Castellana Apartments Phoenix, AZ INVESTOR DUE DILIGENCE PACKAGE $2.37MM Equity Commitments July 8, 2014 Investor Commitments: 8/1/14 Estimated Closing.

Castellana ApartmentsPhoenix, AZ

INVESTOR DUE DILIGENCE PACKAGE$2.37MM Equity Commitments

July 8, 2014

Investor Commitments: 8/1/14Estimated Closing Date: 9/1/14

CONFIDENTIAL

Investment Summary

5 Year IRR*

18.0%

5 Yr. Equity

Multiple*

2.08x

Avg Cash Yield

10.9%

Year 1 Rate

6.5%*IRR & Equity Multiple shown are at the asset level

Our company is in contract to acquire Castellana Apartments, a 117 unit, Class B asset located in the Biltmore submarket of Phoenix. This area is one of the most desired submarkets within Phoenix and a top growth market in the U.S. Castellana’ s previous owner passed away; as a result, his son-in-law who resides outside of AZ, has been managing the property while liquidating his real estate portfolio. During this liquidation process, the property has been mismanaged and has suffered from lack of capital reinvestment. Our strategy is to implement local professional management, invest $501k ($4k/unit) to upgrade the units and address the minor exterior deferred maintenance. Our all-in cost basis of $66k/unit will offer affordable rents to residents that desire the Biltmore area, but are unable to afford the newer Class A product. Post renovation, the stabilized return on equity should exceed 10%, with an IRR of ~18% using conservative assumptions. Our company currently owns 2 multi family assets (538 units) in the Phoenix area.

Property Castellana, Phoenix, AZTotal Units 117Year Built 1973Number of Buildings 7Rentable Area (sqft) 96,750Land Area (acres) 3.42Project Hold Period 5

Capitalization PSF Per UnitPurchase Price $72.1 $59,615 $6,975,000 Capital Expenditures $5.2 $4,285 $501,345

C losing Costs/Fees $2.3 $1,939 $226,817

Total Capitalization $79.6 $65,839 $7,703,162Year 1 Cap Rate 6.5%

Debt & EquityLoan Amount $5,328,900

Rate / Amtz. 4.20%Loan to Value (LTV) 76%

Equity Requirement $2,374,262Average Debt Coverage 1.96x

Investment MetricsGeneral Partners 10% $237,426

Limited Partners 90% $2,136,836Total Capitalization 100% $2,374,262

Year 1 Return on Equity 8.7%5 Year Average Return on Equity 10.9%

Exit Assumptions PSF Per UnitDisposition Value $90.4 $74,761 $8,747,000

Cap Rate 7.50%

Investment HighlightsProperty Description

• Castellana provides an opportunity to acquire a Class B asset in a Class A location• Located in one of the most desirable locations in the Phoenix metro area

• Just south of Indian School Road on 28th Street, 1 mile south of the Camelback Office Corridor (8MM sf of Class A office space) and Biltmore Fashion Park (600K sf of high-end retail)

• Situated 1 mile east of Hwy 51 and 5 miles west of downtown Scottsdale, providing for quick access to both work and play • The property rents are currently below market, providing an opportunity to increase rents to market by upgrading the unit interiors

and revitalizing the exterior/common areas

Market/Submarket• Arizona job growth has outpaced the national averages, up over 6% from the recession lows• Increased job growth has led to one of the highest net migration rates in the country – Phoenix was recently named the #3

Fastest Growing U.S. City in 2014 by Forbes and Arizona was recently ranked #1 in the country for entrepreneurial activity.• As demand has increased, the apartment market fundamentals have improved with average vacancies around 6%, their lowest

levels since the recession began. Decreasing vacancies have driven rents up 3.7% from end of year 2013, and an increase of 6 .7% from the recession lows of 2009.

• Immediate area along Indian School Road is undergoing a resurgence (walking distance from Castellana)• Adjacent to Castellana is a newer condo development with condos being sold from $350-400k• A luxury apartment complex approved for development and set for completion in the next 18-24 months• Local retail developer, DeRito, acquired an outdated retail center to reposition with a new grocer and restaurant pads

set for completion over 18-24 months • A new Starbucks and Sprouts has also opened recently on the corner of Indian School and 28th Street.

