Riverlands Brazoria County MUD Market Study

Prepared for Riverlands Development LLC, October 2016 Metrostudy — 10707 Corporate Drive, Suite 200, , 77477 Phone: 713.622.9909 Email: [email protected] web: www.metrostudy.com

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CONTENTS

Introduction ...... 3 Purpose and Methodology ...... 3 Development Area Location and Characteristics ...... 4

I. Executive Summary ...... 6 Economic Overview ...... 6 Houston Employment Overview ...... 6 Housing Market Overview ...... 6 Competitive Market Area Analysis ...... 7 Conclusions ...... 10

II. HOUSTON OVERVIEW ...... 14 SUMMARY ...... 14 HOUSTON EMPLOYMENT ...... 15 Total Employment ...... 15 Employment by Sector ...... 16 Employment Clusters ...... 17 Energy Sector Trends ...... 19 Houston Demographic Trends ...... 20 Total Population ...... 20 Age Distribution ...... 21 Income Distribution ...... 23 Houston Housing Market ...... 24 Multi-Family Market ...... 24 Multiple Listing Service (MLS) Activity ...... 25 New Housing Starts & Forecast ...... 26 New Home Inventory Trends ...... 29 Vacant Developed Lot Inventory, Deliveries and Absorption ...... 31

III. Competitive Market Area ...... 34 Introduction ...... 34 Definition and Justification ...... 34 Population and Household Trends ...... 35 Riverlands BC-MUD Market Study | 2

CONTENTS, CONTINUED

IV. Residential Analysis ...... 38 CMA New Single-Family Housing Market ...... 38 Housing Starts ...... 38 Vacant Developed Lots ...... 40 Lot Delivery and Absorption ...... 41 Price Range Distribution of New Home Starts and VDL ...... 43 CMA Demand by Lot Size ...... 46 CMA Subdivisions Ranked by Annual New Home Starts ...... 48 Projected Tax Rates ...... 48 Planned Housing Projects, Future Lot Inventory ...... 49

V. Site Analysis and Evaluation ...... 51 Site Analysis ...... 51

VI. Assumptions & Limiting Conditions ...... 53

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Introduction Purpose and Methodology

The purpose of this market analysis is to provide future projections of new single-family housing absorption within the Riverlands community, which will be served by a yet-to- be-named Brazoria County Municipal Utility District (“The District”), for the District Creation Application. In order to achieve this, Metrostudy has analyzed and projected expected single-family housing demand within a defined Competitive Market Area (CMA) surrounding the District. It is from within the Riverlands/South Houston CMA that the subject development will draw much of its market support.

Metrostudy evaluated the overall Houston economy, particularly the trends in household formation and employment growth, to determine the correlation between economic expansion and single-family housing demand. By analyzing these historical trends, Metrostudy established a forecast for housing starts in the Houston Market1 and the CMA. A map of the CMA can be found on page 34 of this document.

Single-family housing production was also analyzed to establish the manner in which Houston’s housing supply expands and/or contracts in response to economic activity. Metrostudy monitors the supply of new homes on a quarterly basis to accurately determine the size of the Houston market, as well as the size and number of competing subdivisions.

Furthermore, a demographic analysis of the CMA was completed to determine the percentage of the population that is capable of purchasing new homes in comparison to the region overall. Metrostudy’s focus is on area demographics, historical starts, and lot inventories for the subdivisions located within the CMA boundaries.

1 Metrostudy’s Houston Market is Brazoria, Chambers, Fort Bend, Galveston, Harris, Liberty, Montgomery, and Waller Counties. It is the MSA, less Austin County. Riverlands BC-MUD Market Study | 4

Development Area Location and Characteristics

The proposed Riverlands community is located in the southern area of the Houston region, within Brazoria County. The proposed community is located along the east side of F.M.-521, directly south of County Road-56, approximately 2.9 miles west of Texas State Highway-288/South Freeway. The following map shows the location of the community and District.

Riverlands Development

The District is located within the Angleton Independent School District. Savannah, which is located to the northwest of the State Highway-6 and State Highway-288 intersection, has been one of the most active communities within the area, with nearly 170 annual starts on 50’ to 75’ lots. In addition to Savannah, the Southlake and Rodeo Palms communities within the CMA have also experienced significant annual starts activity over the past twelve months. Most of the development pattern surrounding the Riverlands BC-MUD Market Study | 5

subject site consists of low-density single-family residential uses and low-density strip- retail centers anchored by grocery stores and other neighborhood-serving shops.

The Riverlands community occupies approximately 522 acres located to the southeast of F.M.-521 and County Road 56. Although the community is yet to establish a finalized lot program, a mix of 45’, 50’ and 60’ lots is envisioned for the site.

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I. Executive Summary Economic Overview

Houston Employment Overview • The national economy has increased its non-farm employment by 1.7 percent over the last twelve months ending June 2016, while Texas and Houston have grown by 1.5 percent and 0.3 percent, respectively.

• Houston’s economy is in the midst of a slight correction in response to oil prices recently dropping below $40/bbl, after several years of robust job growth. Although oil prices have risen to approximately $47/bbl, annual job growth slowed to about one percent in 2015 compared to the three-to-four percent employment growth achieved following the recovery from the Great Recession. According to the most recent Bureau of Labor Statics release, nonfarm employment grew at an annualized 1.0 percent over the first half of 2016.

• After several years of substantial gains in Professional and Business Services, Manufacturing, and Mining, those three very important sectors registered significant contractions in over the previous twelve months. Professional and Business Services experienced the greatest job losses, with total employment reduced by approximately 15,500 jobs. Similarly, Manufacturing and the Mining and Logging sectors have experienced declines in employment of 15,200 and 13,600, respectively. Adverse effects of this jobs decline were mitigated to some extent by impressive gains in Leisure and Hospitality, Education and Health Services, and Government. Over the most recent three-month period ending June, 2016, Leisure and Hospitality added 20,900 jobs; Educational and Health Services added 16,700 jobs, and Government increased by 8,200 jobs.

Housing Market Overview • Metrostudy’s 2Q16 survey shows a total of 26,039 annual starts for all product types within surveyed subdivisions throughout the Houston Market. Despite a substantial decline of twelve percent in year-over-year activity in response to Riverlands BC-MUD Market Study | 7

slowing job growth, the Houston market remains the 2nd-most active region in the country. Forecasts for 2016 expect between 26,250 to 27,750 single-family starts.

• Demand for housing in the Houston Market remains strong and developers have made progress in supplying the market with ample vacant developed lots (VDL). Although the current 20.8-month supply of developed lots is within the 20-24 month range that Metrostudy considers to be equilibrium (neither the buyer nor seller of lots has a negotiating advantage), this represents the sixth consecutive quarter that VDL months-of-supply has increased after experiencing over two years of declining VDL supply. The combination of slightly regressing market demand and accelerating delivery of lots has resulted in supply trending towards equilibrium.

• Houston’s overall occupancy rate for all apartment classes is 89.7 percent. Class-A overall has decreased modestly to 79.0 percent; however, occupancy within stabilized Class-A properties remains strong at 91.0 percent. Class-B and Class-C properties are currently at 93.0 percent and 93.5 percent occupancy rates, respectively. There are currently 18,750 new apartment units under construction in an estimated 70 properties.

Competitive Market Area Analysis

• The population and household estimates (by Nielsen) indicate that the Riverlands/South Houston CMA is experiencing modest population and household growth after the robust expansion of the early 2000’s. Nielsen forecasts that there are approximately 208,100 people in over 65,300 households. Future growth is anticipated to bring these totals to 233,300 and 72,800, respectively, by 2021. These estimated figures represent a forecast population increase of 12.1 percent and household increase of 11.4 percent over the five-year period. Riverlands BC-MUD Market Study | 8

• On average, households within the CMA have considerably higher incomes compared to those in the Greater Houston Area. The CMA’s estimated median household income in 2016 is $84,587 and estimated average household income is $105,296. (The Houston Market’s median is $59,079, and its average is $83,260.) The higher incomes can be attributed to the housing stock matching the buyer profile, the strong job base located in the nearby Medical Center, Sugar Land, Bellaire, Westchase, and Sharpstown employment centers, and the generally appealing nature of the south/southwest Houston suburbs for more middle-income households.

