<PAGE>
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(Pursuant to Section 13(e) of the
Securities Exchange Act of 1934)
(AMENDMENT NO. 2)
-------------
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
(Name of the Issuer)
AQUARIUS ACQUISITION, L.P.
NOMURA ASSET CAPITAL CORPORATION
THREE WINTHROP PROPERTIES, INC.
LINNAEUS-LEXINGTON ASSOCIATES LIMITED PARTNERSHIP
(Name of Person(s) Filing Statement)
UNITS OF LIMITED PARTNERSHIP INTEREST
(Title of Class of Securities)
NONE
(CUSIP Number of Class of Securities)
AQUARIUS ACQUISITION, L.P.
C/O NOMURA ASSET CAPITAL CORPORATION
TWO WORLD FINANCIAL CENTER
NEW YORK, NEW YORK 10005
(212) 667-2250
(Name, Address, and Telephone Numbers of Person Authorized to Receive
Notices and Communications on Behalf of Person(s) Filing Statement)
-------------
COPY TO:
RICHARD J. SABELLA, ESQ.
CAHILL GORDON & REINDEL
80 PINE STREET
NEW YORK, NEW YORK 10005
(212) 701-3000
This statement is filed in connection with (check the appropriate box):
a. [ ] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act of
1933.
c. [X] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information
statement referred to in checking box (a) are preliminary copies: [ ]
CALCULATION OF FILING FEE
- -------------------------------------------------------------------------------
TRANSACTION AMOUNT OF
VALUATION* FILING FEE
- -------------- ------------
$23,364,000 $4,673
- -------------------------------------------------------------------------------
* The maximum number of limited partnership Units which may be purchased
pursuant to the Offer is 328. Any remaining tendered Units would remain
owned by the tendering limited partner but be pledged to secure a loan from
the Purchaser. The maximum aggregate consideration to be paid upon
consummation of the Offer would equal 328 (the maximum number of Units which
may be purchased upon consummation of the Offer) multiplied by the $36,000
purchase price per Unit. The remainder of the transaction value represents
the maximum amount to be paid out in the form of loans in respect of the
remaining 321 Units which may be transferred to the bidder one year and one
day from the date of consummation of the Offer and repayment of such loans.
[X] Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
Amount Previously Paid:$4,673 Filing Party:AQUARIUS ACQUISITION, L.P.
Form or Registration No.:SCHEDULE 14D-1 Date Filed: FEBRUARY 1, 1995
<PAGE>
This Amendment No. 2 ("Amendment No. 2") amends and supplements the Rule
13e-3 Transaction Statement on Schedule 13E-3 dated February 1, 1995 (the
"Statement"), as amended, which relates to a tender offer by Aquarius
Acquisition, L.P., a Delaware limited partnership (the "Purchaser"), to
purchase outstanding units of limited partnership interests (the "Units") in
Springhill Lake Investors Limited Partnership, a Maryland limited partnership
(the "Partnership"), upon the terms and subject to the conditions set forth
in the Offer to Purchase, dated February 1, 1995 (including the annexes
thereto, the "Offer to Purchase") and in the related Letter of Transmittal
(which together constitute the "Offer"). Capitalized terms used in this
Amendment No. 2 and not defined herein shall have the meanings set forth in
the Offer to Purchase.
The following cross-reference sheet is being supplied pursuant to General
Instruction F to Schedule 13e-3 and shows the location in the Tender Offer
Statement on Schedule 14D-1, as amended (the "Schedule 14D-1") filed by the
Purchaser with the Securities and Exchange Commission in respect of the Offer
of the information required to be included in response to the items of this
Statement. The information in the Schedule 14D-1 is hereby expressly
incorporated herein by reference and the responses to each item in this
Statement are qualified in their entirety by the provisions of the Schedule
14D-1.
1
<PAGE>
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM IN WHERE LOCATED IN
SCHEDULE 13E-3 SCHEDULE 14D-1
- ------------------ --------------------
<S> <C>
Item 1(a) ......... Item 1(a)
Item 1(b) ......... Item 1(b)
Item 1(c) ......... Item 1(c)
Item 1(d) ......... *
Item 1(e) ......... *
Item 1(f) ......... *
Item 2(a) ......... Item 2(a)
Item 2(b) ......... Item 2(b)
Item 2(c) ......... Item 2(c)
Item 2(d) ......... Item 2(d)
Item 2(e) ......... Item 2(e)
Item 2(f) ......... Item 2(f)
Item 2(g) ......... Item 2(g)
Item 3(a)(1) ...... Item 3(a)
Item 3(a)(2) ...... Item 3(b)
Item 3(b) ......... *
Item 4 ............ *
Item 5 ............ Item 5
Item 6(a) ......... Item 4(a)
Item 6(b) ......... *
Item 6(c) ......... Item 4(b)
Item 6(d) ......... Item 4(c)
Item 7(a) ......... Item 5
Item 7(b) ......... *
Item 7(c) ......... *
Item 7(d) ......... *
Item 8 ............ *
Item 9 ............ *
Item 10(a) ........ Item 6(a)
Item 10(b) ........ Item 6(b)
Item 11 ........... Item 7
Item 12(a) ........ *
Item 12(b) ........ *
Item 13 ........... *
Item 14(a) ........ *
Item 14(b) ........ *
Item 15(a) ........ *
Item 15(b) ........ Item 8
Item 16 ........... Item 10(f)
Item 17 ........... Item 11
<FN>
- ---------------
* The item is located in the Schedule 13E-3 only.
</TABLE>
2
<PAGE>
ITEM 3. PAST CONTRACTS, TRANSACTIONS OR NEGOTIATIONS AND
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE
ISSUER'S SECURITIES.
Item 3 and Item 11 are hereby amended and supplemented as follows:
On February 7, 1995, Lerner, on his own behalf and on behalf of the
Operating Partnership, and two Limited Partners, on their behalf and on behalf
of the Partnership, filed a lawsuit in the Circuit Court for Montgomery County,
Maryland, alleging that Three Winthrop breached its fiduciary obligations by
taking action to terminate the Lerner Agreement and to appoint Winthrop
Management as the new managing agent of the Project. Three Winthrop
has not yet responded to this lawsuit. On February 28, 1995, Lerner moved for
preliminary injunction seeking to enjoin Three Winthrop from replacing Lerner as
managing agent of the Project with an affiliate.
On February 14, 1995, the Circuit Court for Montgomery County, Maryland
issued an order ruling in favor of Three Winthrop, as managing general partner
of the Partnership and as general partner of the Operating Partnerships, in its
request to declare the Lerner Agreement terminable by its terms as of January
31, 1995. On February 22, 1995, Three Winthrop made a motion to make explicit
the consequences of such order.
On February 27, 1995, a Limited Partner filed a lawsuit against Three
Winthrop, NACC and the Purchaser in the United States District Court for the
District of Maryland, on its behalf and derivatively on behalf of the
Partnership, alleging that Three Winthrop is in violation of Rule 13e-3 and
that Three Winthrop has breached its fiduciary duty to the Limited Partners.
A hearing has been scheduled for March 7, 1995. On February 27, 1995,
Greenbalt made a motion in the United States District Court for the District
of Maryland to intervene as plaintiff in the above action. Three Winthrop,
NACC and the Purchaser have not yet responded to these lawsuits.
On February 28, 1995, Three Winthrop filed an answer to Lerner's
complaint for money damages of $50,000 denying the substance of the allegations.
ITEM 4. TERMS OF THE TRANSACTION.
Item 4 is hereby amended and supplemented as follows:
The Expiration Date has been extended to 5:00 p.m., New York Time, on
March 14, 1995, and as of February 28, 1995 27 Units were tendered.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
Item 17 is hereby amended and supplemented as follows:
<TABLE>
<CAPTION>
<S> <C>
(b)(3) Arthur Andersen Appraisal dated August 13, 1992.
(c)(5) Order Granting Motion for Partial Summary Judgment in the case styled Three Winthrop
Properties, Inc. v. Lerner Corporation, Case No. 129192-V (Cir. Ct. Montgomery Cty., Md.).
(c)(6) Complaint for Breach of Fiduciary Duty in the case styled Montgomery, et al. v. Three
Winthrop Properties, Inc., Case No. 13222 (Cir. Ct. Montgomery Cty., Md.).
(c)(7) Complaint for Failure to Disclose under Rule 13e-3 and Breach of Fiduciary Duty in the case
styled LER 8, et al. v. Three Winthrop Properties, Inc., et al., Case No. DKC 95-555 (D.
Md.).
(c)(8) Motion of Greenbelt Residential Limited Partnership to Intervene in the case styled LER 8, et
al. vs. Three Winthrop Properties, Inc., et al., Case No. DKC 95-555 (D. Md.).
</TABLE>
3
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and
correct.
Dated: March 1, 1995
AQUARIUS ACQUISITION, L.P.
By: Partnership Acquisition Trust I, its
General Partner
By: WILMINGTON TRUST COMPANY,
as Trustee and not in its individual capacity
By: /s/ David A. Vanaskey, Jr.
-------------------------------------
Name: David A. Vanaskey, Jr.
Title: Senior Financial Services Officer
4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
EXHIBIT DESCRIPTION NUMBER
- ------------ ----------- ----------
<S> <C> <C>
* (a)(1) FORM OF ACQUISITION LOAN AGREEMENT BETWEEN NOMURA ASSET CAPITAL CORPORATION AND THE
Purchaser
* (a)(2) Form of Pledge and Security Agreement between Nomura Asset Capital Corporation and
the Purchaser
* (b)(1) Selected pages from Price Waterhouse LLP Appraisal
* (b)(2) Selected pages from Lipman Frizzell & Mitchell LLC Appraisal
(b)(3) Arthur Andersen Appraisal dated August 13, 1992
* (c)(1) Greenbelt Residential Limited Partnership Consent Solicitation Statement dated
January 19, 1995
* (c)(2) Complaint to Enforce Contract in the case styled, Three Winthrop Properties, Inc. v.
Lerner Corporation, Case No. 129192-V (Cir. Ct. Montgomery Cty., Md.), dated Nov.
17, 1994
* (c)(3) Motion for Partial Summary Judgment in the case styled, Three Winthrop Properties,
Inc. v. Lerner Corporation, Case No. 129192-V (Cir. Ct. Montgomery Cty., Md.)
* (c)(4) Complaint For Money Damages, An Accounting And Other Relief in the case styled,
Theodore N. Lerner v. Three Winthrop Properties, Inc. (D. Md. 1994), filed Dec. 27,
1994
(c)(5) Order Granting Motion for Partial Summary Judgment in the case styled Three Winthrop
Properties, Inc. v. Lerner Corporation, Case No. 129192-V (Cir. Ct. Montgomery Cty.,
Md.)
(c)(6) Complaint for Breach of Fiduciary Duty in the case styled Montgomery, et al. v.
Three Winthrop Properties, Inc., Case No. 132222 (Cir. Ct. Montgomery Cty., Md.)
(c)(7) Complaint for Failure to Disclose under Rule 13e-3 and Breach of Fiduciary Duty in
the case styled LER 8, et al. v. Three Winthrop Properties, Inc., et al., Case No.
DKC 95-555 (D. Md.).
(c)(8) Motion of Greenbelt Residential Limited Partnership its Intervene in the case styled
LER 8, et al. vs. Three Winthrop Properties, Inc., et al., Case No. DKC 95-555 (D.
Md.).
* (d)(1) Offer to Purchase dated February 1, 1995
* (d)(2) Letter of Transmittal
* (d)(3) Letter to Limited Partners dated February 1, 1995
* (d)(4) Press Release dated February 1, 1995
*(d)(5) Letter to Limited Partners dated February 27, 1995.
*(d)(6) Press Release dated February 27, 1995.
<FN>
- ---------------
* Previously filed.
</TABLE>
VALUATION AS OF AUGUST 5, 1992
SPRINGHILL LAKE APARTMENTS
9164 EDMONSTON ROAD
GREENBELT, MARYLAND
PREPARED FOR
FIRST WINTHROP CORP.
AUGUST 13, 1992
PREPARED BY
ARTHUR ANDERSEN
REAL ESTATE SERVICES GROUP
ARTHUR ANDERSEN & CO, SC
FIZ62101/SPRING92.R01
[ARTHUR ANDERSEN & CO. LETTERHEAD]
August 25, 1992
Ms. Kathryn G. Doonan
First Winthrop Corporation
One International Place
Boston, MA 02110
RE: APPRAISAL AS OF AUGUST 5, 1992
SPRINGHILL LAKE APARTMENTS
9164 EDMONSTON ROAD
GREENBELT, MARYLAND
Dear Ms. Doonan:
As requested, we have completed an appraisal of the leased fee estate in the
above-referenced property. The opinion of market value expressed herein is
subject to the assumptions and limiting conditions set forth in the body of the
accompanying report.
The reader is advised that our Firm has not audited, examined, reviewed or
applied agreed-upon procedures to the financial data contained in the
accompanying report unless specifically noted. We have relied on information,
including but not limited to industry statistics, relevant market, demographic
and financial data assembled by us through direct research conducted by our
staff or from secondary sources as well as information provided by First
Winthrop Corporation. While these sources of information are generally
recognized as authoritative in the field or otherwise considered reliable, we
have not audited this information nor do we warrant its completeness or
accuracy.
Based upon our research and analysis of the subject and the surrounding market,
it is our opinion that the market value of the leased fee estate as of August 5,
1992, is:
-- NINETY SEVEN MILLION DOLLARS --
($97,000,000)
- i -
Ms. Kathryn G. Doonan
- - ii -
August 25, 1992
We appreciate the opportunity to serve you. Please call if you have any
questions or if we can be of further assistance.
Very truly yours,
ARTHUR ANDERSEN & CO.
______________________
- ii -
TABLE OF CONTENTS
Page
LETTER OF TRANSMITTAL.................................................. i
SUMMARY OF CRITICAL FACTS AND CONCLUSIONS.............................. iv
SCOPE OF THE APPRAISAL................................................. vii
ASSUMPTIONS AND LIMITING CONDITIONS.................................... viii
CERTIFICATION.......................................................... x
SECTION A: SUBJECT PROPERTY IDENTIFICATION AND DESCRIPTION
Subject Property Identification.................................... 1
Purpose and Function of the Valuation.............................. 2
Property Rights Appraised.......................................... 3
Effective Date of the Valuation.................................... 3
Marketing Period................................................... 3
SECTION B: ANALYSIS OF THE SUBJECT PROPERTY
Physical Description............................................... 19
-- Type of Property
-- Location/Address
-- Improvements
-- Land
SECTION C: MARKET ANALYSIS AND HIGHEST AND BEST USE ANALYSIS
General Conditions................................................ 23
Prince George's County Apartment Market Overview.................. 42
Highest and Best Use Analysis..................................... 47
SECTION D: THE COST APPROACH
Land Valuation.................................................... 51
Replacement Cost.................................................. 57
Accrued Depreciation.............................................. 58
Entrepreneurial Profit............................................ 59
Conclusion by the Cost Approach................................... 59
SECTION E: THE DIRECT SALES COMPARISON APPROACH
Direct Comparison Analysis........................................ 61
SECTION F: THE INCOME VALUATION APPROACH
Income and Expense Analysis....................................... 68
Projected Performance............................................. 81
Capitalization Method............................................. 85
Discounted Cash Flow Analysis..................................... 88
Conclusion by Income Approach..................................... 93
SECTION G: RECONCILIATION OF VALUE ESTIMATES......................... 94
SECTION H: ADDENDA
Comparables....................................................... A-1
o Apartment Rental
o Land
o Improved
Definitions....................................................... A-30
Qualifications.................................................... A-33
SUMMARY OF CRITICAL FACTS AND CONCLUSIONS
PROPERTY DESCRIPTION
Type: Garden-style apartment complex with retail/office
and daycare component
Property Identification: Springhill Lake Apartments
Greenbelt, Maryland
Building Size: Residential: 2,899 units or 2,541,904 net
rentable square feet
Retail/office: 21,948 net rentable square feet
Land Area: Approximately 154 acres
Zoning: Residential: R18, Multifamily Medium-Density
Residential
Retail/office: CO, Commercial Office
Year Built: 1963-1969
Management: First Winthrop Corporation
Owner: Springhill Lake Investors Limited Partnership
("SLILP")
CURRENT MARKET CONDITIONS
The subject's market area is characterized by older, well maintained garden
apartment projects with good unit amenities and average project amenities. The
subject's market area has been characterized by moderate vacancy rates. From
June 1991 to June 1992, apartment vacancy in Prince George's County has ranged
from 4.2 to 6.6 percent, while the Washington metro area ranged between 4.5 and
6.1 percent. Historically, the subject's vacancy has been higher than the
overall market vacancy. The subject's current vacancy of 9.8 percent is above
the averages for the subject's market area and above the 6 percent vacancy
average noted among nine comparable apartment complexes surveyed for this report
(see Table B-9 below).
COMPARABLE MARKET RENTS
Current effective market rents for comparable multifamily projects range from
$595 to $763 per month for one-bedroom units, $690 to $847 for two-bedroom
units, and $802 to $1,052 for three-bedroom units. At some comparable
properties market concessions are roughly equivalent to $50 off each month's
rent; the subject is currently offering concessions of $150 and $200 off per
month (see Table E-2). Subject property management has recently been
negotiating new leases on a tenant-by-tenant basis, rather than from a fixed
schedule. As a result, currently offered concessions display a wide variation,
dependent on the specific unit type and potential tenant.
- iv -
SUBJECT PROPERTY CURRENTLY EFFECTIVE RENTS
Garden Apartments
1BR/1BA $575-$660
1BR/1BA/DEN $650-$705
2BR/1BA $650-$705
2BR/1BA/DEN $720-$780
2BR/1 1/2 BA $705-$745
2BR/1 1/2 BA/DEN $780-$830
3BR/1 1/2 BA $810
3BR/2BA $830-$880
3BR/2BA/DEN $830-$920
4BR/2BA $930-$985
Townhouses
3BR/1 1/2 BA $820-$965
4BR/2BA $1,035
Current occupancy is 90.2 percent for the subject.
CASH FLOW ASSUMPTIONS
Rent Increases: 0%, 1992-93
2%, 1993-94
4%, 1994-5
4% thereafter
Expense Increases
- Operating: 4%
- Real Estate Taxes: 4%
Exit Cap Rate, Year: 10.5%, 11th year NOI
Discount Rate: 12.5%
Fiscal Year: August 5 - August 4
- v -
VALUE INDICATORS
Total Per Unit
Cost Approach: $98,000,000 $33,800
Direct Sales $96,000,000 $33,100
Comparison Approach:
Income Approaches:
- Discounted cash flow with
an indicated discount rate
of 12.5 percent $95,000,000 $32,800
- Direct capitalization
of normalized income
at 9.5 percent $100,000,000 $34,500
FINAL MARKET VALUE ESTIMATE $97,000,000 $33,500
- vi -
SCOPE OF THE APPRAISAL
As part of this assignment, the appraisers made a number of independent
investigations and analyses. In conducting our investigation, various
governmental planning agencies and related agencies were contacted for
demographic data, land policies and trends, and growth estimates. Neighborhood
data were supplemented by physical inspection of the defined area. Information
regarding zoning, utilities, and other limitations on site utilization was
obtained from the client and through the appropriate agencies. Both the site
and the surrounding area have been inspected to determine suitability for multi-
family use. All phases of the Prince George's County multi-family residential
market are analyzed for past trends and current data. Estimated income and
occupancy levels, expenses, and income structures are based upon this market
evidence.
A diligent search for comparable data was conducted, and comparable
information was obtained from both public and private sources. In the case of
comparable sales and rental data, attempts were made to contact the buyers or
sellers or other knowledgeable third parties to verify that the transactions
were at arm's length, cash equivalent, and market reflective. The considered
comparison information was within the property's market area and was analyzed
and adjusted where necessary for use in deriving separate value indications by
the sales comparison and income approaches. As an additional estimate to value
the cost approach is also utilized.
- vii -
ASSUMPTIONS AND LIMITING CONDITIONS
This appraisal report has been made with the following general assumptions
and limiting conditions.
1. No investigation has been made of, and no responsibility is assumed for, the
legal description or for legal matters, including title or encumbrances. Title
to the property is assumed to be good and marketable unless otherwise stated.
The property is further assumed to be free and clear of any or all liens,
easements, or encumbrances unless otherwise stated.
2. Information furnished by others, upon which all or portions of this report
are based, is believed to be reliable, but has not been verified in all cases.
No warranty is given as to the accuracy of such information.
3. It is assumed that all required licenses, certificates of occupancy,
consents, or other legislative or administrative authority from any local,
state, or national government of private entity of organization have been or can
be obtained or renewed for any use on which the value estimate contained in this
report is based.
4. Full compliance with all applicable federal, state, and local zoning, use,
environmental and similar laws and regulations is assumed, unless otherwise
stated.
5. No responsibility is taken for changes in market conditions, and no
obligation is assumed to revise this report to reflect events or conditions
which occur subsequent to the date hereof.
6. The appraised value is predicated on the financial structure prevailing as
of the date of this report.
7. Responsible ownership and competent property management are assumed.
8. The allocation, if any, in this report of the total valuation between
components of the property applies only to the program of utilization stated in
this report. The separate values for any components may not be applicable for
any other purpose and must not be used in conjunction with any other appraisal.
- viii -
9. Areas and dimensions of the property were obtained from sources believed to
be reliable. Maps or sketches, if included in this report, are only to assist
the reader in visualizing the property and no responsibility is assumed for
their accuracy. No independent surveys were conducted.
10. 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.
11. No soil analysis or geological studies were ordered or made in conjunction
with this report, nor was an investigation made of any water, oil, gas, coal, or
other subsurface mineral and use rights or conditions.
12. Neither Arthur Andersen nor any individuals signing or associated with this
report shall be required by reason of this report to give testimony or appear in
court or other legal proceedings unless specific arrangements therefor have been
previously made.
13. This report has been made only for the purpose stated and shall not be used
for any other purpose. Neither this report nor portions thereof (including
without limitation any conclusions as to value, the identity of Arthur Andersen
or any individuals signing or associated with this report, or the professional
associations for organizations with which they are affiliated) shall be
disseminated to third parties by any means without the prior written consent and
approval of Arthur Andersen. The report may not be used for SEC filings.
14. The date(s) of value to which the conclusion and opinion expressed in this
report apply is set forth in the letter of transmittal. Our value opinion is
based on the purchasing power of the United States' dollar as of this date.
15. Unless otherwise stated in this report, we did not observe the existence of
hazardous material, which may or may not be present on the property. We have no
knowledge of the existence of such materials on, or in, the property; however,
we are not qualified to detect such substances. The presence of substances such
as asbestos, urea-formaldehyde foam insulation, or other potentially hazardous
materials may affect the value of the property. The value estimate is
predicated on the assumption that there is no such material on, or in, the
property
- ix -
that would cause a loss in value. No responsibility is assumed for any such
conditions, or for any expertise or engineering knowledge required to discover
them. The client is urged to retain an expert in this field, if desired.
16. The Americans with Disabilities Act ("ADA") became effective January 26,
1992. We have not made a specific compliance survey and analysis of this
property to determine whether or not it is in conformity with the various
detailed requirements of the ADA. It is possible that a compliance survey of
the property, together with a detailed analysis of the requirements of the ADA,
could reveal that the property is not in compliance with one or more of the
requirements of the Act. If so, this fact could have a negative effect upon the
value of the property. Since we have no direct evidence relating to this issue,
we did not consider possible non-compliance with the requirements of ADA in
estimating the value of the property.
- x -
<PAGE>
[ARTHUR ANDERSEN & CO. LETTERHEAD]
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 special assumptions 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 on an action or event resulting from
the analyses, opinions, or conclusions in, or the use of, this report;
- -- our analyses, opinions, and conclusions were developed, and this report
has been prepared, in conformity with the requirements of the Code of
Professional Ethics and the Supplemental Standards of Professional Practice
of the Appraisal Institute and the Uniform Standards of Professional
Appraisal Practice of The Appraisal Foundation;
- -- the use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives;
- -- as of this date of this report, Mark A. Vollmer, MAI has completed the
requirements of the continuing education program of the Appraisal
Institute.
- -- Greg A. Derby and Jeffrey P. Dybas made a personal inspection of the
property that is the subject of this report on August 5, 1992. Mark A.
Vollmer and Robert J. Campbell have not made a personal inspection of the
property.
- -- no one provided significant professional assistance to the person(s)
signing this report; and
- -- neither all nor any part of the contents of this report (especially any
conclusions as to value, the identity of the appraiser or the Appraisal
Institute of the MAI or RM designations) shall be disseminated to the
public through advertising media, public relations media, news media, sales
media, or any other public means of communication without the prior written
consent and approval of the undersigned.
Respectfully submitted,
- -----------------------------------------------------------------------------
Greg A. Derby
- -----------------------------------------------------------------------------
Jeffrey P. Dybas
- -----------------------------------------------------------------------------
Mark A. Vollmer, MAI
- -----------------------------------------------------------------------------
Robert J. Campbell
- x -
<PAGE>
A.1 SUBJECT PROPERTY IDENTIFICATION
PROPERTY IDENTIFICATION AND OWNERSHIP HISTORY
<TABLE>
<CAPTION>
<S> <C>
Property Address: 9164 Edmonston Road Greenbelt, Maryland
Map Reference: Map 26, Grids B-3, B-4, C-3, C-4, Sections 01-09
Legal Description: See Addenda
Current Owner of Record: Springhill Lake Investors Limited Partnership
Acquisition Date/Price: A search of public records revealed no recent transfers of
the subject.
</TABLE>
PROPERTY PHOTOGRAPH
Photo A-1 Subject viewed from the corner of
Edmonston Court and Edmonston Road.
- 1 -
A.2 PURPOSE AND FUNCTION OF THE VALUATION
The purpose of this report is to estimate the market value of the fee
simple estate subject to existing tenancies in the subject property as more
fully described herein. The function of this valuation is to provide the client
with an estimate of current fair market value for asset management purposes.
As used herein, market value is defined as:
The most probable price which a property should bring in a competitive
and open market under all conditions requisite to a fair sale, the buyer
and seller, each acting prudently, 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:
a. buyer and seller are typically motivated;
b. both parties are well informed or well advised, and each acting in
what he considers his own best interest;
c. a reasonable time is allowed for exposure in the open market;
d. payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
e. the price represents the normal consideration for the property
sold unaffected by special or creative financing or sales
concessions granted by anyone associated with the sale.(1)
____________________
(1) Paragraph 563.17-1a, Subchapter D, Chapter V, Title 12, Code of Federal
Regulations, revised effective January 7, 1988.
- 2 -
A.3 PROPERTY RIGHTS APPRAISED
The value of ownership in real property may be divided into three
components as described below:
The LEASED FEE value is the value encumbered by existing leases.
The LEASEHOLD VALUE reflects the tenant's interest or right to use
and occupy the real estate by virtue of a lease agreement. The value of the
leasehold is the present (discounted) value of the difference between the market
rent and the actual contract rent during the term of the lease.
The FEE SIMPLE value estimates the unencumbered value of the
absolute fee without limitations such as below market or fixed rate leases.
This value is the indicated worth of the future income stream if leased at
typical market rates today.
This appraisal report reflects our estimated market value of the fee simple
interest of the subject property.
A.4 EFFECTIVE DATE OF THE VALUATION
The effective date of the value estimate is the date of our physical
inspection of the property, August 5, 1992.
A.5 MARKETING PERIOD
It is our opinion that a sale of the subject property could be achieved at
the indicated value, within a 12-month period of the effective date of
valuation.
- 3 -
MAP B-1
[LOCATION MAP OF WASHINGTON D.C. AREA]
SPRING HILL LAKE APARTMENTS
9164 EDMONSTON ROAD
GREENBELT, MARYLAND
- 4 -
MAP B-2
[LOCATION MAP OF COLLEGE PARK, MARYLAND AND BERWYN HEIGHTS, MARYLAND AREA]
SPRING HILL LAKE APARTMENTS
9164 EDMONSTON ROAD
GREENBELT, MARYLAND
- 5 -
MAP B-3
[SITE PLAN]
SPRING HILL LAKE APARTMENTS
9164 EDMONSTON ROAD
GREENBELT, MARYLAND
- 6 -
MAP B-4
[Floor Plan of]
Typical One Bedroom
Sections 1-6 $________1
[Floor Plan of]
One Bedroom with Storage Room-A
Sections 1-6 $________2
[Floor Plan of]
Heptagonal One Bedroom
Sections 1 and 2
(Section 5 Kitchen Variation) $________3
SPRINGHILL LAKE
One Bedroom
Springhill Lake's one bedroom apartments feature wall-to-wall carpeting or
parquet floors and large, modern kitchens with all the energy-efficient
appliances you need: refrigerator, dishwasher, garbage disposal, and gas oven.
Springhill Lake is the carefully planned community for carefree living.
Management by Lerner Corporation.
All room sizes are approximate.
FLOOR PLAN
SPRINGHILL LAKE APARTMENTS
9164 EDMONSTON ROAD
GREENBELT, MARYLAND
- 7 -
MAP B-4
[Floor Plan of]
Typical One Bedroom
Section 7 $________4
[Floor Plan of]
Typical One Bedroom with Florida Room
Section 7 $________5
[Floor Plan of]
Typical One Bedroom
Sections 8 and 9 $________6
SPRINGHILL LAKE
Rental Information Center
Open Monday-Saturday at 9:00, Sunday at 11:00
9164 Edmonston Road
Greenbelt, Maryland 20770-1598
(301) 474-1600
Directions:
From the Beltway: Beltway Exit 23, Kenilworth Avenue. West 1/2 mile to
Greenbelt Road. Right on Edmonston Road to #9164.
From Downtown D.C.: New York Avenue North to B.W. Parkway, Greenbelt Exit.
Right on Greenbelt Road across Kenilworth Avenue. Immediate right onto
Edmonston Road. Follow signs to #9164.
FLOOR PLAN
SPRINGHILL LAKE APARTMENTS
9164 EDMONSTON ROAD
GREENBELT, MARYLAND
- 8 -
MAP B-4
[Floor Plan of]
Typical One Bedroom with Den
Sections 1-6 $________7
[Floor Plan of]
Typical One Bedroom with Den
Section 7 $________8
[Floor Plan of]
Typical One Bedroom with Den
Sections 8 and 9 $________9
SPRINGHILL LAKE
One Bedroom with Den
Springhill Lake's one bedroom with den apartments have the extra room to
fit your lifestyle. They feature wall-to-wall carpeting or parquet floors and
large, modern kitchens with all the energy-efficient appliances you need:
refrigerator, dishwasher, garbage disposal, and gas oven. Springhill Lake is
the carefully planned community for carefree living. Management by Lerner
Corporation.
Rental Information Center
Open Monday-Saturday at 9:00, Sunday at 11:00
9164 Edmonston Road
Greenbelt, Maryland 20770-1598
(301) 474-1600
Directions:
From the Beltway: Beltway Exit 23, Kenilworth Avenue. West 1/2 mile to
Greenbelt Road. Right on Edmonston Road to #9164.
From Downtown D.C.: New York Avenue North to B.W. Parkway, Greenbelt Exit.
Right on Greenbelt Road across Kenilworth Avenue. Immediate right onto
Edmonston Road. Follow signs to #9164.
All room sizes are approximate.
FLOOR PLAN
SPRINGHILL LAKE APARTMENTS
9164 EDMONSTON ROAD
GREENBELT, MARYLAND
- 9 -
MAP B-4
[Floor Plan of]
Typical Two Bedroom with One Bath
Sections 1-6 $_______10
[Floor Plan of]
Typical Two Bedroom with One Bath
Section 7 $_______11
[Floor Plan of]
Typical Two Bedroom with One Bath
and Florida Room
Section 7 $_______12
SPRINGHILL LAKE
Two Bedroom
Springhill Lake's two bedroom apartments feature wall-to-wall carpeting or
parquet floors and large, modern kitchens with all the energy-efficient
appliances you need: refrigerator, dishwasher, garbage disposal, and gas oven.
Springhill Lake is the carefully planned community for carefree living.
Management by Lerner Corporation.
All room sizes are approximate.
FLOOR PLAN
SPRINGHILL LAKE APARTMENTS
9164 EDMONSTON ROAD
GREENBELT, MARYLAND
- 10 -
MAP B-4
[Floor Plan of]
Typical Two Bedroom with One Bath
Sections 8 and 9 $_______13
[Floor Plan of]
Typical Two Bedroom with Two Baths
Section 7 $_______14
[Floor Plan of]
Typical Two Bedroom with Two Baths and Florida Room
Section 7 $_______15
SPRINGHILL LAKE
Rental Information Center
Open Monday-Saturday at 9:00, Sunday at 11:00
9164 Edmonston Road
Greenbelt, Maryland 20770-1598
(301) 474-1600
Directions:
From the Beltway: Beltway Exit 23, Kenilworth Avenue. West 1/2 mile to
Greenbelt Road. Right on Edmonston Road to #9164.
