Elements of Market Analysis, Part One

National Council of Housing Market Analysts Presents: Elements of Market Analysis, Part One Kentucky Housing Conference October 9, 2013 Lexington, Kentucky

NCHMA Membership organization Higher level of professionalism Ethics and professional accountability Education Peer review Sharing of information and resources Formed in 2001 in response to legislation Requirements vary from state to state 26 states adopted NCHMA standards in some form Page 2

NCHMA Resources Minimum standards and best practices Certification in every report Model Content - Market study index Glossary of terminology White papers Market Area Analyzing senior demand and senior markets Factors to consider with preservation properties: Section 8 and 236 Recommended practices for analyzing turnover Page 3

NCHMA White papers (continued) Demand and C/R methodology Calculating market rent Selecting comparable properties Determining market area Best practices for rural markets Recommended practices for determining demand Site analysis (DRAFT) Page 4

Who s in the Room? Developer? Syndicator? Housing Finance Agency? Market Analyst? Other Professional? Page 5

Speakers Jonathan Beery, Valbridge / Allgeier Company Patrick Bowen, Bowen National Research Caitlin Geary, National Council of Housing Market Analysts Page 6

Program Agenda Welcome & Introductions NCHMA Background Introduction to Market Analysis What is a Market Study? Project Description and Site Analysis Determining Market Area Economic Context Demographics Page 7

Introduction to Market Analysis What is a Market Study? Types of Market Studies Components of Market Studies Scope of Work Page 8

What is a Market Study? A comprehensive forward looking analysis of the housing market in a defined market area. Housing needs in specific geography Specific need for proposed development Users Developers Syndicators Government entities Investors Page 9

Who are the Users/Consumers/Clients? Developer State Housing Allocator Market Research Lender Investor Page 10

What is a Market Study? A comprehensive review of the housing market in a defined market area. At a minimum, market studies include a review of location, economic conditions, demographics, and existing and proposed housing stock. When you buy real estate, you are buying a set of assumptions about the future. From Dr. James Graaskamp Page 11

What does a Market Study do? Depth and durability of the market Supply and demand analysis Marketability of proposed development Projected outcome - feasibility and conclusions Page 12

What is a Market Study s Purpose? A market study can be used to: 1.Determine the demand for a specific proposed development 2.Examine the overall condition of an area s housing market. 3.Measure the impact of a proposed development on an existing market 4.Evaluate the appropriateness of a proposed development Page 13

Market Studies SCOPE Complete Market Study Comprehensive report addressing all items in NCHMA Model Content Standards Full Narrative or Summary report format. Something less than a market study Rent study Capture rate demand study Memos Other examples? Page 14

Housing Market Issues Which Market Segment is Being Served Is the Development Appropriate Impact on Existing Market Other Issues Special Needs Population Preservation of Affordable Housing Page 15

Typical Components of a Market Study include: A. Executive Summary B. Project Description C. Location and Market Area Definition D. Employment and Economy E. Demographic Characteristics F. Competitive Environment G. Analysis / Conclusions and Recommendations H. Local Perspectives of Rental Housing Market and Housing Alternatives Page 16

Project Description & Site Analysis Project Description (Information to Get Started) Proposed unit mix Proposed amenities Housing Consumer Detailed Location Construction / RehabilitationTimeline Plans and specs (if available) Any adverse influences in the area that are known by the developer Page 17

Site Analysis Project Location Project Analysis Market Area Page 18

Project Location City, State, and Exact Location are discussed in the narrative. Aerial Photo of area is obtained Bing.com Google Maps Others Map of Area is prepared Area Linkages are mapped Page 19

Site Analysis Is the site appropriate for intended use? Compatible surrounding land uses? Neighborhood adequately served by facilities and services? Ingress and Egress? Adequate visibility? Any planned changes in the area that may compromise its suitability in the future? Page 20

Site Plan Site characteristics are usually described by: Size, Shape, Zoning, Frontage, Topography, Vegetation, Visibility A typical site plan includes: Buildings, Parking, Ingress/Egress, Amenities, Landscaping, Setbacks Page 21

Determining Market Area Primary Market Area A geographic area from which a property is expected to draw the majority of its residents. Secondary Market Area The portion of a market area that supplies additional support to an apartment property beyond that provided by the primary market area. Page 22

