Watermark 2022 Multifamily Development Fund IV

THOMPSONTHRIFT.COM/WATERMARK

Watermark 2022 MULTIFAMILY DEVELOPMENT FUND IV AUGUST 2021

THOMPSONTHRIFT.COM/WATERMARK

Paul Thrift

Brian Southworth

CEO

PARTNER

Thompson Thrift & Watermark Residential

SENIOR VICE PRESIDENT OF ACQUISITIONS

812-242-1151

Watermark Residential

pthrift@thompsonthrift.com

317-454-8027 bsouthworth@watermarkapartments.com

Josh Purvis MANAGING PARTNER

Carrie Thrift LaFay

Watermark Residential

VICE PRESIDENT OF CAPITAL MARKETS

317-454-8021

Thompson Thrift & Watermark Residential

jpurvis@watermarkapartments.com

317-454-8016 cthrift@thompsonthrift.com

Watermark 2022 Multifamily Development Fund IV 21-0825

Table of Contents

FUND OVERVIEW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Operating/Under Construction Portfolio. . . . . . . . . . . . 50

Investment Opportunity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Sold Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Major Employers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

A Solid Real Estate Investment. . . . . . . . . . . . . . . . . . . . . . . 3

Historical Investment Returns: Projects Sold. . . . . . . . 54

Site Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

The Offering. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Watermark Borrowing History . . . . . . . . . . . . . . . . . . . . . 55

Stabilized Proforma. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Why Residents Choose Watermark . . . . . . . . . . . . . . . . 56

Budget & Sale Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

Projected Return Summary. . . . . . . . . . . . . . . . . . . . . . . . . . 9 Notes to Projected Investor Returns. . . . . . . . . . . . . . . . . 10 IRR Sensitivity Chart . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Property-Level Related Party Services and Fees. . . . . 12 Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . 13 Additional Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Capital Contribution Schedule. . . . . . . . . . . . . . . . . . . . . . 17 Projected Project Performance Summary. . . . . . . . . . . . 18 The Market Selection Process . . . . . . . . . . . . . . . . . . . . . . 19 The Investment Committee Process. . . . . . . . . . . . . . . . 20 Mitigating Risk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Fundamental Site Criteria. . . . . . . . . . . . . . . . . . . . . . . . . . 22 MULTIFAMILY MARKET OUTLOOK. . . . . . . . . . . 23 Positive Market Outlook. . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Supply and Demand. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Household Formation and Demographic Trends. . . . . 27 Migration Trends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 A Winning Cycle. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Suburban Shift. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Post-Pandemic Occupancy and Rent Growth. . . . . . . . 33 Property Values & Cap Rates. . . . . . . . . . . . . . . . . . . . . . . 34 Build-for-Rent : . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Industry Headwinds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Our Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Key Facts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Multifamily Market Outlook: Disclaimer. . . . . . . . . . . . . 39 SPONSOR OVERVIEW . . . . . . . . . . . . . . . . . . . . . . 40 About Our Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Watermark Leadership. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Thompson Thrift Construction. . . . . . . . . . . . . . . . . . . . . 48 Watermark Multifamily Locations. . . . . . . . . . . . . . . . . . . 49

Nearby Retail. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92

IDENTIFIED PROJECTS . . . . . . . . . . . . . . . . . . . . . 63

FOUNTAIN, COLORADO. . . . . . . . . . . . . . . . . . . . . 97

Identified Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

Project Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

OCALA, FLORIDA. . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Market Aerial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

Project Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Market Aerial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Nearby Retail. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Major Employers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Site Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

Nearby Retail. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 Major Employers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 Site Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 Stabilized Proforma. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 Budget & Sale Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . 105

Stabilized Proforma. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

GREELEY, COLORADO. . . . . . . . . . . . . . . . . . . . . 106

Budget & Sale Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

Project Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

DAYTONA BEACH, FLORIDA . . . . . . . . . . . . . . . . 73

Market Aerial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

Project Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Market Aerial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Nearby Retail. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Major Employers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Site Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

Nearby Retail. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 Major Employers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 Site Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 Stabilized Proforma. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 Budget & Sale Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . 113

