DOWNTOWN BROOKLYNMarket Update ■ 3rd Quarter 2014

INVESTMENT SALES RETAIL LEASING CAPITAL SERVICES | MASSEYKNAKAL.COMMANHATTAN BROOKLYN STATEN ISLAND THE BRONX QUEENS WESTCHESTER LONG ISLAND NEW JERSEY

3Q14 NYC Investment Sales OverviewThrough the first three quarters of 2014, the New York City investment sales market continued its strong performance, with nearly $39B in total dollar volume. 2014 has already surpassed 2013’s annual dollar volume, and is on pace for $52B. We expect a strong fourth quarter and for dollar volume to accelerate in the final quarter, ending the year north of $60B. While Manhattan leads the way with $28B in activity this year, Brooklyn’s volume is on pace to exceed 2013 by 74%, with $5B sold thus far. As with dollar volume, transactional activity has remained strong, with five consecutive quarters of 1,100 or more properties sold, putting NYC on pace to exceed 5,100 properties sold in 2014. Northern Manhattan is nearing an all-time best in turnover (measured as the percentage of properties sold over total inventory) with 6.7% of the total stock on pace to sell this year. Retail continues to drive up pricing, as price per square foot has increased by 15% from 2013 for core property (Manhattan +26%, Northern Manhattan +19%, Brooklyn +14%, Queens +6%, Bronx no change). Finally, scarcity of land continues to exert upward pressure on pricing citywide with price per buildable square foot up 25% from 2013, with Manhattan finishing out the third quarter at $655 per buildable square foot.

3Q14 Brooklyn Investment Sales Overview During the first three quarters of 2014 (1-3Q14), the Brooklyn property market saw 1,149 transactions consisting of 1,507 buildings sold. The number of properties that have sold thus far in 2014 is an increase of 45% over 1-3Q13. There have been 400 building sales in 3Q14, a decrease of 18% from 3Q13. The annualized turnover rate thus far in 2014 is 3.09% of the total stock of properties, which is the highest turnover rate since 2005. The aggregate sales consideration through 1-3Q14 was $5B, a 96% increase from 1-3Q13. If we examine this data on an annualized basis, we can expect the Brooklyn submarket to reach $6.63B, an increase of 74% from 2013’s sales volume of $3.82B.

3Q14 DOWNTOWN BROOKLYN MARKET UPDATE

MIXED-USE BUILDINGS

ADDRESS PRICE GROSS SF PRICE/SF

11 32 Remsen St $6,500,000 9,376 $693

12 487 Myrtle Ave $1,600,000 2,800 $571

13 634 Dean St $2,650,000 6,600 $402

14 1012 Fulton St $999,000 4,400 $227

15 700 Washington Ave $1,350,000 2,767 $488

16 466 Myrtle Ave $1,500,000 2,400 $625

MULTIFAMILY WALK-UP APARTMENT BUILDINGS

ADDRESS PRICE GROSS SF PRICE/SF

4 788 Classon Ave $2,110,000 5,850 $361

5 73 S Oxford St $3,895,000 8,372 $465

6 816 Dean St $8,400,000 7,335 $1,145

7 40 S Portland Ave $1,850,000 3,840 $482

8 218, 220 Park Pl $5,400,000 7,300 $740

DEVELOPMENT / CONVERSION SITES

ADDRESS PRICE GROSS SF PRICE/SF

17 438 Albee Sq $3,000,000 22,080 $136

18 291 Livingston St $5,000,000 25,000 $200

19 Pacific Park Project AKA Atlantic Yards $383,217,500 2,707,578 $142

20 929-933 Atlantic Ave Portfolio $3,000,000 15,732 $191

21 299 Livingston St $2,650,000 19,580 $135

22 24 4 Ave $20,000,000 70,650 $283

INDUSTRIAL BUILDINGS

ADDRESS PRICE GROSS SF PRICE/SF

1 73 Washington Ave $2,500,000 9,000 $278

2 81-87 Steuben St $2,900,000 10,000 $290

3 531-535 Grand Ave $2,300,000 5,550 $414

Downtown Brooklyn Sales During 3Q14

3Q14 Downtown Brooklyn Sales OverviewDuring 3Q14, the Downtown Brooklyn property sales market had 22 closed transactions, which included the mega-development project now known as Pacific Park. In total for 3Q14, the dollar volume for the submarket was approximately $539M. The submarket’s total dollar volume was primarily made up of the Pacific Park transaction, which represented approximately $383M of total dollar volume.