• The 2Q16 Metrostudy survey indicates that the 1,849 annual starts in the CMA represent 7.2 percent of total annual housing starts in the Houston market. The CMA’s location in close proximity to the job growth concentrated in the employment hubs has been a driving factor in activity, as the North 288 submarket (which the Riverlands/South Houston CMA is within) was responsible for the largest Year-over-Year increases in annual starts and annual closings among Houston submarkets between 1Q15 and 1Q16. Despite these figures dropping off slightly in 2Q16, along with a general slowdown throughout the region, Metrostudy still forecasts the CMA to capture an increasing share of regional activity and achieve annual starts between 1,838 and 1,995 through 2018.

• As with the overall Houston market, the CMA has a months-of-supply level of VDL (vacant developed lots) that is effectively within the equilibrium level. The CMA contains 2,982 VDL at of the end of 2Q16, representing 19.4 months-of- supply. For comparison, there were 1,659 VDL representing a 16.4-month supply at the end of 4Q13. The stable level of VDL supply despite a rapid increase in the level of VDL inventory throughout the CMA, in addition to the combination of the sub-market experiencing increasing demand while the region as a whole is experiencing slight declines, indicates that the CMA possesses a high degree of likelihood to benefit from sustained interest from the buying market for the foreseeable future. Riverlands BC-MUD Market Study | 9

• Lot deliveries have outpaced lot absorptions in the previous five consecutive quarters, and seven of the last thirteen quarters overall. Over the previous four quarters, lot deliveries have averaged 677 per quarter, while lots absorbed have averaged 462 per quarter. The recent increase in lot deliveries is most likely the result of a pent up inventory from several incidents of severe inclement weather, as Houston received 70” of rain in 2015 (43 percent more than Houston’s average annual rainfall of 49”) and reached 43” of rainfall in 2016 through the end of July.

• Starts on homes priced at $200,000-$249,000 were responsible for 25 percent of annual starts and represent the most active price-band. This is followed by starts on homes priced at $300,000-$349,000 and $250,000-$299,000. The proportion of new home starts priced between $200,000 and $449,000 is much higher in the CMA than in the Houston Market overall.

• The VDL months-of-supply in the CMA is lowest for homes anticipated to be priced less than $300,000. The 1,128 vacant developed lots in these price ranges represent a 14.4-month of supply of lots given the annual starts rate, considerably less than the 19.4-months of supply for the CMA overall.

• The top-10 subdivisions started at least 54 homes each during the previous four quarters, and accounted for 880 starts (48%) of the total annual starts in the CMA. The top-10 subdivisions also have only a 12.1-month supply of vacant developed lots.

• A total of 21,390 undeveloped lots have received either preliminary or final approval in the CMA. However, these lots are at a preliminary stage of the development schedule and are not anticipated for delivery in less than 24 months.

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Conclusions

Houston’s housing market led the national housing recovery but has since slightly regressed as energy prices dropped precipitously. The Houston Metropolitan Statistical Area’s strong housing market is driven by natural population growth as well as net in- migration driven by the MSA’s thriving local economy. Job creation in Houston was at a pace among national metro leaders between 2012 and 2014, resulting in massive migration into the city. Despite the recent slowdown, the population of Houston is still projected by Nielsen to grow by approximately 567,000 people between 2016 and 2021, which corresponds to the creation of an estimated 39,600 new households per year. Metrostudy expects the Houston population to continue to grow as long as the economy remains stable and continues to create jobs in other non-energy sectors.

New homebuilders have responded to the market volatility induced by the inclement weather and rapid decline in energy prices with a high degree of confidence in the local economy as evidenced by the sustained construction of new homes. In the 12 months ending in 2Q16, builders in Houston started 25,568 new single-family homes within subdivisions, a 14.8 percent decrease from the regional historic peak annual starts rate in 4Q14. As a result of the decline in demand for homes following the peak annual activity, the VDL supply is shifting towards equilibrium after an extended period of time facing an extremely constrained supply of lots for development. Based on the 2Q16 annual starts pace and the current inventory of VDL, Houston has a 20.8-month supply of lots, within the 20 to 24-month equilibrium range that Metrostudy targets for the Houston market. The increase of developable lots has been viewed as a relief after an extended duration of struggling to meet demand from the rapidly expanding market.

During the past three years, the CMA has accounted for 4.3 percent to 7.2 percent of the housing activity in the Houston Market. The CMA’s annual starts peak of 1,937 occurred in 1Q16, while the trough in annual starts of 1,202 was experienced in 3Q13. Despite the slight regional slowdown, Metrostudy believes that starts within the CMA will continue to remain strong for several reasons. Factors contributing to this growth include a desirable location with established amenities in a part of the region offering convenient access to the freeway network and relatively strong incomes. Riverlands BC-MUD Market Study | 11

The south/southwest Houston suburbs have been a desirable location for middle-income households because of its close proximity to the Texas State Highway-288/Southern Freeway and convenient access to the Medical Center, Westchase, Sugar Land, Bellaire, Clear Lake, and Sharpstown employment centers. These five existing employment centers are forecast to add approximately 124,900 jobs between 2010 and 2025, suggesting a long-term sustained demand for housing within the CMA.

Starts within the CMA are expected to capture an increasing share of regional activity through 2018 because of the existing conditions that have already resulted in strong demand for homes in the southern suburbs of the Houston region. However, the sustained demand experienced in this area has also consumed a large portion of available lots and will lead to continued pressure to deliver additional lots matching the sizes demanded.

The following tables display the observed performances by lot size (45’/50’/60’) from a sample of communities identified as the primary competitors, or most comparable, to the Riverlands community.

Competitive Community Sample - Active 45'-49' Lots Riverlands/South Houston CMA Price Range ($000's) Annual Annual Under VDL Subdivision Builder Lot Size Min - Max Starts Closings Construction Inventory Rodeo Palms/Colony Castlerock 46x110 $182 - $249 6 6 0 0 Rodeo Palms/Colony Castlerock 46x110 $182 - $249 3 3 0 0

Winfield Lakes Lennar 45x110 $173 - $223 29 34 0 0 Winfield Lakes North Lake Ridge 45x110 $177 - $209 46 30 14 22 Winfield Lakes North Lake Ridge 45x110 $177 - $209 0 0 0 50

Source: Metrostudy Riverlands BC-MUD Market Study | 12

Competitive Community Sample - Active 50'-54' Lots Riverlands/South Houston CMA Price Range ($000's) Annual Annual Under VDL Subdivision Builder Lot Size Min - Max Starts Closings Construction Inventory Cambridge Falls DR Horton 50x125 $188 - $248 39 53 17 12 Cambridge Falls DR Horton 50x115 $198 - $247 19 26 1 0

Rodeo Palms/Colony Castlerock 50x115 $182 - $249 21 0 20 11 Rodeo Palms/Colony Saratoga 50x115 $180 - $253 14 4 3 2

Savannah/Laurel Heights Lennar 50x125 $217 - $277 32 0 18 10 Savannah/Laurel Heights Lennar 50x125 $217 - $277 28 0 14 12 Savannah/Laurel Heights Beazer 50x125 $221 - $271 18 18 1 12

Shadow Creek Ranch/Piney Trails Perry 50x135 $236 - $330 37 1 0 0 /Orchard Village Perry 50x130 $236 - $330 11 1 0 3

