Multi-Family Market Summary & Activity Update Fall 2013

Charlotte, NC

Charlotte, NC 1

Introduction

Capstone Apartment Partners prides itself on the continual value contributions we are able to offer our industry, and thus we produce periodic Multifamily Market Summaries to further inform the clients and industry we serve. Capstone believes that this market snapshot will be beneficial to current owners, operators, investors, and other industry professionals who are active in the Charlotte MSA, as well as others who are looking to break into this market.

Contents

Introduction 1

Market Commentary 2

Economic Overview 3

Sales Transactions 4

Communities Under Construction 7

Proposed Development 8

Why Choose Capstone? 9

Bank of America Stadium

West Morehead Lofts

Duke Energy Building

2

Market Commentary

An Evolving CityThe Charlotte MSA is driven by broad-based job growth, and has emerged as the primary energy, transportation, and healthcare hub of the region. Although Charlotte is still the second largest banking center in the country behind New York City, insurance, healthcare and technology companies have reinforced the local economy. In fact, in 2013, Forbes named Charlotte the fourth best city for jobs this fall and fourth fastest growing city since the recession. In the midst of recovery, this market has reached its lowest unemployment rate in 4 years despite an annual population increase of 2.4%, which is more than double the state of North Carolina’s average of 1.0% in 2012. In conjunction with a growing labor force, the unemployment rate continues to decline because the economy is healthy enough to absorb the new residents. Private services account for the majority of employment gains and the public sector is providing modest support, while manufacturing remains somewhat stagnant. Tightening housing supply and increased unit demand have accelerated multi-family construction.

Employment and Educational OpportunitiesThanks to low business costs compared with New York and the San Francisco Bay Area and the area’s large talent pool, Charlotte will become the hub for MetLife’s retail insurance business in the U.S. MetLife is expected to hire 1,300 workers in 2013-2014, and further expansion is being considered. Consolidation of the financial sector will mean sluggish job growth and pay raises in the near term, but the metro’s status as a regional financial center has it positioned for longer-term growth. Wells Fargo will also relocate some employees to the area for its agricultural lending unit serving the East Coast.

Uptown Charlotte is now home to the following college campuses: Charlotte School of Law, Johnson & Wales, UNC Charlotte, Wake Forest University, Montreat College

and Northeastern University. This educated labor pool will allow for the expansion of professional services, especially in technology. With a concentration of large-scale retail stores, healthcare, and financial firms, Charlotte has the potential to become a significant data hub. Early adopters of big-data analysis include Carolinas Healthcare System, the area’s largest employer. Later this year, Windstream Hosted Solutions will open its fourth data center in the metro area.

Multi-Family FundamentalsCharlotte has historically been a suburban, commuter city; however, tremendous development, public investment in infrastructure, and cultural enhancement in recent years have driven strong population growth and job increases within the CBD as well as its outlying neighborhoods. Demand for apartments in the Charlotte area remains strong with more than 3,500 units absorbed over the past year. Existing developments continue an upward trend with a posted rent growth of 2.4% over the past twelve months while the average vacancy rate has improved to 5.0% market-wide. Despite 2,172 units coming online, same-store rents increased by 2.3%, and Capstone anticipates them continuing to grow between 3.0% and 4.0% in 2014.

Construction in the MSA has been very active with 8,129 units currently under construction and another 11,925 proposed. The majority of new projects are Class A, infill locations in the South End, Southpark, and Uptown submarkets. Capstone predicts the new product vacancy rate will rise as high as 6.0% in 2014 as a wave of new inventory hits the market; however, it will decrease once the new units are absorbed given the population increases anticipated during the same timeframe.

Overall, the Charlotte MSA’s recovery will outpace that of the U.S. through 2014, thanks to its large service sector’s consistent expansion. As the fifth fastest growing metro area between 2000 and 2012 per the U.S. Census, population growth bodes well for gains in

healthcare, consumer industries and housing. Similarly to other booming metro areas, the absorption of new supply and corresponding wage growth to rent growth will remain the biggest concerns in the market. Given the attraction to Charlotte among various socioeconomic groups, recent employment expansions and relocations, and overall community development, Capstone anticipates continued success in the absorption of new supply with a slight increase in vacancy and slightly limited rent growth among newer assets in the coming 12 months.

