Valuation of Units. The Purchaser determined the Purchase Price by estimating the value of the Partnership's properties using the direct capitalization method. This method involves applying a capitalization rate to the annual income of each of the Partnership's properties. A capitalization rate is a percentage (rate of return), commonly applied by purchasers of residential real estate to property income to determine the present value of income property. The lower the capitalization rate utilized the higher the value produced, and the higher the capitalization rate utilized the lower the value produced. The Purchaser used the Partnership's properties income for the fiscal year ended December 31, 1998. The Purchaser's method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). Generally, the Purchaser assigns the initial capitalization rates as detailed below to properties in these categories. The Purchaser then adjusts the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. See the table below for final capitalization rates used on the Partnership's properties. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that a Limited Partner would receive if he sold his Units to someone else or if the Partnership were actually liquidated might be higher or lower than the Purchase Price. The Purchaser determined the Purchase Price as follows:. Capitalization Initial Rate Adjustment Final Location/Condition Capitalization Mortgage due to Interest Capitalization Property Rating Rate Interest Rate Rate Rate -------- ------ ---- ------------- ---- ---- Meadow Wood B/B 10.25% 10.00% 1.25 11.25% Stratford Place B/C 10.50% 8.20% 0.50 11.00% Stratford Village B/B 10.25% 7.70% 0.25 10.50% Sunflower C/C 11.00% 7.50% -- 11.00% Gross valuation of partnership properties $ 28,829,000 Plus: Cash and cash equivalents 1,862,954 Plus: Other partnership assets, net of security deposits 1,497,044 Less: Mortgage debt, including accrued interest (21,282,061) Less: Accounts payable and accrued expenses (153,159) Less: Other liabilities (910,352) ------------ Partnership valuation before taxes and certain costs 9,843,426 Less: Disposition fees 0 Less: Extraordinary capital expenditures and deferred maintenance (2,400,241) Less: Closing costs (864,870) Estimates net valuation of your partnership 6,578,315 Percentage of estimated net valuation allocated to holders of units 99.97% Estimated net valuation of units 6,576,209 Total number of units 23,139 Estimated valuation per unit $ 284 Cash consideration per unit $ 284
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Valuation of Units. The Purchaser determined the Purchase Price by estimating the value of the Partnership's properties using the direct capitalization method. This method involves applying a capitalization rate to the annual income of each of the Partnership's properties. A capitalization rate is a percentage (rate of return), commonly applied by purchasers of residential real estate to property income to determine the present value of income property. The lower the capitalization rate utilized the higher the value produced, and the higher the capitalization rate utilized the lower the value produced. The Purchaser used the Partnership's properties income for the fiscal year ended December 31, 1998. The Purchaser's method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). Generally, the Purchaser assigns the initial capitalization rates as detailed below to properties in these categories. The Purchaser then adjusts the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. See the table below for final capitalization rates used on the Partnership's properties. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that a Limited Partner would receive if he sold his Units to someone else or if the Partnership were actually liquidated might be higher or lower than the Purchase Price. The Purchaser determined the Purchase Price as follows:. Capitalization Initial Rate Adjustment Final Location/Condition Capitalization Mortgage due to Interest Capitalization Property Rating Rate Interest Rate Rate Rate -------- ------ ---- ------------- ---- ---- Meadow Wood B/B 10.25% 10.00% 1.25 11.25% Stratford Place B/C 10.50% 8.20% 0.50 11.00% Stratford Village B/B 10.25% 7.70% 0.25 10.50% Sunflower C/C 11.00% 7.50% -- 11.00% Gross valuation of partnership properties $ 28,829,000 Plus: Cash and cash equivalents 1,862,954 Plus: Other partnership assets, net of security deposits 1,497,044 Less: Mortgage debt, including accrued interest (21,282,061) Less: Accounts payable and accrued expenses (153,159) Less: Other liabilities (910,352) ------------ Partnership valuation before taxes and certain costs 9,843,426 Less: Disposition fees 0 Less: Extraordinary capital expenditures and deferred maintenance (2,400,241) Less: Closing costs (864,870) Estimates net valuation of your partnership 6,578,315 Percentage of estimated net valuation allocated to holders of units 99.97% Estimated net valuation of units 6,576,209 Total number of units 23,139 Estimated valuation per unit $ 284 Cash consideration per unit $ 284.
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