Shadow Grove KB 50x125 $211 - $258 44 1 0 0

Shadow Ridge Newmark 50x125 $265 - $322 18 2 0 0

Sienna Plnt/Village of Sawmill Lake/River Run Newmark 50x125 $277 - $328 28 0 0 8 Sienna Plnt/Village of Sawmill Lake/River Run Perry 50x120 $312 - $376 26 0 0 6 Sienna Plnt/Village of Sawmill Lake/River Run Ryland 50x120 $278 - $328 26 0 0 5 Sienna Plnt/Village of Sawmill Lake/Deer Valley Newmark 50x130 $291 - $328 25 1 0 0 Sienna Plnt/Village of Sawmill Lake/Deer Valley Perry 50x130 $317 - $381 18 0 0 60 Sienna Plnt/Village of Sawmill Lake/Deer Valley Ryland/CA 50x130 $289 - $329 11 0 0 41

Southlake Perry 50x135 $255 - $352 38 0 0 0 Southlake Perry 50x150 $255 - $352 12 0 0 0

Winfield Lakes Lennar 50x110 $176 - $230 24 0 0 0

Source: Metrostudy

Competitive Community Sample - Active 60'-64' Lots Riverlands/South Houston CMA Price Range ($000's) Annual Annual Under VDL Subdivision Builder Lot Size Min - Max Starts Closings Construction Inventory Avalon Terrace Plantation 60x110 $246 - $330 28 19 6 34

Rodeo Palms/Royal Palms Saratoga 60x110 $200 - $260 34 37 5 27

Sedona Lakes Westin 60x125 $289 - $339 27 9 16 6

Shadow Creek Ranch/Crystal Cove Perry 60x125 $300 - $400 16 40 4 3 Shadow Creek Ranch/Crystal Cove Lake Pery 60x125 $330 - $430 11 8 2 4

Shadow Ridge Newmark 60x125 $309 - $378 17 13 4 14

Sienna Plnt/Village of Sawmill Lake/Parish Westin 60x130 $351 - $381 27 22 2 1 Sienna Plnt/Village of Sawmill Lake/Parish Meritage 60x125 $320 - $426 22 8 6 18 Sienna Plnt/Village of Sawmill Lake/Rosewood Trendmaker 60x132 $445 - $507 11 2 2 8

Southern Trails/Magnolia Meadows Ashton Woods 60x126 $299 - $355 28 13 7 47 Southern Trails/Magnolia Meadows Village 60x126 $341 - $401 16 7 6 58

Southlake Perry 60x130 $318 - $432 33 21 9 39

Sterling Lakes Express 60x128 $201 - $239 31 31 13 0 Sterling Lakes Westin 60x128 $263 - $312 23 19 7 9 Sterling Lakes Anglia 60x128 $205 - $365 19 18 8 19 Sterling Lakes Castlerock 60x128 $265 - $338 14 23 4 10

Source: Metrostudy

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Given the current market conditions, the location of the Riverlands community, the recommended development program, and the performance of other communities nearby, it is the opinion of Metrostudy that the community could achieve the following prices and absorptions for homes on the mix of lot sizes:

Riverlands Community Price & Absorption Forecast

Lot Average Finished Home Average Finished Lot Absorption Lot Width Base-Price Base-Price Monthly Annual Distribution 45' $180,000 - $210,000 $47,250 - $49,500 3.5 - 4.5 42 - 54 30% 50' $210,000 - $260,000 $52,500 - $55,000 7.0 - 8.0 84 - 96 45% 60' $260,000 - $345,000 $63,000 - $66,000 5.0 - 6.0 60 - 72 25% TOTAL: $219,118 - $275,735 $54,662 - $57,265 15.5 - 18.5 186 - 222 100% Source: Metrostudy

These projections assume the following:

• Mortgage interest rates will remain relatively stable for the next four years. • Sufficient developed lots will be available to accommodate housing starts. • Programs for each lot size will begin at approximately the same time. • The subdivisions will be marketed in an appropriate manner. Riverlands BC-MUD Market Study | 14

II. HOUSTON OVERVIEW SUMMARY

Houston’s economy is in the midst of a slight correction after several years of tremendous growth. With oil prices below $40/bbl, annual job growth slowed to a modest 1 percent during 2015 versus the much higher three-to-four percent average previously observed during the post-Crisis market cycle. According to the most recent Bureau of Labor Statics release, nonfarm employment grew at an annualized 0.3 percent over the last three months ending in June, 2016, a reflection of the reluctance of business to expand under current conditions. In addition, bankruptcy filings in the Houston Metro area rose 18.8 percent to a total of 500 in 2015—the first increase since 2009. More recently, the Houston Purchasing Managers Index fell to 43.7 in June before rising slightly to 43.8 in July, the 19th consecutive month in contractionary territory (values below 50).2 Truly adverse effects — stemming from Mining and Logging, Manufacturing, and Professional Services — were mitigated to some extent by gains in the Leisure and Hospitality, Construction, and Education and Health Services sectors. It remains to be seen how long Houston can maintain the current state of economic affairs, given weaker demand abroad for Texas exports, a strong dollar, an upward trajectory in interest rates, and slower gross domestic product and corporate profitability.

Several significant trends stand out for the Houston housing market. First and foremost, new annual home starts are down 11.9 percent. Yet this is not entirely the direct result of previously-mentioned deteriorating macroeconomic fundamentals (at least for now). Rather, it may be a combination of multiple factors, including extreme weather during the first half of the year in 2015 and 2016 coupled with heightened prudence (on the supply-side) in terms of the financial community’s willingness to lend in Houston under current macro conditions. To be sure, there are also several indicators of demand-side weakness. For instance, months of new home supply has consistently increased; prices have been slashed in various submarkets; and lot deliveries are outpacing absorption.

2 https://www.houston.org/pdf/research/narratives/PMI/Purchasing_Managers_Index.pdf Riverlands BC-MUD Market Study | 15

Overall, these trends point to a slight near-term correction in Houston’s new home market.

Prior to the correction, Houston home prices increased rapidly. This was mainly a result of the region’s tight labor market and high annual net in-migration. Also contributing to higher prices on the supply side is the perpetual increase in input costs such as land, labor, and materials. Since 2010, builders had been able to pass along these increases to homebuyers as persistently low interest rates for 30-year mortgages sustained affordability. But between deteriorating job prospects, rising prices, and slowly increasing mortgage rates, the probability of continuing to experience pricing gains and rapidly increasing new home production has inevitably narrowed.

HOUSTON EMPLOYMENT

Total Employment After adding 474,000 new jobs since the last recession, Houston’s labor market has begun to show signs of weakness. With oil prices between $40-$45/bbl, annual job growth slowed to a modest one percent during 2015 versus the much higher three-to- four percent average seen earlier during the post-Crisis market cycle. According to the most recent Bureau of Labor Statics release, nonfarm employment grew by 5,200 jobs between June 2015 and June 2016, a reflection of widespread business reluctance to expand capacity under current conditions. HOUSTON ANNUAL JOB GROWTH

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Employment by Sector Employment sectors with high sensitivity to cyclicality are struggling the most. Leisure and Hospitality remained as the region’s job growth leader, adding over 20,900 jobs. Several employment sectors also saw annual growth, with Education and Health Services; Trade, Transportation, and Utilities; Government; and Financial Services all creating new jobs compared to a year ago. Of these, only Education and Health Services () and Trade, Transportation, and Utilities (midstream energy) constitute “basic sectors” that bring outside dollars into the Houston economy. However, it remains to be seen how long these non-basic3 sectors can continue to create jobs while Houston’s primary industrial clusters remain in a state of contraction.

