest in the county. This is attributed to the predominance of
new construction in the area, the lack of townhouses, up to now, as a percentage
of the housing market, and several "upscale" subdivisions which have been
developed in the area.
In summary, the projected rate of growth for both the Washington area and Prince
George's County has been generally maintained during the early 1990's, although
increasing foreign immigration has offset a decrease in the rate of immigration
from other parts of the United States. New residents moving from the District
have tended to move into new housing. With a dwindling supply of developable
land within commuting distance in other jurisdictions, and the relative
affordability of land and housing in Prince George's County, when compared with
prices in other jurisdictions surrounding the District of Columbia, continuing
increases in the county population can be expected. As these growth trends
continue and average household sizes decrease, steady demand for new housing can
be anticipated.
15
<PAGE>
[LOCATION MAP APPEARS HERE]
16
<PAGE>
NEIGHBORHOOD DESCRIPTION
- ------------------------
The Brandywine neighborhood is generally bounded by Cedarville Road and
McKendree Road to the south and southwest, Piscataway Creek to the north,
Gibbons Church Road and North Keys Road to the east, and Springfield and
Windbrook Roads to the west. Within these boundaries are several small
communities, including "T. B. " clustered around the intersection of U.S. Route
301 and Maryland Routes 5, 373 and 381, about a mile north of the subject. The
subject property is about 1 mile north of the Charles County line, where the
Waldorf area is among the most rapidly growing communities in the Washington
metropolitan area.
Routes 301 and 5 are major commuter and interstate routes. Primary local roads
include Route 373, north of the subject, which extends west from the old village
of T.B. to Accokeek in southwest Prince George's County about 6 miles to the
west. McKendree Road on the west side of the subject connects Routes 301/5, near
the county line, with Accokeek Road.
The Brandywine area is part of Subregion V for which a new Master Plan for Land
Use and Transportation and a Sectional Map Amendment were adopted in November of
1992. Currently, most of the land in the neighborhood is in open space,
agriculture, and residences on relatively large tracts, with some commercial
development scattered at intervals along Routes 301 and 381. Some areas in
Brandywine have been rezoned for higher residential densities, and some
commercial areas were expanded.
The new Master Plan and Sectional Map Amendment set forth numerous changes in
the neighborhood road network. These changes are in response to the anticipated
increases in residential and commercial development in the coming years. Among
the planned roads are the planned Waldorf Bypass beginning at the Route 5/301
intersection, and new and relocated roads to serve residential and commercial
industrial development. A planned "Spine Road" will traverse much of the
neighborhood on both the east and west sides of the highway. Some of these roads
are illustrated on a map at the end of this section of the report. Since state
and county funds for road development are still constricted, developers in the
neighborhood are encouraged to join "road clubs" to fund these road
improvements.
Some nearby projects in planning and development stages are listed below.
Among the industrial projects are "Brandywine Industrial Park", a large tract in
the northeast corner of the Route 301/Cedarville Road intersection less that a
mile southeast of the subject. About 3 years ago, this parcel was developed with
a regional distribution warehouse for a department store (Montgomery Ward).
Recent developments in this park include the building of a co-generating
electric plant facility. Circuit City is now planninq a new distribution
facility.
17
<PAGE>
North of this industrial park, an extension of a planned road north to Route 381
provides access to the 100-acre Brandywine Commerce Center approved for
development as 2 lots and 4 parcels. Several other large scale industrial parks
located east of Route 301 have also been approved though no construction has
begun.
The subject is approved for a large scale residential development with
significant commercial and office/light industrial components. These will be
described in the following sections.
Among other residential developments are the "Hampton" subdivision, a 189 acre
tract located between Routes 301 and 5 about 3 miles north of the subject, which
has been approved for a combination of single family detached and attached
residential lots. Final plats are nearing approval.
Just west of the subject Rice Mill is a planned development of 460 lots on 400
acres surrounding the Robin Dale Country Club. Planning for this project
languished after the recession, but approval extensions have recently been
obtained. Some smaller projects are now being developed, like Brandywine Village
Clusters, with 33 residential lots on 20+/- acres on Brandywine Road east of
Route 301.
The most recent addition to area plans for development, by the Rouse Company, is
"Brandywood" an 800+/- acre assemblage located north of the subject tract. This
project received initial approval in November of 1996 for 655 single family
homes, 924 multi family units, 100,000 square feet of retail, and 105,000 square
feet of office space.
Existing commercial development in the neighborhood is generally limited to
scattered commercial sites, most of which are older businesses in aging
improvements which have served the predominantly rural area for many years, like
those in T.B., a mile and a half north. The largest business is Brandywine Auto
Parts, covering many acres at the southeast quadrant of Routes 301 and 381 about
2 miles northeast of the subject. Another of the largest businesses is the Atlas
Pontiac, a new car dealership just north of the subject.
Proximate Waldorf and St. Charles Communities
- ---------------------------------------------
The Waldorf/St. Charles communities lie just south of the subject in northern
Charles County. Together they comprise one of the most rapidly growing suburban
jurisdictions in the metropolitan area.
18
<PAGE>
Waldorf predates St. Charles and had evolved by the 1950's and 60's from an
older crossroads community to a "strip city" concentrated on the Route 301
corridor consisting of nightclubs and numerous gambling interests. When gambling
became illegal in the early 1970's, the community began a steady transition to a
suburban bedroom community. St.Charles was founded in the late 1960's providing
the impetus for these changes.
The owners of the subject property acquired about 8,000 acres in 1968 for St.
Charles, and developed the planned community. Over the last 30+/-years the
community has grown to over 30,000 residents, slightly larger than adjacent
Waldorf, with the commercial district anchored by St. Charles Town Center, the
newest regional mall in the Maryland suburbs drawing consumers from a 30 to 40
mile radius. St. Charles was developed in stages, in residential villages". Of
the three main villages, Smallwood is mostly fully developed, Westlake is more
than 60 percent developed, and only Fairway Village, south and east of the
Waldorf area remains to be developed.
In the Waldorf/St. Charles area, residential and commercial development
continues at a relatively steady pace. Beginning just south of the subject,
Route 301 is lined with commercial development along a 6 mile stretch from the
county line extending to south of Smallwood Drive near St. Charles Town Center,
the new regional mall.
When the mall opened about 7 years ago, commercial development focused on the
mall and surrounding areas and existing commercial properties on the Route 301
corridor to the north languished for several years impacted both by the new
competition and the recession. The situation turned around about 2 years later
when to "big block" retailers, Wal-Mart and Lowes, acquired large sites on Route
301 near Acton Lane about 2-1/4 miles south of the subject, and Pace (now Sam's
Club) developed a tract about 2 miles south of the subject.
These new businesses attracted new consumers to the area generally benefiting
other smaller retailers. Over the next five years vacancy levels declined from a
high of around 50 percent to 10 percent or less today. The most recent planned
development of a large tract is for a "Home Depot" on a 23+/- acre tract they
plan to acquire about 3 miles south of the subject.
19
<PAGE>
As commercial development in north Waldorf was re-invigorated over the last 5
years, nearby vacant land west of the Route 301 corridor has become an
increasing focus of residential development. In the early to mid 1990's
residential development in Waldorf focused on the Route 228 corridor west of
Route 301 and in the Dorchester community southwest of the mall in St. Charles.
In recent years, development of both townhouse and single family homes has
proceeded rapidly on remaining vacant land in the area. Springhaven Woods,
Wexford Village, and Acton Village are among the largest of these developments
which include many smaller projects.
Residential areas in north Waldorf west of Route 301 are accessed by an aging
road network planned to be improved when Western Parkway is built through the
area over the next 5 to 10 years or more. While these residential areas are near
commercial services nearby on the Route 301 corridor, there is a shortage of
some services, such as food markets. The food market closest to the subject is
in Festival of Waldorf about 4 miles south on Routes 301 and 228. To the north,
the closest food market is in Marlton on Route 301 and Clinton on Route 5, each
about 6 1/2 miles north of the subject.
Summary of Local Data
- ---------------------
In the Brandywine area, while development has historically been slow due to the
lack of public sewer, the allocation of part of the capacity of the Mattawoman
treatment plant in Charles County has accelerated both planning and development
of the area. Demand for new housing in the County continues due to population
growth and shrinking household sizes. The relative affordability of housing, in
general, in southern Maryland, and proximate services in nearby Waldorf in
Charles County is a locational advantage for the subject.
It remains unknown how rapidly the planned residential and commercial
development of the neighborhood will proceed, given constraints of the existing
neighborhood roads and time and expense required to construct the planned new
road network. New and planned segments of the Spine Road through industrial
areas east of Route 301 have helped to spur development. Each new segment of
this planned road network on both sides of Route 301 is likely to attract
development interest since they will enhance access to and viability of a
variety of projects. The planned east-west Route 301 Access road through the
subject should open up a large area for development both between Route 301 and
McKendree Road, as well as west of McKendree Road.
As development pressures continue to spread south on both the Route 301 and
Route 5 corridors, the Brandywine area can expect that the pace of residential,
industrial, and commercial developments will increase. The benefits of proximity
to Waldorf are likely to accelerate the trend.
20
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[NEIGHBORHOOD MAP APPEARS HERE]
21
<PAGE>
[MAP OF PROPOSED ROAD NETWORK IN THE NEIGHBORHOOD APPEARS HERE]
22
<PAGE>
DESCRIPTION OF THE LAND
- -----------------------
Size and Shape
- --------------
The tract is comprised of an assemblage of 4 parcels containing 277 +/-acres in
an irregular geometric configuration. About 2/3 of the acreage lies within
Parcels 24 and 25 which comprise most of the eastern half of the tract. This
area has a maximum north-south dimension of about 3,200 feet and Route 301 forms
the eastern boundary with the highway frontage measuring about 2,000 feet.
Parcels 66 and 69 comprise most of the western half of the tract in the smaller
shape of a panhandle with a maximum north-south dimension of about 2,000 feet
and 1200 feet of frontage on McKendree Road which forms the western boundary.
The maximum east-west dimension of the overall tract is about 5,200 feet.
Topographical Features
- ----------------------
The appraised tract is wooded, with a variety of small to medium sized trees.
The terrain is relatively level to lightly rolling with elevations varying from
about 195 feet above sea level where a stream crosses the southern boundary on
the eastern part of the tract, to a maximum of about 220 feet near the highway
frontage. Most of the remainder of the tract varies between 205 and 215 feet
above sea level. Three small tributaries of Timothy Branch cross the land in a
generally north/south direction, one in the panhandle area and two in the
eastern part of the assemblage.
Drainage and Flood Zone Information
- -----------------------------------
Community Panel 245208 0100C of the Flood Insurance Rate Map for Prince George's
County, revised June 18, 1987, does not show any area within the 100- year flood
plain. Information contained within the approved preliminary plans and the
zoning approval documents indicate about 15 acres of flood plain bordering the
stream crossing the panhandle and approximately 40 acres bordering the streams
crossing the eastern part of the tract. Overall drainage patterns are toward the
on site streams and the lower elevations to the south.
Soil Conditions
- ---------------
The preliminary plan shows a variety of soils on the subject site. Except for
the low utility Bibb soils located in and near the flood plains, the majority of
the soils are rated as having slight to moderate limitations for building and
road construction. An exception is the Leonardtown Silt Loam soils in the
northeast quadrant covering about 15 percent of the site. This soil type is
rated as problematic for building and road construction and will likely require
additional engineering and above average construction costs.
23
<PAGE>
Access to the Site
- ------------------
Although the property is currently marginally accessible from the frontage on
Route 301 and McKendree Road, an approved road through the property will provide
access to all areas of the property. Preliminary plan approvals show a 60-70
foot right-of-way extending in an east-west direction across the tract from
Route 301 to McKendree Road for a distance of about a mile. This planned road
and its approved intersection with Route 301 will provide a catalyst for both
the commercial and residential development of the appraised tract. According to
preliminary cost estimates provided by Greenhorne and 0'Mara, Inc., the
estimated cost to extend this road from Route 301 to the panhandle area (about
2/3 of the overall distance) is about $1,030,000, inclusive of engineering fees
and contingencies.
Long range plans for the neighborhood include a variety of new and expanded
roads. One of these plans is for a north-south road with a 100-foot-wide right-
of-way crossing the eastern part of the subject property and adjacent properties
north and south. Designated the "Spine Road" on planning documents, it will
parallel Route 301 through the Brandywine area on both the east and west sides
of the highway. The road will extend to T.B. on the east side and terminate on
the relocated Accokeek Road north of the subject on the west side. The Spine
Road will connect most area roads.
Other area road plans under consideration include the possible upgrade of
existing Route 301 to freeway status and/or a Waldorf Bypass passing north and
west of the subject.
A possible Waldorf Bypass is in the planning stages by state officials. Such a
bypass might lessen the need for additional improvements to existing Route 301,
but extensive community opposition has slowed this project.
Although some state and local officials are now expressing a desire to move
forward with plans to make Route 301 a freeway, it is likely to be a long range
project. According to Max Azizi, area planner for the state highway department,
a normal time line from planning to finished construction is typically a minimum
of 7 years and funding has yet to be approved for even the initial planning
stage. Barring a "fast track" approach, it is estimated to be 10 years or more
before construction could begin, if at all, since it is unknown if this option
will continue to be pursued.
If Route 301 is ever upgraded to a freeway, this may change the subject highway
access. Planning approvals for the east west road through the subject indicate
that the road is to become a cul-de-sac at the Route 301 frontage when or if it
becomes a freeway. At that time, the Spine road network is anticipated to be
complete providing alternative access to Route 301.
24
<PAGE>
Utilities
- ---------
A 30-inch water line is located along the Route 301 right-of-way along the
eastern boundary of the subject. Sewer lines are located along Timothy
Branch about 1/2 mile due south of the subject.
Extension of a new sewer line to the subject property is authorized according to
officials with the Washington Suburban Sanitary Commission. The line will fork
south of the subject with one line leading northwest to the rear panhandle area
and another line leading northeast to the eastern part of the tract. Inclusive
of engineering fees and contingencies, the estimated cost to extend the sewer
lines to the subject site is about $315,000 for the west line and about $405,000
for the east line according to preliminary cost estimates provided by Greenhorne
and O'Mara, Inc.
Improvements and Proposed Developments
- --------------------------------------
Other than billboards along the Route 301 frontage, there are no existing
improvements on the subject property.
Two developments on the appraised land have received preliminary approval from
County Officials. One is for a 64.74 acre parcel located in the "panhandle" at
the west end of the tract with frontage on McKendree Road. The other is for the
remaining 212 +/- acres. Copies of these plans are included on the following
pages.
The 212 acre portion received preliminary approval in February of this year for
a 70-foot-wide right of way intersecting with Route 301 midway along the road
frontage. The segment of the east-west road through this part of the tract will
connect with the western segment previously approved in a preliminary plan for
the 64.74 parcel in the western panhandle. Estimated cost, including fees and
contingencies, to construct this road between Route 301 and the rear parcel is
about $1,030,000.
Although no other additional approvals were sought, at this time, for this
portion of the tract, it is approved under the county's Comprehensive Design
Zone Guidelines for 4 potential use categories. The majority of the tract, 149
acres, located west of the planned Spine Road is zoned for medium density
residential uses. About 16.4 acres located at the southeast corner of the site
between the Spine Road and Route 301 south of the planned Access Road is zoned
for high density residential uses (7.87 acres) and commercial uses (8.53 acres).
The northeast part of the tract between the planned Spine Road and Route 301,
just north of the planned Access Road, is zoned for office and light industrial
and contains about 46 acres.
25
<PAGE>
A preliminary plan was approved in November of 1994 for 64.74 acres at the west
end of the tract. The parcel has about 1,000 feet of frontage on McKendree Road.
Approvals were for 64 single family lots and 252 townhouses. The plan has been
revised to allow for expanded storm water management areas and other recommended
changes from county officials, according to Arthur Atencio, project manager with
Greenhorne and O'Mara. The owners have submitted for approval a Specific Design
Plan which incorporates these changes. The new design will yield 56 single
family lots and 178 townhouse lots.
According to Mr. Atencio, the new plan was submitted on December 20 of last
year, allowing the project to be "grandfathered" under existing zoning
guidelines, thereby avoiding new zoning requirements which took effect on
January 1 of this year. These new requirements would have significantly reduced
the townhouse component of the project.
The following general description is based on the preliminary plan immediately
preceding the recently submitted plan. It shows wooded wetlands bordering a
stream running through the residential area, dividing it into two parts. The
stream flows north to south near the west end of the property and the
surrounding woods and wetlands are estimated to contain about 15 acres, with
12.35 acres indicated to be within the 100 year flood plain of the stream.
The single family lots are planned for about 15 acres west of the wooded
wetlands and east of a narrow woodland buffer along McKendree Road. The lots
range in size between 6,200 square feet and 9,500 square feet. The planned
townhouses are located east of the wooded wetland area.
Although the planned development is "grandfathered" and exempted from some of
the new zoning requirements, it is not exempt from the requirement quoted from
page 2 of the summary for the new ordinance (CB-56-DR3) that "...in order to
remain 'grandfathered', projects with approved SDP's or DSP's must be issued
building permits for at least 10% of the houses included in the Plan within two
years, and not more than a six month extension may be granted...".
Sewer lines to serve this planned development will extend from the off site
location noted in the Utility section above. Water lines will be extended from
the main line on Route 301 along the right of way for the planned east-west road
through the subject. This road bed will have to be rough graded before the line
can be installed.
Relationship to Neighboring Properties
- --------------------------------------
The property is located in a neighborhood in transition from rural and
agricultural uses to residential and commercial uses on the west side of Route
301 and industrial uses on the east side of Route 301.
26
<PAGE>
Sewer lines have already been extended to the east side of the highway, two
large industrial uses have located in the area and a third is planning to
acquire a 25 +/- acre site in the vicinity of the Cedarville/Mckendree Road
intersection with Route 301 a mile southeast of the subject. Panda-Brandywine
has built a co-generation energy recovery plant on a 30 +/- acre site east north
of Cedarville Road and east of Route 301. Montgomery Ward developed a 50-acre
site with a 15 acre warehouse at the northeast corner of Route 301 and
Cedarville, and Circuit City is planning to acquire the corner site to the
south. It is anticipated that this type of industrial development will proceed
north along the east side (of Route 301) Spine Road corridor. The new sewer
lines and the development of the Spine Road east of Route 301 have facilitated
this development.
There has been little development on the west side of Route 301 between T.B. and
the Charles County Line. Current development consists of a new car dealership
and gasoline station north of the subject and a liquor store and a few small
scattered commercial enterprises south of the subject. Construction of the
subject access road and extension of sewer lines to the subject should spur
development on the west side of the highway.
Two large planned residential developments border the subject. To the north, the
Rouse Company is pursing plans for a mixed use development and in late 1996 the
planning board recommended approval of approximately 790 acres to be rezoned
from RR and RE to the MXC zone proposed for 655 single family homes, 924 multi
family dwelling units, 100,000 square feet of retail space, 105,000 square feet
of office space, and several acres for fast food and gas stations.
The Robin Dale Country Club just west of the subject on McKendree Road, was part
of a planned development known as Rice Mill which received preliminary approval
in 1990 for a 400 unit residential development to be built around the existing
18 hole golf course. Last year the plan was approved for a 2-year extension,
with the owners citing, in their extension request, that they had "a prospective
buyer who is considering upgrade of the golf course to a 'signature series'
endorsed by Jack Nicholas". On May 6 of this year, 325 acres of the property was
sold to Robin Dale Golf Club LLC, a Staples Corporation, who has acquired
several area golf courses in recent years.
South of the subject, on McKendree Road, older residential agricultural uses are
predominant. South of the subject on Route 301 are several small businesses,
including a liquor store and small motel.
Functional Adequacy of the Site
- -------------------------------
The appraised site is well positioned to benefit from the development trends in
the area but "up front" costs will be required to maximize this potential and
conform to the development time frame set forth in the new zoning regulations.
27
<PAGE>
Prospective residents will benefit from the proximity of commercial and support
services. Unlike their neighbors to the south in Waldorf, St. Charles, and
points beyond, residents of the subject community commuting to urban employment
areas will be able to avoid Waldorf traffic congestion at peak traffic periods.
The commercial area has good visibility on the most heavily traveled section of
Route 301 in southern Maryland. There is potential synergy in the relationship
of the subject commercial and residential components.
Off-site cost for extension of sewer lines is estimated at about $720,000. These
lines will require extension before on site development can proceed for both the
residential and commercial components.
Water lines will have to be extended to the panhandle area comprising the rear
area of the site before development of the Phase I residential area can begin.
These lines will follow the planned road and extension of these lines will
require clearing and grading of the road bed prior to their construction.
Approvals for the rear development require that 10 percent of the potential lots
be issued building permits within a maximum 2 1/2 year time period beginning in
December of last year. To facilitate marketability in this time frame, the
planned road will have to be built to the panhandle area. This costs are
estimated at about $1,030,000.
Phased development of the road, beginning from the Route 301 frontage, and
delaying construction of the western part of the road including the entrance
onto McKendree Road should maximize benefits for the subject by deferring some
costs and by reserving the initial benefits for the subject. A through road has
the potential to significantly enhance other properties and proposed projects
which also front on McKendree Road. Phased development helps to insure that the
benefits of this road will initially accrue to the subject, and allows for the
possibility that some of the development costs could be shared or assumed by a
potential buyer or other development interest.
28
<PAGE>
[MAP OF PRELIMINARY PLAN APPEARS HERE]
<PAGE>
[MAP OF PRELIMINARY PLAN APPEARS HERE]
<PAGE>
VIEWS OF THE SUBJECT FROM ROUTE 301/5
[PICTURE APPEARS HERE]
Looking North Toward the Subject From 301 Intersection With McKendree/
Cedarville Road (Future Spine Road Crossing); Subject at Curve in Distance
[PICTURE APPEARS HERE]
Looking South From Atlas Pontiac North of the Subject,
Subject to Right in Distance
31
<PAGE>
[PICTURE APEARS HERE]
From Near the Northern Boundary on Route 301, Looking South Toward the
Access Road Entrance Onto Route 301 at Clearing Beyond Blue Sign In Distance
[PICTURE APPEARS HERE]
Looking West From Northbound Route 301 Across Crossover to the
East-West Access Road Entrance to the Subject on Southbound Route 301
32
<PAGE>
[PICTURE APPEARS HERE]
From North of the Subject Entrance, Looking South
[PICTURE APPEARS HERE]
From South of the Subject Entrance, Looking North
33
<PAGE>
VIEWS OF THE SUBJECT FROM McKENDREE ROAD
[PICTURE APPEARS HERE]
[PICTURE APPEARS HERE]
From Mister Road at the North End of the Subject,
Looking North and South
34
<PAGE>
[PICTURE APPEARS HERE]
From the Entrance to Robin Dale County Club South of the Subject,
Looking North Toward the Subject to Right in Distance
[PICTURE APPEARS HERE]
Typical View Along McKendree Road at Rear of Sito
35
<PAGE>
ZONING
- ------
The appraised site is subject to the Comprehensive Design Zones R-M 5.8 - 7.9
(Medium Density Residential, 5.8 - 7.9 dwelling units per acre), L-A-C-Village
Center (Local Activity Center-Village Center), and EIA (Employment and
Institutional Area). The Comprehensive Design Zones are intended to "encourage
the optional and imaginative utilization of land...in order to: (A) Improve the
total environment; (B) Lessen the public costs associated with land development
and use; (C) Fulfill the purposes of each individual Comprehensive Design Zone;
and (D) Fulfill the recommendations and purposes of the Master Plan in selected
areas."*
The stated goals of the R-M (Residential Medium Development) zone include
balanced land development, compatibility of land uses including improved overall
quality and variety of residential environments, providing amenities and public
facilities. The base residential density in this R-M zone is 5.8 dwellings per
acre; density increment factors may be granted for land maintained in open
space, enhancement of existing natural features, pedestrian system separated
from vehicular rights-of-way, recreational development of open space, public
facilities, creating activity centers with space provided for quasi-public
services, or for incorporating solar access or active/passive solar energy in
design. The maximum density is 7.9 units per acre.
The L-A-C zone is designed to "encourage and stimulate balanced land
development", with "residential density and building intensity.. dependent on
providing public benefit features and related density/intensity ncrement factors
[assuring] the compatibility of proposed land uses with existing and proposed
surrounding land uses, and existing and proposed public facilities and services
[while promoting] the health, safety and welfare of the present and future
inhabitants...; and to encourage dwellings integrated with activity centers in a
manner which retains the amenities of the residential environment and provides
the convenience of proximity to an activity center".**
The base residential density in the L-A-C zoned Neighborhood Center is 10
dwellings per gross residential acre, and the base commercial intensity is 0.2
FAR per gross commercial acre. Additional density is permitted under certain
circumstances. These include among others: increases in green area; improved
common recreational space, or private open space contiguous to dwelling units;
pedestrian system separated from vehicular rights of way, which provides a
direct uninterrupted link either between blocks, or between major structures at
least 500 feet from each other; public facilities, distinctive streetscape
design or furnishings; preserving irreplaceable features such as trees, natural
swayles, or historic buildings or incorporating solar access or active/passive
solar energy in design. The maximum density is 15 dwellings per acre, and the
maximum commercial intensity is 0.64 FAR.
- -------------------------------------------------------------------------------
*"The Zoning Ordinance of Prince George's County", page 637.
**"The Zoning Ordinance of Prince George's County", page 647.
36
<PAGE>
Both R-M and L-A-C zones permit dwellings of any type except mobile homes. Also
permitted, among other uses, are home occupations, churches, day care centers,
nursing or care homes, group homes, schools; cemeteries; parking lots or
garages, or loading areas; public utility uses or structures, except for
railroad yards, roundhouse car barns, or freight station; floriculture,
horticultural, or gardening; golf courses; private ambulance services,
libraries, post offices, public buildings and uses, voluntary fire, ambulance or
rescue station; temporary use as a carnival, circus, or fair; community
buildings; parks, playgrounds, or other outdoor recreational areas; public or
quasi-public recreational uses; swimming pools or spa; accessory uses, such as
off-street parking; as well as surface mining with a special exception.
In addition, the L-A-C zone permits numerous commercial uses including eating or
drinking establishments, gas stations, vehicle repair and service stations,
medical practitioners' offices/medical clinics, barber or beauty shops, funeral
parlor or undertaker establishments, some repair shops, drug stores, temporary
firewood sales, florist shops, video game or tape stores, temporary wayside
stores, private clubs or lodges, indoor theaters. Under certain conditions dry
cleaning or laundry establishments, book, newspaper or magazine stores, food or
beverage stores, hobby shops, photographic supply stores, seafood markets,
specialty shops, and general offices will be permitted.
R-M zone also allows private schools and incidental commercial buildings such as
delicatessens, barber and beauty shops, and small convenience food and beverage
stores.
The EIA (Employment and Institutional Area) zone is intended to provide a mix of
employment, institutional, retail, and office uses in a manner which will retain
the dominant employment and institutional character of the area..." * through a
planned development consistent with the Master Plan and which will benefit the
public and be compatible with surrounding areas. Twenty percent of the net lot
area is required to be maintained in open space.
Most light industrial uses are allowed. Many office uses are allowed. Retail
uses are limited to "convenience" establishments intended primarily to serve
"other uses (and employees) in the area" * *,and some office uses
(administrative offices, banks, lending institutions) are similarly restricted.
Most institutional and public uses are also allowed so long as they are
conforming with the overall design. Some uses allowed in the zone are restricted
in the council resolution approving the ElA zone for the subject, such as
distribution centers.
Among the specific uses which are unconditionally permitted on the subject site
are brewery or distillery, industrial metal, waste, rag, glass, or paper salvage
operation, laboratory - experimental testing or film, maintenance or service
yard, printing and lithographic shop, research facility, church, day care
center, nursing home, library, post office, voluntary fire, ambulance or rescue
station, museum, art gallery, park, playground, hotel or motel.
- -------------------------------------------------------------------------------
*Section 27-499 (a) (4), page 653, Prince George's County Code, Subtitle 27
**Page 700 Prince George's County Code
37
<PAGE>
Specific Provisions of Subject Zoning Approvals
- -----------------------------------------------
Under the provisions of the approved Comprehensive Design Zone for the property
are general approvals for the following (Note that approvals for the rear 65
-------
+/- acres are based on the January 1993 approval for Comprehensive Design Plan
9202 (CDP 9202) and for the remaining 212 +/- acres approvals are based on the
Zoning Map Amendment #A-9878 approved on September 7, 1993, CR-60-1993).
These preliminary approvals and density allowances are listed below. Note that
final approvals for the rear 64.74 acres was less than that indicated by the
document.
A-9878
EIA Zone (46 Acres, Part of Parcels 24, 25)
- --------
Approved for development: 320,601 square feet
R-M Zone (149 acres, Parcel 66, Part of Parcels 24, 25):
- --------
Gross Area: 149 Acres
Less 1/2 Flood Plain: 20 Acres
Net Area: 129 Acres
Base Density (5.8 du/ac) 748 Dwelling Units
Maximum Density (7.9 du/ac): 1,019 Dwelling Units
LAC (Village Center) Zone (16.4 acres, Part of Parcel 25):
- -------------------------
Residential Acreage: 7.87 Acres
Base Density (10 du/ac) 78 Dwelling Units
Maximum Density (15 du/ac): 118 Dwelling Units
Commercial Acreage: 8.53 Acres
Base Intensity (.2 FAR) 74,313 square feet
Maximum Intensity (.31 FAR): 115,000 square feet
CDP 9202
R-M Zone (64.74 acres, Parcel 69, Part of Parcel 25):
- --------
Density(4.88 du/ac): 316 Dwelling Units(final approvals: 234 units,3.61
du/ac)
The most recent plan for the 64.74 acres included in the RM zone is for 234
units - 56 single family homes and 178 townhouses. According to Art Atencio
with Greenhorne and O'Mara, this reduction in density is in response to the
regulatory authorities mandate to move storm water management facilities away
from flood zone and wetland areas. This impacted residential areas and reduced
unit yield.
The fact that the final density was less than originally approved is an
indication that final approvals of overall density could easily be less than
originally approved.
New Zoning Ordinance Amendments
- -------------------------------
On November 12, 1996, the County Council enacted a new ordinance pertaining to
the design and development of townhouses. Among other issues, the regulations
increased minimum lot sizes and dwelling dimensions, reduced maximum groupings
of townhouses from 8 to 6, and lowered the allowable percentage of townhouses in
Comprehensive Design Zones. The latter regulation affects the subject RM
(maximum 30 percent townhouses) and LAC zones (maximum 40 percent townhouses).
38
<PAGE>
This new ordinance will impact the 149 acre RM portion of the tract and the
residential portion of the LAC zone. It is believed that some revision may be
applied to the LAC zone since this zone was intended for high density
residential development on relativelY small tracts of and. The ordinance will
likely result in a reduction in density for the RM zone.
The 64.74 acre parcel was grandfathered" under the old zoning guidelines since
the revised plan was submitted as a Specific Design Plan on December 20, 1996
according to Art Atencio with Greenhorne and O'Mara. This parcel will be subject
to the new regulation requiring that 10 percent of the planned dwelling units
receive building permits within a maximum 2 1/2 year period if the parcel is to
retain its "grandfathered" status. This will require that the engineering and
development plans be put on a relatively "fast track" in order maintain current
approvals.
39
<PAGE>
[ZONING MAP APPEARS HERE]
<PAGE>
[MAP OF ZONING OVERLAY ON PRELIMINARY ROAD PLAN APPEARS HERE]
<PAGE>
HIGHEST AND BEST USE
- --------------------
"Highest and Best Use" is defined:
The use, from among reasonably probable and legal alternative uses, found to
be physically possible, appropriately supported, financially feasible, and
that results in the highest present land value.*
LEGALLY PERMISSIBLE
The property is zoned for a variety of uses which are summarized in the previous
section. The zoning and permitting process has the effect of dividing the
property into 5 components: (1) 8.53 acres commercial (LAC); (2) 64.74 acres
medium density residential (RM) approved for development with 234 lots (178
townhouses and 56 single family homes); (3) 7.87 acres high density residential
(LAC); (4) 149 acres medium density residential with initial concept planning
(RM); and (5) 46 acres office/institutional/light industrial (EIA).
Recent changes in the zoning regulations have created some uncertainty as to the
allowable densities in the high density (3) component. It is believed that these
uncertainties will be addressed by county officials within the near term.
Overall effects of the ordinance are likely to result in some reduction in
density since townhouses as a percentage of the total number of dwelling units
has been significantly reduced in favor of single family homes. Under the new
ordinance, townhouses can now comprise no more than 30 percent of dwelling units
in the RM zone.
The 64.74 acre parcel at the rear of the site has been approved for development
under guidelines that preceded the new ordinance revisions. The parcel qualified
for the "grandfather" clause in the ordinance when the Specific Design Plan was
submitted on December 20 of last year, 10 days prior to the December 30
deadline, according to Arthur Atencio with Greenhorne and O'Mara. In order to
remain grandfathered, 10 percent of the proposed lots must be issued building
permits within 2 years and only a 6 month extension will be allowed. Unless
there is a change in policy, this creates a mid 1999 deadline.
The remaining 212 +/- acres received preliminary approval in February of this
year for a 70-foot-wide right-of-way extending between Route 301 and the rear
64.74 acre parcel.
The various approvals require that the developers fund off-site improvements to
McKendree Road and participate in offsite road improvement costs to the larger
neighborhood infrastructure through the area "road club" with fees of about
$1,300 per unit to be paid when each building permit is issued.
- -----------------------------------------------------------------------------
*The Appraisal of Real Estate, Page 280, Tenth Edition, Appraisal Institute of
----------------------------
Real Estate Appraisers
42
<PAGE>
School "surcharge" fees will be assessed consistent with those charges
countywide. Concerns that long range development may be negatively impacted by
school capacity issues should not significantly impact the subject. County
council is discussing additional impact fees for school districts where capacity
exceeds 100 percent in the 2001 projections, and a "no build" policy where
capacity is projected to exceed 120 percent. According to Rodney Harrell with
the Public Facilities Department with the park and planning commission. Of the
three schools in the subject district, only Gwynn Park High School is projected
to be over 100 percent in 2001, at 105 percent, although still well below the
120 percent capacity threshold. Gwynn Park Middle and Brandywine Elementary are
projected to be significantly below 1O0 percent at that time.
The EIA zoned acreage is subject to additional restrictions in the amendments
detailing the zoning approvals. The most significant of these restrictions
prohibits warehouse distribution uses.
PHYSICALLY POSSIBLE
The appraised property consists of 277 +/- acres of raw land currently with no
internal roads or utility infrastructure. It has extensive frontage on a heavily
traveled section of Route 5/301 which serves as both a commuter route into the
District of Columbia and as an alternative route between Richmond and Baltimore
to the heavily traveled 1-95. The commercial and office/light industrial
components are located along the highway, and the high density residential
component borders the commercial land. On the west side of these components, the
proposed Spine Road will run north-south through the property, with remaining
residential areas west of the Spine Road. The 651 acre parcel now planned for
development is located at the rear of the site in the "panhandle" area with
frontage on McKendree Road.
The property is located just north of the Waldorf area which provides a large
variety of shopping and support services. Prospective residents on the subject
site will have access to these amenities without the requirement of commuting
through Waldorf's congested roads at peak traffic hours.
McKendree Road, at the rear of the site is a county maintained road providing
access to rural residential areas and the Robin Dale Country Club 18 hole golf
course located just west of the subject.
The terrain is average for the area and suitable to support a variety of uses
for residential or commercial/industrial uses. Several streams cross the
property and about 50 acres of the site are located within the flood plain along
these streams.
The area most impacted by the flood plain/wetlands is the 46 acre office/light
industrial (EIA) component which is divided into two parts along its length by
an estimated 15 +/- acres of flood plain. Of the remaining acreage, about 10 +/-
acres is located in a narrow band along the highway with several east-west
streams, and about 20 +/- acres is located along the Spine Road to the west. The
residential acreage in the LAC zone is also affected but it is assumed the
dwelling units can be clustered away from sensitive areas.
43
<PAGE>
A 30-inch water line borders the eastern boundary along Route 301. Sewer lines
are located about 1/2 mile south of the subject and will require extension prior
to development.
A 64.74 acre portion of the tract located at the rear of the site is planned for
the first phase of residential development and will require utility extension
and construction of the road to provide access from Route 301.
FEASIBLE USES:
For many years the Brandywine area retained its rural character even as areas to
the north and south were steadily developing. This was largely due to lack of
sewer and adequate road infrastructure. Sewer lines began to extend into the
area about 7 years ago and the master plan adopted in 1992 proposed a new road
infrastructure to manage growth better. Since that time, the area has become a
focus for proposed development.
On the east side of Route 301 several large tracts have been or are being
acquired for large industrial users at prices reflecting the upper end of the
market. This type of development is expected to continue. On the west side of
Route 301, residential and commercial uses are envisioned by county planners,
and several large scale development plans are proceeding. The subject tract has
an advantage in that it is further along in the planning process than other
similar properties in the area.
Although population growth in Prince George's County has remained at about 1
percent per year over the past decade, household sizes have been shrinking. In
addition, the cost of new housing in the south part of the county, like most all
of southern Maryland, remains relatively affordable in comparison with most
other metropolitan area jurisdictions. The majority of new residents acquire new
housing. Together these trends combine to fuel continued demand for new housing.
Growth in the nearby Waldorf area has continued at a steady pace for many years,
but roads in the community continue to become more congested as commuters and
interstate traffic on Route 301 continue to increase. The Brandywine area offers
proximity to the many commercial and support services in Waldorf without the
requirement to travel the roads daily at peak traffic periods.
Public schools in the Brandywine area have a good reputation within the county
system, and are projected to remain below capacity guidelines for at least the
next 5 years. Gwynn Park High School has a magnet program and attracts students
from a wide area.
The appraised property consists of several large components and is suitable for
a phased development extending over a number of years. This type of phased
development has been common in the St. Charles area of Waldorf where the
developer would provide the large scale roads and infrastructure and sell both
the residential and commercial components to builders who would themselves fund
the smaller roads and infrastructure. There is a successful track record of over
20 years for this type of development.
44
<PAGE>
Approvals for the rear parcel mandate that the development process be put on a
fast track so that the approvals for the existing development plan remain in
force. In order to market the approved lots quickly, it will be necessary to
build the Route 301 Access Road to the rear parcel. Off-site sewer lines will
also require extension to the subject. These costs are estimated at $1,750,000.
Plans to begin development at the west end of the site with an access on
McKendree Road are likely to result in a slower sale rate than if the lots can
be directly accessed from Route 301, and unless marketing and development are
expedited it may be difficult to obtain building permits on 10 percent of the
lots by the deadline. The sale rate would be much faster with direct access to
Route 301.
Delaying development of the McKendree Road entrance, in particular, and of the
west end of the parcel, more generally, could defer some on and offsite costs
until a later date, offsetting some of the expense of the Route 301 access road.
In addition, this delay will insure that the subject is the primary beneficiary
of the Route 301 Access Road during the beginning phases of the project, and it
enhances the possibility that there could be some sharing of the offsite costs
for McKendree Road, should, for example, plans for Rice Mill and/or other
properties proceed to the development stage.
Since the EIA acreage can not be used for distribution warehouses, it is
unlikely that a single user could soon be found to acquire the acreage, although
a single buyer might be found to acquire the raw acreage and hold speculatively
for future uses. As the road network and residential and commercial components
of the property develop, it becomes more feasible to develop the EIA component
with allowable uses such as office, light industrial, R & D, some related
retail/service or restaurant uses, institutional uses or as a church site, or as
a possible hotel/motel site at some future date. These different allowable uses
and their differing acreage requirements, as well as the terrain problems of
this component, make it likely that more than one of these uses will eventually
be suitable for this component. This is expected to be the last component to be
developed, which will defer some major development expenses, and in the interim,
the specific highest and best use(s) for the property is expected to become more
clear.
MAXIMALLY PRODUCTIVE:
The highest and best use for the subject is to proceed from the planning to the
development/marketing stages in the following order:
PHASE I:
- -------
Finalize planning documents for the Route 301 Access Road to the lots on the
65 +/- acre rear parcel. It is estimated that the final stage of the approval
process can be reached within about a year. Erect signage on Route 301
advertising both the commercial site and the approved residential lots. Market
and/or plan development of the commercial site for/with a shopping center
anchored with a food market. As soon as possible begin road construction and
extend off-site sewer lines. It is estimated these costs will be spread out over
two years. A buyer might also be found for the raw EIA acreage, though specific
development plans are more likely at a future date.
45
<PAGE>
PHASE II:
- --------
Begin construction of the road and extend water lines to the western parcel, and
sewer lines to the front and rear of the site. Finalize sale and/or plans for
the commercial site and begin construction as soon as possible. Market the
residential lots to a single buyer or several builders, with on-site
infrastructure provided by the buyer.
Market the commercial site for a chain food/drug store to serve the
neighborhood.
Plan for at least 24 lots to have been issued building permits before mid 1999.
Delay construction of the western segment of the road including the McKendree
Road entrance until the market for the subject lots is clearly established or a
potential buyer or other interested party is found who will assume all or part
of this additional McKendree road and infrastructure cost.
A through road has the potential to significantly enhance other properties and
proposed projects which also front on McKendree Road. Phased development helps
to insure that the benefits of this road will initially accrue to the subject,
and allows for the possibility that at least some of the development costs could
be shared or assumed by others.
PHASE III: As the above developments proceed, continue with engineering and
- ---------
design of the medium and high density residential components in order to
facilitate marketing and/or development of the acreage within 2 to 4 years. The
market, in recent years, has demonstrated that most buyers delay settlement
until initial planning is approved or at least a clear indication of density is
known. Within 2 to 4 years, it can be anticipated that much of the remaining
residential acreage can be well along in the planning and approval process.
PHASE IV:
- --------
Delay development of the north-south Spine Road until the initial phases of the
overall project are underway and the potential market for the EIA land is
enhanced. As the early phases of development and road construction proceed the
EIA zoned acreage becomes a more likely location for the allowable uses. This
will allow for the possibility that some of the road development costs could be
assumed by one or more buyers. Anticipate that the climate for marketability of
the bulk of this acreage is likely to be significantly improved in 3 to 5 years.
46
<PAGE>
VALUATION
- ---------
The appraised property consists of 277 +/- acres of land with five land
components: (1) 8.53 acres commercial (LAC); (2) 64.74 acres medium density
residential (RM) approved for development with 234 lots (178 townhouses and 56
single family homes); (3) 7.87 acres high density residential (LAC); (4) 149
acres medium density residential with initial concept planning (RM); and (5) 46
acres office/institutional/light industrial (EIA).
Each of these tracts is valued separately by comparison with sales of similar
properties in Prince George's and proximate areas of Charles County. The
estimated value of the components is based on both prospective and current value
estimates.
The value estimate of Components (1) through (4) are prospective value estimates
based on the estimated time required to achieve required planning and
infrastructure status. These value estimates assume that the most basic "large
scale" infrastructure is in place with all utilities extended to the site and
the east- west Route 301 Access Road built between Route 301 and the rear
"panhandle" area comprising the approved lots.
The estimated value of Component (5) is a current estimate of the "raw" land
value and assumes the required construction infrastructure will be deferred
until development is approved.
The valuation concludes with an estimate of the aggregate value of the
components "as is", discounted for the estimated time required to achieve
necessary planning and infrastructure status of the components, with a deduction
made for the estimated cost to provide the basic infrastructure.
47
<PAGE>
COMPONENT (1): VALUE OF THE 8.53 ACRE COMMERCIAL COMPONENT
- ----------------------------------------------------------
In estimating the value of the commercial component, consideration is given to
sales of similarly oriented properties in comparable areas of Prince George's
and Charles Counties. Although older, Sale 2 is the most recent sale of a tract
------
developed with a food market in the Waldorf area, and Sale 5 is the most recent
------
sale of a large corner tract nearby on the Route 301 corridor. Not included for
comparison is a June 1996 sale of about 3.6 acres on Route 301 south of the
subject. This latter sale had no corner orientation, much inferior terrain, and
was acquired for assemblage with an existing car delearship.
The sales selected for comparison are listed below.
<TABLE>
<CAPTION>
Sale # Location Deed Date Grantor/ Area Price
County Tax Map ID Deed Ref. Grantee Zoning $/sf
- ------ ---------- --------- ------- ------ ----
<S> <C> <C> <C> <C> <C>
1 St. Charles Towne Center 07-12-95 St. Charles Assoc/ PUD $3,380,250
CH TM 14 Pot H 2108/245 Dayton Hudson Corp 9.70 ac ($7.99)
2 Rt. 925, S. of Rt. 5 03-11-93 Md. Bank & Trust/ CB $800,000
CH TM 15, Pot 8 1759/557 Food Lion 3.37 ac ($5.45)
3 Rt 301 & Garner Current Confidential/ 23.00ac $7,514,100
CH TM 8 Pots 224, 227,228 Contract Home Depot CC ($7.50)
4 Mitcheltville Road 08-26-96 Faison Bowie/ 9.625ac $4,006,000
PG TM 55 Plat 123067 10971/499 Kohl's Dept Store CM ($9.55)
5 Rt 301 & Holly Tree Ln 05-07-92 Xolar Corp/ 12.219ac $54,000,000
CH TM 8 Pot 684 1653/11 Lowe's C2 ($7.52)
6 9640 Lottsford Court 04/02/96 Rouse-Teachers/ 4.245ac $1,200,000
PG TM 60 Gr E4 Lot 50 10693/226 BET Holdings 13 ($6.49)
</TABLE>
Additional details of these sales are included on the following pages.
48
<PAGE>
COMPARABLE SALE NUMBER: 1
LOCATION: Western Parkway & St. Patrick's Drive, Waldorf
DATE: 7/12/1995
DEED REFERENCE: 2108/245
TAX MAP LOCATION: Tax Map 1 5 Grid 2 Parcel H
LAND AREA: 9.7070 acres
ZONING: PUD
GRANTOR: St. Charles Associates LP
GRANTEE: Dayton Hudson Corporation (Target)
SALE PRICE: $3,380,250
7.99/sf
FINANCING: None Reported
SOURCES: Files; Assessor; St. Charles Officials
Sale 1 is located about 6 miles south of the subject at the intersection of St.
Patrick's Drive and Western Parkway across from the mall entrance. This tract
was heavily wooded and the buyer was required to fund improvements to the
proximate road network and intersection. The sale is adjusted down for the
better location.
[Map appears here]
49
<PAGE>
COMPARABLE SALE #: 2
LOCATION: Route 925, Waldorf
DATE/DEED REFERENCE: 03/11/93; 1759/557
TAX MAP LOCATION: Tax Map 15 Parcel 8
LAND AREA: 146,841 sf
ZONING: CB
GRANTOR: Maryland Bank and Trust
GRANTEE: Food Lion
SALE PRICE: $800,000
($5.45/sf land)
FINANCING: None Reported
SOURCES: Files; Assessor; Baldus Real Estate
COMMENTS:
Although smaller, this sale is included because it is the most recent sale of
ground developed with a food market in the Waldorf area. This is a generally
clear and level parcel with average storm water management requirements. It is
located on Route 925 just south of the Route 5/925 intersection about 5 miles
south of the subject. The sale agreement included cross easements across a tract
with frontage along Route 5 giving the property access and visibility on both
roads. Although a busy corner, the location is secondary to Route 301 exposure
warranting an upward adjustment. The sale is also adjusted up for improved
market conditions since that time, inferior access, and down for the smaller
size, and nominally for better terrain conditions.
[Map appears here]
50
<PAGE>
COMPARABLE NUMBER: 3
LOCATION: Route 301 & Garner Lane
DATE: Current
DEED REFERENCE: Contract
TAX MAP LOCATION: Tax Map 8 Grid 10 Parcel 224, 227, 228
LAND AREA: 23.0000 acres 1 001,880 sf
ZONING: CC
GRANTOR: Confidential
GRANTEE: Home Depot
SALE PRICE: $7,514,100
$7.50 sf/land
SOURCE: Rick Hamilton (Broker)
This is a current contract for 23 acres at the site of the old Stardust Hotel
about 4 miles south of the subject. The building will need to be demolished. A
Builder's Square is planned for the site. The sale is adjusted down for the
location and up for the larger size.
[Map appears here]
51
<PAGE>
COMPARABLE SALE NUMBER: 4
LOCATION: Mitchellville Road
Bowie
DATE: 8/26/96
DEED REFERENCE: 10971/499
TAX MAP LOCATION: Tax Map 55 Grid D2 Plat 123067
LAND AREA: 9.628 acres
ZONING: CM
GRANTOR: Faison Bowie LP
GRANTEE: Kohl's Department Stores Inc.
SALE PRICE: $4,006,000
$9.55/sf
FINANCING: None Reported
SOURCES: Lusk; COMPS; Representative of Seller
This is the most recent among several sales of large tracts in a new developing
shopping center on the west side of Route 301 between Routes 197 and 50 in Bowie
about 20 miles north of the subject. Target Department Store had earlier
acquired a similar site at a slightly lower price. Several smaller sites have
recently been acquired at similar prices. This is a finished lot in a high
visibility location. In addition to the sale price the buyer paid an additional
fee estimated at about $2.50 per square foot for "land development" to cover
parking lot development expense. The seller constructed the parking lot. The
sale is adjusted down for location and the better terrain conditions.
[Map appears here]
52
<PAGE>
COMPARABLE NUMBER: 5
LOCATION: Route 301 & Holly Tree Lane, Waldorf
DATE: 05/07/92
DEED REFERENCE: 1653/11
TAX MAP LOCATION: Tax Map 8 Grid 10 Parcel 684
LAND AREA: 12.2190 acres 532,260sf
ZONING: CC
GRANTOR: Xolar Corporation
GRANTEE: Lowe's Home Centers, Inc.
SALE PRICE: $4,000,000
$7.52 sf/land
FINANCING: None Reported
SOURCES: Files; Assessor; Seller
Sale 5 is a relatively level tract of land, lightly wooded at the sale date,
- ------
located in the southwest quadrant of Route 301 and Holly Tree Lane about 3 miles
south of the subject. Approximately 1 acre was dedicated to storm water
management, which is not unusual for land in the area. The land had been
subdivided into 7 commercial lots, six with frontage on Route 301, but the
subdivision was of no value to the purchaser, a discount lumber and supply
store. This was a cash transaction. Construction was completed in mid-1993. The
sale is adjusted up for time and down for the better location.
[Map appears here]
53
<PAGE>
COMPARABLE SALE NUMBER: 6
LOCATION: 9640 Lottsford Court
Inglewood Business Community
DEED REFERENCE: 10693/226
DATE OF SALE: April 2, 1996
TAX MAP LOCATION: Tax Map 60 Grid E4 Section 5, Lot 50
LAND AREA: 4.2452 Acres 184,921 sf
ZONING: 13
GRANTOR: Rouse - Teachers Properties, Inc.
GRANTEE: BET Holdings, Inc.
SALE PRICE: $1,200,000
$6.49/sf land
FINANCING: All Cash
SOURCES: Lusk; Assessor; COMPS
Sale 6 is located about 18 miles north of the subject in the Inglewood Business
- ------
Park. The property has good visibility on heavily traveled Route 202 about 1/2
mile from the Beltway. There is a mixture of office and commercial uses in the
area. The land has average configuration and terrain, with about 10 percent
flood plain along the rear boundary. The site was developed with a combination
restaurant and entertainment complex. The sale is adjusted down for size and up
for the narrow configuration.
[Map appears here]
54
<PAGE>
In the grid below the adjustments discussed above are illustrated.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Sale No. $/sf Subject Sale #1 $7.99 Sale #2 $5.45 Sale #3 $7.50
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Date of Sale Appraisal: 06/97 07/95 03/93 + 10% $6.00 Contract
Sale Conditions
- ------------------------------------------------------------------------------------------------------------------------------------
Other Adjustments:
- ------------------------------------------------------------------------------------------------------------------------------------
Location Rt. 5/301 @ Access Rd. St. Pat/Wst.Prkwy - 20% Rt. 925 Near Rt. 5 + 20% Rt. 301/Central - 20%
Size 371,566 sf (8.53 ac) 422,837 sf 146,841 sf - 15% 1,001,888 sf + 10%
Access Good Good Average + 10% Good
Configuration Good Good Good Good
Terrain Average Average Above Average - 5% Average
Other
- ------------------------------------------------------------------------------------------------------------------------------------
Adjusted Price $6.39 $6.60 $6.75
- ------------------------------------------------------------------------------------------------------------------------------------
Sale No. $/sf Subject Sale #4 $9.55 Sale #5 $7.52 Sale #6 $6.49
- ------------------------------------------------------------------------------------------------------------------------------------
Date of Sale Appraisal: 06/97 08/96 05/92 + 10% $8.27 08/96
Sale Conditions
- ------------------------------------------------------------------------------------------------------------------------------------
Other Adjustments:
- ------------------------------------------------------------------------------------------------------------------------------------
Location Rt. 5/301 @ Access Rd. Rt301/Rt197/Mch'vl - 20% Rt. 301/Holly Ln - 20% Rt. 202/Lottsford
Size 371,566 sf (8.53 ac) 419,406 sf 532,260 184,921 sf - 10%
Access Good Good Good Good
Configuration Good Good Good Average - 10%
Terrain Average Good - 10% Average Average
Other
- ------------------------------------------------------------------------------------------------------------------------------------
Adjusted Price $6.69 $6.62 $6.49
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The sales bracket a value of $2,450,000,or a rounded $6.60 per square foot.
The value estimate assumes that final approvals for the Route 301 Access
Road and 234 lots will be obtained within approximately one year from the
date of the report, and that development plans for the commercial and
residential components will proceed consistent with the outline contained
within this report. On this basis, the projected value estimate is as of
June, 1998.
55
<PAGE>
[COMPARABLE SALES MAP APPEARS HERE]
<PAGE>
COMPONENT (2): VALUE OF THE 64.74 ACRES WITH APPROVALS FOR 234 LOTS
- -------------------------------------------------------------------
In estimating the value of this component, consideration is given to recent
sales of blocks of lots in Prince George's and Charles Counties. Sales 7
-------
through 9 contain mixtures of townhouse and single family lots. Sales 10
- --------- --------
and 11 contain townhouse lots.
- ------
The sales are listed below.
<TABLE>
<CAPTION>
Sale # Location Deed Date Grantor/ Zoning;#Lots Price
County Tax Map ID Deed Ref. Grantee Area $/Lot
- ------ ---------- --------- -------- ---- -----
<S> <C> <C> <C> <C> <C>
7 Quiet Brook Lane 06/27/96 Realty Inv Assoc/ RS;222 Lots $2,500,000
PG TM 125 Gr El 10865/537 Surratts Inv Co. 105.995 ac ($11,261)
8 Bowie Race Track Road 04/13/95 Eastern Bank/ RS/LAC;187 $1,600,000
PG TM 29 Pcl 48 10102/208 Race track Assoc. 81.670 ac ($ 8,556)
9 10908 Old Marlboro Pike 02/18/94 Trafalgar House/ RS/LAC;33O $2,400,000
PG TM 100 Pcl 51 & A 9373/41 Melwood Park Assoc. 131.000 ac ($ 7,637)
10 Commerce Place 01/19/96 Central Ave Assoc/ RT; 130 $1,538,000
PG TM 67 Plat 173090 10557/42 Arbor West LLC 16.469 ac ($11,239)
11 Acton Lane 07/05/95 Barley Mortgage/ RH; 46 $667,000
CH TM 8 Pcl 307 2105/45 Oakridge Housing 6.013 ac ($14,500)
</TABLE>
Details are included on the following pages.
57
<PAGE>
COMPARABLE SALE NUMBER: 7
LOCATION: Quiet Brook Lane
Clinton
DATE: 6/27/96
DEED REFERENCE: 10865/537
TAX MAP LOCATION: Tax Map
LAND AREA/# Lots: 105.995 Acres/222 Lots (94 TH; 128 SFR)
ZONING: RS
GRANTOR: Realty Investment Associates III
GRANTEE: Surratts Investment Company, Inc.
SALE PRICE: $2,500,000
$23,586/Acre; $11,262 per Lot
FINANCING: $3,150,000 First Mariner Bank Line of Credit
SOURCES: Lusk; Prince George's Newsletter; COMPS
This is the sale of the last section of Summit Creek, located in the northwest
quadrant of Route 5 and Surratts Road about 6 miles north of the subject. The
developer was reportedly ready to dispose of the inventory at the sale date. The
location is less convenient to shopping and commercial services comparable to
those in the Waldorf area. The project contains a higher percentage of single
family lots than the subject, and since they typically sell at prices about
double that of townhouse lots, a downward adjustment of about 15 percent is
warranted.
58
<PAGE>
COMPARABLE SALE NUMBER: 8
LOCATION: Bowie Race Track Road
Bowie
DATE: 4/13/95
DEED REFERENCE: 10102/208
TAX MAP LOCATION: Tax Map 29 Grid D2 Parcel 48
LAND AREA/# Lots: 81.67 acres; 185 Lots (162 TH; 23 SFR)
ZONING: RS/LAC
GRANTOR: Eastern American Bank
GRANTEE: Racetrack Associates LLC
SALE PRICE: $1,600,000
$19,591/Acre; $8,556 per Lot
FINANCING: $1,280,000 Eastern American Bank
SOURCES: Lusk;Files; Subdivision Office; Buyer Representative
This is a sale of a tract divided into two parts on both sides of Route 197 in
north Bowie. It had been previously acquired in the late 1980's for a very
similar price, but the bank foreclosed on the property due to financial and
personal problems of the owner in the recession of the early 1990's. The most
recent sale occurred on the day that a preliminary plan was approved under a
Comprehensive Design Zone for 162 townhouse lots, 17 single family lots, and a 4
acre component approved for neighborhood strip commercial of 10,000 + square
feet.
Most of the land is rugged and hilly, with steep slopes and heavy woods with
some relatively level areas along ridge lines. On the approximately 30 acre
portion east of Route 197, only 6 lots were approved, varying in size between 2
and 10 acres (with a current asking price of $80,000 per lot). This area was
also inaccessible to sewer. Only about 25 percent of the land area was approved
for relatively intense development, with the townhouses and commercial component
located in the southeast quadrant of the intersection of 197 and Race Track
Road. In this way terrain problems were minimized through clustering. In
addition, a substantial part of the acreage was lost to road dedications for
planned routes through the area.
The sale is adjusted up for the higher percentage of townhouse lots and the more
extensive planning approvals of the subject.
59
<PAGE>
COMPARABLE NUMBER: 9
LOCATION: 10908 Old Marlboro Pike
Upper Marlboro
DATE: 02/18/94
DEED REFERENCE: 9373/41
TAX MAP LOCATION: Tax Map 100 Grid 82 Parcel 51 & A
LAND AREA/# Lots: 131.000 acres/330 Lots (260 TH; 70 SFR)
ZONING: RS/LAC
GRANTOR: Trafalgar House Properties
GRANTEE: Melwood Park Associates
SALE PRICE: $2,400,000
$718,321/Acre; $7,273 per Lot
FINANCING: $3,591,500 Private
SOURCES: Lusk; Deed; Prince George's Newsletter;
Former Owner
P.G. County Department of Subdivision Review
This sale is located about 12 miles north of the subject on the north side
of Route 4. The sale was preceded by a foreclosure transaction in September
of 1 993 for $1,250,000 to Trafalgar House Properties. Subsequent to that
transaction, Concept Plan approval was received for 260 townhouse and 70
single family lots. The approval was consistent with anticipated lot
yield. There is a small LAC component of the tract which apparently
includes an historic house subject to county regulation. The land is
currently being developed. The land is heavily wooded and power
transmission lines cross the center of the tract.
This sale is adjusted up for the larger volume of lots and for the more
extensive planning approvals of the subject.
60
<PAGE>
COMPARABLE SALE NUMBER: 10
LOCATION: Arbor West
Largo
DATE: 1/19/96
DEED REFERENCE: 10557/42
TAX MAP LOCATION: Tax Map 67 Grid F3 Plat 173090
Lots 1-30 Parcels A & B, Arbor West
LAND AREA/# Lots:: 16.469 Acres/130 Lots (All Town House)
ZONING: RT ; $11,831 per Lot
GRANTOR: Central Avenue Associates LP
GRANTEE: Arbor West LLC
SALE PRICE: $1,538,000
$93,387/Acre
FINANCING: None Reported
SOURCES: LUSK; Representative of Washington Homes
This is a block of townhouse lots on the south side of Central Avenue in the
Largo area about 18 miles north of the subject. The sale is adjusted down for
the smaller lot volume and up for the higher percentage of townhouse lots.
61
<PAGE>
COMPARABLE SALE NUMBER: 11
LOCATION: Acton Lane
Waldorf
DEED REFERENCE: 2105/45
DATE OF SALE: 7/5/95
TAX MAP LOCATION: Tax Map S Grid 10 Parcel 307
LAND AREA/# Lots:: 6.0130 Acres/46 Lots (All TH)
ZONING: RH
GRANTOR: Barley Mortgage Company, Inc.
GRANTEE: Oakridge Housing Corporation
SALE PRICE: $667,000
$110,926/Acre; $14,500 per Lot
FINANCING: None Reported
SOURCES: Files;Deed/Plat;County Planning Office;Robert
Schick
This is a smaller block of lots on Acton Lane in Waldorf about 4 miles south of
the subject. The land had preliminary planning approval at the sale date and
the final plan was approved about 3 months later. The sale is adjusted down for
the smaller lot volume and up for the higher percentage of townhouse lots.
62
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sale No. $/Lot Subject Sale #7 $11,261 Sale #8 $8,556 Sale #9 $7,273
- --------------------------------------------------------------------------------------------------------------
Date of Sale Appraisal: 6/97 12/95 04/95 02/94 + 5% $7,637
Sale Conditions Motivated + $12,387
- --------------------------------------------------------------------------------------------------------------
Other Adjustments:
- --------------------------------------------------------------------------------------------------------------
Location Access Rd W/oRt301 Rt5/Surratts + 10% No.Bowie Rt197 Rt42 Wdyrd
Number of Lots 234 222 Lots 185 Lots 330 Lots +15%
Townhouse % 76% 42% - 15% 87% + 5% 79%
Terrain Average Average Average Average
Planning Platted Platted Apprv.Concept +25% Apprv.Concept +25%
Other Powerlines + 5%
- --------------------------------------------------------------------------------------------------------------
Adjusted Price $11,767 $11,122 $11,073
- --------------------------------------------------------------------------------------------------------------
Sale No. $/Lot Subject Sale #10 $11,831 Sale #11 $14,500
- --------------------------------------------------------------------------------------------------------------
Date of Sale Appraisal: 6/97 01/96 11/95
Sale Conditions
- --------------------------------------------------------------------------------------------------------------
Other Adjustments:
- --------------------------------------------------------------------------------------------------------------
Location Access Rd W/oRt301 Largos/oCentrl ActonLnW/o301
Number of Lots 234 130 Lots -15% 46 Lots -30%
Townhouse % 76% 100% +10% 100% +10%
Terrain Average Average Average
Planning Platted Platted Platted
Other
- --------------------------------------------------------------------------------------------------------------
Adjusted Price $11,239 $11,600
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The sales bracket a value of a rounded $2,650,000 or about $11,325 per lot. The
value estimate assumes that final approvals for the Route 301 Access Road and
234 lots will be obtained within approximately one year from the date of the
report, and that development plans for the commercial and residential components
will proceed consistent with the outline contained within this report. On this
basis, the prospective value estimate is as of June, 1998.
63
<PAGE>
[COMPARABLE SALES MAP APPEARS HERE]
<PAGE>
COMPONENT (3): THE 7.87 ACRE HIGH DENSITY RESIDENTIAL (LAC) COMPONENT
- ---------------------------------------------------------------------
In estimating the value of this component, consideration is given to recent
sales in comparable areas of Prince George's and Charles Counties.
The sales selected for comparison are summarized below.
<TABLE>
<CAPTION>
Sale Date Location Grantor/ Zoning Price
No. Deed Ref. Identification Grantee Land Area ($/sf)
- ---- --------- -------------- -------- --------- ------
<S> <C> <C> <C> <C> <C>
12a 03/06/96 Jessford Road Bradford/ RT $112,000
10636/393 TM 53 Pcl 74 MH Dev Co. 1.00 acre ($2.57)
b 03/06/96 Jessford Road Johnson Crane/ RT $103,996
10636/390 TM 53 Pcl 114 MH Dev Co. 1.56 acres ($1.53)
c 03/03/96 Jessford Road Cassidy/ RT $ 65,000
10636/337 TM 53 Pcl 97 MH Dev Co. 1.00 acre ($1.49)
d 03/06/96 Lottsford Vista Road Arnold/ RT $250,000
10636/400 TM 53 Pcls 73 & 147 MH Dev Co. 1.23 acres ($4.65)
e 03/06/96 Lottsford Vista Road Kagle/ RT $338,287
10636/396 TM 53 Pcl 34 MH Dev Co. 7.06 acres ($1.10)
---------- --------
TOTAL ASSEMBLAGE 11.85 acres $869,283
($1.68)
13 11/17/95 Hill Oaks Road Chaney/ RT $483,429
10461/658 TM 66 Plat 173048 Regal Dev. 6.64 acres ($1.67)
14 09/24/96 St. Patrick's Drive Lions Club/ RH $871,087
2282/371 TM 15 Pcl 317 p/o 149 WP Investments 10.61 acres ($1.88)
</TABLE>
Details of these sales are included on the following pages.
65
<PAGE>
COMPARABLE SALE NUMBER: 12a
LOCATION: Jessford Road
Bowie
DEED REFERENCE: 10636/393
DATE OF SALE: March 6, 1996
TAX MAP LOCATION: Tax Map 53 Grid B1 Parcel 74
LAND AREA: 1.00 Acre
ZONING: RT
GRANT0R: Jesse R Bradford
GRANTEE: MH Development Company
SALE PRICE: $112,000
$2.57/sf land
FINANCING: $1,020,000 First National
VERIFICATION: Kenneth H. Michael
Sales 12a through 12e represent sales of small and medium sized parcels
- ---------------------
assembled for development. The buyer already owned about 30 acres of adjacent
land and plans a townhouse development of about 50 acres.
These sales are located about 25 miles northeast of the subject and consist of
an old farm and related properties on an old gravel road near the Washington
Business Park. The terrain is rolling and mostly clear with some wooded areas.
According to the developer, the difference in price among the sales has no
relation to the characteristics of each parcel, but rather to the course of the
negotiations prior to the sale. The highest priced sale represents a seller who
pressed this advantage. Since this is an assemblage of mostly small parcels, the
average price has been discounted at 10 percent. The sale is adjusted up for
inferior access and nominally for size, and down for the better terrain.
[MAP APPEARS HERE]
66
<PAGE>
COMPARABLE SALE NUMBER: 12b
LOCATION: Jessford Road
Bowie
DEED REFERENCE: 10636/390
DATE OF SALE: March 6, 1996
TAX MAP LOCATION: Tax Map 53 Grid B1 Parcel 114
LAND AREA: 1.56 Acres
ZONING: RT
GRANTOR: Johnson Crane Service, Inc.
GRANTEE: MH Development Company
SALE PRICE: $103,996
$1.53/sf land
FINANCING: None Reported
[MAP APPEARS HERE]
67
<PAGE>
COMPARABLE SALE NUMBER: 12c
LOCATION: Jessford Road
Bowie
DEED REFERENCE: 10636/387
DATE OF SALE: March 3, 1996
TAX MAP LOCATION: Tax Map 53 Grid B1 Parcel 97
LAND AREA: 1.00 Acre
ZONING: RT
GRANTOR: Elaine L. Cassidy
GRANTEE: MH Development Company
SALE PRICE: $65,000
$1.49/sf land
FINANCING: None Reported
The buyer reports that he obtained approval for 6 townhouse units on this site
independent of the other parts of the assemblage.
[MAP APPEARS HERE]
68
<PAGE>
COMPARABLE SALE NUMBER: 12d
LOCATION: 4321 Lottsford Vista Road
Bowie
DEED REFERENCE: 10636/400
DATE OF SALE: March 6, 1996
TAX MAP LOCATION: Tax Map 53 Grid B1 Parcel 73 & 147
LAND AREA: 1.23 Acres
ZONING: RT
GRANTOR: Jesse E. Arnold
GRANTEE: MH Development Company
SALE PRICE: $250,000
$4.65/sf land
FINANCING: $1,020,000 1st National Bank of Maryland
[MAP APPEARS HERE]
69
<PAGE>
COMPARABLE SALE NUMBER: 12e
LOCATION: 4405 Lottsford Vista Road
Bowie
DEED REFERENCE: 10636/396
DATE OF SALE: March 6, 1996
TAX MAP LOCATION: Tax Map 53 Grid B1 Parcel 34
LAND AREA: 7.06 Acres
ZONING: RT
GRANTOR: John H. Kagle, Jr.
GRANTEE: MH Development Company
SALE PRICE: $338,287
$1.10/sf land
FINANCING: None Reported
[MAP APPEARS HERE]
70
<PAGE>
COMPARABLE SALE NUMBER: 13
LOCATION: End of Hill Oaks Road
Land over (Cheverly)
DEED REFERENCE: 10461/658
DATE OF SALE: November 17, 1995
TAX MAP LOCATION: Tax Map 66 Grid F2 Plat 1800-173048
LAND AREA: 6.64 Acres
ZONING: RT
GRANTOR: Robert L. Chaney, et al
GRANTEE: Regal Development LC
SALE PRICE: $483,429
$1.67/sf land
FINANCING: $400,000 First Columbia
SOURCES: Lusk; Raad Al-Bermani, Regal Associates
This is the most recent sale of part of a tract of land subject to a 1992
contract. The buyers assumed all costs of development approvals and prior to
settlement had plats approved for 64 townhouse lots. The lots are located in
Chaney's Choice, which borders the sold out Hill Oaks townhouse development
north of Central Avenue about 20 miles north of the subject. The Hill Road area
is undergoing rapid development with both townhouse and single family homes. The
buyer will re-sell the lots to builders in the development. The sale is adjusted
up for the location and down for the better terrain.
[MAP APPEARS HERE]
71
<PAGE>
COMPARABLE SALE NUMBER: 14
LOCATION: North Side of St. Patrick's Drive @
Western Parkway
Waldorf
DEED REFERENCE: 2282/371
DATE OF SALE: September 24, 1996
TAX MAP LOCATION: Tax Map 15 Grid 2 Parcel 317 p/o Parcel 149
LAND AREA: 10.61 Acres
ZONING: RH
GRANTOR: Lions Club of Waldorf, Inc.
GRANTEE: WP Investments LLC
SALE PRICE: $871,087 + $210,000 for TDR's
$1.88/sf land; $2.34 with TDR's
FINANCING: $2,300,000 3 Years, Providence Bank of MD
SOURCES: Lusk; Deed; County Planners; Rick Hamilton
This sale is located on St. Patrick Drive near the St. Charles Town Center Mall
about 6 miles south of the subject. It had preliminary approval for 100
townhouses and about 60 had been platted. This density was obtained by acquiring
50 TDR's (Transfer Development Rights) at a price of $4,200 per unit or
$210,000. On this basis the actual purchase price was $1,081,087 or $2.34 per
square foot. The sale is adjusted down for the location and planning approvals,
and up nominally for size.
[MAP APPEARS HERE]
72
<PAGE>
The adjustments made on the sale sheets are summarized in the grid below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Sale # Avg $/sf Subject Sale #12 $1.68 Sale #13 $ 1.67 Sale #14 $ 1.88
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Date of Sale Appraisal: 6/97 03/96 11/95 09/96
Conditions/Sale *50TDR +$.46 $ 2.34
- ------------------------------------------------------------------------------------------------------------------------------------
Other Adjustments:
- ------------------------------------------------------------------------------------------------------------------------------------
Location 301 at Access Rd Lotsf'd Vista Hill Oaks + 10% St. Pat/W.Prky - 20%
Size 7.87 Acres 11.85 ac + 5% 6.64 ac 10.61 ac + 5%
Zoning LAC RT RT RH+ 50 TDR's
Terrain Average Above Average - 10% Above Average - 10% Average
Access Above Average Average + 10% Above Average Above Average
Planning Concept Concept Concept Concept & Plats - 15%
Other
- ------------------------------------------------------------------------------------------------------------------------------------
Net Adjustment - 30%
- ------------------------------------------------------------------------------------------------------------------------------------
Adjusted Price $1.76 $1.67 $1.64
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The sales are supportive of a rounded $575,000 or a rounded $1.68 per square
foot for the 342,817 square feet (7.87 acres) estimated in the tract. The value
estimate assumes that final approvals for the Route 301 Access Road and 234 lots
will be obtained within approximately one year from the date of the report, that
the road will be built within the following year, and that development plans for
the commercial and residential components will proceed consistent with the
outline contained within this report. On this basis, the prospective value
estimate is as of June, 1999.
73
<PAGE>
[COMPARABLE SALES MAP APPEARS HERE]
<PAGE>
COMPONENT (4): VALUE OF THE 149 ACRES OF RM RESIDENTIAL ACREAGE
- ---------------------------------------------------------------
There have been few sales of RM acreage. These tracts typically sell in smaller
parcels with specific design approvals. Sale 15 below was acquired by a
-------
government agency for purposes other than that specified by the zoning, but the
purchase price was based on value estimates supported by zoning approvals. The
other two sales are of tracts in the early stages of the planning process.
The sales selected for comparison are summarized below.
<TABLE>
<CAPTION>
Sale # Location Deed Date Grantor/ Area Price
County Tax Map ID Deed Ref. Grantee Zoning $/Acre
- ------ ---------- --------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
15a 7901 Sheriff Road 05/5/95 Wilson/ RM $2,000,000
PG TM 59 & 60 Various pcls 10131/646 MNCPPC 96.899 ac ($20,640)
b 7901 Sheriff Road 05/5/95 Landover RM $2,000,000
PG TM 60 & 67 Various pcls 10131/639 MNCPPC 99.821 ac ($20,035)
c 7901 Sheriff Road 05/5/95 Wilson Land Ptshp RM $2,000,000
PG TM 60 Pcl 14 10131/655 MNCPPC 100.400 ac ($19.920)
---------- ---------
Total 297.12 ac $6,000,000
($20,194)
16 N of Central Avenue 02/27/92 Winchester- RM Norair RM $10,500,000
PG TM 67/Parcel 149 8217/499 Summerfield Housing 231.640 ac ($45,337)
17 10908 Old Marlboro Pike 02/18/94 Trafalgar House/ RS/LAC $2,400,000
PG TM 100 Pcl 51 & A 9373/41 Melwood Park Assoc. 131.000 ac ($18,321)
</TABLE>
75
<PAGE>
COMPARABLE SALE NUMBER: 15a
LOCATION: 7901 Sheriff Road
Cheverly
DATE OF SALE: 05/05/95
DEED REFERENCE: 10131/646
TAX MAP IDENTIFICATION: Tax Map 59, Grid F4, Parcel 97 & 60
Tax Map 60, Grid A4, Parcel 109
GRANTOR: Thomas Woodrow Wilson
GRANTEE: MNCPPC
LAND AREA: 96.899 Acres
ZONING: RM
SALE PRICE: $2,000,000
$20,640/Acre
FINANCING: None Reported
SOURCES: Files; Lusk; Wallace Sasser, Sales Agent
This sale, about 20 miles north of the subject, and those on the following two
pages are an assemblage of parcels in the ownership of the Wilson family. The
total area of the assemblage is 297.12 acres for a price of $20,194 per acre.
The land was acquired for a park although it was later sold for the new Redskins
stadium. The broker representing the sellers reported that the owners desired to
sell and were willing to sell to the Park and Planning Commission at a price
discounted at about 25 percent of the appraised value. The land had an approved
density of about 5 units per acre, and a small LAC component. Substantial road
construction would have been required to develop this parcel, including major
area roads extended through the property. The terrain was rolling with some
woods and much farm land. The sale is adjusted up for the discounted purchase
price, the large size, and inferior access, and down for the LAC component.
76
<PAGE>
COMPARABLE SALE NUMBER: 15b
LOCATION: 7901 Sheriff Road
Cheverly
DATE OF SALE: 05/05/95
DEED REFERENCE: 10131/639
TAX MAP IDENTIFICATION: Tax Map 60, Grid B4, Parcel 28
Tax Map 67, Grid B1, Parcel 19
GRANTOR: Landover Development Partnership
GRANTEE: MNCPPC
LAND AREA: 99.821 Acres
ZONING: RM
SALE PRICE: $2,000,000
$20,035/Acre
FINANCING: None Reported
77
<PAGE>
COMPARABLE SALE NUMBER: 15c
LOCATION: 7901 Sheriff Road
Cheverly
DATE OF SALE: 05/05/95
DEED REFERENCE: 10131/655
TAX MAP IDENTIFICATION: Tax Map 60, Grid B4, Parcel 14
GRANTOR: J.N. Wilson Land Partnership
GRANTEE: MNCPPC
LAND AREA: 100.400 Acres
ZONING: RM
SALE PRICE: $2,000,000
$19,920/Acre
FINANCING: None Reported
78
<PAGE>
COMPARABLE SALE NUMBER: 16
LOCATION: North of Central Avenue @ Hillview Rd
Cheverly
DATE OF SALE: February 27, 1992
DEED REFERENCE: 8217/499
TAX MAP IDENTIFICATION: Tax Map 67, Grid C-3, Parcel 149
GRANTOR: Winchester-Norair JV
GRANTEE: Summerfield Housing
LAND AREA: 231.640 Acres
ZONING: RM
SALE PRICE: $10,500,000
$45,329/Acre
FINANCING: $10,500,000 Mortgage by Hunt Building
Corporation
SOURCES: Lusk; Deed; Representative of the Seller; Prince
George's County Department of Subdivision
This is the sale of a large tract of land just south of the prior sale. Prior to
the negotiations, the land was subject to a 1991 approved preliminary plan for a
324.5 acre tract with an LAC component comprised of about 93 acres. The LAC
component includes the site of a METRO station for the proposed Blue Line
extension and was retained by the sellers.
The buyers acquired the residentially zoned portion only. The original
preliminary plan was abandoned, and a new preliminary plan was submitted and
approved prior to settlement of the transaction. We were unable to uncover the
cost of the engineering and approval process, but this cost was reportedly
shared by the seller and the buyer. The approved plan is for 1,242 housing
units, rental only, comprised of townhouses and duplexes, to be used for
military housing. The density is 5.37 units per acre. The acquisition price, on
the basis of density, is $8,454 per unit.
The approved preliminary plan includes 36 acres of dedicated park land and
requires substantial improvements to Central Avenue and the intersections with
the new Brightseat and Ritchie Road. The developers were required to build a
portion of the new Ritchie Road, but it is unclear if they will be required to
fund the construction through the entire parcel.
This is a low risk investment for the developer since the military provides a
guaranteed market. Although no LAC component is included in the sale, the tract
benefits from the adjacent rail station site and easy access to Central Avenue.
The agent reported that, in her opinion, the Wilson tract has minimal planning,
and greater access problems which will impact more heavily on the road network.
The sale is adjusted up for improved market conditions and the large size, and
down for location, approved preliminary planning and the very low risk of the
project.
79
<PAGE>
COMPARABLE SALE NUMBER: 17
LOCATION: 10908 Old Marlboro Pike
Upper Marlboro, Maryland 20772-2728
DATE OF SALE: February 18, 1994
DEED REFERENCE: 9373/41
TAX MAP LOCATION: Tax Map 100, Grid B-2, 2 Parts of
Parcel 51 & Mellwood Jr High, Pcl A
GRANTOR: Trafalgar House Properties
GRANTEE: Melwood Park Associates
LAND AREA: 131.0000 Acres
ZONING: RS/LAC
SALE PRICE: $2,400,000
$18,321/Acre
FINANCING: Mortgage $3,591,500 Private
SOURCES: Lusk; Deed; Prince George's Newsletter;
Former Owner
P.G. County Dept. of Subdivision Review
This sale is located about 12 miles north of the subject on the north side of
Route 4. The sale was preceded by a foreclosure transaction in September of 1993
for $1,250,000 to Trafalgar House Properties. Subsequent to that transaction,
Concept Plan approval was received for 260 townhouse and 70 single family lots.
The approval was consistent with anticipated lot yield. There is a small LAC
component of the tract which apparently includes an historic house subject to
county regulation. The land is currently being developed. The land is heavily
wooded and power transmission lines cross the center of the tract.
The sale is adjusted up for time, the lower density zoning, inferior access and
the power lines dividing the property, and down for the approved concept plan.
80
<PAGE>
The adjustments are summarized in the grid below.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Sale # Avg $/ac Subject Sale # 15 $20,194 Sale # 16 $65,329 Sale #17 $18,321
- ----------------------------------------------------------------------------------------------------------------------------------
Date of Sale Appraisal: 6/97 05/95 02/92 + 10% 02/94 + 5% $19,237
Sale Conditions Discount + 25% $25,243
- ----------------------------------------------------------------------------------------------------------------------------------
Other Adjustments:
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Location W/o Rt 301 S/o Sheriff Rd N/o Central - 5,000 Rt4 @ Woodyrd
Size 149+/- Acres 297.12 ac + 3,000 231.64 ac + 2,500 131.0 ac
Zoning (du/ac) RM(3.5-5.8) RM (5.0)/lAC - 1,500 RB(5.4) RS(2.5)LAC + 7,500
Terrain Average Average Average Average
Access Above Average Below Avg + 3,500 Above Average Average + 2,500
Planning Concept/Density Concept/Density Appr. Prelim -10,000 Appr.Concept - 2,500
Other Verylow Risk - 5,000 Power Lines + 2,500
- ----------------------------------------------------------------------------------------------------------------------------------
Net Adjustment + 5,000 -17,500 +10,000
- ----------------------------------------------------------------------------------------------------------------------------------
Adjusted Price $30,243 $32,362 $29,237
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The sales bracket a value of a rounded $4,500,000 or a rounded $30,200 per acre.
The value estimate assumes that final approvals for the Route 301 Access Road
and 234 lots will be obtained within approximately one year from the date of the
report, that the road will be built within the following year, and that
development plans for the commercial and residential components will proceed
consistent with the outline contained within this report. On this basis, the
value estimate is valid as of June 9, 1999.
81
<PAGE>
[MAP OF COMPARABLE SALES APPEARS HERE]
<PAGE>
COMPONENT (5): VALUE OF THE OFFICE/LIGHT INDUSTRIAL (EIA) COMPONENT
- -------------------------------------------------------------------
There have been no recent sales of EIA zoned acreage. Safeway is negotiating to
acquire a large tract in this zone near the Prince George's Commerce Center on
Route 301 between Bowie and Upper Marlboro, but this is in the negotiating stage
and no details are known about its status.
