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					                                                 2010 High-Rise Apartment Assessment Brief
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                             MASS APPRAISAL

Mass appraisal is a methodology for valuing individual properties which involves the
following process:
             properties are stratified into groups of comparable properties
             common property attributes are identified for the properties in each group
             a uniform valuation model is calibrated for each group using market
              information incorporating the property attributes

               Mass Appraisal and Single Property Appraisal

The appraisal process recommended by the Appraisal Institute of Canada is essentially
the same for mass appraisals and single-property appraisals. Such differences that do
exist are the results of differences of scale. The following two quotations indicate how
the International Association of Assessing Officers distinguishes between mass appraisal
and single-property appraisal.

       … “single-property appraisal is the valuation of a particular property
       as of a given date: mass appraisal is the valuation of many properties
       as of a given date, using standard procedures and statistical testing.”

       … “Also, mass appraisal requires standardized procedures across
       many properties. Thus, valuation models developed for mass appraisal
       purposes must represent supply and demand patterns for groups of
       properties rather than a single property.”

The International Association of Assessing Officers, Property Appraisal and Assessment
Administration, Chicago, Illinois, 1990, pg.88-89.
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      The appraisal process, as followed for both mass appraisal and single-property appraisal,
      consists of the following stages:

                                       Definition of the Problem

                                           Data Collection

                                           Market Analysis



   PROCESS                MASS APPRAISAL                              SINGLE APPRAISAL

Definition and       Mass appraisal is used to determine      The client specifies the nature of the value
purpose              the assessment base for property         to be estimated, including rights to be
                     taxation in accordance with              valued, effective date of valuation, and
                     legislative requirements.                any limiting conditions.

Data Collection      Mass appraisal requires a                The extent of data collection is specific to
                     continuing program to maintain a         each assignment and depends on the
                     current database of property             nature of the client’s requirements.
                     attributes and market information.

Market Analysis      Mass appraisal is predicated on          Market analysis includes the analysis of
                     highest and best use.                    highest and best use.

Valuation            Valuation procedures are predicated      The subject property is the central focus
                     on groups of comparable properties.      of the valuation procedures. The analysis
                     Valuation models are specified and       of comparable properties is restricted to a
                     calibrated for property groups.          few properties – generally six or less.

Validation           The testing of acceptable analysis       The reliability of the value estimate is
                     and objective criteria.                  more subjective. Acceptability can be
                                                              judged by the depth of research and
                                                              analysis of comparable sales.
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                          Mass Appraisal Approaches

The cost approach, sales comparison approach, and income approach were explored.

Cost Approach:

The Cost Approach involves adding the depreciated replacement cost of improvements to
the estimated value of land (derived from sales). The cost approach was only employed to
derive market estimates for properties whose market values were not accurately predicted
by other approaches.

Sales Comparison Approach:

The sales comparison approach was not employed to derive market estimates for any
properties considered within the multi-residential inventory.

Income Approach:

For the purpose of the 2010 Annual Assessment, High-Rise apartments were valued
based on the income approach using typical potential gross income (PGI), typical
vacancy, and typical gross rent multiplier (GIM). The income approach is the approach
of choice as it best reflects the typical actions of buyers and sellers when purchasing
income-producing properties. The use of the GIM to value multi-residential housing is
widely used in the assessment field.

All sales and listings within the City of Edmonton were reviewed and analyzed as of the
date of sale. Sales reflect the condition of a property as of the sale date and thus may
not always be equivalent to their assessed value.

The International Association of Assessing Officers (IAAO) Standard on Mass
Appraisal of Real Property, Chicago Illinois, 2002, sets out the recommended uses of the
three approaches. Section 4.6.3 of the IAAO standard states:

       The income approach is the most appropriate method to apply when
       valuing commercial and industrial property if sufficient income data are
       available. Sales comparison models can be equally effective in large
       jurisdictions with sufficient sales. When a sufficient supply of sales data
       and income data is not available, the cost approach should be applied.
       However, values generated should be periodically checked against
       available sales data. Cost factors, land values, and depreciation schedules
       must be kept current through periodic review.
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To provide a clear understanding of the terms and applicable definitions used throughout
the valuation process, the following definitions are supplied for ease of review for the

High-Rise Apartment:
      A building that has more than four levels of living area and five or more self
      contained suites.

Time-Adjusted Sale Price:
      The price at which a property sold, adjusted for the effects of price changes
      reflected in the market between the date of sale and the legislated valuation date
      of July 1, 2009.

       The City reviews the impact that time has on the market by utilizing three
       techniques: sales ratio trend analysis, multiple regression analysis, and re-sale

Unit of Comparison:
       A property as a whole or some measure of the size of the property (for example,
       number of suites, number of rooms, or gross building area) used to determine a
       price per unit.

      To adjust, for appraisal purposes, reported data such as income and expenses, so
      as to remove the effects of non-real-estate factors, such as abnormally good or bad
      management. Another common term for this adjustment process is normalization.

