PROFESSIONAL RESERVE STUDY

PROFESSIONAL RESERVE STUDY Watermark Tower - Residential Association 1107-1 st Avenue, Seattle, WA 98101 For: Watermark Tower Residential Association c/o Alicia Graham, Property Manager CWD Group, Inc. 2800 Thorndyke Ave W Seattle, WA 98199 206-706-8000 Prepared By: Jeff Samdal, PE, RS, PRA jeff@samdalassoc.com (206) 412-4305 Date Prepared: March 29, 2016 JEFF SAMDAL & ASSOCIATES, INC. WOODINVILLE, WA WWW.SAMDALASSOC.COM P: (206) 412-4305 F: (425) 825-9090

TABLE OF CONTENTS TABLE OF CONTENTS...2 1.0 EXECUTIVE SUMMARY...4 1.1 Required Statement Per State of Washington Senate Bill 6215...4 1.2 General Description of Property...4 1.3 Immediate Necessary Capital Expenditures...5 Table 1.3: Summary of Immediate Necessary Capital Expenditures... 5 1.4 Current Status of Capital Reserve Fund...5 Table 1.4: Current Status of the Reserve Fund... 5 1.5 Recommendations and Assumptions for Future Reserve Contributions...6 Table 1.5: Recommendations and Assumptions for Future Reserve Contributions... 6 2.0 RESERVE STUDY BACKGROUND...7 2.1 Purpose of This Level 2 Reserve Study...7 2.2 Washington State Senate Bill (SB) 6215...7 2.3 Washington State House Bill (HB) 1309...8 2.4 Scope and Methodology...9 2.5 Sources of Information...10 2.6 Definitions...10 2.7 Frequently Asked Questions About Reserve Studies...11 3.0 PHYSICAL ANALYSIS...13 3.1 Component Assessment and Valuation...13 Table 3.1A: Component Assessment and Valuation... 14 Table 3.1B: Table of Categorized Expenses over the Duration of the Study... 17 Figure 3.1B: Pie Chart of Categorized Expenses over the Duration of the Study... 17 3.2 Site...18 3.3 Structure...18 3.4 Roofing...18 3.5 Exterior...19 3.6 Electrical Systems...21 3.7 Major Mechanical Plumbing and HVAC Systems...21 3.8 Elevators...22 3.9 Fire Detection and Suppression...24 3.10 Common Interior Finishes...24 3.11 Miscellaneous Mechanical...27 3.12 Amenities...28 3.20 Summary of Annual Anticipated Expenses...30 PAGE 2 OF 57 JEFF SAMDAL & ASSOCIATES, INC. WWW.SAMDALASSOC.COM P: (206) 412-4305 F: (425) 825-9090

4.0 FINANCIAL ANALYSIS...40 4.1 Current Financial Information and Current Funding Plan...40 4.2 Recommended Reserve Funding Plan...40 4.3 Other Required Funding Plan Options...42 4.4 Assumptions for Future Interest Rate and Inflation...43 4.5 Annual Fund Balances; Annual Funding Table and Figures...43 Figure 4.5A-1 Comparison of Funding Plans Reserve Fund Balances Through 2045... 53 Figure 4.5A-2 Comparison of Funding Plans Reserve Fund Balances Through 2025... 53 Figure 4.5B Comparison of Funding Plans -- Association Contributions to Reserve Fund by Year... 54 Figure 4.5C Comparison of Funding Plans Percentage of Full Funding by Year... 54 4.6 Other Common Funding Methods...55 5.0 LIMITATIONS...56 APPENDIX...57 PAGE 3 OF 57 JEFF SAMDAL & ASSOCIATES, INC. WWW.SAMDALASSOC.COM P: (206) 412-4305 F: (425) 825-9090

1.0 EXECUTIVE SUMMARY 1.1 REQUIRED STATEMENT PER STATE OF WASHINGTON SENATE BILL 6215 This reserve study should be reviewed carefully. It may not include all common and limited common element components that will require major maintenance, repair, or replacement in future years, and may not include regular contributions to a reserve account for the cost of such maintenance, repair, or replacement. The failure to include a component in a reserve study, or to provide contributions to a reserve account for a component, may, under some circumstances, require you to pay on demand as a special assessment your share of common expenses for the cost of major maintenance, repair, or replacement of a reserve component. 1.2 GENERAL DESCRIPTION OF PROPERTY The property is 0.30 acres and is located on the east side of the intersection of 1st Ave. and Spring St. This property contains one mixed use 22 story building consisting of three levels of retail space on Post Alley, Spring St., and 1st Ave., office space on the next 4 floors, residential amenities on the 6th floor and residential units on the top 15 floors. The building originally had 94 residential units per the original declarations; however, many of the units have been combined to make 89 total units. The number 94 has been used for our estimated averages since by square footage, this is a closer number to reality for most units. The total gross square feet of this building is 85,094 ft2, while the total net square feet is 70,464 ft2. The building was constructed in 1983. The building technically faces Northeast; however, this side of the building is considered the East side for the purposes of this report. The property slopes down to the west and almost entirely consists of the building itself. There are city sidewalks adjacent the building on the east and south sides of the building, there is an alley (Post Alley) to the west side of the building with a parking garage with leased space across this alley to the west side of the building. There is a sky bridge between the Watermark Tower and this adjacent parking garage. There is an adjacent building to the north side of the Watermark Tower. The building has three levels of concrete flat roofs as well as numerous sky facing decks. The roof surface is a PMMA reinforced resin based waterproofing membrane. The building design is a mix of stepped terraces, recesses, and reliefs covered in ceramic tile with areas of stucco in the areas of decks. The lower levels are clad in terra cotta. The windows and storefront doors on this building are wood frame, aluminumclad, double pane windows. The exterior service doors are metal. The residential section of this building is exclusively served by two high speed traction elevators. In addition, the commercial section of this building is exclusively served by two hydraulic elevators. Each condominium is equipped with at least one water cooled heat pump that is concealed in the ceiling of each unit. These heat pumps connect to a cooling tower on the roof via a water loop system throughout the building. Like all properties, this property will require capital maintenance. We have itemized areas of capital maintenance that we anticipate over the next thirty (30) years along with estimated costs and estimated schedule of repair/replacement. PAGE 4 OF 57 JEFF SAMDAL & ASSOCIATES, INC. WWW.SAMDALASSOC.COM P: (206) 412-4305 F: (425) 825-9090

