An Update of a Market Potential Analysis for Downtown Rosemount, Minnesota

7575 Golden Valley Road Suite 385 Golden Valley, MN 55427 612.338.0012 www.maxfieldresearch.com

October 19, 2016

Mr. Anthony Nemcek Planner City of Rosemount 2875 145th Street Rosemount, MN 55068

Dear Mr. Nemcek:

Attached is the market study titled, “An Update of a Market Potential Analysis for Downtown Rosemount, Minnesota.” This study is an update to the Downtown Market Analysis which was originally completed in November, 2003. This analysis is intended to provide the City with current market information as the City updates its Comprehensive Plan and prepares for the next stage of growth and redevelopment in the Downtown area.

The scope of this study includes analyses of the following factors: characteristics of Downtown Rosemount; demographic and economic characteristics of the Market Area; rental housing market conditions; for-sale multifamily housing market conditions; senior housing supply and demand; and the development potential for commercial uses (office and retail) in the Market Area.

The study concludes with recommendations for a strategic implementation plan for development in Downtown Rosemount. These recommendations address marketing and promotion, key locations for redevelopment, development timeframes, potential funding sources, and potential developer partners.

Please contact us if you have questions or require additional information.

Sincerely,

MAXFIELD RESEARCH AND CONSULTING, LLC

Joe Hollman Senior Analyst

Attachment

(main) 612-338-0012 (fax) 612-904-7979 7575 Golden Valley Road, Suite 385, Golden Valley, MN 55427 www.maxfieldresearch.com

TABLE OF CONTENTS

Page EXECUTIVE SUMMARY ...... 1

PURPOSE AND SCOPE ...... 6 Study Purpose ...... 6 Scope of Services ...... 6

DOWNTOWN OVERVIEW ...... 7 Introduction ...... 7 Regional Location ...... 7 Study Area Location and Characteristics ...... 11 Access and Visibility ...... 18 Proximity to Shopping, Employment, and Services ...... 20 Appropriateness of Downtown Rosemount for Development ...... 22

HOUSING MARKET ANALYSIS ...... 24 Introduction ...... 24 Housing Market Area Definition ...... 24 Population and Household Growth Trends ...... 26 Age Distribution ...... 27 Household Income ...... 30 Household Tenure ...... 33 Household Type ...... 36 Employment Trends ...... 38 Commuting Patterns ...... 45 Summary of Demographic Trends ...... 47 Residential Construction Trends ...... 48 Overview of Rental Market Conditions ...... 50 Selected Market Rate Apartment Developments ...... 54 Pending Rental Developments ...... 59 Market Rate General Occupancy Rental Demand Calculations ...... 61 Home Sales ...... 63 Active Listings ...... 67 Selected For-Sale Multifamily Housing Developments ...... 69 For-Sale Housing Market Demand Analysis ...... 72

SENIOR HOUSING MARKET ANALYSIS ...... 74 Introduction ...... 74 Senior Housing Defined ...... 74 Older Adult (Age 55+) Population and Household Trends ...... 76 Supply of Senior Housing in the HMA ...... 79 Pending Senior Housing Developments in the HMA ...... 83 Senior Housing Demand Calculations ...... 84 Senior Housing Demand Summary ...... 93

TABLE OF CONTENTS (continued)

Page COMMERCIAL MARKET ANALYSIS ...... 94 Introduction ...... 94 Market Area Definition ...... 94 Population and Household Growth Trends ...... 96 Daytime Population ...... 97 Consumer Expenditure Patterns ...... 98 Types of Retail Goods and Customer Shopping Patterns ...... 104 Twin Cities Retail Market Conditions ...... 106 Selected Retail Properties in the Commercial Market Area ...... 110 Retail Demand Potential and Leakage ...... 113 Retail Development Potential ...... 116 Office-Using Business Growth by Type of Business ...... 119 Growth of Jobs Using Office Space ...... 123 Twin Cities Office Market Conditions ...... 125 Twin Cities Medical Office Market Conditions ...... 128 Selected Office Properties in the Commercial Market Area ...... 130 Office Development Potential...... 133

CONCLUSIONS AND RECOMMENDATIONS ...... 135 Introduction ...... 135 Summary of Findings ...... 135 Demand Summary ...... 136 Strategic Plan and Implementation Guide ...... 140

LIST OF TABLES

Table Number and Title Page

Downtown Overview 1 Downtown Rosemount, Land Use Summary ...... 13 2 Downtown Rosemount, Business Mix by Industry Sector ...... 14

Housing Market Analysis 3 Population and Household Growth Trends and Projections, Downtown Rosemount Housing Market Area ...... 26 4 Age Distribution, Downtown Rosemount Housing Market Area ...... 29 5 Household Income by Age of Householder, Housing Market Area ...... 31 6 Tenure by Age of Householder, Downtown Rosemount Market Area ...... 34 7 Household Type, Downtown Rosemount Market Area ...... 36 8 Employment Growth Trends and Projections, Downtown Rosemount Market Area .. 39 9 Labor Force and Resident Employment Trends, Downtown Rosemount Market Area 40 10 Quarterly Census of Employment and Wages, Downtown Rosemount Market Area . 44 11 Commuting Patterns, City of Rosemount ...... 45 12 Commuting Inflow/Outflow Characteristics, City of Rosemount ...... 46 13 Residential Building Permit Trends, Housing Market Area ...... 48 14 Average Rents/Vacancies Trends, Downtown Rosemount Market Area ...... 53 15 Select New Market Rate Rental Projects, Housing Market Area ...... 55 16 Unit Type Summary, Selected Market Rate Rental Developments ...... 57 17 Pending General Occupancy Rental Developments, Housing Market Area ...... 60 18 Projected Demand for Market Rate Rental Housing, Housing Market Area ...... 62 19 Residential Resales Activity, Downtown Rosemount Housing Market Area ...... 64 20 Residential Resales Activity – Price Distribution, Housing Market Area ...... 66 21 Homes Listed for Sale, Housing Market Area ...... 67 22 New Construction Multifamily Homes, Housing Market Area ...... 70 23 General Occupancy For-Sale Multifamily Housing Demand, Housing Market Area .... 73

Senior Housing Analysis 24 Market Rate Active Adult/Few Services Senior Housing Properties ...... 80 25 Market Rate Active Service Enhanced Senior Housing Properties ...... 81 26 Pending Senior Housing Developments, Housing Market Area ...... 83 27 Market Rate Active Adult/Few Services Housing Demand, Housing Market Area ...... 85 28 Congregate Living Demand, Housing Market Area...... 87 29 Market Rate Assisted Living Demand, Housing Market Area ...... 90 30 Memory Care Demand, Housing Market Area ...... 92 31 Senior Housing Demand Summary, Housing Market Area ...... 93

LIST OF TABLES CONTINUED

Table Number and Title Page

Commercial Market Analysis 32 Population and Household Growth Trends and Projections, Downtown Rosemount Commercial Market Area ...... 96 33 Daytime Population, Downtown Rosemount Commercial Market Area ...... 97 34 Estimated Household Expenditures by Selected Product Type, Downtown Rosemount Commercial PMA ...... 100 35 Estimated Household Expenditures by Selected Product Type, Downtown Rosemount Commercial DMA ...... 102 36 Retail Market Statistics, Twin Cities ...... 107 37 Quoted Average Net Retail Rental Rates, Twin Cities Metro Area ...... 109 38 Retail Buildings Available for Lease, Downtown Rosemount Commercial Market Area ...... 111 39 Retail Demand Potential and Leakage, Downtown Rosemount Commercial PMA ..... 114 40 Retail Demand Potential and Leakage, Downtown Rosemount Commercial SMA ...... 115 41 Demand for Neighborhood Retail Space, Downtown Rosemount Commercial Primary Market Area ...... 117 42 Demand for Specialty Retail Space, Downtown Rosemount Commercial Secondary Market Area ...... 118 43 Office-Using Businesses by Industry and Size of Business, Downtown Rosemount Commercial PMA (55068 ZIP Code) ...... 119 44 Employment Growth Trends and Projections – Office Sectors, Downtown Rosemount Commercial PMA ...... 123 45 Office Market Statistics, Twin Cities ...... 126 46 Medical Office Market Statistics, Twin Cities ...... 129 47 Office Buildings Available for Lease, Downtown Rosemount Commercial Market Area ...... 131 48 Projected Demand for Office Space, Downtown Rosemount Commercial PMA ...... 134

Conclusions and Recommendations 49 Demand Summary, Downtown Rosemount ...... 136 50 Potential Commercial Tenants, Downtown Rosemount ...... 142

EXECUTIVE SUMMARY

Purpose and Scope

Maxfield Research and Consulting, LLC was engaged by the City of Rosemount (the “Client”) to complete an update to the Downtown Market Analysis which was originally completed in No- vember, 2003. The scope of this study includes analyses of the following factors: characteristics of Downtown Rosemount; demographic and economic characteristics of the Market Area; rental housing market conditions; for-sale multifamily housing market conditions; senior housing supply and demand; and the development potential for commercial uses (office and retail) in the Market Area.

Downtown Overview

Downtown Rosemount can generally be described as the property located along South Robert Trail, south of 143rd Street and north of County Road 42. The western boundary of the Study Area follows Cameo Avenue and Cambrian Avenue, while the Union Pacific railroad track forms the eastern border. In total, Downtown Rosemount encompasses approximately 46 acres. The following points summarize some of the primary strengths of Downtown Rosemount as well as some of the challenges:

Strengths

 The Downtown area is relatively compact and walkable;  Expanding population and household base in and around Downtown Rosemount will generate a growing need for commercial goods and services;  South Robert Trail provides good access and visibility to businesses located Downtown, and traffic volumes are expected to grow steadily over the next 20 years;  There are several attractions and facilities anchoring Downtown Rosemount that pull people into the area, generating potential customer traffic (Rosemount Crossing shopping center, Post Office, City Hall, public schools, public library, Rosemount Transit Sta- tion, Steeple Center, Central Park, and Erickson Park);

Challenges

 Adjacent land uses limit the potential for Downtown Rosemount to expand beyond its current configuration;  There is no land available in the Downtown area, so new development requires the redevelopment of underutilized parcels or the adaptive reuse of existing structures;  South Robert Trail lacks a sense of cohesion, particularly south of 145th Street, and there is a perceived lack of parking available in Downtown Rosemount; and,  There are stronger retail nodes located outside of Downtown Rosemount that will be more attractive locations for many commercial businesses, particularly national chain retailers.

MAXFIELD RESEARCH AND CONSULTING, LLC 1 EXECUTIVE SUMMARY

Demographic Review

Key demographic factors influencing the area, notably population and household growth, an aging population, income growth, and a shift in household types, indicate that there will be growing demand for a variety of housing products and a diverse range of commercial goods and services in the Market Area.

Additionally, employment is projected to increase at a faster pace in Rosemount and the surrounding Market Area than in the Metro Area. Job growth is a primary driver of demand for commercial real estate, particularly office space, and increased hiring in a market area can also lead to higher levels of retail spending, stimulating demand for retail space.

The expanding population and household base in and near Downtown will create a growing need for commercial goods and services, stimulating demand for new commercial space in the area. In addition, an expanding base of business establishments in the area will support the potential for additional residential development.

Multifamily Residential Market Conditions

The equilibrium vacancy rate for rental housing is considered to be 5.0%. This allows for normal turnover and an adequate supply of alternatives for prospective renters. During the second quarter of 2016 (the most recent data available), the vacancy rate was 2.9% in the Twin Cit- ies Metro Area and 3.5% across the submarkets surrounding Downtown Rosemount. Addition- ally, the vacancy rate among the newest market rate rental properties in the Market Area was at 1.5% as of September 2016. In effect, the overall supply of rental housing in the Market Area is below the level considered adequate to meet demand.

The tight supply of rental units coupled with rising rental rates is stimulating development activity. We identified 12 pending general occupancy rental developments in the Market Area, containing a total of 2,103 units, including one 37-unit affordable housing project under construction and 412 units which have been approved and are expected to commence construction in 2016. The remaining units have been proposed but are not yet approved.

Median sale prices having been climbing steadily in the Market Area since dropping to lows of $199,250 for single-family homes and $105,000 for multifamily units in 2011. Since 2011, the median sale price for single-family homes has increased nearly 41% to $280,000 through the first eight months of 2016, while multifamily pricing jumped 58% to $165,900. Equilibrium in the for-sale residential market is generally considered to be a six-month supply of homes on the market. Based on the current inventory of homes listed for sale as of September 2016, there is a 3.3-month supply of single-family homes and a 2.2-month supply of multifamily homes on the market in the Market Area. This data suggests that there is currently an under supply of for- sale housing in the Market Area.

MAXFIELD RESEARCH AND CONSULTING, LLC 2 EXECUTIVE SUMMARY

The greatest population and household growth is projected to occur among the older adults in the Market Area. Aging of baby boomers led to a 95% increase in the 55 to 64 population between 2000 and 2010 in the Market Area. As this group ages, all cohorts age 55 or greater are expected to see increases over the next several years, particularly the 70 to 74 age group which is projected to grow 41% between 2016 and 2021. We identified 1,913 senior housing units in the Housing Market Area, including 855 active adult units, 828 congregate units (independent living with services available), 699 assisted living units, and 386 units of memory care. The total supply of senior housing units in the Housing Market Area is expected to increase 24% (+597 units) over the next 24 months with the addition of new units, but the growing older adult and senior population should maintain long-term demand for senior housing alternatives in the Market Area.

Commercial Real Estate Market Conditions

Our review of current commercial real estate market conditions indicates that the retail and office commercial real estate markets are at various stages of the real estate cycle, which consists of four phases: Expansion (rising rents, increasing demand and active development); Oversup- ply (demand softens, rents flatten, but construction activity remains high); Saturation (weak demand, declining rents, and development slows); and, Recovery (increasing demand, rents stabi- lize with limited new construction).

Retail Market

As of the second quarter of 2016, the Twin Cities retail market had a vacancy rate of 4.4%, the lowest vacancy since 2006. Demand for retail space generated nearly 433,000 square feet of absorption through the first six months of 2016. Retail demand was highest in neighborhood centers, which experienced nearly 218,000 square feet of absorption during that time period.

The Twin Cities retail market recovered from high vacancy rates and weak demand during the Recession and has moved into the expansion phase. Vacancy rates have been declining since 2010, while demand has increased. Market conditions have become very competitive and retailers are faced with a shortage of available quality space and rising rental rates. Development activity is picking up in response to increased demand and tightening supply, and as retailers compete for a declining supply of available space, rental rates are being pushed higher.

Within the Downtown Rosemount Commercial Market Area, all of the major retail categories experienced leakage of retail sales during 2015 indicating that Market Area residents are purchasing retail goods and services at establishments located outside the area. This data suggests that Downtown Rosemount could attract stores in a variety of retail categories. However, the most likely uses to be drawn to the area would be neighborhood and convenience-oriented goods and services where there is significant leakage such as full-service and limited-service restaurants, health and personal care stores, as well as specialty retailers (i.e. florists, gift stores, pet supplies, and home furnishings).

MAXFIELD RESEARCH AND CONSULTING, LLC 3 EXECUTIVE SUMMARY

Office Market

The Twin Cities office market posted nearly 152,000 square feet of positive absorption during the first half of 2016, following 982,000 square feet of absorption in 2015. Space absorption pushed vacancy down -0.8% over the past year to 15.6%, the lowest vacancy since 2007. Va- cancy in the South/Airport submarket, which includes Rosemount, declined -2.6 percentage points to 17.0% after over 264,000 square feet were absorbed in the past year.

Equilibrium in the office market is generally considered to be vacancy of approximately 10% to 12%. Despite recent tightening, office vacancy rates remain above equilibrium and there is little demand for new speculative office development, particularly in most suburban submarkets. The slow recovery has been driven, in part, by a shift in office space utilization as companies strive to become more efficient by increasing densities in office space. Additionally, the tight labor market is a major consideration for companies considering expansion or relocation.

Based on the composition of business establishments in the surrounding area, we anticipate that there will be growing demand from office-using businesses that offer services to local households, such as; health care providers, insurance agencies, accountants, and real estate agents. While vacancy rates in the multi-tenant office market are above equilibrium, there is no office space currently listed as available for lease in the PMA, and continued household growth in the Market Area will stimulate demand for services from businesses in these sectors.

Demand Summary

In total, we find demand to support approximately 255 units of general occupancy multifamily housing between 2016 and 2021 in Downtown Rosemount, including 139 market rate rental units and 116 for-sale multifamily units.

For-sale multifamily housing development in Downtown Rosemount would target the first-time home buyer market, particularly from couples that do not have children. For-sale multifamily housing will also attract older mid-age households (never-nesters or empty-nesters) and retired individuals and couples.

The strongest sources of demand for new rental housing in the HMA will likely be young singles and couples without children in their late-20s to mid-30s who work in nearby suburban communities or in either Downtown Minneapolis or Downtown Saint Paul. Mid-age households (never-nesters or empty-nesters) who want to sell their single-family homes and have more freedom for leisure pursuits could also account for a portion of demand for new rental housing in the area.

MAXFIELD RESEARCH AND CONSULTING, LLC 4 EXECUTIVE SUMMARY

There is currently excess demand for 925 active adult/few services senior housing units and 1,308 service-enhanced senior housing units (579 congregate, 433 assisted living, and 296 memory care units) in the HMA. Utilizing a 10% capture rate, we estimate that a project in Downtown Rosemount could support 138 active adult units and 131 service-enhanced units in 2016. Growth in the age- and income-qualified population will outpace the delivery of new competitive senior housing units in the HMA over the next five years causing excess demand capturable in Downtown Rosemount to increase to 171 active adult units and 149 service-enhanced units (65 congregate, 48 assisted living, and 36 memory care units) in 2021.

In total, we find demand to support roughly 71,000 square feet of commercial space in Down- town Rosemount by 2025, including 26,511 square feet of neighborhood retail space, 32,114 square feet of specialty retail space, and 12,283 square feet of office space.

The following figure summarizes our demand findings for market rate general occupancy residential, senior housing, retail, and office space.

DEMAND SUMMARY DOWNTOWN ROSEMOUNT Excess Market Capture Demand Capturable in Area Demand Rate Downtown Rosemount Multifamily Residential (2016 to 2021) Market Rate Rental 2,774 units 5% 139 units For-Sale Multifamily 2,329 units 5% 116 units Market Rate Senior Housing 2,630 units 320 units Active Adult/Few Services 1,140 units 15% 171 units Congregate 648 units 10% 65 units Assisted Living 482 units 10% 48 units Memory Care 360 units 10% 36 units Commercial (2016 to 2025) Neighborhood Retail 132,557 Sq. Ft. 20% 26,511 Sq. Ft. Specialty Retail 321,142 Sq. Ft. 10% 32,114 Sq. Ft. Office 49,134 Sq. Ft. 25% 12,283 Sq. Ft.

MAXFIELD RESEARCH AND CONSULTING, LLC 5 PURPOSE AND SCOPE

Study Purpose

Maxfield Research and Consulting, LLC was engaged by the City of Rosemount (the “Client”) to complete an update to the Downtown Market Analysis which was originally completed in No- vember, 2003. Uses evaluated include general occupancy multifamily rental and for-sale housing, senior housing, retail, and office. This analysis is intended to provide the City with updated market information as the City updates its Comprehensive Plan and prepares for the next stage of growth and redevelopment in the Downtown area.

Scope of Services

The scope of this study includes analyses of the following factors: characteristics of Downtown Rosemount; demographic and economic characteristics of the Market Area; rental housing market conditions in the area; for-sale multifamily housing market conditions; senior housing supply and demand; and the development potential for commercial uses (office and retail) in the Market Area.

The methodology used to evaluate demand in this study is proprietary to Maxfield Research and Consulting, LLC but is consistent with methodologies used by analysts throughout the real estate industry. This report includes both primary and secondary research. Primary research includes interviews with local officials, business owners, and real estate professionals. Second- ary research is credited to the source when used, and is usually data from the U.S. Census, the Metropolitan Council, or the Minnesota Department of Employment and Economic Develop- ment. Secondary research is always used as a basis for analysis, and is carefully reviewed in light of other factors that may impact projections. All of the information on active listings and pending developments was collected by Maxfield Research and Consulting, LLC and is accurate to the best of our knowledge.

MAXFIELD RESEARCH AND CONSULTING, LLC 6 DOWNTOWN OVERVIEW

Introduction

This section of the report presents an analysis of the location and characteristics of the Down- town area in Rosemount, Minnesota discussing the regional location and general characteristics of the property comprising the Downtown Rosemount Study Area.

Information regarding the physical characteristics of Downtown Rosemount, accessibility to and visibility of the area, and a summary of the existing land use and business mix in Downtown Rosemount are also presented. Finally, this section discusses the strengths and weaknesses of Downtown Rosemount for future development.

Regional Location

Land uses surrounding Downtown Rosemount include a mix of institutional and single-family to the north and west, while the area to the east of the railroad tracks is largely undeveloped. Downtown Rosemount is bordered by the Rosemount Crossing shopping center on the south, a 42,000 square-foot neighborhood shopping center anchored by an Aldi grocery store. There are also several commercial and industrial properties along the south side of County Road 42, south of Downtown Rosemount.

Rosemount is a community of 23,042 people (2015 estimate) located in the Twin Cities Metro- politan Statistical Area, which encompasses 13 counties and included an estimated 3.5 million people in 2015. Rosemount is located in the southern portion of the Metro Area in Dakota County. Dakota County had an estimated population of 414,490 people in 2015.

The map on the following page shows the location of Downtown Rosemount in the seven- county core of the Metro Area (estimated population of 3.0 million), which consists of the Counties of Anoka, Carver, Dakota, Hennepin, Ramsey, Scott, and Washington. The Cities of In- ver Grove Heights (2015 population of 35,071) and Eagan (2015 population of 67,509) border Rosemount on the north, while Apple Valley (2015 population of 50,161) is situated west of Rosemount. Nininger Township (2015 population of 862) borders Rosemount on the east. The southern border of Rosemount is formed by the City of Coates (2015 population of 160), Em- pire Township (2015 population of 2,839), and Vermillion Township (2015 population of 1,212).

The maps and photos on the following pages display images of Downtown Rosemount and its location in the Metro Area.

MAXFIELD RESEARCH AND CONSULTING, LLC 7 DOWNTOWN OVERVIEW

Regional Location

Anoka County

Washington County Hennepin County Ramsey County

Carver County Rosemount

Dakota Scott County County

MAXFIELD RESEARCH AND CONSULTING, LLC 8

DOWNTOWN OVERVIEW

Site Location

Downtown Rosemount

MAXFIELD RESEARCH AND CONSULTING, LLC 9

DOWNTOWN OVERVIEW

Downtown Rosemount Study Area

200m

600ft

MAXFIELD RESEARCH AND CONSULTING, LLC 10

DOWNTOWN OVERVIEW

Study Area Location and Characteristics

The Downtown Rosemount Study Area is slightly over one-half mile long (roughly 3,100 feet), from north to south along South Robert Trail, and one-quarter of a mile wide (roughly 1,300 feet) from east to west along 145th Street West. As mentioned previously, the western boundary of the Study Area follows Cameo Avenue and Cambrian Avenue, while the Union Pacific railroad track forms the eastern border. Rosemount public schools (high school, middle school, and elementary school) and Erickson Park border Downtown Rosemount on the north. The 42,000 square-foot Rosemount Crossing neighborhood shopping center is located just south of Downtown Rosemount.

Several major changes to the physical characteristics of Downtown Rosemount have occurred since the previous study was completed in 2003. Key changes are highlighted in the following points. Combined, these redevelopment efforts have created 261 housing units and 26,000 square feet of new commercial space in Downtown Rosemount.

 Waterford Commons, a 108-unit general occupancy mixed-use apartment building was constructed in 2008 along South Robert Trail between Lower 147th Street West and 146th Street West. This project also includes 13,000 square feet of ground-floor retail space.

 Robert Trail Library was built on vacant land located along South Robert Trail between 145th Street West and 143rd Street West in 2009.

 The Steeple Center, a 204-seat capacity event center opened in 2010 on the site of the former St. Joseph’s Church, just north of the Robert Trail Library. The facility was expanded in 2015 with a kitchen, lobby, seating, an outdoor patio, and additional meeting rooms.

 Rosemount Transit Station, a 102-vehicle park and ride facility opened in 2012 at the intersection between 145th Street and Burnley Avenue.

 The Rosemount at Steeple Center, a 93-unit senior housing complex, is located adjacent to the Steeple Center along Robert Trail and 143rd Street. This facility opened in late 2015 with 61 independent and assisted living units along with 32 memory care units.

 Fluegel’s Farm, Garden & Pet 12,000 square-foot retail store at 14700 South Robert Trail which opened in 2015, expanding their retail space by 9,000 square feet.

 Cambrian Commons opened on the former Genz Ryan site along South Robert Trail, south of 147th Street West, in summer 2016. This 60-unit housing development offers affordable active adult rental housing for adults age 55 and older.

 Culver’s, a 4,310 square-foot restaurant, opened on the southern portion of the former Genz Ryan site along South Robert Trail in summer 2016.

MAXFIELD RESEARCH AND CONSULTING, LLC 11 DOWNTOWN OVERVIEW

The following map illustrates the locations of these redevelopment projects along with other key assets in Downtown Rosemount.

Key Assets in Downtown Rosemount

Rosemount Middle & Shamrock Animal Hospital Elementary Schools

Steeple Center & The Rosemount Dakota Central Office Building

Robert Trail Library Frontier AG & Turf South Robert Square City Hall First State Bank BP Celt’s Pub Cat & Fiddle Swag Shop Park & Ride Rustic Junction Rosemount Plaza Rosemount Floral Apts & Condos

Rosemount Plaza American Legion Carbone’s Pizza Shenanigan’s Morning Glory’s Terry’s Hardware Waterford Commons

Rosie’s Market A Bushel & A Peck

Cambrian Commons Fluegel’s Culver’s Rosemount Saw & Tool, Wheelie Master Transmission Awesome, Paws Appeal, Cha’s Auto

Kwik Trip

Rosemount Crossing -Aldi -Rudy’s Redeye Grill 200m -Starbucks

600ft

MAXFIELD RESEARCH AND CONSULTING, LLC 12 DOWNTOWN OVERVIEW

Existing Land Use

 As summarized in Table 1, there are a total of 102 tax parcels in Downtown Rosemount, totaling 36.5 acres (excluding right-of-way). Combined, these parcels have a total value of $40.9 million, including $8.1 million land value and $32.8 million building value.

TABLE 1 DOWNTOWN ROSEMOUNT LAND USE SUMMARY September 2016

Primay Land Use Parcels Acres Land Value Building Value Total Value Land Value/SF Apartment 5 5.7 $2,187,100 $23,175,300 $25,362,400 $8.78 Commercial 57 18.3 $4,916,400 $6,758,300 $11,674,700 $6.17 Exempt 11 7.0 NA NA NA NA Industrial 2 2.3 $452,600 $612,900 $1,065,500 $4.52 SF Residential 6 1.6 $327,000 $782,600 $1,109,600 $4.61 Condominium 21 1.6 $165,700 $1,488,800 $1,654,500 $2.44 Total: 102 36.5 $8,048,800 $32,817,900 $40,866,700 $5.07

Sources: City of Rosemount; Dakota County; Maxfield Research & Consulting, LLC

 As depicted in the following graph, commercial is the predominant land use in Downtown Rosemount consuming half of the land area (18.3 acres). Roughly 19% of Downtown Rose- mount’s land area is tax exempt (7.0 acres) and 16% is occupied by apartment units (5.7 acres). Industrial parcels comprise 6% of the land area (2.3 acres), while single-family residential and condominiums comprise 5% of the land area (1.6 acres) in Downtown Rose- mount.

Downtown Rosemount Land Use Summary

Exempt 19%

Industrial 6% Commercial 50% SF Residential 5%

Condominium 4%

Apartment 16%

MAXFIELD RESEARCH AND CONSULTING, LLC 13 DOWNTOWN OVERVIEW

Business Mix

Table 2 presents the mix of business establishments currently operating in Downtown Rose- mount. Business inventory information was collected by Maxfield Research during a field visit to Rosemount in late September 2016. Maxfield Research sourced the Xceligent Commercial Property Exchange and Dakota County property information for square footage data. In the case of multitenant buildings, the size of each business was estimated based on a visual analysis of the property.

 In total, we identified 64 business establishments operating in Downtown Rosemount, occu- pying an estimated 242,000 square feet of space.

 The Retail Trade sector is the largest represented in Downtown Rosemount with 25% of all establishments (16), followed by the Other Services industry at 16% (ten businesses) and the Health Care and Social Assistance sector at 14% (nine businesses).

 Other sectors represented in Downtown Rosemount include: Professional, Scientific, and Technical Services with six establishments (9%); Finance and Insurance and Accommodation and Food Services, each with five (8%); Construction and Wholesale Trade with three (5%); and, Information and Real Estate with two each (3%). Transportation and Warehousing, Ad- ministrative and Support and Waste Management and Remediation Services, and Educa- tional Services each have one business establishment in Downtown Rosemount.

TABLE 2 DOWNTOWN ROSEMOUNT BUSINESS MIX BY INDUSTRY SECTOR September 2016

NAICS Sq. Ft. Percent No. of Percent Code Industry Description Occupied of Total Businesses of Total 23 Construction 9,600 4.0% 3 4.7% 42 Wholesale Trade 19,876 8.2% 3 4.7% 44-45 Retail Trade 49,396 20.4% 16 25.0% 49 Transporation and Warehousing 5,133 2.1% 1 1.6% 51 Information 25,944 10.7% 2 3.1% 52 Finance and Insurance 12,201 5.0% 5 7.8% 53 Real Estate and Rental and Leasing 2,719 1.1% 2 3.1% 54 Professional, Scientific, and Technical Services 15,330 6.3% 6 9.4% 56 Admin, Support, Waste Mgmt, Remediation Svcs 2,000 0.8% 1 1.6% 61 Educational Services 1,100 0.5% 1 1.6% 62 Health Care and Social Assistance 41,330 17.1% 9 14.1% 72 Accommodation and Food Services 23,257 9.6% 5 7.8% 81 Other Services 34,117 14.1% 10 15.6% Total: 242,003 100.0% 64 100.0%

Sources: Dakota County; Xceligent; Maxfield Research & Consulting, LLC

MAXFIELD RESEARCH AND CONSULTING, LLC 14 DOWNTOWN OVERVIEW

 Downtown Rosemount contains an estimated 242,000 square feet of commercial space occupied by 64 businesses. As depicted in the following chart, the Retail Trade sector occu- pies the largest amount of space in Downtown Rosemount, at 49,400 square feet (20% of the total), followed by Health Care and Social Assistance with 41,300 square feet (17%). Es- tablishments in the Other Services industry occupy 34,100 square feet of space (14%), while businesses in the Accommodation and Food Services industry occupy an estimated 23,300 square feet (10%).

 On average, business establishments in Downtown Rosemount are an estimated 3,800 square feet, with the Information sector containing the largest businesses at an average size of nearly 13,000 square feet (includes the public library). Retail Trade establishments average 3,100 square feet, while Health Care businesses average 4,600 square feet.

Downtown Rosemount Business Inventory Average Size by Industry Sector

Other Services 3,412 Accommodation and Food Services 4,651 Health Care and Social Assistance 4,592 Educational Services 1,100 Admin, Support, Waste Mgmt,… 2,000 Professional, Scientific, and… 2,555 Real Estate and Rental and Leasing 1,360 Finance and Insurance 2,440 Information 12,972 Transporation and Warehousing 5,133 Retail Trade 3,087 Wholesale Trade 6,625 Construction 3,200 0 5,000 10,000 15,000

MAXFIELD RESEARCH AND CONSULTING, LLC 15 DOWNTOWN OVERVIEW

Photos of Downtown Rosemount September 2016

Robert Trail Library Steeple Center and The Rosemount

Dakota Central Office Building Rosemount Transit Station Park and Ride

Rosemount Plaza Apartments South Robert Square

MAXFIELD RESEARCH AND CONSULTING, LLC 16 DOWNTOWN OVERVIEW

Photos of Downtown Rosemount September 2016

Commercial buildings along 145th Street, Commercial properties along South Robert west of South Robert Trail Trail, south of 145th Street

Rosemount Plaza retail center Waterford Commons

Fluegel’s Farm Garden & Pet Cambrian Commons

MAXFIELD RESEARCH AND CONSULTING, LLC 17 DOWNTOWN OVERVIEW

Access and Visibility

Access and visibility are vital to the success of commercial establishments. South Robert Trail (Minnesota State Highway 3) is a major north-south route through central Dakota County, run- ning parallel to Highway 52 and I-35E, and connecting Rosemount to Farmington on the south and Downtown Saint Paul on the north. County Road 42 (150th Street), just south of Downtown Rosemount, is a key east-west transportation corridor through Dakota County, extending from Highway 55 and Hastings on the east to I-35 in Burnsville on the west. The 145th Street corridor connects County Road 42 on the east to Diamond Path Road in Apple Valley on the west.

The following figure displays estimated traffic volumes (measured in average annual daily trips) in 2001 and 2015 for major roads in and near Downtown Rosemount. Overall, traffic in and near Downtown Rosemount has increased since 2001. Traffic along South Robert Trail held relatively steady, climbing 7.5% north of 145th Street while contracting -5.8% south of 145th Street. The traffic volume along 145th Street increased substantially, expanding 125% west of South Robert Trail and jumping 208% east of South Robert Trail. County Road 42 (150th Street) experienced a more modest traffic increase, climbing 11% west of South Robert Trail and 4% east of South Robert Trail.

TRAFFIC VOLUME TRENDS SURROUNDING ROAD NETWORK 2001 & 2015 Change, 2001-2015 2001 AADT 2015 AADT No. Pct. S Robert Trl (N of 145th St) 12,000 12,900 900 7.5% S Robert Trl (S of 145th St) 13,700 12,900 -800 -5.8% 145th St (W of Robert Trl) 2,850 6,400 3,550 124.6% 145th St (E of Robert Trl) 1,850 5,700 3,850 208.1% County Rd 42 (W of Robert Trl) 17,800 19,800 2,000 11.2% County Rd 42 (E of Robert Trl) 14,100 14,600 500 3.5%

AADT = Average Annual Daily Trips Sources: MnDOT; Maxfield Research & Consulting, LLC

As mentioned previously, the 102-vehicle Rosemount Transit Station Park and Ride is located in Downtown Rosemount. Downtown Rosemount is served by four transit lines; Routes 420, 476, 478, and 484.

• Route 420 is a local bus route extending from the Rosemount Transit Station to the Ap- ple Valley Transit Station at Cedar Avenue and 157th Street. • Routes 472 and 478 are express bus routes connecting Downtown Rosemount to Down- town Minneapolis via Highway 77 and I-35W. • Route 484 is an express bus route extending from the Rosemount Transit Station to Downtown Saint Paul via Highway 52.

MAXFIELD RESEARCH AND CONSULTING, LLC 18 DOWNTOWN OVERVIEW

The following map illustrates drive times from Downtown Rosemount, as measured from the intersection of South Robert Trail and 145th Street West. This information is helpful in determining a draw area for various services in the area. It is also useful to determine access to workforce as potential business operations would likely give strong consideration to commuting patterns when making location decisions.

As shown on the map, Downtown Rosemount can be reached within a 30-minute drive from much of the Metro Area. The 30-minute drive time reaches as far as Little Canada and Oakdale on the north, Northfield to the south, Shakopee and Eden Prairie to the west, and Prescott, Wisconsin to the east. However, during peak travel times (such as rush hour) commute times from many of the communities would be longer than 30 minutes. In total, Downtown Rose- mount is situated within a 30-minute drive from roughly 1.1 million people, and approximately 200,000 people reside within a 15-minute drive of Downtown Rosemount.

Downtown Rosemount Drive Time

LEGEND 5 minutes 15 minutes 30 minutes

MAXFIELD RESEARCH AND CONSULTING, LLC 19 DOWNTOWN OVERVIEW

Proximity to Shopping, Employment, and Services

Development opportunities are partly influenced by proximity to housing, employment, retail, and other services. Downtown Rosemount is surrounded by a mix of residential, institutional, commercial, and industrial uses and is situated near major employment concentrations and nodes of retail activity. As noted on the following map, there are nine shopping centers located within a three-mile radius of Downtown Rosemount. These nine centers contain nearly 600,000 square feet of retail space.

The largest retail concentrations are located outside the three-mile radius surrounding the intersection of Cedar Avenue and County Road 42 in Apple Valley and along I-35E in Eagan. The many retail offerings located in these nodes currently pull potential customers and tenants away from Downtown Rosemount and the surrounding market area.

Major Retail Concentrations

Shopping Center 30,000 SF or Larger

3-Mile Radius

Downtown Rosemount

Source: Xceligent

MAXFIELD RESEARCH AND CONSULTING, LLC 20 DOWNTOWN OVERVIEW

As depicted in the following map, Downtown Rosemount is located in an area with a job density of approximately 1,399 to 5,577 jobs per square mile in 2014, the most recent data available from the United States Census Bureau Longitudinal Employer-Household Dynamics (LEHD) program. The highest job densities in the area can be found at established business/industrial parks located along the major transportation corridors.

Several large employers are located in the surrounding communities, including; Thomson Reu- ters (Eagan), Blue Cross Blue Shield (Eagan), United States Post Office (Eagan), Ecolab, Prime Therapeutics (Eagan), Ryt-Way Industries (Lakeville), Flint Hills Resources (Rosemount), UTC Aerospace (Burnsville), Fairview Ridges Hospital (Burnsville), and the public school districts in the area.

Employment Concentration

Downtown Rosemount

Source: US Census, LEHD

MAXFIELD RESEARCH AND CONSULTING, LLC 21 DOWNTOWN OVERVIEW

In addition to the existing business concentrations in and near Downtown Rosemount, UMore Park is situated just east of the Downtown area. UMore Park, currently owned by the Univer- sity of Minnesota, comprises 4,900 acres in the southern portion of Rosemount and the north- ern portion of Empire Township. The University intends to sell portions of the property to private developers to develop a mix of residential, commercial, industrial, and open space uses. At full development, UMore Park could be home to approximately 25,000 to 35,000 people and 18,000 to 25,000 jobs. The Opus Group recently offered to purchase 159 acres of UMore Park land with the intent to develop the property into an industrial park.

Much of the recent commercial development activity in Rosemount has occurred along the County Road 42 (150th Street) corridor, south of Downtown Rosemount. Over 550,000 square feet of commercial and industrial space has been developed in this corridor since 2000. There is also approximately 33 acres of raw land located just south of Downtown Rosemount, in the northeast quadrant of the intersection between County Road 42 and South Robert Trail (east of the railroad tracks), currently being marketed for a commercial development. Anytime Fitness recently opened a facility in this development which has been branded as Rosewood Center.

Appropriateness of Downtown Rosemount for Development

Downtown Rosemount presents a viable location for locally-owned convenience- and neighborhood-oriented retailers, restaurants, specialty retail, and multifamily residential. National chain retailers are less-likely to locate to Downtown Rosemount, as national retailers are generally drawn to areas with higher traffic volumes (i.e. County Road 42). The following summarizes some of positive and negative attributes of Downtown Rosemount in regards to the potential development of additional multifamily housing units and commercial space.

Downtown Rosemount Strengths

 The overall size and shape of Downtown Rosemount (one-half mile long and one-quarter mile wide) coupled with the infrastructure currently in place (notably sidewalks and pedestrian crossings) create a fairly compact and walkable environment.

