Market/Feasibility Analysis & Appraisals

September 11, 2014 UNIVERSITY OF ILLINOIS AT URBANA-CHAMPAIGN College of Business DEPARTMENT OF FINANCE FIN490 Market/Feasibility Analysis & Appraisals Presented by: Thomas Amato, CRE, Partner, Real Estate Counselors International, Inc. Chicago, IL

2 THE CONTEXT

THE EIGHT-STAGE MODEL OF REAL ESTATE DEVELOPMENT One: Inception of an Idea Not feasible Feasible Five: Six: Formal Commitment Construction Two: Refinement of the Idea Not feasible Feasible Three: Feasibility Not feasible Feasible Seven: Completion and Formal Opening Eight: Property, Asset and Portfolio Management Four: Contract Negotiation Cannot reach binding contracts Can reach binding contracts 3 Source: Real Estate Development: Principles and Process

FEASIBILITY ANALYSIS A real estate project is 'feasible' when the real estate analyst determines that there is a reasonable likelihood of satisfying explicit objectives when a selected course of action is tested for fit to a context of specific constraints and limited resources. James A. Graaskamp, "A Rational Approach to Feasibility Analysis, October 1972, p. 515 4

APPLICATION OF MARKET ANALYSIS Determine a Project s Feasibility for Development (Developer, Lender). Determine Size or Unit/Space Mix For a Specified Site (Developer). Understand a Property s Position in the Market and Long-Term Performance during Acquisition Due Diligence (Investor). Understand Opportunities and Constraints upon the Potential Re-positioning of an Existing Asset (Owner). Develop Reasonable Financial/Market Assumptions for Financial Feasibility Analysis (Developer). Develop Reasonable Financial/Market Assumptions for Appraisal (Lender). 5

KEY ASSUMPTIONS DRIVEN BY MARKET ANALYSIS CONCLUSIONS Establish Size, Unit/Space Mix. Forecast Subject Property Lease-up. Establish Rent Structure. Establish Reasonable Rent Growth Assumptions. Determine Lease Structure/Terms lease length, renew/release assumptions, tenant improvement allowance, leasing commissions. Establish Capitalization Rate assumptions (for valuation analysis). 6

AVERAGE ASSET PRICES: 1996 Q2 2014 Index Value (2000 Dec = 100) 250 225 200 175 150 125 100 75 50 25 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Office Industrial Retail Apartments Land Hospitality 7

REAL ESTATE APPRAISAL: THE BASICS USPAP (Uniform Standards Of Professional Appraisal Practice) Establishes requirements for appraisers with regard to: Definitions Ethics Competency Scope of Work Jurisdictional Exceptions Scope of Work intended users rely on this disclosure to understand the research and analyses performed in the assignment. Value as Highest & Best Use: that use of the land that may reasonably be expected to produce the greatest net return to the land over a given period of time: legally permissible physically possible financially feasible maximally productive. Three Approaches (Methodologies) to determine Market Value: Cost Approach Income Approach Sales Comparison Approach 8

INTEREST TO BE VALUED: NNN LEASED PROPERTIES Fee Simple - "...an absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers. VACANT MEDICAL OFFICE BUILDING (APPLY MARKET RENT) Income Approach Rents - Rents of competitive buildings Expenses IREM benchmarks and PSF expenses Sales Comparison Approach Cost Approach Leased Fee an ownership interest held by a landlord with the right of use and occupancy conveyed by lease to others. LEASED RESTAURANT BUILDING (APPLY CONTRACT RENT) Income Approach Rents - Lease (validated with competitive building rents) Expenses Actual expense history Sales Comparison Approach Cost Approach 9

RECONCILIATION OF VALUE CONCLUSION: COMMON PROBLEMS FOUND BY REVIEW APPRAISERS Failure to validate value obtained through computer modeled income approach (e.g., with Argus software) with an value indication obtained directly from the cost or sales comparison approach. Application of market-derived occupancy rates, rental growth rates and capitalization rates Reasonableness of all assumptions, individually and collectively Inconsistencies with regard to the reported data, analysis of the data and conclusions. Explain inconsistencies rather than ignore. Do inconsistencies suggest faulty assumptions? Failure to report or cite current market conditions, current transaction data, and recent market behavior. 10 Source: Richard C. Sorrenson, Appraising the Appraisal, 2010, p. 81.

