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Madison Hills Marietta, Georgia November 12, 2012 Due Diligence Review

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Page 1: Madison Hills | Due Diligence

Madison Hills Marietta, Georgia

November 12, 2012 Due Diligence Review

Page 2: Madison Hills | Due Diligence

Madison HIlls | November, 2012

Table of Contents

I. Property Overview p. 1

II. Management Strategy p. 2

III. Initial Evaluation p. 3-8 a. Summary p. 3 b. Detailed Location Description, Economic and p. 3

Demographic Data c. Schools p. 4 d. Parks and Recreation p. 5 e. Apartment Market p. 5-6 f. Crime Reported p. 5 g. Crime Map p. 7 h. Staffing p. 7 i. Other p. 8

IV. Market Evaluations p. 9-14

a. Current Rents p. 9 b. Market Comparisons p. 10-12

i. Abbey at East Cobb p. 10 ii. Gardens at East Cobb p. 11

iii. Abbington Pointe p. 11-12 c. Market Survey p. 13-14

i. Comparative Summary p. 13 ii. Net Effective Rents per Comparable Floor Plan p. 13-14

iii. Map of Comps p. 14

V. Recommendations p. 15-18 a. Operations Improvements p. 15

i. Staffing p. 15 ii. Pricing p. 15

iii. Section 8 p. 15 b. Marketing Improvements p. 15-17

i. Name Change p. 15 ii. Outreach p. 16

iii. Signage Upgrade p. 16 iv. Model Furniture Upgrades p. 17

c. Physical Improvements p. 17-18

Page 3: Madison Hills | Due Diligence

Madison HIlls | November, 2012

Table of Contents

VI. File Audit Summary p. 19-32 a. File Audit Overview p. 19 b. File Audit Details p. 20-30 c. Explanation of Reports Used p. 31-32

i. Lease Expirations p. 31 ii. Move Outs p. 32

VII. Property Inspection p. 33-43 a. Apartment Walk Summary p. 33 b. Apartment Walk Details p. 33-43

VIII. Appendix p. 44-87

a. Proposed 2013 Budget p. 44-82 i. Account by Account p. 44-69

ii. Budget Comments p. 70-72 iii. Summary Budget p. 73 iv. Budget Detail p. 74-82

b. Property Photographs p. 83-87

Page 4: Madison Hills | Due Diligence

Madison Hills | November, 2012

Property Overview Property Name Madison Hills Property Address 2560 Delk Road Marietta, GA 30067 Location Description Less than 1 mile from Interstate 75 Number of Units 446 units Total Square Feet 574,346 square feet Year Built 1973 Phase 1 and 1976 Phase 2 Age of Property 39 years Phase 1 and 36 years Phase 2 Number of Acres 37.6 acres Owner Transinvest Amenities Fitness Center, Clubhouse, Pool, Grills and Picnic area, After School Care and Tutoring Program, Laundry Facilities,

Controlled Access Gates, Playground Building Description Primarily enclosed hallways with brick and vinyl siding. Property Grade C Location Grade B Overall Grade C

Page 1

Page 5: Madison Hills | Due Diligence

Madison Hills | November, 2012

Management Strategy Pegasus Residential offers fee management services to owners and developers of multi-family properties, with an intensive focus on achieving ownership objectives quickly. Pegasus Residential brings a wealth of experience in marketing, employee recruitment and development, and has an excellent track record of dramatically increasing property performance upon takeover. Our strategy would focus on an aggressive marketing campaign that will greatly improve the number and quality of prospective rent traffic. We would heavily market the community emphasizing the “Under New Management” aspect. Ultimately, we would consider a name change but only after any undesirable residents have been moved out so as to not associate that activity with a new name. Based on market conditions and historical trends, Pegasus anticipates rents to continue to grow and has budgeted 3.5% and above growth in its first year. If the market and capital budget allows, and with owner approval, there is potential to install unit upgrades that will allow for additional rent premiums. These upgrades would only be completed if there was an appropriate return on investment. Upgrades could include new black or faux-stainless appliances, faux hardwood plank vinyl flooring, and 2” faux wood blinds. Extensive analysis of projected net operating income, location, market conditions and a special focus on the management team will enable Pegasus Residential to target areas for improved performance.

Page 2

Page 6: Madison Hills | Due Diligence

Madison Hills | November, 2012

Initial Evaluation Summary The Community is located on Delk Road, less than a mile from Route 75, which itself quickly connects commuters to 285 to the South, or 585 to the North. The community consists of 446 garden-style apartments, and sits on 37.6 acres. Built in two phases, with Phase 1 being completed in 1973 and Phase 2 in 1976, the community offers a swimming pool, very large sunlit deck, fitness center, free after school care and/or tutoring, multi-age play areas, and a grill and picnic area.

Detailed Location Description, Economic and Demographic Data The community enjoys an excellent location for commuting with easy access to 285 and 575. The community offers convenient access to Lockheed Martin and Dobbins Air Force Base, large local employers.

Madison Hills is located in a sub-market of Marietta, in Cobb County. For each of the last 20 years Cobb County growth has outpaced the state of Georgia. The property is located within 15 miles of Atlanta with commuter access to any of the area’s major employment regions. The major employers within Cobb County include Home Depot, Cobb County Schools and Government, Wellstar Health System, Lockheed Martin, Kennesaw State University and Publix Grocery stores. The community has already gained at least one resident from five out of six of these employers. Using the Pegasus Residential Resident Ambassador program, the team will parlay that one resident into many more.

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Page 7: Madison Hills | Due Diligence

Madison Hills | November, 2012

Initial Evaluation Schools Students at the community attend highly regarded Cobb County schools. Cobb County has 26 Title 1 schools – schools recognized for outstanding scholastic merit. In addition the county boasts numerous Georgia Schools of Excellence and Blue Ribbon schools. The county’s SAT scores in 2012 exceeded both the state average and National average.

Specifically, Madison Hill students attend Brumby Elementary, East Cobb Middle and Wheeler High School. Both the Middle and Elementary school enjoy a student teacher ratio that is better than the state’s average. At Brumby the ratio is 11:1 and at East Cobb 13:1 whereas for the state it averages 15:1. Both schools have a more diverse student population than the state averages. The state averages 55% non-white students whereas Brumby averages 88% and East Cobb averages 71%. Finally, more students at the schools are eligible for free lunches than is average in the state, Brumby: 68%, East Cobb: 49%, State average: 48%.

After finishing their early education, Madison Hills’ children attend Wheeler Magnet High School. There they have a fairly unique opportunity to participate in Wheeler’s science, math and technology magnet program. The program is competitive to enter and academically rigorous, but prepares students to enter high level college programs for the focus areas. In addition to being a magnet school, Wheeler also boasts a graduation rate of 78%, exceeding the state average of 66 by 12%. They were also voted one of Newsweek America’s Best High Schools in 2010.

Statistically, the school’s population changes as the various feeder Middle schools move to Wheeler. The school has the same student teacher ratio as the state average, 15:1. Again, the population is more diverse than the state average with 68% non-white students compared to the state average of 55%. However, only 32% of the population is eligible for free lunch compared to 49% at the Middle School level and 48% at the state level.

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Page 8: Madison Hills | Due Diligence

Madison Hills | November, 2012

Initial Evaluation Parks and Recreation

When not at work or in school, residents of all ages have a wide variety of parks and outside facilities to choose from. Parks include: Custer, Perry Parham, Bell, Rebel Ridge, Gramling Street, Wright, Hedges, Fair Oaks, and the Washington Avenue Historic District.

City Data provides an excellent summary of some of the best recreation Marietta has to offer: The revitalized Marietta square is an entertainment mecca with several popular nightspots, restaurants, and the renovated Theater in the Square. The focal point of the square is Glover Park, where winding brick paths lead to a majestic, three-tiered fountain, to an ornate Victorian gazebo, and to a scaled-down replica of "The General," a celebrated Civil War locomotive, where children can climb, slide, and pretend. The park is the location for frequent special events, festivals and concerts.