Apartment Comparison by ClassClass Units Vacancy Rate Avg. Sq. Ft. Avg. Rent Avg. Rent/Sq. Ft.

Lease-up 4,919 12.7% 962 $1,083 $1.13

A (1-5 Years in Age) 11,766 5.0% 1026 $1,160 $1.13

B (6-15 Years in Age) 33,100 3.6% 998 $956 $0.96

C (16-30 Years in Age) 36,391 4.9% 921 $799 $0.87

C- (30+ Years in Age) 23,877 5.8% 911 $663 $0.73

Stabilized Averages 105,134 4.7% 955 $858 $0.90

Totals/Averages 110,053 5.0% 955 $868 $0.91

Employment Announcements

XPO Logistics, a transportation-logistics services company, plans to add 287 jobs at its operations center in Charlotte.

Pactera Technology International, a technology services company, will add 200 employees at its offices in Charlotte.

Yodle, an online marketing company, will add 130 jobs at its operations in Charlotte.

Cargo Transporters Inc. will open a Charlotte terminal in January 2014 that is expected to grow to 65 employees by fall 2014.

US Airways has added 1,000 workers at Charlotte Douglas International Airport in the last three years.

MetLife expected to hire 500 workers by end of 2013 and 800 more by end of 2014.

Economic Overview

Unemployment Rate and Trend

The MSA’s seasonally adjusted unemployment rate fell from the July rate of 9.2% to 8.3% in August, its lowest point in 4 years. Charlotte’s rate was on par with the state’s unemployment rate at 8.3% in August. The October report released by the N.C.’s Department of Commerce revealed that total nonfarm jobs employment in the state swelled by 22,200 in October and by 7,900 in September, for a net gain of 80,100 since October 2012.

10 Largest Employers (non-government)Rank Company Industry Employment

1 Carolinas HealthCare System Healthcare 35,0002 Wells Fargo Banking 20,7003 Wal-Mart Stores Inc. Retail 16,1004 Bank of America Corp. Banking 15,0005 Novant Health Inc. Healthcare 11,0006 Food Lion Grocery 8,7007 Ruddick/Harris Teeter Inc. Grocery 8,2398 Duke Energy Energy 7,8009 U.S. Airways Transportation 7,100

10 Daimler Trucks North America Retail 5,200

Employment Wages

There are 856,250 employees in the MSA who earn a mean hourly wage of $22.00 and average annual income of $45,750. In comparison, the national and state annual income averages are $45,790 and $41,750 respectively.

Historical Population2006 2007 2008 2009 2010 2011 2012

Charlotte 652,202 669,690 687,971 704,422 734,216 751,087 772,627Mecklenburg County 833,791 865,573 892,456 913,639 923,141 944,373 966,160Charlotte MSA 1,594,799 1,626,694 1,676,495 1,725,759 1,758,038 1,812,317 1,857,624North Carolina 8,917,300 9,118,000 9,309,400 9,449,600 9,561,600 9,656,400 9,752,100Source: U.S. Census Bureau

3Charlotte, NC

4

Sales Transactions

Sales Transactions: 2012 and 2013Community YOC City Sale Date Units Sale Price Price Per Unit

