STRAIGHT ACQUISITION DEVLEOPMENT CASE STUDY

Class of Project: Straight Acquisition

Resident Profile: Family Designation

Use Restriction: Section 42 – 100% @ 60% AMI

Financing: HUD 223(f) Loan Originated by Arbor Commercial Mortgage

Limited Partner(s): Private Individual(s)

Website: Orchard Park Apartments

Orchard Park was constructed in 1994 through the Section 42 Low Income Housing Tax Credit program and was acquired by RMDG in Decembe of 2009. At closing the property was in its 15^th year of compliance with extended rental restrictions in place until 2023. This community for families includes 224 one-, two- and three-bedroom apartments serving households earning less than 60% of the area median income (AMI).

The 2010 audit for the first year of operations exceeded the developers cash-on-cash projections for investors of 12.7%, showed significant taxable losses from accellerated depreciation and at the time of the audit the planned resident services were under contruction / in process for a planned unveiling in the second quarter of 2011.

The property was purchased by RMDG from its Limited Partner SunAmerica using a HUD 223f loan and non-recourse 4.78% debt amortized and fixed for 35 years. The cash equity for the project was provided by the limited partners in anticipation of a market-rate return. RMDG is the managing member of the holding company and responsible for all facets of the investment from its conception through eventual disposition. The intent of the partnership is to hold the asset for a period of at least 9 years, with a targeted disposition or resyndication in year 10, and distribute semi-annual dividends from operational cash flow.

Orchard Park is conveniently located near large employment centers, is served by public transportation and is generally considered the premier affordable family project in Salem, the Capital of Oregon. Grand Peaks Property Management, Inc. has been managing the property since it was placed into service in 1994 and, after close scrutiny, Grand Peaks was retained to stay on and continue overseeing operations. Orchard Park has a long history of stable cash flows, rental growth on par with the competition and tightly controlled expenses. Residents benefit from a variety of common and unit based amenities across the 14 building and 14.07 acre campus.

Orchard Park has been well maintained pyhically since it was placed into service it’s historic operations prior to acquisition were very stable. Non-critical repairs after acquisition included new roofs on several buildings, security lighting and other minor improvements. While the property had been well run by Grand Peaks Property Management, prior to aquisition there were several significant areas of operational improvement that were planned to be researched such as reducing insurance costs 50% (we receive portfolio discounts), tightening up the turnover time per unit, reducing rental rates for garages in exchange for higher occupancy (15% occupied at close) and restructuring the rental restrictions with the state housing agency to allow for a higher AMI qualification bracket.

None of these expected operational improvements were factored into pricing when negotiating the Purchase and Sale with the Seller, or estimating return expectations of for investing partners. The property had historically been performing at a level that would return investing partners 12.7% cash-on-cash annually without any operational improvements. The same conservative assumptions were used to estimate the future disposition value and overall internal rate of return expectations of the asset over the life of the investment. However, it was anticipated that the asset management team would be able to raise NOI over the life of the project, perhaps significantly, to return a higher rate to investors and provide more working capital for additional resident services.

The new resident services include an after-school care facility, business center with tie-in to local job service and educational seminars and outreach spanning a wide range of topics.