On the contrary, the Mining and Logging; Manufacturing; Professional and Business Services; and Construction sectors are showing the effects of the prolonged decline in oil pricing. Mining and Logging is down 13,600 jobs, Manufacturing is down 15,200 jobs, and Professional and Business Services is down 15,500 jobs. Construction had been showing annual gains until this quarter, but is now down 3,300 jobs annually in the region. Regional forecasters have not reached consensus around the likely near term direction of employment trends in the Houston region. The Greater Houston Partnership projects that the Houston market is approximately halfway through the job losses from this decline in in prices with another 20,000-25,000 job losses expected over the course of 2016. More conservatively, the Institute for Regional Forecasting at the University of Houston has revised their forecast to reflect negative job growth in Houston for 2016 and 2017.

3 Metrostudy considers basic employment to include those industries that rely on external factors to fuel demand. For instance, oil refiners and providers of cloud computing are both considered basic employers because their goods are either (a) shipped outside the location where they are sourced, or (b) digitally transmitted to customers outside of the local economy. On the other hand, non-basic employers depend entirely, or almost entirely, on local demand; examples include grocery stores and restaurants and local municipal or school district employers. Riverlands BC-MUD Market Study | 17

HOUSTON ANNUAL JOB GROWTH BY SECTOR, JUNE 2015 – JUNE 2016

Employment Clusters As the Houston urban boundary has expanded geographically, clusters of employment have emerged in several areas throughout the region. The following map identifies 15 primary employment clusters throughout the Houston region, with the majority located in the central, north, and west areas.

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HOUSTON PRIMARY EMPLOYMEN CENTERS

The Medical Center, Sugar Land, Bellaire, Sharpstown, and Westchase employment centers are closest to the CMA. These five employment centers, heavily concentrated in the south/southwest areas in Houston, are anticipated to experience a combined net projected job growth of approximately 124,900 between 2010 and 2025. As a result, Metrostudy expects stable absorption in the CMA. Riverlands BC-MUD Market Study | 19

Forecasted Employment For Selected Employment Centers Sorted by Net Projected Growth, 2010-2025

Number of Jobs Net Projected Job Growth Employment Center 2010 2025 2010-2025 2025-2040 2010-2040 Westchase 91,889 153,679 61,790 31,609 93,399 West Houston 125,251 185,021 59,770 26,530 86,300 The Woodlands 45,421 80,008 34,587 7,746 42,333 Greenspoint 72,663 101,657 28,994 16,298 45,292 Sugar Land 66,459 90,150 23,691 15,139 38,830 Sharpstown 51,588 75,197 23,609 54,056 77,665 Galleria 110,855 124,942 14,087 9,232 23,319 Medical Center 119,251 131,205 11,954 7,141 19,095 Brookhollow 47,653 56,708 9,055 25,465 34,520 Central Business District 147,372 155,176 7,804 2,138 9,942 Greenway Plaza 63,117 67,802 4,685 719 5,404 Northwest Crossing 47,884 52,340 4,456 16,661 21,117 Bellaire 23,197 27,076 3,879 2,692 6,571 Clear Lake 46,403 50,223 3,820 1,996 5,816 Bush Intercontinental Airport 31,772 35,190 3,418 2,027 5,445 Total 1,090,775 1,386,374 295,599 219,449 515,048

Source: Houston-Galveston Area Council 2040 Employment Forecast (4/21/2014).

Energy Sector Trends The recent commodity bust represents the greatest challenge to Houston’s economy in decades. From the early 2000s through 2014, a period of overinvestment dubbed the commodity “super cycle” fueled a booming oil and gas employment cluster. This ultimately culminated in a combination of risk-taking and technological innovation that has permanently increased production capacity beyond emerging market demand for at least the upcoming couple of years. Consequently, we are in the midst of a “new normal,” wherein oil and gas trades within a tight range around break-even pricing. The near-term effect will be a zero-sum game between Houston’s upstream and downstream industries, as the latter is reliant upon natural gas and oil as feed stocks to produce many of the base petrochemicals, refined petroleum, plastics and other derivatives products that it sells. Riverlands BC-MUD Market Study | 20

Houston Demographic Trends

Total Population The following exhibits summarize the Houston MSA’s population and household data from the 2010 Census, with current estimates and projections for 2016 and 2021. The Houston region’s population currently sits at nearly 6.68 million people residing in over 2.32 million households. The area is expected to increase annually by 113,000 people and 39,600 households between 2016 and 2021.

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Houston MSA Population and Household Growth 2010 Census 2016 Estimate 2021 Projection Population 5,920,416 6,677,340 7,243,851 Total Numerical Change - 756,924 566,511 Total Percent Change - 12.8% 8.5% Annual Number Change - 126,154 113,302 Annual Percent Change - 2.0% 1.6%

Households 2,062,529 2,320,806 2,518,897 Total Numerical Change - 258,277 198,091 Total Percent Change - 12.5% 8.5% Annual Number Change - 43,046 39,618 Annual Percent Change - 2.0% 1.7%

Average Household Size 2.87 2.88 2.88 Source: Nielsen/U.S. Census Bureau

Age Distribution During the next five years, Houston’s population is anticipated to grow across all age groups. However, segments of the population over the age of 55 are anticipated to account for a larger share of the regional population. Consequently, their future impact on the housing market is likely to be significant.

The 65-and-Over age group is expected to have the strongest gains in population and share of population. Both the number and percentage of population in the 45-64 age range, which is considered to be highest in earnings potential, are expected to increase in the region during the next five years as well. Demographic shifts in age and income reinforce the need for developers and homebuilders to make timely alterations in neighborhood and/or floor plan designs to meet the needs of more elderly consumers. Riverlands BC-MUD Market Study | 22

Population Distribution By Age Houston MSA

2016 Estimate 2021 Projection Age Range Number Percent Number Percent Age 0-17 1,791,353 27% 1,882,207 26% Age 18-24 642,998 10% 707,422 10% Age 25-34 961,109 14% 962,449 13% Age 35-44 938,762 14% 989,946 14% Age 45-54 878,053 13% 934,908 13% Age 55-64 761,659 11% 846,856 12% Age 65 and Over 703,406 11% 920,063 13% Total 6,677,340 100% 7,243,851 100%

Median Age 34.4 35.7

Source: Nielsen/U.S. Census Bureau

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Income Distribution Houston’s economic boom between 2004 and 2008 enhanced income levels for Houston’s workforce. Most importantly, it increased the percentage of households with incomes of $75,000 or more that are potentially capable of affording new homes. As Houston continues to expand, households with incomes of at least $75,000 are anticipated to show the strongest growth – particularly in the households earning $150,000 and More. However, as the cost to purchase and develop land increases, there will continue to be challenges associated with providing first-time housing to the 39 percent of households that earn less than $50,000.

Household Income Distribution Houston MSA

2016 Estimate 2021 Projection Income Range Number Percent Number Percent Less Than $25,000 463,040 20% 447,811 18% $25,000 - $34,999 213,320 9% 214,319 9% $35,000 - $49,000 298,439 13% 305,689 12% $50,000 - $74,999 387,693 17% 405,656 16% $75,000 - $99,999 271,376 12% 295,774 12% $100,000 - $149,999 338,622 15% 392,429 16% $150,000 and Above 348,316 15% 457,219 18% Total 2,320,806 100% 2,518,897 100%

Median Income $61,968 $67,973 Average Income $88,764 $98,262

Source: Nielsen/U.S. Census Bureau Riverlands BC-MUD Market Study | 24

Houston Housing Market

Multi-Family Market The large volume of Class-A properties in lease-up and stabilization continues to create downward pressure on both rental rates and occupancy.

Houston’s overall occupancy rate for all classes is 89.7 percent. Class-A overall has softened slightly to 79.0 percent, while stabilized Class-A properties remain strong at 91 percent. Class-B and Class-C properties are achieving 93.0 percent and 93.5 percent occupancy rates, respectively.