1.3 IMMEDIATE NECESSARY CAPITAL EXPENDITURES Table 1.3 below shows the items that are in need of action immediately or within the near future. This is a summary; all tasks are explained in greater detail in Section 3.0 Physical Analysis. Table 1.3: Summary of Immediate Necessary Capital Expenditures Component Cost Urgency Section No immediate capital expenditures necessary 1.4 CURRENT STATUS OF CAPITAL RESERVE FUND Table 1.4 below shows the current status of the Capital Reserve Fund and how it relates to Full Funding. The current Reserve Fund data was provided to us by Alicia Graham of The CWD Group. Table 1.4: Current Status of the Reserve Fund Current Reserve Balance $756,966 as of November 30, 2015 Current Annual Reserve Fund Contribution $322,500 Average Per Unit Per Month $285.90 Planned Special Assessment(s) N/A Balance Required for Full Funding $1,394,248 Current Percentage of Full Funding 54.3% PAGE 5 OF 57 JEFF SAMDAL & ASSOCIATES, INC. WWW.SAMDALASSOC.COM P: (206) 412-4305 F: (425) 825-9090

1.5 RECOMMENDATIONS AND ASSUMPTIONS FOR FUTURE RESERVE CONTRIBUTIONS The following table is a summary of our assumptions and several options that we have provided for funding contributions to the Reserve Fund. This is only a summary table; for a detailed view of our recommended funding plans, please see section 4 of this report. Table 1.5: Recommendations and Assumptions for Future Reserve Contributions Assumed Average Future Inflation Rate over 30 Years 3% Assumed Average Future Interest Rate over 30 Years 3% Option 1 Immediate Full Funding Immediate Special Assessment Required IF the Association is to be Fully Funded Immediately $637,281 Average Initial Special Assessment per Unit $6,780 Annual Reserve Fund Contribution Required for the Reserve Fund to remain Fully Funded $252,821 Option 2 Path to Full Funding in 5 Years Average Contribution per Unit per Month $217.60 Annual Reserve Fund Contribution Required for the Reserve Fund to be Fully Funded in 5 years $387,921 of which $135,100 will be make up funding Option 3 Path to Full Funding in 10 Years Average Contribution per Unit per Month $343.90 Annual Reserve Fund Contribution Required for the Reserve Fund to be Fully Funded in 10 years $325,354 of which $72,533 will be make up funding Option 4 Path to Full Funding in 30 Years* Average Contribution per Unit per Month $288.43 Annual Reserve Fund Contribution Required for the Reserve Fund to be Fully Funded in 30 years $284,388 of which $31,567 will be make up funding Option 5 Baseline Funding* Average Contribution per Unit per Month $252.12 Annual Reserve Fund Contribution Required for Baseline Funding (Keeping the Reserve Fund above Zero over the 30 Year Period) $236,240 Average Contribution per Unit per Month $209.43 *These funding levels are required by WA State HB 1309. They are bare minimum funding plans and therefore carry a higher level of risk. Because of this, they are not recommended by Jeff Samdal & Associates. PAGE 6 OF 57 JEFF SAMDAL & ASSOCIATES, INC. WWW.SAMDALASSOC.COM P: (206) 412-4305 F: (425) 825-9090

2.0 RESERVE STUDY BACKGROUND 2.1 PURPOSE OF THIS LEVEL 2 RESERVE STUDY The primary purpose of this Level 2 Reserve Study is to provide the Association with a planning and budgeting tool to adequately maintain the property 30 years into the future without unexpected special assessments. This study is intended to provide the Association with an understanding of their property and to bring to light necessary immediate expenditures and reasonably anticipated future capital expenses that should be addressed. Associations have a responsibility to their members to adequately maintain their properties and our Reserve Studies provide our clients with the tools to implement capital maintenance. When small issues and maintenance items are addressed prior to becoming larger problems, there is typically a significant overall savings for a property owner. Properly maintained properties maintain higher property values than those with an abundance of deferred maintenance. An additional benefit of this Reserve Study is that it is one of the qualifications required for Associations to obtain FHA approval (which is very helpful in selling or refinancing individual units). Many other sources of funding are also beginning to require them as well. 2.2 WASHINGTON STATE SENATE BILL (SB) 6215 On March 8, 2008, the Washington Legislature passed Senate Bill 6215 regarding reserve studies for condominiums, which became effective June 12, 2008. This Reserve Study meets the requirements of preparing a reserve study presented by the State. According to the State of Washington, SB 6215, an Association shall prepare and update a reserve study... According to the State, the terminology for this Scope of Work is Level I: Full reserve study funding analysis and plan. Components from this law include: Requirements for a Residential Condominium Association unless doing so would impose an unreasonable hardship to (1) prepare an initial reserve study based upon a visual site inspection conducted by a reserve study professional (LEVEL 1 STUDY); (2) update the study annually (LEVEL 3 STUDY); and (3) arrange for a visual site inspection every three years by a reserve study professional (LEVEL 2 STUDY). Reserve studies must include detailed information on projected expenditures and current reserve account information and must be conducted by a reserve study professional. Encourages, but does not require, a Residential Condominium Association to establish a reserve account, supplemental to the Association s annual operating budget, to fund major maintenance, repair, and replacement of common elements. Requires a condominium Public Offering Statement or Resale Certificate to include a copy of the current reserve study; or (2) a disclosure to the potential buyer stating that the Association does not have a reserve study. The statute does not define "unreasonable hardship." The law also allows an Association to withdraw funds from the reserve account for unforeseen expenses, as long as notice is given to unit owners, and a repayment schedule is set up. This Reserve Study meets these qualifications and we provide the required (LEVEL 3 STUDY) Annual Updates in years 2 and 3 to our original Reserve Study at NO ADDITIONAL CHARGE. These Annual Updates are performed without a site visit and are simply a review and update of the financials. This reserve study meets the qualifications of WA State SB 6215 PAGE 7 OF 57 JEFF SAMDAL & ASSOCIATES, INC. WWW.SAMDALASSOC.COM P: (206) 412-4305 F: (425) 825-9090

