Neighborhood Stabilization Analysis For Muhlenberg/Ohio Counties

Neighborhood Stabilization Analysis For Muhlenberg/Ohio Counties Prepared For Kentucky Housing Corporation 1231 Louisville Road Frankfort, Kentucky 40601 Effective Date June 23, 2009 Date of Report June 23, 2009 Prepared By

512 North One Mile Road * Dexter, MO 63841 Ph: 573-624-6614 * Fax: 573-624-2942 June 23, 2009 Kentucky Housing Corporation 1231 Louisville Road Frankfort, Kentucky 40601 Dear Sir or Madam: Following is a market study which was completed for target neighborhoods in Muhlenberg and Ohio Counties, according to the guidelines set forth by the Kentucky Housing Corporation. The purpose of the following market study is to determine if the community has a need for the neighborhood stabilization funds. To do so, the analyst utilized data from the U.S. Census Bureau, ESRI Business Information Solutions and various other demographic resources. Community information and opinion was also utilized. This information was collected during a field survey conducted by Samuel Gill while visiting the site. An attempt was made to survey 100 percent of all housing in the area. I certify that there is not now nor will there be an identity of interest between the analyst and the applicant without prior written identification to Kentucky Housing Corporation and written consent to such identity of interest by Kentucky Housing Corporation. Samuel Gill Market Analyst

Muhlenberg and Ohio Counties, Kentucky TABLE OF CONTENTS Title Page... 1 Letter of Transmittal... 2 Table of Contents... 3 Identity of Interest... 4 PART I Target Market Area... 6 Economic Analysis... 7-13 PART II Area Housing Market Evaluation... 15-18 PART III Demographic Data... 20-29 PART IV Competitiveness and Comparability... 31-33 PART V Market Rent... 35 PART VI Unit Sales... 37 PART VII Demand Analysis... 39-43 PART VIII Absorption Rate... 45 PART IX Conclusion and Recommendation... 47-48 PART X Certification... 50 ADDENDUM Realty Trac Heat Maps... A Market Study Terminology... B ESRI Business Information Solutions Reports...C Experience and Qualifications...D Gill Group Page 3

Muhlenberg and Ohio Counties, Kentucky IDENTITY OF INTEREST I understand and agree that Kentucky Housing Corporation will consider an identity of interest to exist between the NSP applicant as the party of the first part and general contractors, architects, engineers, attorneys, interim lenders, subcontractors, material suppliers or equipment lessors as parties of the second part under any of the following conditions: 1. When there is any financial interest of the party of the first part in the party of the second part; 2. When one or more of the officers, directors, stockholders or partners of the party of the first part is also an officer, director, stockholder or partner of the party of the second part; 3. When any officer, director, stockholder or partner of the party of the first part has any financial interest whatsoever in the party of the second part; 4. When the party of the second part advances any funds to the party of the first part other than an interim lender advancing funds to enable the applicant to pay for construction and other authorized and legally eligible expenses during the construction period; 5. When the party of the second part provides and pays on behalf of the party of the first part the cost of any legal services, architectural services or interim financing other than those of the survey, general superintendent or engineer employed by a general contractor in connection with obligations under the construction contract; 6. When the party of the second part takes stock or any interest in the party of the first part as part of the consideration to be paid them; and 7. When there exists or comes into being any side deals, agreements, contracts or undertakings entered into thereby altering, amending or canceling any of the required closing documents or approval conditions as approved by the Kentucky Housing Corporation. I certify that there is not now, nor will there be an identity of interest between the analyst and the applicant without prior written identification to Kentucky Housing Corporation and written consent to such identity of interest by Kentucky Housing Corporation. There is no identity of interest between the loan applicant and the Market Analyst or Gill Group. Samuel Gill Market Analyst June 23, 2009 Gill Group Page 4

TARGET MARKET AREA

Muhlenberg and Ohio Counties, Kentucky TARGET MARKET AREA DEFINITION The target market area (TMA) is defined as the eligible census tracts generally grouped into geographic regions. The primary market area is the most likely geographic area from which a property would draw its tenants or home buyers. Secondary market area is the portion of a market area that supplies additional tenants or homebuyers to a project beyond that provided by the primary market area. For the purpose of this report it is believed that the target market area is sufficient and will not need to draw tenants from a secondary market area. The target market area consists of Census Tracts #9601.00, #9602.00, #9603.00, #9604.00, #9609.00, #9801.00, #9804.00, #9805.00, #9806.00 and #9807.00 in Muhlenberg and Ohio Counties. Gill Group Page 6

Muhlenberg and Ohio Counties, Kentucky ECONOMIC ANALYSIS The economy of the target market area is based on manufacturing; retail trade; and educational, health and social services categories. Each of these categories has experienced reasonable growth within the past few years. PLACE OF WORK EMPLOYMENT DATA TARGET MARKET AREA INDUSTRY TOTAL % Agriculture, Forestry, Fisheries & Mining 877 6.4% Construction 1,183 8.6% Manufacturing 2,989 21.8% Wholesale Trade 422 3.1% Retail Trade 1,903 13.9% Transportation, Communication & Utilities 946 6.9% Information 137 1.0% Finance, Insurance & Real Estate 309 2.2% Professional & Related Services 545 4.0% Educational, Health & Social Services 2,563 18.7% Entertainment & Recreation Services 723 5.3% Other 655 4.8% Public Administration 482 3.5% Source: U.S. Census Bureau The above chart shows the number of people employed in different sectors of the target market area economy in 2000. The major employers and number of employees for the target market area are as follows: Name Location Product/Service # of Employees Andy Anderson Muhlenberg Newspaper Publishing 19 Corporation County Brewco, Inc. Muhlenberg Sawmill and Pallet Mill Equipment 40 Brewer, Inc. Central Pallet Mills, Inc. Irving Materials, Inc. Paragon Printing Piper s Saw Shop, Inc. Re-Tek, Inc. Vaught Brothers Lumber Co. Reed Minerals/Pit 12 Gourmet Express, LLC County Muhlenberg County Muhlenberg County Muhlenberg County Muhlenberg County Muhlenberg County Muhlenberg County Muhlenberg County Muhlenberg County Muhlenberg County Steel Fabricating, Gang Rip Saws and 35 Woodworking Machinery; Custom Machinery for Wood Industry Pallets 20 Ready-Mix Concrete 4 Offset Printing, Computer Typesetting and 2 Desktop Publishing Saw Blades and Sharpening Service 37 Rubber Products Buffings, Granules, 25 Powders Produced from Processing Various Scrap Rubber Sawmill; Rough Lumber and Wood Chips 8 Boiler Slag Processing: Roofing Granules 35 and Sandblasting Materials Manufactures Frozen Skillet Meals 115 Gill Group Page 7

Muhlenberg and Ohio Counties, Kentucky Name Location Product/Service # of Employees Greenville Quarry and Muhlenberg Crushed Limestone and Asphalt 54 Quality Blacktopping County Muhlenberg County Muhlenberg Sheltered Workshop; Hand Packaging of 8 Opportunity Center County Manufactured Goods Plastic Products Co., Inc. Muhlenberg Plastic Injection Molding 75 County Bluegrass Quality Ohio County Provide Services to the Auto Industry 3 Services, Inc. Daicel Safety Systems Ohio County Inflators for Automotive Airbags 470 America, LLC H.B. Stanley, Inc. Ohio County Ready-Mixed Concrete 15 NEO Industries, Inc. Ohio County Hard Chrome Plating 14 Nestaway, LLC Ohio County Powdered Vinyl and Nylon Coated Wire 140 Racks Ritatsu Manufacturing, Inc. Ohio County Small Motor Vehicle Metal Stamping Parts 91 Stericycle, Inc. Ohio County Medical Waste Removal 52 Tamarlane Industries, Inc. Ohio County Sheltered Workshop: Wooden Door Sills, 190 Dishwasher Parts, Pallet Repair, Furniture Hardware, Boxes and Inserts Young Manufacturing Co., Ohio County Millwork, Dimension Lumber, Door Sills and 173 Inc. Stair Treads Young Sawmill, Inc. Ohio County Sawmill: Railroad Ties, Wood Chips, 25 Softwood, Hardwood, Rough and Dimension Lumber Perdue Farms, Inc. Ohio County Chicken Slaughtering, Processing and 1,191 Packaging Dunaway Timber Co., Inc. Ohio County Green Lumber, Wood Chips and Barrel 70 Slaves Kimball Furniture Group, Ohio County Wooden Office Desks, Bookcases and 311 Inc. Tables Cemex Construction Ohio County Crushed Limestone and Agricultural Lime 13 Materials Atlantic, LLC Heartwood Industries, Inc. Ohio County Antique Wood Flooring and Molding and 5 Flooring McHenry Brass, Inc. Ohio County Bronze Castings, Brass Brushings and Copper Base Alloys 16 Source: Kentucky Cabinet for Economic Development According to the Kentucky Cabinet for Economic Development, there have been one new manufacturing firm, four expanding manufacturing firms and two expanding supportive/service firm expansions added to the target market area since 2008. A total of 244 new jobs will be added to the area. In 2008 the new manufacturing firm of Green Drive Products was announced. It will create 100 new jobs. Expanding manufacturing firms in 2008 include Daicel Safety Systems America, LLC; Ritatsu Manufacturing, Inc.; WPT Corporation and Geary Brothers, Inc. A total of 140 jobs will be added. One supportive/service firm expansion that was announced in 2008 was Stericycle, Inc. It will create 12 new jobs. There was one additional supportive/service firm expansion announced in 2009, Gryphon Environmental, LLC. It will create seven new jobs. It is important to note that the data provided by the Kentucky Cabinet for Economic Development does not include actual job openings but rather provides job announcements. Expansion announcements include companies that are increasing employment, capital investment or square footage to physical facilities. The expansions reported will be created over a period of years and not all at once. Activities are reported in the year the announcements are made even though full employment announced may not be realized in the first year. Gill Group Page 8