There are currently 18,750 new apartment units under construction in an estimated 70 properties. Most of these properties are scheduled to enter the market by md-2017.

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HOUSTON APARTMENT MARKET OCCUPANCY RATES BY CLASS

Multiple Listing Service (MLS) Activity Houston’s resale market closed on 30,506 single-family homes in the first six months of 2016. In comparison, approximately 29,900 single-family homes closed during the first six months of 2015. Total inventory of resale single-family homes in the Houston market increased to 25,674, representing approximately 3.9 months of supply. While the MoS figure is up from 3.2 months of supply this time last year, resale home inventory remains well below the six-month level that is typically considered to be equilibrium for resale listings.

Inventory of resale listings is greatest at the highest price points and in the premier Houston neighborhoods. For example, inventory within the River Oaks and Memorial Villages contain between 7.5 months and 9.1 months of supply. Meanwhile, the more affordably priced neighborhoods, like eastern Spring, western Humble, and Alief, contain less than two months of supply.

MLS transactions of resale homes in the second quarter reflect a median price of $200,000, a year-over-year increase of three percent.

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HOUSTON MLS ACTIVE LISTINGS AND ANNUAL CLOSINGS

HOUSTON MLS ACTIVE LISTINGS MONTHS OF SUPPLY

New Housing Starts & Forecast Houston maintained its status as the second-most active market of all Metrostudy survey regions, trailing only /Fort Worth in 2Q16 annual starts. Houston achieved 26,039 annual starts, representing a decline of -3,530 starts year-over-year. During the same period, the Dallas/Fort Worth market observed 29,626 annual starts, an increase of 5,664 compared to the previous year. Metrostudy anticipates a total year-over-year decline of between ten percent and fifteen percent in Houston single-family annual Riverlands BC-MUD Market Study | 27

starts at the conclusion of 2016, followed by modest percentage gains in 2017 and 2018.

Annual closings surpassed starts in 2Q16, continuing a trend that began in 4Q115. Builders closed 6,258 homes in 2Q16, down thirteen percent compared to 2Q15. Builders have generally reported sales and closings that met or slightly exceeded their 2016 business plan expectations for each month of 2Q16. However, builders report an increasingly competitive sales environment as spec-home inventory increases and more aggressive discounts are offered to turn aged inventory.

Annual new home starts volume was greatest in the $200,000 to $299,000 price band. Starts volume in the $300,000 to $399,000, $400,000 to $499,000, and $500,000 to $799,000 price bands experienced significant growth between 2Q10 and 2Q14, but have experienced a general stabilization in starts growth over the past two years.

HOUSTON ANNUAL STARTS & CLOSINGS

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HOUSTON QUARTERLY STARTS

Annual Housing Starts in Houston

Year Starts Nominal Change Percent Change 2005 47,951 7,273 18% 2006 49,502 1,551 3% 2007 37,609 -11,893 -24% 2008 25,883 -11,726 -31% 2009 18,608 -7,275 -28% 2010 18,775 167 1% 2011 18,337 -438 -2% 2012 23,558 5,221 28% 2013 28,176 4,618 20% 2014 30,612 2,436 9% 2015 27,899 -2,713 -9% Source: Metrostudy Riverlands BC-MUD Market Study | 29

New Home Inventory Trends Metrostudy’s second quarter survey reflects a total of 15,822 new homes in inventory, including models, homes under construction, and finished vacant homes. This total is down seven percent from the 2Q15 overall inventory figure. Of primary concern is the number of finished vacant homes in inventory increased by 42 percent, reaching 5,910 after settling at 4,141 the previous year. Builders appear to be contracting starts in order to absorb some of this finished vacant inventory; homes under construction decreased by 25 percent from 11,980 in 2Q15 to 8,931 in 2Q16.

The percentage of all homes in inventory that are finished vacant remains above the 35 percent equilibrium threshold identified by Metrostudy, but just slightly at 37.4 percent. This is most acute in certain submarkets within the Far North and West Southwest areas. Finished vacant home inventory is also greatest in the higher home price bands.

Annual starts per model has declined over the past year, from 34.0 to 26.5 in 2Q16.

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HOUSTON ANNUAL LOT DELIVERY AND ABSORPTION

New Home Inventory

New Home Percent Year MOS Inventory Finished 2005 6.7 24,720 31% 2006 6.5 26,156 37% 2007 5.9 21,066 46% 2008 6.2 16,050 49% 2009 6.2 11,817 47% 2010 5.9 10,051 52% 2011 6.4 9,853 44% 2012 6.5 11,721 30% 2013 6.7 14,349 21% 2014 6.9 16,475 21% 2015 7.1 16,532 32% Source: Metrostudy Riverlands BC-MUD Market Study | 31

Vacant Developed Lot Inventory, Deliveries and Absorption Lot deliveries continued to exceed starts in 2Q16, with 8,539 lots delivered compared to 6,007 home starts. The Houston market finished 2Q16 with 8,785 more lots delivered than homes. That takes the market inventory of VDL to 45,381, a slight increase over the previous quarter but still within equilibrium levels at 20.0 months-of-supply. Of the nine market areas defined by Metrostudy, only the Far North submarket is above equilibrium in terms of VDL supply. The VDL supply that supports homes priced $499,000 and below is relatively tight, while VDL months-of-supply supporting all higher home price bands exceeds equilibrium.

Delays in lot deliveries kept the market in balance through 2015; however, lot inventories are exhibiting an increase YTD in 2016. Given relatively low levels of additional replacement lots currently under development, Metrostudy anticipates five of the nine submarkets to maintain VDL inventory levels less than less than equilibrium through 2Q17, with two others remaining at equilibrium by that time, and only two submarkets (Far North and Northwest) exhibiting a VDL inventory level in excess of the 20-24 months of supply equilibrium. Riverlands BC-MUD Market Study | 32

HOUSTON 2Q16 VDL INVENTORY AND QUARTERLY LOT DELIVERIES

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III. Competitive Market Area Introduction

This section describes the demographic and new home market trends in the trade area relevant to the Riverlands/South Houston Competitive Market Area. An evaluation of housing sales, starts activity, lot inventory levels, and future development plans provide a foundation for understanding the area’s supply and demand, product preference, competition, and potential opportunities.

Definition and Justification

The map below shows the boundaries for the Riverlands/South Houston CMA, as well as the location of the unnamed Brazoria County MUD within the Riverlands community.

Riverlands/South Houston

CMA Boundary

Riverlands Development

The CMA boundaries were established using several market-related considerations. Primarily, these borders represent the northern portions of the Alvin ISD in Pearland that are zoned to the existing Manvel High School and the new Shadow Creek Ranch schools, Riverlands BC-MUD Market Study | 35

with a northern boundary of the Sam Houston Parkway, eastern boundary of Main Street, extending west into the Pearland ISD to the Fort Bend Toll Road and south to County Road 54/County Road 62. Many of the communities within the CMA boundaries compete for the same buyer traffic along the Texas State Highway-288/Southern Freeway between the Sam Houston Tollway and Highway-6. These communities also share the same infrastructure advantages and disadvantages, such as retail and commercial locations, traffic patterns, drive time to and from employment centers, and recreational facility availability. Consequently, new-home trends in the CMA communities are indicative of future demand for particular housing products at the subject site.

Population and Household Trends

Metrostudy uses demographic data and projections from Nielsen to help in characterizing geographic areas and in establishing trends. While Nielsen’s data are typically reliable for large, highly populated areas, they are less reliable for suburban/exurban areas on the periphery of the metro areas. This is because they, like all other demographic data providers, use a top-down approach, and when they allocate their estimates and projections to the bottom, most granular level, it is infeasible for them to become knowledgeable about such things as land development trends, in every census block in the nation.