2.3 WASHINGTON STATE HOUSE BILL (HB) 1309 On April 29, 2011, the Washington Legislature passed House Bill 1309 that expands the minimum criteria that reserve studies in Washington are required to meet. This law has been codified within RCW 64.34.308. This law became effective January 1, 2012. The expanded required elements of Reserve Studies include the following: Requires that the Board distribute the financial planning statistics from the Reserve Study to all owners as part of their summary of the annual budget. Requires that a Reserve Study contain the following data: reserve contribution rate; This Reserve Study meets the reporting qualifications of Reserve Studies per WA State HB 1309 recommended contribution rate and the funding plan upon which it is based; any and all special assessments that are scheduled and the date(s) and purpose of each assessment. Requires that the Reserve Study have a statement of the ability of the current reserve contribution to meet the financial obligations of the components listed in the Reserve Study, while keeping a positive balance in the Reserve Fund over the next 30 years. Requires that the Reserve Study have a listing of the Reserve Study provider s recommended level of funding that should be present in the Reserve Fund at the end of the current fiscal year, as well as the projected actual account balance at the end of the current fiscal year and the ratio of these two values in terms of a Percentage of Full Funding. Requires that the Reserve Study have a listing of the following values in each of the 5 years following the year that the study was performed: recommended reserve balance, projected reserve balance (based on current funding plan), and the ratio of these numbers in terms of a Percentage of Full Funding. Requires that the Reserve Study component list include or otherwise address the following items: roofing, exterior cladding (siding and trim), painting, decks, windows, and paving. It also requires that the component list contain any anticipated capital expenditure that will cost more than 1% of the annual budget. If any of these components are excluded from the Reserve Fund component list, then an explanation of the basis for this exclusion must be present. Inclusion of a funding plan that leads to a Reserve Fund that is fully funded at the end of a 30 year period. Inclusion of a baseline funding plan that is the minimum regular contribution to the Reserve Fund to meet the financial obligations of the components listed in the Reserve Study while keeping a positive balance in the reserve fund over the next 30 years. Requirement that Homeowners Associations obtain a Reserve Study if it has significant assets. Significant assets are defined as the following: For Condominium Association If the current total cost of capital repairs and replacement of components maintained by the Association is 50% or more of the total annual budget of the Association (excluding reserve contributions) in any one fiscal year, then the Condominium Association has significant assets. For Homeowners Association If the current total cost of capital repairs and replacement of components maintained by the Homeowners Association is 75% or more of the total annual budget of the Association (excluding the budgeted reserve contribution) in any one fiscal year, then the HOA has significant assets. For HOAs Only: Exempts an HOA from the Reserve Study requirement if the cost of the Reserve Study exceeds 5% of the Association s annual budget or there are ten or fewer homes in the Association. For HOAs Only: States that HOAs do not have to specifically address roofing, exterior cladding, windows, painting, decks, and paving as many of these components are not found in HOAs. For Condominiums Only: Exempts a Condominium Association from the Reserve Study requirement if the cost of the Reserve Study exceeds 10% of the Association s annual budget. Allows an Association to withdraw funds from its Reserve Fund to pay for unforeseen costs that are unrelated to maintenance, repair, or replacement of specific reserve components. However, notification to the homeowners must be performed of this Reserve Fund withdrawal. Allows an Association to withdraw funds from its Reserve Fund for components in the Reserve Study without notification to the homeowners, whether or not this expenditure is listed in the year of repair in the Reserve Study. This Reserve Study meets the reporting qualifications of Reserve Studies per House Bill 1309, which has been codified within RCW 64.34.308. PAGE 8 OF 57 JEFF SAMDAL & ASSOCIATES, INC. WWW.SAMDALASSOC.COM P: (206) 412-4305 F: (425) 825-9090

2.4 SCOPE AND METHODOLOGY This Level 2 Reserve Study has been prepared based on Community Associations Institute (CAI) standards and our proposal to the Association dated January 7, 2016, which was based on our correspondence with Alicia Graham and the previous studies that we have prepared for this Association. Information Gathering Our initial task was to gather information regarding the property such as financials, drawings, maintenance records, and historical background. This Reserve Study is a reflection of the information provided to us. Physical Analysis Following the initial correspondence regarding the property, we performed an inspection of the property on February 23, 2016 so that we may provide an opinion of the current condition of the common building components. This is also the basis for our opinion of the anticipated capital needs that the Association will be responsible for over the next 30 years. This was a visual inspection and no invasive or destructive testing was performed. This visual inspection focused on the typical features of a building and surrounding property such as structure, drainage, roof, exterior, electrical, plumbing, HVAC systems, and interior finishes. This inspection was limited to accessible and visible areas. The physical analysis included the following tasks: 1. Identification of Anticipated Capital Expenses: We consider anticipated capital expenses to be major expenses that can be reasonably predicted. Anticipated capital expenses are not considered routine maintenance such as routine landscaping or touch up paint; routine maintenance should be taken care of through an operating budget. Nor do we consider anticipated capital needs to be expenditures that result from an accident or an unpredictable event, such as flood damage or earthquake damage; these items should be paid for by insurance. The general criteria that we used to define an anticipated capital expense that warranted inclusion on our Itemized capital expenses is the following: The component must be a common component that is the responsibility of the Association. Repair or replacement of the component is significant and not budgeted for in the operating budget. The component repair or replacement occurs within the period of this study. 2. Estimated Replacement Schedule: Our opinions of the various life expectancy estimates that we prepared are based on a combination of the following: National Association of Home Builders (NAHB) averages Building Owners and Managers (BOMA) averages Product vendors and suppliers Our company database 3. Estimated Replacement Cost: Our opinions of the various costs for repair or replacement are based on a combination of the following: R.S. Means Product vendors and suppliers Our company database 4. Financial Analysis: We performed an analysis on the financial needs and current status at the property. The financial analysis provides the following: Forecasts the anticipated Capital Reserves necessary at the property over the next 30 years. Projects future Capital Reserve balances and determines the appropriate funding levels necessary. Reviews the current funding plan and current financial position. Provides our recommended annual contribution to the Reserve Fund to maintain Full Funding. PAGE 9 OF 57 JEFF SAMDAL & ASSOCIATES, INC. WWW.SAMDALASSOC.COM P: (206) 412-4305 F: (425) 825-9090