Stabilized Proforma. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

FACTORING THE RISK . . . . . . . . . . . . . . . . . . . . . . 114

Budget & Sale Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

Factoring the Risk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

WOODBURY, MINNESOTA . . . . . . . . . . . . . . . . . . . 81 Project Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Market Aerial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 Nearby Retail. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Major Employers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Site Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Stabilized Proforma. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Budget. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Sale Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 WILMINGTON, NORTH CAROLINA. . . . . . . . . . . 89 Project Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 Market Aerial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

THOMPSONTHRIFT.COM/WATERMARK

Fund Overview

1

Investment Opportunity Watermark is pleased to offer its valued partners the opportunity to participate in the Watermark 2022 Multifamily Development Fund IV, a private equity real estate partnership that will include up to seven Watermark apartment development projects projected to fund and start in 2022. This multi-project partnership offers investors a unique opportunity to invest directly in partnership with the developer and to diversify that investment into multiple dynamic growth markets.

We are currently seeking up to $165 million in aggregate capital commitments for limited partnership interests in the partnership.

We value you as investment partners and appreciate the confidence you place in us.

Over the past 35 years, our track record speaks to our unshakable commitment to the pursuit of high-quality projects – accomplished with the utmost integrity and a track record of producing outstanding investment returns. We are pleased to offer this investment opportunity to you, our trusted partners.

Paul Thrift, CEO

Fund Overview

2

A Solid Real Estate Investment

WATERMARK OFFERS THE HIGHEST LEVEL OF DEVELOPMENT AND PROPERTY MANAGEMENT EXPERTISE AND EXPERIENCE. • History of delivering outstanding returns to real estate partners • Long, proven track record of successful project execution • 35-year history based on a commitment to EXCELLENCE, SERVICE & LEADERSHIP • Proven proprietary market and site selection process • Market diversification • Project diversification • Identified pipeline of projects

SUPPLY IS DOWN

MULTIFAMILY MARKET OUTLOOK CONTINUES TO BE POSITIVE

DEMAND IS UP

• Shortage of total single-family and multifamily housing units being delivered.

• New housing starts this decade are over 3.3 million units behind the average of the previous 3 decades.

• For-sale inventory remains at historic lows.

• Cost of delivery, pandemic-related supply chain delays, and increased regulations are suppressing supply.

• Strong demographic and lifestyle trends driving more people to choose rental housing.

• A shift continues from central cities to renting in the suburbs, where Watermark is focused on new developments.

• Population migration is occurring from high-cost and urban markets (“Old Growth Markets”) to Sun Belt and other secondary and tertiary, lower cost markets (“New Growth Markets”), where Watermark also is focused on new developments.

• Average age to marry has substantially increased; more than half of millennials are not married.

• Average age to start a family is increasing.

• Student debt continues to hinder home buying.

• One-fifth of the U.S. population is between the ages of 20-34, and this group is growing (approximately 68M).

• Cost of homeownership is becoming increasingly less affordable.

Fund Overview

3

The Offering IDENTIFIED PROJECTS FOR THE FUND ARE UNDER CONTRACT AND IN THE PROCESS OF DUE DILIGENCE, DESIGN, AND ENTITLEMENT.

1

OCALA, FLORIDA

2

DAYTONA BEACH, FLORIDA

3

WOODBURY, MINNESOTA

4

WILMINGTON, NORTH CAROLINA

5

FOUNTAIN, COLORADO

6

GREELEY, COLORADO

Identified properties are subject to replacement in the discretion of the Partnership’s General Partner, and a seventh (7th) property may be added, to the extent that the General Partner believes that a new or replacement property will meet or exceed its criteria.

When evaluating properties, the General Partner will use the following criteria to approve a project to be included in the Partnership: (1) Projected Investor IRR for the project will be no less than 15% based on project leverage between 65%-80% Loan to Cost; and (2) projected development spread between the project’s untrended development yield and current market exit cap rate will not be less than 125 basis points or 1.25%.

Fund Overview

4

Executive Summary The Partnership ������������������������� Watermark 2022 Multifamily Development Fund IV, LP, a Delaware limited partnership (the “Partnership”).

