Marketing analysis of 88 Arkansas street project

88 Arkansas Street | San Francisco Zhuguang Properties US Marketing Analysis

CONFIDENTIAL & PROPRIETARY

PROJECT ANALYSIS

9

PROJECT STRENGTHS

Location • Desirable Potrero Hill neighborhood • Brand layering opportunities • Close to employment – SOMA, Mission Bay, Peninsula • Highly walkable and bikeable – blocks from Whole Foods and 18th Street • Freeway access • Jackson Playground • Live Oak School (K-8) • Feng shui - 88

10

Product & Design • Nearly 1:1 parking • Onsite retail space – identify tenant early

Market Factors • Lack of inventory • 94% of 1,154 units under construction in area are rentals

PROJECT CHALLENGES

Location • Removed from downtown San Francisco • Perceived safety concerns • Public transportation less convenient

11

Product & Design • Large BMR component • Stackers not ideal • Some windowless bedrooms • Lack of views • Move utility poles underground • No double sinks in masters • No entry coat closets

Market Factors • Increasing competition and inventory • Threat of condominium conversions • Rising interest rates

13

ACCELERATION, DECELERATION & DECLINE Burns Home Value Index

Deceleration

200

Acceleration

Decline

180

160

140

120

100

80

2000

14

2001 2002 East Bay MSA

2003

2004 2005 Napa MSA

2006

2007 2008 2009 San Francisco MSA

2010

2011 2012 2013 San Jose MSA

2014 2015P 2016P 2017P Santa Rosa MSA

JBRE BURNS HOME VALUE INDEX Price projections through 2019

Chart Title

12% 10%

2017P

Total 11%

2%

Total 9%

2018P

Total 8%

1%

8%

1%

4% 3%

6%

3%

4% 2%

15

Total 4% 1%

5%

5%

Napa MSA

Santa Rosa MSA

Total 3% 1%

5%

0% -2%

2019P

San Jose MSA

4%

3%

-1%

-1%

San Francisco MSA

East Bay MSA

16 New Construction Inventory New Construction Absorption Pricing Index

October 16

September 16

August 16

July 16

June 16

May 16

April 16

March 16

February 16

January 16

December 15

November 15

October 15

September 15

August 15

July 15

June 15

May 15

April 15

March 15

February 15

January 15

December 14

November 14

October 14

September 14

August 14

July 14

June 14

May 14

April 14

March 14

February 14

January 14

Inventory/Absorption 1,400 $1,400

1,200 $1,200

1,000 $1,000

800 $800

600 $600

400 $400

200 $200

0 $0

Pricing Index

SAN FRANCISCO NEW CONDOMINIUMS 2014-2016

Average absorption of 68 units per month and 816 per year

SAN FRANCISCO NEW CONDOMINIUMS

Inventory & absorption projections through 2019 3000

2500

2000 New Condominium Absorption New Condominiums Entering the Market 1500

Projected New Condominium Absorption Inventory (beginning of year) Projected Inventory with Zero Approved Units