Typical Market Rent / Economic Rent:
      The rent currently prevailing in the market for properties comparable to the
      subject property is the typical market rent, otherwise known as the current
      economic rent. Current economic or market rents are used to form the basis of the
      valuation as opposed to actual rents, because in many cases actual rents reflect
      historical revenues derived from leases negotiated before the valuation date.

       In determining gross potential rent, the valuator is not bound by the contractual
       rent between the landlord and tenant, but must determine rental income on the
       basis of what is typically paid in the market at the time of valuation. This rent is
       known as “market” or “economic” rent.

Potential Gross Income (PGI):
       Potential gross income is the current market rent which would be collected if the
       property were fully occupied at the date of valuation.

       Parking and Laundry Income were added to the model predicted PGI. The High-
       rise parking income was based on Surface, Covered and Under/Above Ground
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       Parkade rents. Laundry income was calculated at a rate of $12 per suite per
       month. The rates were established through an analysis of the market survey rent
       returns and financial statements from property owners.

Stabilized Vacancy:
       Stabilized vacancy is the percentage allowance for vacant space in the subject
       property, on the basis of a careful study of unoccupied units of comparable
       properties in the area for a year. Stabilized/typical vacancy assumes current
       market conditions and typical management.

Gross Income Multiplier (GIM):
       A GIM is defined as the factor by which rent is multiplied in order to obtain an
       estimate of value. Simply stated, the GIM expresses the relationship between
       property value and potential gross rent. They are derived from market analysis of

       Theoretically, a GIM is a product of the factors that determine how much an
       investor will pay now for future income. An investor will consider the degree of
       risk involved; the estimated/potential income stream; the expected time the
       investment will be profitable; and the percentage attributable to operating
       expenses. These factors are directly related to the type, location, condition, and
       other attributes of the property.

       A GIM is predicted by a model developed from the analysis of validated sales.
       The model is then applied to the entire High-Rise apartment inventory to produce
       an estimated typical GIM for each property as of July 1, 2009.

Multi-Residential Assessment Income Model:
      The assessment model is an equation that explains the relationship between value
      or estimated sale price and the variables that influence real-estate value, (i.e.,
      location, age and size).

                      MARKET VALUE ASSESSMENT=

    (Potential Gross Income less Vacancy) X Gross Income Multiplier

                        MVA = (PGI less VAC) x GIM

       The multi-residential income model is applied to the entire High-Rise inventory to
       arrive at the assessed value for each High-Rise apartment parcel.

       The assessed value is an estimate of typical market value for the property on the
       legislated valuation date of July 1, 2009.
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                        Capitalization Approach Theory

The Appraisal Institute of Canada’s publication The Appraisal of Real Estate Second
Canadian Edition discusses derivation of capitalization rate from comparable sales on
page 22.3 and 22.4.

       “Deriving capitalization rates from comparable sales is the preferred
       technique when sufficient data on sales of similar, competitive properties
       is available. Data on each property’s sale price, income, expenses,
       financing terms, and market conditions at the time of sale is needed. In
       addition, the appraiser must make certain that the net operating income of
       each comparable property is calculated and estimated in the same way
       that the net operating income of the subject property is estimated: …the
       appraiser may have to explain (or adjust for) the time difference. Both the
       income and expense and the structure of expenses in terms of replacement
       allowances and other components should be similar to those of the
       subject… If the objective of the appraisal is to value the fee simple
       interest, incomes for the comparables analyzed must be at or around the
       level of market rent or adjustments will be necessary.

       …The overall level of risk associated with each comparable should be
       similar to that of the subject property. Risk can be analyzed by
       investigating the credit rating of the property’s tenants, market condition
       for the particular property, the stability of the property’s income stream,
       and the property’s upside or downside potential.

       …The final rate concluded depends on the appraiser’s judgment as to how
       comparable each sale is to the subject property.

       …Appraisal judgement is also needed to determine whether the rate
       selected for the subject should fall within the range established by the
       sales or, as in certain cases, be set above or below the range.

       …When rates derived from comparable sales… the overall capitalization
       rate is applied to the subject property in a manner consistent with its

       ….It is imperative that the appraiser analyze comparable sales and derive
       their capitalization rates in the same manner used to analyze the subject
       property and capitalize its income.” Emphasis added.
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The American Institute of Real Estate Appraisers’ publication The Appraisal of Real
Estate, Eighth Edition discusses derivation of capitalization rate from comparable sales
in chapter 16, page 387.

       “The income rates and factors express the relationship of income and
       value and are derived from market data. It is essential that the market
       comparables reflect risk, income, expenses, and physical and location
       characteristics similar to those of the property being appraised.

Property Assessment Valuation, Second Edition, International Association of Assessing
Officers, Chicago Illinois, 1996, Pages 247, 277-278:

       “Direct capitalization is very reliable when overall rates are selected from
       comparable sale properties.

       …The overall rate, however, must be developed from sales of improved
       properties that are highly comparable to the subject property. An
       important point to remember is that in all cases, the subject property must
       be comparable in all respects to the sale properties; if it is not, the overall
       rate will be affected.”

                            The Use of Outside Sources

One must be cautious when relying on outside sources.

