Southeast Multifamily Portfolio, DST

Kansas City, MO / San Antonio, TX / Dallas-Ft. Worth, TX / Daytona Beach, FL

ASSET CLASS:  Class B Value-Add Multifamily Portfolio
OFFERING SIZE:  $98,108,244
MINIMUM INVESTMENT:  $100,000
LEVERAGE:  53.44%
YEAR BUILT:  2011, 2006, 2004, 2005
UNITS:  1,233
# OF PROPERTIES:  4
CURRENT OCCUPANCY:  98%, 94.6%, 96.3%, 95.1%
HOLD PERIOD:  7-10 Years
TARGETED YR.-1 RETURN:  5.02%

Opportunity to invest in a potentially attractive long-term investment due to the Properties’ affordable rental profiles in areas with high job growth areas. All four Properties have potential to improve operational performance, and enhance underlying asset value through the execution of strategic capital improvements and other value-added strategies. Each Property offers high-quality living spaces, a feature-rich amenity package and convenient access to dining, retail and outdoor entertainment venues, while maintaining competitive rental rates across a variety of one-, two-, and three- bedroom floor plans. The Properties should be attractive to middle-income residents from a wide range of demographics, from young professionals, small families and empty nesters.

The Trusts, through the Asset Manager and the respective Master Tenants, intend to make certain upgrades at each of the four Properties over the next three to four years in an effort to maintain their historic occupancies and to increase rents. In total, 984 units, or 80% of all units, are scheduled to receive interior upgrades with a cumulative total cost of approximately $7,900,000, or approximately $8,043 per unit. It is anticipated that renter demand for higher quality “middle-income” housing offered at each of these Properties will yield an approximate 20-25% annualized return on capital invested in interior upgrades. Additional strategic capital investment will be made to improve common areas, community amenities, and apartment exteriors, all totaling approximately $5,250,000. These enhancements are expected to further improve the resident experience, improve quality of life, add value and increase cash flow over the investment hold period. These costs will be funded from the Properties’ respective Supplemental Trust Reserve accounts.

The ownership objectives for the Properties will be to (i) preserve the Purchasers’ capital investment, (ii) make monthly distributions from Master Lease rent payments estimated to start at 5.02% per annum in year one, and projected to range from 5.06% to 8.40% per annum in years two through 10, which may be partially tax-deferred as a result of depreciation and amortization expenses, (iii) capitalize on potential rental premiums afforded by the easy access to major economic drivers, exemplary schools, booming development and thriving economic conditions in the local area, (iv) increase the net operating income of the Properties through growth in rental rates, maintenance of high renter demand and occupancy, implementation and maintenance of expense controls by professional property management, and institutional- quality asset management, (v) add value and improve asset quality through selective minor and non-structural capital improvements, thereby increasing rent and renter demand, and (vi) sell the Properties at a profit within approximately five to 10 years.

The Trust, through the Master Tenants, intends to make certain upgrades at the Properties over the next 3 - 4 years in an effort to maintain its historic occupancy and to increase rent. The estimated cost of these upgrades is as follows:

Andros Isles
• Approximately $2,720,000 or $8,890 per unit • $1,007,479 reserved for exterior/common area improvements • $200,000 for unforeseen contingencies

Arborwalk
• Approximately $1,790,271 or $8,525 per unit • $1,148,469 reserved for exterior/common area improvements, design & supervision fees, and unforeseen contingencies

Towne Crossing
• Approximately $1,794,660 or $8,973 per unit • $1,300,778 reserved for exterior/common area improvements, design & supervision fees, and unforeseen contingencies

Walker Ranch
• Approximately $1,957,200 or $9,320 per unit • $1,448,459 reserved for exterior/common area improvements and design & supervision fees • $751,755 for unforeseen contingencies

The DB Project is located in Daytona Beach, Volusia County, Florida, and within the Deltona-Daytona Beach-Ormond Beach, Florida metropolitan statistical area (the “Deltona MSA”). The Deltona MSA is located in Northeast Florida and includes the counties of Flagler and Volusia. According to the 2010 Census, the Deltona MSA had a population of 590,289 residents. The Deltona MSA population is estimated to have grown to 649,202 residents as of July 1, 2017, representing an approximate 1.37% growth rate per year over the 2010 census. The growth rate of the MSA was below the State of Florida growth rate of 1.80%, however, was above the national population growth rate of .77% over the same period.

According to the US Bureau of Labor Statistics (“BLS”), the unemployment rate within Deltona MSA was 4.2% as of January of 2019. The unemployment rate within the metro is above the state of Florida rate of 3.5% and above the national unemployment rate of 3.8%, both reported for February 2019.

