16-156dt-0468 creekwood ths · as hunt mortgage group and freddie mac appraisal guidelines. this...
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APPRAISAL REPORT CREEKWOOD TOWNHOMES 886-942 Creekwood Lane Milford, Oakland County, Michigan 48381 CBRE, Inc. File No. 16-156DT-0468 JuliAnn Gray HUNT MORTGAGE GROUP 14850 Quorum Drive, Suite 150 Dallas, Texas 75254 McLean, VA 22102
And
Freddie Mac 8100 Jones Branch Drive McLean, VA 22102
www.cbre.com/valuation
© 2016 CBRE, Inc.
VALUATION & ADVISORY SERVICES
2000 Town Center, Suite 500 Southfield, MI 48075
T (248) 353-0400 F (248) 351-2050
www.cbre.com
May 25, 2016 JuliAnn Gray HUNT MORTGAGE GROUP 14850 Quorum Drive, Suite 150 Dallas, Texas 75254 And Freddie Mac 8100 Jones Branch Drive McLean, VA 22102 RE: Appraisal of Creekwood Townhomes
886-942 Creekwood Lane Milford, Oakland County, Michigan 48381 CBRE, Inc. File No. 16-156DT-0468
Dear Ms. Gray:
At your request and authorization, CBRE, Inc. has prepared an appraisal of the market value of the referenced property. Our analysis is presented in the following Appraisal Report.
The subject is a 23-unit multi-family garden property located at 886-942 Creekwood Lane in Milford, Michigan. The property consists of five predominantly 2-3-story townhouse apartment buildings. The improvements were constructed in 2003 and are situated on a 2.00-acre site. According to the rent roll provided for analysis, dated May 1, 2016, the subject is 100.0% occupied.
The subject is stabilized; the as is and as stabilized values are equal. Rents are at market; the leased fee and fee simple values are considered equal. Items of Personal Property (primarily appliances) typically trade with apartment communities and represent a small component of the value conclusion. The personal property is estimated to contribute $32,200 based on depreciated replacement cost presented later in this report.
Based on the analysis contained in the following report, the market value of the subject is concluded as follows:
MARKET VALUE CONCLUSION
Appraisal Premise Interest Appraised Date of Value Value Conclusion
As Is Fee Simple Estate May 2, 2016 $2,950,000
Compiled by CBRE
© 2016 CBRE, Inc.
JuliAnn Gray Page 2
2
The report, in its entirety, including all assumptions and limiting conditions, is an integral part of, and inseparable from, this letter.
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, 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. It also conforms to Title XI Regulations and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) updated in 1994 and further updated by the Interagency Appraisal and Evaluation Guidelines promulgated in 2010, as well as Hunt Mortgage Group and Freddie Mac appraisal guidelines.
This report is for the use and benefit of, and may be relied upon by,
a) The Seller/Servicer, Freddie Mac and any successors and assigns (“Lender”);
b) independent auditors, accountants, attorneys and other professionals acting on behalf of Lender;
c) governmental agencies having regulatory authority over Lender;
d) designated persons pursuant to an order or legal process of any court or governmental agency;
e) prospective purchasers of the Mortgage; and
f) with respect to any debt (or portion thereof) and/or securities secured, directly or indirectly, by the Property which is the subject of this report, the following parties and their respective successors and assigns:
o any placement agent or broker/dealer and any of their respective affiliates, agents and advisors;
o any initial purchaser or subsequent holder of such debt and/or securities;
o any Servicer or other agent acting on behalf of the holders of such debt and/or securities;
o any indenture trustee;
o any rating agency; and
o any institutional provider from time to time of any liquidity facility or credit support for such financings
In addition, this report, or a reference to this report, may be included or quoted in any offering circular, information circular, offering memorandum, registration statement, private placement memorandum, prospectus or sales brochure (in either electronic or hard copy format) in connection with a securitization or transaction involving such debt (or portion thereof) and/or securities.
© 2016 CBRE, Inc.
JuliAnn Gray Page 3
3
The intended use and user of our report are specifically identified in our report as agreed upon in our contract for services and/or reliance language found in the report. No other use or user of the report is permitted by any other party for any other purpose. Dissemination of this report by any party to non-client, non-intended users does not extend reliance to any other party and CBRE will not be responsible for unauthorized use of the report, its conclusions or contents used partially or in its entirety.
It has been a pleasure to assist you in this assignment. If you have any questions concerning the analysis, or if CBRE can be of further service, please contact us.
Respectfully submitted, CBRE - VALUATION & ADVISORY SERVICES
Jeffrey C. Jozwick, MAI Marshall A. Brulez, MAI, MRICS Director Managing Director Certified General Appraiser- State of Michigan
Certified General Appraiser- State of Michigan
License No. 1201006193 License No. 1201004884 Expires 7/31/2017 Expires 7/31/2017 Phone: 248-351-2090 Phone: 248-351-2070 [email protected] [email protected]
© 2016 CBRE, Inc.
Subject Photographs
iv
Certification
We certify 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, impartial and unbiased professional analyses, opinions, and conclusions.
3. We have no present or prospective interest in or bias with respect to the property that is the subject of this report and have no personal interest in or bias with respect to the parties involved with this assignment.
4. Our engagement in this assignment was not contingent upon developing or reporting predetermined results.
5. Our compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal.
6. This appraisal assignment was not based upon a requested minimum valuation, a specific valuation, or the approval of a loan.
7. Our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice of The Appraisal Foundation and the requirements of the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute, as well as the requirements of the State of MI relating to review by its duly authorized representatives. This report also conforms to the requirements of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA).
8. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives.
9. Marshall Brulez, MAI and Jeff Jozwick, MAI have completed the requirements of the continuing education program of the Appraisal Institute.
10. Jeff Jozwick, MAI has and Marshall Brulez, MAI has not made a personal inspection of the property that is the subject of this report.
11. No one provided significant real property appraisal assistance to the persons signing this report.
12. Jeff Jozwick, MAI and Marshall Brulez, MAI have extensive experience in the appraisal/review of similar property types.
13. Jeff Jozwick, MAI and Marshall Brulez, MAI are currently certified in the state where the subject is located.
14. Valuation & Advisory Services operates as an independent economic entity within CBRE. Although employees of other CBRE divisions may be contacted as a part of our routine market research investigations, absolute client confidentiality and privacy are maintained at all times with regard to this assignment without conflict of interest.
15. The signatories have not provided appraisal-related services on this property in the three years prior to accepting this assignment.
16. In Michigan, appraisers are required to be licensed/certified and are regulated by the Michigan Department of Licensing and Regulatory Affairs, PO Box 30018 Lansing, Michigan 48909.
Jeffrey C. Jozwick, MAI Marshall A. Brulez, MAI, MRICS Director Managing DirectorCertified General Appraiser- State of Michigan Certified General Appraiser- State of MichiganLicense No. 1201-006193 License No. 1201-004884 Expires 7/31/2017 Expires 7/31/2017
© 2016 CBRE, Inc.
Subject Photographs
v
Subject Photographs
Aerial Views
Subject
Subject
© 2016 CBRE, Inc.
Subject Photographs
vi
Exterior – front Exterior – rear
Exterior - front Detached garages for two-bed units
Kitchen Kitchen
© 2016 CBRE, Inc.
Subject Photographs
vii
Bathroom Living room
Laundry closet Basement – laundry, HWT, furnace
Bedroom View looking north along Mont Eagle
© 2016 CBRE, Inc.
Executive Summary
viii
Executive Summary
Property Name
Location
Latitude
Longitude
Highest and Best Use
As If Vacant
As Improved
Property Rights Appraised
Land Area 2.00 AC 87,115 SF
Improvements
Property Type Apartment
Number of Buildings
Number of Stories
Gross Building Area
Net Rentable Area
Number of Units 23
Average Unit Size 1,318 SF
Year Built 2003 Renovated: 0
Condition
Buyer Profile
Financial Indicators
Current Occupancy 100.00%
Stabilized Occupancy 97.00%
Stabilized Credit Loss 1.00%
Overall Capitalization Rate 6.50%
Pro Forma Operating Data Total Per Unit
Effective Gross Income $351,648 $15,289
Operating Expenses $164,572 $7,155
Expense Ratio 46.80%
Net Operating Income $187,076 $8,134
5
32,315 SF
30,315 SF
Creekwood Townhomes
Fee Simple Estate
Apartment
Apartment
-83.5907424
886-942 Creekwood Lane, Milford, Oakland County, Michigan 48381
42.5839847
(Multi-family Garden)
Investor-Local
Good
2-3
© 2016 CBRE, Inc.
Executive Summary
ix
VALUATION Total Per Unit
Sales Comparison Approach $3,000,000 $130,435
Income Capitalization Approach $2,880,000 $125,217
Insurable Value $1,061,000 $46,130
CONCLUDED MARKET VALUE
Appraisal Premise Interest Appraised Value
As Is Fee Simple Estate $2,950,000
Compiled by CBRE
Date of Value
May 2, 2016
Strengths, Weaknesses, Opportunities and Threats (SWOT)
Strengths and weaknesses are internal to the subject; opportunities and threats are external to the subject.
Strengths/ Opportunities
New buildings Large units with garages Desirable, high income suburb Multifamily is the area’s best performing property type Under supplied market Legally identified as individual condo units and can be sold off as condos
Weaknesses/ Threats
Small complex Assessed individually (high taxes)
© 2016 CBRE, Inc.
Executive Summary
x
Extraordinary Assumptions
An extraordinary assumption is defined as “an assumption directly related to a specific
assignment, which, if found to be false, could alter the appraiser’s opinions or conclusions.
Extraordinary assumptions presume as fact otherwise uncertain information about physical, legal,
or economic characteristics of the subject property; or about conditions external to the property
such as market conditions or trends; or about the integrity of data used in an analysis.” 1
None noted
Hypothetical Conditions
A hypothetical condition is defined as “that which is contrary to what exists but is supposed for the
purpose of analysis. Hypothetical conditions assume conditions contrary to known facts about
physical, legal, or economic characteristics of the subject property; or about conditions external to
the property, such as market conditions or trends; or about the integrity of data used in an
analysis.” 2
None noted
1 Appraisal Institute, The Dictionary of Real Estate Appraisal, 5th ed. (Chicago: Appraisal Institute, 2010), 73.
2 Dictionary of Real Estate Appraisal, 97.
© 2016 CBRE, Inc.
Table of Contents
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Table of Contents
Certification ........................................................................................................................ iv
Subject Photographs ............................................................................................................. v
Executive Summary ........................................................................................................... viii
Table of Contents ................................................................................................................ xi
Introduction ........................................................................................................................ 1
Area Analysis ...................................................................................................................... 6
Neighborhood Analysis ..................................................................................................... 12
Site Analysis ...................................................................................................................... 16
Improvements Analysis ...................................................................................................... 18
Zoning .............................................................................................................................. 21
Tax and Assessment Data .................................................................................................. 23
Market Analysis ................................................................................................................. 25
Highest and Best Use ........................................................................................................ 34
Appraisal Methodology ..................................................................................................... 35
Insurable Value ................................................................................................................. 36
Sales Comparison Approach ............................................................................................. 38
Income Capitalization Approach ........................................................................................ 43
Reconciliation of Value ...................................................................................................... 58
Assumptions and Limiting Conditions ................................................................................ 59
ADDENDA A Improved Sale Data Sheets B Rent Comparable Data Sheets C Rent Roll & Operating Statements D Legal Description E FHLMC & Statement of Limiting Conditions (Form 439) F Client Contract Information G Qualifications
© 2016 CBRE, Inc.
Introduction
1
Introduction
Property Description
The subject is a 23-unit multi-family garden property located at 886-942 Creekwood Lane in
Milford, Michigan. The property consists of five predominantly 2-3-story townhouse apartment
buildings. The improvements were constructed in 2003 and are situated on a 2.00-acre site. The
subject is identified by parcel numbers 16-11-377-003 through 025.
Ownership and Property History
Title to the property is currently vested in the name of Rem Creekwood Real Property, LLC (per
municipal records); title work was not reviewed. The property traded in 2011. The transaction
price was not recorded.
Exposure/Marketing Time
The exposure/marketing time is a function of price, time, and use. It is not an isolated estimate
of time alone. In consideration of these factors, we have analyzed the following:
EXPOSURE/MARKETING TIME DATAExposure/Mktg. (Months)
Investment Type Range Average
Comparable Sales Data 3.0 - 12.0 6.0
PwC Apartment
National Data 1.0 - 9.0 4.2
Local Market Professionals 2.0 - 9.0 5.0
CBRE Exposure Time EstimateCBRE Marketing Period Estimate
CBRE National Investor Survey & PwC Real Estate Survey
9 Months9 Months
Premise of the Appraisal
The following table illustrates the various dates associated with the valuation of the subject, the
valuation premise(s) and the rights appraised for each premise/date:
PREMISE OF THE APPRAISAL
Item Date Interest Appraised
Date of Report: May 25, 2016
Date of Inspection: May 2, 2016
Date of ValueAs Is: May 2, 2016 Fee Simple Estate
Compiled by CBRE
© 2016 CBRE, Inc.
Introduction
2
The subject is encumbered by short term leases.
Purpose of the Appraisal
The purpose of this appraisal is to estimate the market value of the subject property.
Definition of Value
The current economic definition of market value agreed upon by agencies that regulate federal
financial institutions in the U.S. (and used herein) is as follows:
The most probable price which a property should bring in a competitive and open market under
all conditions requisite to a fair sale, the buyer and seller each acting prudently and
knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this
definition is the consummation of a sale as of a specified date and the passing of title from seller
to buyer under conditions whereby:
1. buyer and seller are typically motivated; 2. both parties are well informed or well advised, and acting in what they consider their own
best interests; 3. a reasonable time is allowed for exposure in the open market; 4. payment is made in terms of cash in U.S. dollars or in terms of financial arrangements
comparable thereto; and 5. the price represents the normal consideration for the property sold unaffected by special
or creative financing or sales concessions granted by anyone associated with the sale. 3
Intended Use of Report
This appraisal is to be used for financing, and no other use is permitted.
Intended User of Report
This appraisal is to be used by Hunt Mortgage Group, Freddie Mac, and no other user may rely
on our report unless as specifically indicated in the report.
This report is for the use and benefit of, and may be relied upon by,
a) The Seller/Servicer, Freddie Mac and any successors and assigns (“Lender”);
b) independent auditors, accountants, attorneys and other professionals acting on behalf of Lender;
c) governmental agencies having regulatory authority over Lender;
d) designated persons pursuant to an order or legal process of any court or governmental agency;
e) prospective purchasers of the Mortgage; and
3 Interagency Appraisal and Evaluation Guidelines; December 10, 2010, Federal Register, Volume 75 Number 237,
Page 77472.
© 2016 CBRE, Inc.
Introduction
3
f) with respect to any debt (or portion thereof) and/or securities secured, directly or indirectly, by the Property which is the subject of this report, the following parties and their respective successors and assigns:
o any placement agent or broker/dealer and any of their respective affiliates, agents and advisors;
o any initial purchaser or subsequent holder of such debt and/or securities;
o any Servicer or other agent acting on behalf of the holders of such debt and/or securities;
o any indenture trustee;
o any rating agency; and
o any institutional provider from time to time of any liquidity facility or credit support for such financings
In addition, this report, or a reference to this report, may be included or quoted in any offering
circular, information circular, offering memorandum, registration statement, private placement
memorandum, prospectus or sales brochure (in either electronic or hard copy format) in
connection with a securitization or transaction involving such debt (or portion thereof) and/or
securities.
Intended Users - the intended user is the person (or entity) who the appraiser intends will use the results of the appraisal. The client may provide the appraiser with information about other potential users of the appraisal, but the appraiser ultimately determines who the appropriate users are given the appraisal problem to be solved. Identifying the intended users is necessary so that the appraiser can report the opinions and conclusions developed in the appraisal in a manner that is clear and understandable to the intended users. Parties who receive or might receive a copy of the appraisal are not necessarily intended users. The appraiser’s responsibility is to the intended users identified in the report, not to all readers of the appraisal report. 4
Scope of Work
The scope of the assignment relates to the extent and manner in which research is conducted,
data is gathered and analysis is applied. CBRE, Inc. completed the following steps for this
assignment:
Extent to Which the Property is Identified
The property is identified through the following sources:
postal address assessor’s records legal description
4 Appraisal Institute, The Appraisal of Real Estate, 14th ed. (Chicago: Appraisal Institute, 2013), 50.
© 2016 CBRE, Inc.
Introduction
4
Extent to Which the Property is Inspected
The extent of the inspection included the following: A representative sample of vacant and/or
occupied units was inspected on May 2, 2016 by Jeff Jozwick. The appraiser was accompanied
by the property owner and toured with the engineer.
Our inspection was cursory and was not intended to identify all items of deferred maintenance.
For example, we did not inspect all of the subject units, and we relied in part upon information
supplied to us to estimate the subject’s physical condition, including unit sizes. Thus, the reader
should not rely solely upon our inspection and description of the subject improvements to make
decisions regarding the subject. This inspection sample was considered an adequate
representation of the subject property and is the basis for our findings.
Type and Extent of the Data Researched
CBRE reviewed the following:
applicable tax data zoning requirements flood zone status demographics income and expense data comparable data
Type and Extent of Analysis Applied
CBRE, Inc. analyzed the data gathered through the use of appropriate and accepted appraisal
methodology to arrive at a probable value indication via each applicable approach to value. The
steps required to complete each approach are discussed in the methodology section.
© 2016 CBRE, Inc.
Introduction
5
Data Resources Utilized in the Analysis
RESOURCE VERIFICATION
Site Data Source/Verification:Size Municipal recordsExcess/Surplus N/ALegal Description Municipal records
Improved Data Source/Verification:Net Size Municipal recordsGross Size Municipal recordsNo. Bldgs. InspectionUnit Mix OwnerNumber of Units Rent RollYOC Municipal records
Economic Data Source/Verification:Occupancy History N/ARent Roll Provided by the ClientIncome Data: Provided by the ClientExpense Data: Provided by the Client
Compiled by CBRE
© 2016 CBRE, Inc.
Area Analysis
6
Area Analysis
LOCATION
The subject is located in Southeastern Michigan, which is economically dominated by the Detroit
– Warren – Flint Core Based Statistical Area (CBSA). Combined Statistical Areas (CBSAs) are
areas in which two or more MSAs can be identified. As seen below, there are four MSAs that
make up the Detroit – Warren – Flint Core Based Statistical Area (CBSA).
Name of CBSA MSAs included in CBSA
Detroit – Warren – Flint Detroit-Warren-Livonia Ann Arbor Flint Monroe
MSAs are categorized according to total population. Counties form the geographic "building
blocks" for metropolitan statistical areas. The 2000 OMB standards provide that each
Subject
© 2016 CBRE, Inc.
Area Analysis
7
Metropolitan Statistical Area (MSA) must have at least one urbanized area of 50,000 or more
inhabitants.
The four Metropolitan Statistical Areas (MSAs) within the Detroit – Warren – Flint Core Based
Statistical Area (CBSA) include Detroit-Warren-Livonia, Ann Arbor, Flint, and Monroe. Further the
Detroit-Warren-Livonia MSA is separated into two metropolitan divisions of Detroit-Livonia-
Dearborn and Warren-Troy-Farmington Hills. The following chart represents the area
breakdowns.
Name of MSA Metropolitan Divisions Counties included in the MSA/Division
Detroit-Warren-Livonia Detroit-Livonia-Dearborn Wayne Warren-Troy-Farmington Hills
Lapeer Livingston Macomb Oakland St Clair
Ann Arbor Washtenaw Flint Genesee Monroe Monroe
The Southeastern Michigan region consists of nine counties, extending to Lake Erie, Lake St. Clair
and the Detroit River, which connects the two lakes. Major metropolitan areas in the region
include Toledo, Ohio to the south (62 miles), Cleveland, Ohio to the southeast (178 miles),
Chicago, Illinois to the southwest (279 miles) and Toronto, Ontario to the northeast (257 miles).
POPULATION
The following statistics are available through Claritas. Historical and projected population
statistics for the Detroit CBSA are summarized as follows:
The population in the Detroit CBSA declined 0.3% annually between 2000 and 2010. Between
2000 and 2015, the population slightly declined but generally remained constant. Population is
© 2016 CBRE, Inc.
Area Analysis
8
projected to remain relatively stable over the next five years. The growth rate is held back
predominantly by the declining population in the city of Detroit, which also accounts for much of
Wayne County’s decline.
HOUSEHOLDS
The following statistics are available through Claritas. Historical and projected household
statistics for the Detroit CBSA and the counties in the Detroit CBSA are summarized as follows:
The number of households in the Detroit CBSA remained relatively stable between 2000 and
2010. Between 2010 and 2015, the number of households generally remained unchanged with
an increase of 0.1% annually. Household growth is projected to increase 0.1% annually over the
next five years. The growth rate is held back predominantly by the declining population in the city
of Detroit, which also accounts for much of Wayne County’s decline.
MEDIAN HOUSEHOLD INCOME
The following statistics are available through Claritas. Current median household incomes for
the Detroit CBSA are summarized as follows:
© 2016 CBRE, Inc.
Area Analysis
9
As the chart indicates, the average median household income for the Detroit CBSA is $53,907.
Livingston County represents the top of the range at $76,744 while Genesee County and Wayne
County represent the bottom at $41,453 and $39,436 respectively.
UNEMPLOYMENT
The following chart represents the unemployment statistics for each county within the Detroit-
Warren-Ann Arbor CSA, the overall Detroit-Warren-Ann Arbor CSA, the State of Michigan, and
the United States.
As the chart indicates, there was a significant increase in unemployment within each county of the
Detroit-Warren-Ann Arbor CSA, the State of Michigan, and the United States in 2008 and 2009.
Unemployment continued to rise in 2010 for the United States before falling each year thereafter.
With respect to the State of Michigan and each of the counties within the Detroit-Warren-Ann
Arbor CSA, there have generally been declines in unemployment from 2010 to the end of 2015.
MAJOR EMPLOYERS
Though still regarded globally as the home of manufacturing, the State of Michigan continues an
aggressive push forward into the diversification of its economy. The strongest areas of growth
continue to be financial, health care, and technology related industries. This ongoing
transformation is key to bringing about an economic rebound and a more robust job market. The
following table contains a list of the Detroit area’s largest employers. As illustrated, employment
in the Detroit CBSA is still dominated by the automotive industry.
© 2016 CBRE, Inc.
Area Analysis
10
The North American auto industry continues to be a driving force for economic improvement in
Metropolitan Detroit. Each of Detroit’s “Big Three” reported that they closed out 2014 on a strong
note, with each company posting higher sales for December 2014 than they did for December
2013 thanks to a recovering economy and a truck-loving consumer. However, The auto industry
no longer packs the punch it did in the early stages of the recovery, as strength in auto sales is
not transferring to hiring. The surge in auto sales is helping drive industrial production gains, but
hiring by Detroit’s manufacturers has cooled.
AUTOS
Six years after the recession forced millions of Americans to postpone buying a new car or truck,
a forecast predicted retail auto sales in the U.S. will climb to a record high in 2015.
J.D. Power and Associates said that sales of new cars and trucks at U.S. auto dealerships will
climb to 13.83 million in 2015. That would put them slightly above the previous record of 13.8
million in 2004. The improving economy and growing consumer demand for newer, more fuel-
efficient vehicles that include the latest safety features and in-car connectivity are driving the
trend.
However, Detroit’s “Big Three” auto manufacturers alone will not be able to spur job or
population growth despite momentum in vehicle sales over the coming year. The auto industry
has become less labor intensive, having gone from employing 120,000 Detroit workers in 1979
to 22,000 in 2009. Despite the industry’s resurgence, employment remains below 40,000 and
the jobs are lower-paying than in the past. Demand for additional labor is close to being
satisfied, and the increase in production will not result in a ramp-up in hiring. Consequently, the
© 2016 CBRE, Inc.
Area Analysis
11
metro division will be forced to lean on other industries to attract residents. Manufacturing
employment will edge only slightly higher as the release of pent-up demand keeps vehicle sales
robust over the next couple of years. In the long run, as sales settle at a more sustainable pace
and automation reduces the need for labor, manufacturing will not be the main driver in the
economy.
CITY OF DETROIT
Core Development
The impact of the downtown-midtown development boom is already being felt by residents. Rents
are rising rapidly in these in-demand neighborhoods, pushing out lower-income occupants and
making ownership of rental properties more attractive. The stadium project, which covers some
45 blocks, will feed this trend as it advances. Convincing a new generation of people to invest
their lives in Detroit and stopping the flight of people is the key challenge to the city’s future.
