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Cornerstone Research

Nashville ApartmentMarket Analysis

Dags ChenCornerstone Real Estate

Advisers LLC

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Research drives Cornerstone investment process

Strategy

Tactics

Public (REIT) and private real estate research integrated

Cornerstone “scrubs” industry data to remove errors and refine accuracy

Cornerstone’s granular analysis is more localized than typical

Live access to data and forecasts throughout Cornerstone via the Research Analyst platform

Top Down

Bottom Up

Regional TeamsLocal Data

Market Presence

Value

Research InsightData

ModelsForecasts

Cornerstone Research

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Economy.com’s NAICs Employment

Forecast

Dun & Bradstreet Establishment Data

by NAICs

Scrubbed supply data from F.W. Dodge Pipeline

Market Occupancy & Rate/Rent Trends

Construction Activity, History and Forecast

Demand/Supply Forecast w/ Local Coefficients

Demographic Forecasts

Occupancy Forecast, Rent Growth, Market Weighting, Investment Recommendation

Demand, Supply, and Local Coefficient Inputs are property-type specific

Cornerstone’s Demand Model: Employment Growth by Zip Code,

County, and MSA, Benchmarked to U.S.

Regional Office, REIT Team and

Hotel Team input

Cornerstone Research

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-6

-4

-2

0

2

4

6

2004 2005 2006 2007 2008 2009 2010

Annualize

d G

row

th R

ate

%

Source: Consensus Forecasts, Cornerstone Research 2-6-2009

Weakness is pervasive and accelerating. Forecast for negative GDP through 2009,

recovery hopes in 2010, employment recovery lags.

1/12/08 Forecast

6 quarters of negative growth

would be the longest

contraction since the Depression

Forecast US GDP Growth

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Source: Bureau of Labor Research, Cornerstone Research 12-8-2008, 1-14-2009

Job losses likely to surpass early 1970s, 1980s

95%

96%

97%

98%

99%

100%

101%

-12 0 12 24 36 48

Months

Perc

ent of Peak E

mplo

yment

1972-1976

1980-1983

1989-1993

2000-2005

2007- ?

Forecast

Months to recover peak employment 19 28 32 48

Total Job Losses

1972-76: -2.1mm

1980-83: -2.8mm

Current: -3.5mm through January, (another 2mm to go?)

50+ months?

Steep Jobs Decline and Slow Recovery

Source: Cornerstone Research

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Monthly Sales Volume

0

25

50

75

2001 2002 2003 2004 2005 2006 2007 2008

Billions

of US$

Apartments Industrial Office Retail HotelBlackstone purchase of

EOP

Commercial Real Estate Transaction Activity

Source: Real Capital Analytics

Blackstone purchase of

Hilton

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-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Number of Quarters Following NCREIF Capital Index Peak ValueCum

ula

tive

% D

ecl

ine S

ince P

eak 1990s Downturn Current Downturn

NCREIF Property Index Comparison

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The Grove at Cumberland Bluffs

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Economy.com Precis Report

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Nashville Apartment Submarkets

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Belle Meade / West End

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Downtown

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Rent Comps

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Locations of Major Employers

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Franklin/Williamson County

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Rent Comps

17

Shadow Supply

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Submarket and Market Rent and Occupancy

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Rent Comps

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Proforma Cash Flow

INCOME Year 1 Year 2 Year 3 Year 4 Year 5Income Growth Assumption: 0.0% 2.0% 3.0% 3.0% 3.0%Gain(Loss) to Lease Assumption: 0.0% 0.0% 0.0% 0.0% 0.0%Vacancy/Loss/Model Assumption: -6.0% -5.0% -5.0% -5.0% -5.0%Concessions Assumption: 0.0% 0.0% 0.0% 0.0% 0.0%Total Economic Vacancy -6.0% -5.0% -5.0% -5.0% -5.0%Market Rents 4,409,700 4,497,894 4,632,831 4,771,816 4,914,970Gain (Loss) to Lease 0 0 0 0 0Gross Potential 4,409,700 4,497,894 4,632,831 4,771,816 4,914,970Vacancy/Loss/Model -264,582 -224,895 -231,642 -238,591 -245,749Concessions 0 0 0 0 0Rental Income 4,145,118 4,272,999 4,401,189 4,533,225 4,669,222Other Income 160,792 164,008 167,288 170,634 174,047Total Income 4,305,910 4,437,007 4,568,477 4,703,859 4,843,268EXPENSESOther Income and Expense Growth Assumption: 2.00% 2.00% 2.00% 2.00%Utilities -59,553 -60,744 -61,958 -63,198 -64,462Variable -516,785 -527,121 -537,663 -548,416 -559,385Taxes -563,246 -574,511 -586,002 -597,722 -609,676Insurance -57,400 -58,548 -59,719 -60,913 -62,132Management Fee -107,648 -109,801 -111,997 -114,237 -116,521Replacement Res. -43,050 -43,911 -44,789 -45,685 -46,599Total Operating Expenses -1,347,682 -1,374,635 -1,402,128 -1,430,171 -1,458,774Net Operating Income 2,958,228 3,062,372 3,166,349 3,273,688 3,384,494

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Proforma Cash Flow

Debt Service Year 1 Year 2 Year 3 Year 4 Year 5

Net Operating Income 2,958,228 3,062,372 3,166,349 3,273,688 3,384,494

Debt Service ($1,971,427) ($1,971,427) ($1,971,427) ($2,366,761) ($2,366,761)

Cash Flow $986,802 $1,090,945 $1,194,923 $906,927 $1,017,733

Debt Service Coverage Ratio 1.5 1.55 1.61 1.38 1.43

All Cash Yield 6.73% 6.97% 7.20% 7.45% 7.70%

Cash On Cash Leveraged Yield 8.98% 9.93% 10.87% 8.25% 9.26%

Price $43,956,000

LTV % 75%

Loan Amount $32,967,000

Interest Rate*: 5.98%

Amortization: 3 0 30

Term: 1 0 10

First 36 Months (Interest Only) $164,286

Months 37 - 120: $197,230

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Commercial Mortgage Spreads (as of 2/11/2009)

Source: DTZ Rockwood Financial

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Effective Rent Growth US, Nashville

-12%

-8%

-4%

0%

4%

8%

12%

1996.2 1997.2 1998.2 1999.2 2000.2 2001.2 2002.2 2003.2 2004.2 2005.2 2006.2 2007.2 2008.2

Source: Axiometrics

U.S.

Nashville

Historical Rent Growth

Downtown

West End

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Source: Axiometrics, BLS

Rent Growth Linked to Job Growth

Nashville Rent and Employment Growth (4Q trailing)

-6%

-4%

-2%

0%

2%

4%

6%

1996.2 1997.2 1998.2 1999.2 2000.2 2001.2 2002.2 2003.2 2004.2 2005.2 2006.2 2007.2 2008.2

Nashville Employment Growth

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Vacancy, US, Nashville

90%

92%

94%

96%

98%

100%

1996.2 1997.2 1998.2 1999.2 2000.2 2001.2 2002.2 2003.2 2004.2 2005.2 2006.2 2007.2 2008.2

Source: Axiometrics

U.S.

Nashville

Axiometrics Vacancy History

Downtown

West End