A walking tour of the downtown features at least 100 homes and buildings that span the period from antebellum to Victorian and evoke the sentiment and beauty of days gone by. Not far from the center of town, Kennesaw Mountain National Battlefield Park, a Civil War fortress, provides miles of wood trails, original earthworks and cannons.

At the East Cobb Children's Museum, school-age children can participate in historical tours, and dress in authentic period costumes. The museum also offers live puppet shows and classroom excursions. Marietta also features a Gone With The Wind Museum: Scarlett on the Square opened in 2003 and maintains a wide variety of memorabilia from the 1939 classic. Located within the historic Kennesaw House is the Marietta Museum of History that displays such items as Civil War uniforms and a local photography collection.

Youngsters are enthusiastic participants at Six Flags White Water, a 35-acre park featuring more than two dozen specialty water rides including speed slides and body flumes. Marietta's newest family draw is American Adventures, a "turn of the century" entertainment park with rides, games, and attractions that is also part of the Six Flags family.

Apartment Market

The community is located in a dense apartment submarket. There are at least nine communities within two miles of Madison Hills. Currently the community is consistently

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Page 9: Madison Hills | Due Diligence

Madison Hills | November, 2012

Initial Evaluation offering the lowest cost alternative. However, ultimately, Pegasus will pull the community towards the top of the marketplace and therefore narrow its competitive subset.

Within the geographically competitive communities, there is a wide range of quality and rents. One bedroom effective rents range from $492 to $679, two bedroom effective rents range from $609 to $899, and three bedrooms effective rents range from $712 to $1,020. Madison Hills is unique in its offering of four bedroom apartments – starting at an effective rent of $850.

A number of the local communities are of the same, or similar, vintage to Madison Hills. Three of them are at least partially renovated and one is to begin renovations in the final quarter of this year. Madison Hills has a partially finished building of particularly high end renovations. If those apartments were completed with brushed nickel front, or even black front, appliances, they would be the best quality renovation offered in the market.

Crime Reported

In the last six months the community has reported only one theft. However, two areas of concern were discovered during the due diligence process. First, the community has accepted registered sex offenders as lease holding residents. Second, there is a significant amount of “gang tagging” on the community. The “tagging” may indicate gangs active on the community or in the general area.

Currently, the community pays $4,500 per month split between three Cobb County police officers who drive through the community on a regular basis. The team currently reports most police calls are for domestic disputes. They attribute the low activity level to the presence of the county officers.

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Page 10: Madison Hills | Due Diligence

Madison Hills | November, 2012

Initial Evaluation Crime Map

Staffing

The staffing plan anticipates five to six office team members (excluding child care workers, should that program be continued), and the same number of maintenance team members. The community will essentially be in lease up for six months to a year. Therefore, slight over staffing will be required to accommodate the pace of marketing, traffic, leasing, make-readies and maintenance.

Currently, the community employs a Manager, Assistant, two Leasing Consultants and two people who operate the after school care. Three of the six employees live on site and take at least part of their compensation as rent. In maintenance, the community employs a Supervisor, three maintenance technicians, a grounds person and housekeeper. Four of the six live on site and take at least part of their compensation as rent.

We have found that it is extremely difficult for in-place employees to make the transition to Pegasus Residential. All associates will be interviewed prior to takeover to determine which associates will remain through the transition. Pegasus is currently sourcing both internal and external candidates who would be instrumental in building the success of the community.

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Page 11: Madison Hills | Due Diligence

Madison Hills | November, 2012

Initial Evaluation Other

The community manager reported one unsettled law suit filed in September of this year. Kim Johnson Flemming, the resident in 1647, claims to have fallen on the stairs and injured her back. She moved in May of 2011 and told the office (Carolina) she would be having back surgery. The breezeway lights were out at the time of the incident and she allegedly fell down the stairs and injured her back. Someone had turned off the breaker so the lights were in fact out. The managers stated they have installed new lights with battery back up at least in this one hallway. Their insurance has the claim. Thus far, the resident has continued to pay rent. As of the time of Due Diligence the claim was unsettled.

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Page 12: Madison Hills | Due Diligence

Madison Hills | November, 2012

Market Evaluations Current Rents Madison Hills offers a selection of five different floor plans. They have 62, 845 square foot one bedroom one bath; 110, 1,100 square foot two bedroom two bath; 96, 1,279 square foot two bedroom two bath; 146, 1,525 square foot three bedroom two bath; and 32, 1,750 square foot four bedroom two bath. Therefore, 14% of the community is one bedrooms, 46% two bedrooms, 33% three bedrooms and 7% four bedrooms. All floor plans except the one bedrooms have hook ups for washer/dryers.

There are currently two levels of upgrades, an L1 – which has one or more component of the upgrade i.e. upgraded interior doors, renovated cabinets or refinished counters, and an L2 which is a fully upgraded apartment with upgraded cabinets, granite counters, upgraded plumbing and lights. Currently, many of the L2 apartments do not have refrigerators or stoves. There are 78 L1 upgrades and 118 L2 upgrades.

The community is currently 54% occupied with no significant occupancy gain projected in the near future. They have 77 currently un-rentable, down apartments. Although all floor plans show significant vacancy, it is focused particularly in the 2 bedroom floor plans. There are 29 one bedroom apartments vacant - 14% of the total vacant, 119 two bedrooms – 58% of the total, 49 three bedrooms – 24% of the total and 9 four bedrooms – 4% of the total.

According to the rent quotes provided, one bedrooms rent for $590, two bedrooms $690, three bedrooms $785 and four bedrooms $940. L2 upgrades are quoted to command a $75 premium, with no upgrade charge for L1s. However, based on the complete audit of occupied apartments, the one bedroom rents average $540 and upgrades average a $60 increase. The smaller two bedroom rents for $630 with a $44 average upgrade to L2. The larger two bedroom rents for $640 with a $12 average upgrade charge. Three bedrooms rent for $720 with a $50 upgrade premium. Four bedrooms average $839 with a $61 upgrade fee.

There is no evidence to support the current team has successfully leased at the rents they are currently quoting. However, the marketplace certainly supports a higher rental rate than they have historically achieved.

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Page 13: Madison Hills | Due Diligence

Madison Hills | November, 2012

Market Evaluations Market Comparisons Madison Hills is located in an apartment intensive area. Although geographically close, it is expected not all of these communities compete for the same resident profile as Madison. Upon take over, Pegasus will begin tracking which communities prospects, new move-ins and residents giving notice mention to determine who exactly are the main competitors. The community currently tracks Columns at Bentley Manor, Abby at East Cobb, Signature Place, Rosemont, Barrington Mill, Abington Pointe and The Gardens at East Cobb. Additional important competitors may include Ivy Ridge, Sedona Falls, Amberly at Powers Ferry, and Abbington Pointe. For the purposes of this report, the focus will be on the three communities which appear the most competitive, Abby at East Cobb, Gardens at East Cobb and Abbington Pointe.

Abby at East Cobb Abby at East Cobb, a 200 apartment community, is adjacent to Madison Hills. Built in 1972 the community had a complete exterior renovation in 2008. They feature a pool, fitness center, two tennis courts, BBQ grills, picnic area and play ground. The community is gated. Offering one style of one bedroom, two styles of two bedroom, and two styles of three bedrooms, the community is 98% occupied. Comparably sized one bedrooms rent for $170 more per month than those at Madison Hills. Comparably sized two bedrooms rent for $70 to $90 more per month. Three bedrooms at Abby at East Cobb rent for $113 to $163 more per month than those at Madison Hills.

