2Q12 Absorption and Vacancy Rate Trends

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1 RED CAPITAL GROUP MARKET OVERVIEW Richmond, Virginia Multifamily Housing Update 12 September 2012 Payroll Job Summary Total Payrolls 618.6m Annual Change 4.8m 2012 Forecast 8.2m 2013 Forecast 10.7m 2014 Forecast 12.3m 2015 Forecast 14.4m Unemployment 6.7% (July) 12 Payroll Trends and Forecast After a brief spring soft patch the Richmond job market returned to a constructive growth trajectory during the early summer months. Although average year-over-year payroll gains during 12 totaled only 4,800 jobs, down comprehensively from the prior quarter s 11,300-job, 1.9% advance, June and July postings were considerably stronger. Paced by vigorous hiring by construction and business and education services establishments, Richmond payrolls increased 7,800 and 7,000 jobs over the 12 months ended in June and July, respectively. Expressed on a seasonallyadjusted basis, net gains totaled 2,700 jobs over the two-month period, representing a healthy rebound from April and May s -4,800-job setback. RCR s econometric model produces an optimistic forecast for Richmond job creation. Based on a moderate U.S. GDP growth outlook, the model produces a forecast of 8,200 jobs in 2012, followed by steady increases rising above 10,000 jobs next year and further to 12,300 jobs in 2014 and a 10-year best 14,400 jobs in Vacancy Rate Summary Vacancy Rate (Reis) 5. RED 46 Average 4.7% Annual Chg. (Reis) <0.8%> REIS YE12 Forecast 4.5% 12 Absorption 311 units 12 Absorption and Vacancy Rate Trends Apartment demand picked up during the second quarter. Tenants net leased 311 units, according to Reis, up from 146 and 270 units in the prior two quarter, respectively. Against no supply, occupancy increased 40 basis points sequentially to 95., the first time the Richmond market reached the theoretical supply/demand equilibrium point in ten years. Strong interest in urban infill housing options was evident. Over the twelve months ended in June, tenant absorbed a net of 510 units in Downtown and West End neighborhoods, reducing average vacancy rates 110 to 170 bps to between 3. and 4.3%. Conditions were not as tight in most suburban areas, however, with vacancy rates remaining in the 6% to 8.5% range. Reis expect robust apartment demand to prevail throughout its five-year forecast period while supply remains in check though As a result, occupancy is projected to rise 70 bps by YE13. Further gains are foreseen in the out-years of the forecast, sending occupancy past 96% by Effective Rent Summary Mean Rent (Reis) $775 Annual Change 3.1% RED 46 Average 3.6% REIS YE12 Forecast 4. Mean Rent (Axiometrics) $901 Same Store Q-o-Q 1.9% Same Store Y-o-Y 2.3% 12 Rent Trends Reis surveys indicate that metro average asking and effective rents increased $8 (1.) and $9 (1.) sequentially to $815 and $775. These statistics compare to respective increases of 0. and 0.3% in the year-earlier period and 0.6% and 0.9% in the previous quarter. The strong spring upmove pushed year-over-year effective rent growth to a four-year high 3.1%, up from 2.1% in March. Axiometrics report a $901 average effective rent metric from its smaller, class-a concentrated survey pool, reflecting a 2. y-o-y increase. This service reported 1.9% and 0. advances between and and June and July, respectively. Reis indicate that rent metrics were relatively sluggish in the infill areas that experienced rapid occupancy growth. Effective rents increased only 2. and 2.1% y-o-y in the Downtown and Near West End areas, each weaker than the metro average. Axiometrics report rather stronger rent growth in each case, posting 3.5% (Downtown) and 2.9% (N.W.E.) advances, each considerably faster than the metro average. Trade & Return Summary $3mm+ Sales 3 Approx. Proceeds $96.9mm Median Cap Rate 6.3% Avg. Price/Unit $80, Property Markets and Total Returns Three Richmond area properties exchanged hands during the second quarter, including one traded as a part of a portfolio. Proceeds totaled about $96.9 million, attributing $40mm to the portfolio asset. The average price per unit was $80,440. RCR estimate the cap rate applicable to the priced market rate property at about 6.. Reis and CoStar report somewhat lower levels. The institutional quality asset traded in portfolio was priced to a mid-5% yield based on the estimated proceeds allocation. The Northside submarket affordable property yielded about 7.5%. In addition, Fannie Mae refinanced two outstanding loans secured by seasoned Richmond properties. Data suggest that cap rates in the low-to mid- 6% range were employed to size the deals. The supply of properties for sale limits transaction volume. Only one larger property (77 units/east Highland Park) was listed for sale on Loopnet in September. Many investors seeking to increase exposure to the Richmond market are pursuing new construction/rehab opportunities, largely in the form of repurposed loft space Downtown.

2 MARKET OVERVIEW 12 RICHMOND, VIRGINIA 1 Metro Vacancy Rate Trends History, Reis and RCR Forecasts Metro Vacancy Rate 9% 8% 7% 6% 5% 3% RICHMOND RED Average Cap Rate 7.5% % % Metro Cap Rate Trends Source: efannie.com, RCR Calculations RICHMOND 6.7% 6.5% 6.6% 6.5% SOU TH ATLANTIC REGION Q10 4Q Q11 4Q % Annual Chg (000) Metro Payroll History and Forecast Source: BLS History, RCR Forecasts Metro Cap Rate Trends Source: efannie.com, RCR Calculations f 2013f 2014f 2015f RICHMOND (2.9) (24.9) (3.1) NOTABLE TRANSACTIONS Property Name (Submarket) Property Class/ Type (Built) Date of Transaction Total Price (in millions) Price per unit Estimated Cap Rate Essex Village Apartments (Northside) AFF HG/(1982) 29-Apr-2012 $28.6 $57, % Birchwood Boulders (No. Chesterfield) B+ /GLR (1986) 9-May-2012 $28.3 $99, Crofton at Kings Cross (Far West End) A- / GLR (1971) 1-Apr-2012 $67.0 $100, % (FN Refi) Hampstead (Near West End) B- / GLR (1962) 15-Jun-2012 $6.2 $62, % (FN Refi) Crossing at Short Pump (N.W.E.) B+ /GLR (1989) 17-Jul-2012 $40.0 Allocated $114, % RED CAPITAL Research September 2012

