Market Analysis for Renovation Maury River Place Lexington, Virginia

Prepared for:

Mr. David Koogler Mark Dana Corporation

February 28, 2018

S. Patz and Associates, Inc. 46175 Westlake Drive, Suite 400 Potomac Falls, Virginia 20165

February 28, 2018

Mr. David Koogler Mark-Dana Corporation 26302 Oak Ridge Drive Spring, Texas 77380

Dear Mr. Koogler:

Attached is our completed market study for the proposed renovation of the existing Green Hills Apartment complex, to be renamed Maury River Place after renovation. The apartment complex is fully occupied and is expected to remain full during and after renovation. All residents have rent subsidies; that too will remain. The market report shows “support” for higher base rents after renovation compared with current rents. These are recommended as described in the report.

The market area apartment market is at near full occupancy, with a small waiting list. There are no new apartment proposals under study or planned at this time. Several area apartment properties have been successfully renovated, in a similar manner as the Subject proposal. Market data presented in the attached report are favorable for the proposed $1.6+ million renovation, as required by officials of Virginia Housing Development Authority.

Field research for this assignment was undertaken on February 28, 2018.

Please call if additional data or clarification are needed.

Sincerely,

Stuart M. Patz President

TABLE OF CONTENTS

PAGE Section I Introduction ...... 4 Market Area Definition ...... 6 Maury River Place ...... 7 Property Description ...... 7 Site Plan ...... 12 Apartment Unit Characteristics ...... 14 Apartment Unit Floor Plans ...... 15 Community Building ...... 16 Current Resident Characteristics ...... 16 Summary ...... 17 Renovation Program ...... 18 Site Setting ...... 19 Economic Overview Analysis ...... 22 At-place Employment ...... 22 Employment ...... 24 Unemployment ...... 24 Economic Development Activity ...... 25 Area Universities ...... 26 Summary ...... 27 Section II Affordable Apartment Analysis ...... 28 Demographic Analysis ...... 28 Population Trends and Projections ...... 28 Group Quarters ...... 29 Household Population ...... 30 Renter Households ...... 30 Renter Households by Income ...... 30 Renter Households by Size ...... 31 Competitive Apartment Analysis ...... 31 Apartment Community Characteristics ...... 32 Market Area Vacancy Rate ...... 38 Net Rent Analyses ...... 39 Apartment Unit Sizes & Mix ...... 40 Section III Conclusions ...... 42 Demand Table ...... 42

Section I Introduction

Following is our full narrative market report for the proposed renovation of the 40-unit, Green Hills Apartments, in Lexington, Virginia, that is being renamed, Maury River Place, as part of an extensive renovation plan, which includes upgrades estimated at a cost of $40,000 per apartment unit. The apartment complex is a rent restricted apartment property under the Section 515 RD program, and the current rent restrictions will remain after the proposed renovation. Once renovated, as is now the case, Maury River Place will have rent and income restrictions, but no age restrictions.

The report to follow has been prepared under the current market study guidelines established by Virginia Housing Development Authority (VHDA) for financing for affordable housing. The report will be submitted to officials of VHDA in support of a 9% Low Income Housing Tax Credit application, under the 2018 competitive “round”, with a due date of March 16, 2018. The report closely follows the VHDA report requirements.

To stay within the VHDA guidelines, the report is presented in three sections. The first, the Introduction, is a detailed analysis of the apartment site, to be referred to as Maury River Place, and the tenant characteristics of the apartment complex. The site setting is in a location just north of the City of Lexington and the public services available to the site are part of the site description. Also included in the Introduction is a detailed explanation of the renovation proposal.

The second part of the Introduction is an Economic Overview of the Rockbridge County economy, with the County defined as the market area for Maury River Place. The economic overview analyzes at-place job growth and trends, including employment and labor force data. Job and employment growth are the key factors supporting population and household growth, and the resulting area housing unit demand, including the type of housing under study.

Section II is the Affordable Housing Market Analysis. First presented is the demographic analysis prepared for this report. The demographic analysis “solves” for the number and growth of renters with incomes of $21,000 ± to $32,000±, when incomes are reported in constant 2017/18 dollars. This is the income level required for the proposed rents at Maury River Place, for rents without rent restrictions, and based on affordability of 35 percent of income allocated to gross rent. The market study “must” show demand for renters who can afford the base rents, without any rent restrictions. The lower income range is based on 35 percent of income allocated to base rent, including cold water, sewer and trash collection, at 50% of AMI. The $32,000±, maximum allowable income for gross rent for a three-person household, at 60% of AMI

The rent analysis is studied only for 50% and 60% rents for Rockbridge County. The proposal has four units at 40% rents, but the base 40% rent is the same as the 50% rent.

All residents of Maury River Place currently meet the required rent restrictions and have incomes below $23,000. Few pay the base rent and rely on rental assistance from “RD” to pay full rent. At the current rate, or increased rent, after renovation, most residents will continue to pay rents below market due to disability, family, or other issues that reduce their ability to pay base rent.

Based on input from the on-site manager at Maury River Place, all/most residents will remain at the apartment complex after renovation, as the area apartment market offers few options, and all residents pay below market rent. Current turnover at the property is under five annually. Thus, we evaluate the ability of management to lease units after renovation, if the RD subsidies are removed, but with the understanding that limited (if any) turnover is expected.

