Committed to South Florida. Palm Beach County Market 3Q Director Multi-Housing Group

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1 Committed to South Florida. Director Multi-Housing Group

2 Multi-Housing Report Time to Monetize the value of your real estate while the market fundamentals are strong. The goal of this report is to help asset managers, landlords and investors maximize asset value and preserve wealth value by fully understanding and anticipating the trends of the current real estate cycle. Market Analysis The Palm Beach County apartment market has remained in the Hypersupply phase of this real estate cycle during the 3rd quarter of 2016 (3Q16). This market has posted its first negative net absorption since 2009 with capitalization rate increasing by 14 basis points from 6.29% in 2Q16 to 6.43% in 3Q16. This Hypersupply phase is characterized by a decreasing rental growth rate from 0.4% in 2Q16 to 0.1% in 3Q16, increasing vacancy rate from 5.2% in 2Q16 to 5.6% in the 3Q16, and rapid multifamily development with 4,428 units currently under construction within the county. The Boca Raton and Delray Beach Markets have experienced the strongest rent growth rate at 0.9% and 0.6% respectively, while West Palm Beach and North Palm Beach posted the highest vacancy at 9% and 7% respectively during this 3Q16. Tenants desire to save money over class A properties continues to push rents up for class B properties which also has a trickle-down effect on class C Properties, which experienced the strongest rent growth rate in the 3Q16. This Hypersupply phase will affect the apartment market rent growth rate tremendously in 2017, especially the West Palm Beach, Lake Worth, and Boynton Beach submarkets which already started to show signs of frothiness due to their low absorption level relative to the number of units in the development pipeline. Landlords need to assess how the upcoming administration s policies will affect the capital markets and property fundamentals in their respective submarkets. Landlords should assess the following Issues: How will the economy will sustain growth and create demand for apartments? How will the rise in interest rate affect capitalization rate and property value? How will Immigration reform is likely to impact apartments occupancy? How to mitigate the recession phase as this cycle matures? Axiometrics, REIS, Certified Commercial Investment Member Institute (CCIM), Costar Group, Mueller, Multi-Housing News, National Multifamily Housing Council, National Real Estate Investor, South Florida Business Journal, Multifamily Executive, MPF Research, Real Capital Analytics, Moody s, The Real Deal and US Bureau of Labor Statistics.

3 Multi-Housing Report Revenue Analysis Palm Beach County Rent Details Unit Mix Avg. Rent Avg. SF Avg. Price/SF Studio $ 1, $1.68 One Bedroom $1, $1.42 Two Bedroom $1, ,147 $1.21 Three Bedroom $1, ,439 $1.16 Average $1, , $ % 1.0% 0.0% -1.0% -2.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Revenue Growth Comparaison 1Q16 2Q16 3Q16 Palm Beach County Northern PBC West Palm Beach Lake Worth Boynton/Delray Boca Raton Vacancy Rate Comparaison 1Q16 2Q16 3Q16 PBC Non-Form Employment Numbers Sept Sector Gain/Loss Rate Professional and Business Services % Trade, Transportation, and Utilities % Education & Health Services % Leisure and Hospitality % Construction Services % Government Services % Development Analysis Unlike Broward County, Palm Beach County is not significantly affected by the recent economic slowdown in Miami Dade County where foreign money has started to dry up. From October 2015 to September 2016, Palm Beach County has experienced 19,400 jobs gained (or 3.4% job growth) in non-farm employment according to the US Bureau of Labor Statistics. Such a modest gain in the labor market has left its marks on the housing market due to weak household formation growth, declining rent growth, and increasing vacancy. The capital markets have recently been very reluctant to finance new construction in South Florida as lenders perceive the market as being saturated with luxury units that households with the area s median income cannot afford. Such a slowdown in construction financing does confirm the nervousness of developers because of the disproportionate amount of luxury units being built compared to affordable units that the market needs. Currently Boca Raton has 1,794 units under construction and has already posted a negative net absorption of -13 units for the second quarter in a row, whereas West Palm Beach has 344 units under construction, and posted its first negative net absorption of -13 units. Landlord in oversupplied markets should closely monitor their submarket property fundamentals to remain competitive, as turnovers might be higher than usual in Landlords should pay close attention to the 1,029 units coming online in West Palm Beach, Boynton Beach, and Boca Raton in the 1Q17. Landlords should expect concession wars to pick up as developers will be competing more aggressively for tenants to occupy their units

