SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended
DECEMBER 31, 1995 Commission File No. 0-17633
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USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
(Exact name of registrant as specified in its
Certificate of Limited Partnership)
MARYLAND 75-2228850
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 LIGHT STREET, TENTH FLOOR, BALTIMORE, MARYLAND 21202
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number including area code) (410) 625-5500
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
UNITS OF ASSIGNEE LIMITED PARTNERSHIP INTERESTS
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements over the past 90 days.
Yes X No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K to
Document from Which Portions which Incorporated by
Are Incoporated by Reference Reference
1. Prospectus dated June 28, 1988 Part I and Part III
2. Prospectus Supplement No. 1 dated November 7, 1988 Part I
3. Prospectus Supplement No. 2 dated February 10, 1989 Part I
4. Prospectus Supplement No. 4 dated May 18, 1989 Part I
5. Prospectus Supplement No. 5 dated August 7, 1989 Part I
<PAGE>
TABLE OF CONTENTS
PART I PAGE
Item 1. Business 1
Item 2. Properties 2
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for the Partnership's Assignee Limited Partnership Units and
Related Security Holder Matters 6
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 8. Financial Statements and Supplementary Data 19
Item 9. Change in and Disagreements with Accountants on Accounting and
Financial Disclosures 58
PART III
Item 10. Directors and Executive Officers of the Partnership 59
Item 11. Executive Compensation 61
Item 12. Security Ownership of Certain Beneficial Owners and Management 61
Item 13. Certain Relationships and Related Transactions 62
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 63
Signatures 68
<PAGE>
PART I
ITEM 1. BUSINESS.
USF&G/Legg Mason Realty Partners Limited Partnership (the "Partnership") was
organized as a limited partnership under the Maryland Revised Uniform Limited
Partnership Act pursuant to a Certificate of Limited Partnership filed with the
Maryland State Department of Assessments and Taxation on April 12, 1988 and a
Limited Partnership Agreement and Amended Certificate of Limited Partnership
dated as of June 16, 1988 as subsequently amended (the "Partnership Agreement").
The Partnership was formed to acquire, hold, lease and ultimately dispose of
income-producing commercial and multifamily residential rental properties
located primarily in the Eastern United States. The General Partners of the
Partnership are USF&G Realty Partners, Inc., a Maryland corporation (the "USF&G
General Partner"), and Legg Mason Realty Partners, Inc., a Maryland corporation
(collectively, the "General Partners").
On June 28, 1988, the Registration Statement filed by the Partnership with the
Securities and Exchange Commission pursuant to an offering of 1,400,000 units of
Assignee Limited Partnership Interests ("Units") at $25 per Unit (with an option
to increase the number of Units offered for sale by up to 600,000 additional
Units) (the "Offering") was made effective. The initial closing for investors
was held on July 13, 1988. Reference is made to pages 2 to 7 of the
Partnership's Prospectus dated June 28, 1988, which is incorporated by reference
herein, for further information regarding the Offering.
On July 17, 1989, the assignee limited partners (the "Unitholders") of the
Partnership voted to authorize the General Partners to extend the offering
period to September 15, 1989, or such other date as the General Partners deemed
to be in the best interest of the Partnership, but no later than June 28, 1990.
The General Partners agreed to extend the offering period to December 31, 1989,
at which time the Offering terminated.
The USF&G General Partner and Legg Mason Realty Partners, Inc. contributed $900
and $100, respectively, to the Partnership, and the USF&G Assignor Limited
Partner, Inc. (the "Assignor Limited Partner") contributed $100, representing
the purchase of four Units. As of December 31, 1989, 1,094,283 Units had been
sold for aggregate gross proceeds of $27,357,075. This includes 400,000 Units
purchased by Fidelity and Guaranty Life Insurance Company, an affiliate of the
USF&G General Partner.
After deducting rebates to Unitholders of $835,001 and offering and
organizational costs and selling commissions totalling $2,174,276, approximately
$24,348,000 was available for investment in income producing properties. As of
December 31, 1990, substantially all of the offering proceeds available for
investment had been invested in four real property investments (the
"Properties") meeting the investment criteria of the Partnership. Northeast
Business Campus ("NEBC"), St. Andrews Apartments at Westwood ("St. Andrews"),
and Shadeland Retail Center ("Shadeland") are owned directly by the Partnership
(collectively, the "Properties"). The Partnership owns a fifty percent general
partnership interest in the Greenbrier Joint Venture. On April 26, 1995, the
Greenbrier Joint Ventures' sole property, Greenbrier Towers, was purchased by
the lender at foreclosure. The Greenbrier Joint Venture general partners intend
to dissolve the Greenbrier Joint Venture during 1996.
<PAGE>
The Partnership is in competition for tenants for the Properties with numerous
other entities engaged in real estate investment activities including other real
estate investment partnerships, individuals, corporations, and real estate
investment trusts ("REITs"). When evaluating a particular location to lease, a
tenant may consider many factors, including, but not limited to, space
availability, rental rates, lease terms, access, parking, quality of
construction, and quality of management. While the General Partners believe that
the Properties are generally competitive in demand of these factors, there can
be no assurance that, in the view of a prospective tenant, other properties may
not be more attractive.
The Partnership has no employees. The General Partners or affiliates employ
persons and contract with other entities and parties in the operation and
management of the business of the Partnership. Reference is made to the
description of management of the Partnership incorporated by reference from
"Item 10. Directors and Executive Officers of the Partnership" of this Annual
Report on Form 10-K. A detailed description of the real property investments is
incorporated by reference from "Item 2. Properties" of this Annual Report on
Form 10-K.
ITEM 2. PROPERTIES.
SHADELAND RETAIL CENTER
On August 1, 1990, the Partnership acquired Shadeland Retail Center
("Shadeland"), located in Indianapolis, Indiana, from unaffiliated sellers for a
contract price of $9,690,850. In connection with the purchase, the Partnership
assumed a loan in the amount of $4,387,142. Shadeland consists of two
single-level neighborhood retail projects, Shadeland Station and Shadeland
Shoppes, containing in the aggregate approximately 105,000 net rentable square
feet on approximately 12.4 acres. The appraised value of Shadeland as of
December 1, 1995 was $9,850,000, a decrease of $150,000 from December 1, 1994.
The decrease was due primarily to the increased vacancy.
As of December 31, 1995, Shadeland was approximately 86% leased. Shadeland is
anchored by Marsh Supermarket and Osco Drugs, Inc.("Osco"). During the fourth
quarter of 1995, Ace Hardware, a tenant in the Shadeland Shoppes, vacated its
8,000 square foot space at the end of its lease due to increased competition in
the immediate area. Net rental rates range from $5.83 to $17.50 per square foot
as of December 31, 1995. Operating leases with tenants range in original term
from 1 to 20 years. Approximately 11% of the square feet leased as of December
31, 1995 will expire during 1996. The following tenants leased more than 10% of
the total rentable space of Shadeland as of December 31, 1995:
<TABLE>
<S> <C> <C>
% of Total Rentable
Space Leased as of
TENANT 12/31/95 LEASE EXPIRATIONS
Marsh Supermarket 34% 05/02/02
American Drug Stores, Inc. (dba, Osco Drugs, Inc.) 13% 06/30/97
</TABLE>
<PAGE>
The Partnership presented a relocation plan to Osco during the fourth quarter of
1995 which involved the vacant Ace Hardware space. Osco continued to indicate
their desire to remain in their existing space at Shadeland by rejecting the
plan. Osco's reluctance to relocate into available space at Shadeland continues
to impede Marsh's plan to enlarge its Shadeland store. Marsh believes expansion
is necessary so that it does not lose market share to the Krogers Supermarket
two miles away to the east. Marsh has indicated that they believe that the
Shadeland store will not lose significant market share to the new Marsh
Superstore located two miles to the northeast, based on the traffic patterns in
the area.
Further discussion relating to Shadeland is incorporated by reference from Notes
B and G of the Notes to Financial Statements of the Partnership in "Item 8.
Financial Statements and Supplementary Data" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" of
this Annual Report on Form 10-K.
ST. ANDREWS APARTMENTS AT WESTWOOD
On June 28, 1990, the Partnership purchased St. Andrews Apartments at Westwood
("St. Andrews") from an unaffiliated seller for a contract price of $13,700,000.
In connection with the purchase, interim financing in the amount of $8,500,000
was obtained from an affiliate of the USF&G General Partner. On August 14, 1990,
the Partnership replaced the interim financing with permanent financing in the
amount of $8,500,000 from an unaffiliated lender.
St. Andrews is located in Orlando, Florida and consists of 16 two-story and
three-story apartment buildings on 14.55 acres. The garden-style apartment
buildings contain 259 units with an aggregate of approximately 217,000 rentable
square feet. The appraised value of St. Andrews as of December 1, 1995 was
$8,800,000 as compared to $8,350,000 at December 1, 1994. The increase in the
appraised value of $450,000 was due to the partial repairs and improvements made
during 1995 (see "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations") as well as the continued strength of the
Orlando apartment market. The repairs at St. Andrews are necessary to maintain
the value of the property since the value of St. Andrews as indicated in the
appraisal after the required capital improvements are completed is $11,800,000.
The Partnership filed suit in state court in Orlando, Florida against the
seller, builder, developer, architect, product manufacturer, engineers, as well
as several other parties involved in the St. Andrews project. The suit seeks
recovery for the costs of the anticipated repairs as well as other consequential
damages. While the Partnership intends to assert its claims vigorously, there
can be no assurance that it will successfully recover its damages.
As of December 31, 1995, St. Andrews was approximately 89% leased, the average
monthly rental rate was $591/unit and the lease terms range from one to twelve
months. No single tenant leased 10% or more of the net rentable area of St.
Andrews as of December 31, 1995.
Further discussion relating to St. Andrews is incorporated by reference from
Notes B, G, and J of the Notes to Financial Statements of the Partnership in
"Item 8. Financial Statements and Supplementary Data" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" of
this Annual Report on Form 10-K.
<PAGE>
GREENBRIER TOWERS
On May 16, 1989, the Partnership entered into a general partnership agreement
(the "Greenbrier Joint Venture") with Greenbrier Towers Fidelity Associates
Limited Partnership ("Fidelity"), an affiliate of the USF&G General Partner, to
acquire, own and operate Greenbrier Towers. The Partnership and Fidelity (the
"Joint Venture Partners") each own a 50% general partnership interest in
Greenbrier Joint Venture. The Greenbrier Joint Venture agreement provides that,
in general, all distributions of cash from operations, sales and refinancings,
and items of income and loss will be allocated equally between the Partnership
and Fidelity. The agreement also requires that cash contributions to Greenbrier
Joint Venture will be made by the Partnership and Fidelity equally. Fidelity
funded Greenbrier Joint Venture operating deficits in 1992 and 1993 under a note
payable. The business and affairs of Greenbrier Joint Venture are managed
collectively by the Partnership and Fidelity, and neither can make any major
decision regarding the financing or sale of Greenbrier Towers without the
consent of the other.
On May 17, 1989, Greenbrier Joint Venture acquired Greenbrier Towers from an
unaffiliated seller for a gross purchase price of $23,200,000. In connection
with the acquisition, the Partnership and Fidelity were each required to
initially contribute approximately $5,150,000, and interim financing in the
amount of $13,100,000 was obtained from an affiliate of the USF&G General
Partner. On August 22, 1989, the Greenbrier Joint Venture obtained permanent
financing for Greenbrier Towers in the amount of $13,100,000 from an
unaffiliated lender. Operating difficulties at Greenbrier Towers, the
Partnership's Joint Venture Investment, caused the Joint Venture Partners to
default on the mortgage and approach the lender to seek to obtain a modification
in the terms of the mortgage during 1994. An acceptable modification was not
reached and the Greenbrier Towers was transferred to the lender at the April 26,
1995 foreclosure sale.
Further discussion relating to Greenbrier Towers is incorporated by reference
from the financial statements of Greenbrier Towers General Partnership and from
Note C of the Notes to Financial Statements of the Partnership, both of which
are included in "Item 8. Financial Statements and Supplementary Data" and "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations" of this Annual Report on Form 10-K. Also refer to pages 1 to 5 of
Prospectus Supplement No. 4 dated May 18, 1989, which is incorporated by
reference herein, and page 5 of Prospectus Supplement No. 5 dated August 7,
1989, which is incorporated by reference herein, for additional information
concerning Greenbrier Towers.
NORTHEAST BUSINESS CAMPUS
On November 8, 1988, the Partnership acquired Northeast Business Campus ("NEBC")
from an unaffiliated seller for $13,430,000 in cash. On August 22, 1989, the
Partnership obtained permanent financing from an unaffiliated lender for NEBC in
the amount of $7,975,000. NEBC is an office/service center complex comprised of
five buildings containing an aggregate of approximately 180,000 rentable square
feet, located in suburban Columbus, Ohio. NEBC consists of one two-story office
building containing 71,000 rentable square feet, constructed in 1984, two
one-story office buildings constructed in 1981, each containing approximately
31,100 rentable square feet, and two service center buildings constructed in
1981, each containing approximately 23,500 rentable square feet, situated on
19.95 acres.
<PAGE>
As of December 31, 1995, NEBC was approximately 88% leased. Net rental rates
ranged from $5.97 to $8.75 per square foot for office space and from $5.00 to
$7.97 per square foot for service center space as of December 31, 1995.
Operating leases with tenants range in original term from one to five years.
Approximately 22% of the current square feet leased as of December 31, 1995 will
expire during 1996.
The following tenants leased more than 10% of the total rentable space leased at
NEBC as of December 31, 1995:
<TABLE>
<S> <C> <C>
% of Total Rentable
Space Leased as of
TENANT 12/31/95 LEASE EXPIRATIONS
Cigna 25% 06/30/99
Automatic Data Processing 20% 03/31/98
</TABLE>
The appraised value of NEBC as of December 1, 1995 was $9,500,000 as compared to
$10,000,000 at December 1, 1994. The decrease of $500,000 in the appraised value
from 1994 was due primarily to near term scheduled lease rollovers. Occupancy
increased to 88% at December 31, 1995 from 78% at December 31, 1994 due
primarily to the 14,589 square foot Electronic Data Systems Corporation lease in
Building 5 executed during the third quarter of 1995.
The Partnership reached an agreement with the NEBC lender to restructure the
NEBC mortgage during 1994. The modification improved NEBC's operating cash flow,
thereby, allowing the Partnership to offer competitive levels of tenant
improvements to prospective tenants. Under the terms of the loan restructure,
all future cash flow generated by the NEBC property is required to be held in a
reserve account to be used only for the benefit of NEBC or to meet obligations
to the lender.
Further discussion relating to NEBC is incorporated by reference from Notes B
and G of the Notes to Financial Statements of the Partnership in "Item 8.
Financial Statements and Supplementary Data" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" of
this Annual Report on Form 10-K. Also refer to pages 1 to 5 of Prospectus
Supplement No. 1 dated November 7, 1988, which is incorporated by reference
herein, and page 1 of Prospectus Supplement No. 2 dated February 10, 1989, which
is incorporated by reference herein, for additional information concerning NEBC.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings, other than ordinary routine
litigation incidental to the Partnership's business, to which the Partnership is
a party or of which any of the Partnership's Properties is the subject, other
than the suit filed by the Partnership against numerous parties in regard to the
design and construction problems at St. Andrews. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" of
this Annual Report on Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of the 1995 fiscal period covered by this report through solicitation of
proxies or otherwise.
<PAGE>
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S ASSIGNEE LIMITED PARTNERSHIP UNITS
AND RELATED SECURITY HOLDER MATTERS.
Presently there is no public market for the Units and there is no expectation
that one will develop. Consequently, Unitholders may not be able to liquidate
their investment in the event of emergency or for any other reason. Further, the
transfer of Units is subject to certain limitations. As of December 31, 1995,
there were 1,239 Unitholders, owning an aggregate of 1,094,283 Units.
The General Partners have considered taking steps to facilitate the trading of
the Units. The General Partners believe that in view of the current value of the
Partnership's portfolio, and in certain cases the uncertainties regarding the
future prospects of its properties, as well as the generally unfavorable market
conditions for the resale of limited partnership interests and the costs
associated with certain types of actions to facilitate a trading market, an
effort to facilitate such a market would not be appropriate, and possibly not
feasible, at this time. In addition, if a trading market in the Units were to be
facilitated, the value of the Units in any such market could be less than the
Right of Presentment purchase price discussed below. The General Partners will
continue periodically to evaluate the feasibility and advisability of attempting
to take steps to facilitate the trading of Units.
In accordance with the Partnership Agreement of the Partnership, beginning May
1992, and on each anniversary period thereafter, the USF&G General Partner has
offered to purchase, under the Right of Presentment Program, up to 2% (13,886)
of the total number of Units originally issued to Investors, which does not
include the 400,000 Units purchased by Fidelity and Guaranty Life Insurance
Company. The USF&G General Partner is entitled to the beneficial rights
attributable to any purchased Units, including the rights to cash distributions
and a percentage of the Partnership's income, gains, losses, deductions and
credits, but not voting rights. As of December 31, 1995, the USF&G General
Partner had purchased 42,728 Units under the Right of Presentment Program.
13,886 Units were purchased at $4.18, $4.17, and $9.53 per Unit on June 30,
1995, 1994 and 1993, respectively. 1,070 Units were purchased at $11.27 per Unit
on June 30, 1992. Legg Mason Realty Partners, Inc., the other General Partner
purchased 42,314 Units during the 1995 Right of Presentment Program at $4.18 per
Unit.
The Right of Presentment procedures as set forth in the Partnership's
Partnership Agreement were amended during 1995. This Program now provides that
if in a year Units are presented in excess of the amount required to be
purchased by USF&G Realty Partners, Inc. (2% of the Units originally issued to
investors, which does not include the 400,000 Units purchased by Fidelity &
Guaranty Life Insurance Company), then the General Partners may elect to
purchase such excess presented Units, provided that the total number of Units
repurchased shall not exceed 10% of the outstanding Units owned by persons other
than the General Partners and their affiliates.
<PAGE>
The USF&G General Partner will repurchase the Units under the 1996 Right of
Presentment at the 1996 Right of Presentment purchase price discussed below. If
more than 13,886 Units are presented for purchase, 13,886 Units will be
purchased by the USF&G General Partner on a pro rata basis from the Unitholders
that present. The other General Partner may elect to purchase all or a portion
of the excess Units presented up to 47,038 additional units due to the 10% limit
discussed above. Units will be purchased by June 28, 1996. A Certificate of
Assignee Units of Limited Partnership Interests representing those Units not
purchased will be issued. The purchasing General Partner is entitled to the
beneficial rights attributable to any purchased Units, including the rights to
cash distributions, and a percentage of the Partnership's income, gains, losses,
deductions and credits, but not voting rights. For the administrative
convenience of the Partnership and Unitholders, the General Partners have
modified the procedures for exercising the Right of Presentment from those
outlined in the Prospectus and Partnership Agreement. Presentment will be based
upon acceptance of the announced per Unit purchase price. There is no longer a
withdrawal period. Unitholders must present their units for purchase by June 7,
1996.
The purchase price to be paid by the USF&G General Partner equals 90% of the
value of the Units as estimated by the General Partners based upon current
appraisals of the Properties owned by the Partnership. Estimates of value may
not necessarily correspond to realizable value. The appraised values of the
Properties owned by the Partnership, as indicated by appraisals as of December
1, 1995 are:
NORTHEAST BUSINESS CAMPUS: $ 9,500,000
SHADELAND RETAIL CENTER: $ 9,850,000
ST. ANDREWS APARTMENTS AT WESTWOOD: $11,800,000
Using the above referenced appraised values, and after consideration of the
Partnership's debt and other assets but before selling expenses, the General
Partners have determined that the per Unit purchase price for the 1996 Right of
Presentment is $4.39. The increase in the Right of Presentment value from $4.18
in 1995 is due to the increase in the appraised value of St. Andrews offset in
part by the decrease in the appraised values of Shadeland and NEBC, net of the
lender's participation. See Note G to the financial statements. The St. Andrews
appraised value increased as a result of the partial repairs and improvements
made during 1995 as well as the continued strength of the Orlando apartment
market. The decrease in the appraised values of NEBC and Shadeland were due to
near term scheduled lease rollovers and increased vacancy caused by increased
competition, respectively. The appraised value of St. Andrews used in the 1996
Right of Presentment calculation assumes recovery of the incurred and remaining
estimated cost of the improvements required to repair the deterioration of the
trim and siding of certain buildings as discussed in "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations." There
cannot be any assurance as to the timing or amount of any recovery from
responsible parties to offset the required repairs at St. Andrews. Therefore,
the actual cost of additional repairs may be expected to reduce the 1997 Right
of Presentment Unit purchase price if the Partnership does not receive
recoveries from responsible parties during 1996 for the design and construction
problems.
<PAGE>
Any Distributable Cash Flow is distributed to the partners on a quarterly basis,
no later than 45 days after the close of each quarter, 99% to the Unitholders
and 1% to the General Partners. To the extent that distributable cash flow from
operations is not sufficient to pay to the Unitholders a cumulative return of 2%
per quarter (or an 8% annual return) on their invested capital, the USF&G
General Partner had agreed to lend the Partnership an amount equal to up to 20%
of the gross proceeds of the Offering during the first five years to enable the
Partnership to pay Unitholders the cumulative return of 2% per quarter (the
"Cash Flow Protector Loan"). Advances under the Cash Flow Protector Loan expired
on July 13, 1993. The Cash Flow Protector Loan accrued interest at an annual
simple rate of 8% through December 31, 1992 and 6% thereafter. For additional
information concerning the Cash Flow Protector Loan, refer to Note F of Notes to
Financial Statements of the Partnership which is incorporated by reference from
"Item 8. Financial Statements and Supplementary Data" of this Annual Report on
Form 10-K.
As of December 31, 1993, cumulative cash distributions of $10,545,983 and
$106,517 had been made to the Unitholders and General Partners, respectively.
These cash distributions represented a cumulative return of 2% on invested
capital for each calendar quarter through the period ended July 13, 1993. In
connection with cumulative cash distributions through July 13, 1993, the USF&G
General Partner had funded $4,849,734 pursuant to the Cash Flow Protector Loan.
Beginning May 1992, and on each anniversary period thereafter, the USF&G General
Partner has offered to purchase, under the Right of Presentment Program, up to
2% of the total number of Units originally issued to Investors, which does not
include the 400,000 Units purchased by Fidelity and Guaranty Life Insurance
Company.
During 1993, all of the cash distributions made to the Unitholders and General
Partners represented advances from the USF&G General Partner under the Cash Flow
Protector Loan. No additional distributions were made after the November 12,
1993 distribution due to the expiration of the Cash Flow Protector Loan and the
Partnership's need to retain funds for operating expenses and property
improvements. For the foreseeable future, the Partnership expects to apply cash
flow from operations to increase Partnership working capital reserves and to
provide for certain property maintenance and improvements, and consequently,
there is no expectation that Distributable Cash Flow will be available to make
distributions to Unitholders.
<PAGE>
<TABLE>
<CAPTION>
ITEM 6. SELECTED FINANCIAL DATA.
<S> <C> <C> <C> <C> <C>
For the Year For the Year For the Year For the Year For the Year
Ended Ended Ended Ended Ended
December 31, December 31, December 31, December 31, December 31,
STATEMENTS OF OPERATIONS 1995 1994 1993 1992 1991
- ------------------------ ---- ---- ---- ---- ----
Total Revenue $ 4,609,318 $ 4,307,972 $ 4,149,803 $ 5,082,642 $ 5,327,917
Total Expenses (***) 6,100,817 6,129,583 12,701,789 6,309,958 6,165,197
Net (Loss) Income (***) (1,491,499) (1,821,611) (8,551,986) (1,227,316) (837,280)
Per Unit (*):
Net (Loss) Income (***) $ (1.35) $ (1.65) $ (7.74) $ (1.11) $ (0.76)
Cash Distributions (**) 0.00 0.00 1.57 2.00 2.00
As of As of As of As of As of
December 31, December 31, December 31, December 31, December 31,
BALANCE SHEETS 1995 1994 1993 1992 1991
- -------------- ---- ---- ---- ---- ----
Real Estate Investments (***) $28,612,932 $29,427,139 $30,713,232 $38,982,810 $40,381,307
Total Assets (***) 30,021,127 30,810,375 32,008,156 40,278,450 42,284,834
Debt (****) 25,645,265 25,705,421 25,564,553 23,878,694 22,578,335
(*) Based on the weighted average number of Units outstanding for each year
in the five year period ended December 31, 1995, of 1,094,283 and the
net income or cash distributions allocated to the Unitholders.
(**) Includes only cash distributions paid during the corresponding period or year.
(***) Includes writedowns of the investment in the Partnership's share of
Greenbrier Towers of $460,567, $348,450 and $2,652,000 in 1995, 1994
and 1993, respectively. 1993 also includes a writedown of the
investment in NEBC of $4,043,000.
(****) Includes principal balances of mortgages, Cash Flow Protector Loan and
loans from General Partners.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
On June 28, 1988, the Partnership's Registration Statement registering 1,400,000
Units at an offering price of $25 per Unit was declared effective by the
Securities and Exchange Commission. On July 17, 1989, the Unitholders voted to
authorize the General Partners to amend the Partnership Agreement to extend the
offering period beyond the June 28, 1989 offering termination date to September
15, 1989, or such other date as the General Partners deemed to be in the best
interest of the Partnership, but no later than June 28, 1990. The General
Partners agreed to extend the offering period to December 31, 1989, at which
time the Offering terminated. A total of 1,094,283 Units were sold for aggregate
gross proceeds of $27,357,075.
As of December 31, 1989, Unitholders' capital contributions, after deducting
rebates of $835,001, totaled $26,522,074. After deducting $2,174,276 for
offering and organization costs and selling commissions, approximately
$24,348,000 was available for investment in income producing properties.
<PAGE>
Offering costs were recognized ratably against gross proceeds from the Offering
of Units. At the termination of the Offering, the excess offering and
organization costs of $222,752 above the maximum amount allowable by the
Partnership Agreement were paid by the General Partners or their affiliates and
not by the Partnership.
As of December 31, 1990, the Partnership had invested in four income producing
properties. Northeast Business Campus ("NEBC"), St. Andrews Apartments at
Westwood ("St. Andrews"), and Shadeland Retail Center ("Shadeland") are owned
directly by the Partnership (collectively, the "Properties"). The Partnership
owns a fifty percent general partnership interest in the Greenbrier Joint
Venture. On April 26, 1995, the Greenbrier Joint Ventures' sole property,
Greenbrier Towers, was purchased by the lender at foreclosure. The Greenbrier
Joint Venture General Partners intend to dissolve the Greenbrier Joint Venture
during 1996. As of December 31, 1990, substantially all of the proceeds
available for investment had been invested in properties meeting the investment
criteria of the Partnership. For additional information concerning the
Properties, refer to Note B and C of Notes to Financial Statements of the
Partnership which is incorporated by reference from "Item 8. Financial
Statements and Supplementary Data" of this Annual Report on Form 10-K.
LIQUIDITY AND CAPITAL RESOURCES
The cash and cash equivalents position of the Partnership at December 31, 1995
increased $264,523 in comparison to December 31, 1994. The increase was due
primarily to increased cash from operations partially offset by investments in
income producing properties. The increased cash from operations is primarily due
to the increased NEBC occupancy . The increased investments in income producing
properties were due primarily to tenant improvements at NEBC. The Partnership's
cash and cash equivalents position will continue to fluctuate during each
quarter as follows: (1) decreasing with the funding of lease-up costs and
capital improvements of the Properties; (2) increasing as net rental income and
interest income are received; and (3) decreasing as expenses (including debt
service requirements) are paid.
The Partnership's ability to compete in each market is adversely affected by the
declining level of cash provided by operations since the level of tenant
improvement is limited to the cash available for investment in income producing
properties. In connection with the acquisition of the Properties, the
Partnership established cumulative working capital reserves of approximately 3%
of gross offering proceeds. For the foreseeable future, the Partnership expects
to apply cash flow from operations to increase Partnership working capital
reserves and to provide for certain property maintenance and improvements, and
consequently, there is no expectation that Distributable Cash Flow will be
available to make distributions to Unitholders. This policy reflects the
declining level of cash flow from operations generated by the Partnership and
the commitment by the General Partners to maintain adequate working capital
reserves. The General Partners believe that such a policy is prudent in view of
the current real estate and economic environments and is consistent with the
Partnership's objective to maintain and increase the value of the Properties.
<PAGE>
The Partnership has projected investments in income producing properties at
Shadeland and NEBC of approximately $630,000 during 1996 for tenant
improvements, leasing commissions, and building improvements. The investments
include $324,000 at Shadeland for building facade renovations and parking lot
improvements. The Partnership will use working capital reserves and cash flow
from operations at Shadeland for this investment. The Partnership anticipates an
investment of approximately $306,000 at NEBC. This investment will be funded
from the reserve accounts discussed above maintained by the lender. The
Partnership will use all cash flow from operations at St. Andrews and proceeds
from any additional financing for the construction repairs discussed below. The
Shadeland mortgage matures on January 1, 1997. The Partnership intends to
refinance the mortgage loan prior to that date.
Repair of the construction problems at St. Andrews began during the third
quarter of 1995 under the $2.9 million repair contract entered into during the
second quarter of 1995. The repairs are expected to be completed late in the
third quarter of 1996. During 1995, modifications to the original construction
contract were made to install new windows, replace the roofs and repair and
replace the underlying wooden structures as necessary on all the buildings.
These modifications resulted in a $617,600 increase in the $2.9 million base
contract. The original contract price was based on the repairs recommended by
the detailed engineering studies completed during the first quarter of 1995. The
actual costs upon completion could vary substantially from the $3.5 million
contract price if additional problems are discovered as repairs are made.
Approximately $670,000 of the contract repairs have been paid at December 31,
1995.
The Partnership executed an agreement for a construction loan with the USF&G
General Partner during the third quarter of 1995 which will permit the
Partnership to borrow up to $3.5 million to complete the necessary repairs.
Under its terms, the loan will mature on September 1, 1997 and interest is
payable monthly on advanced funds at 9.0%. The terms also provide for early
repayment from additional recoveries from the Partnership's lawsuit, net
operating income after reserves, or sale or refinancing proceeds. The
Partnership anticipates borrowing at least $2.8 million under this loan during
1996 to complete the repairs. As of December 31, 1995, no draws on this loan
have been made. Advances of $700,000 have been made through March 1, 1996.
The Partnership filed suit in 1994 in state court in Orlando, Florida against
various parties involved in the St. Andrews project seeking recovery for the
costs of the anticipated repairs as well as other consequential damages. While
the Partnership intends to assert its claims vigorously, there can be no
assurance that it will recover its damages in full. To date, the Partnership has
received settlements totalling $627,500 from parties to the litigation, $565,000
of which was received during 1995. During the second quarter, the Partnership
received $465,000 from the architect and $100,000 during the third quarter from
United States Fidelity and Guaranty Company, the insurer of the painting and
reconstruction contractor. The settlement with United States Fidelity and
Guaranty Company, an affiliate of the USF&G General Partner, was negotiated at
arms length between counsel for the Partnership and the claims representative.
The Partnership continues to assert claims in the litigation against various
responsible parties.
<PAGE>
The Partnership anticipates that the repairs at St. Andrews may result in lower
occupancy and/or rental rates during the period that repairs are being made and
is offering concessions to maintain occupancy at a market level. A reduction in
occupancy or rental rates would result in lower cash flow from operations at St.
Andrews. The Mission Club, a 352-unit luxury apartment community approximately
one mile from St. Andrews, opened its first building in December, 1995. The
remainder of the buildings are scheduled for completion by mid-1996. The Mission
Club's rental rates currently are higher than St. Andrews.
INFLATION
Inflation has not had a material impact on the operations of the Partnership.
The potential adverse effects on the Partnership's expenses from rising
inflation are limited. Most leases at Shadeland and NEBC are "triple net" which
enables the Partnership to pass certain cost increases directly through to
tenants at these respective Properties. However, there is no assurance that
inflation would not have an adverse effect on the future operations of the
Partnership.
Inflation may also impact the interest rates charged by lenders. Currently, any
increase in interest rates would not affect the Partnership's debt service since
all loans contain fixed interest rates. However, an increase in interest rates
due to inflation occurring at the maturity date of any of the Partnership's
mortgage loans would have an adverse effect on the Partnership. The interest
rate on the new loan or the extension of an existing loan could be higher than
the current rates, resulting in increased debt service and reduced cash flow
from operations. Significant prepayment penalties on the Partnership's mortgage
loans, other than at NEBC, currently preclude the option of refinancing at lower
interest rates. However, the NEBC lender is entitled to participate in sales
proceeds above the outstanding debt and closing costs.
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
<S> <C> <C> <C>
Net Income Net Income Net Income
(Loss) for the (Loss) for the (Loss) for the
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1995 1994 1993
---- ---- ----
St. Andrews $ (313,562) $ (334,056) $ (321,729)
St. Andrews Repair and Legal Costs,
Net (833,771) (165,224) 0
Shadeland 199,790 226,560 181,642
NEBC (132,671) (585,168) (4,759,914)
----------- ---------- ----------
(1,080,214) (857,888) (4,900,001)
Equity in Joint Venture Loss -
Greenbrier 0 (566,012) (3,150,148)
Partnership Expense (411,285) (397,711) (501,837)
----------- ---------- ----------
$(1,491,499) $(1,821,611) $(8,551,986)
========== ========== ==========
</TABLE>
<PAGE>
1995 TO 1994
The Partnership incurred a net loss of $(1,491,499) for the twelve months ended
December 31, 1995 ("current period") as compared to $(1,821,611) for the twelve
months ended December 31, 1994 ("comparable period"). The decreased net loss of
$330,112 was due primarily to the equity in Greenbrier Joint Venture losses
recognized during 1994. Revenue for the current period was $4,609,318 as
compared to $4,307,972 for the comparable period. The increase of $301,346 was
primarily due to higher occupancy at NEBC during 1995. Property operating
expenses decreased $76,003 to $1,776,155 for the current period from $1,852,158
for the comparable period. The difference is principally attributable to
expenses incurred in 1994 in connection with the restructuring of the NEBC loan.
NORTHEAST BUSINESS CAMPUS
Rental revenue at NEBC increased $304,212 to $1,629,859 for the current period
as compared to $1,325,647 for the comparable period. The increase was the result
of increased overall occupancy and higher overall average net rental rates. The
average occupancy at NEBC for the year ended December 31, 1995 was 84% as
compared to 66% for the year ended December 31, 1994. The occupancy for office
and service center component at December 31, 1995 was 85% and 96%, respectively,
as compared to 77% and 82%, respectively, at December 31, 1994. The average net
rental rate at December 31, 1995 decreased to $8.71 per square foot for office
space and $6.79 per square foot for service center space as compared to $8.99
and $7.86, respectively, at December 31, 1994.
Operating expenses at NEBC decreased $35,203 to $706,889 for the current period
as compared to $742,092 for the comparable period. The decrease was primarily
due to reduced legal costs partially offset by increased cleaning, maintenance,
and utilities. Cleaning, maintenance, and utilities costs were higher due
primarily to increased occupancy in 1995, especially in Building 5. Legal costs
in 1994 included debt restructure costs of $135,211 incurred in connection with
the loan modification.
ST. ANDREWS APARTMENTS AT WESTWOOD
Rental revenue at St. Andrews decreased $21,030 to $1,731,374 for the current
period as compared to $1,752,404 for the comparable period. The decline in
rental revenue was due to the decline in occupancy offset in part by higher
rental rates and higher residential termination fees and late charges. The
average monthly rental rate for the year ended December 31, 1995 increased to
$597 per unit as compared to $595 for the year ended December 31, 1994. The
average occupancy at St. Andrews for the current period was 91% as compared to
92% for the comparable period. As of December 31, 1995, there were nine
corporate units as compared to two units at December 31, 1994.
Operating expenses at St. Andrews decreased $53,166 to $784,492 for the current
period as compared to $837,658 for the comparable period. The decrease was
primarily due to lower maintenance expenses since most repairs are construction
related.
<PAGE>
The St. Andrews repair and legal costs, net of recoveries, related to the
construction problems have been reclassified to that category from property
operating expenses. The Partnership has incurred significant engineering,
construction and legal costs at St. Andrews related to assessing and repairing
the construction problems and pursuing legal remedies against responsible
parties during 1995. To date, the Partnership has received settlements totalling
$627,500 from parties to the litigation, $565,000 of which was received during
1995. The remaining $62,500 settlement payment was received during the fourth
quarter of 1994 and used to offset certain construction costs incurred during
1994.
During 1995, the Partnership incurred approximately $1,162,000 and $237,000 of
St. Andrews repair and legal costs, respectively, $565,000 of which were offset
by settlements received during the year. The Partnership incurred approximately
$228,000 of St. Andrews repair and legal costs during 1994 which were offset in
part by recoveries of $62,500.
SHADELAND RETAIL CENTER
Rental revenue at Shadeland decreased $6,354 to $1,193,937 for the current
period as compared to $1,200,291 for the comparable period. The decrease in
rental revenue was due primarily to the expiration of a lease at October 31,
1995 at the retail center which constituted approximately 10% of the center's
rentable square feet. Consequently, the average occupancy at Shadeland decreased
to 86% at December 31, 1995 as compared to 96% at December 31, 1994. However,
the average net rental rates for the current period increased to $10.36 per
square foot as compared to $10.31 per square foot for the comparable period.
Operating expenses at Shadeland increased $12,366 to $284,774 for the current
period as compared to $272,408 for the comparable period. The increase was due
to an increase in property taxes.
GREENBRIER TOWERS
Recognized equity in joint venture loss represents the Partnership's share of
the net operating income less interest and depreciation of Greenbrier Towers.
The recognition of the Partnership's equity in joint venture loss is limited to
its investment in the Greenbrier Joint Venture balance. The Partnership's share
in joint venture income for the current period of $119,262 has been offset by
the recognition of cumulative unrecognized losses of $119,262 which were not
previously recognized in the prior year since the investment in joint venture
balance was reduced to zero as of December 31, 1994.
The Partnership's share of the joint venture income consisted of $363,012 in
revenue and $937,247 in operating expenses offset by the recognition of a
$693,497 gain on debt forgiveness. The operating expenses include a $460,567
writedown for asset impairment in connection with the foreclosure.
PARTNERSHIP EXPENSE
Partnership expense is comprised of general and administrative expenses, and the
interest expense related to the Cash Flow Protector and General Partner loans
partly offset by interest earned on temporary investments. The increase of
$13,574 to $411,285 for the current period as compared to $397,711 for the
comparable period is primarily due to a full year of interest expense related to
the General Partner loans.
<PAGE>
GENERAL AND ADMINISTRATIVE
Total general and administrative expenses increased by $6,981 to $137,076 for
the current period as compared to $130,095 for the comparable period. General
and administrative expenses include various costs required for the
administration of the Partnership. The increase is primarily due to higher legal
fees.
INTEREST
Interest expense includes interest incurred in connection with the mortgages
secured by NEBC, St. Andrews, and Shadeland of $623,078, $820,250 and $389,398,
respectively, and interest on the Cash Flow Protector Loan from the USF&G
General Partner and the General Partner loans of $308,704. Interest expense
decreased $145,125 for the current period as compared to the comparable period.
The decrease is primarily due to the successful loan modification during the
fourth quarter of 1994 which reduced the interest rate on the NEBC loan.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization consists primarily of depreciation on the
buildings at NEBC, St. Andrews and Shadeland, depreciation of tenant
improvements, and amortization of leasing commissions incurred in connection
with the NEBC and Shadeland leasing activities. Depreciation and amortization
increased by $82,846 to $1,212,385 for the current period as compared to
$1,129,539 for the comparable period. The increase is primarily due to the
amortization of NEBC leasing commissions and tenant improvement additions and a
full year's depreciation of NEBC parking lot improvements made during the fourth
quarter of 1994 and the write-off of unamortized NEBC tenant improvements in
vacant areas of the project with no remaining economic benefit.
<PAGE>
1994 TO 1993
The Partnership incurred a net loss of $(1,821,611) for the twelve months ended
December 31, 1994 as compared to $(8,551,986) for the twelve months ended
December 31, 1993. The decreased net loss of $6,730,375 was due primarily to the
1993 writedowns of the investments in Real Estate in NEBC and Greenbrier.
Revenue for the year ended December 31, 1994 was $4,307,972 as compared to
$4,149,803 for the year ended December 31, 1993. The increase of $158,169 was
primarily due to higher occupancy at NEBC during 1994. Property operating
expenses increased $77,447 to $1,852,158 during the year ended December 31, 1994
from $1,774,711 for the year ended December 31, 1993. The increase was the
result of increased operating expenses at NEBC.
NORTHEAST BUSINESS CAMPUS
Rental revenue at NEBC increased $111,739 to $1,325,647 for the year ended
December 31, 1994 as compared to $1,213,908 for the year ended December 31,
1993. The increase was the result of increased overall occupancy and higher
overall average net rental rates. The average occupancy at NEBC for the year
ended December 31, 1994 was 66% as compared to 51% for the year ended December
31, 1993. The occupancy for office and service center space at December 31, 1994
was 77% and 82%, respectively, as compared to 41% and 92%, respectively, at
December 31, 1993. The average net rental rate at December 31, 1994 decreased to
$8.99 per square foot for office space and increased to $7.86 per square foot
for service center space as compared to $9.24 and $7.20, respectively, at
December 31, 1993.
Operating expenses at NEBC increased $67,764 to $742,092 for the year ended
December 31, 1994 as compared to $674,328 for the year ended December 31, 1993.
The increase was primarily due to increased grounds and landscaping and debt
restructure costs partly offset by decreases in property taxes, maintenance
costs and bad debt expense. Grounds and landscaping costs were higher due to
increased snow removal associated with the severe winter weather. The debt
restructure costs included legal costs of $135,211 incurred in connection with
the loan modification. The decline in property taxes was the result of a refund
of 1992 and 1993 taxes received in 1994. Maintenance costs were lower during
1994 due to the vacancy in Building 5 through June 1994. The higher level of bad
debt expense during 1993 was due to reserves established for potentially
uncollectible accounts receivable due from a tenant that vacated its space
during the fourth quarter of 1992 prior to the expiration of its lease.
ST. ANDREWS APARTMENTS AT WESTWOOD
Rental revenue at St. Andrews increased $4,325 to $1,752,404 for the year ended
December 31, 1994 as compared to $1,748,079 for the year ended December 31,
1993. The average monthly non-corporate rental rate for the year ended December
31, 1994 increased to $595 per unit as compared to $594 for the year ended
December 31, 1993. The average occupancy at St. Andrews for the year ended
December 31, 1994 was 92% as compared to 93% for the year ended December 31,
1993. As of December 31, 1994, there were two corporate units as compared to
three units at December 31, 1993.
<PAGE>
Operating expenses at St. Andrews increased $15,673 to $837,658 for the year
ended December 31, 1994 as compared to $821,985 for the year ended December 31,
1993. The increase was due to higher real estate taxes. The St. Andrews repair
and legal costs related to the construction problems have been reclassified to
that category from property operating expenses. The Partnership incurred
significant engineering and legal costs at St. Andrews related to assessing the
construction problems and pursuing legal remedies against responsible parties.
The Partnership incurred approximately $228,000 of St. Andrews repair and legal
costs during 1994 which were offset by recoveries of $62,500.
SHADELAND RETAIL CENTER
Rental revenue at Shadeland increased $35,005 to $1,200,291 for the year ended
December 31, 1994 as compared to $1,165,286 for the year ended December 31,
1993. The increase in rental revenue was due to additional expense
reimbursements received from tenants for the increased snow removal costs
discussed below. Average occupancy at Shadeland was up slightly at 96% at
December 31, 1994 as compared to 95% at December 31, 1993. Average net rental
rates for the year ended December 31, 1994 increased to $10.31 per square foot
as compared to $9.78 per square foot for the year ended December 31, 1993.
Operating expenses at Shadeland decreased $5,990 to $272,408 for the year ended
December 31, 1994 as compared to $278,398 for the year ended December 31, 1993.
The decrease was due to a decrease in property taxes offset in part by increased
snow removal costs associated with the severe winter weather.
GREENBRIER TOWERS
Recognized equity in joint venture loss of $566,012 represents the Partnership's
share of the net operating income less interest and depreciation of Greenbrier
Towers. The Partnership's equity in joint venture loss is limited to its
investment in the Greenbrier Joint Venture balance. The Partnership's equity in
the 1994 joint venture loss was $685,774. However, $119,762 of this loss was
unrecognized as of December 31, 1994 since the Partnership's joint venture
investment was reduced to zero.
The decrease in the total loss of $2,584,136 from $3,150,148 during 1993 was due
to the larger writedown of the Greenbrier Joint Venture's investment in real
estate recorded during 1993. The writedowns represent the recognition of the
permanent decline in fair value of the building and improvements from the
Greenbrier Joint Venture's carrying value. The Partnership's share of the
writedown was $348,450 and $2,652,000 in 1994 and 1993, respectively.
Total Greenbrier Joint Venture revenue increased $79,835 to $1,099,116 for the
year ended December 31, 1994 as compared to $1,019,281 for the year ended
December 31, 1993. This increase in revenue is due to higher rental income and
expense reimbursements. The increase in rental income is due to the increase in
occupancy offset by lower rental rates. For the year ended December 31, 1994,
the average occupancy of Greenbrier Towers was 89% as compared to 84% during
1993. The average rental rate during the year ended December 31, 1994 decreased
to $14.11 per square foot as compared to $14.22 during the year ended December
31, 1993. The increase in expense reimbursements is due to refunds paid to the
tenants during 1993 of reimbursable property taxes as a result of a successful
appeal of the property tax assessment by the Greenbrier Joint Venture. The
amounts refunded to the tenants were paid to the Greenbrier Joint Venture during
1992.
<PAGE>
Total property operating expenses increased by $7,051 to $425,794 for the year
ended December 31, 1994 as compared with $418,743 for the year ended December
31, 1993. This increase was mainly due to higher occupancy related operating
expenses offset in part by lower security expense and professional fees.
Security expense for the year ended December 31, 1993 included complete lock
replacement at both buildings. Professional fees were higher during 1993 due to
increased audit and legal fees. For additional information concerning the
Partnership's equity in Greenbrier Towers, refer to Note C of Notes to Financial
Statements of the Partnership which is incorporated by reference from "Item 8.
Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.
PARTNERSHIP EXPENSE
Partnership expense is comprised of general and administrative expenses, and the
interest expense related to the Cash Flow Protector and General Partner loans
partly offset by interest earned on temporary investments. The decline of
$104,126 to $397,711 for 1994 as compared to $501,837 for 1993 was due to
decreased general and administrative expenses offset partly by increased
interest expense related to the Cash Flow Protector Loan as discussed below.
INTEREST
Interest expense includes interest incurred in connection with the mortgages
secured by NEBC, St. Andrews, and Shadeland of $783,093, $820,250 and $390,422,
respectively, and interest on the Cash Flow Protector Loan from the USF&G
General Partner and the General Partner loans of $292,790. Interest expense
increased $20,243 for the year ended December 31, 1994 as compared to the year
ended December 31, 1993. The increase was due to the higher Cash Flow Protector
Loan balance and late fees on the NEBC loan offset in part by the lower interest
rate on the NEBC loan after the modification. The USF&G General Partner reduced
the interest rate on the Cash Flow Protector Loan to 6% from 8% effective
January 1, 1993.
GENERAL AND ADMINISTRATIVE
Total general and administrative expenses decreased by $131,735 to $130,095 for
the year ended December 31, 1994 as compared to $261,830 for the year ended
December 31, 1993. General and administrative expenses include various costs
required for the administration of the Partnership. The decrease was primarily
due to lower asset management fees and administrative costs offset in part by
higher legal fees.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization consists primarily of depreciation on the
buildings at NEBC, St. Andrews and Shadeland, depreciation of tenant
improvements, and amortization of leasing commissions incurred in connection
with the NEBC and Shadeland leasing activities. Depreciation and amortization
decreased $76,249 for 1994 as compared to 1993 primarily due to the $4,043,000
writedown of the net book value of the NEBC investment in real estate during the
fourth quarter of 1993.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Financial Statements and Schedules
PAGE
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
Report of Independent Auditors 20
Balance Sheets - December 31, 1995 and December 31, 1994 21
Statements of Operations - For the years ended December 31, 1995,
December 31, 1994, and December 31, 1993 22
Statements of Partners' Equity - For the years ended December 31, 1995,
December 31, 1994, and December 31, 1993 23
Statements of Cash Flows - For the years ended December 31, 1995,
December 31, 1994, and December 31, 1993 24
Notes to Financial Statements 25
Schedule III - Real Estate and Accumulated Depreciation at December 31, 1995 40
Notes to Schedule III - Real Estate and Accumulated Depreciation 41
Schedule X - Supplementary Statements of Operations Information -
For the years ended December 31, 1995, December 31, 1994, and
December 31, 1993 42
GREENBRIER TOWERS GENERAL PARTNERSHIP
Report of Independent Auditors 43
Statement of Net Assets in Liquidation - December 31, 1995 44
Balance Sheet (Going Concern Basis) - December 31, 1994 45
Statements of Operations (Going Concern Basis) - For the years ended
December 31, 1995, December 31, 1994, and December 31, 1993 46
Statements of Partners' Equity Deficit (Going Concern Basis) - For
the yearsended December 31, 1995, December 31, 1994, and December 31,
1993 47
Statements of Cash Flows (Going Concern Basis) - For the years ended December
31, 1995, December 31, 1994, and December 31, 1993 48
Notes to Financial Statements 49
Schedule III- Real Estate and Accumulated Depreciation at December 31, 1995 56
Notes to Schedule III- Real Estate and Accumulated Depreciation 57
All other schedules are omitted since they are not required, are not applicable
or the financial information required is included in the financial statements or
the notes thereto.
<PAGE>
Report of Independent Auditors
The Partners
USF&G/Legg Mason Realty Partners Limited Partnership
We have audited the accompanying balance sheets of USF&G/Legg Mason Realty
Partners Limited Partnership as of December 31, 1995 and 1994, and the related
statements of operations, partners' equity and cash flows for each of the three
years in the period ended December 31, 1995. Our audits also included the
financial statement schedules listed in the accompanying Index to Financial
Statements and Schedules (Item 8). These financial statements and schedules are
the responsibility of the General Partners. Our responsibility is to express an
opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
General Partners, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of USF&G/Legg Mason Realty
Partners Limited Partnership at December 31, 1995 and 1994, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/S/ ERNST & YOUNG LLP
Baltimore, Maryland
February 16, 1996
<PAGE>
<TABLE>
<CAPTION>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
BALANCE SHEETS
<S> <C> <C>
December 31, December 31,
1995 1994
ASSETS
Real Estate Investments:
Income Producing Properties - Notes B and G $28,612,932 $29,427,139
Cash and Cash Equivalents (including temporary
investments at December 31, 1995 and 1994 of
$515,389 and $431,820, respectively) - Note D 887,555 623,032
Restricted Cash Escrow - Note G 192,402 357,545
Accounts Receivable, Net - Note A 68,776 127,187
Other Assets - Note E 259,462 275,472
------------ ------------
Total Assets $30,021,127 $30,810,375
========== ==========
LIABILITIES
Mortgages Payable - Note G $20,595,531 $20,655,687
Accounts Payable and Other Liabilities 1,406,228 948,523
Due to General Partners and Affiliates - Note F 1,886,808 1,582,106
Cash Flow Protector Loan - Note F 4,849,734 4,849,734
----------- -----------
28,738,301 28,036,050
PARTNERS' EQUITY
General Partners (231,585) (216,670)
Assignor and Assignee Limited Partners,
1,094,283 Units Issued and Outstanding 1,514,411 2,990,995
----------- -----------
1,282,826 2,774,325
----------- -----------
Total Liabilities and Partners' Equity $30,021,127 $30,810,375
========== ==========
See accompanying notes to the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
<S> <C> <C> <C>
For the Year For the Year For the Year
Ended Ended Ended
December 31, December 31, December 31,
1995 1994 1993
REVENUE:
Rental $ 4,555,170 $ 4,278,341 $ 4,127,273
Interest 54,148 29,631 22,530
------------ ------------ ------------
Total Revenue 4,609,318 4,307,972 4,149,803
EXPENSES:
Property Operating 1,776,155 1,852,158 1,774,711
Recognized Equity in Joint Venture Loss - Note C 0 566,012 3,150,148
St. Andrews Repair and Legal Costs,
Net of Recoveries - Note J 833,771 165,224 0
General and Administrative 137,076 130,095 261,830
Interest 2,141,430 2,286,555 2,266,312
Depreciation and Amortization 1,212,385 1,129,539 1,205,788
Writedown for Asset Impairment 0 0 4,043,000
---------------- ---------------- -----------
Total Expenses 6,100,817 6,129,583 12,701,789
---------- ---------- ----------
Net Loss $(1,491,499) $(1,821,611) $(8,551,986)
========== ========== ==========
Net Loss Allocated to:
General Partners $ (14,915) $ (18,216) $ (85,520)
Assignor and Assignee Limited Partners (1,476,584) (1,803,395) (8,466,466)
---------- ---------- ----------
$(1,491,499) $(1,821,611) $(8,551,986)
========== ========== ==========
Net Loss per Unit - Note A $ (1.35) $ (1.65) $ (7.74)
============== ============== ==============
Cash Distributions per Unit - Note H 0 0 $ 1.57
================ ================ ==============
Weighted Average Number of Units 1,094,283 1,094,283 1,094,283
========== ========== ==========
See accompanying notes to the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY
ASSIGNOR AND ASSIGNEE LIMITED PARTNERS GENERAL PARTNERS
<S> <C> <C> <C> <C> <C> <C> <C>
Legg
USF&G Mason
USF&G Other Total Realty Realty Total
Limited Limited Limited Partners, Partners General
PARTNERS PARTNERS PARTNERS INC. INC. PARTNERS TOTAL
PARTNERS' EQUITY
(DEFICIT) - JANUARY
1, 1993 $5,397,299 $ 9,581,583 $14,978,882 $ (54,024) $(41,558) $ (95,582) $14,883,300
Cash Distributions (630,652) (1,087,374) (1,718,026) (8,676) (8,676) (17,352) (1,735,378)
Net Loss (3,158,021) (5,308,445) (8,466,466) (68,416) (17,104) (85,520) (8,551,986)
Right of
Presentment at
book value 190,099 (190,099) 0 0 0 0 0
------------ ------------ -------------- ------------ ----------- ------------ ------------
PARTNERS' EQUITY
(DEFICIT) - DECEMBER
31, 1993 1,798,725 2,995,665 4,794,390 (131,116) (67,338) (198,454) 4,595,936
Net Loss (695,293) (1,108,102) (1,803,395) (14,573) (3,643) (18,216) (1,821,611)
Right of
Presentment at
book value 60,821 (60,821) 0 0 0 0 0
---------- ----------- ----------- ---------- -------- --------- ------------
PARTNERS' EQUITY
(DEFICIT) - DECEMBER
31, 1994 1,164,253 1,826,742 2,990,995 (145,689) (70,981) (216,670) 2,774,325
Net Loss (588,030) (888,554) (1,476,584) (11,932) (2,983) (14,915) (1,491,499)
Right of
Presentment at
book value 37,909 (37,909) 0 0 0 0 0
---------- ---------- ---------- --------- ------- --------- ----------
PARTNERS' EQUITY
(DEFICIT) - DECEMBER
31, 1995 $ 614,132 $ 900,279 $ 1,514,411 $(157,621) $(73,964) $(231,585) $ 1,282,826
========== =========== ========== ======== ======= ======== ==========
See accompanying notes to the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<S> <C> <C> <C>
For the Year For the Year For the Year
Ended Ended Ended
December 31, December 31, December 31,
1995 1994 1993
OPERATING ACTIVITIES
Net Loss $(1,491,499) $(1,821,611) $(8,551,986)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 1,212,385 1,129,539 1,205,788
Writedown for asset impairment 0 0 4,043,000
Equity in joint venture loss 0 566,012 3,150,148
Change in net assets and liabilities related
to operating activities:
Decrease (increase) in restricted cash escrow 165,143 (71,000) 0
Increase in accounts payable and other
liabilities 457,705 187,932 47,300
Increase in due to general partners and
affiliates 304,702 295,030 283,911
Decrease in accounts receivable 58,411 5,857 74,176
Increase in other assets (81,311) (110,089) (21,203)
---------- --------- ----------
Net Cash Provided by Operating Activities 625,536 181,670 231,134
INVESTING ACTIVITIES
Investment in income producing properties (300,857) (409,980) (86,703)
Reimbursement of improvement costs by tenant 0 85,104 29,361
Contribution to restricted cash reserve 0 (286,545) 0
--------------- --------- -------------
Net Cash Used in Investing Activities (300,857) (611,421) (57,342)
FINANCING ACTIVITIES
Mortgage principal payments (60,156) (59,132) (49,519)
Proceeds from general partner loans 0 200,000 0
Cash distributions to partners 0 0 (1,735,378)
Proceeds from cash flow protector loan 0 0 1,735,378
--------------- ----------------- ----------
Net Cash (Used in) Provided by Financing Activities (60,156) 140,868 (49,519)
----------- ----------- ------------
Increase (Decrease) in Cash and Cash Equivalents 264,523 (288,883) 124,273
Cash and Cash Equivalents, Beginning of Period 623,032 911,915 787,642
----------- ----------- ------------
Cash and Cash Equivalents, End of Period $ 887,555 $ 623,032 $ 911,915
=========== =========== ===========
See accompanying notes to the financial statements.
</TABLE>
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
Note A - Organization, Basis of Presentation and Summary of Significant
Accounting Policies
ORGANIZATION
On June 28, 1988, the Registration Statement filed by USF&G/Legg Mason Realty
Partners Limited Partnership (the "Partnership") with the Securities and
Exchange Commission pursuant to an offering of 1,400,000 Units of Assignee
Limited Partnership Interests ("Units") at $25 per Unit (the "Offering") was
made effective.
The Partnership was organized as a limited partnership under the Maryland
Revised Uniform Limited Partnership Act pursuant to a Certificate of Limited
Partnership filed with the Maryland State Department of Assessments and Taxation
on April 12, 1988 and a Limited Partnership Agreement and Amended Certificate of
Limited Partnership dated as of June 16, 1988 as subsequently amended (the
"Partnership Agreement"). The fiscal year of the Partnership is the calendar
year.
The Partnership was formed to acquire, hold, lease and ultimately dispose of
income-producing commercial and multi-family residential rental properties
located primarily in the Eastern half of the United States.
USF&G Realty Partners, Inc. (the "USF&G General Partner") and Legg Mason Realty
Partners, Inc. (collectively, the "General Partners") contributed $900 and $100,
respectively, to the Partnership, and the USF&G Assignor Limited Partner, Inc.
(the "Assignor Limited Partner") contributed $100 which represents the purchase
of 4 units. As of December 31, 1989, at which time the Offering terminated,
1,094,283 Units had been sold for aggregate gross proceeds of $27,357,075. The
operations of the Partnership are managed by the General Partners.
BASIS OF PRESENTATION
The financial statements are prepared in accordance with generally accepted
accounting principles ("GAAP"). Certain prior year amounts have been
reclassified to conform to the 1995 presentation.
The preparation of the financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from the estimates.
DEPRECIATION AND AMORTIZATION
Buildings and improvements are recorded at cost, adjusted for other than
temporary declines in value. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets. Improvements are
capitalized, and repairs and maintenance are charged to operations as incurred.
Leasing commissions are amortized using the straight-line method over the term
of the related leases. Capitalized financing costs are amortized using the
straight-line method over the term of the related financing.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1995
Note A - Organization, Basis of Presentation and Summary of Significant
Accounting Policies (Continued)
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of", which requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS No. 121 also addresses the accounting for long-lived
assets that are to be disposed of.
The Partnership will adopt the standard in the first quarter of 1996. The
standard includes a requirement that impairments in the value of real estate
investments be recorded as direct reductions in the carrying value of those
investments. The Partnership's prior practice has been to reduce the carrying
value for impairments to specific investments where impairment is deemed other
than temporary. Adoption of this standard is not expected to have a material
effect on the financial statements of the Partnership.
ORGANIZATION AND DEFERRED OFFERING EXPENSES
Certain costs relating to the formation and registration of the Partnership have
been capitalized as organization expenses. Organization costs were amortized
over a sixty-month period commencing with the initial sale of Units and were
fully amortized at December 31, 1994. Offering costs were recognized ratably
against gross proceeds from the Offering of Units.
INCOME TAXES
No provision or benefit for income taxes has been included in these financial
statements since taxable income or loss passes through to, and is reportable by,
the partners individually.
RENTAL REVENUE
Rental revenue is recognized on a straight-line basis over the lease terms. The
accounts receivable related to the recording of rental revenue on a
straight-line basis totaled $41,811 and $55,864 at December 31, 1995 and 1994,
respectively.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1995
Note A - Organization, Basis of Presentation and Summary of Significant
Accounting Policies (Continued)
ALLOCATION OF NET (LOSS) INCOME FROM OPERATIONS
Prior to the first sale of Units, net loss from operations was allocated 99.9%
to the USF&G General Partner and .1% to the Assignor Limited Partner.
Thereafter, net income and loss from operations is allocated first among the
partners in proportion to cash distributions and second, if there have been no
cash distributions, 99% to the assignee limited partners ("Unitholders") and 1%
to the General Partners. Net (loss) income and cash distributions per Unit were
computed based upon net (loss) income allocated to and cash distributions paid
to Unitholders divided by the weighted average number of Units outstanding
during the periods indicated. The allocated 1% net (loss) income from operations
to the General Partners is prorated for net (loss) on the basis of 80% to the
USF&G General Partner and 20% to Legg Mason Realty Partners, Inc. while net
income is allocable on the basis of 50% to the USF&G General Partner and 50% to
Legg Mason Realty Partners, Inc.
As of December 31, 1995, the USF&G General Partner had purchased 42,728 Units
under the Right of Presentment Program. The USF&G General Partner is entitled to
the beneficial rights attributable to these Units, including the rights to cash
distributions and a percentage of the Partnership's income, gains, losses,
deductions, credits, and distributions. Units have been repurchased as follows:
JUNE 30 NUMBER OF UNITS PRICE PER UNIT TOTAL PRICE
------- --------------- -------------- -----------
1995 13,886 $ 4.18 $ 58,043
1994 13,886 $ 4.17 $ 57,905
1993 13,886 $ 9.53 $132,334
1992 1,070 $11.27 $ 12,059
Legg Mason Realty Partners, Inc. purchased 42,314 Units under the Right of
Presentment Program at June 30, 1995 at the per unit price of $4.18 and
a total price of $176,873.
Note B - Income Producing Properties
On August 1, 1990, the Partnership acquired Shadeland Retail Center
("Shadeland"), located in Indianapolis, Indiana, from unaffiliated sellers for a
contract price of $9,690,850. In connection with the purchase of Shadeland, the
Partnership assumed a loan in the amount of $4,387,142. Shadeland consists of
two single-level neighborhood retail projects, containing in the aggregate
approximately 105,000 net rentable square feet on approximately 12.4 acres.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1995
Note B - Income Producing Properties (Continued)
On June 28, 1990, the Partnership purchased St. Andrews Apartments at Westwood
("St. Andrews") from an unaffiliated seller for a contract price of $13,700,000.
St. Andrews is located in Orlando, Florida and consists of 16 two-story and
three-story apartment buildings on 14.55 acres. The garden-style apartment
buildings contain 259 units with an aggregate of approximately 217,000 rentable
square feet. On August 14, 1990, the Partnership obtained permanent financing
for St. Andrews in the amount of $8,500,000. See Note J to the financial
statements for discussion on St. Andrews.
On November 8, 1988, the Partnership acquired Northeast Business Campus ("NEBC")
located in Columbus, Ohio, from an unaffiliated seller for a gross purchase
price of $13,430,000 which was paid in cash. On August 22, 1989, the Partnership
obtained permanent financing for NEBC in the amount of $7,975,000.
The Partnership wrote down the net book value of the NEBC investment during the
fourth quarter of 1993 in the amount of $4,043,000. The declining level of net
cash flow from operations required the use of cash flow generated by Shadeland
and St. Andrews to fund the NEBC debt service. The General Partners had
determined that additional investment in the property was not economically
justified without an acceptable modification to the mortgage and that the
Partnership may not recover the investment in NEBC. Consequently, the investment
in real estate at December 31, 1993 was written down to the appraised value.
Local market trends for commercial real estate contributed to the other than
temporary decline in value. The net book value, adjusted for the writedown,
became the new carrying value for the property. As such, historical cost and
accumulated depreciation were reduced accordingly.
The following table sets forth summarized financial information for NEBC, St.
Andrews and Shadeland, the three Properties owned directly by the Partnership,
at December 31, 1995 and 1994:
1995 1994
---- ----
Buildings and improvements $29,118,982 $29,039,871
Land 5,444,913 5,444,913
----------- -----------
34,563,895 34,484,784
Less: Accumulated depreciation (5,950,963) (5,057,645)
----------- -----------
$28,612,932 $29,427,139
========== ==========
Operating leases with tenants at NEBC and Shadeland range in term from one to
five and one to twenty years, respectively. The lease term at St. Andrews ranges
in term from one to twelve months. The General Partners expect that in the
normal course of business these leases will be renewed or replaced by other
leases. Fixed future minimum rents to be received under existing leases at
December 31, 1995 are as follows:
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1995
Note B - Income Producing Properties (Continued)
1996 $2,668,022
1997 1,532,510
1998 973,720
1999 636,745
2000 388,140
Thereafter 331,034
----------
$6,530,171
==========
Note C - Investment in Joint Venture
On May 16, 1989, the Partnership entered into a general partnership agreement
(the "Greenbrier Joint Venture") with Greenbrier Towers Fidelity Associates
Limited Partnership ("Fidelity"), an affiliate of the USF&G General Partner, to
acquire, own and operate Greenbrier Towers (the "Property"), two existing office
buildings in Chesapeake, Virginia. The Partnership and Fidelity (the "Joint
Venture Partners") each own a 50% general partnership interest in Greenbrier
Joint Venture. The Greenbrier Joint Venture agreement provides that, in general,
all distributions of cash from operations, sales and refinancings, and items of
income and loss will be allocated equally between the Partnership and Fidelity.
Cash contributions to Greenbrier Joint Venture will be made by the Partnership
and Fidelity equally. The business affairs of Greenbrier Joint Venture are
managed collectively by the Partnership and Fidelity, and neither can make any
major decision regarding the financing or sale of Greenbrier Towers without the
consent of the other. The Partnership accounts for its investment in Greenbrier
Joint Venture using the equity method.
On May 17, 1989, Greenbrier Joint Venture acquired Greenbrier Towers from an
unaffiliated seller for a gross purchase price of $23,200,000. In connection
with the acquisition, the Partnership and Fidelity were each required to
initially contribute approximately $5,150,000. In addition, the Partnership paid
acquisition fees of $371,100 to the General Partners.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1995
Note C - Investment in Joint Venture (Continued)
During 1995, the Prudential Insurance Company of America (Prudential) initiated
foreclosure proceedings, as a result of the Greenbrier Joint Venture's default
on the mortgage loan on December 19, 1994. The property was purchased by the
lender at the April 26, 1995 foreclosure sale. Prudential exercised its right
under the August 22, 1989 Assignment of Leases and Rents to directly collect all
tenant rents beginning January 26, 1995. At the time of foreclosure, current
assets and current liabilities generated by property operations, except those
included in the Statement of Net Assets in Liquidation, were transferred to
Prudential. Management plans to transfer the Greenbrier Joint Venture's
remaining net assets at December 31, 1995, excluding obligations to other third
parties, to Prudential in return for an indemnification of liability. The Joint
Venture Partners intend to complete the liquidation of the Greenbrier Joint
Venture upon settlement of the indemnification agreement.
Results of operations on a going concern basis were reflected in the statements
of operations through December 31, 1995. Subsequent to April 26, 1995, no
additional operating activity other than the payment of ordinary business
expenses was recorded in the Greenbrier Joint Venture's records.
The following tables disclose summarized information as to the Partnership's
share of the assets, liabilities and equity in the revenue and expenses of
Greenbrier Joint Venture for the dates and periods indicated:
<TABLE>
<S> <C> <C>
DECEMBER 31, 1995 DECEMBER 31, 1994
ASSETS
Buildings and improvements $ 0 $ 7,401,028
Land 0 811,654
--------- -----------
0 8,212,682
Less: Accumulated depreciation 0 (1,514,755)
--------- ----------
0 6,697,927
Other 32,963 136,059
------ -----------
TOTAL ASSETS $32,963 $ 6,833,986
====== ==========
LIABILITIES
Mortgage payable - Debt in default $ 0 $ 6,541,160
Note payable due to General Partner - In default 0 183,598
Other 32,963 228,990
------ -----------
TOTAL LIABILITIES 32,963 6,953,748
------ ----------
Unrecognized losses 0 (119,762)
---------- -----------
TOTAL EQUITY 0 (119,762)
TOTAL LIABILITIES AND EQUITY $32,963 $ 6,833,986
====== ==========
NET ASSETS IN LIQUIDATION $ 0
==========
</TABLE>
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1995
<TABLE>
<CAPTION>
Note C - Investment in Joint Venture (Continued)
<S> <C> <C> <C>
For the Year For the Year For the Year
Ended Ended Ended
December 31, December 31, December 31,
1995 1994 1993
STATEMENTS OF OPERATIONS
GROSS REVENUE $ 363,012 $ 1,099,116 $ 1,019,281
Less expenses:
Property operating 152,572 425,794 418,743
Depreciation/amortization 90,224 345,851 441,213
Interest 233,884 664,795 657,473
Writedown 460,567 348,450 2,652,000
----------- ----------- ----------
TOTAL EXPENSES 937,247 1,784,890 4,169,429
----------- ---------- ----------
Gain on debt forgiveness 693,497 0 0
----------- ----------------- ----------------
EQUITY IN JOINT VENTURE INCOME (LOSS) 119,262 (685,774) (3,150,148)
----------- ----------- ----------
(DECREASE) INCREASE IN CUMULATIVE
UNRECOGNIZED JOINT VENTURE LOSS (119,262) 119,762 0
----------- ---------- ----------------
RECOGNIZED EQUITY IN JOINT VENTURE LOSS $ 0 $ (566,012) $(3,150,148)
================ =========== ==========
UNRECOGNIZED EQUITY IN JOINT VENTURE LOSS $ 500 $ 119,762 $ 0
============== =========== ================
</TABLE>
The Partnership's total equity in the revenue and expenses of the Greenbrier
Joint Venture for the current period is $119,262. The Partnership recognized
$119,262 of the 1994 suspended joint venture loss carry forward in 1995 since
full recognition would cause the investment in joint venture to fall below zero.
The additional loss carry forward will be recognized if net income is earned or
additional capital is contributed, although this is not anticipated. The
remaining net liabilities of the Greenbrier Joint Venture are non-recourse to
the Greenbrier Joint Venture and Partnership. As a result, the Partnership has
no obligation to share in these liabilities.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1995
Note D - Financial Instruments
Fair value information is based on internal estimates using present value or
other valuation techniques since quoted market prices are not available. This
technique is significantly affected by the assumptions used, such as applicable
discount rate and estimated future cash flows. Therefore, the derived fair value
estimates cannot be substantiated by comparison to independent markets and may
not be realized in immediate settlement of the instrument. Fair value disclosure
requirements exclude certain financial instruments and all non-financial
instruments. It is assumed that the carrying amounts of the following
Partnership financial instruments approximate fair value:
CASH AND CASH EQUIVALENTS - Includes temporary investments
in money market funds with
maturities of three months or
less.
RESTRICTED CASH ESCROW - Note G
ACCOUNTS RECEIVABLE - Note A
MORTGAGES PAYABLE - Note G
ACCOUNTS PAYABLE AND OTHER LIABILITIES- Includes accounts payable,
accrued expenses, prepaid rent
and security deposits.
DUE TO GENERAL PARTNERS AND AFFILIATES - Note F
CASH FLOW PROTECTOR LOAN - Note F
Note E - Other Assets
Other assets consist of organization costs, deposits, leasing commissions, and
capitalized financing costs. As of December 31, 1995 and 1994, organization
costs, capitalized financing costs and leasing commissions totaled $488,385 and
$713,906, respectively and related accumulated amortization totaled $245,623 and
$455,133, respectively. Organization costs of $106,158 were fully amortized at
December 31, 1994. The gross asset and related accumulated amortization were
written off during 1995.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1995
Note F - Related Party Transactions
On July 11, 1988, Fidelity & Guaranty Life Insurance Company (the "USF&G Limited
Partner") purchased the first 400,000 Units at a price of $25 per Unit,
representing a capital contribution of $10,000,000. Immediately following the
capital contribution, pursuant to the Partnership Agreement, the USF&G Limited
Partner received a rebate of $830,000 from the Partnership which represented a
rebate of selling commissions, the allocable portion of the dealer manager fee
and the non-accountable expense reimbursement allowance. The purchase of Units
by the USF&G Limited Partner resulted in net proceeds to the Partnership of
$9,170,000.
The General Partners and affiliates received fees and compensation in connection
with the Offering of Units in the Partnership and in connection with the
acquisition and financing of the real estate investments. Additionally, the
General Partners received reimbursement of organization, offering and
operational expenses paid by them on behalf of the Partnership. An affiliate of
one of the General Partners received selling commissions equal to 7% of the
gross proceeds of the Offering.
Pursuant to the Partnership Agreement, the Partnership was required to reimburse
the General Partners for organization and offering expenses up to a maximum of
4% of the gross proceeds of the Offering. Organization and offering expenses in
excess of 4% of the gross proceeds were paid for by the General Partners. In
addition, the Partnership reimburses the General Partners for the actual cost of
operating expenses paid on behalf of the Partnership and the actual cost
incurred to provide administrative services to the Partnership.
The General Partners are entitled to receive an acquisition fee of 5.75% of the
invested capital allocable to a property and reimbursement of actual
out-of-pocket acquisition expenses incurred. Total acquisition expenses paid to
the General Partners, affiliates and third parties are limited to 2% of the
allocable invested capital in a property. Acquisition expenses in excess of 2%
of the gross proceeds are payable by the General Partners.
USF&G Realty, Inc., the parent of the USF&G General Partner, is entitled to
receive an asset management fee (the "Asset Management Fee") equal to .5% of the
aggregate contract prices of the Properties owned and operated by the
Partnership, not to exceed an amount equal to 8% of annual distributable cash
flow from operations. The Asset Management Fee accrues as to each property
commencing with the date the property is acquired and is prorated in the event
Properties are held for only a portion of the year. Beginning on December 31,
1989 (the termination of the Offering), 40% of the Asset Management Fee is
payable currently and 60% is deferred to be paid from sale or refinancing
proceeds, if available.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1995
Note F - Related Party Transactions (Continued)
The following is a summary of compensation and reimbursements of expenses
incurred to the General Partners and their affiliates for the periods indicated:
<TABLE>
<S> <C> <C> <C>
For the Year For the Year For the Year
Ended Ended Ended
December 31, December 31, December 31,
1995 1994 1993
Charged to expenses:
Operating expenses $ 85,455 $ 80,219 $ 97,655
Interest expense 308,704 292,790 250,003
Asset management fee:
Current 0 181 58,476
Deferred 0 0 87,715
</TABLE>
Due to General Partners and affiliates consists of the following as of the dates
indicated:
December 31, December 31,
1995 1994
Asset management fees $ 423,990 $ 423,990
Accrued interest on the Cash
Flow Protector Loan 1,233,255 942,259
General Partners Loans 200,000 200,000
Accrued interest on General Partner
Loans 19,503 1,795
Operating expenses 10,060 14,062
----------- -----------
$1,886,808 $1,582,106
========= =========
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1995
Note F - Related Party Transactions (Continued)
The USF&G General Partner agreed to lend to the Partnership an amount up to
$5,471,415, representing 20% of the gross proceeds of the Offering, to the
extent the Partnership's distributable cash flow was insufficient to pay a 2%
cumulative quarterly return (8% annual return) to Unitholders (the "Cash Flow
Protector Loan"). The USF&G General Partner's commitment to lend such amounts
commenced on July 13, 1988, the initial closing date for the sale of Units, and
continued for five years thereafter, through July 13, 1993. The Cash Flow
Protector Loan accrued interest at an annual simple rate of 8% through December
31, 1993 and 6% thereafter and is due and payable on December 31, 2003 or
earlier, from sale or refinancing proceeds (see Note H). In conjunction with
cash distributions made through December 31, 1993, the USF&G General Partner
funded $4,849,734 pursuant to the Cash Flow Protector Loan.
In connection with the loan modification at NEBC executed in the fourth quarter
of 1994 (see Note G), the General Partners, USF&G Realty Partners, Inc., and
Legg Mason Realty Partners, Inc., have provided equally a total of $200,000 to
the Partnership toward establishing the required reserves and escrows at NEBC.
The amounts provided by the General Partners are in the form of loans from each
General Partner which accrue interest at the prime rate and mature August 15,
1999. The Partnership's obligation to make interest and principal payments under
the loans is limited to the extent of available NEBC reserves and escrows and
sale or refinancing proceeds (as defined in the Partnership Agreement)
attributable to the NEBC property. It is assumed the carrying value of these
financial instruments approximates their fair value.
See Note J - St. Andrews Repair and Legal Costs for a discussion of an
additional loan from USF&G Realty Partners, Inc. Additionally, during 1995, the
Partnership received $100,000 as a settlement with a responsible party in the
St. Andrews construction litigation. This settlement payment was made by United
States Fidelity & Guaranty Company, an affiliate of USF&G Realty Partners, as
the insurer of the responsible party. The settlement with United States Fidelity
and Guaranty Company was negotiated at arms length between counsel for the
Partnership and the claims representative.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1995
<TABLE>
Note G - Mortgage Payables
Mortgages payable consists of the following as of the dates indicated:
<S> <C> <C>
December 31, December 31,
1995 1994
Mortgage loan, secured by Northeast Business
Campus, due August 15, 1999, interest at
8.00% (1) $7,975,000 $ 7,975,000
Mortgage loan, secured by St. Andrews at
Westwood, due September 1, 1997, interest at
9.65% (2) 8,500,000 8,500,000
Mortgage loan, secured by a portion of Shadeland
Retail Center, due January 1, 1997, interest at
9.375% (3) 4,120,531 4,180,687
----------- -----------
$20,595,531 $20,655,687
========== ==========
(1) Interest only is payable monthly in the amount of $53,167 through
August 15, 1997 with payments thereafter of $59,813 through August 15,
1999.
(2) Interest only is payable monthly in the amount of $68,354 over the
life of the loan.
(3) Monthly payments of $37,463, including principal and interest, are
based upon a 30-year amortization period. Principal payments of $60,156
and $59,132 were made in 1995 and 1994, respectively.
</TABLE>
On October 25, 1994, the Partnership executed a loan modification with the NEBC
lender to modify the NEBC mortgage. Under the terms of the loan restructuring,
the interest rate was reduced from 9.96% to 8% effective February 15, 1994, the
maturity date and principal balance remain unchanged, and the loan may be repaid
by the Partnership, at anytime, without penalty. In order to obtain the loan
modification, the Partnership agreed to permit the lender to participate in
sales proceeds above the outstanding debt and closing costs. The lender will be
entitled to receive 60% of the first $1,500,000, 40% of the next $500,000 and
10% thereafter of the remaining proceeds. In connection with the loan
modification, the Partnership was required to establish with the lender a
reserve for future tenant improvements and lease commissions and escrows for
taxes and insurance. At December 31, 1995, the lender held a total of $192,402
of restricted cash escrow which included $89,983 in reserves and $102,419 in tax
and insurance escrows. All future cash flow generated by the NEBC property will
be held in a reserve account which may be used only for the benefit of NEBC or
to meet obligations to the lender.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1995
Note G - Mortgage Payables (Continued)
The mortgage loans are non-recourse obligations. It is assumed the carrying
value of these financial instruments approximates their fair value. Interest
expense of $1,832,726, $1,993,765 and $2,014,600 was incurred on these mortgages
for the years ended December 31, 1995, 1994 and 1993, respectively. Interest
expense of $1,815,419, $1,928,544 and $1,946,245 was paid for the years ended
December 31, 1995, 1994 and 1993, respectively.
The General Partners anticipate that the balloon or principal balance payments
required on the mortgage loans at maturity will require an extension of the
existing mortgage loans or sale or refinancing of the property to which each
loan relates at such time. Maturities of mortgages payable as of December 31,
1995 are summarized as follows:
1996 $ 66,043
1997 4,081,340
1998 84,975
1999 16,363,173
2000 0
-----------------
$20,595,531
=================
Note H - Distribution to Partners
The Partnership Agreement provides for quarterly cash distributions to the
partners no later than 45 days after the close of each quarter. The quarterly
cash distributions are allocated 99% to Unitholders and 1% to the General
Partners.
As of December 31, 1995, cumulative cash distributions of $10,545,983 and
$106,517 had been made to the Unitholders and General Partners, respectively.
These cash distributions represented a cumulative return of 2% on invested
capital for each calendar period through the quarter ended July 13, 1993. No
distributions were made during 1995 or 1994.
Under Section 4.4 of the Partnership Agreement, distributions of sale or
refinancing proceeds are applied first to discharge the mortgage obligation of
the property sold or refinanced, then to discharge the debts and obligations of
the Partnership, including the Cash Flow Protector Loan, and to fund reserves
for contingent liabilities to the extent deemed reasonable by the General
Partners. The remaining sale or refinancing proceeds, if any, will be
distributed to the Unitholders. It is anticipated that any remaining proceeds
will not be sufficient to return the full amount of the Unitholders invested
capital.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1995
Note I - Reconciliation of Financial Statement Basis Net Loss and Partners'
Equity to Federal Income Tax Basis Net Loss and Partners' Equity
Reconciliation of financial statement basis net loss to federal income tax basis
net loss for the years indicated:
<TABLE>
<S> <C> <C> <C>
For the Year For the Year For the Year
Ended Ended Ended
December 31, December 31, December 31,
1995 1994 1993
Net loss - financial statement basis $(1,491,499) $(1,821,611) $(8,551,986)
(Excess) shortfall financial statement basis
equity in joint venture earnings over tax
basis equity in joint venture loss (3,348,074) 110,142 2,660,389
(Shortfall) excess financial statement basis
rental income over tax basis rental income (14,490) 18,548 114,427
(Shortfall) excess financial statement
basis expenses over tax basis expenses (71,868) (85,069) 4,168,543
------------ ------------ ----------
Net loss - federal income tax basis $(4,925,931) $(1,777,990) $(1,608,627)
==========- ========== ==========
</TABLE>
Reconciliation of financial statement basis partners' equity to federal income
tax basis partners' equity as of the dates indicated:
<TABLE>
<S> <C> <C> <C>
December 31, December 31, December 31,
1995 1994 1993
Total partners' equity - financial statement basis $1,282,826 $ 2,774,325 $ 4,595,936
Capitalization of selling commissions and
offering costs as a non-amortizable
intangible asset for federal income tax basis
statements 2,068,118 2,068,118 2,068,118
Current year excess financial statement basis
net loss over tax basis net loss (3,434,432) 43,621 6,943,359
Prior years cumulative excess financial
statement basis net loss over tax basis net 8,270,442 8,226,821 1,283,462
--------- ----------- -----------
Total partners' equity - federal income tax basis $8,186,954 $13,112,885 $14,890,875
========= ========== ==========
</TABLE>
Because many types of transactions are susceptible to varying interpretations
under federal and state income tax laws and regulations, the amounts reported
above may be subject to change at a later date upon final determination by the
taxing authorities.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1995
Note J - St. Andrews Repair and Legal Costs
During the second quarter of 1995, the Partnership entered into a $2.9 million
contract to complete the necessary repairs at St. Andrews. Repairs began during
the third quarter and are expected to be completed late in the third quarter of
1996. During 1995, modifications to the original construction contract were made
to install new windows, replace the roofs and repair and replace the underlying
wooden structures as necessary on all the buildings. The modifications resulted
in a $617,600 increase in the $2.9 million base contract. The Partnership has
incurred significant costs, including construction and engineering expenses, in
connection with assessing and repairing the construction problems and pursuing
legal remedies during 1995. The Partnership has recovered $627,500 to date in
settlements from responsible parties, including a $465,000 settlement payment
from a responsible party during the second quarter and $100,000 during the third
quarter from an affiliate of the USF&G General Partner as discussed in Note F.
The remaining $62,500 settlement payment was received during the fourth quarter
of 1994 and used to offset certain construction costs incurred during 1994.
During 1995, the Partnership incurred approximately $1,162,000 and $237,000 of
St. Andrews repair and legal costs, $565,000 of which were offset by settlements
received during the year. The Partnership incurred approximately $228,000 of St.
Andrews repair and legal costs during 1994 which were offset by recoveries of
$62,500.
The Partnership executed an agreement for a construction loan with the USF&G
General Partner during the third quarter of 1994 which will permit the
Partnership to borrow up to $3.5 million to complete the necessary repairs.
Under its term, the loan will mature September 1, 1997 and pay interest monthly
on advanced funds at 9.0%. The terms also provide for early repayment from
additional recoveries from the Partnership's lawsuit, net operating income after
reserves or sale or refinancing proceeds. As of December 31, 1995, no draws on
this loan have been made. Advances of $700,000 had been made through March 1,
1996.
<PAGE>
<TABLE>
<CAPTION>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
Schedule III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Column A Column B Column C Column D Column E
Initial Cost Costs Capitalized Gross Amount at which
to Partnership Subsequent to Acquisition carried at December 31, 1995 (1)
Buildings & Buildings &
Description Encumbrances Land Improvements Improvements Adjustments Land Improvements Totals(3)
Northeast Business
Campus Office/
Service Center,
Columbus, Ohio $ 7,975,000 $2,398,944 $11,516,043 $ 931,865 $(4,698,000) $1,339,944 $ 8,808,908 $10,148,852
St. Andrews Apartments
at Westwood
Orlando, Florida $ 8,500,000 $2,527,918 $11,516,066 $ 161,363 $ (160,000) $2,527,918 $ 11,517,428 $14,045,347
Shadeland Retail
Shopping Center
Indianapolis,
Indiana $ 4,120,531 $1,577,051 $ 8,628,943 $ 278,167 $ (114,465) $1,577,051 $ 8,792,646 $10,369,696
$20,595,531 $6,503,913 $31,661,052 $ 1,371,395 $(4,972,465) $5,444,913 $ 29,118,982 $34,563,895
<C> <C> <C> <C>
Column F Column G Column H Column I
Accumulated Depreciable
Depreciation Date of Date Life in
(2) Construction Acquired Years
$2,060,339 1981,1984 11/08/88 31.5
$2,321,969 1989 06/28/90 27.5
$1,568,655 1982,1985 08/01/90 31.5
$5,950,963
</TABLE>
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
<TABLE>
Note 1 - Reconciliation of Real Estate:
<S> <C>
For the Year Ended
DECEMBER 31, 1995
Balance at beginning of period $34,484,784
Additions (deductions) during the period:
- Improvements 300,857
- Write-off fully depreciated real estate (221,746)
------------
Balance at end of period $34,563,895
============
Note 2 - Reconciliation of Accumulated Depreciation:
For the Year Ended
DECEMBER 31, 1995
Balance at beginning of period $5,057,645
Depreciation expense for the period 1,115,064
Write-off fully depreciated real estate (221,746)
---------
Balance at end of period $5,950,963
=========
</TABLE>
Note 3 - Federal Income Tax Cost of Real Estate:
The federal income tax cost of the real estate differs from book cost, which is
reflected in Column E, by approximately $5,080,000. A guaranty payment received
in 1991 which was treated as a reduction to the book basis for GAAP and as
income for tax purposes in the amount of $160,000. Additionally, the 1994
writedown of the NEBC investment was not recognized for tax purposes.
Note 4 - Carrying Cost Adjustments:
There were no payments received or due during 1995 pursuant to seller net
operating income guarantees. For financial reporting purposes, payments received
pursuant to seller net operating income guarantees are recorded as adjustments
to the carrying value of the property. Guarantee payments of $160,000 related to
St. Andrews were received during 1991. In addition, a net writedown of
$4,043,000 was made during 1993 to adjust the carrying value of the NEBC
investment to appraised value.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
<TABLE>
SCHEDULE X - SUPPLEMENTARY STATEMENTS OF OPERATIONS INFORMATION
For the Years Ended December 31, 1995, 1994, and 1993
Supplementary statements of operations information is as follows:
Column B -
Charged to Costs
COLUMN A - ITEM AND EXPENSES
<S> <C> <C> <C>
1995 1994 1993
---- ---- ----
1. Maintenance and repairs $357,209 $390,082 $419,620
======= ======= =======
2. Amortization of organization costs $ 0 $ 0 $ 11,518
=========== ============ ========
3. Real estate property taxes $457,417 $487,280 $507,890
======= ======= =======
</TABLE>
<PAGE>
Report of Independent Auditors
The Partners
Greenbrier Towers General Partnership
We have audited the accompanying statement of net assets in liquidation as of
December 31, 1995 and the balance sheet (going concern basis) as of December 31,
1994 of Greenbrier Towers General Partnership. In addition, we have audited the
related statements (going concern basis) of operations, partners' equity
(deficit), and cash flows for each of the three years in the period ended
December 31, 1995. Our audits also included the financial statement schedule
listed in the accompanying Index to Financial Statements and Schedule (Item 8).
These financial statements and schedule are the responsibility of the Partners.
Our responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
Partners, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note A to the financial statements, on December 31, 1995, the
Partners decided to liquidate Greenbrier Towers General Partnership. As a
result, the Greenbrier Towers General Partnership has changed its basis of
accounting as of December 31, 1995 from the going-concern basis to the
liquidation basis.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets in liquidation at December 31, 1995, and
the financial position at December 31, 1994 of Greenbrier Towers General
Partnership, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles applied on the bases described in the
preceding paragraph. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, present fairly in all material respects the information set forth
therein.
/S/ ERNST & YOUNG LLP
Baltimore, Maryland
February 15, 1996
<PAGE>
<TABLE>
<CAPTION>
GREENBRIER TOWERS GENERAL PARTNERSHIP
STATEMENT OF NET ASSETS IN LIQUIDATION
<S> <C>
DECEMBER 31, 1995
ASSETS
Cash and Cash Equivalents - Note C $60,610
Other Assets - Notes A and D 5,316
-------
65,926
LIABILITIES
Accounts Payable and Accrued Expenses $13,000
Other Liabilities - Note E 52,926
-------
65,926
-------
Net Assets in Liquidation $ 0
==========
See accompanying notes to the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GREENBRIER TOWERS GENERAL PARTNERSHIP
BALANCE SHEET
(GOING CONCERN BASIS)
<S> <C>
DECEMBER 31, 1994
ASSETS
Real Estate Investment - Notes B and G:
Land $ 1,596,990
Buildings and Improvements 14,452,399
----------
16,049,389
Less: Accumulated Depreciation (2,967,070)
----------
13,082,319
Cash and Cash Equivalents - Note C 258,064
Accounts Receivable - Notes A and D 14,054
----------
TOTAL ASSETS $13,354,437
==========
LIABILITIES AND PARTNERS' EQUITY DEFICIT
Accounts Payable and Accrued Expenses $ 425,253
Security Deposits 32,725
Note Payable Due to General Partner (In Default) - Note F 367,196
Mortgage Payable in Default - Note G 13,082,320
----------
13,907,494
Partners' Equity Deficit (553,057)
----------
TOTAL LIABILITIES AND PARTNERS' EQUITY DEFICIT $13,354,437
==========
See accompanying notes to the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GREENBRIER TOWERS GENERAL PARTNERSHIP
STATEMENTS OF OPERATIONS
(GOING CONCERN BASIS)
<S> <C> <C> <C>
For the Year Ended For the Year Ended For the Year Ended
December 31, December 31, December 31,
1995 1994 1993
---- ---- ----
RENTAL REVENUE $ 726,021 $ 2,198,233 $ 2,038,561
OPERATING EXPENSES:
Repairs and Maintenance 100,505 309,027 302,414
Utilities 70,130 236,127 227,921
Property Taxes 61,079 191,386 187,866
Management Fees 19,002 65,448 61,176
Other Operating Expenses 49,340 39,932 44,095
Insurance 5,088 9,669 14,013
Writedown for Asset Impairment 921,133 696,900 5,304,000
Interest 467,768 1,329,589 1,314,947
Depreciation and Amortization 176,748 680,602 871,326
---------- ---------- -----------
Total Expenses 1,870,793 3,558,680 8,327,758
---------- ---------- ----------
Loss Before Extraordinary Item (1,144,772) (1,360,447) (6,289,197)
Extraordinary Item:
Gain on Extinguishment of Debt - Note J 1,697,829 0 0
---------- ---------------- ----------------
Net Income (Loss) $ 553,057 $(1,360,447) $(6,289,197)
=========== ========== ==========
See accompanying notes to the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GREENBRIER TOWERS GENERAL PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
(GOING CONCERN BASIS)
<S> <C> <C> <C>
USF&G/Legg
Mason Greenbrier Towers
Realty Partners Fidelity Associates
LIMITED PARTNERSHIP LIMITED PARTNERSHIP TOTAL
Partners' Equity, January 1, 1993 $ 3,716,160 $ 3,380,427 $ 7,096,587
Net Loss (3,150,148) (3,139,049) (6,289,197)
----------- ------------ -----------
Partners' Equity, December 31, 1993 566,012 241,378 807,390
Net Loss (685,774) (674,673) (1,360,447)
------------ ------------- ----------
Partners' Equity (Deficit), December 31, 1994 (119,762) (433,295) (553,057)
Net Income 119,262 433,795 553,057
------------- ------------- -------------
Net Assets in Liquidation, December 31, 1995 -
Note A $ (500) $ 500 $ 0
=============== =============== ================
See accompanying notes to the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GREENBRIER TOWERS GENERAL PARTNERSHIP
STATEMENTS OF CASH FLOWS
(GOING CONCERN BASIS)
<S> <C> <C> <C>
For the Year For the Year For the Year
Ended Ended Ended
December 31, December 31, December 31,
1995 1994 1993
OPERATING ACTIVITIES
Net Income (Loss) $ 553,057 $(1,360,447) $(6,289,197)
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation and amortization 176,748 680,602 871,326
Writedown for asset impairment 921,133 696,900 5,304,000
Gain on extinguishment of debt (1,697,829) 0 0
Interest accrued and applied to General Partner
Note Payable 13,613 24,345 6,036
Other assets and liabilities transferred to lender 331,969 0 0
Change in net assets and liabilities related
to operating activities:
(Decrease) increase in accounts payable
and accrued expenses (420,958) 206,191 (117,921)
(Decrease) increase in security deposits (32,725) 1,839 (1,427)
(Increase) decrease in accounts receivable (21,584) 33,196 63,025
Increase in other assets (5,316) (78,935) (36,200)
---------- ---------- ----------
Net Cash (Used In) Provided By Operating Activities (181,892) 203,691 (200,378)
INVESTING ACTIVITIES
Investment in real estate (15,562) (53,223) (118,898)
----------- ---------- ---------
Net Cash Used In Investing Activities (15,562) (53,223) (118,898)
FINANCING ACTIVITIES
Mortgage principal payments 0 (17,680) 0
Note proceeds 0 0 216,815
-------------- ------------- -------
Net Cash (Used In ) Provided By Financing Activities 0 (17,680) 216,815
-------------- ---------- ----------
(Decrease) Increase in Cash (197,454) 132,788 (102,461)
Cash and Cash Equivalents, Beginning of Period 258,064 125,276 227,737
---------- ---------- ----------
Cash and Cash Equivalents, End of Period $ 60,610 $ 258,064 $ 125,276
=========== ========== ==========
NON-CASH FINANCING ACTIVITY
Interest accrued and applied to General Partner
Note Payable $ 13,613 $ 24,345 $ 6,036
=========== =========== ============
See accompanying notes to the financialstatements.