General Partner �������������������������� Watermark 2022 Fund GP, LLC, a Delaware limited liability company (the “GP”). The GP will provide real estate asset management services pursuant to the terms of the Partnership’s Limited Partnership Agreement (the “Partnership Agreement”). The GP is under common control with Thompson Thrift Development, Inc. d/b/a Watermark Residential (“Watermark”).

Purpose ���������������������������������������� The Partnership’s objective is capital appreciation. The Partnership will seek to achieve its objective by constructing a geographically diversified portfolio consisting of up to seven (7) Class “A” multifamily real estate developments located throughout the United States, as described in the Partnership’s Offering Memorandum (the “Memorandum”) or any replacement or additional properties selected by the GP in its discretion based on comparable criteria (each a “Property” and, collectively, the “Properties”). The Properties are projected to begin construction in 2022. The Partnership will seek to develop, complete, and exit each Property within 36 months from the date that the Property closes on construction financing.

Leverage �������������������������������������� The Partnership expects to incur leverage to acquire and develop the Properties, provided that the aggregate amount of outstanding debt will not exceed 80% of the cost of any single Property or 75% of the aggregate cost of all of the Properties (the “Debt Limit”). The Partnership could enter into financing arrangements with any financial institution or senior lender, including the GP or another Watermark affiliate, through any type of financing arrangement including any type of mortgage, line of credit, or mezzanine debt, subject to the Debt Limit.

Target Partnership Size ����������� The Partnership is seeking up to $165 million in total capital commitments from investors, consisting of 5% from the GP (the “GP Commitment”) and 95% from investors who subscribe to become limited partners of the Partnership (combined with the GP, the “Limited Partners”) to acquire and develop the Properties.

GP Commitment ������������������������� The GP and its affiliates will commit 5% of aggregate capital commitments as a Limited Partner of the Partnership.

Minimum Investment ���������������� $500,000, although the GP may accept lesser amounts in its discretion.

Fund Overview

5

Closing Date �������������������������������� The Partnership anticipates holding its initial closing on or after January 1, 2022 (the “Initial Closing Date”), and it may accept additional capital commitments through June 30, 2022 (the “Final Closing Date”).

Investment Period ��������������������� The Partnership may call capital to develop the Properties, beginning on the Initial Closing Date and ending on the earliest of (a) the date on which all capital commitments have been drawn or committed under existing business plans, and (b) the first anniversary of the Final Closing Date; provided that the GP may extend the term of the Investment Period to the 18th month anniversary of the Final Closing Date.

Term ���������������������������������������������� The Partnership’s term will end after all Properties have been sold or exited, which period shall not exceed seven (7) years from the date of the Final Closing Date; provided that the GP has the sole discretion to extend the Partnership’s term for two (2) successive one-year periods, and thereafter, may extend the Partnership’s term with the approval of a Majority-in-Interest of the Limited Partners, in each case, in an attempt to maximize the proceeds received upon the disposition of the Properties.

Capital Calls �������������������������������� Limited Partners will make capital contributions (each, a “Capital Contribution”) upon request of the GP (each a “Capital Call”). The GP will provide each Limited Partner with written notice of each Capital Call at least 10 days in advance of the due date. No Limited Partner shall be required to make aggregate Capital Contributions in excess of its capital commitment.

The Partnership expects to make multiple capital calls to acquire and develop each Property. The capital call for each investor will be prorated for each Property based on their percentage of the total.

The Partnership expects to make Capital Calls for up to 100% of the Limited Partners’ aggregate capital commitments during 2022, although there will be an extension period should one or more of the Properties fail to close within 2022 and require delay or replacement.

Additional Capital Contributions will be made for Partnership start-up costs, Capital Management Fees, and other Partnership expenses; Capital Calls for these fees and expenses will occur concurrently with Capital Calls for Property equity.

Debt Guaranty ���������������������������� The GP or another Watermark affiliate will provide any personal or corporate debt guaranty to the extent required by the Partnership’s debt lenders.

