Shops at Whetstone Report

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Ryan Smyth

University of Maryland

Fall 2014 Final Capstone Project

Additional Credit:

Geoffrey Glazer, Kimco Realty

Nick Aello, AIA

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Table of Contents

I. Project Summary 4

Site Plan 5

Total Project Breakdown 6

Strategy 7

II. Site Analysis 9

Location 9

Neighborhood Facilities 12

Availability of Public Transit 12

Views of Subject Site 13

Views of Surrounding Land Uses 18

Schools and Employers 20

Zoning and Regulatory Conditions 22

III. Development Plan and Design 23

Traffic, Circulation and Parking 23

Architecture and Landscape 26

Buildings 26

LEED 26

IV. Market Analysis 27

National Economy 27

Local Economic Context 27

Income 31

V. Residential Market Overview 32

Vacancy 35

Survey of General Occupancy Residential Communities 35

Location of Communities 35

Advertised Rent and Unit Sizes 36

Community Amenities 37

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Construction Style 38

Proposed New Residential Development 38

Residential Vision 41

VI. Office Market Overview 41

Proposed New Office Development 42

Office Vision 42

VII. Retail Market Overview 43

National and Local Retail 43

Proposed New Retail Development 44

Retail Vision 44

VIII. Financial Analysis 45

Introduction 45

Construction Schedule 47

Construction and Development Costs 48

Funding Sources 49

Project Snapshot and Potential Returns 51

Income Assumptions and Analysis 53

Workforce Housing 54

Lease-Up Schedule 55

Property Performance at Stabilization 56

Income and Expenses 57

Depreciation 57

Cash Flow 59

Sales Schedule 59

Conclusion 60

XI. Appendices 61

Financial Supplements 62-83

Endnotes 84

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I. Project Summary

Located in Gaithersburg, Maryland, The Shops at Whetstone will be an exciting, vibrant and

financially successful mixed-use development along Maryland Route 355 and Interstate 270.

Envisioning a destination with a distinct urban feel in a suburban environment; a leasing,

financing and design plan have been crafted that will change a tired commercial center into

a grocery-anchored retail center with an additional office and residential component.

The proposed programming on site has been maximized given the site’s topography,

location and market, while still fulfilling the city’s Planned Unit Development and parking

requirements. The new development will contain approximately 100,000 square feet of

retail, 23,000 square feet of office, 234 apartment units totaling nearly 270,000 square feet,

and 142,000 square feet of structured parking. A central plaza with green space in the

middle of the site will tie all the retail together to promote walkability and give visitors a

gathering place to socialize while enjoying their coffee or meal from the restaurant tenants

located in the center.

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Site Plan

BEFORE

AFTER

6

Total Project Breakdown

Total Development Costs: $101,620,679

Total Equity: $25,405,170

Total Debt: $76,215,509

Project Program

Retail: 100,050

Office: 23,300

Residential: 277,000

Plaza: 3,750

Parking: 142,760

Overall Project Construction Timeline: 36 Months

Phasing: Two Phases

Start Pre-Construction: January 5, 2015

Total Project Delivery: December 21, 2017

Stabilization: October 31, 2018

Loan Request: $75,767,380

Requested Terms: 75% LTV, 5.00%, 25-year term, non-recourse, 1.25 DCR

Investor Returns: Five and Ten-Year Disposition

Year 5 (2023) Year 10 (2028)Internal Rate of Return Before-Tax: 30.53% 22.20%Net Present Value Before-Tax: 39,297,353$ 32,309,599$

Internal Rate of Return After-Tax: 24.72% 18.09%Net Present Value After-Tax: 23,584,113 16,810,859$

Internal Rate of Return Unleveraged: 15.54% 12.96%Net Present Value Unleveraged: 19,298,816 7,417,697$

INTERNAL RATE OF RETURN & NET PRESENT VALUE

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Strategy

Keys to the Project:

• Retail is situated on the site in a semicircle in an attempt to give each retail space an

uninterrupted sight line to MD-355

• The development will benefit from the proposed Interstate 270 interchange slated to be

constructed by 2019 that will tie nearby Watkins Mill Road to I-270 and increase the

site’s ease of access and traffic flow along that portion of MD-355.

• Delivery of the majority of retail first will make the residential portion of the

development more attractive to potential residents

• The residential building, The Residences at Whetstone, features a ‘Texas-doughnut’

configuration to maximize loading on the site while tucking the parking within the

structure

• A central plaza ties the site together and creates a more urban-like feel and a promotion

of site walkability

• The Fresh Market retail building is to be constructed with a green roof to satisfy the 30%

requirement of green space for Planned Unit Development approval by the city of

Gaithersburg

• Remodel and reuse of the existing retail building on site to save demolition/construction

costs

• Site egress on Travis Avenue designed to tie in to existing T-intersections to ease traffic

concerns from nearby residents

• Grading of the site allows for a partially underground parking garage beneath the Fresh

Market that will help fulfill the city’s parking requirements for retail development

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II. Site Analysis

Location

The subject site for this development is located in the city of Gaithersburg, Maryland with

approximately 650 feet of excellent road frontage along MD-355. A freestanding Bruster’s

Ice Cream, vacant bank building, 60,000 square foot baby store, and a four to five space

strip mall currently occupy the proposed site for the redevelopment. The entrance to the

site exists along MD-355 just northwest of the intersection of MD-355 and Watkins Mill

Road. The site’s location adjacent to this intersection is ideal, as many potential consumers

can easily view the center while sitting in their car at the intersection. Travis Avenue, a

secondary road, runs along the northwestern boundary of the site with multiple access

points as well. The proposed redevelopment has easy vehicular access to MD-355, a main

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thoroughfare that runs adjacent with Interstate 270 from Friendship Heights at the

northwest boundary of Washington, D.C. to downtown Frederick, Maryland. Retail uses

front a substantial portion of the route. The subject site is only a two-minute drive from

Exit 11 along Interstate 270, and is across the street from the proposed future interchange

linking I-270 and Watkins Mill Road. This future interchange will allow the Shops at

Whetstone to out-position much of the competition, and allows residents at The Residences

at Whetstone easy access to Interstate 270.

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The property slopes down from east to west. The remainder of the site not occupied by a

building footprint is surface parking or roadway.

The land uses directly bordering the subject site, starting from the north and proceeding in

a clockwise direction, are as follows:

North: Large power transmission lines along the northern boundary of the site on the other

side of Travis Avenue. Beyond the transmission lines is a self-storage facility, a Toyota

service facility, some low-density commercial and low-density residential housing.

East: To the east of the site is low-density residential housing. Mainly single-family

attached townhomes and apartment complexes.

South: To the south of the site is The Spectrum at Watkins Mill, a brand new four-story

development with first floor retail and three stories of residential housing. Beyond this

development are an industrial office park and the proposed future I-270 interchange. To the

southeast to the site is retail and commercial along MD-355 including multiple car

dealerships, small retail centers and a Costco. About 1.5 miles to the southeast of the site is

Lakeforest Mall, a regional shopping center.

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West: An Extended Stay America hotel lies directly west of the site, which is surrounded by

multiple large office buildings.

Neighborhood Facilities

There are a number of recreational areas and neighborhood facilities. Gaithersburg Library

is located 1.7 miles from the site. The Montgomery County Agricultural Fairgrounds are

located 1.7 miles from the site. Seneca Creek State Park and Clopper Lake are located 2.7

miles from the site to the southwest.

Availability of Public Transit

The nearest bus stop is along Travis Avenue directly north of the site that will be ideal for

community residents. This bus service routes to Germantown and Rockville. The MARC

Metropolitan Grove Park & Ride, which provides access to the MARC commuter train, is

conveniently located 2.1 miles from the site. This station lies on the Brunswick Line that

runs between Washington, D.C. and Martinsburg, WV. The Shady Grove Metro station is

located 4.8 miles to the southeast, and is the closest Metro station to the site.

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Views of Subject Site

View of the retail strip center looking east

View of the site looking northwest

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View of the site looking southeast

View of the retaining wall showing the grade of the site

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View of the site looking south

View of vacant bank building on site

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View of site entrance

View of the site’s western boundary along Travis Avenue

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View of from the site looking at MD-355 northbound

View from the site looking at MD-355 southbound

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Views of Surround Land Uses

Tri Peaks Center located .5 miles northwest of site

Aerial shot of Lakeforest Mall

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Car dealerships lining MD-355

The mixed-used development across the street, The Spectrum at Watkins Mill

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Residential housing to the east of the site

Transmission lines running adjacent to the site’s western boundary

Schools and Employers

Multiple schools surround the site. Gaithersburg Elementary is 2.2 miles to the southwest,

Gaithersburg Middle School is 2.4 miles to the southwest and Gaithersburg High School is

2.4 miles to the southwest. Strawberry Knoll Elementary School is 3 miles to the northeast

from the site and Montgomery Village Middle School is 1.4 miles to the north of the site.

With multiple schooling options close to the development, overcrowding and enrollment is

not expected to be a problem.

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Higher education options include Montgomery College, International College and The

Universities at Shady Grove.

Exhibit 1: Major Employers in Montgomery Countyi

The site is located near large employers in Montgomery County as shown in Exhibit 1.

Many of these employers lay alongside MD-355 as one travels southbound. The National

Institute of Health, the largest employer in Montgomery County, is located 8.1 miles from

the site. Walter Reed National Military Medical Center is located 13.9 miles from the site.

The U.S. Food and Drug Administration is located 11.2 miles from the site. These three

employers account for over 37,000 jobs in Montgomery County.

Company Number Employed Product / Service IndustryNational Institutes of Health* 17,997 HQ/ medical research Federal governmentWalter Reed National Military Medical Center* 11,000 Medical services Health careU.S. Food and Drug Administration* 8,463 HQ / food & drug R&D & standards Federal governmentAdventist Healthcare 5,900 HQ / medical services Health careMarriott International 5,497 HQ / hotels & motels Accommodation and food Lockheed Martin 5,200 HQ/ defense, aerospace & electronics ManufacturingNational Oceanic and Atmospheric Administration* 4,600 HQ / weather analysis & reporting Federal governmentVerizon 3,571 Telecommunications InformationGiant Food 3,493 Groceries Retail tradeU.S. Nuclear Regulatory Commission* 3,000 HQ / utilities regulation Federal governmentHoly Cross Hospital 2,915 Medical services Health careNational Institute of Standards and Technology* 2,769 HQ / testing & standards, R&D Federal governmentMontgomery College 2,749 Higher education Educational servicesKaiser Foundation Health Plan 2,636 Medical services Health careWestat 2,311 HQ / contract research & surveys Professional servicesGovernment Employees Insurance (GEICO) 2,300 HQ / insurance Finance and insuranceMedImmune 2,141 HQ / pharmaceutical R&D & manufacturing Professional servicesU.S. Department of Energy* 1,800 Energy development & conservation Federal governmentSuburban Hospital 1,680 Medical services Health careHenry M. Jackson Foundation for the Advancement of Military 1,676 HQ / R&D in the social sciences & humanities Professional servicesIBM 1,655 Information services, hardware, software & systems Professional servicesDiscovery Communications 1,593 HQ / media & entertainment InformationTarget 1,486 Consumer goods Retail tradeSafeway 1,423 Groceries Retail tradeSodexo 1,407 Food service contractor Accommodation and food Red Coats / Admiral Security Services 1,388 HQ / janitorial services Administrative services

Major Employers in Montgomery County Maryland

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Exhibit 2: Major Employers in the City of Gaithersburgii

The site is located 2.6 miles from the National Institute of Standards and Technology, the

largest employer in the City of Gaithersburg. It is also located a half mile from IBM’s office

building and 3.1 miles from MedImmune’s office building.

Zoning/Regulatory Conditions

The site is currently zoned C-2 General Commercial within the North Employment District of

the Frederick Avenue Corridor. However, the City of Gaithersburg Land Use Plan published

on December 20, 2011 recommends that the site be redeveloped to include office,

commercial and residential uses in an effort to increase the employment base for the City.

According to the plan, the recommended course of action would be to adopt a mixed-use

designation, with a possible zoning change to MXD Mixed Use Development. The vision and

strategy for the redevelopment would depend on a city approved zoning change from C-2

to MXD. This would allow more flexibility with the site, and allow the site to be put to its

highest and best use. A year in the entitlements process has been allocated in the project

timeline to allow the zoning change to take effect.

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III. Development Plan and Design

Traffic, Circulation and Parking

Overview

The proposed development plan for The Shops at Whetstone will increase density and take

advantage of the site’s excellent visibility from MD-355 and increased traffic count that will

result from the future I-270 interchange. The combination of these factors will create a

unique mixed-use development that will create enough revenue to pay for the entire

project’s off-site and on-site infrastructure improvements. The redevelopment site

currently has good automobile access, but there are no residences and amenities on-site

other than some retail. The new site design for The Shops at Whetstone is set up in a way

to allow easy vehicular access for those wanting to visit the on-site offices or retail centers,

and long-term parking for employees of the office space and retail. The Residences at

Whetstone will have their own separate access and parking at the northern part of the site.

Traffic

The primary access point to The Shops at Whetstone will be MD-355 northbound. This

primary access point cannot be moved, as it would interfere with the deceleration lane

leading to the intersection of MD-355 and Travis Avenue. There is a traffic signal at the

intersection of MD-355 and Travis Avenue. The secondary access point to the development

will be on Travis Avenue along the northern boundary of the site. Site egress has been

designed to tie into existing T-intersections to alleviate traffic congestion. A traffic study

would conclude that the amount of cars that traverse MD-355 each day is substantial, which

lends to the overall value of the subject site.

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Circulation

Visitors will most often arrive in an automobile to access the site, and the vast majority of

visitors will arrive via MD-355. Vehicles will also be allowed to enter the site via Travis

Avenue. Both entrances will connect with each other and allow for a continuous traffic flow

through the center along what will be called Stone Street. Traffic calming techniques will be

used to create a more pedestrian friendly development. The buildings are situated in a way

to complement each other and create a center-like feel to the development. If one were to

stand in the middle of the site, all the retail shops would be easily visible and walkable.

Parking

There will be an ample amount of parking situated on the site. A one-story partially above

ground parking garage will house 135 spaces for the grocery store, and there will be

additional surface parking for the retail and office uses. The Residences at Whetstone will

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have 364 spaces of separate parking located within the apartment complex. Exhibit 3 below

shows the parking ratios as defined in the City of Gaithersburg municipal code.