11 DEFINITIONS

BASIC REAL ESTATE DEMAND SUPPLY DEFINITIONS: Inventory = Total Amount of Space, Measured in Square Feet or Units Deliveries = Increase in Inventory from Period to Period (SUPPLY) Absorption = Net Change In Occupied Space from Period to Period (DEMAND) Vacancy Rate = Vacant Space as a % of Inventory Equilibrium Vacancy Rate = the Vacancy Rate at which Rents neither Rise nor Fall. Effective Rent - Face rent (aka, asking or street rent), net of concessions (i.e., net of rent abatements and above-standard tenant improvement allowance). 12

GEOGRAPHIC CONSIDERATIONS: Metro Area Market - usually the Metropolitan Statistical Area; sometimes the Metropolitan Division (i.e., the geographic components of larger MSAs). Submarket sometimes a constituent county, but usually a sub county area that is established by patterns of development, accessibility, other physical and perceptional barriers. Primary, Secondary and Tertiary Markets (retail) similar to general nature of submarket but greater emphasis on capture of demand and linkage to consumers. Competitive Set/Peer Group Set of individual properties that represent highest level of comparability to subject property. 13

14 REAL ESTATE CYCLES

REAL ESTATE CYCLE POSITIONS: I. Recovery Phase - weak to moderate demand, but increasing (Market moving toward Equilibrium) II. Expansion Phase - strong and increasing demand (Market moving toward Equilibrium) III. Equilibrium - demand strong enough to sustain healthy rates of new construction and rent growth IV. Correction/Contraction Phase - disequilibrium - weak/weakening demand or new supply exceeding demand (Market moving toward or in Disequilibrium) 15

REAL ESTATE CYCLE: RALEIGH CBD OFFICE MKT Equilibrium Recovery Phase Expansion Phase Correction/Contraction Phase (Market moving toward Equilibrium) (Market moving toward Equilibrium) (Market moving toward or in Disequilibrium) 4 5 6 3 2 7 1 8 2011 2012 2013 2014 2008 2009 2010 Position Indicators Recovery Phase - weak to moderate demand, but increasing 1 Absorption rate is near zero or slightly positive, construction rate near zero, vacancy beginning to decline, rents up only slightly, if not flat 2 Absorption rate is positive and increasing, construction rate forecasted to increase, vacancy declining, rents rising Expansion Phase - strong and increasing demand 3 Absorption rate is positive and strong, construction rate near zero, but increasing, vacancy declining, rent growth is strong 4 Absorption rate is positive and strong, still low construction rate, vacancy at or below equilibrium vacancy rate, strong rent growth - including rent spikes Equilibrium - demand strong enough to sustain healthy rates of new construction and rent growth 5 Absorption rate is positive and strong, but moderating, construction rate holding steady or declining, vacancy rising, rent growth moderating Correction/Contraction Phase - disequilibrium - weak/weakening demand or new supply exceeding demand 6 Absorption rate is near zero or slightly negative, construction rate is declining, vacancy is rising raipidly, rents are flat or slightly declining 7 Absorption rate is negative, construction rate continues to decline, vacancy is rising rapidly, rents exhibit significant declines 8 Absorption rate is slightly negative approaching zero, construction rate continues to slow/approaches zero, vacancy continues to rise slightly, rents continue to decline, though decline moderates 16 Sources: Reis, Inc., Moody's Analytics and Real Estate Counselors International, Inc.

17 DEMAND FUNDAMENTALS/DRIVERS

VALIDATING DEMAND/SUPPLY STATISTICS AURORA/NAPERVILLE/JOLIET APARTMENT SUBMARKET (METRO CHICAGO,IL) 18 Sources: Reis, Inc., and Real Estate Counselors International, Inc.

VALIDATING DEMAND/SUPPLY STATISTICS BY THE NUMBERS. Great Recession Recovery Begins Year Deliveries Net Absorption Vacancy Rate % Change in Effective Rent 2009 0-255 6.64% -3.55% 2010 0 467 5.02% 2.90% 2011 0 284 4.04% 3.19% 2012 0 126 3.61% 3.07% 2013 340 304 3.69% 1.66% 2014 298 275 3.73% 3.00% 2015 320 200 4.09% 3.25% 2016 0 50 3.92% 2.75% 19 Sources: CoStar Inc., and Real Estate Counselors International, Inc.

