September 15, 2017 Chris Marshall Wesley Housing Development Corp. 5515 Cherokee Avenue, Suite 200 Alexandria, VA 22312 RE: VHDA Market Changes Letter for Culpepper Gardens I in Arlington, VA Dear Mr. Marshall: At your request, Novogradac & Company LLP has completed our market study component research on the market for Culpepper Gardens I in Arlington, VA. We previously provided an application market study for the Subject property with an effective date of February 10, 2017, and prior to that completed another application market study with a February 5, 2016 effective date. Note that we are also currently preparing an appraisal of the Subject property for the same client. The purpose of this letter is to summarize rents and vacancy rates of the comparable properties now as compared to the rent levels and vacancy rates in February 2017, and to conclude to the current achievable rents. Per Virginia Housing Development Authority (VHDA) 2017 market study guidelines: For VHDA purposes, the date of the site inspection is the Effective Date of the report. The Effective Date must be obviously stated on the cover page or in the Executive Summary section of the report. For a market study with an Effective Date that is 6 to 12 months old at the time of submission, if there are no material changes to the development and/or market, the analyst can provide a letter stating “No material changes since last report dated…” If there are material changes, the market study must be updated to include detailed discussion about those changes. Note our original market study is included as an addendum to this letter. We re-surveyed the comparables utilized in our February 2017 report primarily to update information on specifics including rents, vacancy rates, rent growth, and concessions. We did not re-inspect the Subject site or the comparables. Based on our findings, there have been no material changes since our last report with an effective date of February 10, 2017. While there have been some limited changes in rents or vacancies at the comparables, these changes are considered reasonable and within normal market expectations. Most re-surveyed properties reported limited rent growth, or even minor rent declines. Several of the market rate comparables use rent software that adjusts rents weekly or daily, and as such there were some properties with more significant rent changes for one unit type than perhaps other unit types. As such, we have concluded to the same achievable market rent for the Subject as reported in our previous appraisal report. These unchanged achievable market rents for the Subject following renovations are $1,305 for the studio units, $1,445 for the one-bedroom units, and $1,875 for the two-bedroom units. VHDA Market Letter for Culpepper Gardens I in Arlington, VA September 15, 2017 Page 2 The LIHTC rents remain largely unchanged at the comparables, and are generally at maximum allowable levels, with the exception of The Carlin, which has rents below the maximum allowable level, but management would not provide comments on why the property is not achieving maximum allowable rents. In our prior report, we concluded that the 2016 maximum allowable rents were the achievable LIHTC rents. It is of note that the 2016 maximum allowable rents were slightly below the previous 2015 maximum allowable rents, as shown in the following table, while in 2017 maximum allowable rents increased above 2016 levels. We have presented the previous report’s maximum and achievable LIHTC rents based on 2016 maximum allowable figures and the current (2017) maximum allowable rents in the following table. ACHIEVABLE LIHTC RENTS CONCLUSION Current Percent Change in 2015 Maximum 2016 Maximum 2017 Maximum Achievable Achievable LIHTC Unit Type Allowable Rent Allowable Rent Allowable Rent LIHTC Rent Rent 0BR/1BA $1,147 $1,141 $1,159 $1,159 1.6% 1BR/1BA $1,229 $1,222 $1,242 $1,242 1.6% 2BR/1BA $1,474 $1,467 $1,489 $1,489 1.5% As illustrated in the table, the maximum allowable rents increased by 1.5 to 1.6 percentage points since our prior report. We have concluded to achievable LIHTC rents equal to the current maximum allowable LIHTC rents. The vacancy rates for the surveyed comparables in early 2017 and current in September 2017 are illustrated in the following table. COMPARABLE OVERALL VACANCY Vacant Vacant Vacancy Vacancy Rent Total Units Units Rate Rate Property Name Structure Units (2-2017) (9-2017) (2-2017) (9-2017) Gates Of Ballston Apartments LIHTC, Market 464 7 2 1.5% 0.4% Harvey Hall