Exhibit 99.3

Midland Manor Apartments

550 Derrick Avenue

Mendota, California 93640

Prepared For

Ms. Tanya Christensen

WNC & Associates, Inc.

17782 Sky Park Circle

Irvine, California 92614-6404

Date of Appraisal

November 10, 2010

Effective Date of Appraisal

October 21, 2010

Appraised By

512 North One Mile Road * Dexter, MO 63841 Ph: 573-624-6614 * Fax: 573-624-2942

November 10, 2010

Ms. Tanya Christensen

WNC & Associates, Inc.                                                      

17782 Sky Park Circle

Irvine, California 92614-6404

RE:  Midland Manor Apartments 550 Derrick Avenue Mendota, California 93640 “As Is” Summary Appraisal As of October 21, 2010

Dear Ms. Christensen:

In accordance with your request, Gill Group, Inc. has personally inspected the property known as Midland Manor Apartments. The site contains 2.57 acres. The subject is improved with seven one-story garden-style buildings containing 40 rental units, the leasing/management office, community room, laundry facility and maintenance area. The property also contains an asphalt parking lot. The subject’s parcel number is 012-190-34. The property is owned by Midland Manor Associates.

The purpose of the Summary Appraisal is to estimate the market value, subject to restricted rents, of the subject’s fee simple interest for financing decisions and mortgage underwriting. The intended user of the appraisal is WNC & Associates, Inc., Local General Partner and Upper Tier Investor (as a company that may, at time, have to file with the Security and Exchange Commission, the SEC is a potential intended user).

This report is intended to comply with the reporting requirements set forth under Standard Rule 2-2(b) of the Uniform Standards of Professional Appraisal Practice for a Summary Appraisal report.

A description of the property, together with information providing a basis for estimates, is presented in the accompanying report. This appraisal is subject to the definitions, assumptions, conditions and certification contained in the attached report. During the fieldwork, it has been determined the appraised property has no natural, cultural, scientific or recreational value.

Based on the data, analyses and conclusions presented in the attached report, it is my opinion the market value, subject to restricted rents, of the subject property, as of October 21, 2010, is as noted below.

SEVEN HUNDRED EIGHTY-FIVE THOUSAND DOLLARS

$785,000.00

This report and its contents are intended solely for your information and assistance for the function stated previously, and should not be relied upon for any other purpose. Otherwise, neither the whole nor any part of this appraisal or any reference thereto may be included in any document, statement, appraisal or circular without my explicit, prior written approval of the form and context in which it appears.

Gill Group

Page 2

The accompanying prospective financial analysis is based on estimates and assumptions developed in connection with the appraisal. However, some assumptions inevitably will not materialize and unanticipated events andcircumstances will occur. The actual results achieved during the holding period will vary from my estimates and these variations may be material. I have not been engaged to evaluate the effectiveness of management, and I am not responsible for management’s actions such as marketing efforts.

This appraisal report sets forth only the appraiser’s conclusions. Supporting documentation is retained in the appraiser’s file. A copy of this report, together with the field data from which it was prepared, is retained in my files. This data is available for your inspection upon request.

Respectfully submitted,
Jon Richmond	Samuel L. Gill
Appraiser Trainee	State Certified General
	Real Estate Appraiser
	CA #AG039401

Gill Group

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

TABLE OF CONTENTS

Title Page	1
Letter of Transmittal	2-3
Table of Contents	4-5
Executive Summary	6
Certification of Value	7
Introduction
Identification of the Subject Property	8
Legal Description	8
Past Five Years Sales History of the Subject	8
Property Rights Appraised	8
Purpose of the Appraisal	8
Function of the Appraisal	8
Intended Use of Report	8
Extent of the Investigation (Scope)	8
Area & Neighborhood Analyses	8-9
Reasonable Exposure Time	10-11
Estimated Marketing Time	11
Definition of Terms	12-13
Special Limiting Conditions and Assumptions	14-19
Descriptive Section
Regional and Area Data	20-21
City/Neighborhood Map	22
Neighborhood Data	23-24
Defining the Market Area	25
Subject Description	26-27
Improvement Description	28-29
Subject Photos	30-40
Highest and Best Use Analysis	41-44
Appraisal Procedures	45
Valuation Section
Cost Approach	46-48
Income Approach	49
Potential Gross Rental Income	49
Vacancy & Expense Definitions	49-52
Revenue and Expense Analysis	53
Estimating Restricted Expenses Per Unit	54
Itemized Expense Explanations	55-57
Net Operating Income Conclusions	58
Direct Capitalization	59
Capitalization Rates	60
Income Values	61
Sales Comparison Approach	61

Gill Group

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

Reconciliation and Conclusions
Conclusion of Value	62
Addenda
Engagement Letter	A
Subject Data	B
Flood Hazard Determination Form	C
Zoning Description	D
State License/Qualifications	E

Gill Group

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

EXECUTIVE SUMMARY

Name of the Property Midland Manor Apartments

Location 550 Derrick Avenue Mendota, Fresno County, California 93640

Current Owner Midland Manor Associates

Type of Report Summary Appraisal Report

Total Land Area 2.57 acres, or 111,950+/- square feet

Floodplain Hazard According to FloodSource FloodScape, Flood Map Number 06019C-1444H, dated February 18, 2009, the subject is zoned X, an area determined to be outside the 100- and 500-year floodplains. Federal flood insurance is available but is not required.

Zoning According to the Mendota Zoning Department, the subject is zoned C-3, Central Business District. The subject is a legal, non-conforming use. However, the zoning department indicated that this area is currently being rezoned to R-2, Residential District.

Property Description The subject is improved with seven one-story garden-style buildings containing 40 rental units (one of which is a non-revenue unit), the leasing/management office, community room, laundry facility and maintenance area. The net rentable area is approximately 21,000 square feet.

Unit Type	# of Units	Square Footage	Total Square Footage
1/1	39	525	20,475
1/1 Non-Revenue	1	525	525
			21,000

Real Estate Taxes $12,734.42 for 2010

Parcel Number 012-190-34

Property Type	Apartment Complex	Highest and Best Use	Apartment Complex
Date of Inspection	October 21, 2010	Date of Report	November 10, 2010

Sales History of Subject According to the Fresno County Assessor’s Office, the property is owned by Midland Manor Associates. The property has not transferred ownership within the past five years.

Cost Approach $825,000.00

Market Income Approach $785,000.00

Sales Comparison Approach Not Developed

Gill Group

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

CERTIFICATION

I certify that to the best of my knowledge and belief:

u The statements of fact contained in this report are true and correct.

u The reported analyses, opinions and conclusions are limited only by the reported assumptions and limiting conditions and are my personal, impartial and unbiased professional analyses, opinions and conclusions.

u We have no (or the specified) present or prospective interest in the property that is the subject of this report and no (or the specified) personal interest with respect to the parties involved.

u We have no bias with respect to the property that is the subject of the report or to the parties involved with this assignment.

u Our engagement in this assignment was not contingent upon developing or reporting predetermined results.

 u 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.

 u Our analyses, opinions and conclusions were developed and this report has been prepared in conformity with the Uniform Standards of Professional Appraisal Practice.

u Jon Richmond inspected the interior, measured, photographed and gathered general information about subject property.

u Jon Richmond provided professional assistance by gathering subject, neighborhood and general market data.

u Samuel L. Gill performed all analysis and provided all the reconciliations and conclusions of value contained within the appraisal.

Jon Richmond	Samuel L. Gill
Appraiser Trainee	State Certified General
	Real Estate Appraiser
	CA #AG039401

November 10, 2010

Gill Group

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

IDENTIFICATION OF THE SUBJECT PROPERTY

The property appraised is the land and improvements known as Midland Manor Apartments. The site is located at 550 Derrick Avenue, Mendota, Fresno County, California.

LEGAL DESCRIPTION

Section 36, Township 13 South, Range 14 East in Fresno County, California.

PAST FIVE YEARS SALES HISTORY OF THE SUBJECT

According to the Fresno County Assessor’s Office, the property is owned by Midland Manor Apartments Associates. The property has not transferred ownership within the past five years.

PROPERTY RIGHTS APPRAISED

For this appraisal, I have valued the property rights inherent in the Fee Simple Estate which is defined in the definitions section of this report.

PURPOSE OF THE APPRAISAL

The purpose of the appraisal is to establish a value for decision making for mortgage financing. The date of the inspection and the effective date of the value are both October 21, 2010.

FUNCTION OF THE APPRAISAL

The function of this appraisal is to aid the client in the decision-making process involved in evaluating the value of the subject property.

INTENDED USE OF REPORT

This appraisal report is intended for the sole purpose of assisting the client in the decision-making process involving financing.

EXTENT OF THE INVESTIGATION (SCOPE)

As part of this appraisal, the appraiser made a number of independent investigations and analyses. The investigations undertaken and the major data sources used are as follows: City of Mendota; the Fresno County Recorder; the Fresno County Assessor; United States Bureau of Labor Statistics; United States Census Bureau; eNeighborhoods, Inc.; and ESRI Business Information Solutions.

AREA AND NEIGHBORHOOD ANALYSES

Primary data was gathered pertaining to the subject neighborhood and the area during the week of October 18, 2010, to October 22, 2010. This information was analyzed and summarized in this report. Area data was obtained from the City of Mendota; the Fresno County Recorder; the Fresno County Assessor; United States Bureau of Labor Statistics; United States Census Bureau; ESRI Business Information Solutions; and eNeighborhoods, Inc. The neighborhood analysis was based on the observations made by the appraiser as well as the sales in the neighborhood.