3 MARKET OVERVIEW 12 RICHMOND, VIRGINIA 8% Metro EffectiveRent Trends Source: Source: Reis, Reis, Inc. Inc., History, RCR RCR Forecasts Forecasts YoY Rent Trend 6% - RED 46 AVG RICHMOND MetroHome HomePrice Sales Trends Trends Source: Source: S&PFHFA Case-Shiller Home Price Repeat Indices Sales Index 15% Y-o-Y % Change 1 5% -5% U.S.A. RICHMOND % Metro PayrollEmployment rends and Forecast Trends Source: BLS History, Data, RCR Forecasts Y-o-y Growth Rate 1% -1% - RICHMOND U.S.A. -3% f 2013f 2014f 2015f 2016f The information contained in this report was prepared for general information purposes only and is not intended as legal, tax, accounting or financial advice, or recommendations to buy or sell currencies or securities or to engage in any specific transactions. Information has been gathered from third party sources and has not been independently verified or accepted by RED CAPITAL GROUP. RED makes no representations or warranties as to the accuracy or completeness of the information, assumptions, analyses or conclusions presented in the report. RED cannot be held responsible for any errors or misrepresentations contained in the report or in the information gathered from third party sources. Under no circumstances should any information contained herein be used or considered as an offer or a solicitation of an offer to participate in any particular transaction or strategy. Any reliance upon this information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other advisor regarding your specific situation. Any views expressed herein are subject to change without notice due to market conditions and other factors. RED CAPITAL Research September 2012

4 SUBMARKET TRENDS Effective Rent Physical Vacancy Submarket Change Change Downtown / The Fan $893 $ % 3.7% -120 bps Near West End $756 $ % % -170 bps Far West End $824 $ % 4.1% bps Northside / Laburnam $767 $ % 140 bps Southside / Westover Hills $690 $ % 4.6% bps Southside / Broadrock $525 $ % 6.1% 6.8% 70 bps North Chesterfield $803 $ % 7.5% bps South Chesterfield $723 $ % 8.6% bps Airport $705 $ bps Hanover County $863 $ % -220 bps Metro $752 $ % 5.8% bps RED CAPITAL GROUP For more information about RED s research capabilities contact: Daniel J. Hogan, Director of Research Kenneth H. Bowen, President, Red Mortgage Capital, LLC djhogan@redcapitalgroup.com khbowen@redcapitalgroup.com

5 RED CAPITAL GROUP MARKET OVERVIEW Richmond, Virginia Multifamily Housing Update 4Q11 March 2012 Payroll Job Summary Total Payrolls 600.3m Annual Change -2.3m 2012 Forecast +4.0m 2013 Forecast +10.5m 2014 Forecast +18.2m 2015 Forecast +15.1m 4Q11 Payroll Trends and Forecast Overall metro employment trends were weak last year as Richmond chalked down a fourth consecutive net loss in Payroll headcounts declined 4,200 (-0.7%), on par with the decrease observed in Job losses were most severe in during May to August, when year-over-year job attrition averaged 9,500 (-1.6%) jobs. The year ended on a relatively high note, however. On a seasonally-adjusted basis, metro headcounts rose 8,400 during the final quarter, after 5,800 jobs were eliminated in the first nine months of the year. Likewise, payrolls advanced 2,400 in the twelve-month period ended in December and the metro unemployment rate decreased from 7. in December 2010 to 6.8%. Economy.com are optimistic about near-term job growth. Specifically, the source believes that Richmond payrolls will increase 3,950 (0.7%) in 2012, 10,500 (1.7%) in 2013 and 18,210 (3.) in Vacancy Rate Summary Vacancy Rate (Reis) 5.5% Reis Rank 29th Annual Chg (Reis) -1. Reis YE12 Forecast 4.8% Reis YE13 Forecast 4.8% Reis YE14 Forecast 5.3% 4Q11 Absorption and Vacancy Rate Trends Vacancy rates continued to trend lower in the wake of the Great Recession. The metro vacancy rate fell 320 basis points from the 8.7% cyclical peak recorded in 10 to 5.5%. The recovery was largely fueled by demand for Class-A assets. During 2011, positive net absorption totaled 1,170 Class-A units and 636 Class B/C units. Both groups reported low vacancy rates in 4Q11: 5.5% for Class-A and 5. for Class B/C properties. The Far West End submarket remained one of the tightest in the metro area. The vacancy rate declined 40 basis points sequentially and 140 basis points year-over-year to 3.5% as property managers net leased 237 units last year, including 68 in the final quarter. Supply growth should support continued improvement in Richmond. After completing 635 units in 2010 and 852 units in 2011, Reis predict that no new units will come online this year. Largely for this reason, the source forecasts that vacancy will decline to 4.8% by year-end. Effective Rent Summary Mean Rent (Reis) $759 Reis Rank 41st Annual Change 1.5% Reis YE12 Forecast 4. Reis YE13 Forecast 3.3% Reis YE14 Forecast 3.8% 4Q11 Rent Trends Occupancy improvement came at the expense of rent growth. On a sequential basis, effective rents rose only 0.3%, down from a 0.7% increase in the previous quarter. As a result, the pace of yearover-year effective rent growth decelerated from 1.6% to 1.5%. The same pattern was observed among metro Class-A and Class B/C properties as well as most submarkets. Class-A asking rent growth slowed from 0.5% to 0. and Class B/C asking rent growth decelerated from 0.6% to 0.3%. Every submarket exhibited decelerating rent growth except Airport and Southside / Westover Hills. Indeed, following a 0.6% third quarter increase, effective rent in the Northside / Laburnam submarket fell 1.8% in 4Q11. But Reis are optimistic about rent growth, forecasting a 4. effective rent increase in Submarket forecasts range from 2. (North Chesterfield) to 5.9% (Downtown / The Fan). Trade & Return Summary $5mm+ Sales 3 Approx. Proceeds $46mm Median Cap Rate 6. Avg. Price/Unit $79,277 Expected Total Return N/A RED 45 Rank N/A 4Q11 Property Markets and Total Returns According to Loopnet.com, three properties priced at or above $5 million traded in the fourth quarter. Sales volume totaled $45.5 million and the average price per unit was $79,277. By way of comparison, the source did not record any comparable trades in the same period of the previous year and only one $5mm+ transaction in all of The largest 4Q11 purchase involved a 388-unit garden-style property in the Near West End submarket. The buyer paid $35.5 million or $91,430 per unit. The property was originally constructed in 1980 and renovated by the previous owner in Based on Reis rent, occupancy and expense data, RCR calculate a 6. cap rate. The largest 2011 occurred in June. A publiclytraded REIT purchased a 300-unit property for $41.1 million ($136,833/unit). According to media reports, the cap rate for the trade was 6.1% based on historical NOI.

