MARKET VIEWPOINT TWIN CITIES MULTIFAMILY MARKET

MARKET VIEWPOINT TWIN CITIES MULTIFAMILY MARKET 214-15 Mortgage banking for multifamily housing, senior housing, student housing, and healthcare facilities

TABLE OF CONTENTS INTRODUCTION 1 NEW MULTIFAMILY PRODUCT TYPES 2 TWIN CITIES MULTIFAMILY SUBMARKETS 3 DEVELOPMENT PATTERNS BY SUBMARKET 4-7 MAPS: NEW MULTIFAMILY DEVELOPMENT IN LEADING SUBMARKETS 23-215 DOWNTOWN MINNEAPOLIS 8-9 MINNEAPOLIS UPTOWN 1-11 UNIVERSITY OF MINNESOTA NEIGHBORHOODS 12-13 FIRST-RING SUBURB SPOTLIGHT - ST. LOUIS PARK 14 DOWNTOWN ST. PAUL 15 NEW PRODUCT PRICING TRENDS 16-19 MARKET OUTLOOK: 215 2 ABOUT DOUGHERTY MORTGAGE 21 Market Viewpoint Twin Cities Multifamily Market 214-15 Dougherty Mortgage LLC 9 South Seventh Street, Suite 43 Minneapolis, MN 5542 612-317-21 www.doughertymarkets.com For more information about this report, please contact Thomas G. O Neil at Dougherty Mortgage LLC 612-317-2122, toneil@doughertymarkets.com ACKNOWLEDGEMENTS Report Author: Thomas G. O Neil, Vice President of Midwest FHA Operations, Dougherty Mortgage LLC Research Assistant: Fritz Waldvogel, Analyst, Dougherty Mortgage LLC Report Layout: Shannon Churchward, Churchward Design This report is provided for educational purposes for our clients and business associates. The unauthorized use of this work is prohibited. 214 Dougherty Mortgage LLC DISCLAIMER This report assesses the 7-county Twin Cities apartment market as of third quarter 214 using data from numerous sources. Projects analyzed generally contain 2 or more units. Market pricing calculations reflect quoted/asking rents before concessions and exclude rents that are restricted per recorded covenants. The information contained herein has been obtained from sources deemed but not guaranteed to be reliable. Accuracy and completeness are not guaranteed. Past performance does not guarantee future results. Dougherty Mortgage LLC warns against the making of site-specific development decisions using this report s information without a separate and full review of all available information by professional analysts. DATA SOURCES Market data in this report comes from a variety of available sources including project web sites, rental clearinghouse sites, industry reports, accounts from newspapers and other media outlets, and leasing personnel, building managers, and other real estate professionals. Building permit data was provided by the Met Council and the US Census. Aerial maps were provided by Google per license agreement. The Twin Cities Metro Area map was provided by the Met Council. PHOTO CREDITS All photos in this report are original from Dougherty Mortgage except for the following: Eliot Apartments and Millennium at West End (City of St. Louis Park), Victoria Park Apartments (Apartments.com), 4Marq (Star Tribune and Urban Works Architecture), 4th Street Housing Co-op (riverton.org), and Five15 on the Park (Star Tribune).

INTRODUCTION AT THE DEPTHS of the U.S. housing crisis in 28-29, few were looking ahead to the point when developers would again provide a consistent supply of new units and consumers would widely embrace them. Precipitously-falling home values loomed over the country, and by 29, foreclosures hit a record yearly peak of 3.96 million. The crisis became broad-based across all housing types, and lenders turned off the flow of capital to virtually all markets. The Twin Cities was no exception. At the low point in 29, multi-unit construction whether apartments, townhomes or Housing Permits (Units) 21, 19, 17, 15, 13, 11, 9, 7, 5, 27% 25% Multi-unit Housing as. a Percentage of All New Housing in the Twin Cities (7 Counties) 2-214 (est.) condominiums hit a historic low with just 932 new units built, while only 3, single-family homes were added (see chart). This in a metro area of over 3 million people. Today, we are well past those low points and the housing sector has much more strength and resiliency. In the Twin Cities, a significant amount of new multifamily product has been delivered and numerous areas have been transformed into vibrant residential districts. Since the start of 21, more than 11 rental projects offering roughly 13,3 units have been built in the Twin Cities. Twenty-two new developments will add another 3,8+ rental units in 215 and up to 11,4 units are in the proposal stage for 216 and after. Rental units have comprised between roughly 2% and 5% of all new housing units in the Twin Cities in each of the past three years, and about 33% of all new units from 21 through 214. What has driven all of the recent multifamily construction? First and foremost, the Twin Cities hit a point of severely pent-up demand. Extremely low construction volume from 28 through 211 meant that the Twin Cities simply had too few housing units for its steadily-growing population. While the number of households continued to expand by roughly 14, to 15, per year (Met Council), housing production hit no more than 5, units in any given year during this four-year stretch. Once the capital markets stabilized after 21, low interest rates allowed developers to construct new units to start meeting this pent-up demand. Second, the Twin Cities began to hit its stride as a dynamic, interesting, and very desirable place to work and live and not just for locals. One of the country s most diverse job bases has led the Twin Cities to achieve the country s lowest 214 unemployment rate (3.8%) among the 49 U.S. metro areas with 1 million people or more. As well, a growing array of cultural and recreational amenities including a vast biking infrastructure has made the Twin Cities one of the nation s top areas for vibrant young creatives, cited by Forbes Magazine as the 1th-best metro area out of the nation s top 1 for college graduates age 24 to 34. Third, lifestyle preferences and investment views of many householders especially younger ones have elevated rental housing to the preferred choice. Highly-mobile younger professionals, active empty-nesters, and households seeking low-maintenance living all see rental housing as a better option than ownership. And there are no risks to losing valuable home equity in an apartment. Going forward, many questions remain. Most notably, multifamily stakeholders want to know how long this market expansion can and will continue. This report provides a detailed look at key market dynamics that ultimately hold the answers to essential questions. We at Dougherty Mortgage hope you find value in this report and gain a new perspective for this important part of the Twin Cities housing economy. 34% 27% 29% 26% 27% All New Units Permitted Multi-unit % of Total 3, 2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 (Est.) Note: Multi-unit buildings are not distinguished by rental versus owned. Sources: U.S. Census Bureau - Monthly Building Permits Survey, Dougherty Mortgage LLC 26% 27% 23% 33% 28% 54% 44% 48% 6% 55% 5% 45% 4% 35% 3% 25% 2% Multi-unit % of Total 1

