APPRAISAL REPORT -...

APPRAISAL REPORT 96 Unit Apartment Complex APPRAISAL OF: Parkside Villas Apartments 204-215 Ramblewood Drive Shelby, Cleveland County, North Carolina 28152 Calhoun Sands File No. 2017-01-0347 Client File No.: 1000029395 VALUATION DATES: Effective As-Is Date: September 26, 2017 Report Date: October 5, 2017

PREPARED FOR: Ms. Tami Pickel Cherrywood Commercial Lending, LLC 20955 Pathfinder Road #205 Diamond Bar, CA 91765 PREPARED BY: CSVA – Atlanta Office 1010 Huntcliff NE, Suite 1350 Atlanta, GA 30350 CSVA – Columbia Office 1528 Blanding Street Columbia, SC 29201

Calhoun Sands Valuation & Advisory, Inc. | Phone: +1 404.719.4901 | Fax: +1 404.719.4902 | www.calhounsands.com

October 5, 2017 Ms. Tami Pickel Cherrywood Commercial Lending, LLC 20955 Pathfinder Road #205 Diamond Bar, CA 91765 Re: 96 Unit Apartment Complex Parkside Villas Apartments 204-215 Ramblewood Drive Shelby, Cleveland County, North Carolina 28152 Client File No.: 1000029395

Dear Ms. Pickel,

At your request, we have inspected and appraised the above referenced property to provide a reasonable and documented opinion of the Market Value As Is of the fee simple interest in the subject property as of the effective date(s) of this appraisal. Our value conclusion(s) are as follows:

Based on interviews with brokers, investors and developers, the appraisers have been informed that normal exposure and marketing periods of less than 12 months are required to sell this type of property.

Please refer to the Assumptions & Limiting Conditions and Special Valuation Premises and Assumptions sections in the preface of this report. The above indicated value is subject to these assumptions and should further investigation prove these assumptions incorrect, the appraisers reserve the right to amend this report and any value conclusions accordingly.

Appraisal Premise Real Property Interest Effective Date Value Conclusion

Market Value As-Is Fee Simple September 26, 2017 $4,600,000

MARKET VALUE CONCLUSIONS

CSVA – Atlanta Office 1010 Huntcliff, Suite 1350

Atlanta, Georgia 30350

+1 404 719 4901

www.calhounsands.com


Cherrywood Commercial Lending, LLC October 5, 2017 Page Two

Within the valuation analysis, we developed the Income and Sales Comparison Approaches to derive indications of Market Value for the subject property. The Cost Approach was not utilized within our analysis due to the significant age of the subject improvements.

As a part of the client’s requested scope of work, the appraisers have also been asked to provide Insurable Replacement Cost Value for the subject building. The appraisers’ estimate of insurable replacement value is concluded as follows:

This appraisal report is intended to comply with the reporting requirements set forth under the Uniform Standards of Professional Appraisal Practice as promulgated by the Appraisal Standards Board of the Appraisal Foundation as well as the Appraisal Standards adopted by the bank supervision offices of the Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve System. The depth of discussion contained in this report is specific to the needs of the client and for the intended use.

The appraisers certify that we have completed all aspects of this valuation, including reconciling our opinion of value, free of influence from the client, client’s representatives, borrower, or any other party to the transaction. In addition, employment of the appraisers was not conditional upon the appraisers producing a specified value or a value within a given range. Future employment prospects are not dependent upon the appraisers producing a specified value. Employment of the appraisers and payment of the fee is not based on whether a loan application is approved or disapproved.


Valuation ApproachMarket Value

As-Is

Cost Approach: N/ASales Comparison Approach: $4,540,000Income Approach: $4,620,000

Reconciled to: $4,600,000Per Unit: $47,917

INSURABLE VALUE

Insurable Replacement Value $ 5,430,000


Cherrywood Commercial Lending, LLC October 5, 2017 Page Three

A discussion of the subject site, neighborhood, demographics, assumptions, and the data and reasoning upon which these value estimates are based, has been included in the narrative report that follows.

Thank you for the opportunity to serve you in this appraisal assignment.

Respectfully,

Calhoun Sands Valuation & Advisory, Inc.

Mark C. Cartin Certified General Real Estate Appraiser North Carolina License No. A7725 Expires 06-30-2018

Bennett J. Sands, MAI, ASA Certified General Real Property Appraiser North Carolina License No. A7857 Expires 06-30-2018

CALHOUN SANDS VALUATION & ADVISORY, INC. | PAGE 5

96 UNIT APARTMENT COMPLEX | TABLE OF CONTENTS

Table of Contents

Table of Contents .......................................................................................................................................................... 5 Certification ................................................................................................................................................................... 6 Executive Summary ....................................................................................................................................................... 7 Valuation Premises & Assumptions ............................................................................................................................... 8 Assumptions & Limiting Conditions ............................................................................................................................. 10 Introduction ................................................................................................................................................................. 20 Property Identification ................................................................................................................................................ 20 Ownership Data ........................................................................................................................................................... 20 Client, Intended User, Purpose and Intended Use of Appraisal .................................................................................. 21 Property Interest Appraised ........................................................................................................................................ 22 Effective Appraisal Date .............................................................................................................................................. 22 Regulatory Compliance and Reporting Format ........................................................................................................... 22 Definition of Market Value .......................................................................................................................................... 22 Scope of The Appraisal ................................................................................................................................................ 23 Metropolitan Overview ............................................................................................................................................... 25 Cleveland County Overview ........................................................................................................................................ 31 Neighborhood Overview ............................................................................................................................................. 36 Market Analysis ........................................................................................................................................................... 40 Site Analysis ................................................................................................................................................................. 50 Improvements Analysis ............................................................................................................................................... 53 Zoning .......................................................................................................................................................................... 59 Taxes & Assessments ................................................................................................................................................... 62 Highest & Best Use ...................................................................................................................................................... 64 Valuation Process ........................................................................................................................................................ 68 Insurable Value ............................................................................................................................................................ 70 Sales Comparison Approach ........................................................................................................................................ 71 Income Approach ........................................................................................................................................................ 78 Direct Capitalization .................................................................................................................................................... 78 Reconciliation .............................................................................................................................................................. 93 Value Summary ........................................................................................................................................................... 94 Marketing & Exposure Period ..................................................................................................................................... 95 Addenda ...................................................................................................................................................................... 96 Comparable Improved Sales ........................................................................................................................................ 97 Rent Comparable Profiles .......................................................................................................................................... 101 Legal Description ....................................................................................................................................................... 105 Rent Roll .................................................................................................................................................................... 106 Opoerating Statements ............................................................................................................................................. 110 Engagement Letter .................................................................................................................................................... 113 Qualifications ............................................................................................................................................................. 115


96 UNIT APARTMENT COMPLEX | CERTIFICATION

Certification

We certify that, to the best of my knowledge and belief:

1. The statements of fact contained in this report are true and correct.

2. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and is my personal, impartial, and unbiased professional analyses, opinions, and conclusions.

3. We have no present or prospective interest in the property that is the subject of this report, and no personal interest with respect to the parties involved.

4. We have no bias with respect to the property that is the subject of this report or to the parties involved in this assignment.

5. Our engagement in this assignment was not contingent upon developing or reporting predetermined results.

6. Our compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal.

7. The reported analyses opinions, and conclusions were developed, and this report has been prepared, in conformity with the Rules and Regulations of the North Carolina Real Estate Appraisers Board and the Code of Professional Ethics & Standards of Professional Appraisal Practice of the Appraisal Institute, which includes the Uniform Standards of Professional Appraisal Practice, and FIRREA.

8. This assignment was made subject to regulations of the State of North Carolina Real Estate Appraisers Board. The undersigned state certified appraisers have met the requirements of the board that allow this report to be regarded as a certified appraisal.

9. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives.

10. Mark C. Cartin has personally inspected the subject property. Bennett J. Sands, MAI, ASA has not personally inspected the subject property.

11. No one provided significant real property appraisal assistance to the person(s) signing this report.

12. The appraisers have performed no services, as an appraiser or in any other capacity, regarding the property that is the subject of this report within the three-year period immediately preceding acceptance of this assignment.

13. As of the date of this report, I Bennett J. Sands, MAI, ASA have completed the requirements of the continuing education program for Designated Members of the Appraisal Institute.

14. As of the date of this report, I Mark C. Cartin have completed the Standards and Ethics Education Requirements for Candidates of the Appraisal Institute.

Mark C. Cartin Certified General Real Estate Appraiser North Carolina License No. A7725 Expires 06-30-2018

Bennett J. Sands, MAI, ASA Certified General Real Property Appraiser North Carolina License No. A7857 Expires 06-30-2018


96 UNIT APARTMENT COMPLEX | EXECUTIVE SUMMARY

Executive Summary

Summary of Salient Facts

Property Type Multifamily Property Sub-Type Garden, Low-Rise Property Description 96-Unit, 74,248 Rentable Square-Foot Garden, Low-Rise Apartment Complex Tenancy Multi-Tenant Location 204-215 Ramblewood Drive, Shelby, Cleveland County, North Carolina 28152 Tax Parcel ID 72702 Client Cherrywood Commercial Lending, LLC Client File No. 1000029395 Property Use Multifamily Property Rights Appraised Fee Simple Interest Purpose To develop an opinion of the Market Value As-Is for the subject property Appraisal Report Format Narrative Appraisal Report Site Land Area 370,042 Square Feet; 8.50-Acre Site Flood Zone Zone X; No Flood Hazard Area. Community-Panel Number 3710253600J, dated

February 20, 2008. Improvements Building Size 74,248 Square Feet Year Built; Condition 1974; Renovated 2015-2017; Average Personal Property None considered Zoning R-6, Residential District Highest and Best Use As Vacant; As Improved Multi-Family Residential; Apartment Extraordinary Assumptions This appraisal contains two (2) extraordinary assumptions. Hypothetical Conditions This appraisal does not contain any hypothetical conditions. Date of Inspection September 26, 2017 Effective As-Is Value Date September 26, 2017 Marketing Period; Exposure Period Less than 12 months; Less than 12 months

Value Conclusions As-Is

Cost Approach N/A Sales Comparison Approach $4,540,000 Income Approach $4,620,000 Market Value Conclusion $4,600,000 Per Unit $47,917


96 UNIT APARTMENT COMPLEX | VALUATION PREMISES & ASSUMPTIONS

Valuation Premises & Assumptions

Extraordinary Assumptions

This appraisal contains two (2) extraordinary assumptions.

1. Floor plans and site plans were requested but not provided. The unit sizes are based upon a combination of measurements made on site as well as information provided by Shelby County Tax Assessors office. The appraisal is based upon the Extraordinary Assumption that the unit sizes and overall square footage referenced herein are a reasonable representation of the actual square footage of the subject.

2. The subject has been mostly renovated over the past two years. There are currently 16 down units at the subject, which are in various stages of repair. A detailed construction budget was not provided; however, the total renovation costs and costs incurred to date were provided by the owner. The appraisal is based upon the Extraordinary Assumption that all remaining construction items at the subject can be completed at a cost similar to that reported herein and in a timeframe similar to that concluded.

Hypothetical Conditions

This appraisal does not contain any hypothetical conditions.

Other Premises & Assumptions

To facilitate our valuation analysis, we have assumed the following:

1. We have made a physical inspection of the property from various vantage points within the subject property and from surrounding areas. Our inspection was completed in sufficient detail to determine the marketability of the property. We assume any unseen areas of the subject property are in average condition and consistent with the description provided by the property owner.

2. A professional inspector determines the precise physical condition, remaining useful life, and operability of major building components like the structural system, roof cover, electrical system, plumbing, and HVAC. The appraisers did not test or inspect these systems. The appraisers assume these systems are in sufficient working order for the purposes of this report. Should this assumption prove incorrect, we reserve the right to amend this report accordingly.

3. We were not provided with nor obtained a Phase I Environmental Site Assessment on the subject property. Physical inspection of the subject property and surrounding areas did not indicate any potential environmental problems. However, we are not qualified to identify such environmental problems and highly recommend that a qualified individual inspect the property. We assume that there are no significant environmental problems affecting the subject property.


96 UNIT APARTMENT COMPLEX | VALUATION PREMISES & ASSUMPTIONS

4. The subject property has all public utilities at or adjacent to the site and reportedly, the existing utility lines, including sewer, should be able to provide service to the existing development. The appraisers have assumed the existing utility lines are sufficient to provide service to the existing subject site.

Should any of the above assumptions prove incorrect, we reserve the right to amend, revise and rescind this report, including value conclusions, accordingly.


96 UNIT APARTMENT COMPLEX | ASSUMPTIONS & LIMITING CONDITIONS

Assumptions & Limiting Conditions

The analysis and the attached report are made subject to the following conditions and assumptions:

1. Any legal description or plats reported herein are assumed to be accurate. Any sketches, plats, or drawings included herein are included to assist the reader in visualizing the property. We have made no survey of the property and assume no responsibility in connection with such matters.

2. No responsibility is assumed for matters legal in nature. Title is assumed to be good and marketable and in fee simple unless

discussed otherwise in the report. The property is considered to be free and clear of existing liens, assessments, and encumbrances, except as noted.

3. It is assumed that all water and/or sewer facilities (existing and proposed) are, or will be, in good working order and are, or

will be, of sufficient size to adequately serve any proposed buildings or development unless otherwise noted. 4. The physical condition of the improvements described herein is based on visual inspection. No liability is assumed for the

soundness of structural members since no engineering tests were conducted. No liability is assumed for the condition of mechanical equipment, plumbing, or electrical components as complete tests were not made.

5. Any proposed or incomplete improvements included in this report are assumed to be satisfactorily completed within a

reasonable length of time according to plans and specifications submitted and in a workmanlike manner. 6. Unless otherwise noted herein, it is assumed that there are no encroachments or violations of any zoning or other

regulations affecting the subject property and that the utilization of the land and improvements is within the boundaries or property lines of the property described.

7. The property is assumed to be under financially sound, competent and aggressive ownership and management. 8. The values reported herein apply to the entire property and any pro-ration or division of the total into fractional interests

will invalidate the values, unless such pro-ration or division of interests is set forth in the report. 9. Any projections of income and expenses, including the reversion at time of resale, are not predictions of the future. Rather,

these represent the best estimate of current market thinking of what future trends will be. No warranty or representation is made that these projections will materialize. The real estate market is constantly fluctuating and changing. It is not the task of an appraiser to estimate the conditions of a future real estate market, but rather to reflect what the investment community envisions for the future in terms of expectations of growth in rental rates, expenses, and supply and demand.

10. Unless subsoil opinions based upon engineering core borings were furnished, it is assumed there are no subsoil defects

present that would impair development of the land to its maximum permitted use, or would render it more or less valuable. 11. In any assignment involving improvements, the existence of potentially hazardous material used in the construction or

maintenance of buildings, such as the presence of formaldehyde foam insulation, the existence of toxic waste, and/or the existence of asbestos insulation which may be present on the property, has not been considered, unless otherwise noted. Appraisers are not qualified to detect such substances. The client is urged to retain an expert in this field.

12. Any division of the land and improvement values determined herein is applicable only under the program of utilization

shown. These separate valuations are invalidated by any other application. 13. We are not required to give further consultation, testimony or be in attendance in court by reason of this analysis or report

with reference to the property in question, unless arrangements have been made previously therefore. 14. The appraisal is based on the premise that there is full compliance with all applicable federal, state, and local environmental

regulations and laws unless otherwise stated in the report; further, that all applicable zoning, building, and use regulations and restrictions of all types have been complied with unless otherwise stated in the report; still further, it is assumed that all required licenses, consents, permits, or other legislative or administrative authority, local, state, federal and/or private entity or organization have been or can be obtained or renewed for any use considered in the value conclusion(s).


96 UNIT APARTMENT COMPLEX | ASSUMPTIONS & LIMITING CONDITIONS

15. Neither all nor any part of the contents of this report shall be conveyed to the public through advertising, public relations, news, sales, or other media, without the prior written consent and approval of the author; this limitation pertains to any valuation conclusions, the identity of the analyst or the firm, and any reference to the Appraisal Institute, or to the designations thereof.

16. Although the appraiser(s) has made, insofar as is practical, every effort to verify as factual and true all data set forth in this

report, no responsibility is assumed for the accuracy of any information furnished the appraiser(s) either by the client or others. If for any reason, future investigations should prove any data to be in substantial variance with that presented in this report, the appraiser(s) reserves the right to alter or change any or all conclusions of value.

17. This report is null and void if used in any connection with a real estate syndication, defined as a general or limited

partnership, joint venture, unincorporated association or similar organization formed for or engaged in investment or gain from an interest in real property, including but not limited to a sale, exchange, trade, development, or lease of property on behalf of others, or which is required to be registered with the U.S. Securities and Exchange Commission or any Federal or State Agency that regulates investments made as a public offering.

18. The Americans with Disabilities Act (ADA) became effective January 1992. We have not made a specific compliance survey

of this property to determine if it conforms to the requirements of the ADA. A compliance survey of the property could possibly reveal that the property is not in compliance with one or more of the requirements of the Act. Noncompliance could have a negative effect upon the value of the property. Since we have no direct evidence relating to this issue, we did not consider possible noncompliance with the requirements of ADA in determining the value of the property.

