COLRICH IMPACT INVESTING

COLRICH IMPACT INVESTING

G O A L : To leverage a successful investment platform to create onsite achievement centers that offer education and guidance to at-risk youth on a perpetual basis.

OVERVIEW Over the last six years ColRich Multifamily has successfully acquired and repositioned approximately 2,500 Low Income Housing Tax Credit (LIHTC) multifamily rental units in nine properties in Denver, Salt Lake City, Sacramento, San Jose and Albuquerque. Each of these investments has outperformed the original acquisition proforma. Despite the financial success of these investments and the efforts to reposition the properties (investing several million dollars to improve assets despite rent increase limitations), ColRich management continues to view these opportunities as missing a critical social ingredient. By nature, the tenant base at affordable properties are individuals or families earning entry-level wages or otherwise collecting welfare and depending on state or federal government subsidies. In addition to financial hardships, many of these residents have grown up with limited education and lackluster parental influences. As a result of these limitations, children living at these properties are often raised in challenging environments with limited access to education, strong role models and opportunities to improve their situation. The hardships faced by their parents continue to cycle through to the next generation. In an attempt to break this cycle and try to make a difference, ColRich and its investors (Ownership) have created the Affordable Housing Enrichment Foundation (AHEF). AHEF's goal is to provide facilities and services to at-risk youth to improve their education and human development. Ownership has committed to allocating 10% of its cash flow distributions to fund AHEF on a perpetual basis, providing a unique and sustainable income stream for these efforts. ColRich will use these funds to initially build out state-of-the-art facilities onsite and partner with local third-party companies with expertise in education, child development, daycare, and related services.

M I S S I O N S TAT E M E N T: To provide onsite education and supervision to help at-risk youth develop the necessary skills and knowledge to break the cycle and find a path out of poverty.

AFFORDABLE OVERVIEW Affordable multifamily properties are typically governed by a regulatory agreement that restricts rents based on a percentage of Area Median Income (AMI). AMI is set annually by the US Department of Housing and Urban Development (HUD) working in conjunction with local housing agencies. In exchange for restricting rents (typically based on a formula using 50-80% of AMI), developers are given upfront tax credits, and in some states the property receives an ongoing real estate tax abatement. Upon expiration of the rental restrictions, the property can either convert to a market-rate property or re-syndicate the tax credits, creating a significant capital event for Ownership. In certain markets, properties are obligated to provide onsite services in exchange for an ongoing real estate tax abatement. The vast majority of owners have treated these service requirements as a check-the-box obligation, investing limited resources into the properties and the required programs. The typical property relies on part-time workers, mostly graduate students or social workers, to conduct classes onsite in a room with inadequate furniture and amenities. Classes will typically occur a couple days a week and are rarely managed in conjunction with the onsite property management team who know all of the residents. Additionally, attendance is not required so there is rarely follow-up with residents who have shown some interest in the programs. The poor programming and sub-par classrooms are not enough to entice kids off the streets. As a result, onsite affordable programming is rarely used by tenants and makes a minimal impact on their lives.

COLRICH AFFORDABLE TRACK RECORD

ColRich began acquiring affordable housing communities in November 2013 with the acquisition of Watercrest, a 206-unit property in Sacramento. The ColRich portfolio of affordable communities has since grown to include 2,460 units in nine properties located in four states. Despite the income restrictions at these properties, ColRich has instituted specific renovation programs at each property and successfully repositioned the assets while generating strong returns to investors. These renovations have helped improve the sense of community across properties. The table below highlights additional details on the current affordable portfolio.

Property

Watercrest Madison

Thornbridge Westbury

Tuscan Heights 2 Townegate

Villa Hermosa Allison Pointe Timbergate

Total

Units

206 296 286 228 492 288 288 88 288 2,460

Location

Sacramento, CA Sacramento, CA

San Jose, CA Denver, CO Denver, CO Salt Lake City, UT Albuquerque, NM Denver, CO Salt Lake City, UT

Date of Acquisition

Nov - 13 May - 15 May - 15 May - 15 Dec - 15 Dec - 17 Sep - 18 Oct - 18 Feb - 19

Average Annual Return 1

28.5% 37.4% 19.6% 27.0% 20.0% 16.7% N/A N/A N/A

Notes: 1) Includes Return of Capital 2) 50% of the units are affordable and 50% are market rate

Affordable assets continue to offer attractive predictable cash flow. Rents typically hold steady during downturns as they remain well below market-rate units and stay in high demand. With the recent uptick in national wages, affordable rents are expected to grow significantly over the next five years. While national rents increased a minimal 2% in 2018, ColRich saw a more dramatic increase in its affordable portfolio as a result of wage inflation:

Property

Watercrest Madison

Thornbridge Westbury

Tuscan Heights Townegate 1

Location

Sacramento, CA Sacramento, CA

San Jose, CA Denver, CO Denver, CO Salt Lake City, UT

Rent Growth 2018 Q4 Y - O - Y

6.80% 7.00% 14.50% 8.20% 6.00% 3.70%

CoStar Rent Growth

4.60% 4.60% 4.10% 3.60% 3.60% 3.50%

Notes: 1) Townegate was purchased in Dec. 2017; comparison is Jan. 2018 to Jan. 2019

As minimum wage and incomes continue to rise and send rent limits higher, ColRich and Ownership have seen a dramatic increase in its NOI and cash flow.

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