KET Enterprises Incorporatedketent.com/sites/default/files/propertydocs/PalmsatBaytown_0.pdf · KET Enterprises Incorporated . A 88-Unit ... Water: RUBS Laundry Rooms ... PALMS AT

OFFERED BY:

KET Enterprises Incorporated

A 88-Unit Class C+

Multifamily Investment

Opportunity

Situated in the Epicenter of the

Economic Boom on the Texas Gulf Coast

Located near the

Houston Ship Channel and Trinity

Bay with Excellent Access to the Port of

Houston

1000 NORTHWOOD ST, BAYTOWN, TX

PALMS AT BAYTOWN ● 1000 NORTHWOOD ● BAYTOWN, TX 77521APARTMENTS FOR SALE

Units: 88Avg Size: 884Date Built: 1971Rentable Sq. Ft.: 77,815Acreage: 3.79Occupancy: 100%Class: C+

SALIENT FACTS:

♦ Available on an all cash or New Loan basis ♦ Ideal for long term cash flow!

♦ Blue collar profile ♦ Rents are rising!

♦ Solid brick structure ♦ The Houston Ship Channel is expanding

♦ There is tremendous economic growth in Baytown

♦ Located close to Hwy 146 ♦ The Ship Channel will add 100,000 jobs

♦ Excellent school district - This is a strong plus

♦ Reportedly there are 34,000 new jobs in Baytown

♦ Ideal for a moderate exterior/landscape update!

PRICE REDUCED! $3,100,000

For More Information Please Contact:

Tom Wilkinson, Broker [email protected]

713-355-4646 ext 102

Adi Shemer, Associate [email protected]

713-355-4646 ext 103

4295 San Felipe, Suite 355 I Houston, TX 77027 I www.ketent.com

9/1/2016 PalmsatBaytown

PALMS AT BAYTOWN ● 1000 NORTHWOOD ● BAYTOWN, TX 77521

Asking Price New Loan @ 75% of Value Est Mkt Rent (Apr-16)Price Per Unit Amortization 2 Mo Avg 2016Price Per Sq. Ft. Debt ServiceStabilized NOI Monthly P & I

Interest RateDate Due

Water Meter / Master RUBS Est Res for Repl/Unit/YrYield Maintenance

Pitched

PRO-FORMA INCOMECurrent Street Rent with a 10% Increase $67,925 / MoEstimated Gross Scheduled Income $67,925 / MoEstimated Loss to Lease (2% of Total Street Rent) 2%Estimated Vacancy (2% of Total Street Rent)Estimated Concessions and Other Rental Losses (5% of Total Street Rent) 5%Estimated Utilities IncomeEstimated Other Income $175 / Unit / YrEstimated Total Rental IncomeESTIMATED TOTAL PRO-FORMA INCOME $64,928 / Mo

2 Mo Avg Income Annualized

Fixed Expenses2016 Tax Rate & Est Future Assessment

Estimated

$1,391 per Unit $1,358 per Unit

Total Utilities $858 per Unit $858 per Unit

Other ExpensesGeneral & Admin & MarketingRepairs & MaintenanceLabor CostsContract ServicesManagement Fees 0.00% $ per Unit 3.50% $310 per Unit

Total Other Expense $1,068 per Unit $2,095 per Unit

Total Operating Expense $3,318 per Unit $4,311 per Unit

Reserve for Replacement $300 per Unit $300 per Unit

Total Expense $3,618 per Unit lower than normal $4,611 per Unit

Net Operating Income (Actual Underwriting)

Valuation all in cost

Cap RateProposed DebtEquityEstimated Debt ServiceCash Flow

Cash on Cash

Water/Sewer/Trash

Indiv

$841 per Unit

$3,100,000 $2,325,000

Land Area (Acres) $373,377

Estimated Utilities

Estimated Fixed Expenses

Estimated Expenses

$484 per Unit$42,551$79,873

Date Built

UtilitiesTotal Fixed Expense

Utilities

$450 per Unit$79,873

Insurance

23

INCOME

HVAC System

Physical Occ (Apr-16)77,8153.79

Yes

Property Tax Information

$2,544,267

$2,544,2672016 Taxes

1971Units per Acre

Elec MeterRoof Style

3.13932Tax Rate (2015)

