Keith M. Kramer Associates, Inc Pershing Avenue Clayton, Missouri /

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1 Keith M. Kramer Associates, Inc Pershing Avenue Clayton, Missouri / December 7, 2017 Mr. Brian Kennedy Covington Realty Partners 135 North Meramec Avenue, Suite 500 St. Louis, MO RE: Real Estate Tax Analysis Proposed Cantera Apartments, Warrenville, Illinois Dear Mr. Kennedy: We have reviewed the preliminary information regarding the proposed Cantera Apartments, to be built off Diehl Rd. on a 5.5 acre parcel west of the Winfield Rd. and I-88 interchange in Warrenville, DuPage County, Illinois and information regarding assessed valuations and real estate taxes of other similar apartment developments in the area. This analysis has been undertaken to provide guidance of potential real estate taxes for the property, after construction. The purpose of this report is to assist you, and Covington Realty Partners, in evaluating the project for development. It is our understanding the Cantera Apartments are to consist of 241+ units in four story elevator served buildings. Based on the preliminary plans, there is to be an attached four story parking garage for 440 cars. There is to be a clubhouse/leasing office with exercise area and clubroom. There is to be an outdoor salt water swimming pool, outdoor entertaining BBQ areas, sun deck, and landscaped grounds. The units are to have energy star appliances, energy efficient HVAC systems, and unique features such as CFL or LED lighting. In Illinois real estate is to be assessed at percent of market value. Market value (also referred to as fair market value or fair cash value ) is the most probable sale price of a property in terms of money in a competitive and open market, assuming the buyer and seller are acting prudently and knowingly, allowing sufficient time for sale and assuming the transaction is not affected by undue pressures. (Illinois State Statute 35 ILCS 200/9-145). While all three approaches to Value Sales Comparison, Income, and Cost Approaches may be used and are useful for certain types of property, Illinois law expresses a preference for the Sales Comparison Approach when evidence of such sales is available. The Illinois courts are reported to have overturned assessments in some cases due to failure of assessing officials or valuation experts to use the Sales Approach because they believed that other approaches were superior. It is important to note that market or fair market value is not necessary the actual sales price of a given property, but rather an estimation of what it would sell for on a

2 Mr. Brian Kennedy Page 2 December 7, 2017 given valuation date (January 1 of each year for DuPage County). There are states, such as California, that set the assessed value of a parcel at it s actual sales price and then use an annual factor to adjust the assessed value over time. In states such as Illinois that use the market value basis for assessment, adjusting the assessment of an individual parcel based on it s sales price ( sales chasing ) is prohibited when other properties are not valued the same way. (Walsh v. Property Tax Appeal Board, 181 Ill. 2d 228). In Illinois, and in DuPage County, sales ratio studies are used on a county wide basis to insure assessments within a give area actually average percent of the market value. If the study finds something other than the percent, a blanket percentage change (increase or decrease) called an equalizer factor or multiplier is applied to all nonfarm property to bring the level of assessments to percent. On the local level several statistical measurements are used to measure the uniformity of assessments and to apply internal adjustments to the mass appraisal model to allow for differences in and variations of the neighborhoods within the townships. The Coefficient of Dispersion a statistical measure of variation of individual assessment ratios around the median level of assessments with the average error expressed as a percentage as an indicator of assessment uniformity found by dividing the average deviation by the median is the most common statistical measure used. The Coefficient of Concentration percentage of observations falling within 10 percent of the median level of assessments with a high COC indicating uniformity is also used. Properties within classifications are additionally ranked in quartiles. In determining sales to be used in the analysis, only valid sales are used and outlier ratios, observations that have unusual values, are considered in determining which sales are to be used. For DuPage County, equalization factors are calculated and applied on the township level. Property is valued as of January 1 of each year. Taxes are billed twice a year, with a March bill reflecting 55 percent of the taxes as based on the prior year assessment. The second bill, in August, reflects the January 1 assessment and that year s current millage rates as set by the taxing districts. The taxing districts are to set their rates for the year based on the January 1 assessments and provide them to the Assessor s Offices by June of that year. While real estate is assessed based on the market value (as adjusted by the findings of ratio studies and equalizer multipliers) as of January 1 of each year, every three years a general assessment year all property assessments are reviewed in one third of the County. Mr. Scott Koca, the Deputy Assessor for Naperville Township, reports that for apartments they have been tracking sales and adjusting values on an annual basis, due to the number of sales and disparities between the sale prices and the then current values for assessment. In Naperville Township, in which the property is located, the primary assessment method used for residential property is a comparison to sales prices of other similar classified properties using a computer-assisted technique that accounts for factors such as location, square footage, and construction type. An evaluation of income and construction costs is also used for other types of properties, including apartments. The Deputy Assessor for the Township noted that while sale prices would indicate higher assessed values on existing apartments in the Township, they are currently using $115,000 to $120,000 per unit as