Exhibit 3: City of Gaithersburg Parking Requirements

Based on the above ratios and the amount of retail, office and residential to be included in

the development, Exhibit 4 displays the amount of parking needed, and Exhibit 5 displays

the amount of parking the development will offer. The development plan was designed to

maximize as much square footage as possible while still being able to satisfy the city’s

parking requirements.

Exhibit 4: Parking Required On-Site

Exhibit 5: Parking Offered On-Site

TYPE OF USE PARKING REQUIREMENTResidential 1 Bedroom: 1.25 spaces per dwelling unit

2 Bedroom: 1.50 spaces per dwelling unit3 Bedroom: 2 spaces per dwelling unit

Retail 1 space per 225 square feet of gross leasable area1 space per 500 square feet of gross leasable area for stores that sell furniture

Office 1 space per 300 square feet of gross floor area4 for each practicitioner occupied office plus 1 for every 2 employees

Residential 382Retail 398Office 78Total 858

PARKING REQUIRED

Residential 364Retail 394Office/Visitor 107Total: 865

PARKING OFFERED

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Architecture and Landscape

The development plan embraces the site’s highly visible position at the corner of a six-lane

intersection. The development will have great curb appeal and the architecture will mirror

the modern focus of the development. The public plaza in the middle of the development

will feature park benches, trees and shrubbery. The surface parking and site boundaries will

be lined with trees and bushes. Best management practices will be implemented so that

storm water is sufficiently managed and sediment control practices will be implemented to

filtrate the water as it crosses the surface of the development.

Buildings

Where possible, the retail space will feature 12-foot ceilings in an effort to make The Shops

at Whetstone an attractive retail destination. The retail spaces will feature floor to ceiling

glass on the exterior. The current strip mall located on site will be repurposed to achieve a

cohesive architectural look throughout the development. The Residences at Whetstone will

be comprised of a brick and hardy plank exterior. The Fresh Market and The Tilted Kilt will

be constructed to fit in with each brand’s architectural standards.

LEEDiii

Per the City of Gaithersburg municipal code, structures equal to or larger than 10,000

square feet, but no larger than 50,000 square feet, must achieve a minimum green building

rating of ‘Certified’ using current Leadership in Energy and Environmental Design (LEED)

standards. Two of the retail buildings on site fall into this category, and will be built to this

standard. Structures equal to or larger than 50,000 square feet must achieve a minimum

green building rating of ‘Silver’ using current LEED standards. The Residences at Whetstone

falls into this category, and will be built to this standard. The Fresh Market retail building

will be built with a green roof, which will add LEED credits to the structure and satisfy the

city’s open space requirement for Planned Unit Developments.

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IV. Market Analysis

National Economyiv

The U.S economy is currently on a self-sustaining growth path that should continue well

into 2015. The economy is predicted to have grown by 2.2 percent this year, and the

median growth forecast for 2015 is predicted to be 3.0 percent. Gains in the labor market

are underpinning the recovery, as all 8.7 million jobs lost during the recession have been

recouped. The unemployment rate is averaging 6.3 percent for the year as of June, and it is

expected to fall to an average of 5.8 in 2015. It is expected that businesses will continue to

hire and invest to keep the economy headed in the right direction.

Local Economic Context

Exhibit 6: Age Makeup in Montgomery Countyv

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Exhibit 7: Age Makeup in City of Gaithersburg

Gaithersburg has a large percentage of the population between the ages of 25 to 44. The

retail and residences will target this segment of the population. The Residences at

Whetstone will contain a larger number of two and three bedroom apartments to

accommodate young couples and families that are not yet ready to buy a permanent home.

With millennials still struggling in today’s economy, many rent further into middle age. This

demographic will be our main target market.

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Exhibit 8: Unemployment Trend in Montgomery County

Unemployment saw an uptick during the financial crisis of the late 2000’s, jumping from

2.6% to 5.6% between 2007 and 2009. However, the unemployment rate has been on a

slow by steady decline since 2010.

Total employment in Montgomery County hit a high point of 464,876 in 2006, and saw a

subsequent drop that coincided with the financial crisis. Employment hit a 10-year low in

2010 with 441,887 in the workforce, but rebounded nicely to 451,869 by 2013 indicating

that more residents are joining or rejoining the workforce.

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Exhibit 9: Population Trend in Montgomery County

Montgomery County, Maryland has seen a steady increase in population since 1980. As of

2010, the county’s population is 971,777, and the county added another 44,900 as of 2013.

Forecasts for the county show a steady growth to 1,075,000 persons in 2020 to 1,141,000

persons in 2030.

Exhibit 10: Population Trend in City of Gaithersburg

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The city of Gaithersburg had a population of 60,019 in 2009 according to the city’s website.

The city will add another 4,763 by the end of 2014 and additional 5,575 by 2019. These

solid growth indicators strengthen the decision to include residential housing within the site

program.

Income

The 2012 American Community Survey (ACS) ranks Montgomery County as the eleventh

wealthiest county in the United States with a median household income of $94,965. That

number has since risen according to the 2013 ACS as the county now has a median

household income of 98,465, which puts it $46,526 above the national median household

income.

Exhibit 11: Households by Income in Montgomery County

The Shops at Whetstone is poised to take advantage of the improving economy, rising and

affluent population, proximity to transportation hubs, and proximity to major employers.

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These demographics influence the projected rental rates and allow us to be aggressive in

our projections.

Exhibit 12: Households by Income in City of Gaithersburg

The median household income of the city of Gaithersburg is $79,787, which puts the market

area $27,848 above the median household income of the United States. This median

household amount is indicative of the strong workforce in the area.

V. Residential Market Overview

Exhibit 13: Housing by Tenure in City of Gaithersburgvi

The City of Gaithersburg has a large amount of residents that are renters, with 43.4 percent

of units being renter-occupied.vii This is over eight percentage points higher than the

national average of 35 percent.viii Based on the information provided by the U.S. Census,

the market area rental housing stock has a diverse selection of all housing types. In

Owner-Occupied Units: 56.6%Renter-Occupied Units: 43.4%

HOUSING BY TENURE: CITY OF GAITHERSBURG

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Montgomery County, 1-unit single-family detached homes are the most prevalent, taking

up 47.98 percent share. However, within the city of Gaithersburg, 1-unit attached homes

are the most prevalent, taking up 32.44 percent share. 10 to 19 unit apartment buildings

are the second-most common housing type, accounting for 20.78 percent of the housing

stock. Both Montgomery County and the city of Gaithersburg have a similar share of

housing containing 20 or more units. Neither subject area contains a large amount of

housing between two and four units.

Exhibit 14: Housing by Type (Table)

The age of the housing stock in Montgomery County is diverse; however, the age of the

housing stock within the City of Gaithersburg is aging. Nearly a quarter of the housing in

the city was built between 1980 and 1989. Another 30 percent of the housing was built

between 1960 and 1979. The opportunity is there for The Residences at Whetstone to

come in and appeal to renters looking for a brand new multi-family option.

Exhibit 15: Housing by Age (Table)

Housing UnitsBy Type Number Percent Number Percent1-unit, detached 183,395 47.98% 5,015 19.92%1-unit, attached 71,984 18.83% 8,166 32.44%2 units 2,038 0.53% 369 1.47%3 or 4 units 5,039 1.32% 675 2.68%5 to 9 units 20,420 5.34% 1,920 7.63%10 to 19 units 35,446 9.27% 5,230 20.78%20 or more units 63,139 16.52% 3,569 14.18%Mobile home 750 0.20% 227 0.90%Boat, RV, van, etc. 43 0.01% 0 0.00%

Montgomery County City of Gaithersburg

Housing UnitsBy Age Number Percent Number PercentBuilt 2010 or later 4,894 1.28% 911 3.77%Built 2000 to 2009 42,062 11.00% 4,386 18.15%Built 1990 to 1999 49,319 12.90% 5,283 21.86%Built 1980 to 1989 81,447 21.31% 5,982 24.75%Built 1970 to 1979 63,348 16.57% 4,641 19.20%Built 1960 to 1969 56,258 14.72% 2,471 10.22%Built 1950 to 1959 46,872 12.26% 487 2.01%Built 1940 to 1949 20,181 5.28% 589 2.44%Built 1939 or earlier 17,873 4.68% 421 1.74%

Montgomery County City of Gaithersburg

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Exhibit 16: Housing by Type (Chart)

Exhibit 17: Housing by Age (Chart)

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Vacancy

The City of Gaithersburg boasts an apartment vacancy rate of 3.2 percent based on the

latest survey done by the city in 2012.ix There are a many residential complexes within the

city limits, and research has shown that there are more of residential complexes in the

pipeline to satisfy the future demand for rental housing in the area. With the ever-

increasing city and county population, vacancy rates should remain steady, even with the

amount of proposed new development in the pipeline.

Survey of General Occupancy Rental Communities

For the competitive analysis, 16 rental properties were evaluated within a two-mile radius

of the subject site. Age-restricted communities, subsidized communities and tax credit

properties were not included in the analysis.

Location of Communities

Exhibit 18: Location of Comparable and Competing Communities in Relation to Subject Site

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The majority of the competition communities lie to the east of Lakeforest Mall along N.

Summit Avenue. These communities include The Verandahs, Hidden Creek, Spring Ridge,

Crestwood Terrace, Summit Crest, Park Station, Streamside, and Gaithersburg Station.

Cider Mill and Walker House are adjacent to Lakeforest Mall to the north. Whetstone lies

directly south of Lakeforest Mall, and Hunt Club lies to the northwest of the mall. Directly

east and adjacent to the site is Point at Watkins Mill. Directly south of the site is

Paramount. Further south of the site along Clopper Road are Jefferson Pond and Eaves

Gaithersburg. All but Walker House, The Verandahs and Cider Mill fall within the

Gaithersburg city limits.

Exhibit 19: Competitive Properties Advertised Rents

Advertised Rents and Unit Sizes

Exhibit 19 shows the advertised rents of the 16 comparable properties. The average rent

for a studio unit among the four properties that feature those unit types is $1,177 for an

average size of 517 square feet, or $2.35 per square foot. The average rent for a one-

bedroom unit among all 16 properties is $1,337 for an average size of 779 square feet, or

$1.73 per square foot. The average rent for a two-bedroom, one-bath unit among the nine

properties that features those unit types is $1,490 for an average size of 953 square feet, or

$1.58 per square foot. The average rent for a two-bedroom, two-bath unit among the nine

ComparableProperties SF Rent Rent/SF SF Rent Rent/SF SF Rent Rent/SF SF Rent Rent/SF SF Rent Rent/SFParamount N/A N/A N/A 651 $1,536 $2.36 N/A N/A N/A 1025 $1,958 $1.91 1229 $2,164 $1.76Park Station N/A N/A N/A 787 $1,385 $1.76 N/A N/A N/A 1143 $1,696 $1.48 1277 $1,850 $1.45

Jefferson at Orchard Pond N/A N/A N/A 800 $1,362 $1.70 884 $1,691 $1.91 1087 $1,888 $1.74 1252 $2,395 $1.91Whetstone 450 $990 $2.20 750 $1,200 $1.60 975 $1,350 $1.38 N/A N/A N/A 1175 $1,300 $1.11

Eaves N/A N/A N/A 832 $1,258 $1.51 N/A N/A N/A 1040 $1,368 $1.32 1159 $1,505 $1.30Gaithersburg Station N/A N/A N/A 826 $1,473 $1.78 N/A N/A N/A 1268 $1,730 $1.36 N/A N/A N/A

Hidden Creek 720 $1,519 $2.11 830 $1,620 $1.95 N/A N/A N/A 1383 $2,212 $1.60 N/A N/A N/ACrestwood Terrace N/A N/A N/A 750 $1,125 $1.50 850 $1,350 $1.59 N/A N/A N/A 950 $1,575 $1.66

Hunt Club N/A N/A N/A 771 $1,535 $1.99 867 $1,647 $1.90 934 $1,813 $1.94 N/A N/A N/APoint at Watkins Mill N/A N/A N/A 847 $1,301 $1.54 1038 $1,476 $1.42 N/A N/A N/A N/A N/A N/A

Walker House 545 $1,154 $2.12 738 $1,247 $1.69 N/A N/A N/A 1204 $1,691 $1.41 N/A N/A N/ACider Mill N/A N/A N/A 815 $1,299 $1.59 1018 $1,720 $1.69 N/A N/A N/A 1226 $1,913 $1.56

Spring Ridge N/A N/A N/A 791 $1,200 $1.52 991 $1,455 $1.47 N/A N/A N/A 1088 $1,748 $1.61Streamside N/A N/A N/A 872 $1,070 $1.23 1108 $1,323 $1.19 N/A N/A N/A 1261 $1,520 $1.21Verandahs N/A N/A N/A 879 $1,650 $1.88 N/A N/A N/A 1064 $2,309 $2.17 1164 $2,491 $2.14

Summit Crest 352 $1,044 $2.97 526 $1,129 $2.15 848 $1,402 $1.65 N/A N/A N/A 1129 $1,779 $1.58Average 517 $1,177 $2.35 779 $1,337 $1.73 953 $1,490 $1.58 1127 $1,852 $1.66 1174 $1,840 $1.57

Studio One Bedroom Two Bedroom/One Bath Two Bedroom/Two Bath Three Bedroom

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properties that feature those unit types is $1,852 for an average size of 1,127 square feet,

or $1.66 per square foot. The average rent for a three-bedroom unit among the 11

properties that feature those unit types is $1,840 for an average size of 1,174 square feet or

$1.57 per square foot.

The comparable properties highlight in green in Exhibit 19 represent the properties that are

most similar to apartment complex design proposed by the development group. Their

average advertised rents are displayed separately in Exhibit 20

Exhibit 20: Most Comparable Properties Advertised Rents

Hidden Creek Apartments offers a studio unit at a price of $1,519 for 720 square feet, or

$2.11 per square foot. All five properties offer a one-bedroom unit at an average price of

$1,545 for 783 square feet, or $1.99 per square foot. Hunt Club Apartments offers a two-

bedroom, one-bath unit at a price of $1,490 for 953 square feet, or $1.58 per square foot.

All five properties offer a two-bedroom, two-bath unit at a price of $1,998 for 1,110 square

feet, or $1.82 a month. Paramount, Park Station and Verandahs offer three-bedroom units

for an average price of $2,168 for 1,223 square feet, or $1.78 a month.

Community Amenities

All five communities have a clubhouse, fitness center and swimming on the premises. All of

the communities offer in-unit washer and dryer, and all are pet friendly. Four properties,

Paramount, Hidden Creek, Hunt Club, and Verandahs, have a business center and picnic

area on the premises. Two of the four properties, Paramount and Hidden Creek, offer

secured parking on site. These properties do not have any kind of recreational courts

located on the premises.