Detroit Bankruptcy Filing
After 16 months of formal bankruptcy proceedings Judge Steven Rhodes approved a plan that
removed $7 billion of unsecured liabilities off its $18.5 billion debt. The plan approved on
November 7, 2014, features $1.7 billion in spending to restore services and infrastructure and
includes hiring 200 new police officers and 100 new firefighters in city that had an average
response time of an hour. The agreement also included an $816 million deal that has come to
be known as “the Grand Bargain”. The city is raising $816 million from a combination of state
funds and charitable donations tied to the Detroit Institute of Art. The money is being used to
significantly reduce the size of cuts to retiree benefits that were imposed in the bankruptcy deal.
The “Grand Bargain” also moves the art museum’s collection, one of the biggest and grandest
publicly-owned collections in the country, into a private trust that will keep the works in the city
and on display. In return for sparing the museum from privatization and retirees from steeper
cuts, Michigan’s state government gets a say in overseeing the city’s financial future.
CONCLUSION
Although activity has increased drastically in recent years the overall the Detroit investment real
estate market is expected to continue to lag many other Midwest and national markets.
© 2016 CBRE, Inc.
Neighborhood Analysis
12
Neighborhood Analysis
Location
The subject is in Milford and is considered a rural suburban location. Milford is situated in
northeast Oakland County, about 33 miles northwest of the Detroit Central Business District.
Boundaries
The neighborhood is loosely defined as a one mile ring around the subject. The neighborhood is
in Milford Village (primarily) and Milford Township.
Land Use
Land uses within the subject neighborhood consist of commercial primarily along Main Street and
residential off of the thoroughfare. Downtown Milford is 100+ years old and Main Street in the
downtown area is lined with zero lot line single and two story commercial or mixed use (some
second floor apartment or office space) buildings.
Outside of the downtown area is primarily residential, both single family and multifamily. The
area includes 100+ year old historic homes and new development on infill sites and
redeveloping single family lots.
There is ample green space that has been preserved as parks along the west side of town/Main
Street. The area is also surrounds by municipal and metro parks including Proud Lake
Recreation Area, Camp Dearborn and Kensington Metro Park.
© 2016 CBRE, Inc.
Neighborhood Analysis
13
Residential Development
The majority of the single-family residential development within a one mile radius of the subject
may be described as tract homes in the $125,000-$400,000 price range. According to Claritas,
the average home value within a one-mile radius is about $185,876.
According to information obtained from Claritas, development in the area has occurred rather
consistently since the 1950s. About 33% of the single family residential improvements were
constructed since 1990, and another 41% from 1950 through 1980. Additional growth is
forecasted and occurring in the area.
Growth Patterns
Milford grew as part of the suburban sprawled from the Detroit CBD. Milford is at the northern
edge of development and has realized some of the most recent growth in the area. With ample
amounts of vacant land available and additional growth occurring, the area is considered to be
in the growth phase of its economic life cycle.
Access
Primary access to the neighborhood is provided by the nearest freeway, I-96. Milford Road
provides direct access to I-96 about six miles south of the subject. I-96 is a main east/west
freeway in the area; it travels east to the city of Detroit and west to Lansing and Grand Rapids.
Freeway access is average for the neighborhood.
Demographics
Selected neighborhood demographics in 1-, 3-, and 5-mile radii from the subject are shown in
the following table:
© 2016 CBRE, Inc.
Neighborhood Analysis
14
SELECTED NEIGHBORHOOD DEMOGRAPHICS886-942 Creekwood LaneMilford, Michigan
Population
2021 Population 5,557 20,243 56,100
2016 Population 5,399 19,347 53,667
2010 Population 5,176 18,076 50,257
2000 Population 5,289 17,152 45,667
Annual Growth 2016 - 2021 0.58% 0.91% 0.89%
Annual Growth 2010 - 2016 0.71% 1.14% 1.10%
Annual Growth 2000 - 2010 -0.22% 0.53% 0.96%
Households
2021 Households 2,419 7,718 20,215
2016 Households 2,320 7,339 19,321
2010 Households 2,172 6,794 18,070
2000 Households 2,079 6,108 15,900
Annual Growth 2016 - 2021 0.84% 1.01% 0.91%
Annual Growth 2010 - 2016 1.10% 1.29% 1.12%
Annual Growth 2000 - 2010 0.44% 1.07% 1.29%
Income
2016 Median Household Income $72,985 $86,713 $89,807
2016 Average Household Income $96,255 $108,548 $110,047
2016 Per Capita Income $41,357 $41,176 $39,620
Age 25+ College Graduates - 2016 1,493 5,671 15,023
Age 25+ Percent College Graduates - 2016 40.0% 42.9% 42.0%
Source: Nielsen/Claritas
1 Mile 3 Miles 5 Miles
Conclusion
The neighborhood is displaying increasing household and population trends. Income
characteristics are well above MSA and County level averages. The neighborhood is a desirable
bedroom community in a school system with above average standardized testing scores. Overall
the neighborhood is considered to be above average relative to other metro Detroit markets.
© 2016 CBRE, Inc.
Site Analysis
15
Aerial Image
© 2016 CBRE, Inc.
Site Analysis
16
Site Analysis
The following chart summarizes the salient characteristics of the subject site.
SITE SUMMARY AND ANALYSIS
Physical DescriptionGross Site Area 2.00 Acres 87,115 Sq. Ft.
Net Site Area 2.00 Acres 87,115 Sq. Ft.
Primary Road Frontage Mont Eagle Street 209 Feet
Secondary Road Frontage N/A
Average Depth 417 Feet
Excess Land Area None n/a
Surplus Land Area None n/a
Shape
Topography
Zoning District
Flood Map Panel No. & Date 26125C0454F 29-Sep-06
Flood Zone Zone X
Adjacent Land Uses
Census Tract
Comparative AnalysisVisibility
Functional Utility
Traffic Volume
Adequacy of Utilities
Landscaping
Drainage
Utilities AdequacyWater Yes
Sewer Yes
Natural Gas Yes
Electricity Yes
Telephone Yes
Other Yes No UnknownDetrimental Easements X
Encroachments X
Deed Restrictions X
Reciprocal Parking Rights X
Source: Various sources compiled by CBRE
Assumed adequate
Adequate and attractive
ProviderMunicipal
Assumed adequate
Municipal
Consumers Energy
DTE
SBC
RatingGood
Adequate
Low, residential street
Rectangular
Downward sloping to the south
RM-1, Multiple Family Residential
1325.00
SFR, Multifamily, vacant
© 2016 CBRE, Inc.
Site Analysis
17
Environmental Issues
CBRE, Inc. is not qualified to detect the existence of potentially hazardous material or
underground storage tanks which may be present on or near the site. The existence of
hazardous materials or underground storage tanks may affect the value of the property. For this
appraisal, CBRE, Inc. has specifically assumed that the property is not affected by any hazardous
materials that may be present on or near the property.
Conclusion
The site has a functional shape, size and topography for a variety of legal development.
© 2016 CBRE, Inc.
Improvements Analysis
18
Improvements Analysis
The following chart shows a summary of the improvements.
IMPROVEMENTS SUMMARY AND ANALYSIS
Apartment
2003 Renovated: 0
Source: Various sources compiled by CBRE
Development Density
Parking Improvements
45 Years
Year Built
13 Years
Typical
Asphalt and garage parking
Total Economic Life
Functional Utility
Remaining Economic Life
Actual Age
Age/Life Depreciation
Effective Age
35 Years
22.2%
10 Years
11.5 Units/Acre
5
32,315 SF
30,315 SF
2-3
Number of Units
Average Unit Size
Number of Buildings
Number of Stories
Gross Building Area
1,318 SF
23
(Multi-family Garden)Property Type
Net Rentable Area
IMPROVEMENT DESCRIPTION & RATINGComparative/Condition Rating
Improvement Summary Description Good Avg. Fair Poor
Foundation Poured concrete basement walls X
Frame Wood/masonry X
Exterior Walls Vinyl, cultured stone X
Interior Walls Drywall X
Roof Pitched with asphalt shingles X
Ceiling Drywall X
HVAC System Forced air HVAC - split systems X
Tenant Paid Utilities Gas, electri and waterc X
Landlord Paid Utilities Trash X
Flooring Carpet, ceramic and vinyl tile X
Plumbing Assumed adequate X
Elevators/Stairwells Private interior stairs X
Life/Safety/Fire Protection Smoke detectors X
Complex Amenities Gazebo X
Unit Amenities Laundry, gaeages X
Furnishings Personal property excluded N/A
Parking Asphalt paving X
Landscaping Grass, gravel and natural forest courtyards with irrigated planted beds
X
Source: Various sources compiled by CBRE
© 2016 CBRE, Inc.
Improvements Analysis
19
UNIT MIX
Unit Mix/Type Comments No. UnitsPercent of
TotalUnit Size
(SF) NRA (SF)
2BR/1.5BA 1 car dettached garage, unfinished basement 4 17.4% 1,152 4,608
3BR/2.5BA 1 car attached garage 19 82.6% 1,353 25,707
Total/Average: 23 100.0% 1,318 30,315
Source: Various sources compiled by CBRE
ADA Compliance
Handicap ramps have been constructed for a couple of units. The client/reader’s attention is
directed to the specific limiting conditions regarding ADA compliance.
Furniture, Fixtures and Equipment
The apartment units are rented on an unfurnished basis. However, unit appliances, including an
electric stove, microwave, refrigerator and washer/dryer are included with each unit.
A cost estimate of the non-realty components appears below.
FF&E VALUE ESTIMATE
Cost New per Unit $3,000 $69,000
Percentage of units furnished with FF&E 100%
Cost New of FF&E $69,000
Effective Age 8 Years
MVS Expected Life 15 Years
Remaining Economic Life 7 Years
Less: Incurable Physical Deterioration 53.3%
Contributory Value of FF&E $32,200
Compiled by CBRE
Environmental Issues
CBRE, Inc. is not qualified to detect the existence of any potentially hazardous materials such as
lead paint, asbestos, urea formaldehyde foam insulation, or other potentially hazardous
construction materials on or in the improvements. The existence of such substances may affect
the value of the property. For the purpose of this assignment, we have specifically assumed there
are no hazardous materials that would cause a loss in value.
Property Condition/Deferred Maintenance
Our inspection of the subject revealed a newer property that shows well and appears well
maintained. Roofs are half way+/- through their economic lives. Appliance replacements have
occurred in the past few years, as has hot water tanks. Asphalt will need patching work in the
near term. Our (low) capital reserve estimate and age/life conclusion reflects the overall
condition of the property.
© 2016 CBRE, Inc.
Improvements Analysis
20
Economic Age and Life
CBRE, Inc.’s estimate of the subject improvements effective age and remaining economic life is
depicted in the following chart:
ECONOMIC AGE AND LIFE
Actual Age 13 Years
Effective Age 8 Years
MVS Expected Life 45 Years
Remaining Economic Life 37 Years
Accrued Physical Incurable Depreciation 17.8%
Compiled by CBRE
The remaining economic life is based upon our on-site observations and a comparative analysis
of typical life expectancies as published by Marshall and Swift, LLC, in the Marshall Valuation
Service cost guide. While CBRE, Inc. did not observe anything to suggest a different economic
life, a capital improvement program could extend the life expectancy.
Conclusion
The improvements are newer (2003) and are in good overall condition. The condition of the
property offers a competitive advantage over other multifamily properties in the market.
© 2016 CBRE, Inc.
Zoning
21
Zoning
The following chart summarizes the subject’s zoning requirements.
ZONING SUMMARYCurrent Zoning RM-1, Multiple Family Residential
Legally Conforming No - See Comments
Uses Permitted See comments
Zoning Change Not anticipated
Category Zoning Requirement
Minimum Lot Size 4,800 SF of site for each 2 bed and 6,000 SF per 3 bed unit
Minimum Lot Width 150 Feet
Maximum Height 30 Feet
Site Size Required Based on Units 133,200 Sq. Ft.Subject Site Size 87,115 Sq. Ft.
Source: Planning & Zoning Dept.
Intent
The RM-1, multiple-family residential districts are designed to provide sites for multiple-family
dwelling structures, and related uses, which will generally serve as the nonresidential districts and
zones of transition between lower density one-family districts. The multiple-family district is further
provided to serve the limited needs for the apartment type of unit in an otherwise medium
density, one-family community.
Principal Permitted Uses
In a multiple-family residential district, no building or land shall be used and no building shall be
erected, except for one or more of the following specified uses, unless otherwise provide in this
chapter:
(1) All uses in the RT, two-family residential district, permitted and as regulated under section 94-
97.
(2) Multiple-family dwellings.
(3) Boardinghouses.
(4) Townhouses in accordance with section 94-357.
(5) Accessory buildings and uses customarily incident to any of the above-permitted uses
Conclusion
The subject is zoned RM-1, Multiple Family Residential. The subject parcel is improved with
apartment buildings, which is a legal use for the zoning district. Based on the site size required
© 2016 CBRE, Inc.
Zoning
22
for each unit type, the number of units exceeds the zoning requirement. The subject appears to
be a legal but non-conforming development.
Zoning requirements are legal in nature and if additional information in required the user is
urged to contact the appropriate governmental authority.
© 2016 CBRE, Inc.
Tax and Assessment Data
23
Tax and Assessment Data
The assessor in the subject municipality maintains two assessments, the Taxable Value (TV) and
State Equalized Value (SEV). The Taxable Value is what the annual tax burden is based on in
Michigan and its annual increase is limited to the lesser of CPI or 5%. The State Equalized Value
is also reviewed each year and is to represent 50% of the property’s market value. When a
property sells, the State Equalized Value becomes the property’s new Taxable Value. There is
often a gap between the TV and the SEV if the property had not recently traded. As such,
following a sale, there could be an increase in the annual tax burden.
The subject development is assessed as 23 condominium units. The individual parcel IDs and the
two assessments are presented in the following table.
Parcel ID Address Taxable Assessment SEV Assessment16-11-377-003 906 Creekwood Lane $42,160 $60,29016-11-377-004 910 Creekwood Lane $41,910 $59,84016-11-377-005 914 Creekwood Lane $40,600 $57,62016-11-377-006 918 Creekwood Lane $40,380 $57,25016-11-377-007 926 Creekwood Lane $54,400 $81,79016-11-377-008 930 Creekwood Lane $54,540 $82,05016-11-377-009 934 Creekwood Lane $54,540 $82,05016-11-377-010 938 Creekwood Lane $54,540 $82,05016-11-377-011 942 Creekwood Lane $54,400 $81,79016-11-377-012 941 Creekwood Lane $54,400 $81,79016-11-377-013 937 Creekwood Lane $54,540 $82,05016-11-377-014 933 Creekwood Lane $54,960 $82,75016-11-377-015 929 Creekwood Lane $54,540 $82,05016-11-377-016 925 Creekwood Lane $54,400 $81,79016-11-377-017 921 Creekwood Lane $53,950 $81,00016-11-377-018 917 Creekwood Lane $54,100 $81,26016-11-377-019 913 Creekwood Lane $54,100 $81,26016-11-377-020 909 Creekwood Lane $54,100 $81,26016-11-377-021 905 Creekwood Lane $53,630 $80,43016-11-377-022 898 Creekwood Lane $55,350 $83,40016-11-377-023 894 Creekwood Lane $54,790 $82,44016-11-377-024 890 Creekwood Lane $54,790 $82,44016-11-377-025 886 Creekwood Lane $54,790 $82,440Totals $1,199,910 $1,791,090Municipal Records
SUMMARY OF PARCEL IDs AND ASSESSMENTS
Uncapping taxes to the SEVs will yield a property value below the $1,791,090 combine
assessments. Using the current $1,199,910 taxable assessment total is below the pro forma
value. Our conclusion is based on an uncapping to a level consistent with the pro forma value.
The total assessment used for the pro forma is $1,475,000 and equals an annual tax burden of
$88,685 or $3,856 per unit.
The taxes are summarized in the table below.
© 2016 CBRE, Inc.
Tax and Assessment Data
24
AD VALOREM TAX INFORMATION
Assessor's Market Value Parcel Description 2016 Taxable 2016 SEV Pro Forma
16-11-377-003 through 025 $1,199,910 $1,791,090
Subtotal $1,199,910 $1,791,090 $1,475,000
General Tax Rate (per $1,000 A.V.) 60.125300 60.125300 60.125300
Total Taxes $72,145 $107,690 $88,685
Taxes Per Unit $3,137 $4,682 $3,856
Source: Assessor's Office
Conclusion
The total assessment used for the pro forma is $1,475,000 and equals an annual tax burden of
$88,685 or $3,856 per unit.
Delinquent Taxes
CBRE’s review of municipal records indicates taxes are current.
© 2016 CBRE, Inc.
Market Analysis
25
Market Analysis
The market analysis forms a basis for assessing market area boundaries, supply and demand
factors, and indications of financial feasibility. Various data sources are utilized for this analysis.
The subject is considered a Class A garden-style apartment community. According to the Institute
of Real Estate Management (in Income/Expense Analysis: Conventional Apartments), the
following apartment property definitions may be applicable towards the subject:
High Rise Elevator Projects: This group is confined to elevator buildings, which are four stories or more in height. Low-Rise Projects (under 25 units): Includes walk-up buildings and elevator buildings 3 stories or less. Low-Rise Projects (25 units or more): Includes walk-up buildings and elevator buildings 3 stories or less. Garden Type Projects: We consider this to be a group of low-rise apartment buildings situated on a sizable landscaped plot, under one management.
Demographic Analysis
Demand for residential properties is a direct function of demographic characteristics analyzed on
the following pages.
Housing, Population and Household Formation
The following table illustrates the population and household changes for the subject
neighborhood with primary focus on the three radius.
© 2016 CBRE, Inc.
Market Analysis
26
POPULATION AND HOUSEHOLD PROJECTIONS
Population
2021 Population 5,557 20,243 56,100
2016 Population 5,399 19,347 53,667
2010 Population 5,176 18,076 50,257
2000 Population 5,289 17,152 45,667
Annual Growth 2016 - 2021 0.58% 0.91% 0.89%
Annual Growth 2010 - 2016 0.71% 1.14% 1.10%
Annual Growth 2000 - 2010 -0.22% 0.53% 0.96%
Households
2021 Households 2,419 7,718 20,215
2016 Households 2,320 7,339 19,321
2010 Households 2,172 6,794 18,070
2000 Households 2,079 6,108 15,900
Annual Growth 2016 - 2021 0.84% 1.01% 0.91%
Annual Growth 2010 - 2016 1.10% 1.29% 1.12%
Annual Growth 2000 - 2010 0.44% 1.07% 1.29%
Source: Nielsen/Claritas
1 Mile 3 Miles 5 Miles
As shown, the subject’s neighborhood is displaying positive trends in both population and
households.
Income Distributions
Household income available for expenditure on housing and other consumer items is a primary
factor in determining the price/rent level of housing demand in a market area. In the case of this
study, projections of household income, particularly for renters, identifies in gross terms the
market from which the subject submarket draws. The following table illustrates estimated
household income distribution for the subject neighborhood.
HOUSEHOLD INCOME DISTRIBUTION
Households by Income Distribution - 2016
Less than $15K 10.60% 6.89% 5.52%$15K - $25K 6.51% 4.74% 4.69%$25K - $35K 7.54% 6.17% 5.46%$35K - $50K 10.09% 10.67% 10.48%$50K - $75K 16.47% 15.30% 15.41%$75K - $100K 10.65% 12.90% 14.01%$100K - $150K 20.56% 22.59% 23.20%$150K - $250K 12.84% 13.91% 14.77%$250K - $500K 3.71% 5.23% 5.02%$500K or more 1.12% 1.58% 1.44%
Source: Nielsen/Claritas
1 Mile 3 Miles 5 Miles
© 2016 CBRE, Inc.
Market Analysis
27
The following table illustrates the median and average household income levels for the subject
neighborhood.
HOUSEHOLD INCOME LEVELS
Income
2016 Median Household Income $72,985 $86,713 $89,807
2016 Average Household Income $96,255 $108,548 $110,047
2016 Per Capita Income $41,357 $41,176 $39,620
Source: Nielsen/Claritas
1 Mile 3 Miles 5 Miles
An analysis of the income data indicates that the submarket is generally comprised of a middle-
income economic cohort group, which includes the target groups to which the subject is oriented.
Employment
An employment breakdown typically indicates the working class characteristics for a given market
area. The specific employment population within the indicated radii of the subject is as follows:
EMPLOYMENT BY INDUSTRY
Occupation
Agr/Frst/Fish/Hunt/Mine 0.07% 0.17% 0.20%Construction 7.35% 5.60% 5.30%Total Manufacturing 13.00% 18.65% 20.46%Wholesale Trade 2.36% 3.21% 3.19%Retail Trade 16.46% 12.95% 11.78%Transport/Warehse/Utils 1.89% 2.82% 2.64%Information 0.96% 1.45% 1.62%Fin/Insur/RE/Rent/Lse 8.53% 8.10% 7.68%Prof/Sci/Tech/Admin 7.00% 7.13% 8.04%Mgmt of Companies 0.00% 0.00% 0.01%Admin/Spprt/Waste Mgmt 6.43% 5.03% 4.90%Educational Svcs 7.35% 7.98% 7.74%Health Care/Soc Asst 13.57% 12.84% 12.74%Entertainment & Rec Services 2.64% 2.21% 2.00%Accommdtn/Food Svcs 5.07% 5.14% 5.78%Oth Svcs, Not Pub Admin 4.64% 4.37% 3.54%Public Administration 2.68% 2.36% 2.37%
Source: Nielsen/Claritas
1 Mile 3 Miles 5 Miles
The previous table illustrates the employment character of the submarket, indicating a
predominantly middle-income employment profile, with the majority of the population holding
manufacturing, healthcare and retail related jobs.
© 2016 CBRE, Inc.
Market Analysis
28
Outlook
Based on this analysis, the immediate area surrounding the subject is projected to experience
consistent demographic trends relative to households and population into the near future. Given
the area demographics, it appears that demand for both comparable surrounding area
apartment units and the subject will continue to be favorable.
Apartment Overview
PwC Real Estate Investor Survey
According to the 2Q 2015 PwC Real Estate Investor Survey, the average capitalization rate for the
national apartment reached a historic low in the 24-year history of the survey.
The supply of capital to real estate slowed beginning late summer 2007 and put upward pressure
on capitalization rates. HUD, Fannie Mae and Freddie Mac have kept capital flowing for
multifamily and, as a result, there had been little change in cap rates (relative to other property
types) until the third quarter of 2008. Similar to other property types multi-family cap rates have
realized more upward pressure since the third quarter of 2008. 2009 showed a significant
upward swing in the average overall rate reported by survey participants, with a 185 bps increase
from 4th quarter 2008 to 4th quarter 2009. Beginning in 2010 rates began to trend down.
Surveyed data through the 2nd quarter suggests the increase during 2008 and 2009 has trended
back downward to pre-recessionary levels. Levels were generally flat from 2011 through 2013,
and a slight downward trend has occurred through the end of 2014 and into 2015. First quarter
2016 surveyed results are the lowest reported by PwC in the history of the survey.
Capital Market Trends
Local banks, FNMA, Freddie, HUD, Insurance companies and CMBS are all active and provide
financing options in the multi-family market. The best terms are provided by the agencies for
70%+/- deals. CMBS will provide slightly higher LTVs (up to 80%) compared to FNMA and
© 2016 CBRE, Inc.
Market Analysis
29
Freddie. Insurance companies are extremely competitive for low lever and short amortization
deals. Local banks are most active for smaller deals and lender-owned and/or distressed
acquisitions, and recently they are more competitive on larger stabilized deals.
Metro Detroit Market Overview
The following discussion illustrates some observations in the greater Detroit apartment market. A
map outlining the sub-markets appears below.
Subject
© 2016 CBRE, Inc.
Market Analysis
30
In the Detroit area, Reis surveys 959 apartment communities and a total of 214,780 units as of
the 4th Q 2015. The defined market is divided into 13 submarkets; the subject is in the
Northwest Suburbs. The table above shows the lowest vacancy in the Westland Submarket. The
highest average rent is reported in the Troy Submarket, which includes the city of Birmingham.
Market/Submarket Analysis
The following discussion illustrates some observations in the greater Detroit apartment market.
The subject is within of the Northwest Suburbs market area covered by Reis.
Market statistics reflect the year-end 2015 based on data collected through the 4th Q 2015 for
the Southeast MI area as well as the submarket.