3 Mr. Brian Kennedy Page 3 December 7, 2017 values and increasing the values by 10 to 15 percent per year to reflect current market conditions. For new apartment construction, they will consider the sales but also the current assessments on the existing apartment projects, the costs of the construction, and if available a value by Income Approach. He noted that since the subject is in the far northern part of the Township, in Warrenville which is predominately in Winfield Township, they would also consider the tax rates and any sales in Winfield Township per unit assessments and tax rates are generally lower on apartments in Winfield Township. With the above discussion of the Illinois and particularly the Naperville Township assessment processes presented as an overview of the challenge of trying to predict what the taxes may be on a particular property, given the variables of location, construction type and quality, and size (square footage) that may be inputted to the mass appraisal computer assisted model not to mention variables in tax rates across jurisdictions we have evaluated the assessment and taxes on several recent sales as well as considered the results of our discussion with the Deputy Assessor, Mr. Scott Koca. We have been advised the subject tract is to comprise some 5.5 acres, presently part of the 26.9 acre tract occupied by the Cantera 30 Theater development. The apartments are to be located on the west end of the tract, behind a Red Robin Restaurant and next to the existing 140,848 sq. ft. theater and entertainment development, off the north side of Diehl Rd.. The development is in the southwest quadrant of I-88 and Winfield Rd., with the apartments to have visibility from I-88. The tract is reported to be comprised of a rectangular shaped parcel, of some 5.5 acres, is level, and is presently improved as asphalt paved parking. The tract is in Naperville Township, in Neighborhood 201 and is part of the larger planned Cantera Development, which spans both sides of I-88 and both sides of Winfield Rd.. The 2016 millage rate is reported as $7.992 with the 2017 rate at $ Our discussions with the Deputy Assessor revealed the millage rate has fluctuated little in recent years, with the rate expected to stay in the $7.95 to $8.00 per $100 per assessed value range in coming years. Current Real Estate Taxes Address I.D. No. Tax Value 2016 Taxes Tax Rate Diehl Rd $4,314,760 $347, $7.992 * Value & taxes consider the greater parcel with building and improvements. Source: Naperville Township Assessor s Office November, 2017 The above I.D. Number is for the current, acre tract with the tax value for 2017 and reflecting the current parcel size, the building, and the improvements. The 2016 taxes reflect the former acre size of the site, with some 1.97 acres having been divided off for a Chuby s Restaurant which is under construction. The parcel Number for the former parcel is We reviewed information on a number of recent sales of apartments in Naperville Township as well as information on apartment projects under construction/recently completed. While the best comparables would be new, similar sized and similarly constructed apartment developments in Naperville Township, Neighborhood 201, none were found. We