Gill Group

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

SITE DESCRIPTION AND ANALYSIS

A physical inspection of the site was made on October 21, 2010, by Jon Richmond, Appraiser Trainee. The appraiser trainee inspected the interior and exterior of the property. Samuel L. Gill, State Certified General Real Estate Appraiser, also viewed the exterior of the property. The inspector walked the site, physically inspected the exterior and all common areas and inspected at least one unit of each varying type. More than one of each unit type may have been inspected based on the condition, number of vacancies at the time of inspection or other mitigating factors. While inspecting the interior of each unit type, the inspector physically measured and calculated the size of differing units and considered the sizes provided by the property contact, if applicable. Based on measurements taken, the inspector determined the sizes provided by the contact were accurate. Therefore, the reported unit sizes were used in this report. The site and the street scenes were photographed and are included in this report.

IMPROVEMENT AND DESCRIPTION ANALYSES

Detailed descriptions of the site are included in this report. Interior and exterior photographs of the buildings at the subject are included in this report. Exterior photos of the rent comparables are also included in this report.

STATEMENT OF COMPETENCY

We have the knowledge and experience to complete the assignment competently based upon having completed appraisals of properties of a similar type throughout the United States for the past several years.

MARKET DATA

Market data on land sales were obtained from the subject neighborhood in Mendota and the surrounding area. Market data on improved sales and leased properties were obtained from Mendota and the surrounding area. The improved sales were obtained from parties involved with the sales. Summaries of the sales and leases are included in this report.

Attention of the reader is also directed to the assumptions and limiting conditions contained within the report.

Gill Group

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

REASONABLE EXPOSURE TIME

In the definition of market value, one of the conditions of a “market value sale” is as follows: a reasonable time is allowed for exposure in the open market. Marketing time has a definite influence on the potential selling price of a property. To obtain a maximum selling price, a property must be exposed to a given market for a time long enough to enable most market participants to gain full knowledge of the sale and the attributes of the property.

To produce a reliable estimate of the expected normal marketing period for the subject property, the following factors were considered and findings analyzed:

1.  Historical evidence.

2.  Supply and demand relationships including vacancy and occupancy rates.

3.  Revenue and expense changes.

4.  Future market conditions.

HISTORICAL EVIDENCE

Generally, the sales in the Sales Comparison Approach were on the market for one to two years. Since current supply and demand relationships are similar to historical relationships, there is justification for some reliance on historical evidence.

SUPPLY AND DEMAND RELATIONSHIPS

A survey of apartment complexes in Mendota, California, and the surrounding area indicate that they are not owner-occupied. The Income Approach discusses similar apartment complexes in Mendota, Fresno County, California, which were leased.

REVENUE AND EXPENSE CHANGES AND FUTURE MARKET CONDITIONS

The revenue from apartment complexes has increased corresponding to increases in expenses at generally the same rate. A survey completed by Peter F. Korpacz & Associates indicated that the change rate of apartment complexes ranges from -10.00 to 3.00 percent, with an average of -0.12 percent for the third quarter of 2010. During the same period a year ago, the market rent change rate ranged from -5.00 to 3.00 percent, with an average of 0.04 percent.

The changes in expenses range from 0.00 to 4.00 percent, with an average of 2.42 percent (third quarter of 2010). The survey for a year ago indicated a range of expenses from 2.00 to 3.00 percent, with an average of 2.77 percent.

Gill Group

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

SUMMARY

For the purpose of this report the reasonable exposure time is estimated at one to two years based on the previous discussion and the length of time the comparables were on the market. The 2010 Third Quarter National Apartment Market Survey conducted by Peter F. Korpacz & Associates indicated a range of one to two years for marketing time. In accordance with the Uniform Standards of Professional Appraisal Practice, special financial arrangements and related special situations were not used in estimating the value of the property. In accordance with the Uniform Standards of Professional Appraisal Practice; the appraisal was completed using the current or anticipated use of the property as an apartment complex without regard to the highest and best use.

ESTIMATED MARKETING TIME

Marketing time is similar to exposure time in that it refers to a time during which a property is marketed prior to its sale. Marketing time differs from exposure time in that it is estimated to occur after the date of value as opposed to before that date of value. This time would be measured from the date of value and would be a measure of time necessary to secure a willing buyer for the property, at a market price. Since this refers to prospective events, it is typically necessary to analyze neighborhood trends. In theory, in a market which is near equilibrium, the estimated marketing time should be equal to past trends or the reasonable exposure time. In a market, which is experiencing down turning conditions, the estimated marketing time should be greater than the reasonable exposure time. In the case of the subject property, the market for this type of facility should be similar to previous market conditions. Therefore, the estimated marketing time is estimated at one to two years.

Gill Group

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

DEFINITION OF TERMS

Market Value

For the purpose of this report, market value is defined as follows:

The most probable price which a specified interest in real property is likely to bring under all of the following conditions:

1. Consummation of a sale occurs as of a specified date.

2. An open and competitive market exists for the property interest appraised.

3. The buyer and seller are each acting prudently and knowledgeably.

4. The price is not affected by undue stimulus.

5. The buyer and seller are typically motivated.

6. Both parties are acting in what they consider their best interest.

7. Marketing efforts were adequate and a reasonable exposure time was allowed for exposure in the open market.

8. Payment was made in cash in U.S. dollars or in terms of financial arrangements comparable thereto.

9. The price represents the normal consideration for the property sold, unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.1

Investment Value

The specific value of an investment to a particular investor or class of investors based on individual requirements; as distinguished from market value, which is impersonal and detached.2Investment value of the leased fee estate is determined utilizing the subject’s contract rents, historical and projected subject expenses and an overall capitalization rate based on the subject’s mortgage terms.

Fee Simple Estate

Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat.

Leased Fee Estate

An ownership interest held by a landlord with the rights of use and occupancy conveyed by lease to others. The rights of the lessor (the leased fee owner) and the leased fee are specified by contract terms contained within the lease.

1The Appraisal of Real Estate, 132th ed., pg. no. 18-22.

2Appraisal Institute, Dictionary of Real Estate Appraisal, Fourth Edition

Gill Group

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

Leasehold Estate

The interest held by the lessee (the tenant or renter) through a lease conveying the rights of use and occupancy for a stated term under certain conditions.

Replacement Cost

The estimated cost to construct, at current prices as of the effective appraisal date, a building with utility equivalent to the building being appraised, using modern materials and current standards, design, and layout.

Reproduction Cost

The estimated cost to construct, at current prices as of the effective date of the appraisal, an exact duplicate or replica of the building being appraised, using the same materials, construction standards, design, layout and quality of workmanship and embodying all the deficiencies, superadequacies and obsolescence of the subject building.

Contract Rent

The actual rental income specified in a lease.

Market Rent

The rental income that a property would most probably command in the open market; indicated by the current rents paid and asked for comparable space as of the date of the appraisal.

Excess Rent

The amount by which contract rent exceeds market rent at the time of the appraisal; created by a lease favorable to the landlord (lessor) and may reflect a locational advantage, unusual management, unknowledgeable parties or a lease execution in an earlier, stronger rental market.

Percentage Rent

Rental income received in accordance with the terms of a percentage lease; typically derived from retail store tenants on the basis of a certain percentage of their retail sales.

Overage Rent

The percentage rent paid over and above the guaranteed minimum rent or base rent; calculated as a percentage of sales in excess of a specified break-even sales volume.

Special Purpose Property

A limited market property with a unique physical design, special construction materials, or layout that restricts its utility to the use for which it was built; also called special-design property.

Gill Group

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

SPECIAL LIMITING CONDITIONS AND ASSUMPTIONS

1. Limit of Liability

The liability of Gill Group, employees and subcontractors is limited to the client. There is no accountability, obligation or liability to any third party. If this report is placed in the hands of anyone other than the client, the client shall make such party aware of all limiting conditions and assumptions of the assignment and related discussions. The appraiser assumes no responsibility for any costs incurred to discover or correct any deficiencies present in the property. Possession of this or any copy thereof does not carry with it the right of publication nor may it be used for other than its intended use; the physical report(s) remain the property of the appraiser for the use of the client, the fee being for the analytical services only. This appraisal report is prepared for the sole and exclusive use of the client to assist with the mortgage lending decision. It is not to be relied upon by any third parties for any purpose whatsoever.

2. Copies, Publications, Distribution, Use of Report

The client may distribute copies of the appraisal report in its entirety to such third parties as he may select; however, selected portions of this appraisal report shall not be given to third parties without the prior written consent of the signatories of this appraisal report. Neither all nor any part of this appraisal report shall be disseminated to the general public for the use of advertising media, public relations, news, sales or other media for public communication without prior written consent of the appraiser.

3. Confidentiality

This appraisal is to be used only in its entirety. All conclusions and opinions of the analyses set forth in the report were prepared by the Appraiser(s) whose signature(s) appear on the appraisal report unless indicated as “Review Appraiser”. No change of any item in the report shall be made by anyone other than the Appraiser and/or officer of the firm. The Appraiser and the firm shall have no responsibility if any such unauthorized change is made.

The Appraiser may not divulge the material (evaluation) contents of the report, analytical findings or conclusions or give a copy of the report to anyone other than the client or his designee as specified in writing except by a court of law or body with the power of subpoena.

4. Copyright Law and Trade Secrets

This document is protected from unauthorized use or reproduction by the federal copyright laws of the United States of America. Any unauthorized reproduction, either in part or in whole, will warrant prosecution to the fullest extent of the law.

This appraisal was obtained from Gill Group, related companies and/or individuals or related independent contractors and consists of “trade secrets and commercial or financial information” which is privileged and confidential and exempted from disclosure under 5 U.S.C. 1232 (b) (4). Notify the appraiser(s) signing the report of any request to reproduce this appraisal in whole or part.