19. ACCEPTANCE OF, AND/OR USE OF, THIS APPRAISAL REPORT CONSTITUTES ACCEPTANCE OF THE ABOVE CONDITIONS.


96 UNIT APARTMENT COMPLEX | SUBJECT PHOTOGRAPHS

Subject Photographs

View North along Ramblewood Drive View South along Ramblewood Drive

View of Subject Access Exterior View of Subject

Exterior View of Subject Exterior View of Subject



Subject Photographs






Subject Photographs

Interior View of Subject Interior View of Subject





Subject Photographs


Interior View of Subject Down Unit Interior View of Subject Down Unit




Subject Photographs


Interior View of Laundry Room Interior View of Laundry Room

Interior View of Office Interior View of Office


96 UNIT APARTMENT COMPLEX | SUBJECT MAPS

Tax Plat


96 UNIT APARTMENT COMPLEX | SUBJECT MAPS

GIS Aerial

Aerial


96 UNIT APARTMENT COMPLEX | INTRODUCTION

Introduction

PROPERTY IDENTIFICATION The subject of this appraisal is a 96-unit apartment complex with a total of 74,248 rentable square feet of space contained in 6 garden, low-rise buildings located at 204-215 Ramblewood Drive, Shelby, Cleveland County, North Carolina. The subject property is identified as tax parcel ID #72702 by the Cleveland County Tax Assessor. The subject is located along the north and south sides of Ramblewood Drive and the west side of Dodd Street, just west of S. Lafayette Street in the City of Shelby, Cleveland County, North Carolina.

The subject includes 96 units with a mix of 1 bedroom, 2 bedroom, and 3 bedroom units. On-site amenities include a laundry room. The subject’s unit mix is as follows:

The subject is situated on a total 8.495-acre site and currently the property is 82.3% occupied. The subject has under-gone significant renovations over the past two years, with 80 of the 96 units having been completed. The renovations include all new interiors, new roofs, new windows, new HVAC units, and exterior upgrades. In total $1.7 million has been spent to date or $21,250 per renovated unit. The 16 unrenovated units are currently down and un-rentable. Of these units, 4 – 3 bedroom units are nearing completion, 4 – 2 bedroom units have been gutted and 8 units are awaiting repair, including 4 – 3 bedroom units and 4 – 2 bedroom units. Remaining costs to complete these units was reported by the owner at approximately $300,000 or $18,750 per unit.

Of the 80 renovated units, 79 are occupied indicating an occupancy rate of 98.75% of available inventory.

OWNERSHIP DATA Best evidence indicates that as of the effective date of the appraisal, the title to the subject property is held by:

Owner Information Source

Main Street Village, Inc. Deed Records & Tax Records

Apartment UnitsUnit

No. of Units Occupied Type Size (SF) Rentable (SF)

20 19 1 BR, 1 BA 624 12,48056 48 2 BR, 1.5 BA 778 43,56820 12 3 BR, 2.5 BA 910 18,200

96 79 Totals/Averages 773 74,24882.3% Occupancy 81.0%

SUBJECT UNIT MIX



HISTORY OF THE PROPERTY The subject parcel is currently owned by Main Street Village, Inc.. Cleveland County deed records indicate that there have been no other transfers in the ownership of the subject property during the past three years other than those shown below.

Closed Prior Sales/Transfer of Ownership

Transaction Type Transfer Date Transfer Price Grantor Grantee Deed Book

& Page

Sale 6/05/2015 $665,000 Parkside Villas, LLC Main Street Village, Inc.

1698 / 2305

Listing Current $4,500,000 Main Street Village, Inc. N/A N/A

The subject property is currently listed for $4,500,000 or $46,875 per unit by Marcus & Millichap. The listing price is for the subject as is with 16 down units. The current asking price is below the Market Value As Is, which is due to the handling of the renovated units. The variance would be attributed as entrepreneurial profit to a developer for undertaking the remaining renovations.

As shown above, the subject was purchased in June 2015 for $665,000. The owner reported that the property was in poor condition when it was purchased with only two occupied units. The subject has since under-gone significant renovations and has been leased-up to a stabilized level (when considering available inventory). The changes to the subject’s physical state and operation account for the variance between the Market Value As Is conclusion and the past sale price.

LEGAL DESCRIPTIONS The appraisers obtained a legal description from deed records, which is presented in the Addenda to this report. This information is assumed correct, but should further investigation prove this assumption incorrect, we reserve the right to amend this report, and the value conclusions, accordingly.

CLIENT, INTENDED USER, PURPOSE AND INTENDED USE OF APPRAISAL The client of the appraisal is Cherrywood Commercial Lending, LLC. The intended user of this appraisal is Cherrywood Commercial Lending, LLC and its affiliates and participants, governmental/non-governmental agencies, legal counsel or other transaction participants. The purpose of this appraisal is to develop an opinion of the Market Value As-Is for the subject property. The intended use of the appraisal is for use in connection with general business decisions in a federally regulated transaction.



PROPERTY INTEREST APPRAISED This is a valuation of the fee simple interest in the subject property.

A fee simple interest is defined as: Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat.

A leased fee interest is defined as: A freehold (ownership interest) where the possessory interest has been granted to another party by creation of a contractual landlord-tenant relationship (i.e. a lease).

Source: The Dictionary of Real Estate Appraisal, Fifth Edition, Appraisal Institute

EFFECTIVE APPRAISAL DATE The effective as-is appraisal date is September 26, 2017, which is the date of the most recent inspection by the appraisers.

REGULATORY COMPLIANCE AND REPORTING FORMAT This appraisal report is intended to comply with the reporting requirements set forth under the Uniform Standards of Professional Appraisal Practice as promulgated by the Appraisal Standards Board of the Appraisal Foundation as well as the Appraisal Standards adopted by the bank supervision offices of the Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve System. As such, it presents a summary of the data, reasoning, and analyses that were used in the appraisal process to develop the appraisers’ opinion of value. The depth of discussion contained in this report is specific to the needs of the client and for the intended use stated below. The appraisers are not responsible for the unauthorized use of this report.

DEFINITION OF MARKET VALUE Market value, as defined in the Agencies’ appraisal regulations, is as follows:

The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition are the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

1) Buyer and seller are typically motivated;

2) Both parties are well informed or well advised, and each acting in what they consider their own best interest;

3) A reasonable time is allowed for exposure in the open market;

4) Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and

5) The price represents a normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.



Source: Department of the Treasury, Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of Thrift Supervision and National Credit Union Administration under 12 CFR, Part 34, Real Estate Appraisals and Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”); and the Interagency Appraisal and Evaluation Guidelines, Federal Register, Volume 75, No. 237, December 10, 2010.

SCOPE OF THE APPRAISAL An appraisal is generally defined as an opinion of value based on the parameters of the assignment as of a specified date. The valuation of real estate is based on a process of data collection, analysis and conclusions by a nonbiased third party. The intended use, intended user, client, types of values, and date of this appraisal, along with the property rights appraised, have been previously defined. The scope of the appraisal based on these definitions includes a full analysis of the site with a physical inspection and photographs taken on the inspection date. Improved (or existing) income producing property is best valued through the application of the three traditional approaches to value, i.e., the Cost Approach, the Sales Comparison Approach, and the Income Approach. The initial step in the appraisal process is the market research phase, whereby basic data is collected and refined from all available sources.

In the valuation section of this report, we developed the Sales Comparison and Income Approaches to derive indications of Market Value for the subject property. The Cost Approach was not utilized within our analysis due to the significant age of the subject improvements, and it is our opinion that the Income and Sales Comparison Approaches provide the best indication of value for the subject.

We have made a physical inspection of the property from various vantage points within the subject property and from surrounding areas. We assume any unseen portions of the subject property are finished similar to the observed areas.

We have researched the local region, county and immediate neighborhood to understand the current economic and social climate within which the subject property operates. Additionally, we have surveyed and analyzed the current competition in order to understand the demand and supply characteristics of the local area.

Data sources include the local municipal government, public records, chamber of commerce, private real estate professionals, owners/investors of comparable properties, on-site management and/or leasing agents at comparable properties, the actual subject property history, and real estate publications. This information is verified and cross-checked for accuracy and applicability.

Information relating to the subject property also collected includes ad valorem tax data, zoning information, utility availability, flood plain information, topography, frontage, access and existing improvements. Other properties in the neighborhood are inspected to develop an overall opinion of the character, composition, and future trends of the submarket. The consideration of all these factors, acting in concert, leads to a conclusion of the highest and best use for the subject property, which is the basis of the valuation methodology.



We spoke to brokers, owners and investors active in the subject market and we have utilized commercial data services and public records to obtain information related to the sales histories of properties similar to the subject. The data collected from the various market participants, our personal observations and public and commercial resources was utilized to derive indications of value for the subject which we reconciled into a final opinion of market value.

COMPETENCY

The appraisers have competency to develop and report the market value indications and opinions contained within this report. Mark C. Cartin is a State Certified General Real Property Appraiser with commercial appraisal experience on a wide variety of properties located in the general subject market area. Bennett J. Sands, MAI, ASA is a State Certified General Real Property Appraiser having appraised a wide variety of properties located in the general subject market area. The knowledge of the specific subject market area and subject property type is sufficient for both appraisers to complete the herein described scope of work.


96 UNIT APARTMENT COMPLEX | METROPOLITAN OVERVIEW

Metropolitan Overview

General Description

Charlotte is the largest city in North Carolina and the seat of Mecklenburg County. The Charlotte-Concord-Gastonia, NC-SC Metropolitan Statistical Area (MSA) is defined as seven counties in North Carolina and three counties in South Carolina. Charlotte is the 17th largest city and 22nd largest metro area in the United States. Charlotte is the 2nd largest city in the Southeast. The official Charlotte metropolitan area includes the Charlotte-Concord-Gastonia MSA (Cabarrus, Chester, Gaston, Iredell, Lancaster, Lincoln, Mecklenburg, Rowan, Union and York counties).

The regional area around the city was at one time called Metrolina, a term which has fallen out of widespread general use, though it still maintains a presence and is used by the North Carolina Department of Transportation. The term does retain a marketing value, and is thus also used by many businesses in the area. Metrolina refers to the region that includes the cities of: Charlotte, Concord, Gastonia and Rock Hill. The name Metrolina came into fashion when North Carolina's other two large metropolitan areas took on nicknames - the Triangle for Raleigh/Durham/Chapel Hill and the Triad for Greensboro/Winston-Salem/High Point. (The Triad now goes by the name Piedmont Triad to distinguish it from other tri-cities.)



The term Charlotte USA refers to the 16-county region, which includes 12 counties in North Carolina and 4 counties in South Carolina. The term is championed by the Charlotte Regional Partnership, a non-profit organization made up of both private- and public-sector members from throughout the Charlotte region. This organization represents one of seven officially designated economic development regions in North Carolina.

Population

The following table illustrates population trends within the metropolitan region.

Between 2010 and 2017, the number of households in the metro area increased from 848,745 to 952,529. Current forecasts indicate that the number of households will increase to 1,035,306 by 2022, which represents a projected annual growth rate of 1.68%.

The estimated median household income for the metro area for 2017 was $55,278. The median household income for 2022 is projected to be $62,476. This equates to an annual growth rate of 2.48% in median household income.

Demographic and Income Profile - Appraisal VersionCharlotte-Concord-Gastonia Prepared by CSVA, Inc.Geography: Metropolitan Area (CBSA)

Source: U.S. Census Bureau, Census 2010

Median Household Income 2.48% 1.93% 2.12%

Families 1.56% 0.95% 0.71%Ow ner HHs 1.64% 1.00% 0.72%

Population 1.71% 1.10% 0.83%Households 1.68% 1.06% 0.79%

Median Age 36.1 37.4 37.8Trends: 2017 - 2022 Annual Area State National

Ow ner Occupied Housing Units 575,908 618,230 670,487Renter Occupied Housing Units 272,837 334,299 364,819

Families 578,025 640,123 691,789Average Household Size 2.57 2.59 2.59

Population 2,217,012 2,499,116 2,720,580Households 848,745 952,529 1,035,306

Summary Census 2010 2017 2022

Demographic and Income Profile - Appraisal VersionCharlotte-Concord-GastoniaGeography: Metropolitan Area (CBSA) Prepared by CSVA, Inc.

2017 2022 Trend

$ 55,278 $ 62,476 2.48% $ 79,522 $ 90,453 2.61% $ 30,599 $ 34,688 2.54%


Summary

Median Household IncomeAverage Household IncomePer Capita Income



Employment

The table below shows estimated labor force, employment and unemployment information in the Charlotte MSA for August 2017. These figures are preliminary and not seasonally adjusted. The total civilian labor force for the MSA was 1,300,665 of which 1,245,513 were employed and 55,152 were unemployed. The unemployment rate was 4.20% percent, one of the lowest unemployment rates the MSA has experienced since the recession.

Presented below is not seasonally adjusted Labor Force, Employment and Unemployment data for the Charlotte MSA between 2012 and 2016. It is evident the Charlotte MSA is currently achieving significantly greater employment levels than that experienced over the previous five years.

The table below shows estimated average wage information for the Charlotte MSA for the May 2016, the most recent data available.

Area NameCivilian Labor

ForceNumber

EmployedNumber

UnemployedUnemployment

Rate (%)

Charlotte MSA 1,300,665 1,245,513 55,152 4.20

Source: Bureau of Labor Statistics

Year Labor Force Employed UnemployedUnemployment

Rate (%)

2012 1,173,837 1,065,187 108,650 9.302013 1,183,153 1,090,236 92,917 7.902014 1,203,212 1,129,094 74,118 6.202015 1,240,682 1,172,572 68,110 5.502016 1,282,614 1,221,702 60,912 4.70

AreaTotal Average Employment

Median Hourly Wage

Mean Hourly Wage

Average Annual Wage

Charlotte MSA 1,160,870 $17.77 $23.85 $49,600North Carolina 4,231,020 $16.31 $21.77 $45,280




The table below shows the most recent data available for the distribution of industries in the Metropolitan Statistical Area.

Economy

Charlotte has become a major U.S. financial center. The nation's second largest financial institution by assets, Bank of America, calls the city home. The city was also the former corporate home of Wachovia until its 2008 acquisition by Wells Fargo. Since then, Charlotte became the regional headquarters for East Coast Operations of Wells Fargo, which is headquartered in San Francisco, California. Charlotte also serves as the headquarters for Wells Fargo's capital markets activities including sales and trading, equity research, and investment banking. Bank of America's headquarters, along with other regional banking and financial services companies, are located primarily in the Uptown central business district.

Charlotte has eight Fortune 500 companies in its metropolitan area, listed in order of their rank: Bank of America, Lowe's in suburban Mooresville, Nucor (steel producer), Duke Energy, Sonic Automotive, Family Dollar, SPX Corporation (industrial technology), and Domtar (in suburban Fort Mill). The Charlotte area includes a very diverse range of businesses, including foodstuffs such as Chiquita Brands International, Harris Teeter, Lance, Inc., Carolina Foods Inc., Bojangles', Food Lion, Compass Group USA, and Coca-Cola Bottling Co. Consolidated, motor and transportation companies like RSC Brands, Continental Tire the Americas, LLC., Meineke Car Care Center, Carlisle Companies (along with several other services), and U.S. Airways, along with a wide array of other businesses.

Rank Industry Employment Employees

1 Health care and social assistance 5,304 124,847

2 Retail trade 7,575 114,411

3 Accommodation and food services 4,681 97,373

4 Manufacturing 2,285 90,178

5 Finance and insurance 3,901 77,011

6 Admin, support, w aste mgmt, and remediation 3,391 76,557

7 Professional, scientif ic, and technical services 6,436 58,805

8 Wholesale trade 3,891 58,551

9 Construction 5,108 45,507

10 Transportation and w arehousing 1,585 44,466

11 Other services (except public administration) 5,583 43,615

12 Management of companies and enterprises 730 33,699

13 Information 951 23,018

14 Arts, entertainment, and recreation 962 21,935

15 Educational services 702 18,725

16 Real estate and rental and leasing 2,954 14,984

17 Utilities 128 5,000 to 9,99918 Agriculture, forestry, f ishing and hunting 85 613

19 Mining, quarrying, and oil and gas extraction 37 495

20 Industries not classif ied 119 100 to 249

Source: U.S. Census Bureau, 2014 County Business Patterns



Charlotte is the major center in the U.S. motorsports industry, housing multiple offices of NASCAR, the NASCAR Hall of Fame and Charlotte Motor Speedway in Concord. Approximately 75% of the NASCAR industry's race teams, employees and drivers are based nearby. The large presence of the racing technology industry along with the newly built NHRA dragstrip, zMAX Dragway at Concord, is influencing other top professional drag racers to move their shops to Charlotte as well. The Metrolina Speedway is expected to bring more local racing along with a skate park, shops, restaurants, and an upscale hotel.

The Charlotte Region has a major base of energy-oriented organizations. In the region, there are more than 240 companies directly tied to energy sector collectively employing more than 26,400. Since 2007 more than 4,000 energy sector jobs have been announced. Major energy players in Charlotte include AREVA, Babcock and Wilcox, Duke Energy, Electric Power Research Institute, Fluor, Metso Power, Piedmont Natural Gas, Siemens Energy, Shaw Group, Toshiba, URS Corp., and Westinghouse. The University of North Carolina at Charlotte has a reputation in energy education and research and its Energy Production and Infrastructure Center (EPIC) trains energy engineers and conducts research.

The area is an increasingly growing trucking and freight transportation hub for the East Coast. The Charlotte Center city has seen significant growth over the last decade. Numerous residential units continue to be built uptown. Many new restaurants, bars and clubs now operate in the Uptown area. Several projects are transforming the Midtown Charlotte/Elizabeth area.

In 2013, Forbes named Charlotte among its list of Best Places for Business and Careers. Charlotte was listed as the #20 largest city in the US, and the #60 fastest growing city in the US between 2000-2008.

Transportation

The Charlotte region is also served by two major interstate highways (I-85 and I-77, and their 2 spurs (I-277, and I-485). I-40 also passes through the center of Iredell County, which is the northern region of the Charlotte metro. Other major freeways include Independence Boulevard (east Charlotte to I-277), a portion of US 321 between Hickory and Gastonia, the proposed Garden Parkway loop around Gastonia, and the proposed Monroe Connector / Bypass, each projected to cost over $1 billion per project.

Other important US highways in the region include: US 74 (east to Wilmington, west to Asheville and Chattanooga), US 52 (through the far eastern part of the region), US 321 (through Chester, York, Gastonia, Dallas, Lincolnton and Hickory), US 601 (passing east of Charlotte) and US 70 (through Salisbury, Statesville and Hickory).

