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O F F E R I N G M E M O R A N D U M : B A L T I M O R E M U L T I - F A M I L Y T O W N H O M E P O R T F O L I O

Baltimore Multi-Family Townhome Portfolio

OFFERING MEMORANDUMBaltimore Multi-Family

Townhome Portfolio

OFFERING MEMORANDUMBALTIMORE MULTI-FAMILY TOWNHOME PORTFOLIO

81 UNIT INVESTMENT OPPORTUNITY

CLASS B+ EXCLUSIVE OFFERING

Prepared by:

Steve WeissSenior Vice [email protected]


TABLE OF CONTENTS

> EXECUTIVE SUMMARYOffering SummaryRent Assistance ProgramsInvestment HighlightsTransaction Guidelines

> PROPERTY INFORMATIONEast Baltimore Investments PortfolioProperty PhotographsArea Map

> MARKET SYNOPSISMulti-Family/Townhome Overview

> FINANCIAL ANALYSISGround RentsAnalysis RecapRent Roll/Income & Expenses

> APPENDIXLimiting Conditions: Confidentiality and Disclaimer Document


> EXECUTIVE SUMMARY

OFFERING SUMMARYRENT ASSISTANCE PROGRAMS

INVESTMENT HIGHLIGHTS TRANSACTION GUIDELINES


Offering Summary 81 UNIT MULTI-FAMILY TOWNHOME PORTFOLIO

The Maryland office of Lee & Associates is pleased to present on behalf of East Baltimore Investments (“Seller”) the rare opportunity to acquire a 98.7% leased portfolio of 81 fully renovated, affordable and market rent, townhome units located in close proximity to each other in Baltimore City and Baltimore County, Maryland. The 81 units are physically housed in 74 individual income producing properties. This unique opportunity offers the investor a turnkey portfolio of well-appointed townhomes of which approximately 75% are located within a 3-mile radius of each other and approximately 95% are within a 5-mile radius. There is professional management in place (and available to be retained) that intimately knows each unit from original acquisition through rehab. The rehab process utilized, greatly enhances efficiency and adds ease to the maintenance, marketing and leasing processes.

The units have all been carefully considered during the original acquisition process for neighborhood amenities and safety, easy access to public transportation, overall aesthetics and market desirability for eventual disposition or exit. Enhancing the package further is the fact that 38.27% of the leases are through affordable housing/government sponsored rent assist programs, which assure an owner market rate rents, timely rent collections and average tenant retention/lease terms of approximately 3.5 years.

Many of the units have Modern Class “A” rehab renovations that may include electrical, plumbing, HVAC, bathrooms, kitchens, windows, flooring, roofing and fixtures. Other improvements may include modern design, open floor plans, exposed brick accent walls, replacement doors and hardware, and structural integrity upgrades. Exteriors have also been greatly enhanced and improved to include in many instances, patios, decks, fenced rear yards, parking pads, brick repointing, landscaping, lighting and mailbox upgrades.

This portfolio is extremely unique in that these extensive renovations/redevelopment programs offer a finished product that are in a retail sale condition, making the units much more likely to retain tenants longer and are offered through this portfolio sale at well below retail value. This offering is indeed a once in a lifetime opportunity to purchase a portfolio at a much stronger than market yield and very strong long term outlook for continued rent growth and predictable exit strategy.

This portfolio contains a number of properties (27) that are subject to a ground rent. The concept of a residential ground rent is almost unique to the Baltimore area and is traced back to colonial times when colonists paid taxes to Lord Baltimore for the right to settle on a particular piece of land. The annual ground rents on the affected properties in this portfolio range from $30-$120 and although are redeemable (able to be “bought out”) home owners rarely exercise the by-law rights since the annual amounts are so minimal and never increase. In the event someone wishes to redeem the Ground Rents, they can be purchased at predetermined (depending on date of original lease) 6-12% capitalization rates As inflation occurs over time, the annual dollar amount of the ground lease has a smaller and smaller net present value.