Gill Group

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

5. Information Used

No responsibility is assumed for accuracy of information furnished by or from others, the client, his designee or public records. I am not liable for such information or the work of possible subcontractors. Be advised that some of the people associated with the consultant and possibly signing the report are independent contractors. The comparable data relied upon in this report have been confirmed with one or more parties familiar with the transaction or from affidavit or other source thought reasonable; all are considered appropriate for inclusion to the best of my factual judgment and knowledge. An impractical and uneconomic expenditure of time would be required in attempting to furnish unimpeachable verification in all instances, particularly as to engineering and market-related information. It is suggested that the client consider independent verification within these categories as a prerequisite to any transaction involving sale, lease or other significant commitment of subject property and that such verification be performed by the appropriate specialists.

6. Testimony, Consultation, Completion of Contract for Appraisal Services

The contract for appraisal, consultation or analytical service is fulfilled and the total fee payable upon completion of the report. The appraiser(s) or those assisting in preparation of the report will not be asked or required to give testimony in court or hearing because of having made the appraisal, in full or in part, nor engage in post-appraisal consultation with client or third parties except under separate and special arrangement and at additional fee. If testimony or deposition is required because of any subpoena issued on the behalf of the client, then the client shall be responsible for any additional time fees and changes.

7. Exhibits

The sketches and maps in this report are included to assist the reader in visualizing the property and are not necessarily to scale. Various photos, if any, are included for the same purpose as of the date of the photos. Site plans are not surveys unless shown as being prepared by a professional surveyor.

8. Legal, Engineering, Financial, Structural or Mechanical Nature Hidden Components, Soil

No responsibility is assumed for matters legal in character or nature or matters of survey or of any architectural, structural, mechanical or engineering nature. The title to the property is good and marketable. No responsibility is assumed for the legal description provided or for matters pertaining to legal or title considerations. The use of the land and improvements is confined within the boundaries or property lines of the property described.

The property is appraised as if free and clear unless otherwise stated in particular parts of the report. The legal description is assumed to be correct as used in this report as furnished by the client, his designee or as derived by the appraiser.

Gill Group

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

Please note that no advice is given regarding mechanical equipment or structural integrity or adequacy nor soils and potential for settlement, drainage, etc., (seek assistance from qualified architect and/or engineer) nor matters concerning liens, title status and legal marketability (seek legal assistance). The lender and owner should inspect the property before any disbursement of funds; further, it is likely that the lender or owner may wish to require mechanical or structural inspections by qualified and licensed contractor, civil or structural engineer, architect or other expert.

The appraiser has inspected, as far as possible by observation, the land and the improvements; however, it was not possible to personally observe conditions beneath the soil or hidden structural or other components. I have not critically inspected mechanical components within the improvements, and no representations are made therein as to these matters unless specifically stated conditions that would cause a loss of value. The land or the soil of the area being appraised appears firm; however, subsidence in the area is unknown. The appraiser(s) do not warrant against this condition or occurrence of problems arising from soil conditions.

The appraisal is based on there being no hidden unapparent or apparent conditions of the property site subsoil or structures or toxic materials which would render it more or less valuable. No responsibility is assumed for any such conditions or for any expertise or engineering to discover them.

All mechanical components are assumed to be in operable condition and status standard for properties of the subject type. Conditions of heating, cooling ventilation, electrical and plumbing equipment are considered to be commensurate with the condition of the balance of the improvements unless otherwise stated. No judgment is made as to adequacy of insulation, type of insulation or energy efficiency of the improvements or equipment.

If the Appraiser 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 warranties are made concerning obtaining the above-mentioned items.

The Appraiser 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.

9. Legality of Use

The appraisal is based on the premise that there is full compliance with all applicable federal, state and local environmental regulations and laws unless otherwise stated in the report and that all applicable zoning, building and use regulations and restrictions of all types have been complied with unless otherwise stated in the report; further, it is assumed that all required licenses, consents, permits or other legislative or administrative authority, local, state, federal and/or private entity or organization have been or can be obtained or renewed for any use considered in the value estimate.

Gill Group

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

10. Component Values

The distribution of the total valuation in this report between land and improvements applies only under the existing program of utilization. The separate valuations for land and building must not be used in conjunction with any other appraisal and are invalid if so used.

11. Auxiliary and Related Studies

No environmental or impact studies, special market study or analysis, highest and best use analysis study or feasibility study has been requested or made unless otherwise specified in an agreement for services or in the report. The appraiser reserves the unlimited right to alter, amend, revise or rescind any of the statements, findings, opinions, values, estimations or conclusions upon any subsequent such study or analysis or previous study or factual information as to market or subject or analysis subsequently becoming known to him.

12. Dollar Values, Purchasing Power

The market value estimated and the costs used are as of the date of the estimate of value. All dollar amounts are based on the purchasing power and price of the value estimate.

13. Inclusions

Furnishings and equipment or personal property or business operations except as specifically indicated and typically considered as part of real estate have been disregarded with only the real estate being considered in the value estimate unless otherwise stated. In some property types business and real estate interests and values are combined.

14. Proposed Improvements, Conditioned Value

Improvements proposed, if any, on or off-site as well as any repairs required are considered, for purposes of this appraisal, to be completed in good and workmanlike manner according to information submitted and/or considered by the appraisers. In cases of proposed construction the appraisal is subject to change upon inspection of property after construction is completed. This estimate of market value is as of the date shown, as proposed, as if completed and operating at levels shown and projected.

15. Value Change, Dynamic Market, Influences

The estimated market value is subject to change with market changes over time; value is highly related to exposure, time, promotional effort, terms, motivation and conditions surrounding the offering. The value estimate considers the productivity and relative attractiveness of the property physically and economically in the marketplace.

Gill Group

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

In cases of appraisals involving the capitalization of income benefits, the estimate of market value or investment value or value in use is a reflection of such benefits and appraiser’s interpretation of income, yields and other factors derived from general and specific client and market information. Such estimates are as of the date of the estimate of value; they are thus subject to change as the market and value are naturally dynamic.

The “Estimate of Market Value” in the appraisal report is not based in whole or in part upon the race, color or national origin of the present owners or occupants of the properties in the vicinity of the property appraised.

The Appraiser reserves the right to alter the opinion of value on the basis of any information withheld or not discovered in the original normal course of a diligent investigation.

16. Management of the Property

It is assumed that the property which is the subject of this report will be under prudent and competent ownership and management neither inefficient nor super-efficient.

17. Fee

The fee for this appraisal or study is for the service rendered and not for the time spent on the physical report.

18. Authentic Copies

The authentic copies of this report are signed originals and have an embossed seal. Any copy that does not have the above is unauthorized and may have been altered.

19. Insulation and Toxic Materials

Unless otherwise stated in this report, the appraiser(s) signing this report have no knowledge concerning the presence or absence of toxic materials, asbestos and/or urea-formaldehyde foam insulation in existing improvements; if such is present, the value of the property may be adversely affected and reappraisal an additional cost necessary to estimate the effects of such.

20. Hypothetical Conditions

There are no hypothetical conditions utilized in the forming of the opinions and conclusions of the primary appraiser generated information.

21. Extraordinary Assumptions

There are no extraordinary assumptions utilized in the forming of the opinions and conclusions of the primary appraiser generated information.

Gill Group

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

22. Americans with Disabilities Act (ADA)

The Americans with Disabilities Act (ADA) became effective January 26, 1992, as to the removal of barriers in existing public accommodations. The ADA applies to alterations of existing public accommodations or commercial facilities or places of public accommodation designed for first occupancy after January 26, 1993. A compliance survey of the subject property has not been conducted to determine if it conforms to the various requirements of the ADA. A compliance survey of the property, in conjunction with a detailed study of the ADA requirements, could reveal that the property is not in compliance with one or more of the requirements of the act. If so, this could have a negative effect on the value of the property. Since I am not qualified to determine if the subject property complies with the various ADA regulations, I did not consider possible noncompliance with the requirements of the ADA in estimating the value of the property.

23. Review

Unless otherwise noted herein, the review appraiser has reviewed the report only as to general appropriateness of technique and format and has not necessarily inspected the subject or market comparable properties.

The appraiser(s) and/or associates of Gill Group reserve the right to alter statements, analyses, conclusions or any value estimate in the appraisal if there becomes known to them facts pertinent to the appraisal process which were unknown to Gill Group when the report was finished.

Acceptance Of and/or Use of This Appraisal Report

Constitutes Acceptance of the Above Conditions

Gill Group

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

DESCRIPTIVE SECTION

REGIONAL AND AREA DATA

The following data on the City of Mendota and Fresno County are included to give the reader an insight into the social, economic, governmental and environmental factors which provide the setting and ultimate stability for the subject neighborhood and the property which is the subject of this appraisal. The various social, economic, governmental and environmental factors within any locality are the underlying forces which create, modify or destroy real property values.

Location

The City of Mendota is located in Fresno County in the central portion of the State of California. The city is located approximately 30 miles west of Fresno, California; 72 miles northwest of Visalia, California; 79 miles north of Tulare, California; 93 miles southeast of Modesto, California; 118 miles southeast of San Jose, California; 135 miles north of Bakersfield, California; 225 miles north of Los Angeles, California; and 425 miles west of Las Vegas, Nevada. Boundaries for Fresno County include the following: North – Merced and Madera Counties: East – Inyo County; South – Tulare and Kings Counties; and West – Monterey and San Benito Counties.

Utilities

Electricity and gas services are provided by PGNE. Mendota Municipal Utilities provides water, sewer and trash services.