VALIDATING DEMAND/SUPPLY STATISTICS Requires Detailed Analysis of Demand Fundamentals Quantify Absorption During Periods of Strong Demand and Weak Demand. Quantify Changes in Rent During Periods of Strong Demand and Weak Demand. Exercise Caution when Extrapolating Absorption; underlying Demand Fundamentals May be Changing. Correlate Absorption with Most Relevant Demand Driver. 20

DEMAND DRIVERS Employment: by place of work - estimated monthly/updated annually Population: estimated annually/updated in decennial census Income: estimated annually/updated in decennial census Geodemographics/Psychographics: (specialized databases such as PRIZM) incorporate lifestyle and spending patterns with demographics 21

CHANGE IN UNITED STATES OFFICE USING SECTOR JOBS: LAST TWO RECESSIONS Job Growth Index (1999 = 100) 133 131 129 127 125 123 121 119 117 115 113 111 109 107 105 103 101 99 97 95 2001 Recession The Great Recession 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Financial Activities Jobs Professional & Business Services Jobs 22 Sources: U.S. Bureau of Labor Statistics; Moody's Analytics and Real Estate Counselors International, Inc.

EMPLOYMENT AND POPULATION GROWTH FOR LAKE COUNTY, IL 295 Population and Job Growth Indices (1970 = 100) 270 245 220 195 170 145 120 95 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 Population Non-Ag Employment 23 Sources: U.S. Department of Labor; Moody's Analytics and Real Estate Counselors International, Inc.

POPULATION AND INCOME STATISTICS / TRENDS Demographic Variable 1990 2000 2009 2014 % CAAC 1990 to 2000 % CAAC 2000 to 2009 % CAAC 2009 to 2014 POPULATION Village of Schaumburg 68,706 75,386 74,680 74,509 0.93% -0.10% -0.05% Primary Market 439,880 494,796 516,338 530,077 1.18% 0.47% 0.53% Cook County, IL 5,105,067 5,376,741 5,268,639 5,226,654 0.52% -0.23% -0.16% Chicago-Naperville- Joliet, IL-IN-WI Metropolitan Statistical 8,182,076 9,098,316 9,602,177 9,895,500 1.07% 0.60% 0.60% Area State of Illinois 11,430,602 12,419,293 12,937,547 13,251,348 0.83% 0.46% 0.48% United States 248,709,873 281,421,906 306,624,699 322,320,436 1.24% 0.96% 1.00% PER CAPITA INCOME Village of Schaumburg ------- $30,232 $35,714 $38,572 ------- 1.87% 1.55% Primary Market ------- $29,337 $33,834 $36,319 ------- 1.60% 1.43% Cook County, IL ------- $23,227 $27,135 $29,371 ------- 1.74% 1.60% Chicago-Naperville- Joliet, IL-IN-WI Metropolitan Statistical ------- $24,614 $28,691 $30,981 ------- 1.72% 1.55% Area State of Illinois ------- $23,104 $27,234 $29,534 ------- 1.84% 1.63% United States ------- $21,587 $26,410 $29,106 ------- 2.27% 1.96% 24 Sources: U.S. Census, Claritas, Inc. and Real Estate Counselors International, Inc.

PRIZM (TOP 10 OF 66 SEGMENTS) Socioeconomic Rank PRIZM NE Segment Nickname Predominant Income Age Range Predominant HH Composition Predominant Education Class 1 Upper Crust Wealthy 45+ Married Couples College Graduate + Predominant Employment Executive, Professional, White Collar 25 2 Blue Blood Estates Wealthy 35-64 Families with Kids College Graduate + 3 Movers & Shakers Wealthy 35-64 Married Couples College Graduate + 5 Country Squires Wealthy 35-64 Families with Kids College Graduate + 6 Winners Circle Wealthy 25-54 Families with Kids College Graduate + 4 Young Digerati Upscale 25-44 Singles/Couples College Graduate + 7 Money & Brains Upscale 45+ Married Couples College Graduate + 8 Executive Suites Upscale 25-44 Singles/Couples College Graduate + 9 Big Fish, Small Pond Upscale 45+ Married Couples College Graduate + 10 Second City Elite Upscale 45+ Married Couples College Graduate + Sources: Claritas, Inc. and Real Estate Counselors International, Inc. Executive, Professional, White Collar Executive, Professional, White Collar Executive, Professional, White Collar Executive, Professional, White Collar Executive, Professional, White Collar Executive, Professional, White Collar Executive, Professional, White Collar Executive, Professional, White Collar Professional, White Collar

SAMPLE PRIZM SEGMENT #09 Big Fish, Small Pond Upscale Older (Age 45-64) without Kids Older, upper-class, college-educated professionals, the members of big fish, small pond are often among the leading citizens of their small-town communities. These upscale, empty nesting couples enjoy the trappings of success, belonging to country clubs, maintaining large investment portfolios and spending freely on computer technology. 26 Sources: Claritas, Inc. and Real Estate Counselors International, Inc.