</TABLE>
<PAGE>
68
GREENBRIER TOWERS GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
Note A - Organization and Summary of Significant Accounting Policies
ORGANIZATION
On May 16, 1989, the Greenbrier Towers General Partnership (the "Greenbrier
Joint Venture") was formed by USF&G/Legg Mason Realty Partners Limited
Partnership, a Maryland limited partnership ("USF&G/LM") and Greenbrier Towers
Fidelity Associates Limited Partnership, a Maryland limited partnership
("Fidelity") (individually, a "Joint Venture Partner" and, collectively, the
"Joint Venture Partners"), to acquire, own and operate Greenbrier Towers, two
existing office buildings in Chesapeake, Virginia. USF&G/LM and Fidelity each
own a 50% general partnership interest in Greenbrier Joint Venture. The business
and affairs of Greenbrier Joint Venture are managed collectively by USF&G/LM and
Fidelity, and neither can make any major decision regarding the financing or
sale of Greenbrier Towers without the consent of the other.
The joint venture agreement provides that cash contributions will be made
equally by USF&G/LM and Fidelity except USF&G/LM was required to contribute 100%
of the acquisition fees of approximately $371,000 paid to the general partners
of USF&G/LM in connection with the purchase of Greenbrier Towers. Distributions
of cash from operations, sales and refinancings, and items of income and loss
are allocated equally between USF&G/LM and Fidelity except depreciation
deductions associated with the acquisition fees which are specifically allocated
to USF&G/LM.
BASIS OF PRESENTATION
The Greenbrier Joint Venture Partners decided to liquidate the partnership as of
December 31, 1995. As a result, the Greenbrier Joint Venture statement of net
assets in liquidation at December 31, 1995 has been presented utilizing
liquidation accounting concepts as required by generally accepted accounting
principles. Under this method of accounting, assets are recorded at their
estimated realizable values and recorded liabilities reflect estimated remaining
obligations, including estimated costs associated with completing the
liquidation. There was no adjustment required in the financial statements to
adopt the liquidation basis of accounting at December 31, 1995 because of
transfers and adjustments made in connection with the foreclosure of Greenbrier
Joint Venture's primary asset and related obligation (see Note G and J).
The Greenbrier Joint Venture balance sheet as of December 31, 1994 and
statements of operations, partners' equity deficit and cash flows for the years
ended December 31, 1995, 1994 and 1993 have been presented on a going concern
basis which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business.
<PAGE>
GREENBRIER TOWERS GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1995
Note A - Organization and Summary of Significant Accounting Policies (Continued)
BASIS OF PRESENTATION (Continued)
During 1995, the Prudential Insurance Company of America (Prudential) initiated
foreclosure proceedings, as a result of the Greenbrier Joint Venture's default
on the mortgage loan on December 19, 1994. The property was purchased by the
lender at the April 26, 1995 foreclosure sale. Prudential exercised its right
under the August 22, 1989 Assignment of Leases and Rents to directly collect all
tenant rents beginning January 26, 1995. At the time of foreclosure, current
assets and current liabilities generated by property operations, except those
included in the Statement of Net Assets in Liquidation, were transferred to
Prudential. Management plans to transfer the Greenbrier Joint Venture's
remaining net assets at December 31, 1995, excluding obligations to other third
parties, to Prudential in return for an indemnification of liability. The Joint
Venture Partners intend to complete the liquidation of the Greenbrier Joint
Venture upon settlement of the indemnification agreement.
Results of operations on a going concern basis were reflected in the statements
of operations through December 31, 1995. Subsequent to April 26, 1995, no
additional operating activity other than the payment of ordinary business
expenses was recorded in the Greenbrier Joint Venture's records.
DEPRECIATION AND AMORTIZATION
Buildings and improvements are recorded at cost, adjusted for other than
temporary declines in value. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets. Improvements are
capitalized, and repairs and maintenance are charged to operations as incurred.
Leasing commissions are amortized using the straight-line method over the term
of the related leases. Capitalized financing costs are amortized using the
straight-line method over the term of the related financing. Organization costs
are amortized over a sixty-month period commencing on the date of inception of
Greenbrier Joint Venture. See Note D for additional discussion of other assets.
INCOME TAXES
No provision or benefit for income taxes has been included in these financial
statements since taxable income or loss passes through to, and is reportable by,
the Joint Venture Partners individually.
RENTAL REVENUE
Rental revenue is recognized on a straight-line basis over the lease terms. As
discussed in Note D, the receivables related to straight line rent were written
off at December 31, 1994.
<PAGE>
GREENBRIER TOWERS GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1995
Note B - Real Estate Investment
On May 17, 1989, Greenbrier Joint Venture acquired Greenbrier Towers from an
unaffiliated seller for a gross purchase price of $23,200,000. In connection
with the acquisition, USF&G/LM and Fidelity were each required to initially
contribute approximately $5,150,000, and interim financing in the amount of
$13,100,000 was obtained from United States Fidelity and Guaranty Company, an
affiliate of each of the Joint Venture Partners. The interim loan was replaced
by permanent financing obtained on August 22, 1989 as discussed in Note G.
On January 26, 1995, due to the mortgage default discussed in Note G, the lender
exercised its right under the August 22, 1989 Assignment of Lease to directly
collect all tenant rents. Greenbrier Towers was transferred to the lender at the
April 26, 1995 foreclosure sale. In connection with the foreclosure, the
Greenbrier Joint Venture wrote down the net book value of its investment in real
estate by $921,133 to the $12,000,000 appraised value. Additionally, during 1994
the Greenbrier Joint Venture wrote down the net book value of its investment in
real estate by $373,521 to the outstanding mortgage balance at December 31,
1994. Although the appraised value of Greenbrier Towers was less than the
outstanding mortgage balance, the Greenbrier Joint Venture's loss was limited to
the outstanding mortgage balance due to its non-recourse nature. The total
writedown for asset impairment during 1994 of $696,900 also included $323,379 to
write-off intangible assets at December 31, 1994 as discussed in Note D. The
investment in real estate at December 31, 1993 was written down by $5,304,000 to
its 1993 appraised value. Local market trends for commercial real estate
contributed to the decline in value. The net book value, adjusted for the
writedown, became the new carrying value for Greenbrier Towers. As such,
historical cost and accumulated depreciation were reduced accordingly.
Note C - Cash and Cash Equivalents
Cash and cash equivalents include temporary investments in commercial paper and
government securities with underlying investments primarily in short-term United
States government security obligations with maturities of three months or less.
Note D - Accounts Receivable and Other Assets
Accounts receivable consists of tenant receivables. Other assets consist of an
insurance reimbursement receivable at December 31, 1995. During 1995, net
accounts receivable of $35,639 were transferred to the lender in connection with
the assignment of rents and foreclosure discussed in Note A. The straight line
rent receivable of $130,739 and other assets of $192,640 were written off as of
December 31, 1994 as discussed in Notes A and B. Other assets written off
consisted of net loan fees of $69,170 and net leasing commissions of $123,470.
Additionally, organization costs were fully amortized as of December 31, 1994.
<PAGE>
GREENBRIER TOWERS GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1995
Note E - Other Liabilities
Other liabilities consist of the net assets held by the Greenbrier Joint
Venture for the benefit of the lender. The Partnership expects to remit the net
assets to the lender in return for an indemnification of liability. See
Note G for additional discussion of mortgage payable.
Note F - Note Payable due to General Partner
On September 30, 1992, the Greenbrier Joint Venture entered into a non-recourse
loan agreement with Fidelity, in order to fund the Greenbrier Joint Venture
operating deficits. The maximum principal amount of the original note was
$250,000. The original note was fully advanced through November 30, 1993
including $130,000 during 1993 and $120,000 during 1992. As of December 31,
1993, the original note was amended to evidence additional operating deficit
fundings from Fidelity of $86,815 and capitalized interest of $6,036 through
December 31, 1993. The amended note was due and payable on December 31, 1994
from sale or refinancing proceeds. The note was not extended due to the default
on the mortgage as further discussed in Note G. Interest accrued and applied to
the Note Payable balance included $13,613, $24,345, and $6,036 during 1995,
1994, and 1993 respectively. The note, totalling $380,809 at April 26, 1995, was
extinguished at foreclosure since no assets were available to repay the note and
the note was non-recourse to the Greenbrier Joint Venture. The extinguishment of
the General Partner note was included in the gain on extinguishment of debt
discussed in Note J.
The principal amount of the amended note was $367,196 as of December 31, 1994.
The interest rate on the amended note is set at the prime rate announced by
Mercantile Safe Deposit and Trust Co., as of the last day of each calendar
month, which was 9.0% as of April 30, 1995 and 8.5% as of December 31, 1994.
Interest expense on the note of $13,613, $25,229 and $10,187 was incurred during
1995, 1994 and 1993, respectively.
Note G - Mortgage Payable
On August 22, 1989, permanent financing was obtained in the amount of
$13,100,000 for Greenbrier Towers. The mortgage had a 10-year term, bore
interest at a rate of 9.96% per annum and was secured by the real estate
investment. Interest only was payable monthly over the first five years with
payments during the balance of the term based upon a 30-year amortization
schedule.
Interest expense of $1,304,360 was incurred during the year ended December 31,
1994 of which $1,195,875 was paid. The unpaid portion of $108,485 was included
in accounts payable and accrued expenses at December 31, 1994. Interest expense
of $1,304,760 was incurred and paid during the year ended December 31, 1993.
<PAGE>
GREENBRIER TOWERS GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1995
Note G - Mortgage Payable (Continued)
The Greenbrier Joint Venture did not pay the scheduled interest payment on the
Greenbrier Towers mortgage due on December 15, 1994 due to continued operating
cash flow deficits with respect to the Greenbrier Towers property. Consequently,
the mortgage was in default on December 19, 1994 and the lender initiated
foreclosure proceedings. These proceedings were legally finalized on April 26,
1995. At that time the Property was purchased by the lender in satisfaction of
the mortgage obligation.
Note H - Related Party Transactions
The costs incurred by the Greenbrier Joint Venture which were payable to
affiliates of the Greenbrier Joint Venture for the periods ended December 31,
1995, 1994, and 1993 were $13,613, $25,229, and $10,187, respectively, in
interest on the note payable discussed in Note F. Additionally, $12,161 and
$10,533 was paid in 1995 and 1994, respectively, to affiliates of Greenbrier
Joint Venture for operating costs.
Note I - Distributions
The joint venture agreement provides for quarterly cash distributions to the
Joint Venture Partners provided there is excess cash flow from operations to
make such distributions. Cumulative cash distributions of $551,844 had been made
to each Joint Venture Partner from available cash flow from operations through
the year ended December 31, 1995. No distributions were made during 1995, 1994
or 1993.
<PAGE>
GREENBRIER TOWERS GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1995
Note J - Gain on Extinguishment of Debt
At the time of foreclosure, the carrying value of the debt, which included
principal and accrued and unpaid interest, was greater than the appraised value
of Greenbrier Towers. The Greenbrier Joint Venture wrote down the net book value
of its investment in real estate to the $12,000,000 appraised value in
connection with the foreclosure as discussed in Note B. Due to the fact that the
mortgage was non-recourse in nature, the foreclosure by the lender is deemed to
be in full satisfaction of the mortgage obligation. Greenbrier Venture realized
a gain on the foreclosure equal to the excess of the carrying amount of the
mortgage payable over the fair value of the assets transferred to the lender at
foreclosure as follows:
<TABLE>
<S> <C>
Carrying Value of Mortgage Payable $ 13,648,989
Less: Fair Value of Real Estate Investment (12,000,000)
Additional Assets Transferred:
Pre-Foreclosure Operating Cash Flow (296,330)
Accounts Receivable, Net (35,639)
Gain on Extinguishment of Mortgage Payable 1,317,020
Gain on Extinguishment of Note Payable due to General Partner 380,809
-------------
Gain on Extinguishment of Debt $ 1,697,829
============
</TABLE>
The pre-foreclosure operating cash flow represents net Greenbrier Towers' cash
flow collected by the Greenbrier Joint Venture after the lender exercised its
right under the Assignment of Leases and Rents on January 26, 1995.
These amounts were subsequently remitted to the lender upon foreclosure.
<PAGE>
GREENBRIER TOWERS GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1995
Note K - Reconciliation of Financial Statement Net Loss and Partners' Equity
(Deficit) to Federal Income Tax Basis Net Loss and Partners' Equity
Reconciliation of financial statement basis net income (loss) to federal income
tax basis net loss for the periods ended December 31, 1995, 1994 and 1993:
<TABLE>
<S> <C> <C> <C>
1995 1994 1993
---- ---- ----
Net income (loss) - financial statement basis $ 553,057 $(1,360,447) $(6,289,197)
Excess tax basis loss over financial statement
basis loss (7,520,664) 0 0
Excess tax basis rental income over financial
statement basis rental income 0 14,719 24,397
Excess financial statement basis rental
income over tax basis rental income (63,016) 0 0
Excess financial statement basis expenses
over tax basis expenses 921,133 696,900 5,304,000
Excess tax basis expenses over financial
statement basis expenses (310,751) (251,812) (7,620)
------------ ------------ ------------
Net loss - federal income tax basis $(6,420,241) $ (900,640) $ (968,420)
========== ============ ==========
</TABLE>
Reconciliation of financial statement basis partners' equity (deficit) to
federal income tax basis partners' equity as of December 31, 1995, 1994 and
1993:
<TABLE>
<S> <C> <C> <C>
1995 1994 1993
---- ---- ----
Total partners' equity (deficit) - financial statement
basis $ 0 $ (553,057) $ 807,390
Current year excess financial statement
basis net loss over tax basis net loss 0 459,807 5,320,777
Current year excess tax basis net loss over
financial statement basis net loss (6,973,298) 0 0
Prior year excess tax basis net loss over
financial statement basis net loss 7,011,727 6,551,920 1,231,143
--------- --------- ---------
Total partners' equity - federal income tax basis $ 38,429 $6,458,670 $7,359,310
============ ========= =========
</TABLE>
Because many types of transactions are susceptible to varying interpretations
under federal and state income tax laws and regulations, the amounts reported
above may be subject to change at a later date upon final determination by the
taxing authorities.
<PAGE>
<TABLE>
<CAPTION>
GREENBRIER TOWERS GENERAL PARTNERSHIP
Schedule III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Column A Column B Column C Column D Column E
Initial Cost Costs Capitalized Gross Amount at which
to Partnership Subsequent to Acquisition carried at December 31, 1995 (1)
Buildings & Buildings &
Description Encumbrances Land Improvements Improvements Adjustments Land Improvements Totals(3)
Greenbrier
Towers I & II
Office Buildings
Chesapeake,
Virginia $0 $1,596,990 $21,217,149 $1,362,863 ($24,177,002) $0 $0 $0
<C> <C> <C> <C>
Column F Column G Column H Column I
Accumulated Depreciable
Depreciation Date of Date Life in
(2) Construction Acquired Years
$0 1985,1987 5/17/89 31.5
</TABLE>
<TABLE>
<CAPTION>
GREENBRIER TOWERS GENERAL PARTNERSHIP
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
Note 1 - Reconciliation of Real Estate
<S> <C>
For the Year Ended
DECEMBER 31, 1995
Balance at beginning of period $ 16,049,389
Additions (deductions) during the period:
- Improvements 15,562
- Writedown (1,135,958)
- Write-off of fully depreciated assets (137,793)
- Assets transferred at foreclosure (14,791,200)
-----------
Balance at end of period $ 0
==================
</TABLE>
<TABLE>
<CAPTION>
Note 2 - Reconciliation of Accumulated Depreciation
<S> <C>
For the Year Ended
DECEMBER 31, 1995
Balance at beginning of period $ 2,967,070
Depreciation expense for the period 176,748
Write-off of fully depreciated assets (137,793)
Writedown (214,825)
Assets transferred at foreclosure (2,791,200)
----------
Balance at end of period $ 0
================
</TABLE>
Note 3 - Federal Income Tax Cost of Real Estate
The federal income tax cost of land and buildings and improvements is $1,596,990
and $22,580,012, respectively, for a total cost of $24,177,002 prior to
foreclosure and $0 at December 31, 1995.
Note 4 - Carrying Cost Adjustments
For financial reporting purposes, $1,428,094 in payments received pursuant to
seller net operating income guarantees are recorded as adjustments to the
carrying value of the property. The net operating income guarantees were in
effect through May 17, 1992. In addition, net writedowns of $921,133, $373,521
and $5,304,000 were made during 1995, 1994 and 1993, respectively, to adjust the
investments carrying value to appraised value.
<PAGE>
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
The USF&G/Legg Mason Realty Partners Limited Partnership and the Greenbrier
Joint Venture have not changed accountants since inception, nor have they had
disagreements on any matter of accounting principle, practice, financial
statement disclosure, or audit scope or procedure.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP.
The Partnership does not have officers or directors. USF&G Realty Partners,
Inc. and Legg Mason Realty Partners, Inc. are the General Partners and have the
exclusive right and authority to manage the Partnership and conduct
the business of the Partnership.
USF&G REALTY PARTNERS, INC.
USF&G Realty Partners, Inc. is a Maryland corporation that is wholly-owned by
USF&G Realty, Inc., a subsidiary of USF&G Corporation ("USF&G"). USF&G Realty
Partners, Inc. has the primary responsibility for overseeing the performance of
those with whom it contracts and who contract with the Partnership, cash
management of the Partnership's liquid assets, and the administration of
investor services, including general communications with and periodic reports
and distributions to Unitholders. Decisions with respect to the acquisition,
financing, refinancing and disposition of the Partnership's Properties are made
jointly by the General Partners. USF&G Assignor Limited Partner, Inc., a
wholly-owned subsidiary of USF&G Realty, Inc., is the Assignor Limited Partner
of the Partnership.
<PAGE>
OFFICERS AND DIRECTORS OF USF&G REALTY PARTNERS, INC. AND
USF&G ASSIGNOR LIMITED PARTNER, INC.
DAN L. HALE, age 52, has been President and a director of USF&G Realty
Partners, Inc. and USF&G Assignor Limited Partner, Inc. since 1991. He is also
Chief Financial Officer of USF&G Corporation. Mr. Hale joined USF&G in February
1991 from the Chase Manhattan Corporation where he was President and Chief
Executive Officer of the Chase Manhattan Leasing Company. Before joining Chase
in 1988, Mr. Hale was a Managing Director of the Kidder Peabody Group of General
Electric Company. He also served as a Senior Vice President and General Manager
of the General Electric Capital Corporation's Corporate Finance Services
Division, and Vice President and General Manager of their Commercial Financing
Division. Mr. Hale holds a B.A. degree from Yale University.
CHARLES R. WERHANE, age 41, has been Vice President and a director of USF&G
Realty Partners, Inc. and Vice President of USF&G Assignor Limited Partner, Inc.
since 1991. He is Vice President and Director of USF&G Realty, Inc., and is Vice
President and General Manager of the USF&G Real Estate Division. Prior to
joining USF&G in 1989, Mr. Werhane was Vice President of the Real Estate
Division of M Bank in Houston, Texas, and from 1981 through 1988, he was
associated with Western Bank in Houston, Texas. Mr. Werhane holds a B.B.A. in
Finance from the University of Wisconsin, and a M.A. from Southern Methodist
University's Southwestern Graduate School of Banking.
JOHN F. HOFFEN, age 44, is Secretary of USF&G Realty Partners, Inc., USF&G
Assignor Limited Partner, Inc. and USF&G Realty, Inc. Mr. Hoffen has been
Corporate Secretary of USF&G since August, 1991. Mr. Hoffen joined USF&G in
1982, as a Tax Superintendent, and in 1989 was named Assistant Secretary. Prior
to joining USF&G, Mr. Hoffen was a Senior Tax Accountant with Monumental Life
Insurance Company. Mr. Hoffen holds a B.S. in Accounting from Loyola College, a
M.A. in Taxation and a J.D. from the University of Baltimore. Mr. Hoffen has
been a member of the Maryland Bar since December, 1987.
RICHARD P. CAMPAGNA, age 40, is Vice President and Treasurer of USF&G Realty
Partners, Inc. and USF&G Assignor Limited Partner, Inc. Mr. Campagna joined
USF&G in 1988 as Assistant Vice President of F&G Life. He was named Vice
President and Treasurer of USF&G Corporation in October, 1993. Prior to joining
USF&G, Mr. Campagna spent six years with Ernst & Young, most recently as a
Senior Manager. Mr. Campagna holds a B.S. from the University of Scranton. He is
a member of American Institute of CPA's, Maryland Association of CPA's and Life
Office Management Association.
JOSEPH A. WESOLOWSKI, age 38, has been Vice President and a director of USF&G
Realty Partners, Inc. and USF&G Assignor Limited Partner, Inc. since 1991. Mr.
Wesolowski joined USF&G in January 1990 as Director of Financial Analysis of the
USF&G Real Estate Division and currently serves as Vice President/Controller.
Prior to joining USF&G, Mr. Wesolowski was the Chief Financial Officer for
Century Engineering, Inc. From 1983 to 1988, Mr. Wesolowski held various
positions at McCormick & Company, Inc., most recently serving as Controller for
its subsidiary McCormick Properties, Inc. Mr. Wesolowski is a Certified Public
Accountant and holds a B.A. degree in Accounting from Loyola College, and a
Masters of Administrative Science from the Johns Hopkins University.
LEGG MASON REALTY PARTNERS, INC. Legg Mason Realty Partners, Inc., a Maryland
corporation, is a wholly-owned subsidiary of Legg Mason, Inc. Legg Mason Realty
Partners, Inc. participates with USF&G Realty Partners, Inc. in the
administration of investor services, including general communications with and
periodic reports and distributions to Unitholders and reviews of Partnership
operations. Legg Mason Realty Partners, Inc. and USF&G Realty Partners, Inc.
jointly make decisions with respect to the acquisition, financing, refinancing
and disposition of properties.
OFFICERS AND DIRECTORS OF LEGG MASON REALTY PARTNERS, INC.
RICHARD J. HIMELFARB, age 54, has been President and a director of Legg Mason
Realty Partners, Inc. since 1988. He is a Senior Executive Vice President and a
director of Legg Mason, Inc. and Legg Mason Wood Walker, Inc. Mr. Himelfarb has
senior management responsibility for the Corporate Finance, Real Estate Finance
and Direct Investments Departments of Legg Mason Wood Walker, Inc. From 1972
until he joined Legg Mason, Inc. in 1983, Mr. Himelfarb was a partner in the
Baltimore law firm of Weinberg and Green where he served as senior outside
counsel for Legg Mason, Inc. He is a graduate of the Johns Hopkins University
and the Yale Law School.
AUDREY B. DROSSNER, age 39, who joined Legg Mason, Inc. in 1987, has been Vice
President, Treasurer and a director of Legg Mason Realty Partners, Inc. since
1988. She is Vice President of Legg Mason Wood Walker, Inc. From 1983 through
1987, she served as a Manager in the tax department of Coopers and Lybrand,
Baltimore, Maryland. Ms. Drossner is a graduate of the Wharton School of the
University of Pennsylvania and is a Certified Public Accountant.
ROBERT T. KLEINPASTE, age 49, has been a director of Legg Mason Realty Partners,
Inc. since 1988. He is President of Regency Homes Corporation, an Annapolis,
Maryland-based home builder. From 1990 until 1994, he was President of Legg
Mason Realty Group, Inc. which is the real estate consulting and appraisal
subsidiary of Legg Mason, Inc. Prior to joining Legg Mason Realty Group, Inc. as
a Vice President in 1986, he was President and founder of Real Property Research
Group Inc. That firm was acquired by Legg Mason, Inc. in December, 1986. Before
founding his own firm in 1978, Mr. Kleinpaste was Vice President of Marketing
for Chesapeake Homes, Inc. and prior to that served as Executive Vice President
of Briggs Napier Consultants, Inc., a real estate marketing consulting firm. He
is a 1969 graduate of the University of Maryland.
ITEM 11. EXECUTIVE COMPENSATION.
The Partnership has not paid and does not propose to pay any cash compensation,
bonuses or deferred compensation, compensation pursuant to retirement or other
plans, or other compensation to the officers or directors of the General
Partners.
During the offering, operating and liquidation stages of the Partnership, the
General Partners and their affiliates are entitled to receive various fees and
distributions. For information on these types of payments, incorporation by
reference is made to the section entitled "Management Compensation" on pages
9-13 of the Partnership's Prospectus dated June 28, 1988, which is incorporated
by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) Security Ownership of Certain Beneficial Owners
Except as otherwise noted in (b) "Security Ownership of Management",
no individual or group, as defined by Section 13(d)(3) of the
Securities and Exchange Act of 1934, known to the registrant is the
beneficial owner of more than 5 percent of the registrant's
securities.
<TABLE>
(b) Security Ownership of Management
<S> <C> <C> <C>
Amount and
Nature of Percent
Title of Beneficial of
CLASS BENEFICIAL OWNER OWNERSHIP CLASS
Assignee Limited
Partnership Interests
$25 per Unit Fidelity & Guaranty Life Insurance Company 400,000 Units 37%
$25 per Unit USF&G Realty Partners, Inc. 42,728 Units 4%
$25 per Unit Legg Mason Realty Partners, Inc. 42,314 Units 4%
</TABLE>
<PAGE>
(c) Change in Control
No arrangements are known to the Partnership which may result in a
change in control of the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(a) During the offering, operating and liquidation stages of the
Partnership, the General Partners and their affiliates are entitled
to receive various fees and distributions. For information on these
types of payments, incorporation by reference is made to the section
entitled "Management Compensation" on pages 9-13 of the Partnership's
Prospectus dated June 28, 1988, which is incorporated by reference
herein.
For a discussion of compensation to or accrued for the benefit of the
General Partners or affiliates in 1993, 1992, and 1991 refer to Note
F of Notes to Financial Statements of the Partnership which is
incorporated by reference from Part II, "Item 8. Financial Statements
and Supplementary Data" of this Annual Report on Form 10-K.
(b) None
(c) No management person is indebted to the Partnership.
(d) Not applicable
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Financial Statements and Schedules:
See Index to Financial Statements and Schedules, on Page 19 of this
Annual Report on Form 10-K.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Partnership during the
quarter ended December 31, 1994.
(c) Exhibits:
3.1 Certificate of Limited Partnership of USF&G/Legg Mason Realty Partners
Limited Partnership dated April 8, 1988 (3)
4.1 USF&G/Legg Mason Realty Partners Limited Partnership Agreement and Amended
Certificate of Limited Partnership dated as of June 16, 1988 (3)
4.2 First Amendment to Limited Partnership Agreement and Amended Certificate of
Limited Partnership dated as of November 10, 1988 (2)
4.3 Second Amendment to Limited Partnership Agreement and Amended Certificate of
Limited Partnership dated as of February 6, 1989 (2)
4.4 USF&G/Legg Mason Realty Partners Amended and Restated Agreement of Limited
Partnership dated as of July 17, 1989 (1)
4.5 Form of Subscription Agreement (3)
4.6 Form of Notice of Exercise of Right of Presentment (3)
10.1 Management Services Agreement dated April 8, 1988 (3)
10.2 Form of Advisory Agreement with USF&G Realty, Inc. (3)
10.3 Purchase Agreement for Northeast Business Campus in Columbus, Ohio dated
November 2, 1988 (2)
10.4 Management Agreement between the Partnership and Galbreath - Huff
Companies, Inc. for property management services dated November 8, 1988 (2)
10.5 Leasing Agreement between the Partnership and Galbreath - Huff Companies,
Inc. for property leasing services dated November 8, 1988 (2)
<PAGE>
10.6 Lease Agreement dated August 17, 1989 between the Partnership and Automatic
Data Processing, Inc. (1)
10.7 Modification and Ratification of Lease dated May 27, 1988 between Northeast
Business Campus Associates and Abbott Laboratories (including as an Exhibit
thereto, Lease Agreement dated November 23, 1987) (2)
10.8 Lease Agreement dated May 15, 1987 between Northeast Business Campus
Associates and Peer Review Systems, Inc. (2)
10.9 Lease Agreement dated June 22, 1988 between the Partnership and Peer Review
Systems, Inc. (1)
10.10 Lease Agreement dated March 6, 1989 between the Partnership and Peer
Review Systems, Inc. (1)
10.11 Lease Agreement dated July 10, 1989 between the Partnership and Peer
Review Systems, Inc. (1)
10.12 Lease Agreement dated October 11, 1989 between the Partnership and
Professional Review Network Incorporated, a subsidiary of Peer Review Systems,
Inc. (1)
10.13 $7,975,000 Note Secured by Mortgage dated August 22, 1989 between the
Partnership and The Prudential Insurance Company of America (1)
10.14 Mortgage dated August 22, 1989 between the Partnership and The Prudential
Insurance Company of America (1)
10.29 Purchase Agreement for St. Andrews Apartments at Westwood, Orlando,
Florida dated June 25, 1990 (7)
10.30 Management and Leasing Agreement between the Partnership and Epoch
Management, Inc. dated as of July 2, 1990 (7)
10.31 Promissory Note and Mortgage Renewal and Modification Agreement dated
August 14, 1990 between the Partnership and Allstate Life Insurance Company (7)
10.32 Consolidation and Renewal Mortgage Note dated August 14, 1990 between the
Partnership and Allstate Life Insurance Company (7)
10.33 Purchase Agreement for Shadeland Station Retail Center and Shadeland Shops
dated June 28, 1990 (7)
10.34 Shadeland Station Retail Center Leasing and Management Agreement between
the Partnership and Duke Management, Inc. dated as of August 1, 1990 (7)
10.35 Shadeland Shops Leasing and Management Agreement between the Partnership
and Duke Management, Inc. dated as of August 1, 1990 (7)
<PAGE>
10.36 Lease Amendment dated December 31, 1983 between Shadeland Station
Associates and Marsh Supermarkets, Ind. (including as an Exhibit thereto, Lease
Agreement between Shadeland Station Developers and Marsh Supermarkets, Inc.
dated August 31, 1981) (7)
10.37 First Lease Amendment dated December 29, 1983 between Shadeland Station
Associates and Peoples Drug Stores, Incorporated (including as an Exhibit
thereto, Lease Agreement between Shadeland Station Developers and Peoples Drug
Stores, Incorporated dated September 17, 1981) (7)
10.38 Assignment, Assumption and Modification Agreement dated as of August 1,
1990 between IDS Life Insurance Company, Shadeland Station Associates Limited
Partnership and the Partnership (7)
10.39 Management and Leasing Agreement between the Partnership and Lincoln
Property Company dated as of October 7, 1991 (8)
10.40 Management and Leasing Agreement between the Partnership and ROI Realty
Services, Inc. dated as of November 1, 1991 (8)
10.41 Loan Extension Agreement between Shadeland Station Retail and IDS
Financial Corporation dated as of November 18, 1991 (8)
10.42 Management and Leasing Agreement between USF&G/Legg Mason Realty Partners
Limited Partnership and Summit Management Company dated as of December 1, 1993
(10)
10.43 Management and Leasing Agreement between USF&G/Legg Mason Realty Partners
Limited Partnership and Mathews Click Bauman, Inc. dated as of January 3, 1994
but effective as of July 1, 1993 (10)
10.46 Amended and Restated Note Secured by Mortgage dated 10/25/94 with
Prudential Insurance Company of
America
28.1 Appraisal of Northeast Business Campus (4)
28.3 Appraisal of St. Andrews at Westwood (7)
28.4 Appraisal of Shadeland Station Shopping Center (7)
28.5 Pages 2 to 7 of the Registrant's Prospectus dated June 28, 1988 (3)
28.6 Pages 9 to 13 of the Registrant's Prospectus dated June 28, 1988 (3)
28.7 Pages 1 to 5 of the Registrant's Prospectus Supplement No. 1 dated November
7, 1988 (4)
28.8 Page 1 of the Registrant's Prospectus Supplement No. 2 dated February 10,
1989 (4)
28.9 Pages 1 to 5 of the Registrant's Prospectus Supplement No. 4 dated May 18,
1989 (5)
<PAGE>
28.10 Page 5 of the Registrant's Prospectus Supplement No. 5 dated August 7,
1989 (6)
28.11 Appraisal Update of Northeast Business Campus at October 1, 1992 (9)
28.13 Appraisal Update of St. Andrews at Westwood at December 1, 1992 (9)
28.14 Appraisal Update of Shadeland Station Shopping Center at November 1, 1992
(9)
28.15 Appraisal Update of Northeast Business Campus at December 1, 1993 (10)
28.17 Appraisal Update of St. Andrews at Westwood at December 1, 1993 (10)
28.18 Appraisal Update of Shadeland Station Shopping Center at December 1, 1993
(10)
28.19 Appraisal Update of Northeast Business Campus at December 1, 1994
28.21 Appraisal Update of St. Andrews at Westwood at December 1, 1994
28.22 Appraisal Update of Shadeland Station Shopping Center at December 1, 1994
28.23 Appraisal of Northeast Business Campus at December 1, 1995
28.24 Appraisal of St. Andrews at Westwood at December 1, 1995
28.25 Appraisal Update of Shadeland Station Shopping Center at December 1, 1995
<PAGE>
(1) Incorporated by reference to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1989 pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (File No.0-17633)
(2) Incorporated by reference to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1988 pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 (File No.33-21623)
(3) Incorporated by reference to the Registrant's Registration Statement
on Form S-11 under the Securities Act of 1933 (File No. 33-21623)
(4) Incorporated by reference to the Registrant's Post-Effective Amendment No. 1
to Registration Statement on Form S-11 under the Securities Act of 1933 (File
No. 33-21623)
(5) Incorporated by reference to the Registrant's Post-Effective Amendment No. 4
to Registration Statement of Form S-11 under the Securities Act of 1933 (File
No. 33-21623)
(6) Incorporated by reference to the Registrant's Post-Effective Amendment No. 5
to Registration Statement on Form S-11 under the Securities Act of 1933 (File
No. 33-21623)
(7) Incorporated by reference to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990 pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (File No.0-17633)
(8) Incorporated by reference to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991 pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (File No.0-17633)
(9) Incorporated by reference to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992 pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (File No.0-17633)
(10) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993 pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (File No.0-17633)
(11) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (File No.0-17633)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
USF&G/LEGG MASON REALTY
PARTNERS LIMITED PARTNERSHIP
BY: USF&G Realty Partners, Inc.
General Partner
/s/ DAN L. HALE
Dan L. Hale, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Title
SIGNATURE (POSITION WITHIN USF&G REALTY PARTNERS, INC.) DATE
/s/ DAN L. HALE President and Director March 22, 1996
Dan L. Hale (Chief Executive Officer)
/s/ CHARLES R. WERHANE Vice President and Director March 22, 1996
Charles R. Werhane
/s/ RICHARD P. CAMPAGNA Vice President, Treasurer and March 22, 1996
Richard P. Campagna Director
/s/ JOSEPH A. WESOLOWSKI Vice President and Director March 22, 1996
Joseph A. Wesolowski (Chief Financial and Accounting Officer)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
USF&G/LEGG MASON REALTY
PARTNERS LIMITED PARTNERSHIP
BY: Legg Mason Realty Partners, Inc.
General Partner
/S/ RICHARD J. HIMELFARB
Richard J. Himelfarb, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Title
SIGNATURE (POSITION WITHIN LEGG MASON REALTY PARTNERS, INC.) DATE
/s/ RICHARD J. HIMELFARB President and Director March 22, 1996
Richard J. Himelfarb (Chief Executive Officer)
/s/ AUDREY B. DROSSNER Vice President, Treasurer and March 22, 1996
Audrey B. Drossner Director
(Chief Financial and Accounting Officer)
/s/ ROBERT T. KLEINPASTE Director March 22, 1996
Robert T. Kleinpaste
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
Exhibits
To
Form 10K
______________________________
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1995 Commission File No. 0-17633
______________________________
USF&G/LEGG MASON REALTY PARTNERS
LIMITED PARTNERSHIP
(Exact name of registrant as specified in its
Certificate of Limited Partnership)
Maryland 75-2228850
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Light Street, Tenth Floor,
Baltimore, Maryland 21202
(Address of principal executive offices) (Zip Code)
<PAGE>
Index to Exhibits
Exhibit Page
Number Number
28.23 Appraisal of Northeast Business Campus
at December 1, 1995 28.23-1
28.24 Appraisal of St. Andrews at Westwood
at December 1, 1995 28.24-1
28.25 Appraisal Update of Shadeland Station Shopping Center
at December 1, 1995 28.25-1
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 887555
<SECURITIES> 0
<RECEIVABLES> 68776
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 34563895
<DEPRECIATION> 5950963
<TOTAL-ASSETS> 30021127
<CURRENT-LIABILITIES> 0
<BONDS> 20595531
0
0
<COMMON> 1282826
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 30021127
<SALES> 0
<TOTAL-REVENUES> 4609318
<CGS> 0
<TOTAL-COSTS> 3959387
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2141430
<INCOME-PRETAX> (1491499)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1491499)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1491499)
<EPS-PRIMARY> (1.35)
<EPS-DILUTED> (1.35)
<FN>
<F1>
REGISTRANT REPORTS AN UNCLASSIFIED BALANCE SHEET
</FN>
</TABLE>
Exhibit 28.23
Appraisal of Northeast Business Campus
at December 1, 1995
<PAGE>
APPRAISAL REPORT
OF THE
NORTHEAST BUSINESS CAMPUS
CORPORATE DRIVE
COLUMBUS, FRANKLIN COUNTY, OHIO
AS OF
DECEMBER 1, 1995
PHOTOGRAPH
PREPARED FOR
MS. JULIE C. TYLER, MAI
MANAGER, REAL ESTATE VALUATIONS
UNITED STATES FIDELITY AND GUARANTY COMPANY
P. O. BOX 1138
BALTIMORE, MD 21203-1138
<PAGE>
March 4, 1996
Ms. Julie C. Tyler, MAI
Manager, Real Estate Valuations
United States Fidelity and Guaranty Company
P. O. Box 1138
Baltimore, MD 21203-1138
Re: Northeast Business Campus ("NEBC")
Corporate Drive
Columbus, Franklin County, Ohio
Ms. Tyler:
In accordance with the engagement letter dated November 28, 1995, I have
appraised the Northeast Business Campus. The purpose of this appraisal is to
estimate the leased fee interest in the subject. The "as is" market value
estimate also reflects the market value of the property at stabilized occupancy.
This complete, self-contained report is to be used in conjunction with your
internal decision-making process in regard to the Right of Presentment for the
"Fund". The date as of which the value estimate shall apply is December 1, 1995,
which is also the date of my initial property inspection; the property was
re-inspected on December 4, 1995. The appraisal reflects market conditions as of
the date of the initial property inspection.
The subject is located within the southeast quadrant of East Dublin-Granville
Road (State Route 161) and Westerville Road (a.k.a. Columbus-Wooster Road or
State Route 3) in Columbus, Franklin County, Ohio. The improvements consist of
five office and office/warehouse buildings containing a total of 180,472
rentable square feet. The structures are situated on a total of 20.143 acres. A
complete description of the property is stated in the accompanying sections of
this report. Your attention is called to the Standard and Special Conditions and
Certification sections of this report.
Subject to all conditions and explanations contained herein and in the
subsequent report, it is my opinion that the current market value of the leased
fee interest in Buildings 1 through 5 of the Northeast Business Campus,
expressed in financial terms equivalent to cash, as of December 1, 1995, is:
Nine Million Five Hundred Thousand Dollars
$9,500,000
<PAGE>
Ms. Julie C. Tyler, MAI
March 4, 1996
Page
The accompanying prospective financial analysis is based on estimates and
assumptions developed in connection with the appraisal. Some assumptions,
however, may not materialize, and unanticipated events and circumstances may
occur; therefore, actual results achieved during the period covered by the
prospective financial analysis may vary from the estimates and the variations
may be material. Further, the appraiser has not been engaged to evaluate the
effectiveness of management, and is not responsible for future marketing efforts
and other management actions upon which actual results will depend.
This report, the final estimates of value, and the prospective financial
analysis are intended solely for your information and assistance for the
function stated and should not be relied upon for any other purpose. Neither
this report nor any of its contents nor any reference to the appraiser or
PINNACLE ASSOCIATES, INC. may be included or quoted in any document, offering
circular or registration statement, prospectus, sales brochure, other appraisal,
or other agreement without PINNACLE ASSOCIATES, INC.'S prior written approval of
the form and context in which it appears. Steven R. Reynolds, MAI has received
general appraisal certification from the State of Ohio.
Respectfully submitted,
PINNACLE ASSOCIATES, INC.
Steven R. Reynolds, MAI
President
<PAGE>
Appraisal Report
of the
Northeast Business Campus
Corporate Drive
Columbus, Franklin County, Ohio
Table of Contents
I. Introduction
Special Conditions................................................I-1
Standard Conditions...............................................I-2
Executive Summary.................................................I-5
Purpose and Function of the Appraisal.............................I-9
Legal Interest Appraised..........................................I-9
Effective Date of Valuation.......................................I-9
Definition of Value...............................................I-9
Extent of the Data-Gathering Process (Scope of the Appraisal)....I-10
History of the Subject...........................................I-12
Exposure Time and Marketing Period...............................I-12
Competency of Appraiser..........................................I-13
II. Descriptive Data
Regional Analysis................................................II-1
Neighborhood Analysis............................................II-9
Property Description............................................II-13
Real Estate Taxes...............................................II-32
III. Market Analysis
Introduction....................................................III-1
National Office Market Overview.................................III-1
Metropolitan Columbus Office Market Overview....................III-5
Competing Property Analysis....................................III-15
Conclusion.....................................................III-45
IV. Highest and Best Use
Introduction.....................................................IV-1
Highest and Best Use As Vacant...................................IV-2
Highest and Best Use As Improved.................................IV-3
<PAGE>
V. Income Capitalization Approach
Introduction......................................................V-1
Revenue Analysis..................................................V-2
Operating Expense Analysis........................................V-3
Net Operating Income.............................................V-14
Capital Expense Analysis.........................................V-14
Discounted Cash Flow Analysis....................................V-23
Conclusion.......................................................V-29
VI. Sales Comparison Approach
Introduction.....................................................VI-1
Office Market Sales Data.........................................VI-1
Office Market Sales Analysis....................................VI-36
Conclusion......................................................VI-40
VII. Cost Approach
Introduction....................................................VII-1
Site Valuation..................................................VII-1
Improvement Valuation..........................................VII-16
Conclusion.....................................................VII-20
VIII. Reconciliation...................................................VIII-1
IX. Certification........................................................IX-1
Addenda
Legal Descriptions.........................................Addendum I
Qualifications............................................Addendum II
Engagement Letter........................................Addendum III
Evidence of State Appraisal Certification.................Addendum IV
Project Data...............................................Addendum V
Marshall Cost Calculations................................Addendum VI
Floor Plans..............................................Addendum VII
M-2 Zoning Text.........................................Addendum VIII
<PAGE>
APPRAISAL REPORT SUMMARY
(INFORMATION DEEMED CONFIDENTIAL)
<PAGE>
Section I
Introduction
Special Conditions
Detailed building specifications and measurements were not made available to the
appraiser. The descriptions and dimensions contained herein are believed to be
generally accurate; however, my analyses and conclusions may need to be amended
if it is determined that the resulting estimated information is inaccurate.
<PAGE>
Standard Conditions
The following Standard Conditions apply to all real estate appraisals performed
by PINNACLE ASSOCIATES, INC.
Appraisal reports are technical documents addressed to the specific technical
needs of clients. Casual readers are cautioned about the limitations of such
reports, and are cautioned against possible misinterpretation of the information
contained therein. Any reader of a report issued by PINNACLE ASSOCIATES, INC.
should understand that an appraisal is not: 1) a land survey; 2) an engineering
or property inspection report; 3) an environmental site assessment; 4) a title
policy; 5) a regulatory-compliance survey; or 6) an evaluation of the competency
or effectiveness of any management or ownership entity.
Appraisals are performed and written reports are prepared by, or under the
supervision of, members of the Appraisal Institute in accordance with the
Institute's Standards of Professional Practice and Code of Professional Ethics.
Appraisal reports may contain prospective financial information, estimates, or
opinions to represent the appraiser's view of reasonable expectations at a
particular point in time, but such information, estimates, or opinions are not
offered as predictions or as assurances that a particular level of income or
profit will be achieved, that events will occur, or that a particular price will
be offered or accepted. Actual results achieved during the period covered by the
prospective financial analyses will vary from those described in the report, and
the variations may be material.
The report and the final estimate of value and prospective financial analyses
included in it are intended for the information of the person or persons to whom
they are addressed, solely for the purposes stated and should not be relied upon
for any other purpose. Neither the report, nor its contents, nor any reference
to the appraiser or PINNACLE ASSOCIATES, INC. may be included or quoted in any
offering circular or registration statement, prospectus, sales brochure, other
appraisal, or other agreement or document without the appraiser's prior written
permission. Permission will be granted only upon meeting certain conditions.
Information furnished by others is presumed to be reliable, and where so
specified in the report, has been verified; but no responsibility, whether legal
or otherwise, is assumed for its accuracy, and it cannot be guaranteed as being
certain. No single item of information was completely relied upon to the
exclusion of other information.
Appraisal assignments are accepted with the understanding that there is no
obligation to furnish services after completion of the original assignment. If
the need for subsequent services related to an appraisal assignment (for
example, testimony, updates, conferences, reprint or copy services) is
contemplated, special arrangements acceptable to PINNACLE ASSOCIATES, INC. must
be made in advance.
<PAGE>
No significant change is assumed in the supply and demand patterns indicated in
the report. The appraisal assumes market conditions as observed as of the
current date of the market research stated in the letter of transmittal. These
market conditions are believed to be correct; however, the appraiser assumes no
liability should market conditions materially change because of unusual or
unforeseen circumstances.
The valuation applies only to the property described and for the purpose so
stated and should not be used for any other purpose. Any allocation of total
price between land and the improvements as shown is invalidated if used
separately or in conjunction with any other report.
Neither the report nor any portions thereof (especially any conclusions as to
value, the identity of the appraiser or PINNACLE ASSOCIATES, INC., or any
reference to the Appraisal Institute or the MAI designation) shall be
disseminated to the public through public relations media, news media, sales
media or any other public means of communication without the prior written
consent and approval of the appraiser and PINNACLE ASSOCIATES, INC.
The date of the valuation to which the value estimate conclusions apply is set
forth in the letter of transmittal and within the body of the report. The value
is based on the purchasing power of the United States dollar as of that date.
It is strongly recommended that the reader should rely upon only authorized
copies of this report. Authorized copies are printed on recycled grey paper and
contain original PINNACLE ASSOCIATES, INC. letterhead that is printed with grey
and plum ink. All original signatures are in blue ink. Any copy that does not
have the above is unauthorized and may have been altered. If the reader is
uncertain as to the authenticity of this report, please contact PINNACLE
ASSOCIATES, INC. at 614-486-8911.
It should be specifically noted by any prospective mortgagee that the appraisal
assumes that the property will be competently managed, leased, and maintained by
financially sound owners over the expected period of ownership. This appraisal
engagement does not entail an evaluation of management's or owner's
effectiveness, nor is the appraiser responsible for future marketing efforts and
other management or ownership actions upon which actual results will depend.
No opinion is rendered as to property title, which is assumed to be good and
marketable. Unless otherwise stated, no consideration is given to liens or
encumbrances against the property. Sketches, maps, photos, or other graphic aids
included in appraisal reports are intended to assist the reader in ready
identification and visualization of the property, and are not intended for
technical purposes.
It is assumed that legal, engineering, or other professional advice, as may be
required, has been or will be obtained from professional sources and that the
appraisal report will not be used for guidance in legal or technical matters
such as, but not limited to, the existence of encroachments or easements, or
other discrepancies affecting the legal description of the property.
<PAGE>
It is assumed that there are no concealed or dubious conditions of the subsoil
or subsurface waters including water table and flood plain, unless otherwise
noted. The appraiser further assumes that the property will not operate in
violation of any applicable government regulations, codes, ordinances, or
statutes unless specifically referred to in the report.
In the absence of competent technical advice to the contrary, it is assumed that
the property being appraised is not adversely affected by concealed or
unapparent hazards such as, but not limited to, asbestos, hazardous or
contaminated substances, toxic waste, or radioactivity.
The Americans with Disabilities Act ("ADA") became effective January 26, 1992.
The appraiser has not conducted 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 compliance matches each owner's financial ability
with the cost to cure the property's potential physical characteristics, the
appraiser cannot comment on compliance with the ADA. Given that compliance can
change with each owner's financial ability to cure non-accessibility, the value
of the subject does not consider non-compliance. A specific study of the owner's
(or prospective owner's) financial ability and the cost to cure any deficiencies
would be needed for the Department of Justice to determine compliance.
<PAGE>
Executive Summary
Property Identification Northeast Business Campus
Property Location 3592 Corporate Drive (NEBC 1)
3660 Corporate Drive (NEBC 2)
3681 Corporate Drive (NEBC 3)
3711 Corporate Drive (NEBC 4)
3700 Corporate Drive (NEBC 5)
Columbus, Franklin County, Ohio 43231
Type of Value Market Value
Legal Interest Appraised Leased Fee Interest
Owner of Property USF&G/Legg Mason Realty Partners
Pertinent Dates:
Effective Date of Valuation December 1, 1995
Dates of Inspection December 1, 1995
and December 4, 1995
Appraiser's Comments: The subject is located near the suburb of Westerville in
northeast Columbus, Franklin County, Ohio. The site has frontage along State
Route 161, although access is not direct; consequently, vehicular ingress/egress
can be difficult.
Westerville is considered to be a desirable, but not a stellar, location. The
Westerville office submarket is experiencing healthy occupancy and minimal
amounts of build-to-suit and speculative construction. Other suburban markets,
such as Dublin and Worthington, are considered to be more desirable office
environments.
Northeast Business Campus' location is negatively impacted by other improvements
in its immediate neighborhood. The neighborhood also has limited ancillary
amenities such as restaurants, hotels, and quality shopping.
The subject's improvements are very competitive with the rent comparables in
terms of quality, age, tenant finish, and overall appeal; however, the subject
must often rely primarily upon price to attract tenants. This appears to have
been the case with CIGNA, the subject's largest tenant, who was looking for a
low-cost alternative to their previous (extravagant and costly) location. The
image of the park might be enhanced by increasing permanent signage along
Corporate Drive and State Route 161.
<PAGE>
Three of the subject's buildings - NEBC 1, NEBC 2, and NEBC 5 - are 100% office.
the remaining two buildings are office/warehouse buildings with a relatively
higher percentage of office finish. Given that the office/warehouse buildings
are in an office park environment, they are able to attract office tenants who
need limited warehouse space and who desire a non-industrial atmosphere. The
subject is considered to more closely resemble a suburban office property, as
opposed to an office/warehouse property. The subject's office/warehouse
properties tend to be positively impacted by their proximity to the subject's
office properties. Conversely, the subject's office properties appear to be
impacted in a slightly negative manner by their proximity to the subject's
office/warehouse properties.
<PAGE>
<TABLE>
<CAPTION>
Northeast Business Campus
Summary of Facts and Conclusions
<S> <C> <C> <C> <C> <C> <C>
Building 1 Building 2 Building 3 Building 4 Building 5 Total
3592 Corporate 3660 Corporate 3681 Corporate 3711 Corporate 3700 Corporate
Drive Drive Drive Drive Drive
Subject's Physical Attributes:
Property Type Office Office Office Office Office
/Warehouse /Warehouse
Site Area (acres) 3.536 3.289 1.894 2.043 9.381 20.143
Net Rentable Area (square 31,105 31,105 23,545 23,717 71,000 180,472
feet)
Approximate Age 1981 1981 1981 1981 1983
Occupancy 62.5% 100.0% 100.0% 100.0% 92.5% 90.6%
Zoning M-2, M-2, M-2, M-2, M-2,
Manufacturing Manufacturing Manufacturing Manufacturing Manufacturing
Highest and Best Use:
As Though Vacant Develop with an Develop with Develop with Develop with Develop with
an office/ an office/ an office/ an office/ an office/
warehouse warehouse warehouse warehouse warehouse
building with building with building with building with building with
a high a high a high a high a high
percentage of percentage of percentage of percentage of percentage of
office finish. office finish. office finish. office finish. office finish.
As Improved Its current use Its current use Its current use Its current use Its current use
Census Tract / Block 71.13 / 3 71.13 / 3 71.13 / 3 71.13 / 3 71.13 / 3 71.13 / 3
Indications of Value:
<S> <C> <C> <C> <C> <C> <C>
Sales Comparison Approach $1,550,000 $1,550,000 $1,050,000 $1,050,000 $3,700,000 $8,900,000
to to to to to to
$1,700,000 $1,700,000 $1,150,000 $1,150,000 $4,000,000 $9,700,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Northeast Business Campus
Summary of Facts and Conclusions
<S> <C> <C> <C> <C> <C> <C>
Building 1 Building 2 Building 3 Building 4 Building 5 Total
3592 Corporate 3660 Corporate 3681 Corporate 3711 Corporate 3700 Corporate
Drive Drive Drive Drive Drive
Income Capitalization
Approach:
Discounted Cash $1,450,000 $1,730,000 $1,080,000 $1,080,000 $3,950,000 $9,300,000
Flow Analysis (rounded)
Analysis Period 10 years 10 years 10 years 10 years 10 years
Income Growth 3.5% 3.5% 3.5% 3.5% 3.5%
Rate Assumption
Expense Growth Rate 4.0% 4.0% 4.0% 4.0% 4.0%
Assumption
Discount Rate 13.0% 12.5% 13.0% 13.0% 12.0%
Reversion 10.5% 10.5% 10.5% 10.5% 10.5%
Capitalization Rate
Implied 9.1% 14.5% 13.1% 10.6% 10.0% 11.1%
Going-in
Capitalization Rate
- - Year 1
Cost Approach $1,500,000 $1,510,000 $920,000 $930,000 $5,160,000 $10,000,000
Land Value $320,000 $300,000 $150,000 $160,000 $840,000 $1,770,000
Final Estimate of Value $1,600,000 $1,700,000 $1,100,000 $1,100,000 $4,000,000 $9,500,000
Value Estimate/SF (NRA) $51 $55 $47 $46 $56 $53
</TABLE>
<PAGE>
Purpose and Function of the Appraisal
The purpose of this appraisal is to estimate the current market value of the
defined legal interest in the subject. The function of this complete,
self-contained report is to provide an estimate of the current market value of
the subject for use in conjunction with your internal decision-making process.
Legal Interest Appraised
The legal interest appraised herein is a leased fee interest and is defined as
follows:
An ownership interest held by a landlord with the rights of use and
occupancy conveyed by lease to others. The rights of the lessor (the
leased fee owner) and the leased fee are specified by contract terms
contained within the lease.1
Effective Date of Valuation
The date as of which the current value estimate shall apply is December 1, 1995,
which is also the date of my initial property inspection. The appraisal reflects
market conditions as of the date of the initial property inspection.
Definition of Value
Market value is the major focus of most real property appraisal assignments.
Both economic and legal definitions of market value have been developed and
refined. A current economic definition of market value can be stated as follows:
The most probable price which a property should bring in a competitive
and open market under all conditions requisite to a fair sale, the
buyer and seller each acting prudently and knowledgeably, and assuming
the price is not affected by undue stimulus. Implicit in this
definition is the consummation of a sale as of a specified date and the
passing of title from seller to buyer under conditions whereby:
Appraisal Institute, The Dictionary of Real Estate Appraisal, 3rd Edition, 1993,
p. 204.
<PAGE>
1. buyer and seller are typically motivated;
2. both parties are well informed or well advised, and acting in
what they consider their best interests;
3. a reasonable time is allowed for exposure in the open market;
4. payment is made in terms of cash in United States dollars or in
terms of financial arrangements comparable thereto; and
5. the price represents the normal consideration for the property
sold unaffected by special or creative financing or sales
concessions granted by anyone associated with the sale. 2
Extent of the Data-Gathering Process (Scope of the Appraisal)
The appraiser has made a number of independent investigations and analyses in
fulfilling the requirements to complete this appraisal. The following discussion
describes the extent of the process of collecting, confirming, and reporting
data. Pursuant to the client's request, the appraiser has reported the analysis
and data in a complete, self-contained, narrative report format.
In conducting this investigation and analysis, the appraiser has relied on data
retained in Pinnacle's office which is updated regularly for use in all
assignments. The local Chamber of Commerce and various government planning
agencies were contacted for demographic data, land use policies and trends,
growth estimates, and employment data. Neighborhood data were supplemented by a
physical inspection of the defined area.
The subject was physically inspected, although only a sampling of areas was
made. Information regarding zoning, utilities, and other limitations on site
utilization were obtained through the appropriate agencies.
A diligent search for comparable data was conducted. Data were obtained from
both public and private sources. In the case of comparable sales data, an
attempt was made to contact buyers, sellers, or a knowledgeable third party to
verify the transaction data and ensure that the sales were transacted at arm's
length. Unless otherwise noted, all comparable sales were verified. Comparable
leasing information was verified by the involved parties or a knowledgeable
third party such as a leasing agent. This appraisal engagement has been
conducted using applicable standard appraisal techniques and in conformity with:
the requirements of the Code of Professional Ethics and the Standards of
Professional Practice of the Appraisal Institute; Society National Bank's
Commercial Real Estate Appraisal Documentary Standards for Complete Appraisals;
the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) of
1989; and the Uniform Standards of Professional Appraisal Practice (USPAP) 1995
Edition.
Uniform Standards of Professional Appraisal Practice, 1994 Edition, Page 7.
The scope of this appraisal includes obtaining estimates by the Income
Capitalization Approach, the Sales Comparison Approach, and the Cost Approach to
estimate the current market value of the subject. The value indications by the
analyses were then reconciled into a final estimate of value for the subject. In
the final reconciliation, the analysis weighted the relative significance,
reliability and applicability of each analysis as it pertained to the market
value of the subject.
The value estimate derived from the Income Capitalization Approach was based
primarily upon the probable operating experience of the property relative to
gross operating revenues, typical expense levels, and resultant net income.
Estimates of operating revenues and expense levels were also estimated based on
the operating history of similar properties.
A second indication of value was provided through the Sales Comparison Approach
by direct comparison with recent market sales. These sales involve similar or
reasonably comparable properties. Adjustments to the sale prices were made as
they related to the subject, based upon various dissimilar investment features.
In the Cost Approach, the cost to replace the improvements is estimated. The
result is combined with the estimated value of the underlying land. This
approach is applicable when each component is independently measurable and when
the sum of all components is believed to reflect value. The approach is not
applicable to unimproved land or obsolete improvements and it is considered
unreliable when applied to aged improvements due to the subjective estimates of
depreciation. Most investors today do not place emphasis on the Cost Approach
for existing properties, although it is typically applicable to proposed or
recently-constructed improvements.
The definition of market value presented above discusses the conditions of a
market where buyers and sellers are acting freely and are not under duress.
Within the valuation process, the appraiser has attempted to balance buyer and
seller perspectives in the consideration of assumptions and rates. This has been
done by evaluating available market data and available surveys. In addition, the
appraiser has also spoken with active market participants. The primary emphasis
of this research was to discover differences in valuation criteria from a
buyer's versus a seller's perspective. The results provide support for analysis
bases such as capitalization rates.
<PAGE>
History of the Subject
According to the Franklin County Recorder's Office, the subject site is
currently owned by USF&G/Legg Mason Realty Partners who acquired the property on
November 8, 1988. The indicated purchase price was $13,430,000. Public records
indicate no transactions involving the subject after this transaction. According
to the property management company, there are no current listings to sell,
purchase agreements, or offers to purchase the subject.
Exposure Time and Marketing Period
The concept of exposure time is historical in nature and is presumed to have
occurred prior to the effective date of appraisal. Alternatively, marketing
period occurs after the effective date of the appraisal and may or may not be
directly related to the value presented. The actual sale price could increase,
decrease, or remain static during the marketing period depending upon market
conditions and the type of property being appraised.
Korpacz Real Estate Investor Survey, Third Quarter, 1995 reports that the
average marketing time for all markets including industrial, office, apartments,
and retail is approximately 10.24 months. The national average for suburban
office is approximately 12 months, down slightly from an indication of 12.8
months reported during the previous quarter. This data is consistent with the
appraiser's own findings.
There are indications that traditional institutional investors are slowly
returning to the real estate market with the intent of purchasing quality assets
at market values. That is to say, they are not necessarily searching only for
motivated sellers and distressed properties.
Since most investors' perceptions and estimates of marketing period are based
largely on exposure times that they have recently encountered in similar
transactions, it stands to reason that there should be some correlation between
marketing periods and exposure times. In fact, in the absence of perceived
changes in the market or other extenuating circumstances, marketing period and
exposure time should be identical. That is to say, if all other things are held
constant, a property that (retrospectively) required an exposure time of one
year could be expected to have a marketing period (prospectively) of one year.
Differences in the two concepts could appear when there is a perceived change in
the market. To use the same example presented above, if a property required an
exposure time of one year but perceived market conditions are improving, an
appropriate estimate of marketing period could reasonably be expected to be less
than one year. Conversely, if market conditions were anticipated to worsen,
marketing period might exceed exposure time.
<PAGE>
Objectively quantifying such differences would be virtually impossible; however,
understanding the relationship between the two concepts and how they are
affected by perceived changes in the market allows one to better estimate
(subjectively) a reasonable period for exposure time and marketing period. This
is especially important during periods when actual market evidence is limited by
a lack of transactions. Extracting transaction-driven estimates can also be
tenuous since many properties are often originally placed on the market at
inflated asking prices. It is then necessary to decide if exposure time began
when the property was first offered for sale or when the price was dropped to
(or near) the ultimate sale price. Further complicating the issue is the
question of whether exposure time ends when a sale contract is signed or whether
it ends at the closing date of a sale.
Based upon these investigations, the appraiser believes that a marketing period
of approximately nine months is appropriate. Furthermore, it is the appraiser's
opinion that the exposure time commensurate with the estimate of value for the
subject would also be approximately nine months. These estimates reflect the
superior strength of the Central Ohio office market.
Competency of the Appraiser
The appraiser has performed numerous appraisals on income-producing properties
such as the subject. Files are maintained with historical and current data
relative to the changing market with respect to the subject. Competency has been
established in both the property type and geographical area of the subject
either through previous engagements or through current research of germane
market trends. Therefore, the appraiser possesses the knowledge and experience
to conduct the inspection, analysis, and reasoning necessary to accurately
estimate the value of the subject's leased fee interest.
<PAGE>
Section II
Descriptive Data
Regional Analysis
The subject is situated in northeast Columbus; consequently, it's market value
is influenced in a general manner by the economic, political, physical, and
social characteristics of the Columbus Metropolitan Statistical Area (MSA). The
Columbus MSA is defined by the United States Bureau of the Census as the six
counties of Franklin, Delaware, Fairfield, Licking, Madison, and Pickaway.
Population and Area
The Columbus MSA is located near the geographical center of Ohio. Columbus
serves as the state capital and the county seat of Franklin County. Columbus is
Ohio's largest city in terms of population and land area. With an estimated
population of 658,300, the city of Columbus serves as the nucleus of the
Columbus MSA. Columbus' economic growth has historically been attributed to its
ideal central location which has afforded it the opportunity to attract many
service, research, and transportation businesses.
Population trends affect employment, income levels, retail spending, and many
other key demand parameters analyzed in determining real estate productivity.
During the 1980s, the Columbus metro area's population experienced healthy
growth, a trend that is projected to continue throughout the 1990s. Table II-1
displays population trends for Franklin County as well as the Columbus MSA and
the State of Ohio. The city of Columbus has experienced growth comparable to
Franklin County and the Columbus MSA, which evidenced by a population of 564,976
in 1980 and a population of 632,270 in 1990. This equates to a compound annual
rate of change of 1.1%.
<PAGE>
Regional Map
<PAGE>
<TABLE>
<CAPTION>
Table II - 1
Population Growth
Franklin County, Ohio
<S> <C> <C> <C> <C> <C> <C> <C>
Census Census Census (Proj.) %Change %Change %Change
Area 1980 1990 1995 2000 1980-90+ 1990-95+ 1995-2000+
Franklin County 869,113 961,437 1,009,800 1,046,000 1.0% 1.0% 0.7%
Columbus MSA 1,214,298 1,345,450 1,431,500 1,507,000 1.0 1.2 1.0
Ohio 10,797,638 10,847,115 11,130,000 11,315,100 0.0 0.5 0.3
+ Indicates compound annual rate of change
Source: National Planning Data Corporation and Sales & Marketing Management
</TABLE>
As indicated above, Franklin County is projected to experience slower growth on
a percentage basis as compared to the Columbus MSA, but greater growth than that
of the State of Ohio. Much of the growth is anticipated to occur in cities such
as Hilliard and Grove City which still contain large portions of undeveloped
land.
Industries and Employment
The distribution of employment and overall unemployment rate help determine the
economic character of an area. From 1984 to 1994, the Columbus MSA's
nonagricultural employment base experienced healthy growth, increasing by over
20%. The proven diversification of Columbus' economy has provided an excellent
base for growth potential. The service sector grew significantly during this
period, while manufacturing declined slightly. This general trend from
manufacturing economies to service-oriented economies is somewhat typical for
the Midwest and is expected to continue as long as technical industries continue
to replace manufacturing industries.
Columbus is often touted as having a recession-resistant economy. This claim is
partially attributable to the area's diverse employment base. As an example of
this diversity, Central Ohio's 10 largest employers represent government,
manufacturing, trade, and finance sectors.
<PAGE>
Area Map
<PAGE>
The future demand for office space is closely tied to the types of business in
an area, their economic strengths, and their growth potential. Major employers
in the Columbus metro area are listed in Table II - 2. The firms are all located
within Franklin County, with the exception of Honda which is located in Union
County.
Table II - 2
Major Employers
Central Ohio
# of Employees
Employer Type of Business in Central Ohio
State of Ohio Government 28,043
Ohio State University Education 15,405
Federal Government Government 15,400
Limited Inc. Retail Trade 10,000
Nationwide Insurance Enterprise Finance 8,400
Honda of America Mfg. Inc. Manufacturing 8,000
Banc One Corp. Finance 7,900
City of Columbus Government 7,749
Columbus City Schools Education 7,692
Franklin County Government 6,169
Source: Business First of Greater Columbus, Largest Employers in Greater
Columbus, December 19,1994
Over 900 industries are located within the Columbus area, adding to the complex
and diversified pattern of the expanding Columbus MSA. Major employers in the
Columbus metro area include retailers, government, insurance, education,
research, health care, manufacturing, distribution, and various services. In
addition, Columbus is gaining a national reputation as a center for scientific
and technological information. The presence of ABB Process Automation, Inc., The
American Ceramic Society, Chemical Abstracts Services, Battelle Memorial
Institute, CompuServe Incorporated, Edison Welding Institute, The Ohio State
University, and Online Computer Library Center attracts millions of dollars in
research projects to the Columbus metro area.
The distribution of employment and overall unemployment rate can help determine
the economic character of an area. Service, retail, and government industries
are associated with a high quality of life and are an integral part of the
community. Table II - 3 presents a summary of the Columbus MSA's employment
growth by industry for 1990 and 1994.
<PAGE>
<TABLE>
<CAPTION>
Table II - 3
Nonagricultural Employment by Industry
Columbus MSA
<S> <C> <C> <C> <C> <C> <C>
1990 1994 1990 1994 Net Change % Change
Industry Title Total Jobs Total Jobs % of Total % of Total 1990 to 1994 1990 to 1994
Manufacturing 94,000 92,000 13.4% 12.2% -2,000 -2.1%
Construction 29,000 30,000 4.1 4.0 1,000 3.0
T.C.P.U.* 30,000 33,000 4.3 4.4 3,000 10.0
Wholesale Trade 36,000 38,000 5.1 5.0 2,000 5.6
Retail Trade 146,000 160,000 20.8 21.2 14,000 9.6
F.I.R.E.+ 60,000 63,000 8.6 8.4 3,000 5.0
Services 179,000 204,000 25.5 27.1 25,000 14.0
Government 127,000 133,000 18.1 17.7 6,000 4.7
------- ------- -----
Total 701,000 753,000 52,000 7.4%
======= ======= ======
* T.C.P.U. = Transportation, Communication and Public Utilities
+ F.I.R.E. = Finance, Insurance, and Real Estate
Source: Ohio Bureau of Employment Services, (figures adjusted for seasonal fluctuations)
</TABLE>
An analysis of Table II - 3 indicates that the MSA's employment base is
primarily composed of services, retail trade, and government sectors,
approximately 66% of total nonagricultural occupations. The MSA's employment
base experienced healthy growth from 1990 to 1994, increasing by 7.4%.
Approximately 52,000 jobs were added to the MSA's employment base during this
time, mostly in services, retail trade, and government employment sectors. The
manufacturing sector showed signs of economic softening with a 2.1% decrease in
employment. This general trend from goods-producing economies to
service-producing economies is somewhat typical for the Midwest and is expected
to continue as long as technical industries continue to replace manufacturing
industries.
Historical unemployment rates for Franklin County, the Columbus MSA, Ohio, and
the United States are presented in Table II - 4. While fluctuating with business
cycles, Franklin County and the Columbus MSA's unemployment rates have
traditionally remained below state and national levels. This is indicative of
the strength of its economy and is fortified considerably when the impact of
governmental and educational activities on the region's economy are considered.
<PAGE>
<TABLE>
<CAPTION>
Table II - 4
Average Annual Unemployment Rates
Franklin County, Ohio
<S> <C> <C> <C> <C> <C> <C>
Area 1990 1991 1992 1993 1994 1995+
Franklin County 3.7% 4.0% 4.8% 4.6% 3.9% 3.5%
Columbus 4.3 4.7 5.6 5.4 4.5 4.1
Columbus MSA 4.2 4.4 5.1 4.9 4.1 3.6
Ohio 5.7 6.4 7.2 6.5 5.5 5.2
United States 5.5 6.7 7.4 6.8 6.1 5.6
+ Indicates non-seasonally adjusted unemployment rates as of October 1995.
Source: Ohio Bureau of Employment Services
</TABLE>
Columbus has recently been the choice of locale for various corporate
headquarter relocations due to its stable yet growing economy. Another
attraction for corporate relocation is the well educated supply of labor being
produced by Central Ohio's many institutions of higher learning. Columbus'
transportation network includes interstate, air, and public transportation.
Combined, this network provides good regional, national, and worldwide access
lending support to the region's claim to be one of the most important and
strategically located distribution centers in the nation.
Education
Institutions of higher learning are typically not as vulnerable to economic
downswings and help provide an area with a more solid employment base. Central
Ohio is served by a number of higher education institutions. The largest of
these, ranked by fall 1994 enrollment, includes: The Ohio State University, with
51,102 students; Columbus State Community College, with 17,000 students;
Franklin University, with 4,150 students; Capital University, with 3,924
students; DeVry Institute of Technology, with 2,667 students; Otterbein College
in Westerville, with 2,599 students; Ohio University-Lancaster, with 1982
students; Denison University, with 1834 students; Columbus College of Art and
Design, with 1,789 students; and the Ohio Dominican College, with 1,713
students. The Ohio State University has eight schools and 18 colleges. The Ohio
State University's Columbus campus is located on 3,250 acres and is the
most-populated campus in the nation.
<PAGE>
Recreational and Regional Attractions
Recreational and regional attractions enhance an area's quality of life, as well
as generate employment. Columbus offers a plethora of cultural and recreational
activities that range from various performing and visual art events to major
college sports. Performances by the Columbus Symphony Orchestra, BalletMet, and
Opera/Columbus can be seen throughout the year at the Ohio Theater and the
Palace Theater. Art is exhibited at the Columbus Museum of Art, Ohio State's
Wexner Center for Visual Arts, and at various galleries in the Short North area.
Spectator sports include professional golf, hockey, soccer, and baseball.
Central Ohio's extensive park system encourages residents to participate in
outdoor activities and recreational sports.
Summary
My analysis of the above data indicates that the Columbus metro area is
economically stable due to several key factors. Columbus has traditionally
enjoyed steady economic growth due to its central location within the state and
its status as the state capital. The Columbus metro area has benefitted from low
unemployment rates and consistent job growth. Since 1990, the Columbus MSA's
growth in jobs has been strong in the services employment sector, which bodes
well for the demand for office space. In comparison, the manufacturing
employment sector has shown signs of economic softening. Overall, the MSA's
unemployment rate has consistently performed better than the state and nation,
indicative of the strength of Columbus' economy.
The Columbus metro area has seen steady growth in population, a trend that is
projected to continue. All of these factors and the solid economic outlook for
Columbus bode well for the prospects of continued long-term economic growth.
Accordingly, the office sector should benefit from this growth as the region
continues to recover from the national recession.
<PAGE>
Neighborhood Analysis
The subject is located in the city of Columbus, Franklin County, Ohio. More
specifically, it is a part of the Northeast Business Campus which is situated in
the southeast quadrant of the State Route 161 and State Route 3 (Westerville
Pike) interchange. An analysis of the surrounding neighborhood must be conducted
in order to estimate the market value of the subject. This analysis will serve
to identify factors that affect the subject's desirability and resulting
profitability.
Northeast Business Campus, a 31.258-acre mixed-use development (of which
20.143-acres is occupied by the subject), is located in northeastern Columbus
approximately two miles south of the Westerville city limits. The area has seen
considerable growth in recent years as Columbus continues to expand into
outlying areas. The growth has been facilitated in part by the area's
accessibility to major highways and interstates in Central Ohio. State Route
161, a primary east-west arterial, provides the subject with excellent access to
Interstate 270 (I-270) approximately one-half mile to the east. I-270 is the
outerbelt freeway which provides access to many of Columbus' suburbs as well as
providing a by-pass for Interstate 71 (I-71) and Interstate 70 (I-70), Central
Ohio's major north-south and east-west interstates, respectively. State Route
161 intersects with I-71 approximately three miles west of the subject.
The subject's immediate neighborhood can generally be defined as the area of
commercial and residential developments located around the intersection of State
Route 161 and State Route 3. Land uses in the subject's neighborhood consist of
multifamily and single-family developments, freestanding retail and office
buildings, and scattered strip shopping centers. Johnny Appleseed Corporate
Center is located directly south of the subject and represents the only other
business park in the immediate area. Small businesses line both sides of State
Route 3, north of its intersection with State Route 161, while south of this
intersection multifamily and single-family improvements are the dominant land
uses.
Multifamily complexes in the area include: Berryleaf Grove, west of the subject;
Woodlake Village and Western Lakes, south of the subject; Ashton Woods, east of
the subject; and Ravine Condominiums, northeast of the subject. Modest
single-family homes are located throughout the area; those located closest to
the subject are rather unsightly and have a negative impact upon the subject's
image. Several low-grade retail activities along State Route 3 also detract from
the neighborhood.
Two neighborhood shopping centers, Alum Creek Plaza and Glengarry Center, are
located north of the subject along State Route 3. State Route 161 west of the
subject has seen substantial growth in recent years and currently is densely
developed with primarily retail land uses. To the east of the subject, State
Route 161 is being upgraded to service the rapidly-developing New Albany area.
<PAGE>
Examples of businesses in the subject's neighborhood include Public Storage
Company, Auto Zone, AEP Columbus Southern Power, Unisys, and Aeta Health Plan.
Please refer to the neighborhood map following this section for an illustration
of these locations.
In summary, the subject's neighborhood is considered to be suited for suburban
office and office/warehouse purposes; however, the subject's location is
negatively impacted by the previously mentioned improvements. Vehicular access
is difficult, although the subject has very good visibility from State Route
161. The State Route 161/I-270 interchange provides good interstate access for
travel in and around Columbus. Nearby residential areas provide a good
population base from which to draw employees. Based upon this analysis, I
conclude the neighborhood is generally conducive to the continuing viability of
the subject.
<PAGE>
Neighborhood Map
<PAGE>
Neighboring Properties Number Code to the Map
<PAGE>
Property Description
Site Description
Location: The subject is commonly referred to as the Northeast Business Campus,
although in actuality it only accounts for five of the park's eight parcels. The
subject is located within the southeast quadrant of East Dublin-Granville Road
(State Route 161) and Westerville Road (a.k.a. Columbus-Wooster Road or State
Route 3) in Columbus, Franklin County, Ohio. Reference is made to the preceding
Neighborhood Map.
Site Configuration and Size: The subject site consists of five
irregularly-shaped parcels that contain a total of 20.143 acres. Table II - 5
contains the acreage of each parcel. Reference is made to the subsequent Site
Plan and the Legal Description contained in the Addenda.
Table II - 5
Northeast Business Campus
Site Size Summary
Building Street Address Size (Acres)
NEBC 1 3592 Corporate Drive 3.536
NEBC 2 3660 Corporate Drive 3.289
NEBC 3 3681 Corporate Drive 1.894
NEBC 4 3711 Corporate Drive 2.043
NEBC 5 3700 Corporate Drive 9.381
Total 20.143
SOURCE: Franklin County Auditor's Office
Site Conditions and Environmental Hazards: A casual, visual inspection revealed
no adverse soil or subsoil conditions. No soil, environmental, or engineering
tests have been conducted by PINNACLE ASSOCIATES, INC. As a result, the presence
of any hazardous substances is not known. The topic of toxic and otherwise
hazardous substances is outside the scope of the appraiser's expertise. The
value estimate herein assumes the subject to be free and clear of all hazardous
substances.
Topography and Drainage: The terrain of the property is generally level,
although it is slightly below the grade of State Route 161. Overall drainage at
the site appears to be adequate. The site is located in flood zone "X", an area
of minimal flooding, as indicated on the Flood Insurance Rate Map,
community-panel #39049C0158G, effective August 2, 1995. A copy of the flood
plain map in the area of the subject is provided on a subsequent page.
<PAGE>
Utilities/Services: All public utilities are available to the subject including
natural gas, electricity, water and sanitary sewer. Local telephone service is
provided by Ameritech. Long distance telephone service is provided by numerous
companies.
Ingress/Egress: Access to the subject is provided by a curb cut on Corporate
Drive. Corporate Drive provides access State Route 3 and to eastbound State
Route 161. Westbound access to State Route 161 is provided from entrance and
exit ramps on the north side of State Route 161.
Zoning: The site is zoned M-2, Manufacturing, according to a Columbus zoning
official. This zoning classification permits office and light industrial
development. Please refer to Section IV - Highest and Best Use for a discussion
of specific permitted uses. The subject appears to be a legal, conforming use.
Specific text relative to the M-2 zoning classification is presented in Addendum
VIII. The subject appears to be a legal conforming use.
Easements and Encroachments: No adverse easements or encroachments appear to
exist for the subject, except those associated with normal utility easements and
those specified in the Limited Warranty Deed contained in Addendum I. Access
easements are granted for the benefit of the subject.
Deed Restrictions: No adverse deed restrictions are known to exist; however, a
title policy may indicate otherwise. Should a review of a title policy for the
subject site indicate adverse deed restrictions or easements/encroachments, I
reserve the right to amend this appraisal, possibly altering my final estimate
of value.
Functional Adequacy of Site and Conformity of Neighborhood: The subject site
appears to be physically adequate for the improvements. All utilities are
provided to the site and drainage appears to be adequate. The subject
improvements are appropriate for the site, although the neighborhood is less
desirable and homogenous than many Central Ohio office developments. This issue
will be further discussed in Section III, Market Analysis.
<PAGE>
Flood Hazard Map
<PAGE>
Description of the Improvements
The following description of the subject's improvements is based upon limited
information provided by the leasing and management company. Additionally, this
information was supplemented by my inspection of the site and market, as well as
data supplied by the Franklin County Auditor's Office. The following description
of the Northeast Business Campus summarizes the available construction
information obtained from the previously mentioned sources. Although this data
is not intended to be all-inclusive, it is considered to be reflective of the
major construction specifications.
The subject consists of five office buildings constructed between approximately
1981 to 1983. Gross building areas were not available from the property
management company or their architectural firm. Gross building area, as
contained in public records, is presented in Table II - 6 along with the net
rentable area for each building as represented in the rent roll data provided by
the property management company.
Table II - 6
Northeast Business Campus
Building Area Summary
Building Gross Building Area Net Rentable Area (SF)
(SF)
NEBC 1 31,561 31,105
NEBC 2 32,812 31,105
NEBC 3 24,138 23,545
NEBC 4 23,991 23,717
NEBC 5 71,000 71,000
Total 183,502 180,472
SOURCE: Franklin County Auditor and Mathews Click Bauman
The foundations consist of poured concrete footings and slabs. Construction is
masonry and steel. The office buildings - NEBC 1, NEBC 2, and NEBC 5 - have
dryvit exteriors. The office/warehouse buildings - NEBC 3 and NEBC 4 - have
ribbed and smooth concrete block exteriors with contrasting accent bands.
The office/warehouse buildings appear to have an average of approximately 15% to
20% warehouse space. Each of the office/warehouse buildings appears to have been
constructed with six 8'x8' dock-high, overhead doors and two 8'x12' drive-in,
overhead doors, although one of the drive-in doors in NEBC 3 has been replaced
with a double-wide, pedestrian door.
<PAGE>
Roofs are a built-up system on metal decking. The property's on-site maintenance
technician noted that the roofs have required only minimal attention, although
built-in planters around the perimeter of the office buildings have occasionally
caused minor leaks to the building interiors. Windows and pedestrian doors are
insulated glass in bronze anodized-aluminum frames. The exception to this is
NEBC 5 which has solar gray glass in black anodized-aluminum frames.
Interior walls have vinyl wall treatments or a painted finish. Most ceilings are
a suspended 2'x4' or 2'x2' exposed grid system with acoustical tile for sound
control. Lighting is provided by four-tube, 2'x4' recessed fluorescent fixtures
and a mixture of incandescent fixtures. Office floors are generally covered with
commercial-grade carpet. Warehouse floors are typically exposed concrete.
Restrooms, storage areas, and kitchenettes typically have vinyl-tile flooring.
Entryways often feature ceramic tile. Heat is provided by gas-fired rooftop
units. Each building includes electric air conditioning. Site improvements
include asphalt-paved and striped parking areas, concrete sidewalks and curbing,
and pole-mounted lights in parking areas. Landscaping is highlighted by numerous
small to medium trees.
Condition: The subject is approximately 12 to 14 years old and appears to have
been well-maintained. Overall, the subject is considered to be in good
condition.
<PAGE>
Site Plan
<PAGE>
PHOTOGRAPH
View of Corporate Drive looking west.
View of State Route 161 looking west.
PHOTOGRAPH
<PAGE>
PHOTOGRAPH
View of NEBC 1.
View of NEBC 1.
PHOTOGRAPH
<PAGE>
PHOTOGRAPH
View of park entrance and NEBC 1.
View of NEBC 1 - conference room.
PHOTOGRAPH
<PAGE>
PHOTOGRAPH
View of NEBC 1 - vacant office.
View of NEBC 2.
PHOTOGRAPH
<PAGE>
PHOTOGRAPH
View of NEBC 2.
View of NEBC 2 - ADP main lobby.
PHOTOGRAPH
<PAGE>
PHOTOGRAPH
View of NEBC 2 - office area.
View of NEBC 3.
PHOTOGRAPH
<PAGE>
PHOTOGRAPH
View of NEBC 3.
View of NEBC 3 -- office area.
PHOTOGRAPH
<PAGE>
PHOTOGRAPH
View of NEBC 3 - storage area.
View of NEBC 4.
PHOTOGRAPH
<PAGE>
PHOTOGRAPH
View of NEBC 4.
View of NEBC 4 -- ABB Autoclave lobby.
PHOTOGRAPH
<PAGE>
PHOTOGRAPH
View of NEBC 4 - ABB Autoclave warehouse space.
View of NEBC 5.
PHOTOGRAPH
<PAGE>
PHOTOGRAPH
View of NEBC 5.
View of NEBC 5.
PHOTOGRAPH
<PAGE>
PHOTOGRAPH
View of NEBC 5.
View of main lobby -- NEBC 5.
PHOTOGRAPH
<PAGE>
PHOTOGRAPH
View of typical interior -- NEBC 5.
View of conference room -- NEBC 5.
PHOTOGRAPH
<PAGE>
Real Estate Taxes
The subject is within Columbus in Franklin County. Real estate taxes in Franklin
County are assessed at 35% of market value. Taxes are paid semi-annually, one
year in arrears (1995 taxes are payable in 1996). The subject site consists of
five contiguous parcels. The parcels are assessed as commercial property. A tax
reduction factor is applied to the gross rate to yield the effective rate. In
addition, a 10% tax rollback is applied.
Table II - 7 contains a summary of real estate tax parcels, assessed values, and
current tax amounts, as well as the estimates of real estate taxes that I have
used in the subsequent Income Capitalization Approach. The total assessed value
of the subject indicates a taxable market value of $10,132,429. This amount is
approximately 9% higher than my estimate of market value from the Income
Capitalization Approach.
The estimate of real estate taxes is based upon the appraisal premise that the
subject sells on the effective valuation date for the appraised value. Because
of the vigilance of local school boards and other taxing authorities in Central
Ohio, it is probable that a transfer of ownership would trigger a reassessment
of the property by the county. Typically, the new assessed value would be at or
near the transfer price (i.e., the appraised value). My estimates of real estate
taxes are not directly reflective of the value indications contained in this
report. The primary reason for this discrepancy is that I have appraised the
property based upon the current level of occupancy and the actual leases that
are in place, whereas market value for real estate taxes purposes is based upon
a market level of occupancy at market rents. As an example, the CIGNA lease
within NEBC 5 contains a rental rate that is below market; therefore, the
subject's actual cash flow may be negatively impacted yet the property's taxable
value is - at least theoretically - unaffected by the below-market lease.
The subject's taxes are currently being appealed before both the Franklin County
Board of Revision and the Ohio Board of Tax Appeals. I have intentionally not
reviewed the real estate tax appeal information so as not to be biased by
appraisals or other information that may have been filed by the property owner
or the opposition (local school board). Since the majority of real estate taxes
are passed through to tenants, the subject's tax liability has a limited impact
on value.
<PAGE>
<TABLE>
<CAPTION>
Table II - 7
Northeast Business Campus
Real Estate Tax Data
<S> <C> <C> <C> <C>
Building Parcel Number Assessed Value Current Annual PINNACLE
Taxes Projected Taxes
NEBC 1 600-213375-6 $ 80,530 $39,415.66 $31,000
724,110
$804,640
NEBC 2 600-213376-4 $ 74,860 $30,860.36 $31,000
555,130
$629,990
NEBC 3 600-213377-2 $ 43,010 $19,433.52 $17,500
353,710
$396,720
NEBC 4 600-193738-9 $ 46,410 $17,144.92 $17,500
303,590
$350,000
NEBC 5 600-213379-8 $ 163,590 $66,865.16 $75,000
1,201,410
$1,365,000
Total $ 408,400 $173,719.62 $172,000
3,137,950
$3,546,350
SOURCE: Franklin County Auditor and Pinnacle Associates, Inc.
</TABLE>
<PAGE>
Section III
Market Analysis
Introduction
In formulating my opinion of value for the subject, an analysis was performed of
the Metropolitan Columbus office market. The objective was to quantify the two
key historical and expected elements which determined the current and future
composition of the defined market for office space -- supply and the demand.
This section concludes with my projections of market rental rates, leasing
concessions, and absorption as they pertain to the subject.
By studying the historical performance of a market, one is better able to
understand the inevitably cyclical nature of real estate. Presumably, one is
also better able to make logical, well-supported projections of future trends in
the market. With this reasoning in mind, I investigated the past performance of
the Metropolitan Columbus office market. My analysis begins with a brief
overview of the national office market.
National Office Market Overview
From a rolling national recession to widespread corporate restructuring, the
factors affecting the national office market are as numerous as they are
diverse. An analysis of these factors not only allows one to fully appreciate
the industry's current status, but more importantly allows for a better
understanding of the industry's prognosis for continued recovery and long-term
performance.
Most would agree that real estate is a cyclical business marked by a period of
prosperity, leading to an ultimate peak followed by an eventual downturn. With
this in mind, it should not have surprised anyone that, sooner or later, the
fast-paced growth of the early and mid 1980s would come to an end. What did come
as a surprise was the fact that virtually every conceivable catastrophe that
could have negatively impacted real estate struck during the mid to late 1980s.
Excessive overbuilding, a scandalous savings and loan crisis, the ailing
national economy, capital gains tax reform, and increased global competition all
came together in a relatively short period of time to devastate the industry.
In an attempt to cash-in on the boom years, developers geared up to get as much
product on line as they could. According to CB Commercial, construction activity
began to outpace absorption as early as 1980. By 1985, multi-tenant completions
were approximately 70% ahead of absorption. Despite irrefutable evidence that
the office market was overbuilt, construction and absorption did not come close
to being in balance until 1991. By that point, almost 20% of the nation's office
inventory was vacant. Some hastily-constructed and poorly-located developments,
now termed by some as chronically not leasable, further aggravated the
situation.
Over the past five years, the office market has shown slow but steady signs of
improvement. According to CB Commercial, vacancy rates for metropolitan office
space (suburban and CBD combined) was roughly 19% in 1991 to 15.5% at the end of
1994; mid-year 1995 figures indicate a continuation of recent trends with a
national metropolitan vacancy rate of 14.5%. The suburban market is largely
responsible for decreased overall vacancy rates. Suburban vacancy has been
steadily falling since its peak in 1987. At the end of the fourth quarter 1994,
the vacancy rate for suburban office space was 15.0%, down from 17.2% in
December 1993 and down from its peak of 23.6% in 1987. The downtown office
vacancy rate in the United States - which had been rising through the late 1980s
to a peak of 17.6% at year-end 1992 - has flattened and had even dropped
slightly to 16.3% at the end of the fourth quarter 1994. These general trends
have continued through much of 1995, although limited speculative construction
has begun again in certain markets.
Suburban vacancy rates declined faster and for a longer time period than
downtown office vacancies. The decline is due in part to the slowing additions
to supply for suburban office space in the early 1990s. Downtown office markets
did not show any considerable slow down in supply until 1993, well after the
suburban markets were already feeling the impact of overbuilding. Analysts are
concerned that technology, transportation, and the social ills of the city will
accelerate the growth of the suburbs at the expense of the CBDs. A trend is
emerging in some cities whereby many CBD tenants are being lost to suburban
office buildings. Although there is positive growth occurring in the cities and
suburbs, growth in the suburbs has been considerably higher. Graph III - 1
illustrates the vacancy rates for the downtown and suburban areas as compared to
the overall metropolitan vacancy rate.