NEW MULTIFAMILY PRODUCT TYPES FROM 21 THROUGH 215, the Twin Cities will have seen the construction of more than 17,1 multifamily units in five main styles of buildings, excluding senior housing offerings: High-rise Construction (8+ Stories Above Ground) Consists of concrete and/or steel construction, and typically 15 to 35 units. This product type is found only in Downtown Minneapolis, neighborhoods near the U of M, and select suburban locations in Edina, Bloomington, and St. Louis Park. High-rise construction has accounted for 8% of all new apartment units completed since 21 in the Twin Cities. 36 Park in St. Louis Park 1 Stories The Penfield in St. Paul 5 Stories Mid-rise Construction (4 to 7 Stories) This style makes up the vast majority of new apartment supply in the Twin Cities, comprising roughly 59% of new units (1,+) since 21. This style generally consists of concrete construction on the lower 1-2 floors with 4-5 wood-frame floors above. Seventy-four mid-rise buildings have been built across all areas of the Twin Cities since 21. Low-rise Construction (< 4 Stories) This style consists of wood-frame buildings that are typically located in suburban locations or more moderately-priced central-city neighborhoods. Most newer affordable buildings are of low-rise construction. This product type is relatively uncommon, accounting for just 6% of new units (968) since 21 in the Twin Cities. Victoria Park in St. Paul 3 Stories Warehouse and Historic Conversions This product type is found almost exclusively in Downtown St. Paul and the North Loop Neighborhood in Downtown Minneapolis. Specific buildings in Midway and Uptown have also been converted. Thirteen conversions have provided about 1% of all new units delivered in the Twin Cities since 21. 2 Buzza Lofts in Minneapolis Historic Conversion The Bridges in Minneapolis Private, Student-targeted Housing Since 21, twenty-five new buildings with more than 2,8 units have been built by private developers in the four neighborhoods surrounding the Minneapolis campus of the University of Minnesota. Three smaller projects have also added units near St. Thomas and Bethel Universities. While not technically classified as student housing in the traditional sense, these buildings are geared for students. This product type has accounted for 17% of new units in the Twin Cities since 21.