Cost Overrun Guaranty ������������ The GP or another Watermark affiliate will guarantee any overrun of certain hard costs to complete the Properties by the amount that exceeds the aggregate estimated hard costs for all Properties as set forth in the final Property Development Budgets at the time of each Property’s construction loan closing, except that such parties shall not be responsible for any delay or cost overrun incurred as a Fund Overview

6

result of any Force Majeure Event (as defined in the Partnership Agreement) and may offset savings from other hard cost and soft cost line items against cost overruns.

Warehoused Properties ���������� Watermark has entered into contracts to acquire each Property and is responsible for 100% of atrisk pursuit costs; it intends to assign all of its contractual rights with respect to each Property to the Partnership prior to, or simultaneously with, each Property’s construction loan closing date. The Partnership will be required to reimburse Watermark for expenses incurred in connection with the acquisition of each Property and predevelopment expenses actually incurred by Watermark, plus an 8% annual notional interest accrued from the date paid or accrued through the date of assignment.

The estimated interest expense is carried in the Property Development Budgets. Watermark will bear 100% of all broken deal costs to the extent that a Property is not acquired by the Partnership.

Related Party Services and Fees ��������������������� The GP, Watermark and their affiliates will provide development, construction administration, financing, general contractor, property management, IT and legal services and other services to the Properties as reflected in each Property’s development budget and as set forth in the Partnership Agreement.

Capital Management Fees ������ An annual Capital Management Fee for each individual Property will be charged by the GP to the Partnership, calculated as 1% of the unaffiliated Limited Partners’ average annual capital account balances. A Capital Call for the Capital Management Fees and other annual Partnership expenses for Years 1-2 will occur concurrently with the final Property Capital Call; subsequent accrued fees and expenses will be paid to the GP from net distributable proceeds for each Property. Capital Management Fees for each individual Property will expire the later of disposition of the Property or 42 months after its original capital call.

Distributions ������������������������������� Net distributable proceeds from the disposition or exit of each individual Property (after repayment of outstanding obligations and establishment of reserves) will be distributed as follows:

1st, 100% to the Limited Partners until each receives a return of their capital contributions for such individual Property.

2nd, 100% to the Limited Partners until each receives an 8% accrued preferred return on their unreturned capital for such individual Property, with such return compounding annually.

3rd, 70% to the Limited Partners and 30% to the GP until the Limited Partners have received distributions under this provision and those above equal to a 12% IRR (defined below) on the Capital Contributions for such individual Property made by the Limited Partners.

Fund Overview

7

4th, 60% to the Limited Partners and 40% to the GP until the Limited Partners have received distributions under this provision and those above equal to an 18% IRR on the Capital Contributions for such individual Property made by the Limited Partners.

Thereafter, 50% to the Limited Partners and 50% to the GP for such Property.

The amounts distributed to the GP above are referred to as the “Carried Interest.”

“IRR” means an annualized internal rate of return to each Limited Partner’s capital account for the period from the date of its initial Capital Contribution to the date of such determination after giving effect to the Capital Contributions made by the Limited Partners and all distributions made by the Partnership in respect of such Capital Account on or prior to the date of such determination.

Any accumulated operating cash prior to the disposition of the Properties will not be distributed, primarily due to lender requirements, and will be accrued and paid out as set forth above.

GP Clawback…………………………….Following the disposition or transfer of the final Property held by the Partnership, if (i) the Limited Partner has not received, over the life of the Partnership, a return on all of such Limited Partner’s Capital Contributions and the aggregate eight percent (8%) Preferred Return thereon, and (ii) the General Partner has received any carried interest, then the General Partner will repay carried interest to the Limited Partners up to the amount of such over distribution to the General Partner to the extent necessary to return to each Limited Partner their Capital Contribution and the aggregate eight percent (8%) Preferred Return thereon. In no event will the GP Clawback amount exceed the aftertax amount of the total carried interest distributions received by the GP. Risk Factors �������������������������������� Real estate development is speculative and involves a high degree of risk. Prospective investors are urged to review the “Factoring the Risks” section of the Memorandum.