Physical Information

Number of Units

$39.84Net Rentable AreaAvg Unit Size

Financial Information

88884

Operating InformationProposed Loan Parameters

$35,227

135,903

$125 per Unit

$260 per Unit$35,200

$245 per Unit

94,026

214,314

12.04%

159,063

2,325,000

294,965

26,400

$11,000$1,000 per Unit

405,764

184,350$27,270

26,400

$400 per Unit

373,377

DISCLAIMER: The information contained herein has been obtained from sources that we deem reliable. We have no reason to doubt the accuracy of the information, but we have not verified it and make no guaranty, warranty or representation about it. It is your resonsibility to independentlyconfirm its accuracy and completeness. We have not determined whether the property complies with deed restrictions or any city licensing or ordinances including life safety compliance or if the property lies within a flood plain. THE PROSPECTIVE BUYER SHOULD CAREFULLY VERIFYEACH ITEM OF INCOME OR EXPENSE AND PERFORM OR HAVE PERFORMED ANY INSPECTIONS TO VERIFY POSSIBLE CONTAMINATION BY ASBESTOS, LEAD PAINT, MOLD OR ANY OTHER HAZARDOUS SUBSTANCES. The owner reserves the right to withdraw this listing orchange the price at anytime without notice during the marketing period.

27.65%

$22,880

775,000

$21,582

$0$5,661

17.54%

$55,986$10,796

2,325,000

159,063

$636 per Unit

3,100,0003,100,0009.52%

379,364

775,000

$123 per Unit

291,991

$64 per Unit$88,000

NOTES: ACTUALS: Income and Expenses were calculated using 2016 Tax Rate & 2016 Assessment. Income and Expenses are based on owner's 8/16 operating statement. PRO FORMA: Income is Pro Forma as Noted. Taxes were calculated using 2016 Tax Rate & Est Future Assessment. Insurance is estimated. Management Fees calculated as 3.5% of Gross Income, Other expenses are Estimated for the Pro Forma.

318,391

75,542

$1,549

100%

2%

$450$159,063

300

$13,255

$300

4.75%

2016 Tax Assessment$79,873

815,100

Est Ins per Unit per Yr

$61,750

119,473

(16,302)815,100

$51,113

10 Yrs

779,141

$73,993$18 per UnitTelephone

Est Future Tax Assessment

Taxes

EXPENSE$613,357

Fixed Expenses

15,400

(40,755)22,000 $250 / Unit / Yr

Utilities $841 per Unit$73,993

122,424

$1,549

HVAC-Indiv

Estimated Other Expenses

$ per Unit

Est Future Taxes

(16,302)

$79,873

PRO-FORMA

$18 per Unit$0 $ per Unit

779,141

Other Expenses

75,542

Jan '16 thru Aug '16 Expenses

8/16 operating statement $39,6002016 Tax Rate & 2016 Assessment $908 per Unit$908 per Unit

MODIFIED ACTUALS

PROPERTY OVERVIEW

PALMS AT BAYTOWN ● 1000 NORTHWOOD ● BAYTOWN, TX 77521 Keymap: 501P

Building Quality: C+

Age: 1971 Access Gates Park & Ride Nearby Mortgage Balance $650,000 $1,400,000Elec Meter: Indiv Cable Ready Walk-In Closets Amortization Goose Creek ISD $1.431890A/C Type: HVAC-Indiv Club House School Bus Pick-up P & I Harris County $0.419230Water: RUBS Laundry Rooms Shuttle Route Type Harris County Flood Control $0.027330Wiring: Copper? Mini Blinds Patios/Balconies Assumable Port of Houston Authority $0.013420Roof: Pitched Bookshelves Sports Court Monthly Escrow Harris County Hospital District $0.170000Paving: Asphalt/Concrete Outside Storage Courtyards Origination Date Harris County Education Dept $0.005422Materials: Stucco Ceiling Fans Gazebos Due Date Lee Jr College $0.250000# of Stories: 2 Interest Rate City of Baytown $0.822030Parking: Yield MaintenanceBuildings: 12 Transfer Fee 2015 Tax Rate/$100 $3.139322Units/Acre: 23.22 *In Select Units Per owner, the loans can be prepaid. 2016 Tax Assessment $2,544,267

2 Mo Avg 2016 51,111$ Jan 2016 45,791$ Feb 2016 42,993$ Mar 2016 46,977$ Apr 2016 46,474$ May 2016 43,252$ June 2016 47,782$ July 2016 51,109$ Aug 2016 51,113$ Sept 2016Oct 2016Nov 2016Dec 2016