4 Mr. Brian Kennedy Page 4 December 7, 2017 did find sales of older apartment developments in Naperville Township with information on seven summarized in the table below. Real Estate Taxes Property No. Units Date Built Assessed Tax Value-2016 Assessed Per Unit 2016 Taxes Taxes per Unit 2016 Rate Assessed Tax Value-2017 Assessed Per Unit Potential 2017 Taxes Brookdale Village $8,483, $33, $620, $2, $ $9,331,470 $37, $682, The Aventine at Oakhurst North $16,439, $35, $1,520, $3, $ $18,905,130 $40, $1,748, Grand Reserve of Naperville $11,981, $37, $876, $2, $ $13,179,400 $41, $964, McDowell Place $13,260, $33, $970, $2, $ $14,255,280 $35, $1,042, Arbors at Brookdale $9,756, $34, $713, $2, $ $11,220,300 $39, $820, Hunter's Glen $9,461, $29, $874, $2, $ $10,880,450 $34, $1,006, AVERAGE 339 $11,563, $34, $929, $2, $ $12,962,005 $38, $1,044, Covington Cantera $7.998 $9,606,906 $39, $768, Source: Naperville Township Assessor's Office November, 2017 All the properties listed above are recent sales, having occurred in 2015 or The 2015 sales would have been available for the 2016 valuations, and all would have been available for the valuations for tax purposes as of January 1, The 2017 assessed values, however, were increased by only 7.5 percent in the instance of McDowell Place over the previous assessed value, with some 10 percent increases for Brookdale Village and Grand Reserve, with 15 percent increases for The Aventine, Arbor s at Brookdale, and Hunter s Glen. All are assessed below what would be indicated by their sales prices. Recent Sales Sales Price vs. Assessed Value Assessed Property No. Units Date Built Date Sold Sales Price Sales Price Per Unit 33.33% Per Unit Assessed Tax Value-2017 Assessed Per Unit 2016 Rate Potential 2017 Taxes Brookdale Village January-15 $34,725,000 $137, $11,573,843 $45,928 $9,331,470 $37, $ $682,616 The Aventine at Oakhurst North November-16 $68,250,000 $147, $22,747,725 $49,025 $18,905,130 $40, $ $1,748,025 Grand Reserve of Naperville December-15 $66,700,000 $209, $22,231,110 $69,690 $13,179,400 $41, $ $964,099 McDowell Place August-15 $64,900,000 $162, $21,631,170 $54,078 $14,255,280 $35, $ $1,042,802 Arbors at Brookdale August-16 $59,693,000 $212, $19,895,677 $70,803 $11,220,300 $39, $ $820,787 Hunter's Glen August-15 $37,150,000 $116, $12,382,095 $38,694 $10,880,450 $34, $ $1,006,039 AVERAGE 339 $55,236,333 $164, $18,410,270 $54,703 $12,962,005 $38, $ $1,044,061 Covington Cantera $9,606,906 $39, $7.998 $768,399 Source: Naperville Township Assessor's Office November, 2017 Arbors at Brookdale, a 281 unit development built in 1989 and in Neighborhood 203, had the highest per unit sale price of $212, per unit. Based on the sales price, a per unit value assessed value (at the percent but not considering the equalization factor) for 2017 should have been $70,803. As the table indicates, the 2017 assessed value is $39, per unit. At the same time, Brookdale Village, which sold for $137, per unit and at percent would have had an assessed value per unit of $45,928 is assessed for 2017 at $37, per unit. The average sales price for the six sales was $164, with the average assessed value based on the sales price $54,703 and the average assessed value from the 2017 tax rolls being $38, However, as previously discussed, in Illinois sales chasing is not acceptable with all properties to be treated equally under the mass automated valuation model.

5 Mr. Brian Kennedy Page 5 December 7, 2017 Based upon our review of the above, and sales and real estate taxes on other properties outside of the immediate area, we believe if the Cantera Apartments were was completed and existed today, a most likely assessed value based on what we know of the property would be $9,606,900 or some $39,863 per unit. Real estate taxes with a 1.04 multiplier and a tax rate of $7.998 could be $768,399. In projecting what future real estate taxes could be, upon completion of the property and achieving stabilized occupancy, consideration is required to the expected increases in valuation of apartments township wide, potential changes to the equalizer multiplier, and changes to the tax rate. Our determined assessed value, of $9,606,900 (rounded) equates to a fair cash value of $115,000 per unit, which is consistent with that the Township Assessor s Office used in establishing values for apartments in the Township for 2017, as adjusted for age, neighborhood, quality of construction, etc.. The 2017 assessed value is trended forward at ten percent, consistent again with the 7.5 to 15 percent applied by the Assessor in 2016 to 2017 assessed values. As indicated in the adjoining table, in the last year between 2016 and 2017 the equalization rate decreased by Over the last three years, between 2015 and 2017, the rate increased by While the equalization factor should be reset to 1.0 upon a complete re-assessment, variations between the townships in ratio studies at the township level most likely will still find differences, particularly with regard to the variations noted on apartments (and presumably other categories of commercial property). In Historical Equalization Factors Naperville Township Year Factor Source: Naperville Township Assessor projecting forward we have used a multiplier. As previously discussed the equalizer factor or multiplier is determined by the State and applied on a County level to all non-farm property to bring the level of assessments to percent when the sales ratio study finds the assessments at the county level fall below the percent. In DuPage County, further studies are done to develop multipliers at the township level. The tax or millage rate is another variable in determining future taxes. For Parcel No (the larger parcel from which the subject tract will be split) the 2017 tax rate is $7.998, up from $7.992 in As previously noted, our discussions with Mr. Scott Koca, the Deputy Assessor for Naperville Township, revealed the Township expects the tax rate to remain relatively constant, fluctuating by less than five percent in coming years. For the purpose of our projections we have assumed an average of $7.990 per $100 over the next four years, and have applied the multiplier to the escalated value per unit to derive the assessed value, at the percent. As presented in the table on the following page, real estate taxes under this scenario could be $1,123,800 (rounded) in 2021.