APARTMENT INTERIORS TENNIS CLUBHOUSE INTERIOR

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Page 14: Madison Hills | Due Diligence

Madison Hills | November, 2012

Market Evaluations Gardens at East Cobb Built in 1984, The Gardens at East Cobb is a smaller community with only 180 apartments. They offer a wide variety of floor plans with three different one-bedrooms, three different two-bedrooms, and two different three bedroom styles. The community features a fitness center, two pools, tennis courts, clubhouse, playground, car wash area, laundry room, and business center. The community is gated. Gardens at East Cobb is 93% occupied. Comparably sized one bedrooms rent for $148 more per month than those at Madison Hills. Comparably sized two bedrooms rent for $105 to $119 more per month. Three bedrooms at Gardens at East Cobb rent for $183 more per month than those at Madison Hills.

Abbington Pointe Built in 1983, Abbington Pointe has undergone a renovation in 2007 and 2010. In both cases the focus was on the building exterior and amenity areas. The community is expected to trade hands again in November. The new owner has the opportunity to value add interest and upgrades in fairly boring apartment interiors. Within their 408 apartments they offer a one bedroom, two bedroom one bath, two bedroom two bath and three bedroom two bath. The upgraded amenity package includes a newly constructed clubhouse, new fitness center with cardio focus, internet café, beautifully landscaped pool deck and two pools, tennis court, laundry room, basketball court, sand volleyball court, and playground.

OUTDOOR AMENITIES APARTMENT INTERIORS LANDSCAPES/CURB APPEAL

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Page 15: Madison Hills | Due Diligence

Madison Hills | November, 2012

Market Evaluations Abbington Pointe is maintaining 96% occupancy. Comparably sized one bedrooms rent for $123 more per month than those at Madison Hills. Comparably sized two bedrooms rent for $116 more per month. Three bedrooms at Abbington Pointe rent for $263 more per month than those at Madison Hills.

APARTMENT INTERIOR POOL AND POOL DECK CLUBHOUSE INTERIOR

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Page 16: Madison Hills | Due Diligence

Madison Hills | November, 2012

Market Evaluations Market Survey The Pegasus Residential team conducted an in-depth analysis of the competition using in person shops, phone, historical and internet research. Overall, it was found the current community rents are low on both a total average basis and on a comparable floor plan basis (as seen in the next five tables). Comparative Summary

Net Effective Rents per Comparable Floor Plan

One Bedrooms Square

Feet Effective

Rents Madison Hills 842 $548 Abby at East Cobb 960 $701 Gardens at East Cobb 945 $679 Abbington Pointe 800 $643 Jasmine 828 $612 Barrington Mill 840 $643

Two Bedrooms Square

Feet Effective

Rents Madison Hills 1,100 $648 Abby at East Cobb 1,160 $717 Gardens at East Cobb 1,195 $734 Abbington Pointe 1,006 $725 Jasmine 1,156 $827 Barrington Mill 1,180 $782

Madison Hills 1,279 $648 Gardens at East Cobb 1,320 $775 Jasmine 1,303 $902 Barrington Mill 1,285 $829 Ivy Ridge 1,250 $725

Community Year Built OccupancyMadison Hills 1971 54%Abby at East Cobb 1973 98%Gardens at East Cobb 1984 97%Abbington Pointe 1983 98%Jasmine 1973 95%Barrington Mill 1984 92%Ivy Ridge 1972 91%

Average Effective Rent$703.31$735.17$796.50$689.80$720.33$682.77$794.86

989919

1,361

Average Square Footage1,2881,2891,281930

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Page 17: Madison Hills | Due Diligence

Madison Hills | November, 2012

Market Evaluations Net Effective Rents per Comparable Floor Plan (Continued)

Three Bedrooms Square

Feet Effective

Rents Madison Hills 1,523 $743 Abby at East Cobb 1,560 $874 Gardens at East Cobb 1,520 $1,053 Abbington Pointe 1,500 $975 Jasmine 1,540 $1,027

Four Bedrooms Square

Feet Effective

Rents Madison Hills 1,750 $898 Ivy Ridge 2,000 $1,125

Map of Comps

Jasmine

Abbington Pointe

Ivy Ridge

Gardens East Cobb

Abby East Cobb Madison

Hills

Barrington Mill

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Page 18: Madison Hills | Due Diligence

Madison Hills | November, 2012

Recommendations Operations Improvements Staffing

Pegasus has a successful track-record for hiring highly motivated associates that perform at a high level. With only one exception, it is unlikely any of the current team will be retained. Most have worked there a number of years and are accustomed to a pace of nine leases on average per month. The speed and expectations set by Pegasus would be too much for them.

The exception would be the child-care coordinator. The intention is to phase out the program. Therefore find, assess and hire a new person would be significant investment for no expected gain.

Pricing

The current pricing is significantly below the marketplace, offering significant opportunity to improve both income and clientele simply by raising the rents.

Pegasus will use its current pricing strategy, focusing on growth over prior lease rents. In addition, the leaders will ensure the prices are competitive while attracting sufficient, qualified traffic. This strategy consistently yields positive revenue growth year over year.

Section 8

No additional Section 8 certificate holders will be approved at the community. The Section 8 office will be contacted to have the community’s name removed. Current Section 8 holders will be non-renewed as their current lease expires.

Marketing Improvements Name Change The team anticipates a name change will be needed based on the reputation Madison Hills has in the marketplace. It is recommended to do this immediately to ensure the right prospects are attracted to the community.

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Page 19: Madison Hills | Due Diligence

Madison Hills | November, 2012

Recommendations Outreach

The community currently advertises with For Rent and actively works with ProMove. They show no activity on Craigslist. We would discontinue Pro Move immediately as a very expensive source of leases. Second, we would begin posting 12 – 24 times per day on Craigslist. A high level of posting has been found to yield excellent results from this free source. Third, we will introduce and begin promoting the Resident Ambassador program to ensure we attract more of the residents we desire. Finally, in coordination with Ashley Mill the team would outreach market to area employment centers. For Rent advertising will be evaluated for effectiveness at this community and decisions about continuing or discontinuing made at that time.

Signage Upgrade

The waterfall at the current sign could be eye catching if it was fully functional. Signage visibility is good, but is cluttered with the temporary add-ons of bootlegs, banners and whirling flowers. We will clean up the area and use action orientated signage to encourage passing traffic to stop and take a look. In addition, the area will be made more attractive with new landscaping providing color and visual interest all year.

CURRENT

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Page 20: Madison Hills | Due Diligence

Madison Hills | November, 2012

Recommendations Model Furniture Upgrades

The community currently offers a two bedroom model, that is fairly non-descript. A few thousand dollars of new décor and soft items will make the model memorable.

Physical Improvements During the due diligence walk, numerous physical issues were noted including:

• Apartments with doors screwed shut • Buildings with potential foundation issues • 77 apartments that were in un-rentable condition or down • 46 apartments we were unable to access and so have unknown condition • Landscaping that is over grown and lacking a plan • Drainage and wash issues • Subfloor issues • Unused sections of the clubhouse • Lack of leasing computers • Suspected plumbing issues

CURRENT

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Page 21: Madison Hills | Due Diligence

Madison Hills | November, 2012

Recommendations The amount held for capital funds is expected to be sufficient to address all of the issues we anticipate. However, until we control the community we cannot prioritize which is the most urgent issue and which can be delayed. Therefore, we recommend operating the community and only addressing any life-safety issues for the first 60 days, then finalizing a capital plan in priority order.

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Page 22: Madison Hills | Due Diligence

Madison Hills | November, 2012

File Audit Summary File Audit Overview During the due diligence all but five occupied apartment files were reviewed. Generally, the files were reasonably well organized and complete. The five files that were not reviewed were for: Model (O10), Jerry – current manager (L4), Transfer from a sister community (1604) whose “file has caught up with him yet”, employee file with no lease (Nathaniel 1491); employee file empty except for 2 utility bills (B2 Peter Thiels).