UNIT MIX

Type Sq Ft Rent Total Ren Rent/SF1 Bed/1 Bath 24 581 13,944 $600 $14,400 $1.031 Bed/1 Bath 1 1500 1,500 $700 $700 $0.472 Bed/ 1 Bath 12 767 9,204 $650 $7,800 $0.852 Bed/ 2 Bath 24 877 21,048 $700 $16,800 $0.802 Bed/ 2 Bath 6 1013 6,078 $750 $4,500 $0.742 Bed/ 2 Bath 9 1073 9,657 $750 $6,750 $0.703 Bed/ 2 Bath 8 1378 11,024 $900 $7,200 $0.653 Bed/ 2 Bath 4 1340 5,360 $900 $3,600 $0.67

Total / Avg 88 884 77,815 $702 $61,750 $0.79Source: 7/16 RR

ACCT NO: 0451440020028AMENITIES

No. Units

COLLECTIONS

PROPERTY INFORMATION TAXING AUTHORITY - HARRIS COUNTYEXISTING MORTGAGE

none

PLEASE DO NOT VISIT THE SITE WITHOUT AN APPOINTMENT MADE THROUGH THE BROKER.

PROPERTY HIGHLIGHTSTotal SqFt

28%

14% 44%

14%

1 Bed/1 Bath 2 Bed/ 1 Bath 2 Bed/ 2 Bath 3 Bed/ 2 Bath

$-

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

The Palms at Baytown Apartments, is a two story, garden-style, apartment community located in the Baytown submarket, east of Houston. The asset was built in 1971 and rehabbed, per HCAD in 2010. Residents enjoy ample amenities which include: mini-blinds, kitchen pantries, ceiling fans, laundry facilities, patios and balconies and walk-in closets. Lots of new refinery jobs in Baytown due to a heavy expansion in the plants. $14 billion alone is allocated for Exxon. Reportedly there are 14,000 new workers at Exxon alone. The owner reports the following: roofs replaced about 4 years ago, about 50% of the A/C units replaced by owner and there are 20 more units on hand, and the interiors have been 90% updated with granite counter tops, new appliances, new cabinet ftronts, and ceramic tile flooring. A recent site visit revealed the need for some parking lot striping and parking repairs. The owner reports that five or six of the units are on Housing. The broker feels that there is upside for a new buyer with additional landscaping and exterior cleanup! The current staff is 3, one manager, one maintenance, one grounds person. Collections on the Pro-Forma are based on Owners July and August Collections. With the very nice interiors (granite counter tops, new cabinets, etc), the broker feels this property has excellent rental upside!

Units/Type

PROPERTY LOCATION

PALMS AT BAYTOWN ● 1000 NORTHWOOD ● BAYTOWN, TX 77521

PROPERTY LOCATION

PALMS AT BAYTOWN ● 1000 NORTHWOOD ● BAYTOWN, TX 77521

RENT COMPARABLESPALMS AT BAYTOWN ● 1000 NORTHWOOD ● BAYTOWN, TX 77521

1 Bridge at Shady Hill3400 Shady Hill

2 Hunt Garden800 Hunt Rd

3 Cedar Ridge2900 W Baker

4 Briarwood1711 Jame Bowie

5 Bay Oaks1700 Bob Smith

Totals/Avges Comps 1979 94% 177 833 $783 0.940Palms at Baytown1000 Northwood St

Sub-Market Averages(Baytown) 92% 9,689 841 $708 0.860Houston Market Avgs 91% 627,879 870 $898 1.040

755 $763 1.010

0.800

0.970

$730

$782

837

99% 276 806

94% 184 855 0.930

0.990

$795

$82989% 146

RENT COMPARABLES ( Auguust 2016 ENRICHED DATA ONLINE) Sorted by Avg Rent/Unit

Property Name Yr Blt Occ #Units

1971 100% 88 884 $702 $0.79

Avg SF Avg Rent P/SF

1976

1984

1971

1978

93% 180 913

1984 97% 100

PALMS AT BAYTOWN

APARTMENTS

1

4

3

2

5

SALES COMPARABLESPALMS AT BAYTOWN ● 1000 NORTHWOOD ● BAYTOWN, TX 77521

1 Village by the Bay1601 Garth

2 Cedar Ridge2900 W Baker

3 Marina Club1200 Missouri

4 The Boardwalk of Baytown2700 Ward

5 Logan's Pointe3700 Garth Rd

KET = sold by KET

Totals/Averages Comps $10,927,483 195,608 $44,526 $57.89 1976 254

Palms at Baytown1000 Northwood St

$8,300,000 133,951 $56,081 $61.96 1971 148

2/16

3/14 $10,957,413 259,634 $36,403 $42.20 1974 301

8/14 $9,700,000 222,536 $35,145 $43.59 1984 276

$11,600,000 167,488 $40,000

SALES COMPARABLES (Sorted by Price/Sq. Ft.)