Primary state routes include NC/SC 49, NC 16 (which extends north to West Virginia), NC 73, NC 150, NC 18, NC 24, NC 27, SC 9 and SC 5.

The Charlotte Area Transit System, or CATS, is the local public transit agency that operates bus service that serves Charlotte and its immediate suburban communities in both North and South Carolina. CATS also operates a light rail line and is also building a commuter rail network as a supplement to its established bus transit throughout the region. Plans are for it to stretch initially to Mooresville, Pineville, Matthews, the



University of North Carolina at Charlotte. Charlotte-Douglas International Airport will be connected to the system by streetcar.

Charlotte Douglas International Airport is the main airport in the Charlotte area and the 11th busiest in the country. A new terminal to the northwest of the center of the airport will be built in the near future, possibly as a Caribbean/Latin America international terminal. CLT is also supplemented by regional airports in Concord, Gastonia, Hickory, Monroe, Statesville, in North Carolina, as well as Rock Hill in South Carolina.

Education

The city's public-school system, Charlotte-Mecklenburg Schools, is the second largest in North Carolina and 17th largest in the nation. In 2009, it won the NAEP Awards, the Nation's Report Card for urban school systems with top honors among 18 city systems for 4th grade math, 2nd place among 8th graders. An estimated 144,000 students are taught in 164 separate elementary, middle, and high schools.

Charlotte is home to a number of notable universities and colleges such as Central Piedmont Community College, Charlotte School of Law, Johnson C. Smith University, Johnson & Wales University, Queens University of Charlotte, and the University of North Carolina at Charlotte. Several notable colleges are located in the metropolitan suburbs. In Davidson, Davidson College is ranked in the top 10 nationally among liberal arts colleges according to U.S. News & World Report. Additional colleges in the area include Belmont Abbey College in the suburb of Belmont, North Carolina, and Wingate University in the suburb of Wingate, North Carolina. Also, nearby are Winthrop University, Clinton Junior College and York Technical College in Rock Hill, South Carolina.

UNC Charlotte is the city's largest university. It is located in University City, the northeastern portion of Charlotte, which is also home to University Research Park, a 3,200-acre research and corporate park. With more than 27,000 students, UNC Charlotte is the fastest-growing university in the state system and the fourth largest.

Conclusion

The Charlotte area has been a growing area during the past decade. This area has experienced growth in the principal forces, which have an influence on real estate values such as population, number of households, employment, retail sales, income levels, and education levels and service facilities. The area’s economic growth experienced a downturn with regard to the national economic crisis, but the area is rebounding and economic growth is expected to be steady in the foreseeable future and continued population growth is also expected.


96 UNIT APARTMENT COMPLEX | CLEVELAND COUNTY OVERVIEW

Cleveland County Overview

Overview

Cleveland County is a county located in the south-western section of North Carolina. Its county seat is Shelby, North Carolina, and its largest city. According to the U.S. Census Bureau, the county has a total area of 468 square miles. Cleveland County is located in the Piedmont area of North Carolina and on the South Carolina border. Although heavily wooded in many rural areas and retaining a predominantly rural character in its western sector, Cleveland County is part of the greater Charlotte combined statistical area.

Transportation

Cleveland County is served by Interstate 85, which traverses through the southeastern portion of the county, while Interstates 26 and 77 runs just west and east of the county, respectively. Interstate 85 is the primary east-west traffic artery in the region. It extends from the Baltimore/Washington area to Montgomery, Alabama, with numerous connections with other sections of the national interstate system.



The free-access primary roadway extending through the county is U.S. Highway 74, which extends from Interstate 26 in Columbus, North Carolina into and through the Charlotte MSA. This is the primary commercial corridor extending through the City of Shelby and provides full access to Interstate 85. The roadway also extends through both the Gastonia and Charlotte CBDs.

Cleveland County is served by the Shelby-Cleveland County Regional Airport. This is a public municipal airport and is home to the Shelby Composite Squadron of the Civil Air Patrol, the USAF Civilian Auxiliary. The airport covers 225-acres and has one 5,002-foot runway. Commercial air travel is provided by the Charlotte Douglas International Airport, which is located less than 25.0 radial miles from the easternmost portions of Cleveland County. Charlotte Douglas International Airport is the main airport in the Charlotte area and the 9th busiest in the country.

Demographic & Income Profile

According to U.S. Census data in 2010, the population of Cleveland County was 98,078. The population decreased to 98,074 by 2017. The following table gives the estimated population and households of Cleveland County as of 2017 and projects the population through 2022. If these projections hold, the population in Cleveland County will decrease to 97,390 over the upcoming five-year period indicating a projected annual growth rate of -0.14%.

Between 2010 and 2017, the number of households in Cleveland County decreased from 38,555 to 38,442. Current forecasts indicate that the number of households in Cleveland County will decrease to 38,129 by 2022, which represents a projected annual growth rate of -0.16%.

Demographic and Income Profile - Appraisal VersionCleveland, NC Prepared by CSVA, Inc.Geography: County Subdivision



Families -0.26% 0.95% 0.71%Ow ner HHs -0.23% 1.00% 0.72%

Population -0.14% 1.10% 0.83%Households -0.16% 1.06% 0.79%




Population 98,078 98,074 97,390Households 38,555 38,442 38,129




The estimated median household income for Cleveland County for 2017 was $40,059. The median household income for 2022 is projected to be $44,968. This equates to an annual growth rate of 2.34% in median household income.

Employment

The total civilian labor force (not seasonally adjusted) for Cleveland County in August 2017 was 46,678 of which 44,503 were employed and 2,175 were unemployed. The unemployment rate was 4.70% percent, one of the lowest unemployment rates the county has experienced since the recession. The unemployment rate for Cleveland County is higher than the rate for the Charlotte MSA at 4.20%. The following table illustrates current employment in the county.

Presented below is the not seasonally adjusted Labor Force, Employment and Unemployment data for Cleveland County between 2012 and 2016. It is evident the current employment in Cleveland County is a significant improvement over the previous five years.

Demographic and Income Profile - Appraisal VersionCleveland, NCGeography: County Subdivision Prepared by CSVA, Inc.

2017 2022 Trend

$ 40,059 $ 44,968 2.34% $ 54,563 $ 64,286 3.33% $ 21,890 $ 25,675 3.24%


Summary


Area NameCivilian Labor

ForceNumber

EmployedNumber

UnemployedUnemployment

Rate (%)

Shelby County 46,678 44,503 2,175 4.70Charlotte MSA 1,300,665 1,245,513 55,152 4.20


Year Labor Force Employed UnemployedUnemployment

Rate (%)

2012 45,749 40,700 5,049 11.002013 46,421 42,014 4,407 9.502014 45,883 42,536 3,347 7.302015 46,083 43,129 2,954 6.402016 46,944 44,372 2,572 5.50




The table below shows the distribution by county of Median Household Income - US Census in the state of North Carolina. This is the most recent data made available. Cleveland County ranks 56th among all counties in the state of North Carolina in median household income.

The table below shows the most recent data available for the distribution of industries in Cleveland County, North Carolina.

Rank CountyMedian Household

Income

1 Wake County, North Carolina 66,579$ 2 Union County N orth Carolina 65,893$ 3 Camden County, North Carolina 62,194$ 4 Currituck County, North Carolina 58,676$ 5 Orange County, North Carolina 57,261$ 6 Chatham County, North Carolina 57,140$ 7 Mecklenburg County, North Carolina 56,472$ 8 Dare County, North Carolina 55,520$ 9 Cabarrus County, North Carolina 53,935$ 10 Durham County, North Carolina 52,038$ 56 Cleveland County, North Carolina 39,197$ All Average of All North Caorlina Counties 47,830$

Source: U.S. Census Bureau

Rank Industry Employment Employees

1 Manufacturing 111 5,212

2 Health care and social assistance 235 5,089

3 Retail trade 364 3,843

4 Accommodation and food services 160 2,330

5 Transportation and w arehousing 59 1,696

6 Other services (except public administration) 287 1,489

7 Admin, support, w aste mgmt, and remediation 82 1,432

8 Construction 145 1,281

9 Wholesale trade 83 1,254

10 Educational services 14 1,000 to 2,49911 Professional, scientif ic, and technical services 126 941

12 Finance and insurance 101 513

13 Arts, entertainment, and recreation 20 250 to 49914 Real estate and rental and leasing 77 248

15 Information 19 189

16 Management of companies and enterprises 7 123

17 Utilities 7 20 to 9918 Mining, quarrying, and oil and gas extraction 3 20 to 9919 Industries not classif ied 5 4

20 Agriculture, forestry, f ishing and hunting 2 0 to 19

Source: U.S. Census Bureau, 2014 County Business Patterns



Education

Cleveland County has 29 public schools ranging from pre-kindergarten to 12th grade. These schools include 5 high schools, 2 alternative schools, 4 middle schools, and 4 elementary schools. The current district was formed in 2004 through the merger of the Kings Mountain City School, Shelby City Schools, and the former Cleveland County Schools. Post-secondary education is provided by Ambassador Bible College in Lattimore, North Carolina; Cleveland Community College, and Gardner-Webb University. Gardner-Webb is the largest institution with over 4,500 students and is located in Boiling Springs, NC.

Conclusion

Cleveland County is a rural to suburban county within the Piedmont region of North Carolina. It is primarily a residential area due to its proximity to the region’s major employment centers and nearby universities. Cleveland County has experienced generally stable to slightly declining population due to the rural nature of the area. In the foreseeable future, we expect to see these population trends continue. The long-term prospects for York County are stable.


96 UNIT APARTMENT COMPLEX | NEIGHBORHOOD OVERVIEW

Neighborhood Overview

Overview

The subject property is situated in Shelby, Cleveland County, North Carolina. The subject is located just outside of the western border of the Charlotte, MSA in a central portion of Cleveland County. The subject is located approximately 40.0 radial miles west of the Charlotte central business district and approximately 30 radial miles northeast of the Spartanburg, SC central business district. More specifically, the subject is situated along the both sides of Ramblewood Drive, which can be accessed off of South Lafayette Street. The subject neighborhood is generally encompassed by the three-mile ring surrounding the subject site.



Surrounding Uses & Nearby Development

The subject neighborhood is generally characterized by a mix of single-family residential uses, as well as scattered commercial developments consisting of a mixture of light industrial, retail, and small office developments typically oriented along the major thoroughfares. Residential and multi-family developments are located along the area’s secondary roadways. Land uses immediately surrounding the subject development include:

There are currently very few vacancies in subject market. Based on the appraisers’ observation of the local neighborhood, and conversations with active brokers and agents, it appears that demand for real estate is considered to be moderate.

Aerial of Proximate Land Uses

Direction Surrounding Land Use

North Plaster ParkEast Single-Family & Small CommercialSouth RetailWest Single-family & Light Industrial



Transportation

Specific access to the subject site is available along Ramblewood Drive, which is a minor roadway. The primary north/south artery in the area is South Lafayette Street, which is situated just east of the subject. This roadway provides direct access through the Shelby CBD to the north as well as a full interchange with Interstate 85 to the south.

Primary access to the subject neighborhood is provided by Highway 74, the major east/west artery in this section of Cleveland County. Highway 74 is located north of the subject and the roadway carries the bulk of the markets vehicular traffic and supports the bulk of the area’s commercial development.

Demographic & Income Profile

According to U.S. Census data in 2010, the population for the subject market, generally a 3.0-mile radius around subject property, was 19,620, and the population increased to 19,714 by 2017. The following table gives the estimated population and households for the subject market as compared to the state and nation as of 2017 and projects the population through 2022. If these projections hold, the population for the subject market will decrease to 19,610 over the upcoming five-year period, indicating an annual growth rate of -0.11%.

Between 2010 and 2017, the number of households in the subject market increased from 8,205 to 8,214. Current forecasts indicate that the number of households will decrease to 8,159 by 2022, indicating an annual growth rate of -0.13%.

Demographic and Income Profile - Appraisal Version204 Ramblew ood Dr, Shelby, North Carolina, 28152 Prepared by CSVA, Inc.Ring: 3 mile radius



Families -0.24% 0.95% 0.71%Ow ner HHs -0.26% 1.00% 0.72%

Population -0.11% 1.10% 0.83%Households -0.13% 1.06% 0.79%




Population 19,620 19,714 19,610Households 8,205 8,214 8,159




The estimated median household income for the subject market for 2017 was $33,693. The median household income for 2022 is projected to be $36,385. This equates to an annual growth rate of 1.55% in median household income.

Summary

In conclusion, the subject neighborhood has somewhat benefitted from the historical growth from the major employment centers near the subject and from its proximity to both the Charlotte and Spartanburg MSAs. The general long-term outlook for this area is stable due to generally stable population and household totals as well as the projected long term increases in average household income. The economic health of the market should continue to improve in conjunction with the general economy although growth prospects are tempered by somewhat uncertain future market conditions.

Demographic and Income Profile - Appraisal Version204 Ramblew ood Dr, Shelby, North Carolina, 28152Ring: 3 mile radius Prepared by CSVA, Inc.

2017 2022 Trend

$ 33,693 $ 36,385 1.55% $ 50,037 $ 58,242 3.08% $ 21,212 $ 24,571 2.98%


Summary



96 UNIT APARTMENT COMPLEX | MARKET ANALYSIS

Market Analysis

According to “The 2017 U.S. Multifamily Investment Forecast”, published by Marcus & Millichap, Economic performance in 2017 could benefit from the carryover of last year’s momentum. The uncertainty regarding fiscal, trade and other policy goals not yet formulated by the incoming administration could generate a drag on economic growth in the first months of the Trump term. The economy added approximately 2.2 million jobs in 2016 but the reduction in labor market slack will support 2.0 million new hires this year. An increase in consumer spending, combined with the possible implementation of fiscal policies, should generate GDP growth in the 2.5 percent range during 2017.

Projected job creation and rental household formation will support demand, while demographic trends also support low vacancy and a steady pace of rent increases. Notably, the ongoing flow of millennials into the workforce, a segment of the population with a high propensity to rent, represents a robust driver of growth in the multifamily sector. Developers will bring 371,000 units to the market in 2017. In addition to disciplined construction lending, proposals of increased government infrastructure spending could elevate competition for construction materials and labor needed for multifamily construction.

National apartment vacancy will end 2017 at 4.0% as rapidly increasing household formation generates robust net absorption that supports a 3.8% rise in the average effective rent. Class A vacancy rates will climb in many markets where substantial supply influxes are on tap.

The rise in the average sales price during 2016 maintained the average cap rate in the low-5% range and prompted many investors to search for higher yields in secondary and tertiary markets. Investors remain cautiously optimistic. However, speculation on how a new presidential administration will govern is certain to influence investors’ outlooks temporarily, at least through the early months of a Trump presidency.



The expansion of the U.S. economy for a seventh consecutive year sustained a high level of asset performance that reinforced the confidence of property owners and investors. Among key demographic and economic drivers, job creation and household formation during the year translated again into noteworthy net absorption. In 2017, projected job creation and rental household formation will support demand, while demographic trends also provide a meaningful tailwind for maintaining low vacancy and a steady pace of rent increases. The entrance of millennials into the work-force, in particular, remains a potent force in the multifamily sector as these individuals have a high propensity to rent. Nationally, the homeownership rate descended to a 51-year low of 62.9 percent last year and is projected to remain in the low-60% band in 2017. The low rate is not altogether surprising given the social narrative of mobility, flexibility and burdensome student debt following the financial crisis. Millennials’ tendency toward later marriage and family formation should translate into sustained new demand for rentals and extended tenures in apartments.

Rentals slated for completion this year were authorized some time ago, but a recent leveling off in permit issuance signals that the wave of development will likely crest this year. Construction lenders are also exercising discretion, critically assessing the experience of development teams, closely scrutinizing return projections and factoring in expectations of more subdued NOI growth. In addition to conservative lending, proposals of increased government infrastructure spending could elevate competition for construction materials and labor needed for multifamily development. The likely crest of apartment construction this year coincides with easing rent growth trends. Most of the softening will occur in the recently delivered upper-tier assets. Completions of luxury rentals will exert more pressure on the Class A vacancy rate in 2017, while the outperformance of Class B and Class C assets will encourage a further reconsideration of investment strategies. Some newer assets will benefit from strategic locations in niche neighborhoods while others will face stiff competition from a wave of development. That said, most markets facing significant apartment additions also have a somewhat captive renter pool as home prices are elevated as well.



2017 National Apartment Outlook

The coming year will bring 371,000 units to the market, outpacing last year’s total of 320,000 rentals. Highly amenitized Class A properties in urban locations will be the most challenged by new stock. Assets with the potential to outperform include the Class B and C tier, as well as those in secondary and tertiary markets that have not attracted meaningful interest from developers.

U.S. vacancy will end 2017 at 4.0 percent as rapidly increasing household formation generates robust net absorption that leads to a 3.8 percent increase in the average effective rent. The pace of rent growth marks a deceleration from last year’s pace.

Pent-up millennial household formations remain a vast potential source of future apartment demand. If millennials created households at the same rate today as before the recession, an additional 1.7 million households would exist. This represents potential demand for nearly 1 million units in housing, which is more than the total net absorption recorded nationwide for the past four years.

2017 Investment Outlook

With assets in major metros commanding high valuations and selling at compressed yields, the opportunity to capture potentially higher yields in secondary and tertiary markets will likely warrant greater consideration. The cap rate spread between preferred and tertiary markets stands at roughly 200 basis points, about half the 2012 peak but close to its long-term average of 240 basis points.

Supply-and-demand imbalances will persist in some metros, encouraging investors to closely evaluate the project pipeline and assess the effects of new supply on asset performance. Transaction volume in 2017 should remain healthy but could ease from recent peak levels as marketing times and due diligence periods extend.

U.S. commercial real estate remains desirable for overseas investors despite the strengthening dollar. For many, the stability and potential growth offered by U.S. assets compared with other countries underpins long-term capital preservation strategies.