A housing market area is the contiguous area within which households compete for available housing. Ask yourself if the market area delineated seems reasonable in size and character. Page 23

Market Area Criteria A reasonable market area is critical as it determines the geographic scope of other analyses. It should be realistic in size. It should reflect the impact of natural and man-made barriers. Beware of radii, county boundaries, or multi-county boundaries. Seniors market areas are generally larger than those for family projects. Page 24

Delineation of Market Area Location of Competitive Properties Accessibility Natural Boundaries Housing Project Characteristics Market Perceptions Commuting Patterns Target Market Jurisdictional Boundaries Local Agency Service Boundaries Non-Geographic Factors Page 25

Is this a good market area? Page 26

How about this market area? Page 27

Does this seem reasonable? Page 28

Economic Context What is the environment in which project will be operating? Labor Force Unemployment At Place Employment Major Employers Page 29

Unemployment Rate 12.0% Unemployment - March 2012 Largest Metropolitan Areas 11.0% 10.9% 10.0% 9.0% 8.0% 7.0% 6.0% 5.5% 5.7% 6.1% 6.2% 7.0% 7.0% 7.1% 7.5% U.S Rate 7.9% 8.4% 8.4% 8.7% 8.9% 8.9% 9.0% 9.4% 9.6% 5.0% 4.0% 3.0% Source: US Bureau of Labor Statistics Page 30

Change in Metro Area Employment Since Recession Began: % Jobs % Change in Total Employment Mar-07 to Mar-12 6.0% DET PHX LA ATL SF CHI US PHI MIN Char Rich SEA BAL NY BOS MIA DC DAL HOU 4.0% 5.1% 2.0% % Change 0.0% -2.0% -3.3% -3.1% -3.1% -2.5% -2.4% -2.1% 0.5% -0.8% -0.4% -0.1% 1.3% 1.8% -4.0% -5.4% -5.1% -5.1% -6.0% -8.0% -8.9% -8.8% -7.6% Not Seasonally Adjusted -10.0% Page 31

Change in Metro Area Employment Since Recession Began: # Jobs Page 32

At-Place Employment Trends Total Employment 1990-3Q 2009 250,000 200,000 150,000 100,000 161,296 156,530 154,544 157,441 162,909 168,050 168,148 173,420 178,194 183,253 193,411 199,880 201,469 205,439 214,637 222,072 225,577 232,734 233,799 226,507 50,000 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Page 33

At-Place Employment by Sector Employment by Sector 3Q 2009 Other Leisure-Hospitality Education Health Professional-Business Financial Activities Information Trade-Trans-Utilities Manufacturing Construction Nat Resources-Mining Government 2.2% 1.4% 0.1% 3.4% 3.9% 4.2% 2.2% 4.6% 5.9% 5.8% 6.5% 10.0% 12.0% 14.1% 11.3% 12.8% 14.8% 9.3% 17.1% 16.6% 19.1% United States Anne Arundel County 22.7% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% Page 34

Commuting Patterns Travel Time to Work Workers 16 years and over # % Did not work at home: 72,052 97.0% Less than 5 minutes 1,320 1.8% 5 to 9 minutes 4,449 6.0% 10 to 14 minutes 7,024 9.5% 15 to 19 minutes 8,546 11.5% 20 to 24 minutes 11,429 15.4% 25 to 29 minutes 5,577 7.5% 30 to 34 minutes 12,281 16.5% 35 to 39 minutes 2,798 3.8% 40 to 44 minutes 3,385 4.6% 45 to 59 minutes 6,985 9.4% 60 to 89 minutes 5,667 7.6% 90 or more minutes 2,591 3.5% Worked at home 2,243 3.0% Total 74,295 Place of Work Workers 16 years and over # % Worked in state of residence: 73,716 99.2% Worked in county of residence 51,586 69.4% Worked outside county of residence 22,130 29.8% Worked outside state of residence 579 0.8% Total 74,295 100.0% Place of Work In County Outside County Outside State Page 35