6 Annual Chg (000) Average Cap Rate Metro Vacancy Rate MARKET OVERVIEW 4Q11 RICHMOND, VIRGINIA 9% Apartment Vacancy Trends 8% 7% 6% 5.5% 5% 3% RICHMOND U.S.A % Metro Multifamily Cap Rate Trends Sources: Fannie, Freddie, RCR, Reis REIS RICHM OND (T12 AVG) FNM A South Atlantic % % Q 10 4Q Q 11 4Q 11 Payroll Employment Growth Sources: BLS Data & Economy.com Forecast f 13f NOTABLE TRANSACTIONS Property Name (Submarket) Property Class Date of Transaction Total Price (in millions) Price per unit Estimated Cap Rae Honey Tree (Near West End) A Dec $35.5 $91, RED CAPITAL Research March 2012

7 Rate Y-o-Y % Change YoY Rent Trend MARKET OVERVIEW 4Q11 RICHMOND, VIRGINIA 6% 5% 3% 1% -1% - -3% - RICHMOND U.S.A. Apartment Effective Rent Trends % Metro Median Single-Family Home Prices Source: FHFA Home Price Index 2 15% 1 5% -5% -1-15% USA MSA Year-over-year Payroll Growth Rate Source: BLS % RICHMOND USA The information contained in this report was prepared for general information purposes only and is not intended as legal, tax, accounting or financial advice, or recommendations to buy or sell currencies or securities or to engage in any specific transactions. Information has been gathered from third party sources and has not been independently verified or accepted by RED CAPITAL GROUP. RED makes no representations or warranties as to the accuracy or completeness of the information, assumptions, analyses or conclusions presented in the report. RED cannot be held responsible for any errors or misrepresentations contained in the report or in the information gathered from third party sources. Under no circumstances should any information contained herein be used or considered as an offer or a solicitation of an offer to participate in any particular transaction or strategy. Any reliance upon this information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other advisor regarding your specific situation. Any views expressed herein are subject to change without notice due to market conditions and other factors. RED CAPITAL Research March 2012

8 SUBMARKET TRENDS Submarket Effective Rent Physical Vacancy 4Q10 4Q11 Change 4Q10 4Q11 Change Downtown / The Fan $895 $ % 5.7% 4.1% -160 bps Near West End $748 $ % % -190 bps Far West End $822 $ % 3.5% -140 bps Northside / Laburnam $764 $ % % -290 bps Southside / Westover Hills $688 $ % 6.3% bps Southside / Broadrock $519 $ % bps North Chesterfield $787 $ % bps South Chesterfield $726 $ % 9.8% bps Airport $689 $ % % 10 bps Hanover County $850 $ % 4.9% bps Metro $748 $ % 6.9% 5.5% -140 bps RED CAPITAL GROUP For more information about RED s research capabilities contact: Daniel J. Hogan Director of Research djhogan@redcapitalgroup.com Kenneth H. Bowen President, Red Mortgage Capital, LLC khbowen@redcapitalgroup.com

9 RED CAPITAL GROUP MARKET OVERVIEW Richmond, Virginia Multifamily Housing Update 11 August 2011 Payroll Job Summary Total Payrolls: 599.5m Annual Change: -8.2m 2011 Forecast -3.3m 2012 Forecast 6.7m 2013 Forecast 9.5m Unemployment: 7.1% (June) 11 Payroll Trends and Forecast Payroll trends veered south in the second quarter, returning to negative territory following a ninemonth period of relatively healthy performance. Total payroll employment declined at an 8,200- job, -1.3% year-over-year pace, down from a 2,300-job, 0. advance recorded in 11. Attrition in the government, trade, transportation and financial services sectors was largely responsible. Year-over-year losses totaling 3,600 jobs were recorded in the trade and transportation sector, while the financial services and government super-sectors contributed 3,300 and 1,700 job cuts, respectively, over the prior 12 months. Spring seasonally-adjusted data also were soft. Richmond establishments trimmed 8,400 jobs in April and May, setting the stage for an 8,700-job quarterly decline. Employment losses resumed in earnest in July when 3,200 jobs were lost. Overall, the April to July performance was the weakest observed in this metro area since 1H09 during the worst of the Great Recession. Vacancy Rate Summary Vacancy Rate (Reis) 5.8% RED 50 Rank NA Annual Chg (Reis) -2.7% Reis YE11 Forecast 5. Reis YE12 Forecast 5. Reis YE13 Forecast 5.5% 11 Absorption and Vacancy Rate Trends Metro households were unfazed by the weak employment numbers and continued to lease apartments at a robust clip. According to Reis, tenants absorbed a net of 436 units during, down from s outstanding 662-unit performance yet stronger than the comparable period in Against no new supply, average occupancy improved for the sixth consecutive quarter, rising 70 basis points sequentially to 94.. Over the trailing 12 months occupancy increased 270 basis points, which would rank Richmond 11th among the RED 50 on this basis if it were a member of our peer group. Reis expect occupancy to continue to rise in the second half but foresees slower progress thereafter. The service forecasts a 60 bps rate advance to 94.8% by YE11. The return of a degree of supply pressure (743 units) in 2012 will reverse some recent gains, leading to a near supply and demand balance from 2013 to 2015, holding average metro occupancy nearly steady in the high 9 range. Effective Rent Summary Mean Rent (Reis) $752 Annual Change 0.7% RED 50 Rank NA Reis 2011 Forecast 3. Reis 2012 Forecast 2.9% Reis 2013 Forecast 2.8% 11 Rent Trends In spite of tighter markets metro average effective rents registered only a $2 (0.3%) sequential quarterly gain, reaching $752. Since 10, rents increased $5, representing a 0.7% year-over-year increase, substantially slower than 2.3% RED 50 mean. Indeed, were Richmond a member of the group it would rank tied 49th on this basis, bettering only economically struggling Las Vegas. By way of forecast, Reis expect rents to surge $18 in 2H11, reaching an average of $770 by year end. Given the recent poor performance of the metro labor market, however, it is unlikely that an advance to this degree is in the cards Looking forward, Reis project gains in the 2.8% to 3. range through 2014, with an up-tempo move to the 3.9% level predicted for Trade & Return Summary $5mm+ Sales 3 Approx. Proceeds $94mm Median Cap Rate NA Avg. Price/Unit $96,615 Expected Total Return NA RED 50 Rank NA Risk-adjusted Index NA 11 Property Markets and Total Returns Real Capital Analytics report one closed Southeast Virginia area transaction during the first half of 2011: a $21mm, 315-unit value-add trade. The average unit price was $66,500. Loopnet.com also report two additional large trades closed recently. The first is a 300-unit property constructed in 2003 located in the city of Glen Allen about 10 miles north of Downtown Richmond. The June sale was priced at $41.1mm or $137,000 per unit. RCR estimate that the applicable cap rate was in the high- area. The second sale was closed in July. In this case a 360-unit, 1985 vintage class-b garden project located in the Far West End traded at a $32.2mm price, representing $89,444 per unit. RCR estimate that the property will generate an initial yield of about 5.5%.