ComparableProperties SF Rent Rent/SF SF Rent Rent/SF SF Rent Rent/SF SF Rent Rent/SF SF Rent Rent/SFParamount N/A N/A N/A 651 $1,536 $2.36 N/A N/A N/A 1025 $1,958 $1.91 1229 $2,164 $1.76Park Station N/A N/A N/A 787 $1,385 $1.76 N/A N/A N/A 1143 $1,696 $1.48 1277 $1,850 $1.45

Hidden Creek 720 $1,519 $2.11 830 $1,620 $1.95 N/A N/A N/A 1383 $2,212 $1.60 N/A N/A N/AHunt Club N/A N/A N/A 771 $1,535 $1.99 867 $1,647 $1.90 934 $1,813 $1.94 N/A N/A N/AVerandahs N/A N/A N/A 879 $1,650 $1.88 N/A N/A N/A 1064 $2,309 $2.17 1164 $2,491 $2.14

Average 720 $1,519 $2.11 783 $1,545 $1.99 953 $1,490 $1.58 1110 $1,998 $1.82 1223 $2,168 $1.78

Studio One Bedroom Two Bedroom/One Bath Two Bedroom/Two Bath Three Bedroom

38

Exhibit 21: Most Comparable Properties Amenities Offered

Construction Style

Exhibit 22: Most Comparable Properties Construction Style

Proposed New Residential Developmentx

There are many developments currently under construction or in the development pipeline.

Exhibit 23 shows the location of the various new developments within the city limits over

the last five years. The developments that would most compete against The Residences at

Whetstone in the future would be Crown Farm (#3), Fairgrounds (#8), Orchard Pond (#36 &

#37), The Spectrum at Watkins Mill (#50), and Watkins Mill Town Center (#54).

Properties Clubhouse Fitness Center Swimming Pool Business Center Picnic Area Rec Courts Secure Parking Washer/Dryer Pet FriendlyParamount X X X X X X X XPark Station X X X X X

Hidden Creek X X X X X X X XHunt Club X X X X X X XVerandahs X X X X X X X

Properties Construction StyleParamount 3-story apartments over 1st floor retailPark Station 4-story garden style apartments

Hidden Creek 3-story apartments over 1st floor retailHunt Club 3-story garden style apartmentsVerandahs 3-story garden style apartments

39

Exhibit 23: Location of New Developments in the City of Gaithersburg (2010 – 2019)

Currently, there are 4,705 apartment units in the pipeline within the city limits of

Gaithersburg. The largest development is Orchard Pond, which is planned to include 1,410

units. Roughly, over half of these units have already been completed. The second largest

development is Fairgrounds, where 1,350 units are in the pipeline. Exhibit 24 details the

entire competing product that is currently in the city’s development pipeline within the next

six years.

40

Exhibit 24: Development Pipeline in the City of Gaithersburg

Exhibit 25 shows the city’s approved number of units per year from 2005 to 2019. Noticeably,

the city suffered a lull in development during the financial collapse of 2007 and 2008, but has

bounced back in subsequent years.

Exhibit 25: Approved, Completed and Occupied Units in the City of Gaithersburg

Development Type of Unit Units Units To BeName Housing Total Completed CompletedAsbury Senior Housing 106 43 63

Cadence at Crown General 538 0 538Crown Multi-family General 70 0 70

Fairgrounds General 1,350 0 1,350Olde Towne Cedar Court General 79 75 4

Olde Towne "Y' Site General 199 0 199Orchard Pond General 1,410 747 663

Flowers Apartments General 32 23 9Paramont West General 110 0 110

The Majestic General 287 0 287Spectrum Age-Restricted 158 0 158

Washingtonian North General 366 0 366Total 4,705 888 3,817

Pipeline Report - City of Gaithersburg, MD

July 1 of Each Year Approved Units Expected Total New Total New Pop. Total Units Completed Occupied Units2005 N/A 0 N/A N/A 23,333 21,7942006 168 0 168 435 23,501 21,9522007 -103 0 -103 898 23,398 22,3192008 -307 0 -307 -1,458 23,091 21,7442009 146 0 146 476 23,226 21,9672010 230 0 230 194 22,997 21,9852011 470 0 470 2,047 23,447 22,8022012 214 0 214 520 23,656 23,0042013 720 0 720 1,034 24,376 23,4492014 364 0 364 967 24,740 23,7962015 873 0 873 1,821 25,613 24,4872016 142 0 142 329 25,755 24,5912017 542 0 542 781 26,297 24,8802018 274 0 274 245 26,571 24,9512019 1,258 0 1,258 2,399 27,829 25,997

Dwelling Units and Estimated Population - City of Gaithersburg

41

Residential Vision

The City of Gaithersburg experienced a good amount of new construction over the past 20

years, especially when compared to Montgomery County. The Residences at Whetstone

will face competition in the multi-family market when the product comes online in late

2017. However, the 243-unit project will offer a greater mix of two and three bedroom

apartments that will help the product establish a strong position in the marketplace. The

community will be a modern, upscale community with a variety of on-site amenities

including a pool and hot tub, secured parking, business center and an exercise room. The

proposed rents will be at the top of the spectrum, reflecting the quality of construction,

ideal location adjacent to The Fresh Market, proximity to Interstate 270, and amenities

located on-site. The Residences at Whetstone will offer workforce housing, with 37 of the

243 units allocated for this purpose.

VI. Office Market Overviewxi

The Gaithersburg/Germantown office submarket of Washington, D.C. and Montgomery

County continues to struggle to gain traction and has failed in the past to appeal to major

firms searching for a new corporate headquarters. As of the third quarter of 2013, leasing

activity was minimal, reaching only 36 percent of the submarket’s historical average of

114,600 square feet. Demand is slow, with net absorption bottoming out at negative 2,000

square feet in the third quarter. This brought the year-to-date total in 2013 to 40,000

square feet. The vacancy rate in the third quarter was high, with a reported range between

13 percent and 18 percent. There was only one large non-renewal lease executed, when

tech firm Herrick Tech leased 18,000 square feet at 20201 Century Boulevard,

approximately four miles from the subject site. There was also only one large renewal lease

executed, as De Leon & Stang renewed for 7,500 square feet at 100 Lakeforest Boulevard,

located one mile from the subject site. The remaining leasing activity was smaller-sized

tenants for less than 3,000 square feet.

42

Asking rents also fell over this time since demand was weak. The rents were down .8

percent, or 18 cents, to $23.72 per square foot on a full-service basis. The submarket is

very dependent on the regional recovery of the Washington, D.C. area, as that recovery

allows growth to spread north into the submarket.

Proposed New Officexii

Currently, BP Realty, LLC, developer of Watkins Mill Town Center, has the only proposed

office space in the market scheduled to break ground this year. The current plan calls for

175,998 square feet of Class A office directly across the street from the subject site. Asking

rents have been withheld, but based on comparable data, they are expected to be around

$40.00 per square foot for a full-service lease. Currently, 82.4 percent of the space has

been leased.

Boston Properties, Inc. has three phases proposed of office development in its pipeline

located at the Exit 9A Interchange of Interstate 270. This proposed office development is

located approximately four miles from the subject site. Phase 1 contains 300,000 square

feet of leasable space, Phase 2 contains 216,000 square feet of leasable space and Phase 3

contains 200,000 square feet of leasable space. Currently, the development is not yet for

lease, but the projected rents will start between $39.50 and $42.00 per square foot on a

full-service lease.

Lastly, Monument Realty has a proposed 260,000 square feet of office located at 735

Watkins Mill Road, located .5 miles from the subject site on the western side of I-270. It is

currently 100% leased, but a construction start date and rents have not been disclosed.

Office Vision

The office submarket is struggling within the Gaithersburg/Germantown submarket. With

the abundance of office space looking slated to come to market within the next couple of

years in a weak office market, it would be high-risk to include a lot of office space in the

development. The design for the site is programmed to include no more than 25,000

square feet of office space. The office space is designed to appeal to smaller sized tenants

43

looking for 4,000 square feet or less. These types of tenants would include physicians,

dentists and small law offices. The rental rates will be comparable with other new office

product that will be coming online at the same time. The office space will contain quality

finishes to justify the asking rents.

VII. Retail Market Overviewxiii

National Retail

The national retail market is slowly emerging from the depths of the recession. According

to data from the National Council of Real Estate Investment Fiduciaries, U.S. metropolitan

areas added just 6.5 million square feet of new retail construction in 2013, and 8 million

square feet will be added by the end of 2014. REIS recently reported that the national

vacancy rate for neighborhood and community shopping centers was 10.3 percent.

Countless retailers remain susceptible to the increasing popularity of online retail. Online

retailer, Amazon, currently has the seventh most popular website according to traffic

rankings by Alexa.com.xiv

Local Retail

As of 2013, the City of Gaithersburg’s retail vacancy rate was 3.6 percent.xv The city is

making a conscious effort to bring in more upscale retailers to the area to increase

consumer spending along the MD-355 corridor. Most of the retail space is concentrated

along the MD-355 corridor, which sees a heavy amount of traffic on a daily basis. The

redevelopment site is situated nearby numerous retail and commercial centers providing an

array of different eating and shopping selections. Much of the retail and commercial

surrounds Exit 11 of I-270 in close proximity to downtown Gaithersburg. Retailers along

MD-355 include Toys “R” Us, Panera Bread, Costco, Subway, KFC, FedEx, IHOP, and Boston

Market. JC Penny, Macy’s, Lord & Taylor, and Sears anchor Lakeforest Mall, located one

mile from the subject site. There are an additional 160+ retailers including American Eagle

Outfitters, Brookstone, Forever 21, New York & Company, Ruby Tuesday, Victoria’s Secret,

and Red Robin. Most of the retail is discount to mid-level retail.

44

Proposed New Retail Developmentxvi

The Spectrum at Watkins Mill, located across the street from the subject site, has nearly

45,000 square feet of retail in the pipeline. The smallest space in the proposed

development is 900 square feet, and the projected rent is $45.00 a year triple net lease.

Montgomery Village Marketplace, located one mile from the subject site, has 8,800 square

feet of proposed retail development projected to come online in the near future.

Downtown Crown, located four miles to the south of the subject site, has 29,000 square

feet of retail currently under construction. This retail is expected to come online in

December 2014.

Retail Vision

While the city of Gaithersburg has a median income that is higher than the national

average, there is a strong presence of mid-level retailers in the market area. The higher-end

retailers have more of a presence in market areas closer to Washington, D.C. proper

including Bethesda, Rockville and Friendship Heights. Given that Gaithersburg is a more

suburban market area, it is pertinent to attract some national mid-level retailers that do not

have a commanding presence in the area. Anchoring the center with The Fresh Market will

provide the neighborhood with a food market and premium produce store, and will allow

the retailer to increase its presence along the Interstate 270 corridor. The other major

anchor, Tilted Kilt, provides the neighborhood with a nationally recognized restaurant and

bar – something the area sorely needs. By introducing new lunch and after-work dining

options, The Shops at Whetstone will be positioned to take advantage of the large

workforce in the area. A mix of local and nationally recognized mid-level retailers will fill

the remaining retail space. Rent will be in line with other retail that will be coming online

during the same time. High visibility along MD-355 will help justify asking rents.

45

VII. Financial Analysis

Introduction

The Shops at Whetstone is a financially viable development project with strong cash flow

potential. Throughout the financial analysis, a slightly conservative approach is taken in the

future income factor assumptions to demonstrate the performance strength of the project.

The analysis covers the project though the first two years of lease-up and ten years of

operation.

The financial analysis will assume a disposition in year 2023, five years after stabilization, or

a disposition in year 2028, ten years after stabilization. Given the growing Gaithersburg

market, the assumed exit cap rate for the project will be six percent for retail and office,

and five percent for residential. However, given the project’s cash flow potential and

growing market, a long-term hold position is advised.

Exhibit 26: Project Program

The project consists of approximately 100,050 square feet of retail, 23,000 square feet of

office, 277,000 square feet of residential, and a 3,750 square foot public plaza. The site also

has 143,000 square feet of structure parking. An assumed core loss of 7.5 percent for office

and retail and a core loss 13.5 percent for residential is factored into the income analysis.

The total net leasable space for each use is approximately 92,500 square feet of retail,

21,500 square feet of office and 239,500 square feet of residential. Exhibit 27 details the

programming per building and the gross and net square footage per floor.

Total Bld. Footprint 164,490 Uses GSF NSFRetail 100,050 92,546 Office 23,300 21,553

Residential 277,000 239,605 Parking 142,760 142,760

Plaza 3,750 3,750 Total 546,860 500,214

TOTAL PROGRAM - THE SHOPS AT WHETSTONE

46

Exhibit 27: Programming for Individual Buildings

ASSUMPTIONS: ASSUMPTIONS:Bld. Footprint 50,600 Bld. Footprint 6,400

Uses GSF NSF Uses GSF NSFRetail 50,600 46,805 Retail 6,400 5,920

Parking 50,600 50,600 Total 6,400 5,920 Total 101,200 97,405 Floor Use GSF NSFFloor Use GSF NSF 1 Retail 6,400 5,920

1 Retail 50,600 46,805 Plaza 3,750 3,750 P1 Parking 50,600 50,600

Building A - Fresh Market/Retail Building B - Tilted Kilt/Plaza

ASSUMPTIONS: ASSUMPTIONS:Bld. Footprint 23,300 Bld. Footprint 84,190

Uses GSF NSF Uses GSF NSFRetail 23,300 21,553 Retail 19,750 18,269 Office 23,300 21,553 Residential 277,000 239,605 Total 23,300 43,105 Parking 92,160 92,160 Floor Use GSF NSF Total 19,750 18,269

1 Retail 23,300 21,553 Floor Use GSF NSF2 Office 23,300 21,553 1A Retail 19,750 18,269

1B Residential 41,400 35,811 2 Residential 58,900 50,949 3 Residential 58,900 50,949 4 Residential 58,900 50,949 5 Residential 58,900 50,949

P1 Parking 23,040 23,040 P2 Parking 23,040 23,040 P3 Parking 23,040 23,040 P4 Parking 23,040 23,040

Building C - Retail/Office Refurbish Building D - Stone Street Retail/Apartments

47

Construction Schedule

Exhibit 28: Illustrated Construction Schedule

The project will begin its due diligence and entitlements period on January 5, 2015.