<PAGE>
[GRAPHIC - NATIONAL OFFICE MARKET VACANCY RATES 1989 THROUGH 1994 (YEAR-END)]
0Graph III - 1
December 1994's Metropolitan (Suburban and Downtown) vacancy rate of 15.5%
represents the lowest vacancy rate since 1985 when the construction boom was
still in full swing. An important difference between the two periods, however,
is that absorption in the 1980s was at least twice as high as it is presently.
Leasing agents in many markets are reporting that up-front concessions are
dissipating as more and more lease transactions are structured on a "pay-one
day-one" basis whereby rental concessions take the form of reduced overall
rental rates rather than up-front rental abatements. The unwillingness or
inability of many landlords to offer lavish tenant improvement allowances has
also exerted downward pressure on rental rates, although many owners have
attempted to remain flexible and responsive to tenants' needs and demands. With
the improving economy combined with limited construction in the early 1990s, the
overall office market is starting to shift from being "tenant friendly" to
"landlord friendly." Tenants who in the past were in a very favorable bargaining
position due to the oversupply of office space are beginning to realize that the
office market is starting to tighten with market rental rates increasing and
favorable allowances and concessions declining.
In terms of transactions, few prime Class-A office buildings are selling, as
investors are trying to hold on to their properties until the market rebounds.
Recent interest rate declines could bring buyers and sellers closer to
equilibrium. Domestic and foreign pension funds are re-entering the real estate
investment market. Their re-entry signifies that they have learned from their
previous mistakes and now understand the principle of "buy low and sell high".
Conversely, the Japanese, another group of investors previously stung by
purchasing at the top of the market, are likely to continue their retrenching
with regard to investing in U.S. real estate. According to the Studley Report,
Japanese investors experienced as much as a 30% decline in the value of their
commercial and resort properties in one year. Japan's troubled economy should
also limit Japanese real estate investments.
Real estate investment trusts (REITs) are likely to serve as potential
purchasers for many investment properties. Opportunity funds (a.k.a. "vulture
funds") have capitalized on the depressed condition of real estate by purchasing
properties at "rock-bottom" prices. Transactions at 50% to 75% of replacement
cost were not uncommon, although such opportunities are becoming scarce.
Some analysts point to the Tax Reform Act of 1986 as one source of the real
estate industry's current woes and suggest that recovery would be driven by once
again supplying real estate investors with substantial tax incentives. Others
contend that the 1986 act served to end the construction of projects that made
sense only from an income tax perspective, rather than from an economic
perspective. Members of the latter group refer to such quick fixes as the Trojan
Horse that initially caused much of the current real estate debacle.
There seems to be a clear consensus by market participants that the national
real estate market in general - and more specifically the national office market
- - has bottomed out. As discussed herein, vacancy and absorption are thought to
be moving in a positive direction, although rental rates are remaining low. One
of the reasons for the potential positive movement is the low levels of
construction as compared to the absorption. The lack of construction is
presently reducing vacancy rates, which should in turn increase rental rates;
however, such increases have to date been minimal.
<PAGE>
Metropolitan Columbus Office Market Overview
The office market in Columbus is comprised of two sub-markets; the Central
Business District sub-market (CBD) and the Suburban sub-market. A recent
publication by CB Commercial indicated that the Metropolitan Columbus office
market includes approximately 16.2 million square feet of office space.
Approximately seven million square feet of this is located in the CBD area while
the remaining nine million square feet is located in the suburbs. According to
the publication, the CBD office vacancy rate was 6.6% at the middle of 1995,
while the Suburban rate was 8.3% for a total market vacancy rate of 7.5%. This
indicates a significant reduction in vacancy for both submarkets; as of year-end
1993, the CBD, Suburban, and total market vacancy rates were 9.6%, 9.5%, and
9.6%, respectively. {The subject is located in the Suburban sub-market.} Table
III - 1 displays CB Commercial's findings for the sub-markets. The figures
include Class-A, -B, and -C space; the average vacancy for Class-A space is two
to three percentage points lower than Class-B and -C space.
<TABLE>
<CAPTION>
Table III - 1
Metropolitan Columbus Office Market
Central Business District and Suburban Office Markets
<S> <C> <C> <C> <C>
Number of
Submarket Buildings Net Rentable Area % Vacant
CBD 53 7,022,000 6.6%
Suburban 183 9,211,000 8.3
Total Market 236 16,233,000 7.5
Source: The Single Market Outlook Report - Columbus, Fall 1995, CB Commercial Real Estate Group,
Inc./Torto Wheaton Research
</TABLE>
In retrospect, the Metropolitan Columbus office market experienced in one decade
(1980s) a 101% increase in office space from 7.4 million square feet to 14.9
million square feet as of year-end 1989. The current total of 16.2 million
square feet indicates an additional increase of 8.7% from the previous decade.
As is typical of many markets across the country, much of this expansion has
been in the Suburban submarkets.
<PAGE>
Despite a seemingly large increase in supply, Central Ohio's growth has been
slow but steady. In fact, over the past five years, office space completions
have declined every year from approximately 610,000 square feet in 1990 to
50,000 square feet in 1994. Although few speculative office buildings will be
developed in the near future, CB Commercial is forecasting that over the next
five years, an average of 523,000 square feet will be completed annually with an
overall estimated annual absorption rate of 484,000 square feet. In comparison,
there was an addition of 246,000 square feet of space completed annually over
the last five-year period, while the average annual absorption was 498,000
square feet. Unlike many office markets across the nation that have significant
sublease markets, Columbus has been fortunate in that few local firms are
folding or contracting.
CBD Office Market
According to CB Commercial, the CBD office market supply contains 7,022,000
square feet, of which approximately 463,000 square feet (or 6.6%) are vacant.
This vacancy level has improved significantly compared to the previous few years
despite a depressed national economy and several large blocks of privately-owned
office space that were vacated by state agencies during this same period. The
exodus of these agencies was a result of state tenants moving to occupy new
state office towers. As a result, the CBD experienced limited to negative
absorption during these years. According to one survey, CBD absorption decreased
from 557,000 square feet in 1985 to a negative 68,000 square feet in 1991.
Absorption rebounded to approximately 104,000 square feet during 1992. According
to CB Commercial, net absorption in 1993 and 1994 was 125,000 square feet and
207,000 square feet, respectively. Much of the privately-owned office space once
occupied by state agencies has now been absorbed by the private sector.
Despite the recent sluggishness in absorption, the Columbus CBD office market
has historically outperformed the national market in terms of vacancy and has
been nearly equal to or better than Ohio's other two major CBD office markets,
Cincinnati and Cleveland. The overall stability of the Columbus CBD office
market has been aided greatly by the fact that no major new office projects in
the core of the CBD have come on-line since 1986. The only changes in supply
have been the 500 South Front Street Building (the Brewery District building) on
the periphery of the CBD, which was completed in July 1990, and the former Beggs
Building, which has undergone a substantial renovation and re-entered the market
in 1991 as Fifth-Third Center. These two buildings total approximately 250,000
square feet of office space. Both have experienced relatively solid leasing
activity.
Although two office towers are in the planning stages, financing and pre-leasing
questions have delayed the possible completion of these projects. The extended
lack of new supply should serve to tighten up the CBD office market as new and
expanding tenants have fewer options from which to choose. With the vacancy rate
for newer Class A buildings currently at approximately 5%, large blocks of space
are limited. It is unlikely that the vacancy rate would remain at such a low
level for very long before a developer would complete a new building; however,
the interim effect of such a scenario would be increased rental rates and
decreased concession packages for tenants.
<PAGE>
Suburban Office Market
As will be discussed throughout this section of the report, the Suburban
Columbus office market has experienced significant increases in Class A office
space during the 1980s. Presently, the Suburban submarket has only a few
projects under construction. The days of unprecedented growth, which were fueled
not necessarily by demand but by optimistic projections capitalized by endless
sources of funds, have come to an abrupt stop and have been replaced by more
cautious and regulated development. The Suburban Columbus office market has
responded well to the miscalculations of the 1980s and is relatively healthy
compared to markets nationwide. Municipalities and regional planners have,
although somewhat slowly at times, provided the infrastructure and public
services necessary to sustain and facilitate growth.
Supply
As previously mentioned, the Suburban Columbus office market experienced a
significant increase in the supply of office space during the 1980s. According
to CB Commercial, approximately 5.5 million square feet of office space was
built in the Suburban Columbus area during this time frame. This comprises over
60% of the office space currently in this submarket. Presented in Table III - 2
is a breakdown of CBD and Suburban office space by year built.
<TABLE>
<CAPTION>
Table III - 2
Office Space by Year Built
(Square Footage in Thousands)
<S> <C> <C> <C> <C>
Submarket Pre 1980 1980 - 1984 1985 - 1989 1990 - 1994
CBD 4,546 1,867 473 136
Suburban 2,535 2,345 3,115 1,093
Totals 7,081 4,212 3,588 1,229
SOURCE: CB Commercial/Torto Wheaton Research
</TABLE>
Construction activity in the suburban office market has been strong historically
but a marked slowdown of activity occurred in the early 1990s. With the
increased bank regulations that came about after the decline of most real estate
markets in the early 1990s, development in the office market began to take the
form of build-to-suit scenarios with a major/lead tenant committing to a major
portion of the space prior to construction. Currently, office construction is on
the upswing with numerous build-to-suit buildings having been either completed
or currently under construction in the past couple of years, with most of the
development being completed by developers that were able to weather the dismal
real estate climate of the early 1990s.
<PAGE>
Anticipated Additions to the Supply
CB Commercial's five-year average annual completions are presented in Table III
- - 3. The "Planned Projects" listed in the table are those which have been
discussed, but as yet have not been slated for construction. Approximately
245,000 square feet of office space, on average, was completed over the past
five-years with 218,000 square feet per year being in the Suburban market. Over
the next two years new speculative completions and planned projects in the
Suburban market are estimated to decline as the market continues to stabilize.
<TABLE>
<CAPTION>
Table III - 3
Supply Factors By Submarket
<S> <C> <C> <C> <C> <C> <C>
Estimated
5-Year Average Annual New % of
Annual Planned % of Completions from MSA
Submarket Completions % of MSA Projects MSA 1995 to 1996
CBD 27,000 11.0 0 0.0 15,000 7.2%
Suburban 218,000 89.0 800,000 100.0 192,000 92.8
Totals 245,000 100.0 800,000 100.0 207,000 100.0
SOURCE: CB Commercial/Torto Wheaton Research
</TABLE>
As with most areas nationwide, tightened credit policies by many lenders,
coupled with a soft real estate market in general, have severely curtailed the
construction of speculative office space in Columbus. Several suburban parks in
the Columbus area are offering development sites for office buildings. Among the
most notable and active is the Corporate Park at Tuttle Crossing. This mixed-use
park is located near the southern border of Dublin and centers around the
privately-funded interchange of Interstate 270/Tuttle Crossing Boulevard. To
date, construction activity has focused on apartment and build-to-suit office
developments. Recently, plans were approved and construction has commenced on an
upscale regional mall that is being developed by the Taubman Company.
From an office building perspective in Tuttle Crossing, Duke Associates are
currently involved with four office projects, two of which are near completion
with the other two being either under construction or recently announced. Duke
recently completed construction of a 120,000-square-foot office building with
John Alden Life Insurance Company occupying 101,000 square feet of the project.
Their rental rate is reportedly in the $11.50-per-square-foot range (absolute
net). John Alden Life Insurance vacated space at Metro Center I for their new
building.
<PAGE>
Duke Associates is in the final phases of construction of the Cardinal Health
building. This build-to-suit building contains 132,000 square feet and will be
occupied by Cardinal Health. The reported rental rate is in the
$11.75-per-square-foot range (absolute net). Cardinal Health will be vacating
approximately 25,000 square feet in Metro Center V. Duke is currently in the
process of constructing its Atrium building, a 300,000-square-foot office
building which is partially pre-leased to Nationwide Insurance. Nationwide will
be occupying 200,000 square feet of the building and will relocate and expand
their computer center/operations facility from the Three Crosswoods building
that they are currently occupying. Nationwide currently occupies the
115,000-square-foot Three Crosswoods building.
In September 1995, Duke announced that BMW Financial Services' customer service
center will consolidate, relocate, and expand its operations to a new 60,000
square foot building in the Tuttle park. The building is anticipated to be
completed by Summer 1996 and be owned by BMW. BMW will be vacating 15,000 square
feet in the One Mill Run building and 15,000 square feet in the Community
Corporate Center building.
In other developments in the northwest suburban submarket, Cellular One recently
commenced construction on their 120,000-square-foot office building in Dublin.
The proposed building will front Interstate 270 and be located between Coffman
Road and Dublin Road. The building is expected to be completed by the Fall 1996.
Cellular One will occupy approximately 75% of the building with a reported
average rental rate of $13.00 per square foot (absolute net). Other new office
developments include the new corporate headquarters for CompuServe, a national
on-line computer service. CompuServe has completed 150,000 square feet of office
space in its first phase and is currently adding an additional 150,000 square
feet. The owner-occupied building is located in Hilliard, which is just south of
Dublin.
Another development opportunity for the Dublin area is the recent sale of the
remaining vacant land located in the MetroCenter office park. Pizzuti purchased
the land from Prudential Insurance and intends to eventually develop the site
with several office buildings. Currently Pizzuti has no specific plans but is
marketing a proposed speculative office building with an estimated rental rate
of $13.50 per square foot (absolute net).
The 1,286-acre Polaris Centers of Commerce continues to offer new development.
Like the Tuttle Crossing project, Polaris centers around a new freeway
interchange. The project is located along Interstate 71 to the north of
Columbus. The recent completion of the interchange coincided with a flurry of
agreements reached between the project's developers and build-to-suit tenants
that include B.F. Goodrich Aerospace, Cigna Insurance, and Beacon Insurance. It
was recently announced that a trio of developers -- Daimler, Ohio Equities, and
NP Limited (the master developer of Polaris) -- intends to develop a
100,000-square-foot speculative office building. Conversations with parties
involved indicated that interest in the property has been strong, but no major
commitments have been signed. Asking rental rates are in the
$13.00-per-square-foot range (absolute net). In addition, the Polaris
development has plans for a regional shopping center with the Mills Company
acting as the developer.
<PAGE>
Another significant development in the Polaris park is the Banc One project
currently under construction. Banc One eventually intends to build a "campus"
within the Polaris Center that will add approximately 1.6 million square feet of
office space and is expected to cost up to $123 million dollars and occupy more
than 160 acres. This complex is expected to be used primarily for administrative
and support services. Consolidation of facilities is the main reason for the
expansion by Banc One. The original plan called for employees to be consolidated
from several smaller buildings leased in the Westerville area as well as several
out-of-town locations. It was initially thought that several of the small office
and showroom facilities presently occupied by Banc One (totaling 250,000 square
feet) in the Brooksedge office park would be vacated along with the 44,000
square feet occupied by Banc One Leasing in Corporate Exchange IV. A large
facility owned and occupied by Banc One within Brooksedge park was not to be
vacated. The McCoy Center on Cleveland Avenue was also to remain in operation.
The project was originally to be completed in three phases. The first phase will
be completed in early 1996; however, future phases are said to be on hold due to
Banc One's inability to attract sufficient clerical workers. Central Ohio's low
unemployment rate has allowed employees and prospective employees to virtually
refuse to work in the relatively remote Polaris development. As ancillary
amenities such as retail activity and public transportation eventually reach the
area, employment-based difficulties should decrease. This should allow for a
more gradual absorption of space to be vacated by Banc One and thus less
traumatic of an impact on the Westerville-area office market.
Retailing giant The Limited is pursuing plans for a 1,100-acre development at
the Interstate 270/Morse Road Interchange. This project will focus on a
750,000-square-foot, multilevel shopping center anchored by a number of The
Limited's stores. The company also plans to build distribution space, as well as
office space, lodging, and restaurant uses within the development. Construction
is in its infant stages and it will probably be several years before the
proposed development starts to fully develop. However, The Limited's powerful
financial base will more than likely overcome a typical developer's financing
problems.
Vacancy
According to CB Commercial, the Metropolitan Columbus office vacancy rate
reached a peak of approximately 16.5% in 1989. With the absence of practically
all speculative office construction, total office vacancy has since declined to
approximately 7.5%. Graph III - 2 presents a comparison of national and local
vacancy rates for Suburban and CBD office markets.
<PAGE>
[GRAPHIC - METROPOLITAN COLUMBUS OFFICE MARKET VACANCY RATES
1989 THROUGH 1994 (YEAR-END)]
0Graph III - 2
The Columbus office market is relatively healthy in comparison to most markets
across the country. According to CB Commercial, the vacancy rate in the Columbus
MSA is 7.5%, which is well below the national average of 15.5%. The suburban
Columbus market has also outperformed the national averages. CB Commercial
estimated a suburban vacancy rate for Columbus at 8.3%, while the national
Suburban office market averaged 15%.
<PAGE>
Absorption
Demand for office space in the suburban Columbus market is derived from a
diverse tenant base. Typical suburban office tenants are involved in finance,
insurance, law, consumer services, communications, real estate, advertising,
computer software development, pharmaceutical, and the medical industry. This
diversity serves to minimize the effect of overbuilding and allows for the
continuation of positive absorption. While historical performance of the
Metropolitan Columbus office market is not a guarantee of future performance, it
does help to provide insight into the supply and demand components that drove
office absorption in the past and; therefore, what components are likely to
spawn absorption in the future.
Since the suburban submarkets have accounted for most of the new office space in
the metropolitan area in recent years, it should not be a surprise that the
suburbs have claimed the vast majority of office space absorption. Suburban
absorption has generally dwarfed CBD absorption over the past several years,
although 1994's total absorption was equally split with each segment accounting
for approximately 200,000 square feet.
Office employment is a key indicator of the demand for office space. Table III -
4 presents CB Commercial's estimated and projected Metropolitan Columbus office
employment for the period 1986 through 2000, including projected figures for
1995 and thereafter. Office employment is then translated into a measure of
occupied office space, absorption, and vacancy.
Table III - 4 is significant in that it provides a quantitative means by which
to measure past performance and project future office space needs. During the
past 10 years, annual absorption in the Metropolitan Columbus office market
averaged 600,000 square feet per year and it is projected that an average of
484,000 square feet per year will be absorbed over the next five years. This
absorption level is believed to be low in terms of total space taken down.
Build-to-suit projects are not included in CB Commercial's absorption model and
will comprise a significant portion of the new space leased over the coming
years. This is evidenced by the influx of build-to-suit projects currently being
developed. There is also activity in the Suburban office market regarding
speculative construction with two buildings being either proposed or in the
initial stages of construction.
<PAGE>
<TABLE>
<CAPTION>
Table III - 4
Metropolitan Columbus Office Market
Historical and Projected Absorption and Vacancy
(1985-1994 Actual : 1995-2000 Projected)
<S> <C> <C> <C> <C> <C> <C>
Year Office Multitenant Multitenant Multitenant Vacancy Vacant Space
Employment Stock Completions Absorption Rate (x1000 SF)
(x1000) (x1000 SF) (x1000 SF) (x1000 SF)
1985 98.4 11,709 293 653 17.4% 2,037
1986 106.5 13,024 1,315 1295 15.8 2,058
1987 112.8 13,886 862 768 15.5 2,152
1988 118.5 14,358 472 399 15.5 2,225
1989 125.1 15,004 646 396 16.5 2,476
1990 129.8 15,614 610 525 16.4 2,561
1991 128.2 15,939 325 670 13.9 2,216
1992 130.0 16,082 143 365 12.4 1,994
1993 136.5 16,183 101 542 9.6 1,554
1994 143.6 16,233 50 386 7.5 1,217
1995 144.9 16,376 143 299 6.4 1,048
1996 148.4 16,376 0 622 2.6 426
1997 151.3 16,935 559 153 4.9 830
1998 154.6 17,740 806 528 6.3 1,118
1999 158.4 18,847 1,107 818 7.4 1,395
2000 162.6 19,968 1,121 879 8.2 1,637
SOURCE: CB Commercial/Torto Wheaton
</TABLE>
Table III - 4 serves to illustrate the cyclical nature of most real estate
markets by indicating a gradually tightening market until 1997, at which time
new construction begins once again to outpace absorption thus creating another
period of higher vacancy in the market. Furthermore, it is important to
differentiate between the two submarkets as they relate to absorption. Table III
- - 5 presents historical and projected absorption by submarket.
<PAGE>
Table III - 5
Historical and Projected Absorption by Submarket
(Square Feet in Thousands)
Historical
3-year Estimated Annual
Average Annual Absorption
Submarket Absorption % of MSA 95.1 - 96.2 % of MSA
CBD 113 26.3% 110 26.2%
Suburban 317 73.7 310 73.8
Total 430 100.0 420 100.0
SOURCE: CB Commercial/Torto Wheaton Research
Based upon the forecasts produced by CB Commercial/Torto Wheaton and upon my
investigation of the market, including discussions with local experts, I believe
that the most probable scenario includes a gradual improvement (reduction) in
vacancy. Recent improvements in absorption and vacancy rates support this
contention. In the absence of any substantial new speculative office
developments in the area, the office market should gradually tighten over the
next several years, thus increasing the demand for new development and prime
office land.
Rental Rates
Average asking rents have remained basically flat over the past half-dozen
years, although several notes should be made concerning the interpretation of
average asking rental rates. First, the averages are generally drawn from quoted
asking rents rather than from rates contained in actual leases. As the market
tightens, some leasing agents tend to be more realistic in the rates they quote
vis-a-vis the actual contract rental rates being signed. On the other hand,
leasing agents may quote somewhat overstated asking rents in an attempt to both
bolster the image of their property and provide room for negotiation with
prospective tenants. Effective rental rates do appear to be increasing slowly.
Summary
The mid to late 1980s were strong growth years for the Columbus Suburban office
market. Money was readily available to fund speculative developments and
construction activity flourished. Office growth was characterized by relatively
steady increases in supply and demand driven by a diverse tenant base. Towards
the end of the decade, absorption of new space lagged behind the amount of new
space entering the market, thereby causing vacancy rates to rise and rental
rates to drop.
<PAGE>
Absorption has historically been strong and is expected to remain strong in the
future due to the overall strength and desirability of the northern suburbs. The
continued steady growth of Central Ohio's employment base (as discussed within
the Regional Analysis) should continue to bolster office employment which in
turn will add to the demand for office space. Given that most current and
proposed office developments are located in the northern suburbs, its seems
logical to presume that new demand for office space would positively impact the
northern suburbs.
Tightened lending policies restricted the amount of money available to
developers, thus decreasing construction activity dramatically. Banks have been
less willing to fund speculative or risky developments. This decreased level of
construction activity should remain for the short term. With absorption
predicted to remain strong as a result of a diverse and growing local economy,
vacancy rates will gradually decrease in the coming year. This decrease should
push rental rates upward as less space is available to prospective tenants.
These trends - coupled with the long-term optimism evidenced by
recently-announced projects - indicate that the office market's recovery is well
under way in Central Ohio.
Despite the tremendous inflow of build-to-suit office space during the past
several years, Columbus is expected to continue to have a robust demand for
office space. The falling suburban vacancy rates are a reflection of the steady
increase in demand and dwindling excess supply. The area's diverse economy and
businesses continue to remain healthy.
Competing Property Analysis
Subject Profile
The subject consists of three office buildings and two office/warehouse
buildings in suburban Columbus. Current occupancy is approximately 90.6% with
most of the subjects' 16,983 square feet of vacant space being in NEBC1. Table
III - 6 summarizes the subject's current occupancy by building.
<PAGE>
Table III - 6
Northeast Business Campus
Occupancy Summary
Building Total Area (SF) Leased Area (SF) Available Area (SF) Vacancy
NEBC 1 31,105 19,447 11,658 37.5%
NEBC 2 31,105 31,105 0 0.0
NEBC 3 23,545 23,545 0 0.0
NEBC 4 23,717 23,717 0 0.0
NEBC 5 71,000 65,661 +5,339 7.5
Total 180,472 163,489 16,983 9.4%
+ A 2,757-square-foot suite in NEBC 5 was recently leased by UARCO but is
not yet occupied; the space is therefore included in the "leased" category.
SOURCE: Mathews Click Bauman
A list of all the tenants and the general terms of their leases is illustrated
in Table III - 7 (Lease Abstract Report). NEBC 1 is occupied by six tenants
ranging in size from 897 square feet to 6,319 square feet. Four of the tenants
have net leases; their base rental rates (i.e., without expenses) range from
$7.50 to $7.83 per square foot. Two tenants within NEBC 1 do not pay operating
expenses; their rates are $10.65 to $13.17 per square foot. Meridian Insurance,
whose lease rate is the higher of these two, has increases of $0.25 per year for
each of the final two lease years. Most of the leases within NEBC 1 are three to
five years in duration. Two tenants - totaling 3,897 square feet - have leases
that expire during 1996. The building currently has four vacant suites.
Automatic Data Processing (ADP) occupies all of NEBC 2. Their current lease
terms expires in March 1998 with two one-year options. I have estimated that
they will exercise their first option since it will be somewhat lower than my
then-current estimate of market rent {as will be discussed subsequently}
including operating-expense pass-throughs. The second renewal option would be at
the prevailing rate. In the absence of any clear incentive for the tenant to
renew, I have estimated that the tenant would not renew their second option,
thus the tenant would be treated as a speculative renewal at that point.
Nine tenants - ranging in size from 1,644 to 5,673 square feet occupy NEBC 3.
Most tenants have 10% to 15% of warehouse/storage space at the rear of their
suites. All tenants pay a pro-rate share of maintenance, taxes, and insurance.
Lease rates range from $5.00 to $7.97 per square foot. Several tenants have
annual base-rent increases of $0.25 to $0.50 per square foot. The building
currently 100% occupied.
<PAGE>
Three tenants occupy NEBC 4. The building's largest tenant, ABB Autoclave, is in
the middle of a one-year renewal that expires in July 1996. The lease for R. E.
Harrington expires in November 1996. The tenant uses the space primarily for
storage and does not pay operating expenses charges. One of the subject's
leasing agents stated that Nextel Communications (currently a tenant in NEBC 5)
is interested in occupying Harrington's space. Lease rates range from $5.50 to
$7.90 per square foot.
Connecticut General Life Insurance Company (CIGNA) occupies 40,315 square feet
and is the largest tenant within NEBC 5. Their five-year lease has a flat rate
of $5.97 per square foot and expires in June 1999. CIGNA's one five-year renewal
option is at 95% of the then-prevailing market rental rate and has not been
included within the Pro-Ject+ analysis. Three other tenant leases also encumber
NEBC 5, including UARCO who is to take occupancy in February 1996. Rental rates
for the building's other tenants range from $7.25 to $12.50 per square foot.
Table III - 7 presents a summary of all existing leases at the subject.
<PAGE>
<TABLE>
<CAPTION>
Table III - 7
Northeast Business Campus
Lease Abstract Report
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL
SQUARE LEASE LEASE OPTION MINIMUM MINIMUM PRO RATA
TENANT FEET BEGIN END #/MOS RENT/SF RENT RECOVERIES SHARE BASE
NEBC 1
# 1-SUITE N1100 6,319 5/92 4/97 - 7.50 47,393 OP EXPENSES - REIM ZERO
TRUS JOINT MacMILL
# 2-SUITE N1101 1,573 8/95 7/00 - 7.50 11,798 OP EXPENSES - REIM ZERO
ENTREPRENEURSHIP I
# 3-SUITE N1105 3,574 3/96 2/00 - 7.50 26,805 OP EXPENSES - REIM ZERO
VACANT A
# 4-SUITE N1106 897 6/93 5/96 - 7.83 7,024 OP EXPENSES - REIM ZERO
PACIFIC SCIENTIFIC
# 5-SUITE N1107 2,212 12/95 11/98 - 13.17 29,132 NONE
MERIDIAN INSURANCE 12/96 13.42 29,685
12/97 13.67 30,238
# 6-SUITE N1108 3,844 6/96 5/00 - 7.50 28,830 OP EXPENSES - REIM ZERO
VACANT B
# 7-SUITE N1109 3,000 12/93 11/96 - 7.50 22,500 OP EXPENSES - JAN ZERO
DE WEATHERBY & ASC
# 8-SUITE N1112 3,569 9/96 8/00 - 7.50 26,768 OP EXPENSES - REIM ZERO
VACANT C
# 9-SUITE N1113 671 12/96 11/00 - 7.50 5,033 OP EXPENSES - REIM ZERO
VACANT D
# 10-SUITE N1114 5,446 4/92 3/97 - 10.65 58,000 NONE
MID E UN DAIRY IND
---------
31,105
NEBC 2
# 1-SUITE N2100 31,105 12/94 3/98 - 11.98 372,638 ADP CLEANING
ADP
1- 12 12.88 400,632 ADP CLEANING
---------
31,105
NEBC 3
# 1-SUITE N33681 2,222 6/92 5/97 - 7.97 17,709 OP EXPENSES - REIM ZERO
DIEHL OFFICE EQUIP
# 2-SUITE N33683 2,818 8/93 7/98 - 6.82 19,219 OP EXPENSES - REIM ZERO
HABITEC SECURITY
# 3-SUITE N33685 1,644 4/95 3/98 - 6.00 9,864 OP EXPENSES - REIM ZERO
METCALF & EDDY 4/96 6.50 10,686
4/97 7.00 11,508
# 4-SUITE N33687 2,506 4/95 3/99 - 6.00 15,036 OP EXPENSES - REIM ZERO
SMC PNEUMATICS
# 5-SUITE N33689 4,284 11/95 10/98 - 6.00 25,704 OP EXPENSES - REIM ZERO
EXPRESS-MED 11/96 6.50 27,846
11/97 7.00 29,988
# 6-SUITE N33695 5,673 10/95 3/97 - 6.00 34,038 OP EXPENSES - REIM ZERO
INSKEEP BROTHERS 10/96 6.25 35,456
# 7-SUITE N33697 2,000 1/96 12/98 - 7.50 15,000 OP EXPENSES - REIM ZERO
CERBERUS PYROTRON
# 8-SUITE N33699 2,398 1/95 12/97 - 5.00 11,990 OP EXPENSES - REIM ZERO
AURORA EXHIBITS 1/96 5.25 12,590
1/97 5.50 13,189
---------
23,545
NEBC 4
# 1-SUITE N43711 3,762 1/95 11/96 - 5.50 20,691 NONE
R E HARRINGTON
# 2-SUITE N43717 3,604 1/93 12/97 - 6.54 23,570 OP EXPENSES - REIM ZERO
WILTEL COMMUNIC.
# 3-SUITE N43721 16,351 8/95 7/96 - 7.90 129,173 OP EXPENSES - REIM ZERO
ABB AUTOCLAVE
---------
23,717
NEBC 5
# 1-SUITE N5100 8,000 8/94 3/96 - 12.50 100,000 OP EXPENSES - REIM ZERO
NEXTEL
# 2-SUITE N5110 2,757 2/96 1/01 - 8.75 24,124 OP EXPENSES - REIM ZERO
UARCO 2/97 9.00 24,813
2/98 9.25 25,502
2/99 9.50 26,192
2/00 9.75 26,881
# 3-SUITE N5150 14,589 7/95 6/00 - 7.25 105,770 OP EXPENSES - REIM ZERO
EDS 7/96 7.75 113,065
7/97 8.25 120,359
7/98 8.75 127,654
7/99 9.25 134,948
# 4-SUITE N5200 40,315 7/94 6/99 - 5.97 240,681 OP EXPENSES - REIM ZERO
CONN GEN LIFE INS
# 5-SUITE N5170 5,339 6/96 5/00 - 7.50 40,043 OP EXPENSES - REIM ZERO
VACANT A
---------
71,000
</TABLE>
<PAGE>
In estimating market rent for an existing property, the most recent leases are
typically the best indication of market rent, especially when there has been a
significant amount of leasing activity. There has been significant leasing
activity at the subject during the past three years. Table III - 8 includes a
summary of the new tenants and their leases.
<PAGE>
<TABLE>
<CAPTION>
Table III - 8
Rental Rate Analysis of Recently-signed Leases
Northeast Business Campus
<S> <C> <C> <C> <C> <C>
Tenant/Building Area Term Effective Amortized Effective
(SF) (Years) Rental Rate Tenant Finish Rental Rate
Before Tenant ($/Year) After Tenant
Finish Finish
NEBC 1
Entrepreneurship Institute 1,573 5.0 $7.50 $0.97 $6.53
D. E. Weatherby & Assoc's. 3,000 3.0 7.50 5.44 2.06
Pacific Scientific 897 3.0 7.83 5.05 2.78
NEBC 3
Inskeep Brothers, Inc. 5,673 1.5 6.08 0.00 6.08
SMC Pneumatics 2,506 4.0 6.00 0.44 5.56
Aurora Exhibits 2,398 3.0 5.25 0.27 4.98
Express-Med, Inc. 4,284 3.0 6.50 0.78 5.72
NEBC 4
R. E. Harrington, Inc. 3,762 1.9 5.50 0.45 5.05
Wiltel Communications, Inc. 3,604 5.0 6.54 0.62 5.92
NEBC 5
UARCO, Inc. 2,757 5.0 9.25 3.20 6.05
Electronic Data Systems 14,589 5.0 8.25 2.00 6.25
Connecticut General (CIGNA) 40,315 5.0 5.97 0.15 5.82
</TABLE>
The recently-signed leases presented in Table III - 8 account for over 85,000
square feet of space. The average lease term is approximately 3.7 years.
Although lease rates varied widely, effective rates (after owner-paid tenant
improvements) for office finish generally ranged from $6.00 to $6.50 per square
foot with office/warehouse space ranging from $5.00 to $6.00 per square foot. It
should be noted that the rents presented in Table III-8 are average effective
rent, and include all steps in the base rent. {Two leases signed at NEBC 1
during 1993 are presented in Table III - 8 but are not considered to be
representative of current market conditions.}
<PAGE>
Market Rent Analysis
The subject consists of a two-story office building, two one-story office
buildings, and two office/warehouse buildings. The office/warehouse buildings
have a high percentage of office finish. The improvements are of good quality
and are in very good condition, although the subject's location and access are
generally inferior to similar-quality buildings. These two liabilities tend to
limit the subject's ability to compete with other properties; consequently, the
subject often must offer an aggressive rental rate in order to attract tenants.
An investigation of properties deemed to be competitive with the subject was
conducted. I have selected primary and secondary rent comparables to best
reflect all aspects of the competitive market for buildings of similar age,
condition, and design as the subject. The primary rent comparables were selected
as those properties that are most competitive with the subject. The secondary
rent comparables are competitive to a lesser degree than the primary
comparables. The selected properties are intended to serve as a sampling of the
market. The subject's unique location and product mix also place it in
competition with numerous other properties in the suburban Columbus market.
Sublease opportunities within the market exist but are rather scarce;
accordingly, subleases have not been included in the vacancy rates presented for
the subject or the rent comparables.
In addition to the quoted rental rates presented below, I have considered actual
leases currently in place at other comparable properties in the suburban
Columbus market; however, due to the proprietary nature of this information, I
am not able to disclose specific details of these transactions. Table III - 9
contains a summary of the primary rent comparables; Table III - 10 contains a
summary of the secondary rent comparables. Detailed information on the primary
rent comparables is presented after Table III - 9 and Table III - 10. A
locational map is also included.
<PAGE>
<TABLE>
<CAPTION>
Table III - 9
Comparable Rental Data
Primary Competition
Northeast Business Campus (NEBC)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
# Building/ Square Feet Occupancy Typical Asking Tenant Net Effective Tenant Expenses
Location (NRA) Term Rental Rate Improvements Rental Rate Per SF/
(Years) Per SF Per SF Per SF Reimbursements
S Northeast Business Campus (quoted rates) (1996 Budget)
U 3592 Corporate Drive (NEBC 1) 31,105 62.5% 3-5 $7.50 $5.00 to $8.00 +/-$6.00 $5.06
B 3660 Corporate Drive (NEBC 2) 31,105 100.0% 5 NAP NAP NAP $4.12
J 3681 Corporate Drive (NEBC 3) 23,545 100.0% 3-5 $5.50 "as-is" $5.50 $2.07
E 3711 Corporate Drive (NEBC 4) 23,717 100.0% 1-5 $5.50 "as-is" $5.50 $2.06
C 3711 Corporate Drive (NEBC 5) 71,000 92.5% 5 $9.00 $10.00 $7.00 $5.30
------
T Columbus, Ohio 180,472 90.6%
=======
P-1 Crosswoods Technology Center 71,935 94.0% 3-5 $9.50 $1.50 to $2.00 $6.00 to $6.50 $2.83;
Campus View Drive per year plus utilities
Columbus, Ohio and janitorial
P-2 Cascade I-VIII 335,000 98.0% 5 $11.00 $12.00 $7.00 to $8.00 $6.50;
East Wilson Bridge Road, absolute net
Worthington, Ohio
P-3 One Lakeview Plaza 109,000 97.7% 3-5 $8.50 often "as-is" $6.75 NAV
Lakeview Plaza Boulevard,
Worthington, Ohio
P-4 Spectrum Commerce Center I 135,614 98.1% 3-5 $7.95+ $8.00+ $5.00+ to $2.00;
Eastwind Drive, $5.50+ plus utilities
Westerville, Ohio and janitorial
P-5 Corporate Exchange Office Park 284,114 88.0% 3-5 $13.00 $5.00 to $15.00 $8.00 $6.05;
Corporate Exchange Drive absolute net
Columbus, Ohio
P-6 Gahanna Business Mart 50,200 100.0% 3-5 $8.50+ and negotiable $6.00+ $1.90;
Morrison Road $4.25 plus utilities
Gahanna, Ohio and janitorial
+ For office finish
++ Net effective rental rate is shown after rental concessions and after a
deduction for tenant improvements (allowance per lease year).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table III - 10
Comparable Rental Data
Secondary Competition
Northeast Business Campus
<S> <C> <C> <C> <C> <C> <C> <C>
# Building/ Square Feet Occupancy Typical Asking Tenant Net Effective Tenant Expenses
Location (NRA) Term Rental Rate Improvements Rental Rate Per SF/
(Years) Per SF Per SF Per SF++ Reimbursements
S-1 Spectrum Commerce Center II 135,200 97% 5 $9.50+ and $7.00+ to $7.00+ to $2.01;
/ 4140-4150 Tuller Road, $4.50 $10.00+ $7.50+ plus utilities and
Dublin, Ohio janitorial
S-2 Crossgate Center / 355 East 80,017 98% 3-5 $12.35 $1.50 to $2.00 $9.50 to $10.00 $6.50;
Campus View Blvd., per year Absolute Net
Columbus, Ohio
S-3 Brooksedge Corp. Center 650,000 100% 3-5 $9.25 negotiable $7.00 to $7.50 $2.15;
Brooksedge Boulevard plus utilities
Westerville, Ohio and janitorial
S-4 Lionmark Corp. Center 188,569 96% 5 $10.00 negotiable $6.00 $2.85; plus
Hilton Corporate Drive, utilities and
Columbus, Ohio janitorial
+ For office finish
++ Net effective rental rate is shown after rental concessions and after a
deduction for tenant improvements (allowance per lease year).
</TABLE>
<PAGE>
Rent Comparable -- Subject
Property Name Northeast Business Campus
Address/Distance from Subject Corporate Drive, Columbus,
This is the subject.
Property Description: Five one- and two-story buildings
Year Completed 1981 to 1983
NRA 180,472 square feet
Handicap Accessible Most
Elevators/Quality One in NEBC 5 / Good quality
Exterior Finish/Quality Please refer to the Description of
the Improvements for a detailed
description.
Interior Finish/Quality Please refer to the Description of
the Improvements for a detailed
description.
Project Amenities:
Landscaping Small to medium trees, ground cover, shrubs,
and built-in planters
Security Nighttime drive-bys
Common Areas See Description of the Improvements
Express Mail Drop Box Federal Express and UPS
<PAGE>
Lease Data:
Lease Rates/Terms The current quoted lease
rates are $7.50 per square
foot for NEBC 1, $5.50 per
square foot for NEBC 3 and
NEBC 4, and $9.00 per
square foot for NEBC 5.
Most leases have three- to
five-year terms.
Expenses Included None, tenant pays
their pro-rata share of all
expenses, except NEBC 2
where ADP pays gas,
electric, and limited
cleaning. Expenses are
budgeted at $5.06 per
square foot for NEBC 1,
$4.12 per square foot for
NEBC 2, $2.07 per square
foot for NEBC 3, $2.06 per
square foot for NEBC 4, and
$5.30 per square foot for
NEBC 5.
Improvement Allowance Allowances are quoted at $5.00 to
$8.00 per square foot for NEBC 1 and
$10.00 per square foot at NEBC
5. NEBC 3 and NEBC 4 are typically
quoted "as-is".
Rental Concessions Concessions are negotiated on a case-by-
case basis and have not been granted for
recent leases.
Effective Rate (after T.I.) +/-$6.00 per square foot at NEBC 1;
+/-$5.50 per square foot at NEBC 3
and NEBC 4; and+/-$7.00 at NEBC 5,
based upon quoted rates
Vacant Space & Vacancy % 16,983 square feet (9.4%)
Major Tenants CIGNA, ADP, ABB Autoclave, and EDS
Overall Comparability:
Location NAP - This is the subject.
Project Amenities NAP - This is the subject.
Exterior Finish/Construction NAP - This is the subject.
Interior Finish NAP - This is the subject.
Management NAP - This is the subject.
Contact William Todd Greiner, Benton Benalcazar, and Richard Schuen
Mgmt. Co. Mathews o Click o Bauman
Phone No. (614) 847-1492
<PAGE>
Rent Comparable P1
Property Name Crosswoods Technology Center
Address/Distance from Subject 222-242 East Campus View Boulevard,
246-294 East Campus View Boulevard,
7634-7670 Crosswoods Drive,
Columbus,
approximately five miles northwest
of the subject
Property Description: Three, one-story buildings
Year Completed 1985
NRA 71,935 square feet
Parking Ratio 3.1 spaces/1,000 square feet
Handicap Accessible All
Elevators/Quality None
Exterior Finish/Quality Three one-story tilt-up concrete
office/warehouse buildings. Overall
quality is average and condition
is good.
Interior Finish/Quality Standard office tenant finish
includes painted drywall and
carpet. Office finish is 95% to
100% of NRA. Overall interior
finish is of good quality and
condition.
Project Amenities:
Landscaping Small to medium trees, grass, annual
plants on exterior; adequate and of
good quality.
Security None provided
Common Areas None
Express Mail Drop Box U.S. Postal Express, approximately
two properties away on East Campus
View Boulevard
<PAGE>
Lease Data:
Lease Rates/Terms The current asking lease rate is $9.50 per
square foot, although rates of $7.95 to
$8.50 per square foot have been quoted.
The leases typically have three- to five-
year terms.
Expenses Included Most tenants pay their pro-rata share of all
operating expenses. Current expenses are
budgeted at $2.83 per square foot plus
utilities and janitorial.
Improvement Allowance The leasing agent indicated that this item
is negotiated on a case-by-case basis, but
is generally in a range of $1.50 to $2.00
per square foot per lease year.
Rental Concessions Minimal
Effective Rate (after T.I.) +/-$6.00 to $6.50 per square foot
Vacant Space & Vacancy % +/-4,300 square feet (6.0%)
Major Tenants R.H. Positive and The Future Now
Overall Comparability:
Location Superior
Project Amenities Superior
Interior Finish Comparable
Exterior Finish/Construction Slightly superior to NEBC 3 and NEBC 4
Management Comparable
Comments: This property is located within the
Crosswoods Center Office Park which
includes numerous restaurants and hotels.
Contact Jeff Boll
Mgmt. Co. National Realty Services, Inc.
Phone No. (614) 846-7800
<PAGE>
PHOTOGRAPH
Rent Comparable P1
Crosswoods Technology Center
<PAGE>
Rent Comparable P2
Property Name Cascade Corporate Center
Address/Distance from Subject 100 to 300 E. Wilson Bridge Rd.,
Worthington,
approximately four miles northwest of the subject
Property Description: Seven two- to four-story buildings
Year Completed Late 1970s through early 1980s
NRA +/-335,000 square feet
Parking Ratio +/-4 spaces/1,000 square feet
Handicap Accessible Most
Elevators/Quality Typically 2 per building / Average quality
Exterior Finish/Quality Mix of concrete/dryvit and wood/stone veneer,
and reflective, insulated glass / Good condition
Interior Finish/Quality Typical
office finish includes
vinyl wall covering and
paint on drywall partitions
with commercial-grade
carpet and suspended
acoustical ceilings.
Overall interior finish is
of high quality and good
condition.
Project Amenities:
Landscaping Small, medium, and mature trees, plus an
assortment of bushes, plants, and flowers.
Security Yes
Common Areas Typical building features multistory atrium
with elevators and center stairway.
Express Mail Drop Box UPS, Federal Express, Airborne Express,
U. S. Postal Express
<PAGE>
Lease Data:
Lease Rates/Terms The listed rate is approximately $11.00 per
square foot for most buildings, although actual
signed rates are reported to be approximately
$9.50 to $10.50 per square foot. Most leases have
five-year terms.
Expenses Included None, tenant pays their pro-rata share
of all expenses. Expenses are budgeted at
approximately $6.50 per square foot. [The
buildings are not consistently leased in
terms of net versus gross; the information
presented herein reflects a net basis for the
reimbursement of operating expenses.]
Improvement Allowance Allowances average approximately $12.00 per square
foot for a five-year lease.
Rental Concessions Concessions - if any - typically are in the form
of a discounted base rental rate throughout
part or all of the lease term.
Effective Rate (after T.I.) $7.00 to $8.00 per square foot
Vacant Space & Vacancy % +/-20,000 square feet (6.0%)
Overall Comparability:
Location Superior
Project Amenities Comparable
Exterior Finish/Construction Slightly superior to NEBC 1, NEBC 2, and NEBC 5
Interior Finish Comparable to NEBC 1, NEBC 2, and NEBC 5
Management Comparable
Comments: The buildings are owned by several different
entities, although they share common management
and leasing. A total of five of the buildings are
featured in two sales within the Sales Comparison
Approach.
Contact Loretta Parimuha
Mgmt. Co. Mathews o Click o Bauman
Phone No. (614) 847-1492
<PAGE>
PHOTOGRAPH
Rent Comparable P2
View of Cascades II
<PAGE>
Rent Comparable P3
Property Name One Lakeview Plaza
Address/Distance from Subject 651-733 Lakeview Plaza Boulevard,
Worthington, Ohio; approximately
three miles northwest of the
subject
Property Description: Five, one-story buildings
Year Completed 1986
NRA 109,000 square feet
Parking Ratio +/-4.0 spaces/1,000 square feet
Handicap Accessible All
Elevators/Quality None
Exterior Finish/Quality Precast concrete with ceramic
tile accent and smoked-glass
windows. Overall quality and
condition are good.
Interior Finish/Quality Typical
office finish includes
vinyl wall covering on
drywall partitions,
combination of incandescent
and fluorescent lighting,
and commercial grade
carpet. Office finish is
estimated at 95% of NRA.
Overall interior finish is
of good quality and
condition.
Project Amenities:
Landscaping Small trees, grass, and attractive annual plants of good quality
Security None provided
Common Areas None
Express Mail Drop Box Federal Express, UPS, Airborne Express
<PAGE>
Lease Data:
Lease Rates/Terms The current asking lease rate is $8.50 per square foot.
The leases typically have three- to five-year terms.
Expenses Included None, tenant pays a pro-rata share of all expenses.
Improvement Allowance Improvement allowances are
negotiable, but have not been
given for recent leases.
Rental Concessions Minimal
Effective Rate (after T.I.) +/-$6.75 per square foot
Vacant Space & Vacancy % +/-2,500 square feet (2.3%)
Major Tenants Process Data Systems and Data File
Overall Comparability:
Location Comparable
Project Amenities Comparable
Interior Finish Comparable
Exterior Finish/Construction Comparable
Management Slightly inferior
Comments: This rent comparable has freeway exposure, but limited access.
Contact Ed White
Mgmt. Co. Don Kenney and Company Realtors
Phone No. (614) 889-6444
<PAGE>
PHOTOGRAPH
Rent Comparable P3
One Lakeview Plaza
<PAGE>
Rent Comparable P4
Property Name Spectrum Commerce Center I
Address/Distance from Subject 921-929 Eastwind Drive, Westerville, Ohio;
approximately 1.5 miles north of the
subject
Property Description: Two one-story buildings with mezzanines
Year Completed 1984
NRA 135,614 square feet
Parking Ratio +/-3.0 spaces/1,000 square feet
Handicap Accessible Approximately half is handicap accessible.
Elevators/Quality None
Exterior Finish/Quality Two one-story buildings
with mezzanines. Front and sides are solar
grey insulated glass panels with a red
accent stripe; rear of buildings are
metal siding. Overall quality and
condition are good.
Interior Finish/Quality Standard
office tenant finish
includes vinyl wall
covering or painted drywall
and carpet. Mezzanine level
allows for additional
usable space. Office finish
is estimated at 60% of NRA.
Overall interior finish is
of average quality and
condition.
Project Amenities:
Landscaping Small to medium trees, grass, attractive
annual plants; adequate and of good
quality.
Security None provided.
Common Areas None
Express Mail Drop Box UPS, U. S. Postal Express, approximately
three properties away
<PAGE>
Lease Data:
Lease Rates/Terms The quoted rate is $7.95, although recent
leases have been structured at $5.00 per
square foot for "as-is" space. The leases
typically have three- to five-year terms.
Expenses Included None, tenant pays their pro-rata share
of all operating expenses. Expenses are
estimated at approximately $2.00 per
square foot plus utilities and
janitorial.
Improvement Allowance Improvement allowances are quoted at
$8.00 per square foot for office finish,
although recent leases have been for
"as-is" space (with a discounted rental
rate).
Rental Concessions Minimal
Effective Rate (after T.I.) +/-$5.00 to $5.50 per square foot
Vacant Space & Vacancy % +/-6,600 square feet (4.9%)
Major Tenants Duffy Homes; Digital Storage, Inc.;
Red Cross
Overall Comparability:
Location Slightly Superior
Project Amenities Comparable
Interior Finish Comparable to NEBC 3 and NEBC 4, although
lower level of office finish
Exterior Finish/Construction Slightly superior to NEBC 3 and NEBC 4
Management Comparable
Comments: This project is presented in the Sales
Comparison Approach and is of the same
design as Rent Comparable 4. It has
freeway exposure, but poor access.
Contact Benton Benalcazar and Richard Schuen
Mgmt. Co. Mathews o Click o Bauman
Phone No. (614) 847-1492
<PAGE>
PHOTOGRAPH
Rent Comparable P4
Spectrum Commerce Center I
<PAGE>
Rent Comparable P5
Property Name Corporate Exchange I, II, and III
Address/Distance from Subject 2500, 2550, and 2600 Corporate Exchange Drive,
Columbus, approximately two miles northwest of
the subject
Property Description: Three three-story buildings
Year Completed 1983 to 1985
NRA CXI 103,683 square feet
CXII 91,911 square feet
CXIII 91,255 square feet
Total 286,849 square feet
Parking Ratio +/-3.5 spaces/1,000 square feet including
limited underground parking
Handicap Accessible All
Elevators/Quality 2 each / good quality
Exterior Finish/Quality Reflective glass and pre-cast concrete panels
/ Good condition and quality.
Interior Finish/Quality Typical
office finish includes
vinyl wall covering or
paint on nine-foot-high
drywall partitions,
fluorescent lighting, and
carpet with either wood or
rubber wall base. / Good to
very good condition and
quality.
Project Amenities:
Landscaping Small to medium trees, shrubs, annual plants;
adequate and of good quality.
Security Key card access
Common Areas Three-story atria
Express Mail Drop Box Federal Express, UPS, Airborne
<PAGE>
Lease Data:
Lease Rates/Terms The current asking rate is $13.00 per square foot,
although actual leases are reported to be approximately
$10.00 to $11.00 per square foot. Most leases have
three- to five-year terms.
Expenses Included None, tenant pays their pro-rata share of all
expenses. Expenses are estimated at approximately
$6.05 per square foot.
Improvement Allowance Allowances are negotiable, although they often range
from $5.00 to $15.00 per square foot.
Rental Concessions The leasing agent indicated that rental abatements are
typically not given, although the actual base rate is
typically discounted from the asking rate over the life
of the lease.
Effective Rate (after T.I.) +/-$8.00 per square foot
Vacant Space & Vacancy % +/-34,000 square feet (+/-12%)
Overall Comparability:
Location Superior
Project Amenities Superior
Exterior Finish/Construction Comparable to NEBC 1, NEBC 2, and NEBC 5
Interior Finish Comparable to NEBC 1, NEBC 2, and NEBC 5
Management Comparable
Comments: The Corporate Exchange buildings are superior to the subject
in terms of location and quality. Competition between this
comparable and the subject is often as a result of existing
Corporate Exchange tenants using a lower lease proposal from
NEBC as leverage in renewing their current lease. This rent
comparable sold in November 1995 as part of a six-building
portfolio. Due to conflicting information from individuals
directly involved in the sale, as well as the subjectivity
involved in the allocation of sale price, the transaction is
not presented in the Sales Comparison Approach. Discount rates
used by the buyer and seller are said to range from 11% to 13%
depending upon each building's location; terminal
capitalization rates are said to be in the 10.5% to 11% range.
Contact William Todd Greiner
Mgmt. Co. Mathews o Click o Bauman
Phone No. (614) 847-1492
<PAGE>
PHOTOGRAPH
Rent Comparable 5
View of Corporate Exchange I
<PAGE>
Rent Comparable P6
Property Name Gahanna Business Mart
Address/Distance from Subject 804 to 870 Morrison Road, Gahanna,
approximately six miles southeast of
the subject
Property Description: Two one-story buildings
Year Completed 1990
NRA +/-50,000 square feet
Parking Ratio +/-2.7 spaces/1,000 square feet
Handicap Accessible All
Elevators/Quality None
Exterior Finish/Quality Brick exterior with double-paned
insulated, reflective glass panels
/ Good quality and condition.
Interior Finish/Quality Approximately 40% office
finish. Typical office
finish includes painted
drywall, fluorescent
lighting, and carpet with
either rubber wall base.
The property has
approximately 24 8'x10'
grade-level overhead doors.
/ Average quality and
condition.
Project Amenities:
Landscaping Small to medium trees, shrubs, and
annual plants.
Security None provided
Common Areas None
Express Mail Drop Box None
<PAGE>
Lease Data:
Lease Rates/Terms The current lease rates are reported to be $8.50 per
square foot for office finish and $4.25 per square foot
for warehouse space. Most leases have one- to five-year
terms.
Expenses Included None, tenant pays their pro-rata share of all expenses.
Expenses are estimated at approximately $1.90 per square
foot plus janitorial and utilities. A partial real estate
tax abatement affects the property.
Improvement Allowance Allowances are negotiable, although $10.00 per square foot
of office space is possible for a five-year lease to a
credit tenant.
Rental Concessions Concessions are negotiated on a case-by-case basis,
but have averaged one to three months of
free rent on a five-year lease term.
Effective Rate (after T.I.) +/-$6.00 per square foot
Vacant Space & Vacancy % 4,020 square feet (8.0%)
Major Tenants AT&T Small Business Equipment,
Bell South
Overall Comparability:
Location Superior
Project Amenities Slightly Inferior
Exterior Finish/Construction Superior
Interior Finish Comparable to NEBC 3 and NEBC 4,
although lower level of office
finish
Management Inferior
Comments: The property has excellent
exposure to I-270, although a
steep incline at the property's
entrances could make for
treacherous ingress/egress in the
winter.
Contact William Murnane
Mgmt. Co. Wallace F. Ackley Co.
Phone No. (614) 231-3661
<PAGE>
PHOTOGRAPH
Rent Comparable 6
Gahanna Business Mart
<PAGE>
Rent Comparables Map
<PAGE>
The preceding comparable data has been analyzed and compared to the subject in
order to estimate market rent levels. Variances between the comparable data and
the subject are predominantly attributable to differences in the size and
location of the leased space along with locational and physical characteristics
of the improvements and the terms of each lease. For office/warehouse
properties, the percentage of office finish also affects rental rates. In
analyzing the various adjustments applicable to the data based on comparison to
the subject, the following items are considered to be primary items requiring
analysis.
Location: The location of an office building or office/warehouse will have a
major impact on its success, which in turn will influence potential rent levels
and tenant turn-over. Rental rates for office and office/warehouse buildings may
be influenced by locational factors such as proximity to destination locations,
exposure to streets, traffic counts, proximity to amenities, proximity to other
similar users, and access to major thoroughfares.
Northeast Business Campus is an attractive office park located near the Columbus
suburb of Westerville; Westerville has traditionally trailed Dublin and
Worthington in terms of locational prestige. Nearby ancillary amenities - such
as restaurants and hotels - are sparse. Additionally, unsightly properties in
the subject's immediate neighborhood detract from the subject's location. Both
NEBC 3 and NEBC 4 are favorably impacted by the presence of office properties -
i.e., NEBC 1, NEBC 2, and NEBC 5 - that are located within the park. Conversely,
the office properties are impacted in a {slight} negative manner by the presence
of office/warehouse properties - i.e., NEBC 3, NEBC 4, Frito Lay, and Crawford
Products - that are located within the park. The possible eventual development
of the park's last vacant parcel could also positively or negatively affect the
subject.
The park's difficult access can be a detriment in the minds of certain
prospective tenants. NEBC 1, NEBC 2, and NEBC 5 have adequate exposure to State
Route 161, whereas NEBC 3 and NEBC 4 have only limited exposure. Despite these
locational difficulties, the subject is still able to compete with the
comparable properties, although often at a discounted rate. This is evidenced by
CIGNA's decision to relocate to NEBC 5 from one of suburban Columbus' most
desirable office properties; a key to CIGNA's decision was said to be the
aggressive rental rate offered by Northeast Business Campus.
All of the primary comparables are located adjacent to I-270 and are considered
to possess superior locational characteristics as compared to the subject.
Downward adjustments are therefore necessary for location.
Physical Characteristics: Age, condition, and quality of improvements are
accounted for in this category. This group of subjective adjustments reflects
the physical deterioration evident in the properties affecting their aesthetic
appeal and the level of modernization or functional characteristics of the
property. The subject's five buildings were built from 1980 to 1983 and are very
well-maintained. NEBC 1, NEBC 2, and NEBC 5 have an average level of tenant
finish; NEBC 3 and NEBC 4 have a below-average level of tenant finish (by office
standards). Comparable P-1, Comparable P-2, and Comparable P-5 are generally
superior to the subject; the remaining comparables are generally inferior in the
quality and appeal of their physical characteristics.
Lease Structure: Base rent and expense recapture combine to determine the total
cost of occupancy for a leased space. The comparables offered a variety of lease
structures. I have analyzed the properties using primarily a net rental rate;
however, I have given consideration to the total occupancy cost (base rent plus
expenses) of each property. Rent concessions are minimal to nonexistent for most
properties. Lease terms are typically three to five years with a few properties
achieving base rent increases in the latter years of the lease term.
Vacant Space
Currently, there is a total of 16,983 square feet of vacant space in the
subject's five buildings. Based on the Market Analysis section of this report, I
expect this space to lease up over the next 12 months in addition to 32,010
square feet of leases that roll during this period; the leases that roll are
treated as speculative renewals. Within my analysis I have projected that the
currently vacant space will be absorbed in quarterly installments beginning in
March 1996. These spaces are estimated to lease at the then-existing market
rent. The leases encumbering the subject are well within a reasonable range of
market rates and the limited concessions being provided are also within market
parameters.
Lease Renewal and Rollover Assumptions: I estimate that 60% of the tenants in
the multitenant buildings will renew their space upon expiration of their
specific lease terms; a 50% renewal rate is used for NEBC 2. The tenant spaces
are estimated to roll to the then-current market rental rates. I have included a
three-month vacancy between four-year lease periods for multitenant buildings
and a four-month vacancy between four-year lease terms for NEBC 2. When combined
with my renewal-percentage estimates, the between-lease vacancy equates to
approximately 7.5 months [8.0 months for NEBC 2] vacant between leases that do
not renew and zero months vacant between leases that do renew. These estimates
are consistent with general long-term market perceptions and actual market
occurrences.
Conclusion
The following summarizes my key conclusions.
The subject is located near the northeast Columbus suburban of
Westerville. Westerville is considered to be a desirable, but not a
stellar, location. The Westerville office submarket is experiencing
healthy occupancy and minimal amounts of build-to-suit and speculative
construction.
<PAGE>
Northeast Business Campus' location is negatively impacted by other
improvements in its immediate neighborhood.
Vehicular access is difficult, although the subject has very good
visibility from State Route 161.
The subject's improvements are very competitive with the rent
comparable in terms of quality, age, tenant finish, and overall appeal.
Based on the quantity and quality of data available, $7.50 per square
foot (absolute net) is considered appropriate to reflect a current
average market rent for NEBC 1, NEBC 2, and NEBC 5. Market rent for
NEBC 3 and NEBC 4 is estimated at $6.50 per square foot (absolute net).
Based upon the length of recent leases, a term of four years is
considered to be reasonable for speculative renewals. Table III - 11
summarizes my estimates of market rents, tenant improvement allowances
per square foot per year, and effective rental rates after tenant
improvement allowances.
My estimate of market rent is consistent with the rates currently being
obtained by the subject. This estimate of market rent is a weighted
average and reflects the fact that actual leases will vary in regard to
rental rate, length of term, rental concessions, tenant improvement
allowances, or other parameters. The estimate assumes four-year lease
terms, a standard tenant improvement allowance, and the tenants being
responsible for their pro-rata share of operating expenses.
<TABLE>
<CAPTION>
Table III - 11
Market Rent Estimates
Northeast Business Campus
<S> <C> <C> <C> <C> <C>
Building Term Renewal Effective Rental Amortized Tenant Effective Rental
(Years) Probability Rate Before Finish ($/Year) Rate After Tenant
Tenant Finish Finish
NEBC 1 4.0 60% $7.50 $1.25 $6.25
NEBC 2 4.0 50% 7.50 1.50 6.00
NEBC 3 4.0 60% 6.50 0.90 5.60
NEBC 4 4.0 60% 6.50 0.90 5.60
NEBC 5 4.0 60% 7.50 1.25 6.25
</TABLE>
<PAGE>
Section IV
Highest and Best Use
Introduction
The Appraisal Institute defines highest and best use as follows:
The reasonably probable and legal use of vacant land or an improved
property, which is physically possible, appropriately supported,
financially feasible, and that results in the highest value. The four
criteria the highest and best use must meet are legal permissibility,
physical possibility, financial feasibility, and maximum
profitability.3
This definition applies specifically to the highest and best use of land or
sites as though vacant. When a site contains improvements, the highest and best
use may be determined to be different from the existing use. The existing use
will continue unless and until land value in its highest and best use exceeds
the sum of the value of the entire property in its existing use and the cost to
remove the improvements.
It is implied that the determination of the highest and best use takes into
account the contribution of a specific use to the individual property owners. An
additional implication is that the use determined from analysis represents an
opinion, not a fact to be found. The concept of highest and best use represents
the premise upon which market value is based.
In this analysis, the relationship of the site and the improvements to the
area's real estate markets and surrounding improvements were considered, as well
as the individual physical and locational characteristics of the property. The
major considerations in estimating the highest and best use of the site included
the zoning classification and locational attributes of the site, the quality and
quantity of surrounding land use patterns, the current availability of
infrastructure, and most importantly, the supply and demand factors currently
affecting the real estate marketplace.
Appraisal Institute, The Dictionary of Real Estate Appraisal, 3rd Ed., 1993,
p. 171.
<PAGE>
Highest and Best Use, as Vacant
Estimating highest and best use is essentially a four-step process. The four
criteria the highest and best use must meet are outlined below:
1. Possible use. What uses are possible based upon the site's size, shape,
area, terrain, soil conditions, topography, and access to utilities?
2. Permissible use (legal). What uses are permitted by zoning and
deed restrictions on the site in question?
3. Feasible use. What possible and permissible uses will produce a net
return to the owner of the site?
4. Highest and best use. Among the feasible uses, which use will produce
the highest net return or the highest present worth?
The highest and best of use of land (or site) if vacant and available for use
may be different from the highest and best use of the improved property. This is
true when the improvement is not an appropriate use, but it makes a contribution
to the total property value in excess of the site.
These four tests have been applied to the subject, as vacant. In arriving at the
estimate of highest and best use, the subject site was analyzed as if vacant and
available for development.
Possible Use: The first constraint imposed on the possible use of the property
is dictated by the physical aspects of the site. The size and location are the
most important determinants of potential use. In general, the larger the site,
the greater its potential to achieve economies of scale and flexibility in
development.
The subject site consists of five irregularly-shaped parcels totaling
approximately 20 acres. The site's physical characteristics impose only limited
constraints on its development.
Permissible Use: Legal restrictions as they apply to the subject are private
restrictions and the public restrictions of zoning. Common restrictions such as
utility and driveway easements exist at the subject. I do not believe that these
easements would hinder the development of the site.
The subject site is zoned M-2, Manufacturing. This zoning classification permits
office and industrial uses.
<PAGE>
Feasible Uses: Based on the possible, legal uses of the subject site,
financially feasible uses would include any improvements allowed by the current
zoning that would provide a return to the land. When considering the surrounding
development, primarily consisting of light industrial and residential uses, it
would appear that office/warehouse development would be the most likely feasible
use. Demand seems to exist for office/warehouse buildings with a high percentage
of office finish. Owner occupancy is a strong probability. Given the abundance
of prime office sites available in Central Ohio, office development seems
unlikely.
Highest and Best Use: Determining the use that will provide the highest return
to the land is often the most critical factor in determining the highest and
best use as though vacant. Typically, this would entail estimating which one of
the physically possible, legally permissible, and financially feasible uses
would provide the highest rate of return given similar risk characteristics.
However, the only use for the subject site that meets the first three criteria
is office/warehouse use.
In the final analysis, a determination was made as to which feasible use is the
highest and best use. Based on the factors discussed above, it is the
appraiser's opinion that no other use could provide the subject land with a
higher income recognizing the surrounding development and current zoning.
Therefore, the highest and best use for the subject's land would be to develop
the land with an office/warehouse project similar in utility to NEBC 3 and NEBC
4.
Highest and Best Use, As Improved
The subject site is currently developed with a five-building office and
office/warehouse project. The buildings are well occupied, and the use of the
subject as an office and office/warehouse complex should provide a return to the
owner. This use is generally consistent with the highest and best use of the
property as though vacant. Since the improvements, as they currently exist,
continue to make a contribution to the overall value of the property, the
continuation of the existing use is justified. Office condominium projects exist
in the subject's area that would provide stiff competition for any conversion of
the subject to such a use. There are no other alternative, economically feasible
uses that could justify removal or conversion of the existing improvements at
this time. The highest and best use of the subject site, as improved, is the
continuation of the use indicated above.
<PAGE>
Section V
Income Capitalization Approach
Introduction
In deriving a value indication from the Income Capitalization Approach, I have
relied on a discounted cash flow analysis. In the discounted cash flow analysis,
I computed a 10-year prospective analysis of cash flow plus a reversion year in
order to arrive at the estimated value indication. Cash flow is defined as
income earned in excess of expenses incurred including capital additions and the
related reserve for replacement. The beginning of the analysis period is
December 1, 1995; the analysis period terminates with the hypothetical sale of
the property on November 30, 2005. The cash flows are based upon assumptions,
initial market rents, and expense estimates, as discussed below. The procedures
used are enumerated below.
Estimate revenues for the analysis period from the existing leases and
by estimating a market-rent level to calculate future revenues for new
tenants.
Estimate future operating expenses based on an analysis of past
operating experiences of the subject, similar properties, and industry
standards.
Estimate cash flow before debt service and income tax to be generated
by the property during each year of the investment period.
Estimate a discount rate (Internal Rate of Return) which would attract
prudent investment capital to this project.
Add the estimated present value of the income stream to the estimated
present value of the reversion to yield an indication of value.
<PAGE>
The discounted cash flow analysis fully reflects the impact upon market value of
the anticipated pattern of income during the investment period, and is based on
the results of the revenue and expense analyses.
Revenue Analysis
Total Minimum Rent
This line item consists of the base rental revenue from the tenants at the
subject. During the investment period, the subject will generate rental revenues
from the existing tenants (contract rent) and prospective tenants (market rent
estimates). The estimated market rents are used for the currently vacant space
and upon roll over and renewal of the existing and prospective tenants. Contract
and market rents are discussed in the Market Analysis.
The market rent estimates assume that all tenants will pay a pro-rata share of
operating expenses; tenants in NEBC 3 and NEBC 4 are assumed to directly pay
costs associated with gas, electric, and cleaning. These reimbursement
provisions are consistent with the most-recent leases signed at the subject. For
options, I have generally assumed the option is exercised if the option rents
are below market rents. An exception is for renewal options at "95% of the
prevailing rate".
Recoveries (Operating Expense Reimbursements)
The recoveries line items include the reimbursements paid by the tenants for
administration, repairs and maintenance, utilities, real estate taxes,
insurance, janitorial, roads/grounds/security, and management fee. The majority
of the leases are net, in that the tenant will pay for their pro-rata share of
all expenses. The reimbursement line item represents the total of all expense
reimbursement payments made by the tenants to the landlord. Expenses will be
reimbursed in accordance with the terms outlined in the contract rent analysis
(based on the leases in place) and the market rent estimate (for the vacant
space and lease rollovers).
Gross Rental Income
Gross rental income is the sum of the minimum rent and total recoveries.
Vacancy and Credit Loss
In order to reflect typical investor attitudes, a vacancy and credit
(collection) loss factor was considered in my analysis. Based on my market
inspection and discussions with area leasing agents, the overall market
occupancy rate is somewhere around 95%; however, the subject is approximately
90.6% leased.
<PAGE>
In the discounted cash flow analysis, two components (specific and general) make
up vacancy and credit loss. First, for lease rollovers I have included a
three-month vacancy period (four-month period for NEBC 2) between four-year
lease rollovers. The vacancy period assumes that there are 7.5 months vacant
when a lease expires and a new tenant moves in. A limited amount of specific
vacancy is included for currently-vacant spaces. General vacancy and collection
loss is also deducted by way of a 2% charge against gross rental income.
Total Income
Total income, or effective gross income, is the sum of the total minimum rent,
total recoveries, less the vacancy and credit loss. Although miscellaneous
income has been collected sporadically at the subject in the past, I have not
included a specific "other income" category within my analysis. A summary of
historical, budgeted, and projected income is presented below. Income
projections for each building are shown in Exhibits V - 1 through V - 6.
<TABLE>
<CAPTION>
INCOME SUMMARY
<S> <C> <C> <C> <C> <C> <C> <C>
1993 1994 YTD 10/95 1995 1995 1996 YE 11/96
Actual Actual Actual Annualized Budget Budget Projected
Rental Income $1,047,147 $960,130 $1,059,812 $1,271,774 $1,333,534 $1,283,872 $1,323,870
Reimbursements 396,886 360,834 317,840 381,408 484,371 463,251 550,141
Total Income 1,444,033 1,320,964 1,377,652 1,653,182 1,817,905 1,747,123 1,870,011
Miscellaneous Income 13,905 44,998 7,819 9,383 0 0 NAP
Credit Loss NAP NAP NAP NAP NAP NAP -37,481
Total Income $1,457,938 $1,365,962 $1,385,471 $1,662,565 $1,817,905 $1,747,123 $1,836,530
</TABLE>
Operating Expense Analysis
Introduction
This generally denotes all expenses necessary to maintain the production of
revenue from operating the property. For the purpose of estimating expenses for
the subject I have referenced the subject's 1993, 1994, and year-to-date 1995
historical results, as well as budgeted figures for 1995 and 1996. The
year-to-date results reflect operations through October 1995. Annualized figures
are also provided for reference, although the reader is advised that they have
been annualized by dividing the year-to-date amount by 10 months and then
multiplying by 12 months; no adjustments are made for seasonal, erratic, or
cyclical expense patterns.
I have compared the subject's historical numbers to average expenses for the
Suburban Columbus office market as presented in the 1995 issue (compiled from
1994 operating statistics) of the BOMA (Building Owners and Managers Association
International) Experience Exchange Report. A detailed description of each
expense item is presented below.
Administrative
Administrative expenses include office salaries, office supplies, and telephone
expenses. The BOMA figures indicated an average administrative expense of $0.19
per square foot, although the subject's historical and budgeted amounts are
considerably lower. Considering the size of each building and the number of
tenants, I have included an administrative expense estimate of approximately
$0.11 to $0.20 square per foot.
<TABLE>
<CAPTION>
ADMINISTRATIVE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993 1994 YTD 10/95 1995 1995 1996 YE 11/96
Actual Actual Actual Annualized Budget Budget Projected BOMA
Total Dollar
NEBC 1 $9,934 $572 $2,789 $3,347 $720 $720 $6,200
NEBC 2 $6,983 $403 $913 $1,095 $720 $720 $4,500
NEBC 3 $6,254 $295 $565 $678 $720 $720 $4,100
NEBC 4 $5,726 $333 $567 $680 $720 $720 $4,100
NEBC 5 $12,019 $2,299 $3,495 $4,194 $2,880 $2,880 $7,700
NEBC Combined $40,916 $3,993 $8,329 $9,994 $5,760 $5,760 $26,600
Dollars/SF (NRA)
NEBC 1 $0.32 $0.02 $0.09 $0.11 $0.02 $0.02 $0.20 $0.19
NEBC 2 $0.22 $0.01 $0.03 $0.04 $0.02 $0.02 $0.14 $0.19
NEBC 3 $0.27 $0.01 $0.02 $0.03 $0.03 $0.03 $0.17 $0.19
NEBC 4 $0.24 $0.01 $0.02 $0.03 $0.03 $0.03 $0.17 $0.19
NEBC 5 $0.17 $0.03 $0.05 $0.06 $0.04 $0.04 $0.11 $0.19
NEBC Combined $0.23 $0.02 $0.05 $0.06 $0.03 $0.03 $0.15 $0.19
</TABLE>
<PAGE>
Repairs and Maintenance
Repairs and maintenance includes the expense of maintaining and operating all
areas of the subject. The BOMA figures indicated an average repair and
maintenance expense of $1.02 per square foot. Historical and budgeted expenses
are lower, especially for NEBC 3 and NEBC 4. Expenses for the office/warehouse
buildings can reasonably be expected to be lower than for the office buildings;
however, the budgeted amounts appear to be insufficient to maintain the subject
in its current condition on a long-term basis. Considering the subject's age and
condition, I have included a repair and maintenance expense estimate of
approximately $0.72 to $0.86 per square foot.
<TABLE>
<CAPTION>
REPAIRS & MAINTENANCE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993 1994 YTD 10/95 1995 1995 1996 YE 11/96
Actual Actual Actual Annualized Budget Budget Projected BOMA
Total Dollar
NEBC 1 $21,897 $18,641 $21,162 $25,394 $22,754 $22,754 $25,000
NEBC 2 $27,187 $24,191 $24,915 $29,898 $24,704 $25,710 $25,000
NEBC 3 $2,222 $1,796 $7,068 $8,482 $2,018 $2,018 $17,000
NEBC 4 $2,454 $2,759 $6,311 $7,573 $2,018 $3,000 $17,000
NEBC 5 $30,054 $20,520 $38,166 $45,799 $61,457 $61,457 $61,000
NEBC Combined $83,814 $67,907 $97,622 $117,146 $112,951 $114,939 $145,000
Dollars/SF (NRA)
NEBC 1 $0.70 $0.60 $0.68 $0.82 $0.73 $0.73 $0.80 $1.02
NEBC 2 $0.87 $0.78 $0.80 $0.96 $0.79 $0.83 $0.80 $1.02
NEBC 3 $0.09 $0.08 $0.30 $0.36 $0.09 $0.09 $0.72 $1.02
NEBC 4 $0.10 $0.12 $0.27 $0.32 $0.09 $0.13 $0.72 $1.02
NEBC 5 $0.42 $0.29 $0.54 $0.65 $0.87 $0.87 $0.86 $1.02
NEBC Combined $0.46 $0.38 $0.54 $0.65 $0.63 $0.64 $0.80 $1.02
</TABLE>
<PAGE>
Utilities
Utility expenses include gas, electric, water and sewer charges incurred by the
subject during operation. The BOMA figures indicated an average utility expense
of $1.68 per square foot and are based upon the premise that utilities are not
billed directly to tenants by the utility providers. Since electric and gas are
paid for directly by the tenants of NEBC 2, NEBC 3, and NEBC 4, expenses in
those buildings can be expected to remain below the BOMA average. {In Pro-Ject+,
I have modelled NEBC 2 so that gas and electric expenses will be treated as a
reimbursable expense upon the expiration of ADP's lease.} Considering the
energy-efficient design of the subject, I have included a utility expense
estimate of approximately $1.36 per square foot for NEBC 1 and $1.83 per square
foot for NEBC 5. Utility expenses for the other buildings are for water and
sewer charges only.
<TABLE>
<CAPTION>
UTILITIES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993 1994 YTD 10/95 1995 1995 1996 YE 11/96
Actual Actual Actual Annualized Budget Budget Projected BOMA
Total Dollar
NEBC 1 $39,373 $39,240 $34,009 $40,811 $36,600 $42,509 $42,400
NEBC 2 $2,915 $3,969 $1,649 $1,979 $2,800 $3,200 $2,581
NEBC 3 $1,031 $2,527 $1,988 $2,386 $1,400 $1,400 $1,400
NEBC 4 $4,164 $3,864 $5,493 $6,592 $3,900 $3,900 $1,400
NEBC 5 $83,242 $72,339 $113,844 $136,613 $110,750 $127,150 $129,700
NEBC Combined $130,725 $122,028 $156,983 $188,380 $155,450 $178,159 $177,481
Dollars/SF (NRA)
NEBC 1 $1.27 $1.26 $1.09 $1.31 $1.18 $1.37 $1.36 $1.68
NEBC 2 $0.09 $0.13 $0.05 $0.06 $0.09 $0.10 $0.08 $1.68
NEBC 3 $0.04 $0.11 $0.08 $0.10 $0.06 $0.06 $0.06 $1.68
NEBC 4 $0.18 $0.16 $0.23 $0.28 $0.16 $0.16 $0.06 $1.68
NEBC 5 $1.17 $1.02 $1.60 $1.92 $1.56 $1.79 $1.83 $1.68
NEBC Combined $0.72 $0.68 $0.87 $1.04 $0.86 $0.99 $0.98 $1.68
</TABLE>
<PAGE>
Real Estate Taxes
The real estate tax expense estimate was discussed in the Descriptive Data. I
have estimated total real estate taxes at approximately 1% lower than their
current actual level, although the allocated amount varies by building.
<TABLE>
<CAPTION>
REAL ESTATE TAXES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993 1994 YTD 10/95 1995 1995 1996 YE 11/96
Actual Actual Actual Annualized Budget Budget Projected BOMA
Total Dollar
NEBC 1 $53,790 $39,215 $38,979 $46,775 $41,174 $41,174 $31,000
NEBC 2 $52,647 $30,703 $30,518 $36,622 $32,238 $32,238 $31,000
NEBC 3 $25,421 $19,334 $19,218 $23,062 $20,301 $20,301 $17,500
NEBC 4 $38,913 $6,654 $16,955 $20,346 $17,190 $17,190 $17,500
NEBC 5 $134,346 $66,524 $66,124 $79,349 $77,208 $69,850 $75,000
NEBC Combined $305,117 $162,430 $171,794 $206,153 $188,111 $180,753 $172,000
Dollars/SF (NRA)
NEBC 1 $1.73 $1.26 $1.25 $1.50 $1.32 $1.32 $1.00 $1.40
NEBC 2 $1.69 $0.99 $0.98 $1.18 $1.04 $1.04 $1.00 $1.40
NEBC 3 $1.08 $0.82 $0.82 $0.98 $0.86 $0.86 $0.74 $1.40
NEBC 4 $1.64 $0.28 $0.71 $0.86 $0.72 $0.72 $0.74 $1.40
NEBC 5 $1.89 $0.94 $0.93 $1.12 $1.09 $0.98 $1.06 $1.40
NEBC Combined $1.69 $0.90 $0.95 $1.14 $1.04 $1.00 $0.95 $1.40
</TABLE>
<PAGE>
Insurance
The insurance estimate includes fire and extended coverage insurance. The BOMA
figures indicated an average insurance expense of $0.10 per square foot.
Budgeted and recent historical amounts are slightly below the BOMA figures.
Presumably the property owner has substantial buying power in terms of securing
favorable insurance premiums. Based upon this information and actual premiums in
place at similar properties, I have included an average insurance expense
estimate of approximately $0.10 per foot.
<TABLE>
<CAPTION>
INSURANCE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993 1994 YTD 10/95 1995 1995 1996 YE 11/96
Actual Actual Actual Annualized Budget Budget Projected BOMA
Total Dollar
NEBC 1 $5,209 $2,369 $1,776 $2,131 $2,500 $2,500 $3,400
NEBC 2 $5,209 $2,369 $1,776 $2,131 $2,500 $2,500 $3,400
NEBC 3 $4,843 $1,790 $1,342 $1,610 $2,000 $2,000 $2,100
NEBC 4 $4,850 $1,805 $1,354 $1,625 $2,000 $2,000 $2,100
NEBC 5 $7,111 $5,406 $4,053 $4,864 $4,140 $4,140 $7,100
NEBC Combined $27,222 $13,739 $10,301 $12,361 $13,140 $13,140 $18,100
Dollars/SF (NRA)
NEBC 1 $0.17 $0.08 $0.06 $0.07 $0.08 $0.08 $0.11 $0.10
NEBC 2 $0.17 $0.08 $0.06 $0.07 $0.08 $0.08 $0.11 $0.10
NEBC 3 $0.21 $0.08 $0.06 $0.07 $0.09 $0.09 $0.09 $0.10
NEBC 4 $0.20 $0.08 $0.06 $0.07 $0.08 $0.08 $0.09 $0.10
NEBC 5 $0.10 $0.08 $0.06 $0.07 $0.06 $0.06 $0.10 $0.10
NEBC Combined $0.15 $0.08 $0.06 $0.07 $0.07 $0.07 $0.10 $0.10
</TABLE>
<PAGE>
Other (Non-Reimbursable)
Non-reimbursable expenses include professional and legal services, marketing and
miscellaneous expenses which the subject incurs during operation. I have
included an average non-reimbursable expense estimate of approximately $0.14 per
square foot.
<TABLE>
<CAPTION>
OTHER (NON-REIMBURSABLE)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993 1994 YTD 10/95 1995 1995 1996 YE 11/96
Actual Actual Actual Annualized Budget Budget Projected BOMA
Total Dollar
NEBC 1 $9,173 $15,927 $2,322 $2,786 $5,824 $6,214 $5,600
NEBC 2 $45 $15,356 $2,322 $2,786 $3,109 $3,109 $5,600
NEBC 3 $7,020 $10,607 $2,223 $2,668 $4,609 $4,309 $2,200
NEBC 4 $7,207 $15,444 $2,242 $2,690 $3,609 $3,609 $2,200
NEBC 5 $25,908 $144,759 $7,097 $8,516 $11,509 $8,759 $9,000
NEBC Combined $49,353 $202,093 $16,206 $19,447 $28,660 $26,000 $24,600
Dollars/SF (NRA)
NEBC 1 $0.29 $0.51 $0.07 $0.09 $0.19 $0.20 $0.18 NAP
NEBC 2 $0.00 $0.49 $0.07 $0.09 $0.10 $0.10 $0.18 NAP
NEBC 3 $0.30 $0.45 $0.09 $0.11 $0.20 $0.18 $0.09 NAP
NEBC 4 $0.30 $0.65 $0.09 $0.11 $0.15 $0.15 $0.09 NAP
NEBC 5 $0.36 $2.04 $0.10 $0.12 $0.16 $0.12 $0.13 NAP
NEBC Combined $0.27 $1.12 $0.09 $0.11 $0.16 $0.14 $0.14 NAP
</TABLE>
<PAGE>
Janitorial/Cleaning
This line item includes payroll and supplies related to cleaning the subject.
The BOMA figures indicated an average janitorial expense of $0.94 per square
foot. Historical expenses have varied considerably at the subject. {Tenants in
NEBC 3 and NEBC 4 are responsible for their own janitorial costs.} I placed more
emphasis on actual cleaning contracts with which I am familiar in establishing
my janitorial expense estimate of approximately $0.70 to $0.71 per square foot
for NEBC 1, NEBC 2, and NEBC 5. Janitorial expenses have not been included for
NEBC 3 and NEBC 4 which is consistent with the assumption that these tenants
will continue to provide their own cleaning services.
<TABLE>
<CAPTION>
JANITORIAL/CLEANING
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993 1994 YTD 10/95 1995 1995 1996 YE 11/96
Actual Actual Actual Annualized Budget Budget Projected BOMA
Total Dollar
NEBC 1 $18,940 $15,452 $15,644 $18,773 $22,360 $21,636 $22,000
NEBC 2 $35,461 $24,227 $31,111 $37,333 $32,284 $34,390 $22,000
NEBC 3 $593 $0 $60 $72 $0 $0 $0
NEBC 4 $482 $0 $316 $379 $0 $0 $0
NEBC 5 $16,217 $12,254 $48,492 $58,190 $54,070 $56,410 $49,700
NEBC Combined $71,693 $51,933 $95,623 $114,748 $108,714 $112,436 $93,700
Dollars/SF (NRA)
NEBC 1 $0.61 $0.50 $0.50 $0.60 $0.72 $0.70 $0.71 $0.94
NEBC 2 $1.14 $0.78 $1.00 $1.20 $1.04 $1.11 $0.71 $0.94
NEBC 3 $0.03 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.94
NEBC 4 $0.02 $0.00 $0.01 $0.02 $0.00 $0.00 $0.00 $0.94
NEBC 5 $0.23 $0.17 $0.68 $0.82 $0.76 $0.79 $0.70 $0.94
NEBC Combined $0.40 $0.29 $0.53 $0.64 $0.60 $0.62 $0.52 $0.94
</TABLE>
<PAGE>
Roads/Grounds/Security
Roads, grounds, and security expenses include payroll and contract costs
associated with the maintaining and repairing of landscaping and parking lot
items, contacts costs for security services, and related costs of supplies and
materials. The BOMA figures indicated an average expense of $0.46 per square
foot. Historical results have been lower than this, although the budgeted
amounts are higher. Based upon the available information, I have included an
average expense for roads, grounds, and security of $0.41 per square foot.
<TABLE>
<CAPTION>
ROADS/GROUNDS/SECURITY
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993 1994 YTD 10/95 1995 1995 1996 YE 11/96
Actual Actual Actual Annualized Budget Budget Projected BOMA
Total Dollar
NEBC 1 $12,130 $18,863 $9,380 $11,256 $14,392 $14,392 $13,000
NEBC 2 $13,364 $22,888 $12,706 $15,247 $16,922 $16,922 $13,000
NEBC 3 $9,717 $9,370 $6,768 $8,122 $15,222 $15,222 $9,900
NEBC 4 $9,900 $9,130 $6,238 $7,486 $14,622 $14,622 $9,900
NEBC 5 $13,166 $20,985 $19,756 $23,707 $25,563 $25,563 $28,000
NEBC Combined $58,277 $81,237 $54,848 $65,818 $86,721 $86,721 $73,800
Dollars/SF (NRA)
NEBC 1 $0.39 $0.61 $0.30 $0.36 $0.46 $0.46 $0.42 $0.46
NEBC 2 $0.43 $0.74 $0.41 $0.49 $0.54 $0.54 $0.42 $0.46
NEBC 3 $0.41 $0.40 $0.29 $0.35 $0.65 $0.65 $0.42 $0.46
NEBC 4 $0.42 $0.38 $0.26 $0.32 $0.62 $0.62 $0.42 $0.46
NEBC 5 $0.19 $0.30 $0.28 $0.33 $0.36 $0.36 $0.39 $0.46
NEBC Combined $0.32 $0.45 $0.30 $0.36 $0.48 $0.48 $0.41 $0.46
</TABLE>
<PAGE>
Management Fee
Management fee is on a contract basis, with the typical fee for comparative
properties in the range of 3% to 5% of effective gross income. Larger properties
tend to have management fees at the lower end of the range while smaller
projects are typically at the higher end. The BOMA figures indicated an average
management fee of approximately 3.3%. The subject's management fee is currently
based upon 2.5% of effective gross income and increases to 3% when the
property's occupancy exceeds 90%. The property manager declined to provide
further details regarding other possible incentive or "kicker" provisions. In my
analysis I have used an estimate of 4% of effective gross income or
approximately $0.41 per square foot.
<TABLE>
<CAPTION>
MANAGEMENT FEE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993 1994 YTD 10/95 1995 1995 1996 YE 11/96
Actual Actual Actual Annualized Budget Budget Projected BOMA
Total Dollar
NEBC 1 $9,016 $7,314 $6,277 $7,532 $10,971 $7,500 $11,683
NEBC 2 $15,736 $10,728 $7,501 $9,001 $10,965 $10,965 $14,890
NEBC 3 $7,815 $5,286 $3,654 $4,385 $5,172 $4,800 $8,134
NEBC 4 $7,745 $4,327 $4,513 $5,416 $5,460 $6,000 $7,007
NEBC 5 $14,256 $4,624 $12,383 $14,860 $23,000 $23,000 $31,748
NEBC Combined $54,568 $32,279 $34,328 $41,194 $55,568 $52,265 $73,462
Dollars/SF (NRA)
NEBC 1 $0.29 $0.24 $0.20 $0.24 $0.35 $0.24 $0.38 $0.49
NEBC 2 $0.51 $0.34 $0.24 $0.29 $0.35 $0.35 $0.48 $0.49
NEBC 3 $0.33 $0.22 $0.16 $0.19 $0.22 $0.20 $0.34 $0.49
NEBC 4 $0.33 $0.18 $0.19 $0.23 $0.23 $0.25 $0.30 $0.49
NEBC 5 $0.20 $0.07 $0.17 $0.21 $0.32 $0.32 $0.45 $0.49
NEBC Combined $0.30 $0.18 $0.19 $0.23 $0.31 $0.29 $0.41 $0.49
</TABLE>
<PAGE>
Total Operating Expenses
This expense category equals the summation of administration, repairs and
maintenance, utilities, real estate taxes, insurance, non-reimbursable,
janitorial/cleaning, roads/grounds/security, and management fee line items. BOMA
reports average total operating expenses of $6.25. My expense projections
produce an average total operating expense figure that is somewhat lower than
the BOMA average, although several factors must be considered. First, the BOMA
averages are just that - averages; therefore, actual results for any property
are likely to be higher or lower. Second, tenant-paid expenses at the subject
are responsible for a large portion of the discrepancies. Third, the subject's
actual and projected real estate taxes -- often the single-largest expense
incurred by an office property -- are substantially below many suburban office
properties in Central Ohio. Finally, the expenses for lower grade buildings such
as NEBC 3 and NEBC 4 - are typically much less than expense levels incurred by
Class A office buildings.
<TABLE>
<CAPTION>
TOTAL OPERATING EXPENSES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993 1994 YTD 10/95 1995 1995 1996 YE 11/96
Actual Actual Actual Annualized Budget Budget Projected BOMA
Total Dollar
NEBC 1 $179,462 $157,593 $132,338 $158,806 $157,295 $159,399 $160,283
NEBC 2 $159,547 $134,834 $113,411 $136,093 $126,242 $129,754 $121,971
NEBC 3 $64,916 $51,005 $42,886 $51,463 $51,442 $50,770 $62,334
NEBC 4 $81,441 $44,316 $43,989 $52,787 $49,519 $51,041 $61,207
NEBC 5 $336,319 $349,710 $313,410 $376,092 $370,577 $379,209 $398,948
NEBC Combined $821,685 $737,639 $646,034 $775,240 $755,075 $770,173 $804,743
Dollars/SF (NRA)
NEBC 1 $5.77 $5.07 $4.25 $5.11 $5.06 $5.12 $5.15 $6.25
NEBC 2 $5.13 $4.33 $3.65 $4.38 $4.06 $4.17 $3.92 $6.25
NEBC 3 $2.76 $2.17 $1.82 $2.19 $2.19 $2.16 $2.64 $6.25
NEBC 4 $3.43 $1.87 $1.85 $2.23 $2.09 $2.15 $2.58 $6.25
NEBC 5 $4.74 $4.93 $4.41 $5.30 $5.22 $5.34 $5.62 $6.25
NEBC Combined $4.55 $4.09 $3.58 $4.30 $4.18 $4.27 $4.46 $6.25
</TABLE>
<PAGE>
Net Operating Income
Net operating income (NOI) represents the net income remaining after deducting
all operating expenses from effective gross income, but before deducting capital
expenses, debt service, and income taxes.
Capital Expense Analysis
Tenant Improvements (Alterations)
For NEBC 1 and NEBC 5, I have utilized allowances of $8.00 per square foot for
new tenants, and $3.00 per square foot for renewals. In my analysis I have
anticipated that 60% of new leases will renew, and 40% will rollover. Based upon
this assumption, tenant improvement allowance equates to a weighted average of
$5.00 per square foot ($1.25 per square foot per lease year).