The LS Project is located in Lee’s Summit, Jackson County, Missouri, and within the Kansas City, Missouri metropolitan statistical area (the “Kansas City MSA”). The Kanas City MSA is located northwest Missouri and Northeast Kansas and includes 14 counties in total, nine counties in Missouri and five counties in Kansas. According to the 2010 Census, the Kansas City MSA had a population of 2,128,912 residents. The MSA population is estimated to have grown to 2,853,118 residents as of July 1, 2017, representing an approximate .83% growth rate per year over the 2010 census. The growth rate of the MSA was above the State of Kansas growth rate of .29%, and above the State of Missouri growth rate of .33%, however, similar to the national population growth rate of .77% over the same period. According to the BLS, the unemployment rate within Kansas City MSA was 3.8% as of January of 2019. The unemployment rate within the metro is above the state of Kansas rate of 3.4%, above the State of Missouri rate of 3.2% and above the national unemployment rate of 3.8%, all reported for February 2019.

The M Project is located in Mansfield, Tarrant County, Texas, a suburban location within the Dallas-Fort Worth combined statistical area (the “Dallas CBSA”). The Dallas CBSA, also known as the Dallas Metroplex, includes 13 counties in north-central Texas covering an area of 8,991 square miles. According to the US Census Bureau, the Dallas CBSA is the fourth-most populous MSA in the nation with an estimated 2017 population of 7,399,662, up 2.04% per year over the 2010 census level of 6,426,214. The rate of growth within the Dallas CBSA is above the State of Texas growth rate of 1.91%, Both were well above the United States growth rate of .77% over the same period.

The unemployment rate within the Dallas CBSA was 3.9% as of January 2019. The unemployment rate within the metro is above the state of Texas unemployment rate of 3.6% and the national unemployment rate of 3.8% as of February 2019.

The SA Project is located in San Antonio, Bexar County, Texas, and within the San Antonio-New Braunfels, Texas metropolitan statistical area (the “San Antonio MSA”). The San Antonio MSA includes eight counties located in south central Texas. According to the 2010 Census, the San Antonio MSA had a population of 2,142,508 residents. The MSA population is estimated to have grown to 2,473,974 residents as of July 1, 2017, representing an approximate 1.08% growth rate per year over the 2010 census. The growth rate of the MSA was above the State of Texas growth rate of 2.08%, and the national population growth rate of .77% over the same period.

According to the BLS, the unemployment rate within San Antonio MSA was 3.8% as of January of 2019. The unemployment rate within the metro is similar to the state of Texas rate of 2.0%, unemployment rate of 3.8%, all reported for February of 2019

Our multifamily market analysis was based on a REIS.com 4th quarter 2018 Performance Monitor Report for the Daytona Beach apartment market. According to the report, the Daytona apartment market is stable. Multifamily permit filings decreased considerably in 2017 and 2018 after adding 1,175 units over the previous five years. Absorption has kept pace with new deliveries; the 4th quarter 2018 vacancy rate was 4.4%, down 60 basis points over the 4th quarter 2017 vacancy rate. Going forward, REIS has forecast the vacancy rate to stabilize just under 5.0% over the five-year forecast horizon. Rental rates have been increasing due to strong demand, up 6.0% in 2018 to reach an average rental rate of $959/unit per month. Rental rates are forecast to grow by another 5.0% in 2019 with a five-year average growth rate of 3.3%.

Our multifamily market analysis was based on a REIS.com 4th quarter 2018 Performance Monitor Report for the Kansas City MSA apartment market. According to the report, the Kansas City vacancy rate is currently 5.0%. Many consider a vacancy rate at or below 5.0% to be full occupancy, and the Kansas City market has been at or below 5.0% since 2012. Completions within the market peaked in 2018 at 3,685 new units, although 2019 deliveries are anticipated to be strong as well. In 2020 and beyond, new deliveries will taper off, and the vacancy rate will stabilize below 5.5% over the five-year forecast horizon. The average asking rental rate is now $963 per unit per month, up 5.2% in 2018. Increases in the average rental rate are forecast to slow over the coming years with a five-year average growth rate of 2.6%.

