Confidential Offering Memorandum

615 Holiday Dr. & 402 Church St. Galveston, TX 77550 88 units 1971 construction 758 avg sf offer process & contacts

EXCLUSIVE REPRESENTATION FINANCING Newmark Knight Frank has been exclusively retained to represent the Seller in For parties interested in receiving debt quotes, please contact our Debt & the disposition of Palm Shore (“Property”). All inquiries about the Offering or Structured Finance team, Adam Allen, Tip Strickland, David Schwarz or Purvesh the Property should be directed to Newmark Knight Frank. Gosalia. Newmark Knight Frank facilitates agency, life company, bank, bridge, and mezzanine financing options for the acquisition of Palm Shore OFFERING PROCESS • All properties are being offered on an “All Cash” basis UNDERWRITING • Prospective purchasers will have the opportunity to visit the Property For questions regarding the underwriting presented in this offering memorandum through scheduled tours with Newmark Knight Frank. Please do not contact please contact John Young at 713.300.7957 or [email protected]. the on-site management directly. PROPERTY TOURS OFFER REQUIREMENTS To accommodate the Property’s ongoing operations, Newmark Knight Frank Offers should be presented in the form of a non-binding Letter of Intent, and must requests 24-hour advance notice to schedule a tour. include at least: NEWMARK KNIGHT FRANK - HOUSTON 1. Asset Pricing 1700 Post Oak Blvd, 2 BLVD Place, Suite 400 2. Due Diligence and Closing Timeframe Houston, TX 77056 3. Earnest Money Deposit T 713-599-1800 4. Description of Debt/Equity Structure F 713-599-1801 5. Qualifications to Close

Purchase terms shall require cash to be paid at closing. Offers should be delivered to the attention of Brett Benton via fax or email.

investment sales Brett Benton Russell Jones Matt Saunders Zach Springer Carter Mizell [email protected] [email protected] [email protected] [email protected] [email protected] T 713-337-5800 T 713-425-5422 T 713-554-1303 T 713-425-5428 T 713-554-0133 M 210-860-5515 M 832-541-1499 M 281-300-1468 M 713-897-9670 M 832-457-7843 debt & structured finance Adam Allen Tip Strickland David Schwarz Purvesh Gosalia [email protected] [email protected] [email protected] [email protected] T 713-425-5433 T 713-337-5810 T 713-337-5811 T 713-300-7954 2 M 713-824-6066 M 832-724-4288 M 713-412-9055 M 313-570-5221 EXECUTIVE SUMMARY 4

PROPERTY SUMMARY...... 5 INVESTMENT HIGHLIGHTS...... 6 PROXIMITY TO MAJOR EMPLOYERS...... 11 AREA ENTERTAINMENT...... 17 EDUCATION...... 19 PROPERTY DETAIL 20

PROPERTY DETAILS...... 22 TABLE OF CONTENTS COMMUNITY AMENITIES & FEATURES...... 26 FLOOR PLANS...... 28 FINANCIAL ANALYSIS 30

PROFORMA...... 31 UNDERWRITING ASSUMPTIONS...... 32 MARKET OVERVIEW 34

RENT COMPARABLES SUMMARY...... 35 APPENDIX 36

NEWS ARTICLE...... 37 BROKERAGE RELATIONSHIPS...... 38 DISCLAIMER...... 39

3 executive summary

GALVESTON BAY

a&m 3 university

2 GALVESTON CHANNEL

1 utmb GALVESTON

4th street

ferry road emerald by the sea condominiums

seawall blvd sandpiper 4 stewart beach rv resort

# POINT OF INTEREST DISTANCE TO PALM SHORE EMPLOYMENT STUDENTS 1 UTMB Galveston 850 Feet 13,000 3,169 2 Port of Galveston 1.25 Miles 14,000 N/A 4 3 Texas A&M University 2.5 Miles 350 2,324 4 Stewart Beach 1,000 Feet N/A N/A property summary 615 Holiday Drive ADDRESS 402 Church Street Galveston, TX 77550 located in the heart of galveston TERMS All Cash walkable to utmb galveston and SUBMARKET Galveston/Dickenson stewart beach NUMBER OF UNITS 88

proven value-add opportunity with YEAR COMPLETED 1971

ample upside in rents AVERAGE UNIT SIZE 788 SF

rentable square feet 69,342 SF ancillary income upside MARKET RENT PER UNIT $988 significant capex invested by current MARKET RENT PER SF $1.25 owner OCCUPANCY 93% (07/19)

strong submarket fundamentals ACREAGE & DENSITY 1.21 Acres | 72.60 Units/Acre galveston INDEPENDENT School of choice district SCHOOL DISTRICT 5 Investment Highlights

Located in the Heart of

Galveston Walkable to texas a&m 3 PELICAN ISLAND UTMB Galveston and university Stewart Beach 2 PORT OF GALVESTON GALVESTON CHANNEL • Palm Shore benefits from an excellent location in the heart of Galveston walkable to major employers and 1 utmb GALVESTON neighborhood amenities including UTMB’s Galveston Campus and Stewart 4th street Beach