As of the date of the appraisal Circuit City is planning to acquire a 28 +/-
acre site at the corner of Route 301 and Cedarville Road. Of this potential
sale, we are also unaware of the particulars, but it is believed that the price
will be consistent with the prices paid by Montgomery Ward for 55 +/-acres in
1991, and more recently by Panda-Brandywine cited as Sale 1 below. The
------
Montgomery Ward sale was excluded because of the older sale date.
In estimating the value of this component, consideration is given to recent
sales of tracts with comparable utility in Prince George's County.
<TABLE>
<CAPTION>
Location/
Sale Date Tax Map Grantor/ Zoning Sale Price
No. Deed Ref. Identification Grantee Land Area ($/SF)
- ---- --------- -------------- ------- --------- ----------
<S> <C> <C> <C> <C> <C>
18a 04/12/95 8100 Cedarville Rd Jasper/ 12 $3,097,054
10100/185 TM 165 Pcl 20 Panda-Brandywine LP 25.80 Ac. ($2.76)
b 04/12/95 Indian Head Road Gemeny/ OS $ 424,000
10100/190 TM 165 Lots 31 & 32 Panda-Brandywine LP 4.30 Ac. ($2.26)
c 04/12/95 8200 Cedarville Rd Richards/ OS $ 157,000
10100/193 TM 165 Lot 22 Panda-Brandywine LP 1.61 Ac. ($2.24)
------- ----------
Total 31.71 Ac. $3,678,054
($2.66)
19 06/95 Spectrum & Arena Drive Landover Properties 13 $5,175,000
10225/334 TM 67 Pcls 33,70,127 Jericho Baptist Church 73.66 Ac. ($1.61)
20 03/14/96 Rt 4 E/o Rt 301 Kelley 13 $ 450,000
10657/466 TM 102 Pcl 25 Osborne Properties 31.76 Ac. ($0.33)
21 05/02/96 Bus Pky @ Lottsford SHA/ 11 $ 600,000
10751/655 TM 45 Pcl 17 & 18 Land Rover N.A. 22.61 Ac. ($0.61)
</TABLE>
Details of these sales are included on the following pages.
83
<PAGE>
COMPARABLE SALE NUMBER: 18a
LOCATION: 8100 Cedarville Road
Brandywine
DATE: 4/12/1995
DEED REFERENCE: 10100/185
TAX MAP LOCATION: Tax Map 165 Parcel 20
LAND AREA: 25.800 acres
ZONING: 12
GRANTOR: Jerry Woodson Jasper
GRANTEE: Panda Brandywine LP
SALE PRICE: $3,097,054
$2.76/sf
FINANCING: None Reported
SOURCES: Lusk;Prince George's County Newsletter;COMPS
This tract is part of an assemblage including two smaller parcels listed on
following pages. The total area of the assemblage is 31.7 acres, and the total
acquisition price is $3,678,053, or $2.66 per square foot. The tax map at left
shows the assemblage. The land was acquired for development of a privately owned
power plant who will supply energy to local power companies. The sale settled
after all approvals were in place, which took about 5 years from the initial
contract date. The sale is adjusted down for the better terrain, configuration,
access, and the more permissive zoning.
84
<PAGE>
COMPARABLE SALE NUMBER: 18b
LOCATION: Indian Head Road
Brandywine
DATE: 4/12/1995
DEED REFERENCE: 10100/190
TAX MAP LOCATION: Tax Map 165 Lots 31 & 32
LAND AREA: 4.3040 acres
ZONING: OS
GRANTOR: W. G. Gemeny
GRANTEE: Panda Brandywine LP
SALE PRICE: $424,000
$2.26/sf
FINANCING: None Reported
85
<PAGE>
COMPARABLE SALE NUMBER: 18c
LOCATION: 8200 Cedarville Road
Brandywine
DATE: 4/12/1995
DEED REFERENCE: 10100/193
TAX MAP LOCATION: Tax Map 165 Lot 22
LAND AREA: 1.6100 acres
ZONING: OS
GRANTOR: Donald E. Richards
GRANTEE: Panda Brandywine LP
SALE PRICE: $157,000
$2.24/sf
FINANCING: $215,000 Shawmut Bank
86
<PAGE>
COMPARABLE SALE NUMBER: 19
LOCATION: Spectrum and Arena Drive, W/o Brightseat Rd
Landover
Prince George's County
DEED REFERENCE: 10225/334
DATE OF SALE: June 1995
TAX MAP LOCATION: TM 67 Parcels 33,70,127,
Block A Lot 3, Block C Lots 1-7
LAND AREA: 73.6658 Acres 3,208,882 Square Feet
ZONING: 1-3
GRANTOR: Landover Properties Inc.
GRANTEE: Jericho Baptist Church
SALE PRICE: $5,175,000
$1.61/sf
$70,249/acre
FINANCING: Cash
UTILITIES: All Available
SOURCES: Deed; Plats; COMPS; Representative of Seller
This sale, about 18 miles north of the subject, is located just inside the
Beltway on the west side of Brightseat Road midway between Central Avenue and
Landover Road. It adjoins the site now under development with the Washington
Redskins football stadium but the stadium was not publicly being discussed for
the site at the sale date. The Brightseat Road area was being developed with
office and light industrial uses prior to the recession of the early 1990's. No
new development has occurred since that time and the restrictive 1-3 zone became
unpopular with developers.
The site was previously acquired by the seller in July of 1994 for $0.90 per
square foot. That sale was in lieu of foreclosure after the previous owners
failed in their attempt to have the property rezoned for residential use. The
sellers retained a 10 acre site on the east side of Brightseat Road with Beltway
frontage. The new owners are building a church and school complex on the site.
The land is level to rolling and fronts on finished roads with curbs and
gutters. The sale is adjusted up for the larger size and down for the better
terrain and access.
87
<PAGE>
COMPARABLE SALE NUMBER: 20
LOCATION: Route 4 and Route 301
DATE: 3/14/96
DEED REFERENCE: 10657/466
TAX MAP LOCATION: Tax Map 102 Parcel 25
LAND AREA: 31.76 acres
ZONING: 13
GRANTOR: Kelly
GRANTEE: Osborne Properties
SALE PRICE: $450,000
$0.33/sf
FINANCING: None Reported
SOURCES: Lusk;Prince George's County Newsletter;COMPS
Representative of Buyer
Sale 20 is a tract of land bordering Route 4, east of the intersection with
- -------
Route 301 about 10 miles northeast of the subject. It was acquired out of an
estate. The land has terrain problems along the Patuxent River flood plain and
only about 10 to 15 acres is estimated to be usable. Access is limited to a
paved access road bordering commercial properties at the south end of this
parcel. The buyer plans an office park and possible hotel. The sale is adjusted
up for the inferior terrain, configuration, and access.
88
<PAGE>
COMPARABLE SALE NUMBER: 21
LOCATION: Lottsford @ Business Parkway
DATE: 05/02/96
DEED REFERENCE: 10751/655
TAX MAP LOCATION: Tax Map 45 Parcel 17 & 18
LAND AREA: 22.61 acres
ZONING: 11
GRANTOR: SHA
GRANTEE: Land Rover
SALE PRICE: $600,000
$0.61/sf
FINANCING: None Reported
SOURCES: Lusk; Prince George's County Newsletter;
COMPS; Representative of the Seller
Sale 21 is a relatively level tract with good road frontage bordering the rear
- -------
of the Washington Business Park about 18 miles north of the subject. The land
was owned by the state of Maryland who had earlier rejected the buyers bid at an
auction in which the State believed all bids were too low. A second auction was
also unsuccessful. Other State officials interceded on behalf of the buyer
believing that the company would have a beneficial impact on the County and
State. The sale is adjusted up for the motivation of the seller, the lack of
highway visibility, and down for the smaller size, better terrain and zoning.
89
<PAGE>
In the grid below the sales are compared to the subject.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Sale # $/sf Subject Sale # 18 $ 2.66 Sale # 19 $ 1.61 Sale # 20 $ 0.33 Sale # 21 $ 0.61
- ------------------------------------------------------------------------------------------------------------------------------------
Date of Sale Appraisal: 6/97 04/95 06/95 03/96
- ------------------------------------------------------------------------------------------------------------------------------------
Other Adjustments:
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Location Rt 301 @ Access Rd Cedarvl E/o301 Spectrum/Arena Rt 4/301 Lottsford Rd + 0.50
Size 46 Acres 31.71 ac 73.66 ac + 0.10 31.76 22.61 - 0.10
Terrain Below Average Good + 0.35 Very Good - 0.50 Fair to Poor + 0.20 Average - 0.15
Configuration Average Above Average - 0.25 Average Below Average + 0.15 Average
Access Average Good - 0.35 Good - 0.35 Below Average - 0.15 Average - 0.35
Zoning E-I-A/restriction I-2 - 0.35 I-3 I-3 I-1
Other Approvals - 0.50
- ------------------------------------------------------------------------------------------------------------------------------------
Adjusted Price $ 0.86 $ 0.86 $ 0.93 $ 0.71
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The sales bracket an indication of a rounded $1,725,000 or about $0.86 per
square foot. The value estimate is of the "raw" ground only and assumes only
that development plans are proceeding consistent with those outlined in the
report.
90
<PAGE>
[COMPARABLE SALES MAP APPEARS HERE]
<PAGE>
[COMPARABLE SALES MAP APPEARS HERE]
<PAGE>
CORRELATION AND CONCLUSION OF VALUE
- -----------------------------------
The appraised property contains a variety of components suitable for
residential, office/light industrial, or commercial development. Each of the
components is at varying stages of the permitting and approval process.
The component which is closest to final approval status is the rear 65 plus or
minus acres approved for 178 townhouse and 56 single family residential lots.
Current approvals for this component mandate a relatively short time frame for
development which requires that staged development of the property begin
immediately.
Recent amendments to the zoning ordinance require that 10 percent of the
approved lots obtain building permits within about 2 1/2 years. The most likely
approach to meeting these deadlines is to proceed with approval and development
of the planned east-west Route 301 Access Road across the property.
The value estimate of each component is based on its relationship to the staged
development scenario outlined in the report.
The property consists of 5 components, each part of a phased development of the
277 +/- acre tract. The individual components and the effective date of the
value estimate are listed in the summary below.
<TABLE>
<S> <C> <C>
Component (1): Commercial Land $2,450,000 June 9, 1998
Component (2): Approved Lots $2,650,000 June 9, 1998
Component (3): High Density Residential $ 575,000 June 9, 1999
Component (4): Medium Density Residential $4,500,000 June 9, 1999
Component (5): ElA -Office/Light Industrial $1,725,000 June 9, 1997
</TABLE>
The total aggregate value of these components including the prospective values
of the first 4 components and current value estimate of the EIA component is
$11,900,000. In order to estimate the current aggregate value "as is" of the sum
of the components, it is necessary to discount the prospective value estimates
to current value taking into consideration current annual cost of funds as well
as risks and lack of liquidity. In addition, a deduction is required for the
cost required for infrastructure necessary to support marketability.
The owners have contracted Greenhorne and O'Mara to perform necessary planning.
The firm is well versed with the regulatory climate and approval process in the
County offices, limiting the risk that plans might not proceed on schedule.
With short terms funds trading at ranges between 5 and 6 percent, a premium of
between 4 and 5 percent is estimated to be adequate to adjust for risk and
liquidity, and a discount rate of 10 percent is selected.
93
<PAGE>
In estimating the costs required to support the marketability of the components,
the cost estimates supplied by Greenhorne and O'Mara are used as the basis for
the evaluation. The cost estimate documents have been supplied by the client and
are dated November 25, 1996.
Since a variety of expenses including on site utility extension and off site
road improvements are generally typical of the costs required of most projects,
significant atypical costs are most relevant to the "as is" value calculations.
For the subject these include construction of the Route 301 Access Road between
Route 301 and the rear parcel approved for 234 lots and off site extension of
sewer lines to the front and rear of the tract.
The base cost for the Access Road is reported to be $825,000. The base cost for
offsite sewer extension, reported as the "WSSC Deficit" in the cost summary, is
$252,470 for extension to the rear of the tract and $325,000 for extension to
the front, for a total of $577,470. In the final calculations, Greenhorne and
O'Mara officials add planning and engineering fees of between 10 and 1 2
percent, and contingency fees of 1 5 percent. For the purpose of this appraisal
a rounded 25 percent adjustment is included in the calculations.
The sum of the base cost for road and off site sewer construction is a rounded
$1,400,000. When an adjustment of 25 percent is added for contingencies and
planning/engineering fees, the indicated cost is a rounded $1,750,000. It is
estimated that these costs will be spread out over the first twO years of the
project, therefore half of the cost, or $875,000 is deducted from each year.
In the table below, the current "as is" estimate of the aggregate value of the
components is calculated:
<TABLE>
<CAPTION>
Year 1, current Year, No Discount
<S> <C> <C>
EIA component, Raw Ground: $1,725,000
50% Road and Off Site Sewer cost: -$875,000
----------
$ 850,000
Year 2, Discounted at 10%, I Year, Present Worth Factor: .90909
Commercial Land: $2,450,000
Approved Lots: $2,650,000
50% Road and Off Site Sewer cost: -$875,000
----------
$4,225,000 x.90909 $3,840,905
Year 3, Discounted at 10%. 2 Years, Present Worth Factor: .826446
High Density Residential $575,000
RM Acreage: $4,500,000
----------
$5,075,000 x.826446 $4,194,213
----------
Total "As Is" Aggregate Value of the Components: $8,885,000(r)
</TABLE>
94
<PAGE>
The current "As Is" value estimate reflects both the risks and benefits of the
current stages of the planning and development of the property. In contrast, the
sum of the prospective value estimates of the components, before deducting for
the time and costs required to support marketability, is a partial reflection of
the potential future worth which may accrue to the property over time as each of
the components is advanced through the planning and approval process, and the
development trend is more clearly established.
The property is well positioned to benefit from ongoing development trends in
the area. Both the location and timing of the project create an advantage over
other potentially competing projects in the area. Nevertheless, several
prerequisite steps must be taken to maintain this advantage so that it might
enhance the potential future value.
The final estimate of the market value of the unencumbered fee simple interest
in the land, "As Is", as of June 9, 1997, subject to cited limiting conditions,
is:
EIGHT MILLION EIGHT HUNDRED EIGHTY FIVE THOUSAND DOLLARS
($8,885,000)
This value estimate is based on the assumption that final approvals for the
Route 301 Access Road and 234 lots will be obtained within approximately one
year from the date of the report, and that development plans for the commercial
and residential components will proceed consistent with the outline contained
within this report.
95
<PAGE>
CERTIFICATION
- -------------
We certify that, to the best of our knowledge and belief:
* the statements of fact contained in this report are true and correct.
* the reported analyses, opinions, and conclusions are limited only by the
reported assumptions and limiting conditions, and are my personal, unbased
professional analyses, opinions, and conclusions.
* we have no present or prospective interest in the property that is the
subject of this report, and we have no personal interest or bias with respect to
the parties involved.
* our compensation is not contingent upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the amount of
the value estimate, the attainment of a stipulated result, or the occurrence of
a subsequent event.
* the reported analyses, opinions, and conclusions were developed, and this
report has been prepared, in conformity with the requirements of the Code of
Professional Ethics and the Uniform Standards of Professional Appraisal Practice
of the Appraisal Institute.
* we, Isabelle Gatewood and John D. Massey have made personal inspections of
the property that is the subject of this report.
* no one provided significant professional assistance to the persons signing
this report.
* the appraisal assignment was not based on a requested minimum valuation, a
specific valuation, or the approval of a loan.
* we certify that the use of this report is subject to the requirements of the
Appraisal Institute relating to review by its duly authorized representatives.
* as of the date of this report, Isabelle Gatewood has completed the
requirements of the continuing education program of the Appraisal Institute.
Signed: /s/ Isabelle Gatewood Date: July 1, 1997
----------------------------------- ---------------
Isabelle Gatewood, MAI
Md. Certified General Appraiser #158
/s/ John D. Massey Date: July 1, 1997
----------------------------------- ---------------
John D. Massey, Associate Appraiser
Md. Certified General Appraiser #4468
96
<PAGE>
EXHIBIT 99.8
APPRAISAL REPORT
of
Section S-4,
South lake at Montclair Subdivision
77 Raw Townhouse Lots
Dumfries, Prince William County, Virginia
Prepared for Interstate General Company
222 Smallwood Village Center, St. Charles, Maryland 20602
Prepared by NBValuation Group, Inc.
7979 Old Georgetown Road, Suite 705, Bethesda, MD 20814
(301) 654-1719 Fax (301) 654-2550
<PAGE>
Table of Contents
Letter of Transmittal
Summary of Salient Facts and Conclusions
Limiting Conditions
Qualifications of the Appraiser
Photographs of Subject Property
<TABLE>
<CAPTION>
Page
<S> <C>
Identification 1
Legal Description 1
Purpose of the Appraisal 1
Definitions Pertinent to Value 2
History of the Subject 3
Assessed Value for Taxation 3
General Area and Socio-Economic Data 4
Immediate Neighborhood Data 4
Prince William County Data 6
Regional Area Data 14
Site Description 23
Zoning Discussion 24
Highest and Best Use 25
Valuation Section
Valuation Premise 28
"As Is" Value Analysis Developmental Use Analysis 29
Reconcilliation and Conclusion 34
Marketing Period 35
Certification
</TABLE>
ADDENDA
Schedule "A" Comparable Finished Lot Sales
Exhibit I Record Plats
Exhibit II Engagement Letter
Exhibit III Cost to Complete Estimates
Exhibit IV Internal Rate of Return Analysis
Exhibit V Flood Hazard Map
Exhibit VI Tax Identification Map
Exhibit VII Locational Maps
<PAGE>
NBVALUATION GROUP, INC.
CERTIFIED GENERAL REAL ESTATE APPRAISERS AND VALUATION CONSULTANTS
- --------------------------------------------------------------------------------
July 29, 1997
Mr. Edwin L. Kelly
President
Interstate General Company
222 Smallwood Village Center
St. Charles, Maryland 20602
RE: 77 Raw Townhouse Lots
Section SA, Southlake at Montclair Subdivision
Dumfries, Prince William County, Virginia
Dear Mr. Kelly:
In accordance with your request and for the purpose of estimating the
market value of the above-captioned property, the following is submitted.
The subject of this appraisal is 77 raw, recorded townhouse lots located
along the east side of South Lake Boulevard just north of its intersection
with Waterway Drive in the Southlake at Montclair planned community,
Dumfries Magistral District, Prince William County, Virginia. The property
is zoned to the RPC, Residential Planned Community, classification of
Prince William County, Virginia.
The purpose of the appraisal is to estimate the current market value of the
herein-described property, in "fee simple", as of May 30,1997. Under the
scope of the assignment, per the request of the client, the following
values have been estimated:
Market Value - "As Is" The current estimated market value of the subject 77
recorded townhouse lots, in their current, raw state,
as of the appraisal date.
The function of the appraisal is for use by the client in connection with
internal asset management decisions. This is a self-contained, narrative
appraisal report which has been prepared in accordance with the Uniform
Standards of Professional Appraisal Practice as promulgated by the
Appraisal Standards Board of the Appraisal Foundation.
The enclosed report contains the data gathered, and outlines the methods of
approach employed in the valuation studies. In addition, the legal,
physical and locational characteristics of the property are described. In
my opinion, the current value of the herein-described real property, as of
May 30, 1997, is as follows:
Estimated Market Value "As Is":77 Lots @ $8,052/Lot = $620,000
-------------------------------
Respectfully submitted,
/s/ Susan M. Browning
Susan M. Browning [STAMP APPEARS HERE]
7979 Old Georgetown Road * Suite 705 * Bethesda, Maryland 20814
Phone (301) 654-1719 Facsimile (301) 654-2550
<PAGE>
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
Date of Valuation: May 30,1997
Property Identification: 77 Raw Townhouse Lots
Section S-4, Southlake at Montclair Subdivision
Dumfries, Prince William County, Virginia
Location: Located along the east side of South Lake
Boulevard just north of its intersection with
Waterway Drive in the Southlake at Montclair
planned community, Dumfries Magistral District,
Prince William County, Virginia.
Legal Description: Lots 41 through 117, inclusive, Phase 3, Section
S4, Southlake at Montclair Subdivision
Purpose of Appraisal: The purpose of the appraisal is to estimate the
current market value of the herein-described
property, in "fee simple", as of May 30,1997.
Current Ownership: Interstate General Company, L. P.
Zoning: RPC, Residential Planned Community
Highest and Best Use: The highest, best, and most profitable continuous
use to which the subject property could be put
would be for development of the subject land in
accordance with the record plat provided for
development with residential townhouse units which
meet the requirements of the RPC zone and which
further meet the requirements of the current
market
Estimated Value:
Estimated Market Value "As Is":
-------------------------------
77 Lots @ $8,052/Lot = $620,000
[STAMP APPEARS HERE]
<PAGE>
LIMITING CONDITIONS
This report is made subject to the following assumptions and limiting
conditions.
1. The appraiser assumes no responsibility for legal matters nor does the
appraiser render any opinion as to the Tide, which is assumed to be good.
No existing liens and encumbrances, unless specified in the report, have
been disregarded and the property is appraised as though free and clear,
under responsible ownership and competent management Unless otherwise noted
herein, it is assumed there are no encroachments, zoning or other
violations of any regulations affecting the subject.
2. The Plot Plan, if contained herein, is included to assist the reader in
visualizing the property. The appraiser has made no survey of the property
and assumes no responsibility in connection with such matters.
3. Information that was furnished by others is so noted and is believed to be
reliable, but the appraiser assumes no responsibility in connection with
such matters.
4. The appraiser is not required to give testimony nor to appear in court by
reason of this appraisal, with reference to the property in question,
unless arrangements have been previously made.
5. The client has indemnified the appraiser and has agreed to promptly defend
Appraiser against any damage resulting from any claim or cause of action by
any third party at\sing out of say use or dissemination of this appraisal
report (or the contents thereof). This obligation to indemnify and defend
shall not apply to the extent any such claim or cause of action arises out
of the adjudicated negligence or wilful misconduct of the appraiser in
performing the appraisal. The appraiser has the right to approve any
attorney employed by the client to defend against such claim or cause of
action and has the right to approve any settlement or compromise of such
claim or cause of action.
6. The land, and particularly the soil, of the area under appraisement appears
firm and solid and free of hazardous substances. Subsidence, radon gas and
to)dc waste in the area are uncommon, but the appraiser does not warrant
against the condition or occurrence of same upon the site. The appraiser is
not qualified to detect such conditions. Except as noted, this appraisal
assumes the land to be free of adverse soil conditions which would prohibit
development of the property to its highest and best use.
7. The improvements, and particularly the buildings, appear to be free of
hazards. The appraiser does not warrant against the presence of asbestos,
radon gas, PcB's, underground storage tanks and/or use of formaldehyde foam
insulation within the building.
8. The appraiser assumes no liability for structural conditions not visible
through ordinary, careful inspection or a review of the plans and
specifications, if proposed.
9. Subsurface rights (mineral, gas and oil) were not considered in making
this appraisal.
10. Neither all or any part of the contents of this report shall be conveyed to
the public through advertising, public relations, news, sales, or other
media, without the written consent and approval of the author, particularly
as to valuation conclusions, the identity of the appraiser or its firm.
This report may be shared with an organization other than the client only
in its entirety.
11. Possession of this report, or a copy thereof, does not carry with it the
right of publication, nor may it be used for any purpose by any one but the
client without the previous written consent of the appraiser and the
client, and then only with proper qualification.
12. It is assumed that any proposed improvements are completed unless
stipulated otherwise in this report; any construction is assumed to conform
with the building plans and/or improvements descriptions provided the
appraiser and summarized in this report.
13. Any future discovery of a concealed or unapparent deficiency in the real
estate (such as subsidence, toxic waste, radon gas, asbestos, UFFI or other
hazards) renders this report invalid.
14. It is assumed that there is full compliance with all applicable federal,
state and local environmental regulations and laws unless noncompliance is
stated, defined and considered in the appraisal report.
15. It is assumed that all required licenses, consents or other legislative or
administrative authority from any local, state, or national governmental or
private entity or organization has been or can be obtained or renewed for
any use on which the value estimate contained in this report is contingent.
16. The current (as of the date of appraisal) purchasing power of the dollar is
the basis for the value estimates; no extreme fluctuations in economic
cycles are anticipated.
17. The Americans with Disabilities Act ("ADA") was signed into law in July of
1990 and became effective in January of 1992. The appraiser has not made
nor been supplied with a specific compliance survey nor analysis of the
subject property to determine conformity or nonconformity with the detailed
requirements of the ADA and as such takes no responsibility for non-
compliance with this Act. Further, the implications of non-compliance with
the ADA with respect to value of the subject property are not reflected in
this appraisal, unless otherwise noted.
18. The value estimate is based upon appropriate research and applicable
appraisal techniques. By its nature the appraisal of real estate is not an
exact science, and the end product is an opinion with which others may
differ. The final estimate of the value is not guaranteed, and no warranty
is implied or intended.
19. Acceptance of and/or use of this appraisal report constitutes on
understanding and acceptance of the foregoing assumptions and limiting
conditions.
/s/ Susan M. Browning
- ------------------------------
Susan M. Browning
<PAGE>
APPRAISAL QUALIFICATIONS
SUSAN M. BROWNING
LICENSURE: Certified General Real Estate Appraiser! State of Maryland:
#2018
Certified General Real Estate Appraiser! Commonwealth of
Virginia: #4001 1588
Certified General Real Estate Appraiser! District of
Columbia: GA 10196
<TABLE>
<CAPTION>
EDUCATION:
<S> <C>
George Mason University, Fairfax, Virginia Society of Real Estate Appraisers, Course #101,
Business Administration, 1973-1977 "An Introduction to Appraising Real Property"
Completed, December, 1978
Society of Real Estate Appraisers, Course #201 Society of Real Estate Appraisers, Course #202
"Principals of Income Property Appraisal" "Applied Income Property Valuation"
Completed, July, 1984 Completed, May 1988
Institute of Financial Education, The Appraisal Institute, "Standards of Professional
"Income Property Lending Seminar" Practice", Completed August, 1991
Completed, March 1981
Institute of Real Estate Management, Course #101, SMBIA, Finance Committee,
"Successful On-Site Property Management" Panelist, Discounted Cash Flow Analysis, March, 1997
Completed, September, 1977
</TABLE>
Continuing Education course work as well as additional course work completed in
areas of Real Estate Law, Mortgage Lending, and various appraisal topics.
PROFESSIONAL EXPERIENCE:
September, 1995 to Present:
- ---------------------------
President and Senior Appraiser of NBValuation Group, Inc.
Provide real estate appraisal and related consulting services to the
lending and real-estate community in the expanded Washington, D.C. market.
November, 1986 to September, 1995:
- ----------------------------------
Associate Appraiser, George D. Remley & Associates.
Actively appraising various types of real estate. Independently responsible
for all research, analysis, writing and presentation of narrative appraisal
reports. Also responsible to coordinate assignments for and review the work
of a staff ranging from three to five appraisers.
September, 1983 to November, 1986:
- ----------------------------------
Vice President of Real Estate Lending, mid-s\zed Thrift in Northern
Virginia
As Chief Lending Officer, was responsible to oversee the origination of all
Construction and Commercial Lending; annual origination volume ranged from
$200-$300 million. Further responsible to chair Loan Committee meetings and
for the implementation of policies and procedures required for all lending
activities, appraisal review and regulatory compliance.
November, 1977 to September 1983:
- ---------------------------------
Assistant Vice President of Construction/Commercial Lending, mid-sized
Washington, D.C. Thrift
Responsible to oversee construction and commercial loan origination
activities; annual origination volume ranged from $160-$300 million.
Further responsible for the equity capital financing activities of the
service corporation, portfolio administration and regulatory compliance
including appraisal review.
<PAGE>
TYPES OF PROPERTY APPRAISED:
Unimproved land (residential and commercial); large tract development sites;
proposed subdivisions for acquisition and construction financing; commercial
condominiums; office buildings; apartments; industrial buildings; retail
facilities; industrial/R&D warehouses; various special uses properties;
residential dwelling units
GEOGRAPHIC AREAS:
The jurisdictions within the Washington, D.C. PMSA, including Washington, D.C.,
the Maryland counties of Montgomery, Prince George's, Calvert, Charles,
Frederick, Howard; the Virginia counties of Arlington, Fairfax, Loudoun, Prince
William, Stafford, Spotsylvania, Fauquier, Culpeper, along with the cities of
Alexandria, Fairfax, Falls Church, Fredericksburg, Manassas and Manassas Park;
as well as Anne Arundel County in the Baltimore region.
APPRAISAL REPORTS PREPARED FOR:
Lender Clients:
Crestar Bank Resolution Trust Corporation
The Columbia Bank Patriot National Bank of Reston
Greater Atlantic Savings Bank Virginia First Mortgage
Sterling Bank & Trust FDlC
Franklin National Bank of Washington First Fidelity Bank
First Union National Bank Palmer National Bank
Citizens Savings Bank Susquehanna Bank
Provident Bank of Baltimore Allied Capital Corporation
Key Bank & Trust Lender's Support Group
Presidential Savings Bank, FSB American Federal Savings Bank
LoanMart Developers Guaranty Group
MNC Mortgage Maryland Federal Savings & Loan
First Federal Savings Bank of Western MD First Mariners Bank
York Federal Savings Bank Hanover/MKG Associates
Business Clients:
Associated Companies Richmond American Homes of VA
Lessard Architectural The Porten Companies
Madison Homes Domain Builders
William L. Berry & Company Site Management, Inc.
Magruder Companies Classic Communities
Manekin Royal Stuart Homes
Comstock Homes Elm Street Development
Poretsky/Gordon Company Parkside Communities
Allegro Development, Inc. Piccard Development
Bozzutto Group Crimson Partners
Foster Communities Haddon Group
Mitchell, Best & Visnic Blake Construction Co., Inc.
Kettler Forlines, Inc. Day Development
Porten Sullivan Corporation Rocky Gorge Communities
Winchester Homes Bethany Homes
RAM Investment, Inc. Interstate General Company
Carr Homes, Inc. Mark Morgan & Company
The J.A. Loveless Company Madison Homes
Kettler & Scott, Inc. Survival Technology, Inc.
The Bernstein Companies Ryko Development
Stanley Martin CommunIties Wetherburne Homes
Cherner Lincoln Mercury Marvin Jawer Cos.
<PAGE>
Subject Property
[PICTURES APPEARS HERE]
<PAGE>
Subject Property
[PICTURES APPEARS HERE]
<PAGE>
Subject Neighborhood
[PICTURES APPEARS HERE]
<PAGE>
Subject Neighborhood
[PICTURES APPEARS HERE]
<PAGE>
Subject Neighborhood
[PICTURES APPEARS HERE]
<PAGE>
Subject Neighborhood
[PICTURES APPEARS HERE]
<PAGE>
Subject Neighborhood
[PICTURES APPEARS HERE]
<PAGE>
Identification
- --------------
77 Raw Townhouse Lots
Section S-4, Southlake at Montclair Subdivision
Dumfries, Prince William County, Virginia
The subject of this appraisal is 77 raw, recorded townhouse lots located along
the east side of South Lake Boulevard just north of its intersection with
Waterway Drive in the Southlake at Montclair planned community, Dumfries
Magistral District, Prince William County, Virginia. The property is zoned to
the RPC, Residential Planned Community, classification of Prince William County,
Virginia.
Legal Description
- -----------------
The subject property is currently identified among the land records of Prince
William County, Virginia as lots 41 through 117, inclusive, Phase 3, Section S4,
Southlake at Montclair subdivision, Prince William County, Virginia. The
reader's attention is directed to Exhibit I in the Addenda of this report for a
copy of the record Plats of the subject property prepared by Greenhorne &
O'Mara, Inc. dated September 8, 1993.
Current Ownership: Interstate General Company, L. P.
Zoning: RPC, Residential Planned Community
Zip Code: 22026
Tax Map: 023-44-000-0041 through 023-44-000-0117
Census Tract: 9010.04
Purpose of the Appraisal
- ------------------------
The purpose of the appraisal is to estimate the current market value of the
herein-described property, in "fee simple", as of May 30, 1997. Under the
scope of the assignment, per the request of the client, the following values
have been estimated:
Market Value - "As Is" The current estimated market value of the subject 77
recorded townhouse lots, in their current, raw state,
as of the appraisal date.
Use of the Appraisal
- --------------------
The function of the appraisal is for use by the client in connection with
internal asset management decisions.
This is a self-contained, narrative appraisal report which has been prepared
in accordance with the Uniform Standards of Professional Appraisal Practice as
promulgated by the Appraisal Standards Board of the Appraisal Foundation.
1
<PAGE>
SCOPE OF THE ASSIGNMENT
- -----------------------
The scope of the appraisal refers to the extent of the process in which
data are collected, confirmed and reported. In this case, the appraisal
problem involves the valuation of 77 raw, recorded residential townhouse
lots within the planned community of Southlake at Montclair. The valuation
process was initiated by physically inspecting the subject property, most
recently, on May 30,1997.
An exhaustive search was undertaken for sales of sites proposed for
development with residential townhouse lots which have occurred in
proximate areas of Prince William County considered to be similar to the
subject in terms of income characteristics and housing demand over the
previous two years; the appraiser reviewed the land records, published data
and the multiple listing records for recent sales of raw lots or townhouse
development sites relevant for comparison to the subject property.
Additionally, sales of finished townhouse lots which have occurred in
proximity were studies. This data were confirmed through review of Public
records, field investigation andlor personal interviews with parties to the
transactions. In addition, new townhouse communities currently marketing in
proximate areas have been studied to determine the price and absorption
levels being achieved as to both finished lots and completed housing
product. Again, this data was obtained through review of public records,
field inspections and discussions with on-site marketing personnel at the
competing projects. Secondary data utilized to analyze market conditions
was collected from various sources, including county government
publications, newspapers, Washington Council of Governments and Baltimore
Metropolitan Council publications and various trade periodicals. Finally,
development cost projections prepared by the record owner of the subject
property have been reviewed and analyzed along with development cost data
relative to townhouse communities developed and proposed throughout
northern Virginia.
DEFINITIONS PERTINENT TO VALUE
- ------------------------------
Market Value is defined by the Appraisal Foundation in the Uniform
Standards of Professional Practice as "the most probable price which a
property should bring in a competitive and open market under all conditions
requisite to a fair sale, the buyer and seller each acting prudently,
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:
* buyer and seller are typically motivated;
* both parties are well-informed or well-advised, and each acting
in what he considers his own best interest;
* a reasonable time is allowed for exposure in the open market;
* payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; the price represents a
normal consideration for the property sold andunaffected by
special or creative financing or sales concessions granted
by anyone associated with the sale.
2
<PAGE>
Any valuations which by assumption or qualification effectively utilize any
form of specialized, unique and/or subsidized financing assumptions in the
appraisal methodology are not considered to be acceptable. All properties,
regardless of the specific nature of the particular financing arrangements
then existing and/or proposed, must be evaluated in a market value context.
The following definitions are excerpted from The American Institute of Real
Estate Appraisers, The Dictionary of Real Estate Appraisal, Second Edition
---------------------------------------
(Chicago: American Institute of Real Estate Appraisers, 1988).
Fee Simple Interest is defined as "Absolute ownership unencumbered by any
other interest or estate subject only to the four powers of government."
Value "As Is"' is defined as "The value of specific ownership rights to
what physically exists and is legally permissible regarding an identified
parcel of real estate as of the effective date of the appraisal."
Prospective Value Estimate is defined as "A forecast of value expected to
occur at a specified future date." A prospective value estimate is most
frequently utilized in connection with real estate projects that are
proposed, under construction, under conversion to a new use, or that have
otherwise not achieved sellout or a stabilized level of long-term occupancy
at the time the appraisal report is written.
HISTORY OF SUBJECT
- ------------------
Title to the subject property is currently vested in Interstate General
Company LP. The subject was a portion of the site acquired by the record
owner in December of 1985 and developed as the Southlake at Montclair
subdivision. The assessment records indicate that beneficial title to the
subject property has been held by the record owner since December of 1985;
the most recent transfer of the property is recorded among the land records
of Prince William County, Virginia in Deed Book 1622 at Page 482.
ASSESSED VALUE FOR TAXATION
- ---------------------------
As of the appraisal date, each of the raw, recorded lots are assessed as
land only at $11,600. The aggregate assessed value of the subject 77 lots
is therefore $893,200.
The tax rate applicable in Prince William County for the 1997 tax year is
$1.36 per $100.00 of assessed value. Application of the current tax rate to
the assessed value of the subject property results in an estimate of
current tax liability of $12,148.
3
<PAGE>
GENERAL AREA AND SOCIO-ECONOMIC DATA
- ------------------------------------
IMMEDIATE NEIGHBORHOOD
- ----------------------
The subject property is located along the east side of South Lake Boulevard
just north of its intersection with Waterway Drive the Southlake at
Montclair planned community, Dumfries Magistral District, Prince William
County, Virginia. This location is approximately 2.5 miles west of the I-
95/Dumfries Road, interchange, ten miles southeast of the City of Manassas,
which serves as the County seat of Government, six miles north of the main
entrance to the Quantico Marine Corps Base, I 9 miles south of the Capitol
Beltway at 1-95 and 30 miles south of the center of Washington, D. C.
The neighborhood is suburban in character, and predominated by a mix of
residential uses and supporting recreational and commercial development.
The Montclair planned community has been developed over the past twenty
years and contains a mixture of single-family detached, townhouse, and
multi-family residential development along with supporting recreational
facilities including the Montclair Golf and County Club, Lake Montclair,
trails, swimming pools, tennis courts and open space.
Located just north of the subject is the Southlake Recreation Center, which
includes a swimming pool, club house and tennis courts. Single-family
detached units are under construction in the subject subdivision by
Fairfield Classic Homes; a pre-sale trailer is in place adjacent to that
community advertising additional detached units by Koury Communities.
Fairfield Classic Homes plans a total of 53 units in the community and is
offering models with current base pricing which ranges from $187,490 to
$233,490. The average base price developed by Fairfield's product is
$213,073. Koury Communities has a pre-sale trailer on the site, and is
offering units base priced from $195,800 to $199,800. In addition, John
Laing Homes is offering townhouse product in the subdivision. Laing's
product is priced form $117,990 to $125,990 for units containing an average
of 1,680 square feet. Laing began marketing in April of 1994 and have
reportedly sold 44 units to date. K. Hovnanian has recently completed its
marketing program in Montclair.
The Ashland and Lake Terrapin planned communities are located within close
one mile of the subject and are briefly discussed as follows. Ashland is
located approximately one mile west of the subject property along the north
side of Dumfries Road. Situated on a 590 acre site, Ashland is proposed for
development with 1,300 dwelling units and a non-residential component to
include a neighborhood retail center of 200,000 square feet along with
community recreation centers containing pools and tennis courts. Additional
sites within Ashland are proposed for development with a day care center
and a church. Three single-family building programs are underway in
Ashland, along with two townhouse offerings. The average base price of the
single family projects range from $209,700 to $222,555 while the townhouse
product is priced from the $120,000 to $135,000 range.
Lake Terrapin is located 3/4 miles west of the subject along the east side
of Spriggs Road. Lake Terrapin is proposed for development with
approximately 600 residential units, and contains a 15- acre lake and an
amenity package including pool, tennis, and trails. Three single-family
product lines are under development in Lake Terrapin with units developing
average base price levels ranging from 192,950 to $218,100. Manhattan
Builders recently completed a section of townhomes priced in the $1
20,000's and a new townhouse section is proposed to be priced in the mid-
$120,000 range.
4
<PAGE>
Located at the intersection of Waterway Drive and Dumfries Road is the
proposed Montclair Shopping Center site which was under development as of
the appraisal date. The center is proposed to contain 177,000 square feet,
and retail tenants including Food Lion and CVS pharmacy are proposed to
locate in the Center. Additional neighborhood retail development serving
the neighborhood includes the Montclair Plaza, and Smoketown Plaza, Potomac
Festival Shopping Center, Ashdale Plaza, Glendale and Center Plaza and
Forestdale Plaza to the north, along with the Southbridge and Dumfries
centers located to the south. Regional shopping is available at the Potomac
Mills Mall and Springfield Mall to the north along 1-95 and the Manassas
Mall to the west of the subject along 1-66 in Manassas.
The neighborhood is served by John F. Pattie Elementary School, the Graham
Park Middle School and Hylton High School. Recreational amenities in the
neighborhood include Lake Montclair and the Montclair golf course and
country dub within the subject planned community. Additional recreational
facilities serving the area include the Prince William Forest Park located
just south of the subject property, the Leesylvania State Park to the east
along the Potomac River, and the Locust Shade Park, including tennis
courts, golf range and picnic areas; a public golf course and additional
ballfields are proposed for construction within this facility.
In summary, the subject is located in an established suburban location
within close proximity to all of the commercial, social, community and
recreational facilities needed to support a desirable and stable area. This
area has experienced consistent development over the past twenty years.
There were no noted trends which would adversely affect the neighborhood or
its desirability.
5
<PAGE>
PRINCE WILLIAM COUNTY DATA
- --------------------------
Physical
- --------
The subject property is located in Prince William County in the Northern
Virginia portion of the Washington, D.C. Primary Metropolitan Statistical
Area ("PMSA"). Prince William is bordered by Loudoun and Fairfax Counties
to its north; the Potomac River and the Maryland shoreline to its east;
Stafford County to its south; and Fauquier County to its west, The county
contains approximately 348 square miles of land. The incorporated cities
and towns of Manassas, Manassas Park, Dumfries, Haymarket, Occoquan and
Quantico are also located within the boundaries of Prince William County.
The topography of this county is primarily rolling hills, from the coastal
plains along the Potomac River in the east, to the Piedmont Plateau in the
central portion, to the valley and ridge line of the western Piedmont
mountain range. The elevation, from east to west, varies from sea level to
approximately 1,279 square feet on Bull Run Mountain at the county's
western boundary.
The Virginia General Assembly established Prince William County in 1730,
naming this largely forested region after the second son of King George II
of England. The region's accessibility via the waterways of the Potomac
River and the Occoquan River established Dumfries, the county's first town,
as a major colonial port for exported goods. The city of Dumfries continued
to operate in this capacity until silt levels rose in the river, causing
the harbor to close. During the decades which followed the colonial period,
Prince William County became the sight of some of the more significant
battles during the Civil War, including the Battle of Manassas, where
Thomas "Stonewall" Jackson earned his nickname.
Land Use
- --------
Over half of the total land area of Prince William County is currently vacant,
dedicated as parkland, or in agricultural use. The graph presented as Figure 1,
prepared from statistics published by the Prince William County Planning Office,
depicts the land use in the county as of January, 1991.
PRINCE WILLIAM COUNTY LAND USE
[GRAPH APPEARS HERE]
The potential for future development, based on the most current
Comprehensive Land Use Plan adopted by the Prince William County Board of
Supervisors, is substantial. Commercial development in accordance with
this plan could establish the county as a significant commercial market
with a variety of uses including industrial, office/mixed use parks, and
retail. The amount and timing of such development will be dependent upon
economic conditions and market demand throughout the region.
The recently adopted comprehensive plan evidences the county's commitment
to carefully planned growth. The target areas for development are primarily
concentrated in the eastern portion of the county along Interstate 95, and
the western portion of the county along the Interstate 66 corridor and
within the Cities of Manassas, the county seat, Manassas Park, and
Gainesville. The central portion of the county is proposed to be generally
maintained in its current state, with forestry, agricultural
6
<PAGE>
uses, and low density residential development predominant according to the most
recent long range plan. The aforementioned concentrations of development in the
eastern and western portions of the county follow the patterns demonstrated over
the last three decades. Development in these areas have been primarily
residential in nature, serving as "bedroom communities" for the employment
centers of Washington, D.C. and the closer- in Northern Virginia submarkets.
With the latest comprehensive plan, these areas have also been targeted for
commercial development in order to build the tax base of the county, as well as
reduce traffic congestion to the employment centers to the north and west.
Population
- ----------
Population in Prince William County has gone through two distinct periods
of extremely high growth. The first occurred in the 1960's, when the
population more than doubled from 50,162 people in 1960 to 111,102
residents by 1970. This period of growth established the county as one of
the fastest growing counties not only regionally but in the country.
[GRAPH APPEARS HERE]
The 1980's saw another growth spurt, with an increase in population of over
56% during that decade. The graph presented as Figure 2 sets forth the
population growth of the County from 1930 to 1990 based upon statistics
published by the U.S. Bureau of the Census.
Today, Prince William County is the third largest county in Virginia in
terms of population. The population of the County reported in the 1990
census was 215,686 residents. Statistics published by the Prince William
County Office of Mapping and Information Resources indicate that the total
population of the County as of March 15,1997 is 258,578 residents. This
indicates an average annual growth rate since 1990 of 3.79%.
The Round V Cooperative Forecasts of Population published by the
Metropolitan Washington Council of Governments (COG) predict that 40% of
the population growth in the Washington PMSA will occur in the defined
outer suburbs, which include Prince William County and its incorporated
cities, over the next 20 years. The five-year incremental projections
contained in the Round V Forecasts predict the population of Prince William
County at 273,400 by the year 2000, population of 316,100 in 2005, and
351,800 residents in the county by the year 2010. These forecasts result in
annual growth rate projections of 2.68% during the '90's and 2.87% during
the following decade. Both historical and projected growth rates for Prince
William County reflect the trend toward relocation from high-density
suburbs proximate to Washington, D.C. to lower density rural/suburban areas
which offer commuters adequate accessibility to downtown Washington, D.C.,
and other Washington area employment centers.
7
<PAGE>
Based upon statistics published by the Prince William Office Of Mapping and
Information Resources, the County's average household size was 3.04 persons
in 1990. This represents a reduction in the average household size reported
by the 1980 census of 3.26 persons. The following table sets forth the
projections of county population, households and average household size
based upon data published by the COG Round V Forecasts.
<TABLE>
<CAPTION>
POPULATION AND HOUSEHOLD GROWTH PROJECTIONS
PRINCE WILLIAM COUNTY, 1995 - 2020
AVERAGE HOUSEHOLD
YEAR POPULATION HOUSEHOLDS SIZE
-------------------------------------------
<S> <C> <C> <C>
1995 241,664 78,258 3.09
2000 276,270 98,644 2.80
2005 317,758 103,294 3.08
2010 352,983 114,883 3.07
2015 385,088 125,446 3.07
2020 416,330 135,725 3.07
-------------------------------------------
</TABLE>
SOURCE: Metropolitan Washington Council of Governments
Round V Forecasts
Employment
- ----------
According to the Virginia Employment Commission, Prince William County had
a civilian labor force of 132,943 in January of 1997. The Virginia
Employment Commission figures further indicate an unemployment rate in the
county of 2.9%, compared to a state-wide unemployment rate of 4.5%.
At-place employment in the county was estimated at 68,168 jobs within
Prince William County as of second quarter 1996. This figure represents an
increase of 154.6% from the 26,776 reported at the time of the 1990 census.
Most of the county's employment growth has been fueled by small and medium
sized business; however, three major employers, IBM Corporation, Atlantic
Research Corporation and Prince William and Potomac Hospitals, are the
county's largest private employers. In addition, the Quantico Marine Base,
located along the border of Prince William and Stafford Counties, employs
almost 2,000 civilians.
Other new companies have recently located in Prince William County. Recent
additions to the employment base include IBM's Federal Systems Division,
Dynapac, AT&T, and Lansing, Inc. Overall, more than 1,000 new businesses
were added to the county providing over 4,000 new jobs over the last
decade. According to the Virginia Employment Commission, approximately
35.2% of
8
<PAGE>
the civilian labor force is currently employed within the county.
This represents an increase of 5.43% above 1980, when only 29.8% of the
county's residents worked in Prince William County. The graph presented as
Figure 3 sets forth the composition of the county's at-place employment by
sector based upon Virginia Employment Commission data as of August, 1993.
[GRAPH APPEARS HERE]
The table which follows sets forth the growth projections for at-place
employment in the county based upon the COG Round V forecasts. These
projections are consistent with the comprehensive plan adopted by the
county Board of Supervisors which stresses commercial development.
<TABLE>
<CAPTION>
Projected At-Place Employment Growth
Prince William County, 1990-2020
Year Employment % Change
---- ---------- --------
<S> <C> <C>
1990 65,822
1995 76,149 15.69%
2000 90,113 18.34%
2005 106,900 18.63%
2010 126,662 18.49%
2015 145,497 14.87%
2020 160,210 10.11%
</TABLE>
SOURCE: COG Round V Forecasts
Income
- ------
The 1990 Census data indicate that the median household income in Prince
William County in 1989 was $49,370 compared with the median household
income statewide of $33,328. Sales and Marketing Management magazine
utilizes another measurement of income, effective buying income or EBI,
defined as disposable or after-tax income. The most recent data published
by Sales and Marketing Management indicates that the median household EBI
------------------------------
for Prince William County as of December, 1992 was $50,935. This compared
to a median EBI
[GRAPH APPEARS HERE]
9
<PAGE>
for the consolidated Washington/Baltimore CMSA of $43,851
during the same period. The graph presented as Figure 4 sets forth
household distribution by Effective Buying Income based upon statistics
published by Sales and Marketing Management as of January 1,1995. Prince
------------------------------
William County's Center for Public Service reports that the median
household income had risen to $58,126 for 1996.
Education
- ---------
The population of Prince William County is characterized as highly educated
and readily employable. The statistics compiled by county demographers
indicate that 96.6% of the adult population are high school graduates and
27.6% are college graduates. The county currently houses sixty public
schools in its system and an additional twenty-nine private schools are
located within the county. Prince William also has two Northern Virginia
Community College campuses located in Woodbridge and Manassas. George Mason
University opened a small satellite campus in the Sudley North Office
Complex located off Route 234 in Manassas. The long term plan for the
University calls for a graduate school on a 120-acre parcel located along
the proposed Route 234 Bypass in the Gainesville area. This complex is also
proposed to house the University's Urban Systems Engineering program. Most
of the targeted 120 acres has been deeded to the university for this
complex. Ground breaking for the first building for George Mason
University's Prince William Institute occurred in 1995, and has been
followed by private land acquisitions and construction of biotechnology and
bioscience related structures, including the 100,000 square foot American
Type Culture Collection building.
Residential Development
- -----------------------
The population growth experienced by the county over the last three decades
has resulted in a corresponding increase in residential housing. The chart
which follows sets forth the increase in residential dwellings contained
within the county by product type since 1980. The chart provides estimates
of the various housing product as tabulated by the Building Inspection and
Permits Department of Prince William County. Single-family product has
historically predominated the area, with townhouse product increasing at a
steadily growing pace.
<TABLE>
<CAPTION>
Prince William County Housing Stock
1980 - 1996
==========================================================
Year Single family Townhouse Apartment Other Total
==========================================================
<S> <C> <C> <C> <C> <C>
1980 31,900 7,141 5,335 2,012 46,388
1981 32,914 7,632 5,326 2,035 47,907
1982 34,002 8,224 5,326 2,086 49,638
1983 34,832 8,550 5,326 2,220 50,928
1984 35,990 9,195 5,455 2,490 53,049
1985 37,004 9,670 5,500 2,635 54,809
1986 38,023 10,342 6,201 2,770 57,336
1987 39,273 11,567 6,833 2,894 60,567
1988 41,175 12,932 8,538 3,311 65,956
1989 42,033 13,985 11,227 3,797 71,042
1990 42,401 14,536 12,908 3,959 73,804
1991 42,769 15,087 13,670 3,239 74,765
1992 43,337 15,884 13,670 3,472 76,363
1993 44,313 16,663 14,076 3,472 78,524
1994 46,760 21,866 15,474 - 84,100
1995 47,771 22,806 15,809 - 86,386
1996 48,921 23,792 16,396 - 89,109
</TABLE>
Source: Prince William County Office of Economic Development
Prince William County Office of BuIlding Inspection and Permits
10
<PAGE>
Consistent with regional and national trends, residential building activity
in recent years has declined from the peak levels evident in the mid-
1980's. Again, building permit activity for 1992 evidenced an increases
over the previous year, with 1993 levels representing an increase over
1992. An overall 57.26% increase was registered for 1992 over 1991; the
rate of growth of the 1993 permit activity over the 1992 level was 13.38%.
For the subsequent years of 1994 through 1996, consistent increases in
building permit activity were noted. A total of 2,309 building permits were
issued in 1994, with a 9.7% increase in 1995, followed by an 18.2% increase
in 1996.
The county Board of Supervisors approved an affordable housing program, in
concept, at the end of 1991 and is currently refining the proposal for
implementation. Due to the decline in new large scale residential projects,
the program has not yet been finalized nor tested. Application of this
affordable dwelling unit ("ADU") program will be modeled after the
successful programs in Montgomery County, Maryland and neighboring Fairfax
County, Virginia and will most likely affect new projects proposed to
contain in excess of fifty units. Alternative methods of application may
limit the ADU requirement to townhouse and multi-family projects, with
single-family detached projects funding a housing trust fund. Density bonus
trades may also become a part of this program, thereby permitted higher
density development for ADU development inclusions.
Non-residential Development
- ---------------------------
As previously stated, the Prince William County Board of Supervisors has
established a goal of increasing non-residential development in the county
in order to both increase its tax base and provide employment opportunities
to its residents.
The comprehensive plan adopted by the Board incorporates commercial development
in the eastern and western portions of the county, consistent with the
development trends already established. The following table sets forth the
commercial construction activity experienced within the county from 1982 through
1993.
<TABLE>
<CAPTION>
COMMERCIAL DEVELOPMENT CONSTRUCTION
(in square feet)
Year Office Retail Industrial Total
=============================================================
<S> <C> <C> <C> <C>
Existing 2,352,603 4,875,126 3,541,500 10,769,229
1982 49,724 9,422 22,750 81,896
1983 90,277 68,648 280,443 439,368
1984 175,469 481,872 561,985 1,219,326
1985 377,176 1,038,472 487,728 1,903,376
1986 238,027 1,044,149 561,134 1,843,310
1987 446,803 893,639 680,320 2,020,762
1988 646,121 899,737 780,096 2,325,954
1989 620,408 1,008,303 834,320 2,463,031
1990 306,222 1,071,688 461,345 1,839,255
1991 25,331 552,428 133,887 711,646
1992 141,464 765,374 79,598 986,436
1993 62,760 1,145,925 32,460 1,241,145
1994 34,323 166,089 36,794 237,208
1995 12,826 822,584 128,260 963,670
--------- ---------- --------- ----------
Total 5,579,534 14,843,456 8,622,620 29,045,612
</TABLE>
Source: Prince William County Office of Economic Development
11
<PAGE>
As has been evident throughout the region, as well as on a national level,
non-residential development in the County has declined considerably in
recent years from the levels demonstrated in the mid- and late 1980's. Non-
residential activity reported in 1993, composed primarily of retail
space, exceeded 1992 levels by slightly more than 25%, with a considerable
drop in activity in 1994, followed by a surge of non-residential
construction in 1995.
Absorption of commercial space in Prince William County virtually kept pace
with space delivered to the market through 1987. In 1987, Prince William
County reported a 6% vacancy rate, somewhat high by comparison to other
submarkets within the region at that time but considerably lower than the
then national average. As the regional real estate market began to
"soften", Prince William was no exception. As of October, 1996, 328, 044
square feet of office space was available for lease in Prince William
County. This equated to a vacancy rate of 19.01%, according to statistics
published by the Blacks Statistical Review.
-------------------------
The county has absorbed a considerable amount of retail space in the last
several years. Among the premier retail developments in the county is the
Potomac Mills Shopping Center, a 400-acre outlet center containing over 1.2
million square feet of retail space. The center opened in 1985 and to date
has outpaced the combined outlet centers in Williamsburg in its customer
attraction. A 400,000 square foot addition to Potomac Mills was completed
in 1993, which houses new anchor tenants including Burlington Coat Factory,
Speigel, J.C. Penny's and Marshalls. Additionally, Hechingers, Home Depot
and Lowe's completed retail outlets in the county in 1993.
Transportation
- --------------
Prince William County's proximity to Washington, D.C. and the other
employment centers in Northern Virginia requires an extensive road. The
county is 25 miles southwest of Washington, D.C., via Interstate Route 66
from the western portion Prince William. The eastern portion of the county
is served by 1-95 and Route 1. Other major highways which serve Prince
William County include Route 29/211, running north/south; Route 234 running
east/west; and Route 28 which traverses the county in a north/south
direction. A recent study conducted by George Mason University from 1990
Census Data indicates that the Prince William job force is altering its
commuting patterns from Washington, D.C. to employment centers within the
county as well as in neighboring Fairfax County. This data, compared to
1980 census data, indicates an increase from 36.36% to 40.8% in at-place
employment as well as a decrease from 18.79% in 1980 to 12.77% in 1990 of
the workforce commuting to Washington, D.C. Further, an increase from
24.05% in 1980 to 31.06% in 1990 of the county's workforce commutes to
employment located in Fairfax County. This trend is consistent with the
growth of suburban employment centers in the region.
Various commuting alternatives have been under consideration for many years. The
most notable alternative which has recently come to fruition is the Virginia
Railway Express System. This long planned commuter rail system opened in June of
1992, starting in Manassas and running to Union Station in Washington, with
eight stops in between. The 35 mile run requires approximately 74 minutes. In
July 1992 the north/south section of the system began operation. This portion
services those areas between Washington, D.C. and Fredericksburg, Virginia
situated along the borders of Stafford and Spotsylvania Counties. The eastern
portion of Prince William County benefits from this line of the service. It
is estimated that 4,500 commuters will make use of this commuter rail
service and thereby reduce the traffic congestion experienced along the
major arteries of I-66 and I-95. Closer-in stations will also serve as
connections to the existing Metrorail subway system.
12
<PAGE>
Prince William County is also served by three other railroads, The Norfolk
Southern, CSX/Richmond, Fredericksburg and Potomac, or RF&P and the
Hardsonburg Spur. Dulles International Airport, one of the world's largest
and most advanced airports, is situated approximately 13 miles north of the
City of Manassas straddling neighboring Loudoun and Fairfax Counties.
Washington National Airport is approximately 30 miles northeast of the
eastern Prince William/Fairfax County line. A municipal airport is located
within the incorporated City of Manassas.
In summary, Prince William County is a growing suburban area which has
maintained many rural areas with large areas of undeveloped land and
agricultural land uses. The county is strategically positioned and, through
proper governmental planning and implementation, well prepared to receive
an abundance of development from the more densely developed and "close-in"
jurisdictions surrounding Washington, D.C. Prince William County has
changed its overall character from a rural farming area to a residential
and employment base in the preceding two decades. Commercial office
development is continuing to expand with existing high technology and
research and development firms attracting other commercial users to the
area. It is the opinion of the appraisers that residential, commercial and
economic growth in Prince William County will continue into the foreseeable
future as the supply of developable land continues to decrease in the
immediate Washington, D.C. market area.
13
<PAGE>
REGIONAL AREA
- -------------
Introduction
- ------------
As real estate is an immobile asset, the economic trends that impact one
location over others within a market area, or compared to other market
areas, are important. The discussion which follows highlights those forces
that determine supply and demand for real property, which, in turn,
determine the market value of real estate. It is noted that in 1992, the
former Washington, D.C. Metropolitan Statistical Area and the former
Baltimore Metropolitan Statistical Area were consolidated and additional
jurisdictions were added to each of the primary metropolitan areas. As
various current and historical data and projections contained within the
following discussions have been obtained from different sources and various
of the local government sources have not yet included the jurisdictions
added after the 1990 census in historical and current compilations, some
minor discrepancies exist in the area and the regional totals. It is our
opinion, however, that any discrepancies are statistically insignificant
and do not result in a distortion of demographic picture. Additionally, as
the subject property is situated within the Washington, D.C. Primary
Metropolitan Statistical Area ("PMSA"), the following discussion provides
an overview of the consolidated Washington-Baltimore Consolidated
Metropolitan Statistical Area ("CMSA") with more emphasis on the
demographic components relative to the Washington, D.C.
Definition of the Area
- ----------------------
The U.S. Office of Management and Budget defines a Metropolitan Statistical
Area as a metropolitan area which is comprised of all surrounding
jurisdictions that share a common economic base. In 1992, the Office of
Management and Budget created a new Washington PISA. Also created at that
time was the "Washington-Baltimore Consolidated Metropolitan Statistical
Area. The Washington- Baltimore CMSA includes the former Washington
Metropolitan Statistical Area and the former Baltimore Metropolitan
Statistical Area, along with additional counties in Virginia, Maryland and
West Virginia added following the 1990 census.
The Washington PMSA is comprised of Washington, D.C., the Maryland counties
of Montgomery, Prince George's, Calvert, Charles, Frederick, Howard, and
Washington; the Virginia counties of Arlington, Fairfax, Loudoun, Prince
William, Stafford, Spotsylvania, Fauquier, Culpeper, Clark, King George,
and Warren along with the cities of Alexandria, Fairfax, Falls Church,
Fredericksburg, Manassas and Manassas Park; and the West Virginia counties
of Jefferson and Berkeley. The Baltimore PMSA consists of the City of
Baltimore and the counties of Baltimore, Anne Arundel, Howard, Carroll,
Harford, Queen Anne, Hagerstown and Washington County.
The Washington MSA forms the southernmost point of the east coast
megalopolis of Boston, New York, Philadelphia and Washington. Washington is
further situated within a one-day automobile ride of approximately one-half
of the total population of the United States. The CMSA contains a land area
of approximately 9,600 square miles. Those metropolitan areas which
contain larger populations than the subject CMSA have land areas of 7,658
square miles as to New York, 34,008 square miles as to Los Angeles, and
5,660 square miles as to Chicago.
14
<PAGE>
Population and Household Characteristics
- ----------------------------------------
The population of the Washington-Baltimore area is characterized by high income
levels and levels of educational attainment. Additionally, the population is
very mobile. According to the U.S. Census Bureau's 1995 Statistical Abstract of
the United States, the 1994 population of the Washington-Baltimore CMSA was
7,059,000. This CMSA ranks fourth in the nation in terms of population, behind
New York, Los Angeles, and Chicago. The following table sets forth the top ten
regions in the country in terms of population:
TOP TEN METROPOLITAN AREAS BY POPULATION
<TABLE>
<CAPTION>
Change
1994 1990 1980 90-94 80-90
========================================================================================================================
<S> <C> <C> <C> <C> <C>
1 New York/N.NJ/Long Island NY J T PA N/A 19,550,000 18,906,000 N/A 3.41%
2 Los Angeles/Riverside/Orange Co, CA 15,302,000 14,532,000 11,498,000 5.30% 26.39
3 Chicago/Gary/Kenosha IL 8,527,000 8,240,000 8,115,000 3.48% 1.54%
4 Washington-Baltimore DC/MD/VA 7,059,000 6,726,000 5,791,000 4.95% 16.15
5 San Francisco/Okland/San Jose CA 6,513,000 6,250,000 5,368,000 4.21% 16.43
6 Philadelphia/Wilmington/Atlantic City PA/NJ 5,957,000 5,893,000 5,649,000 1.09% 4.32%
7 Boston/Brockton/Nashua MA N/A 5,455,000 5,122,000 N/A 6.50%
8 Detroit/Ann Arbor/Flint MI 5,246,000 5,187,000 5,293,000 1.14% -2.00%
9 Dallas/Ft. Worth TX 4,362,000 4,037,000 3,046,000 8.05% 32.53
10 Houston/Galveston/Brazona, TX 4,099,000 3,731,000 3,118,000 9.86% 19.66
</TABLE>
SOURCE: Statistical Abstract of the U.S., 115th Edition, 1995,
U.S. Department of commerce, Economics and Statistics
Administration, U.S. Bureau of the Census
The population of the Washington-Baltimore CMSA is distributed as follows:
<TABLE>
<CAPTION>
1994 Population % of CMSA
--------------- ---------
<S> <C> <C>
Baltimore PMSIA 2,458,000 34.8%
Hagerstown MD PMSA 127,000 1.8%
Washington, D.C. PMSA 4,474,000 63.4%
</TABLE>
SOURCE: Statistical Abstract of the U.S., 115th Edition, 1995, U. S.
Department of commerce, Economics and Statistics
Administration, U. S. Bureau of the census
During the 1980s, the Baltimore PMSA's growth rate was 8.32% or 18,300 persons
per year. The Washington PMSA demonstrated population growth of 21.42% or 93.500
persons per year during the 1980s. The population of the consolidated area has
grown by approximately 5% since the time of the 1990 census. The growth rate
demonstrated by the Baltimore PMSA was 3.2% while the Washington PMSA has
demonstrated a growth rate since the 1990 census of 5.9%. The population
estimate as of the 1990 census represents an increase of 16.1% over the 1980
census for the CMSA.
Population growth is forecast to continue over the next twenty years, although
at a slower rate than was experienced during the 1980s. The table presented on
the facing page summarizes population forecasts as published in the Metropolitan
Washington Council of Governments Round 5.2 Forecasts for the jurisdictions
contained within the Washington, D.C. PMSA. It is noted that the West Virginia
counties included after the 1990 census are not included in the COG forecasts.
The growth forecast for the Baltimore region was obtained from the Round 5.0
forecast of the Baltimore Metropolitan Council.
15
<PAGE>
Household patterns have as significant an impact on real property values as do
population trends. Based on statistics published by Sales and Marketing
Management Magazine's 1995 Survey of Buying Power; the Washington PMSA ranks
fifth in the country in terms of numbers of households with 1,655,600 as of
January, 1995, behind New York, Los Angeles, Chicago and Philadelphia. The
Baltimore PMSA, with 912,400 households, ranks 18th in the nation. This survey
further indicates a 1995 average household size of 2.72 as to the Washington
PMSA and 2.70 as to Baltimore.
Consistent with population growth, the number of households is forecast to grow
at lower rates than were experienced in the 1980's. The following table
summarizes the historical and forecasts of household growth from 1980 through
2020.
HISTORICAL AND FORECAST HOUSEHOLD GROWTH
1980 - 2020
<TABLE>
<CAPTION>
1980 1990 2000 2010 2020
================================================================================
<S> <C> <C> <C> <C> <C>
Washington, D.C. 253.1 249.6 244.0 248.0 252.0
Virginia Suburbs 419.3 567.2 680.3 795.6 914.3
Maryland Suburbs 502.3 642.5 759.4 874.6 981.1
----- ----- ----- ----- -----
TOTAL WASHINGTON MSA 1,174.7 1,459.3 1,683.7 1,918.2 2,147.4
Change 24.23% 15.38% 13.93% 11.95%
Baltimore City 302.8 267.5 280.5 282.6 288.7
Maryland Counties 488.0 600.1 694.4 774.9 849.3
----- ----- ----- ----- -----
Total Baltimore MSA 799.8 867.6 974.9 1057.5 1138
Change 8.48% 12.37% 8.47% 7.61%
================================================================================
</TABLE>
SOURCE: WASHINGTON METROPOLITAN COUNCIL OF GOVERNMENTS COOPERATIVE
FORECAST ROUND 5.2; BALTIMORE METROPOLITAN COUNCIL, ROUND 5.0
FORECASTS
The Metropolitan Washington Council of Governments Round 5.2 Cooperative
forecasts indicates that the average household size in the Washington PMSA was
2.69 persons at the time of the 1990 census, down from 2.77 as of the 1980
census. The average household size is forecast to decline to 2.66 by the year
2000, and continue to 2.63 and 2.59 in the years 2010 and 2020, respectively.
The Baltimore Metropolitan Council reports the average household size of 2.71 as
of the 1990 census, with forecast declines to 2.58 persons by 2000, 2.49 in 2010
and 2.43 persons in 2020.
Employment Characteristics
- --------------------------
The Washington-Baltimore CMSA currently ranks near the top nationally in the
proportion of its population in the prime working ages of between 24 and 54
years of age. The table presented below sets forth the distribution of the
Washington-Baltimore CMSA population by age, as of January 1, 1995.
16
<PAGE>
WASHINGTON-BALTIMORE CMSA POPULATION DISTRIBUTION BY AGE
<TABLE>
<CAPTION>
Age Group Percentage of Population
--------- ------------------------
<S> <C>
Under 18 24.4%
18-24 9.7%
25-34 17.6%
35 - 49 25.6%
50 & Over 22.7%
</TABLE>
SOURCE: SALES AND MARKETING MANAGEMENT, SURVEY OF BUYING POWER,
JANUARY, 1995
The Washington metropolitan area is one of the wealthiest in the nation
according to the Sales and Marketing Management 1995 Survey of Buying Power.
Median household effective buying income, or "EBI" is defined as "...roughly
equivalent to disposable or after-tax income . The Washington PMSA ranked ninth
in the country in terms of median household EBI at $53,420. The Baltimore PMSA
ranked 48th, with the median household EBI at $41,802. The table which follows
sets forth the ten metropolitan areas in the country with the highest median
household effective buying income as of January 1, 1995.
TEN HIGHEST MEDIAN HOUSEHOLD INCOME AREAS
BY 1995 ESTIMATE
<TABLE>
<S> <C>
1 Middlesex/Somerset/Hunterdon, NJ $65,871
2 Nassau/Suffolk, NY $62,011
3 Bridgeport/Stamford/Norwalk/Danbury. CT $58,101
4 Newark, NJ $55,739
5 Trenton, NR $55,480
6 San Jose, CA $54,778
7 Bergan - Passiac, NJ $53,864
8 Anchorage, AL $53,517
9 Washington, D.C. $53,420
10 Monmoth - Ocean CA $52,336
</TABLE>
SOURCE: SALES AND MARKETING MANAGEMENT, SURVEY OF BUYING POWER, JANUARY
1, 1995
As previously mentioned, the median EBI, Effective Buying Income, in the
Washington PMSA was $53,420, with the Baltimore PMSA at $41,802 as of the
January 1,1995 survey. The EBI of the Washington-Baltimore CMSA was further
reported at $48,661. A breakdown of the households contained within the
Washington-Baltimore CMSA by median effective buying income as set forth in
Sales and Marketing Management's Survey of Buying Power; January, 1995 is
presented in the following table.
<TABLE>
<CAPTION>
Washington-
EBI Baltimore Washington Baltimore CMSA
--- --------- ---------- --------------
<S> <C> <C> <C>
Under $10,000 9.2% 5.2% 6.8%
$10,000 -$19,999 11.5% 7.0% 8.7%
$20,000 - $34.999 19.9% 15.5% 17.3%
$25,000 - $49,999 20.2% 18.1% 18.9%
$50,000 and over 39.2% 54.2% 48.3%
</TABLE>
SOURCE: SALES AND MARKETING MANAGEMENT SURVEY OF BUYING POWER, JANUARY
1, 1995
17
<PAGE>
In terms of employment, government and services dominate the Washington PMSA,
while trade and services predominate in the Baltimore region. The presence of
the Federal government in Washington D.C. has historically been recognized as a
stabilizing factor on the economy of the region; the area established a diverse
economic base over the preceding two decades. However, the recessionary period
of the early 1990s disputed the prior claim of "recession proof" for the
Washington area, as the prevailing economic factors began to take its toll on
the region.
The Washington, D.C. region enjoyed a period of growth during the 1980s when the
economy grew from four to six percent per annum. The peak year for job growth in
the region was 1984, when 107,000 jobs were added to the employment base. Growth
fell to 100,000 new jobs in 1985, and to 82,000 new jobs in 1986. From 1986 to
1988, annual job growth settled in the 4% range. Job growth in 1989 was 2.9%,
but the growth trend reversed in 1990 and this decline continued through 1992.
The Baltimore Region experienced similar trends over the past decade; 1984
represented the year of highest employment growth, at an annual rate of 3.39%,
as compiled by the Baltimore Metropolitan Council. Employment growth during the
following three year period, through 1987, remained at or above 5.1%, followed
by a significant reduction. During the 1988-1990 period, employment growth
stabilized at an average annual rate of 1.43% in the Baltimore region.
The Washington, D.C. area's employment patterns have changed considerably over
the past ten years, with significant growth occurring in the private sector.
Although the federal government has historically been the major employer in the
region, federal employment has not grown in relationship with other segments of
the economy. The share of federal employees declined from 18% of the workforce
to 16.6% of the workforce between 1986 and 1990. The service sector has emerged
as the fastest growing section of the economy and is now the largest employment
classification in the Washington area. In 1960, the service industries employed
18% of all non-agricultural workers in the area, compared with 39% for
government. The 1994 figures indicate that federal, local and state government
employment represents about 27% of all non-agricultural employment, while
services have grown to approximately 35%.
The following table presents the changes in employment composition of the
Washington, D.C. PMSA from 1990 through 1994.
EMPLOYMENT DISTRIBUTION BY INDUSTRY
WASHINGTON, PMSA 1990 - 1994
<TABLE>
<CAPTION>
====================================================================================================
Change
1990 1991 1992 1993 1994(c) 90-94
====================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Manufacturing 88,968 82,807 79,099 79,239 80,900 2.1%
Construction 131,676 103,432 95,332 97,450 102,587 5.3%
T.C.U (a) 105,543 105,438 103,890 102,676 103,281 0.6%
Wholesale Trade 75,658 71,833 69,859 69,105 71,137 2.9%
Retail Trade 353,094 339,817 336,005 338,041 344,074 1.8%
F.I.R.E. (b) 130,985 128,339 125,581 127,655 133,400 4.5%
Services 739,987 728,946 737,142 762,779 779,068 2.1%
Federal Government 365,743 371,945 379,208 379,736 365,840 -3.7%
Local Government 138,861 140,896 141,330 142,968 143,424 0.3%
State Government 79,403 76,807 76,770 78,053 75,986 -2.6%
--------- --------- --------- --------- --------- -----
Total Washington PMSA 2,209,918 2,150,260 2,144,216 2,177,702 2,199,697 -4.63%
</TABLE>
(a) - Transportation, Construction, Utilities; (b) - Finance, Insurance, Real
Estate; (c) estimates based on QT3 reports
SOURCE: MWCOG ECONOMIC TRENDS IN METROPOLITAN WASHINGTON, 12/8/93
------------------------------------------
18
<PAGE>
The Baltimore PMSA reported changes in the employment categories as well, over
the last twenty years. The decade spanning 1970 through 1980 experienced an
overall increase in employment in the region of 17.48%. Growth in the services,
government, and trade led the way. The following decade saw over 20% employment
growth, with the Services sector increasing by 55.42%, followed by Trade at
26.17%. Decreases in manufacturing and government offset these increases. The
table presented below provides an overview of this growth over the twenty-year
period.
EMPLOYMENT BY TYPE OF ACTIVITY
BALTIMORE REGION 1970-1990
(IN THOUSANDS)
<TABLE>
<CAPTION>
Percent Percent
Industry 1970 1980 Change 1990 Change
================================================================================
<S> <C> <C> <C> <C> <C>
Infrastructure 121.7 131.8 14.43% 68.8 18.92%
Manufacturing 197.6 162.0 -17.32% 130.7 -25.49%
Trade 196.1 240.0 22.39% 302.8 26.17%
Services 229.5 314.7 37.12% 489.1 55.42%
Government 216.8 281.3 29.75% 265.5 -5.62%
----- ------- ------ ------- ------
TOTAL 961.7 1,129.8 17.48% 1,356.9 20.1%
================================================================================
</TABLE>
SOURCE: BALTIMORE METROPOLITAN COUNCIL REGIONAL ECONOMIC INDICATORS
Development Trends
- ------------------
A combination of the previously discussed demographic elements of population,
income and employment growth fostered record-breaking growth in the housing
market through the last half of the 1980s. Median home prices in the Washington
region increased from 1985 levels of $97,100 to $144,400 by 1989, with an annual
average percent increase of 10.50% over this five year period. According to
figures published by the National Association of Realtors, Washington has
consistently ranked within the top fifteen marketplaces throughout the nation in
terms of median housing price. Although the median sales price of housing in the
Baltimore region does not rank as high as the Washington region, dramatic
increases were nonetheless realized. In 1980 the median sales price in the
Baltimore region was $52,200. In 1985, the median sales price had increased by
39% to $72,600. By 1990, the National Association of Realtors' data indicated a
median average sales price in the Baltimore region of $105,900, an increase of
45.87% or an annual increase of almost 10% per annum over the five year period.
Both residential and non-residential construction in the Washington-Baltimore
region were unprecedented during the period from 1985 to 1987. A significant
slowdown occurred beginning in 1989. Activity levels continued to decline from
the peak years through 1992. Residential building permits as an indicator of
housing activity, issued in the Washington region during the period from 1986
through 1987, increased from 41,458 to a high of 43,261. The 1988 figure of
39,724 permits issued reflects a decrease of almost 9%, from the prior year,
with a further reduction of almost 12% for year-end 1989. By year-end 1990,
building permit activity decreased an additional 29.9% from the 1 989 levels.
Various industry experts and economists have attributed this decline in building
activity to a number of factors including the unavailability of construction
financing as a result of the savings and loan crisis, as well as the general
recessionary economic environment.
19
<PAGE>
Likewise, the Baltimore region experienced similar trends in residential permit
issuance, with peak activity in 1985 at approximately 18,800 issuances, an
increase of 11.9% over the previous year. Over the next two years, residential
building permit activity remained relatively constant, with a slight decrease of
5% in 1987 and an increase of 3% in 1988. In 1990, a dramatic decrease of almost
22% was reported followed by a decrease of 18.8% in 1991. In 1992, a dramatic
rebound was reported, with an increase of over 34%. The following table
summarizes the residential building permit activity for the Washington and
Baltimore regions.
RESIDENTIAL BUILDING PERMITS ISSUED
1990 - 1994
<TABLE>
<CAPTION>
Change
Washington Region 1990 1991 1992 1993 1994 90-94
================================================================================
<S> <C> <C> <C> <C> <C> <C>
D.C. 368 333 132 304 210 42.9%
Maryland Suburbs 13,608 9,898 12,138 13,030 11,663 -14.3%
Virginia Suburbs 24,616 18,146 23,987 27,630 26,153 -6.2%
------ ------ ------ ------ ------ -----
S/T WASHINGTON PMSA 38,592 28,377 36,257 40,964 38,026 -1.5%
BALTIMORE REGION 13,200 10,800 14,500 13,000 12,600 -4.5%
</TABLE>
Source: Economic Trends in Metropolitan Washington, Washington
Metropolitan COG; Regional Economic Indicators, Baltimore
Metropolitan Council
Non-residential construction in the Washington PMSA recovered from the depressed
market of the early Part of the 1980s with increases in development of over 40%
from 1984 to 1985. Record increases were also tabulated for 1988 at 46.56% above
the 1987 level. Since that time activity has been leveling off due to a number
of economic factors including oversupply of product, unavailability of financing
and the general economic environment. In 1990, new commercial construction was
approximately half of the amount that was started in 1988. The following table
sets forth commercial construction in the Washington D.C. PMSA from 1990 through
1994 as published in the Washington Metropolitan Council of Governments Economic
Trends in Metropolitan Washington 1990- 1994.
COMMERCIAL CONSTRUCTION - WASHINGTON REGION
<TABLE>
<CAPTION>
Change
1990 1991 1992 1993 1994 90-94
======================================================================================
<S> <C> <C> <C> <C> <C> <C>
D. C. 5,084,350 5,677,840 2,085,336 1,138,339 2,065,748 -59.4%
Maryland Suburbs 7,108,629 6,269,102 5,515,518 5,426,260 5,181,828 -27.1%
Virginia Suburbs 7,258,820 6,701,248 8,747,674 5,717,030 7,968,412 -9.8%
---------- ---------- ---------- ---------- ---------- ------
WASHINGTON, PMSA 19,451,799 18,648,190 16,348,528 12,281,629 15,215,988 -21.7%
======================================================================================
</TABLE>
Source: Economic Trends in Metropolitan Washington, 1990-1994.
The table that follows on the following page provides an overview of
non-residential, new construction in the Baltimore region over the same period,
from 1990 to 1994, presented in millions of dollars. Similar trends as
experienced in the Washington region can be deduced from this data.
20
<PAGE>
NON-RESIDENTIAL NEW CONSTRUCTION
BALTIMORE REGION
<TABLE>
<CAPTION>
Utility
Total Office Comm. Indus. Institutional & other
================================================================================
<S> <C> <C> <C> <C> <C> <C>
1990 467.4 138.1 119.9 127.5 77.0 4.9
1991 280.7 27.7 79.9 101.6 66.3 5.3
1992 196.4 28.4 65.1 13.1 88.7 1.1
1993 268.7 59.7 52.3 34.3 117.4 5.0
1994 171.9 22.2 48.9 32.4 65.0 3.3
================================================================================
</TABLE>
Source: Baltimore Metropolitan Council, Regional Economic Indicators, February
1995.
Transportation
- --------------
Washington's Metrorail ("Metro") system has fueled the increases in construction
in most areas surrounding new and proposed stations throughout the preceding
decade. The concept of promoting higher density development related to public
transportation, especially Metro, has been put into action in several locations
around the region. Arlington County and the City of Alexandria have guided
redevelopment in their Metro station areas by planning for higher densities and
a greater mixture of uses. Other station areas, such as those in Fairfax and
Prince George's Counties, are anticipated to stimulate both commercial and
residential development around these Metrorail stations.
Within the Washington area, public transportation includes the Metrobus and
Metrorail systems. The Metrorail system had grown to include approximately 90
miles of track and 74 stations serving the District of Columbia, Maryland and
Virginia. At completion, Metrorail will cover 103 miles with 83 stations
throughout the Washington region. Metrorail experienced a 33 percent increase in
ridership during the period from 1980 to 1985, and an increase of 27% for the
five-year period from fiscal year 1986 through 1990. Increases in ridership are
projected to continue as levels of population and commercial growth in some
suburban areas are beginning to exceed the capacities of existing road networks.
Most recently, the Virginia Railway Express System started its commuter service
from the outer suburbs in Northern Virginia to Washington, D.C. in 1992. The
system opened its east/west route from Manassas in Prince William County to D.C.
in June of 1992. The following month, the north/south route initiating in
Fredericksburg began its leg of this rail system. The Virginia Rail System
terminates at Union Station. Closer-in stations along these two routes also
provide alternative commuting for residents in neighboring Northern Virginia
counties. AMTRAK and the Maryland Rail Commuter ("MARC") rail systems also serve
both regions, providing interim stops to points north and south.
