Investment ProposalThe Acadia

Arlington, Virginia

Morgan Privitte, Will Mu, Ryan Li, Robin Chen & Jennie Sohn

Introduction

Another Option: Condominium Development

OPTION 1Apartments

OPTION 3Apartments &Condominiums

OPTION 2Condominiums

FINALRECOMMENDATION

PropertyBasic Information

Location: Pentagon City, Virginia

Type:Class A Apartment Build-ing

Physical Volume: 411 Units

Site: 91,050 SF

Construction CostLand Cost (21%) $ 32,904,636Hard Cost (61%) $ 96,173,519Soft Cost (14%) $ 21,801,036

Construction Cost before Debt $ 150,879,191Operating Shortfall $ 127,930

Kettler Fee $ 4,401,815Construction Cost after Debt $ 155,408,936

Market Analysis

Economic Highlights

Washington Metro Area, 2013

Payroll Employment: 3.0 million at February 2013.

Job Change: grew 45,739 during 2012. Compares to 39,800/year long-term average.

Unemployment Rate: 5.5% at February 2013, down from 5.9% one year ago and lowest among the nation's largest metro areas.

Inflation: prices increased 1.4% during the 12 months ending March 2013.

Housing Prices: increased 6.00% during the 12 months ending January 2013.

Source: Bureau of Labor Statistics, S&P Case Shiller

Apartment Market

2006 2007 2008 2009 2010 2011 2012

-30%-20%-10%

0%10%20%30%40%

28.8%

7.8%

DC Metro Area ResaleYearly Units Sold & Price % Change

Sales Change Price Change

Condominium Market

2006 2007 2008 2009 2010 2011 2012 20130

2000

4000

6000

8000

10000

12000Washington Metro Area Condo Unit Deliveries

Sub MD District No VA

Source: Delta Association, March 2013

Normalized Range

Inventory % Of Metro Sup-ply Years of Supply

The District 339 12% 0.7Arlington 93 3% 0.6Alexandria 401 14% 1.6Fairfax 122 4% 0.5Loudoun 857 29% 1.7Prince William 585 20% 1.4Montgomery 427 15% 0.8Prince Georges 97 3% 0.6Total 2,921 1 1 Year

Development TeamJV Partnership

During Construction10% - KETTLER90% - Lion Properties Fund(Clarion Partners)

After Construction100% - Lion Properties Fund(Clarion Partners)

Financial AnalysisOption1: Apartment

7.5%8.0%8.5%9.0%9.5%

10.0%10.5%11.0%

10.6%

8.8%

Assumption and Quick FactsMonthly AverageRent (2014)

$2.80/SF

Rent Growth 3.5% Expense Growth 3% Cap Rate 4.5%

Discount Rate 7.5%

Development Cost $155,208,367

Present Value $176,825,895

Operating CF 43.2%

Sales Reversion 56.8%

IRR 8.8%

Payback Period 10 years

Sensitivity Analysis  Best Most-likely Worst

Vacancy Rate 2.5% 4.0% 6.0%Rent Growth 4.5% 3.5% 2.0%Expenses Growth 2.0% 3.0% 4.0%Cap Rate 4.0% 4.5% 6.0%Present Value $220 M $177 M $121 MIRR 11.4% 8.8% 4.6%

Holding Pe-riodIRR

Financial AnalysisOption 2: Condominium

ACADIARISK & RETURN ANAL-YSIS

-30% -15% 0% 15% 30%-20%

0%20%40%60%80% Sensitivity Analysis Studio Unit

PriceSelling PaceSelling Price In-crease

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47

$(15,000,000) $(10,000,000) $(5,000,000)

$- $5,000,000

$10,000,000 Presale

Selling Pace 10 units/ months

Average Price$ 524,896 /unit

$ 591 /sq.ft.

Median Price$ 417,000 /unit

$ 562/ sq.st.Sale Term 42 months

Pay Back Term 35 monthsIRR 35%

$(20,000,000) $(15,000,000) $(10,000,000) $(5,000,000)

$- $5,000,000

$10,000,000 1 Year Hold

Pay Back Term 60 monthsIRR 14%

Financial AnalysisOption 3: Mix

Condominium 211 Units

StrategyPre-sell

10 units/ monthPrice $ 591/ sq.ft.