For NEBC 3 and NEBC 4, I have utilized allowances of $6.00 per square foot for
new tenants, and $2.00 per square foot for renewals. In my analysis I have
anticipated that 60% of new leases will renew, and 40% will rollover. Based upon
this assumption, tenant improvement allowance equates to a weighted average of
$3.60 per square foot ($0.90 per square foot per lease year).
For NEBC 2, I have utilized allowances of $9.00 per square foot for new tenants,
and $3.00 per square foot for renewals. In my analysis I have anticipated that
50% of new leases will renew, and 50% will rollover. Based upon this assumption,
tenant improvement allowance equates to a weighted average of $6.00 per square
foot ($1.50 per square foot per lease year).
Leasing Commissions
Leasing commissions vary, typically in the range of 4% to 6% for new leases and
approximately 2% to 3% for renewal leases. The property manager and leasing
agents indicated that the typical leasing commissions are 5% to 7% for new
leases and expansions, and 1% to 2% for renewals. In my analysis I have included
a leasing commission of 5% for new leases and 2% for renewal leases. The
speculative lease renewals include a weighted-average leasing commission rate of
3.2% (3.5% for NEBC 2).
<PAGE>
Replacement Reserve
The prudent investor realizes that over a long period of time, short-lived
building components and mechanical equipment will have to be replaced prior to
the end of the useful economic life of the structure. This normally includes
roof coverings, HVAC equipment, as well as site improvements. A reserve for
replacement is used to stabilize the income stream and avoid future large
lump-sum expenditures. For purposes of this appraisal, a replacement reserve
equal to $0.15 per square foot of gross building area is considered a reasonable
annual replacement reserve for the subject.
Net Annual Cash Flow
Net Annual Cash Flow is the resultant cash flow (before debt service and income
tax) from net operating income after tenant improvements, leasing commissions,
and replacement reserves are deducted.
Base Inflation Rate
A recent survey of institutional investors by Peter F. Korpacz & Associates,
Inc., indicated their expectations for inflation factors for suburban office
properties ranged between zero and 10.0% for income and between 3.0% and 5.0%
for expenses. The respective averages were 2.43% and 3.94%. CB Commercial
reported similar ranges, although their survey indicated average market-rent
growth rates for Class A and Class B properties that were actually higher than
corresponding expense growth rates.
It is reasonable to estimate that the market rent for the office space in the
subject will approximate or slightly lag behind inflationary increases
throughout the estimated holding period of the subject. Based on the foregoing
analysis, I have estimated that the market rent in the subject will increase by
3.5% throughout the analysis period; I used an expense growth rate of 4.0%
throughout the analysis period. {In Pro-Ject+, the growth rates have been
entered as 0.0% for 1995 so as to avoid an increase in rents and expenses after
only one month of the analysis period.}
Summary of Assumptions and Estimates
Table V - 1 is a summary of the key assumptions and estimates made in the Income
Capitalization Approach. Exhibits V - 1 through V - 6 present my prospective
financial analysis which summarizes net annual cash flow (including net
operating income) based upon the revenue and expense analyses.
<PAGE>
<TABLE>
<CAPTION>
Table V - 1
Summary of Assumptions and Estimates Used in the
Discounted Cash Flow Analysis
Northeast Business Campus
<S> <C> <C> <C> <C> <C> <C>
Area Measures: (Square Feet) NEBC 1 NEBC 2 NEBC 3 NEBC 4 NEBC 5 Total
Gross Building Area (GBA) 31,561 32,812 24,138 23,991 71,000 183,502
Net Rentable Area (NRA) 31,105 31,105 23,545 23,717 71,000 180,472
</TABLE>
Estimated Holding Period:
Length - 10 years
Beginning Date - December 1, 1995
Ending Date - November 30, 2005, terminating with a hypothetical sale on
November 30, 2005
Reversion Proceeds - based on capitalizing fiscal-year-ending 2006 NOI at
terminal capitalization rate and subtracting cost of sale.
<TABLE>
<S> <C> <C> <C> <C> <C>
Investment Rate Parameters: NEBC 1 NEBC 2 NEBC 3 NEBC 4 NEBC 5
Discount Rate 13.5% 13.0% 13.5% 13.5% 12.5%
Terminal Capitalization Rate 11.0% 11.0% 11.0% 11.0% 11.0%
Cost of Sale 3.0% 3.0% 3.0% 3.0% 3.0%
</TABLE>
Growth Rate Estimates:
Market Rent - 3.5% beginning in 1996
Operating Expenses - 4.0% beginning in 1996
<TABLE>
<CAPTION>
Market Rent Estimates
Stated in 1995 dollars, absolute net, with tenants paying pro-rata share of operating expenses.
<S> <C> <C> <C> <C> <C>
NEBC 1 NEBC 2 NEBC 3 NEBC 4 NEBC 5
Rate per square foot, $7.50 $7.50 $6.50 $6.50 $7.50
Renewal rate 60% 50% 60% 60% 60%
Tenant Improvements
$ per square foot $8.00 $9.00 $6.00 $6.00 $8.00
new 3.00 3.00 2.00 2.00 3.00
tenants 5.00 6.00 3.60 3.60 5.00
renewals
weighted average
Leasing Commissions
new 5.0% 5.0% 5.0% 5.0% 5.0%
tenants 2.0% 2.0% 2.0% 2.0% 2.0%
3.2% 3.5% 3.2% 3.2% 3.2%
renewals
weighted average
Vacancy and Credit Loss:
Vacancy between terms 3 months 4 months 3 months 3 months 3 months
Credit Loss Allowance - 2%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NORTHEAST BUSINESS CAMPUS - BLDG. 1 PRO FORMA ANALYSIS (FISCAL BASIS) Exhbit V-1
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fiscal Year Ending
11/30/ 1996 1997 1998 1999 2000 2001 2002 2003 2004
MINIMUM RENT 215,228 226,158 250,814 234,371 216,923 228,012 271,708 268,466 258,467
OP EXPENSES - REIM 70,012 121,805 157,858 173,321 162,043 165,406 198,585 202,389 199,211
OP EXPENSES - JAN 12,808 0 0 0 0 0 0 0 0
CREDIT LOSS (5,961) (6,959) (8,173) (8,154) (7,579) (7,868) (9,406) (9,417) (9,154)
TOTAL RENT 292,087 341,004 400,499 399,538 371,387 385,550 460,887 461,438 448,524
ADMINISTRATIVE 6,200 6,427 6,684 6,952 7,230 7,519 7,820 8,133 8,458
REPAIRS & MAINT. 25,000 25,917 26,953 28,031 29,153 30,319 31,532 32,793 34,105
UTILITIES 42,400 43,955 45,713 47,541 49,443 51,421 53,478 55,617 57,841
REAL ESTATE TAXES 31,000 32,137 33,422 34,759 36,149 37,595 39,099 40,663 42,290
INSURANCE 3,400 3,525 3,666 3,812 3,965 4,123 4,288 4,460 4,638
OTHER (NON-REIMB.) 5,600 5,805 6,038 6,279 6,530 6,791 7,063 7,346 7,639
JANITORIAL 22,000 22,807 23,719 24,668 25,654 26,681 27,748 28,858 30,012
ROADS/GROUNDS/SEC. 13,000 13,477 14,016 14,576 15,159 15,766 16,396 17,052 17,734
MANAGEMENT FEE 11,683 13,640 16,020 15,981 14,855 15,422 18,435 18,458 17,941
TOTAL EXPENSES 160,283 167,690 176,231 182,599 188,138 195,637 205,859 213,380 220,658
NET OPERATING INCOME 131,804 173,314 224,268 216,939 183,249 189,913 255,028 248,058 227,866
COMMISSIONS 17,342 15,678 0 2,354 9,905 22,520 0 2,702 4,518
CAPITAL IMPROVEMENTS 4,734 4,734 4,924 5,120 5,325 5,538 5,760 5,990 6,230
ALTERATIONS 92,381 82,146 0 12,441 52,591 120,024 0 14,554 24,456
TOTAL CAPITAL ITEMS 114,457 102,558 4,924 19,915 67,821 148,082 5,760 23,246 35,204
CASH FLOW 17,347 70,756 219,344 197,024 115,428 41,831 249,268 224,812 192,662
<C> <C>
2005 2006
259,980 302,146
194,058 221,006
0 0
(9,081) (10,463)
444,957 512,689
8,796 9,148
35,469 36,887
60,155 62,561
43,981 45,740
4,824 5,017
7,945 8,263
31,212 32,461
18,444 19,181
17,798 20,507
228,624 239,765
216,333 272,924
17,564
6,479
95,406
119,449
96,884
</TABLE>
<TABLE>
<CAPTION>
NORTHEAST BUSINESS CAMPUS - BLDG. 2 PRO FORMA ANALYSIS (FISCAL BASIS) Exhibit V-2
Fiscal Year Ending
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11/30/ 1996 1997 1998 1999 2000 2001 2002 2003 2004
MINIMUM RENT $372,638 $372,638 $391,301 $219,761 $258,650 $258,650 $258,650 $172,433 $296,807
OP EXPENSES - REIM 7,200 7,200 7,733 2,667 0 0 0 0 0
OP EXPENSES - JAN 0 0 0 52,936 180,951 189,286 196,436 132,156 212,523
CREDIT LOSS (7,597) (7,597) (7,981) (5,507) (8,792) (8,959) (9,102) (6,092) (10,187)
TOTAL RENT 372,241 372,241 391,053 269,857 430,809 438,977 445,984 298,497 499,143
ADMINISTRATIVE 4,500 4,665 4,852 5,046 5,247 5,457 5,676 5,903 6,139
REPAIRS & MAINT. 25,000 25,917 26,953 28,031 29,153 30,319 31,532 32,793 34,105
UTILITIES 2,581 2,671 2,764 33,906 48,853 51,786 53,857 56,012 58,252
REAL ESTATE TAXES 31,000 32,137 33,422 34,759 36,149 37,595 39,099 40,663 42,290
INSURANCE 3,400 3,525 3,666 3,812 3,965 4,123 4,288 4,460 4,638
OTHER (NON-REIMB.) 5,600 5,805 6,038 6,279 6,530 6,791 7,063 7,346 7,639
JANITORIAL 22,000 22,807 23,719 24,668 25,654 26,681 27,748 28,858 30,012
ROADS/GROUNDS/SEC. 13,000 13,477 14,016 14,576 15,159 15,766 16,396 17,052 17,734
MANAGEMENT FEE 14,890 14,890 15,642 10,794 17,232 17,559 17,839 11,940 19,966
TOTAL EXPENSES 121,971 125,894 131,072 161,871 187,942 196,077 203,498 205,027 220,775
NET OPERATING INCOME 250,270 246,347 259,981 107,986 242,867 242,900 242,486 93,470 278,368
COMMISSIONS 0 0 8,013 36,211 0 0 0 0 41,553
CAPITAL IMPRVMNTS 4,734 4,734 4,924 5,120 5,325 5,538 5,760 5,990 6,230
ALTERATIONS 0 0 25,233 209,933 0 0 0 0 245,592
TOTAL CAPITAL ITEMS 4,734 4,734 38,170 251,264 5,325 5,538 5,760 5,990 293,375
CASH FLOW $245,536 $241,613 $221,812 ($143,278) $237,542 $237,362 $236,726 $87,480 ($15,007)
<C> <C>
2005 2006
$296,807 $296,807
0 0
221,202 229,566
(10,360) (10,527)
507,649 515,846
6,384 6,640
35,469 36,887
60,582 63,005
43,981 45,740
4,824 5,017
7,945 8,263
31,212 32,461
18,444 19,181
20,306 20,634
229,147 237,828
278,502 $278,018
0
6,479
0
6,479
$272,023
</TABLE>
<TABLE>
<CAPTION>
NORTHEAST BUSINESS CAMPUS - BLDG. 3 PRO FORMA ANALYSIS (FISCAL BASIS) Exhibit V-3
Fiscal Year Ending
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11/30/ 1996 1997 1998 1999 2000 2001 2002 2003 2004
MINIMUM RENT $148,823 $141,966 $145,924 $150,004 $164,226 $151,885 $164,697 $164,162 $189,241
OP EXPENSES - REIM 58,668 55,940 58,299 61,517 69,760 65,653 70,730 68,697 81,450
OP EXPENSES - JAN 0 0 0 0 0 0 0 0 0
CREDIT LOSS (4,150) (3,958) (4,084) (4,230) (4,680) (4,351) (4,709) (4,657) (5,414)
TOTAL RENT 203,341 193,948 200,139 207,291 229,306 213,187 230,718 228,202 265,277
ADMINISTRATIVE 4,100 4,250 4,420 4,597 4,781 4,972 5,171 5,378 5,593
REPAIRS & MAINT. 17,000 17,623 18,328 19,061 19,824 20,617 21,441 22,299 23,191
UTILITIES 1,400 1,451 1,509 1,570 1,633 1,698 1,766 1,836 1,910
REAL ESTATE TAXES 17,500 18,142 18,867 19,622 20,407 21,223 22,072 22,955 23,873
INSURANCE 2,100 2,177 2,264 2,355 2,449 2,547 2,649 2,755 2,865
OTHER (NON-REIMB.) 2,200 2,281 2,372 2,467 2,565 2,668 2,775 2,886 3,001
JANITORIAL 0 0 0 0 0 0 0 0 0
ROADS/GROUNDS/SEC. 9,900 10,263 10,674 11,100 11,544 12,006 12,487 12,986 13,505
MANAGEMENT FEE 8,134 7,758 8,005 8,292 9,172 8,528 9,229 9,128 10,611
TOTAL EXPENSES 62,334 63,945 66,439 69,064 72,375 74,259 77,590 80,223 84,549
NET OPERATING INCOME 141,007 130,003 133,700 138,227 156,931 138,928 153,128 147,979 180,728
COMMISSIONS 2,250 6,798 6,114 8,109 0 5,606 6,330 12,288 0
CAPITAL IMPRVMNTS 3,548 3,548 3,689 3,837 3,990 4,150 4,316 4,489 4,668
ALTERATIONS 15,700 29,559 26,711 35,595 0 24,847 28,144 54,992 0
TOTAL CAPITAL ITEMS 21,498 39,905 36,514 47,541 3,990 34,603 38,790 71,769 4,668
CASH FLOW $119,509 $90,098 $97,186 $90,686 $152,941 $104,325 $114,338 $76,210 $176,060
<C> <C>
2005 2006
$181,942 $184,745
80,455 80,370
0 0
(5,248) (5,302)
257,149 259,813
5,817 6,050
24,119 25,083
1,986 2,066
24,828 25,821
2,979 3,099
3,121 3,246
0 0
14,046 14,607
10,286 10,393
87,182 90,365
169,967 $169,448
0
4,855
0
4,855
$165,112
</TABLE>
<TABLE>
<CAPTION>
NORTHEAST BUSINESS CAMPUS - BLDG. 4 PRO FORMA ANALYSIS (FISCAL BASIS) Exhibit V-4
Fiscal Year Ending
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11/30/ 1996 1997 1998 1999 2000 2001 2002 2003 2004
MINIMUM RENT $139,233 $148,833 $150,284 $156,685 $147,829 $151,134 $175,634 $184,068 $184,068
OP EXPENSES - REIM 39,515 59,657 61,939 67,047 64,602 60,924 72,392 78,464 81,342
OP EXPENSES - JAN 0 0 0 0 0 0 0 0 0
CREDIT LOSS (3,575) (4,170) (4,244) (4,475) (4,249) (4,241) (4,961) (5,251) (5,308)
TOTAL RENT 175,173 204,320 207,979 219,257 208,182 207,817 243,065 257,281 260,102
ADMINISTRATIVE 4,100 4,250 4,420 4,597 4,781 4,972 5,171 5,378 5,593
REPAIRS & MAINT. 17,000 17,623 18,328 19,061 19,824 20,617 21,441 22,299 23,191
UTILITIES 1,400 1,451 1,509 1,570 1,633 1,698 1,766 1,836 1,910
REAL ESTATE TAXES 17,500 18,142 18,867 19,622 20,407 21,223 22,072 22,955 23,873
INSURANCE 2,100 2,177 2,264 2,355 2,449 2,547 2,649 2,755 2,865
OTHER (NON-REIMB.) 2,200 2,281 2,372 2,467 2,565 2,668 2,775 2,886 3,001
JANITORIAL 0 0 0 0 0 0 0 0 0
ROADS/GROUNDS/SEC. 9,900 10,263 10,674 11,100 11,544 12,006 12,487 12,986 13,505
MANAGEMENT FEE 7,007 8,173 8,319 8,770 8,327 8,313 9,723 10,291 10,404
TOTAL EXPENSES 61,207 64,360 66,753 69,542 71,530 74,044 78,084 81,386 84,342
NET OPERATING INCOME 113,966 139,960 141,226 149,715 136,652 133,773 164,981 175,895 175,760
COMMISSIONS 13,604 3,240 3,212 0 0 19,874 3,686 0 0
CAPITAL IMPRVMNTS 3,558 3,558 3,700 3,848 4,002 4,162 4,328 4,501 4,681
ALTERATIONS 58,864 14,085 14,033 0 0 88,094 16,417 0 0
TOTAL CAPITAL ITEMS 76,026 20,883 20,945 3,848 4,002 112,130 24,431 4,501 4,681
CASH FLOW $37,940 $119,077 $120,281 $145,867 $132,650 $21,643 $140,550 $171,394 $171,079
<C> <C>
2005 2006
$157,184 $200,483
65,149 84,374
0 0
(4,447) (5,697)
217,886 279,160
5,817 6,050
24,119 25,083
1,986 2,066
24,828 25,821
2,979 3,099
3,121 3,246
0 0
14,046 14,607
8,715 11,166
85,611 91,138
132,275 $188,022
22,807
4,869
103,057
130,733
$1,542
</TABLE>
<TABLE>
<CAPTION>
NORTHEAST BUSINESS CAMPUS - BLDG. 5 PRO FORMA ANALYSIS (FISCAL BASIS) Exhibit V-5
Fiscal Year Ending
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11/30/ 1996 1997 1998 1999 2000 2001 2002 2003 2004
MINIMUM RENT $447,948 $481,526 $489,510 $453,082 $539,631 $594,401 $600,153 $544,280 $586,003
OP EXPENSES - REIM 361,938 405,968 421,916 372,793 409,746 471,228 494,667 459,534 468,375
OP EXPENSES - JAN 0 0 0 0 0 0 0 0 0
CREDIT LOSS (16,198) (17,750) (18,228) (16,517) (18,988) (21,313) (21,896) (20,076) (21,088)
TOTAL RENT 793,688 869,744 893,198 809,358 930,389 1,044,316 1,072,924 983,738 1,033,290
ADMINISTRATIVE 7,700 7,982 8,302 8,634 8,979 9,338 9,712 10,100 10,504
REPAIRS & MAINT. 61,000 63,237 65,766 68,397 71,133 73,978 76,937 80,015 83,215
UTILITIES 129,700 134,456 139,834 145,427 151,244 157,294 163,586 170,129 176,934
REAL ESTATE TAXES 75,000 77,750 80,860 84,094 87,458 90,956 94,595 98,379 102,314
INSURANCE 7,100 7,360 7,655 7,961 8,279 8,611 8,955 9,313 9,686
OTHER (NON-REIMB.) 9,000 9,330 9,703 10,091 10,495 10,915 11,351 11,805 12,278
JANITORIAL 49,700 51,522 53,583 55,727 57,956 60,274 62,685 65,192 67,800
ROADS/GROUNDS/SEC. 28,000 29,027 30,188 31,395 32,651 33,957 35,315 36,728 38,197
MANAGEMENT FEE 31,748 34,790 35,728 32,374 37,216 41,773 42,917 39,350 41,332
TOTAL EXPENSES 398,948 415,454 431,619 444,100 465,411 487,096 506,053 521,011 542,260
NET OPERATING INCOME 394,740 454,290 461,579 365,258 464,978 557,220 566,871 462,727 491,030
COMMISSIONS 22,065 0 0 42,910 30,767 3,143 0 0 50,964
CAPITAL IMPRVMNTS 10,650 10,650 11,076 11,519 11,980 12,459 12,957 13,476 14,015
ALTERATIONS 126,824 0 0 226,744 163,358 16,772 0 0 275,869
TOTAL CAPITAL ITEMS 159,539 10,650 11,076 281,173 206,105 32,374 12,957 13,476 340,848
CASH FLOW $235,201 $443,640 $450,503 $84,085 $258,873 $524,846 $553,914 $449,251 $150,182
<C> <C>
2005 2006
$682,165 $709,962
537,294 579,007
0 0
(24,389) (25,779)
1,195,070 1,263,190
10,924 11,361
86,544 90,005
184,012 191,372
106,406 110,662
10,073 10,476
12,769 13,279
70,512 73,332
39,725 41,314
47,803 50,528
568,768 592,329
626,302 $670,861
39,911
14,575
216,909
271,395
$354,907
</TABLE>
<TABLE>
<CAPTION>
NORTHEAST BUSINESS CAMPUS - COMBINED PRO FORMA ANALYSIS (FISCAL BASIS) Exhibit V-6
Fiscal Year Ending
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11/30/ 1996 1997 1998 1999 2000 2001 2002 2003 2004
MINIMUM RENT $1,323,870 $1,371,121 $1,427,833 $1,213,903 $1,327,259 $1,384,082 $1,470,842 $1,333,409 $1,514,586
OP EXPENSES - REIM 537,333 650,570 707,745 677,345 706,151 763,211 836,374 809,084 830,378
OP EXPENSES - JAN 12,808 0 0 52,936 180,951 189,286 196,436 132,156 212,523
CREDIT LOSS (37,481) (40,434) (42,710) (38,883) (44,288) (46,732) (50,074) (45,493) (51,151)
TOTAL RENT 1,836,530 1,981,257 2,092,868 1,905,301 2,170,073 2,289,847 2,453,578 2,229,156 2,506,336
ADMINISTRATIVE 26,600 27,574 28,678 29,826 31,018 32,258 33,550 34,892 36,287
REPAIRS & MAINT. 145,000 150,317 156,328 162,581 169,087 175,850 182,883 190,199 197,807
UTILITIES 177,481 183,984 191,329 230,014 252,806 263,897 274,453 285,430 296,847
REAL ESTATE TAXES 172,000 178,308 185,438 192,856 200,570 208,592 216,937 225,615 234,640
INSURANCE 18,100 18,764 19,515 20,295 21,107 21,951 22,829 23,743 24,692
OTHER (NON-REIMB.) 24,600 25,502 26,523 27,583 28,685 29,833 31,027 32,269 33,558
JANITORIAL 93,700 97,136 101,021 105,063 109,264 113,636 118,181 122,908 127,824
ROADS/GROUNDS/SEC. 73,800 76,507 79,568 82,747 86,057 89,501 93,081 96,804 100,675
MANAGEMENT FEE 73,462 79,251 83,714 76,211 86,802 91,595 98,143 89,167 100,254
TOTAL EXPENSES 804,743 837,343 872,114 927,176 985,396 1,027,113 1,071,084 1,101,027 1,152,584
NET OPERATING INCOME 1,031,787 1,143,914 1,220,754 978,125 1,184,677 1,262,734 1,382,494 1,128,129 1,353,752
COMMISSIONS 55,261 25,716 17,339 89,584 40,672 51,143 10,016 14,990 97,035
CAPITAL IMPROVEMENTS 27,224 27,224 28,313 29,444 30,622 31,847 33,121 34,446 35,824
ALTERATIONS 293,769 125,790 65,977 484,713 215,949 249,737 44,561 69,546 545,917
TOTAL CAPITAL ITEMS 376,254 178,730 111,629 603,741 287,243 332,727 87,698 118,982 678,776
CASH FLOW $655,533 $965,184 $1,109,126 $374,384 $897,434 $930,007 $1,294,796 $1,009,147 $674,976
<C> <C>
2005 2006
$1,578,078 $1,694,143
876,956 964,757
221,202 229,566
(53,525) (57,768)
2,622,711 2,830,698
37,738 39,249
205,720 213,945
308,721 321,070
244,024 253,784
25,679 26,708
34,901 36,297
132,936 138,254
104,705 108,890
104,908 113,228
1,199,332 1,251,425
1,423,379 $1,579,273
80,282
37,257
415,372
532,911
$890,468
</TABLE>
<PAGE>
Discounted Cash Flow
The discounted cash flow analysis originates with the development of cash flow
over an estimated term of ownership, which is consistent with typical holding
periods observed in the market. The prospective financial analysis of the
subject property was previously presented. The annual cash flows, including the
estimated net proceeds from a hypothetical future sale, are then discounted at
the market-indicated required rate of return in order to formulate an indication
of value. The general methodology, analysis of the market, and key rates are
discussed below.
Reversion Methodology
To estimate the reversionary value of the subject at the termination of the
investment period, I have utilized the direct capitalization technique. A
market-derived terminal capitalization rate was used to convert the estimate of
reversion-year net operating income into value at the conclusion of the holding
period. Net operating income for the year ending November 30, 2006, was used for
calculation of the reversion value.
Analysis of Rate Data
Since the use of this method of analysis attempts to replicate the overall
performance of the investment from its inception to its termination, the rate
utilized as a discount factor must reflect the total yield to the equity
position.
By definition, this yield rate is also known as the Internal Rate of Return
(IRR):
The IRR is the rate of return on invested capital that is generated, or
is capable of being generated, within an investment during the period
of ownership. In other words, it is a rate of profit (or loss) or a
measure of performance. It is, literally, an interest rate. The
effective interest rate on a real estate investment is the equity
investor's IRR. The yield to maturity on a bond is the bond holder's
IRR, when the bond is held for its full term. The IRR is the rate of
return on capital expressed as a ratio per unit of time; for example,
10% per annum.1
The discount rate utilized herein is essentially an anticipated IRR for the
subject, as estimated from investment performance realized by market
participants. Although the investment vehicle being analyzed herein is real
property, competition for investment dollars in other investment media is keen,
and the prudent investment manager must carefully consider all alternatives. The
tables on the following pages present current yields on alternative investment
forms which are in competition for available funds.
1 The Internal Rate of Return in Real Estate Investments, Charles B.
Akerson, A.S.R.E.C., Chicago, Illinois, 1978.
<PAGE>
Table V - 2
Yields On Selected Securities
Long-Term Five-year Treasury Corporate Corporate
Treasury Securities Aaa Baa
Securities Bonds Bonds
Dec-85 9.69% 8.74% 10.18% 11.59%
Dec-86 7.63 6.69 8.47 9.98
Dec-87 9.05 8.38 10.06 11.24
Dec-88 9.11 9.18 9.60 10.67
Dec-89 8.09 7.88 8.88 9.85
Dec-90 8.24 7.73 9.05 10.43
Dec-91 7.70 6.19 8.31 9.26
Dec-92 7.44 6.08 7.98 8.81
Dec-93 6.25 5.15 6.93 7.69
Dec-94 7.87 7.78 8.46 9.11
Aug-95 6.86 6.24 7.57 8.19
SOURCE: "U.S. Financial Data"; Federal Reserve Statistical Release;
"Appraiser News", November 1995, Appraisal Institute
<PAGE>
Table V - 3
Real Estate Investor Survey
National Suburban Office Market
Third Quarter 1995
Current Quarter Last Quarter Year Ago
Free and Clear Equity IRR
Range 10.00-15.00% 10.00-15.00% 10.00-15.00%
Average 12.09% 12.04% 12.24%
Change (Basis Points) - +5 -15
Free & Clear Equity Cap Rate
Range 8.00-12.00% 8.00-12.00% 8.50-12.00%
Average 9.60% 9.60% 9.73%
Change (Basis Points) - 0 -13
Residual Cap Rate
Range 8.50-12.00% 8.50-12.00% 8.00-12.00%
Average 9.78% 9.78% 9.78%
Change (Basis Points) - 0 0
Source: Korpacz Real Estate Investor Survey, Third Quarter 1995
Table V - 4
CB Commercial National Investor Survey
Current Investment Criteria -- Suburban Office
Third Quarter 1995
Class A Class B Class C
Going-In Cap. Rate 8% to 12% 9% to 13% 10.5% to 13%
Terminal Cap. Rate 8% to 12% 9.5% to 13% 11% to 13%
Discount Rate 11% to 15% 12% to 16% 12.5% to 14%
Market Rent Growth Rate 0% to 10% 0.25% to 7% 0% to 5%
Expense Growth Rate 3% to 5% 3% to 5% 3% to 4%
Typical Marketing Period 2 to 18 months 3 to 12 months 3 to 18 months
Source: CB Commercial National Investor Survey, Third Quarter 1995
Tables V - 3 and V - 4 present the most direct reflection of real estate as an
investment media in estimating a discount rate applicable to the subject. The
prudent investment manager must compare rates of return because of the element
of risk involved in real estate investments versus alternative investment
vehicles.
<PAGE>
Bonds have fixed rates and face values which do not change. However, they are
generally for longer terms and have various degrees of security. Yields are
controlled by discounting the face value in exchange transactions. If a bond is
held to maturity, its yield or IRR is the face rate if purchased at par value.
Table V - 2 reflects current yields ranging from 6.24% to 8.19%. Generally, as
the degree of security decreases, the required yield rate will increase. The
current rate for Baa Bonds at 8.19% would tend to be the most relevant indicator
because of inherent risk factors in real estate and the additional management
burden which is not present in a bond investment.
Table V - 3 provides the most recent information from a survey of investors
active in the national suburban office market. This survey indicates a free and
clear equity (overall) capitalization rate of 8% to 12% with an average of 9.6%.
The residual (terminal) capitalization rates ranged from 8.5% to 12% with an
average of 9.78%. The overall range indicated for the discount rate or free and
clear IRR was 10% to 15% with an average of 12.09%.
Table V - 4 also provides information from a survey of investors active in the
purchase of real estate properties. This survey indicates a terminal
capitalization rate range for suburban office buildings of 8% to 13% depending
upon class. The range for the IRR (discount rate) was 11% to 16%.
Basis of Discount Rate
The discount rate to be applied to the cash flows of the subject property must
reflect the quality and durability of the income estimates, as well as the
likelihood of real long-term gain in asset value. As discussed, the yield to the
investor or IRR must be at a level commensurate with alternative investment
vehicles. The most comparable rates, as previously discussed, include:
Table V - 5
Discount Rate Survey Summary
Minimum Maximum
Mortgage Yield Rates 6.24% 6.86%
Bond and Security Yields 7.57% 8.19%
Korpacz Investment Survey - Suburban Office 10.00% 15.00%
CB Commercial Survey - Suburban Office 11.00% 16.00%
The unique investment characteristics of real estate, as compared to the
investment types listed above, must be considered in arriving at the discount
rate to be utilized. Real estate has proven to be a good hedge against inflation
because of the "upside" potential which can be realized through asset
appreciation. In that sense, it is more desirable than conventional mortgages or
long-term bonds.
<PAGE>
Alternatively, the performance of real estate is dependent upon and could
fluctuate with the quality of management, unexpected competition, disasters, or
economic cycles in the market. Therefore, it entails a greater degree of risk
than instruments such as government-backed bonds or fixed-rate mortgages.
The subject is best represented by the range indicated by the investor surveys
Class B suburban office properties. I considered the following factors to be
particularly significant in estimating the discount rate best representing the
subject's market position:
Suburban office market conditions should remain competitive, although
rental rates are beginning to show upward movement;
assuming the continued expenditure for capital improvements, the
subject should be able to maintain its market position and stabilized
occupancy, while providing a relatively attractive and affordable
business environment;
leases signed by ADP and CIGNA should provide a solid tenant base
during the first few years of the analysis period, thus reducing
vacancy risk;
the anticipated prospective revenue growth is moderate over the entire
holding period, and assumes rental rates of any aging property are
likely to trail inflation at least slightly; and
the subject should remain reasonably competitive relative to the newer
office and office/warehouse space along I-270 by offering aggressive
market rental rates.
Overall, considering all of the relevant data in the context of the subject's
location, market presence, and age, a discount rate of 13.0% is considered to
best represent NEBC 1, NEBC 3, and NEBC 4's market position. A rate of 12.5% is
considered to be appropriate for NEBC 2, especially given the slightly
conservative renewal assumptions included in my analysis. A rate of 12.0% is
used for NEBC 5 and reflects the relative safety associated with the rate and
term of CIGNA's lease.
Basis for Terminal Capitalization Rate Used in Property Reversion
A number of the preceding tables also address the issue of a terminal
capitalization rate. Tables V - 3 and V - 4 are particularly significant as they
apply specifically to suburban office buildings. These tables indicate that
informed participants are considering terminal capitalization rates in the range
of 8% to 13% for suburban office properties.
<PAGE>
The comparable sales listed in the Sales Comparison Approach have going-in
(overall) capitalization rates ranging from 7.1% to 13.9%, with an average of
10.8%. To reflect the risk inherent in estimating a rate ten years in the
future, investor criteria often requires the terminal rate to be approximately
50 basis points above the going-in rate, although in some cases the terminal
capitalization rate may actually be lower than the going-in rate. Based on the
data from the investor surveys and the most recent comparable sales, I feel that
an appropriate terminal capitalization rate for the subject would be near the
middle of the range indicated by the surveys.
Given the attributes of the subject, I have estimated that a terminal
capitalization rate of 10.5% is appropriate to convert the eleventh year's net
income into an indication of reversionary value at the end of the estimated
holding period for all five buildings.
Resale Expense Rate
This represents an estimate of the cost of sale expressed as a percentage of the
prospective resale price. The percent shown, 3%, is a typical allowance for
selling costs in today's market, including such fees as transfer taxes (revenue
stamps), legal fees (typically 0.5% to 1.0% for large deals), closing costs, and
selling agent's fees, if any (often in the range of 1% to 2% for large
projects).
Value of Reversion
Net operating income for the eleventh year was capitalized at the appropriate
terminal capitalization rate to estimate the sale price of the property at the
end of the investment period. After capitalizing the net operating income, a 3%
cost of sale was deducted to arrive at net sale proceeds. These calculations are
presented below.
<PAGE>
<TABLE>
<CAPTION>
Table V - 6
Northeast Business Campus
Reversion Calculations
<S> <C> <C> <C> <C> <C> <C>
NEBC 1 NEBC 2 NEBC 3 NEBC 4 NEBC 5 Total
Net Operating Income
(For year ending
November 30, 2006)
$272,924 $278,018 $169,448 $188,022 $670,861 $1,579,273
-------- -------- -------- -------- -------- ----------
Capitalized at 10.5%
$2,599,276 $2,647,790 $1,613,790 $1,790,686 $6,389,152 $15,040,695
Less: 3% Cost of Sale
-77,978 -79,434 -48,414 -53,721 -191,675 451,221
Net Sale Proceeds
(Reversion)
$2,521,298 $2,568,357 $1,565,377 $1,736,965 $6,197,478 $14,589,474
========== ========== ========== ========== ========== ===========
</TABLE>
Conclusion
The value indicated by the discounted cash flow analysis is equal to the future
cash flow discounted at the appropriate rate to present value, plus the present
value of the reversionary sale proceeds utilizing a terminal capitalization rate
of 10.5% and the applicable discount rate. The results of this procedure are
presented below.
<PAGE>
<TABLE>
<CAPTION>
Table V - 7
Northeast Business Campus
Present Value Calculations
<S> <C> <C>
NEBC 1
Present Value of Cash (@13.0%) $ 709,555 48.86%
Present Value of Reversionary Sale Proceeds (@ 13.0%) 742,745 51.14%
-- ------- ------
Indicated Value of Property $1,452,300 100.00%
========== =======
rounded $1,450,000
NEBC 2
Present Value of Cash (@12.5%) $ 940,858 54.33%
Present Value of Reversionary Sale Proceeds (@ 12.5%) 790,916 45.67%
-- ------- ------
Indicated Value of Property $1,731,774 100.00%
========== =======
rounded $1,730,000
NEBC 3
Present Value of Cash (@13.0%) $ 616,929 57.23%
Present Value of Reversionary Sale Proceeds (@ 13.0%) 461,142 42.77%
-- ------- ------
Indicated Value of Property $1,078,071 100.00%
========== =======
rounded $1,080,000
NEBC 4
Present Value of Cash (@13.0%) $ 563,664 52.42%
Present Value of Reversionary Sale Proceeds (@ 13.0%) 511,690 47.58%
-- ------- ------
Indicated Value of Property $1,075,354 100.00%
========== =======
rounded $1,080,000
NEBC 5
Present Value of Cash (@12.0%) $1,950,995 49.44%
Present Value of Reversionary Sale Proceeds (@ 12.0%) 1,995,422 50.56%
- --------- ------
Indicated Value of Property $3,946,417 100.00%
========== =======
rounded $3,950,000
Total
Present Value of Cash $4,782,001 51.51%
Present Value of Reversionary Sale Proceeds 4,501,914 48.49%
- --------- ------
Indicated Value of Property $9,283,915 100.00%
========== =======
rounded $9,300,000
</TABLE>
<PAGE>
As a test of reasonableness, it is helpful to compare the ratio of the present
value of the cash flow versus the present value of the reversion. The portion of
total value attributable to the cash flow is somewhat greater than half of the
total value, thus the analysis does not derive an unreasonably high value from
the relatively speculative reversionary proceeds. An additional indication of
the value's reasonableness can be derived by calculating the subject's implied
capitalization rate. By dividing the first year's net operating income
($1,031,787) into the calculated value ($9,283,915), an implied overall
capitalization rate ($1,031,787 / $9,283,915 = 0.111, or +/-11.1%) is produced.
An 11.1% going-in capitalization rate is well within the investment parameters
that were previously presented.
Based upon my analysis of the subject and the market, together with my
experience and knowledge acquired in appraising similar properties, it is my
opinion that the market value of the leased fee interest in the subject via the
discounted cash flow technique, expressed in terms of financial arrangements
equivalent to cash, based upon market conditions as of the date of my initial
property inspection, December 1, 1995, is:
Nine Million Three Hundred Thousand Dollars
$9,300,000
<PAGE>
Section VI
Sales Comparison Approach
Introduction
The Sales Comparison Approach is based upon the principle of substitution; that
is, the value of a property is governed by prices paid for other similar
properties. Since no two properties are ever identical, the necessary
adjustments for differences in location, size, and marketability are a function
of appraisal experience and judgment. In performing this approach to value, the
comparables are adjusted to the average, overall characteristics of the subject.
Improved Sales Data
The sales listed in Table VI - 1 are office and office/warehouse buildings
considered comparable to the subject. The seven sales and one listing are
located in the Central Ohio area. All of the transactions represent recent sales
or current listings of office properties that are similar to the subject in
terms of location, age, and quality. The primary unit of comparison that I use
is the price per rentable square foot. A more detailed description of these
sales is included on the following pages.
<PAGE>
<TABLE>
<CAPTION>
Table VI - 1
Comparable Office and Office/Warehouse Sales
Northeast Business Campus
<S> <C> <C> <C> <C> <C> <C>
Sale Property/Address Date of Sale Price Rentable Price Per Overall Cap Rate
Sale SF SF (%)+
1 Cascades I, II, V, and VI 3/95 $12,200,000 219,865 $55.49 10.9% to 12.3%
2 Cascades VII 9/95 $1,600,000 20,000 $80.00 10.7%
3 1650 Lake Shore Building 12/93 $4,000,000 49,848 $80.24 7.1% to 8.4%
4 Star Bank Building 4/94 $7,100,000 65,000 $109.23 10.8%
5 The Center at Northwoods II 7/94 $7,580,000 108,715 $69.72 9.6%
6 Spectrum I 12/94 $4,468,500 135,614 $32.95 13.9%
7 Spectrum II 10/94 $5,600,000 133,504 $41.95 12.3%
8 Worthington Business Center listing $3,500,000 68,000 $51.47 10.0%
+ Overall capitalization rates are stated before the deduction of replacement reserves.
</TABLE>
<PAGE>
Comparable Sales Map
<PAGE>
Comparable Improved Sale 1
Project Name Cascades Corporate Center I, II, V and VI
Address/Distance From Subject 130 to 300 E. Wilson Bridge Road,
Worthington, approximately four miles
northwest of the subject
Grantor Connecticut Mutual Life Insurance
Grantee Minshall Cascades LP
Date of Sale March 2, 1995
Terms and Conditions Arm's-length and cash to seller - GE Capital
provided financing of $10,000,000.
Buyer Motivation Investor
Sales Price $12,200,000 (includes escrow amount of
$1,200,000 for tenant improvements and
other necessary capital items)
Price/SF (NRA) $55.49
Effective Gross Income $2,861,062 to $3,024,062 ($13.01 to $13.75
per square foot) [See Comments]
Expenses (50.5% to 53.4%) $1,528,062 ($6.95/square foot)
Net Operating Income $1,333,000 to $1,496,000 [See Comments]
Effective Gross Income Multiplier 4.03 to 4.26 [See Comments]
Capitalization Rate 10.9% to 12.3% [See Comments]
Property Description:
Year Completed +/-1978
No. of Bldgs/No. of Stories 4 buildings / 2 to 4 stories
NRA 219,865 square feet
<PAGE>
Parking Ratio +/-4 spaces/1,000 square feet
S.F. Handicap Accessible Most
No. of Elevators/Quality Typically 2 per building / Average quality
Exterior Finish/Construction Concrete, dryvit, and glass panels/ average
condition
Interior Finish/Construction Typical
office finish includes
vinyl wall covering or
paint on drywall partitions
with commercial-grade
carpet and suspended
acoustical ceilings.
Overall interior finish is
of good quality and
condition.
Project Amenities:
Landscaping Small, medium, and mature trees, plus an assortment
of bushes, plants, and flowers. Security Card
access security system Common Areas Varies
typically lobby atrium in each building
Express Mail Drop Box UPS, Federal Express, Airborne Express,
U. S. Postal Express
Other None
Comments on Amenities Project amenities are comparable to the subject;
building amenities are comparable to NEBC 5.
Lease Data:
Lease Rates/Terms The asking lease rate at the time of sale was $9.50
to $10.00 per square foot, although actual
in-place rates were somewhat lower.
Expenses Included None, tenant pays
their pro-rata share of all
operating expenses. [The
buildings are not
consistently leased in
terms of net versus gross;
the information presented
herein reflects a net basis
for the reimbursement of
operating expenses.]
Improvement Allowance Negotiable
<PAGE>
Rental Concessions Negotiable
Effective Rate (after T.I.) NAV
Vacant Space & Vacancy % +/-22,000 square feet / 10%
Overall Comparability:
Location Superior
Project Amenities Comparable
Interior Finish Comparable to NEBC 1, NEBC 2, and NEBC 5
Exterior Finish/Construction Comparable to NEBC 1, NEBC 2, and NEBC 5
Management Comparable
Comments: The buyer's original net
operating income estimate
was $1,333,000; actual
first-year net operating
income is expected to be
closer to $1,496,000.
Operating expenses and
effective gross income are
based upon actual expected
first-year figures.
Confirmation Broker, knowledgeable third party, and courthouse records
Mgmt. Co. Mathews o Click o Bauman
Phone No. (614) 847-1492
<PAGE>
PHOTOGRAPH
Comparable Improved Sale 1
Cascades Office Complex
<PAGE>
Comparable Improved Sale 2
Project Name Cascade Corporate Center VII
Address/Distance From Subject 110 E. Wilson Bridge Road, Worthington,
approximately four miles northwest of the
subject
Grantor Eastgroup Properties
Grantee Miller Investments
Date of Sale September 1, 1995
Terms and Conditions Arm's-length - Grantor provided $150,000
financing at unspecified terms.
Buyer Motivation Investor
Sales Price $1,600,000
Price/SF (NRA) $80.00
Effective Gross Income $310,400 ($15.52 per square foot)
Expenses (44.7%) $138,900 ($6.95 per square foot)
Net Operating Income $171,500 ($8.58 per square foot)
Effective Gross Income Multiplier 5.15
Capitalization Rate 10.7%
Property Description:
Year Completed 1983
No. of Bldgs/No. of Stories 1 / 2
NRA 20,000 square feet
Parking Ratio 2.95 spaces/1,000 square
feet
S.F. Handicap Accessible First floor
<PAGE>
No. of Elevators/Quality None
Exterior Finish/Construction Wood with stone veneer accents and
reflective, insulated glass /
Good condition
Interior Finish/Construction Typical
office finish includes
vinyl wall covering and
paint on drywall partitions
with commercial-grade
carpet and suspended
acoustical ceilings.
Overall interior finish is
of high quality and good
condition.
Project Amenities:
Landscaping Small, medium, and mature trees, plus an assortment
of bushes, plants, and flowers. Security Yes Common
Areas Two-story lobby with stairway and wood deck in
rear.
Express Mail Drop Box UPS, Federal Express, Airborne Express, U. S. Postal
Express
Other None
Comments on Amenities Project amenities are comparable to the subject;
building amenities are inferior to NEBC 5 but
comparable to NEBC 1 and NEBC 2.
Lease Data:
Lease Rates/Terms The asking lease rate at the time of sale was
approximately $9.00 (adjusted to a net basis)
per square foot. The projected EGI reflects
approximately $8.50 (adjusted to a net basis)
per square foot. The leases typically have
five-year terms.
Expenses Included None, tenant pays
their pro-rata share of all
operating expenses. [The
building is leased on a
gross basis; for purposes
of comparison, the
information presented
herein reflects a net basis
for the reimbursement of
operating expenses.]
Improvement Allowance Negotiable
Rental Concessions Minimal
<PAGE>
Effective Rate (after T.I.) +/-$6.50
Vacant Space & Vacancy % Zero / 0%
Major Tenants Team America, Joshua Investments Co., Star
Leasing, and Great Lakes Security
Overall Comparability:
Location Superior
Project Amenities Comparable
Interior Finish Comparable to NEBC 1, NEBC 2, and NEBC 5
Exterior Finish/Construction Comparable to NEBC 1, NEBC 2, and NEBC 5
Management Comparable
Comments: Prior to its sale, the property had been listed
at $2,000,000 then $1,800,000.
Confirmation Broker and courthouse records
Mgmt. Co. Mathews o Click o Bauman
Phone No. (614) 847-1492
<PAGE>
PHOTOGRAPH
Comparable Improved Sale 2
Cascade VII
<PAGE>
Comparable Improved Sale 3
Project Name 1650 Lake Shore Building
Address/Distance From Subject 1650 Lakeshore Drive, Columbus,
approximately 10 miles southwest of the subject
Grantor Fifth Shore Partnership (Daimler Company)
Grantee 1650 Lake Shore, Inc. (Ohio Bar Liability Co.)
Date of Sale December 30, 1993
Terms and Conditions Arm's-length and cash
Buyer Motivation Owner-occupant/Investor [See Comments]
Sales Price $4,000,000
Price/SF (NRA) $80.24
Effective Gross Income (1993 actuals) $533,988 ($10.71 per square foot)
Expenses (46.7%) $249,240 ($5.00 per square foot)
Net Operating Income $284,748 ($5.71 per square foot)
Effective Gross Income Multiplier 7.49
Capitalization Rate 7.1% (based upon 1993 actual)
8.4% (based upon stabilized income)
Property Description:
Year Completed 1990
No. of Bldgs/No. of Stories 1 / 3 plus full basement
NRA 49,848 square feet
Parking Ratio Adequate
S.F. Handicap Accessible All
No. of Elevators/Quality 1 / Good quality
<PAGE>
Exterior Finish/Construction Colonial architecture featuring brick exterior
with pitched roof. / Excellent condition
Interior Finish/Construction Typical
office finish includes
vinyl wall covering on
drywall partitions with
commercial-grade carpet and
suspended acoustical
ceilings. Overall interior
finish is of high quality
and good condition.
Project Amenities:
Landscaping Small to mature trees, bushes, plants, and
flowers
Security Card access security system
Common Areas Central lobby
Express Mail Drop Box None
Other Scioto River frontage
Comments on Amenities Amenities are slightly superior to subject.
Lease Data:
Lease Rates/Terms The asking
lease rate at the time of
sale was $11.00 to $12.00
per square foot, although
actual lease rates are
believed to be somewhat
lower (+/-$8.00 to $9.00
per square foot).
Expenses Included None, tenant pays their pro-rata
share of all operating expenses.
Improvement Allowance Negotiable
Rental Concessions Negotiable
Effective Rate (after T.I.) $6.00 to $7.00 per square foot
Vacant Space & Vacancy % +/-11,000 square feet / 22%
Major Tenants Ohio State Bar Association
<PAGE>
Overall Comparability:
Location Slightly superior
Project Amenities Slightly superior
Interior Finish Comparable to NEBC 1, NEBC
2, and NEBC 5
Exterior Finish/Construction Superior
Management Comparable
Comments: An affiliate of the grantee is now the
building's major tenant and also occupies all
of an adjacent building. The purchase was
intended to facilitate possible future
expansion needs.
The transfer reflects an
"as-is" sale; there were no
allowances for
approximately 4,000 square
feet of unfinished space.
According to the grantor's
projections, the building
was expected to achieve
stabilized occupancy in
1995. Current lease
listings - in hindsight
support this projection.
The grantor's stabilized
net operating income
estimate of $336,162 would
indicate a stabilized
overall capitalization rate
of 8.4% based upon the
purchase price (without
consideration given to the
cost of finishing and
leasing the unfinished and
vacant space).
Confirmation Knowledgeable third party and courthouse records
Mgmt. Co. Galbreath Company
Phone No. (614) 460-4406
<PAGE>
PHOTOGRAPH
Comparable Improved Sale 3
1650 Lake Shore Drive
<PAGE>
Comparable Improved Sale 4
Project Name Star Bank Building
Address/Distance From Subject 501 Schrock Road, Westerville,
approximately two miles north of the
subject
Grantor Schrock-Cooper, L.P. (Daimler Company)
Grantee John W. Messmore, Trustee
Date of Sale April 29, 1994
Terms and Conditions Arm's-length and cash (Grantee assumed
Grantor's existing mortgage)
Buyer Motivation Investor
Sales Price $7,100,000
Price/SF (NRA) $109.23
Effective Gross Income NAV
Expenses NAV
Net Operating Income (1993 actual) $763,750 ($11.75 per square foot)
Effective Gross Income Multiplier NAV
Capitalization Rate 10.8%
Property Description:
Year Completed 1990
No. of Bldgs/No. of Stories 1 / 4
NRA 65,000 square feet
Parking Ratio Adequate
S.F. Handicap Accessible All
<PAGE>
No. of Elevators/Quality 2 / Good quality
Exterior Finish/Construction Brick exterior with
double-paned insulated,
reflective glass panels/
Very good condition
Interior Finish/Construction Typical
office finish includes
vinyl wall covering on
drywall partitions with
commercial-grade carpet and
suspended acoustical
ceilings. Overall interior
finish is of high quality
and good condition.
Project Amenities:
Landscaping An assortment of small
and medium trees, bushes,
plants, and flowers.
Security Card access security system
Common Areas One-story lobby with center
elevators
Express Mail Drop Box Airborne Express
Other None
Comments on Amenities Amenities are comparable to
the subject.
Lease Data:
Lease Rates/Terms The property is fully
leased by Star Bank for
approximately 10 years. The
current rental rate of
$11.75 per square foot
increases to $13.50 per
square foot in 1996.
Expenses Included None, tenant pays their
pro-rata share of all
operating expenses.
Improvement Allowance NAV
Rental Concessions None noted
Effective Rate (after T.I.) NAV
Vacant Space & Vacancy % Zero / 0%
Major Tenants Star Bank currently
subleases approximately
29,000 square feet to Excel
Logistics. It is believed
that Excel's sublease rate
is lower than Star Bank's
rental rate.
<PAGE>
Overall Comparability:
Location Slightly Superior
Project Amenities Comparable
Interior Finish Comparable to NEBC 1, NEBC 2, and NEBC 5
Exterior Finish/Construction Superior
Management Comparable
Confirmation Confidential
Mgmt. Co. Mathews o Click o Bauman
Phone No. (614) 847-1492
<PAGE>
PHOTOGRAPH
Comparable Improved Sale 4
Star Bank Building
<PAGE>
Comparable Improved Sale 5
Project Name The Center at Northwoods II
Address/Distance From Subject 8101 North High Street, Columbus,
approximately six miles northwest of the
subject
Grantor Findlay Properties, Inc.
Grantee Aldrich, Eastman and Waltch
Date of Sale July 24, 1994
Terms and Conditions Arm's-length and cash
Buyer Motivation Investor
Sales Price $7,580,000 [See Comments]
Price/SF (NRA) $69.72
Effective Gross Income NAV
Expenses NAV
Net Operating Income $730,000
Effective Gross Income Multiplier NAV
Capitalization Rate 9.6%
Property Description:
Year Completed 1988
No. of Bldgs/No. of Stories 1 / 3
NRA 108,715 square feet
Parking Ratio Adequate
S.F. Handicap Accessible All
No. of Elevators/Quality 2 / Good quality
<PAGE>
Exterior Finish/Construction Brick and stone exterior
with double-paned
insulated, reflective glass
panels / Good condition
Interior Finish/Construction Typical
office finish includes
paint and vinyl wall
covering on drywall
partitions with
commercial-grade carpet and
suspended acoustical
ceilings. Overall interior
finish is of high quality
and good condition.
Project Amenities:
Landscaping Stone landscaping beds
contain an assortment of
small trees, bushes,
plants, and flowers.
Security Card access security system
Common Areas Three-story atrium
Express Mail Drop Box Federal Express and UPS
Other None
Comments on Amenities Amenities are comparable to
subject.
Lease Data:
Lease Rates/Terms The asking
lease rate at the time of
sale was approximately $10
per square foot. Typical
in-place leases were said
to be in the range of $9.00
to $10.00 per square foot.
Expenses Included None, tenant pays their
pro-rata share of all
operating expenses.
Improvement Allowance Negotiable
Rental Concessions Minimal
Effective Rate (after T.I.) NAV
Vacant Space & Vacancy % +/-22,000 / 20%
Major Tenants GMAC Financial Services, Principal Health Care PPO
<PAGE>
Overall Comparability:
Location Superior
Project Amenities Comparable
Interior Finish Comparable to NEBC 1, NEBC
2, and NEBC 5
Exterior Finish/Construction Superior
Management Comparable
Comments: The grantor is an affiliate
of a financial institution
who had taken back the
property, although their
motivation is considered to
be typical. The recorded
sale price was $7,900,000
and included $320,000 for
an adjacent 3.22-acre
vacant office pad.
Confirmation Confidential
Mgmt. Co. Pizzuti Realty, Inc.
Phone No. (614) 365-4000
<PAGE>
PHOTOGRAPH
Comparable Improved Sale 5
The Center at Northwoods II
<PAGE>
Comparable Improved Sale 6
Project Name Spectrum Commerce Center I
Address/Distance From Subject 921 & 929 Eastwind Drive, Westerville,
approximately 1.5 miles north of the subject
Grantor National City Bank
Grantee The Townsend Group
Date of Sale December 30, 1994
Terms and Conditions Arm's-length - Grantor provided a
five-year first mortgage of 80% LTV
at 10.25% with a 25-year
amortization period.
Buyer Motivation Short-term Investor
Sales Price $4,468,500
Price/SF (NRA) $32.95
Effective Gross Income $917,033 ($6.76 per square foot)
Expenses (32.1%) $294,704 ($2.17 per square foot)
Net Operating Income $622,329 ($4.59 per square foot)
Effective Gross Income Multiplier 4.87
Capitalization Rate 13.93%
Property Description:
Year Completed 1984
NRA 135,614 square feet
Parking Ratio +/-3.0 spaces/1,000 square feet
S.F. Handicap Accessible Approximately half is handicap accessible.
No. of Elevators/Quality None
<PAGE>
Exterior Finish/Construction Two one-story
buildings with
mezzanines. Front and sides
are solar grey insulated
glass panels with a red
accent stripe; rear of
buildings are metal siding.
Overall quality and
condition are good.
Interior Finish/Construction
Standard office tenant
finish includes vinyl wall
covering or painted drywall
and carpet. Mezzanine level
allows for additional
usable space. Office finish
is estimated at 60% of NRA.
Overall interior finish is
of high quality and good
condition.
Project Amenities:
Landscaping Small to medium trees, grass, attractive annual
plants; adequate and of good quality.
Security None provided
Common Areas None
Express Mail Drop Box UPS; U. S. Postal Express, approximately three
properties away
Other None
Comments on Amenities Amenities are comparable to subject.
Lease Data:
Lease Rates/Terms The quoted rate is $7.95, although recent
leases have been structured at $5.00 per
square foot for "as-is" space. The leases
typically have three- to five-year terms.
Expenses Included None, tenant pays their pro-rata share of all
operating expenses.
Improvement Allowance Improvement allowances are estimated at $8.00
per square foot for office finish, although
recent leases have been for "as-is" space.
Rental Concessions Rental concessions were reported to be
negotiable; however, the grantor preferred to
discount the initial rate or use stepped rents.
Effective Rate (after T.I.) +/-$5.00 to $5.75 per square foot
<PAGE>
Vacant Space & Vacancy % +/-45,700 square feet / 33.7%
Major Tenants Duffy Homes; Digital Storage, Inc.; Red Cross
Overall Comparability:
Location Slightly Superior Project Amenities Comparable Interior Finish
Comparable to NEBC 3 and NEBC 4, although lower level of office finish Exterior
Finish/Construction Slightly superior to NEBC 3 and NEBC 4 Management Comparable
Comments: The project has good freeway exposure, but poor access.
It is of the same design as Comparable Improved
Sale 7; both properties are included as rent comparables
in the Market Analysis.
Spectrum Commerce Center I
is currently listed for
sale at $6,400,000 ($47.19
per square foot). Financial
assumptions in the listing
reflect a 10.8% overall
capitalization rate, a 13%
discount rate, and an 11.5%
terminal capitalization
rate.
Confirmation: Broker, knowledgeable third party, and courthouse records.
Mgmt. Co. Mathews o Click o Bauman
Phone No. (614) 847-1492
<PAGE>
PHOTOGRAPH
Comparable Improved Sale 6
Spectrum Commerce Center I
<PAGE>
Comparable Improved Sale 7
Project Name Spectrum Commerce Center II
Address/Distance From Subject 4140 & 4150 Tuller Road, Dublin,
approximately nine miles northwest of the
subject
Grantor Aetna Life Insurance Company
Grantee Tulspec Properties L.L.C.
Date of Sale October 24, 1994
Terms and Conditions Arm's-length and cash to seller -
$4,200,000 (75%) financed by SunLife
Buyer Motivation Investor
Sales Price $5,600,000
Price/SF (NRA) $41.95
Effective Gross Income $1,006,889 ($7.54/square foot)
Expenses (31.5%) $316,712 ($2.37/square foot)
Net Operating Income $690,177 ($5.17/square foot)
Effective Gross Income Multiplier 5.56
Capitalization Rate 12.32%
Property Description:
Year Completed 1986
NRA 133,504 square feet
Parking Ratio +/-3.0 spaces/1,000 square feet
S.F. Handicap Accessible Approximately half is handicap accessible.
No. of Elevators/Quality None
<PAGE>
Exterior Finish/Construction Two
one-story buildings with
mezzanines. Front and sides
are solar grey insulated
glass panels with a blue
accent stripe; rear of
buildings are metal siding.
Overall quality and
condition are good.
Interior Finish/Construction
Standard office tenant
finish includes vinyl wall
covering or painted drywall
and carpet. Mezzanine level
allows for additional
usable space. Office finish
is estimated at 80% of NRA.
Overall interior finish is
of high quality and good
condition.
Project Amenities:
Landscaping Small to medium trees,
grass, annual plants;
adequate and of good
quality.
Security None provided.
Common Areas None
Express Mail Drop Box Federal Express
Other None
Comments on Amenities Amenities are comparable to
subject.
Lease Data:
Lease Rates/Terms The asking
lease rate at the time of
sale was approximately
$8.50 per square foot for
office finish and $4.50 per
square foot for warehouse
space; this equates to a
blended rate of $7.50
assuming 75% office finish.
The typical lease term was
three to five years. The
property is said to
currently be achieving
rates that are
approximately 25% higher.
Expenses Included None, tenant pays their
pro-rata share of all
operating expenses.
Improvement Allowance $7.00 to $8.00 per square foot
Rental Concessions Rental concessions are negotiable.
Effective Rate (after T.I.) +/-$5.50 per square foot
<PAGE>
Vacant Space & Vacancy % +/-11,600 square feet / 8.7%
Major Tenants The Athletic Factory, Rax Restaurants
Overall Comparability:
Location Superior
Project Amenities Comparable
Interior Finish Comparable to NEBC 3 and NEBC 4
Exterior Finish/Construction Slightly superior to NEBC 3 and NEBC 4
Management Comparable
Comments: This property offers freeway exposure, but
relatively poor access. The buildings are of
the same design as Comparable Improved Sale 6;
both properties are included as rent comparables
in the Market Analysis.
Confirmation: Broker, knowledgeable third party, and courthouse records.
Mgmt. Co. Mathews o Click o Bauman
Phone No. (614) 847-1492
<PAGE>
PHOTOGRAPH
Comparable Improved Sale 7
Spectrum Commerce Center II
<PAGE>
Comparable Improved Sale 8
Project Name Worthington Business Center
Address/Distance From Subject 530 Lakeview Plaza, Worthington,
approximately three miles northwest of
the subject
Grantor NAP - Current Listing
Grantee NAP - Current Listing
Date of Sale NAP - Current Listing
Terms and Conditions NAP - Current Listing
Buyer Motivation NAP - Current Listing
Sales Price $3,500,000 (asking price)
Price/SF (NRA) $51.47 (asking price)
Effective Gross Income (1995 Budget)) $463,180 ($6.81 per square foot)
Expenses (24.2%) $112,000 ($1.65 per square foot)
Net Operating Income $351,180 ($5.16 per square foot)
Effective Gross Income Multiplier 7.56
Capitalization Rate 10.0%
Property Description:
Year Completed 1986
No. of Bldgs/No. of Stories 1 / 1
NRA 68,000 square feet
Parking Ratio 1.5 spaces/1,000 square feet plus
additional parking in the rear
S.F. Handicap Accessible Most
<PAGE>
No. of Elevators/Quality None
Exterior Finish/Construction Block and steel with glass front /
Average quality and condition
Interior Finish/Construction Typical
office finish includes
painted drywall partitions
with commercial-grade
carpet and suspended
acoustical ceilings. Office
finish is estimated at 50%
of NRA. The building
features 6 dock-high doors
and 2 drive-in doors. The
property is completely
sprinklered. Overall
interior finish is of good
quality and condition.
Project Amenities:
Landscaping Small trees, bushes, plants, and
flowers.
Security None
Common Areas None
Express Mail Drop Box UPS and Federal Express
Other View of manmade lake
Comments on Amenities Amenities are comparable to subject.
Lease Data:
Lease Rates/Terms The lease rate is currently $8.50
per square foot for office finish
and $3.95 per square foot for
warehouse space.
Expenses Included None, tenant pays their pro-rata
share of all operating expenses. CAM
is estimated at $1.65 per square
foot.
Improvement Allowance Varies
Rental Concessions Varies
Effective Rate (after T.I.) +/-$6.50 for office finish
Vacant Space & Vacancy % Zero / 0%
Major Tenants Waxworks, Sarcom (Columbus Dispatch),
Dale Tile
<PAGE>
Overall Comparability:
Location Superior
Project Amenities Comparable
Interior Finish Inferior
Exterior Finish/Construction Inferior
Management Comparable
Comments: A loan assumption is
possible. A recent lease of 14,000
square feet with 70% office finish
was signed at $7.00 per square foot
(close to the asking rate).
Confirmation Confidential
Mgmt. Co. Pizzuti Realty, Inc.
Phone No. (614) 365-4000
<PAGE>
PHOTOGRAPH
Comparable Improved Sale 8
Worthington Business Center
<PAGE>
Improved Sales Analysis
Physical Units of Comparison: Analysis of the physical units of comparison is
largely based on the principle of substitution. Variances between the comparable
properties and the subject are predominantly attributable to differences in
size, location, age/quality, physical characteristics, financing terms, and date
of sale. For purposes of comparison, the comparable sales were analyzed in terms
of price per rentable square foot.
Legal Interest Transferred: All of the sales represented arm's-length
transactions of the leased fee interest or similar interest. Since this is the
same interest under consideration for the subject, no adjustment is necessary
for property rights conveyed.
Financing Terms: Because of the variety of financing options available in the
market and their varying favorability to the buyer, sales must be adjusted for
financing. The procedure is to convert sales terms to a "cash equivalent" value
or the value that would result if the seller received cash for the property. In
this report, all sale prices indicated are cash or cash-equivalent prices which
have been adjusted for any favorable financing; therefore, no adjustments are
necessary for financing terms. Sale 2 and Sale 6 both involved seller financing.
The minimal amount of seller financing provided in Sale 2 is considered too
small to have impacted the sale price. The financing terms of Sale 6 are
reflective of market rates available at the time of sale; consequently, a
cash-equivalency adjustment is not warranted. Sale 4 involved a loan assumption;
however, this reportedly had little if any impact on the stated sale price.
Conditions of Sale: An adjustment for conditions of sale reflects the motivation
of the buyer and seller. As indicated previously, the sellers of Sale 6 and Sale
7 were somewhat motivated, thus an upward adjustment is made to each. Sale 8 is
actually a current listing. Since listing prices typically include room for
negotiation, the asking price was adjusted downward. The fact that no acceptable
offers have been received in the one year plus that the property has been listed
also supports the appropriateness of a downward adjustment. No other adjustments
for conditions of sale are necessary.
Market Conditions: This adjustment is based on the appreciation or depreciation
that a property has encountered between the date of its sale and the date of
valuation. Market conditions since the time of sale will indicate whether demand
has increased or decreased for a property and whether time has had any effect on
the value. Because of the national economic recession and increasingly stringent
lending requirements, the national real estate market had been soft. The market
has been slowly improving over the past two to three years. Considering the
strength of the office market, as well as investors' increasing interest in
suburban office properties, the sales are adjusted upward for market conditions.
Sale 1, Sale 3, Sale 4, Sale 5, Sale 6, and Sale 7 are adjusted upward for
market conditions based upon their respective sale dates. Sale 2 occurred
relatively recently and is not adjusted. Sale 8, actually a current listing,
also has not been adjusted.
<PAGE>
Location: An important component of location for an office or office/warehouse
property is its proximity to services such as retail shopping, housing,
recreation, and/or dining areas. A given location may also be seen as an
attribute because of the overall appeal of the neighborhood, or its atmosphere.
The area where the subject is located is adequate, but not outstanding. All of
the comparable sales are judged to have superior locations as compared to the
subject; consequently, each is adjusted downward. The magnitude of the
adjustments corresponds inversely to the superiority of each location.
Access/Exposure: The subject has adequate exposure but difficult access.
The visibility of NEBC 3 and NEBC 4 is slightly inferior to that of NEBC 1,
NEBC 2 and NEBC 5.
Sale 1, Sale 2, Sale 6, Sale 7, and Sale 8 all have superior access and exposure
as compared to all five buildings that are part of the subject. Sale 7 has
superior exposure but inferior access. Sale 8 has comparable exposure but
inferior access.
Quality/Amenities: This adjustment is applied to the comparable sales with
consideration being given to its overall quality and condition. Of the five
buildings under appraisement, NEBC 5 is considered to be the highest quality in
terms of physical improvements; however, its high degree of common area results
in a lower ratio of usable versus rentable space. With this reasoning in mind, I
have considered the office buildings - NEBC 1, NEBC 2, and NEBC 5 to be of
roughly equivalent quality. The office/warehouse buildings - NEBC 3 and NEBC 4
are considered to be of a lesser quality.
Sale 1, Sale 2, Sale 3 Sale 4, and Sale 5 are judged to be slightly superior to
the subject's office buildings based upon construction and design; these sales
are also considered to be superior to the subject's office/warehouse buildings.
Sale 6, Sale 7, and Sale 8 are judged to be inferior to the subject's office
buildings. Sale 6 and Sale 8 are also judged to be inferior to the subject's
office/warehouse buildings. Although Sale 7 has a slightly lower percentage of
office finish than the subject's office/warehouse buildings, it is considered to
be comparable to them in overall quality.
Condition/Age: The subject was constructed between approximately 1981 to 1983.
An adjustment is necessary to reflect differences in remaining economic life.
For the purposes of this analysis, I consider the subject's five buildings to be
comparable to one another in terms of condition and age. Each of the comparable
sales was adjusted accordingly.
Size: Greater economies of scale are realized when more square footage is built
at the same time. Also, the pool of prospective buyers generally decreases as
the project size increases. These two factors suggest that properties
considerably larger than the subject should be adjusted upward and that
properties considerably smaller than the subject should be adjusted downward.
<PAGE>
The fact that the subject's five buildings are being separately valued and then
summed for a combined value creates a dilemma. Basing size adjustments on each
(subject) building's respective square footage could overstate the summed value,
whereas basing the adjustments on the combined square footage could understate
each individual value. As a compromise, I have based the size adjustments on
each building's respective size, but have limited the magnitude of the
adjustments.
Summary of Adjustments: The adjustments discussed above are presented in
Table VI - 2.
<PAGE>
<TABLE>
<CAPTION>
Table VI - 2
Comparable Sales Adjustment Grid -- Northeast Business Campus
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sale 1 Sale 2 Sale 3 Sale 4 Sale 5 Sale 6 Sale 7 Sale 8
Property/Location Cascade I, Cascade VII 1650 Lakeshore Star Bank Northwoods II Spectrum I Spectrum II
Worthington
II, V, VI Bldg. Bus. Ctr.
Date of Sale 3/95 9/95 12/93 4/94 7/94 12/94 10/94 Listing
Sale Price $12,200,000 $1,600,000 $4,000,000 $7,100,000 $7,580,000 $4,468,500 $5,600,000 $3,500,000
Size (RA) 219,865 20,000 49,848 65,000 108,715 135,614 133,504 68,000
$/SF (NRA) $55.49 $80.00 $80.24 $109.23 $69.72 $32.95 $41.95 $51.47
Market Adjustments
Real Property
Rights Conveyed -0- -0- -0- -0- -0- -0- -0- -0-
Financing Adjustment -0- -0- -0- -0- -0- -0- -0- -0-
Conditions of Sale -0- -0- -0- -0- -0- 15% 10% -15%
Market Conditions 2% -0- 8% 6% 6% 4% 4% -0-
Total Market Adjustments 2% 0% 8% 6% 6% 19% 14% -15%
Market Adjusted Price $56.60 $80.00 $86.66 $115.78 $73.91 $39.21 $47.82 $43.75
Physical Adjustments -- NEBC 1, NEBC 2, and NEBC 5
Location -10% -10% -5% -5% -10% -5% -10% -10%
Access/Exposure -5% -5% 5% 0% 0% -5% 0% 5%
Quality/Amenities -5% -5% -10% -10% -10% 15% 5% 10%
Condition/Age 5% -5% -15% -15% -10% -5% -5% -5%
Size 10% 0% 0% 0% 5% 5% 5% 0%
Total Physical
Adjustments -5% -25% -25% -30% -25% 5% -5% 0%
Adjusted $/SF (NRA) $53.77 $60.00 $65.00 $81.05 $55.43 $41.17 $45.43 $43.75
Physical Adjustments -- NEBC 3 and NEBC 4
Location -10% -10% -5% -5% -10% -5% -10% -10%
Access/Exposure -10% -10% 0% -5% -5% -10% -5% 0%
Quality/Amenities -10% -10% -10% -15% -15% 10% 0% 5%
Condition/Age 5% -5% -15% -15% -10% -5% -5% -5%
Size 10% 0% 0% 0% 5% 5% 5% 0%
Total Physical
Adjustments -15% -35% -30% -40% -35% -5% -15% -10%
Adjusted $/SF (NRA) $48.11 $52.00 $60.66 $69.47 $48.04 $37.25 $40.65 $39.38
</TABLE>
<PAGE>
Conclusion
After completing the above analysis, a value range of approximately $41 to $81
per square foot is indicated for NEBC 1, NEBC 2, and NEBC 5; a range of
approximately $37 to $69 per square foot is indicated for NEBC 3 and NEBC 4. All
of the sales are given some weight in the analysis, although Sale 1, Sale 2,
Sale 3, Sale 4, and Sale 5 are considered to be the most comparable to NEBC 1,
NEBC 2 and NEBC 5. The other three sales are considered to most comparable to
NEBC 3 and NEBC 4.
It is my opinion that a value range of $50 to $54 per square foot best
represents the subject's market value for NEBC 1 and NEBC 2. A range of $52 to
$56 per square foot best represents the subject's market value for NEBC 5.
Finally, a range of $44 to $48 per square foot best represents the subject's
market value for NEBC 3 and NEBC 4. Based upon the rentable area of each
building, these ranges produce the following calculations:
Northeast Business Campus -- NEBC 1 and NEBC 2
$/SF SF Value Indication
Lower End of Value Range $50 31,105 $1,555,250
Upper End of Value Range $54 31,105 $1,679,670
The range of value indications for NEBC 1 and NEBC 2 is $1,550,000 to $1,700,000
(rounded) each.
Northeast Business Campus -- NEBC 3
$/SF SF Value Indication
Lower End of Value Range $44 23,545 $1,035,980
Upper End of Value Range $48 23,545 $1,130,160
The range of value indications for NEBC 3 is $1,050,000 to $1,150,000 (rounded).
Northeast Business Campus -- NEBC 4
$/SF SF Value Indication
Lower End of Value Range $44 23,717 $1,043,548
Upper End of Value Range $48 23,717 $1,138,416
The range of value indications for NEBC 4 is $1,050,000 to $1,150,000 (rounded).
<PAGE>
Northeast Business Campus -- NEBC 5
$/SF SF Value Indication
Lower End of Value Range $52 71,000 $3,692,000
Upper End of Value Range $56 71,000 $3,976,000
The range of value indications for NEBC 5 is $3,700,000 to $4,000,000 (rounded).
The sum of the rounded value indications ranges from $8,900,000 to $9,700,000.
Based upon the preceding analysis, it is my opinion that the market value of the
leased fee interest of the entire subject as of December 1, 1995, according to
the Sales Comparison Approach, utilizing a price-per-square-foot unit of
comparison, is as follows:
Eight Million Nine Hundred Thousand Dollars
($8,900,000)
to
Nine Million Seven Hundred Thousand Dollars
($9,700,000)
To support the reasonableness of the price-per-square-foot analysis, an
effective gross income multiplier is used. The multipliers for the sale
comparables ranged from 4.03 to 7.56 and are summarized below, along with each
sale's operating expense ratio.
Effective Gross Operating
Sale Comparable Income Multiplier Expense Ratio
1 4.03 50%
to 4.26 to 53
2 5.15 45
3 7.49 47
4 - -
5 - -
6 4.87 32
7 5.56 31
8 7.56 24
<PAGE>
The data suggests that there is an indirect relationship between effective gross
income multipliers and operating expense ratios. Given the subject's operating
expense ratio (+/-38%), a multiplier at the lower end of the range is
appropriate. By applying an effective gross income multiplier of 5.0 to the
estimated effective gross income from the subject ($1,836,530 -- from the Income
Capitalization Approach), a value indication of $9,182,650 is achieved. This
appears to be generally consistent with the market data, thus supporting the
value generated via the price-per-square-foot analysis.
<PAGE>
Section VII
Cost Approach
Introduction
Since the subject is improved with five office and office/warehouse buildings,
an analysis of the cost to construct such a project provides an indication of
the subject's value. Initially, an analysis is performed to estimate the value
of the subject land as vacant. Secondly, the cost new of the improvements less
any accrued depreciation is estimated. Although subjective in nature, the
summation of land and building values provides an important guidepost as to
value for the property under appraisal.
Site Valuation
Research of public sources, together with a thorough investigation of the market
area, indicated the following sales were sufficient to estimate the value of the
fee simple estate in the land, assumed vacant. Conclusions drawn from this
information were synthesized with the opinion of informed sources in the area
(real estate brokers, investors, lenders, et cetera). In addition, when
possible, either the buyer, the seller, or a third party was interviewed to
determine motivational and other factors affecting the sale price and the degree
of comparability to the subject.
The subject site consists of 20.143 acres of land and is zoned M-2, which
permits office uses. The site valuation analysis will initially focus on
estimating the market value of the each site. These numbers will be used - in
conjunction with the cost new of the improvements - to calculate the value
indication obtained via the Cost Approach for each building.
<PAGE>
Presented in Table VII - 1 is a summary of land sales that are considered most
comparable to the subject site. A more detailed description of each sale
follows. A location map follows the detailed descriptions.
<TABLE>
<CAPTION>
Table VII - 1
Comparable Land Sales
Northeast Business Campus
<S> <C> <C> <C> <C> <C>
Sale Location Date of Acres Sale Price, Price/Acre
Sale (Listing Price)
1 Dorchester Drive, Westerville 6/94 3.023 $125,000 $41,350
2 Anteres Avenue, Polaris (Columbus) 3/94 2.000 200,000 100,000
3 Loop Road, Columbus 6/94 12.461 1,156,348 92,797
4 Johnny Appleseed Corporate Center 10/94 1.004 75,000 74,701
5 5100 Westerville Road, Blendon Twp. listing 3.857 358,701 93,000
6 Northeast Business Campus, Columbus listing 5.240 288,200 55,000
7 Brooksedge Boulevard, Westerville listing 1.137 150,000 131,926
8 Corporate Exchange, Blendon Twp. listing 20.000 2,200,000 110,000
</TABLE>
<PAGE>
Land Sale 1
Location Dorchester Drive
City Westerville
County Franklin
State Ohio
Grantor Home Savings of America
Grantee Wilbur Ronk
Date of Sale June 13, 1994
Terms and Conditions Arm's-length and cash, although
the grantor was somewhat motivated by their
desire to remove the property from their REO
portfolio.
Land Area 3.023 acres
Utilities All public
Zoning O/I, Office and Industrial
Use/Proposed Use Possible office development
Sale Price $125,000
Unit Price $41,350 per acre
Comments: The sites have poor access and exposure.
The grantee is an office builder/developer.
<PAGE>
Land Sale 2
Location Anteres Avenue
Polaris Centers of Commerce
City Columbus
County Delaware
State Ohio
Grantor N.P., Limited Partnership
Grantee Peter S. Dole
Date of Sale March 29, 1994
Terms and Conditions Arm's-length and cash
Land Area +/-2 acres
Utilities All public
Zoning L-M, Limited Manufacturing
Use/Proposed Use Subsequently developed with
an owner-occupied office
building.
Sale Price $200,000
Unit Price +/-$100,000 per acre
Comments: The site is situated approximately one mile west of I-71 and
has an interior location within the Polaris Centers of
Commerce.
<PAGE>
Land Sale 3
Location Loop Road, west of Stelzer Road
City Columbus
County Franklin
State Ohio
Grantor LIMREA Properties, L.P.
Grantee Loop Road, L.P.
Date of Sale June 14, 1994
Terms and Conditions Arm's-length and cash
Land Area 12.461 acres
Utilities All public
Zoning L-M, Limited Manufacturing
Use/Proposed Use Subsequently developed with
a single-tenant office
building.
Sale Price $1,156,348
Unit Price $92,797 per acre
Comments: The site is in a mixed-use
development owned by the
real estate affiliate of
The Limited department
stores. The development is
in its initial stages,
although long-term plans
include a new interchange
with I-270; a multilevel,
upscale super-regional
shopping mall; and a large
amount of office
development. The Limited's
financial strength enhances
the probability that the
proposed mall and other
improvements will come to
fruition.
<PAGE>
Land Sale 4
Location Johnny Appleseed Corporate Center
Johnny Appleseed Court
City Columbus
County Franklin
State Ohio
Grantor Walter G. Reiner & Lois J. Reiner
Grantee William L. Saunders & Reba L. Saunders
Date of Sale October 18, 1994
Terms and Conditions Arm's-length and cash
Land Area 1.004 acres
Utilities All public
Zoning L-M, Limited Manufacturing
Use/Proposed Use Office/warehouse
Sale Price $75,000
Unit Price $74,701 per acre
Comments: This property is an interior lot in
the Johnny Appleseed Corporate
Center, which is situated just south
of Northeast Business Campus. The
grantor paid a small amount
(estimated by the grantor as "a few
hundred dollars") to have the site
rezoned so that the grantee could
have a limited amount of outside
storage area.
Two vacant interior lots of
approximately one acre each are
listed for sale at $75,000
per acre; these sites are also zoned
L-M. A one-acre interior lot with
C-4 (Commercial) zoning is listed at
$110,000 per acre. Three lots
fronting Westerville Road are zoned
L-M and are listed at $100,000 per
acre.
<PAGE>
Land Sale 5 (Current Listing)
Location 5100 Westerville Road
City Blendon Township (Columbus)
County Franklin
State Ohio
Grantor NAP - Current Listing
Grantee NAP - Current Listing
Date of Sale NAP - Current Listing
Terms and Conditions NAP - Current Listing
Land Area 3.857 acres
Utilities All public
Zoning Office/Warehouse
Use/Proposed Use Prospective buyers have considered the site for
office/warehouse or mini-warehouse uses.
Sale Price $358,701 (asking price) [See Comments]
Unit Price $93,000 per acre (asking price) [See Comments]
Comments: This rectangular parcel has approximately 475 feet of
frontage on Westerville Road and 350 feet of frontage along
State Route 161; it has access only to Westerville Road and is
below the grade level of State Route 161.
The site is listed at $75,000 per acre, although - in addition
to the sale price - the owner is attempting to recoup costs
associated with bringing utilities to the site. The added costs
would bring the total sale price to approximately $93,000 per
acre. The listing broker indicated that she has had the
property listed for approximately one year with moderate
interest from prospective buyers.
<PAGE>
Land Sale 6 (Current Listing)
Location Northeast Business Campus
Corporate Drive
City Columbus
County Franklin
State Ohio
Grantor Kenwood Investments, Inc.
Grantee NAP - Current Listing
Date of Sale NAP - Current Listing
Terms and Conditions NAP - Current Listing
Land Area 5.24 gross acres;+/-2.5
usable acres
Utilities All public
Zoning M-2
Use/Proposed Use Possible office/warehouse
site
Sale Price $288,200 (asking price)
Unit Price $55,000 per acre (based
upon gross acreage and
asking price)
Comments: This Land Sale is actually the current listing of the last
developable site within Northeast Business Campus.
The parcel is located between NEBC 4 and NEBC 5.
A portion of the site is located within a flood plain; a gas utility easement
also encumbers a portion of the site. The listing agent estimated that only
+/-2.5 acres were usable and that the site should sell for considerably less
than the asking price. At one time, an expansion or sister building to NEBC 5
was planned for the site, although recent prospective buyers have expressed
interest in the site for office/warehouse development.
<PAGE>
Land Sale 7 (Current Listing)
Location Brooksedge Boulevard
Brooksedge Corporate Center
City Westerville
County Franklin
State Ohio
Grantor NAP - Current Listing
Grantee NAP - Current Listing
Date of Sale NAP - Current Listing
Terms and Conditions NAP - Current Listing
Land Area 1.137 acres
Utilities All public
Zoning Office
Use/Proposed Use Possible office development
Sale Price $150,000 (asking price)
Unit Price $131,926 per acre (asking price)
Comments: This is the listing for one of the last remaining
sites within the Brooksedge Corporate Center; it
is an interior parcel.
<PAGE>
Land Sale 8 (Current Listing)
Location Corporate Exchange Office Park
Corporate Exchange Drive
City Blendon Township (Columbus)
County Franklin
State Ohio
Grantor NAP - Current Listing
Grantee NAP - Current Listing
Date of Sale NAP - Current Listing
Terms and Conditions NAP - Current Listing
Land Area +/-20 acres
Utilities All public
Zoning C-2, Commercial
Use/Proposed Use Possible office development
Sale Price $2,200,000
Unit Price $110,000 per acre
Comments: This is the current listing of two parcels
within the Corporate Exchange Office Park.
The sites have been listed for approximately one
year. Three office buildings within the park are
presented as rent comparables in the Market
Analysis.
<PAGE>
Comparable Land Sales Map
<PAGE>
Comparable Sales Analyses: These sales were analyzed based on the elements of
comparison outlined below. They were compared to the subject based on a
price-per-acre unit of comparison. As is typical with land sales, the prices
vary significantly and adjustments are difficult to support with any specific
mathematical rationale. The adjustments made are very subjective in nature and
are based primarily on the appraiser's judgment. The following discussion
includes my analysis of the comparable sales.
Interest Transferred: All of the comparable sales represented the conveyance
of the fee simple estate. Since my value applies to this same interest, no
adjustment to the sales for this element of comparison is necessary.
Conditions of Sale: An adjustment for condition of sale reflects the motivation
of the buyer and seller and is typically made prior to adjustments for market
conditions and physical characteristics. The grantor of Sale 1 was a financial
institution who was motivated to dispose of an REO property; consequently, an
upward adjustment is warranted. Sale 5, Sale 6, and Sale 8 are actually current
listings. Since listing prices usually contain room for buyer negotiations, the
listing prices are adjusted downward to more accurately reflect their probable
(eventual) sales price. In lieu of such an adjustment for Sale 7 - also a
current listing - my analysis uses the listing broker's estimate of a probable
sale price considering the site's usable acreage. The usable acreage (rather
than gross acreage) figure is used in the analysis of this sale. I am not aware
of any unusual circumstances involving any of the other sales. With normal
buyer-seller motivations present, no additional condition of sale adjustments
are warranted.
Financing Terms: All of the sales were cash or cash equivalent transactions.
Therefore, no financing adjustments were required.
Market Conditions: The land sales occurred between March 1994 and October 1995
(plus four current listings). Since the effective date of the value estimate is
December 1, 1995, adjustments must be made to these comparables to reflect
current market conditions. These adjustments reflect not only appreciation due
to inflationary increases, but also changes in market conditions. Typically,
inflationary and market forces cause land to appreciate over time. Considering
the strength of the office market, as well as investors' increasing interest in
suburban office properties, the actual sales are adjusted upward for market
conditions; the current listings are not adjusted for market conditions.
Location: An important component of location for an office property is its
proximity to residential areas and retail uses. A given location may also be
seen as an attribute because of the overall appeal of the neighborhood, or its
atmosphere. The area where the subject is located is adequate, but not
outstanding. Sale 4 is located near the subject, but in a park with a higher
degree of industrial usage; therefore, it is considered to be slightly inferior
to the subject and is adjusted upward. Sale 5 and Sale 6 are also located near
the subject and are considered to be comparable to the subject's location;
accordingly, no adjustment is required. The remaining sales are located in
more-prestigious office developments and/or are closer to restaurants, hotels,
and mid- to upscale residential developments; consequently, they are adjusted
downward.
<PAGE>
Access and Exposure: While inherently tied to location, a property's access and
exposure to major thoroughfares are vital characteristics to consider. As noted
previously, the subject has adequate exposure but suffers from difficult
ingress/egress. The comparable sales have generally comparable access as
compared to the subject. Sale 1, Sale 3, Sale 4, and Sale 5 have inferior
exposure and are adjusted upward. The remaining sales have similar exposure
characteristics compared to the subject; accordingly, these sales do not require
an adjustment.
Size: The subject's sites contain a total of 20.143 acres. All other factors
being equal, smaller sites tend to sell for a higher price per acre than larger
sites. The market data does not support the need for a size adjustment;
consequently, such an adjustment is not made.
Zoning: The subject and all of the sales permit office development and
presumably have a similar highest and best use. As a result, no adjustments
are made.
Other: No other adjustments are considered to be necessary.
Summary: Table VII - 2 provides a summary of the market and physical
adjustments.
<PAGE>
<TABLE>
<CAPTION>
Table VII - 2
Land Sales Adjustment Grid
Northeast Business Campus
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sale 1 Sale 2 Sale 3 Sale 4 Sale 5 Sale 6 Sale 7 Sale 8
Property Location Dorchester Polaris Loop Road Johnny Westerville NEBC Brooksedge Corporate
Drive Parkway Appleseed Road Exchange
Sale Price $125,000 $200,000 $1,156,348 $75,000 $358,701 $175,000 $150,000 $2,200,000
Date of Sale 6/94 3/94 6/94 10/94 listing listing listing listing
Land Area (Acres) 3.023 2.000 12.461 1.004 3.857 2.500 1.137 20.000
Price/Acre $41,350 $100,000 $92,797 $74,701 $93,000 $70,000 $131,926 $110,000
Market and Physical Adjustments (%):
Legal Interest Transferred -0- -0- -0- -0- -0- -0- -0- -0-
Conditions of Sale 15% -0- -0- -0- -15% -0- -15% -10%
Financing Terms -0- -0- -0- -0- -0- -0- -0- -0-
Market Conditions 5% 6% 5% 4% -0- -0- -0- -0-
Total Market Adjustments: 20% 6% 5% 4% -15% 0% -15% -10%
($/Acre)
$49,620 $106,000 $97,437 $77,689 $79,050 $70,000 $112,137 $99,000
Location -10% -15% -15% 5% -0- -0- -10% -10%
Access/Exposure 10% -0- 5% 5% 5% -0- -0- -0-
Size -0- -0- -0- -0- -0- -0- -0- -0-
Zoning -0- -0- -0- -0- -0- -0- -0- -0-
Other -0- -0- -0- -0- -0- -0- -0- -0-
Total Physical Adjustments 0% -15% -10% 10% 5% 0% -10% -10%
Adjusted Price ($/Acre) $49,620 $90,100 $87,694 $85,458 $83,003 $70,000 $100,923 $89,100
</TABLE>
<PAGE>
Conclusion: The adjusted prices range between approximately $50,000 and $101,000
per acre with most prices being between $80,000 to $90,000 per acre. All of the
sales have been given some weight in my analysis; however, less weight is placed
on Sale 1 and Sale 7. Considering the adjusted range of the comparable sales, I
estimate that a value of $90,000 per acre is most applicable to the NEBC 1, NEBC
2, and NEBC 5 sites. Due to NEBC 3 and NEBC 4's slightly inferior exposure and
location within the park, I estimate their value to be $80,000 per acre. The
estimated value of each site is calculated in Table VII - 3.
Table VII - 3
Northeast Business Campus
Land Valuation Calculations
Property (Site) $/Acre Acres Value Indication
NEBC 1 $90,000 3.536 $318,240
rounded, $320,000
NEBC 2 $90,000 3.289 $296,010
rounded, $300,000
NEBC 3 $80,000 1.894 $151,520
rounded, $150,000
NEBC 4 $80,000 2.043 $163,440
rounded, $160,000
NEBC 5 $90,000 9.381 $844,290
rounded, $840,000
Average/Total $88,045 20.143 $1,773,500
rounded, $1,770,000
Based upon the above factors, as well as the available market evidence, I
estimate that an average value of approximately $88,000 per acre is most
applicable to the subject site as of the date of inspection. The estimated value
of the subject site as of December 1, 1995, is as follows:
One Million Seven Hundred Seventy Thousand Dollars
$1,770,000
<PAGE>
Improvement Valuation
Replacement Cost Estimates: Historical construction costs and detailed
construction plans were not available to the appraiser. Marshall Valuation
Service, a national cost service, has been used in estimating the replacement
cost new of the subject improvements. Replacement cost new for the subject has
been derived from the MVS low/average and average cost categories, based on the
exterior and interior improvements of the subject. Marshall Valuation Service
derives a cost estimate from the input of available data. I extracted data from
public records and limited construction plans and specifications supplied by the
property management firm. Supporting MVS information is included in the Addenda.
The assumptions used are:
NEBC 1
- 31,561 gross square feet of office space
- average cost rank
- one story
NEBC 2
- 32,812 gross square feet of office space
- average cost rank
- one story
NEBC 3
- 24,138 gross square feet of office space
- low/average cost rank
- one story
NEBC 4
- 23,991 gross square feet of office space
- low/average cost rank
- one story
NEBC 5
- 71,000 gross square feet of office space
- average cost rank
- two stories
<PAGE>
According to Marshall's, the replacement cost for the subject is estimated at
approximately $42 per square foot for NEBC 1 and NEBC 2, $37 per square foot for
NEBC 3 and NEBC 4, and $71 per square foot for NEBC 5. As stated previously, the
figures utilized for the direct costs were obtained through the use of Marshall
Valuation Service. The direct costs include material, labor, normal interest on
building funds and processing fees during the period of construction, sales tax
on materials, utilities from structure to lot line, contractor's overhead and
profit including job supervision, worker's compensation, and
fire-liability-unemployment insurance. The costs do not include site
improvements, land value, intangible assets, and developer's profit. Based on
MVS cost estimates, I have estimated site improvements of $1,042,541 for asphalt
paving of entry drives and parking areas, concrete paving of walkways, lighting,
signage and landscaping. These calculations and resulting allocations are
presented in Table VII - 4.
Depreciation
Accrued Depreciation: Defined in the Dictionary of Real Estate Appraisal most
recently published by the Appraisal Institute, accrued depreciation is the
difference between the improvement's reproduction or replacement cost and its
present value as of the date of the appraisal. Depreciation is divided into
three classifications: (1) physical deterioration, curable and incurable; (2)
functional obsolescence, curable and incurable; and (3) external (economic)
obsolescence.
Physical Curable Deterioration refers to the loss in value due to wear and tear
of the physical components of a structure and is normally measured by the cost
to cure for those physical aspects of the structure that are in need of repair.
The subject was constructed in 1981 to 1983. The subject's improvements do not
require refurbishing at this time. No material items of deferred maintenance
were noted.