The transportation system serving the Baltimore Regional also features external
road networks, public buses, subway, and rapid rail. The METRO subway of
Baltimore consists of 14 miles of tract extending from the City of Baltimore to
target suburban areas. Expansion of this system is
21
<PAGE>
underway, with a current estimated daily ridership of 50,000 individuals. In
1992, the 22.4 mile long central light rail transit line was completed. The
system runs north-south, connecting the city of Baltimore with Timonium to the
north, and Linthicum/Cromwell Station/Glen Burnie, to the south. Planned
expansion of this light rail system includes access to Hunt Valley to the north
and Baltimore- Washington International Airport ("BWl") to the south.
Accessibility to the Washington and Baltimore metropolitan areas is excellent.
Major highways serving the region include Interstate Routes 1-95, running north
to south along the entire Atlantic seaboard; 1-66, serving Northern Virginia
into the District of Columbia; 1-270, which carries commuters north from the
Washington Capital Beltway to the northern reaches of Montgomery County and
beyond; 1-495, the Capital Beltway; 1-695, the Baltimore Beltway; 1-83, serving
the City of Baltimore and points north and south; 1-70, which provides access
from Baltimore to western jurisdictions.
Metropolitan Washington and Baltimore are further easily accessible via plane.
These regions are served by three major airports; Washington National Airport is
located directly across the Potomac River from downtown Washington; Dulles
International Airport is situated along the Fairfax/Loudoun County line in the
Virginia suburbs; and Baltimore-Washington International airport is located
along the Baltimore-Washington. Washington National Airport, located four miles
from downtown Washington, is served by 19 commercial carriers which currently
have scheduled approximately 900 flights daily and served an average of 45,000
passengers daily. Dulles Airport serves over 30,000 passengers with nearly 800
flights daily.
The recently renovated and expanded Baltimore-Washington International Airport
("BWl") is located in northern Anne Arundel County, approximately 32 miles from
downtown Washington. The airport is served by 25 carriers with more than 425
daily flights and commuter airlines which operate from the facility and is
ranked 14th in the nation in international travel. Further improvements are in
process with a $13.4 million runway expansion and related taxiway and runway
safety areas, which were recently completed. This expansion accommodates Pacific
Rim carriers. An international pier addition is in the planning stage for this
facility which will ultimately house a U.S. Immigration and Naturalization
Service and Customs office, ticket counters, baggage claims area, and concession
stands. Smaller business and private aircraft are handled by Lee Airport and the
Bay Bridge Airport, both facilities being within a twenty minute drive from
Annapolis. BWI's sophisticated new air cargo complex handles approximately 60%
of all of the air cargo in the Baltimore-Washington market.
Conclusions
- -----------
The recent merger of the Washington and Baltimore regions into one consolidated
MSA has resulted in the fourth largest demographic region in the country. The
similarities between Washington and Baltimore, 35 miles apart, provide a
blending of two expansive communities that have ultimately melded over the
recent years of development; commuting between the previously identified
Washington and Baltimore jurisdictions for employment and social reasons have
blurred the lines of distinction. The combined strength of this mid-Atlantic
corridor reflects a generally stable local economy with the second largest
office market containing over 224 million square feet, a high aftertax effective
buying income of $48,661, one of the lowest unemployment rates in the nation at
5.3%; the highest percentage of college graduates, and the highest concentration
of scientists and engineers in the country. These combined demographics
characterize an urban region which continues to represent a desirable and
profitable location for not only residences but businesses as well.
22
<PAGE>
SITE DESCRIPTION
- ----------------
The subject property consists of 77 raw, recorded townhouse lots located along
the east side of South Lake Boulevard north of its intersection with Waterway
Drive in the Southlake at Montclair planned community.
The record plat indicates the lots are configured in eleven building groups
containing from five to eight units. The interior lots are 18' wide with depths
ranging from 59 to 63 feet. At each end of each building group are two lots
between 38' and 41' wide and from 28 to 35 feet deep. The appraiser is advised
that this configuration was recorded to accommodate the prior contract
purchaser's configuration, which included three-story conventional townhouses
situated upon the interior lots with the end units containing a flat with a
two-story townhouse above.
As of the inspection date, the lots were unimproved and lie within both wooded
and cleared areas. The site has access to all public utilities, including public
water and sewer, telephone, gas and electric service. Site improvements proposed
include a private internal roadway network with asphalt surface streets and
parking areas, concrete curb and gutter, storm sewer, street lighting and
landscaping.
No study of subsurface conditions has been undertaken by nor provided to the
appraiser; however, there are no known adverse conditions which would prohibit
the proposed development of the site with single-family attached dwelling units
as proposed. Further, no toxic waste materials were observed upon the site
during my inspection of the property nor are any such materials known to exist
in proximity. However, site contamination issues are beyond the area of the
appraiser's expertise; it is therefore recommended that a survey be conducted by
professionals competent in this area in order to determine the existence of any
such adverse conditions on the subject property.
The site appears to have the size, shape, access and physical characteristics
compatible with the proposed development. No portion of the subject property is
within a designated flood plain area. The subject property is identified on
Panel Number 5115300-0301-D of the FEMA Flood Hazard Boundary Map dated January
5,1995. The property is located within flood zone "X", a minimal flood hazard
area. A copy of the flood map upon which the subject property is located is
presented within the Addenda of the report as Exhibit V.
Presented within the Addenda as Exhibit I are copies of the record plats of
Phase Ill, Section 54, Southlake at Montclair upon which the subject lots are
illustrated. This site plan, prepared by Greenhorne & O'Mara, Inc. and dated
September, 1993 is incorporated herein by this reference.
23
<PAGE>
ZONING DISCUSSION
- -----------------
The subject property is zoned to the RPC, Residential Planned Community
District, of Prince William County, Virginia. The RPC district is intended to
permit, in accordance with the Comprehensive Plan, the development of planned
satellite communities containing not less than 500 contiguous acres under one
ownership or control in those areas of the County where provisions for sanitary
sewers, sewage disposal facilities, adequate highway access and public water
supply are assured. Within such planned communities, the location of all
residential, commercial, industrial and governmental uses, school sites, parks,
playgrounds, recreational areas, commuter parking areas and other open spaces
shall be controlled in such a manner as to permit a variety of housing
accommodations and land uses in orderly relationship to one another.
Development under this zone requires a Master RPC Zoning Plan, consisting of a
drawing and text which shows the proposed general layout, the general location
of the various types of land uses, the proposed densities of population in
residential areas, a major thoroughfare plan, a general public utility plan, a
general storm drainage plan and a plan showing the location of recreational
spaces, parks, schools and other public or community uses.
The Master RPC zoning will include a phasing schedule which describes when,
within the development of the Planned residential Community, the required school
sites, library sites, recreation and green space areas, major streets, commuter
parking lots, and similar a amenities or community facilities will be dedicated
or reserved.
Individual development phases within Planned Residential Communities are subject
to site plan approval. As previously stated, the lots are recorded.
24
<PAGE>
HIGHEST AND BEST USE
- --------------------
Introduction
- ------------
For the purpose of this appraisal, 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 land value". /(1)/ Implied within these definitions is a
recognition of the contribution of that specific use to community environment or
to community goals, in addition to wealth maximization of individual property
owners.
The optimum use of the site, if unimproved and available for development, would
be that use which would generate the greatest net return on the property over
the economic life of the proposed improvements. In analyzing the highest and
best use of the site as though vacant, careful consideration has been given to
the following limitations imposed by government, neighborhood uses and market
demands.
. Examination of land use regulations that prescribe permitted
development. Reference has been made to existing zoning ordinances,
master plans and building codes.
. Compatibility of properties located in proximity to the subject.
Consideration has been given to the land use patterns established and
the predominant types of development in the subject market area.
. Analysis of the physical characteristics accepted by the market. An
investigation has been conducted as to the size, density, layout,
design, efficiency, etc. of economically successful townhouse
communities.
The subject of this appraisal is 77 raw, recorded townhouse lots situated along
the east side of South Lakes Boulevard just north of its intersection with
Waterway Drive in the Southlake at Montclair planned community, Dumfries
Magistral District, Prince William County, Virginia.
The subject lots are within the Southlake at Montclair planned community, and
will be served by the extensive Montclair community amenity package, including
pool, clubhouse, tennis courts, open space and the lakes. The record plats
provided indicates the two building groups containing 13 lots will front along
the shore of Lake Montclair.
Competitive Housing Analysis
- ----------------------------
A survey of new townhouse communities which are currently marketing in the
subject area of eastern Prince William County has been undertaken for the
purposes of this analysis. A survey of new townhouse communities marketing
product in the subject Dumfries/Woodbridge areas of Prince William County is
presented in the table on the facing page. A total of 15 townhouse offerings
within ten communities were surveyed for the purposes of this analysis. The
projects surveyed offer units base priced from $81,250 for "piggy-back" units in
Stockbridge up to $137,400 for conventional units offered by PC Homes in the
Glen subdivision to the north of the subject in the Lake Ridge area. The average
base price developed by the 15 projects surveyed was $117,155.
/(1)/ The American Institute of Real Estate Appraisers. The Dictionary
of Real Estate Appraisal, Second Edition (Chicago: American Institute of Real
Estate Appraisers, 1988).
25
<PAGE>
These projects offer units containing an average of from 1,091 up to 2,138
square feet of finished living area, and the average unit size developed by the
surveyed projects was 1,542 square feet. The unit prices ranged from $57.09 to
$93.497 per square foot, and the surveyed projects developed an average unit
price of $77.30 per square foot of finished living area. The average monthly
absorption levels demonstrated by these projects ranged from a low of 0.07 per
month as to Comstock's offering in the Ashland PUD up to 4.0 units per month as
to PC's offering in the Glen. The average absorption level developed by the
surveyed projects was 1.74 units per month.
Discussions with a number of the on-site sales agents indicated that the
townhouse market in southeastern Prince William County is highly competitive and
that several of the homebuilders currently offering townhouse product here are
considering withdrawing from the market until some of the current competition is
absorbed. The developer of the Ashland PUD is reportedly in the process of
re-engineering sections with in the PUD to decrease the amount of townhouse lots
by nearly 300 and develop a lesser number of single-family lots in their place.
Analysis of Market Trends
- -------------------------
The factor of greatest impact on successful residential development is the
economic environment. Beginning in the third quarter of 1989, continuing through
1990 and into 1991, a severe decline in new home sales and resale volume
occurred not only regionally but nationwide as well. Concurrently, other facets
of the economy began to be impacted. Retail sales dropped dramatically,
unemployment figures began to escalate, and domestic manufacturing levels
dropped.
While activity levels in the real estate market, including housing sales, have
not rebounded to levels which were evident in the late 1980's, steady
improvements in these economic indicators have been evident since 1993.
Beginning in the first half of 1993 and continued somewhat erratically through
1994 and 1995, traffic through new subdivisions began to increase. With these
slow but steady improvements in the economy underway, the housing industry began
to feel the positive effects of increased consumer confidence.
The table Presented on the facing page sets forth a single-family
townhouse/plex/condominium sales comparison of new home sales throughout the
region from 1991 through 1996. This data was compiled from contract activity on
new home subdivision of 30 or more planned units as published by Housing Data Re
pods. Sales remained virtually consistent as to the region overall from 1995 to
1996. The northern Virginia suburbs registered an overall decline in sales of
2.3% from 1995 to 1996. Prince William County, however, registered an increase
of 2.1% in 1996 over 1995 activity.
Key factors considered in the analysis of absorption in competing developments
are product, affordability, size of development, inventory as well as the
availability of financing. The cyclical decline and advance of mortgage interest
rates have a determining effect on the sale and marketability of the housing
product. Interest rates have to be at a level that is acceptable to the market
and typical purchaser the development is attempting to attract. The current
interest rate levels considered acceptable to attract a significant portion of
the market is projected to be between 7% to 9% for 30 year fixed rate mortgages
and 5% to 7% for adjustable rate mortgages and builder buydown loans. Current
mortgage rates fall within this range.
26
<PAGE>
Conclusions
- -----------
Based upon this study of Competitive projects and market demand, an absorption
period of 45 months has been forecast for the sell-out of the subject 77
townhouse lots on a finished, retail basis. This absorption forecast
incorporates a six-month ~lead in period to complete sufficient land development
to commence lot deliveries, and equates to an average of 1.71 lots per month and
two per month over the delivery period.
In conclusion, based upon analysis of the legal, physical and economic factors
influencing value, and following a site inspection and neighborhood analysis, it
is the opinion of the appraiser that the highest, best, and most profitable
continuous use to which the subject property could be put would be for
development of the subject land in accordance with the record plat provided for
development with residential townhouse units which meet the requirements of the
RPC zone and which further meet the requirements of the current market. This use
is legally permissible, appropriately supported, and is economically feasible.
27
<PAGE>
VALUATION SECTION
<PAGE>
Valuation Section
Valuation Premise
- -----------------
The purpose of the appraisal is to estimate the current market value of the
herein-described property, in "fee simple", as of May 30,1997. Under the
scope of the assignment, per the request of the client, the following
values have been estimated:
Market Value - "As Is" The current estimated market value of the subject
77 recorded townhouse lots, in their current, raw
state, as of the appraisal date.
In estimating the above value, each of the three conventional approaches to
value, i.e., the Cost Approach, the Sales Comparison Approach and the
Income Approach has been considered. These approaches to value are briefly
summarized as follows:
* The Sales Comparison Approach has been relied upon in estimating the
value of the subject proposed building lots as finished. The value
estimate by the Sales Comparison Approach is determined by extracting
units of comparison from sales of reasonably similar type properties
and comparing them directly to the subject utilizing necessary
adjustment variables.
* The Cost Approach to value results in an indication of value by
combining the estimated value of the land with the reproduction cost
new (both direct and indirect) of the improvements, less all forms of
accrued depreciation. This approach assumes that a prospective buyer
would not be warranted in paying more for a property than the total
cost of reproduction. As the appraisal problem is limited to
estimating the "as is" value of the subject raw, recorded townhouse
lots, the cost approach to value has not been employed.
* The Income Approach is useful in demonstrating the income producing
potential and investment quality of a property. This approach involves
an estimate of the gross economic income which can be commanded by the
subject property, less certain operating expenses, and capitalized at
a rate commensurate with the risks involved. As this appraisal
considers only the value of the subject land, this technique has not
been employed.
In estimating the "as is" or raw lot value of the subject lots, the appraiser
has relied upon the Developmental or Anticipated Use Method. Following a
thorough review of both the land records and the subdivision approval records of
Prince William County, Virginia, the market revealed no recent transactions of
raw townhouse lots of tracts of land proposed for townhouse development which
are relevant for comparison to the subject property.
28
<PAGE>
The Developmental or Anticipated Use Method is a discounting process which
proceeds from the estimated value of the subject proposed lots on a finished,
retail basis. The developmental use analysis further takes into account
absorption, land development costs, holding period and sales expenses, along
with developer's anticipated profit. The estimated costs are deducted from the
sales proceeds projected over the holding period, and the net proceeds are
discounted to a present value estimate. The result of this discounting process
theoretically represents the "as is" value of the subject property.
Consideration is typically given to the following components in a developmental
use analysis:
* Direct and indirect land development costs required to market the lots
on a finished\retail basis;
* Estimated sales expenses and holding period costs which may reasonably
be anticipated to be incurred in connection with the development and
marketing process;
* Deduction for profit allowance to cover risk and provide developer
incentive;
* Deduction for time over a projected absorption period at an
appropriate discount rate.
"As Is" Value Analysis
- ----------------------
Developmental Use Approach - 77 townhouse lots
- ------------
Introduction
- ------------
In estimating the market value, "as is" of the subject 77 raw, recorded
residential townhouse lots, the "Developmental" or "Anticipated Use" Method has
been employed. The developmental method is useful in evaluation of the "as is"
value of either raw land or property under development where market transactions
relative to the proposed product type to be developed from the property are
readily available for comparison.
The developmental method is a discounting process which proceeds from an
estimate of the gross sell-out of the subject lots on a finished, retail basis.
The number, size and types of lots which may be developed on the property must
be determined and comparative market analysis undertaken in order to estimate
the most likely retail sales proceeds which may be realized from subdivision and
development of the property under analysis. From the estimated sales proceeds
are deducted the total of all direct and indirect costs necessary to complete
the land development required in order to market the finished lots on a retail
basis, in addition to all holding period expenses which may reasonably be
anticipated in connection with the development and marketing process.
Additionally, this analysis takes into account absorption, all related holding
period costs and anticipated profit. The result of this discounting process
theoretically represents the "as is" value of the property under analysis.
- ---------------------
Revenue Determination
- ---------------------
The developmental or anticipated use analysis proceeds from an estimate of the
value of the subject lots on a finished, retail basis. The product assumption
under which the developmental use analysis has been undertaken is based upon the
yield of 77 lots as set forth on the record plats previously identified.
29
<PAGE>
Prospective Future Value - 77 Finished Lots
- -------------------------------------------
The subject 77 townhouse lots have been valued, as though fully finished, on a
gross retail basis by direct comparison with several sales of finished lots
which have recently occurred within proximate areas of Prince William County
which are considered to be reasonably similar to the subject in terms of income
levels and housing demand. These lot sales are summarized in the table on the
facing page and are detailed under Schedule "A" in the Addenda of the report.
The appropriate unit of comparison derived from the market and utilized for this
analysis is the "price paid per lot".
The comparable sales transactions employed in the analysis of the subject
finished lot value consist of eight transactions which occurred within five
communities, including the planned communities of Lake Terrapin, Ashland and
River Oaks, along with two additional subdivisions currently marketing finished
lots within approximately two miles of the subject property. The transactions
employed in the analysis occurred from March of 1996 through May of 1997 and
developed lot prices which ranged from $25,000 per lot for lots within the
Lakecrest subdivision up to $33,000 per lot for 22' wide lots within the Lake
Terrapin PUD to the north of the subject. The sales developed an average unit
price of $29,046 per lot.
The factors itemized below have been taken into consideration in the analysis of
this market data:
* dates of sales;
* location in relation to subject;
* site configuration, topography and overall utility;
* zoning;
* lot width/configuration;
* amenities in place or proposed;
* access and traffic patterns;
* mortgage financing available at the time of sale;
* general socio-economic conditions.
Many of the above cited factors of comparability are very compatible between the
comparable data and the subject proposed finished lots and consequently require
little or no adjustment. All sales are reported to be "arms length" transactions
with typical financing terms; therefore, no adjustments for cash equivalency or
conditions of sale are required. Further, all of the comparable transactions
transferred in fee simple, so no adjustment for property rights is required.
Adjustments have been made for location, lot width/configuration; degree of
finish and the availability of community amenities. Based on the current dates
of the transactions employed in the analysis, no market conditions or time
adjustment is considered to be warranted.
Location adjustments consider proximity to employment centers, recreation
facilities, commuter routes and public transportation, and the immediate
environs of each property under analysis. There follows a discussion of the
transactions considered to be most comparable to the subject lots as finished.
COMPARABLE NUMBER 1B is the initial acquisition of 20' wide finished
townhouse lots within the Lake Terrapin community located just west of the
subject by Terrapin Stuart LP. This transaction, which occurred in April of
1997, developed a unit price of $26,000. Downward adjustment has been
applied to reflect the larger size and conventional configuration of the
comparable 20' lots. Comparable number 1b results in an indication of the
value of the subject townhouse lots as finished, after adjustment, of
$24,700 per lot.
30
<PAGE>
COMPARABLE NUMBER 2B is Comstock Homes' acquisition of 20'conventional
townhouse lots in the Ashland PUD located just west of the subject along
the north side of Dumfries Road. This transaction occurred in March of 1996
at a unit price of $29,000 per lot. Downward adjustment is required as the
comparable lots are 20' conventionally configured townhouse lots. The
indicated value of the subject lots as finished, based upon comparable
number 2b, is $27,550 per lot.
COMPARABLE NUMBER 3A is a recent acquisition of finished 22' wide townhouse
lots located within the Forest Park subdivision to the south of the subject
by Washington Homes. This transaction occurred in February of 1997 and
developed a unit price of $29,500. This comparable requires downward
adjustment to reflect the larger lot width and conventional configuration
of the comparable lots. Also, as the comparable subdivision offers no
amenity package, upward adjustment has been applied. After adjustment,
comparable number 3a results in an indication of the value of the subject
lots, as finished, of $28,025.
COMPARABLE NUMBER 5 is the acquisition of finished 20' townhouse lots
located within the Lakecrest subdivision just south of the subject property
by Piccard Development Group. This transaction occurred in February of 1997
at a unit price of $25,000 per lot. Downward adjustment is required as the
comparable lots are 20' conventionally configured townhouse lots, and
upward adjustment has been applied to reflect the community amenity package
available in the subject Montclair PUD. The indicated value of the subject
lots as finished, based upon comparable number 5, is $25,000 per lot.
The adjustments discussed above are presented in grid form in the table on the
facing page. The transactions evaluated for the purposes of this analysis
indicate a range of value from $24,700 to $28,025 per lot after adjustment.
Based upon the above analysis and factors of comparability, it is the opinion of
the appraiser that the prospective future value of the subject townhouse lots as
finished is consistent with $25,000 per lot.
PROSPECTIVE FUTURE VALUE -77 FINISHED TOWNHOUSE LOTS:
(ABSORPTION TIME - 46 MONTHS)
77 LOTS @ $25,000/Lot = $1,925,000
Price Escalation
- ----------------
With regard to development of a projection of sale price escalation over the
absorption period, historical appreciation rates of both land and housing prices
in the subject sub-market and the region overall have been studied. In
evaluating land sales which have occurred in Prince William County and the
region, in addition to current contracts being executed for the take-downs of
finished lots, it appears that annual price escalation rates ranging from 0% to
6% per annum are being developed. Based upon the above information and
evaluation of current market conditions, considering the highly competitive
nature of the townhouse market in the neighborhood, prices of the subject lots
as finished are forecast to escalate at the rate of 3% per annum, over the sell-
out period, beginning with the second take-down.
It is impossible to prove conclusively any forecast of future conditions. It is,
however, the opinion of the appraiser that this projection of price escalation
over the anticipated holding period represents a reasonable projection of future
conditions based upon studies of historical market data and evaluation of
current market trends and conditions.
31
<PAGE>
Projected Absorption Level
- --------------------------
The absorption conclusions and analysis undertaken to arrive at these
conclusions are set forth in detail under the highest and best use section of
the report. An overall period of 45 months has been forecast for absorption of
the subject 77 townhouse lots as finished. This forecast incorporates a six-
month "leadin" period prior to the initial delivery in order to complete
sufficient land development to commence initial lot deliveries. This projection
equates to an overall absorption pace of approximately 1.71 lots per month over
the projection period and two lots per month over the delivery period. For the
purposes of this analysis, six lots per quarter are projected to deliver
beginning in the third quarter of the projected holding period. The final five
lots are forecast to deliver in the last quarter of the projection period.
- ---------------
Projected Costs
- ---------------
From the projected cumulative sales proceeds are deducted the estimated direct
and indirect costs associated with completion of all land development required
to market the subject lots on a finished, retail basis. In addition, sales
expenses, a projected developer profit, and real estate tax liability have been
estimated and deducted from the projected revenues. These expense categories are
discussed as follows.
- -----------------
Development Costs
- -----------------
In developing an estimate of the direct development completion costs for the
subject property, the land development budget for the subject property, along
with additional townhouse lots in the subject subdivision prepared by the record
owner was reviewed. A copy of this information is presented within the Addenda
of the report as Exhibit III. The appraiser has further reviewed development
costs for conventional and "back-to-back" townhouses throughout the northern
Virginia area. For the purposes of this analysis, development costs of $10,000
per lot or $770,000 in the aggregate are forecast. These costs are forecast to
be incurred evenly over the initial two years of the projected holding period.
Holding Period Costs
- --------------------
From the gross sales over each period, certain additional items should be
deducted. These include an estimate for sales and marketing expenses and real
estate tax liability likely to be incurred over the projected holding period,
along with an allowance for entrepreneurial profit. These items are discussed as
follows.
Sales and marketing expenses have been estimated at 4% of gross sales proceeds.
These expenses are projected to be incurred on a pro-rata basis as sales
proceeds are obtained. The estimated sales estimates are based upon the analysis
of similar projects within the subject and regional market area and appear to be
reasonable for the subject property.
The real estate tax liability has been estimated at $160 per lot per annum over
the initial two years of the holding period. This estimate is based upon the
current assessment of the subject lots. Thereafter, tax liability of $340 per
lot per annum has been forecast. The tax liability is forecast to be incurred on
a semi-annual basis consistent with the tax payment schedule in the Commonwealth
of Virginia and is further projected to be reduced on a pro-rata basis as
outsales are forecast to occur. while it is not possible to predict either
future assessments of properties under development
32
<PAGE>
or future tax rates, it is the opinion of the appraiser that this projection
represents a logical and reasonable forecast of the tax liability likely to be
associated with the subject property over the projected holding period.
Also deducted from the gross proceeds of sale is an allowance for
entrepreneurial profit; the profit deduction has been estimated at 10% of gross
sales proceeds. This estimate is based upon the analysis of similar projects
within the subject sub-market and the region overall.
DISCOUNT RATE
- -------------
The discount rate employed within the analysis reflects typical yield rates in
various money markets which provide alternate investment opportunities.
Alternate investment opportunities include Corporate AAA Bonds, Corporate BAA
Bonds, Municipal Bonds, Five-Year Treasury Securities, and long-term Treasury
Securities. The Treasury Securities cannot be compared directly to investments
such as the subject property, because these securities have high liquidity and
almost no risk, and set the absolute lower limit for before-tax investment
yields. However, corporate bonds tend to provide a basis for risk ratings even
though they have liquidity, whereas the holder of real estate cannot convert to
cash as quickly or as inexpensively.
Selected yields, which are published weekly by the Federal Reserve, were
analyzed in order to project an appropriate discount rate for use in the
analysis. The following table sets forth the various rates which were analyzed
in connection with forecasting the discount rate:
Survey of Market Rate Indices
- -----------------------------
<TABLE>
<CAPTION>
Week of
May 30, 1997 May, 1997
------------ ---------
<S> <C> <C>
Corporate Bond Rates
--------------------
AAA 7.64 7.58
BAA 8.25 8.20
A UTILITY 8.02 8.01
Bank Prime Rate 8.50 8.50
Discount Window 5.00 5.00
Federal Funds 5.48 5.51
U.S. Treasury Constant Maturities
---------------------------------
1-Year 5.86 5.87
2-Year 6.29 6.28
3-Year 6.44 6.42
5-Year 6.60 6.57
7-Year 6.69 6.66
10-Year 6.75 6.71
20-Year 7.07 7.02
30-Year 6.99 6.94
</TABLE>
Based upon this market information, it is the opinion of the appraiser that the
12% discount rate utilized to compute the present value of the net cash flows is
appropriate under current market conditions. This rate adds approximately 350
basis points to the upper end of the range developed by the Corporate Bond Rates
in order to provide for the greater risk associated with investments in real
estate, as well as to account for possible rate fluctuations which may occur
over the projected holding period.
33
<PAGE>
The discount rate must be viewed in conjunction with the amount and timing of
the profits received. Thus it is the combination of this discount rate and the
profit component which results in the true effective discount rate or internal
rate of return. The effective internal rate of return equates to 19.33% or
nearly than three times the current long-term treasury rate. The cash flow
analysis which derives the internal rate of return is presented within the
addenda of the report as Exhibit IV.
The calculations of the developmental use analysis are contained in the table on
the following page. The indicated "as is" value of the subject property, under
the assumptions set forth above, is $619,661 which is rounded to $620,000.
MARKET VALUE-"AS IS" - 77 Raw Townhouse Lots:
77 Lots @ $8,052/Lot = $620,000
Reconciliation and Conclusion
- -----------------------------
The appraiser has been instructed to estimate the market value "as is" of the
subject 77 raw, recorded townhouse lots within the Southlake at Montclair
subdivision. The subject is located along the east side of South Lakes Boulevard
just north of its intersection with Waterway Drive in the Montclair planned
community, Dumfries Magistral District, Prince William County, Virginia. The
property is zoned to the RPC, Residential Planned Community Classification of
Prince William County, Virginia.
The Sales Comparison Approach provides a valid indication of the value if there
is a sufficient number of sales for comparison and they are reasonably similar
to the subject. As the market revealed no recent transactions of raw townhouse
lots in proximity which were relevant for comparison to the subject property,
the appraiser has relied upon the Development or Anticipated Use analysis to
estimate the "as is" value of the subject land.
The Developmental or Anticipated Use Method is a discounting process which
proceeds from the estimated value of the subject proposed lots on a finished,
retail basis, deducts appropriate estimates of development and other costs
anticipated to be incurred in connection with the development and marketing
process and discounts the net proceeds to a present value estimate. In the case
of the subject lots as though finished, the Sales Comparison Approach to
Valuation was applied which resulted in a relatively narrow range of value after
adjustment. That analysis benefitted from very recent sales data of finished
townhouse lots located within two miles of the subject property. Because the
Sales Comparison Approach reflects the actions and motives of typical buyers and
sellers within the market the value conclusions by this approach are considered
reliable.
Estimated Market Value "As Is": 77 Lots @ 8,052/Lot = $620,000
- -------------------------------
34
<PAGE>
<TABLE>
<CAPTION>
"AS IS" VALUE ANALYSIS
Southlakes at Montclair
Cumulative Total Gross Sell-out: $ 1,925,000
77 lots at $ 25,000
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Year Number: One
Quarter Number: 1 2 3 4
Beginning Month: 1 4 7 10
Ending Month: 3 6 9 12
- --------------------------------------------------------------------------------------------------
Sales/Qtr.: 0 0 6 6
Cumulative Sold: 0 0 6 12
Price Escalation 3.0%
Sale Price/Lot $ 25,000 $ 25,000 $ 25,000 $ 25,188
Proceeds of Sale/Qtr. $ 0 $ 0 $ 150,000 $ 151,125
Less Deductions
- ---------------
Development Costs $ 96,250 $ 96,250 $ 96,250 $ 96,250
Sales & Admin Expenses 4.0% $ 0 $ 0 $ 6,000 $ 6,045
Taxes $ 10,010 $ 0 $ 9,230 $ 0
Profit 10.0% $ 0 $ 0 $ 15,000 $ 15,113
---------- --------- --------- ---------
Total Deductions $ 106,260 $ 96,250 $ 126,480 $ 117,408
Sub-Total Cash Flow/Qtr ($ 106,260) ($ 96,250) $ 23,520 $ 33,718
Discount Factor at 12.0% 0.970874 0.942596 0.915142 0.888487
Discounted Proceeds/Qtr ($ 103,165) ($ 90,725) $ 21,524 $ 29,958
Indicated "As Is" Value $ 619,661
Rounded to: $ 620,000
Per Unit: $ 8,052
<CAPTION>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Year Number: Two
Quarter Number: 5 6 7 8
Beginning Month: 13 16 19 22
Ending Month: 15 18 21 24
- --------------------------------------------------------------------------------------------------
Sales/Qtr.: 6 6 6 6
Cumulative Sold: 18 24 30 36
Price Escalation
Sale Price/Lot $ 25,376 $ 25,567 $ 25,758 $ 25,952
Proceeds of Sale/Qtr. $ 152,258 $ 153,400 $ 154,551 $ 155,710
Less Deductions
- ---------------
Development Costs $ 96,250 $ 96,250 $ 96,250 $ 96,250
Sales & Admin Expenses $ 6,090 $ 6,136 $ 6,182 $ 6,228
Taxes $ 7,670 $ 0 $ 6,110
Profit $ 15,226 $ 15,340 $ 15,455 $ 15,571
---------- --------- --------- ---------
Total Deductions $ 125,236 $ 117,726 $ 123,997 $ 118,049
Sub-Total Cash Flow/Qtr $ 27,022 $ 35,674 $ 30,554 $ 37,661
Discount Factor at 0.862609 0.837484 0.813092 0.789409
Discounted Proceeds/Qtr $ 23,310 $ 29,877 $ 24,843 $ 29,730
<CAPTION>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Year Number: Three
Quarter Number: 9 10 11 12
Beginning Month: 25 28 31 34
Ending Month: 27 30 33 36
- --------------------------------------------------------------------------------------------------
Sales/Qtr.: 6 6 6 6
Cumulative Sold: 42 48 54 60
Price Escalation
Sale Price/Lot $ 26,146 $ 26,342 $ 26,540 $ 26,739
Proceeds of Sale/Qtr. $ 156,878 $158,054 $ 159,240 $ 160,434
Less Deductions
- ---------------
Development Costs $ 0 $ 0 $ 0 $ 0
Sales & Admin Expenses $ 6,275 $ 6,322 $ 6,370 $ 6,417
Taxes: $ 5,950 $ 3,910
Profit: $ 15,688 $ 15,805 $ 15,924 $ 16,043
---------- --------- --------- ---------
Total Deductions $ 27,913 $ 22,128 $ 26,204 $ 22,461
Sub-Total Cash Flow/Qtr $ 128,965 $ 135,927 $ 133,036 $ 137,973
Discount Factor at 0.766417 0.744094 0.722421 0.701380
Discounted Proceeds/Qtr $ 98,841 $ 101,142 $ 96,108 $ 96,772
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------
Year Number: Four
Quarter Number: 13 14 15
Beginning Month: 37 40 43
Ending Month: 39 42 45
- ------------------------------------------------------------------------------------
Sales/Qtr.: 6 6 5
Cumulative Sold: 66 72 77
Price Escalation
Sale Price/Lot $ 26,940 $ 27,142 $ 27,345 ------------------------------
Cumulative Per Lot
Proceeds of Sale/Qtr. $ 161,637 $ 162,850 $ 136,726 $ 2,012,864 $ 26,141
Less Deductions
- ---------------
Development Costs $ 0 $ 0 $ 0 $ 770,000 $ 10,000
Sales & Admin Expenses $ 6,465 $ 6,514 $ 5,469 $ 80,515 $ 1,046
Taxes: $ 1,870 $ 0 $ 0 $ 44,750 $ 581
Profit: $ 16,164 $ 16,285 $ 13,673 $ 201,286 $ 2,614
---------- --------- --------- ---------
Total Deductions $ 24,499 $ 22,799 $ 19,142 $ 1,096,551 $ 14,241
Sub-Total Cash Flow/Qtr $ 137,138 $ 140,051 $ 117,584 $ 916,313 $ 11,900
Discount Factor at 0.680951 0.661118 0.641862
Discounted Proceeds/Qtr $ 93,384 $ 92,590 $ 75,473 $ 619,661 $ 8,048
------------------------------
</TABLE>
<PAGE>
Marketing Period
- ----------------
The normal marketing period is the amount of time necessary to expose a property
to the open market in order to achieve a sale. Implied in this definition are
the following characteristics:
* The property will be actively exposed and aggressively marketed to
potential purchasers through marketing channels commonly used by
sellers of similar type properties;
* the property will be offered at a price reflecting the most probable
mark-up over market value used by sellers of similar types of
properties; and
* a sale will be consummated under the terms and conditions of the
definition of market value set forth by the regulations.
The subject of this appraisal is 77 raw, recorded townhouse lots located within
the Southlake at Montclair planned community, Dumfries Magistral District,
Prince William County, Virginia. The property is zoned to the RPC, Residential
Planned Community, Classification of Prince William County, Virginia. The lots
are configured in eleven building groups containing from five to eight units per
building. The interior lots are "conventional" 18' wide townhouse lots; the end
lots range from 38' and 41' wide and from 28 to 35 feet deep. The lots are
within the Southlake at Montclair planned community, and will be served by the
extensive Montclair community amenity package, including pool, clubhouse, tennis
courts, open space and the lakes.
The marketing time for a given property is a function of the number of buyers
evident in the market for similar properties at the present time, in conjunction
with the availability of financing for purchases of properties of this type.
Based upon discussions with local brokers active in the real estate market in
the subject neighborhood and evaluation of current market activity levels, it is
the opinion of the appraiser that the subject property could be marketed, at the
estimated "as is" value as set forth herein, within one year from the date of
the appraisal.
35
<PAGE>
CERTIFICATION
The undersigned does hereby certify that, except as otherwise noted in this
appraisal report:
1. I/We have no present or contemplated future interest in the real estate
that is the subject of this appraisal report.
2. I/We have no personal interest or bias with respect to the subject matter
of this appraisal report or the parties involved.
3. To the best of my knowledge and belief the statements of fact contained in
this appraisal report, upon which the analyses, opinions and conclusions
expressed herein are based, are true and correct.
4. This appraisal report sets forth all of the limiting conditions (imposed by
the terms of my assignment or by the undersigned) affecting the analyses,
opinions and conclusions contained in this report.
5. Analyses, opinions and conclusions developed in this appraisal report have
been made in conformity with and is subject to the requirements of the Code
of Professional Ethics and Standards of Professional Practice of the
Appraisal Institute, as well as with the Uniform Standards of Professional
Appraisal Practice defined by the Appraisal Foundation
6. No one other than the undersigned prepared the analyses, nor provided
significant professional assistance in determining the conclusions and
opinions concerning real estate that are set forth in this appraisal
report.
7. My/Our compensation is not contingent upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the amount
of the value estimate, the attainment of a stipulated result, or the
occurrence of a subsequent event.
8. This appraisal assignment was not based on a requested minimum valuation, a
specific valuation or approval of a loan.
9. I, Susan M. Browning, have made a personal inspection of the property that
is the subject of this report.
/s/ Susan M. Browning
---------------------
Susan M. Browning
[STAMP APPEARS HERE]
<PAGE>
Addenda
<PAGE>
Schedule "A"
<PAGE>
[MAP APPEARS HERE]
<PAGE>
COMPARABLE FINISHED TOWNHOUSE LOT SALE
COMPARABLE NUMBER 1A
GPIN #: 8091-72-Various
Location: Ridgefield Crossing Subdivision marketed as the Lake Terrapin
Planned Community, located along the east side of Spriggs Road
just north of Dumfries Road in the Dale City area of Prince
William County, Virginia.
Grantor: ARC, LLC
Grantee: Manhattan Builders, Inc.
Sale Date: Dec, 1996
Reference: 2401/1490
Consideration: $264,000 or
$33,000/Lot
Zoning: RT-8
Comments: These are finished 22' townhouse lots within the Lake Terrapin
PUD located just west of the subject property. Lake Terrapin
contains an amenity package including swimming pools and club
house, tennis courts, hiker/biker trails, and a 15-acre lake.
The grantee developed units on this site with an average base
price of $124,000. This offering developed a finished lot cost
to housing price ratio of approximately 26.6%.
<PAGE>
COMPARABLE FINISHED TOWNHOUSE LOT SALE
COMPARABLE NUMBER 1B
GPIN #: 8091-72-Various
Location: Ridgefield Crossing Subdivision, marketed as the Lake Terrapin
Planned Community, located along the east side of Spriggs Road
just north of Dumfries Road in the Dale City area of Prince
William County, Virginia.
Grantor: ARC, LLC
Grantee: Terrapin Stuart LP
Zoning: RT
Sale Date: April, 1997
Reference: 2431/0745
Consideration: $130,000 or
$ 26,000/Lot
Zoning: RT
Comments: These are the grantee's initial takedown of five finished 20'
wide townhouse lots within the Lake Terrapin PUD located just
west of the subject property. Lake Terrapin contains an amenity
package including swimming pools and club house, tennis courts,
hiker/biker trails, and a 15-acre lake.
The grantee is proposing garage and non-garage units on this
property with an average base price of $124,000. This product
develops a finished lot cost to housing price ratio of
approximately 21%.
<PAGE>
COMPARABLE FINISHED TOWNHOUSE LOT SALE
Comparable Number 2a
GPIN No: 8090-various
Location: Ashland PUD, located along the north side of Dumfries Road ("a
Route 234) just west of Spriggs Road in the Dumfries area of
Prince William County, Virginia.
Grantor: Ashland Community Development LLC
Grantee: Porten Sullivan Corporation
Zoning: R-T
Summary of Transactions:
- ------------------------
Date No of Lots Reference Consideration
- ---- ---------- --------- -------------
11/96 7 2393/782 $220,000 or $31,429/lot
Comments: These are recent take-downs of 22' wide finished lots by Porten
Sullivan Corporation in the Ashland PUD located just southwest of
the subject property. The Ashland PUD has a proposed amenity
package including pools, tennis, trails, and future retail
development.
Porten Sullivan is marketing product on these lots with an
average base price of $133,490. This product develops a finished
lot cost to housing price ratio of approximately 23.5%.
<PAGE>
COMPARABLE FINISHED SINGLE-FAMILY LOT SALE
Comparable Number 2b
GPIN No: 8090-various
Location: Ashland PUD, located along the north side of Dumfries Road ("a
Route 234) just west of Spriggs Road int he Dumfries area of
Prince William County, Virginia.
Grantor: Ashland Community Development LLC
Grantee: Comstock Ashland LLC
Zoning: R-10
Summary of Transactions:
- ------------------------
Date No of Lots Reference Consideration
- ---- ---------- --------- -------------
3/96 7 2324/1577 $203,000 or $29,000/lot
Comments: The above is the initial take-down of 20' wide townhouse lots by
Comstock Homes in the Ashland PUD located just southwest of the
subject property. The Ashland PUD has a proposed amenity package
including pools, tennis trails, and future retail development.
Comstock is marketing units with an average base price of
$121,950.This product develops a finished lot cost to housing
price ratio of approximately 23.8%.
<PAGE>
COMPARABLE FINISHED SINGLE-FAMILY LOT SALE
Comparable Number 3a
Tax Map: 8189-Various
Location: Forest Park subdivision, located along the north side of Mine
Road at Acadia Drive, in the Dumfries area of Prince William
County, Virginia.
Grantor: Piccard Development Group LLC
Grantee: Washington Homes, Inc.
Zoning: R-10
Summary of Transactions:
- ------------------------
Date No of Lots Reference Consideration
- ---- ---------- --------- -------------
2/97 6 Inst #40092 $177,000 or $29,500/lot
Comments: The above are take-downs by Washington Homes of 22' wide lots in
the Forest Park subdivision. The grantee is marketing units with
an average base price of $131,657. This product develops a
finished lot cost to housing price ratio of 22.4%.
<PAGE>
COMPARABLE FINISHED SINGLE-FAMILY LOT SALE
Comparable Number 3b
Tax Map: 8189-Various
Location: Forest Park subdivision, located along the north side of Mine
Road at Acadia Drive, in the Dumfries area of Prince William
County, Virginia.
Grantor: Piccard Development Group LLC
Grantee: NVR, Inc. (Ryan Homes)
Zoning: R-10
Summary of Transactions:
- ------------------------
Date No of Lots Reference Consideration
- ---- ---------- --------- -------------
11/96 8 2394/1325 $228,000 or $28,500/lot
Comments: The above are take-downs by Ryan Homes of 20' lots in the Forest
Park subdivision. The grantee is marketing units with an average
base price of $112,490. This product develops a finished lot cost
to housing price ratio of approximately 25.3%.
<PAGE>
COMPARABLE FINISHED SINGLE-FAMILY LOT SALE
Comparable Number 4
GPIN No: 8289-89-Various
Location: River Oaks PUD, located along the east side of U.S. Route 1 off
of River Ridge Blvd in the Dumfries area of Prince William
County, Virginia.
Grantor: Richmond American Homes
Grantee: NVR, Inc. (Ryan)
Zoning: R-10
Summary of Transactions:
- ------------------------
Date No of Lots Reference Consideration
- ---- ---------- --------- -------------
5/97 6 Inst # 56365 $179,658 or $29,943/lot
4/97 6 Inst # 46648 $167,478 or $27,913/lot
Comments: These transactions are take-downs by Ryan Homes of finished lots
in River Oaks, which features an amenity package are retail
center. Ryan is marketing units with an average base price of
$131,490. This product develops a finished lot cost to housing
price ratio of 22.8%.
<PAGE>
COMPARABLE FINISHED SINGLE-FAMILY LOT SALE
Comparable Number 5
GPIN No: 8190-07-Various
Location: Lakeside subdivision, located along the north side of Dumfries
Road off of Waterway drive, Dumfries, Prince William County,
Virginia.
Grantor: Lakecrest Associates, LC
Grantee: Piccard Development Group LLC
Zoning: RT
Summary of Transactions:
- ------------------------
Date No of Lots Reference Consideration
- ---- ---------- --------- -------------
2/97 5 2413/1944 $125,000 or $25,000/lot
Comments: The above transactions are take-downs of 20' wide lots within the
Lakeside community; Lakeside offers no amenity package. Piccard
is offering three-story townhouses which develop an average base
price of $118,600. This product develops a finished lot cost to
housing price ratio of approximately 21%.
<PAGE>
EXHIBITS
<PAGE>
EXHIBIT I
<PAGE>
[MAP APPEARS HERE]
<PAGE>
EXHIBIT II
<PAGE>
NBVALUATION GROUP, INC.
CERTIFIED GENERAL REAL ESTATE APPRAISERS AND VALUATION CONSULTANTS
- --------------------------------------------------------------------------------
May 7, 1997
Mr. Edwin L. Kelly
President
Interstate General Company
222 Smallwood Village Center
St. Charles, MD 20602
RE: 58 "ready for bonding" single-family building lots
89 "ready for bonding" back-to-back townhouse lots with utilities and
access to the boundary
Montclair PUD, Prince William County, Virginia
Dear Mr. Kelly:
The following is provided to serve as a proposal for this office to perform
appraisal services relative to the above referenced properties. It is my
understanding that an appraisal report will be required for the single-family
site and for the townhouse site which will provide an estimate of the Market
Value - As Is of the property. These will be self-contained narrative appraisal
reports be prepared in accordance with the Uniform Standards of Professional
Appraisal Practice as promulgated by the Appraisal Standards Board of the
Appraisal Foundation. It is further my understanding that these appraisal
reports will be used in connection with a corporate restructure.
Our fee for the assignments will be in the amount of $2,500 per report or $5,000
in total. It is noted that this fee quote represents a reduction of $500 from
the fee which would typically be quoted for a single assignment, based upon the
similarity in the demographic sections of these reports. Fifty percent of the
fee will be required as a retainer at the time of engagement. The completed
reports can be delivered by Monday, June 2, 1997. A brief letter outlining our
preliminary conclusions can be made available to you during the week of May 19th
for your advance review.
In the event that this proposal is acceptable to you, please execute and return
a copy of this letter along with a check for the retainer in the amount of
$2,500. In order to proceed with the assignment, we will need copies of the
record plat/site plan (as applicable), along with land development completion
cost estimates and any other information deemed pertinent to the property.
Please feel free to contact me if you have any questions or comments with regard
to the above. We look forward to the opportunity of working with you on these
assignments.
Sincerely,
/s/ Susan M. Browning
Susan M. Browning
Accepted and Agreed
By: /s/ Edwin L. Kelly
-------------------------
Date: May 8, 1997
-------------------------
7979 Old Georgetown Road * Suite 705 * Bethesda, Maryland 20814
Phone (301) 654-1719 Facsimile (301) 654-2550
<PAGE>
EXHIBIT III
<PAGE>
SOUTHLAKE AT MONTCLAIR 21 Nov. 1996
Section S-6, Phase 2
Preliminary Development Cost Estimate
<TABLE>
<CAPTION>
Item Description Quantity Unit Unit Cost Total
-------- ---- ------------ --------
<S> <C> <C> <C> <C>
1. Mobilization 1 L.S. $ 5,000.00 $ 5,000
2. Storm Drainage
15" RCP 628 L.F. $ 40.00 $ 25,120
18" RCP 432 L.F. $ 45.00 $ 19,440
21" RCP 95 L.F. $ 50.00 $ 4,750
Manholes 8 Ea. $ 1,700.00 $ 10,200
End Sections 2 Ea. $ 400.00 $ 800
Drop Inlets 12 Ea. $ 1,800.00 $ 21,600
Outfall Channel w/stone 140 L.F. $ 70.00 $ 9,800
$ 91,710
3. Private Streets/Parking
Curb & Gutter 4680 L.F. $ 15.00 $ 70,200
Sidewalks 2925 L.F. $ 10.00 $ 29,250
2" Surface Pavement 6356 S.Y. $ 5.00 $ 31,780
6" Aggr. Base 6356 S.Y. $ 6.00 $ 38,136
1.5" Surf. Pavement 2010 S.Y. $ 3.00 $ 6,030
3" Base Pymt. 2010 S.Y. $ 7.50 $ 15,075
8" Aggr. Sub-base 2010 S.Y. $ 8.00 $ 16,080
CG-11 1 Ea. $ 1,500.00 $ 1,500
$208,051
Note: private driveway/leadwalks
not included
4. Sanitary Sewer
8" PVC Sanitary Sewer 2137 L.F. $ 35.00 $ 74,795
Manholes 13 Ea. $ 1,750.00 $ 22,760
Laterals 96 Ea. $ 800.00 $ 76,800
$174,345
5. Waler (pipe prices incl. valves, etc.)
16" DIP water main 1020 L.F. $ 71.00 $ 72,420
8" DIP water main 485 L.F. $ 39.00 $ 18,915
6" DIP water main 585 L.F. $ 33.00 $ 19,305
Hydrant Assembiles 9 Ea. $ 2,500.00 $ 22,600
Water services/meters 96 Ea. $ 500.00 $ 48,000
$181,140
7. Landscaping 1 L.S. $50,000.00 $ 50,000
8. Erosion & Sediment Control
Silt Fence 720 L.F. $ 5.00 $ 3,600
Diversion Dike 1820 L.F. $ 5.00 $ 8,100
Sediment Traps 6 Ea. $ 500.00 $ 3,000
Inlet Protection 12 Ea. $ 120.00 $ 1,440
Construction entrance 1 Ea. $ 3,000.00 $ 3,000
Seeding 38720 S.Y. $ 0.40 $ 15,488
Slope Stabilization 1200 S.Y. $ 3.00 $ 3,600
$ 35,228
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
9. Miscellaneous
Streetlights 2 Ea. $ 3,000.00 $ 8,000
Stop Signs 1 Ea. $ 200.00 $ 200
Construction Stakeout 1 L.S. $30,000.00 $ 30,000
As-built Survey 1 L.S. $ 5,000.00 $ 5,000
10. Earthwork
Cleaning/Grub 8 Acre $ 5,500.00 $ 44,000
Topsoil Strip 12900 C.Y. $ 3.00 $ 38,700
Cut** 70000 C.Y. $ 6.00 $420,000
Fill** 20000 C.Y. $ 12.00 $240,000
$742,700
** Note: rough est. of quantities
To be revised after earthwork analysis
No allowance for Rock
Subtotal $1,532,374
20% Contingencies $ 306,475
TOTAL $1,838,849
</TABLE>
<PAGE>
EXHIBIT IV
<PAGE>
"AS IS" VALUE ANALYSIS
Southlakes @ Montclair
Cumulative Total Gross Sell-out: $1,925,000
77 lots @ $25,000
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Number: One Two Three
Quarter Number: 1 2 3 4 5 6 7 8 9
Beginning Month: 1 4 7 10 13 16 19 22 25
Ending Month: 3 6 9 12 15 18 21 24 27
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales/Qtr.: 0 0 6 6 6 6 6 6 6
Cumulative Sold: 0 0 6 12 18 24 30 36 42
Price Escalation 3.0%
Sale Price/Lot $ 25,000 $25,000 $ 25,000 $ 25,188 $ 25,376 $ 25,567 $ 25,758 $ 25,952 $ 26,146
Proceeds of Sale/Qtr. $ 0 $ 0 $150,000 $151,125 $152,258 $153,400 $154,551 $155,710 $156,878
Less Deductions
- ---------------
Development Costs $ 96,250 $96,250 $ 96,250 $ 96,250 $ 96,250 $ 96,250 $ 96,250 $ 96,250 $ 0
Sales & Admin Expenses 4.0% $ 0 $ 0 $ 6,000 $ 6,045 $ 6,090 $ 6,136 $ 6,182 $ 6,228 $ 6,275
Taxes $ 10,010 $ 0 $ 9,230 $ 0 $ 7,670 $ 0 $ 6,110 $ $ 3,960
Profit 0.0% $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Total Deductions $106,260 $96,250 $111,480 $102,295 $110,010 $102,366 $108,542 $102,478 $ 12,225
Sub-Total Cash Flow/Qtr ($820,000) ($106,260)($96,250) $ 38,520 $ 48,830 $ 42,248 $ 51,014 $ 46,009 $ 53,232 $144,653
Internal Rate of Return 19.33%
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Year Number: Four
Quarter Number: 10 11 12 13 14 15
Beginning Month: 28 31 34 37 40 43
Ending Month: 30 33 36 39 42 45
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales/Qtr.: 6 6 6 6 5 5
Cumulative Sold: 48 54 60 66 72 77
Price Escalation
Sale Price/Lot $ 26,342 $ 26,540 $ 26,739 $ 26,940 $ 27,142 $ 27,345
-------------------------
Cumulative Per Lot
Proceeds of Sale/Qtr. $158,054 $159,240 $160,434 $161,637 $162,850 $136,726 $2,012,854 $26,141
Less Deductions
- ---------------
Development Costs $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 770,000 $10,000
Sales & Admin Expenses $ 6,322 $ 6,370 $ 6,417 $ 6,465 $ 8,514 $ 5, 469 $ 80,515 $ 1,046
Taxes $ 3,910 $ $ 1,870 $ 0 $ 0 $ 44,750 $ 581
Profit $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Total Deductions $ 6,322 $ 10,280 $ 6,417 $ 8,335 $ 6,514 $ 5, 469 $ 895,265 $11,627
Sub-Total Cash Flow/Qtr $151,732 $148,960 $154,017 $153,302 $156,336 $131,257 $1,117,599 $14,514
Internal Rate of Return
</TABLE>
<PAGE>
EXHIBIT V
<PAGE>
[MAP APPEARS HERE]
<PAGE>
EXHIBIT VI
<PAGE>
[MAP APPEARS HERE]
<PAGE>
EXHIBIT VII
<PAGE>
[NORTHERN VIRGINIA AREA MAP APPEARS HERE]
<PAGE>
[MAP OF PRINCE WILLIAM COUNTY, VA. APPEARS HERE]
<PAGE>
[MAP APPEARS HERE]
<PAGE>
APPRAISAL REPORT
of
Southlake at Montclair Subdivision
Section S-7
53 Proposed Single-family Building Lots
Dumfries, Prince William County, Virginia
Prepared for Interstate General Company
222 Smallwood Village Center, St. Charles, Maryland 20602
Prepared by NBValuation Group, Inc.
7979 Old Georgetown Road, Suite 705, Bethesda, MD 20814
(301) 654-1719 Fax (301) 654-2550
<PAGE>
TABLE OF CONTENTS
Letter of Transmittal
Summary of Salient Facts and Conclusions
Limiting Conditions
Qualifications of the Appraiser
Photographs of Subject Property
<TABLE>
<CAPTION>
Page
<S> <C>
Identification 1
Legal Description 1
Purpose of the Appraisal 1
Definitions Pertinent to Value 2
History of the Subject 3
Assessed Value for Taxation 6
General Area and Socio-Economic Data 7
Immediate Neighborhood Data 7
Prince William County Data 9
Regional Area Data 17
Site Description 26
Zoning Discussion 27
Highest and Best Use 28
VALUATION SECTION
Valuation Premise 31
"As Is" Value Analysis - Developmental Use Analysis 32
Reconciliation and Conclusion 39
Marketing Period 40
Certification
</TABLE>
ADDENDA
Schedule "A" Comparable Finished Lot Sales
Exhibit I Detailed Site Plan
Exhibit II Engagement Letter
Exhibit Ill Flood Hazard Map
Exhibit IV Development Cost Estimates
Exhibit V Internal Rate of Return Analysis
Exhibit VI Tax Identification Map
Exhibit VII Locational Maps
<PAGE>
NBVALUATION GROUP, INC.
CERTIFIED GENERAL REAL ESTATE APPRAISERS AND VALUATION CONSULTANTS
- --------------------------------------------------------------------------------
June 6, 1997
Mr. Edwin L. Kelly
President
Interstate General Company
222 Smallwood Village Center
St. Charles, Maryland 20602
RE: 53 PROPOSED SINGLE-FAMILY BUILDING LOTS
SECTION S-7, SOUTH LAKE AT MONTCLAIR SUBDIVISION DUMFRIES, PRINCE
WILLIAM COUNTY, VIRGINIA
Dear Mr. Kelly:
In accordance with your request and for the purpose of estimating the market
value of the above-captioned property, the following is submitted.
The subject of this appraisal is a parcel of land containing approximately
13.189 acres located along the west side of South Lake Boulevard at its
intersection with Higgins Drive in the Southlake at Montclair planned community,
Dumfries Magistral District, Prince William County, Virginia. The property is
zoned to the RPC, Residential Planned Community, classification of Prince
William County, Virginia and is reportedly approved for development with a total
of 53 lots to be developed in three phases.
The purpose of the appraisal is to estimate the current market value of the
herein-described property, in "fee simple", as of May 12,1997. Under the scope
of the assignment, per the request of the client, the following values have been
estimated:
Market Value - "As Is" The current estimated market value of the subject
land, approved for subdivision to yield 53 single-
family building lots, in its current, raw state as
of the appraisal date.
The function of the appraisal is for use by the client in connection with
internal asset management decisions. This is a self-contained, narrative
appraisal report which has been prepared in accordance with the Uniform
Standards of Professional Appraisal Practice as promulgated by the Appraisal
Standards Board of the Appraisal Foundation.
7979 Old Georgetown Road * Suite 705 * Bethesda, Maryland 20814
Phone (301) 654-1719 Facsimile (301) 654-2550
<PAGE>
Mr. Edwin L. Kelly
June 6, 1997
Page Two
The enclosed report contains the data gathered, and outlines the methods of
approach employed in the valuation studies. In addition, the legal, physical and
locational characteristics of the property are described. In my opinion, the
current value of the herein-described real property, as of May 12, 1997, is as
follows:
ESTIMATED MARKET VALUE "AS IS":53 LOTS @ $18,000/LOT = $954,000
-------------------------------
Respectfully submitted,
/s/ Susan M. Browning
[STAMP]
Susan M. Browning
<PAGE>
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
Date of Valuation: May 12,1997
Property Identification: 53 Proposed Single-family Building Lots Section
S-7, Southlake at Montclair Subdivision
Dumfries, Prince William County, Virginia
Location: Located along the west side of South Lake
Boulevard at its intersection with Higgins
Drive in the Southlake at Montclair planned
community, Dumfries Magistral District, Prince
William County, Virginia. The property is zoned
to the RPC, Residential Planned Community,
classification of Prince William County,
Virginia and is reportedly approved for
development with a total of 53 lots to be
developed in three phases.
Legal Description: Part of parcel 1C on tax map 023-01-000 and
further identified as GPIN number 8190-09-0384.
Purpose of Appraisal: The purpose of the appraisal is to estimate the
current Market Value of the unencumbered fee
simple interest of the herein-described
property, as of May 12,1997.
Current Ownership: Interstate General Company, L. P.
Contract Ownership: Carr-Montclair, L.L.C.
Zoning: RPC, Residential Planned Community
Highest and Best Use: The highest, best, and most profitable
continuous use to which the subject property
could be put would be for development of the
subject land in accordance with the site plan
provided for development with detached dwelling
units which the requirements of the RPC zone
and which further meet the requirements of the
current market.
Estimated Value:
ESTIMATED MARKET VALUE "AS IS": 53 LOTS @ $18,000/LOT = $954,000
<PAGE>
LIMITING CONDITIONS
This report is made subject to the following assumptions and limiting
conditions.
1. The appraiser assumes no responsibility for legal matters nor does the
appraiser render any opinion as to the Title, which is assumed to be good.
All existing liens and encumbrances, unless specified in the report, have
been disregarded and the property is appraised as though free and clear,
under responsible ownership and competent management. Unless otherwise
noted herein, it is assumed there are no encroachments, zoning or other
violations of any regulations affecting the subject.
2. The Plot Plan, if contained herein, is included to assist the reader in
visualizing the property. The appraiser has made no survey of the property
and assumes no responsibility in connection with such matters.
3. Information that was furnished by others is so noted and is believed to be
reliable, but the appraiser assumes no responsibility in connection with
such matters.
4. The appraiser is not required to give testimony nor to appear in court by
reason of this appraisal, with reference to the property in question,
unless arrangements have been previously made.
5. The client has indemnified the appraiser and has agreed to promptly defend
Appraiser against any damage resulting from any claim or cause of action by
any third party arising out of say use or dissemination of this appraisal
report (or the contents thereof). This obligation to indemnify and defend
shall not apply to the extent any such claim or cause of action arises out
of the adjudicated negligence or willful misconduct of the appraiser in
performing the appraisal. The appraiser has the right to approve any
attorney employed by the client to defend against such claim or cause of
action and has the right to approve any settlement or compromise of such
claim or cause of action.
6. The land, and particularly the soil, of the area under appraisement appears
firm and solid and free of hazardous substances. Subsidence, radon gas and
to)dc waste in the area are uncommon, but the appraiser does not warrant
against the condition or occurrence of same upon the site. The appraiser is
not qualified to detect such conditions. Except as noted, this appraisal
assumes the land to be free of adverse soil conditions which would prohibit
development of the property to its highest and best use.
7. The improvements, and particularly the buildings, appear to be free of
hazards. The appraiser does not warrant against the presence of asbestos,
radon gas, PCB's, underground storage tanks and/or use of formaldehyde foam
insulation within the building.
8. The appraiser assumes no liability for structural conditions not visible
through ordinary, careful inspection or a review of the plans and
specifications, if proposed.
9. Subsurface rights (mineral, gas and oil) were not considered in making this
appraisal.
10. Neither all or any part of the contents of this report shall be conveyed to
the public through advertising, public relations, news, sales, or other
media, without the written consent and approval of the author, particularly
as to valuation conclusions, the identity of the appraiser or its firm.
This report may be shared with an organization other than the client only
in its entirety.
11. Possession of this report, or a copy thereof, does not carry with it the
right of publication, nor may it be used for any purpose by any one but the
client without the previous written consent of the appraiser and the
client, and then only with proper qualification.
12 It is assumed that any proposed improvements are completed unless
stipulated otherwise in this report; any construction is assumed to conform
with the building plans and/or improvements descriptions provided the
appraiser and summarized in this report.
13. Any future discovery of a concealed or unapparent deficiency in the real
estate (such as subsidence, toxic waste, radon gas, asbestos, UFFI or other
hazards) renders this report invalid.
14. It is assumed that there is full compliance with all applicable federal,
state and local environmental regulations and laws unless noncompliance is
stated, defined and considered in the appraisal report.
15. It is assumed that all required licenses, consents or other legislative or
administrative authority from any local, state, or national governmental or
private entity or organization has been or can be obtained or renewed for
any use on which the value estimate contained in this report is contingent.
16. The current (as of the date of appraisal) purchasing power of the dollar is
the basis for the value estimates; no extreme fluctuations in economic
cycles are anticipated.
17. The Americans with Disabilities Act ("ADA") was signed into law in July of
1990 and became effective in January of 1992. The appraiser has not made
nor been supplied with a specific compliance survey nor analysis of the
subject property to determine conformity or nonconformity with the detailed
requirements of the ADA and as such takes no responsibility for non-
compliance with this Act. Further, the implications of non-compliance with
the ADA with respect to value of the subject property are not reflected in
this appraisal, unless otherwise noted.
18. The value estimate is based upon appropriate research and applicable
appraisal techniques. By its nature the appraisal of real estate is not an
exact science, and the end product is an opinion with which others may
differ. The final estimate of the value is not guaranteed, and no warranty
is implied or intended.
19. Acceptance of and/or use of this appraisal report constitutes an
understanding and acceptance of the foregoing assumptions and limiting
conditions.
/s/ Susan M. Browning [STAMP]
- -----------------------
Susan M. Browning
<PAGE>
APPRAISAL QUALIFICATIONS OF SUSAN M. BROWNING
LICENSURE: CERTIFIED GENERAL REAL ESTATE APPRAISER I STATE OF MARYLAND: #2018
CERTIFIED GENERAL REAL ESTATE APPRAISER I COMMONWEALTH OF
VIRGINIA: #4001 1588
CERTIFIED GENERAL REAL ESTATE APPRAISER I DISTRICT OF
COLUMBIA: GA 101961
EDUCATION:
<TABLE>
<S> <C>
GEORGE MASON UNIVERSITY, FAIRFAX, VIRGINIA SOCIETY OF REAL ESTATE APPRAISERS, COURT #101,
Business Administration, 1973-1977 "An introduction to Appraising Real Property"
Completed, December, 1978
SOCIETY OF REAL ESTATE APPRAISERS, COURSE #201 SOCIETY OF REAL ESTATE APPRAISERS, COURSE #202
"Principals of Income Property Appraisal" "Applied Income Property Valuation"
Completed, July, 1984 Completed, May 1988
INSTITUTE OF FINANCIAL EDUCATION THE APPRAISAL INSTITUTE, "STANDARDS OF PROFESSIONAL PRACTICE,
"Income Property Lending Seminar" Completed August, 1991
Completed, March 1981
INSTITUTE OF REAL ESTATE MANAGEMENT, COURSE #101, Additional course work completed in areas of:
"Successful On-Site Property Management" Real Estate Law, Mortgage Lending, and Various
Completed, September, 1977 Appraisal topics.
</TABLE>
<TABLE>
<CAPTION>
APPRAISAL REPORTS PREPARED FOR:
====================================================================================================================================
<S> <C> <C> <C>
Crestar Bank Resolution Trust Corporation William L. Berry & Company Citizens Bank of Maryland
The Columbia Bank Patriot National Bank of Reston Richmarr Construction Corp. Greater Atlantic Savings Bank
Virginia First Mortgage Sterling Bank & Trust Associated Companies FDIC
Survival Technology, Inc. Franklin Nat'l Bank of Washington NV Homes First Fidelity Bank
Settler Forlines, Inc. Elm Street Development First Union National Bank Madison Homes
Palmer National Bank Citizens Savings Bank Kettler & Scott, Inc. Reistertown Federal Savings Bank
Provident Bank of Baltimore Allied Capital Corporation Richmond American Homes of VA The Porten Companies
The Bernstein Companies Classic Communities, Inc. Key Federal Savings Bank The J.A. Loveless Company
Lenders Support Group
====================================================================================================================================
</TABLE>
TYPES OF PROPERTY APPRAISED:
Unimproved land (residential and commercial), large tract development
sites, proposed subdivisions for acquisition and construction financing and
proposed new and conversion residential condominiums projects.
Income producing properties including apartments, office and industrial
buildings, commercial condominiums, retail facilities, industrial/r&d
warehouses, and various special use properties.
GEOGRAPHIC AREAS:
All of the jurisdictions within the Washington D.C. PMSA; Howard and Anne
Arundel Counties in the Baltimore region; Spotsylvania County and the City
of Fredericksburg in Virginia's Rappahannock region; and Culpeper and
Fauquier Counties in Virginia's Rapidan region.
===============================================================================
PROFESSIONAL EXPERIENCE:
SEPTEMBER 1995 TO PRESENT:
- --------------------------
President and Senior Appraiser of NB Valuation Group, Inc.
Provide real estate appraisal and related consulting services to the
lending and real-estate community in the expanded Washington, DC market.
NOVEMBER, 1986 TO SEPTEMBER, 1995:
- ----------------------------------
Associate Appraiser with George D. Remley & Associates. 100% of time
actively appraising various types of real estate. Independently responsible
for all research, analysis, writing and presentation of narrative appraisal
reports.
SEPTEMBER, 1983 TO NOVEMBER, 1986:
- ----------------------------------
Vice President of Real Estate Lending for mid-sized Thrift in Northern
Virginia
As Chief Lending Officer, was responsible to oversee the origination of all
Construction and Commercial Lending; annual origination volume ranged from
$200-$3OO million. Further responsible to chair Loan Committee meetings and
for the implementation of policies and procedures required for all lending
activities, appraisal review and regulatory compliance.
NOVEMBER, 1977 TO SEPTEMBER 1983:
- ---------------------------------
Assistant Vice President of Construction/Commercial Lending for mid-sized
Washington, D.C. Thrift
Responsible to oversee construction and commercial loan origination
activities; annual origination volume ranged from $160-$300 million.
Further responsible for the equity capital financing activities, of the
service corporation, portfolio administration and regulatory compliance
including appraisal review.
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[PICTURE APPEARS HERE]
[PICTURE APPEARS HERE]
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[PICTURE APPEARS HERE]
[PICTURE APPEARS HERE]
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[PICTURE APPEARS HERE]
[PICTURE APPEARS HERE]
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[PICTURE APPEARS HERE]
[PICTURE APPEARS HERE]
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[PICTURE APPEARS HERE]
[PICTURE APPEARS HERE]
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IDENTIFICATION
- --------------
53 Proposed Single-family Building Lots
Section S-7, Southlake at Montclair Subdivision
Dumfries, Prince William County, Virginia
The subject of this appraisal is a parcel of land containing approximately
13.189 acres located along the west side of South Lake Boulevard at its
intersection with Higgins Drive in the Southlake at Montclair planned Community,
Dumfries Magistral District, Prince William County, Virginia. The property is
zoned to the RPC, Residential Planned Community, classification of Prince
William County, Virginia and is reportedly approved for development with a total
of 53 lots to be developed in three phases.
LEGAL DESCRIPTION
- -----------------
The subject property is currently identified among the tax map records of Prince
William County, Virginia as part of parcel 1C on tax map 023-01-000 and further
identified as GPIN number 8190-09- 0384. The reader's attention is directed to
Exhibit I in the Addenda of this report for a copy of the site plan of the
subject property prepared by Greenhorne & O'Mara, Inc. dated May 11,1994. Upon
recordation of the anticipated subdivision plat(s), the property will be legally
described lots 1 through 53, inclusive, Section 7A, Southlake at Montclair,
Dumfries Magisterial District, Prince William County, Virginia.
Current Ownership: Interstate General Company, L. P.
Contract Ownership: Carr-Montclair, L.L.C.
Zoning: RPC, Residential Planned Community
Zip Code: 22026
Tax Map: Part of 023-01-000-000C1
Census Tract: 9010.04
PURPOSE OF THE APPRAISAL
- ------------------------
The purpose of the appraisal is to estimate the current market value of the
herein-described property, in "fee simple", as of May 12, 1997. Under the
scope of the assignment, per the request of the client, the following
values have been estimated:
Market Value - "As Is" The current estimated market value of the subject land,
approved for subdivision to yield 53 single-family
building lots, in its current, raw state as of the
appraisal date.
USE OF THE APPRAISAL
- --------------------
The function of the appraisal is for use by the client in connection with
internal asset management decisions.
This is a self-contained, narrative appraisal report which has been
prepared in accordance with the Uniform Standards of Professional Appraisal
Practice as promulgated by the Appraisal Standards Board of the Appraisal
Foundation.
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SCOPE OF THE ASSIGNMENT
- -----------------------
The scope of the appraisal refers to the extent of the process in which
data are collected, confirmed and reported. In this case, the appraisal
problem involves the valuation of 53 proposed single-family building lots
to be subdivided from a 13.189 acre tract of land within the planned
community of Southlake at Montclair. The valuation process was initiated by
physically inspecting the subject property, most recently, on May 12, 1997.
An exhaustive search was undertaken for sales of sites proposed for development
with single-family building lots which have occurred in proximate areas of
Prince William County considered to be similar to the subject in terms of income
characteristics and housing demand over the previous two years; the appraiser
reviewed the land records, published data and the multiple listing records for
recent sales of raw lots or single-family development sites relevant for
comparison to the subject property. This data were confirmed through review of
public records, field investigation and/or personal interviews with panties to
the transactions. In addition, new single-family communities currently marketing
in proximate areas have been studied to determine the price and absorption
levels being achieved as to both finished lots and completed housing product.
Again, this data was obtained through review of public and multiple listing
records, field inspections and discussions with on-site marketing personnel at
the competing projects. Secondary data utilized to analyze market conditions was
collected from various sources, including county government publications,
newspapers, Washington Council of Governments and Baltimore Metropolitan Council
publications and various trade periodicals. Finally, development cost
projections prepared by the contract owner of the subject property have been
reviewed and analyzed along with development cost data relative to subdivisions
similar to that proposed for development upon the subject property.
DEFINITIONS PERTINENT TO VALUE
- ------------------------------
Market Value is defined by the Appraisal Foundation in the Uniform Standards of
Professional Practice as "the most probable price which a property should bring
in a competitive and open market under all conditions requisite to a fair sale,
the buyer and seller each acting prudently, 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:
. buyer and seller are typically motivated;
. both parties are well-informed or well-advised, and each acting in what he
considers his own best interest;
. a reasonable time is allowed for exposure in the open market;
. payment is made in terms of cash in U.S. dollars or in terms of financial
arrangements comparable thereto;
. the price represents a normal consideration for the property sold and
unaffected by special or creative financing or sales concessions granted by
anyone associated with the sale.
2
<PAGE>
Any valuations which by assumption or qualification effectively utilize any form
of specialized, unique and/or subsidized financing assumptions in the appraisal
methodology are not considered to be acceptable. All properties, regardless of
the specific nature of the particular financing arrangements then existing
and/or proposed, must be evaluated in a market value context.
The following definitions are excerpted from The American Institute of Real
Estate Appraisers, The Dictionary of Real Estate Appraisal, Second Edition
---------------------------------------
(Chicago: American Institute of Real Estate Appraisers, 1988).
Fee Simple Interest is defined as "Absolute ownership unencumbered by any other
interest or estate subject only to the four powers of government."
Value "As Is" is defined as "The value of specific ownership rights to what
physically exists and is legally permissible regarding an identified parcel of
real estate as of the effective date of the appraisal."
Prospective Value Estimate is defined as "A forecast of value expected to occur
at a specified future date." A prospective value estimate is most frequently
utilized in connection with real estate projects that are proposed, under
construction, under conversion to a new use, or that have otherwise not achieved
sellout or a stabilized level of long-term occupancy at the time the appraisal
report is written.
HISTORY OF SUBJECT
- ------------------
Title to the subject property is currently vested in Interstate General Company
LP. The subject is a portion of a site which reportedly contains 41.15 acres of
land and includes the recreation center improvements which serve the subject
community. The assessment records indicate that beneficial title to the subject
property has been held by the record owner since December of 1985; the most
recent transfer of the property is recorded among the land records of Prince
William County, Virginia in Deed Book 1622 at Page 482.
The property is subject to an Agreement for Purchase and Sale of Real Estate
dated April 17, 1997 by and between the record owner as seller and Carr-
Montclair, LLC as purchaser. The terms of this contract are summarized as
follows:
Date: April 17, 1997
Seller: Interstate General Company, L. P.
Purchaser: Carr-Montclair, LLC
Property: That property containing approximately 13.189 acres known as
section 57 of the planned community of Montclair described
among the tax map records as GPlN Number 8190-09-0384.
Purchaser desires to purchase the property and to develop 53 lots
in 3 phases; phase 1A will consist of 13 lots (lots 29-35 and
lots 48-53); Phase 1B will contain 12 lots, (lots 36-47) and
Phase 2 will contain 28 lots (lots 1-28).
Sale and
Purchase: The purchase price will be $1,060,000 which shall be represented
by three non-recourse non-interest bearing notes subject to the
following terms:
3
<PAGE>
a) The Phase 1A note shall total $260,000 and shall be delivered
by Purchaser at settlement on Phase 1. Thereafter, upon request
of Purchaser and payment to Seller of the Release Price, Seller
shall cause individual lots in Phase 1A to be released from the
lien of Sellers financing encumbering Phase 1. The release price
for any phase 1A lot released prior to the second anniversary
date of the phase 1settlement date shall be $20,000. For any
phase IA lot not released prior to the second anniversary date of
the phase 1 settlement, the Purchase Price and the note will be
increased by $2,000 per lot resulting in a release price of
$22,000 per lot.
b) The Phase 1B note shall total $240,000 and be delivered by
Purchaser on the Phase 1 settlement date. Thereafter, lots will
be released from the lien of the Sellers financing encumbering
Phase 1b for a release price of $22,000 per lot. For any Phase 1
B lot not released prior to the second anniversary of the Phase
lA settlement date, the purchase price and the $240,000 Phase 1B
note will be increased by $2,000 per lot resulting in a release
price of $24,000 per lot.
c) The Phase 2 note will total $560,000. The release price for
the Phase 2 lots will be $22,000 per lot. For any Phase 2 lot not
released prior to June 30, 1999 the purchase price and the Phase
2 note will be increased by $2,000 per lot.
d) The release price for each Lot will be paid at the time of
settlement by Purchaser with the ultimate purchaser of the home
to be constructed on each lot by the Purchaser.
Phased
Purchase: The Purchaser will purchase Phase 1A and Phase 1B at the time for
settlement provided in the contract. On or before March 31, 1998,
Purchaser may elect not to proceed with purchase and development
of the property beyond Phase 1A, in which even the Phase 1B
property will be reconveyed by Purchaser to Seller, at Purchase's
sole cost and expense, within 15 days of such election. If the
Purchaser does not notify the Seller of its election, Purchaser
shall purchase the lots in Phase 2 on or before the date required
in the agreement.
Bonding: Purchaser shall be required to provide bonding for Phase 1 and
Phase 2 of the property in accordance with the requirements of
Price William County. One bond will be provided for Phase I and a
separate bond provided for Phase 2. The parties estimate that the
bonding obligation for Phase 1 will be $300,000 and that in order
to develop Phase 1A, it will be necessary for the Purchaser to
bond the entirety of Phase I. The Purchaser will also be required
to post a landscape escrow of $17,970, permit fees of $37,550 and
a commuter parking fee of $5,000. In order to develop Phase 1A,
the Purchaser will build a sanitary sewer necessary to serve all
the lots within Phase 1A and 1B. If the Purchaser elects not to
proceed with development of the property beyond Phase 1A, the
Seller agrees to replace the Purchaser as Obligor under the above
described bond relating to Phase 1B and to post (or repay
Purchaser) the landscape escrow, the permit fees and the commuter
parking payment relating to the lots in Phase 1B and Phase 2.
Excess Fill: There presently exists excess fill on the Property. The purchaser
agrees to use reasonable efforts to use the excess fill in
development of the property. If Purchaser is unable to do so,
Purchaser will give Seller written notice of its inability to use
the excess fill and the Seller will have 90 days to remove it at
no expense to the Purchaser.
4
<PAGE>
Title: The property will be sold subject to the first lien deed of trust
securing repayment of the Phase 1A, Phase 1B and Phase 2 Notes,
which will be subordinate to land development financing and home
construction financing for the lots.
Restrictive Covenants and
Assessments: Purchaser acknowledges that all the property is subject to
restrictive covenants which contain the power of assessment in
the Montclair Property Owners Association, Inc. and the Southlake
Recreation Association. Any such assessments will be the sole
responsibility of the Purchaser following settlement.
Environmental Control
Committee: Purchaser acknowledges that the property is subject to the
jurisdiction of the Environmental Control Committee of the
Montclair Property Owners Association, Inc. which has authority
to review and approve or disapprove plans for the construction of
new dwellings on the Property. Purchaser will obtain approval of
house plans prior to settlement.
Representations
of Seller: In addition to the standard warranty provisions, the contract
contains the following provisions of note:
The entirety of the property is approved for development of 53
single-family lots without proffers and/or conditions pursuant to
the Zoning Ordinance now in effect. There have been no proffers
made to the Montclair Property Owners Association, Inc. or the
Southlake Recreation Association.
The property exists in its entirety as a single parcel which is
recognized as by relevant authorities as a lawful separate
parcel.
To the best of the Seller's knowledge the property has never been
used as landfill, nor has the property been used for the burying
or placement of any hazardous or toxic waste. In the even debris
or hazardous or toxic wastes are discovered on the property,
Seller may elect to remove and dean up such waste at its expense
or in the alternative, in its sole discretion, may terminate the
agreement and refund the deposit to the Purchaser. In the event
the Seller does not clean up the property within 60 days after
learning of the existence of any hazardous or toxic waste,
Purchaser will have the option to terminate the agreement or
proceed to settlement.
Sellers Engineering
Data: Seller agrees to deliver to Purchaser within five days after
execution of the Agreement all engineering and surveying data,
development plans, environmental reports, marketing plans and
other data concerning the Property in Seller's possession or
available to Seller as of the date of the contract.
Settlement: Settlement on Phases 1A and 1B shall occur not later than June
30, 1997.
Based upon review of the Prince William County real estate assessment data,
there have been no further transfers of the subject property over the preceding
five years. The housing units proposed for construction on the subject property
are not yet offered for sale.
5
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ASSESSED VALUE FOR TAXATION
- ---------------------------
As of the appraisal date, the appraiser is advised by a representative of the
Prince William County Assessment Office that as of the appraisal date, the
records reflect that the subject property is assessed as a portion of a 41.15
acre tract of land which includes the recreational amenities serving the
community. The Current assessment data, as reported by the County relative to
Parcel 10, is summarized as follows:
Assessed Value of Land: $2,686,000
Assessed Value of Improvements: $ 541 300
---------
Total Assessed Value $3,227,300
The tax rate applicable in Prince William County for the 1997 tax year is $1.36
per $100.00 of assessed value. Based upon review of assessments of single-family
building lots in the area, it appears that assessments of unimproved lots range
from $20,000 to $26,000 per lot while finished lots are assessed in the $44,000
to $50,000 range. Following recordation of the anticipated subdivision plat(s),
the property will be re-assessed in accordance with the proposed use as single-
family building lots.
6
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GENERAL AREA AND SOCIO-ECONOMIC DATA
- ------------------------------------
IMMEDIATE NEIGHBORHOOD
- ----------------------
The subject property is acres located along the west side of South Lake
Boulevard at its intersection with Higgins Drive in the Southlake at Montclair
planned community, Dumfries Magistral District, Prince William County, Virginia.
This location is approximately 2.5 miles west of the I-95/Dumfries Road,
interchange, ten miles southeast of the City of Manassas, which serves as the
County seat of Government, six miles north of the main entrance to the Quantico
Marine Corps Base, 19 miles south of the Capitol Beltway at 1-95 and 30 miles
south of the center of Washington, D. C.
The neighborhood is suburban in character, and predominated by a mix of
residential uses and supporting recreational and commercial development. The
Montclair planned community has been developed over the past twenty years and
contains a mixture of single-family detached, townhouse, and multi-family
residential development along with supporting recreational facilities including
the Montclair Golf and County Club, Lake Montclair, trails, swimming pools,
tennis courts and open space.
Located just north of the subject is the South lake Recreation Center, which
includes a swimming pool, club house and tennis courts. Single-family detached
units are under construction across South Lake Boulevard from the subject by
Fairfield Classic Homes; a pre-sale trailer is in place adjacent to that
community advertising additional detached units by Koury Communities. Fairfield
Classic Homes plans a total of 53 units in the community and is offering models
with current base pricing which ranges from $187,490 to $233,490. The average
base price developed by Fairfield's product is $213,073. Pre-sale marketing
began in December of 1996 and a total of nine homes have reportedly been
contracted for sale to date. Koury Communities has a pre-sale trailer on the
site, and is offering units base priced from $195,800 to $199,800. Koury's
presale operation has only been in place for two weeks; no sales are yet
reported.