 The expanding population and household base in and around Downtown Rosemount will generate a growing need for commercial goods and services, stimulating demand for new commercial space in the area. Conversely, an expanding base of retail and entertainment establishments in the area supports the potential for additional residential development.

 The business and employment base in Rosemount is expanding, particularly south of Down- town Rosemount along the County Road 42 corridor. Retailers in Downtown Rosemount could potentially capture sales from the daytime population (employees at these business establishments). These employees also present a potential market for current and future residential development in Downtown Rosemount.

MAXFIELD RESEARCH AND CONSULTING, LLC 22 DOWNTOWN OVERVIEW

 South Robert Trail provides good access and visibility to businesses located in Downtown Rosemount. Traffic volumes are expected to grow steadily over the next 20 years, increasing the potential customer base for convenience- and automobile-oriented commercial uses in Downtown Rosemount.

 Downtown retailers will rely, in part, on customer traffic generated by other non-commercial uses in the surrounding area. Downtown Rosemount has several existing uses that pull people into the area. Some of these draws include the Post Office, City Hall, public schools, public library, the Rosemount Transit Station Park and Ride, Steeple Center, Central Park, and Erickson Park.

 Downtown Rosemount is anchored by significant traffic generators on three sides, including Steeple Center and the public schools on the north, the Rosemount Crossing grocery-anchored shopping center on the south, and City Hall and the Rosemount Transit Station Park and Ride on the east.

Downtown Rosemount Challenges

 While the anchors identified above pull potential customers into Downtown Rosemount, these anchors and other adjacent land uses (railroad tracks on the east, single-family residential on the west, and Central/Erickson Parks on the north) limit the ability of Downtown Rosemount to expand beyond its current configuration. There is no land available in Down- town Rosemount, so any new development would require the redevelopment of underutilized parcels or the adaptive reuse of existing structures.

 South Robert Trail lacks a sense of cohesion, particularly south of 145th Street, where some of the buildings are intermixed with surface parking lots. Successful downtown areas are typically compact with buildings set side-by-side, allowing customers to easily walk from one shop to another. Additionally, traffic volumes and traffic speed along South Robert Trail can deter pedestrians from crossing the highway, particularly seniors.

 There is a perceived lack of parking available in the area, and future development coupled with increased traffic will intensify the need for parking in Downtown Rosemount.

 The railroad tracks forming the eastern boundary of Downtown Rosemount serve as a bar- rier to expansion, and the noise associated with the active rail line detracts from the desira- bility of Downtown Rosemount as a location for residential development.

 There are stronger retail nodes located in the area surrounding Downtown Rosemount, and many commercial businesses considering the Trade Area will be drawn to the strong retail activity occurring in or near these retail centers. However, increasing the amount of retail activity around the intersection of South Robert Trail and County Road 42 could generate additional traffic in Downtown Rosemount.

MAXFIELD RESEARCH AND CONSULTING, LLC 23 HOUSING MARKET ANALYSIS

Introduction

Demographic characteristics and trends are an important component in assessing the real estate needs of any given market area. This section of the report begins by delineating the draw area for general occupancy rental housing, for-sale multifamily housing, and senior housing in the Market Area and examines the demographic and economic characteristics of the draw area as they relate to demand for specific housing types.

The Analysis also presents an overview of housing market conditions, specifically multifamily housing, in the Market Area. Included are reviews of residential construction trends, rental rate and vacancy rates among general occupancy apartments, residential sales activity, senior housing supply and demand trends, and demand calculations for general occupancy market rate apartments, for-sale multifamily housing, and senior housing.

Housing Market Area Definition

The draw area or primary “Housing Market Area” for general occupancy rental housing, for-sale multifamily housing, and senior housing in Downtown Rosemount was determined based on geographic and man-made boundaries, commuting patterns, community orientation, places of employment, and our experience in housing feasibility.

Considering these factors, we determined a Housing Market Area (HMA) composed of the following communities in Dakota County, Minnesota. This combination of communities represents the same Market Area as the 2003 study.

• City of Rosemount • City of Hastings • City of Apple Valley • City of Inver Grove Heights • City of Coates • City of Lakeville • City of Eagan • Nininger Township • Empire Township • City of Vermillion • City of Farmington • Vermillion Township

We estimate that 80% of the demand for multifamily (general occupancy rental, for-sale, and senior) housing in Downtown Rosemount will be generated from the HMA. The remaining portion of the demand (20%) will come from outside the defined HMA.

The map on the following page illustrates the Downtown Rosemount’s location in the HMA.

MAXFIELD RESEARCH AND CONSULTING, LLC 24 HOUSING MARKET ANALYSIS

Housing Market Area

Downtown Rosemount

MAXFIELD RESEARCH AND CONSULTING, LLC 25 HOUSING MARKET ANALYSIS

Population and Household Growth Trends

Table 3 presents population and household growth trends in the Market Area from 2000 to 2025. The 2000 and 2010 population and household figures were obtained from the U.S. Cen- sus Bureau. The 2016 estimates and projections for 2020 and 2025 were based on estimates and forecasts made by the Metropolitan Council (the regional planning organization for the seven-county Metro Area) and ESRI (a nationally recognized demographics firm) with adjustments made by Maxfield Research to reflect current year data. The following are key points from Table 3.

 As of 2010, the HMA contained 273,422 people and 101,481 households. Between 2000 and 2010, the population increased 18.1% (+41,928) while the number of households expanded 23.8% (+19,533). During this time period, Rosemount’s population jumped 49.6% (+7,255 people) against household growth of 60.0% (+2,845). The proportional change in new households was high relative to population suggesting a trend toward shrinking household sizes in the HMA.

 In the HMA, the average household size decreased from 2.82 in 2000 to 2.69 in 2010, a decline of -4.6%, while average household sizes in Rosemount declined -6.5% from 3.08 in 2000 to 2.88 in 2010. The trend toward declining household sizes indicates an aging household base and also reflects a general shift in demographic factors that favor smaller households, such as a declining proportion of married couple households with children.

TABLE 3 POPULATION AND HOUSEHOLD GROWTH TRENDS AND PROJECTIONS DOWNTOWN ROSEMOUNT HOUSING MARKET AREA 2000 - 2025 Change Census Estimate Forecast 2000-2010 2010-2020 2000 2010 2016 2020 2025 No. Pct. No. Pct. Population Primary Market Area 231,494 273,422 289,085 303,890 321,135 41,928 18.1% 30,468 11.1% City of Rosemount 14,619 21,874 23,284 25,900 28,800 7,255 49.6% 4,026 18.4% Remainder of PMA 216,875 251,548 265,801 277,990 292,335 34,673 16.0% 26,442 10.5% Dakota County 355,904 398,552 413,094 435,870 455,270 42,648 12.0% 37,318 9.4% Twin Cities Metro Area* 2,642,062 2,849,567 3,018,805 3,123,430 3,259,245 207,505 7.9% 273,863 9.6% Households Primary Market Area 81,948 101,481 108,126 116,460 123,860 19,533 23.8% 14,979 14.8% City of Rosemount 4,742 7,587 8,180 9,300 10,450 2,845 60.0% 1,713 22.6% Remainder of PMA 77,206 93,894 99,946 107,160 113,410 16,688 21.6% 13,266 14.1% Dakota County 131,151 152,060 158,627 170,940 179,460 20,909 15.9% 18,880 12.4% Twin Cities Metro Area* 1,021,456 1,117,749 1,194,145 1,259,450 1,325,220 96,293 9.4% 141,701 12.7% *Includes the 7-County Area (Anoka, Carver, Dakota, Hennepin, Ramsey, Scott, and Washington Counties) Sources: US Census Bureau; Metropolitan Council; ESRI; Maxfield Research & Consulting, LLC

MAXFIELD RESEARCH AND CONSULTING, LLC 26 HOUSING MARKET ANALYSIS

 The pace of household growth declined late last decade as residential development activity dropped off sharply due to the recession. Housing development has been gradually increasing since 2010, and we estimate that the HMA’s population increased 5.7% to 289,085 between 2010 and 2016, while the number of households increased 6.5% (+6,645).

 Between 2016 and 2025, the HMA is projected to add 32,050 people (+11.1%) and 15,734 households (+14.6%). The rate of growth in the HMA is expected to be higher than the Twin Cities Metro Area (8.0% population growth between 2016 and 2025).

 Growth in the City of Rosemount is projected to outpace the remainder of the HMA, Dakota County, and the Metro Area, expanding by a total of 5,516 people (+23.7%) and 2,270 households (+27.8%) between 2016 and 2025.

Population Growth Comparison Percent Growth

55% 50% 50% 45% 40% 35% 30% 25% 18% 20% 15% 12% 11% 11% 8% 6% 6% 6% 6% 6% 10% 4% 5% 3% 4% 4% 5% 0% 2000-2010 2010-2016 2016-2020 2020-2025

Rosemount HMA Dakota Co. Metro Area

Age Distribution

The age distribution of a community’s population helps in assessing the type of housing needed. For example, younger and older people are more attracted to higher density housing located near urban services and entertainment while middle-aged people (particularly those with children) traditionally prefer lower-density single-family homes.

Table 4 presents the age distribution of the Market Area population from 2000 to 2021. Infor- mation from 2000 and 2010 is sourced from the U.S. Census. The 2016 estimates and projections for 2021 were calculated by Maxfield Research based on information from ESRI, a reputa- ble national demographics firm. The following are key trends about the age distribution of the Market Area’s population.

MAXFIELD RESEARCH AND CONSULTING, LLC 27 HOUSING MARKET ANALYSIS

 In 2010, the largest adult cohort by age in the HMA was 45 to 54, totaling 46,700 people (17.1% of the total population). We estimate that there are now 44,500 people in this age group, and the cohort is expected to decline roughly -6.2% for a loss of -2,764 people between 2016 and 2021.

 The loss projected for the 45 to 54 age population in the HMA is a result of the compara- tively small number of people who will move into this age group in the next several years, a phenomenon known as the “baby bust.” The “baby bust” is often referred to the genera- tion of children born between 1965 and 1980, an era when the United States birthrate dropped sharply.

 The 35 to 44 cohort was the second largest age group in the HMA in 2010. In 2016, we estimate there are now 40,583 people (14.0% of the total population) age 35 to 44 in the HMA. This age group is projected to grow 11.3% (+4,589 people) between 2016 and 2021 as the peak of the “echo boom” moves into the 35 to 44 cohort.

Projected Population Growth by Age Group: 2016 - 2021

45.0

Rosemount HMA Metro Area 38.1 35.5

35.0

30.0

27.2 26.1

25.0 24.2

17.0

16.4

13.7

12.7 11.3

15.0 11.0

9.9

9.8

6.3

6.2

5.8

4.8

4.3

2.9 2.1

5.0 1.9 Percent Growth

-5.0

1.2

5.2

5.3

6.2

- 7.9

-15.0 - U-20 20-24 25-34 35-44 45-54 55-64 65-74 75+ Total

Age Group

 The most rapid growth is expected to occur among older adults in the Market Area. Aging of baby boomers led to an increase of 14,421 people (+95%) in the 55 to 64 population in the HMA between 2000 and 2010. As this group ages, all cohorts age 55 or greater are expected to experience increases in the next several years, particularly the 65 to 74 age group which is projected to grow 30% in the HMA.

 Although younger age groups have traditionally been drawn to rental housing, older adults between the ages of 45 and 64 are exhibiting a greater preference for rental housing due to shifting lifestyles. While the 45 to 54 age group is projected to contract over the next five years, the 55 to 64 cohort is projected to grow 10% in the HMA, adding 3,650 people.

MAXFIELD RESEARCH AND CONSULTING, LLC 28 HOUSING MARKET ANALYSIS

 The younger age groups are the primary target market for rental housing and they continue to exhibit the highest proportions of renters in the Twin Cities. In the HMA, the 25 to 34 age population is expected to increase 6.2% (+2,372) between 2016 and 2021. The 20 to 24 age group, however, is projected to contract -5.3% (-896 people) by 2021.

TABLE 4 AGE DISTRIBUTION DOWNTOWN ROSEMOUNT HOUSING MARKET AREA 2000 - 2021 Change Census Estimate Projection 2000-2010 2016-2021 Age 2000 2010 2016 2021 No. Pct. No. Pct. City of Rosemount Under-20 5,476 7,206 7,381 8,108 1,730 31.6 727 9.8 20 to 24 569 975 1,230 1,215 406 71.4 -15 -1.2 25 to 34 2,255 2,848 2,773 3,227 593 26.3 454 16.4 35 to 44 3,077 3,644 3,627 4,087 567 18.4 460 12.7 45 to 54 1,676 3,484 3,594 3,766 1,808 107.9 171 4.8 55 to 64 782 2,030 2,501 3,106 1,248 159.6 605 24.2 65 to 74 507 1,037 1,377 1,866 530 104.5 489 35.5 75+ 277 650 800 1,105 373 134.7 305 38.1 Total 14,619 21,874 23,284 26,480 7,255 49.6 3,196 13.7 Housing Market Area Under-20 77,270 81,647 81,364 83,753 4,377 5.7 2,389 2.9 20 to 24 11,632 14,247 16,858 15,962 2,615 22.5 -896 -5.3 25 to 34 36,116 36,794 38,002 40,373 678 1.9 2,372 6.2 35 to 44 47,083 41,215 40,583 45,172 -5,868 -12.5 4,589 11.3 45 to 54 31,516 46,700 44,500 41,736 15,184 48.2 -2,764 -6.2 55 to 64 15,225 29,646 37,033 40,684 14,421 94.7 3,650 9.9 65 to 74 7,564 13,699 19,779 25,706 6,135 81.1 5,927 30.0 75+ 5,088 9,474 10,966 13,953 4,386 86.2 2,987 27.2 Total 231,494 273,422 289,085 307,339 41,928 18.1 18,254 6.3 Twin Cities Metro Area Under-20 768,030 774,287 789,045 804,082 6,257 0.8 15,037 1.9 20 to 24 173,732 190,135 208,944 198,067 16,403 9.4 -10,877 -5.2 25 to 34 411,156 420,311 433,365 442,432 9,155 2.2 9,067 2.1 35 to 44 469,325 391,324 395,284 438,826 -78,001 -16.6 43,542 11.0 45 to 54 363,593 440,753 425,705 392,260 77,160 21.2 -33,446 -7.9 55 to 64 200,981 326,007 386,279 408,669 125,026 62.2 22,389 5.8 65 to 74 130,615 163,425 223,326 281,696 32,810 25.1 58,370 26.1 75+ 124,630 143,325 156,857 183,553 18,695 15.0 26,697 17.0 Total 2,642,062 2,849,567 3,018,805 3,149,586 207,505 7.9 130,781 4.3 Sources: U.S. Census Bureau; ESRI; Maxfield Research & Consulting, LLC

MAXFIELD RESEARCH AND CONSULTING, LLC 29 HOUSING MARKET ANALYSIS

Household Income

Household income data is important when considering the ability of households to pay different rent levels. In general, housing costs of up to 30% of income are considered affordable by the Department of Housing and Urban Development (HUD).

Table 5 presents data on household income by age of householder for the Housing Market Area in 2016 and 2021. The data is estimated by ESRI and adjusted by Maxfield Research to reflect the most current local household estimates and projections. The following are key points.

 In 2016, the median household income was estimated to be $83,546 in the HMA and $70,404 in the Metro Area. As such, it appears that HMA residents are relatively affluent compared to the rest of the Metro Area and have more resources to devote toward housing than residents elsewhere in the Metro.

 Median incomes are expected to increase 12.4% over the next several years to $93,872 in the HMA compared to 13.6% growth in the Metro Area. The average annual increase between 2016 and 2021 in the PMA (+2.5%) will exceed the historical annual inflation rate of 2.0% over the past ten years.

 As households age through the lifecycle, household incomes tend to peak in their late 40s and early 50s. This trend is evident in the Market Area as the age 45 to 54 cohort has the highest estimated income at $104,569 in the HMA and $92,965 in the Metro Area.

2016 Median Household Income by Age of Householder $120,000

$100,000

$80,000

$60,000 HMA

Metro Area $104,569

$40,000 $96,592

$92,965

$92,439

$83,546

$83,240

$81,757

$74,199

$70,404

$64,412 $62,526

$20,000 $58,732

$45,621

$38,580

$36,436 $34,667 $- Total <25 25-34 35-44 45-54 55-64 65-74 75+

 Except for the 45 to 54 age group, all other age groups are expected to grow between 2016 and 2021 in the HMA. The 35 to 44 and 65 to 74 age groups are projected to experience the largest increases, adding 2,530 households (+11.6%) and 3,486 households (+28.6%), respectively.

MAXFIELD RESEARCH AND CONSULTING, LLC 30 HOUSING MARKET ANALYSIS

TABLE 5 HOUSEHOLD INCOME BY AGE OF HOUSEHOLDER HOUSING MARKET AREA 2016 & 2021 Age of Householder Total <25 25-34 35-44 45-54 55-64 65 -74 75+ 2016 Less than $15,000 5,014 281 742 603 614 1,056 670 1,046 $15,000 to $24,999 4,721 342 663 519 476 665 1,007 1,049 $25,000 to $34,999 6,363 418 1,124 997 914 944 939 1,028 $35,000 to $49,999 11,318 562 2,212 2,046 1,585 1,747 1,639 1,527 $50,000 to $74,999 19,624 652 3,993 3,534 3,730 3,518 2,739 1,457 $75,000 to $99,999 16,974 284 2,989 3,571 4,231 3,793 1,736 371 $100,000 to $199,999 34,697 368 4,926 8,460 10,285 7,421 2,626 611 $200,000 or more 9,416 46 645 2,056 3,222 2,468 843 137 Total 108,126 2,951 17,295 21,786 25,056 21,612 12,199 7,227 Median Income $83,546 $45,621 $74,199 $96,592 $104,569 $92,439 $64,412 $38,580 2021 Less than $15,000 5,529 353 829 661 536 992 863 1,295 $15,000 to $24,999 4,769 349 628 474 348 617 1,128 1,225 $25,000 to $34,999 5,915 395 1,005 891 654 833 1,007 1,131 $35,000 to $49,999 11,985 623 2,255 2,045 1,402 1,736 1,990 1,934 $50,000 to $74,999 14,947 517 2,950 2,647 2,332 2,583 2,459 1,459 $75,000 to $99,999 19,542 355 3,495 4,156 4,151 4,273 2,535 577 $100,000 to $199,999 43,858 477 6,412 10,870 11,078 9,527 4,332 1,162 $200,000 or more 11,237 52 827 2,572 3,168 2,975 1,372 271 Total 117,782 3,121 18,400 24,316 23,670 23,536 15,685 9,055 Median Income $93,872 $45,039 $83,935 $105,148 $111,914 $103,718 $77,950 $40,362 Change 2016 - 2021 Less than $15,000 515 72 87 58 -78 -64 192 249 $15,000 to $24,999 48 8 -35 -45 -127 -49 121 175 $25,000 to $34,999 -448 -23 -119 -106 -260 -111 68 103 $35,000 to $49,999 667 61 43 -1 -183 -11 351 407 $50,000 to $74,999 -4,676 -135 -1,043 -888 -1,398 -935 -281 2 $75,000 to $99,999 2,567 71 506 586 -80 480 799 206 $100,000 to $199,999 9,161 109 1,485 2,410 793 2,106 1,706 551 $200,000 or more 1,821 6 182 516 -54 507 530 134 Total 9,656 169 1,105 2,530 -1,386 1,924 3,486 1,828 Median Income $10,326 -$582 $9,736 $8,556 $7,345 $11,279 $13,538 $1,782 Sources: ESRI; US Census Bureau; Maxfield Research & Consulting, LLC

 Rental housing often targets younger renter households. The median household income in the HMA is $45,621 for the under-25 age group and $74,199 for the 25 to 34 age group. Households earning the median income for these age groups could afford monthly housing costs estimated at $1,141 and $1,855, respectively.

 Households in the 35 to 44 age group that may delay buying a home could afford a monthly rent of $2,415, based on the median household income of $96,592.

MAXFIELD RESEARCH AND CONSULTING, LLC 31 HOUSING MARKET ANALYSIS

 Based on average pricing of $1,289 for one-bedroom units in the competitive set of newer rental properties in the HMA, a household will need to have an annual income of roughly $51,560 or greater to not exceed 30% of its monthly income on housing costs.

 In 2016, approximately 79,494 HMA households (74% of the total) are estimated to have had incomes of at least $51,560. By 2021, total income-qualified households are projected to increase to 87,073 households (+9.5%) after accounting for inflation.

 Households under the age of 35 are most likely to rent their housing, although there is a growing group of households over age 35 that are choosing to rent for lifestyle reasons. In 2016, 44% of households age 24 and below and 71% of households age 25 to 34 in the HMA are estimated to have had incomes of at least $51,560. Additionally, because younger householders are often willing to live with roommates, the percent income-qualified is likely somewhat higher.

 Between 2016 and 2021, the number of HMA households in the 25 to 34 age cohort is expected to increase by approximately 882 income-qualified households (+7.2%). The number of income-qualified households in the age 24 or younger cohort is projected to hold steady during this time period.

 Income-qualified households in the age 35 to 44 cohort are projected to increase 14% (+2,398) while the 45 to 54 age cohort experiences a -4% decline (-899 households). The number of income-qualified households in the 55 to 64 age group is expected to grow 11% (+1,943) while a 32% jump (+2,511) in the 65 to 74 cohort is anticipated.

 The median sale price for a housing unit in the HMA is $251,750 (2016 year-to-date as of August 31, 2016). Assuming that a potential homebuyer has good credit and makes a 10% down payment, a household would need to have a minimum annual income of roughly $66,761 to be income-qualified for a home purchased at the median sale price in the HMA.

 In 2016, roughly 63% of HMA households have incomes of $66,761 or higher. The number of income-qualified households in the HMA is projected to increase 15% by 2021, with the greatest growth occurring in the 35 to 44 (+2,856 households), 65 to 74 (+12,605 households), and 55 to 64 (+2,431 households) age groups.

MAXFIELD RESEARCH AND CONSULTING, LLC 32 HOUSING MARKET ANALYSIS

Household Tenure

Table 6 shows household tenure by age of householder for the City of Rosemount, the HMA and the Metro Area in 2010 and 2014. Data for 2010 is obtained from the Decennial Census, while the 2014 data is an estimate from the 2010-2014 American Community Survey. The table shows the number and percent of renter- and owner-occupied housing units in the Market Area. Data excludes unoccupied units and group quarters such as dormitories and nursing homes. Household tenure information is important in understanding households’ preferences to rent or own their housing. In addition to preferences, contributing factors include mortgage interest rates, household age, and lifestyle considerations, among others.

 In 2014, 86.8% of all households in Rosemount owned, giving it a homeownership rate that was higher than the HMA (78.6% of all households owned in 2014) and substantially higher the Metro Area (68.8% homeownership rate).

 Within the prime ownership years (35 to 64), 89.2% of households in Rosemount owned in 2014, higher than 85.2% in the HMA and 76.6% in the Metro Area.

Household Tenure Homeownership Rate by Age of Householder in 2014 100.0 90.0 80.0 70.0 60.0 50.0 40.0 Percent 30.0 20.0 10.0 0.0 Under 25-34 35-44 45-54 55-64 65 + Total 25 Rosemount 20.0 80.4 80.9 92.0 95.9 86.7 86.8 HMA 19.8 61.5 78.4 87.7 89.6 79.8 78.6 Metro 11.9 48.0 69.2 79.0 81.2 76.5 68.8

 Typically, the youngest and oldest households rent their housing in greater proportions than middle-age households. This pattern is apparent among younger Market Area households as 44.4% of the population under the age of 35 rents in the HMA while 58.3% of Metro Area householders under the age of 35 rent. In Rosemount, only 22% of households under the age of 35 rented in 2014.

 An estimated 80.0% of households under age 25 rented in Rosemount in 2014 while 19.6% of households age 25 to 34 rented. These percentages are lower than the HMA which had 80.2% of households under age 25 and 38.5% of age 25 to 34 households renting in 2014.

MAXFIELD RESEARCH AND CONSULTING, LLC 33 HOUSING MARKET ANALYSIS

TABLE 6 TENURE BY AGE OF HOUSEHOLDER DOWNTOWN ROSEMOUNT MARKET AREA 2010 & 2014 City of Rosemount Housing Market Area Twin Cities Metro Area 2010 2014 2010 2014 2010 2014 Age No. Pct. No. Pct. No. Pct. No. Pct. No. Pct. No. Pct. Under 25 Own 70 45.8 11 20.0 826 28.2 572 19.8 7,947 16.0 5,229 11.9 Rent 83 54.2 44 80.0 2,104 71.8 2,312 80.2 41,789 84.0 38,781 88.1 Total 153 100.0 55 100.0 2,930 100.0 2,884 100.0 49,736 100.0 44,010 100.0 25-34 Own 1,026 80.0 1,002 80.4 11,387 66.4 10,756 61.5 102,236 50.6 100,814 48.0 Rent 257 20.0 245 19.6 5,764 33.6 6,731 38.5 99,716 49.4 109,250 52.0 Total 1,283 100.0 1,247 100.0 17,151 100.0 17,487 100.0 201,952 100.0 210,064 100.0 35-44 Own 1,705 87.8 1,458 80.9 18,144 81.7 16,967 78.4 154,678 72.3 147,330 69.2 Rent 238 12.2 345 19.1 4,069 18.3 4,675 21.6 59,303 27.7 65,508 30.8 Total 1,943 100.0 1,803 100.0 22,213 100.0 21,642 100.0 213,981 100.0 212,838 100.0 45-54 Own 1,814 90.9 1,808 92.0 23,228 87.4 22,870 87.7 202,404 79.8 195,071 79.0 Rent 181 9.1 157 8.0 3,336 12.6 3,196 12.3 51,379 20.2 51,966 21.0 Total 1,995 100.0 1,965 100.0 26,564 100.0 26,066 100.0 253,783 100.0 247,037 100.0 55-64 Own 1,066 92.7 1,323 95.9 15,801 89.5 17,116 89.6 162,595 82.6 171,096 81.2 Rent 84 7.3 56 4.1 1,861 10.5 1,997 10.4 34,355 17.4 39,538 18.8 Total 1,150 100.0 1,379 100.0 17,662 100.0 19,113 100.0 196,950 100.0 210,634 100.0 65 + Own 958 90.1 1,136 86.7 11,713 78.3 13,387 79.8 152,615 75.8 164,505 76.5 Rent 105 9.9 174 13.3 3,248 21.7 3,379 20.2 48,732 24.2 50,527 23.5 Total 1,063 100.0 1,310 100.0 14,961 100.0 16,766 100.0 201,347 100.0 215,032 100.0 TOTAL Own 6,639 87.5 6,738 86.8 81,099 79.9 81,668 78.6 782,475 70.0 784,045 68.8 Rent 948 12.5 1,021 13.2 20,382 20.1 22,290 21.4 335,274 30.0 355,570 31.2 Total 7,587 100.0 7,759 100.0 101,481 100.0 103,958 100.0 1,117,749 100.0 1,139,615 100.0 Sources: U.S. Census Bureau; Maxfield Research & Consulting, LLC

MAXFIELD RESEARCH AND CONSULTING, LLC 34 HOUSING MARKET ANALYSIS

 The percentage of HMA renter households increased for most age cohorts between 2010 and 2014 as the total number of renter households residing in the HMA grew by an estimated 1,908 households, an increase of 9.4%. By comparison, the number of owner-occupied households increased 0.7% (+569 households) between 2010 and 2014.

 As depicted in the following chart, the largest overall increase occurred in the 65 and older age group in the HMA, as 131 renter households were added (+4%) and the number of owner households expanded 14% (+1,674 households).

Household Growth by Age Group and Tenure Housing Market Area (2010-2014) 30.0% 20.0% 10.0% 0.0% -10.0% -20.0%

% % HouseholdGrowth -30.0% -40.0% Under 25 25-34 35-44 45-54 55-64 65+ Rent 9.9% 16.8% 14.9% -4.2% 7.3% 4.0% Own -30.8% -5.5% -6.5% -1.5% 8.3% 14.3%

 Substantial renter household growth occurred in the 25 to 34 cohort with the addition of 967 renter households (+17%). Notable renter household growth also occurred in the 35 to 44 age group, adding 606 renter households (+15%).

 In contrast to the HMA, Rosemount experienced stronger owner household growth (+99 households for a 1.5% increase) than renter household growth (+73 households for a 7.7% gain).

 The largest overall increase occurred in the 65 and older age group in Rosemount, as 178 owner households were added (+19%) and the number of renter households expanded 66% (+69 households).

 Substantial household growth also occurred in the 55 to 64 age group in Rosemount with the addition of 257 owner households (+24%), although the number of renter households contracted -33% (-28 households).

 All other age cohorts experienced a decline in total households between 2010 and 2014, with the largest contraction occurring in the 35 to 44 age group which lost -247 owner households (-15%) against renter household growth of 45% (+107).

MAXFIELD RESEARCH AND CONSULTING, LLC 35 HOUSING MARKET ANALYSIS

Household Type

Table 7 below shows household type trends in City of Rosemount compared to the HMA and the Metro Area in 2010 and 2014. Data for 2010 is obtained from the Decennial Census, while the 2014 data is an average estimate from the 2010-2014 American Community Survey. Key points follow the table

Shifting household types can stimulate demand for a variety of housing products. Married couple families typically generate demand for single-family detached ownership housing, while married couples without children often desire multifamily housing for convenience reasons. Married couple families without children are generally made up of younger couples that have not had children (and may not have children) and older couples with adult children that have moved out of the home. Other family households, defined as a male or female householder with no spouse present (typically single-parent households), often require affordable housing.

TABLE 7 HOUSEHOLD TYPE DOWNTOWN ROSEMOUNT MARKET AREA 2010 & 2014 City of Rosemount Housing Market Area Twin Cities Metro Area 2010 2014 2010 2014 2010 2014 Total Households 7,587 7,759 101,481 103,958 1,117,749 1,139,615 Non-Family Households 1,669 1,740 28,470 28,823 410,253 415,662 Living Alone 1,263 1,455 22,374 22,949 319,030 328,830 Other (Roommates) 406 285 6,096 5,874 91,223 86,832 Family Households 5,918 6,019 73,011 75,135 707,496 723,953 Married w/ Children 2,715 2,623 29,457 28,566 244,687 247,025 Married w/o Children 2,219 2,171 29,573 31,494 298,723 310,565 Other Family 984 1,225 13,981 15,075 164,086 166,363

Change (2010 -2014) No. Pct. No. Pct. No. Pct. Total Households 172 2.3% 2,477 2.4% 21,866 2.0% Non-Family Households 71 4.3% 353 1.2% 5,409 1.3% Living Alone 192 15.2% 575 2.6% 9,800 3.1% Other (Roommates) -121 -29.8% -222 -3.6% -4,391 -4.8% Family Households 101 1.7% 2,124 2.9% 16,457 2.3% Married w/ Children -92 -3.4% -891 -3.0% 2,338 1.0% Married w/o Children -48 -2.2% 1,921 6.5% 11,842 4.0% Other Family 241 24.5% 1,094 7.8% 2,277 1.4%

Sources: U.S. Census; ESRI; Maxfield Research & Consulting, LLC

MAXFIELD RESEARCH AND CONSULTING, LLC 36 HOUSING MARKET ANALYSIS

 In 2014, family households comprised 77.6% of all households in Rosemount, 72.3% in the HMA, and 63.5% of all Metro Area households. Family households experienced modest expansion between 2010 and 2014, increasing 1.7% in Rosemount (+101 households) and 2.9% in the HMA (+2,124 households). By comparison, the Metro Area experienced a 2.3% increase in family households between 2010 and 2014.

 Rosemount experienced a -3.4% decline in the number of married couples with children, contracting by -92 households. The number of married couples without children decreased -2.2% (-48 households), while other family households in Rosemount expanded nearly 25% (+241 households) between 2010 and 2014.

 A -3.0% decline in the number of married couples with children occurred in the HMA, losing -891 households, while the number of married couples without children expanded 6.5% (+1,921 households). Other family households expanded 7.8% (+1,094 households) between 2010 and 2014 in the HMA.

 Between 2010 and 2014, non-family households expanded 4.3% (+71 households) in Rose- mount and 1.2% (+353 households) in the HMA. By comparison, 1.3% growth in non-family households occurred in the Metro Area between 2010 and 2014. An increase in non-family households indicates a shift in housing needs that favors rental development. However, households composed of unrelated roommates can also be unmarried couples that may choose to own and can often afford to own if they are double-income.

 The number of single-person households jumped 15.2% (+192 households) in Rosemount between 2010 and 2014, while the number of roommate households declined by -121 households (-30%).

 The HMA experienced 2.6% growth in single-person households between 2010 and 2014, while the Metro Area experienced 3.5% growth in one-person households. The number of roommate households declined -3.6% in the HMA and -4.8% in the Metro Area during that time period.

 This shift toward “unbundling” is likely a response to the economic recovery after more roommate households were formed during the recession as people attempted to save money on housing costs by living together.

 The composition of household types in Rosemount and the HMA is similar to the Metro Area, although Rosemount and the HMA have substantially higher proportions of married couples with children. The Metro Area has notably higher proportions of persons living alone relative to Rosemount and the HMA.

MAXFIELD RESEARCH AND CONSULTING, LLC 37 HOUSING MARKET ANALYSIS

Employment Trends

Employment characteristics are an important component in assessing housing needs in any given market area. These trends are important to consider since employment growth often fuels household growth. Typically, households prefer to live near work for convenience, which is a primary factor in choosing a housing location. This preference is particularly true among renters. Young adults entering the workforce, a primary target market for rental housing, often place great value on living near employment, education, shopping, and entertainment.

Employment Growth

Table 8 on the following page shows employment growth trends and projections from 2000 to 2025 based on the most recent information available from the Minnesota Department of Em- ployment and Economic Development (DEED) and the Metropolitan Council. Data for 2000, 2005, 2010, and 2015, represents the annual average employment for that year. Employment projections for 2020 and 2025 are sourced from the Metropolitan Council.

Although employment growth often parallels population growth, it often is tied more strongly to transportation access. Cities with interstate access and intra- and inter-metro transportation connections attract more businesses and post higher employment gains. Employment growth can fuel household and population growth as people generally desire to live near their work.

 In 2000, there were 6,085 jobs in Rosemount and 92,945 jobs in the HMA. Despite the economic recession, employment in Rosemount expanded 10% (+580 jobs) by 2010, while the number of jobs in the Remainder of the HMA increased 15% (+13,077 jobs). By comparison, the Twin Cities Metro Area experienced a -4% decline in employment during the decade.

 Data from the Quarterly Census of Employment and Wages indicates that the HMA gained 12,790 jobs (+12%) between 2010 and 2015, including 26% growth (+1,740 jobs) in Rose- mount and 11% growth (+11,050 jobs) in the Remainder of the HMA. During that time, the number of jobs increased 9% in the Metro Area.

 Solid job growth is expected throughout the Market Area between 2010 and 2020. The HMA is projected to experience a 23% gain during the decade (+24,228 jobs), while Metro Area employment grows 16.5%. Within the HMA, Rosemount is expected to add 3,235 jobs (+49%), and 21% growth (+20,993 jobs) is projected in the Remainder of the HMA.

 Much of the employment growth has already occurred as jobs lost during the recession are being replaced and employers become increasingly attracted to the expanding labor pool and convenient access to the major transportation corridors located in the area.

MAXFIELD RESEARCH AND CONSULTING, LLC 38 HOUSING MARKET ANALYSIS

 Employers are likely being forced into hiring as many reduced their workforces significantly during the recession and can no longer keep pace with demand for their products or services without increasing their number of employees.

 Another 800 jobs (+8%) are expected to be added in Rosemount between 2020 and 2025, while HMA employment expands 4.5% (+5,855 jobs) and Metro Area employment increases 4.2%. The pace of job growth is projected to slow after 2020, as the region is expected to experience a surge in retirements and potential labor force shortages.

 Within the HMA, job growth will likely be focused along the major transportation corridors; primarily I-35/I-35E, I-494, Highway 77 (Cedar Avenue), Highway 55, and Highway 52 where there are large concentrations of existing businesses and convenient highway access.

TABLE 8 EMPLOYMENT GROWTH TRENDS AND PROJECTIONS DOWNTOWN ROSEMOUNT MARKET AREA 2000 to 2025

Annual City of Housing Remainder of Twin Cities Employment Rosemount Market Area HMA Metro Area 2000 6,085 92,945 86,860 1,600,741 2005 6,897 107,579 100,682 1,593,692 2010 6,665 106,602 99,937 1,537,041 2015 8,405 119,392 110,987 1,671,595 2020 Forecast 9,900 130,830 120,930 1,791,080 2025 Forecast 10,700 136,685 125,985 1,852,065

Change No. Pct. No. Pct. No. Pct. No. Pct. 2000 - 2010 580 9.5% 13,657 14.7% 13,077 15.1% -63,700 -4.0% 2010 - 2015 1,740 26.1% 12,790 12.0% 11,050 11.1% 134,554 8.8% 2015 - 2020 1,495 17.8% 11,438 9.6% 9,943 9.0% 119,485 7.1% Sources: MN DEED; Metropolitan Council; Maxfield Research & Consulting, LLC

Resident Employment

Table 9 on the following page shows information on the resident labor force and employment in Dakota County compared to the Twin Cities and Minnesota. The data is sourced from the Minnesota Department of Employment and Economic Development (DEED). Resident employment data reveals the work force and number of employed people living in the area. It is important to note that not all of these individuals necessarily work in the area.

The points following the table summarize key employment trends that will impact the demand potential for housing in the Market Area.

MAXFIELD RESEARCH AND CONSULTING, LLC 39 HOUSING MARKET ANALYSIS

TABLE 9 LABOR FORCE AND RESIDENT EMPLOYMENT TRENDS DOWNTOWN ROSEMOUNT MARKET AREA 2000 - 2015 Dakota County Twin Cities Metro Area Minnesota Labor Employed UE Labor Employed UE Labor Employed UE Year Force Residents Rate Force Residents Rate Force Residents Rate 2015 234,087 226,389 3.3% 1,656,951 1,601,571 3.3% 3,010,366 2,898,863 3.7% 2014 232,271 223,522 3.8% 1,644,257 1,581,267 3.8% 2,982,750 2,858,592 4.2% 2013 230,737 220,342 4.5% 1,632,500 1,557,054 4.6% 2,971,523 2,824,969 4.9% 2012 228,959 217,062 5.2% 1,616,551 1,530,237 5.3% 2,958,272 2,793,143 5.6% 2011 227,975 214,174 6.1% 1,603,521 1,504,084 6.2% 2,946,278 2,755,263 6.5% 2010 227,259 211,414 7.0% 1,593,386 1,479,386 7.2% 2,938,795 2,721,194 7.4% 2009 229,412 212,895 7.2% 1,601,871 1,482,667 7.4% 2,941,976 2,713,426 7.8% 2008 230,661 219,354 4.9% 1,603,501 1,522,589 5.0% 2,925,088 2,766,342 5.4% 2007 229,769 220,453 4.1% 1,597,123 1,530,575 4.2% 2,906,389 2,773,704 4.6% 2006 228,974 220,905 3.5% 1,585,859 1,528,197 3.6% 2,887,831 2,772,114 4.0% 2005 227,941 219,756 3.6% 1,585,047 1,526,490 3.7% 2,879,759 2,762,732 4.1% 2004 225,803 216,611 4.1% 1,584,838 1,515,715 4.4% 2,880,427 2,745,614 4.7% 2003 223,604 214,057 4.3% 1,581,907 1,509,305 4.6% 2,874,663 2,734,287 4.9% 2002 221,067 212,363 3.9% 1,574,037 1,506,834 4.3% 2,859,601 2,731,080 4.5% 2001 219,504 212,745 3.1% 1,573,992 1,520,898 3.4% 2,845,202 2,737,960 3.8% 2000 217,183 211,870 2.4% 1,563,293 1,521,414 2.7% 2,812,947 2,724,117 3.2% Sources: Minnesota DEED; Maxfield Research & Consulting, LLC

 Dakota County’s labor force increased 7.8% (+16,904) between 2000 and 2015, representing an annual average growth rate of 0.52%. By comparison, resident employment in the County expanded 6.9% between 2000 and 2015 (+14,519), equating to a 0.46% annual rate of growth.