2.5 SOURCES OF INFORMATION The following people provided us information for this study: Alicia Graham, The CWD Group, Property Manager Joel Janssen, On Site Building Manager Jim Permann, MacDonald Miller, HVAC and Plumbing The following documents were viewed as part of this study Vendor List compiled by Joel Janssen Capital Project List prepared by Alicia Graham HVAC Equipment List by MacDonald Miller Plumbing Equipment List by MacDonald Miller The physical inspection of the property occurred on the following date: February 23, 2016 2.6 DEFINITIONS Assumed Inflation Our assumed inflation rate is our best guess of the long term average of the inflation rate over the next thirty years; it is not based on the current Consumer Price Index (CPI). Our number is much closer to the historical average of the CPI over the previous 25 years. Capital Reserves Balance Actual or projected funds as of a particular point in time that the Association has identified for use to defray the future repair or replacement of those major components which the Association is obligated to maintain. Also known as reserves, reserve accounts, cash reserves. Component An individual line item in the Reserve Study developed or updated in the physical analysis. These elements form the building blocks of the Reserve Study. Components typically are: 1) Association responsibility, 2) with limited useful life expectancies, 3) predictable remaining useful life expectancies, 4) above a minimum threshold cost, and 5) as required by local codes. Component Inventory The task of selecting and quantifying reserve components. This task is accomplished through onsite visual observations, review of Association design and organizational documents, and a review of established Association precedents. Deficit An actual (or projected) reserve balance less than the fully funded balance. The opposite would be a surplus. Effective Age The difference between useful life and remaining useful life. Not always equivalent to chronological age, since some components age irregularly. Used primarily in computation. Financial Analysis The portion of a Reserve Study where current status of the reserves measured as cash or percent funded) and a recommended reserve contribution rate (reserve funding plan) are derived. The financial analysis is one of the two parts of a Reserve Study. Fully Funded 100% funded. When the actual (or projected) reserve balance is equal to the fully funded balance. Fully Funded Balance (FFB) Total accrued depreciation. An indicator against which actual (or projected) reserve balance can be compared. In essence, it is the reserve balance that is proportional to the current Repair/replacement cost and the fraction of life used up. This number is calculated for each component, them summed together for an Association total. Percent Funded The ratio, at a particular point of time (typically the beginning of the fiscal year), of the actual (or projected) reserve balance to the fully funded balance, expressed as a percentage. Special Assessment An assessment levied on the members of an Association in addition to regular assessments. Special assessments are often regulated by governing documents or local statutes. PAGE 10 OF 57 JEFF SAMDAL & ASSOCIATES, INC. WWW.SAMDALASSOC.COM P: (206) 412-4305 F: (425) 825-9090

2.7 FREQUENTLY ASKED QUESTIONS ABOUT RESERVE STUDIES What is a reserve study? Reserve studies are comprehensive reports that are used as budget planning tools that will assess the current financial health of the reserve fund as well as create a plan for future funding to offset anticipated major future common area expenditures. According to Community Association Institute's Best Practices, Reserve Studies/Management: There are two components of a reserve study a physical analysis and a financial analysis. During the physical analysis, a reserve provider evaluates information regarding the physical status and repair/replacement cost of the association s major common area components. To do so, the provider conducts a component inventory, a condition assessment, and life and valuation estimates. A financial analysis assesses only the association s reserve balance or fund status (measured in cash or as percent funded) to determine a recommendation for an appropriate reserve contribution rate (funding plan)." What are the different types of reserve studies? Reserve studies fit into one of three categories: Full; Update with Site Visit; and Update with No Site Visit. They are frequently called Level 1, Level 2, and Level 3 respectively (as defined by Washington State Senate Bill 6215). Level 1: A full reserve study the reserve provider conducts a component inventory, a condition assessment (based upon on site visual observations), and life and valuation estimates to determine both a fund status and a funding plan. They typically extend 30 years. A full reserve study must be in place before a Level 2 or Level 3 can take place. Level 2: An update with site visit (on site review) the reserve study provider conducts a component inventory (verification only, not quantification), a condition assessment (based on on site visual observations), and life and valuation estimates to determine both a fund status and a funding plan. A Level 2 update is performed every third year, with the first one scheduled 3 years after the Level 1 was completed. Level 3: An update with no site visit (off site review) the reserve study provider conducts life and valuation estimates to determine a fund status and a funding plan. A Level 3 update is performed annually, except in years when a Level 1 or Level 2 has been conducted. When should associations obtain reserve studies? Most association experts would agree that an initial full 30 year reserve study should be conducted sooner rather than later if one is not already in place. They are typically updated annually after that to account for things such as inflation and any adjustments in funding levels, budgets, repairs or replacements. If you follow Washington State Senate Bill (SB) 6215 (which we recommend that you do), your reserve study schedule would look like this: Year 1: Level 1 full 30 year study Years 2, 3: Level 3 annual updates Year 4: Level 2 update with site visit Years 5, 6: Level 3 annual updates Year 7: Level 2 update with site visit The cycle of Level 2 and Level 3 updates continues indefinitely. A Level 1 full study is not necessary according to SB 6215 after year 1. PAGE 11 OF 57 JEFF SAMDAL & ASSOCIATES, INC. WWW.SAMDALASSOC.COM P: (206) 412-4305 F: (425) 825-9090