The population and household estimates (by Nielsen) indicate that the CMA is experiencing moderate growth and is expected to absorb a sustained influx of residents. As of 2016, there are an estimated 208,116 people in 65,343 households following a six- year period in which these totals grew by 21.1 percent and 19.3 percent, respectively. The CMA is expected to experience a population increase of approximately 25,200 and household increase of 7,500 by 2021, representing gains of 12.1 percent and 11.4 percent, respectively. The CMA currently has an average household size of 3.18 persons, significantly larger than the 2.88 average size for the Houston area.

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Riverlands/South Houston CMA Population and Household Growth 2010 Census 2016 Estimate 2021 Projection Population 171,899 208,116 233,335 Total Numerical Change - 36,217 25,219 Total Percent Change - 21.1% 12.1% Annual Number Change - 6,036 5,044 Annual Percent Change - 3.2% 2.3%

Households 54,792 65,343 72,824 Total Numerical Change - 10,551 7,481 Total Percent Change - 19.3% 11.4% Annual Number Change - 1,759 1,496 Annual Percent Change - 3.0% 2.2%

Average Household Size 3.14 3.18 3.20 Source: Nielsen/U.S. Census Bureau

The distribution of the age of the population within the CMA is somewhat younger than the region overall, with the Under-25 group accounting for 39 percent of the total population. The Age 45-and-Over cohort represents 33 percent and the remaining 28 percent are found in the Age 25-44 segment. However, over the upcoming five years, the Under-25 and Age 25-44 segments’ share of the population are forecast to decline by one percent and three percent overall, respectively, while the segment of the population Age 45 and Over is expected to increase its share of the population by three percent. Additionally, the median age within the CMA is currently 33.9, and is projected to increase to 35.0 by 2021.

Population Distribution By Age Riverlands/South Houston CMA

2016 Estimate 2021 Projection Age Range Number Percent Number Percent Age 0-17 62,862 30% 67,312 29% Age 18-24 18,406 9% 23,887 10% Age 25-34 25,607 12% 25,453 11% Age 35-44 33,874 16% 33,204 14% Age 45-54 28,640 14% 33,476 14% Age 55-64 20,949 10% 25,149 11% Age 65 and Over 17,778 9% 24,853 11% Total 208,116 100% 233,335 100%

Median Age 33.9 35.0

Source: Nielsen/U.S. Census Bureau Riverlands BC-MUD Market Study | 37

On average, households within the CMA have higher household incomes to those in the Houston Market. The CMA’s estimated average household income for 2016 is $105,296 with an estimated median household income of $84,587. For comparison, the average household income in the Houston Market is $88,764 and the median household income is $61,968.

The higher median incomes can most likely be attributed to the ample supply of new homes priced for middle and upper-middle income households, and convenient access to the Southern Freeway and the nearby Medical Center, Sugar Land, Bellaire, Clear Lake, and Sharpstown employment centers.

Household Income Distribution Riverlands/South Houston CMA

2016 Estimate 2021 Projection Income Range Number Percent Number Percent Less Than $24,000 7,728 12% 7,578 10% $25,000 - $34,999 3,896 6% 3,921 5% $35,000 - $49,000 6,608 10% 6,176 8% $50,000 - $74,999 10,979 17% 11,755 16% $75,000 - $99,999 9,026 14% 9,647 13% $100,000 - $149,999 12,819 20% 14,696 20% $150,000 and Above 14,288 22% 19,053 26% Total 65,343 100% 72,824 100%

Median Income $84,587 $93,097 Average Income $105,296 $116,761

Source: Nielsen/U.S. Census Bureau

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IV. Residential Analysis CMA New Single-Family Housing Market

This section describes recent quarterly trends in single-family housing starts and vacant developed lots in regards to price, volume, lot sizes, and subdivisions.

Housing Starts The following table displays the annual rate of new single-family home starts on a quarterly basis from 2Q13 through 2Q16 for both the overall Houston market and the CMA, with the percent share of the metropolitan Houston market captured by the CMA also displayed.

Annual starts on single-family homes within the CMA have increased substantially since 1Q14, when annual starts in the market area were 1,215 and accounted for 4.3 percent of the Houston region. Since then, single-family annual starts within the CMA have increased to 1,849 and the market-share has increased to 7.2 percent, the highest share commanded by the CMA in at least three years. Metrostudy expects annual starts within the CMA to continue this rend of increasing market share between 2016 and 2018 because of the large volume of future lots and continued increasing capture rate. Overall, annual starts are forecast to increase to an average of 1,838 – 1,995 through 2018.

The following table and chart illustrate the historical and forecast rate of single-family housing starts in the Houston survey region and the CMA, as well as the historical and forecast market share.

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Houston MSA and Riverlands/South Houston CMA Starts and Market Share of Total Houston MSA Starts 2Q13 to 2Q16 and Projected 2016-2018 Annual Starts export column name: AnnStarts AnnStarts

Ann. Starts Ann. Starts CMA Share Qtr/Yr Houston MSA CMA of Houston MSA 2Q13 25,387 1,216 4.8% 3Q13 26,668 1,202 4.5% 4Q13 27,351 1,213 4.4% 1Q14 28,066 1,215 4.3% 2Q14 28,511 1,243 4.4% 3Q14 29,407 1,353 4.6% 4Q14 30,009 1,433 4.8% 1Q15 29,761 1,541 5.2% 2Q15 29,015 1,643 5.7% 3Q15 28,305 1,730 6.1% 4Q15 27,510 1,854 6.7% 1Q16 26,861 1,937 7.2% 2Q16 25,568 1,849 7.2% Projected ------2016 26,250 to 27,750 1,838 to 1,943 7.0% 2017 25,500 to 27,000 1,862 to 1,971 7.3% 2018 24,750 to 26,250 1,881 to 1,995 7.6% Avg. '16-'18 25,500 to 27,000 1,860 to 1,970 7.3%

Source: Metrostudy *Detached Residential

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Vacant Developed Lots The following table shows recent quarterly lot inventory trends in Houston and the CMA. Houston’s VDL inventory steadily declined between the second quarter of 2013 and the third quarter of 2014 as developers were unable to accelerate lot production to match the robust rebound of home starts rates. Since 3Q14, however, Houston’s VDL inventory has increased from 34,224 to 44,282 while months-of-supply increased from 14.0 months to the current regional VDL inventory of 20.8-months.

Within the CMA, the VDL inventory has fluctuated substantially from 2Q13 to 2Q16, resulting in the lowest months of supply during 1Q15 at 13.2 and the highest during 2Q14 when the months of supply were 19.5. Additionally, VDL inventory has also been somewhat volatile, with the absolute number of vacant developed lots ranging from a low total inventory of 1,659 in 4Q13 to a high of 2,982 during the most recent 2Q16. The current VDL inventory within the CMA represents a 19.4-month supply.

Houston MSA and Riverlands/South Houston CMA Vacant Developed Lot Inventory and Months of Supply 2Q13 to 2Q16

Houston MSA Months CMA Months Qtr/Yr VDL of Supply VDL of Supply 2Q13 36,769 17.4 1,903 18.8 3Q13 36,337 16.4 1,749 17.5 4Q13 36,971 16.2 1,659 16.4 1Q14 36,386 15.6 1,940 19.2 2Q14 34,888 14.7 2,025 19.5 3Q14 34,224 14.0 1,887 16.7 4Q14 35,068 14.0 1,705 14.3 1Q15 35,895 14.5 1,697 13.2 2Q15 35,547 14.7 2,123 15.5 3Q15 38,131 16.2 2,336 16.2 4Q15 40,826 17.8 2,649 17.1 1Q16 43,047 19.2 2,712 16.8 2Q16 44,282 20.8 2,982 19.4

Source: Metrostudy *Detached Residential Riverlands BC-MUD Market Study | 41

Lot Delivery and Absorption Lot deliveries have outpaced lot absorptions in seven of the previous thirteen quarters, and the most recent five consecutive quarters. Over the previous four quarters, lot deliveries have averaged 677 per quarter, while lots absorbed have averaged 462 per quarter. Annual lot deliveries in 2Q16 increased substantially from 2Q15 after experiencing a minimal increase in the year prior, while annual lot absorptions have displayed more consistent increases since 2Q14. The increase in lot deliveries is most likely the result of a pent up demand from delays stemming from multiple incidents of severe inclement weather experienced in Houston over the previous six quarters. The Houston region experienced precipitation of 70” in 2015 (43 percent more than Houston’s average annual rainfall of 49”) and had received over 43” of rainfall in 2016 through the end of July. Riverlands BC-MUD Market Study | 42

The following table shows historical lot deliveries and absorption rates over the most recent three-year period.