From Downtown D.C.: New York Avenue North to B.W. Parkway, Greenbelt Exit.
Right on Greenbelt Road across Kenilworth Avenue. Immediate right onto
Edmonston Road. Follow signs to #9164.
FLOOR PLAN
SPRINGHILL LAKE APARTMENTS
9164 EDMONSTON ROAD
GREENBELT, MARYLAND
- 11 -
MAP B-4
[Floor Plan of]
Typical Two Bedroom with Den and One Bath
Sections 2-6 $_______16
[Floor Plan of]
Typical Two Bedroom with Den and One Bath
Section 7 $_______17
SPRINGHILL LAKE
Two Bedroom with Den
Springhill Lake's two bedroom with den apartments have the extra
room to fit your lifestyle. They feature wall-to-wall carpeting or
parquet floors and large, modern kitchens with all the
energy-efficient appliances you need: refrigerator, dishwasher,
garbage disposal, and gas oven. Springhill Lake is the carefully
planned community for carefree living. Management by Lerner
Corporation.
All room sizes are approximate.
FLOOR PLAN
SPRINGHILL LAKE APARTMENTS
9164 EDMONSTON ROAD
GREENBELT, MARYLAND
- 12 -
MAP B-4
[Floor Plan of]
Typical Two Bedroom with Den and Two Baths $_______18
Section 7
[Floor Plan of]
Typical Two Bedroom with Den and Two Baths $_______19
Sections 8 and 9
SPRINGHILL LAKE
Rental Information Center
Open Monday-Saturday at 9:00, Sunday at 11:00
9164 Edmonston Road
Greenbelt, Maryland 20770-1598
(301) 474-1600
Directions:
From the Beltway: Beltway Exit 23, Kenilworth Avenue. West. 1/2
mile to Greenbelt Road. Right on Edmonston Road to #9164.
From Downtown D.C.: New York Avenue North to B.W. Parkway,
Greenbelt Exit. Right on Greenbelt Road across Kenilworth Avenue.
Immediate right onto Edmonston Road. Follow signs to #9164.
FLOOR PLAN
SPRINGHILL LAKE APARTMENTS
9164 EDMONSTON ROAD
GREENBELT, MARYLAND
- 13 -
MAP B-4
[Floor Plan of]
Typical Three Bedroom with 1 1/2 Bath $______20
Section 3-6
(Section 1-2 Closet Variation)
[Floor Plan of]
Typical Three Bedroom with Two Baths $______21
Sections 8 and 9
SPRINGHILL LAKE
Three Bedroom Apartments
Springhill Lake's three bedroom apartments are the most
spacious luxury living values in town. They feature wall-to-wall
carpeting or parquet floors and large, modern kitchens with all the
energy-efficient appliances you need: refrigerator, dishwasher,
garbage disposal, and gas oven. Springhill Lake is the carefully
planned community for carefree living. Management by Lerner
Corporation.
Rental Information Center
Open Monday-Saturday at 9:00, Sunday at 11:00
9164 Edmonston Road
Greenbelt, Maryland 20770-1598
(301)474-1600
Directions:
From the Beltway:Beltway Exit 23, Kenilworth Avenue, West 1/2 mile
to Greenbelt Road. Right on Edmonston Road to #9164
From Downtown D.C.: New York Avenue North to B.W. Parkway Greenbelt
Exit. Right on Greenbelt Road across Kenilworth Avenue. Immediate
right on Edmonston Road. Follow signs to #9164.
All room sizes are approximate.
FLOOR PLAN
SPRINGHILL LAKE APARTMENTS
9164 EDMONSTON ROAD
GREENBELT, MARYLAND
- 14 -
MAP B-4
[Floor Plan of]
Three Bedroom Townhouse with 1 1/2 Baths
Section 4 $_______22
(Section 1 Closet Variation)
[Floor Plan of]
Three Bedroom Townhouse with 1 1/2 Baths
Section 4 $_______23
(Section 1 Closet Variation)
SPRINGHILL LAKE
THREE BEDROOM TOWNHOUSES
Springhill Lake's three bedroom townhouses have the private
entrances and spacious living areas you've been looking for. They
feature wall-to-wall carpeting or parquet floors and large, modern
kitchens with all the energy-efficient appliances you need:
refrigerator, dishwasher, garbage disposal, and gas oven. For your
convenience, each townhouse has a washer and dryer. Springhill
Lake is the carefully planned community for care-free living.
Management by Lerner Corporation.
All room sizes are approximate.
FLOOR PLAN
SPRINGHILL LAKE APARTMENTS
9164 EDMONSTON ROAD
GREENBELT, MARYLAND
- 15 -
SPRINGHILL LAKE APARTMENTS
AUGUST 5, 1992
Photo B-1
Typical interior finish of 1 BR unit.
Photo B-2
Typical exterior finish of townhouse units.
- 16 -
SUBJECT PROPERTY PHOTOGRAPHS
SPRINGHILL LAKE APARTMENTS
AUGUST 5, 1992
Photo B-3
Typical exterior of garden apartment units.
Photo B-4
View of community center from Spring Hill Drive.
- 17 -
SUBJECT PROPERTY PHOTOGRAPHS
SPRINGHILL LAKE APARTMENTS
AUGUST 5, 1992
Photo B-5
Kitchen with GE appliances.
Photo B-6
View of retail/office component from Spring Hill Drive.
- 18 -
B.1 PHYSICAL DESCRIPTION
TYPE OF PROPERTY
A 2,899-unit garden-style apartment and townhouse complex with
a daycare facility, built between 1963 and 1969. The complex
consists of 242 three-story buildings which house the garden
style apartments, twelve two-story townhouse buildings, 21,958
(NRSF) of retail/office space, and 3,500-square foot daycare
center. Community amenities include two pools, six tennis
courts, and a community center.
LOCATION/ADDRESS
The rental center/administrative offices are located at 9164
Edmonston Road, Greenbelt, Maryland. The property is
approximately one-half mile northwest of Route 295 (the
Baltimore Washington Parkway) which provides excellent access
to both Washington, D.C. and Baltimore, Maryland. In
addition, the subject is located approximately one-half mile
from I-95 at both the Route 295 and Kenilworth Avenue
interchanges. (See Maps B-1 and B-2 for location.)
IMPROVEMENTS
Legal Description:
Table B-1 following presents the breakdown of tax parcels
at the subject. No other legal description was made
available to the appraiser.
- 19 -
Table B-1
LEGAL DESCRIPTION
SPRINGHILL LAKE APARTMENTS
PRINCE GEORGE'S COUNTY, MARYLAND
Size
Map Grid Section Block Parcel Zoning (Acres)
26 C-3 01 -- -- R18 8.21
26 C-4 01 -- -- R18 4.10
26 C-3 01 -- -- R18 3.04
26 B-3 01 -- -- R18 1.41
26 B-3 02 A 4 R18 11.08
26 C-4 03 -- 6 R18 15.09
26 B-4 04 A 7 R18 6.42
26 B-3 02 A 5 R18 2.07
26 B-3 05 B 8 R18 18.58
26 B-3 05 C 9 R18 3.88
26 B-4 06 B 10 R18 22.88
26 B-4 07 B 11 R18 20.79
26 C-4 08 A 13 R18 8.73
26 B-3 09 C 14 R18 15.18
26 C-3 01 -- -- R18 1.63
26 B-3 -- B 12 CO 2.30
26 C-3 01 -- -- R18 8.66
154.05
Source: Prince George's County Office of Real Estate Assessment,
August
1992. FIZ62101\SPRING92.R01
BUILDING SIZE:
The 242 garden-style apartment buildings and the twelve
townhouse buildings contain a total of 2,541,904 rentable
square feet (in 2,899 rental apartment units), a separate
retail/office area which contains 21,958 net rentable square
feet, a daycare facility of approximately 3,500 square feet,
a clubhouse building of approximately 2,000 square feet, and
eight maintenance buildings which house the boilers and
electrical equipment for all residential buildings. The
apartment unit mix is as follows on Table B-2.
- 20 -
UTILITIES:
Utility charges are included in the rent for all units except
units in Section 8, townhouse units in Section 9, and
townhouse units in Section 1. Apartment units in Section 8
and townhouse units in Section 9 pay a pro rata share of
electric charges. Townhouse units in Section 1 pay a pro rata
share of gas and electric charges. Commercial tenants pay a
pro rata share of all utility charges.
- 21 -
<PAGE>
Table B-2
APARTMENT UNIT MIX(1)
SPRINGHILL LAKE APARTMENTS
AUGUST 1992
<TABLE>
Percentage of Total Rentable Square Feet
------------------- --------------------
Unit Total Rentable Unit Total
Count Units SF Area(2) Area
----- ----- -------- ------- ------
<S> <C> <C> <C> <C>
GARDEN APARTMENT(2)
1BR 661 22.8% 18.3% 705 465,943
1BR/Den 316 10.9% 9.8% 784 247,878
2BR/1BA 1,281 44.2% 45.3% 899 1,151,302
2BR/1.5BA 32 1.1% 1.3% 1,039 33,236
2BR/1BA/Den 266 9.2% 10.5% 1,005 267,380
2BR/1.5BA/Den 30 1.0% 1.4% 1,221 36,636
3BR/1.5BA 140 4.8% 5.4% 982 137,432
3BR/2BA 41 1.4% 2.1% 1,270 52,070
3BR/2BA/Den 1 0.0% 0.1% 1,362 1,362
4BR/2BA 11 0.4% 0.7% 1,507 16,577
TOWNHOUSE APARTMENT(2)
3BR/1.5BA 116 4.0% 5.0% 1,089 126,272
4BR/2BA 4 0.1% 0.2% 1,454 5,816
TOTAL 2,899 100.0% 100.0% 1,110 2,541,904
- ---------------
(1) Springhill Lake has many different unit types. In this report the various
unit types have been reduced to weighted averages to simplify the presentation.
(2) Weighted average.
Source: The Lerner Corporation.
- 22 -
YEARS BUILT:
1963 - 1969
DENSITY:
The subject property is developed at a density of 18.8 dwelling
units per acre (2,899 units on 154.06 acres of land).
BUILDING SYSTEM AND FINISH:
The buildings are concrete block construction. The foundations are
concrete slab with plywood floors on each level. The exterior walls
are brick/masonry on cinder block. Residential roofs are covered
with composition asphalt and fiberglass shingles. Roofs of the
commercial space and daycare center are gravel covering over tar
membrane and steel trusses. Windows are either plate glass or
single pane. Floors are wood, covered by wall-to-wall carpet on
vinyl tile in residential units and by 12-inch square tile in common
areas.
RESIDENTIAL UNIT AMENITIES:
Each unit contains a GE kitchen appliance package including a gas
range, dishwasher, garbage disposal and refrigerator. A limited
number of units have washers and dryers. Those without
washers/dryers have access to laundry facilities in the basement of
each building. A limited number of units have storage facilities.
The management has indicated, however, that these spaces will be
phased out as tenants terminate leases.
COMMERCIAL SPACE:
Retail Space Typical Finish: Includes tile or carpet floor
covering, drop-in acoustic tile ceiling with fluorescent overhead
lighting, wood panel or painted sheetrock wallcovering, and plate
glass or single pane windows.
Office Space Finish: Giant Corporation occupies a freestanding
building as the site of their management trainee program. While the
exterior finish is similar to the residential units and retail
space, the interior has been improved as high quality office meeting
space. The tenant improvements include high quality carpeting
throughout, a modern dining area with a full kitchen and seating for
up to 50 people, indirect wall-mounted lighting and high quality
window, door and molding finishes. The space is divided into a
kitchen area, conference area and office area.
- 23 -
DAYCARE CENTER:
The building is block on block construction with a wood exterior and
a concrete slab foundation. Floor covering is 12-inch square tile
and the ceiling is a combination of painted drywall with exposed
piping and acoustic tile. Walls are painted sheetrock. The
facility has a full kitchen including a six-burner gas stove and a
double stainless steel sink. The building is divided into an office
area, kitchen area, and four large classrooms. The backyard is
fenced. There is a 1,200-square foot covered concrete patio at the
rear of the building.
COMMUNITY CENTER:
The entranceway is glass and wood over poured concrete. The
interior is finished with vinyl floorcovering, painted drywall
ceilings between 14 and 18 feet in height, painted sheetrock walls,
and a large windowed back wall which overlooks the lake and one of
the two main swimming pools. In addition, there is a full kitchen
complete with double stoves, double stainless steel sinks and
dishwashing area, and two offices used for administrative purposes.
The pool is approximately olympic size, although irregular in shape.
A smaller pool for children is adjacent to the larger pool.
COMPLEX AMENITIES:
The complex features two swimming pools (section numbers 1 and 6),
six tennis courts, a community center, a daycare center,
retail/office space and twenty small playground areas dispersed
throughout the grounds.
SITE
AREA:
The site is irregularly-shaped. It contains approximately 154.06
acres in eighteen parcels.
- 24 -
TOPOGRAPHY:
Most of the site is gently rolling. Most lower level units
are at grade, although a small number are below or above grade
due to the rolling nature of the site.
FLOODPLAIN:
According to the Flood Insurance Rate Map for Prince George's
County, Maryland, Community Panel No. 245208-0015C, the
subject property is located in an area of minimal flooding.
UTILITIES
All utilities necessary for the operation of an apartment
project including gas, electric, water and telephone service
are available to the site.
PARKING:
Approximately 4,499 surface parking spaces (management's count
from 1985, but subsequent restriping for compact cars has
increased the number of spaces) indicates a 1.88 parking
space-to-unit ratio. Parking appears to be adequate for the
apartment projects.
BOUNDARIES:
The property is bounded to the north and east by Edmonston
Road, to the west by Cherry Wood Lane and to the south by
Breezewood Drive.
ZONING
The subject site is currently zoned R18, a multifamily medium-
density residential zone, which allows both garden style and
townhouse units and CO, commercial office which allows a wide
variety of commercial uses. Approximately 93,153 square feet of
the site is zoned CO.
The following restriction apply to the R18 zone for multi-family
residential developments:
- -- Maximum Density: 12 dwelling units per acre
- -- Maximum Height: 36 feet
- 25 -
- -- Setback
. Rear: 30 feet
. Front & Side 30 feet
- - Open Space: No open space requirement.
- - Parking: 2 spaces per unit plus 0.5 space for
each bedroom in excess of 1 per unit.
The following restrictions apply to the CO zone for retail and
office uses:
- - Maximum FAR: N/A (Prince George's County does not
utilize FAR restrictions).
- - Maximum Height: No height maximum
- -- Setback
. Rear: No setback required unless building is
in excess of 30 feet in height. In
that case a rear setback of 0.33
multiplied by the building height is
required.
. Front & Side 12 feet
- -- Open Space: No open space requirement.
- -- Parking: Office: one space for each 250 square
feet of building area up to 2,000
square feet. Over 2,000 square feet
of building area, one space for each
400 square feet of building area.
Retail: one space for each 150 square
feet of building area up to 3,000
square feet. Over 3,000 square feet
of building area, one space for each
200 square feet of building area.
The subject property has been developed at a density of
approximately 19 units per acre and does not appear to comply with
the density or parking requirements. However, the Prince George's
County Zoning office stated that the property was grandfathered
under its previous zoning, which allowed development at a higher
density.
The existing improvements are considered a non-conforming but legal
use. If the improvements were destroyed, development of the site
would be limited to the above mentioned density of 12 units per
acre, or 1,848 units in total.
- 26 -
PROPERTY INSPECTION AND CONDITION
Inspection of the subject property on August 5, 1992, revealed the
following:
- -- The units have well-designed floor plans and unit interiors
appeared to be in good condition.
- -- Building exteriors are in good condition, however, the
townhouses in section 6 are somewhat deteriorated. These
units will need exterior refinishing in order to remain
competitive in the future. Peeling paint and wood rot were
noted in these units in this section.
- -- Surrounding landscaping was mature and appeared adequately
maintained. Paved sidewalks and parking lots were in good
condition, with only minor cracks noted.
- -- The swimming and wading pools appeared adequately maintained.
The community room is in good condition. No deterioration was
noted.
- -- There have been 2,657 units (or 91.6% of the total 2,899
units) renovated since 1985. Under this program renovated
units are fitted with new carpet, a new dining area
chandelier, new GE kitchen appliances when necessary and
repainted walls when necessary. The remaining 242 units will
be renovated at turnover. Management indicated it will take
approximately three years to renovate the remaining units.
- 27 -
<PAGE>
MANAGEMENT
Building management, on-site property management functions and
accounting functions are performed by The Lerner Corporation. The
firm's address and contacts are:
Mr. Rudy Horton
9164 Edmonston Road
Greenbelt, Maryland
Telephone: (301) 474-1600
REAL ESTATE TAXES
- -- Taxing Jurisdiction(s)
o State Government: Maryland
o County Government: Prince George's County
- -- Current Tax Year: July 1, 1992 - June 30, 1993
(FY 93)
- -- Current Year Taxes Payable: 1993
- -- Tax Rates Established: 1993 rate is $4.0644/$100 of
assessed value.
1992 rate was $3.9068 of
assessed value.
- -- Assessments Established: Assessments are completed on
all properties within the
county every three years unless
improvements are made to the
site or an appeal is filed with
the county. Assessment
increases or decreases are
phased in over the entire
three-year period. The most
recent assessment of the
subject property was completed
in 1991. It became effective
for the 1992 FY. A
reassessment of the property is
anticipated in 1994.
- -- Assessment Ratio: 100 percent of "fair market
value," as defined by the
jurisdiction.
</TABLE>
- 28 -
<PAGE>
- -- Tax History:
<TABLE>
Real Estate Taxes
--------------------------------------
<CAPTION>
Fiscal Tax Rate
Year Assessment Per $100 Total Per Unit
- ------------------- -------------------- --------------- ------------------- -----------------
<S> <C> <C> <C> <C>
1993 $43,193,380 4.0644 $1,755,552 $606
1992 $41,333,240 3.9068 $1,614,807 $557
1991 $38,613,940 3.7097 $1,432,461 $494
</TABLE>
Real estate tax assessments have increased average of 5.8 percent annually over
the last two years, and tax rates have grown at an annual rate of 4.7 percent.
Therefore, real estate taxes owed have increase at an annual compound rate of
10.8 percent during this period. Taxes have increased from $494 to $606 per
unit since 1991.
- 29 -
<PAGE>
<PAGE>
C.1 GENERAL MARKET CONDITIONS
AREA ECONOMIC OVERVIEW
The subject property, Springhill Lake Apartments, is located in Prince
George's County, which is considered a suburb of Washington, D.C. and is
located in the Washington D.C. Metropolitan Statistical Area (MSA). The
subject is in northwestern Prince George's County, approximately six miles
northeast of the Washington D.C./Prince George's County boundary. Market
conditions in the Washington Metropolitan area provide the most relevant
information in order to accurately value the property. The Washington D.C.
Metropolitan Statistical Area (MSA), comprised of the District of Columbia
and its Maryland and Virginia suburbs, has historically been recognized as
one of the nation's strongest and fastest growing economies. Through the
mid-to-late 1980s, this area has been experiencing unprecedented growth in
population, households, and employment. The majority of this growth has
occurred in the Northern Virginia suburbs. Between 1980 and 1990, 61.3
percent of the Washington Metropolitan Area's population growth and 50.9
percent of its employment growth occurred in Northern Virginia.
The area is the seat of the Federal Government and many of the service and
research and development firms it fosters. Over the last decade, the area has
successfully evolved from a primarily public sector economy to an economy
based on service industries. The area's rapid population, household,
household income, and employment growth rates combined with the highly
skilled labor force, good recreational amenities and presence of two major
airports has positioned it as an exceptional location for corporate
headquarters and high-tech companies.
Because of the dominance of the U.S. Government in Washington, D.C., the
area's population remains relatively transient. Over the period from 1970 to
1980, the MSA experienced a moderate annual growth rate in population of only
0.6 percent. While Fairfax, Loudoun, and Prince William Counties in Virginia
posted population gains, the population of other jurisdictions such as
Arlington County, the City of Alexandria, and the
- 30 -
<PAGE>
District of Columbia actually declined. By contrast, the period from 1980 to
1990 was one characterized by rapid increases in population growth, especially
in the outer suburbs. Over this period, the MSA experienced a compound annual
growth rate of 1.8 percent. All jurisdictions, except the District of Columbia,
posted increases. The Prince William County population grew fastest during this
ten-year period with a 4.2 percent increase. Close-in suburbs such as Prince
George's County, Arlington County and the City of Alexandria showed modest
increases of approximately 1 percent compounded annually. While the region's
population growth rate is expected to continue to increase throughout the
1990s, the in-migration pattern witnessed over the past 15 years is projected
to moderate. (See Tables C-1 and C-2).
Paralleling the population growth of the 1970s and 1980s has been a
substantial increase in the number of households in the region. These
household increases have, and are expected to continue to accelerate at a
faster rate than population growth due to decreasing household sizes. In
1970, the region had 925,800 households. By 1980, this number had increased
to nearly 1.2 million households. This translates into an average annual
increase of 22,500 households and a 2.4 percent annual growth rate.
Projections for the region are 1.6 million households by 1995, 1.7 million
households by 2000, and 1.8 million households by 2005, resulting in a 2.2
percent annual growth rate for 1985 to 1995 and a 1.2 percent annual growth
rate for 1995 to 2005. In 1990 Prince George's County recorded 258,000
households, indicating a 1.5 percent annual growth rate for 1980 to 1990. As
with population growth, the largest numeric increases are projected to occur
in the expanding northern Virginia suburbs but the highest growth rates will
be in the outer suburbs. (See Table C-3.)
Employment growth within the region experienced significant expansion and
diversification during the past decade, and indicators suggest this growth
will continue in the 1990s, though at a slower rate. Employment in the MSA
has been traditionally dominated by trade, government and service-oriented
businesses which today account for about 80 percent of the metropolitan jobs.
Growth in government employment has recently slowed, however, while the other
industries continue to expand rapidly. In 1970, government
- 31 -
<PAGE>
employment (state, local, and federal) accounted for almost 40 percent of total
jobs in the metropolitan area, or twice as many as the service industries. In
1980, the Reagan Administration put a halt to federal government job growth,
and by 1984 there were fewer government workers in the area than in 1980.
Today, government accounts for about 27 percent of all employment. On the other
hand, the service industries continue to expand and now account for more jobs
than the government. This segment of employment consists primarily of
attorneys, accountants, associations, and consultants. Although many of these
organizations rely on business from either the federal government itself, or on
other businesses which are directly related to the federal government, there is
a growing private sector. (See Table C-4.)
As shown in Table B-6, unemployment in the Washington MSA has consistently
been lower than the national average, while employment levels in Prince
George's County have been both higher and lower than those for the MSA but
consistently lower than the national average. In 1990, unemployment in the
MSA was only 3.4 percent, compared with the national unemployment rate of 5.4
percent. In 1991, unemployment levels in the MSA were up to 4.4 percent,
although they were 6.4 percent nationally. At this same time unemployment
levels in Prince George's County were 3.9 percent.
The MSA has not been immune to the recent nationwide economic downturn.
Many factors have contributed to slowing growth, including defense budget
cuts and a softening real estate market. The market has also been affected by
the strict capital reserve requirements arising from the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) and other
new S&L and commercial bank regulatory constraints which will effectively
reduce the amount of construction and permanent financing available for real
estate ventures. The Federal Government's recent cuts in the defense budget
have also dampened employment growth. From the first quarter of 1989 through
the first quarter of 1990, employment in the Washington, D.C. MSA had
increased by approximately 49,500 net new jobs, as compared to the average
annual increase in at-place employment for the MSA of 80,000 jobs for the
years 1985 through 1989. However, due to the continuing
- 32 -
<PAGE>
diversification in employment sectors, defense budget cuts are not expected to
effect the MSA as severely as they will other areas.
Most economists believe that general growth through the 1990s will not
match the phenomenal growth which occurred throughout the United States in
the 1980s. However, the Washington area is not as vulnerable to economic
swings as are many other areas of the country, and the Washington economy
should expand in the 1990s, benefitting from its strong government base and
also its recent and continuing diversification. This healthy economic and
population expansion should result in a growing demand for residential,
office and retail space in the Washington, D.C. area in the next decade.
- 33 -
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Table C-1
POPULATION TRENDS
WASHINGTON, D.C. METROPOLITAN AREA
1970-1991
(IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------------------------
Census Local Estimates Estimates
------------------
----------------------------------------------------
Jurisdiction 1970 1980 1985 1986 1987 1988 1989 1990 1991
- ------------ ---- ---- ---- ---- ---- ---- ---- ---- ----
Suburban Maryland
- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Charles County 47.7 72.8 82.5 86.8 91.7 96.9 98.0 101.2 103.7(1)
Frederick County 84.9 114.8 127.7 131.2 135.4 138.5 141.0 150.2 157.5(2)
Montgomery County 522.8 579.1 628.0 645.0 680.0 697.0 706.0 757.0 763.0(3)
Prince George's County 660.6 665.1 676.1 679.9 686.3 696.2 708.0 729.3 742.6(4)
Total Suburban Maryland 1,316.0 1431.7 1514.4 1543.0 1,593.4 1,628.7 1,653.1 1,737.7
Annual Increase/(Decrease) 28.6 50.4 35.2 24.4 84.6
Northern Virginia
Alexandria 110.9 103.2 108.0 107.5 108.5 109.0 109.5 111.2 N/A(5)
Arlington County 174.3 152.6 157.8 158.2 158.9 161.9 163.2 170.9 174.1(6)
Fairfax County(9) 487.8 625.8 668.3 683.8 715.4 746.6 770.9 847.8 848.8(7)
Loudoun County 37.2 57.4 65.8 70.6 75.7 80.4 86.6 86.1 88.8
Prince William(10) 111.1 166.7 196.2 203.2 214.8 237.0 260.6 250.4 230.4(8)
----- ----- ----- ----- ----- ----- ----- ----- -----
Total Northern Virginia 921.2 1,105.7 1,196.1 1,223.3 1,273.3 1.334.9 1,390.7 1,466.4
Annual Increase/(Decrease) 27.2 50.0 61.6 55.8 75.7
District of Columbia (4) 756.5 638.3 627.4 628.5 626.8 626.1 622.6 606.9 N/A(13)
- --------------------
Annual Increase/(Decrease) 1.1 (1.7) (0.7) (3.5) (15.7) N/A
WASHINGTON, D.C. 2,993.7 3,175.7 3,337.9 3,394.8 3,493.5 3,589.7 3,666.4 3,811.0 3,108.9(12)
METROPOLITAN AREA 56.9 98.7 96.1 76.7 144.6
Annual Increase/(Decrease)
----------------------------------------------------
Average Annual Change
------------------------------------------------
1970-1980 1980-1990
-------------------- --------------------
Number Percent Number Percent
-------------- --------------
<S> <C> <C> <C>
2.5 4.3% 2.8 3.4%
3.0 3.1% 3.5 2.7%
5.6 1.0% 17.8 2.7%
0.5 0.1% 6.4 0.9%
11.6 0.8% 30.6 2.0%
(0.8) -0.7% 0.8 0.7%
(2.2) -1.3% 1.8 1.1%
13.8 2.5% 22.2 3.1%
2.0 4.5% 2.9 4.1%
5.6 4.1% 8.4 4.2%
--- ---- --- ----
18.4 1.8% 36.1 2.9%
(11.8) -1.7% (3.1) -0.5%
18.2 0.6% 63.5 1.8%
<FN>
- --------------------
Note: Population count as of January 1 of each year, unless otherwise stated.
(1) Charles County 1991 figures are escalated at 2.5 percent.
(2) Frederick County 1991 figures are for July 1991.
(3) Montgomery County 1991 figure is an estimate made by the County.
(4) Prince George's County 1991 figures are for July 1991.
(5) There are no preliminary 1991 figures available for Alexandria.
(6) Arlington County 1991 figure is an estimate made by the Department of
Economic Development.
(7) Fairfax County 1991 figure is an estimate made by the County of Fairfax. Fairfax City population is expected to stay the same
(19,622) according to the city.
(8) Manassas Park 1991 figure is an estimate made by the city.
(9) Includes the independent cities of Fairfax and Falls Church.
(10) Includes the independent cities of Manassas and Manassas Park.
(11) For the years 1985 and after, the figures are as of July 1 of that year.
(12) Does not include the city of Alexandria and the District of Columbia.
(13) There are no preliminary 1991 figures for the District of Columbia.
Source: Planning Division; Fairfax Co. Office of Research and Statistics; City of Fairfax Office of Planning; City of Falls Church
Office of Planning; Prince William Co.
Planning Office; Charles County Office of Planning, Frederick Co. Office of Planning; Maryland - National Capital Park and Planning
Commission; District of Columbia
Office of Planning; Spotsylvania Department of Planning; Stafford County Department of Planning; 1970 & 1980 U.S. Census; 1990 U.S.
Census; City of Alexandria
Planning & Community Dev.; Arlington County Planning Division.
</TABLE>
- 34 -
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Table C-2
POPULATION PROJECTIONS
WASHINGTON, D.C. METROPOLITAN AREA
1990-2010
(IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------------------------
COG Projected Average Annual Increase [1]
-------------------------------------------
1991- 1995- 2000- 2005-
Jurisdiction 1991[2] 1995 2000 2005 2010 1995 2000 2005 2010
- ------------ ------- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Suburban Maryland
Charles County 103.7 112.7 122.0 130.4 138.6 2.3 1.9 1.7 1.6
Frederick County 157.5 167.3 178.4 188.6 198.1 2.5 2.2 2.0 1.9
Montgomery County 763.0 805.7 832.2 853.2 869.1 10.7 5.3 4.2 3.2
Prince George's County 742.6 768.5 791.9 821.6 862.2 6.5 4.7 5.9 8.1
----- ----- ----- ----- ----- --- --- --- ---
Total Suburban Maryland 1,766.8 1,854.3 1,924.5 1,993.9 2,068.0 21.9 14.0 13.9 14.8
Northern Virginia
- -----------------
Alexandria 111.2(5) 112.4 113.4 114.5 115.2 0.3 0.2 0.2 0.1
Arlington County 174.1 177.1 180.1 182.6 185.7 0.8 0.6 0.5 0.6
Fairfax County [3] 848.8 915.9 987.2 1,010.1 1,029.4 16.8 14.3 4.6 3.9
Loudoun County 88.8 109.5 136.7 166.3 197.9 5.2 5.4 5.9 6.3
Prince William [4] 230.4 268.0 290.0 302.1 312.5 9.4 4.4 2.4 2.1
----- ----- ----- ----- ----- --- --- --- ---
Total Northern Virginia 1,453.3 1,582.9 1,707.3 1,775.5 1,840.6 32.4 24.9 13.6 13.0
District of Columbia 606.9(5) 608.8 611.9 612.2 605.8 0.5 0.6 0.1 -1.3
- --------------------
WASHINGTON, D.C. 3,827.0 4,046.0 4,243.7 4,381.6 4,514.5 54.7 39.5 27.6 26.6
METROPOLITAN AREA
ANNUAL INCREASE/DECREASE
- --------------------------------------------------------------
- --------------------------------------------------------------
COG Projected Average Annual Increase
- --------------------------------------------------------------
1990- 1991- 1995- 2000- 2005- 1991-
2010 1995 2000 2005 2010 2010
---- ---- ---- ---- ---- ----
<C> <C> <C> <C> <C> <C>
1.7 2.1% 1.6% 1.3% 1.2% 1.5%
2.0 1.5% 1.3% 1.1% 1.0% 1.2%
5.3 1.4% 0.7% 0.5% 0.4% 0.7%
6.0 0.9% 0.6% 0.7% 1.0% 0.8%
--- ---- ---- ---- ---- ----
15.1 1.0% 0.7% 0.7% 0.7% 0.8%
0.2 0.3% 0.2% 0.2% 0.1% 0.2%
0.6 0.4% 0.3% 0.3% 0.3% 0.3%
9.0 1.9% 1.5% 0.5% 0.4% 1.0%
5.5 5.4% 4.5% 4.0% 3.5% 4.3%
4.1 3.9% 1.6% 0.8% 0.7% 1.6%
--- ---- ---- ---- ---- ----
19.4 1.7% 1.5% 0.8% 0.7% 1.3%
-0.1 0.1% 0.1% 0.0% -0.2% -0.0%
34.4 1.1% 1.0% 0.6% 0.6% 0.9%
<FN>
(1) Population projections are based on 1991 county estimated figures multiplied
by COG percentage increase projections.
(2) Based on preliminary county estimates. No information was available for
Alexandria and Washington DC - 1990 Census figures were used as estimates for
current population. (3) Includes the independent cities of Fairfax and Falls
Church.
(4) Includes the Independent cities of Manassas and Manassas Park.
(5) Since 1991 figures were not available, 1990 Census figures were used.
Source: U.S. Bureau of the Census.