The forecast date for the market study is 2020. Renovation of Maury River Place will likely start by late-2018, with residents in place. The renovation of the 40 units may require up to one-year to complete, given the complex’s full occupancy. Any turnover

5 will likely occur prior to 2020. By 2020, the renovation of any new lease-up should be complete.

The second part of Section II is the competitive apartment market. We identified 11 apartment properties for study, including Green Hills (AKA Maury River Place). These are predominately rent-restricted properties. Only one is a market rent complex, but is mature. Two properties under study are age-restricted. These were included in the study, as 25 percent of the current residents at Maury River Place are older adults.

The competitive apartment properties are studied for rents, occupancy, unit mix and features and project amenities. One (senior) property is proposed for renovation under the LIHTC program. Market data from these properties are compared with Maury River Place, as is and after renovation.

The third and final report section is the Conclusions. It includes an evaluation of the renovation proposal, with recommendations for achievable base rents. The demand analysis is presented in the VHDA Demand Chart.

Market Area Definition

The market area defined for Maury River Place is Rockbridge County, including the City of Lexington, the City of Buena Vista and the Town of Glasgow (see Map A). The market area was defined by input from the on-site manager at the Subject, based on prior residences of current and past residents. The market area has apartment properties in the County, and in the two cities in the County – Lexington and Buena Vista, in Glasgow, in the Raphine area on the north end of the County and in the Natural Bridge area of the south side of Rockbridge County. Apartment properties also are located in the County near the City of Lexington.

Map A - Maury River Place Market Area

Maury River Place

Property Description

Maury River Place is a mature garden apartment complex with 40 apartment units. The apartment community was built in 1985, with RD financing, but without rent subsidies. It was converted to rental assistance in mid-2016. Prior to receiving rent subsidies, the apartment community had considerable vacancies, due to low incomes in the area.

The site is located at 45 Willow Springs Road, which is within the northwest quadrant of I-64 on the south and U.S. 11 on the east and in Rockbridge County. The aerial to follow shows the site to be rectangular in shape and located off of Willow Springs Road. Willow Springs Road is accessed by CR 39, west from U.S. Route 11 and north to the property. As shown, The Willow Springs Apartment complex is adjacent to Maury River Place on the north and a best Western Plus Inn abuts the property on the south. The area on the north side of Willow Springs Road is developed with an apartment complex, The Village of Rockbridge; behind this apartment complex is a large undeveloped wooded area.

Aerial View of Maury River Place

At the U.S. 11/I-64 interchange is a cluster of hotels and some retail buildings, including a Waffle House, Country Cookin Restaurant, a medical building with Augusta Health, Family Dentistry and Eye Care. Along U.S. 11 at this location is the Lexington Square Shopping Center, among other retail centers. This 140,000+ square foot center is anchored by Peebles, DaVita Health Clinic, YMCA and a bank. (See Number 1 on Map A).

Map A shows the site location off of Maury River Road and north on Willow Spring Road. Willow Spring Road also is the setting of the Village of Rockbridge Apartments (Number 3) and Willow Spring Apartments (Number 2). An active subdivision, Saddlebrook Ridge, is located along Valley Pike and is being developed with a mix of new housing, both single family and townhome for-sale, and recently built apartment units – Hunt Ridge Apartments (see Number 4).

The site setting is unique in that it is (1) very close to an interstate intersection, where considerable employment exists; (2) along U.S. Route 11, the primary north-south arterial highway in the County; and (3) it is low density suburban setting but close to the City of Lexington and the Virginia Military Institute (VMI) Campus (Number 5).

Map A – Site Location & Setting

The site is 2.94± acres in size and is fully developed with five garden apartment buildings. Three buildings are “stand alone” and two are attached. The apartment buildings are two-story, basic gardens, and standard in design for moderate rent gardens buildings built in the 1980’s. Buildings A, B & C, the stand-alone buildings, have eight units per building, with four units per floor. Buildings D & E, the attached buildings, all have eight units per building. Each stairwell serves eight apartment units.

Following are photos of the apartment buildings at Maury River Place. The buildings are two-story garden walk-ups with one staircase per eight apartment units. The buildings are all brick with pitched roofs and an enclosed entry and stairwell. The building exteriors are well maintained. Surface parking is located in front of the buildings.

Maury River Place (AKA Green Hills)

View into Site Front View

View South to Willow Spring Road

Next shown are the apartment unit interiors. The apartments are modest in size with a small kitchen area, small single bathroom and small hallway from the living area to the bedrooms. A few units have been upgraded over time, and this is due to tenant neglect and/or turnover. Some units have new carpeting and new appliances, as needed. There is some cracking of walls from settling in several apartment units. Overall, the apartment units have very usable floor plans, and while mature, most units remain well maintained.

The next photo shows the first-floor hallway. The hallways are light and have good “curb” appeal.

Site Plan

The site plan is shown next. It shows a driveway into the site with 60 surface parking spaces along the driveway and two apartment buildings on the north end (and entrance to) the apartment site and three buildings at the south end of the site. A play area is located at the end of the driveway/parking lot and consists of a slide and swing. Considerable grass areas surround the apartment buildings. A row of trees separates the apartment buildings from the adjacent Willow Springs Apartments on the north.