Property Name Date Sold Price Sq. Ft. Price/Unit Price/SF Units

$3,100,000 77,815 $35,227 $39.84 1971 88

1/16

Built

$14,080,000 194,432 $55,000 $72.42 1981 256

Asking

$69.26 1971 290

PALMS AT BAYTOWN

APARTMENTS

1 4

3

5

2

PALMS AT BAYTOWN ● 1000 NORTHWOOD ● BAYTOWN, TX 77521 Baytown

Baytown, Texas Houston is readily accessible to Baytown via Interstate 10, a major

thoroughfare running through the north side of Baytown. The City

encompasses an area of 34 square miles with an estimated

population of 72,108 in 2011.

Baytown boasts a rich environment, history and economic heritage.

It is surrounded by six bays and the Houston Ship Channel, which

has led not only to the development of a booming petrochemical

industry, but also a variety of recreational activities centered around

the area’s waterways. In the past, Baytown was home to Karankawa

Indians, and some their artifacts can still be found at the Baytown

Nature Center. Many historic battles also took place in the Baytown

area including the Battle of San Jacinto where Texas won its

independence.

The City of Baytown, during the years (2000 – 2005), experienced

more than over $210 million in new commercial development and

more than $205 million in new residential building activity occurred.

Baytown is a prosperous industrial community with major

corporations represented, such as ExxonMobil Baytown Refinery,

Exxon Chemical, Chevron Phillips, Bayer, Amoco and more. Retail

sales have climbed each year and have exceeded $600 million

annually. Shopping ranges from quaint little shops and boutiques to

one of the largest single-level shopping malls in the Southwest.

.

BAYTOWN, TEXAS

The city’s strategic location along the Houston Ship Channel and Trinity Bay provides access to the Port of Houston, a major world port. The country’s first and largest multi-site Foreign Trade Zone is operated at the port, affording international shippers reduced inventory carrying costs and deferred customer payments. The presence of the Foreign Trade Zone offers further proof to the entire area’s commitment to the success of business and industry.

The City of Baytown, Texas is the third largest city in the Houston Metropolitan Area. Located east of Houston, Baytown is only

20 miles from downtown Houston, within 35 minutes of Houston Hobby Airport and within 55 minutes of Houston Intercontinental

Airport.

Industrial Development

The City’s strong industrial tax base provides the foundation for

stable economic conditions necessary for maintaining a healthy,

vibrant economy. The cornerstones of Baytown’s industrial

development are three world-recognized entities consisting of

ExxonMobil, Bayer and Chevron Phillips.

Baytown's financial community comprises seven banks and four

credit unions that serve the needs of business and industry as well

as residents.

PALMS AT BAYTOWN ● 1000 NORTHWOOD ● BAYTOWN, TX 77521 Area Development

Chevron Phillips Chemical Company, Cedar Bayou, a Woodlands-based company, built in Baytown, the

world's largest plant, by capacity, for making a key component of

plastic resin: 1-hexene. The plant is capable of producing up to

250,000 metric tons. The company is expanding the Cedar Bayou

Plant in Baytown to provide an additional 100,000 metric tons per

year of capacity. Construction completion is anticipated in July,

2015 and expects to support up to 600 jobs during the construction

phase. Chevron Phillips Chemical also recently announced the

construction of a world-scale ethylene cracker in Baytown, Texas

and two world-scale polyethylene reactors in Old Ocean, Texas.

The new construction co-located with the expansion project at the

Cedar Bayou plant will enjoy great synergy as they both share the

same infrastructure and workforce talent.

areadevelopment.com

AREA DEVELOPMENT

ExxonMobil is developing a new 20 building facility on a 385-acre site located at the intersection of US Interstate 45 and the Hardy Toll Road.

According to the Houston Business Journal, it's one of the largest construction projects under way in the United States. The buildings are in various phases

of construction, and every day more than 3,000 workers are on the site. Beginning next year, employees will start relocating to the campus in shifts.