Charlotte MSA Apartment Market

According to “The 2017 Charlotte Multifamily Investment Forecast”, published by Marcus & Millichap, Higher-wage jobs enter the Queen City, prompting broad demand for apartments. Charlotte’s diverse economic base, well-developed transportation network and skilled labor force continue to attract companies to the area. As new firms arrive and others expand, apartment operators will benefit from an-other year of solid employment growth that draws job seekers to the metro. Young professionals with incomes above the metro average who prefer an urban lifestyle will support the wave of apartments being completed near downtown as they have a high propensity to rent. The desirable urban core will receive more than a third of the total units coming online in 2017, which may temporarily soften vacancy in some neighborhoods while multiple buildings lease up. Robust rent growth throughout the metro will increase the number of people seeking more affordable units, improving vacancy in Class B/C apartments. Marketwide, apartment demand will keep pace with deliveries, holding vacancy steady while rents post another year of gains well above the national average.



Surge of Class A assets lures investors to Charlotte’s expanding market. Buyers seeking to place capital in apartment properties along the East Coast will find higher cap rates and lower entry costs in Charlotte than many other major markets nearby. The prolonged wave of luxury Class A construction provides investing opportunities for institutions and funds at initial yields starting in the 5 percent range. Elevated rents in the new units, especially near Uptown Charlotte, will support renter demand for updated Class B/C apartments in these neighborhoods. Improving operations and greater initial yields in these tiers will generate strong buyer interest for Class B/C properties, particularly those with a value-add component. Though the supply of these assets has dwindled, buildings in transforming blocks within Charlotte Center City will provide some buying opportunities for investors.



To further understand the subject property’s competitive position in the marketplace, the appraisers have performed a CoStar Analytic of all multi-family properties within the Charlotte MSA market area.

The subject is situated in an area that is relatively established with a mix of commercial, industrial, multi-family and single-family residential uses. Most multi-family properties in this area were constructed between 1970 and 2000.

A chart showing the most recent statistics for the MSA market area is shown as follows:



As shown in the foregoing table, the MSA market area includes 183,198 units, which is up from the 5-year average of 167,641 units. The metro market reflects a vacancy rate of 6.9%, which is essentially equivalent to its five-year average of 6.8%.

Cleveland County Apartment Submarket

Additionally, the appraisers have performed a CoStar Analytic of all multi-family properties within the Cleveland County submarket area, where the majority of competitive properties are located.

The subject is situated in an area that is relatively established with a mix of small commercial, multi-family and single-family residential uses. Most multi-family properties in this area were constructed between 1960 and 2000.

A chart showing the most recent statistics for the competitive market area is shown as follows:



As shown in the foregoing table, the submarket area includes 1,941 units, which is up slightly from the 5-year average of 1,896 units. The submarket reflects a vacancy rate of 4.0%, which is lower than its five-year average of 7.5%. The following graph shows vacancy trends over the past five years broken down by unit type. The competitive submarket saw generally declining vacancy rates among 1, 2, and 3 bedroom units over the past few years, while studio units have seen significant volatility.

According to CoStar, asking rental rates for multi-family units average $483 per month for 1-Bedroom Units, $578 per month for 2-Bedroom Units, and $752 per month for 3+-Bedroom Units. These rates are higher than the 5-year averages across all unit types. The following graph illustrates asking rental rate trends by unit type in the competitive market area over the past several years.



As evidenced in the previous chart, rental rates have been increasing over the past few years.

Absorption of the past 12 months has been higher than the 5-year average with 47 units absorbed over the past year. There have been no new units delivered in the past 12 months and there are no new units under construction. The following chart shows absorption over the past five years, as compared to deliveries and vacancy rates.



Sales volume over the past 12 months was approximately $8.4 million and the average sale price per unit was $42,401 which is higher than the five-year averages of $3.0 million in sales volume and $30,354 average per unit sale price. Cap rates over the past year reflect an average of 10.3%, which is higher than the 5-year average of 9.5%.

Conclusion

The national recession and financial difficulties experienced by a number of businesses resulted in higher vacancy rates, and the increased competition for tenants placed downward pressure on rents over the past few years. However, the metro Charlotte multi-family residential market has shown declines in vacancy rates and increasing rental rates. It is projected that the economy will continue to improve over the next several years which should increase employment and continue to help in the recovery of the commercial and residential real estate market. The subject area is currently experiencing moderate demand based on reports from local market participants. Positive factors include good proximity to major employment centers and the possible cumulative attraction of being located in an area with a concentration of varying types of professional service. Negative factors include somewhat uncertain economic conditions. Given the level of multi-family residential vacancy in metropolitan Charlotte and the subject’s submarket as reported by CoStar and determined through a visual inspection of the immediate market, it is likely the subject market will continue to experience relatively healthy occupancy rates and rental rates should remain stable or increase slightly in correlation with rising employment and economic trends.


96 UNIT APARTMENT COMPLEX | SITE ANALYSIS

Site Analysis

Site Description

The subject site is a 8.50-acre parcel situated along both sides of Ramblewood Drive in Shelby, Cleveland County, North Carolina. The subject property is identified by tax parcel number 72702. The subject is located along the north and south sides of Ramblewood Drive and the west side of Dodd Street, just west of S. Lafayette Street in the City of Shelby, Cleveland County, North Carolina.

The appraisers requested but were not provided with a survey for the subject property. A Cleveland County GIS Aerial, which depicts the subject site is also displayed herein. Refer to the GIS Aerial Tax Plat for an illustration of the size, shape, location, and dimensions of the subject site.

Site Characteristics

Aerial:

Site Size: 8.50-acre or 370,042 square feet.

Shape: Irregular; Functional.

Frontage: Approximately 950 feet of frontage along the south side of Ramblewood Drive and approximately 750 feet of frontage along the north side of Ramblewood Drive.

Access and Exposure: The subject property can be accessed from multiple access points off of Ramblewood Drive.

Overall, access is considered average, and exposure is considered average for an multifamily use.



Surrounding Land Uses: The subject neighborhood is generally characterized by a mix of single-family residential uses, as well as scattered commercial developments consisting of a mixture of light industrial, retail, and small office developments typically oriented along the major thoroughfares. Residential and multi-family developments are located along the area’s secondary roadways. Land uses immediately surrounding the subject development include:

Topography and Forestation: The subject site is at street grade relative to Ramblewood Drive and possesses a level to gently sloping topography for the majority of the site. The site predominantly slopes toward the western portion of the site, which provides for good drainage. The site is mostly clear of forestation. The site features some professional landscaping along the public roadway.

Utilities: All public utilities including sewer, water, electricity, natural gas, telephone service and cable television are presently at or adjacent to the subject property.. Assumed to be of adequate capacity.

Easements and Encroachments: No adverse easements or encroachments were noted during our inspection of the subject property, and no information was provided by the client that would indicated the presence of any detrimental easements. Normal utility and drainage easements are assumed.

Hazardous Materials: We were not provided with nor obtained a Phase I Environmental Site Assessment. Physical inspection of the subject property and surrounding areas did not indicate any potential environmental problems. However, we are not qualified to identify such environmental problems and highly recommend that a qualified individual inspect the property. We have assumed that there are no significant environmental problems on the subject property. Should further investigation prove this assumption incorrect, we reserve the right to amend this report, and the value conclusions, accordingly.

Direction Surrounding Land Use

North Plaster ParkEast Single-Family & Small CommercialSouth RetailWest Single-family & Light Industrial



Soils and Subsurface: Soil conditions appear typical of the area and we are not aware of any subsurface conditions that would preclude development to the highest and best use. A report by a soil and subsurface engineer regarding the subject site has not been made available to the appraiser. Anyone contemplating the construction of improvements on the subject site is strongly encouraged to obtain the services of a professional soil/subsurface engineer prior to beginning such activity.

Flood Plain: Zone X; No Flood Hazard Area. Community-Panel Number 3710253600J, dated February 20, 2008.

We have inspected the Flood Insurance Rate Maps of the Federal Emergency Management Agency (FEMA) for the subject property, and these maps indicate that there is no 100-year flood plain affecting the subject property.

Flood Map


96 UNIT APARTMENT COMPLEX | IMPROVEMENTS ANALYSIS

Improvements Analysis

Description of Improvements

The subject improvements include a 96-unit apartment complex containing 74,248 rentable square-feet of space in 6 garden, low-rise buildings located at 204-215 Ramblewood Drive, Shelby, Cleveland County, North Carolina. The subject includes 96 units with a mix of 1 bedroom, 2 bedroom, and 3 bedroom units. On-site amenities include a laundry room. The subject’s unit mix is as follows:

The subject buildings are of brick and siding on wood frame construction with a mansard roof on a concrete slab foundation. The subject buildings were built in 1974 and have been substantially renovated over the past two years. The improvements are considered to be in overall average condition.

Summary of Improvements

Property Type: Multifamily

Property Sub-Type: Garden, Low-Rise

Gross Building Area: 75,008 Square Feet

Gross Leasable Area: 74,248 Square Feet

Number of Buildings: 6

Number of Stories: 2

Number of Suites: 96

Structural Frame: Wood frame

Exterior Finish: Brick and Siding

Year Built: 1974, Renovated 2015-2017

Condition: Average

Land to Building Ratio: 4.93 : 1

Parking: 184 parking spaces; Asphalt parking and drive areas in average condition.

Parking Ratio: 1.91 per 1,000 SF

Apartment UnitsUnit

No. of Units Occupied Type Size (SF) Rentable (SF)

20 19 1 BR, 1 BA 624 12,48056 48 2 BR, 1.5 BA 778 43,56820 12 3 BR, 2.5 BA 910 18,200

96 79 Totals/Averages 773 74,24882.3% Occupancy 81.0%

SUBJECT UNIT MIX



Construction Components

The subject’s specific construction components are summarized as follows:

Footing & Foundation: Concrete slab poured on grade with concrete footings around perimeter.

Construction: Class D - Wood Frame with brick and siding exterior.

Roof: Mansard. Assumed to be in generally average overall condition.

Floor Covering: Carpet and vinyl tile.

Interior Walls: Gypsum wallboard.

Ceilings: Painted gypsum board.

Windows: Single Hung, Double Hung. Single Pane.

Electrical: Assumed to be of adequate capacity with a sufficient number of outlets and fixtures.

Lighting: Fluorescent and incandescent.

HVAC: Central HVAC with ground-mounted compressors.

Doors: Wood exterior and interior doors in wood framing.

Plumbing: Assumed adequate. Copper supply lines and PVC waste lines. The complex features 106 multi-fixture restrooms.

Fire Protection: Not sprinklered; None. It is assumed the improvements have adequate fire alarm systems, fire exits, fire extinguishers, fire escapes and/or other fire protection measures to meet local fire marshal requirements.

ADA Compliance: The Americans with Disabilities Act (ADA) became effective January 26, 1992. We have not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property together with a detailed analysis of the requirements of the ADA could reveal that the property is not in compliance with one or more of the requirements of the act. If so, this fact could have a negative effect upon the value of the property. Since we have no direct evidence relating to this issue, we did not consider possible noncompliance with the requirements of ADA in providing an opinion of the value of the property.

Quality and Structural Condition:

The overall quality of the facility is considered to be average for the neighborhood and age. We are not qualified to determine structural integrity, and it is recommended that the client retain the services of a



qualified, independent engineer or contractor to determine the structural integrity of the improvements prior to making a business decision.

Functional Utility: The facility has average functional utility for use as a multifamily complex.

Age, Condition & Deferred Maintenance:

The subject facility consists of 96 units containing 74,248 rentable square feet built in 1974, indicating a chronological age of approximately 43 years. Overall, the improvements have been extensively renovated and the effective age is estimated at 10 years, significantly lower than its chronological age. The economic life of the subject building is 45 years; thus, its remaining economic life is 35 years. This equates to total accrued physical deterioration of 22%.

For purposes of calculating depreciation, our report contains an estimate of remaining economic life (REL). For the subject real estate improvements, our estimate of remaining economic life was 35 years. Physical lives are usually longer than economic lives and can be 100 years or more.

The subject does not appear to suffer from items of deferred maintenance outside the scope of a normal maintenance program.

Renovation The subject is situated on a total 8.495-acre site and currently the property is 82.3% occupied. The subject has under-gone significant renovations over the past two years, with 80 of the 96 units having been completed. The renovations include all new interiors, new roofs, new windows, new HVAC units, and exterior upgrades. In total $1.7 million has been spent to date or $21,250 per renovated unit. The 16 unrenovated units are currently down and un-rentable. Of these units, 4 – 3 bedroom units are nearing completion, 4 – 2 bedroom units have been gutted and 8 units are awaiting repair, including 4 – 3 bedroom units and 4 – 2 bedroom units. Remaining costs to complete these units was reported by the owner at approximately $300,000 or $18,750 per unit. In addition, we have considered a 25% entrepreneurial profit for total renovation costs of $375,000. The renovations could be completed in a fairly short time frame of 1 month.

Actual Age 43Effective Age 10Economic Life 45Remaining Economic Life 35Accrued Physical Deterioration 22%

ECONOMIC AGE AND LIFE



3-Bedroom Floor Plan


96 UNIT APARTMENT COMPLEX | ZONING

ZONING As of the effective date of the appraisal, the subject property is zoned R-6, Residential District, by the City of Shelby zoning department. The subject appears to be a legal and non-conforming use under the current zoning.

The R6 residential district is primarily intended to accommodate a variety of high density single-family detached dwellings, modular homes, apartments, townhomes, and condominiums. Maximum densities within the R6 district range from approximately seven dwelling units per gross acre for single-family detached dwellings to over 19 dwellings per gross acre for multifamily dwellings. Public water and sewer service is generally available in areas zoned as R6. Nonresidential uses permitted within this district include customary accessory, recreational, educational, and institutional land uses that are compatible with the high-density residential character of the R6 district.

Pertinent restrictions for this zoning classification are as follows:

Minimum Lot Size: 8,000 SF – 1st Apartment Unit; 2,000 SF – Each Additional Minimum Lot Width: 80’ Maximum Building Height: 50’ Minimum Front Yard Setback: 30’ Minimum Side Yard Setback: 10’ Minimum Rear Yard Setback: 30’ Minimum Parking Spaces 1.50 Spaces per 1 BR Unit 1.75 Spaces per 2 BR Unit 2.00 Spaces per 3 BR Unit

Portions of the subject are located in the Airport Overlay District. The use of land within the Shelby-Cleveland County Regional Airport approach surface zones, horizontal surface zones, conical surface zones, and transitional surface zones established by airport zoning ordinance in appendix B of the City of Shelby Municipal Code shall be in accordance with such airport zoning ordinance. These ordinances primary deal with height requirements and thus are not considered to negatively impact the subject.

Zoning

Zoning District Description Zoning AuthorityR-6 Residential District City of Shelby



Zoning Map



Airport Overalay Map


96 UNIT APARTMENT COMPLEX | TAXES & ASSESSMENTS

TAXES & ASSESSMENTS The information below was obtained from copies of tax bills from the county tax commissioner for the subject property. According to the Cleveland County Tax Assessor, the subject property is appraised at a Fair Market Value of $716,542, and it is assessed at $716,542 (40% of FMV). The effective millage rate is 14.963 per $1,000 of assessed value. 2017 ad valorem property taxes amount to $10,721 and are due this year. All prior tax bills have been paid in full.

The subject building’s FMV according to the Tax Assessor equates to $7,464 per unit based on the Tax Assessor’s recorded building size of 96 units. In order to determine if the subject property’s tax liability is reasonable, we have included property tax comparables below.

The tax appraised value of comparable properties is established in a range of $7,550 to $46,504 per square foot with a mean of $27,505 per square foot. Considering the age and construction quality of the subject improvements, the subject property’s FMV is considered to be low, especially considering the renovations. It is noted that Cleveland County performed a county wide reassessment in 2016, thus it is likely that no renovations were considered for the subject, only the 2015 sale price.

Tax Summary Tax Parcel ID 72702

Tax Year 2017 Tax Year 2016 Tax Year 2015Assessor's Land Value - - -Assessor's Building Value - - -Assessor's Fair Market Value $716,542 $716,542 $1,003,811Assessment Rate 100% 100% 100%Assessed Value $716,542 $716,542 $1,003,811Millage Rate 14.963 15.180 13.262Total Real Estate Taxes $10,721 $10,877 $13,313Sanitary Sew er & Stormw ater Fees $0 $0 $0Total Assessments & Fees $10,721 $10,877 $13,313Penalties & Interest $0 $0 $0Amount Paid $0 $10,877 $13,313Amount Outstanding $10,721 $0 $0Status Unpaid Paid Paid

Tax Comparables

Tax ID Year Built Location County Type Size (Units) Appraised Value Appraised Value/Unit

26450 1980 Madison Park Shelby Apartment 100 874,689$ 8,747$ 46540 2003 Crow n Ridge Shelby Apartment 120 5,222,055$ 43,517$ 22189 1999 Marion Ridge Shelby Apartment 148 5,501,787$ 37,174$ 19275 1963 Park Sumter Terrace Shelby Apartment 39 294,441$ 7,550$ 27991 1970 College Road Apts Shelby Apartment 52 1,120,056$ 21,540$ 57705 2006 Carlisle at Delta Park Shelby Apartment 144 6,696,533$ 46,504$


96 UNIT APARTMENT COMPLEX | TAXES & ASSESSMENTS

Considering the current tax value as well as the $2.0 million total renovation costs (spent and to be incurred), the subject’s total investment is $2,665,000 or $27,760 per unit. Considering an 85% ratio on this total, we have forecasted the subject property’s FMV to be approximately $23,500 per unit, which results in an estimated tax liability of $133,756 for the subject based on the current millage rate.

Projected Real Estate Taxes

Subject Size (Units) 96Estimated FMV per Unit $23,500Assessor's FMV Estimate $2,256,000Assessment Rate 100%Projected Assessed Value $2,256,000Millage Rate 14.9627Real Estate Taxes $33,756Stabilized Real Estate Taxes $33,756Taxes Per Unit $352


96 UNIT APARTMENT COMPLEX | HIGHEST & BEST USE

Highest & Best Use

This may be defined as "The reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum profitability." (Appraisal Institute, Dictionary of Real Estate Appraisal 5th edition).