Downtown Brooklyn is, by far, the strongest market in Brooklyn and all of the outer markets. After Manhattan’s SoHo market, Downtown Brooklyn was NYC’s strongest market according to Massey Knakal’s proprietary Sales Performance Index. Its transformation into a top notch live/work area, its favorable location, and availability of public transportation makes it an increasingly sought after location for investors.

MULTIFAMILY ELEVATOR APARMENT BUILDINGS

ADDRESS PRICE GROSS SF PRICE/SF

9 415 Washington Ave $10,300,000 25,600 $402

10 The Chocolate Factory $68,000,000 184,411 $369

Brooklyn Market Reaches New Heights After the first three quarters of 2014, Brooklyn’s dollar volume is $5.1 Billion, which is higher than any other given full year. Furthermore, each of the three quarters in 2014 had an average dollar volume of $1.7B – strongly exceeding the quarterly average of $900M of 2005 to 2007. Annualized projections have total dollar volume on pace to be 80% greater than 2013 totals, also total number of properties sold is slated to reach 2,000 – exceeding the 2006 peak volume.

BROOKLYN – INVESTMENT ACTIVITY

$8

$7

$6

$5

$4

$3

$2

$1

$0 0

500

1,000

1,500

2,000

2,500

$3.1$3.7 $3.8

$2.0

$0.7$1.1

$1.7

$4.8$3.8

$6.8

Dollar VolumeProperties Sold

Source: Massey Knakal Research05 06 07 08 09 10 11 12 13 14*

Billions

*Annualized

3Q14 DOWNTOWN BROOKLYN MARKET UPDATE3Q14 DOWNTOWN BROOKLYN MARKET UPDATE

Brooklyn Price Appreciation Accelerates Through 3Q14, the average price per square foot was $308, a 14% increase from 2013’s annual average. Moreover, since the trough of the market in 2009, the average price per square foot increased 40%. Elevator buildings experienced the strongest gain in price per square foot being up 172% since 2009 – this reflects that higher quality buildings are being sold in today’s market compared to 2009. Similarly, price per buildable SF was up 22% from a year ago as it reached $165 during the first 3 quarters. Both price per square foot and price per buildable SF started increasing rapidly in 1Q14, which is a trend that is predicted to stay as Brooklyn transforms into a more mature live and work environment.

$325

$300

$275

$250

$225

$200

$175

$1502009 2010 2011 2012 2013 1-3Q14

$221$232 $225

$247

$271

$308

5% -3%

9.6%

9.8%

13.9%

BROOKLYN – AVERAGE PRICE PER SF

*Average of Elevator, Walk-Up, Mixed-Use, Office and Retail

manner and are expected to remain. At the same time, value increases in Brooklyn have been strong and locally outperforming Manhattan. For example, in Williamsburg, Greenpoint, and Bushwick combined, the average price per SF in 1H14 was up 26% over 2013, compared to 12% in Manhattan. Additionally, average cap rates in the outer markets are 180 bps higher than Manhattan. As such, Brooklyn and other outer markets are attractive targets for yield seeking investors.

Outlook: Ending the year on a high note

• On the basis of preliminary data through October 2014, we expect the number of properties sold in 4Q14 to be between 1,000 and 1,250. We believe the fourth quarter will close on the top end of that spectrum due to the “year-end-rally” as firms look to close the year out. With a few large-scale transactions pending and some having just closed, we expect dollar volume in 4Q14 to exceed 3Q14.