Following is a second site aerial that is a better view of the apartment site. The site is small and fully developed and there is little landscaping, but numerous mature trees. The parking lot is in good condition and no holes or asphalt cracks were noted. Curb appeal is quite good for a mature, affordable property.

Apartment Unit Characteristics

The apartment complex has a mix of eight one-bedroom units and 32 two’s. The unit mix, sizes and base rents are shown in Table 1.

Table 1 Apartment Unit Characteristics of Maury River Place, Lexington, Virginia, February, 2018

Unit Unit Base Mix Sizes Rent 1/ One-Bedroom 8 576 $494 Two-Bedroom 32 712 $594 Total 40 Note: 1/ Includes cold water, sewer and trash. Source: Maury River Place Management Office

All units have only one full bath. The apartment units are small, but competitive for rent-restricted apartment properties. The base RD rent shown is the maximum allowable rate, without rental assistance. Rents include cold water, sewer and trash collection.

Apartment Unit Floor Plans. The apartment unit floor plans are shown next. The units are rectangular in shape. The kitchen areas are open and adjacent to a dining/living area. Each unit has one full bathroom, a standard closet in each bedroom and a small mechanical room. The kitchens have a dishwasher and standard appliances. Each apartment unit has three or four windows for an abundance of light and air.

Maintenance Building. An 800+ square foot maintenance building is located at the front of the site, and contains a small on-site office, and maintenance room. The building is a “bland” red brick structure with no front windows and no curb appeal. The door to the building is usually locked if on-site management is not there. The building will be expanded for greater residential use, with one expansion and addition of a community room.

Current Resident Characteristics. The apartment complex is fully occupied and management keeps a small waiting list – one tenant recently left and the apartment unit is being renovated for a new resident. Excluding this recent move-out, of the 40 residents, 11 moved into Maury River Place after mid-2016, at the time that rental assistance became available for all residents. Twenty-nine residents remained in place with rents lowered to the “RD” levels. Turnover has been minimum since that time.

Residents of Maury River Place represent a wide mix of household types. Nine are seniors and 22 have some level of handicap. Most residents are single-person households and there are no children on site. Only one apartment unit is occupied by a couple. The age distribution of current residents is:

Number of Residents (by age) Under 30 6 30 to 39 0 40-49 7 50-59 9 60-69 9 Over 69 9 Total 40

The next chart shows the incomes of residents. Nearly 70 percent have incomes under $15,000. Four have incomes over $20,000, with $23,500± being the highest income. Residents with incomes under $10,000 fall into the $8,000 to $10,000 income range.

Income Distribution

Number of Households

Under $10,000 15 $10,000-$14,999 12 $15,000-$19,999 9 Over $20,000 4 Total 40

Overall, the residents at Maury River Place are mature, many with disabilities and most are single-person households. The majority pay less than $300 in rent, plus the cost of electricity, but get rental assistance to reach base rent. Rent is based on 30 percent of adjusted income, with adjustments made for disabilities, age, prior debt, etc.

Summary. Maury River Place will be shown below, is a very competitive affordable apartment property in the greater Lexington marketplace. The apartment has rent subsidies and a “loyal” tenant base, as 29 residents remained from the period prior to the conversion to RD rents.

Residents are largely mature and/or disabled. They are not likely to move. Most only require a smaller apartment unit, as most are single-person households. The setting

17 includes two other low-rent apartment communities, so this part of the County is a satisfactory location for the type of housing under study.

The renovation plan is presented next. Once completed, Maury River Place will be one of the better market area apartment properties.

Renovation Plan

The renovation proposal includes an approximate $40,000 per unit investment, or a total of $1.7 million cost. The base upgrades include:

 Replacing windows, flooring, cabinets, countertops doors, roofing, appliances, HVAC systems, plumbing lines/plumbing fixtures and light fixtures;  Repairing drywall and painting;  Increasing insulation for the property to be Earthcraft Gold Certified;  Five units will be completely remodeled to be fully handicap accessible;  New paving and landscaping in parking lot

Again, the renovation will be undertaken with residents in place. Some additional upgrades may be added. Foundation repairs will be done. The apartment property does not now attract households with children.

The LIHTC application “proposes” that residents will likely pay the same base rent as they do now, but management will likely increase base rents after renovation, as described below. The rents are based on the following LIHTC income categories that closely coincide with RD rent restrictions.

Number AMI Maximum Gross of Category Income

Units (one person) 4 40% $21,500 16 50% $27,100 20 60% $32,500 40

Current residents do not pay “basic” or “market” rents. All are at lower rent categories. This will also be the case once the proposed renovation is completed, based on market data presented below, and the fact that the RD rent restrictions will still apply. Thus, for the market study, we “solve” for the level of market support that exists for rents, as shown, but acknowledge that the current income levels of residents will remain and all or most residents will have rent subsidies.

Site Setting

Map A shows the site setting of Maury River Place, within Rockbridge County and along the U.S. Route 11 corridor, is suburban and highway oriented. It is the location of an abundance of hotels and some highway commercial. It is a setting that has supported apartment renters for over 40 years.