The specific items to be addressed in determining the highest and best use are the legally permissible, physically possible, financially feasible, and maximally productive uses.

Physically Possible – The suitability of the site for development (size, topography, soil, etc.), available utilities and community services, site modifications necessary, and any limitations caused by the foregoing; and the suitability of the physical characteristics of any existing improvements.

Legally Permissible – The legally permissible considerations are those that are not precluded by law, zoning ordinances, or private deed restrictions.

Financially Feasible – The financially feasible considerations are those that show a potential for generating a positive net present value.

Maximally Productive – The maximally productive use of those financially feasible uses that are legally permissible and physically possible is the highest and best use of a site.

A proper determination of Highest and Best Use is an important element in accurately determining the value of a property. In order to determine the Highest and Best Use of this property, we have examined all legally permissible, physically possible, and financially feasible uses as they relate to trends in this market area.

HIGHEST & BEST USE – AS VACANT

The above definition is specifically applied to the highest and best use of land as though vacant. When a site contains improvements, they typically remain in use over their economic life. The discussion of highest and best use under the assumption of a vacant site should analyze what type and size improvements should be constructed in accordance with the above definition and criteria. The purpose of determining the highest and best use of the land as though vacant is to define the criteria for the selection of comparable sales to be used in the valuation of the site, as well as to determine if the highest and best use as though vacant differs from that as improved, or proposed.

Legally Permissible

As detailed in the zoning section of this report, the subject is zoned R-6, Residential District, by the City of Shelby zoning department. According to the zoning department, a wide variety of residential uses are legally permissible.



Physically Possible

The physical characteristics of a site that affect its possible uses include, but are not limited to, location, street frontage, size, shape, street access, availability of utilities, easements, soils and subsoils and topography. The subject site consists of a 8.50-acre site with a functionally adequate shape. The site is situated within a multi-family residential market area and has average overall access and average exposure. Adequate utilities appear available to the site. Of the uses that are legally permissible, it is our opinion that a multi-family residential use takes the greatest advantage of the site characteristics.

Financially Feasible

The subject site is located within an established multi-family residential market area. The subject site allows for a multi-family residential use. An inspection of the neighborhood revealed that sites similar to the subject are improved with multi-family residential uses. Population and employment within the county and the region are projected to remain stable.

The subject is considered to be suitable for development. However, there is currently limited demand for new development evidenced by the fact that there is little to no new commercial construction occurring in the vicinity of the subject. Therefore, investment holding for a future apartment use is considered to be a financially feasible use of the subject site.

Therefore, investment holding for multi-family residential development is considered to be a financially feasible use of the subject site.

Maximally Productive

After analyzing the financial feasibility for commercial development on the subject site, there are no other legally permissible and physically possible uses that produce a higher positive cash flow other than investment holding for multi-family residential development.

Conclusion

Therefore, the most productive, legally permitted, physically possible, and financially feasible use of the subject site is for investment holding for multi-family residential development.



HIGHEST & BEST USE – AS IMPROVED

The above definition is specifically applied to the highest and best use of land as though vacant. When a site contains improvements, they typically remain in use over their economic life. The highest and best use of a property as improved pertains to the use that should be made of an improved property when considering the existing or proposed improvements. Considered are the alternative uses of the existing or proposed improvements such as to remodel, renovate, conversion, no change, or demolition, to determine the use that will produce the highest return. This analysis also identifies the criteria for selection of comparables in the appraisal process.

Legally Permissible

The improvements appear to be a legal, conforming use with regard to the property's zoning limitations and requirements. According to the City of Shelby Zoning Department, the use as an apartment complex is allowable. However, any other use of the subject property might be subject to a variance and/or rezoning which require approval. Any other zoning is less intensive and, therefore, not a logical alternative.

Physically Possible

The improvements consist of a 96-unit, 74,248 rentable square-foot apartment complex situated on a 8.50-acre site. The subject is of average quality and in average overall condition. The subject has average access and average exposure, which it is suitable for an apartment complex. Based on the configuration and design of the subject building, the subject property could not be readily expanded. Therefore, use of the subject as an apartment complex is physically possible.

Financially Feasible

Income and expenses for the subject property are estimated in the Income Approach section of this report. The resulting estimate of the subject's net income suggests the property can generate income in excess of its operating expenses. This net operating income is then capitalized into a value indication for the subject property, which is supported by the Sales Comparison Approach.

Given the concluded value of the subject as improved exceeds the value of the subject site as vacant, it is our opinion that the subject improvements contribute to value. Expansion or modification of the improvements was also considered. Based on a review of the site and our inspection, expansion of the subject improvements does not appear physically possible and use of the improvements as an apartment complex represents a financially feasible use of the property.



Maximally Productive

No other probable or profitable alternative use for the subject is believed to exist that would economically justify modification of the improvements to allow for an alternate use. The maximally productive use of the property as improved is for use as an apartment complex.

Conclusion

The improvements can generate sufficient net operating income to provide a substantial value contribution to the property as a whole. Therefore, use of the improvements for an apartment complex represents the highest and best use of the property.


96 UNIT APARTMENT COMPLEX | VALUATION PROCESS

Valuation Process

The Valuation Process is accomplished through specific steps. This section of the report applies one, two or all three approaches to the analysis of data to derive a well-supported value conclusion. Although the approaches are interrelated, the property type and use will determine which approach or approaches are most appropriate. The Reconciliation Chapter following this chapter contains the final analytical step in the Valuation Process, which is the reconciliation of the value indications into a single dollar figure or a range into which the value will most likely fall.

Cost Approach

The Cost Approach is based on the understanding that market participants relate value to cost. The principle of substitution is basic to the Cost Approach. This principle states that no prudent buyer would pay more for a property than for the cost to acquire a similar site and construct improvements of equal desirability and utility without undue delay. In the Cost Approach an indication of the value of a property is derived by adding the value of the land to the current cost of constructing a reproduction or replacement for the improvements and then subtracting the amount of depreciation (i.e., deterioration and obsolescence) in the structures from all causes. Profit for coordination by the entrepreneur is included in the value indication. This approach is particularly useful in evaluating new or nearly new improvements and properties that are not frequently exchanged in the market.

Income Capitalization Approach

In the Income Approach the present value of the future benefits of property ownership is measured. Income-producing real estate is typically purchased as an investment and from an investor's point of view, earning power is the critical element affecting property value. One basic investment premise is that the greater the earnings, the greater the value. An investor who purchases income-producing real estate is essentially trading present dollars for the right to receive future dollars. The Income Approach to value consists of methods, techniques and mathematical procedures that an appraiser uses to analyze a property's capacity to generate benefits and convert these benefits into an indication of present value. The two common valuation techniques associated with the income capitalization approach are direct capitalization and the discounted cash flow (DCF) analysis.


96 UNIT APARTMENT COMPLEX | VALUATION PROCESS

Sales Comparison Approach

In the Sales Comparison Approach, an indication of market value is provided by comparing the subject property to similar properties that have recently sold or are listed for sale, or are under contract (i.e., recently drawn up purchase offers accompanied by a cash or equivalent deposit). A major premise of the Sales Comparison Approach is that the market value of the property is directly related to the prices of comparable, competitive properties. The principle of substitution is applied in this approach and holds that the value of a property tends to be set by the price that would be paid to acquire a substitute property of similar utility and desirability within a reasonable amount of time. This principle implies that the reliability of the Sales Comparison Approach is diminished if substitute properties are not available in the market. This approach is most useful when a number of similar properties have recently been sold or are currently for sale in the subject market area.

VALUATION METHODOLOGY In the valuation section of this report, we developed the Sales Comparison and Income Approaches to derive indications of Market Value for the subject property. The Cost Approach was not utilized within our analysis due to the significant age of the subject improvements, and it is our opinion that the Income and Sales Comparison Approaches provide the best indication of value for the subject.


96 UNIT APARTMENT COMPLEX | INSURABLE VALUE

Insurable Value

As a part of the client’s requested scope of work, the appraiser has also been asked to provide Insurable Replacement Cost Value for the subject building.

We have followed traditional appraisal standards to develop a reasonable calculation based upon industry practices and industry accepted publications such as Marshall Valuation Service. The insurable value estimate presented herein is intended to reflect the value of the destructible portions of the subject, based on the replacement of physical items that are subject to loss from hazards (excluding indestructible items such as basement excavation, foundation, site work, underground plumbing and utilities). In the case of the subject, this estimate is based upon the base building costs (direct costs) as obtained via the Marshall Valuation Service handbook, with appropriate deductions.

This analysis should not be relied upon to determine proper insurance coverage as only consultants considered experts in cost estimation and insurance underwriting are qualified to provide an insurable value. It is provided to aid the client as part of their overall decision making process and no representations or warranties are made by the appraiser regarding the accuracy of this estimate. It is strongly recommended that other qualified sources be utilized to develop any estimate of insurable value.

Property Type: Multifamily Gross Building Area: 75,008Exterior Wall: Brick Rentable Area: 74,248Number of Buildings: 6 MVS Section, Page: 12, 16Stories: 2 Construction Class: D - Wood FrameStory Height: Standard Quality: Average to Good

Base Square Foot Cost 85.00$ Sprinklers -$ Adjusted Base Cost 85.00$ Story Height Multiplier 1.000Perimeter Multiplier 1.000 Adjusted Base Cost 85.00$ Current Cost Multiplier 1.040Local Cost Multiplier 0.910 Final Adj Base Cost 80.44$

Cost ProjectionBase Building Cost Before Profit 75,008 SF @ $80.44 /SF 6,033,944$ Insurable Cost Exclusions Foundation & Underground Utilities @ 10% (603,394)$ Indicated Insurable Replacement Cost 5,430,549$

Rounded 5,430,000$ Per Square Foot 72.39$

INSURABLE VALUE CONCLUSION


96 UNIT APARTMENT COMPLEX | SALES COMPARISON APPROACH

Sales Comparison Approach

The Sales Comparison Approach yields an opinion of value for the subject by comparison with similar properties of the same type and class which have sold recently or which are offered for sale in the same or competing areas. The sale prices of these comparable properties will tend to set the range in which the value of the subject property will fall.

In order to estimate the value of the subject by the Sales Comparison Approach, we have researched the market area for recent sales of similar properties. The following map and table summarize the comparable data utilized in the valuation of the subject via this approach. A detailed profile of each comparable sale is included in the addenda.

IMPROVED SALES SUMMARY

No. Property Name Sale Date Price Size (Units) Price/Unit

1. 1011 County Home Road 04-06-2017 $10,400,000 160 $65,000

2. 1776 Poston Circle 08-22-2017 $5,250,000 100 $52,500

3. 345 Bryant Road 08-22-2017 $7,050,000 152 $46,382

4. 1024 Ashwood Court 07-12-2016 $8,220,000 184 $44,674

Compiled by CSVA, Inc.

Typically, multifamily buildings such as the subject are evaluated using the price per unit of building area as the measurable unit. This is the most common method of evaluation utilized in the industry. The comparable sales range from $44,674 to $65,000 per unit for buildings ranging in size from 100 to 184 units. These sales represent the best data available for comparison with the subject.



Comparable Sales Location Map

Discussion of Improved Sales

Improved Sale No. 1 This is the April 2017 sale of a 160-unit apartment complex located along Country Home Road, just north of 10th Street NW in Conover, Catawba County, North Carolina. This site is located in the northeast quadrant of the intersection of Interstate 40 and West 1st Street. The property consists of 15, 2-story buildings containing 160-units. The property includes 24 - studio units with 440 square feet; 42 - 1 bedroom units with 544 square feet; 72 - 2 bedroom units with 864 square feet; and 22 - 3 bedroom units with 1,080 square feet. The property was built in 2000 and the improvements are of average quality and the property was in average condition at the time of sale. The property was 96% leased at the time of sale. Community amenities include a pool playground, clubhouse, and laundry facility. Unit amenities include washer/dryer connections. The property sold in April 2017 for $10,400,000 or $65,000 per unit and closed on a 7.1% OAR.



Improved Sale No. 2 This is the August 2017 sale of a 100-unit apartment complex located along Poston Circle at Craig Avenue in Gastonia, Gaston County, North Carolina. This site is located just north of Andrew Jackson Highway, west of New Hope Road, and south of Interstate 85 proximate to the Eastridge Mall. The property consists of 24, 1-story buildings containing 100-units. The property includes 2 and 3 bedroom units with an overall average of approximately 716 square feet in size. The property was built in 1950 and the improvements are of average quality and the property was in average condition at the time of sale. The property appears to have been renovated; however, specific details were not available. The property was 98% leased at the time of sale. The property does not feature any community amenities; unit amenities include washer/dryer connections. The property sold in August 2017 for $5,250,000 or $52,500 per unit and closed on a 6.5% OAR. The broker reported that the property had a stable cash flow, which made is so appealing despite its location in a tertiary market. Further, the rents were reported to be slightly below market. The buyer intends to perform $3,000 to $4,000 per unit in renovations in order to push rents up by approximately $100 per unit per month. The renovations were reported to be cosmetic in nature. There was no deferred maintenance at the property.

Improved Sale No. 3 This is the August 2017 sale of a 152-unit apartment complex located along Bryant Road, just south of Landers Road and Interstate 85 Business in Spartanburg, Spartanburg County, South Carolina. This site is located northeast of the Spartanburg CBD and southwest of the Interstate 85/Interstate 85 Business intersection. The property consists of 20, 2-story buildings containing 152 - 1-bedroom units with 568 square feet. The property was built in 1981 and the improvements are of average quality and the property was in average condition at the time of sale. The property was 100% leased at the time of sale. Community amenities include a laundry facility. The property sold in August 2017 for $7,050,000 or $46,382 per unit and closed on a 7.23% OAR. The property was renovated recently with a total $1.3 million spent or $8,553 per unit. the renovations included new appliances, new window treatments, new counter tops and cabinets, new paint, new vanities, new light fixtures, and new carpet.

Improved Sale No. 4 This is the July 2016 sale of a 184-unit apartment complex located along in the northeast corner of the intersection of Fern Forest Drive and Creekbriar Avenue in Gastonia, Gaston County, North Carolina. This site is located southeast of the Gastonia CBD, south of East Garrison Boulevard. The property consists of 16, 2-story buildings containing 184 - 1-bedroom units. The unit mix includes 140 units with 640 square feet and 44 units with 740



square feet. The average unit size is 664 square feet. The property was built in 1963 and the improvements are of average quality and the property was in average condition at the time of sale. The property was 100% leased at the time of sale. Reportedly, the property has maintained a high occupancy rate with stable cash flow. Community amenities include a pool and laundry facility. The property sold in July 2016 for $8,220,000 or $44,674 per unit and closed on an 8.27% OAR.

Adjustments

The comparable sales are compared to the subject facility with respect to various transactional, physical and locational characteristics including date of sale, conditions of sale, location, access, age and condition, building size, and building features.

The sale price per square foot of each comparable improved sale is adjusted upward if the property is considered inferior to the subject with respect to a particular element of comparison. Conversely, each comparable sale price per square foot is adjusted downward if considered superior to the subject property. The upward and downward adjustments are then totaled and the net adjustment is applied to the sale price per square foot for each comparable improved sale, indicating a current market value per square foot for the subject building.

The adjustments in this analysis are subjective based on available knowledge of the properties and the subject market as well as discussions with active brokers, developers, owners and buyers in the area. The categories for potential adjustment items are as follows:

Property Rights Transaction prices can often be affected by differing property rights conveyed. All of the comparable sales were of the fee simple interest or similar leased fee interest, and no adjustment is necessary for property rights.

Conditions of Sale Adjustments for conditions of sale reflect the motivations of the buyer and seller. When non-market conditions of sale are involved in a transaction such as seller duress, a purchaser paying more for incremental value (plottage), or an internal sale due to a financial, business or family relationship between the parties adjustments are required. No adjustment for conditions of sale is considered necessary.

Financing Terms The transaction price of one property may differ from that of an identical property due to different financing arrangements. The terms of sale are analyzed individually on each comparable sale included in this report. Cash equivalency adjustments for atypical financing, if required, are made to the individual comparable sales; therefore, additional adjustments in this analysis are not required.



Market Conditions Adjustments to the comparables for market conditions or time (date of sale) reflect changes in the market during the time period covered by the data. The comparable sales are considered to have conveyed under similar market conditions, and no adjustments are considered necessary.

General Location An adjustment for location may be required when the locational characteristics of a comparable property are different from those of the subject property. Location adjustments to the sales consider various factors including the immediately surrounding land uses and the subject's relative location (time and distance) with respect to employment centers, transportation routes, shopping, schools, etc. Sale 2 and 4 are located in superior market locations, and downward adjustments are made.

Access and/or Exposure An adjustment for access and exposure may be required. A property may be located in a good area, but because of the lack of adequate access and/or exposure, its success as a profitable development may be hampered. Factors such as road frontage, corner influence, grade level, and ingress/egress can all have an effect on value. No adjustments are necessary for this factor.

Size An adjustment for size of the comparables may be required. Size adjustments are based on the premise that larger buildings typically sell for less per square foot. No adjustments are necessary for size.

Age and Condition Adjustments for age and condition reflect differences in the physical condition of the comparables as they relate to the subject property. Sale 2, 3, and 4 are considered to be inferior in overall condition, and upward adjustments are made.

Quality and Design Adjustments for improvement’s quality reflect differences in the quality of construction, materials and design of the comparables as they relate to the subject property. Adjustments within this category are in consideration of unit size, amenities, layout, and overall quality. Sale 1 is considered to be superior in its overall quality and design, and a downward adjustment is made. Sale 3 and 4 are considered to be inferior in overall quality and design, and upward adjustments are made.

Land to Building Ratio An adjustment to the comparables for additional site area is necessary for more direct comparison with the subject. The amount and value of additional land can be based on typical land to building ratios for specific property types or determined in the verification process. No adjustment is necessary for this factor.