10 MARKET OVERVIEW 11 RICHMOND, VIRGINIA Metro Vacancy Rate 9% 9% 8% 8% 7% 7% 6% 6% 5% Apartment Vacancy Trends, RCR Forecasts RICHMOND U.S.A % 5.9% Average Cap Rate Metro Multifamily Cap Rate Trends Source:s: Fannie, Freddie, RCR, Reis FNM / FM C USA AVG. FNM / FM C SOUTH ATLANTIC REGION AVG. REIS RICHM OND M EDIAN (T12 AVG) 07 3Q 07 4Q 07 3Q 4Q Q 09 4Q Q 10 4Q Payroll Employment Growth Source: BLS Data & RCG Research Forecast Annual Chg (000) f 12f 13f NOTABLE TRANSACTIONS Property Name (Submarket) Property Class Date of Transaction Total Price (in millions) Price per unit Estimated Cap Rae Lodge Hunton Park (Far West End) A Jun-2011 $41.1 $137, % Brookmoor Apts (Far West End) B Jul-2011 $32.2 $ % RED CAPITAL Research August 2011

11 MARKET OVERVIEW 11 RICHMOND, VIRGINIA Apartment Effective Rent Trends YoY Rent Trend 6% 5% 3% 1% -1% - -3% - RICHMOND U.S.A., RCG Forecasts % Metro Median Single Family Home Prices Source: Federal Housing Finance Agency Home Price Index RICHMOND U.S.A. SOUTH ATLANTIC REGION 15% Y-o-Y % Change 1 5% -5% -1-15% Year-over-year Payroll Growth Rate Source: BLS, RCG Research Forecast Rate % METRO USA f 12f 13f The information contained in this report was prepared for general information purposes only and is not intended as legal, tax, accounting or financial advice, or recommendations to buy or sell currencies or securities or to engage in any specific transactions. Information has been gathered from third party sources and has not been independently verified or accepted by RED CAPITAL GROUP. RED makes no representations or warranties as to the accuracy or completeness of the information, assumptions, analyses or conclusions presented in the report. RED cannot be held responsible for any errors or misrepresentations contained in the report or in the information gathered from third party sources. Under no circumstances should any information contained herein be used or considered as an offer or a solicitation of an offer to participate in any particular transaction or strategy. Any reliance upon this information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other advisor regarding your specific situation. Any views expressed herein are subject to change without notice due to market conditions and other factors. RED CAPITAL Research August 2011

12 SUBMARKET TRENDS Submarket Effective Rent Physical Vacancy Change Change Airport $696 $ % bps Downtown / The Fan $875 $ % 4.9% -190 bps Far West End $830 $ % 6.3% 4.1% -220 bps Hanover County $848 $ % 7.3% bps Near West End $747 $ % bps North Chesterfield $780 $ % 7.5% -210 bps Northside / Laburnum $758 $ % 13.3% bps South Chesterfield $710 $ % 12.1% 8.6% -350 bps Southside $523 $ % 8.1% 6.1% -200 bps Southside / Broadrock $693 $ % % -340 bps Metro $747 $ % 8.5% 5.8% -270 bps RED CAPITAL GROUP For more information about RED s research capabilities contact: Daniel J. Hogan Director of Research djhogan@redcapitalgroup.com William T. Hinga Business Development wthinga@redcapitalgroup.com