Economic Forecast Major Employers Economic Expansions Economic Disruptions Wage Trends Location; Size of Workforce; Prospects for future growth or reduction Any planned expansions in the Market; i.e., BRAC, New Plants. Is household growth increasing demand for services Major Layoffs or Closing; Vulnerable Sectors of Economy Are wages increasing or decreasing Location of Major Employers Fulton County I-85 NW % / % 9 State Route 141 EMS Technologies Intercept Group Emory Eastside Med. Center Atlanta Journal US Highway 23 SITE Scientific-Atlanta % 1 Primerica Financial Beaver Ruin Rd NW State Route 120 NCR Corp. % State Route 316 NW US Postal Service 0 1 miles 2 * wy Ronald Reagan Pky Page 36

Sources for Data Unemployment Data: http://data.bls.gov/pdq/querytool.jsp?survey=la NAIC codes: http://www.census.gov/cgi-bin/sssd/naics/naicsrch?chart=2007 At Place Employment Data: http://data.bls.gov/pdq/querytool.jsp?survey=en Page 37

Demographic Context Demographic Trends Sources of Data Growth Projections Population Characteristics Page 38

Change 2000-2020; US Population by Age 5,000,000 2000-2020 US Population by Age 4,750,000 4,500,000 4,250,000 4,000,000 3,750,000 Kids Starter Households Move-Up Households Empty Nesters Young Senior Old Senior 3,500,000 3,250,000 3,000,000 2,750,000 2,500,000 2,250,000 2,000,000 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 Age Age 2000 Population 2009 Population 2014 Population 2020 Population Page 39

Projection Sources Projections Metropolitan Planning Organizations www.narc.org National vendors (Neilsen, ESRI) Local Governments State Data Centers U.S. Census Bureau C-40 report 2010 Census American Community Survey Page 40

Factors Impacting Population and Household Projections Cohort Survival Models Economic Growth / Loss Household Formation Development Patterns Births Deaths + Migration Is there an economic stimulus that will impact in-migration or out migration The age distribution of the population gives you an indication of number of persons that will form households. Is there infrastructure and land available to support new growth (supply driven demand) Page 41

Population and Household Trends Change 2000 to 2010 Change 2010 to 2011 Change 2011 to 2016 Dauphin County Total Annual Total Annual Total Annual 2000 2010 2011 2016 # % # % # % # % # % # % Population 251,798 268,100 268,408 269,954 16,302 6.5% 1,630 0.6% 308 0.1% 308 0.1% 1,546 0.6% 309 0.1% Group Quarters 6,787 6,788 6,761 6,625 Households 102,670 110,435 110,693 111,994 7,765 7.6% 777 0.7% 258 0.2% 258 0.2% 1,301 1.2% 260 0.2% Average HH Size 2.39 2.37 2.36 2.35 Laurel Ridge Market Total Annual Total Annual Total 2000 2010 2011 2016 # % # % # % # % # % # % Population 55,023 59,895 60,137 61,364 4,872 8.9% 487 0.9% 242 0.4% 242 0.4% 1,227 2.0% 245 0.4% Group Quarters 1,403 1,376 1,370 1,342 Change 2000 to 2010 Change 2010 to 2011 Change 2011 to 2016 Households 22,832 25,756 25,896 26,606 2,924 12.8% 292 1.2% 140 0.5% 140 0.5% 710 2.7% 142 0.5% Average HH Size 2.35 2.27 2.27 2.26 Annual Page 42

Population and Household Trends What is the nature of recent demographic trends in the market area? Has the number of households been increasing, decreasing, or remaining about the same? Are recent past trends expected to continue? Are demographic projections from a reputable third-party source? Does building permit activity correlate with household trends? For seniors projects, trend of age-qualified households Page 43