OFFERING SUMMARYOffering Price $8,369,150Terms All CashYear Built/Renovated Varying# of Units 81# of Individual Properties 74In-Place Net Operating Income $752,655

CAP Rate on in-place NOI 9.0%

Parking Parking pads; on-street

Occupancy 98.76%# of Units leased through government programs 31

# of Units leased through “market process” 50

Current Appraisals “In Hand” 25

Underwritten Occupancy 95%Underwritten NOI $711,378CAP Rate on 95% Occupancy 8.5%

Price Per Individual Home $113,096Price Per Unit $103,322

The Sellers are providing an across the board, one year warranty on roofs, electrical, plumbing, heating and cooling systems, as a testament of the workmanship, quality and condition of this portfolio.


Government Rent Assistance/ Affordable Housing ProgramsSECTION 8 HOUSING CHOICE VOUCHER PROGRAMProgram Description: The U.S. Department of Housing and Urban Development’s (HUD) Section 8 Housing Choice Voucher Program is a rental assistance program that subsidizes the rent of lower-income families through the use of federal funds.

Eligible Types of Housing: Any type of rental housing that meets program requirements for housing quality standards is eligible. Eligible households may select eligible rental housing of their choice. Under the Section 8 Housing Choice Voucher Program, a tenant may select a unit that rents for an amount determined to be comparable to other unassisted units in the area, taking into account amenities and other factors, and which would result in the family paying no more than 30% of its adjusted monthly income towards the rent and utilities.

Eligible Applicants: Eligible applicants are families or individuals who have annual incomes of 50% or less of the area median income or state non-metro median income, whichever is higher.

Eligible Residents: Those who are eligible for residency are also eligible applicants. Following the initial certification of eligibility, the resident's income is recertified annually. If the resident’s income has changed, the tenant's contribution will be adjusted accordingly.

Program Terms: Eligible families may receive a voucher which allows them to seek rental housing of their choice. Under the Section 8 Housing Choice Voucher Program the tenant may choose to pay more or less than 30% of their monthly household adjusted income, depending upon whether the rent for the unit is more or less than an established voucher payment standard.

For more information see: www.dhcd.state.md.us/website/programs/section8

METROPOLITAN BALTIMORE QUADEL (MBQ)Program Description: The goal of the Special Mobility Housing Program is to help low-income families live successfully in “Opportunity Neighborhoods” that give them access to better schools and employment, with less exposure to crime, and better amenities such as transportation, recreational facilities and shopping—all of which can add up to a big overall opportunity to improve the quality of their lives. Opportunity Neighborhoods are neighborhoods with lower concentrations of poverty and government assisted housing and greater ethnic diversity than the regional average.

Special Mobility Housing Choice Voucher: Program is successful because of the strength of a three-way partnership between

owners and landlords of good quality housing in Opportunity Neighborhoods, well-prepared and qualified tenants, and Metropolitan Baltimore Quadel. Each partner has duties and responsibilities defined in legally recognized documents.

Tenant Responsibilities: Tenants are responsible to both the landlord and MBQ. Tenant responsibilities to the landlord/property are defined in the lease and should include:

• Timely payment of rent and tenant-supplied utilities• Proper care of the unit and any maintenance that is

designated as the responsibility of the tenant (i.e., lawn maintenance, snow removal, etc.)

• Responsibility to abide by all the terms and conditions of the lease (i.e., approved family members, when and how to report guests and visitors, pet clauses, etc.)

Owner/Landlord Responsibilities: Landlords participating in the Special Mobility Housing Choice Voucher Program have all of the same responsibilities they would if the unit was rented to a private market tenant. Key responsibilities of landlords are:

• Screen and select tenants for vacant units• Enter into and enforce the lease between the landlord

and the tenant• Collect security deposits and rent• Maintain the housing unit in accordance with Housing

Quality Standards, making repairs as necessary• Comply with the HAP Contract and all applicable

federal, state and local laws and ordinances, including but not limited to Fair Housing

MBQ Responsibilities: As administrator of the Special Mobility Housing Choice Voucher Program, MBQ has five broad responsibilities:

• Determine whether a family or individual is eligible for the program according to guidelines established by HUD

• Determine allowable properties and then assist families in relocating to an opportunity area

• Inspect properties under the program to ensure that federal health and safety guidelines are met

• Pay the program’s share of each participating family’s rent each month

• Ensure that program participants and property owners comply with program rules and regulations

For more information see: www.mbquadel.com


Investment Highlights

> One year warranty covers roofs, electrical, plumbing, heating and cooling systems> Sales price is below residential retail pricing for individual townhomes (25 Recent Appraisals)> Uncommonly, high tenant retention (Avg 3.5 years) resulting in low turnover expenses> Expertly renovated units