13 RED CAPITAL GROUP Market Overview Richmond,Virginia Multifamily Housing Update April 2011 EXECUTIVE SUMMARY Richmond establishments posted constructive payroll gains during the third quarter 2010, hiring at a 4,300-job, 0.7% year-over-year pace, up from s 2,400-job decline and comparing favorably to the nation s 0.1% setback. But summer s robust results gave way to weaker trends in the fall quarter when metro payrolls declined at an 800-job, -0.1% pace, materially weaker than the 0.5% U.S. advance. Fourth quarter weakness was attributable to attrition among both public and private sector establishments. Local governments were among the larger contributors: municipalities and school districts reduced headcounts at a 2,100-job, -3.6% y-o-y rate, down from 3Q s 200-job gain. Similarly, health care and social assistance providers expanded at a 100-job rate in 4Q, down from 3Q s 1,700-job advance. Among private sector employers, the retail industry was the greatest offender, reducing headcount at a 1,900-job, -2.8% annual pace as temporary holiday seasonal employment failed to materialize last year. By contrast, a handful economic sectors were bright spots. Construction headcounts stabilized, actually rising 100 jobs quarter-to-quarter, thereby reducing 3Q s 1,000-job, -2.9% y-o-y decrease to 100-job loss in 4Q. Also, hiring by business and leisure service concerns accelerated as sector establishments posted combined growth at a 2,800-job rate in 4Q, up from 3Q s 1,700-job metric. Conditions in early 2011 were more encouraging. Year-on-year headcount gains averaged 1,200 jobs, fueled by further improvement in the construction and business and leisure services sectors. Expressed on a seasonallyadjusted basis, payrolls increased by 500 jobs in January and 200 positions in February, representing some of the best forward momentum displayed since spring The RCR econometric payroll forecasting model is trend sensitive, and it interprets the late-2010 weakness as evidence that the Richmond recovery hasn t yet achieved escape velocity. Consequently, it yields a rather tepid forecast for 2011 and 2012, foreseeing annual gains of 1,500 and 3,800 jobs, respectively. We maintain a positive bias, however, as the model doesn t consider the encouraging early 2011 data: job growth is more likely to rise 5 to 10 above the foregoing point estimates. Apartment demand during 4Q10 was not consistent with an economy in decline. Tenants net leased 474 units during the period, representing one of the strongest 4th quarter harvests recorded in the 12-year Reis data series. Facing no new supply, occupancy increased 60 basis points sequentially and 130 bps y-o-y to 93., a 2-year high. Occupancy was higher or stable in every submarket except Downtown and North Chesterfield. Three areas absorbed more than 100 vacant units, led by Northside/Labernum, where tenants occupied a net of 200 units to trim average vacancy by 440 bps. Constructive rent trends also were recorded as properties nudged effective rents $3 (0.) higher sequentially and $14 (1.9%) y-o-y to an average of $748. Downtown and Northside properties achieved the strongest sequential gains, raising average rents 1.6% and 2., respectively. Trade in Richmond properties has been slow for some time and the ice didn t break during the past six months. Only one sale was consummated after mid-year 2010: the acquisition of a 184-unit, class-c garden project in Ginter Park. The property was valued at a price equating to about $18,500 per unit. SNAP SHOT Vacancy (7. - 4Q10) Effective Rents ($748-4Q10) Cap Rate (8. - 4Q10) Employment (602.6m - 4Q10) K EY POINTS Y-o-y Projected change % 1.9% 3.3% 0.7% 0.8m 1.5m The Richmond recovery hit a soft patch in the fourth quarter as the summer s constructive net job gains gave way to small losses in the fall. Metro payrolls declined at an 800-job, -0.1% annual rate. RED Research s econometric payroll model forecasts moderate payroll job formation in 2011 and 2012, with point estimates of 1,500 and 3,800 jobs, respectively. The projections do not consider the stronger trends observed in January and February, however, which lead RCR to maintain a positive bias with respect to the model forecast. Apartment demand remained strong in the seasonally-weaker fall quarter as tenants net leased 474 units, bringing the 2010 total to 1,518 units, the largest harvest since 2004 and the second largest since Average metro occupancy improved 60 basis points sequentially and 130 bps year-over-year. Effective rent trends rebounded from 3Q s $2, -0.3% setback. Average rents advanced $3 (0.) sequentially; $14 (1.9%) y-o-y. Property market trade remained slow, largely due to a dearth of properties listed for sale. Presently, only 2 class-c assets are offered.

14 Richmond, Virginia MSA - Q VACANCY TRENDS 4Q10 Tenants absorbed more than 350 units for the third consecutive quarter, in this case 474. Occupancy increased 60 basis points sequentially and 130 bps year-over-year, reaching 93.. From March to December, occupancy advanced 170 basis points, considerably stronger than the performances observed in either Northern Virginia or Norfolk MSA. Occupancy in three submarkets averaged more than 9, including urban infill Downtown and Far West End and suburban Hanover Co. Occupancy in the close-in suburban Northside submarket surged 440 bps sequentially and 330 bps y-o-y, reaching 90.. Two publicly-traded REITs operate properties in Richmond. The average occupancy rate of their 3,911 units was 96.5% in December. Reis expect occupancy to rise 30 bps in 2011; 20 bps in Metro Vacancy Rate 9% 8% 7% 6% 5% 3% Apartment Vacancy Trends RICHMOND U.S.A. 8.3% 6.6% 7. 4Q 04 4Q 05 4Q 06 4Q 07 4Q 4Q 09 4Q 10 RENT TRENDS 4Q10 Reis surveys indicate that metro average asking and effective rents increased $2 (0.3%) and $3 (0.) sequentially to $792 and $748, respectively. Both average rent metrics moved to within 1% of their respective 3Q series high water marks Submarket trends were mixed: six Richmond submarkets recorded sequential quarter gains and four experienced declines. Submarket gains were led by Downtown/The Fan, where average effective rents advanced by a robust $14 (1.6%) to $895. Rent in this popular infill area stood $44 (5.) above the comparable YE2009 level. Publicly-traded trusts reported a $1 (0.1%) weighted average sequential rent gain in 4Q, but a $2 (-0.) y-o-y loss to a $888 average. Following 2010 s 1.9% effective rent gain, Reis expect unit revenues to rise 3.3% in 2011 and 2.7% in YoY Rent Trend 6% 5% 3% 1% -1% - -3% Metro Rent Trends Asking Effective 1.9% 1.1% 4Q 04 4Q 05 4Q 06 4Q 07 4Q 4Q 09 4Q 10 PROPERTY MARKET & CAP RATE TRENDS Trade in Southeast Virginia apartment properties was stuck in low gear. Loopnet.com identify just one Richmond asset of significant size that exchanged hands from October to March: a 184-unit, class-c garden project in the Ginter Park neighborhood. The all two-bedroom, 1966-vintage property was valued at approximately $18,478 per unit. Loopnet post only two family properties listed for sale in late March. Both are class-c+ assets of fewer than 100 units. Asking prices equate to roughly $50,000 in one instance and $32,000 per unit in the other. Quoted cap rates are in the high 8% range. A 36-unit colonial structure adjacent to the VCU Monroe campus serving the student market also is listed for sale. The broker does not disclose an asking price but quotes a 5.5% asking cap rate. Cap Rate % % % % % 4. Metro Multifamily Cap Rate Trend 3Q 3Q 3Q NOTABLE TRANSACTIONS Property Name (Submarket) Property Class edate of Total Price Estimated Price per unit Transaction (in millions) Cap Rate Courthouse Acres (Newprt Nws) B- 21-Dec-2010 $4.65 $42, Webster Ct (Old Twne Petersbrg) C+ 11-Nov-2010 $3.56 $40, Quarterpath Apts (Williamsburg) B 28-Jul-2010 $2.9 + $1.0 rehab $52, % p.f. Estabrook Apts (Northside) C 12-Nov-2010 $3.4 $18, RED CAPITAL Research