1000

500

0 2014

17

2015

2016

2017

2018

2019

Projected Inventory with all Approved Units

TARGETED PIPELINE Development

Developer / Owner

Proposed Units

Zhuguang Properties US

102

Subject Site 88 Arkansas Street Under Construction

1

655 Folsom

Approved

2

750 Harrison Street

3

768 Harrison Street

4

Huxton - 923 Folsom Street at 5th

5 6 7

99 Rausch Street - 1140 Folsom Street

Forton Fund LLC

89

Buddha Properties LLC

79

TBD

26

Align Real Estate

114

301 6th Street at Folsom

TBD

92

345 6th Street at Folsom

SST Investments LLC

38

Angela Cheung

112

8

1075 Market Street

9

119 7th Street

10

1145-1149 Mission Street at 7th

11

22 Franklin Street

12

1700 Market Street at Gough

13

1601 Mission Street at South Van Ness

14 15 16

Potrero Flats - 1301 16th Street

Encore Funds

90

Fullview Properties

39

Darren Lee

25

SST Investments

35

George McNabb

43

Trumark Urban

220

198 Valencia Street at Duboce

TBD

28

1863 Mission Street

TBD

37

Workshop 1

176

17

603 Tennessee Street at Mariposa

TBD

24

18

2177 3rd Street, 590 19th Street

TBD

109

DM Development and Grosvenor

69

19

815 Tennessee at 19th

20

901 Tennessee Street at 20th

21

1000-1004 Mississippi Street at 25th

22

1198 Valencia Street at 23rd

23

1278 - 1298 Valencia Street at 24th

24

5050 Mission Street at Seneca Avenue

Local Development Group

44

1000 Mississippi Street Investors

28

JS Sullivan

52

TBD

35

5050 Development, LLC

61

Units Under Construction:

18

NOTE: This a targeted pipeline only and does not reflect all projects under development in San Francisco.

616

Units Approved:

1,151

Total Units:

1,767

MARKET COMPARABLES New Construction Closings: August 2016 – January 2017 Development*

Number of Sales

Average Size (SF)

Size Range

Average Price

Price Range

$/SF

450 Hayes

13

991

614 - 1,514

$1,435,915

$882,900 - $2,250,000

$1,449

One Franklin

17

615

445 - 1,008

$799,124

$549,000 - $1,310,000

$1,300

Rockwell

160

836

500 - 1,762

$1,073,610

$613,600 - $3,134,000

$1,284

1001 17th

12

711

490 - 1,059

$784,333

$550,000 - $1,160,000

$1,103

Total/Averages

202

820

445 - 1,762

$1,056,641.27

$549,000 - $3,134,000

$1,288

New Construction List Prices: February 2017 Development* 1450 Franklin Rowan One Mission Bay Knox Simple Averages *Sorted by price per square foot 19

Average Size (SF)

Size Range

Price Range

$/SF

1,229

691 - 2,076

$820,000 - $3,900,000+

$1,413

973

654 - 1,282

$772,000 - $2,007,000

$1,344

1,247

487 - 1,973

$700,000 - $3,000,000+

$1,341

994

563 - 1,353

$700,000 - $1,800,000

$1,173

1,111

487 - 2,076

$700,000 - $3,900,000+

$1,317

MARKET COMPARABLES Resale Closings: August 2016 – January 2017 Development*

Number of Sales Average Size (SF)

Size Range

Average Price

Price Range

$/SF

Onyx on the Park

2

1,075

877 - 1,272

$1,442,000

$1,149,000 - $1,735,000

$1,342

Seventy2 Townsend

4

890

785 - 1,136

$1,138,500

$1,050,000 - $1,329,000

$1,279

Arterra

8

784

597 - 970

$961,063

$845,000 - $1,250,000

$1,227

170 Off Third

6

777

484 - 1,006

$885,667

$635,000 - $1,100,000

$1,140

The Potrero

4

889

778 - 1,025

$1,007,500

$815,000 - $1,235,000

$1,133

Madrone

5

1,338

1,124 - 1,625

$1,449,400

$1,060,000 - $1,738,000

$1,083

Homes on Esprit Park

4

1,093

852 - 1,391

$1,092,500

$850,000 - $1,220,000

$1,000

Millwheel North and South

3

1,336

1,256 - 1,467

$1,191,667

$1,090,000 - $1,250,000

$892

36

979

597 - 1,625

$1,101,737

$635,000 - $1,738,000

$1,125

Averages *Sorted by price per square foot 20

RECOMMENDED PRELIMINARY PRICING Type

Units

Size Range

Avg Size

Price Range

Average Price

Total Sales

$/SF

Studio w/out parking

20

398 - 552

500

$540,000 - $640,000

$605,974

$12,119,481

$1,213

1 Bedroom w/out parking

3

576 - 603

594

$665,000 - $675,000

$671,667

$2,015,000

$1,131

1 Bedroom w/parking

38

608 - 699

641

$800,000 - $903,000

$836,905

$31,802,385

$1,306

2 Bedroom w/parking

33

891 - 1,016

950

$1,180,000 - $1,355,000

$1,262,939

$41,677,000

$1,329

3 Bedroom w/parking

8

1,020 - 1,118

1,089

$1,400,000 - $1,620,000

$1,554,337

$12,434,694

$1,428

102

398 - 1,118

747

$540,000 - $1,620,000

$980,868

$100,048,559

$1,313

All Types

Parking revenue from 19 spaces offered to BMR buyers: Total Sales with all Parking Revenue (early 2017 market conditions):