The Ashland and Lake Terrapin planned communities are located within close one
mile of the subject and are briefly discussed as follows. Ashland is located
approximately one mile west of the subject property along the north side of
Dumfries Road. Situated on a 590 acre site, Ashland is proposed for development
with 1,300 dwelling units and a non-residential component to include a
neighborhood retail center of 200,000 square feet along with community
recreation centers containing pools and tennis courts. Additional sites within
Ashland are proposed for development with a day care center and a church. Three
single-family building programs are underway in Ashland, along with two
townhouse offerings. The average base price of the single family projects range
from $209,700 to $222,555 while the townhouse product is priced from the
$120,000 to $135,000 range.
Lake Terrapin is located 3/4 miles west of the subject along the east side of
Spriggs Road. Lake Terrapin is proposed for development with approximately 600
residential units, and contains a 15-acre lake and an amenity package including
pool, tennis, and trails. Three single-family product lines are under
development in Lake Terrapin with units developing average base price levels
ranging from 192,950 to $218,100. Manhattan Builders recently completed a
section of townhomes priced in the $120,000's and a new townhouse section is
proposed to be priced in the mid-$120,000 range.
7
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Located at the intersection of Waterway Drive and Dumfries Road is the proposed
Montclair Shopping Center site which was under development as of the appraisal
date. The center is proposed to contain 177,000 square feet, and retail tenants
including Food Lion and CVS pharmacy are proposed to locate in the center.
Additional neighborhood retail development serving the neighborhood includes the
Montclair Plaza, and Smoketown Plaza, Potomac Festival Shopping Center, Ashdale
Plaza, Glendale and Center Plaza and Forestdale Plaza to the north, along with
the South bridge and Dumfries centers located to the south. Regional shopping is
available at the Potomac Mills Mall and Springfield Mall to the north along I-95
and the Manassas Mall to the west of the subject along I-66 in Manassas.
The neighborhood is served by John F. Pattie Elementary School, the Graham Park
Middle School and Hylton High School. Recreational amenities in the neighborhood
include Lake Montclair and the Montclair golf course and country club within the
subject planned community. Additional recreational facilities serving the area
include the Prince William Forest Park located just south of the subject
property, the Leesylvania State Park to the east along the Potomac River, and
the Locust Shade Park, including tennis courts, golf range and picnic areas; a
public golf course and additional ballfields are proposed for construction
within this facility.
In summary, the subject is located in an established suburban location within
close proximity to all of the commercial, social, community and recreational
facilities needed to support a desirable and stable area. This area has
experienced consistent development over the past twenty years. There were no
noted trends which would adversely affect the neighborhood or its desirability.
8
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PRINCE WILLIAM COUNTY DATA
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Physical
- --------
The subject property is located in Prince William County in the Northern
Virginia portion of the Washington, D.C. Primary Metropolitan Statistical Area
("PMSA"). Prince William is bordered by Loudoun and Fairfax Counties to its
north; the Potomac River and the Maryland shoreline to its east; Stafford County
to its south; and Fauquier County to its west. The county contains approximately
348 square miles of land. The incorporated cities and towns of Manassas,
Manassas Park, Dumfries, Haymarket, Occoquan and Quantico are also located
within the boundaries of Prince William County. The topography of this county is
primarily rolling hills, from the coastal plains along the Potomac River in the
east, to the Piedmont Plateau in the central portion, to the valley and ridge
line of the western Piedmont mountain range. The elevation, from east to west,
varies from sea level to approximately 1,279 square feet on Bull Run Mountain at
the county's western boundary.
The Virginia General Assembly established Prince William County in 1730, naming
this largely forested region after the second son of King George II of England.
The region's accessibility via the waterways of the Potomac River and the
Occoquan River established Dumfries, the county's first town, as a major
colonial port for exported goods. The city of Dumfries continued to operate in
this capacity until silt levels rose in the river, causing the harbor to close.
During the decades which followed the colonial period, Prince William County
became the sight of some of the more significant battles during the Civil War,
including the Battle of Manassas, where Thomas "Stonewall" Jackson earned his
nickname.
Land Use
- --------
[CHART APPEARS HERE]
Over half of the total land area of Prince William County is currently vacant,
dedicated as parkland, or in agricultural use. The graph presented in Figure 1,
prepared from statistics published by the Prince William County Planning Office,
depicts the land use in county as of January, 1991.
The potential for future development, based on the most current Comprehensive
Land Use Plan adopted by the Prince William County Board of Supervisors, is
substantial. Commercial development in accordance with this plan could establish
the county as a significant commercial market with a variety of uses including
industrial, office/mixed use parks, and retail. The amount and timing of such
development will be dependent upon economic conditions and market demand
throughout the region.
The recently adopted comprehensive plan evidences the county's commitment to
carefully planned growth. The target areas for development are primarily
concentrated in the eastern portion of the county along Interstate 95, and the
western portion of the county along the Interstate 66 corridor and within the
Cities of Manassas, the county seat, Manassas Park, and Gainesville. The central
portion of the county is proposed to be generally maintained in its current
state, with forestry, agricultural
9
<PAGE>
uses, and low density residential development predominant according to the most
recent long range plan. The aforementioned concentrations of development in the
eastern and western portions of the county follow the patterns demonstrated over
the last three decades. Development in these areas have been primarily
residential in nature, serving as "bedroom communities" for the employment
centers of Washington, D.C. and the closer-in Northern Virginia submarkets. With
the latest comprehensive plan, these areas have also been targeted for
commercial development in order to build the tax base of the county, as well as
reduce traffic congestion to the employment centers to the north and west.
Population
- ----------
[CHART APPEARS HERE]
Population in Prince William County has gone through two distinct periods of
extremely high growth. The first occurred in the 1960's, when the population
more than doubled from 50,162 people in 1960 to 111,102 residents by 1970. This
period of growth established the county as one the fastest growing counties not
only regionally but in the country.
The 1980's saw another growth spurt, with an increase in population of over 56%
during that decade. The graph presented as Figure 2 sets forth the population
growth of the County from 1930 to 1990 based upon statistics published by the
U.S. Bureau of the Census.
Today, Prince William County is the third largest county in Virginia in terms of
population. The population of the County reported in the 1990 census was 215,686
residents. Statistics published by the Prince William County Office of Mapping
and Information Resources indicate that the total population of the County as of
March 15,1997 is 258,578 residents. This indicates an average annual growth rate
since 1990 of 3.79%.
The Round V Cooperative Forecasts of Population published by the Metropolitan
Washington Council of Governments (COG) predict that 40% of the population
growth in the Washington PMSA will occur in the defined outer suburbs, which
include Prince William County and its incorporated cities, over the next 20
years. The five-year incremental projections contained in the Round V Forecasts
predict the population of Prince William County at 273,400 by the year 2000,
population of 316,100 in 2005, and 351,800 residents in the county by the year
2010. These forecasts result in annual growth rate projections of 2.68% during
the '90's and 2.87% during the following decade. Both historical and projected
growth rates for Prince William County reflect the trend toward relocation from
high-density suburbs proximate to Washington, D.C. to lower density
rural/suburban areas which offer commuters adequate accessibility to downtown
Washington, D.C., and other Washington area employment centers.
10
<PAGE>
Based upon statistics published by the Prince William Office Of Mapping and
Information Resources, the County's average household size was 3.04 persons in
1990. This represents a reduction in the average household size reported by the
1980 census of 3.26 persons. The following table sets forth the projections of
county population, households and average household size based upon data
published by the COG Round V Forecasts.
<TABLE>
<CAPTION>
POPULATION AND HOUSEHOLD GROWTH PROJECTIONS
PRINCE WILLIAM COUNTY, 1995 - 2020
AVERAGE HOUSEHOLD
YEAR POPULATION HOUSEHOLDS SIZE
-------------------------------------------
<S> <C> <C> <C>
1995 241,664 78,258 3.09
2000 276,270 98,644 2.80
2005 317,758 103,294 3.08
2010 352,983 114,883 3.07
2015 385,088 125,446 3.07
2020 416,330 135,725 3.07
===========================================
</TABLE>
SOURCE: Metropolitan Washington Council of Governments
Round V Forecasts
Employment
- ----------
According to the Virginia Employment Commission, Prince William County had a
civilian labor force of 132,943 in January of 1997. The Virginia Employment
Commission figures further indicate an unemployment rate in the county of 2.9%,
compared to a state-wide unemployment rate of 4.5%.
At-place employment in the county was estimated at 68,168 jobs within Prince
William County as of second quarter 1996. This figure represents an increase of
154.6% from the 26,776 reported at the time of the 1990 census. Most of the
county's employment growth has been fueled by small and medium sized business;
however, three major employers, IBM Corporation, Atlantic Research Corporation
and Prince William and Potomac Hospitals, are the county's largest private
employers. In addition, the Quantico Marine Base, located along the border of
Prince William and Stafford Counties, employs almost 2,000 civilians.
Other new companies have recently located in Prince William County. Recent
additions to the employment base include IBM's Federal Systems Division,
Dynapac, AT&T, and Lansing, Inc. Overall, more than 1,000 new businesses were
added to the county providing over 4,000 new jobs over the last decade.
According to the Virginia Employment Commission, approximately 35.2% of
11
<PAGE>
[CHART APPEARS HERE]
the civilian labor force is currently employed within the county. This
represents an increase of 5.43% above 1980, when only 29.8% of the county's
residents worked in Prince William County. The graph presented as Figure 3 sets
forth the composition of the county's at-place employment by sector based upon
Virginia Employment Commission data as of August, 1993.
The table which follows sets forth the growth projections for at-place
employment in the county based upon the COG Round V forecasts. These projections
are consistent with the comprehensive plan adopted by the county Board of
Supervisors which stresses commercial development.
PROJECTED AT-PLACE EMPLOYMENT GROWTH
PRINCE WILLIAM COUNTY, 1990-2020
<TABLE>
<CAPTION>
YEAR EMPLOYMENT % CHANGE
---- ---------- --------
<S> <C> <C>
1990 65,822
1995 76,149 15.69%
2000 90,113 18.34%
2005 106,900 18.63%
2010 126,662 18.49%
2015 145,497 14.87%
2020 160,210 10.11%
</TABLE>
SOURCE: COG Round V Forecasts
Income
- ------
[CHART APPEARS HERE]
The 1990 Census data indicate that the median household income in Prince William
County in 1989 was $49,370 compared with the median household income statewide
of $33,328. Sales and Marketing Management magazine utilizes another
measurement of income, effective buying income or EBI, defined as disposable or
after-tax income. The most recent data published by Sales and Marketing
-------------------
Management indicates that the median household EBI for Prince William County as
- ----------
of December, 1992 was $50,935. This compared to a median EBI
12
<PAGE>
for the consolidated Washington/Baltimore CMSA of $43,851 during the same
period. The graph presented as Figure 4 sets forth household distribution by
Effective Buying Income based upon statistics published by Sales and Marketing
-------------------
Management as of January 1, 1995. Prince William County's Center for Public
- ----------
Service reports that the median household income had risen to $58,126 for 1996.
Education
- ---------
The population of Prince William County is characterized as highly educated and
readily employable. The statistics compiled by county demographers indicate that
96.6% of the adult population are high school graduates and 27.6% are college
graduates. The county currently houses sixty public schools in its system and an
additional twenty-nine private schools are located within the County. Prince
William also has two Northern Virginia Community College campuses located in
Woodbridge and Manassas. George Mason University opened a small satellite campus
in the Sudley North Office Complex located off Route 234 in Manassas. The long
term plan for the University calls for a graduate school on a 120-acre parcel
located along the proposed Route 234 Bypass in the Gainesville area. This
complex is also proposed to house the University's Urban Systems Engineering
program. Most of the targeted 120 acres has been deeded to the university for
this complex. Ground breaking for the first building for George Mason
University's Prince William Institute occurred in 1995, and has been followed by
private land acquisitions and construction of biotechnology and bioscience
related structures, including the 100,000 square foot American Type Culture
Collection building.
Residential Development
- -----------------------
The population growth experienced by the county over the last three decades has
resulted in a corresponding increase in residential housing. The chart which
follows sets forth the increase in residential dwellings contained within the
county by product type since 1980. The chart provides estimates of the various
housing product as tabulated by the Building Inspection and Permits Department
of Prince William County. Single-family product has historically predominated
the area, with townhouse product increasing at a steadily growing pace.
PRINCE WILLIAM COUNTY HOUSING STOCK
1980 - 1996
<TABLE>
<CAPTION>
-----------------------------------------------------
YEAR SINGLE FAMILY TOWNHOUSE APARTMENT OTHER TOTAL
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1980 31,900 7,141 5,335 2,012 46,388
1981 32,914 7,632 5,326 2,035 47,907
1982 34,002 8,224 5,326 2,086 49,638
1983 34,832 8,550 5,326 2,220 50,928
1984 35,990 9,195 5,455 2,490 53,049
1985 37,004 9,670 5,500 2,635 54,809
1986 38,023 10,342 6,201 2,770 57,336
1987 39,273 11,567 6,833 2,894 60,567
1988 41,175 12,932 8,538 3,311 65,956
1989 42,033 13,985 11,227 3,797 71,042
1990 42,401 14,536 12,908 3,959 73,804
1991 42,769 15,087 13,670 3,239 74,765
1992 43,337 15,884 13,670 3,472 76,363
1993 44,313 16,663 14,076 3,472 78,524
1994 46,760 21,866 15,474 -- 84,100
1995 47,771 22,806 15,809 -- 86,386
1996 48,921 23,792 16,396 -- 89,109
</TABLE>
SOURCE: Prince William County Office of Economic Development
Prince William County Office of Building Inspection and Permits
13
<PAGE>
Consistent with regional and national trends, residential building activity in
recent years has declined from the peak levels evident in the mid-1980's. Again,
building permit activity for 1992 evidenced an increases over the previous year,
with 1993 levels representing an increase over 1992. An overall 57.26% increase
was registered for 1992 over 1991; the rate of growth of the 1993 permit
activity over the 1992 level was 13.38%. For the subsequent years of 1994
through 1996, consistent increases in building permit activity were noted. A
total of 2,309 building permits were issued in 1994, with a 9.7% increase in
1995, followed by an 18.2% increase in 1996.
The county Board of Supervisors approved an affordable housing program, in
concept, at the end of 1991 and is currently refining the proposal for
implementation. Due to the decline in new large scale residential projects, the
program has not yet been finalized nor tested. Application of this affordable
dwelling unit ("ADU") program will be modeled after the successful programs in
Montgomery County, Maryland and neighboring Fairfax County, Virginia and will
most likely affect new projects proposed to contain in excess of fifty units.
Alternative methods of application may limit the ADU requirement to townhouse
and multi-family projects, with single-family detached projects funding a
housing trust fund. Density bonus trades may also become a part of this program,
thereby permitted higher density development for ADU development inclusions.
Non-residential Development
- ---------------------------
As previously stated, the Prince William County Board of Supervisors has
established a goal of increasing non-residential development in the county in
order to both increase its tax base and provide employment opportunities to its
residents.
The comprehensive plan adopted by the Board incorporates commercial development
in the eastern and western portions of the county, consistent with the
development trends already established. The following table sets forth the
commercial construction activity experienced within the county from 1982 through
1993.
COMMERCIAL DEVELOPMENT CONSTRUCTION
(IN SQUARE FEET)
<TABLE>
<CAPTION>
YEAR OFFICE RETAIL INDUSTRIAL TOTAL
----------------------------------------------------------
<S> <C> <C> <C> <C>
Existing 2,352,603 4,875,126 3,541,500 10,769,229
1982 49,724 9,422 22,750 81,896
1983 90,277 68,648 280,443 439,368
1984 175,469 481,872 561,985 1,219,326
1985 377,176 1,038,472 487,728 1,903,376
1986 238,027 1,044,149 561,134 1,843,310
1987 446,803 893,639 680,320 2,020,762
1988 646,121 899,737 780,096 2,325,954
1989 620,408 1,008,303 834,320 2,463,031
1990 306,222 1,071,688 461,345 1,839,255
1991 25,331 552,428 133,887 711,646
1992 141,464 765,374 79,598 986,436
1993 62,760 1,145,925 32,460 1,241,145
1994 34,323 166,089 36,794 237,208
1995 12,826 822,584 128,260 963,670
--------- ---------- --------- ----------
TOTAL 5,579,534 14,843,456 8,622,620 29,045,612
</TABLE>
SOURCE: Prince William County Office of Economic Development
14
<PAGE>
As has been evident throughout the region, as well as on a national level, non-
residential development in the County has declined considerably in recent years
from the levels demonstrated in the mid- and late 1980's. Non-residential
activity reported in 1993, composed primarily of retail space, exceeded 1992
levels by slightly more than 25%, with a considerable drop in activity in 1994,
followed by a surge of non-residential construction in 1995.
Absorption of commercial space in Prince William County virtually kept pace with
space delivered to the market through 1987. In 1987, Prince William County
reported a 6% vacancy rate, somewhat high by comparison to other submarkets
within the region at that time but considerably lower than the then national
average. As the regional real estate market began to "soften", Prince William
was no exception. As of October, 1996, 328, 044 square feet of office space was
available for lease in Prince William County. This equated to a vacancy rate of
19.01%, according to statistics published by the Blacks Statistical Review.
-------------------------
The county has absorbed a considerable amount of retail space in the last
several years. Among the premier retail developments in the county is the
Potomac Mills Shopping Center, a 400-acre outlet center containing over 1.2
million square feet of retail space. The center opened in 1985 and to date has
outpaced the combined outlet centers in Williamsburg in its customer attraction.
A 400,000 square foot addition to Potomac Mills was completed in 1993, which
houses new anchor tenants including Burlington Coat Factory, Speigel, J.C.
Penny's and Marshalls. Additionally, Hechingers, Home Depot and Lowe's completed
retail outlets in the county in 1993.
Transportation
- --------------
Prince William County's proximity to Washington, D.C. and the other employment
centers in Northern Virginia requires an extensive road. The county is 25 miles
southwest of Washington, D.C., via Interstate Route 66 from the western portion
Prince William. The eastern portion of the county is served by I-95 and Route 1.
Other major highways which serve Prince William County include Route 29/211,
running north/south; Route 234 running east/west; and Route 28 which traverses
the county in a north/south direction. A recent study conducted by George Mason
University from 1990 Census Data indicates that the Prince William job force is
altering its commuting patterns from Washington, D.C. to employment centers
within the county as well as in neighboring Fairfax County. This data, compared
to 1980 census data, indicates an increase from 36.36% to 40.8% in at-place
employment as well as a decrease from 18.79% in 1980 to 12.77% in 1990 of the
workforce commuting to Washington, D.C. Further, an increase from 24.05% in 1980
to 31.06% in 1990 of the county's workforce commutes to employment located in
Fairfax County. This trend is consistent with the growth of suburban employment
centers in the region.
Various commuting alternatives have been under consideration for many years. The
most notable alternative which has recently come to fruition is the Virginia
Railway Express System. This long planned commuter rail system opened in June of
1992, starting in Manassas and running to Union Station in Washington, with
eight stops in between. The 35 mile run requires approximately 74 minutes. In
July 1992 the north/south section of the system began operation. This portion
services those areas between Washington, D.C. and Fredericksburg, Virginia
situated along the borders of Stafford and Spotsylvania Counties. The eastern
portion of Prince William County benefits from this line of the service. It is
estimated that 4,500 commuters will make use of this commuter rail service and
thereby reduce the traffic congestion experienced along the major arteries of 1-
66 and 1-95. Closer-in stations will also serve as connections to the existing
Metrorail subway system.
15
<PAGE>
Prince William County is also served by three other railroads, The Norfolk
Southern, CSX/Richmond, Fredericksburg and Potomac, or RF&P and the Harrisonburg
Spur. Dulles International Airport, one of the world's largest and most advanced
airports, is situated approximately 13 miles north of the City of Manassas
straddling neighboring Loudoun and Fairfax Counties. Washington National Airport
is approximately 30 miles northeast of the eastern Prince William/Fairfax County
line. A municipal airport is located within the incorporated City of Manassas.
In summary, Prince William County is a growing suburban area which has
maintained many rural areas with large areas of undeveloped land and
agricultural land uses. The county is strategically positioned and, through
proper governmental planning and implementation, well prepared to receive an
abundance of development from the more densely developed and "close-in"
jurisdictions surrounding Washington, D.C. Prince William County has changed its
overall character from a rural fanning area to a residential and employment base
in the preceding two decades. Commercial office development is continuing to
expand with existing high technology and research and development firms
attracting other commercial users to the area. It is the opinion of the
appraisers that residential, commercial and economic growth in Prince William
County will continue into the foreseeable future as the supply of developable
land continues to decrease in the immediate Washington, D.C. market area.
16
<PAGE>
REGIONAL AREA
- -------------
Introduction
- ------------
As real estate is an immobile asset, the economic trends that impact one
location over others within a market area, or compared to other market areas,
are important. The discussion which follows highlights those forces that
determine supply and demand for real property, whiCh, in turn, determine the
market value of real estate. It is noted that in 1992, the former Washington,
D.C. Metropolitan Statistical Area and the former Baltimore Metropolitan
Statistical Area were consolidated and additional jurisdictions were added to
each of the primary metropolitan areas. As various current and historical data
and projections contained within the following discussions have been obtained
from different sources and various of the local government sources have not yet
included the jurisdictions added after the 1990 census in historical and current
compilations, some minor discrepancies exist in the area and the regional
totals. It is our opinion, however, that any discrepancies are statistically
insignificant and do not result in a distortion of demographic picture.
Additionally, as the subject property is situated within the Washington, D.C.
Primary Metropolitan Statistical Area ("PMSA"), the following discussion
provides an overview of the consolidated Washington-Baltimore Consolidated
Metropolitan Statistical Area ("CMSA") with more emphasis on the demographic
components relative to the Washington, D.C.
Definition of the Area
- ----------------------
The U.S. Office of Management and Budget defines a Metropolitan Statistical Area
as a metropolitan area which is comprised of all surrounding jurisdictions that
share a common economic base. In 1992, the Office of Management and Budget
created a new Washington PISA. Also created at that time was the Washington-
Baltimore Consolidated Metropolitan Statistical Area. The Washington- Baltimore
CMSA includes the former Washington Metropolitan Statistical Area and the former
Baltimore Metropolitan Statistical Area, along with additional counties in
Virginia, Maryland and West Virginia added following the 1990 census.
The Washington PMSA is comprised of Washington, D.C., the Maryland counties of
Montgomery, Prince George's, Calvert, Charles,- Frederick, Howard, and
Washington; the Virginia counties of Arlington, Fairfax, Loudoun, Prince
William, Stafford, Spotsylvania, Fauquier, Culpeper, Clark, King George, and
Warren along with the cities of Alexandria, Fairfax, Falls Church,
Fredericksburg, Manassas and Manassas Park; and the West Virginia counties of
Jefferson and Berkeley. The Baltimore PMSA consists of the City of Baltimore and
the counties of Baltimore, Anne Arundel, Howard, Carroll, Harford, Queen Anne,
Hagerstown and Washington County.
The Washington MSA forms the southernmost point of the east coast megalopolis of
Boston, New York, Philadelphia and Washington. Washington is further situated
within a one-day automobile ride of approximately one-half of the total
population of the United States. The CMSA contains a land area of approximately
9,600 square miles. Those metropolitan areas which contain larger populations
than the subject CMSA have land areas of 7,658 square miles as to New York,
34,008 square miles as to Los Angeles, and 5,660 square miles as to Chicago.
17
<PAGE>
Population and Household Characteristics
- ----------------------------------------
The population of the Washington-Baltimore area is characterized by high income
levels and levels of educational attainment. Additionally, the population is
very mobile. According to the U.S. Census Bureau's 1995 Statistical Abstract of
the United States, the 1994 population of the Washington-Baltimore CMSA was
7,059,000. This CMSA ranks fourth in the nation in terms of population, behind
New York, Los Angeles, and Chicago. The following table sets forth the top ten
regions in the country in terms of population:
TOP TEN METROPOLITAN AREAS BY POPULATION
<TABLE>
<CAPTION>
Change
1994 1990 1980 90-94 80-90
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
1 NewYork/N.NJ/Long Island NY J T PA N/A 19,550,000 18,906,000 N/A 3.41%
2 Los Angeles/Riverside/ Orange Co, CA 15,302,000 14,532,000 11,498,000 5.30% 26.39%
3 Chicago/Gary/Kenosha IL 8,527,000 8,240,000 8,115,000 3.48% 1.54%
4 Washington-Baltimore DC/MD/VA 7,059,000 6,726,000 5,791,000 4.95% 16.15%
5 San Francisco/Okland/ San Jose CA 6,513,000 6,250,000 5,368,000 4.21% 16.43%
6 Philadelphia/Wilmington/ Atlantic City PA/NJ 5,957,000 5,893,000 5,649,000 1.09% 4.32%
7 Boston/Brockton/Nashua MA N/A 5,455,000 5,122,000 N/A 6.50%
8 Detroit/Ann Arbor/ Flint MI 5,246,000 5,187,000 5,293,000 1.14% -2.00%
9 Dallas/Ft. Worth TX 4,362,000 4,037,000 3,046,000 8.05% 32.53%
10 Houston/Galveston/ Brazona 4,099,000 3,731,000 3,118,000 9.86% 19.66%
</TABLE>
SOURCE: STATISTICAL ABSTRACT OF THE U.S., 115TH EDITION, 1995, U.S.
DEPARTMENT OF COMMERCE, ECONOMICS AND STATISTICS ADMINISTRATION,
U.S. BUREAU OF THE CENSUS
The population of the Washington-Baltimore CMSA is distributed as follows:
<TABLE>
<CAPTION>
1994 POPULATION % OF CMSA
--------------- ---------
<S> <C> <C>
Baltimore PMSIA 2,458,000 34.8%
Hagerstown MD PMSA 127,000 1.8%
Washington, D.C. PMSA 4,474,000 63.4%
</TABLE>
SOURCE: STATISTICAL ABSTRACT OF THE U.S., 115TH EDITION, 1995, U.S.
DEPARTMENT OF COMMERCE, ECONOMICS AND STATISTICS ADMINISTRATION,
U. S. BUREAU OF THE CENSUS
During the 1980s, the Baltimore PMSA's growth rate was 8.32% or 18,300 persons
per year. The Washington PMSA demonstrated population growth of 21.42% or 93.500
persons per year during the 1980s. The population of the consolidated area has
grown by approximately 5% since the time of the 1990 census. The growth rate
demonstrated by the Baltimore PMSA was 3.2% while the Washington PMSA has
demonstrated a growth rate since the 1990 census of 5.9%. The population
estimate as of the 1990 census represents an increase of 16.1% over the 1980
census for the CMSA.
Population growth is forecast to continue over the next twenty years, although
at a slower rate than was experienced during the 1980's. The table presented on
the facing page summarizes population forecasts as published in the Metropolitan
Washington Council of Governments Round 5.2 Forecasts for the jurisdictions
contained within the Washington, D.C. PMSA. It is noted that the West Virginia
counties included after the 1990 census are not included in the COG forecasts.
The growth forecast for the Baltimore region was obtained from the Round 5.0
forecast of the Baltimore Metropolitan Council.
18
<PAGE>
Household patterns have as significant an impact on real property values as do
population trends. Based on statistics published by Sales and Marketing
Management Magazine's 1995 Survey of Buying Power; the Washington PMSA ranks
fifth in the country in terms of numbers of households with 1,655,600 as of
January, 1995, behind New York, Los Angeles, Chicago and Philadelphia. The
Baltimore PMSA, with 912,400 households, ranks 18th in the nation. This survey
further indicates a 1995 average household size of 2.72 as to the Washington
PMSA and 2.70 as to Baltimore.
Consistent with population growth, the number of households is forecast to grow
at lower rates than were experienced in the 1980's. The following table
summarizes the historical and forecasts of household growth from 1980 through
2020.
<TABLE>
<CAPTION>
HISTORICAL AND FORECAST HOUSEHOLD GROWTH
1980 - 2020
1980 1990 2000 2010 2020
================================================================================
<S> <C> <C> <C> <C> <C>
Washington, D.C. 253.1 249.6 244.0 248.0 252.0
Virginia Suburbs 419.3 567.2 680.3 795.6 914.3
Maryland Suburbs 502.3 642.5 759.4 874.6 981.1
TOTAL WASHINGTON MSA 1,174.7 1,459.3 1,683.7 1,918.2 2,147.4
Change 24.23% 15.38% 13.93% 11.95%
Baltimore City 302.8 267.5 280.5 282.6 288.7
Maryland Counties 488.0 600.1 694.4 774.9 849.3
TOTAL BALTIMORE MSA 799.8 867.6 974.9 1057.5 1138
Change 8.48% 12.37% 8.47% 7.61%
================================================================================
</TABLE>
SOURCE: WASHINGTON METROPOLITAN COUNCIL OF GOVERNMENTS COOPERATIVE
FORECAST ROUND 5.2; BALTIMORE METROPOLITAN COUNCIL, ROUND 5.0
FORECASTS
The Metropolitan Washington Council of Governments Round 5.2 Cooperative
forecasts indicates that the average household size in the Washington PMSA was
2.69 persons at the time of the 1990 census, down from 2.77 as of the 1980
census. The average household size is forecast to decline to 2.66 by the year
2000, and continue to 2.63 and 2.59 in the years 2010 and 2020, respectively.
The Baltimore Metropolitan Council reports the average household size of 2.71 as
of the 1990 census, with forecast declines to 2.58 persons by 2000, 2.49 in 2010
and 2.43 persons in 2020.
Employment Characteristics
- --------------------------
The Washington-Baltimore CMSA currently ranks near the top nationally in the
proportion of its population in the prime working ages of between 24 and 54
years of age. The table presented below sets forth the distribution of the
Washington-Baltimore CMSA population by age, as of January 1, 1995.
19
<PAGE>
WASHINGTON-BALTIMORE CMSA POPULATION DISTRIBUTION BY AGE
<TABLE>
<CAPTION>
Age Group Percentage of Population
--------- ------------------------
<S> <C>
Under 18 24.4%
18-24 9.7%
25-34 17.6%
35-49 25.6%
50 & Over 22.7%
</TABLE>
SOURCE: SALES AND MARKETING MANAGEMENT, SURVEY OF BUYING POWER, JANUARY,
1995
The Washington metropolitan area is one of the wealthiest in the nation
according to the Sales and Marketing Management 1995 Survey of Buying Power.
Median household effective buying income, or "EBI" is defined as "...roughly
equivalent to disposable or after-tax income. The Washington PMSA ranked ninth
in the country in terms of median household EBI at $53,420. The Baltimore PMSA
ranked 48th, with the median household EBI at $41,802. The table which follows
sets forth the ten metropolitan areas in the country with the highest median
household effective buying income as of January 1, 1995.
TEN HIGHEST MEDIAN HOUSEHOLD INCOME AREAS
BY 1995 ESTIMATE
<TABLE>
<S> <C>
1 Middlesex/Somerset/Hunterdon, NJ $65,871
2 Nassau/Suffolk, NY $62,011
3 Bridgeport/Stamford/Norwalk/Danbury, CT $58,101
4 Newark, NJ $55,739
5 Trenton, NR $55,480
6 San Jose, CA $54,778
7 Bergan - Passiac, NJ $53,864
8 Anchorage, AL $53,517
9 Washington, D. C. $53,420
10 Monmoth -Ocean CA $52,336
</TABLE>
SOURCE: SALES AND MARKETING MANAGEMENT, SURVEY OF BUYING POWER, JANUARY 1,
1995
As previously mentioned, the median EBI, Effective Buying Income, in the
Washington PMSA was $53,420, with the Baltimore PMSA at $41,802 as of the
January 1, 1995 survey. The EBI of the Washington-Baltimore CMSA was further
reported at $48,661. A breakdown of the households contained within the
Washington-Baltimore CMSA by median effective buying income as set forth in
presented in the following table.
<TABLE>
<CAPTION>
WASHINGTON-
EBI BALTIMORE WASHINGTON BALTIMORE CMSA
--- --------- ---------- --------------
<S> <C> <C> <C>
Under $10,000 9.2% 5.2% 6.8%
$10,000 -$19,999 11.5% 7.0% 8.7%
$20,000 -$34999 19.9% 115.5% 17.3%
$25,000 -$49,999 20.2% 118.1% 18.9%
$50,000 and over 39.2% 554.2% 48.3%
</TABLE>
SOURCE: SALES AND MARKETING MANAGEMENT SURVEY OF BUYING POWER,
JANUARY, 1995
20
<PAGE>
In terms of employment, government and services dominate the Washington
PMSA, while trade and services predominate in the Baltimore region. The presence
of the Federal government in Washington D.C. has historically been recognized as
a stabilizing factor on the economy of the region; the area established a
diverse economic base over the preceding two decades. However, the recessionary
period of the early 1990s disputed the prior claim of "recession proof" for the
Washington area, as the prevailing economic factors began to take its toll on
the region.
The Washington, D.C. region enjoyed a period of growth during the 1980s when the
economy grew from four to six percent per annum. The peak year for job growth in
the region was 1984, when 107,000 jobs were added to the employment base. Growth
fell to 100,000 new jobs in 1985, and to 82,000 new jobs in 1986. From 1986 to
1988, annual job growth settled in the 4% range. Job growth in 1989 was 2.9%,
but the growth trend reversed in 1990 and this decline continued through 1992.
The Baltimore Region experienced similar trends over the past decade; 1984
represented the year of highest employment growth, at an annual rate of 3.39%,
as compiled by the Baltimore Metropolitan Council. Employment growth during the
following three year period, through 1987, remained at or above 5.1%, followed
by a significant reduction. During the 1988-1990 period, employment growth
stabilized at an average annual rate of 1.43% in the Baltimore region.
The Washington, D.C. area's employment patterns have changed considerably over
the past ten years, with significant growth occurring in the private sector.
Although the federal government has historically been the major employer in the
region, federal employment has not grown in relationship with other segments of
the economy. The share of federal employees declined from 18% of the workforce
to 16.6% of the workforce between 1986 and 1990. The service sector has emerged
as the fastest growing section of the economy and is now the largest employment
classification in the Washington area. In 1960, the service industries employed
18% of all non-agricultural workers in the area, compared with 39% for
government. The 1994 figures indicate that federal, local and state government
employment represents about 27% of all non-agricultural employment, while
services have grown to approximately 35%.
The following table presents the changes in employment composition of the
Washington, D.C. PMSA from 1990 through 1994.
EMPLOYMENT DISTRIBUTION BY INDUSTRY
WASHINGTON, PMSA 1990 - 1994
<TABLE>
<CAPTION>
CHANGE
1990 1991 1992 1993 1994(c) 90-94
================================================================================
<S> <C> <C> <C> <C> <C> <C>
Manufacturing 88,968 82,807 79,099 79,239 80,900 2.1%
Construction 131,676 103,432 95,332 97,450 102,587 5.3%
T.C.U (a) 105,543 105,438 103,890 102,676 103,281 0.6%
Wholesale Trade 75,658 71,833 69,859 69,105 71,137 2.9%
Retail Trade 353,094 339,817 336,005 338,041 344,074 1.8%
F.l.R.E. (b) 130,985 12B,339 125,581 127,655 133,400 4.5%
Services 739,987 728,946 737,142 762,779 779,068 2.1%
Federal Government 365,743 371,945 379,208 379,736 365,840 -3.7%
Local Government 138,861 140,896 141,330 142,968 143,424 0.3%
State Government 79,403 76,807 76,770 78,053 75,986 -2.6%
--------- --------- --------- ------------------ ------
Total Washington
PMSA 2,209,918 2,150,260 2,144,216 2,177,702 2,199,697 -4.63%
</TABLE>
(A) - TRANSPORTATION, CONSTRUCTION, UTILITIES; (B) - FINANCE, INSURANCE, REAL
ESTATE; (C) ESTIMATES BASED ON QT3 REPORTS
SOURCE: MWCOG ECONOMIC TRENDS IN METROPOLITAN WASHINGTON, 12/8/93
---------------------------------------------------
21
<PAGE>
The Baltimore PMSA reported changes in the employment categories as well, over
the last twenty years. The decade spanning 1970 through 1980 experienced an
overall increase in employment in the region of 17.48%. Growth in the services,
government, and trade led the way. The following decade saw over 20% employment
growth, with the Services sector increasing by 55.42%, followed by Trade at
26.17%. Decreases in manufacturing and government offset these increases. The
table presented below provides an overview of this growth over the twenty-year
period.
EMPLOYMENT BY TYPE OF ACTIVITY
BALTIMORE REGION 1970-1990
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERCENT PERCENT
INDUSTRY 1970 1980 CHANGE 1990 CHANGE
================================================================================
<S> <C> <C> <C> <C> <C>
Infrastructure 121.7 131.8 14.43% 68.8 18.92%
Manufacturing 197.6 162.0 -17.32% 130.7 -25.49%
Trade 196.1 240.0 22.39% 302.8 26.17%
Services 229.5 314.7 37.12% 489.1 55.42%
Government 216.8 281.3 29.75% 265.5 -5.62%
----- ------- ------ ------- ------
Total 961.7 1,129.8 17.48% 1,356.9 20.1%
==============================================================================
</TABLE>
SOURCE: BALTIMORE METROPOLITAN COUNCIL REGIONAL ECONOMIC INDICATORS
Development Trends
- ------------------
A combination of the previously discussed demographic elements of population,
income and employment growth fostered record-breaking growth in the housing
market through the last half of the 1980s. Median home prices in the Washington
region increased from 1985 levels of $97,100 to $144,400 by 1989, with an annual
average percent increase of 10.50% over this five year period. According to
figures published by the National Association of Realtors, Washington has
consistently ranked within the top fifteen marketplaces throughout the nation in
terms of median housing price. Although the median sales price of housing in the
Baltimore region does not rank as high as the Washington region, dramatic
increases were nonetheless realized. In 1980 the median sales price in the
Baltimore region was $52,200. In 1985, the median sales price had increased by
39% to $72,600. By 1990, the National Association of Realtors' data indicated a
median average sales price in the Baltimore region of $105,900, an increase of
45.87% or an annual increase of almost 10% per annum over the five year period.
Both residential and non-residential construction in the Washington-Baltimore
region were unprecedented during the period from 1985 to 1987. A significant
slowdown occurred beginning in 1989. Activity levels continued to decline from
the peak years through 1992. Residential building permits as an indicator of
housing activity, issued in the Washington region during the period from 1986
through 1987, increased from 41,458 to a high of 43,261. The 1988 figure of
39,724 permits issued reflects a decrease of almost 9%, from the prior year,
with a further reduction of almost 12% for year-end 1989. By year-end 1990,
building permit activity decreased an additional 29.9% from the 1989 levels.
Various industry experts and economists have attributed this decline in building
activity to a number of factors including the unavailability of construction
financing as a result of the savings and loan crisis, as well as the general
recessionary economic environment.
22
<PAGE>
Likewise, the Baltimore region experienced similar trends in residential permit
issuance, with peak activity in 1985 at approximately 18,800 issuances, an
increase of 11.9% over the previous year. Over the next two years, residential
building permit activity remained relatively constant, with a slight decrease of
5% in 1987 and an increase of 3% in 1988. In 1990, a dramatic decrease of almost
22% was reported followed by a decrease of 18.8% in 1991. In 1992, a dramatic
rebound was reported, with an increase of over 34%. The following table
summarizes the residential building permit activity for the Washington and
Baltimore regions.
RESIDENTIAL BUILDING PERMITS ISSUED
1990 - 1994
<TABLE>
<CAPTION>
CHANGE
WASHINGTON REGION 1990 1991 1992 1993 1994 90-94
==============================================================================
<S> <C> <C> <C> <C> <C> <C>
D.C. 368 333 132 304 210 42.9%
Maryland Suburbs 13,608 9,898 12,138 13,030 11,663 -14.3%
Virginia Suburbs 24,616 18,146 23,987 27,630 26,153 -6.2%
------ ------ ------ ------ ------ -----
S/T WASHINGTON PMSA 38,592 28,377 36,257 40,964 38,026 -1.5%
BALTIMORE REGION 13,200 10,800 14,500 13,000 12,600 -4.5%
</TABLE>
SOURCE: ECONOMIC TRENDS IN METROPOLITAN WASHINGTON, WASHINGTON
METROPOLITAN COG; REGIONAL ECONOMIC INDICATORS, BALTIMORE
METROPOLITAN COUNCIL
Non-residential construction in the Washington PMSA recovered from the depressed
market of the early part of the 1980s with increases in development of over 40%
from 1984 to 1985. Record increases were also tabulated for 1988 at 46.56% above
the 1987 level. Since that time activity has been leveling off due to a number
of economic factors including oversupply of product, unavailability of financing
and the general economic environment. In 1990, new commercial construction was
approximately half of the amount that was started in 1988. The following table
sets forth commercial construction in the Washington D. C. PMSA from 1990
through 1994 as published in the Washington Metropolitan Council of Governments
Economic Trends in Metropolitan Washington 1990-1994.
COMMERCIAL CONSTRUCTION - WASHINGTON REGION
<TABLE>
<CAPTION>
Change
1990 1991 1992 1993 1994 90-94
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
D. C. 5,084,350 5,677,840 2,085,336 1,138,339 2,065,748 -59.4%
Maryland Suburbs 7,108,629 6,269,102 5,515,518 5,426,260 5,181,828 -27.1%
Virginia Suburbs 7,258,820 6,701,248 8,747,674 5,717,030 7,968,412 -9.8%
--------- --------- --------- --------- --------- -----
WASHINGTON, PMSA 19,451,799 18,648,190 16,348,528 12,281,629 15,215,988 -21.7%
====================================================================================================================================
</TABLE>
SOURCE: ECONOMIC TRENDS IN METROPOLITAN WASHINGTON, 1990-1994.
The table that follows on the following page provides an overview of non-
residential, new construction in the Baltimore region over the same period, from
1990 to 1994, presented in millions of dollars. Similar trends as experienced in
the Washington region can be deduced from this data.
24
<PAGE>
NON-RESIDENTIAL NEW CONSTRUCTION
BALTIMORE REGION
<TABLE>
<CAPTION>
UTILITY
TOTAL OFFICE COMM. INDUS. INSTITUTIONAL & OTHER
========================================================================
<S> <C> <C> <C> <C> <C> <C>
1990 467.4 138.1 119.9 127.5 77.0 4.9
1991 280.7 27.7 79.9 101.6 66.3 5.3
1992 196.4 28.4 65.1 13.1 88.7 1.1
1993 268.7 59.7 52.3 34.3 117.4 5.0
1994 171.9 22.2 48.9 32.4 65.0 3.3
========================================================================
</TABLE>
SOURCE: BALTIMORE METROPOLITAN COUNCIL, REGIONAL ECONOMIC INDICATORS, FEBRUARY
1995.
TRANSPORTATION
- --------------
Washington's Metrorail ("Metro") system has fueled the increases in construction
in most areas surrounding new and proposed stations throughout the preceding
decade. The concept of promoting higher density development related to public
transportation, especially Metro, has been put into action in several locations
around the region. Arlington County and the City of Alexandria have guided
redevelopment in their Metro station areas by planning for higher densities and
a greater mixture of uses. Other station areas, such as those in Fairfax and
Prince George's Counties, are anticipated to stimulate both commercial and
residential development around these Metrorail stations.
Within the Washington area, public transportation includes the Metrobus and
Metrorail systems. The Metrorail system had grown to include approximately 90
miles of track and 74 stations serving the District of Columbia, Maryland and
Virginia. At completion, Metrorail will cover 103 miles with 83 stations
throughout the Washington region. Metrorail experienced a 33 percent increase in
riders hip during the period from 1980 to 1985, and an increase of 27% for the
five-year period from fiscal year 1986 through 1990. Increases in ridership are
projected to continue as levels of population and commercial growth in some
suburban areas are beginning to exceed the capacities of existing road networks.
Most recently, the Virginia Railway Express System started its commuter service
from the outer suburbs in Northern Virginia to Washington, D.C. in 1992. The
system opened its east/west route from Manassas in Prince William County to D.C.
in June of 1992. The following month, the north/south route initiating in
Fredericksburg began its leg of this rail system. The Virginia Rail System
terminates at Union Station. Closer-in stations along these two routes also
provide alternative commuting for residents in neighboring Northern Virginia
counties. AMTRAK and the Maryland Rail Commuter ("MARC") rail systems also serve
both regions, providing interim stops to points north and south.
The transportation system serving the Baltimore Regional also features external
road networks, public buses, subway, and rapid rail. The METRO subway of
Baltimore consists of 14 miles of tract extending from the City of Baltimore to
target suburban areas. Expansion of this system is
24
<PAGE>
underway, with a current estimated daily ridership of 50,000 individuals. In
1992, the 22.4 mile long central light rail transit line was completed. The
system runs north-south, connecting the city of Baltimore with Timonium to the
north, and Linthicum/Cromwell Station/Glen Burnie, to the south. Planned
expansion of this light rail system includes access to Hunt Valley to the north
and Baltimore- Washington International Airport ("BWl") to the south.
Accessibility to the Washington and Baltimore metropolitan areas is excellent.
Major highways serving the region include Interstate Routes 1-95, running north
to south along the entire Atlantic seaboard; 1-66, serving Northern Virginia
into the District of Columbia; 1-270, which carries commuters north from the
Washington Capital Beltway to the northern reaches of Montgomery County and
beyond; 1-495, the Capital Beltway; 1-695, the Baltimore Beltway; 1-83, serving
the City of Baltimore and points north and south; 1-70, which provides access
from Baltimore to western jurisdictions.
Metropolitan Washington and Baltimore are further easily accessible via plane.
These regions are served by three major airports; Washington National Airport is
located directly across the Potomac River from downtown Washington; Dulles
International Airport is situated along the Fairfax/Loudoun County line in the
Virginia suburbs; and Baltimore-Washington International airport is located
along the Baltimore-Washington. Washington National Airport, located four miles
from downtown Washington, is served by 19 commercial carriers which currently
have scheduled approximately 900 flights daily and served an average of 45,000
passengers daily. Dulles Airport serves over 30,000 passengers with nearly 800
flights daily.
The recently renovated and expanded Baltimore-Washington International Airport
("BWI") is located in northern Anne Arundel County, approximately 32 miles from
downtown Washington. The airport is served by 25 carriers with more than 425
daily flights and commuter airlines which operate from the facility and is
ranked 14th in the nation in international travel. Further improvements are in
process with a $13.4 million runway expansion and related taxiway and runway
safety areas, which were recently completed. This expansion accommodates Pacific
Rim carriers. An international pier addition is in the planning stage for this
facility which will ultimately house a U.S. Immigration and Naturalization
Service and Customs office, ticket counters, baggage claims area, and concession
stands. Smaller business and private aircraft are handled by Lee Airport and the
Bay Bridge Airport, both facilities being within a twenty minute drive from
Annapolis. BWI's sophisticated new air cargo complex handles approximately 60%
of all of the air cargo in the Baltimore-Washington market.
Conclusions
- -----------
The recent merger of the Washington and Baltimore regions into one consolidated
MSA has resulted in the fourth largest demographic region in the country. The
similarities between Washington and Baltimore, 35 miles apart, provide a
blending of two expansive communities that have ultimately melded over the
recent years of development; commuting between the previously identified
Washington and Baltimore jurisdictions for employment and social reasons have
blurred the lines of distinction. The combined strength of this mid-Atlantic
corridor reflects a generally stable local economy with the second largest
office market containing over 224 million square feet, a high after-tax
effective buying income of $48,661, one of the lowest unemployment rates in the
nation at 5.3%; the highest percentage of college graduates, and the highest
concentration of scientists and engineers in the country. These combined
demographics characterize an urban region which continues to represent a
desirable and profitable location for not only residences but businesses as
well.
26
<PAGE>
SITE DESCRIPTION
- ----------------
The subject property is a portion of a 13.189 acre tract of land situated along
the west side of South Lake Boulevard at its intersection with Higgins Drive
within the Southlake at Montclair planned community. The overall 13.189 acre
site is reportedly approved for subdivision to yield a total of 53 single-family
detached lots.
The site has approximately 400 feet of frontage along the west side of South
Lake Boulevard. As of the inspection date, the site was unimproved; the majority
of the site is wooded with cleared areas along the South Lake Boulevard
frontage. The site is irregular in shape and the topography of the site is
gently rolling. The site plan provided indicates access to the subject
development phases will be provided by the extension of Higgins Drive and the
proposed Benton Court. Both of these will be public roadways constructed within
a 50' right-of-way. The site plan indicates the following Area Tabulation.
Total Area: 13.189 ac
Total Number of Lots: 53 lots
Number of "flag" lots: 15 lots
Street Dedication Area: 1.612 ac
Lot Area: 8.469 lots
Open Space Area: 3.108 ac
Net Density: 4.02 du/ac
Based upon this information, the average lot size equates to approximately 7,000
square feet. Additionally, approximately 24% of the area of the overall
development section will be in open space. The site has access to all public
utilities, including public water and sewer, telephone, gas and electric
service.
Proposed site improvements include asphalt paved public roadways and private
access easements, concrete curb and gutter, storm sewer, street lighting and
landscaping. No study of sub-surface conditions has been undertaken by nor
provided to the appraiser; however, there are no known adverse conditions which
would prohibit the proposed development of the site with single-family detached
dwelling units as proposed. Further, no toxic waste materials were observed upon
the site during my inspection of the property nor are any such materials known
to exist in proximity. However, site contamination issues are beyond the area of
the appraiser's expertise; it is therefore recommended that a survey be
conducted by professionals competent in this area in order to determine the
existence of any such adverse conditions on the subject property.
The site appears to have the size, shape, access and physical characteristics
compatible with the proposed development. No portion of the subject property is
within a designated flood plain area. The subject property is identified on
Panel Number 5115300-0301-D of the FEMA Flood Hazard Boundary Map dated January
5,1995. The property is located within flood zone "X", a minimal flood hazard
area. A copy of the flood map upon which the subject property is located is
presented within the Addenda of the report as Exhibit Ill.
Presented within the Addenda as Exhibit I is a site plan of Section S-7,
Southlake at Montclair upon which the subject proposed lots are illustrated.
This site plan, prepared by Greenhorne & O'Mara, Inc. and dated May 11, 1994, is
incorporated herein by this reference.
26
<PAGE>
ZONING DISCUSSION
- -----------------
The subject property is zoned to the RPC, Residential Planned Community
District, of Prince William County, Virginia. The RPC district is intended to
permit, in accordance with the Comprehensive Plan, the development of planned
satellite communities containing not less than 500 contiguous acres under one
ownership or control in those areas of the County where provisions for sanitary
sewers, sewage disposal facilities, adequate highway access and public water
supply are assured. Within such planned communities, the location of all
residential, commercial, industrial and governmental uses, school sites, parks,
playgrounds, recreational areas, commuter parking areas and other open spaces
shall be controlled in such a manner as to permit a variety of housing
accommodations and land uses in orderly relationship to one another.
Development under this zone requires a Master RPC Zoning Plan, consisting of a
drawing and text which shows the proposed general layout, the general location
of the various types of land uses, the proposed densities of population in
residential areas, a major thoroughfare plan, a general public utility plan, a
general storm drainage plan and a plan showing the location of recreational
spaces, parks, schools and other public or community uses.
The Master RPC zoning will include a phasing schedule which describes when,
within the development of the Planned residential Community, the required school
sites, library sites, recreation and green space areas, major streets, commuter
parking lots, and similar a amenities or community facilities will be dedicated
or reserved.
Individual development phases within Planned Residential Communities are subject
to site plan approval. County records indicate that site plan 96-00166 for 53
lots on 14 acres was approved on April 5, 1996.
27
<PAGE>
HIGHEST AND BEST USE
- --------------------
Introduction
For the purpose of this appraisal, 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 land value". /(1)/ Implied within these definitions is a
recognition of the contribution of that specific use to community environment or
to community goals, in addition to wealth maximization of individual property
owners.
The optimum use of the site, if unimproved and available for development, would
be that use which would generate the greatest net return on the property over
the economic life of the proposed improvements. In analyzing the highest and
best use of the site as though vacant, careful consideration has been given to
the following limitations imposed by government, neighborhood uses and market
demands.
* Examination of land use regulations that prescribe permitted
development. Reference has been made to existing zoning ordinances,
master plans and building codes.
* Compatibility of properties located in proximity to the subject.
Consideration has been given to the land use patterns established and
the predominant types of development in the subject market area.
* Analysis of the physical characteristics accepted by the market. An
investigation has been conducted as to the size, density, layout,
design, efficiency, etc. of economically successful single-family
communities.
*
The subject of this appraisal is a parcel of land containing approximately
13.189 acres located along the west side of South Lake Boulevard at its
intersection with Higgins Drive in the Southlake at Montclair planned
community, Dumfries Magistral District, Prince William County, Virginia.
The property is zoned to the RPC, Residential Planned Community,
Classification of Prince William County, Virginia and is approved for
development with a total of 53 lots to be developed in three phases.
The subject proposed lots will be developed within the Southlake at
Montclair planned community, and will be served by the extensive Montclair
community amenity package, including pool, clubhouse, tennis courts, open
space and the lakes. The site plan provided indicates the proposed lots
will contain an average of approximately 7,000 square feet. The appraiser
is advised that the contract owner proposes to improve these proposed lots
with traditionally styled housing product base priced from $169,000 to
$184,000.
/(1)/ The American Institute of Real Estate Appraisers. The Dictionary of Real
Estate Appraisal. Second Edition (Chicago: American Institute of Real Estate
Appraisers, 1988)
28
<PAGE>
Competitive Housing Analysis
- ----------------------------
A survey of new single-family communities which are currently marketing in the
subject area of eastern Prince William County has been undertaken for the
purposes of this analysis. A survey of new single-family communities marketing
product in the subject Dumfries/Woodbridge areas of Prince William County is
presented in the table on the facing page. A total of 19 single-family detached
offerings within eleven communities were surveyed for the purposes of this
analysis. The projects surveyed offer units base priced from $180,847 as to
Ryan's offering in Cardinal Crest up to $237,115 as to Equity Homes' offering in
the Brittany subdivision. The average base price developed by the 19 projects
surveyed was $207,620.
These projects offer units containing an average of from 1,916 up to 2,715
square feet of finished living area, and the average unit size developed by the
surveyed projects was 2,405 square feet. The unit prices ranged from $73.27 to
$106.67 per square foot, and the surveyed projects developed an average unit
price of $86.80 per square foot of finished living area. The average monthly
absorption levels demonstrated by these projects ranged from a low of 0.27 per
month as to Pighini-Richard's offering in the Highbridge subdivision up to 4.55
units per month as to Manhattan Home's product in the Lake Terrapin community.
The average absorption level developed by the surveyed projects was 1.44 units
per month.
The contract owner plans to offer three traditionally styled model type dwelling
units on the proposed lots base priced from $169,000 to $184,000. The units will
contain three bedrooms and two and one-half baths within from 1,672 to 2,080
square feet of finished living area. The units will be offered standard with a
one-car garage. The average unit price developed by the proposed model types
range from $88.46 to $101.08 per square foot of finished living area.
Analysis of Market Trends
- -------------------------
The factor of greatest impact on successful residential development is the
economic environment. Beginning in the third quarter of 1989, continuing through
1990 and into 1991, a severe decline in new home sales and resale volume
occurred not only regionally but nationwide as well. Concurrently, other facets
of the economy began to be impacted. Retail sales dropped dramatically,
unemployment figures began to escalate, and domestic manufacturing levels
dropped.
While activity levels in the real estate market, including housing sales, have
not rebounded to levels which were evident in the late 1980's, steady
improvements in these economic indicators have been evident since 1993.
Beginning in the first half of 1993 and continued somewhat erratically through
1994 and 1995, traffic through new subdivisions began to increase. With these
slow but steady improvements in the economy underway, the housing industry began
to feel the positive effects of increased consumer confidence.
The table presented on the following facing page sets forth a single-family/
townhouse/plex/condominium sales comparison of new home sales throughout the
region from 1991 through 1995. This data was compiled from contract activity on
new home subdivision of 30 or more planned units as published by Housing Data
Reports. The region overall experienced a 1.4% decline in 1995 from 1994 levels;
Prince William County, however, registered an increase of 9.1 % in 1995 over
1994 activity. The new home sales which occurred in the county during 1996
represented a 2.1% increase over 1995 levels.
29
<PAGE>
Key factors considered in the analysis of absorption in competing developments
are product, affordability, size of development, inventory as well as the
availability of financing. The cyclical decline and advance of mortgage interest
rates have a determining effect on the sale and marketability of the housing
product. Interest rates have to be at a level that is acceptable to the market
and typical purchaser the development is attempting to attract. The current
interest rate levels considered acceptable to attract a significant portion of
the market is projected to be between 7% to 9% for 30-year fixed rate mortgages
and 5% to 7% for adjustable rate mortgages and builder buydown loans. Current
mortgage rates fall within this range.
Conclusions
- -----------
Based upon this study of competitive projects and market demand, an absorption
period of 39 months has been forecast for the sell-out of the subject proposed
53 finished lots. This absorption forecast incorporates a six-month "lead in"
period to complete sufficient land development to commence lot deliveries, and
equates to an average of 1.19 lots per month and 1.34 lots per month over the
delivery period.
In conclusion, based upon analysis of the legal, physical and economic factors
influencing value, and following a site inspection and neighborhood analysis, it
is the opinion of the appraiser that the highest, best, and most profitable
continuous use to which the subject property could be put would be for
development of the subject land in accordance with the site plan provided for
development with detached dwelling units which the requirements of the RPC zone
and which further meet the requirements of the current market. This use is
legally permissible, appropriately supported, and is economically feasible.
30
<PAGE>
VALUATION SECTION
<PAGE>
VALUATION SECTION
VALUATION PREMISE
- -----------------
The purpose of the appraisal is to estimate the current market value of the
herein-described property, in "fee simple", as of May 12,1997. Under the scope
of the assignment, per the request of the client, the following values have been
estimated:
Market Value - "As Is" The current estimated market value of the subject
land, approved for subdivision to yield 53 single-
family building lots, in its current, raw state as
of the appraisal date.
In estimating the above value, each of the three conventional approaches to
value, i.e., the Cost Approach, the Sales Comparison Approach and the Income
Approach has been considered. These approaches to value are briefly summarized
as follows:
* The Sales Comparison Approach has been relied upon in estimating the
value of the subject proposed building lots as finished. The value
estimate by the Sales Comparison Approach is determined by extracting
units of comparison from sales of reasonably similar type properties
and comparing them directly to the subject utilizing necessary
adjustment variables.
* The Cost Approach to value results in an indication of value by
combining the estimated value of the land with the reproduction cost
new (both direct and indirect) of the improvements, less all forms of
accrued depreciation. This approach assumes that a prospective buyer
would not be warranted in paying more for a property than the total
cost of reproduction. As the appraisal problem is limited to
estimating the "as is" value of the subject proposed building lots,
the cost approach to value has not been employed.
* The Income Approach is useful in demonstrating the income producing
potential and investment quality of a property. This approach involves
an estimate of the gross economic income which can be commanded by the
subject property, less certain operating expenses, and capitalized at
a rate commensurate with the risks involved. As this appraisal
considers only the value of the subject land, this technique has not
been employed.
In estimating the "as is" or raw lot value of the subject proposed building
lots, the appraiser has relied upon the Developmental or Anticipated Use Method.
Following a thorough review of both the land records and the subdivision
approval records of Prince William County, Virginia, the market revealed only
one recent transaction of raw lots or tracts of land proposed for single-family
development which are relevant for comparison to the subject property. The
comparable transaction is for the sale of a raw parcel within the subject
community, and is studied in Conjunction with the following as Is value
analysis.
31
<PAGE>
The Developmental or Anticipated Use Method is a discounting process which
proceeds from the estimated value of the subject proposed lots on a finished,
retail basis. The developmental use analysis further takes into account
absorption, land development costs, holding period and sales expenses, along
with developer's anticipated profit. The estimated costs are deducted from the
sales proceeds projected over the holding period, and the net proceeds are
discounted to a present value estimate. The result of this discounting process
theoretically represents the "as is" value of the subject property.
Consideration is typically given to the following components in a developmental
use analysis:
* Direct and indirect land development costs required to market the lots
on a finished\retail basis;
* Estimated sales expenses and holding period costs which may reasonably
be anticipated to be incurred in connection with the development and
marketing process;
* Deduction for profit allowance to cover risk and provide developer
incentive;
* Deduction for time over a projected absorption period at an
appropriate discount rate.
"AS IS" VALUE ANALYSIS
- ----------------------
DEVELOPMENTAL USE APPROACH - 53 PROPOSED LOTS
- ------------
INTRODUCTION
- ------------
In estimating the market value, "as is" of the subject proposed 53 single-family
building lots, the "Developmental" or "Anticipated Use" Method has been
employed. The developmental method is useful in evaluation of the "as is" value
of either raw land or property under development where market transactions
relative to the proposed product type to be developed from the property are
readily available for comparison.
The developmental method is a discounting process which proceeds from an
estimate of the gross sell-out of the subject lots on a finished, retail basis.
The number, size and types of lots which may be developed on the property must
be determined and comparative market analysis undertaken in order to estimate
the most likely retail sales proceeds which may be realized from subdivision and
development of the property under analysis. From the estimated sales proceeds
are deducted the total of all direct and indirect costs necessary to complete
the land development required in order to market the finished lots on a retail
basis, in addition to all holding period expenses which may reasonably be
anticipated in connection with the development and marketing process.
Additionally, this analysis takes into account absorption, all related holding
period costs and anticipated profit. The result of this discounting process
theoretically represents the "as is" value of the property under analysis.
32
<PAGE>
- ---------------------
REVENUE DETERMINATION
- ---------------------
The developmental or anticipated use analysis proceeds from an estimate of the
value of the subject lots on a finished, retail basis. The product assumption
under which the developmental use analysis has been undertaken is based upon the
yield of 53 lots as set forth on the site plan previously identified.
Prospective Future Value - 53 Finished Lots
- -------------------------------------------
The subject 53 proposed building lots have been valued, as though fully
finished, on a gross retail basis by direct comparison with several sales of
finished lots which have recently occurred within proximate areas of Prince
William County which are considered to be reasonably similar to the subject in
terms of income levels and housing demand. These lot sales are summarized in the
table on the facing page and are detailed under Schedule "A" in the Addenda of
the report. The appropriate unit of comparison derived from the market and
utilized for this analysis is the "price paid per lot".
The comparable sales transactions employed in the analysis of the subject
finished lot value consist of 14 transactions which occurred within six
communities, including the subject Southlake at Montclair, Lake Terrapin,
Ashland and four additional subdivisions currently marketing finished lots
within two miles of the subject property. The transactions employed in the
analysis occurred from November of 1996 through April of 1997 and developed lot
prices which ranged from $47,000 per lot for lots within the subject South lake
community up to $65,000 per lot in the Brittany subdivision just south of the
subject. The sales developed an average unit price of $56,405 per lot.
The factors itemized below have been taken into consideration in the
analysis of this market data:
* dates of sales;
* location in relation to subject;
* site configuration, topography and overall utility; zoning;
* size of individual lots;
* amenities in place or proposed;
* access and traffic patterns;
* mortgage financing available at the time of sale; general
socio-economic conditions.
Many of the above cited factors of comparability are very compatible between the
comparable data and the subject proposed finished lots and consequently require
little or no adjustment. All sales are reported to be "arms length" transactions
with typical financing terms; therefore, no adjustments for cash equivalency or
conditions of sale are required. Further, all of the comparable transactions
transferred in fee simple, so no adjustment for property rights is required.
Adjustments have been made for location, lot size; land development status and
the availability of community amenities. Based on the current dates of the
transactions employed in the analysis, no market conditions or time adjustment
is considered to be warranted.
33
<PAGE>
Location adjustments consider proximity to employment centers, recreation
facilities, commuter routes and public transportation, and the immediate
environs of each property under analysis. There follows a discussion of the
transactions considered to be most comparable to the subject proposed lots as
finished.
COMPARABLE NUMBER 1A is the most recent acquisition of a finished lot by
Fairfield Classic Homes within the subject Southlake community. This
transaction, which occurred in April of 1998, developed a unit price of
$48,565. Based upon the close proximity of this comparable to the subject
and the comparable lot sizes, no adjustment is required. Based upon
comparable number la, the indicated value of the subject proposed lots as
finished is $48,565.
COMPARABLE NUMBER 1B is the initial acquisition by Koury Communities of a
finished lot also located within the subject Southlake at Montclair
community. This transaction occurred in December of 1996 at $47,000 per
lot. Again, as comparable number 1b is located just across South Lake
Boulevard from the subject and the lots are comparable in size, no
adjustment is warranted. The indicated value of the subject proposed lots
as finished, based upon comparable number 1b, is $47,000 per lot.
COMPARABLE NUMBER 2A is the April, 1997 acquisition of a finished lot
within the Lake Terrapin community located just west of the subject along
Spriggs Road by Stronko Construction. This transaction developed a unit
price of $59,000. Downward adjustment has been applied to reflect the
larger size of the comparable lot. Comparable number 2a results in an
indication of the value of the subject proposed lots as finished, after
adjustment, of $50,150 per lot.
COMPARABLE NUMBER 3A is a recent acquisition by Regency Homes of a finished
lot within the Ashland PUD located just west of the subject along the north
side of Dumfries Road. This transaction occurred in April of 1997 at a unit
price of $56,000 per lot. Downward adjustment is required as the comparable
lots are larger than the average size of the proposed subject lots. The
indicated value of the subject proposed lots as finished, based upon
comparable number 3a, is $47,600 per lot.
COMPARABLE NUMBER 4B is a recent acquisition of five lots within the
Cardinal Crest subdivision located just north of the subject along Cardinal
Drive. This transaction occurred in April of 1994 and developed a unit
price of $52,700. This comparable requires downward adjustment to reflect
the larger lot size than that proposed for the subject. Also, as the
comparable subdivision offers no amenity package, upward adjustment has
been applied. After adjustment, comparable number 4b results in an
indication of the value of the subject proposed lots, as finished, of
$50,065.
The adjustments discussed above are presented in grid form in the table on the
facing page. The transactions evaluated for the purposes of this analysis
indicate a range of value from $47,000 to $50,150 per lot after adjustment.
Based upon the above analysis and factors of comparability, it is the opinion of
the appraiser that the prospective future value of the subject proposed lots as
finished is consistent with $48,000 per lot.
PROSPECTIVE FUTURE VALUE -53 FINISHED LOTS:
(ABSORPTION TIME - 39 MONTHS)
53 LOTS @ $48,000/Lot = $2,544,000
34
<PAGE>
Price Escalation
- ----------------
With regard to development of a projection of sale price escalation over the
absorption period, historical appreciation rates of both land and housing prices
in the subject sub-market and the region overall have been studied. In
evaluating land sales which have occurred in Prince William County and the
region, in addition to current contracts being executed for the take-downs of
finished lots, it appears that annual price escalation rates ranging from 0% to
8% per annum are being developed. Based upon the above information and
evaluation of current market conditions, the prices of the proposed finished
lots are forecast to escalate at the rate of 4% per annum, beginning with the
second take-down.
It is impossible to prove conclusively any forecast of future conditions. It is,
however, the opinion of the appraiser that this projection of price escalation
over the anticipated holding period represents a reasonable projection of future
conditions based upon studies of historical market data and evaluation of
current market trends and conditions.
Projected Absorption Level
- --------------------------
The absorption conclusions and analysis undertaken to arrive at these
conclusions are set forth in detail under the highest and best use section of
the report. An overall period of 39 months has been forecast for absorption of
the subject 53 proposed building lots as finished. This forecast incorporates a
six-month "lead-in" period prior to the initial delivery in order to complete
sufficient land development to commence initial lot deliveries. This projection
equates to an overall absorption pace of approximately 1.34 lots per month over
the projection period and approximately 1.61 per month over the delivery period.
For the purposes of this analysis, five lots per quarter are projected to
deliver beginning in the third quarter of the projected holding period. The
final three lots are forecast to deliver in the last quarter of the projection
period.
- ---------------
PROJECTED COSTS
- ---------------
From the projected cumulative sales proceeds are deducted the estimated direct
and indirect costs associated with completion of all land development required
to market the subject proposed lots on a finished, retail basis. In addition,
sales expenses, a projected developer profit, and real estate tax liability have
been estimated and deducted from the projected revenues. These expense
categories are discussed as follows.
Development Costs
- -----------------
In developing an estimate of the direct development completion costs for the
subject property, the land development budget for the first two development
phases of the subject property prepared by the contract owner was reviewed. It
is noted that development phases I and II contain a total of 25 lots. A copy of
this information is presented within the Addenda of the report as Exhibit IV.
The direct cost land development budget provided by the contract owner totals
$429,204 or $17,168 per lot as to the 25 lots included in the cost projection.
This total includes such indirect items as feasibility expenses,
planning/engineering, proffer liability of $35,413, and bonding costs in
addition to direct development requirements. This estimate appears reasonable
based upon land development costs demonstrated by other single-family lot
projects undertaken in the subject submarket. For the purposes of this analysis,
development costs of $18,000 per lot or $954,000 in the aggregate are forecast.
These costs are forecast to be incurred evenly over the initial two years of the
projected holding period.
35
<PAGE>
Holding Period Costs
- --------------------
From the gross sales over each period, certain additional items should be
deducted. These include an estimate for sales and marketing expenses and real
estate tax liability likely to be incurred over the projected holding period,
along with an allowance for entrepreneurial profit. These items are discussed as
follows.
Sales and marketing expenses have been estimated at 4% of gross sales proceeds.
These expenses are projected to be incurred on a pro-rata basis as sales
proceeds are obtained. The estimated sales estimates are based upon the analysis
of similar projects within the subject and regional market area and appear to be
reasonable for the subject property.
The real estate tax liability has been estimated at $400 per lot per annum over
the absorption period. This estimate is based upon an "average" assessment
between the current assessed values reflected for raw and for finished lots in
the subject area and assumes a tax rate consistent with the current rate. The
tax liability is forecast to be incurred on a semi-annual basis consistent with
the tax payment schedule in the Commonwealth of Virginia and is further
projected to be reduced on a pro-rata basis as outsales are forecast to occur.
While it is not possible to predict either future assessments of properties
under development or future tax rates, it is the opinion of the appraiser that
this projection represents a logical and reasonable forecast of the tax
liability likely to be associated with the subject property over the projected
holding period.
Also deducted from the gross proceeds of sale is an allowance for
entrepreneurial profit; the profit deduction has been estimated at 10% of gross
sales proceeds. This estimate is based upon the analysis of similar projects
within the subject sub-market and the region overall.
DISCOUNT RATE
- -------------
The discount rate employed within the analysis reflects typical yield rates in
various money markets which provide alternate investment opportunities.
Alternate investment opportunities include Corporate AAA Bonds, Corporate BAA
Bonds, Municipal Bonds, Five-Year Treasury Securities, and long-term Treasury
Securities. The Treasury Securities cannot be compared directly to investments
such as the subject property, because these securities have high liquidity and
almost no risk, and set the absolute lower limit for before-tax investment
yields. However, corporate bonds tend to provide a basis for risk ratings even
though they have liquidity, whereas the holder of real estate cannot convert to
cash as quickly or as inexpensively.
Selected yields, which are published weekly by the Federal Reserve, were
analyzed in order to project an appropriate discount rate for use in the
analysis. The following table sets forth the various rates which were analyzed
in connection with forecasting the discount rate:
SURVEY OF MARKET RATE INDICES
- -----------------------------
<TABLE>
<CAPTION>
Week of
April 25,1997 April, 1997
------------- -----------
<S> <C> <C>
Corporate Bond Rates
- --------------------
AAA 7.75 7.73
BAA 8.35 8.34
A UTILITY 8.24 8.23
</TABLE>
36
<PAGE>
SURVEY OF MARKET RATE INDICES
- -----------------------------
<TABLE>
<CAPTION>
Week of
April 25,1997 April, 1997
<S> <C> <C>
Corporate Bond Rates
--------------------
Bank Prime Rate 8.50 8.50
Discount Window 5.00 5.00
Federal Funds 5.48 5.51
U.S. Treasury Constant Maturities
---------------------------------
1-Year 6.01 5.99
2-Year 6.48 6.45
3-Year 6.64 6.61
5-Year 6.79 6.76
7-Year 6.87 6.86
10-Year 6.89 6.89
20-Year 7.21 6.20
30-Year 7.10 7.09
</TABLE>
Based upon this market information, it is the opinion of the appraiser that the
12% discount rate utilized to compute the present value of the net cash flows is
appropriate under current market conditions. This rate adds approximately 365
basis points to the upper end of the range developed by the Corporate Bond Rates
in order to provide for the greater risk associated with investments in real
estate, as well as to account for possible rate fluctuations which may occur
over the projected holding period.
The discount rate must be viewed in conjunction with the amount and timing of
the profits received. Thus it is the combination of this discount rate and the
profit component which results in the true effective discount rate or internal
rate of return. The effective internal rate of return equates to 20.27% or
nearly than three times the current long-term treasury rate. The cash flow
analysis which derives the internal rate of return is presented within the
addenda of the report as Exhibit V.
The calculations of the developmental use analysis are contained in the table on
the following page. The indicated "as is" value of the subject land, under the
assumptions set forth above, is $954,022 which is rounded to $954,000.
MARKET VALUE-"AS IS" - 53 PROPOSED SINGLE-FAMILY BUILDING LOTS:
53 LOTS @ $18,000/LOT = $954,000
37
<PAGE>
"AS IS" VALUE ANALYSIS
Southlakes @ Montclair
Cumulative Total Gross Sell-out: $2,544,000
53 lots @ $ 48,000
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Number: One Two Three
Quarter Number: 1 2 3 4 5 6 7 8 9
Beginning Month: 1 4 7 10 13 16 19 22 28
Ending Month: 3 6 9 12 15 18 21 24 27
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales/Qtr.: 0 0 5 5 5 5 5 5 5
Cumulative Sold: 0 0 5 10 15 20 25 30 35
Price Escalation 4.0%
Sale Price/Lot $ 48,000 $ 48,000 $ 48,000 $48,480 $ 48,965 $ 49,454 $ 49,949 $ 50,448 $ 50,953
Proceeds of Sale/Qtr. $ 0 $ 0 $240,000 $242,400 $244,824 $247,272 $249,745 $252,242 $254,765
Less Deductions
- ---------------
Development Costs $ 119,250 $ 119,250 $119,250 $119,250 $119,250 $119,250 $119,250 $119,250 $ 0
Sales & Admin Expenses 4.0% $ 0 $ 0 $ 9,600 $ 9,696 $ 9,793 $ 9,891 $ 9,990 $ 10,090 $ 10,191
Taxes $ 10,600 $ 0 $ 9,600 $ 0 $ 7,600 $ 0 $ 5,600 $ 3,600
Profit 10.0% $ 0 $ 0 $ 24,000 $ 24,240 $ 24,482 $ 24,727 $ 24,974 $ 25,224 $ 25,476
--------- --------- -------- -------- -------- -------- -------- -------- --------
Total Deductions $ 129,850 $ 119,250 $162,450 $153,186 $161,125 $153,868 $159,814 $154,564 $ 39,267
Sub-Total Cash Flow/Qtr ($129,850) ($119,250) $ 77,550 $ 89,214 $ 83,699 $ 93,404 $ 89,931 $ 97,678 $215,499
Discount Factor @ 12.0% 0.970874 0.942596 0.915142 0.888487 0.862609 0.837484 0.613092 0.769409 0.766417
Discounted Proceeds/Qtr ($126,068) ($112,405) $ 70,969 $ 79,265 $ 72,199 $ 78,224 $ 73,122 $ 77,108 $165,161
Indicated "As Is" Value $ 954,022
Rounded to: $ 954,000
Per Unit: $ 18,000
<CAPTION>
- -------------------------------------------------------------------
Year Number: Four
Quarter Number: 10 11 12 13
Beginning Month: 28 31 34 37
Ending Month: 30 33 36 39
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales/Qtr.: 5 5 5 3
Cumulative Sold: 40 45 50 53
Price Escalation
Sale Price/Lot $ 51,462 $ 51,977 $ 52,497 $ 53,022
--------------------
Cumulative Per Lot
Proceeds of Sale/Qtr. $257,312 $259,886 $262,484 $159,066 $2,669,997 $50,377
Less Deductions
Development Costs $ 0 $ 0 $ 0 $ 0 $ 954,000 $18,000
Sales & Admin Expenses $ 10,292 $ 10,395 $ 10,499 $ 8,363 $ 106,800 $ 2,015
Taxes $ 1,600 $ 0 $ 38,600 $ 728
Profit $ 25,731 $ 25,989 $ 26,246 $ 15,907 $ 267,000 $ 5,038
-------- -------- -------- -------- ---------- -------
Total Deductions $ 36,024 $ 37,984 $ 38,748 $ 22,269 $1,366,400 $25,781
Sub-Total Cash Flow/Qtr $221,289 $221,902 $225,737 $136,796 $1,303,597 $24,596
Discount Factor @ 0.744094 0.722421 0.701380 0.680951
Discounted Proceeds/Qtr $164,660 $160,306 $158,327 $ 93,152 $ 954,022 $18,000
--------------------
Indicated "As Is" Value
Rounded to:
Per Unit
</TABLE>
<PAGE>
As previously stated, the market revealed one transfer of raw single-family
building lots relevant for comparison to the subject. This transaction is
the acquisition of lots within the subject Southlakes at Montclair
subdivision. It is the opinion of the appraiser that this transaction
provides additional support for the estimate of the "as is" value of the
subject land derived from the preceding analysis.
It should be noted that the comparable transaction was not fully engineered
and "ready for bonding" as of the initial transfer date as is the case with
the subject property.
A summary of this market transaction follows:
SUMMARY OF RAW LOT TRANSACTION
Location: Along the west side of South Lake Boulevard north of its
intersection with Waterway Drive in the Southlake at
Montclair planned community, Dumfries, Prince William
County, Virginia.
Grantor: Interstate General Company LP
Grantee: Lakeside Partners LLC
Reference: Deed Book 2308 Page 465 (2/1/96 conveyance)
Deed Book 2402 Page (12/23/96 conveyance)
Record Date: February 1,1996 (53 lots)
December 23, 1996(49 lots)
Consideration: $ 800,000 (2/1/96)
$ 800,000 (12/23/96)
---------
$1,600,000 Total, or $15,686/lot
Land: +/- 26 acres proposed for subdivision to yield 102
single-family building lots
Zoning: RPC, Residential Planned Community
Comments: As of the acquisition date, the property was engineered for
townhouses; the grantee was responsible for re-engineering
and processing the site through the county for development
with 102 single-family building lots. The grantee advises
that the re-engineering of the site required relocation of a
gas line which added over $100,000 in development costs to
the site.
The finished lots developed from this site are being
marketed to Koury Communities and Fairfield Classic Homes;
the most recent take-down prices were $47,000 as to Koury
(December, 1996 transaction) and $48,565 as to Fairfield
Classic Homes (April, 1997 transaction).
38
<PAGE>
RECONCILIATION AND CONCLUSION
- -----------------------------
The appraiser has been instructed to estimate the market value "as is" of
the subject 53 proposed single-family building lots within the Southlake at
Montclair subdivision. The subject is located along the west side of South
Lake Boulevard at its intersection with Higgins Drive in the Southlake at
Montclair planned community, Dumfries Magistral District, Prince William
County, Virginia. The property is zoned to the RPC, Residential Planned
Community Classification of Prince William County, Virginia.
The Sales Comparison Approach provides a valid indication of the value if
there is a sufficient number of sales for comparison and they are
reasonably similar to the subject. As the market revealed only one
transaction of raw single-family building lots in proximity which is
relevant for comparison to the subject property, the appraiser has relied
upon the Development or Anticipated Use analysis to estimate the "as is"
value of the subject land.
The Developmental or Anticipated Use Method is a discounting process which
proceeds from the estimated value of the subject proposed lots on a
finished, retail basis, deducts appropriate estimates of development and
other costs anticipated to be incurred in connection with the
development and marketing process and discounts the net proceeds to a
present value estimate. In the case of the subject lots as though finished,
the Sales Comparison Approach to Valuation was applied which resulted in a
relatively narrow range of value after adjustment. That analysis
benefitted from very recent sales data of lots located within two miles of
the subject property. Because the Sales Comparison Approach reflects the
actions and motives of typical buyers and sellers within the market the
value conclusions by this approach are considered reliable.
ESTIMATED MARKET VALUE "AS IS": 53 LOTS @ $18,000/LOT = $954,000
- -------------------------------
39
<PAGE>
MARKETING PERIOD
- ----------------
The normal marketing period is the amount of time necessary to expose a
property to the open market in order to achieve a sale. Implied in this
definition are the following characteristics:
* The property will be actively exposed and aggressively marketed
to potential purchasers through marketing channels commonly used
by sellers of similar type properties;
* the property will be offered at a price reflecting the most
probable mark-up over market value used by sellers of similar
types of properties; and
* a sale will be consummated under the terms and conditions of the
definition of market value set forth by the regulations.
The subject of this appraisal is a parcel of land containing approximately
13.189 acres located along the west side of South Lake Boulevard at its
intersection with Higgins Drive in the Southlake at Montclair planned
community, Dumfries Magistral District, Prince William County, Virginia.
The property is zoned to the RPC, Residential Planned Community,
Classification of Prince William County, Virginia and is approved for
development with a total of 53 lots in three phases. The subject proposed
lots will be developed within the Southlake at Montclair planned community,
and will be served by the extensive Montclair community amenity package,
including pool, clubhouse, tennis courts, open space and the lakes.
The marketing time for a given property is a function of the number of
buyers evident in the market for similar properties at the present time, in
conjunction with the availability of financing for purchases of properties
of this type. Based upon discussions with local brokers active in the real
estate market in the subject neighborhood and evaluation of current market
activity levels, it is the opinion of the appraiser that the subject
property could be marketed, at the estimated "as is" value as set forth
herein, within one year from the date of the appraisal.
40
<PAGE>
CERTIFICATION
The undersigned does hereby certify that, except as otherwise noted in this
appraisal report:
1. I/We have no present or contemplated future interest in the real estate
that is the subject of this appraisal report.
2. I/We have no personal interest or bias with respect to the subject matter
of this appraisal report or the parties involved.
3. To the best of my knowledge and belief the statements of fact contained in
this appraisal report, upon which the analyses, opinions and conclusions
expressed herein are based, are true and correct.