Physical Incurable Deterioration involves the structural components of the
improvements which have economic lives equal to or shorter than the life of the
improved property as a whole, but which are not completely deteriorated as of
the date of the appraisal. These items are classified into two principal
categories, Long-Lived Components and Short-Lived Components. Each are
calculated using the Modified Economic Age-Life method. The Age-Life method
estimates the physical incurable deterioration based upon the relationship of
the structure's effective age to total estimated economic life.
Based upon the observed condition of the Long-Lived subject improvements, the
effective age of the subject is considered to be 14 years. Familiarity with
office developments throughout the nation, and utilizing economic life estimates
compiled by MVS, I have concluded that a typical economic life for an office
complex such as the subject, is approximately 50 years. Therefore, based on the
Long-Lived components' effective age divided by a 50-year economic life yields a
physical incurable depreciation ratio of approximately 28% of the replacement
cost new of the Long-Lived building components (includes building improvements).
<PAGE>
Site improvements generally have a shorter economic life than the structure, and
therefore are termed Short-Lived components. These components have a moderate
effective age. Based on MVS information, I have applied a 15-year life to the
subject's Short-Lived components. Based on my experience and data from MVS, I
have estimated the effective age for the Short-Lived items to be six years. As a
result, 40% (6/15) depreciation will be applied to Short-Lived components.
Functional Obsolescence is a loss or reduction in utility of a structure
resulting from a decreased capacity of the structure or one of its components to
perform the function for which it was intended. This type of depreciation or
obsolescence is evidenced by conditions within the property and is generally
caused by deficiencies in architectural style, placement of the improvements on
the site, or general floor plan. Based upon my inspection of the subject, no
major elements of dysfunction are apparent.
External Obsolescence is the diminished utility of a structure due to negative
influences from outside the site and is incurable on the part of the owner. The
area office market appears to be stable, although neighboring properties appear
to have at least some impact on the subject's value, particularly the all-office
properties. Due to the subjectivity involved in quantifying such considerations,
a specific deduction is not made; however, consideration is given to this matter
in the Reconciliation
Entrepreneurial or Developer's Profit: In order to accurately reflect value from
the Cost Approach, some increment of entrepreneurial profit should be
considered. Entrepreneurial profit represents the amount an entrepreneur
receives over and above the costs incurred. This represents the incentive or
reward to an entrepreneur to undertake a project and its associated risks.
The amount of profit an entrepreneur should reasonably expect to receive varies
with the specific factors affecting the riskiness of the project and what the
market is willing to pay. Based upon my knowledge of and experience with the
market, I have estimated that a 10% entrepreneurial profit would be necessary to
attract investors to this project.
Summary: The MVS estimates (plus entrepreneurial profit) are well supported.
Table VII - 4 illustrates the Cost Approach summary (replacement cost new from
MVS, plus land value and entrepreneurial profit).
<PAGE>
<TABLE>
<CAPTION>
Table VII - 4
Cost Approach Summary
Northeast Business Campus
<S> <C> <C> <C> <C> <C> <C>
Replacement Cost New: NEBC 1 NEBC 2 NEBC 3 NEBC 4 NEBC 5 Total Cost
Building Improvements $1,335,922 $1,388,070 $895,889 $890,613 $5,034,610 $9,545,104
Site Improvements 183,701 165,685 87,547 97,503 508,105 1,042,541
Total Replacement Cost New 1,519,623 1,553,755 983,436 988,116 5,542,715 10,587,645
Less: Accrued Depreciation
Building Improvements (28%) -374,058 -388,660 250,849 249,372 409,691 2,672,629
Site Improvements (40%) -73,480 -66,274 -35,019 -39,001 -203,242 -417,016
Replacement Cost Less Accrued Depreciation 1,072,084 1,098,822 697,568 699,743 3,929,782 7,497,999
Plus: Entrepreneurial Profit (10%) 107,208 109,882 69,757 69,974 392,978 749,800
160,000 840,000
Plus: Land Value (see previous analysis) 320,000 300,000 150,000 1,770,000
Value Indication $1,499,293 $1,508,704 $917,325 $929,718 $5,162,760 $10,017,799
Rounded $1,500,000 $1,510,000 $920,000 $930,000 $5,160,000 $10.000,000
+ Apparent summation errors are due to rounding.
Source: Marshall & Swift, Marshall Valuation Service.
</TABLE>
<PAGE>
Conclusion
Based upon the preceding analysis, it is my opinion that the market value of the
subject via the Cost Approach, as of December 1, 1995, is:
Ten Million Dollars
$10,000,000
<PAGE>
Section VIII
Reconciliation
The three traditional approaches to value - Income Capitalization, Sales
Comparison, and Cost - are used to estimate the value of the subject. The
indications of value as of December 1, 1995, are as follows:
Table VIII - 1
Northeast Business Campus
Summary of Value Indications
Income Sales Cost
Capitalization Comparison Approach
Approach Approach
NEBC 1 $1,450,000 $1,550,000 $1,500,000
to $1,700,000
NEBC 2 $1,730,000 $1,550,000 $1,510,000
to $1,700,000
NEBC 3 $1,080,000 $1,050,000 $920,000
to $1,150,000
NEBC 4 $1,080,000 $1,050,000 $930,000
to $1,150,000
NEBC 5 $3,950,000 $3,700,000 $5,160,000
to $4,000,000
Total $9,300,000 $8,900,000 $10,000,000
(rounded) to $9,700,000 (rounded)
The approaches represent alternative ways of viewing market phenomena. A final
estimate of value was selected as the dominant tendency or most probable outcome
from a range of possible outcomes.
<PAGE>
Within the Income Capitalization Approach, the Discounted Cash Flow method was
used to provide an indication of value for the subject. Income and expense
estimates were based primarily upon an analysis of historical data provided from
the subject and similar properties. The quality and quantity of data available
was generally very good. Current investment parameters and market conditions
were also considered.
The discounted cash flow analysis provides an indication of value by discounting
future estimates of net annual income and net sale proceeds. The discount rate
and terminal capitalization rate were within the range of the investment
criteria of national investors. Since office complexes are income-producing
properties purchased with the intent of realizing future profits, this approach
is considered a highly reliable indication of value for the subject.
The Sales Comparison Approach provided a relatively reliable indication of value
based on the analysis of sale data relative to comparable market-rate
properties. The sales were analyzed utilizing primarily the
price-per-rentable-square-foot unit of comparison.
The Cost Approach is particularly applicable when the property being appraised
involves relatively new improvements, or when unique or specialized improvements
are situated on the site for which there are no comparable properties in the
market. This approach is based on the proposition that the informed investor
would pay no more for a property than the cost of producing a substitute
property with the same utility. The weakness of this approach is that it does
not reflect the reasoning of the typical investor. Due to the weaknesses of the
Cost Approach, it was not heavily weighted in analyzing the subject. The Cost
Approach suggests a degree of external obsolescence affecting the subject,
especially in the case of NEBC 5. A point also might be made that NEBC 5
contains excess -- albeit unusable -- land. These factors were not specifically
quantified; however, they are incorporated in my final value conclusion.
I believe the Income Capitalization Approach and Sales Comparison Approach are
both indicative of market value. The Cost Approach provided a supporting
indication of market value.
Subject to all conditions and explanations contained in the accompanying report,
my estimate of the market value of the leased fee interest in Buildings 1
through 5 of the Northeast Business Campus, expressed in financial terms
equivalent to cash, as of December 1, 1995, is:
Nine Million Five Hundred Thousand Dollars
$9,500,000
<PAGE>
Section IX
Certification
I certify that, to the best of my knowledge and belief;
The statements of fact contained in this report are true and correct.
The reported analyses, opinions, and conclusions are limited only by the
reported assumptions and limiting conditions and are my personal, unbiased
professional analyses, opinions, and conclusions.
I have no present or prospective interest in the property that is the
subject of this report, and I have no personal interest or bias with
respect to the parties involved.
Neither my engagement to make this appraisal (or any future appraisals for
this client) nor any compensation is contingent upon the reporting of a
predetermined value or direction in value that favors the cause of the
client, the amount of the value estimate, the attainment of a stipulated
result, or the occurrence of a subsequent event. Furthermore, this report
is not based on a requested minimum valuation or specific valuation or
approval of a loan.
My analyses, opinions, and conclusions were developed, and this report has
been prepared, in conformity with the requirements of the Code of
Professional Ethics and the Standards of Professional Practice of the
Appraisal Institute and in conformity with the Uniform Standards of
Professional Appraisal Practice.
The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
As of the date of this report, Steven R. Reynolds, MAI has completed the
requirements of the continuing education program of the Appraisal Institute.
Steven R. Reynolds has made a personal inspection of the subject as of the
date of the appraisal report.
No one provided significant professional assistance to the person signing
this report.
Steven R. Reynolds, MAI
State Certified General Real Estate Appraiser
Certificate Number 379754
<PAGE>
APPRAISAL REPORT
OF THE
NORTHEAST BUSINESS CAMPUS
CORPORATE DRIVE
COLUMBUS, FRANKLIN COUNTY, OHIO
AS OF
DECEMBER 1, 1995
Addenda
Legal Descriptions Addendum I
Qualifications Addendum II
Engagement Letter Addendum III
Evidence of State Appraisal Certification Addendum IV
Pro-Ject Data Addendum V
Marshall Cost Calculations Addendum VI
Floor Plans Addendum VII
M-2 Zoning Text Addendum VIII
<PAGE>
Addendum I
Legal Descriptions
(INFORMATION DEEMED CONFIDENTIAL)
<PAGE>
Addendum II
Qualifications
<PAGE>
PROFESSIONAL QUALIFICATIONS OF STEVEN R. REYNOLDS
Steven Reynolds founded Pinnacle Associates, Inc. in 1994. Previously, Mr.
Reynolds had been affiliated with a national/regional appraisal and consulting
firm since 1987, where he had most recently served as a Director of Appraisal
Services. Mr. Reynolds is actively involved in the valuation of numerous
income-producing property types including office, industrial, and multi-property
portfolios. In addition, he has participated in structuring appraisal services
for specialized reporting needs.
Mr. Reynolds received his MAI designation from the Appraisal Institute in 1993,
and is a Certified General Appraiser in the State of Ohio (Certificate Number
379754).
EDUCATION
Bachelor of Science in Business Administration (Dual Major: Real Estate & Urban
Analysis and Finance); The Ohio State University, Columbus, Ohio, 1987
Various Seminars and Programs sponsored by:
The Appraisal Institute
The Urban Land Institute
Ohio Mortgage Bankers Association
Argus Financial Software
Dyna Software & Consulting (DynaLease)
Appraisal Institute courses and seminars including:
Real Estate Appraisal Principles; Basic Valuation Procedures;
Capitalization Theory and Techniques, Part A; Capitalization Theory and
Techniques, Part B; Case Studies in Real Estate Valuation; Valuation
Analysis and Report Writing; Standards of Professional Practice;
Feasibility Analysis and Highest & Best Use; Appraising Troubled
Properties; Applied Sales Comparison Approach; Marshall Valuation
Service; Environmental Issues in Real Estate; and Small Residential
Income Properties.
PROFESSIONAL AFFILIATIONS
Appraisal Institute: Ethics and Counseling Regional Panel, 1996
Buckeye Chapter of the Appraisal Institute: Program Chair, 1992-94;
Regional Delegate, 1994;
Admissions Committee, 1994
Cardinal Ohio Chapter of the Appraisal Institute: Regional Delegate, 1995;
Regional Alternate 1996;
Admissions Committee, 1995,
Co-Chair 1996;
Young Advisory Council of the Appraisal Institute: Delegate, 1991 & 1992
National Association of Realtors; Ohio Association of Realtors
City Of Grandview Heights, Ohio: Ad Hoc Steering Committee to Develop a
Comprehensive Plan, 1995 & 1996
<PAGE>
Addendum III
Engagement Letter
(INFORMATION DEEMED CONFIDENTIAL)
<PAGE>
VIA FACSIMILE (614) 486-8933
November 27, 1995
Mr. Steven R. Reynolds, MAI
President
Pinnacle Associates, Inc.
1500 West Third Avenue, Suite 222
Columbus, Ohio 43212
SUBJECT: Northeast Business Campus ("NEBC")
Columbus, Ohio
Dear Steven:
We appreciate your response to our request of your appraisal services regarding
the property referenced above.
This letter will confirm our understanding that Steven Reynolds, MAI of Pinnacle
Associates, Inc. shall perform the following real estate appraisal assignment
for USF&G Real Estate Division.
Subject Property
to be Appraised: Northeast Business Campus ("NEBC")
Corporate Drive
Columbus, Ohio
Property Description: Business Campus containing five
office/office-showroom buildings on
20 +\- acres.
Purpose and Function
of Appraisal: The purpose of the appraisal
shall be to estimate the Market Value of the
subject property specified above. The
function of the appraisal shall be to
establish a current Market Value "As Is" for
the subject property in regard to the Right
of Presentment for the "Fund".
Estimated Value/Date/and
Interest Appraised: The Value to be estimated in the appraisal
shall be the Market Value "As Is" of the
leased fee interest in the subject
property, as of December 1, 1995.
The date of inspection of the subject should
be at or around this time period.
<PAGE>
Type of Appraisal: The type of appraisal shall be a full
narrative appraisal report subject to the
terms herein and outlined in "Specific
Conditions".
Due Date/Deadlines: Three complete draft
appraisal reports, including all exhibits
("Appraisal Report Summary" sheet, maps,
spreadsheets, etc.), but excluding
photographs, shall be delivered to USF&G
Real Estate Division for review by December
27, 1995. After USF&G Real Estate Division
has reviewed the draft, mutually agreed upon
revisions, additions and deletions shall be
incorporated into the final document. Three
final appraisal reports are due within seven
working days from the date USF&G Real Estate
Division's final written comments are
received by Pinnacle Associates, Inc.
In the event that the draft appraisal
reports cannot be delivered to USF&G Real
Estate Division by the due date, Julie C.
Tyler must be notified by
telephone at least one week prior to the
date specified herein. A letter must be sent
to the aforementioned indicating the reason
for not meeting the specified due dates
(draft or finals). The revised draft/final
due date must be indicated in the letter.
The reason for not meeting the due dates and
revised due dates must be approved by Julie
C. Tyler. If the reason for not meeting the
due dates is not justified and/or if Ms.
Tyler has not been informed at least one
week prior to the due dates by telephone, a
fee reduction of $250 per diem will be
imposed for every day the appraisal exceeds
the due date.
Appraisal Fee: The fee for the appraisal assignment,
including all costs related thereto, shall
be $7,000. The entire fee shall be due after
three final full narrative appraisal reports
are received by USF&G Real Estate Division.
Invoices are paid within 30 days after three
final reports are received and accepted
under the USF&G Appraisal Guidelines
attached as an exhibit to this letter and
the Appraisal Institute's Standards and
Ethic requirements. Please issue two
original invoices along with the final
appraisal report at that time.
Information Necessary for
Completion of the
Appraisal: The information needed to complete the
appraisal shall be coordinated by Paul
Berry, the Asset Manager of the property.
His telephone number is (410) 625-5528.
Exhibit I presents a list of information
that at a minimum would be necessary to
complete the appraisal (obviously, the
applicability of the information is
dependent upon the type of property under
appraisement). This information will be
provided at the inception of the appraisal
assignment within a reasonable time. If the
information is not received within a
reasonable time, please call Julie C. Tyler
immediately.
<PAGE>
Specific Conditions: o The appraisal form, content, and scope
shall be prepared in conformity with and
are subject to the requirements of the Code
of Professional Ethics and Standards of
Professional Conduct of the Appraisal
Institute and the Uniform Standards of
Professional Appraisal Practice.
o USF&G Real Estate Division's guidelines
shall be followed in performing this
appraisal and are presented in Exhibit II.
o The "Appraisal Report Summary" document
(three pages) shall be completed and
presented after the "Table of Contents"
section in each draft and final appraisal
report. This summary document is attached to
this letter agreement and is labeled as
Exhibit III.
o The appraisal shall be prepared using the
Cost, Direct Sales Comparison, and Income
Approaches (direct capitalization and
discounted cash flow analysis) to estimate
Value. The three Values must be reconciled
to estimate the final Market Value "As Is"
for the subject property.
o A lease-by-lease analysis shall be performed
using a real estate software program (such
as Dynalease, Dynamis, Pro-Ject, OFFICE2,
Argus, or Realdex) approved by Julie C.
Tyler. Market data should be reflected
during tenant rollovers. Lease-by-lease data
shall be printed and included as an addendum
to the draft and final reports.
o All the appraisers signing the report must
inspect the subject property and
comparables.
o The appraiser shall identify the marketing
time period for the property in the section
of the appraisal report where the estimate
of Market Value is indicated.
o The contracted MAI Appraiser herein attests
to the fact that all appraisers signing and
working on the appraisal assignment have at
a minimum five years of appraisal
experience, including appraisals of
office/flex type buildings.
o When submitting the final reports, you must
also include a diskette of the full
narrative appraisal report, as well as all
addenda items. The software used must be a
machine readable version. Further, include
another diskette that has all the cash flow
assumptions and financial projections
contained on the approved software program
(a total of two diskettes to be submitted).
Please provide a typed comprehensive list of
those items in the addenda that are not
included on the diskette (i.e., maps, zoning
ordinance, copy of deed, etc.). These
diskettes are necessary for the Fund SEC
filing requirements which this property is a
part of.
<PAGE>
This appraisal report is for the exclusive use of USF&G Real Estate Division and
its client and assignees. Pinnacle Associates, Inc. shall not reveal the
appraisal report to any party other than representatives indicated herein with
the USF&G Real Estate Division.
If these terms and conditions are acceptable, please execute this letter
agreement below and return an original to me by November 30, 1995. Thank you for
your attention and we look forward to working with you on this assignment.
Sincerely,
Julie C. Tyler, MAI
Manager, Real Estate Valuations
JCT:jfk
MEMO19\NEBCLtr.doc
Enclosures
cc: Calvin Thomas, MAI, Legg Mason Realty, Inc.
Joe Wesolowski
Paul Berry
1995 Appraisal File of Northeast Business Campus ("NEBC")
Accepted this __________ day of ________________________, 1995
Appraisal Firm: PINNACLE ASSOCIATES, INC.
By: ___________________________________________________________________________
Its: __________________________________________________________________________
<PAGE>
Addendum IV
Evidence of State Certification
<PAGE>
Addendum V
Pro-Ject +
NORTHEAST BUSINESS CAMPUS - BLDGS. 1, 2, 3, 4, 5
MNEMONIC REFERENCE TABLE,
PROJECT ASSUMPTIONS REPORT,
LEASE ABSTRACT REPORT,
AVERAGE OCCUPANCY REPORT,
ANNUAL TENANT REVENUE REPORT FOR ALL TENANTS
(INFORMATION DEEMED CONFIDENTIAL)
<PAGE>
Addendum VI
Marshall's Cost Calculation
<PAGE>
Addendum VII
Floor Plans
<PAGE>
Addendum VIII
Zoning Information
<PAGE>
Exhibit 28.24
Appraisal of St. Andrews at Westwood
at December 1, 1995
<PAGE>
COMPLETE APPRAISAL
SELF-CONTAINED APPRAISAL REPORT
OF THE
ST. ANDREWS APARTMENTS
11500 Westwood Boulevard
Orlando, Orange County, Florida
CBC File No. 95-144
DATE OF VALUE
December 1, 1995
PREPARED FOR
Julie C. Tyler, MAI
Manager, Real Estate Valuations
UNITED STATES FIDELITY AND GUARANTY COMPANY
100 Light Street
Baltimore, MD 21202
PREPARED BY
John S. Galt, MAI, CCIM
Vice President/Senior Analyst
and
Sam Hines, MAI,
SGA First Vice
President/Regional
Manager CB COMMERCIAL
REAL ESTATE GROUP, INC.
APPRAISAL SERVICES
201 South Orange Avenue, Suite 1460
Orlando, Florida 32801
<PAGE>
Julie C. Tyler, MAI
December 18, 1995
Page 2
December 18, 1995
Julie C. Tyler, MAI
Manager, Real Estate Valuations
United States Fidelity and Guaranty Company
100 Light Street
Baltimore, MD 21202
RE: Appraisal of St. Andrews Apartments (259 Units)
11500 Westwood Boulevard, Orlando, Florida
CBC File No. 95-144
Dear Julie C. Tyler, MAI:
At your request and authorization, CB Commercial Real Estate Group, Inc. has
prepared a Complete Appraisal, presented in a self-contained appraisal report,
of the current market value of the fee simple estate interest, subject to the
existing short term leases, in the above-referenced real property, as well as
the prospective future market value upon completion of the current capital
improvements program.
The subject property consists of a 259 unit garden apartment complex, and is
more fully described, legally and physically, within the enclosed report. The
buildings suffer from rotten masonite siding and damaged vinyl tile roofs and
there is a capital improvements program underway which should cure these
deficiencies. The remaining cost to cure these deficiencies is approximately
$2,709,041
Data, information, and calculations leading to the value conclusion are
incorporated in the report following this letter. The report, in its entirety,
including all assumptions and limiting conditions, is an integral part of and
inseparable from this letter.
Based on research and analysis contained in this report, it is estimated that
the current market value of the fee simple estate interest, subject to the
existing short term leases, in the subject property, "as is" on December 1,
1995, was:
EIGHT MILLION EIGHT HUNDRED THOUSAND DOLLARS
($8,800,000)
it is also estimated that the prospective future market value of the fee simple
estate interest, in the subject property upon completion of the capital
improvements, which we project will occur by December 1, 1996, will be:
ELEVEN MILLION EIGHT HUNDRED THOUSAND DOLLARS
($11,800,000)
The following appraisal sets forth the most pertinent data gathered, the
techniques employed, and the reasoning leading to the opinion of value. The
analyses, opinions and conclusions were developed based on, and this report has
been prepared in conformance with, our interpretation of the guidelines and
recommendations set forth in the Uniform Standards of Professional Appraisal
Practice (USPAP), the requirements of the Code of Professional Ethics and
Standards of Professional Appraisal Practice of the Appraisal Institute; and the
appropriate regulations and guidelines set forth by United States Fidelity and
Guaranty Company, as submitted to us.
It has been a pleasure to assist you in this assignment. If you have any
questions concerning the analysis, or if CB Commercial Real Estate Group, Inc.
can be of further service, please do not hesitate to contact us.
Respectfully Submitted,
CB COMMERCIAL REAL ESTATE GROUP, INC.
APPRAISAL SERVICES
by:
- ------------------------------- -------------------------------
John S. Galt, MAI, CCIM Sam Hines, MAI, SGA
Vice President/Senior Analyst First Vice President/Regional Manager
<PAGE>
CERTIFICATION OF THE APPRAISERS
We certify that to the best of our knowledge and belief:
1. The statements of fact contained in this report are true and correct.
2. The reported analyses, opinions, and conclusions are limited only by the
reported assumptions and limiting conditions and are our personal, unbiased
professional analyses, opinions, and conclusions.
3. We have no present or prospective interest in the property that is the
subject of this report and have no personal interest or bias with respect to the
parties involved.
4. Our compensation is not contingent upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the amount of
the value estimate, the attainment of a stipulated result, or the occurrence of
a subsequent event, such as the approval of a loan.
5. Our analyses, opinions, and conclusions were developed, and this report has
been prepared, in conformity with the Uniform Standards of Professional
Appraisal Practice of The Appraisal Foundation and the requirements of the Code
of Professional Ethics and the Standards of Professional Appraisal Practice of
the Appraisal
Institute.
6. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
7. John S. Galt, MAI and Sam Hines, MAI have completed the requirements of the
continuing education program of the Appraisal Institute.
8. John S. Galt, MAI and Sam Hines, MAI have made a personal inspection of the
property that is a subject of this report.
9. No one provided professional assistance to the persons signing this report.
10. John S. Galt, MAI and Sam Hines, MAI have extensive experience in the
appraisal/review of similar property types.
11. John S. Galt, MAI and Sam Hines, MAI are currently certified in the state
where the subject is located.
- ------------------------------- -------------------------------
John S. Galt, MAI, CCIM Sam Hines, MAI, SGA
Vice President/Senior Analyst First Vice President/Regional Manager
St. Cert. Gen. REA#0000818 St. Cert. Gen. REA#0000126
<PAGE>
SUBJECT PHOTOGRAPHS
PHOTOGRAPH
ST. ANDREWS ENTRANCE AND BUILDING NO. 2
PHOTOGRAPH
ST. ANDREWS POOL AREA
<PAGE>
SUMMARY OF SALIENT FACTS
Property Name: St. Andrews Apartments
Location: 11500 Westwood Boulevard
Orlando, Orange County, Florida
Assessor's Parcel Number: 13-24-28-6283-00-120
Property Description: Garden apartment complex with 259 units, some
of which have golf course views on the adjoining
International Golf Club property.
Highest and Best Use
As Though Vacant: Multifamily Residential
As Improved: Garden apartment complex
Property Rights Appraised: Fee simple estate interest, subject to the
existing short term leases.
Date of Value: December 1, 1995
Land Area
Gross: 14.552
Net: 14.552
Improvements
Number of Units 259
Living Area (SF): 198,916
Year Built: 1989
Condition: Fair
Estimated Marketing Time: 6 to 9 months
<PAGE>
Financial Indicators
Current Occupancy: 90%
Stabilized Occupancy: 91%
Estimated Stabilized Expenses (Unit): $846,098 ($3,266)
Going-In Overall Capitalization Rate 8.75%
Selected:
Terminal Overall Capitalization Rate: 9.5%
Discount Rate: 12.0%
Valuation As Is Stabilized
Land Value: $2,200,000 $2,200,000
Cost Approach $9,200,000 $11,400,000
Sales Comparison Approach: $8,700,000 $11,900,000
Income Capitalization Approach $8,800,000 $11,800,000
Final Value
Conclusion: $8,800,000 $11,800,000
Per Unit: $33,976 $45,560
<PAGE>
USF&G APPRAISAL REPORT SUMMARY
APPRAISAL REPORT SUMMARY
(INFORMATION DEEMED CONFIDENTIAL)
<PAGE>
TABLE OF CONTENTS
CERTIFICATION OF THE APPRAISERS..........................................i
SUBJECT PHOTOGRAPHS.....................................................ii
SUMMARY OF SALIENT FACTS................................................ii
USF&G APPRAISAL REPORT SUMMARY...........................................v
TABLE OF CONTENTS.....................................................viii
INTRODUCTION.............................................................1
AREA ANALYSIS............................................................6
MARKET ANALYSIS.........................................................19
SITE ANALYSIS...........................................................22
IMPROVEMENT ANALYSIS....................................................26
ZONING..................................................................31
TAX AND ASSESSMENT DATA.................................................32
HIGHEST AND BEST USE....................................................34
APPRAISAL METHODOLOGY...................................................36
LAND VALUE..............................................................38
COST APPROACH...........................................................44
SALES COMPARISON APPROACH...............................................52
INCOME APPROACH.........................................................60
RECONCILIATION OF VALUE.................................................83
ASSUMPTIONS AND LIMITING CONDITIONS.....................................85
SPECIFIC ASSUMPTIONS AND LIMITING CONDITIONS............................89
ADDENDA
A Glossary Of Terms
B Additional Photographs
C Rental Comparables
D Improved Comparable Sales
E Land Comparables
F Legal Description
G Demographics
H Rent Roll
I Argus Reports
J Capital Repairs & November Draw/Building Plans
K Letter of Engagement
L Qualifications
<PAGE>
INTRODUCTION
PROPERTY IDENTIFICATION
The subject is located at 11500 Westwood Boulevard, in Orlando, Orange County,
Florida The county assessor's tax identification number is 13-24-28-6283-00-120.
A legal description is presented in the Addenda, Exhibit F.
OWNERSHIP AND PROPERTY HISTORY
The subject is currently owned by USF&G/Legg Mason Realty Partners. The subject
has not sold in the last three years. It was previously purchased in 1990 for
$13,700,000. There is no known current listing, option, or agreement of sale of
the subject.
DATES OF INSPECTION AND VALUATION
The site was last inspected by John S. Galt, MAI, CCIM on December 2 and
December 5, 1995. Sam Hines, MAI, SGA also inspected the subject and the
comparables employed, and reviewed this report and concurs with the conclusions.
The date of value is December 1, 1995, the date specified by the client.
PURPOSE OF THE APPRAISAL
The purpose of this appraisal is to estimate the current market value of the fee
simple estate interest, subject to the existing short term leases. in the
subject property, in "as is" condition. We have also included the prospective
future value upon completion of the capital improvements which are currently in
progress. Market value is defined as follows:
Market value is one of the central concepts of the appraisal practice.
Market value is differentiated from other types of value in that it is
created by the collective patterns of the market. Market value means
the most probable price which a property should bring in a competitive
and open market under all conditions requisite to a fair sale, the
buyer and seller each acting prudently and knowledgeably, and assuming
the price is not affected by undue stimulus. Implicit in this
definition is the consummation of a sale as of a specified date and the
passing of title from seller to buyer under conditions whereby:
1. Buyer and seller are typically motivated;
2. Both parties are well informed or well advised, and acting in
what they consider their own best interests;
3. A reasonable time is allowed for exposure in the open market;
4. Payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
5. The price represents the normal consideration for the property
sold unaffected by special or creative financing or sales
concessions granted by anyone associated with the sale. 1
TERMS AND DEFINITIONS
Please refer to the Addenda, Exhibit A, for a Glossary of the Terms and
Definitions that are, and may be used in this appraisal.
INTENDED USE OF REPORT
This appraisal is for internal decision-making purposes in regard to the Right
of Presentment for the "Fund".
PROPERTY RIGHTS APPRAISED
The value estimated represents the fee simple estate interest, subject to the
existing short term leases..
APPRAISAL DEVELOPMENT AND REPORTING PROCESS
The following steps were completed by CB Commercial for this assignment:
1. Analyzed regional, city, neighborhood, site, and improvement data.
2. Inspected the subject and the neighborhood.
3. Reviewed data regarding taxes, zoning, utilities, easements, and city
services.
4. Considered comparable improved sales, comparable improved building
rental information, and comparable site sales. Confirmed data with
principals, managers, or real estate agents representing principals,
unless otherwise noted.
5. Analyzed the data to arrive at conclusions via each approach to value
used in this report.
6. Reconciled the results of each approach to value employed into a
probable range of market data and finally an estimate of value for the
subject, as defined herein.
7. Estimated a reasonable exposure time associated with the value estimate.
The subject site and improvement descriptions are based on a personal inspection
of the property, discussions with Ms. Brandi Jackson, property manager with
Summit Management, and a review of the relevant plat maps and site plan. The
inspection is not a substitute for thorough engineering studies.
- --------
1 The definition of market value is taken from: The Office of the Comptroller of
the Currency under 12 CFR, Part 34, Subpart C-Appraisals, (C167) 34.42(f),August
24, 1990. This definition is compatible with the definition of market value
contained in The Dictionary of Real Estate Appraisal, Third Edition, and the
Uniform Standards of Professional Appraisal Practice adopted by the Appraisal
Standards Board of The Appraisal Foundation, 1992 edition. This definition is
also compatible with the OTS, RTC, FDIC, NCUA, and the Board of Governors of the
Federal Reserve System definition of market value.
To develop the opinion of value, CB Commercial performed a complete appraisal
process, as defined by the Uniform Standards of Professional Appraisal Practice.
This means that no departures from Standard 1 were invoked.
This is a complete appraisal, in the form of a Self-Contained Report, which is
intended to comply with the reporting requirements set forth under Standards
Rule 2-2(b) of the Standards of Professional Appraisal Practice. The definitions
of Complete Appraisal and Self-Contained Report are found in the Glossary of
Terms and Definitions. In a complete appraisal, CB Commercial uses all known
applicable approaches to value. The value conclusion reflects all known
information about the subject property, market conditions, and available data.
The Self-Contained Report incorporates to the fullest extent possible, practical
explanation of the data, reasoning and analysis that were used to develop the
opinion of value. It also includes thorough descriptions of the subject property
and the market for the subject property type. Data requested for this
assignment, but not received, includes the following significant items which,
had they been made available, may have had an effect on the final concluded
value. However, without having seen these documents or having access to these
people, CB Commercial Real Estate Group, Inc. Appraisal Services cannot make any
conclusions regarding their impact on value.
1. Title report/title policy
2. Information regarding any known environmental problems
3. Information regarding property's compliance with the Americans
with Disabilities Act of 1990 (ADA)
SPECIAL APPRAISAL INSTRUCTIONS
The special appraisal instructions, directed by Julie C. Tyler, MAI, are
included in addendum within the engagement letter. are to use a December 1, 1995
date of value.
MARKETING PERIOD
The marketing period section is divided into reasonable exposure time and
reasonable marketing time. Exposure time differs from marketing time. Marketing
time is the period required to sell a real property interest at market value
during the period immediately after the effective date of the appraisal.
Exposure time is always presumed to precede the effective date of the appraisal.
Exposure Time of Comparable Sales and Listings
CB Commercial analyzed sales and listings of comparable properties in the
immediate and overall metropolitan area for the Sales Comparison Approach. Each
comparable reflects competitive locational and physical characteristics, sharing
similar social and economic amenities with the subject. The Exposure Time of
Improved Sales chart illustrates the range of exposure time necessary to
generate a sale at market value.
<PAGE>
EXPOSURE TIME OF IMPROVED SALES
Comparable Marketing Period
Pine Harbour Apartments 6 months
The Landings 4 months
The Arbors at Kirkman Park 3 months
Newport Colony 6 months
Club Esprit 14 months
Source: CB Commercial Real Estate Group, Inc.
In the most recent issue of the CB Commercial National Investor Survey,
published in the Third Quarter 1995, CB Commercial surveyed a wide range of
investors for property type preferences and specific marketing times.
Respondents showed a clear preference for apartments, suburban offices,
warehouse distribution facilities, neighborhood shopping centers, and community
shopping centers. In fact, apartments were still the number one preferred
property type, as they were in the prior survey. Investors indicated that
exposure requirements for investment property generally were the same as from
the previous survey, at about 6 months for the subject property type.
Exposure Time Conclusion
In conclusion, based on the foregoing analysis, an exposure time of between 6
and 9 months is reasonable, defensible, and appropriate. Like the brokers
surveyed, CB Commercial assumes that the subject property would have been
competitively priced and aggressively promoted regionally.
Reasonable Marketing Time
A reasonable marketing time is the period a prospective investor would forecast
to sell the subject property immediately after the date of value, at the value
estimated. Anticipated marketing time is essentially a measure of the perceived
level of risk associated with the marketability, or liquidity, of the subject as
an investment grade property. The sources for this information include those
used in estimating the reasonable exposure time, but also an analysis of the
anticipated changes in market conditions following the date of appraisal. In
other words, the reasonable marketing time is the number of months it will
require to sell the subject property from the date of value, into the future.
Based on the premise that present market conditions are the best indicators of
future performance, a prudent investor will forecast that, under the conditions
described above, the subject property will require a marketing time of 6 to 9
months.
<PAGE>
AREA ANALYSIS
INTRODUCTION
The constantly changing nature of economic relationships within a market area
have a direct bearing on real estate values and the long term quality of a real
estate investment. In the market, the value of a property is not based on the
price paid for it in the past or the cost of its creation, but on what buyers
and sellers perceive it will provide in the future. Consequently, the attitude
of the market toward a property within a specific neighborhood or market area
reflects the probable future trend of that neighborhood.
Since real estate is an immobile asset, economic trends affecting its locational
quality in relation to other competing properties within its market area will
also have a direct effect on its value as an investment. To accurately reflect
such influences, it is necessary to examine the past and probable future trends
which may affect the economic structure of the market area and evaluate their
impact on the market potential of the subject. This section of the analysis is
designed to isolate and examine the discernible economic trends in the local
area which influence and create value for the subject property.
The Orlando Metropolitan Statistical Area (MSA) is located in the geographical
center of Florida and covers approximately 2,518 square miles in Orange,
Seminole, Lake and Osceola Counties. Orlando, Winter Park and south Seminole
County comprise the primary population base which covers approximately 400
square miles and it is the growing hub of activity in Central Florida.
HISTORICAL OVERVIEW
Several significant events have affected the growth of the Orlando area over the
past 30 years.
o In 1965, Walt Disney announced that Walt Disney World would be built
southwest of downtown Orlando; and, with its opening in October 1971,
the Orlando area entered a dynamic growth period.
o In 1981, the Orlando International Airport was opened which enhanced
the access to Orlando from both U.S. and International destinations.
o In 1982, Walt Disney World completed construction of its EPCOT Theme
Park (Experimental Prototype Community of Tomorrow). During EPCOT's
first year in operation, Disney World attendance reached 22.7 million
persons, up from 12 to 14 million persons in previous years.
o In 1983, the first phase of the Orange County Convention/Civic Center
(325,000 sq.ft.) was completed, providing facilities for any meeting
style, thereby broadening the appeal of the Orlando Metropolitan Area
as a tourist and convention destination. The facility has undergone two
expansions and the final phase IV expansion is to be completed in 1996
to bring the total exhibit space to 1.1 million square feet and meeting
space to 370,000 square feet. The entire complex will encompass about 4
million square feet, making it the 6th largest exhibit space in the
U.S.
o In 1989, Walt Disney World opened the Disney/MGM Movie Studio Tour
which was the third theme park within the overall Walt Disney World
complex.
o In 1990, the Walt Disney Company announced a $1 billion-plus,
decade-long schedule of development that will include 7 new hotels, 29
new attractions, a fourth, theme park and a new city community on 4,400
acres south of U.S. 192 in Osceola County called "Celebration", which
will open in 1996.
o In 1990 Universal Studios Florida became the newest of the major
tourist attractions located in the Orlando area. In addition to studio
tours and attractions based on famous movies or producers, there are
six working sound stages containing 104,500 square feet of production
facility used for television, movie and commercial productions.
Universal Studios competes with the Disney/MGM Studio Tour in Walt
Disney World for both tourist and working production.
In addition to resort projects, public works projects continue to represent
major construction expenditures in the Orlando area, such as street and highway
construction and development of the new Orange County Courthouse in downtown
Orlando scheduled for 1995-1996.
POPULATION AND ECONOMY
From 1980 to 1990, the MSA's population grew from 804,900 to 1,224,850, a 4.3%
average annual increase.
PROJECTED POPULATION GROWTH - ORLANDO MSA 1990 - 2000
Projected
Census Projected Population Change 1990 - 2000
Avg Annual Percent
Area 1990 1995 2000 Number
MSA 1,224,850 1,430,400 1,624,100 193,700 2.9%
<PAGE>
REGIONAL AREA MAP
Compiled by: CB Commercial Real Estate Group, Inc.
<PAGE>
According to Sales & Marketing Management's Survey of Buying Power August, 1994
issue, the Orlando MSA indicated a population of 1,335,000, ranking 39th in the
nation (316 metro market areas) with respect to total population. This compares
to a ranking of 60th in 1984.
The upward trend in the MSA's population growth, spurred by a substantial amount
of economic development activity both underway and planned, is anticipated to
continue in the foreseeable future. This activity has generated abundant
employment opportunities in the MSA. An examination of this employment growth is
important for understanding population and growth in the region.
EMPLOYMENT GROWTH
Since the mid 1970's, the MSA has experienced steady growth in the number of
workers employed in the civilian labor force. Employment growth in the MSA is
provided in the chart below. From first quarter 1980 through the end of 1994,
total employment increased from 354,675 to 725,065, representing an average
annual increase of 5.2%. The average yearly addition of 23,645 new jobs to the
civilian labor force during this time period is but one indication of economic
prosperity in the Orlando MSA.
TOTAL CIVILIAN EMPLOYMENT - ORLANDO MSA 1980 - 1995
Change 1980 - 1995
Total Avg. Annual
Quarter/Year Employment Number Percent
I/1980 354,675 ------- -------
I/1985 490,841 136,166 8.5
I/1990 644,127 167,286 7.0
I/1994 682,162 38,035 1.9
I/1995 725,065 42,903 6.3
Source: U.S. Department of Labor; Florida Department of Labor & Employment
Security
By the end of 1994, total employment was approximately 725,065, reflecting a
total gain in jobs of 80,938 since January, 1990, obviously reflecting the
recession in 1990-1992. Because of the employment opportunities created by major
new development projects and by company expansion, the MSA's unemployment rate
should remain near its present level.
TOURISM
Approximately 13.5 million visitors come into the Orlando area each year of
which approximately 1.3 million are convention delegates. While the most
significant tourist attraction in the Orlando area is Walt Disney World, several
other major tourist attractions are within easy commuting distance from the
Orlando Metropolitan Area. Among those other major tourist attractions are Sea
World, Universal Studios and Kennedy Space Center. Additionally, there are
several smaller tourist attractions and other recreational entertainment
opportunities which serve to benefit the visitors through potential time and
travel cost savings. It is for these reasons that the Orlando area is reportedly
the number one family tourist destination in the world. In addition to the
expansion of theme attractions, the tourist industry is also enhanced by the
ever expanding state of the art conventions located on International Drive, just
south of Interstate 4.
In September 1993, Universal Studios Florida announced a major expansion plan
for phased development over the next 10 years on the adjoining 550 acres of
land. This expansion will include four Sheraton Resort Hotels with 4,300 rooms,
12 acre entertainment complex, 300,000 square feet of meeting space, 300 unit
golf villa timeshare complex, 18-hole golf course and championship tennis
facility. Additional theme park expansion and new attractions are also planned
but unannounced at this time. Eventual employment is projected at about 14,000
for the total 800 acre Universal Studios Florida project.
The Walt Disney Company also was part of a joint venture which developed it's
own "convention kingdom," which consists of 200,000 square feet of meeting and
convention space and two luxury hotels (Swan & Dolphin) with a total of 2,267
rooms. The Dolphin is operated by Sheraton Hotels (1,509 rooms) while the Swan
has 758 rooms and is operated by Westin Hotel Corporation. Additional recent
hotel completions at Walt Disney World include Caribbean Beach Resort (2,112
rooms), Yacht & Beach Club Resort (1,156 rooms), Port Orleans Resort (1,008
rooms), Dixie Landings (2,048 rooms), Fort Wilderness Lodge (729 rooms) and
All-Star Resort (1,920 rooms). These projects bring the number of hotel rooms on
Disney property to about 18,600. Plans are to construction approximately 5,000
additional moderately priced rooms over the next five years.
In June 1995, the Disney organization announced several additional expansion
projects including:
1. Doubling in size of the Disney Village complex which already includes
Pleasure Island, Disney Marketplace, AMC 10-screen theater and Planet
Hollywood restaurant. Several new entertainment restaurants will open in
1996/1997. The 10 screen theater will be expanded to 24 screens, and
50,000 square feet of Disney superstores selling character products will
be added.
2. Coronado Springs Resort Hotel, 1,900 room convention hotel ($223
million) will open in the Fall of 1997.
3. The first of two of the world's largest cruise ships are under
construction and will begin sailing from Port Canaveral, Florida in 1998,
with the second ship added later in 1998.
4. The long awaited fourth theme park called "Disney's Wild Animal
Kingdom", is a 500 acre, $760 million project which will open in 1998.
<TABLE>
<CAPTION>
ATTENDANCE AT CENTRAL FLORIDA PARKS (IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
(Estimates 1989-1994) 1989 1990 1991 1992 1993 1994 1995
Walt Disney World 30.2 33.7 29.2 32.0 31.2 29.5 35.3
Sea World 4.0 3.8 3.42 4.0 4.5 4.8 4.9
Kennedy Space Center 3.0 3.16 2.6 2.6 2.3 2.1 2.3
Busch Gardens-Tampa 3.1 3.05 2.9 3.0 3.7 3.7 3.8
Universal Studios Florida* N/A 2.8 5.9 6.5 7.4 7.7 8.0
* Park opened in June, 1990
Source: Amusement Business Magazine, Dec., 1995.
</TABLE>
The significance of the tourism industry is evident when one considers the
tremendous infusion of revenues into the Orlando economy resulting from
visitor's expenditure. Naturally, as the tourist and convention industry
expands, so does the myriad of commercial services. With over 82,500 existing
motel rooms and a planned addition of over 5,000 rooms, the hotel industry is
obviously the largest tourist and convention industry supporting service.
Year 1989 1990 1991 1992 1993 1994
Occupancy (%) 79.0% 76.4% 71.6% 74.9% 72.6% 71.3%
Avg Daily Rate $56.88 $64.33 $63.76 $62.81 $65.52 $65.85
No. Rooms 67,560 71,338 77,043 79,174 81,978 82,500
Source: Central Florida Hotel/Motel Assn.
TRANSPORTATION
The Orlando International Airport opened in 1981 and has continued its expansion
with completion of a third runway and new international concourse to serve the
needs of international passengers. The airport, which has over one million
square feet under roof, serviced about 18.4 million passengers in 1990 and 1991,
an increase of 56% over 1986, including 1.96 million international travelers.
Expansion of 24 new passenger gates was completed in 1990. Construction doubling
the main terminal area and including an on-site Hyatt Hotel opened in August
1992. Total 1994 passenger traffic was 22.2 million, up 20.7% over 1991.
International passenger traffic was approximately 2.5 million in 1994, up 27.5%
versus 1991.
In addition to air traffic, the metropolitan area is continually expanding its
network of highways and thoroughfares. Interstate 4 traverses the metropolitan
Orlando area in a generally northeasterly/ southwesterly direction and services
as a main link in the tri-county area. The Florida Sunshine Parkway (Florida's
Turnpike) also traverses the area in an east/west direction.
Other major highways include U.S. Highway 17-92, U.S. Highway 441, State Road 50
and State 436. The Bee Line Expressway connects Interstate 4 with the east coast
and is limited access tollway. These highways comprise only a segment of the
multitude of traffic arteries providing reasonably good intra and interstate
highway access.
UTILITIES
Availability of utilities, particularly regarding treating and disposing of
wastewater, has been a key issue for new development in the Orlando MSA. A
simple, cost-effective solution to the problem of adequate sewerage capacity
continues to be an exclusive objective for local governments in the area.
Various factors have led to the current situation regarding the provision of
public wastewater treatment services. Examples of significant factors are
summarized as follows:
Stiff environmental regulations intended to protect the fragile natural
environment of the region have mandated the use of high levels of
treatment and virtually pollution-free methods of effluent disposal.
Tremendous advances in wastewater treatment technology in response to
new regulatory standards have resulted in the construction of very
sophisticated and expensive facilities.
The percentage share of federal financial assistance in the
construction of new wastewater treatment facilities has been reduced,
placing a greater financial burden on local governments.
Based on an assessment of the current situation, it appears that sufficient
treatment capacity is expected to be available in most of the area during
1995-1997. Local governments are increasing the share of the cost burden with
system users, particularly new users. With respect to other utilities such as
electrical, telephone and water service, adequate facilities are available to
accommodate new growth.
COMPREHENSIVE GROWTH MANAGEMENT PLAN AND CONCURRENCY
In 1985, the Florida Legislature adopted the Local Government Comprehensive
Planning and Land Development Regulation Act. The law is intended to promote
orderly growth and development through the efficient use of "public facilities
and services" defined as roads, potable water, sanitary sewer, solid waste,
drainage, parks and recreation areas, and mass transit. The growth management
law requires each local government to have in place "concurrent" with the impact
of any development the necessary public facilities and services to serve the
development. This provision is known as the "concurrency requirement" and is one
of the most innovative growth management techniques in the United States.
To monitor concurrency, each city and county is required to have a management
system to ensure that the level of service for the specific public facilities
and services will not be reduced by new development. If concurrency restricts a
project, the developer may choose to provide the facilities and services
necessary to support the project and maintain the required level of service.
This could mean substantial expense for off-site improvements not directly
related to the project. In some cases this will render a project economically
unfeasible.
HOUSING
The Orlando MSA is one of the most active housing markets in the country.
According to the Orlando Area Association of Realtors, 1994 was a record year
for existing home resales with 11,400 sales, up 9% over 1993. 1990 was the
previous record year at 10,676 sales. The area has suffered through the
recession with the rest of the country, but is still among the most active areas
in the U.S. among second tier cities.
Apartment demand has been consistently high over the past ten years, with
occupancy rates have been in the 87%-97% range since 1980. Current occupancy is
approximately 92% overall with little new construction.
CONCLUSION
The local economy experienced an overbuilt situation in the mid 1970's and the
area fully recovered from that situation. Again in the late 1980's and early
90's, the area was overbuilt in most real estate sectors. However, the
continuing popularity of the sunbelt in general and, more specifically, the
Central Florida Region has resulted in continuing expansion of the economic base
throughout the Orlando MSA. Growth in the tourist and convention industry,
combined with growth in the commercial, office, industrial and residential
sectors, have had a positive influence on the economic base throughout the area.
As a result, retail sales have increased significantly over the past decade due
to increased demand in the marketplace. With the continuing expansion of the
economic base and related support services, the Orlando MSA is expected to
remain one of the fastest growing areas in the nation and the result will be a
positive influence on long term real estate values throughout the region.
NEIGHBORHOOD INFLUENCES
Location
The subject is located on the southwest side of Westwood Boulevard in the area
which is generally referred to as Westwood, the more common name for Orangewood
Neighborhood 2. A neighborhood map is shown on the following page.
Boundaries
The neighborhood boundaries are considered to be:
North: State Road 528 (Bee Line Expressway)
South: State Road 535
East: International Drive
West: Interstate 4
Land Use
Land use in the neighborhood consists of multifamily and tourist commercial
uses. Developments in the immediate vicinity of the subject consists of Westwood
Planned Development, which is also known as Orangewood Neighborhood 2, of which
the subject is a part, Sea World to the north, Williamsburg, a single-family
residential development with some commercial uses, to the east, and
International Drive tourist commercial district to the south, and tourist
commercial and multifamily uses to the west. The neighborhood appears to be
approximately 60% developed. .
Access
International Drive is the major north-south thoroughfare while Central Florida
Parkway is the primary east-west street serving the neighborhood. Interstate 4
also runs north and south and generally forms the western boundary of the
neighborhood, while the Bee Line Expressway (State Road 528), a limited access
toll road, runs east and west just north of the neighborhood.
<PAGE>
NEIGHBORHOOD MAP
NEIGHBORHOOD MAP
Compiled by: CB Commercial Real Estate Group, Inc.
<PAGE>
Demographics
Selected Neighborhood demographics in a one, three, and five mile radius from
the subject are shown in the following table:
SELECTED NEIGHBORHOOD DEMOGRAPHICS
WESTWOOD LOCAL AREA
1 mile 3 mile 5 mile
Population
1994 Estimate 2,247 20,388 75,089
1990 Census 1,933 17,332 63,334
1990-1994 % Change 16.2% 17.6% 18.6%
Households
1994 Estimate 1,169 8,308 28,076
1990 Census 997 7,004 23 ,485
1990-1994 % Change 17.3% 18.6% 19.5%
1994 Median Household Income $ 36,356 $ 37,945 $ 40,665
1994 Average Household Income $ 42,036 $ 44,938 $ 49,715
1990 Average Home Value $ 86,854 $ 97,276 $ 124,140
1990 % College Graduates 24.5% 23.2% 26.4%
Source:
Compiled by: CB Commercial Real Estate Group, Inc.
Growth and Trends
Significant corridors of growth in the neighborhood include the International
Drive corridor north of the area, with prospective future growth anticipated
south of the Westwood Drive/International Drive intersection. The reason for
this growth is that International Drive is an alternate route between the
International Drive tourist commercial area, which centers around the Orlando
Convention Center, and Lake Buena Vista and the Walt Disney World area. New
competition for the subject is likely to occur in this area as demonstrated by
the recent construction of the Mission Club apartment complex just south of the
subject on the west side of International Drive. However, Central Florida
Parkway is also experiencing growth and this entire area is expected to continue
to develop at a rapid pace over the next ten to fifteen years.
There are eleven multifamily apartment complexes, but two of these, Tanglebay
Suites and Hawthorn Suites, are designed to rent as hotel suites on a nightly,
weekly, or monthly basis. There are also a number of condominium timeshare
properties which cater to tourists. These have not been included in our analysis
because they cater to a different segment of the market.. The semi-annual
Residential Market Reports by Charles Wayne Consulting, Inc., reflects ten
complexes in the "South Orange" submarket, which is the subject market area, and
indicates a submarket occupancy rate of 92% excluding the properties now in the
leaseup phase. We included The Vinings at Sand Lake complex which is in the
southeast part of the Charles Wayne "Windermere" survey area. This project is
located on the west side of Turkey Lake Road, which runs parallel to the
northwest right of way of Interstate 4, and is considered to be a primary
competitor for the subject property. Our six most comparable apartment complexes
not in the leaseup phase, as reflected in the Income Approach section of this
report, an average occupancy of 93% as of September 1995, and a current average
occupancy of 95%. The following is a summary of apartment competition for the
subject:
SUMMARY OF APARTMENT COMPETITION
Year Total Occupancy Occupancy
Project Name Built Units 9/95 12/95
St. Andrews 1989 259 93% 90%
(Subject)
Monterey Lake 1986 504 89% 95%
The Broadwater 1987 408 92% 98%
Vinings @ Westwood 1988 400 94% 95%
Vinings @ Lake 1988 400 93% 93%
Buena Vista
Vinings @ Sand Lake 1994 416 95% 97%
Mission Club 1995 356 Leaseup
Osprey Links 1995 424 Leaseup
There are a number of multifamily sites available in the neighborhood, and it is
anticipated, that there will be additional competition over the next several
years as the neighborhood achieves full buildout. However, this is a fast
growing area and has fewer apartments than most areas in the Orlando MSA. We
anticipate that the supply and demand factors within the neighborhood will
remain within an acceptable range, with the new supply being created to meet
demand, so that there will not be an oversupply for an excessive period of time.
Utilities
All necessary public utilities and services are available within the
neighborhood for most types of development. The City of Orlando provides water
and sewer, while Orange County provides police and fire protection. Adequate
electricity and telephone service is available from local utility and telephone
companies.
Conclusion and Relevance to the Subject Property
The Westwood Planned Development is part of an older development which was known
as Orangewood, and was comprised of over 4,500 acres. Until the opening of
Universal Studios in the late 1980's, Sea World was considered the number two
tourist attraction in the Orlando Area. Sea World is located along the north
side of Central Florida Parkway and the west side of International Drive, in the
central part of the neighborhood. This has long been considered a tourist
commercial district, and the development of the area is expected to continue to
follow these general patterns.
<PAGE>
APARTMENT MARKET ANALYSIS
Inventory
Charles Wayne Consulting, Inc. provides a Multifamily Market Survey for the
Orlando metropolitan area. Their September 1995 study indicated an average
occupancy of 92.6% for the metropolitan area, based on a sample survey of 97,796
apartment units within 424 complexes. The following is a summary of current
conditions for the greater Orlando area.
<PAGE>
<TABLE>
<CAPTION>
ORLANDO METROPOLITAN APARTMENT SUBMARKETS
<S> <C> <C> <C> <C> <C>
Submarket No. Total Occupancy Rate Absorption Under
Complexes Units % 12 Mos. Construction/
Renovation
Sanford/Lake Mary 25 4,792 94.4 352 332
Longwood/Altamonte 48 11,838 94.2 307 405
Casselberry/Oviedo 29 6,902 95.4 178 19
Apopka 2 422 93.7 -8 7
Winter Garden/Ocoee 14 2,793 89.3 138 318
North Orlando 52 10,022 89.9 -35 1,001
South Orlando 99 22,136 92.1 1,221 173
East Orange/UCF 80 20,485 93.4 1,005 1,209
South Orange 10 3,112 91.8 -21 780
Dr. Phillips/Windermere 27 7,416 90.6 1,158 669
Kissimee 38 7,898 92.9 559 134
Total 424 97,796 92.6 4,854 5,047
Source: Residential Market Reports, Charles Wayne Consulting Inc., September 1995
</TABLE>
The subject is located in the South Orange submarket. This area is bounded by
Sand Lake Road to the north, the Orlando International Airport and Boggy Creek
Road to the east, the Orange County line to the south, and Interstate 4 to the
west. The South Orange submarket has historically experienced solid demand with
moderate new apartment development. The southeast part of the Windermere
submarket overlaps with the South Orange submarket, but there is only one
property, the Vinings at Sand Lake, which is considered to compete with the
subject.
Occupancy Rates
Occupancy rates for the Orlando area bottomed out in 1991 at 87% after a large
number of new apartment communities were developed. Subsequently, occupancy
rates have increased steadily after a slower rate of new construction and
continued demand. A more recent wave of new construction occurred in early 1994.
Again, occupancies in the submarket were temporarily depressed, but have now
recovered after a lack of more recent construction.
The Charles Wayne Survey indicates the overall market to be healthy with the
Casselberry/Oviedo submarket experiencing the highest occupancy rate. This is
followed closely by the Sanford/Lake Mary and Longwood/Altamonte Springs
submarkets. The Winter Garden/Ocoee submarket has demonstrated the lowest
occupancy rate. The overall occupancy level has been somewhat depressed over the
past two years, after a large amount of new construction. The latest data
indicates a substantial increase in occupancy, after limited new construction
recently.
Rental Rates
The Charles Wayne Survey indicates the Longwood/Altamonte submarket to be
experiencing the highest rental rates followed by Winter Park and Dr.
Phillips/Windermere. Efficiency apartments are experiencing the highest rent per
square foot, and four bedroom apartments lowest rent per square foot. Overall,
the average rent has increased 3.2% per year since 1983 and we project near term
rental rate increases of about 4.0% per year, after a few years of stagnant rent
growth.
<TABLE>
<CAPTION>
ORLANDO AREA AVERAGE MULTIFAMILY RENTS STUDY
<S> <C> <C> <C> <C> <C> <C>
Year Efficiency 1BR/1BA 2BR/2BA 3BR/2BA Average Rent Overall
Occupancy
1983 $277 $311 $375 $424 $347 96%
1984 $286 $286 $383 $440 $358 95%
1985 $320 $320 $435 $491 $402 92%
1986 $335 $335 $475 $533 $433 92%
1987 $347 $394 $477 $548 $442 90%
1988 $358 $402 $496 $558 $454 92%
1989 $370 $420 $525 $608 $481 93%
1990 $394 $436 $554 $626 $503 93%
1991 $400 $455 $575 $638 $517 86%
1992 $350 $455 $539 $629 $493 88%
1993 $355 $450 $549 $635 $497 92%
1994 $357 $458 $551 $642 $502 92%
1995 $365 $462 $560 $650 $509 93%
Avg. Compound
Increase 12 Yrs 2.3% 3.4% 3.4% 3.6% 3.2% ----
Avg. Compound
Increase 5 Yrs 1.5% 1.2% 0.2% 0.8% 0.2% ----
Avg. Compound
Increase 1 Yr 2.2% 0.9% 1.6% 1.2% 1.2% ----
Source: Residential Market Reports, Charles Wayne Consulting, Inc.
Note: The rent in this study reflect "Asking Rents" for the various unit types
for each time period and do not reflect concessions which have been offered
during various time due to supply/demand imbalances.
</TABLE>
New Supply
The South Orange submarket has two new complexes which recently began leasing,
Mission Club with 356 units, and Osprey Links with 424 units. Tax credit deals
led the way in 1993 and 1994 with a few new luxury complexes recently completed,
or in the planning stages. Based on the supply of new product and land available
for development, we anticipate relatively stable occupancies in the near future,
due to continued strong employment growth in Orlando being met by continuing
development of new product.
Investment Activity
The apartment investment market was extremely active in 1994 (40 sales in
Orlando), with relatively short marketing times. Apartments have been attracting
REITS, pension fund buyers, portfolio investors and limited partnerships.
However, the acquisition momentum that accompanied the REIT interest in
apartments abated by year end 1994 following increases in interest rates.
Marketing times are now generally less than 12 months, with a more normal pace
of activity. This was estimated based on our analysis of the marketing time for
the comparable sales and according to knowledgeable apartment brokers in the
Orlando area.
<PAGE>
PROPERTY DESCRIPTION
TOPOGRAPHIC SURVEY
<PAGE>
SITE ANALYSIS
The Description of the site can be detailed as follows:
Location: The subject is located at 11500
Westwood Boulevard. Ingress and egress
to the subject is available from the
southwest side of Westwood Boulevard.
Assessor's Parcel Number: Parcel # 13-24-28-6283-00-120.
Land Area2
Gross Area: 14.552 Acres
Net Area: 14.552 Acres
Shape and Frontage: The site is irregular. There are
approximately 322 feet of frontage on
Westwood Boulevard, and the property
extends southward approximately 1,031
feet.
Topography and Drainage: The site is generally level. Our
investigation did not reveal any
significant drainage problems.
Soils: No soils report was provided; it is
assumed that soils are adequate for the
existing use.
Easements: No title report was provided in
connection with this appraisal. No
survey showing the location of easements
was available. Thus, it is not possible
to make a definitive conclusion
regarding any potential impacts on value
of the location of any such easements or
encroachments. It is specifically
assumed that any easements, restrictions
or encroachments that might appear
against the title would have no adverse
impact on marketability or value.
Covenants, Conditions, and The property is within a planned
development and is subject to the
Restrictions: restrictive and zoning covenants
affecting development, in Orangewood
Neighborhood II.
Utilities: Public utilities are provided to the
site, and include water and sewer
service from Orange County, which also
provides police and fire protection,
while electrical service is from Florida
Power Corporation.
2 Source: Plat Map
Flood Zone: According to maps published by the
Federal Emergency Management Agency
(FEMA), the subject lies within Zone C
as indicated on FEMA Community Map Panel
120179 0375C, dated August 5, 1986.
Flood insurance is available.
This zone is described as follows:
FEMA Zone C: "This area has been
identified in the community flood
insurance study as an area of moderate
or minimal hazard from the principal
source of flood in the area. However,
buildings in this zone could be flooded
by severe, concentrated rainfall coupled
with inadequate local drainage systems.
Local storm water drainage systems are
not normally considered in the
community's Flood Insurance Study. The
failure of a local drainage system
creates areas of high flood risk within
this rate zone. Flood insurance is
available in participating communities
but is not required by regulation in
this zone."
Environmental Issues: No evidence of hazardous waste or toxic
materials was visible.
The value estimate rendered in this
report is predicated on the assumption
that there is no hazardous material on
or in the property that would cause a
loss in value. No evidence of hazardous
waste or toxic materials was visible. CB
Commercial has no knowledge of the
existence of these substances on or in
the subject property. However, CB
Commercial is not qualified to detect
hazardous waste or toxic materials..
Adjacent Properties
North: Multifamily residential and tourist
commercial.
South: Vacant--Zoned for tourist commercial and
multifamily.
East: Golf Course--Tourist commercial and
multifamily residential.
West: Multifamily residential and tourist
commercial.
Conclusion: The subject is a 14.552 acre site on a
paved street served by necessary
utilities. Access appears to be
good. Visibility/exposure is average.
There are no adverse soils conditions
of which CB Commercial Real Estate
Group, Inc. is aware. The shape of the
parcel irregular, but results in no
specific development limitation. The
east property boundary is adjacent to
the International Golf Club golf course
and offers golf views from selected
units. Units with golf views typically
have rental premiums, which has a
positive impact on value. In
conclusion, from a physical standpoint,
the site is considered adequate for many
types of development.
<PAGE>
SUBJECT PLAT MAP
SUBJECT PLAT MAP
Compiled by: CB Commercial Real Estate Group, Inc.
<PAGE>
IMPROVEMENT ANALYSIS
The subject is a garden style 1 to 3 story, apartment complex completed in 1989.
The following is a description of the improvements based on our physical
inspection and analysis of the building plans by Wallace and Associates, of
Houston, Texas, No. 88-37. Selected copies of the building layout and plans are
shown in the Addenda. The building area is detailed as follows:
<TABLE>
<CAPTION>
ST. ANDREWS
UNIT MIX
<S> <C> <C> <C> <C> <C> <C> <C>
No. of Unit Storage Balcony Rentable Total
Type BR/BA Units LA (SF) Area Area Area Livable Area
A 1/1 72 644 18 58 720 51,840
B 1/1 72 686 0 56 742 53,424
C 2/2 64 850 23 60 933 59,712
D 2/2 51 956 16 51 1,023 52,173
Totals/ 259 198,916 3,584 14,649 217,149 217,149
Avg. 768 14 57 838 838
Source: Compiled by: CB Commercial Real Estate Group, Inc.
</TABLE>
The basic construction features are summarized as follows.
Construction Class The class of construction is the
basic subdivision in Marshall
Valuation Service3, dividing all
buildings into five basic groups by
type of framing (supporting columns
and beams), walls, floors, roof
structure, and fireproofing. The
subject is construction Class D.
3 The primary feature of Class A
buildings is the fireproofed
structural steel frame, which may be
welded, bolted, or riveted together.
The fireproofing may be masonry,
poured concrete, plaster, sprayed
fiber, or any other type which will
give a high fire-resistant rating.
The primary characteristic of Class B
Buildings is the reinforced concrete
frame in which the columns and beams
can be either formed or precast
concrete. They may be mechanically
stressed, and the structure is fire
resistant.
Class C Buildings are characterized by
masonry or reinforced concrete
(including tilt-up) construction. The
walls may be load-bearing, i.e.,
supporting roof and upper floor loads,
or nonbearing with open concrete,
steel, or wood columns, bents, or
arches supporting the load.
Class D buildings are characterized by
combustible construction. The exterior
walls may be made up of closely spaced
wood or steel studs as in the case of
typical frame house, with an exterior
covering of wood siding, shingles,
stucco, brick, stone veneer, or other
materials. Otherwise they may consist
of an open skeleton wood frame on
which some form of curtain wall is
applied, including, pre-engineered
pole buildings.
Class S buildings are characterized by
incombustible construction and
prefabricated structural members. The
exterior walls may be steel studs or
an open steel skeleton frame with
exterior single or sandwich wall
coverings consisting of prefabricated
or sheet siding
(Source: Marshall Valuation Service)
Competitive Rating The subject is considered a
Class B building in terms of quality
as it is perceived in the marketplace.
Foundation Poured reinforced concrete/perimeter
footings and column pads/Other
Frame Wood frame with wood truss joist/floor
structure and plywood floor deck.
Floor Construction
Ground Floor Reinforced concrete slab on grade.
Other Floors Plywood deck with light-weight
concrete cover.
Exterior Walls Wood frame with masonite siding. The
masonite is in very poor condition,
and has deteriorated to the point
that the wall studs and window framing
are rotting in places. The siding
and damaged wood are being replaced,
and the new exterior will be an
imitation wood vinyl siding. Four
buildings are in various stages of
construction, but no single building
is complete. Windows are single-hung
aluminum.
Roof Cover The roofs are vinyl shingles.
There was reported to be some wind
damage from storms last summer, and
the roofs are being replaced as the
buildings have new siding installed.
Exterior Condition The buildings are in fair
condition "as is" due to the masonite
siding and roof problems previously
mentioned. Upon completion of the
current capital improvements program,
the buildings will be in good
condition.
Interior Condition The interior of the
buildings are assumed to have been
well maintained, as a result of a
program of on-going maintenance. We
were only able to gain access to a
small sampling of units, but the
maintenace program in place provides
for painting and repairing of any
defects in individual units between
tenants.
HVAC Combined heating and cooling system
with individual forced air units for
each unit. Climitization is delivered
through ceiling registers. A similar,
but slightly larger system serves the
office and clubhouse. The HVAC systems
are assumed to be adequate and in good
operating condition.
Electrical 100 amp to 212 amp, 120/240 volt
system. The electrical system is
assumed to be in good working order
and adequate for the buildings.
Fire Protection The subject buildings are
not fire sprinkled. It is assumed that
the subject has adequate smoke
detectors, fire alarm systems, fire
exits, fire extinguishers, fire
escapes and/or other fire protection
measures adequate to meet local fire
marshall requirements.
Life Safety and Security The subject has no
special security system/TV
surveillance system. Other public
address system safety graphics.
Plumbing PVC pipes. The plumbing system is
assumed to be in good operating
condition.
Parking Surface parking is provided for 453
vehicles, including 9 handicapped
spaces. Parking is located in front of
each building. This type of parking is
similar to that found in the local
comparables. The number of parking
spaces satisfies current zoning
requirements for the existing use..
Construction is reinforced cast in
place concrete concrete.
Landscaping The landscaping is well maintained and
is average, compared to competitors.
Interior Amenities Interior Amenities include
electric range, oven and hood,
microwave, dishwasher, disposal,
refrigerator with ice maker, ceiling
fan in living room, and washer-dryer
connections.
Exterior Amenities Exterior amenities include a
pool, lighted tennis court, clubhouse,
with weight room and one indoor
racquetball court.
ADA Compliance Handicap access is not
available to all areas of the
buildings. However, we are not
qualified to determine compliance with
the requirements. Please refer to the
specific limiting condition regarding
ADA compliance.
Environmental Issues The value estimate rendered in
this report is predicated on the
assumption that there is no hazardous
material on or in the improvements,
causing a loss in value.
No evidence of hazardous waste or
toxic materials were visible. We have
no knowledge of the existence of these
substances on or in the subject
improvements. However, we are not
qualified to detect hazardous waster
or toxic materials.
Deferred Maintenance Deferred maintenance
exists in the form of deteriorating
masonite siding and wind damaged vinyl
roof shingles, but both of these
issues are being cured by the current
capital improvements program which was
initiated in August 1995, and will
continue through approximately October
1996
Economic Age and Life The buildings were erected in 1989 for
a chronological age of 6.5 years.
Upon completion of the current capital
improvements program, which is at
$3,205,952 for new siding and roofs,
appraisers estimate effective age to
be approximately 6 years. According
to the Marshall Valuation Service
cost guide, buildings of this type
and quality have an expected life of
45 years. Therefore, the remaining
economic life (expected life minus
effective age) is about 39, consistent
with our on-site observations.
Quality/General Condition The subject property conforms well
with competitors and substitutes in
the area. Relative quality of
construction is average to fair.
Interior amenities are similar to
competing properties of the same
approximate age. We observed evidence
of structural fatigue and the
improvements are approaching an
unsound condition, if no capital
improvements are made. We are not
qualified to determine structural
integrity, however, it appears that
the ongoing capital improvements
program is addressing these issues and
will cure the deferred maintenance.
Conclusion/Comments The subject property was designed
as a competitive garden apartment
complex in an area with above average
demographics and good appeal. The
selection of Masonic siding was a
poor choice for the humid Florida
climate, and the property is in
fair to poor condition as a result of
extensive rotten siding, which has
caused damage to the wood studs and
sills in some places. In addition,
the roof was reported to have
suffered some damage during the
hurricanes and storms which affected
the Orlando area last summer. These
items of deferred maintenance are in
the process of being cured. The
property should be restored to an
average to slightly above average
market appeal when the deferred
maintenance is cured.
IMPROVEMENT RATING
Category Exc Good Average Fair Poor
Appeal/Appearance X
Construction Class X
Design X
Electrical X
Exterior Condition X
Exterior Walls X
Floor Construction X
Floor Cover X
Foundation X
Frame X
Functionality/ Floor Plan X
HVAC X
Interior Condition X
Landscaping X
Life Safety System X
Lighting X
Load Factor X
Parking X
Plumbing X
Roof Cover X
Security System X
Interior Amenities X
Exterior Amenities X
Compiled by: CB Commercial Real Estate Group, Inc.
<PAGE>
ZONING
The subject's zoning requirements are detailed below.
ZONING SUMMARY
Current zoning: P-D, Planned Development, Orange County, FL
Legally conforming?: Yes
Uses permitted: Existing Use
Zoning change Not likely
Category Zoning Requirement
Total building coverage (FAR) 1 No. of units: 259
Parking 1.5 space per 1 BR + 2.0 Spaces per 2 BR Unit.
Other 5 to 6 ft. perimeter walls on south and west
sides.
1 Floor Area Ratio
Source: Orange County Planning & Zoning--Orangewood Neighborhood 2 PD
Compiled by: CB Commercial Real Estate Group, Inc.
ZONING ANALYSIS AND CONCLUSIONS
The subject appears to be a legally conforming use within the current zoning.
<PAGE>
TAX AND ASSESSMENT DATA
Real estate in Orange County is assessed at 100% of the assessor's estimated
market value. The subject's market value, assessed value, and current taxes are
summarized below.
<TABLE>
<CAPTION>
CURRENT ASSESSMENT AND TAX INFORMATION (1995)
<S> <C> <C> <C> <C> <C> <C>
Assessed Tax Rate Annual
Tax ID Land Improvements Total Value / $1,000 Taxes
13-24-28-6283-00-120 $2,460,500 $5,474,257 $7,934,757 $7,934,757 $20.9791 $168,167.97
Source:
Compiled by: CB Commercial Real Estate Group, Inc.
</TABLE>
Taxes are charged in arrears and are billed in November of the year of the
assessment. Taxes are due by March 31 of the year following the assessment,
however, discounts of 4% for November, 3% December, 2% January and 1% February,
are offered if the taxes are paid early. The above taxes reflect the 100%
assessment without an early payment discount. The county records indicate that
there are no delinquent property taxes. However, the 1995 taxes have not yet
been paid. If paid in December 1995, the total real property taxes due would be
$163,122.93, which includes $1,652.78 in special assessments. The personal
property at the subject is assessed for $229,337, which results in 1995 taxes of
$4,811.28. If paid in December 1995, the amount due would be $4,666.95.
CB Commercial concluded that the assessor has estimated a reasonable market
value. Therefore, a tax appeal is not recommended. Our research indicates that
market participants use the actual taxes in analyzing properties similar to the
subject.
In addition, we analyzed several tax comparables to verify the reasonableness of
the subject's tax structure. These comparables are detailed as follows.
<TABLE>
<CAPTION>
REAL ESTATE TAX COMPARABLES
ORANGE COUNTY, 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Year No. of Tax Assessed R.E. Taxes/
Property Tax I.D.# Built Units Value Value Taxes Unit
St. Andrews 13-24-28-6283-00-120 1989 259 $7,934,757 $7,934,757 $168,168 $649
Broadwater 13-24-28-6283-00-140 1987 408 $15,503,499 $15,503,499 $327,153 $804
Vinings @ Sand Lake 35-23-28-0000-00-045 1994 416 $15,379,674 $15,379,674 $322,652 $775
Monterey Lakes 12-24-28-0000-00-022 1986 504 $14,527,892 $14,527,892 $306,683 $609
Source:
Compiled by: CB Commercial Real Estate Group, Inc.
</TABLE>
The tax comparables utilized are all located in the general vicinity of the
subject. They indicate a relatively broad range of assessments and taxes. Based
on these comparables, it appears that the subject's assessment is reasonable
given its current condition. When the deferred maintenance at the subject
property is cured, we anticipate that the taxes will increase to a point
slightly below the Broadwater and the Vinings at Sand Lake Road, or about $750
per unit.
<PAGE>
HIGHEST AND BEST USE
In appraisal practice, the concept of highest and best use represents the
premise upon which value is based. The four criteria that the highest and best
use must meet are:
legal permissibility;
physical possibility;
financial feasibility; and
maximum profitability.
Highest and best use is applied specifically to the use of a site as vacant. It
is recognized that in cases where a site has existing improvements, the
concluded highest and best use as if vacant may be different from the highest
and best use given the existing improvements (as improved). The existing use
will continue, however, until the land value, in its highest and best use,
exceeds that total value of the property under its existing use plus the cost of
removing or altering the existing structure.
Implied in the highest and best use is a recognition of the contribution of a
specific use to the community environment or to the community's development
goals, in addition to wealth maximization of individual property owners. Also
implied is that the conclusion of highest and best use results from the
appraiser's judgment and analytical skill, i.e., that the use determined from
the analysis represents an opinion, not a fact to be found.
As Vacant
Of the alternatives available which are physically possible and legally
acceptable for the subject property, the best alternative is for multifamily
development. This fact is evidenced by our investigation of the housing market
in the subject area, which indicates a ready acceptance for good quality,
reasonably priced units. Multifamily use in the subject submarket takes several
forms, one of which is rental apartments such as the subject. However, there are
a number apartments which are rented on a daily, weekly or monthly basis, to
appeal to the tourist market, and there are some condominiums and time share
units. These alternative forms of multifamily development may yield a higher
return than rental apartments. However, the available density within the planned
development point to rental units as being the most probable use of the subject
site.
Based upon a field survey of the subject neighborhood, the occupancy range for
multifamily apartments is between 88% and 94%, and we have estimated an average
occupancy rate of 93%. We anticipate the submarket occupancy rate to remain
fairly stable, since continued growth of the local economic base will be offset
with limited new apartment developments in the subject neighborhood over the
next few years.
Based upon those considerations and development trends for multifamily projects,
it is our opinion that the Highest and Best Use of the subject site would be for
multifamily residential development. Considering the growing demand for
multifamily units in the subject neighborhood, development of the subject would
likely be feasible within the next year, after the overall occupancy rate and
rents increase further.
The subject site, as if vacant, is suitable for 259 units under the current
zoning. As discussed with the Orlando Planning and Zoning Department, the
subject site has a set density at this level according to the approved use of
this site within the Orangewood Neighborhood 2, Planned Development. Due to the
density, development of the subject site should be rental multifamily, since a
time share developer would typically look for a higher density site. Rental
multifamily development is consistent with the existing use.
As Improved
The subject site is improved with a 259 unit garden apartment complex
constructed in 1989. The improvements are situated on a 14.552+ acre parcel
indicating a density of 17.8 units per acre. The units are average quality, but
are suitable for eventual condominium conversion and/or short term rental due to
the location. At the date of appraisal, the subject had an economic occupancy of
90%.
The existing complex is competitive in its market, and the occupancy level is
considered to be stabilized. Condominium conversion is physically possible but
not currently feasible. Thus, the highest and best use of the subject is for
continued operation as a rental apartment complex. However, we recommend
continued correction of the deferred maintenance by completing the current
capital improvements program, in order to remain competitive and command a good
rental rate in the market
Marketability
The subject has good marketability and it is considered a good institutional
quality property. The types of buyers for this type of product are REITS,
pension fund advisors, portfolio investors, limited partnerships and other large
institutional buyers. Financing would be available to this type of investment
likely from major insurance companies or a few major lending institutions. We
anticipate a 6 to 9 month marketing period for this type of property, based on
discussions with Bob Miller, apartment specialist with CB Commercial Real Estate
Group, Inc., who has 11 years experience in the Orlando market and is recognized
as an expert in this area due to the number of transactions in which he has
participated. We also discussed the marketing period with Bob Hold of Pinnacle
Group, a nationwide apartment investment and management company.
<PAGE>
VALUATION
<PAGE>
APPRAISAL METHODOLOGY
The appraisal process is defined as an orderly program by which the problem is
planned and the data involved is acquired, classified, analyzed and interpreted
into an estimate of value. In this process three basic approaches to value are
considered: Income Capitalization Approach, Sales Comparison Approach, and Cost
Approach. In appraisal practice, an approach to value is included or omitted
based on its applicability to the property type being valued and the quality and
quantity of information available.
The final step in the appraisal process is reconciliation -- a process by which
CB Commercial analyzes alternative conclusions and selects a final value
estimate from among two or more indications of value. CB Commercial weighs the
relative significance, applicability and defensibility of each approach as it
relates to the type of property being appraised.
THE COST APPROACH
The Cost Approach is based upon the proposition that the informed purchaser
would pay no more for the subject than the cost to produce a substitute property
with equivalent utility. This approach is particularly applicable when the
property being appraised involves relatively new improvements which represent
the highest and best use of the land or when relatively unique or specialized
improvements are located on the site and for which there exist few sales or
leases of comparable properties.
Based on our analysis of the subject area, market participants are generally not
buying, selling, investing, or lending with reliance placed on the methodology
of the Cost Approach to establish the value. Furthermore, though considered, the
Cost Approach is not deemed to render a reliable indication of value due to the
imprecise nature of estimating the accrued physical, functional, or external
depreciation affecting the improvements. Therefore, for this assignment, the
Cost Approach has not been employed to render a value indication for the subject
property.
SALES COMPARISON APPROACH
The Sales Comparison Approach utilizes sales of comparable properties, adjusted
for differences, to indicate a value for the subject property. Valuation is
typically accomplished using physical units of comparison such as price per
square foot, price per unit, price per floor, etc., or economic units of
comparison such as gross rent multiplier. Adjustments are applied to the
physical units of comparison derived from the comparable sale. The unit of
comparison chosen for the subject is then used to yield a total value. Economic
units of comparison are not adjusted, but rather analyzed as to relevant
differences with the final estimate derived based on the general comparisons.
The reliability of this approach is dependent upon (a) the availability of
comparable sales data; (b) the verification of the sales data; (c) the degree of
comparability; (d) the absence of nontypical conditions affecting the sales
price. Through our search of the subject market, we were able to uncover an
adequate quality and quantity of sales through which a reliable and defensible
indication of value could be concluded. Therefore, this approach has been
employed for this assignment.
INCOME CAPITALIZATION APPROACH
The methodology of the Income Capitalization Approach is to determine the
income-producing capacity of the property on a stabilized basis by estimating
market rent from comparable rentals, making deductions for vacancy and
collection losses and building expenses, then capitalizing the net income at a
market-derived rate to yield an indication of value. The capitalization rate
represents the relationship between net income and value.
The discounted cash flow method discounts periodic cash flows (which consist of
a net income less capital costs, per period) and a reversion (if any) to a
present value. The discount rate is determined by analyzing current investor
yield requirements for similar investments.
Since investors are active in the marketplace for properties similar to the
subject, the Income Capitalization Approach is particularly applicable to the
appraisal problem at hand. There is an adequate quality and quantity of income
and expense data available to render a reliable and defensible value conclusion.
Therefore, this approach has been employed for this assignment.
<PAGE>
LAND VALUE
In estimating land value it is common to employ the Sales Comparison Approach.
Sales prices of similar parcels are compared on a unit basis such as square foot
of land or square foot of allowable building area (FAR). Appropriate unit
indicators for the subject property type and location is the price per unit and
price per acre.
An adjustment grid is used to summarize the direction and magnitude of
adjustments judged appropriate to the comparable sales. In some cases
adjustments may be derived directly from quantifiable data (e.g., the estimated
off-site costs). However, in many instances the adjustments involve the judgment
of CB Commercial.
Details regarding the comparable land sales used in the analysis are summarized
in the following table and included in the addendum. A map of the comparables is
shown on the following page.
<TABLE>
<CAPTION>
SUMMARY OF MULTIFAMILY LAND SALES
<S> <C> <C> <C> <C> <C> <C> <C>
Sale Total Site Sale Price Price
No. Location Date Units (acre) Price Per Acre Per Unit
1 W/S Turkey Lake Rd. Dec. 93 416 23.50 $3,300,000 $140,426 $7,021
2 S/S Metrowest Blvd. Dec. 93 336 28.00 $3,192,000 $114,000 $9,500
3 S/S Maitland Blvd. Dec. 94 363 21.20 $2,635,500 $124,316 $7,260
4 E/S International Dr. Apr. 95 356 17.00 $2,890,000 $170,000 $8,118
Source: CB Commercial Real Estate Group, Inc.
</TABLE>
ANALYSIS OF LAND SALES
The comparable sales indicate an unadjusted range of $7,021 to $8,118 per unit.
The following paragraphs discuss the analysis of the sales and the basis for
adjustment.
Sale Number One
This comparable is located on the west side of Turkey Lake Road approximately
two miles northwest of the subject. The property sold for $3,300,000, or $7,021
per unit in December 1993. The sale has frontage on the east side of Sand Lake,
and approximately 18.6 acres out of the 42.102 acre site were not considered to
be usable, leaving a usable site of 23.50 acres. The property was developed with
The Vinings at Sand Lake, a 416 unit apartment complex, which reflects a density
of 17.7 units per acre based on the usable land area. The location is not
considered to be as good as the subject, which requires an upward adjustment.
The golf amenity is considered to be comparable to the lake view amenity, and
these factors were considered to be offsetting. The elevations and physical
attributes of this site were considered to be inferior to the subject, requiring
upward adjustment. Overall, this site is considered to be inferior to the
subject.
Sale Number Two
This comparable is located on the south side of Metrowest Boulevard
approximately eight miles north of the subject. The property sold for
$3,192,000, or $9,500 per unit in December 1993. The sale has frontage on the
south side of Metrowest Boulevard, and contains approximately 28.0 usable acres.
The property was developed with the Golf View Apartments, a 336 unit apartment
complex, which reflects a density of 12.0 units per acre based on the usable
land area. The location is considered to be superior to the subject due to the
popularity of the Metrowest Planned Development, and more central location,
which requires a downward adjustment. The golf amenity is considered to be
superior to that of the subject because more units front on the golf course and
are available for an amenity rent premium. The elevations and physical
attributes of this site were considered to be similar to the subject, requiring
no adjustment. Overall, this site is considered to be slightly superior to the
subject.
Sale Number Three
This comparable is located on the south side of Maitland Boulevard in the
Mailtland Summit Planned Development in north Central Orange County. Maitland
Summit is a mixed use planned development which is predominately zoned for
office and commercial use. The property sold for $2,635,500 in December 1994, or
$7,260 per unit. The property is being developed with The Arbors at Maitland
Summit, a 363 unit apartment complex, which reflects a density of 17.1 units per
acre based on the usable land area. The location is considered to be comparable
to the subject, but it lacks a golf or lake amenity, which requires an upward
adjustment. The elevations and physical attributes of this site were considered
to be similar to the subject, requiring no adjustment. Overall, this site is
considered to be slightly inferior to the subject.
<PAGE>
COMPARABLE LAND SALES MAP
COMPARABLE LAND SALES MAP
Compiled by: CB Commercial Real Estate Group, Inc.
<PAGE>
Sale Number Four
This comparable is located on the east side of International Drive approximately
1/4 mile southeast of the subject. The property sold for $2,890,000, or $8,118
per acre in April 1995. The sale has frontage on the east side of International
Drive, and approximately 17.0 acres of usable land. The property is being
developed with The Mission Club apartments, a 356 unit apartment complex, which
reflects a density of 20.9 units per acre based on the usable land area. The
location is considered to be comparable to the subject, but lacks the golf
amenity which requires a downward adjustment. The elevations and physical
attributes of this site were considered to be similar to the subject. Overall,
this site is considered to be slightly inferior to the subject because it lacks
a view amenity.
SUMMARY OF ADJUSTMENTS
Adjustments made to the comparables are summarized in the following grid:
<TABLE>
<CAPTION>
LAND SALES ANALYSIS
Summary of ADJUSTMENTS 1
<S> <C> <C> <C> <C>
Sale 1 Sale 2 Sale 3 Sale 4
Unadjusted Price/ Unit $ 7,021 $ 9,500 $ 7,260 $ 8,118
Property Rights 0.00% 0.00% 0.00% 0.00%
Subtotal $ 0.00 $ 0.00 $ 0.00 $ 0.00
Financing Terms 0.00% 0.00% 0.00% 0.00%
Subtotal $ 0.00 $ 0.00 $ 0.00 $ 0.00
Conditions of Sale 0.00% 0.00% 0.00% 0.00%
Subtotal $ 0.00 $ 0.00 $ 0.00 $ 0.00
Market conditions 0.00% 0.00% 0.00% 0.00%
Subtotal $ 7,021 $ 9,500 $ 7,260 $ 8,118
Other Adjustments
Physical characteristics
Size 0.00% 0.00% 0.00% 0.00%
Shape 0.00% 0.00% 0.00% 0.00%
Frontage 0.00% 0.00% 0.00% 0.00%
Topography 5.00% 0.00% 0.00% 0.00%
Location 5.00% -5.00% 0.00% 0.00%
Availability of Utilities 0.00% 0.00% 0.00% 0.00%
Zoning 0.00% 0.00% 0.00% 0.00%
Highest and Best Use 0.00% 0.00% 0.00% 0.00%
Off-Site costs 0.00% 0.00% 0.00% 0.00%
Amenities 0.00% -5.00% 10.00% 5.00%
Total Other Adjustments 1.10% -10.00% 10.00% 5.00%
Value Indication for subject $ 8,726 $ 8,550 $ 7,986 $ 8,524
1 The adjustment grid summarizes the direction and magnitude of adjustments
judged appropriate to the comparable sales. In some cases adjustments may be
derived directly from quantifiable data. However, in many instances the
adjustments involve judgment of CB Commercial.
Source: CB Commercial Real Estate Group, Inc.
</TABLE>
CONCLUDED LAND VALUE
The nominal sales prices of the comparables range from $7,021 to $9,500 per
unit. After adjustments, the adjusted values indicated for the subject range
from $7,986 to $8,726 per unit. Greatest reliance is placed on Sale Number 4
($8,524 per unit) because it is located very near the subject, and is the most
recent sale. Sale Number 2 ($8,550 per unit) was also considered to be
instructive to the analysis because it reflects a golf course view amenity
premium.
The concluded estimate of land value for the subject is $8,500 per unit, which
results in the following land value indicated for the subject:
CONCLUDED LAND VALUE
$/Unit Subject Units Total
$ 8,500 x 259 = $ 2,201,500
Rounded: $2,200,000
Source: CB Commercial Real Estate Group, Inc.
<PAGE>
COST APPROACH
The Cost Approach estimates the value of the vacant site and adds to it the
depreciated cost of the improvements. The Cost Approach is based on the
proposition that an informed purchaser would pay no more for the subject than
the cost to acquire a similar site and construct similar improvements
This method is particularly applicable when the property being appraised
involves relatively new improvements which represent the highest and best use of
the land. It is also highly relevant when relatively unique or specialized
improvements are located on the site and for which there exist no comparable
properties on the market.
ESTIMATE OF REPLACEMENT COST NEW
This analysis is based on the replacement cost method of valuation. In the
replacement cost analysis, the cost of creating a modern structure of equal
utility is estimated; not the costs of reproducing a physical duplicate of the
subject improvements. The estimation of the replacement cost of the subject's
existing improvements includes both direct and indirect costs. All of our cost
estimates are as of the date of value. These are briefly described below, and
detailed on the following Cost Approach Summary.
Our estimates of direct costs are based on our analysis of the Marshall
Valuation Service Cost Estimation Manual; and our experience with the costs of
similar developments. Our estimated direct cost are separated into the cost of
the building and site improvements. The direct costs include the contractor's
overhead and profit, but exclude developer's profit.
According to the Marshall Valuation Service, the improvements best fit the
description of a "Class D Fair Quality Multiple Residence." Referring to the
calculator method (Section 12, Page 14, 12/95), the cost on a square foot basis
was indicated to be approximately $33.78 per square foot for this quality.
To this amount, it was necessary to make adjustments for HVAC (+$1.85/SF), the
size of the building (1.02), and for current (1.00) and local cost conditions
(.93).
The reader's attention is directed to the summary of cost approach which
summarizes estimated costs for all building and site improvements. Applying
these multipliers to the base cost results in a dwelling cost figure of
approximately $33.80 per square foot. The clubhouse cost has been estimated at
$40.75 per square foot. Patios, balconies and stairwells are estimated at 25% of
the adjusted base cost, or $8.01 per square foot.
To this amount we added the cost of the site improvements such as the asphalt
paving, pool, tennis court, landscaping, irrigation, signage, concrete walks,
and site lighting. The total cost for site improvements was estimated at
$1,275,000 from the Marshall Valuation Service.
The calculator method includes costs for architect and engineer fees, normal
interest on building funds during the construction period, normal site
preparation, utilities and contractors overhead and profit. However, marketing
costs to create first occupancy, various professional fees and entrepreneurial
profit are not included. Therefore we added these indirect costs to the direct
cost.
INDIRECT COSTS
Financing costs have been estimated at 2% of the anticipated loan amount,
rounded to $200,000. Transportation, sewer and water impact fees totaled
$1,039,234. The initial marketing and lease-up expense was estimated at
$100,000. This expense includes rent loss over the lease-up period and
extraordinary administrative expenses. Professional fees were estimated at
$25,000 and real estate taxes during construction were estimated at $50,000, and
impact fees were estimated at $1,039,734, resulting in total indirect costs of
$1,382,234. Therefore, total direct and indirect costs were estimated at
$9,756,714.
Entrepreneurial Profit
Entrepreneurial profit is compensation to a developer for his time, experience
and use of funds for a period of time. These profit levels typically range up to
20% of costs. For this analysis, we have estimated entrepreneurial profit in the
amount of 10% of direct and indirect costs, due to development conditions and
the size of the project, which indicates $975,672.
ACCRUED DEPRECIATION
There are five basic components associated with accrued depreciation: curable
physical depreciation; incurable physical depreciation; curable functional
obsolescence; incurable functional obsolescence; and external obsolescence.
Curable Physical Depreciation
This category applies to problems associated with deferred maintenance, neglect,
and lack of tenant improvements. Items included in this category can include
roof repair, sewer and water supply system failures, electrical service
deficiencies, asbestos remediation, and interior build-out requirements. The
measure of this form of depreciation is the cost to cure the deficiency.
The subject is of fair quality construction and is considered typical of
apartment buildings which were constructed during the same period. We rated the
construction as fair quality because masonite siding was used, and it has
deteriorated in the humid Florida climate. The subject site is generally
improved in a consistent manner (scale and texture) with alternate directly
competitive substitute properties in the immediate area. Based upon CB
Commercial's visual inspection, the property appears to have received adequate
and routine maintenance, but this could not keep the masonite siding from
rotting and creating problems. Another type of exterior finish such as stucco,
cedar or vinyl siding would provide an exterior which, if given normal routine
maintenance, would outlive the economic life of the improvements. Management
stated that minor repairs would be handled through normal maintenance and repair
cost.