What are the benefits of a Reserve Study? Benefits of reserve studies, in short, include improved property maintenance (and therefore value) as well as complying with the law. In more detail: Complying with Washington State law Washington Senate Bill 6215 took effect in June 2008. It does not require a reserve study, but rather, strongly encourages it the following way: Each Public Offering Statement or Resale Certificate should include a copy of the association s reserve study for the current fiscal year that meets all of the requirements of the new law, or the following disclaimer: This association does not have a current reserve study. The lack of a current reserve study poses certain risks to you, the purchaser. Insufficient reserves may, under some circumstances, require you to pay on demand as a special assessment your share of common expenses for the cost of major maintenance, repair, or replacement of a common element. View the full law at: http://apps.leg.wa.gov/documents/billdocs/2007 08/Pdf/Bills/Senate%20Bills/6215.pdf. Fulfilling lender requirements (such as FHA) Many lenders are requiring up to date reserve studies that indicate adequate financial health before they lend. Having a reserve study in place that shows a healthy funding plan before a homeowner finds a buyer could save significant time in the closing process. Help maintain the property's value and appearance A reserve study helps maintain the property's value and the property owner's investment. By identifying and budgeting for future repairs or replacement (anticipated capital expenditures), the property's common elements continue to look attractive and well kept, adding to the community's overall quality of life. Many features, when properly maintained, can also benefit from an extended lifespan resulting in overall cost savings to the owners. Well maintained properties almost always have higher resale values than those that have been neglected. Establishing sound financial planning and budget direction A comprehensive reserve study lays out a schedule of anticipated major repairs or replacements to common property elements and applies cost estimates to them. It typically spans a 30 year period, and will serve as a financial planning tool for the association to use when determining homeowners dues and contributions to the reserve fund. Reducing the need for special assessments An association that has properly implemented their reserve study will strategically collect fees over time from homeowners (via monthly dues) rather than need large sums of cash unexpectedly (special assessments). Therefore, the need for special assessments should be minimalized because expenses have already been planned for and the funds exist when needed. Fulfilling the board of directors' fiduciary responsibility Board members of community associations have a fiduciary responsibility to their members. Directors are legally bound to use sound business judgment in guiding the association and cannot ignore major capital expenditures or eliminate them from the budget. PAGE 12 OF 57 JEFF SAMDAL & ASSOCIATES, INC. WWW.SAMDALASSOC.COM P: (206) 412-4305 F: (425) 825-9090

3.0 PHYSICAL ANALYSIS 3.1 COMPONENT ASSESSMENT AND VALUATION The component assessment and valuation of the itemized capital expenses on this property was done by providing our opinion of Useful Life, Remaining Useful Life, and Repair or Replacement Costs for the Reserve components. Table 3.1A lists this component inventory, and is based on the information that we were provided and on onsite visual observations. The remainder of Section 3.0 Physical Analysis details each of the items in Table 3.1A using narratives and photos. They are meant to be read together. Table 3.1B is a summary of expenses, grouped according to their expense category. Chart 3.1B is a pie chart illustrating the same. Table 3.1A Key: Quantity The total quantity of each component. Units SF = Square Feet SY = Square Yards LF = Lineal Feet EA = Each LS = Lump Sum SQ = Roofing Square (10 ft X 10 ft) Cost/Unit The cost of a component. The unit cost is multiplied by the component s quantity to obtain the total estimated replacement cost for the component. Remaining Life An opinion of the probable remaining life, in years, that a reserve component can be expected to continue to serve its intended function. Replacements anticipated to occur in the initial or base year have zero Remaining Life. Useful Life Total Useful Life or Depreciable Life. An opinion of the total probable life, in years, that a reserve component can be expected to serve its intended function in its present condition. PAGE 13 OF 57 JEFF SAMDAL & ASSOCIATES, INC. WWW.SAMDALASSOC.COM P: (206) 412-4305 F: (425) 825-9090

Table 3.1A: Component Assessment and Valuation Note: All numbers provided are the engineer's opinion of probable life and cost in 2016 dollars. Exact numbers may vary. 3.2 SITE Component Quantity Units Cost/Unit All site expenditures are paid for via the "Tower" reserve fund Remaining Life (Years) Useful Life (Years) Total Cost Cost per Unit Avg. Cost per Unit per Year 3.3 STRUCTURE No structural expenditures budgeted 3.4 ROOFING 22nd level - glass canopy glazing replacement 1 LS $3,100 30 30 $3,100 $33 $1.10 3.5 EXTERIOR PMMA waterproofing membrane replacement on 601 deck PMMA waterproofing membrane replacement on 602A deck PMMA waterproofing membrane replacement on 602B and 603 deck PMMA waterproofing membrane replacement on 604 deck PMMA waterproofing membrane replacement on 605 deck PMMA waterproofing membrane replacement on 606 and community room west deck PMMA waterproofing membrane replacement on fitness room west deck PMMA waterproofing membrane replacement on fitness room east deck PMMA waterproofing membrane replacement on 707 deck PMMA waterproofing membrane replacement on 708 Refurbish wood framed aluminum clad windows Clean and seal exterior tile of building along w/ minor grout repair Replace (2) two-panel Pella sliding glass doors per year 1 LS $12,000 16 20 $12,000 $128 $6.38 1 LS $6,500 16 20 $6,500 $69 $3.46 1 LS $65,000 17 20 $65,000 $691 $34.57 1 LS $60,000 16 20 $60,000 $638 $31.91 1 LS $6,500 16 20 $6,500 $69 $3.46 1 LS $63,000 16 20 $63,000 $670 $33.51 1 LS $47,500 14 20 $47,500 $505 $25.27 1 LS $42,000 15 20 $42,000 $447 $22.34 1 LS $85,400 18 20 $85,400 $909 $45.43 1 LS $60,000 12 20 $60,000 $638 $31.91 472 EA $2,100 19 25 $991,200 $10,545 $421.79 1 LS $720,000 15 20 $720,000 $7,660 $382.98 2 EA $23,500 1 1 $47,000 $500 $500.00 Recoat deck railings and seal joints 1 LS $43,800 15 20 $43,800 $466 $23.30 Building envelope report and related repairs 1 LS $100,000 5 5 $100,000 $1,064 $212.77 3.6 ELECTRICAL SYSTEMS Replace recessed can lighting in common areas 1 BID $18,000 2 30 $18,000 $191 $6.38 Replace common area wall sconces 1 BID $14,500 2 30 $14,500 $154 $5.14 Replace 500kVA transformers 5 EA $26,095 2 30 $130,475 $1,388 $46.27 PAGE 14 OF 57 JEFF SAMDAL & ASSOCIATES, INC. WWW.SAMDALASSOC.COM P: (206) 412-4305 F: (425) 825-9090