Reports to Limited Partners �� Limited Partners will receive quarterly reports containing updates and descriptive construction information for each Property to the extent available and an annual Schedule K-1 regarding the Limited Partner’s investment in the Partnership.

Independent Auditors �������������� The Partnership’s financial statements will be audited annually by independent auditors in accordance with U.S. GAAP. Audited financial statements will be provided upon request.

Fund Overview

8

AND CAPITAL STACK n Loan Combined Total Equity Combined Total Budget Combined Total Start Up Cost G&A Cost (Years 1 & 2) ment Fee (Years 1 & 2) tnership Gross Budget

Projected Return Summary

$ $ $ $ $ $ $

309,340,114 132,574,335 441,914,449 225,000 PROJECTED BUDGETAND AND CAPITAL STACK PROJECTED FUND FUND BUDGET CAPITAL STACK 85,000 Construction Loan Combined Total $ 309,340,114 2,075,657 Property Equity Combined Total $ 132,574,335 444,300,106 Property Budget Combined Total $ 441,914,449

PROJECTED CAPITAL CONTRIBUTION SCHEDULE

Start Up Cost $ 225,000 Aggregate G&A Cost (Years 1 & 2) $ 85,000 D EQUITY Aggregate Capital Management Fee (Years 1 & 2) $ 2,075,657 FUND BUDGET AND CAPITAL STACK regate Property Equity $ 132,574,335 PROJECTED Construction Loan Combined Total 309,340,114 Partnership Gross$ Budget $ 444,300,106

Start Up Cost G&A Cost (Years 1 & 2) ment Fee (Years 1 & 2) Limited Partner Equity

$ 225,000 Property Equity Combined Total $ 132,574,335 $ 85,000 Property Budget Combined PROJECTED FUND EQUITYTotal $ 441,914,449 Start Up Cost $ 225,000 $ 2,075,657 Aggregate $ 132,574,335 Aggregate G&A Cost (YearsProperty 1 & 2) $ Equity 85,000 $ 134,959,992 Includes GP 5% Contribution Start Cost $ 225,000 Aggregate Capital Management Fee (Years 1 & 2) $Up 2,075,657

Partner Per Unit Price $

Aggregate Property Equity $ 132,574,335 Start Up Cost $ 225,000 Partner $ 500,000 AggregateLimited G&A Cost (Years 1Per & 2) Unit $ Price 85,000 Aggregate Capital Management Fee (Years 1 & 2) $ 2,075,657 Limited Partner Equity $ 134,959,992 Includes GP 5% Contribution

e

PROJECTED RETURN SUMMARY Limited Partner Per Unit Price $

Limited Partner Contributions

Estimated Date

500,000

Limited Partner Return of Equity

Limited Partner 8% Preferred Return

PROJECTED RETURN SUMMARY

2/1/22

Description

$

Description

Estimated Date

6/1/22 (13,266,044) Capital FL CapitalCall Call -- Daytona, Ocala, FL, Start-up Cost, G&A Cost 7/1/22 Capital Call Capital Call -- Woodbury, Daytona, FL MN

(22,012,284)

Capital Call -- Wilmington, Woodbury, MNNC Capital Call 9/1/22

(27,536,684)

Capital Call - Wilmington, NC Capital Call - Fountain, CO 10/1/22 Capital Call - Fountain, CO

Estimated Date

(21,894,451)

Capital3/1/22 Call - Ocala, FL, Start-up(20,801,765) Cost, G&A Cost

Fee

(29,448,763)

2/1/25 Capital Call - Greeley, CO, G&A Cost, Capital Mgmt Fee$

Sale - Woodbury, MN,G&A G&A Cost, Capital Sale - Woodbury, MN, Cost, Capital Mgmt Mgmt Fee Fee

DAYTONA BEACH, FLORIDA Anticipated capital contribution date: March 2022

3

WOODBURY, MINNESOTA Anticipated capital contribution date: June 2022

4

WILMINGTON, NORTH CAROLINA Anticipated capital contribution date: July 2022

PROJECTED LIMITED CASH FLOW 70%PARTNER to Limited 60%

Limited Partner 8% Preferred Return

70% to Limited Partner (up to 12% IRR)