> Underserved Greater Baltimore marketplace with estimated demand of additional 1,828 units/year and demand for 7,228 over the next 5 years > Lack of For Sale or Rental townhome product available in market> Townhomes are the leading seller in marketplace> 98.76% occupancy> 38% of rents are wired in on 1st of each month from a federal agency> Low maintenance interiors> Highly efficient floor plans> Majority of properties have low to no maintenance masonry exteriors> Expert management available who is familiar with each property

> Redundancy of tested building systems and materials resulting in easier and lower maintenance and ease of replacement> Excellent reputation in marketplace> Irreplaceable assemblage of handpicked properties> Walkable access to public transportation systems> Very high tenant satisfaction> Excellent economies of scale on insurance and other expenses> All separately metered properties with utilities in tenants names> Easy access to highway network (State and Interstate)> City desires to lower property taxes over 10 year period> 40 miles from Washington D.C.

> Demand from BRAC (Base Realignment and Closure Act) estimated to bring as many as 60,000 new residents> Close proximity to CBD Baltimore> Close proximity to two Johns Hopkins Hospitals and Johns Hopkins University> Flexibility with exit strategy to sell singly or as a portfolio> Existing Baltimore City home sales are up 6.0% (September 2016 - September 2017)

> Median price of existing Baltimore City home sales are up 7.0% to $136,000 (September 2016 - September 2017)

> Baltimore rents have increased 3.0% (September 2016 - September 2017)

> Baltimore City’s population grew by 0.3% in the last 12 months> The number of active/available Baltimore City Townhome listings declined 14.0% (March 2016- March 2017)

> Baltimore Metro townhome prices are up 1.6% to $189,000 (March 2016- March 2017)

2027 Jefferson 1st Fl

3131 Chesterfield

1316 Light St 2nd Fl

439 N Milton


Transaction Guidelines

Lee & Associates Maryland is exclusively marketing the Baltimore Multi-Family Townhome Portfolio to a select group of qualified inves-

tors. The prospective purchaser will be selected by Seller in consultation with Lee & Associates on the basis of:

1) price,

2) financial strength,

3) certainty and probability of closing,

4) level of investment discretion,

5) reputation within the industry, and

6) intended plans/use for the property, among other considerations.

The offering terms are all cash, due and payable at closing.

Seller reserves the right to select a successful investor based upon their initial bid. Seller also reserves the right, based upon the

quality of the offers received, to select a group of investors to proceed to a second round of bids. If a second round of bids is requested,

Seller will spell out at that timeframe and specific instructions on how to proceed with the offering criteria.


> Property Information > PROPERTY INFORMATION

EAST BALTIMORE INVESTMENTS PORTFOLIOPROPERTY PHOTOGRAPHS

AREA MAP


East Baltimore Investments Portfolio

The East Baltimore Investments Portfolio is comprised of 81 units and is 98.7%

occupied. This portfolio was assembled over time beginning in 2007 and has a

focus towards properties located on the East side of Baltimore City, with many

concentrated in the Patterson Park/Canton area and proceeding North into Eastern

Baltimore County. These homes also followed a careful and stringent acquisition

process focused on the affordable housing sector with 38.2% of the properties

participating in local and federal rent assistance programs and the balance

being leased through market rent processes. While all the properties achieve

market rental rates, the 31 properties leased through government programs offer

advantages of timely rent collections and much longer than typical, average tenant

stays/lease terms.

The assets, when first considered for acquisition, were required to be quality

properties in strong neighborhoods that met target market driven location

criteria. The properties all had to be deemed capable of being renovated into a

condition/standard to meet or exceed market driven amenity criteria and stringent

government assistance program standards.

East Baltimore Investments followed exacting standards in kitchen, bathroom,

electrical, plumbing, and HVAC or improvements/replacements.

The East Baltimore Investment Portfolio contains 27 properties that are subject to

the fixed amount Baltimore ground rents that total an annual expense of $2,230

and never increase or change.