Based on information provided by USF&G, CB Commercial has taken into
consideration the following curable physical depreciation:
SUMMARY OF CURABLE PHYSICAL DEPRECIATION
Item Cost to Cure
Roof Repairs $ 171,799
Total $ 171,799
Source: USF&G & Leffler Enterprises
Compiled by: CB Commercial Real Estate Group, Inc.
It should be noted that the masonite siding is rotten and will not be replaced
with a similar material because it has proven to be an unreliable type of
exterior in this climate. Workmanship probably exacerbated the problem. Thus, we
have treated the existing siding as being 100% depreciated and have handled the
resulting impact on the overall value estimate by the cost approach as
functional obsolescence, as discussed below.
Incurable Physical Depreciation
This category refers to structural items which are not currently feasible to
restore/repair. These items are classified as long-lived and short-lived. A
long-lived item is expected to have an economic life similar to the main
structure; a short-lived component is expected to have a remaining economic life
less than the main structure. The primary source of incurable physical
depreciation is age. Excessive wear and tear may cause the aging process to be
accelerated. Conversely, the improvement or renovation may have the effect of
reversing the aging process by extending the physical or economic life of the
improvements. If maintenance were present throughout the life of the structure,
the effective age can be less than the actual age.
The effective age was discussed earlier in the Improvement Section. The
effective age is estimated to be 6 years.
The subject has rotten masonite siding and damaged vinyl roof shingles, which
are consider to be curable. The cost to cure the roof problem is projected at
$171,799, including approximately $139,972 for roof removal and installation,
$6,552 for trash removal, and an allocation of 17.25% of the soft costs of
administration, overhead and profit based on the data furnished by USF&G.
We have measured the subject's incurable physical depreciation on an effective
age/life basis. In this case, the subject was estimated to have an effective age
of 6 years and a total economic life of 45 years for total accrued depreciation
of 13% of replacement cost new. We also excluded the cost of the siding which
will be cured as an item of functional curable obsolescence. Multiplying the
Replacement Cost New, less the physical curable depreciation of the roof
($171,799) and the cost of new masonite siding ($2,400,000) is calculated as
follows: $10,732,386 - $2,571,799 = $8,160,587. Applying the 13% incurable
physical obsolescence factor, results in total physical depreciation of
$1,060,876 applicable to the subject improvements.
Functional Obsolescence
While the definition of functional obsolescence is subject to changing market
taste and standards, it is basically described as the relative efficiency level
the property is able to achieve in the performance of the task for which it was
constructed. Distillate is measured against the level of adequacy, efficiency,
and standards of performance in the competing marketplace. Functional
obsolescence can be broken down into curable and incurable forms. Curable
functional obsolescence occurs when there is a defect in a structure's design.
This design can be inadequately or superadequacy. For the defect to be curable,
the cost to replace the outmoded or unacceptable item must at least be offset by
the anticipated increase in value. Incurable functional obsolescence is measured
by the net income loss attributed to the deficiency or superadequacy by
comparison with otherwise competitive properties.
The subject has an appropriate architectural style and design which is similar
to the majority of improvements in the immediate area. The subject property
appears capable of competing with the predominant uses and styles. The subject's
structure is of adequate size and exposure/visibility to serve its existing use
and highest and best use. However, the property was constructed with masonite
(hardboard) siding which is a poor building material for use in a humid climate
with the annual rainfall experienced in the Orlando area. Water seeps through
the nail holes, cracks and crevices of the siding and rapidly rots the siding
and damages the wall studs and other parts of the structure which are designed
to be protected by the exterior walls. The subject property is between six and
seven years old and the masonite siding has large rotten sections on most of the
buildings, with damaged studies and sils in areas of severe deterioration of the
exterior wall. We concluded that this constitutes functional curable
obsolescence because the exterior of most apartment buildings in this area last
until the end of the building's economic life if adequately maintained, and
without curing the propblem, the buildings will soon become uninhabitable, which
would result in a total loss of income. Hence, the repairs, although expensive,
are essential to protect the contributory value of the depreciated improvements.
Thus, the subject masonite problem can be considered functional curable
obsolescence, while the roof repairs are physical curable depreciation. We have
already treated the physical curable portion by estimating the replacement cost
new and deducting the estimated cost of the originally installed siding prior to
estimating the physical incurable depreciation factor.
The owners are in the process of repairing the damage caused by the rotten
siding and poor initial workmanship; and replacing the siding as well as vinyl
tile roof, which was reported to have been damaged by wind last summer. The roof
repairs are physical curable obsolescence, and comprise $171,799 of the total
contract amount, which is $3,205,952 (including change orders). Construction is
underway on buildings 9, 10, and 16, and the construction draws indicate that
$496,910.75 worth of work had been completed as of November 15, 1995. None of
the draws were for roof repair. We observed that these buildings were in various
stages of repair at the time of our inspection, and that work appeared to be
progressing, but may be somewhat behind schedule. We are not engineers and are
not qualified to determine whether all of the work which has been funded has
been completed, but based on our observations it would appear that the
construction is being adequately monitored and that the draws are reasonable
given the fact that the startup phase is normally more costly due to engineering
and permitting, etc. Since there were one to two weeks of construction (allowing
for the Thanksgiving holiday) between November 15 and December 1 (the date of
appraisal), we concluded that using the difference between the contract and the
draw would leave sufficient funds for a new contractor to step in and complete
the work if necessary. We therefore relied upon the contract and construction
draw in projecting the impact of the capital repairs to the subject. This is
summarized as follows:
<TABLE>
<CAPTION>
CAPITAL REPAIRS
<S> <C> <C> <C>
Repair Physical Curable Functional Curable Total
Roof Removal $ 66,295
Roof Replacement $105,504
Subtotal - Roof $171,799 $ 171,799
Masonite Removal $ 506,299
Repairs & Vinyl Installation $2,527,854
Masonite Total $3,034,153 $3,034,153
TOTAL $3,205,952
Source: USF&G & Construction Draw Certificate by Leffler Enterprises, Inc.
</TABLE>
The above summary reflects the allocation of the repairs between the roof
repairs, which are considered to be physical curable obsolescence, and the
masonite siding replacement, which is considered to be functional curable
obsolescence.
FUNCTIONAL CURABLE OBSOLESCENCE
Estimated Cost of Existing Siding $2,400,000
Less physical deterioration ($2,400,000)
Less salvage value $0
Plus removal cost $ 506,299
Plus cost to repair & replace with vinyl siding $2,527,854
Loss In Value $3,034,153
Contributory Repairs as of 12/1/95 $ (496,911)
Remaining Functional Obsolescence $2,537,242
Source: USF&G & Construction Draw Certificate by Leffler Enterprises, Inc.
Estimate by CB Commercial
It should be noted that the estimated cost of the repairs includes the allocated
cost of the trash removal and the soft costs (permitting, administrative
overhead and profit).
External Obsolescence
The subject also suffers from external obsolescence, since rent concessions are
being given in order to maintain occupancy during the capital repairs. To
measure this obsolescence, we have estimated the present value of the rent
concessions. The rent concessions currently average $62 per unit for the 133
units which are receiving rental concessions. While management is striving to
limit these concessions to units which are leased for one year, some tenants
with seven months leases have received concessions. These are typically less
than the concessions given for a comparable unit on a one year lease, and they
have been figured in the overall average of $62 per unit per month. The
construction in due to be completed by October 1996. Since some the units will
have term extending beyond the construction phase it would be prudent to adjust
the concessions, reducing them as the construction nears completion. However,
market influences will ultimately determine the amount and timing of the
concessions and there is not a way to precisely predict them. We concluded that
a prudent purchaser would allow for one full year of concessions at the current
average rate, which would take the property two to three months beyond the
construction phase. This should be sufficient given the fact that only 133 units
are currently receiving concessions, but the concessions will extend into the
second year, since a tenant renewing in August of 1996 who receives an annual
concession would benefit from this through July of the following year. However,
we are uncertain as to the amount of concession which will apply in August 1996.
We concluded that a purchaser would apply the full concession for, which should
be sufficient to allow for the lesser amount in the first months with a
concession extending beyond the time frame for leases executed during the year
which expire after December 1, 1996. Applying the average $62 per month to the
259 units results in total concessions of $16,058 per month. Allowing for 7%
physical vacancy, the maximum monthly concession would be reduced to $14,934.
This would total $179,208 for the year. The present value of this amount at
12.0% discounted for one year equals $160,007 ($179,208 x .892857 = $160,007)..
COST APPROACH SUMMARY
Direct Costs
Gross Living Area 198,916 SF @ $33.80/SF $ 6,723,360
Patios/Balconies/Stairways 18,233 SF @ $ 8.01/SF $ 146,046
Clubhouse 5,646 SF @ $40.75/SF $ 230,074
Site Improvements $ 1,275,000
Total Direct Costs $ 8,374,480
Indirect Costs
Construction Related
Financing Costs $ 167,500
Lease-up Expense $ 100,000
Professional Fees $ 25,000
Real Estate Taxes During Construction $ 50,000
Impact Fees $ 1,039,734
Total Indirect Costs $ 1,382,234
Total Direct & Indirect Costs $ 9,756,714
Entrepreneurial Profit @ 10% $ 975,672
Total Replacement Cost New $ 10,732,386
Less: Accrued Depreciation:
Physical Curable--Roof Replacement $ (171,799)
Physical Incurable $ (1,060,876)
Functional Curable $ (2,537,242)
External--Rent Concessions During Construction $ (160,007)
Total Depreciation: $ (3,929,924)
Depreciated Replacement Cost $ 6,802,462
Add: Appraised Land Value $ 2,200,000
Add: Depreciated Value of Personal Property $ 229,337
INDICATED VALUE VIA COST APPROACH $ 9,231,799
ROUNDED: $ 9,250,000
COST APPROACH CONCLUSION
This depreciated value of the improvements is then added to the previously
estimated land value and the depreciated value of the appliances, resulting in
the indicated value of the subject by the Cost Approach method. The depreciated
value of the (personal property) was estimated at $885 per unit, or
approximately $229,337. The rounded value indication for the subject property As
Is was:
NINE MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS
($9,250,000)
We noted that the stabilized value indication assumes that the functional
obsolescence and deferred maintenance have been cured, and the rent concessions
would not be applicable under this scenario. The replacement cost new of the
improvements is $10,732,386. Deducting the incurable physical deterioration for
7 years, or 16%, would result in a depreciated value indication of $9,015,204.
Adding the land value of $2,200,000, and depreciated personal property of
$200,000 results in a future value indication at stabilization of $11,415,204,
say $11,400,000.
<PAGE>
SALES COMPARISON APPROACH
The Sales Comparison Approach provides an estimate of market value based on
analyzing transactions of similar properties in the market area. The method is
based on the proposition that an informed purchaser would pay no more for a
property than the cost of acquiring an existing one with the same utility. When
there is an adequate number of sales of truly similar properties with sufficient
information for comparison, a range of values for the subject property can be
developed.
The applicability of this approach is based on the assemblage of similar market
sales and offerings for a comparison to the subject. Considerations for such
factors as changing market conditions over time, location, size, quality,
age/condition, and amenities, as well as the terms of the transactions, are all
significant variables relating to the relative marketability of the subject
property. Any adjustments to the sale price of market sales to provide
indications of market value for the subject must be market-derived; thus, the
actions of typical buyers and sellers are reflected in the comparison process.
There are various units of comparison available in the evaluation of sales data
in this approach. The sale price per square foot $/SF and per unit are the most
commonly used in this approach. The effective gross income multiplier (EGIM) is
rarely used by market participants.
An adjustment grid is normally used to summarize the direction and magnitude of
adjustments judged appropriate to the comparable sales. In some cases
adjustments may be derived directly from quantifiable data (e.g., the estimated
cost to replace a roof). However, in many instances the adjustments involve the
judgment of CB Commercial.
After a diligent effort has been made to identify and adjust for all salient
differences, one of several patterns is likely to emerge:
1. there may be a clear clustering of adjusted values within a narrow range;
2. there may be no discernible pattern; or
3. there may be a general clustering, but with one or several adjusted sales
outside the general range indicated by the other data.
In the first instance a point estimate of value within the resulting adjusted
range is typically concluded. In the second instance it is generally possible
only to conclude a reasonable value range. In the third instance the "outliers"
typically receive little weight in the analysis unless they are the most
comparable sales, represent a fundamental change in market dynamics, or are
otherwise particularly relevant to the subject analysis.
Numerous factors influence the sales price of a property and its comparability
with similar properties. Thus, making adjustments for the multitude of
differences between the comparables and the subject renders the traditional
analysis on a per square foot basis somewhat impractical and unreliable.
The following table summarizes the most recent comparable sales which have
occurred in the Orlando market.
<TABLE>
<CAPTION>
COMPARABLE IMPROVED SALES ANALYSIS
<S> <C> <C> <C> <C> <C> <C> <C>
Subject Sale No. 1 Sale No. 2 Sale No. 3 Sale No. 4 Sale No. 5 Sale No. 6
Name St. Andrews Pine Harbour The Landings Newport Springs Tealwood Parke Club Esprit
Colony Colony
Sale Date ------ 4/94 5/94 10/94 10/94 3/95 4/95
Sale Price ------ $16,600,000 $11,450,000 $22,000,000 $6,300,000 $4,375,000* $14,750,000
No. Units 259 366 282 476 188 108 294
Net Rentable Area 198,916 342,012 251,598 420,136 160,400 100,776 234,216
(SF)
Avg. Unit Size (SF) 768 934 892 883 853 933 797
Year Built 1989 1990 1987 1990 1986 1986 1991
Construction Wood Frame Wood Frame Wood Frame Wood Frame Frame Frame Frame
Density (Units/AC) 17.80 18.1 22.14 N/A 17.9 14.8 30.2
Sales Price/Unit ------ $45,355 $40,603 $46,218 $33,511 $40,509 $50,170
Net Income/Unit $3,842 $4,025 $3,476 $3,907 $3,016 $3,954 $4,139
Sales Price/SF ------ $48.54 $45.51 $52.36 $39.28 $43.41 $62.98
Net Income/SF $5.00 $4.30 $3.90 $4.43 $3.53 $4.24 $5.20
Expense Ratio 45.4% 42.0% 45.8% 46.5% 48.6% 43.0% 39.2%
(EGIM) ------ 6.55 6.33 6.33 5.71 5.82 7.37
(NIM) ------ 11.27 11.68 11.83 11.11 10.25 12.12
Overall Rate (OAR) ------ 8.90% 8.56% 8.45% 9.00% 9.76% 8.25%
*Adjusted for Cash Equivalency
Compiled by: CB Commercial Real Estate Group, Inc.
</TABLE>
<PAGE>
COMPARABLE IMPROVED SALES MAP
COMPARABLE IMPROVED SALES MAP
Compiled by: CB Commercial Real Estate Group, Inc.
Comparing Properties on the Basis of NOI Per Square Foot
A technique which is normally used as a cross-check to the per square foot
analysis, uses the net operating income (NOI) being generated by the comparable
sales as compared to the subject's Year One pro forma operating status that was
estimated in the Income Capitalization Approach. Basically, by developing a
ratio between the subject's net operating income and comparable's net operating
income, an adjustment factor can be calculated for each of the individual sales.
This adjustment factor can then be applied to the comparable's price per square
foot units of comparison to render indications for the subject property which
attempt to isolate the economic reasoning of the buyers. In general, it is a
fundamental assumption that the physical characteristics of a project (e.g.,
location, access, design/appeal, condition, etc.) are reflected in the net
operating income being generated and that the resultant price per square foot
paid for a property has a direct relationship to the net operating income being
generated.
The following chart depicts the calculations involved in developing adjustment
factors to be applied to the respective price per square foot units of
comparison developed from the comparables employed.
NET OPERATING INCOME (NOI) ANALYSIS
Sale Subject's NOI/SF Sale Price Adjusted $/SF
No. Sale's NOI/SF Multiplier $/SF for Subject
1 $ 5.00 1.163 $48.54 $56.44
$ 4.30
2 $ 5.00 1.282 $45.51 $58.34
$ 3.90
3 $ 5.00 1.129 $52.36 $59.11
$ 4.43
4 $ 5.00 1.416 $39.28 $55.62
$ 3.53
5 $ 5.00 1.176 $43.41 $51.05
$ 4.25
6 $ 5.00 0.962 $62.98 $60.59
$ 5.20
Source: CB Commercial Real Estate Group, Inc.
The adjusted values indicated for the subject range from $51.05 to $60.59 per
square foot, with an average of $56.85, a median of $57.39 and a stanadard
deviation of $3.37 per square foot. This range indicates an overall range of
value for the subject of between $10,154,662 and $12,052,320. We reconciled at
$60.00 per square foot, which gives a stabilized value indication of
$11,934,960, which we rounded to $11,950,000
However, this must be adjusted for the fact that this reflects a stabilized
rental income and the property will not be stabilized for a year. Thus, this
value must be discounted for a year in order to project the value of the
property "As Is" as of December 1, 1995. Discounting the $11,950,000 by 12.0%,
as discussed in the Income Approach, results in a value indication of
$10,669,643. The owner would receive the income during the year required to
stabilize the property, which is projected in the Discounted Cash Flow Analysis
(Income Approach) to be $898,096. Discounting this for one year at 12.0% results
in a value contribution of $801,871, which results in $11,471,514 ($10,669,643 +
$801,871 = $11,471,514).
The subject suffers from approximately $2,709,041 in functional obsolescence
($2,537,242 for remaining cost to cure masonite problem), and deferred
maintenance ($171,799 for roof repairs), which must be deducted. Subtracting
this deferred maintenance ( the rent loss being recognized in the reduced amount
of interim income) gives an "As Is" value of $8,762,473. We subsequently
concluded that this technique reflects a market value, as is, $8,750,000.
NOI/PER SQUARE FOOT INDICATIONS
OF VALUE
RENTABLE SQUARE FEET PER SF Total
198,916 X $60.00 = $11,934,960
Prospective Stabilized Value $11,950,000
(Rounded)
Interim Income during $ 898,096
Construction
Total $12,848,096
Present Value @ 12.0% .89686 $11,471,514
Deferred Maintenance ($2,709,041)
Indicated Value $ 8,762,473
Indicated Value "As Is" (Rounded) $ 8,750,000
Source: CB Commercial Real Estate Group, Inc.
Effective Gross Income Multiplier Analysis
The EGIM is the other applicable unit of comparison used in this analysis. It
establishes the relationship between the effective gross income of a property
and the sale price of the property. The effective gross income multipliers vary
somewhat due to the income-producing capabilities and operating expense ratios
of certain comparable properties.
There is a direct correlation between value and annual rental income, which
makes this unit of comparison highly market-sensitive to investor indicators.
Differences between the improved sales, which would normally require
adjustments, are accounted for by the action of the rental market. Therefore, if
the comparable properties have an advantage over the subject property, the
difference in effective gross income already reflects the extent of the
advantage.
The EGIM method is considered most appropriate when comparable operating expense
ratios are similar.
The effective gross income multiplier range reflected by the comparable sales is
5.71 to 7.37. The mean is 6.40 and the median is 6.43. Points of consideration
include the quality, quantity, and durability of the income stream. The
comparable sales' operating expense ratios range from 39.2% to 48.6%. The
subject's ratio is 45.4%, which is within the range of the comparables.
A factor that typically affects the EGIM in the valuation of properties are
older lease agreements which are still within their term. In a stabilized market
with short- to mid-term growth projected, a property with below-market leases
which are somewhat dated and with near-term expiration dates can sell with a
high income multiplier. This is due to the investor's opportunity to increase
rents upon expiration of the existing leases. Conversely, a property with a low
income multiplier might have above-market rent levels (excess rent) with leases
which will soon expire. The subject is an apartment complex an all of the leases
are expected to expire, with the leases being renewed or the tenants replaced at
some point during the next year.
With consideration to the preceding analysis and the income-producing
capabilities of the subject, the subject's expense ratio falls near the upper
end of the range provided by the comparable sales. Therefore, Sale Comparables
2, 3 and 4, have operating expense ratios most similar to the subject, and they
reflect a range of EGIM's between 5.71 and 6.61. The subject is estimated to
realize an EGIM within the range of the above-referenced sales and a multiplier
of 6.35 is considered appropriate. The subject's stabilized effective gross
income as derived in the Income Capitalization Approach is $1,864,997. This
results in a value indication, as if stabilized, which we project will occur by
December 1, 1996, of $11,842,731, which we rounded to $11,850,000. However, this
must be adjusted for the fact that this reflects a stabilized rental income and
the property will not be stabilized for a year. Thus, this value must be
discounted for a year in order to project the value of the property "As Is" as
of December 1, 1995. Discounting the $11,850,000 by 12.0%, as discussed in the
Income Approach, results in a value indication of $10,580,357.
The owner would receive the income during the year required to stabilize the
property, which is projected in the Discounted Cash Flow Analysis (Income
Approach) to be $898,096. Discounting this for one year at 12.0% results in a
value contribution of $801,871, which results in $11,382,228 ($10,580,357 +
$801,871 = $11,382,228).
The subject suffers from approximately $2,709,041 in functional obsolescence
($2,537,242 for remaining cost to cure masonite problem), and deferred
maintenance ($171,799 for roof repairs), which must be deducted. Subtracting
this deferred maintenance ( the rent loss being recognized in the reduced amount
of interim income) gives an "As Is" value of $8,673,187 ($11,382,228 -
$2,709,041 = $8,673,187). We subsequently concluded that this technique reflects
a market value, as is, of $8,700,000.
EFFECTIVE GROSS INCOME MULTIPLIER VALUE INDICATION
STABILIZED VALUE
Effective Gross Income EGIM Total
$1,864,997 X 6.35 = $11,842,731
Prospective Stabilized Value $11,850,000
(Rounded)
Interim Income during $ 898,096
Construction
Total $12,748,096
Present Value @ 12.0% .89286 $11,382,229
Deferred Maintenance ($2,709,041)
Indicated Value $ 8,673,188
Indicated Value "As Is" (Rounded) $ 8,700,000
Source: CB Commercial Real Estate Group, Inc.
SALES COMPARISON APPROACH CONCLUSION
The following table summarizes the stabilized value indications based on the
Sales Comparison Approach.
SALES COMPARISON APPROACH
STABILIZED VALUES
Method Indicated Value
Price Per Square Foot Indication $11,950,000
EGIM Indication $11,850,000
RECONCILED $11,900,000
Source: CB Commercial Real Estate Group, Inc.
Although the two units of comparison are given consideration in the overall
value estimate of this approach, slightly more reliance was placed on the EGIM
since it includes revenue for the furniture and accounts for other risk factors
since the operating expense ratios fall in a fairly narrow range despite a large
variance in the income and expenses on a per square foot basis. The estimated
stabilized value of the property is $11,900,000.
The following table presents the "as is" value for the subject as indicated by
the Sales Comparison Approach.
SALES COMPARISON APPROACH
"AS IS" VALUE
Price Per Square Foot Indication $8,750,000
EGIM Indication $8,700,000
RECONCILED $8,700,000
1 See Income Capitalization Approach
Source: CB Commercial Real Estate Group, Inc.
The "As Is" value indications by the two techniques utilized was between
$8,700,000 and $8,750,000, and we reconciled at $8,700,000.
<PAGE>
INCOME CAPITALIZATION APPROACH
The Income Capitalization Approach reflects the subject's income-producing
capabilities. This approach is based on the assumption that value is created by
the expectation of benefits to be derived in the future. Specifically estimated
is the amount an investor would be willing to pay to receive an income stream
plus reversion value from a property over a period of time. The two common
valuation techniques associated with the Income Capitalization Approach are
direct capitalization and the discounted cash flow (DCF) analysis.
DIRECT CAPITALIZATION
Direct capitalization is the method used to convert a single year's estimate of
income into a value indication. In direct capitalization, a precise allocation
between return on and return of capital is not made because investor assumptions
or forecasts concerning the holding period, pattern of income, or changes in
value of the original investment are not simulated in the method. Direct
capitalization is most appropriate when analyzing a stable income stream and in
estimating the reversion at the end of a holding period. Using this method, the
following sets forth the process:
1. Estimate the Potential Gross Income (PGI) from all sources that a
competent owner should be able to generate from a property based
on existing and/or market rents.
2. Deduct an estimate of Vacancy and Collection Loss (VCL) to arrive
at an Effective Gross Income (EGI) estimate.
3. Deduct operating expenses from the estimate of EGI. The result
is an estimate of the stabilized Net Operating Income (NOI).
4. Estimate an Overall capitalization rate (Ro, or OAR).
5. Divide the NOI by Ro, resulting in a value estimate at stabilized
occupancy.
6. Adjust the stabilized value to account for "as is" condition, if
applicable.
DISCOUNTED CASH FLOW ANALYSIS
The discounted cash flow (DCF) analysis is a detailed analysis used when the
future income is expected to be variant, usually as a result of numerous lease
obligations and/or anticipated changes in income and expenses. It is also
particularly relevant when institutional buyers are the most likely purchasers
of the subject because institutional buyers often place great weight on this
analysis. The DCF analysis specifies the quantity, variability, timing, and
duration of NOIs and cash flows. Selecting the proper yield rate (discount rate)
is essential. CB Commercial must consider the target yield sought by investors
as well as yields derived from comparable sales and/or market information. The
methodology is:
1. Estimate the before-tax cash flows for each period of a projected
holding period net of any capital expenditures such as leasing
expenses and tenant improvements.
2. Estimate a discount rate and a terminal overall capitalization
rate.
3. Estimate a selling price, known as the reversion, for the end of
the projected holding period.
4. The cash flows and the reversion are then discounted to a present
value estimate.
APPROPRIATE CAPITALIZATION METHOD
A number of factors were considered in evaluating the appropriateness of using
the direct capitalization method and/or the DCF technique. Since the subject is
stabilized with market rent and expenses and good data was available for
estimating a capitalization rate, direct capitalization is considered
applicable. However, we have also applied a Discounted Cash Flow Methodology,
since this method is commonly used by institutional investors.
MARKET RENT
We conducted an extensive rental survey of apartment properties in the market
area of the subject complex. The comparable complexes were analyzed as to their
amenities, desirability and other factors which relate to their income producing
capabilities. The individual unit types of the comparables were then compared to
the subject units to arrive at a market rental rate.
The subject was approximately 90.3% occupied allowing for all units which are
"down" for capital repairs, as well as the model and employee units as being
vacant. Management typically treats only units available for rental as being
vacant when reporting physical vacancy, but includes all non-revenue producing
units as vacant when reporting "economic" vacancy. The market rates in effect at
the subject as of the date of this appraisal were analyzed. A summary of the
current rental rates in effect for the subject as of December 1, 1995 is
presented as follows:
<TABLE>
<CAPTION>
ST. ANDREWS AT WESTWOOD APARTMENTS
QUOTED BASE ASKING RENTS
<S> <C> <C> <C> <C>
Total Units Unit Type Monthly Rent Size (SF) Rent/SF
72 A 1 BR/1BA $545 644 $.846
72 B 1BR/1BA $583 686 $.850
64 C 2BR/2BA $693 850 $.815
51 D 2BR/2BA $736 956 $.770
259 Totals/Average $644 768 $.838
Source: Summit Management for St. Andrews Apartments
</TABLE>
In addition to the base rent, it is common in this area for apartment complexes
to charge premiums for selected unit features, such as vaulted ceilings,
fireplaces, and washers and dryers, as well as for project amenities, such as
views of pools, woods, ponds and lakes, and golf courses, as well as premiums
for carports and garages. The following list summarizes the premiums which are
recognized in the rent at the subject property.
FEATURES: Vaulted Ceilings $ 15.00
AMENITIES: Golf View $ 15.00
Pool/Pond $ 15.00
In order to determine if the subject's rental rates represent current economic
or markets rents, we have thoroughly researched the competing projects within
the subject neighborhood. It should be noted that the newer apartment complexes,
which include Comparable No. 5, The Vinings at Sand Lake, Comparable No. 6,
Mission Club, and Comparable No. 7, Osprey Links, have separately metered water
and sewer for each apartment unit and these utilities are billed directly to the
tenant. For the subject and the remaining comparables, the water and sewer
charges are included in the rent. A comparable rental summary and location map
is presented on the following page. The rental rates of the most comparable
units at each project are summarized in the following charts.
<PAGE>
COMPARABLE RENTALS MAP
COMPARABLE RENTALS MAP
Compiled by: CB Commercial Real Estate Group, Inc.
<PAGE>
<TABLE>
<CAPTION>
TYPE A--SMALL ONE BEDROOM COMPARABLE ANALYSIS
<S> <C> <C> <C> <C> <C>
No. Name Type Size (SF) Rent/Mo Rent/SF
3 Monterey Lake 1 BR/1 BA 550 $559 $1.016
1 Vinings @ Westwood 1 BR/1 BA 595 $500 $0.840
4 Vinings @ Lake Buena Vista 1 BR/1 BA 595 $510 $0.857
5 Vinings @ Sand Lake 1 BR/1 BA 594 $540 $0.909
7 Mission Club 1 BR/1 BA 644 $550 $0.854
Type A St. Andrews 1 BR/1 BA 644 $545 $0.846
</TABLE>
The subject asking rent for the 72 small one bedroom units, designated as unity
type A, is generally in the mid range of the comparables, but supported since
some of the comparables are newer and have more amenity features. The subject
has 32 one bedroom, one bath units with a $15 per month premium, and 12 units
with a $30 per month premium, which results in total premiums of $900 per month,
for an average of $20.45 per "premium" unit, or $12.50 per unit, for the type A
units overall. Adding this to the scheduled market rent of $545 per month gives
an average market rent of $557.50 per month, or $.866 per square foot per month,
which is within the range indicated by the comparables, given the fact that the
actual premium charges for the comparables are unknown. The primary amenities
for the subject are the upper floor, and vaulted ceiling amenities, and the
privacy or view amenities afforded by the golf views over the adjoining
property. Rent Comparable No. 1 reflects a furnished apartment rent, and the
reported premium for furnished units is between $30 and $60 per month depending
upon the furnishings. Less weight was given to this comparable. Rent Comparable
No. 3 has golf views for which a $15 monthly premium is charged, while Rent
Comparable No. 6 is asking up to $50 per unit for golf views, but has only just
begun leasing. Rent Comparable No. 5 has a lake view amenity for which a $15 to
$65 monthly premium is charged. We have estimated a market rent of $545 plus an
average monthly premium of $12.50, or $557.50 per month for the one bedroom, one
bath units.
The concluded average market rent of $557.50 per month for the type A units is
slightly higher than the current contractual rental income for the small one
bedroom units, which averages $536 for the 69 occupied one bedroom units. The
average base contractual rent is $534 per occupied unit, which reflects an
average rental premium of $12.00 per month when averaged over 72 units. Thus,
the market rent discussed in the preceding paragraph is supported by the
contractual rent, since apartments can adjust their market rental rates on a
monthly basis. It should be noted that the impact of the capital improvement
program on the rental rates is being handled in the form of temporary rent
concessions, with each unit being negotiated on an individual basis. As of
December 1, 1995, 36 of the 72 small one bedroom units were receiving a rent
concession, with the total being $1,705 per month, for an average concession $47
per month. Since concessions are negotiated at the time a unit is rented or a
lease is renewed, the concessions will probably continue for several months
beyond the completion of the capital improvements program.
<TABLE>
<CAPTION>
TYPE B--LARGER ONE BEDROOM COMPARABLE ANALYSIS
<S> <C> <C> <C> <C> <C>
No. Name Type Size (SF) Rent/Mo Rent/SF
2 Broadwater 1 BR/1 BA 685 $545 $0.796
3 Vinings @ Westwood 1 BR/1 BA 766 $565 $0.738
4 Vinings @ Lake Buena Vista 1 BR/1 BA 766 $550 $0.718
5 Vinings @ Sand Lake 1 BR/1 BA 714 $590 $0.826
6 Osprey Links 1 BR/1 BA 855 $600 $0.702
7 Mission Club 1 BR/1 BA 688 $620 $0.901
Type B St. Andrews 1 BR/1 BA 686 $583 $0.850
</TABLE>
The asking rent for the 72 larger one bedroom units at the subject, designated
as unit type B, is $583 per month, which is generally in the upper end of the
range of the comparables. The subject has 35 one bedroom, one bath units with a
$15 per month premium, and 12 units with a $30 per month premium, which results
in total premiums of $887 per month, for an average of $18.87 per unit for the
47 "premium" units, or $12.32 per unit for the type B units overall. Adding this
to the scheduled market rent of $583 per month gives an average scheduled rent
of $595.32 per month, or $.868 per square foot per month, which is still within
the range indicated by the comparables, given the fact that the actual premium
charges for the comparables are unknown. The primary amenities for the subject
are the upper floor, and vaulted ceiling amenities, and the privacy or view
amenities afforded by the golf views over the adjoining property. Rent
Comparable No. 2, also has golf views for they report rent premiums ranging from
$10 to $40 per month for selected units. Rent Comparable No. 3 has golf views
for which a $15 monthly premium is charged, while Rent Comparable No. 6 is
asking up to $50 per unit for golf views, but has only just begun leasing. Rent
Comparable No. 5 has a lake view amenity for which a $15 to $65 monthly premium
is charged. Rent Comparable No. 1 reflects a furnished apartment rent, and the
reported premium for furnished units is between $30 and $60 per month depending
upon the furnishings. Less weight was given to this comparable. Rent Comparable
No. 7 is also a new property. We have estimated a market rent of $583 plus an
average monthly premium of $12.50, or $595.50 per month for the larger one
bedroom, one bath units.
The concluded average market rent of $595.50 per month for the type B units is
slightly higher than the current contractual rental income for the larger one
bedroom units, which averages $586 for the 64 one bedroom units which are
currently leased. The average base contractual rent is $576 per occupied unit,
which reflects an average rental premium of $10.00 per month when averaged over
72 units. Thus, the market rent discussed in the preceding paragraph is
supported by the contractual rent, since apartments can adjust their market
rental rates on a monthly basis. It should be noted that the impact of the
capital improvement program on the rental rates is being handled in the form of
temporary rent concessions, with each unit being negotiated on an individual
basis. As of December 1, 1995, 38 of the 72 larger one bedroom units were
receiving a rent concession, with the total being $2,179 per month, for an
average concession of $57 per month. Rental concessions began in September 1995,
and will probably continue through the time required to complete the capital
improvements, which is projected to be October 1996. Since concessions are
negotiated at the time a unit is rented or a lease is renewed, the concessions
will probably continue for several months beyond the completion of the capital
improvements program.
<TABLE>
<CAPTION>
TYPES C & D--TWO BEDROOM/TWO BATH COMPARABLE ANALYSIS
<S> <C> <C> <C> <C> <C>
No. Name Type Size (SF) Rent/Mo Rent/SF
1 Monterey Lake 2 BR/2 BA 800 $709 $0.886
2 Broadwater 2 BR/2 BA 870 $640 $0.736
2 BR/2 BA 945 $710 $0.751
3 Vinings @ Westwood 2 BR/1 BA 911 $660 $0.724
2 BR/2 BA 1,018 $690 $0.678
2 BR/2 BA 1,138 $740 $0.650
4 Vinings @ Lake Buena Vista 2 BR/2 BA 1,018 $670 $0.658
5 Vinings @ Sand Lake 2 BR/2 BA 1,055 $755 $0.716
7 Mission Club 2 BR/2 BA 962 $765 $0.795
Type C St. Andrews 2 BR/2 BA 850 $693 $0.815
Type D St. Andrews 2 BR/2 BA 956 $736 $0.770
</TABLE>
The subject asking rent of $693 per month for the 64, smaller two bedroom, two
bath units containing 850 square feet, designated as unit type C, is generally
in the upper end of the range indicated by the comparables. The subject has 32
smaller two bedroom, two bath units with a $15 per month premium, and 12 units
with a $31 per month premium, which results in total premiums of $852 per month,
for an average of $19.36 per "premium" unit, or $13.31 per unit, for the type C
units overall. Adding this to the scheduled market rent of $693 per month gives
an average market rent of $706.31 per month, or $.831 per square foot per month,
which is above the range indicated by the comparables, but within the overall
range given the fact that the actual premium charges for the comparables are
unknown. The primary amenities for the subject are the upper floor, and vaulted
ceiling amenities, and the privacy or view amenities afforded by the golf views
over the adjoining property. Rent Comparable No. 2, also has golf views for they
report rent premiums ranging from $10 to $40 per month for selected units. Rent
Comparable No. 1 reflects a furnished apartment rent, and the reported premium
for furnished units is between $30 and $60 per month depending upon the
furnishings. Less weight was given to this comparable. Rent Comparable No. 3 has
golf views for which a $15 monthly premium is charged. Rent Comparable No. 5 has
a lake view amenity for which a $15 to $65 monthly premium is charged. Rent
Comparable No. 7 is new and has more amenities. We have estimated a market rent
of $680 plus an average monthly premium of $13.50, or $693.50 per month for the
smaller two bedroom, two bath units. This is slightly below the scheduled market
rent.
The concluded average market rent for the type C units of $693.50 per month is
slightly higher than the current contractual rental income for the smaller two
bedroom units, which averages $687 for the 58 occupied smaller two bedroom
units. The average base contractual rent is $665 per occupied unit, which
reflects an average rental premium of $22.00 per month when averaged over 58
occupied units. Thus, the market rent concluded in the preceding paragraph is
supported by the contractual rent, since apartments can adjust their market
rental rates on a monthly basis. It should be noted that the impact of the
capital improvement program on the rental rates is being handled in the form of
temporary rent concessions, with each unit being negotiated on an individual
basis. As of December 1, 1995, 30 of the 64 smaller two bedroom units were
receiving a rent concession, with the total being $2,005 per month, for an
average concession $67 per month. Since concessions are negotiated at the time a
unit is rented or a lease is renewed, the concessions will probably continue for
several months beyond the completion of the capital improvements program.
The subject asking rent of $736 per month for the 51, larger two bedroom, two
bath units containing 956 square feet, designated as unit type D, is in the
upper end of the range indicated by the comparables. The subject has 24 larger
two bedroom, two bath units with a $19 per month premium, 2 units with a $24 per
month premium, 12 units with a $40 per month premium, and one unit with a $44
per month premium, which results in total premiums of $1,048 per month, for an
average of $26.87 per "premium" unit, or $20.55 per unit, for the type D units
overall. Adding this to the scheduled market rent of $736 per month gives an
average market rent of $756.55 per month, or $.791 per square foot per month,
which is above the range indicated by the comparables, but within the overall
range given the fact that the actual premium charges for the comparables are
unknown. The primary amenities for the subject are the upper floor, or vaulted
ceiling amenities, and the privacy or view amenities afforded by the golf views
over the adjoining property. Rent Comparable No. 2, also has golf views for they
report rent premiums ranging from $10 to $40 per month for selected units. Rent
Comparable No. 1 reflects a furnished apartment rent, and the reported premium
for furnished units is between $30 and $60 per month depending upon the
furnishings. Less weight was given to this comparable. Rent Comparable No. 3 has
golf views for which a $15 monthly premium is charged. Rent Comparable No. 5 has
a lake view amenity for which a $15 to $65 monthly premium is charged. Rent
Comparable No. 7 is new property with more amenities.
In this case, the reported premiums for this larger size two bedroom unit appear
to be out of line with the premiums charged for the other units. The maximum
premium for the other units was $31 per month. Since three of these units are in
a single, three unit building, they would likely be eligible for a slightly
higher premium. However, 24 of the remaining 36 units would only be eligible for
a $15.00 per month premium, and the remaining 12 units would be eligible for a
$30.00 per month premium. The total premiums would subsequently be $832 per
month, for an average of $21.33 per "premium" unit, or $16.31 per unit overall.
We have estimated a market rent of $736 plus an average monthly premium of
$16.50, or $752.50 per month for the larger two bedroom, two bath units.
The concluded average market rent of $752.50 per month is slightly higher than
the current contractual rental income for the larger, type D, two bedroom units,
which averages $744 for the 43 occupied larger two bedroom units. The average
base contractual rent is $730 per occupied unit, which reflects an average
rental premium of $14.00 per month when averaged over 43 occupied units. Thus,
the market rent concluded in the preceding paragraph is supported by the
contractual rent, since apartments can adjust their market rental rates on a
monthly basis. It should be noted that the impact of the capital improvement
program on the rental rates is being handled in the form of temporary rent
concessions, with each unit being negotiated on an individual basis. As of
December 1, 1995, 29 of the 51 larger two bedroom units were receiving a rent
concession, with the total being $2,348 per month, for an average concession of
$81 per month. Since concessions are negotiated at the time a unit is rented or
a lease is renewed, the concessions will probably continue for several months
beyond the completion of the capital improvements program.
The aforementioned comparables provide a relatively narrow range of market rent
indications, and generally bracket the subject rents. Based on this analysis,
the subject is toward the upper end of the range, but supported with the
superior amenities provided. Thus, we have estimated the current asking rents
for the subject to be at market. Thus, we have utilized the current rent levels
for the potential gross income estimate as follows:
<TABLE>
<CAPTION>
SUMMARY OF POTENTIAL GROSS RENTAL INCOME
<S> <C> <C> <C> <C> <C> <C> <C>
Style No. Description Base Average Monthly Annual Rental
Units Size Rent Premium Rent
A 72 1 BR/BTH 644 $545 $12.50 $557.50 $ 481,680
B 72 1 BR/1 BTH 686 $583 $12.50 $595.50 $ 514,512
C 64 2 BR/2 BTH 850 $680 $13.50 $693.50 $ 532,608
D 51 2 BR/2 BTH 956 $736 $16.50 $752.50 $ 460,530
Total Potential Gross Rental Income $1,989,330
</TABLE>
Rental Concessions
As indicated above, the nature of the current capital improvements program is
disruptive in that the buildings have rotten masonite siding which presents a
poor property image. The masonite is being replaced with an attractive vinyl
siding, but the process will take about a year, with anticipated completion in
October 1996. In order to maintain a competitive market position rental
concessions are being offer to attract new tenants and retain existing tenants.
The amount of the concession ranges from approximately $45 per month over a
twelve month lease for a one bedroom unit, to as much as $100 per month for a
larger two bedroom unit. As of December 1, 1995, there were 133 units which were
receiving total monthly rental concessions of $8,237, for an average of $61.93
per month. We concluded that an average monthly rental concession of $62.00
should be applied during the construction renovation period as units are leased,
or leases are renewed.
Other Income
Income from sources other than apartment rentals includes laundry income,
forfeited deposits, late fees, etc. We have analyzed the operating history of
the subject and of similar complexes to estimate income from other sources. The
subject's historical other income was between 3.1% and 3.9% recently. The
comparable expense data indicates other income typically ranges between 2% and
3% of rental income. On a stabilized basis, we have projected other income at
2.75% of the net rental income.
Vacancy And Collection Loss
The subject has averaged 93% physical occupancy since 1992 with one to two model
units included in the vacancy. In 1994, physical vacancy was 4.0%, while
economic vacancy was resulted in a loss of $213,998 in potential revenues, or
11.1% of gross potential income of $1,931,165 ($1,878,412 Potential Rent plus
$52,753 in "Other Income"). Economic vacancy included $17,179 (0.9%) in rent
concessions; $42,523 (2.2%) for model units and employee units; $142,767 (7.4%)
for vacant units; and $11,530 (0.6%) for bad debt expense.
Rental concessions are difficult to pinpoint on comparables unless income and
expense statements are available, but they continue to be offered throughout the
Orlando MSA for apartment complexes, with the amount of concessions, if any,
varying monthly with the occupancy and rental rates. In 1994 the subject
property gave up 0.9% of potential gross income in concessions, but the market
was "softer" at the time. We have concluded that an average of 1% rental
concessions over the projection period would be reasonable. This does not
included the current concessions which are a direct result of the construction,
which we have treated separately.
In 1994, model units and employee units accounted for a loss of $42,523, or 2.2%
of potential gross income. Based on the December 1, 1995 rent roll there are two
model units, a one bedroom and a two bedroom. Based on our average rental
projections, these two units would result in a loss of $15,012 in potential
rental income, or 0.75%. The four employee units are all two bedroom apartments,
and account for a loss of potential rental revenues of $35,412. This would be
1.8% of potential rental income if all employees were given full discounts. Some
employees receive only 30% rental discount and others receive 100% at present.
We have treated the employee units as income producing apartments, and have
included the rent as part of the payroll expense, since this is the way the
property is reported to be budgeted. In addition, most apartment complexes
report employee occupied, units as being occupied, and including them as vacant
distorts the vacancy projection.
The actual vacancy in 1994 accounted for a loss of $142,767, or 7.4% of
potential rental income. This is in line with the overall average for the
subject and the market as a whole. Since the construction project is impacting
the property, we have concluded that a 9.0% vacancy would be reasonable during
the first year of our projection, and a 7% vacancy would be appropriate for the
stabilized property.
Collection loss is shown as a bad debts expense item in the historical summary
for 1994, and it totaled $11,530, or 0.6% of potential rental income. We
have concluded that a 1% allowance for collection loss would be appropriate for
the subject property.
As of the date of appraisal, there were 234 leased units within the subject
project for a physical occupancy of 90.3%. The current drop in physical
occupancy to 90% appears to be related to the capital improvements program. We
conducted a survey of apartments in and around the subject's market area and
found a current average of 93% for newer complexes.
The overall occupancy rate is relatively stable in the Orlando area, with new
construction offsetting population growth. Over long periods of time, with
rising and falling occupancy rates due to new construction and changes in
demand, occupancies have generally ranged from 89% to 97%. Based on the current
conditions, we have tended toward the middle of the range. Therefore, we have
estimated a total vacancy and collection loss allowance of 11% including
concessions for the first year. After completion of the construction, we feel
that the property will be able to return to achieve 93% physical occupancy.
Another 1% collection loss was allowed for a total vacancy and collection loss
of 8% on a stabilized basis. Another 1.0% deduction was made for rent
concessions resulting in a stabilized economic occupancy of 91%. We used a
stabilized vacancy and collection loss, including concessions, of 9% for our
direct capitalization analysis. This will also allow a provision for any current
or future rent concessions
Expense Analysis
The next step in the Income Approach is to estimate the fixed and variable
operating expenses for the property as well as reserves for replacement. These
expenses have been estimated by an analysis of the operating history of the
subject and of similar complexes with similar age, size and management.
The subject operating expense data was compared to industry averages for 28
garden type apartments in the Orlando area as found by the Institute of Real
Estate Management, 1994 Income and Expense Analysis for conventional apartments.
We also analyzed and compared operating expense data from two other apartments
in the Orlando area which we recently appraised. This data is presented in the
following summary.
<TABLE>
<CAPTION>
COMPARABLE EXPENSE ANALYSIS
<S> <C> <C> <C> <C> <C> <C>
1994_ IREM 1994_ IREM 1994_ 1994_ 1994_ 1994_
Median Median Comparable A Comparable A Comparable B Comparable B
Expense/Unit Expense/% Expense/Unit Expense/% Expense/Unit Expense/%
Category Orlando Orlando Orlando Orlando Orlando Orlando
Utilities $410 7.3% $468 6.9% $554 6.9%
Payroll $595 8.9% $521 7.7% $578 7.2%
Maintenance & $631 9.0% $882 13.0% $366 4.6%
Repair
Administrative $286 3.6% $246 3.6% $237 2.9%
Insurance $ 89 1.4% $ 83 1.2% $ 93 1.2%
Real Estate Taxes $630 9.4% $598 8.8% $838 10.4%
Management $293 3.7% $309 4.6% $429 5.3%
Total Operating $2,934 39.7% $3,107 45.8% $3,189 39.6%
Exp.
Compiled by: CB Commercial Real Estate Group, Inc.
</TABLE>
<PAGE>
A summary of the income and expense history for the subject is presented below:
<TABLE>
<CAPTION>
INCOME AND EXPENSE HISTORY
<S> <C> <C> <C> <C>
1996 1995 1994 1993
BUDGET PROJECTED ACTUAL ACTUAL
PHYSICAL OCCUPANCY 89.00% 88.00% 92.38% 94.00%
INCOME:
Potential Gross Rental Income $1,921,570 $1,892,813 $1,878,412 $0
Concessions $0 $0 ($17,179) $0
Potential Gross Rental Income $1,921,570 $1,892,813 $1,861,233 $0
Less Vacancy & Collection Loss
Vacant Units $0 $0 ($142,767) $0
Model Units $0 $0 ($42,523) $0
Employee Units Included Included Included $0
Collection Loss $0 $0 ($11,530) $0
Total Vacancy ($296,498) ($328,804) ($196,819) $0
Gross Rental Income $1,625,072 $1,564,009 $1,664,413 $1,657,675
Other Income $55,860 $63,816 $52,753 $44,404
TOTAL (EFFECTIVE) INCOME $1,680,932 $1,627,825 $1,717,166 $1,702,079
EXPENSES:
Salaries/Payroll $211,021 $183,895 $136,036 $163,545
Landscaping $53,136 $50,439 $48,829 $44,510
Utilities $92,682 $87,116 $89,483 $102,451
Redecoration $49,800 $51,401 $61,476 included
Maintenance $60,206 $54,547 $43,636 $119,719
Marketing $31,369 $25,935 $19,616 $16,441
Administrative $38,841 $36,404 $142,734 $60,262
TOTAL OPERATING EXPENSES $537,055 $489,737 $541,810 $506,928
Professional Services/Management $53,339 $52,306 $56,516 $67,586
Insurance $13,388 $12,750 $12,143 $12,868
Real Estate Tax $236,570 $168,323 $214,678 $202,391
TOTAL FIXED EXPENSES $303,297 $233,379 $283,337 $282,845
TOTAL EXPENSE ($840,352) ($723,116) ($825,147) ($789,773)
NOI $840,580 $904,709 $892,019 $912,306
CAPITAL EXPENDITURES ($119,038) ($18,403) $0 $0
NET INCOME BEFORE DEBT SERVICE $721,542 $886,306 $892,019 $912,306
DEBT SERVICE ($820,248) ($820,248) ($820,250) ($820,250)
CASH FLOW TO EQUITY ($98,706) $66,058 $71,769 $92,056
Source: Summit Management & USF&G
</TABLE>
Payroll
Payroll expenses are associated with the manager, leasing agents, bookkeeper and
maintenance personnel salaries, benefits and taxes. The 1993 expense was
$163,545, or $631 per unit, while the 1994 expense amounted to $136,036, or $525
per unit. However, for 1994 the employee apartment units were treated as vacant.
For 1996, the budget reflects payroll expenses totaling $211,021 with an
annotation that employee units will be included as "salaries" expense. This
budgeted expense appears to be high based on industry averages, and we have
projected concluded that $735 per unit or $190,365 is reasonable. This is still
near the high end of the market range. With employee units included in this
expense, we concluded that it should be at the high end of the range, but that
this is reasonable.
Repairs and Maintenance
This expense includes regular repair items such as plumbing, electrical, air
conditioning and general unit repairs, as well as landscaping and exterminating
contracts for regular upkeep and maintenance. The subject has been experiencing
maintenance expense from a low of $168 unit in 1994 to a high of $462 per unit
in 1993. The 1996 budget is for $60,206, or $232 per unit. In addition the cost
of maintaining the landscaping was $44,510, or $172 per unit in 1993, and is
projected to total $50,439 for 1995, or $195 per unit, while the 1996 budget is
$60,206, or $232 per unit. Adding this to the other maintenance costs gives a
total maintenance expense budget of $113,342, or $438 per unit. The redecorating
expense is accounted for under a separate category. We have accepted the
budgeted maintenance expense at $438 per unit, or $113,442.
Utilities
Included in this category is common area electric and water and sewer utilities.
The subject and all but the three newest comparables have water and sewer
service included in the base rent. Newer complexes have separate water meters
and the water and sewer service is billed directly to the tenants. We took this
into consideration when analyzing the comparables in relationship to the
subject. The utilities expense was $102,451, or $396 per unit in 1993. but
decreased to $89,483, or $345 per unit in 1994. It is projected to be slightly
less at $87,116, or $336 per unit in 1995 due to the higher vacancy associated
with the construction. For 1996 the budget projection is $92,682, or $358 per
unit. This is in line with comparable properties, and is considered to be
reasonable.
Redecorating Expense
This expense includes the cost of painting, carpet and vinyl repairs, appliance
cleaning etc. associated with getting a unit ready for a new tenant. This is
handled in a variety of ways by different management companies, with many
including this in the Repairs and Maintenance expense. This expense totaled
$43,636, or $168 per unit in 1994, and is projected at $51,401, or $198 per unit
for 1995. The budget reflects $49,800, or $192 per unit for 1996. We concluded
that this expense would run about $200 per unit on a stabilized basis, which
reflects $51,800.
Advertising
This category includes newspaper, apartment guide, yellow pages brochures,
promotions, broker fees and other expenses. This expense was at $16,441, or $63
per unit in 1993, and $19,616 or $76 per unit in 1994. The 1995 expense is
projected to total $25,935, or $100 per unit, and the 1996 budget is $31,369, or
$121 per unit. Given the fluctuating market occupancy we have estimated this
expense at the budgeted amount for 1996, or $31,369 ($121 per unit). This is in
line with other properties, and given the new properties in the submarket,
advertising will be needed to maintain a competitive position.
Administrative Expense
The administrative expense includes office equipment and supplies, periodicals,
telephone, legal expenses, advertising and accounting expenses. This expense was
$60,262, or $233 per unit in 1993, and increased to $142,734, or $551 per unit
in 1994. The 1995 expense in projected at $36,404, or $141 per unit. This
projection is supported by 11 months of operating history, and is normal
compared to industry averages and data from other projects. This expense is
budgeted at $38,841, or $150 per unit for 1996, which appears to be reasonable.
Thus, we have projected administrative expense at $38,841, or $150 per unit.
Management
Apartment complexes throughout Florida are typically managed at 3% to 5% of
effective gross income. The subject is currently managed at 5% of effective
gross income by Summit Management Company, Inc., which is a related company to
the owner. Management fees have been declining due to intense competition and we
have estimated adequate management fees at 3.5%.
Reserves for Replacement
The reserves for replacement have been estimated at $200 per unit to allow for
replacement of items which generally wear out before the building structure, but
which are not considered to be routine maintenance items such as painting and
general unit repairs. This expense would cover normal replacement of kitchen
appliances, HVAC systems and carpeting, roof and parking resurfacing. This
indicates an annual expense of $51,800. It is common for purchasers of apartment
properties to include this hypothetical expense as an operating expense above
the NOI line, as we have done.
Real Estate/Personal Property Taxes
The current real estate taxes applicable to the subject were previously
estimated at $163,123, assuming December 1995 payment. The personal property
taxes for 1995 total $4,811, which are eligible for a 3% discount if paid in
December 1995, which would result in total 1995 taxes of $167,790. We anticipate
the expense to increase by about 3.5% next year, commensurate with expected
increases in expenses. In 1997, the capital improvements program will be
completed, and we anticipate that the taxes will increase to be in line with the
comparable properties analyzed in the Tax Analysis section, which we concluded
to be $750 per unit in 1995. Thus, the stabilized tax estimate for the renovated
property would be $194,250, plus $4,811 for personal property, or $199,061
before allowing for any discount. Assuming that the owners take advantage of the
4% early payment discount, the stabilized taxes would be $191,099 in 1995
dollars. However, the property is not expected to be assessed at this rate for
at least on year due to the timing of the assessment in relationship to the
timing of completion of the capital improvements. This amount would be inflated
at our expense growth rate projections.
Insurance
Fire and hazard insurance for apartment complexes of this type have increased
significantly recently. The annualized 1995 expense for the subject was $12,750,
or $49 per unit, while the budgeted expense for 1996 is $13,388, or $52 per
unit. This expense is typically in the range of $50 to $100 per unit in the
Orlando area depending on the quality of construction, location and ownership.
In 1992, the property was reported to have insurance costs of $20,258, and with
the storms in Florida, insurance costs have generally not declined. Ownership by
an insurance company would typically place this cost at the lower end of the
range. Most owners of this size complex are eligible for blanket insurance
coverage which accounts for a lower rate. From this information, we have
projected the insurance expense at $75 per unit per year, or $19,425.
EXPENSE SUMMARY
The expense estimates above are "projected" expenses based on historical data
from the subject and other expense comparables and assume that the complex has
an economic occupancy of 91%. The total expenses including reserves were
estimated at $846,098, which amounts to $4.25 per square foot, $3,266 per unit,
and 45.4% of effective gross income. The expense per unit and is in the range of
comparable properties of the same age, size and quality of construction, and
expense ratio to effective gross income is typical. Thus, these expenses and
ratios are supported with comparable expense data and industry averages.
VALUE ESTIMATE
The final step in estimating the value by the income approach is that of
processing the projected net income into an indication of value. There are
several methods by which this may be accomplished. All of these are based on the
appraisal theory that the market value of the property is the present worth of
the future benefits which may be derived from ownership. For this analysis, we
have utilized direct capitalization and have also prepared a Discounted Cash
Flow Analysis.
DIRECT CAPITALIZATION
Direct Capitalization is a method used to convert a single years estimate of
income into a value indication. The rate utilized to convert the income estimate
into a value indication may be derived by several techniques: (1) Derivation
from comparables, (2) Derivation from effective gross income multipliers, (3)
Band of investment (mortgage and equity components), (4) Band of investment
(land and building components), and (5) the Debt coverage formula. The technique
preferred when sufficient data are available is derivation from comparable
sales.
We analyzed seven transactions of apartment complexes similar with respect to
investment quality in the "Sales Comparison Approach" section of this report.
The net operating income for each transaction was calculated and estimated in
the same way as that for the subject complex. The indicated overall rates from
these sales are as follows:
COMPARABLE CAPITALIZATION RATES
Sale No. Name Year Built OAR
- ----------- ---------------------------- ---------------- ===============
1 Pine Harbour 1990 8.88%
2 The Landings 1987 8.56%
3 The Arbors at Kirkman 1991 8.75%
4 Newport Colony 1990 8.45%
5 Springs Colony 1986 9.00%
6 Tealewood Parke 1986 9.80%
7 Club Esprit 1991 8.25%
Compiled by: CB Commercial Real Estate Group, Inc.
The preceding sales indicate a range of 8.25% to 9.80% with an average of 8.81%,
and a median of 8.75%. In our opinion, rates have increased slightly this year
due to a lack of investment activity and increased interest rates.
Another method for establishing an overall capitalization rate for the subject
is to review the criteria of major investors in the marketplace. This may serve
as a check against other techniques or may be a primary source when inadequate
comparable data exists. The results of the Third Quarter 1995 CB Commercial
National Investor Survey are summarized in the following table.
<TABLE>
<CAPTION>
CB COMMERCIAL NATIONAL INVESTOR SURVEY
CLASS A APARTMENTS
<S> <C> <C> <C> <C> <C>
Going in Cap Terminal Cap Discount Market Rent Expense Growth
Rate Rate Rate Growth Rate Rate
Range 7.5% - 11.0% 8.0% - 11.0% 10.0% - 14.0% 0.0% - 5.0% 3.0% - 5.0%
Average 8.8% 9.3% 11.5% 3.5% 3.7%
Change from Qtr 95/1 0 +20 -10 -20 0
CLASS B APARTMENTS
Range 8.5% - 10.5% 9.25 - 11.5% 10.5% - 15.0% 0.0% - 5.0% 3.0% - 4.0%
Average 9.5% 10.1% 12.4% 3.1% 3.5%
Change from Qtr 95/1 +10 +50 +30 -70 -20
Source: CB Commercial Real Estate Group, Inc.
1 Basis Points
</TABLE>
Because of the subject's good location with stabilized occupancy, it is likely
that the appropriate capitalization rate would be near the lower middle end of
the range indicated in the preceding table. These factors indicate that the
appropriate overall capitalization rate for the subject would likely fall in the
8.5% to 9.5% range.
After reviewing the appropriate methods for developing an overall capitalization
rate, with most emphasis placed on the comparable sales data, we have concluded
an overall capitalization rate of 8.75%. A summary of the direct capitalization
of the subject is presented in the following table.
ST. ANDREWS AT WESTWOOD APARTMENTS
DIRECT CAPITALIZATION SUMMARY
Category Total Per Unit
Income
Potential Gross Rental Income $1,989,330 $7,681
Less: Vacancy and Credit Loss (9%) (179,040) (691)
Add: Other Income 54,707 211
Effective Gross Income $1,864,997 $7,201
Expenses
Payroll 190,365 735
Maintenance And Repairs 113,442 438
Utilities 92,682 358
Redecorating 51,800 200
Advertising & Marketing 31,369 121
Administrative 38,841 150
Management 65,275 240
Interior Reserves 51,800 200
Insurance 19,425 75
Property Taxes 191,099 737
Total Expenses ($846,098) ($3,266)
Net Operating Income $1,018,899 $3,934
CAPITALIZATION @8.75% $11,644,560 $44,960
Rounded to $11,650,000 $44,980
Compiled by: CB Commercial Real Estate Group, Inc.
The above value indication reflects the prospective future value upon completion
of the capital improvements and dissipation of rent concessions, which we expect
to occur by December 1, 1996.
Additional Adjustments
However, this prospective future value upon completion of the capital
improvements, must be adjusted for the fact that this reflects a stabilized
rental income and the property will not be stabilized for a year. Thus, this
value must be discounted for a year in order to project the value of the
property "As Is" as of December 1, 1995. Discounting the $11,650,000 by 12.0%,
as discussed in the Income Approach, results in a value indication of
$10,401,786. The owner would receive the income during the year required to
stabilize the property, which is projected in the Discounted Cash Flow Analysis
(Income Approach) to be $898,096. Discounting this for one year at 12.0% results
in a value contribution of $801,871, which results in $11,203,657 ($10,401,786 +
$801,871 = $11,203,657).
The subject suffers from approximately $2,709,041 in functional obsolescence
($2,537,242 for remaining cost to cure masonite problem), and deferred
maintenance ($171,799 for roof repairs), which must be deducted. Subtracting
this deferred maintenance ( the rent loss being recognized in the reduced amount
of interim income) gives an "As Is" value of $8,494,616. We subsequently
concluded that this technique reflects a market value, as is, $8,500,000.
Direct Capitalization "As Is" Summary
The concluded value of the subject based on the direct capitalization method is
summarized as follows:
DIRECT CAPITALIZATION CONCLUSION
Stabilized Value $ 11,650,000
Plus Interim Income From DCF Yr. 1 898,096
Subtotal 12,548,096
Present Value Factor @ 12.0% .89286
Indicated As Is Value Before Costs $11,203,657
Less: Obsolescence & Deferred Maintenance 1 (2,709,041)
Net Indicated Direct Capitalization Value "As Is" $8,494,616
Rounded: $8,500,000
Direct Capitalization "As Is" per SF $ 42.73
Source: CB Commercial Real Estate Group, Inc.
<PAGE>
Discounted Cash Flow Analysis
We have also applied a discounted cash flow analysis for the subject. Our DCF
assumptions are summarized as follows:
SUMMARY OF DISCOUNTED CASH FLOW ASSUMPTIONS
ST. ANDREWS AT WESTWOOD APARTMENTS
General Assumptions
Start Date--AS IS December 1, 1995
Start Date-Prospective Stabilized Value December 1, 1996
Term of Analysis--AS IS 10 years
Term of Analysis--Stabilized Value 9 years
Basis (calendar/ fiscal) Fiscal
Software Argus
Growth Rate Assumptions
General Inflation 3.50%
Expenses 3.50%
Market Rent 0% Yr.1
3.5% Yrs.2-11
Miscellaneous Assumptions
Typical Rent Concessions 1.0%
Vacancy 9% Yr. 1;
7% Yrs. 2-11
Credit Loss 1.0%
Capital Expense: $2,709,041 For
Siding & Roofing
Repairs
Financial Assumptions
Discount Rate (IRR) 12.0%
Terminal Overall Capitalization Rate (RO) 9.50%
Costs of Sale 4.00%
Source: CB Commercial Real Estate Group, Inc.
Based on the DCF, the stabilized value indication after completion of the
capital improvements is $11,935,000, ($11,950,000 Rounded) the first year's NOI
Indicates a return of 7.5%, but the net cash flow would be negative due to the
capital improvements indicated. A second year return of 8.4% is indicated. The
NOI returns are in the 9.9% (year 1) to 11.1% (year 2) range based on the "As
Is" value indication of $9,039,000 ($9,050,000 Rounded), which allows for the
capital costs. Additionally, the present value of the reversion represents
approximately 46% of the indicated stabilized value. The reversion and cash on
cash returns are within an acceptable range for investors of this property type.
<PAGE>
<TABLE>
<CAPTION>
AS STABILIZED
SCHEDULE OF PROSPECTIVE CASH FLOW
In Inflated Dollars for the Fiscal Year beginning 12/1/1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11
Nov-1997 Nov-1998 Nov-1999 Nov-2000 Nov-2001 Nov-2002 Nov-2003 Nov-2004 Nov-2005 Nov-2006
_______________________________________________________________________________________________
POTENTIAL GROSS REVENUE
Potential Rental Revenue 2005964 2181398 2257747 2336766 2418553 2503203 2590817 2681495 2775349 2872486
Absorption & Turnover Vacancy 0 0 0 0 0 0 0 0 0 0
_______________________________________________________________________________________________
Scheduled Base Rental Revenue 2005964 2181398 2257747 2336766 2418553 2503203 2590817 2681495 2775349 2872486
Other Income 56622 58604 60655 62778 64975 67249 69603 72039 74560 77170
_______________________________________________________________________________________________
TOTAL POTENTIAL GROSS REVENUE 2062586 2240002 2318402 2399544 2483528 2570452 2660420 2753534 2849909 2949656
General Vacancy -160477 -174512 -180620 -186941 -193484 -200256 -207265 -214520 -222028 -229799
Collection Loss -20060 -21814 -22577 -23368 -24186 -25032 -25908 -26815 -27753 -28725
_______________________________________________________________________________________________
EFFECTIVE GROSS REVENUE 1882049 2043676 2115205 2189235 2265858 2345164 2427247 2512199 2600128 2691132
_______________________________________________________________________________________________
OPERATING EXPENSES
Salaries/Payroll 197028 203924 211061 218448 226094 234007 242197 250674 259448 268529
Maintenance/Repairs 117412 121522 125775 130177 134734 139449 144330 149381 154610 160021
Utilities 95967 99326 102803 106401 110125 113979 117968 122097 126371 130794
Redecoration 53613 55489 57432 59442 61522 63675 65904 68211 70598 73069
Marketing/Advertising 32436 33571 34746 35962 37221 38524 39872 41267 42712 44207
Administrative 40210 41617 43074 44581 46142 47757 49428 51158 52949 54802
Management 65872 71529 74032 76623 79305 82081 84954 87927 91004 94190
Interior Reserves 53613 55489 57432 59442 61522 63675 65904 68211 70598 73069
Taxes 197787 204710 211875 219290 226966 234909 243131 251641 260448 269564
Insurance 20105 20809 21537 22291 23071 23878 24714 25579 26474 27401
_______________________________________________________________________________________________
TOTAL OPERATING EXPENSES 874043 907986 939767 972657 1006702 1041934 1078402 1116146 1155212 1195646
_______________________________________________________________________________________________
NET OPERATING INCOME 1008006 1135690 1175438 1216578 1259156 1303230 1348845 1396053 1444916 1495486
_______________________________________________________________________________________________
LEASING & CAPITAL COSTS
Capital Repairs 0 0 0 0 0 0 0 0 0 0
_______________________________________________________________________________________________
TOTAL LEASING & CAPITAL COSTS 0 0 0 0 0 0 0 0 0 0
_______________________________________________________________________________________________
CASH FLOW BEFORE DEBT SERVICE 1008006 1135690 1175438 1216578 1259156 1303230 1348845 1396053 1444916 1495486
& INCOME TAX
===============================================================================================
</TABLE>
<TABLE>
<CAPTION>
PROSPECTIVE PRESENT VALUE
Cash Flow Before Debt Service plus Property Resale
Discounted Annually (End-point on Cash Flow & Resale) over a 9-Year Period
Present Value as of 12/1/1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
For the P.V. of P.V. of P.V. of P.V. of P.V. of P.V. of P.V. of
Analysis Year Annual Cash Flow Cash Flow Cash Flow Cash Flow Cash Flow Cash Flow Cash Flow
Period Ending Cash Flow @ 11.00% @ 11.25% @ 11.50% @ 11.75% @ 12.00% @ 12.25% @ 12.50%
________ ________ __________ __________ __________ __________ __________ ________ _________ ________
Year 1 Nov-1997 1008006 908114 906073 904041 902019 900005 898001 896005
Year 2 Nov-1998 1135690 921751 917613 913503 909420 905365 901337 897335
Year 3 Nov-1999 1175438 859470 853689 847960 842281 836654 831076 825548
Year 4 Nov-2000 1216578 801398 794218 787119 780099 773157 766292 759504
Year 5 Nov-2001 1259156 747248 738889 730643 722507 714479 706558 698742
Year 6 Nov-2002 1303230 696760 687418 678222 669169 660257 651483 642845
Year 7 Nov-2003 1348845 649683 639531 629561 619768 610149 600700 591418
Year 8 Nov-2004 1396053 605784 594979 584390 574013 563842 553874 544104
Year 9 Nov-2005 1444916 564853 553532 542461 531637 521051 510700 500576
__________ _________ __________ ________ __________ __________ __________ __________
Total Cash Flow 11287912 6755061 6685942 6617900 6550913 6484959 6420021 6356077
Property Resale @ 9.5% Cap 15112280 5907765 5789350 5673567 5560351 5449640 5341372 5235489
__________ __________ ________ __________ __________ __________ __________
Total Property Present
Value 0 12662826 12475292 12291467 12111264 11934599 11761393 11591566
========== ========== ========== ======== ======== ========= =========
Rounded to Thousands 0 12663000 12475000 12291000 12111000 11935000 11761000 11592000
========== ========== ========== ========= ======== ========= =========
Per Unit 0 48891 48167 47457 46762 46080 45411 44755
</TABLE>
<PAGE>
Conclusion of Discounted Cash Flow Analysis:
The preceding analysis indicates the following conclusions:
DISCOUNTED CASH FLOW ANALYSIS
Value Projected Indicated Value
Stabilized --12/1/1996 $11,950,000
As Is --12/1/1995 $9,050,000
Source: CB Commercial Real Estate
The first year income expense was the current income in place as of December 1,
1995 with units leasing or renewing at the market rates discussed above and
reflected in the Direct Capitalization analysis. The only expense modification
was for taxes, which are less now due to the condition, but will stabilize at a
slightly higher rate, as reflected in both the DCF and Direct Capitalization
analyses. The income and expense growth rates were estimated based on projected
submarket conditions and information in the National Investor Survey presented
previously. The discount rate is considered reasonable given a going-in
capitalization rate of 8.75% and the projected net income growth rate of 3.5%.
The terminal rate was loaded slightly to reflect increased risk at the end of
the holding period.
The Discounted Cash Flow Summary is presented on the facing page. The concluded
value amounted to $11,950,000 for the property after the capital improvements
are completed, and $9,050,000 for the property "As Is".
Conclusion of Income Capitalization Approach
The preceding analysis provides the following value indications:
INCOME CAPITALIZATION APPROACH STABILIZED VALUE INDICATIONS
Method Indicated Value
Direct Capitalization $11,650,000
Discounted Cash Flow $11,950,000
RECONCILED $11,800,000
Source: CB Commercial Real Estate
The two methodologies produced value indications within a narrow range. This
tends to support the assumptions utilized. Since institutional investors tend to
rely on the Discounted Cash Flow Analysis, we have concluded a stabilized value
indication of $11,800,000 via the Income Approach.
<PAGE>
<TABLE>
<CAPTION>
AS IS
PROSPECTIVE PRESENT VALUE
Cash Flow Before Debt Service plus Property Resale
Discounted Annually (End-point on Cash Flow & Resale) over a 10-Year Period
Present Value as of 12/1/1995
<S> <C> <C> <C> <C> <C> <C> <C>
For the P.V. of P.V. of P.V. of P.V. of P.V. of
Analyis Year Annual Cash Flow Cash Flow Cash Flow Cash Flow Cash Flow
Period Ending Cash Flow @ 11.00% @ 11.25% @ 11.50% @ 11.75% @ 12.00%
________ ________ __________ __________ __________ __________ __________ __________
Year 1 Nov-1996 -1810945 -1631482 -1627816 -1624166 -1620532 -1616915
Year 2 Nov-1997 1008006 818120 814447 810799 807176 803576
Year 3 Nov-1998 1135690 830407 824821 819285 813799 808362
Year 4 Nov-1999 1175438 774297 767361 760502 753719 747012
Year 5 Nov-2000 1216578 721980 713904 705936 698075 690319
Year 6 Nov-2001 1259156 673196 664170 655285 646538 637928
Year 7 Nov-2002 1303230 627712 617904 608271 598809 589515
Year 8 Nov-2003 1348845 585300 574860 564629 554602 544776
Year 9 Nov-2004 1396053 545752 534813 524117 513658 503431
Year 10 Nov-2005 1444916 508877 497556 486512 475737 465224
__________ __________ __________ __________ __________ __________
Total Cash Flow 9476967 4454159 4382020 4311170 4241581 4173228
Property Resale @ 9.5% Cap 15112280 5322310 5203910 5088401 4975706 4865750
__________ __________ __________ __________ __________
Total Property Present Value 9776469 9585930 9399571 9217287 9038978
========== ========== ========== ========== ==========
Rounded to Thousands 9776000 9586000 9400000 9217000 9039000
========== ========== ========== ========== ==========
Per Unit 37747 37011 36292 35588 34900
<C> <C>
P.V. of P.V. of
Cash Flow Cash Flow
@ 12.25% @ 12.50%
__________ __________
-1613314 -1609729
800001 796449
802973 797631
740379 733820
682666 675114
629450 621104
580386 571417
535145 525705
493429 483648
454966 444956
__________ __________
4106081 4040115
4758461 4653768
__________ __________
8864542 8693883
========== ==========
8865000 8694000
========== ==========
34226 33567
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE OF PROSPECTIVE CASH FLOW
In Inflated Dollars for the Fiscal Year beginning 12/1/1995
<S> <C> <C> <C> <C> <C> <C>
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
For the Years Ending Nov-1996 Nov-1997 Nov-1998 Nov-1999 Nov-2000 Nov-2001
__________ __________ __________ __________ __________ __________
POTENTIAL GROSS REVENUE
Potential Rental Revenue 1866054 2005964 2181398 2257747 2336766 2418553
Absorption & Turnover Vacancy -18274 0 0 0 0 0
__________ __________ __________ __________ __________ __________
Scheduled Base Rental Revenue 1847780 2005964 2181398 2257747 2336766 2418553
Other Income 54707 56622 58604 60655 62778 64975
__________ __________ __________ __________ __________ __________
TOTAL POTENTIAL GROSS REVE 1902487 2062586 2240002 2318402 2399544 2483528
General Vacancy -168331 -160477 -174512 -180620 -186941 -193484
Collection Loss -18478 -20060 -21814 -22577 -23368 -24186
__________ __________ __________ __________ __________ __________
EFFECTIVE GROSS REVENUE 1715678 1882049 2043676 2115205 2189235 2265858
__________ __________ __________ __________ __________ __________
OPERATING EXPENSES
Salaries/Payroll 190365 197028 203924 211061 218448 226094
Maintenance/Repairs 113442 117412 121522 125775 130177 134734
Utilities 92722 95967 99326 102803 106401 110125
Redecoration 51800 53613 55489 57432 59442 61522
Marketing/Advertising 31339 32436 33571 34746 35962 37221
Administrative 38850 40210 41617 43074 44581 46142
Management 60049 65872 71529 74032 76623 79305
Interior Reserves 51800 53613 55489 57432 59442 61522
Taxes 167790 197787 204710 211875 219290 226966
Insurance 19425 20105 20809 21537 22291 23071
__________ __________ __________ __________ __________ __________
TOTAL OPERATING EXPENSES 817582 874043 907986 939767 972657 1006702
__________ __________ __________ __________ __________ __________
NET OPERATING INCOME 898096 1008006 1135690 1175438 1216578 1259156
__________ __________ __________ __________ __________ __________
LEASING & CAPITAL COSTS
Capital Repairs 2709041 0 0 0 0 0
__________ __________ __________ __________ __________ __________
TOTAL LEASING & CAPITAL COSTS 2709041 0 0 0 0 0
__________ __________ __________ __________ __________ __________
CASH FLOW BEFORE DEBT SERVICE -1810945 1008006 1135690 1175438 1216578 1259156
& INCOME TAX ========== ========== ========== ========== ========== ==========
<C> <C> <C> <C> <C>
Year 7 Year 8 Year 9 Year 10 Year 11
Nov-2002 Nov-2003 Nov-2004 Nov-2005 Nov-2006
__________ __________ __________ __________ __________
2503203 2590817 2681495 2775349 2872486
0 0 0 0 0
__________ __________ __________ __________ __________
2503203 2590817 2681495 2775349 2872486
67249 69603 72039 74560 77170
__________ __________ __________ __________ __________
2570452 2660420 2753534 2849909 2949656
-200256 -207265 -214520 -222028 -229799
-25032 -25908 -26815 -27753 -28725
__________ __________ __________ __________ __________
2345164 2427247 2512199 2600128 2691132
__________ __________ __________ __________ __________
234007 242197 250674 259448 268529
139449 144330 149381 154610 160021
113979 117968 122097 126371 130794
63675 65904 68211 70598 73069
38524 39872 41267 42712 44207
47757 49428 51158 52949 54802
82081 84954 87927 91004 94190
63675 65904 68211 70598 73069
234909 243131 251641 260448 269564
23878 24714 25579 26474 27401
__________ __________ __________ __________ __________
1041934 1078402 1116146 1155212 1195646
__________ __________ __________ __________ __________
1303230 1348845 1396053 1444916 1495486
__________ __________ __________ __________ __________
0 0 0 0 0
__________ __________ __________ __________ __________
0 0 0 0 0
__________ __________ __________ __________ __________
1303230 1348845 1396053 1444916 1495486
========== ========== ========== ========== ==========
</TABLE>
<PAGE>
<PAGE>
<PAGE>
INCOME CAPITALIZATION APPROACH
AS IS VALUE INDICATIONS
Method Indicated Value
Direct Capitalization $8,500,000
Discounted Cash Flow $9,050,000
RECONCILED $8,800,000
Source: CB Commercial Real Estate
In analyzing the subject property "As Is" a deduction for the capital
improvements which we concluded to be ($2,709,041). This indicates is reflected
in both analyses and indicated a value range "As Is" of between $8,500,000 and
$9,050,000, and we reconciled at an As Is value via the Income Approach or
$8,800,000.
<PAGE>
CONCLUSION
<PAGE>
RECONCILIATION OF VALUE
CB Commercial was instructed to estimate the market value of the fee simple
estate interest in the subject property, subject to the existing short term
leases. The value conclusion for each applicable approach is summarized below.
SUMMARY OF VALUE CONCLUSIONS
AS IS STABILIZED
Cost Approach $9,200,000 $11,400,000
Sales Comparison Approach $8,700,000 $11,900,000
Income Capitalization Approach $8,800,000 $11,800,000
Source: CB Commercial Real Estate Group, Inc.
The Income Capitalization Approach is considered the most persuasive method for
valuing the subject property. This approach is predicated on the principle of
anticipated economic benefits and therefore, best reflects the investment
characteristics of the subject.
Properties such as the subject are typically purchased by investors; thus, this
approach must closely parallel the anticipated analysis that would be employed
by the most typical purchaser. Since the subject property is leased with over
half of the units having rent concessions due to the capital improvements which
are currently being made, the DCF technique best models the future cash flow
stream to a prospective buyer. The direct capitalization technique generally
supports the DCF analysis.
The Sales Comparison Approach is predicated on the principle that an investor
would pay no more for an existing property than for a comparable property with
similar utility. This approach is contingent on the reliability and
comparability of available data. The data developed was considered sufficiently
reliable to reach a value conclusion by the Sales Comparison Approach. This
method is given secondary consideration in the reconciliation.
The Cost Approach is predicated on the principle that an investor would pay no
more for an existing property than it would cost to acquire land and construct a
building with similar utility. The Cost Approach is not given as much weight as
the other approaches because estimating developer profit is very subjective.
In arriving at the final value conclusion, greatest weight was placed on the
Income Capitalization Approach.
The final value conclusion and the approaches relied upon give strong
consideration to the market behavior of the typical buyer and current market
environment for the property appraised.
Based on the foregoing analysis, it is concluded that the market value of the
fee simple estate interest in the subject property, subject to the existing
short term leases, "as is," as of December 1, 1995 was:
EIGHT MILLION EIGHT HUNDRED THOUSAND DOLLARS
($8,800,000)
Based on research and analysis contained in this report, it is estimated that
the prospective future market value of the fee simple estate in the subject upon
completion of the current capital improvements program, which we project as of
December 1,1996, will be
ELEVEN MILLION EIGHT HUNDRED THOUSAND DOLLARS
($11,800,000)
These values are subject to the assumptions and limiting conditions stated
throughout the report.
<PAGE>
ASSUMPTIONS AND LIMITING CONDITIONS
1. Unless otherwise specifically noted in the body of the report, it is
assumed that title to the property or properties appraised is clear and
marketable and that there are no recorded or unrecorded matters or
exceptions to total that would adversely affect marketability or value. CB
Commercial is not aware of any title defects nor has it been advised of any
unless such is specifically noted in the report. CB Commercial, however,
has not examined title and makes no representations relative to the
condition thereof. Documents dealing with liens, encumbrances, easements,
deed restrictions, clouds and other conditions that may affect the quality
of title have not been reviewed. Insurance against financial loss resulting
in claims that may arise out of defects in the subject property's title
should be sought from a qualified title company that issues or insures
title to real property.
2. It is assumed that improvements have been constructed or will be
constructed according to approved architectural plans and specifications
and in conformance with recommendations contained in or based upon any
soils report(s).
Unless otherwise specifically noted in the body of this report, it is
assumed: that any existing improvements on the property or properties being
appraised are structurally sound, seismically safe and code conforming;
that all building systems (mechanical/electrical, HVAC, elevator, plumbing,
etc.) are, or will be upon completion, in good working order with no major
deferred maintenance or repair required; that the roof and exterior are in
good condition and free from intrusion by the elements; that the property
or properties have been engineered in such a manner that it or they will
withstand any known elements such as windstorm, hurricane, tornado,
flooding, earthquake, or similar natural occurrences; and, that the
improvements, as currently constituted, conform to all applicable local,
state, and federal building codes and ordinances. CB Commercial
professionals are not engineers and are not competent to judge matters of
an engineering nature. CB Commercial has not retained independent
structural, mechanical, electrical, or civil engineers in connection with
this appraisal and, therefore, makes no representations relative to the
condition of improvements. Unless otherwise specifically noted in the body
of the report: no problems were brought to the attention of CB Commercial
by ownership or management; CB Commercial inspected less than 100% of the
entire interior and exterior portions of the improvements; and CB
Commercial was not furnished any engineering studies by the owners or by
the party requesting this appraisal. If questions in these areas are
critical to the decision process of the reader, the advice of competent
engineering consultants should be obtained and relied upon. It is
specifically assumed that any knowledgeable and prudent purchaser would, as
a precondition to closing a sale, obtain a satisfactory engineering report
relative to the structural integrity of the property and the integrity of
building systems. Structural problems and/or building system problems may
not be visually detectable. If engineering consultants retained should
report negative factors of a material nature, or if such are later
discovered, relative to the condition of improvements, such information
could have a substantial negative impact on the conclusions reported in
this appraisal. Accordingly, if negative findings are reported by
engineering consultants, CB Commercial reserves the right to amend the
appraisal conclusions reported herein.
3. Unless otherwise stated in this report, the existence of hazardous
material, which may or may not be present on the property was not observed
by the appraisers. CB Commercial has no knowledge of the existence of such
materials on or in the property. CB Commercial, however, is not qualified
to detect such substances. The presence of substances such as asbestos,
urea formaldehyde foam insulation, contaminated groundwater or other
potentially hazardous materials may affect the value of the property. The
value estimate is predicated on the assumption that there is no such
material on or in the property that would cause a loss in value. No
responsibility is assumed for any such conditions, or for any expertise or
engineering knowledge required to discover them. The client is urged to
retain an expert in this field, if desired.
We have inspected, as thoroughly as possible by observation, the land;
however, it was impossible to personally inspect conditions beneath the
soil. Therefore, no representation is made as to these matters unless
specifically considered in the appraisal.
4. All furnishings, equipment and business operations, except as specifically
stated and typically considered as part of real property, have been
disregarded with only real property being considered in the report unless
otherwise stated. Any existing or proposed improvements, on or off-site, as
well as any alterations or repairs considered, are assumed to be completed
in a workmanlike manner according to standard practices based upon the
information submitted to CB Commercial. This report may be subject to
amendment upon re-inspection of the subject property subsequent to repairs,
modifications, alterations and completed new construction. Any estimate of
Market Value is as of the date indicated; based upon the information,
conditions and projected levels of operation.
5. It is assumed that all factual data furnished by the client, property
owner, owner's representative, or persons designated by the client or owner
to supply said data are accurate and correct unless otherwise specifically
noted in the appraisal report. Unless otherwise specifically noted in the
appraisal report, CB Commercial has no reason to believe that any of the
data furnished contain any material error. Information and data referred to
in this paragraph include, without being limited to, numerical street
addresses, lot and block numbers, Assessor's Parcel Numbers, land
dimensions, square footage area of the land, dimensions of the
improvements, gross building areas, net rentable areas, usable areas, unit
count, room count, rent schedules, income data, historical operating
expenses, budgets, and related data. Any material error in any of the above
data could have a substantial impact on the conclusions reported. Thus, CB
Commercial reserves the right to amend conclusions reported if made aware
of any such error. Accordingly, the client-addressee should carefully
review all assumptions, data, relevant calculations, and conclusions within
30 days after the date of delivery of this report and should immediately
notify CB Commercial of any questions or errors.
6. The date of value to which any of the conclusions and opinions expressed in
this report apply, is set forth in the Letter of Transmittal. Further, that
the dollar amount of any value opinion herein rendered is based upon the
purchasing power of the American Dollar on that date. This appraisal is
based on market conditions existing as of the date of this appraisal. Under
the terms of the engagement, we will have no obligation to revise this
report to reflect events or conditions which occur subsequent to the date
of the appraisal. However, CB Commercial will be available to discuss the
necessity for revision resulting from changes in economic or market factors
affecting the subject.
7. CB Commercial assumes no private deed restrictions, limiting the use of
the subject property in any way.
8. Unless otherwise noted in the body of the report, it is assumed that there
are no mineral deposit or subsurface rights of value involved in this
appraisal, whether they be gas, liquid, or solid. Nor are the rights
associated with extraction or exploration of such elements considered
unless otherwise stated in this appraisal report. Unless otherwise stated
it is also assumed that there are no air or development rights of value
that may be transferred.
9. CB Commercial is not aware of any contemplated public initiatives,
governmental development controls, or rent controls that would
significantly affect the value of the subject.
10. The estimate of Market Value, which may be defined within the body of this
report, is subject to change with market fluctuations over time. Market
value is highly related to exposure, time promotion effort, terms,
motivation, and conclusions surrounding the offering. The value estimate(s)
consider the productivity and relative attractiveness of the property, both
physically and economically, on the open market.
11. Any cash flows included in the analysis are forecasts of estimated future
operating characteristics are predicated on the information and assumptions
contained within the report. Any projections of income, expenses and
economic conditions utilized in this report are not predictions of the
future. Rather, they are estimates of current market expectations of future
income and expenses. The achievement of the financial projections will be
affected by fluctuating economic conditions and is dependent upon other
future occurrences that cannot be assured. Actual results may vary from the
projections considered herein. CB Commercial does not warrant these
forecasts will occur. Projections may be affected by circumstances beyond
the current realm of knowledge or control of CB Commercial.
12. Unless specifically set forth in the body of the report, nothing contained
herein shall be construed to represent any direct or indirect
recommendation of CB Commercial to buy, sell, or hold the properties at the
value stated. Such decisions involve substantial investment strategy
questions and must be specifically addressed in consultation form.
13. Also, unless otherwise noted in the body of this report, it is assumed that
no changes in the present zoning ordinances or regulations governing use,
density, or shape are being considered. The property is appraised assuming
that all required licenses, certificates of occupancy, consents, or other
legislative or administrative authority from any local, state, nor national
government or private entity or organization have been or can be obtained
or renewed for any use on which the value estimates contained in this
report is based, unless otherwise stated.
14. This study may not be duplicated in whole or in part without the specific
written consent of CB Commercial nor may this report or copies hereof be
transmitted to third parties without said consent, which consent CB
Commercial reserves the right to deny. Exempt from this restriction is
duplication for the internal use of the client-addressee and/or
transmission to attorneys, accountants, or advisors of the
client-addressee. Also exempt from this restriction is transmission of the
report to any court, governmental authority, or regulatory agency having
jurisdiction over the party/parties for whom this appraisal was prepared,
provided that this report and/or its contents shall not be published, in
whole or in part, in any public document without the express written
consent of CB Commercial which consent CB Commercial reserves the right to
deny. Finally, this report shall not be advertised to the public or
otherwise used to induce a third party to purchase the property or to make
a "sale" or "offer for sale" of any "security", as such terms are defined
and used in the Securities Act of 1933, as amended. Any third party, not
covered by the exemptions herein, who may possess this report, is advised
that they should rely on their own independently secured advice for any
decision in connection with this property. CB Commercial shall have no
accountability or responsibility to any such third party.
15. Any value estimate provided in the report applies to the entire property,
and any pro ration or division of the title into fractional interests will
invalidate the value estimate, unless such pro ration or division of
interests has been set forth in the report.
16. The distribution of the total valuation in this report between land and
improvements applies only under the existing program of utilization.
Component values for land and/or buildings are not intended to be used in
conjunction with any other property or appraisal and are invalid if so
used.
17. The maps, plats, sketches, graphs, photographs and exhibits included in
this report are for illustration purposes only and are to be utilized only
to assist in visualizing matters discussed within this report. Except as
specifically stated, data relative to size or area of the subject and
comparable properties has been obtained from sources deemed accurate and
reliable. None of the exhibits are to be removed, reproduced, or used apart
from this report.
18. No opinion is intended to be expressed on matters which may require legal
expertise or specialized investigation or knowledge beyond that customarily
employed by real estate appraisers. Values and opinions expressed presume
that environmental and other governmental restrictions/conditions by
applicable agencies have been met, including but not limited to seismic
hazards, flight patterns, decibel levels/noise envelopes, fire hazards,
hillside ordinances, density, allowable uses, building codes, permits,
licenses, etc. No survey, engineering study or architectural analysis has
been made known to CB Commercial unless otherwise stated within the body of
this report. If the Consultant has not been supplied with a termite
inspection, survey or occupancy permit, no responsibility or representation
is assumed or made for any costs associated with obtaining same or for any
deficiencies discovered before or after they are obtained. No
representation or warranty is made concerning obtaining these items. CB
Commercial assumes no responsibility for any costs or consequences arising
due to the need, or the lack of need, for flood hazard insurance. An agent
for the Federal Flood Insurance Program should be contacted to determine
the actual need for Flood Hazard Insurance.
19. Acceptance and/or use of this report constitutes full acceptance of the
Contingent and Limiting Conditions and special assumptions set forth in
this report. It is the responsibility of the Client, or client's designees,
to read in full, comprehend and thus become aware of the aforementioned
contingencies and limiting conditions. Neither the Appraiser nor CB
Commercial assumes responsibility for any situation arising out of the
Client's failure to become familiar with and understand the same. The
Client is advised to retain experts in areas that fall outside the scope of
the real estate appraisal/consulting profession if so desired.
20. CB Commercial assumes that the subject property analyzed herein will be
under prudent and competent management and ownership; neither inefficient
or super-efficient.
21. It is assumed that there is full compliance with all applicable federal,
state, and local environmental regulations and laws unless noncompliance is
stated, defined and considered in the appraisal report.
22. No survey of the boundaries of the property was undertaken. All areas
and dimensions furnished are presumed to be correct. It is further
assumed that no encroachments to the realty exist.
23. The Americans with Disabilities Act (ADA) became effective January 26,
1992. Notwithstanding any discussion of possible readily achievable barrier
removal construction items in this report, CB Commercial has not made a
specific compliance survey and analysis of this property to determine
whether it is in conformance 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
ADA. If so, this fact could have a negative effect on the value estimated
herein. Since CB Commercial has no specific information relating to this
issue, nor is CB Commercial qualified to make such an assessment, the
effect of any possible non-compliance with the requirements of the ADA was
not considered in estimating the value of the subject property.
<PAGE>
SPECIFIC ASSUMPTIONS AND LIMITING CONDITIONS
1. A current detailed environmental audit of the subject improvements was not
provided to CB Commercial. The subject improvements do not appear to have
the potential for possible environmental hazards. A Current Phase I or
Phase II Environmental Audit was not provided to CB Commercial. It is
specifically assumed that if hazardous materials are present, the value
conclusions contained herein could change significantly. CB Commercial
reserves the right to amend the conclusions of this report subject to these
conditions.