T W I N C I T I E S M U L T I F A M I LY S U B M A R K E T S THIS REPORT DIVIDES THE TWIN CITIES into 11 apartment submarkets, each with unique characteristics. Concentrated, upscale development in the downtowns of Minneapolis and St. Paul, and in the Uptown area of Minneapolis, has helped transform key cultural and employment districts into desirable housing locations. Similarly, key nodes in select first-ring suburbs, particularly St. Louis Park and Edina, have seen strong amounts of multifamily investment in recent years as the market acknowledges the wide array of attractions and short commutes offered in the 5s and 6s development ring. In addition, a historic level of private investment in student-oriented buildings has created a unique rental submarket in the immediate neighborhoods surrounding the University of Minnesota campus. Downtown Minneapolis SE on the east, and I-94 on the south. Includes all or most of the student-oriented neighborhoods of MarcyHolmes (includes Dinkytown), University, Prospect Park (includes Stadium Village), and Cedar-Riverside. Bethel St. Francis Downtown St. Paul Linwood Twp. First Ring Suburbs East Bethel Nowthen Oak Grove Minneapolis Neighborhoods St. Paul Neighborhoods ANOKA University of Minnesota Neighborhoods Ramsey Uptown Andover 35 Columbus Ham Lake Scandia Forest Lake Northeast Suburbs Anoka Northwest Suburbs Dayton Rogers Southeast Suburbs Southwest Suburbs Coon Rapids Champlin Osseo HENNEPIN 694 Loretto New Hope Plymouth Medina Independence Maple Plain Medicine Lake Long Lake Orono Watertown Hollywood Twp. Minnetrista Watertown Twp. Wayzata 494 Woodland Minnetonka Beach Mound Spring Park Deephaven Minnetonka Crystal Fridley Brooklyn Center Hilltop St. Anthony Lauderdale Falcon Heights Golden Valley CARVER Young America Twp. Jackson Twp. Dahlgren Twp. Benton Twp. Lake Elmo West St. Paul Sunfish Mendota Heights Lake 35W 35E 94 Lakeland Shores Lakeland Lake St. Croix Beach St. Marys Point Woodbury Afton South St. Paul Newport St. Paul Park Inver Grove Heights Eagan Cottage Grove Denmark Twp. Grey Cloud Island Twp. Burnsville Savage DAKOTA Prior Lake I-94/I-35E freeway loop between roughly Kellogg Boulevard/Chestnut Street on the west and Lafayette Road/Highway 52 on the east. Includes the Upper Landing housing district and the West Side Neighborhood (north of Plato Boulevard) south of the Mississippi River. Nininger Twp. Rosemount Apple Valley Louisville Twp. 5 Downtown St. Paul the area bounded by the West Lakeland Twp. Shakopee Carver Hamburg 694 City outside of Downtown, Uptown, and the University of Minnesota neighborhoods. Oak Park Heights Bayport 4 Minneapolis Neighborhoods the remainder of the Stillwater Baytown Twp. Landfall Mendota Fort Snelling Chaska Cologne Pine Springs North St. Paul Maplewood 94 Minneapolis Bloomington Norwood Young America Grant Mahtomedi Birchwood Village Willernie St. Paul St. Louis Park 494 Eden Prairie White Gem Lake Bear Lake Hopkins Richfield Chanhassen Laketown Twp. Waconia Stillwater Twp. Dellwood Oakdale 394 Edina Victoria Waconia Twp. WASHINGTON 35E Little Canada Roseville May Twp. White Bear Twp. RAMSEY Lilydale Mayer Camden Twp. North Oaks Vadnais Heights New Brighton Hugo Centerville Shoreview Arden Hills Columbia Heights Robbinsdale Tonka Bay Greenwood Shorewood Excelsior St. Bonifacius New Germany Spring Lake Park Mounds View Brooklyn Park Marine on St. Croix Lino Lakes 35W Circle Pines Lexington Maple Grove Corcoran Greenfield Rockford Blaine 94 Hanover Hastings Coates Hancock Twp. Vermillion Twp. San Francisco Twp. Jordan St. Lawrence Twp. Sand Creek Twp. Spring Lake Twp. Lakeville Credit River Twp. SCOTT Ravenna Twp. Empire Twp. Vermillion Marshan Twp. Farmington Belle Plaine Hampton New Market Twp. Blakeley Twp. Belle Plaine Twp. Helena Twp. Cedar Lake Twp. Eureka Twp. New Trier Castle Rock Twp. Douglas Twp. Elko New Market Miesville Hampton Twp. New Prague Randolph Randolph Twp. Greenvale Twp. 8 4 6 St. Paul Neighborhoods the remainder of the City outside of Downtown. 35 8 Miles Waterford Twp. Sciota Twp. Northfield Twin Cities Apartment Submarkets 7 First-ring Suburbs includes roughly 2 inner-ring suburbs surrounding Minneapolis and St. Paul. These areas were mostly developed in the 195s and 196s and have been the focus of significant redevelopment activity in recent years. 1 Downtown Minneapolis the area within the I-94/ I-35W freeway ring, plus areas immediately adjacent that have a Downtown orientation, such as St. Anthony/East Bank Riverfront (centered on East Hennepin Avenue and University Avenue SE). 2 Minneapolis Uptown the area in the broader Lake Street corridor, stretching from the West Lake Calhoun district near Chowen Avenue, east to roughly Lyndale Avenue. Includes development within roughly ¼-mile north or south of Lake Street. The 29th Street Greenway is a key feature of this submarket. 8 Northwest Suburbs includes all suburbs north of I-394/US 12 and west of the Mississippi River, plus the western ½ of Anoka County (Coon Rapids, Andover, Ramsey, Anoka, etc.) 9 Southwest Suburbs includes all suburbs south of I-394/US 12 and west of I-35W/I-35. Includes Bloomington and all of Scott and Carver Counties. 1 Northeast Suburbs generally covers the suburbs east of the Mississippi River and north of I-94, excluding the western ½ of Anoka County. 3 U of M Neighborhoods the area surrounding both banks of the Minneapolis campus, generally bounded by I-35W to the west, the Burlington Northern rail yards (north of TCF Bank Stadium) on the north, Malcom Ave 11 Southeast Suburbs the suburbs south of I-94 and St. Paul, east of I-35W/I-35 and southeast of the Minnesota River. Includes all of Burnsville and Lakeville. 3

DEVELOPMENT PATTERNS DOWNTOWN MINNEAPOLIS MINNEAPOLIS UPTOWN U OF M NEIGHBORHOODS Downtown Minneapolis Downtown Minneapolis has emerged as the urban residential hot spot in the Twin Cities over the past 1-15 years, and apartments have been fueling the latest development push. From the start of 21 through 215, more than 4,4 new apartment units across 29 projects will have been added Downtown, an annual average of 733 units. Product delivery began to rise dramatically in 212, with the peak years of 213 and 214 seeing 1,2 to 1,4 new units each year. Downtown Minneapolis development since 21 has been scattered among six residential districts, but the North Loop has garnered the lion s share of new units. New Units by District: DT Minneapolis 21 through 215 DISTRICT NEW UNITS North Loop 1,813 Skyway Core 881 St. Anthony/East Bank 682 Loring Park 548 Gateway/Mill District/DT East 469 Elliot Park 61 4,454 Downtown Minneapolis is also offering the widest variety of new product of any Twin Cities submarket, with nearly 19 new mid-rise buildings (2,627 units), seven warehouse/historic conversions (91 units), and three high-rise buildings (926 units) added to the market since 21. More than 1,5 units could hit the market in 216 or after, with at least one project the 3-story 4Marq tower under construction. Minneapolis Uptown Uptown has been another notable apartment construction story in the Twin Cities in recent years. The long-time apartment district has been transformed into a luxury market second only to Downtown Minneapolis in overall pricing. More than 1,7 units have been built in Uptown since 21, stretching from the West Calhoun area near Chowen Avenue to Lyndale Avenue at Uptown s east end. The Midtown Greenway between Girard and Lyndale Avenues has been the main focal point for development, with seven buildings totaling 1,4+ units recently constructed in this 7-8 block stretch. All new buildings in Uptown have been mid-rises with the exception of the historic Buzza Building, which was converted to affordable housing in 212. The pace of development in Uptown is forecast to slow, with five projects totaling 48 units proposed for 216 on. U of M Neighborhoods Increasingly, traditional dorm-style living is becoming a thing of the past for students of the U of M Minneapolis campus. Private developers have built nearly 2,2 units in 21 buildings in the four neighborhoods surrounding the campus since 21, and another 873 units are slated for delivery in 215. This level of development is unprecedented in the history of the University, and across the country only Louisiana State University and the University of Alabama have seen more recent development (Finance and Commerce). All but one recent project near the U of M are proximate to the East Bank campus, with only the 7West development lying adjacent to the West Bank. Two near-term projects The Bridges and WaHu are high-rise buildings with a skyline presence. The development boom near the U of M is clearly waning, as just one project totaling 25 units is proposed. This is the lowest proposed total of all eleven Twin Cities submarkets. 1,6 1,4 1,2 1, 8 6 4 2 Downtown 21-215 Minneapolis New Units Delivered 21-216+ 21 211 212 213 214 215 216+ 6 5 4 3 2 1 Minneapolis 21-215Uptown New Units Delivered 21-216+ 21 211 212 213 214 215 216+ 1,2 1, 8 6 4 2 U of M Neighborhoods 21-215 New Units Delivered 21-216+ 21 211 212 213 214 215 216+ 4