PORTFOLIO SUMMARY# Units 81

# Individual Properties 74

Occupancy 98.76%

Underwritten occupancy 95%

In-place NOI $752,655

# Units leased through Government programs 31

# Units leased through "market process" 50

Average Tenant Stay 3.5 years

PORTFOLIO BY ZIP CODEZIP / TOWN / CITY EBI Properties

21205 / Baltimore 28

21206 / Baltimore 7


21218 / Baltimore 3


21231 / Baltimore 1

21239 / Baltimore 1

21230 / Baltimore 1


Sample Property Photographs EAST BALTIMORE INVESTMENTS


Area Map Site MapLat: 4766445.899244, Lon: -8528534.111080 Prepared by Timothy HearnRing: 7.5 Miles Latitude: 39.311888

Longitude: -76.613125

February 15, 2013

©2013 Esri


> Market Synopsis > MARKET SYNOPSIS

MULTI-FAMILY/TOWNHOME OVERVIEW


Multi-Family OverviewThe Baltimore City residential submarket has experienced a significant increase in the activity for multifamily projects and multi-family/residential land development. This has been the trend in most cities across the country, as renting is considered more desirable than owning. Investors, needing to place capital have been highly focused on multi-family projects in order to meet this new demand. In Baltimore specifically, several government initiatives have spurred investment in office to apartment conversion by offering tax incentives. Neighborhoods in close proximity to the water are seeing an increase in multi-family and townhome construction. Just this year, many large developments were completed in the areas like Locust Point, McHenry Row and Banner Hill near the Inner Harbor.1 Other developments like those in Light Street, Harbor East and Calvert Street are expected to be completed by the next year.

According to the U.S. Census Report (2016), there are 614,664 residents living in Baltimore City and there are 297,596 housing units.2 The median gross rent is $951. The Census estimates that 33.2% of all housing units in the city limits are multi-unit structures. The average household size in Baltimore is 2.5 persons and the median household income is $42,241.

As shown on the right, the Average Price per unit for Baltimore has fluctuated more often than that of the U.S. It reached its highest in the beginning of the first quarter of 2017, however, it is now coming down to the match the national average of around $145,000. The Average Cap Rate of Baltimore, 6.4%, for the first quarter of 2017, is significantly higher than the rest of the country i.e. 5.6%.

The graphs on the right represent the quartile distribution for Price Per Unit and the Cap Rate. The median price for Baltimore, $104,000, is lower than that of the country by $43,048. For a buyer in Baltimore, the median Cap Rate is 6.1% as compared to the national median of 5.6%.

A Baltimore Business Journal report indicated that the downtown area can support about 1,339 new market-rate housing units per year for the next three years – calling the phenomenon the “rental revolution in Baltimore”.3

MRIS reports that there are currently 361 townhomes on the market for sale between the price ranges of $75,000 and $150,000.4 The average asking price is $112,151 and it is assumed that the majority of those properties are not renovated to the level of the subject portfolio. MRIS also reports that townhome property sales that closed between 1/1/2016 and 10/25/2017 at asking prices between $75,000 - $150,000 have yielded an average sale price of $112,823. The average age of the property sampling was 81 years old and averaged 64 days on the market from initial listing date to final settlement date. This continuous demand and emphasis on townhome sales has resulted in an overall shortage of available townhome product for investors to purchase in Baltimore City and the surrounding area.

1 Baltimore Business Journal, 9/27/17. “Baltimore apartment market has room to run despite 12,500 new units, report says.”

2 US Census Report 2016

3 Baltimore Business Journal, 9/27/17. “Baltimore apartment market has room to run despite 12,500 new units, report says.”

4 MRIS report as of 10/28/17

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

Q1 '13 Q1 '14 Q1 '15 Q1 '16 Q1 '17

Avg Cap Rate (Yield)

Baltimore National

100,000

110,000

120,000

130,000

140,000

150,000

160,000

170,000

180,000

Q1 '13 Q1 '14 Q1 '15 Q1 '16 Q1 '17

Avg Price $ (thous) per unit

Baltimore National


> Financial Analysis > FINANCIAL ANALYSIS

GROUND RENTSANALYSIS RECAP

RENT ROLL/INCOME & EXPENSES


A ground rent owner is required by law to sell or redeem the ground rent to the real property owner when

requested. The purchase price for the ground rent is determined by taking the annual ground rent fee and

dividing it by the redemption rate (typically .04-.12 depending on the year the lease was created).