Age Distribution Dauphin County Laurel Ridge Market Number Percent Number Percent Children 62,460 23.3% 13,050 21.7% Under 5 years 17,721 6.6% 3,547 5.9% 5-9 years 16,673 6.2% 3,482 5.8% 10-14 years 16,907 6.3% 3,578 6.0% 15-17 years 11,159 4.2% 2,442 4.1% Young Adults 53,381 19.9% 11,330 18.8% 18-20 years 9,118 3.4% 1,843 3.1% 21-24 years 12,359 4.6% 2,565 4.3% 25-34 years 31,904 11.9% 6,922 11.5% Adults 104,132 38.8% 24,977 41.5% 35-44 years 36,803 13.7% 8,640 14.4% 45-54 years 42,584 15.9% 10,444 17.4% 55-61 years 24,746 9.2% 5,892 9.8% Seniors 48,435 18.0% 10,780 17.9% 62-64 years 10,605 4.0% 2,525 4.2% 65-74 years 19,374 7.2% 4,315 7.2% 75-84 years 12,636 4.7% 2,715 4.5% 85 and older 5,819 2.2% 1,225 2.0% TOTAL 268,408 100.0% 60,137 100.0% Median Age 38 40 Age 2011 Age Distribution Seniors Adults Young Adults Children 17.9% 18.0% 18.8% 19.9% 21.7% 23.3% 38.8% 41.5% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% % Pop Laurel Ridge Market Dauphin County Page 44

Household Type 2010 Households by Household Type Living Alone 31.2% 31.7% Household Type Non Married Households w/o Children Female hhldr w/ Child Male hhldr w/ Child Married w/o Child 10.7% 12.0% 5.7% 8.4% 2.0% 2.7% Laurel Ridge Market Dauphin County 28.8% 26.4% 21.5% Married w/ Child 18.8% 0% 5% 10% 15% 20% 25% 30% 35% Dauphin County Laurel Ridge Market Page 45 % Households # % # % Married w/ Child 20,780 18.8% 5,548 21.5% Married w/o Child 29,196 26.4% 7,424 28.8% Male hhldr w/ Child 2,978 2.7% 523 2.0% Female hhldr w/ Child 9,261 8.4% 1,462 5.7% Non Married Households w/o Children 13,248 12.0% 2,765 10.7% Living Alone 34,972 31.7% 8,034 31.2% Total 110,435 100.0% 25,756 100.0% Source: The Nielsen Company; Estimates, Real Property Research Group, Inc.

Trends in U.S. Rentership Rate 40.0% 39.0% 38.0% 37.0% 36.0% 35.0% 34.0% 33.0% 32.0% 31.0% 30.0% 1968 36.2% Renters 1980 34.43% Renters 2004 31% Renters 2012Q1 34.6% Renters 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Q1 Annual Average Rental rate Page 46

Total Income Number Percent Number Percent less than $15,000 11,461 10.4% 1,157 4.5% $15,000 $24,999 11,029 10.0% 1,903 7.3% $25,000 $34,999 12,375 11.2% 2,210 8.5% $35,000 $49,999 17,833 16.1% 4,139 16.0% $50,000 $74,999 23,044 20.8% 5,666 21.9% $75,000 $99,999 14,557 13.2% 4,084 15.8% $100,000 $124,999 9,185 8.3% 2,859 11.0% $125,000 $149,999 4,421 4.0% 1,491 5.8% $150,000 $199,999 3,355 3.0% 1,112 4.3% $200,000 over 3,432 3.1% 1,276 4.9% Total 110,693 100.0% 25,896 100.0% Median Income Dauphin County $52,874 Laurel Ridge Market $65,618 2011 Household Income by Area Household Income $200+K 4.9% 3.1% $150-$199.9K 4.3% 3.0% $125-$149.9K 5.8% 4.0% $100-$124.9K 8.3% 11.0% $75-$99.9K $50-$74.9K $35-$49.9K $25-$34.9K $15-$24.9K <$15K 13.2% 8.5% 11.2% 7.3% 10.0% 4.5% 10.4% Laurel Ridge Market Dauphin County 15.8% 16.0% 16.1% 21.9% 20.8% 0% 5% 10% 15% 20% 25% % Households Page 47