• In terms of pricing, we expect the trend we have observed since 2011 to continue and values to increase. While there can be volatility on a quarter-over-quarter basis, the overall trend is up. With rents continuing to increase and demand for property remaining high, there is continued upward pressure on values.

• Geographically, we expect demand for property in the outer markets to remain strong as investors who are chasing yield increasingly acknowledge the markets’ attractive risk/return profiles. For Manhattan, we believe that demand, particularly from institutional firms abroad, will remain high as they consider prime properties as a high yielding alternative to government bonds.

A central theme of the market in 3014 is how well the outer markets are performing – the combined dollar volume of the first three quarters is higher than any prior year’s annual total. Annualized, dollar volume is expected to exceed the former peak of 2007 by 43%. A primary reason for the strength of the outer markets is a socio-economic shift that has led to a Manhattanization of their property sales markets. These trends include:

• The investor profile has become more institutional• The existing building stock has become higher quality and more

institutional in nature• Price appreciation in markets like Williamsburg and LIC have closed

the gap to some Manhattan submarkets and exceeded others

Contributing Factors to the Manhattanization of Brooklyn

Socio-Structural ComponentSustained transformation in submarkets like Downtown Brooklyn, Park Slope, and Williamsburg has paved the way for other neighborhoods in outer submarkets to follow. As gentrification spills over to adjoining neighborhoods, it generates an increasing influx of young, well-educated and wealthy residents who are able and willing to pay elevated rents.

The Building StockNew residential product has, and continues to be, built to satisfy the changing demographic demand. In Brooklyn, between 2000 and 2012, 70,000 new residential units were added to the market, an increase of 7.8%, which compares to 5.8% city-wide. Moreover, there are an additional 15,000 residential units currently being developed in Downtown Brooklyn alone.

Change of Urban Function• Once overlooked areas are blossoming into thriving retail/dining

corridors causing a migration of tourist and national retailers looking to establish their footprint outside of Manhattan

• Office tenants, particularly TAMI tenants, are increasingly attracted to Brooklyn searching for modern, stylish, but affordable office space

Attractive Risk-Return ProfileAs investors begin chasing yield, the outer markets are perceived as having a more attractive risk-return profile than in the last cycle. The building stock and demographics have changed in a sustained

The “Manhattanization” of the Outer Markets

205 Montague Street, Third FloorBrooklyn, NY 11201

Stephen P. Palmese, Partnerspalmese@masseyknakal.com, (718) 307-6552

Michael Mazzara, Senior Associatemmazzara@masseyknakal.com, (718) 606-7052

Thomas Freeland, Senior Associatetfreeland@masseyknakal.com, (718) 238-8999

James Berluti, Associatejberluti@masseyknakal.com, (718) 238-8999

For more information, or if you would like to create a Complimentary Opinion of Value for your property, please contact:

BROOKLYN HOTEL LANDSCAPE

The information contained herein has either been given to us by the owner of the property or obtained from sources that we deem reliable. We have no reason to doubt its accuracy but we do not guarantee it. All zoning, buildable footages and uses must be independently verified. Vacancy factors used herein are an arbitrary percentage used only as an example. It does not necessarily relate to actual vacancy, if any. The value of this investment is dependent upon these estimates and assumptions made above, as well as the investment income, the tax bracket, and other factors which your tax advisor and/or legal counsel should evaluate. THE PROSPECTIVE BUYER SHOULD CAREFULLY VERIFY EACH ITEM OF INCOME, AND ALL OTHER INFORMATION HEREIN.