DATE OF ORIGINAL LEASE

CAPITALIZATION RATE

July 2, 1982 - present 12%

April 6, 1888 - July 1, 1982 6%

April 8, 1884 - April 5, 1888 4%

Prior to April 7, 1884 Variable and possibly not redeemable

Redeeming a Ground Rent - Algorithms


East Baltimore Investments LLCPRO-FORMA PORTFOLIO ANALYSIS RECAP

AVERAGE UNITMONTH ANNUALIZED TOTAL PORTFOLIO

# Units 1 1 81

Rental Income $1,127.80 $13,533.62 $1,096,224.00

Less Vacancy: (5%) $56.39 $676.68 $54,811.20

NET RENTAL INCOME $1,071.41 $12,856.94 $1,041,412.80Management Fees (6.95%) $78.47 $941.65 $76,273.68

Maintenance Expense $86.91 $1,042.96 $84,480.26

*Water Expense $9.87 $118.44 $9,593.82

Real Estate Tax $130.62 $1,567.54 $126,970.74

Insurance $28.86 $346.40 $28,059.00

Utilities, Marketing, G&A, Legal $5.58 $67.01 $5,427.84

Ground Rent $2.29 $27.53 $2,230.00

Total Expenses $339.54 $4,074.51 $330,035.34Net Operating Income $731.87 $8,782.44 $711,377.80

Operating Margin 68.30%

*Most Tenants (83.95%) pay their own water bill

439 N Milton2027 Jefferson 1st Fl 2027 Jefferson 1st Fl


RENT ROLL/INCOME & EXPENSES


> Appendix > APPENDIX

LIMITING CONDITIONS:CONFIDENTIALITY & DISCLAIMER DOCUMENT


CONFIDENTIALITY & DISCLAIMER STATEMENT

This Offering Memorandum contains select information pertaining to the business and affairs of the Baltimore Multi-Family Townhome Portfolio, Baltimore, Maryland. It has been prepared by Lee & Associates Maryland. This Offering Memorandum may not be all-inclusive or contain all of the information a prospective purchaser may desire. The information contained in this Offering Memorandum is confidential and furnished solely for the purpose of a review by a prospective purchaser of the Property. It is not to be used for any other purpose or made available to any other person without the written consent of Seller or Lee & Associates. The material is based in part upon information supplied by the Seller and in part upon financial information obtained by Lee & Associates from sources it deems reliable. Owner, nor their officers, employees, or agents makes any representation or warranty, express or implied, as to the accuracy or completeness or this Offering Memorandum or any of its contents and no legal liability is assumed or shall be implied with respect thereto. Prospective purchasers should make their own projections and form their own conclusions without reliance upon the material contained herein and conduct their own due diligence.

By acknowledging your receipt of this Offering Memorandum from Lee & Associates, you agree:

1) The Offering Memorandum and its contents are confidential;

2) You will hold it and treat it in the strictest of confidence; and

3) You will not, directly or indirectly, disclose or permit anyone else to disclose this Offering Memorandum or its contents in any fashion or manner detrimental to the interest of the Seller.

Owner and Lee & Associates expressly reserve the right, at their sole discretion, to reject any and all expressions of interest or offers to purchase the Property and to terminate discussions with any person or entity reviewing this Offering Memorandum or making an offer to purchase the Property unless and until a written agreement for the purchase and sale of the Property has been fully executed and delivered.

If you wish not to pursue negotiations leading to the acquisition of the Baltimore Multi-Family Townhome Portfolio, Baltimore, Maryland or in the future you discontinue such negotiations, then you agree to purge all materials relating to this Property including this Offering Memorandum.

A prospective purchaser’s sole and exclusive rights with respect to this prospective transaction, the Property, or information provided herein or in connection with the sale of the Property shall be limited to those expressly provided in an executed Purchase Agreement and shall be subject to the terms thereof. In no event shall a prospective purchaser have any other claims against Seller or Lee & Associates or any of their affiliates or any of their respective officers, Directors, shareholders, owners, employees, or agents for any damages, liability, or causes of action relating to this solicitation process or the marketing or sale of the Property.

This Offering Memorandum shall not be deemed to represent the state of affairs of the Property or constitute an indication that there has been no change in the state of affairs of the Property since the date this Offering Memorandum.

Limiting Conditions

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