2. The estimate of marketing time is between 6 and 9 months based upon such
items as statistical information about days on market; information gathered
through sales verification; interviews of marketing participants; and
anticipated changes in market conditions. The reasonable marketing time is
a function of price, time, use, and anticipated market conditions such as
changes in the cost and availability of funds; not an isolated estimate of
time alone.
3. CB Commercial has not made an inspection of every unit. CB Commercial has
inspected a representative sample.
4. This appraisal has been prepared from very limited property data provided
by the client. Due to the lack of property specific descriptions and
economic data from primary sources, CB Commercial was required to obtain
information from best available sources which included public records,
owners, tenants and others. Every effort has been made to verify all
information used within this report; however, it was in some instances
necessary for CB Commercial to make critical assumptions to complete this
assignment. CB Commercial reserves the right to amend its opinion of value
at a later date should information become available which would
significantly change the stated opinion of values.
5. All value opinions expressed herein are as of the date of value. In some
cases, facts or opinions are expressed in the present time. All opinions
are expressed as of the date of value, unless specifically noted.
The research and preparation of this appraisal took place from November
30, 1995 through December 18, 1995. The effective dates of valuation are
December 1, 1995 for the As Is value and December 1, 1996 for the
prospective value upon completion of the capital improvements. The value,
therefore, is a prospective valuation as of a future date. There are no
events that must occur between the date of or last inspection of the
subject property and the date of valuation in order to conclude the value
reported herein. Thus the reported value is predicated on the specific
assumption that the status of the property as of the date of valuation is
not materially different that it was on the date of CB Commercial's last
inspection of the subject property. The appraisal is based on real estate
and economic conditions as best perceived as of the date of the report.
6. The prospective future values shown in this report (DCF) are not a
guarantee of future performance. They are based on current market trends,
which are subject to change. They are included only to assist in
underwriting the risks in the subject property, and for no other purpose.
The future values are mathematical projections and may or may not represent
market values at that time.
7. The report and parts thereof and any additional material submitted, may not
be used in any prospectus or printed material used in conjunction with the
sale of securities or participation interests in Public Offering as defined
under U.S. Security laws. Further, neither all nor any part of this
appraisal report shall be disseminated to the general public by the use of
advertising media, public relations media, news media, sales media, or
other media for public communication without the prior consent of CB
Commercial. The use of all or any part of this report in connection with
real estate tax shelters, syndication of interests in real estate, the
offering of securities, shares or partnership interests in real estate or
any other public or private offering without the specific written consent
of CB Commercial is not authorized. Neither the whole, or any part of this
report, nor any reference thereto may be included in any document,
statement, appraisal or circular without the signatories prior written
approval of the form and context in which it is to appear.
8. The value conclusion represents a fee simple interest in the property
appraised free and clear of any mortgage debt that may be outstanding.
9. Deferred maintenance on the subject includes the roof repairs currently
underway. The cost to cure the deferred maintenance curable functional
obsolescence is estimated to total $2,709,041. The As Is value reported
herein is net of this cost to cure.
10. The reasonable exposure time is 6 to 9 months based on current market
conditions. The reasonable exposure time inherent in the market value
concept is always presumed to precede the effective date of the appraisal.
We also recognize the exposure time is different for various types of real
estate and under various market conditions and that the reasonable exposure
time should always incorporate the answer to the question, "For what kind
of real estate at what value range?" rather than appear as a statement of
an isolated time period.
11. This study is not being prepared for use in connection with litigation.
Accordingly, no rights to expert testimony, pretrial or other conferences,
deposition, or related services are included with this appraisal. If, as a
result of this undertaking, CB Commercial or any of its principals, its
appraisers or consultants are requested or required to provide any
litigation services, such shall be subject to the provisions of CB
Commercial's engagement letter or, if not specified therein, subject to the
reasonable availability of CB Commercial and/or said principals or
appraisers at the time and shall further be subject to the party or parties
requesting or requiring such services paying the then-applicable
professional fees and expenses of CB Commercial either in accordance with
the provisions of the engagement letter or arrangements at the time, as the
case may be.
18. All data considered significant that was requested for this assignment was
received by CB Commercial Real Estate Group, Inc. Appraisal Services.
<PAGE>
ADDENDA
<PAGE>
Addendum A
GLOSSARY OF TERMS
<PAGE>
assessed value Assessed value applies in ad valorem taxation and refers to the
value of a property according to the tax rolls. Assessed value may not
conform to market value, but it is usually calculated in relation to a
market value base.
cash equivalency The procedure in which the sale prices of comparable properties
sold with atypical financing are adjusted to reflect typical market terms.
contract, coupon, face, or nominal rent The nominal rent payment specified in
the lease contract. It does not reflect any offsets for free rent, unusual
tenant improvement conditions, or other factors that may modify the effective
rent payment.
coupon rent
See Contract, Coupon, Face, or Nominal Rent
effective rent 1) The rental rate net of financial concessions such as periods
of no rent during a lease term; may be calculated on a discounted basis,
reflecting the time value of money, or on a simple, straight-line basis. ++ 2)
The economic rent paid by the lessee when normalized to account for financial
concessions, such as escalation clauses, and other factors. Contract, or
normal, rents must be converted to effective rents to form a consistent basis
of comparison between comparables.
face rent
See Contract, Coupon, Face, or Nominal Rent
fee simple estate Absolute ownership unencumbered by any other interest or
estate, subject only to the limitations imposed by the governmental powers
of taxation, eminent domain, police power, and escheat.
floor area ratio (FAR) The relationship between the above-ground floor area of a
building, as described by the building code, and the area of the plot on which
it stands; in planning and zoning, often expressed as a decimal, e.g., a ratio
of 2.0 indicates that the permissible floor area of a building is twice the
total land area; also called building-to-land ratio. ++
full service lease A lease in which rent covers all operating expenses.
Typically, full service leases are combined with an expense stop, the expense
level covered by the contract lease payment. Increases in expenses above the
expense stop level are passed through to the tenant and are known as expense
pass-throughs.
going concern value Going concern value is the value of a proven property
operation. It includes the incremental value associated with the business
concern, which is distinct from the value of the real estate only. Going
concern value includes an intangible enhancement of the value of an operating
business enterprise which is produced by the assemblage of the land, building,
labor, equipment, and marketing operation. This process creates an
economically viable business that is expected to continue. Going concern value
refers to the total value of a property, including both real property and
intangible personal property attributed to the business value. +
gross building area (GBA) The sum of all areas at each floor as measured to the
exterior walls.
insurable value Insurable Value is based on the replacement and/or reproduction
cost of physical items that are subject to loss from hazards. Insurable value
is that portion of the value of an asset or asset group that is acknowledged
or recognized under the provisions of an applicable loss insurance policy.
This value is often controlled by state law and varies from state to state. +
investment value Investment value is the value of an investment to a particular
investor based on his or her investment requirements. In contrast to market
value, investment value is value to an individual, not value in the
marketplace. Investment value reflects the subjective relationship between a
particular investor and a given investment. When measured in dollars,
investment value is the price an investor would pay for an investment in light
of its perceived capacity to satisfy his or her desires, needs, or investment
goals. To estimate investment value, specific investment criteria must be
known. Criteria to evaluate a real estate investment are not necessarily set
down by the individual investor; they may be established by an expert on real
estate and its value, that is, an appraiser. +
leased fee
See leased fee estate
leased fee estate An ownership interest held by a landlord with the right of use
and occupancy conveyed by lease to others. The rights of the lessor (the
leased fee owner) and the leased fee are specified by contract terms contained
within the lease.++
leasehold
See leasehold estate
leasehold estate The interest held by the lessee (the tenant or renter) through
a lease conveying the rights of use and occupancy for a stated term under
certain conditions.++
load factor The amount added to usable area to calculate the rentable area. It
is also referred to as a "rentable add-on factor" which, according to BOMA,
"is computed by dividing the difference between the usable square footage and
rentable square footage by the amount of the usable area. Convert the figure
into a percentage by multiplying by 100.
market value "as if complete" on the appraisal date Market value as if complete
on the appraisal date is an estimate of the market value of a property with
all construction, conversion, or rehabilitation hypothetically completed, or
under other specified hypothetical conditions as of the date of the appraisal.
With regard to properties wherein anticipated market conditions indicate that
stabilized occupancy is not likely as of the date of completion, this estimate
of value should reflect the market value of the property as if complete and
prepared for occupancy by tenants.
market value "as is" on the appraisal date Market value "as is" on the appraisal
date is an estimate of the market value of a property in the condition
observed upon inspection and as it physically and legally exists without
hypothetical conditions, assumptions, or qualifications as of the date of
appraisal.
market value Market value is one of the central concepts of the appraisal
practice. Market value is differentiated from other types of value in that it
is created by the collective patterns of the market. Market value means the
most probable price which a property should bring in a competitive and open
market under all conditions requisite to a fair sale, the buyer and seller
each acting prudently and knowledgeably, and assuming the price is not
affected by undue stimulus. Implicit in this definition is the consummation of
a sale as of a specified date and the passing of title from seller to buyer
under conditions whereby: 1) A reasonable time is allowed for exposure in the
open market; 2) Both parties are well informed or well advised, and acting in
what they consider their own best interests; 3) Buyer and seller are typically
motivated; 4) Payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and 5) The price represents the
normal consideration for the property sold unaffected by special or creative
financing or sales concessions granted by anyone associated with the sale.ss.
marketing period The time it takes an interest in real property to sell on the
market subsequent to the date of an appraisal. ++
net lease Lease in which all or some of the operating expenses are paid directly
by the tenant. The landlord never takes possession of the expense payment. In
a Triple Net Lease all operating expenses are the responsibility of the
tenant, including property taxes, insurance, interior maintenance, and other
miscellaneous expenses. However, management fees and exterior maintenance are
often the responsibility of the lessor in a triple net lease. A modified net
lease is one in which some expenses are paid separately by the tenant and some
are included in the rent.
net rentable area (NRA) 1) The area on which rent is computed. 2) The Rentable
Area of a floor shall be computed by measuring to the inside finished surface
of the dominant portion of the permanent outer building walls, excluding any
major vertical penetrations of the floor. No deductions shall be made for
columns and projections necessary to the building. Include space such as
mechanical room, janitorial room, restrooms, and lobby of the floor. *
nominal rent
See Contract, Coupon, Face, or Nominal Rent
prospective future value "upon completion of construction" Prospective future
value "upon completion of construction" is the prospective value of a property
on the future date that construction is completed, based upon market
conditions forecast to exist, as of that completion date. The value estimate
at this stage is stated in current dollars unless otherwise indicated.
prospective future value "upon reaching stabilized occupancy" Prospective future
value "upon reaching stabilized occupancy" is the prospective value of a
property at a future point in time when all improvements have been physically
constructed and the property has been leased to its optimum level of long-term
occupancy. The value estimate at this stage is stated in current dollars
unless otherwise indicated.
reasonable exposure time The estimated length of time the property interest
being appraised would have been offered on the market prior to the
hypothetical consummation of a sale at market value on the effective date of
the appraisal; a retrospective estimate based upon an analysis of past events
assuming a competitive and open market. ++
rent
see
full service lease
net lease
contract, coupon, face, or nominal rent
effective rent
shell space Space which has not had any interior finishing installed, including
even basic improvements such as ceilings and interior walls, as well as
partitions, floor coverings, wall coverings, etc..
Usable Area 1) The area actually used by individual tenants. 2) The Usable Area
of an office is computed by measuring to the finished surface of the office
side of corridor and other permanent walls, to the center of partitions that
separate the office from adjoining usable areas, and to the inside finished
surface of the dominant portion of the permanent outer building walls.
Excludes areas such as mechanical rooms, janitorial room, restrooms, lobby,
and any major vertical penetrations of a multi-tenant floor. *
use value Use value is a concept based on the productivity of an economic good.
Use value is the value a specific property has for a specific use. Use value
focuses on the value the real estate contributes to the enterprise of which it
is a part, without regard to the property's highest and best use or the
monetary amount that might be realized upon its sale. +
value appraised During the real estate development process, a property typically
progresses from a state of unimproved land to construction of improvements to
stabilized occupancy. In general, the market value associated with the
property increases during these stages of development. After reaching
stabilized occupancy, ongoing forces affect the property during its life,
including a physical wear and tear, changing market conditions, etc. These
factors continually influence the property's market value at any given point
in time. See also market value "as is" on the appraisal date market value "as
if complete" on the appraisal date prospective future value "upon completion
of construction" prospective future value "upon reaching stabilized occupancy"
+ The Appraisal of Real Estate, Tenth Edition, Appraisal Institute, 1992.
++ The Dictionary of Real Estate Appraisal, Third Edition, 1993.
ss. The office of the Comptroller of the Currency, 12 CFR Part 34, Subpart C,
(C167)34.42(f), August 24, 1990. This definition is compatible with the
definition of market value contained in The Dictionary of Real Estate Appraisal,
Third Edition, and the Uniform Standards of Professional Appraisal Practice
adopted by the Appraisal Standards Board of The Appraisal Foundation, 1992
edition. This definition is also compatible with the OTS, RTC, FDIC, NCUA, and
the Board of Governors of the Federal Reserve System definition of market value.
* 1990 BOMA Experience Exchange Report, Income/Expense Analysis for Office
Buildings (Building Owners and Managers Association, 1990)
++ Statement on Appraisal Standard No. 6, Appraisal Standards Board of The
Appraisal Foundation, September 19, 1992.
<PAGE>
Addendum B
ADDITIONAL PHOTOGRAPHS
<PAGE>
PHOTOGRAPH
ST. ANDREWS ENTRANCE AND BUILDING NO. 16
PHOTOGRAPH
INTERIOR VIEW OF MODEL BEDROOM
<PAGE>
PHOTOGRAPH
INTERIOR VIEW OF MODEL KITCHEN
PHOTOGRAPH
INTERIOR VIEW OF MODEL BATHROOM
<PAGE>
PHOTOGRAPH
ST. ANDREWS CLUBHOUSE MEETING ROOM
PHOTOGRAPH
ST. ANDREWS MODEL BEDROOM
<PAGE>
PHOTOGRAPH
ST. ANDREWS BUILDING NO. 15
PHOTOGRAPH
ST. ANDREWS BUILDING NO. 14
<PAGE>
PHOTOGRAPH
SUBJECT ROTTEN SIDING
PHOTOGRAPH
ST. ANDREWS BUILDING NO. 13
<PAGE>
PHOTOGRAPH
ST. ANDREWS BUILDING NO. 10
PHOTOGRAPH
ST. ANDREWS BUILDING NO. 9
<PAGE>
PHOTOGRAPH
ST. ANDREWS BUILDING NO. 8
PHOTOGRAPH
ST. ANDREWS BUILDING NO. 7
<PAGE>
PHOTOGRAPH
ST. ANDREWS BUILDING NO. 6
PHOTOGRAPH
ST. ANDREWS BUILDING NO. 5
<PAGE>
PHOTOGRAPH
ST. ANDREWS BUILDING NO. 4
PHOTOGRAPH
ST. ANDREWS BUILDING NO. 3
<PAGE>
PHOTOGRAPH
ST. ANDREWS BUILDING NO. 2
PHOTOGRAPH
ST. ANDREWS BUILDING NO. 16
<PAGE>
PHOTOGRAPH
SUBJECT CLUBHOUSE
PHOTOGRAPH
ST. ANDREWS VIEW ALONG EAST SIDE OF PROPERTY
<PAGE>
Addendum C
RENTAL COMPARABLES
<PAGE>
APARTMENT RENT COMPARABLE
APARTMENT RENTAL COMPARISON NO. 1
Location Data
Property Name: Monterey Lake
Location: 6701 Westwood Boulevard
City: Orlando
County: Orange
State/Zip: Florida, 32821
Physical Data
Type: Apartment
Number of Units: 504
Year Built: 1986
Complex Amenities: Four swimming pools,
clubhouse, lighted tennis court, two
volley ball courts, picnic area,
four Jacuzzi's, laundry facilities,
car wash area, satellite TV,
horseshoes, man made pond with one
mile jogging trail.
Unit Features: Electric range, blinds, dishwasher,
disposal, refrigerator, screened
porch/patio, outside storage.
(Approximately 40% of units are
furnished.)
Condition: Excellent
Lease Data
Occupancy: 95%
Concessions: Thirty dollars off 1 bedroom and
eighty dollars off 2 bedroom
apartments monthly rental for entire
lease term.
Typical Lease Term: 12 months
Utilities included in Rent: Water, sewer, electric and trash.
Leasing Agent: Mc Kinley Properties, Inc.
Phone No: (407) 352-6891
UNIT MIX
Unit Type No. Size (SF) Rent Rent (PSF)
1 BR/1BA 330 550 $559 $1.02
2 BR/2 BA 72 800 $709 $.89
Comments Some units have screened patios. Rental deposit includes $100
nonrefundable utility service fee. Approximately 40% of the units are furnished.
<PAGE>
APARTMENT RENTAL COMPARISON NO. 1 (Continued)
Photograph
PHOTOGRAPH
<PAGE>
APARTMENT RENTAL COMPARISON NO. 2
Location Data
Property Name: The Broadwater
Location: 6677 Tanglewood Bay Drive
City: Orlando
County: Orange
State/Zip: Florida, 32821
Physical Data
Type: Apartment
Number of Units: 408
Year Built: 1987
Complex Amenities: Golf course, 2 swimming
pools, club house, exercise/weight
room, Jacuzzi, indoor racquetball
court, basketball court, sand
volleyball, laundry, car wash area,
trailer area, cable TV.
Unit Features: Balcony/Patio, vaulted ceilings up
stairs
Condition: Excellent
Lease Data
Occupancy: 98%
Concessions: None
Typical Lease Term: 7-12 months
Utilities included in Rent: Water, sewer, refuse, pest control
Leasing Agent: Jackson Management Group
Phone No: (407)-239-7533
UNIT MIX
Unit Type No. Size (SF) Rent Rent (PSF)
1 BR/1 BA 136 685 $545 $.80
2 BR/1 BA 96 836 $615 $.74
2 BR/21 BA 88 870 $640 $.74
2 BR/2 BA 88 945 $710 $.75
Comments There is a $99 nonrefundable administration fee included in rental
deposit.
<PAGE>
APARTMENT RENTAL COMPARISON NO. 2 (Continued)
Photograph
PHOTOGRAPH
<PAGE>
APARTMENT RENTAL COMPARISON NO. 3
Location Data
Property Name: The Vinings at Westwood
Location: 6600 Banner Lake Circle
City: Orlando
County: Orange
State/Zip: Florida 32821
Physical Data
Type: Apartments
Number of Units: 400
Year Built: 1988
Complex Amenities: Golf course, 2 tennis courts,
swimming pool, picnic area/BBQ,
clubhouse, exercise/weight,
spa/Jacuzzi, car wash area,
trailer area, cable TV.
Unit Features: Balcony/Patio, vaulted ceilings,
outside storage, ceiling fans,
blinds, dishwasher, disposal,
refrigerator, w/d hookups.
Condition:
Lease Data
Occupancy: 95%
Concessions: None
Typical Lease Term: 7-12 months
Utilities included in Rent: Water, sewer, trash
Leasing Agent: Trammel Crow Residential Services
Phone No: (407)-239-7512
UNIT MIX
Unit Type No. Size (SF) Rent Rent (PSF)
1 BR/1 BA 120 595 $500 $.84
1 BR/1 BA 100 766 $565 $.74
2 BR/1 BA 24 911 $660 $.72
2 BR/2 BA 68 1,018 $690 $.68
2 BR/2 BA 44 1,138 $740 $.65
3 BR/2 BA 44 1,356 $855 $.63
Comments Fireplaces 30-Beechnut, 22 Elm, 18- Featherwood. Two units available
for $65/night for resident's guests only.
<PAGE>
APARTMENT RENTAL COMPARISON NO. 3 (Continued)
Photograph
PHOTOGRAPH
<PAGE>
APARTMENT RENTAL COMPARISON NO. 4
Location Data
Property Name: The Vinings at Lake Buena Vista
Location: 13675 Lake Vining Drive
City: Orlando
County: Orange
State/Zip: Florida 32821
Physical Data
Type: Apartment
Number of Units: 400
Year Built: 1988
Complex Amenities: Lakefront, 2 tennis
courts, 2 swimming pools,
volleyball, picnic area/BBQ,
playground, clubhouse,
exercise/weight, spa/Jacuzzi, car
wash area, trailer area, cable TV.
Unit Features: Balcony/patio, vaulted ceiling,
outside storage, ceiling fans,
blinds, dishwasher, disposal,
refrigerator, washer/dryer, w/d
hookups
Condition:
Lease Data
Occupancy: 93%
Concessions: One month free rent on a 12 month
lease on all units but Destiny;
$55/month disc on Destiny units
on a 12 month lease.
Typical Lease Term: 3, 7, 12 months
Utilities included in Rent: Water, sewer, trash,
Leasing Agent: Trammell Crow Residential Services
Phone No: (407)-827-1515
UNIT MIX
Unit Type No. Size (SF) Rent Rent (PSF)
1 BR/ 1 BA 96 595 $510 $.86
1 BR/ 1 BA 80 766 $550 $.72
2 BR/ 2 BA 152 1,018 $670 $.66
3 BR/ 2 BA 72 1,256 $830 $.66
Comments Washer/dryer: $40/month full size; 3 month lease: $50/month & 11%
resort tax.
<PAGE>
APARTMENT RENTAL COMPARISON NO. 4 (Continued)
Photograph
PHOTOGRAPH
<PAGE>
APARTMENT RENTAL COMPARISON NO. 5
Location Data
Property Name: The Vinings at Sand Lake
Location: 8927 Latrec Avenue
City: Orlando
County: Orange
State/Zip: Florida 32819
Physical Data
Type: Apartment
Number of Units: 416
Year Built: 1994
Complex Amenities: Lakefront, 2 tennis
courts, 2 swimming pools,
basketball, volleyball, picnic
area/BBQ, Playground, clubhouse,
exercise/weight, car wash area,
trailer area, cable TV,
computer/Library room.
Unit Features: Balcony/patio (screenec), vaulted
ceiling, outside storage, ceiling
fan, blinds, dishwasher, disposal,
refrigerator, w/d hookups
Condition:
Lease Data
Occupancy: 97%
Concessions: None
Typical Lease Term: 7-12 months
Utilities included in Rent: Trash
Leasing Agent: Trammell Crow Residential Services
Phone No: (407)-352-3705
UNIT MIX
Unit Type No. Size (SF) Rent Rent (PSF)
1 BR/ 1 BA 68 594 $540 $.91
1 BR/ 1 BA 96 714 $590 $.83
2 BR/ 2 BA 164 1,055 $755 $.72
3 BR/ 2 BA 60 1,254 $915 $.73
4 BR/ 2 BA 28 1,391 $1,025 $.74
Comments
<PAGE>
APARTMENT RENTAL COMPARISON NO. 5 (Continued)
Photograph
PHOTOGRAPH
<PAGE>
APARTMENT RENTAL COMPARISON NO. 6
Location Data
Property Name: Osprey Links
Location: 13931 Osprey Links Road
City: Orlando
County: Orange
State/Zip: Florida 32837
Physical Data
Type: Apartments
Number of Units: 424
Year Built: 1995
Complex Amenities: Golf course, swimming pool,
clubhouse, exercise/weight,
spa/Jacuzzi, car wash area, trailer
area, cable TV, security.
Unit Features: Balcony/patio, vaulted ceiling,
outside storage, ceiling fan,
blinds, dishwasher, disposal,
refrigerator, w/d hookups, ceramic
tile, French doors.
Condition: New
Lease Data
Occupancy: Units are being fully rented as
constructed
Concessions: None
Typical Lease Term: 7, 8, 9, 10, 11 and 12 months
Utilities included in Rent: Trash
Leasing Agent: Royal American Management, Inc.
Phone No: (407)-240-8700
UNIT MIX
Unit Type No. Size (SF) Rent Rent (PSF)
1 BR/ 1 BA 84 855 $600 $.70
1 BR/ 1 BA 72 878 $610 $.69
2 BR/ 2 BA 48 1,148 $755 $.66
2 BR/ 2 BA 36 1,248 $770 $.62
2 BR/ 2 BA 56 1,165 $730 $.63
2 BR/ 2 BA 16 1,165 $745 $.64
3 BR/ 2 BA 88 1,585 $920 $.58
3 BR/ 2 BA 24 1,623 $1,150 $.71
Comments First cert of occupancy expected 11/95. Rents to range from
$600-$1,150. Golf view premiums range up to $50 per month.
Garages available from $75 per month.
<PAGE>
APARTMENT RENTAL COMPARISON NO. 6 (Continued)
Photograph
PHOTOGRAPH
<PAGE>
APARTMENT RENTAL COMPARISON NO. 7
Location Data
Property Name: Mission Club
Location: 6739 Mission Club Blvd.
City: Orlando
County: Orange
State/Zip: Florida 32821
Physical Data
Type: Apartment
Number of Units: 356
Year Built: 1995
Complex Amenities: Tennis court, swimming pool,
volleyball, picnic area/BBQ,
playground, clubhouse,
exercise/weight, spa/Jacuzzi,
security, car wash area, trailer
area, cable TV.
Unit Features: Balcony/patio (screened), vaulted
ceiling, outside storage, ceiling
fan, blinds, dishwasher, disposal,
refrigerator, w/d hookups.
Condition:
Lease Data
Occupancy: Completion January 1996
Concessions: None
Typical Lease Term: 7-12 months
Utilities included in Rent: Trash
Leasing Agent: Eagle Properties, Inc.
Phone No: (407)-239-6739
UNIT MIX
Unit Type No. Size (SF) Rent Rent (PSF)
1 BR/ 1 BA 32 644 $550 - $560 $.85 - $.87
1 BR/ 1 BA 64 688 $620 - $630 $.90 - $.92
2 BR/ 2 BA 212 962 $765 - $775 $.80 - $.81
3 BR/ 2 BA 48 1,126 $895 - $905 $.79 - $.80
Comments 104 units have solariums. Half have inside storage. Rents to range from
$550 - $895. First Cert of Occupancy expected mid to end of 11/95. Garages
available at $80 per month.
<PAGE>
APARTMENT RENTAL COMPARISON NO. 7 (Continued)
Photograph
PHOTOGRAPH
<PAGE>
Addendum D
IMPROVED COMPARABLES
(INFORMATION DEEMED CONFIDENTIAL)
<PAGE>
Addendum E
LAND COMPARABLES
<PAGE>
LAND SALE NO. 1
Location Data
Location: West side of Turkey Lake
Road, 1/2 mile south of
Sand Lake Road.
City: Orlando MSA
County: Orange
State/Zip: Florida
Assessor's Parcel No (s): 35-23-28-0000-00045 and 044
Physical Data
Type: Vacant multifamily
Land Area: Gross Usable
Acres: 42.102 23.5
Square Feet: 1,833,876 1,023,660
Topography: The site reflects extensive
frontage along two lakes,
one being known as Big Sand
lake and the other
being unnamed.
Shape: Irregular
Utilities: All available
Zoning: PD, Planned Development
Density: 20.0 17.7
No. Of Units: 470 416
Sale Data
Transaction Type: Sale
Date of Transaction: 12/93
Grantor: Robert V. Ogilvie
Vernon C. Tice et ux
Byard Viehman et al
Grantee: Sand Lake Joint Venture
Document No. 4676/1281, 1297, 1304,1317,
1322 & 1338
Sale Price: $3,300,000
Financing: Cash to seller
Cash Equivalent Price: $3,300,000
Required Capital Cost: ----
Adjusted Sale Price: $3,300,000
Verification: Joan Zanowick, Trammell
Crow
Analysis
Use At Sale: Vacant
Proposed Use or Development: Multifamily
Price Per Acre: $78,381 $140,426
Price Per S.F. of Land Area: $1.80 $3.22
Price Per Unit: $7,021 $7,933
Comments
This property is improved with 416 unit garden apartment complex with
frontage on Sand lake to be called the Vinings at Sand Lake. Based on
maximum permitted density of units (20 DU/AC) price per unit would
reflect $7,021.
<PAGE>
LAND SALE NO. 2
Location Data
Location: SWQ of Westpointe Boulevard
and Hiawassee Road in
Metrowest PUD.
City: Orlando
County: Orange
State/Zip: Florida
Assessor's Parcel No (s): 2-23-28-
Physical Data
Type:
Land Area: Gross Usable
Acres: 28.0 28.0
Square Feet: 1,219,680 1,219,680
Topography: Relatively level
Shape: Irregular
Utilities: All available
Zoning: PUD/R-3A, Medium Density
Dwelling District,
City of Orlando
Density: 12.0
No. Of Units: 336
Sale Data
Transaction Type: Sale
Date of Transaction: 12/93
Grantor: Debra, Inc.
Grantee: ZOM-MetroWest II, Ltd.
Document No. 4668/4258
Sale Price: $3,192,000
Financing: Cash to seller
Cash Equivalent Price: $3,192,000
Required Capital Cost: 0
Adjusted Sale Price: $3,192,000
Verification: Eric Boschmans,
representative of grantee
Analysis
Use At Sale: Vacant
Proposed Use or Development: Multifamily
Price Per Acre: $113,594
Price Per S.F. of Land Area: $2.61
Price Per Unit: $9,500
Comments
This site is being improved with a 336 unit garden apartment complex
known as Golf View Apartments.
<PAGE>
LAND SALE NO. 3
Location Data
Location: South Side Maitland
Boulevard
City: Orlando, MSA
County: Orange
State/Zip: Florida
Assessor's Parcel No (s): 26-20-29-
Physical Data
Type: Land-Office
Land Area: Gross Usable
Acres: 21.2 21.2
Square Feet: 923,472 923.472
Topography: Relatively level
Shape: Irregular
Utilities: All
Zoning: PD - Mixed use
Density: 17.1 Du/A
No. Of Units: 363
Sale Data
Transaction Type: Sale
Date of Transaction: 12/94
Marketing Time: 18 months
Grantor: AEW No. 66
Grantee: Zom Properties
Document No. 4831/1600
Sale Price: $2,635,500
Financing: Cash
Cash Equivalent Price: $2,635,500
Required Capital Cost: 0
Adjusted Sale Price: $2,635,500
Verification: Trip Stevens, Zom
Properties
Analysis
Use At Sale: Vacant
Proposed Use or Development: Apartment
Price Per Acre: $124,316
Price Per S.F. of Land Area: $2.85
Price Per Unit: $7,260
Comments
This site is being developed with the Arbors at Maitland Summit, a
gated, upscale apartment complex.
<PAGE>
LAND SALE NO. 4
Location Data
Location: East side International
Drive
City: Orlando MSA
County: Orange
State/Zip: Florida
Assessor's Parcel No (s): 28-24-24-
Physical Data
Type: Land-Office
Land Area: Gross Usable
Acres: 17.0 17.0
Square Feet: 740,520 740,520
Topography: Relatively level
Shape: Irregular
Utilities: All available
Zoning: PD - Multifamily
Density: 20.94
No. Of Units: 356
Sale Data
Transaction Type: Sale
Date of Transaction: 9/95
Marketing Time: 12 months
Grantor: Nadeen Corp.
Grantee: Mission Club Apartments
Document No. 4878/567
Sale Price: $2,890,000
Financing: Cash to seller
Cash Equivalent Price: $2,890,000
Required Capital Cost: 0
Adjusted Sale Price: $2,890,000
Verification: Grantors Representative
Analysis
Use At Sale: Vacant
Proposed Use or Development: Apartments
Price Per Acre: $170,000
Price Per S.F. of Land Area: $3.90
Price Per Unit: $8,118
Comments
This site is being developed with Mission Club Apartments, as an
upscale gated project.
<PAGE>
Addendum F
LEGAL DESCRIPTION
<PAGE>
LEGAL DESCRIPTION
PARCEL 12, ORANGEWOOD NEIGHBORHOOD - 2, ACCORDING TO THE PLAT THEREOF,
AS RECORDED IN PLAT BOOK 17, PAGES 81 - 87, OF THE PUBLIC RECORDS OF
ORANGE COUNTY, FLORIDA
CONTAINING 14.552 ACRES, MORE OR LESS.
<PAGE>
Addendum G
DEMOGRAPHICS
<PAGE>
Addendum H
RENT ROLL
(INFORMATION DEEMED CONFIDENTIAL)
<PAGE>
ADDENDUM I ARGUS REPORTS
Addendum I
ARGUS REPORTS
SCHEDULE OF PROSPECTIVE "AS IS" CASH FLOW,
SCHEDULE OF SOURCES & USES OF CAPITAL,
PROSPECTIVE PROPERTY RESALE,
PROSPECTIVE PRESENT VALUE,
PROPERTY SUMMARY REPORT,
INPUT ASSUMPTIONS,
SCHEDULE OF PROSPECTIVE "FUTURE STABILIZED" CASH FLOW,
SCHEDULE OF SOURCES & USES OF CAPITAL,
PROSPECTIVE PROPERTY RESALE,
PROSPECTIVE PRESENT VALUE,
PROPERTY SUMMARY REPORT,
INPUT ASSUMPTIONS
(INFORMATION DEEMED CONFIDENTIAL)
<PAGE>
Addendum J
CAPITAL REPAIRS & NOVEMBER DRAW/BUILDING PLANS,
APPLICATION AND CERTIFICATE FOR PAYMENT,
FLOOR PLAN - UNIT A,
FLOOR PLAN - UNIT B,
FLOOR PLAN - UNIT C,
FLOOR PLAN - UNIT D,
CLUB/OFFICE PLAN - BUILDING 1
FLOOR PLAN - BUILDINGS 3, 4, 5, 6, 12, 13
FLOOR PLAN - BUILDINGS 2, 16
FLOOR PLAN - BUILDINGS 7, 9, 10, 11, 14, 15
TOPOGRAPHIC SURVEY
SITE LAYOUT PLAN
SITE PLAN
<PAGE>
Addendum K
LETTER OF ENGAGEMENT
<PAGE>
VIA FACSIMILE (407) 839-3132
November 17, 1995
Mr. Sam Hines, MAI
1st VP/Florida Regional Manager
CB Commercial Appraisal Services
201 S. Orange Avenue, Suite 1400
Orlando, Florida 32801
SUBJECT: St. Andrews Apartments at Westwood
Orlando, Florida
Dear Sam:
We appreciate your response to our request of your appraisal services regarding
the property referenced above.
This letter will confirm our understanding that Sam Hines, MAI of CB Commercial
Appraisal Services shall perform the following real estate appraisal assignment
for USF&G Real Estate Division.
Subject Property
to be Appraised: St. Andrews Apartments at Westwood
11500 Westwood Boulevard
Orlando, Florida
Property Description: 259-unit apartment complex, amenities, and
supporting land.
Purpose and Function
of Appraisal: The purpose of the appraisal
shall be to estimate the Market Value of the
subject property specified above. The
function of the appraisal shall be to
establish a current Market Value "As Is" for
the subject property in regard to the Right
of Presentment for the "Fund".
Estimated Value/Date/and
Interest Appraised: The Value to be estimated in the
appraisal shall be the Market Value "As Is"
of the fee simple interest in the subject
property, as of December 1, 1995. The date
of inspection of the subject should be at or
around this time period.
<PAGE>
Type of Appraisal: The type of appraisal shall be a full
narrative appraisal report subject to the
terms herein and outlined in "Specific
Conditions".
Due Date/Deadlines: Three complete draft
appraisal reports, including all exhibits
("Appraisal Report Summary" sheet, maps,
spreadsheets, etc.), but excluding
photographs, shall be delivered to USF&G
Real Estate Division for review by December
20, 1995. After USF&G Real Estate Division
has reviewed the draft, mutually agreed upon
revisions, additions and deletions shall be
incorporated into the final document. Three
final appraisal reports are due within seven
working days from the date USF&G Real Estate
Division's final written comments are
received by CB Commercial Appraisal
Services.
In the event that the draft appraisal
reports cannot be delivered to USF&G Real
Estate Division by the due date, Julie C.
Tyler must be notified by telephone at least
one week prior to the date specified herein.
A letter must be sent to the aforementioned
indicating the reason for not meeting the
specified due dates (draft or finals). The
revised draft/final due date must be
indicated in the letter. The reason for not
meeting the due dates and revised due dates
must be approved by Julie C. Tyler. If the
reason for not meeting the due dates is not
to Ms. Tyler's satisfaction and/or Ms. Tyler
has not been informed at least one week
prior to the due dates by telephone, a fee
reduction of $250 per diem will be imposed
for every day the appraisal exceeds the due
date.
Appraisal Fee: The fee for the appraisal assignment,
including all costs related thereto, shall
be $5,200. The entire fee shall be due after
three final full narrative appraisal reports
are received by USF&G Real Estate Division.
Invoices are paid within 30 days after three
final reports are received and accepted
under the USF&G Appraisal Guidelines
attached as an exhibit to this letter and
the Appraisal Institute's Standards and
Ethic requirements. Please issue two
original invoices along with the final
appraisal report at that time.
Information Necessary for
Completion of the
Appraisal: The information needed to complete the
appraisal shall be coordinated by Craig
Leonard, the Asset Manager of the property.
His telephone number is (410) 625-5626.
Exhibit I presents a list of information
that at a minimum would be necessary to
complete the appraisal (obviously, the
applicability of the information is
dependent upon the type of property under
appraisement). This information will be
provided at the inception of the appraisal
assignment within a reasonable time. If the
information is not received within a
reasonable time, please call Julie C. Tyler
immediately.
Specific Conditions: o The appraisal form, content, and scope
shall be prepared in conformity with and are
subject to the requirements of the Code of
Professional Ethics and Standards of
Professional Conduct of the Appraisal
Institute and the Uniform Standards
of Professional Appraisal Practice.
o USF&G Real Estate Division's guidelines
shall be followed in performing this
appraisal and are presented in Exhibit II.
o The "Appraisal Report Summary" document
(three pages) shall be completed and
presented after the "Table of Contents"
section in each draft and final appraisal
report. This summary document is attached to
this letter agreement and is labeled as
Exhibit III.
o The appraisal shall be prepared using the
Cost, Direct Sales Comparison, and Income
Approaches (direct capitalization and
discounted cash flow analysis) to estimate
Value. The three Values must be reconciled
to estimate the final Market Value "As Is"
for the subject property.
o A lease-by-lease analysis shall be performed
using a real estate software program (such
as Dynalease, Dynamis, Pro-Ject, OFFICE2,
Argus, or Realdex) approved by Julie C.
Tyler. Market data should be reflected
during tenant rollovers. Lease-by-lease data
shall be printed and included as an addendum
to the draft and final reports.
o All the appraisers signing the report must
inspect the subject property and
comparables.
o The appraiser shall identify the marketing
time period for the property in the section
of the appraisal report where the estimate
of Market Value is indicated.
o The contracted MAI Appraiser herein attests
to the fact that all appraisers signing and
working on the appraisal assignment have at
a minimum five years of appraisal
experience, including appraisals of
apartment complexes.
o When submitting the final reports, you must
also include a diskette of the full
narrative appraisal report, as well as all
addenda items. The software used must be a
machine readable version. Further, include
another diskette that has all the cash flow
assumptions and financial projections
contained on the approved software program
(a total of two diskettes to be submitted).
Please provide a typed comprehensive list of
those items in the addenda that are not
included on the diskette (i.e., maps, zoning
ordinance, copy of deed, etc.). These
diskettes are necessary for the Fund SEC
filing requirements which this property is a
part of.
This appraisal report is for the exclusive use of USF&G Real Estate Division and
its client and assignees. CB Commercial Appraisal Services shall not reveal the
appraisal report to any party other than representatives indicated herein with
the USF&G Real Estate Division.
If these terms and conditions are acceptable, please execute this letter
agreement below and return an original to me by November 22, 1995. Thank you for
your attention and we look forward to working with you on this assignment.
Sincerely,
Julie C. Tyler, MAI
Manager, Real Estate Valuations
JCT:jfk
MEMO19\StAndLtr.doc
Enclosures
cc: Calvin Thomas, MAI, Legg Mason Realty, Inc. w/ attachments
Joe Wesolowski w/o attachments
Craig Leonard w/ attachments
1995 Appraisal File of St. Andrews Apartments at Westwood w/attachments
Accepted this __________ day of ________________________, 1995
Appraisal Firm: CB COMMERCIAL APPRAISAL SERVICES
By: ___________________________________________________________________________
Its: __________________________________________________________________________
<PAGE>
Addendum L
QUALIFICATIONS
<PAGE>
QUALIFICATIONS
QUALIFICATIONS OF
JOHN STARKE GALT, MAI
Vice President, Senior Analyst
CB Commercial Real Estate Group, Inc., Appraisal Services
201 South Orange Avenue, Suite 1460
Orlando, Florida 32801
(407) 843-4020
EDUCATIONAL
BA, Journalism, Auburn University, Auburn, Alabama - 1967
Appraisal Institute
Course 1-A, 1-B, 2, 4. Attended numerous educational seminars sponsored by
the Appraisal Institute and State of Florida since 1976, including
Standards of Professional Practice, Valuation of Development Projects,
Appraisal Regulations for Federal Agencies, Hotel/Motel Valuation and
Computer Income Analysis
Commercial Investment Real Estate Institute
Courses 101, 201, 301 and 404
LICENSE(S)/CERTIFICATION(S)
Registered Real Estate Broker-Salesman: State of Florida (No. BL0416078)
Certified General Appraiser; State of Florida (No. RZ0000818)
PROFESSIONAL
Appraisal Institute
Designated Member (MAI), Certificate No. 6663 Faculty Instructor (1994)
Commercial Investment Real Estate Institute
Certified Commercial Investment Member (CCIM), Certificate No. 5700
EMPLOYMENT EXPERIENCE
Seventeen years of Real Estate Appraisal and Consulting experience throughout
the United States.
1976-1983 Real Estate Appraisers, Inc. - Staff Appraiser Montgomery, AL
1983-1984 Santangini Appraisal Associates - Staff Appraiser
Gainesville, FL
1984-Present CB Commercial Real Estate Group, Inc. -
Orlando, FL
Appraisal Services - Vice President\Senior Analyst
<PAGE>
QUALIFICATIONS OF
SAMUEL W. HINES, MAI, SGA
First Vice President - Regional Manager
CB Commercial Real Estate Group, Inc., Appraisal Services
201 South Orange Avenue, Suite 1460
Orlando, Florida 32801
(407) 843-4020
EDUCATIONAL
BBA - Management & Finance, Univ. of Miami-1966 Coral Gables, Florida
Postgraduate, Marketing, University of Akron - 1968 Akron, Ohio
Appraisal Institute Courses 1-A, 1-B, 2, 4, 6. Numerous educational seminars
sponsored by the Appraisal Institute and State of Florida since 1974, including
Standards of Professional Practice, Appraisal Regulations for Federal Agencies,
Appraising Pension Fund Portfolios, Hotel/Motel Valuation and Computer Income
Analysis. Co-author of seminar on Appraisal of Golf Properties.
LICENSE(S)/CERTIFICATION(S)
Registered Real Estate Broker: State of Florida (No. BL0131749)
Certified General Appraiser; State of Florida (No. RZ0000126)
PROFESSIONAL
Appraisal Institute
Designated Member (MAI), Certificate No. 6467
President - East Florida Chapter (1993)
National Board of Directors (1994-1997)
Society of Golf Appraisers
SGA Charter Member - President 1994-95
Qualified Expert Witness
U.S. Department of Justice - NY District
Federal Bankruptcy, NY, MO, FL
County, District Civil, & Appellate Courts - FL
Past Special Master, Property Appraisal Adjustment Board,
Seminole/Orange Counties, FL (1985-1994)
Other Affiliations
Associate Member - Urban Land Institute
Associate Member - U.S. Golf Association
Sponsor Member - National Golf Foundation
Golf Course Superintendents Association of America - Affiliate Member
National Conference of Real Estate Investment Fiduciaries - Member
- Valuation Committee
EMPLOYMENT EXPERIENCE
Twenty-two years of Real Estate Appraisal and Consulting experience throughout
the United States.
1969-1973 Merrill Lynch, Pierce, Fenner & Smith Santa Ana, CA/Orlando, FL
1974-1976 Charter Mortgage-Commercial Division Orlando, FL
1977-1981 Pardue, Heid, Church, Smith & Waller Orlando, FL
1982-1984 Zom Companies (Investors & Developers) Winter Park, FL
1984-Present CB Commercial Real Estate Group, Inc. Orlando, FL
1st Vice President - FL Regional Manager
Lodging Appraisal Group & Golf Properties
Appraisal Group - National Coordinator
<PAGE>
Exhibit 28.25
Appraisal Update of Shadeland Station Shopping Center
at December 1, 1995
<PAGE>
REAL ESTATE APPRAISAL UP-DATE
SHADELAND STATION RETAIL CENTER
SEQ SHADELAND AVENUE AND EAST 75TH STREET
INDIANAPOLIS, INDIANA
Prepared for
USF & G REALTY ADVISORS
by
TERZO & BOLOGNA, INC.
<PAGE>
December 14, 1995
Ms. Julie A. Tyler, MAI
Manager, Real Estate Valuations
USF & G Realty Advisors
100 Light Street, Tenth Floor
Baltimore, MD 21202
RE: Up-date Appraisal, As of December 1, 1995
Shadeland Station Retail Center
SEQ Shadeland Avenue and East 75th Street
Indianapolis, IN
Dear Ms. Tyler:
As you requested, we have performed the necessary research to provide you with
an update of the appraisal of the referenced property. The purpose of this
appraisal update is to estimate the market value as of December 1, 1995, of the
leased fee estate, subject to the conditions and limitations stated in this
report.
The terms of reference of this assignment call for us to up-date and analyze
market data with specific respect to the changes which have occurred since the
date of the original appraisal. Accordingly, this appraisal up-date
incorporates, by reference, the full appraisal document covering the subject
property and dated January 6, 1990 and the updates dated November 1, 1991,
November 1, 1992, December 1, 1993 and December 1, 1994. This appraisal up-date
will focus, therefore, only on significant changes in market conditions which
have occurred subsequent to the date of the most recent update appraisal.
The attached report is a presentation of our research which concludes that the
market value of the leased fee estate, as of December 1, 1995, is:
NINE MILLION EIGHT HUNDRED FIFTY THOUSAND DOLLARS
($9,850,000).
The prospective value of the subject, as of December 1, 1995, contingent upon
stabilization, anticipated June 1, 1996, is:
TEN MILLION DOLLARS
($10,000,000).
<PAGE>
Ms. Julie A. Tyler, MAI
December 14, 1995
Page 2
Based on current marketing conditions, it is estimated that the property would
require a marketing time of six to nine months.
Analysis of Value Change
The value reported for the subject reflects a downward change of $150,000 since
the previous appraisal. The subject is still performing well, but exhibits a
currently high total vacancy of 15,331 SF/GLA. This is primarily due to the
vacation of two additional spaces, containing 8,000 and 3,600 SF/GLA, over this
past year. As has been discussed in some detail in the report, prospects exist
for all of the vacancies except the 8,000 SF/GLA space and another smaller space
containing 1,080 SF/GLA. The 8,000 SF/GLA space has been held vacant to allow
for a possible Marsh expansion and an Osco relocation. This has complicated the
subject's position as nearby tenants have postponed lease renewal in
anticipation of the outcome of the Marsh/Osco proposal.
Market support to the subject remains good. At the time of the last appraisal,
increased competition was anticipated from new development in the immediate
area. Although new product has come on line, effective rents in the subject
remain high as new deals being negotiated and renewal rates have been favorable.
Therefore, good future performance is indicated and absorption of vacant space
is forecast to be fairly rapid.
While the high effective rents and leasing prospects are positive, an investor
would consider the overall risk to the subject with respect to vacancy, rent
loss during lease-up of vacancy and capital expenditures in the form of leasing
commissions and tenant improvements. As the future prospects for the subject
remain good, no change in the capitalization and yield rates applied is
indicated. Rather the temporary risk of increased expenditures is accounted for
with the application of tenant improvements to all spaces to maintain the appeal
of the subject. In addition, an increase in normative vacancy from 5 to 10
percent accounts for any long term risk which would apply to the subject. These
factors have a downward effect on value, although the amount of the value change
is insubstantial.
The value at stabilization of $10,000,000 reflects the forecast lease up of the
subject and a return to operating levels experienced in the past.
<PAGE>
Ms. Julie A. Tyler, MAI
December 14, 1995
Page 3
THIS LETTER MUST REMAIN ATTACHED TO THE REPORT WHICH FOLLOWS IN ORDER FOR THE
VALUE OPINION SET FORTH TO BE CONSIDERED VALID.
Sincerely,
Sabra A. Sullivan
Certified General Appraiser-Indiana (#CG49300206)
Frederick C. Terzo, CRE, MAI, AICP Certified General Appraiser - Indiana
(#CG69100042) for Terzo & Bologna, Inc.
SAS/FCT/tmb
<PAGE>
TABLE OF CONTENTS
1. EXECUTIVE SUMMARY
2. INTRODUCTION
Terms of Reference
Scope of Work
Date of Valuation
3. CHANGES IN PHYSICAL CHARACTER OF THE SUBJECT
Site Improvements
Buildings
4. MARKET SUPPORT TO THE SUBJECT
Demand
5. COST APPROACH
6. INCOME APPROACH
Vacancy and Collection
Expenses
Discounted Cash Flow Analysis
SALE COMPARISON APPROACH
RECONCILIATION OF THE VALUE ESTIMATES
7. CERTIFICATION OF THE APPRAISERS
ANNEX
PHOTOGRAPHS OF SUBJECT
LEASE ABSTRACT REPORT
ANNUAL TENANT REVENUE REPORT
USF & G APPRAISAL SUMMARY FORM
LETTER OF ENGAGEMENT
INTRODUCTION TO TERZO & BOLOGNA, INC.
QUALIFICATIONS OF THE APPRAISERS
<PAGE>
Urban Setting - Subject Location Map
<PAGE>
SUBJECT PHOTOGRAPH
<PAGE>
1. EXECUTIVE SUMMARY
PROPERTY APPRAISED: Shadeland Station Retail Center
Southeast Quadrant
Shadeland Avenue and East 75th Street
Indianapolis, Indiana
LEGAL DESCRIPTION: The subject property is legally described
as follows:
Part of Northeast Quarter, Southwest Quarter
Section 26, Township 17, Range 4, in Marion
County, Indiana.
A detailed metes and bounds legal
description is set forth in an annex
following this report.
DESCRIPTION OF PROPERTY: A one-story neighborhood retail
center built in two phases. Phase I,
comprising a Marsh supermarket and "B"
spaces contains 83,971 GSF and 80,750
SF/GLA. This building was constructed in
1982. Phase II containing additional "B"
shops comprises 25,132 GSF and 24,226
SF/GLA. This building was constructed in
1985.
SITE IMPROVEMENTS: 467 parking spaces in the first
phase, 154 parking spaces in the second
phase, site signage, decorative landscaping
and service drives. Parking ratio 5.92
spaces per 1,000 SF/GLA.
GROSS BUILDING AREA: 109,103 GSF
RENTABLE AREA: 104,976 SF/GLA
SITE SIZE: 12.41 acres gross. 11.79 acres net of
adjoining road right-of-way.
ZONING: C-4, Commercial permitting retail
development.
CENSUS TRACT #: 3301.01
<PAGE>
INTEREST APPRAISED: Leased Fee
DATE OF VALUATION: December 1, 1995
LAND VALUE: $2,120,000
COST APPROACH: $9,100,000
SALES COMPARISON
APPROACH: $9,870,000
INCOME APPROACH: $ 9,850,000 As Is
$10,000,000 As Stabilized
RECONCILED VALUE
CONCLUSION: $ 9,850,000 As Is
$10,000,000 A prospective value as of
December 1, 1996,
contingent upon
stabilization anticipated
at June 1, 1996.
SPECIAL NOTATION: This is a fifth up-date of a June
6, 1990 appraisal of the subject property,
which is incorporated by this reference.
Anyone contemplating a financial interest in
the subject property should review and
understand the contents of the original
appraisal, the first update dated November
1, 1991, the second update dated November 1,
1992, the third update dated December 1,
1993 and the fourth update dated December 1,
1994 as background to this up-date.
<PAGE>
2. INTRODUCTION
Terms of Reference
The terms of reference for this assignment call for a fifth up-date of an
appraisal of the subject property, dated December 1, 1995. The client has
specifically requested that the up-date be completed in an abbreviated form to
facilitate their understanding of changes in market conditions as they may have
occurred subsequent to the original appraisal and the first, second and third
updates.
Accordingly, this appraisal up-date incorporates by reference the original
appraisal document to include description of the site and improvements, city and
neighborhood data, highest and best use analysis, valuation, reconciliation and
all underlying assumptions and limiting conditions.
Anyone contemplating a financial interest in the subject property should
recognize that the original appraisal, dated June 6, 1990, and the update
appraisals dated November 1, 1991, November 1, 1992, December 1, 1993 and
December 1, 1994 constitute an integral part of this appraisal up-date. The
original appraisal and the first, second, third and fourth update should be
referred to as fundamental documents necessary for complete understanding of the
property being appraised and its market context.
Scope of Work
The scope of work on this assignment entails an update of the market conditions
which will affect value of the subject property. As part of this analysis, the
three approaches to value are considered. In the cost approach, any land sales
which have occurred subsequent to the date of the third appraisal update are
analyzed to determine whether a change in land value is warranted. Similarly,
unit rates which were applied in estimating the replacement cost of the site
improvements and building are reviewed to determine whether construction costs
escalation is appropriate.
<PAGE>
In the income approach, comparable properties have been identified which have
relevance to the subject. At the time of the last appraisal update, the
subject's market was beginning to see a restructuring with new retail supply
providing new competition to the subject along two emerging retail corridors.
Some of the comparables used in previous appraisal updates have become secondary
centers which no longer would be considered by a typical tenant for the subject.
This restructuring is now full blown with new product entering the market area's
retail inventory. Therefore, new comparables have been identified for the
analysis. Analysis of current comparable expense data is appropriate to cover
the issue of vacancy and expenses to the subject. Investor requirements with
regard to overall rates and yield rates are considered in light of recent market
conditions.
In the sales comparison approach, relevant sales which have occurred subsequent
to the fourth appraisal update are analyzed.
The research effort is directed to extracting an estimate of market value to the
subject property as of current date based on additional market activity which
has occurred subsequent to the fourth appraisal update.
Date of Valuation
This up-date values the subject property as of December 1, 1995.
<PAGE>
3. CHANGES IN PHYSICAL CHARACTER OF THE SUBJECT
Site Improvements
Site inspection reveals that there has been little change in the subject's site
improvements. A resurfacing of the paving associated with the Center building
had been completed at the time of the previous update, along with installation
of new and improved site lighting. This effectively lengthened the economic life
of the site improvements which were estimated as having an effective age of two
years. Therefore, the site improvements associated with the center are estimated
as now having an effective age of three years and a remaining economic life of
seventeen years. The Shoppes building site improvements are estimated as having
an effective age of nine years and a remaining economic life of eleven years.
Buildings
At the time of the last appraisal update, the Center building which contains
Marsh, had a single vacancy of 990 SF/GLA. This space had been held vacant for
some time to allow for the possibility of a shift of Osco Drug to allow for a
Marsh expansion. The Marsh expansion, which has been considered a possibility in
several scenarios over the past three years, is now a major factor in the future
performance of the subject. Marsh opened a new super store at 96th Street and
enlarged their Geist Centre location. The announcement of a Meijers on the south
side of 96th Street establishes the I-69/96th Street retail corridor as a major
regional location and makes the Marsh store in the subject one of the smallest
formats in the market. Expansion of the space is therefore important to Marsh in
maintaining market share as well as to the subject property.
A proposal has been submitted to Osco and Marsh which includes the relocation of
Osco Drug to the corner of the center building. Ace Hardware, which occupied
8,000 SF/GLA in this location, vacated recently. Additional outside area which
was used for nursery and outside sales can be incorporated in a rebuilding in
this area to provide a 17,000 SF/GLA space for Osco. It is proposed that the
costs of this construction, which are estimated at $1,050,000, will be funded by
Marsh as part of their expansion costs.
Resolution of this relocation/expansion scenario is now of critical importance
as the 75th Street Restaurant, Just Tanning and Red Giraffe Video are now on a
month to month basis and will renew if the Marsh/Osco situation can be
finalized. These three tenants occupy a total of 9,600 SF/GLA.
<PAGE>
Current physical vacancy in the Center building now includes the 990 SF/GLA
space, 1,080 SF/GLA space and the Ace location, 8,000 SF/GLA. Therefore, total
current vacancy is 10,070 SF/GLA. A lease is now in negotiation for the 990
SF/GLA space with Jack's Pizza. If this transaction is not concluded, Luca Pizza
has shown interest.
A possible remodeling was being considered as part of a plan to keep the center
competitive in terms of condition and appeal at the time of the last appraisal
update. The effective age of the Center building is estimated now at ten years
and the remaining economic life is estimated at 40 years. While a relatively
long economic life remains, the subject now faces considerable new competition
in the market and therefore, a face lift would seem to be necessary in order to
maintain its appeal.
The Shoppes building now has a total of 5,261 SF/GLA vacant, which is an
increase of 2,400 SF/GLA. PDQ Printing has expanded into the 1,200 SF/GLA which
had been vacated by the Drapery Shop and Office Center North has vacated 3,600
SF/GLA. The old Metropolitan Life space of 1,661 SF/GLA at the south facade
remains vacant. There are current prospects for both spaces. Otherwise the
building improvement remains unchanged, except for increased age. The effective
age of the Shoppes building is estimated now at nine years and the remaining
economic life is estimated at 41 years.
<PAGE>
4. MARKET SUPPORT TO THE SUBJECT
In considering market support, it is important to recognize that the subject is
located along a commercial corridor which has seen substantial recent retail
development. While always a high traffic artery, the uses along the corridor had
been primarily limited to institutional, industrial, multifamily and office. At
the time of the last appraisal update rezoning had been accomplished to allow
development of a competing strip center which contains 20,000 SF/GLA and is
anchored by a freestanding Walgreen's containing approximately 10,000 SF/GLA.
This competing center is located at the northwest corner of 75th Street and
Shadeland Avenue, diagonally across from the subject. Outlots associated with
this competing center have been developed with gasoline and fast food uses and a
bank is currently under construction. In addition a Lowe's home improvement
center was constructed and opened a short distance to the north. This new retail
development is fueled by the surrounding residential base as well as the
existing office development in the subject's area.
The new development along Shadeland Avenue has breached the zoning barrier which
had existed for some time and allows for the possibility that available land
along the west side of Shadeland Avenue could be developed with additional
retail uses. Zoning on these parcels is a hospital classification and medical
office was envisioned by the owner/developers. There is substantial supply of
available land surrounding the Community Hospital North campus to the east,
however, and therefore retail development for the western sites is now being
considered.
The nearby 96th Street corridor is particularly interesting as it is now in
somewhat of a transitional period. On the one hand, it is clearly a regional
retail node, as evidenced by the substantial big box development (Sam's Club,
Wal-Mart, Elek-Tek, Incredible Universe, Indianapolis Sports and the proposed
Meijer's, Kohl's and United Artist cinemaplex). On the other hand, retail to the
east of Wal-Mart, the Marsh food store (81,000 SF/GLA) and neighborhood centers
(96,500 SF/GLA) offer a range of goods and services which duplicate those
available in the subject's primary trade area. 96th Street is an important
commuter route due to the interstate linkages which enhance the regional draw of
this area. Therefore, a large percentage of residents of the subject's primary
market area pass by this competing development. This retail floor space presents
an opportunity for residents particularly the north and west portions of the
Geist area, thereby likely eroding the subject's market base.
<PAGE>
Previously, the subject offered opportunities for categories of retailers who
could serve an area that was somewhat removed, either by distance or traffic
congestion, from competing big box retail. Now that the big box retailers have
located in close proximity to this outlying area, the effects are starting to be
evident. An illustration of this is the subject's loss of Ace Hardware in the
face of Lowe's, which located one block north.
Development is continuing along 96th Street along the northern boundary of the
subject's neighborhood. This corridor is also supported by the residential base
as well as the adjacent business park, with office users such as USA Funds to
the north. Additional big box retail development has taken place on the north
side of 96th Street, along with one of the small shopping centers which was in
the pipeline at the time of the last appraisal and contains 30,000 SF/GLA.
Existing development in the form of neighborhood centers which compete directly
with the subject, therefore now totals 96,500 SF/GLA and consists of the two
centers developed by Glendale Partners and North by Northeast. The major change
in this corridor is the conclusion of a transaction with Meijers on the south
side of 96th Street. This should provide further impetus for development of the
remaining available land in this area. In addition to the Meijer's site, retail
land is available on the north side of 96th Street, west of Lantern Road and at
Mollenkopf Road.
The other retail node which offers substantial competition to the subject is the
79th and Fall Creek intersection. This is the location of Geist Crossing (50,000
SF/GLA) which is adjacent to a large Kroger food store, Geist Crossing North
(16,000 SF/GLA), and Revco (10,000 SF/GLA). 79th and Fall Creek are major
commuter routes. Therefore, the properties at this location offer another
alternative for commuting residents within the subject's trade area.
Taken together, these development nodes create a mass of retail floor space
which constitutes an important pole of attraction. The discussion which follows
considers the potential demand to the subject over the near term against
existing and planned competitive supply.
Demand
The boundaries employed here represent the primary market area to the subject
property. These boundaries constitute a three mile radius from the intersection
of 75th Street and Shadeland Avenue. They therefore represent the trade area for
a neighborhood center with a large food anchor draw such as the subject and
extend beyond the neighborhood boundaries to include additional residential
areas. Analytic data which follows are generated by consideration of this area.
<PAGE>
The subject property is located in a primary retail location. The area has grown
rapidly in recent years with the continued development of residential housing to
the north and east to include multifamily. An important characteristic of the
population in the subject's area is its relatively high household income.
The table below sets forth a comparison of household growth and the growth in
household income during the period 1980 through 2000. These data fairly well
reflect the inferred demand to the subject generated by continued formation of
upper income households. Data for 1995 is estimated, 2000 data is based on
projections.
<TABLE>
<CAPTION>
Population and Household Characteristics 1980-2000
<S> <C> <C> <C> <C>
1980 1990 1995 2000
Population 35,458 52,131 56,736 60,603
Households 13,086 22,173 24,536 26,690
Housing Units 14,356 23,672 26,153 28,454
Average Size 2.61 2.32 2.28 2.24
Household Income $32,117 $51,560 $67,865 $83,025
Source: National Planning Data Corporation, Claritas
</TABLE>
During the period of 1980 to 1995, population in the primary market area had an
average growth of 3.18 percent per year. This is forecast to decrease somewhat
to 1.33 percent per year during the period 1995 through 2000. A similar pattern
is evident in household formation. During 1980 through 1995 the household
formation rate was 4.72 percent per year from a 1980 base. This is expected to
decrease to 1.70 percent per year during the 1995 through 2000 period. Household
income growth has been significant over the past decade, at an average increase
of 4.85 percent annually. This is expected to diminish to around 4.11 percent
annually during the period 1995 through 2000.
The broad conclusions that can be reached from the analysis thus far are that
both population growth and household formation have slowed slightly after a
rapid increase. Continuing increases are expected in the near term. Household
income is also expected to increase. The table below sets forth a summary of
household income distribution as reported in 1990, estimated in 1995 and
forecast for 2000.
<PAGE>
<TABLE>
<CAPTION>
Household Income Distribution
1990 1995 2000
<S> <C> <C> <C> <C> <C> <C>
Annual Income Total % Total % Total %
Less than $10,000 1,107 4.2 997 4.1 981 3.6
$10,000 - $24,999 3,880 17.5 2,932 11.9 2,533 9.5
$25,000 - $49,999 8,343 37.7 7,276 31.7 7,299 27.3
$50,000 - $99,999 7,065 31.9 9,643 39.3 10,417 39.0
More than $100,000 1,767 8.0 3,184 13.0 5,455 20.3
Source: National Planning Data Corporation, Claritas
</TABLE>
The pattern of household income distribution can be related to household
expenditures. The table which follows sets forth a distribution of household
expenditures by major categories related to the typical space distribution in
neighborhood and community centers. These annual household expenditures can then
be applied to the number of households in the market area, to generate total
sales volume. Applying a median sales volume per SF/GLA yields a space demand
estimate for the primary market area. This is shown in the following table.
<TABLE>
<S> <C> <C> <C> <C>
Median Sales
Annual HHH Total Volume Per Space Demand
Expenditures (Million) SF/GLA* SF/GLA (000's)
Food and Drink
Food at home $3,605 $88.4 $317.16 278.9
Food away from home 3,006 73.8 228.10 323.3
Alcoholic Beverages 560 13.7 222.89 61.6
Miscellaneous
Personal Care 329 8.0 203.12 39.7
Prescription Drugs 293 7.2 237.06 30.3
Household Equipment
Appliances 341 8.4 194.07 43.1
Furniture 644 15.8 150.68 104.9
TV/Sound Equipment 804 19.7 214.41 92.0
Reading 376 9.2 194.85 47.3
Housewares 827 20.3 141.17 143.7
Apparel
M/W Child. 2,718 66.7 219.90 303.3
1,295.6
Source: National Planning Data Corporation, Urban Land Institute * The median
sales per square foot were reported as of 1994 and were subsequently escalated
at 4.0 percent to the end of 1995.
</TABLE>
<PAGE>
Thus potential demand is estimated at 1,295,600 SF/GLA. It is now necessary to
disaggregate total demand so that a judgment as to the potential capture to the
subject's market area can be analyzed. Because of the data base which is
available, it is not possible to extract capture rates to the subject property
specifically. Instead, capture rates can be estimated for the commercial
corridor serving the market of which the subject is a part on the assumption
that the subject will realize a fair share of total demand. This is discussed
more fully subsequently.
The following table sets forth a summary of current demand forecast and
estimated capture rates to the Shadeland Avenue corridor. These capture rates
reflect the location of development and the proximity to residential uses.
Moreover, they account for the fact that the Shadeland Avenue is a major
commercial and traffic corridor in the trade area offering easier access for
convenience goods than nearby retail locations such as Castleton. However,
Castleton, with its larger array of shopping goods would account for the bulk of
purchases in categories such as clothing. It is also recognized that there will
be some diversion of sales volume to surrounding areas such as the Geist area
centers. This is balanced to a large extent by the location of the Shadeland
corridor as a conduit for commuters.
The proximity of the 96th Street development node to I-69 provides this corridor
with more regional support. This is underscored by the presence of big box
retailers such as Sam's Club, Wal-Mart, Indy Sports and ElekTek. These retailers
draw from a much larger area than a neighborhood or community center and so such
centers with proximate locations benefit from the inflow of market support. This
inflow cannot be measured and is more specifically not included in the
expenditures shown for the subject's trade area. Therefore, the capture rates
are estimated for the subject's corridor alone. It should be noted that the
capture rates have been adjusted from last year in some categories due to the
change in retail mix occasioned by new market entrants such as Walgreen's and
Lowes.
<PAGE>
<TABLE>
<S> <C> <C> <C>
1994 Estimated Sub-market
Demand Capture Demand
SF/GLA (000's) Rates (%) SF/GLA (000's)
Food and Drink
Food at home 278.9 35 97.6
Food away from home 323.3 30 97.0
Alcoholic Beverages 61.6 35 21.6
Miscellaneous
Personal Care 39.7 50 19.9
Prescription Drugs 30.3 35 10.6
Household Equipment
Appliances 43.1 25 10.8
Furniture 104.9 15 15.7
TV/Sound Equipment 92.0 30 27.6
Reading 47.3 40 18.9
Housewares 143.7 40 57.5
Apparel
M/W Child. 303.3 10 30.3
407.5
</TABLE>
Thus, demand in the Shadeland Avenue corridor at the end of 1995 is estimated at
407,500 SF/GLA. This must be adjusted by a vacancy factor to reflect efficient
market operation. This vacancy factor is estimated at six percent. Therefore,
total demand in this corridor is estimated at 433,511 SF/GLA. This is
substantially in excess of the subject's floor area, 104,976 SF/GLA and simply
reflects the fact that the subject constitutes only one portion of the total
floor space available in the corridor to serve current demand.
Additional support is derived from the office development located along the
Shadeland corridor. A survey conducted by the International Council of Shopping
Centers of office workers reports 35 percent of suburban office workers shop
during a work day each week. Apparel and accessories were the items purchased by
13 percent of the survey respondents with 10 percent reporting purchases of food
stuffs, incidentals and drug store items. The survey reports an average
expenditure per worker of $1,945 per year. This survey dates from 1988.
Escalation to 1995 levels results in an average expenditure per worker of
$2,559.
The Shadeland Avenue Office corridor contains approximately 638,289 NRSF of
office space. Dividing this by 250 NRSF, the amount of space generally allocated
for each employee, results in an estimated number of workers of 2,553 and an
additional $6,533,127 in expenditures each year by those workers. Dividing this
amount by the average sales per SF/GLA results in additional demand for 28,895
SF/GLA. Adjusting for vacancy yields 30,734 SF/GLA. Adding this to previously
estimated demand of 433,511 SF/GLA results in a total of 464,245 SF/GLA.
<PAGE>
Data is now available which reports the number of individuals age 16 and over
that work in the three mile trade area. This is reported for private, public and
military employees for 1995 as 41,883 persons. Of this number, 33,442 also live
within the three mile radius. Therefore, an additional inflow of 8,441 persons
is realized. Applying the estimated expenditures to this inflow population
yields an additional $21,600,519 in annual expenditures near the workplace.
While the specific capture to the subject is roughly estimated by utilizing the
Shadeland Avenue office supply, this additional support is beneficial to the
subject as it likely realizes a proportionate share. The size of the numbers of
employees and potential estimated expenditures serves to illustrate the strength
of the diversified support base which the subject enjoys.
Given the current situation, it seems reasonable to attempt to anticipate what
the next five years will hold. The average household income in the market area
overall is expected to increase by 22.3 percent during the period 1995 through
2000. During that same period, household formation will result in an increase in
households in the primary market area of around 8.8 percent. Increases in income
will to some degree be offset by inflationary influences. Adjusting current
expenditures and sales volumes by an escalation factor of 4.0 percent and also
adjusting for the change in household base yields a conservative estimated
increase in demand of 38,062 SF/GLA by the year 2000. This is adjusted for
vacancy, but does not account for the strong demand generated by the employment
base. Nevertheless, an upward trend is evident, indicating that the subject will
enjoy increasing support in the near term. Against this background supply, is
considered.
Supply
There are a number of other retail centers in the subject's area which offer
competition. Supply in the subject's area is becoming concentrated along two
corridors. The subject's immediate area includes the Shadeland Avenue corridor
as well as State Road 37, which is located a short distance to the west. Both
Shadeland Avenue and State Road 37 link to I- 465 and are heavily traveled
commuter thoroughfares. Development along State Road 37 is older. Properties
located here have exhibited an increased vacancy and a shift in tenant profile
making them secondary locations which no longer compete directly with the
subject. New development which does compete has occurred along Shadeland Avenue.
<PAGE>
The second focus of retail development is the 96th Street corridor north of the
subject. 96th Street links to I-69 and provides another commuter route for
residents in the subject's surrounding area who travel via the interstate. Due
to interstate visibility, this corridor has attracted large retail users with
regional market support. Sam's Club and Wal-Mart were pioneers in this area and
it has now been established as a primary retail location, with substantial "B"
space in the centers adjacent or near these big box retailers. While the focus
of the most recent development has been "big box" retail, a 30,000 SF/GLA strip
center is to be completed this month. The next major impact on the area will be
the Meijers which is proposed for the south side of 96th Street. Retail
development of this land has been strongly opposed by neighborhood groups who
are unhappy with the current traffic generated by existing development. Meijer
and the developer have agreed to fund road improvements to include the widening
of 96th Street to six lanes and similar improvement to the interchanges. In
addition to a Meijers a twelve screen United Artist cinema, an 86,000 SF/GLA
Kohl's and three restaurants are planned. Meijer's and Kohl's alone represent an
additional 316,000 SF/GLA.
Because of the regional aspect of the 96th Street corridor, supply in this
location does not necessarily compete directly with the subject, although this
corridor represents opportunities for stopping for commuting residents. This is
similar to the situation with the 79th Street and Fall Creek development node as
it lies just at the boundaries of the subject's trade area. Therefore, it
generates some outflow at the subject's eastern boundaries. The regional draw of
the 96th Street and Castleton areas was considered in the estimation of capture
rates to the subject. Therefore, the consideration of supply will be limited to
centers which are competing for consumer expenditures within the supporting area
delineated only and do not enjoy an inflow of support, although the development
at 79th Street and Fall Creek is included. There are, in addition, a number of
free-standing commercial buildings such as fast food restaurants. An adjustment
is necessary to account for the free-standing uses. A detailed inventory of
these uses is beyond the scope of this appraisal, but it seems reasonable to
extract a range of 5 percent, based on empirical data and a visual inspection of
the uses which are contained within the area. The total supply is therefore as
set forth below.
<PAGE>
Subject 104,976 SF/GLA
Kroger 64,649
Revco 10,000
Geist Crossing 50,000
Geist Crossing North 16,000
75th & Shadeland 20,000
Walgreen's 10,000
Lowe's 100,000
375,625
Adj. for Free-Standing 18,781
Total Estimated Supply 394,406 SF/GLA
Total estimated supply is therefore 394,406 SF/GLA. This can be compared with
demand, which was previously estimated at 464,245 SF/GLA indicating that demand
is adequate to support existing and new development.
Known future supply includes the 30,000 SF/GLA center along 96th Street which is
being developed by Glendale partners and is due to open this month. At the time
of the previous appraisal, timing and scale of this center was not known. The
proposed Meijers is to be 230,000 SF/GLA and the proposed Kohl's is to be 86,000
SF/GLA. Therefore, an additional 346,000 SF/GLA is expected along 96th Street
alone. This does not include the multi-screen cinema or the restaurants which
are proposed. Another retail site on the north side of 96th Street is controlled
by Centre Properties, which has not yet finalized a development program.
The 96th Street area is clearly regionally supported and does not therefore
compete directly with the subject. This additional development does however
increase the possibility of an erosion of support from the subject's
neighborhood, especially along its northern border or from residents who commute
via 96th Street.
There is another commercial site further east on 96th Street between Fall Creek
and Cumberland Road. This 26 acre site is known as Windemere Village and is to
be developed with both retail and office uses. No development plan is set yet
and it is known that to obtain zoning the developer agreed to restrictions which
severely limit the types of retail businesses which can be operated in this
location. This parcel is located some distance from I-69 and is located in an
area of low density residential development. Given these locational issues
combined with zoning restrictions, development of retail space in Windemere is
not anticipated in the foreseeable future.
<PAGE>
The Geist Commons site at 79th Street and Fox Road, which was originally planned
for development of 90,000 SF/GLA has been for sale for some time with no
activity. Geist Station has land available for a 10,000 SF/GLA expansion of
B-space. These properties are located substantially east of the subject and
would not directly compete.
Redevelopment of Fort Benjamin Harrison is currently under consideration.
Current plans call for the phased development of 118,000 SF/GLA of retail space
at the intersection of Post Road and 56th Street. In addition there is an
opportunity site of 8.0 acres available for retail development. This development
would be supported by the redeveloped residential base and the office/industrial
employment population and would most likely not compete with the subject.
South of the subject on the south side of Pendleton Pike at Sunnyside, is a 12
acre retail site which is owned by D.B. Mann. Amoco Oil and an unnamed fast food
user, are reportedly planning development on two outlots west of Sunnyside road.
There are no plans as yet for development on the remaining acreage.
Total potential future development is therefore:
Centre Properties 96,300 SF/GLA
Windemere 100,000
Geist Commons 90,000
Geist Station 10,000
Fort Harrison 118,000
Pendleton Pike 100,000
514,300 SF/GLA
None of the new development anticipated in the near term will compete directly
with the subject, however increased development will generally have the effect
of weakening the residential market base located further east and north of the
subject. This is to a large degree balanced by the inflow from the west and
south where older properties such as Lakewood Shoppes, Devonway and Lakewood
Village have evolved into centers with tenant profiles which no longer duplicate
the subject's.
<PAGE>
Conclusion
The subject enjoys a good location in relation to residential development and
has strong anchors which generate traffic to benefit the subject. Over the near
term, market support to retail will be enhanced as continued household formation
occurs and household income increases. Income in the subject's market area is
expected to increase and this is coupled with an increase in households.
Therefore, current estimated market demand is adequate and is estimated to be
increasing. The subject's market position is fairly strong, therefore, as it has
tenants which draw traffic to the center in place. Current vacancy is high, due
to the vacation of two tenants occupying a total of 11,600 SF/GLA of total
vacancy which is 15,331 SF/GLA. This is an anomaly in the subject's experience
and is worsened by the uncertainties of the Marsh/Osco shift as the need to
maintain leasing flexibility has not made lease up of vacant space and renewals
possible. The subject has current prospects for all vacant space, except 1,080
SF/GLA. Therefore, prospects are good and the subject is likely to return to a
lower vacancy in the near term. Specific assumptions as to absorption in the
subject are detailed subsequently in the income approach of this report.
New development which has come on line has been either preleased or built to
suit therefore indicating strong demand and absorption in the subject's area.
The outlying centers which are less well located continue to experience problems
with vacancy. This situation further emphasizes the positive effect of
surrounding office development on the subject.
<PAGE>
5. COST APPROACH
Land Value
There are no land transactions which have been uncovered since the fourth update
that are relevant to the subject's market. Sales of small outlot parcels have
occurred which are associated with existing nodes of development at 75th and
Shadeland Avenue and 79th and Fall Creek, but these are not comparable to the
subject and lend little insight into a change in the subject's position.
The listings at 79th and Sunnyside and Shadeland Avenue and Clear Vista Drive,
which were discussed in the last appraisal update are still available with no
change in asking price. There is a six acre parcel of commercially zoned land
located on the south side of Pendleton Pike west of Sunnyside which is being
held by the D.B. Mann Company. Two outlots have been sold to a service station
and fast food user in this location, but the larger parcel is being held for
speculation with no plans for development as yet.
A transaction was concluded with Meijer's in October, which involved 21 acres on
the south side of 96th Street east of I-69. This is part of a larger development
which will include a 12 screen United Artists cinema, an 86,000 SF/GLA Kohl's
and three restaurants in addition to the 230,000 SF/GLA proposed Meijer's. The
price has been reported at $250,000 per acre, however subsequently Meijer and
the developer have agreed to fund fairly extensive road improvements as a
response to the opposition posed by neighborhood groups to the new development.
It is not known if this arrangement resulted in any change in contract price.
The indicator from a sale in this location would be considered to be superior to
the subject as it is a major regional retail node.
As there are no new sales to consider, the strongest indicator of value for the
subject's land is the indicator derived in the previous appraisal update,
$180,000. The market value of the subject's land, as of December 1, 1995
therefore remains:
TWO MILLION ONE HUNDRED TWENTY THOUSAND DOLLARS
($2,120,000).
<PAGE>
Improvements
Base construction costs as well as current and local cost multipliers for the
supermarket and "B" shops, as set forth in the MVS system changed since the last
appraisal. The table below summarizes the estimate of unit costs to the
building.
<TABLE>
<S> <C> <C> <C>
Supermarket Center Shoppes
Base Rate $56.83/GSF $48.50/GSF $56.13/GSF
Adjustments
Sprinkler 1.50 1.50 1.50
Story Height 9.66 2.04 2.36
Sub-Total $67.99/GSF $52.04/GSF $59.99/GSF
Floor Area/Perimeter (10.20) (6.77) (5.10)
Sub-Total $57.79/GSF $45.27/GSF $54.89/GSF
Current Cost Multiplier 1.00 1.00 1.00
Local Cost Multiplier 1.02 1.02 1.02
Adjusted Cost $58.95/GSF $46.18/GSF $55.99/GSF
</TABLE>
The center canopy cost is estimated at two fifths of building cost which is also
adjusted for current and local costs to yield a unit cost of $19.79 per GSF.
Other minor adjustments are required with respect to site improvements. The cost
of a typical parking space is still estimated at $675 with an upward adjustment
by a unit in place factor of seven percent and a local cost adjustment of two
percent, yielding an adjusted cost $736 per space. Current cost of asphalt
paving remains $1.56 per square foot but must be adjusted by the unit in place
costs and a local cost multiplier. This results in an estimate applicable in the
cost approach of $1.70 per square foot. Similar adjustments applied to sidewalks
result in an estimate of $2.73 per square foot.
The effective age of the building improvements has increased. This, in effect,
reduces the remaining economic life in this element. The effective age of the
Shoppes building improvements is estimated at nine years, with an economic life
of fifty years. For the Center building an effective age of ten years and
economic life of fifty years is applied. The site improvements now consist of
components of varying ages due to the new lighting and resurfacing which had
taken place at the time of the last appraisal. Therefore, the site improvements
associated with the Center are now considered to have an effective age of three
years with a remaining economic life of seventeen years. The Shoppes have an
estimated effective age of nine years, with a remaining economic life of eleven
years, will be applied. These parameters will be applied in depreciation
analysis subsequently.
<PAGE>
The percentages which were applied in the original appraisal for indirect costs
and entrepreneurial profit are applied in this update as well.
Based on the preceding discussion, a summary of the cost approach as of the date
of the current analysis is set forth below.
Cost Approach Summary
The following is a summary of the estimate of value via the cost approach:
Buildings
1. Center
Supermarket 33,207 GSF @ $58.95 $1,957,553
Drug & "B" Space 50,764 GSF @ $46.18 2,344,282
Canopy 5,610 GSF @ $19.79 111,022
Sub-Total $4,412,857
Indirect Costs 353,029
Sub-Total $4,765,886
Entrepreneurial Profit 953,177
Replacement Cost $5,719,063
2. Shoppes
25,132 @ $55.99 $1,407,141
Indirect Costs 112,571
Sub-Total $1,519,712
Entrepreneurial Profit 303,942
Replacement Cost $1,823,654
Site Improvements
3. Center
Parking: 467 Spaces @ $736 $343,712
Paving: 71,720 SF @ $1.70 121,924
Sidewalks: 5,349 SF @ $2.73 14,603
Landscape/Lighting/Miscellaneous Features 180,000
Sub-Total $660,239
Indirect Costs 52,819
Sub-Total $713,058
Entrepreneurial Profit 142,612
Replacement Cost $855,670
<PAGE>
4. Shops
Parking: 154 Spaces @ $736 $113,344
Paving: 10,800 SF @ $1.70 18,360
Sidewalks: 5,420 SF @ $2.73 14,797
Landscape/Lighting/Miscellaneous Features 50,260
Sub-Total $196,761
Indirect Costs 15,741
Sub-Total $212,502
Entrepreneurial Profit 42,500
Replacement Costs $255,002
Depreciation
5. Physical
Center Building ($1,143,813)
Shoppes Building (328,258)
Center Site Improvements (128,351)
Shoppes Site Improvements (114,751)
Total ($1,715,173)
6. Functional 0
7. Economic 0
Summary
8. Improvement Value
Center Building $4,575,250
Shoppes Building 1,495,396
Center Site Improvements 727,319
Shoppes Site Improvements 140,251
Total $6,938,216
9. Land Value $2,120,000
10. Value by Cost Approach $9,158,216
Rounded to: $9,100,000
NINE MILLION ONE HUNDRED THOUSAND DOLLARS
($9,100,000).
<PAGE>
6. INCOME APPROACH
Tenancy Changes Since the Last Up-date
In the Center building, a vacancy of 8,000 SF/GLA has been created by the Ace
Hardware vacation. In addition, there is a 1,080 SF/GLA space vacant and the 990
SF/GLA space adjacent to Osco remains vacant. Vacancy in the Center building is
therefore 10,070 SF/GLA. As has been previously discussed, a Marsh expansion and
Osco shift have been proposed for the past several years. The Ace vacation has
made possible a proposal to reconfigure the center at this location to create a
store area of 17,000 SF/GLA for Osco. This scenario has been proposed to both
Marsh and Osco with the intent of including it in Marsh's 1996 capital
expenditure budget. Timing is such that resolution of this matter will occur
subsequent to this appraisal. A possible change in configuration of the subject
is not part of the scope of work and therefore, the Marsh expansion and Osco
shift again remains a possible future scenario for the subject.
The impact of this open ended situation relates to absorption of the Ace space
and the renewal of the Red Giraffe, 75th Street Restaurant and Just Tanning
tenants which are now on a month to month basis. Current vacancy totals 8,990
SF/GLA. The three month to month tenants account for an additional 9,400 SF/GLA.
In the Shoppes building PDQ Printing has expanded into the vacant Drapery Shop
space of 1,200 SF/GLA and Office Center North has vacated. Therefore, vacancy in
the Shoppes building is currently 5,261 SF/GLA. This space is contained in two
spaces consisting of 3,600 SF/GLA and the 1,661 SF/GLA at the buildings south
facade.
Following is a summary of the leases which now cover the subject property.
<PAGE>
SHADELAND SHOPPES (24,226 SF/GLA)
ADDRESS: 7403 N. Shadeland Avenue
LESSOR: USF & G/Legg Mason Realty Partners
LESSEE: Franklin Jewelers
AREA (SF/GLA): 1,200
LEASE TERM: 06/01/95 - 05/31/98
MINIMUM RENT: Annual Per SF/GLA
Year 1 $18,000 $15.00
Year 2 $18,600 $15.50
Year 3 $19,200 $16.00
PERCENTAGE RENT: None
TENANTS SHARE
OF EXPENSES (%): 4.9
EXPENSE STOP: None
EXPENSES BY TENANT: Pro-rata plus 15 percent of CAM for
administration.
ADDRESS: 7407 N. Shadeland Avenue
LESSOR: USF & G/Legg Mason Realty Partners
LESSEE: PDQ Printing
AREA (SF/GLA): 2,283
LEASE TERM: 04/01/95 - 06/30/2000
MINIMUM RENT: Per SF/GLA
4/1/95 to 4/30/95 $ 6.17
5/1/95 to 6/30/95 $ 6.40
7/1/95 to 6/30/96 $13.50
7/1/96 to 6/30/97 $14.00
7/1/97 to 6/30/98 $14.50
7/1/98 to 6/30/99 $15.00
7/1/99 to 6/30/100 $15.50
PERCENTAGE RENT: None
TENANTS SHARE
OF EXPENSES (%): 4.47%
EXPENSE STOP: None
EXPENSES BY TENANT: Pro-rata plus 15 percent of CAM for
administration.
COMMENTS: Above reflects relocation and second lease
amendment. $5,384.00 paid in tenant
improvements.
<PAGE>
ADDRESS: 7401 N. Shadeland Avenue
LESSOR: Duke Realty Investments
LESSEE: Subway Sandwich Shops
AREA (SF/GLA): 1,200
LEASE TERM: 06/01/95 - 05/31/98
MINIMUM RENT: Annual Per SF/GLA
Year 1-3 $21,000 $17.50
PERCENTAGE RENT: 5 percent over $252,000.00
TENANTS SHARE
OF EXPENSES (%): 4.91
EXPENSE STOP: $0.50
EXPENSES BY TENANT: Pro-rata plus 15 percent of CAM for
administration.
COMMENTS: This is second five year option
exercised by tenant.
ADDRESS: 7397 N. Shadeland Avenue
LESSOR: USF & G/Legg Mason Realty Partners
LESSEE: Consumer Programs, Inc.
AREA (SF/GLA): 920
LEASE TERM: 05/01/92 - 06/30/97
MINIMUM RENT: Annual Per SF/GLA
05/01/92 $12,815.64 $13.93
10/01/93 $13,330.80 14.49
10/01/94 $13,864.44 15.07
10/01/95 $14,416.44 15.67
10/01/96 $14,996.04 16.30
PERCENTAGE RENT: None
TENANTS SHARE
OF EXPENSES (%): 3.76
EXPENSE STOP: $0.50
EXPENSES BY TENANT: Pro-rata plus 15 percent of CAM for
administration.
<PAGE>
ADDRESS: 7393 Shadeland Avenue
LESSOR: USF & G/Legg Mason Realty Partners
LESSEE: Frame Systems
AREA (SF/GLA): 2,400
LEASE TERM: 08/01/91 - 01/31/97 (second lease
amendment)
MINIMUM RENT: Annual Per SF/GLA
Months 1-6 $ 8,400 $ 7.00
Year 1 $33,600 $14.00
Year 2 $34,200 $14.25
Year 3 $34,800 $14.50
Year 4 $35,400 $14.75
Year 5 $36,000 $15.00
PERCENTAGE RENT: None
TENANTS SHARE
OF EXPENSES (%): 9.82
EXPENSE STOP: $0.50
EXPENSES BY TENANT: Pro-rata plus 15 percent of CAM for
administration.
COMMENTS:
ADDRESS: 7391 N. Shadeland Avenue
LESSOR: Duke Realty Investments
LESSEE: Donut Depot
AREA (SF/GLA): 1,200
LEASE TERM: 05/01/94 - 04/30/97
MINIMUM RENT: Annual Per SF/GLA
Year 1-3 $16,800 $14.00
PERCENTAGE RENT: None
TENANTS SHARE
OF EXPENSES (%): 4.9
EXPENSE STOP: None
EXPENSES BY TENANT: Pro-rata plus 15 percent of CAM for
administration.
OPTIONS: One additional three year term at
market rate.
<PAGE>
ADDRESS: 7389 Shadeland Avenue
LESSOR: Duke Realty Investments
LESSEE: This Can't Be Yogurt
AREA (SF/GLA): 1,200
LEASE TERM: 01/01/94 - 05/31/97
MINIMUM RENT: Per SF/GLA
1/1/94 to 5/31/94 $12.50
6/1/94 to 5/31/95 $13.50
6/1/95 to 5/31/96 $14.00
6/1/96 to 5/31/97 $14.50
PERCENTAGE RENT: None
TENANTS SHARE
OF EXPENSES (%): 4.91
EXPENSE STOP: None
EXPENSES BY TENANT: Pro-rata plus 15 percent of CAM for
administration.
OPTIONS: One three year term at market rent.
<PAGE>
ADDRESS: 7381 Shadeland Avenue
LESSOR: Shadeland Station Developers
LESSEE: Ronin, Inc. (DBA/T.D. Alibi's)
AREA (SF/GLA): 4,600
LEASE TERM: 12/15/85 - 11/30/2000
MINIMUM RENT: Annual Per SF/GLA
Year 1 $48,300 $10.50
Year 2 $49,450 $10.75
Year 3 $50,600 $11.00
Year 4 $51,750 $11.25
Year 5 $52,900 $11.50
Year 6 $54,050 $11.75
Year 7 $55,200 $12.00
Year 8 $56,350 $12.25
Year 9 $57,500 $12.50
Year 10 $58,650 $12.75
Year 11 $59,800 $13.00
Year 12 $60,950 $13.25
Year 13 $62,100 $13.50
Year 14 $63,250 $13.75
Year 15 $64,400 $14.00
PERCENTAGE RENT:
1,700,000
1,800,000 (remaining option)
TENANTS SHARE
OF EXPENSES (%): 18.8
EXPENSE STOP: $0.50
EXPENSES BY TENANT: Pro-rata plus 15 percent of CAM for
administration.
COMMENTS: Above reflects first lease option
period which has been taken. One
option period of five years remains,
at following rent schedule:
Annual Per SF/GLA
Year 16 $65,550 $14.25
Year 17 $66,700 $14.50
Year 18 $67,850 $14.75
Year 19 $69,000 $15.00
Year 20 $70,150 $15.25
<PAGE>
ADDRESS: 7375 N. Shadeland Avenue
LESSOR: USF & G/Legg Mason Realty Partners
LESSEE: Chong Im Arbogast
AREA (SF/GLA): 900
LEASE TERM: 12/01/93 - 11/30/96
MINIMUM RENT: Annual Per SF/GLA
Year 1 $9,900 $11.00
PERCENTAGE RENT: None
TENANTS SHARE
OF EXPENSES (%): 3.68
EXPENSE STOP: None
EXPENSES BY TENANT: Pro-rata plus 15 percent of CAM for
administration.
COMMENTS: Renewal of lease
ADDRESS: 7377 N. Shadeland Avenue
LESSOR: USF & G/Legg Mason Realty Partners
Limited
LESSEE: PC Com
AREA (SF/GLA): 822
LEASE TERM: 6/1/94 - 5/31/97
MINIMUM RENT: Annual Per SF/GLA
Year 1-3 $9,042 $11.00
PERCENTAGE RENT: None
TENANTS SHARE
OF EXPENSES (%): 3.36%
EXPENSE STOP: None
EXPENSES BY TENANT: Pro-rata plus 15 percent of CAM for
administration.
COMMENTS: Above reflects first lease amendment.
<PAGE>
ADDRESS: 7379 N. Shadeland Avenue
LESSOR: USF & G/Legg Mason Realty Partners
Limited
LESSEE: Edward D. Jones & Co. L.P.
AREA (SF/GLA): 760
LEASE TERM: 4/26/94 - 4/30/99
MINIMUM RENT: Annual Per SF/GLA
Year 1-3 $7,600 $10.00
PERCENTAGE RENT: None
TENANTS SHARE
OF EXPENSES (%): 3.14%
EXPENSE STOP: None
EXPENSES BY TENANT: Pro-rata plus 15 percent of CAM for
administration.