Management/Seller• Due to an unfortunate death of the current owner, the son-in-law who resides in another state has liquidated all of the

family’s real estate assets except Castellana providing an opportunity to acquire the property at a discount to market prices• The son-in-law has been self-managing the asset resulting in poor operations and below-market leasing• $60k/unit – well below replacement cost which is near $100k/unit.

Strategy/Implementation• The property is being acquired at a going-in Cap Rate of 6.5% and an above average going-in cash yield of 8.7%.• Improving the property through interior unit upgrades and exterior improvements to the curb appeal/pool area will create

physical attributes more in-line with competitive properties in the area • Incorporating a professional management company will improve operations and more effectively manage increasing rents• With the property currently renting units approximately 13% below market rates, an opportunity exists to increase rents

through both the renovation of the property and more professional property management.• It is projected that investors will receive an average 10.9% cash-on-cash return and an IRR of ~ 18%

Asset Photos

Opportunity to upgrade the exterior as well as the interior appliances, cabinets, flooring & countertops

Location Map

Castellana

Camelback Office Corridor / Biltmore Fashion Park

ASU

Downtown Scottsdale

Downtown Phoenix – US Airways Center / Chase Field

Phoenix International Airport

Camelback Mountain

Aerial View

E Indian School Rd

(1.2 mi)

Condos +$360k

Evergreen Luxury

Apartments (Class A ETA

18-24 months)

Biltmore Fashion Park & Camelback Corridor (1.3 mi)

Los Olivos Park

DeRito Partners Redevelopment Retail

Center (ETA 18-24 months)

Downtown Scottsdale (5.4 mi)

Castellana

Asset Details

Property Address: 3851 N 28th Street, Phoenix, AZ 85016

Year Built: 1973

Number of Units: 117 units

Investment Type: Class A Location Class B Asset

Utilities: All utilities included Copper piping

Unit Features: Extra large floor plans Huge walk-in closets Patios/Balconies (select units)

Community Features: On-site management office & maintenance personnel

Refreshing swimming pool Picnic areas w/BBQ grills 3 Laundry facilities Covered parking & ample guest parking Pets welcome Schools & retail shopping within walking distance

Asset Unit Mix

Rents Per sf Rents Per sf1 Bd / 1 Ba 1 x 1 750 81 69% $695 $0.93 $815 $1.092 Bd / 2 Ba 2 x 2 1,000 36 31% $875 $0.88 $955 $0.96

Weighted Average 827 $751 $0.91 $858 $1.04Total (Yearly) 96,750 117 100% $1,053,734 $1,204,934

Unit StyleType

Bdrm/BathEst. Sq. Ft.

# of Units

Unit Mix %In-Place Rents Post Rehab Rents

Capital Expenditures Summary

Budgeted $501K to update interiors & refresh the property exterior

Interior improvements to both the kitchens & bathrooms will include:• Restaining cabinets• Resurfacing countertops• Replacing hardware & fixtures• Appliances replacement/updates• Interior walls accented with two-tone paint job• New flooring/cleaning in necessary areas• Adding hardware (Pulls or knobs) to cabinets• Possibility of adding washer/dryer hook ups

Exterior Improvements include:• Upgrading the pool area• Repainting doors• Portions of property’s exterior walls highlighted

with accent colors• Upon completion of rehab work, Castellana

should be able to increase rents and compete more aggressively with surrounding properties:

• Average effective rents at competitive properties are ~13% higher

Capital Expenditure Budget

Interior Renovations Unit Cost TotalKitchens - Granite, appliances $1,750 $204,750Restaining Cabinets $395 $46,215Flooring $275 $32,175Paint $430 $50,310Misc: Heaters, Hardware $115 $13,455Labor $125 $14,625

Total Unit Renovations $3,090 $361,530

Exterior RenovationsParking Lot $100 $11,700Exterior Gate/Fence $200 $23,400Landscaping/Pool Area $260 $30,420Exterior Paint $435 $50,895Misc/Reserves $200 $23,400