Each file reviewed was inspected for name match, move-in date, lease begin date, lease end date, leased rent, water charge, other charge, total auto billing matching lease, security deposits, section 8 designation, credit report, criminal report, insurance confirmation, pet information and employment information and were compared to the provided rent roll. Below is a summary of items found, details can be found in the File Audit Details.

Of URGENCY:

• 50 cases the lease is unsigned by management • 4 cases of criminal or sex offenders • 9 employees 3 of which have empty files

Also found: • 24 have no criminal record in the file • 21 have no credit in the file • 43 are section 8 – 18% of the occupied apartments • 89 did not match lease to computer • 230 have no insurance in the file • 233 list no pets • 69 did not match auto bill amount to the lease. The leases show $2,624 more in

income than is currently being billed. However, documentation of discounts is not always accurate in the lease file.

• 39 had no employment shown, an additional 18 listed unemployed or unemployment on their application.

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Page 23: Madison Hills | Due Diligence

Madison Hills | November, 2012

File Audit Summary File Audit Details A Rent Roll report was provided for file auditing purposes. See following pages.

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Page 24: Madison Hills | Due Diligence

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Page 21

Page 25: Madison Hills | Due Diligence

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Page 22

Page 26: Madison Hills | Due Diligence

Mov

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Page 23

Page 27: Madison Hills | Due Diligence

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Page 24

Page 28: Madison Hills | Due Diligence

Mov

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Page 25

Page 29: Madison Hills | Due Diligence

Mov

ed In

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Page 26

Page 30: Madison Hills | Due Diligence

Mov

ed In

Leas

e E

nd

Floo

r P

lan

SQ

. FT.

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er,

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2010

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2010

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2011

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2012

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2008

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ee fi

le, n

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arks

, D

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ia10

Feb

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082

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ch le

ase.

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thia

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ay20

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ly74

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efits

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1382

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540

7586

086

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YN

NN

NN

3/2L

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anire

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ngel

a; C

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se; C

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land

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Long

, Sh

irley

11m

ar20

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jun

2013

552

527

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1574

1575

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1561

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1552

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1544

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1546

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1581

1582

1583

1584

1585

1586

1587

1588

1591

1592

1593

1594

1595

1596

1597

1598

1601

Page 27

Page 31: Madison Hills | Due Diligence

Mov

ed In

Leas

e E

nd

Floo

r P

lan

SQ

. FT.

Nam

eda

ym

nth

year

Leas

e S

tart

day

mnt

hye

arM

arke

t Rat

eLe

ase

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C

ost

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tsTo

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l Bille

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atch

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ec.

Dep

osit

Ren

t R

oll

Mat

ch

File

S

ectio

n 8

Y or

N

Cre

dit

ente

r Y

or N

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inal

en

ter Y

or

N

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ranc

e e

nter

Y

or N

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s

ente

r Y

or N

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c.

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en

ter Y

or

NE

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oyer

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men

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nit

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ant

552

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ito,

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id23

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2012

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Cai

n, K

evin

& C

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anie

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2010

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2008

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2011

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thly

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2011

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mar

2013

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ay30

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2009

9/1/

2012

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2013

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2011

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2011

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tis,

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i; A

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2011

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1602

1603

1604

1605

1606

1607

1608

1611

1612

1613

1614

1615

1616

1617

1618

1621

1622

1623

1624

1625

1626

1627

1628

1631

1632

1633

1634

1635

1636

1637

1638

1641

1642

1643

1644

1645

1646

1647

1648

1651

1652

1653

1654

1655

1656

1657

1658

1661

Page 28

Page 32: Madison Hills | Due Diligence

Mov

ed In

Leas

e E

nd

Floo

r P

lan

SQ

. FT.

Nam

eda

ym

nth

year

Leas

e S

tart

day

mnt

hye

arM

arke

t Rat

eLe

ase

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C

ost

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tal

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l Bille

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t R

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ch

File

S

ectio

n 8

Y or

N

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or N

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N

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nis,

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o &

YA

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H31

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2007

1/1/

2012

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2010

4/1/

2012

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Page 29

Page 33: Madison Hills | Due Diligence

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Page 30

Page 34: Madison Hills | Due Diligence

Madison Hills | November, 2012

File Audit Summary Explanation of Reports Used Lease Expirations

The report provided by current management company does not indicate expiration of Section 8 leases. However, since our intention is to non-renew those leases that information needs to be tracked. Therefore, the below indicates which month has any Section 8 expirations as well as which month/months have a concentration.

Page 31

Page 35: Madison Hills | Due Diligence

Madison Hills | November, 2012

File Audit Summary Move Outs

MTM Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total Section 8 3 4 2 2 4 3 1 8 5 2 1 7 3 42 Expirations 54 14 5 7 19 13 13 26 20 12 9 19 15 172 Total Expirations 18 7 9 23 16 14 34 25 14 10 26 18 214

-5

5

15

25

35

45

55

Section 8

Expirations

Total Expirations

Page 32

Page 36: Madison Hills | Due Diligence

Madison HIlls | November, 2012

Property Inspection

Apartment Walk Summary

The team walked 400 of the 446 apartments or 90%. Of the remaining 46, 21 were not accessible either due to a key not working or due to the resident denying access. The remaining 25 were not attempted. A rank of Good, Acceptable, or Poor was assigned to the following categories: Resident Rating (cleanliness), Condition Rating (overall condition), HVAC, Carpet, Range, Fridge, Washer/Dryer, Dishwasher, Vinyl, Countertops, and Tubs. The units were also walked for pets.

77 of the apartments were noted as being in un-rentable condition due to a variety of causes including major subfloor issues, mold, vandalism, and what appears like renovations that got to the demolition phase and stopped i.e. cabinets, counters and appliances all removed.

79 of the apartments (20%) had properly tagged fire extinguishers. 80% of the apartments walked had missing or expired fire extinguishers.

Carpets are in poor condition. Only 11% are not in need of replacement within the next 2 years. 45% are in need of immediate replacement.

Appliances are in good condition. Only 6% require immediate replacement.

HVACs are also in good condition – about 12% will require immediate replacement.

Apartment Walk Details As noted above, each apartment was walked by the Pegasus Residential team. The detailed walk follows.

Page 33

Page 37: Madison Hills | Due Diligence

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Page 34

Page 38: Madison Hills | Due Diligence

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Fire

ext

.Sp

rink

ler

Head

s

Safe

tyC

omm

ents

Pet A

udit

(D) D

og (C

) Cat

(O) O

ther

des

crib

e

Num

ber o

f eac

h (D

2= tw

o do

gs)

Prop

erty

Nam

e:

(A) G

ood

(B) A

ccep

tabl

e (C

) Poo

r | (

O) O

ccup

ied

(V) V

acan

tVi

nyl

Res

urfa

cing

Appl

ianc

es

OD

5R

BB

AV

AA

AA

AA

AA

AA

AA

YO

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AA

VA

AA

AA

VD

7R

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BA

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BB

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BA

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AN

Floo

r slo

pes

in L

R

VD

8N

o en

try

VD

9R

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BA

AA

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CB

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AN

OD

10R

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VA

AA

AA

AA

AA

AA

AY

no ta

g

VD

11D

own

VD

12D

own

OD

13R

AA

AV

AA

AA

AA

AA

AA

AA

Nno

t tag

gged

- ex

pirie

d 2

12

OD

14R

AA

AV

AA

AA

AA

AA

AA

AA

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RA

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VA

AA

AA

AA

AA

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AN

not t

agge

d

OD

16R

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AV

AA

AA

AA

AA

AA

AA

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No

entry

OD

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AV

D1

AA

AA

AA

AA

AA

AA

Y

VD

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BA

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AY

fire

ext e

xpiri

ng 1

2 12

flo

or

unev

en

OD

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Nno

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GO

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AA

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not t

agge

d

OF4

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BA

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AA

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AA

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AN

GV

F5H

ET

BB

BB

BB

CB

BC

BB

BB

BY

Gfir

e ex

t exp

iring

12

12

VF6

HE

TB

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BB

BB

BB

BB

BB

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NG

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HC

BC

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BC

CC

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NG

roug

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rn

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No

entry

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BB

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NG

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d sm

ell

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NG

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own

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YG

Page 35

Page 39: Madison Hills | Due Diligence

Apt

Sta

tus

Apa

rtm

ent #

Reno

vate

d

Hy

brid

C

lass

icRe

side

nt

Rat

ing

Con

ditio

n

Ratin

gHV

AC

Car

pet

Rang

eFr

idge

Was

her /

D

ryer

DW

Kitc

hen

Bath

1Ba

th 2

Laun

dry

Bath

1

tub/

show

erBa

th 1

co

unte

rBa

th 2

tu

b/sh

ower

Bath

2

coun

ter

Kitc

hen

coun

ter

Fire

ext

.Sp

rink

ler

Head

s

Safe

tyC

omm

ents

Pet A

udit

(D) D

og (C

) Cat

(O) O

ther

des

crib

e

Num

ber o

f eac

h (D

2= tw

o do

gs)