Legacy Grand at Concord 2010 Concord 12/11/13 240 $28,000,000 $116,667

The Apartments at Blakeney 2008 Charlotte 12/11/13 295 $53,200,000 $180,339

Long Creek Club 2009 Charlotte 12/2/13 306 $35,800,000 $116,993

Longview 2012 Charlotte 12/2/13 264 $32,200,000 $121,970

Paddock at Springfield 2011 Fort Mill 12/2/13 248 $28,000,000 $112,903

Arium Pineville 1986 Charlotte 12/1/13 240 $22,500,000 $93,750

Woodland Hollow 1975 Charlotte 10/31/13 252 $6,300,000 $25,000

Riverwalk Apartment Homes 2001 Denver 10/31/13 144 $12,850,000 $89,236

The Park 1969 Charlotte 10/4/13 454 $12,300,000 $27,093

The Retreat at McAlpine Creek 1989 Charlotte 10/4/13 400 $42,300,000 $105,750

Hanover Landing 1972 Charlotte 10/4/13 192 $3,600,000 $18,750

Fountains Southend 2013 Charlotte 9/27/13 208 $34,000,000 $163,462

Pines at Carolina Place 1997 Pineville 8/1/13 200 $11,775,000 $58,875

Cielo 2010 Charlotte 7/9/13 205 $41,500,000 $202,439

Landmark at Monaco Gardens 1991 Charlotte 7/2/13 276 $20,880,500 $75,654

Arwen Vista 2010 Charlotte 7/1/13 296 $36,200,000 $122,297

Beacon Eastchase 1985 Charlotte 6/18/13 220 $8,325,000 $37,841

Arbor Steele Creek 2003 Charlotte 5/28/13 384 $23,750,000 $61,849

Wendover Walk 1984 Charlotte 5/3/13 91 $5,910,000 $64,945

Preserve at Lake Forest (formerly Lake Point) 1983 Charlotte 4/5/13 296 $10,013,000 $33,828

Berkeley Place 2001 Charlotte 3/25/13 368 $34,600,000 $94,022

Paces River 1989 Rock Hill 3/7/13 470 N/A N/A *

Barrington Place 1998 Charlotte 3/1/13 348 N/A N/A *

Landmark at Brighton Colony (formerly Ashley Court at Pinnacle Point) 2009 Charlotte 2/28/13 276 $30,000,000 $108,696

Landmark at Greenbrooke Commons (formerly Abbington Place) 2005 Charlotte 2/28/13 279 $34,000,000 $121,864

Forest Ridge (Charlotte) 1988 Charlotte 2/9/13 330 $10,200,000 $30,909

Oakbrook 1985 Charlotte 2/1/13 162 $12,473,000 $76,994

The Hamptons at Quail Hollow 1986 Charlotte 2/1/13 232 $20,100,000 $86,638

Charlotte, NC 5

Sales Transactions Cont.

Community YOC City Sale Date Units Sale Price Price Per UnitBridges at Mallard Creek Ph1 1988 Charlotte 1/29/13 240 $18,800,000 $78,333

Bridges at Mallard Creek Ph2 1997 Charlotte 1/29/13 288 $26,924,000 $93,486

Paces Commons 1988 Matthews 1/29/13 336 $25,990,000 $77,351

Central Pointe 1972 Charlotte 1/15/13 336 $8,568,000 $25,500

Hamptons at Southpark 1986 Charlotte 1/9/13 232 $22,100,000 $95,259

Highlands 1971 Charlotte 1/8/13 176 N/A N/A *

Stone Creek 1997 Mooresville 1/1/13 100 $3,163,000 $31,630

Oak Crest 1997 Kannapolis 1/1/13 100 $3,525,000 $35,250

Enclave at Rivergate 2009 Charlotte 12/31/12 216 $25,544,000 $118,259

The Pines on Wendover 1986 Charlotte 12/28/12 44 $2,611,500 $59,352

Bridges at Quail Hollow 1981 Charlotte 12/21/12 90 $6,361,000 $70,678

Hawthorne at Commonwealth 1969 Charlotte 12/21/12 144 $6,550,000 $45,486

Metro 808 2011 Charlotte 12/21/12 237 $41,450,000 $174,895

Fairington 1981 Charlotte 12/21/12 250 $22,100,000 $88,400

Uptown Court 1985 Charlotte 12/20/12 30 $2,678,000 $89,267

Landmark at Lynden Square 1971 Charlotte 12/20/12 476 $28,750,000 $60,399

Wellington Farms 1988 Charlotte 12/17/12 254 $7,600,000 $29,921

Mountcrest 1966 Charlotte 12/14/12 124 $3,400,000 $27,419

Piper Station 1997 Charlotte 12/12/12 212 $23,525,000 $110,967

Marina Shores Waterfront 1995 Cornelius 12/11/12 290 $30,631,000 $105,624

Hawthorne at the Trail 2003 Indian Trail 12/10/12 252 $24,600,000 $97,619

Camden Park Commons 1997 Charlotte 12/7/12 232 $14,483,000 $62,427

Camden Forest 1989 Charlotte 12/6/12 208 $7,017,000 $33,736

Waterlynn Ridge 2008 Mooresville 12/1/12 312 $34,500,000 $110,577

*Pricing information not disclosed.