Total Exterior Renovations $1,195 $139,815

Total Cap Ex Budget $4,285 $501,345

Pro Forma Assumptions

* Year 2 rent growth is reflected in renovations

Growth Rates Yr. 1 Yr. 2 Yr. 3 Yr. 4 Yr. 5Gross Rent Possible $1,085,346 $1,236,546 $1,276,734 $1,315,036 $1,354,487GSR 3.00% 0.00% 3.25% 3.00% 3.00%Average rent $773 $881 $909 $937 $965Loss to Lease 0.5% 0.5% 0.5% 0.5% 0.5%Physical Occupancy 95.0% 95.0% 95.0% 95.0% 95.0%Concessions 0.0% 0.00% 0.00% 0.00% 0.00%Model/Non-Rev Units 0.85% 0.85% 0.85% 0.85% 0.85%Bad Debt Expense 0.25% 0.25% 0.25% 0.25% 0.25%Laundry Income 8 3.00% 3.00% 3.00% 3.00%Garage/Parking Income 0 3.00% 3.00% 3.00% 3.00%RUBS Income 0 3.00% 3.00% 3.00% 3.00%Other Income 15 3.00% 3.00% 3.00% 3.00%

Expense Growth Rates Yr. 1 Yr. 2 Yr. 3 Yr. 4 Yr. 5

Leasing & Advertising 115 3.00% 3.00% 3.00% 3.00% Administrative 175 3.00% 3.00% 3.00% 3.00% Utilities 3.0% 3.00% 3.00% 3.00% 3.00% Building 90 3.00% 3.00% 3.00% 3.00% Maintenance 340 3.00% 3.00% 3.00% 3.00% Turnover 115 3.00% 3.00% 3.00% 3.00% Grounds 170 3.00% 3.00% 3.00% 3.00% Payroll Expense 1,147 3.00% 3.00% 3.00% 3.00% Other Expenses 0 3.00% 3.00% 3.00% 3.00% Management Fee 3.00% 3.00% 3.00% 3.00% 3.00% Property Tax Reserve $347 3.00% 3.00% 3.00% 3.00% Insurance 175 3.00% 3.00% 3.00% 3.00% Association Fees 0 3.00% 3.00% 3.00% 3.00%

Replacement Reserves Yr. 1 Yr. 2 Yr. 3 Yr. 4 Yr. 5

Growth Rate 0.00% 0.00% 0.00% 0.00%Replacement Reserves $29,250 $29,250 $29,250 $29,250 $29,250

Per Unit $250 $250 $250 $250 $250* Year 2 rent growth is reflected in renovations

Sources & Uses

Sources % $/Unit Amount ($)

First Mortgage 69.2% $45,546 $5,328,900Limited Partners 27.7% $18,264 $2,136,836General Partners 3.1% $2,029 $237,426

Total Sources 100.0% $65,839 $7,703,162

Uses % $/Unit Amount ($)Purchase Price 90.5% $59,615 $6,975,000Loan Fee 0.5% $342 $39,967Acquisition Fee 0.9% $596 $69,750CapEx 6.5% $4,285 $501,345Escrows 0.5% $342 $40,000C losing Costs 1.0% $659 $77,100

Total Uses 100.0% $65,839 $7,703,162

Cash Flow ProjectionsProforma (Year) Current 2015 2016 2017 2018 2019

Rent Growth 3.0% 0.0% 3.3% 3.0% 3.0%Total Vacancy 4.3% 5.0% 5.0% 5.0% 5.0% 5.0%Average In Place Rent 769 876 905 932 960

IncomeGross Rent Possible 1,009,197 1,085,346 1,236,546 1,276,734 1,315,036 1,354,487Loss to Lease 0 -5,427 -6,183 -6,384 -6,575 -6,772

Scheduled Gross Income 1,009,197 1,079,920 1,230,364 1,270,351 1,308,461 1,347,715Vacancy Loss 0 -53,996 -61,518 -63,518 -65,423 -67,386Concessions/Rental Specials -22,292 0 0 0 0 0Model/Non-Revenue Units 0 -9,230 -10,516 -10,858 -11,183 -11,519Credit Loss/ Bad Debt Expense 0 -2,700 -3,076 -3,176 -3,271 -3,369

Total Rental Income 986,905 1,013,994 1,155,254 1,192,799 1,228,583 1,265,441

Additional Other Income 20,136 32,292 33,261 34,259 35,286 36,345Total Income Controlled 1,007,041 1,046,286 1,188,514 1,227,058 1,263,870 1,301,786