4. This appraisal report sets forth all of the limiting conditions (imposed by
the terms of my assignment or by the undersigned) affecting the analyses,
opinions and conclusions contained in this report.
5. Analyses, opinions and conclusions developed in this appraisal report have
been made in conformity with and is subject to the requirements of the Code
of Professional Ethics and Standards of Professional Practice of the
Appraisal Institute, as well as with the Uniform Standards of Professional
Appraisal Practice defined by the Appraisal Foundation.
6. No one other than the undersigned prepared the analyses, nor provided
significant professional assistance in determining the conclusions and
opinions concerning real estate that are set forth in this appraisal
report.
7. My/Our compensation is not contingent upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the amoUnt
of the value estimate, the attainment of a stipulated result, or the
occurrence of a subsequent event.
8. This appraisal assignment was not based on a requested minimum valuation, a
specific valuation or approval of a loan.
9. I, Susan M. Browning, have made a personal inspection of the property that
is the subject of this report.
[SEAL APPEARS HERE]
/s/ Susan M. Browning
------------------------------
Susan M. Browning
<PAGE>
Addenda
<PAGE>
SCHEDULE "A"
<PAGE>
[MAP APPEARS HERE]
<PAGE>
COMPARABLE FINISHED SINGLE-FAMILY LOT SALE
COMPARABLE NUMBER 1A
GPIN No: 8090-99-various
Location: South lake at Montclair, located across South Lake Boulevard
from the subject property off of Waterway Drive, Dumfries,
Prince William County, Virginia.
Grantor: Lakeside Partners LLC
Grantee: Newport Classic Homes
Zoning: RPC
SUMMARY OF TRANSACTIONS:
- ------------------------
Date Lot Nos. Reference Consideration
- ---- -------- --------- -------------
4/97 1 lot 2434/1392 $48,565
12/96 3 lots $142,500 or $47,500/lot
Comments: The above are recent take-downs by Newport Classic Homes
(dba Fairfield Classic Homes) of finished lots located
within the subject PUD. The grantee is marketing single-
family detached dwellings which develop a current average
base price of $213,073.This product line develops a finished
lot cost to housing price ratio of 22.8% on the most recent
take-down reported.
<PAGE>
COMPARABLE FINISHED SINGLE-FAMILY LOT SALE
COMPARABLE NUMBER 1B
GPIN No: 8090-98-various
Location: South lake at Montclair, located across South Lake Boulevard
from the subject property off of Waterway Drive, Dumfries,
Prince William County, Virginia.
Grantor: Lakeside Partners LLC
Grantee: Koury Communities at Montclair LLC
Zoning: RPC
<TABLE>
<CAPTION>
SUMMARY OF TRANSACTIONS:
- ------------------------
DATE LOT NOS. REFERENCE CONSIDERATION
- ---- -------- --------- -------------
<S> <C> <C> <C>
12/96 8,9,11 (3 lots) 2399/458 $141,000 or $47,000/lot
</TABLE>
Comments: The above is the initial take-down of finished lots by Koury
Communities located within the subject PUD. The grantee is
marketing single-family detached dwellings which develop a
current average base price of $196,800. This product line
develops a finished lot cost to housing price ratio of
23.9%.
<PAGE>
COMPARABLE FINISHED SINGLE-FAMILY LOT SALE
COMPARABLE NUMBER 2A
Tax Map: 024-000-000-35
Location: Ridgefield Crossing Subdivision, marketed as the Lake
Terrapin Planned Community, located along the east side of
Spriggs Road just north of Dumfries Road, Woodbridge,
Prince William County, Virginia.
Grantor: ARC, LLC
Grantee: Stronko Construction, Inc.
Sale Date: April 21, 1997
Reference: Deed Book 2436; Page 0023
Consideration: $59,000
Zoning: R-10
Comments: This is a finished lot within the Lake Terrapin PUD located
just west of the subject property. Lake Terrapin contains
an amenity package including swimming pools and club house,
tennis courts, hiker/biker trails, and a 15-acre lake.
This lot contains 16,074 square feet.
<PAGE>
COMPARABLE FINISHED SINGLE-FAMILY LOT SALE
COMPARABLE NUMBER 2B
Tax Map: 024-000-000-various
Location: Ridgefield Crossing Subdivision, marketed as the Lake Terrapin
Planned Community, located along the east side of Spriggs Road
just north of Dumfries Road, Woodbridge, Prince William County,
Virginia.
Grantor: ARC, LLC
Grantee: Wood-Dale Builders Corp
Zoning: R-10
<TABLE>
<CAPTION>
SUMMARY OF TRANSACTIONS:
- ------------------------
DATE LOT NOS. REFERENCE CONSIDERATION
- ---- ------- --------- -------------
<S> <C> <C> <C>
4/97 28,30 2435/1926 $116,000 or
$58,000/lot
3/97 4 2424/0120 $59,000
</TABLE>
Comments: The above are recent takedowns by Wood-Dale Builders within
Lake Terrapin. The grantee is marketing single-family
detached dwellings which develop a current average base
price of $213,500. This product develops a finished lot cost
to housing price ratio of 27.2 % on the most recent take-
down reported.
The typical lot sizes range from 10,000 to 16,000 square
feet.
<PAGE>
COMPARABLE FINISHED SINGLE-FAMILY LOT SALE
COMPARABLE NUMBER 2C
Tax Map: 024-000-000-various
Location: Ridgefield Crossing Subdivision, marketed as the Lake Terrapin
Planned Community, located along the east side of Spriggs Road
just north of Dumfries Road, Woodbridge, Prince William County,
Virginia.
Grantor: ARC, LLC
Grantee: Manhattan Builders, Inc.
Zoning: R-10
<TABLE>
<CAPTION>
SUMMARY OF TRANSACTIONS:
- ------------------------
DATE LOT NOS. REFERENCE CONSIDERATION
- ---- -------- --------- -------------
<S> <C> <C> <C>
4/97 37 2434/0934 $61,000
3/97 5,6 2427/709 $122,000 or
$ 61,000/lot
2/97 23,24 24181658 $122,000 or
$ 61,000/lot
1/97 1 2409/1241 $64,000
11/96 28 2391/508 $60,000
</TABLE>
Comments: The above are recent takedowns by Manhattan Builders within Lake
Terrapin. The grantee is marketing single-family detached
dwellings which develop a current average base price of $192,950.
This product develops a finished lot cost to housing price ratio
of 31.6%.
The typical lot sizes range from 10,000 to 16,000 square feet.
<PAGE>
COMPARABLE FINISHED SINGLE-FAMILY LOT SALE
COMPARABLE NUMBER 2D
Tax Map: 024-000-000-various
Location: Ridgefield Crossing Subdivision, marketed as the Lake Terrapin
Planned Community, located along the east side of Spriggs Road
just north of Dumfries Road, Woodbridge, Prince William County,
Virginia.
Grantor: ARC, LLC
Grantee: NVP, Inc.
Zoning: R-10
<TABLE>
<CAPTION>
SUMMARY OF TRANSACTIONS:
- ------------------------
Date Lot Nos. Reference Consideration
- ---- -------- --------- -------------
<S> <C> <C> <C>
2/97 27 2419/0611 $60,000
1/97 34 2408/1213 $59,000
12/96 39 2399/863 $57,000
</TABLE>
Comments: The above are recent take-downs by NVP, Inc. within Lake
Terrapin. The grantee is marketing single-family detached
dwellings which develop a current average base price of
$218,100. This product develops a finished lot cost to
housing price ratio of 27.5%.
The typical lot size ranges from 10,000 to 16,000 square
feet.
<PAGE>
COMPARABLE FINISHED SINGLE-FAMILY LOT SALE
COMPARABLE NUMBER 2E
Tax Map: 024-000-000-10
Location: Ridgefield Crossing Subdivision, marketed as the Lake Terrapin
Planned Community, located along the east side of Spriggs Road
just north of Dumfries Road, Woodbridge, Prince William
County, Virginia.
Grantor: ARC, LLC
Grantee: Clark Builders, Inc.
Sale Date: November 13, 1996
Reference: Deed Book 2391; Page 522
Consideration: $57,000
Zoning: R-10
Comments: This is a finished lot within the Lake Terrapin PUD located
just west of the subject property. Lake Terrapin contains an
amenity package including swimming pools and club house,
tennis courts, hiker/biker trails, and a 15-acre lake.
The grantee is currently offering the unit on this lot for
sale at $199,900; this equates to a lot price to housing cost
ratio of approximately 28.5%. This lot contains 10,193 square
feet.
<PAGE>
COMPARABLE FINISHED SINGLE-FAMILY LOT SALE
COMPARABLE NUMBER 3A
GPIN No: 8090-various
Location: Ashland PUD, located along the north side of Dumfries Road (Va
Route 234) just west of Spriggs Road, Dumfries, Prince
William County, Virginia.
Grantor: Ashland Community Development LLC
Grantee: Regency Homes Corporation
Zoning: R-10
<TABLE>
<CAPTION>
SUMMARY OF TRANSACTIONS:
- ------------------------
DATE LOT NOS. REFERENCE CONSIDERATION
- ---- -------- --------- -------------
<S> <C> <C> <C>
4/97 2,25 2436/1161 $110,000 or $55,000/lot
4/97 14 2430/1849 $55,000
3/97 11 2424/1870 $55,000
</TABLE>
Comments: These are recent finished lot take-downs by Regency Homes in
the Ashland PUD located just southwest of the subject
property. These lots average 12,000 to 15,000 square feet,
and the community has a proposed amenity package including
pools, tennis, trails, and future retail development. A
recreation fee contribution of $1,000 per lot is reportedly
paid at closing, which results in an effective finished lot
cost of $56,000.
Regency is marketing single-family detached dwellings with a
current average base price of $214,095. This product
develops a finished lot cost to housing price ratio of
approximately 26.2%.
<PAGE>
COMPARABLE FINISHED SINGLE-FAMILY LOT SALE
COMPARABLE NUMBER 3B
GPIN No: 8090-various
Location: Ashland PUD, located along the north side of Dumfries Road (Va
Route 234) just west of Spriggs Road, Dumfries, Prince William
County, Virginia.
Grantor: Ashland Community Development LLC
Grantee: Comstock Ashland LLC
Zoning: R-10
<TABLE>
<CAPTION>
SUMMARY OF TRANSACTIONS:
- ------------------------
DATE LOT NOS. REFERENCE CONSIDERATION
- ---- -------- --------- -------------
<S> <C> <C> <C>
3/97 8,9,10,38 2424/0482 $220,000 or $55,000/lot
</TABLE>
Comments: These are recent finished lot take-downs by Comstock Homes
in the Ashland PUD located just southwest of the subject
property. These lots average 12,000 to 15,000 square feet,
and the community has a proposed amenity package including
pools, tennis, trails, and future retail development. A
recreation fee contribution of $1,000 per lot is reportedly
paid at closing, which results in an effective finished lot
cost of $56,000.
Comstock is marketing single-family detached dwellings with
a current average base price of $209,700. This product line
develops a finished lot cost to housing price ratio of
approximately 26.7%.
<PAGE>
COMPARABLE FINISHED SINGLE-FAMILY LOT SALE
COMPARABLE NUMBER 3C
GPIN No: 8090-various
Location: Ashland PUD, located along the north side of Dumfries Road (Va
Route 234) just west of Spriggs Road, Dumfries, Prince William
County, Virginia.
Grantor: Ashland Community Development LLC
Grantee: Porten Sullivan Corporation
Zoning: R-10
<TABLE>
<CAPTION>
SUMMARY OF TRANSACTIONS:
- ------------------------
Date Lot Nos. Reference Consideration
- ---- -------- --------- -------------
<S> <C> <C> <C>
4/97 19,25 2434/0987 $110,000 or $55,000/lot
4/97 18,20 2434/0085 $110,000 or $55,000/lot
</TABLE>
Comments: These are recent finished lot take-downs by Porten Sullivan
in the Ashland PUD located just southwest of the subject
property. These lots average 11,000 to 13,000 square feet,
and the community has a proposed amenity package including
pools, tennis, trails, and future retail development. A
recreation fee contribution of $1,000 per lot is reportedly
paid at closing, which results in an effective finished lot
cost of $56,000.
Porten Sullivan is marketing single-family detached
dwellings with a current average base price of $222,555.
This product line develops a finished lot cost to housing
price ratio of approximately 25.2%.
<PAGE>
COMPARABLE FINISHED SINGLE-FAMILY LOT SALE
COMPARABLE NUMBER 4A
GPIN No: 8190-70-Various
Location: Cardinal Crest subdivision1 located along the north side of
Cardinal Drive at Heron Drive, Woodbridge, Prince William County,
Virginia.
Grantor: Cardinal Crest LC
Zoning: R-10; average lot size is 11,000 square feet
<TABLE>
<CAPTION>
SUMMARY OF TRANSACTIONS:
- ------------------------
Date Lot Nos. Reference Consideration
- ---- -------- --------- -------------
<S> <C> <C> <C>
2/97 22,21,16,19,33(5 lots) 2413/535 $260,000 or $52,000/lot
11/96 18,20,23 2393/1704 $156,000 or $52,000/lot
11/96 17,32,36 2390/1894 $156,000 or $52,000/lot
</TABLE>
Comments: These sales represent recent take-downs of finished single-
family detached lots in the Cardinal Crest subdivision,
located just north of the subject along Cardinal Drive.
Cardinal Crest offers no community amenity package.
PC Homes is currently offering housing product in this
subdivision which develops an average base price of
$190,500. This offering develops a finished lot cost to
housing price ratio of approximately 27.3%.
<PAGE>
COMPARABLE FINISHED SINGLE-FAMILY LOT SALE
COMPARABLE NUMBER 4B
GPIN No: 8191-70-various
Location: Cardinal Crest subdivision, located along the north side of
Cardinal Drive at Heron Drive, Woodbridge Prince William County,
Virginia.
Grantor: Cardinal Crest LC
Grantee: NVR Homes, Inc. (Ryan)
Zoning: R-10; average lot size is 11,000 square feet
<TABLE>
<CAPTION>
SUMMARY OF TRANSACTIONS:
- -----------------------
DATE LOT NOS. REFERENCE CONSIDERATION
- ---- -------- --------- -------------
<S> <C> <C> <C>
4/97 28 2436/1868 $52,700
3/97 14 2428/505 $52,025
2/97 11 2418/303 $52,025
2/97 18 2416/341 $52,025
</TABLE>
Comments: These sales represent recent take-downs of finished single-
family detached lots in the Cardinal Crest subdivision,
located just north of the subject along Cardinal Drive.
Cardinal Crest offers no community amenity package.
Ryan Homes is currently offering housing product in this
subdivision which develops an average base price of $180,847.
This product line develops a finished lot cost to housing
price ratio of approximately 29.1%.
<PAGE>
COMPARABLE FINISHED SINGLE-FAMILY LOT SALE
COMPARABLE NUMBER 5
GPIN No: 8190-78-Various
Location: Cardinal Ridge subdivision, located along the south side of
Cardinal Drive at Bevanwood Drive in the Montclair area of
Prince William County, Virginia.
Grantor: Cardinal Crest LC
Grantee: Richmond American Homes
Zoning: R-10; average lot size is 10,000 square feet
<TABLE>
<CAPTION>
SUMMARY OF TRANSACTIONS:
- -----------------------
DATE LOT NOS. REFERENCE CONSIDERATION
- ---- -------- --------- -------------
<S> <C> <C> <C>
4/97 42 2436/028 $61,411
3/97 52,62 2426/828 $122,822 or $61,411/lot
1/97 65 2411/069 $59,623
11/96 55 2389/859 $59,623
</TABLE>
Comments: These sales represent recent take-downs of finished single-
family detached lots in the Cardinal Ridge subdivision,
located just north of the subject along Cardinal Drive.
Cardinal Ridge offers no community amenity package.
Richmond American is currently offering housing product in
this subdivision which develops an average base price of
$202,990. This offering develops a finished lot cost to
housing price ratio of approximately 30.3%.
<PAGE>
COMPARABLE FINISHED SINGLE-FAMILY LOT SALE
COMPARABLE NUMBER 6
Tax Map: 17-14-000-various
Location: Brittany subdivision, located along the south side of Dumfries
Road (VA Route 234) off of Exeter Drive, Dumfries, Prince
William County, Virginia.
Grantor: Equity Resources, Inc.
Grantee: Winchester Homes, Inc.
Zoning: R-10; typical lot sizes range from 8,000 to 12,000 square feet
<TABLE>
<CAPTION>
SUMMARY OF TRANSACTIONS:
- -----------------------
DATE LOT NOS. REFERENCE CONSIDERATION
- ---- ------- --------- -------------
<S> <C> <C> <C>
4/97 82,99 2435/190 $130,000 or $65,000/lot
1/97 93-96 (4 lots) 2408/1706 $260,000 or $65,000/lot
</TABLE>
Comments: These sales represent recent take-downs of finished single-
family detached lots in the Brittany subdivision, located to
the south of the subject along Dumfries Road. Brittany offers
no community amenity package.
Winchester is currently offering single-family models in this
subdivision which develops an average base price of $220,736.
This offering develops a finished lot cost to housing price
ratio of approximately 29.4%.
<PAGE>
EXHIBITS
<PAGE>
EXHIBIT I
<PAGE>
[MAP OF SECTION S-7 (SOUTHLAKE AT MONTCLAIR) APPEARS HERE]
<PAGE>
[MAPS OF SECTION S-7 (SOUTHLAKE AT MONTCLAIR) APPEARS HERE]
<PAGE>
EXHIBIT II
<PAGE>
NBVALUATION GROUP, INC.
CERTIFIED GENERAL REAL ESTATE APPRAISERS AND VALUATION CONSULTANTS
- -----------------------------------------------------------------------------
May 7, 1997
Mr. Edwin L. Kelly
President
Interstate General Company
222 Smallwood Village Center
St. Charles, MD 20602
RE: 58 "ready for bonding" single-family building lots
89 "ready for bonding" back-to-back townhouse lots with utilities and
access to the boundary Montclair PUD, Prince William County, Virginia
Dear Mr. Kelly:
The following is provided to serve as a proposal for this office to perform
appraisal services relative to the above referenced properties. It is my
understanding that an appraisal report will be required for the single-
family site and for the townhouse site which will provide an estimate of
the Market Value - As Is of the property. These will be self-contained
narrative appraisal reports be prepared in accordance with the Uniform
Standards of Professional Appraisal Practice as promulgated by the
Appraisal Standards Board of the Appraisal Foundation. It is further my
understanding that these appraisal reports will be used in connection with
a corporate restructure.
Our fee for the assignments will be in the amount of $2,500 per report or
$5,000 in total. It is noted that this fee quote represents a reduction of
$500 from the fee which would typically be quoted for a single assignment,
based upon the similarity in the demographic sections of these reports.
Fifty percent of the fee will be required as a retainer at the time of
engagement. The completed reports can be delivered by Monday, June 2,1997.
A brief letter outlining our preliminary conclusions can be made available
to you during the week of May 19th for your advance review.
In the event that this proposal is acceptable to you, please execute and
return a copy of this letter along with a check for the retainer in the
amount of $2,500. In order to proceed with the assignment, we will need
copies of the record plat/site plan (as applicable), along with land
development completion cost estimates and any other information deemed
pertinent to the property.
Please feel free to contact me if you have any questions or comments with
regard to the above. We look forward to the opportunity of working with you
on these assignments.
Sincerely,
/s/ Susan M. Browning
Susan M. Browning
Accepted and Agreed
By: /s/ Edwin L. Kelly
------------------
Date: 5-8-97
------------------
7979 Old Georgetown Road * Suite 705 * Bethesda, Maryland 20814
Phone (301) 654-1719 Facsimile (301) 654-2550
<PAGE>
EXHIBIT III
<PAGE>
[MAP OF PRINCE WILLIAM COUNTY UNINCORPORATED AREA (FLOOD HAZARD MAP) APPEARS
HERE]
<PAGE>
EXHIBIT IV
<PAGE>
March 21, 1997
MONTCLAIR PRELIMINARY ESTIMATE 25 LOTS
<TABLE>
<CAPTION>
DESCRIPTION UNITS UNIT PRICE SUBTOTAL TOTAL PER LOT
================================================================================
<S> <C> <C> <C> <C> <C>
530 FEASIBILITY
ENVIRONMENTAL STUDY 1 Is $1,500.00 $ 1,500.00
SOILS STUDY 1 Is $3,600.00 $ 3,600.00
TOTAL $5,100.00 $ 204.00
- --------------------------------------------------------------------------------
531 PLANNING/ENGINEERING 25 $ 100.00 $ 2,500.00 $2,500.00 $ 100.00
- --------------------------------------------------------------------------------
532 PROFFERS
COMMUNITY PARKING 25 Is $ 94.34 $ 2,358.50
SCHOOLS 25 Is $1,270.00 $31,750.00
FIRE & RESCUE 25 Is $ 47.17 $ 1,179.25
LIBRARIES 25 Is $ 5.00 $ 125.00
$35,412.75 $1,416.51
- --------------------------------------------------------------------------------
533 CLEARING
REMOVE TREES 3 ac $5,500.00 $16,500.00
REMOVE TRASH 1 Is $1,000.00 $ 1,000.00
TOTAL $17,500.00 $ 700.00
- --------------------------------------------------------------------------------
534 GRADING
CUT TO FILL (ONSITE) 7500 cy $ 2.25 $16,875.00
ROUGH GRADING 14400 cy $ 0.30 $ 4,320.00
EXCAVATE/HAUL OFF POOR M 0 cy $ 8.00 $ 0.00
HAUL IN NEW MATERIAL 0 cy $ 8.00 $ 0.00
HAUL OFF TOPSOIL 0 cy $ 8.00 $ 0.00
10% CONTINGENCY $ 2,119.50
TOTAL $23,314.50 $ 932.58
- --------------------------------------------------------------------------------
535 SILT CONTROLS
INLET PROTECTION 4 ea $ 125.00 $ 500.00
MAINTENANCE 25 ea $ 125.00 $ 3,125.00
CONST. ENTRANCE 1 ea $2,000.00 $ 2,000.00
SILT FENCE 1720 If $ 1.75 $ 3,010.00
SILT TRAP 2 ea $2,100.00 $ 4,200.00
SEEDING 15730 sy $ 0.25 $ 3,932.50
TREE FENCE 1800 If $ 1.75 $ 3,150.00
TOTAL $19,917.50 $ 796.70
</TABLE>
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
536 SANITARY SEWER
TIE INTO EXISTING 1 ea $ 750.00 $ 750.00
8" SCH. 35 1152 If $ 18.00 $20,736.00
8" D.I.P. 211 If $ 22.00 $ 4,642.00
STANDARD MANHOLES 11 ea $1,723.00 $18,953.00
CAPS 25 ea $ 30.00 $ 750.00
SWEEPS 25 ea $ 30.00 $ 750.00
LATERALS 25 ea $ 794.00 $19,850.00
10% CONTINGENCY $ 6,643.10
TOTAL $ 73,074.10 $2,922.96
- --------------------------------------------------------------------------------
537 STORM SEWER
15" RCP 279 If $ 18.10 $ 5,049.90
18" RCP 45 If $ 20.50 $ 922.50
21" RCP 0 If $ 24.00 $ 0.00
24" RCP 0 If $ 28.10 $ 0.00
ES 1 ea $ 359.00 $ 359.00
MH-2 0 ea $1,615.00 $ 0.00
INLETS 4 ea $3,460.00 $13,840.00
RIP RAP 35 sy $ 38.00 $ 1,330.00
10% CONTINGENCY $ 2,150.14
TOTAL $ 23,651.54 $ 946.06
- --------------------------------------------------------------------------------
539 WATER SYSTEMS
CONNECT TO EX. 1 ea $ 375.00 $ 375.00
4" DIP 0 If $ 13.50 $ 0.00
8" DIP 870 If $ 18.10 $15,747.00
8" G.V. 2 ea $ 850.00 $ 1,700.00
8" BENDS 3 ea $ 220.00 $ 660.00
BLOW OFF ASSEMBLY 2 ea $ 520.00 $ 1,040.00
FIRE HYDRANT ASSEMBLY 2 ea $2,460.00 $ 4,920.00
10% CONTINGENCY $ 2,444.20
TOTAL $ 26,886.20 $1 075.45
- --------------------------------------------------------------------------------
541 UTILITIES
NOVEC FEES 1 Is $6,000.00 $ 6,000.00
$ 6,000.00
- --------------------------------------------------------------------------------
542 SOILS TESTING 25 ea $ 700.00 $17,500.00 $ 17,500.00 $ 700.00
- --------------------------------------------------------------------------------
543 SURVEYING
STAKEOUT 25 ea $ 600.00 $15,000.00
FINAL PAVEMENT DESIGN 1 ea $ 500.00 $ 500.00
MISC. 25 ea $ 200.00 $ 5,000.00
TOTAL $ 20,500.00 $ 820.00
- --------------------------------------------------------------------------------
544 COUNTY FEES 25 ea $ 900.00 $22,500.00 $ 22,500.00 $ 900.00
</TABLE>
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
545 CONCRETE
C.G.-6 1560 If $ 9.75 $15,210.00
4' SIDEWALK 3120 sf $ 2.30 $ 7,176.00
DRIVE ENTRANCES 21 ea $ 450.00 $ 9,450.00
HANDICAP RAMPS 2 ea $ 450.00 $ 900.00
10% CONTINGENCY $ 3,273.60
TOTAL $ 36,009.60 $ 1,440.38
- --------------------------------------------------------------------------------
547 STREET PAVING
21-A 6" DEPTH 2745 sy $ 5.50 $15,097.50
LOW CBR CONTINGENCY 1 Is $ 2,000.00 $ 2,000.00
PRIME COAT 2745 sy $ 0.56 $ 1,537.20
SM-2 (2" DEPTH) 2745 sy $ 6.00 $16,470.00
SM-2 (TOPPING) 2745 sy $ 4.00 $10,980.00
TOTAL $ 46,084.70 $ 1,843.39
- --------------------------------------------------------------------------------
548 STREET SIGNS
STOP SIGNS 1 ea $ 150.00 $ 150.00
STREET SIGNS 1 ea $ 300.00 $ 300.00
SIGNS TOTAL $ 450.00 $ 18.00
- --------------------------------------------------------------------------------
549 LANDSCAPING
LARGE DECIDUOUS TREES 4 ea $ 200.00 $ 800.00
SMALL DECIDUOUS TREES 174 ea $ 100.00 $17,400.00
LARGE EVERGREENS 0 ea $ 90.00 $ 0.00
SMALL EVERGREENS 91 ea $ 60.00 $ 5,460.00
SHRUBS 0 ea $ 35.00 $ 0.00
SEEDING 1500 sy $ 2.50 $ 3,750.00
TOTAL LANDSCAPING $ 27,410.00 $ 1,096.40
- --------------------------------------------------------------------------------
550 AMENITIES
ENTRY FEATURE 1 Is $10,000.00 $10,000.00
TOTAL $ 10,000.00 $ 400.00
- --------------------------------------------------------------------------------
551 BOND RELEASE PREPARATION 25 ea $ 0.00 $ 0.00 $ 0.00 $ 0.00
- --------------------------------------------------------------------------------
552 MISCELLANEOUS 25 ea $ 150.00 $ 3,750.00 $ 3,750.00 $ 150.00
- --------------------------------------------------------------------------------
553 L.D. LABOR 25 ea $ 200.00 $ 5,000.00 $ 5,000.00 $ 200.00
- --------------------------------------------------------------------------------
554 BOND FEES $ 6,338.41 $ 6,338.41 $ 253.54
- --------------------------------------------------------------------------------
================================================================================
TOTAL $428,899.30 $17,155.97
================================================================================
</TABLE>
<PAGE>
SUMMARY
<TABLE>
<CAPTION>
TOTAL PER LOT
===============================================================================
<S> <C> <C>
===============================================================================
530 FEASIBILITY $ 5,100.00 $ 204.00
- -------------------------------------------------------------------------------
531 PLANNING/ENGINEERING $ 2,800.00 $ 112.00
- -------------------------------------------------------------------------------
532 PROFFERS $ 35,412.75 $ 1,416.51
- -------------------------------------------------------------------------------
533 CLEARING $ 17,500.00 $ 700.00
- -------------------------------------------------------------------------------
534 GRADING $ 23,314.50 $ 932.58
- -------------------------------------------------------------------------------
535 SILT CONTROLS $ 19,917.50 $ 796.70
- -------------------------------------------------------------------------------
536 SANITARY SEWER $ 73,074.10 $ 2,922.96
- -------------------------------------------------------------------------------
537 STORM SEWER $ 23,651.54 $ 946.06
- -------------------------------------------------------------------------------
539 WATER SYSTEMS $ 26,886.20 $ 1,075.45
- -------------------------------------------------------------------------------
541 UTILITIES $ 6,000.00 $ 240.00
- -------------------------------------------------------------------------------
542 SOILS TESTING $ 17,500.00 $ 700.00
- -------------------------------------------------------------------------------
543 SURVEYING $ 20,500.00 $ 820.00
- -------------------------------------------------------------------------------
544 FEES $ 22,500.00 $ 900.00
- -------------------------------------------------------------------------------
545 CONCRETE $ 36,009.60 $ 1,440.38
- -------------------------------------------------------------------------------
547 STREET PAVING $ 46,084.70 $ 1,843.39
- -------------------------------------------------------------------------------
548 STREET SIGNS $ 450.00 $ 18.00
- -------------------------------------------------------------------------------
549 LANDSCAPING $ 27,410.00 $ 1,096.40
- -------------------------------------------------------------------------------
550 AMENITIES $ 10,000.00 $ 400.00
- -------------------------------------------------------------------------------
551 BOND RELEASE PREP. $ 0.00 $ 0.00
- -------------------------------------------------------------------------------
552 MISCELLANEOUS $ 3,750.00 $ 150.00
- -------------------------------------------------------------------------------
553 L.D. LABOR $ 5,000.00 $ 200.00
- -------------------------------------------------------------------------------
554 BOND FEES $ 6,342.91 $ 253.72
- -------------------------------------------------------------------------------
===============================================================================
TOTAL $429,203.80 $17,168.15
===============================================================================
</TABLE>
<PAGE>
EXHIBIT V
<PAGE>
INTERNAL RATE OF RETURN ANALYSIS
Southlakes @ Montclair
Cumulative Total Gross Sell-out: $ 2,544,000
53 lots @ $ 48,000
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Number: One Two Three
Quarter Number: 1 2 3 4 6 6 7 8 9
Beginning Month: 1 4 7 10 13 16 19 22 26
Ending Month: 3 6 9 12 16 18 21 24 27
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales/Qtr.: 0 0 5 5 5 5 5 5 5
Cumulative Sold: 0 0 5 10 15 20 25 30 35
Price Escalation 4.0%
Sale Price/Lot $ 48,000 $ 48,000 $ 48,000 $ 48,480 $ 48,985 $ 49,454 $ 49,949 $ 50,448 $ 50,953
Proceeds of Sale/Qtr. $ 0 $ 0 $240,000 $242,400 $244,824 $247,272 $249,745 $252,242 $254,765
Less Deductions
- ---------------
Development Costs $119,250 $119,250 $119,250 $119,250 $119,250 $119,250 $119,250 $119,250 $ 0
Sales & Admin Expenses 4.0% $ 0 $ 0 $ 9,600 $ 9,696 $ 9,793 $ 9,891 $ 9,990 $ 10,090 $ 10,191
Taxes $ 10,600 $ 0 $ 9,600 $ 0 $ 7,600 $ 0 $ 5,600 $ 3,600
Profit 0.0% $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Total Deductions $129,850 $119,250 $138,450 $128,946 $136,643 $129,141 $134,840 $129,340 $ 13,791
Sub-Total Cash Flow/Qtr ($954,000) ($129,850)($119,250) $101,550 $113,454 $108,181 $118,131 $114,905 $122,903 $240,974
Internal Rate of Return 20.27%
<CAPTION>
- ----------------------------------------------------------------------------------------
Year Number: Four
Quarter Number: 10 11 12 13
Beginning Month: 28 31 34 37
Ending Month: 30 33 35 39
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales/Qtr.: 5 5 5 3
Cumulative Sold 40 45 50 53
Price Escalation
Sale Price/Lot $ 51,462 $ 51,977 $ 52,497 $ 53,022
------------------------
Cumulative Per Lot
Proceeds of Sale/Qtr. $257,312 $259,886 $262,484 $159,066 $2,669,997 $ 50,377
Less Deductions
- ---------------
Development Costs $ 0 $ 0 $ 0 $ 0 $ 954,000 $ 18,000
Sales & Admin Expenses $ 10,191 $ 10,395 $ 10,499 $ 5,363 $ 106,800 $ 2,015
Taxes $ 3,600 $ 1,600 $ 0 $ 38,600 $ 728
Profit $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
- - - - - -
Total Deductions $ 10,292 $ 11,995 $ 10,499 $ 6,363 $1,099,400 $ 20,743
Sub-Total Cash Flow/Qtr $247,020 $247,890 $251,985 $152,703 $1,570,597 $ 29,634
------------------------
Internal Rate of Return
</TABLE>
<PAGE>
EXHIBIT VI
<PAGE>
[TAX IDENTIFICATION MAP APPEARS HERE]
<PAGE>
EXHIBIT VII
<PAGE>
[PRINCE WILLIAM COUNTY LOCATIONAL MAPS APPEARS HERE]
<PAGE>
[PRINCE WILLIAM COUNTY LOCATIONAL MAPS APPEARS HERE]
<PAGE>
EXHIBIT 99.9
A P P R A I S A L R E P O R T
OF
PROPOSED
51 SINGLE FAMILY LOTS
PHASE II SECTION II, WESTBURY SUBDIVISION
N/S PEGG ROAD & WESTBURY BOULEVARD WEST
TAX MAP 51 PARCEL 147 GRID 2
LEXINGTON PARK, MARYLAND 20653
PREPARED FOR:
-------------
FIRST NATIONAL BANK OF ST. MARY'S
MR. LEONARD GRAY
P.O. BOX 655
LEONARDTOWN, MARYLAND 20650
AS OF:
------
MAY 20, 1997
BY:
---
BRICK HOUSE REALTY, INC.
BRICK HOUSE APPRAISALS
P.O. BOX 760
LEONARDTOWN, MARYLAND 20650
JOHN W. QUADE, JR. JOHN R. FOWLER, CCIM, IFAS
MARYLAND CERTIFIED MARYLAND CERTIFIED
GENERAL APPRAISER GENERAL APPRAISER
LICENSE NO. 04-6534 LICENSE NO. 04-2955
FILE # 97-0062
COMPLETE SELF-CONTAINED REPORT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary of Salient Facts and Conclusions............................. 1
Letter of Transmittal................................................ 2-3
Assumptions and Limiting Conditions.................................. 4-6
Certification........................................................ 7
Section 1 - Assignment
Identification & Scope of Assignment................................. 8
Purpose of the Appraisal............................................. 9
Property Rights & Definitions........................................ 10
Function of the Appraisal & Appraisal Problem........................ 11
Section 2 - Property Analysis
Regional Data........................................................ 12
St. Mary's County Data............................................... 13-16
Neighborhood Data.................................................... 17-20
Feasability Analysis................................................. 21-25
Tax Data............................................................. 26
Property Transfers, Environmental Issues & Covenants and
Restrictions........................................................ 27
Zoning & Forest Conservation Act..................................... 28
Financing & Utilities................................................ 29
Property Description................................................. 30
Highest and Best Use................................................. 31-32
Proposed Improvements................................................ 33-34
Section 3 - Valuation
Valuation............................................................ 35-36
St. Mary's County, 8th Election District, Lot Sales.................. 37-47
Valuation of Subject Property as "Finished Lots"..................... 48-53
Land Adjustment Grid................................................. 54
Westbury Subdivision 51 Single Family Lots........................... 55-56
Cost Approach/Land Development Schedule.............................. 57
Land Development Budget.............................................. 58
Value of Unimproved Single Family Lots............................... 59
Project Analysis..................................................... 60
Investment Value..................................................... 61
Discount Rate........................................................ 62-63
Reasonable Exposure Time............................................. 64
Sources of Support................................................... 65
Correlation and Conclusion........................................... 66-67
</TABLE>
<PAGE>
Appendix
<TABLE>
<S> <C>
Qualifications of the Appraisers....................................... 68-77
Photographs of the Subject.............................................
General Project Site Map...............................................
Plat of the Subject Property...........................................
Regional Map...........................................................
Neighborhood Map.......................................................
Tax Map................................................................
Zoning Map.............................................................
Flood Map..............................................................
Schedule of Annual Fees................................................
Deed...................................................................
PUD-R Lot Schedule and Yard Requirements...............................
</TABLE>
<PAGE>
SUMMARY OF SALIENT FEATURES
SUBJECT ADDRESS: N/S Pegg Road & Westbury Boulevard West
Lexington Park, Maryland 20653
OWNER OF RECORD: Interstate General Company L.P.
222 Smallwood Village Center
St. Charles, Maryland 20602
CLIENT: First National Bank of St. Mary's
LEGAL DESCRIPTION: MRB 382, Folio 79
MRB 917, Folio 54 (Community Association)
MRB Plat Book 036, Folio 48
CITY/COUNTY/STATE: Lexington Park/St. Mary's/Maryland
MAP REFERENCE: Tax Map 51, Parcel 147, Grid 2
CENSUS TRACT: 24-037-9959
FEMA FLOOD MAP: 240064 0018 B, Zone C, February 19, 1987
SITE SIZE: 26.992 Acres, 51 proposed single-family
building lots.
IMPROVEMENTS: Proposed electric, water and sewer to
site
HIGHEST AND BEST USE: Continued development as Single Family
Lots
ZONING: PUD-R 4.5 (Planned Unit Development-
Residential)
APPRAISER: John W. Quade, Jr.
DATE OF APPRAISED VALUE: May 20, 1997
TYPE OF REPORT: Complete Self-Contained
1
<PAGE>
May 30, 1997
Mr. Leonard Gray
First National Bank of St. Mary's
P.O. Box 655
Leonardtown, Maryland 20650
RE: (Westbury)
Phase II Section II
Proposed 51 Single Family Lots
N/S Pegg Road & Westbury Boulevard West
Lexington Park, Maryland
File No.97-0062
Dear Mr. Gray,
In response to your request to prepare an appraisal of the above reference
property, this appraiser has personally made an inspection of the subject
property. This inspection was made for the purpose of estimating the prospective
market value, as defined in this report, of the fee simple interest in the
property as of May 20, 1997.
The site consists of 26.992 acres or 51 paper plotted and unrecorded sub-
divided lots as of the date of inspection. The lots range in size from 6,048 sf
to 8,937 sf. The property conforms to the existing county zoning regulations.
The property was appraised according to information supplied by the owner,
County Records and the engineering firm of N G & O, Engineering, Inc. of
Leonardtown, Maryland for a proposed 51 lot subdivision as per plans and
specifications attached and made a part of this report. An inspection of the
property and the proposed lots was made on May 20, 1997.
Due to the fact that this appraisal was compiled without a record plat,
this report is contingent upon the receipt by the client of a record plat.
Should there by any disparity, which may affect the value reported, this report
becomes null and void and of no further use. This report is based on the premise
that there are no major changes in the market area or in the economy during the
development and sell out period.
The accompanying report and exhibits describe the approaches to value and
the conclusions derived by application of these approaches. Please note the
assumptions and limiting conditions. My associate John R. Fowler, a Certified
General Appraiser, has prepared, with me, the discounted cash flow analysis
spreadsheets.
Based upon my investigation and analysis gathered with respect to this
assignment, I have formed the opinion in that the prospective market value, as
defined in the accompanying report, of the fee simple interest, in the subject
property was, as of May 20, 1997:
2
<PAGE>
Value of the Subject Property "As Is" "Raw Land"
$ 250,000.00
Prospective Value of the Subject Property Platted
$ 678,000.00
Prospective "Gross Retail" Value of Subject Property Phase II,
Section II, 51 Lots
(Not Discounted)
$ 1,632,000.00
Prospective Present Value of these Cash Flows at 13% (Discount Rate)
of the "Finished Lots"
$ 348,813.00
Respectfully submitted,
/s/ John W. Quade, Jr. /s/ John R. Fowler
John W. Quade, Jr. John R. Fowler, CCIM, IFAS
Maryland Certified Maryland Certified
General Appraiser General Appraiser
License No. 04-6534 License No. 04-2955
3
<PAGE>
ASSUMPTIONS AND LIMITING CONDITIONS
1. This appraisal represents the best opinion of the evaluator as to market
value of the property as of the appraisal date. The term "market value" is
defined in the appraisal report.
2. The appraiser has no present or future contemplated interest in the
property appraised, and no bias with respect to the subject matter of the
report or to the client or other participants or principals.
3. No furniture, furnishing, or equipment, unless specifically indicated
herein, have been included in our value conclusion.
4. This appraisal has been made in conformity with the rules of the
professional ethics of The Uniform Standards of Professional Practice.
5. The appraiser herein certifies that, to the best of his knowledge and
belief, statements contained in this appraisal, and upon which the opinions
expressed herein are based, are correct, subject to the limiting conditions
set forth herein.
6. No survey of the property was made or caused to be made by the appraiser.
It is assumed the legal description closely delineates the property, and
was checked with tax records for accuracy. Drawings in this report are to
assist the reader in visualizing the property and are only an approximation
of ground or building plans.
7. No engineering survey was made or caused to be made by the appraiser.
8. No test boring or typing and analysis of sub-soils were made or caused to
be made by the appraiser. Soil of the parcel under appraisement appears to
be firm and solid, typical of the area, and subsidence in the area is
unknown or uncommon. The appraiser, however, cannot warrant against such
condition or occurrence.
9. Sub-surface rights (mineral, oil, or water) were not considered in this
report.
10. Any tracts that, according to survey map, or plat, indicate riparian and/or
littoral rights, are assumed to go with the property unless easements or
deeds are found by the appraiser to the contrary.
11. Description and condition of physical improvements, described herein, are
based on visual observation. As no engineering tests were conducted, no
liability can be assumed for soundness of structural members.
4
<PAGE>
12. The appraiser has inspected the improvements described in the report and
any reference as to termites, dry rot, wet rot, or other infestation was
reported as a matter of information by the appraiser; and existence or
amount of damage noted, if any, is not guaranteed and the appraiser
expressly disclaims any responsibility relating thereto.
13. All value estimates have been made based on zoning regulations and land use
plans in effect as of the date of appraisal and based on information
provided by governmental authorities and employees.
14. This appraisal report covers only the premises herein, and no figures
provided, analysis thereof, or any unit values derived therefrom are to be
construed as applicable to any other property, however similar they may be.
15. Distribution of the total valuation in this report between land and
improvements applies only under the existing program of utilization.
Separate valuations of land and improvements must not be used in any other
manner, nor in conjunction with any other appraisal, and are invalid if so
used.
16. Certain data used in compiling this report was furnished by the client, his
counsel, employees, and/or agent, or from other sources believed reliable.
Data has been checked for accuracy as possible, but no liability or
responsibility may be assumed for complete accuracy.
17. A diligent effort was made to verify each comparable sale noted in the
report. However, as many principals reside out of the area, or are entities
for which no agent could be contacted within the time allowed for
completion of this report, certain sales may not have been verified.
18. No responsibilities are assumed for matters legal in nature, nor are any
opinions rendered herein as to title, which is assumed free and clear of
all liens or encumbrances, unless specifically enumerated herein, and under
responsible ownership and management as of the appraisal date.
19. Employment in and compensation for making this appraisal are in no manner
contingent upon the value reported, nor upon the finding of any
predetermined or specified value or condition.
20. Consideration for preparation of this appraisal is payment in full by the
employer of all charges due to the appraiser in connection therewith. Any
responsibility by the appraiser for any part of this report is conditioned
upon full and timely payment.
21. The appraiser, by the reason of this report, is not required to give
testimony in court with reference to the property herein, nor obligated to
appear before any governmental body, board, or agent, unless arrangements
have been previously made therefore.
5
<PAGE>
22. Neither all nor any portion of the contents of this appraisal shall be
conveyed to the public through advertising, public relations, news, sales,
or other media without the written consent and approval of the appraiser,
particularly as to valuation conclusion, identity of the appraiser or firms
with which he is connected. Furthermore, neither all nor any portion of the
contents of this appraisal shall be used in connection with any offer, sale
or purchase of a security (as that term is defined in Section 2(1) of the
Securities Act of 1933) without the prior express written consent of the
appraiser.
23. Possession of this report or copy thereof does not convey any right of
reproduction or publication, nor may it be used by any but the client. It
may not be used by the mortgagee, or its successors or assigns, mortgage
insurers, or any state or federal department or agency without the prior
written consent of both the client and the appraiser, and in any event,
only in its entirety.
24. The final estimate of value of the subject property is based on the
property "as is" with no percolation tests being made by qualified
engineers.
25. Unless otherwise stated in this report, the existence of hazardous
materials, insects, adverse conditions as a result of petroleum products
storage or use, or hazardous gases, which may or may not be present on the
property, was not observed. The appraiser is not qualified or was not
retained to detect such substances as: i.e., asbestos, urea-formaldehyde
foam insulation or other potentially hazardous materials which may affect
the value of the subject property.
The value estimate is predicated on the assumption there is no such
substances or insects on, or in, the subject property that would cause a
loss of value and no responsibility is assumed for any such conditions, or
for any controversy arising concerning the same. The client is advised to
retain a qualified expert, if desired, in these fields.
26. The prospective market value in fee simple title indicated in this report
is as of May 20,1997.
27. The date this report was prepared on May 30, 1997.
6
<PAGE>
CERTIFICATION
We certify that, to the best of our knowledge and belief, that...
- - The statements of fact contained in this report are true and correct.
The appraisers have not knowingly withheld any pertinent information.
- - The reported analyses, opinion and conclusions are limited only by the
reported assumptions and limiting conditions, and are our personal, unbiased
professional analyses, opinions and conclusions.
- - We have no present or prospective interest in the property that is the
subject of this report, and we have no personal interest or bias with respect to
the parties involved.
- - Our compensation is not contingent upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the amount of
the value estimate, the attainment of a stipulated result, or the occurrence of
a subsequent event.
- - Our analyses, opinions, and conclusions were developed, and this report has
been prepared, in conformity with the requirements of the Code of Professional
Practice of the National Association of Realtors Appraisal Section, and the
Uniform Standards of Professional Appraisal Practice.
- - We, John W. Quade, Jr., and John R. Fowler, have made a personal inspection
of the property that is the subject of this report.
- - No one provided significant professional assistance to the persons signing
this report.
- - The "Estimate of Market Value" in the appraisal report is not based in
whole or in part upon race, color, or national origin of the prospective owners
or occupants of the property appraised or of the properties in the vicinity of
the property appraised.
- - All contingent and limiting conditions are contained herein (imposed by the
terms of the assignment or by the undersigned affecting the analyses, opinions,
and conclusions contained in this report).
- - All conclusions and opinions concerning the real estate that are set forth
in the report were prepared by the appraisers whose signatures appear on the
appraisal report. No change of any item in the report shall be made by anyone
other than the appraisers, and the appraisers shall have no responsibility for
any unauthorized change.
- - This appraisal assignment was not based on a requested minimum valuation, a
specific valuation, or the approval of a loan.
/s/ John W. Quade, Jr, /s/ John R. Fowler, CCIM, IFAS
John W. Quade, Jr. John R. Fowler, CCIM, IFAS
Maryland Certified Maryland Certified
General Appraiser General Appraiser
License No. 04-6534 License No. 04-2955
7
<PAGE>
IDENTIFICATION
--------------
The subject property is known as "Westbury, Phase II Section II" (formerly
Tosca) off the north side of Pegg Road and Westbury Boulevard West, Lexington
Park, St. Mary's County, Maryland.
The subject is a proposed subdivision of 51 single family lots. The
subject site is located in the 8th Election District off of Pegg Road and
Westbury Boulevard West. The subject site with PUD-R (Planned Unit Development-
Residential) zoning consists of 26.992 acres, more or less, of vacant land. The
subject is identified by the Deed reference MRB 382 Folio 79; and also at Plat
Book (unrecorded), the subject is located at Tax Map 51, Parcel 147, Grid 2.
Title to the property is in the name of Interstate General Company L.P.
SCOPE OF ASSIGNMENT (TO THE EXTENT OF DATA COLLECTED)
-----------------------------------------------------
The appraiser has been asked to estimate the Market Value of the subject
property. For the purposes of this appraisal, the appraiser visually inspected
the subject and comparable data.
Individuals from a variety of county agencies as well as the subject
property owners were consulted (in person or by phone). Various publications,
both governmental (i.e., zoning ordinance) and private (i.e., Multiple List
Services publications) were consulted and considered in the course of completing
this appraisal.
The scope of this appraisal is limited to the gathering, verification,
analysis and reporting of the available pertinent market data. All opinions are
unbiased and objective with regard to value. The appraiser has made a reasonable
effort to collect, screen and process the best available information relevant to
the valuation assignment and has not knowingly and/or intentionally withheld
pertinent data from comparative analysis. Due to data source limitations and
legal constraints (disclosure laws), however, the appraiser does not certify
that all data has been taken into consideration.
8
<PAGE>
PURPOSE OF THE APPRAISAL
------------------------
The purpose of the appraisal is to estimate the Prospective Market Value
of the fee simple interest of the land and improvements, which are to be located
off the north side of Pegg Road and Westbury Boulevard West, Phase II Section
II, the proposed 51 Single Family Lots, in Lexington Park, St. Mary's County,
Maryland, as of May 20, 1997. This value will be used by First National Bank of
St. Mary's, Leonardtown, Maryland to determine the collateral value for a
Federally Regulated Loan.
Market Value is defined as follows:
"The most probable price in terms of money 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 that
the price is not affected by undue stimulus.
Implicit in this definition is the consummation of sale as of a specified
date and the passing of title from seller to buyer under conditions whereby:
a. the buyer and seller are typically motivated;
b. both parties are well informed or well advised, and each acting
in what they consider their own best interest;
c. a reasonable time is allowed for exposure in the open market;
d. payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto;
e. and the price represents the normal consideration for the
property sold unaffected by special or creative financing or
sales concessions granted by anyone associated with the sale." 1
*1) For the purpose of this appraisal, I have chosen to comply with the
definition of Market Value as defined by the Federal Deposit Insurance
Corporation, Final Rule 12 CRF Part 323.4 (A) (9).
*2) Fee Simple is the absolute ownership unencumbered by any other
interest or estate subject only to limitations of eminent domain, escheat,
police power and taxation.
9
<PAGE>
PROPERTY RIGHTS
---------------
The property rights being appraised are fee simple, fee simple is
defined as:
The maximum possible estate one can possess
in real property. A fee simple estate is the
least limited interest and the most complete
and absolute ownership in land; it is of
indefinite duration, freely transferable, and
inheritable.
DEFINITIONS
-----------
RETAIL VALUE: The value assigned where lots are sold to ultimate owners or
builders on a volume bases; as distinguished from the sale of individual lots to
a single user.
INVESTMENT VALUE: The worth of investment property to a specific investor.
PRESENT VALUE (PV): The current value of a payment or series of future payments
found by discounting the expected payments by a desired rate of return or
discount rate in order to compensate for the time value of money.
DISCOUNTED CASH FLOW (DCF): In appraising, any method whereby an appraiser
prepares a cash flow forecast (including income from operations and
sales/resale) for the interests appraised, selects a discount rate that reflects
the return expected for the interest and uses the rate to calculate the present
value of each of the cash flows. The total present value of the cash becomes the
value estimate for that interest. Sometimes the cash flow forecast is based on
an assumed pattern of change, e.g., compound growth.
NET PRESENT VALUE (NPV): The discounted value of all future cash flows minus
the initial cash outlay. The net present value can also be defined as the
difference between the present value of all expected benefits, or positive cash
flows, and the present value of capital outlays, or negative cash flows.
GROSS RETAIL AND GROSS SELLOUT VALUES:
A terminology problem also involves the use of the terms retail value and gross
sellout value. These terms do not identify value estimates; they represent the
total gross receipts expected to be produced by the project. Value is a point in
time estimate, based in part on the theory that the value of any good or service
is the present value of the future benefits to be derived from its ownership.
Since arriving at a gross sellout value does not involve consideration of the
expenses of disposition or holding or the calculation of the present worth,
gross sellout value is not a value estimate. The use of any terminology which
refers to any value not taking into consideration the associated costs must be
used with extreme caution by knowledgeable users only.
10
<PAGE>
FUNCTION OF THE APPRAISAL
-------------------------
The function of the appraisal is to estimate the Prospective Market Value
of the fee simple interest of the land and improvements, which are to be located
off the north side of Pegg Road and Westbury Boulevard West, Phase II Section
II, the proposed 51 Single Family Lots, in Lexington Park, St. Mary's County,
Maryland, as of May 20, 1997. This value will be used by First National Bank of
St. Mary's, Leonardtown, Maryland to determine the collateral value for a
Federally Regulated Loan. This appraisal will be used to induce the lender to
advance a mortgage loan for property which the Borrower/Owner has offered to
pledge as security against default of repayment.
APPRAISAL PROBLEM
-----------------
The purpose of this appraisal is to provide in narrative form a report
detailing accepted appraisal processes, practices and traditional approaches to
value as of the date of valuation.
The problem encountered in the assignment was establishing raw land value,
finished lot value and discounted prospective value of the proposed 51 lot
subdivision to be located in "Westbury" Phase II Section II, Lexington Park, St.
Mary's County, Maryland. There were several sales located in the immediate
neighborhood used for comparison.
The property has been identified and inspected and the marketable property
rights analyzed. The purpose and function of this appraisal, the definition of
market value and limiting assumptions and conditions have been considered. The
general social, economic, governmental and environmental factors that affect
value have been researched, as well as specific data for the subject property
and comparable sales and listings as shown.
The Highest and Best Use of the property has been analyzed. The value of
the lots has been estimated by comparison with sales of other subdivisions with
similar attributes.
Finally, the discounted value of all the lots to a single purchaser,
assuming completion of the streets and amenities is considered. The cost to
complete these improvements have been deducted to the "As Is" value estimate.
In many cases, this appraiser had to make decisions based on experience,
market knowledge and the information supplied by others, whom this appraiser
regards as experts in these fields.
This appraiser determined there was enough data to make an intelligent,
objective and accurate estimate of value.
Any plans or reports referenced on the analyses which are not included in
the body of the report, or as an exhibit in the addenda, have been retained in
our files and are available upon request.
11
<PAGE>
[REGIONAL MAP APPEARS HERE]
<PAGE>
REGIONAL DATA
-------------
The subject property is located between the Great Mills and Lexington
Park areas of St. Mary's County, in southern Maryland. The state of Maryland is
in the center of the Boston-Atlanta corridor on the Atlantic seaboard. According
to the Maryland Department of Economic and Community Development, Maryland ranks
forty-second out of the fifty states in size and twentieth in population. Its
per capita income is the fifth highest in the country. Some 85% of Maryland's
4.36 million residents live in the Baltimore-Washington area, the nation's
fourth largest commercial market.
The state's diversified economy is rooted in high technology and
services, as well as revitalized manufacturing and international trade.
Maryland's transportation resources include the Port of Baltimore and three
major airports. Professional and technical workers constitute 20.4% of the
state's work force, which is the highest concentration in this employment sector
among the fifty states. The federal, state, and county governments are the
largest employers. However, some 91,400 businesses in Maryland employ about 1.4
million workers. Of these, 1,982 businesses have 100 or more workers. Major
private employers include Westinghouse, Bethlehem Steel, General Motors, Martin
Marietta, Maryland Cup, Marriott, IBM, and Automation Industries. Maryland has
three foreign trade zones and eleven state enterprise zones. Maryland is
uniquely situated and its residents enjoy economic as well as recreational
advantages provided by the Allegheny Mountains in Western Maryland, the
Chesapeake Bay and Atlantic Ocean beaches on the eastern shore, and the nation's
capital, Washington, D.C.
St. Mary's County is situated at the confluence of the Chesapeake Bay,
the Patuxent River, and the Potomac River. St. Mary's County is situated
approximately 180 miles south of Philadelphia, 280 miles south of New York City,
270 miles east of Pittsburgh, 50 miles south of Washington D.C., and 90 miles
south of Baltimore City. It is approximately 1.5 hours from Baltimore, and one
hour from Washington, D.C. by automobile.
St. Mary's County has a total land area of 367 miles and is bordered to
the north by the Patuxent River, to the east by the Chesapeake Bay, to the south
by the Potomac River, and to the west by Charles County. St. Mary's County is
bordered by three bodies of water: the Chesapeake Bay and two of its
tributaries, the Patuxent and the Potomac Rivers. The surrounding bodies of
water allow residents of St. Mary's County to enjoy boating and fishing
activities and contribute significantly to water related industries.
The southern Maryland area, which includes St. Mary's, Calvert, and
Charles Counties, is considered to be rural in character and has experienced low
density residential growth over the past fifteen to twenty years (due primarily
to the distance from metropolitan employment centers). However, due to local
industry growth and the expanding Washington, D.C. metropolitan areas, southern
Maryland has experienced increasing residential growth in the late 1980's and
early 1990's.
As long term projections indicate increased growth as a result of base
realignment, the long term prospects for St. Mary's County is considered
positive.
12
<PAGE>
ST. MARY'S COUNTY AREA DATA
---------------------------
St. Mary's County was established in 1637 and was the first Maryland
County. St. Mary's is bordered on the North and Northeast by the Patuxent River,
on the East by the Chesapeake Bay, on the South and Southwest by the Potomac
River and the St. Mary's River, and on the West by the Wicomico River and
Charles County.
St. Mary's contains approximately 367 square miles of land area and has
about 400 miles of waterways on four rivers and the Chesapeake Bay. It is
situated in the Atlantic Coastal Plain, and its elevation varies from sea level
to 170 feet above sea level. The County is predominantly rural in nature, and a
considerable amount of its land is wooded and undeveloped. The land in the lower
peninsula, south of Lexington Park, is considerably lower in elevation and is
more marshy, in general, than other areas of the County. Leonardtown, the County
Seat, and Lexington Park are the two largest towns in the County. The population
of St. Mary's is estimated at 75,974 which reflects a 26.8 percent increase in
population from 1980 to 1990. The 1996 population is estimated to be 80,900 with
St. Mary's County currently ranked eighth in growth rate throughout the state.
Neighboring Calvert and Charles Counties are ranked second and third making
Southern Maryland the fastest growing region in the state. The County seat of
government is located in Leonardtown, which is the only incorporated
municipality in the County. Leonardtown had a population of approximately 1,475
in 1990. The County's economy has been basically agricultural and commercial
fishing/crabbing/oystering. Although significant income is derived from these
activities, less than 10 percent of the County's workforce is engaged as a
principal occupation in agricultural production of water-related activities.
Substantial income is drawn from visitors to its waterfront areas in the summer
months. Tobacco is the principal money crop. Currently, the County is undergoing
dynamic economic growth and, in particular, is attracting an increasing number
of high technology industries, brought to the County both by quality of life
available and the Patuxent Naval Air Warfare Center Aircraft Division and the
Naval Electronics Systems Engineering Activity. The Air Station, among other
things, is one of the United States Navy's principal testing facilities for new
aircraft and other sophisticated equipment. The Patuxent Naval Air Warfare
Center Aircraft Division at Lexington Park is by far the largest single employer
in the County. In recent years, a few assembly-type industrial operations have
been established. There appears to be an ample labor force, and it is estimated
that about 18 percent of the force is employed outside of the County.
St. Mary's County is divided into nine Election Districts and is governed
by a Board of Commissioners, each elected for a four year term (five members).
Zoning is controlled by the Board and is supervised by an appointed zoning
administrator.
Leonardtown, in the Third Election District, is the seat of the St.
Mary's County Government. In December 1994, the commissioners adopted a new
zoning ordinance to implement the new Comprehensive Plan, a 20-year growth
management plan for the county. They also imposed a $2,000 impact fee on new
finished dwellings.
The land-use plan is designed to steer growth and development in the
county and to preserve its natural resources and rural agricultural traditions.
13
<PAGE>
The county is divided into seven different land use districts, which are
summarized below.
(1) The areas planned to contain the most intensive development are
designated Development Districts. The Plan state: "Directing growth to these
areas will prevent the outward sprawl of development, thus keeping the new
population close to where utilities, community facilities and services, and
employment already exist and can be economically expanded to meet growing needs.
Impacts on the highway system will be minimized as new residents locate near to
the jobs and services they require."* The Development Districts will be confined
to Lexington Park and Leonardtown. Each of these communities "...either has in
place or provides opportunity to put in place the roads, sewer and water
facilities, and other services required by new development."*
(2) Planned for slightly less intensive development are the Town Centers
"...intended to be secondary growth areas to be provided with community
facilities as needs evolve...". The primary town centers will be the three
communities of Charlotte Hall, New Market, and Mechanicsville, at the north end
of the Route 235 corridor. The Plan states: "The Fifth District communities
appear to be well on their way to blending into a single system of residential
clusters and light industrial centers extending off a core of commercial
development on either side of the highway."** The other two Town Centers are
Hollywood, which may blend in with Lexington Park Development District, and
Piney Point, on the Potomac River south of Leonardtown and Lexington Park.
The Comprehensive Plan prohibits major new commercial or industrial activity
outside of these two districts.
(3) The third use district is the Village Center. This category contains
eight older traditional crossroad communities, each with a post office, a
grocery store or stores, and most with one or more churches, firehalls, taverns
or gas stations. Marginal expansion of these centers will be allowed, with care
taken to preserve the historic and/or rural character of the community.
(4) Neighborhood Conservation Districts regulations are designed to cover
older established subdivision and to maintain the existing development patterns
unique to these communities. Development in these districts will be limited, for
the most part, to existing platted lots.
(5) The states purpose of the Rural Preservation Districts are "...to provide
for a full range of agricultural and farming activities and to protect these
established uses from encroaching development which might depreciate the
county's agricultural economy...Agricultural land refers not only to tilled
fields, but to woodlands which are either prospects for additional tilled
acreage or are valuable as they are for their ...contributions to the
environment and to the rural appearance of the county.* Agriculturally related
industries and cottage industries are also recognized as important aspects of
the rural communities. Limited low-density housing will be allowed in the area.
- --------------------------------------------------------------------------------
* St. Mary's Comprehensive Plan, October 25, 1988, pages 6-7
**Ibid., page 7
14
<PAGE>
(6) Subsidiary to the Rural Preservation District, is the Agricultural
District, designed for farmers who prefer additional protection for their land
and lifestyle. Participation is voluntary, but once a property is so designated
the restrictions are binding for five years, and subject to termination with one
year's notice. Building density is limited to one dwelling per 20 acres. Upon
entering the program, development rights are transferable to Development
District, Town Centers, or Village Centers..." at a rate of one dwelling unit
per five acres. Once these rights have been sold, the option to discontinue
participation in the voluntary district must be restricted by a requirement to
buy back development rights or reduce development potential by the amount of
rights sold."*
The Chesapeake Bay Critical Area District is designed to conform to the
Chesapeake Bay Critical Area Law passed by the Maryland General Assembly in
1984. This district covers all areas of the county which in some way impact the
Bay, and places severe development restriction on wetlands and waterfront areas.
Each county is required to prepare and adopt its own Critical Area Plan.
(7) The Historic Preservation District is designed for the preservation and
restoration of St. Mary's City and 150 other designated historic sites in the
county.
Recreation
- ----------
St. Mary's County has two state parks: Point Lookout, in Scotland,
Maryland, the site of a Civil War prisoner of war camp, which today has two free
fishing areas available 24 hours a day, camping and a nature museum situated on
580 acres at the confluence of the Chesapeake Bay and Potomac River; and St.
Mary's River State Park, located between Lexington Park and Leonardtown. This is
one of the newest state parks and is still being developed. Site 1 is already
open and consists of a 250-acre lake which has been designated a trophy bass
lake and special fishing regulations may be in effect; Site 2 covers
approximately 2,200 acres and is primarily undeveloped. This section of the park
is a managed hunting area.
The county has an active recreational department which provides a
multitude of programs throughout the year for county residents.
Other tourist attractions include St. Mary's City, the first settlement
in Maryland and the site of the original capital of Maryland. During summer
months outdoor theater re-enacts the history of this first settlement.
Two historic homes are found in St. Mary's County: Sotterly Plantation
and Tudor Hall as well as several historic churches. Other points of interest
include The Old Mill, Christmas County Store, the Farm Museum and Elm's
Environmental Center.
Yearly events attracting tourists include the Spring Open House in Great
Mills, The Planting Season in Historic St. Mary's City, the Governor's Cup Yacht
Race which starts in Annapolis and ends in Historic St. Mary's City, Air Expos,
at the Patuxent Naval Air Station, the Blessing of the Fleet at St. Clements
Island and St. Mary's County Fair and the St. Mary's County Oyster
Festival/National Oyster Shucking Contest.
15
<PAGE>
Real estate assessment is based upon 40 percent of Market Value, and
the tax rate is $2.11 per $100.00 of assessed value. Fire tax ranges from
.5 to .11 cents per district. Current State tax is .21 cents per $100.00 of
assessed value.
Public roads are rated as average to good, and freight transportation
to/from the County is by truck. Public and private schools are adequate to meet
the needs of the residents, with approximately 15,210 students with a per pupil
cost of $6,106.00 annually. In addition, St. Mary's County offers a two year
associates degree at St. Mary's Community College and a four year bachelor's
degree from St. Mary's College of Maryland. Medical service, police and fire
protection are typical for a growing rural/suburban community. Electricity and
telephone service are available to most parts of the county, and public water
and sewer service are available in various political sub-divisions of the
County, monitored by the St. Mary's County Metropolitan Commission.
Because of its peninsula-type configuration, which virtually rules out
any through traffic, combined with its outlying location, St. Mary's is
considered to be an average-growth area. The growth, which has occurred in
recent years, is attributable to the extensive waterfront recreational potential
which the area offers for retirement age persons. A new Thomas Johnson bridge
which connects St. Mary's and Calvert Counties has significantly reduced travel
time between the County and eastern and northern Maryland. It is believed that
growth in St. Mary's will continue to be average until such time as high-speed
transportation becomes available which will connect this area to metropolitan
Washington and/or Baltimore.
16
<PAGE>
[NEIGHBORHOOD MAP APPEARS HERE]
<PAGE>
NEIGHBORHOOD DATA
-----------------
The subject property is located approximately 2 miles southwest of the
Main Gate to Patuxent River Naval Warfare Center - Aircraft Division in
Lexington Park, Maryland. The property is located as part of Lexington Park's
business district along MD Route 246.
BOUNDARIES
The neighborhood boundaries can be defined as being very similar to the
general Lexington Park boundaries which are Maryland Route 4 to the north; the
Patuxent River and the Naval Warfare Center to the east; Maryland Route 5 to the
south; and, St. Andrew's Church Road to the west.
Within this neighborhood boundary are many of the major shopping and
employment centers within St. Mary's County. The area's primary commercial
districts extend to the north adjacent both side of Rout 235 to the area
proximate to the Wildewood Technology Park, the St. Mary's County Industrial
Park and the St. Mary's County Airport and to the west adjacent both sides of
Great Mills Road to its intersection with Maryland Route 5. These commercial
strips are populated with a variety of independent retail operations,
restaurants, fast food establishments, automobile services, lodging facilities
and several professional office buildings.
NEIGHBORHOOD COMPOSITION
There are a growing number of retail shopping centers in the
neighborhood. The Millison Plaza Shopping Center is located one block west of
the main gate to the Weapons Test Center approximately 1 mile east of the
subject. This shopping center extends, crescent-shape, from Route 235 along
Shangri La Drive and through to Great Mills Road. Its key tenants are Super
Fresh grocery store, Family Dollar Stores, Thrift Drug and Video Empire. A K-
Mart was located there until late 1992 when it relocated to a new shopping
center about 2 miles north of the subject in California, Maryland. To the east
of this shopping center and opposite the Naval Museum and main entrance gate to
the test center older properties which were constructed during the late 1940's
and early 1950's have recently gone through renovations and architectural
facelifts and have been fully converted to modern attractive office space. A new
Wal-Mart store opened within the past one year in California, Maryland near the
relocated K-Mart. The Sans Souci Plaza, located on the west side Maryland Route
235 1.5 miles west of the subject, increased its available rentable space by
approximately one-third three years ago while the economy was in recession.
However, all of the new space is now leased, although the older section of the
plaza did suffer from the recent closing of the Jamesway Department Store.
Jamesway's closing leaves vacant one of the two anchor locations of this
shopping center. St. Mary's Plaza is located approximately 0.75 miles east of
the subject and is anchored by Food Lion grocery store, Peebles Department Store
and Ames Discount Store. A new center owned by the McKay family and anchored by
a McKay grocery store is being constructed on the opposite side of Route 246
from the subject.
17
<PAGE>
The neighborhood adjacent Route 246 between the subject and the entrance
to the test center is made up of office space, fast food restaurants, retail
stores, auto dealerships and gasoline service stations. The land adjacent Route
246 to the south and west of the subject is improved by the McKay Foodland,
Mini-warehouse centers and small strip shopping centers.
In the immediate area adjoining the commercial strips west and north of
the base is housing geared toward military personnel assigned to Patuxent River
NWTC-AD. The Lexington Park area contains affordable housing in the form of
townhouses, duplexes, and garden apartments. There is also an area of 50 year-
old single-family detached homes known as Patuxent Park. These homes were built
to house the families of officers off-base during World War II and most of these
which front on Route 246 have been converted to office use. Many of these homes
have been, or area being, remodeled and this residential neighborhood has been
revitalized. Most of this housing is within walking distance to much of the
commercial area along Route 235 and Great Mills Road, although the common mode
of travel by local residents is by private automobile. (St. Mary's County does
provide limited public bus transportation that serves the Lexington Park area.)
There are also five mobile home parks located west of the base along Great Mills
Road. Newer housing of all varieties has been developed along Chancellors Run
Road and in the Town Creek area. The commercially zoned area extending along
Route 235 adjoins the Town Creek Farm, Town Creek Manor and Esperanza Farms
subdivisions immediately to its east. These residential areas lie between the
commercial area along Route 235 and the Patuxent River. The cost and values of
the homes in the area typically range from the low $100,000's for those located
nearer Route 235 to over $400,000.00 for waterfront homes along the Patuxent
River. Closer to the subject the residential growth has taken the form of
townhomes, apartment projects and mobile home parks housing double wide mobile
homes.
At the northern section of the Lexington Park neighborhood is located the
Wildewood residential subdivision an the Wildewood Technology Park, This
neighborhood is one of the fastest growing sections of the country. Growth has
been centered around the 1,100 acre Wildewood PUD which features a residential
neighborhood proposed for 2,000 single family detached residences, townhouses,
condominium apartments and apartments; a multi-store shopping center having a
large grocery store and an upscale department store as the anchor tenants; and
the 250 acre Wildewood Professional and Technology Park which includes single
and multi-story professional office buildings, research and development
buildings and office warehouse buildings. This PUD is also the proposed location
for the Johns Hopkins/University of Maryland Higher Education Graduate Facility.
All elements of the PUD have been created with significant attention to the site
plan and architectural control of the improvements. Additional features within
the neighborhood are the county airport and the St. Mary's Industrial Park.
The airport lies immediately to the north and west of Wildewood and is
comprised of approximately 170 acres of land which has been improved with a
concrete runway approximately 3,250 feet long, taxi ways, and 10,000 square feet
of hangar space. Runway lighting is minimal. Due to the expected growth in the
area and demand for services the county airport commission has requested,
through the FAA, to lengthen the runway and improve services. After the
completion of the expansion, the facility will be capable of handling corporate
jets and commuter airlines. The airport commission leases operation of the
airport to a fixed base operator (FBO).
18
<PAGE>
To the north side of the airport is located the 150 acre St. Mary's
Industrial Park. The park has been subdivided into 43 lots, however, not all
have been developed. Currently, there are approximately 15 businesses in the
park.
MAJOR HIGHWAYS IN THE NEIGHBORHOOD
The primary transportation artery serving the neighborhood is Maryland
Route 235. This is a major four-lane divided highway which joins Lexington Park
with areas in northern St. Mary's County and via Maryland Route 5 to Waldorf,
Maryland and metropolitan Washington, D.C.. Commuting time to Waldorf is 30 to
40 minutes and to Washington is approximately 60 minutes. The northern portion
of the neighborhood is bound by Route 4 which joins St. Mary's County with
Calvert County by the Thomas Johnson Bridge at Solomons, Maryland. The Solomons
Island area is one of the major east coast recreational boating areas having
numerous marinas and approximately 20,000 boat slips. Many of the people living
in this area of Calvert County work in St. Mary's County and shop at the
Wildewood Center. Maryland Route 246 which is commonly referred to as Great
Mills Road joins the Naval Air Warfare Center with Maryland Route 5 and portions
of the county to the south and west of Lexington Park. For several decades prior
to the early 1970s this road was the primary commercial thoroughfare in the
county and was the site of the county's first large strip shopping center, first
fast food restaurants, location for the county's car dealerships and location of
the county's restaurants and night spots. With the completion of the widening of
Route 235 to a four lane divided highway between Lexington Park and Waldorf and
with the opening of the Patuxent River Bridge between Calvert County and St.
Mary's County the focus of the neighborhood's commercial activity has been
developed with three large retail centers, two smaller retail centers, five
large office complexes, numerous fastfood restaurants and numerous owner-
occupied retail and professional office properties. During this same period the
growth of retail properties adjacent Route 246 was stagnant. However, over
100,000 square feet of professional office space and research and development
space was constructed 0.25 miles east of the subject and several 100 residential
units have been constructed on the west side of Route 246 approximately 0.50
miles west of the subject on Route 246. The smaller and older retail properties
have changed hands several times and many have recently been renovated. The
first new retail shopping center to be constructed on Route 246 since 1970 is
being constructed on the east side of the road near its intersection with
Chancellors Run Road approximately 100 feet west of the subject. This center is
being built by the McKay Markets and appears to have 5 to 9 stores.
EMPLOYMENT
The major employer in St. Mary's County is the Patuxent River Naval
Warfare Center - Aircraft Division which is located in Lexington Park
Approximately 1.25 miles northeast of the subject. This facility employs over
12,000 people fairly evenly devised between the military, civilian companies and
military contractors. This number will increase by 25% with Department of
Defense employees from commands being reassigned to Patuxent River. Several of
the larger contractors supporting the military programs at the center have their
offices in office parks such as the subject and the Wildewood Professional and
Technology Park. The Department of Defense has consolidated command to this
center which will increase employment to a projected 16,000 employees.
19
<PAGE>
The demand for residential, commercial retail and office space, and
industrial property is closely tied to the level of activity at naval test
facilities at Patuxent River Naval Warfare Center. Following realignment of
military installations by the federal government last year, Patuxent River was
one of the few bases with a net increase in personnel for research and
development assignments.
EDUCATIONAL FACILITIES
In addition to the Higher Education Graduate Center located in the
Wildewood Technology Park, the county is the location of St. Mary's College
which annually appears in U.S. News and Report's list of colleges as one of the
top 10 regional liberal arts colleges in the east. There are branches of several
universities and colleges located at the air warfare center. In the past, these
have included the University of Denver, Emery-Riddle Aeronautical University,
Florida Institute of Technology, the University of Maryland and University of
Tennessee Space Institute. The county's Public schools have been consistently
rated among the top one-half in the state. In the past 15 years the county has
spent millions of dollars in building new schools and remodeling older schools.
The neighborhood is served by three elementary schools as well as the
Green Holly Special School, Esperanza Middle School and Great Mills High School.
There is a campus of the Charles County Community College located on Great Mills
Road 2.5 miles west of the base entrance. The University of Maryland Offers
various undergraduate and graduate courses to the public on the naval base, and
St. Mary's College is located in nearby St. Mary's City.
RECREATION AND GOVERNMENT SERVICES
There is an abundance of recreational activities in the area, primarily
related to the nearby Patuxent and Potomac Rivers and the Chesapeake Bay.
Boating, fishing, hunting, golf, tennis, and leagues for softball, baseball,
football and soccer are plentiful and popular.
Police and Fire protection is provided by the St. Mary's County Sheriff's
Department, Maryland State Police, and the Bay District Fire and Rescue
Volunteer Companies. The federal fire-fighting cres on the base also provide
supplemental protection under a mutual-aid agreement with the County.
SUMMARY
In summary, the neighborhood is diverse and vital. There is demand for a
variety of essential retail and service businesses. The recent recession and the
construction of new shopping centers north of Lexington Park has created a
moderate over-supply of commercial retail space in the area, but the trend in
vacancies has been declining and according to local commercial Realtors familiar
with the market, the available space is being steadily absorbed by virtue of the
recovering economy ad the actual and anticipated increases in personnel at
Patuxent River Naval Warfare Center -Aircraft Division. The subject property is
located approximately 1.75 miles southwest of the Main Gate to the Patuxent
River Naval Warfare Center- Aircraft Division in Lexington Park, Maryland. The
property is located as part of Lexington Park's business district along Maryland
Route 246.
20
<PAGE>
FEASIBILITY ANALYSIS
--------------------
POPULATION
St. Mary's County population doubled during the decade following the
construction of the Naval Air Station at Patuxent River in 1942-1943. Since then
average growth in population has been about 3%. Between 1980 and 1995, the
population increased 35%; St. Mary's was the 8th fastest growing county in the
state. Neighboring Calvert and Charles Counties ranked 2nd and 3rd, making
Southern Maryland the fastest growing region in the state. Maryland's Office of
Planning predicts growth will slow to a 1% to 2% increase annually.
RESIDENTIAL BUILDING PERMITS
An average of 735 residential building units have been permitted each
year since 1991. The 1990 Census counted a total of 27,863 dwelling units in St.
Mary's County. Seventy-five percent were detached single family units. Thirty-
five percent of existing residential units have been constructed since 1984.
Local counts of residential permits issued for the year to date have
slowed since the recession. Major differences in counts have usually stemmed
from the number of multi-family units allowed. The count of residential permits
for the first two months of 1995 is at the same level seen over the same period
last year. The level of multi-family permits issued often accounts for
significant difference in totals.
HOMES SALES PRICES
In 1996, the average local home sales tracked through the Multiple
Listing Service show an increase in average price as well as the numbers sold.
MLS data reflects approximately 65% to 70% of local real estate activity. Homes
sold by owners or developers are not always listed with the MLS. Last year, the
average local home sold through the MLS cost $140,895.00. The Charles County
average was $149,803.00 and the Calvert County average was $150,419.00.
LABOR FORCE
Growth in St. Mary's civilian labor force has exceeded state and national
averages. The labor force grew 7.5% between 1990 and 1996, while population
increased 6.7%. Growth has slowed since the recession with downsizing. However,
since the final BRAC 95 decision, positive impacts are being translated into new
construction and jobs with substantial increases for this area in the later part
of 1996 and continuing in 1997 and 1998 as the moves are complete.
Almost 3/4 of county residents in the workforce are employed locally.
Equivalent rates for Calvert and Charles Counties were 43% and 42%. In 1990,
Calvert and Charles Counties were bedroom communities in which the majority of
the workforce left their home counties to seek employment. Such was not the case
in St. Mary's County.
21
<PAGE>
UNEMPLOYMENT
St. Mary's unemployment rate as of December 1996 was 3.9%, the state rate
is 4.1% and the national rate is 5.0%. The local unemployment rate represents
1,700 workers seeking employment out of a civilian labor force of 43,741. St.
Mary's unemployment rate has generally remained below the state and national
rates.
EMPLOYMENT
Job creation has kept pace with growth in the civilian labor force. Total
jobs available in 1982 were 22,451 and in 1992 there were 35,569 jobs available.
Government is the largest industry in the county; the service industry is the
fastest growing. The Navy, at Patuxent River Naval Air Station and Webster field
in St. Inigoes, is the county's single largest employer currently at a level of
11,869 and projected by the year 1998 to be 17,036. The Navy's presence here is
substantial. In 1992, 76% of St. Mary's 1,434 private business establishments
employed fewer than 10 workers; 96% employed under 50 workers.
Many of the county's large private employers are contractors supporting
activities at the Patuxent River Naval Air Station and the Naval Electronic
Systems Engineering Activity. While military and civil service employment has
been fairly constant, there has been significant growth in contractor
involvement in the local defense workforce. Materials describing local jobs by
industry generally include defense contractors with services or in the
transportation, communication and utility class.
WAGES
The majority of county jobs are in the higher paying industries. St.
Mary's average service industry wages are higher at $519.00 per week than every
Maryland jurisdiction with the exception of Montgomery, Howard, Prince Georges
and Anne Arundel Counties and Baltimore City. Overall, county wages rank in the
top third of Maryland jurisdictions.
INCOMES
St. Mary's median household effective buying (after-tax) income of
$38,946.00 has increased 64% in the past decade. The U.S. median is $32,2380.00
and the state stands at $39,210.00.
Total retail sales in the county have grown 2% since 1992 to almost
$477.5 million in 1993.
22
<PAGE>
NAVY EMPLOYMENT TRENDS
The Navy, at Patuxent River Naval Air Station and the Webster Field in
St. Inigoes, is the county's single largest employer. The Navy presence is
expected to grow as base realignment and closure decisions to consolidate
activities here are actualized. Engineering and manufacturing development of the
V-22 and F/A 18 aircraft are major projects currently underway at Pax.
PATUXENT RIVER
RECENT & CURRENT
MILITARY CONSTRUCTION
---------------------
<TABLE>
<S> <C> <C>
* North Gate Road Spring 94 $ 3.0M
* Upgrade Existing Buildings 93-95 7.4M
* V-22 Hangar Repair Spring 94 2.9M
* Aircraft Aprons Summer 94 1.8M
* Water Distribution & Fire Protection 94-95 3.0M
* Fire Training Simulator Facility Summer 97 0.4M
* BOQ/BEQ Renovations 1994 10.6M
* Runway Resurfacing 1994 14.0M
* Road Improvement Summer 94 1.7M
* FrankKnox Training Center Renovation Fall 94 3.0M
* B. Becker Materials Test Lab Summer 95 14.0M
* Harper's Creek Bridge Summer 95 3.2M
* North & South Engineering Complexes Spring 96 89.0M
* T-10 Jet Engine Test Cell Summer 96 4.8M
* Electronic Systems Lab, Webster Field Winter 96 3.7M
* Integrated Program Team (NAVAIR) Bldg Summer 97 68.5M
* Fiberoptic Distribution Summer 97 5.2M
* Air Interoperability Center Summer 97 4.1M
* Life Extension, Hangar 201 Summer 97 5.8M
* Antenna Range Summer 97 3.2M
* HAZ/FLAM Storage Facility Winter 97 3.5M
* Propulsion Support Engineering Facility Spring 98 24.5M
* Aircraft Systems Integration Facility Summer 99 32.3M + opt.