◊ UTMB Galveston (850 ft): Public ferry road emerald by the sea hospital and medical school that is condominiums one of Galveston’s largest employers seawall blvd sandpiper with a staff of 13,000 people and 3,169 4 stewart beach rv resort students # POINT OF INTEREST DISTANCE TO PALM SHORE EMPLOYMENT STUDENTS 1 UTMB Galveston 850 Feet 13,000 3,169 ◊ Stewart Beach (1,000 ft): Galveston’s 2 Port of Galveston 1.25 Miles 14,000 N/A premier family beach park with plenty 3 Texas A&M University 2.5 Miles 350 2,324 4 Stewart Beach 1,000 Feet N/A N/A of amenities including lifeguards, chair/umbrella rentals, beach volleyball courts and more ◊ Port of Galveston (1.25 miles): The 5th busiest cruise port in the nation which employs approximately 14,000 people ◊ Texas A&M Galveston (2.5 miles): A 135-acre campus specializing in maritime studies with a faculty of 350+ people and student body of 2,324

6 Investment Highlights

Proven Value-Add Opportunity with Ample Upside in Rents • The current owner has partially renovated 34 units with new appliances (27 white and 7 stainless Partially Renovated - 615 Holiday Partially Renovated - 402 Church steel), laminate countertops, updated lighting/ fixtures, faux-wood flooring, and the installation of ceiling fans • Renovated units are leasing for premiums up to $150 per month over non-renovated units depending on the individual floorplan and if it includes stainless steel appliances or not • A new owner will have the ability to renovate all 88 units with high-end countertops and appliances, a tile backsplash, modern lighting and fixtures, and continue to install faux-wood flooring

Subject Rent Comparables

Residence at West Property Name Palm Shore Chateau Lafitte Ebbtide Seaside Village Oceanfront Lofts Beach

YEAR BUILT 1971 1970 1977 1963 1972 1986 EFF. RENT/UNIT $988 $1,146 $1,215 $1,236 $1,301 $1,251 EFF. RENT DELTA $158 $227 $248 $316 $263

FLOORING FAUX WOOD/TILE FAUX WOOD/TILE FAUX WOOD FAUX WOOD/TILE FAUX WOOD FAUX WOOD APPLIANCES WHITE WHITE STAINLESS STEEL WHITE WHITE STAINLESS STEEL COUNTERTOPS LAMINATE LAMINATE GRANITE LAMINATE LAMINATE GRANITE CLASSIC STYLE REFINISHED FRONTS CABINETS (HARDWARE) NEW FRONTS (YES) NEW FRONTS (YES) CLASSIC STYLE (YES) NEW FRONTS (NO) (YES) (NO) FIXTURES BRUSHED NICKEL CLASSIC BRUSHED NICKEL CLASSIC BRUSHED NICKEL BRUSHED NICKEL LIGHTS YES NO YES NO NO YES TILE BACK SPLASH NO NO YES NO NO NO 7 Investment Highlights Ancillary Income Upside • Under the current management structure most utilities are provided by the community and included in market rent • A new owner has the ability to charge residents for utilities currently included in rent and increase RUBS income by over $75,000 annually* • A new owner also has the ability to implement valet trash service and charge residents $25-30/month 615 HOLIDAY DRIVE 402 CHURCH STREET

Water/Sewer Flat Fee of $40-$55/month Provided by the Property

Electricity Provided by the Property Sub-metered

Gas Provided by the Property Provided by the Property

Trash Provided by the Property Provided by the Property

*assumes a flat fee of $75/month and 95% occupancy Significant Capex Invested by Current Owner • Current ownership has invested approximately $465k of capex into the property – the majority of which was spent on exterior and deferred maintenance items inherited from the previous owner • Major items include: ◊ Exterior/Mansard Siding Repairs ($85k) ◊ Roof Repairs/Replacements ($85k) ◊ New Perimeter Fencing ($24k) ◊ Parking Lot Resurfacing ($16k) ◊ Plumbing ($13k) 8 Investment Highlights Strong Submarket Fundamentals Dickinson/Galveston Current Submarket Stats*

Galveston/Dickinson Submarket Class A Class B Class C Size (sf) 808 830 876 Price ($/mo) $1,210 $962 $791 Rental Rate ($/sf/mo) $1.50 $1.16 $0.90 Occupancy 91.6% 90.8% 95.1%

Occupancy & Rent Growth Trends*

Occupancy Rent Growth T3 8.1% 8.3% T6 7.9% 4.6% T12 1.8% 1.8%

* Source: ADS Historical Occupancy & Effective Rents Historical Occupancy and Effective Rents Dickinson/Galveston (Dickinson/Galveston Submarket) 930 92.5%

920 92.0% Effective Rent Growth Projections 910 91.5% 2020 900 91.0% 3.6% 890 90.5%

880 90.0% 2021 3.0% 870 89.5%

860 89.0% 2022 850 88.5% 3.6%

840 88.0% 06/2017 09/2017 12/2017 03/2018 06/2018 09/2018 12/2018 03/2019 * No new supply is forecasted through 2021 Price ($/mo) Occupancy (%) 9 Investment Highlights

Favorable Galveston County Tax Basis

• The Galveston County Appraisal Average Year One Assessed Value % of Sales Price District has historically been Brazoria Fort Bend Galveston Harris Montgomery far less aggressive than Harris County in terms of reassessment following the sale 80% of multifamily properties 79% 78%

• According to NKF’s Houston 71% 70% 69% 70% 70% 67% 68% MSA tax study, Galveston 67% 66%

County reassessments following 59% 57% 57% 55% a sale averaged 55% of the 53% 53% 52% purchase price - the lowest 48% reassessment rate of any county 2014 2015 2016 2017 in the Houston MSA. Sale Year