ExpensesLeasing & Advertising 15,508 13,455 13,859 14,274 14,703 15,144Admin. 49,367 20,475 21,089 21,722 22,374 23,045Utilities 211,640 217,989 224,529 231,265 238,202 245,349Building 0 10,530 10,846 11,171 11,506 11,852Maintenance 36,579 39,780 40,973 42,203 43,469 44,773Turnover 0 13,455 13,859 14,274 14,703 15,144Grounds 30,256 19,890 20,487 21,101 21,734 22,386Repairs/Maintenance/Turnover 66,835 83,655 86,165 88,750 91,412 94,154Payroll Expense 124,163 134,203 138,229 142,376 146,647 151,047

Total Controllable Operating Expenses 474,462 469,777 483,870 498,387 513,338 528,738

Management Fees 0 31,389 35,655 36,812 37,916 39,054Property Tax Reserve 39,736 40,569 41,786 43,039 44,331 45,661Insurance 21,163 20,475 21,089 21,722 22,374 23,045

Total Non-Operating Expenses 60,899 92,432 98,531 101,573 104,620 107,759

Total Expenses 535,361 562,210 582,401 599,960 617,958 636,497

Net Operating Income 471,680 484,076 606,113 627,098 645,911 665,289

Replacement Reserves 29,250 29,250 29,250 29,250 29,250 29,250

Net Operating Income after Reserves 442,430 454,826 576,863 597,848 616,661 636,039

Asset Management (23,743) (23,743) (23,743) (23,743) (23,743)Capital Allocation 75% 25% 0% 0% 0%Capital Expenditures (376,009) (125,336) 0 0 0Capital Reserves 376,009 125,336 0 0 0Loan (223,814) (312,711) (312,711) (312,711) (312,711)

Total Net Cash Flow 207,271 240,410 261,395 280,208 299,585Return on Equity 8.7% 10.1% 11.0% 11.8% 12.6%

Return Projections

Cash Flows $ ROE

Year 1 $207,270 8.7%Year 2 $240,410 10.1%Year 3 $261,395 11.0%

Year 4 $280,208 11.8%Year 5 $299,585 12.6%

Total Cash Flows $1,288,868 10.9%

Sales Proceeds $ Per UnitSales Projection $8,747,000 $74,761

Sales Costs 2.00% ($174,940)

Gross Sales Proceeds $8,572,060 Loan Payoff ($4,925,884)

Net Sales Proceeds $3,646,176 Percentage of ProfitsReturn Of Capital ($2,374,262) Disposition 49.7%

Total Sales Profit $1,271,915 Cash Flow 50.3%Total 100.0%

Total Profit $2,560,782

ReturnsEquity Profit Split Total Profit Multiple IRR

Limited Partner 90% $2,136,836 $1,843,763 $1,843,763 1.86x 15.2%

Rent Comparables

Year # of Est. # of Est.Built Units Sq. Ft. Units Sq. Ft.

Subject (Pre-Rehab) 1973 95% 81 750 $695 $0.93 36 1,000 $875 $0.88Subject (Post-Rehab) 1973 81 750 $815 $1.09 36 1,000 $955 $0.96

Comp Avg 709 $802 $1.13 1,032 $987 $0.96Dakota at Camelback 1989 100% 93 813 $900 $1.11 111 1,028 $975 $0.95City 15 1969 (ren 2000's) 97% 129 650 $750 $1.15 15 950 $1,020 $1.07Capella Place 1971 97% 76 728 $800 $1.10 67 1,048 $940 $0.90Oasis in the City 1970 100% 83 680 $774 $1.14 0 N/A N/A N/AThe Cascades 1966 92% 36 743 $845 $1.14 47 1,203 $1,090 $0.91Arcadia Park 1973 (ren 1997) 100% 40 638 $740 $1.16 33 1,025 $950 $0.93Colonia 1983 N/A 16 969 $934 $0.96Arcadia Villa 1970 (ren 2002) 92% 56 1,004 $1,000 $1.00

Pre-Rehab Discount/(Premium) 13.29% 18.07% 11.35% 8.47%Post-Rehab Discount/(Premium) (1.68%) 3.92% 3.24% 0.10%

outlier

2 bdrm, 2 bth1 bdrm, 1 bth

unit sizes not comparable

Property Occ. Eff Rents Per Sf Eff Rents Per Sf

Sales Comparables

Distance Avg Age of Sales Price PriceProperty (Miles) Units Unit Size Property Price / Unit / SF