Muhlenberg and Ohio Counties, Kentucky There have been two business closings reported in the target market area since 2008. American Nonwovens and CDG Management, LLC, closed, resulting in a loss of 87 full-time jobs. Job layoffs are not included in the data provided by the Kentucky Cabinet for Economic Development. Therefore, it is possible that more significant losses have occurred than have been presented in this report. According to the Kentucky Cabinet for Economic Development, there were no major business closings announced. The number of jobs lost is less than the number of jobs created. Therefore, it is the opinion of the analyst that the anticipated expansions and new employment would potentially benefit prospective buyers of the current foreclosed or vacant housing within the market area. Employment in Muhlenberg County has been increasing an average of 0.4 percent per year since 1990. Employment in Ohio County has been decreasing an average of 2.6 percent per year since 1990. Employment in Kentucky has been increasing an average of 0.9 percent per year since 1990. Labor Force and Employment Trends LABOR FORCE AND EMPLOYMENT TRENDS FOR MUHLENBERG COUNTY EMPLOYMENT UNEMPLOYMENT CIVILIAN LABOR ANNUALS FORCE* TOTAL % TOTAL % 1990 12,736 11,594 91.0% 1,142 9.0% 1991 12,519 10,961 87.6% 1,558 12.4% 1992 11,905 10,418 87.5% 1,487 12.5% 1993 11,739 10,415 88.7% 1,324 11.3% 1994 11,868 10,725 90.4% 1,143 9.6% 1995 12,307 11,211 91.1% 1,096 8.9% 1996 12,082 11,076 91.7% 1,006 8.3% 1997 12,367 11,280 91.2% 1,087 8.8% 1998 12,374 11,471 92.7% 903 7.3% 1999 12,582 11,494 91.4% 1,088 8.6% 2000 13,043 12,270 94.1% 773 5.9% 2001 13,002 11,924 91.7% 1,078 8.3% 2002 13,232 12,170 92.0% 1,062 8.0% 2003 13,263 12,174 91.8% 1,089 8.2% 2004 12,949 11,950 92.3% 999 7.7% 2005 12,791 11,666 91.2% 1,125 8.8% 2006 13,016 11,798 90.6% 1,218 9.4% 2007 13,586 12,479 91.9% 1,107 8.1% 2008 13,567 12,420 91.5% 1,147 8.5% 2009** 13,635 12,253 89.9% 1,382 10.1% * Data based on place of residence. **Preliminary - based on monthly data through April 2009. Source: U.S. Bureau of Labor Statistics Data Unemployment in Muhlenberg County reached a high of 12.5 percent in 1992. Unemployment in the county reached a low of 5.9 percent in 2000. The rate for Muhlenberg County in April 2009 was 10.1 percent. Gill Group Page 9

Muhlenberg and Ohio Counties, Kentucky CHANGE IN TOTAL EMPLOYMENT FOR MUHLENBERG COUNTY NUMBER PERCENT PERIOD TOTAL ANNUAL TOTAL ANNUAL 1980-1990 979 98 9.2% 0.9% 1990-1995 (383) (77) -3.3% -0.7% 1995-2000 1,059 212 9.4% 1.9% Source: U.S. Bureau of Labor Statistics The changes in employment since 1980 by time period are listed above. The data shows that the number of persons employed in Muhlenberg County increased an average of 0.7 percent per year between 1980 and 2000. RECENT CHANGES IN EMPLOYMENT FOR MUHLENBERG COUNTY NUMBER EMPLOYED ANNUAL CHANGE % OF LABOR FORCE UNEMPLOYED YEAR 2000 12,270 2001 11,924 2002 12,170 2003 12,174 2004 11,950 2005 11,666 2006 11,798 2007 12,479 Source: U.S. Bureau of Labor Statistics 776 (346) 246 4 (224) (284) 132 681 5.9% 8.3% 8.0% 8.2% 7.7% 8.8% 9.4% 8.1% The table above shows the changes in employment and percent unemployed since 2000. The unemployment rate has fluctuated from 5.9 percent to 9.4 percent. These fluctuations are in line with the unemployment rates for the State of Kentucky. Unemployment in Ohio County reached a high of 11.8 percent in 1991 and a low of 5.2 percent in 2000. The rate for Ohio County in April 2009 was 9.8 percent. LABOR FORCE AND EMPLOYMENT TRENDS FOR OHIO COUNTY CIVILIAN EMPLOYMENT UNEMPLOYMENT ANNUALS LABOR TOTAL % TOTAL % 1990 8,675 7,930 91.4% 745 8.6% 1991 8,990 7,925 88.2% 1,065 11.8% 1992 9,117 8,050 88.3% 1,067 11.7% 1993 9,167 8,207 89.5% 960 10.5% 1994 9,155 8,366 91.4% 789 8.6% 1995 9,221 8,174 88.6% 1,047 11.4% 1996 9,875 9,038 91.5% 837 8.5% 1997 10,327 9,454 91.5% 873 8.5% 1998 10,107 9,359 92.6% 748 7.4% 1999 9,993 9,129 91.4% 864 8.6% 2000 10,531 9,984 94.8% 547 5.2% 2001 10,637 9,988 93.9% 649 6.1% 2002 10,848 10,078 92.9% 770 7.1% 2003 11,134 10,275 92.3% 859 7.7% 2004 11,131 10,425 93.7% 706 6.3% 2005 11,551 10,775 93.3% 776 6.7% 2006 11,806 11,077 93.8% 729 6.2% 2007 12,034 11,388 94.6% 646 5.4% 2008 12,634 11,823 93.6% 811 6.4% 2009** 12,893 11,627 90.2% 1,266 9.8% * Data based on place of residence. **Preliminary - based on monthly data through April 2009. Source: U.S. Bureau of Labor Statistics Data Gill Group Page 10

Muhlenberg and Ohio Counties, Kentucky CHANGE IN TOTAL EMPLOYMENT FOR OHIO COUNTY NUMBER PERCENT PERIOD TOTAL ANNUAL TOTAL ANNUAL 1980-1990 764 76 10.7% 1.1% 1990-1995 244 49 3.1% 0.6% 1995-2000 1,810 362 22.1% 4.4% Source: U.S. Bureau of Labor Statistics The changes in employment since 1980 by time period are listed above. The data shows that the number of persons employed in Ohio County increased an average of 1.9 percent per year between 1980 and 2008. RECENT CHANGES IN EMPLOYMENT FOR OHIO COUNTY YEAR NUMBER EMPLOYED ANNUAL CHANGE % OF LABOR FORCE UNEMPLOYED 2000 9,984 855 5.2% 2001 9,988 4 6.1% 2002 10,078 90 7.1% 2003 10,275 197 7.7% 2004 10,425 150 6.3% 2005 10,775 350 6.7% 2006 11,077 302 6.2% 2007 11,388 311 5.4% Source: U.S. Bureau of Labor Statistics The table above shows the changes in employment and percent unemployed since 2000. The unemployment rate has fluctuated from 5.2 percent to 7.7 percent. These fluctuations are in line with the unemployment rates for the State of Kentucky. LABOR FORCE AND EMPLOYMENT TRENDS FOR KENTUCKY CIVILIAN EMPLOYMENT UNEMPLOYMENT ANNUALS LABOR TOTAL % TOTAL % 1990 1,747,605 1,640,875 93.9% 106,730 6.1% 1991 1,770,336 1,639,343 92.6% 130,993 7.4% 1992 1,782,402 1,658,511 93.0% 123,891 7.0% 1993 1,804,000 1,689,100 93.6% 114,900 6.4% 1994 1,829,325 1,729,483 94.5% 99,842 5.5% 1995 1,860,896 1,757,111 94.4% 103,785 5.6% 1996 1,880,267 1,777,259 94.5% 103,008 5.5% 1997 1,912,591 1,809,785 94.6% 102,806 5.4% 1998 1,920,292 1,832,775 95.4% 87,517 4.6% 1999 1,944,384 1,854,270 95.4% 90,114 4.6% 2000 1,949,013 1,866,348 95.8% 82,665 4.2% 2001 1,954,142 1,852,056 94.8% 102,086 5.2% 2002 1,950,470 1,838,495 94.3% 111,975 5.7% 2003 1,971,751 1,848,059 93.7% 123,692 6.3% 2004 1,963,852 1,854,703 94.4% 109,149 5.6% 2005 1,992,625 187,981 9.4% 120,644 6.1% 2006 2,027,794 1,908,784 94.1% 119,010 5.9% 2007 2,036,459 1,923,471 94.5% 112,988 5.5% 2008 2,042,915 1,911,240 93.6% 131,675 6.4% 2009** 2,065,708 1,865,839 90.3% 199,869 9.7% * Data based on place of residence. **Preliminary - based on monthly data through April 2009. Source: U.S. Bureau of Labor Statistics Data Unemployment in the state reached a high of 7.4 percent in 1991 and reached a low of 4.2 percent in 2000. The rate for Kentucky in April 2009 was 9.7 percent. Gill Group Page 11