Four shopping centers are located close-by and along the Route 11 corridor. (1) Lexington Square, as described above; (2) College Square which is located along Route 11, just south of I-64; (3) Peebles Department Store, which is adjacent to College Square; and (4) Stonewall Square, which is on the south side of the City.

Map B- Area Shopping Centers

Stonewall Square Shopping Center

Lexington Crossing Shopping Center

Peebles

 Lexington Square is anchored by Walmart  Stonewall Square has a Food Lion, Ollies Bargain Outlet, Label Shopper and was the location of Kmart – the large big box still available.  College Square has a Peebles, Tractor Supply Co. & DaVita.

The immediate site has some medical office space. The area’s hospital, Carilion Stonewall Jackson Hospital, is in the City, along Spotswood Drive, near the intersection with U.S. Route 60, East Nelson Street.

There is employment nearby and access to the area’s primary commercial areas is good. However, most current residents do not work.

Economic Overview Analysis

This part of Section I presents the Economic Overview of the Rockbridge County marketplace. Data presented in this analysis include both cities that are located within the County and other incorporated and non-incorporated communities in the County. The Economic Overview Analysis will show at-place job growth and employment trends. While these are not directly applicable to the Subject proposal, as few residents at Maury River Place work, they show the level of economic stability that exists in Rockbridge County that supports new investments, of the type planned.

At-Place Employment

As shown in Table 2, the County/market area has just over 13,000 at-place jobs as of year-end 2016 – 2017 data will not be available until Summer, 2018. The current employment total is 1,400± below the peak year of 2007 and 2008, prior to the recession. The County’s at-place job totals, the number of jobs within the County, decreased to 12,900 by 2013. Net job growth started to increase in 2014. For the past three years, at-place jobs have increased, albeit slowly.

Because the Rockbridge County economy is small, there are a lot of non-disclosure (ND) issues in the table. The annual totals are correct, but employment data are not made

available by the Department of Commerce, Bureau of Labor Statistics (BLS), that may show employment data related to a private/single business.

Table 2: Trends in Average At-Place Employment, Rockbridge County-Lexington City-Buena Vista City, Virginia, 2007-2016

Industry 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Agr./ Forestry/ Fishing ND ND ND ND ND ND ND ND ND ND Mining ND ND ND ND ND ND ND ND ND ND Utilities ND ND ND ND ND ND ND ND ND ND Construction ND ND ND ND ND 473 453 443 561 447 Manufacturing ND ND ND ND ND ND 1,872 1,834 1,770 ND Wholesale Trade ND ND ND ND ND ND ND ND ND ND Retail Trade 1,701 1,655 1,560 1,521 1,526 1,563 1,551 1,534 1,532 1,652 Transport. & Warehousing ND ND ND ND ND ND ND ND ND ND Information ND ND ND ND ND ND ND ND ND ND Finance/Insurance 226 229 247 245 240 236 224 210 214 228 Real Estate 127 124 119 106 ND ND ND ND 84 78 Professional/Tech. Services ND ND ND ND ND ND ND ND ND ND Management of Companies ND ND ND ND ND ND ND ND ND ND Admin./Waste Services 361 246 219 224 302 ND ND ND ND ND Educational Services ND ND ND ND ND ND ND ND ND ND Health Care ND ND ND ND ND ND ND ND ND ND Arts/Enter./Recreation ND ND ND ND ND ND ND ND ND ND Accommodations/Food 1,706 ND ND ND ND ND ND ND ND ND Other Services ND ND ND ND 404 433 419 388 421 453 Local Government ND ND ND ND ND ND ND ND ND ND State Government ND ND ND ND ND ND ND ND ND ND Federal Government 107 109 107 114 102 97 92 92 94 97 Total 14,413 14,271 13,582 13,112 13,052 13,079 12,909 12,744 13,002 13,065 Notes: ND = Data do not meet BLS or State agency disclosure standards. Source: United States Department of Labor, Bureau of Labor Statistics

Retail Trade jobs and Manufacturing jobs are two of the largest area job industries. State government jobs should also be “plentiful” with three area colleges. Except for jobs at the area universities, as described below, much of the market area employment is hourly wage jobs.

For 2016, total at-place jobs are broken down by jurisdiction, as follows:

 Rockbridge County – 5,740  Lexington City – 4,850

 Buena Vista – 2,475

Employment

Employment refers to the number of persons in the market area who are employed. At-place jobs refer to actual jobs located in the market area. Table 3 shows employment, which is considerably (3-4x’s) larger than at-place jobs, meaning that a large percentage of Rockbridge County residents commute outside of the County for work, most likely to Roanoke, Lynchburg and Staunton/Waynesboro.

The County has 44,250+ employed residents. This total is a decrease from the peak total of 46,400 in 2008 and prior to the recession. Employment started to “rebound” in 2011. Net growth in employment has been slow since 2011, but the County realized a 600+ net employment growth in 2016.