$102,423,559

Total Sales with all Parking Revenue after 1 year of 3% annual appreciation (early 2018 market conditions):

$105,496,266

Total Sales with all Parking Revenue after 2 years of 3% annual appreciation (early 2019 market conditions):

$108,661,154

Notes & Assumptions: 1) Prices shown above are for market rate units only and exclude 25 BMRs. 2) Target absorption rate is 6-8 units per month, calculated from the opening of the Sales Center through final close of escrow.

3) There are 98 parking spaces, 79 of which have been allocated to market rates units as shown above. Prices include parking.

4) Common areas and unit finishes are assumed to be aligned with currently selling high-end San Francisco developments.

22

$2,375,000

RECOMMENDED PRELIMINARY PRICING VS. MARKET COMPARABLES $2,000,000 1001 17th

$1,800,000

450 Hayes $1,600,000

One Franklin Rockwell San Francisco

$1,400,000

Seventy2 Townsend 170 Off Third

$1,200,000

Arterra Homes on Esprit Park

$1,000,000

Madrone Millwheel North

$800,000

Onyx on the Park The Potrero

$600,000

Studio w/out pkg.

1 Bedroom w/out pkg.

$400,000

1 Bedroom w/pkg. $200,000

2 Bedroom w/pkg.

3 Bedroom w/pkg.

$0 0

21

200

400

600

800

1,000

1,200

1,400

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Comparison of average area of typical condos units types in San Francisco Studio unit area comparison # 1 2 3 4

# 1 2 3 4 5 6 7

Project 99 Rausch 88 ARKANSAS The Austin 1075 Market

Studio unit average area 417 432 438 463

2 beds unit area comparison 2 beds unit Project average area Rowan 866 88 ARKANSAS 897 Knox 951 The Austin 963 815 tennessee st 975 1075 Market 990 99 Rausch 1091

1 bed unit area comparison # 1 2 3 4 5 6 7

# 1 2 3 4 5 6 7

Project 88 ARKANSAS 1075 Market 99 Rausch The Austin Rowan 815 tennessee st Knox

1 bed unit average area 611 630 660 665 669 685 735

3 beds unit area comparison 3 beds unit Project average area 88 ARKANSAS 709 1075 Market 789 The Austin 988 Rowan 999 99 Rausch 1029 815 tennessee st 1078 Knox 1187

CONCLUSION: Area for each unit type in 88 Arkansas is relatively small, so the marketing strategy should be more focused on those more interested in small units : ‐ First time buyers ‐ Young couples without child ‐ Investors

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RESIDENTIAL FINISHES

Kitchens • Miele, Gaggenau & Bosch • Integrated design • High-quality cabinetry • One large undermount sink

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Bathrooms • Double vanities in masters • Frameless showers • Tri-view medicine cabinets • Quality fixtures

Features • Engineered hardwood flooring • Technology – state-of-the art but flexible, keyless entry • Upgraded Penthouse collection

ADDITIONAL DESIGN RECOMMENDATIONS

• All units need coat closet near entry • Two bedroom/2 bath units: – Double sinks needed in master bath – Shower in master bath • Unit A9: 118, 221, 327, 427 – Align W/D doors with kitchen cabinetry • Floor-to-floor unit numbering should be consistent for stacked floor plans vs. unit B5 (Units 106, 208, 311, 411, 509) – better from marketing perspective as less confusing

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AMENITIES & SERVICES • •

•

• • • • • • 26

Lobby Rooftop terrace and courtyards – Group and private seating – Firepit – Barbeques – Lit pots, WiFi and speakers Club room – Sound attenuation considerations – Staircase should not be attached to wall Pet run and washing station Beautifully-designed bicycle storage with workstation Leasing office can be conference room Virtual doorman or package locker Partner with local fitness provider – CrossFit Potrero Hill Retail space as amenity – café or restaurant