10 Close proximity to Galveston’s Major employers

TEXAS PORT OF A&M GALVESTON

2.75 Miles

UTMB GALVESTON 1.25 Miles

University of Texas Medical Branch (0.35 miles NW) • Opened in 1891 as the nation’s first public medical school and 0.35 Miles hospital • $3.3 billion annual statewide economic impact, in terms of business volume, personal income and durable goods purchases • More than 42,000 jobs in Texas are directly or indirectly attributed to UTMB • Currently one of Galveston’s largest employers with a staff of over 13,000 employees and 3,169 students • UTMB includes schools of Medicine, Nursing, Health Professions and Graduate Biomedical Sciences; three institutes for advanced study; a major medical library; a network of hospitals and clinics that provide a full range of primary and specialized medical care; and numerous research facilities. • UTMB is a part of The University of Texas System and a member of the Texas Medical Center. 11 Close proximity to Galveston’s Major employers

American National Insurance Company (1.0 miles W) • Headquartered in Galveston, Texas, is the city’s second largest employer Texas A&M University at Galveston (2.75 miles NW) • Consists of more than 1,600 employees throughout the • A 135-acre campus established in 1962 Galveston area • Student body of 2,324 • American National offers a broad variety of life insurance, • Faculty/staff of over 350 employees retirement annuities, accident and health insurance, pension • The University is an ocean-oriented branch of Texas A&M and plan products and services, credit insurance, and property/ offers undergraduate and graduate degrees in various maritime casualty insurance for personal lines, agribusiness and studies targeted commercial exposures 12 Close proximity to Galveston’s Major employers The Port of Galveston 1.25 Miles from Palm Shore

the port of galveston: »» The Port of Galveston consists of the Galveston Ship Channel, the south side of Pelican Island, the north side of and the entrance to Galveston Bay. The Galveston Channel has an authorized minimum 5th Busiest depth of 45 feet and is 1,200 feet wide at its narrowest point Cruise Port in the U.S. »» In 2017, three Carnival ships and two Royal Caribbean ships call the port home year-round. In 2018, over 980,000 cruise passengers departed from the port, a 6.5 percent increase over 2017. 1,966,176 Cruise Passengers »» Terminal 2 was expanded in 2016 to accommodate Royal Caribbean - The $2.3 Billion Impact new 150,000 square feet facility can accommodate up to 5,000 passengers »» In April 2016, a new vehicle distribution center for BMW Group was 4.1 Million Short Tons opened at the port - The new 20 acre site has the capacity to import 32,500 cars per year, an inventory worth more than $1.3 billion 13,892 Jobs 13

2,000 companies Close proximity to Galveston’s Major employers

Marathon Petroleum Company

Galveston Bay Refinery (8.7 miles NW) Texas City Refinery (8.5 miles NW) • Began operations in 1934 and was purchased by Marathon • Built in 1931 and purchased by Marathon Petroleum in 1962 Petroleum in 2013 • Employs 290 workers • Employs 1,750 workers and is the largest employer in Texas City • The refinery has a refining capacity of 86,000 barrels per day • The refinery has a refining capacity of 459,000 barrels per day • Produces gasoline, chemical-grade propylene, propane, • Its Cogeneration Facility currently has 1,055 megawatts of aromatics, dry gas and slurry electrical production capacity and can produce 4.3 million pounds of steam per hour • Produces gasoline, distillates, aromatics, heavy fuel oil, refinery-grade propylene, fuel-grade coke, dry gas and sulfur 14 aerial