Muhlenberg and Ohio Counties, Kentucky Gill Group Page 12

Muhlenberg and Ohio Counties, Kentucky Gill Group Page 13

AREA HOUSING MARKET EVALUATION

Muhlenberg and Ohio Counties, Kentucky # of # of # of Foreclosure 90-Day Vacant # of Resident 90-Day 2004-2006 HMDA Loans 2004-2006 High Cost Unemployment Price Census Tract Households Foreclosures Mortgages Rate Resident Addresses Addresses Vacancy Rate High Cost HMDA Loans Loan Rate Rate Change #9601.00 380 6 61 9.8% 35 265 13.2% 12 22 54.5% 9.0% 0.0% #9602.00 2,853 49 729 6.7% 177 3,153 5.6% 85 265 32.1% 9.0% 0.0% #9603.00 1,470 30 366 8.2% 95 1,414 6.7% 55 133 41.4% 9.0% 0.0% #9604.00 2,099 37 520 7.1% 175 2,147 8.2% 64 189 33.9% 9.0% 0.0% #9609.00 598 11 184 6.0% 73 665 11.0% 18 67 26.9% 9.0% 0.0% #9801.00 1,251 14 256 5.5% 89 1,263 7.0% 28 93 30.1% 6.8% 0.0% #9804.00 803 5 72 6.9% 103 691 14.9% 10 26 38.5% 6.8% 0.0% #9805.00 2,566 53 704 7.5% 158 2,973 5.3% 109 256 42.6% 6.8% 0.0% #9806.00 832 16 162 9.9% 30 684 4.4% 34 59 57.6% 6.8% 0.0% #9807.00 609 9 105 8.6% 30 498 6.0% 19 38 50.0% 6.8% 0.0% Total 13,461 230 3,159 7.3% 965 13,753 7.0% 434 1,148 37.8% 7.9% Gill Group Page 15

Muhlenberg and Ohio Counties, Kentucky According to data provided by HUD there are 10 census tracts within the Counties of Muhlenberg and Ohio which are considered to have destabilized neighborhoods. This data was confirmed by Realtytrac.com. High areas of concern are shaded in dark red. A map of the areas of concern is located in the addendum section of this report. After conversations with local realtors and city officials it was determined that the cause of these destabilized neighborhoods is a direct result of lack of affordability of housing. This is onset by the increasing unemployment in the area and exacerbated by the increase in credit rates and decrease in credit availability. According to the chart above which was published by HUD, there are currently 3,159 mortgages. Of the 3,159 mortgages 230 have been foreclosed. Therefore, the overall foreclosure rate for the target market area is 7.3 percent. In addition the Administrative Office of the Courts indicated within an 18-month period, there were 246 foreclosures. These numbers are the actual referrals to master commissioner for property sale In addition to the homes in foreclosure, HUD also gathered data on the 90-day vacant resident addresses. An abandoned home is when mortgage or tax foreclosure proceedings have been initiated for that property, no mortgage or tax payments have been made by the property owner for at least 90 days and the property has been vacant for at least 90 days. However, HUD does not provide data on abandoned homes. The chart above indicates that of the 13,753 resident addresses, 965 were considered 90-day vacant resident addresses. Therefore, the overall 90-day vacancy rate for the target market area is 7.0 percent. For homeownership the absorption rate is the ability of the real estate market to absorb or sell all of the houses for sale in a given amount of time. The analyst researched the current absorption rates in the target market area. Realtors in the area were contacted in order to determine an appropriate absorption rate and housing value trends. According to Realtytrac.com, the home value data for the target market area is not yet available. Realtors in the area indicated the area number of homes sold per month ranged from one to 10; therefore, the analyst determined an average absorption rate of five homes per month. Once rehabilitation of the existing foreclosed housing is completed, it is estimated that the absorption period of the 230 foreclosed homes will be longer than three years. It was reported that over an 18-month period there were 1,195 foreclosed/vacant houses within the target market area. In order to establish a need for NSP funding the analyst determined the average number of foreclosures per month which consisted of 37 foreclosures per month (1,195 divided by 18 months equals 66 homes foreclosed per month). The average number of homes sold per month was determined to be 5. Therefore, 5 homes of the existing stock of foreclosed/vacant homes could be absorbed without NSP funding, leaving an additional 61 homes per month being added to the existing foreclosure stock. It is the opinion of the analyst that there is sufficient demand for housing that has been abandoned or foreclosed. Therefore, it appears as if affordability and overvaluation are the most likely key factors in the large amount of foreclosures and abandoned homes. Because foreclosures occur when a borrower is unable to continue to make regular payments, affordability is likely the main cause in this case. While overvaluation may have occurred, without providing a separate opinion of value for each foreclosure, it is not possible to ascertain whether or not the value of these properties was overstated. One point that must be considered is that if the borrower had been able to afford to make the payments, the actual value of the property is irrelevant; therefore, overvaluation is a moot point for the purposes of this analysis. For example, if someone making $50,000 per year purchases a house for $1,000,000, they will likely not be able to afford the payments. It would not matter if the value of the house was actually $1,000,000 or $100,000. The value would not play a role in whether or not the borrower would be able to make payments. Gill Group Page 16

Muhlenberg and Ohio Counties, Kentucky Further consideration as to whether or not the properties were initially overvalued may be an explanation as to why these properties are still vacant. If overvaluation occurred and the properties were then foreclosed upon for lack of affordability, it is likely that the property would not sell for the entire balance of the mortgage. This may, in turn, lead to foreclosed properties being left on the market for a longer period of time in an attempt to minimize loss. The NSP2 funds should help to reduce this effect by offering subsidies to low income households to purchase these foreclosed homes. The charts below show the income characteristics of households in the target geography and information on housing cost burden for households at the 50 percent, 80 percent and 120 percent of area median income levels. As can be seen in the charts below, it would be possible for residents at all income levels except 50 percent to afford the cost of a home priced at $65,000 or $100,000 without a cost overburden. Residents at 50 percent of the area median income would have a cost overburden if purchasing a two- or three-bedroom unit. 50% 2BR Amount HH Type 50% Total for Housing 2BR Taxes, Insurance Available for 2BR Home Det Service *Maximum each can pay for a 2BR Average Price in the Market Deficit (Amount of Cost Overburden) 2 Person $ 12,975.00 $ 3,892.50 $ 561.40 $ 3,331.10 $45,131.94 $ 65,000.00 ($19,868.06) 3 Person $ 14,625.00 $ 4,387.50 $ 561.40 $ 3,826.10 $51,838.53 $ 65,000.00 ($13,161.47) 4 Person $ 16,238.00 $ 4,871.40 $ 561.40 $ 4,310.00 $58,394.73 $ 65,000.00 ($6,605.27) 5 Person $ 17,550.00 $ 5,265.00 $ 561.40 $ 4,703.60 $63,727.48 N/A N/A 6 Person $ 18,825.00 $ 5,647.50 $ 561.40 $ 5,086.10 $68,909.84 N/A N/A *Assuming 6.25% interest, 30 year loan, monthly ammortization, no downpayment 50% 3BR Amount HH Type 50% Total for Housing 3BR Taxes, Insurance Available for 3BR Home Det Service *Maximum each can pay for a 3BR Average Price in the Market Deficit (Amount of Cost Overburden) 2 Person $ 12,975.00 $ 3,892.50 $ 1,881.80 $ 2,010.70 $27,242.29 N/A N/A 3 Person $ 14,625.00 $ 4,387.50 $ 1,881.80 $ 2,505.70 $33,948.88 N/A N/A 4 Person $ 16,238.00 $ 4,871.40 $ 1,881.80 $ 2,989.60 $40,505.07 $ 100,000.00 ($59,494.93) 5 Person $ 17,550.00 $ 5,265.00 $ 1,881.80 $ 3,383.20 $45,837.83 $ 100,000.00 ($54,162.17) 6 Person $ 18,825.00 $ 5,647.50 $ 1,881.80 $ 3,765.70 $51,020.19 $ 100,000.00 ($48,979.81) *Assuming 6.25% interest, 30 year loan, monthly ammortization, no downpayment Gill Group Page 17