Demolition and construction will commence on January 6, 2016. The first phase of the

project will include the demolition of the existing buildings at a cost of $229,250, and the

construction of the shell for The Fresh Market, attached retail and structured parking

garage at a building cost of $10,442,500. The existing retail building on-site will be

refurbished during this time, and the additional floor of office space will be added above the

retail space at a building cost of $5,475,500. Lastly, the first phase will include the

construction of the Tilted Kilt and the public plaza at a total building cost of $965,500. The

construction of the remaining portion of the development, the residential complex with first

floor retail, will commence in November of 2016. The total building cost for this portion of

the development will be $50,398,950. Substantial completion is estimated to be in

December 2017. The entire development process will take approximately 34 months.

Exhibit 29 displays the estimated construction costs for the development.

48

Construction and Development Costs

Exhibit 29: Construction Cost Estimates

Exhibit 30 and Exhibit 31 are snapshots of the project’s total construction costs and total

development costs. Whetstone, LLC, the site developer, already owns the land so there is

an assumed acquisition price of $0. With the addition of on-site, off-site, financing and

capitalized costs, the total development cost for The Shops at Whetstone is over

$101,000,000. Since Whetstone, LLC is developing the project; a development fee has not

been added to the project. A detailed breakdown of the construction and development

costs can be found in the appendix.

Exhibit 30: Construction Costs

Fresh Market & Parking Garage: 9,566,500$ Existing Retail Reposition: 4,660,000$ Stone Street Retail Building #1: 768,000$ Stone Street Retail Building #2: 2,370,000$ Residential Building & Parking Garage: 47,535,200$ Demolition of Existing Buildings: 229,250$ Plaza: 37,500$ General Site Work/Infrastructure 3,069,498$ Contingency: 5,400,936$ Allowance: 2,345,250$ Total: 75,982,134$ Total Construction Costs PSF: 138.94$

CONSTRUCTION & ALLOWANCE COSTS

49

Exhibit 31: Total Development Costs

Funding Sources

The site owner, Whetstone, LLC, will contribute $25,405,170 to cover the remaining 25

percent of equity needed to fund the development. There are no city or county loans

expected to fund the project, and no mezzanine financing is included. Exhibit 32 displays

the assumptions used in calculating the construction loan and permanent loan that will take

out the construction loan at substantial completion. Given Whetstone, LLC’s strong

financial backing by the real estate investment trust, Kimco Realty, the company will pursue

a loan from a reputable bank at 75 percent loan-to-value (LTV), which will equal

$76,215,519. The loan will be for a term of 25 years at a five percent interest rate.

Exhibit 32: Loan Assumptions

Acquisition: -$ 0.00%On-Site: 4,311,448$ 4.24%Off-Site: 880,000$ 0.87%Construction: 72,912,636$ 71.75%Soft: 6,964,376$ 6.85%Non-Cash/Capitalized: 9,179,799$ 9.03%Construction Financing: 5,354,676$ 5.27%Permanent Financing: 1,017,744$ 1.00%Reserves: 1,000,000$ 0.98%Develoment Fee: -$ 0.00%Total Development Costs: 101,620,679$ 100.00%Total Development Costs PSF: 185.83$

DEVELOPMENT COSTS

50

Exhibit 33: Sources of Funds

Exhibit 34 shows the construction draw schedule for the two years of construction. For this

analysis, it is assumed that the draws are divided over 24 months with retainage paid in the

final month of construction leading up to substantial completion. With the residential

portion of the development slated to begin at the end of 2016, a larger construction draw

will be taken during this time. This larger drawn is reflected in the draw schedule. A full

construction draw schedule can be found in the appendix.

Exhibit 34: Construction Draw Schedule

Construction Months 24 Construction Loan: 94,248,259$ Loan Origination: 0.50% 471,241$ Rate: 5.75%Retainage: 10.00%

Month Draw Retainage Net Draw Balance InterestJan-16 4,284,012$ (428,401)$ 3,855,611$ 3,855,611$ 18,475$ Dec-16 10,281,628$ (1,028,163)$ 9,253,465$ 9,253,465$ 192,138$ Dec-17 8,568,024$ 3,427,209$ 17,136,047$ 18,678,291$ 290,599$ TOTALS 94,248,259$ 94,248,259$ 4,883,434$

CONSTRUCTION DRAW SCHEDULE

51

Project Snapshot and Potential Returns

The entire project is expected to completely stabilize approximately ten months after

substantial completion of The Residences at Whetstone. Exhibit 35 shows the project’s

start of construction, stabilization and exit year. It also shows the project’s total

development cost and sales price at time of disposition. The development’s value will more

than double over the period of ownership.

Exhibit 35: Project Timeline

Exhibit 36 details the project’s cash flow for the first 12 years of operation from an after-tax,

before-tax and unleveraged financial position. The project shows a substantial internal rate

of return and large net present value at disposition indicating that the initial cash

investment is worth the cash output year after year using a 12 percent hurdle rate.

Total Development Cost: $101,620,679Construction Commences: January 4, 2016Substantial Completion: December 21, 2017Full Stabilization: October 31, 2018Hold Period: 10 YearsExit Year: December 31, 2028Project Sales Price: $215,544,858

PROJECT TIMELINE SNAPSHOT

52

Exhibit 36: Cash Flow and Return Analysis (After-Tax, Before-Tax and Unleveraged)

53

Income Assumptions and Analysis

In calculating the Potential Gross Income over the course of operation, the following

assumptions were used In Exhibit 37 to accurately gauge future returns.

Exhibit 37: Income Assumptions

Exhibit 38 displays the core loss percentage factored in to the analysis to arrive at the

leasable square footage per programming use.

Vacancy Rate Retail: 10.00%Retail Leakage: 10.00%Retail Management: 5.00%Vacancy Rate Office: 10.00%Vacancy Rate Residential: 5.50%Annual Residential Rate Increase: 3.00%Five-Year Retail Rate Increase: 5.00%Annual Office Rent Increase: 2.00%Annual Parking Increase: 1.50%Annual Expense Increase: 3.00%

FUTURE INCOME FACTOR ASSUMPTIONS

54

Exhibit 38: Core Loss Factor

Exhibit 39 shows the average rent charged per programming use, which is used to determine

the project’s potential income each year.

Exhibit 39: Potential Rental Income

Workforce Housing

Workforce housing was factored into the unit mix for The Residences at Whetstone. The

maximum amount of rent that can be charged for workforce housing was determined by

accounting for the Area Median Income (AMI) of $79,787 for the City of Gaithersburg.

Exhibit 40 displays the heavy mix of two and three bedroom units within the development.

Exhibit 40: Apartment Mix

Core Loss Office/Retail 7.50% of GSFCore Loss Residential 13.50% of GSF

% NON-LEASABLE SPACE

Type Total Area Leaseable Rent PSF Yearly RentRetail: 100,050 92,546 41.26$ 3,610,300$ Office: 23,300 21,553 27.33$ 667,313$ Residential: 277,000 239,605 2.38$ 7,146,322$ Structured Parking (Leasable): 92,160 92,160 125.00$ 554,190$ Total Potential Rental Income: 492,510 445,864 11,978,124$

POTENTIAL RENTAL INCOME AT STABILIZATION (YEAR 2019)

Type Units Mix Sq./Ft.One Bedroom: 73 30% 750 Two Bedroom/Two Bath: 97 40% 1,025 Three Bedroom: 73 30% 1,175 Total: 243 100% Weight: 849

APARTMENT RENTALS

55

Exhibit 41: Workforce Housing Guidelines in the City of Gaithersburg

Exhibit 42: Apartment Rents with Workforce Housing Included

Lease-Up Schedule

Lease-up activity for The Shops at Whetstone will take place over the course of 18 to 24

months. A flurry of pre-leasing activity is expected in January of 2017 and 2018. It is

projected that the development will achieve full occupancy in October of 2018. For the

residential portion of the development, a free rent impact factor of five percent and other

concessions factor of two percent were used as an operational expense in 2018.

Exhibit 43: Lease-Up Schedule in 2017 and 2018

Houshold Size Median 30% Ratio Rent1 $37,450 - $59,920 $48,685 $14,606 $1,2172 $42,800 - $68,480 $55,640 $16,692 $1,3913 $48,150 - $77,040 $62,595 $18,779 $1,565

Moderately Priced Dwelling Unit

January June December TotalPOTENTIAL RENTAL INCOME:

Potential Office Income 53,450$ 53,450$ 53,450$ 641,400$ Potential Retail Income 224,833$ 224,833$ 224,833$ 2,698,000$ Potential Residential Income -$ -$ -$ -$ Total Potential Income 278,283$ 278,283$ 278,283$ 3,339,400$ Vacancy & Credit Loss 187,075$ 84,808$ 26,033$ 1,098,058$

EFFECTIVE GROSS REVENUE: 91,208$ 193,475$ 252,250$ 2,241,342$ Free Rent Impact -$ -$ -$ -$ Other Concessions -$ -$ -$ -$ Real Estate Taxes 5,517$ 5,517$ 5,517$ 66,208$

TOTAL OPERATING EXPENSES: 5,517$ 5,517$ 5,517$ 66,208$

NET OPERATING INCOME (NOI): 85,691$ 187,958$ 246,733$ 2,175,134$

2017 1ST YEAR LEASE-UP SCHEDULE

56

Property Performance at Stabilization

Exhibit 44 shows the financial and operational ratios for the first year of operation. The

project demonstrates a strong financial indicators at stabilization: a break-even figure of

66.83 percent, debt service coverage ratio of 1.73, operational expense ratio of 21.62

percent, stabilized debt yield of 12.16 percent, net income multiplier at 10.86, and an equity

multiple of 6.90.

Exhibit 44: Property Performance Ratios

January June December TotalPOTENTIAL RENTAL INCOME:

Potential Office Income 53,450$ 53,450$ 53,450$ 641,400$ Potential Retail Income 300,858$ 300,858$ 300,858$ 3,610,300$ Potential Residential Income 530,140$ 530,140$ 530,140$ 6,361,677$ Potential Res. Parking Income 45,500$ 45,500$ 45,500$ 546,000$ Total Potential Income 929,948$ 929,948$ 929,948$ 11,159,377$ Vacancy & Credit Loss 567,334$ 241,511$ 0$ 2,842,131$

EFFECTIVE GROSS REVENUE: 362,614$ 688,437$ 929,948$ 8,317,246$ Free Rent Impact 26,507$ 26,507$ 26,507$ 318,084$ Other Concessions 10,603$ 10,603$ 10,603$ 127,234$ Real Estate Taxes 17,709$ 17,709$ 17,709$ 212,502$

TOTAL OPERATING EXPENSES: 54,818$ 54,818$ 54,818$ 657,819$

NET OPERATING INCOME (NOI): 307,796$ 633,619$ 875,130$ 7,659,427$

2018 2ND YEAR LEASE-UP SCHEDULE

57

Income and Expenses

A detailed income and expense statement was created for the first 12 years of operation.

Below, Exhibit 45 details the project at stabilization, in year five and in year ten.

Exhibit 45: Income and Expense Statement

Depreciation

Exhibit 46 breaks down the property basis and the allocated amounts for depreciation.

Using the Modified Accelerated Cost Recovery System, the property’s residential portion of

the development is depreciated over the course of 27.5 years, the commercial portion over

39 years and the appliances within the residences over the course of seven years. The

58

project’s property basis for income and tax purposes is $98,685,435. A full table detailing

the amounts allocated can be found in the appendix.

Exhibit 46: Property Basis and Depreciation

Exhibit 47 details the yearly principal and interest deduction, and the year depreciation

amount for each programming use. The fees incurred for permanent financing total

$2,126,994, and they are amortized as an expense over the life of the loan.

Exhibit 47: Depreciation and Amortization Schedule

Allocated Total Dev. Property (Non Basis) Residential Commercial 7-Year AmortizeCosts Cost Basis Expense Depreciable Depreciable Depreciation (Expense)Total Development Cost: 101,583,179$ 98,685,435$ 1,000,000$ 46,960,148$ 50,920,985$ 575,052$ 2,126,994$

PROPERTY BASIS & DEPRECIATION

59

Cash Flow Analysis

Exhibit 48 analyses the property’s yearly before-tax and after-tax cash flow. An assumed

rate of 40% was used for Federal and State taxation on ordinary income. The property has a

substantial after-tax cash flow during each year of operation after stabilization.

Exhibit 48: Cash Flow Analysis

Sales Schedule

Lastly, Exhibit 49 determines both the before and after tax sale proceed returns. It also

accounts for accumulated depreciation at time of sale and the project’s adjusted basis. A

six percent capitalization rate was used to determine the sales price for the retail & office

portion of the development, and a five percent capitalization rate was used to determine

the sales price for the residential portion of the development. The total gain from the

development in 2028 is nearly $150,000,000. A substantial return on investment.

60

Exhibit 49: Sales Schedule

Conclusion

In conclusion, the proposed redevelopment project has the potential to add enormous

value to the existing site. The vision for the development takes advantage of its

topography, location and surrounding market. With its ideal location in close proximity to

the future Interstate 270 interchange, this site has the potential to be a very profitable

development for the company’s portfolio and an economic boon for the City of

Gaithersburg.

61

XI. APPENDIX

62

Exhibit 1: Development Property Costs

Property CostsContingency

Current Amount

Adjusted Amount

Total Amount

Sq./Ft.Com

ments

Land-

$ -

$ -

$ Land O

ption-

$ -

$ -

$ Land Receivable

-$

-$

-$

Land Sale-

$ -

$ -

$ Land Sale - Tenant Reim

bursement

-$

-$

-$

Legal Fees-

$ -

$ -

$ M

iscellaneous-

$ -

$ -

$ Survey

-$

-$

-$

Title-

$ -

$ -

$ Title Escrow

- Closing-

$ -

$ -

$ Subtotal

-$

-$

-$

Contingency - Property Costs7%

-$

-$

-$

Subtotal - Property Costs-

$ -

$ -

$

63

Exhibit 2: Development Soft Costs

Development - Soft Costs

ContingencyCurrent Am

ountAdjusted Am

ountTotal Am

ountSq./Ft.