</TABLE>
There is more military construction underway at Patuxent River than at
any site in the world. The North and South Engineering Centers will house the
majority of personnel slated to relocate from NAWC Warminster. Sizes of the
buildings are 250,000 and 450,000 square feet, respectively. The 462,000 square
foot NAVAIR Building will house about 2,200 personnel relocating from Crystal
City.
PROJECTED ECONOMIC IMPACT
The economic impact of the defense relocation to Southern Maryland is
substantial. The initial influx of 6,809 military and civilian personnel will
generate a total of over 12,400 on-going jobs and $769 million in new spending.
This is in addition to nearly 8,300 temporary jobs (construction, real estate)
and $437 million in one-time spending. Furthermore, the State and the three
counties of Southern Maryland will benefit from $38.6 million in new tax revenue
on an annualized basis once the relocation is complete in 1998 from on-going
spending in addition to $13.1 million from temporary spending during 1994-1998.
The estimate of revenues is based on the direct economic benefit.
23
<PAGE>
CAPITAL PROJECTS
----------------
Capital expenditures comprise the most visible evidence of tax dollars at
work. The county's investment in public facilities, from schools and parks to
landfills and roads, impacts the lives of a broad range of countians. The
Capital Budget which took effect on July 1, 1996 totals approximately
$20,000,000. About half of the funds for capital improvements comes from bond
sales. State and federal shared monies, transfers from the general fund,
transfer taxes from the sale of property and impact fees paid on new residences
are other sources of funding for capital improvements.
Over half of capital fund expenditures go toward public school
facilities. The largest project budgeted this year will allow the completion of
site work, renovation and expansion of Great Mills High School. Other
significant projects include improvements to the science labs at Chopticon and
Leonardtown High Schools to meet the increased demand on lab facilities brought
on by new graduation requirements and modifications to facilities to comply with
the Americans with Disabilities Act (ADA).
Public Works projects comprise over a third of the capital fund budget.
Almost $6,000,000 is budgeted for the design and construction of a campus for
the Charles County Community College in St. Mary's. The former Academy Property
was purchased by the County in 1993. A campus master plan has been developed and
construction drawings have been prepared. FY95/96 funding allowed construction
to begin. In FY96/97 Phase 1 included renovation of the former Academy school
building, construction of a new 32,000 square foot science building and related
infrastructure. The state will provide a majority of the construction funding
for the project.
One consistent expense in capital budgets is road maintenance. Six
bridges and over 1,100 roads covering about 530 miles are maintained by St.
Mary's County. Approximately 60 miles of roadway are surface treated annually -
treatment extends the service life of a road by about three years. Other regular
upkeep includes asphalt overlay and removal of obstacles. The recommended budget
for FY96/97 also includes the design and construction of a replacement for the
deteriorating Sandgates Road bridge.
The FY96 budget includes funds to design new bridges for Chaptico/Hurry
Road and Doctor Johnson Road. In addition, improvements are scheduled for the
St. Mary's Municipal Airport to include an all weather observation system, the
extension of sewer onto the site and the design of security fencing. The parking
area will gain 50 spaces and 16 airplane tie-downs will be added. Design money
has been allotted for a new judicial center. Funds have been included for the
expansion of the St. Andrew's Landfill, improvements to the Governmental Center,
and the design of an addition to the Tri-County Youth Services building.
Recreation and Parks plans to fund improvements to the Fifth District
Park with a Program Open Space grant and impact fees. These include adding
playground equipment, trails and landscaping, lighting the football and soccer
fields, correcting traffic flow, adding parking, and irrigating the playing
fields.
24
<PAGE>
NAVAL AIR WARFARE CENTER AT PATUXENT RIVER PROJECTION
The Naval Air Station at Patuxent River was commissioned in 1943 in an
effort to centralize the widespread air testing facilities that had been
established during the pre-World War II years. During the commissioning
ceremonies, Rear Admiral John S. McCain, then chief of the Navy's Bureau of
Aeronautics, recognized the importance of Pax's establishment by calling it "the
most needed station in the Navy." More than half a century later, NAS Patuxent
River has become the Navy's aircraft supercenter and the fastest growing base in
the nation.
NAS Patuxent River serves as the headquarters for the Naval Air Warfare
Center Aircraft Division (NAWCAD) and is home to nearly 50 other tenant
activities and units. NAS Pax provides airfield facilities, public works
support, environmental support, materials, security, housing, messing, the
family service center, and recreational services to NAWCADHQ and other
activities and units on board station. Also included as part of NAS Patuxent
River are its annexes located at Webster Field and Solomons.
The station is unique in that it has access to approximately 50,000
square miles of airspace for test flights, five runways with 36,500 feet of
runway (includes the Webster Field Annex), 10 double bay hangars, operation
lanes at Patuxent River and Chesapeake Bay and easy access to the Nation's
capital. There are approximately 171,000 flight operations performed each year
with 50,000 flight hours logged on the 160 aircraft housed at Pax. The real
property at Pax represents a capital investment with an estimated $1.81 billion
replacement value. Also unique is the strong relationship NAS Pax River has
built with the Southern Maryland community. Participation with organization and
boards such as the Tri-County Council for Southern Maryland, St. Mary's County
Board of Education, Christmas in April, Rotary Club, Chamber of Commerce,
Calvert Marine Museum, St. Mary's Hospital, the Navy League, and Friends of the
Chesapeake, has enabled the Navy to become an active community member. The
programs and special events coordinated through these partnerships have resulted
in many successful joint efforts at Pax River and throughout the community. Some
of the programs and events have included Air Expo, Earth Day, Blessing of the
Fleet, Oyster Festival, Project Graduation, Christmas in April, Personal
Excellence Program (PEP), Patuxent River Restoration Advisory Board (RAB),
Patuxent River Appreciation Days (PRAD), WWII Commemorative and Veteran's Day.
Pax River will experience unprecedented growth through 1998 as a result
of the 1991 and 1993 Base Realignment and Closure (BRAC) Commission decisions
which will relocated personnel and operations from Warminster, PA, Trenton and
Crystal City, VA to Pax. The relocation of the research, development and
engineering capabilities from Warminster will transfer 1,656 civilian billets
and 132 military billets throughout 1996. Relocating the propulsion engineering
capabilities from Trenton will transfer 276 civilian and 2 military billets
through 1998. And, the move of the Naval Air Systems Command Headquarters in
Crystal City, VA will relocate 2,141 civilian and 633 military billets through
1997. These relocations, not including contract support moves, will increase the
Pax River workforce from 12,200 today to estimated 17,100 in 1998. In addition
to the growth in personnel, there are currently 50 active construction and
rehabilitation projects underway on station with total contract value of
approximately $250 million and 1.5 million square feet of new modernized office
space for test and evaluation.
25
<PAGE>
[TAX MAP APPEARS HERE]
<PAGE>
TAX DATA
--------
The full cash value and assessment for the projected individual single
family lots, as of May 1997, obtained from St. Mary's County Assessment Office
is as follows:
51 Single Family lots projected value of individual lots are as follows:
Tax Map 51, Parcel 147, Grid 2
<TABLE>
<S> <C> <C>
Land: Projected $1,428,000.00
Improvements: Projected $ -0-
TOTAL: PROJECTED $1,428,000.00
Assessment: Projected $ 571,200.00
</TABLE>
The Annual Taxes and interest for Fiscal Year 1997 projected are
$13,880.16.
Tax Account Numbers: (Not currently assigned for single family lots)
The Total tax rate is $2.43 per hundred dollars of assessed value. The tax
rate is distributed as follows:
<TABLE>
<S> <C>
State of Maryland $ .21
County of St. Mary's $ 2.11
Leonardtown $ N/A
Fire Tax $ .11
-----
TOTAL TAX RATE $ 2.43
</TABLE>
It is anticipated that the tax rate will increase slightly over the next
fiscal year.
The subject property is currently assessed in the name of:
Interstate General Company L.P.
222 Smallwood Village Center
St. Charles, Maryland 20602
The current tax rate for St. Mary's County is $2.11 per hundred dollars of
assessed value. Current assessments for the various subject properties are based
on 40% of the assessor's estimated market value of the property. The overall
real estate valuation in St. Mary's County for taxable purposes is based on a
tri-annual assessment. Base values of properties reassessed every three years
and increases during this period of time based on market rates, which in the
past few years have typically ranged from 6% to 8% and have been capped yearly
at a maximum of 10%.
26
<PAGE>
PROPERTY TRANSFERS
------------------
In accordance with the Appraisal Institute, as well as the Federal Home
Loan Bank Board, this appraiser has researched transfers of the subject property
and has noted no transfers of the subject property within this report. Within
the Westbury Subdivision, improved townhouses have been developed and sold over
the past 2 to 3 years, as well as a number of single-family detached lots that
have been developed and sold over the past few years. For the most part,
improved townhouses have averaged from approximately $74,900.00 to $105,000.00
per unit, while single-family detached lots have ranged from $25,000.00 to
$32,000.00 per unit. Detached single family sales have ranged from $100,000.00
to $160,000.00.
ENVIRONMENTAL ISSUES
--------------------
No environmental hazards or contaminations were noted on the date of
inspection, nor has this appraiser been informed of any environmental hazards or
contaminations during the period of discovery. This appraiser has not caused any
environmental testing to be done on the property and the client is advised to
retain a qualified expert in this field should they feel it is warranted.
COVENANTS AND RESTRICTIONS
--------------------------
A Homeowners Association will provide for maintenance of the common area
and private roads around the homes. The association will also contract for trash
pick up, television cable service, pool, a club house, and green space
maintenance for residents. The estimated fee is $250.00 per year for the
townhouses and $150.00 for the single family homes. The difference in fees is
for maintenance of the parking areas for townhouse residents. Recorded at MRB
001, Folio 266 dated October 23, 1989 and amended at MRB 570, Folio 132 dated
November 30, 1990 and amended further at EWA 605, Folio 0026 dated June 28, 1991
and further at MRB 511, Folio 270 dated December 21, 1989.
27
<PAGE>
[ZONING MAP APPEARS HERE]
<PAGE>
ZONING
------
Zoning - PUD-R (Planned Unit Development - Residential) 4.5 density.
The appraised property is zoned Planned Unit Development -Residential. The
Planned Unit Development districts are designed to encourage innovated and
creative design of residential, commercial and industrial development, depending
on the type of district and to facilitate within these districts use of the most
advantageous construction techniques and maximize the conservation of the
effective use of open space and natural features. These districts are designed
to further the purposes and provisions of the Comprehensive Plan and conserve
public physical resources, effective utilization of public facilities and
courses and provide a broad range of housing and economic opportunities to
present and future residents of the county.
The subject lots are approved single family lots and in the process of
being recorded as 63 subdivided single family lots with a density of 2.56 du/ac.
Easements - 10' utility along all lot lines.
Buffer Yard - C4, along Westbury Boulevard.
MINIMUM AREA AND DIMENSIONS
Area 6,000 sf.
Width 0
Depth 0
Frontage 0
MINIMUM YARD REQUIREMENTS
Front 25'
Side 6'
Rear 5'
CENSUS TRACT - 24-037-9960
FEMA Flood Zone Map Panel - 240064 0018 B Zone C, dated February 19, 1987.
FOREST CONSERVATION ACT
-----------------------
Note: Exempt from Maryland Forest Conservation Act per zoning resolution Z85-05
dated 04/09/85 (See attached addenda)
28
<PAGE>
[MAP OF EXISTING AND PLANNED SERVICE AREAS APPEAR HERE]
<PAGE>
FINANCING
---------
Typical financing in the area is through banks or owners of a combination
of owner financing and or assumptions. Rates for residential loans range from
6.5% to 9% with a down payment of 5% to 20%. Discount points are typically one
to three percent of the loan amount. Commercial loan rates are typically 1.0% to
2.0% above either the bank rate or based on New York advertised prime. Points
are charged based on the risk of the project to the lender.
UTILITIES
---------
The subject property will be serviced by water and sewer administered by
the St. Mary's County Metropolitan Commission and the St. Mary's County Health
Department. Water and sewer fees will be assessed to property owners. Current
water and sewer categories are W-1 and S-1, respectively.
Electricity is furnished by the Southern Maryland Electric Co-op.
(SMECO). Local telephone service is available through the C&P Telephone Company
(Bell Atlantic) with long distance service available through a number of
competitively priced long distance companies. Cable television is available
through the local cable company.
29
<PAGE>
[PLAN OF WESTBURY APPEARS HERE]
<PAGE>
[PLAT MAP APPEARS HERE]
<PAGE>
PROPERTY DESCRIPTION
--------------------
The subject property contains approximately 26.992 acres of land, more or
less, as per boundary survey supplied by N G & O Engineering, Inc. as of March
27, 1997. The subject property is irregularly shaped though it lends itself well
to the current plotted 51 lot subdivision. The subject property, at the time of
inspection, was, for the most part, level to sloping with access by way of Pegg
Road onto Westbury Boulevard West, a 60 feet right-of-way supplying access to
four 45 feet right of ways, three with cul-de-sacs, notably, Altman Court,
Bolden Court, Gordon Court and Wilcutt Street. The overall topography of the
subject property is level to rolling. There is a 20 feet storm water management
trail and drainage easement located on the southwest portion of the subject
property. towards Open Space Parcel C. The Open Space Parcel C consists of
14.582 acres. The subject site is grassy with small pine and scrub bush.
No other adverse easements were observed other than standard 10 feet
utility easements and a buffer yard requirement identified along Westbury
Boulevard West.
30
<PAGE>
HIGHEST AND BEST USE ANALYSIS
-----------------------------
The Appraisal Institute defines Highest and Best Use as follows; "The most
profitable, likely use to which a property can be put." Such use may be based on
the highest and most profitable continuous use to which a property is adapted
and needed, or likely to be in demand in the reasonable near future. However,
elements affecting value which depend on events or a combination of occurrences
which, while within the realm of possibility, are not fairly shown to be
reasonable or probable should be excluded from consideration.
"Highest and Best Use" is defined as: "The use, from among reasonable
probable and legal alternative uses, found to be physically possible,
appropriately supported, financially feasible and that results in the greatest
net return to land over a given period of time."
Legally Permitted
- -----------------
Although there are some alternative uses permitted under the zoning
regulations, the recorded covenants and restrictions that have been imposed on
the land limit its use to single family semi-detached and detached dwellings,
with specific requirements for the lots and improvements and also to open space
that must conform to these covenants. The present zoning is PUD-R 4.5 which
allows for townhouses and single family homes. A site plan for the construction
of 51 single family lots is in the process of being approved by St. Mary's
County. It is a reasonable conclusion that this approval will be forth coming.
Physically Possible
- -------------------
The appraised property is located on the north side of Pegg Road and
Westbury Boulevard West. It has good access to all parts of St. Mary's County.
The acreage is sufficient to provide enough lots to create a homogeneous
community. The land is slightly above grade but would lend itself well to the
proposed construction. The entrance access is from Westbury Boulevard West.
Financially Feasible
- --------------------
A discounted cash flow analysis indicates that there is sufficient margin
between the value of the land, as is, and the discounted cash flow from sales of
finished lots based on predicted sales activity, to provide adequate profit
margins. The success of other subdivisions, such as Bay Ridge Estates, Cedar
Cove, Hickory Hills, Greenbrier, Chancellor's Village, and Stallman Subdivision
support the feasibility of the proposed development. The proposed lots are part
of an established neighborhood community of Westbury containing existing sold
townhouses and single family homes. The neighborhood has an established pattern
of value from $75,000.00 to $160,000.00. In addition, there have been numerous
lots sold and settled within surrounding subdivisions. Numerous sales have been
completed within a 12 month duration. This gives strong support to the
feasibility and desirability of the subject 51 paper lot subdivision.
Considering the number of sites available and the proposed sales program in
place, would indicate that the subject property could be profitably developed.
31
<PAGE>
Maximum Productivity
- --------------------
The proposed subdivision will offer a variety of lot sizes while providing
covenants and restrictions (see attached) to ensure that the quality of the
dwellings will be maintained. Amenities such as a neighborhood center with a
pool and green space will help provide a homogeneous community. This is
necessary to attract buyers to the project.
The actual sell-out time is not known, but it is anticipated that a two to
three year holding period will be sufficient to dispose of the majority of the
51 proposed lots. The recorded sales activity surrounding the subject indicates
the desirability, demand and necessity for this type of subdivision in the
neighborhood.
Therefore, the Highest and Best Use for the subject property (Vacant) would
be the completion of the street improvements, utilities and construction of the
general infrastructure and roads.
* The Dictionary of Real Estate Appraisal, American Institute of Real Estate
----------------------------------------
Appraisers, 1984.
32
<PAGE>
PROPOSED IMPROVEMENTS
---------------------
The subject property, as proposed, will be developed into a total of 51
single family building lots. The overall development will include the
installation of all concrete curbing, gutters and sidewalks to meet minimum St.
Mary's County specifications. In addition, all street systems will be installed
to meet minimum county requirements. All storm water drainage areas, rip rap,
outfalls, etc. will also be installed to meet county specifications.
Utility lines will run to various single family lots designed for the
subject property.
All water and sewer installation and connections will be done according to
the St. Mary's County Metropolitan Commission requirements.
As proposed, the subject property will be divided into 51 single family
building lots that have overall sizes and locations as follows:
WESTBURY SECTION II PHASE II
<TABLE>
<CAPTION>
Lot Number Lot Size Address
- ---------- -------- -------
<S> <C> <C>
Lot 64(Corner) 7,296 sf or .1675 Acres 45951 Altman Court
Lot 65 6,157 sf or .1413 Acres 45941 Altman Court
Lot 66 6,048 sf or .1388 Acres 45931 Altman Court
Lot 67 6,048 sf or .1388 Acres 45921 Altman Court
Lot 68 6,346 sf or .1457 Acres 45919 Altman Court
Lot 69 9,115 sf or .2093 Acres 45911 Altman Court
Lot 70 8,378 sf or .1923 Acres 45901 Altman Court
20' Trail and Drainage Easement
Lot 71 8,406 sf or .1930 Acres 45900 Altman Court
Lot 72 9,512 sf or .2184 Acres 45910 Altman Court
Lot 73 6,749 sf or .1549 Acres 45918 Altman Court
Lot 74 6,130 sf or .1407 Acres 45920 Altman Court
Lot 75 6,130 sf or .1407 Acres 45930 Altman Court
Lot 76 6,067 sf or .1393 Acres 45940 Altman Court
Lot 77(Corner) 7,510 sf or .1724 Acres 45950 Altman Court
Lot 78(Corner) 7,066 sf or .1622 Acres 45973 Bolden Court
Lot 79 6,049 sf or .1389 Acres 45963 Bolden Court
Lot 80 6,669 sf or .1531 Acres 45953 Bolden Court
Lot 81 6,951 sf or .1596 Acres 45943 Bolden Court
Lot 82 6,401 sf or .1469 Acres 45933 Bolden Court
Lot 83 6,340 sf or .1455 Acres 45923 Bolden Court
Lot 84 6,172 sf or .1417 Acres 45917 Bolden Court
Lot 85 7,521 sf or .1727 Acres 45913 Bolden Court
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Lot Number Lot Size Address
- ---------- -------- -------
<S> <C> <C>
Lot 86 7,108 sf or .1632 Acres 45903 Bolden Court
Lot 87 7,682 sf or .1764 Acres 45902 Bolden Court
30' Storm Water Easement
Lot 88 7,449 sf or .1710 Acres 45906 Bolden Court
Lot 89 6,425 sf or .1475 Acres 45916 Bolden Court
Lot 90 6,091 sf or .1398 Acres 45922 Bolden Court
Lot 91(Corner) 6,980 sf or .1602 Acres 21551 Gordon Court
Lot 92 6,122 sf or .1405 Acres 21561 Gordon Court
Lot 93 6,228 sf or .1430 Acres 21567 Gordon Court
Lot 94 7,441 sf or .1708 Acres 21571 Gordon Court
Lot 95 8,440 sf or .1938 Acres 21575 Gordon Court
Lot 96 8,937 sf or .2052 Acres 21579 Gordon Court
20' Trail/Sewer Easement
Lot 97 8,103 sf or .1860 Acres 21576 Gordon Court
Lot 98 7,437 sf or .1707 Acres 21572 Gordon Court
Lot 99 6,225 sf or .1429 Acres 21568 Gordon Court
Lot 100 6,218 sf or .1427 Acres 21564 Gordon Court
Lot 101 6,094 sf or .1399 Acres 21560 Gordon Court
Lot 102 6,563 sf or .1507 Acres 21556 Gordon Court
Lot 103(Corner) 7,302 sf or .1676 Acres 21552 Gordon Court
Lot 104(Corner) 6,866 sf or .1576 Acres 45970 Bolden Court
Lot 105 6,000 sf or .1377 Acres 46013 Westbury Blvd West
Lot 106(Corner) 6,000 sf or .1377 Acres 46017 Westbury Blvd West
20' Trail Easement
Lot 107 7,000 sf or .1607 Acres 46014 Westbury Blvd West
Lot 108(Corner) 7,469 sf or .1715 Acres 21536 Wilcutt Street
Lot 109 7,757 sf or .1781 Acres 21532 Wilcutt Street
Lot 110 7,131 sf or .1637 Acres 21528 Wilcutt Street
Lot 111 7,131 sf or .1637 Acres 21524 Wilcutt Street
Lot 112 7,300 sf or .1676 Acres 21520 Wilcutt Street
Lot 113 7,863 sf or .1805 Acres 21516 Wilcutt Street
Lot 114(Corner) 9,330 sf or .2142 Acres 21512 Wilcutt Street
Open Space C 14.582 Acres
Open Space D 1.134 Acres
Open Space E .253 Acres
</TABLE>
34
<PAGE>
VALUATION
---------
There are three traditional approaches used by an appraiser in establishing
the "Value" of the property as of the date of the report. Each of these
operations is based on data found in the market place and is subject to
interpretation as set forth in the conclusions of each approach.
SALES COMPARISON APPROACH
The analysis of comparative market data of similar properties is the method
of arriving at a value by this approach. It is the most commonly used method to
evaluate almost any type of property and is the basic tool used in other methods
of valuation. Since no two properties are exactly alike, the appraiser must
adjust the comparables for such factors as time, location, size, condition,
etc., to arrive at the most probable selling price of the subject property.
This method affirms the principle of substitution which states that the
maximum value of a property is set by the acquisition cost of acquiring an
equally desirable and valuable substitute property.
When there is insufficient data available to estimate the value of the
property using the Sales Comparison Approach then the value is found by either
the Cost Approach or the Income Approach.
COST APPROACH
The Cost Approach is divided into two parts; 1) an estimated land
development schedule; and 2) the cost of construction of the proposed homes. The
land development schedule sets forth the cost of acquiring the property, and
transforming it into building sites with the improvements necessary for serving
a home building program. The improvement costs would include both physical
building costs, overhead, marketing and entrepreneurial profit.
The cost of construction of the homes would include a separate estimate of
the land value via the Sales Comparison Approach plus the cost to erect an equal
building and other improvements. An appropriate depreciation rate for functional
obsolescence would also be noted in any computation. The final value estimate by
this approach is the sum of the land value plus the computed improvement costs.
The Cost Approach can also be used as an alternate method to estimate the
unimproved value of a lot. In this method the estimated cost of construction and
the cost of land development are subtracted from the indicated home value to
produce and unimproved lot value. This method can be used to produce a remainder
land value when there is insufficient land sales data available and the
indicated land value requires confirmation.
35
<PAGE>
INCOME APPROACH
When considering the value of a property, the Sales Comparison Approach and
the Land Development Approach indicate the value of building sites that are
available and can be absorbed at once. But, a large number of sites can not
usually be absorbed at one time, nor is an absorption of this magnitude
practical, therefore, an economic or investment value must be considered in the
final market analysis. The method of estimating the investment value is found in
the Income Approach.
Lots held until they can be absorbed or sold represent a risk to the owner.
A risk that should be commensurate with usual profits and interest earnings. The
income is from the sale of a site or reimbursement of the investment by using
the site in a home building program. The return of income is discounted to
produce an interest income to the owner. The discounted cash flow computation
reflects the "Present Value" upon absorption of the lots. This computation takes
into consideration the time necessary before the lots are used, the cost to
carry and dispose of the lots, a profit for the developer, the period of time
necessary to absorb the lots for home construction or resale to other home
builders. This computation would include any estimated increase or decrease in
the lot value during the holding period.
The subject property, for appraisal purposes and at the request of the
client, has been appraised at market value for the following distinct stages of
development: 1) the valuation of the subject property as recorded but
undeveloped "paper lots"; 2) the full retail value of the subject property as
"finished" single family residential lots; and 3) the discounted or wholesale
value of the "finished" single family residential lots.
<PAGE>
ST. MARY'S COUNTY LOT SALES
---------------------------
<TABLE>
<CAPTION>
DATE GRANTOR TAX MAP LOT # ZONING
DEED REF. GRANTEE SUBDIVISION SIZE SALE PR
- --------- ------- ----------- ----- -------
<S> <C> <C> <C> <C>
District 8
05/16/97 Potomac Maco Ltd Partnership TM 42 Par 223 G 6 Lot 2 Mult. Parcel
1156/422 Gray Enterprises Inc. Hickory Hills North 5,959 sf $ 144,000
05/16/97 Potomac Maco Ltd Partnership TM 42 Par 223 G 6 Lot 28 Mult. Parcel
1156/422 Gray Enterprises Inc. Hickory Hills North 7,937 sf $ 144,000
05/16/97 Potomac Maco Ltd Partnership TM 42 Par 223 G 6 Lot 30 Mult. Parcel
1156/422 Gray Enterprises Inc. Hickory Hills North 7,200 sf $ 144,000
05/16/97 Potomac Maco Ltd Partnership TM 42 Par 223 G 6 Lot 29 Mult. Parcel
1156/422 Gray Enterprises Inc. Hickory Hills North 7,200 sf $ 144,000
05/16/97 Londontowne Development Corp TM 42 Par 210 G 14 Sec 4 Lot 23
1156/434 Vincent B Goldsmith Inc. Maple Run 1.14 Acres $ 37,500
05/15/97 Swenson TM 35 Par 117 G 15 Sec 5 Blk A Lot 9
1155/564 Evans Esperanza Farms 24,000 sf $ 45,000
05/08/97 Millison TM 52 Par 18 G 20 Lot 3
1154/26 Mai Whitehall 5.75 Acres $ 49,500
05/07/97 Interstate General Co. LP TM 51 Par 590 G 2 Lot 27 Mult. Parcel
1153/372 Regency Homes Corporation Lucca Way 1,660 sf $ 121,500
05/07/97 Interstate General Co. LP TM 51 Par 590 G 2 Lot 28 Mult. Parcel
1153/372 Regency Homes Corporation Lucca Way 1,580 sf $ 121,500
05/07/97 Interstate General Co. LP TM 51 Par 590 G 2 Lot 29 Mult. Parcel
1153/372 Regency Homes Corporation Lucca Way 1,660 $ 121,500
05/07/97 Interstate General Co. LP TM 51 Par 590 G 2 Lot 30 Mult. Parcel
1153/372 Regency Homes Corporation Lucca Way 1,580 sf $ 121,500
05/07/97 Interstate General Co. LP TM 51 Par 590 G 2 Lot 23 Mult. Parcel
1153/372 Regency Homes Corporation Lucca Way 1,660 sf $ 121,500
05/07/97 Interstate General Co. LP TM 51 Par 590 G 2 Lot 31 Mult. Parcel
1153/372 Regency Homes Corporation Lucca Way 1,500 sf $ 121,500
05/07/97 Interstate General Co. LP TM 51 Par 590 G 2 Lot 24 Mult. Parcel
1153/372 Regency Homes Corporation Lucca Way 1,580 sf $ 121,500
05/07/97 Interstate General Co. LP TM 51 Par 590 G 2 Lot 25 Mult. Parcel
1153/372 Regency Homes Corporation Lucca Way 1,660 sf $ 121,500
05/07/97 Interstate General Co. LP TM 51 Par 590 G 2 Lot 26 Mult. Parcel
1153/372 Regency Homes Corporation Lucca Way 1,580 sf $ 121,500
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
DATE GRANTOR TAX MAP LOT # ZONING
DEED REF. GRANTEE SUBDIVISION SIZE SALE PR
- --------- ------- ----------- ----- -------
<S> <C> <C> <C> <C>
04/24/97 Raley TM 35 Par 1 G 1 Lot 23 (Waterfront)
1150/52 Liebler Leverings 11,300 sf $ 141,000
04/15/97 Franzen TM 43 Par 444 G 13 Mult. Parcel
1147/146 Mattapany Industries Inc. Horsehead Road 20.70 Acres $ 250,000
04/15/97 Franzen TM 43 Par 407 G 8 Mult. Parcel
1147/146 Mattapany Industries Inc. California 2.66 Acres $ 250,000
04/11/97 Dillow, J TM 35C Parcel 24 Sec 8 Blk B Lot 7
1146/256 Dillow Group LLC Town Creek 28,175 sf $ 50,000
04/11/97 Dillow, J TM 35C Parcel 24 Sec 8 Blk B Lot 17
1146/256 Dillow Group LLC Town Creek 22,071 sf $ 50,000
04/11/97 Dillow, J TM 35C Parcel 24 Sec 8 Blk D Lot 5
1146/256 Dillow Group LLC Town Creek 29,162 sf $ 50,000
04/11/97 Dillow, J TM 35C Parcel 24 Sec 8 Blk B Lot 8
1146/256 Dillow Group LLC Town Creek 33,439 sf $ 50,000
04/11/97 Dillow, J TM 35C Parcel 24 Sec 8 Blk B Lot 18
1146/256 Dillow Group LLC Town Creek 22,534 sf $ 50,000
04/11/97 Dillow, J TM 35C Parcel 24 Sec 8 Blk D Lot 6
1146/256 Dillow Group LLC Town Creek 24,151 sf $ 50,000
04/11/97 Dillow, J TM 35C Parcel 24 Sec 8 Blk B Lot 9
1146/256 Dillow Group LLC Town Creek 27,956 sf $ 50,000
04/11/97 Dillow, J TM 35C Parcel 24 Sec 8 Blk B Lot 19
1146/256 Dillow Group LLC Town Creek 21,653 sf $ 50,000
04/11/97 Dillow, J TM 35C Parcel 24 Sec 8 Blk D Lot 7
1146/256 Dillow Group LLC Town Creek 24,692 sf $ 50,000
04/11/97 Dillow, J TM 35C Parcel 24 Sec 8 Blk B Lot 1
1146/256 Dillow Group LLC Town Creek 20,475 sf $ 50,000
04/11/97 Dillow, J TM 35C Parcel 24 Sec 8 Blk B Lot 10
1146/256 Dillow Group LLC Town Creek 27,709 sf $ 50,000
04/11/97 Dillow, J TM 35C Parcel 24 Sec 8 Blk D Lot 8
1146/256 Dillow Group LLC Town Creek 24,288 sf $ 50,000
04/11/97 Dillow, J TM 35C Parcel 24 Sec 8 Blk B Lot 11
1146/256 Dillow Group LLC Town Creek 29,424 sf $ 50,000
04/11/97 Dillow, J TM 35C Parcel 24 Sec 8 Blk C Lot 2
1146/256 Dillow Group LLC Town Creek 20,059 sf $ 50,000
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
DATE GRANTOR TAX MAP LOT # ZONING
DEED REF. GRANTEE SUBDIVISION SIZE SALE PR
- --------- ------- ----------- ----- -------
<S> <C> <C> <C> <C>
04/11/97 Dillow, J TM 35C Parcel 24 Sec 8 Blk B Lot 2
1146/256 Dillow Group LLC Town Creek 26,072 sf $ 50,000
04/11/97 Dillow, J TM 35C Parcel 24 Sec 8 Blk B Lot 12
1146/256 Dillow Group LLC Town Creek 27,159 sf $ 50,000
04/11/97 Dillow, J TM 35C Parcel 24 Sec 8 Blk C Lot 3
1146/256 Dillow Group LLC Town Creek 21,823 sf $ 50,000
04/11/97 Dillow, J TM 35C Parcel 24 Sec 8 Blk B Lot 3
1146/256 Dillow Group LLC Town Creek 28,084 sf $ 50,000
04/11/97 Dillow, J TM 35C Parcel 24 Sec 8 Blk B Lot 13
1146/256 Dillow Group LLC Town Creek 34,149 sf $ 50,000
04/11/97 Dillow, J TM 35C Parcel 24 Sec 8 Blk D Lot 1
1146/256 Dillow Group LLC Town Creek 32,214 sf $ 50,000
04/11/97 Dillow, J TM 35C Parcel 24 Sec 8 Blk B Lot 4
1146/256 Dillow Group LLC Town Creek 28,618 sf $ 50,000
04/11/97 Dillow, J TM 35C Parcel 24 Sec 8 Blk B Lot 14
1146/256 Dillow Group LLC Town Creek 1.08 Acres $ 50,000
04/11/97 Dillow, J TM 35C Parcel 24 Sec 8 Blk B Lot 2
1146/256 Dillow Group LLC Town Creek 21,119 sf $ 50,000
04/11/97 Dillow, J TM 35C Parcel 24 Sec 8 Blk B Lot 5
1146/256 Dillow Group LLC Town Creek 27,994 sf $ 50,000
04/11/97 Dillow, J TM 35C Parcel 24 Sec 8 Blk B Lot 15
1146/256 Dillow Group LLC Town Creek 24,680 sf $ 50,000
04/11/97 Dillow, J TM 35C Parcel 24 Sec 8 Blk D Lot 3
1146/256 Dillow Group LLC Town Creek 26,278 sf $ 50,000
04/11/97 Dillow, J TM 35C Parcel 24 Sec 8 Blk B Lot 6
1146/256 Dillow Group LLC Town Creek 41,140 sf $ 50,000
04/11/97 Dillow, J TM 35C Parcel 24 Sec 8 Blk B Lot 16
1146/256 Dillow Group LLC Town Creek 23,389 sf $ 50,000
04/11/97 Dillow, J TM 35C Parcel 24 Sec 8 Blk D Lot 4
1146/256 Dillow Group LLC Town Creek 22,029 sf $ 50,000
04/11/97 Dillow, J TM 35C Parcel 24 Sec 8 Blk C Lot 1
1146/256 Dillow Group LLC Town Creek 21,296 sf $ 50,000
04/10/97 Dillow, B TM 35B Parcel 4 Sec 3 Lot 74
1146/64 Dillow Group LLC Town Creek Manor 43,125 sf $ 25,000
04/10/97 Dillow, B TM 35B Parcel 4 Sec 3 Lot 46
1146/64 Dillow Group LLC Town Creek Manor 25,000 sf $ 25,000
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
DATE GRANTOR TAX MAP LOT # ZONING
DEED REF. GRANTEE SUBDIVISION SIZE SALE PR
- --------- ------- ----------- ----- -------
<S> <C> <C> <C> <C>
04/10/97 Dillow, B TM 35B Parcel 4 Sec 3 Lot 76
1146/64 Dillow Group LLC Town Creek Manor 1.06 Acres $ 25,000
04/10/97 Dillow, B TM 35B Parcel 4 Sec 3 Lot 48
1146/64 Dillow Group LLC Town Creek Manor 25,000 sf $ 25,000
04/10/97 Dillow, B TM 35B Parcel 4 Sec 3 Lot 78
1146/64 Dillow Group LLC Town Creek Manor 1.14 Acres $ 25,000
04/10/97 Dillow, B TM 35B Parcel 4 Sec 3 Lot 50
1146/64 Dillow Group LLC Town Creek Manor 25,000 sf $ 25,000
04/10/97 Dillow, B TM 35B Parcel 4 Sec 3 Lot 52
1146/64 Dillow Group LLC Town Creek Manor 25,000 sf $ 25,000
04/10/97 Dillow, B TM 35B Parcel 4 Sec 3 Lot 66
1146/64 Dillow Group LLC Town Creek Manor 35,375 sf $ 25,000
04/10/97 Dillow, B TM 35B Parcel 4 Sec 3 Lot 70
1146/64 Dillow Group LLC Town Creek Manor 39,125 sf $ 25,000
04/10/97 Dillow, B TM 35B Parcel 4 Sec 3 Lot 72
1146/64 Dillow Group LLC Town Creek Manor 41,000 sf $ 25,000
04/07/97 Millison TM 44 Par 49 G 21 Sec 8 Lot 47 Mult. Parcel
1144/379 Select Homes Inc Cedar Grove 8,755 sf $ 66,000
03/31/97 Millison TM 51 Par 609 G 18 Sec 1 Lot 42 Mult. Parcel
1144/379 Select Homes Inc Keel Drive 15,724 sf $ 66,000
03/24/97 Old Land Joint Venture TM 52 Par 80 G 15 Lot 1
1140/594 Fontaine McCausland Sub 3.66 Acres $ 38,000
03/24/97 Tsirigotis TM 42 Par 210 G 14 Sec 4 Lot 11
1140/222 Tsirigotis Maple Run 1.00 Acre $ 18,000
03/13/97 Weiner TM 51 Par 614 G 4 Sec 4C Lot 36
1138/33 Kulp, Sr. Essex South 16,150 sf $ 35,000
03/13/97 Weiner TM 51 Par 614 G 10 Sec 4B Lot 19 Mult. Parcel
1138/17 Kulp, Sr. Essex South 15,221 sf $ 105,000
03/13/97 Weiner TM 51 Par 614 G 4 Sec 4C Lot 78 Mult. Parcel
1138/17 Kulp, Sr. Essex South 20,925 sf $ 105,000
03/13/97 Weiner TM 51 Par 614 G 4 Sec 4C Lot 59 Mult. Parcel
1138/17 Kulp, Sr. Essex South 9,114 sf $ 105,000
03/13/97 Weiner TM 51 Par 614 G 4 Sec 4C Lot 35
1138/25 Kulp, Sr. Essex South 11,900 sf $ 35,000
02/27/97 Gribble TM 35 Par 44 G 21 Lot 3
1133/496 Homan Esperanza Woods 1.06 Acres $ 45,000
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
DATE GRANTOR TAX MAP LOT # ZONING
DEED REF. GRANTEE SUBDIVISION SIZE SALE PR
- --------- ------- ----------- ----- -------
<S> <C> <C> <C> <C>
02/25/97 Boudurant TM 52 Par 416 G 15 Lot 6
1133/55 Callanan McCausland Sub 2.22 Acres $ 36,500
02/03/97 Goodman TM 42 Par 210 G 14 Sec 4 Lot 8
1127/357 Frazier Maple Run 1.16 Acres $ 35,000
01/16/97 Londontowne Development Corp TM 42 Par 210 G 14 Sec 4 Lot 11
1123/205 Tsirigotis Maple Run 1.00 Acre $ 36,000
01/07/97 Millison TM 51 Par 609 G 18 Sec 1 Lot 76 Mult. Parcel
1120/323 Select Homes Inc Lexington Park 7,000 sf $ 112,000
01/07/97 Millison TM 51 Par 609 G 18 Sec 1 Lot 77 Mult. Parcel
1120/323 Select Homes Inc Lexington Park 10,116 sf $ 112,000
01/07/97 Millison TM 51 Par 609 G 18 Sec 1 Lot 49 Mult. Parcel
1120/323 Select Homes Inc Lexington Park 7,846 sf $ 112,000
01/07/97 Millison TM 51 Par 609 G 18 Sec 1 Lot 73 Mult. Parcel
1120/323 Select Homes Inc Lexington Park 7,000 sf $ 112,000
12/31/96 Millison TM 52 Par 18 G 20 Lot 33
1119/143 Rebman Whitehall 3.66 Acres $ 42,000
12/10/96 Gray TM 35 Par 169 G 15 Sec 9 Lot 22 (Waterfront)
1113/599 Shiffler Esperanza Farms 3.06 Acres $127,000
12/10/96 Millison TM 52 Par 18 G 20 Lot 44 Mult. Parcel
1114/169 DNA Companies Thomas Homes, Inc Whitehall 2.26 Acres $ 645,350
12/10/96 Millison TM 52 Par 18 G 20 Lot 8 Mult. Parcel
1114/169 DNA Companies Thomas Homes, Inc Whitehall 2.03 Acres $ 645,350
12/10/96 Millison TM 52 Par 18 G 20 Lot 7 Mult. Parcel
1114/169 DNA Companies Thomas Homes, Inc Whitehall 3.1 Acres $ 645,350
12/10/96 Millison TM 52 Par 18 G 20 Lot 42 Mult. Parcel
1114/169 DNA Companies Thomas Homes, Inc Whitehall 4.36 Acres $ 645,350
12/10/96 Millison TM 52 Par 18 G 20 Lot 26 Mult. Parcel
1114/169 DNA Companies Thomas Homes, Inc Whitehall 2.14 Acres $ 645,350
12/10/96 Millison TM 52 Par 18 G 20 Lot 25 Mult. Parcel
1114/169 DNA Companies Thomas Homes, Inc Whitehall 2.07 Acres $ 645,350
12/10/96 Millison TM 52 Par 18 G 20 Lot 15 Mult. Parcel
1114/169 DNA Companies Thomas Homes, Inc Whitehall 2.68 Acres $ 645,350
12/10/96 Millison TM 52 Par 18 G 20 Lot 5 Mult. Parcel
1114/169 DNA Companies Thomas Homes, Inc Whitehall 6.31 Acres $ 645,350
12/10/96 Millison TM 52 Par 18 G 20 Lot 14 Mult. Parcel
1114/169 DNA Companies Thomas Homes, Inc Whitehall 2.31 Acres $ 645,350
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
DATE GRANTOR TAX MAP LOT # ZONING
DEED REF. GRANTEE SUBDIVISION SIZE SALE PR
- --------- ------- ----------- ----- -------
<S> <C> <C> <C> <C>
12/10/96 Millison TM 52 Par 18 G 20 Lot 4 Mult. Parcel
1114/169 DNA Companies Thomas Homes, Inc Whitehall 3.05 Acres $ 645,350
12/10/96 Millison TM 52 Par 18 G 20 Lot 13 Mult. Parcel
1114/169 DNA Companies Thomas Homes, Inc Whitehall 2.39 Acres $ 645,350
12/10/96 Millison TM 52 Par 18 G 20 Lot 30 Mult. Parcel
1114/169 DNA Companies Thomas Homes, Inc Whitehall 2.04 Acres $ 645,350
12/10/96 Millison TM 52 Par 18 G 20 Lot 21 Mult. Parcel
1114/169 DNA Companies Thomas Homes, Inc Whitehall 2.95 Acres $ 645,350
12/10/96 Millison TM 52 Par 18 G 20 Lot 12 Mult. Parcel
1114/169 DNA Companies Thomas Homes, Inc Whitehall 2.89 Acres $ 645,350
12/10/96 Millison TM 52 Par 18 G 20 Lot 49 Mult. Parcel
1114/169 DNA Companies Thomas Homes, Inc Whitehall 2.69 Acres $ 645,350
12/10/96 Millison TM 52 Par 18 G 20 Lot 48 Mult. Parcel
1114/169 DNA Companies Thomas Homes, Inc Whitehall 2.92 Acres $ 645,350
12/10/96 Millison TM 52 Par 18 G 20 Lot 1 Mult. Parcel
1114/169 DNA Companies Thomas Homes, Inc Whitehall 2.87 Acres $ 645,350
12/09/96 Gribble TM 35 Par 44 G 21
1113/583 Stevens Mills S Road 5.30 Acres $ 50,000
11/27/96 Weiner TM 51 Par 614 G 10 Sec 4C Lot 34
1111/152 Kulp, Sr. Essex South 11,600 sf $ 35,000
11/27/96 Carson TM 51 Par 235 G 6
1111/46 Butler Pembrooke Run 21,780 sf $ 1,000
11/27/96 Millison TM 52 Par 428 G 3 Lot 32 Mult. Parcel
1111/194 Select Homes Inc Villas-Waters Edge 1,902 sf $ 245,000
11/27/96 Millison TM 52 Par 428 G 3 Lot 31 Mult. Parcel
1111/194 Select Homes Inc Villas-Waters Edge 2,041 sf $ 245,000
11/27/96 Millison TM 52 Par 428 G 3 Lot 30 Mult. Parcel
1111/194 Select Homes Inc Villas-Waters Edge 1,905 sf $ 245,000
11/27/96 Millison TM 52 Par 428 G 3 Lot 29 Mult. Parcel
1111/194 Select Homes Inc Villas-Waters Edge 2,044 sf $ 245,000
11/27/96 Millison TM 52 Par 428 G 3 Lot 28 Mult. Parcel
1111/194 Select Homes Inc Villas-Waters Edge 4,731 sf $ 245,000
11/27/96 Millison TM 52 Par 428 G 3 Lot 27 Mult. Parcel
1111/194 Select Homes Inc Villas-Waters Edge 4,210 sf $ 245,000
11/27/96 Millison TM 52 Par 428 G 3 Lot 33 Mult. Parcel
1111/194 Select Homes Inc Villas-Waters Edge 4,518 sf $ 245,000
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
DATE GRANTOR TAX MAP LOT # ZONING
DEED REF. GRANTEE SUBDIVISION SIZE SALE PR
- --------- ------- ----------- ----- -------
<S> <C> <C> <C> <C>
11/20/96 Waldecker TM 34 Par 462 G 12 Lot 4 Mult. Parcel
1108/490 Wentworth Holly Haven 31,337 sf $ 85,000
11/20/96 Waldecker TM 34 Par 439 G 12 Mult. Parcel
1108/490 Wentworth Behind Holly Haven 10,890 sf $ 85,000
11/18/96 Millison TM 51 Par 609 G 18 Sec 1 Lot 67 Mult. Parcel
1108/34 Select Homes Inc Silver Slate Dr 9,414 sf $ 84,000
11/18/96 Millison TM 51 Par 609 G 18 Sec 1 Lot 59 Mult. Parcel
1108/34 Select Homes Inc Lavender Place 8,654 sf $ 84,000
11/18/96 Millison TM 51 Par 609 G 13 Sec1 Lot 110A Mult. Parcel
1108/34 Select Homes Inc Silver Slate Dr 13,670 sf $ 84,000
11/01/96 Millison TM 52 Par 427 G 3 Lot 29 Mult. Parcel
1104/1 Select Homes Inc. Picketts Harbor 1,863 sf $ 176,000
11/01/96 Millison TM 52 Par 427 G 3 Lot 28 Mult. Parcel
1104/1 Select Homes Inc. Picketts Harbor 2,050 sf $ 176,000
11/01/96 Millison TM 52 Par 427 G 3 Lot 27 Mult. Parcel
1104/1 Select Homes Inc. Picketts Harbor 3,113 sf $ 176,000
11/01/96 Millison TM 52 Par 427 G 3 Lot 34 Mult. Parcel
1104/1 Select Homes Inc. Picketts Harbor 3,503 sf $ 176,000
11/01/96 Millison TM 52 Par 427 G 3 Lot 33 Mult. Parcel
1104/1 Select Homes Inc. Picketts Harbor 2,289 sf $ 176,000
11/01/96 Millison TM 52 Par 427 G 3 Lot 32 Mult. Parcel
1104/1 Select Homes Inc. Picketts Harbor 1,925 sf $ 176,000
11/01/96 Millison TM 52 Par 427 G 3 Lot 31 Mult. Parcel
1104/1 Select Homes Inc. Picketts Harbor 1,862 sf $ 176,000
11/01/96 Millison TM 52 Par 427 G 3 Lot 30 Mult. Parcel
1104/1 Select Homes Inc. Picketts Harbor 1,862 sf $ 176,000
10/28/96 Millison TM 51 Par 609 G18 Sec 1 Lot 104
1102/266 Kulp, Sr. Lexington Park 7,441 sf $ 28,000
10/23/96 Good TM 51 Par 605 G13 Sec 1 Blk A Lot 3 Mult Par
1101/1 Waring Great Mills 2,000 sf $ 90,000
10/23/96 Good TM 51 Par 605 G13 Sec 1 Blk A Lot 4 Mult Par
1101/1 Waring Great Mills 2,000 sf $ 90,000
10/23/96 Good TM 51 Par 605 G13 Sec 1 Blk A Lot 5 Mult Par
1101/1 Waring Great Mills 2,000 sf $ 90,000
10/23/96 Good TM 51 Par 605 G13 Sec 1 Blk A Lot 6 Mult Par
1101/1 Waring Great Mills 2,000 sf $ 90,000
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
DATE GRANTOR TAX MAP LOT # ZONING
DEED REF. GRANTEE SUBDIVISION SIZE SALE PR
- --------- ------- ----------- ----- -------
<S> <C> <C> <C> <C>
10/23/96 Good TM 51 Par 605 G13 Sec 1 Blk A Lot 1 Mult Par
1101/1 Waring Great Mills 4,000 sf $ 90,000
10/23/96 Good TM 51 Par 605 G13 Sec 1 Blk A Lot 2 Mult Par
1101/1 Waring Great Mills 2,000 sf $ 90,000
10/15/96 Good TM 51 Par 605 G13 Sec 1 Blk B Lot 5 Mult Par
1098/224 Waring Great Mills 12,410 sf $ 25,000
10/07/96 Richards TM 58 Par 274 G 6 Lot 6
1096/458 Green Park Hall 2.050 Acres $ 39,500
10/08/96 Weiner TM 51 Par 614 G 4 Block 4C Lot 28
1097/38 Kulp, Sr. Essex South 13,207 sf $ 35,000
10/03/96 McCausland TM 52 Par 80 G 15 Lot 1 Mult Parcel
1095/524 Old Land Joint Venture McCausland Sub 3.660 Acres $ 47,000
10/03/96 McCausland TM 52 Par 80 G 15 Lot 2 Mult Parcel
1095/524 Old Land Joint Venture McCausland Sub 3.690 Acres $ 47,000
09/27/96 Maryland Bank & Trust Company TM 58 Par 226 G 6 Sec 1 Lot 14
1094/121 Tepel, III AmandianaEst 4.560 Acres $ 15,000
09/12/96 Millison TM 44 Par 49 G 21 Sec 8 Lot 40 Mult Parcel
1090/33 Select Homes Inc. Cedar Cove 7,623 sf $ 120,000
09/12/96 Millison TM 51 Par 609 G18 Sec 1 Lot 70 Mult Parcel
1090/33 Select Homes Inc. Greenbriar 7,988 sf $ 120,000
09/12/96 Millison TM 51 Par 609 G18 Sec 1 Lot 44 Mult Parcel
1090/33 Select Homes Inc. Greenbriar 7,897 sf $ 120,000
09/12/96 Millison TM 51 Par 609 G18 Sec 1 Lot 54 Mult Parcel
1090/33 Select Homes Inc. Greenbriar 7,376 sf $ 120,000
09/06/96 Copeland TM 51 Par 174 G18 Lot 5 Mult Parcel
1087/593 Ridge Valley Construction Co. P/O Flower ofFrrest 5.190 Acres $ 80,000
09/06/96 Copeland TM 51 Par 14 G18 Lot 4 Mult Parcel
1087/593 Ridge Valley Construction Co. P/O Flower ofFrrest 5.380 Acres $ 80,000
09/05/96 Good TM 51 Par 605 G13 Sec 1 Blk B Lot 15
1087/529 Waring Bay Ridge 11,495 sf $ 25,000
08/28/96 Barnette TM 34 Par 632 G16 Sec 2 Blk 10 Lt 9A
1085/457 Knauff Wildewood $ 55,100
08/21/96 Richards TM 58 Par 274 G 6 Lot 10
1083/154 3 D Construction Park Hall 2.00 Acres $ 36,500
08/13/96 Weiner TM 51 Par 614 G10 Sec 4B Lot 22
1081/387 Kulp, Sr. Essex South 13,220 sf $ 35,000
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
DATE GRANTOR TAX MAP LOT # ZONING
DEED REF. GRANTEE SUBDIVISION SIZE SALE PR
- --------- ------- ----------- ----- -------
<S> <C> <C> <C> <C>
08/13/96 Weiner TM 51 Par 614 G 10 Sec 4B Lot 23
1081/403 Kulp, Sr. Essex South 12,007 sf $ 35,000
08/13/96 Weiner TM 51 Par 614 G 4 Sec 4C Lot 60
1081/395 Kulp, Sr. Essex South 10,400 sf $ 35,000
08/09/96 Elam, Jr. TM 51 Par 290 G 6
1080/535 Elam W/S Rt. 235 1.750 Acres $ 6,700
08/02/96 Dillow TM 35C Par 24 Sec 8 Blk A Lot1 Mult. Parcel
1078/161 Dean, Franklin W Trustee Town Creek Manor 20,182 sf $ 35,000
08/02/96 Dillow TM 35C Par 24 Sec 8 Blk A Lot 25 Mult. Parcel
1078/161 Dean, Franklin W Trustee Town Creek Manor 22,399 sf $ 35,000
08/02/96 Dillow TM 35C Par 24 Sec 8 Blk A Lot26 Mult. Parcel
1078/161 Dean, Franklin W Trustee Town Creek Manor 20,555 sf $ 35,000
08/02/96 Dillow TM 35C Par 24 Sec 8 Blk A Lot 27 Mult. Parcel
1078/161 Dean, Franklin W Trustee Town Creek Manor 21,155 sf $ 35,000
08/02/96 Dillow TM 35C Blk A Mult. Parcel
1078/161 Dean, Franklin W Trustee Town Creek .259 Acres $ 35,000
08/02/96 Dillow TM 35C Par 24 Sec 8 Blk A Lot 28 Mult. Parcel
1078/161 Dean, Franklin W Trustee Town Creek Manor 21,136 sf $ 35,000
07/18/96 Millison TM 52 Par 428 G 3 Lot 41
1073/546 Select Homes Inc. Villas-Waters Edge 4,531 sf $ 32,000
07/18/96 Millison TM 52 Par 428 G 3 Lot 40
1073/546 Select Homes Inc. Villas-Waters Edge 1,909 sf $ 32,000
07/18/96 Millison TM 52 Par 428 G 3 Lot 39
1073/546 Select Homes Inc. Villas-Waters Edge 2,050 sf $ 32,000
07/18/96 Millison TM 52 Par 428 G 3 Lot 38
1073/546 Select Homes Inc. Villas-Waters Edge 1,915 sf $ 32,000
07/18/96 Millison TM 52 Par 428 G 3 Lot 37
1073/546 Select Homes Inc. Villas-Waters Edge 2,056 sf $ 32,000
07/18/96 Millison TM 52 Par 428 G 3 Lot 36
1073/546 Select Homes Inc. Villas-Waters Edge 1,921 sf $ 32,000
07/18/96 Millison TM 52 Par 428 G 3 Lot 35
1073/546 Select Homes Inc. Villas-Waters Edge 2,061 sf $ 32,000
07/18/96 Millison TM 52 Par 428 G 3 Lot 34
1073/546 Select Homes Inc. Villas-Waters Edge 3,954 sf $ 32,000
07/16/96 Weiner TM 51 Par 614 G 4 Sec 4C Lot 29 Mult. Parcel
1073/140 Kulp, Sr. Essex South 11,334 sf $ 70,000
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
DATE GRANTOR TAX MAP LOT # ZONING
DEED REF. GRANTEE SUBDIVISION SIZE SALE PR
- --------- ------- ----------- ----- -------
<S> <C> <C> <C> <C>
07/16/96 Weiner TM 51 Par 614 G 4 Sec 4C Lot 30 Mult. Parcel
1073/140 Kulp, Sr. Essex South 10,942 sf $ 70,000
07/11/96 Colevas, et al TM 42 Par 215 G 5 Lot 43 Mult. Parcel
10/72/187 Washington Homes, Inc. California 1,600 sf $ 124,800
07/11/96 Colevas, et al TM 42 Par 215 G 5 Lot 53 Mult. Parcel
10/72/187 Washington Homes, Inc. California 1,300 sf $ 124,800
07/11/96 Colevas, et al TM 42 Par 215 G 5 Lot 44 Mult. Parcel
10/72/187 Washington Homes, Inc. California 1,600 sf $ 124,800
07/11/96 Colevas, et al TM 42 Par 215 G 5 Lot 54 Mult. Parcel
10/72/187 Washington Homes, Inc. California 1,300 sf $ 124,800
07/11/96 Colevas, et al TM 42 Par 215 G 5 Lot 45 Mult. Parcel
10/72/187 Washington Homes, Inc. California 1,600 sf $ 124,800
07/11/96 Colevas, et al TM 42 Par 215 G 5 Lot 55 Mult. Parcel
10/72/187 Washington Homes, Inc. California 1,300 sf $ 124,800
07/11/96 Colevas, et al TM 42 Par 215 G 5 Lot 46 Mult. Parcel
10/72/187 Washington Homes, Inc. California 1,600 sf $ 124,800
07/11/96 Colevas, et al TM 42 Par 215 G 5 Lot 47 Mult. Parcel
10/72/187 Washington Homes, Inc. California 1,600 sf $ 124,800
07/11/96 Colevas, et al TM 42 Par 215 G 5 Lot 56 Mult. Parcel
10/72/187 Washington Homes, Inc. California 1,300 sf $ 124,800
07/11/96 Colevas, et al TM 42 Par 215 G 5 Lot 48 Mult. Parcel
10/72/187 Washington Homes, Inc. California 1,600 sf $ 124,800
07/11/96 Colevas, et al TM 42 Par 215 G 5 Lot 57 Mult. Parcel
10/72/187 Washington Homes, Inc. California 1,950 sf $ 124,800
07/11/96 Colevas, et al TM 42 Par 215 G 5 Lot 49 Mult. Parcel
10/72/187 Washington Homes, Inc. California 3,200 sf $ 124,800
07/11/96 Colevas, et al TM 42 Par 215 G 5 Lot 50 Mult. Parcel
10/72/187 Washington Homes, Inc. California 1,950 sf $ 124,800
07/11/96 Colevas, et al TM 42 Par 215 G 5 Lot 51 Mult. Parcel
10/72/187 Washington Homes, Inc. California 1,300 sf $ 124,800
07/11/96 Colevas, et al TM 42 Par 215 G 5 Lot 42 Mult. Parcel
10/72/187 Washington Homes, Inc. California 3,200 sf $ 124,800
07/11/96 Colevas, et al TM 42 Par 215 G 5 Lot 52 Mult. Parcel
10/72/187 Washington Homes, Inc. California 1,300 sf $ 124,800
06/17/96 Millison TM 52 Par 427 G 3 Lot 19
1066/151 Select Homes Inc. Picketts Harbor 1,927 sf $ 20,000
</TABLE>
46
<PAGE>
[PHOTOGRAPHS OF SUBJECT PROPERTY APPEARS HERE]
<PAGE>
[PHOTOGRAPHS OF SUBJECT PROPERTY APPEARS HERE]
<PAGE>
[FLOOD MAP APPEARS HERE]
<PAGE>
This is to certify that this
instrument was prepared by or
under the direction of the
undersigned, an attorney duly
admitted to practice before the
Court of Appeals of Maryland
/s/ [SIGNATURE ILLEGIBLE]^^
- ----------------------------
SPECIAL WARRANTY DEED
---------------------
THIS DEED, made this 28th day of October in the year 1987, by WINSTON
CORPORATION BENEFICIAL TRUST, a Maryland trust, acting herein by and through
Edward J. Cook its Trustee, party of the first part, as Seller, and INTERSTATE
GENERAL COMPANY L.P., a Delaware corporation duly qualified to do business in
Maryland, party of the second part, as Purchaser:
W I T N E S S E T H T H A T:
In consideration of the sum of One Million Two Hundred Fifty Thousand
and 00/100 Dollars ($1,250,000.00), the said Seller does hereby grant and convey
unto said Purchaser, and its successors and assigns, in fee simple, all that lot
or parcel of ground situate, lying and being in St. Mary's County, State of
Maryland, and described as follows, that is to say:
The property described on Exhibit A attached hereto and
---------
Incorporated herein by reference.
Together with the buildings and improvements thereupon, erected, made or being,
and all and every, the rights, alleys, ways, waters, privileges, appurtenances
and advantages, to the same belonging, or anywise appertaining.
TO HAVE AND TO HOLD the said lot of ground and premises, above
described and mentioned, and hereby intended to be conveyed; together with the
rights, privileges, appurtenances and advantages thereto belonging or
appertaining unto and to the proper use and benefit of the said Purchaser, its
successors and assigns in fee simple. And the said Seller hereby covenants that
it will warrant specially the property hereby granted and conveyed, and that it
will execute such further assurance of said land as may be requisite.
<PAGE>
[MAP APPEARS HERE]
<PAGE>
Westbury Community Association, Inc.
1995 Schedule of Annual Fees
Single Family Homeowners................$150.00
Townhouse Homeowners....................$250.00
<PAGE>
[SITE PLAN OF WESTBURY APPEARS HERE]
<PAGE>
TABLE 29
SCHEDULE OF LOT DIMENSIONS, YARD REQUIREMENTS,
COVERAGE AND DENSITY
<TABLE>
<CAPTION>
===================================================================================================================================
DISTRICTS MIN.TRACT (SINGLE FAMILY DETACHED) (SINGLE FAMILY DETACHED) MAXIMUM MAXIMUM MIN
LIMIT MINIMUM LOT AREA MINIMUM YARD DENSITY/ HEIGHT LSR
AND DIMENSIONS *** REQUIREMENTS *** INTENSITY
AREA WIDTH DEPTH FRONTAGE*4 FRONT SIDE REAR
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A Agricultural 20** - 150 200 100*4 75 30 50 0.05 DU\AC 40 -
- ----------------------------------------------------------------------------------------------------------------------------------
RPD Rural Preservation - - 100 100 75*4 75 30 50 0.33 DU/AC 40 -
- ----------------------------------------------------------------------------------------------------------------------------------
RNC Neighbourhood Value per 80 100 30*4 25 10 20 Values per Sec. 40 -
Conservation - Section 33.01 33.01
- ----------------------------------------------------------------------------------------------------------------------------------
RVC Village Center - None 80 100 50*4 25 15 25 1.0 DU/AC PAR 40 -
Residential .1*
- ----------------------------------------------------------------------------------------------------------------------------------
RVC w/TDR and/or - None 80 100 50*4 25 15 25 2.0 DU/AC PAR 40 -
???? .1*
- ----------------------------------------------------------------------------------------------------------------------------------
RTC Town Center - None 80 100 50*4 25 15 25 1.0 DU/AC Par 40 -
Residential .2*
- ----------------------------------------------------------------------------------------------------------------------------------
RTC w/TDR or - None 80 100 50*4 25 15 25 2.0 DU/AC PAR 40 -
????? .2*
- ----------------------------------------------------------------------------------------------------------------------------------
RTC w/TDR or - None 80 100 50*4 25 15 25 4.0 DU/AC PAR 40 -
????? .2*
- ----------------------------------------------------------------------------------------------------------------------------------
Rl Low Density - None 80 120 50*4 25 15 25 1.0 DU/AC PAR 40 -
Residential .1*
- ----------------------------------------------------------------------------------------------------------------------------------
RL w/TDR or - None 80 120 50*4 25 15 25 2.0 DU/AC PAR 40 -
?? .1*
- ----------------------------------------------------------------------------------------------------------------------------------
RL w/TDR and - None 80 120 50*4 25 15 25 3.0 DU/AC PAR 40 -
?? .1*
- ----------------------------------------------------------------------------------------------------------------------------------
RH High Density - 2,000 sq.ft 35 40 35*4 25 15 20 10 DU/AC PAr 45 0.15
Residential .3*
- ----------------------------------------------------------------------------------------------------------------------------------
RH High Density - 2,000 sq.ft 35 ?? 35*4 25 15 20 1.5 DU/AC PAR 45 0.15
Residential w/TDR .3*
- ----------------------------------------------------------------------------------------------------------------------------------
CL Limited 1** - - - - 30 15 25 PAR 0.25 45 0.15
Commercial
- ----------------------------------------------------------------------------------------------------------------------------------
C General
Commercial 2** - 175 200 175*4 40 20 30 PAR 0.50 40 0.2
- ----------------------------------------------------------------------------------------------------------------------------------
CVC Village - - 150 200 100*4 30 15 25 PAR 0.35 45 0.1
Commercial
- ----------------------------------------------------------------------------------------------------------------------------------
CM Commercial
Market - - - - - 50 25 25 .15??? 45 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
1-1 General 2** - 200 200 200*$ 75 35 50 PAR 0.40 45 0.20
Industrial
==================================================================================================================================
</TABLE>
* Floor Area Ratios stipulated for R. zoning are for nonresidental uses only.
** Additional density may be available for affordable housing per SECTION 43.
*** For Single Family attached, townhouses, and multifamily design standards,
see Article 5.
*4 Frontage Requirements on a 50 feet radius cul-de-sac may be 35 feet minimum
or 30 feet minimum on a 45 feet radius cul-de-sac in all zones. "Flag lots"
may have 20 feet minimum but access shall be restricted in accordance with ?
56.12 and the subdivision regulations.
<PAGE>
TABLE 2.10
SCHEDULE OF LOT DIMENSIONS, YARD REQUIREMENTS,
COVERAGE AND DENISTY FOR PLANNED UNIT DEVELOPMENTS
<TABLE>
<CAPTION>
==============================================================================================================================
MINIMUM MINIMUM LOT AREA AND MINIMUM YARD DEVELOPMENT MIN MIN
DISTRICTS TRACT DIMENSIONS REQUIREMENTS DISTRICT OSR LSR
LIMIT ===================== FRONTAGE ================== MAXIMUM ??
AREA WIDTH DEPTH FRONT SIDE REAR IDENSITY/INTENSITY
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PUD-MHP 10 ?? 4,000 -- -- 40 120 -- -- 5 DU/AC 0.3 0.15
Mobile Homes sq. ft.
PUDR Plan Dev. 10 ?? Per -- -- -- 25 -- -- 1.0 DU/AC 0.4 0.15
Residential H.D.
PUDR W/TDR 10 ?? PER -- -- -- 25 -- -- 2.0 DU/AC 0.4 0.15
H.D.
PUDR W/Water 10 ?? 2,000 -- -- -- 25 -- -- 5.0 DU/AC 0.4 0.15
and Sewer sq.ft.
PUDR W/Water 10 ?? 2,000 -- -- -- 25 -- -- 10.0 DU/AC 0.4 0.15
and Sewer and TDR sq.ft.
PUD-CP Village 2 ?? -- -- -- -- 30 -- -- PAR 0.50 -- 0.2
PUD-CP Town Center 5 ?? -- -- -- -- 30 -- -- PAR 0.50 -- 0.2
PUD-CP Regional 10 ?? -- -- -- -- 60 -- -- PAR 0.50 -- 0.2
PUD-IP Industrial 20 ?? 1 acre -- -- -- 100 -- -- PAR 0.50 -- 0.2
PUD-CM 2 ?? 2 acres -- -- -- 50 -- -- -- -- 0.2
PUD-X 2 ?? 20 acres -- -- -- 100 -- -- -- -- 0.2
==============================================================================================================================
</TABLE>
________________________________________________________________________________
ARTICLE II 34
<PAGE>
<TABLE>
<CAPTION>
DATE GRANTOR TAX MAP LOT # ZONING
DEED REF. GRANTEE SUBDIVISION SIZE SALE PR
- --------- ------- ----------- ---- -------
<S> <C> <C> <C> <C>
06/17/96 Millison TM 52 Par 427 G 3 Lot 18
1066/151 Select Homes Inc. Picketts Harbor 4,023 sf $20,000
</TABLE>
47
<PAGE>
VALUATION OF SUBJECT PROPERTY AS "FINISHED LOTS"
------------------------------------------------
COMPARABLE SALE 1
- -----------------
Grantor: Millison
Grantee: Select Homes Inc.
Date of Sale: November 18, 1996
Location: Greenbriar
Lexington Park, Maryland
Legal: EWA 1108, Folio 34
Tax Map: TM 51, Parcel 609, Sec 1, Lots 59, 67 & 110A
Acreage: 8,000 - 13,000 sf
Zoning: PUD
Sale Price: $84,000.00
Price Per Lot: $28,000.00 - $36,000
Comments: Greenbrier/Multiple Builder Development that reportedly sells
20 homes per year. Homes are priced from $120,000.00 to $175,000.00. Some
homes have basements and garages. Finished lots that have sold range in
price from $28,000.00 to $36,000.00 on water and sewer. Lot sizes range
from 7,000 square feet to 13,000 square feet.
48
<PAGE>
COMPARABLE SALE 2
- -----------------
Grantor: Millison
Grantee: Select Homes Inc.
Date of Sale: May 28, 1996
Location: Silver Slate Drive
Greenbrier Phase II
Lexington Park, Maryland
Legal: EWA 1060, Folio 164
Tax Map: TM 51, Par 609, Sec. 1, Lots 43, 53 & 60, Grid 18
Acreage: 7,000 - 9,000 sf
Zoning: Residential
Sale Price: $112,000.00
Sales Price Per Lot: $ 28,000.00 - $36,000
Comments: Greenbrier/Multiple Builder Development that reportedly sells 20
homes per year. Homes are priced from $120,000.00 to $175,000.00. Some homes
have basements and garages. Finished lots that have sold range in price from
$28,000.00 to $36,000.00 on water and sewer. Lot sizes range from 7,000 square
feet to 9,000 square feet.
49
<PAGE>
COMPARABLE SALE 3
- -----------------
Grantor: Weiner
Grantee: Kulp
Date of Sale: August 13, 1996
Location: Essex South
Lexington Park, Maryland
Legal: EWA 1081, Folio 403
Tax Map: TM 51, Parcel 614, Sec 4B, Lots 22, 23 & 60, G 10
Acreage: 10,000 - 13,000 sf
Zoning: PUD
Sale Price: $105,000.00
Price Per Lot: $ 35,000.00
Comments: Homes are priced from $82,000.00 to $165,000.00. Some homes have
basements and garages. Finished lots that have sold range in price from
$25,000.00 to $35,000.00. Lot sizes range from 7,500 square feet to 13,000
square feet.
50
<PAGE>
COMPARABLE SALE 4
- -----------------
Grantor: Potomac Maco Ltd Partnership
Grantee: Gray Enterprises, Inc.
Date of Sale: May 16, 1997
Location: Hickory Hills North
Lexington Park, Maryland
Legal: EWA 1156, Folio 422
Tax Map: TM 42, Parcel 223, Grid 6
Acreage: 5,200 - 8,000 sf
Zoning: PUD
Sale Price: $144,000.00
Price Per Lot: $ 36,000.00
Comments: Hickory Hills Development reportedly sells 30 homes per year.
Homes are priced from $120,000.00 to $165,000.00. Some homes have garages.
Finished lots that have sold range in price from $28,000.00 to $36,000.00 on
water and sewer. Lot sizes range from 5,200 square feet to 8,000 square feet.
51
<PAGE>
COMPARABLE SALE 5
- -----------------
Grantor: Interstate General Company
Grantee: DNA C/O Thomas Homes
Date of Sale: March 10, 1993; November 25, 1993
March 24, 1994; & May 3, 1994
Location: Lots 1-33, Warwick Drive & Warwick Court
Westbury Boulevard & Peggs Lane
Lexington Park, Maryland
Legal: MRB 382, Folio 79
Tax Map: TM 51, Parcel 601, Grid 2
Plat Reference: Plat 33, Folio 92
Acreage: 8,600 sf. to 9,700 sf.
Zoning: PUD 4.5
Sale Price: $175,000 + $211,000 + $52,000 + $25,000
= $463,000
Price Per Lot: $25,722
Comments: Mixed use (townhouses and detached homes PUD) with pool and club
house. Located adjacent to the subject. Single-family homes sell for $110,000.00
to $150,000.00 without basements or as split-foyer homes. Additional undeveloped
land is available. These 33 lots are all improved with a single-family
residence. Lot sizes range from 6,000 square feet to 20,000 square feet.
52
<PAGE>
COMPARABLE SALE 6
- -----------------
Grantor: Interstate General Company
Grantee: DNA C/O Thomas Homes
Date of Sale: January 1996
Location: 14 Lots
Carmen Woods Drive
Lexington Park, Maryland
Legal: MRB 382, Folio 79
Tax Map: TM 51, Parcel 601, Grid 2
Plat Reference: Plat 36, Folio 48 Re-subdivision
Acreage: 4,000 - 9,000 sf
Zoning: PUD 4.5
Sale Price: $322,000
Price Per Lot: $ 23,000
Comments: Mixed use (townhouses and detached homes PUD) with pool and club
house. Located adjacent to the subject. Single-family homes sell for $110,000.00
to $150,000.00 without basements or as split-foyer homes. Additional undeveloped
land is available. These 14 lots were discounted for quick sale and bulk sale.
Lot sizes range from 4,000 square feet to 9,000 square feet.
53
<PAGE>
LAND ADJUSTMENT GRID
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Subject Sale Sale Sale Sale Sale Sale
1 2 3 4 5 6
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sale N/A $28,000 $28,000 $35,000 $36,000 $25,722 $23,000
Price
- -----------------------------------------------------------------------------------------------------------------------
Date 01/02/96 11/18/96 05/28/96 08/13/96 05/16/97 05/03/94 01/96
x 1.10 x 1.05
- -----------------------------------------------------------------------------------------------------------------------
Location Westbury Greenbr Greenbr Essex South Hickory Hills Westbury Westbury
x 1.05 x 1.05 0 x .95 0
- -----------------------------------------------------------------------------------------------------------------------
Zoning PUD-R R2 R2 PUD PUD PUD-R PUD-R
- -----------------------------------------------------------------------------------------------------------------------
Lot Size 7,000 sf 8,000-13,000 7,000-9,000 sf 10,000-13,000 5,000-8,000 sf 8,600 sf 4,000-
sf sf x .95 9,000 sf
x .95 0 x .95 0
- -----------------------------------------------------------------------------------------------------------------------
Improvement Full Full Full Full Full Full Full
- -----------------------------------------------------------------------------------------------------------------------
Amenities Pool,Club Hs None None None Clubhouse Pool,Club Hs Pool,Club
Hs
x 1.05 x 1.05 x 1.05 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Total Adj. N/A +$1,327 +$2,870 -$88 -$1,800 +$2,572 +1,150
- -----------------------------------------------------------------------------------------------------------------------
Indicated
Lot Value N/A $29,326 $30,870 $34,912 $34,200 $28,294 $24,150
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
COMMENTS ON ADJUSTMENTS
Although cash equivalency analysis is a procedure required on financing
which has Atypical financing terms, it is the resulting market reaction that has
the greatest importance to the sales comparison analysis. Cash equivalency
adjustments are based on precise mathematical calculations, they may or may not
indicate what a typical purchaser may pay in the market place. The adjustments
made in this report are what this appraiser believes to be the market reaction.
The subject consists of 51 single-family lots zoned PUD-R 4.5 with minimum
overall lot size of 6,000 - 8,000 sf. Engineering is complete. Public utilities
are available. Neighborhood home sales range from $75,000.00 to $150,000.00. HOA
supports private roads, pool, club house and green space areas.
Based on cited sales, among others considered, it is believed that lots of
6,000 - 8,000 square feet have a market range between $28,000.00 and $35,000.00.
From this bench mark, the 51 lots have been considered individually and the
value estimates adjusted, depending on such features as size, location,
amenities, zoning, etc. within the subdivision the estimated values are as
follows on page 55.
After consideration of these sales the prospective Market Value of the
appraised 51 proposed single family lots is:
SAY: $ 1,632,000.00
54
<PAGE>
WESTBURY SUBDIVISION PHASE II SECTION II
------------------------------------------
51 SINGLE FAMILY LOTS
<TABLE>
<CAPTION>
Lot Number Lot Size Projected Sales Price
- ---------- -------- ---------------------
<S> <C> <C>
Lot 64(Corner) 7,296 sf or .1675 Acres $32,000
Lot 65 6,157 sf or .1413 Acres $32,000
Lot 66 6,048 sf or .1388 Acres $32,000
Lot 67 6,048 sf or .1388 Acres $32,000
Lot 68 6,346 sf or .1457 Acres $32,000
Lot 69 9,115 sf or .2093 Acres $32,000
Lot 70 8,378 sf or .1923 Acres $32,000
Lot 71 8,406 sf or .1930 Acres $32,000
Lot 72 9,512 sf or .2184 Acres $32,000
Lot 73 6,749 sf or .1549 Acres $32,000
Lot 74 6,130 sf or .1407 Acres $32,000
Lot 75 6,130 sf or .1407 Acres $32,000
Lot 76 6,067 sf or .1393 Acres $32,000
Lot 77(Corner) 7,510 sf or .1724 Acres $32,000
Lot 78(Corner) 7,066 sf or .1622 Acres $32,000
Lot 79 6,049 sf or .1389 Acres $32,000
Lot 80 6,669 sf or .1531 Acres $32,000
Lot 81 6,951 sf or .1596 Acres $32,000
Lot 82 6,401 sf or .1469 Acres $32,000
Lot 83 6,340 sf or .1455 Acres $32,000
Lot 84 6,172 sf or .1417 Acres $32,000
Lot 85 7,521 sf or .1727 Acres $32,000
Lot 86 7,108 sf or .1632 Acres $32,000
Lot 87 7,682 sf or .1764 Acres $32,000
Lot 88 7,449 sf or .1710 Acres $32,000
Lot 89 6,425 sf or .1475 Acres $32,000
Lot 90 6,091 sf or .1398 Acres $32,000
Lot 91(Corner) 6,980 sf or .1602 Acres $32,000
Lot 92 6,122 sf or .1405 Acres $32,000
Lot 93 6,228 sf or .1430 Acres $32,000
Lot 94 7,441 sf or .1708 Acres $32,000
Lot 95 8,440 sf or .1938 Acres $32,000
Lot 96 8,937 sf or .2052 Acres $32,000
Lot 97 8,103 sf or .1860 Acres $32,000
Lot 98 7,437 sf or .1707 Acres $32,000
Lot 99 6,225 sf or .1429 Acres $32,000
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
Lot Number Lot Size Projected Sales Price
- ---------- -------- ---------------------
<S> <C> <C>
Lot 100 6,218 sf or .1427 Acres $32,000
Lot 101 6,094 sf or .1399 Acres $32,000
Lot 102 6,563 sf or .1507 Acres $32,000
Lot 103 (Corner) 7,302 sf or .1676 Acres $32,000
Lot 104 (Corner) 6,866 sf or .1576 Acres $32,000
Lot 105 6,000 sf or .1377 Acres $32,000
Lot 106 (Corner) 6,000 sf or .1377 Acres $32,000
Lot 107 7,000 sf or .1607 Acres $32,000
Lot 108 (Corner) 7,469 sf or .1715 Acres $32,000
Lot 109 7,757 sf or .1781 Acres $32,000
Lot 110 7,131 sf or .1637 Acres $32,000
Lot 111 7,131 sf or .1637 Acres $32,000
Lot 112 7,300 sf or .1676 Acres $32,000
Lot 113 7,863 sf or .1805 Acres $32,000
Lot 114 (Corner) 9,330 sf or .2142 Acres $32,000
TOTAL $ 1,632,000
</TABLE>
56
<PAGE>
COST APPROACH
-------------
LAND DEVELOPMENT SCHEDULE
-------------------------
Both the Cost Approach and its subsidiary, the Land Development Schedule,
are used to determine the values found by this method. To confirm the values
found by the Sales Comparison Method a summary of the estimated home values less
sales expenses, land development costs, building costs and site cost is
analyzed. The summary is also used to confirm the estimated lot values and the
expected builder's profit.
LAND DEVELOPMENT SCHEDULE
The Land Development Schedule adds the "As Is" value of a site to the cost
of transforming the property into a subdivision with the improvements necessary
to produce "finished sites" ready for home building. Included in the estimated
cost of improvements would be engineering and other costs including overhead,
loan interest, fees, supervision and developers profit. The estimated single
family lot budget is found on the following page. The costs were obtained from
the developer and compared with other similar projects and other available
estimates. When there is insufficient data to determine the "As Is" value of a
group of lots using the Sales Comparison Approach, as is the case with single-
family lots. But, there is sufficient data to determine the sales value of an
improved lot. The "As Is" value can be estimated by subtracting the cost of
improving a site from the improved site value to determine the value. This
method is also used to confirm any of the "As Is" values found in the market
place.
57
<PAGE>
LAND DEVELOPMENT BUDGET
WESTBURY SUBDIVISION PHASE II SECTION II
------------------------------------------
51 BUILDING SITES
-----------------
<TABLE>
<CAPTION>
COST PER COST PER
51 LOTS SINGLE FAMILY
IMPROVEMENTS SITE
<S> <C> <C>
Clearing and Grading $ 12,036.00 $ 236.00
Earth work, top soil, etc. $ 60,843.00 $ 1,193.00
Curb, Gutter & Sidewalk: $ 71,553.00 $ 1,403.00
Sediment Control $ 14,994.00 $ 294.00
Storm Water Mgt $ 13,566.00 $ 266.00
Storm Drain System $119,085.00 $ 2,335.00
Site Paving $ 88,434.00 $ 1,734.00
Landscaping $ 4,029.00 $ 79.00
Water Lines $ 83,283.00 $ 1,633.00
Sewer Lines $ 99,960.00 $ 1,960.00
Signs & Miscellaneous $ 1,785.00 $ 35.00
----------- ----------
SUBTOTAL $569,568.00 $11,168.00 (ROUNDED)
SOFT COSTS
Contingency $ 30,600.00 $ 600.00
Engineering $ 76,908.00 $ 1,508.00
Permits, Bonds & Soil Tests $ 17,850.00 $ 350.00
Interest, Legal & Fees $ 60,741.00 $ 1,191.00
Overhead, Misc. & Supervision $ 36,414.00 $ 714.00
----------- ----------
SUBTOTAL $222,513.00 $ 4,363.00
TOTAL DEVELOPMENT COST $792,081.00 $15,531.00
</TABLE>
58
<PAGE>
SUMMARY OF VALUE OF UNIMPROVED SINGLE-FAMILY SITES
--------------------------------------------------
There was insufficient sales data to determine the value of the unimproved
single-family home sites. Home builders in this area purchased unsubdivided
properties a number of years ago that they held and then subdivided into
building sites for their own use. Land developers, more frequently, purchased
properties that were zoned as PUDS, allowing a mixed use for townhouses and
detached homes. The only sales of single-family lots were with improvements.
To obtain the value of an unimproved lot, the following computation was
made by subtracting the cost of the development, overhead and profit from the
value of a single-family improved lot obtained from the Sales Comparison
Approach.