- 35 -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Table C-3
HOUSEHOLD TRENDS AND PROJECTIONS
WASHINGTON, D.C. METROPOLITAN AREA
1970-2010
(IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
COG Adjusted Forecast
Jurisdiction 1970 1980 1985[2] 1990 1995 2000 2005 2010
- ------------ ---- ---- ------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Suburban Maryland
Charles County 12.1 21.4 26.8 33.0 37.7 42.1 46.1 50.3
Frederick County 24.9 37.5 43.8 52.6 58.0 63.0 67.8 72.5
Montgomery County 156.7 207.2 240.7 282.2 314.5 341.6 361.7 373.8
Prince George's County 193.0 224.8 238.2 258.0 273.0 289.5 307.9 330.8
----- ----- ----- ----- ----- ----- ----- -----
Total Suburban Maryland 386.7 490.9 549.5 625.7 683.3 736.2 783.6 827.3
Northern Virginia
Alexandria 42.5 49.0 53.5 53.3 55.2 56.7 58.2 59.3
Arlington County 69.4 71.6 76.7 78.5 81.8 85.5 89.0 92.6
Fairfax County [3] 122.4 216.3 262.1 303.9 349.2 383.1 400.1 412.9
Loudoun County 10.4 18.7 22.2 30.5 40.1 51.1 63.0 76.1
Prince William County [4] 32.0 50.7 64.4 81.4 101.2 113.3 122.0 130.6
----- ---- ---- ---- ----- ----- ----- -----
Total Northern Virginia 276.6 406.3 478.9 547.6 627.5 689.7 732.4 771.5
District of Columbia 262.5 254.0 250.0 249.6 251.9 255.3 241.2 238.6
- --------------------
WASHINGTON, D.C.
METROPOLITAN AREA 925.8 1151.2 1278.4 1422.9 1562.7 1681.3 1757.2 1837.4
- ------------------------------------------------------------------------------
Average Annual Change
- ------------------------------------------------------------------------------
1990-1995 1995-2000 2000-2005 2005-2010
# % # % # % # %
--- --- --- --- --- --- --- --
<C> <C> <C> <C> <C> <C> <C> <C>
1.0 2.7% 0.9 2.2% 0.8 1.9% 0.8 1.7%
1.1 2.0% 1.0 1.7% 1.0 1.5% 0.9 1.3%
6.5 2.2% 5.4 1.7% 4.0 1.2% 2.4 0.7%
3.0 1.1% 3.3 1.2% 3.7 1.2% 4.6 1.4%
--- --- ---
11.5 1.8% 10.6 1.5% 9.5 1.3% 8.7 1.1%
0.4 0.7% 0.3 0.6% 0.3 0.5% 0.2 0.4%
0.7 0.8% 0.7 0.9% 0.7 0.8% 0.7 0.8%
9.1 2.8% 6.8 1.9% 3.4 0.9% 2.6 0.6%
1.9 5.7% 2.2 4.9% 2.4 4.3% 2.6 3.8%
4.0 4.5% 2.4 2.3% 1.7 1.5% 1.7 1.4%
--- --- --- ---
16.0 2.8% 12.4 1.9% 8.5 1.2% 7.8 1.0%
0.5 0.2% 0.7 0.3% (2.8) 0.2% -0.5 -0.2%
28.0 1.9% 23.7 1.5% 15.2 0.9% 16.0 0.9%
<FN>
- --------------------
[1]Household projections are based on 1990 Census figures multiplied by COG percentage increase projections.
[2]Based on County estimates.
[3]Includes the independent cities of Fairfax and Falls Church.
[4]Includes the independent cities of Manassas and Manassas Park.
Source: U.S. Bureau of the Census
</TABLE>
- 36 -
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Table C-4
AT-PLACE EMPLOYMENT TRENDS [1]
WASHINGTON, D.C. METROPOLITAN AREA
AS OF THE 1ST QTR OF EACH YEAR
1980-1991
(In Thousands)
Jurisdiction 1980 1981 1982 1983(2) 1984 1985 1986 1987 1988 1989 1990
- ------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Suburban Maryland[3]
- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Charles County 15.7 16.6 15.9 16.1 16.7 18.7 20.6 21.2 23.2 25.5 26.1
Frederick County 29.4 29.9 29.7 30.2 32.9 34.4 36.4 41.3 44.9 47.6 48.7
Montgomery County 268.7 278.1 280.7 289.4 310.8 331.3 342.5 355.9 372.7 381.9 390.2
Prince George's County 209.5 214.9 202.4 202.0 215.9 231.4 241.3 251.5 262.1 271.9 277.8
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Suburban Maryland 523.2 539.4 528.7 537.8 576.3 615.7 640.9 669.8 702.8 727.0 742.8
Annual Increase/(Decrease) 16.2 (10.7) 9.0 38.5 39.5 25.2 28.9 33.0 24.2 15.9
Northern Virginia
Alexandria 55.0 53.8 54.6 55.0 58.3 63.8 70.1 76.4 79.3 81.3 83.6
Arlington County 123.0 116.7 118.6 124.6 136.0 142.9 143.8 151.7 150.8 151.8 156.2
Fairfax County [4] 220.3 223.7 224.9 239.6 268.8 303.2 324.5 348.3 372.7 396.6 408.1
Loudoun County 17.5 17.2 17.3 16.3 18.2 19.5 21.9 25.0 27.9 32.3 38.3
Prince William County [5] 37.0 37.9 39.2 37.8 43.5 47.9 53.2 60.5 64.1 71.0 73.1
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total Northern Virginia 452.9 449.3 454.6 473.3 524.8 577.3 613.5 661.8 694.8 732.9 759.3
Annual Increase/(Decrease) (3.6) 5.3 18.7 51.5 52.5 36.3 48.3 33.0 38.1 26.4
District of Columbia 605.8 612.1 593.9 585.1 599.8 618.2 630.8 636.7 659.6 671.9 684.2
- --------------------
6.3 (18.2) (8.8) 14.7 18.4 12.6 5.8 22.9 12.3 12.3
Annual Increase/(Decrease)
WASHINGTON, D.C.
METROPOLITAN AREA 1,581.9 1,600.8 1,577.2 1,596.2 1,700.8 1,811.3 1,885.3 1,968.3 2,057.2 2,131.8 2,186.3
Annual Increase/(Decrease) 18.9 (23.6) 19.0 104.7 110.5 74.0 83.1 88.9 74.6 54.6
</TABLE>
- --------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------------------------------------
Average Annual Change
------------------------------------------------------------
1980-1985 1986-1991 1980-1991
------------------------------------------------------------
1991 Number Percent Number Percent Number Percent
---- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
27.8 0.6 3.5% 1.4 6.2% 1.1 5.3%
49.6 1.0 3.2% 2.6 6.4% 1.8 4.9%
365.4 12.5 4.3% 4.6 1.3% 8.8 2.8%
272.8 4.4 2.0% 6.3 2.5% 5.8 2.4%
- ------ --- --- ---
715.6 18.5 3.3% 14.9 2.2% 17.5 2.9%
(27.2)
80.5 1.8 3.0% 2.1 2.8% 2.3 3.5%
144.6 4.0 3.0% 0.2 0.1% 2.0 1.5%
399.2 16.6 6.6% 14.9 4.2% 16.3 5.6%
38.9 0.4 2.2% 3.4 12.2% 1.9 7.5%
70.1 2.2 5.3% 3.4 5.7% 3.0 6.0%
----- --- ---- --- ---- --- ----
733.3 24.9 5.0% 24.0 3.6% 25.5 4.5%
(26.0)
682.7 2.5 0.4% 10.4 1.6% 7.0 1.1%
(1.5)
2,131.6 45.9 2.7% 49.3 2.5% 50.0 2.7%
(54.7)
<FN>
- -----------------------
1/Employment figures are first quarter averages for non-agricultural employment,
excluding military personal, self-employed,private household workers, and unpaid
family workers. 2/Government workers for Northern Virginia in 1983 are
estimated.
3/Maryland figures do not break out agricultural employment.
4/Includes the independent cities of Falls Church and Fairfax City.
5/Includes the independent cities of Manassas and Manassas Park.
Source: Virginia Employment Commission; Maryland Department of Human Resources, Research and Analysis Division;
District of Columbia Department of Employment Services "Area Labor Summary".
</TABLE>
- 37 -
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Table C-5
AT-PLACE EMPLOYMENT TRENDS [1]
BY INDUSTRY
WASHINGTON, D.C. METROPOLITAN AREA
1980-1991
(In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Industry 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990
- -------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mining 0.7 0.8 0.9 0.9 0.9 0.8 0.8 0.9 0.9 0.9 0.8
Construction 82.1 78.2 67.8 67.6 82.5 97.8 107.2 117.6 124.7 135.4 135.4
Manufacturing 63.6 65.6 64.7 68.5 75.3 80.0 83.5 84.0 86.5 87.3 90.5
Transportation, 69.9 72.3 73.5 74.0 78.2 83.1 89.9 94.6 97.4 104.2 105.0
Communications
and Utilities
Wholesale/Retail 299.9 311.9 307.6 308.7 334.6 359.0 380.0 396.3 412.2 419.9 433.4
Trade
Finance, 89.5 91.1 92.0 92.2 98.7 101.3 108.2 117.7 121.7 125.3 128.6
Insurance and
Real Estate
Services [2] 415.7 419.3 435.3 467.6 507.4 544.9 574.6 617.7 666.7 695.8 709.5
Government [3] 558.5 559.4 532.9 516.7 522.9 542.9 540.0 538.7 546.7 562.9 577.8
Other [4] 2.0 2.2 2.5 0.0 0.3 1.4 1.1 0.8 0.4 0.1 0.3
--- --- --- --- --- --- --- --- --- --- ---
TOTAL 1,581.9 1,600.8 1,577.2 1,596.2 1,700.8 1,811.3 1,885.3 1,968.3 2,057.2 2,131.8 2,181.3
Average Annual
Increase 1.2% -1.5% 1.2% 6.6% 6.5% 4.1% 4.4% 4.5% 3.6% 2.3%
</TABLE>
<TABLE>
<CAPTION>
Average Annual Change
-------------------------------------------------------------
1980-1985 1986-1991 1980-1991
-------------------------------------------------------------
1991 Number Percent Number Percent Number Percent
---- ------ ------- ------ ------- ------ -------
<C> <C> <C> <C> <C> <C> <C>
1.1 0.0 2.7% 0.1 6.9% 0.0 4.3%
117.6 3.1 3.6% 2.1 1.9% 3.2 3.3%
84.1 3.3 4.7% 0.1 0.1% 1.9 2.6%
106.7 2.6 3.5% 3.4 3.5% 3.3 3.9%
427.5 11.8 3.7% 9.5 2.4% 11.6 3.3%
127.5 2.4 2.5% 3.9 3.3% 3.5 3.3%
758.8 25.8 5.6% 36.8 5.7% 31.2 5.6%
586.8 (3.1) -0.6% 9.4 1.7% 2.6 0.5%
0.6 (0.1) -6.9% (0.1) -10.2% (0.1) -9.8%
--- ----- ----- ----- ------ -----
2,210.9 45.9 2.7% 65.1 3.2% 57.2 3.1%
1.4%
<FN>
- --------------------
[1] Employment figures are annual averages.
[2] For the years 1988 and 1989, the agricultural sector could not be broken out and is included in the services sector.
[3] Includes federal, state, and local government employees.
[4] Includes individuals not assigned an SIC code because of insufficient information.
Source: Virginia Employment Commission; Maryland Department of Human Resources, Research and Analysis Division;
District of Columbia Department of Employment Services; Bureau of Census, Economic Surveys Division.
</TABLE>
- 38 -
<PAGE>
Table C-6
ANNUAL AVERAGE UNEMPLOYMENT RATES
UNITED STATES, WASHINGTON MSA AND
PRINCE GEORGE'S COUNTY, MARYLAND
1980-1992
<TABLE>
<CAPTION>
Washington Prince George's
Year United States MSA County
---- ------------- ---------- ---------------
<S> <C> <C> <C>
1980 6.9% 4.1% 4.4%
1981 7.6% 4.9% 5.2%
1982 9.7% 5.8% 6.3%
1983 9.6% 5.3% 5.3%
1984 7.5% 4.2% ----
1985 7.2% 3.7% 4.0%
1986 7.0% 3.4% 3.2%
1987 6.2% 3.2% 3.3%
1988 5.5% 2.9% 3.5%
1989 5.3% 2.7% 3.8%
1990 5.4% 3.4% 3.1%
1991 6.4% 4.4% 3.9%
1992(1) 7.3% 5.4% 5.8%
<FN>
- ---------------
(1) As of February 1992; not seasonally adjusted.
Source: United States Department of Labor, Bureau of Labor
Statistics, Maryland Employment Commission
F1Z62101\SPRING 92.R01
</TABLE>
- 39 -
64043.15
<TABLE>
<CAPTION>
Table C-7
AVERAGE HOUSEHOLD EFFECTIVE BUYING INCOME(1)
TRENDS AND PROJECTIONS
1980-1995
(In Thousands of Dollars)
Compound
Annual Change
1980 1985 1990 1995(3) 1980-90 1990-95
<S> <C> <C> <C> <C> <C> <C>
Alexandria $23.6 $43.4 $51.7 $69.0 8.2 5.9
Arlington County 25.7 46.3 50.4 66.2 7.0 5.6
Fairfax County 33.3 52.0 62.8 83.0 6.6 5.7
Montgomery County 29.0 49.6 63.0 78.6 8.1 4.5
Prince George's County 24.6 40.3 50.4 63.1 7.4 4.6
Washington, D.C. 20.0 37.7 42.9 55.6 7.9 5.3
Washington Metro Area(2) 26.2 43.9 53.4 68.6 7.4 5.1
<FN>
(1) Effective buying income approximately equal to disposable income
after taxes.
(2) Includes other jurisdictions not itemized above.
(3) Projections
Source: Sales and Marketing Management. 1980 to 1991 Survey of Buying
Power; National Planning Data Corp., April 1992.
F1Z62101\SPRING 92.R01
</TABLE>
- 40 -
TABLE C-8
APARTMENT MARKET VACANCY INDEX
PRINCE GEORGE'S COUNTY AND WASHINGTON D.C. METRO AREA
1991-1992
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
% Change
6/91 7/91 8/91 9/91 10/91 11/91 12/91 1/92 2/92 3/92 4/92 5/92 6/92 6/91-6/92
---- ---- ---- ---- ----- ----- ----- ---- ---- ---- ---- ---- ---- ---------
Washington
Metro Area 5.7% 5.6% 4.7% 4.5% 4.5% 4.8% 5.2% 5.5% 6.1% 5.6% 4.8% 4.8% 4.9% -0.8%
Prince George's
County 5.0% 5.1% 4.2% 4.3% 4.5% 5.1% 5.7% 6.6% 6.6% 4.8% 5.3% 4.7% 4.7% -0.3%
</TABLE>
Source: Adler Group, August, 1992
F1Z6210\DEM.WK3
- 41 -
<PAGE>
APARTMENT MARKET OVERVIEW
Despite the current softness in the overall real estate market, the demand
for rental housing remains healthy in the Washington Metropolitan market area
and in Prince George's County. Increasing population, decreasing household
size, and rising income should support new development in the long run while
keeping vacancy rates low.
According to the Metropolitan Council of Governments, households in Prince
George's County are projected to increase at a compound annual rate of
approximately 1.1 percent between 1990 and 1995 (Table C-3). This is slightly
below the 2.4 percent annual increase experienced between 1980 to 1990, and
is slightly lower than projected increases for the MSA as a whole (Table
C-3). Average household effective buying income (EBI) in Prince George's
County increased significantly from 1980 to 1990 at a compound annual rate of
7.4 percent. EBI is projected to increase 4.6 percent annually from 1990 to
1995 in Prince George's County, and 5.1 percent annually in the Washington
metropolitan area as a whole (See Table C-8).
The low vacancy rates experienced during the mid-1980s caused rental
levels to increase sharply. However, since 1988, rental rates have increased
at a much lower rate. The recent slowdown in rental rate growth is largely
thought to be a result of the recent economic slowdown. According to market
surveys performed by the Adler Group, vacancy in Prince George's County for
the 12-month period from June 1991 to June 1992 ranged from 4.3 percent to
6.6 percent. Overall vacancy rates indicate a slight decline from the same
time last year, in both Prince George's County and the metro area. While
vacancy has fluctuated seasonally, rental rates for all types of units have
remained flat over this period in Prince George's County. (See Table C-8.)
Apartment rental rates have experienced modest growth in this period in the
Washington Metropolitan area, while rates in Prince George's County for
one- and two-bedroom units have declined but three-bedroom units have
increased.
- 42 -
TABLE C-9
SUBMARKET VACANCY
SPRING HILL LAKE APARTMENTS
AUGUST 1992
<TABLE>
<CAPTION>
PROJECT TOTAL UNITS VACANCY
- ---------------------- ------------- ---------
<S> <C> <C>
Olde Mill Landing 593 4.0%
Barclay Square 180 3.0
Seven Springs 219 4.0
Lakeside North 276 0
University Square 495 3.0
Glen Oaks 463 5.0
Woodland Landing 443 N/A
Country Side 486 11.0
Brittany Place 591 10.0
------------- ---------
Total/Weighted Average 3,746 6.0%(1)
<FN>
(1) Excludes Woodland Landing.
Source: Arthur Andersen, August 1992
FIZ62101/SPRING92.R01
</TABLE>
As indicated in Table C-9 above, vacancy rates for comparable apartment
complexes in the subject property's market area ranges from 0.0 to 11.0
percent. The 3,746 units which we surveyed, exclusive of the subject
property, reported an overall weighted vacancy rate of 6.0 percent. Most of
projects report vacancy rates of below 5.0 percent. Two projects reported
vacancies of 10.0 percent or above. Woodland Landing would not disclose its
current vacancy.
Management of the subject property reports a current vacancy of 9.8
percent. Including the subject, the overall submarket vacancy is 6.8 percent.
As evidenced by Table C-10 the vacancy at the subject has historically been
well below this level. The current vacancy rate is historically high for the
subject and is higher than the comparables in the market. Possible
explanations for the increased vacancies at the subject include recent lower
interest rates which have the potential of house purchases by renters.
Management at other projects in the subject's market area could not indicate
a definitive reason for the subject's declining occupancy. One reason may be
the development of higher quality student
- 43 -
<PAGE>
housing at the nearby University of Maryland which has reduced the need for off-
campus housing. In addition, enrollment at the university has declined in recent
years. The development of newer apartment projects in Laurel, Largo and other
areas around the Capital Beltway, may also have cut into the overall market
share for older projects due to the newer projects' higher quality and
competitive rates.
TABLE C-10
SUBJECT VACANCY
SPRING HILL LAKE APARTMENTS
1988-1992
<TABLE>
<CAPTION>
Year
----------------------------------------
Average by
1988 1989 1990 1991 1992 Quarter
------ ------ ------ ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter . N/A 5.9% 9.0% 6.9% 8.6% 7.3%(1)
2nd Quarter . N/A 8.9% 8.6% 10.5% 10.0% 9.3%(1)
3rd Quarter . 5.7% 6.4% 7.9% 8.4% 7.1%
4th Quarter . 6.0% 7.2% 6.5% 7.6% 6.8%
<FN>
(1) Excludes 1988.
Source: First Winthrop Corp., August 1992.
FIZ62101/SPRING92.R01
</TABLE>
Historically, the majority of turnover at the subject takes place during
the summer months. In 1991, 56.6 percent of the overall unit turnover took
place between May 1 and September 30. In 1990, this figure was 53.2 percent,
and in 1989, 54.4 percent of turnover occurred in the May to September
periods. Turnover at the subject has averaged approximately 45 percent
annually over the last five years.
Although occupancy at the subject is lower than it has been over recent
years, we believe that the subject property is well located in the market and
is capable of competing successfully with surrounding complexes, given
necessary property renovations. The affordability of the subject property
combined with the desirability of its location, in our opinion, will keep it
competitive in the Greenbelt market.
- 44 -
<PAGE>
NEIGHBORHOOD ANALYSIS
The subject property is located in Greenbelt, Maryland in northwestern
Prince George's County, approximately six miles northeast of the Washington,
D.C./Prince George's County line. It is located south and west of Edmonston
Road, north of Breezewood Drive and east of Cherrywood Lane. The property
lies in the heart of the Baltimore-Washington Corridor, approximately
one-quarter mile west of I-95 and one mile west of the Baltimore-Washington
Parkway.
The majority of development in Greenbelt is concentrated along Greenbelt
Road, (Route 193) south of the subject property. Both the Washington, D.C.
and Baltimore employment centers are accessible from Greenbelt due to its
proximity to I-95 and the Baltimore-Washington Parkway. Greenbelt is
approximately six miles from downtown Washington, D.C.; employment centers in
suburban Maryland, such as Columbia and Silver Spring, are similarly
convenient. Public transportation from this area is somewhat limited as it
does not lie along an existing Metro Rail System line. However, subway
(Metro) service is planned for the Greenbelt area in the future. In addition,
Metro service is available at New Carrollton Station (Orange line), only ten
minutes driving time.
The many locational advantages of the area along I-95 have led to the
existence of a large number of garden apartments. Although there have been
few complexes constructed in recent years, existing complexes in the
Greenbelt area, which were predominantly completed in the late 1960s and
early 1970s, are undergoing extensive renovations. These renovated projects
are keeping the market competitive, offering newer appliances and better
amenities than the older, unrenovated properties.
The Greenbelt area consists of neighborhood shopping centers, garden-style
and mid-rise office buildings, garden-style apartment complexes, townhouses,
and low-rise industrial shops and warehouses. The Greenbelt Middle School is
located at the northwestern boundary of the subject property. The major
landmark in the neighborhood is the University of Maryland, which lies
southwest of the subject property.
- 45 -
<PAGE>
In summary, the subject property is located in an established residential
neighborhood which is convenient to both employment and shopping centers. The
area is well developed with apartment projects, townhouses and single family
homes. Property values and rents rose steadily through the late 1980s,
although property values have recently declined and rents are increasing at a
much slower rate in the subject market. We anticipate rents and vacancies to
remain stable in the near term, but increase in the future.
- 46 -
<PAGE>
C.3 HIGHEST AND BEST USE
An important consideration in any valuation assignment is the
determination of the property's highest and best use. This may be defined as
"that legal use which will yield to the property its highest present value"
or, alternatively, "that use, from among reasonably probable and legal other
uses, which results in the highest land value as of the date of the
valuation."
Furthermore, it must be a use or combination of uses: (1) which is or will
be permitted under existing or reasonably attainable zoning and/or other
regulations; (2) for which there is an economic, social and/or market demand;
(3) for which the property is physically suitable or adaptable; and (4) which
is harmonious with the nature and condition of existing neighborhood
development. Implicit in the definition is the recognition that the
determination of highest and best use results from the appraiser's judgement
and analytical skills; highest and best use represents an option based upon
analysis, not a fact which can be derived. In appraisal practice, then, the
highest and best use concept becomes the "most probable use" among realistic
alternative uses for land and improvements.
In addition, if a property is improved, the highest and best use, both as
vacant and as improved, must be analyzed. Consideration has been given to the
size and utility of the site (physical); the legal restrictions which
regulate development; and the economic conditions and predominant land uses
in the neighborhood, as well as the availability of, and demand for,
properties like the subject (feasible).
HIGHEST AND BEST USE OF THE LAND AS IF VACANT
PHYSICAL ADAPTABILITY: The subject site contains 154.06 acres of gently
rolling terrain in a residential area. The site is serviced with all
utilities and has good access. Drainage and topography are acceptable, as are
the site's shape and utility, for a variety of uses. We have conducted no
test borings, and it is assumed that no restrictions exist in the
load-bearing capacity of the soil. There are no apparent physical defects or
detriments to
- 47 -
<PAGE>
development. The site, then, is physically adaptable for development, with few
limitations. The site's size and topography are well-suited to multi-family
residential development.
LEGALLY PERMISSIBLE: The subject's R-18 and CO zonings encourage medium
density multi-family residential development and a variety of retail and
office uses. The zoning permits single and multi-family development, with a
maximum density of 12 dwelling units per acre. In addition, the small portion
of the site zoned CO has few restrictions and allows a wide variety of uses.
FINANCIAL FEASIBILITY: The subject neighborhood is predominantly
multi-family residential in character and use. The subject's current zoning
allows for multi-family residential and office/retail development. Current
and anticipated demand for apartments is strong, as evidenced by the high
occupancy rates found in the market and the historically strong rental market
in the Greenbelt market. Demographic trends in the immediate area favor
rental apartments. The subject property is well positioned to capture a
proportionate share of the area apartment demand.
MAXIMALLY PRODUCTIVE: If the subject site were vacant, it would be
available for apartment development, which is its most likely highest use.
The subject's location, the character of the neighborhood, and the low
vacancies at similar complexes with similar locations indicate medium-density
residential development. For these reasons, it is our opinion that the
highest and best use of the subject site as vacant would be for the
development of new garden apartment facilities which are functionally
efficient as well as financially feasible.
HIGHEST AND BEST USE OF IMPROVED PROPERTY
The subject property is currently improved with a 2,899-unit garden
apartment complex with a retail/office and daycare component built from 1963
to 1969. The subject includes a 2,000 square foot community room, two
swimming and wading pools, and six tennis courts. The improvements are
generally well designed and well maintained. The
- 48 -
<PAGE>
optimal use which is also physically suitable for the site, legally
permissible, economically feasible and the most profitable usage of the site
appears to be as a garden apartment complex.
As earlier indicated, the highest and best use of a property as improved
may differ from the highest and best use of the land as if vacant. The "as
improved" analysis assists in the identity of the use that is projected to
provide the greatest overall property return on invested capital, as well as
in the identification of comparable properties. Typical choices for improved
property include the following usage alternatives:
1. Demolition of the improvements
2. Remodeling or renovation
3. Continued usage, as is
The four tests of highest and best use are applied to each of the above
alternatives. The test of financial feasibility is that the use must provide
a return equal to or greater than the amount needed to meet all operating
expenses, financial obligations, and capital expenditures. In addition, the
use must be maximally productive, or that use which produces the highest
value, consistent with the rate of return warranted by the market for that
use. Utilizing current investor expectations, consideration of all three
scenarios was made.
DEMOLITION OF THE IMPROVEMENTS
The implication in a highest and best use analysis is that the existing
improvements should be retained and/or renovated as long as those
improvements continue to contribute to the total value of property; or until
the return from a new improvement would more than offset the cost of
demolishing the existing improvements and constructing alternative
facilities. The subject has historically enjoyed a 90 to 95 percent
occupancy, and is currently approximately 90.2 percent occupied. This
historically strong occupancy rate is indicative of the relative success of
the subject. The property is encumbered by short term leases, thus preventing
demolition until the apartments could become vacated.
- 49 -
<PAGE>
The improvements are between 23 and 29 years old and have not reached the
end of their economic life. The property does produce a positive net income
before debt service, and the improvements continue to have contributory
value. Demolition is not deemed to be a viable alternative, because the land
could not be put to another use which would economically justify the cost of
demolition and redevelopment. Therefore, due to the current contributory
value of the subject improvements, we do not believe that the highest and
best use is for their demolition.
REMODELING OR RENOVATION
According to published cost services, the total physical life for
properties such as the subject is 40 to 55 years. The subject is less than 30
years old, and has not yet reached the end of its physical life. The
buildings have been well maintained and the management appears willing to
invest in repairs as they become necessary. Occupancy and income have not
been affected by the unit design indicating that remodeling is not necessary.
We therefore do not believe that the highest and best use is for renovations
or remodeling of the improvements.
CONCLUSION AND RECONCILIATION OF HIGHEST AND BEST USE
Based on our analysis, we believe that the subject site is maximally
utilized in its present form as a garden apartment complex with a
retail/office and daycare component.
- 50 -
<PAGE>
D.1 THE COST APPROACH
Valuation by the cost approach is based on the principle of substitution.
This principle asserts that an informed visitor will not pay more for a
property than the cost to build a substitute property of equivalent utility.
The cost approach, therefore, estimates the cost of reproducing or replacing
the subject property including improvements and land, less an allowance for
depreciation based on the physical condition, functionality, and economic
environment of the building. Although this approach is particularly
applicable to owner-occupied or special-use properties in the absence of an
investor market, it also recognizes and establishes the relationship between
cost and market-derived values.
D.2 LAND VALUATION
To estimate the market value of land, the direct sales comparison approach
to value is the usual valuation technique. By this method, sales data on
similar parcels of land are assembled and compared with the subject parcel
and adjusted, if applicable, for differences. The resulting adjusted value
indicators are then reconciled into a final value estimate for the subject
parcel. To develop this analysis, we have researched the subject market for
recent sales of similarly zoned land parcels. Presented on the following
pages is a summary of the most pertinent of these sales, a location map, as
well as our analysis of the data and conclusions regarding the value of the
subject site. A detailed description of each comparable may be found in the
Addenda of this report.
- 51 -
<PAGE>
TABLE D-1
SUMMARY OF COMPARABLE LAND SALES
PRINCE GEORGE'S AND HOWARD COUNTIES, MARYLAND
1989-1992
<TABLE>
<CAPTION>
MAP LAND
KEY DATE OF NUMBER OF AREA SALE PRICE
NO. NAME/LOCATION SALE UNITS (ACRES) TOTAL PER UNIT
- ----- ------------------------
<S> <C> <C> <C> <C> <C> <C>
1 Columbia Commons Murray 9/90 200 13.33 $2,228,000 $11,140
Hill Road Columbia,
Maryland
2 Largo Subdivision Largo U/C 216 11.62 2,980,800 13,800
Center Drive Largo,
Maryland
3 Rowanberry Drive Howard 3/91 196 14.26 1,950,000 9,949
County Elkridge,
Maryland
4 8600 Cobblefield Drive 3/89 216 10.8 2,200,000 10,185
Howard County Columbia,
Maryland
5 John Rogers Boulevard 1/90 152 8.27 1,920,000 12,632
The Village of Marlboro
Upper Marlboro, Maryland <FN>
Source: Arthur Andersen, August, 1992.
</TABLE>
- 52 -
<PAGE>
MAP D-1
[LAND SALE LOCATION MAP OF WASHINGTON D.C. AREA]
SPRING HILL LAKE APARTMENTS
9164 EDMONSTON ROAD
GREENBELT, MARYLAND
- 53 -
<PAGE>
ANALYSIS OF COMPARABLE LAND SALES
The comparable land sales have been analyzed and compared to the subject
and adjusted for differences such as special financing, price changes in the
market since the date of sale, parcel size, location, physical
characteristics, zoning, utilities and any other discernible differences
which affect market value. The adjusted unit prices indicate a range of value
for the subject site. The characteristics of each of these sales relative to
the valuation of the subject are discussed below.
COMPARABLE LAND SALE NO. 1 is located on Largo Center Drive in Largo,
Maryland. While this transaction is still under contract the contracting
buyer reports a Specific Design Plan (SDP) has been approved for the site.
The SDP allows a 216 unit condominium complex. A contact in Prince George's
County Urban Design Division reports that the buyer has obtained a grading
permit. Sewer and water were available to the site at the time of sale. This
parcel represents the most recent subdivided parcel within Largo Town Center.
This parcel's intended use as a condominium project is reflected in the high
per-unit contract price for this parcel. This comparable has been adjusted
downward for its small size relative to the subject. A positive adjustment is
necessary for this comparable's inferior location. In addition, a negative
adjustment is made for the project's use as a condominium project. After all
adjustments are made, Comparable No. 1 has an adjusted price of $13,000 per
unit.
COMPARABLE LAND SALE NO. 2 is located on Rowanberry Drive, in Elkridge,
Maryland. This comparable sale, which occurred in March 1991 at a unit price
of $9,950 per unit, has been improved with a 196-unit garden apartment
complex known as Ashton Woods. This site is the last parcel on Rowanberry
Drive. The comparable's community is a suburban garden community in the
developing Elkridge market area. This site is located adjacent to wooded
areas which add to the quality of the development. This land sale has been
adjusted upward slightly to reflect the comparable's inferior and less
established market area. In addition, a positive adjustment is made for the
comparable's inferior access. A
- 54 -
negative adjustment is made to account for the comparable's small size relative
to the subject. After all adjustments are made, Comparable No. 2 has an
adjusted sale price of $11,000 per unit.
COMPARABLE LAND SALE NO. 3 is located on Murray Hill Road near Columbia,
Maryland. The site contains 13.33 acres and is developed with a 200-unit
apartment complex called Columbia Commons. The site, which is elevated,
required rock blasting before development could occur. All utilities were
available to the site at the date of the sale. Columbia Commons contains one,
two and three-bedroom apartments, and a clubhouse with an exercise room and
swimming pool. The sale occurred in September 1990 at a unit price of
$11,140. This sale is located in a slightly stronger rental market than the
subject. The comparable has been adjusted downward slightly to account for
its superior location. In addition, a negative adjustment is made to account
for the comparable's small size relative to the subject. After all
adjustments are made, Comparable No. 3 has an adjusted sale price of $10,000
per unit.
