Apartment Financing in Today s Rising Interest Rate Environment

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1 Apartment Financing in Today s Rising Interest Rate Environment Transaction Summary Date: June 2018 Property Description: A 42-unit, 1980s built apartment in average condition. Property located in middle class neighborhood. Owner: The owners of the property were financially strong with 30 years of commercial real estate experience. Estimated Value: $5,670,000 ($135,000 per unit) Requested Loan Amount: $3,700,000 (65% LTV) Financing Issues: The existing loan was coming due. The owner had substantial equity in the property and wanted to refinance it to get almost $2 million in cash at closing. As always, the owner wanted the best rates and terms available. Lenders had one issue with the property. The owner had over the past couple of years renovated 28 out of the 42 units. Unfortunately, he expensed his capital repairs, so the operating expenses were well above normal. The loan amount was limited by the debt coverage ratio, not loan to value because of the much higher than normal operating expenses. Financing Solutions: Nine lenders were contacted. Two lenders were unwilling to give substantial cash back at closing and passed on the transaction. Shown on the following pages are the five best loan quotes.

2 JUN 2018 Lender #1A Lender #1B Lender #2 Lender #3 Lender #4 Loan Amount: $3,700,000 $3,700,000 $3,700,000 $3,700,000 $3,800,000 Estimated Value: $5,670,000 $5,670,000 $5,670,000 $5,670,000 $5,670,000 Loan To Value: 65.3% 65.3% 65.3% 65.3% 67.0% Indicated Interest Rate 4.17% 4.38% 4.37% 4.55% 4.53% Underwriting Criteria: Maximum LTV: 65% 65% 65% 75% 65% Minimum DSCR: Fixed/Variable Term: 7 Years Fixed 10 Years Fixed 7 Yrs Fixed + 3 Yrs Var 5 Yrs + 5 Yrs 7 Yrs Fixed + 23 Yrs Var Variable Rate: unknown n/a 3 Yr TCM % 5 Yr Treas + 1.9% 6 Mo. LIBOR % Variable Floor: start rate n/a n/a 4.55% 3.80% Variable Ceiling: unknown n/a n/a 5.05% 9.68% Loan Term: 7 or 10 Years 10 Years 10 Years 10 Years 30 Years Amortization Method: Actual/360 Actual/360 Actual/360 30/360 30/360 Amortization Period in Years: Rate Lock at time of Application? No No Yes Yes Yes Rate Lock Deposit: Rate hold 1% refundable at closing 0.5% refundable at closing 1.0% refundable at closing 1% refundable at closing Monthly Loan Constant: % % % % % Total Loan Fees (Lender/Mtg Broker): 1.000% 1.000% 1.000% 1.000% 1.000% Application Deposit $7,500 $7,500 $7,500 $4,500 $5,000 Third Party Reports Required Appraisal Yes Yes Yes Yes Yes Environmental Yes Yes Yes No Yes Engineering (Property Condition) Yes Yes No No No Survey No No No No No Other Costs Processing Fee/Site Visit $0 $0 $0 $0 $0 Lender's Legal Cost Estimate $0 $0 $0 $0 $0 Escrow Impounds Property Taxes Yes Yes No No No Insurance No No No No No Replacement Reserves No No No No No Deposit Relationship Required No No No Operating Acct Prepayment Penalty 42 Unit Apartment Loan Quote Comparison Method of Prepayment Yield Maintenance Yield Maintenance Open Period Open last 3 months Open last 3 months Open last 5 Years Open last 6 Months Open Last 25 Years Recourse/Non-Recourse Non-Recourse Non-Recourse Recourse Recourse Recourse Doug Marshall, CCIM Marshall Commercial Funding, Inc Call today for a no obligation loan quote (503) doug@marshallcf.com

3 42 Unit Apartment Estimated Sources & Uses Statement SOURCES Lender #1A Lender #1B Lender #2 Lender #3 Lender #4 Loan Amount 3,700,000 3,700,000 3,700,000 3,700,000 3,800,000 Cash From Borrower Total Sources $3,700,000 $3,700,000 $3,700,000 $3,700,000 $3,800,000 USES Cash To Borrower 1,806,300 1,806,300 1,813,300 1,814,305 1,912,300 Pay off existing mortgage 1,834,000 1,834,000 1,834,000 1,834,000 1,834,000 Repair Holdback Financing Charges Financing Fee 37,000 37,000 37,000 37,000 38,000 3rd party reports 7,500 7,500 6,000 4,995 6,000 Application Fee Property Condition Report Processing Fee Lender Legal Fee 4,750 4, Miscellaneous Lender Fees Title Policy Insurance 7,700 7,700 7,700 7,700 7,700 Escrow 1,500 1,500 1,500 1,500 1,500 Miscellaneous Closing Costs Total Financing Charges 59,700 59,700 52,700 51,695 53,700 Total Uses $3,700,000 $3,700,000 $3,700,000 $3,700,000 $3,800,000