1

UNIVERSITY OF TEXAS

MEDICAL BRANCH

emerald by the sea condominiums

seawall blvd

stewart beach

sandpiper rv resort

15 aerial

stewart beach

emerald by the sea condominiums

seawall blvd

5th street

4th street

16

area entertainment Virginia Pt Rd Pt Virginia GALVESTON ISLAND

Dr Tiki 23 8

Channelview Dr Channelview Pruitt Rd Pruitt

Lewis Ln Lewis

77th St 77th Texas A&M 93rd St 93rd

Bayside St Bayside Blvd Gti 91st St 91st

Sportsman Rd St 89th

Teichman Rd Teichman 71st St 71st

W Breadner Loop Breadner W

25

Halliburton Rd Halliburton

Pelican I Pelican

45 Rd Coastwide

Travel Air Rd Air Travel

60th St 60th Bay Meadows Dr Meadows Bay

54th St 54th 64th St 64th

53rd St 53rd 63rd Rear St Rear 63rd 51 51

St 62nd 27 103rd St 103rd

29 St 50th

57th St 57th

56th St 56th

46th St 46th 8 Mile Rd Mile 8

55th St 55th Harris Rear Way Rear Harris

99th St 99th

Syndor Ln Syndor 52nd St 52nd

1 St 73rd

43rd St 43rd Back Bay Dr Bay Back

Pine St Pine

Bayou Homes Dr Homes Bayou

Ln Driftwood 41st St 41st

69th St 69th 6

Marine St Marine 40th St 40th 65th St 65th Maple Bayou Shore Dr Shore Bayou

Victory Ave Victory

Ln

39th St 39th 33rd St 33rd

38th St 38th 14

35th St 35th 28 168

Willow

36th St 36th 2 St 34th

Holiday Dr Holiday

Hope Blvd Hope

Ln 30th St 30th

44th St 44th 15 7 12 29th St 29th

22 1/2 P Avenue St 28th 13

27th St 27th 72nd St 72nd

71st St 71st Wimcrest St Wimcrest

26th St 26th 5 67th St 67th

Hollywood Ave Hollywood

61 61

24th St 24th 42nd St 42nd 62nd St 62nd

17 St 63rd

6th St 6th

23rd St 23rd

Broome Rd Broome Strand St

59th St 59th

22nd St 22nd

Barracuda Dr Barracuda 20 St 20th

19th St 19th Tuna Ave

8 St 18th Mechanic St

17th St 17th 10 49th St 49th

5 5 Mackerat St 16th St 16th

St 48th St 47th

9 16 St 15th

St 4th

13th St 13th

Terminal Dr Oleander Ave St 12th UTMB

San Fernando Dr Fernando San Campeche Dr Campeche Oak St Oak

San Marino Dr Marino San 11th St 11th

3 3 10th St 10th

5th St 5th

1st St 1st

30 St 9th

Fairway Dr Blvd Marys St

Range Rd Range Cessna Dr 81 81

32nd St 32nd 7th St 7th Pine St Pine

Golf Crest Dr St 6th 31st St 31st 18

Avenue D Apffel Park Rd

8 Mile Rd Mile 8 Avenue E

7 1/2 Mile Rd Mile 1/2 7 Cove View Blvd View Cove Terminal Dr

St 83rd 6 Church Rear St

Dominique St Dominique 7 Mile Rd Mile 7

77th St 77th

75th St 75th Kleinman Ave Kleinman 5 5 Winnie St

Central City Blvd 1 Sealy AveAvenue H 1 1

89th St 89th W Beach Dr 19 87th St 87th

85th St 85th Avenue M 1/2 Avenue K Sherman Blvd Denver Dr Avenue N Avenue L Avenue T 1/2 Avenue N 1/2 Avenue M 24 10 Avenue S 1/2 Avenue R 1/2 Avenue Q 1/2 Bernando De Galvez Ave Avenue O Avenue U Avenue T 4 Avenue S Avenue R Avenue Q Avenue O 1/2 21

3

ATTRACTIONS & SIGHTS MUSEUMS, LIBRARIES & THEATER PARKS & BEACHES BOATING VISITOR INFORMATION 1 12 Ocean Star Drilling Rig Museum 19 East Beach 26 Texas Cruise Ship Terminal 30 Visitors Information Center 2 Schlitterbahn Waterpark 13 Pier 21 Theater 20 East End Lagoon Nature Preserve 27 Galveston Island Ferry 3 Historic Pleasure Pier 14 Texas Seaport Museum & 1877 Tall 21 Stewart Beach 28 Harbor Tours 4 Galveston Island Convention Center Ship 22 Moody Gardens Public Golf Course 29 The COLONEL Paddlewheeler at the San Luis Resort 15 Museum 23 Galveston Island State Park 5 Historic Downtown Strand Seaport 16 & Museum 24 Beach Pocket Park 1 6 1892 Bishop’s Palace 17 Lone Star Flight Museum 25 7 Haunted Mayfield Manor 18 Moody Medical Library 8 The 9 1895 Moody Mansion 10 University of Texas Medical Branch

17 area entertainment Adventure Pointe Theme Park Moody Gardens

Adventure Pointe Theme Park (coming soon) • A 25-acre family-friendly theme park currently under construction • Attractions will include go-karts, miniature railroad, outdoor ice skating rink, pirate ride, boardwalk, and an outdoor entertainment venue with capacity for 1,200 people Moody Gardens • An educational tourist complex featuring three pyramid attractions, golf course, white sand beach, and water park • The three main pyramids include the aquarium, rainforest, and Pleasure Pier Schlitterbahn Galveston Island discovery • The complex employs more than 1,200 workers Pleasure Pier • A historic amusement park built atop a 1,130-foot pier • Attractions include 15 rides, restaurants, and shops Schlitterbahn Galveston Island • A three section Water amusement park located in Galveston • Attractions include 22 rides and attractions and 21 dining options • Features a heated indoor park open year-round Strand Historic District Texas City Dike • A National Historic District located in downtown Galveston • The district is a major tourist attraction and is considered Galveston’s premier shopping and entertainment center • Features historical exhibits, museums, art galleries, shops, restaurants, and night clubs Texas City Dike • A 5.34-mile pile dike constructed in 1935 and is locally known as the “the world’s longest man-made fishing pier” • The dike consists of several fishing piers, beaches, picnic areas, and boat ramps 18 Education Texas A&M University at Galveston (2.75 miles NW) • A 135-acre campus established in 1962 • Student body of 2,324 • Faculty/staff of over 350 employees • The University is an ocean- oriented branch of Texas A&M (2.7 miles SW) and offers undergraduate and • Opened in 1967 and serves approximately graduate degrees in various 2,300 students each semester maritime studies • Offers programs and courses for academic transfer, workforce education, continuing education, and developmental programs

Ball High School (2.7 miles SW) • Serves the cities of Galveston and Jamaica Beach as well as the unincorporated communities of Port Bolivar and Crystal Beach on the Bolivar Peninsula • Employs 129 teachers and serves around 2,000 students • Boasts a 15:1 student to teacher ratio 19 property DETAIL

20 close-up

6th street

5th street

church street

4th street

21 property details - 615 Holiday drive

style Garden on slab foundation 7 two-story residential buildings, 1 buildings maintenance area and 2 laundry rooms exterior walls Brick and wood siding roof system Flat - 1 TPO, 3 Silicone 3 mod bit floor coverings Tile, faux wood, carpet WIRING Copper Piping Galvanized Primary, some copper, some PVC paving Asphalt ELECTRICITY Master-metered Master-metered (two tenants not on system) WATER/SEWER $40 1-1 / $50 2-1 / $55 3-1 HVAC Individually climate-controlled units HOT WATER Two boiler systems TRASH Paid by Property PARKING SPACES 54 total spaces, 50 covered $50 application fee fees/deposits $250, $275, $300, $350 deposits pet fee $300 per pet W/d Connections None concessions No concessions, 5% UTMB discount