Comm

ents

Bonds2%

-$

-$

-$

Construction Managem

ent-

$ -

$ -

$ Construction Period-Ins

-$

-$

-$

Construction Permits

-$

-$

-$

Consulting - Other

-$

-$

-$

Consulting - Reimbursable

-$

-$

-$

Copies, Messengers &

General Expenses-

$ -

$ -

$ Developm

ent Fees-

$ -

$ -

$ Engineering - Civil

500,000$

-$

500,000$

Engineering - Environment

75,000$

-$

75,000$

Engineering - Geotechnical75,000

$ -

$ 75,000

$ Engineering - Reim

bursable50,000

$ -

$ 50,000

$ Engineering - Traffic

100,000$

-$

100,000$

Leasing Comm

issions1,509,872

$ 1,509,872

$ Legal Fees

-$

-$

-$

Marketing/Prom

otion-

$ -

$ -

$ M

aterial Testing-

$ -

$ -

$ M

EP - Design-

$ -

$ -

$ M

unicipal Fees2,540,517

$ -

$ 2,540,517

$ 2.5%

of development cost for im

pactLost Incom

e from Existing Retail

765,612$

-$

765,612$

Lost income from

existing retailStructural Design - Architectural

665,250$

-$

665,250$

Survey - As-Built50,000

$ -

$ 50,000

$ Travel &

Entertainment

-$

-$

-$

Subtotal6,331,251

$ -

$ 6,331,251

$ Contingency - Developm

ent Soft Costs10%

633,125$

-$

633,125$

Subtotal - Development - Soft Costs

6,964,376$

-$

6,964,376$

64

Exhibit 3: Development O

ff-Site and On-Site Costs

Off-Site Costs


ountAdjusted Am

ountTotal Am

ountSq./Ft.

Comm

ents

Off-Site W

ork - General500,000

$ -

$ 500,000

$ Traffic adjustm

entsPylon/M

onument Signs

-$

-$

-$

Roadway Im

provements

-$

-$

-$

Retaining Walls

-$

-$

-$

Site - Contractor Overhead + Profit

-$

-$

-$

Site Lighting-

$ -

$ -

$ Site W

ork Reimbursem

ents - Tenant-

$ -

$ -

$ Traffic Signals

300,000$

-$

300,000$

One signal added &

middle turn lane

Subtotal800,000

$ -

$ 800,000

$ Contingency - O

ff-Site Costs10%

80,000$

-$

80,000$

Subtotal - Off-Site Costs

880,000$

-$

880,000$

On-Site Costs


ountAdjusted Am

ountTotal Am

ountSq./Ft.

Comm

ents

Demolition

-$

-$

-$

Municipal Developm

ent Costs - Testing50,000

$ -

$ 50,000

$ M

unicipal Development Costs - Inspection

50,000$

-$

50,000$

On-Site W

ork - General3,069,498

$ -

$ 3,069,498

$ $350K per acre

On-Site W

ork - Utility Hookup350,000

$ -

$ 350,000

$ Pylon/M

onument Signs

150,000$

-$

150,000$

Site Lighting250,000

$ -

$ 250,000

$ Site Screening

-$

-$

-$

Site Work Reim

bursements - Tenant

-$

-$

-$

Traffic Signals-

$ -

$ -

$ Subtotal

3,919,498$

-$

3,919,498$

Contingency - On-Site Costs

10%391,950

$ -

$ 391,950

$

Subtotal - On-Site Costs

4,311,448$

-$

4,311,448$

65

Exhibit 4: Development Hard/Building Costs

Hard/Building CostsContingency

Current Amount

Adjusted Amount

Total Amount

Sq./Ft.Com

ments

Anchor/Major Tenant

-$

-$

Anchor/Major Tenant Building Allow

ance876,000

$ 876,000

$ Anchor/M

ajor Tenant Shell4,826,000

$ 4,826,000

$ Parking Garage Structure Under Anchor

4,740,500$

-$

4,740,500$

Total Cost: $10,442,500 (Green Roof)Base Building Costs

-$

-$

-$

Base Building Costs - Roof-

$ -

$ -

$ Building Dem

olition229,250

$ -

$ 229,250

$ $3.5 per square foot existing

Environmental Rem

ediation-

$ -

$ -

$ M

ulti-Tenant Building (Existing)4,660,000

$ 4,660,000

$ M

ulti-Tenant Building (Existing) Allowance

815,500$

815,500$

Total Cost: $5,475,500Residential Building

38,780,000$

38,780,000$

Residential Garage8,755,200

$ 8,755,200

$ Retail Tucked Under Residential

2,370,000$

2,370,000$

Retail Under Residential Allowance

493,750$

493,750$

Total Cost: $50,398,950M

ain Street Building #1768,000

$ -

$ 768,000

$ M

ain Street Building #1 Allowance

160,000$

160,000$

Total Cost: $928,000Plaza

37,500$

37,500$

$10 per square footReim

bursements

-$

-$

-$

Small Store Tenant Allow

ance-

$ -

$ -

$ Sm

all Store White Box

-$

-$

-$

Subtotal67,511,700

$ -

$ 67,511,700

$ Contingency - Hard/Building Costs

8%5,400,936

$ -

$ 5,400,936

$

Subtotal - Hard/Building Costs72,912,636

$ -

$ 72,912,636

$

66

Exhibit 5: Development Capitalized Costs and Total Project Cost

Capitalized/Non-Cash Costs


ountAdjusted Am

ountTotal Am

ountSq./Ft.

Comm

ents

Capitalized CAM-

$ -

$ -

$ Capitalized Insurance

-$

-$

-$

Capitalized Interest4,883,434

$ -

$ 4,883,434

$ Capitalized Legal Costs

-$

-$

-$

Capitalized Other

-$

-$

-$

Capitalized Payroll4,253,423

$ -

$ 4,253,423

$ Capitalized Real Estate Taxes

42,942$

-$

42,942$

Subtotal - Capitalized/Non-Cash Costs

9,179,799$

-$

9,179,799$

Total Project Costs:94,248,259

$ -

$ 94,248,259

$

67

Exhibit 6: Capitalized Company Time (Whetstone, LLC)

Exhibit 7: Existing Retail Cash Flow (Loss)

68

Exhibit 8: Uses Schedule

69

Exhibit 9: Construction Draw Schedule

Exhibit 10: Ancillary Residential Income Breakdown

70

Exhibit 11: Retail & Office Cash Flow/Commission Estimates

Retail/Office Cash Flow Sq/Ft Rent/PSF Term Monthly Rent Annual Rent Commission Commission PSF CommissionAnchor/MajorMarket Fresh 37,000 20.00$ 20 61,667$ 740,000$ 3% -$ 444,000$ Home Goods Store 13,600 43.00$ 10 48,733$ 584,800$ 4% -$ 23,392$

Subtotal Anchor/Major 50,600 31.50$ 110,400$ 1,324,800$ -$ 467,392$

Stone Street RetailersFemale Clothier 2,700 45.00$ 10 10,125$ 121,500$ 4% -$ 48,600$ Pizzeria 2,000 45.00$ 10 7,500$ 90,000$ 4% -$ 36,000$ Spa/Salon 3,500 47.00$ 10 13,708$ 164,500$ 4% -$ 65,800$ Bakery/Bagels/Coffee 3,000 46.00$ 10 11,500$ 138,000$ 4% -$ 55,200$ Drug Store 6,050 46.00$ 10 23,192$ 278,300$ 4% -$ 111,320$ Male Clothier 2,500 48.00$ 10 10,000$ 120,000$ 4% -$ 48,000$ Building #1 Subtotal 19,750 46.17$ 76,025$ 912,300$ -$ 364,920$

Tilted Kilt Restaurant/Bar 6,400 46.00$ 10 24,533$ 294,400$ 4% -$ 117,760$ Building #2 Subtotal 6,400 46.00$ 24,533$ 294,400$ -$ 117,760$

Subtotal Stone Street Retailers 26,150 46.08$ 100,558$ 1,206,700$ -$ 482,680$

Retail Building #2Large Restaurant/Bar 6,500 47.00$ 10 25,458$ 305,500$ 4% -$ 122,200$ Bruster's Ice Cream 3,500 45.00$ 10 13,125$ 157,500$ 4% -$ 63,000$ Furniture Store 5,300 46.00$ 10 20,317$ 243,800$ 4% -$ 97,520$ Mexican Restaurant 4,000 45.00$ 10 15,000$ 180,000$ 4% -$ 72,000$ Shoe Store 4,000 48.00$ 10 16,000$ 192,000$ 4% -$ 76,800$

Subtotal Retail Building #2 23,300 46.20$ 89,900$ 1,078,800$ -$ 431,520$

Office SpaceLarge Lawyer Office 6,000 28.00$ 5 14,000$ 168,000$ 4% -$ 33,600$ Lawyer Office 3,000 27.00$ 5 6,750$ 81,000$ 4% -$ 16,200$ Doctor Office 4,000 29.00$ 5 9,667$ 116,000$ 4% -$ 23,200$ Pediatrician Office 3,000 25.00$ 5 6,250$ 75,000$ 4% -$ 15,000$ Dentist Office 3,000 27.00$ 5 6,750$ 81,000$ 4% -$ 16,200$ Technology Office 4,300 28.00$ 5 10,033$ 120,400$ 4% -$ 24,080$

Subtotal Office Space 23,300 27.33$ 53,450$ 641,400$ -$ 128,280$

Total - Retail/Office Cash Flow 123,350 37.78$ 354,308$ 4,251,700$ -$ 1,509,872$

71

Exhibit 12: Retail & Office Expense Estimates

Tenant Specific Expenses Sq/Ft Building/PSF Building Allow/PSF Allowance Shell/PSF Shell Architect/PSF ArchitectAnchor/MajorMarket Fresh 37,000 -$ -$ 20.00$ 740,000$ 90.00$ 3,330,000$ 3.00$ 111,000$ Home Goods Store 13,600 -$ -$ 10.00$ 136,000$ 110.00$ 1,496,000$ 3.00$ 40,800$ Parking Garage 49,900 -$ -$ -$ -$ 95.00$ 4,740,500$ 3.00$ 149,700$

Subtotal Anchor/Major 100,500 -$ 10.00$ 876,000$ 98.33$ 9,566,500$ 3.00$ 301,500$

Stone Street RetailersFemale Clothier 2,700 -$ -$ 25.00$ 67,500$ 120.00$ 324,000$ 5.00$ 13,500$ Pizzeria 2,000 -$ -$ 25.00$ 50,000$ 120.00$ 240,000$ 5.00$ 10,000$ Spa/Salon 3,500 -$ -$ 25.00$ 87,500$ 120.00$ 420,000$ 5.00$ 17,500$ Bakery/Bagels/Coffee 3,000 -$ -$ 25.00$ 75,000$ 120.00$ 360,000$ 5.00$ 15,000$ Drug Store 6,050 -$ -$ 25.00$ 151,250$ 120.00$ 726,000$ 5.00$ 30,250$ Male Clothier 2,500 -$ -$ 25.00$ 62,500$ 120.00$ 300,000$ 5.00$ 12,500$ Building #1 Subtotal 19,750 -$ -$ 25.00$ 493,750$ 120.00$ 2,370,000$ 5.00$ 98,750$

Tilted Kilt Restaurant/Bar 6,400 -$ -$ 25.00$ 160,000$ 120.00$ 768,000$ 5.00$ 32,000$ Building #2 Subtotal 6,400 -$ -$ 25.00$ 160,000$ 120.00$ 768,000$ 5.00$ 32,000$

Subtotal Stone Street Retailers 26,150 -$ -$ 25.00$ 653,750$ 120.00$ 3,138,000$ 5.00$ 130,750$

Retail Building #2Large Restaurant/Bar 6,500 -$ -$ 15.00$ 97,500$ 60.00$ 390,000$ 5.00$ 32,500$ Bruster's Ice Cream 3,500 -$ -$ 15.00$ 52,500$ 60.00$ 210,000$ 5.00$ 17,500$ Furniture Store 5,300 -$ -$ 15.00$ 79,500$ 60.00$ 318,000$ 5.00$ 26,500$ Mexican Restaurant 4,000 -$ -$ 15.00$ 60,000$ 60.00$ 240,000$ 5.00$ 20,000$ Shoe Store 4,000 -$ -$ 15.00$ 60,000$ 60.00$ 240,000$ 5.00$ 20,000$

Subtotal Retail Building #2 23,300 -$ -$ 75.00$ 349,500$ 60.00$ 1,398,000$ 5.00$ 116,500$

Office SpaceLarge Lawyer Office 6,000 -$ -$ 20.00$ 120,000$ 140.00$ 840,000$ 5.00$ 30,000$ Lawyer Office 3,000 -$ -$ 20.00$ 60,000$ 140.00$ 420,000$ 5.00$ 15,000$ Doctor Office 4,000 -$ -$ 20.00$ 80,000$ 140.00$ 560,000$ 5.00$ 20,000$ Pediatrician Office 3,000 -$ -$ 20.00$ 60,000$ 140.00$ 420,000$ 5.00$ 15,000$ Dentist Office 3,000 -$ -$ 20.00$ 60,000$ 140.00$ 420,000$ 5.00$ 15,000$ Technology Office 4,300 -$ -$ 20.00$ 86,000$ 140.00$ 602,000$ 5.00$ 21,500$

Subtotal Office Space 23,300 -$ -$ 20.00$ 466,000$ 140.00$ 3,262,000$ 5.00$ 116,500$

Total - Retail/Office Expenses 173,250 -$ -$ 32.50$ 2,345,250$ 104.58$ 17,364,500$ 4.50$ 665,250$

72

Exhibit 13: First Year Lease-Up Schedule

2017 1ST YEAR LEASE UP SCHEDU

LEJanuary

FebruaryM

archApril

May

JuneJuly

AugustSeptem

berO

ctoberN

ovember

December

TotalO

ffice:Doctor O

fficeN

/AN

/ALg. Law

yer Office

N/A

N/A

PediatricianN

/AN

/AN

/ADentist O

fficeN

/A5

Lawyer O

ffice

Retail:M

arket FreshHom

e GoodsN

/AM

exican Rest.N

/ATilted Kilt

N/A

Furniture StoreN

/AN

/AN

/ARestaurant

7Bruster's

Residential:0

00

00

00

00

00

00

Total Units Leased:

41

02

01

11

00

11

12

RENTAL IN

COM

E:91,208

$ 139,942

$ 139,942

$ 168,942

$ 168,942

$ 193,475

$ 199,725

$ 220,042

$ 220,042

$ 220,042

$ 226,792

$ 252,250

$ 2,241,342

$

POTEN

TIAL RENTAL IN

COM

E:Potential O

ffice Income

53,450$

53,450$

53,450$

53,450$

53,450$

53,450$

53,450$

53,450$

53,450$

53,450$

53,450$

53,450$

641,400$

Potential Retail Income

224,833$

224,833$

224,833$

224,833$

224,833$

224,833$

224,833$

224,833$

224,833$

224,833$

224,833$

224,833$

2,698,000$

Potential Residential Income

-$

-$

-$

-$

-$

-$

-$

-$

-$

-$

-$

-$

-$

Total Potential Income

278,283$

278,283$

278,283$

278,283$

278,283$

278,283$

278,283$

278,283$

278,283$

278,283$

278,283$

278,283$

3,339,400$

Vacancy & Credit Loss

187,075$

138,342$

138,342$

109,342$

109,342$

84,808$

78,558$

58,242$

58,242$

58,242$

51,492$

26,033$

1,098,058$

EFFECTIVE GRO

SS REVENU

E:91,208

$ 139,942

$ 139,942

$ 168,942

$ 168,942

$ 193,475

$ 199,725

$ 220,042

$ 220,042

$ 220,042

$ 226,792

$ 252,250

$ 2,241,342

$ Free Rent Im

pact-

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ O

ther Concessions-

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ Real Estate Taxes

5,517$

5,517$

5,517$

5,517$

5,517$

5,517$

5,517$

5,517$

5,517$

5,517$

5,517$

5,517$

66,208$

TOTAL O

PERATING

EXPENSES:

5,517$

5,517$

5,517$

5,517$

5,517$

5,517$

5,517$

5,517$

5,517$

5,517$

5,517$

5,517$

66,208$

NET O

PERATING

INCO

ME (N

OI):

85,691$

134,424$

134,424$

163,424$

163,424$

187,958$

194,208$

214,524$

214,524$

214,524$

221,274$

246,733$

2,175,134$

73

Exhibit 14: Second Year Lease-Up Schedule

2018 2ND YEAR LEASE U

P SCHEDULE

JanuaryFebruary

March

AprilM

ayJune

JulyAugust

September

October

Novem

berDecem

berTotal

Office:

N/A

Tech Office

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

1

Retail:M

ale ClothierSpa/Salon

Male Clothier

Female Clothier

N/A

BakeryN

/APizzeria

N/A

N/A

N/A

N/A

7Drug Store

Residential:30

2622

2222

2220

2020

2019

0243

Total Units Leased:

3228

2321

2023

2121

2020

190

251

RENTAL IN

COM

E:362,614.33

$ 448,039

$ 510,232

$ 572,551

$ 624,744

$ 688,437

$ 735,886

$ 790,834

$ 838,282

$ 885,731

$ 929,948

$ 929,948

$ 8,317,246

$

POTEN

TIAL RENTAL IN

COM

E:Potential O

ffice Income

53,450$

53,450$

53,450$

53,450$

53,450$

53,450$

53,450$

53,450$

53,450$

53,450$

53,450$

53,450$

641,400$


300,858$

300,858$

300,858$

300,858$

300,858$

300,858$

300,858$

300,858$

300,858$

300,858$

300,858$

300,858$

3,610,300$

Potential Residential Income

530,140$

530,140$

530,140$

530,140$

530,140$

530,140$

530,140$

530,140$

530,140$

530,140$

530,140$

530,140$

6,361,677$

Potential Res. Parking Income

45,500$

45,500$

45,500$

45,500$

45,500$

45,500$

45,500$

45,500$

45,500$

45,500$

45,500$

45,500$

546,000$

Total Potential Income

929,948$

929,948$

929,948$

929,948$

929,948$

929,948$

929,948$

929,948$

929,948$

929,948$

929,948$

929,948$

11,159,377$

Vacancy & Credit Loss

567,334$

481,909$

419,716$

357,397$

305,204$

241,511$

194,062$

139,114$

91,666$

44,217$

0$

0$

2,842,131$

EFFECTIVE GRO

SS REVENU

E:362,614

$ 448,039

$ 510,232

$ 572,551

$ 624,744

$ 688,437

$ 735,886

$ 790,834

$ 838,282

$ 885,731

$ 929,948

$ 929,948

$ 8,317,246

$ Free Rent Im

pact26,507

$ 26,507

$ 26,507

$ 26,507

$ 26,507

$ 26,507

$ 26,507

$ 26,507

$ 26,507

$ 26,507

$ 26,507

$ 26,507

$ 318,084

$ O

ther Concessions10,603

$ 10,603

$ 10,603

$ 10,603

$ 10,603

$ 10,603

$ 10,603

$ 10,603

$ 10,603

$ 10,603

$ 10,603

$ 10,603

$ 127,234

$ Real Estate Taxes

17,709$

17,709$

17,709$

17,709$

17,709$

17,709$

17,709$

17,709$

17,709$

17,709$

17,709$

17,709$

212,502$

TOTAL O

PERATING

EXPENSES:

54,818$

54,818$

54,818$

54,818$

54,818$

54,818$

54,818$

54,818$

54,818$

54,818$

54,818$

54,818$

657,819$

NET O

PERATING

INCO

ME (N

OI):

307,796$

393,221$

455,414$

517,732$

569,926$

633,619$

681,067$

736,016$

783,464$

830,913$

875,130$

875,130$

7,659,427$

74

Exhibit 15: Income and Expense Statem

ent (Lease-Up and First 5 Years)

INCO

ME &

EXPENSE STATEM

ENT

Lease Up

Lease Up

StabilizationYear 2

Year 3Year 4

Year 5Year 6

Period Beginning DateJanuary 2017

January 2018January 2019



January 2024Period Ending Date

December 2017

December 2018

December 2019

December 2020

December 2021

December 2022

December 2023

December 2024

INCO

ME:


2,698,000$

3,610,300$

3,610,300$

3,610,300$

3,610,300$

3,610,300$

3,610,300$

3,790,815$

Potential Office Incom

e641,400

$ 654,228

$ 667,313

$ 680,659

$ 694,272

$ 708,157

$ 722,321

$ 736,767

$ Potential Residential Incom

e-

$ 6,938,177

$ 7,146,322

$ 7,360,711

$ 7,581,533

$ 7,808,979

$ 8,043,248

$ 8,284,546

$ Potential Res. Parking Incom

e-

$ 546,000

$ 554,190

$ 562,503

$ 570,940

$ 579,504

$ 588,197

$ 597,020

$ Subtotal

3,339,400$

11,748,705$

11,978,124$

12,214,173$

12,457,045$

12,706,941$

12,964,066$

13,409,148$

Retail Vacancy & Credit Loss

921,058$

664,525$

361,030$

361,030$

361,030$

361,030$

361,030$

379,082$

Office Vacancy &

Credit Loss177,000

$ 10,033

$ 66,731

$ 68,066

$ 69,427

$ 70,816

$ 72,232

$ 73,677

$ Residential Vacancy &

Credit Loss-

$ 2,167,572

$ 318,084

$ 327,626

$ 337,455

$ 347,579

$ 358,006

$ 368,746

$ Subtotal

1,098,058$

2,842,131$

745,845$

756,722$

767,912$

779,425$

791,268$

821,505$

EFFECTIVE RENTAL IN

COM

E:2,241,342

$ 8,906,574

$ 11,232,279

$ 11,457,451

$ 11,689,133

$ 11,927,516

$ 12,172,798

$ 12,587,643

$ O

ther Income

-$

576,500$

593,795$

611,609$

629,957$

648,856$

668,322$

688,371$

GRO

SS OPERATIN

G IN

COM

E:2,241,342

$ 9,483,074

$ 11,826,074

$ 12,069,060

$ 12,319,090

$ 12,576,372

$ 12,841,119

$ 13,276,014

$

EXPENSES:

Retail Leakage269,800

$ 361,030

$ 370,056

$ 379,307

$ 388,790

$ 398,510

$ 408,472

$ 418,684

$ Residential Adm

inistrative-

$ 300,589

$ 308,104

$ 315,807

$ 323,702

$ 331,794

$ 340,089

$ 348,591

$ Residential O

perating-

$ 1,214,181

$ 1,244,535

$ 1,275,649

$ 1,307,540

$ 1,340,229

$ 1,373,734

$ 1,408,078

$ O

ffice Operating

128,280$

130,846$

133,463$

136,132$

138,854$

141,631$

144,464$

147,353$

Managem

ent & Payroll

134,900$

180,515$

180,515$

180,515$

180,515$

180,515$

180,515$

189,541$

Lease-Up Costs-

$ 445,317

$ -

$ -

$ -

$ -

$ -

$ -

$ Taxes &

Insurance166,208

$ 312,502

$ 320,315

$ 328,322

$ 336,530

$ 344,944

$ 353,567

$ 362,407

$ TO

TAL OPERATIN

G EXPEN

SES:699,188

$ 2,944,980

$ 2,556,987

$ 2,615,732

$ 2,675,931

$ 2,737,623

$ 2,800,842

$ 2,874,654

$ N

ET OPERATIN

G IN

COM

E (NO

I):1,542,154

$ 6,538,094

$ 9,269,087

$ 9,453,328

$ 9,643,159

$ 9,838,749

$ 10,040,277

$ 10,401,361

$

Yearly Reserves1,000,000

$ 1,000,000

$ 1,000,000

$ 1,000,000

$ 1,000,000

$ 1,000,000

$ 1,000,000

$ 1,000,000

$

75

Exhibit 16: Income and Expense Statem

ent (Remaining Five Years)

INCO

ME &

EXPENSE STATEM

ENT

Year 6Year 7

Year 8Year 9

Year 10Period Beginning Date




December 2024

December 2025

December 2026

December 2027

December 2028

INCO

ME:


3,790,815$

3,790,815$

3,790,815$

3,790,815$

3,790,815$

Potential Office Incom

e736,767

$ 751,502

$ 766,532

$ 781,863

$ 797,500

$ Potential Residential Incom

e8,284,546

$ 8,533,082

$ 8,789,074

$ 9,052,747

$ 9,324,329

$ Potential Res. Parking Incom

e597,020

$ 605,975

$ 615,065

$ 624,291

$ 633,655

$ Subtotal

13,409,148$

13,681,375$

13,961,487$

14,249,716$

14,546,300$

Retail Vacancy & Credit Loss

379,082$

379,082$

379,082$

379,082$

379,082$

Office Vacancy &

Credit Loss73,677

$ 75,150

$ 76,653

$ 78,186

$ 79,750

$ Residential Vacancy &

Credit Loss368,746

$ 379,809

$ 391,203

$ 402,939

$ 415,027

$ Subtotal

821,505$

834,040$

846,938$

860,207$

873,859$

EFFECTIVE RENTAL IN

COM

E:12,587,643

$ 12,847,334

$ 13,114,549

$ 13,389,509

$ 13,672,441

$ O

ther Income

688,371$

709,022$

730,293$

752,202$

774,768$

GRO

SS OPERATIN

G IN

COM

E:13,276,014

$ 13,556,356

$ 13,844,842

$ 14,141,710

$ 14,447,209

$

EXPENSES:

Retail Leakage418,684

$ 429,151

$ 439,880

$ 450,877

$ 462,149

$ Residential Adm

inistrative348,591

$ 357,306

$ 366,239

$ 375,395

$ 384,780

$ Residential O

perating1,408,078

$ 1,443,280

$ 1,479,362

$ 1,516,346

$ 1,554,254

$ O

ffice Operating

147,353$

150,300$

153,306$

156,373$

159,500$

Managem

ent & Payroll

189,541$

189,541$

189,541$

189,541$

189,541$

Lease-Up Costs-

$ -

$ -

$ -

$ -

$ Taxes &

Insurance362,407

$ 371,467

$ 380,753

$ 390,272

$ 400,029

$ TO

TAL OPERATIN

G EXPEN

SES:2,874,654

$ 2,941,045

$ 3,009,081

$ 3,078,803

$ 3,150,253

$ N

ET OPERATIN

G IN

COM

E (NO

I):10,401,361

$ 10,615,312

$ 10,835,761

$ 11,062,908

$ 11,296,956

$

Yearly Reserves1,000,000

$ 1,000,000

$ 1,000,000

$ 1,000,000

$ 1,000,000

$

76

Exhibit 17: Basis and Depreciation Cost Allocation

Uses

(Non Basis)

27.5 Year39 Year

7 - YearAm

ortizeTDC

BasisExpense

DepreciableDepreciable

Depreciation(Expense)

AcquisitionBuilding Acquisition-

$ -

$ -

$ -

$ -

$ -

$ -

$ Closing Costs

-$

-$

-$

-$

-$

-$

-$

Demolition

229,250$

229,250$

-$

-$

-$

-$

229,250$

Total Acquisition229,250

$ 229,250

$ -

$ -

$ -

$ -

$ 229,250

$

Project CostsO

ff-Site880,000

$ -

$ -

$ -

$ -

$ -

$ 880,000

$ O

n-Site4,311,448

$ 4,311,448

$ -

$ -

$ 4,311,448

$ -

$ -

$ Soft Costs

6,964,376$

6,964,376$

-$

-$

6,964,376$

-$

-$

Hard/Building Costs Comm

ercial19,709,750

$ 19,709,750

$ -

$ -

$ 19,709,750

$ -

$ -

$ Hard/Building Costs Residential

46,960,148$

46,960,148$

-$

46,960,148$

-$

-$

-$

Capitalized/Non-Cash Costs

9,179,799$

9,179,799$

-$

-$

9,179,799$

-$

-$

Contingency5,400,936

$ 5,400,936

$ -

$ -

$ 5,400,936

$ -

$ -

$ Appliances

575,052$

575,052$

-$

-$

-$

575,052$

-$

Total Project Costs93,981,509

$ 93,101,509

$ -

$ 46,960,148

$ 45,566,309

$ 575,052

$ 880,000

$

Construction FinancingPoints &

Fees (Origination)

471,241$

471,241$

-$

-$

471,241$

-$

-$

Interest Expense4,883,434

$ 4,883,434

$ -

$ -

$ 4,883,434

$ -

$ -

$ Total Construction Financing

5,354,676$

5,354,676$

-$

-$

5,354,676$

-$

-$

Permanent Financing

Points & Fees (O

rigination)762,155

$ -

$ -

$ -

$ -

$ -

$ 762,155

$ Transfer/Recording Fees

190,589$

-$

-$

-$

-$

-$

190,589$

Title Insurance, Recording, Managem

ent65,000

$ -

$ -

$ -

$ -

$ -

$ 65,000

$ Total Perm

anent Financing1,017,744

$ -

$ -

$ -

$ -

$ -

$ 1,017,744

$

ReservesLease-up Reserves

325,000$

-$

325,000$

-$

-$

-$

-$

Operating Reserves

325,000$

-$

325,000$

-$

-$

-$

-$

Replacement Reserve

350,000$

-$

350,000$

-$

-$

-$

-$

Total Reserves1,000,000

$ -

$ 1,000,000

$ -

$ -

$ -

$ -

$ (N

on Basis)Residential

Comm

ercial7-Year

Amortize

TDCBasis

ExpenseDepreciable

DepreciableDepreciation

(Expense)Total Developm

ent Cost101,583,179

$ 98,685,435

$ 1,000,000

$ 46,960,148

$ 50,920,985

$ 575,052

$ 2,126,994

$

77

Exhibit 18: Appliance Depreciation Detail

Exhibit 19: Depreciation Schedules

Exhibit 20: Permanent Financing LTV vs. DCR

Loan to Value: Debt Coverage Ratio:

Total Development Cost: 101,620,679$ 9,269,087$ Loan to Value Ratio: 75.00% DCR: 1.25

76,215,509$ Max Yearly PMT: 7,415,270$ Monthly PMT: 617,939$

Points/Fees: 1.00% Transfer Recording Fees: 0.25%

Origination: 762,155$ Transfer/Recording: 190,589$

Bank Debt Options:

Loan Amount: 76,215,509$ $105,704,699Annual Interest: 5.00% 5.00%Years: 25 25

LTV Loan Payment: 445,548$ DCR Loan Payment: 617,939$

Lesser Loan Value: 76,215,509$

1st Year Stabilized NOI:

Permanent Financing Options

78

Exhibit 21: First Two Years Amortization Schedule

79

Exhibit 22: Cost Recovery Schedule

Lease Up

Lease Up

StabilizationYear 2

Year 3Year 4

Year 5Year 6

Year 7Year 8

Year 9Year 10

Period Beginning Date:January 2017






January 2028Period Ending Date:

December 2017

December 2018

December 2019

December 2020

December 2021

December 2022

December 2023

December 2024

December 2025

December 2026

December 2027

December 2028

1st Mortgage Calculation

Beginning Balance-

$ 76,215,509

$ 74,644,016

$ 72,992,123

$ 71,255,716

$ 69,430,470

$ 67,511,842

$ 65,495,053

$ 63,375,081

$ 61,146,648

$ 58,804,204

$ 56,341,915

$ Ending Balance

-$

74,644,016$

72,992,123$

71,255,716$

69,430,470$

67,511,842$

65,495,053$

63,375,081$

61,146,648$

58,804,204$

56,341,915$

53,753,652$

Principal Reduction-

$ 1,571,493

$ 1,651,893

$ 1,736,407

$ 1,825,245

$ 1,918,628

$ 2,016,789

$ 2,119,972

$ 2,228,433

$ 2,342,444

$ 2,462,288

$ 2,588,264

$ Interest Expense

-$

3,775,087$

3,694,686$

3,610,172$

3,521,334$

3,427,951$

3,329,790$

3,226,608$

3,118,146$

3,004,135$

2,884,291$

2,758,316$

2nd Mortgage Calucation

Beginning Balance-

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ Ending Balance

-$

-$

-$

-$

-$

-$

-$

-$

-$

-$

-$

-$

Principal Reduction-

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ Interest Expense

-$

-$

-$

-$

-$

-$

-$

-$

-$

-$

-$

-$

Yearly Principal Reduction-

$ 1,571,493

$ 1,651,893

$ 1,736,407

$ 1,825,245

$ 1,918,628

$ 2,016,789

$ 2,119,972

$ 2,228,433

$ 2,342,444

$ 2,462,288

$ 2,588,264

$ Yearly Interest Expense

-$

3,775,087$

3,694,686$

3,610,172$

3,521,334$

3,427,951$

3,329,790$

3,226,608$

3,118,146$

3,004,135$

2,884,291$

2,758,316$

Yr. End Mortgage(s) Balance:

-$

74,644,016$

72,992,123$

71,255,716$

69,430,470$

67,511,842$

65,495,053$

63,375,081$

61,146,648$

58,804,204$

56,341,915$

53,753,652$

Residential Cost Recovery (Depreciation) Calculation27.5 Years Straight-LineBeginning Balance

-$

46,960,148$

45,252,506$

43,544,865$

41,837,223$

40,129,581$

38,421,939$

36,714,298$

35,006,656$

33,299,014$

31,591,372$

29,883,731$

Less Cost Recovery-

$ 1,707,642

$ 1,707,642

$ 1,707,642

$ 1,707,642

$ 1,707,642

$ 1,707,642

$ 1,707,642

$ 1,707,642

$ 1,707,642

$ 1,707,642

$ 1,707,642

$ Additions to Basis

-$

-$

-$

-$

-$

-$

-$

-$

-$

-$

-$

-$

Less Additions Cost Recovery-

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ Ending Balance

-$

45,252,506$

43,544,865$

41,837,223$

40,129,581$

38,421,939$

36,714,298$

35,006,656$

33,299,014$

31,591,372$

29,883,731$

28,176,089$

Cumulative Cost Recovery

-$

1,707,642$

3,415,283$

5,122,925$

6,830,567$

8,538,209$

10,245,850$

11,953,492$

13,661,134$

15,368,776$

17,076,417$

18,784,059$

Cumulative Straight Line

-$

-$

-$

-$

-$

-$

-$

-$

-$

-$

-$

-$

Recapture-

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ Rem

aining Book Value-

$ 45,252,506

$ 43,544,865

$ 41,837,223

$ 40,129,581

$ 38,421,939

$ 36,714,298

$ 35,006,656

$ 33,299,014

$ 31,591,372

$ 29,883,731

$ 28,176,089

$

Comm

ercial Cost Recovery (Depreciation) Calculation39 Years Straight-LineBeginning Balance

45,566,309$

44,397,942$

43,229,576$

42,061,209$

40,892,842$

39,724,475$

38,556,108$

37,387,741$

36,219,374$

35,051,007$

33,882,640$

32,714,273$

Less Cost Recovery1,168,367

$ 1,168,367

$ 1,168,367

$ 1,168,367

$ 1,168,367

$ 1,168,367

$ 1,168,367

$ 1,168,367

$ 1,168,367

$ 1,168,367

$ 1,168,367

$ 1,168,367


-$

-$

-$

-$

-$

-$

-$

-$

-$

-$

-$

-$


$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ Ending Balance

44,397,942$

43,229,576$

42,061,209$

40,892,842$

39,724,475$

38,556,108$

37,387,741$

36,219,374$

35,051,007$

33,882,640$

32,714,273$

31,545,907$


1,168,367$

2,336,734$

3,505,101$

4,673,468$

5,841,835$

7,010,201$

8,178,568$

9,346,935$

10,515,302$

11,683,669$

12,852,036$

14,020,403$


-$

-$

-$

-$

-$

-$

-$

-$

-$

-$

-$

-$

Recapture-

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ Rem

aining Book Value44,397,942

$ 43,229,576

$ 42,061,209

$ 40,892,842

$ 39,724,475

$ 38,556,108

$ 37,387,741

$ 36,219,374

$ 35,051,007

$ 33,882,640

$ 32,714,273

$ 31,545,907

$

Accelerated Cost Recovery (Depreciation) Calculation7 Years Straight-LineBeginning Balance

-$

575,052$

492,902$

410,751$

328,601$

246,451$

164,301$

82,150$

-$

-$

-$

-$

Less Cost Recovery-

$ 82,150

$ 82,150

$ 82,150

$ 82,150

$ 82,150

$ 82,150

$ 82,150

$ -

$ -

$ -

$ -


-$

-$

-$

-$

-$

-$

-$

-$

-$

-$

-$

-$


$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ Ending Balance

-$

492,902$

410,751$

328,601$

246,451$

164,301$

82,150$

0$

-$

-$

-$

-$


-$

82,150$

164,301$

246,451$

328,601$

410,751$

492,902$

575,052$

-$

-$

-$

-$


-$

-$

-$

-$

-$

-$

-$

-$

-$

-$

-$

-$

Recapture-

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ Rem

aining Book Value-

$ 492,902

$ 410,751

$ 328,601

$ 246,451

$ 164,301

$ 82,150

$ 0

$ -

$ -

$ -

$ -

$

Total Annual Cost Recovery1,168,367

$ 2,958,159

$ 2,958,159

$ 2,958,159

$ 2,958,159

$ 2,958,159

$ 2,958,159

$ 2,958,159

$ 2,876,009

$ 2,876,009

$ 2,876,009

$ 2,876,009

$

Amortization

Beginning Balance2,126,994

$ 2,041,914

$ 1,956,834

$ 1,871,755

$ 1,786,675

$ 1,701,595

$ 1,616,515

$ 1,531,436

$ 1,446,356

$ 1,361,276

$ 1,276,196

$ 1,191,117

$ Less Cost Recovery

85,080$

85,080$

85,080$

85,080$

85,080$

85,080$

85,080$

85,080$

85,080$

85,080$

85,080$

85,080$

Ending Balance2,041,914

$ 1,956,834

$ 1,871,755

$ 1,786,675

$ 1,701,595

$ 1,616,515

$ 1,531,436

$ 1,446,356

$ 1,361,276

$ 1,276,196

$ 1,191,117

$ 1,106,037

$

80

Exhibit 23: Profit & Loss Statem

ent

Lease Up

Lease Up

StabilizationYear 2

Year 3Year 4

Year 5Year 6

Year 7Year 8

Year 9Year 10

Period Beginning DateJanuary 2017







December 2017

December 2018

December 2019

December 2020

December 2021

December 2022

December 2023

December 2024

December 2025

December 2026

December 2027

December 2028

INCO

ME &

EXPENSE STATEM

ENT

+ Potential Rental Income

3,339,400$

11,748,705$

11,978,124$

12,214,173$

12,457,045$

12,706,941$

12,964,066$

13,409,148$

13,681,375$

13,961,487$

14,249,716$

14,546,300$

- Vacancy/Credit Loss1,098,058

$ 2,842,131

$ 745,845

$ 756,722

$ 767,912

$ 779,425

$ 791,268

$ 821,505

$ 834,040

$ 846,938

$ 860,207

$ 873,859

$ = Effective Rental Incom

e2,241,342

$ 8,906,574

$ 11,232,279

$ 11,457,451

$ 11,689,133

$ 11,927,516

$ 12,172,798

$ 12,587,643

$ 12,847,334

$ 13,114,549

$ 13,389,509

$ 13,672,441

$ + M

iscellaneous Income

-$

576,500$

593,795$

611,609$

629,957$

648,856$

668,322$

688,371$

709,022$

730,293$

752,202$

774,768$

= Gross O

perating Income

2,241,342$

9,483,074$

11,826,074$

12,069,060$

12,319,090$

12,576,372$

12,841,119$

13,276,014$

13,556,356$

13,844,842$

14,141,710$

14,447,209$

Operating Expense

- Operating Expenses

699,188$

2,944,980$

2,556,987$

2,615,732$

2,675,931$

2,737,623$

2,800,842$

2,874,654$

2,941,045$

3,009,081$

3,078,803$

3,150,253$

- Other

-$

-$

-$

-$

-$

-$

-$

-$

-$

-$

-$

-$

= Total Expenses699,188

$ 2,944,980

$ 2,556,987

$ 2,615,732

$ 2,675,931

$ 2,737,623

$ 2,800,842

$ 2,874,654

$ 2,941,045

$ 3,009,081

$ 3,078,803

$ 3,150,253

$

Net O

perating Income

1,542,154$

6,538,094$

9,269,087$

9,453,328$

9,643,159$

9,838,749$

10,040,277$

10,401,361$

10,615,312$

10,835,761$

11,062,908$

11,296,956$

ANN

UAL TAXABLE IN

COM

E ANALYSIS

+ Net O

perating Income

1,542,154$

6,538,094$

9,269,087$

9,453,328$

9,643,159$

9,838,749$

10,040,277$

10,401,361$

10,615,312$

10,835,761$

11,062,908$

11,296,956$

- Interest Expense-

$ 3,775,087

$ 3,694,686

$ 3,610,172

$ 3,521,334

$ 3,427,951

$ 3,329,790

$ 3,226,608

$ 3,118,146

$ 3,004,135

$ 2,884,291

$ 2,758,316

$ Cost Recovery - Cost Recovery

1,168,367$

2,958,159$

2,958,159$

2,958,159$

2,958,159$

2,958,159$

2,958,159$

2,958,159$

2,876,009$

2,876,009$

2,876,009$

2,876,009$

- Cost Recovery Additions-

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ = - Total Annual Cost Recovery

1,168,367$

2,958,159$

2,958,159$

2,958,159$

2,958,159$

2,958,159$

2,958,159$

2,958,159$

2,876,009$

2,876,009$

2,876,009$

2,876,009$

- Non-O

perating Expenses85,080

$ 85,080

$ 85,080

$ 85,080

$ 85,080

$ 85,080

$ 85,080

$ 85,080

$ 85,080

$ 85,080

$ 85,080

$ 85,080

$ = Taxable Incom

e (Loss)288,707

$ (280,231)

$ 2,531,162

$ 2,799,917

$ 3,078,586

$ 3,367,560

$ 3,667,248

$ 4,131,514

$ 4,536,077

$ 4,870,538

$ 5,217,528

$ 5,577,552

$

ANN

UAL CASH FLO

W AN

ALYSISN

et Operating Incom

e1,542,154

$ 6,538,094

$ 9,269,087

$ 9,453,328

$ 9,643,159

$ 9,838,749

$ 10,040,277

$ 10,401,361

$ 10,615,312

$ 10,835,761

$ 11,062,908

$ 11,296,956

$ - Annual Debt Service

-$

5,346,579$

5,346,579$

5,346,579$

5,346,579$

5,346,579$

5,346,579$

5,346,579$

5,346,579$

5,346,579$

5,346,579$

5,346,579$

- Capital Additions-

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ - Reserves

1,000,000$

1,000,000$

1,000,000$

1,000,000$

1,000,000$

1,000,000$

1,000,000$

1,000,000$

1,000,000$

1,000,000$

1,000,000$

1,000,000$

+ Reserves to Capital Additions-

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ = Cash Flow

Before Tax542,154

$ 191,514

$ 2,922,508

$ 3,106,749

$ 3,296,579

$ 3,492,170

$ 3,693,698

$ 4,054,781

$ 4,268,732

$ 4,489,182

$ 4,716,328

$ 4,950,377

$

Taxable Income (Loss) (O

rdinary)288,707

$ (280,231)

$ 2,531,162

$ 2,799,917

$ 3,078,586

$ 3,367,560

$ 3,667,248

$ 4,131,514

$ 4,536,077

$ 4,870,538

$ 5,217,528

$ 5,577,552

$ x (Federal &

State)40.00%

40.00%40.00%

40.00%40.00%

40.00%40.00%

40.00%40.00%

40.00%40.00%

40.00%40.00%

= Tax Liability115,483

$ (112,093)