Income by Tenure Household Income 2011 Household Income by Tenure $200+K 40 1,235 $150-$199.9K 61 1,051 $125-$149.9K 82 1,408 $100-$124.9K 654 2,205 $75-$99.9K 933 3,151 $50-$74.9K 2,156 3,510 $35-$49.9K 1,881 2,258 $25-$34.9K 1,352 858 Owner Households $15-$24.9K 834 1,069 Renter Households <$15K 650 507 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 # of Households Renter Households Owner Households Number Percent Number Percent less than $15,000 507 6.3% 650 3.6% $15,000 $24,999 834 10.4% 1,069 6.0% $25,000 $34,999 858 10.7% 1,352 7.6% $35,000 $49,999 1,881 23.5% 2,258 12.6% $50,000 $74,999 2,156 26.9% 3,510 19.6% $75,000 $99,999 933 11.7% 3,151 17.6% $100,000 $124,999 654 8.2% 2,205 12.3% $125,000 $149,999 82 1.0% 1,408 7.9% $150,000 $199,999 61 0.8% 1,051 5.9% $200,000 over 40 0.5% 1,235 6.9% Total 8,005 100.0% 17,891 100.0% Median Income $49,392 $75,838 Page 48

49 Questions? Page 49

National Council of Housing Market Analysts Presents: Elements of Market Analysis, Part Two: Assessing the Market and Drawing Conclusions Kentucky Housing Conference October 9, 2013 Lexington, Kentucky

Speakers Jonathan Beery, Valbridge / Allgeier Company Patrick Bowen, Bowen National Research Caitlin Geary, National Council of Housing Market Analysts Page 51

Program Agenda Re-Introduction Supply: Rental Market Trends and Conditions Calculating Market Rent Net Demand Drawing Conclusions Page 52

Supply: Rental Market Trends and Conditions Analysis of Trends and Conditions from regional to local to primary market area Use 2010 Census data to establish housing profile of PMA Profile number of housing units, owner/renter mix and number of vacant housing units Evaluate building MF and SF permits for recent activity Other important housing characteristics are rental units by type, gross rents, year of construction and rent overburdened

Building Permit Data from US Census Building Permit Website http://www.census.gov/const/www/permitsindex.html#estimates Variable: Single-Family Two-Family Three and Four Family Five or More Family Total Housing Data Profile from US Census American FactFinder Site - http://factfinder.census.gov/home/saff/main.html?_lang=en Variable YEAR HOUSEHOLDER MOVED INTO UNIT HOUSING OCCUPANCY HOUSING VALUES / GROSS RENT UNITS IN STRUCTURE SELECTED MONTHLY OWNER COSTS (SMOC) YEAR STRUCTURE BUILT SELECTED MONTHLY OWNER COSTS AS A % OF HH INCOME ROOMS POPULATION AND HOUSEHOLD GROWTH BEDROOMS GROSS RENT AS A % OF HH INCOME (GRAPI) HOUSING TENURE Page 54

From Desk identify all inventory in PMA existing and planned Field survey should be comprehensive to evaluate housing continuum (LIHTC, older/newer market rate, gov. sub., luxury), current conditions and identify comparable properties All Tax Credit properties should be surveyed SF affordability and shadow market for-rent single-family homes and condos may need to be surveyed to measure market rents, and competing supply. First-time homebuyer programs Page 55

Field surveys will consist of various property types: Comparable property is representative of the rental housing choices of the subject s Primary Market Area and is similar in construction, size, amenities, or age to the subject. Competitive property is comparable to subject and competes at similar rent levels, and tenant profile, such as age, family or income. Page 56

Purpose of surveying comparable properties: Evaluate which properties are truly competitive: Principle of Substitution Evaluate the Primary Market Area (PMA) or the need for a Secondary Market Area (SMA) Evaluate subject s market position Evaluate Section 8 reliance and affordability issues Evaluate tenant profile/targeted market Evaluate utility allowances and preferences Page 57

Purpose of surveying comparable Properties (continued): Evaluate location and accessibility Evaluate proximity to supporting uses Evaluate physical characteristics Evaluate demand drivers and forecasts Evaluate correlation between quality and vacancy Evaluate govt. subsidized properties Page 58

Purpose of surveying comparable properties (continued) : Conclude market rents and achievable LIHTC rents Conclude stabilized occupancy Conclude absorption estimate Conclude use and need for concessions, seasonality Conclude rent premiums and discounts Conclude rent growth projections Conclude to changes or recommendations Page 59

Purpose of surveying comparable properties (continued) Rural: Use the apartments that exist in PMA Trailers SF homes Neighboring town or market area Similar population Similar employment centers with similar wages Similar home prices Page 60