Partner (up to 12% IRR) 60% to Limited

50% to LP thereafter

Partner (up to 18% IRR)

Limited Partner Net Cash Flow per Unit

to Limited 50% to LP Partner thereafter (up to 18% $ IRR) (21,894,451) $

Limited Partner IRR (Project Level)

Limited Partner Distributions

Limited Partner Limited Partner Distributions(20,801,765) Net Cash Flow

(81,115) Limited Partner Net Cash Flow (77,066) per Unit

Limited Partner IRR (Project$Level) (21,894,451)

(20,801,765) (13,266,044)

6/1/22

7/1/22 (13,266,044)

(22,012,284)

9/1/22 (22,012,284)

(49,148) (102,018)

(22,012,284)

7/1/22

(13,266,044) (27,536,684)

(27,536,684)

10/1/22

(29,448,763)

(29,448,763) (27,536,684)

(109,102) (102,018)

9/1/22

13,531,361 $ 10/1/22

(27,536,684)

3,086,814 $ (29,448,763)

2/1/25

2/1/25

2/1/25

2/1/25

Sale - Fountain, CO, G&A Cost, Capital Mgmt Fee

27,960,559

27,696,043 Totals

9/1/25

10/1/25

134,959,992

$

5,756,878 5,532,913

3/1/25

5,841,819 7/1/25 7,276,729 9/1/25

$

(22,012,284)

1,693,454

$

13,531,361

(21,894,451) $

$$

$

3,170,398

22,131,474

3,041,772 21,241,020

13,531,361 3,086,814 $

$

819,463

$ 3,086,814 3,876,2001,693,454 $ 22,131,474 5,756,878 5,756,878 3,170,398

3,377,7453,041,772 5,532,913 21,241,020 5,532,913

22,399,535 3,227,000

5,841,819 4,605,4333,227,000

22,399,535

27,960,559

7,276,729

4,056,215

5,841,819

4,056,215

6,175,411 27,960,559

27,696,043

4,035,656$ 10/1/25 $ 7,195,626 (134,959,992) $ 134,959,992 Totals 34,690,780$ $ (134,959,992) 19,224,496$

2,737,374

7,276,729

7,195,626 4,035,656 6,029,189 27,696,043 7,195,626 34,690,780 $ 19,224,496 $

$ $ 134,959,992 26,801,353

Returns on Page 10

$

21,868,467

$2,737,374 1,693,454 $ 819,463 $ 819,463 $ 2,737,374 21,868,467$ 21,868,467 34,934,950 34,934,950 3,876,200 3,876,200 3,170,398 34,934,950 34,934,950

33,193,451 3,377,745 3,041,772 4,605,433 6,175,411

-

33,193,451 33,193,451

33,193,451 3,377,745

-

36,073,787 36,073,787 36,073,787 3,227,000 4,605,433 36,073,787 -

45,468,914

45,468,914

44,956,514

44,956,514

45,468,914 6,175,411 45,468,914 4,056,215

6,029,189 44,956,514 4,035,656 26,801,353 $ 819,463 $

-

(81,551)

$

(27,536,684)

81,018 (109,102)

19.70%

(29,448,763)

21,868,46719.70% 81,018

21,868,467

34,934,95016.49% 129,427

34,934,950

33,193,45116.09%

33,193,451

129,427

16.49%

122,975 122,975

16.09%

133,646 17.22% 133,646 36,073,787 17.22% 36,073,787 168,453 17.58% 168,453 45,468,914 17.58% 45,468,914 166,555

17.50%

44,956,514 166,555 6,029,189 44,956,514 17.50% 44,956,514 216,496,083 $ 81,536,092 $ 302,075 $ 19,224,496 $ 26,801,353 $ 819,463 $ 302,075 216,496,083 $ 81,536,092 $34,690,780819,463 $ 216,496,083 $ 81,536,092 $ Average Limited Partner Projected IRR 17.43% 17.43% Total Limited Partner Projected Contributions $ 134,959,992 $ 500,000 Average Limited Partner Projected Total Limited Partner Projected Distributions $ 216,496,083 $ 802,075 Partner Projected IRR 17.43% 17.43% IRR Projected Equity Multiplier 1.60 Total Limited Partner1.60 Projected Contributions