APARTMENT MARKET STATISTICS
Category Detroit AreaNorthwest
Suburbs
Market Sample Size 214,780 20,874
Occupied Units 209,189 20,227
Average Occupancy 97.4% 96.9%
Average Asking Rent $924 $952
Asking Rent Increase 2.4% 2.2%
Average Effective Rent $869 $876
Average Economic Loss 5.95% 7.98%
Effective Rent Change 2.6% 2.5%
Absorption 1,289 73
Absorption % of Sample 0.6% 0.3%
Date of Survey 4th Q 2015 4th Q 2015
Source: Reis
As of 4th Q 2015 the Detroit apartment market, from a sample size of 214,780, is reported to be
at 97.4% occupancy with another 5.95% in economic losses (rent concessions, losses from older
leases). Effective rents are forecasted to increase about 2.6% from the prior year.
The Northwest Suburbs (which the subject is located) is operating above the metro market with
occupancy of 96.9% from a sample size of 20,874 units. Rents are higher averaging $952 per
month, on an asking basis.
Economic losses between the metro and sub-market are higher in the sub-market. For both the
market and submarket, effective rent changes are greater than the asking rent changes indicating
economic losses are declining.
Market Trends – Metro Area
The table below presents the annual trends in rental rates and occupancy for the Detroit Area
and local submarket since 2000. The tables show actual historical figures through and future
forecasts through 2019. The metro area is presented first, followed by the submarket.
© 2016 CBRE, Inc.
Market Analysis
31
During the mid to late 1990s there was a significant increase in asking rents and net absorption
followed by a softening of the market in 2002. Vacancy increased through 2009 and declines
have occurred since that date. Rental rates are forecasted to continue to improve with vacancy
forecasted to remain near 3%.
Market Trends – Submarket
The Northwest Suburbs area forecasts are for similar trends as compared to the metro area, with
vacancy forecasted to stabilize near 3%.
© 2016 CBRE, Inc.
Market Analysis
32
Barriers to Entry
Recent soft demand (2010 and prior) had been the largest barrier to entry to the apartment
market. While the multifamily market has recovered dramatically, rental rates still do not support
construction costs in many metro Detroit markets. As rental rates continue to increase new
construction will become cost feasible in more markets. Feasibility is currently only for high-end
units in the good to best locations.
Demand Generators
Increased foreclosures have created more renters, which is a positive dynamic to apartment
communities. However there is a challenge qualifying these prospective residents. A by-product
of the foreclosure market is falling home prices, which, combined with record-low mortgage rates
has made home-ownership more affordable than it has been in years. However, qualifying for
mortgages has also become more difficult than in recent years and the subject is not marketed
toward renters that may become first-time home buyers.
Specific to the subject, Milford is a bedroom community on the northern fringe of development.
The area school system consistently performs at a level well above average based on
standardized testing scores, making the area popular with families with school-age children.
Income characteristics are above average.
Investment Trends
Apartment units are presently desirable assets of real estate investors. Metro Detroit occupancy
rates are as high as they have been in a decade or more. Rental rates have recovered
significantly over the past 18-24 months, and additional increases are forecasted into the near
term. Apartments significantly outperform all other commercial real estate asset types in this
market. Additionally, ample debt is available at attractive rates making multifamily the most
active and sought after property type. All of the local brokers report a shortage of inventory for
good product.
Competitive Properties
Comparable properties were surveyed in order to identify the current occupancy within the
competitive market. The comparable data is summarized in the following table:
© 2016 CBRE, Inc.
Market Analysis
33
SUMMARY OF COMPARABLE APARTMENT RENTALS
Comp. No. Name Location Occupancy
1 Ridge Valley Townhomes 574-650 Napa Valley Drive,Milford, MI
97%
2 Aberdeen of Brighton 4229 Deeside Drive,Brighton, MI
99%
3 Brookwood Farms 200 Brookwood Drive,South Lyon, MI
98%
4 Four Seasons 2649 Grove Circle,Commerce Township, MI
98%
5 Pendeleton Park 57715 Grand River Ave,New Hudson, MI
98%
Subject Creekwood Townhomes 886-942 Creekwood Lane,Milford, Michigan
100%
Compiled by CBRE
The majority of comparable properties surveyed reported occupancy rates of 95% or better, with
an average of 98.1% from a sample size of 576 units.
Subject Analysis
Historical occupancy detail was not provided for analysis. The current occupancy of the subject,
based on the rent roll analyzed dated, May 1, 2016, is 100.0%.
Conclusion
Based on the foregoing analysis, CBRE, Inc.’s conclusion of stabilized occupancy for the subject is
illustrated in the following table. This estimate considers both the physical and economic factors
of the market.
OCCUPANCY CONCLUSIONS
Detroit Area 97.4%
Northwest Suburbs 96.9%
Rent Comparables 98.1%
Subject's Current Occupancy 100.0%
Subject's Stabilized Occupancy 97.0%
Compiled by CBRE
Our concluded stabilized occupancy is based primarily on the submarket and rental
comparables.
© 2016 CBRE, Inc.
Highest and Best Use
34
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 the highest and best use must meet are:
legally permissible; physically possible; financially feasible; and maximally productive.
As Vacant
As noted, new development is financially feasible in strong markets. Therefore, the highest and
best use of the site, as vacant, would be for an apartment development that maximized the utility
of the site.
As Improved
The subject is a legal, non-conforming land use. The site has no current redevelopment
potential. The improvements contribute value to the site. The market occupancy is 97%+/-
occupied. Based on the foregoing, the highest and best use of the property, as improved, is to
continue to operate the subject as an apartment building leased to multiple tenants.
© 2016 CBRE, Inc.
Appraisal Methodology
35
Appraisal Methodology
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.
Cost Approach
The cost approach is based on 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
that represent the highest and best use of the land, or when it is improved with relatively unique
or specialized improvements for which there exist few sales or leases of comparable properties.
Sales Comparison Approach
The sales comparison approach utilizes sales of comparable properties, adjusted for differences,
to indicate a value for the subject. 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.
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.
Methodology Applicable to the Subject
In valuing the subject, only the sales comparison and income capitalization approaches are
applicable and have been used. The cost approach is not applicable in the estimation of market
value due to the age of the improvements and accrued depreciation. An insurable value has
been completed.
© 2016 CBRE, Inc.
Insurable Value
36
Insurable Value
Insurable value is defined as follows:
1. the value of an asset or asset group that is covered by an insurance policy; can be estimated by deducting costs of noninsurable items (e.g., land value) from market value.
2. value used by insurance companies as the basis for insurance. Often considered to be replacement or reproduction cost plus allowances for debris removal or demolition less deterioration and noninsurable items. Sometimes cash value or market value, but often entirely a cost concept. 5
3. a type of value for insurance purposes. 6
CBRE, Inc. has followed traditional appraisal standards to develop a reasonable calculation
based upon industry practices and industry-accepted publications such as the Marshall Valuation
Service. The methodology employed is a derivation of the cost approach and is not reliable for
insurable value estimates. Actual construction costs and related estimates can vary greatly from
this estimate.
The insurable value estimate presented herein is intended to reflect the value of the destructible
portions of the subject, based on the replacement of physical items that are subject to loss from
hazards (excluding indestructible items such as basement excavation, foundation, site work, land
value and indirect costs). In the case of the subject, this estimate is based upon the base building
costs (direct costs) as obtained via the Marshall Valuation Service handbook, with appropriate
deductions.
This analysis should not be relied upon to determine proper insurance coverage as only
consultants considered experts in cost estimation and insurance underwriting are qualified to
provide an insurable value. It is provided to aid the client/reader/user as part of their overall
decision making process and no representations or warranties are made by CBRE, Inc. regarding
the accuracy of this estimate and it is strongly recommended that other sources be utilized to
develop any estimate of insurable value.
5 Marshall & Swift/Boeckh, LLC, Marshall Valuation Service, (Los Angeles: Marshall & Swift/Boeckh, LLC, 2010), Sec 3,
p 2.
6 Appraisal Institute, The Dictionary of Real Estate Appraisal, 5th ed. (Chicago: Appraisal Institute, 2010), 102.
© 2016 CBRE, Inc.
Insurable Value
37
INSURABLE VALUE
Primary Building Type: Height per Story: 10'Effective Age: Number of Buildings: 5Condition: Gross Building Area: 32,315 SFExterior Wall: Net Rentable Area: 30,315 SFNumber of Units: Average Unit Size: 1,318 SFNumber of Stories: Average Floor Area: N/A
MVS Sec/Page 0 0 0 Garages 12/16/Aug 2014Quality/Bldg. Class 0 0 0 Average/D Good DComponent Sq. Ft. 0 SF 0 SF 0 SF 6,750 SF 25,565 SFBase Square Foot Cost $0.00 $0.00 $0.00 $35.00 $85.00
Square Foot RefinementsHeating and Cooling $0.00 $0.00 $0.00 $0.00 $4.00Subtotal $0.00 $0.00 $0.00 $35.00 $91.00
Height and Size RefinementsNumber of Stories Multiplier 0.00 0.000 0.000 1.000 1.000Height per Story Multiplier 0.00 0.000 0.000 1.000 1.000Floor Area Multiplier 0.00 0.000 0.000 1.000 1.000Subtotal $0.00 $0.00 $0.00 $35.00 $91.00
Cost MultipliersCurrent Cost Multiplier 0.00 0.00 0.00 1.00 1.00Local Multiplier 0.00 0.00 0.00 1.12 1.12
Final Square Foot Cost $0.00 $0.00 $0.00 $39.20 $101.92
Base Component Cost $0 $0 $0 $78,400 $1,100,736
Base Building Cost (via Marshall Valuation Service cost data) $1,179,136
Insurable Exclusions 10.0% of Total Building Cost ($117,914)
Indicated Insurable Value $1,061,222
Rounded $1,061,000
Value Per SF $32.84
Value Per Unit $46,130
Compiled by CBRE
2-323
Apartment8 YRSGoodWood frame
© 2016 CBRE, Inc.
Sales Comparison Approach
38
Sales Comparison Approach
The following map and table summarize the comparable data used in the valuation of the
subject. A detailed description of each transaction is included in the addenda.
SUMMARY OF COMPARABLE APARTMENT SALES
Year No. Avg. Unit Actual Sale Adjusted Sale Price Per NOI PerNo. Name Type Date Built Units Size Price Price 1 Unit 1 Occ. Unit OAR
1 Patio Des Las Fuentes Apartments,325 East 6th Street,Royal Oak, MI
Sale Jun-15 1964 10 1,195 $1,070,000 $1,070,000 $107,000 100% $7,843 7.33%
2 Hudson Apartments,605 W Hudson Avenue,Royal Oak, MI
Sale Dec-15 1924 4 700 $500,000 $500,000 $125,000 100% $7,080 5.66%
3 Pathfinder Duplexes,921-953 Pathfinder Road,Oxford, MI
Sale Jan-16 2013 8 1,350 $1,340,000 $1,340,000 $167,500 100% $10,998 6.57%
4 Parkside Apartments,810 W. Huron Street,Ann Arbor, MI
Sale Jul-15 1963 8 547 $1,200,000 $1,200,000 $150,000 100% $6,887 4.59%
5 Ridge Valley Townhomes,574-650 Napa Valley Drive,Milford, MI
Sale Mar-13 2005 33 1,379 $2,840,000 $2,840,000 $86,061 90% $7,530 8.75%
Subj.Pro
Forma
Creekwood Townhomes,886-942 Creekwood Lane,Milford, Michigan
--- --- 2003 23 1,318 --- --- --- 97% $8,134 ---
1 Adjusted sale price for cash equivalency, lease-up and/or deferred maintenance (where applicable)
Compiled by CBRE
Transaction
The sales utilized represent smaller apartment properties in the market area.
© 2016 CBRE, Inc.
Sales Comparison Approach
39
Discussion/Analysis of Improved Sales
Improved Sale One
Patio Des Las Fuentes Apartments is a 10 unit 2-story complex located on 6th Street just east of
Downtown in Royal Oak, MI. Unit sizes are larger and include two-story townhouse units leasing
from $975 to $1,100 per month. This property is in average condition for its age and offers large
units, laundry facilities and a pool in addition to a good location proximate downtown. The
property sold for $1,070,000, or $107,000 per unit. This price indicates a 7.33% capitalization
rate based on the broker's pro forma, which is based on current rents (likely below market) and
market expenses. Above market financing at 6.14% until 2017 must be assumed.
Improved Sale Two
This is the sale of a four unit building located just west of downtown Royal Oak, MI. The building
was constructed in 1924 and has been well maintained but the finishes (primarily kitchens and
baths) are dated. All four units are one bedroom rents for an average of $700 per month. Units
are metered for gas and electric and on site parking is provided, as well as common laundry and
storage lockers for each unit. The building sold January 2016 for $500,000 to an international
investor.
Improved Sale Three
This comparable represents the sale of a small, eight unit apartment complex comprised of four
duplex buildings in Oxford Township, MI. The buildings were constructed in 2013 on a 1.50
acre site. Each building is a three bed, two and a half bath unit with 1,350 SF over a full
basement with a one car attached garage. Finishes were good with hardwood floors, nice
cabinets and granite. Units rented for $1,750 plus gas and electric. The property was 100%
occupied when it traded January 2013 for $1,340,000 or $167,500 per unit. Assuming 4%
V&CL and current expenses (plus a small reserve) a 6.57% capitalization rate is indicated.
Improved Sale Four
This comparable consists of 8 units (17 beds) in one building located at 810 W. Huron Street in
Ann Arbor, Michigan. This property features exterior entrances that was constructed in the 1963
and is generally pretty dated with a lot of original finishes. It is a 2 story garden style apartment.
Onsite parking spaces are available. The complex features 7 two-bedroom units and 1 three-
bedroom unit. The property is zoned R4C. Electric is separately metered and paid directly by the
tenant, the landlord pays gas and water/sewer and trash. The property sold for $1,200,000 or
$150,000 per unit or $70,588 per bed; this was an off market transaction. Based on current
rents and market expenses (uncapped taxes, 5% mgmt. fee, $150/bed reserve) indicated a
4.59% capitalization rate and an EGIM of 10.37.
Improved Sale Five
This comparable represents a 33-unit townhouse property located along Napa Valley Drive in
Milford Township, Oakland County, Michigan. The development was originally built in 2006 as
© 2016 CBRE, Inc.
Sales Comparison Approach
40
condominiums and has been rented as apartments due to poor economic conditions. Units
include two and three--bedroom units and range from 1,300 to 1,500-square feet in size. Unit
amenities include deluxe appliances, in-unit washers and dryers, private patios and balconies,
and direct entry garages. Upgraded units include fireplaces and some unit types include
basements. Water and sewer are included and residents pay all other utilities. The property was
originally listed for $3,400,000 and sold in March 2013 for $2,840,000, or $86,061 per unit.
The property was about 90% occupied at the time of sale. According to the broker, the property
represented a broken condo at the time of sale and was considered a distressed sale. The broker
quoted a OAR of 8.75%, which he stated is above market for the area. Under different
conditions, the broker indicated the property would have sold for 0.75 to 1.00 basis points lower
than the OAR indicated in this most recent sale. This transaction was part of a 1031 exchange
involving the Hyde Park Townhomes in Detroit, which was purchased by the same buyer one day
prior to the transaction.
Summary of Adjustments
Comparable Five was a distressed sale and was adjusted upward. Market conditions are
improving and an annual adjustment of 5% is applied. A location adjustment is applied to
Comparables One, Two and Four for the superior they are located. Age/condition adjustments
are applied as appropriate. Average unit size adjustments are also applied as needed.
Complexes lacking garages are adjusted upward. Comparable Five was operating slightly below
market when it traded and is adjusted upward.
Based on our comparative analysis, the following chart summarizes the adjustments warranted to
each comparable.
© 2016 CBRE, Inc.
Sales Comparison Approach
41
APARTMENT SALES ADJUSTMENT GRID
Comparable Number 1 2 3 4 5Subj.Pro
FormaTransaction Type Sale Sale Sale Sale Sale ---Transaction Date Jun-15 Dec-15 Jan-16 Jul-15 Mar-13 ---
Year Built 1964 1924 2013 1963 2005 2003
No. Units 10 4 8 8 33 23
Avg. Unit Size 1,195 700 1,350 547 1,379 1318Actual Sale Price $1,070,000 $500,000 $1,340,000 $1,200,000 $2,840,000 ---Adjusted Sale Price 1 $1,070,000 $500,000 $1,340,000 $1,200,000 $2,840,000 ---Price Per Unit 1 $107,000 $125,000 $167,500 $150,000 $86,061 ---
Occupancy 100% 100% 100% 100% 90% 97%
NOI Per Unit $7,843 $7,080 $10,998 $6,887 $7,530 $7,862
OAR 7.33% 5.66% 6.57% 4.59% 8.75% ---Adj. Price Per Unit $107,000 $125,000 $167,500 $150,000 $86,061
Property Rights Conveyed 0% 0% 0% 0% 0%Financing Terms 1 0% 0% 0% 0% 0%
Conditions of Sale 0% 0% 0% 0% 10%
Market Conditions (Time) 5% 2% 2% 4% 16%Subtotal - Price Per Unit $112,350 $127,500 $170,850 $156,000 $109,813
Location -10% -10% 0% -25% 0%
Project Size 0% -20% -10% -20% 0%
Age/Condition 25% 25% 0% 10% 0%
Quality of Construction 0% 0% 0% 0% 0%
Avg. Unit Size 0% 10% 0% 25% 0%
Garages 10% 10% 0% 10% 0%
Utility Charges 0% 0% 0% 0% 0%
Occupancy 0% 0% 0% 0% 5%
Total Other Adjustments 25% 15% -10% 0% 5%
Indicated Value Per Unit $140,438 $146,625 $153,765 $156,000 $115,304
Absolute Adjustment 50% 77% 12% 94% 31%1 Adjusted for cash equivalency, lease-up and/or deferred maintenance (where applicable)
Compiled by CBRE
Comparables Three and Five are smaller, newer developments in similar quality suburbs and
considered excellent indicators for the subject.
Sales Comparison Approach Conclusion
The following table presents the estimated value for the subject as indicated by the sales
comparison approach.
© 2016 CBRE, Inc.
Sales Comparison Approach
42
SALES COMPARISON APPROACH
Total Units X Value Per Unit = Value
23 X $115,000 = $2,645,000
23 X $150,000 = $3,450,000
VALUE CONCLUSION
Indicated Value $3,000,000
Value Per Unit $130,435
Compiled by CBRE
© 2016 CBRE, Inc.
Income Capitalization Approach
43
Income Capitalization Approach
The following map and table summarize the primary comparable data used in the valuation of
the subject. A detailed description of each transaction is included in the addenda.
SUMMARY OF COMPARABLE APARTMENT RENTALS
Comp. No. Property Name Location
Year Built Occ.
No. Units
1 2005 97% 33
2 2006 99% 72
3 1996 98% 166
4 2014 98% 98
5 1999 98% 240
Subj. Creekwood Townhomes 886-942 Creekwood Lane,Milford, Michigan
2003 100% 23
Compiled by CBRE
Aberdeen of Brighton
Ridge Valley Townhomes 574-650 Napa Valley Drive,Milford, MI
Brookwood Farms
Pendeleton Park 57715 Grand River Ave,New Hudson, MI
200 Brookwood Drive,South Lyon, MI
4229 Deeside Drive,Brighton, MI
2649 Grove Circle,Commerce Township, MI
Four Seasons
© 2016 CBRE, Inc.
Income Capitalization Approach
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The rentals utilized represent the best data available for comparison with the subject. They are
the newer properties most proximate to the subject; the search was expanded outside of Milford
given the small market size and limited inventory for newer rental projects.
Discussion/Analysis of Rent Comparables
Rent Comparable One
Ridge Valley Townhomes are located on the north side of Milford, MI. The community provides
33 two and three bedroom townhouse units each with a one car attached garage. The buildings
were constructed in 2005 on 3.4 acres. Rents are $1,300 for a two bedroom unit and $1,600
for a three bedroom unit. Water usage is included with rent. There is one vacant unit indicating
97% occupancy.
Rent Comparable Two
Aberdeen of Brighton is located just north of Grand River Avenue near downtown Brighton. The
project started as a for sale condo project and transitioned to a rental project when the market
turned in 2008. Units are stacked ranch style with two or three bedrooms and a one or two car
attached garage. Unit amenities are very good and complex amenities are minimal. Unit sizes
range from 1,224 to 1,739 SF and rents range from $1,389 to $1,789 plus all utilities.
Occupancy is 99%.
Rent Comparable Three
Brookwood Farms is a luxury apartment complex located along the south side of 10 Mile Road
between Pontiac Trail and Milford Roads in South Lyon, MI. This two-story property features a
brick, wood, and vinyl exterior, pitched and asphalt shingled roof, and was constructed in 1996.
The complex features a variety of units ranging from 736 SF one-bedroom units to 1,300 SF
three-bedroom units. Utilities include water, sewer, and trash. Good unit and complex amenities
are provided, including an indoor and outdoor pool. Current occupancy is 98%.
Rent Comparable Four
Four Seasons Apartments is an apartment project developed in 2014 located off of Grove Street
west of Union Lake Road in Commerce Township, MI. The project includes single story
apartment homes all with two bedrooms, two bathrooms and two car attached garages with
private entrances. All units are 1,294 SF and rents range from $1,515 to $1,615 per month plus
all utilities. Occupancy is reported at 98%.
Rent Comparable Five
Pendleton Park is a 240-unit, garden-style, luxury apartment community located on the north side
of Grand River Ave, just south of I-96 and west of Milford Rd in the Charter Township of Lyon,
Oakland County, MI. The property was constructed in 1999 and is situated on a 17.41 acre
parcel. The community consists of 12 two and three-story buildings of wood fram construction,
brick & vinyl exterior, and asphalt shingle pitched roofs. Amenities include 126 carports, a
© 2016 CBRE, Inc.
Income Capitalization Approach
45
clubhouse with leasing offices, lounge area, fitness center, business center, locker rooms,
sundeck, pool, and spa. All units feature a patio or balcony and washer and dryer, and select
units feature gas fireplaces and cathedral ceilings. Occupancy is 98% with rents ranging from
$895 to $1,490 plus gas and electric.
Subject Rental Information
The following table shows the subject’s unit mix and quoted rental rates.
SUBJECT RENTAL INFORMATIONNo. of Unit Unit Current Market Rent+/- Rent
Type Units Size (SF) Occ. Leases $/Unit Per SF
2BR/1.5BA 4 1,152 SF 100.0% $1,025-$1,125 $1,100 $0.95
3BR/2.5BA 19 1,353 SF 100.0% $1,165-$1,475 $1,375 $1.02 Total/Average: 23 1,318 SF 100.0% ----- $1,327 $1.01
Compiled by CBRE
There is a wide range of rents for each unit type due to various levels of upgrade (from original)
and size. Sizes shown and “market” rents are the predominate rates on the rent roll.
Two-Bedroom Units
SUMMARY OF COMPARABLE RENTALSTWO BEDROOM UNITS
Rental RatesComparable Plan Type Size $/Mo. $/SFBrookwood Farms 2 BR/2 BR 1,154 SF $1,045 $0.87
Brookwood Farms 2 BR/1 BA 1,079 SF $960 $0.89
Brookwood Farms 2 BR/2 BR 1,063 SF $990 $0.90
Subject (Quoted Rent) 2BR/1.5BA 1,152 SF $1,100 $0.95
Brookwood Farms 2 BR/2 BR 1,057 SF $990 $0.98
Ridge Valley Townhomes 2BR/2.5BA 1,300 SF $1,300 $1.00
Brookwood Farms 2 BR/2 BR 1,015 SF $1,045 $1.05
Pendeleton Park 2BR/2BA 1,060 SF $1,125 $1.06
Aberdeen of Brighton 2BR/2BA 1,474 SF $1,579 $1.07
Pendeleton Park 2BR/2BA 1,115 SF $1,195 $1.07
Aberdeen of Brighton 2BR/2BA 1,224 SF $1,389 $1.13
Aberdeen of Brighton 2BR/2BA 1,421 SF $1,609 $1.13
Four Seasons 2BR/2BA 1,294 SF $1,515 $1.21
Compiled by CBRE
The units in the table above include all of the two bedroom units surveyed. The units surveyed
range from about $960 to $1,609 per month and the subject units range from $1,025-$1,125
per month. On a per square foot basis the subject units are at toward the bottom of the range
with a unit size toward the middle of the range. Utility expenses at the comparables are generally
consistent with the subject with tenants paying gas and electric, and two of the complexes, Four
© 2016 CBRE, Inc.
