1. What would your specific investment strategy be for this asset? i.e. hold period, capital expenditure investment, etc

2. What are the attributes of the investment?

3. What are the risks of the investment?

Underwriting Assumptions The following underwriting assumptions have been developed through your thoughtful analysis of the asset and market and will serve as the basis for your pro forma statement. 1. The first step in development of a pro forma statement is to determine the rental rate (across all unit types) that you believe is achievable at the property. This analysis will require you to consider the in-place rents (see below), which are the rental rates at which the units are currently leased. You also need to conclude upon your view of what current market rental rates (also below) are for this property. In other words, if the units were vacant today, what rental rate could you lease all units for at that point in time. You believe your assessment of the current market rents is accurate and will utilize the "Current Market Rents" box to calculate your Year 1 potential gross income (PGI) Thought Provoking Question \#2 - Why would there to be a difference between the in-place rental rates at the property and the current market rental rates at which the property could be leased today? 2. If step one is to project the Year I PGI, the second step is to underwrite the manner that the PGI will grow annually over the hold period, which is known as the market rent growth. Assume the current market rents outlined in the unit mix grow at 3% annually starting in Year 2. 3. Assume that contract loss (loss to lease) will be 50% of market rent growth each year. Assume Year 1 contract loss will be 50% of the growth in PGI between your Year 1 pro forma PGI and the trailing 12 PGI, i.e. (Year 1 PGI - Trailing 12 PGI) 50% and so on. Thought Provoking Question \#3 - What is contract loss and why does it limit the market rent growth at the property? Investors rely on the trailing operations of the property to develop a net revenue (Year 1 effective gross income) estimate for apartment assets. In particular, they contemplate the trailing 12 months of physical vacancy as a percentage of PGI. In theory, the level over the last 12 months should provide a decent starting point for what you expect the physical vacancy to be over the first 12 months of your ownership. The same analysis is done for credit loss, model units and concessions. The buyer's Year 1 projection for these individual line items could be different from the trailing operations, but the acquisition officer better have a strong argument for why when presenting the deal to the Investment Committee. The exhibit below contemplates each line comprising the property's economic vacancy (i.e. vacancy + credit loss + model unit loss + concessions) over the trailing 12 months of historicals. You will notice that our year one pro forma estimates match the trailing 12 actuals given that we do not believe there is justification for deviating from the property historicals. Thought Provoking Question \#4 - What circumstances would cause you to consider amending an economic vacancy assumption in your year one pro forma, relative to manner that the property actually performed for this specific line item over the trailing 12 months? 4. Assume a vacancy allowance of 5% of the property's PGI. 5. Assume credit loss (bad debt) of 0.50% of the property's PGI. 6. The limited number of total units at the property has resulted in the current owner's decision not to have a model unit. You anticipate continuing this strategy so the model unit loss will be 0% annually. 7. Assume concessions of 4% of the property's PGI every year of your hold period. The 4% concession reflects 2 weeks free for all new leases ( 2 weeks /52 weeks 4%), which you think is market. 8. The property has a laundry room and generates other income from coin-operated washers and dryers. Assume that this amount is $2,500 per month and it grows annually at 3%. (Assume that the Year 1 amount is $2,50012 months). 9. Assume that you apply the same 5% physical vacancy factor to the laundry income for the Other Income Vacancy. 10. You have looked at the trailing 12 months of operating expenses to inform your decision on how to underwrite the pro forma Year 1 of expenses going forward. You expect that your Year 1 pro forma will represent 3\% growth over the trailing 12 months for each expense line. Expenses will then escalate by 3% thereafter on an annual basis. 11. Assume that a capital reserve is underwritten equal to $250 /unit in Year 1 . This reserve should grow at 3% annually thereafter and will be found below the Net Operating Income line. 12. Your diligence has indicated that the roof is near the end of its useful life and in need of replacement in Year 2. Assume a replacement cost of $50,000 today that is grown by 3% annually. 13. Assume an exit cap rate for a year four sale of 6.5%. 14. Assume a 3\% cost of sale in the year of sale. 15. Assume that your acquisition date is essentially month 13 when thinking about the trailing 12. In other words, if the trailing 12 months represent January - December of 20XX, assume you acquire the asset on January 20XX+1. This is an over-simplification, but does not differ materially from how it would occur in the real world. Typically, you would likely close the asset in March of 20XX+1 because the acquisition process would occur between January and March. Underwriting Assumptions The following underwriting assumptions have been developed through your thoughtful analysis of the asset and market and will serve as the basis for your pro forma statement. 