Labor Force vs. Employment Growth Dakota County 250,000

240,000

230,000

220,000

210,000

200,000

190,000 2000 2002 2004 2006 2008 2010 2012 2014 2016

Labor Force Employment

MAXFIELD RESEARCH AND CONSULTING, LLC 40 HOUSING MARKET ANALYSIS

 The size of Dakota County’s labor force expanded at a 0.5% average annual rate from 2000 through 2010. Since 2010, the labor force has increased at a slightly faster pace, climbing an average of 0.6% per year from 227,259 in 2010 to 234,087 in 2015.

 Resident employment in the County climbed gradually from 2000 through 2007 (+0.6% average annual rate of growth), before dropping sharply from 2008 through 2010 due to the recession (-1.4% annually). The County has experienced steady gains in resident employment since 2010, expanding at an average rate of 1.4% per year.

 Increased hiring is driving the unemployment rate down throughout the Market Area as growth in the number of employed residents has been outpacing labor force growth since 2010. Dakota County’s labor force expanded 3.0% (+6,828) between 2010 and 2015, while the number of employed residents jumped 7.1% (+14,975). By comparison, employment in the Twin Cities grew 8.3% against labor force growth of 4.0% between 2010 and 2015.

 The following chart illustrates how unemployment in the County has mirrored national trends but has remained well-below the national rate over the past several years. The Da- kota County unemployment rate has consistently tracked with unemployment trends throughout Minnesota and the Twin Cities Metro Area.

Annual Unemployment Rate Comparison 12.0%

10.0%

8.0%

6.0%

7.2% 7.0%

4.0% 6.1%

5.2%

4.9%

4.5%

4.3%

4.1% 4.1% 3.9%

2.0% 3.8%

3.6%

3.5%

3.3%

3.1% 2.4% 0.0% '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15

Dakota Co Twin Cities Minnesota United States

 With a 3.4% unemployment rate in July 2016, unemployment in the County is slightly lower than the Twin Cities (3.5%) and the State of Minnesota (3.7%), but substantially lower than the United States (5.1%).

MAXFIELD RESEARCH AND CONSULTING, LLC 41 HOUSING MARKET ANALYSIS

Industry Employment and Wage Data

Table 10 displays information on the employment and wage situation in the City of Rosemount compared to the HMA and the Twin Cities Metro Area. The Quarterly Census of Employment and Wages (QCEW) data is sourced from DEED for the first quarters of 2015 and 2016, the most recent data available.

All establishments covered under the Unemployment Insurance (UI) Program are required to report wage and employment statistics to DEED quarterly. Certain industries in the table may not display any information which means that there is either no reported economic activity for that industry or the data has been suppressed to protect the confidentiality of cooperating employers. This generally occurs when there are too few employers or one employer comprises too much of the employment in that geography.

 The HMA gained 2,286 jobs (+2.0%) between the first quarters of 2015 and 2016, most notably in the Trade, Transportation, and Utilities sector and the Education and Health Ser- vices industry sectors. In Rosemount, total employment contracted -3.3% (-268 jobs) during that time period. Metro Area employment expanded 1.7% over the year.

 Education and Health Services is the largest employment sector in Rosemount, providing 1,794 jobs (22.7% of total employment), followed by the Trade, Transportation, and Utilities sector with 1,628 jobs (20.6%).

 Trade, Transportation, and Utilities is the largest employment sector in the HMA with over 29,000 jobs (24% of total employment), followed by Education and Health Services with about 24,000 jobs (20%).

2016 Q1 Employment: % of Total 0% 5% 10% 15% 20% 25% 30%

Natural Resources & Mining Construction Manufacturing Trade, Transportation, Utilities Information Financial Activities Professional & Business Services Education & Health Services Leisure & Hospitality Rosemount Other Services HMA Public Administration Twin Cities

MAXFIELD RESEARCH AND CONSULTING, LLC 42 HOUSING MARKET ANALYSIS

 The number of business establishments in Rosemount declined -3.3% over the year (-13 establishments), while the HMA contracted by -2.1% (-122 businesses). Notable contraction occurred in the Construction and Professional and Business Services sectors.

 Average weekly wages in Rosemount ($1,170) are roughly 12% higher than the HMA ($1,046) but -3.8% lower than the Twin Cities ($1,216). Wages receded slightly over the year in the Market Area, declining -2.4% in Rosemount, -2.4% in the HMA, and -1.9% in the Metro Area.

 In Rosemount, highest average wages are found in the Manufacturing ($2,156) and Profes- sional and Business Services ($1,541) sectors, while highest wages in the HMA are in Finan- cial Activities ($1,914) and Information ($1,863).

2016 Q1 Average Weekly Wage $0 $500 $1,000 $1,500 $2,000 $2,500

Total, All Industries Natural Resources & Mining Construction Manufacturing Trade, Transportation, Utilities Information Financial Activities Professional & Business Services Education & Health Services Leisure & Hospitality Rosemount Other Services HMA Public Administration Twin Cities

 A household earning the average weekly wage in the HMA ($1,046) would be able to afford an apartment renting for approximately $1,359 per month to not exceed 30% of its monthly income on housing costs, slightly higher than the average rent for one-bedroom units in the competitive set of newer rental properties in the HMA ($1,289).

 Assuming that a potential home buyer has good credit and makes a 10% down payment, a household earning the average wage in the HMA ($1,046) would be able to purchase a home priced at approximately $205,000 or lower to not be cost-burdened (paying more than 30% of their income for housing). This is slightly lower than the 2016 median sale price of homes in the HMA ($251,750 as of August 31, 2016).

MAXFIELD RESEARCH AND CONSULTING, LLC 43 HOUSING MARKET ANALYSIS

TABLE 10 QUARTERLY CENSUS OF EMPLOYMENT AND WAGES DOWNTOWN ROSEMOUNT MARKET AREA 2015 Q1 2016 Q1 Change 2015 Q1 - 2016 Q1 Establish- Employ- Weekly Establish- Employ- Weekly Employment Wage Industry ments ment Wage ments ment Wage # % # % CITY OF ROSEMOUNT Total, All Industries 394 8,180 $1,199 381 7,912 $1,170 -268 -3.3% ($29) -2.4% Natural Resources & Mining 4 25 $1,115 ------Construction 44 1,460 $1,324 ------Manufacturing 18 1,614 $2,342 18 1,554 $2,156 -60 -3.7% ($186) -7.9% Trade, Transportation, Utilities 81 1,694 $929 78 1,628 $859 -66 -3.9% ($70) -7.5% Information 8 89 $837 8 84 $788 -5 -5.6% ($49) -5.9% Financial Activities 30 138 $737 30 135 $778 -3 -2.2% $41 5.6% Professional & Business Services 65 319 $907 61 404 $1,541 85 26.6% $634 69.9% Education & Health Services 46 1,703 $884 49 1,794 $893 91 5.3% $9 1.0% Leisure & Hospitality 39 627 $251 35 613 $271 -14 -2.2% $20 8.0% Other Services 52 182 $534 48 196 $521 14 7.7% ($13) -2.4% Public Administration 7 325 $821 7 336 $884 11 3.4% $63 7.7% HOUSING MARKET AREA Total, All Industries 5,884 116,669 $1,071 5,762 118,955 $1,046 2,286 2.0% ($26) -2.4% Natural Resources & Mining 25 298 $568 18 278 $607 -20 -6.7% $39 6.8% Construction 305 3,076 $1,255 261 1,631 $1,281 -1,445 -47.0% $26 2.1% Manufacturing 269 12,694 $1,375 264 12,303 $1,358 -391 -3.1% ($17) -1.2% Trade, Transportation, Utilities 1,281 27,541 $973 1,253 29,003 $986 1,462 5.3% $13 1.3% Information 107 6,427 $1,969 101 6,134 $1,863 -293 -4.6% ($106) -5.4% Financial Activities 613 10,945 $2,069 602 11,076 $1,914 131 1.2% ($154) -7.5% Professional & Business Services 1,064 10,825 $1,069 1,021 10,583 $1,101 -242 -2.2% $32 3.0% Education & Health Services 707 23,031 $728 731 23,980 $727 949 4.1% ($1) -0.2% Leisure & Hospitality 524 11,510 $319 521 12,013 $328 503 4.4% $9 2.9% Other Services 643 4,236 $640 609 4,280 $655 44 1.0% $15 2.3% Public Administration 42 3,473 $1,047 44 3,494 $963 21 0.6% ($84) -8.0% TWIN CITIES Total, All Industries 77,094 1,636,505 $1,240 75,300 1,664,096 $1,216 27,591 1.7% ($24) -1.9% Natural Resources & Mining 298 2,564 $960 293 2,587 $1,052 23 0.9% $92 9.6% Construction 6,306 57,221 $1,260 6,071 59,434 $1,306 2,213 3.9% $46 3.7% Manufacturing 4,041 166,759 $1,474 3,971 167,185 $1,421 426 0.3% ($53) -3.6% Trade, Transportation, Utilities 15,627 306,419 $1,035 15,223 312,830 $1,025 6,411 2.1% ($10) -1.0% Information 1,352 38,542 $1,693 1,286 36,963 $1,527 -1,579 -4.1% ($166) -9.8% Financial Activities 8,320 134,495 $2,573 8,164 127,771 $2,339 -6,724 -5.0% ($234) -9.1% Professional & Business Services 15,009 271,177 $1,682 14,502 281,426 $1,723 10,249 3.8% $41 2.4% Education & Health Services 9,746 382,213 $909 9,672 393,077 $928 10,864 2.8% $19 2.1% Leisure & Hospitality 6,980 155,625 $423 7,026 160,374 $435 4,749 3.1% $12 2.8% Other Services 8,559 54,483 $638 8,296 55,222 $633 739 1.4% ($5) -0.8% Public Administration 856 67,002 $1,141 796 67,222 $1,120 220 0.3% ($21) -1.8% Sources: Minnesota Department of Employment and Economic Development; Maxfield Research & Consulting, LLC

MAXFIELD RESEARCH AND CONSULTING, LLC 44 HOUSING MARKET ANALYSIS

Commuting Patterns

Proximity to employment is often a primary consideration when choosing where to live, particularly for younger and lower income households since transportation costs often account for a greater proportion of their budgets. Table 11 highlights the commuting patterns of workers in Rosemount based on data from the U.S. Census Bureau Longitudinal Employer-Household Dy- namics (LEHD) program for 2014, the most recent data available.

 As the table illustrates, an estimated 89% of the workers employed in the City of Rose- mount reside outside the City, while 11% live in Rosemount. The largest proportion of workers in Rosemount commute from Apple Valley (6.6%), followed by Lakeville (6.5%), Ea- gan (5.6%), and Hastings (5.5%).

 Approximately 44% of the workers in Rosemount reside within ten miles of their place of employment while 34% travel from 10 to 24 miles. Roughly 11% of the workers commute from a distance of 25 to 50 miles while 12% come from more than 50 miles away.

TABLE 11 COMMUTING PATTERNS CITY OF ROSEMOUNT 2014

Home Destination Work Destination Place of Residence Count Share Place of Employment Count Share Rosemount city, MN 832 10.8% Minneapolis city, MN 1,459 11.8% Apple Valley city, MN 511 6.6% Eagan city, MN 1,198 9.7% Lakeville city, MN 502 6.5% St. Paul city, MN 1,091 8.8% Eagan city, MN 431 5.6% Apple Valley city, MN 980 7.9% Hastings city, MN 428 5.5% Bloomington city, MN 944 7.6% Farmington city, MN 332 4.3% Rosemount city, MN 832 6.7% St. Paul city, MN 306 4.0% Burnsville city, MN 695 5.6% Inver Grove Heights city, MN 244 3.2% Lakeville city, MN 376 3.0% Burnsville city, MN 210 2.7% Edina city, MN 291 2.3% Minneapolis city, MN 205 2.7% Minnetonka city, MN 208 1.7% All Other Locations 3,719 48.2% All Other Locations 4,313 34.8%

Distance Traveled Count Share Distance Traveled Count Share Total Primary Jobs 7,720 100.0% Total Primary Jobs 12,387 100.0% Less than 10 miles 3,418 44.3% Less than 10 miles 4,906 39.6% 10 to 24 miles 2,598 33.7% 10 to 24 miles 6,389 51.6% 25 to 50 miles 812 10.5% 25 to 50 miles 451 3.6% Greater than 50 miles 892 11.6% Greater than 50 miles 641 5.2% Home Destination = Where workers live who are employed in the selection area Work Destination = Where workers are employed who live in the selection area Sources: US Census Bureau Local Employment Dynamics; Maxfield Research & Consulting, LLC

MAXFIELD RESEARCH AND CONSULTING, LLC 45 HOUSING MARKET ANALYSIS

 Nearly 12% of the workers living in Rosemount commute to Minneapolis for employment, while 10% commute into Eagan and 9% travel to Saint Paul. Roughly 8% of Rosemount’s workforce travels to Apple Valley or Bloomington and 7% remain in the City.

 Roughly 40% of resident workers in Rosemount travel less than ten miles for their jobs, while 52% have a commute distance from 10 to 24 miles. Approximately 4% commute between 25 and 50 miles while 5% commute more than 50 miles for employment.

Table 12 provides a summary of the inflow and outflow characteristics of the workers in Rose- mount. Outflow reflects the number of workers living in the City but employed outside Rose- mount, while inflow measures the number of workers that are employed in the City but live outside the City. Interior flow reflects the number of workers that live and work in Rosemount.

 As the table shows, Rosemount is an exporter of workers as a substantially higher number of resident workers leave the City for employment than nonresidents commute into the City. Roughly 6,900 workers come into the City for employment (inflow) while 11,555 leave (outflow). Approximately 832 people both live and work in Rosemount (interior flow).

 Roughly 89% of the jobs in Rosemount are filled by workers commuting into the City. A portion of these workers may be drawn to new housing in Downtown Rosemount. Most of the workers coming into the area are aged 30 to 54 and earn more than $3,333 per month ($40,000 per year). The “Goods Producing” sector brings in most of the employees (42%).

TABLE 12 COMMUTING INFLOW/OUTFLOW CHARACTERISTICS CITY OF ROSEMOUNT 2014 Outflow Inflow Interior Flow City of Rosemount, Minnesota 11,555 100.0% 6,888 100.0% 832 100.0% Workers By Age Aged 29 or younger 2,366 20.5% 1,264 18.4% 240 28.8% Aged 30 to 54 7,137 61.8% 4,075 59.2% 430 51.7% Aged 55 or older 2,052 17.8% 1,549 22.5% 162 19.5% Workers By Monthly Wage Earning $1,250/month or less 2,427 21.0% 996 14.5% 251 30.2% Earning $1,251 to $3,333/month 2,604 22.5% 1,437 20.9% 216 26.0% Earning More than $3,333/month 6,524 56.5% 4,455 64.7% 365 43.9% Workers By Industry "Goods Producing" 1,428 12.4% 2,910 42.2% 137 16.5% "Trade, Transportation, and Utilities" 2,167 18.8% 1,225 17.8% 139 16.7% "All Other Services"* 7,960 68.9% 2,753 40.0% 556 66.8% *includes the following sectors: Information, Financial Activities, Professional & Business Services, Education & Health Services, Leisure & Hospitality, Other Services, and Public Administration Sources: US Census Bureau LEHD; Maxfield Research & Consulting, LLC

MAXFIELD RESEARCH AND CONSULTING, LLC 46 HOUSING MARKET ANALYSIS

Summary of Demographic Trends

The following summary highlights key demographic trends that will impact housing demand throughout the Housing Market Area.

 The HMA’s population, which expanded 18.1% between 2000 and 2010, increased by an estimated 5.7% between 2010 and 2016 and is expected to grow 11.1% between 2016 and 2025. The most rapid growth is expected to occur among older adults. As the baby boomer population ages, all cohorts age 55 or greater are expected expand in the next several years, particularly the 65 to 74 age group. The age 35 to 44 cohort is also projected to experience substantial growth as the peak of the “echo boom” moves into this age group.

 Since 2010, the HMA has experienced 9.4% growth in the number of renter households, while owner-occupied growth has been relatively flat (+0.7%). The largest overall increase in households occurred in the 65 and older age group in the HMA, adding 131 renter households (+4%) and 1,674 owner households (+14%). Substantial renter household growth occurred in the 25 to 34 cohort (+17%) and the 35 to 44 age group (+15%).

 Family households experienced modest expansion between 2010 and 2014 in the HMA, increasing 2.9%. A -3.0% decline in the number of married couples with children occurred, while the number of married couples without children expanded 6.5% and other family households expanded 7.8%. Non-family households expanded 1.2%, with the number of single-person households increasing 2.6% against a -3.6% decline in roommate households. This shift toward “unbundling” is likely a response to the economic recovery after more roommate households were formed during the recession as people attempted to save money on housing costs by living together.

 Employment growth can fuel household and population growth as people generally desire to live near their work. After enduring a modest decline in employment between 2005 and 2010 due to the recession, the Market Area has experienced solid job growth since 2010. Job growth is projected to continue over the next several years. The pace of job growth is projected to slow after 2020, as the region is expected to experience a surge in retirements and potential labor force shortages.

 Rosemount is an exporter of workers as a substantially higher number of resident workers leave the City for employment than nonresidents commute into the City. However, roughly 89% of the jobs in Rosemount are filled by workers commuting into the City, and a portion of these workers may be drawn to new housing products in Downtown Rosemount.

 Based on demographic factors influencing the area, notably population and household growth, an aging population, income growth, shifting household types, and job growth it appears that there will be growing demand for a variety of housing products in the HMA.

MAXFIELD RESEARCH AND CONSULTING, LLC 47 HOUSING MARKET ANALYSIS

Residential Construction Trends

Based on residential building permit data sourced from the Metropolitan Council, Table 13 presents the number of housing units added in Rosemount and the Remainder of the HMA between 2000 and 2015. The data represents the number of units permitted by housing type, including; detached single-family (SFD) units, townhouse (TH) units, and multifamily (MF) units. Multifamily includes duplex, triplex, and four-plex units as well as buildings with five or more units.

TABLE 13 RESIDENTIAL BUILDING PERMIT TRENDS HOUSING MARKET AREA 2000 - 2015 City of Rosemount Remainder of HMA Total SFD TH MF Total SFD TH MF Total SFD TH MF Total 2000 130 155 0 285 1,352 406 656 2,414 1,482 561 656 2,699 2001 201 103 0 304 1,052 447 1,099 2,598 1,253 550 1,099 2,902 2002 181 57 92 330 1,088 364 1,316 2,768 1,269 421 1,408 3,098 2003 261 74 105 440 1,200 616 1,639 3,455 1,461 690 1,744 3,895 2004 300 111 140 551 833 1,115 688 2,636 1,133 1,226 828 3,187 2005 189 55 210 454 627 231 854 1,712 816 286 1,064 2,166 2006 94 51 79 224 545 478 96 1,119 639 529 175 1,343 2007 63 3 77 143 381 279 263 923 444 282 340 1,066 2008 84 45 108 237 245 89 381 715 329 134 489 952 2009 69 5 14 88 279 50 104 433 348 55 118 521 2010 54 18 8 80 330 56 134 520 384 74 142 600 2011 45 0 8 53 313 46 173 532 358 46 181 585 2012 64 8 0 72 552 111 113 776 616 119 113 848 2013 88 8 0 96 804 129 214 1,147 892 137 214 1,243 2014 84 3 92 179 650 147 516 1,313 734 150 608 1,492 2015 94 20 60 174 669 77 280 1,026 763 97 340 1,200 Total 2,001 716 993 3,710 10,920 4,641 8,526 24,087 12,921 5,357 9,519 27,797

SFD = single-family detached; TH = townhouse; MF = multifamily with 2+ units in a building Sources: Metropolitan Council; Maxfield Research & Consulting, LLC

 A total of 27,797 housing units were delivered in the HMA between 2000 and 2015, including 3,710 in Rosemount and 24,087 in the Remainder of the HMA. Approximately 47% of the permitted units were for detached single-family homes (12,921 units) in the HMA, while 34% were for multifamily projects (9,519 units) and 19% were townhouse units (5,357).

 On average, the communities comprising the HMA permitted roughly 2,039 units per year between 2000 and 2010 and 1,074 new units per year since 2010.

MAXFIELD RESEARCH AND CONSULTING, LLC 48 HOUSING MARKET ANALYSIS

 As illustrated in the following graph, residential construction activity has increased in recent years, but has not reached the pre-recession levels experienced during the early 2000s.

Residential Building Permit Trends Housing Market Area 4,500 4,000 SFD TH MF 3,500 3,000 2,500

Units 2,000 1,500 1,000 500 0 2000 2002 2004 2006 2008 2010 2012 2014

 Detached single-family housing has been the most common housing type developed since 2010 in the HMA, representing 70% of all units permitted. Multifamily units represent about 30% of all residential construction activity while townhomes comprised 12% of all housing units permitted.

 Within the HMA, Lakeville was the housing growth leader between 2010 and 2015 (1,780 units permitted), followed by Eagan (979 units) and Apple Valley (913 units). Rosemount permitted 574 housing units over the past five years.

Housing Units Permitted by HMA Community 2010 - 2015

Vermillion Township Vermillion Rosemount Nininger Township Lakeville Inver Grove Hts SFD Hastings Farmington TH Empire Township Eagan MF Coates Apple Valley 0 500 1,000 1,500 2,000 Units Permitted

MAXFIELD RESEARCH AND CONSULTING, LLC 49 HOUSING MARKET ANALYSIS

Overview of Rental Market Conditions

Table 14 displays average monthly rent and vacancy rate data from Marquette Advisors Apart- ment Trends report for the Twin Cities Metro Area along with the HMA submarkets surrounding Downtown Rosemount. Information is provided for the Apple Valley/Rosemount, Eagan, and Lakeville/Farmington submarkets. The data is shown for the second quarter of 2015 compared to the second quarter of 2016, the most recent data available.

 The equilibrium vacancy rate for rental housing is considered to be 5.0%. This allows for normal turnover and an adequate supply of alternatives for prospective renters. During the second quarter of 2016, the vacancy rate was 2.9% in the Twin Cities Metro Area and 3.5% across the HMA submarkets. In effect, the overall supply of rental housing in the Market Area is below the level considered adequate to meet demand.

 As illustrated in the following chart, vacancy rates were below equilibrium across all unit types in the HMA. There was no vacancy in units with more than three bedrooms. Two- bedroom plus den and one-bedroom units were 2.2% vacant and 2.4% vacant, respectively. Studio units had a 2.7% vacancy rate, while three-bedroom units were 3.1% vacant. Two- bedroom units had the highest vacancy at 4.5%, followed by one-bedroom plus den units with a 4.2% vacancy rate.

Downtown Rosemount Market Area Average Vacancy Rate by Unit Type 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Total Studio 1BR 1BR+D 2BR 2BR+D 3BR 3BR+ HMA 3.5% 2.7% 2.4% 4.2% 4.5% 2.2% 3.1% 0.0% Twin Cities 2.9% 2.6% 2.9% 3.4% 3.1% 3.3% 2.2% 2.2%

 Across the Metro Area, vacancies were lowest for three-bedroom units and units with more than three bedrooms (2.2%). Studio and one-bedroom units were 2.6% vacant and 2.9% vacant, respectively. One-bedroom plus den units had the highest vacancy rate, at 3.4%, while two-bedroom plus den and two-bedroom were 3.3% and 3.1% vacant, respectively.

MAXFIELD RESEARCH AND CONSULTING, LLC 50 HOUSING MARKET ANALYSIS

 Within the HMA submarkets, Eagan had the lowest vacancy rate at 2.2%, followed by Lake- ville/Farmington at 2.8%. Due, in large part, to the recent delivery of new projects which were in initial lease-up as of the second quarter of 2016, Apple Valley/Rosemount had a 7.5% vacancy rate. Total vacancy in the HMA increased 2.1% over the past year. Vacancy in Lakeville/Farmington climbed 0.2% over the year, while Eagan experienced a 1.0% increase in vacancy and the vacancy rate in Apple Valley/Rosemount jumped 6.1%.

 Average monthly rents increased 2.2% over the year to $1,078 across the Metro Area, and the HMA submarkets experienced a 6.2% increase in monthly rents. At $1,092, the average monthly rent in the HMA is 1.3% higher than the Twin Cities average.

 Within the HMA, average rental rates range from $1,072 in Eagan to $1,147 in Apple Val- ley/Rosemount. Lakeville/Farmington had an average rent of $1,116 per month. Average rents in Lakeville/Farmington increased 2.8% over the past year, while rents jumped 7.0% in Eagan and Apple Valley/Rosemount experienced a 6.1% rent increase.

Downtown Rosemount Market Area Average Monthly Rent by Unit Type $3,000 $2,500 $2,000 $1,500 $1,000 $500 $- Total Studio 1BR 1BR+D 2BR 2BR+D 3BR 3BR+ HMA $1,092 $707 $960 $967 $1,138 $1,323 $1,400 $1,629 Twin Cities $1,078 $847 $948 $1,342 $1,155 $1,830 $1,412 $2,216

 One- and two-bedroom units are the predominant unit types in the HMA, representing 35% and 49% of the inventory, respectively. Three-bedroom units represent 9% of the inventory, while 3% of the inventory is comprised of studio units. One-bedroom plus den and two-bedroom plus den units represent 1.3% and 1.9% of the inventory, respectively, and 1.5% of the units have more than three bedrooms.

 The Metro Area has a slightly lower proportion of two-bedroom units (42% of the total). Over 44% of the Metro Area’s units have one bedroom, and the Metro Area has a higher proportion of smaller units as over 5% of the units are studios. One-bedroom plus den units comprise 2.4% of the Metro Area’s supply of apartment units. The Metro Area has smaller proportions of the larger unit types, as 1.2% have two-bedrooms and a den, 4.9% have three bedrooms, and 0.4% of the units have more than three bedrooms.

MAXFIELD RESEARCH AND CONSULTING, LLC 51 HOUSING MARKET ANALYSIS

 The following chart illustrates how the general occupancy apartment market recovered after struggling with rapidly rising vacancy rates between the fourth quarter of 2007 and the fourth quarter of 2009. Since 2009, apartment rents in the Metro Area have increased at an average rate of roughly 2.5% per year.

Twin Cities Metro Area Apartment Vacancy vs. Rent 4th Quarter of Each Year 10.0% $1,200

$1,053 8.0% $1,021 $1,100 $981 $957 6.0% $927 $1,000 $899 $906 $906 $908 $871

Vacancy 4.0% $900 Monthly Monthly Rent 2.0% $800 4.7% 4.2% 4.9% 7.3% 3.8% 2.8% 2.9% 2.5% 2.9% 2.3% 0.0% $700 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 Vacancy Rent

 The tight rental market can be partially attributed to a group of foreclosed homeowners that entered the rental market during the Great Recession and traditional renters, who are potential home-owners, staying in the rental market longer due to lifestyle preferences. Job growth is also contributing to demand for apartment units, as new people are relocating to the region for employment and moving into rental properties.

 According to Marquette Advisors 3,928 apartment units were absorbed in 2015, compared to 2,767 units in 2014 and 3,378 units in 2013. Absorption in recent years has more than doubled the amount of absorption in 2012 when 1,217 units were absorbed. This increase in absorption can be attributed, in large part, to a growing inventory of units, as the tight supply constrained absorption in 2012 and 2011.

 Numerous projects are either under construction or in the development pipeline in the Twin Cities. Maxfield Research is tracking over 5,000 units that are under construction or scheduled to move forward, and over 4,100 units came on-line in 2015.

 Much of the new construction is located in or near Downtown Minneapolis as approximately 3,600 new units have opened since 2012, and roughly 1,400 units are currently under construction. However, new market rate rental construction is making its way into suburban locations, and several new projects have been delivered in HMA recently, particularly in Eagan and Apple Valley.

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TABLE 14 AVERAGE RENTS/VACANCIES TRENDS DOWNTOWN ROSEMOUNT MARKET AREA Second Quarter 2015 to Second Quarter 2016 1 BR 2 BR 3 BR/D Average Total Studio 1 BR w/ Den 2 BR w/ Den 3 BR or 4BR Increase APPLE VALLEY - ROSEMOUNT Units 1,455 63 444 6 589 46 291 16 -- No. Vacant 20 0 5 0 11 0 4 0 -- Avg. Rent $1,081 $623 $894 $930 $1,113 $1,400 $1,315 $1,789 1.0% Q2/2015 Vacancy 1.4% 0.0% 1.1% 0.0% 1.9% 0.0% 1.4% 0.0% -0.4% Units 1,692 72 542 6 701 46 309 16 -- No. Vacant 127 1 17 0 96 0 13 0 -- Avg. Rent $1,147 $660 $952 $930 $1,240 $1,400 $1,358 $1,999 6.1% Q2/2016 Vacancy 7.5% 1.4% 3.1% 0.0% 13.7% 0.0% 4.2% 0.0% 6.1% EAGAN Units 4,156 129 1,380 76 2,227 50 204 90 -- No. Vacant 52 0 17 0 28 2 4 1 -- Avg. Rent $1,002 $704 $873 $901 $1,044 $1,098 $1,374 $1,557 -0.3% Q2/2015 Vacancy 1.3% 0.0% 1.2% 0.0% 1.3% 4.0% 2.0% 1.1% -0.6% Units 5,185 147 1,902 76 2,667 74 229 90 -- No. Vacant 116 5 41 4 60 1 5 0 -- Avg. Rent $1,072 $730 $969 $927 $1,114 $1,247 $1,465 $1,561 7.0% Q2/2016 Vacancy 2.2% 3.4% 2.2% 5.3% 2.2% 1.4% 2.2% 0.0% 1.0% LAKEVILLE - FARMINGTON Units 506 -- 130 14 232 18 110 2 -- No. Vacant 13 -- 6 0 2 2 3 0 -- Avg. Rent $1,093 -- $859 $1,200 $1,094 $1,440 $1,284 $1,700 0.6% Q2/2015 Vacancy 2.6% -- 4.6% 0.0% 0.9% 11.1% 2.7% 0.0% -0.2% Units 506 -- 130 14 232 18 110 2 -- No. Vacant 14 -- 5 0 5 2 2 0 -- Avg. Rent $1,116 -- $859 $1,200 $1,100 $1,440 $1,381 $1,706 2.8% Q2/2016 Vacancy 2.8% -- 3.8% 0.0% 2.2% 11.1% 1.8% 0.0% 0.2% TWIN CITIES METRO AREA Units 119,966 6,203 52,601 2,869 50,210 1,517 6,148 418 -- No. Vacant 3,440 167 1,390 112 1,350 69 122 15 -- Avg. Rent $1,055 $813 $920 $1,299 $1,127 $1,800 $1,372 $1,821 5.0% Q2/2015 Vacancy 2.9% 2.7% 2.6% 3.9% 2.7% 4.5% 2.0% 3.6% 0.2% Units 132,252 6,842 58,411 3,232 55,063 1,621 6,545 538 -- No. Vacant 3,901 181 1,690 111 1,711 54 142 12 -- Avg. Rent $1,078 $847 $948 $1,342 $1,155 $1,830 $1,412 $2,216 2.2% Q2/2016 Vacancy 2.9% 2.6% 2.9% 3.4% 3.1% 3.3% 2.2% 2.2% -0.1% Sources: GVA Marquette Advisors; Maxfield Research & Consulting, LLC

MAXFIELD RESEARCH AND CONSULTING, LLC 53 HOUSING MARKET ANALYSIS

Selected Market Rate Apartment Developments

Maxfield Research compiled detailed information for a select group of the newest market rate apartment properties in the HMA that would compete either directly or indirectly with general occupancy apartment units in Downtown Rosemount.

Data on these competitive properties is presented in Tables 15 and 16 on the following pages. The rents shown represent quoted rental rates and have not been adjusted to reflect the inclu- sion or exclusion of utilities. Most new rental properties (post 2000) require the tenant to pay most, if not all, of the utilities.

Competitive Properties Location Map

MAP KEY

1. Waterford Commons 2. Lakeville Woods 3. Eagle Pointe 4. Vermillion Shores 5. Remington Cove 8 6. Palomino East 7. Hearthstone 8. Blackberry Pointe 9. Monument Ridge 10 9 10. CityVue Apartments 13 11. Springs at Apple Valley 12. Gabella at Parkside 13. Flats at Cedar Grove

11 1 12 5 3 7 4

2 Downtown Rosemount

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TABLE 15 SELECT NEW MARKET RATE RENTAL PROJECTS HOUSING MARKET AREA September 2016 Occp. No. of Total Unit Description Monthly Rent Rent/sq. ft. Project Name/Location Date Units Vacant Type No. Vac. Size Min Max Min Max Waterford Commons 2009 85 4 1BR 41 0 651 - 892 $1,029 - $1,302 $1.46 - $1.58 2930 146th St W vacancy rate: 4.7% 2BR 34 3 1,004 - 1,243 $1,320 - $1,487 $1.20 - $1.31 Rosemount, MN 3BR 10 1 1,243 - 1,616 $1,320 - $1,651 $1.02 - $1.06 Notes: Units feature full-size W/D, 9' ceilings, granite countertops, SS appliances, balconies, and kitchen islands. Amenities include outdoor pool, fitness center, heated UG parking, business center, and controlled access. 108-unit community (23 tax credit units). Lakeville Woods 2008 76 1 1BR 10 1 850 - 1,055 $1,050 - $1,534 $1.24 - $1.45 18351 Kenyon Ave vacancy rate: 1.3% 1BR+D 12 0 1,121 - 1,170 $1,554 - $1,602 $1.37 - $1.39 Lakeville, MN 2BR 26 0 1,166 - 1,370 $1,516 - $1,639 $1.20 - $1.30 2BR+D 18 0 1,285 - 1,349 $1,647 - $1,673 $1.24 - $1.28 3BR 10 0 1,444 - 1,460 $1,715 - $1,800 $1.19 - $1.23 Notes: Fitness center, car-wash station, security monitoring, club room/billiards table, park area with grilling facilty, UG parking. Units feature 9' ceilings, center islands, cherry cabinets, full size W/D, and garden tubs. Eagle Pointe 2007 66 1 1BR 24 0 711 - 711 $1,035 - $1,035 $1.46 - $1.46 2550 Voyageur Pkwy vacancy rate: 1.5% 2BR 36 1 923 - 923 $1,175 - $1,175 $1.27 - $1.27 Hastings, MN 3BR 6 0 1,221 - 1,221 $1,330 - $1,330 $1.09 - $1.09 Notes: Units include wood floors, kitchen islands, walk-in closets, extra storage, and in-unit washer/dryer. Community featuers include a clubhouse, fitness center, billiards room, heated parking, and detached garages. Vermillion Shores 2008 36 0 1BR 6 0 806 - 806 $865 - $865 $1.07 - $1.07 955 W 31st St vacancy rate: 0.0% 2BR 30 0 1,063 - 1,115 $965 - $1,025 $0.91 - $0.92 Hastings, MN Notes: Features include underground heated parking, elevator, exercise rooms, secured building, and central AC/heat. Units include full kitchen appliance package, maple cabinetry, and balconies/decks. Water and garbage removal included in rent. Remington Cove 2015 101 1 Studio 4 0 541 - 617 $905 - $975 $1.58 - $1.67 15430 Founders Ln vacancy rate: 1.0% 1BR 34 0 783 - 791 $1,105 - $1,120 $1.41 - $1.42 Apple Valley, MN 1BR+D 10 0 944 - 1,012 $1,340 - $1,395 $1.38 - $1.42 2BR 41 1 964 - 1,147 $1,405 - $1,595 $1.39 - $1.46 3BR 12 0 1,317 - 1,622 $1,695 - $2,140 $1.29 - $1.32 Notes: Units feature in-unit W/D, center islands, granite countertops, and some fireplaces. Amenities include fitness center, outdoor fire pit with grilling area, heated UG parking, business center, community room, free Wi-Fi in common areas, dog park, and courtyard. Palomino East 2004 72 1 1BR 4 0 738 - 738 $920 - $960 $1.25 - $1.30 12555 Pennock Ave vacancy rate: 1.4% 1BR+D 6 0 806 - 806 $960 - $1,020 $1.19 - $1.27 Apple Valley, MN 2BR 58 1 866 - 1,026 $1,090 - $1,170 $1.14 - $1.26 3BR 4 0 1,199 - 1,199 $1,230 - $1,275 $1.03 - $1.06 Notes: Apartment community. Units include in-unit W/D, central air, and some with fireplaces. Amenities include UG heated parking, fitness center, picnic area with grill, and community room. Rent includes water, sewer, and trash removal. Hearthstone 2003 178 5 1BR 63 0 785 - 865 $1,166 - $1,242 $1.44 - $1.49 6583 158th St W vacancy rate: 2.8% 2BR 75 4 1,073 - 1,515 $1,416 - $1,573 $1.04 - $1.32 Apple Valley, MN 3BR 32 0 1,321 - 1,932 $1,599 - $1,832 $0.95 - $1.21 4BR 8 1 2,101 - 2,101 $2,011 - $2,011 $0.96 - $0.96 Notes: 228-unit community (94 tax credit units). Units include central air, fireplaces, SS appliances, balconies/patios, full-size W/D, walk-in closets, and vaulted ceilings. Amenities include outdoor pool, business center, game room, UG parking, and club house. ----- continued -----

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TABLE 15 continued SELECT NEW MARKET RATE RENTAL PROJECTS HOUSING MARKET AREA September 2016 Occp. No. of Total Unit Description Monthly Rent Rent/sq. ft. Project Name/Location Date Units Vacant Type No. Vac. Size Min Max Min Max Blackberry Pointe 2004 131 2 1BR 41 0 802 - 902 $1,008 - $1,079 $1.20 - $1.26 5470 & 5480 Blackberry Trl vacancy rate: 1.5% 2BR 78 1 1,019 - 1,235 $1,220 - $1,436 $1.16 - $1.20 Inver Grove Heights, MN 3BR 12 1 1,448 - 1,512 $1,610 - $1,617 $1.07 - $1.11 Notes: 3-story buildings. Amenities include swimming pool, playground, business center, parking garage, fitness center, clubhouse, in-unit full size W/D, club room, walk-in closets, patio or balcony. Rent includes sewer, water, and trash removal. 219 total units (88 tax credit units). Monument Ridge 2004 136 0 1BR 61 0 830 - 960 $1,019 - $1,179 $1.23 - $1.23 8851 & 8891 Broderick Blvd vacancy rate: 0.0% 2BR 63 0 1,020 - 1,330 $1,219 - $1,399 $1.05 - $1.20 Inver Grove Heights, MN 3BR 12 0 1,420 - 1,420 $1,499 - $1,499 $1.06 - $1.06 Notes: 3-story buildings. Units feature oversized closets, in-unit washer/dryer, full kitchen appliance package. Amenities include elevator, extra storage, fitness center, playground, swimming pool, and garage parking. Water and trash removal included in rent. CityVue Apartments 2015 113 0 1BR 89 0 514 - 855 $1,115 - $1,745 $2.04 - $2.17 3435 Promenade Ave vacancy rate: 0.0% 2BR 24 0 792 - 1,113 $1,610 - $2,375 $2.03 - $2.13 Eagan, MN (outside PMA) Notes: Renovated office building. Amenities include rooftop lounge and patio, fitness center, free ramp parking, heated UG parking ($150/mo.), package receiving, and free internet. Units feature keyless entry, walk-in closets, in-unit W/D, SS appliances, and granite countertops. Electric, water, sewer, and trash removal included in rent. ----- projects in initial lease-up ----- Springs at Apple Valley 2016 280 161 Studio 28 4 525 - 623 $1,062 - $1,386 $2.02 - $2.22 14650 Foliage Ave vacancy rate: 57.5% 1BR 112 16 760 - 909 $1,348 - $1,806 $1.77 - $1.99 Apple Valley, MN 2BR 112 16 1,062 - 1,185 $1,429 - $2,149 $1.35 - $1.81 3BR 28 3 1,334 - 1,430 $1,689 - $2,519 $1.27 - $1.76

Notes: 120 units open (1 vacant); 160 yet to be delivered. Townhome-style development (14 buildings). Amenities include clubhouse with coffee bar, Wi-Fi, and fireplace, swimming pool, fitness facility, complimentary car wash area, pet playgrounds. Units include attached and detached garages, SS or black appliances, walk-in closets, in-unit W/D, and granite countertops. Gabella at Parkside 2015 196 25 1BR 98 0 669 - 828 $1,000 - $1,240 $1.49 - $1.50 6859 152nd St W vacancy rate: 12.8% 1BR+D 4 0 1,038 - 1,038 $1,490 - $1,560 $1.44 - $1.50 Apple Valley, MN 2BR 60 9 1,096 - 1,221 $1,575 - $1,725 $1.41 - $1.44 2BR+D 10 6 1,276 - 1,360 $1,855 - $1,955 $1.44 - $1.45 3BR 24 10 1,383 - 1,410 $1,790 - $1,865 $1.29 - $1.32 Notes: Units include SS appliances, kitchen islands, granite countertops, full-size W/D, 9' ceilings, balconies, and walk-in closets. Amenities include pub room with fireplace, patio with fire pit, yoga studio, fitness center, swimming pool, hot tub, private theater, Wi-Fi lounge, dog washing station, concierge, business center, conference room, car wash bay, and grills. Flats at Cedar Grove 2015 191 14 1BR 108 2 710 - 845 $1,260 - $1,582 $1.77 - $1.87 3825 Cedar Grove Pkwy vacancy rate: 7.3% 2BR 72 9 943 - 1,305 $1,524 - $2,215 $1.62 - $1.70 Eagan, MN (outside PMA) 3BR 11 3 1,553 - 1,568 $2,195 - $2,782 $1.41 - $1.77 Notes: Amenities include fitness center, picnic area, bike racks, business center, garage parking, concierge, community room, clubhouse, outdoor pool and sundeck. Units feature granite countertops, SS appliances, walk-in closets, full size W/D, and balconies. Total 1,661 215 Source: Maxfield Research & Consulting, LLC

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The per square foot average rents presented reflect a weighted average based on the number of units in each development. Therefore, developments with a larger number of units of any one type contribute more toward the average than those with only a few units of a specific type. Table 16 and the points that follow summarize key observations for the selected general occupancy market rate rental developments.