The Network has a disclaimer on their reports stating, “All opinions, estimates,
data and statistics furnished by other sources is believed to be reliable; however,
we cannot guarantee its validity or accuracy”.

The manner in which the rates are derived is how they need to be applied to the
subject property. One cannot simply pick and choose various components of rates
from varying sources to derive reliable values. The City of Edmonton does due
diligence in analyzing all components of value (rents, vacancies, expenses,
capitalization rates and modifiers) and applies the results in a consistent manner.
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                       Multi-Residential Market Areas

Market Area:
     The City of Edmonton has established 16 market areas to describe and evaluate the
     High-Rise apartment location characteristics.
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         Valuation Specifications for Multi-Residential Properties

The property attributes considered in valuation that are common to the multi-residential
properties include:

   Market Area                  Building Type                      Effective Year Built
   Property Condition           Gross Building Area                Average Suite Size
   Suite Total                  Suite Type                         Elevator
   Stories                      Balcony                            Pool
   Fireplace                    Commercial Component               Parking
   Accessory Building           Additional Structures              Laundry Facility
   Amenities                    Lot Size                           Site Coverage
   Traffic Influence            View (# River Suites)              Quality of Construction /
                                                                      Design /Workmanship

                             Model Significant Variables

Market Area              geographic area defined for purposes of market analysis

Average Suite Size       the total gross building area divided by the number of suites in
                         the building

Effective Year Built     the effective year built of the building as of valuation year

Condition                the overall property condition has been rated using the following

       Fair                 below average maintenance;
                            discernible deterioration of building components more rapidly
                             than expected for building era;
                            deferred maintenance requiring rehabilitation, replacement, or
                             major repairs;
                            reduced utility with signs of structural decay.

       Average              normal deterioration for property era;
                            moderate maintenance;
                            minor repairs or rehabilitation of some components required;
                            established norm for the era;
                            somewhat less attractive.
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       Good              above average maintenance;
                         well maintained with high desirability;
                         may have slight evidence of deterioration in minor components;
                         often components are new or as good as new;
                         attractive, high utility, and superior condition.

Suite Total           the total number of suites in the building

Elevator              the presence of an elevator

Balcony               the presence of balconies

Suite Mix             the number of Bachelor/Studio units, 1 bedroom, 2 bedroom,
                      3 bedroom, 4 bedroom and Penthouse (top floor) units

Number of Stories     number of floor levels

Building Type         Low-Rise, High-Rise, Row-Housing, Four-Plex

River Suites          the number of units having a view of the river valley

Potential Gross Rent Model Significant Variables
    Market Area                Suite Total                      Building Type
    Average Suite Size         Elevator                         Suite Mix
    Effective Age              Balcony                          Number of Stories
    Condition                  River Suites

Stabilized Vacancy:
       Typical vacancy was determined for High-Rise properties, by analyzing vacancies
       from property owners’ income and expense statements and all third party sources
       that were available.

       The analysis determined a City-wide typical vacancy of 4.0% for all High-Rise

Gross Income Multiplier Model Significant Variables

      Market Area              Building Type                    Effective Age
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                       High-Rise Apartment Information

Market surveys were mailed to owners of multi-residential properties requesting the
February 2009 rent roll and the year ending 2008 income, expense and vacancy. These
survey results were analyzed to determine the typical potential gross rent and typical
vacancy for each High-Rise apartment. The City reviews its findings with actual values
submitted by owners on the survey and values in publications from reporting agencies.

Sales occurring from July 2007 through June 2009 were used in model development and
testing. Through the review of sales, the collective actions of buyers and sellers in the
market place are analyzed to determine the contributory value of specific property
characteristics that drive market value. Once these values have been determined through
the mass appraisal process, they are applied to the inventory to derive an estimate of
market value. Value estimates were calculated using multiple regression analysis, which
replicates the forces of supply and demand in the market place.

Sales were validated by conducting site inspections and interviews, and by reviewing title
transfers (change of ownership), sales validation questionnaires, and secondary data
collection sources (Alberta Data Services, The Network and Bourgeois & Company).

The multi-residential model does distinguish different values for the various types of
multi-residential properties. Rates established are market based due to the analysis of
sales and income/expense data. The model accounts for the various building types by
making adjustments for building type and significant variables attributable to that
building type (for example, elevator in Low-Rise apartments). Models are developed
from available data and used to estimate typical figures for other parcels. The use of
models incorporating different types of multi-residential properties is taught in IAAO and
UBC curriculum, and is a common practice for income-producing properties.
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High-Rise apartment properties are assessed using the multi-residential model, which
adjusts for attributes that impact market value, in order to arrive at a typical market value
for properties in this class.

The resulting assessments were tested. The results indicated that our model predictions of
value meet Provincial Quality Standards as set out in the Matters Relating to Assessment
and Taxation Regulation, AR 220/04.

The assessment model, the process utilized and the results are submitted annually to the
Assessment Services Branch of the Department of Municipal Affairs for audit purposes.

The audit is used to determine the accuracy of our predictions relative to the market place
and is a direct reflection on the accuracy of our model.

The City of Edmonton has met all governing legislation, regulations and quality