Other A myriad of other factors can influence the value of a property such as appeal and various differences in building features. No other adjustments are deemed appropriate in this case.

ADJUSTMENT GRID

The preceding analysis is summarized in the following Comparable Improved Sale Adjustment Grid.

Subject Sale 1 Sale 2 Sale 3 Sale 4

Sale Price - $10,400,000 $5,250,000 $7,050,000 $8,220,000

Sale Date Sep-17 Apr-17 Aug-17 Aug-17 Jul-16

Year Built 1974 2000 1950 1981 1963

GLA (Units) 96 160 100 152 184

Sale Price Per Unit $65,000 $52,500 $46,382 $44,674

Property Rights Fee Simple Similar Similar Similar SimilarAdjustment 0% 0% 0% 0%

Conditions of Sale Market Similar Similar Similar SimilarAdjustment 0% 0% 0% 0%

Financing Cash Equiv. Similar Similar Similar SimilarAdjustment 0% 0% 0% 0%

Market Conditions Sep-17 Similar Similar Similar SimilarAdjustment 0% 0% 0% 0%

Prelim. Adj. Price Per Unit $65,000 $52,500 $46,382 $44,674

Location Average Similar Superior Similar SuperiorAdjustment 0% -10% 0% -10%

Access/Exposure Average Similar Similar Similar SimilarAdjustment 0% 0% 0% 0%

Size (Units) 96 Similar Similar Similar SimilarAdjustment 0% 0% 0% 0%

Age/Condition Average Similar Inferior Inferior InferiorAdjustment 0% 10% 10% 10%

Quality/Design Average Superior Similar Inferior InferiorAdjustment -10% 0% 10% 10%

LTB Ratio 4.93 Similar Similar Similar SimilarAdjustment 0% 0% 0% 0%

Other - Similar Similar Similar SimilarAdjustment 0% 0% 0% 0%

Final Adj. Sale Price Per Unit $58,500 $52,500 $55,658 $49,141

Total Net Adjustment -10% 0% 20% 10%

Total Gross Adjustment 10% 20% 20% 30%

IMPROVED SALE ADJUSTMENT GRID



Market Value Indication by the Sales Comparison Approach

The comparable sales indicate an unadjusted value range of $44,674 to $65,000 per unit, with a mean of $52,139 per unit. The comparables indicated an adjusted range of value for the subject property of $49,141 to $58,500 per unit, with a mean of $53,950 per unit.

All of the comparables provide meaningful indications for the subject property based on similarities in market location, building design, condition and overall appeal. Comparables 1, 2, and 3 are considered to be most comparable based on their similar investment characteristics and overall physical features and are more heavily weighed within the analysis. In light thereof, it is our opinion that the subject property should achieve a price per square foot slightly below the average of the adjusted value range. In our opinion, the value of the subject property is correlated to a range of $50,000 to $55,000 per unit or $52,500 per unit.

In addition, we have considered income loss due to lease up of the down-units and roll-over to market rents, which is further, explained in the Income Approach. Further, we have considered the remaining construction costs with entrepreneurial profit which were calculated to be $375,000 as detailed in the Improvements Analysis of the appraisal.

Based on the foregoing, the market value of the subject property via the Sales Comparison Approach is calculated as follows:

SALES SUMMARY

Price Range Unadj. Price Per Unit Adj. Price Per UnitLow $44,674 $49,141High $65,000 $58,500Average $52,139 $53,950

Value Indication by the Sales Comparison Approach

Concluded Value per Unit: $52,500Unit Total: x 96Indicated Value: $5,040,000Less: Income Loss: $129,630Less: Remaining Construction Costs: $375,000Indicated Market Value As-Is $4,535,370Rounded: $4,540,000Per Unit: $47,292


96 UNIT APARTMENT COMPLEX | INCOME APPROACH

Income Approach

DIRECT CAPITALIZATION Investment properties are typically valued in proportion to their ability to produce income. Hence, an analysis of the property in terms of its ability to provide a sufficient net annual return on invested capital is an important means of valuing any asset which is held for its income producing capabilities. An opinion of value is arrived at by capitalizing the net income at an investment yield commensurate with the risk inherent in the fee ownership of the property. Such a conversion of income considers competitive returns offered by alternative investments.

In order to convert an income stream into a value, the following items must be determined:

1. Estimate the potential gross income (PGI).

2. Estimate the vacancy and collection loss.

3. Subtract the vacancy and collection loss from the potential gross income to derive the effective gross income.

4. Estimate the total operating expenses for the subject and deduct them from the effective gross income to derive net operating income (IO).

5. Estimate an overall capitalization rate (RO).

6. Divide the net operating income by the overall capitalization rate to derive a value indication by the income capitalization approach.

After the figures discussed above have been determined, a value for the subject property via the Income Approach can be determined by dividing the Net Operating Income by the Capitalization Rate.

Subject Rental & Occupancy Data

Tenants pay their own utilities. Amenities include a laundry room.

SUBJECT RENTAL SUMMARYApartment Units

Unit MonthlyNo. of Units Occupied Type Size (SF) Monthly Rent Rent PSF

20 19 1 BR, 1 BA 624 $500 $0.8056 48 2 BR, 1.5 BA 778 $600 $0.7720 12 3 BR, 2.5 BA 910 $700 $0.77

96

79 Occupied 82.3%



Market Rent

In estimating the market rental level for the subject’s units, we have made an analysis of rent structures within other conventional multi-family complexes in the market area and surrounding areas. In analyzing the rental data, we have considered various dissimilar features that influence rental rates. These factors include location, overall quality and condition, quality of interior finish and functional layout, quality and level of appliances furnished, unit sizes, utilities included in the rent structures, property amenities, and overall market appeal.

The following map and table summarize the comparable data utilized in the valuation of the subject via this approach. A detailed profile of each comparable rental is included in the addenda.

Rent Comparable Location Map

Rent Comparable Descriptions

Rental No. 1 This is a 100-unit apartment complex located off of Eaves Road, just south of Earl Road and U.S. Highway 74 in Shelby, Cleveland County, North Carolina. The property consists of one story buildings that were constructed in 1980 and reflect average overall quality and condition. The unit mix includes and includes 32 - 1 bedroom units with 624 square feet that lease for $625 per month; 56 - 2 bedroom



units with 816 square feet that lease for $665 per month; and 12 - 3 bedroom units with 1,008 square feet that lease for $785 per month. Amenities include washer/dryer connections. The manager reported that the property is 99% occupied and that the property typically stays at or near full occupancy.

Rental No. 2 This is a 120-unit apartment complex located at the intersection of S. DeKalb Street and Seattle Street, east of South Lafayette Street in Shelby, Cleveland County, North Carolina. The property consists of two-story buildings that were constructed in 2003 and reflect average overall quality and condition. The unit mix includes and includes 16 - 1 bedroom units with 600 square feet that lease for $560 per month; 80 - 2 bedroom units with 900 square feet that lease for $640 per month; and 24 - 3 bedroom units with 1,200 square feet that lease for $800 per month. Amenities include a pool, playground, fitness center, and washer/dryer connections. The manager reported that the property is 100% occupied and that the property typically stays at or near full occupancy.

Rental No. 3 This is a 148-unit apartment complex located along the east side of East Marion Street, north of U.S. Highway 74 and east of Post Road in Shelby, Cleveland County, North Carolina. The property consists of two-story buildings that were constructed in 1999 and reflect average overall quality and condition. The unit mix includes and includes 20 - studio units with 400 square feet that lease furnished for $540 per month; 42 - 1 bedroom units with 600 square feet that lease for $585 per month; 70 - 2 bedroom units with 900 square feet that lease for $710 per month; and 16 - 3 bedroom units with 1,100 square feet that lease for $840 per month. Amenities include a clubhouse, pool, playground, fitness center, laundry facility, and washer/dryer connections. The manager reported that the property is 99% occupied and that the property typically stays at or near full occupancy.

Rental No. 4 This is a 144-unit apartment complex located along Delta Park Drive, just north of Wyke Road and west of Cherryville Road in Shelby, Cleveland County, North Carolina. The property consists of three-story buildings that were constructed in 2006 and reflect good overall quality and condition. The unit mix includes and includes 48 - 1 bedroom units, 72 - 2 bedroom units, and 24 - 3 bedroom units. The units include three styles, a base unit, a patio unit (1st floor) and units with sunrooms. The base 1 bedroom units lease for $540 per month with a $15 per month premium for the patio and sunroom. The base and patio units contain 696 square feet, while the sunroom units have 821 square feet. Similarly for the 2 bedroom units, the base plans lease for $625 per month with a $25 premium for patio units, and $40 per month premium for sunroom units. The base and patio units contain 904 square feet while the sunroom units have 1,029 square feet. The 3 bedroom units include 1,451 square feet for all three unit types with the base units leasing for $790 per month with a $20 premium for the patio and sunroom units. Amenities include a pool, fitness center, movie



theater, and washer/dryer connections. The manager reported that the property is 98% occupied and that the property typically stays at or near full occupancy.

Rent Analysis

The rent comparison has been primarily based upon the rental rate per month, with secondary consideration given to the rent per square foot. Since the subject features mostly one and two-bedroom units, we have focused our analysis on these unit types within the competing developments. It is noted that there is one four-bedroom apartment unit at the subject, which is handled separately.

One Bedroom Units

Competing one-bedroom apartments range from 600 to 660 square feet. The subject one-bedroom units are 624 square feet in size, which is within the range of the comparables. Monthly rents for competing units currently range from $540 to $625 per month, with an average of $578 per month. The subject’s owner reported market rents at the subject to be $500 per month, which is below the low end of the range of the comparables on a monthly basis. On a per square foot per month basis, the comparables indicate a range of $0.78 to $1.00 with an average of $0.92 per square foot. The subject units have a per square foot rent of $0.80, which is at the low-end of the range of the comparables. As the subject’s rents are within the range of the comparables on a per square foot basis, we have adopted the rent as market.

Two Bedroom Units

Competing two-bedroom apartments range from 816 to 904 square feet. The subject two-bedroom units are 778 square feet in size, which is below the low end of the range of the comparables. Monthly rents for competing units currently range from $625 to $710 per month, with an average of $660 per month. The subject’s owner reported market rents at the subject to be $600 per month, which is below the low-end of the range of the comparables on a monthly basis. On a per square foot per month basis, the comparables indicate a range of $0.69 to $0.81, with an average of $0.75 per square foot. The subject units are rented at $0.77 per square foot per month, which is within the range of the comparables. As the subject’s rents are within the range of the comparables on a per square foot basis, we have adopted the rent as market.

$/Month Unit Size $/SF $/Month Unit Size $/SF $/Month Unit Size $/SFProperty 1BR SF 1BR 2BR SF 2BR 3BR SF 3BRRental 1 $625 624 $1.00 $665 816 $0.81 $785 1,008 $0.78Rental 2 $560 600 $0.93 $640 900 $0.71 $800 1,200 $0.67Rental 3 $585 600 $0.98 $710 900 $0.79 $840 1,100 $0.76Rental 4 $540 696 $0.78 $625 904 $0.69 $790 1,451 $0.54

Comp Low $540 600 $0.78 $625 816 $0.69 $785 1,008 $0.54Comp High $625 696 $1.00 $710 904 $0.81 $840 1,451 $0.78Comp Average $578 630 $0.92 $660 880 $0.75 $804 1,190 $0.69

Subject Rents $500 624 $0.80 $600 778 $0.77 $700 910 $0.77

Competitive Rental Summary - Monthly and PSF



Three Bedroom Units

Competing three-bedroom apartments range from 1,008 to 1,451 square feet. The subject three-bedroom units are 910 square feet in size, which is below the low end of the range of the comparables. Monthly rents for competing units currently range from $785 to $840 per month, with an average of $804 per month. The subject’s owner reported market rents at the subject to be $700 per month, which is below the low-end of the range of the comparables on a monthly basis. On a per square foot per month basis, the comparables indicate a range of $0.54 to $0.78, with an average of $0.69 per square foot. The subject units are rented at $0.77 per square foot per month, which is within the range of the comparables. As the subject’s rents are within the range of the comparables on a per square foot basis, we have adopted the rent as market.

Conclusion of Market Rent

Therefore, the concluded market rents for the subject units are shown as follows:

Potential Gross Income

Potential Gross Income (PGI) is the total income achievable by a property based on 100% occupancy and includes income from all sources. Based on our market rent conclusion, potential gross revenue for the subject is calculated as follows:

SUBJECT RENTAL SUMMARYApartment Units

Unit MonthlyNo. of Units Occupied Type Size (SF) Monthly Rent Rent PSF

20 19 1 BR, 1 BA 624 $500 $0.8056 48 2 BR, 1.5 BA 778 $600 $0.7720 12 3 BR, 2.5 BA 910 $700 $0.77

96

79 Occupied 82.3%

POTENTIAL GROSS INCOMEApartment Units

Unit Monthly AnnualNo. of Units Occupied Type Size (SF) Rent Rent

20 19 1 BR, 1 BA 624 $500 $120,00056 48 2 BR, 1.5 BA 778 $600 $403,20020 12 3 BR, 2.5 BA 910 $700 $168,000

96 79 Totals/Averages 773 $600 $691,20082.3% Occupancy 81.0%



Miscellaneous Revenue

Traditional apartment properties typically derive other income from such sources as deposit forfeitures, application fees, laundry machines, vending machines, and late charges. The amount of other income experienced by comparable properties varies, with smaller communities typically deriving less income from this category than larger apartment properties. The subject includes a laundry facility on site; however, no data on income was provided. Therefore, we have referenced the following comparables to derive an estimated Other Income for the subject.

The above properties show Other Incomes ranging from $0 to $704 per unit for properties similar to the subject. Further, the subject’s owners have budgeted $2,000 per month in income generated from the laundry facility for total Other Income of $24,000 or $250 per unit. Considering these properties, we have estimated Other Income for the subject of $250 per unit. This rate is at the low end of the range, which is considered appropriate due to the subject’s lack of significant Other Income generators.

Effective Gross Income

Effective Gross Income (EGI) is the anticipated gross income of the subject property after the deduction of vacancy and collection losses. Both the investor and the appraiser are primarily interested in the cash revenues that an income-producing property is likely to produce annually over a specified period of time rather than what it could produce if it were always 100% occupied. It is a prudent practice to expect income loss, either in the form of actual vacancy or in the form of turnover, non-payment or slow payment by tenants.

Vacancy And Collection Loss

The subject property is a 97-unit multifamily complex. Conversations with brokers in the area indicate demand for good quality, well-located multifamily space is good. The majority of building owners and brokers interviewed indicated that buildings such as the subject in the future should experience relatively strong occupancy rates if marketed aggressively and positioned correctly in the marketplace.

The subject building is configured for multi-tenant occupancy and is 82.3% occupied by 79 tenants. The building is constituted by 96 units. As noted there are 16 down units at the subject, with a total of 80 units of available inventory. Using the available inventory only, the occupancy rate equates to 98.75%. Further, as shown on the rent roll there is a six person wait list for units at the subject.

Other Income Comparables

No. ofProperty Source Units Amount $/Unit

Comp 1 2015/16 P&L 20 $0 $0Comp 2 Pro Forma 118 $45,857 $389Comp 3 2016/17 P&L 97 $68,244 $704Subject Budget 96 $24,000 $250



As previously discussed in the Market Analysis section of this report, the Metro Charlotte market has a vacancy rate of 6.9%, the Western Charlotte market has a vacancy rate of 6.0%, and the Cleveland County submarket currently has a vacancy rate of 4.0%. Few vacancies were noted during our observation of the immediate local multifamily market. The appraisers also conducted a CoStar Property Analytic search for all multifamily properties in the City of Shelby, which indicated a current vacancy rate of 4.1% in the immediate market.

In addition to the preceding, we have considered the surveyed rent comparables which are summarized as follows:

The comparables, including the subject, show a total of 608 units with an average occupancy rate of 96.3%. This total includes the subject, which is currently destabilized due to down units. Excluding the subject, the competitive set includes 512 units with an average occupancy rate of 99.0%.

After consideration of past and expected future market conditions, the local and general economy, and the subject’s quality, condition, and competitive position within the submarket, a 5.0% vacancy and collection loss, or 95.0% occupancy rate, is considered reasonable for the subject building during the economic life of the improvements. This occupancy may vary from period to period. However, a typical investor would utilize this stabilized occupancy level within a proforma operating statement.

VACANCY ANALYSIS

Vacancy Statistics Rate Market

Current Vacancy at Subject Property 0.0% Subject PropertyMetro Vacancy Statistics 6.9% Metro CharlotteSubmarket Vacancy Statistics 6.0% Western CharlotteLocal Vacancy Statistics 4.0% Cleveland CountyImmediate Market Area Statistics 4.1% City of Shelby

Number Occupancy Marketof Units Rate Pentration

Madison Park 100 99.00% 100.0%Crow n Ridge 120 100.00% 101.1%Marion Ridge 148 99.00% 100.0%Carlisle at Delta Park 144 98.00% 99.0%Subject-Whispering Pines 96 82.3% 83.2%

Totals/Averages 608 96.3% 97.3%Less Subject 512 99.0%

MARKET AREA OCCUPANCY COMPARABLES



As noted, the subject is currently 98.75% occupied based upon available inventory, with 16 down units and a current 6 person wait list. The area comparables report exceptionally strong occupancy rates. Further, the subject’s market rents are at the low-end of the market. Based upon these factors, we have considered that the subject will lease the down units in quick succession once they are renovated and come on-line. Further, the subject is considered to be operating at a stabilized level based upon current availability.

Reconciliation of Effective Gross Income

In order to further support the appraisers’ conclusion of vacancy and effective gross income, the appraisers have analyzed the stabilized effective gross income against previous years.

The subject was in the process of being renovated and leased-up during 2016 and the first half of 2017, thus the low effective gross incomes. The appraisers forecast is similar to the owners forecast.