15 Richmond, Virginia MSA - Q Appreciation Annual Chg (000) Rate 25% 2 15% 1 5% -5% % Year-over-year Home Value Change Source: FHFA HPI, RCR RICHMOND MSA Payroll Employment Growth Source: BLS Data & RCG Research Forecast f 12f Year-over-year Payroll Growth Rate Source: BLS RICHMOND USA U.S.A. 3Q 3Q 3Q 3Q 3Q f 12f DEMOGRAPHICS & HOUSING MARKET The 2010 Census reveals that Richmond City population was 204,0, up 6,114 (3.1%) from Census Bureau estimates indicate that population increased by 722 persons over the 12 months ended July 1, 2010, representing a 0. advance. The N.A.R. report that the median price of a metro home sold in 3Q10 was $220,600. This compares to $199,600 in 10 and $217,900 in 3Q. The realty group did not publish 4Q10 median price data because the sample of sold properties was too small. The average 2010 price of homes sold in Richmond MLS areas 10, 20, 30, 40 and 60 was $200,716, up 6. from 2009; but sales volume declined 8% to 1,737. Foreclosures accounted for 16.7% of total sales. An average of 1.76% of Richmond metro area households were involved in a foreclosure action last year, 93rd highest rate among the 206 largest U.S. MSA. EMPLOYMENT TRENDS Non-Seasonally Adjusted Following nine consecutive quarterly losses, year-over-year payroll comparisons rose above parity in 3Q10, but trends slipped back into negative territory during 4Q10. Headcounts fell at a 800-job, -0.1% annual rate in the period, down from 3Q s 4,300-job, 0.7% advance. Weaker retail trade, health care, social assistance and government sector trends were primarily responsible. After adding workers at a combined 2,800-job annual rate in 3Q, the foregoing industry sectors hemorrhaged positions at a 4,200-job pace during 4Q. Conditions in the goods producing industries stabilized following sharp declines during the recession. Construction headcounts fell at only a 100-job year-over-year pace in 4Q, up from a loss of 1,000 position in the prior quarter and 4,400 jobs in 10. Manufacturing and wholesale trade trends also improved, falling at a 100-job combined rate in 4Q, up from a 300 job performance during 3Q. Preliminary 11 data suggest the economy strengthened during winter. After falling 2,800 jobs over the 12 months ended in December, 12-month losses slowed to 600 in January and surged back into positive territory in January, reflecting a 2,600-job annual advance. The unemployment rate was 7.7% in January, down 80 bps y-o-y. Seasonally-Adjusted Seasonally-adjusted data suggest that metro establishments cut -1,700 jobs in 4Q10, but created a net of 700 during January and February. Forecast The RCR econometric payroll model is highly trend sensitive and therefore reads Richmond s softer payroll trends during the fourth quarter as evidence of weakness. Consequently, the model s latest forecast calls for a measured recovery with payroll gains averaging 1,500 jobs in 2011 and 3,800 in The improved trends in January and February were not considered by the model which evaluates data on a quarterly basis. If 2011 data were considered, the model outcome likely would be considerably more optimistic. Consequently, we maintain a upward logical bias relative to the model s forecast point estimates. Gains in the 3,000-job range are possible for 2011, accelerating to a 4,500-job advance or more in RED CAPITAL Research

16 SUBMARKET TRENDS Submarket Effective Rent Physical Vacancy 4Q09 4Q10 Change 4Q09 4Q10 Change Airport $677 $ % bps Downtown / The Fan $851 $ % 5.7% -180 bps Far West End $801 $ % 6.3% 4.9% -140 bps Hanover County $842 $ % -250 bps Near West End $742 $ % 8.7% bps North Chesterfield $773 $ % bps Northside / Laburnam $746 $ % 9.6% -330 bps South Chesterfield $713 $ % 9.9% 9.8% -10 bps Southside / Broadrock $518 $ bps Southside / Westover Hills $679 $ % 9.6% 6.3% -330 bps Metro $734 $ % 8.3% bps SUPPLY TRENDS Reis identify four large apartment projects encompassing 635 units completed in the Richmond coverage area during Chesterfield County garnered the lion s share. Two properties totaling 272 units were delivered to the South Chesterfield submarket and one 276-unit project debuted in the North Chesterfield submarket. The remainder consisted of an 87-unit third phase of a property in the Near West End submarket. Two Airport submarket projects were delivered during the first quarter A 204-unit loft-style apartment located near Jefferson Park in Richmond was added to the inventory in February. Asking rents range from $830 ($1.61/sf) for 1-bedroom units to $1,489 ($1.39/sf) for 3-bedroom/3-bath floor plans. Also, a 113-unit phase of a five-phase cold storage warehouse conversion on Broad Street in Shockoe Bottom received final CoO. The property offers 1- and 2-bedroom units for $900 and $1,400, respectively, including utilities and unit washer/dryers. Units 2,000 1,500 1, Completions and Absorption Source: Reis, Inc Completions Absorption f 12f A 336-unit, class-a garden project was delivered to the Petersburg market (outside the Reis coverage area) in January. Base asking rents range from $875 ($1.15/sf) to $1,075 ($1.00sf). Reis project metro supply totaling 623 units in 2011 and 819 units in Supply averaged 790 units annually from 2001 to Class-A properties located in the Shockoe Bottom and Shockoe Slip entertainment area surveyed by Reis (12 in all) were 95.7% occupied in December at rents averaging $1,230. Daniel J. Hogan Director of Research djhogan@redcapitalgroup.com William T. Hinga Business Development wthinga@redcapitalgroup.com RED CAPITAL GROUP Two Miranova Place Columbus, OH RED CAPITAL GROUP The information contained in this report was prepared for general information purposes only and is not intended as legal, tax, accounting or financial advice, or recommendations to buy or sell currencies or securities or to engage in any specific transactions. Information has been gathered from third party sources and has not been independently verified or accepted by RED CAPITAL GROUP. RED makes no representations or warranties as to the accuracy or completeness of the information, assumptions, analyses or conclusions presented in the report. RED cannot be held responsible for any errors or misrepresentations contained in the report or in the information gathered from third party sources. Under no circumstances should any information contained herein be used or considered as an offer or a solicitation of an offer to participate in any particular transaction or strategy. Any reliance upon this information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other advisor regarding your specific situation. Any views expressed herein are subject to change without notice due to market conditions and other factors.