 A total of 1,658 units is represented among 13 of the newest developments located in the HMA.

TABLE 16 UNIT TYPE SUMMARY SELECTED MARKET RATE RENTAL DEVELOPMENTS September 2016 Monthly Rents Total % of Avg. Range Avg. Avg. Rent/ Unit Type Units Total Size Low - High Rent Sq. Ft. Studio 32 1.9% 575 $905 - $1,386 $1,189 $2.07 1BR 657 39.6% 792 $865 - $1,806 $1,289 $1.64 1BR+Den 36 2.2% 1,019 $960 - $1,602 $1,410 $1.38 2BR 719 43.4% 1,119 $965 - $2,375 $1,508 $1.35 2BR+Den 30 1.8% 1,317 $1,647 - $1,955 $1,758 $1.33 3BR+ 184 11.1% 1,481 $1,230 - $2,782 $1,817 $1.23 Total: 1,658 100% 1,021 $865 - $2,782 $1,452 $1.47 Source: Maxfield Research & Consulting, LLC

 Roughly 43% of all units in the competitive set are two-bedroom units and 40% of the units have one bedroom, and units with three or more bedrooms represent 11% of the inventory. One-bedroom plus den and two-bedroom plus den units represent 2.2% and 1.8% of the inventory, respectively, while 1.9% of the inventory is comprised of studio units.

Select Market Rate Rental Projects Unit Mix Studio 2% 1BR 3BR+ 40% 11% 2BR+D 2%

1BR+D 2BR 2% 43%

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 On average, units in these market rate projects are 1,021 square feet, with studio units being the smallest (575 square feet) and the units with three or more bedrooms being the largest at 1,481 square feet.

 Monthly rental rates range from a low of $905 for studio units at Remington Cove to a high of $2,782 for a three-bedroom unit in Flats at Cedar Grove. Monthly rents average $1,189 for studio units, $1,289 for one-bedroom units, $1,410 for one-bedroom plus den units, $1,508 for two-bedroom units, $1,758 for two-bedroom plus den units, and $1,817 for units with three or more bedrooms.

 The weighted average monthly rent at these market rate projects is $1,452 which equates to $1.47 per square foot. Per square foot rents for these properties range from a low of $0.95 per square foot for a three-bedroom unit in Hearthstone to a high of $2.22 for a studio unit in Springs at Apple Valley.

 The following list identifies the average per square foot rent for these properties along with their City and year built:

– CityVue Apartments (2015) Eagan $2.09 per square foot – Springs at Apple Valley (2016) Apple Valley $1.76 per square foot – Flats at Cedar Grove (2015) Eagan $1.75 per square foot – Gabella at Parkside (2015) Apple Valley $1.43 per square foot – Remington Cove (2015) Apple Valley $1.41 per square foot – Eagle Pointe (2007) Hastings $1.36 per square foot – Waterford Commons (2009) Rosemount $1.35 per square foot – Lakeville Woods (2008) Lakeville $1.28 per square foot – Hearthstone (2003) Apple Valley $1.24 per square foot – Palomino East (2004) Apple Valley $1.19 per square foot – Blackberry Pointe (2004) Inver Grove Heights $1.18 per square foot – Monument Ridge (2004) Inver Grove Heights $1.16 per square foot – Vermillion Shores (2008) Hastings $0.94 per square foot

 We include ten properties with a total of 994 units in our vacancy analysis, as three projects were recently completed and are still in initial lease-up. These ten projects contain a total of 15 vacant units, representing a 1.5% vacancy rate, well-below equilibrium (5.0% vacancy). As such, it appears that the supply of newer rental housing in and near the HMA is below the level needed to adequately meet demand.

 The three properties in initial lease-up (Springs at Apple Valley, Gabella at Parkside, and Flats at Cedar Grove) seem to have higher proportions of two- and three-bedroom units waiting to be leased. Studio and one-bedroom units are being absorbed well, and the Ga- bella at Parkside project currently has a waiting list for one-bedroom units.

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 The newest properties are offering residents contemporary features and amenities such as:

– Nine foot ceilings, walk-in closets, in-unit laundry, patios, porches, or balconies; – Full kitchen appliance packages with stainless appliances and granite countertops; – Fitness center, outdoor living/entertainment options, swimming pool, community room; – Secure keyless entry, private theater, concierge, and package receiving services; – Underground/covered parking and free Wi-Fi in common areas.

Pending Rental Developments

Maxfield Research interviewed planning and community development staff in the Market Area to identify any new rental developments that are proposed, planned or under construction that may be competitive with the proposed development. Table 17 lists pending general occupancy apartment developments in the HMA with their locations, number of units, and name of developer, if known.

 We identified 12 pending general occupancy rental developments in the HMA, containing a total of 2,103 units.

 There is one project under construction, a 37-unit affordable housing project targeting art- ists in Downtown Hastings. Because this is an affordable project, we exclude these units from the demand calculations.

 Four other projects totaling 412 units have been approved for development and are expected to commence construction in 2016, including; Parkside Village – Galante (128 units) and Remington Cove Phase II (102 units) in Apple Valley, CityVue Apartments Phase II in Ea- gan (122 units), and Great Rivers Landing in Hastings (60 units). These four properties are incorporated into our demand calculations presented later in this report.

 Seven other projects, totaling 1,654 units, have been proposed and are at various stages of the planning approval process in their respective cities. Due to the preliminary nature of these projects, we do not include these units in our demand calculations.

 Apartment development activity is very active in the Twin Cities, with numerous projects under construction or in the development pipeline. Although many of the new rental properties have been built in or near Downtown Minneapolis, development is expanding outward to first- and second-tier suburban locations near areas of high employment.

 While recently opened suburban rentals have experienced strong absorption, the number of market rate units proposed in the HMA is substantial. The ability to support a significant number of new rental units in the market will depend a number of situations, including: prospects continuing to prefer rentals over ownership; continuing job growth; and, continued skepticism about the long-term appreciation of for-sale housing.

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TABLE 17 PENDING GENERAL OCCUPANCY RENTAL DEVELOPMENTS HOUSING MARKET AREA October 2016 Project Name Total Location City Units Developer/Applicant Status/Notes

Parkside Village - Galante Apple Valley 128 Titan Development Approved; No permit yet Galaxie Ave at 153rd St Delegard Apple Villa Apple Valley 28 Delegard Apple Villa Preliminary approval 7800 Whitney Dr Properties Remington Cove - II Apple Valley 102 Trident Development Approved; will pull permits 15430 Founder's Lane yet this year to start const. City Vue Apartments II Eagan 122 Interstate Partners Approved; construction start 3435 Promenade Ave late fall 2016 Quarry Road Addition Eagan 183 United Properties Proposed 1555 Yankee Doodle Rd NE Eagan (MN Vikings Project) Eagan 816 MV Eagan Ventures, LLC Proposed I-494 at Highway 149 Great Rivers Landing Hastings 60 Confluence Development Preliminary approval 200 West 2nd Street Seeking Historic Tax Credits Hastings River Lofts Hastings 37 Artspace Under Construction 2nd St & Tyler St Affordable Hannah Meadows Inver Grove 200 IMH Special Asset Preliminary approval; final Highway 3 at 70th Street Heights plans not submitted Argenta Hills Inver Grove 298 Ivy Properties Proposed Hwy 55 at Robert Trail Heights Lakeville Pointe Lakeville 49 Ron Clark Construction Approved Kenwood Tr at Jurel Way Affordable/workforce housing Rosewood Crossing Rosemount 232 KJ Walk Proposed 145th Street West

Under Construction Subtotal: 37 Approved Subtotal: 412 Proposed Subtotal: 1,806 Pending Total: 2,255 Source: Maxfield Research & Consulting, LLC

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Market Rate General Occupancy Rental Demand Calculations

Table 18 presents our calculation of general occupancy market rate rental housing demand for the HMA and assesses the potential for Downtown Rosemount to capture a portion of demand. Factors considered include competitiveness of area rental properties, pending developments, demographic trends, and population shifts. Potential demand is calculated from two categories:

1. From new household growth by age group based on the propensity of households to rent their housing in the Housing Market Area; and,

2. From existing households that will remain in the Market Area because new product is available and they value other area amenities including proximity to employment, entertainment and recreation.

First, we calculate potential demand from new income-qualified household growth over the next five years by age group based on the propensity of households to rent their housing. We focus on households between the ages of 18 and 64 that will account for the vast majority of rental demand. We also include a portion (20%) of the demand generated by households age 65 and older, as a segment of this age group that is able to live independently could be drawn to a new general occupancy rental housing development in Downtown Rosemount. The propensity to rent or own is based on 2014 American Community Survey figures by age cohort.

Next, we calculate the percentage of renters who are income-qualified for market rate rental housing. For new market rate housing, household incomes must equal or exceed $51,560 in order to afford a one-bedroom unit in the competitive set of newer market rate properties in the HMA.

The second part of the analysis calculates demand from existing households, or turnover demand. Younger households tend to be highly mobile, relative to older households. The youngest households are often unable to afford rents at the top of the market unless they receive assistance from their parents or desire a roommate. Mobility rates were identified by age group (utilizing Census data) and were applied to the existing household base.

Together with demand from projected household growth and turnover, the total demand for HMA market rate rental housing is summarized. In the HMA, total demand for income-qualified market rate housing over the next five years is 2,674 units.

An additional proportion is added for households that would move to a rental project in the HMA who currently reside outside the HMA. We estimate that 20% of the demand potential for market rate rental housing in the HMA would be derived from outside the HMA, increasing demand to 3,342 units.

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From the demand potential, we subtract pending rental developments in the HMA at market equilibrium (95% occupancy) to find the remaining excess demand. We identified four market rate projects totaling 412 units that are expected to commence construction in the near term. We also incorporate recently-completed projects that are still in initial lease-up, including three developments with 664 units, 177 of which need to be leased to reach 95% occupancy. Sub- tracting these pending projects at equilibrium (568 total units) results in excess demand for 2,774 units of market rate rental housing in the HMA between 2016 and 2021.

We estimate that a development in Downtown Rosemount could capture approximately 5% of the total demand in the HMA. This capture rate considers Downtown Rosemount’s potential draw from the HMA, and it also accounts for the number and location of other developments that would satisfy demand. We anticipate that Downtown Rosemount could support roughly 139 new general occupancy market rate rental housing units between 2016 and 2021.

TABLE 18 PROJECTED DEMAND FOR MARKET RATE RENTAL HOUSING HOUSING MARKET AREA 2016 to 2021 ------Number of Households ------Age Age 25 Age 35 Age 45 Age 65 <25 to 34 to 44 to 64 & Over Demand From Household Growth Projected Income-Qualifed Household Growth 2016 - 2021 1 5 882 2,398 1,044 3,250 (times) Proportion estimated to be renting their housing2 x 80% 39% 22% 12% 20% (equals) Demand For Rental Housing, 2016 - 2021 = 4 340 518 120 657

Demand From Existing Households Estimated number of renter households in 2016 2,367 6,658 4,706 5,330 2,466 (times) Estimated % Turnover between 2016 & 2021 x 82% 82% 60% 60% 50% (equals) Total Existing Households Projected to Turnover = 1,946 5,473 2,814 3,187 1,235 (times) Percent of Households Income Qualified2 x 44% 71% 80% 82% 53% (equals) Total Number of Income-Qualified Households = 864 3,897 2,251 2,614 655 (times) Estimated % Desiring New Rental Housing3 x 16% 16% 16% 16% 16% (equals) Demand From Existing Households = 138 623 360 418 105 Total Demand From Household Growth and Existing Households 142 963 878 538 761

Demand Summary Total Market Area Demand for Rental Housing in PMA = 2,674 (plus) Demand from outside PMA (20%) + 668 (equals) Potential demand for rental housing in the PMA (2016 to 2021) = 3,342 (minus) Pending rental units in the PMA at equilibrium - 568 (equals) Excess demand for rental housing in the PMA (2016 to 2021) = 2,774 (times) Percent capturable in Downtown Rosemount 5% (equals) Total Demand Capturable in Downtown Rosemount (units) = 139 1 $51,560 in 2016 based on average pricing of one-bedroom apartments in the competitive set. 2 Data from U.S. Census Bureau. 3 Source - The Upscale Apartment Market: Trends and Prospects . Prepared by Jack Goodman of Hartrey Advisors for the National Multi Housing Council. Source: Maxfield Research & Consulting, LLC

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Home Sales

Table 19 on the following page presents home resale data from 2009 through August 31, 2016 for the HMA compared to the Twin Cities Metro Area. The table displays the median sale price, number of closed transactions, median size, median year built, and marketing time (average days on market) for all detached single-family residential resales (excludes new construction) compared to multifamily residential resales which includes townhomes, twin homes, and condominiums. This data was obtained from the Greater Minneapolis Area Association of Realtors.

 After peaking at over $244,000 in 2006, the median sale price for single-family homes in the Twin Cities Metro Area declined sharply over the next five years, falling to $161,000 in 2011 (-34%). However, the median sale price has posted strong gains over the past several years as the number of lender-mediated properties on the market declined and demand increased, climbing to $246,179 through August, 2016. Similarly, multifamily pricing dropped from a median of $179,000 in 2006 to $110,000 in 2011 (-39%), before climbing to $169,051 in 2016.

 In the Metro Area, multifamily sales activity accelerated from 7,876 transactions in 2010 to 11,123 sales in 2013, a 41% increase. Sales volume declined slightly (-0.6%) to 11,056 transactions in 2014 before jumping 12.7% to 12,455 sales in 2015. Detached single-family sales in the Metro Area also increased 41% between 2010 and 2013 in the Metro Area. Single- family sales activity dropped -8.5% to 34,020 sales in 2014, but climbed 15.8% to 39,383 sales in 2015.

 Sales activity experienced a similar trend in the HMA. Single-family sales climbed steadily from 2010 to 2013, before slipping -6.5% in 2014, then jumping nearly 22% in 2015 to 2,990 sales. Multifamily sales activity in the HMA increased 12% to 1,702 sales in 2015 after increasing only 2% in 2014.

Residential Resale Activity Housing Market Area 5,000 4,500 Multifamily 4,000 Single-Family 3,500 1,702 3,000 1,492 1,443 1,524 2,500 1,341 1,397 1,283 2,000 1,152 1,500 2,990 Sale Sale Transactions 2,629 2,431 2,457 2,155 1,000 2,013 1,740 2,032 500 0 2009 2010 2011 2012 2013 2014 2015 2016 ytd

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TABLE 19 RESIDENTIAL RESALES ACTIVITY DOWNTOWN ROSEMOUNT HOUSING MARKET AREA 2009 - 2016 ytd Housing Market Area Twin Cities Metro Area Median % Closed % Median Median Median Avg. Days Median % Closed % Median Avg. Days Sale Price Change Sales Change Size (SF) Price/SF Yr. Blt. on Market Sale Price Change Sales Change Price/SF on Market Single-family 2016 ytd* $280,000 6.5% 2,155 -- 2,306 $121 1989 64 $246,179 7.0% 28,379 -- $124 69 2015 $263,000 3.2% 2,990 21.7% 2,246 $117 1989 75 $230,000 6.0% 39,383 15.8% $117 81 2014 $254,900 6.2% 2,457 -6.5% 2,252 $113 1989 79 $217,000 6.4% 34,020 -8.5% $112 82 2013 $240,000 11.6% 2,629 8.1% 2,243 $107 1989 74 $204,000 14.7% 37,192 8.2% $106 85 2012 $215,000 7.9% 2,431 19.6% 2,227 $97 1988 103 $177,900 10.5% 34,385 18.4% $94 114 2011 $199,250 -11.3% 2,032 16.8% 2,139 $93 1988 140 $161,000 -10.5% 29,045 10.1% $87 143 2010 $224,600 2.1% 1,740 -13.6% 2,192 $102 1988 132 $179,900 3.2% 26,373 -18.7% $97 128 2009 $220,000 -- 2,013 -- 2,104 $105 1987 140 $174,400 -- 32,420 -- $97 136 Multifamily 2016 ytd* $165,900 5.3% 1,283 -- 1,528 $109 1999 44 $169,051 4.7% 9,182 -- $115 56 2015 $157,500 5.0% 1,702 11.7% 1,528 $103 1999 57 $161,500 4.3% 12,455 12.7% $109 64 2014 $150,000 7.9% 1,524 2.1% 1,540 $97 1999 60 $154,900 9.1% 11,056 -0.6% $105 71 2013 $139,000 22.0% 1,492 3.4% 1,531 $91 1998 70 $142,000 18.3% 11,123 9.3% $97 79 2012 $113,900 8.5% 1,443 3.3% 1,500 $76 1997 108 $120,000 9.1% 10,174 12.0% $83 126 2011 $105,000 -17.9% 1,397 21.3% 1,509 $70 1997 146 $110,000 -14.7% 9,085 15.4% $75 161 2010 $127,950 -4.5% 1,152 -14.1% 1,515 $84 1998 131 $128,900 -2.3% 7,876 -11.8% $89 150 2009 $134,000 -- 1,341 -- 1,496 $90 1997 157 $132,000 -- 8,926 -- $94 166 *2016 ytd data through August 31 Sources: Greater Minneapolis Area Association of Realtors; Maxfield Research & Consulting, LLC

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 The median sale price for single-family homes in the HMA is $280,000, roughly 13.7% higher than the Metro Area ($246,179). The multifamily median sale price in the HMA ($165,900) is -1.9% lower than the Metro Area median ($169,051).

Residential Sale Trends Median Sale Price $350,000 $300,000 $250,000 $200,000 Metro Multifamily $150,000 Metro Single-Family $100,000 HMA Multifamily $50,000 HMA Single-Family

2009 2010 2011 2012 2013 2014 2015

2016 ytd

 Median sale prices having been climbing steadily in the HMA since dropping to lows of $199,250 for single-family homes and $105,000 for multifamily units in 2011. Since 2011, the median sale price for single-family homes has increased nearly 41% to $280,000 through the first eight months 0f 2016, while multifamily pricing jumped 58% to $165,900.

 The HMA appears to have a relatively active multifamily residential market, as 32% of all closed resales from 2009 through August 2016 have been multifamily homes. By comparison, multifamily transactions represented 23% of all closed sales in the Metro Area.

Residential Resales by Type 2009 - 2016 ytd

Single-Family Multifamily Twin Cities 261,197 79,877

Single-Family Multifamily HMA 18,447 11,334

0% 20% 40% 60% 80% 100% Pct. Of Closed Sales

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 As depicted in Table 20, detached single-family homes priced between $200,000 and $299,999 have been the most popular product in the HMA since 2014, representing 48% of all single-family sales, while homes sold in the $300,000 to $399,999 price range represent 24% of all sales.

 Detached single-family homes priced between $150,000 and $199,999 and between $400,000 and $499,999 represented 12% and 9% of all single-family sales, respectively. Homes priced above $500,000 represented 4% of all transactions and homes priced below $150,000 represented approximately 3% of all sales.

 Of the multifamily units sold in the HMA since 2014, roughly 38% were priced in the $150,000 to $199,999 range and 34% were priced between $100,000 and $149,999. Roughly 16% of the multifamily units were priced between $200,000 and $299,999, and 8% were priced below $100,000. The remaining 5% of the sales were for units priced above $300,000, with 4% selling in the $300,000 to $399,999 range, 0.8% in the $400,000 to $499,999 range, and 0.3% of the sales were for homes priced at $500,000 or more.

TABLE 20 RESIDENTAL RESALES ACTIVITY - PRICE DISTRIBUTION HOUSING MARKET AREA

2014 2015 2016 ytd Total Closed % of Closed % of Closed % of Closed % of Sales Total Sales Total Sales Total Sales Total Single-family Less than $100,000 14 0.6% 22 0.7% 7 0.3% 43 0.6% $100,000 to $149,999 97 3.9% 82 2.7% 26 1.2% 205 2.7% $150,000 to $199,999 391 15.9% 355 11.9% 161 7.5% 907 11.9% $200,000 to $299,999 1,148 46.7% 1,449 48.5% 1,043 48.4% 3,640 47.9% $300,000 to $399,999 529 21.5% 756 25.3% 571 26.5% 1,856 24.4% $400,000 to $499,999 188 7.7% 243 8.1% 234 10.9% 665 8.7% $500,000 or more 90 3.7% 83 2.8% 113 5.2% 286 3.8% Total 2,457 100% 2,990 100% 2,155 100% 7,602 100% Multifamily Less than $100,000 146 9.6% 127 7.5% 68 5.3% 341 7.6% $100,000 to $149,999 604 39.6% 597 35.1% 328 25.6% 1,529 33.9% $150,000 to $199,999 479 31.4% 620 36.4% 598 46.6% 1,697 37.6% $200,000 to $299,999 228 15.0% 270 15.9% 210 16.4% 708 15.7% $300,000 to $399,999 46 3.0% 74 4.3% 65 5.1% 185 4.1% $400,000 to $499,999 20 1.3% 9 0.5% 8 0.6% 37 0.8% $500,000 or more 1 0.1% 5 0.3% 6 0.5% 12 0.3% Total 1,524 100% 1,702 100% 1,283 100% 4,509 100% Sources: Greater Minneapolis Area Association of Realtors; Maxfield Research & Consulting, LLC

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Active Listings

Table 21 presents a summary of detached single-family and multifamily homes currently listed for sale in the HMA. Multifamily includes condominiums, townhouses, twin homes, and patio homes.

 There were 1,100 homes listed for sale in the HMA as of September 2016. Nearly 72% of the for-sale listings (787 homes) are detached single-family housing units and the remaining 28% (313 homes) are multifamily units.

TABLE 21 HOMES LISTED FOR SALE HOUSING MARKET AREA September 2016

% of Median Median Median Price per Listings Total Year Built Size Price Sq. Ft. Single-family Detached Less than $100,000 2 0.2% 1900 1,269 $68,450 $53.94 $100,000 to $149,999 7 0.6% 1940 1,282 $139,900 $109.13 $150,000 to $199,999 20 1.8% 1963 1,542 $178,000 $115.43 $200,000 to $299,999 215 19.5% 1986 1,952 $247,900 $127.00 $300,000 to $399,999 224 20.4% 2000 2,628 $355,000 $135.08 $400,000 to $499,999 181 16.5% 2014 3,279 $441,100 $134.52 $500,000 or more 138 12.5% 2004 4,102 $600,000 $146.27 Subtotal 787 71.5% 1998 2,703 $367,500 $135.96 Multifamily Less than $100,000 7 0.6% 1980 780 $89,900 $115.26 $100,000 to $149,999 57 5.2% 1989 1,240 $138,000 $111.29 $150,000 to $199,999 106 9.6% 2001 1,518 $169,900 $111.92 $200,000 to $299,999 68 6.2% 2004 2,039 $249,900 $122.56 $300,000 to $399,999 53 4.8% 2015 2,459 $343,327 $139.62 $400,000 to $499,999 14 1.3% 2014 3,212 $429,950 $133.86 $500,000 or more 8 0.7% 2011 3,037 $534,950 $176.14 Subtotal 313 28.5% 2002 1,632 $189,900 $116.36 Market Total 1,100 100% 2000 2,428 $329,900 $135.87 Sources: Greater Minneapolis Area Association of Realtors; Maxfield Research & Consulting, LLC

 The median asking price for single-family homes in the HMA is $367,500, which is 31% higher than the median price of closed sales year-to-date in 2016 ($280,000). The median asking price for multifamily units is $189,900, roughly 14% higher than the median price of closed multifamily sales in 2016 ($165,900).

 The median size of homes listed for sale is 2,428 square feet which equates to a median price per square foot of $135.87, based on a total median list price of $329,900.

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 With a median size of 2,703 square feet, the median price per square foot for single-family homes is $135.96. Multifamily units are substantially smaller, at 1,632 square feet, and priced lower with a median price of $116.36 per square foot.

 Approximately 28% of the homes for sale in the HMA were built in the year 2010 or later while 22% were built in the 2000s and 22% were constructed in the 1990s. Roughly 12% were constructed in the 1980s, 8% in the 1970s, 4% in the 1960s, 2% in the 1950s, and less than 2% prior to 1950. All of the homes built in the 1960s or earlier are single-family detached housing units. Multifamily units represent 34% of the for-sale homes that were built in 2000 or later.

 Equilibrium in the for-sale residential market is generally considered to be a six-month supply of homes on the market. Since 2014, the HMA has averaged approximately 237.6 single-family sales and 140.9 multifamily sales per month. Based on the current inventory of homes listed for sale (787 single-family homes and 313 multifamily units), there is a 3.3- month supply of single-family homes and a 2.2-month supply of multifamily homes on the market in the HMA. This data suggests that the current inventory of available for-sale housing in the HMA is undersupplied.

 As illustrated in the following graph, detached single-family homes priced below $400,000 seem to be undersupplied, while single-family homes priced between $400,000 and $499,999 have an 8.7-month supply and there is a 15.4-month supply of homes priced at $500,000 or higher.

Supply & Demand by Price Range Housing Market Area

2.2 Market 3.3 21.3 $500,000 or more 15.4 12.1 $400,000 to $499,999 8.7 9.2 $300,000 to $399,999 3.9 3.1 $200,000 to $299,999 1.9 2.0 $150,000 to $199,999 0.7 Multifamily 1.2 $100,000 to $149,999 1.1 Single-Family 0.7 Less than $100,000 1.5 0.0 3.0 6.0 9.0 12.0 15.0 18.0 21.0 24.0 Months Supply

 Multifamily homes priced below $300,000 seem to be undersupplied, while multifamily units priced between $300,000 and $399,999 have a 9.2-month supply and there is a 12.1- month supply of homes priced between $400,000 and $499,999. Multifamily units priced at $500,00 or higher have a 21-month supply of homes on the market.

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Selected For-Sale Multifamily Housing Developments

Maxfield Research gathered information on new construction multifamily residential developments in the Housing Market Area actively marketing with the Greater Minneapolis Area Asso- ciation of Realtors. Table 22 on the following pages presents information on homes sold in 2016 (through August 31, 2016) as well as homes currently listed for sale in these developments. Data is presented by project and includes the development name, City, style of the project, listings (closed sales and active listings), finished square feet, price range, and median price per square foot. The following points summarize the current market for new construction multifamily residential units in the HMA.

 A total of 61 new construction multifamily units in 17 different developments have been sold year-to-date in 2016 (through August 31) in the HMA, and another 54 units are currently listed for sale. Nearly half (49.6%) of the new construction homes are located in the City of Lakeville (29 sold and 28 listed for sale), while 17% are in Eagan (13 sold and eight for sale), 11% are in Apple Valley (five sold and eight for sale). Rosemount contains roughly 10% of the new construction homes with eight units sold and three for sale.

 The sold units have a median size of 2,198 finished square feet, and range from 1,674 finished square feet for a two-bedroom unit at Fox Meadows in Lakeville to 3,260 square feet for a four-bedroom unit at the Villas at Cedar Landing in Lakeville. The active listings also have a median size of 2,198 square feet.

 Pricing for the sold new construction units ranges from $210,000 for a three-bedroom unit at Morgan Square in Lakeville to nearly $570,000 for a three-bedroom unit at Bellante in Lakeville. The median sale price for these new construction units is $319,900, nearly double the 2016 median sale price for previously-owned multifamily homes in the HMA ($165,900). The median price for active listings is $333,830.

 Side-by-Side townhome units comprise the largest proportion of new construction multifamily projects with 58% of the listings (67), followed by detached townhomes units with 22 listings (19% of the total) and twin homes with 18 listings (16%).

 Nearly 86% of the new construction homes are three-bedroom units (109) while 8% are four-bedroom units (ten units). There are also seven two-bedroom units and one one-bedroom unit.

 The median size for two-bedroom units is 1,730 square feet and the median price is $335,000, equating to a median price of approximately $194 per square foot. Three-bedroom units have a median size of 2,200 square feet and a median price of $322,164 ($146 per square foot). The four-bedroom units have a median size of 2,198 square feet with a median price of $334,000 ($152 per square foot).

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TABLE 22 NEW CONSTRUCTION MULTIFAMILY HOMES HOUSING MARKET AREA September 2016 Size Range Price Range City Style Listings Low High Median Low High Median Price/SF

Sold in 2016 (through August 31, 2016) Glenrose Rosemount (TH) Quad 5 2,200 2,200 2,200 $298,530 $300,542 $299,500 $136.14 Harmony Village Rosemount (TH) Side x Side 3 1,876 1,876 1,876 $245,000 $252,000 $247,000 $131.66 Trey Pointe at Cobblestone Lake Apple Valley (TH) Side x Side 3 1,871 1,871 1,871 $275,230 $293,090 $276,000 $147.51 Cobblestone Apple Valley (TH) Detached 2 2,992 2,992 2,992 $445,590 $498,325 $471,958 $157.74 Cedar Grove Townhomes Eagan (TH) Side x Side 9 1,850 2,274 1,916 $288,188 $354,984 $307,936 $160.72 Pearlmont Heights Eagan (TH) Side x Side 4 2,580 2,782 2,706 $395,000 $490,000 $481,574 $177.97 Dawson Meadows Farmington (TH) Detached 4 2,329 2,701 2,466 $334,530 $487,463 $381,485 $154.70 Whispering Cottages Hastings (TH) Detached 1 2,138 2,138 2,138 $250,000 $252,500 $251,250 $117.52 Blackstone Ponds Inver Grove Heights (TH) Side x Side 1 1,719 2,397 1,774 $289,849 $348,498 $307,360 $173.26 Avonlea Lakeville (TH) Side x Side 9 1,789 2,198 1,998 $284,900 $328,500 $309,000 $154.65 Fox Meadows Lakeville (TW) Twin Home 1 1,674 1,674 1,674 $335,000 $335,000 $335,000 $200.12 Bellante Lakeville (TW) Twin Home 1 2,950 2,950 2,950 $570,000 $570,000 $570,000 $193.22 Stone Borough Lakeville (TH) Side x Side 1 2,305 2,305 2,305 $319,900 $319,900 $319,900 $138.79 The Villas at Cedar Landing Lakeville (TH) Detached 4 2,344 3,260 2,847 $324,500 $391,076 $369,228 $129.69 Morgan Square Lakeville (TH) Side x Side 2 1,773 1,872 1,823 $210,000 $235,870 $222,935 $122.29 St Frances Woods Lakeville (TH) Side x Side 3 2,540 2,903 2,903 $310,000 $329,900 $320,365 $110.36 Spirit of Brandtjen Farm Lakeville (TW) Twin Home 8 2,805 2,805 2,805 $375,000 $417,590 $378,500 $134.94 Total Sold 2016 ytd: 61 1,674 3,260 2,198 $210,000 $570,000 $319,900 $145.54 ----- continued -----

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TABLE 22 continued NEW CONSTRUCTION MULTIFAMILY HOMES HOUSING MARKET AREA September 2016 Size Range Price Range City Style Listings Low High Median Low High Median Price/SF

Active Listings (For Sale) Glenrose Rosemount (TH) Quad 3 2,200 2,200 2,200 $299,900 $299,900 $299,900 $136.32 Trey Pointe at Cobblestone Lake Apple Valley (TH) Side x Side 5 1,871 2,039 2,039 $267,990 $289,990 $274,990 $134.87 Egret Lodge Apple Valley (TH) Side x Side 3 3,212 3,212 3,212 $414,900 $439,900 $439,900 $136.96 Cedar Grove Townhomes Eagan (TH) Side x Side 6 1,675 2,317 2,238 $264,230 $364,990 $321,103 $143.48 Dawson Meadows Farmington (TH) Detached 5 1,411 2,329 1,831 $278,780 $329,520 $303,805 $165.92 Featherstone Oaks Hastings (TH) Detached 1 3,214 3,214 3,214 $424,900 $424,900 $424,900 $132.20 Blackstone Ponds Inver Grove Heights (TH) Side x Side 1 1,719 1,719 1,719 $317,594 $317,594 $317,594 $184.76 Park Point Inver Grove Heights (TH) Side x Side 2 1,384 2,548 1,966 $343,850 $399,950 $371,900 $189.17 Fox Meadows Lakeville (TW) Twin Home 1 2,804 2,804 2,804 $395,900 $395,900 $395,900 $141.19 Stone Borough Lakeville (TH) Side x Side 1 2,305 2,305 2,305 $332,900 $332,900 $332,900 $144.43 Kenwood Hills Lakeville (TH) Detached 2 2,523 2,891 2,707 $489,000 $511,000 $500,000 $184.71 Morgan Square Lakeville (TH) Side x Side 2 1,773 1,872 1,823 $216,500 $239,900 $228,200 $125.18 Spirit of Brandtjen Farm Lakeville (TW) Twin Home 4 1,730 2,805 2,779 $370,000 $419,900 $402,000 $144.66 The Villas at Cedar Landing Lakeville (TH) Detached 3 1,920 2,847 2,556 $344,990 $359,990 $359,990 $140.84 Avonlea Lakeville (TH) Side x Side 12 1,789 2,903 1,998 $289,900 $389,000 $335,500 $167.92 Bellante Lakeville (TW) Twin Home 3 2,785 3,129 2,824 $468,000 $639,900 $611,900 $216.68 Total For Sale: 54 1,384 3,214 2,198 $216,500 $639,900 $333,830 $151.88

Sources: Greater Minneapolis Area Association of Realtors; Maxfield Research & Consulting, LLC

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For-Sale Housing Market Demand Analysis

Table 23 presents our demand calculations for general occupancy for-sale housing in the Mar- ket Area between 2016 and 2025. The analysis identifies potential demand for general occupancy for-sale multifamily housing that is generated from both new households and turnover households.

According to our projections, the HMA is expected to grow by 9,656 households between 2016 and 2021. Because the 65 and older cohort is typically not a target market for new general occupancy for-sale housing we focus on households between the ages of 18 and 64 that will account for the majority of demand on the subject properties. We also include a portion (25%) of the demand potential generated by households age 65 to 74, as a segment of this age group that is able to live independently could be drawn to a new for-sale development in Downtown Rosemount, particularly for single-level multifamily units. We estimate that roughly 54% of the projected household growth will generate demand for general occupancy housing units, resulting in projected demand for 5,214 units.

Based on household tenure data from the American Community Survey, we expect that 78% of the demand will be for owner-occupied housing units, equating to a potential 4,083 owner households from household growth.

As of 2016, there are an estimated 69,639 owner households under the age of 65 in the HMA. Based on household turnover data from the 2014 American Community Survey, we estimate that 25% of these under-65 owner households will experience turnover between 2016 and 2021. This estimate results in anticipated turnover of approximately 17,410 existing households by 2021.

We then estimate the percent of existing owner households turning over that would prefer to purchase new housing. In the HMA, roughly 8% of all home sales were for new construction since 2008, while over 7% of all sales across the Twin Cities Metro Area were for new homes during the same time period. Considering the current supply of available existing homes in the HMA along with recent sales activity, we estimate that 10% of the households turning over in the HMA will desire new housing. This estimate results in demand from existing households for 1,741 new residential units in the HMA between 2016 and 2021.

Total demand from household growth and existing household turnover between 2016 and 2021 equates to 5,824 new for-sale housing units. An additional proportion is added for households that would move into ownership housing in the HMA who currently reside outside the area. We estimate that 20% of the demand potential for general occupancy ownership housing would be derived from outside the HMA, increasing total demand to 7,280 units.

Based on new construction sales data from 2008 to present in the HMA along with the age distribution of HMA households and recent building permit trends, we estimate that 40% of the householders seeking new housing will desire multifamily housing units.

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We anticipate that there will be demand for approximately 2,329 general occupancy multifamily units in the HMA between 2016 and 2021. While the HMA is estimated to be able to support 2,329 for-sale multifamily units over the next five years, no single property would be able to capture all of the demand in a market area. We anticipate that Downtown Rosemount could capture roughly 5% of the HMA demand potential, resulting in demand for an estimated 116 for-sale multifamily housing units in Downtown Rosemount by 2021.