Subject 117 827 1973 $6,975,000 $59,615 $72Comp Wtd. Avg./ Total 711 836 $9,220,605 $62,363 $77Cabana on 24th 0.9 149 600 1979 $9,025,000 $60,570 $101Hermitage East 7.4 95 776 1970 $6,565,000 $69,105 $89Agave 10.7 137 1,073 1968 $7,350,000 $53,650 $50Tempe Vista 13.1 180 868 1972 $12,350,000 $68,611 $79Capella Place 23.5 150 862 1971 $9,050,000 $60,333 $70Discount/(Premium) 4.4% 6.9%

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Castellana

Sales Comparables

Market Overview

Metro PhoenixThe Phoenix Metro Area is one of the fastest-growing metropolitan areas in the country, and it falls almost entirely within Maricopa County, the 4th most populous county in the nation. The Phoenix-Mesa-Glendale MSA is the nation’s 13th-most populous metro area while Phoenix is the nation’s sixth-largest city as of 2014.

The following accolades indicate Phoenix’s dramatic long-term potential to investors:• Named #1 City to do business for public relations/marketing professionals (American Marketing Assoc.,

2013).• Phoenix was recently named the “#3 Fastest Growing U.S. City in 2014” by Forbes• Ranked #2 for “workforce” (CNBC, 2013)• Named among the “Top 10 Best Places to Raise Kids” (Rent.com, 2013)

Economic Development/New Construction• Intel – Recently completed its massive $5BN semiconductor fabrication facility Fab 42, in the Chandler

Area• Apple – plans to expand its production of sapphire glass in Mesa and create more than 2,000 jobs• Marina Heights-State Farm Tempe - In 2013, construction began on the largest office development in

Arizona’s history - a 2 million square-foot multiuse development that will be home to State Farm’s regional headquarters

• UA Medical School/Biomedical Campus - the second phase of the Arizona Biomedical Collaborative, opened in 2013, and it is projected to create 14,000 jobs and enhance the region’s knowledge-based economy

• Mayo Clinic - A 217,200-square-foot, $130 million expansion of the North Phoenix campus is set to open in 2015. The facility will feature three additional floors of clinic and office space and is expected to add 820 new jobs

Submarket InformationCastellana is located in the Biltmore submarket, one of the most desirable neighborhoods in the metro known for its upscale residences, premier shopping/dining, championship golf courses and financial district. The area is anchored by the Camelback Office Corridor (8.0MM sf of Class A office), Biltmore Fashion Park (600K sf of retail) and various luxury hotels and resorts, including the Wrigley Mansion and the Arizona Biltmore Resort & Spa.

The submarket has a 2014 population of over 128,000 within 3 miles and projects a 5-year growth rate of 7.7%. While the median household income is only $41,358 due to an influx of young, single professionals, divorcees and retirees, the total net worth of the submarket is high as reflected in housing prices, including the Esplanade high-rise condos, located in the heart of Biltmore, selling for as much as $2MM each.

Investor Structure

Structure: Limited Partnership (LP)

General Partner: Our Company (GP)

Total Capitalization: $7,703,162

Equity Commitments: $2,374,262

LP Investment: $2,136,836 (90%)

GP Investment: $237,426 (10%)

Investment Period: 5 year term

Acquisition Fees: 1.00% of the gross purchase price

Management Fee: 3.00% property mgmt. fee paid to third party management, based on Eff. Gross Income 1.00% annual asset management fee paid to Management, LLC based on invested equity

Cash Flow Waterfall: Tier 1 – 100% of cash flow to LPs until they have received an 8% preferred return; Tier 2 – 100% of cash flow to be used to pay down initial capital contributions

Waterfall from Sale: Tier 1 – 100% of proceeds to LPs until they have received an 8% preferred return and 100% of their principal investment is repaid;

Tier 2 – 100% of proceeds to the GP until the GP has received 20% of the total LP profits:

Tier 3 – Thereafter, 80% to the LPs and 20% to the GP until LPs receive a 20% IRRTier 4 - Thereafter, 70% to the LPs & 30% to the GP