Classify type of rural market: High propensity Close to Suburban/Metro Well defined central towns Transportation infrastructure Well diversified economies Recreational amenities Technology /Schools Strong pop and HH growth Job creation Low propensity Removed from CBD / urban core No defined central towns Poor linkages to infrastructure No diversification or weak job base No recreational amenities No technology Stagnant pop and HH growth No job creation Subsidized inventory & tenants Page 61

When the field survey and analysis is complete, you should: Understand strengths/weaknesses of the market. What are trends in market, where in the RE cycle. Who are your Tax Credit competitors and how are they performing. Who are your Market-rate competitors and how are they performing. What are the strengths and weaknesses of your property and how does it compare. Page 62

Findings Calculating Market Rent Demand Affordability Page 63

Calculating Market Rent The rent an apartment, without rent or income restrictions or rent subsidies, would command in the open market considering its location, features, and amenities. Page 64

Calculating Market Rent (Cont.) Adjustment Process Start with Asking Rent Upward if COMP is inferior Downward if COMP is superior No adjustment if COMP is similar Remember! You are adjusting the COMP to the Subject Page 65

Adjustment Process Quantifiable Extracted from market Utility adjustments Amenities / view / design / services Seasonality Qualitative Appeal Location Quality / Condition Units of comparison Per unit Per square foot Page 66

One Bedroom Units Subject Property Comparable Property #1 Comparable Property #2 Comparable Property #3 Chesterfield County, VA Chesterfield County, VA Chesterfield County, VA Chesterfield County, VA A. Rents Charged Subject Data $ Adj. Data $ Adj. Data $ Adj. Street Rent $895 $894 $895 $885 In parts B thru D, adjustments were made only for differences B. Design, Location, Condition Data $ Adj. Data $ Adj. Data $ Adj. Utilities Included None Hot Water,W/S,Trash ($45) Trash ($10) None $0 Rent Concessions $0 None $0 None None $0 Structure / Stories 3-Story Garden 3-Story Garden $0 3-Story Garden $0 3-Story Garden $0 Year Built / Year Renovated 2010 2006 $10 2004 $15 2005 $13 Condition / Street Appeal Excellent Excellent $0 Excellent $0 Excellent $0 Town Center Micro Location Excellent Above Average $21 Average $42 Excellent $0 C. Unit Equipment / Amenities Data $ Adj. Data $ Adj. Data $ Adj. Number of Bedrooms 1 1 $0 1 $0 1 $0 Number of Bathrooms 1 1 $0 1 $0 1 $0 Unit Interior Square Feet 734 792 ($15) 775 ($10) 770 ($9) Balcony / Patio / Porch Yes Yes $0 No $5 Yes $0 Microwave Yes Yes $0 Yes $0 Yes $0 Dishwasher/Disposal Yes / Yes Yes / Yes $0 Yes / Yes $0 Yes / Yes $0 Washer / Dryer: In Unit Yes No $35 Yes $0 No $35 D. Site Equipment / Amenities Data $ Adj. Data $ Adj. Data $ Adj. Parking ($ Fee) $0 $0 $0 $0 $0 $0 $0 Fence/Gate No No $0 No $0 Yes ($5) Club House Yes Yes $0 Yes $0 Yes $0 Pool Yes Yes $0 No $10 No $10 Fitness/Workout Room Yes Yes $0 Yes $0 No $10 Computer Room / Bus. Center Yes Yes $0 No $5 Yes $0 E. Adjustments Recap Positive Negative Positive Negative Positive Negative Total Number of Adjustments 3 2 5 2 4 2 Sum of Adjustments B to D $66 ($60) $77 ($20) $68 ($14) F. Total Summary Gross Total Adjustment $126 $97 $82 Net Total Adjustment $6 $57 $54 G. Adjusted And Achievable Rents Adj. Rent Adj. Rent Adj. Rent Adjusted Rent $900 $952 $939 % of Effective Rent 100.7% 106.4% 106.1% Estimated Market Rent $930 Rent Advantage $ $35 Rent Advantage % 3.80% Page 67

Red Flags Too many or too large adjustments, indicating lack of good comparables. Comparables located long distances from subject. No precedent for conclusion market place. No new construction in market area. Why? PRICE IS THE BEST AMENITY! Page 68

