Docket No. 05-00359.001-C-3
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reported amounts in 2002 and 2003 of $8,775 and $14,410,
respectively, which reportedly increased to $22,745 in 2004.
Nelson agreed he reduced the insurance liability amount to
$19,200 or $200 per rental unit from the actual reported amounts
ranging from $25,655 to $44,954 between 2002 and 2004. Nelson
explained he surveyed owners of similar sized properties as well
as insurance agencies and found insurance rates in almost all
cases were under $200 per rental unit. He agreed the actual
insurance cost in 2002 was approximately $400 per unit; slightly
less in 2003; and in slight excess of $200 per unit in 2004. He
questioned the management decision in purchasing insurance with
such high premiums in 2002 and 2003. With regard to overall
expenses, the appraiser testified he was surprised at the
$378,073 or $3,938 per unit expense amount as calculated by
Richter. Nelson testified he is intimately involved in the
apartment market throughout the Quad Cities and he routinely
reviews income and expense statements. Nelson testified he has
not seen apartments having expenses at that high level, which is
completely out of line with the market.
The appraiser was next questioned about the expense/sales
comparables, which are located in Davenport, Iowa. Nelson
testified there were no sales of similar apartment complexes on
the Illinois side of the Quad Cities within a relevant time
frame. The appraiser testified he did not adjust the
comparables' expenses because the markets are very uniform,
noting small differences in tax rates. Nelson testified the
income and expense information was sourced through a survey in
November 2005 of property management firms or contacts with
property owners. If a firm or owner could not be contacted for a
particular property, Nelson testified he used information from a
prior survey that was prepared in July 2004. He agreed the 2004
survey was not contained within the appraisal report. Nelson
agreed four properties contained in the survey (page 4-F of
appraisal) were in bankruptcy, but were operational. The
appraiser testified he has been in close contact with the parties
involved in the bankruptcies. Nelson agreed the bankruptcy
status of a property could affect a potential buyer's opinion of
value. Nelson testified certain buyers have a positive interest
in distressed properties and feel they are very unique investment
opportunities. In contrast, a potential buyer who does not want
that kind of trouble, the bankruptcy issue would be a negative
influence. Nelson acknowledged bankruptcy of a given property
tends to decrease its market value modestly. He also noted three
of the four properties discussed subsequently sold. Nelson
testified the bankruptcy status of these properties is a direct
result of the quality of management. He noted the three
properties that sold were involved in a "bidding war of sorts",
but did sell for less than properties not subject to bankruptcy,
