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Single-Family Rental ResearchJohn Burns Real Estate Consulting (JBREC) is pleased to announce the development of a new research report that is focused on the single-family rental market. Our firm was at the forefront of this emerging institutional asset class evaluating market opportunities and most recently aiding in Initial Public Offerings for operators and investors.

This industry is still in a period of growth with operators actively acquiring homes and single-family securitization transactions continuing to take place. Our firm has developed a report focusing our research to help operators, lenders, investors, and rating agencies navigate this market.

• Quarterly we provide a report highlighting the single-family rental industry nationally, macro drivers that are relevant to the industry, key metros across the country that are outperforming/underperforming, distressed housing supply, and public operator metrics.

• Monthly we provide two pages of data for each of the 65 metro areas identified as top single-family rental markets across the country. We highlight various supply, demand, and affordability metrics (some with forecasts), which would be beneficial for those participating in this industry. These were designed to bring you the most relevant data points in a simple easy to read table.

The new Single-Family Rental Analysis and Forecast report has two components:

FORRENT

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Our consulting team has helped many single-family rental companies expand their business successfully:

• MSA Ranking. We have developed a methodology to rank Metropolitan Statistical Areas (MSAs) based on the potential for a success business and acquiring and renting single-family rental homes. Our team analyzes over 50 categories of historical and projected demand, supply and housing-related factors.

• Zip Code Ranking and Price Forecasting. Following the MSA ranking process, we can then do a zip code level dive so that clients can make more informed decision son acquisition efforts. We also create a future resale price forecast by zip code so that our clients can consider future price changes in their underwriting.

• Financial Modeling & Valuation. Our cash flow models help value portfolios of assets or loans and includes our pricing forecasts along with operating expenses and rehabilitation costs. The model offer tremendous flexibility in assumption so that we can run sensitivity analysis as well.

• IPO and PPM. We have supported several capital-raising efforts through IPOs and PPMs by providing a historical perspective and our forecast of economic and housing related trends that will impact the single-family rental business.

Consulting

The next few pages contain a sample report of our Single-Family Rental Analysis and Forecast.

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Taking Stock: Single-Family Rental is Here to Stayby David Guarino, Sr. Research Analyst

rental homes. These investments would not be made by “flippers.”

• Newtradegroup.Colony American Homes, Invitation Homes, American Homes 4 Rent, and Starwood Waypoint Residential Trust recently formed the industry group National Rental Home Council to advocate on behalf of the single-family rental industry.

• Debtavailability.The securitized debt market has opened up to large single-family operators. Smaller operators are seeing lending opportunities become more abundant as well. Lower cost capital is now becoming available to this industry.

Looking forwardInvestors both large and small have taken a significant ownership position in the housing stock of this country. We anticipate further consolidation in the single-family housing market as smaller regional operators with local knowledge are acquired by larger national operators. The economies of scale gained from these acquisitions will begin to evolve, and cost savings in the form of lower operating expenses and competitive rents will benefit both landlord and renters, creating a sustainable asset class for years to come.

What’s driving demand?From 2005 to 2012, single-family rental homes grew 1.7% per year, primarily due to:

• Foreclosuresandshortsales. In judicial foreclosure states such as Florida, Illinois, and New York, there are many more foreclosures to come.

• Affordability.Many households cannot afford to purchase a home due to bad credit, loan documentation issues, high levels of debt, and home prices now being out of reach.

• Confidence.Many households do not yet have the confidence to purchase, knowing that they could lose their job or be required to relocate.

Two misconceptionsA common misunderstanding is the magnitude of institutional investor purchases. Institutional investors comprise less than 1% of the industry. Today, this market remains highly fragmented and largely dominated by local mom-and-pop operators who have boots-on-the-ground knowledge and will continue to be the ones collecting monthly rent checks. Another misconception is the fear of local real estate markets suffering large price declines when investors decide to liquidate their investments. While we acknowledge that the next downturn is likely to be exacerbated by investor selling, consider the following:

• Capex.Large amounts of capital expenditures are being directed toward improving the properties as well as developing property management software. There is a new industry of property managers emerging with cutting-edge technology available to better optimize operations for those with 1 or 40,000

Single-family homes now comprise 35% of all rentals and 11% of all households.“ ”

Sample Newsletter

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Defining Replacement Costsby John Burns, CEO

1. New home replacement cost (NHRC), a definition of replacement cost that varies throughout the cycle. It comprises all of the costs to build a home, including finished lot purchase and builder profit.