Average Limited Total Limited Partner Projected Contributions Total Limited Partner Projected Distributions Projected Equity Multiplier

9

21,868,467 (29,448,763)

(49,148)

Limited Partner Net Cash Flow

(81,115)

Sale -10/1/25 Greeley, CO, G&A Cost, Capital Mgmt Fee

Fund Overview

Limited Partner 8% Limited Partner Preferred Return Return of Equity (21,894,451)

Limited Partner

Contributions$ 2/1/22

Limited Partner Net Cash Flow

(81,551) (77,066)

Sale - 9/1/25 Fountain, CO, G&A Cost, Capital Mgmt Fee

Notes: each construction for property equity. *-AtSee notes loan to closing Projected Investor 1. Capital -Start-upCall CostEvents included with Capital Call #1.

-At each construction loan closing for property equity.

-Start-up Cost included with Capital Call #1.

Limited Partner Return of Equity

Limited Partner Distributions

(22,012,284) (20,801,765)

22,399,5357/1/25

(134,959,992) $

Limited Partner Contributions

PROJECTED LIMITED PARTNER CASH FLOW

50% to LP thereafter

(13,266,044)

Sale - Wilmington, NC, G&A Cost, Capital Mgmt Fee

$

60% to Limited Partner (up to 18% IRR)

(13,266,044)

21,241,0203/1/25

Sale - Greeley, CO, G&A Cost, Capital Mgmt Fee

70% to Limited Partner (up to 12% IRR)

(20,801,765)

3/1/25

Sale - 7/1/25 Wilmington, NC, G&A Cost, Capital Mgmt Fee

GREELEY, COLORADO Anticipated capital contribution date: October 2022

PROJECTED LIMITED PARTNER CASH FLOW

6/1/22 (20,801,765)

22,131,474

Sale - Daytona, FL, Cost, Capital MgmtMgmt Fee Fee Sale - Daytona, FL,G&A G&A Cost, Capital

6

COLORADO Anticipated capital contribution date: September 2022

$3/1/22 (21,894,451)

2/1/25

Sale - Ocala, G&ACost, Cost, Capital Sale - Ocala, FL, FL, G&A Capital MgmtMgmt Fee Fee

Notes: 1. Capital Call Events

2

3/1/22

2/1/22

Capital Call - Greeley, CO, G&A Cost, Capital Mgmt Fee

Totals

OCALA, FLORIDA Anticipated capital contribution date: February 2022

Partnership Gross Budget $ 444,300,106 Aggregate G&A Cost (Years 1 & 2) $ 85,000 5 FOUNTAIN, Aggregate Capital Management Fee (Years 1 & 2) $ 2,075,657 PROJECTED FUND EQUITY Limited Partner Equity $ 134,959,992 Includes GP 5% Contribution

500,000

N SUMMARY

1

$ $

134,959,992 $ 500,000 Total Limited Partner Projected Distributions 216,496,083 Projected $ 802,075 Equity Multiplier 1.60 1.60

$ $

17.43% 134,959,992 216,496,083 1.60

Notes to Projected Investor Returns 1. Capital Call Events

-At each construction loan closing for property equity.

-Start-up Cost included with Capital Call #1.

-Year 1 G&A Cost included with Capital Call #1, Year 2 G&A Cost included with Capital Call #6, Annual G&A Cost thereafter paid with distributions.

-Capital Mgmt Fee estimated for Years 1 & 2 included with Capital Call #6. Estimated Capital Mgmt Fee thereafter paid with distributions.

2. Start Up, G&A costs and Capital Mgmt Fee are estimated based on budgets and will be reconciled to actual expenses.

3. Limited Partner Preferred Return is compounded annually on a project level basis.

4. IRR Hurdles are determined on a project level basis.

5. For purposes of this analysis, Limited Partner returns are calculated based on untrended Stabilized NOI. 6. Model assumes sale of all properties in month 36 (from construction closing) for all projects (excluding Woodbury,MN - month 32 from construction closing). No distributions made until the projected sale date.