DEVELOPMENT PATTERNS DOWNTOWN ST. PAUL FIRST-RING SUBURBS SOUTHWEST SUBURBS Downtown St. Paul Downtown St. Paul has seen seven new buildings with just over 1, units delivered since 21. Development peaked this year with the opening of 498 units in three developments: West Side Flats (178 units), The Pioneer Endicott Building (234) and Rayette Lofts (86). More than 51% of the new supply of units Downtown since 21 has been in the form of historic or warehouse conversions. This is the highest percentage for this product type of any submarket in the Twin Cities. Newer buildings Downtown have been built in Lowertown, the North Quadrant, and along the southern edge near Kellogg Boulevard. Downtown St. Paul has three proposed projects totaling 632 units in the pipeline for 216 delivery or after. Two of them The Sibley Square Building and the former main post office building on Kellogg Boulevard (to be called Custom House) would be conversions of notable, historic structures. First-ring Suburbs New multifamily development in the 195s-6s ring has come on strong with nearly 1,7 units delivered between 21 and 215. Construction has been focused overwhelmingly on the Minneapolis side of the Metro Area, where 97% of new units have been added in Edina, Golden Valley, Richfield, and St. Louis Park. This last community has captured the majority of new construction with seven new projects (781 units) in three areas: Hoigaard Village/West 36th Street (3 projects), along Excelsior Boulevard (2), or in the West End district at Highways 1 and I-394 (2). Richfield, Edina, Roseville, and Golden Valley each saw development of one project since 21. First-ring development promises to stay very strong in coming years, and will continue to be focused on the Minneapolis side. Key districts that have seen prior development will continue to intensify. Notable areas with proposed multifamily product include the Southdale area (up to 5 new units), the broader West End district (Highways 1/394) in St. Louis Park/Golden Valley (1,5+), and the Lyndale Corridor in Richfield (15+). All told, the first-ring suburbs of Minneapolis could see 2,5+ new units from 216 on. Southwest Suburbs The pace of multifamily development in the Southwest Suburbs has been relatively light until this year. Three projects totaling 352 units were built in 212-213, but four projects with 887 units will be delivered in 214-215, and eight projects with roughly 1,23 units are proposed for 216 and beyond. Development in the Southwest has been scattered over a variety of sites, and is far less nodal than the development pattern in the first-ring suburbs. Bloomington has seen more new units than any other area (766 units built, 415 proposed), followed by Hopkins (217 units built, 51 proposed), and Minnetonka (64 units built, 629 proposed). The 1,23 proposed units in the Southwest are the fourth-highest such total among the 11 Twin Cities submarkets, signaling a development push outward from the core cities and first-ring suburbs. Downtown 21-215 St. Paul New Units Delivered 21-216+ 7 6 5 4 3 2 1 21 211 212 213 214 215 216+ First-ring 21-215 Suburbs New Units Delivered 21-216+ 2,5 2,25 2, 1,75 1,5 1,25 1, 75 5 25 21 211 212 213 214 215 216+ Southwest 21-215 Suburbs New Units Delivered 21-216+ 1,25 1, 75 5 25 21 211 212 213 214 215 216+ 5

DEVELOPMENT PATTERNS MINNEAPOLIS NEIGHBORHOODS ST. PAUL NEIGHBORHOODS NORTHWEST SUBURBS Minneapolis Neighborhoods Fourteen projects with 1,1 total units have been constructed in the neighborhoods of Minneapolis since 21. Most have been smaller, in-fill projects of 3 to 65 units. Minneapolis neighborhoods are especially attractive to affordable housing developers, who have built 3 units in seven buildings since 21. Beacon Interfaith Housing Collaborative, CommonBond Communities, Alliance Housing, and Artspace are among the organizations to open new projects. Smaller-scale development will continue in 216 and after, but the unit count should increase. Fourteen projects with more than 1,6 units are proposed on sites in a variety of areas, mostly in southside neighborhoods, and many being affordable. However, development is beginning to emerge in North Minneapolis as four projects offering 42+ units are expected to open between December 214 and 217. St. Paul Neighborhoods St. Paul s neighborhoods saw seven projects with 859 units added between 21 and 214. Projects were scattered throughout the western half of the city in the University Avenue Corridor, West 7th Neighborhood, and on Grand and Marshall Avenues. Three more projects one targeted at St. Thomas students, one affordable in the Midway Corridor, and one market-rate project in the Snelling-Hamline neighborhood are expected in 215. Going forward, the development focus will shift almost exclusively to the University Avenue Corridor, where the new Green Line LRT opened in 214. Five of the seven proposals (548 units) for 216 delivery or after are within two blocks of the line. Three of these are expected to be affordable properties of 44 to 6 units, including a building for homeless youth developed by Beacon Interfaith Housing Collaborative. Northwest Suburbs The Northwest Suburbs have had relatively light development activity with just five projects (679 units) since 21. Notable among these is the initial 263-unit phase of Skye at Arbor Lakes, a large, multi-phase development just northeast of The Shoppes at Arbor Lakes shopping district in Maple Grove. Smaller affordable projects have been built in Plymouth and Maple Grove, while market-rate communities were added in Maple Grove, Osseo and Ramsey. Roughly 875 units in six projects including three affordable projects are proposed for 216+ in Maple Grove, Ramsey, Rogers, and Plymouth. The pace of future development in the Northwest Suburbs will place it right in the middle of the pack compared to the other ten submarkets in the Twin Cities. Minneapolis 21-215 Neighborhoods New Units Delivered 21-216+ 1,6 1,4 1,2 1, 8 6 4 2 21 211 212 213 214 215 216+ St. Paul Neighborhoods 21-215 New Units Delivered 21-216+ 9 75 6 45 3 15 21 211 212 213 214 215 216+ Northwest 21-215 Suburbs New Units Delivered 21-216+ 9 75 6 45 3 15 21 211 212 213 214 215 216+ 6