Table 3: Trends in Employment and Unemployment, Rockbridge County/Buena Vista/Lexington, Virginia, 2007-2016

Labor Force Employment Unemployment Percent Unemployed 2007 47,273 46,010 1,263 2.7% 2008 48,143 46,398 1,745 3.6% 2009 47,633 44,654 2,979 6.3% 2010 45,921 42,667 3,254 7.1% 2011 46,847 43,849 2,998 6.4% 2012 46,421 43,646 2,775 6.0% 2013 46,180 43,702 2,478 5.4% 2014 46,008 43,740 2,268 4.9% 2015 45,601 43,630 1,971 4.3% 2016 45,964 44,256 1,708 3.7% Net Change -1,309 -1,754 445 1.0% Source: United States Department of Labor, Bureau of Labor Statistics

Unemployment

The County’s unemployment is low at 3.7%. It was 2.7 percent in 2007, but rose to 7.1 percent in 2010. The unemployment rate has decreased steadily since 2010.

Economic Development Activity

Following is a brief description of current economic development in the Count, as a prelude to likely future job and employment growth.

 Munters Corporation, a manufacturer of energy recovery systems, dehumidification systems and custom air handling equipment, announced in March, 2017 that it would expand and upgrade its 270,00± square foot manufacturing operation in Buena Vista, continuing an expansion that it began in in 2016. Approximately 100 employees have been added since the announcement was made.

 Kendal at Lexington. Ground was broken in February, 2018 on the expansion phase of this CCRC that will add more independent living cottages and to enhance person-centered care at its skilled care nursing facility. The project will bring 30 additional cottages to Sunrise Ridge. Also, during the next two years, Kendal at Lexington’s Borden Health Center and Webster Assisted Living centered will be renovated to provide a more homelike setting for residents, and to offer a more welcoming environment for residents with cognitive decline.

 Lexington Collaboratory and Makerspace. This small business incubator, located at 18 E Nelson Street in Downtown Lexington, opened in February, 2018. The facility provides equipment, resources and community for hobbyists and entrepreneurs.

 Morrison & Agnor’s, an insurance agency, opened a new location at 29 S Main Street in Downtown Lexington in December, 2017.

 Yellow Brick Road Early Learning Center. This early learning center opened in October, 2017 at 410 Yellow Brick Road in Lexington.

 House Mountain Yarn Company, a small shop focusing on knitting and crochet, opened a store at 117 S Main Street in Lexington in October, 2017.

 Jenny Moon Massage Therapy opened in October, 2017 at 112 21st Street in Buena Vista.

 Cattleman’s Market. This local grocery store opened in September, 2017 at 139 E Midland Trail in Lexington.

 Devils Backbone Brewing Company is currently constructing a 50,000± square foot packaging and shipping/receiving facility, upgrading equipment, including the addition of a barrel aging system. Devils Backbone is also tripling the size of the existing taproom, which currently can serve about 50 people.

 The Rockbridge Area Health Center completed construction in December, 2017 on four new medical exam rooms and dental facilities, which added about 4,500± square feet to the health center’s building at 25 Northridge Lane in Lexington.

These announcements total approximately 160 jobs, plus any construction jobs. They are in addition to job growth at the three area Universities, as described below.

Area Universities

The Lexington area has three colleges that generate considerable economic growth for the market area that may not be fully evident in the economic data presented above. Following is a brief description of the schools and the economic impacts on the community.

 Southern Virginia University is a 21-year-old school located in Buena Vista. It has approximately 930 students, which represents a 40 percent growth (350± students) since 2013. It is defined as a residential college, but one that continues to expand.

 Virginia Military Institute (VMI) has 2,200+ students as of Fall, 2017, up from 1,300 in 2000. There are 550 employees at the campus that is being upgraded based on a new master plan, with a $40+ million goal for new on-campus facilities. Some of the large on-campus development projects include:

o Expansion of Crozet Hall o Upgrades to Cameron Hall o Fixing problems with Clark King Pool o Renovations to Old and New Barracks

 Washington & Lee University has approximately 2,100 students, but enrollment there has declined slightly since 2014. There are several renovation projects on campus, including:

o the restoration and expansion of the campus’s recreation center

Summary

Rockbridge County has been a slow growth marketplace in recent years, but the economy has expanded since the past recession of the late-2000’s. The community has three colleges that generate positive local economic impacts. Overall, the market area is “stable” and is expected to continue to expand.

A key point in the economic data presented above is that employment in Rockbridge County is large and expanding. Employment is a better indication than housing unit demand as it refers to where people live.

Section II Affordable Apartment Analysis

Section II is presented in two parts. It is the supply-demand analysis for the Subject proposal. The first part of Section II is the demographic analysis which solves for the number and growth of renter households who are eligible and can afford market rate rents for the market area, with the non-rent restricted RD rents nearly equal to the LIHTC allowable rents. Income and rent data are presented in constant 2017/18 dollars and the income categories under study are presented below.

The second part of the analysis is the competitive apartment market study. We identified 11 apartment properties to study. Most of these have rent restrictions; three are age-restricted. All multifamily apartment communities in the market area are included in the competitive analysis, except properties with 100 percent project-based Section 8 rents. These properties are compared with Maury River Place, “as is” and as renovated for both rents and occupancy.