Prop

erty

Nam

e:

(A) G

ood

(B) A

ccep

tabl

e (C

) Poo

r | (

O) O

ccup

ied

(V) V

acan

tVi

nyl

Res

urfa

cing

Appl

ianc

es

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own

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own

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ND

own

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floor

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AN

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HC

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BC

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own

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d flo

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ak

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No

entry

Page 36

Page 40: Madison Hills | Due Diligence

Apt

Sta

tus

Apa

rtm

ent #

Reno

vate

d

Hy

brid

C

lass

icRe

side

nt

Rat

ing

Con

ditio

n

Ratin

gHV

AC

Car

pet

Rang

eFr

idge

Was

her /

D

ryer

DW

Kitc

hen

Bath

1Ba

th 2

Laun

dry

Bath

1

tub/

show

erBa

th 1

co

unte

rBa

th 2

tu

b/sh

ower

Bath

2

coun

ter

Kitc

hen

coun

ter

Fire

ext

.Sp

rink

ler

Head

s

Safe

tyC

omm

ents

Pet A

udit

(D) D

og (C

) Cat

(O) O

ther

des

crib

e

Num

ber o

f eac

h (D

2= tw

o do

gs)

Prop

erty

Nam

e:

(A) G

ood

(B) A

ccep

tabl

e (C

) Poo

r | (

O) O

ccup

ied

(V) V

acan

tVi

nyl

Res

urfa

cing

Appl

ianc

es

OH

28C

CB

BB

BB

AB

BB

AA

AN

OH

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AB

BA

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BB

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BB

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BN

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AA

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AA

AA

AA

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BA

AA

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BA

AA

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AA

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AA

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RA

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AA

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BA

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AY

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BA

AA

AY

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AA

AB

BA

AA

AA

AY

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AA

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AA

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Thre

shol

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e J

need

s re

bric

ked

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wat

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amag

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the

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AA

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AA

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AA

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AA

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AA

BA

AA

AY

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BC

BB

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BB

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AB

BC

NO

K8

HB

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CB

BB

BB

BB

BB

BB

BN

VL1

HC

BC

BB

BC

CC

CC

CC

CC

ND

own

big

settl

emen

t cra

ck in

LR

no

bath

or k

it co

uter

tops

OL2

HB

BB

AD

1D

2A

AA

BB

BB

BA

BA

AY

VL3

CE

TB

BB

BB

BB

BB

BC

CC

CC

NO

L5H

BB

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D1

AA

AA

AA

AA

AA

AA

Y

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AD

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BA

AA

AA

AA

AA

AA

AY

VL8

CC

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CC

CC

CC

CC

CC

ND

own

no a

ppl,

com

plet

ely

gutte

d

VM

1C

CB

CB

BB

CC

CC

CC

CC

CN

Dow

nfo

unda

tion

leak

, bat

h an

d be

droo

m fl

oor w

et n

ow!

VM

2C

CB

CC

CB

CC

CC

CC

CC

CN

will

likel

y ha

ve to

repl

ace

cab

and

ctop

s M

ake

Ren

o?

OM

3C

CC

BC

C1

BB

BB

BB

BB

BB

BB

NO

M4

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CA

CD

1B

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BB

BB

BC

BC

CN

OM

5H

CC

BC

AA

AB

BB

BB

AB

AA

Y

VM

6R

ET

BB

BB

BB

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BB

BB

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BN

OM

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AB

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BB

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CB

CB

Y

VM

8R

ET

BB

BB

BB

BB

BB

BB

BB

BN

Page 37

Page 41: Madison Hills | Due Diligence

Apt

Sta

tus

Apa

rtm

ent #

Reno

vate

d

Hy

brid

C

lass

icRe

side

nt

Rat

ing

Con

ditio

n

Ratin

gHV

AC

Car

pet

Rang

eFr

idge

Was

her /

D

ryer

DW

Kitc

hen

Bath

1Ba

th 2

Laun

dry

Bath

1

tub/

show

erBa

th 1

co

unte

rBa

th 2

tu

b/sh

ower

Bath

2

coun

ter

Kitc

hen

coun

ter

Fire

ext

.Sp

rink

ler

Head

s

Safe

tyC

omm

ents

Pet A

udit

(D) D

og (C

) Cat

(O) O

ther

des

crib

e

Num

ber o

f eac

h (D

2= tw

o do

gs)

Prop

erty

Nam

e:

(A) G

ood

(B) A

ccep

tabl

e (C

) Poo

r | (

O) O

ccup

ied

(V) V

acan

tVi

nyl

Res

urfa

cing

Appl

ianc

es

ON

1C

AB

BB

AB

BB

BB

BB

CB

BB

Y

VN

2C

CB

CC

CC

CC

CC

CC

CC

CN

Dow

nN

o en

try

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3C

ET

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BN

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BB

CB

BB

AB

BB

CA

CB

AY

ON

6C

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BA

AA

AA

AA

AB

BB

BB

Y

VN

7C

BB

CB

BB

BB

BB

CC

CB

BN

likel

y to

repl

ace

ctop

s an

d ca

b in

kit

and

bath

s M

ake

reno

?