2. Trough depreciated replacement cost (TDRC), a definition of replacement cost that is static. It is meant to represent the lowest value that a home can achieve without a buyer selling under duress or some other extreme change in the market. This would be an estimate of replacement cost when all of the costs (land, labor, soft costs, and materials) are at their cheapest and also includes a depreciation factor for the age of the homes that are being evaluated for investment.

Calculating purchase price as a percentage of both replacement cost estimates will help clarify any analysis. In the example below (detailed assumptions are available to clients), a 10-year old home purchased for $130,000 would be:

• $9,000 above the TDRC of $121,000, so the buyer would know that there is very little risk that the price could fall much more than $9,000 for an extended period of time

• $65,000 below the $195,000 NHRC, so the buyer would know that there is very little risk of new home supply in the area unless home values rise significantly

If you are comparing purchase price to replacement cost, remember to clearly define replacement cost and what your definition represents—this will help you articulate the value proposition and risks to your investors. And feel free to use our definitions.

With the emergence of single-family rental homes as an institutional asset class, the concept of replacement cost has received a lot of attention lately. We are proposing a set of definitions to bring clarity to the term replacement cost, which means different things to different people and can thus be misconstrued in the market.

To see how important it is to define replacement cost, take a look at the graph below, which shows two things:

1. The change in costs over time, including how much costs can rise in good times and fall in tough times

2. The significance of certain line items, all or some of which are included in some people’s definitions of replacement cost and not in others

Based on this graph, a client could reasonably interpret replacement cost in any of the following ways:

• One client would say that the replacement cost is $196,000 today (essentially the minimum price needed for a builder to be willing to start construction).

• Another client would say that the replacement cost is $121,000 today (the cost of construction including the finished lot at the trough of the market, depreciated for 10 years).

• A third client would say that the replacement cost is $111,000 (today’s direct cost of construction only).

All of these numbers have merit but are obviously very different. We propose two new industry terms to bring clarity to the issue:

Sample Newsletter Sample Newsletter

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by Sean Fergus, Manager

market more than the resale market because many new homes are priced right in the ranges eliminated by the new limits.

The FutureWe have detailed metro data for boomerang buyers and other metrics relating to distress. These metrics, including shadow inventory and investor activity, significantly affect markets across the country. They will also impact home building and single-family rental businesses. For further information on boomerang buyers, rental households, and our metro-level analysis, please contact Sean Fergus at sfergus@realestateconsulting.com.

Of the 5.3 million households who lost their home to a foreclosure or short sale from 2007 to 2013, we believe that:

• 889,000 have already repurchased a home.• 1.6 million will be stuck renting for at least the next

seven years.• 2.8 million will become homeowners again by 2021

(“boomerang” buyers).

Single-family rental landlords and homeowners will benefit from boomerang buyer demand. Riverside-San Bernardino will see the greatest activity, followed closely by Los Angeles and Phoenix.

RentersThe renter households created each year by foreclosures and short sales has declined over the past few years. Still, we expect a significant number of these households to rent for the foreseeable future. Single-family rentals should benefit the most from these renters. Note our estimate of the trend in renter households caused by the 2007–2013 distress:

Recent FHA Changes Will Hurt HomeownershipFHA loans are the most common loans for boomerang buyers, whose credit is not yet repaired. We expect the recently reduced FHA loan limits to impair the higher price points in a handful of markets. Those hoping to get a mortgage between the 2013 and new 2014 loan limits shown below will be disappointed.