4 Realizing potential, delivering results. Multi-Housing Report. Inventory Analysis Palm Beach County Buildings Characteristics (Data Metrics: 348 properties with 50 units or more) By Age Percentage Criteria Low Average Medium High Before % Year Built % Property Size 54 Units 246 Units 224 Units 548 Units % Distance to Highway.1 Mile 0.9 Mile 0.8 Miles 2.8 Miles % Distance to CBD 2 Miles 12.8 Miles 11.3 Miles 26 Miles % Distance to the Beach 0.7 Mile 3.9 Miles 3.8 Miles 11 Miles Post % Concessions 0.0 Month 0.58 Month 0.6 Month 1.4 Month Expense Ratio 34% 39% 40% 52% Palm Beach County Building Inventory Analysis: Class-A Buildings Year Completions Vacant Units Occupied Units Absorption Asking Rent Rent Growth Net Rent ,648 22, $1, % $1, ,356 23, $1, % $1, ,310 23, $1, % $1, ,959 1,686 25, $1, % $1, ,176 1,797 26, $1, % $1, ,362 2,100 27, $1, % $1, Q ,038 28, $1, % $1, Q16 0 2,066 28, $1, % $1, Q16 0 2,329 28, $1, % $1, Palm Beach County Inventory Analysis: Class-B & C Buildings Year Completions Vacant Units Occupied Units Absorption Asking Rent Rent Growth Net Rent ,416 27, $ % $ ,255 27, $ % $ ,735 28, $ % $ ,506 28, $ % $ ,293 28, $1, % $ ,204 28, $1, % $1, Q16 0 1,052 28, $1, % $1, Q16 0 1,104 28, $1, % $1, Q16 0 1,082 28, $1, % $1,056.00

5 We increase property value. Multi-Housing Report. Absorption Analysis 1Q16 2Q16 3Q16 Markets Units Built Absorption Units Built Absorption Units Built Absorption Palm Beach County Northern Palm Beach County West Palm Beach Lake Worth Boynton/Delray Beach Boca Raton Palm Beach County Construction Analysis Name Address Unit Type # of Units # of Buildings # of Floors Status Completion Atlantico Alton Rd, Palm Beach Gardens Apartments Construction Jun-17 The Quaye Central Blvd., Palm Beach Gardens Apartments Construction Feb-17 3 Thirty Three Downtown 331 Fern St, West Palm Beach Apartments Construction Dec-16 Parkland Apartments rd Street, West Palm Beach Apartments Construction Jul-16 Casa Del Sol 4330 Gun Club, West Palm Beach Apartments Construction Sept- 16 Villages at Lake Osborne 2430 Lake Worth Rd, Lake Worth Apartments Construction Nov-17 Aura Seaside 1400 S Dixie Hwy, Lantana Apartments Construction 500 Ocean 101 S Federal Hwy, Boynton Beach Apartments Construction Dec-16 Quantum Lakes Park Ridge Blvd., Boynton Beach Apartments Construction Feb-17 High Ridge Landing 3145 High Ridge Rd, Boynton Beach Apartments Construction Cortina N Congress Ave, Boynton Beach Apartments Construction Depot Square 1740 NW 2nd Ave, Delray Beach Apartments Construction Jan -18 Delray Preserve 2001 N Federal Hwy, Delray Beach Apartments Construction Uptown Delray 190 SE 5th Street, Delray Beach Apartments Construction Dec-16 The Danburg 6780 Congress Ave, Boca Raton Apartments Construction Dec-17 Altis Boca Raton 5700 N Military Trail, Boca Raton Apartments 398 Construction Jun-17 Palmetto Promenade 300 E Promenade Park Rd, Boca Raton Apartments Construction Apr Via Mizner 998 S Federal Hwy, Boca Raton Apartments Construction Nov Boca 850 Broken Sound Pkwy, Boca Raton Apartments Construction Apr - 17 Total Units 4,