Apartments LIHTC, Market 116 1 1 0.9% 0.9% Hunters Park At Cherrydale* LIHTC 74 1 0 1.4% 0.0% Manchester Lakes* LIHTC 252 0 3 0.0% 1.2% Serrano Apartments LIHTC, Market 280 6 1 2.1% 0.4% The Carlin* LIHTC 162 0 0 0.0% 0.0% The Madison At Ballston Station LIHTC, Market 504 25 13 5.0% 2.6% Birchwood Apartments Market 97 3 1 3.1% 1.0% Glenayr Apartments Market 156 5 3 3.2% 1.9% Quinton Arms Apartments Market 45 0 0 0.0% 0.0% Seminary Towers Market 544 17 12 3.1% 2.2% Virginia Square Plaza Apartments Market 225 6 6 2.7% 2.7% Total 2,919 71 42 2.4% 1.4% Total Market 1,684 69 37 4.1% 2.2% Total LIHTC 1,235 2 5 0.2% 0.4% Total Senior LIHTC 488 1 3 0.2% 0.6% *Denotes senior properties VHDA Market Letter for Culpepper Gardens I in Arlington, VA September 15, 2017 Page 3 As presented in the preceding table, overall vacancy decreased from 2.9 percent in February 2017 to 1.4 percent in September 2017, a limited and positive change. Among the surveyed market rate units, the vacancy rate decreased from 4.1 to 2.2 percent, while among the LIHTC comparables, the vacancy rate increased from 0.2 percent to 0.4 percent, indicating minimal change in demand for LIHTC apartments. Based on the limited changes in the overall vacancy rates of comparables, our conclusions remain unchanged and we expect the Subject to maintain a vacancy rate of five percent or less annually. It is of note that we also researched recent VHDA allocation listings, and no senior LIHTC properties have been allocated in the PMA since our prior report earlier this year. As such, there has been no change to demand calculations for the Subject, as demographic trends have been steady. Please do not hesitate to contact us if there are any questions regarding our findings and conclusions or if Novogradac & Company LLP can be of further assistance. It has been our pleasure to provide you these updated findings regarding the Subject property. As mentioned earlier, based on our findings, there have been no material changes since our last report with an effective date of February 10, 2017. The limited rent and vacancy changes that have occurred are considered reasonable and within normal market expectations. Updated property profiles for the comparable properties follow this letter. Respectfully submitted, H. Blair Kincer, MAI, CRE, LEED Green Associate Partner David Boisture, LEED Green Associate Principal Brian Gault Senior Real Estate Analyst [email protected] 740-618-6272 PROPERTY PROFILE REPORT Gates Of Ballston Apartments Effective Rent Date 9/08/2017 Location 4207 North Pershing Drive Arlington, VA 22203 Arlington County Distance 0.2 miles Units 464 Vacant Units 2 Vacancy Rate 0.4% Type Garden (2 stories) Year Built/Renovated 1940s / 2007 Marketing Began N/A Leasing Began N/A Last Unit Leased N/A Major Competitors Ballston Park Apartments Tenant Characteristics Mixed tenancy, mostly families and singles from the immediate area Contact Name Dora Phone 703-875-8607 Market Information Utilities Program @50%, @60%, Market A/C not included -- central Annual Turnover Rate 5% Cooking not included -- electric Units/Month Absorbed N/A Water Heat not included -- electric HCV Tenants N/A Heat not included -- electric Leasing Pace Two weeks Other Electric not included Annual Chg. in Rent <1% increase Water included Concession None Sewer included Trash Collection included © Novogradac & Company LLP 2017 All Rights Reserved. Gates Of Ballston Apartments, continued Unit Mix (face rent) Beds Baths Type Units Size (SF) Rent Concession Restriction Waiting Vacant Vacancy Max Rent? Range (monthly) List Rate 0 1 Garden 8 423 $905 $0 @50% No 0 0.0% yes None (2 stories) 0 1 Garden 14 423 $1,098 $0 @60% No 0 0.0% yes None (2 stories) 0 1 Garden 7 423 $1,235 $0 Market No 0 0.0% N/A None (2 stories) 1 1 Garden 64 649 $954 $0 @50% No 0 0.0% yes None (2 stories) 1 1 Garden 95 649 $1,161 $0 @60% No 0 0.0% yes None (2 stories) 1 1 Garden 53 649 $1,461 $0 Market No 0 0.0% N/A None (2 stories) 2 1 Garden 35 789 $1,143 $0 @50% No 1 2.9% yes None (2 stories) 2 1 Garden 51 789 $1,391 $0 @60% No 0 0.0% yes None (2 stories) 2 1 Garden 27 829 $1,831 $0 Market No 0 0.0% N/A None (2 stories) 2 1.5 Garden 29 934 $1,391 $0 @60% No 0 0.0% yes None (2 stories) 2 1.5 Garden 9 934 $1,879 $0 Market No 0 0.0% N/A None (2 stories) 3 2 Garden 22 1,112 $1,317 $0 @50% No 0 0.0% yes None (2 stories) 3 2 Garden 33 1,112 $1,604 $0 @60% No 0 0.0% yes None (2 stories) 3 2 Garden 17 1,112 $2,325 $0 Market No 1 5.9% N/A None (2 stories) Unit Mix @50% Face Rent Conc.