DEVELOPMENT PATTERNS NORTHEAST SUBURBS SOUTHEAST SUBURBS Northeast Suburbs This region of the Twin Cities has seen the third-lowest multifamily development total in recent years. Just over 6 units in five projects have been built since 21 on sites in Woodbury, Arden Hills, New Brighton, and Shoreview. One of the five was a privately-developed, studentoriented project called E Street Flats in a converted Holiday Inn hotel in Arden Hills. The remaining four developments were market-rate communities spread among Woodbury, Arden Hills, Shoreview, and New Brighton. An additional project under construction in White Bear Lake, Boat Works Commons, will add another 85 units in 215. 3 2 1 Northeast 21-215 Suburbs New Units Delivered 21-216+ Proposals in Blaine and Oakdale could add 289 units in 216 or after, but the Northeast Suburbs should continue to show only limited, sporadic activity in the coming years. Southeast Suburbs The Southeast Suburbs have been very slow to produce new multifamily units in recent years, with just five projects totaling 338 units added since 21. The most notable recent project is the 19- unit Flats at Cedar Grove in Eagan. Under construction with a 215 delivery expected, this project is part of the Cedar Grove Redevelopment District at Highway 13/Cedar Avenue. The new, $1-million Twin Cities Premium Outlets mall anchors the district, bringing development momentum to this important node in Eagan. Development in the Southeast Suburbs should escalate in 216 and after as five projects (two in Eagan, three in Apple Valley) are proposed, potentially adding 1,155 new units. Two of the three Apple Valley projects are along Galaxie Avenue, south of 15th Street West in the city s core commercial district. One of the Eagan proposals involves the conversion of the vacant 1-story office building once owned by Blue Cross and Blue Shield of Minnesota near Yankee Doodle Road, north of Town Centre Drive. If pursued, it would be one of the most pioneering reuse projects in the suburbs of the Twin Cities. 21 211 212 213 214 215 216+ Southeast 21-215 Suburbs New Units Delivered 21-216+ 1,2 1, 8 6 4 2 21 211 212 213 214 215 216+ 7

DOWNTOWN MINNEAPOLIS NEW MULTIFAMILY 23-15 1 2 3 4 5 6 31 32 Gurley Lofts 3 Units Brunsfield North Loop 5 Units Third North Apartments 24 Units Solhavn 137 Units Else Warehouse 116 Units Soltva 1 Units Mill and Main West (U/C) 162 Units A-Mill Artist Lofts 251 Units 7 8 29 3 The Copham 12 Units The Paxon 139 Units 1 2 3 4 5 6 7 8 Mill and Main East 178 Units Stone Arch Apartments 2 91 Units 9 1 9 1 11 12 13 32 31 29 3 28 27 28 Junction Flats 182 Units 11 District 6 (U/C) 78 Units 12 14 23 2 22 21 24 27 26 Mill District City Apartments 175 Units 25 Stone Arch Apartments 221 Units 26 25 Dock Street Flats 185 Units Velo 11 Units Emanuel Housing 11 Units St. Anthony Mills 93 Units 13 14 23 24 18 15 222 Hennepin 286 Units 15 Higher Ground 85 Units 16 17 19 North City Place Lofts 55 Units 2 Latitude 45 (U/C) 319 Units 21 22 16 17 18 43 Oak Grove 75 Units Vue 119 Units Eitel Building City Apartments Alliance Apartments Expansion LPM 354 Units 213 Units 61 Units The Nic on 5th Soo Line Building City 4Marq (U/C) 262 Units 253 Units Apartments 254 Units 8 9 North Loop Loring Park Elliot Park Skyway Core Gateway/Mill District/DT East St. Anthony/East Bank 19

MINNEAPOLIS UPTOWN NEW MULTIFAMILY 23-15 1 2 3 4 5 6 7 8 Be @ The Calhoun Greenway 185 Units Lake Calhoun City Apartments 157 Units Flux Apartments 216 Units Elan Deux (U/C) 388 Units Elan Uptown 23 Units Greenleaf Apartments 63 Units The Murals of Lynlake 19 Units Lime Apartments 171 Units 6 Chowen Avenue S. 2 15 Lake Street Hennepin Avenue 13 3 4 5 12 11 1 9 8 Lyndale Avenue 7 14 Lake Calhoun 1 North 15 14 13 12 11 1 9 18 Lake 57 Units Solhem 6 Units The Walkway 92 Units Uptown Lake Apartments 163 Units Buzza Lofts of Uptown 136 Units Track 29 City Apartments 198 Units Blue Apartments 242 Units 1 11