22 unit mix - 615 Holiday drive

Unit Type Square Footage Unit Count Market Rent PSF 1X1 625 16 $861 $1.38 1X1 694 3 $867 $1.25 1X1 705 4 $863 $1.22 1X1 715 1 $850 $1.19 1X1 800 5 $870 $1.09 1X1 825 1 $850 $1.03 2X1 795 12 $1,071 $1.35 2X1 950 1 $1,100 $1.16 2X2 795 3 $1,212 $1.52 2X2 970 1 $1,195 $1.23 2X2 1,034 1 $1,195 $1.16 2X2 1,100 1 $1,220 $1.11 3X1 1,034 4 $1,463 $1.41 3X1 1,125 1 $1,475 $1.31

TOTAL/AVERAGE 772 54 $1,007 $1.31

23 property details - 402 church

style Garden on slab foundation 1 two-story residential buildings, 1 buildings maintenance area and 1 laundry room exterior walls Brick and wood siding roof system Flat - Silicone floor coverings Fux vinyl wood, vinyl tile WIRING Copper piping Galvanized Primary, some copper, some PVC paving Asphalt ELECTRICITY Sub-metered WATER/SEWER Master-metered HVAC Individually climate-controlled units HOT WATER Two boiler systems TRASH Included in rent PARKING SPACES 24 total covered spots $50 application fee fees/deposits $250, $275, $300, $350 deposits pet fee $300 per pet W/d Connections None concessions No concessions, 5% UTMB discount

24 unit mix - 402 church

Unit Type Square Footage Unit Count Market Rent PSF 1X1 795 28 $895 $1.13 2X2 900 6 $1,250 $1.39

TOTAL/AVERAGE 814 34 $958 $1.18

25 community amenities & interior features

• Swimming Pool • On Site Laundry Facilities • Covered Parking • Central Mailboxes • Tile Flooring* • Faux Wood Flooring* • Ceiling Fans • White Appliances • Stainless Steel Appliances

* In Select Units

26 615 Holiday 402 Church

615 Holiday 615 Holiday

27 floor plans

the strand 1 BEDROOM 1 BATH - 700 SF seawall 1 BEDROOM 1 BATH - 625 SF

seagrass 1 BEDROOM 1 BATH - 702 SF

28 floor plans

2 BEDROOM 1 BATH - 795-875 SF 2 BEDROOM 2 BATH - 900-1050 SF

3 BEDROOM 1 BATH - 1095 SF

29 financial analysis

30 PRO FORMA

PRO FORMA FINANCIAL ANALYSIS INCOME % of GSR Totals Per Unit Per SF Gross Scheduled Rent 100.00% $1,043,400 $11,857 $15.04 Less: Vacancy 5.00% 52,170 593 0.75 Less: Non-Revenue Units 1.00% 10,434 119 0.15 Less: Collection Loss 0.10% 1,043 12 0.02 Total Rental Income 93.90% $979,753 $11,134 $14.12 % of GSR Totals Per Unit Per SF Plus: Utility Reimbursements 7.21% 75,240 855 1.08 Plus: Other 1.27% 13,200 150 0.19 Total Other Income 8.48% 88,440 1,005 1.28 Effective Gross Income 102.38% $1,068,193 $12,139 $15.40 EXPENSES % of EGI Totals Per Unit Per SF Repairs and Maintenance 5.77% 61,600 700 0.89 Payroll 9.06% 96,800 1,100 1.40 Administrative 1.65% 17,600 200 0.25 Marketing 1.03% 11,000 125 0.16 Utilities 12.10% 129,295 1,469 1.86 Total Variable Expenses 29.61% $316,295 $3,594 $4.56 Taxes 7.12% 76,103 865 1.10 Insurance 5.77% 61,600 700 0.89 Management Fee 4.00% 42,728 486 0.62 Total Operating Expenses 46.50% $496,726 $5,645 $7.16 Capital Reserves 2.47% 26,400 300 0.38 Total Expenses 48.97% $523,126 $5,945 $7.54 Net Operating Income $545,067 $6,194 $7.86 31 UNDERWRITING ASSUMPTIONS

Income • Gross Scheduled Rent (GSR) – Proforma Year 1 GSR is projected at $1,043,400 annually, or $86,950 per month.

• Vacancy Loss – In Proforma Year 1, the Property is expected to maintain at least a 95% occupancy rate.

• Non-Revenue Units – In Proforma Year 1, Non-Revenue Units are assumed at 1.00% of GSR.

• Collection Loss – In Proforma Year 1, Collection Loss is assumed at 0.10% of GSR.

• Utility Reimbursements – Utility Reimbursements for Proforma Year 1 is projected at $75,240 annually, or $855 per unit. This value is based on the implementation of a $75 per month RUBS fee at 95% occupancy.

• Other – Other Income for Proforma Year 1 is projected at $13,200 annually, or $150 per unit, which is in line with surrounding comparable properties and historical other income.

32 UNDERWRITING ASSUMPTIONS

Expenses • Repairs and Maintenance – In Proforma Year 1, Repairs and Maintenance expenses are projected at $61,600 annually, or $700 per unit, which are in line with surrounding comparable properties and historical Repairs and Maintenance expenses.

• Payroll – In Proforma Year 1, Payroll expenses are projected at $96,800 annually, or $1,100 per unit, which are in line with surrounding comparable properties and historical Payroll expenses.

• Administrative – In Proforma Year 1, Administrative expenses are projected at $17,600 or $200 per unit, which are consistent with historical Administrative expenses and properties of this size.