3.7 Component MAJOR MECHANICAL - PLUMBING & HVAC SYSTEMS Replace RCU-1 Carrier split-system residential corridor unit Replace SF-1 Twin City Blower supply fan Quantity Units Cost/Unit Remaining Life (Years) Useful Life (Years) Total Cost Cost per Unit Avg. Cost per Unit per Year 1 EA $11,800 17 20 $11,800 $126 $6.28 1 EA $10,200 17 20 $10,200 $109 $5.43 Replace SF-3 Greenheck supply fan 1 EA $3,600 17 20 $3,600 $38 $1.91 Replace DH-8 Warren duct heaters 2 EA $4,200 17 20 $8,400 $89 $4.47 Replace Exit Aire elevator pressurization fan 1 EA $8,800 1 20 $8,800 $94 $4.68 Replace Pace supply fan 1 EA $2,500 1 20 $2,500 $27 $1.33 Replace Climatemaster heat pumps 2, 4, 5, and 6 4 EA $9,000 9 15 $36,000 $383 $25.53 Minor mechanical systems expenses are paid for via the service agreement and/or via the operating budget Common simple exhaust fans assumed to be replaced via the operating budget 3.8 ELEVATORS Elevator modernization 2 EA $285,000 7 30 $570,000 $6,064 $202.13 Elevator cab renovation 2 EA $16,500 7 30 $33,000 $351 $11.70 We understand that all other anticipated elevator costs are covered under the platinum maintenance contract with Thyssen Krupp Solid state starters should have a lifespan beyond the duration of this study 3.9 FIRE DETECTION & SUPPRESSION Fire detection and suppression systems maintained via the "Tower" Reserve Fund PAGE 15 OF 57 JEFF SAMDAL & ASSOCIATES, INC. WWW.SAMDALASSOC.COM P: (206) 412-4305 F: (425) 825-9090

Component Quantity Units Cost/Unit Remaining Life (Years) Useful Life (Years) Total Cost Cost per Unit Avg. Cost per Unit per Year 3.10 COMMON INTERIOR FINISHES Paint interior of common areas 49,276 SF $0.93 5 15 $45,964 $489 $32.60 Recarpet common areas that have carpet 1,102 SY $38.39 5 15 $42,302 $450 $30.00 Kitchen maintenance allotment 1 LS $22,500 15 20 $22,500 $239 $11.97 Fitness room renovation (not including flooring) 1 LS $8,500 17 20 $8,500 $90 $4.52 Replace fitness room flooring 950 SF $9.00 17 20 $8,550 $91 $4.55 Renovate resident managers apartment and office 1 LS $10,000 8 16 $10,000 $106 $6.65 Office furniture allotment 1 LS $5,000 2 12 $5,000 $53 $4.43 Unit door repainting 1 LS $26,000 1 10 $26,000 $277 $27.66 Kitchen and bathroom exhaust fan replacement 1 LS $50,000 1 20 $50,000 $532 $26.60 3.11 MISCELLANEOUS Surveillance system upgrade allotment 1 LS $10,000 5 5 $10,000 $106 $21.28 Controlled access system upgrade 1 LS $64,000 22 25 $64,000 $681 $27.23 Dryer vent cleaning 1 LS $11,139 2 5 $11,139 $119 $23.70 5 year high risk component - interior review 1 LS $14,300 2 5 $14,300 $152 $30.43 Exhaust fan replacement 3 EA $3,000 1 1 $9,000 $96 $95.74 Level 2 Reserve Study 1 LS $3,200 1 3 $3,200 $34 $11.35 3.12 AMENITIES Replace trash compactor 1 LS $20,000 4 15 $20,000 $213 $14.18 Replace conference table 1 LS $5,000 3 10 $5,000 $53 $5.32 Replace conference table chairs 1 LS $5,000 1 10 $5,000 $53 $5.32 Fitness room equipment and furnishings allotment Furniture/furnishings allotment for common areas such as all lobbys, lounge, hallways, entry, etc. Sauna remodel and equipment upgrade Resident Manager computer/office equipment 1 LS $15,000 1 2 $15,000 $160 $79.79 1 LS $12,360 1 5 $12,360 $131 $26.30 1 LS $8,000 9 20 $8,000 $85 $4.26 1 LS $4,000 1 4 $4,000 $43 $10.64 Patio furniture allotment 1 LS $5,000 1 10 $5,000 $53 $5.32 Average Cost Per Unit Per Year $2,611 PAGE 16 OF 57 JEFF SAMDAL & ASSOCIATES, INC. WWW.SAMDALASSOC.COM P: (206) 412-4305 F: (425) 825-9090

Table 3.1B: Table of Categorized Expenses over the Duration of the Study Category Total Expenditure over 30 Years Percentage Site $0 0.0% Structure $0 0.0% Roofing $7,525 0.1% Exterior $6,983,155 67.4% Electrical Systems $172,900 1.7% Plumbing & HVAC Systems $209,010 2.0% Elevators $741,614 7.2% Fire Detection & Suppresion $0 0.0% Common Interior Finishes $613,626 5.9% Miscellaneous Mechanical $960,113 9.3% Amenities $680,165 6.6% TOTAL $10,368,108 Figure 3.1B: Pie Chart of Categorized Expenses over the Duration of the Study Plumbing & HVAC Systems Electrical Systems Elevators Common Interior Finishes Miscellaneous Mechanical Amenities Exterior PAGE 17 OF 57 JEFF SAMDAL & ASSOCIATES, INC. WWW.SAMDALASSOC.COM P: (206) 412-4305 F: (425) 825-9090

3.2 SITE The address of this property is 1107 1 st Avenue, Seattle, WA 98101. Aerial image of property (courtesy of Google Earth) General Description of Site The property is 0.30 acres and is located on the east side of the intersection of 1st Ave. and Spring St. This property contains one mixed use 22 story building consisting of three levels of retail space on Post Alley, Spring St., and 1st Ave., office space on the next 4 floors, residential amenities on the 6th floor and residential units on the top 15 floors. All site expenses either maintained via the "Tower" Reserve Fund or as an operating expense. 3.3 STRUCTURE Based on the visual evidence, there are no anticipated capital expenditures associated with the structure of this building during the next 30 years. 3.4 ROOFING The only expenditure that we have budgeted for in this section is the re glazing of the glass canopy on the 22 nd level. We understand that this was recently performed in 2015. We have assumed that this will be necessary every 30 years. The roof is maintained entirely via the Tower Reserve Fund. Therefore, no funding has been allotted for this roof in this Residential study. PAGE 18 OF 57 JEFF SAMDAL & ASSOCIATES, INC. WWW.SAMDALASSOC.COM P: (206) 412-4305 F: (425) 825-9090

