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Mr. Jim Waters Ouest Development, Inc. July 24 2013 Urban submarkets have led the resurgence in the Twin Cities apartment market, although the recovery has been widespread, with improved demand for all rental product types, at all rent levels, and in all submarkets, particularly those which provide good access to major job centers, goods /services, dining/entertainment, parks /trails and urban amenities, key transportation corridors and access to transit. Apartment SumAy Trends Apartment construction activity was very moderate throughout the 2008/2009 economic recession, much more so than during the last recession of 2001/2002. The graph on the preceding page shows regional annual apartment unit construction in comparison with unit absorption from 1998 through 2012. Over the past 10 years in the Twin Cities region, just 7,853 new market rate apartment units have been constructed, compared to total net positive absorption of 13,429 units during this timeframe. Construction activity has picked -up dramatically, however, with more than 5,300 market rate apartments under construction throughout the metro area and another 7,000 units in the planning stages. The majority of current construction activity is focused in the City of Minneapolis, in its Downtown and "Uptown" neighborhoods, where approximately 4,000 units are expected to come online in 2013 and 2014. Rental Rates The Twin Cities average market rent was $966 in 2013 QIat the end of 2012, up 3.3% over the past 12 months. Based on a supplemental survey of about 30,000 units metro -wide, we estimate that "effective" rental rates (net of concessions) averaged about $957 in 2013 Q1, up 4.1% compared to a year ago. Rent growth in the Twin Cities has been held down somewhat due to a variety of factors, including reduced unit turnover activity due to sustained low vacancy (sub - 3.0% for eight consecutive quarters), and a strong local ownership presence which has historically been very conservative with rent increases. We note that new apartment product has been very well received to date and is commanding a considerable rent premium over existing product. The map on the following page shows average market rental rates and vacancy by submarket as of 2013 Q1. In general, urban and close -in suburban markets continue to outperform second and third -ring suburban markets. However, conditions have improved in all submarkets, as rental housing demand remains strong due to demographic and economic trends, as well as social and lifestyle trends which are favorable to renting. Vacancy in the North Central Suburban market, within which the subject property is located, was 2.3 %, with an average market rent of $871 for 2013 Q1. Marquette Advisors Page 15