The FHA loan limit changes will hurt the new home

The Boomerang Veers Off CourseSample White Paper

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Renting REO to Stabilize HousingSeptember15,2011

Executive SummaryAfter extensive research, we believe that selling REO homes (homes that are owned by the lender after foreclosure) to investors makes the most economic sense for the banks, Fannie Mae, Freddie Mac, HUD, and the American taxpayers. Current regulatory and political pressures that prohibit or discourage these institutions from adopting this sound economic decision should be relaxed.

By selling REO to investment groups who will professionally manage the homes, share profits with the sellers, and operate with a few important restrictions such as limiting the number of homes that can be sold in any future year, executive decision makers at the major institutions dealing with foreclosures can help accomplish all of the following:

• Stabilize home prices• Stabilize neighborhoods• Improve REO asset recoveries• Prevent rents from rising too quickly• Remove a huge cloud hanging over the future of

housing market

The most effective rental REO policy will involve a JV structure that allows experienced professionals to manage the portfolio according to free market conditions, with the only significant stipulation being that they can sell no more than 20% of the homes in any given year. The best economic recovery will be accomplished using:

1. Seller-financing, which will provide the seller with solid income going forward, while also driving the buyer’s price up,

2. Seller Profit and Loss Participation, similar to the successful policies utilized by the FDIC, and

3. Facilitating a Market-Rate Lease Option to the Foreclosed Homeowner, eliminating the costs associated with vacancy and leasing while also providing relief to the former homeowner.

We have weighed the pros and cons of the REO policy independently, and conducted significant research, including investigating management companies, interviewing capital sources, and financial modeling.

Our firm was at the forefront of this industry, evaluating the market and looking at this as an alternative to get through the housing market recession.

In February 2009, we wrote a pro bono white paper called “Unlocking the Housing Market,” suggesting a series of policies that would put the housing market back on track. The paper was widely circulated and many of the recommendations have been implemented. The paper is available at:

www.realestateconsulting.com/docs/files/JBREC-UnlockingHousingRecovery200812.pdf

In August 2010, we proposed the rental REO solution in meetings with individuals at HUD, Fannie Mae, Freddie Mac, Treasury and Fed officials, and published our view at:

www.realestateconsulting.com/blog/lisa-marquis-jackson/our-proposed-rental-solution

Since that time, we have answered a number of questions about the program, read as much as we can on the topic, and identified property management and capital experts to develop a potential pilot rental REO program.

All of this was done pro bono in our effort to understand the potential that government could have to turn around the housing market. We continued to monitor the Single-Family Rental industry as it has emerged as a new asset class and a fixture in our housing market dynamics.

Sample White Paper 2011 White Paper

Our Story with the Single Family Rental Industry

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John Burns Real Estate Consulting (JBREC) helps executives make informed housing industry decisions. Our passionate team of analysts and consultants from around the country helps our clients identify the best risk-adjusted investment opportunities. We are known for:

About Us

• Client focus. Our clients have personal access to our team of market and industry experts. We also connect clients to opportunities for new business. We seek to continually innovate and improve our practices to make our clients’ lives easier.

• Speed. We focus exclusively on housing and strive to have the most current data at our fingertips. We are diligent, regularly out in the field, and tapped into industry leaders— resulting in great research and advice.

• Proprietary tools. We have created many tools to provide unique and timely insight. They include a monthly survey of builder executives, several indices and forecasts, and a demand model by price range and household composition.

• Data quality. We create, collect and buy the best industry data available, enabling our analysts to evaluate market conditions clients apply that insight to their business planning.

• Local knowledge. Our executives live in 11 of the major housing markets across the country.

• Management expertise. Our team leaders have learned from multiple housing cycles.

• Trusted integrity. We do not recommend stock investments or take contingency fees so it is clear we have no conflicting agendas.

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John BurnsCEO

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Dean Wehrli

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Lisa Marquis JacksonBusiness Development

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Paige Shipp

David Kalosis

Dan Fulton

Ken Perlman

Steve DutraData Management

Team

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John Burns Real Estate Consulting takes great pride in our highly educated, resourceful and experienced team that includes practitioners with 25+ years of experience in both homebuilding and community development. As a research client, you gain access to our team across the nation to discuss market conditions, our current research and our forecasts.