EXISTING

Name Address Size (SF) Units

Aloft New York Brooklyn 216 Duffield St 151,467 184

Sheraton 228 Duffield St 225,125 321

Hotel Indigo 229-231 Duffield St 104,172 128

Marriott 333 Adams St 364,448 666

Hotel St. George 55 Clark St 319,080 260

Bossert Hotel 98 Montague St 187,200 302

Nu Hotel 85-87 Smith St 136,797 93

Total 1,488,289 1,954

DOWNTOWN BROOKLYN HOTEL SUMMARY

BAY RIDGE

DYKER HEIGHTS

SUNSET PARK

WINDSOR TERRACE

OCEAN PARKWAY

MANHATTAN TERRACE

DITMAS PARK

PROSPECT PARK

PROSPECT HEIGHTS

BEDFORD STUYVESANT

FORT GREENE

BROOKLYN HEIGHTS

CLINTON HILLDOWNTOWN

WILLIAMSBURGEAST

WILLIAMSBURG

GREENPOINT

NAVY YARDVINEGAR HILL

CROWN HEIGHTS

PARK SLOPE

RED HOOK

CAROLL GARDENS

COBBLE HILL

PROSPECT PARK

SOUTH

OWLS HEAD PARK

FORT HAMILTON

BOROUGH PARK

BRIGHTON BEACH

BERGEN BEACH

REMSEN VILLAGE

OCEAN HILL

OCEAN HILL

CYPRESS HILLS

HIGHLAND PARK

BROADYWAY JUNCTION

SPRING CREEK

CITY LINE

STARRETT CITY

PAERDEGAT BASIN

FLOYD BENNETT

PARK

MILL ISLAND

SHEEPSHEAD BAY

MANHATTAN BEACH

GERRITSEN BEACH

MARINE PARK

MILL BASIN

SEA GATE

CONEY ISLAND

HOMECREST

BENSONHURST

GEORGETOWN

EAST NEW YORK

KENSINGTON

GOWANUS

EAST FLATBUSH

BROWNSVILLE

BUSHWICK

RUGBY

WINGATE

WEEKSVILLE

PROSPECT LEFFERTS GARDENS

MIDWOOD

FLATLANDS

CANARSIE

FLATBUSH

GRAVESEND

BATH BEACH

UNDER CONSTRUCTION

Name Address Size (SF) Units

Hampton Inn 125 Flatbush Ave Ext 46,840 117

Holiday Inn 300 Schermerhorn St 192,710 246

EVEN Hotel 40 Nevins St 97,110 204

TBA 85 Flatbush Ave Ext 99,696 240

Total 436,356 807

PLANNED

Name Address Size (SF) Units

95 Rockwell Place 95 Rockwell Pl 30,000 200

TBA 55 Flatbush Ave 46,371 TBD

TBA 237 Duffield St 89,843 108

■ Total Hotels: 59

■ ADR: $180

■ Occupancy: 80%

■ RevPAR: $14

BROOKLYN MARKET HIGHLIGHTS 2014

WILLIAMSBURG, GREENPOINT

Total 4 hotels

MAP KEY

DOWNTOWN BROOKLYN, BROOKLYN HEIGHTS, DUMBO, BOERUM HILL, CLINTON HILL, FORT GREENE

Total 12 Hotels

GOWANUS, PARK SLOPE, CARROLL GARDENS, COBBLE HILL, RED HOOK, COLUMBIA STREET, WATERFRONT DISTRICT

Total 7 Hotels

BENSONHURST, DYKER HEIGHTS, GRAVESEND, BORO PARK

Total 1 Hotels

BAY RIDGE, SUNSET PARK, WINDSOR TERRACE, SOUTH SLOPE

Total 5 Hotel

SHEEPSHEAD BAY, CONEY ISLAND, HOMECREST, BRIGHTON BEACH, MANHATTAN BEACH

Total 4 Hotels

BEDFORD STUYVESANT, BUSHWICK

Total 5 Hotels

EAST NEW YORK, BERGEN BEACH, CANARSIE, FLATLANDS, MARINE PARK, BROWNSVILLE, OCEAN HILL, CYPRESS HILL, MILL BASIN, NEW LOTS, WEEKSVILLE

Total 7 Hotels

DITMAS PARK, FLATBUSH, KENSINGTON, OCEAN PARKWAY, MIDWOOD

Total 1 Hotel

DEVELOPMENT SITE

Total 13 Hotels