• Marketing – In Proforma Year 1, Marketing expenses are projected at $11,000 annually, or $125 per unit, which are consistent with historical Marketing expenses and properties of this size.

• Utilities – The property has an average Utilities cost for apartment communities of this quality and area. Utilities are based on May’19 trailing three-month actuals. They are projected at $129,295 annually, or $1,469 per unit.

• Real Estate Taxes – Palm Shore is located in Galveston County. The combined 2018 property assessment was $2,689,490 and the combined assessment for 2019 increased to $2,805,530. The Proforma Year 1 Tax expense is calculated by growing the 2019 assessed value by 10% and multiplying by the 2019 tax rate (2.466 per $100). The projected Proforma Year 1 taxes are $76,103 or $865 per unit.

• Insurance – In Proforma Year 1, Insurance expenses are projected at $61,600, or $700 per unit. Insurance expenses vary depending on the coverage and deductible selected by the investor, and whether the Property is included on a single-asset or a blanket policy.

• Management Fee – Management Fee is projected to be 4.00% of Effective Gross Income, which equals $42,728 annually, or $486 per unit in Proforma Year 1. This is in line with properties in this submarket of this size and quality.

• Capital Reserves – The Property was built in 1971. Proforma Year 1 l Reserves are projected at $26,400 annually, or $300 per unit.

33

market overview Virginia Pt Rd Pt Virginia GALVESTON ISLAND

Dr Tiki 8

Channelview Dr Channelview Pruitt Rd Pruitt

Lewis Ln Lewis

77th St 77th Texas A&M 93rd St 93rd

Bayside St Bayside Blvd Gti 91st St 91st

Sportsman Rd St 89th

Teichman Rd Teichman 71st St 71st

W Breadner Loop Breadner W

Halliburton Rd Halliburton

Pelican I Pelican

45 Rd Coastwide

Travel Air Rd Air Travel

60th St 60th Bay Meadows Dr Meadows Bay

54th St 54th 64th St 64th

53rd St 53rd 63rd Rear St Rear 63rd 51 51

St 62nd 103rd St 103rd

St 50th

57th St 57th

56th St 56th

46th St 46th 8 Mile Rd Mile 8

55th St 55th Harris Rear Way Rear Harris

99th St 99th

Syndor Ln Syndor

52nd St 52nd

73rd St 73rd

43rd St 43rd Back Bay Dr Bay Back

Pine St Pine

Bayou Homes Dr Homes Bayou

Ln Driftwood 41st St 41st 69th St 69th

Marine St Marine 40th St 40th 65th St 65th Maple Bayou Shore Dr Shore Bayou

Victory Ave Victory

Ln

39th St 39th 33rd St 33rd

38th St 38th

35th St 35th 168

Willow

36th St 36th 34th St 34th

Holiday Dr Holiday

Hope Blvd Hope

Ln

30th St 30th 44th St 44th

29th St 29th

Avenue P 1/2 P Avenue 28th St 28th

27th St 27th 72nd St 72nd

71st St 71st Wimcrest St Wimcrest

26th St 26th 67th St 67th

Hollywood Ave Hollywood

61 61 24th St 24th 42nd St 42nd 62nd St 62nd 63rd St 63rd

6th St 6th

23rd St 23rd

Broome Rd Broome Strand St 59th St 59th

22nd St 22nd

Barracuda Dr Barracuda St 20th

19th St 19th Tuna Ave

18th St 18th Mechanic St

17th St 17th

49th St 49th

5 5 Mackerat St 16th St 16th

St 48th

St 47th

15th St 15th

St 4th

13th St 13th

Terminal Dr Oleander Ave St 12th UTMB

San Fernando Dr Fernando San Campeche Dr Campeche Oak St Oak

San Marino Dr Marino San 11th St 11th

3 3 10th St 10th

5th St 5th

1st St 1st 9th St 9th

Fairway Dr Blvd Marys St

Range Rd Range Cessna Dr

81 81 3

32nd St 32nd 7th St 7th Pine St Pine

Golf Crest Dr St 6th

31st St 31st Avenue D Apffel Park Rd

8 Mile Rd Mile 8 Avenue E

7 1/2 Mile Rd Mile 1/2 7 Cove View Blvd View Cove Terminal Dr

St 83rd Church Rear St

Dominique St Dominique 7 Mile Rd Mile 7

77th St 77th

75th St 75th Kleinman Ave Kleinman 2 5 Winnie St

Central City Blvd 1 Sealy AveAvenue1 H 1 1

89th St 89th W Beach Dr 87th St 87th

85th St 85th Avenue M 1/2 Avenue K Sherman Blvd Denver Dr Avenue N 5 Avenue L Avenue T 1/2 Avenue N 1/2 Avenue M 4 Avenue S 1/2 Avenue R 1/2 Avenue Q 1/2 Bernando De Galvez Ave Avenue O Avenue U Avenue T Avenue S Avenue R Avenue Q Avenue O 1/2

34 rent comparables

# OF AVG. MARKET MARKET EFFECTIVE EFFECTIVE EFF. RENT # PROPERTY YOC OCC. UNIT TYPE UNITS SQ FT RENT RENT PSF RENT RENT PSF DELTA (Comp vs. Subject) 1-Bed 40 750 $1,052 $1.40 $1,046 $1.39 $168 1 Chateau Lafitte 1970 96% 2-Bed 40 1,080 $1,252 $1.16 $1,246 $1.15 $98 Total/Avg. 80 915 $1,152 $1.26 $1,146 $1.25 $158