U OF M NEIGHBORHOODS NEW MULTIFAMILY 23-15 1 2 3 4 5 6 7 8 Coze Flats 48 Units The Elysian 57 Units 525 Tenth 1 Units The Bridges 21 Units FloCo Fusion 84 Units The Knoll 11 Units 412 Lofts 12 Units 4th Street Housing Co-Op (U/C) 66 Units 27 28 9 1 Metro Park East 194 Units ENL House Apartments 17 Units 1 2 3 15 16 17 The Marshall 317 Units Venue at Dinkytown 14 Units 25 26 4 5 6 7 8 9 1 18 11 12 11 14 19 Solhaus 75 Units Solhaus Tower 75 Units 131 University 92 Units 7west 213 Units 23 24 13 14 Stadium Village Flats 12 Units 21 WaHu (U/C) 333 Units 22 13 12 West Bank East Bank 2 21 23 22 24 25 26 27 28 Five15 on the Park (U/C) 259 Units 15 Sydney Hall 125 Units 16 7 on Washington 98 Units The Edge on Oak 65 Units The Rail 36 Units Radius on 15th (U/C) 22 Units 19 2 17 18 North Keeler Apartments 44 Units The Station on Washington 97 Units The Golden Lodge 12 Units Gould Apartments (U/C) 13 Units 12 13

FIRST RING/ST. NEW MULTIFAMILY 23-15 LOUIS PARK 12 1 1 Eliot Park Apartments (U/C) 138 Units 11 12 West End 3 2 Arcata (U/C) 151 Units 2 The Camerata 22 Units Millennium at West End (U/C) 158 Units 1 3 Medley Row 22 Units 9 1 11 9 8 4 5 6 The Flats at West End 119 Units 4 7 The Adagio 1 Units Hwy. 1/ Excelsior Blvd. North 36 Park 192 Units 8 7 6 5 Harmony Vista 78 Units Excelsior & Grand 337 Units e2 58 Units The Ellipse on Excelsior 132 Units 14

DOWNTOWN ST. PAUL NEW MULTIFAMILY 23-15 2 1 3 4 The Penfield 254 Units Renaissance Box 7 Units Sibley Park Apartments 114 Units Rayette Lofts 86 Units 5 1 2 3 4 5 6 Lofts at Farmers Market 58 Units 6 1 12 11 Lowertown Lofts 16 Units 7 7 Upper Landing West Side West Side Flats 178 Units 8 9 8 North 12 11 1 Riverview at Upper Landing 344 Units 9 The Commerce Building 1 Units Minnesota Place & Minnesota Vistas 137 Units Pioneer Endicott 234 Units Joseph s Pointe at Upper Landing 9 Units 15

NEW PRODUCT PRICING TRENDS OVERALL NEW PRODUCT RENTS FACTORS DRIVING NEW PRODUCT RENTS Overall New Product Rents in the Twin Cities In the 3rd quarter of 214, Dougherty Mortgage gathered information on current asking rents at 67 newer market-rate projects across the 7-county Twin Cities Metro Area (see chart). The survey represents 9,9+ units in buildings that initially opened in 212 or after. The survey covers roughly 86% of the new market-rate buildings delivered during this period, and about 91% of the units. Rent data represents asking rents before concessions. The overall asking rent in the Twin Cities for newer market-rate apartments hit $2.5 in 3rd quarter 214, per available data. Average, newer-product rents ranged considerably across submarkets, from $1.41 to $1.52 per square foot in the Northwest and Northeast Suburbs to more than $2.2 in the three urban submarkets in Minneapolis. Including the First-ring Suburbs, four of the ten submarkets with available pricing data averaged well over $2. per square foot for newer units, while the remaining submarkets averaged between $1.41 and $1.85. The Southeast Suburban submarket did not offer sufficient data to determine an overall rental market average. Submarket Pricing: Overall Asking Rent Per Square Foot Newer Market-rate Units (Opened 212 and After) Twin Cities (7 Counties) 3rd Quarter 214 Overall Survey Representation Rent/SF Units Buildings Downtown Minneapolis $2.25 3,61 2 Minneapolis Uptown $2.23 1,361 6 U of M Neighborhoods $2.21 1,486 11 First-ring Suburbs $2.9 874 7 Downtown St. Paul $1.85 81 5 Minneapolis Neighborhoods $1.78 49 5 Southwest Suburbs $1.69 71 4 St. Paul Neighborhoods $1.66 274 3 Northeast Suburbs $1.52 288 3 Northwest Suburbs $1.41 564 3 Southeast Suburbs* -- -- -- Total: Twin Cities $2.5 9,99 67 * Too few projects available to survey. Factors Driving Asking Prices for New Units Dynamic Urban Settings Not surprisingly, Downtown Minneapolis and Minneapolis Uptown are the most-expensive rental markets in the Twin Cities, each at about $2.25 per square foot overall market average for newer product. With exception of the U of M Neighborhoods in Minneapolis, these two submarkets garner price premiums of 7% to 6% above all other areas in the Twin Cities. Downtown Minneapolis and Uptown have been two of the three strongest rental markets in recent years, owing to their wide array of cultural and recreational amenities, nearness to thousands of professional and "creative-class" jobs, and unique urban settings. Downtown Minneapolis also offers many units in high-rise towers, a product type that often captures rent premiums over other product styles. Captive University Population Newer product in neighborhoods near the U of M-Minneapolis campus has also been near the top of the market in terms of rent per square foot, averaging $2.21. Many privately-developed buildings in this submarket are de facto student housing, with units often furnished, leases often structured on a per-bedroom basis, high-occupancy (2 persons per bedroom) allowed and in some cases encouraged, and rent guarantees required by parents. Amenities and management services are also geared toward a student population. And because unit sizes tend to be smaller than comparable layouts in other submarkets, the rent per square foot among newer U of M-oriented buildings tends to be higher, often at the top-end in the Twin Cities. First-ring Location Advantages Projects in notable first-ring locations to the west of Minneapolis such as Southdale in Edina, and the West End District or the Excelsior Boulevard Corridor in St. Louis Park, also garner price premiums. Overall, newer first-ring projects averaged $2.9 in the most-recent quarter. Locations near restaurants, theaters, and shopping have been a strong factor for about three-quarters of the units built since 21. Decreasing Prices for Markets Farther Out Downtown St. Paul with more than a third of its newer supply in the form of historic building conversions had an average price of $1.85 per square foot, just above newer units in Minneapolis neighborhoods ($1.78). Slightly less were the Southwest Suburbs ($1.69) and the neighborhoods of St. Paul ($1.66). The Northeast and Northwest Suburbs represent the least-expensive submarkets in the Twin Cities, with asking rents between about $1.4 and $1.5 per square foot. Moderately-priced housing overall in communities such as New Brighton, Arden Hills, Osseo, and Ramsey keep prices at newer rental communities moderate in the Northeast and Northwest. 16