Access to Our Nationwide Team of Experts

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Research Services

Comprehensive Research & ServicesEvery month, we analyze housing data at the metro, regional, and national levels to provide you with the information you need for a competitive edge. Clients receive a flagship report, such as the Single-Family Rental Analysis and Forecast, to answer questions and get insight based on their business. In addition to the flagship report, clients receive ongoing reports and research, client services and invitations to client-exclusive events.

Single-Family Rental Analysis and Forecast

This quarterly report examines the single-family rental market, including single-family rents, vacancy, and saturation for 65 MSAs across the country. Monthly data sheets are provided for the 65 MSAs with supply, demand and affordability metrics (some with forecasts).

U.S. Housing Analysis & ForecastThis monthly report examines more than 150 metrics related to housing, and includes an Executive Summary with an overview of the important metrics affecting the housing market and our view of its impact on the future.

Monthly Builder Survey Every month we survey more than 200 builders across the nation on new home market conditions. Our survey provides timely and accurate insights on housing market conditions just a few days after the end of every month. We believe our survey represents market conditions for production volume builders much more accurately than the Census Bureau.

Quarterly Land Survey and Land IndexOur quarterly land survey and index provides a balanced qualitative and quantitative approach to understanding the land market, using a proprietary model built through published data, local expertise, and our own market knowledge.

Ongoing Insight

• White Papers: We publish thorough research reports covering relevant and important topics.

• Truth in Housing: We regularly send out email notes to clients called “Truth in Housing” which include relevant non-confidential insight that we uncover in the field, at industry conferences, or through our industry contacts.

• Public Builder and Single-Family Rental REITs Call Summaries: We summarize key performance statistics and market insight from the public builder quarterly earnings conference calls.

Client Services

• Executive Access. Personal access to our team of market experts and research analysts.

• Presentations. As requested, we meet with our clients and provide formal or informal industry or market-specific updates.

• Introductions. We have helped many of our clients find a builder, developer, or capital partner and we have introduced many of our clients to specific industry experts.

• Data Access. We collect, scrub, and analyze more than 1,000 data points each cycle. Our clients have access to reasonable and appropriate data exports from our team’s SQL database.

The US Housing Analysis and Forecast, Monthly Builder Survey and Quarterly Land Survey and Land Index come with every research subscription.

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Metro Analysis & ForecastThis monthly report provides an overview of major housing and economic metrics, as well as our forecasts, at an MSA level. This is combined with local insight, proprietary surveys, and extensive data analysis to provide a complete picture of the important housing dynamics and shifts at the market level.

MAF

Regional Analysis & ForecastThis comprehensive monthly report summarizes important information in ten regions and key metro areas. This includes five-year pricing forecasts, supply and demand, and housing affordability and market health.

RAF

Home Builder Analysis & ForecastThis report examines each of the publicly traded home builders based on their geographic footprint, ranked by their forecasted market growth in mid, small and micro-cap. It also includes location comparisons of builders based on the builders’ market fundamentals and submarket desirability.

HBAF

Client Events

• Client-exclusive webinars. We sponsor webinars with Q&A that informs our clients of timely market dynamics and offers insight on specialty areas like consumer research.

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Apartment Analysis & ForecastThis wide-ranging quarterly report includes an economic outlook for the multifamily market and analysis of the interplay between housing and apartment market dynamics and demographics. Included are five-year apartment rent forecasts, and rankings of top apartment REITs based on their regional diversification and economic factors.

AAF

The SummitOur annual client-only conference, The Summit, gathers leaders across the housing industry for one and a half days of thought-provoking discussion and networking.

The Housing Market Outlook, our other annual client-only conference, is designed to be the industry’s most informative day of the year. This new conference will highlight insight from 50 speakers from every region and discipline of the housing industry.

HOUSING MARKET OUTLOOK

Other flagship reports that our team produces on a monthly or quarterly basis include the following:

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