6 Mr. Brian Kennedy Page 6 December 7, 2017 Cantera Apartments Year Value per Unit Assessed Value Potential Taxes 2017 $115, $9,606, $768, $126, $10,567, $844, $139, $11,624, $928, $153, $12,786, $1,021, $168, $14,065, $1,123,831 Source: Keith M. Kramer Associates, Inc. Once the subject 5.5 acre is split off from the larger tract it can be expected to be placed on the tax rolls at or near the same assessed value per square foot as the parent tract. The Township Assessor advised that consideration is also given to surrounding tracts, as well as recent sales of similar properties. According to the property record card for Parcel No the land value for assessment purposes is $2,893,720 for a fair cash value of $8,689,850. The land area is given as 1,171,630 sq. ft., indicating a per square foot value of $ However, in January of 2017 Parcel with 1,220,116 sq. ft. sold for $4,000,000 or $3.278 per square foot. The parcel is just north of I-88 and was purchased for the construction of an apartment project. With consideration to the sale, but the per square foot value of the parent tract, we believe the 5.5 acre tract would most likely be placed on the tax rolls at $7.00 per sq. ft.. As the table below indicates, potential real estate taxes for the parcel could be $134,165. Estimated Real Estate Taxes Cantera Apartments Year Land Value* Taxes Occupancy Land + Bldg Year 1-1/2018 $1,677,060 $134,165 0% $134,165 Year 2-1/2019 $1,685,445 $134,836 0% $134,836 Year 3-1/2020 $1,693,873 $135,510 30% $434,871 Year 4-1/2021 $1,702,342 $136, % $1,123,831 *Land Only 5.5 $7.00 sq. ft. Source: Keith M. Kramer Associates, Inc. While the apartments are under construction real estate taxes can be expected to reflect the land only values. The buildings will not be added until initial occupancy permits are issued, and then only will reflect the portions of the building occupied. The Assessor s Office reports they will take into consideration occupancy and the rate of lease-up in determining what percentage of the building will be placed on the tax rolls the first year(s). With construction beginning in the Spring of 2018 and a 16 to 18 construction period, an assessment on the building would not be expected until 2020, and then only to the extent of reflecting occupancy or the portion of the building that may have been issued an occupancy permit. For illustrative purposes we have indicated a 30 percent occupancy for January 1, 2020, which would result in potential real estate taxes of some $434,871. With the assumption of full or near full occupancy by January 1, 2021, the property would be at the full assessed value with real estate taxes accordingly.

7 Mr. Brian Kennedy Page 7 December 7, 2017 In summary, we estimate that if the Cantera Apartments existed today, real estate taxes could be expected to be in the $750,000 to $775,000 range. While changes in economic conditions, the amount and extent of new construction (and thus additional taxable property added to the tax rolls), as well as changes in the tax rate as a result of the needs of the taxing authorities are unknowns that could impact future taxes, we have projected forward based upon that which is know today. With the assumptions discussed, we would anticipate real estate taxes in 2021 to be in the $1,100,000 to $1,150,000 range. Thank you for this opportunity to have been of service to you and to Covington Realty Partners. Should you have any questions, certainly do not hesitate to contact us. Sincerely, KEITH M. KRAMER ASSOCIATES, INC. Keith M. Kramer State Certified General Real Estate Appraiser, Illinois No Attachments