Net Demand Demand Household Growth Demolitions % of Renter Households Supply Pipeline Subject Balance of Demand and Supply Page 69

Demand Household Growth Units 2009 Households 69,229 2012 Households 73,772 Net Change in Households 4,543 Add: Units Removed from Market Hsg Stock Removal Rate Lost Units 2009 Housing Stock 72,455 0.480% 348 2010 Housing Stock 74,017 0.480% 355 2011 Housing Stock 75,612 0.480% 363 1,066 Net New Demand for Housing Units 5,609 Percent Renter Households in 2012 19.1% Net New Demand for Renter Units 1,072 Add: MF Competitive Vacancy Inventory Vacant Stabilized Multifamily Communities 6,617 481 Deep-Subsidy Multifamily Communities 2,500 0 Subtotal Stabilized Communities 9,117 481 currently vacant Vacant as of Jan 1, 2009 Communities under lease up 561 208 96 Total Competitive Inventory 9,678 577 Market Vacancy at 5% 484 Less: Current Vacant Units -577 Vacant units required to reach 5% Market Vacancy -93 Total Rental Demand 979 Planned Additions to the Supply Total Units 95% Occup project x 250 238 project y 500 475 Subject 200 190 Total New Rental Supply 950 903 Excess Demand for Rental Housing 77 Page 70

Unit Type All 2 BR 3 BR Gross Rent $331 $331 $383 Income Ratio 35% 35% 35% Minimum Income $11,349 $11,349 $13,131 Maximum Income (2/BR) $34,200 $29,460 $34,200 Demand From New Growth Household Growth, 2000-08 588 588 588 X Percent Income Qualified 41.3% 33.5% 38.2% X Percent Renter 41.5% 41.5% 41.5% X Appropriate Household Size 100% 100% 100% Demand From Household Growth 101 82 93 Substandard Renter Housing Inadequate Plumbing 121 121 121 Overcrowded Housing 1,238 2,014 2,014 Total Substandard Units 1,359 2,135 2,135 X Percent Income Qualified 41.3% 33.5% 38.2% Substandard Renter Housing 561 715 815 Rent Overburden Renters Paying Over 35% 1,238 1,238 1,238 X Percent Income Qualified 41.3% 33.5% 38.2% Total Rent Overburden 511 415 472 Total Demand 1,173 1,212 1,380 Less Comparable Units Built Since 2000 (96) (48) (48) Units Built Since 2000 (80) (32) (48) Less Units Under Construction (84) (42) (42) Less Units Planned (43) (22) (21) Total Units Since 2000 (303) (144) (159) Net Demand 1,077 1,164 1,332 Proposed Units - Subject 69 45 24 Capture Rate 6.4% 3.9% 1.8% Growth and Substandard Housing Page 71

Calculating Capture Rates & Penetration Rates Capture rate is the percentage of age, size, and income qualified renter households in the primary market area that the property must capture to fill the units. Calculation: Capture Rate is calculated by dividing the total number of units at the property by the total number of age, size and income qualified renter households in the primary market area. Page 72

Penetration Rate is the percentage of age and income qualified renter households in the primary market area that all existing and proposed properties that are competitively priced to the subject that must be captured to achieve the stabilized level of occupancy. Calculation: Penetration Rate is calculated by dividing the total number of units at the property and all existing and proposed properties, to be completed including the subject by the total number of age, size and income qualified renter households in the primary market area. Page 73

To calculate the capture rate, the appropriate income range for residents to qualify for the project must be established Maximum allowable income for the subject project is based on the household income necessary to qualify for the largest unit offered at the site NCHMA occupancy guidelines are as follows: One-bedroom: 1-2 Two-bedroom: 2-4 Three-bedroom: 4-6 Four-bedroom: 5+ Persons per housing unit can be adjusted by analysts based on other factual data Page 74

Income Caps and Bases Base Minimum income required to live at the property is based on the gross rent (including all utilities) offered at the subject site Accepted ratio of rent to income is 35% for families and 40% for seniors Caps Based on HUD income caps Page 75