COMPARABLE LAND SALE NO. 4 is located on John Rogers Boulevard in Upper
Marlboro, Maryland. This sale took place in January, 1990 at a unit price of
$12,632 per unit. The site is located in The Village of Upper Marlboro, a
planned residential community north of Upper Marlboro. The site has
subsequently been developed with a 152 unit garden apartment complex. Rental
rates in the Upper Marlboro market area are slightly lower than the Greenbelt
area. We have adjusted this sale upward slightly to account for the
undeveloped nature of this market. A negative adjustment is necessary to
account for the comparable's small size relative to the subject. After all
adjustments are made, Comparable No. 4 has an adjusted sale price of $12,500
per unit.
COMPARABLE LAND SALE NO. 5 is located on Cobblefield Drive in Columbia,
Maryland approximately 20 miles north of the subject property. This sale
closed in March 1989 at a unit price of $10,185 per unit. The site's
topography is gently rolling and it is now improved with a 216 unit garden
apartment complex called Ashton Meadows. The Columbia area is a very
desirable residential location with a short commute into downtown Baltimore.
This
- 55 -
area has a more limited supply of quality multi-family sites and a strong
demand for units. We have adjusted this comparable downward for its superior
location and access. In addition, a negative adjustment is necessary to account
for the comparable's small size relative to the subject. After all adjustments
are made, Comparable No. 5 has an adjusted sale price of $9,000 per unit.
CONCLUSION OF LAND VALUE
Information has been presented on several comparable land sales which are
considered to be similar in use, size, zoning, etc. to the subject site.
These sales have been analyzed, and adjustments have been made for any
significant differences between the comparable sale and the subject site. The
adjusted sale prices per unit range from a low of $9,000 to a high of
$13,000. Based on this analysis, with primary emphasis on Comparable Land
Sale Nos. 3 and 4, we have estimated the current market value of the subject
site, as if vacant, to be $11,500 per unit. Applying this figure to the 1,848
apartment units which would be allowed under current zoning (12 units per
acre), indicates a vacant land value of $21,252,000, rounded to $21,300,000.
- 56 -
<PAGE>
D.2 REPLACEMENT COST
Replacement cost represents the current cost to construct a building that
features similar utility to the facility being appraised, using modern
materials in accordance with current building standards, design and layout.
Recognizing that actual costs vary according to the specifications of a
particular building, the construction standards used to determine the cost of
the subject are detailed in Physical Description section of this report.
DIRECT AND INDIRECT COSTS
To estimate the expenditures for labor and materials necessary to
construct the building and site improvements, we have relied on Marshall &
Swift's Cost Handbook. Breaking the subject complex into its distinctive
components than calculating costs (inclusive of time and location
multipliers) results in the following replacement costs:
<TABLE>
<CAPTION>
COMPONENT UNITS PER UNIT COST TOTAL COST
- -------------------------------- ------------------- --------------- -------------
<S> <C> <C> <C>
Garden Apartments 2,409,816 SF $ 37.49 $ 90,344,002
Townhouse Apartments 132,088 SF 40.59 5,361,452
Retail Shops 9,948 SF 41.17 409,559
Office Space (Giant) 12,000 SF 75.33 903,960
Daycare 3,500 SF bldg. area 57.71 201,985
1,200 SF patio 3.92 4,704
Community Room 2,000 SF 47.58 95,160
Parking 4,499 spaces 834.00 3,752,166
Landscaping 670,000 SF 3.62 2,425,400
(2) Swimming Pool 5,250 SF 33.49 175,822
(6)Tennis Courts 6 @ normal size $14,854.00 89,124
each
Total Building Replacement Cost: $103,763,334
</TABLE>
Total estimated building costs are $97,316,117, site improvements have an
estimated replacement cost of $6,447,217. The total estimated replacement
cost of the building and site improvement is $103,763,334.
- 57 -
D.3 ACCRUED DEPRECIATION
Accrued depreciation is the difference between an improvement's
replacement cost and its current market value, and can be categorized into
physical deterioration, functional obsolescence and external obsolescence.
PHYSICAL DETERIORATION may be found in the form of curable items of
deferred maintenance and incurable items that are not economically feasible
to correct. Based on our inspection of the subject property, along with
conversations with the property manager, we have observed that the
improvements have suffered only typical wear.
Accordingly, we have estimated curable and incurable deterioration by
application of the straight line depreciation method. Based on the subject
improvements building class and type, Marshall & Swift estimates a total
economic life of 50 years. Based upon the above noted observation of the
quality of materials and physical condition of the improvements, we estimate
the effective age for the primary building components to be 18 years. The
straight line depreciation method indicates a 36 percent depreciation ratio,
which when applied to the total building replacement cost, yields total
physical depreciation of $37,354,800.
FUNCTIONAL OBSOLESCENCE is the adverse effect on value resulting from
defects in original building design or changes occurring over time in
industry or market standards. The defect may be curable or incurable and may
be the result of a deficiency or super-adequacy. To be curable, the cost of
replacing the outmoded or undesirable aspect must be at least offset by
anticipated increase in value. Our analysis indicates the subject property is a
well-designed and efficient layout for a garden apartment complex, and should
be able to compete effectively with other such facilities in the area.
Therefore, no deduction for functional obsolescence is required.
EXTERNAL OBSOLESCENCE represents the loss in property value due to adverse
factors outside the subject site. External obsolescence may be the result of
lagging rental rates,
- 58 -
high inflation, excessive construction costs, poor economic conditions and
similar factors. Our analysis indicates that the subject property does not
suffer from any forms of external obsolescence.
It is our conclusion that the subject property suffers only from physical
depreciation, caused by natural aging of the property. The total accrued
depreciation estimate of $37,354,800 has been deducted from the property's
replacement cost.
D.4 ENTREPRENEURIAL PROFIT
Entrepreneurial profit reflects the incentive the typical investor
requires considering the risks of constructing a project similar in nature to
the subject. It also compensates the developer for his/her expertise in
managing the construction, development, and financing of the project. It is
estimated that an appropriate level of entrepreneurial profit, in terms of
the development of the subject property, is 15.0 percent of total depreciated
replacement cost of the building and site improvements, or $9,961,280.
D.5 CONCLUSION BY THE COST APPROACH
Table D-3, presented on the following page, summarizes the cost approach
as applied to the subject property. Total cost for Spring Hill Lake
Apartments is estimated at $97,669,814. Thus, the total estimated value via
the cost approach, as of August 5, 1992, is $98,000,000 (ROUNDED), or $33,800
per unit.
- 59 -
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
TABLE D-2
VALUE ESTIMATE BY THE COST APPROACH
SPRINGHILL LAKE APARTMENTS
AUGUST 1, 1992
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LAND 1/
1,848 units at $11,500 per unit $21,300,000
REPLACEMENT COST
Building Costs
--------------
Apartments Units (2,409,816 gross square feet @ $37.49 psf) $90,344,002
Townhouse Units (132,088 sf @ $40.59 psf) 5,361,452
Retail Shops (9,948 sf @ $41.17 psf) 409,559
Office Space (12,000 sf @ $75.33 psf) 903,960
Day Care Center (3,500 sf @ $57.71 psf) 201,985
Community Room (2,000 sf @ $47.58 psf) 95,160
Site Improvements
-----------------
Day Care Patio (1,200 sf @ $3.92 psf) 4,704
Surface Parking (4,499 spaces @ $834 per space) 3,752,166
Landscaping (670,000 sf @ $3.62 psf) 2,425,400
Swimming Pools (5,250 sf @ $33.49 psf) 175,823
Tennis Courts (6 courts @ $14,854 per court) 89,124
----------------------
Total Replacement Cost 103,763,334
Less: Depreciation
Physical Depreciation at 36 percent of replacement cost 5/ (37,354,800)
Functional Obsolescence 0
External Obsolescence 0
----------------------
Less: Accrued Depreciation (37,354,800)
----------------------
Depreciated Replacement Cost 66,408,534
----------------------
Plus: Entrepreneurial Profit at 15.0 percent 9,961,280
INDICATED STABILIZED VALUE $97,669,814
ROUNDED: $98,000,000
INDICATED AS-IS VALUE BY COST APPROACH
PER UNIT: $33,800
<FN>
- ---------------------------------
Source: Arthur Andersen, August 1992
</TABLE>
- 60 -
<PAGE>
E. THE DIRECT SALES COMPARISON APPROACH
The direct sales comparison approach estimates market value based on
comparative analysis of recent sales of improved properties that are similar
in function, size, income production and use to the appraised property. This
approach to value assumes that the market will determine a price for the
subject in the same manner that it determines the price for the comparable,
competitive properties. To apply the direct sales comparison approach, the
appraiser employs a number of appraisal principles, including the principle
of substitution which holds that the value of a property that is replaceable
in the marketplace tends to be set by the cost of acquiring an equally
desirable substitute property. Additional considerations include examination
of market conditions prevailing at the time of sale as compared to those at
the date of valuation. The following pages explain the application of the
direct sales comparison approach to the subject property.
E.1 DIRECT COMPARISON ANALYSIS
To develop the direct sales comparison approach, we have researched the
subject market for recent sales of similarly improved properties. From our
research, we have selected several sales for further analysis and direct
comparison with the subject. These sales represent the most recent sales of
improved properties and are considered to be competitive alternatives in the
marketplace. It is noted that very few properties similar to the subject
property have sold in the last two years. Because the properties selected
vary in terms of quality, condition and location, we have made adjustments
based on the income characteristics of the properties, which would directly
influence their attractiveness in the market.
Presented on the following pages is a summary of the comparable sales, a
location map, as well as our analysis of these sales and our conclusion as to
the value indicated by this approach. A detailed description of each
comparable sale can be found in the Addenda of this report.
- 61 -
MAP E-1
[BUILDING SALE LOCATION MAP OF WASHINGTON D.C. AREA]
SPRING HILL LAKE APARTMENTS
9164 EDMONSTON ROAD
GREENBELT, MARYLAND
- 62 -
<PAGE>
Table E-1
SUMMARY OF APARTMENT BUILDING SALES
PRINCE GEORGE'S COUNTY AND VICINITY
<TABLE>
<CAPTION>
Map Date Number
Key of of Price
No. Name/Location Sale Units Per Unit
- -------- -------------------------------------------------------- ---------- ------------ ---------------
<S> <C> <C> <C> <C>
1 Deerfield Run Apartments 12/91 256 $32,422
13300 Dearfield Road
Laurel, Maryland
2 Montgomery Gardens 7/91 80 24,688
7501 Blair Road
Silver Spring, Maryland
3 Spring Ridge 6/90 204 42,010
371 North Sumit Avenue
Gaithersburg, Maryland
4 West Deer Park Apartments 4/90 198 50,000
72 West Deer Park Road
Gaithersburg, Maryland
5 Mount Vernon Square Apartments 4/90 1,387 60,000
7429 Vernon Square Drive
Unincorporated Fairfax County,
Virginia
6 Fairfield Crossing 5/89 493 50,710
7703 Lee Highway
Falls Church, Maryland
</TABLE>
_____________________
Source: Arthur Andersen, August 1992.
- 63 -
<PAGE>
ANALYSIS OF COMPARABLE BUILDINGS SALES
Each of the comparable apartment building sales has been analyzed based on
the price paid per unit. We have analyzed five building sales in the
Washington, D.C. metropolitan area to arrive at a value for the subject
property. These sales are all located in the Washington metropolitan area.
Unit prices ranged from $24,000 to $60,000 for sales occurring between May
1989 and December 1991. Overall rates ranged between 7.0 percent and 11.8
percent. Financing of all of these comparable sales were considered to be at
market terms. Adjustments considered are changes in market conditions,
financing, location, age/condition, construction quality, complex amenities,
access, and average unit size. The adjusted unit prices indicate a range of
value for the subject property. The characteristics of each of these sales
relative to the valuation of the property are discussed below.
COMPARABLE NO. 1 (Deerfield Run Apartments) is a garden style apartment
complex located on Deerfield Road in Laurel, Maryland. This 256-unit complex
was sold in late 1991 for approximately $8,300,000, or $32,422 per unit. This
comparable reportedly had been under contract for nearly one year before it
was finalized. At the time of sale, the complex was reportedly 25 percent
vacant and mismanaged by the grantor. An upward adjustment is required for
vacancy. A slight downward adjustment was necessary to reflect the changes in
market conditions since the date of the sale. No adjustment was made to
reflect this comparable's age and condition. The adjusted unit price
indicator derived from this comparable is approximately $35,000 per unit.
COMPARABLE NO. 2 (Montgomery Gardens) is an 80-unit garden style apartment
complex located on Blair Road in Silver Spring, Maryland. This property sold
in July 1991 for $2,025,000, but reportedly there was a $50,000 credit taken
at settlement making the true purchase price $1,975,000 or $24,688 per unit.
This comparable suffered vacancy of 30 percent at the time of sale. An upward
adjustment was required for high vacancy, poor condition and deferred
maintenance. The adjusted unit price indicator derived from this comparable
is approximately $30,000 per unit.
- 64 -
COMPARABLE NO. 3 (Spring Ridge) is a 204-unit garden apartment complex
which was built in 1970. This property is located in Gaithersburg, Maryland.
The comparable sold in June of 1990 for $8,570,000, or $42,010 per unit. A
downward adjustment is necessary to account for changes in market conditions
since the date of the sale. Also a slight downward adjustment would be
required to reflect the subject's superior age and condition. The adjusted
unit price indicator derived from this comparable is approximately $34,000
per unit.
COMPARABLE NO. 4 (West Deer Park) is a 198-unit apartment complex located
on West Deer Park Road in Gaithersburg, Maryland. The property was built in
1973 and underwent minor renovation following the sale. This sale occurred in
April 1990 for $9,900,000, or approximately $50,000 per unit. A downward
adjustment is necessary to reflect changes in market conditions since the
date of the sale. Downward adjustments are also necessary to reflect this
comparable's superior occupancy level, location and condition. The adjusted
unit price indicator derived from this comparable is approximately $32,000
per unit.
COMPARABLE NO. 5 (Mount Vernon Square Apartments) is a garden style
apartment complex located on Vernon Square Drive in Fairfax County, Virginia.
This 1,387-unit complex was sold in April, 1990 for $83,220,000 or
approximately $60,000 per unit. This comparable is considered to be superior
to the subject in terms of building quality and location and is adjusted
downward. In addition, a downward adjustment is necessary to reflect changes
in market conditions since the date of sale. The adjusted unit price
indicator derived from this comparable is approximately $35,000 per unit.
COMPARABLE NO. 6 (Fairfield Crossing Apartments) is a garden style
apartment complex located on Lee Highway in Falls Church, Virginia. This
493-unit complex was sold in May, 1989 for $25,000,000 or approximately
$50,710 per unit. This comparable is considered to be superior to the subject
in terms of building quality and location and is adjusted downward. In
addition, a downward adjustment is necessary to reflect changes in market
conditions since the date of sale. The adjusted unit price indicator derived
from this comparable is approximately $33,000 per unit.
- 65 -
<PAGE>
CONCLUSION BY DIRECT COMPARISON
After adjustments to the five comparables, it is estimated that the fee
simple value of the subject property as of August 14, 1992, is between
$30,000 and $35,000 per unit. This comparable value range indicates a total
value range for the subject of between $86,970,000 and $101,465,000. Based on
our analysis of these sales, with primary emphasis on Comparables Nos. 3, 4,
and 5, we have estimated the value of the subject by this approach to be
$33,100 PER UNIT, or $96,000,000 (ROUNDED).
- 66 -
<PAGE>
F. THE INCOME APPROACH
The income approach to value converts anticipated future benefits into a
present value. In this respect, the process is very similar to pricing in
other capital markets. The approach requires the careful estimation of future
benefits--cash, tax savings (if appropriate), residual values, etc.--and
application of investor yield or return requirements. The income approach
brings together reasoned estimates of future revenues and expenses with the
investor's yield requirements. These yield requirements, in turn, reflect
varieties of risk, including property type, location, local market
conditions, and so forth.
Yield and direct capitalization techniques are conventionally used to
convert future benefits to value--the discounted cash flow (DCF) technique
and the overall capitalization rate (OAR) technique. The DCF technique
entails (1) modeling the future performance of the subject, over a specific
holding period, (2) estimating the future value (reversionary value) at the
end of the holding period, and (3) converting the stream of periodic benefits
and reversionary value, through a discounting process at investor yields, to
a present value. The selection of an appropriate discount rate is essential
to this process.
By comparison, direct capitalization using an overall rate (OAR) converts
a single, "normalized" year's income or cash flow into a value by dividing
the appropriate capitalization rate into the normalized income. Subsequent
adjustments are then made to take into consideration variations from
normalized operations. Both techniques are explained more fully in the
Definitions section of the Addendum to this report.
The discussion on the following pages provides the summary for our
projection of revenues, expenses, discount rates, capitalization rates, and
many of the other assumptions which are incorporated in the income approach.
The discussion of revenues and expenses begins with an examination of
historical trends and continues through an analysis of the current rent roll
and expense history, and an analysis of current leasing activity for
comparable space in the marketplace. Finally, forecasts are made with regard
to the appropriate projection of revenues, expenses, and capital items.
- 67 -
F.1 INCOME AND EXPENSE ANALYSIS
HISTORICAL INCOME AND EXPENSES
Historical operating statements as provided by The Lerner Corporation for
the operating years of 1988 through 1992, including budgeted income and
expenses for 1992, are summarized in Table F-1, on the following two pages.
- 68 -
<PAGE>
- -------------------------------------------------------------------------------
TABLE F-1
OPERATING STATEMENTS
SPRINGHILL LAKE APARTMENTS
(IN THOUSANDS OF DOLLARS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BUILDING SIZE 2,899 (Units) 1988 1989
- ------------------------- ------------------------------ ------------------------------
Actual Per Unit Actual Per Unit
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
INCOME
Gross Potential Rent ... $22,588.1 $ 7,792 $23,729.7 $ 8,185
Vacancy ................ (1,613.8) (557) (1,977.0) (682)
--------- -------- --------- --------
Net Rental Income ...... 20,974.3 7,235 21,752.7 7,504
Laundry ................ 241.9 83 396.3 1347
Miscellaneous Apartment 652.0 225 738.1 255
Late Charges ........... (377.5) (130) (861.8) (297)
Other (Shopping Center) 97.9 34 136.2 47
--------- -------- --------- --------
Gross Income ........... 21,588.6 7,447 22,161.4 7,645
EXPENSES
Marketing .............. 330.1 114 290.2 100
Payroll/Administration . 1,478.4 510 1,333.5 460
Management ............. 868.2 299 904.6 312
Operations ............. 3,976.5 1,372 3,878.2 1,338
Maintenance ............ 2,820.2 973 3,301.6 1,139
Recreational ........... 0.5 0 0.5 0
Real Estate Taxes ...... 1,111.8 384 1,339.3 462
Insurance .............. 300.0 103 300.0 103
--------- -------- --------- --------
Total Expenses ......... 10,885.7 3,755 11,347.8 3,914
% of Gross Income ...... 50.4% 50.4% 51.2% 51.2%
Net Operating Income ... 10,702.9 3,692 10,813.6 3,730
Reserves for Replacement 24.4 0.1% 81.6 0.4%
</TABLE>
<TABLE>
<CAPTION>
1990 1991
- -------------------------- -------------------------
Actual Per Unit Actual Per Unit
- ------------ --------------- ------------ ------------
<C> <C> <C> <C>
$24,872.8 $ 8,580 $25,753.0 $ 8,883
(2,750.6) (949) (3,212.1) (1,108)
--------- -------- --------- --------
22,122.2 7,631 22,540.9 7,775
259.1 89 346.9 120
705.0 243 725.4 250
224.6 77 (315.9) (109)
90.8 31 127.7 44
--------- -------- --------- --------
23,401.6 8.072 23,425.0 8,080
372.0 128 364.0 126
1,970.8 680 2,000.6 690
905.2 312 921.9 318
4,203.8 1,450 4,149.2 1,431
4,303.2 1,484 4,066.6 1,403
0.9 0 1.1 0
1,413.0 487 1,384.8 478
300.0 103 300.0 103
--------- -------- --------- --------
13,468.9 4,646 13,188.2 4,549
57.6% 56.3% 56.3% 56.3%
- ---------- -------- --------- --------
9,932.7 3,426 10,236.8 3,531.2
40.7 0.2% 678.1 3.1%
</TABLE>
Source: Winthrop Corporation, Lerner Corporation, August 1992.
- 69 -
- --------------------------------------------------------------------
TABLE F-1 (CON'T)
OPERATING STATEMENTS
SPRINGHILL LAKE APARTMENTS
(IN THOUSANDS OF DOLLARS)
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
BUILDING SIZE 2,899 (Units) 1992 Through June 30 1992 Annualized 1992 Budget
- ------------------------ ------------------------------ ----------------------------- ------------------------------
Actual Per Unit Actual Per Unit Actual Per Unit
--------------- --------------- --------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCOME
Gross Potential Rent ... $15,008.4 $ 5,177 $30,016.8 $ 10,354 $26,660.8 $ 9,197
Vacancy ................ (3,886.6) (1,341) (7,773.2) (2,681) (2,519.1) (869)
---------- -------- --------- -------- --------- --------
Net Rental Income ...... 11,121.8 3,836 22,243.6 7,673 24,141.7 8,328
Laundry ................ 159.6 55 319.3 110 314.0 108
Miscellaneous Apartment 322.3 111 644.6 222 740.4 255
Late Charges ........... (232.2) (80) (464.4) (160) (250.0) (86)
Other (Shopping Center) 58.8 20 117.6 41 94.2 32
-------- -------- --------- -------- --------- --------
Gross Income ........... 11,430.4 3,943 22,860.8 7,886 25,040.3 8,638
EXPENSES
Marketing .............. 127.0 44 254.0 88 384.7 133
Payroll/Administration . 1,294.0 446 2,588.1 893 2,087.2 720
Management ............. 539.8 186 1,079.6 372 983.6 339
Operations ............. 1,993.3 688 3,986.6 1,375 4,497.2 1,551
Maintenance ............ 1,754.2 605 3,508.5 1,210 3,902.9 1,346
Recreational ........... 0.6 0 1.1 0 0.0 0
Real Estate Taxes ...... 877.8 303 1,755.6 606 1,614.8 557
Insurance .............. 150.0 52 300.0 103 340.0 117
------- -------- --------- -------- --------- --------
Total Expenses ......... 6,736.7 2,324 13,473.5 4,648 13,810.4 4,764
% of Gross Income ...... 58.9% 58.9% 58.9% 58.9% 55.2% 52.%
Net Operating Income ... 4,693.7 1,619 9,387.3 3,238 11,229.9 3,874
Reserves for Replacement 123.8 0.6% 81.6 0.4% 1,542.6 7.0%
<FN>
- -------------------------------------
Source: Winthrop Corporation, Lerner Corporation, August 1992.
</TABLE>
- 70 -
<PAGE>
ANALYSIS OF CURRENT MARKET RENT
The examination of historical and current rental rates achieved
establishes contract rent for the property, but additional research into
rents achieved by comparable projects is needed to establish whether contract
rents are economic and at market. This research included a survey of other
competitive projects in the market area and discussions with knowledgeable
leasing agents and property managers. From the survey we have selected the
following rent comparables for further analysis and direct comparison with
the appraised property. A detailed description of each comparable is included
in Table F-2 following and in the addenda.
- 71 -
<PAGE>
MAP F-1
[RENTAL COMPARABLE LOCATION MAP OF COLLEGE PARK, MARYLAND AREA]
SPRING HILL LAKE APARTMENTS
9164 EDMONSTON ROAD
GREENBELT, MARYLAND
- 72 -
<PAGE>
TABLE F-2
COMPARABLE APARTMENT RENTAL SURVEY
GREENBELT, MARYLAND
<TABLE>
<CAPTION>
EFFECTIVE
LOCATION YEAR UNIT UNIT SQUARE RENTAL RENT/
MAP NO. PROPERTY BUILT MIX TYPE FEET RATE S.F. VACANCY CONCESSIONS
- -------- ------------ ------- ----- ------ ------ ------ ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Subject Springhill Lake 1963- GARDEN 9.8% $150 off/mo. all
9164 Edmonston Road 1969 661 1BR 705 $575 -$660 $0.82 -$0.94 Overall 1br unit types.
Greenbelt, Maryland 316 1BR/DEN 784 $650 -$705 $0.83 -$0.90 $200 off/mo. all
1,281 2BR/1BA 899 $650 -$705 $0.72 -$0.78 2br, 3br and 4br
32 2BR/1.5BA 1,039 $705 -$745 $0.68 -$0.72 unit types.
266 2BR/1BA/DEN 1,005 $720 -$780 $0.72 -$0.78
30 2BR/1.5BA/DEN 1,221 $790 -$830 $0.65 -$0.68
140 3BR/1.5BA 982 $810 $0.82
41 3BR/2BA 1,270 $830 -$880 $0.65 -$0.69
1 3BR/2BA/DEN 1,362 $830 -$920 $0.61 -$0.68
11 4BR/2BA 1,507 $930 -$985 $0.62 -$0.65
TOWNHOUSE
116 3BR/1.5BA 1,089 $820 -$965 $0.75 -$0.89
4 4BR/2BA 1,454 $1,035 $0.71
TOTAL: 2,899
Amenities: Units at the subject property have refrigerators, garbage disposals, dishwashers and
wall-to-wall carpeting. For most unit types rent includes all utilities. The project
has swimming and wading pools, tennis courts, a day care facility and a community room.
1. Olde Mill Landing 1971 36 EFFICIENCY 469 $530 $1.13 4.0% $60 off/mo. except
11800 Beltsville Drive 250 1BR 755 $615 $0.81 Overall 3br & 2br/2ba
Beltsville, MD 297 2BR/1.5&2BA 1,020 $750 -$815 $0.74 -$0.80
10 3BR 1,280 $945 $0.74
TOTAL: 593
Amenities: Units at the property have in unit laundry, refrigerators, garbage disposals, dishwashers
and wall-to-wall carpeting. Rent includes all utilities except electric. The project has
swimming pool, playground and clubhouse.
2. Barclay Square 1969 35 1BR 686 $682 $0.99 3.0% $62 off/mo. for
3598 Powder Mill Road 36 1BR/DEN 872 $700 $0.80 Overall 2br, $45 off/mo.
Beltsville, MD 38 2BR/2BA 871 $749 $0.86 for 2br/den.
45 2BR/DEN 977 $799 $0.82
20 3BR/2BA 1,087 $952 $0.88
4 3BR/DEN 1,197 $996 $0.83
2 4BR/DEN 1,307 $1,060 $0.81
TOTAL: 180
Amenities: Units at the property have laundry in the building, refrigerators, garbage disposals,
dishwashers and wall-to-wall carpeting. Rent includes all utilities. The project has a
swimming pool and bath house.
</TABLE>
- 73 -
<TABLE>
<CAPTION>
<PAGE>
TABLE F-2 CON'T
EFFECTIVE
LOCATION YEAR UNIT UNIT SQUARE RENTAL RENT/
MAP NO. PROPERTY BUILT MIX TYPE FEET RATE S.F. VACANCY CONCESSIONS
- -------- ------------ ------- ----- ------ ------ ------ ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<PAGE>
3. Seven Springs Village 1970 75 1BR 676 $714 $1.06 4.0% None
9400 Cherry Hill Road 131 2BR/1BA 853 $824 $0.97 Overall
College Park, MD 28 2BR/1BA/DEN 894 $944 $1.06
15 3BR/2BA 1,022 $1,014 $0.99
TOTAL: 249
Amenities: Units at the property have laundry in the building, refrigerators, garbage disposals,
dishwashers and wall-to-wall carpeting. Rent includes all utilities. The project has a
swimming and wading pool, clubhouse and tennis courts.
4. Lakeside North 1962 72 1BR 720 $620 $0.86 0.0% None
430 Ridge Road 139 2BR/1BA 864 $700 $0.81 Overall
Greenbelt, MD 65 3BR/1.5BA 1,050 $840 $0.80
TOTAL: 276
Amenities: Units at the property have laundry in the building, refrigerators, garbage disposals,
dishwashers and wall-to-wall carpeting. Rent includes all utilities except electric.
The project has a swimming pool and playground.
5. University Square 1968 1 EFFICIENCY NA $591 NA 3.0% $100 off/mo. all
157 West Way 155 1BR 700 $663 $0.95 Overall unit types.
Greenbelt, MD 60 1BR/DEN 740 $673 $0.91
12 2BR/1BA 860 $747 $0.87
94 2BR/DEN 994 $788 $0.79
30 3BR/2BA 1,218 $952 $0.78
34 3BR/DEN 1,243 $969 $0.78
TOTAL: 386
Amenities: Units at the property have laundry in the building, refrigerators, garbage disposals,
dishwashers and wall-to-wall carpeting. Rent includes all utilities except electric.
The project has a swimming pool and tennis and basketball courts.
6. Glen Oaks 1977- 67 1BR 930 $605 $0.65 5.0% 1st month free rent.
7509 Mandan Road 1979 67 1BR/DEN 1,050 $660 $0.63 Overall
Greenbelt, MD 163 2BR/2BA 1,200 $692 $0.58
61 2BR/2BA/DEN 1,312 $779 $0.59
105 3BR/2BA 1,430 $802 $0.56
TOTAL: 463
Amenities: Units at the property have laundry in each unit, refrigerators, garbage disposals,
dishwashers and wall-to-wall carpeting. Rent includes all utilities. The project
tenants have access to a swimming pool across the street.
</TABLE>
- 74 -
<PAGE>
TABLE F-2 CON'T
<TABLE>
<CAPTION>
EFFECTIVE
LOCATION YEAR UNIT UNIT SQUARE RENTAL RENT/
MAP NO. PROPERTY BUILT MIX TYPE FEET RATE S.F. VACANCY CONCESSIONS
- -------- ------------ ------- ----- ------ ------ ------ ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7. Brittany Place 1964 155 1BR 776 $595 $0.77 10.0% $50 off/mo. for 1br.
8501 Greenbelt Road 33 1BR/DEN 920 $640 $0.70 Overall and 1br./den units.
Greenbelt, MD 313 2BR 955 $705 $0.74
43 2BR/DEN 1,090 $795 $0.73
47 3BR 1,024 $840 -$845 $0.82 -$0.83
TOTAL: 591
Amenities: Units at the property have laundry in each unit, refrigerators, garbage disposals,
dishwashers and wall-to-wall carpeting. Rent includes all utilities except electric.
The project has a swimming pool and tennis and basketball courts.
8. Woodland Landing 1969 80 1BR 809 $710 $0.88 NA None
10001 Greenbelt Road 18 1BR/DEN 945 $760 $0.80
Lanham, MD 168 2BR 986 $810 $0.82
75 2BR/DEN 1,118 $840 $0.75
102 3BR/2BA 1,146 $935 $0.82
TOTAL: 443
Amenities: Units at the property have laundry in each unit, refrigerators, garbage disposals,
dishwashers and wall-to-wall carpeting. Rent includes all utilities. The project
has a swimming pool, clubhouse, tennis and fitness center.
9. Countryside 1967 69 1BR 777 $705 $0.91 11.0% $50 off/mo. except
9971 Goodluck Road 45 1BR/DEN 891 $735 $0.82 Overall 3br.
Seabrook, MD 201 2BR/2BA 953 $790 $0.83
57 2BR/2BA/DEN 1,127 $825 $0.73
93 3BR/2BA 1,177 $915 $0.78
21 3BR/2BA/DEN 1,291 $950 $0.74
TOTAL: 486
Amenities: Units at the property have laundry in each unit, refrigerators, garbage disposals,
dishwashers and wall-to-wall carpeting. Rent includes all utilities. The project
has a swimming pool and playground.
</TABLE>
- 75 -
<PAGE>
ANALYSIS OF CURRENT MARKET RENT
The comparable rentals have been analyzed and compared to the subject and
adjusted accordingly for differences such as age, condition, location,
amenities and other discernible differences which would affect market rental
rates. The adjusted rental rates indicate a market rental range for different
types of units at the subject property. The characteristics of each of these
relative to the subject is discussed below.
THE SUBJECT PROPERTY is located in Greenbelt, Maryland. Constructed in
nine phases from 1963 to 1969, the property has 2,899 residential units and a
small retail/office component which serves the subject's residents. Occupancy
rates are currently higher than most of the rent comparables. In the years
from 1988 to 1991, vacancy rates ranged from a low of 5.7 percent in the
first quarter of 1988 to a high of 9.8 percent in the second quarter of 1991.
The subject currently (7/92) has 10.5 percent vacancy. It appears that the
subject's occupancy might be improved by offering greater concessions during
the spring and summer seasons when occupancy levels are effected by the
college student market share. On a rent per square foot comparison basis, the
subject appears slightly higher than the market, which is partially due to
the inclusion of utilities in the rent of most units.