8 Memberships Appraisal Institute, Practicing Affiliate Licenses/Certifications Statement of Qualifications Keith M. Kramer 314/ Illinois State Certified General R. E. Appraiser, No Missouri State Certified General R. E. Appraiser, RA Academic Washington University, St. Louis - M.A., Urban Affairs University of Missouri, St. Louis - B.A., Political Science Continuing Education In addition to being certified as an instructor by the State of Missouri to teach Real Estate at an area Junior College, Mr. Kramer participates in continuing education courses, including those required by the State of Missouri for real estate appraisal certification. Other courses taken/passed include: R41c Seminar, American Institute of Real Estate Appraisers Code of Professional Ethics and Standards of Professional Practice, Appraisal Institute Feasibility Analysis and Highest and Best Use Seminar, Appraisal Institute Real Estate Appraisal Principles, Appraisal Institute Capitalization Theory and Techniques, Part A, Appraisal Institute Litigation Valuation, Appraisal Institute Capitalization Theory and Techniques, Part B, Appraisal Institute Case Studies, Appraisal Institute Real Estate Finance Statistics and Valuation Modeling, Appraisal Institute Eminent Domain and Condemnation Appraising, Appraisal Institute Report Writing, Appraisal Institute Business Practices and Ethics, Appraisal Institute Effective Appraisal Writing, Appraisal Institute Valuing Green Buildings, Appraisal Institute Uniform Appraisal Standards for Federal Land Acquisitions, Appraisal Institute Experience Mr. Kramer has been in the real estate appraisal and feasibility analysis profession since His real estate experience includes the brokerage, leasing, appraisal and market feasibility analysis of all types of commercial properties including apartments, shopping centers (neighborhood, community and regional) as well as office business parks and retirement communities. He specialized in multi-family properties, including apartments, assisted living facilities, and nursing homes. Mr. Kramer has undertaken assignments throughout the United States and Puerto Rico, and is familiar with most major markets.

9 Real estate appraisals and market/feasibility studies prepared by Mr. Kramer have been used for such purposes as determining the value on which to base contracts for sale or acquisition, for financing, for the syndication of real estate, and for tax appeal cases. Mr. Kramer has served as a Hearing Officer for the Board of Equalization of St. Louis County, appeared as an expert witness in valuation, highest and best use, and zoning matters, and has appeared before State Tax Commission hearings. Employment Prior to forming KEITH M. KRAMER ASSOCIATES, INC., Mr. Kramer had been associated with Financial Research Associates, an affiliate of Marshall and Stevens Appraisal Services. He served as a project manager in the preparation of market and feasibility studies leading to the site selection and acquisition of offices for banks, savings and loans and credit unions. These studies often entailed giving verbal, as well as written, presentations to the board of directors and executive officers of the financial institutions. For two years, Mr. Kramer was employed by the St. Louis City Plan Commission, where he was a principal participant in the preparation of industrial park designs, historic preservation studies, economic development studies, and the central business district revitalization. General Mr. Kramer served on the City of Crestwood Planning and Zoning Commission, on the Watson Road (U.S. Highway 66) Redevelopment Committee, and as an elected Trustee of his subdivision. He served as an elected member of his Parish Council. He has served as President of the Chesterfield Community Development Corporation, an industrial development authority, and has served on the city's TIF (Tax Increment Financing) Commission. Published Mr. Kramer is the author of several articles, including Acquiring the Site, (Clearing House Magazine, June 1979), which discusses the steps of market analysis, site selection and acquisition for a financial institution undertaking a multi-unit expansion program. He periodically writes articles on the St. Louis real estate market for the St. Louis Business Journal, and is quoted in national publications regarding the apartment market. Approved Appraiser The U.S. Department of Housing and Urban Development has approved Mr. Kramer as an appraiser, and a review appraiser, of HUD subsidized and insured properties. Mr. Kramer is also approved by CW Capital, Love Funding, Gershman Mortgage Corp., Berkadia, Key Bank, Great Southern Bank, First National Bank, and Hartland Bank, among others. He is presently undertaking assignments for the Missouri Housing Development Commission, the Illinois Housing Development Authority, and the Iowa Finance Authority, as well as assignments directly for the U.S. Department of Housing and Urban Development through Contracting Operations.