6

266

237240

220

225

230

235

240

245

250

255

260

265

270

Class A Class B Class C

Average # of Units Per Transaction

Class A

Class B

Class C

2008

1991

1975

1950

1960

1970

1980

1990

2000

2010

2020

Class A Class B Class C

Average Year of Construction

Class A

Class B

Class C

$32,364,353

$16,076,238

$10,350,182

$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

$35,000,000

Class A Class B Class C

Average Transaction Sales Price

Class A

Class B

Class C

$124,358

$69,953

$44,318

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

Class A Class B Class C

Average Price Per Door

Class A

Class B

Class C

Class A represents assets built between 2013-2000, B indicates units built between 1999-1984, and C represents 1984 and earlier assets.

Charlotte, NC 7

Communities Under Construction

Iredell County

York County

Cabarrus County

Gaston County

Union County

The bulk of development is occurring in the Southeast submarket, including South End and Southpark, with 15 properties currently under construction. The surrounding environs have a combined 8, the Eastern submarket has 6, the Northeast area has 5, both the Southwest and North submarkets each have 3, and the downtown area includes 3 additional properties under construction for a total of 43 communities and 10,199 units. Alpha Mill apartments are shown above (Phase II currently).

Communities Under Construction (100 Units and Above)Developer Community Units Road/Intersection Submarket

Childress Klein Childress Klein Site 352 401 Mint St. DowntownFaison Gateway West 250 902 W. 4th St. DowntownWoodfield Investments Woodfield Investments Site 242 300 S. Graham St. DowntownNorthwood Ravin Alpha Mill** 145 220 Alpha Mill Ln. East-1JLB Partners Lofts at Elizabeth 366 E. 7th St./Weddington Ave. East-1The Charlotte Housing Authority Lofts at Seigle Point 152 110 Winding Path Way East-1Gvest Partners Yards at NoDa 342 400 33rd St. East-1Woodfield Investments Mercury NoDa 241 N. Davidson/E. 36th St. East-1Levine Properties Crest at Greylyn* 34 9415 Lucy Jane Ln. East-3Epoch Properties Highland Park at Northlake 240 7116 Finn Hall Ave. NorthWood Partners Perimeter Lofts 101 9404 Perimeter Station Dr. NorthSilver Companies Waterford at the Park 226 11920 Joleen Ct. NorthCrescent Resources Crescent Alexander Village 320 9224 Graham Ridge Dr. Northeast-2Charter Properties Ridge at Highland Creek** 79 5410 Prosperity Ridge Rd. Northeast-2Fore Property Company Belle Haven 176 9005 Post Canyon Ln. Northeast-3Crescent Resources Circle University City 187 9110 University City Blvd. Northeast-3Southern Apartment Group University House Charlotte 300 University City Blvd./Mallard Creek Church Rd. Northeast-3Boulevard Co./Boykin Management 330 West Tremont 164 330 West Tremont Ave. Southeast-1Camden Property Trust Camden Southline 266 2300 South Blvd. Southeast-1Crescent Resources Crescent South Park 321 5725 Carnegie Blvd. Southeast-1Colonial Properties Trust Colonial Reserve at South End 353 2720 South Blvd. Southeast-1Grubb Properties Morrison at SouthPark 100 721 Governor Morrison St. Southeast-1Marsh Properties Park and Kingston 153 125 W. Park Ave. Southeast-1Pappas Properties Sharon Square 239 4905 Ashley Park Ln. Southeast-1Faison Flats at Summit & Church 200 S. Church St./W. Summit Ave. Southeast-1Woodfield Investments Silos South End** 326 131 Poindexter Dr. Southeast-1Cambridge Development Group 1100 South Boulevard 331 Carson Blvd. Southeast-1Camden Property Trust Camden Gallery 323 West Blvd./Camden Rd. Southeast-1Crescent Resources Crescent Dilworth 300 East Morehead St./Harding Pl. Southeast-1JLB Partners Carnegie Boulevard 391 Congress St. Southeast-1Lennar Corp. Kings Drive 261 Third St. Southeast-1Woodfield Investments Woodfield Southpark 280 Barclay Downs Dr. Southeast-1Contravest The Addison 321 7000 Modern Way Southwest-1Oxford Properties City Park 284 West Tyvola Rd./Yorkmont Rd. Southwest-1Meridia Enclave at Rivergate** 202 12400 Toscana Way Southwest-1Weinstein Properties Bexley Village at Concord Mills** 96 5550 Bexley Way Cabarrus CountyDavis Development Waterstone at Weddington 253 8650 Weddington Rd. Cabarrus CountyCamden Management Partners Loray Mill 190 300 Firestone Blvd. Gaston CountySWH Residential Grove at Morrison Plantation 281 Morrison Plantation Pkwy./Plantation Ridge Dr. Iredell CountyRL West Langtree at the Lake 300 150 Landings Dr. Iredell CountyCharter Properties Plantation Pointe 250 Ervin Rd./Hwy. 150 Iredell CountyGoldberg Companies Legacy Fort Mill 252 700 Gates Mills Dr. York CountyWarren Norman & Company Gateways at Galleria 120 Galleria Blvd. York County* Phase 1** Phase 2