Population

The population for the City of Mendota in 2000, according to the U.S. Census Bureau, was 7,890. There were 1,825 total households, with 1,007 renter-occupied households. The rental vacancy rate was 1.5 percent. The population for Fresno County in 2000, according to the U.S. Census Bureau, was 799,407. There were 252,940 total households, with 110,145 renter-occupied households. A 5.5 percent rental vacancy rate was determined for Fresno County. The population for the State of California in 2000 was 33,871,648, with 11,502,870 total households. The number of renter-occupied households was 4,956,536. The rental vacancy rate for the State of California was 3.7 percent.

The population for the City of Mendota in 2010, according to ESRI Business Information Solutions, is 7,890. The population for Fresno County in 2010 is 943,457. The population for the State of California in 2010 is 37,983,948.

Transportation

State Highways 33 and 180 run through the city. Interstate 5 is the nearest interstate interchange and is approximately 20 miles south of the city. General aviation is provided to the area by the William Robert Johnston Municipal Airport. Fresno Yosemite International Airport is located less than 30 miles from the City of Mendota. Rail service is provided by Union Pacific Railway.

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

Employment Factors

The average total civilian labor force in 1990 for Fresno County, according to the United States Bureau of Labor Statistics, was 328,893, with 290,529 employed and 38,364 unemployed. The unemployment rate was 11.7 percent. The 2000 labor force statistics showed a civilian labor force of 388,267, with 347,910 employed. The number unemployed was 40,357. The unemployment rate was 10.4 percent. Preliminary estimates for September 2010 for the county showed a civilian labor force of 454,548, with 385,579 employed. There were 68,969 unemployed and the unemployment rate was 15.2 percent.

The average civilian labor force for 1990 for the State of California was 15,168,531, with 14,294,115 employed. The number unemployed, according to the U.S. Bureau of Labor Statistics, was 874,416, for a 5.8 percent unemployment rate. The average for 2000 showed 16,857,578 for the total civilian labor force for the state and 16,024,341 employed. The number unemployed was 833,237, and the unemployment rate was 4.9 percent. Preliminary estimates for September 2010 for the state showed 18,299,341 for the total civilian labor force for the state and 16,059,182 employed. The number unemployed was 2,240,159, and the unemployment rate was 12.2 percent.

Major employers in Fresno County include ABC Bartending School, Cargill Meat Solutions, Community Medical Center, Community Regional Medical Center, Corrections Department, Foster Farms, Fresno County Economic Community, Fresno County Education Department, Fresno County Health Department, Fresno County Sheriff’s Department, Fresno State University, Harris Ranch Beef, ITO Parkcing Company, Kaiser Fresno Medical Center, Pelco, Inc. Play It Safe, Quest Diagnostics, Save Mart, St. Agnes Medical center, Stamoules Produce, Zacky Farms and several local businesses.

Summary and Conclusions

Mendota is a city located in Fresno County in Central California.The economic outlook for future growth and development appears to be stable.

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

NEIGHBORHOOD DATA

Location

The subject property is located in the western portion of the City of Mendota, California. The neighborhood has fair to good attractiveness and appeal. The neighborhood is bound by the city limits of Mendota.

Access

The neighborhood is accessed by State Highway 33 and State Highway 180. There are additional roads running north to south and west to east that provide access to the neighborhood as well. Street widths and patterns appear to be adequate for the surrounding uses.

Proximity to Services

Community services within the neighborhood include Westside Chevron, Rojas Pierce park, Jess Gill Park, Pacifica Pizza, Lucky Restaurant, Circle 7 Mart, Mi Casa Mexican, Di Amici Café, Cecilia Restaurant, Los Amadores, Mendota Donuts, M & M Grocery, Fastrip Food Store, Dollar City, Mendota Community Center, Mendota School District. All other community services are within one mile of the subject. Hospitals within 25 miles include Madera Community Hospital, Selma Community Hospital and Chowchilla District Memorial Hospital.

Adverse Influences

There are no major adverse influences or hazards observed or known by the appraiser in the immediate surrounding area.

Utilities

Utilities generally available in the neighborhood include water, electricity, sewer and telephone.

Land Use Pattern

The neighborhood is a mixture of single-family residences, multifamily dwellings and vacant land. Single-family residences comprise approximately 40 percent of the land use; multifamily dwellings make up about 25 percent of the land use; and commercial properties make up about 25 percent of the land use. The remaining 10 percent is vacant land. The area is mostly suburban.

Neighborhood Characteristics

Most of the properties in the neighborhood maintain an acceptable level of property maintenance and condition. The ages of buildings in the area generally range from 10 to 75 years. The subject neighborhood is in fair to good condition with fair to good appeal. There are no rent controls affecting the marketability of the subject.

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

Neighboring Property Use

The neighboring land uses are a mixture of commercial properties, single-family residences, multifamily dwellings and vacant land. Multifamily dwellings are located to the north. Further to the north is Rojas Pierce Park and Jess Gill Park. Single-family residences and some vacant lots are located to the east of the subject. Star Market, other commercials and vacant land is located to the south of the subject. Single-family residences and some vacant lots are located west of the subject.

Analysis/Comments

In conclusion, the subject is located in the southwestern portion of the City of Mendota, California. The subject is considered to be compatible with the adjacent properties.

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

DEFINING THE MARKET AREA

The market area for the subject is defined as the City of Mendota. The market area is bound by the city limits of Mendota.

Surveying existing apartment complexes helps to show what the competition is offering. Vacancy rates are an indicator of current market strength. In a field survey, an attempt is made to survey 100 percent of all units in the market area. This is not always possible. There are several apartments in the market area. Information was gathered through interviews with owners and managers and through field inspection. These sources appear to be reliable, but it is impossible to authenticate all data. The appraiser does not guarantee this data and assumes no liability for any errors in fact, analysis or judgment.

The field/phone survey was conducted in October 2010. Of the apartments surveyed, an overall vacancy rate of four percent was estimated for affordable housing apartments. The subject is currently 95 percent occupied, with one vacant unit. Therefore, a vacancy rate of four percent was deemed appropriate for affordable housing.

Market Area Vacancy by Development - Affordable
Property Name	# of Units	# of Vacant Units	Vacancy Percentage
Midland Manor Apartments (Subject)	40	1	3%
Silver Birch Apartments	35	2	6%
Riverland Apartments	76	3	4%
Huron Garden Apartments	38	0	0%
Springfield Manor Apartments	40	2	5%
Mendota Elderly Apartments	23	0	0%
Mendota Gardens Apartments	60	0	0%
Mendota Village Apartments	44	0	0%
Garden Valley Homes	100	10	10%
Ruby Court Apartments	44	1	2%
San Joaquin Senior Apartments	20	0	0%
San Joaquin Apartments	38	2	5%
Tara Glen Apartments	80	10	13%
Firebaugh Garden Apartments	40	0	0%
Sunset Apartments	36	4	11%
Parlier Garden Apartments	41	0	0%
Leebar Village Apartments	44	0	0%
TOTALS	799	35	4%

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

SUBJECT DESCRIPTION

The area of the site and the site dimensions are based on the building plans provided by the Fresno County Assessor’s Office.

Total Land Area 2.57 acres, or 111,950+/- square feet

Shape/Dimensions Irregular-shaped

Access & Exposure The subject property is located on Derrick Avenue. The site is at or near pavement grade with Derrick Avenue. The site has ingress and egress on Derrick Avenue.

Topography/Drainage The site is generally level. A water detention area is not located on the site. No adverse soil conditions are known in the area which would prevent development.

Flood Plain According to FloodSource FloodScape, Flood Map Number 06019C-1444H, dated February 18, 2009, the subject is zoned X an area determined to be outside the 100- and 500-year floodplains. Federal flood insurance is available but is not required.

Environmental Issues The appraisers are not qualified to determine whether or not hazards exist. A copy of a Phase I Environmental Site Assessment was not provided to the appraisers with this assignment. No environmental hazards were observed on the site on the date of the inspection.

Encroachments No encroachments were observed. A survey was not provided with this assignment. The appraisers are not qualified to determine whether or not the adjacent properties encroach on the subject site.

Easements Typical utility easements that are not adverse to the site’s development run on the property. A title insurance report was not provided to the appraisers with this assignment. No significant easements are known.

Site Ratios Building to Land Ratio: 1 to 4.60; Site Coverage Ratio: 21.73 percent There is limited room for expansion of the existing facility as the current buildings do not occupy 100 percent of the site. The size of the buildings when compared to the total lot size does not preclude expansion of the facility and, therefore, does not negatively affect the estimated market value of the subject. The site coverage ratio indicates the available land around the buildings has been utilized at the subject to preclude a “cramped” feel to the property.

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Utilities Water, sewer and electricity are provided by county utilities along the site boundaries. These services appear to be adequate for commercial use.

Zoning According to the Mendota Zoning Department, the subject is zoned C-3, Central Business District. The subject is a legal, non-conforming use. A copy of the permitted uses is included in Addendum E.

Assessment and Current Real Estate Taxes According to the Mendota Zoning Department, the subject is zoned C-3, Central Business District. The subject is a legal, non-conforming use. A copy of the permitted uses is included in Addendum E

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

IMPROVEMENT DESCRIPTION

Number of Buildings The subject contains seven one-story garden-style buildings containing 40 rental units (one of which is a non-revenue unit), the leasing/management office, community room, laundry facility and maintenance area.

Net Rentable Building Area 21,000 square feet

Gross Building Area 24,332 square feet

Year Built/Year Renovated 1990

Building Construction Wood siding and stucco exterior, concrete slab floors, fair to good quality construction, fair to good condition

Economic Life 55 Years

Effective Age 10 Years

The subject property is improved with seven one-story garden-style buildings containing 40 rental units, the leasing/management office, community room, laundry facility and maintenance area. The subject property was built in 1990. The net rentable area for the property is approximately 21,000 square feet. The following table shows the unit mix for the subject property.