COMPARABLE RENTAL NO. 1 (Olde Mill Landing) is located northwest of the
subject property, off of Beltsville Drive. This complex has 593 units in
three-story garden style apartment buildings which were constructed in 1971.
This complex is similar to the subject in terms of unit amenities, project
amenities and physical appearance. All utilities except electric are included
in the rent at this complex. This comparable is currently 96 percent occupied
and offering $60 off each month's rent on efficiencies, one bedroom and two
bedroom one and one half bath units only.
- 76 -
<PAGE>
COMPARABLE RENTAL NO. 2 (Barclay Square) is located northwest of the
subject property, on Powder Mill Road. This complex contains 180 units which
were built in 1969. Unit amenities and physical appearance are considered
comparable to the subject. Complex amenities are considered inferior to the
subject. Rents at this complex include all utilities. This complex is
currently 97 percent occupied and is offering a concession on two bedroom two
bath ($62/month) and two bedroom with den ($49/month) units.
COMPARABLE RENTAL NO. 3 (Seven Springs) is located west of the subject
property on Cherry Hill Road. The complex contains 249 garden style units in
three-story buildings which were constructed in 1970. In addition to these
garden style units the property contains high-rise and mid-rise units (they
are not included in the rent comparables). Unit amenities, project amenities
and physical appearance are considered similar to the subject. All utilities
are paid by the landlord. This complex is at 96 percent occupancy and is not
currently offering any concessions.
COMPARABLE RENTAL NO. 4 (Lakeside North) is located east of the subject on
Ridge Road. The buildings are two, three and four story. This complex has 276
units which were completed in 1962. This project is considered slightly
inferior to the subject in terms of unit amenities, physical appearance and
project amenities. Rents at the property include all utilities except
electricity. The complex is currently 100 percent occupied and is not
offering concessions.
COMPARABLE RENTAL NO. 5 (University Square) is located east of the
subject, on West Way Road. The complex contains a total of 386 units which
were constructed in 1968. Rents at this complex include all utilities except
electricity. This comparable is considered slightly inferior to the subject
in physical appearance. Unit and project amenities are similar to the
subject. This complex is currently 97 percent occupied and offering $100 off
per month on all unit types.
- 77 -
<PAGE>
COMPARABLE RENTAL NO. 6 (Glen Oaks) is located east of the subject along
Greenbelt Road. This complex has 463 units which were built between 1977 and
1979. This project is considered similar to the subject in unit amenities,
physical appearance and complex amenities. All utilities are paid by the
landlord. The project is currently 95 percent occupied and is offering one
month free rent.
COMPARABLE RENTAL NO. 7 (Brittany Place) is located east of the subject
along Greenbelt Road. This complex has 591 units which were completed in
1964. This project is considered similar to the subject in terms of unit
amenities, physical appearance and proper amenities. Rents include all
utilities except electric. The project is currently 90 percent occupied and
offering $50 off each month's rent for one bedroom and one bedroom den units.
COMPARABLE RENTAL NO. 8 (Woodland Landing) is also located east of the
subject along Greenbelt Road. This complex has 443 units which were built in
1969. This project is considered similar to the subject in physical
condition, unit amenities and project amenities. All utilities are included
in the rent. The project is currently offering no concessions. Occupancy
information was not available for this project.
COMPARABLE RENTAL NO. 9 (Countryside) is also located east of the subject
along Greenbelt Road. This complex has 486 units which were built in 1967.
This project is considered similar to the subject in physical condition and
unit amenities, but inferior in terms of project amenities. All utilities are
included in the rent. The project is currently offering $50 off each month's
rent for all units except the three bedroom type. The project is currently 89
percent occupied.
- 78 -
<PAGE>
CONCLUSION OF MARKET RENT
Information has been presented on several market rent comparables that are
similar in most respects to the subject property. These comparables have been
adjusted for market criteria such as location, amenities, and unit features.
In general, the adjusted market rates for these comparables ranged from $0.63
to $1.06 per square foot for one-bedroom units, $0.58 to $1.06 per square
foot for two-bedroom units, $0.56 to $0.99 per square foot for
three-bedrooms, and $0.81 per square foot for four-bedrooms.
In determining effective market rents for the subject, consideration is
given to the likelihood of continued concessions. As Table B-10 (subject
vacancy) indicates, the subject has suffered from increasing vacancy during
the past three-year period. In order to tighten currently high vacancy level,
management will most likely extend current concessions through the first nine
months of the current fiscal year (8/92-7/92) Then once vacancy nears
"market" levels (5.0 percent to 7.0 percent), concessions will be reduced.
The blended rate approach summarizes this lease-up strategy. It assumes
concessions will be heavy during the first nine months in order to tighten up
vacancy and then decrease to "market" concession levels the last three
months. We calculate a blended rent rate of 75 percent of the first 9-month
rate plus 25 percent of the last 3-month rate. Table F-3 following presents
estimated market rents for the subject based on units competitive in the
market and the blended rate approach.
In summary, the subject is an older, but well maintained property, located
in a competitive market area. The subject's project amenities are comparable
to other projects in the marketplace. In addition, management at the subject
has proven itself to be responsive to changing market conditions by
increasing concessions as demand has weakened. The estimated market rents for
the current fiscal year (8/92-7/93) are presented on table F-3 following.
- 79 -
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
TABLE F-3
DERIVATION OF CURRENT YEAR RENTAL RATES
SPRING HILL LAKE APARTMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
FY1
-----------------------------------
Asking Rent 1st 9mo.(1) Last 3mo.(2)
----------- ----------- ------------
Garden
<S> <C> <C> <C>
1br $756 $606 $706
1br/den $817 $667 $767
2br/1ba $864 $664 $814
2br/1.5ba $931 $731 $881
2br/1ba/den $927 $727 $877
2br/1.5ba/den $1,003 $803 $953
3br/1.5ba $1,010 $810 $960
3br/2ba $1,059 $859 $1,009
3br/2ba/den $1,120 $920 $1,070
4br/2ba $1,160 $960 $1,110
Townhouse
3br/1.5ba $1,094 $894 $1,044
4br/2ba $1,235 $1,035 $1,185
<CAPTION>
Estimated Market
Rent
For the Subject
------------------
Blended Rent
Rate (3) Per S.F.
------------------ --------
<S> <C>
$631 $0.90
$692 $0.88
$701 $0.78
$769 $0.74
$764 $0.76
$841 $0.69
$848 $0.86
$897 $0.71
$958 $0.70
$998 $0.66
$932 $0.86
$1,073 $0.74
------
Average Blended
Rent Rate: $713
<FN>
(1) Asking rent minus concessions of $150 off per 1br. and $200 off per
2br., 3br. and 4br. unit types.
(2) Asking rent minus concessions of $50 off for all unit types.
(3) Blended rate is calculated as 75 percent of "1st 9mo. rate" plus 25
percent of "last 3mo. rate".
Source: Arthur Andersen, August, 1992
</TABLE>
- 80 -
<PAGE>
<PAGE>
F.2 PROJECTED PERFORMANCE
Estimates of revenue and expenses in 1992 and beyond are based on review
of the subject property's budget, discussions with local real estate
professionals, field inspection of the property, and background market
research. The fiscal year 1992 is from August 1992 to July 1993.
INFLATION ASSUMPTION
Investors relate to "real" rates of return when formulating yield
requirements in real estate. Real rates of return are the difference between
current dollar yields and growth for a specific period of time. Based upon
recent investor surveys investors are currently assuming a growth rate
ranging from 3 to 6 percent. In this analysis, revenues are projected to grow
at 0 percent in the first year, 2.0 percent in the second, 4.0 percent in the
third, and 4.0 percent per year thereafter. These growth rates are based on
historical rental rate growth in the Greenbelt area, as well as recent
experience at the subject property, other comparables, and investor
expectations. Expenses are projected to grow at an annual rate of 4.0
percent, based on historical increases in the Washington Metro Area CPI-U and
the projected inflation rate for future.
REVENUES
EFFECTIVE RENTS: Projected effective rent is based upon estimated market
rental rates. As discussed previously, Springhill Lake currently achieves
slightly lower than market rates. Potential rental income in the first year
of the projection is estimated to be $24,843,852. This is based upon the
assumption that current concessions continue over the next nine months and
then reduced to "market" concession levels the last three months of the year
(see Table F-3 preceding).
OTHER INCOME: Other income includes revenue from the retail spaces, office
space, daycare center, laundry and miscellaneous rental income. Historically
these revenue sources have totalled approximately 5 percent of potential base
rent. Retail space, office space and daycare center revenues are estimated
based on historical figures. In the first year of the projection we estimate
shopping center rent net income to be $92,768. Laundry income is estimated to
be $110 per unit, or $318,890 in year one and miscellaneous apartment, office
and daycare income is estimated to total $434,850 in year one. All other
income categories are estimated to escalate 4.0 percent annually.
- 81 -
<PAGE>
STABILIZED VACANCY AND COLLECTION LOSS: Projected at 9.0 percent of total
revenue throughout the stabilized projection period, vacancy accounts for 8.0
percent and collection loss 1.0 percent. Historically, the subject has
maintained adequate occupancy rates, however, recent occupancy levels have
decreased. In 1990 and 1991, occupancy averaged 91 to 94 percent. During
1991, occupancy rates began to decrease. Occupancy went from 93 percent in
first quarter of 1991 to 90 percent in the second quarter of 1992. Currently
the complex is 90 percent occupied.
EXPENSES
Expense projections are estimated from analysis of well documented
historic expense statements from the subject. The subject has performed on a
fairly consistent basis and the historical financial statements gives a well
supported indication of future expense changes.
MANAGEMENT FEE: The management fee is estimated at 4.0 percent of rental
revenue as stated in the management agreement. This is typical for properties
of this type and is supported by other management companies in the area.
REAL ESTATE TAXES: Actual real estate taxes for the subject property are
$1,756,800 or $606 per unit for 1992-1993. This item is estimated to increase
at the rate of inflation annually throughout the projection period.
INSURANCE: The premium for property and liability insurance is estimated to
be $298,600, or $103 per unit, during the first year of the DCF. This item is
estimated to increase at the rate of inflation throughout the projection
period.
PAYROLL/ADMINISTRATION: This expense item includes salaries for the manager,
leasing agents, maintenance superintendent, other staff, and seasonal pool
guards. This expense item is estimated at $2,029,300, or $700 per unit in
year one. This cost is estimated to increase at the rate of inflation
throughout the projection period.
REPAIRS & MAINTENANCE: This item includes the expenses associated with
building maintenance such as building repairs, cleaning, landscaping,
security, pool supplies, and turnover cost associated with releasing vacated
units. Historically, this expense has been between $900 and $1,500 per unit.
This expense is estimated to be $4,058,600 or $1,400 per unit, in year one.
Included in this figure are the costs associated with releasing vacated
units. This expense typically runs $200 to $400 per unit. Assuming a tenant
retention ratio of 50 percent, this would increase repair and maintenance
expenses by $100 to $200 per unit. This item is estimated to increase
according to the inflation rate throughout the projection period.
- 82 -
<PAGE>
UTILITIES: The utility expense includes the cost of the building's gas, water
and sewer service in addition to common area electricity.
In the majority of units all utilities, even tenant electricity, are included
in the rent which tends to inflate this expense category. Historically this
expense has run between $1,300 and $1,500 per unit per year. This expense is
estimated to be $4,102,100, or $1,415 per unit, during the first year of the
DCF. This item is estimated to increase according to the inflation rate
throughout the projection period.
MARKETING: This category covers expenses associated with advertising,
promotions, and model apartments. This item is estimated to total $362,375,
or $125 per unit. This item is estimated to increase at the estimated rate of
inflation throughout the projection period.
The subject has estimated stabilized expenses of approximately $4,500 per
unit. Although, comparable garden apartment complexes in the metropolitan
Washington area indicate overall expenses ranging from $2,800 to $3,500 per
unit, the majority of the comparables were newer in age than the subject and
have more efficient operating systems. IREM, the Institute of Real Estate
Management, indicated that average per unit expenses for garden apartments in
the Washington area in 1990 were $3,350. This figure represents expenses for
all complexes surveyed and includes new and old projects. According to IREM,
garden apartment complexes built between 1946 and 1965 had expenses 11.5
percent higher than projects built between 1965 and 1977, and 38 percent
higher than projects built after 1978. Adding 38 percent to the range
indicated by the comparable projects results in an expense range between
$3,450 and $4,830 per unit. Projects also vary in the amount of utilities
that are included in the project expense and utilities which are passed
through to tenants.
RESERVES FOR REPLACEMENT.
The following table indicates historic capital improvement expenditures at
the subject property.
- 83 -
<PAGE>
TABLE F-4
HISTORICAL CAPITAL IMPROVEMENT EXPENDITURES
SPRINGHILL LAKE APARTMENTS
<TABLE>
<CAPTION>
YEAR $ AMOUNT PER UNIT
- ----------------- ----------- ----------
<S> <C> <C>
1987 ............. 316,330 $109
1988 ............. 351,518 121
1989 ............. 403,334 139
1990 ............. 473,484 163
1991 ............. 1,048,162 362
Five-year average 518,566 $179
<FN>
Source: Lerner Corporation, August, 1992.
</TABLE>
Capital improvement expenditures at the subject have averaged $179 per
unit over the past five years. According to a survey by Peter F. Korpacz and
Associates, national apartment investors typically allocate $150 per unit per
year for capital reserves. This allocation appears to be supportive of the
subject's historic capital improvement cost. Therefore, we have estimated
reserves for replacement of $150 per unit. Replacement reserves are projected
to escalate 4.0 percent annually throughout the projection period.
- 84 -
F.3 DIRECT CAPITALIZATION
The process of direct capitalization uses a market-derived rate which when
applied to "normalized" net operating income yields a value estimate. This
estimate then may be adjusted for deficient income, capital expenditures,
and/or other circumstances as may be appropriate. Use of this approach
requires (1) the choice of a capitalization rate and (2) the determination of
normalized operations, each of which involves a relatively large degree of
subjectivity.
The capitalization technique is especially useful during periods when
expectations of long-term inflation, interest rates, and market conditions
are fairly stable and when leases are at market rates. On the other hand,
this technique is especially difficult to apply with confidence when interest
rates and inflation are relatively high, or when estimated rents are
particularly volatile--as, for example, in the case of properties with
leaseholds and in markets subject to substantial rental concessions.
As reflected by the available sales listed in the "Direct Sales Comparison
Approach" section, recent purchases have been made at overall capitalization
rates ranging from 7.0 percent to nearly 11.8 percent. Selection of a
particular rate within this range depends upon changes in current market
conditions since the time of these sales, the relative risk associated with
the property, including its location and the strength of the local market,
and especially upon the motivations of the buyer and seller, and the size and
timing of future changes in net income.
In addition to the aforementioned sales evidence, consultation with
informed sellers, investors and knowledgeable real estate professionals, as
well as Arthur Andersen's knowledge of current investment expectations,
indicate a wide range of overall capitalization rates between 9.0 percent and
11.0 percent, with the majority indicating a range of 9.5 percent to 10.5
percent for quality, garden-style apartment type investments.
- 85 -
<PAGE>
The Peter F. Korpacz, second Quarter 1992, Investor Survey, indicated that
national apartment investors require capitalization rates ranging between 7.0
and 11.0 percent, with an average rate of 9.13 percent. The current rate
represents an increase of 36 basis points from the second quarter 1991. This
slight increase indicates that investors believe the risk of investment in
apartments has increased slightly over the last twelve months.
Based on the various sources sited in our analysis, and considering the
age, condition, and location of the subject property, an overall
capitalization of 9.5 PERCENT has been chosen as appropriate for valuing
the subject property. Applying this rate to the anticipated stabilized net
operating income for the subject property as previously discussed indicates
an estimate of market value by this technique of $100,000,000 (rounded) or
$34,500 PER UNIT. The calculation of this technique is presented in Table F-5
on the following page.
- 86 -
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Table F-5
DIRECT CAPITALIZATION
SPRING HILL LAKE APARTMENTS
AUGUST 5, 1992
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
GROSS INCOME ESTIMATE (ANNUALLY)
Gross Potential Rent $24,843,852
Laundry 318,890
Miscellaneous Apartment 434,850
Shopping Center Net Income 92,768
--------
Less: Vacancy & Collection Loss (9.0%) ($2,235,947)
------------
Effective Gross Income $23,454,413
EXPENSES
Marketing $362,375
Payroll/Administration 2,029,300
Management 938,177
Operations 4,102,085
Maintenance 4,058,600
Real Estate Taxes 1,756,794
Insurance 298,597
Replacement Reserve 434,850
---------
Total Expenses ($13,980,778)
NET OPERATING INCOME $9,473,635
Capitalization at 9.50% $99,722,477
Rounded: $100,000,000
Per Unit: $34,500
</TABLE>
- ------------------------------------
Source: Arthur Andersen, August 1992
- 87 -
<PAGE>
F.4 DISCOUNTED CASH FLOW (DCF)
The discounted cash flow (DCF) technique converts the estimated stream of
benefits, either before or after financing, as appropriate, into a present
value. Once the projection of net income or cash flow is accomplished, a
discount rate and capitalization rate at reversion must be chosen. The
selection of these rates is necessarily subjective, since investor criteria
for the acquisition of real property is subject to variation, and no
organized property exchange exists. Discount rates (or internal
rate-of-return requirements) typically vary by a number of factors: long-term
investor-return requirements on alternative investments; type and motivation
of investor; property type--e.g., hotel, apartments, etc.; and local market
area conditions.
DISCOUNT RATES: Inherent in the discount rate are factors for the return
on capital, and for the risk due to uncertainty of realizing estimated future
benefits. Essentially, the discount rate considers the quality and the
durability of the income stream which the property is capable of producing.
The subject property is a fairly typical apartment project and is located
in a moderately strong suburban location.
Recent transactions involving substantial investment class commercial
properties by institutional investors have created a multi-tiered investment
market. These larger investors are typically attracted to the high quality
investment properties (Class A type properties) having extended economic
lives, with strong potential income streams. Several national organizations
periodically survey a cross-section of real estate investors, including
insurance companies, banks, pension funds, off-shore investors, and
syndicators. In addition, Arthur Andersen periodically conducts a survey
among clients and other investors. Based upon these surveys, after discarding
aberrations, the central tendency for the discount rates for this type and
class of real estate investment ranges between 11.5 and 13.5 percent, as
summarized in the following table.
- 88 -
<PAGE>
INVESTOR EXPECTATIONS
APARTMENT PROPERTIES
<TABLE>
<CAPTION>
INTERNAL RATE OF
INVESTOR RETURN
- --------------------------------- ----------------
<S> <C>
CRI, Inc. ........................ 12-13%
Prudential ....................... 11.5
National Pension Fund Advisor ... 11-13.5
Central Eastern Seaboard Investor 12.0
Major Market Real Estate Advisor 11.25-11.75
<FN>
Source: Arthur Andersen Survey.
</TABLE>
Many investors, sellers, and lenders have adopted a "wait and see"
attitude in reference to transactions in the Washington Metropolitan area,
and there is therefore a dearth of active investment demonstrating reliable
rates of return. Sellers are reluctant to dispose of properties at such high
yields (low prices). In addition, buyers face difficulty obtaining debt
financing.
In addition to these investors, Peter J. Korpacz surveyed national
apartment investors in the 2nd quarter of 1992. The Korpacz survey indicated
that investors in apartments are currently seeking internal rates of return
between 10.0 and 16.0 percent, dependent on the location and quality of the
project. The average IRR indicated was 12.06 percent, which represents an
increase of 49 basis points from the 2nd quarter 1991 average IRR of 11.57%.
Yield rates in various money markets, which provide alternate investment
opportunities, have also been considered in selecting an appropriate yield
rate for the subject. Alternative investment opportunities include Corporate
Aaa Bonds, Corporate Baa Bonds, Municipal Bonds, and equivalent time-horizon
treasury securities. The treasury securities cannot be compared directly to
investments in real estate because these securities
- 89 -
are highly liquid and have virtually no associated risk. They can be considered
to set the absolute lower limit for before tax investment yields. Corporate
bonds, however, tend to provide a basis for risk ratings, although they have
high liquidity relative to real estate.
The most applicable indicators are Corporate Aaa and Corporate Baa Bonds.
In rating the subject against these investment opportunities, a higher rate
would be warranted to reflect the non-liquid nature of real estate
investments and the greater risk involved with the management and other
factors involved with real estate. Utilizing average bond rates and a 300 to
400 basis point premium a yield estimate of between 12.0 percent and 13.0
percent is calculated.
After giving consideration to the surveys as well as to the type of
property being appraised, its competitiveness in its market place, and
general market conditions, a discount rate of 12.5 PERCENT is judged to be
appropriate.
LENGTH OF PROJECTION PERIOD AND TREATMENT OF "EXIT" YEAR
Projections for each year of anticipated revenues and expenses are
presented in the foregoing Section E.2. Cash flow projections are typically
presented for a 10-year period, plus the capitalized or "exit" value included
at the end of the 10th year based on the following year's net operating
income expectation. The "exit" value represents the value of future cash
flows beyond the 10th year. This format has been followed in the case of the
subject.
The "exit" capitalization rate at reversion is used to convert the
projected stream of income beyond the last year of the projection period into
a value at the end of the projection period. Typically, although not always,
the "Exit" capitalization rate is higher than the capitalization rate
previously used in direct capitalization, reflecting the progressive
reduction of the improvement's economic life and the relative risk in
projecting the future cash flow and value beyond the end of the projection
period. Generally, a terminal capitalization rate of 0.5 percent to 1.0
percent above the current capitalization rate is
- 90 -
appropriate. Adding 1.0 percent to the capitalization rate chosen for this
property in the preceding capitalization method, indicates that the terminal
rate to be applied to the subject is 10.5 percent.
COST OF SALE
A 2.0 percent factor has been deducted from the reversion to cover the
seller's anticipated cost of legal, accounting, transfer taxes, recording and
potential sales commissions at reversion.
CONCLUSIONS BY DISCOUNTED CASH FLOW
Application of the discounted cash flow technique to the appraised
property as presented on the following page yields a value estimate as of
August 1, 1992, for the subject, as is, of $95,000,000 (rounded), or $32,800
PER UNIT. Table F-6 on the following page presents a summary of the
discounted cash flow analysis.
- 91 -
<PAGE>
TABLE F-6
CASH FLOW PROJECTIONS: VALUE AT AUGUST 5, 1992
SPRING HILL LAKE APARTMENTS
1992--2003
(IN THOUSANDS OF CURRENT DOLLARS)
<TABLE>
<CAPTION>
AUG-JUL
1992-93 1993-94 1994-95 1995-96 1996-97
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES
APARTMENT RENTAL REVENUE 24,843.9 25,136.9 25,893.5 26,929.2 28,006.4
LAUNDRY 318.9 331.6 344.9 358.7 373.1
MISCELLANEOUS APARTMENT 434.9 452.2 470.3 489.1 508.7
SHOPPING CENTER NET INCOME 92.8 96.5 100.3 104.4 108.5
--------- --------- --------- --------- ---------
TOTAL GROSS REVENUE 25,690.4 26,017.2 26,809.0 27,881.4 28,996.7
LESS: VACANCY/COLLECT. LOSS (2,235.9) (2,262.3) (2,330.4) (2,423.6) (2,520.6)
--------- --------- --------- --------- ---------
EFFECTIVE GROSS INCOME 23,454.4 23,754.9 24,478.6 25,457.8 26,476.1
EXPENSES
MARKETING 362.4 376.9 391.9 407.6 423.9
PAYROLL/ADMINISTRATION 2,029.3 2,110.5 2,194.9 2,282.7 2,374.0
MANAGEMENT 938.2 950.2 979.1 1,018.3 1,059.0
OPERATIONS 4,102.1 4,266.2 4,436.8 4,614.3 4,798.9
MAINTENANCE 4,058.6 4,220.9 4,389.8 4,565.4 4,748.0
REAL ESTATE TAXES 1,756.8 1,827.1 1,900.1 1,976.2 2,055.2
INSURANCE 298.6 310.5 323.0 335.9 349.3
--------- --------- --------- --------- ---------
TOTAL EXPENSES 13,545.9 14,062.3 14,615.7 15,200.3 15,808.3
PERCENT OF E.G.I. 57.8% 59.2% 59.7% 59.7% 59.7%
PER S.F. (IN $'S) $ 4,672.62 $ 4,850.73 $ 5,041.63 $ 5,243.30 $ 5,453.03
NET OPERATING INCOME 9,908.5 9,692.7 9,862.9 10,257.5 10,667.8
CAPITAL EXPENDITURES
CAPITAL RESERVES 434.9 452.2 470.3 489.1 508.7
--------- --------- --------- --------- ---------
TOTAL CAPITAL EXPENSES 434.9 452.2 470.3 489.1 508.7
NET CASH FLOW
EXIT VALUE -- -- -- -- --
COST OF SALE -- -- -- -- --
TOTAL CASH FLOW 9,473.6 9,240.4 9,392.6 9,768.3 10,159.0
ANNUAL YIELD 9.8% 9.5% 9.7% 10.1% 10.5%
VALUE AT AUGUST 5, 1992
DISCOUNT RATE 12.5% 12.5% 12.5% 12.5% 12.5%
DISCOUNT FACTOR 0.8889 0.7901 0.7023 0.6243 0.5549
PRESENT VA E 8,421.0 7,301.1 6,596.7 6,098.3 5,637.5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXIT YEAR
1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03
- --------- --------- --------- --------- --------- ---------
<C> <C> <C> <C> <C> <C> <C>
29,126.6 30,291.7 31,503.4 32,763.5 34,074.0 35,437.0
388.0 403.5 419.6 436.4 453.9 472.0
529.1 550.2 572.2 595.1 618.9 643.7
112.9 117.4 122.1 127.0 132.0 137.3
- --------- --------- --------- --------- --------- ---------
30,156.5 31,362.8 32,617.3 33,922.0 35,278.9 36,690.0
(2,621.4) (2,726.3) (2,835.3) (2,948.7) (3,066.7) (3,189.3)
- --------- --------- --------- --------- --------- ---------
27,535.1 28,636.5 29,782.0 30,973.3 32,212.2 33,500.7
440.9 458.5 476.9 495.9 515.8 536.4
2,469.0 2,567.7 2,670.4 2,777.2 2,888.3 3,003.9
1,101.4 1,145.5 1,191.3 1,238.9 1,288.5 1,340.0
4,990.8 5,190.4 5,398.1 5,614.0 5,838.5 6,072.1
4,937.9 5,135.4 5,340.8 5,554.5 5,776.7 6,007.7
2,137.4 2,222.9 2,311.8 2,404.3 2,500.5 2,600.5
363.3 377.8 392.9 408.7 425.0 442.0
- --------- --------- --------- --------- --------- ---------
16,440.7 17,098.3 17,782.2 18,493.5 19,233.3 20,002.6
59.7% 59.7% 59.7% 59.7% 59.7% 59.7% 59.7 %
$ 5,671.15 $ 5,898.00 $ 6,133.92 $ 6,379.27 $ 6,634.44 $ 6,899.82
11,094.5 11,538.3 11,999.8 12,479.8 12,979.0 13,498.1
529.1 550.2 572.2 595.1 618.9 --
- --------- --------- --------- --------- --------- ---------
529.1 550.2 572.2 595.1 618.9 0.0
-- -- -- -- -- 128,553.5
-- -- -- -- -- (2,571.1)
10,565.4 10,988.0 11,427.5 11,884.7 12,360.0 125,982.5
10.9% 11.3% 11.8% 12.3% 12.7% --
12.5% 12.5% 12.5% 12.5% 12.5% 12.5%
0.4933 0.4385 0.3897 0.3464 0.3079 0.3079
5,211.6 4,817.8 4,453.8 4,117.3 3,806.2 38,795.8 95,257.3
ROUNDED: $95,000
PER UNIT: $32,800
</TABLE>
Source: Arthur Andersen, August 1992
- 92 -
<PAGE>
F.5 CONCLUSION BY INCOME APPROACH
Estimates of value by means of the income approach have been derived by
two methods--direct capitalization and discounted cash flow analysis. The
value indications are $96,000,000 and $100,000,000.
We have placed more emphasis on the discounted cash flow analysis mainly,
because of the variability of the subject's income stream. Based upon the
application of these valuation methods, with primary emphasis on the
discounted cash flow method, the indicated value by the income approach is
$97,000,000.
- 93 -
<PAGE>
G. RECONCILIATION OF VALUE ESTIMATES
In summary, the indicated market value of the fee simple estate in subject
property by the sales comparison and income approaches is as follows:
<TABLE>
<CAPTION>
TOTAL PER UNIT
------------- ----------
<S> <C> <C>
Cost Approach ............ $99,000,000 $34,100
Sales Comparison Approach $96,000,000 $33,100
Income Approaches ........ $97,000,000 $33,500
</TABLE>
The cost approach is most useful when valuing new or nearly new properties
or when appraising special purpose properties. Special purpose properties
would include buildings purchased by users which may meet their specific
needs. This approach has merit when considering that the most likely
purchaser of the subject property would be a user. The reliability of this
appoach is diminished when significant amounts of accrued depreciation are
present. In this case, the property was constructed over 20 years ago and
suffers from large amounts of physical deterioration. Due to these factors
the cost approach was not given much weight in our analysis.
The direct sales comparison approach is frequently a good indicator of
value, especially when a sufficient number of relevant transactions with
reliable information on each is available. In this case, a number of recent
transactions of similarly located apartment projects was available. The size
of the projects which transferred were predominantly smaller than the large
size of the subject. The sales were adjusted for differences in location,
condition, and income generation. The adjusted sales values were utilized to
estimate value for the subject. Due to the quality and number of sales,
direct sales comparison was given considerable weight in our value
conclusion.
- 94 -
<PAGE>
The income approach is most applicable in the analysis of investment
properties, as it incorporates the economic motivations of buyers and sellers
in the analysis of the property. The reliability of this approach is enhanced
when adequate data are available to assure proper development of the income,
expense, and capitalization rate analyses. In this case, sufficient data
regarding revenues, expenses, and investor expectations was available to
insure the proper application of the approach. In this instance, there was
adequate data available and the income approach was considered to be very
reliable.
The three approaches to value indicate a range in the estimated value of
the leased fee interest in the subject property between $96,000,000 and
$99,000,000. Consideration of these approaches, with the income approach
having the greatest weight, yields a final estimated market value of the fee
simple estate in the subject property on the effective date of the appraisal,
August 5, 1992, of:
--NINETY SEVEN MILLION DOLLARS--
($97,000,000)
- 95 -
<PAGE>
RENTAL COMPARABLES
SELECTED RENTAL COMPARABLES
PRINCE GEORGE'S COUNTY, MD
Map
Key
- ----------
1 Location: Olde Mill Landing
11800 Beltsville Drive
Beltsville, Maryland
Year Completed: 1971
Owner: Winthrop Financial
Number of Units 593
(Garden Only):
Unit Mix:
<TABLE>
<CAPTION>
Unit Face Effective Effective
Mix Type Rent Rent SF (est.) Rent/SF
- ----- ----------------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
36 Eff. $590 $530 469 $1.13
250 1BR 675 615 755 0.81
297 2BA/1.5BA 750 750 950 0.79
(Sec I & II 815
2BR/2BA 815 1,090 0.75
(Sec III)
10 3BR $945 945 1,280 0.74
</TABLE>
Leasing Status: 96% (8/92)
Amenities: Swimming pool, play ground,
clubhouse, washer/dryers
Utilities: Rent includes gas for cooking,
heating and hot water, tenant pays
electric.
Concessions: $60/mo. (none on 3BR or 2BR/2BA)
Deposit: $50
Description: A four-story garden style apartment
project with one mid-rise building.
Some creative use of canopies and
balcony treatments to break up an
otherwise stark exterior.
A-1
<PAGE>
SELECTED RENTAL COMPARABLES
PRINCE GEORGE'S COUNTY, MD
Map
Key
- ---------
2 Location: Barclay Square
3598 Powder Mill Road
Beltsville, Maryland
Year Completed: 1969
Owner: JBG Companies
Number of Units
(Garden Only): 180
Unit Mix:
<TABLE>
<CAPTION>
Unit Face Effective Effective
Mix Type Rent Rent SF (est.) Rent/SF
- ------- ---------------- ------- --------- -------- --------
<S><C>
35 1BR $ 692 $ 682 686 $0.99
36 1BR/Den 700 700 872 0.80
38 2BR/2BA 811 749 871 0.86
45 2BR/Den 844 799 977 0.82
20 3BR/2BA 952 952 1,087 0.88
4 3BR/2BA/Den 996 996 1,197 0.82
2 4BR/Den $1,060 $1,060 1,307 $0.81
</TABLE>
Leasing Status: 97% (8/92)
Amenities: Pool and bath house, laundry
facilities on first floor
Utilities: All paid by landlord
Concessions: 2BR $749/$799
Deposit: $300-$500
Description: A 17 building 3 story garden
apartment project constructed of
brick and pitched roofs. Project
extremely well maintained.