ON

8C

AB

BC

BB

AA

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BC

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AA

AA

AA

AA

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d1D

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AA

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OO

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AA

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AA

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Y

OO

4R

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AA

AA

AA

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AA

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BA

AA

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BB

AA

AA

AY

OO

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AB

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AA

AA

AA

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AA

AA

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AA

AA

AA

AA

AA

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AY

VO

8R

ET

BB

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BB

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BA

AN

VO

9C

BB

CC

CC

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BB

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CN

No

appl

ianc

es T

EE

N C

EN

TER

ex

pand

ed li

ving

room

no

long

er

a 4

bedr

oom

OO

10M

OD

EL

OO

11C

AB

AC

BB

BB

BB

BB

BB

BB

Y

OO

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AC

AC

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BC

CC

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CC

CC

Y

OO

13N

o en

try

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BB

BC

AA

BB

BB

BA

AA

AA

Y

OO

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AA

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CC

YV

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81C

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BB

BB

BB

CN

Mol

d co

nden

satio

n le

ak

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BB

CB

CB

BN

O14

83C

AB

BB

BB

BB

BB

BB

CB

BB

YO

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BA

CB

BB

CB

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85H

AB

BC

BB

BB

AA

AB

AB

AA

Y

V14

86C

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CB

BC

CC

CC

CC

CC

CN

Dow

nne

eds

2 va

nitie

s an

d co

unte

rtop

V14

87C

BB

BB

BB

BB

BB

BB

BB

BN

Col

or c

hang

e

V14

88C

ET

BB

BB

BB

BB

BB

BB

BB

BN

O14

91C

BC

BC

BB

BC

CC

CC

CC

CY

V14

92C

CB

CB

BB

CC

CC

CC

CC

CN

Dow

nm

old

cabi

nets

dam

aged

O14

93C

CC

BC

BB

BC

CC

CC

CC

CC

YO

1494

CB

BB

CB

BB

BB

BB

CC

CC

CY

Page 38

Page 42: Madison Hills | Due Diligence

Apt

Sta

tus

Apa

rtm

ent #

Reno

vate

d

Hy

brid

C

lass

icRe

side

nt

Rat

ing

Con

ditio

n

Ratin

gHV

AC

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Page 39

Page 43: Madison Hills | Due Diligence

Apt

Sta

tus

Apa

rtm

ent #

Reno

vate

d

Hy

brid

C

lass

icRe

side

nt

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Page 40

Page 44: Madison Hills | Due Diligence

Apt

Sta

tus

Apa

rtm

ent #

Reno

vate

d

Hy

brid

C

lass

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side

nt

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Page 41

Page 45: Madison Hills | Due Diligence

Apt

Sta

tus

Apa

rtm

ent #

Reno

vate

d

Hy

brid

C

lass

icRe

side

nt

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Page 42

Page 46: Madison Hills | Due Diligence

Apt

Sta

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Page 43

Page 47: Madison Hills | Due Diligence

Acc

ount

by

Acc

ount

325.

900.

005.

026

11/1

3/20

12 1

2:21

PM

Pag

e 1

of

26

Peg

asu

s R

esid

enti

al, I

nc.

Mad

iso

n

Acc

ou

nt

by

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ou

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get

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r B

egin

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Page 44

Page 48: Madison Hills | Due Diligence

Acc

ount

by

Acc

ount

325.

900.

005.

026

11/1

3/20

12 1

2:21

PM

Pag

e 2

of

26

Peg

asu

s R

esid

enti

al, I

nc.

Mad

iso

n

Acc

ou

nt

by

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Page 45

Page 49: Madison Hills | Due Diligence

Acc

ount

by

Acc

ount

325.

900.

005.

026

11/1

3/20

12 1

2:21

PM

Pag

e 3

of

26

Peg

asu

s R

esid

enti

al, I

nc.

Mad

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t

Page 46

Page 50: Madison Hills | Due Diligence

Acc

ount

by

Acc

ount

325.

900.

005.

026

11/1

3/20

12 1

2:21

PM

Pag

e 4

of

26

Peg

asu

s R

esid

enti

al, I

nc.

Mad

iso

n

Acc

ou

nt

by

Acc

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nt

Fo

r th

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ud

get

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r B

egin

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anu

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Per

un

itP

er s

q f

t

Page 47

Page 51: Madison Hills | Due Diligence

Acc

ount

by

Acc

ount

325.

900.

005.

026

11/1

3/20

12 1

2:21

PM

Pag

e 5

of

26

Peg

asu

s R

esid

enti

al, I

nc.

Mad

iso

n

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ou

nt

by

Acc

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Fo

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tal

Per

un

itP

er s

q f

t

Page 48

Page 52: Madison Hills | Due Diligence

Acc

ount

by

Acc

ount

325.

900.

005.

026

11/1

3/20

12 1

2:21

PM

Pag

e 6

of

26

Peg

asu

s R

esid

enti

al, I

nc.

Mad

iso

n

Acc

ou

nt

by

Acc

ou

nt

Fo

r th

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egin

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anu

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tal

Per

un

itP

er s

q f

t

Page 49

Page 53: Madison Hills | Due Diligence

Acc

ount

by

Acc

ount

325.

900.

005.

026

11/1

3/20

12 1

2:21

PM

Pag

e 7

of

26

Peg

asu

s R

esid

enti

al, I

nc.

Mad

iso

n

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ou

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by

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r B

egin

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sent

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un

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q f

t

Page 50

Page 54: Madison Hills | Due Diligence

Acc

ount

by

Acc

ount

325.

900.

005.

026

11/1

3/20

12 1

2:21

PM

Pag

e 8

of

26

Peg

asu

s R

esid

enti

al, I

nc.

Mad

iso

n

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ou

nt

by

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Per

un

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er s

q f

t

Page 51

Page 55: Madison Hills | Due Diligence

Acc

ount

by

Acc

ount

325.

900.

005.

026

11/1

3/20

12 1

2:21

PM

Pag

e 9

of

26

Peg

asu

s R

esid

enti

al, I

nc.

Mad

iso

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by

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tal

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un

itP

er s

q f

t

Page 52

Page 56: Madison Hills | Due Diligence

Acc

ount

by

Acc

ount

325.

900.

005.

026

11/1

3/20

12 1

2:21

PM

Pag

e 1

0 of

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Peg

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nc.

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3Ju

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tal

Per

un

itP

er s

q f

t

Page 53

Page 57: Madison Hills | Due Diligence

Acc

ount

by

Acc

ount

325.

900.

005.

026

11/1

3/20

12 1

2:21

PM

Pag

e 1

1 of

26

Peg

asu

s R

esid

enti

al, I

nc.

Mad

iso

n

Acc

ou

nt

by

Acc

ou

nt

Fo

r th

e B

ud

get

Yea

r B

egin

nin

g J

anu

ary

2013

Pre

sent

ed b

y R

ealP

age,

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, One

Site

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d F

orec

astin

g

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t0

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To

tal

Per

un

itP

er s

q f

t

Page 54

Page 58: Madison Hills | Due Diligence

Acc

ount

by

Acc

ount

325.

900.

005.

026

11/1

3/20

12 1

2:21

PM

Pag

e 1

2 of

26

Peg

asu

s R

esid

enti

al, I

nc.

Mad

iso

n

Acc

ou

nt

by

Acc

ou

nt

Fo

r th

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get

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egin

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g J

anu

ary

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age,

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To

tal

Per

un

itP

er s

q f

t

Page 55

Page 59: Madison Hills | Due Diligence

Acc

ount

by

Acc

ount

325.

900.

005.

026

11/1

3/20

12 1

2:21

PM

Pag

e 1

3 of

26

Peg

asu

s R

esid

enti

al, I

nc.

Mad

iso

n

Acc

ou

nt

by

Acc

ou

nt

Fo

r th

e B

ud

get

Yea

r B

egin

nin

g J

anu

ary

2013

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sent

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nge

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onth

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00

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00.

000.

00

G/L

Acc

ou

nt

Jan

-201

3F

eb-2

013

Mar

-201

3A

pr-

2013

May

-201

3Ju

n-2

013

Jul-

2013

Au

g-2

013

Sep

-201

3O

ct-2

013

No

v-20

13D

ec-2

013

To

tal

Per

un

itP

er s

q f

t

Page 56

Page 60: Madison Hills | Due Diligence

Acc

ount

by

Acc

ount

325.

900.

005.

026

11/1

3/20

12 1

2:21

PM

Pag

e 1

4 of

26

Peg

asu

s R

esid

enti

al, I

nc.

Mad

iso

n

Acc

ou

nt

by

Acc

ou

nt

Fo

r th

e B

ud

get

Yea

r B

egin

nin

g J

anu

ary

2013

Pre

sent

ed b

y R

ealP

age,

Inc.

, One

Site

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getin

g an

d F

orec

astin

g

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ored

ash

ley

Co

mm

ents

CR

ED

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EP

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TS

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curr

ently

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ndin

g $1

443

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th.

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ley

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ding

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ssum

es a

ctua

l som

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two.