Income Capitalization Approach
46
Seasons and Aberdeen, also charging for water. Based on its location in Milford, garage and
townhouse styling Ridge Valley is most similar to the subject; these rents are $1,300 per month.
Current rents at the subject being achieved and are supported by the comparables, however
there appears to be room to increase rents. Market rent near current rents will be used in the pro
forma analysis.
Three-Bedroom Units
SUMMARY OF COMPARABLE RENTALSTHREE BEDROOM UNITS
Rental RatesComparable Plan Type Size $/Mo. $/SFBrookwood Farms 3 BR/2 BR 1,166 SF $1,095 $0.95
Brookwood Farms 3 BR/2 BR 1,216 SF $1,155 $0.95
Pendeleton Park 3BR/2BA 1,474 SF $1,490 $1.01
Subject (Quoted Rent) 3BR/2.5BA 1,353 SF $1,375 $1.02
Aberdeen of Brighton 3BR/2BA 1,739 SF $1,789 $1.03
Pendeleton Park 3BR/2BA 1,216 SF $1,250 $1.03
Ridge Valley Townhomes 3BR/2.5BA 1,500 SF $1,600 $1.07
Aberdeen of Brighton 3BR/2BA 1,412 SF $1,609 $1.14
Compiled by CBRE
The units in the table above include all of the three bedroom units surveyed. The units surveyed
range from $1,095 to $1,609 per month and the subject units range from $1,165-$1,475 per
month. On a per square foot basis the subject units are at toward the middle of the range with a
unit size toward the middle of the range. Utility expenses at the comparables are generally
consistent with the subject with tenants paying gas and electric, and two of the complexes, Four
Seasons and Aberdeen, also charging for water. Current rents at the subject being achieved and
are supported by the comparables, however there appears to be room to increase rents. Market
rent near current rents will be used in the pro forma analysis.
Market Rent Conclusions
The following chart shows the market rent conclusions for the subject:
MARKET RENT CONCLUSIONS
No. Unit Monthly Rent Annual Rent AnnualUnits Unit Type Size Total SF $/Unit $/SF PRI $/Unit $/SF Total
4 2BR/1.5BA 1,152 SF 4,608 SF $1,100 $0.95 $4,400 $13,200 $11.46 $52,800
19 3BR/2.5BA 1,353 SF 25,707 SF $1,375 $1.02 $26,125 $16,500 $12.20 $313,500
23 1,318 SF 30,315 SF $1,327 $1.01 $30,525 $15,926 $12.08 $366,300
Compiled by CBRE
© 2016 CBRE, Inc.
Income Capitalization Approach
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Rent Roll Analysis
The rent roll analysis serves as a crosscheck to the estimate of market rent for the subject. The
collections shown on the rent roll include rent premiums and/or discounts.
RENT ROLL ANALYSIS
Total TotalRevenue Component Monthly Rent Annual Rent
23 Occupied Units at Contract Rates $28,515 $342,180
0 Vacant Units at Market Rates $0 $0
23 Total Units @ Contract Rent $28,515 $342,180
23 Total Units @ Market Rent $30,525 $366,300
Indicated Economic Loss (older leases and concessions) -6.58%
Compiled by CBRE
The analysis is based on a rent roll dated May 1, 2016. Rents for the 23 occupied units analyze
contract rent compared to “market” rent conclusion. The community-wide indicated loss from
asking to contract rent is -6.58%, according to the rent roll provided. The loss is attributable to
the older leases not keeping up with the increases.
Potential Rental Income Conclusion
Within this analysis, potential rental income is estimated based upon the previous table.
Operating History
The following table presents available operating data for the subject.
OPERATING HISTORY
Year-Occupancy 2014 2015Thru April 2016
Annualized
Total $/Unit Total $/Unit Total $/UnitIncome
Effective Gross Income $327,857 $14,255 $333,911 $14,518 $348,300 $15,143
ExpensesReal Estate Taxes $70,231 $3,054 $70,987 $3,086 $72,145 $3,137Property Insurance 24,224 1,053 14,109 613 11,733 510 Utilities 4,438 193 3,753 163 5,352 233 Administrative & General 1,308 57 213 9 28,857 1,255 Maintenance & Operating 53,509 2,326 60,900 2,648 75,795 3,295 Management Fee ¹ 19,734 858 13,923 605 22,170 964 Advertising & Promotion - - - - - - Reserves/Capital - - - - - - Operating Expenses $173,444 $7,541 $163,885 $7,125 $216,052 $9,394
Net Operating Income $154,413 $6,714 $170,026 $7,392 $132,248 $5,750
¹ (Mgmt. typically analyzed as a % of EGI) 6.0% 4.2% 6.4%
Source: Operating statements
N/A N/A N/A
© 2016 CBRE, Inc.
Income Capitalization Approach
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Loss to Lease/Concessions
Within the local market, buyers and sellers typically recognize a reduction in potential rental
income due to the difference between market and contract rental rates. This difference is known
as a loss to older leases, and occurs when rental rates are increasing or decreasing.
Rent discounts are often given to spur leasing; these discounts are referred to as concessions.
Minimal concessions are given at the subject or in the market.
No deduction is applied for either.
Vacancy
The subject’s estimated stabilized occupancy rate was previously discussed in the market analysis.
The concluded vacancy is 3.00%.
Credit Loss
A market-oriented loss of 1.00% is included.
Other Income
Laundry, late fees, application fees, etc. represent this income category. Historical detail was not
available for analysis. No other income is included in the analysis.
Effective Gross Income
The subject’s effective gross income is detailed as follows:
EFFECTIVE GROSS INCOME
Year Total % Change
2014 $327,857 ---
2015 $333,911 2%
Thru April 2016 Annualized $348,300 4%
CBRE Estimate $351,648 1%
Compiled by CBRE
The conclusion is supported by the in-place income (of $342,180) and upward trend.
Operating Expense Analysis
Expense Comparables
The following chart summarizes expenses obtained from recognized industry publications and/or
comparable properties.
© 2016 CBRE, Inc.
Income Capitalization Approach
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EXPENSE COMPARABLES
Comparable Number 1 2 3 4
Location Oxford Richmond Detroit Roseville
No. Units 8 8 28 48
Year Built 2013 2015 1997 2003
Tenant Pays Gas & Electric All Utilities Gas & Electric Gas & Electric
Expense Year 2015 2016 Budget June 2015 Annualized 2014
Revenues $/Unit $/Unit $/Unit $/UnitEffective Gross Income $19,800 $14,847 $7,119 $7,979
Expenses
Real Estate Taxes $3,025 $2,199 $797 $924
Property Insurance 493 150 528 249
Utilities 644 - 352 573
Administrative & General 250 - 100 292
Maintenance & Operating 1,838 594 577 731
Management Fee ¹ 1,000 445 427 1,216
Advertising & Promotion - - 67 43
Reserves/Capital - - - -
Operating Expenses $7,250 $3,388 $2,848 $4,028
Operating Expense Ratio 36.6% 22.8% 40.0% 50.5%
¹ (Mgmt. typically analyzed as a % of EGI) 5.1% 3.0% 6.0% 15.2%
Compiled by CBRE
A discussion of each expense category is presented on the following pages.
Real Estate Taxes
The comparable data and projections for the subject are summarized as follows:
REAL ESTATE TAXES
Year Total $/Unit
2014 $70,231 $3,054
2015 $70,987 $3,086
Thru April 2016 Annualized $72,145 $3,137
Expense Comparable 1 N/A $3,025
Expense Comparable 2 N/A $2,199
Expense Comparable 3 N/A $797
Expense Comparable 4 N/A $924
CBRE Estimate $88,685 $3,856
Compiled by CBRE
Taxes were discussed in the tax section.
© 2016 CBRE, Inc.
Income Capitalization Approach
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Property Insurance
Property insurance expenses typically include fire and extended coverage and owner’s liability
coverage. The comparable data and projections for the subject are summarized as follows:
PROPERTY INSURANCE
Year Total $/Unit
2014 $24,224 $1,053
2015 $14,109 $613
Thru April 2016 Annualized $11,733 $510
Expense Comparable 1 N/A $493
Expense Comparable 2 N/A $150
Expense Comparable 3 N/A $528
Expense Comparable 4 N/A $249
CBRE Estimate $10,925 $475
Compiled by CBRE
Historical levels and the downward trend are market supported and relied upon.
Utilities
Utility expenses include common (exterior) electricity and utilities during vacancy only. The
comparable data and projections for the subject are summarized as follows:
UTILITIES
Year Total $/Unit
2014 $4,438 $193
2015 $3,753 $163
Thru April 2016 Annualized $5,352 $233
Expense Comparable 1 N/A $644
Expense Comparable 2 N/A $0
Expense Comparable 3 N/A $352
Expense Comparable 4 N/A $573
CBRE Estimate $4,600 $200
Compiled by CBRE
The subject’s historical levels are relied upon.
Administrative & General
Administrative & General expenses typically include legal costs, accounting, telephone, supplies,
furniture, temporary help and items that are not provided by off-site management. Non
collections are also included in this category. The comparable data and projections for the
subject are summarized as follows:
© 2016 CBRE, Inc.
Income Capitalization Approach
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ADMINISTRATIVE & GENERAL
Year Total $/Unit
2014 $1,308 $57
2015 $213 $9
Thru April 2016 Annualized $28,857 $1,255
Expense Comparable 1 N/A $250
Expense Comparable 2 N/A $0
Expense Comparable 3 N/A $100
Expense Comparable 4 N/A $292
CBRE Estimate $2,300 $100
Compiled by CBRE
Historical and comparable levels are relied upon.
Maintenance and Operating
Maintenance and Operating expenses typically include all outside maintenance service contracts
and the cost of maintenance and repairs supplies, unit turns, etc. The comparable data and
projections for the subject are summarized as follows:
MAINTENANCE & OPERATING
Year Total $/Unit
2014 $53,509 $2,326
2015 $60,900 $2,648
Thru April 2016 Annualized $75,795 $3,295
Expense Comparable 1 N/A $1,838
Expense Comparable 2 N/A $594
Expense Comparable 3 N/A $577
Expense Comparable 4 N/A $731
CBRE Estimate $34,500 $1,500
Compiled by CBRE
Historical levels are high and include primarily capital items. Considering a reserve is included in
the pro forma a conclusion below the subject range is concluded.
Management Fee
Management expenses are typically negotiated as a percentage of collected revenues (i.e.,
effective gross income). The comparable data and projections for the subject are summarized as
follows:
© 2016 CBRE, Inc.
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MANAGEMENT FEE
Year Total % EGI
2014 $19,734 6.0%
2015 $13,923 4.2%
Thru April 2016 Annualized $22,170 6.4%
Expense Comparable 1 N/A 5.1%
Expense Comparable 2 N/A 3.0%
Expense Comparable 3 N/A 6.0%
Expense Comparable 4 N/A 15.2%
CBRE Estimate $17,582 5.0%
Compiled by CBRE
A market-oriented fee for a 3rd manager reflecting the size of the subject is concluded.
Advertising and Promotion
Advertising and promotion expenses typically include all costs associated with the promotion of
the subject including advertisements in local publications, trade publications, yellow pages, et
cetera. The comparable data and projections for the subject are summarized as follows:
ADVERTISING & PROMOTION
Year Total $/Unit
2014 $0 $0
2015 $0 $0
Thru April 2016 Annualized $0 $0
Expense Comparable 1 N/A $0
Expense Comparable 2 N/A $0
Expense Comparable 3 N/A $67
Expense Comparable 4 N/A $43
CBRE Estimate $230 $10
Compiled by CBRE
Our conclusion includes a minimal level for advertising.
Reserves for Replacement
Our conclusion of $250 is based on excellent age and condition of the property.
Operating Expense Conclusion
The comparable data and projections for the subject are summarized as follows:
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Income Capitalization Approach
53
OPERATING EXPENSES
Year Total $/Unit
2014 $173,444 $7,541
2015 $163,885 $7,125
Thru April 2016 Annualized $216,052 $9,394
Expense Comparable 1 N/A $7,250
Expense Comparable 2 N/A $3,388
Expense Comparable 3 N/A $2,848
Expense Comparable 4 N/A $4,028
CBRE Estimate $164,572 $7,155
Compiled by CBRE
Net Operating Income Conclusion
The comparable data and projections for the subject are summarized as follows:
NET OPERATING INCOME
Year Total $/Unit
2014 $154,413 $6,714
2015 $170,026 $7,392
Thru April 2016 Annualized $132,248 $5,750
CBRE Estimate $187,076 $8,134
Compiled by CBRE
Direct Capitalization
Direct capitalization is a method used to convert a single year’s estimated stabilized net operating
income into a value indication. The following subsections represent different techniques for
deriving an overall capitalization rate.
Comparable Sales
The overall capitalization rates (OARs) confirmed for the comparable sales analyzed in the sales
comparison approach are as follows:
COMPARABLE CAPITALIZATION RATESSale Sale Price
Sale Date $/Unit Occupancy OAR
1 Jun-15 $107,000 100% 7.33%
2 Dec-15 $125,000 100% 5.66%
3 Jan-16 $167,500 100% 6.57%
4 Jul-15 $150,000 100% 4.59%
5 Mar-13 $86,061 90% 8.75%
Indicated OAR: 96% 4.59%-7.33%
Compiled by: CBRE
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Income Capitalization Approach
54
The overall capitalization rates for these sales were derived based upon the actual or pro-forma
income characteristics of the property. Sale Five is an older transaction and considered less
representative.
Published Investor Surveys
The results of the most recent investor surveys are summarized in the following chart.
OVERALL CAPITALIZATION RATESInvestment Type OAR Range Average
CBRE Detroit (multifamily) Year-End 2015
Class A 6.25% - 7.00% 6.63%
Class B 6.75% - 7.50% 7.13%
Class C 7.75% - 9.00% 8.38%
RealtyRates.com
Apartments 4.23% - 13.13% 8.69%
Garden/Suburban TH 4.23% - 11.84% 7.96%
Hi-Rise/Urban TH 5.20% - 13.13% 8.94%
Student Housing 4.89% - 12.66% 9.09%
Indicated OAR: 6.25%-7.00%
Compiled by: CBRE
The subject is considered to be a Class A property. The best indicator is the bottom of the range
of the local (Detroit metro) survey prepared by CBRE.
Market Participants
In deriving an appropriate overall capitalization rate for the subject, market participants were
interviewed and consulted to gather applicable information. Real estate professionals that are
active in the local market are consistently interviewed for rates, trends, etc. They indicated that
they believe the subject would trade in the 6.00%+ range.
Band of Investment
The band of the investment technique has been utilized as a crosscheck to the foregoing
techniques. The Mortgage Interest Rate and the Equity Dividend Rate (EDR) are based upon
current market yields for similar investments. The analysis is shown in the following table.
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Income Capitalization Approach
55
BAND OF INVESTMENTMortgage Interest Rate 4.25%
Mortgage Term (Amortization Period) 30 Years
Mortgage Ratio (Loan-to-Value) 70%
Mortgage Constant (monthly payments) 0.05903
Equity Dividend Rate (EDR) 10%
Mortgage Requirement 70% x 0.05903 = 0.04132
Equity Requirement 30% x 0.10000 = 0.03000
100% 0.07132
Indicated OAR: 7.10%
Compiled by: CBRE
Debt Coverage Ratio
The debt coverage ratio (DCR) is the ratio of net operating income to annual debt service and
measures the ability of a given property to meet its debt service out of net operating income.
Utilizing data obtained from knowledgeable mortgage finance professionals, the subject’s
projected NOI can be tested for reasonableness against the market’s typical loan parameters to
determine whether or not the DCR is positive. This analysis is shown in the following table.
DEBT COVERAGE RATIO ANALYSISEstimated As Is Value $2,850,000
Mortgage Ratio (Loan-to-Value) 70%
Estimated Mortage Loan Amount $1,995,000
Mortgage Interest Rate 4.25%
Mortgage Term (Amortization Period) 30 Years
Mortgage Constant (monthly payments) 0.05903
Annual Debt Service (monthly payments) $117,770
Estimated NOI $180,816
Estimated Debt Coverage Ratio (DCR) 1.54
Market Debt DCR 1.40
Positive DCR? (Y or N) Yes
Compiled by: CBRE
Capitalization Rate Conclusion
The following chart summarizes the OAR conclusions.
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Income Capitalization Approach
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OVERALL CAPITALIZATION RATE - CONCLUSIONSource Indicated OAR
Comparable Sales 4.59%-7.33%
Published Surveys 6.25%-7.00%
Market Participants 6.00%+
Band of Investment 7.10%
CBRE Estimate 6.50%
Compiled by: CBRE
The above OAR is considered appropriate for the following reasons:
Strengths/ Opportunities
New buildings with nice finishes Desirable suburb Minimal competition for high-end rentals Room to increase rents Future opportunity to sell as condos, market conditions warranted
Weaknesses/ Threats
Small complex (only appears to local investors) High taxes due to individual assessments Top of the market pricing
Direct Capitalization Summary
A summary of the direct capitalization is illustrated in the following chart.
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Income Capitalization Approach
57
DIRECT CAPITALIZATION SUMMARY
Income $/Door/Mo. $/Unit/Yr Total Potential Rental Income $305 $15,926 $366,300Vacancy 3.00% (9) (478) (10,989) Credit Loss 1.00% (3) (159) (3,663)
Net Rental Income $293 $15,289 $351,648
ExpensesReal Estate Taxes $3,856 $88,685Property Insurance 475 10,925 Utilities 200 4,600 Administrative & General 100 2,300 Maintenance & Operating 1,500 34,500 Management Fee 5.00% 764 17,582 Advertising & Promotion 10 230 Reserves/Capital 250 5,750
Operating Expenses $7,155 $164,572
Operating Expense Ratio 46.80%
Net Operating Income $8,134 $187,076
OAR / 6.50%
Indicated Value $2,878,089
Rounded $2,880,000
Value Per Unit $125,217
Compiled by CBRE
Conclusion of Income Capitalization Approach
The conclusion via the valuation method employed for this approach is as follows:
INCOME CAPITALIZATION APPROACH VALUEDirect Capitalization Method $2,880,000
Compiled by CBRE
© 2016 CBRE, Inc.
Reconciliation of Value
58
Reconciliation of Value
The value indications from the approaches to value are summarized as follows:
SUMMARY OF VALUE CONCLUSIONSSales Comparison Approach $3,000,000
Income Capitalization Approach $2,880,000
Reconciled Value $2,950,000
Compiled by CBRE
The cost approach typically gives a reliable value indication when there is strong support for the
replacement cost estimate and when there is minimal depreciation. Considering the amount of
depreciation present in the property, the reliability of the cost approach is considered somewhat
diminished. Therefore, the cost approach is considered less applicable to the subject and was
therefore not applied.
In the sales comparison approach, the subject is compared to similar properties that have been
sold recently or for which listing prices or offers are known. The sales used in this analysis are
considered comparable to the subject, and the required adjustments were based on reasonable
and well-supported rationale. In addition, market participants are currently analyzing purchase
prices on investment properties as they relate to available substitutes in the market. Therefore,
the sales comparison approach is considered to provide a reliable value indication, but has been
given secondary emphasis in the final value reconciliation.
The income capitalization approach is applicable to the subject since it is an income producing
property leased in the open market. Market participants are primarily analyzing properties based
on their income generating capability. Therefore, the income capitalization approach is
considered a reasonable and substantiated value indicator and has been given primary emphasis
in the final value estimate.
Based on the foregoing, the market value of the subject has been concluded as follows:
MARKET VALUE CONCLUSION
Appraisal Premise Interest Appraised Date of Value Value Conclusion
As Is Fee Simple Estate May 2, 2016 $2,950,000
Compiled by CBRE
© 2016 CBRE, Inc.
Assumptions and Limiting Conditions
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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 title that would adversely affect marketability or value. CBRE, Inc. is not aware of any title defects nor has it been advised of any unless such is specifically noted in the report. CBRE, Inc., 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’s title should be sought from a qualified title company that issues or insures title to real property.
2. Unless otherwise specifically noted in the body of this report, it is assumed: that the 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 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 the improvements, as currently constituted, conform to all applicable local, state, and federal building codes and ordinances. CBRE, Inc. professionals are not engineers and are not competent to judge matters of an engineering nature. CBRE, Inc. 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 CBRE, Inc. by ownership or management; CBRE, Inc. inspected less than 100% of the entire interior and exterior portions of the improvements; and CBRE, Inc. 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, CBRE, Inc. 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. CBRE, Inc. has no knowledge of the existence of such materials on or in the property. CBRE, Inc., 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 CBRE, Inc. This report may be subject to amendment upon re-inspection of the subject 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, CBRE, Inc. 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
© 201 CBRE, Inc. © 2016 CBRE, Inc.
Assumptions and Limiting Conditions
60
on the conclusions reported. Thus, CBRE, Inc. 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 CBRE, Inc. 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, CBRE, Inc. will be available to discuss the necessity for revision resulting from changes in economic or market factors affecting the subject.
7. CBRE, Inc. assumes no private deed restrictions, limiting the use of the subject in any way.
8. Unless otherwise noted in the body of the report, it is assumed that there are no mineral deposits or subsurface rights of value involved in this appraisal, whether they are 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. CBRE, Inc. 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. CBRE, Inc. does not warrant these forecasts will occur. Projections may be affected by circumstances beyond the current realm of knowledge or control of CBRE, Inc.
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 CBRE, Inc. 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 CBRE, Inc. nor may this report or copies hereof be transmitted to third parties without said consent, which consent CBRE, Inc. 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 CBRE, Inc. which consent CBRE, Inc. 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. CBRE, Inc. 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.
© 201 CBRE, Inc. © 2016 CBRE, Inc.
Assumptions and Limiting Conditions
61
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 CBRE, Inc. 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. CBRE, Inc. 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 CBRE, Inc. 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. CBRE, Inc. assumes that the subject analyzed herein will be under prudent and competent management and ownership; neither inefficient nor 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, CBRE, Inc. 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 CBRE, Inc. has no specific information relating to this issue, nor is CBRE, Inc. 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.
24. Client shall not indemnify Appraiser or hold Appraiser harmless unless and only to the extent that the Client misrepresents, distorts, or provides incomplete or inaccurate appraisal results to others, which acts of the Client approximately result in damage to Appraiser. Notwithstanding the foregoing, Appraiser shall have no obligation under this Section with respect to any loss that is caused solely by the active negligence or willful misconduct of a Client and is not contributed to by any act or omission (including any failure to perform any duty imposed by law) by Appraiser. Client shall indemnify and hold Appraiser harmless from any claims, expenses, judgments or other items or costs arising as a result of the Client's failure or the failure of any of the Client's agents to provide a complete copy of the appraisal report to any third party. In the event of any litigation between the parties, the prevailing party to such litigation shall be entitled to recover, from the other, reasonable attorney fees and costs.
© 201 CBRE, Inc. © 2016 CBRE, Inc.
Addenda
ADDENDA
© 201 CBRE, Inc. © 2016 CBRE, Inc.
Addenda
ADDENDUM
Improved Sale Data Sheets
© 201 CBRE, Inc. © 2016 CBRE, Inc.
SSale RResidential - Multi-unit Garden NNo. 1Property Name Patio Des Las Fuentes ApartmentsAddress 325 East 6th Street
Royal Oak, MI 48067United States
Government Tax Agency Oakland
Govt./Tax ID 25-22-153-015
UUnit Mix Detail
Rate Timeframe N/A
Unit Type No. % Size (sf) Rent Rent / sf1 BR/1 BA 4 40% 1,100 $975 $0.892 BR/1.5 BA 5 50% 1,250 $1,075 $0.862 BR/1.5 BA 1 10% 1,300 $1,100 $0.85
Totals/Avg 10 $1,038 $0.87
Improvements
Land Area 0.460 ac Status ExistingNet Rentable Area (NRA) 11,950 sf Year Built 1964Total # of Units 10 Unit Year Renovated N/AAverage Unit Size 1,195 sf Condition AverageFloor Count 2 Exterior Finish Brick
General Amenities N/A
Unit-Specific Amenities N/A
Sale Summary
Recorded Buyer N/A Marketing Time 4 Month(s)True Buyer Sixth Street Ventures, LLC Buyer Type Private InvestorRecorded Seller IDJ Royal Oak Seller Type Private InvestorTrue Seller N/A Primary Verification Broker
Interest Transferred Fee Simple/Freehold Type SaleCurrent Use N/A Date 6/1/2015Proposed Use N/A Sale Price $1,070,000Listing Broker Greg Coulter, IPO Financing Other(See Comments)Selling Broker Greg Coulter, IPO Cash Equivalent $1,070,000Doc # N/A Capital Adjustment $0
Adjusted Price $1,070,000
Transaction Summary plus Five-Year CBRE View HistoryTransaction Date Transaction Type Buyer Seller Price Cash Equivalent Price/sf06/2015 Sale N/A IDJ Royal Oak $1,070,000 $89.54
© 201 CBRE, Inc. © 2016 CBRE, Inc.