A-2
<PAGE>
SELECTED RENTAL COMPARABLES
PRINCE GEORGE'S COUNTY, MD
Map
Key
- ----------
2 Comments: Renovation process underway. 90/180 completed
involves complete renovation of kitchen and
baths. Add $40 to $75/mo. for renovated
apartments. Setback from road makes visibility
poor.
A-3
<PAGE>
SELECTED RENTAL COMPARABLES
PRINCE GEORGE'S COUNTY, MD
Map
Key
- ---------
3 Location: Seven Springs Village
9400 Cherry Hill Road
College Park, Maryland
Year Completed: 1970
Owner: Realty Investment - Stuart Bainum,
Principal
Number of Units
(Garden Only): 281 (high-rise), 432 (mid-rise), 249
(garden)
Unit Mix:
<TABLE>
<CAPTION>
Unit Face Effective Effective
Mix Type Rent Rent SF (est.) Rent/SF
- ------- ----------------- ------- -------- -------- ---------
<S><C>
75 1BR $ 714 $ 714 676 $1.06
131 2BR/1BA 824 824 853 0.97
28 2BR/1BA/Den 944 944 894 1.06
15 3BR/1-1/4 BA2 $1,014 $1,104 1,022 $0.99
</TABLE>
Leasing Status: 96% (8/92)
Amenities: Six tennis courts, pool and wading
pool, clubhouse, laundry
facilities on first floor
Utilities: All utilities paid by Landlord
Concessions: None at moment
Deposit: $250
- ---------------------------
2/ Includes sink and toilet "to avoid confusion" according to manager. Only
rent renovated units achieves a $40 differential over unrenovated units on
overall project basis.
A-4
<PAGE>
SELECTED RENTAL COMPARABLES
PRINCE GEORGE'S COUNTY, MD
Map
Key
- ----------
3 Description: The project is a mix of high rise and garden
apartment buildings located around a lake and
clubhouse facility. Two mid-rise (8
story), one high rise (11 stories) and 36 three
story garden style buildings. All buildings
have flat roofs, card key access after
hours. Apartments have undergone renovation
over last 5 years. Most units now complete with
new kitchen (appliances, cabinets, counter tops
and floor covering).
A-5
<PAGE>
SELECTED RENTAL COMPARABLES
PRINCE GEORGE'S COUNTY, MD
Map
Key
- --------
4 Location: Lakeside North Apartments
430 Ridge Road
Greenbelt, MD
Year Completed: 1962
Owner: David Hillman T/A Southern Management
Number of Units
(Garden Only): 276
Unit Mix:
<TABLE>
<CAPTION>
Unit Face Effective Effective
Mix Type Rent Rent SF (est.) Rent/SF
- ----- ----------------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
72 1BR $620 $620 720 $0.86
139 2BR/1BA 700 700 864 0.81
65 3BR/1.5BA $840 $840 1,050 $0.80
</TABLE>
Leasing Status: 100% (8/4/92)
Amenities: Project on University of Maryland
shuttle route; no estimate of
the number of students tenants.
Pool, playground and laundry
facilities.
Utilities: Tenant pays electric.
Concessions: None
Deposit: No deposit
Description: 2, 3 and 4 story brick apartment
buildings with flat roofs
"modern" arch. style (i.e. narrow
windows) grey or green trim
in an attempt to break up the
expanse.
Comments: Close to Greenbelt Drive but
awkwardly located.
A-6
<PAGE>
SELECTED RENTAL COMPARABLES
PRINCE GEORGE'S COUNTY, MD
Map
Key
- ---------
5 Location: University Square
157 West Way
Greenbelt, Maryland
Year Completed: 1968
Owner: Lerner
Number of Units
(Garden Only): 386
Unit Mix:
<TABLE>
<CAPTION>
Unit Face Effective Effective
Mix Type Rent Rent SF (est.) Rent/SF
- ----- ----------------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
1 Eff. $ 691 $591 - -
155 1BR 763 663 700 $0.95
39 1BR/Den 786 686 750 0.92
13 1BR/Study 775 675 725 0.93
8 1BR/Recrm 758 658 - -
12 2BR/1BA 847 747 860 0.82
69 2BR/1BA/Den 898 798 1,006 0.79
23 2BR/1BA/Study 888 788 981 0.80
2 2BR/1BA/Recrm 877 777 - -
24 3BR/2BA/Study 1,035 935 1,100 0.85
30 3BR/2BA 1,052 952 1,218 0.78
10 3BR/2BA/Den $1,069 $969 1,243 $0.78
</TABLE>
Leasing Status: 97% (8/92)
Amenities: Swimming pool, tennis court,
basketball court, laundry rooms in
each building.
Utilities: Tenant pays electric.
Concessions: No visibility from Greenbelt Road;
concessions $100/off each
unit type.
A-7
<PAGE>
SELECTED RENTAL COMPARABLES
PRINCE GEORGE'S COUNTY, MD
Map
Key
- ----------
5 Deposit: $99
Description: A three-story garden style apartment
project scattered along several
streets. All buildings have pitched
roofs. Started renovations 4 years
ago and began replace all
appliances. Now replace only on an
as needed basis.
A-8
<PAGE>
SELECTED RENTAL COMPARABLES
PRINCE GEORGE'S COUNTY, MD
Map
Key
- -----------
6 Location: Glen Oaks
7509 Mandan Road
Greenbelt, Maryland
Year Completed: 1977-1979
Owner: Acco
Number of Units
(Garden Only): 463
Unit Mix:
<TABLE>
<CAPTION>
Unit Face Effective Effective
- ----- Type Rent Rent SF (est.) Rent/SF
No. ----------------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
67 1BR $660 $605 930 $0.65
67 1BR/Den 720 660 1,050 0.63
163 2BR/2BA 755 692 1,200 0.58
61 2BR/2BA/Den 850 779 1,312 0.59
105 3BR/2BA $875 $802 1,430 $0.56
</TABLE>
Leasing Status: 95% (8/92)
Amenities: Washer/dryer in each unit; utilities
included; pool is shared with
condo across street
Utilities: All utilities paid by landlord
Concessions: 1st month free
Deposit: $300
Description: A 32-building apartment project
built originally as a condominium
which explains extremely large
units. Long narrow site
perpendicular to Greenbelt Road but
visibility okay. All units have
family room, pullman kitchens. Two
bedroom units (or larger) have two
bathrooms.
A-9
<PAGE>
SELECTED RENTAL COMPARABLES
PRINCE GEORGE'S COUNTY, MD
Map
Key
- ----------
7 Location: Brittany Place
8501 Greenbelt Road
Greenbelt, Maryland
Year Completed: 1964
Owner: Braybrook Village L.P.
Number of Units
(Garden Only): 591
Unit Mix:
<TABLE>
<CAPTION>
Unit Face Effective Effective
- ----- Type Rent Rent SF (est.) Rent/SF
No. ----------------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
155 1BR $675 $595 776 $0.72
33 1BR/Den 690 640 920 0.70
313 2BR 705 705 955 0.74
43 2BR/Den 795 795 1,090 0.73
47 3BR/1.5BA 840 840 1,024 0.83
3BR/2BA $845 $845 1,024 $0.83
</TABLE>
Leasing Status: 90% (8/92)
Amenities: Washer/dryers in units, swimming
pool, tennis courts, basketball
court, remodeled kitchens (see
above).
Utilities: Tenant pays electric
Concessions: $50/mo. off base rent 1BR and
1BR/Den
Deposit: $300 (waived on 1BR and 1BR/Den)
Description: 3 or 4 story all masonry buildings
with enclosed entryways.
Buildings have flat roofs. Building
recently remodeled with new
kitchens (incl. almond appliances,
new oak cabinets, countertops
and floor covering. Kitchen wall
removed to provide pass through/bar.
A-10
<PAGE>
SELECTED RENTAL COMPARABLES
PRINCE GEORGE'S COUNTY, MD
Map
Key
- ----------
8 Location: Woodland Landing
10001 Greenbelt Road
Lanham, Maryland 20706
Year Completed: 1969
Owner: Krupp Management
Number of Units
(Garden Only): 443
Unit Mix:
<TABLE>
<CAPTION>
Unit Face Effective Effective
- ----- Type Rent Rent SF (est.) Rent/SF
No. ----------------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
80 1BR/1BA $700 $710 809 $0.88
18 1BR/1BA/Den 760 760 945 0.80
168 2BR/1BA 810 810 986 0.82
75 2BR/1BA/Den 840 840 1,118 0.75
102 3BR/2BA $935 $935 1,146 0.82
</TABLE>
Leasing Status: N/A (contact reported good occupancy
but would not give out percentage)
Amenities: Washer/dryer in units (under counter
in kitchen) Pool, club house,
fitness center 2 tennis courts
Utilities: All utilities paid by landlord.
Concessions: None
Deposit: $99 (special)
Description: A 32 building four story garden
apartment complex with flat
roofs built around a man made lake.
Project completely renovated in 1985
before purchased by present owner.
A-11
<PAGE>
SELECTED RENTAL COMPARABLES
PRINCE GEORGE'S COUNTY, MD
Map
Key
- ---------
9 Location: Countryside
9971 Goodluck Road
Seabrook, Maryland 20706
Year Completed: 1967
Owner: Winthrop Financials
Number of Units
(Garden Only): 486
Unit Mix:
<TABLE>
<CAPTION>
Unit Face Effective Effective
- ----- Type Rent Rent SF (est.) Rent/SF
No. ----------------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
69 1BR $755 $705 777 $0.91
45 1BR/Den 785 735 891 0.82
201 2BR/2BA 840 790 953 0.83
57 2BR/2BA/Den 875 825 1,127 0.73
93 3BR/2BA 915 915 1,177 0.78
21 3BR/2BA/Den 950 950 1,291 $0.74
</TABLE>
Leasing Status: 89% (8/92)
Amenities: Swimming Pool
Playground
Utilities paid by landlord
Washer/dryers in units (stacked in
kitchen)
Utilities: All utilities paid by landlord.
Concessions: $50 off/except 3BR
Deposit: $0
Description: A garden style apartment project of
3 story buildings renovation
in 1983-1985. All two bedroom and
three bedroom units have 2 baths.
A-12
<PAGE>
LAND COMPARABLES
<PAGE>
SELECTED LAND SALE
PRINCE GEORGE'S COUNTY, MD
Map
Key
- ---------------
1 Location: Largo Town Center Subdivision at Terminus of
Largo Center Drive
Largo, Maryland
Identification: Map 67-F3-003C
Grantor: Colton & Laskin Development Company, Inc.
Grantee: JMG Development Corp.
Date of Sale: Reported to settle during second quarter 1992
Sale Price: $2,980,800
Financing: All cash
Recording Data: N/A
Land Area: 11.62 acres
Zoning/FAR: M-A-C
Price Per Unit: $13,800 (216 units)
Proposed Building: A specific design plan (SDP) for the site has
been approved for 216 condominium units,
according to the contracting buyer, John
Greco. He claims that the condominiums are
expected to sell in the $100,000 range. Gary
Hugle, in the Urban Design Division of Prince
George's County, reports that Mr. Greco has
recently obtained a grading permit.
Therefore, the site is ready for a building
permit.
Utilities: Sewer and water available at street.
A-13
<PAGE>
Comments: This parcel is designated as G-1 in the
conceptual development plan for Largo Town
Center subdivision. The plat was recorded on
4/22/91, as number 158-15. This tract is the
most recently subdivided parcel within the
Largo Town Center development. The
preliminary plan for the entire 174-acre
development was approved in 1988.
A-14
<PAGE>
SELECTED LAND SALE
HOWARD COUNTY, MD
Map
Key
- ------
2 Location: Rowanberry Drive
Howard County
Elkridge, Maryland
Identification: Tax Map 38, Parcel 526D and F
Grantor: NCN Properties, Inc.
Grantee: Orchard Club L.P.
Date of Sale: March 1991
Sale Price: $1,950,000
Financing: $13,300,000 mortgage at market
Recording Data: N/A
Land Area: 14.26 acres, 14 units/acre (196 units)
Zoning/FAR: R-A-15
Price Per Unit: $9,949
Proposed Building: The site has subsequently been improved with
196 garden apartment units.
Utilities: All available
Topography: Generally level
Comments: Elkridge is an older, moderate income
community in eastern Howard County. The area
has experienced increased development due to
the large tracts of land available.
A-15
<PAGE>
SELECTED LAND SALE
HOWARD COUNTY, MD
Map
Key
- ------
3 Location: Columbia Commons
NW side of Murray Hill Road
Columbia, Howard County
Identification: Parcel D, Section 3, Area 2,
Village of Kings Contrivance
Grantor: Howard Research and Development Land Co.
Grantee: Huntington II L.P.
Date of Sale: September 1990
Sale Price: $2,228,000
Financing: $728,400 Sovran Bank
Recording Data: 2236/101
Land Area: 13.33 acres
Zoning/FAR: NT (New Town), 15 units per acre
Price Per Unit: $11,140
Proposed Building: 200-unit apartment complex
Utilities: All available
Topography: Slightly rolling
Comments: A 200-unit apartment complex known as Columbia
Commons is now complete. The complex contains
one-, two- and three-bedroom units. The
complex features a pool and clubhouse with
gym.
A-16
<PAGE>
SELECTED LAND SALE
PRINCE GEORGE'S COUNTY, MD
Map
Key
- --------
4 Location: John Rogers Boulevard
The Village of Marlboro
Upper Marlboro, MD
Identification: Tax Map 92-D4-84
Grantor: Coscan of Maryland
Grantee: Bozzuto and Associates
Date of Sale: January 1990
Sale Price: $1,920,000
Financing: All cash
Recording Data: 7551/256
Land Area: 8.27 acres
Zoning/FAR: R-U
Price Per Unit: $12,632
Existing Building: Since the sale date the property was improved
with a 152 unit garden apartment complex.
Utilities: All available
Topography: Rolling terrain
Comments: This property is located in The Village of
Marlboro, a planned residential community
northwest of Upper Marlboro.
A-17
<PAGE>
SELECTED LAND SALE
HOWARD COUNTY, MD
Map
Key
- ------
5 Location: 8600 Cobblefield Drive
Howard County
Columbia, Maryland
Identification: Tax Map 37-7-657, Section 3, Area 2, Parcel A
Grantor: Howard Research Development Land Co.
Grantee: Ashton Meadow Associates
Date of Sale: March 1989
Sale Price: $2,200,000
Financing: $2,200,000 mortgage at market
Recording Data: 1966/258
Land Area: 10.8 acres, 216 units
Zoning/FAR: NT (New Town)
Price Per Unit: $10,185
Proposed Building: This property was subsequently improved with a
216-unit garden apartment complex called
Ashton Meadows.
Utilities: All available
Topography: Rolling terrain
Comments: This property is located off Route 108 in
Howard County. The site is within the Village
of Long Reach.
A-18
SELECTED APARTMENT SALES
PRINCE GEORGE'S COUNTY, MD
Map
Key
- -------
1 Location: Deerfield Run Apartments
13300 Deerfield Road
Laurel, MD
Deed Reference: 8153/837
Grantor: Leon Reiskin
Grantee: Deerfield Run LP (Jack Kay)
Date of Sale: December 20, 1991
Sale Price: $8,300,000
Financing: Cash equivalent transaction
Year Built: 1966
Number of Units: 256
Price per Unit: $32,422
EGI per Unit: $7,061
Capitalization Rate: N/A
EGIM: 4.44x (10% Vacancy)
5.32x (25% Vacancy)
Building Description: The garden apartment complex which had been
under contract for nearly one year was
reportedly mismanaged by the grantor who had
owned the property for 25 years. Projected NOI
for 1991 was estimated at $750,000 to $775,000
by the seller. Using $775,000 gives a 9.3%
capitalization rate. At the time of sale, the
complex was reportedly 25% vacant.
A-19
SELECTED APARTMENT SALES
PRINCE GEORGE'S COUNTY, MD
Map
Key
- -------
2 Continued
Building Description: The potential gross income was estimated using
current rents. Since the date of sale,
occupancy has increased dramatically.
Currently, vacancy is less than 1.0 percent
despite no major renovation. Rents are as
follows: (114)1BR $565-595; (85)2BR $650-690;
(57)3BR $795-845. The unit sizes are as
follows: 1BR-799 SF; 2BR-830 SF; 3BR-1012 SF.
Effective gross income was estimated as follows.
10% Vacancy 25% Vacancy
----------- -----------
Potential Gross Rent $2,037,720 $2,037,720
Other Income (2% PGR) 40,754 40,754
---------- ----------
Potential Gross Income $2,078,474 $2,078,474
Less Vacancy 207,847 $519,619
---------- ----------
Effective Gross Income $1,870,627 $1,558,855
Verification: Verified by third party sources and public
records.
A-20
SELECTED APARTMENT SALES
PRINCE GEORGE'S COUNTY, MD
Map
Key
- -------
2 Location: Montgomery Gardens
7501 Blair Road
Silver Spring, MD
Deed Reference: 9857/10
Grantor: Blair Gardens Associates
Grantee: Montgomery Gardens Limited Partnership
Date of Sale: July 24, 1991
Sale Price: $1,975,000
Financing: Cash equivalent transaction
Year Built: 1966
Number of Units: 80 (40 1/BR - 40 2/BR)
Price per Unit: $24,688
NOI Per Unit: $2,924
Capitalization Rate: 11.84%
EGIM: 3.73x (10% Vacancy)
4.76x (30% Vacancy)
Building Description: The purchase price was recorded as $2,025,000
but reportedly a $50,000 credit was taken
at settlement, making the true purchase
price $1,975,000. This garden apartment
complex is near the Maryland - Washington, DC
line. At the time of sale approximately 30%
of the apartments were vacant, condemned for
upkeep violations.
A-21
SELECTED APARTMENT SALES
PRINCE GEORGE'S COUNTY, MD
Map
Key
- -------
2 Continued
Building Description: The units are small, averaging less than 700
square feet. Although the property WAS sold
by order of a bankruptcy court, it was offered
on the open market by a real estate agent and
the buyer considered it to have been a fair
market transaction. At the time of the sale
the asking rents were $500 for a one bedroom
unit and $600 for a two bedroom unit. The
buyer increased asking rents by $50 per month
after the purchase and intended to renovate
unit interiors at roughly $6,000 per unit.
The renovated units are priced $45 more per
month than the unrenovated units. The rent
includes all utilities except electricity.
Heating is by gas. In addition, the buyer
planned to spend approximately $200,000 to
repair deferred maintenance.
Although detailed income, expense, and
capitalization rates were unavailable, we have
estimated them as follows.
10% Vacancy 30% Vacancy
----------- -----------
Potential Gross Inc: $576,000 $576,000
Other Income: $ 11,520 11,520
Vacancy (10% PGI): (57,600) (172,800)
----------------- -------- ---------
Effective Gross Inc: $529,920 414,720
Expenses ($3,700/DU): $296,000 296,000
--------------------- -------- ---------
Net Operating Inc: $233,920 $118,720
Overall Rate: 11.84% 6.01%
EGIM: 3.73x 4.76x
Verification: Verified third party and public records.
A-22
SELECTED APARTMENT SALES
PRINCE GEORGE'S COUNTY, MD
Map
Key
- -------
3 Location: Spring Ridge
374 North Summit Ave.
Gaithersburg, MD
Deed Reference: 9367/259
Grantor: Lakeforest Associates
Grantee: Spring Ridge I Limited Partnership
Date of Sale: June 1990
Sale Price: $8,570,000
Financing: Cash equivalent transaction
Year Built: 1970
Number of Units: 204 (84 1/BR, 96 2/BR, 24 3/BR)
Price per Unit: $42,010
NOI per Unit: $3,797
Capitalization Rate: 9.04%
EGIM: 5.6x
Building Description: This brick garden apartment complex was purchased
by a partnership affiliated with Dreyfuss
Brothers. Vacancy was 10% at time of the sale.
Rents were approximately $560 for 1 BR, $660
for 2BR, and $760 for 3 BR.
A-23
SELECTED APARTMENT SALES
PRINCE GEORGE'S COUNTY, MD
Map
Key
- -------
3 Continued
Building Description Electricity is paid by the tenants. After
purchase the rents were raised by $50 per unit
per month to coincide with installation of new
kitchen appliances and carpeting. Expenses were
estimated at $3,700 per unit. Net operating
income for the year prior to the sale was
$700,000, translating into a capitalization
rate of 8.2%.
Gross Rental Inc: $1,666,080
Other Inc. (2.0%): $ 33,322
----------
Potential Gross Income: $1,699,402
Less Vacancy: (169,940)
----------
Effective Gross Inc: $1,529,462
Expenses ($3700/DU): $ 754,800
----------
Net Operating Income: $ 774,662
Overall Rate: 9.04%
EGIM: 5.6x
Verification: Verified to third party by a representative of
the grantee.
A-24
SELECTED APARTMENT SALES
PRINCE GEORGE'S COUNTY, MD
Map
Key
- -------
4 Location: West Deer Park Apartments
72 West Deer Park Road
Gaithersburg, MD
Deed Reference: None; Partnership transfer
Grantor: Community Realty
Grantee: Scott Ross Development Company
Date of Sale: April 1990
Sale Price: $9,900,000
Financing: Cash equivalent transaction
Year Built: 1973
Number of Units: 198 (32 1/BR, 112 2/BR, 54 3/BR)
Price per Unit: $50,000
NOI per Unit: N/A
Capitalization Rate: 10.0%
EGIM: N/A
Building Description: The buyer refused to confirm the exact price but
indicated that the rumored price of $50,000 per
unit was approximately correct. At the time of
sale, the property was in good condition and
vacancy was less than 5%. Minor renovations were
planned costing $1,500 to $1,700 per unit for
new carpeting, counter tops, and appliances.
A-25
SELECTED APARTMENT SALES
PRINCE GEORGE'S COUNTY, MD
Map
Key
- -------
4 Continued
Building Description: According to the buyer, Scott Ross, the
capitalization rate was approximately 10.0%.
Rent includes all utilities. Income and expense
information were not provided.
Verification: Buyer and third party sources.
A-26
COMPARABLE APARTMENT SALES
WASHINGTON, D.C. METROPOLITAN AREA
Map
Key
- -------
5 Location: Mount Vernon Square Apartments
7429 Vernon Square Drive
Unincorporated Fairfax County, Virginia
Deed Reference: N/A
Grantor: Wills and Van Metre Inc. and Belleau Wood,
Inc.
Grantee: Shelter Development Corporation
Date of Sale: April 1990
Year Built: 1964-1978
Sale Price: $83,220,000
Financing: All cash sale
Number of Units: 1,387
Price per Unit: $60,000
NOI per Unit: $4,176
Overall Rate: 7.0%
Gross Income Multiplier:7.97
Building Description: This comparable consists of three- and four-
story brick apartment buildings. This
comparable represents a contract which never
closed as one of the equity investors backed out
of the deal. Unit amenities include
dishwashers, balconies, and garbage disposals.
Project amenities include a swimming pool,
tennis courts and exercise room.
A-27
COMPARABLE APARTMENT SALES
WASHINGTON, D.C. METROPOLITAN AREA
Map
Key
- -------
5 Verification: Representative of grantor.
A-28
COMPARABLE APARTMENT SALES
WASHINGTON, D.C. METROPOLITAN AREA
Map
Key
- -------
6 Location: Fairfield Crossing
7703 Lee Highway
Falls Church, Virginia
Deed Reference: N/A
Grantor: Pine Springs Apartment L.P.
Grantee: Sigal Zuckerman Company
Date of Sale: May 1989
Year Built: 1966
Sale Price: $25,000,000
Financing: All cash sale
Number of Units: 493
Price per Unit: $50,710
NOI per Unit: $3,926
Overall Rate: 7.7%
Gross Income Multiplier:7.14
Building Description: This comparable consists of three-story brick
garden apartments which have been renovated
since the date of sale. The complex features
a swimming pool and athletic courts and the
units have disposals, dishwashers and hardwood
floors.
Verification: Representative of grantee.
A-29
DEFINITIONS
<PAGE>
ADDENDUM
DEFINITIONS
COST APPROACH. Valuation by the cost approach is based on the principle of
substitution; that is, an informed purchaser will ordinarily not pay more for
a property than the cost to build a substitute property of equivalent
utility. This approach generally follows the outline shown below:
1. Estimate the current cost to reproduce or replace the improvements.
2. Estimate the dollar amount of accrued depreciation due to:
a. Physical deterioration
b. Functional obsolescence
c. Adverse economic and external influences
3. Deduct the total amount of accrued depreciation from the cost new
to derive the present depreciated cost of the building improvements.
4. Add the land value estimate to the depreciated cost of improvements
to arrive at a value indication by the cost approach.
REPRODUCTION COST refers to the cost of improvements which replicate the
existing improvements using the same materials, space configuration, and
method of construction.
REPLACEMENT COST reflects the cost of construction for improvements
similar to, but not necessarily a duplicate of, the existing improvements.
Overimprovements and underimprovements may require special functional
obsolescent considerations so as not to duplicate items not included in the
cost of replacement.
In estimating the cost new of the subject improvements, the Marshall
Valuation Service Cost Manual is often utilized together with reported
comparable building cost of similar buildings in the subject market area.
ACCRUED DEPRECIATION is the difference between the cost new of the
improvements and their present value as of the date of valuation. An estimate
of accrued depreciation involves identifying and measuring loss of utility
experienced by the subject improvements in their present condition, as
compared to the utility they would have as new improvements representing the
highest and best use of the site.
PHYSICAL DETERIORATION is defined as a reduction in utility resulting from
an impairment of physical condition.
A-30
FUNCTIONAL OBSOLESCENCE is defined as a reduction of functional capacity
or efficiency. Functional obsolescence reflects the loss of value brought
about by such factors as over-capacity, inadequacy, and changes in the area
that affect the property item itself or its relation with other items
composing a larger property.
EXTERNAL OBSOLESCENCE is defined as an impairment of desirability or
useful life arising from factors external to the property such as economic
forces or environmental changes that affect supply-demand relationships in
the market.
DIRECT SALES COMPARISON APPROACH. In this approach actual transfers of
real estate are analyzed and compared to the subject. Generally there are
five steps involved which are shown below:
1. Identify similar properties for which pertinent sale, listings,
offerings, and/or rental data is available.
2. Qualify these comparables as to financing or other terms,
motivating factors, and bona fide nature.
3. Compare each of the comparable properties' important attributes to
the corresponding ones of the property being appraised, under the general
categories of location, physical characteristics, conditions of sale,
changes in market conditions over time, and current yield data.
4. Consider all dissimilarities between the comparison and subject
properties and their probable effect on the price of the property being
appraised.
5. From the pattern developed, formulate an opinion of value for the
property being appraised by the direct sales comparison approach.
The generally accepted unit of comparison for office buildings and
industrial buildings is the price per square foot of building area. This unit
is used on either a gross or net basis depending on the norm for a particular
area. Hotel properties are generally described on a sale price per room basis
and apartments are typically compared by a price per unit. Land sales are
also compared on a unit basis such as per acre, per square foot (either gross
area or an allowable floor area ratio) or other meaningful unit.
INCOME APPROACHES are methods of valuation which estimate the net
operating income (future benefits) attributable to the real estate. The
resulting net income is then converted into value by either capitalizing the
income by an appropriate rate based on market considerations or discounting
the future income streams into a present value. The CAPITALIZATION procedure
may be described as follows:
A-31
<PAGE>
1. Estimate net operating income.
2. Estimate remaining economic life or the duration and pattern of the
projected income stream.
3. Select an applicable capitalization method and technique.
4. Develop the appropriate capitalization rate or rates.
5. Complete the necessary computations to derive an economic value
indication by the capitalization approach.
In the DISCOUNTED CASH FLOW (DCF) procedure the net cash flow before debt
service in each year of an asset's useful life is estimated. The projected
income stream is valued by application of a discount rate to those future net
revenues. The discount rate or rates selected for purposes of valuing a
property is selected by the risk element, cost of financing and other
factors. To the value of the discounted projection income stream is added the
discounted value of the projected sale price estimated at the conclusion of
the projection period.
STABILIZED INCOME. Projected income which is subject to change due to
changes in the market but has been adjusted to reflect the equivalent of
normal stable annual income which will be achieved. This income is generally
expected within a reasonable foreseeable period.
STABILIZED VALUE. Projecting a future income stream for a short term is
very difficult. Projecting a long-range income stream is considered to be
conjectural. Therefore, the projection of a detailed income stream in excess
of 10 years is generally not meaningful. The income stream, after the tenth
year in most cases, is computed at a constant, normalized cash flow. The
total discounted worth of the income stream projected after the tenth year is
referred to as the stabilized value. This may be referred to by others as the
terminal, exit, or liquidation value.
EXAMINED. This term is used by Arthur Andersen to convey the fact that at
least one member of the valuation team has physically inspected the property
for this valuation. Since the valuation staff is composed of experts with
various real estate appraisal and/or investment related capabilities and
backgrounds, a combined total analysis of the related factors affecting a
property's value produces a comprehensive and thorough examination.
Therefore, at least one professional and many times more than one of those
certifying as to the value of the subject property have physically inspected
the property. In all cases except if noted otherwise all signing
professionals have participated in the valuation and concur in the findings.
A-32
<PAGE>
QUALIFICATIONS
<PAGE>
STATEMENT OF QUALIFICATIONS
Arthur Andersen Real Estate Services Group is recognized as a leader in
creative responses to new markets, changing investment climates and evolving
client needs. The full-service staff includes specialists in applied
economics, marketing and finance, project development, appraisal and
valuation. Our principals bring years of practical experience from both
business and government.
We have a professional services practice with a national scope in the
following ways:
SERVICES
Our clients are diverse, and we approach each client's particular needs with
a fresh perspective. Our wide ranging services help clients in the following
ways:
ECONOMIC CONSULTING
To assess present opportunities, plan future growth and manage both:
o Economic Studies
o Market Research
o Financial Consultation
o Economic Planning Services
o Community Development Analysis
o Management and Support Services
REAL ESTATE COUNSELING
To evalute new real estate projects . . .
o Location Analysis
o Concept Development
o Market Research
o Development Planning
o Feasibility Analysis
o Development Services
o Deal Structuring
o Negotiations
o Public Approvals
o Marketing Services
. . . and advise about existing properties and portfolios:
o Acquisition and Disposition
o Operation Reviews
o Property Evaluations
o Property Workouts
o Corporate Real Estate Services
o Locations programs to assist in expansion, consolidation or relocation for
a range of space and facility needs.
o Real estate advisory services, from strategic planning, organization and
staffing to financial consultation, effective asset management and
performance monitoring for sites, projects and portfolios.
FINANCIAL ADVISORY SERVICES
To advise about real estate properties, portfolios and companies through:
o Asset and Portfolio Reviews
o Financial Modeling and Projections
o Strategic and Business Plans
o Financial Workout Services
To assure sound investments through our comprehensive research, knowledge of
real estate and capital markets and direct experience:
o Investment Planning and Strategy
o Project and Portfolio Review
o Profit Improvement Studies
o Asset Management
APPRAISAL AND PORTFOLIO VALUATION
To value real estate properties, portfolios and companies. We provide:
o Highest and Best Use Studies
o Due Diligence Review
o Current Value Estimates
o Formal Appraisals
o Valuations of Partial Interests
o Expert Testimony
A-33
<PAGE>
SELECTED CLIENT LIST
REAL ESTATE VALUATION SERVICES
AEtna Realty Investors, Inc.
Aldrich, Eastman & Waltch, Inc.
Allstate
Baltimore Gas and Electric
The Boston Company Real Estate Counsel, Inc.
Chase Manhattan Bank, NA
Chemical Bank
Citibank, N.A.
Dean Witter Reynolds
Equitable Real Estate Investment Management, Inc.
First National Bank of Chicago
First National Bank of North Carolina
Hancock Realty Investors Incorporated
Homart Development
Howard Johnson
JMB Realty Corporation
Manufacturers Hanover Trust
Marriott Corporation
Marine Midland Bank, N.A.
Massachusetts Mutual Life Insurance Co.
Mel Simon Associates
Metric Realty
Mutual Life Insurance Company of New York (MONY)
NationsBank
Niagara Asset Corp.
New Hampshire Retirement System
PaineWebber Properties Incorporated
Patrician Mortgage Co.
Philip Morris Credit Corporation
Pittsburgh National Bank
Potomac Electric Power Company (PEPCO)
RECOLL Management Corp.
Resolution Trust Corporation (RTC)
Richmond, Fredericksburg, and Potomac Railroad
Riggs National Bank
The Rouse Company
Security Pacific National Bank
Charles E. Smith Companies
SunAmerica Investments, Inc.
Teacher Retirement System of Texas
Teachers Insurance and Annuity Association (TIAA)
Toyo Trust Banking Co., Ltd.