Demographic Analysis

Population Trends and Projections

The current County population, as of 2017, and based on recent population estimates by Weldon Cooper Center for Public Services, is 36,300. The County’s population (including both independent cities) was approximately 32,000 in 1990. It increased to 34,000 in 2000 and 36,000 in 2010. The current estimate shows a slower growth, partly due to the large negative impact of the recession of the late-2000’s. The population growth forecast to 2020 is also modest.

Market area population is divided by the three jurisdictions in the market area. The County has a larger population compared with the two local cities. Rockbridge County and Lexington are realizing some modest growth. The population in the City of Buena Vista is stable or declining slightly.

There is very little new housing development in the market area. Saddlebrook Ridge is an active community, but with a limited number of new homes being built at this time. A second small single-family community is being developed near Carilion Hospital, but only a few homes are being added at this time. There are no active apartment developments at this time. Thus, population growth is expected to be modest.

Group Quarters Population

The market area does have a sizable Group Quarters population. Much of the Group Quarters population are college students in on-campus dormitories. As noted above, the market area has three area colleges. The Group Quarters population has increased with new dorm beds added at VMI and Washington & Lee, in particular.

Table 4: Trends and Projections of Population and Households by Tenure and Income, Rockbridge County Market Area, 1990-2020 (Constant 2017/18 Dollars) 1990 2000 2010 2017 2020 Market Area Population 31,720 34,020 36,000 36,300 36,590 Rockbridge County 18,350 20,810 22,310 22,600 22,770 Lexington City 6,960 6,870 7,040 7,280 7,420 Buena Vista City 6,410 6,350 6,650 6,420 6,400 Group Quarters Population 2,770 2,760 3,140 3,530 1/ 3,540 Household Population 28,950 31,260 32,860 32,770 33,050 Persons Per Household 2.46 2.36 2.28 2.27 2.26 Households 11,780 13,270 14,400 14,440 14,620 Renter Households 3,460 3,650 4,340 4,640 4,850 Percent of Households 29.3% 27.5% 30.2% 32.1% 33.2%

Target Market 50% of AMI ($20,000-$31,000) Total Households 300 370 520 600 670 Percent of Renter Households 8.7% 10.1% 11.9% 12.9% 13.8%

60% of AMI ($25,000-$32,700) Total Households 350 400 450 540 570 Percent of Renter Households 10.1% 11.0% 10.4% 11.3% 11.8% Notes: 1/ Between 2010 and 2017, on-campus residence hall occupancy rose by 280± at Washington and Lee University, rose by 140± at Virginia Military Institute and fell by 30± at Southern Virginia University. Source: 1990, 2000 and 2010 U.S. Department of Commerce, Bureau of the Census; Weldon Cooper Center for Public Service; S. Patz and Associates, Inc.

Household Population

The Group Quarters population is subtracted from total population to determine Household Population. Household Population is growing at a slightly slower pace compared with total population, as noted. Household Population is the determining factor for housing unit demand. Data shown in Table 4 show a projected net growth of households of 240 over the 2017 to 2020 period.

Renter Households

Approximately one-third of market area households are renters. The 32± percent shown in Table 4 is slightly below the national and state averages. The percentage of renters is increasing. A net growth of 210 renters are projected by 2020.

Renter Households by Income

We separated renter households by two-income categories that relate to the proposed rents for the Subject proposal. The 50% of AMI income range is from $20,000± to $31,000±. The income category exceeds $32,000 for a two-person household, at 60 percent of AMI rents. All residents at Maury River Place are at lower incomes than those shown in Table 4. However, once renovated, and without rent subsidies, Maury River Place will market to renters with incomes between $20,000 and $32,700. These households can afford gross rents of $580+. That is the market rate rent for the market area. The maximum allowable gross rent at 60% of AMI is $808.

Thus, we studied the potential market for a non-rent-restricted, renovated apartment property. This analysis shows that the market area has 600 renters with incomes of $20,000 to $31,000 and that this total is expected to increase by 70 by 2020. For 60 percent rents, the market area has 540 renters in that rent category and an expected growth of 30 renters by 2020.

In total, there are 800± renter households within the $20,000 to $32,700 income range and the net growth for these renters is 70 over the 2018 to 2020 period.

The fact that Green Hills had vacancies prior to the RD rent subsidies is evident in these data that show a modest market for non-subsidized rents. The competitive apartment market to follow will show that only a small number of apartment unit renters have incomes within the target category shown in Table 4.

Renter Household Size

In 2010, Census data showed that over 40 percent of renter households are single person. That is a “big jump” from the 27+percent in 2000.

Table 5: Trends in Renter Household Size, Rockbridge County Market Area, 2000-2010

2000 2010 # % # % Renter Households 3,650 100.0% 4,342 100.0% 1-person household 1,432 27.6% 1,790 41.2% 2-person household 1,007 15.9% 1,183 27.2% 3-person household 581 10.5% 630 14.5% 4-person household 385 4.8% 430 9.9% 5-person household 177 1.3% 195 4.5% 6-person household 49 0.5% 73 1.7% 7-or-more-person household 19 39.2% 41 0.9%

Source: 2000 and 2010 U.S. Department of Commerce, Bureau of the Census

Competitive Apartment Analysis

We identified 11 apartment properties in the market area. All but one is rent subsidized with RD and/or LIHTC rents. Willow Springs, located adjacent to Maury River Place, is the only area apartment property without rent subsidies, but 14 of the 96 units there are project-based Section 8. Three of the 11 apartment properties are age- restricted. These were included in the analysis, as Maury River Place has a considerable

31 number of seniors. All of these apartment properties, except Willow Springs, would attract the same type of tenants as rent at Maury River Place.