NEW PRODUCT PRICING TRENDS AVERAGE ASKING RENTS AVERAGE SIZES BY UNIT TYPE The following sections accompany the submarket pricing charts on pages 18-19. Studio Units Studio pricing in the 3rd quarter of 214 showed considerable variation across the Twin Cities, with Uptown leading at $1,424 average rent for a typical unit of just under 6 square feet. Studio units are very popular among the young, urban professionals who dominate this submarket. The First-ring Suburbs and Downtown Minneapolis came second in pricing, with average studio rents between $1,23 and $1,28 for units of roughly 53 to 55 square feet. Most of the remaining submarkets were clustered between about $1, and $1,1 average rent for units of about 54 to 58 average square feet. The U of M Neighborhoods offer relatively few newer studio units, and such units are generally small (48 square feet, average) and relatively expensive ($2.51 per square foot, average). One-bedroom Units Pricing for newer one-bedroom units in the Twin Cities showed a similar pattern to studio pricing with Uptown being the clear leader ($1,768 average), followed by the First-ring Suburbs ($1,651), and Downtown Minneapolis ($1,61). Most other submarkets fell between $1,3 and $1,45. Again, units near the U of M are small (about 64 square feet on average) and relatively expensive (just under $1,44 average rent). The Northwest Suburbs offer renters the best value in the Twin Cities, with 833 square-foot units averaging just $1,229 per month. One-bedrooms are typically the most common unit type in newer buildings in the Twin Cities, although some submarkets have slightly more two-bedroom units. Two-bedroom Units Two-bedroom units vie with one-bedrooms as the most prevalent type among newer properties in the Twin Cities. In general, the more suburban the market, the more likely that it will have a majority of two-bedroom units. High land costs in the urban core demand higher rents per square foot, which usually comes from studios and one-bedroom units. High land costs are reflected in newer two-bedroom pricing as well, with the most-costly units being in the First-ring Suburbs ($2,412 average rent), followed by Downtown Minneapolis ($2,353), and Uptown ($2,317). Four submarkets Southwest Suburbs, Northeast Suburbs, Minneapolis Neighborhoods and St. Paul Neighborhoods are clustered between $1,778 and $1,837 average rent. Most submarkets offer two-bedroom units between about 1,1 and 1,2 square feet in size, however those near the U of M are much smaller (96). Three-bedroom Units Three-bedroom units are far less common than all other types. Most submarkets have three-bedroom units at just one or two of the newer properties. Surprisingly, this unit type is offered at eight or more newer projects in Downtown Minneapolis, and average rents are high ($3,19) for the largest average units in the Twin Cities (1,576 square feet). The overall pricing pattern in the Twin Cities for newer three-bedroom units is similar to that for two-bedrooms, with the First-ring Suburbs hitting a high average rent ($3,263) for a typical-sized unit of 1,443 square feet. Most submarkets fall in the $2,-$2,5 range for a unit between 1,4 and 1,5 square feet. Downtown St. Paul and the U of M area (where three-bedrooms are fairly popular) each offer smaller units overall, while the Northwest Metro again presents the best renter value by far, with an average unit of 1,46 square feet renting for just $1,89 on average. 17

NEW PRODUCT PRICING TRENDS PRICING STRUCTURE BY TWIN CITIES SUBMARKET 3RD QUARTER 214 Legend: Studio Low Asking Rent Average Asking Rent High Asking Rent 1BR 2BR 3BR Downtown Minneapolis ($2.25 / sq. ft. submarket average) $975 $1,233 $1,635 $1,1 $1,61 $2,495 $1,62 $2,353 $3,824 $2,35 $3,19 $4,852 Minneapolis Uptown ($2.23 / sq. ft. submarket average) $1,23 $1,424 $2, $1,42 $1,768 $2,85 $1,76 $2,317 $2,83 $2,885 $2,98 $3,391 U of M Neighborhoods ($2.21 / sq. ft. submarket average) $1,5 $1,187 $1,35 $999 $1,436 $1,98 $1,5 $1,956 $2,5 $2,247 $2,666 $3,6 First-ring Suburbs ($2.9 / sq. ft. submarket average) $1,58 $1,279 $1,51 $1,29 $1,651 $2,225 $1,8 $2,412 $4,675 $2,6 $3,263 $3,995 Downtown St. Paul ($1.85 / sq. ft. submarket average) $86 $1,97 $1,335 $1,133 $1,448 $2,44 $1,524 $2,3 $2,55 $2,3 $2,49 $2,944 18