OPTIONS: One additional three year term at
market rent. Option to terminate
with 90 days notice and two months
rent payment.
COMMENTS: Tenant has the right to install and
operate a satellite dish. Tenant was
given three months free rent.
<PAGE>
ADDRESS: 7399 N. Shadeland Avenue
LESSOR: USF & G/Legg Mason Realty Partners
LESSEE: Ross Company of Indiana, Inc. d/b/a
Mail Boxes, Etc.
AREA (SF/GLA): 1,480
LEASE TERM: 04/21/93 - 07/31/98
MINIMUM RENT: Annual Per SF/GLA
Year 1-2 $21,459.96 $14.50
Year 3-4 $22,200.00 $15.00
Year 5 $22,940.04 $15.50
PERCENTAGE RENT: None
TENANTS SHARE
OF EXPENSES (%): 6.06%
EXPENSE STOP: None
EXPENSES BY TENANT: Pro-rata plus 15 percent of CAM for
administration.
OPTIONS: One five year option at market rate.
COMMENTS: If tenant's gross sales during the
third lease year do not exceed
$300,000, tenant shall have the right
to terminate lease with payment of
$4,000.
Three months rent given as a
concession.
<PAGE>
SHADELAND CENTER (80,750 SF/GLA)
ADDRESS: 7500 N. Shadeland Avenue
LESSOR: Shadeland Station Developers
LESSEE: Marsh Supermarkets
AREA (SF/GLA): 30,400
LEASE TERM: 05/03/82 - 05/02/02
MINIMUM RENT: Annual Per SF/GLA
Year 1-20 $247,764 $8.150
PERCENTAGE RENT: None
TENANTS SHARE
OF EXPENSES (%): 37.6
EXPENSE STOP: $0.30
EXPENSES BY TENANT: Pro-rata plus 15 percent of CAM for administration
less landlord's share of $0.30 SF/GLA.
COMMENTS: Four options of five years at same rental. Lessee
has right to expand into a 50 foot expansion area
at lessee expense. Expansion area to be leased to
lessee at market rate ground rental.
ADDRESS: 7451 N. Shadeland Avenue
LESSOR: Shadeland Station Association
LESSEE: American Drug Stores
AREA (SF/GLA): 11,700
LEASE TERM: 07/01/82 - 06/30/97
MINIMUM RENT: Annual Per SF/GLA
Year 1-15 $68,211 $5.83
PERCENTAGE RENT: None
TENANTS SHARE
OF EXPENSES (%): 14.5
EXPENSE STOP: $0.31
EXPENSES BY TENANT: Pro-rata plus 15 percent of CAM for
administration, less landlord's share of
$0.31 per SF/GLA.
COMMENTS: Three options of five years each:
#1 73,827/year, $6.31 SF/GLA
#2 79,677/year, $6.81 SF/GLA
#3 85,527/year, $7.31 SF/GLA
<PAGE>
ADDRESS: 7433 N. Shadeland Avenue
LESSOR: Shadeland Station Associates
LESSEE: Charles Walker Cleaners
AREA (SF/GLA): 990
LEASE TERM: 12/1/94 to 11/30/97
MINIMUM RENT: Years Annual Per SF/GLA
1 $12,870 $13.00
2 $13,365 $13.50
3 $13,860 $14.00
PERCENTAGE RENT: None
TENANTS SHARE
OF EXPENSES (%): 1.22
EXPENSE STOP: None
EXPENSES BY TENANT: Pro-rata plus 15 percent of CAM for
administration, less landlord's share of
$0.42 per SF/GLA.
COMMENTS: One option term of five years at a CPI
adjusted rent.
<PAGE>
ADDRESS: 7427 N. Shadeland Avenue
LESSOR: Shadeland Station Developers
LESSEE: Jerome Muskat
AREA (SF/GLA): 1,140
LEASE TERM: 1/1/95 - 12/31/97
MINIMUM RENT: Annual Per SF/GLA
$14,820 $13.00
$15,384 $13.49
$15,960 $14.00
PERCENTAGE RENT: 8 percent over $124,688
TENANTS SHARE
OF EXPENSES (%): 1.41
EXPENSE STOP: None
EXPENSES BY TENANT: Pro-rata plus 15 percent of CAM for
administration.
COMMENTS: One option term of three years at $14.00
per SF/GLA.
ADDRESS: 7425 N. Shadeland Avenue
LESSOR: USF & G/Legg Mason Realty Partners
LESSEE: Shadeland Station Beauty Salon
AREA (SF/GLA): 1,200
LEASE TERM: 07/01/92 - 06/30/97 (First lease amendment)
MINIMUM RENT: Annual Per SF/GLA
Year 1 $13,500 $11.25
Year 2 $14,100 $11.75
Year 3-5 $15,000 $12.50
PERCENTAGE RENT: None
TENANTS SHARE
OF EXPENSES (%): 1.5
EXPENSE STOP: None
EXPENSES BY TENANT: Pro-rata plus 15 percent of CAM for
administration.
<PAGE>
ADDRESS: 7421 N. Shadeland Avenue
LESSOR: Shadeland Station Developers
LESSEE: Shadeland Flower Shop
AREA (SF/GLA): 1,200
LEASE TERM: 07/15/92 - 07/14/97 - 1st lease amendment
MINIMUM RENT: Annual Per SF/GLA
Year 1 $13,500 $11.25
Year 2 $14,100 $11.75
Year 3 $14,700 $12.25
Year 4 $15,000 $12.50
Year 5 $15,300 $12.75
PERCENTAGE RENT: 5 percent over $350,000
TENANTS SHARE
OF EXPENSES (%): 1.5
EXPENSE STOP: None
EXPENSES BY TENANT: HVAC maintenance plus $500 at limit
per occurance on repairs. Pro-rata plus
15 percent of CAM for administration.
COMMENTS: This is option exercised by tenant.
ADDRESS: 7417 N. Shadeland Avenue
LESSOR: Shadeland Station Developers
LESSEE: Gramboli's Pizza/Great Scott's
AREA (SF/GLA): 1,800
LEASE TERM: 10/01/92 - 09/30/97
MINIMUM RENT: Annual Per SF/GLA
Year 1 $19,800 $11.00
Year 2 $20,700 $11.50
Year 3 $21,600 $12.00
Year 4 $22,500 $12.50
Year 5 $23,400 $13.00
PERCENTAGE RENT: 5 percent over $331,225
TENANTS SHARE
OF EXPENSES (%): 2.2
EXPENSE STOP: None
EXPENSES BY TENANT: Pro-rata plus 15 percent of CAM for
administration.
OPTIONS: One additional term of five years at
market rate.
<PAGE>
ADDRESS: 7411 N. Shadeland Avenue
LESSOR: USF & G/Legg Mason Realty Partners
LESSEE: Pogo's, Inc.
AREA (SF/GLA): 2,400
LEASE TERM: 06/01/93 - 08/31/98
MINIMUM RENT: Annual Per SF/GLA
Year 1-3 $30,000 $12.50
Year 4-5 $31,200 $13.00
PERCENTAGE RENT: 6 percent over $417,417
TENANTS SHARE
OF EXPENSES (%): 2.97
EXPENSE STOP: None
EXPENSES BY TENANT: Pro-rata plus 15 percent of CAM for
administration.
OPTIONS: One additional five year term at market
rents.
COMMENTS: Base year 1994 - $0.80 6% cap per year
Takes effect in second full
lease year on CAM. Landlord
to pay HVAC repairs in
excess of $500. Tenant has
concession of three months
free rent.
ADDRESS: 7409 N. Shadeland Avenue
LESSOR: USF & G/Legg Mason Realty Partners
LESSEE: Don's Barber Shop
AREA (SF/GLA): 840
LEASE TERM: 10/01/92 - 09/30/97 - 1st lease amendment
MINIMUM RENT: Annual Per SF/GLA
Year 1 $ 9,030 $10.75
Year 2 $ 9,450 $11.25
Year 3 $ 9,870 $11.75
Year 4 $10,290 $12.25
Year 5 $10,710 $12.75
PERCENTAGE RENT: None
TENANTS SHARE
OF EXPENSES (%): 1.04
EXPENSE STOP: None
EXPENSES BY TENANT: Pro-rata plus 15 percent of CAM for
administration.
OPTIONS: One additional 5 year term at market rent.
<PAGE>
ADDRESS: 7405 N. Shadeland Avenue
LESSOR: USF & G/Legg Mason Realty Partners
LESSEE: Donald W. Bell
AREA (SF/GLA): 810
LEASE TERM: 02/01/92 - 01/31/97
MINIMUM RENT: Annual Per SF/GLA
Year 1 $8,910 $11.00
Year 2 $9,315 $11.50
Year 3 $9,720 $12.00
Year 4 $10,125 $12.50
Year 5 $10,530 $13.00
PERCENTAGE RENT: None
TENANTS SHARE
OF EXPENSES (%): 1.0
EXPENSE STOP: None
EXPENSES BY TENANT: Pro-rata plus 15 percent of CAM for
administration.
OPTIONS: One additional five year term at market
rent.
ADDRESS: 7391 N. Shadeland Avenue
LESSOR: USF & G/Legg Mason Realty Partners
LESSEE: Vintage Natural Foods
AREA (SF/GLA): 2,400
LEASE TERM: 07/01/95 - 06/30/2000
MINIMUM RENT: Annual Per SF/GLA
Year 1-5 $30,000 $12.50
PERCENTAGE RENT: Six percent over $500,000
TENANTS SHARE
OF EXPENSES (%): 3.0
EXPENSE STOP: None
EXPENSES BY TENANT: Pro-rata plus 15 percent of CAM for
administration.
COMMENTS: Above reflects second lease renewal.
<PAGE>
ADDRESS: 7369 N. Shadeland Avenue
LESSOR: USF & G/Legg Mason Realty Partners
LESSEE: 75th Street Restaurant/Lounge
AREA (SF/GLA): 2,400
LEASE TERM: MTM
MINIMUM RENT: Annual Per SF/GLA
$30,000 $12.50
PERCENTAGE RENT: 5 percent over $872,000
TENANTS SHARE
OF EXPENSES (%): 3.0
EXPENSE STOP: $0.42
EXPENSES BY TENANT: Pro-rata plus 15 percent of CAM for
administration.
COMMENTS: Tenant is on a month to month basis
pending relocation of Osco Drug. A full
discussion of renewal terms is found in
the text.
<PAGE>
ADDRESS: 7367 N. Shadeland Avenue
LESSOR: USF & G/Legg Mason Realty Partners
LESSEE: Just Tanning
AREA (SF/GLA): 2,200
LEASE TERM: MTM
MINIMUM RENT: Annual Per SF/GLA
Year 1-3 $27,500 $12.50
PERCENTAGE RENT: None
TENANTS SHARE
OF EXPENSES (%): 2.43
EXPENSE STOP: None
EXPENSES BY TENANT: Pro-rata plus 15 percent of CAM for
administration.
COMMENTS: Tenant is on a month to month basis
pending relocation of Osco Drug. A full
discussion of renewal terms is found in
the text.
ADDRESS: 7363 N. Shadeland Avenue
LESSOR: USF & G/Legg Mason Realty Partners
LESSEE: Moorehead Communications, Inc.
AREA (SF/GLA): 1,000
LEASE TERM: 07/01/94 - 08/31/97
MINIMUM RENT: Annual Per SF/GLA
Year 1 $13,000 $13.00
Year 2 $13,500 $13.50
Year 3 $14,000 $14.00
PERCENTAGE RENT: None
TENANTS SHARE
OF EXPENSES (%): 1.2
EXPENSE STOP: None
EXPENSES BY TENANT: Pro-rata, plus 15 percent of CAM for
administration.
OPTIONS: One additional three year term at market
rent.
COMMENTS: Tenant has the exclusive right to sell
cellular phones and equipment. Tenant is
restricted from operating a similar
business within a three mile radius within
the lease term.
<PAGE>
ADDRESS: 7361 N. Shadeland Avenue
LESSOR: Shadeland Station Associates
LESSEE: China Pavilion
AREA (SF/GLA): 2,200
LEASE TERM: 06/01/84 - 05/31/97
MINIMUM RENT: Annual Per SF/GLA
Year 1 $28,600 $13.00
Year 2 $29,700 $13.50
Year 3 $30,800 $14.00
PERCENTAGE RENT: None
TENANTS SHARE
OF EXPENSES (%): 2.7
EXPENSE STOP: None
EXPENSES BY TENANT: Pro-rata plus 15 percent of CAM for
administration.
ADDRESS: 7349 N. Shadeland Avenue
LESSOR: Shadeland Station Associates
LESSEE: Indiana Liquors, Inc.
AREA (SF/GLA): 3,200
LEASE TERM: 06/01/95 - 05/31/2000
MINIMUM RENT: Annual Per SF/GLA
Year 1-5 $40,480 $12.65
PERCENTAGE RENT: None
TENANTS SHARE
OF EXPENSES (%): 4.0
EXPENSE STOP: None
EXPENSES BY TENANT: Pro-rata plus 15 percent of CAM for
administration.
COMMENTS: Above reflects lease renewal.
<PAGE>
ADDRESS: 7351/7357 N. Shadeland Avenue
LESSOR: USF & G/Legg Mason Realty Partners
LESSEE: Red Giraffe Video
AREA (SF/GLA): 4,800
LEASE TERM: MTM
MINIMUM RENT: Annual Per SF/GLA
06/01/92 - 05/31/95 $60,000 $12.50
PERCENTAGE RENT: None
TENANTS SHARE
OF EXPENSES (%): 5.31
EXPENSE STOP: None
EXPENSES BY TENANT: Pro-rata plus 15 percent of CAM for administration
with a 10 percent cap on increases for CAM and
insurance.
OPTIONS: One at 3 years at $13.50 per SF/GLA and one at
3 years at market rents.
COMMENTS: Tenant is on a month to month basis pending
relocation of Osco Drug. A full discussion of
renewal terms is found in the text.
<PAGE>
In the last appraisal update, six comparable properties were considered. These
comparables are still considered to be relevant. As was previously discussed,
two new properties have come on line recently. One of these properties is
located along 96th Street and was developed by the owners of Geist Crossing and
is fully leased at the same rental structure. Geist Crossing North, the other
new entrant, is also included in the analysis as an additional comparable. The
comparables considered are therefore representative of the larger market. The
comparables are identified in the following pages along with a map showing their
location in relation to the subject.
<PAGE>
MARKET DATA: LISTING OF IMPROVED PROPERTY - SHOPPING CENTER
Comparable #1
Type of Use: Neighborhood Shopping Center
Property: 75th & Shadeland Ave.
Address: 75th and Shadeland
Indianapolis, IN
County: Marion
Location: NWC of 75th Street and Shadeland Avenue
Date of Survey: 11/95
DESCRIPTIVE DATA
Type of Use: Multi tenant GLA: 20,000
Year Built: 1994
Description: One story concrete block with brick veneer.
Major Tenants: Center is now under construction. Leases
have been signed with Walgreens, Great Clips,
Star Cleaners, Box Office Video and QuizznoOs.
LEASING DATA
Surveyed By: SAS Leasing Agent: Olympia Partners
Face Rate: $14.00 per SF/GLA 571-9400
TERMS: T=Tenant/O=Owner
Taxes: T Utilities
Insurance: T HVAC: T
Maintenance: T Suite Electric: T
Janitorial: T CA Utilities: T
Management: O
Administrative: T
Stops/Caps: None
Escalators: $0.50 per year
Typical Lease Term: Three to five years
Tenant Improvements: None
General Concessions: None
Most Recent Lease: $14.00 per SF/GLA
<PAGE>
MARKET DATA: LISTING OF IMPROVED PROPERTY - SHOPPING CENTER
Comparable #2
Type of Use: Neighborhood Shopping Center
Property: North by Northeast Strip Center
Address: 7700 block of East 96th Street
Fishers, IN
County: Hamilton
Location: Northside East 96th Street, East side I-69
Date of Survey: 10/95
DESCRIPTIVE DATA
Type of Use: Multi tenant GLA: 56,100
Year Built: 1988/90
Description: The one story building is of steel frame and
masonry construction. There are decorative
gable roofs and a stucco finish on the gable
ends and sign panels.
Major Tenants: Muldoons Restaurant
LEASING DATA
Surveyed By: ACV Leasing Agent: Bill French/639-0515
Face Rate: $17.00 per SF/GLA
TERMS: T=Tenant/O=Owner
Taxes: T Utilities
Insurance: T HVAC: T
Maintenance: T Suite Electric: T
Janitorial: T CA Utilities: T
Management: O
Administrative: O
Stops/Caps: None
Escalators: $0.50 per year on initial lease
Typical Lease Term: Five years
General Concessions: 30 day rent abatement for opening of business
Typical Leasing Commission: 3 percent
Current Space Available: None
Comments: Administrative costs are passed
through at 10 percent of CAM. The
$17.00 rate is suggested for a
possible vacancy at lease
expiration.
<PAGE>
MARKET DATA: LISTING OF IMPROVED PROPERTY - SHOPPING CENTER
Comparable #3
Type of Use: Neighborhood Shopping Center
Property: Geist Crossing
Address: 79th & Fall Creek Road
Indianapolis, IN
County: Marion
Location: SEQ 79th and Fall Creek
Date of Survey: 10/95
DESCRIPTIVE DATA
Type of Use: Multi tenant GLA: 50,000
Year Built: 1995
Description: Neighborhood Center
Major Tenants: Hallmark store, Kiddie Academy, General Nutrition
LEASING DATA
Surveyed By: SAS Leasing Agent: Brian Chandler
Face Rate: $14.00 per SF/GLA 571-9400
TERMS: T=Tenant/O=Owner
Taxes: T Utilities
Insurance: T HVAC: T
Maintenance: T Suite Electric: T
Janitorial: T CA Utilities: T
Management: O
Administrative: T
Stops/Caps: None
Escalators: $0.50 per year
Typical Lease Term: Five years
Tenant Improvements: None
General Concessions: None
Typical Leasing Commission: 3 percent
Current Space Available: None
Comments: Center is completely preleased during construction.
This center is located adjacent to a large Kroger
foodstore. Although $14.00 per SF/GLA is the street
rent, it was reported that a couple of leases were at
higher rates.
Most Recent Lease: $14.00 per SF/GLA
<PAGE>
MARKET DATA: LISTING OF IMPROVED PROPERTY - SHOPPING CENTER
Comparable #4
Type of Use: Neighborhood Shopping Center
Property: Geist Crossing North
Indianapolis, IN
County: Marion
Location: NEQ 79th and Fall Creek
Date of Survey: 10/95
DESCRIPTIVE DATA
Type of Use: Multi tenant GLA: 16,000
Year Built: 1995
Description: One story concrete block retail building with
wood sign fascia.
Major Tenants: Liquor Store, Video, Bagels and Ice Cream and
coffee.
LEASING DATA
Surveyed By: SAS Leasing Agent: Suzanne Gammon
Face Rate: $15.00 per SF/GLA 578-3400
TERMS: T=Tenant/O=Owner
Taxes: T Utilities
Insurance: T HVAC: T
Maintenance: T Suite Electric: T
Janitorial: T CA Utilities: T
Management: O
Administrative: O
Typical Lease Term: 3 to 5 years
Tenant Improvements: Vanilla Box
General Concessions: None
Current Space Available: 1,600 SF/GLA
Comments: Center is still under construction.
Completion is estimated for 12/1/95.
<PAGE>
MARKET DATA: LISTING OF IMPROVED PROPERTY - SHOPPING CENTER
Comparable #5
Type of Use: Neighborhood Shopping Center
Property: Geist Station
Address: 8150 Oaklandon Road
Indianapolis, IN
County: Marion
Location: North side of Fox Road, West side of Oaklandon
Road
Date of Survey: 11/95
DESCRIPTIVE DATA
Type of Use: Multi tenant GLA: 25,500
Year Built: 1988
Description: The one story building is of steel frame and
masonry construction with decorative dormers
and a pedestrian canopy.
Major Tenants: V.H. One Video, China Palace
LEASING DATA
Surveyed By: AV Leasing Agent: Brian Chandler/571-9400
Face Rate: $12.00 per SF/GLA
TERMS: T=Tenant/O=Owner
Taxes: T Utilities
Insurance: T HVAC: T
Maintenance: T Suite Electric: T
Janitorial: T CA Utilities: T
Management: O
Administrative: O
Stops/Caps: None
Escalators: $0.50 per year
Typical Lease Term: 3 to 5 years
Tenant Improvements: Minimal
General Concessions: Abatement until opening of business
Typical Leasing Commission: 4 percent
Current Space Available: 1,200 SF/GLA
Comments: Expenses typically passed through at $2.60/SF/GLA.
An additional 1,600 SF/GLA is vacant
although rent is still being paid.
<PAGE>
MARKET DATA: LISTING OF IMPROVED PROPERTY - SHOPPING CENTER
Comparable #6
Type of Use: Neighborhood Shopping Center
Property: Geist Centre
Address: 11625 Fox Road
Indianapolis, IN
County: Marion
Location: South side of Fox Road, West side of Oaklandon Road
Date of Survey: 11/95
DESCRIPTIVE DATA
Type of Use: Multi tenant GLA:72,728
Year Built: 1986/87
Site Area: 9.066 Acres
Description: The strip center is a one story steel frame and
masonry veneer structure. There are decorative
mansard roofs with metal roofing and stucco finished
sign panels. The freestanding building is of similar
construction.
Major Tenants: Major tenants include Ace
Hardware which occupies 10,000
SF/GLA and Osco Drugs which occupies
19,918 SF/GLA. The remaining 37,330
SF/GLA is occupied by additional OBO
space tenants. Included as part of
the property is an additional
freestanding building which contains
6,000 SF/GLA.
LEASING DATA
Surveyed By: SAS Leasing Agent: Eaton & Lauth/848-6500
Face Rate: $12.50 per SF/GLA
TERMS: T=Tenant/O=Owner
Taxes: T Utilities
Insurance: T HVAC: T
Maintenance: T Suite Electric: T
Janitorial: T CA Utilities: T
Management: O
Administrative: O
Stops/Caps: None
Escalators: $0.50 per year
Typical Lease Term: 3 years
Tenant Improvements: None
General Concessions: None
Typical Leasing Commission: 4 percent
Current Space Available: 14,500 SF/GLA
Comments: Administrative costs are 15 percent of CAM.
Quoted street rent is for space within the
strip center.
<PAGE>
Comparable Rental Map
<PAGE>
Comparable Rental Photographs
<PAGE>
The table below sets forth a summary of the rent levels in these comparables.
The rents are on a net basis, with the owner providing a typical "vanilla box".
The tenant is responsible for floor covering.
<TABLE>
<S> <C> <C> <C>
Total SF/GLA Leased SF/GLA Street Rent Per
in B-space of B-space SF/GLA
Subject 62,876 48,625 $14.00 - $15.00
1. 75th & Shadeland 20,000 20,000 $14.00
2. North by Northeast 56,100 56,100 $17.00
3. Geist Crossing 50,000 50,000 $14.00
4. Geist Crossing North 16,000 14,400 $15.00
5. Geist Station 25,500 24,300 $12.00
6. Geist Centre 52,432 37,932 $12.50
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Comp. #1 Comp. #2 Comp. #3 Comp. #4 Comp. #5 Comp. #6
Property 75th & North by Geist Crossing Geist Geist Station Geist Centre
Shadeland Northeast Crossing N
Location NWC 75th & 7700 E. 96th 79th & Fall 79th & Fall NWC Fox & SWC Fox &
Shadeland Street Creek Creek Oaklandon Oaklandon
SF/GLA B-Space
25,500 56,100 50,000 16,000 25,500 52,432
Street Rent $12.00 $17.00 $14.00 $15.00 $12.00 $12.50
Recent Lease Would not Some higher Would not Would not Renewal at
Rate disclose $14.00 than $14.00 disclose disclose $13.40; new
lease at
$11.68
</TABLE>
The comparables selected for comparison are representative of a number of
competing neighborhood centers. For example, Comparable #1 is a recently
developed center, which is adjacent to a Walgreen Drug, and has a street rent of
$14.00 per SF/GLA. A similar rent level is quoted for a center recently
completed on 96th Street east of Comparable #2. The developer of these two
centers is also the developer of Comparable #3, which was leased at a street
rent of $14.00 per SF/GLA, although some rents were reported as slightly higher.
The six properties considered therefore reflect current market rent levels and
represent locations both similar to or superior to the subject.
Although recent leases were not disclosed in all of the comparables, contract
rent quoted from approximately a year ago was close to quoted street rent
levels, and some deals were reportedly slightly higher. The street rents quoted
exhibit increases of from $0.50 to $1.00 per square foot over one year ago or a
4 to 6 percent approximate increase.
<PAGE>
A number of adjustments are required to account for the varying characteristics
between the subject property and the comparables. Comparables #1, #2, #3, #4 and
#6 either include or are located adjacent to large anchor stores which attract a
substantial amount of traffic, as is the case with the subject. An upward
adjustment of 10 percent is therefore applied to comparable #5 for this
characteristic.
Comparable #1 has a virtually identical location to the subject. Comparables #3
and #4 have equally beneficial locations along established commuter
thoroughfares, which exhibit high traffic counts. Comparables #5 and #6 are
located in a more suburban setting surrounded by neighborhoods which provide a
lower level of market support due to density, even though household income
levels are high. A ten percent adjustment is therefore applied for this issue.
Comparable #2 is located adjacent to a Sam's Club and Wal-Mart in a regional
retail development node with interstate access. The location of comparable #2 is
therefore superior and a downward adjustment of 20 percent is applied.
The adjustments which were applied to the comparables are summarized in the
following table.
Comp # Street Rent Anchor Location Adjusted Rent
1 $14.00 $14.00
2 $17.00 ($2.80) $14.20
3 $14.00 $14.00
4 $15.00 $15.00
5 $12.00 $1.20 $1.20 $14.40
6 $12.50 $1.25 $13.75
Thus, the comparables have a narrow range in indicators from $13.75 to $15.00
per SF/GLA.
The most recent leases in the subject are renewals and therefore do not lend as
much insight into the subject's current position as a new lease deal would.
Current negotiations for the vacant spaces in the subject involve an average
rent of $15.72 per SF/GLA for the 990 SF/GLA center space, $14.40 per SF/GLA for
the 3,600 SF/GLA Shoppes space and $11.00 per SF/GLA for the 1,661 SF/GLA
shoppes space. Renewals of Just Tanning and & The 75th Street Restaurant are
being discussed at $13.00 per SF/GLA. This serves to illustrate the variation in
visibility and rent to the subject's various facades.
A higher rent has historically been secured for space in the subject with
Shadeland Avenue exposure. Similarly, a somewhat reduced rent is associated with
the south facade of the Shoppes. The subject's street rent at $15.00, represents
the asking rent for the best locations. In the last appraisal update spaces in
the subject which front Shadeland Avenue were to be offered at $14.00, if
available. All other "B" space was offered at $13.00, with the exception of
spaces located on the south side of the Shoppes building. The $15.00 per SF/GLA
street rent represents a slight increase in asking rent levels. The average
effective rents now in negotiation for Shadeland Avenue frontage are $15.72 and
$14.40 per SF/GLA. This indicates additional support for the subject's street
rent, which is supported by the comparable indicators.
<PAGE>
The south side of the Shoppes building has experienced high vacancy and a lower
rent is offered to fill this space. This side of the subject is somewhat weaker
because of the lower level of traffic. Most traffic terminates at the corner,
the location of TD Alibi's. The north side of the Shoppes building is seen
reflecting higher rents with Subway now renewed at $17.50 per SF/GLA.
Comparables #1, #2, #3 and #4 provide the strongest indicator to the subject.
These comparables demonstrate strong activity, similar tenant profile and rent
levels consistent with the subject's experience. The subject offers both a
grocery anchor and drug store as traffic generators. In addition the liquor and
video operations are beneficial. These comparables benefit from proximity to
similar traffic generators. The properties further east at Geist remain weaker
indicators because of a lower level of market support. As was discussed
previously, population is increasing in the surrounding neighborhoods, but
density remains too low to support additional neighborhood centers which are
removed from other sources of support such as office development and commuters.
Moreover, there is most likely an outflow of expenditures at the fringes of the
neighborhood along 96th Street and Oaklandon Road where new retail properties
are being developed. Properties in the 96th Street corridor, such as comparable
#2, continue to demonstrate a strong demand in this corridor. Similarly,
comparable #1, located just west of the subject provides a basis for reasonable
extraction of market rent to the subject.
For the analysis, a market rent of $15.00 per SF/GLA is extracted to the "B"
spaces in the subject's Shoppes building. This rent would apply to the spaces
located on the west and north side of the Shoppes building. Although the street
rent for the north facade of the Shoppes has been quoted at higher levels, only
one tenant, Subway, shows an indication of being able to support this level of
rent. This tenant also has a $0.50 per SF/GLA expense stop, effectively lowering
their rent by this amount. PDQ Printing recently relocated to the north facade
and expanded. The effective rent is $13.15 per SF/GLA and Franklin Jewelers is
now at an effective rent of $15.50. Given the effective rents in the subject and
the competition directly across the street at $14.00 per SF/GLA, a market
supported rent for the subject is considered to be $15.00 per SF/GLA.
<PAGE>
Tenant spaces in the Center which do not face Shadeland Avenue or are set back
some distance from it exhibit slightly lower rents. This is evidenced by the
Walker Cleaners and Jerome Muskat renewals at $13.50 per SF/GLA and the Just
Tanning and 75th Street Restaurant offers at $13.00 per SF/GLA. This building
has slightly decreased visibility due to the set back and the outlot development
between the subject and Shadeland Avenue. A slightly lower rent is appropriate
and $13.50 per SF/GLA is applied.
All of the comparables now incorporate $0.50 annual rent increases. The subject
also is exhibiting a move to this with new leases as well as renewals. These
rental increases are included in the consideration of effective rents.
Therefore, market rents will only be adjusted by an escalator which is
subsequently discussed.
The occupied spaces located on the south side of the Shoppes building have
effective rents of $9.51 to $11.00 per SF/GLA. Given the difficulties in leasing
this area, a market extracted rental rate of $10.50 per SF/GLA is applied which
is supported by the $11.00 per SF/GLA offer for the 1,661 SF/GLA vacancy.
The vacant Ace Hardware space, at 8,000 SF/GLA requires adjustment to account
for its larger size. In the original appraisal and the updates, a 25 downward
adjustment was applied to the more typical "B" space market rent. This would
indicate a rate of $10.13 per SF/GLA for this space. Comparable #6 has a 10,000
SF/GLA Ace Hardware tenant with an effective rent which is 35 percent below this
comparable's street rent considering interior space only, and 25 percent below
when interior and exterior areas are combined. The subject's space has slightly
decreased visibility as it is located in the corner of the center. The adjacent
tenant, Vintage Natural Foods, has a lower rent of $12.50 per SF/GLA to account
for this. Therefore, assuming a 25 percent reduction for size and a $1.00 per
SF/GLA reduction for visibility, a rent to the Ace space of $9.13 per SF/GLA is
indicated, which is rounded to $9.00 per SF/GLA.
Concessions
Concessions must still be considered in this market. Comparables #1, #2 and #3
have leased up at street rents and comparables #5 and #6 have offered
substantial concessions. The subject exhibits very limited concessions on new
deals or expansions. Based on the market data available, and the subject's
performance it seems reasonable to apply no concessions to either new leases or
renewals.
<PAGE>
Vacancy and Collection
The subject property currently has 15,331 SF/GLA of B-space vacant. Vacancy is
therefore equal to 24.4 percent of B-space and 14.6 percent overall. Vacancy in
the comparables, for B space only, is shown in the following table:
Comparable Vacancy SF/GLA Total B-Space Percent Vacant
1 0 20,000 0
2 0 56,100 0
3 0 50,000 0
4 1,600 16,000 10.0
5 2,800 25,500 11.0
6 14,500 52,432 27.7
Total 18,900 220,032 8.6
Overall vacancy in the comparables is approximately 8.6 percent. Adding the
subject increases vacancy overall to 10.5 percent. This incorporated 1,600
SF/GLA in Comparable #5 which is physically vacant, but rent is still being
paid. Comparable #4 was only recently completed and was preleased during
construction. It may be fully absorbed in the near term. Comparable #5 and #6
have suffered from an inferior location and have exhibited high vacancy levels
historically.
Well located centers exhibit low vacancy. The overall vacancy in the north and
northeast submarket is one of the lowest in the MSA at 5.0 percent. The subject
property had experienced a vacancy of around 4.0 percent for a number of years.
This past vacancy in 1992, 1993 and 1994 stemmed mainly from two spaces in the
center. A vacant space was being held for the expansion of Marsh and the Shoppes
vacancy has inferior visibility which is problematic. Recently two long time
tenants have vacated, an 8,000 SF/GLA Ace Hardware and Office Center North which
occupied 3,600 SF/GLA. These tenants have not established alternate locations
and it is speculated that their closing was directly related to big box
retailers, specifically Lowe's, Office Max and Office Depot, which have
established themselves in this market. This specific instance underscores a
general trend in retail where smaller businesses which typically occupy
"B"-space are having an increasingly difficult time competing against the big
box retailers. As such small tenants are driven out of the market, the effect is
to reduce the number of types of businesses which can survive in community and
neighborhood centers. This is illustrated by the current tenant profiles
exhibited by the comparables where video rental, hair care, card shops, sandwich
shops and pizza are predominate retail tenants bolstered by some medical office
users.
<PAGE>
The subject has a long history of tenant retention and renewal. The recent
increase in vacancy is unprecedented and may be indicative of the shift in the
market and the draw of the 96th Street regional node with its cluster of big box
retailers. The subject has active prospects for all of the vacant space except
the Ace Hardware location which is not actively being marketed due to the Osco
relocation proposal which is outstanding. Therefore, it is likely that all of
the deals could be concluded and the month to month tenant's could be renewed.
The subject's B-space vacancy would then be reduced to 8,000 SF/GLA or 12.7
percent in the near term with the Ace space backfilled over a slightly longer
period. On the other hand, the month to month tenants which are considering
renewal in light of the Marsh/Osco shift, could vacate. This would increase
vacancy to 17,600 SF/GLA or 28.0 percent even with the new prospects in place.
Given the strong history of the subject and the high level of market support
which remains in place measures against the potential turnover, a rate of 10
percent seems reasonable. This is applied as 5 month lag vacancy on a typical 48
month lease at speculative renewal. This is applied to the "B"-spaces only. In
addition, a one percent credit loss will be applied to the "B"-space tenants. No
vacancy or credit loss is applied to the Marsh or Osco Drug space.
Expenses
For expense comparison, the subject's performance over the past four years is
considered. This is compared to the performance of other retail centers of
similar physical character and size, based on actual operating statements. These
comparable centers range in size from 55,820 to 214,740 SF/GLA. Two tables which
analyze operating expenses are set forth on the following pages. The first of
these compares the performance of the subject for the years 1991, 1992, 1993 and
1994, as well as the budget for 1996. The second considers four comparable
properties at year end 1993 and 1994 escalated to present expense levels.
<PAGE>
<TABLE>
<CAPTION>
SUBJECT
OPERATING STATEMENTS: INCOME/EXPENSE PER SQUARE FOOT OF GROSS LEASABLE AREA
Software Copyright 1994 - Unauthorized Reproduction Prohibited
<S> <C> <C> <C> <C> <C>
INCOME 1991 1992 1993 1994 1995
Base Rent: Retail $10.30 $8.92 $9.07 $9.39 $9.71
Base Rent: Office $0.00 $0.00 $0.00 $0.00 $0.00
Overage Rent $0.00 $0.00 $0.00 $0.00 $0.00
Reimbursements $0.35 $2.05 $1.83 $1.59 $1.79
Other Income $0.16 $0.05 $0.07 $0.08
Vacancy/Coll. ($0.17)
-------------------------------------------------------------------------------------------
EFF. GROSS INCOME $10.64 $10.97 $10.95 $11.05 $11.58
EXPENSES
Administrative $0.26 $0.11 $0.13 $0.19 $0.18
Management $0.32 $0.33 $0.33 $0.33 $0.36
Utilities $0.16 $0.17 $0.18 $0.16 $0.16
Maint. & Services $0.66 $0.42 $0.60 $0.79 $0.60
Taxes $1.02 $1.06 $1.09 $1.13 $1.16
Insurance $0.24 $0.18 $0.04 $0.05 $0.09
-------------------------------------------------------------------------------------------
TOTAL EXPENSES $2.66 $2.27 $2.37 $2.65 $2.55
-------------------------------------------------------------------------------------------
NET OPER. INCOME $7.98 $8.70 $8.58 $8.40 $9.03
CAPITAL ITEMS $0.48 $0.50 $0.58 $0.85 $0.00
-------------------------------------------------------------------------------------------
TOT. EXP. & CAP. $3.14 $2.77 $2.95 $3.50 $2.55
-------------------------------------------------------------------------------------------
CASH FLOW $7.50 $8.20 $8.00 $7.55 $9.03
INCOME 1991 1992 1993 1994 1995
Base Rent: Retail % SGR 100.0% 100.0% 100.0% 100.0% 100.0%
Base Rent: Office % SGR 0.0% 0.0% 0.0% 0.0% 0.0%
Overage Rent % SGR 0.0% 0.0% 0.0% 0.0% 0.0%
Reimb. % SGR 3.4% 22.9% 20.1% 17.0% 18.5%
Other Income % SGR 1.5% 0.5% 0.7% 0.8%
Vacancy/Coll. % SGR -1.7%
EFF. GROSS INCOME 100.0% 100.0% 100.0% 100.0% 100.0%
EXPENSES
Administrative 2.4% 1.0% 1.2% 1.7% 1.6%
Management 3.0% 3.0% 3.0% 3.0% 3.1%
Utilities 1.4% 1.6% 1.6% 1.4% 1.3%
Maint. & Services 6.2% 3.8% 5.5% 7.1% 5.1%
Taxes 9.6% 9.7% 9.9% 10.2% 10.0%
Insurance 2.2% 1.6% 0.4% 0.4% 0.7%
-------------------------------------------------------------------------------------------
TOTAL EXPENSES 24.8% 20.7% 21.6% 23.8% 21.8%
-------------------------------------------------------------------------------------------
NET OPER. INCOME 75.2% 79.3% 78.4% 76.2% 78.2%
CAPITAL ITEMS 4.5% 4.5% 5.3% 7.7% 0.0%
-------------------------------------------------------------------------------------------
TOT. EXP. & CAP. 29.3% 25.2% 26.9% 31.5% 21.8%
-------------------------------------------------------------------------------------------
CASH FLOW 70.7% 74.8% 73.1% 68.5% 78.2%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMPARABLE
OPERATING STATEMENTS: INCOME/EXPENSE PER SQUARE FOOT OF GROSS LEASABLE AREA
Software Copyright 1994 - Unauthorized Reproduction Prohibited
<S> <C> <C> <C> <C> <C>
INCOME Comp. #1 Comp. #2 Comp. #3 Comp. #4 Comp. #5
Base Rent: Retail $0.00 $10.03 $13.10 $7.54 $7.33
Base Rent: Office $0.00 $0.00 $0.00
Overage Rent $0.33 $0.03 $0.00
Reimbursements $1.98 $2.97 $1.50
Other Income $0.01 $0.08
Vacancy/Coll.
-------------------------------------------------------------------------------------------
EFF. GROSS INCOME $0.00 $12.35 $13.10 $10.62 $8.83
EXPENSES
Administrative $0.14 $0.48 $0.00 $0.28 $0.18
Management $0.00 $0.00 $0.30 $0.38 $0.42
Utilities $0.10 $0.06 $0.15 $0.26 $0.20
Maint. & Services $0.84 $0.66 $1.21 $0.82 $2.52
Taxes $1.36 $1.93 $0.93 $1.94 $1.46
Insurance $0.09 $0.05 $0.10 $0.10
-------------------------------------------------------------------------------------------
TOTAL EXPENSES $2.53 $3.18 $2.59 $3.78 $4.88
-------------------------------------------------------------------------------------------
NET OPER. INCOME ($2.53) $9.17 $10.51 $6.84 $3.95
CAPITAL ITEMS $0.00 $0.00 $0.00 $0.02 $0.00
-------------------------------------------------------------------------------------------
TOT. EXP. & CAP. $2.53 $3.18 $2.59 $3.80 $4.88
-------------------------------------------------------------------------------------------
CASH FLOW ($2.53) $9.17 $10.51 $6.82 $3.95
INCOME Comp. #1 Comp. #2 Comp. #3 Comp. #4 Comp. #5
Base Rent: Retail % SGR ? 100.0% 100.0% 100.0% 100.0%
Base Rent: Office % SGR 0.0% 0.0% 0.0%
Overage Rent % SGR 3.3% 0.3% 0.0%
Reimb. % SGR 19.8% 39.3% 20.5%
Other Income % SGR 0.1% 1.1%
Vacancy/Coll. % SGR
EFF. GROSS INCOME 100.0% 100.0% 100.0% 100.0% 100.0%
EXPENSES
Administrative 3.9% 0.0% 2.8% 2.0%
Management ? 0.0% 2.3% 3.6% 4.7%
Utilities 0.4% 1.2% 2.6% 2.2%
Maint. & Services 5.4% 9.3% 7.5% 28.7%
Taxes ? 15.7% 7.1% 18.3% 16.5%
Insurance ? 0.4% 0.9% 1.1%
-------------------------------------------------------------------------------------------
TOTAL EXPENSES 25.8% 19.9% 35.7% 55.2%
-------------------------------------------------------------------------------------------
NET OPER. INCOME 100.0% 74.2% 80.1% 64.3% 44.8%
CAPITAL ITEMS 0.0% 0.0% 0.2% 0.0%
-------------------------------------------------------------------------------------------
TOT. EXP. & CAP. 25.8% 19.9% 35.9% 55.2%
-------------------------------------------------------------------------------------------
CASH FLOW 100.0% 74.2% 80.1% 64.1% 44.8%
</TABLE>
<PAGE>
The following table sets forth the expense conclusions for the subject property.
The expenses are expressed on a per SF/GLA basis, with the exception of
management, which is calculated as a percentage of EGI.
<TABLE>
Expense Analysis
Comparables Subject
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Category #1 #2 #3 #4 #5 1991 1992 1993 1994 1995 Forecast
Administrative $0.14 $0.48 $0.00 $0.28 $0.18 $0.26 $0.11 $0.13 $0.19 $0.18 $0.18(a)
Management NA 0% 2.3% 3.6% 4.7% 3.0% 3.0% 3.0% 3.0% 3.1% 3.0%(b)
Maintenance $0.84 $0.66 $1.21 $0.82 $2.52 $0.66 $0.42 $0.60 $0.80 $0.60 $0.75(c)
Utilities $0.10 $0.06 $0.15 $0.26 $0.20 $0.16 $0.17 $0.18 $0.16 $0.16 $0.18(d)
Insurance $0.09 $0.05 NA $0.10 $0.10 $0.24 $0.18 $0.04 $0.05 $0.09 $0.10(e)
a) Comparables reflected a range of $0.00 to $0.48 per SF/GLA. The subject's history of $0.11 to $0.26 per SF/GLA will be
stressed with support from the comparables.
b) Management expense in this market typically ranges from 3.0 to 5.0 percent. The subject has a consistent history and 3.0%
is applied.
c) The comparables exhibit a range of $0.66 to $2.52 per SF/GLA. The
subject's history reflects a range of $0.42 to $0.80. The high end of
the range is set by a property which has experienced high expense
levels due to ongoing sewer problems. Eliminating this comparable
results in a range which aligns more closely with the subject's
experience. The subject's experience is relied on and $0.75 is applied.
d) The subject shows a fairly consistent history in this category. The subject's history will be stressed with support from
the comparables.
e) The comparables range from $0.05 to $0.10 while the subject's history shows $0.04 to $0.24 per SF/GLA. $0.10 is applied
placing stress on the subject's recent experience.
</TABLE>
Taxes
The assessment to the subject remains unchanged from last year. The total
assessment to the property is $1,330,410. The general level of assessment to the
subject is considered equitable when compared to nearby and similar retail
centers. The current 1994 payable 1995 tax rate is $10.2828 per $100 of assessed
valuation. This is adjusted by tax replacement credit of 12.7701 percent
yielding a net tax rate of $8.9697 per $100 of assessed valuation. Application
of this rate to the subject assessment yields a tax burden of $119,334. Assuming
a 4.0 percent increase in the tax rate, the 95 payable 96 tax liability would be
$124,107. This is applied in the analysis with appropriate escalations into the
forecast.
<PAGE>
All real property in Indiana is now in the process of being reassessed. As of
the date of this report, neither the new assessment nor the applicable tax rates
for the future are available. The extent of the tax increase cannot therefore be
estimated, and this represents an element of risk to any investor. Based on the
history of the comparables and past reassessments, the current estimate of
liability will be relied upon.
There are no special assessments according to the Marion County Treasurer's
Office.
Speculative Renewal Rate
It is not possible to predict which tenants are likely to renew. Current
investor surveys report tenant retention used in modeling of from 50 to 75
percent with most investors using 50 to 70 percent. The subject's experience is
one of multiple tenant renewals.
As has been previously discussed, the subject is in a transition period. This
stems from a shift in the market due to the regional retail development nearby
and the long time negotiations with Marsh and Osco relative to expansion. The
renewal of some tenants is currently on hold due to this situation which may not
be resolved for some time. Given the subject's long history and the available
market support, the likelihood of renewal is forecast to remain at 70 percent.
This accords with current investor expectations in primary markets.
Tenant's with favorable options in place are assumed to renew.
Tenant Improvements
Only two of the comparables considered in the analysis of market rent reported
paying for tenant improvements. Geist Crossing and Geist Crossing North as
properties recently constructed, include vanilla box finish in construction
costs. Tenant improvements in two of the prospective deals in the subject have
been quoted at $2.00 per SF/GLA and $4.21 per SF/GLA. One of the prospects is
taking the space "as-is". The subject's space is older and is competing with the
new properties now in the market. It is therefore reasonable to assume that some
investment must be made for a new tenant to counteract the appeal of first
generation space in the comparables. Therefore, tenant improvements are
established at $1.00 per SF/GLA on renewals and $5.00 per SF/GLA on new leases.
Speculative renewals will have an allocation of tenant improvements on the basis
of an 70 percent chance of renewal.
<PAGE>
Leasing Expenses
The market has seen an increase in leasing commissions. At one time a rate of
four percent on new leases was typical. In this scenario outside brokers
negotiated for a commission split with the listing agent. This resulted in a
tendency to steer tenants away from centers which would not accommodate a
co-operating broker. A trend toward six percent commission is currently being
observed with four percent being paid to the leasing broker and two percent to
the listing broker. The subject's arrangement is similar to this with five
percent being paid to outside brokers on cooperative deals. As it is not
possible to predict the brokerage arrangement for new tenants, five percent
commission will be applied to all new tenants with two percent of the total
value of the lease applied for renewals. The leasing expenses on a speculative
renewal will be based on an 60 percent chance of renewal.
Replacement Reserves
Good management calls for reserves for major replacement items. Reserves are
warranted for HVAC and roof replacement, and structural repairs. Although a
reality of ownership, these items are not generally incorporated into operating
statements of buildings.
Reserves, therefore, are concluded to be a capital expenditure as opposed to an
operating expense. Reserves for recurring capital expenditures will be applied
in the discounted cash flow analysis (DCF). These reductions are necessary in
this form of analysis because value is predicated on investment yield measured
from cash flows after operating and recurrent capital expenditures are deducted.
The replacement reserves amount established in the last appraisal update,
$34,959 per year, requires an upward adjustment to account for increased base
costs as reported in the MVS system. Reserves for HVAC, roof and paving are now
estimated at $36,198 and are assumed to escalate to $37,646 in the first year of
discounted cash flow analysis.
Absorption of Vacant Space
The subject currently has 15,331 SF/GLA of vacancy. Current lease deals are in
the process of being negotiated which cover 6,251 SF/GLA. The terms of these
prospective leases as reported align with market expectations and are therefore
expected to be concluded. These leases are therefore entered according to the
timetable projected by the subject's management.
8,000 SF/GLA of the subject's vacancy is the Ace Hardware space which is being
held vacant to accommodate the proposed Marsh/Osco shift. This proposal is
outstanding and is expected to be resolved soon. Analysis of the change in
configuration which is a part of the proposal is beyond the brief of this
appraisal. Resolution of the matter, with Osco either occupying the space or
not, will allow the Ace space to be leased. It is therefore assumed for the
purposes of this analysis that the Ace space will be available to backfill in
the near term.
<PAGE>
The pending outcome also affects the renewals of three tenants which are in
place. Given the timing of the Marsh/Osco situation it can reasonably be
expected that a resolution be reached by March of 1996. Renewal tenants which
are adjacent are therefore projected to renew as of April 1996, allowing time
for finalizing contracts to include discussions of prospects for the Ace space,
should the reconfiguration be abandoned. The absorption of the Ace space is
projected for June 1996 to allow for additional marketing time and the remaining
vacancy of 1,080 SF/GLA is projected as occupied in September 1996. The subject
is therefore anticipated to reach stabilized occupancy levels June 1, 1996. The
specific tenant details are summarized in the table which follows. They are
based either on typical term and market rent which was concluded for the
subject, or specifics of current negotiations.
<TABLE>
<S> <C> <C> <C> <C>
Commencement Average Effective
Tenant SF/GLA Date Term Rent per SF/GLA
Jack's Pizza 990 3/96 5 years $15.72
Once Upon A Child 3,600 3/96 5 years $14.40
75th Street Restaurant 2,400 4/96 5 years $13.00
Just Tanning 2,400 4/96 3 years $13.00
Red Giraffe 4,800 4/96 3 years $13.50
Dr. Anne Miller 1,661 6/96 4 years $10.50
Vacant 8,000 6/96 4 years $ 9.00
Vacant 1,080 6/96 4 years $13.50
</TABLE>
Recoveries
Based on the terms of particular leases, certain expenses pass through to
individual tenants. These are typically common area maintenance recoveries which
would include common area utilities, taxes, and insurance. In addition, an
administrative recovery is generated by the terms of individual leases in which
a 15 percent administrative charge is applied to the common area maintenance and
utility amounts. Management fees are not passed through to the tenants. A 15
percent administrative charge is considered to be market supported and is
applied to new tenants and speculative renewals.
<PAGE>
Discounted Cash Flow Analysis
The proforma income projects normalized operating income for the year ahead.
Discounted cash flow extends the proforma over a typical holding period and
relies on a variety of market supported parameters. These parameters are as
follows:
Term
The length of the holding period is presumed to be ten years at which point the
investment would be terminated. The ten-year holding period is selected because
it is the most often used period of analysis employed by knowledgeable
investors. Even if an actual five-year or seven-year period is anticipated,
seasoned investors generally analyze performance over a ten-year period to allow
some measure of flexibility for economic fluctuations. Moreover, the ten-year
projection reduces the percentage of value allocated to the reversion by
anticipating it at a later period, at which point it is discounted more heavily.
Since the presumption of appreciation is considered more risky than reliance on
a property's ability to generate annual cash flows, the net result of placing
the reversion farther off into the future is to construct a DCF model with a
lower level of risk of achieving its targeted goal, since stress is placed on
annual income streams.
Escalation of Income and Expenses
Over the past ten years, the CPI-U has ranged from 1.9 to 5.4 percent annually
with a 3.8 percent mean. The average over the first nine months of 1995 is 2.9
percent. It appears that the more recent escalation indicators reflect a
moderation in recent years. However, long term trends bear out a 4.0 percent
rate. Investor surveys report income growth rates used by investors in modeling
of from zero to ten percent. Korpacz reports the widest range, but with an
average of 2.92 percent. RERC is somewhat narrower at three to four percent for
properties in balanced markets with stabilized occupancy. Expense growth rates
in both surveys range from 2.0 to 5.0 percent with an average near 4.0 percent.
Therefore, based on the performance of the CPI-U, and general trends in the
market, an escalation rate of 4.0 percent is applied to the subject's expenses
throughout the analysis period. Given the subject's history with regard to
vacancy, renewals and absorption, there is scope for rental increases in the
near term. Therefore, an income growth rate of 4.0 percent is applied to all "B-
space.
<PAGE>
Reversion and Sale Expenses
The reversionary or exit capitalization rate is typically forecast at the going
in rate or a range of 50 to 100 basis points higher. In the last appraisal
update, a reversionary capitalization rate of 9.75 percent was applied, 50 basis
points above the going in rate. As will be discussed subsequently,
capitalization rates have been rather stable following competition among buyers
for centers that are performing well. This had caused rates to drop slightly.
The market has reached a plateau with slowing activity shifting the negotiating
advantage from sellers to buyers. The subject has been a well performing
property for some time, although as has been discussed at some length
previously, vacancy has increased and a shift in the market has occurred. The
subject remains well supported in the market with additional upside potential
due to the Marsh/Osco expansion possibility. Therefore no change in the
capitalization rate is appropriate.
Sale expenses are established at 3.0 percent of reversionary value. This accords
with the typical range of real estate commissions and other closing costs in
this market. This accords with the typical range of real estate commissions and
other closing costs in this market.
Yield Rate
A yield rate of 11.25 percent was concluded in the last appraisal update. This
rate represented a decrease of 25 basis points which was reflective of investor
expectations at that time. Current investor surveys now show yield targets in a
range of 10.0 to 14.0 percent. The Korpacz survey shows an average of 11.78
percent against an average entry capitalization rate of 9.79 percent, indicating
a spread of 199 basis points. In contrast, the RERC survey shows an average
yield target of 11.30 percent against an average entry capitalization rate of
9.50 percent, showing a spread of 180 basis points. Applying this spread to the
subject results in yield indicators of 11.05 and 11.30 percent.
The subject is a well performing center which benefits from its location and
diversified market support. The current increase in vacancy is reflective of the
loss of one large tenant which is coupled with the uncertainties of the
Marsh/Osco expansion. The desire to be flexible to accommodate tenant shifting
for this project has made backfilling the large vacant space and renewing the
adjacent tenants difficult. It is important to note, that the difficulties in
resolving the Marsh/Osco situation have stemmed from corporate activities which
have monopolized the attention of these two tenants and not from any change in
the performance of the subject. Therefore, the subject remains a high quality
investment supporting a yield rate which is not at significant variance from
that applied in the last appraisal update. The yield parameters are discussed at
some length in the last appraisal update and the factors which would suggest
such a yield rate have not changed. These factors include good demographics with
forecast income growth, good access and visibility and enhanced market support
from surrounding offices. In addition the factors that make shopping centers
favored investments such as the upside potential of "B"-space and net leases is
true for the subject.
<PAGE>
No change in yield rates is indicated. Therefore 11.25 percent will be applied
in the DCF analysis.
Annual Cash Flow Report - As Is
An annual cash flow report for the subject property is shown on the page which
follows. This is as of December 1995 for an eleven year period to include the
reversion year. The annual cash flow analysis stems from the terms of individual
leases, market rent which has been established, and other parameters discussed
thus far to include expenses, tenant improvements, commissions and reserves. An
annual tenant revenue report for all tenants appears as an annex to this report.
<PAGE>
<TABLE>
<CAPTION>
Shadeland Station Retail Center
ANNUAL CASH FLOW REPORT
BEGINNING 12/1/95 FOR 11 YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FY1996 FY1997 FY1998 FY1999 FY2000 FY2001 FY2002 FY2003
<C> <C> <C>
FY2004 FY2005 FY2006
TOTAL MINIMUM RENT
1,048,460 1,056,002 1,115,063 1,135,156 1,119,221 1,176,693 1,239,316 1,279,798
1,347,066 1,279,038 1,346,034
RECOVERIES:
EXPENSE RECOVERIES
200,272 211,864 229,417 240,124 240,248 255,976 268,990 283,042
300,776 290,976 305,755
ADMIN. RECOVERY
14,204 14,875 15,902 16,463 16,472 17,443 18,257 19,157
20,295 19,669 20,477
TOTAL RECOVERIES
214,476 226,739 245,319 256,587 256,720 273,419 287,247 302,199
321,071 310,645 326,232
GROSS RENTAL INCOME
1,262,936 1,282,741 1,360,382 1,391,743 1,375,941 1,450,112 1,526,563 1,581,997
1,668,137 1,589,683 1,672,266
CREDIT LOSS ( 8,589) ( 8,723) ( 9,425) ( 9,695) ( 9,492) ( 10,186) ( 10,877) ( 11,346)
( 12,155) ( 11,315) ( 12,083)
TOTAL INCOME 1,254,347 1,274,018 1,350,957 1,382,048 1,366,449 1,439,926 1,515,686 1,570,651
1,655,982 1,578,368 1,660,183
EXPENSES
ADMIN. 19,589 20,372 21,187 22,034 22,916 23,832 24,786 25,777
26,808 27,881 28,996
UTILITIES 19,589 20,372 21,187 22,034 22,916 23,832 24,786 25,777
26,808 27,881 28,996
MAINTENANCE 81,619 84,884 88,279 91,810 95,482 99,302 103,274 107,405
111,701 116,169 120,816
INSURANCE 10,883 11,318 11,771 12,241 12,731 13,240 13,770 14,321
14,893 15,489 16,109
R.E. TAXES 124,107 129,071 134,234 139,603 145,187 150,995 157,034 163,316
169,848 176,642 183,708
MANAGEMENT FEE
37,630 38,221 40,529 41,461 40,993 43,198 45,471 47,120
49,680 47,351 49,805
TOTAL EXPENSES 293,417 304,238 317,187 329,183 340,225 354,399 369,121 383,716
399,738 411,413 428,430
NET OPERATING INCOME
960,930 969,780 1,033,770 1,052,865 1,026,224 1,085,527 1,146,565 1,186,935
1,256,244 1,166,955 1,231,753
ALTERATIONS 89,121 35,336 26,579 29,958 34,424 46,274 63,044 18,908
24,299 64,362 82,778
COMMISSIONS 47,995 23,783 19,123 21,317 18,719 36,621 42,031 14,560
16,921 39,366 60,833
RESERVES 37,646 39,152 40,718 42,347 44,040 45,802 47,634 49,540
51,521 53,582 55,725
CASH FLOW 786,168 871,509 947,350 959,243 929,041 956,830 993,856 1,103,927
1,163,503 1,009,645 1,032,417
</TABLE>
<PAGE>
Summary of Cash Flow Findings
Following is a present value report identifying the value of the cash flows
based on a reversion at each year of the DCF.
<TABLE>
<CAPTION>
PRESENT VALUE REPORT FOR Shadeland Station Retail Center
Annual (E) NPV as of 12/95. Rates: CF%==11.250% Cap%=9.750
SOLD
<S> <C> <C> <C> <C> <C> <C>
RESIDUAL RESIDUAL PV % CASH FLOW PV % TOTAL PV
- ------------ --------------- ------------------- ----------- ---------------------- --------- --------------
11/96 $9,648,794 $8,673,073 92.5% $706,749 7.5% $9,379,822
11/97 $10,284,866 $8,309,955 85.5% $1,410,969 14.5% $9,720,923
11/98 $10,474,757 $7,607,535 78.4% $2,099,017 21.6% $9,706,552
11/99 $10,209,395 $6,664,998 71.0% $2,725,246 29.0% $9,390,244
11/100 $10,799,780 $6,337,456 66.0% $3,270,406 34.0% $9,607,862
11/101 $11,406,753 $6,016,751 61.4% $3,775,118 38.6% $9,791,868
11/102 $11,808,421 $5,598,761 56.9% $4,246,333 43.1% $9,845,093
11/103 $12,498,684 $5,326,775 53.0% $4,716,809 47.0% $10,043,584
11/104 $11,609,776 $4,447,582 46.3% $5,162,560 53.7% $9,610,142
11/105 $12,254,165 $4,219,722 43.4% $5,510,234 56.6% $9,729,955
11/106 $13,539,110 $4,190,735 41.8% $5,829,790 58.2% $10,020,525
11/107 $13,109,934 $3,647,544 37.1% $6,177,732 62.9% $9,825,276
11/108 $12,462,341 $3,116,734 32.5% $6,476,540 67.5% $9,593,274
</TABLE>
The most important years of the cash flow are considered to be the latter years.
Within these years the value is shown to range between $9,676,156 in year six
and $10,110,106 in year eight. The most significant factor affecting the
variation in values are the rate of occupancy and concessions. The following
table illustrates these factors.
<TABLE>
Vacancy &
<S> <C> <C> <C> <C> <C>
FY B-Space Rent Credit Loss Percentage Sale Year Value Indicator
2001 $ 855,106 $113,372 13.3 2000 $ 9,607,862
2002 $ 915,291 $104,556 11.4 2001 $ 9,791,868
2003 $ 952,361 $ 92,898 9.8 2002 $ 9,845,093
2004 $1,019,629 $ 52,678 5.2 2003 $10,043,584
2005 $ 951,601 $182,963 19.2 2004 $ 9,610,142
2006 $1,018,597 $213,613 21.0 2005 $ 9,729,955
</TABLE>
The projected vacancy for the subject is ten percent with a one percent credit
loss applied to "B"-space. Therefore, the ideal scenario would be a reversionary
year in which the vacancy and credit loss reflected eleven. Years 2002 and 2003
are closest with vacancy and credit loss of 11.4 and 9.8 percent and
corresponding value indicators of $9,791,868 and $9,845,093. The average vacancy
and credit loss in these two years is 10.6 percent, very close to targeted
levels. The average value indicator is $9,818,481. Therefore, based on this the
subject would have a value of $9,850,000.
<PAGE>
Accordingly, the estimated value of the subject via the income approach as of
December 1, 1995 is:
NINE MILLION EIGHT HUNDRED FIFTY THOUSAND DOLLARS
($9,850,000).
Annual Cash Flow Report - As Stabilized
The subject is anticipated to reach stabilized occupancy as of June 1, 1996. An
annual cash flow report beginning at stabilization is shown on the following
page.
<PAGE>
<TABLE>
<CAPTION>
Shadeland Station Retail Center
ANNUAL CASH FLOW REPORT
BEGINNING 6/1/96 FOR 11 YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FY1997 FY1998 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004
<C> <C> <C>
FY2005 FY2006 FY2007
TOTAL MINIMUM RENT:
1,105,350 1,074,828 1,116,260 1,171,730 1,110,481 1,172,365 1,284,333 1,313,568
1,286,961 1,316,620 1,467,827
RECOVERIES:
EXPENSE RECOVERIES
216,334 218,001 234,452 249,859 239,687 256,480 280,215 291,697
290,333 301,510 328,118
ADMIN RECOVERY
15,210 15,233 16,134 17,088 16,426 17,452 18,979 19,717
19,628 20,271 21,905
TOTAL RECOVERIES
231,544 233,234 250,586 266,947 256,113 273,932 299,194 311,414
309,961 321,781 350,023
GROSS RENTAL INCOME
1,336,894 1,308,062 1,366,846 1,438,677 1,366,594 1,446,297 1,583,527 1,624,982
1,596,922 1,638,401 1,817,850
CREDIT LOSS -9,308 -8,927 -9,468 -10,142 -9,375 -10,124 -11,392 -11,750
-11,415 -11,774 -13,509
TOTAL INCOME 1,327,586 1,299,135 1,357,378 1,428,535 1,357,219 1,436,173 1,572,135 1,613,232
1,585,507 1,626,627 1,804,341
EXPENSES
ADMIN. 19,979 20,778 21,609 22,474 23,373 24,308 25,280 26,291
27,343 28,436 29,574
UTILITIES 19,979 20,778 21,609 22,474 23,373 24,308 25,280 26,291
27,343 28,436 29,574
MAINTENANCE 83,246 86,576 90,039 93,640 97,386 101,281 105,333 109,546
113,928 118,485 123,224
INSURANCE 11,099 11,543 12,005 12,485 12,985 13,504 14,044 14,606
15,190 15,798 16,430
R.E. TAXES 126,590 131,654 136,920 142,397 148,093 154,016 160,177 166,584
173,247 180,177 187,384
MANAGEMENT FEE
39,828 38,974 40,721 42,856 40,717 43,085 47,164 48,397
47,565 48,799 54,130
TOTAL EXPENSES
300,721 310,303 322,903 336,326 345,927 360,502 377,278 391,715
404,616 420,131 440,316
NET OPERATING
INCOME 1,026,865 988,832 1,034,475 1,092,209 1,011,292 1,075,671 1,194,857 1,221,517
1,180,891 1,206,496 1,364,025
ALTERATIONS 57,995 53,833 15,926 19,972 55,562 59,380 36,026 35,981
57,133 60,400 45,780
COMMISSIONS 22,823 36,878 12,252 13,907 37,050 42,812 23,401 25,589
34,219 45,355 32,137
RESERVES 39,152 40,718 42,347 44,040 45,802 47,634 49,540 51,521
53,582 55,725 57,954
CASH FLOW 906,895 857,403 963,950 1,014,290 872,878 925,845 1,085,890 1,108,426
1,035,957 1,045,016 1,228,154
</TABLE>
<PAGE>
Summary of Cash Flow Findings
Following is a present value report identifying the value of the cash flows
based on a reversion at each year of the DCF.
<TABLE>
<CAPTION>
PRESENT VALUE REPORT FOR Shadeland Station Retail Center
Annual (E) NPV as of 6/96. Rates: CF%=11.250% Cap%=9.750
SOLD
<S> <C> <C> <C> <C> <C> <C>
RESIDUAL RESIDUAL PV % CASH FLOW PV % TOTAL PV
- ------------ --------------- ------------------- ----------- ---------------------- --------- --------------
5/97 $9,837,869 $8,843,029 91.6% $815,273 8.4% $9,658,302
5/98 $10,291,919 $8,315,653 84.6% $1,508,057 15.4% $9,823,710
5/99 $10,866,079 $7,891,742 78.1% $2,208,164 21.9% $10,099,906
5/100 $10,061,079 $6,568,173 69.6% $2,870,323 30.4% $9,438,496
5/101 $10,701,708 $6,279,906 65.0% $3,382,541 35.0% $9,662,446
5/102 $11,887,186 $6,270,167 61.8% $3,870,907 38.2% $10,141,074
5/103 $12,152,708 $5,761,999 56.8% $4,385,758 43.2% $10,147,756
5/104 $11,748,670 $5,007,129 50.8% $4,858,163 49.2% $9,865,292
5/105 $12,002,970 $4,598,210 46.7% $5,255,039 53.3% $9,853,249
5/106 $13,570,380 $4,672,960 45.4% $5,614,886 54.6% $10,287,846
5/107 $12,700,295 $3,931,098 39.6% $5,995,037 60.4% $9,926,135
5/108 $13,281,061 $3,695,157 36.9% $6,322,553 63.1% $10,017,709
</TABLE>
The table which follows sets forth the value indicators, vacancy and credit loss
during the later years of the cash flow.
<TABLE>
<S> <C> <C> <C> <C> <C>
Vacancy &
FY B-Space Rent Credit Loss Percentage Sale Year Value Indicator
2002 $ 850,778 $147,612 17.4 2001 $ 9,662,446
2003 $ 957,384 $ 74,208 7.8 2002 $10,141,074
2004 $ 986,131 $ 74,386 7.5 2003 $10,147,756
2005 $ 959,524 $139,945 14.6 2004 $ 9,865,292
2006 $ 989,183 $191,777 19.4 2005 $ 9,853,249
2007 $1,140,390 $113,348 9.9 2006 $10,287,846
</TABLE>
Fiscal years 2003 and 2005 exhibit an average vacancy and credit loss of 11.2
percent, very close to the 11.0 percent targeted for the subject. The
corresponding average value indicator from a sale in year 2002 and 2004 is
$10,003,183.
Accordingly, the estimated prospective value of the subject via the income
approach as of December 1, 1995, contingent upon stabilization anticipated for
June 1, 1996, is:
TEN MILLION DOLLARS
($10,000,000).
<PAGE>
SALE COMPARISON APPROACH
As in the previous appraisal up-dates a search for comparable sales was been
conducted. The Indianapolis metropolitan area as well as the surrounding
counties were included. Only one new sale was uncovered. This sale involves one
of the comparable properties contained in the analysis of market rent to the
subject. This is summarized on the following pages. A map showing the location
follows.
<PAGE>
TERZO & BOLOGNA, INC. MARKET DATA: SALE OF SHOPPING CENTER
Comparable #1
Type of Use: Neighborhood Shopping Center
Property: Geist Station
Address: 8150 Oaklandon Road
Indianapolis, IN
County: Marion
Location: West side of Oaklandon Road, north of 79th Street
Seller: Inland Group
Purchaser: William Realty Eight
FINANCIAL DATA
Effective Sale Price: $1,775,000
Terms: No favorable terms reported
Price/GLA: $69.61
Financial Comments: This property includes
excess land which is available for a
10,000 SF/GLA expansion of the
center. The land was marketed as a
separate site for some time at a
price of $225,000. The transfer
price for the property reflects
adjustment for this excess land.
Specific information as to the NOI
was not available, but a 12.0
percent OAR was reported by the
selling broker.
DESCRIPTIVE DATA
Description: Yr. Built GLA
1989 25,500
Legal I.D.: Parcel #4-013587
Deed Instrument #95-97404
Site: The site is generally level with slopes
adequate to effect storm drainage.
Site Size: 5.533 Acres
Construction: The one story building is of steel frame and
masonry construction with stucco panel exterior
veneer. The roof is hipped with decorative
dormers and a pedestrian canopy.
Major Tenants: V.H. One Video, China Palace
Condition: Average
Source: Broker
Verified by: Terzo & Bologna, Inc./ACV & SAS
<PAGE>
Comparable Sales Location Map
<PAGE>
Comparable Sales Photograph
<PAGE>
<TABLE>
<CAPTION>
ANALYSIS OF SALE COMPARISONS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sale Gross Expense
# PROJECT Date Sale Price GSF NRSF Income NOI Percent OAR GIM
SUBJECT 104,976 960,930
1 Kokomo $6,798,000 78,596 628,816 9.25%
2 London Town $2,976,000 35,577 298,493 10.03%
5 Greendale $2,275,000 58,747 224,087 9.85%
Target $4,550,000 164,360 388,000 8.53%
Town West $4,880,000 91,196 483,361 9.90%
Coldwater Crossing $19,200,000 247,643 1,934,000 10.07%
</TABLE>
Sale Pr./ Income/ Sale Pr./ Income/
# PROJECT GSF GSF NRSF NRSF
SUBJECT $9.15
1 Kokomo $86.49 $8.00
2 London Town $83.65 $8.39
5 Greendale $38.73 $3.81
Target $27.68 $2.36
Town West $53.51 $5.30
Coldwater Crossing $77.53 $7.81
INDICATED VALUE RANGE BASED ON INCOME-GENERATING CAPACITY
Compared Indicated Compared Indicated
# PROJECT NOI/GSF Rate/GSF NOI/NRSF Rate/NRSF
1 Kokomo 114.4% $98.94
2 London Town 109.1% $91.26
5 Greendale 240.2% $93.03
Target 387.7% $107.32
Town West 172.6% $92.36
Coldwater Crossing 117.2% $90.87
<PAGE>
Geist Station is similar to the subject in location, but it is inferior due to a
lower level of market support. This center is surrounded by high income
residential development, but with extremely low density. In addition, there is
no diversification of support as the location is not along a major commuter
route nor is there surrounding office, industrial or institutional development.
This property has had a long history of tenant turnover and vacation and
therefore, this sale is reflective of a transfer of a somewhat distressed
property, as evidenced by the high overall rate exhibited. The sale price at
$69.61 per SF/GLA is therefore below an appropriate indicator for the subject.
The income generation of comparable properties can provide the basis for
comparison as per SF/GLA income reflects the many variables such as age,
condition and appeal, location and market support. The subject's NOI is forecast
at $9.15 per SF/GLA. This represents a slight decrease over the previous
appraisal update. Analyzing this unit NOI against the characteristics of the
sales of investment grade properties utilized in the previous reports yields a
range in value indicators to the subject of from $90.87 to $107.32 per SF/GLA.
The range in adjusted indicators in the previous appraisal was from $93.60 to
$110.14. Therefore, the slight drop in the subject's NOI indicates a
corresponding decrease in sales indicators.
In consideration of all of the indicators, $94.00 per SF/GLA is concluded as
appropriate for the subject. Applying this to the subject's 104,976 SF/GLA
yields $9,867,744, which is rounded to:
NINE MILLION EIGHT HUNDRED SEVENTY THOUSAND DOLLARS
($9,870,000).
<PAGE>
RECONCILIATION OF THE VALUE ESTIMATES
The subject property comprises a retail center of 104,976 SF/GLA on a parcel of
11.79 acres. It is located in a market area which is perceived as being
particularly desirable. Continued residential growth is anticipated, household
income is high and there is substantial daytime population in the land uses
adjacent to the center, which enhance market support to the subject property.
The cost approach yielded a value estimate of $9,100,000. The value is extracted
by use of a national cost service. The unit rates and resultant estimates of
building and site improvements were adjusted to account for estimated indirect
costs and entrepreneurial profit. The value estimate is clouded somewhat by
adjustments which were made to account for physical depreciation which was
estimated on the age/life concept. The value by the cost approach reflects no
change in land value to the subject when compared with the last appraisal
update.
The value by the income approach was estimated by applying discounted cash flow
analysis. The value of the leased fee of the subject by DCF is $9,850,000. The
value estimate by discounted cash flow is considered to be the strongest
indicator as it measures the effect of lease terms over a ten year holding
period. Moreover, currently high vacancy along with the leasing commissions and
tenant improvements which are required to return the subject to stabilized
levels are incorporated in the analysis. This approach is therefore the
strongest indicator of value as it incorporates potential new leases currently
being concluded, along with the expenditures which a typical investor would
consider in the assessment of risk. The prospective value at stabilization was
$10,000,000.
The sales comparison approach yielded a value indicator of $9,870,000. Only one
new sale was analyzed. This sale was not directly relevant to the subject, but
rather was the transfer of a property with a long history of vacancy and
turnover. This approach therefore provides a weaker indicator to the subject.
The cost approach sets the lower end of the range of value indicators and this
is in some measure expected. The difference between the cost of development and
the value of the subject after completion and stabilization represents
additional entrepreneurial profit. The earlier estimate of profit, as applied in
the cost approach, does not therefore fully reflect the process of value
creation in the development process, as indicated by the results of the other
approaches. The cost approach is accordingly the weakest indicator of value to
the subject.
<PAGE>
The sales comparison approach yielded a value indicator which was strongly based
on older sales which have been analyzed in the past. On balance, the strongest
indicator of value is offered by the income approach. It is this approach which
can most precisely measure the effect of existing leases, rent potential and the
probable pattern of expenses which would accrue to the subject property.
Accordingly, it seems most reasonable to stress the results by the income
approach in final reconciliation. The value of the subject property, as of
December 1, 1995, is:
NINE MILLION EIGHT HUNDRED FIFTY THOUSAND DOLLARS
($9,850,000).
The prospective value of the subject as of December 1, 1995, contingent upon
stabilization, anticipated at June 1, 1996, is:
TEN MILLION DOLLARS
($10,000,000).
Based on current market conditions, it is estimated that the property would
require a marketing time of six to nine months, assuming financing is available.
This time period reflects the performance of the subject and accords with
exposure times as reported by brokers who are knowledgeable regarding such
properties.
Analysis of Value Change
The as-is value reported for the subject reflects a downward change of $150,000
since the previous appraisal. The subject is still performing well, but exhibits
a currently high vacancy of 15,331 SF/GLA. This is primarily due to the vacation
of two spaces containing 8,000 and 3,600 SF/GLA. As has been discussed in some
detail in the report, prospects exist for all of the vacancies except the 8,000
SF/GLA and another smaller space containing 1,080 SF/GLA. The 8,000 SF/GLA space
has been held vacant to allow for a Marsh expansion and an Osco relocation. This
has complicated the subject's position as nearby tenants have postponed renewal
in anticipation of the outcome of the Marsh/Osco proposal.
Market support to the subject remains good. At the time of the last appraisal,
increased competition was anticipated from new development in the immediate
area. Although new product has come on line, effective rents in the subject
remain high as new deals being negotiated and renewal rates have been favorable.
Therefore, good future performance is indicated and absorption of vacant space
is forecast to be fairly rapid.
<PAGE>
While the high effective rents and leasing prospects are positive, an investor
would consider the overall risk to the subject with respect to vacancy, rent
loss during lease-up of vacancy and capital expenditures in the form of leasing
commissions and tenant improvements. As the future prospects for the subject
remain good, no change in the capitalization and yield rates applied is
indicated. Rather the temporary risk of increased expenditures is accounted for
with the application of tenant improvements to all spaces to maintain the appeal
of the subject. In addition, the increase in normative vacancy from 5 to 10
percent accounts for any long term risk which would apply to the subject. These
factors have a downward effect on value, although the amount of the value change
is insubstantial.
The value at stabilization of $10,000,000 reflects the forecast lease up of the
subject and a return to operating levels experienced in the past.
<PAGE>
7. CERTIFICATION OF THE APPRAISERS
I certify that, to the best of my knowledge and belief:
- the statements of fact contained in this report are true and correct.
- the reported analyses, opinions, and conclusions are limited only by
the reported assumptions and limiting conditions, and are my personal,
unbiased professional analyses, opinions, and conclusions.
- I have no present or prospective interest in the property that is the
subject of this report, and I have no personal interest or bias with
respect to the parties involved.
- the analysis was not based on a requested minimum valuation or specific
valuation or the approval of a loan.
- my compensation is not contingent upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the
amount of the value estimate, the attainment of a stipulated result or
the occurrence of a subsequent event.
- my analyses, opinion, and conclusions were developed, and this report
has been prepared, in conformity with Title XI of the Federal Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) and
its regulations, as well as the Uniform Standards of Professional
Appraisal Practice of the Appraisal Foundation and the Code of
Professional Ethics and the Standards of Professional Appraisal
Practice of the Appraisal Institute.
- I have made a personal inspection of the property that is the subject
of this report, unless otherwise noted.
- I am professionally competent to perform this appraisal assignment by
virtue of previous experience with similar assignments and/or research
and education regarding the specific property type being appraised.
- no one provided significant professional assistance to the person(s)
signing this report.
- I certify that the use of this report is subject to the requirements of
the Appraisal Institute relating to review by its duly authorized
representatives.
- as of the date of this report, I, Frederick C. Terzo, have completed
the requirements under the continuing education program of the
Appraisal Institute.
Frederick C. Terzo, CRE, MAI, AICP
Certified General Appraiser - Indiana (#CG69100042)
<PAGE>
I certify that, to the best of my knowledge and belief:
- the statements of fact contained in this report are true and correct.
- the reported analyses, opinions, and conclusions are limited only by
the reported assumptions and limiting conditions, and are my personal,
unbiased professional analyses, opinions, and conclusions.
- I have no present or prospective interest in the property that is the
subject of this report, and I have no personal interest or bias with
respect to the parties involved.
- the analysis was not based on a requested minimum valuation or specific
valuation or the approval of a loan.
- my compensation is not contingent upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the
amount of the value estimate, the attainment of a stipulated result or
the occurrence of a subsequent event.
- my analyses, opinion, and conclusions were developed, and this report
has been prepared, in conformity with Title XI of the Federal Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) and
its regulations, as well as the Uniform Standards of Professional
Appraisal Practice of the Appraisal Foundation and the Code of
Professional Ethics and the Standards of Professional Appraisal
Practice of the Appraisal Institute.
- I have made a personal inspection of the property that is the subject
of this report, unless otherwise noted.
- I am professionally competent to perform this appraisal assignment by
virtue of previous experience with similar assignments and/or research
and education regarding the specific property type being appraised.
- no one provided significant professional assistance to the person(s)
signing this report.
- I certify that the use of this report is subject to the requirements of
the Appraisal Institute relating to review by its duly authorized
representatives.
Sabra A. Sullivan
Certified General Appraiser - Indiana (#CG49300206)
<PAGE>
ANNEX
<PAGE>
PHOTOGRAPHS OF SUBJECT
Center Building - North and West Facades
Center Building - North and East Facades
Center Building - South and East Facades
Shoppes Building - North and East Facades
Shoppes Building - West and South Facades
Shoppes Building - South and East Facades
Shoppes Building - Service Court
Looking North on Shadeland Avenue from 75th Street
Looking South on Shadeland Avenue from 75th Street
Looking East on 75th Street from Shadeland Avenue
Looking West on 75th Street from Shadeland Avenue
Looking East on Shadeland Station from Shadeland Avenue
Looking West on Shadeland Station from Shadeland Avenue
<PAGE>
LEASE ABSTRACT REPORT,
ANNUAL TENANT REVENUE REPORT,
USF & G APPRAISAL REPORT SUMMARY
(INFORMATION DEEMED CONFIDENTIAL)
<PAGE>
VIA FACSIMILE (317) 849-9978
November 14, 1995
Mr. Frederick C. Terzo, MAI
Terzo & Bologna, Inc.
7240 Shadeland Station, Suite 210
Indianapolis, Indiana 46256
SUBJECT: Shadeland Station Retail Center Indianapolis, Indiana
Dear Fred:
We appreciate your response to our request of your appraisal services regarding
the property referenced above.
This letter will confirm our understanding that Frederick C. Terzo, MAI of Terzo
& Bologna, Inc. shall perform the following real estate appraisal assignment for
USF&G Real Estate Division.
Subject Property to be Appraised: Shadeland Station Retail Center SEQ Shadeland
Avenue and East 75th Street Indianapolis, Indiana
Property Description: One-story neighborhood retail center containing 84,000 +\-
gross square feet and one-story strip center containing 25,132 +\- gross square
feet, amenities, and supporting land.
Purpose and Function of Appraisal: The purpose of the appraisal shall be to
estimate the Market Value of the subject property specified above. The function
of the appraisal shall be to establish a current Market Value "As Is" for the
subject property in regard to the Right of Presentment for the "Fund".
Estimated Value/Date/and Interest Appraised: The Value to be estimated in the
appraisal shall be the Market Value "As Is" of the leased fee interest in the
subject property, as of December 1, 1995. The date of inspection of the subject
should be at or around this time period.
<PAGE>
Type of Appraisal: The type of appraisal shall be a letter update appraisal
report subject to the terms herein and outlined in "Specific Conditions".
Due Date/Deadlines:Three complete draft appraisal reports, including all
exhibits ("Appraisal Report Summary" sheet, maps, spreadsheets, etc.), but
excluding photographs, shall be delivered to USF&G Real Estate Division for
review by December 15, 1995. After USF&G Real Estate Division has reviewed the
draft, mutually agreed upon revisions, additions and deletions shall be
incorporated into the final document. Three final appraisal reports are due
within seven working days from the date USF&G Real Estate Division's final
written comments are received by Terzo & Bologna, Inc.
In the event that the draft appraisal reports cannot be delivered to USF&G Real
Estate Division by the due date, Julie C. Tyler must be notified by telephone at
least one week prior to the date specified herein. A letter must be sent to the
aforementioned indicating the reason for not meeting the specified due dates
(draft or finals). The revised draft/final due date must be indicated in the
letter. The reason for not meeting the due dates and revised due dates must be
approved by Julie C. Tyler. If the reason for not meeting the due dates is not
justified and/or if Ms. Tyler has not been informed at least one week prior to
the due dates by telephone, a fee reduction of $250 per diem will be imposed for
every day the appraisal exceeds the due date.
Appraisal Fee: The fee for the appraisal assignment, including all costs related
thereto, shall be $4,000. The entire fee shall be due after three final letter
update appraisal reports are received by USF&G Real Estate Division. Invoices
are paid within 30 days after three final reports are received and accepted
under the USF&G Appraisal Guidelines attached as an exhibit to this letter and
the Appraisal Institute's Standards and Ethic requirements. Please issue two
original invoices along with the final appraisal report at that time.
Information Necessary Completion of theAppraisal: The information needed to
complete the appraisal shall be coordinated by Gerry Trainor, the Asset Manager
of the property. His telephone number is (410) 625-5629. Exhibit I presents a
list of information that at a minimum would be necessary to complete the
appraisal (obviously, the applicability of the information is dependent upon the
type of property under appraisement). This information will be provided at the
inception of the appraisal assignment within a reasonable time. If the
information is not received within a reasonable time, please call Julie C. Tyler
immediately.
Specific Conditions: o The appraisal form, content, and scope shall be prepared
in conformity with and are subject to the requirements of the Code of
Professional Ethics and Standards of Professional Conduct of the Appraisal
Institute and the Uniform Standards of Professional Appraisal Practice. o USF&G
Real Estate Division's guidelines shall be followed in performing this appraisal
and are presented in Exhibit II (Letter Update Guidelines). o The "Appraisal
Report Summary" document (three pages) shall be completed and presented after
the "Table of Contents" section in each draft and final appraisal report. This
summary document is attached to this letter agreement and is labeled as Exhibit
III. o The appraisal shall be prepared using the Cost, Direct Sales Comparison,
and Income Approaches (direct capitalization and discounted cash flow analysis)
to estimate Value. The three Values must be reconciled to estimate the final
Market Value "As Is" for the subject property. o A lease-by-lease analysis shall
be performed using a real estate software program (such as Dynalease, Dynamis,
Pro-Ject, OFFICE2, Argus, or Realdex) approved by Julie C. Tyler. Market data
should be reflected during tenant rollovers. Lease-by-lease data shall be
printed and included as an addendum to the draft and final reports. o All the
appraisers signing the report must inspect the subject property and comparables.
o The appraiser shall identify the marketing time period for the property in the
section of the appraisal report where the estimate of Market Value is indicated.
o The contracted MAI Appraiser herein attests to the fact that all appraisers
signing and working on the appraisal assignment have at a minimum five years of
appraisal experience, including appraisals of retail shopping centers.
This appraisal report is for the exclusive use of USF&G Real Estate Division and
its client and assignees. Terzo & Bologna, Inc. shall not reveal the appraisal
report to any party other than representatives indicated herein with the USF&G
Real Estate Division.
<PAGE>
If these terms and conditions are acceptable, please execute this letter
agreement below and return an original to me by November 20, 1995. Thank you for
your attention and we look forward to working with you on this assignment.
Sincerely,
Julie C. Tyler, MAIManager, Real Estate Valuations
JCT:jfkMEMO19\ShadeLtr.doc
Enclosures
cc: Calvin Thomas,MAI, Legg Mason Realty, Inc.
Joe Wesolowski
Gerry Trainor
1995 Appraisal File of Shadeland Station Retail Center
Accepted this __________ day of
________________________, 1995
Appraisal Firm: TERZO & BOLOGNA, INC.
By: __________________________________________________________________________
Its: __________________________________________________________________________
<PAGE>
(Y) INTRODUCTION TO TERZO & BOLOGNA, INC.
Terzo & Bologna, Inc., is a real estate consulting group, with offices in
Indiana and Michigan, which specializes in analysis of commercial properties
throughout the Midwest. Our firm has a well-established reputation and we are
recognized for our ability to resolve complex development issues in an objective
and impartial manner.
The primary goal of Terzo & Bologna, Inc., is to build long-term relationships
by providing high quality real estate analysis which is timely and of value to
its clients.
(Y) PROBLEM SOLVING IS OUR STRENGTH
The success of any real estate analysis rests on knowledge of local markets. No
two properties are alike. Each presents its own unique challenge to analysis.
Similarly, client objectives are not all alike. Some clients require analysis
leading to property valuation; others require analysis directed to specific
investment or disposition strategy.
Our services are responsive to both the uniqueness of the property and the
specific needs of the client. No matter how intricate the real estate problem,
Terzo & Bologna, Inc., has the experience needed to effectively resolve critical
issues.
<PAGE>
(Y) STAFF APPRAISERS AND COUNSELORS
Well educated and experienced professionals form the backbone of the firm. Staff
appraisers and counselors have established backgrounds in a wide range of real
estate related fields such as finance, mortgage banking, city planning,
brokerage, construction management and property management. Each is involved in
a continuing education program. The multiple perspectives provided by this
professional diversity enhance the quality of the analysis that we provide for
each client.
Our services are provided in accordance with the ethics and standards
established by the Appraisal Institute and the American Society of Real Estate
Counselors. Our services are unbiased, knowledgeable and confidential.
Professional affiliations held by individual members of our staff include:
* Appraisal Institute
* American Society of Real Estate Counselors
* American Institute of Certified Planners
Terzo & Bologna, Inc., has also been elected to professional membership in the
National Council of Real Estate Investment Fiduciaries.
Staff members of Terzo & Bologna, Inc., are currently licensed in the following
states.
Indiana
Michigan
Ohio
Illinois
Kentucky
Wisconsin
Minnesota
Massachusetts
Pennsylvania
Licensure in other states can be obtained at the client's request.
<PAGE>
REPRESENTATIVE CLIENT LIST
(INFORMATION DEEMED CONFIDENTIAL)
<PAGE>
QUALIFICATIONS OF THE APPRAISERS
FREDERICK C. TERZO
Frederick C. Terzo, a principal of Terzo & Bologna, Inc. represents clients
locally, nationally and internationally. He has provided real estate counseling
and appraising services in the areas of housing, land development, commercial,
industrial and new town development, since 1965.
He is an experienced real estate appraiser of investment-grade properties, has
particular expertise in the areas of market and feasibility analysis, and is
often retained to evaluate projects that are highly sensitive to market
fluctuations. These include new projects which are timing-sensitive due to the
volatility of development cycles, as well as problem properties that require
in-depth research of product marketability and capture potential. He has
formulated market studies for a variety of product types ranging from high-rise
offices and urban-core, multi-family development to large scale suburban
business park developments, land development schemes, and special purpose
properties such as congregate care centers.
In addition to professional assignments in the U.S., he has represented clients
internationally in more than thirty countries of Europe, the Middle East, Asia,
Africa and Latin America. International real estate experience includes
counseling on development at the new town scale, testing the interaction and
timing of proposed land, housing, employment center and community facility
development programs.
He holds a Bachelor of Architecture degree from Pratt Institute and a Master of
City Planning degree from Yale University. He was an Alumni Fellow in City
Planning at Yale University, a New York State Regents Scholar and a Ford
Foundation Africa-Asia Fellow.
His professional memberships include the Appraisal Institute (designated MAI),
the Counselors of Real Estate (designated CRE), and the American Institute of
Certified Planners, the national organization of professional urban planners
(Charter Member, designated AICP).
Frederick C. Terzo is currently licensed as a certified general appraiser in
Indiana (#CG69100042); Michigan (#1201000261); Ohio (#380385); Illinois
(#153-000118); Kentucky (#000346); Massachusetts (#275); Wisconsin (#315).
<PAGE>
RAYMOND V. BOLOGNA
Raymond V. Bologna, a principal of Terzo & Bologna, Inc., represents clients
locally and nationally. Real estate experience dates from 1977. He has been
involved in brokerage, property management, and the structuring of real estate
partnerships for investment property. Major emphasis has been on counseling and
appraisal since 1983.
He entered the real estate field as an investor and has had direct experience
with the cause and effect relationship relating to value. His ability to
identify and interpret these relationships is recognized by his clients, who
have retained him for valuation of such unusual projects as prison facilities,
preservation easements, and seminaries.
As a counselor, he represents clients from both private and public sectors in
tax-litigation matters. He is retained on a regular basis to provide
market-study research and penetration analysis for proposed or distressed
properties. He has formulated market studies for a variety of product types
ranging from high-rise offices and urban-core, multi-family development to land
development schemes and special-purpose properties such as hotels and
congregate-care centers.
He graduated from the honors program of the University of Detroit with a
bachelor's degree in liberal arts. His professional affiliations include the
Appraisal Institute (designated MAI) and the Counselors of Real Estate
(designated CRE). He has been qualified as an expert witness for the Michigan
Tax Tribunal and for the U.S. Bankruptcy Court.
Bologna is currently licensed as a certified general appraiser in Michigan
(#1201000230); Ohio (#381633); Illinois (#153000194); Indiana (#CG69201173);
Minnesota (#4003157); Pennsylvania (#GA-000833-L).
<PAGE>
SABRA A. SULLIVAN
Sabra A. Sullivan is an associate of Terzo & Bologna, Inc.
Her professional work includes appraisal and real estate market analysis of
investment grade property. She has completed assignments for office, retail to
include regional malls, multifamily and industrial properties in Indianapolis
and other regional cities. She has substantial discounted cash flow analysis
experience to include the PRO-JECT, Office/2 and Center formats. In addition Ms.
Sullivan has extensive background in real estate, banking and construction. She
has experience in mortgage lending with both Union Federal and American Fletcher
National Bank. As founder of Bickell/Sullivan Builders, Inc., a custom home
builder, she was a member of the Builder's Association of Greater Indianapolis
and served on the Legislative Committee. Ms. Sullivan has also held the
positions of Director of Construction for Hokanson Companies, Inc. and
Vice-President of M.R. Kendall Construction Corporation where she managed
construction and development projects.
She was graduated with honors from Miami University and was awarded membership
in Phi Alpha Theta history honorary.
Sullivan is an Indiana licensed real estate salesman and has completed the
course requirements of the Appraisal Institute for Standards of Professional
Practice, parts A and B, Real Estate Appraisal Principles, Real Estate Appraisal
Procedures and Capitalization Theory and Techniques, Parts A and B. She is a
candidate for the MAI designation of the Appraisal Institute.
Sabra A. Sullivan is currently licensed as a certified general appraiser in
Indiana (#CG49300206) and Michigan (#1201005190).