The LS Project is furthermore located within the Lee’s Summit submarket. The vacancy rate within the submarket is 5.9%. The submarket contains just 4,895 new units, and a single 308- unit project delivered in 2018 adding 6.7% to the submarket inventory. As a result, the vacancy rate increased by 350 basis points. REIS has forecast no new deliveries within the submarket over the next five years. The average asking rental rate within the submarket is now $931/unit per month. When broken down by unit type submarket rental rates now average $821/unit per month for a one bedroom ($1.15/SF), $976/unit for a two bedroom ($.98/SF) and $1,251/unit per month for a three bedroom ($.98/SF). Our multifamily market analysis was based on a REIS.com 4th quarter 2018 Performance Monitor Report for the Dallas CBSA apartment market. According to the report, the Dallas multifamily market remains tight, and rents are increasing rapidly. During 2018, the average rental rate increased by 5.1%, on top of the 5.2% increase in 2017 and 4.8% increase in 2016. The average rental rate is $986/unit per month. The average vacancy rate is 4.0%, up 40 basis points over the past year. Over the five-year forecast horizon, rental rate growth will remain relatively strong, averaging 3.42%. The vacancy rate will rise, however, will increase to just 5.3% by 2022. The M Project is furthermore located within the Southeast submarket as defined by REIS. The vacancy rate within the submarket is 6.0%, up 110 basis points over level found one year ago. New completions were strong in 2018 with additions of 823 new units representing 4.4% growth. The average rental rate in the submarket is $1,145/unit per month, up 6.2% over the past year. When broken down by unit type submarket rental rates now average $988/unit per month ($1.40/SF) for a one bedroom, $1,248/unit per month ($1.27/SF) for a two bedroom and $1,397/unit per month ($1.16/SF) for a three bedroom.

Our multifamily market analysis was based on a REIS.com 4th quarter 2018 Performance Monitor Report for the San Antonio MSA apartment market. According to the report, demand slowed and vacancy increased in 2018. The market added 2,740 new market rate apartments, the lowest number of units added since 2013, however, net absorption totaled just 1,978 units, the fewest since February of 2008. As a result, the vacancy rate is rising. The average vacancy rate is now 5.9%, down 40 basis points over the past year and up 10 basis points during the fourth quarter. The class A vacancy rate is higher at 6.6%, while the class B vacancy rate is 4.9%. Over the long-term horizon, the vacancy rate is anticipated to stabilize near 6.5%. Rental rates are expected to slow with a five-year average growth rate near 2.0%.

The SA Project is furthermore located within the Far North Central submarket. The 42,000 square foot submarket has a vacancy rate of 5.8%. Limited new additions are forecast within the submarket increasing the vacancy rate to 6.5% before falling back to near 6.0% over the extended forecast period. The average asking rental rate within the submarket is now $1,036/unit per month, which is forecast to grow at 3.25% over the next five years. When broken down by unit type submarket rental rates now average $893/unit per month for a one bedroom ($1.25/SF), $1,153/unit for a two bedroom ($1.10/SF) and $1,553/unit per month for a three bedroom ($1.12/SF).

Since October 2013, entities affiliated with the Sponsor have, directly and indirectly, invested in 129 apartment communities totaling 42,917 units across 13 states (AZ, CA, FL, GA, IA, MD, MO, NC, OK, SC, TN, TX, VA) and 25 distinct markets with a cumulative acquisition price in excess of $4.44 billion. As of March 31, 2019, the Sponsor's apartment portfolio consists of 85 apartment communities totaling 28,866 units held within seven distinct funds.

Management Company: BH
Units Managed: 83,000
States: 20
Employees: 1,900
Date Founded: 1993
Headquarters: Des Moines, IA / Dallas, TX
Website: https://bhmanagement.com

1st-Year Cash-on-Cash: 5.02%
Targeted Cash Range: 5.02% - 8.40%
Targeted Cash Average: 6.48%

All-In Price: $210,727,244
Purchase Price: $185,500,000
Appraised Value: $180,750,000
Loan Amount: $112,619,000
Equity Raise: $98,108,244
Trust Reserves: $13,167,656
Reserves to All-In Price: 6.25%
Net Load: $12,059,588
Net load to Equity: 12.29%
Net Load to All-In Ratio: 5.72%
Appraised Net Load: $16,809,588
Appraised Net Load to Equity: 17.13%
Appraised Net Load to All-In Price: 7.98%
All-In $/Ft.: $182.85
All-In $/Unit: $170,906

Net Operating Income: $9,925,105
Purchase Cap Rate: 5.35%
All-In Cap Rate: 4.71%
Cap Rate Spread: 64 bps
Breakeven Exit Cap: 6.07%
Breakeven Exit Cap Rate Spread: 72 bps
Appraised Cap: 5.49%
Appraised Cap Rate Spread: 58 bps

Loan Amount:  $112,619,000
Term:  10 Years Fixed
Interest Only Period:  10 Years
Interest Rate:  4.24%
Prepayment:  1% of the outstanding principal
Lender:  KeyBank National Association
LTV:  53.44%
Nonrecourse:  Yes to the Trust

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Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC, and the issuer are not affiliated.