3.5 EXTERIOR The building design is a mix of stepped terraces, recesses, and reliefs covered in ceramic tile with areas of stucco in the areas of decks. The lower levels are clad in terra cotta. The windows and storefront doors on this building are wood frame, aluminumclad, double pane windows. The exterior service doors are metal. The Board plans on having a complete Building Envelope Survey performed by BET&R in 2016, and every 5 years thereafter. We have assumed that every 5 years the cost of the Building Envelope Study will be paid for via the Tower Reserve Fund; however, the subsequent repairs to the residential areas of the building resulting from the study will be approximately $100,000 and paid for via the Residential Reserve Fund. However, this is simply an educated guess at the level of repairs that will be necessary. The nature of such unknown repairs can fluctuate widely. This estimate is based on historical expenditures with this building and our experiences with previous buildings. BET&R has provided consulting services to the Watermark Homeowners Association for many years and has had quite a bit of history with the building envelope of this building. Therefore, we have relied heavily on BET&R s recommendations for future capital maintenance of this building. The majority of the building envelope is maintained via the Tower reserve fund, which is a separate report. However, all of the residential windows and the residential decks are the responsibility of the Residential reserve fund. Windows and Sliding Glass Doors The aluminum clad, wood frame windows in this building were refurbished in 2010 via special assessment. We have assumed that these windows will not need to be refurbished again for approximately 25 years if otherwise maintained by spot repair and periodic resealing. At this time we have not budgeted for replacement of these windows and have assumed that they will be continuously refurbished and repaired. Additionally, we have budgeted for 2 sliding glass doors to be replaced every year. PAGE 19 OF 57 JEFF SAMDAL & ASSOCIATES, INC. WWW.SAMDALASSOC.COM P: (206) 412-4305 F: (425) 825-9090

Solid Membrane Decks The solid membrane decks on this property are coated with PMMA coating beneath the concrete tile pavers on this property. There are seven decks in all that are the responsibility of the Watermark Residential Board. We understand that all of these decks have been resurfaced within the past few years. We have assumed that the PMMA coating that has been applied to these decks will have a total lifespan of 20 years. 6 th Floor Deck with Stand Alone Concrete Planters 6 th Floor Deck with Stand Alone Concrete Planters 6 th Floor Deck Sliding Glass Door PAGE 20 OF 57 JEFF SAMDAL & ASSOCIATES, INC. WWW.SAMDALASSOC.COM P: (206) 412-4305 F: (425) 825-9090

3.6 ELECTRICAL SYSTEMS The majority of the electrical systems are maintained via the Tower reserve fund. However, light fixture replacement will be paid for via this Reserve Fund. Typically, light fixtures are replaced every 20 to 40 years, typically for aesthetic purposes. The interior light fixtures consist of wall sconces and can lights. We understand that the Board plans to replace all common lighting with LED lights in the hallways and other common areas in 2016. Going forward, we have scheduled these lights to be replaced on a 30 year cycle. 3.7 MAJOR MECHANICAL PLUMBING AND HVAC SYSTEMS MacDonald Miller maintains the plumbing and HVAC systems in this building for all three entities in this building; residential, commercial, and tower (which is the master association for the entire building). In years past, MacDonald Miller has performed a comprehensive evaluation of all such major mechanical systems in this building and properly allocated each system to the appropriate entity. We spoke with Jim Permann about the mechanical systems on this property about the previously compiled component list with costs and replacement schedules. Mr. Permann provided us a separate list of mechanical items and his comments on the conditions and some of the history of this equipment, from which we have made appropriate adjustments. Joel Janssen provided his insight on some of the history of this equipment as well and we have made all appropriate changes per Mr. Janssen s insight. Typical Split System Residential Heat Pump SF 2 Air Handler that Serves Residential Areas Only Residential Exhaust Fans SF 3 for 6 th Floor Residential Common Areas PAGE 21 OF 57 JEFF SAMDAL & ASSOCIATES, INC. WWW.SAMDALASSOC.COM P: (206) 412-4305 F: (425) 825-9090

3.8 ELEVATORS The residential section of this building is exclusively served by two high speed traction elevators serving Levels 1 through 20. The elevator controls are automatic, with floor selection buttons in the cab and an emergency assistance call system. These elevators are cable operated with the operators and controls located on the rooftop terrace. The residential elevators have a service contract with Thyssen Krupp Elevator. The majority of the current maintenance of these elevators is covered under the Platinum Service Contract through Thyssen Krupp. A complete analysis of the elevators was performed by Lerch Bates on April 30, 2012. Their analysis of the elevators concluded that both elevators should have a full modernization within the next 5 to 10 years at a total estimated cost of $200,000 per elevator. Additionally, a quote from Thyssen Krupp was provided to the Board to perform a modernization. Corresponding proposals from MacDonald Miller to install a new split system heat pump in the mechanical room was also provided to us. Additionally, a proposal from The Safety Team to upgrade the fire detection and fire suppression systems around the new elevators and equipment was also provided. All of these elevator related proposals total approximately $600,000 for both elevators when tax is included. We have scheduled this modernization in 7 years from now. Typically, the elevator cabs are renovated every 20 to 30 years and we have planned for this renovation with reserve funding in the distant future as the cabs of these elevators were just remodeled with the rest of the interior approximately 5 years ago. The commercial section of this building is served by two separate elevators that are exclusively maintained by the commercial section of this building; therefore, no reserve funding has been allotted for these commercial elevators. Elevator Hoist #3 Elevator Control Cabinet #3 Elevator Hoist #4 Elevator Control Cabinet #4 PAGE 22 OF 57 JEFF SAMDAL & ASSOCIATES, INC. WWW.SAMDALASSOC.COM P: (206) 412-4305 F: (425) 825-9090

Elevator Service Log Typical Interior of Elevator Typical Elevator Railing Typical Elevator Control Panel PAGE 23 OF 57 JEFF SAMDAL & ASSOCIATES, INC. WWW.SAMDALASSOC.COM P: (206) 412-4305 F: (425) 825-9090

