Acquisition Methodology Overview

A systematic acquisition methodology is utilized by Resource Real Estate (“RRE”) in its asset acquisition process. A highly organized process is implemented prior to searching for acquisition properties: (1) Through a proactive acquisition process, lists of major markets and tertiary markets for acquisitions are determined; (2) RRE managers utilize existing, or establish new, relationships within the real estate community in the target cities; and (3) RRE managers aggressively pursue properties in the target cities that can achieve RRE's goals, rather than waiting for sale properties listed by brokers to become widely known to the market of real estate buyers.

Target Cities

A number of geographically and economically diverse cities are targeted by RRE to make investments in multifamily assets. Cities targeted by RRE exhibit characteristics that RRE managers believe support a strong demand for multifamily assets. RRE utilizes traditional key economic indicators used for real estate investment evaluation such as employment trends, in-depth evaluation of major employers and dominant industry evaluation, population growth (both historic and forecasted), median household income trends, median home values, median age of population and crime rates, among many other economic and demographic metrics. Furthermore, supply, demand, absorption and rental statistics are intensely scrutinized to evaluate the health of the multifamily market in each city.

RRE utilizes a proprietary methodology to determine the likelihood of substantial job growth in each target city for the holding period of the property, and beyond.

RRE manager’s unique methodology is implemented to evaluate the prospects of a particular city to attract young, high-paid workers from the “Baby Boomer Echo”, or “Gen Y”, demographic over the next 15-20 years. This demographic will be the most vital component of multifamily unit demand over the next 15-20 years in the United States. The development of a large pool of young, educated workers from Gen Y will be the key to a city’s ability to attract new employers who rely upon this large and creative workforce. We believe that a young creative workforce will attract jobs, not vica-versa. In the United States, industries, from technology to entertainment, journalism to finance, high-end manufacturing to the arts, are becoming increasingly reliant upon a highly educated ingenious workforce as opposed to a less educated workforce that can only provide general manual labor in manufacturing or basic skills in the service sector of the economy. Because this fast-growing, highly educated and well-paid segment of the workforce are in such high demand from American companies, RRE managers believe that acquiring multifamily assets in cities with a preponderance of this demographic will position RRE to benefit from Gen Y’s demand for multifamily housing.

RRE managers believe that this young and educated workforce will be attracted to cities that offer an environment strongly suited to their particular likings. Rather than measuring a city’s quality-of-life to this demographic by evaluating a city’s offerings of professional sports entertainment, symphonies, ballets, operas or museums, we evaluate what we believe that this demographic is demanding: a diverse array of cultural and recreational opportunities, such as the city’s music scene, ethnic and cultural diversity, outdoor recreation opportunities and the city’s nightlife. Rather than focusing on cities that are trying to attract this new demographic and jobs that come with them by building generic high-tech office parks or subsidizing professional sports teams, RRE managers look for cities that have a “buzz” and are attracting this creative demographic.

Target Properties

After a target city has been identified, a property selection criterion is utilized. RRE managers endeavor to invest in established Class B, or better, multifamily properties in infill, centralized locations. These locations are most often located in well established high median income first suburban rings of cities which typically lie between the urban core of a city and its suburbs.

Investing in infill locations is advantageous for RRE due to the high barriers of entry for current and future competition. Furthermore, infill locations tend to be more stable than locations with more undeveloped land due to the area’s established usage by residents and business located in the area.

Centralized locations also add stability due to the proximity to employment and recreation. Furthermore, this strategy often benefits from the revitalization of city’s downtown areas which are most often the central point of a city. The centralized locations also benefit from the avoidance of traffic congestion that is plaguing the suburbs of many cities that have experienced sprawl as a result of limited governmental spending on highways and transportation infrastructure.

Established properties offer (1) a long track record of tenancy to review, (2) a potential for upside through limited cosmetic rehabilitation, (3) under-managed properties resulting from long-term passive ownership that can increase revenue with institutional management, and (4) older construction, often comprised of brick or cement which offer long-term benefits of limited maintenance.

Acquisition Strategy

RRE managers have a proprietary pipeline of real estate that allows the purchase of multifamily assets at competitive prices. Utilizing the extensive relationships, RRE benefits from “first look” opportunities to purchase multifamily assets via an extensive network of owners, brokers, developers, investment banking representatives and real estate partners.

RRE managers utilize their ability to move very quickly to "tie-up" quality properties through negotiated purchases or to pre-empt the marketing process before bids can inflate the price of the property in a brokered sale. RRE believes that its past history of closing deals quickly and without unnecessary difficulties provides it with future opportunities to purchase assets at prices under market with sellers who know and trust RRE to execute detailed due diligence in a timely manner. In addition, RRE managers have years of experience in structuring real estate acquisitions in order to achieve lower prices and favorable financing.

Business plans are created for each property that is acquired to position the property for a higher rental base. These business plans often include replacing property management, executing new marketing strategies, refurbishing clubhouses, renovating exteriors, new signage, creating fitness centers & business centers, among many other property improvements and other amenities that support higher rent levels.