<TABLE>
<S> <C>
SALES COMPARISON VALUE $32,000.00
less
Developer's Profit 10.0% $ 3,200.00
Development Cost $15,531.00
REMAINDER TO SITE $13,269.00
ROUNDED: $13,300.00
</TABLE>
The remainder to the site as shown would indicate that an unimproved
single-family lot as identified in this report would be valued at $13,300.00 per
lot or $678,300.00 for the 51 lots.
INDICATED VALUE OF LAND "AS IS" BY THE COST APPROACH: $678,000.00
ROUNDED
59
<PAGE>
PROJECT ANALYSIS
----------------
The estimated aggregate value of the 51 subdivided lots will be realized
over a period of time and certain expenses will be required during the sales
period. The "As Is" value has been calculated by averaging the anticipated
annual income and deducting the cost of the sales, profit, loan repayments,
remaining development expenses and carrying costs during the sellout period.
The subdivision sell-out cash flow analysis is based on the following
premises; based on the reported contracts for appraised property and sales of
other subdivisions, it is estimated that 24 months will be required to sell all
of the lots. This is an average rate of 2.5 lots per month or 30 lots per year.
The average assessment for the lots is about $28,000 per lot or a total
of $1,428,000.00 annually. These assessments include the completion of the roads
and amenities. For purposes of estimating the carrying costs on the completed
project, it is assumed that the taxable assessment is $571,200.00. With a tax
rate of $2.43 the total annual taxes would be $13,880.00, with increases for
the remaining lots during the sellout time. Taxes are calculated on the
remaining lots and a prorated share of the amenities.
Sales of the lots will begin at a rate of 30 per year until sold out.
Prices are expected to escalate at 3% per annual period, from the current retail
values, until the property is completely sold.
Repayment of a construction loan interest and principal are included in
the expenses, as it is assumed that further redevelopment expenses will be 100%
financed. The interest rate used is 8.50%, the minimum rate recorded by the
lender. The interest rate for the construction financing for this project is at
10.0% or 1.50% over the prime lending rate, which ever is higher, plus one
point.
The marketing expense of 10% is typical of the sales commissions for lots
in the subject market area. This marketing expense will not be used until the
land and house combination are sold as a unit, as it is the developer's
intention not to sell individual lots, therefore, it was not included as part of
the cash flow schedules.
The developer's profit is the return expected for the developer's time in
managing the development. 10% is the average return required by a developer in
the subjects market area. While the developer does not always realize a 10%
return, it is the typical expectation.
Land payment is a payment of $23,000 per lot of value required to repay
a suborned first trust on the property.
The reported development hard costs are $59,568.00 (projected), the
total development soft costs are $222,513.00 (projected). The reported total
acquisition cost for release purposes is $250,000.00 (projected).
60
<PAGE>
INVESTMENT VALUE
----------------
Some discussion to Investment Value must be given to the subject property
due to the fact that it is likely an investor may be attracted. Market Value can
be called "The Value of the Marketplace", while Investment Value is a specific
value of goods or services to a particular investor (or class of investors) for
individual investment reasons. Market value and investment value are different
concepts, although the values estimated for each may or may not be numerically
equal depending on circumstances. In addition, market value estimates are
commonly made without reference to investment value, but investment value
estimates are frequently accompanied by market value of estimate to facilitate
decision making.
Market value estimates assume no specific buyer or seller. Rather, the
appraiser considers a hypothetical transaction in which both the buyer and
seller have the understanding, perceptions, and motivation that are typical of
the market for a property or interest being valued. The transaction price of a
property varies with the bargaining strength and motivation of buyers and
sellers and the number of opportunities available to these market participants.
Ultimately a property's market price reflects the interaction of those who
create market supply and demand. Depending on the circumstances of the buyer and
seller in each case, the transaction price at a given moment can be expected to
fluctuate above or below the property's value at perfect market equilibrium.
Sellers are normally expected to accept a price that equals or exceeds
investment value, while buyers will pay a price that does no exceed investment
value. Market Value estimates synthesize these transactions without considering
any particular buyer or seller. The investment valued buyer is oriented to buy
considering only a return on and of their investment.
61
<PAGE>
DISCOUNT RATE
-------------
MOST LIKELY PROBABLE RANGE OF DISCOUNT RATE SELECTION
A discount rate is a term representing a compounding of an interest rate
used to convert expected future cash flows into a present value estimate. In
appraisal practice, the discount rate is the competitive rate of return
applicable to the interest and cash flow analyzed. A discounted cash-flow
analysis (DCF) is a method whereby an appraiser prepares a cash flow forecast
(including income from operations and resale) for the interest appraised and
selects a discount rate to calculate the present value of each of the cash
flows. The total present value of the cash becomes the value estimate of that
interest. The following cash flows and discount rate analysis are market driven
and derived or abstracted from the market and its participants.
Interest rates as of the date of valuation for development/acquisition
type funding in the market place, and poling various lenders such as Nations
Bank, Tri County Federal Savings and Loan, Citizens Bank of Maryland, the
Washington Savings Bank and the First National Bank of St. Mary's, all who are
lenders that actively deal with development/acquisition loans have quoted rates
for these types of loans at a low of 1.0 points over prime to a high of 3.0
points over prime, depending on the lender's willingness to finance a particular
project. In addition, discount points ranged from a low of 1.5 point to a high
of 2.0 points, depending on the lender.
It should be noted that the subject property is currently proposed to be
financed through the First National Bank of St. Mary's at a reported rate of 1.5
points over prime and one discount point.
62
<PAGE>
The discount rate chosen is thirteen (13.0) percent. This rate is
believed to be indicative of the market. The discount rate is influenced by many
factors, including the degree of apparent risk, market attitudes toward future
inflation, the prospective rates for alternative investments, the rates of
return of comparable properties, the supply and demand of a commercial property
is considerable and is of major concern to the investor. Inflation is expected
to be at normal levels. Generally, the banks will hedge their interest rates if
they anticipate inflation. I have not noted any of this at this time. Prime rate
is around 8.50% with the Federal Fund Rate being around 5.00%. The rate charged
depository institutions by the Federal Reserve Banks also called the discount
rate is around 5.00% for one year. The disparity between what the banks are
paying for money (Certificates of Deposit) and the base lending rate (Prime
Rate) is not attributable to inflation, but to cost, risk and profit by the
banking industry at this time. Any loans based on points over prime to a
borrower is simply risk associated or excess profit, not a hedge against
inflation. An investor could go to the stock market an get competitive rates of
return with less risk and more liquidity at any given time. There is no doubt a
sufficient supply of mortgage money is available, however, lenders are not
willing to provide funds on this type of investment without excess points to
cover the risk involved. Tax shelters are individual requirements and will not
be addressed in this report.
It is my opinion from personal knowledge, local brokers and investors
representatives, as named in this report, that the typical investor would
require a discount rate which contained all the requirements of the
capitalization rate which is believed to be 10%, as described in the Income
Approach, plus the anticipated rate of inflation. This rate therefore would be
approximately thirteen percent (13.0%).
PLEASE SEE THE FOLLOWING CASH FLOW ANALYSIS:
63
<PAGE>
Westbury Subdivision
Lexington Park, Maryland
SCHEDULE OF PROSPECTIVE CASH FLOW
In Inflated Dollars for the Fiscal Year beginning 7/1/1997
<TABLE>
<CAPTION>
Year 1 Year 2 Year 3 Year 4 Year 5
For the Years Ending Jun-1998 Jun-1999 Jun-2000 Jun-2001 Jun-2002
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
UNIT SALES REVENUE
Sales Revenue $960,000 $692,160
Selling Costs (96,000) (69,216)
-------- -------- ------ ------ ------
NET SALES REVENUE 864,000 622,944
-------- -------- ------ ------ ------
TOTAL POTENTIAL REVENUE 864,000 622,944
-------- -------- ------ ------ ------
TOTAL REVENUE BEFORE COST 864,000 622,944
-------- -------- ------ ------ ------
LAND ACQUISITION COSTS
Land Acquisition 147,000 105,987
-------- -------- ------ ------ ------
TOTAL LAND ACQUISITION COSTS 147,000 105,987
-------- -------- ------ ------ ------
HEAD/CONSTRUCTION COSTS
Clearing & Grading 7,080 5,105
Earth Work 35,790 25,805
Curb, Gutter, Sidewalks 42,090 30,347
Sediment Control 8,820 6,359
Storm Water Mgt. 7,980 5,754
Storm Drain 70,050 50,506
Site Paving 52,020 37,506
Landscaping 2,370 1,709
Water Lines 48,990 35,322
Sewer Lines 58,800 42,395
Miscellaneous 1,050 757
-------- -------- ------ ------ ------
TOTAL HARD/CONSTRUCTION COSTS 335,040 241,565
-------- -------- ------ ------ ------
SOFT/DEVELOPMENT COSTS
Contingency 18,000 12,978
Engineering 45,240 32,618
Taxes 10,440 7,527
Permits, Bonds 10,500 7,571
Interest, Legal Fees 35,730 25,761
Profit 3 2
Miscellaneous 21,420 15,444
-------- -------- ------ ------ ------
TOTAL SOFT/DEVELOPMENT COSTS 141,333 101,901
-------- -------- ------ ------ ------
TOTAL DEVELOPMENT COSTS 623,373 449,453
-------- -------- ------ ------ ------
</TABLE>
<PAGE>
Westbury Subdivision
Lexington Park, Maryland
SCHEDULE OF PROSPECTIVE CASH FLOW
In Inflated Dollars for the Fiscal Year beginning 7/1/1997
<TABLE>
<CAPTION>
Year 1 Year 2 Year 3 Year 4 Year 5
For the Years Ending Jun-1998 Jun-1999 Jun-2000 Jun-2001 Jun-2002
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CASH FLOW BEFORE DEBT SER $240,627 $173,491
& INCOME TAX ======== ======== ====== ====== ======
</TABLE>
<PAGE>
Westbury Subdivision
Lexington Park, Maryland
SCHEDULE OF SOURCES & USES OF CAPITAL
Equity is Based on Property Value, Leverage and Operating Requirements
<TABLE>
<CAPTION>
Year 1 Year 2 Year 3 Year 4 Year 5
For the Years Ending Jun-1998 Jun-1999 Jun-2000 Jun-2001 Jun-2002
-------- -------- -------- -------- --------
<S>
SOURCES OF CAPITAL <C> <C>
Net Operating Gains $864,000 $622,944
Initial Equity 250,000
Contribution
---------- -------- ------ ------ ------
TOTAL SOURCES OF CAPITAL $1,114,000 $622,944
========== ======== ====== ====== ======
USES OF CAPITAL:
Property Purchase Price $250,000
Land Acquisition Costs 147,000 105,987
Hard/Construction Costs 335,040 241,565
Soft/Development Costs 141,333 101,901
---------- -------- ------ ------ ------
DEFINED USES OF CAPITAL 873,373 449,453
---------- -------- ------ ------ ------
CASH FLOW DISTRIBUTIONS 240,627 173,491
---------- -------- ------ ------ ------
TOTAL USES OF CAPITAL $1,114,000 $622,944
========== ======== ====== ====== ======
UNLEVERAGED CASH ON CASH
RETURN
Cash to Purchase Price 96.25% 69.40%
UNLEVERAGED ANNUAL IRR 44.33% 44.33% 44.33% 44.33%
</TABLE>
<PAGE>
Westbury Subdivision
Lexington Park, Maryland
PROSPECTIVE PRESENT VALUE
Cash Flow Before Debt Service
Discounted Annually (End-point on Cash Flow) over a 5-Year Period
<TABLE>
<CAPTION>
For the Discounted Total Total
Discount Cash Flow Value Value
Rates Before Debt per Unit per Size
-------- ----------- -------- --------
<S> <C> <C> <C>
12.00% $353,151 $6,925 $6,924.53
12.50% 350,970 6,882 6,881.76
13.00% 348,813 6,839 6,839.47
13.50% 346,681 6,798 6,797.67
14.00% 344,572 6,756 6,756.31
14.50% 342,487 6,715 6,715.43
15.00% 340,425 6,675 6,675.00
15.50% 338,386 6,635 6,635.02
16.00% 336,369 6,595 6,595.47
16.50% 334,375 6,556 6,556.37
17.00% 332,402 6,518 6,517.69
17.50% 330,450 6,479 6,479.41
18.00% 328,520 6,442 6,441.57
</TABLE>
<PAGE>
REASONABLE EXPOSURE TIME
------------------------
Reasonable exposure time is defined by The Appraisal Standards Board of
The Appraisal Foundation as follows:
The estimated length of time the property being appraised would have been
offered on the market prior to the hypothetical consummation of a sale at the
market values on the effective date of the appraisal; a retrospective estimate
based upon an analysis of past events and assuming a competitive and open
market.
Reasonable exposure time is presumed to occur prior to the effective date
of the evaluation. In addition, different types of properties can have varying
exposure periods with longer periods associated with special purpose properties
or at higher price ranges. The estimate of a reasonable exposure period can be
based on an analysis based on: (1) statistical information about days on the
market; (2) history of comparable sales; or interviews with market participants.
Interviews with market participants indicate marketing time up to two
years, if professionally priced and marketed.
The estimated value of the property is related to the exposure period for
a sale of the improved site. For the subject property, an exposure period of no
longer than twenty four months is estimated to have occurred prior to the
effective date of this appraisal.
64
<PAGE>
SOURCES OF SUPPORT
------------------
In order to support the reliability of some of the information which was
used in this report, I chose to rely heavily on the information I received from
the following:
Marshall & Swift Valuation Service
Lusk Reporting Service
Multiple Listing Reporting Service/Tax Star
State Assessment Office
Office Files
N G & O, Engineers
Office of Planning and Zoning
St. Mary's County Metropolitan Commission
Public Works Department
Jimmy Richards & Sons Excavating, Inc.
All of the above named individuals specialize in commercial and residential real
estate, contracting, building or developing with-in the subjects' service area.
65
<PAGE>
CORRELATION AND CONCLUSION
--------------------------
The appraised property is a proposed 51 lot subdivision to be developed
on a total of 26.992 + acres located on the north side of Pegg Road and Westbury
Boulevard West, Lexington Park, St. Mary's County, Maryland. This inclusion of
additional single-family lots adds to the overall development plan for
"Westbury". There is a demonstrated demand for single-family lots in the
Lexington Park area with restrictive covenants to insure a homogenous
neighborhood.
Based on the sales of other nearby subdivisions, also a part of this
report, the aggregate prospective "retail" value of the finished lots is
estimated to be $1,632,000.00 or an average of $32,000.00 per lot for the 51
lots. The investment market would be looking for an unleveraged discount rate of
approximately 13% which would indicate a prospective present value of
$348,813.00. It is also apparent that the internal rates of return would be
acceptable at these market values (Please see cash flows for present value
discounting). The aggregate value has been discounted annually to reflect the
time expected to be required to sell all of the lots, the carrying cost during
the sellout period, the marketing expense, developer's anticipated profit and
the cost to complete the project.
It is anticipated that the marketing time for the subject property, if
properly priced and professionally marketed, should be less than two years.
The prospective values reported are based on the completion of the
project within twelve months from the date of this report.
IT IS NOTED THAT THE PROSPECTIVE RETAIL MARKET VALUE FIGURES, DO NOT TAKE INTO
- ------------------------------------------------------------------------------
CONSIDERATION ANY ASSOCIATED EXPENSES RELATED TO THE AQUISITION OR DEVELOPMENT
- ------------------------------------------------------------------------------
OF THE SUBJECT SECTIONS. PLEASE SEE CASH FLOWS FOR COMPLETE BREAKDOWNS.
- -----------------------------------------------------------------------
Prospective value estimates are intended to reflect current expectations
and perceptions of the market participants along with available factual data.
They should be judged on the market support for the forecasts when made, not
whether specific items in the forecast are realized.
In a prospective appraisal, the appraiser analyzes market trends to
provide support for projected income and expenses or sell-out estimates,
absorption periods and discount rates as of the effective date of the appraisal.
Economic trends such as growth in population, employment, and future competition
are also analyzed. The overall economic climate and variations in the business
cycle have been considered and were weighted in the valuation process. All
valuation conclusions are based on historical data that was available as of the
date this report was prepared.
Due to the fact that this appraisal was compiled without a record plat,
this report is contingent upon the receipt by the client of a record plat, which
is the essentially the same as the plats provided to the this appraiser to
prepare this report. Should there be any disparity, which may effect the value
reported, this report becomes null and void and of no further use. Should any
disparity be discovered concerning the cost breakdown as reported to this
appraiser and used in this report, this report becomes null and void and of no
further use. This report is based on the premise that there are no major changes
in the market area or in the economy during the development and sellout period.
66
<PAGE>
Value is estimated at a specific point in time, so an appraisal should
clearly identify when the value estimate is effective. Identifying a prospective
value estimate as effective on the date the appraisal is prepared is not only
inconsistent, it is misleading. The prospective value of a completed development
is not realized until the development is completed. Thus the effective date of a
prospective estimate should be the date the value is expect to be realized,
i.e., upon completion of the development, which in the case of the subject is
estimated to be within two years from the date of the report.
After careful study of all the data and pertinent facts herein contained
and a personal inspection of the subject property, it is our opinion and
judgment that the "AS-IS" and the prospective market value of the subject
property as of May 20, 1997, was:
FINAL ESTIMATE OF VALUE AS FOLLOWS:
-----------------------------------
Value of the Subject Property "As Is" "Raw Land"
$ 250,000.00
Prospective Value of the Subject Property Plotted
$ 678,000.00
Prospective "Gross Retail" Value of Subject Property Phase II,
Section II, 51 Lots
(Not Discounted)
$ 1,632,000.00
Prospective Present Value of these Cash Flows at 13% (Discount Rate)
of the "Finished Lots"
$ 348,813.00
Respectfully submitted,
/s/ John W. Quade, Jr /s/ John R. Fowler
John W. Quade, Jr. John R. Fowler, CCIM, IFAS
Maryland Certified Maryland Certified
General Appraiser General Appraiser
License No. 04-6534 License No. 04-2955
67
<PAGE>
QUALIFICATIONS OF APPRAISER - JOHN W. QUADE, JR.
STATE LICENSES
- --------------
Maryland Certified General Appraisal License No. 04-6534
Maryland Licensed Real Estate Broker - Reg. Cert. No. 24881
Maryland Certified Residential Appraiser - Cert./Lic. No. 03-6534
Notary Public of the State of Maryland
EDUCATION
- ---------
Appraisal Licensing Courses:
I Basics of Appraisal - 15 Hours
II Real Estate Analysis - 15 Hours
III Sales comparison Approach - 15 Hours
IV Cost and Income Approaches - Valuation of Partial Interests
15 Hours
V Appraisal Standards and Ethics - 15 Hours
VI Capitalization - Present Value - 15 Hours
VII Leasehold and Lease Fee Interests - 15 Hours
IX Advanced Valuation of Partial Interest - 15 Hours
X Advanced Sales Comparison and Cost Approaches - 15 Hours
XI Advanced Income Approach - 15 Hours
5B Concepts and Writing the Commercial Narrative Appraisal
Report 15 Hours
2.3 NAIFA - Condemnation Appraisal Practice - 15 Hours
4.0 NAIFA - Marshall & Swift Commercial & Residential Cost
Estimation - 15 Hours
ASA Standards and Practice Seminar - 6 Hours (Continuing
Education) Capitalization Theory and Techniques Using Roadmap
System 15 Hours (Continuing Education)
Continuing Education 1995:
4.7 NAIFA Basic Residential HUD Appraisal Requirements - 8 Hours
Valuation Information Technology Inc.:
FHA Appraisal Regulation to Requirements - 8 Hours
McKissick's Data Systems:
Intro. to Environmental Considerations - 8 Hours
Regression Analysis, the Appraisal Approach of the Future - 8 Hours
Uniform Standards of Professional Appraisal Practice - 4 Hours
Southern Maryland Board of Realtors - Financing as a Tool - 3 Hours
Graduate of Realtors Institute of Maryland
Series 100 - 30 Hours
Series 200 - 30 Hours
Series 300 - 30 Hours
Series 400 - 30 Hours
68
<PAGE>
EDUCATION CONTINUED
- -------------------
Loyola College of Maryland - Property and Casualty Insurance I
National Association of Realtors - Certified Residential Course 203
St. Mary's College of Maryland - Bachelor of Arts
University of Baltimore Law School - 2 Years
PROFESSIONAL MEMBERSHIPS
- ------------------------
International Right Of Way Association
National Association of REALTORS, Appraisal Section
(Founding Member)
National Association of REALTORS
Southern Maryland Board of REALTORS
APPRAISAL EXPERIENCE AND CLIENTS
- --------------------------------
Appraisals for purpose of mortgage loans, buyers, sellers, estates, vacant land,
farms, special purpose, commercial and waterfront have been made for the
following partial list of clients in the State of Maryland.
Bank of Southern Maryland
Calvert Bank and Trust
Continental Mortgage & Investment
Crestar Financial Corporation
Mercantile, 1st National Bank of St. Mary's
Maryland Bank and Trust
Library Congress FCU
Service USA
First Fidelity Bancorporation
Fidelity First Mortgage
Signet Bank-Home Equity
3S Steele Software Systems Corp.
First Pacific Financial
First Union National Bank
Interstate General Company L.P.
Great Financial Mortgage
Norwest Direct
America Funding Group
Maryland Money Market Mortgage Corp.
Southern Maryland Electric Co-op (SMECO)
St. Mary's Hospital
St. Mary's County Metropolitan Commission
St. Mary's County Park & Recreation
State Highway Administration
U.S. Bankruptcy Court
69
<PAGE>
APPRAISAL EXPERIENCE AND CLIENTS CONTINUED
- ------------------------------------------
Greenwell Foundation
Mid-Land Savings and Loan
Orphans Court of St. Mary's
Orphans Court of Charles County
Circuit and District Courts of St. Mary's
Norris, Gass and Ocker Engineers
Philip H. Dorsey, Atty.
Oliver R. Guyther, Atty.
Joseph E. Bell, Atty.
Joseph R. Densford, Atty.
H. A. Turner, Atty.
Sue Ann Lewis, Atty.
Shah & Associates
Attorneys and Individuals
Expert Witness: Property Review Board St. Mary's County
EMPLOYMENT
- ----------
Brick House Realty, Inc. - President/Owner
(Brick House Appraisal Service)
O' Brien Realty - Commercial/Vice President
Heritage Manor Homes - Manager
Maryland Money Market Mortgage Corp. - Appraisal Reviewer
House of Delegates of Maryland - Elected Member
Tidewater Realty, Inc. - Vice President
Law Clerk (St. Mary's County Circuit Court)
U.S. Justice Dept. - Analyst
U.S. Marine Corps - Retired
ADVISORY BOARDS
- ---------------
Real Estate Training Advisory Committee
(Charles County Community College)
Southern Maryland Board of Realtors)
(Chairman Political Affairs Committee)
(Vice Chairman Legislative Committee)
(Member Commercial Committee)
State of Maryland Realtors Association
(Appraisal Committee)
St. Mary's County Code Recodification Committee
Breton Bay Recreation, Inc.
(Board of Directors)
70
<PAGE>
CIVIC ORGANIZATIONS
- -------------------
American Legion/Lusby
St. Mary's County Chamber of Commerce
Calvert County Chamber of Commerce
Veterans of Foreign Wars/California
Disabled Veterans Association/California
Fleet Reserve Association/Lexington Park
The Navy League
B.P.O. Elks Lodge No. 2092
71
<PAGE>
JOHN R. FOWLER, CCIM, IFAS
HOME BUSINESS
P.O. BOX 934 P.O. BOX 2007
WALDORF, MD 20604 WALDORF, MD 20604
(301) 274-3535 (301) 932-7298
- --------------------------------------------------------------------------------
PROFESSIONAL REAL ESTATE
-----------
SKILLS Assisting Buyers and Sellers with general real estates
needs. Responsible for marketing, financing, contracts,
closing, follow-up, and communications. Assisting
Builders and Developers with land acquisition,
including site selection and analysis, Federal and
Local land use regulations, plans processing and
financing. Expertise in foreclosures, Sheriffs sales,
bankruptcy sales, tax sales. Instructing Commercial
Investment/Appraising
REAL ESTATE APPRAISING
----------------------
Over seventeen years of experience including a variety
of commercial properties, apartment buildings,
condemnations, condominiums, vacant and improved land,
residential property valuation and special-use
properties.
REAL ESTATE CONSULTANT
----------------------
Generate feasibility studies, including the research
and location of properties. The formulation of
financing plans for the acquisition and construction of
projects. Assisting with site development,
construction, and financing. Detailing projects from
planning to completion. Assisting clients with personal
investments in real estate. Generating investment plans
and goals, locating properties to match those needs.
LICENSES & CERTIFICATES
------------
DESIGNATIONS Real Estate Brokerage, Single Family Property
Development, Buyers Brokerage, FHA-VA-Conventional
Financing, Commercial Real Estate, Real Estate Law &
Contracts, Non-Tidal and Tidal Wetlands, Governmental
Regulations on Land Use. Real Estate Brokerage, Charles
County Community College.
LICENSES LICENSES AND DESIGNATIONS
-------------------------
DESIGNATIONS John R. Fowler, Broker Maryland and Virginia
MD. Certified General Appraiser # 04-2955
VA. Certified General Appraiser # 4001-001615
CCIM, Certified Commercial Investment Member
MD. Home Improvement Contractor # 13114: 1980-1993
Maryland General Contractor, Inactive
Certified Appraisal Instructor Maryland/DC
IFAS, National Assoc. of Independent Fee Appraisers
72
<PAGE>
JOHN R. FOWLER, CCIM, IFAS
PROFESSIONAL MEMBERSHIPS
-----------
MEMBERSHIPS National Association of Realtors
Maryland Association of Realtors
Southern Maryland Association of Realtors
Prince George's Board of Realtors
Commercial-Investment Real Estate Institute,
CCIM # 4117
Single Agency Realty Association
Past President, MD/DC Association of
Real Estate Appraisers
MD/DC CCIM Chapter
Real Estate Appraisal Section of NAR
The Appraisal Foundation-Subscriber
Appraisal Education Sub-Committee
Real Estate Training Advisory Committee
Charles County Community College
Appraisal Form Review Committee
National Association of Appraisers
IFAS, National Assoc. of Independent Fee
Appraisers
Past President of the Metro Washington D.C.
Chapter
PROFESSIONAL Re/Max Million Dollar Club
AWARDS Re/Max Executive Club
Re/Max Presidents Club
Re/Max 100% Club
Southern Maryland Distinguished Sales Club
Top Producer
Southern Maryland Million Dollar Club
Listing and Sales
PROFESSIONAL 1981-1997 Real Estate Brokerage and Appraising
QUALIFICATIONS 1977-1997 Land Acquisition and Construction,
Home Improvement Contracting
Venture Enterprises
1970-1977 Excavating and Utility-Contractor
1960-1975 Mechanical Contracting-Family
73
<PAGE>
PARTIAL LIST OF EDUCATIONAL COURSES
CHARLES COUNTY COMMUNITY COLLEGE
1984 Course 250 Principles of Real Estate
1984 Course 254 Real Estate Appraisal
1988 Course 251 Real Estate Brokerage I
1987 Course 252 Real Estate Brokerage II
1988 Course 259 Real Estate Brokerage III
NATIONAL ASSOCIATION OF REAL ESTATE APPRAISERS
Real Estate Appraising
Uniform Standards Of Professional Practice-Instructor
NATIONAL ASSOCIATION OF REALTORS, REALTORS NATIONAL MARKETING INSTITUTE,
COMMERCIAL REAL ESTATE COUNCIL
1990 CI 100 Leasing & Selling Commercial Property
1990 CI 101 Fundamentals of Real Estate Investment & Taxation
1990 CI 102 Fundamentals of Location & Market Analysis
1990 CI 103 Advanced Real Estate Taxation & Marketing
For Investment Real Estate
1990 CI 104 Human Behavior & Commercial Investment
Decision Making
1990 CI 105 Case Studies in Commercial-Investment
Real Estate Brokerage
1991 CCR Comprehensive Course Review
MARYLAND ASSOCIATION OF REALTORS
1989 Commercial Real Estate
1990 Governmental Regulation On Land Use
1990 Non-Tidal Wetlands
1993 Americans with Disabilities Act
NATIONAL ASSOCIATION OF INDEPENDENT FEE APPRAISERS & ADDITIONAL COURSES
1991 Concepts, Terminology & Techniques
1993 Condemnation Appraising
1993 New URAR Form
1994 Income Capitalization
1994 Limited Appraisal & USPAP
1994 Virginia Appraisal Law
1996 Fair Housing, Chesapeake Critical Area, Maryland Law
1996 Federal Clean Water Act, Storm Water & Forest Conservation
Act.
1996 Tax Free Exchanges
1997 Limited Restricted Appraisals, Virginia Law, USPAP
1997 Multi-Family Properties
74
<PAGE>
REAL ESTATE SOFTWARE ASSOCIATES
1993 Argus Lease & Argus Unit Sales
Discounted Cash Flow Analysis of Income and Expenses for
Property Valuation
PERSONAL I live in Charles County, Maryland with my wife. I am a Certified
Official with Special Olympics, a Coach in the Olympics of the Mind, active in
the "Just Say No Clubs", Member St. Charles-Waldorf Optimist Club, Past Chairman
of Charles County "Crime Solvers" and member of the Charles County Board of
Public Safety.
REFERENCES Available upon request
75
<PAGE>
QUALIFICATIONS:
Appraisal and/or advisory, and/or approved by the following partial list of
clients:
Albert and Laura Niggles
Alfred Lacer, Attorney
Alliance Mortgage Company
Appraisal Title and Management Corporation of America
Associates National Mortgage Corporation
Associates Relocation Management Co, Inc (ERC)
Barbour & Zverine, Attorneys
Bernstein & Feldman, Attorneys
Calvert Bank & Trust
Charles County Sheriffs' Department
Charles County Commissioners
Chase Home Mortgage Corporation
Citizens Bank of Maryland
Clinton Howard Leeland
County First Bank
Crestar Mortgage Company
Densford & Densford, Attorneys
Department of Justice
Department of Veterans Affairs
Department of Urban Housing
Farmers Home Administration
First Fidelity Bank
First National Bank of St. Mary's
First Security Savings Bank, FSB.
Freddie Mac
H.E. Fowler, Trust
Hayden & Turner, Attorneys
Louis Phipps
Louis P. Jenkins, Attorneys
Maryland Bank & Trust
Maryland State Highway Administration
Michael Raley
Miles Homes
Morgan Home Funding
Mortgage Lending Services
Mudd & Mudd, Attorneys
Nations Bank
New Life Management & Development Company, Inc.
Norwest Mortgage Banking
Old Line National Bank
Performance Mortgage Company
PHH Home Equity
Provident Bank of Maryland
Raymond Brown
Real Estate Company of Pittsburgh
Richard Barber Estate
76
<PAGE>
Robert Brilliant, Attorney
Roy Hart, Hart & Lytle
Sears Mortgage Corporation
Southern Maryland Electric Cooperative
Southern Maryland Oil Company
Swartwood and Associates
The Bank of Southern Maryland
The Bank of Baltimore
Tri-County Federal Savings Bank
U.S. Department of Agriculture
U.S. Property & Appraisal Company, Inc
Universal America
William Thomas, Sussex Inc.
***************************************
77
<PAGE>
EXHIBIT 99.11
AMERICAN COMMUNITY PROPERTIES TRUST
NET ASSET VALUATION
FOR
INITIAL ASSET CONTRIBUTION
<PAGE>
AMERICAN COMMUNITY PROPERTIES TRUST
NET ASSET VALUATION
FOR
INITIAL ASSET CONTRIBUTION
<TABLE>
<CAPTION>
Exhibit
-------
<S> <C>
Background on Robert A. Stanger & Co., Inc....................................... 1
Proposed Transaction Flowchart................................................... 2
Overview of Evaluation Process................................................... 3
Allocation Schedules
U.S. Housing Net Asset Value............................................ 4
P.R. Housing Net Asset Value............................................ 5
IGC Net Asset Value..................................................... 6
Intercompany Receivable Analysis................................................. 7
American Community Properties Trust NAV Summary.................................. 8
Form of Fairness Opinion......................................................... 9
Summary Appraisal Report......................................................... 10
Firm Brochure.................................................................... 11
</TABLE>
<PAGE>
EXHIBIT 1
---------
BACKGROUND ON ROBERT A. STANGER & CO., INC.
FINANCIAL ADVISORY SERVICES Over $10 Billion in Transactions During
Past 4 Years
REAL ESTATE APPRAISALS Over $2 Billion in Appraisals Annually
REAL ESTATE TRANSACTIONS Over $300 Million in Asset Sales During
Past 12 Months
PARTNERSHIP VALUATIONS Over $50 Billion in Partnerships Valued Annually
PUBLICATIONS The Stanger Report
LITIGATION SUPPORT Expert Witness Services
<PAGE>
EXHIBIT 1
---------
PAGE 2 OF 5
ROBERT A. STANGER & CO., INC.
MERGER AND ACQUISITION TRANSACTIONS
<TABLE>
<CAPTION>
COMPANY SERVICES TRANSACTION SIZE /1/
- ------- ---------------- --------------------
<S> <C> <C>
Post Properties Fairness Opinion $ 725,000,000
Charles E. Smith Residential Fairness Opinion 950,000,000
AMLI Realty Co. Fairness Opinion 665,000,000
Colonial Properties Fairness Opinion 65,000,000
Franchise Finance Corp of America Financial Advisor 750,000,000
PS Business Parks Fairness Opinion 12,000,000
Public Storage Partners 6-8 Fairness Opinion 80,000,000
Public Storage Properties VI-XII, XIV-XIX Fairness Opinion 630,000,000
Shurgard Storage Centers Fairness Opinion/Appraisals 425,000,000
Glenborough Realty Trust Fairness Opinion/Appraisals 150,000,000
Winthrop Financial Associates Fairness Opinion 250,000,000
The Related Companies Fairness Opinion 950,000,000
Chicago-Based Management Fairness Opinion 400,000,000
Atlantic Coast Fairness Opinion 60,000,000
American Retirement Villas I & II Fairness Opinion 45,000,000
SCA Tax Exempt Fund L.P. Fairness Opinion/Appraisals 220,000,000
Pru-Bache/Watson & Taylor 1-4 Fairness Opinion/Advisor 60,000,000
Cal Fed Income Partners Fairness Opinion 165,000,000
HEI Hotels Fairness Opinion 75,000,000
Charles E. Smith Residential Realty Fairness Opinion 113,000,000
IDS/Shurgard Income Partners I-III Fairness Opinion/Appraisals 122,000,000
Storage Properties, Inc. Fairness Opinion 27,000,000
Partners Preferred Yield, Inc. I-III Fairness Opinion 171,000,000
Ellenburg Capital Corp. Financial Advisor 225,000,000
NY-Based Real Estate Company Fairness Opinion/Appraisals 700,000,000 /1/
VA-Based Developer Fairness Opinion/Appraisals 300,000,000 /2/
NY-Based Real Estate Company Fairness Opinion/Appraisals 80,000,000 /2/
Koll-Bren Fund Consolidation Financial Advisor 1,200,000,000 /2/
Balcor Colonial 85 Fairness Opinion 58,000,000
Ellis & Lane Partnerships Fairness Opinion/Advisor 22,000,000
New Jersey/Colorado Self Storage Portfolio Financial Advisor 41,000,000
New Jersey/New York Portfolio Financial Advisor 25,000,000
Glenborough Realty Trust/T. Rowe Price Financial Advisor 145,000,000 /2/
California Based Partnerships Fairness Opinion/Appraisals 80,000,000 /2/
MIG Realty Consolidation Financial Advisor 600,000,000 /2/
------------------
$10,586,000,000
------------------
</TABLE>
- --------------------------------------
(1) Based on aggregate value of assets.
(2) Pending.
<PAGE>
EXHIBIT 1
PAGE 3 OF 5
TRANSACTION ASSIGNMENT SUMMARIES
1. POST PROPERTIES, INC. A master operating partnership (the
"Operating Partnership") was formed by merging forty-one privately placed
partnerships owning multifamily properties and the real estate management
company. Stanger prepared a fairness opinion with respect to (a) the allocation
of shares between the partnerships as a group and the management company and (b)
the allocation of shares between the partnerships. Merrill Lynch completed a new
issue REIT with approximately $600 million equity value which acquired an
interest in the Operating Partnership.
2. CHARLES E. SMITH RESIDENTIAL REALTY. An Operating Partnership
was formed by merging forty-two privately placed partnerships owning multifamily
properties and the management company. Stanger confirmed the reasonableness of
projection parameters and assumptions for the properties and prepared a fairness
opinion with respect to (a) the allocation of shares between the partnerships as
a group and the management company and (b) the allocation of shares between the
partnerships. Because of the number of limited partners involved, the securities
of the Operating Partnership were registered with the SEC. Goldman Sachs was
lead underwriter for the new issue REIT which acquired an interest in the
Operating Partnership. The aggregate asset value involved in the transaction was
approximately $950 million.
3. AMLI REALTY CO. The company consolidated twenty private
placement partnerships owning multifamily properties. Investors in the private
placements were given the opportunity to exchange interests for cash or stock in
a newly formed REIT at the time of its initial public offering by Merrill Lynch.
Stanger opined that the method of allocation of stock and cash between the
operating company and the partnerships and among the partnerships is fair from a
financial point of view to the limited partner investors.
4. COLONIAL PROPERTIES. Colonial merged a number of property
partnerships owning multifamily properties formed with institutional investors
into a newly formed REIT. Simultaneously with the initial public offering some
of the proceeds of sale were used to acquire eleven properties for cash from
limited partnerships in which individuals invested where Colonial was the
general partner. Stanger appraised the properties and provided a fairness
opinion of the buyout versus the appraisal, the going concern value and the
liquidation value.
5. PUBLIC STORAGE. Public Storage Inc., a publicly traded REIT,
offered its shares in exchange for limited partnership interests in several
partnerships organized by Public Storage. Stanger rendered the fairness opinion
to the investors in the partnerships.
<PAGE>
EXHIBIT 1
-----------
PAGE 4 OF 5
6. PUBLIC STORAGE PROPERTIES VI, VII, VIII, XI, X, XII, XVI, XVII,
XVIII, and XIX; PS BUSINESS PARKS; STORAGE PROPERTIES INC. AND PARTNERS
PREFERRED YIELD I, II, & III (REITs). The boards of directors engaged Stanger to
render an opinion as to the fairness of the consideration paid in transactions
involving the merger of the REITs with Public Storage Inc., an affiliated REIT,
in exchange for shares or cash.
7. SHURGARD STORAGE CENTERS, INC. Shurgard proposed the merger of
seventeen Shurgard partnerships representing approximately $425 million in
equity value. Stanger valued the assets and rendered the fairness opinion to the
limited partners with respect to the relative value of the partnerships, and
provided other analytical services.
8. GLENBOROUGH REALTY TRUST. The company consolidated nine public
partnerships and its management company in a rollup transaction. Stanger
rendered an opinion to the partnerships as to the fairness of the allocation of
interests in the REIT entity resulting from the consolidation. Such
consolidation included Glenborough's management company.
9. THE RELATED COMPANIES. The company was merging and/or acquiring
conventional and subsidized multifamily housing properties from affiliated and
non-affiliated entities to form a REIT with approximately $1 billion of assets.
Stanger was engaged in 1994 to opine as to the fairness of the consideration
offered to approximately forty affiliated partnerships in the context of the
transaction and the REIT IPO.
10. CHICAGO-BASED REAL ESTATE OWNER AND MANAGEMENT COMPANY. The
transaction involved the sale for cash, and in certain circumstances exchange
for other property, of ninety apartment properties to a entity to be formed by
the Management Company. Stanger rendered an opinion to the sellers (ninety
private limited partnerships) that the consideration to be received in the
transaction is fair, from a financial point of view.
11. ATLANTIC COAST PUBLIC LIMITED PARTNERSHIP. The board of
directors of the co-general partners in a public limited partnership engaged
Stanger to render an opinion as to the fairness of the consideration paid in a
transaction involving the sale of eleven shopping centers to an affiliated REIT.
12. AMERICAN RETIREMENT VILLAS PROPERTIES I & II. Stanger was
engaged to provide fairness opinions related to the purchase of properties from
these public partnerships by a public REIT and the simultaneous leaseback of the
properties to an affiliated entity.
<PAGE>
EXHIBIT 1
----------
PAGE 5 OF 5
13. SCA TAX EXEMPT FUND LP AND AFFILIATE. The company redeployed and
leveraged multifamily assets of an affiliated partnership and exchanged certain
assets and fees of its Management Company for a capital position in a newly
formed entity, Municipal Mortgage & Equity LLC. Limited partners were given the
choice of retaining an interest in the pre-reorganization assets or exchanging
for an interest in the post-reorganization assets. We were engaged to opine as
to the fairness of the allocation of the interests in the post-reorganization
activities between the management company, general partner and the limited
partners.
14. CF INCOME PARTNERS, L.P. The Board of Directors of the general
partners retained Stanger to provide a fairness opinion to unitholders of this
publicly traded master limited partnership ("MLP") regarding a transaction
involving the sale of real estate assets to a third party, transfer of assets in
partial satisfaction of indebtedness to California Federal Bank ("CalFed"), and
debt concessions by CalFed.
15. IDS/SHURGARD INCOME GROWTH PARTNERS L.P. I, II, & III. Stanger
was engaged to provide appraisals and fairness opinions for each of the
partnerships relating to a two-step transaction involving a cash tender offer
and follow-on merger with an affiliated publicly traded REIT. The transaction
involved approximately $122 million of real estate assets.
16. NEW YORK-BASED REAL ESTATE COMPANY. Stanger is providing
services in a transaction involving the merger of public partnerships to form a
REIT which will publicly trade. Stanger is engaged to appraise approximately
$700 million of real estate assets and to render a fairness opinion to each of
the merging entities with respect to the allocation of interests in the newly
formed REIT.
17. VIRGINIA-BASED MANAGEMENT COMPANY. Stanger is providing services
in a transaction involving the consolidation of two private partnerships and a
real estate management/development company, and the simultaneous purchase of
approximately $100 million of interests in the consolidated entity by a pension
fund. Stanger is engaged to render a fairness opinion regarding the allocation
of interest in the consolidated entity and the price paid by the pension fund
investor.
18. NEW YORK-BASED MANAGEMENT COMPANY. Stanger is providing services
in a transaction involving the merger/acquisition of two public partnerships
with a publicly traded REIT. Stanger is engaged to appraise approximately $80
million of assets owned by the partnerships and to render a fairness opinion to
each of the partnerships and to the REIT.
19. KOLL-BREN FUND CONSOLIDATION. Stanger was engaged by the Koll
Bren commingled and separate account funds to assist in the evaluation of a
proposed consolidation involving approximately $1.2 billion of office and
industrial assets. Stanger was engaged at the request of the pension fund and
institutional investors.
<PAGE>
AMERICAN COMMUNITY PROPERTIES TRUST EXHIBIT 2
---------
POST REORGANIZATION
(ASSUMING 100% PARTICIPATION)
[REORGANIZATIONAL CHART APPEARS HERE]
<PAGE>
EXHIBIT 3
---------
OVERVIEW OF ASSIGNMENT
Property Site Inspection
Review of Effective Gross Income
Review of Operating Expenses
Review of Historical and Budgeted Net Operating Income
Review of Financial Structure Including Term of
Housing Contract, Financing, Dividend Limitations
and Other Factors
Review of Value Estimates Based Upon Discounted
Cash Flow Analyses
Review of Appraisals Prepared By Others
Review of Valuations of Other Assets and Interests
OBJECTIVE: To reach a conclusion regarding the fairness of the following:
. the allocation of units in U.S. Housing
. the allocation of units in P.R. Housing
. the exchange ratio for units of U.S. Housing into shares of ACPT
. the exchange ratio for units of P.R. Housing into shares of ACPT
<PAGE>
EXHIBIT 4
---------
U.S. HOUSING PARTNERSHIP
NET ASSET VALUE SUMMARY
-----------------------
<TABLE>
<CAPTION>
NAV /(1)/ UNITS %
--------- ----- --
<S> <C> <C> <C>
To IGC As GP of Partnerships $12,994,000 1,299,400 55.87%
0
To IGC As L.P. of Partnerships 2,780,000 278,000 11.95%
----------- --------- -------
Subtotal 15,774,000 1,577,400 67.81%
To Other Limited Partners of
Bannister 1,825,000 182,500 7.85%
Palmer 487,000 48,700 2.09%
Brookside 1,068,000 106,800 4.59%
Headen 454,000 45,400 1.95%
Huntington 1,484,000 148,400 6.38%
Crossland 733,000 73,300 3.15%
Wakefield Third Age 502,000 50,200 2.16%
Lancaster 0 0 0.00%
Fox Chase 64,000 6,400 0.28%
New Forest 10,000 1,000 0.04%
Essex Village 0 0 0.00%
Wakefield Terrace 856,000 85,600 3.68%
----------- --------- -------
$23,257,000 2,325,700 100.00%
=========== ========= =======
0
=
</TABLE>
____________________
/(1)/ See attached schedule of Net Asset Value.
<PAGE>
- --------------------------------------------------------------------------------
WILLIAM BLOOMER - US NAV SUMMARY.123 PAGE 1
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
US HOUSING
NET ASSET VALUE SUMMARY
PRELIMINARY (IN THOUSANDS)
WAKEFIELD
BANNISTER PALMER BROOKSIDE HEADEN HUNTINGTON CROSSLAND THIRD AGE
--------- ------ --------- ------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(000s)
NAV ANALYSIS
CASH 108 126 91 262 452 84 27
A/C REC. 21 10 2 5 14 12 37
OTHER ASSETS 168 122 30 125 146 86 102
RES. RECEIPTS/REP. RES. 169 44 15 215 265 20 86
REAL ESTATE 7,860 6,440 2,720 6,560 10,350 4,010 4,220
--------- ------ --------- ------ ---------- --------- ---------
TOTAL ASSETS 8,326 6,742 2,858 7,167 11,227 4,212 4,472
A/C PAYABLE, OTHER (179) (111) (60) (110) (169) (71) (86)
DEBT - THIRD PARTY (3,691) (4,251) (1,637) (4,869) (7,699) (2,171) 2,343)
DEBT - I/C LOANS (1) (71) (391) (47) (334) (392) (137) (89)
CONSOLIDATION COSTS --------- ------ --------- ------ ---------- --------- ---------
NAV 4,385 1,989 1,114 1,854 2,967 1,833 1,954
--------- ------ --------- ------ ---------- --------- ---------
(1) REFLECTS I/C RECEIVABLES AND WORKING CAPITAL LOANS. I/C RECEIVABLE BALANCE MAY BE ADJUSTED TO REFLECT AMOUNT NOT DEEMED
COLLECTIBLE BASED ON NAV PRIORITY DISTRIBUTIONS.
(2) NOTE: I/C RECEIVABLES REDUCED FOR ESSEX VILLAGE BY $637.
OWNERSHIP % BEFORE RECOVERY OF CAPITAL
- --------------------------------------
<CAPTION>
WAKEFIELD
BANNISTER PALMER BROOKSIDE HEADEN HUNTINGTON CROSSLAND THIRD AGE
--------- ------ --------- ------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
IGC % AS GP 5.0% 50.0% 0.0% 50.0% 50.0% 60.0% 0.0%
IGC % AS LP 0.0% 25.5% 0.0% 25.5% 0.0% 0.00% 51.0%
OTHER % AS LP 95.0% 24.5% 100.0% 24.5% 50.0% 40.0% 40.0%
--------- ------ --------- ------ ---------- --------- ---------
100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
--------- ------ --------- ------ ---------- --------- ---------
PREFERENCE DISTRIBUTIONS
- ------------------------
PREFERENCE AMOUNT (3) 128 0 1,022 0 0 0 96
--------- ------ --------- ------ ---------- --------- ---------
IGC NAV AS GP 6 0 0 0 0 0 0
NAV - IGC AS LP - RETURN OF CAPITAL 0 0 0 0 0 0 49
NAV - OTHER LPs - RETURN OF CAPITAL 122 0 1,022 0 0 0 47
OWNERSHIP % AFTER PREFERENCES:
- -----------------------------
IGC % AS GP 60.0% 50.0% 50.0% 50.0% 50.0% 6.0% 50.0%
IGC % AS LP 0.0% 25.5% 0.0% 25.5% 0.0% 0.0% 25.5%
OTHER % AS LP 40.0% 24.5% 50.0% 24.5% 50.0% 4.0% 24.5%
--------- ------ --------- ------ ---------- --------- ---------
100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
--------- ------ --------- ------ ---------- --------- ---------
NAV DISTRIBUTION/ALLOCATION
- ---------------------------
IGC NAV AS GP 2,554 995 46 927 1,484 1,100 929
IGC NAV AS LP 0 507 0 473 0 0 474
OTHER LP NAV 1,703 487 46 454 1,484 733 455
TOTAL ALLOCATION
- ----------------
IGC NAV AS GP 2,560 995 46 927 1,484 1,100 929
IGC NAV AS LP 0 507 0 473 0 0 523
OTHER LP NAV 1,825 487 1,068 454 1,484 733 502
--------- ------ --------- ------ ---------- --------- ---------
TOTAL NAV 4,385 1,989 1,114 1,854 2,967 1,833 1,954
--------- ------ --------- ------ ---------- --------- ---------
(3) PREFERENCE AMOUNT REPRESENTS UNRECOVERED RETURN OF
CAPITAL.
TOTAL IGC NAV - US HOUSING 15,774 67.82% (4) GP/LP ALLOCATIONS FOR FOX CHASE AND NEW FOREST ARE
BASED ON CAPITAL A/C BALANCES PER THE PSHP
AGREEMENT.
OTHER LP NAV - US HOUSING 7,483 32.18% (5) FOX CHASE AND NEW FOREST ARE GENERAL PSHPS. THERE
ARE NO LPs. THE 0.1% REPRESENTS THE OUTSIDE GP %.
--------- ------
TOTAL - US HOUSING $ 23,257 100.00%
--------- ------
<CAPTION>
ESSEX WAKEFIELD U.S. HOUSING
LANCASTER FOX CHASE NEW FOREST VILLAGE TERRACE CONSOLIDATED
--------- --------- ---------- ------- ------- ------------
(2)
<S> <C> <C> <C> <C> <C> <C>
(000s)
NAV ANALYSIS
CASH 151 198 119 403 100 2,121
A/C REC. 9 9 14 34 34 201
OTHER ASSETS 105 158 273 259 222 1,796
RES. RECEIPTS/REP. RES. 162 59 135 628 201 1,999
REAL ESTATE 5,790 9,020 15,200 17,510 7,740 97,420
--------- --------- ---------- ------- ------- ------------
TOTAL ASSETS 6,217 9,444 15,741 18,834 8,297 103,537
A/C PAYABLE, OTHER (111) (175) (234) (399) (184) (1,889)
DEBT - THIRD PARTY (4,342) (6,643) (12,524) (16,114) (5,023) (71,307)
DEBT - I/C LOANS (1) (1,320) (15) (1,862) (2,321) (105) (7,084)
CONSOLIDATION COSTS --------- --------- ---------- ------- ------- ------------
NAV 444 2,611 1,121 0 2,985 23,257
--------- --------- ---------- ------- ------- ------------
<CAPTION>
ESSEX WAKEFIELD
LANCASTER FOX CHASE NEW FOREST VILLAGE TERRACE
--------- --------- ---------- ------- -------
(2)
<S> <C> <C> <C> <C> <C>
IGC % AS GP 50.0% 99.9% 99.9% 50.0% 0.0%
IGC % AS LP 50.0% 0.0% 0.0% 0.0% 51.0%
OTHER % AS LP 0.0% 0.1% 0.1% 50.0% 49.0%
--------- --------- ---------- ------- -------
100.0% 100.0% 100.0% 100.0% 100.0%
--------- --------- ---------- ------- -------
PREFERENCE DISTRIBUTIONS
- ------------------------
PREFERENCE AMOUNT (3)
IGC NAV AS GP 329 0 0 0 508
--------- --------- ---------- ------- -------
NAV - IGC AS LP - RETURN OF CAPITAL 0 0 0 0 0 6
NAV - OTHER LPs - RETURN OF CAPITAL 329 0 0 0 259 637
0 0 0 0 249 1,440
OWNERSHIP % AFTER PREFERENCES:
- -----------------------------
IGC % AS GP 50.0% 99.9% 99.9% 50.0% 50.0%
IGC % AS LP 50.0% 0.0% 0.0% 0.0% 25.5%
OTHER % AS LP 0.0% 0.1% 0.1% 50.0% 24.5%
--------- --------- ---------- ------- -------
100.0% 100.0% 100.0% 100.0% 100.0%
--------- --------- ---------- ------- -------
NAV DISTRIBUTION/ALLOCATION
- ---------------------------
IGC NAV AS GP 58 2,547 1,111 0 1,239 12,988
IGC NAV AS LP 58 0 0 0 632 2,143
OTHER LP NAV 0 64 10 0 607 6,043
TOTAL ALLOCATION
- ----------------
IGC NAV AS GP 58 2,547 1,111 0 1,239 12,994
IGC NAV AS LP 387 0 0 0 891 2,780
OTHER LP NAV 0 64 10 0 856 7,483
--------- --------- ---------- ------- -------
TOTAL NAV 444 2,611 1,121 0 2,985 23,257
--------- --------- ---------- ------- -------
(4)(5) (4)(5)
</TABLE>
<PAGE>
EXHIBIT 5
---------
P.R. HOUSING PARTNERSHIP
NET ASSET VALUE SUMMARY
-----------------------
<TABLE>
<CAPTION>
NAV /(1)/ UNITS %
------------ --------- -------
<S> <C> <C> <C>
To IGC As GP of Partnerships $19,354,000 1,935,400 43.72%
0
To IGC As L.P. of Partnerships 232,000 23,200 0.52%
----------- --------- -------
Subtotal 19,586,000 1,958,600 44.03%
To Other Limited Partners of
Alturas Del Senorial 1,715,000 171,500 3.87%
Bayamon Gardens 2,058,000 205,800 4.65%
Carolina Associates /(2)/ 2,070,000 207,000 4.68%
Colinas De San Juan 3,591,000 359,100 8.11%
Jardines De Caparra 2,956,000 295,600 6.68%
Monserrate I 4,407,000 440,700 9.95%
Monte De Oro 2,044,000 204,400 4.62%
New Center 1,982,000 198,200 4.48%
San Anton 1,572,000 157,200 3.55%
Valle Del Sol 1,643,000 164,300 3.71%
Vistas Del Turabo 647,000 64,700 1.46%
----------- --------- -------
$44,271,000 4,427,100 100.00%
=========== ========= =======
0
=
</TABLE>
/(1)/ See attached schedule.
/(2)/ Includes De Diego, Monserrate II, Santa Juana and Torre De Las Cumbres
properties.
<PAGE>
William Bloomer - PR NAV Summary. 123 Page 1
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
A:\IGC December 1996 Original\PR NAV Summary.123
PR HOUSING
NET ASSET VALUE SUMMARY PRELIMINARY
PRELIMINARY (IN THOUSANDS)
ALTURAS BAYAMON CAROLINA COLINAS De JARDINES
DEL SENORIAL GARDENS ASSOCIATES (4) SAN JUAN De CAPARRA MONSERRATE I
------------ ------- -------------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
(000s)
NAV ANALYSIS
CASH 37 301 496 175 98 171
A/C REC. 10 10 61 20 43 79
OTHER ASSETS 61 92 111 168 113 60
RES. RECEIPTS/REP. RES. 1,676 1,192 1,938 3,462 3,236 628
REAL ESTATE 4,920 11,170 32,830 11,500 7,200 10,350
TOTAL ASSETS 6,704 12,765 35,436 15,325 10,690 11,288
A/C PAYABLE, OTHER (67) (149) (618) (143) (111) (148)
DEBT - THIRD PARTY (3,267) (9,497) (30,679) (8,458) (5,063) (1,862)
DEBT - I/C LOANS (3) (213) (512) 0 (377) (160) 0
----------- ----------- ----------- ----------- --------- ---------
CONSOLIDATION COSTS
NAV 3,157 2,607 4,139 6,347 5,356 9,278
=========== =========== =========== =========== ========= =========
(1) Reflects $5.2M loan draw down; $2.3M distribution to IGP; and $2.3M distribution to LPs during April 1997. Excess of loan
proceeds over distributions reflected in 'Other Assets' balance.
(2) Reflects $5.6M loan draw down; repayment of existing $437k mortgage; $2.3M distribution to IGP; and $2.3M distribution to LPs
during April 1997. Excess of loan draw down over cash distributions reflected in cash balance.
(3) REFLECTS I/C RECEIVABLES AND WORKING CAPITAL LOANS. I/C RECEIVABLE BALANCE MAY BE ADJUSTED TO REFLECT AMOUNT NOT DEEMED
COLLECTIBLE BASED ON NAV PRIORITY DISTRIBUTIONS.
OWNERSHIP % BEFORE RECOVERY OF CAPITAL
- --------------------------------------
IGC % AS GP 1.0% 1.0% 50.0% 1.0% 1.0% 50.0%
IGC % AS LP 0.0% 0.0% 0.0% 0.0% 0.0% 2.5%
OTHER % AS LP 99.0% 99.0% 50.0% 99.0% 99.0% 47.5%
----------- ----------- ----------- ----------- --------- ---------
100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
=========== =========== =========== =========== ========= =========
PREFERENCE DISTRIBUTIONS
- ------------------------
PREFERENCE AMOUNT (5) 272 1,509 0 834 868 0
----------- ----------- ----------- ----------- --------- ---------
IGC NAV AS GP 0 0 0 0 156 0
NAV - IGC AS LP - ROC 0 0 0 0 0 0
NAV - OTHER LPs - ROC 272 1,509 0 834 712 0
OWNERSHIP % AFTER PREFERENCES:
- -----------------------------
IGC % AS GP 50.0% 50.0% 50.0% 50.0% 50.0% 50.0%
IGC % AS LP 0.0% 0.0% 0.0% 0.0% 0.0% 2.5%
OTHER % AS LP 50.0% 50.0% 50.0% 50.0% 50.0% 47.5%
100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
NAV DISTRIBUTION/ALLOCATION
- ---------------------------
IGC NAV AS GP 1,443 549 2,070 2,757 2,244 4,639
IGC NAV AS LP 0 0 0 0 0 232
OTHER LP NAV 1,443 549 2,070 2,757 2,244 4,407
TOTAL ALLOCATION
- ----------------
IGC NAV AS GP 1,443 549 2,070 2,757 2,400 4,639
IGC NAV AS LP 0 0 0 0 0 232
OTHER LP NAV 1,715 2,058 2,070 3,591 2,956 4,407
TOTAL NAV 3,157 2,607 4,139 6,347 5,356 9,278
(4) INCLUDES De DIEGO, MONSERRATE II, SANTA JUANA AND TORRE De LAS CUMBRES PROPERTIES.
(5) PREFERENCE AMOUNT REPRESENTS UNRECOVERED RETURN OF CAPITAL.
TOTAL IGC NAV - PR HOUSING 19,586 44.24%
OTHER LP NAV - PR HOUSING 24,683 55.76%
----------- -----------
TOTAL - PR HOUSING $44,269 100.00%
=========== ===========
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
VISTAS PR HOUSING
MONTE De ORO NEW CENTER SAN ANTON VALLE DEL SOL DEL TURABO CONSOLIDATED
------------ ---------- --------- ------------- ---------- ------------
(000s) (1) (2)
<S> <C> <C> <C> <C> <C> <C>
NAV ANALYSIS
CASH 155 178 120 212 11 1,954
A/C REC. 7 9 7 4 3 253
OTHER ASSETS 443 464 34 104 9 1,659
RES. RECEIPTS/REP. RES. 3 358 444 805 114 13,856
REAL ESTATE 8,750 8,660 5,520 13,080 2,990 116,970
---------- -------- -------- ---------- --------- ---------
TOTAL ASSETS 9,358 9,669 6,125 14,205 3,127 134,692
A/C PAYABLE, OTHER (70) (105) (91) (191) (82) (1,775)
DEBT - THIRD PARTY (5,200) (5,600) (2,973) (11,053) (2,316) (85,968)
DEBT - I/C LOANS (3) 0 0 (99) (1,273) (46) (2,680)
CONSOLIDATION COSTS
---------- -------- -------- ---------- --------- ---------
NAV 4,088 3,964 2,962 1,688 683 44,269
========== ======== ======== ========== ========= =========
(1) Reflects $5.2M loan draw down; $2.3M distribution to IGP; and $2.3M distribution to LPs during April 1997. Excess of loan
proceeds over distributions reflected in 'Other Assets' balance.
(2) Reflects $5.6M loan draw down; repayment of existing $437k mortgage; $2.3M distribution to IGP; and $2.3M distribution to LPs
during April 1997. Excess of loan draw down over cash distributions reflected in cash balance.
(3) REFLECTS I/C RECEIVABLES AND WORKING CAPITAL LOANS. I/C RECEIVABLE BALANCE MAY BE ADJUSTED TO REFLECT AMOUNT NOT DEEMED
COLLECTIBLE BASED ON NAV PRIORITY DISTRIBUTIONS.
OWNERSHIP % BEFORE RECOVERY OF CAPITAL
- --------------------------------------
IGC % AS GP 50.0% 50.0% 0.0% 1.0% 50.5%
IGC % AS LP 0.0% 0.0% 0.0% 0.0% 0.0%
OTHER % AS LP 50.0% 50.0% 100.0% 99.0% 49.5%
100.0% 100.0% 100.0% 100.0% 100.0%
PREFERENCE DISTRIBUTIONS
- ------------------------
PREFERENCE AMOUNT (5) 0 0 154 1,597 625
---------- -------- -------- ---------- ---------
IGC NAV AS GP 0 0 0 0 7 163
NAV - IGC AS LP - ROC 0 0 0 0 0 0
NAV - OTHER LPs - ROC 0 0 154 1,597 618 5,696
OWNERSHIP % AFTER PREFERENCES:
- -----------------------------
IGC % AS GP 50.0% 50.0% 49.5% 50.0% 50.0%
IGC % AS LP 0.0% 0.0% 0.0% 0.0% 0.0%
OTHER % AS LP 50.0% 50.0% 50.5% 50.0% 50.0%
---------- -------- -------- ---------- ---------
100.0% 100.0% 100.0% 100.0% 100.0%
========== ======== ======== ========== =========
NAV DISTRIBUTION/ALLOCATION
IGC NAV AS GP 2,044 1,982 1,390 46 29 19,191
IGC NAV AS LP 0 0 0 0 0 232
OTHER LP NAV 2,044 1,982 1,418 46 29 18,987
TOTAL ALLOCATION
IGC NAV AS GP 2,044 1,982 1,390 46 36 19,354
IGC NAV AS LP 0 0 0 0 0 232
OTHER LP NAV 2,044 1,982 1,572 1,643 647 24,683
---------- -------- -------- ---------- --------- ---------
TOTAL NAV 4,088 3,964 2,962 1,688 683 44,269
========== ======== ======== ========== ========= =========
(4) INCLUDES De DIEGO, MONSERRATE II, SANTA JUANA AND TORRE De LAS CUMBRES PROPERTIES.
(5) PREFERENCE AMOUNT REPRESENTS UNRECOVERED RETURN OF CAPITAL.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 6
---------
IGC NET ASSET VALUE
-------------------
<TABLE>
<S> <C>
US Housing - 1,577,400 units at $10 $ 15,774,000
US Management Company (95%) /(a)/ 3,747,000
Other /(b)/ 11,000
------------
Subtotal US Rental $ 19,532,000 (A)
============
SCA Assets /(c)// Total U.S. Land 36,333,000 (B)
============
LDA Interest (80%) /(d)/ $ 21,919,000
Escorial Builders Interest (50%) /(e)/ 2,544,000
PR Housing - 1,958,600 units at $10 19,586,000
PR Management Company /(f)/ 6,628,000
Other PR Assets and Liabilities 0
------------
Subtotal PR Holdings $ 50,677,000 (C)
============
Intercompany Receivables /(g)/ $ 9,765,000
Other Assets 0
Other Liabilities 0
------------
Subtotal - Other Net Assets $ 9,765,000 (D)
============
Consolidation Costs $ 0 (E)
============
Total Net Asset Value $116,307,000 (A+B+C+D+E)
NAV Per Share $ 10
------------
Shares Issued 11,630,700
============
</TABLE>
<PAGE>
EXHIBIT 6
---------
(CONTINUED)
(a) The U.S. Management Company was valued at a multiple of 4 on 1997 pro
forma cash flow of $986,000, adjusted for a 5% interest which will not
be owned by ACPT.
(b) Represents 1% interest in Lakeside, valued at book value.
(c) The other net asset value of SCA was determined as follows:
<TABLE>
<S> <C>
Land Parcels at Appraised Value:
Dorchester Neighborhood Finished Lots 2,440,000
Huntington Ridge - Raw Acreage 1,675,000
Fairway - Raw Recorded Lots 3,200,000
Fairway - Raw Acreage 8,850,000
Wooded Glen and Piney Beach - Raw Acreage 7,700,000
Business Park East and North - Finished Land - Industrial 2,200,000
Middle Industrial Park - Raw Land - Industrial 4,750,000
Piney Beach Industrial Park - Raw Land - Industrial 8,320,000
West Lake and Smallwood Parcels 10,950,000
----------
Total 50,085,000
Liabilities (37,158,000)
-----------
SCA Net Asset Value $12,927,000
===========
Ownership Interest x99%
-----------
Net Asset Value of SCA 12,797,730
Intercompany Account Included in Liabilities 23,535,000
-----------
Equity Value of SCA Interest 36,332,730
===========
Use $36,333,000
===========
(d) Represents 80% of net asset value of LDA determined as follows: 12,797,730
Cash $839,000
Receivables 3,589,000
Real Estate at Appraisal - Vacant Land - Canovanas, PR 6,100,000
- Parque Escorial Planned Community 35,900,000
-----------
Total Assets 46,428,000
Accounts Payable (1,257,000)
Liabilities (28,612,000)
-----------
Total 16,559,000
x 80%
-----------
Net Asset Value of LDA 13,247,000
===========
Intercompany Account Included in Liabilities 8,672,000
-----------
Total Value of LDA Interest 21,919,000
===========
</TABLE>
<PAGE>
EXHIBIT 6
---------
(CONTINUED)
(e) Represents 50% of net asset value of Escorial Builders S.E. determined
as follows:
<TABLE>
<S> <C>
Cash $ 322,000
Other Assets 20,000
Real Estate at Book Value -
Villas De Parque Escorial 5,243,000
-----------
Total Assets 5,585,000
Accounts Payable (1,036,000)
Debt (4,011,000)
-----------
Balance Sheet Net Asset Value 538,000
Present Value of Estimated Future Earnings (1) 4,550,000
-----------
Total 5,088,000
x 50%
-----------
Net Asset Value of Escorial Building S.E $ 2,544,000
===========
</TABLE>
(1) Based on June 11, 1997 correspondence from management, the
estimated expected return on the Escorial Builders project is
$5,600,000. For purposes of NAV, management anticipates the return of
$5,600,000 in excess of book value to be achieved over a 2 year period.
Using a 15% discount rate the present value of the expected return is
approximately $4,550,000.
(f) The P.R. Management Company was valued at a multiple of 4 on 1997 pro
forma cash flow of $1,657,000 and assumed 100% ownership by ACPT.
(g) For purposes of this analysis the intercompany receivables are as of
December 31, 1996 from those affiliated entities included in the Net
Asset Value Analyses.
<PAGE>
EXHIBIT 7
---------
ACPT INTERCOMPANY RECEIVABLES
-----------------------------
<TABLE>
<CAPTION>
12/31/96
INTERCOMPANY
ENTITY RECEIVABLE /(1)/
------ ----------------
<S> <C>
Bannister $71,091
Palmer 390,519
Brookside 47,000
Headen 333,908
Huntington 391,693
Crossland 137,186
Wakefield Third Age 89,420
Lancaster 1,320,000
Fox Chase 15,861
New Forest 1,861,562
Essex Village 2,321,000
Wakefield Terrace 104,782
Lakeside (2) 889
Alturas Del Senorial 213,263
Bayamon Gardens 512,165
Carolina Associates --
Colinas De San Juan 376,746
Jardines De Caparra 160,169
Monserrate I --
Monte De Oro --
New Center --
San Anton 98,700
Valle Del Sol 1,273,000
Vistas Del Turabo 46,000
-----------
Total $ 9,764,954
===========
Use $ 9,765,000
===========
</TABLE>
(1) Balances obtained from December 31, 1996 financial statements.
(2) Represents 1% interest of intercompany receivable.
<PAGE>
EXHIBIT 8
---------
AMERICAN COMMUNITIES PROPERTIES TRUST
NET ASSET VALUE SUMMARY
<TABLE>
<CAPTION>
NAV NAV
CONTRIBUTED CONTRIBUTED TOTAL
BY IGC BY L.P.'S UPON NAV ASSUMING
SHAREHOLDERS CONVERSION 100% CONVERSION
------------- -------------- ---------------
<S> <C> <C> <C>
U.S. Housing $15,774,000 $7,483,000 $23,257,000
P.R. Housing 19,586,000 24,685,000 44,271,000
U.S. Management Company 3,747,000 -- 3,747,000
U.S. Land Assets (SCA) 36,333,000 -- 36,333,000
LDA Interest 21,919,000 -- 21,919,000
Escorial Builders Interest 2,544,000 -- 2,544,000
P.R. Management Company 6,628,000 -- 6,628,000
Intercompany Receivables 9,765,000 -- 9,765,000
Other Assets 11,000 -- 11,000
------------- -------------- --------------
TOTALS $116,307,000 $32,168,000 $148,475,000
Share Price $10 $10 $10
------------- ------------- --------------
TOTAL SHARES 11,630,700 3,216,800 14,847,500
========== ========= ==========
PERCENTAGE 78.33% 21.67% 100.00%
====== ====== =======
</TABLE>
<PAGE>
EXHIBIT 9
---------
FAIRNESS OPINION
DRAFT
-----
June __, 1997
Interstate General Company, L.P.
and Affiliated Partnerships
Identified on Exhibit A
222 Smallwood Village
St. Charles, Maryland
Gentlemen:
You have advised us that Interstate General Company, L.P. ("IGC")
intends to consolidate certain of its assets into American Community Properties
Trust ("ACPT"), a Maryland Business Trust that will be taxable as a partnership
and that shares of ACPT will be distributed on a pro-rata basis to unitholders
of IGC. You have further advised us that ACPT will operate through three primary
operating subsidiary entities: American Rental Properties Trust, a Maryland
business trust that intends to qualify as a real estate investment trust ("US
Rental"); American Land Development US, Inc. ("US Land"), a US corporation; and
Puerto Rico Holdings Associates, S.E., a Puerto Rican special partnership that
will elect to be taxed as a corporation for US tax purposes and will be treated
as a partnership for Puerto Rican tax purposes ("PR Holdings").
We have also been advised that US Rental will hold 100% of the
non-voting common stock of American Management US, Inc. ("US Management")
entitling US Rental to 95% of distributions from US Management. US Rental will
also initially own 100% of the outstanding units of American Housing Properties,
L.P. ("US Housing"), a Maryland limited partnership which will hold interests in
__ affiliated partnerships (the "US Affiliated Partnerships") which own interest
in __ apartment properties.
We have been advised that US Land will own ____ parcels of land
aggregating ____ acres in the St. Charles, Maryland and _________ areas with an
appraised value of _______.
You have also advised us that PR Holdings will operate its assets
through Interstate General Properties, a Maryland general partnership, which
will own interests in certain land and, initially, 100% of the outstanding
interests in Puerto Rico Housing Properties, L.P. ("PR Housing"), a Maryland
partnership, which will own interests in __ affiliated partnerships (the "PR
Affiliated Partnerships"), which own interests in __ apartment properties
located in Puerto Rico.
We have also been advised that IGC will also contribute to ACPT its
receivables from affiliated partnerships aggregating $_______ in principal
amount and other assets with an estimated value of $_______.
<PAGE>
Simultaneously with the Transaction, US Housing will offer to exchange
units of US Housing for interests in the US Affiliated Partnerships on the basis
of net asset value ("NAV"); and PR Housing will offer to exchange units of PR
Housing for interests in the PR Affiliated Partnerships on the basis of NAV.
Units of both US Housing and PR Housing will be exchangeable on a one-for-one
basis for Shares of ACPT, subject to adjustments for distributions made
subsequent to the closing of the Transaction. Investors in the US Affiliated
Partnerships who do not elect to exchange their units for Units in US Housing;
and investors in the PR Affiliated Partnerships who do not elect to exchange
their units for Units in PR Housing will be entitled to retain their existing
interests in the US Affiliated Partnerships or PR Affiliated Partnerships,
respectively.
You have requested that Robert A. Stanger & Co., Inc. ("Stanger")
provide an opinion to the US Affiliated Partnerships and the PR Affiliated
Partnerships as to the fairness, from a financial point of view, of the
allocation of units in US Housing and PR Housing, respectively. Furthermore, you
have requested that Stanger provide an opinion as to the fairness, from a
financial point of view, of the exchange ratio for units of US Housing and PR
Housing into Shares of ACPT.
Stanger, founded in 1978, has provided information, research,
investment banking and consulting services to clients located throughout the
United States, including major New York Stock Exchange member firms and
insurance companies and over seventy companies engaged in the management and
operation of partnerships. The investment banking activities of Stanger include
financial advisory services, asset and securities valuations, industry and
company research and analysis, litigation support and expert witness services,
and due diligence investigations in connection with both publicly registered and
privately placed securities transactions.
Stanger, as part of its investment banking business, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers, acquisitions, and reorganizations and for estate, tax, corporate and
other purposes. In particular, Stanger's valuation practice principally involves
partnerships, partnership securities and the assets typically owned through
partnerships including, but not limited to, real estate, oil and gas reserves,
cable television systems, and equipment leasing assets.
In arriving at the opinion set forth below, we have:
1. Reviewed the Prospectus/Consent Solicitation Statement and
Partnership Supplements (the "Prospectus");
2. Reviewed the financial statements of the Affiliated
Partnerships and IGC for the year ended December 31, 1996 and
for the quarter ended March 31, 1997;
3. Reviewed the pro forma statements for ACPT included in the
Prospectus for the year ended December 31, 1996;
4. Reviewed certain operating and financial information relating
to the business, financial condition, and results of
operations of the Affiliated Partnerships, and discussed with
management of the Affiliated Partnerships and IGC the
operations, business plans, current conditions in the real
estate industry (including market
<PAGE>
conditions for sales/acquisitions of properties of the type
owned by the Affiliated Partnerships), and the historical
financial statements, budgets and future prospects the
Affiliated Partnerships;
2. Reviewed summaries disclosed in the Prospectus of the
provisions of the Affiliated Partnership Agreements relating
to the General Partner's and IGC's fees and interest in each
Affiliated Partnership;
5. Reviewed and analyzed the methodology used by IGC and ACPT to
allocate units in US Housing and PR Housing and to convert US
Housing Units and PR Housing Units into Class B Shares of
ACPT;
6. Reviewed information and acquisition criteria used by real
estate investors for properties similar to the properties
owned by the Affiliated Partnerships, ACPT and Affiliates;
7. Reviewed the independent third party appraisals of the US land
assets as prepared by Smail Associates, Inc. and of the Puerto
Rico land assets as prepared by Robert F. McCloskey
Associates, and value estimates prepared by IGC of the value
of the US Management Assets, PR Management Assets and selected
other assets; and
8. Conducted such other inquiries as we deemed appropriate.
To evaluate the fairness from a financial point of view of the
allocation of Units of US Housing between the US Affiliated Partnerships, we
considered: i) the historical cash flow for each property of each US Affiliated
Partnership; ii) 1997 cash flow estimates prepared by IGC; iii) the limited
summary real estate appraisals prepared by Stanger on each of the properties
owned by a US Affiliated Partnership; iv) debt balances and other asset values
(as determined by IGC) for each US Affiliated Partnership as of December 31,
1996.
To evaluate the fairness from a financial point of view of the
allocation of units between the PR Affiliated Partnerships and PR Housing, we
considered: i) the historical cash flow for each property of each PR Affiliated
Partnership; ii) the 1997 cash flow estimates prepared by IGC; iii) the limited
summary appraisals prepared by Stanger on each of the properties owned by a PR
Affiliated Partnership; and iv) debt balances and other asset values (as
determined by IGC) for each PR Affiliated Partnership as of December 31, 1996.
We observe that the allocation of Units in each of US Housing and PR
Housing are based upon the Net Asset Values of the units of the Affiliated
Partnerships as of December 31, 1996, and that such Net Asset Values are based,
in part, upon limited summary appraisals prepared by Stanger as of December 31,
1996 and adjusted for other net assets of the Affiliated Partnerships, reduced
for other net liabilities (and a pro-rata share of consolidation expenses), as
of December 31, 1996 and adjusted for the ownership interest of the General
Partners in accordance with the provision of each Partnership Agreement
affecting liquidations.
We further observe that the Units of US Housing and PR Housing issued
in the Transaction will be based upon Net Asset Value at $10 per Unit and that
the Net Asset Value of
<PAGE>
ACPT will also be established at $10 per Share (the "Shares"). The Net Asset
Value of each Share of ACPT has been based upon: i) the Net Asset Value of each
unit or interest in the Affiliated Partnerships owned by ACPT at the time of the
Transaction as established above aggregating $_______; ii) the value ascribed to
the US Management Operations by management based upon a __________ multiple
applied to operating cash flow, adjusted for the portion (5%) of such operations
which will be owned by members of Management; resulting in a value of
$_________; iii) the appraised value of the US land assets less outstanding
debt, adjusted for ACPT's ownership interest in such assets resulting in an
aggregate net value to ACPT's interest of $__________; iv) the value ascribed to
the PR Management operations by management based upon a __________ multiple
applied to operating cash flow resulting in a value of $__________; v) the
appraised value of the Puerto Rico Land Assets, adjusted for debt outstanding,
and adjusted for ACPT's ownership interest in such assets resulting in an
aggregate net value to ACPT's interest of $_________; plus vi) the value of
other assets of ACPT including cash, accounts receivable, and other assets
aggregating $_______; less vii) the amount of debt and other liabilities
outstanding aggregating $_______; and viii) the amount of consolidation costs
allocable to ACPT in the transaction aggregating $_______.
[Need more information on "conversion adjustment issue" to address conversion of
US Housing Units and PR Housing Units into ACPT.]
In rendering this opinion, we have relied, without independent
verification, on the accuracy and completeness of all financial and other
information contained in the Prospectus or that was otherwise publicly available
or furnished or otherwise communicated to us. We have not made an independent
evaluation or appraisal of the US or Puerto Rican land assets, US Management
Company assets, PR Management Company assets, or non-real estate assets and
liabilities of the Affiliated Partnerships or ACPT. We have relied, without
independent verification, on the accuracy and completeness of the appraisals of
the U.S. and Puerto Rican land assets as appraised by independent third parties.
We have also relied on the accuracy and completeness of the balance sheet value
determinations for ACPT and the Affiliated Partnerships, and all other
adjustments made to the Net Asset Value to arrive at the respective Net Asset
Values and Net Asset Value per limited partnership unit in each Affiliated
Partnership. We have also relied on the assurance of IGC, the Affiliated
Partnerships, the General Partners and ACPT that: the calculations made to
determine allocations, within each Affiliated Partnership, between the General
Partners, and Limited Partners are consistent with each Affiliated Partnership's
partnership agreement; that any financial projections of pro forma statements or
adjustments provided to us were reasonably prepared or adjusted on bases
consistent with actual historical experience or reflected the best currently
available estimates and good faith judgments; that no material changes have
occurred in the value of the Affiliated Partnership's or ACPT's real estate
portfolios between the date of the appraisal and the date of this Opinion; and
that IGC, ACPT and the Affiliated Partnerships and the General Partners are not
aware of any information or facts regarding the Affiliated Partnerships that
would cause the information supplied to us to be incomplete or misleading.
We have not been requested to, and therefore did not: (i) select the
method of determining the allocations for the Units in US Housing or PR Housing,
or establish the allocations (IGC and the General Partners initiated and
structured the Transaction, and selected the allocation ratios); ii) make any
recommendation to the Limited Partners, the General Partners, ACPT or IGC as to
<PAGE>
whether to elect to receive Units in US Housing or PR Housing or Shares of ACPT;
(iii) express any opinion as to (a) the impact of the Transaction with respect
to combinations of Partnerships or the resulting capital structure of US
Housing, PR Housing or ACPT; (b) the impact of the Transaction on the Limited
Partners in any Affiliated Partnerships which do not participate in the
Transaction, including the impact of potential increases in the level of control
of the Affiliated Partnerships to be exercised by ACPT subsequent to the
Transaction; (c) the tax consequences of the Transaction for Limited Partners in
the Affiliated Partnerships (including the impact of tax credit recapture or
Puerto Rican taxes), or for ACPT's, US Housing's or PR Housing's ability to
qualify as a partnership, or the consequences of such entity's failure to so
qualify; (d) the potential capital structure of ACPT, US Housing or PR Housing
or such structures impact on the financial performance of the Units of US
Housing or PR Housing or the shares of ACPT; or (e) whether or not alternative
methods of determining the relative amounts of Units or Shares to be issued
would have also provided fair results or results substantially similar to those
of the allocation methodology used.
Further, we are not expressing any opinion herein as to: (i) the
fairness of any terms of the Transaction other than the fairness of the
allocations assuming the Maximum Participation Scenario as defined in the
Prospectus, or the amounts or allocations of Consolidation Costs or the amount
of Consolidation Costs borne by Limited Partners at various levels of
participation in the Transaction; (ii) the relative value of the Shares of ACPT
and the Units of US Housing or PR Housing to be issued in the Transaction; (iii)
the prices at which Shares of ACPT or Units of US Housing or PR Housing may
trade, if at all, following the Transaction or the trading value of the Shares
of ACPT or Units of US Housing or PR Housing to be received compared with the
current fair market value of the Affiliated Partnerships' assets if liquidated
in today's real estate market; or (iv) alternatives to the Transaction.
[Based upon and subject to the foregoing, it is our opinion that, as of
the date of the information considered in this analysis, i) the allocation of
Units in US Housing is fair to the limited partners in the US Affiliated
Partnerships, from a financial point of view; ii) the allocation of Units in PR
Housing is fair to the limited partners in the PR Affiliated Partnerships, from
a financial point of view; and iii) the exchange ratio for Units of US Housing
for Shares of ACPT and the exchange ratio for Units of PR Housing into Shares of
ACPT is fair to the limited partners in the Affiliated Partnerships, from a
financial point of view.]