Unit Type	# of Units	Square Footage	Total Square Footage
1/1	39	525	20,475
1/1 Non-Revenue	1	525	525
			21,000

The subject is classified as Average Class D Multiple Residences, according to Marshall & Swift Valuation Service. The property has an effective age of 10 years and a total economic life expectancy of 55 years.

The units contain bedrooms(s), bath(s), living area, kitchen and dining area. The units contain a range/oven, refrigerator, garbage disposal (some), carpet, tile, blinds, coat closet, exterior storage and patio. Project amenities include a community room, laundry facility, on-site management and maintenance and perimeter fencing.

Heating and cooling are provided by central electric. Cooking and hot water are gas. The tenants are responsible for all utilities except for gas, water, sewer and trash collection. At the time of inspection the property was 95 percent occupied. There are no applicants on the waiting list.

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

The subject is 100 percent Rural Development and 100 percent Low Income Housing Tax Credit. Of the total 40 units, 35 currently receive rental assistance. The unit types, rents, utility allowances and square footage for the units are shown in the table below:

Unit Type	# of Units	Square Footage	Contract Rent	Utility Allowance
1/1	39	525	$491	$41
1/1 Non-Revenue	1	525	N/A	N/A
	40

CONSTRUCTION SUMMARY

Foundation	Concrete Slab on Grade
Construction	Wood Frame
Exterior Walls	Wood Siding and Stucco
Floors	Carpet/Vinyl
Roof	Asphalt Shingle

UTILITIES

Heat	Electric
Cooling	Electric
Cooking	Gas
Hot Water	Gas

APPEAL

Landscaping Grass, Trees, Shrubs

Age, Life and Condition

The improvements are of average quality construction and in fair to good condition. The buildings are in fair to good condition overall. The buildings are classified as Average Class D Multiple Residences, according to the Marshall & Swift Cost Manual. Based on the life expectancy tables found in the Marshall & Swift Cost Manual, the economic life of the building is approximately 55 years. The subject property has been well maintained with little to no deferred maintenance. Therefore, the effective age is 10 years.

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

HIGHEST AND BEST USE ANALYSIS

Highest and Best Use is defined in The Dictionary of Real Estate Appraisal, sponsored by the Appraisal Institute (Third Edition 1993), as follows:

The reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible and that results in the highest value.

Implied in this definition is that the determination of highest and best use takes into account the contribution of specific use to the community and community development goals as well as the benefits of that use to individual property owners. Hence, in certain situations, the highest and best use of land may be for parks, greenbelt, preservation, conservation, wildlife habitat, etc.

In determining the highest and best use of the subject property, careful consideration was given to the economic, legal, and social factors which motivate investors to develop, own, buy, sell and lease real estate.

There are four criteria that are used in evaluating the highest and best use of a property. The highest and best must be as follows:

1. Physically Possible

2. Legally Permissible

3. Financially Feasible

4. Maximally Productive

The four criteria are applied in sequential order. The selection of uses is narrowed through the consideration of each criteria, so that by the time the last criteria is applied, only a single use is indicated. Hence, a property often will have numerous uses which are physically possible, a lesser number which are both physically possible and legally permissible; fewer still which are physically possible, legally permissible and financially feasible; and only a single use which meets all four criteria.

In addition to the preceding four criteria, the Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation further indicate that the following items must be considered as they relate to the use and value of the property:

1.  Existing land use regulations

2. Reasonably probable modifications of such regulations

3.  Economic demand

4.  The physical adaptability of the property

5.  Neighborhood trends

The previous sections of this report were used to render a judgment as to the highest and best use of the site as though vacant and as though improved.

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

Highest and Best Use as though Vacant

Highest and best use of land or a site as though vacant assumes that a parcel of land is vacant or can be made vacant by demolishing any improvements. With this assumption, uses that create value can be identified, and the appraiser can begin to select comparable properties and estimate land value. The questions to be answered in this analysis are as follows:

If the land is, or were, vacant, what use should be made of it?

What type of building or improvement, if any, should be constructed on the land and when?2

Physically Possible Use as Vacant

The first constraint imposed on the possible use of the property is dictated by the physical aspects of the site itself. The size and location within a given block are the most important determinants of value. In general, the larger the site, the greater its potential to achieve economies of scale and flexibility in development. The size of the parcel, considered within the provisions of the zoning, has considerable influence on its ultimate development.

The key determinant in developing a site is the permitted size of the project. More land permits higher density development, higher floor to area ratios (FAR), etc. the total number of square feet allowed for a building structure tends to rise in proportion to the size of the lot. Location is important when considering a site’s proximity to open plazas, office trade areas, work force areas, public transportation, major highways (access/visibility), etc.

As noted in the Site Data section of this report, the subject site has a land area of 2.57 acres. Topographically, the site is nearly level. The subject is not located in a flood hazard area. No subsoil or drainage conditions are known that would adversely affect the development of the site. Public utilities available to the subject include electricity, water, sewer and telephone. The size of the subject and the adjacent properties suggest a number of possible uses for the subject site.

LEGALLY PERMISSIBLE USE AS VACANT

Legal restrictions, as they apply to the subject property, are of two types, private restrictions (deed restriction easements) and public restrictions, namely zoning. No information regarding private restrictions affecting title was provided with this assignment other than those mentioned below. It is assumed that only common restrictions (i.e. utility easements, etc.) are applicable and are not of any consequence to the development of this site.

2 The Appraisal Institute. The Appraisal of Real Estate. 12th ed. (Chicago, 2001), 310.

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

FINANCIALLY FEASIBLE USE AS VACANT

After the discussion of the physically possible and legally permissible uses for the site as vacant, the adjacent property uses suggest that the possibilities for the subject have been narrowed to multifamily development.

MAXIMALLY PRODUCTIVE AS VACANT

Based on the analysis of the previous elements, it is reasonable to assume, if the site were vacant and available for development on the date of valuation, the highest and best use would be for multifamily development, most likely a multifamily use which could produce a higher return.

HIGHEST AND BEST USE AS IMPROVED

Highest and best use of a property as improved pertains to the use that should be made of an improved property in light of its improvements. The use that maximizes an investment property’s value, consistent with the long-term rate of return and associated risk, is its highest and best use as improved.3

This part of highest and best use analysis is structured to answer the following problems:

1. Should the building be maintained as is?

2. Should the building be renovated, expanded, or demolished?

3. Should the building be replaced with a different type or intensity of use?

PHYSICALLY POSSIBLE AS IMPROVED

The subject site supports an existing multifamily development with total net rentable area of approximately 21,000 square feet. The subject does suffer from external obsolescence due to restricted rents. The subject is in fair to good condition.

LEGALLY PERMISSIBLE AS IMPROVED

Based on the adjacent property uses and the zoning restrictions for the subject, the highest and best use of the subject site is considered to be a multifamily facility. The configuration of the improvements is not in violation of any known regulations and is considered to be a compatible use with the adjacent commercial and residential properties.

3 The Appraisal Institute. The Appraisal of Real Estate. 12th ed. (Chicago, 2001), 315

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

FINANCIALLY FEASIBLE AS IMPROVED

The third factor that must be considered is the economical feasibility of the types of uses that are physically and legally permissible. Based on the data presented in the Income Approach section of this report, the existing improvements appear to be capable to produce an adequate return to be financially feasible as they exist.

MAXIMALLY PRODUCTIVE AS IMPROVED

Considering the previous discussions, the existing improvements are physically possible, legally permissible and financially feasible. There currently is no alternative legal use that could economically justify razing the existing improvement or significantly changing their use. Based on the foregoing analysis, it is my opinion that the maximally productive use of the property is as a multifamily development.

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

APPRAISAL PROCEDURES

In order to develop a reasonable opinion of the value of the subject property, the following appraisal techniques have been used:

The Cost Approach

The Cost Approach considers the current cost of replacing a property, less depreciation from three sources: physical deterioration, functional obsolescence and external obsolescence. A summation of the market value of the land, assumed vacant and the depreciated replacement cost of the improvements provides an indication of the total value of the property.

The Income Approach

The Income Approach is based on an estimate of the subject property’s possible net income. The net income is capitalized to arrive at an indication of value from the standpoint of an investment. This method measures the present worth and anticipated future benefits (net income) derived from the property.

The Sales Comparison Approach

The Sales Comparison Approach produces an estimate of value by comparing the subject property to sales and/or listings of similar properties in the same or competing areas. This technique is used to indicate the value established by informed buyers and sellers in the market. This approach has been eliminated. The subject is an existing Rural Development Section 515 property with restricted rents. According to Rural Development and/or Section 8 HAP guidelines which state “the Sales Comparison Approach is rarely applicable in concluding a market value, subject to restricted rents, due to the lack of sales of subsidized apartments in small rural markets and the difficulty of making meaningful adjustments for financing terms to the sales comparables”. The sales comparison approach was deemed not reliable for analyzing the subject property’s market value, subject to restricted rents and was not developed. The absence of the sales comparison approach does not detract from the reconciled value as the reconciled value is based on the income generated by the property.

The processing rents used for the units will be the current contract rents for the project, even if the contract rent is in excess of the market rent. Also, in the absence of sales of restricted properties with which to draw a comparison, capitalization rates may be derived using a band of investment and any favorable financing specific to the application may be factored into the rate analysis. As a result, the contract rents were utilized to derive the net operating income. The capitalization rate was figured using the band of investment method.

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

VALUATION SECTION

COST APPROACH

The Cost Approach is a method in which the value of a property is derived by estimating the replacement cost of the improvements, deducting the estimated depreciation, and adding the market value of the land.

The first Step in the Cost Approach is to estimate the value of the subject site.

SITE VALUE

Typically, properties such as the subject have land equivalent to 10 percent of the restricted value. For the purpose of this report, the land value was estimated at $30,500 per acre, or $78,500.