Table 6 Rent Program of Competitive Apartment Complexes, Rockbridge County Market Area, March, 2018

LIHTC/RD Senior Green Hills Yes No Willow Springs 1/ No No Treemont Hills Yes No Village of Rockbridge Yes No Hunt Ridge Apartments Yes No Lexington House Yes No Windermere Apartments Yes Yes Lakeside Manor Yes No Hillcrest Manor Yes No Vista Apartments Yes Yes Skyline Manor Yes Yes Note: 1/ 14 subsidized/Section 8 units Source: Field and Telephone Survey by SPA

Apartment Community Characteristics

Table 7 lists the competitive apartment properties and shows date built, total units and vacant units. Hunt Ridge Apartments, located near Maury River Place, is the newest area apartment property, being built in 2006. It has 70 apartment units and was financed under VHDA. It has rents at 60% of AMI and is the highest rent apartment property in the market area. Forty percent of the residents at Hunt Ridge have Section 8 vouchers.

Windermere Apartments, located within the City, was built in 1994. It is a rent- restricted and age-restricted property with all one-bedroom units. Skyline Manor, in Glasgow, was built in 1996 with 32 units. It too is age-restricted.

All of the other nine area apartment properties were built between 1973 and 1987 and are thus 30+ years old. Of these, only Willow Springs has some market rent apartment units. There is not much diversity in these properties. Most are small or modest sized without project amenities. Hunt Ridge is the only “better” area apartment complex, but it has a large percentage of apartment units occupied by tenants with Section 8 vouchers.

Table 7 Characteristics of Competitive Apartment Complexes, Rockbridge County Market Area, March, 2018

Map C Date Total Vacant Key Built Units Units Green Hills 1/ 1 1985 40 0 2/ Willow Springs 2 1973 96 12 3/ Treemont Hills 3 5/ 1982/11 60 0 5/ Village of Rockbridge 4 1978/16 64 2 4/ Hunt Ridge Apartments 5 2006 70 0 Lexington House 5/ 6 1977 78 0 Windermere Apartments 7 1994 94 0 Lakeside Manor 8 1980’s 23 0 Hillcrest Manor 9 1987 40 0 Vista Apartments 10 1979 66 0 Skyline Manor 5/ 11 1996 32 0 Total 6/ 663 14 Notes: 1/ To be renamed Maury River Place 2/ One recent move-out, with unit now leased. 3/ Units off-line due to rehab 4/ Two vacant units are HC 5/ Section 8/RD 6/ Excludes Mountain Terrace Apartments – no contact available for Section 8 Apartments Source: Field and Telephone Survey by SPA

Map C shows the apartment locations in the City and nearby. Three “comps” plus Maury River Place are located along Maury River Road, just north of I-64. Two properties are in the center of Town. Two apartments – Hillcrest Manor and Vista Apartments are in the City of Buena Vista. Skyline Manor is in Glasgow and Lakeside Manor is located at the far north part of Rockbridge County in Raphine.

Map C – Location of Competitive Apartment Properties

Following are photos of these properties:

 Hunt Ridge has a modern design, but with only two stories. The site has room for expansion. This is the best area apartment property.

 Treemont Hills was fully renovated in 2011/12. The exteriors are new and all interiors were renovated, to the same degree as planned for Maury River Place.

 Village of Rockbridge, Willow Springs Hillcrest Manor & Lakeside Manor are two-story gardens with 1970’s designs. These are all comparable with Maury River Place.

 Vista Apartments is a three-story elevator building that was built in 1979. It has a more contemporary design compared with some of the older buildings.  Windermere has a unique design in the market area, with exterior corridors. It has all one-bedroom units for seniors.

 Skyline Manor, located in Glasgow, is a converted school building for seniors. It is under study for LIHTC rehab, as part of the 2018 “9%” competitive “round”.

Willow Springs

Treemont Hills

Village at Rockbridge

Hunt Ridge

Lexington House

Windermere Apartments

Lakeside Manor – Raphine, VA

Hillcrest Manor

Vista Apartments

Skyline Manor (senior)

Market Area Vacancy Rate

The current apartment market vacancy rate is 2.1 percent. Willow Springs has 12 vacant units, but most of these are now under renovation and not yet ready for occupancy. Management reports that most of the prospective tenants for these units will be at lower incomes and will require rent subsidies.

Village of Rockbridge has two vacant units. These are HC units and management needs to find two renters with disabilities, as these units cannot be rented to persons without disabilities.

The remaining apartment complexes are full and most have small waiting lists.

Net Rent Analyses

The following chart shows the basic net rents for six of the comps. These rents include cold water, sewer and trash collection. These are the base rents without rent subsidies. These rates are being paid for some residents at:

 Hunt Ridge  Willow Springs  Hillcrest

Only 130± residents, of the 660± apartment units (20%), pay these rents. The other apartment units have considerable rent subsidy.