Approximately 10,000 employees are expected to be working at the site by 2015. Some of those employees will be coming from Virginia, Ohio and the

Houston. The campus is expected to boost demand for housing, commercial development and office space nearby, strengthening the region spanning

northern Harris County and southern Montgomery County. ExxonMobil Corp is also building a multibillion-dollar petrochemical expansion at its Baytown

complex, looking to take advantage of the country's increasing supply of natural gas. The investment reflects Exxon Mobil's continued confidence in the

natural gas-driven revitalization of the U.S. chemical industry. The project will include a new ethane unit, to provide ethylene feedstock for two new

polyethylene production lines at the company's nearby Mont Belvieu plant

PALMS AT BAYTOWN ● 1000 NORTHWOOD ● BAYTOWN, TX 77521 Area Development

Bayer-Baytown Industrial Park, The Baytown Industrial Park is the flagship site

for Bayer MaterialScience LLC in the NAFTA region. The Park sits on 1500 acres in Chambers County near Baytown and is partially developed. With approximately 1,300 employees it is the largest Bayer Material Science manufacturing site in the US . The site is home to 4 Bayer MaterialScience business groups: Polycarbonate, CAS (Coatings, Adhesives and Sealants), Polyurethane, (IBC) Inorganic Basic Chemicals. The site has grown more than 10-fold since 1971, when the first polyurethane unit started up. Today, the site is a thriving industrial park site anchored by Bayer MaterialScience LLC. The site also hosts Bayer Corporate and Business Services, LANXESS Corporation, Borden Chemical, El Dorado Nitrogen, First Chemical Texas, Texas Brine, and the Calpine Baytown Energy Center.

AREA DEVELOPMENT

Ameriport AmeriPort is a unique 723-acre, rail-served, industrial development focused on logistics to significantly improve efficiencies and savings for businesses. Located just east of Baytown, Texas and in close proximity to the Port of Houston, this master-planned business park has all the right connections – from rail service and rail storage to heavy haul, barge terminals, and easy interstate access. Strategically situated in pro-business Chambers County, AmeriPort is located on FM 565, just south of Interstate 10, with direct connectivity to the Grand Parkway (SH 99), SH 146, and FM 1405. ameriport.com

Cedar Crossing Industrial Park is a 10,897-acre industrial park near

Houston, to be the world’s fifth largest industrial park and the largest on the Gulf Coast. The Park is located 20 miles east of Houston in Chambers County, directly across the Houston Ship Channel, from the Bayport and Barbour's Cut container terminals. Cedar Crossing is ideal for light or heavy industrial, manufacturing of all types, waterfront operations and warehouse/distribution facilities. Approximately 65% of the Park remains undeveloped and is available for future expansion. Cedar Crossing has attracted many top-tier companies with significant operations: Home Depot’s 755,000-square-foot distribution hub, and Wal-Mart's 4.2 million-square-foot import center (their

largest in the U.S.), just to name a few. The Park has benefitted from the

construction of the Fred Hartman Bridge, the completion of the Grand Parkway, and a $50 million investment of public funds by the Chambers County Improvement District I for infrastructure improvements including the Public Barge Dock and its recent expansion. Additional infrastructure improvements are planned by the new ownership and will be announced at a later date.

Cedar Crossing

Mont Belvieu

ExxonMobil Corp, Baytown

Barbours Cut Ship Terminal is a major deep water port in the Greater Houston area and is part of one of the world's busiest ports by cargo tonnage. Barbour's Cut is situated between La Porte and Mogan's Point, TX. This channel, located at the mouth of Buffalo Bayou on Galveston Bay, is itself a tributary to the larger Houston Ship Channel. Located approximately 27 miles from downtown Houston, the premier container handling facility recently welcomed four 30-story high cranes from South Korea, as a part of a bigger $700 million revamp of the terminal as the port sees bigger container ships with more cargo. Per Chron.com, a statement released from the Port of Houston Authority stated, the new cranes will be able to load and unload ships at 295 feet per minute, almost twice as fast as the current cranes at the terminal. chron.com

PALMS AT BAYTOWN ● 1000 NORTHWOOD ● BAYTOWN, TX 77521 Houston 2016

Central Time Zone: one hour behind East Coast, two hours ahead of West Coast, allowing for optimal communications with entire country.

Equidistant from East and West Coasts: 1,630 miles to New York, 1,560 miles to Los Angeles; can reach any metro area within hours by air.

Convenient to the Port of Houston offering worldwide access (9 miles from City of Houston's business center) as well as three other seaports within the region.

Convenient to two major passenger/air cargo airports - Bush Intercontinental Airport is located 23 miles north of the central business district and Williams P. Hobby located to the southeast is a 15-minute drive from Houston's central business district. Hobby Airport is currently undergoing a $150 Million expansion.

Ellington Airport, part of the Houston Airport System, signed a letter of intent in 2014 with Sierra Nevada Corporation to explore potential spaceport applications. Currently undergoing a $500 Million expansion.