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te c

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unic

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n

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EL

EP

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BA

NK

CH

AR

GE

S /

FE

ES

550

550

550

550

550

550

550

550

550

550

550

550

6,60

0

2013

Bu

dg

et1,

250

1,25

01,

250

1,25

01,

250

1,25

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1,25

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250

1,25

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250

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Cha

nge

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nge

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5522

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AN

K C

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/ F

EE

S

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00

00

00

00

2013

Bu

dg

et15

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mun

ity m

ailin

g to

re

side

nts/

pros

pect

s

5050

5050

5050

5050

5050

5050

600

5520

- P

OS

TA

GE

/ E

XP

RE

SS

MA

IL

Wee

kly

bill

pack

age

6565

6565

6565

6565

6565

6565

780

Mon

thly

bon

uses

3535

3535

3535

3535

3535

3535

420

G/L

Acc

ou

nt

Jan

-201

3F

eb-2

013

Mar

-201

3A

pr-

2013

May

-201

3Ju

n-2

013

Jul-

2013

Au

g-2

013

Sep

-201

3O

ct-2

013

No

v-20

13D

ec-2

013

To

tal

Per

un

itP

er s

q f

t

Page 57

Page 61: Madison Hills | Due Diligence

Acc

ount

by

Acc

ount

325.

900.

005.

026

11/1

3/20

12 1

2:21

PM

Pag

e 1

5 of

26

Peg

asu

s R

esid

enti

al, I

nc.

Mad

iso

n

Acc

ou

nt

by

Acc

ou

nt

Fo

r th

e B

ud

get

Yea

r B

egin

nin

g J

anu

ary

2013

Pre

sent

ed b

y R

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age,

Inc.

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Site

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d F

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One

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All

165

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Man

ager

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Co

mm

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Bu

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Pay

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nge

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CC

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NT

ING

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IT F

EE

S

Ass

umes

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l rea

l pag

e co

st p

er u

nit w

ill b

e si

mila

r to

ash

ley.

add

ed s

oftw

are

fee

to m

imic

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l cos

ts

2013

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dg

et0

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00

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00

00

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00

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00

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00

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567

1,56

71,

567

1,56

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ou

nt

Jan

-201

3F

eb-2

013

Mar

-201

3A

pr-

2013

May

-201

3Ju

n-2

013

Jul-

2013

Au

g-2

013

Sep

-201

3O

ct-2

013

No

v-20

13D

ec-2

013

To

tal

Per

un

itP

er s

q f

t

Page 58

Page 62: Madison Hills | Due Diligence

Acc

ount

by

Acc

ount

325.

900.

005.

026

11/1

3/20

12 1

2:21

PM

Pag

e 1

6 of

26

Peg

asu

s R

esid

enti

al, I

nc.

Mad

iso

n

Acc

ou

nt

by

Acc

ou

nt

Fo

r th

e B

ud

get

Yea

r B

egin

nin

g J

anu

ary

2013

Pre

sent

ed b

y R

ealP

age,

Inc.

, One

Site

Bud

getin

g an

d F

orec

astin

g

$95

per

filin

g an

d fil

ing

at a

rat

e of

: 32

30

27

23

22 1

7 1

3 1

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10

8 1

0

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ines

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eb-2

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pr-

2013

May

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3Ju

n-2

013

Jul-

2013

Au

g-2

013

Sep

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3O

ct-2

013

No

v-20

13D

ec-2

013

To

tal

Per

un

itP

er s

q f

t

Page 59

Page 63: Madison Hills | Due Diligence

Acc

ount

by

Acc

ount

325.

900.

005.

026

11/1

3/20

12 1

2:21

PM

Pag

e 1

7 of

26

Peg

asu

s R

esid

enti

al, I

nc.

Mad

iso

n

Acc

ou

nt

by

Acc

ou

nt

Fo

r th

e B

ud

get

Yea

r B

egin

nin

g J

anu

ary

2013

Pre

sent

ed b

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ealP

age,

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ou

nt

Jan

-201

3F

eb-2

013

Mar

-201

3A

pr-

2013

May

-201

3Ju

n-2

013

Jul-

2013

Au

g-2

013

Sep

-201

3O

ct-2

013

No

v-20

13D

ec-2

013

To

tal

Per

un

itP

er s

q f

t

Page 60

Page 64: Madison Hills | Due Diligence

Acc

ount

by

Acc

ount

325.

900.

005.

026

11/1

3/20

12 1

2:21

PM

Pag

e 1

8 of

26

Peg

asu

s R

esid

enti

al, I

nc.

Mad

iso

n

Acc

ou

nt

by

Acc

ou

nt

Fo

r th

e B

ud

get

Yea

r B

egin

nin

g J

anu

ary

2013

Pre

sent

ed b

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age,

Inc.

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Site

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ou

nt

Jan

-201

3F

eb-2

013

Mar

-201

3A

pr-

2013

May

-201

3Ju

n-2

013

Jul-

2013

Au

g-2

013

Sep

-201

3O

ct-2

013

No

v-20

13D

ec-2

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To

tal

Per

un

itP

er s

q f

t

Page 61

Page 65: Madison Hills | Due Diligence

Acc

ount

by

Acc

ount

325.

900.

005.

026

11/1

3/20

12 1

2:21

PM

Pag

e 1

9 of

26

Peg

asu

s R

esid

enti

al, I

nc.

Mad

iso

n

Acc

ou

nt

by

Acc

ou

nt

Fo

r th

e B

ud

get

Yea

r B

egin

nin

g J

anu

ary

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Pre

sent

ed b

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age,

Inc.

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Bu

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Acc

ou

nt

Jan

-201

3F

eb-2

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Mar

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3A

pr-

2013

May

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3Ju

n-2

013

Jul-

2013

Au

g-2

013

Sep

-201

3O

ct-2

013

No

v-20

13D

ec-2

013

To

tal

Per

un

itP

er s

q f

t

Page 62

Page 66: Madison Hills | Due Diligence

Acc

ount

by

Acc

ount

325.

900.

005.

026

11/1

3/20

12 1

2:21

PM

Pag

e 2

0 of

26

Peg

asu

s R

esid

enti

al, I

nc.

Mad

iso

n

Acc

ou

nt

by

Acc

ou

nt

Fo

r th

e B

ud

get

Yea

r B

egin

nin

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anu

ary

2013

Pre

sent

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age,

Inc.

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Site

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5650

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AIN

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2013

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2013

Au

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ct-2

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No

v-20

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ec-2

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To

tal

Per

un

itP

er s

q f

t

Page 63

Page 67: Madison Hills | Due Diligence

Acc

ount

by

Acc

ount

325.

900.

005.

026

11/1

3/20

12 1

2:21

PM

Pag

e 2

1 of

26

Peg

asu

s R

esid

enti

al, I

nc.

Mad

iso

n

Acc

ou

nt

by

Acc

ou

nt

Fo

r th

e B

ud

get

Yea

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egin

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anu

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2013

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tal

Per

un

itP

er s

q f

t

Page 64

Page 68: Madison Hills | Due Diligence

Acc

ount

by

Acc

ount

325.

900.

005.

026

11/1

3/20

12 1

2:21

PM

Pag

e 2

2 of

26

Peg

asu

s R

esid

enti

al, I

nc.

Mad

iso

n

Acc

ou

nt

by

Acc

ou

nt

Fo

r th

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ud

get

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r B

egin

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anu

ary

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sent

ed b

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age,

Inc.

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Site

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tal

Per

un

itP

er s

q f

t

Page 65

Page 69: Madison Hills | Due Diligence

Acc

ount

by

Acc

ount

325.

900.

005.

026

11/1

3/20

12 1

2:21

PM

Pag

e 2

3 of

26

Peg

asu

s R

esid

enti

al, I

nc.

Mad

iso

n

Acc

ou

nt

by

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nt

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eb-2

013

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-201

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pr-

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2013

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tal

Per

un

itP

er s

q f

t

Page 66

Page 70: Madison Hills | Due Diligence

Acc

ount

by

Acc

ount

325.

900.

005.

026

11/1

3/20

12 1

2:21

PM

Pag

e 2

4 of

26

Peg

asu

s R

esid

enti

al, I

nc.

Mad

iso

n

Acc

ou

nt

by

Acc

ou

nt

Fo

r th

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get

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egin

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ults

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Per

un

itP

er s

q f

t

Page 67

Page 71: Madison Hills | Due Diligence

Acc

ount

by

Acc

ount

325.