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Stanger has
advised the Affiliated Partnerships, IGC and ACPT that its entire analysis must
be considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering all analyses and factors, could
create an incomplete view of the evaluation process underlying this opinion.
Sincerely,
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
<PAGE>
June 17, 1997
Interstate General Co., L.P.
222 Smallwood Village Center
St. Charles, MD 20602
Gentlemen:
You have engaged Robert A. Stanger & Co., Inc. ("Stanger") to estimate
the value of the real properties (the "Properties") owned by partnerships (the
"Partnerships") affiliated with Interstate General Company, L.P. ("IGC"). The
Properties consist of twenty-six apartment complexes based in Maryland, Virginia
and Puerto Rico (the "Apartment Properties"). This report reflects the estimated
market value of the Apartment Properties subject to existing government housing
contracts, tax credits and, as applicable, financing. The Valuations reported
herein are as of December 31, 1996.
This report is prepared in accordance with an agreement between Stanger,
IGC and the Partnerships dated January 31, 1997. Pursuant to the Agreement,
Stanger has been engaged to perform a single limited summary appraisal report on
a limited scope basis in conformity with the departure provisions of the Uniform
Standards of Professional Appraisal Practice of the Appraisal Institute, relying
upon the Income Approach to value. We have been engaged to deliver to IGC and
the Partnerships a summary letter opinion of value only.
Our valuation has been based in part upon information supplied to us by
IGC and the Partnerships including but not limited to: financial schedules of
income, expenses, cash flow and related financial information; property
descriptive information; and prior appraisals, as available. We have also
visited IGC and the Partnership's offices in St. Charles, Maryland and Hato Rey,
Puerto Rico and have interviewed relevant management personnel. We have relied
upon such information and have assumed that the information provided by IGC and
the Partnerships is accurate and complete. We have not attempted to
independently verify such information.
We are advised by IGC and the Partnerships that the purpose of the
appraisal is to estimate the value of the Apartment Properties under present
market conditions. Stanger understands that the Valuations may be reviewed and
utilized in connection with financial reporting purposes or
<PAGE>
for a contemplated transaction (the "Transaction") involving the Apartment
Properties and Stanger agrees to the use of the appraisal for this purpose
subject to the terms and conditions of the agreements related thereto.
For these purposes, this abbreviated valuation report was prepared
stating our opinion as to the market value of the Apartment Properties as of
December 31, 1996. However, the attached valuation report should be reviewed in
its entirety and is subject to the assumptions and limiting conditions contained
herein. Background information and analysis upon which value conclusions are
based have been retained in our files.
Our review was undertaken solely for the purpose of providing an opinion
of value, and we make no representation as to the adequacy of such review for
any other purpose. Our opinion is expressed with respect to the total value of
the real estate held by the Partnerships and not with respect to joint venture
participation or to limited partners' allocations. Stanger has no present or
contemplated future interest in the Apartment Properties or the Partnerships.
The appraisal is only an estimate of the market value of the Apartment
Properties as of the date of valuation and should not be relied upon as being
the equivalent of the price that would necessarily be received in the event of a
sale or other disposition of each Property. Changes in corporate financing rates
generally, or changes in real estate property markets, may result in higher or
lower values of real property. The use of other valuation methodologies might
produce a higher or lower value.
Our opinion is subject to the assumptions and limiting conditions set
forth herein. We have used methods and assumptions deemed appropriate in our
professional judgment; however, future events may demonstrate that the
assumptions were incorrect or that other, different methods or assumptions may
have been more appropriate.
This limited summary valuation report provides our value conclusion with
respect to the Apartment Properties, definitions of value, and discussions of
the valuation methodology employed, assumptions, and limiting conditions.
Sincerely,
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
2
<PAGE>
IDENTIFICATION OF SUBJECT PORTFOLIO
-----------------------------------
The subject of this appraisal is the real property owned by the
Partnerships. The Properties consist of twenty-six apartment complexes based in
Maryland, Virginia and Puerto Rico (the "Apartment Properties"). The identity of
the subject properties is included in the "Property Value Conclusion" section of
this report.
PURPOSE OF REPORT
-----------------
The purpose of this report is to estimate the market value of the
Apartment Properties, subject to existing government housing contracts, tax
credits and, as applicable, financing under market conditions as of December 31,
1996.
FUNCTION OF REPORT
------------------
The function of this report is to provide a current estimate of market
value of the Apartment Properties, for use solely by IGC and the Partnerships in
connection with financial reporting and a Transaction involving the Properties.
SCOPE OF REPORT
---------------
The Valuation has been prepared on a limited scope basis in conformity
with the departure provisions of the Uniform Standards of Professional Appraisal
Practice of the Appraisal Institute, in accordance with the agreement between
Robert A. Stanger & Co., Inc. and IGC and the Partnerships, dated January 31,
1997. Pursuant to the agreement, Stanger has relied upon the income approach to
value and did not employ the "cost" or "sales comparison" approaches (as
described below).
In estimating the value of a property, appraisers typically consider
three approaches to value: the cost approach, the market data or sales
comparison approach, and the income approach. The value estimate by the cost
approach incorporates separate estimates of the value of the unimproved site
under its highest and best use and the value of the improvements less observed
accrued depreciation resulting from physical wear and tear and functional and/or
economic obsolescence. The market data or sales comparison approach involves a
comparative analysis of the subject property with other similar properties that
have sold recently or that are currently offered for sale in the market. The
income approach involves an economic analysis of the property based on its
potential to provide future net annual income. For this purpose, a discounted
cash flow analysis ("DCF") is commonly utilized. The DCF method ascribes a
present value to the future cash flows associated with operating the property
and the ultimate reversion value of the property, based upon a discount rate
3
<PAGE>
commensurate with the risks inherent in ownership of the property and with rates
of return offered by alternative investment opportunities.
Pursuant to the terms of our engagement, the Valuations were performed
using the income approach. Since a primary buyer group for properties of the
type appraised herein is investors, the income approach was deemed an
appropriate valuation methodology. Further, given the primary criteria used by
buyers of properties of the type appraised herein, the cost approach was
considered less reliable than the income approach. The sales comparison approach
was also considered less reliable than the income approach given the primary
criteria used by buyers of properties of the type appraised herein.
Consequently, given these factors, the income approach was considered a
reasonable approach to valuation for the subject Properties.
In addition, unless otherwise noted in the "Portfolio Information"
section of this report, the assets have been valued utilizing a discounted cash
flow analysis. Changes in corporate financing rates generally, or in real estate
property markets, may result in higher or lower values of real property. The use
of other valuation methodologies might produce a higher or lower value. Our
opinion is subject to the assumptions and limiting conditions set forth herein.
DATE OF VALUATION
-----------------
The date of valuation for the Properties is December 31, 1996.
4
<PAGE>
VALUE DEFINITION
----------------
Market value, as defined by the Appraisal Institute, is the most probable
price as of a specified date, in cash, in terms equivalent to cash, or in other
precisely revealed terms, for which the specified property rights should sell
after reasonable exposure in a competitive market under all conditions requisite
to a fair sale, with the buyer and seller each acting prudently, knowledgeably
and for self-interest, and assuming that neither is under undue duress.
Implicit in this definition is the consummation of a sale as of a
specified date and the passing of title from seller to buyer under conditions
whereby:
(a) buyer and seller are typically motivated;
(b) both parties are well informed or well advised, and each acts in a manner
he considers in his own best interest;
(c) a reasonable time is allowed for exposure in the open market;
(d) payment is made in terms of cash; and
(e) the price represents the normal consideration for the property sold
unaffected by special sales concessions granted by anyone associated with
the sale.
The property rights appraised in this report are leased fee interests.
Leased fee interest is defined as an ownership interest held by a landlord, with
the right to use and occupancy conveyed by lease to others and usually consists
of the right to receive rent and the right to repossession at the termination of
the lease.
The appraisal includes the value of land, land improvements such as
paving, fencing, on-site sewer and water lines, and the buildings as of December
31, 1996. It does not include supplies, materials on hand, inventories,
furniture, equipment or other personal property, company records, or current or
intangible assets that may exist. It pertains only to items considered as real
estate. However, certain properties are subject to indebtedness, tax credits, or
other terms or limitations (such as dividend limitations) which have been
considered and included in the valuation process as such items were deemed an
integral part of the value of such property as encumbered by such financings,
tax credits, other terms or limitations.
5
<PAGE>
VALUATION METHODOLOGY
---------------------
Pursuant to the terms of this engagement, Stanger has estimated the value
of the Apartment Properties based on the income approach to valuation. The
income approach is based on the assumption that the value of a property or
portfolio of properties can be represented by the present value of future cash
flows. In each Valuation, a discounted cash flow ("DCF") analysis is used to
determine the value of the leased fee interests. The indicated value by the
income approach represents the amount an investor would probably pay for the
expectation of receiving the net cash flow from the properties during the
holding period and the proceeds from the ultimate sale of the properties.
The reversion value of the properties which can be realized upon sale is
calculated based on the current economic rental rate and expenses deemed
reasonable for each property, escalated at a rate indicative of current
expectations in the marketplace for the property. The market-rate net operating
income of the properties at the year of sale is then capitalized at an
appropriate rate reflecting the age, anticipated functional and economic
obsolescence, and competitive position of the properties to determine the
reversion value of the properties. Furthermore, in those instances where a
conversion of an apartment property to a condominium was deemed reasonable, a
probability adjusted reversion value was calculated which considered both a
condominium conversion and continued operation of a rental property (assuming in
the case of Puerto Rico, based upon apartment properties, either as a HUD
project or condominium rental project).
Finally, the discounted present value of the equity cash flow stream from
operations and net proceeds from sale, were summed to arrive at a total
estimated value for each Property. In those instances where the financing and
tax credits were considered, the current debt balance and the present value of
tax credits were also considered.
The following describes more fully the steps involved in the valuation
methodology.
SITE INSPECTIONS & DATA GATHERING
In conducting the Valuations, representatives of Stanger performed site
inspections for each of the Apartment Properties during February 1997. In the
course of these site visits, the physical facilities of each property were
inspected, current market rental rates for competing properties were obtained,
information on the local market was gathered, and where possible, the on-site
manager was interviewed concerning the property. Information gathered during the
site inspection was supplemented by a review of published information concerning
economic, demographic and real estate trends in local, regional and national
markets.
In conducting the valuations, Stanger also interviewed and relied upon
IGC management personnel to obtain information relating to the condition of each
property, including any deferred maintenance, capital budgets, environmental
conditions, status of on-going or newly
6
<PAGE>
planned property additions, reconfigurations, improvements, and other factors
affecting the physical condition of the property improvements.
Stanger also interviewed IGC's management personnel regarding competitive
conditions in property markets, trends affecting the properties, and historical
and anticipated revenues and expenses. Stanger also reviewed historical
operating statements for each of the Apartment Properties.
In addition, Stanger reviewed the acquisition criteria and projection
parameters used by real estate investors. Such reviews included a search of real
estate data sources and publications concerning real estate buyer's criteria,
interviews with sources deemed appropriate in certain local markets (including
local appraisers and real estate brokers) to confirm acquisition criteria used
and to investigate the interaction of such factors as required equity rates of
return, initial equity yield requirements, and property type preferences.
RENT ROLL REVIEW
Rent roll summaries on the Apartment Properties were provided by IGC and
the Partnerships and were relied upon in the preparation of operational
projections for each property (as discussed below). Stanger reviewed such rent
rolls and interviewed IGC management regarding items described in such data.
MARKET RENTAL RATES
In the course of conducting the site inspections, representatives of
Stanger collected available data on rental rates at competing properties in each
local or regional market. Data collected at the time of the site inspection was
supplemented, where appropriate, with published data and direct telephonic
surveys of local rental agents.
HIGHEST AND BEST USE
Highest and best use is defined as:
The reasonable probable and legal use of vacant land or an improved
property, which is physically possible, appropriately supported,
financially feasible, and that results in the highest value. The four
criteria the highest and best use must meet are legal permissibility,
physical possibility, financial feasibility, and maximum profitability.
In conformity with the provisions of its engagement, Stanger evaluated
each site's highest and best use as currently improved. Based upon the review of
each of the sites, the highest and best use of each of the properties remains as
currently improved, unless otherwise noted in the "Property Value Conclusion"
section herein.
7
<PAGE>
OPERATIONAL PROJECTIONS
Stanger estimated each property's income for the year ending December 31,
1997. For Apartment Properties, rental income was projected for the remaining
term of any government housing contract, based upon a review and analysis of
historical and budgeted income from rents and ancillary sources, historical
rents achieved at the property, surveys of comparable properties, an analysis of
market rents and consideration of competitive conditions in local markets.
The annual market rent escalation rate utilized was based on local market
conditions in the area of each property, considering such factors as inflation
rates, current supply and demand and the projected holding period of the
property.
Where appropriate, vacancy and collection losses were factored into the
analysis. A property management fee deemed appropriate for retaining a
professional real estate organization to manage the specific type of property
was included in the projections. Expenses relating solely to partnership
investor reporting and accounting were excluded.
Expenses were analyzed based upon a review of actual expenses for 1995
and 1996. Stanger also reviewed 1997 budgeted expenses and published data on
expenses for comparable properties. Finally, where a capital expense reserve,
deferred maintenance or extraordinary capital expenditures were required for an
individual property, the cash flows and value were adjusted accordingly.
Certain of the properties were also subject to housing contracts which
limit the amount of annual distributions to investors. The impact of such
dividend limitations was also considered in our operational projections as
appropriate.
REVERSION
In the course of performing the valuations, Stanger reviewed market data
relating to overall capitalization rates for similar properties. As described
above, acquisition criteria used by buyers of similar properties were also
reviewed. Based upon these reviews and considering such factors as age, quality,
anticipated functional and economic obsolescence and competitive position of the
property, the projected date of sale, and buyers' acquisition criteria,
appropriate terminal capitalization rates were selected.
For certain properties currently subject to government subsidized housing
contracts, an analysis was performed on a property by property basis to
determine whether the property would continue as a government subsidized project
and renew at market rents, convert to condominium use, or convert to a "market
rate" project. Probabilities were assigned to the likelihood of government
subsidized housing contract renewal, condominium conversion or market rate
conversion in the year of property reversion.
8
<PAGE>
Based upon current market rental rents, estimated escalation factors, and
the estimated vacancy rate and other property operating expenses incurred by the
owner, net operating income for each property for the 12 months following the
end of the projection period was capitalized to determine the property's
residual value. The terminal capitalization rate used for an individual property
was adjusted to reflect valuation factors unique to the property.
SELECTION OF DISCOUNT RATES
The selection of the appropriate discount rate for determining the
present value of future operating cash flow streams from each property was based
primarily upon such factors as the acquisition criteria and the projection
parameters in use in the marketplace and the general interest rate environment.
The properties forecasted cash flows and residual value estimates were
discounted to present value at various discount rates required by investors at
year-end 1996 for similar quality real property.
Eighteen of the Apartment Properties receive rent subsidies under Section
8 of the National Housing Act, whereby the Government pays to the Partnership
the difference between market rental rates (determined in accordance with
government procedures) and the amounts which the Government deems affordable to
the low-income residents. Three of the Apartment Properties receive interest
rate subsidies under Section 236 of the National Housing Act, whereby the
Government provides interest rate subsidies to the Partnerships through the
reduction in the interest rate (usually to 1%) on the property's mortgage with a
corresponding reduction in resident rental rates. Six of the Apartment
Properties (three of which are Section 8 properties) are secured by mortgages
provided by the Maryland Community Development Administration and bear rates
which are favorable as compared to conventional financing rates. One of such CDA
loans bears interest at 1% and the subject apartment project also has low-income
housing tax credits allocated to it. Three of the Apartment Properties are
financed with FHA insured financing under Section 221(d)(4).
During the course of our analysis of the cash flows associated with each
Apartment Property, we utilized a leveraged discounted cash flow analysis in
those instances where: i) below market financing was an integral part of the
valuation process (for example in Section 236 transactions); ii) a term or
condition associated with a housing contract (such as a dividend limitation with
reasonable cash flow coverage) was deemed an important element of the leased fee
value; iii) below market financing and low-income housing tax credits were
deemed an integral part of the valuation; and/or iv) the value of the subject
property was primarily represented by the cash flow in excess of the existing
debt service where the principal balance of such debt approximated the value of
the subject property, free and clear of such debt.
9
<PAGE>
PORTFOLIO VALUE CONCLUSION
--------------------------
Based upon the review as described above, it is our opinion that the
market value of the leased fee interest in the Portfolio Properties as of
December 31, 1996 is as follows:
10
<PAGE>
PROPERTY VALUE CONCLUSION
<TABLE>
<CAPTION>
Housing Contract Valuation Parameters
---------------- --------------------
Units Dividend Condo Cap Leveraged/
Property Name Sq. Ft. Program Limited Expires Potential Rate Unleveraged
- -------------- ------- ------- -------- ------- --------- ---- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1. Colinas de San Juan 300 Sec. 8 Yes 2000 75.0% 10.0% Leveraged
2. Torre de las Cumbres 155 Sec. 8 No 2020 75.0% 10.0% Unleveraged
3. De Diego 198 Sec. 8 No 2020 50.0% 10.0% Unleveraged
4. Santa Juana 198 Sec. 8 No 2020 75.0% 10.0% Unleveraged
5. Monserrate II 304 Sec. 8 No 2020 25.0% 10.0% Unleveraged
6. San Anton 184 Sec. 8 Yes 1999 25.0% 10.0% Unleveraged
7. Bayamon Gardens 280 Sec. 8 Yes 2011 75.0% 10.0% Unleveraged
8. Valle del Sol 312 Sec. 8 Yes 2002 75.0% 10.0% Unleveraged
9. Vistas del Turabo 96 Sec. 8 Yes 2020 50.0% 10.0% Unleveraged
10. Monte de Oro 196 Sec. 8 No 1997 100.0% 10.0% Unleveraged
11. New Center 196 Sec. 8 No 1998 100.0% 10.0% Unleveraged
12. Monserrate I 304 Sec. 8 No 1998 25.0% 10.0% Unleveraged
13. Alturas del Senorial 124 Sec. 8 Yes 1999 85.0% 10.0% Unleveraged
14. Jardines de Caparra 198 Sec. 8 Yes 1999 85.0% 10.0% Unleveraged
15. Bannister 208 Sec. 236 Yes 1998 0.0% 10.0% Leveraged
16. Brookside 56 CDA/LIHTC Yes 2011 0.0% 10.0% Leveraged
17. Crossland 96 221(d)(4) No N/A 0.0% 10.0% Unleveraged
18. Essex Village 496 Sec. 8 Yes 2000 0.0% 10.0% Leveraged
19. Fox Chase 176 221(d)(4) No N/A 0.0% 10.0% Unleveraged
20. Headen 136 Sec. 8/CDA No 2000 0.0% 10.0% Unleveraged
21. Huntington 204 Sec. 8/CDA No 2000 0.0% 10.0% Unleveraged
22. Hunter's Run/Lancaster 104 CDA No N/A 0.0% 10.0% Unleveraged
23. New Forest 256 221(d)(4) No N/A 0.0% 10.0% Unleveraged
24. Palmer 152 Sec. 8/CDA No 2000 0.0% 10.0% Unleveraged
25. Wakefield Terrace 204 Sec. 236 Yes 1998 0.0% 10.0% Leveraged
26. Wakefield Third Age 104 Sec. 236 Yes 1998 0.0% 10.0% Leveraged
TOTALS 5,237
=====
<CAPTION>
Discount Rates
--------------
Value
Property Name Cash Flow Residual Conclusion
- -------------- --------- -------- ----------
<S> <C> <C> <C>
1. Colinas de San Juan 10.0% 12.0% 11,500,000
2. Torre de las Cumbres 12.0% 12.0% 6,720,000
3. De Diego 12.0% 12.0% 7,150,000
4. Santa Juana 12.0% 12.0% 7,460,000
5. Monserrate II 12.0% 12.0% 11,500,000
6. San Anton 12.0% 12.0% 5,520,000
7. Bayamon Gardens 11.5% 11.5% 11,170,000
8. Valle del Sol 11.5% 11.5% 13,080,000
9. Vistas del Turabo 10.0% 12.0% 2,990,000
10. Monte de Oro 11.5% 11.5% 8,750,000
11. New Center 12.0% 12.0% 8,660,000
12. Monserrate I 12.0% 12.0% 10,350,000
13. Alturas del Senorial 12.0% 12.0% 4,920,000
14. Jardines de Caparra 12.0% 12.0% 7,200,000
15. Bannister 10.0% 12.0% 7,860,000
16. Brookside 15.0% 15.0% 2,720,000*
17. Crossland 12.0% 12.0% 4,010,000
18. Essex Village 15.0% 15.0% 17,510,000
19. Fox Chase 12.0% 12.0% 9,020,000
20. Headen 10.0% 12.0% 6,560,000
21. Huntington 10.0% 12.0% 10,350,000
22. Hunter's Run/Lancaster 11.5% 11.5% 5,790,000
23. New Forest 12.0% 12.0% 15,200,000
24. Palmer 12.0% 12.0% 6,440,000
25. Wakefield Terrace 10.0% 15.0% 7,740,000
26. Wakefield Third Age 10.0% 15.0% 4,220,000
-----------
214,390,000
===========
</TABLE>
* VALUE INCLUDES ESTIMATED VALUE OF TAX CREDITS ESTIMATED AT $1,000,000.
11
<PAGE>
ASSUMPTIONS AND LIMITING CONDITIONS
-----------------------------------
This appraisal report is subject to the assumptions and limiting
conditions as set forth below.
1. No responsibility is assumed for matters of a legal nature affecting the
portfolio properties or the titles thereto. Titles to the properties are assumed
to be good and marketable and the properties are assumed free and clear of all
liens unless otherwise stated.
2. The Appraisal assumes (a) responsible ownership and competent management of
the properties; (b) there are no hidden or unapparent conditions of the
properties' subsoil or structures that render the properties 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, access 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.
3. The Appraiser shall not be required to give testimony or appear in court
because of having made the appraisal with reference to the portfolio in
question, unless arrangements have been previously made therefore.
4. The information contained in the Appraisal or upon which the Appraisal is
based has been provided by or gathered from sources assumed to be reliable and
accurate. Some of such information has been provided by the owner of the
properties. The Appraiser shall not be responsible for the accuracy or
completeness of such information, including the correctness of estimates,
opinions, dimensions, exhibits and other factual matters. The Appraisal and the
opinion of value stated therein are as of the date stated in the Appraisal.
Changes since that date in portfolio, external and market factors can
significantly affect property value.
5. Disclosure of the contents of the appraisal report is governed by the Bylaws
and Regulations of the professional appraisal organization with which the
Appraiser is affiliated.
12
<PAGE>
ASSUMPTIONS AND LIMITING CONDITIONS (CONTINUED)
-----------------------------------------------
6. Neither all, nor any part of the content of the report, or copy thereof
(including conclusions as to the portfolios' values, the identity of the
Appraiser, professional designations, reference to any professional appraisal
organizations, or the firm with which the Appraiser is connected) shall be used
for any purpose by anyone other than the client specified in the report,
including, but not limited to, the mortgagee or its successors and assignees,
mortgage insurers, consultants, professional appraisal organizations, any state
or federally approved financial institution, any department, agency or
instrumentality without the previous written consent of the Appraiser; nor shall
it be conveyed by anyone to the public through advertising, public relations,
news sales or other media, without the written consent and approval of the
Appraiser.
7. On all appraisals subject to completion, repairs or alterations, the
appraisal report and value conclusions are contingent upon completion of the
improvements in a workmanlike manner.
8. The physical condition of the improvements considered by the Appraisal is
based on visual inspection by the Appraiser or other representatives of Stanger
and on representations by the owner. Stanger assumes no responsibility for the
soundness of structural members or for the condition of mechanical equipment,
plumbing or electrical components. The Appraiser has made no survey of the
properties.
9. The projections of income and expenses and the valuation parameters utilized
are not predictions of the future. Rather, they are the Appraiser's best
estimate of current market thinking relating to future income and expenses. The
Appraiser makes no warranty or representations that these projections 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, envisions for the future in terms of
rental rates, expenses, supply and demand. We have used methods and assumptions
deemed appropriate in our professional judgment; however, future events may
demonstrate that the assumptions were incorrect or that other different methods
or assumptions may have been more appropriate.
10. The Appraisal represents a normal consideration for the properties sold
unaffected by special terms, services, fees, costs, or credits incurred in the
transaction.
13
<PAGE>
ASSUMPTIONS AND LIMITING CONDITIONS (CONTINUED)
-----------------------------------------------
11. Unless otherwise stated in the report, the existence of hazardous materials,
which may or may not be present on the portfolio properties, was not disclosed
to the Appraiser by the owner. The Appraiser has no knowledge of the existence
of such materials on or in the portfolio properties. However, the Appraiser is
not qualified to detect such substances. The presence of substances such as
asbestos, ureaformaldehyde foam insulation, oil spills, or other potentially
hazardous materials may affect the value of the properties. The value estimates
are predicated on the assumption that there is no such material on or in the
properties that would cause a loss of value. No responsibility is assumed for
such conditions, or for any expertise or engineering knowledge required to
discover them. The client is urged to retain an expert in this field, if
desired.
12. For purposes of this report, it is assumed that each property is free of any
negative impact with regard to the Environmental Cleanup Responsibility Act
(ECRA) or any other environmental problems or with respect to non-compliance
with the Americans with Disabilities Act (ADA). No investigation has been made
by the Appraiser with respect to any potential environmental or ADA problems.
Environmental and ADA compliance studies are not within the scope of this
report.
13. Pursuant to the Engagement Agreement, the Valuations have been prepared on a
limited scope basis in conformity with the departure provisions of the Uniform
Standards of Professional Appraisal Practice of the Appraisal Institute, relying
solely on the income approach to value. Further, the engagement calls for
delivery of an abbreviated summary report and letter opinion of value in which
the content has been limited to that data presented herein.
14. The Valuations reported herein may not reflect the premium or discount a
potential buyer may assign to an assembled portfolio of properties or to a group
of properties in a particular local market which provides opportunities for
enhanced market presence and penetration. In addition, where properties are
owned jointly with other entities affiliated with the general partner, minority
interest discounts were not applied.
15. The appraisal is solely for the purpose of providing our opinion of the
value of the Properties, and we make no representation as to the adequacy of
such a review for any other purpose. The use of other valuation methodologies
might produce a higher or lower value.
16. In addition to these general assumptions and limiting conditions,
assumptions and conditions applicable to specific properties are indicated under
the "Property Value Conclusion" section of this Report.
14
<PAGE>
CERTIFICATION OF APPRAISAL
--------------------------
The undersigned hereby certify that to the best of their knowledge and belief:
1. The statements of fact contained in this report are true and correct.
2. The reported analyses, opinions, and conclusions are limited only by the
reported assumptions and limiting conditions, and are our personal, unbiased
professional analyses, opinions and conclusions.
3. We have no present or prospective interest in the Properties that are the
subject of this report, and we have no personal interest or bias with
respect to the parties involved.
4. Our compensation is not contingent 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. Furthermore, this appraisal assignment was
not based on a requested minimum valuation, a specific valuation or the
approval of a loan.
5. Our analyses, opinions and conclusions were developed, and this report has
been prepared on a limited scope basis, in conformity with the departure
provisions of the Uniform Standards of Professional Appraisal Practice, as
well as the requirements of the Code of Professional Ethics of the Appraisal
Institute.
6. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
7. Pursuant to the terms of our engagement, a site inspection of the Property
has been performed by representatives of Robert A. Stanger & Co., Inc.
Cornelius J. Guiney, MAI, has not made a personal inspection of the
Property. However, Mr. Guiney has reviewed all pertinent data and
information contained in this report.
8. In addition to the undersigned, George C. Wilson, Kevin T. Gannon and
William P. Daly made contributions to the preparation of the analysis,
conclusions and opinions contained in this appraisal report.
15
<PAGE>
CERTIFICATION OF APPRAISAL (CONTINUED)
--------------------------------------
9. The Appraisal Institute conducts a program of continuing education for its
designated members. MAI's who meet the minimum standards of this program are
awarded periodic educational certification. Cornelius J. Guiney, MAI, is
currently certified under this program.
----------------------------
Cornelius J. Guiney, MAI
----------------------------
Robert A. Stanger & Co., Inc.
16
<PAGE>
EXHIBIT 99.12
AMERICAN COMMUNITY PROPERTIES TRUST
NET ASSET VALUE SUMMARY
AS OF DECEMBER 31, 1997
<PAGE>
AMERICAN COMMUNITY PROPERTIES TRUST
NET ASSET VALUE SUMMARY
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
Exhibit
-------
<S> <C>
Proposed Transaction Flowchart .................................. 1
Allocation Schedules
U.S. Housing Net Asset Value ........................... 2
P.R. Housing Net Asset Value ........................... 3
IGC Net Asset Value .................................... 4
Intercompany Receivable Analysis ................................ 5
American Community Properties Trust NAV Summary.................. 6
Firm Brochure ................................................... 7
</TABLE>
<PAGE>
ACPT FOLLOWING THE RESTRUCTURING
The following chart depicts the organizational structure of ACPT and its
subsidiaries following completion of the Restructuring.
[CHART APPEARS HERE]
(1) ACPT will hold all of the common stock of American Rental.
(2) The Class A interest represents all of the interests in IGP other than the
Class B interest, which represents all of the IGP's rights to income, gains,
and losses associated with land in Puerto Rico held by LDA that is currently
designated for development as saleable property.
<PAGE>
EXHIBIT 2
---------
U.S. HOUSING PARTNERSHIP
NET ASSET VALUE SUMMARY
-----------------------
<TABLE>
<CAPTION>
NAV/(1)/ UNITS %
--- ----- ---
<S> <C> <C> <C>
To IGC As GP of Partnerships $13,695,000 $1,369,500 56.79%
To IGC As L.P. of Partnerships 2,875,000 287,500 11.92%
---------- --------- ------
Subtotal 16,570,000 1,657,000 68.71%
To Other Limited Partners of
Bannister 1,858,000 185,800 7.70%
Palmer 524,000 52,400 2.17%
Brookside 1,057,000 105,700 4.38%
Headen 471,000 47,100 1.95%
Huntington 1,508,000 150,800 6.25%
Crossland 744,000 74,400 3.08%
Wakefield Third Age 503,000 50,300 2.09%
Lancaster 0 0 0.00%
Fox Chase 3,000 300 0.01%
New Forest 1,000 100 0.01%
Essex Village 0 0 0.00%
Wakefield Terrace 877,000 87,700 3.64%
---------- --------- ------
$24,117,000 $2,411,700 100.00%
=========== ========== =======
</TABLE>
(1) See attached schedule of Net Asset Value.
<PAGE>
- --------------------------------------------------------------------------------
US HOUSING
NET ASSET VALUE SUMMARY
(IN THOUSANDS)
<TABLE>
<CAPTION>
WAKEFIELD
BANNISTER PALMER BROOKSIDE HEADEN HUNTINGTON CROSSLAND THIRD AGE
--------- ------ --------- ------ ---------- --------- ---------
(000s)
<S> <C> <C> <C> <C> <C> <C> <C>
NAV ANALYSIS
CASH 96 197 21 267 360 75 28
A/C REC. 18 7 1 7 6 6 35
OTHER ASSETS 178 128 31 143 203 86 100
RES. RECEIPTS/REP. RES. 176 48 25 191 271 21 45
REAL ESTATE 7,860 6,440 2,720 6,560 10,350 4,010 4,220
----- ----- ----- ----- ------ ----- -----
TOTAL ASSETS 8,328 6,820 2,798 7,168 11,190 4,198 4,428
A/C PAYABLE, OTHER (163) (103) (77) (84) (139) (70) (78)
DEBT - THIRD PARTY (3,625) (4,186) (1,583) (4,826) (7,631) (2,130) (2,304)
DEBT - I/C LOANS (1) (71) (391) (46) (334) (405) (137) (89)
CONSOLIDATION COSTS ----------- ----------- ----------- ----------- ----------- ---------- -----------
NAV 4,469 2,140 1,092 1,924 3,015 1,861 1,957
===== ===== ===== ===== ===== ===== =====
<CAPTION>
PRELIMINARY
ESSEX WAKEFIELD U.S. HOUSING
LANCASTER FOX CHASE NEW FOREST VILLAGE TERRACE CONSOLIDATED
--------- --------- ---------- ------- ------- ------------
(000s) (2)
<S> <C> <C> <C> <C> <C> <C>
NAV ANALYSIS
CASH 191 183 291 506 96 2,311
A/C REC. 9 13 21 71 16 210
OTHER ASSETS 103 239 293 206 208 1,918
RES. RECEIPTS/REP. RES. 165 80 96 359 212 1,689
REAL ESTATE 5,790 9,020 15,200 17,510 7,740 97,420
----- ----- ------ ------ ----- ------
TOTAL ASSETS 6,258 9,535 15,901 18,652 8,272 103,548
A/C PAYABLE, OTHER (103) (123) (215) (373) (146) (1,674)
DEBT - THIRD PARTY (4,289) (6,572) (12,365) (15,896) (4,940) (70,347)
DEBT - I/C LOANS (1) (1,390) (14) (2,035) (2,383) (115) (7,410)
CONSOLIDATION COSTS ------------ ----------- ------------- ----------- ------------ ------------
NAV 476 2,826 1,286 0 3,071 24,117
=== ===== ===== = ===== ======
</TABLE>
(1) REFLECTS I/C RECEIVABLES AND WORKING CAPITAL LOANS. I/C RECEIVABLE BALANCE
MAY BE ADJUSTED TO REFLECT AMOUNT NOT DEEMED COLLECTIBLE BASED ON NAV
PRIORITY DISTRIBUTIONS.
(2) NOTE: I/C RECEIVABLES REDUCED FOR ESSEX VILLAGE BY $575.
- --------------------------------------------------------------------------------
OWNERSHIP % BEFORE RECOVERY OF CAPITAL
--------------------------------------
<TABLE>
<CAPTION>
BANNISTER PALMER BROOKSIDE HEADEN HUNTINGTON CROSSLAND
--------- ------ --------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
IGC % AS GP 5.0% 50.0% 0.0% 50.0% 50.0% 60.0%
IGC % AS LP 0.0% 25.5% 0.0% 25.5% 0.0% 0.0%
OTHER % AS LP 95.0% 24.5% 100.0% 24.5% 50.0% 40.0%
----- ----- ------ ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ====== ======
PREFERENCE DISTRIBUTIONS
------------------------
PREFERENCE AMOUNT (3) 128 0 1,022 0 0 0
=== = ===== = = =
IGC NAV AS GP 6 0 0 0 0 0
NAV - IGC AS LP - RETURN OF CAPITAL 0 0 0 0 0 0
NAV - OTHER LPs - RETURN OF CAPITAL 122 0 1,022 0 0 0
<CAPTION>
WAKEFIELD ESSEX WAKEFIELD
THIRD AGE LANCASTER FOX CHASE NEW FOREST VILLAGE TERRACE
--------- --------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
IGC % AS GP 0.0% 50.0% 99.9% 99.9% 50.0% 0.0%
IGC % AS LP 51.0% 50.0% 0.0% 0.0% 0.0% 51.0%
OTHER % AS LP 49.0% 0.0% 0.1% 0.1% 50.0% 49.0%
----- ---- ---- ---- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ====== ======
PREFERENCE DISTRIBUTIONS
PREFERENCE AMOUNT (3) 96 329 0 0 0 508
== === = = = ===
IGC NAV AS GP 0 0 0 0 0 0 6
NAV - IGC AS LP - RETURN OF CAPITAL 49 329 0 0 0 259 637
NAV - OTHER LPs - RETURN OF CAPITAL 47 0 0 0 0 249 1,440
- ------------------------------------------------------------------------------------------------------------------------------------
OWNERSHIP % AFTER PREFERENCES:
-----------------------------
IGC % AS GP 60.0% 50.0% 50.0% 50.0% 50.0% 60.0% 50.0% 50.0%
IGC % AS LP 0.0% 25.5% 0.0% 25.5% 0.0% 0.0% 25.5% 50.0%
OTHER % AS LP 40.0% 24.5% 50.0% 24.5% 50.0% 40.0% 24.5% 0.0%
----- ----- ----- ----- ----- ----- ----- ----
100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ====== ====== ====== ======
OWNERSHIP % AFTER PREFERENCES:
-----------------------------
IGC % AS GP 99.9% 99.9% 50.0% 50.0%
IGC % AS LP 0.0% 0.0% 0.0% 25.5%
OTHER % AS LP 0.1% 0.1% 50.0% 24.5%
---- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
NAV DISTRIBUTION/ALLOCATION
IGC NAV AS GP 2,605 1,070 35 962 1,508 1,117 931 74
IGC NAV AS LP 0 546 0 491 0 0 475 74
OTHER LP NAV 1,736 524 35 471 1,508 744 456 0
OWNERSHIP % AFTER PREFERENCES:
-----------------------------
IGC % AS GP 2,823 1,285 0 1,282 13,689
IGC % AS LP 0 0 0 654 2,238
OTHER % AS LP 3 1 0 628 6,107
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ALLOCATION
----------------
IGC NAV AS GP 2,611 1,070 35 962 1,508 1,117 931 74 2,823 1,285 0 1,282 13,695
IGC NAV AS LP 0 546 0 491 0 0 524 403 0 0 0 913 2,875
OTHER LP NAV 1,858 524 1,057 471 1,508 744 503 0 3 1 0 877 7,547
----- --- ----- --- ----- --- --- - - - - --- -----
TOTAL NAV 4,469 2,140 1,092 1,924 3,015 1,861 1,957 476 2,826 1,286 0 3,071 24,117
===== ===== ===== ===== ===== ===== ===== === ===== ===== = ===== ======
(4)(5) (4)(5)
TOTAL IGC NAV - US HOUSING 16,570 68.71%
OTHER LP NAV - US HOUSING 7,547 31.29%
------ ------
TOTAL - US HOUSING $24,117 100.00%
======= =======
</TABLE>
(3) PREFERENCE AMOUNT REPRESENTS UNRECOVERED RETURN OF CAPITAL.
(4) GP/LP ALLOCATIONS FOR FOX CHASE AND NEW FOREST ARE BASED ON CAPITAL A/C
BALANCES PER THE PSHP AGREEMENT.
(5) FOX CHASE AND NEW FOREST ARE GENERAL PSHPS. THERE ARE NO LPs. THE 0.1%
REPRESENTS THE OUTSIDE GP %.
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 3
---------
P.R. HOUSING PARTNERSHIP
NET ASSET VALUE SUMMARY
-----------------------
<TABLE>
<CAPTION>
NAV/(1)/ UNITS %
--- ----- ---
<S> <C> <C> <C>
To IGC As GP of Partnerships $21,790,000 $2,179,000 45.37%
To IGC As L.P. of Partnerships 249,000 24,900 0.52%
---------- --------- ------
Subtotal 22,039,000 2,203,900 45.89%
To Other Limited Partners of
Alturas Del Senorial 1,823,000 182,300 3.80%
Bayamon Gardens 1,813,000 181,300 3.78%
Carolina Associates/(2)/ 3,004,000 300,400 6.25%
Colinas De San Juan 3,705,000 370,500 7.71%
Jardines De Caparra 3,196,000 319,600 6.65%
Monserrate I 4,732,000 473,200 9.85%
Monte De Oro 2,030,000 203,000 4.23%
New Center 1,960,000 196,000 4.08%
San Anton 1,656,000 165,600 3.45%
Valle Del Sol 1,684,000 168,400 3.51%
Vistas Del Turabo 384,000 38,400 0.80%
---------- --------- ------
$48,026,000 $4,802,600 100.00%
=========== ========== =======
</TABLE>
(1) See attached schedule.
(2) Includes De Diego, Monserrate II, Santa Juana and Torre De Las Cumbres
properties.
<PAGE>
- --------------------------------------------------------------------------------
PR HOUSING
NET ASSET VALUE SUMMARY
(IN THOUSANDS) PRELIMINARY
<TABLE>
<CAPTION>
ALTURAS BAYAMON CAROLINA COLINAS De JARDINES
DEL SENORIAL GARDENS ASSOCIATES (4) SAN JUAN De CAPARRA
------------ ------- -------------- -------- ----------
<S> <C> <C> <C> <C> <C>
(000s)
NAV ANALYSIS
CASH 6 100 217 90 31
A/C REC. 75 17 65 22 102
OTHER ASSETS 104 196 1,787 256 173
RES. RECEIPTS/REP. RES. 1,790 1,190 1,813 3,683 3,481
REAL ESTATE 4,920 11,170 32,830 11,500 7,200
------ ------ ------- ------ ------
TOTAL ASSETS 6,895 12,673 36,712 15,551 10,987
A/C PAYABLE, OTHER (47) (195) (347) (105) (94)
DEBT - THIRD PARTY (3,234) (9,422) (30,110) (8,388) (5,014)
DEBT - I/C LOANS (1) (213) (512) (247) (377) (160)
CONSOLIDATION COSTS
------ ------ ------- ------ ------
NAV 3,401 2,544 6,008 6,681 5,719
====== ====== ======= ====== ======
<CAPTION>
VISTAS PR HOUSING
MONSERRATE I MONTE De ORO NEW CENTER SAN ANTON VALLE DEL SOL DEL TURABO CONSOLIDATED
------------ ------------ ---------- --------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(000s)
NAV ANALYSIS
CASH 66 122 422 124 135 1 1,314
A/C REC. 25 5 12 8 14 51 396
OTHER ASSETS 183 935 807 117 193 34 4,785
RES. RECEIPTS/REP. RES. 550 0 0 478 832 68 13,885
REAL ESTATE 10,350 8,750 8,660 5,520 13,080 2,990 116,970
------ ------ ------ ------ ------- ------ -------
TOTAL ASSETS 11,174 9,812 9,901 6,247 14,254 3,144 137,350
A/C PAYABLE, OTHER (102) (80) (41) (87) (109) (51) (1,258)
DEBT - THIRD PARTY (1,110) (5,672) (5,940) (2,907) (11,059) (2,273) (85,129)
DEBT - I/C LOANS (1) 0 0 0 (99) (1,283) (46) (2,937)
------ ------ ------ ------ ------- ------ -------
CONSOLIDATION COSTS
NAV 9,962 4,060 3,920 3,154 1,803 774 48,026
====== ====== ====== ====== ======= ====== =======
</TABLE>
(1) REFLECTS I/C RECEIVABLES AND WORKING CAPITAL LOANS. I/C RECEIVABLE BALANCE
MAY BE ADJUSTED TO REFLECT AMOUNT NOT DEEMED COLLECTIBLE BASED ON NAV
PRIORITY DISTRIBUTIONS.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OWNERSHIP % BEFORE RECOVERY OF CAPITAL
- --------------------------------------
ALTURAS BAYAMON CAROLINA COLINAS De JARDINES
DEL SENORIAL GARDENS ASSOCIATES (2) SAN JUAN De CAPARRA MONSERRATE I
------------ ------- -------------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
IGC % AS GP 1.0% 1.0% 50.0% 1.0% 1.0% 50.0%
IGC % AS LP 0.0% 0.0% 0.0% 0.0% 0.0% 2.5%
OTHER % AS LP 99.0% 99.0% 50.0% 99.0% 99.0% 47.5%
----- ----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== ===== =====
PREFERENCE DISTRIBUTIONS
- ------------------------
PREFERENCE AMOUNT (3) 248 1,104 0 743 687 0
===== ===== ===== ===== ===== =====
IGC NAV AS GP 2 11 0 7 7 0
NAV - IGC AS LP - ROC 0 0 0 0 0 0
NAV - OTHER LPs - ROC 246 1,093 0 736 680 0
- ------------------------------------------------------------------------------------------------------------------------------------
OWNERSHIP % AFTER PREFERENCES:
- -----------------------------
IGC % AS GP 50.0% 50.0% 50.0% 50.0% 50.0% 50.0%
IGC % AS LP 0.0% 0.0% 0.0% 0.0% 0.0% 2.5%
OTHER % AS LP 50.0% 50.0% 50.0% 50.0% 50.0% 47.5%
----- ----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== ===== =====
NAV DISTRIBUTION/ALLOCATION
- ---------------------------
IGC NAV AS GP 1,577 720 3,004 2,969 2,516 4,981
IGC NAV AS LP 0 0 0 0 0 249
OTHER LP NAV 1,577 720 3,004 2,969 2,516 4,732
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ALLOCATION
- ----------------
IGC NAV AS GP 1,579 731 3,004 2,976 2,523 4,981
IGC NAV AS LP 0 0 0 0 0 249
OTHER LP NAV 1,823 1,813 3,004 3,705 3,196 4,732
----- ----- ----- ----- ----- -----
TOTAL NAV 3,401 2,544 6,008 6,681 5,719 9,962
TOTAL IGC NAV - PR HOUSING 22,039 45.89%
OTHER LP NAV - PR HOUSING 25,987 54.11%
------ ------
TOTAL - PR HOUSING $48,026 100.00%
======= =======
<CAPTION>
OWNERSHIP % BEFORE RECOVERY OF CAPITAL
- --------------------------------------
VISTAS PR HOUSING
MONTE De ORO NEW CENTER SAN ANTON VALLE DEL SOL DEL TURABO CONSOLIDATED
------------ ---------- --------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
IGC % AS GP 50.0% 50.0% 0.0% 1.0% 50.5%
IGC % AS LP 0.0% 0.0% 0.0% 0.0% 0.0%
OTHER % AS LP 50.0% 50.0% 100.0% 99.0% 49.5%
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
PREFERENCE DISTRIBUTIONS
- ------------------------
PREFERENCE AMOUNT (3) 0 0 128 1,597 618
===== ===== ===== ===== =====
IGC NAV AS GP 0 0 0 16 312 355
NAV - IGC AS LP - ROC 0 0 0 0 0 0
NAV - OTHER LPs - ROC 0 0 128 1,581 306 4,770
- ------------------------------------------------------------------------------------------------------------------------------------
OWNERSHIP % AFTER PREFERENCES:
- -----------------------------
IGC % AS GP 50.0% 50.0% 49.5% 50.0% 50.0%
IGC % AS LP 0.0% 0.0% 0.0% 0.0% 0.0%
OTHER % AS LP 50.0% 50.0% 50.0% 50.0% 50.0%
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
NAV DISTRIBUTION/ALLOCATION
- ---------------------------
IGC NAV AS GP 2,030 1,960 1,498 103 78 21,435
IGC NAV AS LP 0 0 0 0 0 249
OTHER LP NAV 2,030 1,960 1,498 103 78 21,217
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ALLOCATION
- ----------------
IGC NAV AS GP 2,030 1,960 1,498 119 390 21,790
IGC NAV AS LP 0 0 0 0 0 249
OTHER LP NAV 2,030 1,960 1,656 1,684 384 25,987
----- ----- ----- ----- ----- ------
TOTAL NAV 4,060 3,920 3,154 1,803 774 48,026
======
TOTAL IGC NAV - PR HOUSING
OTHER LP NAV - PR HOUSING
TOTAL - PR HOUSING
</TABLE>
(2) INCLUDES De DIEGO, MONSERRATE II, SANTA JUANA AND TORRE De LAS CUMBRES
PROPERTIES.
(3) PREFERENCE AMOUNT REPRESENTS UNRECOVERED RETURN OF CAPITAL.
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 4
---------
ACPT NET ASSET VALUE
--------------------
<TABLE>
<S> <C>
American Housing - 1,657,000 units at $10 $ 16,570,000
American Management Company/(a)/ 3,944,000
Other/(b)/ 0
------------
Subtotal American Rental $ 20,514,000 (A)
============
SCA Assets/(c)/ Total American Land $ 36,382,000 (B)
============
LDA Interest (80%)/(d)/ $ 15,639,000
Escorial Builders Interest (50%)/(e)/ 2,266,000
IGP Housing - 2,203,900 units at $10 22,039,000
IGP Management Company/(f)/ 6,628,000
LDA Note Receivable 2,400,000
Other IGP Assets 802,000
Other IGP Liabilities (2,155,000)
------------
Subtotal IGP Group $ 47,619,000 (C)
============
Intercompany Receivables/(g)/ $ 10,349,00
Other Assets 630,000
Other Liabilities (2,130,000)
------------
Subtotal - Other Net Assets $ 8,849,000 (D)
============
ACPT BancOne debt/(h)/ $ (1,694,000)
Financing Costs/(h)/ 0
Restructuring/Consolidation Costs (800,000)
------------
$ (2,494,000) (E)
============
Total Net Asset Value 110,870,000 (A+B+C+D+E)
NAV Per Share $ 21.25
------------
Shares Issued 5,218,073
============
</TABLE>
<PAGE>
EXHIBIT 4
---------
(CONTINUED)
(a) The American Management Company was valued at a multiple of 4 on 1997 pro
forma cash flow from management services of $986,000 (Corporate costs
pushed down from ACPT were excluded from the calculation).
(b) Represents 1% interest in Lakeside, valued at book value.
(c) The other net asset value of SCA was determined as follows:
<TABLE>
<S> <C>
Land Parcels at Appraised Value/(a)/:
Dorchester Neighborhood Finished Lots 0
Huntington Ridge - Raw Acreage 1,197,000
Fairway Village - Raw Recorded Lots - Residential 19,263,000
Fairway Village - Raw Commercial Land 3,960,000
Wooded Glen and Piney Beach - Raw Acreage 7,680,000
Business Park East and North - Finished Land - Industrial 2,148,000
Middle Industrial Park - Raw Land - Industrial 4,750,000
Piney Beach Industrial Park - Raw Land - Industrial 8,160,000
West Lake and Smallwood Parcels 6,775,000
------------
Total 53,933,000
Liabilities (22,826,000)
------------
SCA Net Asset Value $ 31,107,000
============
Ownership Interest x99%
------------
Net Asset Value of SCA 30,796,000
Intercompany Account Included in Liabilities 5,586,000
------------
Equity Value of SCA Interest $ 36,382,000
============
</TABLE>
(d) Represents 80% of net asset value of LDA determined as follows:
<TABLE>
<S> <C>
Cash $ 691,000
Receivables 3,067,000
Real Estate at Appraisal - Vacant Land - Canovanas, PR 6,100,000
- Parque Escorial Planned Community 37,305,000
-----------
Total Assets 47,163,000
Accounts Payable (1,960,000)
Liabilities (25,654,000)
-----------
Total 19,549,000
x 80%
-----------
Net Asset Value of LDA 15,639,000
===========
</TABLE>
(a) Adjusted for land retained by IGC and land sold subsequent to the appraisal
date.
<PAGE>
EXHIBIT 4
---------
(CONTINUED)
(e) Represents 50% of net asset value of Escorial Builders S.E. determined as
follows:
<TABLE>
<S> <C>
Cash $ 426,000
Other Assets 27,000
Real Estate at Book Value -
Villas De Parque Escorial 13,266,000
-----------
Total Assets 13,719,000
Accounts Payable (1,704,000)
Debt (11,046,000)
-----------
Balance Sheet Net Asset Value 969,000
Present Value of Estimated Future Earnings (1) 3,562,000
-----------
Total 4,531,000
x 50%
-----------
Net Asset Value of Escorial Building S.E. $ 2,266,000
===========
</TABLE>
(1) Based on May 26, 1998 correspondence from management, the estimated
expected return on the Escorial Builders project is $4,400,000. For
purposes of NAV, management anticipates the return of $4,400,000 in excess
of book value to be achieved over a 2 year period. Using a 15% discount
rate the present value of the expected return is approximately $3,562,000.
(f) The IGP Management Company was valued at a multiple of 4 on 1997 pro forma
cash flow of $1,657,000 and assumed 100% ownership by ACPT.
(g) For purposes of this analysis the intercompany receivables are as of
December 31, 1997 from those affiliated entities included in the Net Asset
Value Analyses.
(h) Represents the future obligation to fund the mitigation/remediation of
certain land environmental issues.
<PAGE>
EXHIBIT 5
---------
ACPT INTERCOMPANY RECEIVABLES
-----------------------------
<TABLE>
<CAPTION>
12/31/97
INTERCOMPANY
ENTITY RECEIVABLE/(1)/
------ ---------------
<S> <C>
Bannister $71,091
Palmer 390,519
Brookside 46,000
Headen 333,908
Huntington 405,000
Crossland 137,186
Wakefield Third Age 89,420
Lancaster 1,390,000
Fox Chase 14,000
New Forest 2,035,000
Essex Village 2,383,000
Wakefield Terrace 115,000
Lakeside /2/ 1,580
Alturas Del Senorial 213,263
Bayamon Gardens 512,165
Carolina Associates 247,000
Colinas De San Juan 376,746
Jardines De Caparra 160,169
Monserrate I --
Monte De Oro --
New Center --
San Anton 98,700
Valle Del Sol 1,283,000
Vistas Del Turabo 46,000
------------
Total $ 10,348,747
============
Use $ 10,349,000
============
</TABLE>
(1) Balances obtained from December 31, 1997 financial statements.
(2) Represents 1% interest of intercompany receivable.
<PAGE>
EXHIBIT 6
---------
AMERICAN COMMUNITIES PROPERTIES TRUST
NET ASSET VALUE SUMMARY
<TABLE>
<CAPTION>
NAV NAV
CONTRIBUTED CONTRIBUTED TOTAL
BY IGC BY L.P.'S UPON NAV ASSUMING
SHAREHOLDERS CONVERSION 100% CONVERSION
------------ -------------- ---------------
<S> <C> <C> <C>
American Housing $ 16,570,000 $ 7,547,000 $ 24,117,000
IGP Housing 22,039,000 25,987,000 48,026,000
American Management Company 3,944,000 -- 3,944,000
American Land Assets (SCA) 36,382,000 -- 36,382,000
LDA Interest 15,639,000 -- 15,639,000
Escorial Builders Interest 2,266,000 -- 2,266,000
IGP Management Company 6,628,000 -- 6,628,000
Other IGP Net Assets/(Liabilities) 1,047,000 -- 1,047,000
Intercompany Receivables 10,349,000 -- 10,349,000
Other IGC Net Assets/(Liabilities) (1,500,000) -- (1,500,000)
Other Assets 0 -- 0
Other Obligations (1,694,000) -- (1,694,000)
Restructuring/Consolidation Costs (800,000) -- (800,000)
------------ ----------- --------
TOTALS $110,870,000 $33,534,000 $144,404,000
Share Price $ 21.247307 $ 21.247307 $21.247307
------------ ----------- ------------
TOTAL SHARES 5,218,073 1,578,271 6,796,344
PERCENTAGE 76.78% 23.22% 100.00%
===== ===== ======
</TABLE>
<PAGE>
EXHIBIT 99.13
AMERICAN COMMUNITY PROPERTIES TRUST
NET ASSET VALUE SUMMARY
AS OF MARCH 31, 1998
<PAGE>
AMERICAN COMMUNITY PROPERTIES TRUST
NET ASSET VALUE SUMMARY
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
Exhibit
-------
<S> <C>
Proposed Transaction Flowchart........................................... 1
Allocation Schedules
U.S. Housing Net Asset Value.................................... 2
P.R. Housing Net Asset Value.................................... 3
IGC Net Asset Value............................................. 4
Intercompany Receivable Analysis......................................... 5
American Community Properties Trust NAV Summary.......................... 6
Firm Brochure............................................................ 7
</TABLE>
<PAGE>
ACPT FOLLOWING THE RESTRUCTURING
The following chart depicts the organizational structure of ACPT and its
subsidiaries following completion of the Restructuring.
[CHART OF ACPT APPEARS HERE]
(1) ACPT will hold all of common stock of American Rental.
(2) The Class A interest represents all of the interest in IGP other than the
class B interests, which represents all of IGP's rights to income, gain,
and losses associated with land in puerto Rico held by LDA that is
currently designate for development as saleable property.
<PAGE>
EXHIBIT 2
---------
U.S. HOUSING PARTNERSHIP
NET ASSET VALUE SUMMARY
-----------------------
<TABLE>
<CAPTION>
NAV/(1)/ Units %
-------- ----- ------
<S> <C> <C> <C>
To IGC As GP of Partnerships $13,879,000 $1,387,900 57.00%
To IGC As L.P. of Partnerships 2,891,000 289,100 11.87%
--------- ------- ------
Subtotal 16,770,000 1,677,000 68.88%
To Other Limited Partners of
Bannister 1,866,000 186,600 7.66%
Palmer 532,000 53,200 2.19%
Brookside 1,056,000 105,600 4.34%
Headen 452,000 45,200 1.86%
Huntington 1,514,000 151,400 6.22%
Crossland 760,000 76,000 3.12%
Wakefield Third Age 506,000 50,600 2.08%
Lancaster 0 0 0.00%
Fox Chase 3,000 300 0.01%
New Forest 1,000 100 0.01%
Essex Village 0 0 0.00%
Wakefield Terrace 888,000 88,800 3.65%
----------- ---------- -------
$24,347,000 $2,434,700 100.00%
=========== =========== =======
</TABLE>
(1) See attached schedule of Net Asset Value.
<PAGE>
<TABLE>
<CAPTION>
US HOUSING
NET ASSET VALUE SUMMARY
(IN THOUSANDS)
BANNISTER PALMER BROOKSIDE HEADEN HUNTINGTON CROSSLAND
--------- ------ --------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
(000s)
NAV ANALYSIS
CASH 79 203 18 243 308 121
A/C REC. 12 8 1 1 5 6
OTHER ASSETS 194 149 35 168 241 96
RES. RECEIPTS/REP. RES. 197 42 29 125 283 20
REAL ESTATE 7,860 6,440 2,720 6,560 10,350 4,010
----- ----- ----- ----- ------ -----
TOTAL ASSETS 8,342 6,842 2,803 7,097 11,187 4,253
A/C PAYABLE, OTHER (172) (84) (86) (76) (146) (96)
DEBT - THIRD PARTY (3,611) (4,195) (1,578) (4,844) (7,613) (2,119)
DEBT - I/C LOANS (1) (71) (391) (49) (334) (401) (137)
CONSOLIDATION COSTS ___________ _________ __________ __________ _____________ _________
NAV 4,488 2,172 1,090 1,843 3,027 1,901
===== ===== ===== ===== ===== =====
<CAPTION>
PRELIMINARY
WAKEFIELD ESSEX
THIRD AGE LANCASTER FOX CHASE NEW FOREST VILLAGE
--------- --------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
(000s)
NAV ANALYSIS
CASH 28 221 155 322 427
A/C REC. 34 8 5 23 37
OTHER ASSETS 113 117 338 324 249
RES. RECEIPTS/REP. RES. 40 173 85 109 378
REAL ESTATE 4,220 5,790 9,020 15,200 17,510
----- ----- ----- ------ ------
TOTAL ASSETS 4,435 6,309 9,603 15,978 18,601
A/C PAYABLE, OTHER (84) (83) (129) (226) (342)
DEBT - THIRD PARTY (2,294) (4,299) (6,554) (12,325) (15,839)
DEBT - I/C LOANS (1) (89) (1,423) (15) (2,094) (2,420)
CONSOLIDATION COSTS ___________ ___________ ___________ ___________ ___________
NAV 1,968 504 2,905 1,333 0
===== === ===== ===== =
<CAPTION>
WAKEFIELD U.S. HOUSING
TERRACE CONSOLIDATED
--------- ------------
<S> <C> <C>
(000s)
NAV ANALYSIS
CASH 95 2,220
A/C REC. 17 157
OTHER ASSETS 221 2,245
RES. RECEIPTS/REP. RES. 236 1,717
REAL ESTATE 7,740 97,420
TOTAL ASSETS 8,309 103,759
A/C PAYABLE, OTHER (157) (1,681)
DEBT - THIRD PARTY (4,919) (70,190)
DEBT - I/C LOANS (1) (117) (7,541)
CONSOLIDATION COSTS ___________ _____________
NAV 3,116 24,347
===== ======
(1) REFLECTS I/C RECEIVABLES AND WORKING CAPITAL LOANS. I/C RECEIVABLE BALANCE
MAY BE ADJUSTED TO REFLECT AMOUNT NOT DEEMED COLLECTIBLE BASED ON NAV
PRIORITY DISTRIBUTIONS.
(2) NOTE: I/C RECEIVABLES REDUCED FOR ESSEX VILLAGE BY $538.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OWNERSHIP % BEFORE RECOVERY OF CAPITAL
- --------------------------------------
BANNISTER PALMER BROOKSIDE HEADEN HUNTINGTON CROSSLAND
--------- ------ --------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
IGC % AS GP 5.00% 50.00% 0.00% 50.00% 50.00% 60.00%
IGC % AS LP 0.00% 25.50% 0.00% 25.50% 0.00% 0.00%
OTHER % AS LP 95.00% 24.50% 100.00% 24.50% 50.00% 40.00%
------- ------- ------- ------- ------- -------
100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
======= ======= ======= ======= ======= =======
PREFERENCE DISTRIBUTIONS
- ------------------------
PREFERENCE AMOUNT (3) 128 0 1,022 0 0 0
=== = ===== = = =
IGC NAV AS GP 6 0 0 0 0 0
NAV - IGC AS LP - RETURN OF CAPITAL 0 0 0 0 0 0
NAV - OTHER LPs - RETURN OF CAPITAL 122 0 1,022 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
OWNERSHIP % AFTER PREFERENCES:
- ------------------------------
IGC % AS GP 60.00% 50.00% 50.00% 50.00% 50.00% 60.00%
IGC % AS LP 0.00% 25.50% 0.00% 25.50% 0.00% 0.00%
OTHER % AS LP 40.00% 24.50% 50.00% 24.50% 50.00% 40.00%
------- ------- ------- ------- ------- -------
100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
======= ======= ======= ======= ======= =======
NAV DISTRIBUTION/ALLOCATION
- ---------------------------
IGC NAV AS GP 2,616 1,086 34 922 1,514 1,141
IGC NAV AS LP 0 554 0 470 0 0
OTHER LP NAV 1,744 532 34 452 1,514 760
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ALLOCATION
- ----------------
IGC NAV AS GP 2,622 1,086 34 922 1,514 1,141
IGC NAV AS LP 0 554 0 470 0 0
OTHER LP NAV 1,866 532 1,056 452 1,514 760
----- ----- ----- ----- ----- -----
TOTAL NAV 4,488 2,172 1,090 1,843 3,027 1,901
===== ===== ===== ===== ===== =====
TOTAL IGC NAV - US HOUSING 16,770 68.88%
OTHER LP NAV - US HOUSING 7,577 31.12%
------- -------
TOTAL - US HOUSING $24,347 100.00%
======= =======
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
OWNERSHIP % BEFORE RECOVERY OF CAPITAL
- --------------------------------------
WAKEFIELD ESSEX
THIRD AGE LANCASTER FOX CHASE NEW FOREST VILLAGE
--------- -------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
IGC % AS GP 0.00% 50.00% 99.90% 99.90% 50.00%
IGC % AS LP 51.00% 50.00% 0.00% 0.00% 0.00%
OTHER % AS LP 49.00% 0.00% 0.10% 0.10% 50.00%
------- ------- ------- ------- -------
100.00% 100.00% 100.00% 100.00% 100.00%
======= ======= ======= ======= =======
PREFERENCE DISTRIBUTIONS
- ------------------------
PREFERENCE AMOUNT (3) 96 329 0 0 0
== === = = =
IGC NAV AS GP 0 0 0 0 0
NAV - IGC AS LP - RETURN OF CAPITAL 49 329 0 0 0
NAV - OTHER LPs - RETURN OF CAPITAL 47 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
OWNERSHIP % AFTER PREFERENCES:
- ------------------------------
IGC % AS GP 50.00% 50.00% 99.90% 99.90% 50.00%
IGC % AS LP 25.50% 50.00% 0.00% 0.00% 0.00%
OTHER % AS LP 24.50% 0.00% 0.10% 0.10% 50.00%
------- ------- ------- ------- -------
100.00% 100.00% 100.00% 100.00% 100.00%
======= ======= ======= ======= =======
NAV DISTRIBUTION/ALLOCATION
- ---------------------------
IGC NAV AS GP 936 88 2,902 1,332 0
IGC NAV AS LP 477 88 0 0 0
OTHER LP NAV 459 0 3 1 0
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ALLOCATION
- ----------------
IGC NAV AS GP 936 88 2,902 1,332 0
IGC NAV AS LP 526 417 0 0 0
OTHER LP NAV 506 0 3 1 0
--- - - - -
TOTAL NAV 1,968 504 2,905 1,333 0
===== === ===== ===== =
(4)(5) (4)(5)
TOTAL IGC NAV - US HOUSING
OTHER LP NAV - US HOUSING
TOTAL - US HOUSING
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
OWNERSHIP % BEFORE RECOVERY OF CAPITAL
- --------------------------------------
WAKEFIELD
TERRACE
---------
<S> <C> <C>
IGC % AS GP 0.00%
IGC % AS LP 51.00%
OTHER % AS LP 49.00%
-------
100.00%
=======
PREFERENCE DISTRIBUTIONS
- ------------------------
PREFERENCE AMOUNT (3) 508
===
IGC NAV AS GP 0 6
NAV - IGC AS LP - RETURN OF CAPITAL 259 637
NAV - OTHER LPs - RETURN OF CAPITAL 249 1,440
- ------------------------------------------------------------------------------------------------------------------------------------
OWNERSHIP % AFTER PREFERENCES:
- ------------------------------
IGC % AS GP 50.00%
IGC % AS LP 25.50%
OTHER % AS LP 24.50%
-------
100.00%
=======
NAV DISTRIBUTION/ALLOCATION
- ---------------------------
IGC NAV AS GP 1,304 13,873
IGC NAV AS LP 665 2,254
OTHER LP NAV 639 6,137
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ALLOCATION
IGC NAV AS GP 1,304 13,879
IGC NAV AS LP 924 2,891
OTHER LP NAV 888 7,577
----- ------
TOTAL NAV 3,116 24,347
===== ======
(3) PREFERENCE AMOUNT REPRESENTS UNRECOVERED RETURN OF CAPITAL.
TOTAL IGC NAV - US HOUSING (4) GP/LP ALLOCATIONS FOR FOX CHASE AND NEW FOREST ARE BASED ON CAPITAL A/C BALANCES
OTHER LP NAV - US HOUSING PER THE PSHP AGREEMENT.
TOTAL - US HOUSING (5) FOX CHASE AND NEW FOREST ARE GENERAL PSHPS. THERE ARE NO LPs. THE 0.1%
REPRESENTS THE OUTSIDE GP %.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 3
---------
P.R. HOUSING PARTNERSHIP
NET ASSET VALUE SUMMARY
-----------------------
<TABLE>
<CAPTION>
NAV/(1)/ Units %
-------- ----- -----
<S> <C> <C> <C>
To IGC As GP of Partnerships $20,067,000 $2,006,700 45.50%
To IGC As L.P. of Partnerships 255,000 25,500 0.58%
------- ------ -----
Subtotal 20,322,000 2,032,200 46.08%
To Other Limited Partners of
Alturas Del Senorial 953,000 95,300 2.16%
Bayamon Gardens 1,766,000 176,600 4.00%
Carolina Associates/(2)/ 3,139,000 313,900 7.12%
Colinas De San Juan 3,702,000 370,200 8.39%
Jardines De Caparra 1,537,000 153,700 3.49%
Monserrate I 4,837,000 483,700 10.97%
Monte De Oro 1,959,000 195,900 4.44%
New Center 1,890,000 189,000 4.29%
San Anton 1,675,000 167,500 3.80%
Valle Del Sol 1,627,000 162,700 3.69%
Vistas Del Turabo 696,000 69,600 1.58%
----------- ---------- -------
$44,101,000 $4,410,100 100.00%
=========== ========== =======
</TABLE>
(1) See attached schedule.
(2) Includes De Diego, Monserrate II, Santa Juana and Torre De Las Cumbres
properties.
6
<PAGE>
<TABLE>
<CAPTION>
PR HOUSING
NET ASSET VALUE SUMMARY
(IN THOUSANDS)
ALTURAS BAYAMON CAROLINA COLINAS De JARDINES
DEL SENORIAL GARDENS ASSOCIATES (4) SAN JUAN De CAPARRA MONSERRATE I
------------ ------- -------------- -------- ---------- ------------
(000s)
NAV ANALYSIS
<S> <C> <C> <C> <C> <C> <C>
CASH 255 100 280 13 402 106
A/C REC. 0 27 105 18 8 4
OTHER ASSETS 122 189 1,748 244 179 174
RES. RECEIPTS/REP. RES. 124 1,101 1,932 3,772 248 574
REAL ESTATE 4,920 11,170 32,830 11,500 7,200 10,350
----- ------ ------ ------ ----- ------
TOTAL ASSETS 5,421 2,587 36,895 15,547 8,037 11,208
A/C PAYABLE, OTHER (66) (176) (644) (108) (95) (115)
DEBT - THIRD PARTY (3,449) (9,387) (29,973) (8,356) (4,869) (910)
DEBT - I/C LOANS (1) - (512) - (377) - -
CONSOLIDATION COSTS ___________ __________ ______________ ___________ ___________ ___________
NAV 1,906 2,512 6,278 6,706 3,073 10,183
===== ===== ===== ===== ===== ======
<CAPTION>
PRELIMINARY
VISTAS PR HOUSING
MONTE De ORO NEW CENTER SAN ANTON VALLE DEL SOL DEL TURABO CONSOLIDATED
------------ ---------- --------- ------------- ---------- ------------
(000s)
NAV ANALYSIS
CASH 10 441 95 29 30 1,761
A/C REC. (3.00) 12 5 2 3 181
OTHER ASSETS 959 760 117 188 34 4,714
RES. RECEIPTS/REP. RES. 0 0 536 860 81 9,228
REAL ESTATE 8,750 8,660 5,520 13,080 2,990 116,970
----- ----- ----- ------ ----- -------
TOTAL ASSETS 9,716 9,873 6,273 14,159 3,138 132,854
A/C PAYABLE, OTHER (38) (57) (83) (134) (48) (1,564)
DEBT - THIRD PARTY (5,761) (6,036) (2,885) (11,035) (2,259) (84,920)
DEBT - I/C LOANS (1) - - (99) (1,235) (46) (2,269)
CONSOLIDATION COSTS ___________ ___________ __________ ___________ ____________ _____________
NAV 3,917 3,780 3,206 1,755 785 44,101
===== ===== ===== ===== === ======
(1) REFLECTS I/C RECEIVABLES AND WORKING CAPITAL LOANS. I/C RECEIVABLE BALANCE MAY BE ADJUSTED TO REFLECT AMOUNT NOT DEEMED
COLLECTIBLE BASED ON NAV PRIORITY DISTRIBUTIONS.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OWNERSHIP % BEFORE RECOVERY OF CAPITAL
- --------------------------------------
ALTURAS BAYAMON CAROLINA COLINAS De JARDINES
DEL SENORIAL GARDENS ASSOCIATES (2) SAN JUAN De CAPARRA MONSERRATE I
------------ ------- -------------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
IGC % AS GP 1.00% 1.00% 50.00% 1.00% 1.00% 50.00%
IGC % AS LP 0.00% 0.00% 0.00% 0.00% 0.00% 2.50%
OTHER % AS LP 99.00% 99.00% 50.00% 99.00% 99.00% 47.50%
------ ------ ------ ------ ------ ------
100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
======= ======= ======= ======= ======= =======
PREFERENCE DISTRIBUTIONS
- ------------------------
PREFERENCE AMOUNT (3) 0 1,041 0 712 0 0
= ===== = === = =
IGC NAV AS GP 0 11 0 7 0 0
NAV - IGC AS LP - ROC 0 0 0 0 0 0
NAV - OTHER LPs - ROC 0 1,030 0 705 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
OWNERSHIP % AFTER PREFERENCES:
- ------------------------------
IGC % AS GP 50.00% 50.00% 50.00% 50.00% 50.00% 50.00%
IGC % AS LP 0.00% 0.00% 0.00% 0.00% 0.00% 2.50%
OTHER % AS LP 50.00% 50.00% 50.00% 50.00% 50.00% 47.50%
------ ------ ------ ------ ------ ------
100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
======= ======= ======= ======= ======= =======
NAV DISTRIBUTION/ALLOCATION
- ---------------------------
IGC NAV AS GP 953 736 3,139 2,997 1,537 5,092
IGC NAV AS LP 0 0 0 0 0 255
OTHER LP NAV 953 736 3,139 2,997 1,537 4,837
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ALLOCATION
- ----------------
IGC NAV AS GP 953 747 3,139 3,004 1,537 5,092
IGC NAV AS LP 0 0 0 0 0 255
OTHER LP NAV 953 1,766 3,139 3,702 1,537 4,837
TOTAL NAV 1,906 2,512 6,278 6,706 3,073 10,183
TOTAL IGC NAV - PR HOUSING 20,322 46.08%
OTHER LP NAV - PR HOUSING 23,779 53.92%
TOTAL - PR HOUSING $44,101 100.00%
======= =======
<CAPTION>
OWNERSHIP % BEFORE RECOVERY OF CAPITAL
- --------------------------------------
VISTAS PR HOUSING
MONTE De ORO NEW CENTER SAN ANTON VALLE DEL SOL DEL TURABO CONSOLIDATED
------------ ---------- --------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
IGC % AS GP 50.00% 50.00% 0.00% 1.00% 50.50%
IGC % AS LP 0.00% 0.00% 0.00% 0.00% 0.00%
OTHER % AS LP 50.00% 50.00% 100.00% 99.00% 49.50%
------ ------ ------- ------ ------
100.00% 100.00% 100.00% 100.00% 100.00%
======= ======= ======= ======= =======
PREFERENCE DISTRIBUTIONS
- ------------------------
PREFERENCE AMOUNT (3) 0 0 116 1,529 618
= = === ===== ===
IGC NAV AS GP 0 0 1 15 6 40
NAV - IGC AS LP - ROC 0 0 0 0 0 0
NAV - OTHER LPs - ROC 0 0 115 1,514 612 3,976
- ------------------------------------------------------------------------------------------------------------------------------------
OWNERSHIP % AFTER PREFERENCES:
- ------------------------------
IGC % AS GP 50.00% 50.00% 49.50% 50.00% 50.00%
IGC % AS LP 0.00% 0.00% 0.00% 0.00% 0.00%
OTHER % AS LP 50.00% 50.00% 50.50% 50.00% 50.00%
------ ------ ------ ------ ------
100.00% 100.00% 100.00% 100.00% 100.00%
======= ======= ======= ======= =======
NAV DISTRIBUTION/ALLOCATION
- ---------------------------
IGC NAV AS GP 1,959 1,890 1,530 113 84 20,027
IGC NAV AS LP 0 0 0 0 0 255
OTHER LP NAV 1,959 1,890 1,560 113 84 19,803
TOTAL ALLOCATION
IGC NAV AS GP 1,959 1,890 1,531 128 90 20,067
IGC NAV AS LP 0 0 0 0 0 255
OTHER LP NAV 1,959 1,890 1,675 1,627 696 23,779
----- ----- ----- ----- --- ------
TOTAL NAV 3,917 3,780 3,206 1,755 785 44,101
===== ===== ===== ===== === ======
(2) INCLUDES De DIEGO, MONSERRATE II, SANTA JUANA AND TORRE De LAS CUMBRES PROPERTIES.
TOTAL IGC NAV - PR HOUSING (3) PREFERENCE AMOUNT REPRESENTS UNRECOVERED RETURN OF CAPITAL.
OTHER LP NAV - PR HOUSING
TOTAL - PR HOUSING
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 4
---------
ACPT NET ASSET VALUE
--------------------
<TABLE>
<S> <C>
American Housing - 1,677,000 units at $10 $16,770,000
American Management Company/(a)/ 3,944,000
Other/(b)/ 0
-----------
Subtotal American Rental $20,714,000 (A)
===========
SCA Assets/(c)// Total American Land $36,296,000 (B)
===========
LDA Interest (80%)/(d)/ $16,516,000
Escorial Builders Interest (50%)/(e)/ 2,316,000
IGP Housing - 2,032,200 units at $10 20,322,000
IGP Management Company/(f)/ 6,628,000
LDA Note Receivable 2,400,000
Other IGP Assets 702,000
Other IGP Liabilities (1,942,000)
-----------
Subtotal IGP Group $46,942,000 (C)
===========
Intercompany Receivables/(g)/ $9,812,000
Other Assets 2,585,000
Other Liabilities (2,217,000)
-----------
Subtotal - Other Net Assets 10,180,000 (D)
===========
ACPT BancOne debt/(h)/ $(1,634,000)
Financing Costs/(h)/ 0
Restructuring/Consolidation Costs (43,000)
-----------
(1,677,000) (E)
===========
Total Net Asset Value $112,455,000 (A+B+C+D+E)
NAV Per Share $21.55
-----------
Shares Issued 5,218,073
===========
</TABLE>
8
<PAGE>
EXHIBIT 4
---------
(CONTINUED)
(a) The American Management Company was valued at a multiple of 4 on 1997 pro
forma cash flow from management services of $986,000 (Corporate costs
pushed down from ACPT were excluded from the calculation).
(b) Represents 1% interest in Lakeside, valued at book value.
(c) The other net asset value of SCA/American Land was determined as follows:
<TABLE>
<S> <C>
Land Parcels at Appraised Value/(a)/:
Dorchester Neighborhood Finished Lots 0
Huntington Ridge - Raw Acreage 1,197,000
Fairway Village - Raw Recorded Lots - Residential 19,263,000
Fairway Village - Raw Commercial Land 3,960,000
Wooded Glen and Piney Beach - Raw Acreage 7,680,000
Business Park East and North - Finished Land - Industrial 2,148,000
Middle Industrial Park - Raw Land - Industrial 4,750,000
Piney Beach Industrial Park - Raw Land - Industrial 7,699,000
West Lake and Smallwood Parcels 6,775,000
-------------
Total 53,472,000
Liabilities (22,451,000)
-------------
SCA Net Asset Value $31,021,000
=============
Ownership Interest x99%
-------------
Net Asset Value of SCA 30,710,000
Intercompany Account Included in Liabilities 5,586,000
-------------
Equity Value of SCA Interest $36,296,000
=============
</TABLE>
(d) Represents 80% of net asset value of LDA determined as follows:
<TABLE>
<S> <C>
Cash $936,000
Receivables 3,030,000
Real Estate at Appraisal - Vacant Land - Canovanas, PR 6,100,000
- Parque Escorial Planned Community 35,465,000
-------------
Total Assets 45,531,000
Accounts Payable (1,381,000)
Liabilities (23,505,000)
-------------
Total 20,645,000
x 80%
-------------
Net Asset Value of LDA 16,516,000
=============
</TABLE>
(a) Adjusted for land retained by IGC and land sold subsequent to the appraisal
date.
9
<PAGE>
EXHIBIT 4
---------
(CONTINUED)
(e) Represents 50% of net asset value of Escorial Builders S.E. determined
as follows:
<TABLE>
<S> <C>
Cash $563,000
Other Assets 51,000
Real Estate at Book Value -
Villas De Parque Escorial 12,722,000
-----------
Total Assets 13,336,000
Accounts Payable (1,251,000)
Debt (10,594,000)
-----------
Balance Sheet Net Asset Value 1,491,000
Present Value of Estimated Future Earnings (1) 3,141,000
-----------
Total 4,632,000
x 50%
-----------
Net Asset Value of Escorial Building S.E. $2,316,000
===========
</TABLE>
(1) Based on May 26, 1998 correspondence from management, the estimated
expected return on the Escorial Builders project is $4,400,000. For
purposes of NAV, management anticipates the return of $4,400,000 in
excess of book value less profits to date to be achieved over a 2 year
period. Using a 15% discount rate the present value of the expected
return is approximately $3,141,000.
(f) The IGP Management Company was valued at a multiple of 4 on 1997 pro
forma cash flow of $1,657,000 and assumed 100% ownership by ACPT.
(g) For purposes of this analysis the intercompany receivables are as of
March 31, 1998 from those affiliated entities included in the Net Asset
Value Analyses.
(h) Represents the future obligation to fund the mitigation/remediation of
certain land environmental issues.
10
<PAGE>
EXHIBIT 5
---------
ACPT INTERCOMPANY RECEIVABLES
-----------------------------
<TABLE>
<CAPTION>
3/31/98
INTERCOMPANY
ENTITY RECEIVABLE/(1)/
------ ---------------
<S> <C>
Bannister $71,091
Palmer 390,519
Brookside 49,000
Headen 333,908
Huntington 401,000
Crossland 137,186
Wakefield Third Age 89,420
Lancaster 1,423,000
Fox Chase 15,861
New Forest 2,094,000
Essex Village 2,420,000
Wakefield Terrace 117,000
Lakeside (2) 1,581
Alturas Del Senorial --
Bayamon Gardens 512,165
Carolina Associates --
Colinas De San Juan 376,746
Jardines De Caparra --
Monserrate I --
Monte De Oro --
New Center --
San Anton 98,700
Valle Del Sol 1,235,000
Vistas Del Turabo 46,000
-----------
Total $ 9,812,177
-----------
Use $ 9,812,000
===========
</TABLE>
(1) Balances obtained from March 31, 1998 financial statements.
(2) Represents 1% interest of intercompany receivable.
11
<PAGE>
EXHIBIT 6
---------
AMERICAN COMMUNITIES PROPERTIES TRUST
NET ASSET VALUE SUMMARY
<TABLE>
<CAPTION>
NAV NAV
CONTRIBUTED CONTRIBUTED TOTAL
BY IGC BY L.P.'S UPON NAV ASSUMING
SHAREHOLDERS CONVERSION 100% CONVERSION
------------ -------------- ---------------
<S> <C> <C> <C>
American Housing $16,770,000 $7,577,000 $24,347,000
IGP Housing 20,322,000 23,779,000 44,101,000
American Management Company 3,944,000 -- 3,944,000
American Land Assets (SCA) 36,296,000 -- 36,296,000
LDA Interest 16,516,000 -- 16,516,000
Escorial Builders Interest 2,316,000 -- 2,316,000
IGP Management Company 6,628,000 -- 6,628,000
Other IGP Net Assets/(Liabilities) 1,160,000 -- 1,160,000
Intercompany Receivables 9,812,000 -- 9,812,000
Other IGC Net Assets/(Liabilities) 368,000 -- 368,000
Other Assets 0 -- 0
Other Obligations (1,634,000) -- (1,634,000)
Restructuring/Consolidation Costs (43,000) -- (43,000)
------------ ----------- ------------
TOTALS $112,455,000 $31,356,000 $143,811,000
Share Price $21.551059 $21.551059 $21.551059
------------ ----------- ------------
TOTAL SHARES 5,218,073 1,454,963 6,673,036
PERCENTAGE 78.20% 21.80% 100.00%
============ =========== ============
</TABLE>
12