SIX PRIZM SEGMENTS ACCOUNT FOR 74% - 85% OF RESIDENTS OF THESE COMMUNITIES #1-09 Big Fish, Small Pond #2-11 God's Country #3-23 Greenbelt Sports #4-28 Traditional Times #5-33 Big Sky Families Subtotal Percentage (Six Segments) 86% 84% 82% 80% 78% 76% 74% 72% 70% 68% 66% 85% 85% Sun City Georgetown, TX Sun City - Huntley, IL 82% 77% Hilton Head - Blufton, SC Sun City - Palm Desert, CA # 6-38 Simple Pleasures 74% Falls Run, Fredericksburg, VA 27 Sources: Claritas, Inc. and Real Estate Counselors International, Inc.

GEOGRAPHIC DISTRIBUTION OF DOMINANT PRIZM SEGMENT 28 Sources: Claritas, Inc. and Real Estate Counselors International, Inc.

29 REAL ESTATE DEMAND DRIVERS

PRIMARY DRIVERS OF REAL ESTATE DEMAND: Growth in Total Employment Growth in Targeted Employment Sectors defined by industry (NAICS code) or occupation Growth in Total Population Growth in Population of Targeted Age-Cohorts Growth in Income of Total Population Growth in Income of Targeted Age-Cohorts Geodemographics/Psychographics 30

DEMAND DRIVERS BY ASSET CLASS: Retail - Population and Population Growth, Income and Income Growth, Expenditure % Office - Office-Using Employment Growth (e.g., Business & Professional Services and Financial Activities) Medical Office Buildings (MOBs) - Growth in Hospital Employment, Growth in Ambulatory Healthcare Services Employment Apartments Total Employment Growth, Population Growth (Age 18-34), Income Growth Industrial - Total Employment Growth, GDP (National) and GRP (Regional) Senior Housing - Growth in Resident Age Population (Age 75+), Growth in Adult Children Population (Age 50+), Single Family Home Price Changes Student Housing - Growth in Resident Age Population (Age 18-25), University Enrollment Growth, Total Employment Growth 31

DEMAND DRIVERS BY ASSET CLASS: Active Adult (55+) Housing - Growth in Resident Age Population (Age 50-70), Total Employment Growth, In-Migration Rates, Single Family Home Price Changes Manufactured Housing - Employment, Population Growth, Income and Income Growth, Home Prices and Home Price Increases Self-Storage Units - Employment, Population Growth, Income and Income Growth, Home Prices and Home Price Increases 32

33 EQUILIBRIUM VACANCY RATE

EQUILIBRIUM VACANCY RATE The equilibrium vacancy rate is defined as: the vacancy level at which rents are in equilibrium (vacancy rate at which rents neither rise nor fall, in inflation-adjusted terms). If vacancy rates are above this equilibrium level, then we would expect rents to start to fall, in real terms. If rents are below this level, we would expect rents to rise, in real terms. 34

VACANCY RATE AND RENT GROWTH FOR SILICON VALLEY OFFICE MARKET: 1980 TO 1998 Vacancy Rate 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% Vacancy Rate at Equilibrium Rate and Real Rent Growth Near 0% 15.0% 7.4% 7.7% 2.4% 1.2% -3.1% -3.0% -3.2% -4.9% -8.4% 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 28.0% 26.0% 24.0% 22.0% 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% -10.0% % Change in Rent Vacancy Rate Vacancy Rate, Less Equil. Vacancy Rate % Change in Real Effective Rent 35 Sources: Reis, Inc., United States Bureau of Labor Statistics, Moody's Analytics, and Real Estate Counselors International, Inc.