Muhlenberg and Ohio Counties, Kentucky 80% 2BR Amount HH Type 80% Total for Housing 2BR Taxes, Insurance Available for 2BR Home Det Service *Maximum each can pay for a 2BR Average Price in the Market Deficit (Amount of Cost Overburden) 2 Person $ 20,760.00 $ 6,228.00 $ 561.40 $ 5,666.60 $76,774.84 $ 65,000.00 $11,774.84 3 Person $ 23,400.00 $ 7,020.00 $ 561.40 $ 6,458.60 $87,505.38 $ 65,000.00 $22,505.38 4 Person $ 25,980.00 $ 7,794.00 $ 561.40 $ 7,232.60 $97,992.04 $ 65,000.00 $32,992.04 5 Person $ 28,080.00 $ 8,424.00 $ 561.40 $ 7,862.60 $106,527.70 N/A N/A 6 Person $ 30,120.00 $ 9,036.00 $ 561.40 $ 8,474.60 $114,819.48 N/A N/A *Assuming 6.25% interest, 30 year loan, monthly ammortization, no downpayment 80% 3BR Amount HH Type 80% Total for Housing 3BR Taxes, Insurance Available for 3BR Home Det Service *Maximum each can pay for a 3BR Average Price in the Market Deficit (Amount of Cost Overburden) 2 Person $ 20,760.00 $ 6,228.00 $ 1,881.80 $ 4,346.20 $58,885.19 N/A N/A 3 Person $ 23,400.00 $ 7,020.00 $ 1,881.80 $ 5,138.20 $69,615.73 N/A N/A 4 Person $ 25,980.00 $ 7,794.00 $ 1,881.80 $ 5,912.20 $80,102.39 $ 100,000.00 ($19,897.61) 5 Person $ 28,080.00 $ 8,424.00 $ 1,881.80 $ 6,542.20 $88,638.04 $ 100,000.00 ($11,361.96) 6 Person $ 40,160.00 $ 12,048.00 $ 1,881.80 $ 10,166.20 $137,738.39 $ 100,000.00 $37,738.39 *Assuming 6.25% interest, 30 year loan, monthly ammortization, no downpayment 120% 2BR Amount HH Type 120% Total for Housing 2BR Taxes, Insurance Available for 2BR Home Det Service *Maximum each can pay for a 2BR Average Price in the Market Deficit (Amount of Cost Overburden) 2 Person $ 31,140.00 $ 9,342.00 $ 561.40 $ 8,780.60 $118,965.37 $ 65,000.00 $53,965.37 3 Person $ 35,100.00 $ 10,530.00 $ 561.40 $ 9,968.60 $135,061.17 $ 65,000.00 $70,061.17 4 Person $ 38,970.00 $ 11,691.00 $ 561.40 $ 11,129.60 $150,791.17 $ 65,000.00 $85,791.17 5 Person $ 42,120.00 $ 12,636.00 $ 561.40 $ 12,074.60 $163,594.65 N/A N/A 6 Person $ 45,180.00 $ 13,554.00 $ 561.40 $ 12,992.60 $176,032.32 N/A N/A *Assuming 6.25% interest, 30 year loan, monthly ammortization, no downpayment 120% 3BR Amount HH Type 120% Total for Housing 3BR Taxes, Insurance Available for 3BR Home Det Service *Maximum each can pay for a 3BR Average Price in the Market Deficit (Amount of Cost Overburden) 2 Person $ 31,140.00 $ 9,342.00 $ 1,881.80 $ 7,460.20 $101,075.72 N/A N/A 3 Person $ 35,100.00 $ 10,530.00 $ 1,881.80 $ 8,648.20 $117,171.52 N/A N/A 4 Person $ 38,970.00 $ 11,691.00 $ 1,881.80 $ 9,809.20 $132,901.52 $ 100,000.00 $32,901.52 5 Person $ 42,120.00 $ 12,636.00 $ 1,881.80 $ 10,754.20 $145,705.00 $ 100,000.00 $45,705.00 6 Person $ 45,180.00 $ 13,554.00 $ 1,881.80 $ 11,672.20 $158,142.67 $ 100,000.00 $58,142.67 *Assuming 6.25% interest, 30 year loan, monthly ammortization, no downpayment After considering all factors, it is believed that the current economic factors contributing to the local market conditions and the neighborhood decline or instability within the target geography is partially attributable to the current high unemployment rates and the high cost mortgage loans. Gill Group Page 18

DEMOGRAPHIC DATA

Muhlenberg and Ohio Counties, Kentucky DEMOGRAPHIC ANALYSIS Population Household Trends and Analysis In 1990 this geographic market area contained an estimated population of 33,245. By 2000, population in this market area had increased by 5.0 percent to 34,921. It is estimated that by 2009, population in this market area had increased by 2.3 percent to 35,737. It is projected that between 2009 and 2012 population in the market area will increase by 0.3 percent to 35,859. CHANGE IN TOTAL POPULATION TOTAL ANNUAL SUBJECT YEAR POPULATION CHANGE PERCENT CHANGE PERCENT TARGET MARKET AREA 1990 33,245 2000 34,921 1,676 5.0% 168 0.5% Estimated 2009 35,737 816 2.3% 91 0.3% Projected 2012 35,859 122 0.3% 41 0.1% Projected 2014 35,941 82 0.2% 41 0.1% Source: U.S. Census Bureau and ESRI Business Information Solutions CHANGE IN POPULATION BY AGE GROUPS TARGET MARKET AREA AGE 2000 2009 CHANGE 2009 2012 CHANGE 2012 2014 CHANGE 19 & Under 9,132 8,688-4.9% 8,688 8,623-0.8% 8,623 8,579-0.5% 20-24 2,240 1,946-13.1% 1,946 1,973 1.4% 1,973 1,991 0.9% 25-34 4,636 4,527-2.4% 4,527 4,282-5.4% 4,282 4,118-3.8% 35-44 5,307 4,983-6.1% 4,983 4,909-1.5% 4,909 4,860-1.0% 45-54 4,934 5,377 9.0% 5,377 5,223-2.9% 5,223 5,120-2.0% 55-64 3,687 4,742 28.6% 4,742 4,989 5.2% 4,989 5,153 3.3% 65-74 2,707 2,982 10.2% 2,982 3,316 11.2% 3,316 3,539 6.7% 75-84 1,692 1,778 5.1% 1,778 1,813 2.0% 1,813 1,837 1.3% 85+ 586 714 21.8% 714 732 2.5% 732 744 1.6% Source: ESRI Business Information Solutions Gill Group Page 20

Muhlenberg and Ohio Counties, Kentucky Housing Market The demand for additional housing in a market area is a function of population growth, household formations, and also a replacement of units lost through demolition and extreme obsolescence. In the case of housing for the elderly, the demand for rental housing is sometimes caused by the inability of the elderly to properly maintain their present ownership housing. Also, within the overall demand are segments of the market asking for more or less expense (related to income) and for ownership or rental. Some of the demand has been, or will be, satisfied by units which have been built, or will be built, by the time the project is renting. The difference between demand and supply, the residual, is the total market of which the project s market will be a share. The tenure of existing housing will be examined first as a guide to the future proportion of ownership and rentals, and then characteristics of the housing stock will be noted. The most important analysis is that of demand, supply and residual demand which follows. Its product is the number of rental units which will be demanded. HOUSEHOLDS BY PERSONS PER HOUSEHOLD GROUP IN PERSONS PER SUBJECT YEAR POPULATION QUARTERS HOUSEHOLDS HOUSEHOLDS TARGET MARKET AREA 1990 33,245 568 32,677 2.65 2000 34,921 1,021 33,900 2.51 Estimated 2009 35,737 1,072 34,665 2.45 Projected 2012 35,859 1,063 34,797 2.44 Projected 2014 35,941 1,058 34,883 2.43 Source: U.S. Census Bureau and ESRI Business Information Solutions Gill Group Page 21