17 RED CAPITAL GROUP Market Overview Richmond, Virginia Multifamily Housing Update October 2010 EXECUTIVE SUMMARY C onditions in the Richmond area economy improved year-to-date. During the fourth quarter of last year, year-overyear job attrition totaled -32,600 (-5.). By contrast, only -8,300 jobs were lost y-o-y in 10. Additionally, preliminary data show that employers created 700 net new jobs in the twelve-month period ended in August. Improved hiring trends were largely due to growth among state and local government agencies. Combined, state and local governments added 5,800 jobs y-o-y in August, after shedding jobs at a -3,700 y-o-y rate in 1H10. Owing to temporary employment for the 2010 Census, federal government headcounts advanced 1,500 y-o-y in 10. But growth cooled to 600 jobs y-o-y in August, signaling an end to Census-related job creation. Private sector job trends also improved. Business service firms added 900 workers y-o-y in August, the sector s largest over-the-year increase since May 20. Additionally, construction firms created 500 jobs y-o-y in August, after losing -7,800 positions from payrolls in the comparable period last year. The RED CAPITAL Research (RCR) econometric payroll model predicts that Richmond job trends will turn positive next year. Specifically, we foresee a modest -5,100 (-0.8%) job decline this year, followed by strong gains of 8,600 (1.) and 17,100 (2.8%) jobs in 2011 and 2012, respectively. Improved job market conditions were not enough to support home price appreciation. According to the National Association of Realtors, the median price of single-family home sales in Richmond fell -3.5% y-o-y to $199,600 in 10. Similarly, the metro area experienced a -6.3% y-o-y decrease in the Federal Housing Finance Agency s (FHFA) home price index in 10. On the other hand, home sales surged 16.3% y-o-y in the second quarter as buyers sought to take advantage of the home buyer tax credit. Apartment property managers achieved moderately higher occupancy in the second quarter as positive net absorption totaled 387 units from April to June. Consequently, the metro occupancy rate rose from 91.3% in 10 to 91.6% in 10. But on an annual basis, supply (969 units) outpaced demand (646 units), resulting in a 30 basis point occupancy rate decline. Fortunately, supply and demand forecasts support continued occupancy improvement over the next 18 months. Reis expect only 573 units to debut over the forecast period, shy of the 9-unit absorption forecast. Effective rent trends rebounded yearto-date. Following five consecutive periods of sequential rent declines, the average effective rent advanced 0.5% in 10 and 1. in 10. Decreased concessions were partially responsible. The size of the average concession package fell from 6. of asking rent in December 2009 to 5.9% in June. Property trade activity was limited in Real Capital Analytics is aware of only one Richmond/Norfolk transaction involving properties priced at or above $5 million in the first eight months of Additionally, Loopnet.com were aware of two metro transactions involving affordable assets. Based on an assumed 6.25% generic metro cap rate, RCR calculate a 9. expected total return. The figure compares favorably to the 6.5% expected Norfolk return. SNAP SHOT Vacancy ( ) Effective Rents ($747-10) Cap Rate (N/A - 10) Employment (601.9m - 10) KEY POINTS Y-o-y Projected change YE bps 10bps 1.9% 8.3m 5.1m The metro vacancy rate fell 30 basis points sequentially from 8.7% in 10 to 8. in 10, marking the first sequential decline since 3Q. The second quarter vacancy rate was up 30 basis points annually, largely owing to subdued supply in 2H09. Reis were aware of two metro properties that were scheduled to open next year. The assets contain a total of 304 units, all located in the Airport submarket. The size of the average concession package fell from 6. in 10 to 5.9% in 10. As a result, the pace of sequential quarter effective rent growth surged from 0.5% to 1.. According to the Virginia Association of Realtors, Richmond area home prices declined -3.5% year-over-year to $193,000 in 10. On the other hand, sales velocity accelerated as 4,062 sales were recorded from April to June, up 16.3% from the comparable period of RCR expect 9. unlevered five-year holding period total returns for generic Richmond assets, based on a 6.25% going-in cap rate.

18 Richmond, Virginia MSA - Q VACANCY TRENDS Apartment Vacancy Trends Reis estimate that the metro vacancy rate decreased 30 basis points sequentially from 8.7% in 10 to 8. in 10. Strong apartment demand was responsible for the improvement. Positive net absorption totaled 387 units, outpacing the 272 units that were completed during the quarter. Two (Northside / Laburnam and South Chesterfield) of the metro s ten submarkets posted double-digit vacancy rates in the second quarter. Real Data report that apartment absorption was positive in the sixmonth period ended in July, the first net increase in eighteen months. As a result, the source estimates that vacancy fell to 7.. Metro Vacancy Rate 1 8% 6% Richmond U.S.A. 8.1% 8. Reis expect vacancy to decline to 7.9% by year-end 2011, owing to strong tenant demand and limited supply RENT TRENDS Metro Rent Trends The average effective rent advanced 1. sequentially in 10, marking the second consecutive quarterly increase. The figure was up 0.5% in the first quarter. The strongest over-the-year effective rent growth was recorded in the Northside / Laburnam submarket as the figure advanced 2. from $743 in 09 to $759 in 10. According to Real Data, the average rent in Richmond was $823 in July. The source notes that same-store rent trends turned positive in the last six months, following an eighteen month period of decline. Reis forecast that the average effective rent will rise from $747 in 10 to $748 by year-end. YoY Rent Trend 6% 5% 3% 1% -1% - -3% Asking Effective % PROPERTY MARKET & CAP RATE TRENDS Metro Multifamily Cap Rate Trend Loopnet.com identified only two sale transactions in the Richmond metro area year-to-date. Both properties were affordable assets that traded at prices around $25,000 per unit. Real Capital Analytics were aware of one Richmond / Norfolk transaction in the first eight months of the year, totaling $21.0 million in sales proceeds. Loopnet.com also identified one property priced at or above $1 million that was for sale in October. Based on the broker s pro forma NOI, the asset s $1.96 million price ($40,833 per unit) yields an 8.3 cap rate. Cap Rate % % % 5. Based on an assumed 6.25% generic metro cap, RCR calculate a 9. expected total return, comparing favorably the a 6.5% return for Norfolk. Likewise, low levels of historic NOI growth volatility produce a strong risk-adjusted return index (4.89). 4.5% 4. 3Q 4Q Q 09 4Q NOTABLE TRANSACTIONS Property Name Property Class Date of Transaction Total Price (in millions) Price per unit Estimated Cap Rate Fairhills Apartments Section 8 May 2010 $5.9 $26,457 N/A North Oak Apartments Affordable May 2010 $4.3 $23, RED CAPITAL Research