Houston has one of the lowest costs of living among major U.S. metro areas. Source: The Greater Houston Partnership, May 2016

Houston will continue to be a top destination for corporate relocations

due to its business-friendly environment.

H o u s t o n M e t r o p o l i t a n S t a t i s t i c a l A r e a P r o f i l e H O U S T O N O V E R V I E W

The City of Houston, the largest city in Texas and the fourth largest city

in the United States, is located on the coastal prairies of southeast

Texas and is home to a diverse array of industries and cultures.

Houston is located in Harris County, the nation’s third most populous

county. The Houston region, officially designated as the Houston –

The Woodlands - Sugar Land Metropolitan Statistical Area (MSA),

comprises Harris County and eight other counties: Austin, Brazoria,

Chambers, Fort Bend, Galveston, Liberty, Montgomery, and Waller.

The Houston MSA has a population of 6.3 million, according to new

2010 census figures, up from 5.5 million reported in the 2000 census.

The nine county metropolitan area is the fifth-largest metropolitan

area in the nation; combined with its zone of extraterritorial

jurisdiction, an area extending five miles beyond the city’s boundary,

the city controls 1,906 square miles. The most urbanized portions of

the Houston area are in Harris County, the southern part of

Montgomery County, and the eastern section of Fort Bend County.

Houston is home to the sixth largest port in the world and is in close

proximity to Mexico, a key trading partner. It has a temperate

climate and an affordable cost of living.

HOUSTON: Temporary Setback

Source: The Greater Houston Partnership May 2016

The Houston area endured another net loss of jobs in March, prompting University of Houston economist Bill Gilmer to predict for the first time that the region could reach the end of 2016 with fewer jobs than it started with. The area's unemployment rate also climbed by 0.2 percent in March, according to the Texas Workforce Commission. "This has just been a brutal quarter for energy sector," Gilmer said. "As tough as it's been in energy up until this last quarter, this last quarter set a new mark." The situation is worse than he expected, but he thinks the bottom may be near. "When we go into recovery, we're starting from a later and deeper point than I anticipated," he said.

HOUSTON SNAPSHOT

PALMS AT BAYTOWN ● 1000 NORTHWOOD ● BAYTOWN, TX 77521 Houston 2016

Peter Jankowski, senior vice president of research for the Greater Houston Partnership, said it is too soon for him to determine whether Houston will end up with positive or negative job numbers for the year, but he estimated that oil and gas industry layoffs will peak at midyear. "Then we'll see how the secondary sectors do after that," he said. While parts of the economy more closely tied to consumers, like retail and restaurants, are still faring well, he's noticed a slowdown in areas that have remained strong up until this point. "I'm amazed that with the depth of job losses in the oil and gas industry that Houston's economy continues to perform as well as it does," Jankowski said. "And that's a function of, we are more diversified or we just have incredible resilience, or maybe the effects are still lagging." Source: Houston Chronicle, April 15, 2016 Though no longer the "sole driver" of the local economy, a revived oil and gas industry will be key to a rebound from the current downturn, experts said Thursday during an annual forum on multifamily development hosted by real estate investment firm Marcus and Millichap. "We've been here before," Patrick Jankowski, vice president of research at the Greater Houston Partnership, told the group. "There is a lot of hope that oil will rise to $50 or $60 a barrel. Then people in Houston can relax a little bit and make things a little bit easier for us." Jankowski predicted the slump will be mitigated by foreign investment and a thriving petrochemical industry and medical community. "Oil and gas is important to Houston, and it always will be, but it's not the sole driver of the economy anymore," he said. Multifamily development has been among the most obvious victims of an economy that's been thwarted the last two years by depressed oil prices.

"Oil and gas is important to Houston, and it always will be, but it's not the sole driver of the economy anymore" Real estate observers say the apartment market is overbuilt.; more than 29,000 units in 102 properties are under construction. "I've noticed a negative tone in the past 12 months, in the press and newspapers," said Cyrus Bahrami, managing director of South Texas Alliance Residential. "Everyone needs to chill out. It's actually good to be in Houston. It might get worse before it gets better, but we need to focus on the fundamentals." Kate Good, senior vice president of multifamily development for Hunington Residential, said the company saw a record number of units leased last year and now those renters are renewing, even with rent increases. Hunington has projects on Houston's west side as well as projects in the works on the east side to accommodate construction growth in the petrochemical industry. "It's not the most glamorous part of the region," Good said. "We are really encouraged with the growth coming into the area." Bart Barrett, director of Wood Partners, said projects to the north and west, such as in The Woodlands and the Energy Corridor areas, are offering concessions to renters. Ricardo Rivas, chief investment officer for Allied Orion Group, said he sees concern in Katy. Rents and occupancy have already dropped, and he said Energy Corridor projects are offering as many as three months' free rent.

