OFFERING MEMORANDUM - REDI-net.com

MARKET OVERVIEW2402 University Ave.St. Paul, MNTwin Cities Multi-Family MarketThe 2008 Twin Cities apartment market continued its decrease in vacancies for the third straight year.Overall vacancies are at 3.9%, down from 4.2% one year ago and 4.7% two years ago. Two drivingfactors for the lower vacancy rates are the continued housing struggles and lack of new construction in2008 and limited new units in the pipeline through 2011.There are several reasons why the market isn’t seeing much new construction.• To support new stick-frame construction, a developer will need to achieve rents in the$1.60/sf range, and for mid- to high-rise projects closer to $2.25/sf. Rents in the markethaven’t increased enough to justify new construction, except in high-demand urban infilllocations or in transit-oriented districts. The lack of available urban infill and well-locatedsuburban apartment sites has frustrated developers eager to meet the rental needs in thoseareas, many of which have vacancy rates in the 2 to 3% range.• Municipalities have favored “for sale” or mixed-use developments versus “rental housing”,which inspires neighborhood opposition to high-density development and hampers theentitlement process. With stabilized local occupancy and little new construction, occupancyrates should remain steady with small rental rate increases.• Year-to-date cap rates for apartments have remained stable because of the lack ofinvestment-grade multifamily product on the market and continued investor demand. Caprates for newer properties have ranged from the mid-5.0% to low-6.0%, 1990’s-vintageproperties have averaged from 6.0% to mid-6% cap rate and pre-1980 properties havemoved into the mid-6.0% to mid-7.0% cap rate range.