One Bedroom Two Bedroom 60% Units Base Price MinimumMaximum Base Price MinimumMaximum Number of Units 40 Number of Units 40 Net Rent $665 Net Rent $770 Gross Rent $755 Gross Rent $900 % Income Spent for Shelter 35% % Income Spent for S 35% Income Range $25,886 $31,170 Income Range $30,857 $37,440 Range of Qualified Hslds 6,041 5,239 Range of Qualified Hs 5,282 4,390 # Qualified Households 802 # Qualified Households 892 Unit Total HH Capture Rate 5.0% Unit Total HH Capture Rate 4.5% Range of Qualified Renters 2,727 2,279 Range of Qualified Re 2,303 1,805 # Qualified RenterHouseholds 448 # Qualified RenterHouseholds 498 Unit Renter HH Capture Rate 8.9% Unit Renter HH Capture Rate 8.0% Affordability @ 35% Rent Burden Gross Capture Rate Total Households 11,732 Total HH Number of Units Band of Qualified HHs # Qualified HHs Income $25,886 $37,440 60% Units 80 HHs 6,041 4,390 1,651 4.8% Capture Rate Renter Households 6,437 Renter HH Band of Qualified HHs # Qualified HHs Income $25,886 $37,440 60% Units 80 HHs 2,727 1,805 922 8.7% Capture Rate Page 76

Capture Rates & Penetration Rates Capture Rate Penetration Rate Unit Type All All Gross Rent $450 $450 Income Ratio 35% 35% Minimum Income $15,429 $15,429 Maximum Income (2/BR) $34,200 $34,200 Total Qualified Renters Existing Households, 2006 9,189 9,189 X Percent Income Qualified 43.8% 43.8% X Percent Renter 41.5% 41.5% Total Qualified Renters 1,670 1,670 Other LIHTC Units Existing LIHTC Units 0 208 LIHTC Under Construction 0 84 Proposed Units - Subject 0 43 Proposed Units - Other App 69 69 Total LIHTC Units 69 404 Total Qualified Renters 1,670 1,670 Total LIHTC Units 69 404 Capture / Penetration Rate 4.1% 24.2% Page 77

Interpreting Capture Rates 5% Capture Rate (need to get 1 in every 20 eligible households) 33% Capture Rate (need to get 1 in every 3 eligible households) Income-qualified households Page 78

There are no definitive right or wrong capture rates Capture rates and penetration rates must be considered within context of market Senior projects more likely to consider support from homeowners Page 79

14% Capture Rate 12% 10% 8% 6% 4% 2% Rural Markets Best Opportunity Too Many Units Urban Markets 0% 0% 10% 20% 30% 40% 50% Penetration Rate Page 80

Other Factors Impacting Demand Location Surrounding land uses may attract or prevent renters from moving to the site Proposed Rents Look at households able to pay the proposed rents, not the willingness to do so Housing Markets Rental markets with high vacancy rates; Foreclosures Employment Shocks Credit Markets Page 81

Special Note for Rehabilitation Projects Two capture rates should be calculated for Section 8 rehabilitation projects without Section 8 / RD Subsidy (assumes Tax Credit rents) with Section 8 / RD subsidy (down to $0 income) Resulting capture rates demonstrate importance of maintaining Section 8 Page 82

Drawing Conclusions Rent Analysis Project Evaluation Absorption Projected Project Performance Page 83

Achievable Tax Credit Rent The rent an apartment, with LIHTC rent and income restrictions, could command in the open market considering its location, features, and amenities. Pro Forma Rent The rent proposed by a developer, market analyst, or underwriter for a LIHTC property based on risk or mission goals and objectives. Page 84

Market Rent Rent Advantage Maximum LIHTC Rent Achievable LIHTC Rent Pro Forma Rent Market Advantage provides insulation to market risk over long-term. Limited universe of renters Annual re-certifications Perceptions Industry Benchmark = 10% Exceptions: Strong markets with strong rent growth. Stagnant/rural markets with few alternative housing choices. Superior Product provides advantage Page 85

Projected Absorption Levels Historic Pattern of New Units Absorbed Annually Performance of Recently Completed Projects Adjust Estimate to Reflect Market Conditions Economic and Demographic Forecasts Units in Pipeline Occupancy Levels Page 86

Projected Project Performance Rents Concessions Absorption Rate Stabilized Occupancy Rent Appreciation Impact on existing rental market Page 87

88 Questions? Page 88