Though oil prices have been rallying lately, the sharp drop in price coupled with the end of a business cycle is concerning. With the largest oil and gas institutions making deep cuts, some are starting to have flashbacks to the nightmarish ‘80s. But there are crucial differences.

BEFORE YOU COMPARE HOUSTON TO THE 80's, LOOK AT

THESE STATS The unprecedented increase in sublease space is competing against a slew of new Class-A deliveries. While it may seem bad, recent office deliveries are not even one-third of the deliveries during the '80s. This stat also highlights an important aspect of Houston's market—it’s old. 40% of the office market was built around 1980. Aging buildings and abundant sublease space offering astounding concessions have fueled a flight to quality across the city.

The banking crisis of the '80s saw a massive increase in interest rates. This time around, interest rates have remained very low and the cost of borrowing remains depressed by The Fed. In turn, low-interest rates have bolstered financial markets, consumer spending and real estate.

The banking crisis in the '80s was a two-headed beast, one head related to the failure of savings and loans, the other representing the failure of large commercial banks.

Many lessons were learned during the S&L crisis, and those mistakes were not repeated in the same magnitude after 2008’s calamity. Large commercial banks were propped up, ultimately preventing the banking bloodbath of the '80s. The national economy is fundamentally different today than it was in the 1980s. We've posted 27 consecutive quarters of positive nominal GDP growth since the '09 recession, whereas the US economy was still stumbling during the '80s oil bust. Sweeping changes in the energy and retail sectors have redefined markets. Houston has adapted to that change extremely well. The city’s diversification has protected it from the full force of impact of the oil downturn. Houston’s top-notch population growth in the past few years has large national retailers flush with cash from a growing economy looking to expand in Houston.

Such vastly different numbers dispel any chatter that Houston is headed towards an '80s-style meltdown. Houston is no longer America’s oil city. We’re America's fourth-largest city, on track on to be the third. Houston has earned the nickname Hustle Town for good reason. Houston is a city at work, on the grind and We’ll work through this too. Source: Kyle Hagerty, BISNOW Houston, May 02, 2016

But the developers also saw daylight in broader social trends, with more baby boomers downsizing into apartments and millennials putting off buying a house. Homeownership rates have been slipping, even in cities like Houston and Dallas whose housing markets traditionally have been dominated by single-family homes. William Elser of Houston-based Hines said these factors have increased demand for quality apartments near job centers. Bryant Neil, executive vice president of multifamily for PM Realty, said Midtown and downtown high-rises will still likely command high rents once they come on the market. He said renters want to live in the urban areas with bars, restaurants and close access to transit. Source: Houston Chronicle, May 5, 2016, Erin Mulvaney, Real Estate Reporter

This ain't the 80's!

Houston 2016

Borrowing costs will increase due to higher cost of capital and regulatory constraints

Bank credit standards will tighten

Class B & C and Secondary Markets will be hit hardest as life insurance continues to allocate capital to higher quality assets in primary markets

Having said that, overall property fundamentals continue to improve as the labor market condition have begun to moderate

With supply slowing down drastically and starts for 2017 currently at 2,300 units, absorption throught 2019 will be very strong for Houston

Houston is about to become the 3rd largest city in the U.S., according to new numbers released by the U.S. Census Bureau. This means thousands of new residents moving to Houston needing housing options.

Foreign investors and major U.S. funds are all poised to enter Houston capital markets quickly at the sign of value investments

Currently, rental rates on class A and A+ assets are dropping significantly each quarter, but, principals are holding steady to get their target price. Source: Wells Fargo Economics / Commercial Real Estate Chartbook: Q1, May 20, 2016 and Cushman & Wakefield, May 24, 2016 .

According to TudorPickeringHolt & Company (TPH) research in a report published May 2, 2016," given the improving supply and demand fundamentals as measured by leading edge US inventories over the past 6+ weeks, "we wanted to re-iterate our bullish view on oil prices later in 2016 - $80 starting Q416 through 2018." "Although there are no material changes to our global supply and demand model since late March 2016 when TPH revised down (slightly) our global demand assumptions for 2016, this report refreshes our global supply and demand model and thoughts through 2017. TPH continues to expect that the market will tighten in the second half of 2016." "With the recovery upon us, 2017 is setting up to be a tight market even with OPEC production 1.5mmbpd higher than current output by 3Q17. This additional supply comes from: Neutral Zone +500kbpd Saudi Arabia +600kbpd (to nearly 11mmbpd) Libya +400kbpd"

WHERE ARE WE NOW?