IMPROVEMENT VALUATION

The next step in the Cost Approach is to estimate the replacement cost new of the improvements.

Replacement cost new (RCN) is defined as follows:

The estimated cost to construct, at current prices as of the effective date of the appraisal, a building with utility equivalent to the building being appraised, using modern materials and current standards, design and layout.4

A description of the improvements was presented in the Improvement Data section. The costs estimated were made based on the developer’s plans. Cost estimates were made based on the replacement cost new of the improvements using the Marshall Valuation Service Cost Manual. Soft costs are included in the base cost determined by the Marshall Valuation Service Cost Manual.

Depreciation Analysis

Depreciation may be defined as any loss of value from any cause. There are three general areas of depreciation: physical deterioration, functional obsolescence and external obsolescence. Depreciation may be curable or incurable, the test being that money spent to cure the depreciation be gained in value. If the depreciation costs more to fix than will be gained in value, then the depreciation is considered incurable.

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

Physical Deterioration

This results from deterioration from aging and use. This type of depreciation may be curable or incurable.

External Obsolescence

This is due to circumstances outside the property itself, such as industry, demographic and economic conditions or an undesirable proximate use. This type of depreciation is rarely curable. The subject does seem to suffer from external obsolescence. The table on the following page shows the external obsolescence for the subject property, and the table on page 55 illustrates the subject’s restricted value based on the Cost Approach.

The following formula shows the external obsolescence for the restricted value.

4 Appraisal Institute. The Dictionary of Real Estate Appraisal. 3rd. ed. (Chicago, 1992), 304

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*The building has an effective age of 10 years. Properties of this type are anticipated to have an economic life of 55 years. Based upon the concept of age/life depreciation, the overall depreciation applicable to the subject is 8/55, or 18 percent. The total Estimated Value indicated by the Cost Approach for the subject “as is” is as follows:

Rounded = $825,000.00

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

INCOME APPROACH

The Income Approach is a procedure in which the value of a property is estimated by means of capitalization of a net income stream, either imputed or actual. The steps in the procedure are as follows:

1. Analyze the income the property is capable of generating.

2. Estimate the rental loss from vacancy and uncollected rents.

3. Estimate the amount of expense that will be incurred in operating the property.

4. Subtract 2 and 3 above from 1 to arrive at a net income estimate before capital charges.

5. Using an appropriate rate, capitalize the net income estimate into an indication of value.

Income Analysis

The first step in forming an opinion of reasonable net income expectancy is the estimation of market rent. Market rent is defined as the rental warranted by a property in the open real estate market based upon current rentals being paid for comparable space.

Since the value being determined is the market value, subject to restricted rents, it was not necessary to determine the market rent for the subject’s units. The value was determined utilizing the subject’s actual restricted rents.

Total Potential Gross Rental Income (Restricted Rent)

The total potential gross income for the subject is summarized as follows:

# of Units	Unit Type	Unit SF	Restricted Rent	Potential Gross Income
39	1/1	525	$491	$19,149
Total Potential Monthly Rental Income				$19,149
				x 12
Total Potential Gross Rental Income				$229,788
Laundry & Vending Revenue				$2,000
Total Potential Gross Income				$231,788.00

Vacancy and Collection Loss

Vacancy and collection loss is an allowance for reductions in potential rental income because space is not leased or rents that are due cannot be collected.

Annual rent collections are typically less than the potential annual gross income; therefore, an allowance for vacancy and collection loss is typically included in an appraisal of income-producing property. The allowance is usually estimated as a percentage of potential gross income. The percentage varies according to the type and characteristics of the physical property, the quality of tenancy, current and projected supply and demand relationships, and general and local economic conditions.

Expenses

To develop an estimate of the net operating income, the appraiser analyzes data for the property. Net operating income (NOI), the income remaining after total expenses have been deducted from the effective gross income, may be calculated before or after deducting replacement reserves. The actual expenses a landlord is required to defray include two specific categories: those incurred by the property itself, such as taxes and insurance, and those resulting from the operation of the property, such as utilities and maintenance. Generally, expenses incurred by the property per se are called fixed expenses. Expenses tied to the operation of the property, which rise or fall with occupancy, are called variable expenses.

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Management

Building size determines the type of management. Generally, buildings of more than 25 units are of sufficient size to bear the additional burden of professional property management; larger high-rise or garden apartment projects of over 50 units often require the additional services of a site or resident manager. Lenders generally prefer that properties be professionally managed.

A property manager reports to the property owners, sets rent levels, establishes marketing procedures and does the fiscal planning for the project. The property manager also supervises on-site employees, among whom the resident manager is responsible for looking after the day-to-day dealings with the tenants, leasing of units, collection of rents, and coordination of routine and long-term building maintenance. The resident manager may oversee janitorial staff, an on-site maintenance crew, or various outside contractors. Large-scale apartment projects and newly built developments also employ leasing agents to fill vacancies or negotiate lease renewals and to assist with marketing programs, promotion, and advertising.

Tax and Assessment Information

Real property taxes are based on ad valorem assessments. The records of the county assessor or tax collector can provide the details of a property’s assessed value and annual tax burden. From the present assessment data and recent history of tax rates, the appraiser can formulate conclusions about future taxes. Property taxes directly increase the cost of ownership and therefore reduce the net income derived from the rental of apartment units. The fairness of the assessment and anticipated future taxes must be thoroughly analyzed and their impact on value considered in the property appraisal. Property taxes are generally imposed to pay for local government services such as fire fighting, police protection and schools. Apartment properties in well-run communities, however, will attract potential tenants willing to pay higher rents for the superior services provided.

Special assessments are levied to pay for infrastructure development (roads or utilities) and extraordinary services (fire or police protection). Ideally, the value of the properties’ subject to special assessment is not penalized. The enhancement resulting from the new infrastructure or the provision of additional services should offset the tax increase. However, when a property is subject to a special assessment that exceeds the benefit derived, the value of the property is diminished.

Insurance

The insurance expense is the responsibility of the landlord.

Maintenance

The property manager is responsible for the janitorial staff and on-site maintenance crew and various outside contractors.

Utilities and Service

Water, electricity, natural or liquid petroleum (propane) gas, sewage, trash collection, street maintenance, telephone and cable television are essential utilities and services in most residential markets. If the utilities on the site are inadequate, the cost of improving utility service must be considered. Utilities may be publicly provided or privately owned as part of a community system. In some cases, utilities are individual to the site. The availability and reliability of utilities have a direct bearing on the amount of rent a tenant will pay. At the same time, the cost of utility services is an operating expense that affects the potential net income of the project. The effect of this expenditure is investigated by comparing the costs of utilities and services at competing buildings in relation to rents with the costs incurred by the subject.

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

Reserves for Replacement

For large properties, the cost of replacing items such as heating/cooling equipment or hallway carpeting may occur regularly. Thus, an allowance for replacements is treated as a separate expense. Even for smaller apartment properties, however, mortgage lenders and property managers may require that part of net operating income be withheld as a reserve to fund the replacement of building components. Consequently, appraisers often estimate an allowance for replacements when projecting cash flow to be capitalized into market value. Other allowances are sometimes made for unusual circumstances–e.g., reserves to cover periodic non-annual repairs, eventual compliance with environmental regulations (asbestos removal), or bringing the building up to code for handicapped persons. Estimates of such reserves should be included in the income forecast if the appraiser believes the situation warrants it.

Because possible differences in the way accountants and property managers enter line-item expenses, the appraiser should ensure the subject property’s operating statement is reconstructed to provide that the expense items recorded correspond to proper appraisal practice. In the reconstruction of the operating statement 1) nonrecurring past items are not repeated, 2) any deductions taken for non-operating expenses (personal expenses) are eliminated, 3) ambiguous, repetitive or atypical expense items are recategorized and 4) line items are appropriately grouped to facilitate analysis.

An expense comparison should be made on a uniform or standardized basis. If most of the expense comparables include a replacement reserve, an estimate of this item should be included in the reconstructed operating statement for the subject property. Recategorizing expense items allows the appraiser to compare the operation of the subject with the operating expenses of other properties and the expense averages from benchmark data.

For example, apartment managers often record air conditioning as an expense category. In some cases, this may simply cover the cost of maintaining the equipment, while in others it includes allocations for water, electricity, supplies (filters) and maintenance. Similarly, the category for management may reflect different items because of different ways of operating a property. Some apartment managers will contract for landscaping, snow removal, boiler maintenance and redecoration, while others have these functions performed by on-site managers. By grouping all expense items that are management-controllable, the appraiser will be able to compare the operations of building maintained on contract accounts with those of buildings that employ a permanent workforce to look after maintenance.

Utility expense often differ among properties because some managers operate apartments on a “self-contained” basis, whereby tenants pay directly for meterable natural gas and electricity, while other managers pay the costs of fuel for heating and cooking but not for electricity. Typically, the landlord absorbs all utility charges incurred by vacant units and public spaces (corridors, lobbies, office, basement storage rooms, laundry, parking and exterior lighting) as well as water and sewer charges.

In analyzing operating expenses, the appraiser may also consult benchmark data. For example, the Institute of Real Estate Management’s annual reports include the following groupings:

* Administration and management

* Utilities

* Repairs and maintenance

* Real estate taxes and insurance

* Payroll (salaries for maintenance and administrative staff)

These data are quoted per square foot of rentable area, as dollars per unit, and as percentage of effective gross income. Such data may be compared against the historic expense data for the subject and cited in the appraisal report. In this instance, the benchmark data was merely used to reflect the validity of my report.