Riverlands/South Houston CMA Quarterly Lot Delivery and Lot Absorption 2Q13 to 2Q16

Lots Lots Net Increase Yr/Qtr Absorbed Delivered or (Decrease) 2Q13 342 329 (13) 3Q13 300 146 (154) 4Q13 273 183 (90) 1Q14 300 581 281 2Q14 370 455 85 3Q14 410 272 (138) 4Q14 353 171 (182) 1Q15 408 400 (8) 2Q15 472 898 426 3Q15 497 710 213 4Q15 477 790 313 1Q16 491 554 63 2Q16 384 654 270

Source: Metrostudy *Detached Residential Riverlands BC-MUD Market Study | 43

Price Range Distribution of New Home Starts and VDL Starts on homes priced over $200,000 account for approximately 91 percent of the annual starts in the CMA, with homes prices at $200,000-$249,000 responsible for 25 percent of annual starts and representing the most active range. This price range is followed by starts on homes priced at $300,000-$349,000 and $250,000-$299,000 that account for 19 and 17 percent of annual starts within the CMA, respectively. Riverlands BC-MUD Market Study | 44

Riverlands/South Houston CMA Price Range Distribution of 2Q16 Annual Starts & Vacant Developed Lots

Price Annual Percent Vacant Months of Range Starts Distribution Dev. Lots Supply $0 - $199,000 171 9% 129 9 $200,000 - $249,000 454 25% 488 13 $250,000 - $299,000 316 17% 511 19 $300,000 - $349,000 355 19% 718 24 $350,000 - $399,000 236 13% 482 25 $400,000 - $449,000 139 8% 265 23 $450,000 - $499,000 76 4% 145 23 $500,000 - And Over 102 6% 244 29 TOTAL 1,849 100% 2,982 19.4

Source: Metrostudy *Detached Residential

As the Price Distribution chart displays, the proportion of new home starts priced between $200,000 and $449,000 is much higher in the CMA than in the Houston Market overall. The VDL months-of-supply in the CMA is lowest for homes anticipated to be priced less than $300,000. The 1,128 vacant developed lots in these price ranges represent a 14.4-month of supply of lots given the annual starts rate, considerably less than the 19.4-months of supply for the CMA overall.

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CMA Demand by Lot Size The most active lot size in the CMA over the past four quarters was 50’-54’, accounting for 29 percent of all starts in the CMA. Annual starts on this lot size were followed by starts on 60’-64’ lots and 70’-79’ lots, representing 24 percent and 14 percent of all CMA annual starts, respectively. Overall, lots measuring 64’ and smaller accounted for an estimated 70 percent of all annual starts within the CMA, while lots measuring 65’ and larger represented approximately 30 percent. The majority of annual starts on the larger lot sizes occurred on 70’ to 79’ lots, as only nine percent of all starts in the CMA were on lots measuring 80’ and wider.

Additionally, all but three of the identified lot size groups contain VDL supply levels less than the 20-24 months that is considered to be equilibrium for the Houston market, indicating a strong need for development of additional lots in the high-demand sizes.

Riverlands/South Houston CMA 2Q16 Annual Starts & Vacant Developed Lot Inventory Distributed by Lot Width

Lot Vacant Annual Percent VDL Months Width in Feet Dev Lots Starts of Total of Supply 0 - 49 72 84 5% 10 50 - 54 484 533 29% 11 55 - 59 547 211 12% 31 60 - 64 695 433 24% 19 65 - 69 349 136 7% 31 70 - 79 311 260 14% 14 80 - 89 232 116 6% 24 90 And Over 221 55 3% 48 TOTAL 2,911 1,828 100% 19.1

Source: Metrostudy *Only Detached Residential Lots with Designated Sizes Riverlands BC-MUD Market Study | 47

Riverlands BC-MUD Market Study | 48

CMA Subdivisions Ranked by Annual New Home Starts The following table shows the top-10 subdivisions in the CMA ranked by the total number of annual starts in 2Q16. The top-10 subdivisions started at least 54 homes each during the previous four quarters, and accounted for 880 starts (48% of the total annual starts in the CMA). The top-10 subdivisions also have only a 12.1-month supply of vacant developed lots compared to a 26.0-month supply of VDL for all other communities

Riverlands/South Houston CMA Subdivisions Ranked by 2Q16 Annual Starts

Price Range Lot 2Q16 Ann 2Q16 Ann Vac Dev VDL Rank Subdivision Name (in Thousands of Dollars) Size Starts Closings Lots M-o-S 1 Savannah/Laurel Heights $ 198 - $ 415 50' - 75' 167 143 219 15.7 2 Southlake $ 255 - $ 547 50' - 80' 126 143 160 15.2 3 Rodeo Palms/Palm Court $ 138 - $ 279 55' - 55' 92 35 8 1.0 4 Sterling Lakes $ 169 - $ 371 55' - 100' 88 118 89 12.1 5 Sedona Lakes $ 281 - $ 610 60' - 80' 82 78 142 20.8 6 Sienna Plnt/Village of Sawmill Lake/River$ 277Run - $ 376 50' - 50' 80 89 0 0.0 7 Cambridge Falls $ 182 - $ 248 50' - 60' 75 91 135 21.6 8 Winfield Lakes $ 169 - $ 230 45' - 50' 60 93 8 1.6 9 Lakeland $ 206 - $ 289 80' - 80' 56 45 75 16.1 10 Sienna Plnt/Village of Sawmill Lake/Deer$ 289Valley- $ 381 50' - 50' 54 0 50 11.1 Top 10 Total 880 835 886 12.1 Balance of CMA 969 584 2,096 26.0 CMA Total 1,849 1,419 2,982 19.4

Top 10 Subdivisions Share of CMA 48% 59% 30%

Source: Metrostudy

Projected Tax Rates The following table shows several of the most competitive CMA subdivisions and their corresponding Total Tax Rate (Utility District Tax Rate plus the School Tax Rate plus other taxes). Subdivisions are sorted by number of 2Q16 Annual Starts. Tax rates shown range from $2.88 to $72. Despite the variance in tax rates, there appears to be no correlation between lower tax rates and higher absorptions, or vice versa. Home sales in the District should not be significantly affected by a property tax rate that is within this range. Furthermore, as homes are added to the District and total valuation increases, the Municipal Utility District portion of the tax rate can be expected to go down. Riverlands BC-MUD Market Study | 49

Riverlands/South Houston CMA Tax Rates of Top-10 Subdivisions

Subdivision Name Tax Price Range 2Q16 Ann 2Q16 Ann Rate* (in Thousands of Dollars) Starts Closings Savannah/Laurel Heights $3.67 $ 198 - $ 415 167 143 Southlake $3.72 $ 255 - $ 547 126 143 Rodeo Palms/Palm Court $3.50 $ 138 - $ 279 92 35 Sterling Lakes $3.60 $ 169 - $ 371 88 118 Sedona Lakes $3.51 $ 281 - $ 610 82 78 Sienna Plnt/Village of Sawmill Lake/River Run --- $ 277 - $ 376 80 89 Cambridge Falls $2.88 $ 182 - $ 248 75 91 Winfield Lakes $3.39 $ 169 - $ 230 60 93 Lakeland --- $ 206 - $ 289 56 45 Sienna Plnt/Village of Sawmill Lake/Deer Valley --- $ 289 - $ 381 54 0 Average Rate $3.47 $ 216 - $ 375 88 84 Median Rate $3.51 $ 202 - $ 374 81 90 Source: Metrostudy

