Real Estate Appraisal

Greenvale Apartments Case II

Business Memorandum

Background Analysis

Eastern Bank is in the process of purchasing the mortgage on Greenvale Apartments from Southern Bank, in order to determine the value of the property, an appraisal needed to be done. To that end, two appraisals have been done: (A) Max Victor, and (B) Isabella Romeyn. I have been asked to evaluate the two appraisals and to perform my own appraisal.

Appraisal Analysis

The three appraisals have several data points were the numbers are almost identical and the underlying assumptions are almost the same. But there are a few critical data points were different assumptions have been made which are causing the swings in valuation from $14M to $19M.

Strengths / Similarities

„X Operating Expenses Analysis ÐŽV It appears for most expenses accounts all three appraisals used the same assumption that expenses would grow at inflation which is estimated to be 5%. In a few cases where more specific information is available the analysis was very similar. This leads to expense estimated being very similar: For example: In 2012 the operating expenses ranges from : $1.72M to $1.86M, with the main variance been in one specific area (I will discuss that below)

„X Revenue / Lost to Leases / Vacancy Analysis: All three appraisals used the same methodology to come up with their financials for these accounts. The main difference appears to be percent used.

Weakness / Differences

„X Revenue Growth: than main differences with in revenue growth, which in part causes the swings in property appraisal / valuation is being driven by the use of different growth rates. The growth rates that are being used range from 4% to 5.9%.

„X Expenses Analysis: there is one main area for which a difference in philosophy is occurring: (A) General Repairs & Maintenance and (B) Misc Reserve for Replacements accounts. In VictorÐŽ¦s and RomeynÐŽ¦s appraisal they assumed that those two accounts should be net together to equal a forecast of 2% of effective gross income. I believed that Misc Reserve for Replacements account should contain by itself a forecast of 2% of effective gross