Market Rent and Contract Rent

In the income capitalization approach, the appraiser arrives at an estimate of market rent, or rental income the subject property would likely command in the open market, by analyzing current rents paid and asked for space in comparable buildings. Estimated market rent is important for both proposed and operating properties. In the case of the former, market rent allows the forecast of gross income, and with the latter it is used to calculate the income for vacant rental space or space occupied by the ownership or property management. Contract rent is the actual rental income specified in a lease. It is calculated for operating properties from existing leases, including month-to-month extensions of former leases. It is essential to specify whether the cited rent is 1) the former or existing contract rent, 2) the asking amount sought by the landlord or property manager or 3) the market rent estimated by the appraiser.

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

Other Miscellaneous Income

In addition to income from apartment rents, income to the building may be generated from a variety of sources. License fees are paid for temporary, nonexclusive use of special facilities, such as party room or swimming pool fees. Service fees are charged for elective maid service. An apartment project may earn concession income from coin telephones, vending machines and laundry room equipment.

Rental income can also be generated from non-apartment space such as an on-site retail store, restaurant, beauty parlor or physician’s office. A parking garage may be leased to an operator or, alternatively, the building may directly license the parking spaces to tenants or non-tenants (on-site parking, however, is often available to tenants at no additional charge). Finally, interest income may accrue on the balance between rents collected in advance and expenses paid in arrears. Interest can also be earned on security deposits, although in some jurisdictions such interest must ultimately be paid back to the tenants. Thus, other income includes rent for non-apartment space and miscellaneous income from various tenant charges.

In many instances, a significant degree of the apartment project’s income stream is imputable to intangible as well as tangible personality. Apartment properties may earn business income from profits on the rental of in-suite furniture to tenants, marking up the cost of electricity privately metered to tenants, as well as for opening tenants’ doors when the key is left inside, licensing the concierge function and the coin machines, profit centers such as storage rooms (including the sale of abandoned tenant goods), and the interest on company bank accounts.

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Itemized Expenses Explanations

Expense Numbers per Unit

	Expense	Subject	Comp Range
1.	Advertising	$40	$5-11

An advertising expense of $40 per unit was determined. The subject’s financial statements indicate a range of $34 to $47 per unit, with a mean of $40 per unit. In addition, the 2010 annualized expense indicated an advertising expense of $24 per unit. The comparables utilized indicated a range of $5 to $11 per unit was appropriate for this expense. This expense was projected using the subject’s historical expenses as well as the expenses from other properties with similar features. The amount was substantiated with the 2009 Income/Expense Analysis: Federally Assisted Apartments printed by the Institute of Real Estate Management.

2. Management $620 $300-650

The subject’s historical data indicates a management fee of 10.80 percent of the gross rent collected. Therefore, this expense was projected similar to the 2009 historical data.

3. Other Administrative $250 $260-515

An other administrative expense of $250 per unit was determined. The subject’s financial statements indicate a range of $235 to $249 per unit, with a mean of $241 per unit. In addition, the 2010 annualized expense indicated an other administrative expense of $622 per unit. The comparables utilized indicated a range of $260 to $515 per unit was appropriate for this expense. The expense was projected utilizing the subject’s historical financial statements and the comparable range. The amount was substantiated with the 2009 Income/Expense Analysis: Federally Assisted Apartments printed by the Institute of Real Estate Management.

4. Lighting & Misc. Power $300 $100-215

A lighting and miscellaneous power expense of $300 per unit was determined. This is the most accurate estimate of future expenses. The subject’s financial statements indicate a range of $296 to $389 per unit, with a mean of $344 per unit. In addition, the 2010 annualized expense indicated lighting and miscellaneous expense of $292 per unit. The comparables utilized indicate a range of $100 to $215 per unit was appropriate for this expense. The lighting and miscellaneous power expense has shown an increase each year. Therefore, this expense was projected utilizing the subject’s historical financial statements and the comparable range. The amount was substantiated with the 2009 Income/Expense Analysis: Federally Assisted Apartments printed by the Institute of Real Estate Management.

5. Water/Sewer $500 $315-850

A water/sewer expense of $500 per unit was projected. This is the most accurate estimate of future expenses. The subject’s financial statements indicate a range of $492 to $516 per unit, with a mean of $504 per unit. In addition, the 2010 annualized expense indicated water/sewer expense of $453 per unit. The comparables utilized indicate a range of $315 to $850 per unit was appropriate for this expense. The subject’s financial statements were given more consideration. The amount was substantiated with the 2009 Income/Expense Analysis: Federally Assisted Apartments printed by the Institute of Real Estate Management.

6. Gas $5 $35-145

A gas expense of $5 per unit was projected. This is the most accurate estimate of future expenses. The subject’s financial statements indicate a range of $0 to $5 per unit, with a mean of $2 per unit. In addition, the 2010 annualized expense indicated gas expense of $0 per unit. The comparables utilized indicate a range of $35 to $145 per unit was appropriate for this expense. The subject’s financial statements were given more consideration. The amount was substantiated with the 2009 Income/Expense Analysis: Federally Assisted Apartments printed by the Institute of Real Estate Management.

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

7. Trash Removal $45 $105-485

A trash removal expense of $45 per unit was per unit was projected. This is the most accurate estimate of future expenses. The subject’s financial statements indicate a range of $43 to $43 per unit, with a mean of $43 per unit. In addition, the 2010 annualized expense indicated a trash removal expense of $43 per unit. The comparables utilized indicate a range of $105 to $485 per unit was appropriate for this expense. The expense was projected utilizing the subject’s historical financial statements and the comparable range. The amount was substantiated with the 2009 Income/Expense Analysis: Federally Assisted Apartments printed by the Institute of Real Estate Management.

8. Payroll $550 $215-911

A payroll expense of $550 per unit was projected. The subject’s financial statements indicate a range of $251 to $563 per unit, with a mean of $455 per unit. In addition, the 2010 annualized expense indicated payroll expense of $827 per unit. The comparables utilized indicate a range of $215 to $911 per unit was appropriate for this expense. The expense was projected utilizing the subject’s historical financial statements and the comparable range. The amount was substantiated with the 2009 Income/Expense Analysis: Federally Assisted Apartments printed by the Institute of Real Estate Management.

9. Other Operating $150 $105-825

An other operating expense of $150 per unit was projected. The subject’s financial statements indicate a range of $129 to $164 per unit, with a mean of $149 per unit. In addition, the 2010 annualized expense indicated an other operating expense of $158 per unit. The comparables utilized indicate a range of $105 to $825 per unit was appropriate for this expense. The expense was projected utilizing the subject’s historical financial statements and the comparable range. The amount was substantiated with the 2009 Income/Expense Analysis: Federally Assisted Apartments printed by the Institute of Real Estate Management.

10. Decorating $25 $0-220

A decorating expense of $25 per unit was projected. The subject’s financial statements indicate a range of $0 to $27 per unit, with a mean of $12 per unit. In addition, the 2010 annualized expense indicated a decorating expense of $45 per unit. The comparables utilized indicate a range of $0 to $220 per unit was appropriate for this expense. The expense was projected utilizing the subject’s historical financial statements and the comparable range. The amount was substantiated with the 2009 Income/Expense Analysis: Federally Assisted Apartments printed by the Institute of Real Estate Management.

11. Repairs $150 $0-675

A repairs expense of $150 per unit was projected. The subject’s financial statements indicate a range of $89 to $139 per unit, with a mean of $115 per unit. In addition, the 2010 annualized expense indicated a repairs expense of $150 per unit. The comparables utilized indicate a range of $0 to $675 per unit was appropriate for this expense. The expense was projected utilizing the subject’s historical financial statements and the comparable range. The amount was substantiated with the 2009 Income/Expense Analysis: Federally Assisted Apartments printed by the Institute of Real Estate Management.

12. Exterminating $70 $0-38

An exterminating expense of $70 per unit was projected. The subject’s financial statements indicate a range of $61 to $71 per unit, with a mean of $65 per unit. In addition, the 2010 annualized expense indicated an exterminating expense of $13 per unit. The comparables utilized indicate a range of $0 to $38 per unit was appropriate for this expense. The expense was projected utilizing the subject’s historical financial statements and the comparable range. The amount was substantiated with the 2009 Income/Expense Analysis: Federally Assisted Apartments printed by the Institute of Real Estate Management.

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13. Insurance $240 $200-310

An insurance expense of $240 per unit was projected. The historical expenses are the most accurate estimate of future expenses. The subject’s financial statements indicate a range of $75 to $238 per unit, with a mean of $138 per unit. In addition, the 2010 annualized expense indicated an insurance expense of $5 per unit. It is likely the premium was not due at the time of the writing of this report resulting in a much lower expense per unit. The comparables utilized indicate a range of $200 to $310 per unit. The expense was projected utilizing the subject’s historical financial statements and the comparable range. The amount was substantiated with the 2009 Income/Expense Analysis: Federally Assisted Apartments printed by the Institute of Real Estate Management.

14. Ground Expenses $240 $100-387

A grounds expense of $240 per unit was projected. The subject’s financial statements indicate a range of $180 to $249 per unit, with a mean of $223 per unit. In addition, the 2010 annualized expense indicated a grounds expense of $240 per unit. The comparables utilized indicate a range of $100 to $387 per unit was appropriate for this expense. The expense was projected utilizing the subject’s historical financial statements and the comparable range. The amount was substantiated with the 2009 Income/Expense Analysis: Federally Assisted Apartments printed by the Institute of Real Estate Management.

15. Other Maintenance $0 $0-0

The property does not have an other maintenance expense. It is likely this expense is included in the repairs or other operating expense. A comparable range of $0 to $0 per unit was determined. Since the subject does not have a other maintenance expense, no expense was projected.

16. Real Estate Taxes $350 $65-470

The real estate taxes were projected based on information obtained from the Fresno County Assessor’s Office.