NEW PRODUCT PRICING TRENDS PRICING STRUCTURE BY TWIN CITIES SUBMARKET 3RD QUARTER 214 Legend: Studio Low Asking Rent Average Asking Rent High Asking Rent 1BR 2BR 3BR Minneapolis Neighborhoods ($1.78 / sq. ft. submarket average) $875 $1,1 $1,123 $925 $1,31 $1,6 $1,375 $1,778 $2,138 $2,413 $2,519 $2,62 Southwest Suburbs ($1.69 / sq. ft. submarket average) $96 $1,63 $1,138 $93 $1,331 $1,69 $1,38 $1,837 $1,935 $2,19 $2,6 $3,25 St. Paul Neighborhoods ($1.66 / sq. ft. submarket average) $945 $993 $1,75 $1,5 $1,31 $1,695 $1,338 $1,778 $2,395 $1,95 $2,18 $2,85 Northeast Suburbs ($1.52 / sq. ft. submarket average) $1,25 $1,25 $1,2 $1,455 $1,633 $1,4 $1,784 $2,255 $1,695 $2,55 $2,415 Northwest Suburbs ($1.41 / sq. ft. submarket average) $825 $933 $1,5 $933 $1,229 $1,562 $1,66 $1,598 $2,67 $1,631 $1,89 $1,995 19

MARKET OUTLOOK 215 WITH ROUGHLY 3,8 NEW UNITS to be delivered next year across nearly all submarkets, we will learn much more about the depth of the Twin Cities apartment market and what hurdles may lie ahead. However, there are many reasons to believe that the market will continue to be very dynamic and not a development bubble that bursts and quickly fades. Below are important factors that will be in play in 215 in the Twin Cities multifamily market: Decreasing Supply but Steady Demand There are good indications that demand will stay strong in 215. Despite nearly 5,4 new units delivered throughout the Twin Cities in 214, the overall Twin Cities vacancy rate (all product classes) stayed below 3% and overall rents grew in excess of 2.5% through the 3rd quarter, according to Marquette Advisors. Production volume should drop metro-wide to roughly 3,8 units delivered in 215. Given very low overall housing production in the Twin Cities between 28 and 211, there is still pent-up demand that would support the development of new apartments. Broader demographic trends also favor apartments. An increasing number of households are choosing to rent instead of owning their housing for lifestyle reasons, and to ensure maximum financial flexibility. This is especially true in Downtown Minneapolis and Uptown, where many renters are mobile, young and climbing in their careers, and for whom a mortgage and home upkeep represent undue burdens. A solid economy that attracts workers from outside the region and continued growth of 14,+ households annually will also help spur rental housing demand in the Twin Cities in 215 and beyond. Stable Lending Environment If interest rates continue to stay low through 215, strong construction volume will continue throughout the Twin Cities and additional projects will stay on track for delivery in 216 and beyond. If rates rise significantly, projects in more moderately-priced areas will be the first to be postponed or abandoned as increasing debt service costs eat up valuable cash flow. Increasing Development Outside the Urban Core Construction costs have been high enough in recent years to dampen development in the second- and third-tier suburbs. Achievable rents in many locations have simply not been strong enough to overcome labor and materials costs. As the overall Twin Cities rental market has strengthened and ongoing demand has been proven in the central cities and first-ring suburbs, developers are moving forward with projects farther out. While fewer than 5 units are expected in the outer suburbs in 215, no fewer than 3,5 units are proposed for 216 delivery or after. Surely, not all proposals will go forward, but developer interest in the second- and third-tier suburbs is clearly strong. Well-located sites in established commercial districts with lifestyle amenities will lead the way. Light Rail Transit s Continued Influence New apartments near either the Green or Blue Line LRT corridors have accounted for 4,355 units or 25% of all new units in the Twin Cities from 21 through 215. An additional 2,3 units are in the proposal stage for 216 or after, with at least five proposals slated for the Green Line corridor in St. Paul. Transit-proximate development will be a factor for many years to come as all five cities on the future Southwest line are in the process of designing station-area plans, many of which include zoning changes to encourage higher-density housing. Ending of the U of M Development Boom Five projects with 873 units will be delivered in 215 in the neighborhoods surrounding the U of M Minneapolis campus, but only one additional project with 25 units is proposed for 216 and beyond. Additional proposals could come forward, but it appears as though 215 will be the last year with large amounts of new units delivered in neighborhoods surrounding the Minneapolis campus of the U of M. Multifamily in LRT Corridors* New Units Built 21-216+ Twin Cities Blue Green Line Line Total 21-214 1,391 1,752 3,143 215 771 441 1,212 216+ 1,22 1,13 2,332 Total 3,364 3,323 6,687 * Projects located within 2 blocks of an LRT line. 2

Dougherty Mortgage LLC 9 South Seventh Street, Suite 43 Minneapolis, MN 5542 612-317-21 866-922-786 Toll-free www.doughertymarkets.com For more information about this report, please contact Thomas G. O Neil at Dougherty Mortgage LLC 612-317-2122, toneil@doughertymarkets.com ABOUT DOUGHERTY MORTGAGE Dougherty Mortgage LLC is a top provider of conventional and affordable multifamily financing. Dougherty Mortgage is a leader in the multifamily industry thanks to a wide variety of financing options and a dedicated team of multifamily experts. Dougherty Mortgage specializes in providing access to federal agency loan programs to customers interested in Fannie Mae DUS, Freddie Mac Program Plus, and FHA financing solutions. In addition to multifamily financing, Dougherty Mortgage also provides financing solutions for affordable housing, as well as senior independent and assisted living, hospitals, health care facilities, and student housing. Office Locations Minneapolis, MN (Headquarters) Addison, TX (Dallas) Brentwood, TN (Nashville) Denver, CO Dripping Springs, TX (Austin) Fort Collins, CO Fort Worth, TX Irvine, CA (Orange County) New Boston, TX (Texarkana) Vienna, VA (Washington, DC) 21

9 South Seventh Street, Suite 43 Minneapolis, MN 5542 612-317-21 866-922-786 Toll-free www.doughertymarkets.com