These base rents are somewhat higher than the current rates at Maury River Place. However, Hunt Ridge is a newer property. Village of Rockbridge and Treemont have been extensively renovated. Hillcrest Manor and Lakeside Manor are more comparable to Maury River Place, currently.

This comparison supports the ability of Maury River Place to generate higher rents, at the market area average, after renovation.

Basic Net Rents 1/

One-BR Two-BR Three-BR Hunt Ridge Apartments $656 $650 -- Willow Springs $560 $590 -- Village of Rockbridge -- $525 -- Lakeside Manor $621 $717 -- Hillcrest Manor $506 $595 -- Skyline Manor $563 -- -- Treemont Hills -- $583 $674 Vistas $604 -- -- Windermere $553 -- -- (Average) ($580) ($610) ($675)

Maury River Place $494 $549 -- Note: 1/ Includes cold water, sewer and trash Source: Field and Telephone Survey by SPA

Apartment Unit Sizes and Mix

Management at most apartment properties did not provide data on unit mix. The following represents data that were available.

Apartment Unit Mix

One- Two- Three- BR BR BR Total Hunt Ridge Apartments 8 42 20 70 Lexington House 78 -- -- 78 Willow Springs 24 56 16 96 Vista 66 0 -- 66 Hillcrest Manor 20 20 0 40 Skyline Manor 32 0 0 32 Windermere 38 0 0 38 Total 188 118 36 342 Percent of Total 55% 35% 10% 100%

Source: Field and Telephone Survey by SPA

The high percentage of one’s at competitive apartment properties is due to three of these comps being senior properties with all one-bedrooms. There are few three-

40 bedroom units in the market area. The unit mix at Maury River Place is “at market” for general occupancy apartments.

Unit sizes for the properties where data are available are:

Apartment Unit Sizes

One- Two- Bedroom Bedroom Windermere 550 -- Hillcrest Manor 650 725 Vista 750 -- Lexington House 570 -- Skyline Manor 650 -- Source: Field and Telephone Survey by SPA

Section III Conclusions

The Rockbridge County marketplace is unique. It has almost all rent subsidized apartment properties. The one apartment without rent subsidies, has vacancy issues. The other apartment properties are essentially at full occupancy and with small waiting lists. There are no new additions to the market and no planned additions at this time.

Maury River Place is fully occupied. Given the RD rent subsidies available, and the nearly full apartment unit occupancy in the market area, management expects all residents to remain in place during and after renovation.

The one issue that needs to be determined in this study is the ability to increase base rents. The analysis presented above show that, after renovation, a higher base rent at Maury River Place would be achievable, comparable to base rents at the nearby recently renovated, Village at Rockbridge (a Section 8 community). These rents are $580 for a one- bedroom and $610 for a two-bedroom.

Demand Table

The demand table is presented next. It shows the growth demand for both rent categories under study. The “rent overburdened” households represent renters on the waiting list at area apartment complexes. There is likely to be a large number of renters in substandard housing, but this is hard to calculate. Elderly that convert to renters are included in our projections of target market. All residents are expected to remain at Maury River Place. The total net demand is 130. There are no vacant units or planned/pipeline units.

Demand Table (2017-2020)

Income Restrictions Up to 40% Up to 60% Combined & 50% Total

New Rental Households 70 30 70 PLUS Existing Households - Over- Burdened 20 0 20 PLUS Existing Households- Substandard Housing 0 0 0 PLUS Elderly Households- Likely to Convert to Rental Housing 0 0 0 PLUS Existing Qualifying Tenants – to Remain After Renovation 40 -- 40

Total Demand 130 30 130 MINUS Supply (includes directly comparable vacant units completed or in pipeline in PMA 0 0 0 EQUALS NET DEMAND 130 30 130

ABSORPTION PERIOD 1/ (see write-up above) 0 -- 0

The expected absorption period is zero, as all units will be rented prior to the completed renovation.

The “capture rate” is zero as no units are expected to be available for rent.

VHDA Capture Rate Number Project Wide Capture Rate - LIHTC Units 0

Project Wide Capture Rate - Market Units (80% units) --

Project Wide Capture Rate - All Units 0

Project Wide Absorption Period (in months) 0 1/

Note: 1/ Units expected to retain all resident or prelease new residents.

I affirm the following:

1. I have made a physical inspection of the site and market area.

2. The appropriate information has been used in the comprehensive evaluation of the need and demand for the proposed rental units.

3. To the best of my knowledge, the market can support the demand shown in this study. I understand that any misrepresentation in this statement may result in the denial of participation in the Low Income Housing Tax Credit Program in Virginia as administered by the Virginia Housing Development Authority.

4. Neither I nor anyone at my firm has any interest in the proposed development or relationship with the ownership entity.

5. Neither I nor anyone at my firm nor anyone acting on behalf of my firm in connection with the preparation of this report has communicated to others that my firm is representing VHDA or in any way acting for, at the request of, or on behalf of VHDA.

6. Compensation for my services is not contingent upon this development receiving a LIHTC reservation or allocation.

February 28, 2018 ______Market Analyst Date