Muhlenberg and Ohio Counties, Kentucky Tenure The percentage of renters in the Target Market Area in 2009 was 18.1 percent. The percentage of owners in the Target Market Area in 2009 was 61.4 percent. These percentages are utilized in the demand section of this report. HOUSEHOLDS BY TENURE TOTAL OWNER RENTER SUBJECT YEAR HOUSEHOLDS NO. % NO. % TARGET MARKET ARE 1990 12,331 9,979 80.9% 2,352 19.1% 2000 13,455 11,062 82.2% 2,393 17.8% Estimated 2009 14,149 11,590 81.9% 2,559 18.1% Projected 2012 14,273 11,648 81.6% 2,625 18.4% Projected 2014 14,355 11,686 81.4% 2,669 18.6% Source: U.S. Census Bureau and ESRI Business Information Solutions According to the U.S. Census Bureau, there are 10,710 owner households and 2,091 rent households ages 25 and older. Therefore, for every one owner there are 0.20 renters within the age group of 25 and older. TENURE BY AGE SUBJECT AGE OWNER RENTER OWNER TO RENTER RATIO TARGET MARKET AREA 25-34 1,427 554 0.39 35-44 2,133 498 0.23 45-54 2,261 385 0.17 55-64 1,888 261 0.14 65-74 1,613 197 0.12 75+ 1,388 198 0.14 Source: U.S. Census Bureau The breakdown of households according to size and type in 2000 is shown below. HOUSEHOLDS BY SIZE AND TYPE OWNER-OCCUPIED TARGET MARKET AREA 1 person 2,338 2 persons 4,109 3 persons 2,167 4 persons 1,590 5 persons 590 6 persons 40 7 or more persons 88 RENTER-OCCUPIED 1 person 782 2 persons 632 3 persons 486 4 persons 304 5 persons 115 6 persons 47 7 or more persons 27 Source: U.S. Census Bureau Gill Group Page 22

Muhlenberg and Ohio Counties, Kentucky The two-bedroom units are most suitable for households between two to four persons, who account for 59.4 percent of the target market area renters and 72.0 percent of the target market area owners. The three-bedroom units are most suitable for households between four to six persons, who account for 19.5 percent of the target market area renters and 20.4 percent of the target market area owners. RENTER HOUSEHOLD SIZE IN THE MARKET AREA RENTER-OCCUPIED NUMBER PERCENT 1 person 782 32.7% 2 persons 632 26.4% 3 persons 486 20.3% 4 persons 304 12.7% 5 persons 115 4.8% 6 persons 47 2.0% 7 or more persons 27 1.1% TOTAL 2,393 100.0% Source: U.S. Census Bureau OWNER HOUSEHOLD SIZE IN THE MARKET AREA OWNER-OCCUPIED NUMBER PERCENT 1 person 2,338 21.4% 2 persons 4,109 37.6% 3 persons 2,167 19.8% 4 persons 1,590 14.6% 5 persons 590 5.4% 6 persons 40 0.4% 7 or more persons 88 0.8% TOTAL 10,922 100.0% Source: U.S. Census Bureau HOUSEHOLDS BY SIZE/TYPE/AGE OF MEMBERS Households With: TARGET MARKET AREA 1+ Persons Age 60+ 1 Person Household 1,642 2+ Persons (Family) 2,469 2+ Persons (Non-Family) 72 1+ Persons Age 65+ 1 Person Household 1,421 2+ Persons (Family) 1,794 2+ Persons (Non-Family) 46 Source: U.S. Census Bureau Gill Group Page 23

Muhlenberg and Ohio Counties, Kentucky The data below shows that there were 28 rental units lacking complete plumbing and 68 rental units that are overcrowded. There were 403 units built prior to 1939. Therefore, the total substandard renter households are 499. CHARACTERISTICS OF THE MARKET AREA HOUSING STOCK TARGET MARKET AREA TOTAL HOUSING UNITS 14,907 OCCUPANCY AND TENURE Occupied Housing Units 13,455 Owner-Occupied 11,062 Percent Owner-Occupied 82.2% Renter-Occupied 2,393 VACANT HOUSING UNITS For seasonal, recreational, etc. 171 TENURE BY YEAR STRUCTURE BUILT RENTER-OCCUPIED 1999-March 2000 35 1995-1998 138 1990-1994 102 1980-1989 295 1970-1979 624 1960-1969 342 1950-1959 39,873 1940-1949 141 1939 or earlier 403 PERSONS PER ROOM: RENTER 0.50 or less 1,395 0.51-1.00 810 1.01-1.50 46 1.51-2.00 19 2.01 or more 3 PLUMBING FACILITES - PERSON/ROOM: RENTER-OCCUPIED Lacking Complete Plumbing Facilities: 1.00 or less 21 1.01-1.50 7 1.51 or more 0 Source: U.S. Census Bureau Gill Group Page 24

Muhlenberg and Ohio Counties, Kentucky The data below shows that there were 137 owner units lacking complete plumbing and 196 owner units that are overcrowded. There were 1,416 units built prior to 1939. Therefore, the total substandard owner households are 1,749. CHARACTERISTICS OF THE MARKET AREA HOUSING STOCK TARGET MARKET AREA TOTAL HOUSING UNITS 14,907 OCCUPANCY AND TENURE Occupied Housing Units 13,455 Owner-Occupied 11,062 Percent Owner-Occupied 82.2% Renter-Occupied 2,393 VACANT HOUSING UNITS For seasonal, recreational, etc. 171 TENURE BY YEAR STRUCTURE BUILT OWNER-OCCUPIED 1999-March 2000 394 1995-1998 1,249 1990-1994 785 1980-1989 1,408 1970-1979 2,543 1960-1969 1,621 1950-1959 984 1940-1949 691 1939 or earlier 1,416 PERSONS PER ROOM: OWNER 0.50 or less 7,574 0.51-1.00 2,785 1.01-1.50 179 1.51-2.00 17 2.01 or more 0 PLUMBING FACILITES - PERSON/ROOM: OWNER-OCCUPIED Lacking Complete Plumbing Facilities: 1.00 or less 125 1.01-1.50 5 1.51 or more 7 Source: U.S. Census Bureau Gill Group Page 25

Muhlenberg and Ohio Counties, Kentucky The table below shows significant characteristics of the Target Market Area housing stock in 2000. In 2000 there were 9,325 single-family housing units, 619 multifamily housing units and 3,508 mobile homes in the market area. Of the 9,325 single-family housing units, 8,136 were owner occupied and 1,189 were renter occupied. Of the 619 multifamily housing units, 30 were owner occupied and 589 were renter occupied. Of the 3,508 mobile homes in the market area, 2,925 were owner occupied and 583 were renter occupied. ADDITIONAL HOUSING STOCK CHARACTERISTICS HOUSING UNITS IN STRUCTURE OWNER-OCCUPIED RENTER-OCCUPIED TARGET MARKET AREA NUMBER PERCENT NUMBER PERCENT 1, Detached 8,070 72.8% 1,170 49.6% 1, Attached 66 0.6% 19 0.8% 2 13 0.1% 148 6.3% 3 to 4 17 0.2% 204 8.6% 5 to 9 0 0.0% 109 4.6% 10 to 19 0 0.0% 56 2.4% 20 to 49 0 0.0% 66 2.8% 50 or more 0 0.0% 6 0.3% Mobile Home, Trailer, Other 2,925 26.4% 583 24.7% TOTAL 11,091 100.0% 2,361 100.0% Source: U.S. Census Bureau Gill Group Page 26

Muhlenberg and Ohio Counties, Kentucky Household Income Trends and Analysis Income is a key characteristic in analyzing housing markets. The following table shows household incomes for the market area for all households. However, we are primarily concerned with incomes of renters within the target incomes of $8,057 to $12,990, or 15.7 percent, for two-bedroom units at 30 percent AMI; $12,000 to $21,650, or 30.9 percent, for two-bedroom units at 50 percent AMI; $14,400 to $25,980, or 28.1 percent, for two-bedroom units at 60 percent AMI; $19,200 to $34,640, or 21.0 percent, for two-bedroom units at 80 percent AMI; $28,800 to $51,960, or 20.0 percent, for twobedroom units at 120 percent AMI; $9,531 to $15,060, or 19.4 percent, for three-bedroom units at 30 percent AMI; $14,229 to $25,100, or 27.1 percent, for three-bedroom units at 50 percent AMI; $17,074 to $30,120, or 24.2 percent, for three-bedroom units at 60 percent AMI; $22,766 to $40,160, or 20.4 percent, for three-bedroom units at 80 percent AMI; and $34,149 to $60,240, or 14.4 percent, for threebedroom units at 120 percent AMI. This is a total of 1,786 renters within the target incomes of $8,057 to $60,240. Target incomes for the different unit types are derived by the analyst. For the low end of the range, the lowest rent charged in an income limit (i.e. 60% AMI) for a unit is divided by 35 percent. The resulting number is then multiplied by 12 to derive an annual income ($520 / 35% = $1,485.71 x 12 = $17,829). This process is based on the premise that a tenant should not pay more than 35 percent of his annual income on rent. For the high end of the range, the analyst consults the income limits set by the state housing authority. For example, if the largest unit in an income limit (i.e. 60% AMI) is a two-bedroom unit, the analyst utilized four person households. This is based on Kentucky Housing Corporation s demand by household size which states two-bedroom units contain two- to four-person households and three-bedroom units contain four- to six-person households. The analyst then consults the state income limits to set the high end of the range (2 bedroom = 4 people/unit; therefore, the 60% 4-person maximum income would be used). Gill Group Page 27