OFFICE SPACE EQUILIBRIUM VACANCY RATES FOR U.S. OFFICE MARKETS: 1999 Chicago San Francisco Washington, D.C. New York Boston Jacksonville Memphis Philadelphia Norfolk Richmond Los Angeles Orlando Nashville Fort Lauderdale Atlanta Fort Worth Houston Dallas Palm Beach Riverside 36 Source: Reis, Inc. 11.5% 11.6% 11.7% 11.8% 12.0% 12.4% 12.8% 13.0% 13.8% 14.0% 14.2% 14.8% 14.8% 15.4% 15.5% 16.0% 16.4% 17.0% 17.2% 18.4% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0%

37 NET ABSORPTION

SPACE ABSORPTION Net Absorption (i.e., net leasing activity) Absorption is cyclical and correlated with demand drivers (primarily employment) Often Absorption is induced by deliveries (New Supply) 38

CHANGE IN EMPLOYMENT AND NET OFFICE ABSORPTION: CHICAGO S EAST/WEST CORRIDOR OFFICE SUBMARKET Square Feet 2,700,000 2,400,000 2,100,000 1,800,000 1,500,000 1,200,000 900,000 600,000 300,000 0-300,000-600,000-900,000-1,200,000-1,500,000-1,800,000-2,100,000-2,400,000-2,700,000 2,171,780 250,649 598,089 448,868-521,637 1,515,131-1,414,113 2,445,012 1,484,082 461,469 861,615-242,606-2,210,036 2,156,787 263,812 169,433 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 30,000 25,000 20,000 15,000 10,000 5,000 0-5,000-10,000-15,000-20,000-25,000-30,000-35,000-40,000 Number of Jobs Net Absorption Job Change 39 Sources: CoStar, Illinois Department of Employment Security and Real Estate Counselors International, Inc.

NEW YORK CITY MULTIFAMILY (CONDO) DEMAND/SUPPLY Months of Excess Supply 50 45 Periods of Excess Supply 40 35 30 25 20 15 10 5 0-5 -10-15 -20-25 1983Q1 1986Q1 1989Q1 1992Q1 1995Q1 1998Q1 2001Q1 2004Q1 Year/Quarter 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Multi Family Housing Permits Multifamily Residential Oversupply Measure (Left Scale) Multifamily Unit Permits (Right Scale) 40 Sources: U.S. Bureau of Census, Moody's Analytics and Real Estate Counselors International, Inc.

41 MARKET ANALYSIS: URBAN GROCERY STORE

DEFINITIONS: Primary Trade Area accounts for 60-70% of resident-based retail sales demand. GAFO General Merchandise, Apparel & Accessories, Furniture & Appliances, and Other retail categories (also known as Shoppers Goods, Comparison Goods or DSTM) Per Capita Expenditure Share Per Capita Expenditure as a % of Per Capita Income (derived the Census of Retail Trade statistics) Per Capita Expenditure Per capita estimate of retail sales for specific retail category for defined trade area (Other retail categories might include grocery stores, drug stores, eating and drinking establishments.) Sales Potential Retail Demand, calculated as product of Population and Per Capita Expenditure Retained Sales Potential Retail Demand retained within the trade area (i.e., not exported outside of the trade area). Capture Rate Share of Retained Sales Potential that can be captured by the Subject Property Daytime Population workers, students and area visitors 42

LOCATION OF NEARBY UPSCALE RESIDENT POPULATION 43 Source: and Real Estate Counselors International, Inc.

DEMAND/SUPPLY METHODOLOGY Identify sources of demand resident population, core downtown/midtown workers, tourists and other downtown/midtown workers. Delineate trade area assess accessibility, distance and drive times, competition, etc. Quantify resident and worker/tourist population and per capita income levels. Estimate per capita expenditures for grocery store merchandise among the two above-referenced segments. Forecast Sales Potential or retail demand (product of per capita expenditure and population) originating from these two segments. Forecast sales opportunity for the planned grocery store after applying capture rates first, with respect to the level of sales potential retained within the trade area; and then with respect to sales potential forecast to be captured by the planned grocery store. 44

LOCATION OF MAJOR EMPLOYERS 45 Source: Real Estate Counselors International, Inc.

LOCATION OF OFFICE EMPLOYMENT 46 Source: Real Estate Counselors International, Inc.

LOCATION OF COMPETITION 47 Sources: Real Estate Counselors International, Inc. Field Survey

TRADE AREA DELINEATION 48 Sources: Real Estate Counselors International, Inc.