Union Pacific Railroad
United States Railway Association
Wells Fargo Realty Advisors
West Group, Inc.
A-34
<PAGE>
PROFESSIONAL
RESOURCES
ONE THOMAS CIRCLE, N.W. ARTHUR ANDERSEN
WASHINGTON, D.C. 20005 REAL ESTATE SERVICES GROUP
(202) 833-5500
<PAGE>
[ARTHUR ANDERSEN & CO. LETTERHEAD]
GREG A. DERBY
STAFF
EXPERIENCE:
Staff
Arthur Andersen & Co.
Real Estate Services Group
Washington, D.C.
Real Estate Analyst
Merkle & Associates
Landover, Maryland
Facility Manager and Marketing
Director
Capital Storage Group
Washington, D.C.
EDUCATION:
B.S., Marketing
University of Maryland
SPECIALTIES:
Market evaluation and appraisals of senior housing projects. Appraisal and
evaluation of income producing properties including: market research and
analysis, supply and demand analysis and projections and feasibility
analysis.
<PAGE>
[ARTHUR ANDERSEN & CO. LETTERHEAD]
JEFFREY P. DYBAS
STAFF
EXPERIENCE:
Staff
Arthur Andersen & Co.
Washington, D.C.
Associate
Delta Associates
Alexandria, VA
EDUCATION:
B.A., Government
University of Virginia
SPECIALTIES:
Appraisal and portfolio valuation performed for land, building, and
leaseholds, for purposes of lease, sale, purchase, financing, and management.
<PAGE>
[ARTHUR ANDERSEN & CO. LETTERHEAD]
MARK A. VOLLMER, MAI
MANAGER
Mark Vollmer has ten years of experience in real estate and more than seven
years of experience in the appraisal of commercial properties. From 1985
through 1991, Mr. Vollmer was employed by Manufacturers Hanover Trust
Company, attaining the position of Vice President/Team Leader in the Real
Estate Finance Group. He has valued investment grade income producing
properties in the New York Metropolitan Area and in more than twenty states,
including Florida, Illinois, Texas, and California. His experience covers a
mix of property types including proposed and existing offices, hotels,
motels, resorts, and casinos, multi-family residential, retail centers,
subdivisions, and industrial properties. Mr. Vollmer specialized in large
project and portfolio valuations, provided in-house financial analysis and
consultation for mortgage workouts, and monitored the Bank's nonperforming
loan portfolio.
Mr. Vollmer has also performed market analyses and portfolio review work in
Western Europe and Asia. He conducted a study of the luxury hotel markets in
Frankfurt and Munich in 1990, and also joined a risk management review team
to evaluate and critique underwriting, due diligence procedures, and
appraisal standards for the Bank's $400 million mortgage portfolio in Hong
Kong. Related experience includes appraisal review and concurrence,
marketability and evaluation studies, and bank and pension fund mortgage
portfolio analyses.
Prior to joining Manufacturers Hanover he was an urban planner, preparing
land use, transportation, and financial feasibility studies. Mr. Vollmer
performed a due diligence and feasibility study for an $11.55 million bond
issue for the Nantucket Islands Land Bank, underwritten by Shearson Lehman
Brothers. Mr. Vollmer gained mortgage servicing and workout experience at the
New York State Urban Development Corporation and Citicorp Real Estate.
Mr. Vollmer has lectured extensively on market analysis and real estate
valuation. He conducted in-house seminars at Manufacturers Hanover and is a
faculty member of the New York University Real Estate Institute, where he was
appointed Assistant Adjunct Professor of Real Estate. Mr. Vollmer has
lectured on appraising and mortgage underwriting at the Federal Reserve Bank
of New York and at the City University of New York. He was also an editor and
frequent contributor to Manufacturers Hanovers' Real Estate Digest.
Mr. Vollmer earned the MAI designation (member number: 8633) from the
American Institute of Real Estate Appraisers. He is currently certified under
the Appraisal Institute's continuing education program and he is also a
member of the Real Estate Board of New York.
[ARTHUR ANDERSEN & CO. LETTERHEAD]
Mr. Vollmer graduated with a BA from Haverford College and an MBA in finance
from New York University. He also holds a Diploma in Real Estate Investment
Analysis from New York University's Real Estate Institute, where he was
recognized by the Martin Sherman Award and merit scholarships from the
Mortgage Banker's Association of New York and the New York Realty Foundation.
Mr. Vollmer is a certified General Real Estate Appraiser in the District of
Columbia (license number: 10154) and in the Commonwealth of Virginia (license
number: 01570).
<PAGE>
[ARTHUR ANDERSEN & CO. LETTERHEAD]
ROBERT J. CAMPBELL
PARTICIPATING PRINCIPAL
An 18-year veteran of Arthur Andersen, Mr. Campbell has been involved in a
broad range of real estate market and financial analysis in the evaluation of
investment and development related opportunities. In addition to his
involvement in these assignments, Mr. Campbell has, in recent years, directed
valuation/ appraisal assignments for a number of institutional investors and
others.
A recent major assignment concerned the appraisal of an 80-property, $500
million portfolio of real estate valued for cost allocation purposes.
Other valuation assignments have ranged from a small suburban office building
in Portland to income-producing real estate in downtown Washington, D.C., Los
Angeles, and New York. In addition to these assignments, Mr. Campbell is
engaged in assisting the direction of ongoing valuation services for several
institutional investment portfolios, involving 75 full narrative reports per
year. Clients include John Hancock Mutual Life Insurance, Mutual of New York,
PaineWebber Properties, Integrated Resources, and The Rouse Company.
Mr. Campbell was recently called upon to help structure a method to value
commercial real estate-backed participating mortgages on behalf of a major
financial organization. This work provided a basis for subsequent periodic
valuation of property and associated mortgages.
Recent non-valuation assignments completed with Mr. Campbell's involvement
include downtown market analyses for major office buildings in Chicago and
Columbus. He has recently direced a retrospective fiscal impact analysis of
an existing new town development. This study sought to establish the
development's historic impact on its jurisdiction, as well as helped the
jurisdiction to formulate guidelines for future impact analyses.
Mr. Campbell is a graduate of Georgetown University.
<PAGE>
EXHIBIT (C)(5)
IN THE CIRCUIT COURT FOR MONTGOMERY COUNTY, MARYLAND
THREE WINTHROP PROPERTIES, INC.
Plaintiff
vs. Case No. 129192-V
LERNER CORPORATION
Defandant
ORDER
The above matter having come before the Court on the Motion of the
Plaintiff Three Winthrop Properties, Inc. for Summary Judgment as to Count I
and it appearing that good cause has been shown, it is by the Court this 14th
day of February, 1995,
ORDERED that the Motion be and the same is hereby granted, and it is
further,
ORDERED that the Court declares that Paragraph 14(b) of the Management and
Leasing Agreement is unambiguous and means that Three Winthrop Properties,
Inc. can terminate the agreement as of January 31, 1995, provided it gave
ninety (90) days notice of its intent prior thereto, and it is further,
ORDERED that the Notice of such intent given to Lerner Corporation October
17, 1994, was adequate and did satisfy that notice requirement, and it is
further,
ORDERED that the Court expressly determines that there is no just reason
for delay and directs entry of final judgment as to Count I pursuant to Rule
2-602(b).
/s/ Michael D. Mason
JUDGE, CIRCUIT COURT FOR
MONTGOMERY COUNTY, MARYLAND
Michael D. Mason
<PAGE>
COPIES TO:
Albert D. Brault, Esq.
Brault, Graham, Scott & Brault
101 S. Washington Street
Rockville, MD 2850
Stephen M. Sacks, Esq.
George E. Covucci, Esq.
Peter G. Neiman, Esq.
Arnold & Porter
1200 New Hampshire Avenue, N.W.
Washington, D.C., 20036
Seth D. Greenstein, Esq.
McDermott, Will & Emery
1850 K Street, N.W., Suite 500
Washington, D.C., 20006
John J. Tumilty, Esq.
Cooley, Manion, Moore & Jones, P.C.
21 Custom House Street
Boston, MA 02110
<PAGE>
EXHIBIT (C)(6)
IN THE CIRCUIT COURT FOR MONTGOMERY COUNTY, MARYLAND
- -----------------------------------------------------------------------------
MITCHEL R. MONTGOMERY, 9000 Regency Square
Blvd., Suite 201, Jacksonville, FL 32211,
and PETER J. BURNHAM, 3623 Edgewood Road,
Columbus, GA 31907,
in their individual capacity and on behalf
of SPRINGHILL LAKE INVESTORS
LIMITED PARTNERSHIP, and THEODORE N.
LERNER, 11501 Huff Court, North Bethesda,
MD 20895-1094, in his individual capacity
and on behalf of FIRST SPRINGHILL LAKE
LIMITED PARTNERSHIP, SECOND SPRINGHILL LAKE
LIMITED PARTNERSHIP, THIRD SPRINGHILL LAKE
LIMITED PARTNERSHIP, FOURTH SPRINGHILL LAKE
LIMITED PARTNERSHIP, FIFTH SPRINGHILL LAKE
LIMITED PARTNERSHIP, SIXTH SPRINGHILL LAKE
LIMITED PARTNERSHIP, SEVENTH SPRINGHILL LAKE
LIMITED PARTNERSHIP, EIGHTH SPRINGHILL LAKE
LIMITED PARTNERSHIP, NINTH SPRINGHILL LAKE
LIMITED PARTNERSHIP, AND SPRINGHILL
COMMERCIAL LIMITED PARTNERSHIP,
Plaintiffs,
v. No. 132222
THREE WINTHROP PROPERTIES, INC. filed 2-7-95
One International Place
Boston, Massachusetts 02110
Defendant.
- -----------------------------------------------------------------------------
COMPLAINT FOR BREACH OF FIDUCIARY DUTY
Plaintiffs, by the undersigned attorneys, for their Complaint against the
above-named defendant state as follows.
A. THE PARTIES
1. Springhill Lake Investors Limited Partnership ("Springhill LP") is a
limited partnership organized and
<PAGE>
existing under the laws of the State of Maryland, with a usual place of
business at One International Place, Boston, Massachusetts.
2. Plaintiff Mitchell R. Montgomery currently resides in Jacksonville,
Florida and is a citizen of the State of Florida. Plaintiff Peter J. Burnham
currently resides in Columbus, Georgia and is a citizen of the State of
Georgia. Plaintiffs Montgomery and Burnham bring this action in their
individual capacity and derivatively on behalf of Springhill LP.
3. Plaintiff Theodore N. Lerner currently resides in Montgomery County,
Maryland and is a citizen of the State of Maryland. Lerner brings this action
in his individual capacity and derivatively on behalf of ten limited
partnerships organized under the laws of the State of Maryland: First
Springhill Lake Limited Partnership, Second Springhill Lake Limited
Partnership, Third Springhill Lake Limited Partnership, Fourth Springhill
Lake Limited Partnership, Fifth Springhill Lake Limited Partnership, Sixth
Springhill Lake Limited Partnership, Seventh Springhill Lake Limited
Partnership, Eighth Springhill Lake Limited Partnership, Ninth Springhill
Lake Limited Partnership, and Springhill Commercial Limited Partnership
(collectively the "Operating Partnerships").
2
<PAGE>
4. Defendant Three Winthrop Properties, Inc., ("Three Winthrop") is a
corporation organized under the laws of the State of Massachusetts with its
principal place of business at One International Place, Boston,
Massachusetts.
B. JURISDICTION AND VENUE
5. This Court has subject matter jurisdiction over this case pursuant to
Md. Cts. & Jud. Proc. Code Ann. Section 1-501.
6. Venue is proper in this Court pursuant to Md. Cts. & Jud. Proc. Code
Ann. Section 6-201(a).
C. BACKGROUND INFORMATION
7. This case concerns the Springhill Lake Apartments in Greenbelt,
Maryland (the "Project"). The Project consists of a 96 building, 2,899 unit
garden apartment complex, approximately 154 acres of land, an eight-story
shopping center, a day care center, two swimming pools, six tennis courts and
a clubhouse.
8. The day to day operations of the Project are run by a managing agent,
Lerner Corporation.
9. The Project is owned by the Operating Partnerships.
10. Springhill LP is the general partner of each of the Operating
Partnerships. Springhill LP owns a 90% interest in each of the Operating
Partnerships. Subject to certain special allocations contained in the
3
<PAGE>
partnership agreements of the Operating Partnerships, the remaining interest
in each of the Operating Partnerships has, since 1985, been owned by Theodore
Lerner, as limited partner.
11. Three Winthrop is the managing general partner of Springhill LP and is
charged with the responsibility for carrying out the business of Springhill
LP.
12. Except for certain ownership interests held by Three Winthrop and by
an affiliated company, Linnaeus-Lexington Associates Limited Partnership
("Linnaeus"), Springhill LP is owned by individuals or entities who own as
limited partners approximately 649 units of interest in Springhill LP (the
"Investor Limited Partners"). The Investor Limited Partners purchased their
interests in Springhill LP through a confidential offering memorandum dated
January 16, 1985.
13. Plaintiff Mitchell R. Montgomery owns a one unit (.146379%) limited
partnership share of Springhill LP. Montgomery acquired this interest on
February 28, 1985, and has owned the interest continuously since then.
14. Plaintiff Peter J. Burnham owns a one unit (.146379%) limited
partnership share of Springhill LP. Burnham acquired this interest prior to
1986, and has owned the interest continuously since then.
4
<PAGE>
15. Three Winthrop, acting as managing general partner of Springhill LP
(which in turn is general partner of the Operating Partnerships), has certain
fiduciary obligations to the Investor Limited Partners, to Springhill LP, to
the Operating Partnerships, and to Theodore Lerner.
D. THREE WINTHROP'S MISCONDUCT
16. Three Winthrop has a fiduciary responsibility to assure that a
suitable managing agent is appointed for the Project under appropriate terms
and conditions. In addition, section 2.4(vi) of the limited partnership
agreement for each of the Operating Partnerships requires that, if Three
Winthrop appoints a managing agent to manage the Project, it may only pay
that managing agent "reasonable compensation" for its services.
17. In October 1994, in breach of these fiduciary and other obligations,
Three Winthrop embarked on a scheme to enrich itself at the expense of
Springhill LP and the Operating Partnerships, by moving to discharge the
current managing agent, Lerner Corporation, and to appoint Winthrop
Management, an affiliate of Three Winthrop, as the new managing agent of the
Project. As part of that scheme, Three Winthrop has refused to open the
managing agent position to competitive bidding, and has refused to employ any
5
<PAGE>
mechanism to insure that the compensation of the managing agent is
reasonable.
18. It is in the best interests of Springhill LP and the Operating
Partnerships to have the Property managed by an entity controlled by a person
with an economic interest in the performance of the Property. Lerner
Corporation meets this requirement; Winthrop Management does not.
19. There is a contest underway for ownership of the Property. It is
disruptive, irresponsible and incompatible with the best interests of
Springhill LP and the Operating Partnerships to appoint a new managing agent
for the Property before the ownership of the Property is resolved.
FIRST CAUSE OF ACTION
BREACH OF FIDUCIARY DUTY TO
MONTGOMERY, BURNHAM AND SPRINGHILL LP
20. Plaintiffs repeat and reallege the allegations of paragraphs 1 to 19.
21. Three Winthrop, acting as managing general partner of Springhill LP,
has breached its fiduciary duty to Montgomery, Burnham and to Springhill LP
in various ways, including by moving to appoint its affiliate as managing
agent of the Property, without opening the position to competitive bidding.
6
<PAGE>
SECOND CAUSE OF ACTION
BREACH OF FIDUCIARY DUTY TO
THEODORE LERNER AND THE OPERATING PARTNERSHIPS
22. Plaintiffs repeat and reallege the allegations of paragraphs 1 to 19.
23. Three Winthrop, acting as managing general partner of Springhill LP
which is in turn the general partner of the Operating Partnerships, has
breached its fiduciary duty to Theodore Lerner and the Operating Partnerships
in various ways, including by moving to appoint its affiliate as managing
agent of the Property, without opening the position to competitive bidding.
WHEREFORE, plaintiffs respectfully request that this Court:
(1) enjoin Three Winthrop from appointing itself or an affiliate as
managing agent of the Property;
(2) order Three Winthrop to pay damages to plaintiffs for its breaches of
fiduciary duty in an amount to be determined at trial; and
(3) award plaintiffs such other relief as the Court deems just and proper.
Respectfully submitted,
/s/ Mitchell R. Montgomery
Mitchell R. Montgomery, pro se
7
<PAGE>
/s/ Peter J. Burnham
Peter J. Burnham, pro se
/s/ Albert D. Brault
BRAULT, GRAHAM, SCOTT & BRAULT
Albert D. Brault (#01041)
101 S. Washington St.
Rockville, MD 20850
(301) 424-1060
Counsel for Theodore Lerner
OF COUNSEL:
Stephen M. Sacks
George E. Covucci
Peter G. Neiman
ARNOLD & PORTER
1200 New Hampshire Ave., N.W.
Washington, D.C. 20036
(202) 872-6681
8
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
- --------------------------------------------
LER 8, a Maryland General Partnership,
on its behalf and on behalf of
SPRINGHILL LAKE INVESTORS LIMITED
PARTNERSHIP
c/o Robert G. Brewer
3 Bethesda Metro Center, Suite 380
Bethesda, Maryland 20814
Plaintiffs,
v. No. DKC 95-555
THREE WINTHROP PROPERTIES, INC.,
One International Place
Boston, MA 02110
Serve: Arthur J. Halleran, Jr.
NOMURA ASSET CAPITAL CORPORATION, and
2 World Financial Center
New York, New York 10005
Serve: Ethan Penner, President
AQUARIUS ACQUISITION, L.P.
c/o Nomura Asset Capital Corporation
2 World Financial Center
New York, New York 10005
Serve: Ethan Penner, President
Defendants.
- -------------------------------------------
COMPLAINT
Plaintiffs, by their undersigned attorneys, for their
Complaint state as follows.
INTRODUCTION
1. This case concerns a contest for control of Springhill
Lake Investors Limited Partnership ("Springhill LP") and/or
certain real property in Greenbelt, Maryland, which Springhill LP
owns (the "Project"). Greenbelt Residential Limited Partnership
("Greenbelt") has offered to purchase the interest of the
<PAGE>
limited partners and has asked the limited partners of Springhill
LP to consent to dissolution of the partnership, so that the
property can be sold to the highest bidder. Greenbelt hopes to
be the highest bidder. Three Winthrop Properties, Inc. ("Three
Winthrop"), the managing general partner of Springhill LP, has,
through an affiliate, launched a tender offer for Springhill LP.
It is believed that Three Winthrop has failed to comply with the
federal securities laws governing such tender offers, and has
breached its fiduciary obligations to the limited partners of
Springhill LP in a variety of ways. LER 8 brings this action in
its own right and on behalf of Springhill LP, and asks this Court
to enjoin Three Winthrop (and its affiliates) from continuing
with its tender offer and to affirmatively order Three Winthrop
to set up a fair and independent procedure, free of conflict of
interest, to affirmatively look for, and consider all possible
offers.
A. THE PARTIES
2. Springhill LP is a limited partnership organized and
existing under the laws of the State of Maryland, with a usual
place of business at One International Place, Boston,
Massachusetts.
3. LER 8 is a limited partner of Springhill LP. LER 8
currently resides in Maryland and is a citizen of Maryland. LER
8 purchased a .1464% limited partnership interest in Springhill
LP in 1985 and has owned that interest continuously since then.
2
<PAGE>
LER 8 brings this action in its own right and derivatively on
behalf of Springhill LP.
4. Defendant Three Winthrop is a corporation organized
under the laws of the State of Massachusetts with its principal
place of business at One International Place, Boston,
Massachusetts.
5. Defendant Aquarius Acquisition, L.P. ("Aquarius") is
a newly formed Delaware limited partnership, whose general
partner, Partnership Acquisition Trust I, is a Delaware business
trust owned and controlled by defendant Nomura Asset Capital
Corporation ("NACC"). It is believed that NACC, a Delaware
corporation, also owns and/or controls Three Winthrop.
B. JURISDICTION AND VENUE
6. This Court has subject matter jurisdiction over
plaintiffs' federal securities law claims pursuant to 26 U.S.C. Section
1331 and over plaintiffs' state law breach of fiduciary duty
claim pursuant to 28 U.S.C. Section 1367.
7. Venue is proper in this Court pursuant to 28 U.S.C. Section
1391(b)(2).
C. BACKGROUND INFORMATION
8. The Project, the Springhill Lake Apartments in
Greenbelt, Maryland, consists of a 96 building, 2,899 unit garden
apartment complex, approximately 154 acres of land, an
eight-store shopping center, a day care center, two swimming
pools, six tennis courts and a clubhouse.
3
<PAGE>
9. The Project is owned by ten limited partnerships
organized under the laws of the State of Maryland: First
Springhill Lake Limited Partnership, Second Springhill Lake
Limited Partnership, Third Springhill Lake Limited Partnership,
Fourth Springhill Lake Limited Partnership, Fifth Springhill Lake
Limited Partnership, Sixth Springhill Lake Limited Partnership,
Seventh Springhill Lake Limited Partnership, Eighth Springhill
Lake Limited Partnership, Ninth Springhill Lake Limited
Partnership, and Springhill Commercial Limited Partnership
(collectively the "Operating Partnerships").
10. Springhill LP is the general partner of each of the
Operating Partnerships. Springhill LP owns a 90% interest in
each of the Operating Partnerships. Subject to certain special
allocations contained in the partnership agreements of the
Operating Partnerships, the remaining interest in each of the
Operating Partnerships has, since 1985, been owned by Theodore
Lerner, as limited partner. He has an interest in Greenbelt.
11. Three Winthrop is the managing general partner of
Springhill LP and is charged with the responsibility for carrying
out the business of Springhill LP.
12. Except for certain minor ownership interests held by
Three Winthrop and by an affiliated company, Linnaeus-Lexington
Associates Limited Partnership ("Linnaeus"), Springhill LP is
owned by individuals or entities who own as limited partners 649
units of interest in Springhill LP (the "Investor Limited Part-
4
<PAGE>
ners"). The Investor Limited Partners purchased their interests
in Springhill LP through a confidential offering memorandum dated
January 16, 1985. Those interests constitute securities for
purposes of the Securities Exchange Act of 1934 (the "Exchange
Act"), and are registered under Section 12(g) of the Exchange Act.
13. Three Winthrop, acting as managing general partner of
Springhill LP, has certain fiduciary obligations to the Investor
Limited Partners and to Springhill LP.
D. GREENBELT'S OFFER TO PURCHASE THE PROPERTY
14. Greenbelt has offered to purchase the Springhill LP
interest in the Project and has solicited consents from the
Investor Limited Partners of Springhill LP to a resolution
dissolving Springhill LP, thereby requiring a sale of its only
asset, the Project, to the highest bidder. Greenbelt
simultaneously advised the Investor Limited Partners that if the
Project is put up for sale, Greenbelt will purchase it.
Greenbelt's offer may be in the interest of the Investor Limited
Partners and Springhill LP.
E. AQUARIUS' TENDER OFFER
15. On February 1, 1995 Aquarius, which, like Three
Winthrop, is controlled by NACC, commenced a tender offer for the
units of limited partnership interests in Springhill LP. On that
date, Aquarius provided the Investor Limited Partners an Offering
Circular which set out the terms of the tender offer.
5
<PAGE>
16. The tender offer is being made by an affiliate of
Springhill LP and, if successful, will cause the limited
partnership interests to be held by fewer than 300 people.
Accordingly, Rule 13e-3 (promulgated under Section 13(e) of the
Exchange Act) imposes certain disclosure obligations on Three
Winthrop, Aquarius, and NACC.
17. Under Rule 13e-3 (and Schedule 13E-3 thereto), Three
Winthrop must state whether it believes the transaction is "fair
or unfair" to unaffiliated security holders and must discuss the
factors supporting that stated belief. Three Winthrop has
advised the Investor Limited Partners that it has a conflict and
has refused to make these required disclosures, in breach of both
the Exchange Act and its fiduciary duty to the Investor Limited
Partners.
F. THREE WINTHROP'S BREACHES OF ITS FIDUCIARY DUTY
18. Though purporting to remain neutral, Three Winthrop
has apparently supported the Aquarius tender offer. On
information and belief, Three Winthrop has provided NACC and
Aquarius with extensive information about Springhill LP which
Aquarius and NACC have used in putting together the tender offer.
19. Three Winthrop has also breached its fiduciary duty by
refusing to hire an independent entity and to establish an
independent procedure to evaluate all offers and to advise the
Investor Limited Partners as to the appropriate course of action.
6
<PAGE>
Upon information and belief, Three Winthrop has not sought other
offers to determine the fair market value of the Project.
FIRST CAUSE OF ACTION
VIOLATION OF RULE 13e-3
20. Plaintiffs repeat and reallege the allegations of
paragraphs 1 to 19.
21. Because Three Winthrop has not made the disclosures
required by Rule 13e-3, the Investor Limited Partners are unable
to properly evaluate the fairness of the Aquarius/Three Winthrop
tender offer.
SECOND CAUSE OF ACTION
BREACH OF FIDUCIARY DUTY
22. Plaintiffs repeat and reallege the allegations of
paragraphs 1 to 21.
23. Three Winthrop has breached its fiduciary duty to LER
8 and to Springhill LP by failing to disclose information as
required by the securities laws, and because of its conflict of
interest, by failing to establish a procedure for the fair and
independent evaluation of the different proposals.
24. These breaches have injured plaintiffs by preventing
plaintiffs from obtaining from its managing general partner a
proper evaluation of the competing offers for Springhill LP.
WHEREFORE, plaintiffs respectfully request that this
Court:
(1) enjoin NACC, Aquarius and Three Winthrop from
continuing to pursue their tender offer, and requiring them to
7
<PAGE>
employ an independent entity to be paid by Three Winthrop to
establish a fair and independent procedure to evaluate all
proposals; and
(2) award plaintiffs such other relief as the Court deems
just and proper.
Respectfully submitted,
LERCH, EARLY & BREWER
By /s/ R. Dennis Osterman
-------------------------
R. Dennis Osterman
3 Bethesda Metro Center
Suite 380
Bethesda, Maryland 20814
(301) 986-1300
Attorneys for Plaintiff
8
<PAGE>
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
- -----------------------------------------------------------------------------
LER 8, a Maryland General Partnership,
on its behalf and on behalf of
SPRINGHILL LAKE INVESTORS LIMITED
PARTNERSHIP
Plaintiffs,
Case No. DKC 95-555
v.
THREE WINTHROP PROPERTIES, INC.,
NOMURA ASSET CAPITAL CORPORATION, and
AQUARIUS ACQUISITION, L.P.
Defendants.
- ------------------------------------------------------------------------------
PLAINTIFFS' MOTION FOR A PRELIMINARY INJUNCTION
Plaintiffs hereby move this Court for a preliminary
injunction in the form indicated in the attached proposed order.
In support of this motion, plaintiffs rely upon the
complaint filed in this action, the memorandum of law which
accompanies this motion, and the affidavit of Robert G. Brewer,
Jr.
Respectfully submitted,
LERCH, EARLY & BREWER
By /s/ R. Dennis Osterman
----------------------
R. Dennis Osterman
3 Bethesda Metro Center
Suite 380
Bethesda, Maryland 20814
(301) 986-1300
<PAGE>
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
- -----------------------------------------------------------------------------
LER 8, a Maryland General Partnership,
on its behalf and on behalf of
SPRINGHILL LAKE INVESTORS LIMITED
PARTNERSHIP
Plaintiffs,
Case No. DKC 95-555
v.
THREE WINTHROP PROPERTIES, INC.,
NOMURA ASSET CAPITAL CORPORATION, and
AQUARIUS ACQUISITION, L.P.
Defendants.
- ------------------------------------------------------------------------------
MEMORANDUM OF LAW IN SUPPORT OF PLAINTIFFS'
MOTION FOR A PRELIMINARY INJUNCTION
INTRODUCTION
There is an ongoing contest for control of Springhill Lake
Investors Limited Partnerhip ("Springhill LP") between Greenbelt
Residential Limited Partnership ("Greenbelt") and defendant
Aquarius Acquisition Ltd. ("Aquarius"). That contest is now at a
critical stage. Greenbelt has an open offer to purchase the
interest of Springhill LP in the Springhill project and a tender
offer presented to the limited partners by Aquarius will expire on
March 2, 1995.
The limited partners of Springhill LP need to know whether
the Aquarius offer is fair and preferable to the Greenbelt offer,
to other offers that could be obtained by Winthrop in the
marketplace, or to declining to sell at this time.
Normally, the limited partners would get advice in this
regard from the managing general partner, who has access to all
<PAGE>
financial information and a fiduciary responsibility to the
limited partners. However, the managing general partner is Three
Winthrop Properties Inc. ("Three Winthrop"), an affiliate of
Aquarius. Three Winthrop has a conflict and has given the limited
partners no guidance.
Despite a request from limited partners, Three Winthrop has
not agreed to a procedure to provide the limited partners an
independent analysis of the different offers, free of any conflict
of interest. To all appearances Three Winthrop has taken
advantage of its position as managing general partner of
Springhill LP and has provided assistance to Aquarius. By so
doing, the limited partners have no assurance they will receive
fair and unbiased information, which is a violation of its
fiduciary duties to the limited partners of Springhill LP.
To protect the interests of the limited partners of Springhill LP,
this Court should enjoin the Aquarius tender offer and order Three
Winthrop to set up a fair and independent procedure for allowing
the limited partners to evaluate the competing offers.
FACTS
The property at issue is the Springhill Lake Apartments in
Greenbelt, Maryland, comprising a 96-building, 2,899-unit garden
apartment complex on approximately 154 acres of land. It contains
an eight-store shopping center, a day care center, two swimming
pools, six tennis courts and a clubhouse (the "Project"). The
Project is owned by ten limited partnerships organized under the
laws of the State of Maryland (the "Operating Partnerships").
- 2 -
<PAGE>
Springhill LP is the general partner of each of the ten Operating
Partnerships and owns a 90% interest in each of the ten Operating
Partnerships. Theodore Lerner owns the remaining 10% limited
partnership interest in each of the ten Operating Partnerships.
Three Winthrop is the managing general partner of Springhill
LP and is charged with the responsibility for carrying out the
business of Springhill LP. Except for the minor ownership
interests held by Three Winthrop and by an affiliated company,
Springhill LP is owned by individuals or entities who own as
limited partners approximately 649 units of interest in Springhill
LP (the "Investor Limited Partners"). LER 8 is an investor limited
partner.
The Greenbelt Offer
Greenbelt has distributed proxies to the Investor Limited
Partners of Springhill LP seeking approval of a resolution
dissolving Springhill LP, thereby requiring a sale of its only
asset, the Project, to the highest bidder. Greenbelt
simultaneously advised the Investor Limited Partners that if the
Project is put up for sale, Greenbelt would attempt to purchase
the Project. Greenbelt's and Three Winthrop's offers may or may
not be in the interest of the Investor Limited Partners and
Springhill LP. Three Winthrop has not established a procedure to
provide a fair assessment of either offer.
On February 1, 1995, Aquarius, which, like Three Winthrop, is
controlled by defendant Nomura Asset Capital Corporation ("NACC"),
commenced a tender offer for the units of limited partnership
- 3 -
<PAGE>
interest in Springhill LP. It is believed that Three Winthrop opposes the
Greenbelt offer and has actively supported the Aquarius tender offer by
providing NACC and Aquarius with extensive information about Springhill LP
which Aquarius and NACC have used in putting together the tender offer.
Three Winthrop's conduct is irreparably injuring the Investor Limited
Partners. Rather than providing the Investor Limited Partners with the
impartial advice and information they are entitled to expect from their
fiduciary, Three Winthrop is apparently throwing its weight behind the
Aquarius offer. Three Winthrop's conduct raises the prospect that a majority
of the Investor Limited Partners will be forced to accept an offer without
having the opportunity to consider other offers and without receiving
independent advice.
ARGUMENT
THE COURT SHOULD GRANT PLAINTIFF'S MOTION
FOR A PRELIMINARY INJUNCTION
In determining whether to grant a preliminary injunction, the Court must
weigh four factors:
(1) the likelihood of irreparable harm to the plaintiff if the preliminary
injunction is denied;
(2) the likelihood of harm to the defendant if the requested relief is
granted;
(3) the likelihood that the plaintiff will succeed on the merits; and
(4) the public interest.
- 4 -
<PAGE>
Direx Israel Ltd v. Breakthrough Medical Corp., 952 F.2d 802, 812 (4th
Cir. 1994). As we show below, here all four factors favor granting a
preliminary injunction.
First, plaintiffs will clearly be irreparable harmed if the Aquarius/Three
Winthrop tender offer is allowed to proceed without the Investor Limited
Partners ever receiving a neutral assessment of all offers.