Operating Expenses

In order to estimate operating expenses for the subject property, the appraisers have reviewed the operating statements for the subject property over the past three years. Presented below is a summary of the historical operating expenses as well as the appraisers’ stabilized estimate:

Vacancy Rate Conclusion: 5.0%

VACANCY RATE CONCLUSION

Effective Gross Income Reconciliation

2016 2017 Appraisers'Actuals Annualized Budget Projection

Effective Gross Income $277,776 $381,250 $679,440 $679,440EGI per Unit $2,894 $3,971 $7,078 $7,078

Historical & Projected Expenses

Expense Amount $/Unit Amount $/Unit Amount $/Unit Amount $/UnitTaxes $10,796 $112 $10,800 $113 $10,000 $104 $33,756 $352Insurance $21,487 $224 $21,480 $224 $21,000 $219 $21,120 $220Utilities $18,600 $194 $18,600 $194 $12,000 $125 $16,800 $175R&M $37,679 $392 $36,506 $380 $37,800 $394 $38,400 $400General & Administrative $12,192 $127 $12,144 $127 $12,000 $125 $12,000 $125Advertising $0 $0 $0 $0 $12,000 $125 $12,000 $125Payroll & Related $68,664 $715 $68,664 $715 $71,000 $740 $71,040 $740Management $0 $0 $0 $0 $28,600 $298 $27,178 $283Reserves $0 $0 $0 $0 $19,200 $200 $24,000 $250

Total $169,418 $1,765 $168,194 $1,752 $223,600 $2,329 $256,294 $2,670

2016 Annualized 2017 Budget Appraiser's Estimate



The appraisers have also reviewed the operating statements of properties similar to the subject to determine the reasonableness of the projected expenses. Presented below is a summary of the expense comparables:

An estimate of each expense item for the subject improvements is discussed in the following paragraphs.

Real Estate Taxes: As discussed in the property description section, the real estate taxes for the subject multifamily building is estimated at $33,756 per year, or $352 per unit.

Property Insurance: Property insurance expenses for similar properties reflect expenses ranging from $210 to $342 per unit. Historically, the subject’s insurance expense was $224 per unit in 2016 and annualized 2017, while the budget forecasts this expense at $219 per unit. An estimated expense amount of $220 per square foot or $21,120 per year is considered to be consistent with the market.

Utilities The utility expenses at the subject were $194 per unit in 2016 and annualized 2017. The budget forecasts this expense at $125 per unit. The expense comparables show utility expenses ranging from $413 to $1,326 per unit. An estimated expense of $175 per unit, or $16,800 annually, is utilized for the analysis herein.

Expense Comparables

Location Charlotte, NC Monroe, NC Knoxville, TNSize 20 118 97Source 2015/16 P&L Pro Forma 2016/17 P&LExpense Item Amount $/Unit Amount $/Unit Amount $/Unit Amount $/UnitTaxes $9,514 $476 $35,822 $304 $31,221 $322 $33,756 $352Insurance $6,840 $342 $29,978 $254 $20,391 $210 $21,120 $220Utilities $8,253 $413 $78,756 $667 $128,591 $1,326 $16,800 $175R&M $10,914 $546 $142,916 $1,211 $65,324 $673 $38,400 $400General Admin. $0 $0 In Payroll In Payroll $16,770 $173 $12,000 $125Advertising $0 $0 In Payroll In Payroll $13,599 $140 $12,000 $125Payroll $0 $0 $74,685 $633 $0 $0 $71,040 $740Management $10,486 $524 In Payroll In Payroll $32,727 $337 $27,178 $283

Total $46,007 $2,300 $362,157 $3,069 $308,623 $3,182 $232,294 $2,420

Appraiser's Estimate

Shelby96

Comp 1 Comp 2 Comp 3 Subject Property



Repairs & Maintenance:

Conversations with local brokers indicate the maintenance and repair expense ranges for facilities similar to the subject ranges from $546 to $1,211 per unit. Historically, maintenance expenses at the subject have been minimal at $392 per unit in 2016 and $380 per unit in annualized 2017. The budget forecasts this expense at $394 per unit. A reasonable amount of structural and exterior maintenance is to be expected. Considering the age and quality of the building and site improvements, we estimate the expense for structural maintenance at $400 per unit or $38,400 annually.

General & Administrative: This expense category is limited to legal and accounting fees and other miscellaneous expenses. Administrative expenses for this type of property were $173 per unit. Historically, this expense at the subject has been $127 per unit in 2016 and annualized 2017. The budget forecasts this expense at $125 per unit. An estimated expense amount of $125 per unit or $12,000 annually is considered reasonable.

Advertising Advertising expenses for this type of property average $140 per unit. Historically, the subject did not report any advertising expenses, while the budget forecasts this expense at $125 per unit. An estimated expense amount of $125 per unit or $12,000 annually is considered reasonable.

Payroll & Related This expense covers all salaries and labor expenses, including direct and indirect expenses. Expense comparables reflect payroll expenses average $633 per unit. Historically, the subject reported payroll expenses of $715 per unit in 2016 and annualized 2017. The budget forecasts payroll expenses at $740 per unit. For this analysis, we have included a payroll expense of $740 per unit.

Management: The typical management and leasing fees for this type property range from 3% to 8% on collected income. This expense accounts for the leasing, rent collection and general oversight of the property. Property managers and owners were consulted to determine the typical management fee for properties similar to the subject property. Based upon our findings the typical management fee ranges from 2% to 5% of the effective gross income or a fee based on the property’s size and occupancy. We estimate a reasonable management fee for the subject property at 4% of collected income annually. This equates to a management expense of $27,178 annually.



Replacement Reserves: A prudent investor would make an annual allowance for anticipated future expenses. Primary components in this category are the roof, paving, and HVAC systems. Building owners rarely establish regular accounts for replacements. The 1st Quarter 2017 PwC investor survey (Replacement Reserves Survey released every first quarter) indicates that the replacement allowance for similar properties ranges from $200 to $350 per unit. Considering the quality of the subject building we estimate a reasonable replacement allowance at $250 per square foot of building area, or $24,000 annually.

Net Operating Income (NOI)

The Net Operating Income is determined by subtracting the total operating expenses from the effective gross income.

A complete pro-forma operating statement for the subject is presented in the following table.

$/Unit Total

Potential Gross Rental Income (PGRI)Base Rental Revenue $600 $691,200Other Income $250 $24,000

Total Potential Gross Revenue $715,2005.0% ($35,760)

Effective Gross Income (EGI) $7,078 $679,440

ExpensesReal Estate Taxes $352 $33,756Property Insurance $220 $21,120Utilities $175 $16,800Repairs & Maintenance $400 $38,400General and Administrative $125 $12,000Advertising $125 $12,000Payroll & Related $740 $71,040Management Fee 4.0% $283 $27,178Replacement Reserves $250 $24,000

Total Operating Expenses $2,670 $256,294Expense Ratio 37.7%

Net Operating Income (NOI) $4,408 $423,146

DIRECT INCOME CAPITALIZATION SUMMARY

Vacancy and Collection Loss



Direct Capitalization

Direct capitalization is a method used to convert a single year’s estimated stabilized net operating income into a value indication. The following subsections represent different techniques for deriving an overall capitalization rate for direct capitalization.

Capitalization Rate Selection

The capitalization rate is the ratio of the first year’s net operating income to value. This rate reflects an investor’s expectation of net income as well as property appreciation. Overall capitalization rates can be estimated by several techniques.

In the analysis of the subject property, the following methods have been utilized.

• Derivation from comparable improved sales • Band of Investment technique utilizing the mortgage and equity components • Investor surveys

Derivation from Comparable Improved Sales

A range of overall capitalization rates was derived from the comparable improved sales presented in the Sales Comparison Approach of this report. The net operating income of each sale was divided by the sale price.

The capitalization rates from sales referenced above range from 6.50% to 8.27% with a mean of 7.28%. These rates are derived from transactions of properties similar to the subject and reflect the expectations of investors regarding the relationship between risk, income and the value of properties such as the subject.

No. Property Name Sale Date Price NOI OAR OAR Basis

1 1011 County Home Road Apr-17 $ 10,400,000 $ 739,339 7.11% Actual2 1776 Poston Circle Aug-17 $ 5,250,000 $ 341,250 6.50% Actual3 345 Bryant Road Aug-17 $ 7,050,000 $ 510,000 7.23% Actual4 1024 Ashw ood Court Jul-16 $ 8,220,000 $ 680,000 8.27% Actual

OAR SUMMARY

Low 6.50%High 8.27%Average 7.28%

CAP RATES FROM COMPARABLE SALES



Band of Investment Method

For additional support, we also considered the Band of Investment method. This formula is used by real estate lenders in determining an investment's degree of risk. The band of investment method derives a capitalization rate from the weighted average of the mortgage and equity demands on net income generated from the property. This method involves an estimate of typical financing terms as well as an estimated rate of return on equity capital sufficient to attract investors.

In order to apply this technique, we referenced market data supplied by the 3rd Quarter 2017 RealtyRates - Garden/Suburban Townhouse Investor Survey and have made the following assumptions:

1) Loan Ratio: The RealtyRates survey indicates loan-to-value ratios are ranging from 60% to 90%, and average around 75%. We believe a 75% ratio of loan-to-value ratio is available in the local market.

2) Interest Rate: The investor survey reports interest rates for similar properties range from 3.04% to 7.35%, with an average of 5.20%. Based on the foregoing, we believe that a 5.50% rate is available in the local market for the subject property.

3) Amortization Term: Amortization terms reflected in the RealtyRates survey range from 15 to 40 years, with an average of around 28 years. Given the foregoing, and considering the subject’s age, an amortization rate of 25 years is estimated for the subject.

4) Mortgage Constant: The mortgage constant is also known as the capitalization rate for debt and is the ratio of the annual debt service to the principle amount of the mortgage loan. Based on the loan assumptions, a mortgage constant of 0.074 is calculated.

5) Equity Ratio: Based upon the above-determined loan-to-value ratio, the equity ratio is 25%.

6) Equity Dividend Rate: RealtyRates reports the equity dividend rates for similar properties range from 6.46% to 14.48%, with an average of 10.07%. We reconcile an equity dividend rate for the subject property near the lower end to middle of the range, at 10.00%.

Based on the foregoing set of assumptions, the indication of the capitalization rate from the Band of Investment Technique is calculated as follows:

MORTGAGE / EQUITY ASSUMPTIONSLoan To Value Ratio 75%Interest Rate 5.50%Amortization (Years) 25Mortgage Constant 0.0737Equity Ratio 25%Equity Dividend Rate 10.00%

Mortgage Requirement 75% x 7.37% = 5.53%Equity Requirement 25% x 10.00% = 2.50%

Indicated Capitalization Rate 8.03%Rounded 8.00%

BAND OF INVESTMENT METHOD

WEIGHTED AVERAGE OF MORTGAGE AND EQUITY REQUIREMENTS



Overall Rates Derived from Investor Surveys

In addition, we have also considered Investor Surveys published by PwC and RealtyRates to determine if investors that are currently active in the market for similar properties support the overall capitalization rate indications from the previously applied techniques.

The PwC investor survey reflects a high percentage of institutional-grade investments; whereas, the RealtyRates investor survey reflects a wider spectrum of properties. Due to the age and location of the subject, the subject is considered to reflect average risk, and an OAR at the middle of the range indicated in the preceding table is considered appropriate.

Direct Capitalization Method Conclusion

The following chart summarizes the capitalization rates by each method.

Primary emphasis has been placed on the actual overall capitalization rate indications from the comparable improved sales. The observations and analysis suggest that an overall capitalization rate of 8.25% represents reasonable investor criteria under current market conditions.

In the Direct Income Capitalization Method, an opinion of market value has been developed by dividing year one net operating income by an overall capitalization rate of 8.25%.

Going-In Going-InCap Rate Cap Rate

Range Average

Pw C - National Apartment Market 3rd Quarter 2017 3.50% - 7.50% 5.35%

Pw C - Southeast Apartment Market 3rd Quarter 2017 3.50% - 6.50% 5.13%

RealtyRates - Garden/Suburban Tow nhouse 3rd Quarter 2017 4.31% - 11.79% 7.79%

INVESTOR SURVEYS

Survey Quarterly Report

Improved Sales 7.28%Band of Investment 8.00%Investor Surveys Pw C (range) - National 3.50% - 7.50% Pw C (range) - Southeast 3.50% - 6.50% RealtyRates (range) 4.31% - 11.79%

Correlated to: 8.25%

CAPITALIZATION RATE SUMMARY



Market Value Conclusion by the Income Capitalization Approach

Based on the foregoing, the market value of the subject property via the Direct Income Capitalization Method is calculated as follows:

Income Loss

As noted, we have forecasted market rents at $500 per month for 1 bedroom units, $600 per month for 2 bedroom units, and $700 per month for 3 bedroom units. Currently the subject is leased on average as follows:

1 Bedroom Units: $429 per month



Total monthly income, as calculated from the rent roll, equates to $40,316 which equates to annual income of $483,792. This reflects a total income loss due to lease of $207,408. This total loss includes the income loss due to below market leases as well as the income loss due to the down units. Assuming that the units can all be made rentable and rolled to market terms over a one-year period, we have included half of the total income loss as the stabilization costs plus a 25% entrepreneurial profit component. Total income loss is calculated to be $129,630.

Value Indication By Direct Income Capitalization

Net Operating Income: $423,146 Overall Income Capitalization Rate: ÷ 8.25%Market Value Indication: $5,129,048 Less: Income Loss: $129,630 Less: Remaining Construction Costs: $375,000 Indicated Market Value As-Is: $4,624,418 Rounded: $4,620,000 Per Unit: $48,125


96 UNIT APARTMENT COMPLEX | RECONCILIATION

Reconciliation

In opining on the market value of the subject property, the appraisers used the Sales Comparison Approach and the Income Approach and yielded the following value conclusions:

The Cost Approach provides a good indication of value of new properties when the subject is the highest and best use. However, the difficulty in estimating accrued depreciation on older properties and entrepreneurial profit on various types of development tends to weaken the objectivity of the Cost Approach. The Cost Approach is particularly useful when appraising unique properties. In this appraisal situation, the Cost Approach is not utilized due to the significant age of the subject improvements.

The Sales Comparison Approach is considered a credible indication of value for the subject due to the number of comparable sales that have occurred in the subject market and similar markets. The appraisers were able to apply reliable adjustments for the various differences between the subject and the comparable sales, and the available sales provide a reasonable range of per square foot values from which to estimate a value for the subject property. Significant consideration has been given to this approach in our analysis.

The Income Capitalization Approach analysis is a good indicator of value when sufficient rent comparables are available and when expenses can reasonably be anticipated. The subject property is a 96-unit apartment complex which is currently 82.3% occupied and forecasted to lease-up to a stabilized 95% occupancy over the following 12-months. Analyzing the subject property based on its projected stabilized income-producing capabilities provides credible results; therefore, the appraisers have given strong consideration to this approach.


Valuation ApproachMarket Value

As-Is

Cost Approach: N/ASales Comparison Approach: $4,540,000Income Approach: $4,620,000

Reconciled to: $4,600,000Per Unit: $47,917


96 UNIT APARTMENT COMPLEX | RECONCILIATION

VALUE SUMMARY After careful consideration of all factors pertaining to and influencing value, the data and analysis thereof firmly support an opinion of Market Value As Is of the fee simple interest in the subject property, presented as follows:

Refer to the Assumptions & Limiting Conditions and Special Valuation Premises and Assumptions sections within the introduction of this report. The indicated value is subject to these assumptions and should further investigation prove them incorrect, we reserve the right to amend this report and value conclusions accordingly.

Appraisal Premise Real Property Interest Effective Date Value Conclusion

Market Value As-Is Fee Simple September 26, 2017 $4,600,000



96 UNIT APARTMENT COMPLEX | MARKETING & EXPOSURE PERIOD

Marketing & Exposure Period

“Statement On Appraisal Standards No. 6 (SMT-6)” of the 2012 Uniform Standards of Professional Appraisal Practice defines Exposure Time as “the estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective opinion based upon an analysis of past events assuming a competitive and open market”. “Advisory Opinion 7” of the 2010 Uniform Standards of Professional Appraisal Practice defines Marketing Time as “an opinion of the amount of time it might take to sell a real or personal property interest at the concluded market value level during the period immediately after the effective date of an appraisal”.

Recent sales indicate marketing periods for the majority of comparable properties have ranged from approximately 3 months to 12 months. However, several active listings have been on the market for well over 12 months, but these listings are considered to be overpriced. Additionally, the most recent PwC Investor Survey indicates a marketing time range of 1 to 6 months with an average of 3.3 months. Based on the analysis contained in this report, we estimate a reasonable exposure period for the subject is estimated at less than 12 months. We expect market conditions to continue to remain relatively stable or to slowly improve over the near-term future. Given this information, the marketability of the subject is considered average, and we have provided an opinion of market value that should facilitate average marketability given current market conditions. Given the overall size, quality, and features of the subject, a reasonable marketing period for the subject is estimated at less than 12 months.