TABLE 23 GENERAL OCCUPANCY FOR-SALE MULTIFAMILY HOUSING DEMAND HOUSING MARKET AREA 2016 to 2021 DEMAND FROM PROJECTED HOUSEHOLD GROWTH Projected household growth 2016 to 2021¹ 9,656 (times) Pct. of HH growth for general occupancy housing2 x 54% (equals) Projected demand for general occupancy units = 5,214 (times) Propensity to Own3 x 78% (equals) Number of potential owner households from HH growth = 4,083

DEMAND FROM EXISTING OWNER HOUSEHOLDS Number of owner households (age 64 and younger) in Market Area, 2016 = 69,639 (times) Estimated % of owner turnover (age 64 and younger, 2016 to 2021) 4 x 25% (equals) Total existing HHs projected to turnover between 2016 and 2021 = 17,410 (times) Estimated % desiring new owner housing x 10% (equals) Demand from existing households = 1,741

Total Demand From Household Growth and Existing Households, 2016 to 2021 = 5,824 (times) Ownership demand generated from outside Market Area x 20% (equals) Total demand potential for ownership housing in Market Area = 7,280 Multifamily (times) Percent desiring for-sale multifamily housing5 x 40% (equals) Total demand potential for new for-sale multifamily housing = 2,329 (times) Proportion of HMA demand capturable in Downtown Rosemount x 5% (equals) Number of housing units supportable in Downtown Rosemount = 116 1 Estimated household growth based per ESRI, Met Council, and Maxfield Research & Consulting, LLC 2 Pct. of household growth under age 65 plus 25% of age 65 to 74 cohort 3 Pct. Owner households under age 65 from 2010-2014 American Community Survey 4 Based on household turnover and mobility data (2010-2014 American Community Survey). 5 Based on new construction sales data and recent building permit trends * Multifamily demand includes demand for townhomes, twinhomes, and condominium units. Source: Maxfield Research & Consulting, LLC

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Introduction

This section provides an assessment of the market support for senior housing, including active adult/few services, congregate (independent living with services available), assisted living, and memory care). An overview of the demographic and economic characteristics of the senior population along with an inventory of existing and pending senior housing developments in the HMA is presented. Demand for senior housing is calculated based on demographic, economic and competitive factors that would impact demand for additional senior housing units.

Senior Housing Defined

Senior housing is a concept that generally refers to the integrated delivery of housing and services to seniors. However, as Figure 1 illustrates, senior housing embodies a wide variety of product types across the service-delivery spectrum. Products range from independent apartments and/or townhomes with virtually no services on one end, to highly specialized, service-intensive assisted living units or housing geared for people with dementia-related illnesses (termed "memory care") on the other end of the spectrum. In general, independent senior housing attracts people age 65 and over while assisted living typically attracts people age 80 and older who need assistance with activities of daily living (ADLs). For analytical purposes, Maxfield Research and Consulting, LLC classifies market rate senior housing into five categories based on the level and type of services offered.

FIGURE 1 CONTINUUM OF HOUSING AND SERVICES FOR SENIORS

Single-Family Townhome or Congregate Apartments w/ Assisted Living Nursing Facilities Home Apartment Optional Services

Age-Restricted Independent Single- Memory Care Congregate Apartments w/ Family, Townhomes, Apartments, (Alzheimer's and Intensive Services Condominiums, Cooperatives Dementia Units)

Fully Fully or Highly Independent Dependent on Care Lifestyle Senior Housing Product Type Source: Maxfield Research & Consulting, LLC

 Active Adult properties (or independent living without services available) are similar to a general-occupancy building, in that they offer virtually no services but have age-restrictions (typically 55 or 62 or older). Residents are generally age 70 or older if in an apartment-style building. Organized entertainment, activities and occasionally a transportation program represent the extent of services typically available at these properties. Because of the lack of services, active adult properties generally do not command the rent premiums of more service-enriched senior housing. Active adult properties can have a rental or owner-occupied (condominium or cooperative) format.

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 Congregate properties (or independent living with services available) offer support services such as meals and/or housekeeping, either on an optional basis or a limited amount included in the rents. These properties often dedicate a larger share of the overall building area to common areas, in part, because the units are smaller than in adult housing and in part to encourage socialization among residents. Congregate properties attract a slightly older target market than adult housing, typically seniors age 75 or older. Rents are also above those of the active adult buildings. Sponsorship by a nursing home, hospital or other health care organization is common.

 Assisted Living properties come in a variety of forms, but the target market for most is generally the same: very frail seniors, typically age 80 or older (but can be much younger, de- pending on their particular health situation), who are in need of extensive support services and personal care assistance. Absent an assisted living option, these seniors would other- wise need to move to a nursing facility. At a minimum, assisted living properties include two meals per day and weekly housekeeping in the monthly fee, with the availability of a third meal and personal care (either included in the monthly fee or for an additional cost). Assisted living properties also have either staff on duty 24 hours per day or at least 24-hour emergency response.

 Memory Care properties, designed specifically for persons suffering from Alzheimer’s disease or other dementias, is one of the newest trends in senior housing. Properties consist mostly of suite-style or studio units or occasionally one-bedroom apartment-style units, and large amounts of communal areas for activities and programming. In addition, staff typically undergoes specialized training in the care of this population. Because of the greater amount of individualized personal care required by residents, staffing ratios are much higher than traditional assisted living and thus, the costs of care are also higher. Unlike con- ventional assisted living, however, which addresses housing needs almost exclusively for widows or widowers, a higher proportion of persons afflicted with Alzheimer’s disease are in two-person households. That means the decision to move a spouse into a memory care facility involves the caregiver’s concern of incurring the costs of health care at a special facility while continuing to maintain their home.

 Skilled Nursing Care, or long-term care, provides a living arrangement that integrates shel- ter and food with medical, nursing, psychosocial and rehabilitation services for persons who require 24-hour nursing supervision. Residents in skilled nursing homes can be funded under Medicare, Medicaid, Veterans, HMOs, insurance as well as use of private funds.

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Older Adult (Age 55+) Population and Household Trends

The Demographic Review section of this study presented general demographic characteristics of the HMA population. The following points summarize key findings from that section as they pertain to the older adult population in the Market Area.

 The greatest population and household growth is projected to occur among the older adults in the Market Area. Aging of baby boomers led to an increase of 14,421 people (+95%) in the 55 to 64 population between 2000 and 2010 in the HMA. As this group ages, all cohorts age 55 or greater are expected to see increases over the next several years, particularly the 70 to 74 age group which is projected to grow 41% (+3,185 people) in the HMA between 2016 and 2021.

Projected Population Growth by Older Adult Age Group Housing Market Area 50,000

40,000

30,000

20,000

10,000

0 2000 2010 2016 2021 55 to 64 15,225 29,646 37,033 40,684 65 to 74 7,564 13,699 19,779 25,706 75+ 5,088 9,474 10,966 13,953

 The primary market for service-enhanced housing is senior households age 75 and older. While individuals in their 50s and 60s typically do not comprise the market base for service- enhanced senior housing, they often have elderly parents to whom they provide support when they decide to relocate to senior housing. Since elderly parents typically prefer to be near their adult caregivers, growth in the older adult age cohort (age 55 to 64) generally results in additional demand for senior housing products.

 The frailer the senior, the greater the proportion of their income they will typically spend on housing and services. Studies have shown that seniors are willing to pay increasing proportions of their incomes on housing with services, beginning with an income allocation of 40% to 50% for market rate active adult senior housing with little or no services, increasing to 65% for congregate housing and to 80% to 90% or more for assisted living housing. The proceeds from the sales of their homes, as well as financial assistance from their adult children, are often used as supplemental income in order to afford senior housing alternatives.

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 The key market for active adult/few services housing is comprised of senior households (age 65+), with incomes of $35,000 or more. The age threshold increases to 70+ if in an apartment-style building. In 2016, we estimate there are 13,686 age- and income-qualified households in the HMA that comprise the key market for active adult housing. Including all households with incomes of $40,000 and over (adjusted for inflation), the number of age 65+ senior households projected to income-qualify for active adult/few services housing is expected to grow to 16,784 households in 2021 (+23%).

 Congregate housing demand is driven by senior households (age 75+) with incomes of $35,000 or more. We estimate the number of age- and income-qualified households in the HMA to be 4,103 householders in 2016, increasing to 4,760 householders (+16%) in 2021.

 The target market for assisted living housing is senior households age 75 and older with incomes of at least $40,000 (plus senior homeowners with lower incomes). As of 2016, there are an estimated 3,594 older senior households (age 75+) in the HMA with incomes of at least $40,000, accounting for half of all older senior households. Including all households with incomes of $45,000 and over (adjusted for inflation), the number of older senior households projected to income-qualify for senior housing with services is expected to grow to 4,115 households in 2021 (+15%).

 Memory care housing has a target market of senior households age 65 and older with a memory impairment and incomes of at least $60,000. In 2016, we estimate that there are approximately 8,841 age 65+ households in the HMA with incomes of at least $60,000, accounting for 46% of all senior households. The number of income-qualified ($65,000 adjusted for inflation) households is projected to increase to 11,818 by 2021 (+34%). We estimate that roughly 15% of the senior population has a memory impairment.

Age- and Income-Qualified Households in the HMA 2016 and 2021 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 - Active Adult Congregate Assisted Living Memory Care 2016 13,686 4,103 3,594 8,841 2021 16,784 4,760 4,115 11,817

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Homeownership information lends insight into the number of households that may still have homes to sell and could potentially supplement their incomes from the sales of their homes to support monthly fees for alternative housing.

 The HMA maintains fairly high homeownership in the older adult age cohorts relative to the Metro Area. The homeownership rate in 2014 was 90% for age 55 to 64 households compared to 81% throughout the Twin Cities. The HMA homeownership rate decreases to 86% for age 65 to 74 households compared to 83% in the Metro Area. Seniors typically begin to consider moving into senior housing alternatives in their early to mid-70s. This movement pattern is demonstrated by the drop in homeownership between the 65 to 74 age cohort (86%) and the 75+ age cohort (71%). Throughout the Metro Area, the homeownership rate dropped from 83% (age 65 to 74) to 69% (age 75+).

 With a homeownership rate of 80% for all households age 65 and older, many residents would be able to use proceeds from the sales of their homes toward senior housing alternatives. The resale of single-family homes would allow additional senior households to qualify for market rate housing products, since equity from the home sale could be used as supplemental income for alternative housing. These considerations are factored into our demand calculations presented in a following section of this study.

 Home sale data is useful in that it represents the amount of equity seniors may be able to derive from the sales of their homes that could be used to cover the cost of senior housing alternatives. The median sale price of single-family homes in the HMA climbed from a low of $199,250 in 2011 to $280,000 in 2016 (through August 31, 2016), representing a 41% increase. Because seniors are typically not a target market for new single-family home construction and seniors often reside in older homes, we evaluate home sales data for single- family homes that are over 15 years old in the HMA. Through the first eight months of 2016, the median sale price of homes built in the year 2000 or earlier is at $266,000.

 Based on the 2016 year-to-date median sale price for older single-family homes in the HMA ($266,000), a senior household could generate approximately $5,000 of additional income annually (about $417 per month), if they invested in an income-producing account (2.0% interest rate) after accounting for marketing costs and/or real estate commissions (6.0% of home sale price).

 Should a senior utilize the home proceeds dollar for dollar to support living in senior housing with services, the proceeds of the home sale would last over ten years in congregate housing (monthly rent approximated at $2,000), roughly six years in assisted living (monthly rent approximated at $3,500), or nearly five years in memory care housing (monthly rent approximated at $4,500). Seniors in service-intensive housing typically have lengths of stays between two and three years indicating that a large portion of HMA seniors will be finan- cially prepared to privately pay for their housing and services.

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Supply of Senior Housing in the HMA

Tables 24 and 25 show the inventory of existing market rate senior housing products in the HMA that would be competitive with a new senior housing development in Downtown Rose- mount. As displayed in Table 24, we identified 13 active adult/few services properties in the HMA with a total of 855 units. We also identified 18 service-enhanced facilities in the HMA (Ta- ble 25) with a total of 1,913 service-enhanced senior housing units.

These units are incorporated into our demand calculations presented later in this report, but not all units are included. Because certain facilities may be located near the edges of the HMA boundary, those facilities would have different draw areas that overlap with the Market Area for the subject property. As such, we adjust the number of competitive units based on the location of the property within the HMA.

 Generally, all properties within a three-mile radius are considered to be fully competitive with a potential project in Downtown Rosemount, while 75% of the units in properties situated within a three- to five-mile radius are considered competitive. We consider 50% of the units in the properties that are slightly further away within a five- to nine-mile radius competitive. Because facilities located near the edge of the HMA boundary that are more than nine miles away from Downtown Rosemount (i.e. Hastings and northeast Inver Grove Heights) would likely have a significantly different draw area than the subject property, we only consider 25% of those units to be competitive.

Senior Housing Inventory by Service Level Housing Market Area

Assisted Living, Memory Care, 699 units 386 units

Active Adult Rental, 106 units

Active Adult Congregate, 828 Owner, 749 units units

 We identified one active adult rental properties with 106 units and 12 ownership properties with 749 units. Most of the active adult projects are relatively new, with nine of the 13 facilities being constructed since the year 2000.

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TABLE 24 MARKET RATE ACTIVE ADULT/FEW SERVICES SENIOR HOUSING PROPERTIES HOUSING MARKET ARA September 2016 Development City Year Built Total Units Active Adult Timbers at Apple Valley - Rental Apple Valley 2003 106 Summerhill of Apple Valley Cooperative Apple Valley 2003 70 Gramercy Park Cooperative Eagan 2001 69 Timberwood Village - Owner Eagan 1996 52 Cameron Woods I - Owner Farmington 2000 42 Cameron Woods II - Owner Farmington 2001 42 Black Hawk Trail - Owner Inver Grove Heights 2002 32 Gramercy Park Cooperative Inver Grove Heights 1997 111 Inverness Village - Owner Inver Grove Heights 1996 55 Bard's Crossing I & II - Owner Rosemount 2004 110 Cross Croft of Evermoor - Owner Rosemount 2004 97 Rosemount Plaza Condos - Owner Rosemount 1989 21 Wachter Lake - Owner Rosemount 2003 48 Total 855 Source: Maxfield Research & Consulting, LLC

 We identified 13 congregate properties, 15 facilities providing assisted living services, and 13 properties with memory care units. In total, we identified 828 congregate units, 699 assisted living units and 386 units of memory care in the HMA. Most of the service-enhanced senior housing product in the HMA is relatively new, as 74% of the units have been built since 2000 (1,417 units), with 29% of the units opening since 2010 (547 units).

 There are four properties with 473 service-enhanced housing units (25% of the HMA’s supply) located in Inver Grove Heights. The Cities of Lakeville, Apple Valley, and Eagan each contain roughly 17% of the HMA’s service-enhanced senior housing inventory, with 335, 329, and 325 units, respectively. Approximately 14% of the units (276) are located in Has- tings and 3% (55 units) are in Farmington. Rosemount contains 6% of the inventory (120 units).

 Ten of the service-enhanced facilities offer three levels of care (Congregate, Assisted Living, and Memory Care) including The Rosemount, The Seasons, Commons on Marice, Keystone of Eagan, Oak Ridge, Inver Glen, Timber Hills, Fountains at Hosanna, Highview Hills, and Kingsley Shores. Two properties provide assisted living and memory care service levels (Re- gina Residence and White Pine).

 The six remaining properties offer a single care level; Apple Valley Villa (Congregate), Cen- tennial House of Apple Valley (Assisted Living), Clarebridge of Eagan (Memory Care), Trinity Terrace (Congregate), Sterling House of Inver Grove Heights (Assisted Living), and Rose- mount Court (Assisted Living).

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TABLE 25 MARKET RATE SERVICE ENHANCED SENIOR HOUSING PROPERTIES HOUSING MARKET AREA September 2016 Development City Year Built Total Units Congregate Apple Valley Villa Apple Valley 1986 136 The Seasons Apple Valley 2011 53 Commons on Marice Eagan 1999 60 Keystone of Eagan Eagan 2004 78 Trinity Terrace Farmington 1995 55 Oak Ridge Hastings 2002 80 Inver Glen Inver Grove Heights 2009 39 Timber Hills Inver Grove Heights 2003 90 Timber Hills Townhomes Inver Grove Heights 2003 67 Fountains at Hosanna Lakeville 2012 20 Highview Hills Lakeville 2009 75 Kingsley Shores Lakeville 2013 35 The Rosemount Rosemount 20032016 40 Total 828 Assisted Living Centennial House of Apple Valley Apple Valley 1996 59 The Seasons Apple Valley 2011 53 Commons on Marice Eagan 1999 57 Keystone of Eagan Eagan 2004 34 Oak Ridge Assisted Living Hastings 2002 47 Regina Residence Hastings 2000 81 Inver Glen Inver Grove Heights 2009 33 Sterling House of Inver Grove Heights Inver Grove Heights 1997 19 Timber Hills Inver Grove Heights 2003 66 White Pine - Inver Grove Heights Inver Grove Heights 2010 63 Fountains at Hosanna Lakeville 2012 47 Highview Hills Lakeville 2009 44 Kingsley Shores Lakeville 2013 34 Rosemount Court Rosemount 1973 30 The Rosemount Rosemount 2016 32 Total 699 Memory Care The Seasons Apple Valley 2011 28 Clarebridge of Eagan Eagan 1998 52 Commons on Marice Eagan 1999 28 Keystone of Eagan Eagan 2004 16 Oak Ridge Memory Care Hastings 2002 20 Regina Residence Hastings 2000 48 Inver Glen Inver Grove Heights 2009 34 Timber Hills Inver Grove Heights 2003 18 White Pine - Inver Grove Heights Inver Grove Heights 2010 44 Fountains at Hosanna Lakeville 2012 24 Highview Hills Lakeville 2011 24 Kingsley Shores Lakeville 2013 32 The Rosemount Rosemount 2016 18 Total 386 Source: Maxfield Research & Consulting, LLC

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Senior Housing Location Map

MAP KEY

1. The Rosemount 2. Rosemount Plaza 3. Bard's Crossing I & II 4. Cross Croft of Evermoor 5. Rosemount Court 24 23 6. Wachter Lake 20 25 7. Summerhill of Apple Valley 13 19 21 8. Timbers at Apple Valley 15 12 9. Apple Valley Villa 14 22 10. Centennial House of Apple Valley 16 11. The Seasons 12. Gramercy Park Coop. of Eagan 13. Timberwood Village 14. Clarebridgeof Eagan 15. Commons on Marice 16. Keystone of Eagan 4 3 17. Cameron Woods 1 8 7 5 30 18. Trinity Terrace 9 2 10 29 19. Black Hawk Trail 11 6 20. Inverness Village 21. Inver Glen 27 28 22. White Pine - Inver Grove Heights 23. Sterling House of Inver Grove Heights Downtown 17 24. Gramercy Park Cooperative Rosemount 25. Timber Hills 26. Highview Hills 26 27. Fountains at Hosanna 28. Kingsley Shores 18 29. Oak Ridge 30. Regina Residence

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Pending Senior Housing Developments in the HMA

In order to assess future competition for a potential senior housing development in Downtown Rosemount, Maxfield Research interviewed planning staff from the communities comprising the HMA to identify any senior housing developments that are proposed, planned, or under construction in the HMA and may impact senior housing demand in the Market Area. These projects are summarized in the following points and in Table 26.

 We identified ten pending projects in HMA, totaling 1,037 senior housing units, including 359 units currently under construction, 465 units that have been approved and are expected to commence construction in 2016, and another 215 units that have been proposed but are not yet approved.

 Roughly 9% of the units are active adult ownership units (96 units), while 37% are active adult rental units (386 units). There are also an estimated 289 congregate units (28%), 162 assisted living units (16%), and 104 memory care units (10%) pending in the PMA.

TABLE 26 PENDING SENIOR HOUSING DEVELOPMENTS HOUSING MARKET AREA September 2016 Project Name Total Service Location City Units Level* Developer Status/Notes Orchard Path Apple Valley 193 115 IL, 58 AL Presbyterian Homes Under Construction 157th St W at Cobblestone 20 MC Early 2018 completion Orchard Path Phase II Apple Valley 64 IL Presbyterian Homes Preliminary 157th St W at Cobblestone Legends at Apple Valley Apple Valley 163 Affordable Dominium Approved 14050 Granite Ave Active Adult Commence const. fall 2016 Legacy of Farmington Farmington 70 49 AL, 21 MC Trident Under Construction 220th St W at Denmark Ave Development Stonhaven Senior Living Eagan 141 55 IL, 55 AL CH Development Approved Wescott Woodlands at Station Trl 31 MC Company, LLC Applewood Pointe of Eagan Eagan 96 Active Adult United Properties Proposed 1555 Yankee Doodle Rd Cooperative Affinity at Eagan Eagan 161 Active Adult Inland Group Approved Cedar Grove Pkwy at Nicols Rd Rental Argonne Hills Senior Housing Lakeville 62 Affordable Dakota County CDA Under Construciton 175th St at Junelle Path Active Adult Opening summer 2017 Kingsley Shores Senior Living II Lakeville 55 IL SilverCrest Proposed Klamath Trl at Kenwood Trl Kenyon LiveWell Memory Care Lakeville 32 MC Diversified Equity Under Construction Kenyon Ave at 162nd St Investment, LLC Pending Total: 1,037 *IL = Independent Living (congregate), AL = Assisted Living, MC = Memory Care Source: Maxfield Research & Consulting, LLC

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Senior Housing Demand Calculations

Tables 27 through 30 on the following pages present our demand calculations for market rate senior housing in the HMA in 2016 and 2021.

Market Rate Adult/Few Services Senior Housing Demand

Table 27 presents our demand calculations for market rate active adult/few services housing in the HMA in 2016 and 2021. The market for active adult/few services housing is comprised of older adult (age 55 to 64), younger senior (age 65 to 74) and older senior (age 75+) households, with market demand weighted most heavily toward older seniors.

In order to arrive at the potential age-, income- and asset-qualified base for active adult housing, we include all age-qualified households with incomes of $35,000 or more plus homeowner households with incomes between $25,000 and $34,999 who would qualify with the proceeds from a home sale. The number of qualifying homeowner households is estimated by applying the appropriate homeownership rate to each age cohort. We estimate there are 35,019 age-, income- and asset-qualified HMA households that comprise the market for active adult housing in 2016, increasing to 40,056 qualified households in 2021.

Adjusting to include appropriate capture rates for each age cohort (0.5% of households age 55 to 64, 5.0% of households age 65 to 74, and 12.0% of households age 75 and older) results in a demand potential for 1,198 active adult housing units in 2016 and 1,433 units in 2021. These capture rates reduce the total number of age/income/asset-qualified households to consider only the portion of older adult and senior households who would be able, willing, and inclined to move to senior housing alternatives, including both owner- and renter-occupied housing.

We estimate that seniors currently residing outside the HMA will generate 20% of the demand for active adult housing – increasing demand to 1,498 active adult units in 2016. Demand from outside the HMA includes parents of adult children living in the area, individuals who live outside the HMA but have an orientation to the area, and former residents who desire to return upon retirement.

Demand for active adult/few services housing in the HMA is apportioned between ownership and rental product types. Based on the age distribution of the population, homeownership rates, existing product, and trends for active adult housing products, we project that 60% of the demand will be for owner-occupied active adult housing (899 units in 2016), and the remaining 40% of demand will be for active adult rental housing units (599 units in 2016).

From the demand potential, we subtract existing and pending active adult units in the HMA at 95% occupancy. We identified 749 active adult ownership units and 106 active adult rental units in the HMA. Overall, we subtract 497 competitive ownership units and 76 rental units from the 2016 demand potential after accounting for a 5% vacancy rate and adjusting the number of competitive units based on distance from the Site.

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In total, we find excess demand for 402 active adult ownership units and 523 active adult rental units in 2016. Adjusting for inflation, we estimate that households with incomes of $40,000 or more and home-owners with incomes of $30,000 to $39,999 would be candidates for active adult housing in 2021. Following the same methodology and incorporating pending active adult units in the HMA, we project that excess demand will increase to 577 active adult ownership units and 563 active adult rental units by 2021.

No single site can capture all of the potential demand in a Market Area. We estimate that a project in Downtown Rosemount could capture roughly 15% of the excess demand for a total of 139 active adult units in 2016 (60 owner and 78 renter) and 171 units in 2021 (87 owner and 84 renter).

TABLE 27 MARKET RATE ACTIVE ADULT/FEW SERVICES HOUSING DEMAND HOUSING MARKET AREA 2016 & 2021

2016 2021 Age of Householder Age of Householder 55-64 65-74 75+ 55-64 65-74 75+ # of Households w/ Incomes of >$35,000 1 18,946 9,583 4,103 20,515 12,025 4,760 # of Households w/ Incomes of $25,000 to $34,999 1 + 944 939 1,028 + 994 1,166 1,209 (times ) Homeownership Rate x 90% 86% 71% x 90% 86% 71% (equals) Total Potential Market Base = 19,796 10,391 4,833 = 21,410 13,028 5,618 (times) Potential Capture Rate x 0.5% 5.0% 12.0% x 0.5% 5.0% 12.0% (equals) Demand Potential = 99 520 580 = 107 651 674

Potential Demand from HMA Residents = 1,198 = 1,433

(plus) Demand from Outside HMA (20%)2 + 300 + 358 (equals) Total Demand Potential = 1,498 = 1,791 Owner Renter Owner Renter (times) % by Product Type x 60% x 40% x 60% x 40% (equals) Demand Potential by Product Type = 899 = 599 = 1,074 = 716 (minus) Existing and Pending MR Active Adult Units3 - 497 - 76 - 497 - 153 (equals) Excess Demand for MR Active Adult Units = 402 = 523 = 577 = 563 (times) Percent capturable in Downtown Rosemount x 15% x 15% x 15% x 15% (equals) # of units supportable in DT Rosemount = 60 = 78 = 87 = 84

1 2021 calculations define income-qualified households as all households with incomes greater than $40,000 and homeowner households with incomes between $30,000 and $39,999. 2 We estimate that roughly 25% of demand will come from outside the HMA. 3 Existing and pending units are deducted at market equilibrium (95% occupancy). Source: Maxfield Research & Consulting, LLC

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Estimated Demand for Congregate Senior Housing

Table 28 presents our demand calculations for congregate living senior housing in the HMA in 2016 and 2021. This analysis focuses on the potential private pay/market rate demand for congregate living units in the area.

In order to arrive at the potential age-income qualified base for congregate senior housing, we include all senior households with incomes of $35,000 or more and homeowners with incomes between $25,000 and $35,000 who would qualify with the proceeds from a home sale (this proportion was estimated based on the homeownership rates for each age cohort). Senior householders with incomes of $35,000 allocating 65% of their income toward base housing cost could afford beginning rents of $1,900, which is roughly the independent living rent for a one-bedroom unit at The Rosemount (ranges from $1,410 to $1,915). We estimate the number of age/income/asset-qualified households in the Market Area to be 15,223 householders in 2016, increasing to 18,646 in 2021.

Demand for congregate housing is need-driven, which reduces the qualified market to only the portion of seniors who need some assistance. Thus, the age/income-qualified base is multiplied by the percentage of seniors who need some assistance with at least three IADLs (Instrumental Activities of Daily Living), but not six or more ADLs (Activities of Daily Living)/IADLs, as these frailer seniors would need the level of care found in service-intensive assisted living.

According to the Summary Health Statistics of the U.S. Population: National Health Interview Survey, 2007 (conducted by the U.S. Department of Health and Human Services), the percentage of seniors having limitation in ADLs (bathing, dressing, toileting, transferring, eating) and IADLs (using the phone, shopping, food preparation, housekeeping, laundry, transportation, medication, handling finances) are as follows:

Limitation in ADLs & IADLs Age ADLs IADLs 65-74 years 3.3% 6.3% 75+ years 11.0% 20.0%

It is most likely that seniors who need assistance with ADLs also need assistance with multiple IADLs, and are more likely to be candidates for service-intensive assisted living. The prime candidates for congregate living are seniors needing assistance with IADLs, but not ADLs. We derive the capture rate for congregate housing by subtracting the percentage of seniors needing assistance with ADLs from those needing assistance with IADLs, which equates to 3.0% of seniors age 65 to 74 and 9.0% of seniors 75+.

For the purposes of this report and understanding current market conditions, we have reduced the potential capture rates for the 65 to 74 age group to 1.5% while increasing the capture rate of the 75+ age group to 13.0%. Multiplying the senior household base by these capture rates results in HMA demand potential for 784 congregate units in 2016 and 926 units in 2021.

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TABLE 28 CONGREGATE LIVING DEMAND HOUSING MARKET AREA 2016 & 2021 2016 2021 Age of Age of Householder Householder 65-74 75+ 65-74 75+ # of Householders w/ Incomes of $35,000+ in 2016 / $40K in 2021 9,583 4,103 12,025 4,760 (plus) + + # of Hhldrs w/ Incomes of $25K - $35K in 2016 / $30K - $40K in 2021 939 1,028 1,166 1,209 (times) Homeownership Rate x 86% 71% x 86% 71% (equals) Potential Market = 808 730 = 1,003 858

(equals) Total Potential Market Base = 10,391 4,833 = 13,028 5,618 (times) Potential Capture Rate of Congregate Living Demand1 x 1.5% 13.0% x 1.5% 13.0% (equals) Potential Demand = 156 + 628 = 195 + 730

Total Local Demand Potential = 784 = 926 (plus) Demand from Outside the HMA (20%) + 196 + 231 (equals) Total Demand Potential = 980 = 1,157 (minus) Existing Competitive Units2 - 401 - 509 (equals) Excess Limited-Care Demand Potential = 579 = 648 (times) Proportion Capturable in Downtown Rosemount x 10% x 10% (equals) Excess Congregate Demand Potential in DT Rosemount = 58 = 65

1 The potential capture rate is derived from data from the Summary Health Statistics for the U.S. Population: National Health Interview Survey, 2007 by the U.S. Department of Health and Human Services. The capture rate used is the percentage of seniors needing assistance with IADLs, but not ADLs (seniors needing assistance with ADLs typcially need assistance with multiple IADLs and are primary candidates for service-intensive assisted living.). 2 Competitive existing and pending units at 95% occupancy (market equilibrium). Source: Maxfield Research & Consulting, LLC

We estimate that seniors currently residing outside the HMA will generate 20% of the demand for congregate senior housing – increasing total demand by 196 congregate units. This demand consists primarily of parents of adult children living in the HMA, individuals who live just outside the HMA and have an orientation to the area, retirees who wish to relocate to the area and former residents who want to return upon retirement. Together, demand from HMA seniors and demand from seniors who would relocate to the area totals about 980 congregate units.

Next, existing and pending congregate units are subtracted from overall demand. There are 13 market rate facilities with a total of 828 congregate units in the HMA. Overall, we subtract 401 competitive units after making adjustments for location and format and accounting for a 5% vacancy rate from the demand potential, resulting in excess demand potential for 579 congregate units in 2016. After including the congregate units currently under construction or approved in the HMA, excess demand potential increases to 648 congregate units in 2021.

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No single site can capture all of the potential demand in a Market Area. We estimate that a project in Downtown Rosemount could capture 10% of the excess demand potential for a total of 58 congregate units in 2016. Projected growth in the age- and income-qualified population will outpace the delivery of new congregate units in the HMA, causing excess demand capturable in Downtown Rosemount to climb to 65 units in 2021.

Estimated Demand for Assisted Living Housing

Table 29 presents demand calculations for assisted living housing in the HMA in 2016 and 2021. This analysis focuses on the potential private pay/market rate demand for assisted living units in the Market Area.

The availability of more intensive support services such as meals, housekeeping and personal care at assisted living facilities usually attracts older, frailer seniors. According to the 2009 Overview of Assisted Living (which is a collaborative research project by the American Associa- tion of Homes and Services for the Aging, the American Seniors Housing Association, National Center for Assisted Living, and National Investment Center for the Seniors Housing and Care In- dustry), the average age of residents in freestanding assisted living facilities was 87 years in 2008. Hence, the age-qualified market for assisted living is defined as seniors ages 75 and over, as we estimate that of the half of demand from seniors under age 87, almost all would be over age 75. In 2016, there are an estimated 10,966 seniors ages 75 and over in the HMA. We project that this number will increase to 13,953 in 2021.

Demand for assisted living housing is need-driven, which reduces the qualified market to only the portion of seniors who need assistance. According to a study completed by the Centers for Disease Control and the National Center for Health Statistics (Health, United States, 1999 Health and Aging Chartbook), about 35% of seniors needed assistance with everyday activities (from 25.5% of 75-to-79-year-olds, to 33.6% of 80-to-84-year-olds and 51.6% of 85+ year olds). Applying these percentages to the senior population yields a potential assisted living market of an estimated 3,828 seniors in the HMA in 2016 and 4,747 seniors in 2021.

Due to the supportive nature of assisted living housing, most daily essentials are included in monthly rental fees which allow seniors to spend a higher proportion of their incomes on housing with basic services. Therefore, the second step in determining the potential demand for assisted living housing in the HMA is to identify the income-qualified market based on a senior’s ability to pay the monthly rent. We consider seniors in households with incomes of $40,000 or greater to be income-qualified for assisted living senior housing in the HMA. Households with incomes of $40,000 could afford monthly assisted living fees of $3,500 by allocating a high proportion of their income toward the fees.

According to the 2009 Overview of Assisted Living, the average arrival income of assisted living residents in 2008 was $27,260, while the average annual assisted living fee was $37,281 ($3,107/month). This data highlights that seniors are spending down assets to live in assisted living and avoid institutional care. Thus, in addition to households with incomes of $40,000 or

MAXFIELD RESEARCH AND CONSULTING 88 SENIOR HOUSING ANALYSIS greater, there is a substantial base of senior households with lower incomes who income-qualify based on assets – their homes, in particular.

Roughly 71% of age 75+ households in the HMA are homeowners and the estimated median sale price of homes owned by seniors in the HMA is $266,000. Seniors selling their homes for the median price would generate about $250,040 in proceeds after selling costs. Using an average monthly fee of $3,500, these proceeds would last over six years (76 months) in assisted living housing, which is longer than the average length of stay in assisted living (20 months according to the 2009 Overview of Assisted Living).

We estimate the income-qualified percentage to be all seniors in households with incomes at or above $40,000 (who could afford monthly rents of $3,500+ per month) plus 40% of the estimated seniors in owner households with incomes below $40,000 (who will spend down assets, including home-equity, in order to live in assisted living housing). This results in a total potential market for about 1,199 units from the HMA in 2016.

Because the vast majority of assisted living residents are single (88% according to the 2009 Overview of Assisted Living), our demand methodology multiplies the total potential market by the percentage of seniors age 75+ in the HMA living alone, or 54% based on Census data. This results in a total base of about 1,199 age/income-qualified singles. The 2009 Overview of As- sisted Living found that 12% of residents in assisted living were couples. Including couples results in a total of 1,362 age/income-qualified seniors needing assistance in the HMA in 2016.

We estimate that 60% of the qualified market needing significant assistance with ADLs could either remain in their homes or less service-intensive senior housing with the assistance of a family member or home health care, or would need greater care provided in a skilled care facility. The remaining 40% could be served by assisted living housing. Applying this market penetration rate of 40% results in demand for 545 assisted living units in 2016.

We estimate that a portion of demand for assisted living units in the HMA (20%) will come from outside the area. This secondary demand will include seniors currently living just outside the area, former residents, and parents of adult children who desire supportive housing near their adult children. Applying this figure results in total demand for 681 assisted living units in 2016.

Next, existing assisted living units are subtracted from overall demand. There are 15 existing properties in the HMA with a total of 699 assisted living units. However, we adjust the number of competing units based on location and format and exclude estimated units occupied by low- income seniors utilizing Elderly Waivers (67 units). After subtracting the existing units (minus a 7% vacancy factor) from the total demand equals an excess demand potential for 433 assisted living units in the HMA in 2016. Following this same methodology, and adding in the pending units in the HMA, we project that total excess demand in the HMA will increase modestly to 482 units in 2021.

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As mentioned previously, no single site can capture all of the potential demand in a Market Area. We estimate that a project in Downtown Rosemount could capture 10% of the excess demand for a total of 43 assisted living units in 2016. Growth in the supply of assisted living units in the PMA will lag projected growth in the age- and income-qualified population and the excess demand potential capturable on in Downtown Rosemount will increase slightly to 48 units in 2021.

TABLE 29 MARKET RATE ASSISTED LIVING DEMAND HOUSING MARKET AREA 2016 & 2021 2016 2021 Percent Number Percent Number Needing Needing Needing Needing Age group People Assistance¹ Assistance1 People Assistance¹ Assistance1 75 - 79 4,865 25.5% 1,241 6,782 25.5% 1,729 80 - 84 3,117 33.6% 1,047 3,792 33.6% 1,274 85+ 2,984 51.6% 1,540 3,379 51.6% 1,744 Total 10,966 3,828 13,953 4,747 Percent Income-Qualified2 58% 55% Total potential market 2,220 2,611 (times) Percent living alone x 54% 54% (equals) Age/income-qualified singles needing assistance = 1,199 1,410 (plus) Proportion of demand from couples (12%)³ + 163 192 (equals) Total age/income-qualified market needing assistance = 1,362 1,602 (times) Potential penetration rate4 x 40% 40% (equals) Potential demand from HMA residents = 545 641 (plus) Proportion from outside the HMA (20%) + 136 160 (equals) Total potential assisted living demand = 681 801 (minus) Existing market rate assisted living units5 - 248 319 (equals) Total excess market rate assisted living demand = 433 482 (times) Percent that could be captured in Downtown Rosemount x 10% 10% (equals) Excess market rate assisted living demand in DT Rosemount = 43 48 1 The percentage of seniors unable to perform or having difficulting with ADLs, based on the publication Health, United States, 1999 Health and Aging Chartbook, conducted by the Centers for Disease Control and Prevention and the National Center for Health Statistics. 2 Includes households with incomes of $40,000 or more (who could afford monthly rents of $3,000+ per month) plus 40% of the estimated owner households with incomes below $40,000 (who will spend down assets, including home-equity, in order to live in assisted living housing). 3 The 2009 Overview of Assisted Living (a collaborative project of AAHSA, ASHA, ALFA, NCAL & NIC) found that 12% of assisted living residents are couples. 4 We estimate that 60% of the qualified market needing assistance with ADLs could either remain in their homes or reside at less advanced senior housing with the assistance of a family member or home health care, or would need greater care provided in a skilled care facility. 5 Existing and pending units at 93% occupancy, minus units estimated to be occupied by Elderly Waiver residents. Source: Maxfield Research & Consulting, LLC

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Estimated Demand for Memory Care Housing

Table 30 presents our demand calculations for memory care housing in the HMA in 2016 and 2021. Demand is calculated by starting with the estimated HMA senior (ages 65+) population in 2016 and multiplying by the incidence rate of Alzheimer’s/dementia among this population’s age cohorts. This yields a potential market of about 3,165 seniors in the HMA. We project that this number will climb to 3,942 in 2021.

According to data from the National Institute of Aging, about 25% of all individuals with memory care impairments are a market for memory care housing units. This figure considers that seniors in the early stages of dementia will be able to live independently with the care of a spouse or other family member, while those in the latter stages of dementia will require intensive medical care that would only be available in skilled care facilities. Applying this figure to the estimated population with memory impairments yields a potential market of about 791 seniors in the HMA in 2016 and 986 in 2021.