Muhlenberg and Ohio Counties, Kentucky HOUSEHOLD INCOME BY GROSS RENT AS A PERCENTAGE INCOME TARGET MARKET AREA Less than $10,000 Less than 20% 14 20-24% 26 25-29% 54 30-34% 29 35%+ 299 Not Computed 199 $10,000 - $19,999 Less than 20% 293 20-24% 77 25-29% 97 30-34% 103 35%+ 146 Not Computed 145 $20,000 - $34,999 Less than 20% 286 20-24% 35 25-29% 24 30-34% 8 35%+ 14 Not Computed 120 $35,000 - $49,999 Less than 20% 235 20-24% 6 25-29% 4 30-34% 0 35%+ 0 Not Computed 25 $50,000 - $74,999 Less than 20% 104 20-24% 0 25-29% 0 30-34% 0 35%+ 0 Not Computed 14 $75,000 or more Less than 20% 30 20-24% 0 25-29% 0 30-34% 0 35%+ 4 Not Computed 11 TOTAL 2,402 Source: U.S. Census Bureau Gill Group Page 28

Muhlenberg and Ohio Counties, Kentucky The chart below indicates there are 5,008 (50.5 percent) households ages 25-64 in the target income between $13,722 and $51,960 for the twobedroom homeownership. There are 4,856 (49.0 percent) households ages 25-64 in the target income between $21,110 and $60,240 for the three-bedroom homeownership. HOUSEHOLDS BY INCOME GROUP BY AGE 2000 2009 INCOME 25-34 35-44 45-54 55-64 25-34 35-44 45-54 55-64 TARGET MARKET AREA Less than $15,000 342 474 463 675 267 298 325 629 $15,000 - $24,999 320 438 345 305 289 322 318 324 $25,000 - $34,999 398 414 332 323 298 300 287 321 $35,000 - $49,999 476 628 449 325 556 654 541 494 $50,000 - $74,999 254 489 613 287 319 550 806 565 $75,000 - $99,999 63 141 267 167 93 201 353 268 $100,000 - $149,999 43 45 111 51 84 78 180 86 $150,000 - $199,999 8 7 15 8 14 4 19 10 $200,000+ 0 12 9 13 2 17 17 19 TOTAL 9,310 9,908 2012 2014 INCOME 25-34 35-44 45-54 55-64 25-34 35-44 45-54 55-64 TARGET MARKET AREA Less than $15,000 253 277 293 618 244 263 272 610 $15,000 - $24,999 252 289 279 308 227 267 253 298 $25,000 - $34,999 276 289 274 334 261 281 265 343 $35,000 - $49,999 545 661 539 541 538 666 537 573 $50,000 - $74,999 322 564 813 633 324 574 817 679 $75,000 - $99,999 87 196 332 275 83 193 318 279 $100,000 - $149,999 76 84 181 99 71 88 181 107 $150,000 - $199,999 12 5 21 11 11 6 22 12 $200,000+ 1 15 22 23 1 14 26 26 TOTAL Source: ESRI Business Information Solutions 9,801 9,730 Gill Group Page 29

COMPETITIVENESS AND COMPARABILITY

Muhlenberg and Ohio Counties, Kentucky Name # Unit Unit Type Tammy Terrace Apts. 24 2/1 803 Cleaton Road Central City, KY 10 3/2 Total 34 Muhlenberg Manor 20 1/1 401 Morehead Street 4 2/1 Central City, KY Total 24 Suburban Manor Apts. 323 East Fifth Street Beaver Dam, KY Total Sandy Hills Apartments 801 Cleanton Road Central City, KY Total Blanchard Manor Apts. 50 Cooper Avenue Beaver Dam, KY Total Countryside Apts. 100 Cooper Avenue Beaver Dam, KY Total 8 16 24 29 29 12 12 4 8 12 1/1 2/1 Avg Monthly Rent $310 $370 $349 $380 $350 $376 $381 $392 2/1 $325 $335 Utility Expense $83 $83 $99 $99 N/A N/A N/A N/A $89 $89 Year Built/ Renovated Amenities Subsidy Vacancy Rate 2006 Refrigerator, Range/Oven, 50% AMI 0% Carpet, Blinds, Patio, Picnic 60% AMI Area, Playground 50% AMI 60% AMI 1987 Refrigerator, Range/Oven, RD 0% Carpet, Blinds, Balcony, Patio, Pull Cords, Community Room, Laundry 1986 Refrigerator, Range/Oven, RD 0% Carpet, Blinds, Balcony, Patio, Laundry 2004 Refrigerator, Range/Oven, Washer/Dryer Hook-Ups, Carpet, Blinds, Patio, Community Room 1/1 $459 $48 Unknown Refrigerator, Range/Oven, Garbage Disposal, Carpet, Blinds, Patio, Community Room, Laundry 1/1 2/1 $420 $558 $91 $117 Unknown Refrigerator, Range/Oven, Garbage Disposal, Washer/Dryer Hook-Ups, Carpet, Blinds, Patio, Playground 50% AMI 60% AMI 0% RD 0% RD 0% Gill Group Page 31

Muhlenberg and Ohio Counties, Kentucky AGE OF RENTAL UNITS YEAR BUILT NUMBER PERCENT 1999-March 2000 35 0.1% 1995-1998 138 0.3% 1990-1994 102 0.2% 1980-1989 295 0.7% 1970-1979 624 1.5% 1960-1969 342 0.8% 1950-1959 39,873 95.0% 1940-1949 141 0.3% 1939 or earlier 403 1.0% TOTAL 41,953 100.0% Source: U.S. Census Bureau According to the U.S. Census Bureau, the majority of the rental housing stock was constructed in the 1950s. AGE OF OWNER-OCCUPIED UNITS YEAR BUILT NUMBER PERCENT 1999-March 2000 394 3.6% 1995-1998 1,249 11.3% 1990-1994 785 7.1% 1980-1989 1,408 12.7% 1970-1979 2,543 22.9% 1960-1969 1,621 14.6% 1950-1959 984 8.9% 1940-1949 691 6.2% 1939 or earlier 1,416 12.8% TOTAL 11,091 100.0% Source: U.S. Census Bureau According to the U.S. Census Bureau, the majority of the owner housing stock was constructed in the 1960s and 1980s. In addition, the analyst researched sales and listings from January 2008 through June 2009 within the target market area and found that the homes in the area were constructed between 1979 and 2006 with the majority of the homes constructed in the 1980s. The analyst also determined that the existing homes were of frame construction with brick, vinyl siding or stucco. The majority of the housing stock consists of brick exteriors with some sort of garage or carport parking. In addition the two-bedroom units were surveyed to determine an average square footage. The two-bedroom homes had a range of 1,000 to 1,500 square feet. The average two-bedroom square footage was 1,250. The three-bedroom homes had a range of 1,024 to 1,945 square feet. The three-bedroom square footage was 1,553 The marketability of a property is primarily based on its condition. More often than not foreclosures have been neglected and are in need of repairs. Typical repairs include siding and roof repairs, any exterior and interior painting, sheetrock and/or drywall repair, ceiling repairs, structure stability such as the framing, floor joist, floor covering repair, etc. The houses will need to be safe and secure as per HUD guidelines. The extent of repairs would have to be considered on a case-by-case study. In general after repairs, foreclosures will have the same marketability as other properties in the target market area. Amenities affecting marketability will be some form of air conditioning (such as window, throughthe-wall, central, etc.) and also include such as GFI and limited kitchen appliance such as hood Gill Group Page 32

Muhlenberg and Ohio Counties, Kentucky fans, ranges, etc. Items that detract from marketability such as out dated fixtures, cabinets can be addressed on a case-by-case issue as well. Other amenities such as car storage, fencing, outbuildings, etc. enhance marketability but do not merit market upgrades and should only be repaired if they currently exist at the property. According to the Muhlenberg County and Ohio County Building Departments, there has been one single-family home permit issued since January 2009. The building department was unsure of the location, rent or sale cost, estimated date of market entry, any absorption history to date or any other data considered relevant. It is believed that the rehabilitation of foreclosed and abandoned homes would not negatively impact the occupancy of other homes in the area. It is the opinion of the analyst that this would strengthen the economy. It is believed that there are no other risks or mitigating circumstances that may impact the proposed project. Gill Group Page 33