RESIDENT POPULATION SALES OPPORTUNITY 2007 (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) Trade Area Resident Population Trade Area Per Capita Income % Per Capita Expenditure for Grocery Store Items Per Capita Expenditure for Grocery Store Items Grocery Store Sales Potential CAAC % Growth in Sales Potential Retained Sales Potential % Trade Area Retained Sales Potential Subject Grocery Store Capture Rate Grocery Store Total Sales Opportunity Primary 7,400 $17,605 6.30% $1,109 $8,207,451 --------- --------- --------- --------- --------- Secondary 14,300 $14,607 6.30% $920 $13,159,446 --------- --------- --------- --------- --------- Total 21,700 $15,629 6.30% $985 $21,366,897 --------- --------- --------- --------- --------- 2013 Primary 8,000 $17,605 6.30% $1,109 $8,872,920 0.6% 30% $2,661,876 90.0% $2,395,688 Secondary 14,800 $14,607 6.30% $920 $13,619,567 1.0% 15% $2,042,935 85.0% $1,736,495 Total 22,800 $15,659 6.30% $987 $22,492,487 0.9% 20.9% $4,704,811 88% $4,132,183 DEMAND SEGMENT# 1: Resident Population 49 Sources: U.S. Census of Retail Trade, Claritas, Inc. and Real Estate Counselors International, Inc.

TOTAL SALES OPPORTUNITY (11) (12) (13) (14) (15) (16) (17) (18) (19) (20) Midtown Office Workers MSA Per Capita Income % Per Capita Expenditure for Grocery Store Items Per Capita Expend. for Grocery Store Items Grocery Store Sales Potential Retained (in the Primary Trade Area) Sales Potential % Primary Trade Area Retained Sales Potential Subject Grocery Store Capture Rate Grocery Store Total Sales Opportunity Estimated Sales Per Square Foot 2013 Core Midtown Office Workers in the Primary Trade Area 14,200 $26,544 4.90% $1,301 $18,469,315 22.5% $4,155,596 90.0% $3,740,036 Trade Area Resident Population and Core Midtown Office Workers in Primary Trade Area --------- --------- --------- --------- --------- --------- --------- --------- $7,872,219 (Subtotal) Tourists, Downtown and Other Midtown Office Workers --------- --------- --------- --------- --------- --------- --------- --------- $1,124,603 Total Sales Opportunity --------- --------- --------- --------- --------- --------- --------- --------- $8,996,822 $635.01 DEMAND SEGMENT# 2 : Core Midtown Office Workers DEMAND SEGMENT# 3: Visitors (average per person spending per day) TOTAL SALES OPPORTUNITY SALES PRODUCTIVITY 50 Sources: U.S. Bureau of Labor Statistics; Moody's Analytics and Real Estate Counselors International, Inc.

51 IMPACT OF MARKET CHANGES ON FINANCIAL AND VALUATION ANALYSIS

REAL ESTATE PORTFOLIO: PROPERTY FINANCIAL AND PRICING ANALYSIS Property APARTMENTS Property Size (Rentable Square Feet/Units/ Rooms) Reported Occupancy at end of Q2 2014 1 Western State 184 92% OFFICE BUILDINGS 2 Midwestern State 296,486 66.7%/80.3% RETAIL 3 Southern State 233,934 96% HOTEL 4 Northeastern State 56 82.3% 52 Sources: Real Estate Counselors International, Inc.

MARKET DYNAMICS THAT IMPACT PROPERTY NET OPERATING INCOME Weakening Demand adversely impacts both property occupancy and asking rental rates. Lower Market Rental Rates adversely impacts property Net Operating Income (NOI). Lower Occupancy - adversely impacts property Net Operating Income. Office Tenant Lease Expirations - in times of falling market rents can adversely impact occupancy and ultimately NOI. Slowdown in Land Development Activity adversely impacts land prices. Apartments, because of short-term leases typically recovery more rapidly than office, industrial, retail properties or raw land. New Construction New supply in the face of weak or weakening demand adversely impacts occupancy and rent levels. Hotel - recession or other (e.g., terrorist attack) major disruption in business and leisure travel. 53 Sources: Real Estate Counselors International, Inc.

FORECAST NET OPERATING INCOME: 2014 VS. 2007 Property Name Sponsor's Estimated NOI at Time of Offering (2007/2008) Estimated NOI in 2014 Difference in NOI APARTMENTS 1 Western State $663,482 $715,044 7.8% OFFICE BUILDING 2 Midwestern State $3,926,690 $3,020,959-23% RETAIL 3 Southwestern State $2,779,889 $2,725,397-2.0% HOTEL 4 Northeastern State $1,684,400 $941,950-44.1% 54 Sources: Real Estate Counselors International, Inc.

For More Information, contact: Thomas J. Amato, CRE Director of Due Diligence Real Estate Counselors International, Inc. Suite 1326 53 West Jackson Boulevard Chicago, IL 60604 Office Phone: 312.332.4000 X101 Cell Phone: 847.217.0198 Email: tamato@reci.biz Web Site: www.reci.biz 55