1. The first step in development of a pro forma statement is to determine the rental rate (across all unit types) that you believe is achievable at the property. This analysis will require you to consider the in-place rents (see below), which are the rental rates at which the units are currently leased. You also need to conclude upon your view of what current market rental rates (also below) are for this property. In other words, if the units were vacant today, what rental rate could you lease all units for at that point in time. You believe your assessment of the current market rents is accurate and will utilize the "Current Market Rents" box to calculate your Year 1 potential gross income (PGI) Thought Provoking Question \#2 - Why would there to be a difference between the in-place rental rates at the property and the current market rental rates at which the property could be leased today? 2. If step one is to project the Year I PGI, the second step is to underwrite the manner that the PGI will grow annually over the hold period, which is known as the market rent growth. Assume the current market rents outlined in the unit mix grow at 3% annually starting in Year 2. 3. Assume that contract loss (loss to lease) will be 50% of market rent growth each year. Assume Year 1 contract loss will be 50% of the growth in PGI between your Year 1 pro forma PGI and the trailing 12 PGI, i.e. (Year 1 PGI - Trailing 12 PGI) 50% and so on. Thought Provoking Question \#3 - What is contract loss and why does it limit the market rent growth at the property? Investors rely on the trailing operations of the property to develop a net revenue (Year 1 effective gross income) estimate for apartment assets. In particular, they contemplate the trailing 12 months of physical vacancy as a percentage of PGI. In theory, the level over the last 12 months should provide a decent starting point for what you expect the physical vacancy to be over the first 12 months of your ownership. The same analysis is done for credit loss, model units and concessions. The buyer's Year 1 projection for these individual line items could be different from the trailing operations, but the acquisition officer better have a strong argument for why when presenting the deal to the Investment Committee. The exhibit below contemplates each line comprising the property's economic vacancy (i.e. vacancy + credit loss + model unit loss + concessions) over the trailing 12 months of historicals. You will notice that our year one pro forma estimates match the trailing 12 actuals given that we do not believe there is justification for deviating from the property historicals. Thought Provoking Question \#4 - What circumstances would cause you to consider amending an economic vacancy assumption in your year one pro forma, relative to manner that the property actually performed for this specific line item over the trailing 12 months? 4. Assume a vacancy allowance of 5% of the property's PGI. 5. Assume credit loss (bad debt) of 0.50% of the property's PGI. 6. The limited number of total units at the property has resulted in the current owner's decision not to have a model unit. You anticipate continuing this strategy so the model unit loss will be 0% annually. 7. Assume concessions of 4% of the property's PGI every year of your hold period. The 4% concession reflects 2 weeks free for all new leases ( 2 weeks /52 weeks 4%), which you think is market. 8. The property has a laundry room and generates other income from coin-operated washers and dryers. Assume that this amount is $2,500 per month and it grows annually at 3%. (Assume that the Year 1 amount is $2,50012 months). 9. Assume that you apply the same 5% physical vacancy factor to the laundry income for the Other Income Vacancy. 10. You have looked at the trailing 12 months of operating expenses to inform your decision on how to underwrite the pro forma Year 1 of expenses going forward. You expect that your Year 1 pro forma will represent 3\% growth over the trailing 12 months for each expense line. Expenses will then escalate by 3% thereafter on an annual basis. 11. Assume that a capital reserve is underwritten equal to $250 /unit in Year 1 . This reserve should grow at 3% annually thereafter and will be found below the Net Operating Income line. 12. Your diligence has indicated that the roof is near the end of its useful life and in need of replacement in Year 2. Assume a replacement cost of $50,000 today that is grown by 3% annually. 13. Assume an exit cap rate for a year four sale of 6.5%. 14. Assume a 3\% cost of sale in the year of sale. 15. Assume that your acquisition date is essentially month 13 when thinking about the trailing 12. In other words, if the trailing 12 months represent January - December of 20XX, assume you acquire the asset on January 20XX+1. This is an over-simplification, but does not differ materially from how it would occur in the real world. Typically, you would likely close the asset in March of 20XX+1 because the acquisition process would occur between January and March