MARKET RENT

Muhlenberg and Ohio Counties, Kentucky Affordable Rents The market analyst researched rental housing in the market area and identified several apartment communities in and around the market area of the subject. Comparables which were the most representative of affordable rental units were utilized in determining an appropriate rent. After analyzing the comparables, the rent levels range from $310 to $392 for a two-bedroom unit and $349 to $475 for a three-bedroom unit at 50 percent of the area median income. Based on this analysis the analyst determined the following rents for the two- and three-bedroom units at the differing levels of the area median income: Percent AMI Two-Bedroom Unit Three-Bedroom Unit 0 30% $235 $278 31 50% $350 $415 51 60% $420 $498 61 80% $560 $664 81 120% $840 $996 Due to the lack of other comparables at the differing percent of the area median income, the analyst extrapolated from the rent levels based on the percentage difference of the maximum rent levels. For example, the percentage difference between the maximum rent levels at 30 percent and 50 percent of the area median income was approximately 33 percent. This percentage was applied to the rent at 50 percent of the area median income to determine the corresponding rent at 30 percent of the area median income. This process was repeated to determine the rents at 60, 80 and 120 percent of the area median income. HUD Fair Market Rents The Fair Market Rents for Muhlenberg and Ohio Counties are as follows: Fair Market Rent Studio One- Two- Three- Four- Bedroom Bedroom Bedroom Bedroom $416 $417 $504 $640 $657 The adjusted rents for the two- and three-bedroom units listed above are well below the fair market rent with the exception of the rents above 60 percent of the area median income. Gill Group Page 35

UNIT SALES

Muhlenberg and Ohio Counties, Kentucky The analyst research sales and listings from the target market area in order to determine an appropriate sales price for rehabilitated foreclosed, abandoned and/or vacant housing for the market area based on sale of two- and three-bedroom units. The research indicated a range from $46.75 to $55.36, with an average price per square foot of $51.06 was appropriate for twobedroom units. As a result the sales price for a two-bedroom unit within the target market area would be $65,000. The research also indicated a range from $37.54 to $90.48, with an average price per square foot of $64.51 was appropriate for three-bedroom units. As a result the sales price for a three-bedroom unit within the target market area would be $100,000. In addition, the analyst researched the median housing value for Muhlenberg County which was determined as $70,279 and Ohio County which was $70,898. Therefore, it appears as though the sales prices determined above appear to be reasonable. It is anticipated that the acquisition/rehabilitation costs would exceed the post-rehabilitation value of the foreclosed homes. Therefore, NSP funding would be needed for development subsidy. This additional property value will, in turn, increase tax revenues from utilizing NSP funds for rehabilitation. Housing in the target market area will increase by 124 households over the next three years. According to the demand section, there is a total need of 1,268 for renters and 2,225 for owners. As a result the total owner and income qualified households would be 1,268 with a subsidy and 957 without a subsidy. Gill Group Page 37

DEMAND ANALYSIS

Muhlenberg and Ohio Counties, Kentucky DEMAND ANALYSIS Sources of Demand The potential tenants for the development include households who now live within the market area. It will appeal to potential tenants who have adequate incomes to pay the proposed rents and find the development more attractive in terms of price, unit features and project amenities than other available rental units. It also will attract households that the market area gains between now and when the development is ready for occupancy. The market area is projected gain households between 2009 and 2014. Required Unit Mix Target incomes for the different unit types are derived by the analyst. For the low end of the range, the lowest rent charged in an income limit (i.e. 60% AMI) for a unit is divided by 35 percent. The resulting number is then multiplied by 12 to derive an annual income ($520 / 35% = $1,485.71 x 12 = $17,829). This process is based on the premise that a tenant should not pay more than 35 percent of his annual income on rent. For the high end of the range, the analyst consults the income limits set by the state housing authority. For example, if the largest unit in an income limit (i.e. 60% AMI) is a two-bedroom unit, the analyst utilized four person households. This is based on Kentucky Housing Corporation s demand by household size which states twobedroom units contain two- to four-person households and three-bedroom units contain four- to six-person households. The analyst then consults the state income limits to set the high end of the range (2 bedroom = 4 people/unit; therefore, the 60% 4-person maximum income would be used). As can be seen by the chart on Page 23, the two-bedroom units are most suitable for households between two to four persons, who account for 59.4 percent of the target market area renters and 72.0 percent of the target market area owners. The three-bedroom units are most suitable for households between four to six persons, who account for 19.5 percent of the target market area renters and 20.4 percent of the target market area owners. Eligible Households Landlords evaluate a potential tenant s income and credit to decide if applicant can pay the required rents. Commercial underwriters and owners of conventional market rate developments generally require that the monthly contract rent should not exceed one-third of a tenant s income. The following table shows the minimum target income required for each unit and the tax credit income limits to determine the upper range of eligibility for each unit. The following table lists how many households are within the required target income for each unit type. INCOME ELIGIBLE HOUSEHOLDS Unit Type Lower Range Upper Range Renter Households 2BR @ 30% $8,057 $12,990 377 2BR @ 50% $12,000 $21,650 743 2BR @ 60% $14,400 $25,980 676 2BR @ 80% $19,200 $34,640 504 2BR @ 120% $28,800 $51,960 480 3BR @ 30% $9,531 $15,060 465 3BR @ 50% $14,229 $25,100 663 3BR @ 60% $17,074 $30,120 581 3BR @ 80% $22,766 $40,160 490 3BR @ 120% $34,149 $60,240 346 Gill Group Page 39

Muhlenberg and Ohio Counties, Kentucky The following table contains the summary demand estimates for two-bedroom units. RENTER DEMAND ANALYSIS All 30-120% 2BR 30% 2BR 50% 2BR 60% 2BR 80% 2BR 120% Household Growth (2009-2012) 123 123 123 123 123 123 (14,273 14,149 = 124 1 = 123) Percent Income Qualified 74.4% 15.7% 30.9% 28.1% 21.0% 20.0% Percent Plan to Rent 18.1% 18.1% 18.1% 18.1% 18.1% 18.1% Demand from New Household Growth 17 3 7 6 5 4 Total Substandard Households 2,248 2,248 2,248 2,248 2,248 2,248 Percent Income Qualified 74.4% 15.7% 30.9% 28.1% 21.0% 20.0% Percent Appropriate Household Size 66.2% 59.4% 59.4% 59.4% 59.4% 59.4% Demand from Substandard Housing 1,107 210 413 375 280 267 Total Rent Overburdened Households 218 102 119 88 26 6 Percent Appropriate Household Size 66.2% 59.4% 59.4% 59.4% 59.4% 59.4% Demand from Rent Overburdened 144 61 71 52 15 4 Demand from Household Growth 17 3 7 6 5 4 Demand from Substandard Housing 1,107 210 413 375 280 267 Demand from Rent Overburdened 144 61 71 52 15 4 Total Demand 1,268 274 491 433 300 275 Gill Group Page 40

Muhlenberg and Ohio Counties, Kentucky The following table contains the summary demand estimates for three-bedroom units. RENTER DEMAND ANALYSIS 3BR 30% 3BR 50% 3BR 60% 3BR 80% 3BR 120% Household Growth (2009-2012) 123 123 123 123 123 (14,273 14,149 = 124 1 = 123) Percent Income Qualified 19.4% 27.6% 24.2% 20.4% 14.4% Percent Plan to Rent 18.1% 18.1% 18.1% 18.1% 18.1% Demand from New Household Growth 4 6 5 5 3 Total Substandard Households 2,248 2,248 2,248 2,248 2,248 Percent Income Qualified 19.4% 27.6% 24.2% 20.4% 14.4% Percent Appropriate Household Size 19.5% 19.5% 19.5% 19.5% 19.5% Demand from Substandard Housing 85 121 106 89 63 Total Rent Overburdened Households 88 89 52 11 1 Percent Appropriate Household Size 19.5% 19.5% 19.5% 19.5% 19.5% Demand from Rent Overburdened 17 17 10 2 0 Demand from Household Growth 4 6 5 5 3 Demand from Substandard Housing 85 121 106 89 63 Demand from Rent Overburdened 17 17 10 2 0 Total Demand 106 144 121 96 66 Gill Group Page 41