4 42 Unit Apartment Monthly Cash Flow After Debt Service No. of units: 42 Lender #1A Lender #1B Lender #2 Lender #3 Lender #4 INCOME 1. Rental Income $546,456 $546,456 $546,456 $546,456 $546, Utility Reimbursements $20,273 $20,273 $20,273 $20,273 $20, Parking Income $2,822 $2,822 $2,822 $2,822 $2, Other Income $14,129 $14,129 $14,129 $14,129 $14, Vacancy & Credit Loss ($27,323) ($27,323) ($27,323) ($27,323) ($27,323) 6. EFFECTIVE GROSS INCOME $556,357 $556,357 $556,357 $556,357 $556,357 EXPENSES 7. Property Taxes 55,273 55,273 55,273 55,273 55, Insurance 6,941 6,941 6,941 6,941 6, Repairs & Maintenance 52,169 52,169 52,169 52,169 52, Turnover Expenses 5,558 5,558 5,558 5,558 5, Grounds Maintenance 9,187 9,187 9,187 9,187 9, Payroll 53,252 53,252 53,252 53,252 53, Electricity & Gas 2,720 2,720 2,720 2,720 2, Water & Sewer 35,141 35,141 35,141 35,141 35, Trash Service 9,675 9,675 9,675 9,675 9, General & Administrative 11,842 11,842 11,842 11,842 11, Management Fee 19,472 19,472 19,472 19,472 19, Legal & Accounting Replacement Reserves 10,500 10,500 10,500 10,500 10, TOTAL OPERATING EXPENSES $271,730 $271,730 $271,730 $271,730 $271, % Expense/Effective Gross Income 48.8% 48.8% 48.8% 48.8% 48.8% 22. Expense Per Unit or Square Feet $6,470 $6,470 $6,470 $6,470 $6, CASH FLOW BEFORE DEBT SERVICE $284,627 $284,627 $284,627 $284,627 $284, Monthly Net Income $23,719 $23,719 $23,719 $23,719 $23, Loan Amount $3,700,000 $3,700,000 $3,700,000 $3,700,000 $3,800, Interest Rate 4.17% 4.38% 4.37% 4.55% 4.53% 27. Amortization Method Actual/360 Actual/360 Actual/360 30/360 30/ Amortization in Years Less: Mortgage Payment $18,029 $18,484 $18,463 $18,857 $19, CASH FLOW AFTER DEBT SERVICE $5,690 $5,234 $5,256 $4,861 $4,397

5 42 Unit Apartment Before & After Tax Return on Equity PROJECTED TAXABLE INCOME Lender #1A Lender #1B Lender #2 Lender #3 Lender #4 NET CASH FLOW BEFORE DEBT SERVICE $284,627 $284,627 $284,627 $284,627 $284,627 Annual Interest Expense 155, , , , ,884 Cost Recovery (Depreciation) 181, , , , ,440 TAXABLE INCOME ($52,060) ($59,927) ($59,552) ($63,940) ($67,698) CASH FLOW BEFORE & AFTER TAXES Net Operating Income $284,627 $284,627 $284,627 $284,627 $284,627 Annual Debt Debt Service 216, , , , ,862 CASH FLOW BEFORE TAXES $68,280 $62,813 $63,075 $58,337 $52,764 Tax 25% (13,015) (14,982) (14,888) (15,985) (16,924) CASH FLOW AFTER TAXES $81,295 $77,795 $77,963 $74,322 $69,689 RETURN ON EQUITY BEFORE TAX 3.5% 3.2% 3.2% 3.0% 2.8% AFTER TAX 4.1% 3.9% 4.0% 4.0% 3.7% DEPRECIATION AND TAX ASSUMPTIONS Estimated Value $5,670,000 Building Value as % of Total Value 80% Depreciation Schedule 4.0% Ordinary Income Tax Rate: 25%