MARKETING AND EXPOSURE PERIOD

Marketing Period Conclusion: Less than 12 months

Exposure Period Conclusion: Less than 12 months


96 UNIT APARTMENT COMPLEX | ADDENDA

Addenda


COMPARABLE IMPROVED SALES

IMPROVED SALE NO. 1

Property Identification

Property Type: Multifamily Property Name: The Fields of Conover

Apartments

Tax ID: 373216839923 Address: 1011 County Home Road City, State: Conover, North Carolina County: Catawba Location: Northeast corner of Interstate

40 and West 1st Avenue

Transaction Data Grantor: VCP Ridge Pointe, LLC Grantee: Elite Street Capital Ridge Pointe

Equity DE, LP

Sale Price: $10,400,000 Sale Date: 04-06-2017 Deed Book/ Page: 3394/389 Conditions of Sale: Normal, Arm's-Length Financing: Cash to Seller Verification: Public Records, Tax Assessor, CoStar, Broker Physical Data Building Size: 119,808 SF No. of Units 160 Year Built: 2000 Construction: Vinyl siding on wood frame Condition: Average Land Size: 11.86 Acre(s) or 516,622 SF Land to Building Ratio: 4.31 Financial Analysis Sale Price: $10,400,000 Price/SF: $86.81 Price/Unit $65,000 NOI: $739,339 Cap Rate: 7.11% Occupancy at Sale: 96.0% NOI/SF: $6.17 NOI/Unit $4,621 Comments This is the April 2017 sale of a 160-unit apartment complex located along Country Home Road, just north of 10th Street NW in Conover, Catawba County, North Carolina. This site is located in the northeast quadrant of the intersection of Interstate 40 and West 1st Street. The property consists of 15, 2-story buildings containing 160-units. The property includes 24 - studio units with 440 square feet; 42 - 1 bedroom units with 544 square feet; 72 - 2 bedroom units with 864 square feet; and 22 - 3 bedroom units with 1,080 square feet. The property was built in 2000 and the improvements are of average quality and the property was in average condition at the time of sale. The property was 96% leased at the time of sale. Community amenities include a pool playground, clubhouse, and laundry facility. Unit amenities include washer/dryer connections. The property sold in April 2017 for $10,400,000 or $65,000 per unit and closed on a 7.1% OAR.


IMPROVED SALE NO. 2


Property Type: Multifamily Property Name: Garden Villas Apartments Tax ID: 105111 Address: 1776 Poston Circle City, State: Gastonia, North Carolina County: Gaston Location: North of Andrew Jackson

Highway, West of New Hope Road, South of I-85

Transaction Data Grantor: Garden Villas Partners, LLC Grantee: Garden Villas NC Partners, LLC Sale Price: $5,250,000 Sale Date: 08-22-2017 Deed Book/Page: 4930/428 Conditions of Sale: Normal, Arm's-Length Financing: Cash to Seller Verification: Public Records, Tax Assessor, CoStar, Broker Physical Data Building Size: 71,628 SF No. of Units 100 Year Built: 1950 Construction: Brick and Vinyl Siding Condition: Average Land Size: 15.71 Acre(s) or 684,328 SF Land to Building Ratio: 9.55 Financial Analysis Sale Price: $5,250,000 Price/SF: $73.30 Price/Unit $52,500 NOI: $341,250 Cap Rate: 6.50% Occupancy at Sale: 98.0% NOI/SF: $4.76 NOI/Unit $3,412 Comments This is the August 2017 sale of a 100-unit apartment complex located along Poston Circle at Craig Avenue in Gastonia, Gaston County, North Carolina. This site is located just north of Andrew Jackson Highway, west of New Hope Road, and south of Interstate 85 proximate to the Eastridge Mall. The property consists of 24, 1-story buildings containing 100-units. The property includes 2 and 3 bedroom units with an overall average of approximately 716 square feet in size. The property was built in 1950 and the improvements are of average quality and the property was in average condition at the time of sale. The property appears to have been renovated; however, specific details were not available. The property was 98% leased at the time of sale. The property does not feature any community amenities; unit amenities include washer/dryer connections. The property sold in August 2017 for $5,250,000 or $52,500 per unit and closed on a 6.5% OAR. The broker reported that the property had a stable cash flow, which made is so appealing despite its location in a tertiary market. Further, the rents were reported to be slightly below market. The buyer intends to perform $3,000 to $4,000 per unit in renovations in order to push rents up by approximately $100 per unit per month. The renovations were reported to be cosmetic in nature. There was no deferred maintenance at the property.


IMPROVED SALE NO. 3


Property Type: Multifamily Property Name: Cross Creek Apartments Tax ID: 7-04-00-055.04 Address: 345 Bryant Road City, State: Spartanburg, South Carolina County: Spartanburg Location: South of Interstate 85 Business Transaction Data Grantor: Serenity Apartments at

Spartanburg, LLC

Grantee: Upstate Cross Creek, LLC Sale Price: $7,050,000 Sale Date: 08-22-2017 Deed Book/Page: 116W/672 Conditions of Sale: Normal, Arm's-Length Financing: Cash to Seller Verification: Public Records, Tax Assessor, CoStar, Loopnet Physical Data Building Size: 86,336 SF No. of Units 152 Year Built: 1981 Construction: Vinyl siding on wood frame Condition: Average Land Size: 10.20 Acre (s) or 444,486 SF Land to Building Ratio: 5.15 Financial Analysis Sale Price: $7,050,000 Price/SF: $81.66 Price/Unit $46,382 NOI: $510,000 Cap Rate: 7.23% Occupancy at Sale: 100.0% NOI/SF: $5.91 NOI/Unit $3,355 Comments This is the August 2017 sale of a 152-unit apartment complex located along Bryant Road, just south of Landers Road and Interstate 85 Business in Spartanburg, Spartanburg County, South Carolina. This site is located northeast of the Spartanburg CBD and southwest of the Interstate 85/Interstate 85 Business intersection. The property consists of 20, 2-story buildings containing 152 - 1-bedroom units with 568 square feet. The property was built in 1981 and the improvements are of average quality and the property was in average condition at the time of sale. The property was 100% leased at the time of sale. Community amenities include a laundry facility. The property sold in August 2017 for $7,050,000 or $46,382 per unit and closed on a 7.23% OAR. The property was renovated recently with a total $1.3 million spent or $8,553 per unit. the renovations included new appliances, new window treatments, new counter tops and cabinets, new paint, new vanities, new light fixtures, and new carpet.


IMPROVED SALE NO. 4


Property Type: Multifamily Property Name: Fern Forest Apartments Tax ID: 110860, 111028, 110863, &

110862

Address: 1024 Ashwood Court City, State: Gastonia, North Carolina County: Gaston Location: East of Fern Forest Drive, South

of E. Garrison Boulevard

Transaction Data Grantor: A.K. Investment Properties, Inc. Grantee: Sky Forest, LLC Sale Price: $8,220,000 Sale Date: 07-12-2016 Deed Book/Page: 4856/1467 Conditions of Sale: Normal, Arm's-Length Financing: Cash to Seller Verification: Public Records, Tax Assessor, CoStar, Loopnet, Knowledgeable 3rd Party Physical Data Building Size: 122,160 SF No. of Units 184 Year Built: 1963 Construction: Brick Condition: Average Land Size: 10.15 Acre(s) or 442,134 SF Land to Building Ratio: 3.62 Financial Analysis Sale Price: $8,220,000 Price/SF: $67.29 Price/Unit $44,674 NOI: $680,000 Cap Rate: 8.27% Occupancy at Sale: 100.0% NOI/SF: $5.57 NOI/Unit $3,696 Comments This is the July 2016 sale of a 184-unit apartment complex located along in the northeast corner of the intersection of Fern Forest Drive and Creekbriar Avenue in Gastonia, Gaston County, North Carolina. This site is located southeast of the Gastonia CBD, south of East Garrison Boulevard. The property consists of 16, 2-story buildings containing 184 - 1-bedroom units. The unit mix includes 140 units with 640 square feet and 44 units with 740 square feet. The average unit size is 664 square feet. The property was built in 1963 and the improvements are of average quality and the property was in average condition at the time of sale. The property was 100% leased at the time of sale. Reportedly, the property has maintained a high occupancy rate with stable cash flow. Community amenities include a pool and laundry facility. The property sold in July 2016 for $8,220,000 or $44,674 per unit and closed on an 8.27% OAR.


RENT COMPARABLE PROFILES

RENTAL NO. 1 Property Identification

Property Type: Multifamily Property Name: Madison Park Apartments Tax ID: 26450 Address: 1501 Normandy Lane City, State: Shelby, North Carolina 28152 County: Cleveland Location: South of Earl Road

Lessor: Southwood Realty Company Physical Data Total Building Area (SF): 77,760 Rentable Area (SF): 77,760 Year Built: 1980 Lease Data Tenant Size (SF) Rent (Mo.) Rent (SF) 1 BR Units 624 $625 $1.00 2 BR Units 816 $665 $0.81 3 BR Units 1,008 $785 $0.78 Expense Details: Pest control and trash collection are included in rent. Tenants are responsible for all unit

utilities. Occupancy: 99.0% Verification: Tax Assessor, Field, CoStar, Manager Comments This is a 100-unit apartment complex located off of Eaves Road, just south of Earl Road and U.S. Highway 74 in Shelby, Cleveland County, North Carolina. The property consists of one story buildings that were constructed in 1980 and reflect average overall quality and condition. The unit mix includes and includes 32 - 1 bedroom units with 624 square feet that lease for $625 per month; 56 - 2 bedroom units with 816 square feet that lease for $665 per month; and 12 - 3 bedroom units with 1,008 square feet that lease for $785 per month. Amenities include washer/dryer connections. The manager reported that the property is 99% occupied and that the property typically stays at or near full occupancy.



Property Type: Multifamily Property Name: Crown Ridge Apartments Tax ID: 46540 Address: 1635 S. DeKalb Street City, State: Shelby, North Carolina 28152 County: Cleveland Location: Northeast corner of S, DeKalb

Street and Seattle Street Lessor: Concord Five Portfolio, LLC Physical Data Total Building Area (SF): 112,000 Rentable Area (SF): 112,000 Year Built: 2003 Lease Data Tenant Size (SF) Rent (Mo.) Rent (SF) 1 BR Units 600 $560 $0.93 2 BR Units 900 $640 $0.71 3 BR Units 1,200 $800 $0.67 Expense Details: Pest control and trash collection are included in rent. Tenants are responsible for all unit

utilities. Occupancy: 100.0% Verification: Tax Assessor, Field, CoStar, Manager Comments This is a 120-unit apartment complex located at the intersection of S. DeKalb Street and Seattle Street, east of South Lafayette Street in Shelby, Cleveland County, North Carolina. The property consists of two-story buildings that were constructed in 2003 and reflect average overall quality and condition. The unit mix includes and includes 16 - 1 bedroom units with 600 square feet that lease for $560 per month; 80 - 2 bedroom units with 900 square feet that lease for $640 per month; and 24 - 3 bedroom units with 1,200 square feet that lease for $800 per month. Amenities include a pool, playground, fitness center, and washer/dryer connections. The manager reported that the property is 100% occupied and that the property typically stays at or near full occupancy.



Property Type: Multifamily Property Name: Marion Ridge Apartments Tax ID: 22189 Address: 1829 East Marion Street City, State: Shelby, North Carolina 28152 County: Cleveland Location: North of U.S. Highway 74, East

of Post Road Lessor: BMA Shelby Apartments, LLC Physical Data Total Building Area (SF): 157,694 Rentable Area (SF): 113,800 Year Built: 1999 Lease Data Tenant Size (SF) Rent (Mo.) Rent (SF) 1 BR Units 600 $585 $0.98 2 BR Units 900 $710 $0.79 3 BR Units 1,100 $840 $0.76 Expense Details: Pest control and trash collection are included in rent. Tenants are responsible for all unit

utilities. Occupancy: 99.0% Verification: Tax Assessor, Field, CoStar, Manager Comments This is a 148-unit apartment complex located along the east side of East Marion Street, north of U.S. Highway 74 and east of Post Road in Shelby, Cleveland County, North Carolina. The property consists of two-story buildings that were constructed in 1999 and reflect average overall quality and condition. The unit mix includes and includes 20 - studio units with 400 square feet that lease furnished for $540 per month; 42 - 1 bedroom units with 600 square feet that lease for $585 per month; 70 - 2 bedroom units with 900 square feet that lease for $710 per month; and 16 - 3 bedroom units with 1,100 square feet that lease for $840 per month. Amenities include a clubhouse, pool, playground, fitness center, laundry facility, and washer/dryer connections. The manager reported that the property is 99% occupied and that the property typically stays at or near full occupancy.



Property Type: Multifamily Property Name: Carlisle at Delta Park

Apartments Tax ID: 57705 Address: 121 Delta Park Drive City, State: Shelby, North Carolina 28150 County: Cleveland Location: North of Wyke Road, West of

Cherryville Road Lessor: Carlisle at Delta Park, LLC Physical Data Total Building Area (SF): 184,770 Rentable Area (SF): 138,360 Year Built: 2006 Lease Data Tenant Size (SF) Rent (Mo.) Rent (SF) 1 BR Units 696 $540 $0.78 2 BR Units 904 $625 $0.69 3 BR Units 1,451 $790 $0.54 Expense Details: Pest control and trash collection are included in rent. Tenants are responsible for all unit

utilities. Occupancy: 98.0% Verification: Tax Assessor, Field, CoStar, Manager Comments This is a 144-unit apartment complex located along Delta Park Drive, just north of Wyke Road and west of Cherryville Road in Shelby, Cleveland County, North Carolina. The property consists of three-story buildings that were constructed in 2006 and reflect good overall quality and condition. The unit mix includes and includes 48 - 1 bedroom units, 72 - 2 bedroom units, and 24 - 3 bedroom units. The units include three styles, a base unit, a patio unit (1st floor) and units with sunrooms. The base 1 bedroom units lease for $540 per month with a $15 per month premium for the patio and sunroom. The base and patio units contain 696 square feet, while the sunroom units have 821 square feet. Similarly for the 2 bedroom units, the base plans lease for $625 per month with a $25 premium for patio units, and $40 per month premium for sunroom units. The base and patio units contain 904 square feet while the sunroom units have 1,029 square feet. The 3 bedroom units include 1,451 square feet for all three unit types with the base units leasing for $790 per month with a $20 premium for the patio and sunroom units. Amenities include a pool, fitness center, movie theater, and washer/dryer connections. The manager reported that the property is 98% occupied and that the property typically stays at or near full occupancy.


LEGAL DESCRIPTION


RENT ROLL


OPOERATING STATEMENTS


ENGAGEMENT LETTER


QUALIFICATIONS

Bennett J. Sands, MAI, ASA Principal | Calhoun Sands Valuation & Advisory, Inc.

[email protected]

1010 Huntcliff, Suite 1350 Atlanta, Georgia 30350

Office: 404.719.4901 Fax: 404.719.4902


Experience

Commercial real estate appraiser with 9 years of valuation and appraisal review experience across a broad range of property types on a local and regional basis. Prior experience includes valuation and consulting assignments on a wide variety of commercial property types including: office, industrial, multi-family, retail, mixed-use, special-purpose, going-concern properties, net leased investments, auto service facilities, auto dealerships, car wash facilities, billboard and outdoor media, and golf course developments. His specialized experience is focused on the valuation of development property including: proposed and remaining inventory subdivisions, mixed-use projects, and master-planned communities. His additional specialties include detailed residential market analysis and feasibility studies.

Co-Founded CSVA, Inc. in July 2013. Prior work experience: Senior Appraiser at Lee & Associates Valuation and Consulting Services, LLC; Senior Appraiser at The Appraisal Group, Inc.; and Appraiser at Oracle Real Estate Services, Inc. Education

University of Georgia – Terry College of Business Cum Laude, Bachelor of Business Administration (BBA), Real Estate Professional Activities & Affiliations

Designated Member of the Appraisal Institute (MAI) Accredited Senior Appraiser (ASA) Associate Member of the Georgia Banker’s Association (GBA) Appraisal Education

Appraisal Institute, MAI Coursework: National USPAP Course Real Estate Finance, Statistics, Valuation Modeling General Appraiser Market Analysis and Highest & Best Use General Appraiser Report Writing & Case Studies General Appraiser Sales Comparison Approach General Appraiser Site Valuation & Cost Approach General Appraiser Income Approach/Part I & Part II Advanced Income Capitalization Advanced Market Analysis and Highest & Best Use Advanced Concepts & Case Studies

Appraisal Institute, Specialized Appraisal Education: ARGUS Discounted Cash Flow Valuation (ARGUS Software Certified) Analyzing Tenant Credit Risk and Commercial Lease Analysis Evaluating Commercial Construction Subdivision Valuation Appraising Convenience Stores State Licenses

State of Georgia Certified General Real Property Appraiser No. 336997 State of North Carolina Certified General Real Property Appraiser No. A7857 State of South Carolina Certified General Real Property Appraiser No. 7163

mailto:[email protected]

http://www.calhounsands.com/


Mark C. Cartin Appraiser | Calhoun Sands Valuation & Advisory, Inc. [email protected]

1010 Huntcliff, Suite 1350 Atlanta, Georgia 30350

Office: 404.719.4901 Fax: 404.719.4902


Experience

Commercial real estate appraiser with 17 years of progressive valuation and appraisal review experience in a variety of property types for a broad range of local, regional, and national clients. Assignments have included valuation, market analysis, and advisory services on existing and proposed commercial properties including retail, industrial, office, multi-family, lodging facilities, restaurants, mixed-use developments, senior housing, residential and commercial subdivisions, special-purpose properties, and land. Specialized experience includes the valuation of large timberland portfolios, marina facilities, aircraft hangars, religious facilities, and private schools.

Joined CSVA, Inc. in June 2016. Prior work experience: Vice President at McColgan & Company, LLC (April 1999 – May 2016). Education

Clemson University Bachelor of Science in Finance with a Real Estate Concentration Professional Activities & Affiliations

Associate Member of the Appraisal Institute Appraisal Education

Candidate for MAI Designation. Successful completion of MAI Coursework and Comprehensive Examination

Appraisal Institute, MAI Coursework: National USPAP Course Business Practices and Ethics Appraisal Principles & Procedures Basic Income Capitalization General Appraiser Market Analysis and Highest & Best Use General Applications General Appraiser Report Writing & Case Studies Advanced Income Capitalization Advanced Sales Comparison & Cost Approaches Advanced Applications Appraisal Institute, Specialized Appraisal Education: Subdivision Valuation State Licenses

State of Georgia Certified General Real Property Appraiser No. 240798 State of Alabama Certified General Real Property Appraiser No. G01103 State of Tennessee Certified General Real Property Appraiser No. CG00004872 State of South Carolina Certified General Real Property Appraiser No. 6902 State of North Carolina Certified General Real Property Appraiser No. A7725

mailto:[email protected]

http://www.calhounsands.com/

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