19 Richmond, Virginia MSA - Q Prices Index Metro Home Price Index Source: Federal Housing Finance Agency 250 MSA US DEMOGRAPHICS & HOUSING MARKET The Census Bureau reports that the pace of metro population growth decelerated from 1. in 20 to 0.9% in 2009, owing to slower net domestic migration. According to the National Association of Realtors, the median price of a single-family MSA home fell -3.7% year-over-year to $199,600 in 10. By contrast, the US median home price rose 1.5% to $176,900. Similarly, Richmond posted a -6.3% annual decrease in the FHFA home price index in the second quarter, comparing unfavorably to the -4.9% drop in the US index. RealtyTrac.com calculate a 1. 1H10 foreclosure rate as filings for 5,155 properties were issued in the Richmond MSA. The number of filings was up 45.3% from 1H09. Annual Chg (000) Rate % Payroll Employment Growth Source: BLS Data & RCG Research Forecast f 11f Year-over-year Payroll Growth Rate Source: BLS Richmond USA EMPLOYMENT TRENDS Non-Seasonally Adjusted The pace of year-over-year payroll job attrition decelerated from -19,700 (-3.) in 10 to -8,300 (-1.3%) in 10. Moreover, annual job trends turned positive as 700 jobs were created in the twelvemonth period ended in August. The August figure was largely influenced by an improvement in local government hiring trends. The sub-sector was responsible for a -3,000-job year-over-year decrease in 1H10, but year-over-year hiring totaled 1,400 jobs in July and 2,000 jobs in August. At the same time, temporary employment related to the 2010 Census began to wind down. Census employment peaked in May (2,200 workers) but only 500 workers were still employed in August. Job market conditions among private sector firms were only moderately better in recent months. The construction, business service, education and health care sectors created a combined 3,500 jobs yearover-year in August. The remaining major industrial sectors continued to trim staffs. Seasonally-Adjusted On a seasonally-adjusted basis, the pace of sequential quarter job growth slowed from 2,200 net new jobs in 10 to only 500 new jobs in 10. Forecast Our econometric model produces point estimates of 8,600 (1.) jobs created in 2011 and 17,100 (2.8%) new jobs in 2012, following a modest -5,100 (-0.8%) job decrease this year. Economy.com are more optimistic, projecting gains of 7,550, 9,280 and 19,190 jobs in 2010, 2011 and 2012, respectively. 15% 1 5% RED Estimated Generic Unlevered Asset Total Return Probabilities Richmond Norfolk 10.1% % % 7.5% 3.7% 11.5% 9.1% RED CAPITAL Research

20 SUBMARKET TRENDS Submarket Effective Rent Physical Vacancy Change Change Downtown / The Fan $879 $ % 5.8% 6.8% 100 bps Near West End $729 $ % 8.5% 140 bps Far West End $818 $ % 6.3% -80 bps Northside / Laburnam $743 $ % 13.3% -20 bps Southside $702 $ % 7.8% bps Southside / Broadrock $526 $ % % 170 bps North Chesterfield $816 $ % % 160 bps South Chesterfield $721 $ % 9.3% 12.1% 280 bps Airport $691 $ % 8.8% bps Hanover County $870 $ % 8.6% 7.3% -130 bps Metro $747 $ % bps SUPPLY TRENDS Apartment developers completed four apartment assets in the first nine months of 2010, adding 635 units to the metro rental stock. Two of the properties (272 units) were delivered to the South Chesterfield submarket. Additionally, assets debuted in the North Chesterfield (276 units) and Near West End (87 units) submarkets. As of September, Reis were aware of six apartment assets under construction. Two of the properties were scheduled to open in the Airport submarket next year. The other four properties are located outside of the Reis coverage area in Petersburg, VA. The Airport submarket and Petersburg also are popular sites for condo development. Of the 3,440 condo units in the planned / proposed stage, 959 units are in Petersburg and 779 units are in the Airport submarket. Units 2,000 1,500 1, ,000 Completions and Absorption Source: Reis, Inc Completions Absorption f 11f Daniel J. Hogan Director of Research djhogan@redcapitalgroup.com William T. Hinga Business Development wthinga@redcapitalgroup.com RED CAPITAL GROUP Two Miranova Place Columbus, OH RED CAPITAL GROUP The information contained in this report was prepared for general information purposes only and is not intended as legal, tax, accounting or financial advice, or recommendations to buy or sell currencies or securities or to engage in any specific transactions. Information has been gathered from third party sources and has not been independently verified or accepted by RED CAPITAL GROUP. RED makes no representations or warranties as to the accuracy or completeness of the information, assumptions, analyses or conclusions presented in the report. RED cannot be held responsible for any errors or misrepresentations contained in the report or in the information gathered from third party sources. Under no circumstances should any information contained herein be used or considered as an offer or a solicitation of an offer to participate in any particular transaction or strategy. Any reliance upon this information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other advisor regarding your specific situation. Any views expressed herein are subject to change without notice due to market conditions and other factors.