SSale RResidential - Multi-unit Garden NNo. 1UUnits of Comparison
Static Analysis Method Pro Forma (Stabilized) Eff Gross Inc Mult (EGIM) N/ABuyer's Primary Analysis Price and Capitalization Analyses Op Exp Ratio (OER) N/ANet Initial Yield/Cap. Rate 7.33% Adjusted Price / sf $89.54Projected IRR 0.00% Adjusted Price / Unit $107,000
Actual Occupancy at Sale 100%
FFinancial
Revenue TypePro Forma Stabilized
Period Ending N/ASource BrokerPrice $1,070,000Potential Gross Income N/AEconomic Occupancy N/AEconomic Loss N/AEffective Gross Income N/AExpenses N/ANet Operating Income $78,431NOI / sf $6.56NOI / Unit $7,843EGIM N/AOER N/ANet Initial Yield/Cap. Rate 7.33%
MMap & Comments
Patio Des Las Fuentes Apartments is a 10 unit 2-story complex located on 6th Street just east of Downtown in Royal Oak, MI. Unit sizes are larger and include two-story townhouse units leasing from $975 to $1,100 per month. This property is in average condition for its age and offers large units, laundry facilities and a pool in addition to a good location proximate downtown.The property sold for $1,070,000, or $107,000 per unit. This price indicates a 7.33% capitalization rate based on the broker's pro forma, which is based on current rents (likely below market) and market expenses. Above market financing at 6.14% until 2017 must be assumed.
© 201 CBRE, Inc. © 2016 CBRE, Inc.
SSale RResidential - Multi-unit Garden NNo. 2Property Name Hudson ApartmentsAddress 605 W Hudson Avenue
Royal Oak, MI 48067United States
Government Tax Agency Oakland
Govt./Tax ID 25-21-409-024
UUnit Mix Detail
Rate Timeframe N/A
Unit Type No. % Size (sf) Rent Rent / sf1BR/1BA 4 100% 700 $875 $1.25
Totals/Avg 4 $875 $1.25
Improvements
Land Area 0.300 ac Status N/ANet Rentable Area (NRA) 2,800 sf Year Built 1924Total # of Units 4 Units Year Renovated N/AAverage Unit Size 700 sf Condition AverageFloor Count 2 Exterior Finish Brick
General Amenities N/A
Unit-Specific Amenities N/A
Sale Summary
Recorded Buyer Westro Husdon, LLC Marketing Time N/ATrue Buyer From Dubai Buyer Type Private InvestorRecorded Seller Ronald Peludat Seller Type Private InvestorTrue Seller Same Primary Verification Broker
Interest Transferred Fee Simple/Freehold Type SaleCurrent Use Multifamily Date 12/23/2015Proposed Use Same Sale Price $500,000Listing Broker Janet Greer, 248-548-9100 Financing All CashSelling Broker Janet Greer, 248-548-9100 Cash Equivalent $500,000Doc # N/A Capital Adjustment $0
Adjusted Price $500,000
Transaction Summary plus Five-Year CBRE View HistoryTransaction Date Transaction Type Buyer Seller Price Cash Equivalent Price/sf12/2015 Sale Westro Husdon, LLC Ronald Peludat $500,000 $178.57
© 201 CBRE, Inc. © 2016 CBRE, Inc.
SSale RResidential - Multi-unit Garden NNo. 2UUnits of Comparison
Static Analysis Method Pro Forma (Stabilized) Eff Gross Inc Mult (EGIM) 12.40Buyer's Primary Analysis N/A Op Exp Ratio (OER) 29.76%Net Initial Yield/Cap. Rate 5.66% Adjusted Price / sf $178.57Projected IRR N/A Adjusted Price / Unit $125,000
Actual Occupancy at Sale 100%
FFinancial
Revenue TypePro Forma Stabilized
Period Ending N/ASource N/APrice $500,000Potential Gross Income N/AEconomic Occupancy N/AEconomic Loss N/AEffective Gross Income $40,320Expenses $12,000Net Operating Income $28,320NOI / sf $10.11NOI / Unit $7,080EGIM 12.40OER 29.76%Net Initial Yield/Cap. Rate 5.66%
MMap & Comments
This is the sale of a four unit building located just west of downtown Royal Oak, MI. The building was constructed in 1924 and has been well maintained but the finishes (primarily kitchens and baths) are dated. All four units are one bedroom rents for an average of $700 per month. Units are metered for gas and electric and on site parking is provided, as well as common laundry and storage lockers for each unit. The building sold January 2016 for $500,000 to an international investor.
© 201 CBRE, Inc. © 2016 CBRE, Inc.
SSale RResidential - Multi-unit Garden NNo. 3Property Name Pathfinder DuplexesAddress 921-953 Pathfinder Road
Oxford, MI 48371United States
Government Tax Agency N/A
Govt./Tax ID 04-34-200-001
UUnit Mix Detail
Rate Timeframe N/A
Unit Type No. % Size (sf) Rent Rent / sf3BR/2.5BA TH Gar 8 100% 1,350 $1,750 $1.30
Totals/Avg 8 $1,750 $1.30
Improvements
Land Area 1.500 ac Status N/ANet Rentable Area (NRA) 10,800 sf Year Built 2013Total # of Units 8 Units Year Renovated N/AAverage Unit Size 1,350 sf Condition ExcellentFloor Count 2 Exterior Finish Vinyl Siding
General Amenities N/A
Unit-Specific Amenities N/A
Sale Summary
Recorded Buyer First Oxford Investment, LLC Marketing Time N/ATrue Buyer N/A Buyer Type Private InvestorRecorded Seller Iron Parter Development, LLC Seller Type Private InvestorTrue Seller N/A Primary Verification Buyer, appraisal files
Interest Transferred Fee Simple/Freehold Type SaleCurrent Use Multifamily Date 1/26/2016Proposed Use No change Sale Price $1,340,000Listing Broker Friedman, Larry Schultz Financing Market Rate FinancingSelling Broker Friedman, Larry Schultz Cash Equivalent $1,340,000Doc # N/A Capital Adjustment $0
Adjusted Price $1,340,000
Transaction Summary plus Five-Year CBRE View HistoryTransaction Date Transaction Type Buyer Seller Price Cash Equivalent Price/sf01/2016 Sale First Oxford Investment,
LLCIron Parter Development, LLC
$1,340,000 $124.07
© 201 CBRE, Inc. © 2016 CBRE, Inc.
SSale RResidential - Multi-unit Garden NNo. 3UUnits of Comparison
Static Analysis Method Pro Forma (Stabilized) Eff Gross Inc Mult (EGIM) 8.31Buyer's Primary Analysis N/A Op Exp Ratio (OER) 45.45%Net Initial Yield/Cap. Rate 6.57% Adjusted Price / sf $124.07Projected IRR N/A Adjusted Price / Unit $167,500
Actual Occupancy at Sale 100%
FFinancial
Revenue TypePro Forma Stabilized
Period Ending N/ASource N/APrice $1,340,000Potential Gross Income N/AEconomic Occupancy N/AEconomic Loss N/AEffective Gross Income $161,280Expenses $73,298Net Operating Income $87,982NOI / sf $8.15NOI / Unit $10,998EGIM 8.31OER 45.45%Net Initial Yield/Cap. Rate 6.57%
MMap & Comments
This comparable represents the sale of a small, eight unit apartment complex comprised of four duplex buildings in Oxford Township, MI. The buildings were constructed in 2013 on a 1.50 acre site. Each building is a three bed, two and a half bath unit with 1,350 SF over a full basement with a one car attached garage. Finishes were good with hardwood floors, nice cabinets and granite. Units rented for $1,750 plus gas and electric. The property was 100% occupied when it traded January 2013 for $1,340,000 or $167,500 per unit. Assuming 4% V&CL and current expenses (plus a small reserve) a 6.57% capitalization rate is indicated.
© 201 CBRE, Inc. © 2016 CBRE, Inc.
SSale RResidential - Multi-unit Student NNo. 4Property Name Parkside ApartmentsAddress 810 W. Huron Street
Ann Arbor, MI 48103United States
Government Tax Agency Washtenaw
Govt./Tax ID 09-09-29-215-052
UUnit Mix Detail
Rate Timeframe Monthly
Unit Type No. % Size (sf) Rent Rent / sf2 BR / 1BA 7 88% N/A $880-$1,305 N/A3 BR/ 1BA 1 13% N/A $1,800 N/A
Totals/Avg 8 $1,181 N/A
Improvements
Land Area 0.210 ac Status ExistingNet Rentable Area (NRA) 4,372 sf Year Built 1963Total # of Units 8 Unit Year Renovated N/AAverage Unit Size 547 sf Condition AverageFloor Count 2 Exterior Finish Brick
General Amenities N/A
Unit-Specific Amenities N/A
Sale Summary
Recorded Buyer CBC-PA LLC Marketing Time 0 Month(s)True Buyer CMB Buyer Type Private InvestorRecorded Seller Parkside Apartments, LLC Seller Type Private InvestorTrue Seller N/A Primary Verification Appraisal File, Buyer
Interest Transferred Fee Simple/Freehold Type SaleCurrent Use student apartments Date 7/7/2015Proposed Use student apartments Sale Price $1,200,000Listing Broker none Financing All CashSelling Broker none Cash Equivalent $1,200,000Doc # 5106/421 Capital Adjustment $0
Adjusted Price $1,200,000
Transaction Summary plus Five-Year CBRE View HistoryTransaction Date Transaction Type Buyer Seller Price Cash Equivalent Price/sf07/2015 Sale CBC-PA LLC Parkside Apartments, LLC $1,200,000 $274.47
© 201 CBRE, Inc. © 2016 CBRE, Inc.
SSale RResidential - Multi-unit Student NNo. 4UUnits of Comparison
Static Analysis Method Market Eff Gross Inc Mult (EGIM) 10.37Buyer's Primary Analysis Static Capitalization Analysis Op Exp Ratio (OER) 52.39%Net Initial Yield/Cap. Rate 4.59% Adjusted Price / sf $274.47Projected IRR N/A Adjusted Price / Unit $150,000
Actual Occupancy at Sale 100%
FFinancial
Revenue Type MarketPeriod Ending N/ASource AppraiserPrice $1,200,000Potential Gross Income $118,680Economic Occupancy 98%Economic Loss $2,967Effective Gross Income $115,713Expenses $60,620Net Operating Income $55,093NOI / sf $12.60NOI / Unit $6,887EGIM 10.37OER 52.39%Net Initial Yield/Cap. Rate 4.59%
MMap & Comments
This comparable consists of 8 units (17 beds) in one building located at 810 W. Huron Street in Ann Arbor, Michigan. This property features exterior entrances that was constructed in the 1963 and is generally pretty dated with a lot of original finishes. It is a 2 story garden style apartment. Onsite parking spaces are available. The complex features 7 two-bedroom units and 1 three-bedroom unit. The property is zoned R4C. Electric is separately metered and paid directly by the tenant, the landlord pays gas and water/sewer and trash. The property sold for $1,200,000 or $150,000 per unit or $70,588 per bed; this was an off market transaction. Based on current rents and market expenses (uncapped taxes, 5% mgmt. fee, $150/bed reserve) indicated a 4.59% capitalization rate and an EGIM of 10.37.
© 201 CBRE, Inc. © 2016 CBRE, Inc.
SSale RResidential - Multi-unit Garden NNo. 5Property Name Ridge Valley TownhomesAddress 574-650 Napa Valley Drive
Milford, MI 48381United States
Government Tax Agency Oakland
Govt./Tax ID 16-03-408-038
UUnit Mix Detail
Rate Timeframe N/A
Unit Type No. % Size (sf) Rent Rent / sf2BD/2.5BA 20 61% 1,300-1,300 N/A N/A3BD/2.5BA 13 39% 1,500-1,500 N/A N/A
Totals/Avg 33 $0 $0.00
Improvements
Land Area 3.400 ac Status ExistingNet Rentable Area (NRA) 45,500 sf Year Built 2005Total # of Units 33 Unit Year Renovated N/AAverage Unit Size 1,379 sf Condition AverageFloor Count 3 Exterior Finish Vinyl Siding
General Amenities N/A
Unit-Specific Amenities N/A
Sale Summary
Recorded Buyer Tall Pine Properties, LLC Marketing Time 8 Month(s)True Buyer N/A Buyer Type Private InvestorRecorded Seller Bruce Milford, LLC Seller Type N/ATrue Seller N/A Primary Verification CoStar, LoopNet, broker
Interest Transferred Fee Simple/Freehold Type SaleCurrent Use N/A Date 3/27/2013Proposed Use N/A Sale Price $2,840,000Listing Broker A.J. Beachum - IPO, LLC Financing Cash to SellerSelling Broker A.J. Beachum - IPO, LLC Cash Equivalent $2,840,000Doc # N/A Capital Adjustment $0
Adjusted Price $2,840,000
Transaction Summary plus Five-Year CBRE View HistoryTransaction Date Transaction Type Buyer Seller Price Cash Equivalent Price/sf03/2013 Sale Tall Pine Properties, LLC Bruce Milford, LLC $2,840,000 $62.42
© 201 CBRE, Inc. © 2016 CBRE, Inc.
SSale RResidential - Multi-unit Garden NNo. 5UUnits of Comparison
Static Analysis Method Other (see comments) Eff Gross Inc Mult (EGIM) N/ABuyer's Primary Analysis N/A Op Exp Ratio (OER) N/ANet Initial Yield/Cap. Rate 8.75% Adjusted Price / sf $62.42Projected IRR N/A Adjusted Price / Unit $86,061
Actual Occupancy at Sale 90%
FFinancial
Revenue TypeOther See Comments
Period Ending N/ASource Other(See
Comments)Price $2,840,000Potential Gross Income N/AEconomic Occupancy N/AEconomic Loss N/AEffective Gross Income N/AExpenses N/ANet Operating Income $248,475NOI / sf $5.46NOI / Unit $7,530EGIM N/AOER N/ANet Initial Yield/Cap. Rate 8.75%
MMap & Comments
This comparable represents a 33-unit townhouse property located along Napa Valley Drive in Milford Township, Oakland County, Michigan. The development was originally built in 2006 as condominiums and has been rented as apartments due to poor economic conditions. Units include two and three--bedroom units and range from 1,300 to 1,500-square feet in size. Unit amenities include deluxe appliances, in-unit washers and dryers, private patios and balconies, and direct entry garages. Upgraded units include fireplaces and some unit types include basements. Water and sewer are included and residents pay all other utilities. The property was originally listed for $3,400,000 and sold in March 2013 for $2,840,000, or $86,061 per unit. The property was about 90% occupied at the time of sale. According to the broker, the property represented a broken condo at the time of sale and was considered a distressed sale. The broker quoted a OAR of 8.75%, which he stated is above market for the area. Under different conditions, the broker indicated the property would have sold for 0.75 to 1.00 basis points lower than the OAR indicated in this most resent sale. This transaction was part of a 1031 exchange involving the Hyde Park Townhomes in Detroit, which was purchased by the same buyer one day prior to the transaction.
© 201 CBRE, Inc. © 2016 CBRE, Inc.
Addenda
ADDENDUM
Rent Comparable Data Sheets
© 201 CBRE, Inc. © 2016 CBRE, Inc.
CComparable RResidential - Multi-unit Garden NNo. 1Property Name Ridge Valley TownhomesAddress 574-650 Napa Valley Drive
Milford, MI 48381United States
Government Tax Agency Oakland
Govt./Tax ID 16-03-408-038
UUnit Mix Detail
Rate Timeframe N/A
Unit Type No. % Size (sf) Rent Rent / sf2BR/2.5BA 20 61% 1,300 $1,300 $1.003BR/2.5BA 13 39% 1,500 $1,600 $1.07
Totals/Avg 33 $1,418 $1.03
Improvements
Land Area 3.400 ac Status ExistingNet Rentable Area (NRA) 45,500 sf Year Built 2005Total # of Units 33 Unit Year Renovated N/AAverage Unit Size 1,379 sf Condition GoodFloor Count 3 Exterior Finish Brick Veneer
General Amenities N/A
Unit-Specific Amenities N/A
Rental Survey
Occupancy 97% Utilities Included in Rent WaterLease Term 6 - 12 Mo(s). Rent Premiums End unit, basementTenant Profile All age Concessions NoneSurvey Date 05/2016 Owner N/A
Survey Notes 517-728-0278 Management KMG Prestige Inc.
© 201 CBRE, Inc. © 2016 CBRE, Inc.
CComparable RResidential - Multi-unit Garden NNo. 1MMap & Comments
Ridge Valley Townhomes are located on the north side of Milford, MI. The community provides 33 two and three bedroom townhouse units each with a one car attached garage, The buildings were constructed in 2005 on 3.4 acres. Rents are $1,300 for a two bedroom unit and $1,600 for a three bedroom unit. Water usage is included with rent. There is one vacant unit indicating 97% occupancy.
© 201 CBRE, Inc. © 2016 CBRE, Inc.
CComparable RResidential - Multi-unit Garden NNo. 2Property Name Aberdeen of BrightonAddress 4229 Deeside Drive
Brighton, MI 48116United States
Government Tax Agency Livingston
Govt./Tax ID Multiple, assessed as condos
UUnit Mix Detail
Rate Timeframe Monthly
Unit Type No. % Size (sf) Rent Rent / sf2BR/2BA 12 17% 1,224 $1,389 $1.133BR/2BA 12 17% 1,412 $1,609 $1.142BR/2BA 12 17% 1,421 $1,609 $1.132BR/2BA 12 17% 1,474 $1,579 $1.073BR/2BA 24 33% 1,739 $1,789 $1.03
Totals/Avg 72 $1,627 $1.08
Improvements
Land Area 21.150 ac Status N/ANet Rentable Area (NRA) 108,132 sf Year Built 2006Total # of Units 72 Units Year Renovated N/AAverage Unit Size 1,502 sf Condition ExcellentFloor Count 2 Exterior Finish Masonry
General Amenities N/A
Unit-Specific Amenities N/A
Rental Survey
Occupancy 99% Utilities Included in Rent NoneLease Term 3 - 24 Mo(s). Rent Premiums N/ATenant Profile All age Concessions N/ASurvey Date 05/2016 Owner N/A
Survey Notes Lombardo, 810-229-8735 Management N/A
© 201 CBRE, Inc. © 2016 CBRE, Inc.
CComparable RResidential - Multi-unit Garden NNo. 2MMap & Comments
Aberdeen of Brighton is located just north of Grand River Avenue near downtown Brighton. The project started as a for sale condo project and transitioned to a rental project when the market turned in 2008. Units are stacked ranch style with two or three bedrooms and a one or two car attached garage. Unit amenities are very good and complex amenities are minimal. Unit sizes range from 1,224 to 1,739 SF and rents range from $1,389 to $1,789 plus all utilities. Occupancy is 99%.
© 201 CBRE, Inc. © 2016 CBRE, Inc.
CComparable RResidential - Multi-unit Garden NNo. 3Property Name Brookwood FarmsAddress 200 Brookwood Drive
South Lyon, MI 48178United States
Government Tax Agency Oakland
Govt./Tax ID N/A
UUnit Mix Detail
Rate Timeframe N/A
Unit Type No. % Size (sf) Rent Rent / sf1 BR/1 BA 0 N/A 715-790 $835-$905 $1.162 BR/2 BR 0 N/A 1,015-1,042 $1,045-$1,115 $1.052 BR/2 BR 0 N/A 1,057-1,127 $990-$1,160 $0.982 BR/2 BR 0 N/A 1,063-1,209 $990-$1,060 $0.902 BR/1 BA 0 N/A 1,079-1,090 $960-$970 $0.892 BR/2 BR 0 N/A 1,154-1,323 $1,045-$1,115 $0.873 BR/2 BR 0 N/A 1,166-1,218 $1,095-$1,165 $0.953 BR/2 BR 0 N/A 1,216-1,270 $1,155-$1,205 $0.95
Totals/Avg 0 N/A N/A
Improvements
Land Area 0.000 ac Status ExistingNet Rentable Area (NRA) N/A Year Built 1996Total # of Units 166 Unit Year Renovated N/AAverage Unit Size sf Condition GoodFloor Count 2 Exterior Finish Masonry
General Amenities N/A
Unit-Specific Amenities N/A
Rental Survey
Occupancy 98% Utilities Included in Rent Water, sewer, trashLease Term 6 - 12 Mo(s). Rent Premiums N/ATenant Profile Various Concessions VariousSurvey Date 05/2016 Owner N/A
Survey Notes NuHorizon, 248-437-9959 Management NuHorizon
© 201 CBRE, Inc. © 2016 CBRE, Inc.
CComparable RResidential - Multi-unit Garden NNo. 3MMap & Comments
Brookwood Farms is a luxury apartment complex located along the south side of 10 Mile Road between Pontiac Trail and Milford Roads in South Lyon, MI. This two-story property features a brick, wood, and vinyl exterior, pitched and asphalt shingled roof, and was constructed in 1996. The complex features a variety of units ranging from 736 SF one-bedroom units to 1,300 SF three-bedroom units. Utilities include water, sewer, and trash. Good unit and complex amenities are provided, including an indoor and outdoor pool. Current occupancy is 98%.
© 201 CBRE, Inc. © 2016 CBRE, Inc.
CComparable RResidential - Multi-unit Garden NNo. 4Property Name Four SeasonsAddress 2649 Grove Circle
Commerce Township, MI 48382United States
Government Tax Agency Oakland
Govt./Tax ID 17-12-204-024
UUnit Mix Detail
Rate Timeframe N/A
Unit Type No. % Size (sf) Rent Rent / sf2BR/2BA 98 100% 1,294 $1,515-$1,615 $1.21
Totals/Avg 98 $1,565 $1.21
Improvements
Land Area 16.390 ac Status N/ANet Rentable Area (NRA) 126,814 sf Year Built 2014Total # of Units 98 Units Year Renovated N/AAverage Unit Size 1,294 sf Condition NewFloor Count 1 Exterior Finish N/A
General Amenities N/A
Unit-Specific Amenities N/A
Rental Survey
Occupancy 98% Utilities Included in Rent NoneLease Term 6 - 12 Mo(s). Rent Premiums N/ATenant Profile All age Concessions N/ASurvey Date 05/2016 Owner N/A
Survey Notes Redwood, 844-259-4454 Management N/A
© 201 CBRE, Inc. © 2016 CBRE, Inc.
CComparable RResidential - Multi-unit Garden NNo. 4MMap & Comments
Four Seasons Apartments is an apartment project developed in 2014 located off of Grove Street west of Union Lake Road in Commerce Township, MI. The project includes single story apartment homes all with two bedrooms, two bathrooms and two car attached garages with private entrances. All units are 1,294 SF and rents range from $1,515 to $1,615 per month plus all utilities. Occupancy is reported at 98%.
© 201 CBRE, Inc. © 2016 CBRE, Inc.
CComparable RResidential - Multi-unit Garden NNo. 5Property Name Pendeleton ParkAddress 57715 Grand River Ave
New Hudson, MI 48165United States
Government Tax Agency Oakland
Govt./Tax ID 21-04-401-025
UUnit Mix Detail
Rate Timeframe N/A
Unit Type No. % Size (sf) Rent Rent / sf1BR/1BA 36 15% 915 $895 $0.982BR/2BA 16 7% 1,060 $1,125 $1.062BR/2BA 108 45% 1,115 $1,195 $1.073BR/2BA 64 27% 1,216 $1,250 $1.033BR/2BA 16 7% 1,474 $1,490 $1.01
Totals/Avg 240 $1,180 $1.04
Improvements
Land Area 17.410 ac Status ExistingNet Rentable Area (NRA) 271,728 sf Year Built 1999Total # of Units 240 Unit Year Renovated N/AAverage Unit Size 1,132 sf Condition GoodFloor Count 3 Exterior Finish Brick Veneer
General Amenities Clubhouse, Pool
Unit-Specific Amenities N/A
Rental Survey
Occupancy 98% Utilities Included in Rent Water, sewer, trashLease Term 6 - 12 Mo(s). Rent Premiums N/ATenant Profile All age community Concessions NoneSurvey Date 05/2016 Owner N/A
Survey Notes Village Green, 248-446-4400 Management Village Green
© 201 CBRE, Inc. © 2016 CBRE, Inc.