The Investor Limited Partners have only a few days to evaluate the
competing offers. Unless Three Winthrop promptly sets up a procedure for
providing the Investor Limited Partners with an independent evaluation (as
its fiduciary obligations require), the opportunity for the Investor Limited
Partners to properly evaluate the competing offers will be lost forever. This
lost opportunity plainly constitutes irreparable harm. See In re W.T. Grant
Co., 6 B.R. 762, 766 (Bkr. S.D.N.Y. 1980) (enjoining misleading proxy
solicitation because loss of "unique opportunity as investors to make an
informed judgment with respect to the offer" constitutes irreparable harm).
Second, while plaintiffs face irreparable injury, granting the injunction
will not harm defendants. Defendants will still be able to pursue their
tender offer in a timely fashion.
Third, plaintiffs are likely to succeed on the merits. Three Winthrop has
conceded, as it must, that it has a fiduciary duty to the Investor Limited
Partners. Under Maryland law, a managing general partner must act with
"utmost good faith" towards passive limited partners and owes a duty to make
full disclosure of
- 5 -
<PAGE>
information important to limited partners. Dixon v. Trinity Joint Venture, 49
Md. App. 1361, 431 A.2d 1361, 1366 (1981). Three Winthrop has violated that
fiduciary duty by providing crucial funding and information to support the
Aquarius tender, by refusing to comment on the competing tenders, and by
failing to set up a procedure for providing the Individual Limited Partners
with a neutral assessment of the offers. Maryland partnership law as to the
fiduciary duties of managing general partners is analogous to the duties of
officers and directors of a corporation. Dixon, supra. In Walter J. Schloss
Assoc. v. Chesapeake and Ohio R'way Co., 73 Md. App. 727, 536 A.2d 147, 154
(1988) (quoting Weinberger v. UOP, Inc., 457 A.2d 721 (Del. 1983), the court
recognized in a corporate context the appropriateness of a corporation
obtaining independent advice on valuation in a merger where a conflict could
be present).
Finally, the public interest favors the injunction, requiring offerors to
honor their fiduciary duties is in the public interest.
CONCLUSION
Unless the Court acts now, it will be too late for the Investor Limited
Partners of Springhill LP. Plaintiffs respectfully request that this Court
preliminarily enjoin the tender
- 6 -
<PAGE>
offer until a fair and independent procedure is established for evaluating
the proposals.
LERCH, EARLY & BREWER
By /s/ R. Dennis Osterman
------------------------
R. Dennis Osterman
3 Bethesda Metro Center
Suite 380
Bethesda, Maryland 20814
(301) 986-1300
- 7 -
<PAGE>
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
- -----------------------------------------------------------------------------
LER 8, a Maryland General Partnership,
on its behalf and on behalf of
SPRINGHILL LAKE INVESTORS LIMITED
PARTNERSHIP
Plaintiffs,
No. DKC 95-555
v.
THREE WINTHROP PROPERTIES, INC.,
NOMURA ASSET CAPITAL CORPORATION, and
AQUARIUS ACQUISITION, L.P.
Defendants.
- ------------------------------------------------------------------------------
ORDER
Upon consideration of the motion of plaintiffs for a
preliminary injunction, it is hereby
ORDERED, that said motion is hereby granted; and it is
further
ORDERED, that defendants Three Winthrop Properties, Inc.,
Aquarius Acquisition, L.P., and Nomura Asset Capital Corporation
are hereby preliminarily enjoined from continuing to pursue their
tender offer for Springhill Lake Investors Limited Partnership;
and it is further
ORDERED, that defendants Three Winthrop Properties, Inc.
shall promptly employ an independent entity to evaluate any and
all proposals for the sale of Springhill Lake Investors Limited
Partnership, including whether or not to list it for sale on the
open market, and it is further
<PAGE>
ORDERED, that plaintiffs post a nominal bond of $2,500.00.
_______________________
Judge
Dated: ___________, 1995
- 2 -
<PAGE>
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
- -----------------------------------------------------------------------------
LER 8, a Maryland General Partnership,
on its behalf and on behalf of
SPRINGHILL LAKE INVESTORS LIMITED
PARTNERSHIP
Plaintiffs,
No. DKC 95-555
v.
THREE WINTHROP PROPERTIES, INC.,
NOMURA ASSET CAPITAL CORPORATION, and
AQUARIUS ACQUISITION, L.P.
Defendants.
- ------------------------------------------------------------------------------
AFFIDAVIT OF ROBERT G. BREWER, JR.
Robert G. Brewer, Jr., being duly sworn, deposes and says:
1. I am a general partner of a Maryland general partnership,
LER 8, which is a limited partner in Springhill Lake Investors
Limited Partnership ("Springhill LP"), which is one of the
plaintiffs in this action. I make this affidavit in support of
plaintiff's motion for a preliminary injunction. I am fully
familiar with the facts set forth herein.
2. I currently reside in Chevy Chase, Maryland, and am a
citizen of Maryland. LER 8 purchased a .1464% limited partnership
interest in Springhill LP in 1985 and has owned that interest
continuously since then.
3. Springhill LP is a limited partnership organized and
existing under the laws of the State of Maryland, with a usual
place of business at One International Place, Boston,
Massachusetts.
<PAGE>
4. Defendant Three Winthrop is a corporation organized
under the laws of the State of Massachusetts with its principal
place of business at One International Place, Boston,
Massachusetts.
5. Upon information and belief, defendant Aquarius
Acquisition, L.P. ("Aquarius") is a newly formed Delaware limited
partnership, whose general partner, Partnership Acquisition Trust
I, is a Delaware business trust owned and controlled by defendant
Nomura Asset Capital Corporation ("NACC"), which also controls
Three Winthrop.
Background Information
6. The sole asset of Springhill LP is a 90% general
partnership interest in ten limited partnerships which in turn own
the Springhill Lake Apartments in Greenbelt, Maryland (the
"Project"). The Project consists of a 96-building, 2,899-unit
garden apartment complex, approximately 154 acres of land, an
8-store shopping center, a day care center, two swimming pools, six
tennis courts and a clubhouse.
7. Three Winthrop is the managing general partner of
Springhill LP and is charged with the responsibility for carrying
out the business of Springhill LP. As managing general partner,
Three Winthrop has received (directly or through affiliates) fee
income for oversight management of the Project and for other
services.
8. Except for certain minor ownership interests held by
Three Winthrop and by an affiliated company, Springhill LP is
- 2 -
<PAGE>
owned by individuals or entities who own as limited partners 649 units of
interest in Springhill LP (the "Investor Limited Partners"). LER 8 is one of
the 649 Investor Limited Partners. (Attached as Exhibit A is a diagram of the
ownership of the Project).
THE GREENBELT OFFER
9. The Investor Limited Partners have received from Greenbelt Residential
Limited Partnership proxy solicitations seeking approval of a resolution
dissolving Springhill LP, thereby requiring a sale of its only asset, the
Project, to the highest bidder. Greenbelt simultaneously advised the Investor
Limited Partners that if the Project is put up for sale, Greenbelt will seek
to purchase the Project. Greenbelt has also offered to purchase Springhill
LP's interest in the Project.
10. Greenbelt's offer may be in the interest of the Investor Limited
Partners and Springhill LP. The Investor Limited Partners are entitled to a
neutral assessment of that offer from their fiduciary, Three Winthrop.
THE AQUARIUS TENDER OFFER
11. Three Winthrop has, through affiliates, put together a tender offer
without providing the Investor Limited Partners with a fair assessment of all
offers. Three Winthrop has not remained neutral nor has it established a
procedure to provide a fair assessment of Greenbelt's offer.
12. On February 1, 1995, Aquarius, which, like Three Winthrop, is
controlled by defendant Nomura Asset Capital
- 3 -
<PAGE>
Corporation ("NACC"), commenced a tender offer for the units of limited
partnership interests in Springhill LP. On that date, Aquarius provided the
investor limited partners an offering circular which set out the terms of the
tender offer. Three Winthrop has acknowledged its conflict and has refused to
comment on the offers. (A copy of the February 2, 1995 letter is attached as
Exhibit B).
13. The tender offer expires on March 2, 1995.
14. Following the distribution of the Offering Circular, Greenbelt raised
the value of its offer to purchase the Project if the partnership is
dissolved.
15. Three Winthrop apparently opposes the Greenbelt offer and is
apparently supporting the Aquarius tender offer. Three Winthrop has also
apparently provided NACC and Aquarius with extensive information about
Springhill LP which Aquarius and NACC have used in putting together the
Aquarius tender offer.
IRREPARABLE HARM
16. Three Winthrop's conduct is irreparably injuring the Investor Limited
Partners. In the next few days, the Investor Limited Partners will have to
decide whether to accept one of the two offers or continue to hold their
interests. Because the Investor Limited Partners have only limited access to
the relevant financial information, we need neutral advice in assessing the
proposed transactions. Rather than providing the Investor Limited Partners
with the impartial advice and information we are entitled to expect from our
fiduciary, Three Winthrop is apparently
- 4 -
<PAGE>
throwing its weight behind the Aquarius offer. Three Winthrop's conduct
raises the very real prospect that a majority of the Investor Limited
Partners will have to act without having independent advice as to other
offers, and without receiving sufficient financial information. Three
Winthrop has not responded to a written request for an independent mechanism
to advise the Investor Limited Partners.
17. So as to avoid irreparable injury, on behalf of all the Investor
Limited Partners, I respectfully request that this court enjoin the Aquarius
tender offer until Three Winthrop establishes a neutral mechanism for fairly
evaluating the competing offers and whether or not to obtain other offers.
I affirm under the penalties of perjury that the above is true. Subscribed
to this 27th day of February, 1995.
/s/ Robert G. Brewer, Jr.
-------------------------
Robert G. Brewer, Jr.
General Partner, LER 8, a Maryland
General Partnership, and limited
partner in Springhill Lake Investors
Limited Partnership
Sworn to before me this
27th day of February, 1995
/s/ Christine E. Hampton
- ---------------------------
Notary Public
- 5 -
<PAGE>
- -----------------------------------------------------------------------------
Springhill Lake Development
154 Acres
96 buildings
- -----------------------------------------------------------------------------
10 L.P.s
(Operating P.)
(Theodore Lerner is a 10% Limited
Partner in each Operating Partnership.)
- -----------------------------------------------------------------------------
Springhill Lake Investors L.P.
is a 90% general partner in
each of the 10 L.P.s
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
General Partners 649 Individual Investors
(95%) --Limited Partners
Three Winthrop Properties, Inc.
(.1%)
Managing General Partner
Linnaeus--Lexington Associates
Limited Partnership (4.9%)
General Partner
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
[The above information is displayed in a graph of the Ownership Structure.]
<PAGE>
(LETTERHEAD OF WINTHROP)
To: Investor Limited Partners
From: Beverly L. Bergman
Date: February 1, 1995
Re: Springhill Lake Investors Limited Partnership (the "Partnership")
On January 24, 1995, we wrote to you regarding the materials sent to you
by Theodore Lerner seeking your consent to a dissolution of the Partnership
(the "Lerner Solicitation"). On February 1, 1995, Aquarius Acquisition, L.P.
("Aquarius") commenced a tender offer (the "Aquarius Offer") to acquire
limited partnership units of the Partnership. As set forth in the enclosed
Schedule 14D-9 filed with the Securities and Exchange Commission by the
Partnership in response to the Aquarius Offer, Three Winthrop Properties,
Inc. ("Three Winthrop"), the managing general partner of the Partnership, is
an affiliate of Aquarius and, because of the conflict of interest inherent in
such affiliation, the Partnership is making no recommendation and is
remaining neutral as to whether Limited Partners should tender their limited
partnership interests pursuant to the Aquarius Offer. Similarly, Three
Winthrop is not taking a position with respect to the Lerner Solicitation.
Should you have any questions, please feel free to contact me at
800-333-4556.
cc: Account Executive
[Exhibit B]
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
- ------------------------------------------------------------------------------
LER 8, a Maryland General Partnership, on
its behalf and on behalf of
SPRINGHILL LAKE INVESTORS LIMITED
PARTNERSHIP,
Plaintiff,
GREENBELT RESIDENTIAL LIMITED PARTNERSHIP DKC 95-555
11501 Huff Court, North Bethesda,
MD, 20895-1094, Plaintiff-Intervenor
v.
THREE WINTHROP PROPERTIES, INC., et al.,
Defendants.
- ------------------------------------------------------------------------------
MOTION
Greenbelt Residential Limited Partnership hereby
moves to intervene in the above captioned action as a
plaintiff pursuant to Rule 24 of the Federal Rules of
Civil Procedure.
The grounds for this motion are set forth in the
memorandum of law which accompanies this motion. A
proposed complaint is attached to this motion.
<PAGE>
Respectfully submitted,
/s/ Albert D. Brault
----------------------------------
BRAULT, GRAHAM, SCOTT & BRAULT
Albert D. Brault (#01041)
101 S. Washington St.
Rockville, MD 20850
(301) 424-1060
Counsel for Greenbelt
Residential Limited Partnership
OF COUNSEL:
Stephen M. Sacks
George E. Covuoci
Peter G. Neiman
ARNOLD & PORTER
1200 New Hampshire Ave., N.W.
Washington, D.C. 20036
(202) 872-6681
- 2 -
<PAGE>
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
- ------------------------------------------------------------------------------
LER 8, a Maryland General Partnership, on
its behalf and on behalf of
SPRINGHILL LAKE INVESTORS LIMITED
PARTNERSHIP,
Plaintiff,
GREENBELT RESIDENTIAL LIMITED PARTNERSHIP,
11501 Huff Court, North Bethesda,
MD, 20895-1094, Plaintiff-Intervenor
DKC 95-555
v.
THREE WINTHROP PROPERTIES, INC., et al.,
Defendants.
- ------------------------------------------------------------------------------
COMPLAINT OF GREENBELT
RESIDENTIAL LIMITED PARTNERSHIP
Plaintiff, by the undersigned attorneys, for its
Complaint against the above-named defendants states as
follows.
INTRODUCTION
1. This case concerns a contest for control of
Springhill Lake Investors Limited Partnership
("Springhill LP") and/or certain real property in
Greenbelt, Maryland which Springhill LP owns (the
"Project"). Plaintiff Greenbelt Residential Limited
Partnership ("Greenbelt") has asked the limited partners
of Springhill LP to consent to dissolution of the
partnership, so that the property can be sold to the
<PAGE>
highest bidder. Greenbelt hopes to be the highest
bidder. If the Project is sold, defendant Three
Winthrop Properties ("Three Winthrop"), the managing
general partner of Springhill LP, will lose significant
fee income. In an effort to prevent such a sale, Three
Winthrop has, through an affiliate, launched a tender
offer for Springhill LP. Three Winthrop has failed to
comply with the federal securities laws governing such
tender offers, and has breached its fiduciary
obligations to the limited partners of Springhill LP in
a variety of ways, thereby injuring both the Investor
Limited Partners and Greenbelt. Greenbelt asks this
Court to enjoin Three Winthrop (and its affiliates) from
continuing with its tender offer until it complies with
the federal securities laws.
A. THE PARTIES
2. Plaintiff Greenbelt Residential Limited
Partnership is a limited partnership organized under the
laws of Maryland.
3. Defendant Three Winthrop is a corporation
organized under the laws of the State of Massachusetts
with its principal place of business at One
International Place, Boston, Massachusetts.
4. Defendant Aquarius Acquisition, L.P.
("Aquarius") is a newly formed Delaware limited
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partnership, whose general partner, Partnership
Acquisition Trust I is a Delaware business trust owned
and controlled by defendant Nomura Asset Capital
Corporation ("NACC"). NACC also controls Three
Winthrop.
B. JURISDICTION
5. This Court has jurisdiction over Greenbelt's
claims pursuant to 28 U.S.C. Sections 1331 and 1367.
C. BACKGROUND INFORMATION
6. The Project, the Springhill Lake Apartments
in Greenbelt, Maryland, consists of a 96 building, 2,899
unit garden apartment complex, approximately 154 acres
of land, an eight-story shopping center, a day care
center, two swimming pools, six tennis courts and a
clubhouse.
7. The Project is owned by ten limited
partnerships organized under the laws of the State of
Maryland: First Springhill Lake Limited Partnership,
Second Springhill Lake Limited Partnership, Third
Springhill Lake Limited Partnership, Fourth Springhill
Lake Limited Partnership, Fifth Springhill Lake Limited
Partnership, Sixth Springhill Lake Limited Partnership,
Seventh Springhill Lake Limited Partnership, Eighth
Springhill Lake Limited Partnership, Ninth Springhill
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<PAGE>
Lake Limited Partnership, and Springhill Commercial
Limited Partnership (collectively the "Operating
Partnerships").
8. Springhill LP is the general partner of each
of the Operating Partnerships. Springhill LP owns a 90%
interest in each of the Operating Partnerships. Subject
to certain special allocations contained in the
partnership agreements of the Operating Partnerships,
the remaining interest in each of the Operating
Partnerships has, since 1985, been owned by Theodore
Lerner, as limited partner.
9. Three Winthrop is the managing general
partner of Springhill LP and is charged with the
responsibility for carrying out the business of
Springhill LP. As managing general partner, Three
Winthrop has received (directly or through affiliates)
payments for oversight management of the Project and
syndication of the partnership in excess of $15 million.
10. Except for certain minor ownership interests
held by Three Winthrop and by an affiliated company,
Linnaeus-Lexington Associates Limited Partnership
("Linnaeus"), Springhill LP is owned by individuals or
entities who own as limited partners approximately 649
units of interest in Springhill LP (the "Investor
Limited Partners"). The Investor Limited Partners
purchased their interests in Springhill LP through a
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<PAGE>
confidential offering memorandum dated January 16, 1985. Those interests
constitute securities for purposes of the Securities Exchange Act of 1934
(the "Exchange Act"), and are registered under Section 12(g) of the Exchange
Act.
11. Three Winthrop, acting as managing general partner of Springhill LP,
has certain fiduciary obligations to the Investor Limited Partners and to
Springhill LP.
D. GREENBELT'S OFFER TO PURCHASE THE PROPERTY
12. On January 19, 1995, Grenbelt began soliciting consents from the
Investor Limited Partners of Springhill LP. The purpose of the consent
solicitation was to seek approval of a resolution dissolving Springhill LP,
thereby requiring a sale of its only asset, its interest in the Project, to
the highest bidder. Greenbelt simultaneously advised the Investor Limited
Partners that if the Project is put up for sale, Greenbelt will purchase its
interest in the Project. Greenbelt complied with Rule 14a-6(a) by filing the
proxy materials with the Securities and Exchange Commission ("SEC") prior to
making the consent solicitation.
13. While Greenbelt's offer is in the interest of the Investor Limited
Partners and Springhill LP, it is
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not in the interest of Three Winthrop. Virtually all of Three Winthrop's stake
in the Project is in the form of management and other fees paid to Three
Winthrop's affiliates, which will cease if Greenbelt purchases the Project.
There is thus a conflict of interest between Three Winthrop and the Investor
Limited Partners to whom Three Winthrop has a fiduciary responsibility to
consider the Greenbelt offer.
E. AQUARIUS' TENDER OFFER
14. Despite its conflict of interest, and despite professions of
neutrality in securities filings, Three Winthrop has not remained neutral and
allowed the Investor Limited Partners to evaluate Greenbelt's consent
solicitation and offer or provided a fair procedure by which this may be
done. Instead, Three Winthrop has, through affiliates, put together a tender
offer designed to thwart Greenbelt's offer, preserve Three Winthrop's fees,
and prevent the Investor Limited Partners from receiving the maximum return
on their investment.
15. As part of that plan, on February 1, 1995 Aquarius, which, like Three
Winthrop, is controlled by NACC, commenced a tender offer for the units of
limited partnership interest in Springhill LP. On that date, Aquarius
provided the Investor Limited Partners an
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<PAGE>
Offering Circular which set out the terms of the tender offer and attempted to
persuade the Investor Limited Partners to vote against Greenbelt's consent
solicitation. Aquarius did not file its Offering Circular with the SEC, as
required by Rule 14a-6(a).
16. The tender offer is being made by an affiliate of Springhill LP and,
if successful, will cause the limited partnership interests to be held by
fewer than 300 people. Accordingly, Rule 13e-3 (promulgated under Section
13(e) of the Exchange Act) imposes certain disclosure obligations on Three
Winthrop, Aquarius, and NACC.
17. Under Rule 13e-3 (and Schedule 13E-3 thereto), Three Winthrop must
state whether it believes the transaction is "fair or unfair" to unaffiliated
security holders and must discuss the factors supporting that stated belief.
In other words, Three Winthrop must explain how it could believe the tender
offer is fair when alternative transactions that could result in more value
to the Investor Limited Partners have been blocked; when the offer is not the
product of arm's length negotiation; and when no competitive bids have been
sought. Three Winthrop has refused to make these required disclosures, in
breach of both the Exchange Act and its fiduciary duty to the individual
limited partners.
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<PAGE>
F. THREE WINTHROP'S BREACHES
OF ITS FIDUCIARY DUTY
18. Though purporting to remain neutral, Three Winthrop has in fact
supported the Aquarius tender offer. Three Winthrop has indirectly provided
crucial funding for the offer by delaying a planned distribution to the
Investor Limited Partners until after the offer is completed, at which point
the funds will go to Aquarius/Three Winthrop, rather than to the Investor
Limited Partners. On information and belief, Three Winthrop has also provided
NACC and Aquarius with extensive information about Springhill LP which
Aquarius and NACC have used in putting together the tender offer.
19. The Aquarius/Three Winthrop offer is contrary to the interests of the
Investor Limited Partners in a variety of ways. First, by preventing the
Investor Limited Partners from dissolving Springhill LP and placing the
Project or all of the partnerships interest therein up for sale to the
highest bidder, the tender offer prevents the Investor Limited Partners from
seeking the maximum return on their investment. Second, the tender offer is
effectively a "take it or leave it" proposal to the Investor Limited
Partners. Upon obtaining control, Aquarius/Three Winthrop will, as a limited
partner, be able to control all decisions made by Springhill LP without a
fiduciary duty to the other
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<PAGE>
Investor Limited Partners. Third, the tender offer would result in Springhill
LP no longer being regulated by the SEC, and thus would leave those Investor
Limited Partners who do not tender without access to much of the information
currently available to them. Fourth, the tender offer would result in
Aquarius/Three Winthrop being able to set the fees going to its affiliate for
managing the project, and to allocate management costs without supervision.
20. By supporting the tender offer, Three Winthrop has breached its
fiduciary duty to the Investor Limited Partners, injuring both the Investor
Limited Partners and Greenbelt.
21. Three Winthrop has also breached its fiduciary duty by refusing to
cooperate with Greenbelt's offer. Three Winthrop has refused to negotiate in
good faith with Greenbelt; has refused to seek other offers to determine the
fair market value of the Project; and has refused to obtain the consent of
the Project's lender to the assumption of the mortgage.
FIRST CAUSE OF ACTION
VIOLATION OF RULE 13e-3
22. Plaintiff repeats and realleges the allegations of paragraphs 1 to 21.
23. Because Three Winthrop has not made the disclosures required by Rule
13e-3, the Investor Limited
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<PAGE>
Partners are unable to properly evaluate the unfairness of the Aquarius/Three
Winthrop tender offer as compared to Greenbelt's offer. This threatens to
irreparably harm Greenbelt. Aquarius, NACC and Three Winthrop should
therefore be enjoined from pursuing that tender offer unless and until proper
disclosures are made.
SECOND CAUSE OF ACTION
VIOLATION OF RULE 14a
24. Plaintiffs repeat and reallege the allegations of paragraphs 1 to 23.
25. The Offering Circular constitutes a proxy solicitation within the
meaning of Rule 14a-1(1). Defendants failed to submit the proxy solicitation
materials to the SEC, as required by Rule 14a-6(a), and failed to provide the
Investor Limited Partners with the materials required by Rule 14a-3(a). This
gives defendants an unfair advantage in the contest for control of Springhill
LP, irreparably injuring Greenbelt. Aquarius, NACC and Three Winthrop should
be enjoined from pursuing the tender offer unless and until they comply with
Rule 14a.
THIRD CAUSE OF ACTION
BREACH OF FIDUCIARY DUTY
26. Plaintiffs repeat and reallege the allegations of paragraphs 1 to 25.
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<PAGE>
27. Three Winthrop has breached its fiduciary duty to the Investor Limited
Partners and to Springhill LP in various ways, including by making a coercive
tender offer for Springhill LP through its affiliate Aquarius, by failing to
disclose information as required by the securities laws, by refusing to
cooperate with Greenbelt, given its conflict of interest, and by failing to
establish a procedure for the fair and independent evaluation of the
different proposals.
28. Aquarius and NACC have aided and abetted the Three Winthrop's
breaches.
29. These breaches have injured Greenbelt by preventing the Investor
Limited Partners from properly evaluating Greenbelt's offer vis-a-vis the
tender offer.
WHEREFORE, plaintiff Greenbelt respectfully requests that this Court:
(1) enjoin NACC, Aquarius and Three Winthrop from continuing to pursue
their tender offer until a fair and independent procedure is established to
evaluate all proposals;
(2) order Three Winthrop, NACC and Aquarius to pay damages to plaintiff
for their breaches of fiduciary duty and violations of the federal securities
laws in an amount to be determined at trial, including reasonable attorneys'
fees; and
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<PAGE>
(3) award plaintiff such other relief as the Court deems just and proper.
BRAULT, GRAHAM, SCOTT & BRAULT
/s/ Albert D. Brault
-----------------------------
Albert D. Brault (#01041)
101 S. Washington St.
Rockville, MD 20850
(301) 424-1060
OF COUNSEL:
Stephen M. Sacks
George E. Covucci
Peter G. Neiman
ARNOLD & PORTER
1200 New Hampshire Ave., N.W.
Washington, D.C. 20036
(202) 872-6681
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<PAGE>
CERTIFICATE OF SERVICE
I hereby certify that on February 27, 1995, true
and correct copies of the foregoing Motion to Intervene,
the accompanying proposed complaint, and the memorandum
in support thereof were served by telecopier and first
class United States mail, postage prepaid, upon Seth D.
Greenstein, Esq., McDermott, Will & Emery, 1850 K
Street, N.W., Washington, D.C., 20006-2296, telecopier
number (202) 778-8087, and upon Barbara L. Moore, Esq.,
Cooley, Manion, Moore & Jonas, P.C., 21 Custom House
Street, Boston, MA, 02110, telecopier number (617) 737-
3113.
Dated: February 27, 1995
/s/ Albert D. Brault
-----------------------
Albert D. Brault
101 S. Washington St.
Rockville, MD 20850
(301) 424-1060
Attorney for Greenbelt
Residential Limited
Partnership
<PAGE>
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
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LER 8, a Maryland General Partnership, on
its behalf and on behalf of
SPRINGHILL LAKE INVESTORS LIMITED
PARTNERSHIP,
Plaintiff,
GREENBELT RESIDENTIAL LIMITED PARTNERSHIP DKC 95-555
11501 Huff Court, North Bethesda,
MD, 20895-1094, Plaintiff-Intervenor
v.
THREE WINTHROP PROPERTIES, INC., et al.,
Defendants.
- ------------------------------------------------------------------------------
MEMORANDUM OF LAW IN SUPPORT OF
GREENBELT RESIDENTIAL LIMITED
PARTNERSHIP'S MOTION TO INTERVENE
Greenbelt Residential Limited Partnership
("Greenbelt") is in a battle with defendants to acquire
the interest in certain property (the "Project") owned
by Springhill Lake Investors Limited Partnership
("Springhill L.P.")
Greenbelt has solicited proxies asking the
partners of Springhill L.P. to consent to dissolving the
partnership and putting the partnership's sole asset,
its interest in the Project, up for sale. The deadline
for returning those proxies is March 7, 1995. Greenbelt
has offered to purchase Springhill L.P.'s interest if it
is put up for sale.
<PAGE>
In an effort to block Greenbelt's efforts to
acquire the property, defendants have commenced a tender
offer to acquire Springhill L.P. That tender offer
expires on March 2.
This action was filed by a limited partner of
Springhill L.P., seeking to enjoin defendants' tender
offer on the grounds that (1) Three Winthrop Properties,
Inc. ("Three Winthrop") (which is both an affiliate of
the company making the tender offer, defendant Aquarius
Acquisitions, L.P. and also the general partner of the
target, Springhill L.P.) was violating its fiduciary
duties to the limited partners of Springhill L.P. by
aiding the tender offer and failing to set up a neutral
procedure for evaluating the competing offers, and (2)
that Three Winthrop had violated the securities laws by
failing to make the disclosures required under Rule 13-a3.
Plaintiff's preliminary injunction motion will
determine whether or not defendants' tender offer goes
forward, and thus whether or not the limited partners of
Springhill, L.P. (the "Investor Limited Partners") will
have a full and fair chance to consider Greenbelt's
proxy solicitation. Moreover, defendants' breaches of
fiduciary duty and securities law violations are
injuring Greenbelt by making it less likely that the
Investor Limited Partners will choose Greenbelt's offer
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<PAGE>
over defendants'. Greenbelt therefore respectfully moves to intervene as of
right in this action as a plaintiff pursuant to
Rule 24(a) of the Federal Rules of Civil Procedure.
ARGUMENT
Under Rule 24(a), the Court should grant a timely motion to intervene
where (1) "the applicant claims an interest relating to the property or
transaction which is the subject of the action" and (2) "the applicant is so
situated that the disposition of the action may as a practical matter impair
or impede the applicant's ability to protect that interest" unless (3) "the
applicant's interest is adequately represented by existing parties." Fed. R.
Civ. P. 24(a); Gould v. Alleco, Inc., 883 F.2d 281 (4th Cir. 1989), cert.
denied, 493 U.S. 1056 (1990). The Court should view motions to intervene
liberally, in favor of granting intervention. Feller v. Brock, 802 F.2d 722,
729 (1986). Under these standards, the Court should grant Greenbelt's motion
here.
First, Greenbelt has an interest in the transactions which are the subject
of this action. This action will determine how the Investor Limited Partners
evaluate Greenbelt's consent solicitation vis-a-vis the
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<PAGE>
Aquarius tender offer. See Feller, 802 F.2d at 730 (interest of competitor
sufficient for intervention).
Second, if this court were to deny the injunctive relief sought by the
Investor Limited Partners, that would impair Greenbelt's ability to protect
its interest in seeing that its offer is fairly weighed against the Aquarius
tender offer. While not technically binding on Greenbelt, as a practical
matter such an order would make it impossible for Greenbelt to get relief in
the few days before the Aquarius tender offer expires.
Finally, Greenbelt's interest in the transaction is not adequately
represented by the Investor Limited Partners. Greenbelt has far more at stake
than any of the Investor Limited Partner plaintiffs, who own only relatively
small interests. Greenbelt should be allowed to intervene to pursue this
litigation more aggressively than the plaintiffs may be willing to do.
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<PAGE>
CONCLUSION
For the reasons set forth above, this Court should grant Greenbelt's
motion to intervene.
Respectfully submitted,
BRAULT, GRAHAM, SCOTT & BRAULT
/s/ Albert D. Brault
---------------------------------
Albert D. Brault (#01041)
101 S. Washington St.
Rockville, MD 20850
(301) 424-1060
OF COUNSEL:
Stephen M. Sacks
George E. Covucci
Peter G. Neiman
ARNOLD & PORTER
1200 New Hampshire Ave., N.W.
Washington, D.C. 20036
(202) 872-6681
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<PAGE>
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
LER 8, a Maryland General Partnership, on
its behalf and on behalf of
SPRINGFIELD LAKE INVESTOR LIMITED
PARTNERSHIP
Plaintiff DKC-95-555
GREENBELT RESIDENTIAL LIMITED PARTNERSHIP
11501 Buff Court, North Bethesda
MD, 20895-1094,
Plaintiff-Intervenor
v.
THREE WINTHROP PROPERTIES, INC., et al.
Defendants
ORDER
UPON CONSIDERATION of the Plaintiff's, Greenbelt Residential Limited
Partnership's, Motion to Intervene and the Complaint attached thereto, and
any opposition thereto, it is this day of , 1995,
by the United States District Court for the District of Maryland,
ORDERED that the Motion to Intervene be GRANTED and that the Intervenor
should promptly file the proposed Complaint.
_______________________________
JUDGE, CIRCUIT COURT FOR
MONTGOMERY COUNTY, MARYLAND
COPIES TO:
Albert D. Brault, Esq.
101 S. Washington Street
Rockville, MD 20850
<PAGE>
Stephen M. Sacks, Esq.
Arnold & Porter
1200 New Hampshire Avenue, N.W.
Washington, D.C., 20036
Seth D. Greenstein, Esq.
McDermott, Will & Emery
1850 K Street, N.W.
Washington, D.C., 20006-2296
Barbara L. Moore, Esq.
Cooley, Manion, Moore & Jones, P.C.
21 Custom House Street
Boston, MA 02110