Planned Housing Projects, Future Lot Inventory A total of 21,390 undeveloped lots have received either preliminary or final approval in the CMA. It is worth noting that just because a plat is approved does not mean that the lots are under development. Many of these plats are only pre-approved and not expected to enter the market within the upcoming 24 months. Delivery of lots will depend on the type of lot, the supply and demand for the lot type, and whether the lots are for brand new communities or “add-ons” to existing communities. Riverlands BC-MUD Market Study | 50

Riverlands/South Houston CMA Future Lot Inventory

Subdivision Developer Sec. Lot Size # of Lots Sienna Plnt/Village of Sawmill Lake/ *Johnson Development/Toll Brothers Remaining 0x0 5,696 Meridiana/ *Rise Communities Remaining 0x0 5,058 Sterling Lakes * Remaining 0x0 3,914 Savannah/Stewart Heights *Savannah Dev., Ltd. Remaining 0x0 855 Pomona/ MHI Remaining-55 55x120 728 Pomona/ MHI Remaining-65 65x120 498 Winfield Lakes *Friendswood Dev. Remaining 0x0 341 Sterling Lakes West *Land Tejas Corp. Remaining 0x0 336 Pomona/ MHI Remaining-75 75x120 224 Sedona Lakes *Marlin Atlantis Remaining 0x0 223 Sterling Lakes *Land Tejas Corp. Sec 13 0x0 204 Newport Lake Estates *Newport Lake Estates Development, LP Sec 1-70 70x150 199 Shadow Grove *KB HOME Remaining-50 50x120 171 Sienna Plnt/ *Johnson Development/Toll Brothers Sec 21-50 50x135 145 Rodeo Palms/Lakes Amvest Sec 2 70x110 144 Lakeland *Coastal Bend Property Dev. Sec 5 0x0 135 Bluewater Lakes on Manvel *Axis Point Developer, LLC Sec 3 Ph 3-60/70 60x120 134 Southern Colony CTMGT Southern Colony, LLC Sec 3-50 50x110 134 Huntington Place Woodmere Dev. Co. Sec 1 50x110 133 Sienna Plnt/ *Johnson Development/Toll Brothers Sec 20-50 50x135 112 Lakeland *Coastal Bend Property Dev. Sec 4 0x0 106 Sterling Lakes West *Land Tejas Corp. Sec 14 0x0 100 Lakeland *Coastal Bend Property Dev. Sec 6 0x0 96 Sienna Plnt/Village Sawmill Lake/Stillwater Cove *Johnson Development Sec X 0x0 92 Southern Colony CTMGT Southern Colony, LLC Sec 2A-45 45x110 92 Bluewater Lakes on Manvel *Axis Point Developer, LLC Sec 2 Ph 2-60/70 60x120 89 Avalon Terrace *MHI Partnership, Ltd. Sec 6-60 60x110 87 Southlake *Perry Sec 11-50 50x135 86 Glendale Lakes *Hannover Estates, Ltd./JNC Development, Inc. Sec 1-50 50x110 85 Sienna Point Longpoint Land Sec 1 & 2 250x350 82 Savannah/Stewart Heights *Savannah Dev., Ltd. Sec 3-65 65x125 74 Winfield Lakes North *Woodmere Dev. Co. Sec 4 0x0 73 Winfield Lakes North *Woodmere Dev. Co. Sec 3 0x0 68 Winfield Lakes North *Woodmere Dev. Co. Sec 5 0x0 67 Other Sub-Divisions 809 Total Future Lots 21,390

Source: Metrostudy

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V. Site Analysis and Evaluation Metrostudy conducted a visual inspection of the project location and found no adverse use of adjacent property. As a disclaimer, no title search was made and Metrostudy makes no claims as to the future use of adjacent land.

Site Analysis

Proposed Lot and House Sales - Based upon information provided by the developer, 100 percent of the single-family lots will be marketed to builders. Moreover, all lots are intended to provide primary housing to the end user.

Location - The District is located in Brazoria County on the south side of the Houston region, approximately 27.1 miles west of the Houston Central Business District. More specifically, it is located approximately 2.9 miles west of the Texas State Highway- 288/South Freeway and directly southeast of the F.M-521 and County Road 56 intersection.

Access - The District can be accessed from the north by traveling south on the Texas State Highway-288 for approximately 24.2 miles before exiting at CRSG/Valley Glenn Road and travelling west for approximately 0.2 miles until reaching County Road 56 and proceeding west for 2.8 miles until reaching F.M.-56, where the proposed community is located to the southeast.

Schools – The District is served by the Angleton Independent School District. In order to assess District and campus performance, the Texas Education Agency sets minimum performance standards in four categories: student achievement, student progress, closure of performance gaps, and postsecondary readiness. The District exceeded the minimum targets in all four performance categories. Students residing in the District will likely attend the following schools initially. Each school’s 2015 performance is supplied in parentheses. For additional information on the TEA’s accountability ratings, visit their website at www.tea.state.tx.us.

• Elementary: Frontier Elementary School (exceeded all targets) • Junior High School: Angleton Junior High School (exceeded all targets) • High School: Angleton High School (exceeded all targets) Riverlands BC-MUD Market Study | 52

Character - Family housing and neighborhood retail are the predominant land uses throughout the CMA. The area is popular with middle-income homebuyers and families because of convenient access to Texas State Highway-288, the Sam Houston Tollway, and Interstate-610 for travel to employment centers, abundance of existing amenities, and ample supply of quality new homes.

Medical Facilities - In addition to numerous clinics and doctors’ offices in the CMA, the District will be supported by local medical facilities such as:

• Houston Methodist Emergency Care Center – Sienna 6016 S. Sienna Ranch Road Missouri City, TX 77459 • Houston Methodist Emergency Care Center – Pearland 11525 W. Broadway Street Pearland, TX 77584

Churches - Due to the strong family orientation in the CMA (prominence of single family housing), churches of many denominations are located conveniently to the subject site.

Shopping Facilities - A number of retail facilities are located within an acceptable commute of the site. This includes several retail and grocery stores to the north along the Texas State Highway-288/South Freeway corridor.

Police and Fire Protection – The area is serviced through local, county, and constable public safety services, as well as fire stations throughout the area. The closest Police and Fire Stations are:

• Arcola City Police Department 13222 Highway 6 Rosharon, TX 77583 • Rosharon Fire Department 16435 F.M.-521 Road Rosharon, TX 77583

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VI. Assumptions & Limiting Conditions The following contingencies and limiting conditions are noted as fundamental assumptions that may affect the validity of the analysis and conclusions reached in this report:

• All information contained in this report, while based upon information obtained from the client and other sources deemed to be reliable, is in no way warranted by Metrostudy.

• The City of Houston, State of Texas, and the nation as a whole will not suffer any major economic shock during the time period of the forecast contained in this report.

• Population will continue to increase at or above the rate forecast.

• The sources of statistical data and demographic estimates used in this analysis are sufficiently accurate to be useful for planning purposes.

• The development will be designed, promoted, and managed in a professional manner.

• The recommendations set forth in this report will be acted upon within a reasonable period of time to preclude major changes in the conditions evaluated.

Radical changes in factors affecting the major assumptions noted above could alter the conclusions reached in this analysis or necessitate the re-evaluation of portions of this report.