CComparable RResidential - Multi-unit Garden NNo. 5MMap & Comments
Pendleton Park is a 240-unit, garden-style, luxury apartment community located on the north side of Grand River Ave, just south of I-96 and west of Milford Rd in the Charter Township of Lyon, Oakland County, MI. The property was constructed in 1999 and is situated on a 17.41 acre parcel. The community consists of 12 two and three-story buildings of wood fram construction, brick & vinyl exterior, and asphalt shingle pitched roofs. Amenities include 126 carports, a clubhouse with leasing offices, lounge aera, fitness center, business center, locker rooms, sundeck, pool, and spa. All units feature a patio or balcony and washer and dryer, and select units feature gas fireplaces and cathedral ceilings. Occupancy is 98% with rents ranging from $895 to $1,490 plus gas and electric.
© 201 CBRE, Inc. © 2016 CBRE, Inc.
Addenda
ADDENDUM
Rent Roll & Operating Statements
© 201 CBRE, Inc. © 2016 CBRE, Inc.
Jan - Dec 14
Ordinary Income/ExpenseIncome
Rental Income 327,857.00
Total Income 327,857.00
ExpenseBank Fees 67.50Insurance Expense 24,224.25Licenses and Permits 25.00Management Fees 19,733.90Postage and Delivery 135.00Professional Fees 1,080.00Repairs and Maintenance 53,353.45Small Tools and Equipment 155.77Taxes - Property 70,231.55Utilities 4,438.39
Total Expense 173,444.81
Net Ordinary Income 154,412.19
Other Income/ExpenseOther Expense
Ask My Accountant 2,053.80
Total Other Expense 2,053.80
Net Other Income -2,053.80
Net Income 152,358.39
6:30 PM Rem Creekwood Real Property, LLC11/22/15 Profit & LossAccrual Basis January through December 2014
Page 1© 201 CBRE, Inc. © 2016 CBRE, Inc.
Jan - Dec 15
Ordinary Income/ExpenseIncome
Rental Income 333,910.50
Total Income 333,910.50
ExpenseBank Fees 10.00Insurance Expense 14,109.00Licenses and Permits 25.00Management Fees 13,922.79Office Supplies and Expense 58.22Postage and Delivery 75.13Professional Fees 45.00Repairs and Maintenance 60,511.89Small Tools and Equipment 387.66Taxes - Property 70,986.57Utilities 3,752.61
Total Expense 163,883.87
Net Ordinary Income 170,026.63
Other Income/ExpenseOther Expense
Ask My Accountant 97.50
Total Other Expense 97.50
Net Other Income -97.50
Net Income 169,929.13
1:15 PM Rem Creekwood Real Property, LLC01/05/16 Profit & LossAccrual Basis January through December 2015
Page 1© 201 CBRE, Inc. © 2016 CBRE, Inc.
Jan - Mar 16
Ordinary Income/ExpenseIncome
Rental Income 91,600.06
Total Income 91,600.06
ExpenseBank Fees 10.00Insurance Expense 11,733.00Management Fees 5,939.50Professional Fees 1,089.00Repairs and Maintenance 19,202.73Taxes - Property 10,919.34Utilities 1,660.75
Total Expense 50,554.32
Net Ordinary Income 41,045.74
Other Income/ExpenseOther Expense
Ask My Accountant -9,469.53
Total Other Expense -9,469.53
Net Other Income 9,469.53
Net Income 50,515.27
10:54 AM Rem Creekwood Real Property, LLC04/21/16 Profit & LossAccrual Basis January through March 2016
Page 1© 201 CBRE, Inc. © 2016 CBRE, Inc.
REM CREEKWOOD RENT ROLL1 May 16
LEASE SECURITY MOVE INBDRM UNIT NAME RENT EXPIRATION DEPOSIT DATE
3 886 Monk 1,425.00$ 8/31/2016 1,400.00$ 8/15/20143 890 Brake 1,325.00$ 8/31/2016 1,300.00$ 9/1/20133 894 Goodlein 1,250.00$ month to month 990.00$ 8/1/20083 898 Matreal 1,240.00$ month to month 1,785.00$ 11/1/20123 905 Farkas 1,400.00$ 7/31/2016 1,400.00$ 7/24/20152 906 Damman 1,025.00$ 5/31/2016 850.00$ 4/1/20103 909 Gioia 1,165.00$ 9/30/2016 1,090.00$ 9/15/20112 910 Bjorkman 1,050.00$ 6/30/2017 850.00$ 7/1/20093 913 Chapple 1,350.00$ month to month 1,350.00$ 12/15/20132 914 Tuomi 1,125.00$ 2/28/2017 1,100.00$ 2/12/20163 917 Muscat 1,190.00$ 11/30/2016 1,090.00$ 11/10/20112 918 McFalda 1,125.00$ 7/31/2016 1,100.00$ 11/1/20143 921 Gillis 1,400.00$ 1/31/2017 1,400.00$ 2/1/20163 925 Rohde/Green 1,425.00$ 7/31/2017 1,400.00$ 7/27/20153 926 Kulka 1,475.00$ 3/31/2017 1,450.00$ 4/1/20163 929 Wegner 1,450.00$ 10/31/2016 1,400.00$ 11/1/20143 930 Miarecki 1,400.00$ 8/31/2016 1,400.00$ 8/28/20143 933 Barber 1,225.00$ month to month 990.00$ 4/1/20093 934 Warren 1,165.00$ month to month 1,090.00$ 8/1/20123 937 Rich 1,275.00$ 8/31/2016 1,190.00$ 10/1/20123 938 Nelson 1,425.00$ 6/30/2016 1,400.00$ 6/19/20153 941 Dezelsky 1,165.00$ 7/31/2016 1,090.00$ 7/1/20113 942 Beether 1,400.00$ 10/31/2016 1,400.00$ 11/1/2015
Monthly Rental Income: 29,475.00$ Total Security Deposit: 28,515.00$
© 201 CBRE, Inc. © 2016 CBRE, Inc.
Addenda
ADDENDUM
Legal Description
© 201 CBRE, Inc. © 2016 CBRE, Inc.
TN2, R&E, SEC 11 OAKLAND COUNTY CONDOMINIUM PLAN NO 1397 CREEKWOOD TOWNHOMES UNITS 1-23 L 24179 P 548 12-6-01 FR 002
© 201 CBRE, Inc. © 2016 CBRE, Inc.
Addenda
ADDENDUM
FHLMC & Statement of Limiting Conditions (Form 439)
© 201 CBRE, Inc. © 2016 CBRE, Inc.
Addenda
CBRE, INC. DEFINITION OF MARKET VALUE: The most probably price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and each acting in what he considers his own best interest; (3) a reasonable time is allowed for exposure in the open market: (4) payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale.
Adjustments to the comparables must be made for special or creative financing or sales concessions. No adjustments are necessary for those costs which are normally paid by sellers as a result of tradition or law in a market area; these costs are readily identifiable since the seller pays these costs in virtually all sales transactions. Special or creative financing adjustments car be made to the comparable property by comparisons to financing terms offered by a third party institutional lender that is not already involved in the property or transaction. Any adjustment should not be calculated on a mechanical dollar for dollar cost of the financing or concession, but the dollar amount of any adjustment should approximate the market's reaction to the financing or concessions based on the appraiser's judgment.
STATEMENT OF LIMITING CONDITIONS AND APPRAISER'S CERTIFICATION CONTINGENT AND LIMITING CONDITIONS: The appraiser's certification that appears in the appraisal report is subject to the following conditions: 1. THE APPRAISER WILL NOT BE RESPONSIBLE FOR MATTERS OF A LEGAL NATURE THAT
AFFECT EITHER THE PROPERTY BEING APPRAISED OR THE TITLE TO IT. THE APPRAISER ASSUMES THAT THE TITLE IS GOOD AND MARKETABLE AND, THEREFORE, WILL NOT RENDER ANY OPINIONS ABOUT THE TITLE. THE PROPERTY IS APPRAISED ON THE BASIS OF IT BEING UNDER RESPONSIBLE OWNERSHIP.
2. The appraiser has provided a sketch in the appraisal report to show approximate dimensions of the improvements, and the sketch is included only to assist the reader of the report in visualizing the property and understanding the appraiser's determination of its size.
3. The appraiser has examined the available flood maps that are provided by the Federal Emergency Management Agency (or other data sources) and has noted in the appraisal report whether the subject site is located in an identified Special Flood Hazard Area. Because the appraiser is not a surveyor, he or she makes no guarantees, express or implied, regarding this determination.
4. The appraiser will not give testimony or appear in court because he or she made an appraisal of the property in question, unless specific arrangements to do so have been made beforehand.
5. The appraiser has estimated the value of the land in the cost approach at its highest and best use and the improvements at their contributory value. These separate valuations of the land
© 201 CBRE, Inc. © 2016 CBRE, Inc.
Addenda
and improvements must not be used in conjunction with any other appraisal and are invalid if they are so used.
6. The appraiser has noted in the appraisal report any adverse conditions (such as, needed repairs, depreciation, the presence of hazardous wastes, toxic substances, etc.) observed during the inspection of the subject or that he or she became aware of during the normal research involved in performing the appraisal. Unless otherwise stated in the appraisal report, the appraiser has no knowledge of any hidden or unapparent conditions of the property or adverse environmental conditions (including the presence of hazardous wastes, toxic substances, etc.) that would make the property more or less valuable, and has assumed that there are no such conditions and makes no guarantees or warranties, express or implied, regarding the condition of the property. The appraiser will not be responsible for any such conditions that do exist or for any engineering or testing that might be required to discover whether such conditions exist. Because the appraiser is not an expert in the field of environmental hazards, the appraisal report must not be considered as an environmental assessment of the property.
7. The appraiser obtained the information, estimates, and opinions that were expressed in the appraisal report from sources that he or she considers to be reliable and believes them to be true and correct. The appraiser does not assume responsibility for the accuracy of such items that were furnished by other parties.
8. The appraiser will not disclose the contents of the appraisal report except as provided for in the Uniform Standards of Professional Appraisal Practice.
9. The appraiser has based his or her appraisal report and valuation conclusion for an appraisal that is subject to satisfactory completion, repairs, or alternations on the assumption that completion of the improvements will be performed in a workmanlike manner.
10. The appraiser must provide his or her prior written consent before the lender/client specified in the appraisal report can distribute the appraisal report (including conclusions about the property value, the appraiser's identity and professional designations, and references to any professional appraisal organizations or the firm with which the appraiser is associated) to anyone other than the borrower: the mortgages or its successors and assigns' the mortgage insurer; consultants; professional appraisal organizations; any state or federally approved financial institution; or any department, agency, or instrumentality of the United States or any state or the District of Columbia; except that the lender/client may distribute the property description section of the report only to data collection or reporting services(s) without having to obtain the appraiser's prior written consent. The appraiser's written consent and approval must also be obtained before the appraisal can be conveyed by anyone to the public through advertising, public relations, news, sales, or other media.
CBRE, INC. APPRAISER'S CERTIFICATION: The Appraiser certifies and agrees that:
11. I have researched the subject market area and have selected a minimum of three recent sales of properties most similar and proximate to the subject for consideration in the sales comparison analysis and have made a dollar adjustment when appropriate to reflect the market reaction to those items of significant variation. If a significant item in a comparable property is superior to, or more favorable than, the subject, I have made a negative adjustment to reduce the adjusted sales price of the comparable, and if a significant item in a comparable property is inferior to, or less favorable than the subject, I have made a positive adjustment to increase the adjusted sales price of the comparable.
© 201 CBRE, Inc. © 2016 CBRE, Inc.
Addenda
12. I have taken into consideration the factors that have an impact on value in my development of the estimate of market value in the appraisal report. I have not knowingly withheld any significant information from the appraisal report, and I believe, to the best of my knowledge, that all statements and information in the appraisal report are true and correct.
13. I stated in the appraisal report only my own personal, unbiased, and professional analysis, opinions, and conclusions, which are subject only to the contingent and limiting conditions specified in this form.
14. I have no present or prospective interest in the property that is the subject to this report, and I have no present or prospective personal interest or bias with respect to the participants in the transaction. I did not base, either partially or completely, my analysis and/or the estimate of market value in the appraisal report on the race, color, religion, sec, handicap, family status, or national origin of either the prospective owners or occupants of the subject or the present owners or occupants of the properties in the vicinity of the subject.
15. I have no present or contemplated future interest in the subject, and neither my current or future employment nor my compensation for performing this appraisal is contingent on the appraised value of the property.
16. I was not required to report a predetermined value or direction in value that favors the cause of the client or any related party, the amount of the value estimate, the attainment of a specific results, or the occurrence of a subsequent event in order to receive my compensation and/or employment for performing the appraisal. I did not base the appraisal report on a requested minimum valuation, a specific valuation, or the need to approve a specific mortgage loan.
17. I performed this appraisal in conformity with the Uniform Standards of Professional Appraisal Practice that were adopted and promulgated by the Appraisal Standards Board of The Appraisal Foundation and that were in place as of the effective date of this appraisal, with the exception of the departure provision of those Standards, which does not apply. I acknowledge that an estimate of a reasonable time for exposure in the open market is a condition in the definition of market value and the estimate I developed is consistent with the marketing time notes in the neighborhood section of this report, unless I have otherwise stated in the reconciliation section.
18. I have personally inspected the interior and exterior areas of the subject and the exterior of all properties listed as comparables in the appraisal report. I further certify that I have notes any apparent or known adverse conditions in the subject improvements, on the subject site, or on any site within the immediate vicinity of the subject of which I am aware and have made adjustments for these adverse conditions in my analysis of the property value to the extent that I had market evidence to support them. I have also commented about the effect of the adverse conditions on the marketability of the subject.
19. I personally prepared all conclusions and opinions about the real estate that were set forth in the appraisal report. If I relied on significant professional assistance from any individual or individuals in the performance of the appraisal or the preparation of the appraisal report, I have named such individual(s) and disclosed the specific tasks performed by them in the reconciliation section of this appraisal report. I certify that any individual so named is qualified to perform the tasks. I have not authorized anyone to make a change to any item in the report; therefore, if an unauthorized change is made to the appraisal report, I will take no responsibility for it.
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Addenda
SUPERVISORY APPRAISER'S CERTIFICATION: If a supervisory appraiser signed the appraiser report, he or she certifies and agrees that: I directly supervise the appraiser who prepared the appraisal report, have reviewed the appraisal report, agree with the statements and conclusions of the appraiser, agree to be bound by the Appraiser's Certifications numbered 4 through 7 above, and am taking full responsibility for the appraisal and the appraisal report. ADDRESS OF PROPERTY APPRAISED: Creekwood Townhomes, 886-942 Creekwood Lane, Milford, Oakland County, Michigan APPRAISER:
Name: Jeff Jozwick, MAI
Date Signed: May 5, 2016
State Certification No: 1201006193
or State License No.: N/A
State: Michigan
Expiration Date of Certification: 7/31/2017
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Addenda
ADDENDUM
Client Contract Information
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April 22, 2016
Re: Creekwood Townhomes
886-942 Creekwood Lane
Milford, Michigan 48381
Dear Mr. Lenamon:
This letter authorizes you to undertake an appraisal of the above-captioned property on behalf of Hunt Mortgage Capital, LLC a wholly-owned subsidiary of Hunt Mortgage Group, LLC (Hunt). For purposes of any reliance language used by your firm, the client shall be Hunt Mortgage Capital, LLC
This appraisal is being commissioned to support a Freddie Mac loan application, therefore the Appraisal must adhere to all requirements set forth in Chapter 12 of the Freddie Mac Seller/Servicer (Attached as Exhibit A to this engagement letter). Each Appraisal must:
Comply with the USPAP in effect as of the date of the Appraisal Comply with the current version of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), including its Title XI regulations Disclose any steps taken by the appraiser to comply with the competency provision of the USPAP, if required; and If the appraisal is being commissioned to support a Freddie Mac CME loan application, the Appraisal must also include the following language in the letter of transmittal above the appraiser’s signature and/or on the appraiser’s Certification page above the appraiser's signature:
The appraisal assignment calls for the "as-is" market value of the fee simple interest in the property, subject to the existing leases and tenancies. If this value does not reflect stabilization, then a prospective value as of the projected date of stabilization should also be provided.
Complete information regarding the status of the improvements will be made available for your consideration. A current rent roll and operating history are attached for your use. This information has been provided by the loan applicant, but has not been verified by our office. The appraiser should conduct the necessary due diligence to complete the assignment. We will subsequently provide you with a rent roll and operating history certified by the loan applicant. The final appraisal must include as exhibits the certified attachments.
Both engineering and environmental reports will be undertaken during the period of your appraisal analysis. We will forward to you draft versions of these reports for your consideration of any potential impact on your final valuation. Please request further instructions if, during your inspection, you detect obvious building-condition or environmental risk problems.
The final product should consist of a self-contained narrative report or Form 71A, utilizing three (3) approaches to value, including the cost approach, the income approach and the market approach. If a particular approach is not utilized, a thorough explanation should be provided as to why the approach was excluded. In addition, you will need
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to provide an insurable value. The Appraiser must complete the Form FHLMC 439 and include in the final report. The exact certification language must appear just above the required signature of MAI Appraiser.
The appraiser must include the following information regarding zoning:
1. What is the zoning classification and is the property conforming or non-conforming? 2. If the property is non-conforming, what characteristic of the subject property does not meet this
zoning classification? For each characteristic that does not comply, explain what current zoning regulations require and how it would change the characteristic as currently exists.
3. What percentage of destruction must occur before full compliance with current zoning would be required?
4. What project characteristic (market value, assessed value, replacement cost, or unit count) does that percentage apply to?
5. Can the property be rebuilt to current density? If not, state the number of units that could be rebuilt.
All documentation relating to how the zoning information was determined must be attached as exhibits to the appraisal
The scope of the appraisal should contain a comprehensive listing of external sources and individuals interviewed in the course of the assignment, as well as information regarding the specific documents that have been utilized. In addition to the above, the items in the attached appraisal requirements must be included. Should any material information on the property be unavailable, please discuss this in the appraisal report. Also, please disclose any steps taken that were necessary or appropriate to comply with the Competency Provision of the USPAP.
The appraisal must include the following language verbatim above the appraiser’s signature and/or on the appraiser’s Certification page above the appraiser's signature:
“This report is for the use and benefit of, and may be relied upon by, a) Hunt Mortgage Capital, LLC a wholly-owned subsidiary of Hunt
Mortgage Group, Freddie Mac and any successors and assigns (“Lender”);
b) Independent auditors, accountants, attorneys and other professionals acting on behalf of Lender;
c) Governmental agencies having regulatory authority over Lender; d) Designated persons pursuant to an order or legal process of any court or
governmental agency; e) Prospective purchasers of the Mortgage; and f) With respect to any debt (or portion thereof) and/or securities secured,
directly or indirectly, by the Property which is the subject of this report, the following parties and their respective successors and assigns:
Any placement agent or broker/dealer and any of their respective affiliates, agents and advisors; Any initial purchaser or subsequent holder of such debt and/or securities; Any Servicer or other agent acting on behalf of the holders of such debt and/or securities; Any indenture trustee; Any rating agency; and
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Any institutional provider from time to time of any liquidity facility or credit support for such financings.
In addition, this report, or a reference to this report, may be included or quoted in any offering circular, information circular, offering memorandum, registration statement, private placement memorandum, prospectus or sales brochure (in either electronic or hard copy format) in connection with a securitization or transaction involving such debt (or portion thereof) and/or securities.”
The Appraisal must adequately describe the geographic area, neighborhood, rental competition, sale comparables, site and improvements. The Appraisal must demonstrate a market value supported by the reconciliation of the cost approach, income approach and market approach. The appraiser must perform the functions stated in this section and in Sections 12.13 through 12.19 of the Freddie Mac seller/Servicer Guide to ensure the completeness of each Appraisal.
Hunt Mortgage Capital, LLC a wholly-owned subsidiary of Hunt Mortgage Group, LLC, engages the services of individual appraisers and not appraisal firms; is specifically contracting for your services to perform the requested services; and, will rely on your knowledge, reputation, specialized skill, and experience in performing similar assignments. While your services are material to this agreement, we recognize and allow you to delegate portions of the work to an employee or associate of yours. You agree to personally inspect the property and comparables, and to sign the appraisal report.
In keeping with our policy, Hunt reserves the right to discuss your findings and reproduce in full and provide copies of the appraisal report to interested parties, including the Borrower, Freddie Mac, bond rating agencies, and existing or potential loan securitization purchasers. During and upon completion of the appraisal, neither the value conclusion nor any other aspect of the valuation should be released by you to anyone other than Hun without our written consent.
Please include in the report a copy of this engagement letter and evidence of your certification from the State in which the property is located.
Please contact the individual listed below in the next week to arrange for a property inspection:
JuliAnn Gray 972.868.5753 [email protected]
If you have any difficulty obtaining necessary data, please call us immediately so we can expedite. Should you have any questions, concerns or issues to discuss regarding the engagement, the appraisal or the subject property please contact the underwriter listed below:
Sharon Robertson 972.868.5756 [email protected]
The following are the terms of this engagement:
1. Sales and rental comparables are to be provided to us at least 3 days prior to scheduled site inspection
2. Draft report (including all photographs, maps and supporting documentation) to be received by us no later than 05/06/2016 via email
3. Insurable Value Cost Analysis must be provided within ONE week of acceptance of this engagement
4. Final report to be received by us no later than 5 days from when we request Appraisal to be finalized
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5. The fee for the full appraisal is $3,500
6. You understand and agree that time is of the essence in this agreement. Meeting the deadlines for the draftand completion are an integral part of this agreement. If either of those deadlines is not met, the feepayable shall be reduced by $100 for each day that receipt is delayed.
7. Please address the report to:JuliAnn GrayHunt Mortgage Group14850 Quorum Drive, Suite 150Dallas, TX 75254
And to: Freddie Mac 8100 Jones Branch Drive McLean, VA 22102
Sincerely,
JuliAnn GrayJuliAnn Gray Underwriting Associate
Accepted by: ________________________________________________
Date: ________________________________________________
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Exhibit A Freddie Mac Appraisal Guidelines
Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.1: General requirements (07/01/14)
12.1: General requirements (07/01/14) For all multifamily purchase programs and products, the Seller/Servicer must submit a written Appraisal on the Property with the full underwriting package submission or in connection with certain Special Servicing requests. Freddie Mac usually requires that the Appraisal be in a narrative format; however, Freddie Mac will accept an Appraisal submitted on the applicable Freddie Mac appraisal form (see Section 12.11) with attachments (see Section 12.20) and any necessary addenda, if the use of the form is appropriate to the scope of the appraisal engagement. The Appraisal must be ordered by and completed for the Seller/Servicer and signed by an appraiser approved by the Seller/Servicer. Freddie Mac will not accept Appraisals ordered by and/or prepared for anyone other than the Seller/Servicer.
To support Freddie Mac’s evaluation of the Loan, Freddie Mac requires that the Appraisal contain transparent data analysis in a concise but comprehensive report format. It is important that Freddie Mac receive only quality Appraisals and analyses, supported by the Seller/Servicer’s selection of well-qualified appraisers and the Seller/Servicer’s critical review of the appraiser’s Appraisals. Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.2: Purpose of Appraisal (07/01/14)
12.2: Purpose of Appraisal (07/01/14) Appraisals must estimate the as-is leased fee market value of the Property (“leased fee” as defined in the current edition of The Appraisal of Real Estate, published by the Appraisal Institute) as of the effective date of the Appraisal, subject to stated assumptions and limiting conditions. The as-is leasehold value of the Property (defined in The Appraisal of Real Estate) must be estimated if the ownership of the Property is subject to a ground lease. Although other valuation scenarios may be appropriate for a particular Appraisal, at minimum, all Appraisals must provide an as-is estimate of market value.
In addition, for transactions involving affordable housing Mortgages and Targeted Affordable Housing (TAH) Mortgages, Freddie Mac requires the additional values outlined in Section 12.24, items 5-8. Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.3: Market value definition (07/01/14)
12.3: Market value definition (07/01/14)
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Appraisers must use the definition of market value set forth below, which conforms to the definition of market value adopted in the Uniform Standards of Professional Appraisal Practice (USPAP). If the appraiser elects to use Form 71A, Appraisal Report—Residential Income Property, the appraiser must delete the definition of market value printed on the form and must complete the Appraisal in accordance with the definition below, as defined within the Financial Institutions Reform, Recovery, and Enforcement Act (“FIRREA”) of 1989:
“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 are the consummation of a sale as of a specified date and the passing of the title from seller to buyer under conditions whereby
1. Buyer and seller are typically motivated. 2. Both parties are well informed or well advised, and acting in what they consider their best interests. 3. A reasonable time is allowed for exposure in the open market. 4. Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto. 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.” Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.4: Appraisers (07/01/14)/12.4: Appraisers (07/01/14)
12.4: Appraisers (07/01/14) Freddie Mac does not select or approve specific appraisers for Freddie Mac's Multifamily programs or products. The Seller/Servicer selects and approves appraisers and is responsible for maintaining an active file on each appraiser’s qualifications. The file must be updated annually and is subject to inspection by Freddie Mac.