8

Proposed Development

Iredell County

York County

Cabarrus County

Gaston County

Union County

Proposed development is primarily taking place in the Southeast market with 9 properties currently in planning. The surrounding environs have a combined 7, the Northeast and Northwest submarkets have 6 each, the North and Downtown areas each have 5, the East market has 3, and the Southwest area brings 1 additional property proposed for a total of 42 communities and 9,105 units in complexes with over 100 units. The Mecury NoDa apartments are shown above.

Communities Proposed (100 Units and Above)Developer Community Units Road/Intersection Submarket

Levine Properties 10th Street Apartments 262 Brevard St./10th St. DowntownProffitt Dixon Partners Fountains Uptown 230 Stonewall/McDowell St. DowntownNovare/Grubb Properties SkyHouse Charlotte 320 Church/10th St. DowntownSpectrum Properties The Mint 177 W. Trade/S. Graham St. DowntownWoodfield Investments Woodfield Investments Site 242 300 S. Graham St. DowntownFaison Faison Plaza Midwood Site 200 Central/Clement Ave. East-1Clachan Properties Hawthorne Mill 150 1101 Hawthorne Ln. East-1Proffitt Dixon Partners Fountains at Matthews 250 Matthews Township/Northeast Pkwy. East-3Brookline Residential Brookline 324 Reames/Lakeview Rd. NorthDavid Drye Caldwell Station 176 Old Statesville/Sam Furr Rd. NorthIntegra Land Company Integra at Bryton 265 Old Statesville/Hambright Rd. NorthKenton Place Partners LLC Reserve at Kenton Village 210 Sam Furr Rd./W. Catawba Ave. NorthCovington Realty Partners Vanguard Northlake 204 Northlake Centre Pkwy./Alexanderana Rd. NorthThe Housing Partnership Atando Apartments 130 Newland Rd. Northeast-1Gateway Homes Arwen Vista 254 Masterton Rd. Northeast-3Aspen Heights Aspen Heights 150 East W.T. Harris Blvd./Old Concord Rd. Northeast-3Monarch Ventures Monarch UNCC 150 Thomas Combs Dr. Northeast-3Charter Properties Pavilion Point 295 Hwy. 29/I-485 Northeast-3Phillips Development & Realty Phillips Mallard Creek 160 1725 Ripple Way Northeast-3Lomax Properties Bryant Park 212 West Morehead St./Millerton Ave. NorthwestLevine Properties West Morehead Street 100 West Morehead St./I-77 NorthwestSouthern Apartment Group Mountain Island 240 Brookshire Blvd./I-485 NorthwestThe Housing Partnership Tyvola Crossing* 20 Tyvola Rd. NorthwestKBS Capital Advisors Wesley Village* 88 Freedom Dr. NorthwestSouthern Apartment Group West Morehead Street 300 Summit Ave. NorthwestNRP Group 135 West Morehead Street 298 135 West Morehead St. Southeast-1Grubb Properties Park South 398 Sharon Rd. Southeast-1Levine Properties Metropolitan 155 Kings Dr./Metropolitan Blvd. Southeast-1Forestar Group Morehead Street 211 Morehead St./Kenilworth Ave. Southeast-1Terwilliger Pappas Multi-Family Morehead Street 184 Kenilworth Ave. Southeast-1Pfalzgraf Asset Management Stratford 264 Park Rd. Southeast-1Childress Klein Childress Klein Ballantyne Site 277 Johnston/Marvin Rd. Southeast-3Goldberg Companies Legacy Ballantyne 248 Lancaster Hwy./Johnston Rd. Southeast-3Ram Real Estate Piper Station 120 Rea Rd. Southeast-3New Forum Lofts at Charleston Row 138 Ayrsley Town Blvd. Southwest-1Goldberg Companies Legacy Concord 344 George Liles Pkwy. Cabarrus CountyUnited Equities Long Creek Apartments 103 Millington Cir. Gaston CountyTriangle Real Estate South Fork Village 352 Peach Orchard Rd. Gaston CountyCharter Properties Gibson 330 Hwy. 160/Dave Gibson Blvd. York CountyAssured Group Riverwalk 144 Cherry/Herrons Ferry Rd. York CountyFlat Iron Group Waterford Park Drive 262 Dave Lyle Blvd. York CountyTom Holderby Windsor at Cushendall 168 Ivy Hill Ln./Springdale Rd. York County* Phase 2