Because of the staff-intensive nature of dementia care, typical monthly fees for this type of housing start at about $4,500. Although some of the seniors will have high monthly incomes, most will be willing to spend down assets and/or receive financial assistance from family mem- bers to afford memory care housing. Based on our review of senior household incomes in the HMA, homeownership rates, and home sale data, we estimate that 45% of all HMA seniors have incomes and/or assets to sufficiently cover the costs for memory care housing. This figure takes into account married couple households where one spouse may have memory care needs and allows for a sufficient income for the other spouse to live independently.

Multiplying the potential market (791 seniors) by 45% results in a total of about 356 income- qualified seniors in the HMA in 2016. We estimate that 20% of the overall demand for memory care housing would come from outside the HMA, for a total demand of 445 units in 2016.

Currently, there are 13 properties with 386 memory care units in the HMA. We adjust the number of competitive units based on format and location within the HMA, subtract 15% of the units (excluding Elderly Waivers), and allocate a 7% vacancy factor for a total excess demand potential for 296 memory care units in 2016. We then add the competitive memory care units pending in the HMA and subtract the total from the 2021 demand, resulting in excess demand potential for 360 units in 2021.

Applying the 10% capture rate results in excess demand for 30 memory care units capturable by a project in Downtown Rosemount in 2016. Anticipated growth in the age- and income-qualified population will outpace growth in the supply of memory care units in the HMA, causing demand potential on the subject property to climb to 36 units in 2021.

MAXFIELD RESEARCH AND CONSULTING 91 SENIOR HOUSING ANALYSIS

TABLE 30 MEMORY CARE DEMAND HOUSING MARKET AREA 2016 & 2021 2016 2021 65 to 74 Population 19,779 25,706 (times) Dementia Incidence Rate1 x 2% x 2% (equals) Estimated Senior Pop. with Dementia = 396 = 514

75 to 84 Population 7,982 10,574 (times) Dementia Incidence Rate1 x 19% x 19% (equals) Estimated Senior Pop. with Dementia = 1,517 = 2,009

85+ Population 2,984 3,379 (times) Dementia Incidence Rate1 x 42% x 42% (equals) Estimated Senior Pop. with Dementia = 1,253 = 1,419 (equals) Total Population with Dementia 3,165 3,942

(times) Percent Needing Specialized Memory Care Assistance x 25% 25% (equals) Total Need for Dementia Care = 791 = 986

(times) Percent Income/Asset-Qualified2 x 45% x 45% (equals) Total Income-Qualified Market Base = 356 = 444 (plus) Demand from Outside the Market Area (20%) + 89 + 111 Total Demand for Memory Care Units 445 554

(minus) Existing and Pending Memory Care Units3 - 149 - 194 (equals) Excess Housing Market Area Demand Potential = 296 = 360

(times) Estimated Percent Capturable in Downtown Rosemount x 10% x 10% (equals) Excess Memory Care Demand Capturable in DT Rosemount = 30 = 36 ¹ Alzheimer's Association: Alzheimer's Disease Facts & Figures (2007) 2 Income greater than $60,000 in 2016 and greater than $65,000 in 2021, plus some lower-income homeowners. 3 Existing and pending units at 93% occupancy, minus units estimated to be occupied by Elderly Waiver residents. Source: Maxfield Research & Consulting, LLC

MAXFIELD RESEARCH AND CONSULTING 92 SENIOR HOUSING ANALYSIS

Senior Housing Demand Summary

As described below, our assessment of the factors impacting demand for senior housing, including demographic, economic and competitive variables, supports new active adult, congregate, assisted living and memory care senior housing in the HMA in 2016. The total supply of senior housing units in the HMA is expected to increase 24% (+597 units) over the next 24 months with the addition of new units, but the growing older adult and senior population should maintain long-term demand for senior housing alternatives in the HMA.

Table 31 below summarizes our demand calculations for market rate senior housing in the HMA. There is currently excess demand for 925 active adult/few services units and 1,308 service-enhanced units (579 congregate, 433 assisted living, and 296 memory care units) in the HMA. Utilizing a 10% capture rate, we estimate that a project in Downtown Rosemount could support 138 active adult units and 131 service-enhanced units in 2016.

Growth in the age- and income-qualified population will outpace the delivery of new competitive senior housing units in the HMA over the next five years causing excess demand capturable in Downtown Rosemount to increase to 171 active adult units and 149 service-enhanced units (65 congregate, 48 assisted living, and 365 memory care units) in 2021.

TABLE 31 SENIOR HOUSING DEMAND SUMMARY HOUSING MARKET AREA 2016 & 2021

Total Excess Demand in Demand Capturable in Service Level the HMA Downtown Rosemount 2016 2021 2016 2021 Active Adult/Few Services 925 1,140 138 171 Owner-Occupied 402 577 60 87 Renter-Occupied 523 563 78 84

Service-Enhanced Housing 1,308 1,490 131 149 Congregate 579 648 58 65 Assisted Living 433 482 43 48 Memory Care 296 360 30 36 Total Units: 2,233 2,630 269 320 Source: Maxfield Research & Consulting, LLC

It should be noted that our conclusions are preliminary and do not consider the quality of the specific site for a senior housing development, historical performance of other senior housing developments in the HMA, price and positioning of a potential project, or other important factors (i.e. architectural, marketing and management issues) that would likely impact the market feasibility a development on the subject property.

MAXFIELD RESEARCH AND CONSULTING 93 COMMERCIAL MARKET ANALYSIS

Introduction

This section of the Study analyzes population and household growth trends and demographic characteristics of an area defined as the primary draw area, or “Market Area”, from which retail, and to a lesser extent office-using, establishments in Downtown Rosemount would draw the majority of their customers. Certain office users, such as medical, accountants, and insurance agencies rely on the surrounding household base, while others have a client base that’s more regional in nature.

Market Area Definition

Maxfield Research and Consulting, LLC determines Market Areas for commercial space based on geographic and man-made boundaries, commuting patterns, community orientation, places of employment, the distribution of commercial establishments, and our knowledge of the area. Due to factors such as accessibility, traffic volumes, and visibility of the area, we anticipate that the primary draw area for commercial goods and services in Downtown Rosemount will be neighborhood-oriented. Neighborhood centers typically have a draw area radius of one to three miles. Considering these factors, we determined the Primary Market Area (PMA) for neighborhood retail and office space in Downtown Rosemount as the City of Rosemount and the eastern one-third of Apple Valley (east of Johnny Cake Ridge Road).

We also identified a Secondary Market Area (SMA) for commercial space in Downtown Rose- mount. The SMA is slightly larger than the PMA and will account for a majority of the customers for shopping goods and specialty goods (as opposed to neighborhood goods and services). Shopping goods are those that customers will take more care and spend greater effort to purchase and for which they prefer to have a comparative selection so that quality, types, and price can be compared (such as apparel). Specialty goods are unique items for which there are few alternatives and for which shoppers put forth the greatest effort, such as jewelry, antiques, and furniture.

Downtown Rosemount is more likely to attract establishments from the specialty goods category than the shopping goods category. Retailers selling shopping goods will typically seek locations in or near larger shopping centers that provide a greater selection of stores and retail for- mats. The shopping destinations located along Cedar Avenue in Apple Valley satisfy much of the demand for shopping goods from area residents.

The SMA will be the primary draw area for specialty and shopping goods in Downtown Rose- mount. The SMA is comprised of the PMA along with southeastern Eagan (south of Diffley Road and east of Pilot Knob Road), southwestern Inver Grove Heights (south of Highway 55 and Concord Boulevard), Farmington, Empire Township, Coates, Vermillion, Vermillion Township, and Nininger Township.

The following map illustrates Downtown Rosemount’s location in the PMA and the SMA.

MAXFIELD RESEARCH AND CONSULTING 94 COMMERCIAL MARKET ANALYSIS

Primary & Secondary Commercial Market Areas

Primary Market Area

Downtown Rosemount Secondary Market Area

MAXFIELD RESEARCH AND CONSULTING 95 COMMERCIAL MARKET ANALYSIS

Population and Household Growth Trends

Table 32 presents population and household growth trends in the Market Area from 2000 to 2025. The 2000 and 2010 population and household figures were obtained from the U.S. Cen- sus Bureau. The 2016 estimates and projections for 2020 and 2025 were based on estimates and forecasts made by the Metropolitan Council (the regional planning organization for the seven-county Metro Area) and ESRI (a nationally recognized demographics firm) with adjustments made by Maxfield Research to reflect current year data.

 As of 2010, the PMA contained 35,509 people and 12,805 households. Between 2000 and 2010, the population increased 26.9% (+7,538) while the number of households expanded 35.2% (+3,332).

 During this time period, the SMA population jumped 30.1% (+19,289 people) against household growth of 35.9% (+7,720). The Remainder of the SMA grew at a slightly faster pace than the PMA (32.5% population growth and 36.4% household growth).

TABLE 32 POPULATION AND HOUSEHOLD GROWTH TRENDS AND PROJECTIONS DOWNTOWN ROSEMOUNT COMMERCIAL MARKET AREA 2000 - 2025 Change Census Estimate Forecast 2000-2010 2010-2020 2000 2010 2016 2020 2025 No. Pct. No. Pct. Population Commercial PMA 27,971 35,509 38,049 41,811 44,525 7,538 26.9% 6,302 17.7% Commercial SMA 64,137 83,426 89,712 96,029 102,121 19,289 30.1% 12,603 15.1% Remainder of SMA 36,166 47,917 51,663 54,218 57,596 11,751 32.5% 6,301 13.1% Dakota County 355,904 398,552 413,094 435,870 455,270 42,648 12.0% 37,318 9.4% Twin Cities Metro Area* 2,642,062 2,849,567 3,018,805 3,123,430 3,259,245 207,505 7.9% 273,863 9.6% Households Commercial PMA 9,473 12,805 13,788 15,569 16,691 3,332 35.2% 2,764 21.6% Commercial SMA 21,515 29,235 31,600 34,705 37,158 7,720 35.9% 5,470 18.7% Remainder of SMA 12,042 16,430 17,812 19,136 20,467 4,388 36.4% 2,706 16.5% Dakota County 131,151 152,060 158,627 170,940 179,460 20,909 15.9% 18,880 12.4% Twin Cities Metro Area* 1,021,456 1,117,749 1,194,145 1,259,450 1,325,220 96,293 9.4% 141,701 12.7% *Includes the 7-County Area (Anoka, Carver, Dakota, Hennepin, Ramsey, Scott, and Washington Counties) Sources: US Census Bureau; Metropolitan Council; ESRI; Maxfield Research & Consulting, LLC

 The pace of household growth declined late last decade as residential development activity dropped off sharply due to the recession. Housing development has been gradually increasing since 2010, and we estimate that the PMA’s population increased 7.2% to 38,049 between 2010 and 2016, while the number of households increased 7.7% (+983).

 The SMA added an estimated 6,286 people (+7.5%) and 2,365 households (8.1%) between 2010 and 2016, with the Remainder of the SMA continuing to grow at a slightly faster pace than the PMA (8.4% household growth compared to 7.7% growth in the PMA).

MAXFIELD RESEARCH AND CONSULTING 96 COMMERCIAL MARKET ANALYSIS

 Between 2016 and 2025, the Commercial PMA is projected to add 6,476 people (+17.0%) and 2,903 households (+21.1%). The rate of growth in the PMA is expected to be higher than the SMA (+13.8% population growth and 17.6% household growth) and the Twin Cities Metro Area (8.0% population growth between 2016 and 2025).

Daytime Population

Table 33 displays information on the daytime population and resident workforce population in the Market Area. People working in the Market Area who do not reside there provide a potential supplemental commercial market for retail business establishments in the area. Maintain- ing and expanding the employment base in and near Downtown Rosemount will help support area commercial establishments.

Information in the table is based on data from the U.S. Census Bureau Longitudinal Employer- Household Dynamics (LEHD) program for 2014, the most recent data available. Outflow reflects the number of workers living in the Market Area but employed outside that area, while inflow measures the number of workers that are employed in the area but live outside the Market Area. Interior flow reflects the number of workers that live and work in that Market Area.

 As depicted in the table, the PMA had a daytime population of 11,501 in 2014, an increase of 4.5% over the past ten years. By comparison, the daytime population in the SMA increased 20.2% from 16,846 in 2004 to 20,244 in 2014.

TABLE 33 DAYTIME POPULATION DOWNTOWN ROSEMOUNT COMMERCIAL MARKET AREA 2004 - 2014 2004 2014 % Change '04 - '14 PMA SMA PMA SMA PMA SMA

Daytime Population 11,004 16,846 11,501 20,244 4.5% 20.2% Inflow 8,952 11,892 9,755 14,950 9.0% 25.7% Interior Flow 2,052 4,954 1,746 5,294 -14.9% 6.9% Resident Workforce 17,823 41,945 19,677 47,053 10.4% 12.2% Outflow 15,771 36,991 17,931 41,759 13.7% 12.9% Interior Flow 2,052 4,954 1,746 5,294 -14.9% 6.9% Net Job Inflow (+) or Outflow (-) -6,819 -25,099 -8,176 -26,809 19.9% 6.8% Live Here/Work Here Ratio 0.62 0.40 0.58 0.43 -5.3% 7.1% Sources: US Census Bureau LEHD; Maxfield Research & Consulting, LLC

 Both the PMA and SMA are exporters of workers, meaning that more residents leave the Market Area for employment than non-residents commute into the Market Area. In 2014, the PMA experienced a net outflow of 8,176 workers and the SMA experienced a net outflow of 26,809 workers.

MAXFIELD RESEARCH AND CONSULTING 97 COMMERCIAL MARKET ANALYSIS

 Nearly 85% of the jobs in the PMA (9,755) were filled by workers commuting into the area in 2014, while 1,746 jobs were filled by residents of the PMA. Inflow accounted for 74% of the jobs (14,950) in the SMA in 2014 and 5,294 jobs were filled by SMA residents.

 Inflow in the PMA increased 9.0% between 2004 and 2014, while the SMA experienced a 25.7% increase in inflow. Interior flow (workers that both reside and work in the Market Area) contracted -15% in the PMA between 2004 and 2014, while the SMA experienced 7% expansion in interior flow.

 Despite the net outflow of workers in the Market Area, the daytime population (11,501 in the PMA and 20,244 in the SMA) will contribute retail sales in the Market Area as employees at establishments located in and near Downtown Rosemount will purchase commercial goods and services from area retailers. Restaurants, in particular, will benefit from an expanding daytime population which will support their business.

Consumer Expenditure Patterns

Tables 34 and 35 show estimated consumer expenditures and average expenditures per households for retail goods and services in the PMA and SMA compared to the Twin Cities Metro Area in 2015, according to data obtained from ESRI based on Consumer Expenditure Surveys from the Bureau of Labor Statistics.

The table shows the average expenditures per household in the Market Area and the amount spent in the Metro Area by product or service. In addition, a Spending Potential Index (SPI) is illustrated for comparison purposes. The SPI is based on households and represents the annual expenditures for a product or service relative to the national average which is given a benchmark index of 100. An SPI of 115 indicates that the average annual expenditure by local consumers is 15% above the national average. In addition, the Metro Area is indexed in the table. The average expenditure reflects the average amount spent per household, while the total expenditure reflects the aggregate amount spent by all households.

Consumer spending is influenced by market conditions and trends. In times of economic trou- bles, market conditions drive spending patterns toward convenience and necessities, whereas in times of a booming economy consumer trends feature opportunity and luxury items. Sales of luxury items and other large purchases are generally the first to falter in economic down- turns. Two-thirds of the national economy is driven by consumer spending. During the most recent recession, households decreased spending, increased savings, and reduced credit card debt as many households have been faced with job losses. In essence, when the housing market began its decline in late 2006 into 2007, consumer spending and consumer confidence followed.

MAXFIELD RESEARCH AND CONSULTING 98 COMMERCIAL MARKET ANALYSIS

During the recession, consumers curtailed their spending habits as credit and home equity lines diminished as available sources of cash. As the nation exited the recession, consumers gained confidence and spending gradually recovered. The Conference Board’s Consumer Confidence Index rose to its highest level since summer 2007 in early 2015. An increase in consumer confidence suggests economic growth with higher consumption.

The following are key points from the household expenditures table.

 Overall, residents are estimated to have spent approximately $427 million on retail goods and services in 2015 in the PMA and $994 million in the SMA, excluding housing, finance/insurance, and travel expenditures, as well as vehicle purchases.

 Average annual expenditures (excluding the categories mentioned above) are estimated to be $30,212 per household in the PMA, comparable to the $30,704 average annual spending per household in the SMA. By comparison, Metro Area households spent an average of $29,238 per household in 2015.

 As reflected in the SPI, expenditures by Market Area households are substantially higher than the national average in every product and service category.

 Total average annual expenditures per household are estimated to be approximately $80,624 in the PMA, $82,086 in the SMA, and to $68,744 in the Metro Area. Housing expenses account for approximately 29.0% of total consumer expenditures in the PMA and SMA, compared to 27.5% in the Metro Area.

 Among the retail categories, Market Area spending was greatest for Food at Home (i.e. gro- ceries) at an average of $6,590 per household in the PMA and $6,695 in the SMA compared to $6,004 per household in the Metro Area.

 Spending was also high for Entertainment and Recreation goods and services ($4,097 per household in the PMA and $4,162 in the SMA) and Food Away from Home ($4,301 per PMA household and $4,373 per SMA household).

 The roughly 13,700 households in the PMA spent a total of $1.1 billion on consumer expenditures in 2015. With the number of households projected to grow to 15,755 by 2021, they would generate an additional $32 million in consumer expenditures annually, not factoring in inflation.

 SMA households spent roughly $2.6 billion on consumer expenditures in 2015, and household growth in the SMA would generate an additional $58 million in expenditures annually, not factoring in inflation.

MAXFIELD RESEARCH AND CONSULTING 99 COMMERCIAL MARKET ANALYSIS

TABLE 34 ESTIMATED HOUSEHOLD EXPENDITURES BY SELECTED PRODUCT TYPE DOWNTOWN ROSEMOUNT COMMERCIAL PMA 2015 PMA Annual Twin Cities Spending Potential Index Expenditures Expenditures to USA Total Average Average Category ($000's) Per HH Per HH PMA Twin Cities Goods & Services Index Index Apparel & Services $38,599 $2,799 $2,497 139 124 Entertainment and Recreation $56,491 $4,097 $3,553 141 122 Nonprescription Drugs $2,244 $163 $146 131 118 Prescription Drugs $7,432 $539 $476 129 114 Eye Glasses & Contact Lenses $1,691 $123 $107 137 119 Personal Care Products $8,245 $598 $532 138 122 Child Care $9,314 $676 $553 160 131 School Books & Supplies $3,238 $235 $205 143 125 Smoking Products $6,187 $449 $455 109 111 Computer Hardware $3,407 $247 $221 143 128 Computer Software $249 $18 $17 140 129 Pets $10,224 $741 $631 138 118 Food Index Index Food at Home $90,856 $6,590 $6,004 132 120 Food Away from Home $59,296 $4,301 $3,826 139 124 Alcoholic Beverages $9,721 $705 $644 138 126 Home Index Index Home Mortgage Payment/Rent $189,438 $13,739 $10,597 160 124 Maintenance & Remodeling Services $37,233 $2,700 $2,112 154 120 Maintenance & Remodeling Materials $7,454 $541 $416 149 115 Utilities $88,788 $6,439 $5,776 132 118 Household Furnishings, Equipment, & Operations Index Index Household Textiles $1,685 $122 $107 140 123 Furniture $9,693 $703 $617 143 125 Rugs $503 $37 $31 150 126 Major Appliances $5,657 $410 $337 145 119 Small Appliances $876 $64 $58 135 122 Housewares $1,612 $117 $103 140 123 Luggage $196 $14 $12 154 129 Telephone & Accessories $1,340 $97 $89 137 125 Lawn & Garden $8,023 $582 $474 143 116 Moving/Storage/Freight Express $1,139 $83 $79 130 125 Housekeeping Supplies $13,118 $951 $845 135 120 Financial & Insurance Index Index Investments $156,070 $11,319 $9,435 151 126 Vehicle Loans $46,206 $3,351 $2,940 138 121 Owners & Renters Insurance $9,018 $654 $532 141 115 Vehicle Insurance $20,777 $1,507 $1,347 135 120 Life/Other Insurance $8,224 $596 $494 144 119 Health Insurance $63,475 $4,604 $4,008 136 119 CONTINUED

MAXFIELD RESEARCH AND CONSULTING 100 COMMERCIAL MARKET ANALYSIS

TABLE 34 CONTINUED ESTIMATED HOUSEHOLD EXPENDITURES BY SELECTED PRODUCT TYPE DOWNTOWN ROSEMOUNT COMMERCIAL PMA 2015 PMA Annual Twin Cities Spending Potential Index Expenditures Expenditures to USA Total Average Average Category ($000's) Per HH Per HH PMA Twin Cities Transportation Index Index Cars and Trucks (Net Outlay) $39,604 $2,872 $2,477 138 119 Gasoline and Motor Oil $56,203 $4,076 $3,637 133 118 Vehicle Maintenance/Repair $19,552 $1,418 $1,248 137 121 Travel Index Index Airline Fares $9,600 $696 $584 153 128 Lodging $9,706 $704 $578 152 125 Vehicle Rental $501 $36 $30 151 125 Food & Drink on Trips $8,978 $651 $544 149 124

Average Annual Household Expenditures Summary Goods & Services $147,319 $9,943 $8,762 Food $159,874 $11,595 $10,474 Home $322,913 $23,420 $18,901 Household $43,843 $3,180 $2,753 Financial and Insurance $303,770 $22,032 $18,755 Transportation $115,358 $8,367 $7,363 Travel $28,786 $2,088 $1,736 Total $1,121,863 $80,624 $68,744 Note: The Spending Potential Index is based on households and represents the amount spent for a product or service relative to the national average of 100. Sources: ESRI; Maxfield Research & Consulting, LLC

Average Annual Expenditures per Household PMA vs. Twin Cities Metro Area

Travel Transp. Fin. & Ins. Household Home

Retail Retail Category Food Goods & Services

$0 $5,000 $10,000 $15,000 $20,000 $25,000

Goods & Food Home Household Fin. & Ins. Transp. Travel Services Twin Cities $8,762 $10,474 $18,901 $2,753 $18,755 $7,363 $1,736 PMA $9,943 $11,595 $23,420 $3,180 $22,032 $8,367 $2,088

MAXFIELD RESEARCH AND CONSULTING 101 COMMERCIAL MARKET ANALYSIS

TABLE 35 ESTIMATED HOUSEHOLD EXPENDITURES BY SELECTED PRODUCT TYPE DOWNTOWN ROSEMOUNT COMMERCIAL SMA 2015 SMA Annual Twin Cities Spending Potential Index Expenditures Expenditures to USA Total Average Average Category ($000's) Per HH Per HH SMA Twin Cities Goods & Services Index Index Apparel & Services $89,894 $2,845 $2,497 141 124 Entertainment and Recreation $131,522 $4,162 $3,553 143 122 Nonprescription Drugs $5,222 $165 $146 133 118 Prescription Drugs $17,278 $547 $476 130 114 Eye Glasses & Contact Lenses $3,945 $125 $107 140 119 Personal Care Products $19,178 $607 $532 140 122 Child Care $21,766 $689 $553 163 131 School Books & Supplies $7,532 $238 $205 145 125 Smoking Products $14,386 $455 $455 111 111 Computer Hardware $7,917 $251 $221 145 128 Computer Software $581 $18 $17 142 129 Pets $23,793 $753 $631 141 118 Food Index Index Food at Home $211,564 $6,695 $6,004 134 120 Food Away from Home $138,193 $4,373 $3,826 141 124 Alcoholic Beverages $22,686 $718 $644 140 126 Home Index Index Home Mortgage Payment/Rent $441,944 $13,986 $10,597 163 124 Maintenance & Remodeling Services $86,935 $2,751 $2,112 157 120 Maintenance & Remodeling Materials $17,465 $553 $416 152 115 Utilities $206,821 $6,545 $5,776 134 118 Household Furnishings, Equipment, & Operations Index Index Household Textiles $3,922 $124 $107 143 123 Furniture $22,551 $714 $617 145 125 Rugs $1,180 $37 $31 153 126 Major Appliances $13,170 $417 $337 147 119 Small Appliances $2,041 $65 $58 137 122 Housewares $3,753 $119 $103 142 123 Luggage $459 $15 $12 157 129 Telephone & Accessories $3,136 $99 $89 139 125 Lawn & Garden $18,698 $592 $474 145 116 Moving/Storage/Freight Express $2,630 $83 $79 131 125 Housekeeping Supplies $30,540 $966 $845 138 120 Financial & Insurance Index Index Investments $366,476 $11,597 $9,435 155 126 Vehicle Loans $107,696 $3,408 $2,940 140 121 Owners & Renters Insurance $21,063 $667 $532 144 115 Vehicle Insurance $48,386 $1,531 $1,347 137 120 Life/Other Insurance $19,252 $609 $494 147 119 Health Insurance $148,035 $4,685 $4,008 139 119 CONTINUED

MAXFIELD RESEARCH AND CONSULTING 102 COMMERCIAL MARKET ANALYSIS

TABLE 35 CONTINUED ESTIMATED HOUSEHOLD EXPENDITURES BY SELECTED PRODUCT TYPE DOWNTOWN ROSEMOUNT COMMERCIAL SMA 2015 SMA Annual Twin Cities Spending Potential Index Expenditures Expenditures to USA Total Average Average Category ($000's) Per HH Per HH SMA Twin Cities Transportation Index Index Cars and Trucks (Net Outlay) $92,483 $2,927 $2,477 141 119 Gasoline and Motor Oil $130,974 $4,145 $3,637 135 118 Vehicle Maintenance/Repair $45,533 $1,441 $1,248 139 121 Travel Index Index Airline Fares $22,366 $708 $584 155 128 Lodging $22,646 $717 $578 154 125 Vehicle Rental $1,163 $37 $30 153 125 Food & Drink on Trips $20,940 $663 $544 151 124

Average Annual Household Expenditures Summary Goods & Services $343,014 $10,102 $8,762 Food $372,443 $11,786 $10,474 Home $753,165 $23,834 $18,901 Household $102,080 $3,230 $2,753 Financial and Insurance $710,907 $22,497 $18,755 Transportation $268,990 $8,512 $7,363 Travel $67,116 $2,124 $1,736 Total $2,617,716 $82,086 $68,744 Note: The Spending Potential Index is based on households and represents the amount spent for a product or service relative to the national average of 100. Sources: ESRI; Maxfield Research & Consulting, LLC

Average Annual Expenditures per Household SMA vs. Twin Cities Metro Area

Travel Transportation Fin. & Ins. Household Home

Retail Retail Category Food Goods & Services

$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 Goods & Food Home Household Fin. & Ins. Transportation Travel Services Twin Cities $8,762 $10,474 $18,901 $2,753 $18,755 $7,363 $1,736 SMA $10,102 $11,786 $23,834 $3,230 $22,497 $8,512 $2,124

MAXFIELD RESEARCH AND CONSULTING 103 COMMERCIAL MARKET ANALYSIS

Types of Retail Goods and Customer Shopping Patterns

The following describes the various types of retail goods and the manner in which customers generally shop for these goods. Because of the significant diversification of retail outlets, some of these categories overlap in certain cases.

Shopping goods are those on which shoppers spend the most effort and for which they have the greatest desire to comparison shop. The trade area for shopping goods tends to be gov- erned by the urge among shoppers to compare goods based on selection, service and price. Therefore, the size of the trade area for shopping goods is affected most by the overall availability of goods in alternate locations. Some examples of shopping goods include furniture, appliances, clothing and automobiles.

Convenience goods are those that consumers need immediately and frequently and are therefore purchased where it is most convenient for shoppers. Shoppers as a rule find it most convenient to buy such goods near home, near work or near a temporary residence when traveling. Examples of these types of goods include gasoline, fast food, liquor, grocer- ies, pharmaceuticals, health and beauty aids, among others.

Specialty goods are those on which shoppers spend more effort to purchase. Such merchandise has no clear trade area because customers will go out of their way to find specialty items wherever they are sold. By definition, comparison shopping for specialty goods is much less significant than for shopping goods. Examples of these include gift shops, florists, pet stores, art gallery, antiques, home furnishings, textiles (needlework and fabrics), art supplies, books. The home furnishings segment has some overlap between shopping goods and specialty goods.

Impulse goods are those that shoppers do not actively or consciously seek. In stores, impulse goods are positioned near entrances or exits or in carefully considered relationships to shopping goods. Examples of these types of goods are: candy and drinks at a dry clean- ing establishment, candy or small novelty items near the cash register at a gift shop, accessories or jewelry at the counter in a clothing store. These may be located within existing stores, but would not be a separate establishment.

Retail properties can generally be classified into five major categories, as described below.

Community Center: Community Centers are greater than 100,000 square feet and have at least two anchor tenants which may include a general merchandise store in addition to a supermarket or drug store. Limited small shop space is occupied by a mix of service-oriented tenants and soft-goods retailers. This classification also includes power centers which are built around large format category killers such as electronic, home improvement and sporting goods stores.

MAXFIELD RESEARCH AND CONSULTING 104 COMMERCIAL MARKET ANALYSIS

Neighborhood Center: Neighborhood centers are usually anchored by a grocery store or a drug store. This type of center fulfills the day-to-day needs of the surrounding neighborhood, is located at major street intersections, and is roughly 30,000 to 100,000 square feet.

Regional Center: A regional center is a major shopping area generally with two or more anchor department stores and a variety of additional shops. These centers draw customers from a broad geographical area.

Specialty Center: Specialty centers are unanchored and have a theme or specialty tenants with a different character than the other center types. These centers are not located in CBD’s and they may be a part of a larger, community center development.

Central Business District: Centers located in the Central Business District (CBD) of Minneap- olis and St. Paul. This includes space located on the skyway or street fronts. To properly reflect the status of these submarkets, some of these centers may be smaller than 20,000 square feet due to the smaller size and scope of this market.

Outlet Mall: Outlet malls are located along major freeways within a 100-mile radius of the Twin Cities in the outer suburbs or Outstate Minnesota. Tenants are typically large retailers or manufacturers that use these locations to sell directly to consumers. Outlet malls have traditionally been designed to appeal to the value-conscious shopper who wants brand- name merchandise at off-retail prices.

Visibility and access are primary considerations for retailers seeking a location. Several factors are taken into consideration based on traffic counts and visibility when retailers select a site, including: daily traffic volumes in the area; proximity to public transportation; accessibility for potential customers as well as delivery vehicles; visibility of the store and business signage from surrounding road network; and, the sites proximity to other traffic generators.

Neighborhood centers generally draw customers from a distance of one and one-half to three miles, while community centers draw from a larger area (i.e. three to six miles). Regional Malls generally draw from a five- to 15-mile radius, while Super-Regional Malls have a trade area up to 25 miles in size. Specialized-purpose centers, such as Outlet Malls, have larger trade areas in the 25- to 75-mile range. Convenience/strip centers generally have trade areas of less than one mile.

Generally, a neighborhood center will be situated with direct access to a collector street and community centers typically have access to major thoroughfares and principal arterial roadways. Robert Trail is classified as a minor arterial roadway and 145th Street is considered a major collector. Minor arterial roadways serve slightly less concentrated traffic generators than principal arterials (i.e. Highways 42 and 52), such as neighborhood shopping centers and schools. The most likely retail uses to be drawn to sites in Downtown Rosemount will be neighborhood- and convenience-oriented establishments that supply goods and services to area households and auto-oriented customers.

MAXFIELD RESEARCH AND CONSULTING 105 COMMERCIAL MARKET ANALYSIS

Twin Cities Retail Market Conditions

Maxfield Research analyzed secondary data regarding retail market trends for the Twin Cities Metro Area, including total rentable area, vacancy rates, and absorption. This information is useful in assessing the potential to develop retail uses in Downtown Rosemount as the overall health of the local retail market will influence the development potential in Rosemount.

The data includes information for multi-tenant retail buildings greater than 20,000 square feet in size. The table on the following page shows the growth of retail space and changes in vacancy in the various retail center types. Data in Table 36 is provided by Colliers International for the second quarters of 2015 and 2016. Maxfield Research also referenced market information provided by Cushman & Wakefield|NorthMarq for this analysis.

 Colliers International is tracking 67.8 million square feet of retail space in the Twin Cities Metro Area. As depicted in the following graph, neighborhood center space comprises the greatest proportion of retail space in the Metro Area with 29.5 million square feet (44% of the total).

Twin Cities Retail Market Inventory by Shopping Center Type

Regional Ctr Minneapolis CBD 28% 1%

Outlet Mall 1%

Community Ctr 26%

Neighborhood Ctr 44%

 Regional centers represent 28% of the Twin Cities retail inventory (18.8 million square feet), while roughly 26% of the retail space is situated in community shopping centers (17.7 million square feet). Minneapolis Central Business District (980,000 square feet) and outlet malls (839,000 square feet) each represent roughly 1% of the supply of retail space in the Twin Cities.

 As of the second quarter of 2016, there were 3.0 million square feet of retail space vacant in the Twin Cities, representing a vacancy rate of 4.4%, essentially unchanged from the second quarter of 2015 and the lowest vacancy since 2006.

MAXFIELD RESEARCH AND CONSULTING 106 COMMERCIAL MARKET ANALYSIS

 In the Twin Cities, retail vacancy was highest in the Minneapolis Central Business District (11.8%), followed by neighborhood centers (5.8%). Community centers were 4.9% vacant and regional centers had a 1.6% vacancy rate while outlet malls were fully-occupied.

TABLE 36 RETAIL MARKET STATISTICS TWIN CITIES Second Quarter 2015 to Second Quarter 2016 2016 Q2 Submarket/ Total Direct Vacancy Shopping Center Type Rentable SF Vacant SF Rate YTD Absorption Minneapolis CBD 980,041 115,240 11.8% 3,247 Northeast 12,207,622 461,898 3.8% -79,042 Northwest 20,585,545 1,003,145 4.9% 72,311 Southeast 17,920,104 764,377 4.3% 244,414 Community Ctr 4,323,116 167,916 3.9% -9,784 Neighorhood Ctr 7,172,786 496,981 6.9% 217,755 Outlet Mall 409,000 0 0.0% 0 Regional Ctr 6,015,202 99,480 1.7% 36,443 Southwest 16,127,071 672,677 4.2% 191,922 Total Market 67,820,383 3,017,337 4.4% 432,852 Community Ctr 17,704,726 875,550 4.9% -10,927 Neighorhood Ctr 29,532,289 1,717,101 5.8% 404,437 Outlet Mall 839,000 0 0.0% 0 Regional Ctr 18,764,327 309,446 1.6% 36,095 2015 Q2 Submarket/ Total Direct Vacancy Shopping Center Type Rentable SF Vacant SF Rate YTD Absorption Minneapolis CBD 980,041 159,242 16.2% 2,573 Northeast 11,133,794 499,267 4.5% 179,235 Northwest 19,888,126 992,117 5.0% 101,822 Southeast 17,424,834 776,221 4.5% 128,564 Community Ctr 4,324,325 198,524 4.6% 38,410 Neighorhood Ctr 6,637,218 439,072 6.6% 92,254 Outlet Mall 409,000 0 0.0% 0 Regional Ctr 6,054,291 138,625 2.3% -2,100 Southwest 14,766,231 405,877 2.7% 32,351 Total Market 64,193,026 2,832,724 4.4% 444,545 Community Ctr 17,913,628 737,747 4.1% 252,972 Neighorhood Ctr 24,999,639 1,603,176 6.4% 103,764 Outlet Mall 839,000 0 0.0% 0 Regional Ctr 19,460,718 332,559 1.7% 85,236 Sources: Colliers International; Maxfield Research & Consulting, LLC

MAXFIELD RESEARCH AND CONSULTING 107 COMMERCIAL MARKET ANALYSIS

 Demand for retail space generated nearly 433,000 square feet of absorption through the first six months of 2016. Retail demand was highest in neighborhood centers, which experienced nearly 218,000 square feet of absorption during that time period. Over the past 12 months, neighborhood centers experienced a -0.8% drop in vacancy.

 Roughly 36,000 square feet of regional center space was absorbed through the first half of 2016, while community centers experienced -10,927 square feet of negative absorption.

 As illustrated in the following graph, the Twin Cities Retail Market is improving from high vacancy rates and weak demand during the Recession. Vacancy rates have been declining since 2010, while demand (as measured by absorption) has increased.

Twin Cities Retail Market Supply & Demand Trends 1,500,000 8.0% 7.0% 1,000,000 6.0% 500,000 5.0% 4.0% 0 3.0%

2.0% Percent Vacant -500,000

Square Feet Absorbed 1.0% -1,000,000 0.0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q2

Absorption Vacancy

 Market conditions have become very competitive and retailers are faced with a shortage of available quality space and rising rental rates.

 Development activity is picking up in response to increased demand and tightening supply. According to Cushman & Wakefield|NorthMarq approximately 923,000 square feet of new space was delivered in 2015, and there is nearly 1.2 million square feet of retail space under construction in the market.

 As retailers compete for a declining supply of available space, rental rates are being pushed higher. Newer small-shop space in the prime market areas are achieving rents in the $60 per square foot range, which represents a new benchmark high for the Twin Cities. Exam- ples of a prime location include France Avenue in Edina, Grand Avenue in Saint Paul, and Ra- dio Drive in Woodbury. These rents are pricing some retailers out of those markets and forcing them to seek space in secondary locations

MAXFIELD RESEARCH AND CONSULTING 108 COMMERCIAL MARKET ANALYSIS

 Of the space tracked by Colliers International, roughly 17.9 million square feet is located in the Southeast Submarket (includes Rosemount), 26.4% of the Metro Area inventory. Ap- proximately 764,000 square feet was vacant at mid-year 2016, representing a 4.3% vacancy rate.

 Within the Southeast Submarket, roughly 7.2 million square feet is in neighborhood centers, 6.9% of which is vacant (497,000 square feet). Neighborhood centers in the Southeast submarket experienced approximately 218,000 square feet of absorption through the first six months of 2016.

 Much of the neighborhood center leasing activity is occurring in small-shop space, predomi- nantly driven by fast-casual food concepts, hair-care service providers, cellular retailers, and fitness centers.

 Additionally, grocery stores have been actively expanding or seeking neighborhood center space, including; Hy-Vee, Jerry’s Foods, Fresh Thyme, Trader Joe’s, Aldi, Lunds & Byerly’s, Kowalski’s Markets, and Whole Foods.

 Average rental rates in neighborhood centers increased roughly 1.3% over the first six months of 2016 to $16.25 per square foot net. However, new centers in prime locations are obtaining much higher rents in the $40 to $60 per square foot range, while centers in secondary locations generally have rental rates below $20 per square foot.

TABLE 37 QUOTED AVERAGE NET RETAIL RENTAL RATES TWIN CITIES METRO AREA 2013 - 2016 Shopping Center Type 2016 Q2 2015 Q4 2014 Q4 2013 Q4 Minneapolis CBD $24.66 $24.14 $24.19 $27.65 Community Center $18.87 $18.92 $18.64 $18.66 Neighborhood Center $16.25 $16.04 $15.87 $15.72 Outlet Mall $33.74 $33.74 $33.74 -- Regional Center $62.99 $62.99 $62.68 $63.06 Total Market $27.54 $27.48 $27.55 $27.60 Sources: Cushman & Wakefield|NorthMarq; Maxfield Research & Consulting, LLC

MAXFIELD RESEARCH AND CONSULTING 109 COMMERCIAL MARKET ANALYSIS

Selected Retail Properties in the Commercial Market Area

The following table shows selected retail space currently listed as available for lease in the PMA and SMA. The data is provided to show the types and amount of space available along with pricing and shopping center type. Data was collected by Maxfield Research and Consulting, LLC from the Xceligent Commercial Property Exchange.