The appraiser may not be involved or affiliated with any individual or institution involved in the Mortgage submission other than the Seller/Servicer. Appraisers who are staff appraisers of the Seller/Servicer must be independent of the lending, investment and collection functions of the Seller/Servicer.
In those instances where the appraiser and/or the appraisal firm is affiliated with or related to the Seller/Servicer, Appraisals performed for Freddie Mac’s Multifamily programs and products must include statements of disclosure from both the Seller/Servicer and from the appraiser that:
Are signed and dated on the same date as the Appraisal, Describe the nature of the relationship between the appraiser and the Seller/Servicer (or other entity), State that there is no conflict of interest between these firms, and State that there are no fees, payments or compensation between the firms other than that disclosed in the engagement letter between the appraiser and the Seller/Servicer (or other entity), or, if there is compensation in addition to the appraisal fee, provide a description of those fees, payments or compensation.
The disclosure from the Seller/Servicer must be included with the Appraisal as an attachment in the Addenda or following the report’s Letter of Transmittal. The disclosure from the appraiser must also be included
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As a statement in the Letter of Transmittal of the Appraisal, and In the appraiser’s Certification, as required by the Uniform Standards of Professional Appraisal Practice (USPAP).
Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.4: Appraisers (07/01/14)/12.4(a): Appraiser qualifications (01/01/13)
12.4(a): Appraiser qualifications (01/01/13) Each appraiser must 1. Be a certified general appraiser under the appraiser certification requirements of the State in which the Property is located (or a certified appraiser if that State does not confer the designation of certified general appraiser) 2. Appear on the State roster in good standing under the requirements of Title XI of FIRREA For all programs and products, if the Appraisal Subcommittee of the Federal Financial Institutions Examination Council has disapproved the licensing and certification requirements of the State in which the Property is located, pursuant to Title XI of FIRREA, the Seller/Servicer must contact the Applicable Freddie Mac Multifamily Regional Office for instructions. The TAH Seller/Servicer must contact the Multifamily TAH Underwriter. 3. Be actively and regularly engaged in the appraisal of multifamily properties 4. Have at least three consecutive years of income property appraisal experience 5. Have completed at least two multifamily Appraisals in the past year in the geographic market area where the Property is located 6. Be knowledgeable concerning current real estate market conditions and financing trends in the geographic market area where the Property is located 7. Be experienced in appraising multifamily properties with complexity and characteristics similar to those of the Property (such as the number of units and type of property—garden, mid-rise, high-rise, etc.) 8. Have a working knowledge of construction costs, materials, methods and standards in the geographic market area where the Property is located 9. Have a strong educational background in appraising income properties Appraisers must have completed successfully several courses relating to income properties. These courses must have been completed through a nationally recognized appraisal organization or accredited college or university. 10. Have insurance meeting the requirements of Section 31.26. Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.4: Appraisers (07/01/14)/12.4(b): Conditions for an appraisal trainee to co-sign (07/01/14)
12.4(b): Conditions for an appraisal trainee to co-sign (07/01/14) An appraisal trainee may co-sign an Appraisal if the appraisal trainee: 1. Clearly and prominently states that the appraisal trainee is an appraisal trainee or equivalent job title 2. Is currently registered as an appraisal trainee in the state in which the Property is located, and clearly and prominently identifies the appraisal trainee’s trainee license or certification identification number in the Appraisal, preferably in the Letter of Transmittal and in the Certification
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3. Clearly and prominently states in the Letter of Transmittal the appraisal trainee’s specific role in the appraisal project and describes in which parts of the appraisal process the appraisal trainee had a contribution and the extent of that contribution 4. Signs the Certifications in the Appraisal and takes professional responsibility for the appraisal trainee’s content, conclusions, and discussions within the Appraisal 5. Notes in the Appraisal if he/she has inspected the Property (An appraisal trainee can sign the Certification without having inspected the Property, if so noted in the Appraisal.) Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.4: Appraisers (07/01/14)/12.4(c): Unacceptable appraisers (07/01/14)
12.4(c): Unacceptable appraisers (07/01/14) The Seller/Servicer must send written notification immediately to the Applicable Freddie Mac Multifamily Regional Office if the Seller/Servicer, for cause, discontinues the use of any appraiser who has completed Appraisals within the past 12 months for Mortgages purchased or credit enhanced by Freddie Mac. A TAH Seller/Servicer must send written notification immediately to the Multifamily TAH Underwriter.
In addition, Freddie Mac reserves the right to refuse to accept Appraisals completed by any specific appraiser. Freddie Mac will maintain, on FreddieMac.com, the Multifamily Restricted Vendor List. If an appraiser appears on the Multifamily Restricted Vendor List, the Seller/Servicer may not use that appraiser for Multifamily Mortgages offered to Freddie Mac until notified otherwise by Freddie Mac. The decision to place a third-party vendor on the Multifamily Restricted Vendor List is solely within Freddie Mac’s discretion.
The Multifamily Restricted Vendor List is made available to Seller/Servicers for the sole purpose of ensuring that unacceptable appraisers do not prepare Appraisals for Multifamily and will constitute “Confidential Information” as defined in Section 2.8. Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.4: Appraisers (07/01/14)/12.4(d): Representations to third parties by appraisers and appraisal services (09/08/04)
12.4(d): Representations to third parties by appraisers and appraisal services (09/08/04) Appraisers and appraisal services may not represent themselves to third parties as being Freddie Mac-approved appraisers or appraisal services. Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.5: Appraiser certification (07/01/14)
12.5: Appraiser certification (07/01/14) The appraiser must attach all of the following to the Appraisal:
All assumptions and limiting conditions A certification that states that the report complies with the requirements of the USPAP, promulgated by the Appraisal Standards Board of the Appraisal Foundation, that are in effect at the time of certification A certification that states that the Appraisal complies with the current version of the FIRREA of 1989, including its Title XI regulations A signed and dated Statement of Limiting Conditions and Appraiser's Certification – Form 439
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The Form 439 must be the version approved for use by Freddie Mac as of the date of the Appraisal. If the appraiser elects to use Form 71A, the appraiser must delete the Certification and Contingent and Limiting Conditions printed on the form.
Anyone signing the Appraisal must: Comply with all of the requirements in this chapter, Inspect the Property (except as noted above for the appraisal trainee’s co-sign), and Accept full responsibility for the contents of the Appraisal.
Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.6: Information provided to appraiser by the Seller/Servicer (07/01/14)
12.6: Information provided to appraiser by the Seller/Servicer (07/01/14) At a minimum, the Seller/Servicer must provide the appraiser with the following information on the Property: 1. Complete legal description (see Section 29.3) 2. Survey, if available (see Section 29.5) 3. Rent roll dated within 30 days of the appraisal inspection date, certified by the Borrower as accurate and correct, and containing, at a minimum:
Unit number Unit type, name, or description and/or unit design (i.e., 2BR/1BA, 1BR/1BA/Den) Unit size in square feet Lease commencement date Contract rent Concessions, if any Additional fees or charges (i.e., pet fees and garage fees)
4. Income and Expense Statements for the previous three calendar or fiscal years, as applicable, certified by the Borrower as complete and accurate 5. Year-to-date Income and Expense Statement, certified by the Borrower as complete and accurate 6. Copies of executed commercial leases, amendments and attachments, if applicable 7. Property condition report as soon as available but prior to the Seller/Servicer’s transmittal of the Appraisal to Freddie Mac Draft versions of the property condition report are acceptable to meet these time constraints but if the final version is materially different than the draft version, the appraiser must be given the final version and the valuation must be amended to reflect this new information. 8. Environmental report as soon as available but prior to the Seller/Servicer’s transmittal of the Appraisal to Freddie Mac Draft versions of the environmental report are acceptable to meet these time constraints but if the final version is materially different than the draft version, the appraiser must be given the final version and the valuation must be amended to reflect this new information. 9. Copy of ground leases, if applicable 10. Copy of current sales contracts, if applicable 11. Final architectural plans and specifications, if the Property is to be built
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12. Any other information that the Seller/Servicer knows may affect the value of the Property Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.7: Seller/Servicer supervision of appraisers (07/01/14)
12.7: Seller/Servicer supervision of appraisers (07/01/14) The Seller/Servicer must evaluate and select appraisers based on qualifications and quality of the appraisal product. The Seller/Servicer must collect information and documentation from appraisers and applicable regulatory authorities to ensure that each appraiser completing Appraisals for multifamily Mortgages offered to Freddie Mac complies with the requirements set forth in this chapter.
Each file must contain 1. The appraiser's resume 2. Letters of reference from current and past clients 3. Types of properties appraised 4. Documentation showing that the appraiser possesses the certified general classification or certified classification in good standing in accordance with applicable State law 5. Copies of Appraisals if appropriate under the ethics provision of USPAP 6. An original certificate(s) of liability insurance meeting the requirements of Section 31.26
Each file must document that the appraiser complies with the requirements of this chapter and that the Seller/Servicer verified the experience information provided by the appraiser to the Seller/Servicer.
The Seller/Servicer must design an internal management control system to ensure compliance with the requirements set forth in this chapter. If the Seller/Servicer identifies a problem area, the Seller/Servicer must take appropriate action to correct the problem. The Seller/Servicer must keep written records of any activity under this internal control system and provide them to Freddie Mac upon request. Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.8: Discrimination in appraising (09/08/04)
12.8: Discrimination in appraising (09/08/04) The appraiser may not consider, analyze or report any information that involves race, color, sex, handicap, familial status, religion or national origin of the geographic area, neighborhood, occupants, owners or prospective owners.
As a matter of corporate policy, Freddie Mac will reject any Mortgage supported by an Appraisal that makes reference to race, color, sex, handicap, familial status, religion or national origin of the geographic area, neighborhood, occupants, owners or prospective owners. Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.9: Effective date of Appraisal (10/07/08)
12.9: Effective date of Appraisal (10/07/08) The effective date of the most current Appraisal must be within six months before the date on which the Mortgage's full underwriting package is delivered to Freddie Mac. The Seller/Servicer also must submit all other Appraisals completed on the Property in the past
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three years, if available to the Seller/Servicer and appropriate under the ethics provision of USPAP. See also Section 12.10. Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.10: Updated Appraisals (07/01/14)
12.10: Updated Appraisals (07/01/14) If Freddie Mac receives an Appraisal with an effective date that is more than six months before the date on which the full underwriting package is delivered to Freddie Mac, the Seller/Servicer must obtain an updated Appraisal from the appraiser. For the updated Appraisal, the appraiser must
Reinspect the Property, Resurvey the rental comparables, and Review the market for any additional sales comparables or changes in capitalization rates.
The documentation that provides the updated Appraisal must clearly indicate the steps that the appraiser performed for the updated Appraisal and discuss the changes, if any, between the original Appraisal and the updated Appraisal.
A letter or abbreviated report such as the Restricted Report from the appraiser stating general conclusions (for example that the value of the Property has not decreased since the original Appraisal) is not acceptable.
In addition to these requirements, the report must comply with the requirements and advice provided in USPAP for an update of a prior Appraisal. Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.11: Appraisal form (07/01/14)
12.11: Appraisal form (07/01/14) Typically, Freddie Mac expects that the Appraisal will be in a narrative format written to comply with report development and report structural requirements of the USPAP.
Form 71A, Appraisal Report—Residential Income Property, may be used for any Appraisal if appropriate for the scope and complexity of the appraisal assignment. If the appraiser elects to use Form 71A, the appraiser must comply with the instructions and guidelines on the appraisal form and the requirements of this chapter. Freddie Mac retains the right to determine that the use of Form 71A is appropriate.
If the appraiser uses Form 71A, the appraiser must use addenda to Form 71A to fully explain the appraiser's estimate of value. The appraiser must supplement the preprinted form with addenda to provide a comprehensive analysis that supports the value reconciliation and final value conclusion. See Section 12.20 for required attachments. Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.12: Appraisals (07/01/14)/12.12: Appraisals (07/01/14)
12.12: Appraisals (07/01/14) When the Seller/Servicer delivers an Appraisal to Freddie Mac, the Seller/Servicer is deemed to make the warranties regarding the Appraisal and the appraiser set forth in Section 5.3. The Seller/Servicer must review each Appraisal in detail for its completeness, accuracy, appraising logic and adherence to the requirements of this chapter. The Seller/Servicer
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must ensure that the Appraisal submitted to Freddie Mac incorporates corrections and/or resolution of any material errors or omissions found during the Seller/Servicer’s review of the Appraisal. If required by Freddie Mac, the Seller/Servicer must provide to Freddie Mac a copy of its review of the Appraisal concurrent with the transmittal of the Appraisal to Freddie Mac.
Each Appraisal must: Comply with and state its compliance with the USPAP in effect as of the date of the Appraisal Comply with and state its compliance with the current version of the FIRREA, including its Title XI regulations Disclose any steps taken by the appraiser to comply with the competency provision of the USPAP, if required; and Specifically disclose any extraordinary assumptions and/or hypothetical conditions, or explicitly state the lack of any such conditions
The Seller/Servicer must direct the appraiser to include the following language verbatim in the letter of transmittal above the appraiser’s signature and/or on the appraiser’s Certification page above the appraiser's signature:
“This report is for the use and benefit of, and may be relied upon by, a) the Seller/Servicer, Freddie Mac and any successors and assigns (“Lender”); b) independent auditors, accountants, attorneys and other professionals acting on behalf of Lender; c) governmental agencies having regulatory authority over Lender; d) designated persons pursuant to an order or legal process of any court or governmental agency; e) prospective purchasers of the Mortgage; and f) with respect to any debt (or portion thereof) and/or securities secured, directly or indirectly, by the Property which is the subject of this report, the following parties and their respective successors and assigns:o any placement agent or broker/dealer and any of their respective affiliates, agents and
advisors;
o any initial purchaser or subsequent holder of such debt and/or securities; o any Servicer or other agent acting on behalf of the holders of such debt and/or securities; o any indenture trustee; o any rating agency; and o any institutional provider from time to time of any liquidity facility or credit support for
such financings In addition, this report, or a reference to this report, may be included or quoted in any offering circular, information circular, offering memorandum, registration statement, private placement memorandum, prospectus or sales brochure (in either electronic or hard copy format) in connection with a securitization or transaction involving such debt (or portion thereof) and/or securities.”
The Appraisal must adequately describe the geographic area, neighborhood, rental competition, sales comparables, site and improvements. The Appraisal must demonstrate a market value supported by the reconciliation of the cost approach, income approach and market approach.
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The appraiser must perform the functions stated in this section and in Sections 12.13 through 12.19 to ensure the completeness of each Appraisal. Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.12: Appraisals (07/01/14)/12.12(a): Completeness (07/01/14)
12.12(a): Completeness (07/01/14) The appraiser must include all three recognized approaches to value (Cost Approach, Sales Comparison Approach, and Income Approach) in the Appraisal regardless of the reporting format. The appraiser must thoroughly explain and support the exclusion of any of the three approaches to value.
If the Property is not operating at stabilized operations, appropriate consideration must be given in each of the three approaches to value.
The appraiser is not limited to information and analysis requested or provided by the Seller/Servicer or contained on a preprinted form. Whether completing a narrative report or a preprinted form, the appraiser must consider, analyze and report all information that influences value even if not specifically requested by the Seller/Servicer, Freddie Mac or in the preprinted form. The Appraisal must contain a comprehensive analysis that supports the final value conclusion.
If using Form 71A, the appraiser must complete all questions and descriptions requested by the preprinted form. If information requested by the preprinted form is unavailable, the appraiser must explain why the information is unavailable. If information deemed important to the Appraisal, although not specifically requested by the preprinted form, is unavailable, the appraiser must explain why the information is unavailable. Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.12: Appraisals (07/01/14)/12.12(b): Inspection (07/01/14)
12.12(b): Inspection (07/01/14) Although all appraisers signing the Appraisal and any certification (including the Statement of Limiting Conditions and Appraiser’s Certification – Form 439) must have inspected the Property (except as noted below for an appraisal trainee), at least one appraiser signing the report must have made both an interior and exterior inspection of the Property. The interior inspection must include interior common areas, community amenities and a sample of unit interiors. 1. The appraiser must inspect:
A minimum of five units All vacant units to determine their state of readiness for occupancy All down units to determine and comment on the amount of repairs/renovations necessary to make them ready for occupancy At least one unit of each unit type and comment on the marketability of each unit type’s floor plan, design, layout, amenities, and level of finish
If this requirement results in more than 25 units to be inspected, the appraiser may sample the vacant units, but all down units must still be inspected regardless of the number of down units. The appraiser must clearly state in the Appraisal how this sample was selected. 2. The Appraisal must identify the specific units inspected and into which category each unit falls.
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3. The appraiser must report any physical condition concerns with the Property’s land or improvements observed during the appraiser’s inspection of the Property or known to the appraiser. 4. The appraiser must report any environmental concerns commonly known in the geographic area where the Property is located and any environmental concerns with the Property’s land or improvements observed during the appraiser’s site inspection or known to the appraiser. 5. It is not acceptable for the appraiser to merely state that the appraiser did not notice any physical and/or environmental issues during their inspection; the appraiser must discuss the extent of the appraiser’s inspection for these issues. 6. Appraisers must report the extent of their due diligence and describe their environmental observations, analysis and conclusions in the Appraisal. It is not acceptable for the appraiser to only state that the appraiser is not qualified to detect environmental issues and thus has made no observations during their physical inspection of the Property. 7. An appraisal trainee may sign the Certification of the Appraisal without performing an inspection of the Property, subject to the requirements of Section 12.4(a). Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.12: Appraisals (07/01/14)/12.12(c): Tax information (07/01/14)
12.12(c): Tax information (07/01/14) The appraiser must consider, analyze and report property tax and assessment requirements of the jurisdiction where the Property is located. The appraiser must verify that the Property has been fully or partially assessed and provide the most recent assessment date and the next scheduled assessment date of the Property. The appraiser must consider, analyze, adequately support and report any effect on value due to future scheduled assessments, property tax abatements or other property tax benefits.
Property tax comparables must be part of the discussion of the Property’s appropriate level of tax liability. The appraiser should identify the taxing jurisdiction of each of the property tax comparables and include in the discussion any differences in valuation methodology, tax rates, and/or reassessment schedules between these and the Property’s taxing jurisdiction.
The risk of the Property’s reassessment must be considered and appropriately analyzed and reported. Any adjustment to the capitalization rate must have adequate support and discussion. Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.12: Appraisals (07/01/14)/12.12(d): Leasehold estates (09/08/04)
12.12(d): Leasehold estates (09/08/04) If the Property is fully or partially subject to leasehold interests, the appraiser must consider and analyze how the applicable ground lease affects value. The appraiser must make appropriate adjustments to the comparables in the market approach and the cost approach of the Appraisal. Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.12: Appraisals (07/01/14)/12.12(e): Sales and other concessions (07/01/14)
12.12(e): Sales and other concessions (07/01/14)
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The Seller/Servicer must provide to the appraiser and the appraiser must consider, analyze and report any
Current or expired sales contracts, option contracts, contracts for deed, Master Lease and/or listings of the Property known to the appraiser Sales of the Property within the past three years
The appraiser must analyze and discuss any material difference between the final appraised value and any recent sale, contract, option and/or Master Lease of the Property. Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.12: Appraisals (07/01/14)/12.12(f): Property condition report (07/01/14)
12.12(f): Property condition report (07/01/14) The appraiser must consider how the results of the property condition report affect the value of the Property.
Prior to the Seller/Servicer’s transmittal of the Appraisal to Freddie Mac, the Seller/Servicer must provide the appraiser with the property condition report ordered by the Seller/Servicer as part of the loan transaction process. For expediency, the report can be delivered to the appraiser in draft form, as long as the appraiser notes in the Appraisal report that it was provided with a draft property condition report. If the final version is materially different from the draft version, the appraiser must be given the final version and the valuation must be amended to reflect this new information.
The appraiser must: Identify the engineering/consulting firm that prepared the property condition report, the effective date of the report, and whether it was a final version or a draft Report the conclusions and recommendations of the property condition report Consider the incremental cost to cure, maintain, or operate the Property due to the physical condition factor(s) and properly incorporate them into the value of the Property Use the property condition report as the starting point for its estimate of Replacement Reserve deposits unless the appraiser otherwise documents and discusses an alternative reserve figure in the Appraisal
In addition, the appraiser must provide market data, analysis, and discussion to support any opinion of the effect or non-effect on value of an identified physical condition issue. If there is an issue identified in the property condition report, it is not acceptable for the appraiser to merely state that there is not a loss in value; the appraiser needs to discuss why the appraiser has drawn that conclusion. Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.12: Appraisals (07/01/14)/12.12(g): Zoning and other legal issues (07/01/14)
12.12(g): Zoning and other legal issues (07/01/14) The appraiser must consider and discuss how zoning and other legal issues affect the value of the Property, referencing the authoritative zoning source in the Appraisal, comparing the Property to competing properties, and addressing at a minimum:
Parking ratio compliance Density compliance Rebuildability restrictions in the event of substantial damage or casualty loss to the Property
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Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.13: Environmental reports (07/01/14)
12.13: Environmental reports (07/01/14) Prior to the Seller/Servicer’s transmittal of the Appraisal to Freddie Mac, the Seller/Servicer must provide the appraiser with the environmental report ordered by the Seller/Servicer as part of the loan transaction process and any other environmental reports on the Property retained by the Seller/Servicer. For expediency, the environmental report can be delivered to the appraiser in draft form, as long as the appraiser notes in the appraisal report that the appraiser was provided with a draft. If the final version is materially different from the draft version, the appraiser must be given the final version and the valuation must be amended to reflect this new information.
The appraiser must: Identify the environmental consulting firm that prepared the report and the effective date of the report, and whether it was a final version or draft. Report the conclusions and recommendations of the environmental assessment. Consider the incremental cost to cure, maintain, or operate the Property due to the environmental factor(s) and properly incorporate them into the value of the Property. Report any environmental concerns commonly known in the geographic area where the Property is located and any environmental concerns with the Property's land or improvements observed during the appraiser’s site inspection or known to the appraiser. Analyze and discuss how the identified environmental issue(s) affect value (that is, negative market attitudes, stigma, disruption of occupancy, rent levels, use of property and cost of cleanup).
In addition, the appraiser must provide market data, analysis, and discussion to support any opinion of the impact or non-impact on value of an identified environmental issue. If there is an issue identified in the environmental report, it is not acceptable for the appraiser to merely state that there is not a loss in value; the appraiser must discuss why it has drawn that conclusion. Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.14: Valuation methodology (07/01/14)/12.14: Valuation methodology (07/01/14)
12.14: Valuation methodology (07/01/14) Since the Appraisal must, at minimum, estimate the leased fee market value of the Property, appropriate adjustments are required to any analysis of fee simple data within the Appraisal. Examples include:
Capitalization rates extracted from comparable sales must be consistently applied to the Property based upon actual or pro forma income. When appropriate, an adjustment must be made to reflect the Property’s leased fee ownership interests being appraised. The traditional Cost Approach is typically developed as a fee simple value; as such, the methodology must be appropriately adjusted to reflect the Property’s leased fee ownership interest. An analysis with 100 percent market rents, without consideration of the Property’s actual in-place rents, is not a leased fee value estimate [see Section 12.14(c)].
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Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal,Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.14: Valuation methodology (07/01/14)/12.14(a): Cost approach (07/01/14)
12.14(a): Cost approach (07/01/14) If developed, the cost approach conclusion must reflect the leased fee ownership interest in the Property (or leasehold interest if the Property is subject to a ground lease), and the appraiser must include proper adjustments for any items adverse to the Property's marketability, such as deferred maintenance, physical deterioration and functional and economic obsolescence. The Appraiser must specifically describe the estimates of accrued depreciation and entrepreneurial profit. The estimated land value must indicate the market value of the land, recognizing its highest and best use.
If the cost approach is omitted in the Appraisal, the appraiser must adequately provide a Property-specific explanation for its omission. Generic statements such as “investors typically do not consider the cost approach when they purchase this type of property” or “there is difficulty estimating depreciation due to current market conditions” are not acceptable and miss the point of the benefits of a cost approach analysis.