3.9 FIRE DETECTION AND SUPPRESSION The fire detection and suppression systems are maintained via the Tower reserve fund, which is a separate report. No reserve funds have been allotted to the fire detection and suppression systems in this Reserve Fund. 3.10 COMMON INTERIOR FINISHES The common areas of the interior will have to be maintained periodically. This includes the residential entrance lobby, manager s apartment. Also, the majority of the 6th floor will have to be maintained including the fitness room, lounge and reading area, common kitchen, and common bathrooms. This routine maintenance includes renovation of the kitchen appliances, cabinets, and countertops. Additionally, the common elevator lobbies on each floor and all common corridors will need to be maintained. Our estimates for repainting, recarpeting, and lighting replacement assumes that each of these tasks will be done in the common areas throughout the common interior areas. The costs to maintain each area will increase if maintained individually. Carpet and Interior Painting We understand that all of the common areas of this building were remodeled in 2006. We understand that all of the carpet was replaced, all common areas were painted, and many of the lobby light fixtures were replaced in 2006. Post Alley Level Flooring The post alley level flooring on the ground floor was replaced in approximately 2013. As this flooring has the potential to last beyond the duration of this study, we have not allotted any funding for flooring replacement. Storage Rooms, Stairwells, and Mechanical Rooms No funding has been budgeted for the storage rooms and mechanical rooms other than painting. We have also not allotted any additional reserve funds for the stairwells as these are unfinished areas. Interior Doors The interior doors and closet doors adjacent to the common areas have an estimated life beyond the duration of this study. Individual Units The interiors of each individual residential unit are the responsibility of each individual owner, just as the commercial spaces are the responsibility of the owner/tenant of that particular commercial space. Therefore, no reserve funding has been allocated to these areas. Common Bathrooms The Association has chosen not to allot any funding to remodeling the common bathrooms beyond painting as small upgrades to these bathrooms can be paid for via the operating budget. Common Kitchen The common kitchen on the 6th floor is relatively simple and was recently remodeled. We understand that the stove and dishwasher were replaced approximately in 2007. The refrigerator and the microwave were recently replaced during the remodel. We have scheduled appliance upgrades and remodel of this kitchen every 20 years. Fitness Room The Residential Association is responsible for the maintenance of the fitness room of this building. We understand that the fitness room was recently renovated including all new flooring in 2012. We have budgeted for this level of renovation every 20 years and have used similar budgetary numbers from what was recently performed. PAGE 24 OF 57 JEFF SAMDAL & ASSOCIATES, INC. WWW.SAMDALASSOC.COM P: (206) 412-4305 F: (425) 825-9090

Residential Manager s Apartment and Office The residential manager s office and apartment is collectively owned by the Association. We have scheduled this office and apartment to have some remodeling every 20 years. We understand that the manager s apartment and office were last renovated approximately 8 years ago. Residential Entrance Residential Entrance Hallway on Ground Floor Typical Residential Hallway 6 th Floor Library PAGE 25 OF 57 JEFF SAMDAL & ASSOCIATES, INC. WWW.SAMDALASSOC.COM P: (206) 412-4305 F: (425) 825-9090

6 th Floor Community Room Kitchen 6 th Floor Community Room Artwork and Furniture in Mailbox Bank PAGE 26 OF 57 JEFF SAMDAL & ASSOCIATES, INC. WWW.SAMDALASSOC.COM P: (206) 412-4305 F: (425) 825-9090

3.11 MISCELLANEOUS MECHANICAL Surveillance System This building has a surveillance system that was recently upgraded in 2015. We have budgeted for future upgrades to this system every 5 years. Surveillance System Monitor Surveillance System Recording Equipment Controlled Access System There is a secured access system in this building. We understand that this upgrade cost approximately 64,000 in 2013. We have assumed that such an upgrade will not be necessary at this building again for approximately 25 years. Controlled Access Panel at Main Entrance PAGE 27 OF 57 JEFF SAMDAL & ASSOCIATES, INC. WWW.SAMDALASSOC.COM P: (206) 412-4305 F: (425) 825-9090

3.12 AMENITIES Loading Dock Garage Doors There are two loading dock garage doors. We understand that the maintenance of these garage doors is primarily a commercial expense. Therefore, no Reserve Funds have been budgeted for these doors. Loading Dock Garage Doors Loading Dock Garage Door Trash Compactor The building has a Marathon trash compactor in the lower level of this building. This trash compactor has a manufacture date of November 2000 listed. These trash compactors have a typical life of 15 years and we have budgeted for the eventual replacement of this unit accordingly. Trash Compactor Furniture, Artwork, and Decorations The furniture and furnishings in this building will eventually wear out and will need to be replaced. The level of funding that will go towards this new furniture is up to the Board, depending on the type of furniture that is desired. The furniture in the resident manager s apartment and office are included in this estimate. We have allotted $12,000 for interior furniture every 5 years. We understand that the patio furniture was recently replaced. We have scheduled patio furniture replacement every 10 years. The conference table and chairs have been separately budgeted for as this is specifically expensive. We understand that the conference table and chairs were replaced approximately 2 years ago at a cost of approximately $3,000. The lifespan of these items should be approximately 20 years with limited use. PAGE 28 OF 57 JEFF SAMDAL & ASSOCIATES, INC. WWW.SAMDALASSOC.COM P: (206) 412-4305 F: (425) 825-9090

Fitness Equipment The cardio fitness equipment in the fitness room will continually need replacement. Rather than pricing out each individual piece of equipment, we have allotted $10,000 every 2 years to be spent in this fitness room. This includes the purchase of additional weights, racks, cardio equipment, TV and video equipment, etc. Fitness Room Fitness Room Fitness Room Fitness Room Sauna There is a sauna adjacent the fitness area on the 6th floor. This is a relatively low maintenance area. However, we have budgeted for eventual remodel of this area. The duration between remodel cycles depends upon the frequency of usage and the quality of materials used. Interior of Sauna PAGE 29 OF 57 JEFF SAMDAL & ASSOCIATES, INC. WWW.SAMDALASSOC.COM P: (206) 412-4305 F: (425) 825-9090