 Maxfield Research identified 23 properties with retail space currently listed for lease in the Market Area, including eight properties in the PMA and 15 properties in the SMA, but outside the PMA. Combined, these properties contain an inventory of roughly 515,000 square feet with 219,000 square feet available for lease.

 The PMA contains a total of 76,156 square feet of space available for lease, while there are 143,225 square feet available in the Remainder of the SMA.

 As illustrated in the following graph, these properties are scattered throughout the Market Area, but the available space is concentrated in Inver Grove Heights and Apple Valley.

- Inver Grove Heights contains nearly 107,000 square feet of available space (49% of the Market Area’s supply of space) in six properties. - There is 42,000 square feet of space available (19%) in two Apple Valley properties. - Rosemount contains 16% of the available retail space in the Market Area, with roughly 34,000 square feet of vacancy. - With 28,000 square feet available, Farmington contains roughly 13% of the retail space. - There is a very limited supply of available space (8,300 square feet) in the portion of Ea- gan located in the Commercial Market Area.

Distribution of Available Retail Space Commercial Market Area

Rosemount 34,025 SF

Apple Valley Inver Grove 42,131 SF 106,770 SF

Eagan 8,342 SF

Farmington 28,113 SF

MAXFIELD RESEARCH AND CONSULTING 110 COMMERCIAL MARKET ANALYSIS

 The largest block of available space in the Market Area (56,202 square feet of freestanding big box space at Arbor Pointe Commons in Inver Grove Heights) is a former Rainbow Foods Grocery store.

TABLE 38 RETAIL BUILDINGS AVAILABLE FOR LEASE DOWNTOWN ROSEMOUNT COMMERCIAL MARKET AREA October 2016 Building Year Bldg Size/ Lease Rates/ Taxes/ Op. Exp/ Location Built SF Available Lease Type SF SF Center Type PRIMARY MARKET AREA Rosemount Crossing 2005 15,602 Negotiable $3.97 $3.90 Conv/Strip Ctr 14885 Robert Trl, Rosemount 3,415 Celtic Crossings III 2005 33,000 Negotiable $4.52 1.76 Conv/Strip Ctr 15051 Crestone Ave, Rosemount 1,396 Rosemount Plaza 1962 58,339 $7.14 - $14.50 $0.39 $1.37 Neighborhood Ctr 14555 Robert Trl, Rosemount 16,713 Rosemount Village 2000 82,823 $20.00 - $20.00 $4.01 $3.59 Neighborhood Ctr 3784 150th St, Rosemount 1,500 NNN Rosemount Market Square Pad NA 7,000 Negotiable -- -- Freestanding 3400 150th St, Rosemount 7,000 2678 W 149th St 2015 11,000 $18.00 - $19.00 -- -- Conv/Strip Ctr 2678 149th St, Rosemount 4,001 MG East Valley Plaza 1988 36,719 $15.00 - $17.00 $3.37 $2.80 Conv/Strip Ctr 14050 Pilot Knob Rd, Apple Valley 12,131 NNN Cobblestone Lake Lot 2 Proposed 30,000 $17.00 - $21.00 -- -- Mixed Use Pilot Knob Rd at 160th St, Apple Valley 30,000 Net SECONDARY MARKET AREA Lexington Center 1986 18,360 16 - 18.5 $4.46 $5.49 Conv/Strip Ctr 4250 Lexington Ave, Eagan 2,100 Net Diffley Marketplace 2013 9,247 Negotiable -- -- Conv/Strip Ctr 1004 Diffley Rd, Eagan 5,002 Diffley Marketplace 2008 10,028 Negotiable -- -- Conv/Strip Ctr 1016 Diffley Rd, Eagan 1,240 400 3rd St 1977 10,000 $13.00 - $13.00 -- -- General 400 3rd St, Farmington 3,050 Gross CR 50 Downtown Farmington 1977 15,100 $11.00 - $11.00 -- -- Conv/Strip Ctr 310 3rd St, Farmington 8,533 Gross 306 Oak St 1876 8,157 $9.00 - $9.00 -- -- Conv/Strip Ctr 306 Oak St, Farmington 4,000 Gross 115 Elm St E 1994 37,738 $11.00 - $14.00 $3.34 -- Conv/Strip Ctr 115 Elm St, Farmington 5,730 MG 305 Elm St 1960 6,800 6.18 - 6.18 $1.60 -- General 305 Elm St, Farmington 6,800 Net 9079 Buchanan Trl 2005 6,976 $13.00 - $16.00 -- -- Freestanding 9079 Buchanan Trl, Inver Grove Heights 6,976 NNN Arbor Pointe 2004 23,310 Negotiable 3.87 $2.23 Conv/Strip Ctr 9070 Buchanan Trl, Inver Grove Heights 18,281 Arbor Pointe Commons 2000 56,202 Negotiable -- -- Big Box 9015 Broderick Blvd, Inver Grove Heights 56,202 9050 Buchanan Trl 2005 6,467 10 - 12 $5.99 $6.18 Bank 9050 Buchanan Trl, Inver Grove Heights 6,394 Net Concord Crossroads 2004 13,024 $14.00 - $18.00 5.55 $6.42 Conv/Strip Ctr 9008 Cahill Ave, Inver Grove Heights 1,357 NNN Trestle Stop 1987 4,240 5.18 - 5.18 -- -- Gas Station/Conv Store 9715 Robert Trl, Inver Grove Heights 3,000 Gross 9124 Broderick Blvd 2004 14,560 Negotiable 5.41 -- Freestanding 9124 Broderick Blvd, Inver Grove Heights 14,560 NNN Sources: Xceligent; Maxfield Research & Consulting, LLC

MAXFIELD RESEARCH AND CONSULTING 111 COMMERCIAL MARKET ANALYSIS

 Most of the retail listings in Rosemount are located along County Road 42, south of Down- town Rosemount, although there is 3,415 square feet available in Rosemount Crossing which anchors the south side of Downtown Rosemount. Additionally, the Rosemount Plaza retail center located in Downtown Rosemount has 16,713 square feet available for lease. While not listed in Xceligent, the Waterford Commons development in Downtown Rose- mount currently has a 1,273 square-foot commercial space available for lease.

 There are a total of two neighborhood centers with 18,200 square feet of space available for lease (8.3% of the supply of available space in the Market Area), while 30% of the available space (67,000 square feet) is located in 12 convenience/strip centers.

 Roughly 39% of the available retail space (85,000 square feet) is classified as freestanding or a freestanding big box, and the remaining space (49,000 square feet) is specialty space (i.e. automotive, mixed use).

 Generally, the retail properties with space listed as available for lease in the Commercial Market Area are relatively small, averaging 22,378 square feet. On average, retail buildings in the Market Area are roughly 69,000 square feet in size.

 The average net rent across the Market Area is $14.05 per square foot (weighted by the amount of space available in each property), with quoted net rental rates ranging from a low of $5.18 per square foot at Trestle Stop in Inver Grove Heights to a high of $20.00 per square foot at a small shop space located at Rosemount Village.

 Commercial leases are generally net leases. In addition to the base rent for occupancy, net leases (also commonly referred to as triple-net or NNN leases) require that the lessee also pays maintenance and operating expenses such as taxes, insurance, utilities, and repairs. Tenants in these net lease retail properties pay approximately $7.90 per square foot on average for tax and operating expenses along with the base rent for the space. Operating expenses average $4.31 per square foot and taxes average $3.59 per square foot.

 There is a limited amount of shopping center space currently under construction in the Commercial Market Area, but the nearby Central Park Commons in Eagan is under construction. This 434,000 square-foot project is located just northwest of the SMA at the intersection of Pilot Knob Road and Yankee Doodle Road. This development is expected to open in fall 2016 and currently has leases signed with several tenants, including Hy-Vee, Hobby Lobby, Sierra Trading Post, Marshalls, HomeGoods, Total Wine, Ulta, Fairview Health Clinic, Punch Pizza, R Taco, Café Zupas, and Naf Naf Grill.

MAXFIELD RESEARCH AND CONSULTING 112 COMMERCIAL MARKET ANALYSIS

Retail Demand Potential and Leakage

Tables 39 and 40 on the following pages present current retail sales and consumer expenditure data for the PMA and the SMA. The sales information is from ESRI based on household counts. This information lists retail demand (potential sales), retail supply to consumers (retail sales) and provides a picture of the gap between the area’s retail supply and demand. A positive value represents “leakage” of retail opportunity to stores outside of the Market Area. A negative value represents a “surplus,” where more customers are coming into the area for retail goods and services than there are households in the area.

 As depicted in the tables and illustrated in the following graph, all of the major retail categories experienced leakage of retail sales during 2015 in the PMA and SMA. It appears that Market Area residents are purchasing retail goods and services at establishments located outside the area, generating “leakage” of retail opportunity outside the Market Area.

 This data indicates that a variety of retailers considering the Market Area could potentially capture sales that are currently being transacted outside of the Market Area, including several categories that would likely be located in a neighborhood- or specialty-oriented retail setting, including: grocery stores; health and personal care stores; auto parts; clothing and clothing accessories, sporting goods, and restaurants (full-service and limited-service).

Surplus/Leakage by Retail Category Total (Retail + Food & Drink) SMA Food Services & Drinking Places PMA Nonstore Retailers Miscellaneous Retailers General Merchandise Sporting Goods, Hobby… Clothing and Accessories... Gasoline Stations Health & Personal Care Food & Beverage Bldg Materials, Garden Equip… Electronics & Appliance Furniture & Furnishings Motor Vehicle & Parts… -50 -25 0 25 50 75 100 ----surplus------leakage------

 It is not likely, however that residents in the Market Area are traveling far to purchase goods and services, as there are major retail concentrations located just outside the SMA in Apple Valley, Eagan, and Lakeville.

MAXFIELD RESEARCH AND CONSULTING 113 COMMERCIAL MARKET ANALYSIS

TABLE 39 RETAIL DEMAND POTENTIAL AND LEAKAGE DOWNTOWN ROSEMOUNT COMMERCIAL PMA 2015 Demand Supply Retail Gap Surplus/Leakage Number of Industry Group (NAICS Code) (Retail Potential) (Retail Sales) (Demand - Supply) Factor Businesses SUMMARY Total Retail Trade and Food & Drink (NAICS 44-45, 722) $751,368,071 $181,845,303 $569,522,768 61.0 141 Total Retail Trade (NAICS 44-45) $677,392,331 $160,343,137 $517,049,194 61.7 96 Total Food & Drink (NAICS 722) $73,975,740 $21,502,167 $52,473,574 55.0 45 EXPENDITURE TYPE Motor Vehicle & Parts Dealers $157,704,003 $8,164,856 $149,539,147 90.2 12 Automobile Dealers $127,233,201 $943,877 $126,289,323 98.5 1 Other Motor Vehicle Dealers $20,218,378 $2,456,664 $17,761,715 78.3 2 Auto Parts, Accessories & Tire Stores $10,252,425 $4,764,315 $5,488,110 36.50.0 9 Furniture & Home Furnishings Stores $19,319,550 $0 $19,319,550 100.0 0 Furniture Stores $12,766,605 $0 $12,766,605 100.0 0 Home Furnishings Stores $6,552,944 $0 $6,552,944 100.00.0 0 Electronics & Appliance Stores $31,672,857 $9,754,706 $21,918,150 52.90.0 13 Bldg Materials, Garden Equip. & Supply Stores $36,307,967 $3,109,810 $33,198,158 84.2 6 Bldg Material & Supplies Dealers $29,830,332 $3,109,810 $26,720,523 81.1 6 Lawn & Garden Equip & Supply Stores $6,477,635 $0 $6,477,635 100.00.0 0 Food & Beverage Stores $113,534,346 $59,754,514 $53,779,832 31.0 18 Grocery Stores $95,760,613 $45,588,061 $50,172,552 35.5 8 Specialty Food Stores $6,617,030 $889,056 $5,727,974 76.3 2 Beer, Wine & Liquor Stores $11,156,703 $13,277,397 ($2,120,694) (8.7)0.0 8 Health & Personal Care Stores $44,034,980 $23,013,930 $21,021,050 31.40.0 5 Gasoline Stations $48,960,937 $8,924,620 $40,036,316 69.20.0 4 Clothing & Clothing Accessories Stores $28,577,512 $1,998,868 $26,578,644 86.9 9 Clothing Stores $22,033,928 $1,298,795 $20,735,133 88.9 6 Shoe Stores $4,464,603 $360,803 $4,103,800 85.0 1 Jewelry, Luggage & Leather Goods Stores $2,078,981 $339,269 $1,739,712 71.90.0 2 Sporting Goods, Hobby, Book & Music Stores $21,589,875 $4,109,029 $17,480,846 68.0 11 Sporting Goods/Hobby/Musical Instr Stores $17,991,478 $3,999,790 $13,991,688 63.6 10 Book, Periodical & Music Stores $3,598,397 $109,239 $3,489,159 94.10.0 1 General Merchandise Stores $132,592,985 $37,941,137 $94,651,847 55.5 5 Department Stores Excluding Leased Depts. $107,785,936 $35,536,971 $72,248,965 50.4 1 Other General Merchandise Stores $24,807,049 $2,404,167 $22,402,883 82.30.0 4 Miscellaneous Store Retailers $27,699,484 $3,208,771 $24,490,713 79.2 11 Florists $1,202,684 $495,570 $707,114 41.6 2 Office Supplies, Stationary & Gift Stores $4,146,266 $642,383 $3,503,882 73.2 3 Used Merchandise Stores $3,468,868 $0 $3,468,868 100.0 0 Other Miscellaneous Store Retailers $18,881,666 $2,070,817 $16,810,848 80.20.0 6 Nonstore Retailers $15,397,835 $362,896 $15,034,940 95.4 2 Electronic Shopping & Mail-Order Houses $12,455,975 $0 $12,455,975 100.0 0 Vending Machine Operators $801,760 $362,896 $438,864 37.7 2 Direct Selling Establishments $2,140,100 $0 $2,140,100 100.00.0 0 Food Services & Drinking Places $73,975,740 $21,502,167 $52,473,574 55.0 45 Full-Service Restaurants $42,232,166 $11,974,014 $30,258,152 55.8 30 Limited-Service Eating Places $27,807,451 $9,396,583 $18,410,868 49.5 14 Special Food Services $1,810,243 $131,569 $1,678,674 86.4 1 Drinking Places - Alcoholic Beverages $2,125,880 $0 $2,125,880 100.0 0 Note: All figures quoted in 2015 dollars. Supply (retail sales ) estimates sales to consumers by establishments, sales to businesses are excluded. Demand (retail potential) estimates the expected amout spent by consumers at a retail establishment. Leakage/Surplus factor measures the relationship between supply and demand at ranges from +100 (total leakage) to -100 (total surplus). A positive value represents "leakage" of retail opportunity outside the trade area. A negative value represents a surplus of retail sales, a market where customers are drawn in from outside the trade area. Sources: ESRI; Maxfield Research & Consulting, LLC

MAXFIELD RESEARCH AND CONSULTING 114 COMMERCIAL MARKET ANALYSIS

TABLE 40 RETAIL DEMAND POTENTIAL AND LEAKAGE DOWNTOWN ROSEMOUNT COMMERCIAL SMA 2015 Demand Supply Retail Gap Surplus/Leakage Number of Industry Group (NAICS Code) (Retail Potential) (Retail Sales) (Demand - Supply) Factor Businesses SUMMARY Total Retail Trade and Food & Drink (NAICS 44-45, 722) $1,762,416,464 $451,753,467 $1,310,662,996 59.2 285 Total Retail Trade (NAICS 44-45) $1,588,877,019 $412,188,695 $1,176,688,324 58.8 202 Total Food & Drink (NAICS 722) $173,539,445 $39,564,772 $133,974,672 62.9 83 EXPENDITURE TYPE Motor Vehicle & Parts Dealers $370,514,091 $56,897,796 $313,616,295 73.4 27 Automobile Dealers $299,086,722 $44,151,737 $254,934,985 74.3 8 Other Motor Vehicle Dealers $47,422,619 $5,104,746 $42,317,873 80.6 5 Auto Parts, Accessories & Tire Stores $24,004,749 $7,641,313 $16,363,436 51.70.0 14 Furniture & Home Furnishings Stores $45,339,524 $4,190,379 $41,149,145 83.1 7 Furniture Stores $29,939,146 $2,739,138 $27,200,008 83.2 3 Home Furnishings Stores $15,400,378 $1,451,241 $13,949,137 82.80.0 4 Electronics & Appliance Stores $74,254,317 $34,558,688 $39,695,629 36.50.0 25 Bldg Materials, Garden Equip. & Supply Stores $85,011,889 $9,928,500 $75,083,389 79.1 21 Bldg Material & Supplies Dealers $69,745,033 $7,669,557 $62,075,477 80.2 15 Lawn & Garden Equip & Supply Stores $15,266,856 $2,258,943 $13,007,913 74.20.0 6 Food & Beverage Stores $266,057,454 $125,177,622 $140,879,831 36.0 31 Grocery Stores $224,407,714 $88,460,441 $135,947,272 43.5 13 Specialty Food Stores $15,505,247 $17,849,974 ($2,344,727) (7.0) 5 Beer, Wine & Liquor Stores $26,144,492 $18,867,206 $7,277,286 16.20.0 13 Health & Personal Care Stores $103,174,430 $32,004,249 $71,170,181 52.60.0 12 Gasoline Stations $114,884,624 $31,740,149 $83,144,475 56.70.0 13 Clothing & Clothing Accessories Stores $66,996,431 $3,338,194 $63,658,237 90.5 13 Clothing Stores $51,671,566 $1,957,885 $49,713,680 92.7 9 Shoe Stores $10,460,916 $360,808 $10,100,108 93.3 1 Jewelry, Luggage & Leather Goods Stores $4,863,950 $1,019,501 $3,844,449 65.30.0 3 Sporting Goods, Hobby, Book & Music Stores $50,640,760 $6,805,815 $43,834,945 76.3 16 Sporting Goods/Hobby/Musical Instr Stores $42,210,389 $6,696,575 $35,513,814 72.6 15 Book, Periodical & Music Stores $8,430,371 $109,240 $8,321,131 97.40.0 1 General Merchandise Stores $310,913,516 $85,761,043 $225,152,474 56.8 7 Department Stores Excluding Leased Depts. $252,762,244 $82,983,581 $169,778,664 50.6 2 Other General Merchandise Stores $58,151,272 $2,777,462 $55,373,810 90.90.0 5 Miscellaneous Store Retailers $64,973,773 $7,074,160 $57,899,612 80.4 23 Florists $2,835,511 $495,577 $2,339,934 70.2 2 Office Supplies, Stationary & Gift Stores $9,719,565 $895,524 $8,824,042 83.1 6 Used Merchandise Stores $8,128,052 $441,595 $7,686,457 89.7 3 Other Miscellaneous Store Retailers $44,290,645 $5,241,465 $39,049,180 78.80.0 12 Nonstore Retailers $36,116,211 $14,712,100 $21,404,111 42.1 7 Electronic Shopping & Mail-Order Houses $29,189,066 $1,899,722 $27,289,345 87.8 2 Vending Machine Operators $1,878,969 $635,077 $1,243,892 49.5 3 Direct Selling Establishments $5,048,176 $12,177,301 ($7,129,126) (41.4)0.0 2 Food Services & Drinking Places $173,539,445 $39,564,772 $133,974,672 62.9 83 Full-Service Restaurants $99,066,702 $21,077,608 $77,989,094 64.9 52 Limited-Service Eating Places $65,230,006 $18,060,786 $47,169,220 56.6 28 Special Food Services $4,255,104 $263,142 $3,991,962 88.4 2 Drinking Places - Alcoholic Beverages $4,987,633 $163,236 $4,824,397 93.7 1 Note: All figures quoted in 2015 dollars. Supply (retail sales ) estimates sales to consumers by establishments, sales to businesses are excluded. Demand (retail potential) estimates the expected amout spent by consumers at a retail establishment. Leakage/Surplus factor measures the relationship between supply and demand at ranges from +100 (total leakage) to -100 (total surplus). A positive value represents "leakage" of retail opportunity outside the trade area. A negative value represents a surplus of retail sales, a market where customers are drawn in from outside the trade area. Sources: ESRI; Maxfield Research & Consulting, LLC

MAXFIELD RESEARCH AND CONSULTING 115 COMMERCIAL MARKET ANALYSIS

Retail Development Potential

Demand for additional retail space, measured in gross leasable space in square feet, is calculated in the tables on the following pages which combine demand information with supply to calculate the amount of retail space supportable in the Commercial PMA and SMA. Sources of data used in the calculations include the Metropolitan Council and Maxfield Research and Con- sulting, LLC (household growth trends), ESRI (consumer expenditure), and the Urban Land Insti- tute (sales per square foot).

The demand calculation begins with household growth projections combined with an estimate of the total expenditures for retail goods and services by Market Area residents, excluding expenditures for automobiles, homes, finance and insurance, education, and travel. We anticipate that the primary source of demand for new retail space in Downtown Rosemount will be generated by household and consumer expenditure growth in the Market Area. Table 41 calculates demand for neighborhood retail space in Downtown Retail from the Commercial PMA, while Table 42 calculates specialty retail demand using the Commercial SMA. The following points summarize the retail demand methodology.

 As of 2016, there are an estimated 13,788 households in the Commercial PMA. The household base is projected to grow by 1,781 households between 2016 and 2020, and another 1,122 households are expected to be added between 2020 and 2025.

 Based on a review of consumer expenditure patterns in the PMA, Trade Area residents will spend an average of $30,816 on retail goods and services in 2016.

 Because of growth in the household base and accounting for inflation, as well as projected increases in household income, PMA residents are expected to increase their overall retail expenditures from an estimated $424.9 million in 2016 to nearly $614.7 million in 2025. Projected increases in households and annual expenditures will result in growth in retail expenditures by Trade Area residents of roughly $190 million between 2016 and 2025.

 As of 2015, total leakage of retail expenditures (including food and drink) from the Trade Area was estimated to be at 61%, indicating a substantial loss of potential retail sales. Downtown Rosemount could potentially attract stores in a variety of neighborhood-oriented retail categories, as leakage exists in all major retail categories in the PMA. Deducting leakage from total Trade Area expenditures results in purchasing power that will be retained in the Trade Area.

 Accounting for inflation, we anticipate that the average retail sales per square foot will increase from an estimated $297 in 2016 to $318 in 2020 and $347 in 2025. The retail sales per square foot reflects an average across neighborhood shopping centers in the Midwest and is based on information published in the “Dollars & Cents of Shopping Centers” prepared by the International Council of Shopping Centers and the Urban Land Institute.

MAXFIELD RESEARCH AND CONSULTING 116 COMMERCIAL MARKET ANALYSIS

 Dividing purchasing power by average retail sales per square foot equates to total demand for about 558,000 square feet of retail space in the Trade Area in 2016, increasing to about 636,200 square feet in 2020 and 690,500 square feet in 2025, for a net gain of 132,557 square feet from 2016 to 2025.

 We estimate that Downtown Rosemount could capture 20% of the total growth in retail demand in the PMA, resulting in demand from PMA households for approximately 26,500 square feet of neighborhood retail space capturable in Downtown Rosemount between 2016 and 2025. Retailers could also capture potential sales from employees working at business establishments in the area, as well as from the daily commuting traffic along South Robert Trail.

TABLE 41 DEMAND FOR NEIGHBORHOOD RETAIL SPACE DOWNTOWN ROSEMOUNT COMMERCIAL PRIMARY MARKET AREA 2016 to 2025 2016 2020 2025 Trade Area Households 13,788 15,569 16,691 (times) Annual Household Expenditures1 x $30,816 $33,356 $36,828 (equals) Total Trade Area Expenditures = $424,891,008 $519,327,181 $614,700,478 (plus) Approx. % Leakage Outside the Trade Area2 + 61% 61% 61% (equals) Leakage Outside of Trade Area = $259,183,515 $316,789,580 $374,967,292 (equals) Total Purchasing Power $165,707,493 $202,537,600 $239,733,186 (divided by) Average sales per Sq. Ft. / $297 $318 $347 (equals) Total Retail Space Demand (Sq. Ft.) = 557,929 636,216 690,486 Growth in retail demand 2016 to 2025 132,557 (times) % of Demand Growth Capturable in Downtown Rosemount x 20% (equals) Retail space supportable in Downtown Rosemount (sq. ft.) = 26,511

1 Excluding expenditures for home buying, finance & insurance, travel, vehicle sales. 2 Leakage is the estimated amount of retail dollars spent outside the Trade Area. Note: The leakage factor is derived from subtracting the estimated retail sales in the Trade Area from the total retail expenditures by Trade Area residents. Sources: ESRI; Metropolitan Council; Maxfield Research & Consulting, LLC

 There are an estimated 31,318 households in the Commercial SMA in 2016, and the household base is projected to grow to 37,158 (+5,840) by 2025.

 Based on a review of consumer expenditure patterns in the SMA, Trade Area residents will spend an average of $31,318 on retail goods and services in 2016. Because of growth in the household base and accounting for inflation, as well as projected increases in household income, SMA residents are expected to increase their overall retail expenditures by approximately $410 million between 2016 and 2025.

 As of 2015, total leakage of retail expenditures (including food and drink) from the Trade Area was estimated to be at 59%, indicating a substantial loss of potential retail sales.

MAXFIELD RESEARCH AND CONSULTING 117 COMMERCIAL MARKET ANALYSIS

 Downtown Rosemount could potentially attract stores in a variety of specialty goods retail categories (i.e. gifts, home furnishings, etc.), as leakage exists in all major retail categories in the SMA. Deducting leakage from total Trade Area expenditures results in purchasing power that will be retained in the Trade Area.

 Accounting for inflation, we anticipate that the average retail sales per square foot will increase from an estimated $265 in 2016 to $310 in 2025. The retail sales per square foot reflects an average across community shopping centers in the Midwest and is based on information published in the “Dollars & Cents of Shopping Centers” prepared by the Interna- tional Council of Shopping Centers and the Urban Land Institute.

 Dividing purchasing power by average retail sales per square foot equates to total demand for about 1.5 million square feet of retail space in the SMA in 2016, increasing to about 1.8 million square feet in 2025, for a net gain of 321,142 square feet from 2016 to 2025.

 We estimate that Downtown Rosemount could capture roughly 10% of the total growth in retail demand in the SMA, resulting in demand from SMA households for approximately 32,000 square feet of specialty retail space capturable in Downtown Rosemount between 2016 and 2025.

TABLE 42 DEMAND FOR SPECIALTY RETAIL SPACE DOWNTOWN ROSEMOUNT COMMERCIAL SECONDARY MARKET AREA 2016 to 2025 2016 2020 2025 Trade Area Households 31,318 34,705 37,158 (times) Annual Household Expenditures1 x $31,318 $33,900 $37,428 (equals) Total Trade Area Expenditures = $980,817,124 $1,176,488,984 $1,390,749,798 (plus) Approx. % Leakage Outside the Trade Area2 + 59% 59% 59% (equals) Leakage Outside of Trade Area = $580,643,737 $696,481,478 $823,323,880 (equals) Total Purchasing Power $400,173,387 $480,007,505 $567,425,917 (divided by) Average sales per Sq. Ft. / $265 $284 $310 (equals) Total Retail Space Demand (Sq. Ft.) = 1,507,901 1,687,466 1,829,043 Growth in retail demand 2016 to 2025 321,142 (times) % of Demand Growth Capturable in Dtown Rosemount x 10% (equals) Retail space supportable in Downtown Rosemount (sq. ft.) = 32,114

MAXFIELD RESEARCH AND CONSULTING 118 COMMERCIAL MARKET ANALYSIS

Office-Using Business Growth by Type of Business

The following table presents the distribution of businesses that are typical users of office space by number of employees in the Downtown Rosemount Commercial PMA in the years 2000 and 2014, the most recent data available. The data is extracted from the Business Register, a data- base of all known employer companies which is maintained and updated by the U.S. Census Bu- reau and is accumulated based on ZIP Code boundaries. For this analysis, we used the 55068 ZIP Code which approximates the Commercial PMA.

Growth in these sectors is an important indicator of total demand for office space and the size of businesses provides an indication of the type and sizes of office spaces required. In addition to businesses in these sectors, a small amount of office demand will be generated from other sectors, including government agencies.

 The office-using business categories include Information; Finance and Insurance; Real Es- tate; Professional, Scientific, and Technical Services; Management of Companies and Enter- prises; Education; and, Health Care and Social Assistance. The number of businesses in these categories in the PMA expanded from 103 businesses in 2000 to 174 businesses in 2014, a 69% increase.

TABLE 43 OFFICE-USING BUSINESSES BY INDUSTRY AND SIZE OF BUSINESS DOWNTOWN ROSEMOUNT COMMERCIAL PMA (55068 ZIP CODE) 2000 and 2014 ------Industry Description ------Real Estate Professional Mgmt of Health Care Finance & & Rental Scientific & Companies & Social Total # of Employees Information Insurance & Leasing Tech. Services & Enterprises Education Assistance No. Pct. 2000 1 to 4 1 5 11 38 1 1 11 68 66.0 5 to 9 0 1 1 1 1 1 9 14 13.6 10 to 19 2 0 1 1 0 2 6 12 11.7 20 to 49 1 2 0 2 0 1 2 8 7.8 50 to 99 0 0 0 0 0 0 0 0 0.0 100 to 249 0 0 0 1 0 0 0 1 1.0 250 or more 0 0 0 0 0 0 0 0 0.0 Total 4 8 13 43 2 5 28 103 100.0 2014 1 to 4 6 12 12 70 1 7 18 126 72.4 5 to 9 1 2 0 3 0 2 12 20 11.5 10 to 19 1 4 0 2 0 2 13 22 12.6 20 to 49 0 0 0 1 0 2 1 4 2.3 50 to 99 1 0 0 0 0 0 0 1 0.6 100 to 249 0 0 0 0 0 0 1 1 0.6 250 or more 0 0 0 0 0 0 0 0 0.0 Total 9 18 12 76 1 13 45 174 100.0 Sources: Bureau of the Census, County Business Patterns; Maxfield Research & Consulting, LLC

MAXFIELD RESEARCH AND CONSULTING 119 COMMERCIAL MARKET ANALYSIS

 There were 76 (44%) establishments in the Professional, Scientific, and Technical Services industry. The Health Care and Social Assistance industry (includes child day care, dentists, chiropractors and other medical doctors) comprised 45 businesses (26%). The Finance and Insurance sector had 18 businesses (10%) and there were 13 and businesses in the Educa- tion (8%) and Real Estate (7%) sectors, respectively. The Information and Management of Companies and Enterprises sectors represented smaller proportions of office-using businesses in the area, at 5% and 1%, respectively

 The Professional, Scientific, and Technical Services industry maintains the largest presence of office-using business establishments in the area, and it experienced the largest growth between 2000 and 2014, gaining 33 businesses (+77%). This sector comprises establishments that specialize in performing professional, scientific, and technical activities for cli- ents in a variety of industries as well as for households. Services performed include: legal representation; accounting and payroll; architectural, engineering, and design; computer; consulting; research; advertising; photographic; translation and interpretation; and, veterinary. Household growth in the surrounding market area will likely stimulate additional demand for services from businesses in this sector.

 Expansion also occurred in the Health Care and Social Assistance sector which gained 17 businesses (+61%), the Finance and Insurance sector (+10 businesses for a 125% increase), the Education sector (+8 establishments for a 160% increase), and the Information sector (+5 businesses for a 125% increase).

 Based on the distribution of businesses by employee size range, we estimate that these 174 business establishments employ roughly 1,025 workers in the area. As depicted in the following graph, businesses with 10 to 19 workers would employ approximately 26% of the workers in the area (264 employees).

Office-Using Businesses by Number of Employees 55068 ZIP Code - 2014 500

400

300 264 239 230 200

120 112 # # of Employees 100 60

0 1 to 4 5 to 9 10 to 19 20 to 49 50 to 99 100+ Size of Business (Employees)

MAXFIELD RESEARCH AND CONSULTING 120 COMMERCIAL MARKET ANALYSIS

 Of the office-using businesses in the area, 72% had fewer than five employees (126 businesses), 12% had between five and nine workers (20), 13% had between 10 and 19 workers (22), and 2% had 20 to 49 workers (four). There is also one establishment with 50 to 99 employees and one with 100 to 249 employees.

Office-Using Businesses by Number of Employees 55068 ZIP Code - 2014

5 to 9 20 10 to 19 22 1 to 4 126 20 to 49 4 50 to 99 1 100+ 1

 Based on this information, it appears that the majority of office users in the area are likely to require smaller spaces. Assuming that office employees occupy an average of 180 square feet of office space, many companies in the area would need less than 1,000 square feet, and only 16% of the business establishments would need more than 1,800 square feet. It should be noted that many of these small business establishments are likely to be located in home offices.

 The chart on the following page shows an estimate of the total amount of office space needed to accommodate the businesses listed in the table by size of business in 2014 compared to 2000. The figures assume that employees occupied an average of 200 square feet of office space (including common areas) in 2000 and 180 square feet in 2014. According to various commercial real estate industry sources (i.e. CoreNet Global and NAIOP), office space utilization has dropped steadily over the past decade as office users have attempted to gain efficiencies by increasing the amount of collaborative meeting space and shrinking the square footage allocated to individual work spaces.

 The chart shows that about 162,240 square feet was needed to accommodate all of the businesses in 2014. However, 126 companies (72% of the total) in the area would require less than 900 square feet of space and many of these businesses with between one and four employees are likely operated from private homes, thereby reducing total office needs to about 136,400 square feet.

MAXFIELD RESEARCH AND CONSULTING 121 COMMERCIAL MARKET ANALYSIS

 Approximately 20 (11%) businesses would need between 900 and 1,800 square feet of space and 22 (13%) would need 1,800 to 3,600 square feet. We estimate that a total of 69,000 square feet of office space was needed in the area to house businesses in these size ranges in 2014. Roughly 2% of the businesses (four) would require between 3,600 and 9,000 square feet, while one establishment would need between 9,000 and 18,000 square feet of space in 2014 and one would require over 18,00 square feet.

 Between 2000 and 2014, the greatest growth occurred in the amount of space required to accommodate the smaller users in the area (10 to 19 employees). In 2014, roughly 47,520 square feet of space was needed to accommodate these users, compared to 28,800 square feet in 2000, an 65% increase.

 This trend suggests a growing need for office spaces in the 1,800 to 3,600 square foot range. Most of this growth occurred in the Health Care and Social Assistance sector as well as the Finance and Insurance sector.

Office Space Needed by Business Size Range 55068 ZIP Code: 2000 to 2014

100+ 50 to 99 20 to 49 10 to 19

5 to 9 # # of Employees 1 to 4

0 10,000 20,000 30,000 40,000 50,000 1 to 4 5 to 9 10 to 19 20 to 49 50 to 99 100+ 2000 25,840 16,800 28,800 44,800 0 46,000 2014 43,092 21,600 47,520 20,160 10,800 41,400

 Demand for commercial office space can also be generated from sectors other than the traditional office-using industries, including: Administrative and Support and Waste Manage- ment and Remediation Services (i.e. temporary employment agencies, security firms, clean- ing companies); Arts, Entertainment, and Recreation; and, Other Services (i.e. grantmaking, advocacy, drycleaning and laundry services).

 In total, these non-traditional office users (101 establishments) represent 21% of all businesses establishments in the area, while the traditional office-using sectors represent 36% of the businesses. Over half (54%) of the non-traditional office users employ fewer than five workers, while 19% have between five and nine employees, 12% employ 10 to 19 workers, and 14% have 20 to 49 employees. There is only one establishment in these sectors with more than 50 workers.

MAXFIELD RESEARCH AND CONSULTING 122 COMMERCIAL MARKET ANALYSIS

Growth of Jobs Using Office Space

The following table presents total employment growth trends and projections in the Commer- cial PMA from 2000 to 2025, including the estimated percentage of total employment among industries that typically occupy office space. For this analysis, we include jobs in the Infor- mation, Financial Activities, and Professional and Business Services sectors, as well as half of the jobs in the Education and Health Services sector. These figures were compiled by Maxfield Re- search and Consulting, LLC, based on data from Minnesota DEED, the U.S. Census Bureau Longi- tudinal Employer-Household Dynamics (LEHD) program, and the Metropolitan Council.

TABLE 44 EMPLOYMENT GROWTH TRENDS AND PROJECTIONS - OFFICE SECTORS DOWNTOWN ROSEMOUNT COMMERCIAL PMA 2000 to 2025

Total Office % Office Employment Jobs Jobs* Jobs 2000 10,819 3,153 29.1% 2010 10,301 2,452 23.8% 2015 11,828 2,731 23.1% 2020 Forecast 13,110 3,078 23.5% 2025 Forecast 13,671 3,267 23.9%

Change No. Pct. No. Pct. Pct. 2000 - 2010 -518 -4.8% -701 -22.2% -5.3% 2010 - 2015 1,528 14.8% 279 11.4% -0.7% 2015 - 2020 1,282 10.8% 346 12.7% 0.4% 2020 - 2025 561 4.3% 190 6.2% 0.4% *Office jobs include jobs in the Information, Financial Activities, Professional and Business Services, and half of the Educational and Health Services sectors. Sources: MN DEED; US Census Bureau LEHD; Metropolitan Council; Maxfield Research & Consulting, LLC

 Between 2000 and 2010, the Commercial PMA lost -518 jobs (-4.8%) while the estimated number of jobs requiring office space declined -22.2% (-701 jobs). Based on the Quarterly Census of Employment and Wages data from DEED, job growth in the industries that traditionally occupy office space was slightly outpaced by other employment sectors between 2010 and 2015. The PMA gained 1,528 jobs (+14.8%), while the number of jobs in the industries that typically occupy office space increased 11.4% (279 jobs).

 According to long-term industry projections provided by DEED for the State of Minnesota, the number of jobs in office-using industries is expected to grow 7.8% between 2014 and 2024. Office jobs accounted for 27.5% of all jobs in Minnesota in 2014 and are projected to increase to 28.4% of total jobs by 2024.

MAXFIELD RESEARCH AND CONSULTING 123 COMMERCIAL MARKET ANALYSIS

 The proportion of office jobs declined in the PMA last decade, accounting for 29.1% of all jobs in 2000, 23.8% in 2010, and 23.1% in 2015.

 We expect the proportion of office jobs in the PMA to expand at a pace that is similar to Minnesota, increasing to 23.5% of all jobs in the PMA by 2020, resulting in the addition of 346 office-using jobs (+12.7% growth) between 2015 and 2020. Another 190 office-using jobs (+6.2%) are expected to be added in the PMA between 2020 and 2025.

Commercial PMA Job Growth 2000 - 2025 16,000 14,000 12,000 10,000 8,000 6,000 Employment 4,000 2,000 0 2000 2010 2015 2020 2025 Office Jobs 3,153 2,452 2,731 3,078 3,267 Other Sectors 7,665 7,849 9,097 10,032 10,404

 According to a recent CoreNet Global Corporate Real Estate 2020 survey, the average amount of office space per employee has declined from over 200 square feet in 2010 to roughly 180 square feet per employee in 2012.