900.

005.

026

11/1

3/20

12 1

2:21

PM

Pag

e 2

5 of

26

Peg

asu

s R

esid

enti

al, I

nc.

Mad

iso

n

Acc

ou

nt

by

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egin

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Page 72: Madison Hills | Due Diligence

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Page 69

Page 73: Madison Hills | Due Diligence

Budget Narrative Page 1 of 311/13/2012 12:06 PM 325.030.100.052

Presented by RealPage, Inc., OneSite Budgeting and Forecasting

Market Overview

Madison Hills is located in an apartment intensive area. Although geographically close, it is expected not all of these communities compete for the same resident profile as Madison. Upon take over, Pegasus will begin tracking which communities prospects, new move-ins and residents giving notice mention to determine who exactly are the main competitors. According to the rent quotes provided by the Madison team, one bedrooms rent for $590, two bedrooms $690, three bedrooms $785 and four bedrooms $940. L2 upgrades are quoted to command a $75 premium, with no upgrade charge for L1s. However, based on the complete audit of occupied apartments, the one bedroom rents average $540 and upgrades average a $60 increase. The smaller two bedroom rents for $630 with a $44 average upgrade to L2. The larger two bedroom rents for $640 with a $12 average upgrade charge. Three bedrooms rent for $720 with a $50 upgrade premium. Four bedrooms average $839 with a $61 upgrade fee. There is no evidence to support the current team has successfully leased at the rents they are currently quoting. However, the marketplace certainly supports a higher rental rate than they have historically achieved. Based on the initial market review, Madison is renting at a discount ranging from $70 to $263 per month compared to similar apartments in the market. Therefore, this is significant opportunity for repositioning the community at a higher rental rate with better qualified clientele.

Pegasus Residential, Inc.

Madison

Budget Narrative

For the Budget Year Beginning January 2013

Page 70

Page 74: Madison Hills | Due Diligence

Budget Narrative Page 2 of 311/13/2012 12:06 PM 325.030.100.052

Presented by RealPage, Inc., OneSite Budgeting and Forecasting

Income

Significant income increases are expected in the first 12 months. Major goals include: �Increasing occupancy from 53% to 93% �Increasing Gross Market Rent from $318,684 to $339,848 - a 6.6% growth �Increasing average Net Effective Rents (Gross Market Rent less concessions) from $641 per apartment to $747 per apartment. 16.5%! �Transitioning all Section 8 residents off the community �Earning 36.5% more income than the previous management group

Operating Expenses

Important Note: Currently management has expensed $43,345 on security (annualized to $57,793). The budget assumes two free apartments to be given to courtesy officers. As written, the budget does not assume any additional security costs. Comparing current management to 2013 expectations, major changes occur particularly in Advertising and Management. Currently, the community has a very passive advertising approach. They use static ads and drive-by items to attempt to capture the attention of people who are already in the market. Pegasus plans a more active approach focusing on outreach to draw the desired resident into the community. A robust outside marketing and resident ambassador program will be put in place. In addition action orientated internet ads will be used. Under the current management, the leasing team is bringing their personal computers to work each day. The management software being used is no longer supported and at least 15 years out of date. Although they show $33k in delinquent rents, there are no filing or court costs evident in the financials. Bringing the office, management, and delinquency up to date will increase the costs. However, it will also have a significant impact on the day to day operations and ability to operate a profitable community.

Page 71

Page 75: Madison Hills | Due Diligence

Budget Narrative Page 3 of 311/13/2012 12:06 PM 325.030.100.052

Presented by RealPage, Inc., OneSite Budgeting and Forecasting

Submitted by

Approved by

Capital Improvements

Only Operating capital items are considered in this budget. Carpet replacements are unusually high. However, the apartment-by-apartment walk revealed carpets that are in very poor condition. Only 10% of the carpets can be saved through cleaning or repairs. Therefore, for 90% of the move-outs a carpet replacement has been budgeted.

Personnel

Currently, the management company is paying a number of employees using rent discounts instead actual pay. Obviously, this is not a practice Pegasus will employ. People being compensated this way include an aide in the day care center, the hallway cleaner, and one other maintenance person. Staffing the first year includes RSM help in January, and June - August. It also includes RSSM help in January and February, June, August and November. The office team includes a full time day care coordinator until September. It is anticipated the day care/after school program/teen center/tutoring space will all be phased out by September 1st. At that point this position will go away per the budget. The maintenance team includes a full time housekeeper to clean the hallways. The community has 42 enclosed halls which require significant upkeep. Employing a person to clean the hallways is a less expensive alternative then contracting the work out. Finally, bonuses for the first year will be higher than subsequent years. Due to the community opening 2013 at 53% occupancy it is essentially in lease up for the first year. Therefore, a much higher volume of leasing will occur with subsequent higher bonuses.

Net Operating Income

Page 72

Page 76: Madison Hills | Due Diligence

OneSite© Budgeting

325.900.005.00411/13/2012 12:18:39 PM

Page 1 of 1

Summary - 2013 Budget

Pegasus Residential, Inc. - Madison

TOTAL CASH FLOW 716,904 0 716,904 0%

Capital Expenses 229,254 0 229,254 0%

Asset 0 0 0 0%

Renovations 0 0 0 0%

TOTAL ASSET 229,254 0 229,254 0%

ASSET

TOTAL NET INCOME 946,158 0 946,158 0%

Depreciation & Amortization 0 0 0 0%

Mortgage Expenses 0 0 0 0%

Taxes and Insurance 333,000 0 333,000 0%

TOTAL EXPENSE 1,914,535 0 1,914,535 0%

Contract Repair 0 0 0 0%

Other Balance Sheet Cash Flow Items 0 0 0 0%

Maintenance Expense 130,396 0 130,396 0%

Payroll - Maintenance Salaries 270,010 0 270,010 0%

Payroll - Accrued Payroll Period Adjustment

0 0 0 0%

Expense 0 0 0 0%

Payroll - Administrative Salaries 326,776 0 326,776 0%

Utilities 442,256 0 442,256 0%

Management Expenses 204,225 0 204,225 0%

Resort Expenses 0 0 0 0%

Contract Services 124,130 0 124,130 0%

Advertising & Promotion 83,742 0 83,742 0%

EXPENSE

Other Income 184,617 0 184,617 0%

Rental Losses -1,328,278 0 -1,328,278 0%

Fee Income 66,163 0 66,163 0%

Rental Income 3,938,191 0 3,938,191 0%

TOTAL INCOME 2,860,693 0 2,860,693 0%

INCOME

2013 Budget

2012 Actual

$ Change

% Change

Page 73

Page 77: Madison Hills | Due Diligence

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Page 75

Page 79: Madison Hills | Due Diligence

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Page 76

Page 80: Madison Hills | Due Diligence

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Page 81: Madison Hills | Due Diligence

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Page 82: Madison Hills | Due Diligence

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Page 83: Madison Hills | Due Diligence

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Page 80

Page 84: Madison Hills | Due Diligence

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Page 81

Page 85: Madison Hills | Due Diligence

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Page 82

Page 86: Madison Hills | Due Diligence

Madison Hills | November, 2012

Property Photographs

Clubhouse / Leasing Center Exterior Front

Clubhouse / Leasing Center, Interior

Page 83

Page 87: Madison Hills | Due Diligence

Madison Hills | November, 2012

Property Photographs

Fitness Center

Page 84

Page 88: Madison Hills | Due Diligence

Madison Hills | November, 2012

Property Photographs

Pool and Pool Deck

Page 85

Page 89: Madison Hills | Due Diligence

Madison Hills | November, 2012

Property Photographs

Building Exteriors

Page 86

Page 90: Madison Hills | Due Diligence

Madison Hills | November, 2012

Property Photographs

Model

Monument Sign and Fountain

Page 87