1-Bed 69 647 $1,037 $1.60 $1,033 $1.60 $154 Residence at 2 1977 99% 2-Bed 64 1,008 $1,471 $1.46 $1,411 $1.40 $263 West Beach Total/Avg. 133 821 $1,246 $1.52 $1,215 $1.48 $227

1-Bed 49 750 $1,102 $1.47 $1,094 $1.46 $216 3 Ebbtide 1963 95% 2-Bed 49 900 $1,385 $1.54 $1,378 $1.53 $230 Total/Avg. 98 825 $1,244 $1.51 $1,236 $1.50 $248

1-Bed 49 906 $1,022 $1.13 $1,012 $1.12 $134 4 Seaside Village 1972 80% 2-Bed 90 1,178 $1,579 $1.34 $1,463 $1.24 $315 Total/Avg. 139 1,082 $1,383 $1.28 $1,304 $1.21 $316

1-Bed 32 978 $1,054 $1.08 $1,054 $1.08 $176 Oceanfront 5 1986 89% 2-Bed 60 1,081 $1,357 $1.25 $1,357 $1.25 $209 Lofts Total/Avg. 92 1,045 $1,251 $1.20 $1,251 $1.20 $263

1-Bed 48 783 $1,052 $1.34 $1,046 $1.34 $168 TOTALS/ 91% 2-Bed 61 1,065 $1,438 $1.35 $1,389 $1.30 $241 AVERAGES Total/Avg. 108 941 $1,268 $1.35 $1,238 $1.32 $249

1-Bed 58 736 $878 $1.19 $878 $1.19 2-Bed 25 855 $1,148 $1.34 $1,148 $1.34 Palm Shore 1971 93% 3-Bed 5 1,052 $1,465 $1.39 $1,465 $1.39 SUBJECT Total/Avg. 88 788 $988 $1.25 $988 $1.25

35 appendix

36 news article PORT OF GALVESTON INKS LONG-TERM DEAL WITH DISNEY CRUISE LINE Houston Business Journal By Olivia Pulsinelli January 17, 2019

The Port of Galveston and Florida-based Disney Cruise Line have inked a deal that’s expected to include more sailings.

The agreement is for an additional 10 years, starting Nov. 1, 2018, and includes an option to renew for two additional five-year periods, according to a Jan. 17 press release. Disney is projected to nearly double its sailings from Galveston over the first five years of the potentially 20-year agreement, per the release.

Additionally, Disney might bring new ships to Galveston, as the agreement includes accommodating ships equal to or larger than the Disney Magic/Disney Wonder class of vessel. Disney will have three new ships setting sail in 2021, 2022 and 2023, though it’s not yet known if any of those ships will sail from Galveston.

“September 22, 2012, marked the first time ever that a Disney Cruise Line ship set sail from the State of Texas with the maiden voyage of Disney Wonder,” Rodger Rees, Port of Galveston’s CEO and port director, said in the release. “The Port has been seasonal homeport to both Disney Wonder and Disney Magic ever since. We are thrilled to be able to continue to give Texas and the southwest region of the the opportunity to experience Disney cruise vacations from their own backyard. We are proud to be one of the few selected homeports for Disney Cruise Line.”

In the new agreement, Galveston remains a seasonal homeport for Disney. However, Disney eventually will start sailing from cruise terminal 2 on Sundays instead of Fridays, freeing up Fridays for potentially another cruise line, a Port of Galveston spokesperson explained.

That’s thanks to a new cruise terminal that’s expected to open in 2021. Royal Caribbean’s ships will move to the new terminal, freeing up Sundays on terminal 2 for Disney.

The Board of Trustees of the Galveston Wharves and Miami-based Royal Caribbean Cruises Ltd. (NYSE: RCL) entered into a memorandum of understanding regarding a new cruise terminal in December. Royal Caribbean expects to invest nearly $100 million to build the new terminal. The 200,000-square-foot terminal will be built on 10 acres of land in the southeast section of the port known as Pier 10.

The Port of Galveston ranked as the No. 4 busiest port by cruise embarkations for 2016, according to an economic impact analysis Cruise Lines International Association released in October 2017. The port handles more than 1.8 million cruise passenger movements annually, and the new terminal is expected to generate an additional 1 million passengers by the contract’s halfway point. Royal Caribbean’s lease will start with a 20-year initial term and can be extended with four 10-year options. 37 information on brokerage relationships