INTERIOR DESIGNERS

• Jay Jeffers • Handel Architects • Charles de Lisle

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TRAFFIC: QUANTITY AND QUALITY Sales Funnel 4,080 total leads in database

1,530 total tours

Projected • 102 units to sell • 6-8 units/month • 15 months to sell out Conversion Ratios • Sales:Leads = 1:40 • Sales:Tours = 1:15 29

272 new leads per month 102 tours per month 6-8 units per month

• Focused consumer marketing • In flight adjustments • Real time results • Call to action

USING PERSONICX PROFILES Online Ad Packages

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App Location Targeting

Facebook Advertising

POTRERO HILL / DOGPATCH BUYERS

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TARGET BUYERS Preliminary Demographics • 50%+ under 40 years old • 50%+ single • 60% have advanced degrees • Employed in tech, finance, healthcare, biotech, creative • 60% work in San Francisco • 30% work on Peninsula or in South Bay • Ethnically and culturally diverse • 10% international buyers • 80%+ will come from within Bay Area • 80% will use broker

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SALES & MARKETING PLAN

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PROJECT BRANDING

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PROJECT BRANDING

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INITIAL BRANDING CONCEPTS

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INITIAL BRANDING CONCEPTS

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INITIAL BRANDING CONCEPTS

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INITIAL BRANDING CONCEPTS

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INITIAL BRANDING CONCEPTS

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INITIAL BRANDING CONCEPTS

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SALES TRAILER & MODEL HOMES Sales Trailer • Accommodate staff of 3 • Private meeting space • Gallery with product and lifestyle imagery, finish boards, floor plans Model Homes • 2-3 models in building – studio, 2 bedroom • Partner with interior designer • Target specific buying groups • Designer pop-ups and rotating artwork

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CO-MARKETING & EVENTS | BUYER RETENTION Local Partnerships Coffee bar in lobby by Farleyâ&#x20AC;&#x2122;s, events catered by Umi, walking tour of art studios or breweries, rotating artwork from Collage Gallery, coffee table book from Christopher Books as move-in gift, Design Center events

Neighborhood Film Produce short film highlighting Potrero Hill lifestyle, residents, artists and culture

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Community Engagement Invite VIPs onsite for hosted events and fundraisers Potential partners: SPCA, San Francisco Film Society, CCA

Private Tasting Experience Offer culinary experience, cookbook or gift certificates to popular local restaurants Potential partners: Chez Maman, Plow, Aperto

PRODUCT LAUNCH Launch Fall 2018 Pros • Potential for higher prices – 1%+ • Lower marketing costs • Product to show • Potential for quicker absorption • First closings closer – buyer retention Cons • Harder to achieve 50% by first close of escrow • Lending – 35% requirements for closings

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PRELIMINARY SALES & MARKETING BUDGET Assumptions: 127 units to sell (102 market rate) with monthly average absorption of 6-8 units and 18-month sales period. Commence sales in September 2018.

Category

Cost

Notes

Sales Center Build Out & Permanent Displays

TBD

Trailer, furniture, interior design fees, displays, space

Sales Center Set Up

$14,500

Computers, iPads, phones

Ongoing Sales Center Maintenance

$83,300

Copier/computer maintenance, equipment, office supplies, flowers

Collateral Materials

$120,000

Brochures, stationery system, copywriting, photography, renderings

Digital Marketing

$374,000

Website, SEO, SEM, PPC, banner ads, social media

Signage

$82,500

Banners, construction signage, A-frames, window signage

Direct Marketing

$20,000

Eblasts

Traditional Print Advertising

$0

Creative and insertion, media planning (NOT INCLUDED)

Public Relations

$1,000

Press releases, exclusive pitches (hourly basis)

Events & Promotions

$37,000

Ongoing prospect/broker events, buyer retention gifts, broker gifts

Development Orientation Training

$1,000

Development Orientation Training (DOT)

Model Homes

$170,000

Studio, 1 bedroom, 2 bedroom, maintenance, moving

Below Market Rate Program

$13,500

Events, eblasts, printed materials

Estimated Total: 53

$916,800