 With the addition of roughly 536 office jobs between 2015 and 2025 in the PMA, it can be estimated that approximately 96,500 square feet of office space would be needed to accommodate these new employees. The actual amount of office space needed will be less however, because this figure includes people working from home offices and some professional businesses may prefer to locate in retail space.

MAXFIELD RESEARCH AND CONSULTING 124 COMMERCIAL MARKET ANALYSIS

Twin Cities Office Market Conditions

Maxfield Research and Consulting, LLC analyzed office market trends for the Twin Cities Metro Area, including total rentable area, vacancy rates, rental rates and absorption. The data is provided by Cushman & Wakefield|NorthMarq. The data includes information for multi-tenant office buildings greater than 20,000 square feet in size. Market statistics for each submarket are identified in the table on the following page. The following points summarize key findings from the Cushman & Wakefield|NorthMarq July 2016 Compass report.

 The market posted nearly 152,000 square feet of positive absorption during the first half of 2016, following 982,000 square feet of absorption in 2015. Space absorption pushed the direct vacancy rate (excluding sublease space) down -0.8% over the past year to 15.6%, the lowest vacancy since 2007 (15.2%).

 Vacancy rates vary greatly across the Metro Area, with the West submarket (i.e. the I-394 corridor) being the tightest submarket with a 13.5% vacancy rate, while the Northwest submarket has the highest vacancy rate at 21.7%.

Office Vacancy Comparison by Submarket 35.0% 2014 30.0% 22.4% 2015 25.0% 21.7% 22.2% 19.6% 20.0% 15.6% 17.7% 17.0% 16.0% 17.0% 16.4% 15.5% 15.6% 13.9% 14.6% 13.5% 15.0% 12.4% 10.0% 5.0% 0.0%

 Five of the seven submarkets experienced positive absorption during the first half of 2016, led by the St. Paul CBD with over 164,000 square feet of absorption and the South/Airport submarket with 96,000 square feet of absorption.

 Across the Metro Area, Class A office space is the tightest product type with a 13.1% vacancy rate, although Class A properties experienced -77,442 square feet of negative absorption in the first half of 2016. Class B space, which experienced 132,181 square feet of absorption in the first six months of 2016, is 18.5% vacant.

MAXFIELD RESEARCH AND CONSULTING 125 COMMERCIAL MARKET ANALYSIS

 Rental rates are gradually increasing, particularly at Class A properties in high-demand locations. Marketwide, Class A rents increased 2.4% over the past year to $16.89 per square foot net. Class A rents have been climbing steadily since 2010, increasing 2.9% per year, on average. Class B rents are also climbing, rising 4.6% over the past year to $12.25 per square foot net.

TABLE 45 OFFICE MARKET STATISTICS TWIN CITIES METRO AREA Second Quarter 2015 to Second Quarter 2016 2016 Q2

# of Total Total Vacancy YTD Net Submarket Bldgs Rentable SF Vacant SF Rate Absorption Rent Minneapolis CBD 104 25,824,207 3,999,279 15.5% 40,723 $15.87 Northeast 123 7,589,355 1,054,164 13.9% 77,841 $12.10 Northwest 35 2,241,711 486,276 21.7% 6,763 $10.85 South/Airport 88 5,980,278 1,015,031 17.0% 96,366 $12.41 Southwest 138 14,285,534 2,281,253 16.0% (189,351) $15.12 St. Paul CBD 39 6,515,649 1,105,971 17.0% 164,110 $10.73 West 97 8,913,361 1,202,033 13.5% (44,857) $16.21 Total Market 624 71,350,095 11,144,007 15.6% 151,595 $14.55

2015 Q2 # of Total Total Vacancy 2015 YTD Net Submarket Bldgs Rentable SF Vacant SF Rate Absorption Rent Minneapolis CBD 105 26,114,280 4,083,644 15.6% 256,121 $15.19 Northeast 119 7,803,170 1,382,896 17.7% 123,272 $11.92 Northwest 35 2,241,711 501,827 22.4% 137,555 $10.92 South/Airport 81 5,746,573 1,127,153 19.6% (142,354) $12.22 Southwest 137 14,335,534 2,096,834 14.6% 183,329 $14.72 St. Paul CBD 41 6,777,235 1,503,680 22.2% 36,498 $10.18 West 94 8,692,528 1,077,454 12.4% (126,897) $15.44 Total Market 612 71,711,031 11,773,488 16.4% 467,524 $14.02

Sources: Cushman & Wakefield | NorthMarq; Maxfield Research & Consulting, LLC

 Vacancy in the South/Airport submarket, which includes Rosemount, declined -2.6 percentage points to 17.0% after over 264,000 square feet were absorbed in the past year. Class A vacancy in the South/Airport submarket is at 15.7%, while vacancy in Class B and C properties is at 17.9% and 15.9%, respectively.

 Demand for space in the South/Airport submarket was strongest in Class B properties over the year, as 223,000 square feet were absorbed. Class A properties experienced 9,735 square feet of absorption and 31,476 square feet of Class C space was absorbed.

MAXFIELD RESEARCH AND CONSULTING 126 COMMERCIAL MARKET ANALYSIS

 As depicted in the following graph, the delivery of new product coupled with a sharp drop in demand due to the recession caused direct vacancy rates to climb sharply in the South/Air- port submarket between 2006 and 2009. However, direct vacancy has been gradually declining since peaking at 21.0% in 2009.

South/Airport Submarket Office Supply & Demand Trends 300,000 25.0%

200,000 20.0% 100,000 15.0% 0 10.0%

-100,000 Pct. Vacant Square Feet -200,000 5.0%

-300,000 0.0% 2006 2008 2010 2012 2014 2016 Q2

Construction Absorption Vacancy

 Equilibrium in the office market is generally considered to be vacancy of approximately 10% to 12%. While vacancy for the entire market remains well-above equilibrium, Class A vacancy is at or approaching equilibrium in several submarkets suggesting that these submarkets may soon be able to support new office development.

 There has been minimal multi-tenant office development activity since the last of the projects launched pre-recession were delivered in 2008 and 2009, and there is very little new speculative suburban multi-tenant space under construction or expected to get underway in the near term. However, there are three office buildings totaling 491,000 square feet under construction in Downtown Minneapolis.

 The 170,000-square foot Offices at MOA in Bloomington opened in late 2015, but was com- pletely vacant upon opening. However, Cray Inc. has signed an 87,500 square-foot lease and will relocate approximately 350 employees from its Saint Paul office during the first quarter of 2017.

 Despite recent tightening, office vacancy rates remain above equilibrium and there is little demand for new speculative office development, particularly in most suburban submarkets. The slow recovery has been driven, in part, by a shift in office space utilization as companies strive to become more efficient by increasing densities in office space. Additionally, the tight labor market is a major consideration for companies considering expansion or relocation.

MAXFIELD RESEARCH AND CONSULTING 127 COMMERCIAL MARKET ANALYSIS

Twin Cities Medical Office Market Conditions

Maxfield Research and Consulting, LLC analyzed medical office market trends for the Twin Cities Metro Area, including total rentable area, vacancy rates, and absorption. The data is provided by Cushman & Wakefield|NorthMarq. A medical office building is defined as a property where 50% or more of the tenants are medical-oriented. Medical properties typically have a higher parking ratio than traditional office properties and are generally marketed to medical tenants and have the infrastructure capable to accommodate medical uses.

Cushman & Wakefield|NorthMarq divides the local medical office market into two product types; On Campus and Off Campus. On Campus properties are connected by a tunnel or skyway to a hospital or major ambulatory surgery center or located in a distinct area adjacent to a hospital or ambulatory surgery center. Off Campus properties are not connected or immediately adjacent to a hospital or ambulatory surgery center. The following points summarize key findings from the Cushman & Wakefield|NorthMarq July 2016 Compass report.

 Overall vacancy is 10.5%, down slightly from 10.9% at mid-year 2015, with Off Campus vacancy at 12.1% and On Campus vacancy at 8.9%. Many On Campus facilities are fully-occupied with five hospital campuses reporting zero vacancy.

 The medical office market experienced 66,279 square feet of absorption during the first half of 2016, including 40,842 square feet of absorption in On Campus facilities and 25,437 square feet of Off Campus absorption.

 The Southeast submarket (includes Rosemount) contains 21 Off Campus properties, totaling over 756,000 square feet of medical office space. These projects are 13.9% vacant after ex- periencing 9,435 square feet of absorption during the first half of 2016.

 Going forward, mergers and alliances within the healthcare industry will impact demand for medical space. In an effort to become more efficient, independent practices will likely continue merging or aligning with systems, reducing the number of independent providers in the market. The medical office market will be impacted as these new partnerships and or- ganizations evaluate their real estate inventory to determine if redundancies exist and where service delivery can be expanded.

 Additionally, the pool of potential patients has grown after roughly 180,000 residents of Minnesota gained health insurance due to the Affordable Care Act. In an attempt to serve this larger group of patients, the major health systems are restructuring their service delivery models. This restructuring has involved the creation of new urgent care, transitional care, and ambulatory care facilities in locations that are closer to where people live.

MAXFIELD RESEARCH AND CONSULTING 128 COMMERCIAL MARKET ANALYSIS

TABLE 46 MEDICAL OFFICE MARKET STATISTICS TWIN CITIES METRO AREA Second Quarter 2015 to Second Quarter 2016 2016 Q2 # of Total Total Vacancy YTD Net Bldgs Rentable SF Vacant SF Rate Absorption Rent On Campus 39 3,057,650 272,770 8.9% 40,842 $19.00 Off Campus 76 3,287,101 396,483 12.1% 25,437 $17.82 Northeast 20 812,177 131,546 16.2% (1,756) $17.49 Northwest 17 824,486 87,040 10.6% 16,009 $16.37 Southeast 21 756,443 105,085 13.9% 9,435 $18.91 Southwest 18 893,995 72,812 8.1% 1,749 $19.04 Total Medical Office 115 6,344,751 669,253 10.5% 66,279 $18.42

2015 Q2 # of Total Total Vacancy YTD Net Bldgs Rentable SF Vacant SF Rate Absorption Rent On Campus 39 3,113,023 307,951 9.9% 19,561 $19.28 Off Campus 72 3,192,219 376,571 11.8% (48,304) $17.33 Northeast 20 812,177 124,008 15.3% (8,505) $17.50 Northwest 15 790,054 84,490 10.7% 1,194 $15.15 Southeast 19 695,993 78,148 11.2% (11,782) $18.62 Southwest 18 893,995 89,925 10.1% (29,211) $18.47 Total Medical Office 111 6,305,242 684,522 10.9% (28,743) $18.38

Sources: Cushman & Wakefield | NorthMarq; Maxfield Research & Consulting, LLC

 The Off Campus market will continue to evolve to find the best way to serve patients under the new healthcare model with an emphasis on delivering care closer to the patient. This will likely result in the continued trend of moving ambulatory care clinics away from On Campus hospital settings and healthcare systems are expected to continue locating in suburban markets. This is expected to be a major trend as healthcare providers and practition- ers seek out space in locations that offer easier access and convenience to their patients.

 Roughly 677,000 square feet of space is under construction, with about 235,000 square feet slated for delivery in the next 12 months. Roughly 145,000 square feet of space is under construction in the Southeast submarket, including a 70,000 square-foot facility for Summit Orthopedics at Pilot Knob Road and I-494 in Eagan. There is also 75,000 square feet of medical office space under construction at the City Place redevelopment (former State Farm office complex) in Woodbury.

MAXFIELD RESEARCH AND CONSULTING 129 COMMERCIAL MARKET ANALYSIS

Selected Office Properties in the Commercial Market Area

The following table shows selected office space currently listed as available for lease in or near the Downtown Rosemount Commercial Market Area. The data is provided to show the types and amount of space available along with pricing and class. Data was collected by Maxfield Re- search and Consulting, LLC from the Xceligent Commercial Property Exchange.

Class A buildings, are generally newer, offer a variety of amenities, provide a good location with convenient access and visibility, and are generally considered the highest-quality buildings in the area. Older Class B buildings are sometimes renovated and situated in a good location, while newer buildings are relatively small, located in non-prime areas, and do not provide the amenities and finishes of a Class A building. Class C properties are typically the oldest in the area and are typically in average to poor condition.

 As depicted in the table, Maxfield Research did not identify any properties in the PMA actively-marketing office space for lease in Xceligent, and there is only one property in the SMA (Farmington Medical Building).

 Due to the lack of available information in the Market Area, we also inventoried properties located outside the Market Area. In total, we identified 18 properties with office space currently listed for lease in or near the Market Area. Combined, these properties contain an inventory of roughly 531,600 square feet with 143,319 square feet available for lease.

 As illustrated in the following graph, Apple Valley contains the highest concentration of available space, with over 107,000 square feet (75% of the supply of available space in and near the Market Area). Roughly 12% of the supply of available space is located in Hastings (17,000 square feet), while 7% is situated in Lakeville (10,100 square feet) and 5% is in Farmington (7,600 square feet). There are no properties listed in Rosemount.

Distribution of Available Office Space Commercial Market Area

Rosemount, 0 SF

Lakeville, 10,094 SF

Hastings, 17,052 SF Apple Valley, 107,134 SF Farmington, 7,628 SF

Eagan, 1,411 SF

MAXFIELD RESEARCH AND CONSULTING 130 COMMERCIAL MARKET ANALYSIS

 Roughly 39% of the office properties are single-story buildings (seven properties) and 33% of the buildings (six properties) have two stories. There are also two three-story buildings (11%) and three properties (17%) with four or more stories.

 The vast majority (83%) of these properties are classified as Class B office space, while 17% (three buildings) have been designated by the listing broker as Class A properties.

TABLE 47 OFFICE BUILDINGS AVAILABLE FOR LEASE DOWNTOWN ROSEMOUNT COMMERCIAL MARKET AREA October 2016 Building Year Bldg Size/ Lease Rates/ Tenancy Taxes/ Op. Exp/ Location Built SF Available Lease Type SF/MF SF SF Class Floors PRIMARY MARKET AREA ----- No office space listed for lease in the PMA -----

SECONDARY MARKET AREA Farmington Medical Building 2008 16,090 Negotiable MT $4.39 -- A 2 19685 Pilot Knob Rd, Farmington 7,628 OUTSIDE MARKET AREA Anchor Bank Building 1996 48,857 $14.00 - $14.00 MT $4.03 $6.13 B 3 14665 Galaxie Ave, Apple Valley 11,668 Net Apple Square Professional Building 1988 9,857 Negotiable MT $3.63 $4.22 B 1 7275 147th St, Apple Valley 4,939 Net Wings Financial - Apple Valley 2000 120,000 $14.00 - $14.00 MT -- $11.63 A 6 14985 Glazier Ave, Apple Valley 2,631 Net Apple Valley Office Centre 1979 25,980 $10.50 - $10.50 MT $3.05 -- B 1 7373 147th St, Apple Valley 4,000 Net Apple Valley Commons I 1986 60,589 $12.00 - $12.00 MT $6.92 $3.25 B 6 7300 147th St, Apple Valley 24,179 NNN 7631 145th St W 1989 5,930 $21.00 - $21.00 MT -- -- B 1 7631 145th St, Apple Valley 1,900 MG 14540 Pennock Ave 1977 6,636 $19.70 - $19.70 SF -- -- B 2 14540 Pennock Ave, Apple Valley 335 Gross Apple Valley Commons II 1987 66,738 $12.00 - $12.00 MT $2.93 $5.83 B 4 15025 Glazier Ave, Apple Valley 38,193 NNN Galaxie Corporate Center 1999 52,050 $14.00 - $15.00 MT $4.30 5.36 B 3 14800 Galaxie Ave, Apple Valley 2,799 NNN 7600 143rd St W 1999 6,264 $19.20 - $20.87 MT -- -- B 1 7600 143rd St, Apple Valley 2,490 Gross Foliage Medical Building Proposed 18,000 $24.00 - $24.00 MT -- -- A 1 15160 Foliage Ave, Apple Valley 14,000 NNN 1590 Thomas Center Dr 2005 5,600 $10.00 - $12.00 MT -- $9.00 B 1 1590 Thomas Center Dr, Eagan 804 Net Thomas Lake Executive Center 2002 5,600 $10.00 - $12.00 MT -- -- B 1 1585 Thomas Center Dr, Eagan 607 Net Hastings Office Bldg 2 2007 20,564 14 - $18.00 MT $4.13 -- B 2 1640 Frontage Rd, Hastings 2,803 NNN Hastings Office Bldg 1 1986 16,250 12 - $35.78 MT -- -- B 2 1303 Frontage Rd, Hastings 13,017 Gross 925 Central Commons 2003 21,600 $16.56 - $16.56 MT $0.36 -- B 2 925 Highway 55, Hastings 1,232 Gross 17305 Cedar Ave 2004 25,000 $14.00 - $14.00 MT -- -- B 2 17305 Cedar Ave, Lakeville 10,094 NNN Sources: Xceligent; Maxfield Research & Consulting, LLC

MAXFIELD RESEARCH AND CONSULTING 131 COMMERCIAL MARKET ANALYSIS

 There is approximately 24,000 square feet of Class A vacancy, representing 17% of all vacancy, while Class B properties contain over 83% of the available space (119,000 square feet).

 A majority of the office buildings are considered “General Purpose” office properties (14 properties), suggesting that the occupancy is typically comprised of professional service-related firms (i.e. accounting, legal, real estate, etc.) There are also four Medical office buildings with 28,000 square feet of available space.

 There are also two industrial buildings offering 10,000 square feet of office space for lease. These buildings are classified as Flex properties, which are buildings designed to allow its occupants flexibility of alternative uses of the space, usually in an industrial park setting. Flex properties are often used for research and development (R&D), laboratory space, light manufacturing, high-tech uses, or data/call centers. Flex buildings (also frequently labeled as Office Showroom) are generally single-story buildings and often compete with Class B office space for tenants.

 While there are no actively-marketing office buildings in the Commercial PMA, there are 35 office properties located in the PMA, totaling 403,500 square feet that are either fully-occupied or not marketing space for lease on Xceligent.

 Commercial leases are generally net leases, as is the case in the properties in and near the Market Area as roughly 67% of the properties are marketing space under a net lease basis. The average net rent is $14.40 per square foot (weighted by the amount of space in each property), with quoted net rental rates ranging from a low of $10.00 per square foot to a high of $24.00 per square foot.

 The newer Class A properties have higher net rental rates, at an average of roughly $15.30 per square foot, which is approximately 9% higher than the average rent at the Class B properties ($14.06 per square foot).

 In addition to the base rent for occupancy, net leases (also commonly referred to as triple- net or NNN leases) require that the lessee also pays maintenance and operating expenses such as taxes, insurance, utilities, and repairs. A gross lease requires that the lessee pays a fixed rent and the lessor pays the taxes, insurance and other charges regularly incurred through ownership. Tenants in these net lease properties pay approximately $10.24 per square foot on average for tax and operating expenses along with the base rent for the space, including roughly $3.75 per square for taxes and $6.49 for operating expenses.

MAXFIELD RESEARCH AND CONSULTING 132 COMMERCIAL MARKET ANALYSIS

Office Development Potential

This section focuses on factors that influence the demand for office space, primarily business and employment growth. The amount (in square feet) of additional office space supportable in the PMA is based on projected office employment growth and the amount of employment growth that would be capturable by suitable space located in Downtown Rosemount. Our demand calculations are shown in Table 48 and are summarized in the following points.

 There are an estimated 11,828 jobs in the PMA, approximately 23.1% of which were in typical office-using industries. This percentage is projected to increase modestly as the greatest job growth over the next several years, according to the Minnesota Department of Employ- ment and Economic Development, will be among industries that often require office space, such as Education and Health Services, Professional and Business Services, and Financial Ac- tivities.

 We project that by 2020 about 23.5% of all jobs in the PMA will be in industries that typically require office space (+347 jobs in the office-using industries), and by 2025 approximately 23.9% of PMA jobs will be in office-using industries.

 Not all of the office-using jobs created will seek or want space in office buildings. As shown earlier in this section, 72% of the office-using businesses in the surrounding area have fewer than five employees. The majority of these businesses are likely one-person or two-person businesses with many operating from peoples’ homes. In addition to home offices, some businesses will prefer traditional retail space. Examples include an accounting firm, insurance agency, or a health care provider that may seek retail space with higher visibility.

 Based on business size data for the area, we estimate that 77% of the office-using jobs in the PMA are in traditional office space, or about 2,103 jobs in the PMA.

 Multiplying the estimated number of employees in office space by the industry standard of 180 square feet of office space per job, results in demand for roughly 378,517 square feet of office space in the PMA in 2016.

 As mentioned previously, corporate office users are reducing their footprints in an attempt to more efficiently utilize their office space, and the amount of space allocated per employee has been declining steadily over the years. As such, we decrease the office space per employee metric from 180 square feet in 2016 to 170 square feet in 2025.

 Based on our analysis, demand for office space in the PMA is expected to grow by roughly 49,134 square feet between 2016 and 2025, including 36,244 square feet by 2020 and 12,890 square feet between 2020 and 2025.

MAXFIELD RESEARCH AND CONSULTING 133 COMMERCIAL MARKET ANALYSIS

 Based on our survey of office properties, there is roughly 404,000 square feet of space in the PMA, and there is not any space in the PMA being actively-marketed as available for lease. At full occupancy, it appears that the PMA could support new office space in the near future.

 We estimate that Downtown Rosemount can capture 25% of the total demand in the PMA between 2016 and 2025. As such, we find that Downtown Rosemount could support approximately 12,283 square feet of office space by 2025.

 Because there is not any office space currently available in the PMA, the remaining demand growth will be absorbed by existing vacancies at other property types (i.e. retail buildings) and new office developments on other sites located in the PMA.

TABLE 48 PROJECTED DEMAND FOR OFFICE SPACE DOWNTOWN ROSEMOUNT COMMERCIAL PMA 2016 to 2025 2016 2020 2025 Office Demand Projected number of jobs in Commercial PMA 11,828 13,110 13,671 (times) % of jobs in industry types that typically require office space x 23.1% 23.5% 23.9% (equals) Projected number of office-type jobs in the PMA = 2,731 3,078 3,267 (times) % of office-type jobs seeking/needing office space* x 77% 77% 77% (equals) Projected # of employees in office space in the PMA = 2,103 2,370 2,516 (times) Square feet of office space per employee x 180 175 170 (equals) Projected demand for office space in the PMA (sq. ft.) = 378,517 414,761 427,650

2016 - 2020 2020 - 2025 Projected Growth in Office Demand in the PMA (sq. ft.) 36,244 12,890 Total Growth in Office Demand (2015 to 2025) 49,134 (minus) Square feet of absorption needed to reach equilibrium - 0 (equals) PMA office demand (2015 to 2025) = 49,134

(times) % of PMA demand capturable in Downtown Rosemount / 25% (equals) Office Space Capturable in Downtown Rosemount = 12,283 *Percent of office-type jobs seeking office space versus home offices or retail spaces. Source: Maxfield Research & Consulting, LLC

 The office demand calculation presented above is based primarily on employment and business growth factors. Demand for office space can also result from existing companies seeking opportunities to relocate or consolidate their employees and operations into new office space. These real estate decisions can be generated by the need to expand to support additional employees or increase productivity, but they are often driven by a desire to become more operationally efficient.

MAXFIELD RESEARCH AND CONSULTING 134 CONCLUSIONS AND RECOMMENDATIONS

Introduction

The previous sections focused on the “demand” and “supply” factors for various real estate sectors, including general occupancy multifamily residential, senior housing, retail, and office. This section summarizes demand calculated for specific housing products, as well as commercial property types, in the Market Area. The following tables and charts illustrate the level of demand by property type that couple be captured in Downtown Rosemount.

Summary of Findings

The potential for additional multifamily housing units and commercial space in Downtown Rosemount is restricted, in part, by the lack of land available for development in the Downtown area. Additionally, the ability of Downtown Rosemount to expand beyond its current configuration is limited by the presence of an active rail line on the east and established anchors on the north (Steeple Center, public schools, and Central Park), south (Rosemount Crossing grocery- anchored shopping center), and east (City Hall and the Rosemount Transit Station).

South Robert Trail lacks a sense of cohesion, particularly south of 145th Street, where some of the buildings are intermixed with surface parking lots. Successful downtown areas are typically compact with buildings set side-by-side, allowing customers to easily walk from one shop to another. Any new development in Downtown Rosemount would require the redevelopment of underutilized parcels or the adaptive reuse of existing structures along the South Robert Trail corridor to create a more uniform sense of place.

There are stronger commercial nodes located in areas surrounding Downtown Rosemount, and many commercial businesses considering the Trade Area, particularly national chain retailers, will be drawn to the strong retail activity occurring in or near these retail centers. However, increasing the level of retail activity around the intersection of South Robert Trail and County Road 42 could generate additional traffic in Downtown Rosemount.

Downtown Rosemount presents a viable location for locally-owned convenience- and neighborhood-oriented retailers, restaurants, specialty retail, and multifamily residential. While the overall size and shape of the Downtown area limit the potential for expansion, the relatively small size coupled with the infrastructure currently in place (sidewalks and pedestrian crossings) create a fairly compact and walkable environment.

Demographic factors influencing the area, notably population and household growth, an aging population, income growth, shifting household types, and job growth will generate growing demand for a variety of housing products in Downtown Rosemount. The expanding population and household base in and around Downtown will create a growing need for commercial goods and services, stimulating demand for new commercial space in the area. Conversely, an expanding base of retail and entertainment establishments in the area will support the potential for additional residential development.

MAXFIELD RESEARCH AND CONSULTING 135 CONCLUSIONS AND RECOMMENDATIONS

Retailers in Downtown Rosemount could potentially capture sales from the daytime population (employees at these business establishments) in addition to the local resident population. These employees also present a potential market for current and future residential development in Downtown Rosemount. Additionally, South Robert Trail provides good access and visibility to businesses located in Downtown Rosemount, and traffic volumes are expected to grow steadily over the next 20 years.

Downtown Rosemount is anchored by significant traffic generators on three sides and retailers will rely, in part, on customer traffic generated by other uses in the surrounding area. Some of these draws include the Post Office, City Hall, public schools, public library, the Rosemount Transit Station, Steeple Center, Central Park, Erickson Park, and the Rosemount Crossing grocery-anchored shopping center.

Demand Summary

Table 49 depicts the total level of demand in the relevant market area for each product type as well as the amount capturable in Downtown Rosemount.

TABLE 49 DEMAND SUMMARY DOWNTOWN ROSEMOUNT Excess Market Capture Demand Capturable in Area Demand Rate Downtown Rosemount Multifamily Residential (2016 to 2021) Market Rate Rental 2,774 units 5% 139 units For-Sale Multifamily 2,329 units 5% 116 units Market Rate Senior Housing 2,630 units 320 units Active Adult/Few Services 1,140 units 15% 171 units Congregate 648 units 10% 65 units Assisted Living 482 units 10% 48 units Memory Care 360 units 10% 36 units Commercial (2016 to 2025) Neighborhood Retail 132,557 Sq. Ft. 20% 26,511 Sq. Ft. Specialty Retail 321,142 Sq. Ft. 10% 32,114 Sq. Ft. Office 49,134 Sq. Ft. 25% 12,283 Sq. Ft. Source: Maxfield Research & Consulting, LLC

As defined previously the Market Area for housing products is referred to as the Housing Mar- ket Area throughout the report. The Housing Market Area can be described as an aggregation of the following communities: Rosemount, Apple Valley, Coates, Eagan, Empire Township, Farmington, Hastings, Inver Grove Heights, Lakeville, Nininger Township, Vermillion, and Ver- million Township.

MAXFIELD RESEARCH AND CONSULTING 136 CONCLUSIONS AND RECOMMENDATIONS

The Primary Market Area for neighborhood retail and office space in Downtown Rosemount is defined as the City of Rosemount and the eastern one-third of Apple Valley (east of Johnny Cake Ridge Road).

A Secondary Market Area (SMA) for shopping goods and specialty goods in Downtown Rose- mount was also defined. The SMA is comprised of the PMA along with southeastern Eagan (south of Diffley Road and east of Pilot Knob Road), southwestern Inver Grove Heights (south of Highway 55 and Concord Boulevard), Farmington, Empire Township, Coates, Vermillion, Vermil- lion Township, and Nininger Township.

Multifamily Demand

Multifamily Residential Demand in 2021 Downtown Rosemount

For-Sale Active Multifamily Adult (171) 116 units Senior Total 320 units Market Rate Congregate Rental (48) 139 units Assisted Living (48) Memory Care (36)

MAXFIELD RESEARCH AND CONSULTING 137 CONCLUSIONS AND RECOMMENDATIONS

Apartment development is very active in the Twin Cities, with numerous projects either under construction or in the development pipeline. Although many of the new rental properties have been built in or near Downtown Minneapolis, development is expanding outward to first- and second-tier suburban locations near areas of high employment. Recently opened suburban rentals have experienced strong absorption. New suburban rental properties are charging rents (on average, per month) between $1.50 and $1.80 per square foot, with several projects ex- ceeding $1.80 per square foot. Our review of current market conditions in the Market Area suggests that pricing for new construction, market rate general occupancy rental apartments in Downtown Rosemount would average approximately $1.60 per square foot in 2016 dollars.

There is currently excess demand for 925 active adult/few services units and 1,308 service-enhanced units (579 congregate, 433 assisted living, and 296 memory care units) in the HMA. Uti- lizing a 10% capture rate, we estimate that a project in Downtown Rosemount could support 138 active adult units and 131 service-enhanced units in 2016. Growth in the age- and income- qualified population will outpace the delivery of new competitive senior housing units in the HMA over the next five years causing excess demand capturable in Downtown Rosemount to increase to 171 active adult units and 149 service-enhanced units (65 congregate, 48 assisted living, and 365 memory care units) in 2021.

Commercial Demand

Commercial Real Estate Demand in 2025 Downtown Rosemount

Neighborhood Specialty Retail Office Retail 32,114 12,283 26,511

0 15,000 30,000 45,000 60,000 Square Feet

MAXFIELD RESEARCH AND CONSULTING 138 CONCLUSIONS AND RECOMMENDATIONS

Based on the retail leakage data, it appears that Downtown Rosemount could attract stores in a variety of retail categories. However, the most likely uses to be drawn to the area would be neighborhood and convenience-oriented goods and services where there is significant leakage such as full-service and limited-service restaurants, health and personal care stores, as well as specialty retailers (i.e. florists, gift stores, pet supplies, and home furnishings). Retailers could capture potential sales from several sources, including; area households, employees working at businesses establishments in the area, people visiting the various draws anchoring Downtown Rosemount, and daily traffic along South Robert Trail.

We anticipate that new construction retail space would rent for approximately $25.00 per square foot, on average, in 2016, which is substantially higher than the rents currently being quoted in Downtown Rosemount ($7.14 to $14.50 per square foot at Rosemount Plaza and $18.00 per square foot at Waterford Commons). National retailers would likely be able and willing to pay the higher rate for new construction retail space, but some locally-owned retailers may have a difficult time supporting new construction rents.

Based on the projected demand for office space in Downtown Rosemount (12,283 square feet), there appears to be limited market potential for a traditional stand-alone multi-tenant office building. However, this level of demand may best be satisfied by the development of a multi- tenant, mixed-used commercial building marketed to smaller (2,000 to 4,000 square feet) users in these traditional office-using industry sectors, as well as retailers and non-traditional office users.

MAXFIELD RESEARCH AND CONSULTING 139 CONCLUSIONS AND RECOMMENDATIONS

Strategic Plan and Implementation Guide

Based on the information gathered in the preceding analysis, Maxfield Research and Consulting, LLC prepared recommendations for a strategic implementation plan for development in Down- town Rosemount. These recommendations address the following issues; marketing and promotion, key locations for redevelopment, development timeframes, potential funding sources, and developer recommendations.

Key Development Sites

It’s our understanding that the City of Rosemount has identified key locations that are potential sites for redevelopment. These sites are summarized in the figure below and illustrated on the map on the following page.

Map Site Name Location Estimated Tax Potential Use Key Size Parcels

1 Crossroads North NE corner of S Robert 1.1 Acres 4 Mixed commercial: street- Trl and 145th Street level retail and second- story office 2 Crossroads South SE corner of S Robert 1.5 Acres 5 Mixed use: street-level Trl and 145th Street retail with rental housing units on upper floors 3 Core Block East NE corner of S Robert 0.7 Acres 3 Limited potential for Trl and Burma Ave commercial redevelopment 4 Core Block West West side of S Robert 7.0 Acres 24 Mix of high density Trl, between 145th St residential along with and 147th St commercial space 5 Fluegel's Block East of S Robert Trl 0.8 Acres 1 Limited potential for and South of Burma commercial Ave redevelopment 6 Genz-Ryan Block East of Cambrian Ave 2.3 Acres 10 Owned or rented and South of Lower multifamily residential 147th St (i.e. townhomes)

MAXFIELD RESEARCH AND CONSULTING 140 CONCLUSIONS AND RECOMMENDATIONS

Key Redevelopment Sites

MAP KEY

1. Crossroads North 2. Crossroads South 3. Core Block East 4. Core Block West 5. Fluegel’s Block 6. Genz-Ryan Block 1

200m

600ft

MAXFIELD RESEARCH AND CONSULTING 141 CONCLUSIONS AND RECOMMENDATIONS

Marketing and Promotion

In an attempt to maximize the development potential of Downtown Rosemount, we suggest a coordinated marketing strategy be developed and implemented. The following points highlight some of the key factors that could be incorporated into a marketing effort.

 Promotion of existing businesses in the Downtown area to raise public awareness of the types of services and establishments available in Downtown Rosemount.

 Marketing of vacant commercial space and redevelopment sites in Downtown Rosemount. This could include traditional commercial real estate marketing (i.e. listings on the commercial property exchange). The City should also continue to publish marketing information on their website, with marketing materials geared towards businesses that may be seeking space without the assistance of a commercial real estate broker.

 Commercial development in Downtown Rosemount would most likely attract locally-owned convenience- and neighborhood-oriented retailers, specialty stores, and office users offering services to local households. Table 50 provides a summary of these types of business establishments along with typical space sizes. We suggest that commercial space in Down- town Rosemount be marketed to these types of tenants.

TABLE 50 POTENTIAL COMMERCIAL TENANTS DOWNTOWN ROSEMOUNT

Median Size Median Size Retail Uses Range (Sq. Ft.) Personal/Professional Service Uses Range (Sq. Ft.) Variety Store 1,900 - 8,900 Cosmetics/Beauty Supplies 1,600 - 2,100 Dollar Store 2,900 - 8,000 Dry Cleaner/Laundry 1,500 - 2,000 Specialty Food 2,700 - 2,800 Hair Salon 1,000 - 1,250 Bakery 1,500 - 1,500 Nail/Tanning/Day Spa 1,200 - 3,500 Health Food 1,200 - 1,800 Photographer/Film Processing 1,300 - 1,700 Convenience Market 1,000 - 1,200 Photocopy 1,400 - 1,400 Restaurant (without liquor) 2,600 - 4,000 Tailor 900 - 900 Restaurant (with liquor) 2,800 - 5,000 Mailing/Packaging 1,200 - 1,350 Ice Cream/Sandwich Shop 1,200 - 2,000 Learning Center/College 2,400 - 2,400 Hamburger/Pizza/Fast Food 1,400 - 2,400 Employment Agency 1,500 - 1,600 Clothing/Shoes/Footwear 1,700 - 4,500 Accounting and Finance 1,400 - 1,600 Home Accessories 8,000 - 9,000 Bank 2,500 - 3,200 Electronics/Telephones 1,200 - 2,400 Insurance 1,000 - 1,200 Hardware 10,000 - 10,100 Real Estate 1,700 - 2,400 Automotive 6,000 - 7,000 Optician/Optometrist 1,500 - 2,000 Sporting Goods 4,250 - 8,500 Medical and Dental 1,500 - 1,600 Hobby/Arts/Crafts 4,500 - 9,200 Veterinary 1,600 - 2,000 Gifts/Books/Games/Pets 1,400 - 4,000 Music Studio/Dance 2,200 - 2,300 Drugstore/Pharmacy 9,600 - 10,000 Health Club 1,700 - 3,600

Sources: Urban Land Institute/International Council of Shopping Centers; Maxfield Research & Consulting, LLC

MAXFIELD RESEARCH AND CONSULTING 142 CONCLUSIONS AND RECOMMENDATIONS

Funding Sources

Maxfield Research conducted a search of potential funding sources that might be accessed to support the City’s efforts for Downtown redevelopment. They include:

 The Downtown Code Improvement Program is a grant program offered by the City providing qualifying businesses funding to make code improvements to their buildings;

 Dakota County CDA Incentive Redevelopment Fund (grants for Downtown improvements, may include an affordable housing component, but not required);

 Commercial Rehab Program – CDBG Fund Allocation, but excludes façade renovations;

 Dakota County Economic Investment Program – primarily establishes a TIF District for redevelopment;

 Historic Preservation Tax Credits – used to preserve existing historic buildings and reuse or repurpose these structures;

 National Preservation Funds – funds available through various preservation groups to re- store and maintain historic properties;

 The Minnesota Department of Employment and Economic Development offers several site cleanup and redevelopment funding programs including the Redevelopment Grant Program and the Demolition Loan Program.

Implementation and Timing

 The Rosemount Port Authority should collaborate with the Dakota County Chamber of Com- merce to develop promotional materials and strategies to advertise existing businesses and events in Downtown Rosemount. In addition, these entities should continually pursue concepts for new events and functions that will bring additional people into Downtown Rose- mount.

 The City should partner with private developers and commercial real estate brokers to identify business establishments within the categories identified above and deliver marketing materials to a targeted list of establishments.

 Based on discussions with professionals familiar with the Downtown Rosemount business environment, it appears that parking availability is an issue for many retail tenants and their customers, particularly in the core block between 145th Street and Lower 147th Street. Fu- ture redevelopment and increased traffic through the corridor will intensify the need for parking in the Downtown area.

MAXFIELD RESEARCH AND CONSULTING 143 CONCLUSIONS AND RECOMMENDATIONS

 As part of the redevelopment planning for Downtown Rosemount, we recommend that the City work with local business owners to explore possible parking solutions, such as; a shared or public ramp, shared parking agreements between property owners, time-limited parking on side streets for customers and deliveries, and parking signage.

 Based on current market conditions and the consistently high residential occupancy rate at Waterford Commons (averages roughly 97% occupancy), it appears that the market could support additional market rate general occupancy rental housing units. We anticipate that a mixed-use project that includes street-level retail, similar to Waterford Commons, would be well-received by the market. The Crossroads South property appears to be the most suitable location for this type of development.

 The for-sale multifamily market is improving with rising sale prices and increased sales volume. There is currently a 2.2-month supply of multifamily homes on the market in the HMA, suggesting that there is pent-up demand for for-sale multifamily units in the market. We recommend that the City explore the feasibility of redeveloping the western side of the Genz Ryan Block for a multifamily (townhome) development.

 The City should initiate contact with the property owners and pursue a development part- nership to master plan and develop these sites. The following firms have developed neighborhood-oriented commercial centers and mixed-use suburban developments recently and could potentially be interested in a project in Rosemount: Oppidan; Gaughan Companies; CSM; Kraus-Anderson Realty Company; Hempel Companies; Master Properties; H.J. Devel- opment, Inc.; MSP Commercial; and, Shingobee Real Estate Company.

MAXFIELD RESEARCH AND CONSULTING 144