TUDOR PICKERING

HOLT & COMPANY,

ENERGY

INVESTMENT AND

MERCHANT

BANKERS, PREDICT

$80 OIL IN SECOND

HALF OF 2016!

See Research Report dated May 2, 2016

"In previous cycles, OPEC cuts tightened the market and shortened the down cycle. These cuts provided significant visible excess capacity as OPEC added oil back to the market. Our 1.5mmbpd call on OPEC in 2017 adds to current production that is at/near record levels. By the end of 2017, the only excess capacity globally could be Saudi’s ability to produce over 11mmbpd. "

"Bottom Line – We are “All-In” on our $80/bbl oil call." "As our 2016-17 supply and demand forecast plays out and OPEC needs to add 1.5mmbpd from current near-record production levels, oil prices could eclipse $100/bbl as a scarcity premium could override the “US can grow quickly” theme…especially if the activity / supply response in the US is slower than the market anticipates. " Source: TudorPickeringHolt & Company, Energy Investment and Merchant Bankers, Crude Research Report, 5/2/16

TudorPickeringHolt & Company Bullish on Oil Prices for Second Half of 2016

PALMS AT BAYTOWN ● 1000 NORTHWOOD ● BAYTOWN, TX 77521

DEMOGRAPHICS

1 Mile Radius 3 Mile Radius 5 Mile Radius

2011 Estimated Population 11,317 32,974 50,1042016 Projected Population 12,155 35,428 53,8352010 Census Population 10,648 31,014 47,1272000 Census Population 10,144 28,593 43,651

Projected Annual Growth 2011 to 2016 1.5% 1.5% 1.5%Historical Annual Growth 2000 to 2011 0.8% 1.1% 1.1%

2011 Median Age 32.9 31.5 32.6

2011 Estimated Households 4,157 11,345 17,6082016 Projected Households 4,483 12,234 18,9992010 Census Households 3,880 10,589 16,4322000 Census Households 3,885 10,116 15,483

Projected Annual Growth 2011 to 2016 1.6% 1.6% 1.6%Historical Annual Growth 2000 to 2011 0.5% 0.9% 1.0%

2011 Estimated White 66.9% 64.1% 63.0%2011 Estimated Black or African American 12.8% 12.8% 14.5%2011 Estimated Asian or Pacific Islander 1.1% 1.1% 1.4%2011 Estimated American Indian or Native Alaskan 0.5% 0.7% 0.7%2011 Estimated Other Races 18.7% 21.4% 20.4%

2011 Estimated Hispanic 40.7% 48.4% 45.8%

2011 Estimated Average Household Income $55,899 $56,356 $59,7452011 Estimated Median Household Income $46,830 $49,826 $50,9042011 Estimated Per Capita Income $20,580 $19,415 $21,039

2011 Estimated Elementary (Grade Level 0 to 8) 7.7% 11.1% 11.2%2011 Estimated Some High School (Grade Level 9 to 11) 12.6% 15.3% 14.4%2011 Estimated High School Graduate 31.2% 29.4% 28.7%2011 Estimated Some College 25.7% 25.3% 25.6%2011 Estimated Associates Degree Only 8.7% 6.8% 6.6%2011 Estimated Bachelors Degree Only 9.6% 8.3% 9.0%2011 Estimated Graduate Degree 4.5% 3.7% 4.5%

2011 Estimated Total Businesses 346 999 1,7562011 Estimated Total Employees 2,170 7,692 18,4192011 Estimated Employee Population per Business 6.3 7.7 10.52011 Estimated Residential Population per Business 32.7 33.0 28.5

INC

OM

EED

UC

ATI

ON

(AG

E 25

+)B

USI

NES

SH

OU

SEH

OLD

S R

AC

E A

ND

ETH

NIC

ITY

POPU

LATI

ON

40%

7%

1% 11%

41%

White Black Asian Other Hispanic

$56,835

$72,073

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

Subject Houston

59.3%

40.7% Non-Hispanic

Hispanic

AVERAGE INCOME - 1 MILE RADIUS

PALMS AT BAYTOWN ● 1000 NORTHWOOD ● BAYTOWN, TX 77521

PALMS AT BAYTOWN ● 1000 NORTHWOOD ● BAYTOWN, TX 77521Flood Plain Map

A 268 UNIT CLASS "B-/C+" GARDEN APARTMENT COMMUNITY