If the appraiser uses cost comparables as part of the estimate of replacement cost, it must include sufficient descriptions including, where appropriate, a photograph of the comparable properties to allow the reader of the Appraisal to adequately understand the construction similarities between those comparables and the Property. Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.14: Valuation methodology (07/01/14)/12.14(b): Sales comparison approach (07/01/14)
12.14(b): Sales comparison approach (07/01/14) The appraiser must support the value indicated by the sales comparison approach by analyzing the sales of at least three comparable properties. The sales comparables must be physically and locationally similar to the Property and must have been sold recently. The appraiser must make proper adjustments, when necessary, to the sales comparables for such items as real property rights conveyed, financing terms, conditions of sale, date of sale, location, physical characteristics and amenities. The appraiser must adequately explain those adjustments.
If there is an absence of recent comparable improved sales, the appraiser must consider that absence in estimating the market value. Current contracts and competitive property listings can be helpful to round out the appraiser's analysis if they are indicative of the state of the current market. The weight given to a contract or listing might be different from the weight given to the actual sales transactions, and the appraiser must discuss these differences in the Appraisal.
The appraiser must identify the primary data source(s), by name and title (if available), used to verify comparable sales data in the sales comparison approach.
The appraiser may use a multiplier, either a potential gross rent multiplier or an effective gross income multiplier only if the multiplier is customarily used in the Property's market area. The appraiser must derive the multiplier from recent sales of comparable properties in the market area of the Property. The appraiser must properly analyze the multiplier based on the overall quality and reliability of the gross income the Property has produced or is reasonably expected to produce.
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The appraiser must not apply an adjustment to the comparable sales for differential net operating income or develop a net income multiplier for the sales since these methodologies duplicate the techniques or value indicators used in direct capitalization in the Income Approach. The Sales Comparison Approach must focus on similarities and differences that affect value, which may include variations in property rights, financing terms, market conditions, and physical characteristics and the causes of income variation, not just that net operating income of the comparable is different than the Property’s (either on a per-unit basis or applying a net income multiplier). The appraiser must discuss and adjust for the causes of the differences in NOI, not just note that a difference exists.
The appraiser must refrain from adjusting the comparable properties’ sale prices for expenses, costs, or renovation that are to be incurred by the buyer after the date of the sale transaction since these costs and expenditures are not typically part of the transaction/consideration price for the property. Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.14: Valuation methodology (07/01/14)/12.14(c): Income approach (07/01/14)
12.14(c): Income approach (07/01/14) The appraiser must derive the value indicated by the income approach by considering the following economic factors: 1. The forecasted gross income must consider historical rents of the Property, current rents of the Property and rents currently obtained from comparable units (similar in amenities, location, size, type, style and quality) adjusted for market concessions, rent abatements, discounts and the like. The influence and limitations of rent control, rental concessions, historical trends and other relevant factors must be reviewed and analyzed relative to the forecasted gross income of the Property. The appraiser must analyze and discuss the difference, if any, between the Property’s actual recent contract rents and the appraiser’s estimate of the Property’s market rents, and their impact on the leased fee value of the Property. If the appraiser’s estimate of market rent is dissimilar to the recent leasing at the Property, the appraiser must provide an adequate discussion and explanation of the variance. 2. The estimated vacancy and collection loss must consider historical data of the Property, current data of the Property, rental comparables in the market area and anticipated changes of regional market conditions.
3. The forecasted expenses and Replacement Reserves must be comparable with the historical data of the Property and comparable with known and verified expenses in the market area, measured, at a minimum, on a per-unit basis and as a percentage of effective gross income. The identification of the expense comparables must include, at minimum, the age of the Property (year built and/or renovated), its location and the time period indicated by the expenses. The forecasted expenses and Replacement Reserves must consider future changes in expense or reserve levels.
4. The Capitalization Rate must be based on factors reflecting the investment characteristics of typically knowledgeable investors for properties similar to the Property. The appraiser must develop the Capitalization Rate using each of the following techniques, if practicable:
Extraction from comparable sales with analysis of the comparables’ variations, if any, from the Property’s economic and physical characteristics. Capitalization rates extracted by pro forma income or with actual income must be reconciled consistently with the appraiser’s estimate of the Property’s income.Published sources (preferably more than one published data source, and preferably a source that focuses on the Property’s local market, not general national data).
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Personal surveys and interviews with market participants, with date of survey and names/titles of the individuals surveyed. Band of Investment model (also known as mortgage equity technique) with specific reference to the sources of the financial data assumptions. Debt coverage ratio model - with specific reference to the sources of the financial data assumptions.
5. Development of capitalization rates from Ackerson or Ellwood methodologies is not appropriate for Appraisals for Freddie Mac 6. A discounted cash flow analysis (DCF) is typically redundant and not required in the development of the income approach for a multifamily property unless the property is not functioning at stabilized operations and/or occupancy
If developed, the cash flow period for the DCF must reflect the period necessary to achieve stabilized operations, unless local practice dictates otherwise, and may be developed with monthly, quarterly, or annual cash flows, depending on the time period of unstabilized property operations. In lieu of, or as a supplement to, a DCF analysis for an unstabilized property, the appraiser can consider the present value of lost revenue, operating expenses, and necessary repairs, renovations, alterations as adjustments to value. Key assumptions used to develop the DCF must be adequately discussed and supported in the Appraisal including rent and expense changes, discount rate, reversion capitalization rate, and absorption period.
Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.15: Area information (07/01/14)
12.15: Area information (07/01/14) The appraiser must report and accurately explain any positive or negative factors about the property's neighborhood, immediate area and proximity to any adverse influences. If the appraiser uses Form 71A, the appraiser must adequately explain fair or poor ratings of any item in the Summary of Neighborhood and Property section.
The appraiser must Consider, analyze and report current and prospective regional economic trends, such as population, employment concentration and diversification, changes in supply and demand, and housing development Explain how regional economic trends affect appraised value
Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.16: Rental competition (09/08/04)
12.16: Rental competition (09/08/04) The appraiser must identify the primary data source for each rental comparable, such as the name and telephone number of the contact person.
The appraiser must use at least six rental comparables. The appraiser must include current rental competition that affects the Property's economic performance and include all the information that would be requested on Form 71A for each rental comparable. The appraiser must identify and describe projects under construction, planned or proposed, that will likely affect the Property's economic performance.
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Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.17: Income and vacancy (09/08/04)/12.17(a): Market feasibility analysis (09/08/04)
12.17(a): Market feasibility analysis (09/08/04) The appraiser must include a market feasibility analysis if the Property is new construction or if the Property has recently undergone major rehabilitation. The market feasibility analysis can be included as a section of the Appraisal or it can be a separate report. The market feasibility analysis must
Consider, analyze and report the Property's current rental competition and future rental competition, including a review of projects under construction, planned or proposed that may affect the Property's economic performance Explain the expected stability and longevity of the Property's current rent levels and occupancy Support forecasted rent levels and occupancy Analyze rental concessions and absorption rates
Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.17: Income and vacancy (09/08/04)/12.17(b): Vacancy (09/08/04)
12.17(b): Vacancy (09/08/04) If the appraiser forecasts a vacancy percentage that is higher or lower than the current vacancy percentage, the appraiser must adequately explain the reasons for the difference in the current vacancy and forecasted vacancy. One line explanations, such as "the market is improving," "the property has updated units" or "the competition is becoming stronger," are unacceptable. Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.17: Income and vacancy (09/08/04)/12.17(c): Rental factors (09/08/04)
12.17(c): Rental factors (09/08/04) The appraiser must consider, analyze and report rental concessions, rental discounts and rental abatements of the Property and market area and explain how these factors affect the Property's economic performance. If the appraiser does not know of any rental concessions, rental discounts or rental abatements, the appraiser must state this fact in the Appraisal.
The appraiser must consider, analyze and report any rent control or rent stabilization of the Property or market area and explain how these factors affect the Property's economic performance. Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.17: Income and vacancy (09/08/04)/12.17(d): Seasonal and cyclical influences (09/08/04)
12.17(d): Seasonal and cyclical influences (09/08/04) The appraiser must consider, analyze and report seasonal and cyclical influences that may affect annual rental income and occupancy of the Property. Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.17: Income and vacancy (09/08/04)/12.17(e): Income (09/08/04)
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12.17(e): Income (09/08/04) The appraiser may include income from sources other than residential units when calculating total gross income if such income is supported by at least three years' historical operations, is common in the market and is expected to continue in the future. Such other sources include commercial space, laundry, parking, cable television, vending and application fees. Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.18: Improvements (07/01/14)
12.18: Improvements (07/01/14) The appraiser must report and explain any building, health and fire code violations at the Property that are known to the appraiser and explain how the code violations affect appraised value. If the appraiser does not know of any known violations, the appraiser must state so in the Appraisal.
The appraiser must report and explain any deferred maintenance known to the appraiser at the Property and explain how the deferred maintenance affects appraised value.
If the Appraisal is subject to the completion of repairs or replacements, the appraiser must report the appraised value before required repairs are completed ("as is" value) and report the appraised value after the required repairs are completed ("as completed") value. The appraiser must estimate the cost to complete the needed repairs.
If the Appraisal indicates the presence of any defects or conditions with respect to the Property, such as dampness, infestation or abnormal settlement, the appraiser must describe the effects of these deficiencies on the appraised value and marketability of the Property.
The appraiser must: Estimate the cost to complete the required repairs and any accompanying entrepreneurial profit, if applicable, and Estimate the prospective date that repairs are to be completed, and Analyze and describe any prospective vacancy issues resulting from the repair process, and Estimate the prospective date that lease-up due to repairs is estimated to be completed, and Adequately describe, analyze, and discuss the effect of the repairs on market value
The appraiser may rely on the data, discussion, and conclusions of the property condition report and the environmental report in analyzing and reporting on the property’s improvements. Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.19: Commercial space (07/01/14)
12.19: Commercial space (07/01/14) For Appraisals of Properties containing commercial space, the appraiser must include a rental analysis containing at least three comparable commercial rentals for each type of commercial tenant.
For each comparable commercial rent, the appraiser must provide:
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1. Name of the tenant 2. Type of business 3. Address or unit number(s) 4. Leased square feet 5. Annual prospective contractual rent for each of the next three years 6. Concessions (if any) 7. Lease commencement date 8. Length of lease 9. Renewal option, if any 10. Any other material lease terms
Property lease abstracts must contain, at a minimum, the following basic data, as applicable: 1. Term 2. Lease commencement date 3. Lease expiration date 4. Exact name of tenant 5. Type of business 6. Base square footage 7. Core or conversion factors 8. Calculation of gross rent 9. Calculation of percentage rent 10. Calculation of expenses 11. Expense stop 12. Reimbursement of expenses 13. Cancellation clauses 14. Renewal clauses 15. Option to purchase clause 16. Subordination clause
For Properties that contain commercial space, the appraiser must segregate rental income, vacancy and collection loss, operating expenses and Replacement Reserves attributed to commercial rental space from rental income, vacancy and collection loss, operating expenses and Replacement Reserves attributed to residential rental space. If the appraiser is unable to segregate commercial space and residential rental space, the appraiser must explain why the space cannot be segregated. Separate values for the commercial space and residential space are not required but must be provided if the commercial space can be marketed and sold separately from the residential space.
The appraiser must provide data that support the appraiser’s estimate of the property’s commercial vacancy rate, a discussion of tenant rollover risk, and cost of tenant improvements to re-lease the space. Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.20: Attachments to the Appraisal (07/01/14)
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12.20: Attachments to the Appraisal (07/01/14) The appraiser must attach the following, if applicable, to the Appraisal: 1. A copy of any current sales contracts, option contracts, contracts for deed or listings of the Property 2. A legible, certified current rent roll provided to the appraiser by the Seller/Servicer, legible Income and Expense Statements for the past three calendar or fiscal years (as applicable), if available, and legible year-to-date Income and Expense Statements for the Property, all dated within 30 days before the Appraisal 3. Color photographs of the Property's exterior, interior common areas, typical unit interiors, surrounding area, rental comparables, sales comparables and commercial rental comparables. The date and source of each photograph (i.e., the appraiser’s original photograph, photo copied from the internet, and photo scanned from a marketing brochure) must be clearly identified in the Appraisal.
Unless otherwise identified within the Appraisal, the photographs of the sales comparables must be reflective of the property at the time of sale.Unless otherwise identified within the Appraisal, the photographs of the Property must be reflective of the Property as of the effective date of the appraisal value.
4. Maps showing the location of the Property relative to the location of the land comparables, current rental comparables, future rental comparables and sales comparables 5. If the Property contains commercial space, legible copies of all executed commercial leases, riders and amendments 6. A complete legal description of the Property (see Section 29.3) 7. A survey of the Property, if available (see Section 29.5) 8. If the Property is subject to ground leases, a copy of all ground leases 9. Any other information that ensures the completeness of the Appraisal 10. The appraiser's qualifications and the supervising or review appraiser's qualifications 11. A copy of the complete, signed engagement letter and a copy of any other communications about the scope of the Appraisal between the appraiser and the Seller/Servicer 12. A signed and dated Statement of Limiting Conditions and Appraiser’s Certification – Form 439
Freddie Mac will also accept a market study attached to the Appraisal. Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.21: Insurable value (07/01/14)
12.21: Insurable value (07/01/14) Insurable value must be provided in all Appraisals.
The Replacement Cost is the cost to reconstruct a Property of an equal number of units with equal quality of building materials with equal utility that would be acceptable to the typical investor and tenant in the market in which the Property is located. Replacement Cost is not the Cost to construct a replica of the Property.
For insurance purposes, the Replacement Cost may not include goodwill or other intangibles such as value/cost of the land, a deduction for depreciation, cost of site improvements,
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(e.g., driveways, parking lots, sidewalks, or landscaping), or cost to reconstruct the foundation(s). Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.22: Student Housing Appraisal requirements (07/01/14)
12.22: Student Housing Appraisal requirements (07/01/14) In addition to the other requirements of this chapter, the following requirements apply to Appraisals of Student Housing Properties. The Appraisal must be prepared by an appraiser who has experience in valuing Student Housing Properties, as demonstrated by the qualifications statement provided by the appraiser in the addendum to the Appraisal.
The appraiser must consider the following: Trends in student population or enrollment and other demographic trends, Changes in the supply of on- or off-campus housing, whether sponsored by the school or planned and built by private developers (such as dormitories, for-profit or not-for-profit apartments, and fraternity or sorority housing), Distance from the Student Housing Property to the school, and available transportation, Any school policies affecting student residency (for example, requirements for freshmen and sophomores to live on campus), and Changes to school-sponsored amenities, whether on- or off-campus.
Freddie Mac requires the use of comparable properties that were purchased, developed or leased for student housing. If comparable student housing properties are not available in the local market, the appraiser may use comparable regional student housing properties. The appraiser must evaluate the comparable property and the school it serves with the Student Housing Property based on the factors described above: student population trends, supply of student housing, distance and transportation between school and housing, amenities, school policies affecting student residency and so forth. These requirements apply to building sales, land sales and rental comparables.
If comparable local or regional student housing properties are not available, non-student housing may be used as a comparable property. However, the appraiser must discuss in sufficient detail the adjustments necessary to correlate non-student housing to the Student Housing Property. Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.23: Collateral evaluation for tax abatement (07/01/14)
12.23: Collateral evaluation for tax abatement (07/01/14) For all Appraisals of a Property with a tax abatement, the preferred Freddie Mac valuation methodology is as follows:
First, full, stabilized real estate taxes are used to calculate the NOI that is used to determine the property value with full taxes. Next, the present value of the tax savings over the term of the tax abatement is determined using a discount rate supported fully by the appraiser. The present value of the tax savings is then added to the property value with full taxes to determine the value of the Property with the tax abatement.
Note: If local practice is different from the Freddie Mac preferred methodology, the appraiser may use the local methodology, provided that any differences in technique are fully discussed in the Appraisal.
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The appraiser must demonstrate in the Appraisal that the tax abatement is likely to continue for its stated term. This can be accomplished by a variety of methods including a review and discussion within the Appraisal of the tax abatement agreement and/or documented conversation and confirmation of the tax abatement by the Appraiser with the local property tax authority or tax abatement-granting agency. Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.24: Affordable Housing and Targeted Affordable Housing (07/01/14)
12.24: Affordable Housing and Targeted Affordable Housing (07/01/14) In addition to the other requirements of this chapter, the following requirements are for Appraisals of affordable housing properties: 1. The Appraisal must be prepared by an appraiser who has experience in valuing affordable housing properties, as demonstrated by the qualifications statement provided by the appraiser in the addendum to the Appraisal and also retained in the Seller/Servicer’s files. 2. The appraiser must consider the following:
Trends in population and other factors of affordable housing demandChanges in the supply of affordable housing properties within the Property’s market area
3. Freddie Mac requires the use of comparable properties that were purchased, developed or leased as affordable housing. If comparable affordable housing properties are not available in the local market, the appraiser may use comparable regional affordable housing properties. These requirements apply to building sales, land sales, rental comparables and capitalization rate comparables. 4. If a sufficient number of comparable local or regional affordable housing properties are not available for analysis, non-affordable housing may be used as a comparable property. However, the appraiser must discuss in sufficient detail the adjustments necessary to correlate non-affordable housing to the affordable housing Property, including, but not limited to, differences in local demographics, investor considerations and marketing time. 5. If the Property has restricted units, the appraiser must include an estimate of market value with the restricted units in place and an estimate of hypothetical market value without the restricted units. For Appraisals directly ordered by Freddie Mac for asset management purposes, the appraiser must also opine, describe and support if the highest and best use of the Property is to phase out restricted rents in favor of non-restricted rents, and, if so, develop an estimate of market value considering the time period necessary to phase in non-restricted rents. In the Appraisal, the appraiser must document the source of the Property’s restricted rent roll and provide adequate support, analysis and discussion for the continuation of the restricted rents. If the appraiser concludes that the restricted rents will expire or not continue, the appraiser must use the appropriate methodology to value the Property considering the likelihood of the restricted rents expiring. 6. If the Property has HUD Project-based Section 8, the appraiser must include the following values:
The value using the project-based contract rents, andThe value using the lower of market, Section 8, or achievable LIHTC rents (if applicable) for each type of unit
7. If the Property has not achieved stabilized operations, the appraiser must develop both an “as-is” and an “as-stabilized” value. 8. If the Property is to be built, the appraiser must include the “as-stabilized” value.
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Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.25: Seniors Housing Properties (07/01/14)
12.25: Seniors Housing Properties (07/01/14) In addition to the other requirements of this chapter, the following requirements apply to Appraisals of Seniors Housing Properties: 1. The Appraisal must be prepared by an appraiser who has experience in valuing seniors housing properties (i.e., independent living properties and assisted living properties) as demonstrated by the qualifications statement provided by the appraiser in the addendum to the Appraisal and also retained in the Seller/Servicer’s files. 2. The appraiser must consider the following:
Trends in population, seniors’ income and other factors of seniors housing demandChanges in the supply of seniors housing properties within the Property’s market area
3. Freddie Mac requires the use of comparable properties that were purchased, developed or leased as seniors housing. If comparable seniors housing properties are not available in the local market, the appraiser may use comparable regional seniors housing properties. These requirements apply to building sales, land sales, rental comparables, and capitalization rate comparables. 4. If a sufficient number of comparable local or regional seniors housing properties are not available for analysis, non-seniors housing properties may be used as a comparable property. However, the appraiser must discuss in sufficient detail the adjustments necessary to correlate non-senior housing to the Senior Housing Property including, but not limited to, differences in local demographics, investor considerations and marketing time. 5. If the Property has restricted units, the appraiser must include an estimate of market value with the restricted units in place and an estimate of hypothetical market value without the restricted units. In addition to the hypothetical value if leased at non-restricted rents, the appraiser must opine and support its opinion if the Highest and Best Use of the property is to phase out restricted rents in favor of non-restricted rents, and, if so, develop an as-is estimate of market value considering the time period necessary to phase in non-restricted rents. In the Appraisal, the appraiser must document the source of the Property’s restricted rent roll and provide adequate support, analysis and discussion for the continuation of the restricted rents. If the appraiser concludes that the restricted rents will expire or not continue, the appraiser must use the appropriate methodology to value the Property considering the likelihood of the restricted rents expiring.
The Appraisal will clearly and prominently report the total market value of the Property as well as an allocation for contributory business value, personal property and/or other non-real estate items. The appraiser will clearly, adequately and comprehensively discuss the value segregation process and provide market-derived data for the value allocations, including, where applicable, surveys of market participants, comparable sales data and authoritative sources for the appraiser’s allocation methodology. Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.26: Manufactured Housing Communities value (07/01/14)
12.26: Manufactured Housing Communities value (07/01/14) In addition to the requirements in this chapter, specific appraiser and Appraisal requirements for Manufactured Housing Communities can be found in Section 22.5.
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Agency Guides/Freddie Mac Multifamily/Multifamily Seller/Servicer Guide/Chs. 12-15: Appraisal, Environmental and Engineering Requirements/Chapter 12: Appraiser and Appraisal Requirements/12.27: Appraisals for premier lease-up and standard lease-up (07/01/14)
12.27: Appraisals for premier lease-up and standard lease-up (07/01/14) Freddie Mac has two types of special lease-up programs: Premier Lease-Up and Standard Lease-up, with the former being for loans with premier sponsorship and assets in premier locations, and the latter being for loans with sponsors and markets that do not meet this criteria.
For Properties to be specifically underwritten in either of these two programs, the Appraisal must provide the as-is and prospective as-stabilized value for the property. The Freddie Mac Underwriting Value is based on the prospective as-stabilized value.
The Seller must provide guidance to the appraiser should these values be required.
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Addenda
ADDENDUM
Qualifications
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QUALIFICATIONS OF
JEFFREY C. JOZWICK, MAI Director
CBRE Inc.
Valuation and Advisory Services 2000 Town Center, Suite 500 Southfield, MI 48075-1239
(248) 351-2090
EDUCATIONAL Bachelors of Business Administration – Management Concentration Western Michigan University, Kalamazoo, Michigan
CERTIFICATION Designated Member, Appraisal Institute (MAI), Member No. 12300
LICENSURE Certified General Appraiser: State of Michigan (No. 1201006193) Real Estate Sales Person: State of Michigan (No. 6501287724)
EMPLOYMENT EXPERIENCE 2004-Present CBRE, Inc. Southfield, MI Director 2001-2004 Real Estate Consulting Services, Inc. Farmington Hills, MI
Senior Appraiser, Vice President 1997-2001 Allen & Associates Appraisal Group, Inc. Birmingham, MI Associate Appraiser Valuation assignments include all types of existing as well as proposed commercial properties including industrial, multiple-family residential, office, shopping centers, vacant land, automobile dealerships, restaurants, manufactured housing/land leased communities, subdivision and condominium developments, as well as a variety of special purpose properties and mixed-use developments. Multifamily and manufactured housing have been areas of specialty practice since 2005. Appraisal reports and market analyses prepared for mortgage financing, acquisition/disposition, asset management, property assessment/tax appeal, estate planning, and divorce.
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QUALIFICATIONS OF MARSHALL A. BRULEZ, MAI, MRICS
Managing Director
CBRE, Inc., Valuation and Advisory Services 2000 Town Center, Suite 500 Southfield, MI 48075-1239
(248) 351-2070
EDUCATIONAL Bachelor of Science Degree, Michigan State University, East Lansing, Michigan
CERTIFICATION State Certified General Real Estate Appraiser: State of Michigan (No. 1201004884) State Certified General Real Estate Appraiser: State of Ohio (No. 000424182)
PROFESSIONAL Designated Member, Appraisal Institute (MAI) Member #10,278 Professional Member, Royal Institution of Chartered Surveyors, MRICS #1221426 Leader – CBRE-VAS Automotive Properties Group
EMPLOYMENT EXPERIENCE 1984-1994 Various Appraisal and Consulting Firms Appraiser Atlanta, GA 1994-1997 Treadwell & Associates
Senior Appraiser Southgate, MI 1997-2004 Real Estate Appraisal Services, Inc Commercial Group Manager Troy, MI 2004-2008 RBS Citizens, N.A. (Charter One) Vice President – Chief Appraiser Troy, MI 2008-Present CBRE, Inc – Valuation Advisory Services Managing Director Southfield, MI Valuation assignments included all types of existing as well as proposed commercial, industrial, multiple-family residential and special purpose properties throughout the state of Michigan and the Midwest including apartments, office buildings, industrial manufacturing and warehouse facilities, automobile dealerships, shopping centers, restaurants, hotels, motels, manufactured home communities and a wide variety of investment and special purpose properties, including recreational facilities, arenas and stadiums.
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