6 Lender #1A Amortization Methods - 3 Approaches Loan Amount: $3,700, /360 - interest calculated based on 30 day months Annual Interest Rate: 4.170% 2. Actual/360 - interest based on actual no. of days in the month Effective Interest Rate: 4.228% 3. Interest Only - no amortization of the loan Amortization Method: Actual/360 Amort Period (in Yrs): /01/18 $3,700, $18, $12, $5, $3,694, /01/18 $3,694, $18, $13, $4, $3,690, /01/18 $3,690, $18, $12, $5, $3,684, /01/19 $3,684, $18, $13, $4, $3,680, /01/19 $3,680, $18, $13, $4, $3,675, /01/19 $3,675, $18, $11, $6, $3,669, /01/19 $3,669, $18, $13, $4, $3,664, /01/19 $3,664, $18, $12, $5, $3,658, /01/19 $3,658, $18, $13, $4, $3,654, /01/19 $3,654, $18, $12, $5, $3,648, /01/19 $3,648, $18, $13, $4, $3,643, /01/19 $3,643, $18, $13, $4, $3,638, $216, $155, $61, Lender #1B Loan Amount $3,700,000 Annual Interest Rate: 4.380% Effective Interest Rate: Amortization Method: 4.441% Actual/360 Amort Period (in Yrs) /01/18 $3,700, $18, $13, $4, $3,695, /01/18 $3,695, $18, $13, $4, $3,690, /01/18 $3,690, $18, $13, $5, $3,685, /01/19 $3,685, $18, $13, $4, $3,680, /01/19 $3,680, $18, $13, $4, $3,676, /01/19 $3,676, $18, $12, $5, $3,670, /01/19 $3,670, $18, $13, $4, $3,665, /01/19 $3,665, $18, $13, $5, $3,660, /01/19 $3,660, $18, $13, $4, $3,655, /01/19 $3,655, $18, $13, $5, $3,650, /01/19 $3,650, $18, $13, $4, $3,646, /01/19 $3,646, $18, $13, $4, $3,641, $221, $163, $58,700.48

7 Lender #2 Loan Amount $3,700,000 Annual Interest Rate: 4.370% Effective Interest Rate: Amortization Method: 4.431% Actual/360 Amort Period (in Yrs) /01/18 $3,700, $18, $13, $4, $3,695, /01/18 $3,695, $18, $13, $4, $3,690, /01/18 $3,690, $18, $13, $5, $3,685, /01/19 $3,685, $18, $13, $4, $3,680, /01/19 $3,680, $18, $13, $4, $3,676, /01/19 $3,676, $18, $12, $5, $3,670, /01/19 $3,670, $18, $13, $4, $3,665, /01/19 $3,665, $18, $13, $5, $3,660, /01/19 $3,660, $18, $13, $4, $3,655, /01/19 $3,655, $18, $13, $5, $3,650, /01/19 $3,650, $18, $13, $4, $3,645, /01/19 $3,645, $18, $13, $4, $3,641, $221, $162, $58, Lender #3 Loan Amount $3,700,000 Annual Interest Rate: 4.550% Effective Interest Rate: Amortization Method: 4.550% 30/360 Amort Period (in Yrs) /01/18 $3,700, $18, $14, $4, $3,695, /01/18 $3,695, $18, $14, $4, $3,690, /01/18 $3,690, $18, $13, $4, $3,685, /01/19 $3,685, $18, $13, $4, $3,680, /01/19 $3,680, $18, $13, $4, $3,675, /01/19 $3,675, $18, $13, $4, $3,670, /01/19 $3,670, $18, $13, $4, $3,665, /01/19 $3,665, $18, $13, $4, $3,660, /01/19 $3,660, $18, $13, $4, $3,655, /01/19 $3,655, $18, $13, $4, $3,650, /01/19 $3,650, $18, $13, $5, $3,645, /01/19 $3,645, $18, $13, $5, $3,640, $226, $167, $59,162.95

8 Lender #4 Loan Amount $3,800,000 Annual Interest Rate: 4.530% Effective Interest Rate: Amortization Method: 4.530% 30/360 Amort Period (in Yrs) /01/18 $3,800, $19, $14, $4, $3,795, /01/18 $3,795, $19, $14, $4, $3,790, /01/18 $3,790, $19, $14, $5, $3,785, /01/19 $3,785, $19, $14, $5, $3,779, /01/19 $3,779, $19, $14, $5, $3,774, /01/19 $3,774, $19, $14, $5, $3,769, /01/19 $3,769, $19, $14, $5, $3,764, /01/19 $3,764, $19, $14, $5, $3,759, /01/19 $3,759, $19, $14, $5, $3,754, /01/19 $3,754, $19, $14, $5, $3,749, /01/19 $3,749, $19, $14, $5, $3,744, /01/19 $3,744, $19, $14, $5, $3,739, $231, $170, $60,977.76