Muhlenberg and Ohio Counties, Kentucky The following table contains the summary demand estimates for two- and three-bedroom units. OWNER DEMAND ANALYSIS All 2BR 3BR Household Growth (2009-2012) 123 123 123 (14,273 14,149 = 124 1 = 123) Percent Income Qualified 58.0% 50.5% 49.0% Percent Appropriate Household Size 77.8% 72.0% 20.4% Percent with Credit Score at or above 620 79.0% 79.0% 79.0% Demand from New Household Growth 76 35 10 Total Renter Households 2,559 2,559 2,559 Percent Income Qualified 56.0% 54.4% 32.0% Percent Appropriate Household Size 77.8% 72.0% 20.4% Percent with Credit Score at or above 620 79.0% 79.0% 79.0% Demand from Substandard Housing 881 792 132 Demand from Household Growth 76 35 10 Demand from Substandard Housing 881 792 132 Total Demand 957 827 142 OWNER DEMAND ANALYSIS CONSIDERING A SUBSIDY All 2BR 3BR Household Growth (2009-2012) 123 123 123 (14,273 14,149 = 124 1 = 123) Percent Income Qualified 65.1% 57.6% 59.5% Percent Appropriate Household Size 77.8% 72.0% 20.4% Percent with Credit Score at or above 620 79.0% 79.0% 79.0% Demand from New Household Growth 49 40 12 Total Renter Households 2,559 2,559 2,559 Percent Income Qualified 77.5% 75.9% 61.0% Percent Appropriate Household Size 77.8% 72.0% 20.4% Percent with Credit Score at or above 620 79.0% 79.0% 79.0% Demand from Substandard Housing 1,219 1,105 252 Demand from Household Growth 49 40 12 Demand from Substandard Housing 1,219 1,105 252 Total Demand 1,268 1,145 264 Gill Group Page 42

Muhlenberg and Ohio Counties, Kentucky There are currently 1,195 foreclosed and vacant households. Considering the current absorption, approximately 66 homes are being foreclosed and vacant and only 5 homes are removed from the market each month. This means that 61 homes are being added to the pool of foreclosed and vacant homes each month. The net demand for housing consists of 1,268 for renter households; 957 for owners without any subsidy; and 1,268 for owners requiring a subsidy. Target Market Area Type Renter Owner w/o Subsidy Net Demand from Household Growth 17 76 49 Net Demand from Rent Overburdened 144 0 0 Net Demand from Substandard Housing 1,107 0 0 Net Demand from Renter to Owner 0 881 1,219 Total Net Housing Demand 1,268 957 1,268 Owner w/ Subsidy Gill Group Page 43

ABSORPTION

Muhlenberg and Ohio Counties, Kentucky Homeownership Absorption For homeownership the absorption rate is the ability of the real estate market to absorb or sell all of the houses for sale in a given amount of time. The analyst researched the current absorption rates in the target market area. Realtors in the area were contacted in order to determine an appropriate absorption rate. Realtors in the area indicated the area has been selling between one and 10 homes per month; therefore, the analyst determined an average absorption rate of 5 homes per month. Once rehabilitation of the existing foreclosed housing is completed, it is estimated that the absorption period of the 230 foreclosed homes will be longer than three years. Renter Absorption After researching the vacancy rates of the existing units in the area, it is firmly believed that a proposed development would satisfy a portion of the demand for the units within the market. The absorption level is based on the most recent multifamily developments: Interviews with apartment managers substantiate the absorption rate. It is believed that a new development would absorb two to three units per month. Gill Group Page 45

CONCLUSION AND RECOMMENDATION

Muhlenberg and Ohio Counties, Kentucky Conclusion and Recommendations Currently there are 1,195 foreclosed, abandoned and vacant homes in this market area. Homes have been removed from this pool at a rate of approximately 5 units per month. However, new homes are being added to the pool at a rate of approximately 61 per month. HUD has estimated 230 foreclosed and 965 vacant homes for this market. There is demand for 1,268 rental units and 2,225 owner units (1,268 of which are included only with the up-to 50% incentive through NSP). In order to arrest this destabilization, NSP funds must be used in the following manner for this market: Our first consideration is with regards to financing mechanisms. Currently, the rental pool is quite large. Because many of the renters in the pool would actually be buyers in this market, we recommend utilizing down payment assistance to move renters into this segment. In addition to down payment assistance, NSP funds need to be used to decrease the total price of the current housing stock. With the current pricing for the housing stock, only 957 households (HH) can afford the stock. Including an up-to 50% incentive, an additional 1,268 HH are eligible to purchase homes. Based on data in the body of the report and interviews with local officials, owners and renters, there is no preference for size, style and amenities between rental housing and homeownership housing. Eligible Uses: Financing Mechanisms: Financing mechanisms are limited to market-ready foreclosed homes that require no repair. There are 230 foreclosed homes in the market area. Less than five percent of the foreclosed homes are market-ready and would meet the guidelines to quality for financing mechanisms. Purchase and Rehabilitation: Purchase and rehabilitation funds are limited to the acquisition/rehabilitation of foreclosed and abandoned residential property. Any foreclosed home in the market that is currently unmarketable due to deferred maintenance will need to be rehabilitated in order to increase the likelihood of it being removed from the foreclosed/vacant pool of housing. Typically foreclosures have been neglected and are in need of repairs. Usual repairs include siding and roof repairs, any exterior and interior painting, sheetrock and/or drywall repair, ceiling repairs, structure stability such as the framing, floor joist, floor covering repair, etc. The houses will need to be safe and secure as per HUD guidelines. The extent of repairs would have to be considered on a case-by-case study. In general after repairs, foreclosures will have the same marketability as other properties in the target market area. Amenities affecting marketability will be some form of air conditioning (such as window, through-the-wall, central, etc.) and also include such as GFI and limited kitchen appliance such as hood fans, ranges, etc. Items that detract from marketability such as out dated fixtures, cabinets can be addressed on a case-by-case issue as well. Other amenities such as car storage, fencing, outbuildings, etc. enhance marketability but do not merit market upgrades and should only be repaired if they currently exist at the property. It is anticipated that the acquisition/rehabilitation costs would exceed the post-rehabilitation value of the foreclosed homes. Therefore, NSP funding would be needed for development subsidy as well as offering downpayment assistance and the up-to-50 percent incentive for purchase It is anticipated that up to 90 percent of the foreclosed properties could fall into this category. Land Bank: This use would establish land banks for homes that have been foreclosed upon. This use is not recommended. Demolition: Because there is substantial demand for housing, we recommend demolishing only blighted housing where the cost to cure far exceeds the market value. Therefore, the NSP funds would be needed to assist in the acquisition/rehabilitation costs. It is anticipated that blighted structures requiring demolition would account for less than five percent of the homes. We do not recommend using the NSP funds to rebuild demolished housing. Redevelopment: This use encompasses the acquisition/rehabilitation and rental or sale of vacant single-family homes. Currently there are more vacant homes than foreclosed homes in the market area as can be seen in the Area Housing Market Evaluation section of this Gill Group Page 47

Muhlenberg and Ohio Counties, Kentucky report. As with the foreclosed housing, NSP funds should be used to address the shortfall between the post rehabilitation value and the acquisition/rehabilitation costs of the vacant homes as well as offering downpayment assistance and the up-to-50 percent incentive for purchase. Since the current market is approximately 20 percent renter-occupied, it is reasonable to assume that approximately 20 percent of the vacant homes in the market area could be renter-occupied. In order to more quickly arrest destabilization of the area, it is deemed appropriate to allocate a significant percentage of the homes for rental occupancy. As the transition period for rental occupancy is substantially shorter than that for home ownership, it is deemed more appropriate to fill the surplus vacant homes with renters than to wait for the full transition period required for home ownership. Filling the homes with renters will also help decrease the vacant housing stock which will help increase the demand which will in turn help stop destabilization. The use of the NSP funds for renter housing will also help alleviate the large number of rent overburdened households (households that pay more than 35 percent of their annual income to housing costs). Gill Group Page 48

CERTIFICATION

Muhlenberg and Ohio Counties, Kentucky CERTIFICATION This is to certify that a field visit was made by the market analyst or one of his associates and information was obtained from publications of Federal, State and Local agencies. Interviews were held with apartment owners or managers, local officials and others as appropriate who may be knowledgeable of the housing market in Target market area. In accordance with Kentucky Housing Corporation, I hereby certify that the information provided in this Market Study was written according to Kentucky Housing Corporation s NSP market study requirements and is truthful and accurate to the best of my knowledge and belief. The estimates of demand for family housing made by this report are based on the assumption of a free market situation, unencumbered by local mores, affirmative fair housing marketing or prejudice toward the site location. The results, recommendations and conclusions stated in the study are based solely on my professional opinion and reliable data. This is to affirm that I will receive no fees which are contingent upon approval of the project by Kentucky Housing Corporation, before or after the fact, and that I will have no interest in the housing project. Samuel Gill Market Analyst June 23, 2009 Gill Group Page 50

ADDENDUM A