Proceeds $104,979,285

Apartment 200 Units

Strategy1 year lease up17 units/ month10 years holding

Price $ 2.80/ sq.ft.Present Value $ 90,847,740

ReturnIRR 14.4%

Cash Flow 10 yearsLiquidity 2/3 of investment

Rent vs. Buy Buying Cost

Year 6 Total CostYear 1 to 6 Renting Cost

Year 6 Total Cost

Year 1 to 6

PURCHASE COSTS 　 　 INITIAL RENTING COSTS 　 　 Down payment 95,911 Rent deposit 2,313 Closing costs 　 19,182 Broker's fee 　 - MONTHLY COSTS $3,779 　 MONTHLY COSTS $2,831 　 Mortgage payment 1,445 102,829 Rent 2,814 184,105 Condo fees 410 28,084 Renter's Insurance 17 1,105

Property taxes 289 19,323 　 Maintenance 682 46,738 　 Homeowner's insurance 954 63,900 　 　 　 OPPORTUNITY COSTS 　 　 OPPORTUNITY COSTS 　 　 S&P 500 investment 9,107 35,633 S&P 500 investment 4,117 12,026 SELLING COSTS 　 　 LEAVING YOUR RENTAL 　 　 Closing costs 22,905 Return of rent deposit (2,313) Remaining principal 335,349 　 Tax on profit - 　 Proceeds from home sale 　 (572,614)　 　 　 YEAR 6 TOTALS $54,458 $197,240 　 $38,089 $197,236

Conclusion

FINAL RECOMMENDATION:1. Continue with construction as planned.2. File application with Arlington County to convert top 9 floors (approx.

200 units) into condos.3. Create teams to market the property. 4. Begin to prelease the apartment units, and presell condominium units.

OPTION 1:Apartments

OPTION 2: Condominiums

OPTION 3:Apartments & Condominiums

Pros • Long-term Return• Previous Experience

• Low Inventory • Liquidity• Long-term Return

Cons • Over Supply • Temporary Revenue• Marketing Risk

• Opportunity Cost

The Acadia TeamWill Mu

Financial Analysttmu4@jhu.edu

Robin ChenFinancial Analystzchen27@jhu.edu

Jennie SohnProperty Consultant

jsohn13@jhu.edu

Ryan LiFinancial Analyst

fli15@jhu.edu

Morgan PrivitteProperty Consultant

mprivit2@jhu.edu

Rent vs. BuyAssumptions

Median Home Price $479,555Down Payment 20%Mortgage Rate 3.5%

Annual Property Tax 0.84%Monthly Condo Fee $371

Closing Cost 4%Term of Mortgage (yrs) 30

Annual Maintenance Cost 1.5%Homeowner's Insurance Rate 2.0%Annual Home Appreciation 3%

Annual Rent Increase 4%Capital Gains Exclusion $5,000,000

Rate of Return on Investment 3%Marginal Tax Rate 28%

Inflation Rate 2%Median Monthly Rent $2,313

Rent Deposit $2,313Renter's Insurance Rate 0.6%

Market Comparable: Apartment

Property Mass Court

The Irene

The Buchanan

Chase Bethesda

Jefferson Thomas Cir.

Year Built 2004 1966 ’71/’00 ’89/’06 2006

Units 371 500 442 122 292

Price 160M 209.3M 175 M 57 M 153.8M

Price/unit $431,267 $418,650 $395,928 $464,213 $526,941

Date of Sales Contr. Apr 12 Mar 12 Dec 11 Dec 11

Cap Rate 4.3% 4.0-4.25% 4.6% (including commercial space)

3.75% 4.25%

Submarket Northwest, D.C. Bethesda, MD Arlington, VA Bethesda, MD Northwest, D.C.

Market Comparable:Condos

Condominium Price Bed Sq.Ft. Price/Sq.Ft. Built

Arlington-22202 3650 S Glebe Rd., #665, Arlington, VA 544,900 2 1200 454 20073600 S Glebe Rd., #418W, Arlington, VA 539,900 2 1242 434 20063600 S Glebe Rd., #408W, Arlington, VA 325,000 1 669 485 20063600 S Glebe Rd., #606W, Arlington, VA 239,900 0 411 583 2006Arlington-All 1881 N Nash St., #610, Arlington, VA 1,299,555 2 1800 721 20094195 S Four Mile Run Dr., #203, Arlington, VA 383,900 2 1180 325 20061201 N Garfield St., #711, Arlington, VA 589,000 2 980 601 20063650 S Glebe Rd., # 665, Arlington, VA 544,900 2 1200 454 20072001 15th St., N, #1505, Arlington, VA 975,000 2 1396 698 20064167 S Four Mile Run Dr., #403, Arlington, VA 381,900 2 1135 336 2006888 N Quincy St., #2107, Arlington, VA 792,500 2 1248 635 20072220 Fairfax Dr., #206, Arlington, VA 559,000 2 1178 474 20071800 Wilson Blvd., #438, Arlington, VA 495,000 1 870 568 2007