LICENSE HOLDER CONTACT TEXAS LAW REQUIRES ALL REAL ESTATE LICENSE HOLDERS TO GIVE THE FOLLOWING INFORMATION ABOUT BROKERAGE SERVICES TO PROSPECTIVE BUYERS, TENANTS, SELLERS AND LANDLORDS. INFORMATION: This notice is being provided for information purposes. It TYPES OF REAL ESTATE LICENSE HOLDERS: does not create an obligation for you • A BROKER is responsible for all brokerage activities, including acts performed by sales agents sponsored by the to use the broker’s services. Please broker. acknowledge receipt of this notice • A SALES AGENT must be sponsored by a broker and works with clients on behalf of the broker. below and retain a copy for your A BROKER’S MINIMUM DUTIES REQUIRED BY LAW (A client is the person or party that the broker represents): records. • Put the interests of the client above all others, including the broker’s own interests; • Inform the client of any material information about the property or transaction received by the broker; • Answer the client’s questions and present any offer to or counter-offer from the client; and Southwest Residential Partners, Inc. • Treat all parties to a real estate transaction honestly and fairly. BROKER FIRM NAME A LICENSE HOLDER CAN REPRESENT A PARTY IN A REAL ESTATE TRANSACTION: 345433 AS AGENT FOR OWNER (SELLER/LANDLORD): The broker becomes the property owner’s agent through an agreement with LICENSE NO. the owner, usually in a written listing to sell or property management agreement. An owner’s agent must perform the broker’s minimum duties above and must inform the owner of any material information about the property or transaction [email protected] known by the agent, including information disclosed to the agent or subagent by the buyer or buyer’s agent. EMAIL AS AGENT FOR BUYER/TENANT: The broker becomes the buyer/tenant’s agent by agreeing to represent the buyer, usually 713-425-5430 through a written representation agreement. A buyer’s agent must perform the broker’s minimum duties above and must inform the buyer of any material information about the property or transaction known by the agent, including information PHONE disclosed to the agent by the seller or seller’s agent. AS AGENT FOR BOTH - INTERMEDIARY: To act as an intermediary between the parties the broker must first obtain the written agreement of each party to the transaction. The written agreement must state who will pay the broker and, in conspicuous bold or underlined print, set forth the broker’s obligations as an intermediary. A broker who acts as an David Oelfke intermediary: • Must treat all parties to the transaction impartially and fairly; DESIGNATED BROKER’S NAME • May, with the parties’ written consent, appoint a different license holder associated with the broker to each party 456477 (owner and buyer) to communicate with, provide opinions and advice to, and carry out the instructions of each party to the transaction. LICENSE NO. • Must not, unless specifically authorized in writing to do so by the party, disclose: [email protected] • that the owner will accept a price less than the written asking price; • that the buyer/tenant will pay a price greater than the price submitted in a written offer; and EMAIL • any confidential information or any other information that a party specifically instructs the broker in writing not to 713-425-5405 disclose, unless required to do so by law. PHONE AS SUBAGENT: A license holder acts as a subagent when aiding a buyer in a transaction without an agreement to represent the buyer. A subagent can assist the buyer but does not represent the buyer and must place the interests of the owner first. TO AVOID DISPUTES, ALL AGREEMENTS BETWEEN YOU AND A BROKER SHOULD BE IN WRITING AND CLEARLY ESTABLISH: • The broker’s duties and responsibilities to you, and your obligations under the representation agreement. • Who will pay the broker for services provided to you, when payment will be made and how the payment will be calculated. 38 disclaimer

Prospective purchasers are hereby advised the Owner (“Owner”) of PALM SHORE APARTMENTS (“Property”) are soliciting offers through Newmark Knight Frank (“NKF”), which may be accepted or rejected by the Owner at the Owner’s sole discretion.

Any solicitation of an offer for the Property offered hereunder will be governed by this Offering, as it may be modified or supplemented. Prospective purchasers are advised that as part of the offer process, the Owner will be evaluating several factors including the experience and financial qualifications of the purchasing entity.

The Owner shall have no obligation to accept any offer from any prospective purchaser. The Owner reserves the right to withdraw the Property from consideration at any time prior to final execution of a Purchase Agreement.

This Offering document is furnished to prospective purchasers for the purpose of determining whether to invest in the Property offered hereby. The information contained herein, or any other related information provided by the Owner, may not be reproduced, redistributed or used in whole or in part without the prior written consent of the Owner.

No person has been authorized to give any information or make any representation or warranty, either expressed or implied and, if given or made, such information or representation must not be relied upon.

While the Owner and NKF have no reason to believe that the information provided herein or in subsequent information updates delivered to potential purchasers hereunder contains any material inaccuracies, neither the Owner nor NKF nor any of the Owner’s or NKF’s respective subsidiaries, affiliates, companies, or the officers, directors, employees, agents and representatives of any such entities, etc., make any representations or warranties, expressed or implied, as to the validity, accuracy or completeness of the information provided or to be provided, and nothing herein shall be deemed to constitute a representation, warranty or promise by any such parties as to the future performance of the Property or any other matters set forth herein.

Any obligations to prospective purchasers that the Owner may have with respect to the Property are limited to those expressly set forth in a fully executed Purchase Agreement between the parties. Prospective purchaser’s sole and exclusive rights against the Owner, with respect to this prospective transaction, the Property, or information provided herein or subsequently, shall be limited to those remedies expressly provided in an executed Purchase Agreement, which shall not survive the closing. Further, in no event shall prospective purchasers have any claims against the Owner, NKF, or any of their respective affiliates for any damages, liability, or causes of action relating to the Purchase Agreement.

Prospective purchasers are not to construe the contents of this Offering or any prior or subsequent information communications from the Owner or any of their respective officers, employees or agents as legal, tax or other advice. Prior to purchasing, prospective purchasers should consult with their own legal counsel and personal and tax advisors to determine the consequences of an investment in the Property and arrive at an independent evaluation of such investment.

No commission or finder’s fee shall be payable to any party by the Owner nor any affiliate or agent thereof in connection with the sale of the Property unless otherwise agreed to by the Owner in writing.

Acquisition of properties such as this offered hereunder involves a high degree of risk and are suitable only for persons and entities of substantial financial means.

39 INVESTMENT SALES Brett Benton Russell Jones Matt Saunders Zach Springer [email protected] [email protected] [email protected] [email protected] T 713-337-5800 T 713-425-5422 T 713-554-1303 T 713-425-5428 M 210-860-5515 M 832-541-1499 M 281-300-1468 M 713-897-9670

DEBT & STRUCURED FINANCE Adam Allen Tip Strickland David Schwarz Purvesh Gosalia [email protected] [email protected] [email protected] [email protected] T 713-425-5433 T 713-337-5810 T 713-337-5811 T 713-300-7954 M 713-824-6066 M 832-724-4288 M 713-412-9055 M 313-570-5221