Consultation: Collateral Overview Report

14.001516: Pasadena at California Club, LLC RE: COR: Construction/Perm Loan Proposal; Metrostudy Review Conclusions

COLLATERAL OVERVIEW REPORT (COR) Limited Scope This COR is a limited scope assignment designed to be a guide for internal lending decisions by executive management.

Prepared by: Michael Sprouse Requested by: Clay Wilson 8/4/2014 to 8/7/2014 clay.wilson@capitalbank-us.com

FL State Certified General Real Estate Appraiser RZ1005 File No. 14.001516

Phase 1

Property Owner/Applicant: Pasadena at Calif. Club, LLC

A Proposed 532-unit luxury apartment community SWC of NE 215th Street &NE 8th Avenue, Unincorporated Miami-Dade County, Zip Code 33179

Actions Taken (at the Request of Clay Wilson):

As a result of, and in addition to the Borrower’s Construction Financing Presentation provided to Capital Bank which included an appraisal prepared by Capstone, a rental market study was conducted by metrostudy.com of the anticipated marketability, lease-up rate, and rental rates of the proposed rental units, considering area supply and demand conditions. This Collateral Overview Report addresses only the Rental Market Study as to reasonableness. It should be noted that the real estate appraiser (Tew) accepts the findings of the Metrostudy in the appraisal report. A map of the area surveyed by Metrostudy follows:

Map of Metrostudy’s Competitive Apartment Properties

Concluded Rankings (on scale of 1 to 5, with 5 the highest):

Location Advantage: Market Timing:

3 5

Market Growth 5 Potential: New Projects/ -1 Potential Competition: Occupancy 5 Projections: Overall Net 17 Subject Weighted Ranking (with 25 the maximum): Notabilis: A ranking of 13 or above by the author reflects a favorable commercial real estate lending opportunity.

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14.001516: Pasadena at California Club, LLC RE: COR: Construction/Perm Loan Proposal; Metrostudy Review Conclusions

Subject Property Proposed Unit Mix

The rent market study under review was compared to the most recent Reinhold Wolfe Housing Report (1st Qtr. 2014) for Miami-Dade County. (Reinhold Wolfe is known for their single family subdivision housing reports). A total of 1,894 multi-family housing units were permitted during the fourth quarter of 2013, 2.2 times more than in the third quarter of 2013 and 2.6 times more than the 733 permitted in the fourth quarter of 2012. The 8,087 multi-family units permitted during 2013 is 2.6 times more than the 3,160 permitted during the same period of 2012. It is forecast that a total of 13,690 multi-family housing units, including downtown high rises, will be started in Miami-Dade county in 2014, an increase of 69.3% over the level of 2013. See table below: Reinhold Wolfe Miami-Dade MultiFamily Hosing Starts: 2010-2014

In addition, according to multifamilydata.com, there are 6 rental apartment projects in the planning/approval/construction stages in Miami-Dade County.

DISCUSSION: This monograph contains selected statistics presented in graphic and tabular form as a limited scope Collateral Overview Report regarding an opinion of the appropriateness and reliability of the “Metrostudy” rent study. The preparer’s concluded overall Ranking for this real estate collateral - based on this due diligence overview - was estimated based on the combination of both the analytical and subjective analyses of the preparer. After reviewing all of the referenced data, provided and acquired, the preparer has estimated the proposed two-phase Class “A” subject - Pasadena at California Club, 532 unit luxury rental apartments to be a viable investment and has conservatively ranked the project a 17 overall out of a maximum potential of 25. A

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14.001516: Pasadena at California Club, LLC RE: COR: Construction/Perm Loan Proposal; Metrostudy Review Conclusions ranking of 13 or higher is considered a good collateral investment for the bank. The sources used in this COR are deemed reliable, but not guaranteed by the preparer. This document is not to be considered an appraisal nor used as a Prospectus for potential individual investors. It is intended for confidential review only by bank management for use in potential lending decisions.

Primary Research: Apartment rentals in south Florida counties are found to be at high occupancies as apartments at managed properties have increased rents to follow the current market upward trends. The vacancy rate in mature (18 + months old) rental apartment complexes in Miami-Dade County stood at 3.7% in February, 2014, up slightly from the 3.1% rate of November, 2013, and considerably lower than the 5.4% rate of February, 2013. During the fourth quarter 2013 a total of 409 new rental apartment units were absorbed in Miami-Dade County up 3.3% over the 396 absorbed in the third quarter of 2013 and 13.6 times more than the 30 absorbed in the fourth quarter of 2012. The 1,295 new apartments absorbed during 2013 was 5.7 times more than the 226 absorbed during 2012.

It is estimated that there is a demand for about 8,672 apartment units per year in Miami-Dade County during 2013-2016 and at this demand level the market could support up to 4,336 available new units. The following chart tracks the vacancy trend, which is trending downward as pent-up from displaced homeowners and new job creation fuels the increased demand for rental housing.

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14.001516: Pasadena at California Club, LLC RE: COR: Construction/Perm Loan Proposal; Metrostudy Review Conclusions Average rental rates are following the increased demand – see below:

Personal Income Projections for Miami-Ft Lauderdale-Pompano Beach The University of Central Florida, College of Business Administration projects total personal income for the above metro area will continue to maintain its steady quarter-over-quarter increases (2014 thru 2015) from $275 billion in QTR1/2014 to $296 QTR4/2015. This bodes well for the apartment rental market as personal income drives consumer spending, including the housing component. th Beshears and Associates “Apartment Market Overview – 4 Qtr 2013”, states that increased demand for rental apartments, as reflected by improving occupancy rates, has resulted in an uptick in proposed apartment development and has had a positive impact on the value of vacant multi-family land. Vacancy rates in Florida drop an average of 52.6% since the 2009 market downturn. Rents have been slower to recover, due in part to the average one year lease term, but are up an average of 9.8% from 2009 to 2013.