Charlotte, NC 9

Market Covering Investment Sales Team

Austin GreenInvestment Advisor

704.746.9333austin@capstoneapts.com

Alex McDermottInvestment Advisor704.533.4865alex@capstoneapts.com

Brian FordManaging Partner

704.962.9462brian@capstoneapts.com

Beau McIntoshManaging Partner704.877.5681beau@capstoneapts.com

Why Choose Capstone?

North Carolina South Carolina Georgia Virginia Tennessee KentuckyThe People Sell the DealCapstone’s Southeast & Mid-Atlantic Investment Sales Team is among the market leaders within our industry sector and respective region. We place client service above all else, and can guarantee that no one else will work smarter and harder in achieving the highest level of results for our clients. We don’t rely on a logo to sell the deal, but rather utilize the industry expertise and investment acumen, tremendous drive and work ethic, and unbeatable salesmanship of the team members assigned to each project. At the end of the day, it’s the individuals that drive value and sell the deal, and we know the capabilities of our individual team members are second to none.

Market Expertise & Product NicheCapstone sits atop the private capital sector of multi-family investment sales for multiple reasons. Our deliberate and concentrated focus and expertise in not just the primary markets of the Southeast & Mid-Atlantic, but also the secondary and tertiary markets within our region identifies us as the ideal candidate for these assignments. Capstone’s investment sales team has completed a multitude of transactions across the secondary & tertiary markets of the Southeast & Mid-Atlantic, and our track record of success can be attributed to our comprehensive coverage and expertise among these markets, as well as our relationships with the owners and investors who remain active in this environment.

National Exposure via Cutting Edge TechnologyCapstone has developed and maintains industry leading national databases, expansive information delivery methodologies, and various proprietary activity tracking systems. These tools are utilized daily by the investment sales team, analysts, and back-office support staff allowing for optimal operational efficiency. This enables Capstone’s investment brokerage team to spend nearly all of its time servicing clients, interacting with industry players and active asset traders, and promoting transactions.

Reputation and ResultsCapstone prides itself on its impeccable industry reputation and the core values and behaviors of the firm that drive daily operations. The firm possesses an unblemished reputation and track record industry-wide, and, as such, the firm’s trusted relationships among the apartment investment community continue to facilitate seamless, fluid, and successful sales transactions.

Charlotte Office:1600 Camden Road | Suite 100

Charlotte, NC 28203** Information in this report has been provided by the following resources: The Charlotte Real Data Report September 2013, Moody’s Analytics, Charlotte

Chamber of Commerce, REIS Report, Costar, The Business Journal, Bureau of Labor Statistics, county tax records, and various multi-family industry contacts.