6 Sales Analysis Palm Beach County Sales Comparables Name & Address Sale Date Sale Price $/SF $/Unit Cap Rate # of Units Total SF Palm Hill 5101 Palm Hill Dr, West Palm Beach 11/4/2016 $13,750,000 $81.13 $64, % , Elysium at Osprey Oaks 7085 Merganser Ct, Lake Worth 10/17/2016 $5,974,000 $ $161, % 37 43, Serenity Place 100 Claremont Ln, Palm Beach Shores 9/30/2016 $1,699,000 $ $169, % 10 8, Via Delray 5482 Via Delray, Boynton Beach 9/29/2016 $ 5,083,520 $ $137, % 37 43, South Apartments 712 South F St, Lake Worth 9/26/2016 $510,000 $65.48 $63, % 8 7, Banyan Apartments nd St, West Palm Beach 9/21/2016 $575,934 $61.47 $47, % 12 9, Lantana Palm 303 S Broadway, Lantana 9/21/2016 $575,000 $ $82, % 7 4, Boston Terrace 3895 Everett Court, Lake Worth 9/15/2016 $740,000 $ $61, % 12 6, Henrietta Place 612 8th St & 617 7th, West Palm Beach 9/15/2016 $1,000,000 $64.54 $52, % 19 15, Pat Reeves Village Henrietta, West Palm Beach 9/7/2016 $950,000 $84.07 $50, % 19 11, Moon Quadplexes S H St, Lake Worth 8/30/2016 $775,000 $79.07 $64, % 12 9, Lilac Park Plant Dr, Palm Beach Gardens 8/19/2016 $1,700,000 $76.56 $121, % 14 22, Blue Heron Apartments 1500 W Blue Heron Blvd, Riviera Beach 8/12/2016 $4,300,000 $70.43 $58, % 73 61, Boca Manor 2500 N Federal Hwy, Boca Raton 8/4/2016 $13,500,000 $ $158, % 85 89, Lajoya Place th Place S, West Palm Beach 8/1/2016 $775,000 $75.61 $59, % 13 10, Averages: $86, % Year Built Valuation Analysis The apartment market is still experiencing a shortage of apartments due to the severe shortage of construction during the last recession. The current high development cost environment has skewed the delivery of apartments coming to the market, and the newly built apartments are mostly luxury units that command premium rent instead of the needed affordable units. Such a mismatch between the needed affordable units versus the delivered luxury units is negatively impacting the overall strength and equilibrium of the apartment market. Certain submarkets in South Florida will likely experience a correction within the coming year due to oversupply of luxury units, price bubble, and an imminent increase in interest rate. Our team recommends apartment owners with considerable gains on their properties that cannot afford a sale to monetize their profits by refinancing while property fundamentals are strong, and capitalization rates are at historically low level. Expert Insight The policies of the incoming administration are likely to affect the apartment market through its impacts on the job market and the investment environment in the following instances: The enactment of a Comprehensive Tax Reform is likely to benefit investors, thereby supporting GDP growth and promoting job creation, which should be a positive for apartments. The expected changes in the Dodd-Frank Act should remove some of the burdensome regulations on the financial market consequently providing more liquidity and perhaps stimulating the single-family home buying market, which may not be a positive for apartment properties. Infrastructure Spending is expected to increase productivity and add value to surrounding properties which should ultimately promote jobs and resulting in demand for apartments. An Increase in the Federal Funds Rate and Interest Rate is expected to discourage asset bubble, which may lead to higher capitalization rates and a decrease of property value, at least in the short term. The stronger dollar will deepen the pullback of foreign money in the South Florida property market which may decrease competition and reduce real estate value. As a rule of thumb, commercial property markets trail the residential property markets by about 18 months; with residential having peaked in 1Q16, investors should expect the commercial market to soften in Overall, there are valid reasons for landlord to be optimistic about the apartment market during the upcoming administration; however as we are already in the Hypersupply phase of this real estate cycle, it is imperative that landlords remain diligent in monitoring the real estate market.

7 Multi-Housing Report. We listen more than we talk and proceed to develop the best plan of action by looking at your overall strategy, presenting you with valuable options aligned with your goals. With approximately 5 million square feet under management, we pride ourselves on our reputation for well maintained and managed office, industrial, retail and corporate facilities. We advise you on strategic investments through in-depth market insight and knowledge, providing maximum impact for enhancing asset value and boosting sales potential. We offer comprehensive development services from concept to completion. We provide a single source to manage the entire process from site selection and feasibility analysis, to zoning, construction management and design. As a central point of contact for all of your commercial real estate needs, we can help you evaluate opportunities and optimize existing portfolios through first class tenant representation including site analysis, lease negotiation, planning and reporting. MHCapital Funding LLC is an independent CRE financing company that provides capital markets based financing for properties throughout the State of Florida. Let our Multi-Housing Team maximize your asset s value and protect your wealth. Feel free to contact us at Director Multi-Housing Group Economics & Entrepreneurship University of Miami Cell Fax wpierre@mhcreal.com #1 Commercial Real Estate Firm in Palm Beach County -South Florida Business Journal Book of Lists Neil E. Merin, SIOR CCIM as Top 100 Heavy Hitters -South Florida Business Journal Book of Lists Palm Beach County Top 10 Leasing Firm -Costar Power Broker Award Palm Beach County Top 10 Sales Firm -Costar Power Broker Award 5M SF Under Management NAI/Merin Hunter Codman

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