$ 1,012,465

$ 1,119,967

$ 1,231,434

$ 1,347,024

$ 1,466,899

$ 1,652,606

$ 1,814,431

$ 1,948,215

$ 2,087,011

$ 2,231,021

$

Cash Flow Before Tax

542,154$

191,514$

2,922,508$

3,106,749$

3,296,579$

3,492,170$

3,693,698$

4,054,781$

4,268,732$

4,489,182$

4,716,328$

4,950,377$

- Less Tax Liability115,483

$ (112,093)

$ 1,012,465

$ 1,119,967

$ 1,231,434

$ 1,347,024

$ 1,466,899

$ 1,652,606

$ 1,814,431

$ 1,948,215

$ 2,087,011

$ 2,231,021

$ Cash Flow

After Tax426,671

$ 303,607

$ 1,910,043

$ 1,986,782

$ 2,065,145

$ 2,145,146

$ 2,226,799

$ 2,402,176

$ 2,454,301

$ 2,540,967

$ 2,629,317

$ 2,719,356

$

Debt Service Coverage Ratio:0.00

1.221.73

1.771.80

1.841.88

1.951.99

2.032.07

2.11

81

Exhibit 24: Sales Schedule

Sale ScheduleLease U

pLease U

pStabilization

Year 2Year 3

Year 4Year 5

Year 6Year 7

Year 8Year 9

Year 10January 2017






January 2028Period Beginning Date

December 2017

December 2018

December 2019

December 2020

December 2021

December 2022

December 2023

December 2024

December 2025

December 2026

December 2027

December 2028

Period Ending DateSales Proceeds Before TaxSales Price (Retail &

Office Portion) (N

OI/CAP

25,702,560$

46,022,134$

50,094,346$

50,029,130$

49,961,505$

49,891,396$

49,818,724$

52,300,704$

52,222,664$

52,141,812$

52,058,063$

51,971,325$

Sales Price (Residential Portion)-

$ 75,535,315

$ 125,268,527

$ 129,031,606

$ 132,909,365

$ 136,905,314

$ 141,023,072

$ 145,266,365

$ 149,639,038

$ 154,145,048

$ 158,788,478

$ 163,573,532

$ Total Sales Price

25,702,560$

121,557,449$

175,362,873$

179,060,736$

182,870,870$

186,796,710$

190,841,796$

197,567,070$

201,861,701$

206,286,860$

210,846,541$

215,544,858$

+ Reserve Fund1,000,000

$ 2,000,000

$ 3,000,000

$ 4,000,000

$ 5,000,000

$ 6,000,000

$ 7,000,000

$ 8,000,000

$ 9,000,000

$ 10,000,000

$ 11,000,000

$ 12,000,000

$ - Less Com

mission

2.00%514,051

$ 920,443

$ 1,001,887

$ 1,000,583

$ 999,230

$ 997,828

$ 996,374

$ 1,046,014

$ 1,044,453

$ 1,042,836

$ 1,041,161

$ 1,039,427

$ = Adjusted Sales Price

26,188,509$

122,637,006$

177,360,986$

182,060,153$

186,871,640$

191,798,882$

196,845,421$

204,521,056$

209,817,248$

215,244,024$

220,805,379$

226,505,431$

- Less Mortgage Balance

44,553,723$

94,248,259$

72,992,123$

71,255,716$

69,430,470$

67,511,842$

65,495,053$

63,375,081$

61,146,648$

58,804,204$

56,341,915$

53,753,652$

= Total Sale Proceeds Before Tax(18,365,214)

$ 28,388,747

$ 104,368,863

$ 110,804,438

$ 117,441,170

$ 124,287,040

$ 131,350,368

$ 141,145,974

$ 148,670,600

$ 156,439,820

$ 164,463,464

$ 172,751,780

$

Sales Proceeds Before Tax(18,365,214)

$ 28,388,747

$ 104,368,863

$ 110,804,438

$ 117,441,170

$ 124,287,040

$ 131,350,368

$ 141,145,974

$ 148,670,600

$ 156,439,820

$ 164,463,464

$ 172,751,780

$ - Tax O

n Capital Gains(20,071,175)

$ 7,236,672

$ 22,965,966

$ 24,813,373

$ 26,691,950

$ 28,602,649

$ 30,546,453

$ 33,219,830

$ 35,210,116

$ 37,236,639

$ 39,300,507

$ 41,402,864

$ - Tax O

n Ordinary Incom

e855,562

$ 819,914

$ 784,265

$ 748,617

$ 712,968

$ 677,320

$ 641,672

$ 606,023

$ 570,375

$ 534,726

$ 499,078

$ 463,429

$ = Sales Proceeds After Tax

850,399$

20,332,161$

80,618,633$

85,242,447$

90,036,251$

95,007,071$

100,162,244$

107,320,121$

112,890,109$

118,668,455$

124,663,879$

130,885,486$

CalculationsAcquisition Basis

98,685,435$

98,685,435$

98,685,435$

98,685,435$

98,685,435$

98,685,435$

98,685,435$

98,685,435$

98,685,435$

98,685,435$

98,685,435$

98,685,435$

+ Capital Additions-

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ -

$ - Cost Recovery

1,168,367$

4,126,526$

7,084,685$

10,042,844$

13,001,003$

15,959,162$

18,917,321$

21,875,479$

24,751,488$

27,627,497$

30,503,505$

33,379,514$

= Adjusted Basis97,517,068

$ 94,558,909

$ 91,600,750

$ 88,642,591

$ 85,684,432

$ 82,726,273

$ 79,768,114

$ 76,809,956

$ 73,933,947

$ 71,057,938

$ 68,181,930

$ 65,305,921

$

Sales Price25,702,560

$ 121,557,449

$ 175,362,873

$ 179,060,736

$ 182,870,870

$ 186,796,710

$ 190,841,796

$ 197,567,070

$ 201,861,701

$ 206,286,860

$ 210,846,541

$ 215,544,858

$ - Cost of Sale

514,051$

920,443$

1,001,887$

1,000,583$

999,230$

997,828$

996,374$

1,046,014$

1,044,453$

1,042,836$

1,041,161$

1,039,427$

- Adjusted Basis97,517,068

$ 94,558,909

$ 91,600,750

$ 88,642,591

$ 85,684,432

$ 82,726,273

$ 79,768,114

$ 76,809,956

$ 73,933,947

$ 71,057,938

$ 68,181,930

$ 65,305,921

$ = Total G

ain(72,328,559)

$ 26,078,097

$ 82,760,236

$ 89,417,562

$ 96,187,208

$ 103,072,609

$ 110,077,307

$ 119,711,100

$ 126,883,301

$ 134,186,086

$ 141,623,450

$ 149,199,510

$ Capital Gain Tax Rate(Federal &

State)27.75%

27.75%27.75%

27.75%27.75%

27.75%27.75%

27.75%27.75%

27.75%27.75%

27.75%27.75%

Tax on Capital Gain (Savings)(20,071,175)

$ 7,236,672

$ 22,965,966

$ 24,813,373

$ 26,691,950

$ 28,602,649

$ 30,546,453

$ 33,219,830

$ 35,210,116

$ 37,236,639

$ 39,300,507

$ 41,402,864

$

Recapture Of Cost Recovery

-$

-$

-$

-$

-$

-$

-$

-$

-$

-$

-$

-$

Unamortized Expenditures

(2,041,914)$

(1,956,834)$

(1,871,755)$

(1,786,675)$

(1,701,595)$

(1,616,515)$

(1,531,436)$

(1,446,356)$

(1,361,276)$

(1,276,196)$

(1,191,117)$

(1,106,037)$

Ordinary Incom

e On Sale (Savings)

(2,041,914)$

(1,956,834)$

(1,871,755)$

(1,786,675)$

(1,701,595)$

(1,616,515)$

(1,531,436)$

(1,446,356)$

(1,361,276)$

(1,276,196)$

(1,191,117)$

(1,106,037)$

Ordinary Incom

e Tax Rate(Federal &

State)41.90%

41.90%41.90%

41.90%41.90%

41.90%41.90%

41.90%41.90%

41.90%41.90%

41.90%41.90%

Tax on Ordinary Incom

e(855,562)

$ (819,914)

$ (784,265)

$ (748,617)

$ (712,968)

$ (677,320)

$ (641,672)

$ (606,023)

$ (570,375)

$ (534,726)

$ (499,078)

$ (463,429)

$

82

Exhibit 25: Before-Tax Internal Rate of Return and Net Present Value

Exhibit 26: After-Tax Internal Rate of Return and Net Present Value

Stabilized Investment Results AFTER TAX LEVERAGED Stabilized Investment Results AFTER TAX LEVERAGEDWhetstone, LLC Whetstone, LLC

Total 1 2 3 Total 1 2 3LLC Cash Flow After-tax LLC LLC Cash Flow After-tax LLC

Equity After Property After-tax Equity After Property After-taxYear Pay-In Taxes Sale Distribution Year Pay-In Taxes Sale Distribution

2016 (25,405,170)$ -$ (25,405,170)$ 2016 (25,405,170)$ (25,405,170)$ 2017 -$ 426,671$ 426,671$ 2017 -$ 426,671$ 426,671$ 2018 -$ 303,607$ 303,607$ 2018 -$ 303,607$ 303,607$ 2019 -$ 1,910,043$ 1,910,043$ 2019 -$ 1,910,043$ 1,910,043$ 2020 -$ 1,986,782$ 1,986,782$ 2020 -$ 1,986,782$ 1,986,782$ 2021 -$ 2,065,145$ 2,065,145$ 2021 -$ 2,065,145$ 2,065,145$ 2022 -$ 2,145,146$ 2,145,146$ 2022 -$ 2,145,146$ 2,145,146$ 2023 -$ 2,226,799$ 100,162,244$ 102,389,042$ 2023 -$ 2,226,799$ 2,226,799$ Total (25,405,170)$ 11,064,192$ 100,162,244$ 85,821,266$ 2024 -$ 2,402,176$ 2,402,176$

2025 -$ 2,454,301$ 2,454,301$ Figures are for the entire ownership equity - The LLC (and/or partnerships) 2026 -$ 2,540,967$ 2,540,967$

2027 -$ 2,629,317$ 2,629,317$ Internal Rate of Return After Tax: 24.72% 2028 -$ 2,719,356$ 130,885,486$ 133,604,842$ After Tax Net Present Value: 23,584,113$ Total (25,405,170)$ 23,810,309$ 130,885,486$ 129,290,625$ Hurdle Rate: 12.00%NPV Rate: 12.00% Internal Rate of Return After Tax: 18.09%

After Tax Net Present Value: 16,810,859$ Hurdle Rate: 12.00%NPV Rate: 12.00%

Stabilized Investment Results BEFORE TAX LEVERAGED Stabilized Investment Results BEFORE TAX LEVERAGEDWhetstone, LLC Whetstone, LLC

Total 1 2 3 Total 1 2 3LLC Cash Flow Before-tax LLC LLC Cash Flow Before-tax LLC

Equity Before Property Before-tax Equity Before Property Before-taxYear Pay-In Taxes Sale Distribution Year Pay-In Taxes Sale Distribution

2016 (25,405,170)$ -$ (25,405,170)$ 2016 (25,405,170)$ (25,405,170)$ 2017 -$ 542,154$ 542,154$ 2017 -$ 542,154$ 542,154$ 2018 -$ 191,514$ 191,514$ 2018 -$ 191,514$ 191,514$ 2019 -$ 2,922,508$ 2,922,508$ 2019 -$ 2,922,508$ 2,922,508$ 2020 -$ 3,106,749$ 3,106,749$ 2020 -$ 3,106,749$ 3,106,749$ 2021 -$ 3,296,579$ 3,296,579$ 2021 -$ 3,296,579$ 3,296,579$ 2022 -$ 3,492,170$ 3,492,170$ 2022 -$ 3,492,170$ 3,492,170$ 2023 -$ 3,693,698$ 131,350,368$ 135,044,066$ 2023 -$ 3,693,698$ 3,693,698$ Total (25,405,170)$ 17,245,372$ 131,350,368$ 123,190,570$ 2024 -$ 4,054,781$ 4,054,781$




83

Exhibit 27: Unleveraged Internal Rate of Return and Net Present Value

Exhibit 28: Taxation Tables

Stabilized Investment Results UNLEVERAGED Stabilized Investment Results UNLEVERAGEDWhetstone, LLC Whetstone, LLC

Total 1 2 3 Total 1 2 3LLC Cash Flow Property LLC LLC Cash Flow Property LLC

Equity Sale Distribution Equity Sale DistributionYear Pay-In Year Pay-In

2016 (101,620,679)$ (101,620,679)$ 2016 (101,620,679)$ (101,620,679)$ 2017 -$ 1,542,154$ 1,542,154$ 2017 -$ 1,542,154$ 1,542,154$ 2018 -$ 6,538,094$ 6,538,094$ 2018 -$ 6,538,094$ 6,538,094$ 2019 -$ 9,269,087$ 9,269,087$ 2019 -$ 9,269,087$ 9,269,087$ 2020 -$ 9,453,328$ 9,453,328$ 2020 -$ 9,453,328$ 9,453,328$ 2021 -$ 9,643,159$ 9,643,159$ 2021 -$ 9,643,159$ 9,643,159$ 2022 -$ 9,838,749$ 9,838,749$ 2022 -$ 9,838,749$ 9,838,749$ 2023 -$ 10,040,277$ 196,845,421$ 206,885,698$ 2023 -$ 10,040,277$ 10,040,277$ Total (101,620,679)$ 56,324,848$ 196,845,421$ 151,549,590$ 2024 -$ 10,401,361$ 10,401,361$




84

i www.montgomerycountymd.gov ii gaithersburgmd.gov iiihttps://www.municode.com/library/md/gaithersburg/codes/code_of_ordinances?nodeId=PTIITHCO_CH5BU_ARTITHINBUCO2012_S5-1BUCODOINBUCO2012IC2012SECO iv www.kiplinger.com v www.factfinder2.census.gov vi www.factfinder2.census.gov vii www.census.gov viii http://www.nmhc.org/Content.aspx?id=4708 ix http://www.gazette.net/article/20130521/NEWS/130529873/developers-want-to-build-apartments-near-gaithersburg-x2019-s-crown&template=gazette x www.gaithersburgmd.gov xi www.cassidyturley.com xii www.costar.com xiii www.ncreif.org xiv www.alexa.com xv http://www.gazette.net/article/20131015/NEWS/131019569/study-frederick-avenue-corridor-x201c-falling-behind-x201d&template=gazette xvi www.costar.com

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