According to The Advisory report published by Robert Charles Lesser & Co. (RCL), the demand for multi-family housing (rental apartments and residential condominiums) may be even more robust over the next four years than it was during the “boom” years of 2000 to 2007. The increased demand for multi-family housing will be dependent on continued improvement of the economy or, more specifically, employment and changes in personal income trends. As the labor market continues to recover, RCL expects these displaced young people to revert to their prerecession behavior, meaning that many of the household formations that would have happened over the last three to four years in a “normal” economy will now happen over the next few years.

Another statistic that has a direct impact on the demand for the development of new multifamily housing is the steadily declining marriage rates. This trend favors multi-family housing because unmarried households have shown a higher propensity than married households to live in multi-family housing.

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14.001516: Pasadena at California Club, LLC RE: COR: Construction/Perm Loan Proposal; Metrostudy Review Conclusions Florida Apartment Development Sales 2000 to 2013

Source: CoStar

Market sales of rental apartments have begun to recover starting in 2010, and increase each year through 2013. The number of multi-family units currently under construction through 2013 is depicted in the graph below. Driven by pent-up and new demand, south Florida, as expected, leads the state’s metro areas in the number of multifamily units currently proposed and/or under construction. rd

According to The National Council of Real Estate Investment Fiduciaries (NCREIF), multifamily properties rank 3 in “year over previous year” returns for all major commercial property types:

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14.001516: Pasadena at California Club, LLC RE: COR: Construction/Perm Loan Proposal; Metrostudy Review Conclusions Approximately 5,000 multi-family units are either under construction or proposed for development in Broward County right now.

Many of these projects have condominium-quality construction and are located in Downtown Fort Lauderdale. See graph below:

Source: Beshears & Associates

Multifamily Financing Sources Financing: About a third of all permanent loans made to multi-family real estate properties are made through Fannie Mae and Freddie Mac, which are Government-Sponsored Enterprises (GSEs).

Commercial Mortgage-Backed Securities (CMBS): There were $3.1 trillion of commercial and multifamily mortgages outstanding in the U.S. as of June 30, 2013. Of these mortgages, approximately 49% were held by banks, 18% were held by asset-backed trusts (issuers of CMBS), 12% were held by government-sponsored enterprises and Agency and GSE-backed mortgage pools, and 10% were held by life insurance companies. More specifically, government-sponsored enterprises such as Fannie Mae and Freddie Mac, as well as government corporations such as Ginnie Mae, are active lenders for multifamily commercial real estate (that is, apartment buildings) in the United States. Approximately $390 billion of multifamily residential mortgages were held by government-sponsored enterprises or Agency and GSE-backed mortgage pools as of June 30, 2013, again representing 12% of total commercial mortgages outstanding and 43% of multifamily commercial mortgages outstanding at that time. Insurance companies are active investors in commercial mortgages, and in terms of dlooars, hold approximately $325 billion of commercial mortgages as of June 30, 2013.

AUTHOR’S CONCLUSION Collateral Overview Report-Limited Scope Based on the data provided in the Metrostudy “Rental Market Study” dated July 12, 2013 and the subsequent information obtained, including the 1st Qtr 2014 Reinhold Wolf Quarterly Housing Report, the author has concluded an overall favorable commercial real estate lending opportunity ranking of 17 for the proposed 2-phase multifamily development which is the subject of the Rental Market Study under review.

With a concluded subjective ranking of 17, based on five relevant parameters, this multifamily rental project is considered to be a feasible undertaking.

With regard to location, there is a need for market rate housing in the subject’s immediate area as the area is now dominated by income-restricted developments. Timing and market growth potential are excellent based on the above discussion points. Although there is relatively easy entry by market participants, there are limited vacant sites of required size and zoning in the subject’s immediate market area. Strong market occupancy projections, propelled in part by solid annual personal income growth in the county combine to provide the needed market forces to maintain a steady supply of potential tenants.

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14.001516: Pasadena at California Club, LLC RE: COR: Construction/Perm Loan Proposal; Metrostudy Review Conclusions Selected market statistics for the subject’s zip code of 33179 are included herein for additional reference. These should be compared to both the rent market study and the real estate appraisal for collateral overview purposes:

The graphs above indicate only 18% of residences have 3 bedrooms, and approximately 55% of households consist of 1 to 2 persons and 31% of households have children. The table on the left reveals the income levels for this zip code, suggesting that the marketing campaign for the proposed subject multifamily development extend to surrounding zip codes.

Bibliography of Data Sources 1) Metrostudy’s “Pasadena at California Club Rental Market Study, July 12, 2013” 2) Capstone Appraisal of Pasadena at California Club, July 17, 2014 3) Multifamilydata.com 4) Reinhold Wolff Economic Research, Inc. “Miami-Dade County Quarterly Housing Report-1st Qtr. 2014” 5) Beshears and Associates “Apartment Market Overview – 4th Qtr. 2013” 6) Robert Lesser & Co. “Advisory Report-Multifamily” 7) Steve Belding, Reviewer – Multifamily Division, HUD, Jacksonville, FL 8) Martin Skolnik, Director, Multifamily Div., Freddie Mac, McClean, VA 9) CoStar Subscription Service 10) Movoto Demographics 11) Miami-Dade County Property Appraiser & Building Permit Depts.

12) Cassidy Turley

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