17. Payroll Taxes  $100 $75-170

A payroll taxes expense of $100 per unit was projected. The subject’s financial statements indicate a range of $66 to $123 per unit, with a mean of $100 per unit. In addition, the 2010 annualized expense indicated a payroll tax expense of $117 per unit. The comparables utilized indicate a range of $75 to $170 per unit was appropriate for this expense. The expense was projected utilizing the subject’s historical financial statements and the comparable range. The amount was substantiated with the 2009 Income/Expense Analysis: Federally Assisted Apartments printed by the Institute of Real Estate Management.

18. Employee Benefits/Misc. Taxes $75 $50-350

An employee benefits/misc. tax expense of $75 per unit was projected. The subject’s financial statements indicate a range of $18 to $169 per unit, with a mean of $72 per unit. In addition, the 2010 annualized expense indicated an employee benefits/misc. tax expense of $82 per unit. The comparables utilized indicate a range of $50 to $350 per unit was appropriate for this expense. The expense was projected utilizing the subject’s historical financial statements and the comparable range. The amount was substantiated with the 2009 Income/Expense Analysis: Federally Assisted Apartments printed by the Institute of Real Estate Management.

19. Replacement Reserves $287 $344-475

A replacement reserves expense of $287 per unit was projected. The replacement reserves were projected at five percent of the gross potential income, which is similar to the historical expense

The expense comparables utilized in this analysis are existing rent restricted properties. Comparable 1 is Rural Development property located in Grass Valley, California. Comparable 2 is Rural Development property located in Reedley, California. Comparable 3 is Rural Development property located in Orland, California. Comparable 4 is a Rural Development property located in Arnold, California.

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Conclusions

Potential Gross Income

The potential gross income for the subject property was projected using the subject’s actual rents.

Vacancy

Of the apartments surveyed, an overall vacancy rate of four percent was estimated for affordable housing apartments. The subject is currently 95 percent occupied. Historically, the subject property has maintained an occupancy level of 95 to 97 since 2007. Therefore, an occupancy rate of four percent was deemed appropriate for affordable housing.

Expenses after Reserves for Replacement

The subject’s market expenses were projected considering the subject’s operating history, the expense data of the comparables and the information contained in the 2009 Income/Expense Analysis: Federally Assisted Apartments printed by the Institute of Real Estate Management.

Direct Capitalization

Most apartment appraisers as well as buyers, sellers and lenders prefer value estimates derived from direct capitalization rather than discounted cash flow analysis. Other than in cases where the client and appraiser believe that the achievable income from an apartment property has not approximated its stabilized income, the net operating income to the property can be directly capitalized as of the effective date of the appraisal, based on the current yield to the property. In this situation, the discounting of forecast cash flows on a yield-to-maturity basis is considered superfluous. The use of overall cash flow analysis under other circumstances is discussed in the following section.

An overall capitalization rate (Ro) is the usual expression of the relationship between the net operating income and the value of the property (the Ro is the reciprocal of a net income multiplier). Overall capitalization rates are derived from the simple formula

Rate = Income/Value of Ro = I/V

A capitalization rate is typically expressed as a percentage. For example, if the net operating income to a comparable property was $1.8 million and its value/price was $20 million, the overall capitalization rate would be 9.0% (the reciprocal, 11.1, is the property’s net income multiplier).

An overall capitalization rate incorporates many considerations, including the likelihood that property income will increase, the momentum and duration of such an increase, and the risk and timing of a possible decrease. It reflects judgments regarding the recapture of investment and property depreciation. An overall capitalization rate can be developed on the basis of the relative allocation between, or weighting of, property components (e.g., mortgage and equity), and the respective capitalization rates of both components. This procedure is known as the band of investment technique. The specific allocation between financial components is supported by their relative risk rating based on which component has the prior claim to payment; for example, mortgages are paid before equity investors.

Other ways to apportion NOI are among the physical and ownership components of the property. When the property’s NOI, the value of one property component, and the capitalization rates of both property components are known, a residual technique is applied to estimate the value of the property component of unknown value. The income to the property component of known value is deducted from the property’s NOI, and the residual income attributable to the property component of unknown value is capitalized. In many cases, however, it is not necessary to aportion an overall rate or net operating income to property components.

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Midland Manor Apartments * 550 Derrick Avenue * Mendota, California

Market Derived Capitalization Rates

The direct capitalization method will both reflect the value of income at yields attractive to a prospective investor and provide for the recapture of wasting purchase capital. The capitalization rate shows the rate of return for land, as well as the rate of return for the buildings. It also reflects the relationship between the income from the entire property and the value of the entire property. However, due to the lack of sales of subsidized apartments in small rural markets, a market derived capitalization rate could not be determined.

Realty Rates Investor Survey

The Realty Rates Investor Survey was considered in this analysis. The RealtyRates.com Investor Survey Third Quarter 2010 found that investors in apartments indicate overall capitalization rates ranging from 5.49 percent to 13.16 percent with an average of 8.49 percent. In addition, the RealtyRates.com Market Survey Third Quarter 2010 found that investors in apartments in the Southern California Region which includes the Mendota indicated an overall capitalization rate of 7.9 percent.

Korpacz Real Estate Investor Survey

The Korpacz Real Estate Investor Survey was considered in this analysis. The National Apartment Market survey for the third quarter of 2010 found that investors in apartments indicate overall capitalization rates ranging from 4.50 percent to 11.00 percent, with an average of 7.12 percent.

Band of Investment

Another method of arriving at a capitalization rate is the Band of Investment Method. This method is based on typical mortgage terms currently available and expected investment return. This analysis uses fixed interest rates. Surveys of lenders that make loans on commercial properties are currently quoting interest rates at one percent over prime and amortization of 15 to 30 years. Local lenders quoted 250 to 350 basis points over the current T-bill rate for the same term as the loan. For our calculations, the following components were used in this analysis.

Therefore, a capitalization rate of 7.63 percent was determined.

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Determination of the Capitalization Rate

The Korpacz Real Estate Investor Survey indicated an average capitalization rate of 7.12 percent. The RealtyRates.com Investor Survey indicated an average capitalization rate of 8.49 percent. The RealtyRates.com Market Survey indicated an average capitalization rate of 7.90 percent. The restricted band of investment indicated a capitalization rate of 7.63 percent. The RealtyRates Survey and the band of investment were determined to be the most accurate reflections of the capitalization rate. Therefore, after considering all factors, a blended capitalization rate of 8.00 percent was determined to be appropriate for the restricted values.

Capitalization Rate of 8.00% gives a value of
$62,610.00/8.00%	=	$782,625.00
Market Value, Subject to Restricted Rents	=	$785,000.00

SALES COMPARISON APPROACH

This approach has been eliminated. The subject is an existing Rural Development Section 515 property with restricted rents. According to Rural Development and/or Section 8 HAP guidelines which state “the Sales Comparison Approach is rarely applicable in concluding a market value, subject to restricted rents, due to the lack of sales of subsidized apartments in small rural markets and the difficulty of making meaningful adjustments for financing terms to the sales comparables. The sales comparison approach was deemed not reliable for analyzing the subject property’s market value, subject to restricted rents and was not developed. The absence of the sales comparison approach does not detract from the reconciled value as the reconciled value is based on the income generated by the property.

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CONCLUSION OF VALUE

The values indicated by the three appraisal approaches utilized are as follows:

Market Value of the Real Estate

Cost Approach	Income Approach	Sales Comparison Approach
$825,000.00	$785,000.00	Not Developed

Reconciliation involves the weighing of the three approaches in relation to their importance or their probable influence on the reactions of typical uses and investors in the market. Consideration is given to the quality and quantity of the data available for examination in each approach, to the inherent advantages and disadvantages of each approach, and to the relevancy of each to the subject property.

The Cost Approach considers the current cost of replacing a property, less depreciation from three sources: physical deterioration, functional obsolescence and external obsolescence. A summation of the market value of the land, assumed vacant, and the depreciated replacement cost of the improvements provides an indication of the total value of the property.

The Income Approach is typically used when the real estate is commonly developed, or bought and sold for the anticipated income stream. Income and expense data of similar properties in Mendota and the surrounding area were used in this analysis. The Income Approach was afforded the most consideration as it accounts for the restricted rents at the subject property and the historical operating expenses of the subject. This value is considered to provide the best indication of value for the subject.

The Sales Comparison Approach is a reflection of the buying and selling public based on physical and/or financial units of comparison. This approach has been eliminated. The subject is an existing Rural Development Section 515 property with restricted rents. According to Rural Development and/or Section 8 HAP guidelines which state “the Sales Comparison Approach is rarely applicable in concluding a market value, subject to restricted rents, due to the lack of sales of subsidized apartments in small rural markets and the difficulty of making meaningful adjustments for financing terms to the sales comparables”. The sales comparison approach was deemed not reliable for analyzing the subject property’s market value, subject to restricted rents and was not developed. The absence of the sales comparison approach does not detract from the reconciled value as the reconciled value is based on the income generated by the property.

After reviewing the approaches, the values indicated by the two approaches range from $785,000.00 to $825,000.00. The indicated value of the subject would best be represented by a value within this range. The data utilized and the value indicated by the two approaches is considered appropriate in estimating the value of the subject property. Weight is given to the Income Comparison Approach and this value is considered to provide the best indication of value for the subject.

Based on the data, analyses and conclusions presented in the attached report, it is my opinion the market value of the subject property, as of October 21, 2010, is as noted below.

SEVEN HUNDRED EIGHTY-FIVE THOUSAND DOLLARS

$785,000.00

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ADDENDUM A

ADDENDUM B

[not included]

ADDENDUM C

* Tenant's prefixed witn an "*" have expired certifications.

ADDENDUM D

ADDENDUM E

ADDENDUM F

ADDENDUM G