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Mr. Jim Waters Ouest Development. Inc. July 24 2013 REGIONAL APARTMENT MARKET CONDITIONS Rental Demand The graphic on the following page displays data on apartment unit absorption in comparison with job growth (losses) over the past several years for the Twin Cities Metro Area. Job growth was robust during the 1990's, particularly in the latter part of the decade, while apartment supply increases were nominal. The Twin Cities metro area added an average of 38,000 jobs per year between 1995 and 2000. During that time, the regional apartment market operated at or above 98% occupancy. However, the recession of 2001/2002 led to the loss of about 40,000 jobs in the region over a two -year period. Meanwhile, the apartment market saw the metro -wide physical vacancy rate spike to 7.6% by 2003, with apartment owners offering deep rent concessions in an attempt retain current renters and lure others from competing properties. Between 2003 and 2007, the economy improved and the region added approximately 75,000 jobs. Meanwhile, we saw the absorption of nearly 6,700 market rate rental units over these four years and a decline in the metro -wide physical vacancy rate to 4.2 %. A serious economic recession took a major toll on all real estate sectors in 2008 and 2009, including the Twin Cities apartment market. From the beginning of 2008 through year -end 2009, the Twin Cities economy shed more than 106,000 jobs. The regional apartment market saw a spike in physical vacancy to 7.9% by the end of 2009. Negative absorption totaled nearly 3,500 units during 2009. (This includes only those units in apartment complexes of 10 or more units, thereby understating negative absorption since we exclude smaller buildings, duplexes, and single family rentals.) The recent recession caused many Twin Cities renters to downsize, or move in with a roommate, parents or other family members. As the economy continues to improve, many of these renters are moving back into apartments. 2010 brought dramatic improvement in the Twin Cities apartment market, spurred by economic improvement and modest job growth, along with a "de- bundling" of Twin Cities households. A total of 21,600 jobs were added for the year, while apartment absorption totaled 6,433 units. At the same time, the apartment industry benefited from foreclosures, with rental properties attracting many former homeowners. Apartment vacancy in the Twin Cities Metro Area declined from 7.3% to 3.8% during 2010. Economic conditions continue to improve. A total of 7,100 jobs were added during 2013 Q1, following growth of 43,000 jobs in 2011 and 33,000 in 2012. Total employment remains just 7,000 jobs short of pre- recession levels in the region. Meanwhile, metro area apartment vacancy has declined to 2.8% in 2013 Ql. Absorption totaled of 724 units during 2013 Q1, following 2,406 units in 2011 and 1,217 units in 2012. Marquette Advisors Page I I