7. The projected return summary includes the six identified properties only, and does not include any additional properties that may be developed by the Partnership.

Projected returns, IRRs, profits / (losses) and potential distributions

investment opportunities do not represent all of the opportunities in

to Limited Partners were prepared by the GP based on the GP’s

Watermark’s pipeline.

estimates of business plans, budgets, available leverage terms and

The GP has not independently verified the information contained in any of

other factors at the time that this Memorandum was prepared and

the third-party sources referred to in this Memorandum and does not take

there can be no assurances that such projected amounts and timing

any responsibility for the information contained herein or the accuracy of

of such future cash flows or distributions will be actually realized.

any third-party references, sources or statements set out herein.

Actual returns on investments will depend on market conditions,

Targeted returns are generally presented throughout this Memorandum

the value of each Property, manner of sale, underwriting costs and

and include a Partnership -level capital management fee.

development costs, among other factors, which may differ from the performance data contained herein and thus actual returns upon

Gross returns will be reduced by Capital Management Fees, GP

the disposition of a Property may differ materially from the returns

Distributions, and Partnership Expenses (defined below), including fees

indicated herein.

and expenses paid to the GP and its affiliated entities, as described in the Partnership Agreement.

The Properties described herein represent a selection of the

See “Factoring the Risk –Conflicts of Interest and –Forecast Risks”.

opportunities in Watermark’s development pipeline. These

Fund Overview

10

IRR Sensitivity Chart

PROJECTED INVESTOR IRR % / EQUITY MULTIPLE SENSITIVITY ANALYSIS

Average Exit Cap Rate

Annual Income and Expense Growth 0.00%

1.00%

2.00%

3.00%

4.72%

19.7% / 1.7

21.1% / 1.76

22.6% / 1.82

24.1% / 1.89

4.82%

18.6% / 1.65

20.1% / 1.71

21.5% / 1.78

23% / 1.84

4.92%

17.4% / 1.6

19% / 1.67

20.5% / 1.73

21.9% / 1.79

5.02%

16.3% / 1.56

18% / 1.63

19.5% / 1.69

20.9% / 1.75

5.12%

15.1% / 1.51

16.8% / 1.58

18.5% / 1.65

19.9% / 1.71

NOTE: IN OUR FINANCIAL PROJECTIONS, WE HAVE ASSUMED 0.00% RENT GROWTH AND AN AVERAGE EXIT CAP RATE FOR THE SIX PROPERTIES OF 4.92%. THIS SENSITIVITY CHART ALLOWS YOU TO SEE HOW A VARIANCE FROM THESE ASSUMPTIONS MIGHT IMPACT RETURN PROJECTIONS. IRR SENSITIVITY CHART INCLUDES SIX IDENTIFIED PROPERTIES ONLY, AND DOES NOT INCLUDE ANY ADDITIONAL PROPERTIES THAT MAY BE DEVELOPED BY THE PARTNERSHIP.

Fund Overview

11

Property-Level Related Party Services and Fees • Prior to or simultaneously with closing of a construction loan for each Property, Thompson Thrift Development, Inc. will be reimbursed by the Partnership for all pursuit costs plus 8.00% interest for all pre-closing pursuit costs, including, but not limited to, earnest money, site due diligence reports, architectural design, civil engineering, and impact fees;

• Internal Financing Fee of 0.25% of land and construction loan amounts will be paid to Watermark.

• Construction administration/owner’s representation fees of 1.75% of each Property’s development budget; • Development overhead fees of 2.50% of each Property’s development budget;

• Prior to or concurrent with closing of a construction loan for each Warehoused Property, where the GP (or an affiliate thereof) closed on the land loan for the Property prior to the closing of the construction loan and funded the required equity, the Partnership will reimburse 100% of the funded equity for the land loan plus 8.00% interest; and

• Each Property will sign a fixed sum contract with Thompson Thrift Construction, Inc., an affiliate of the GP, prior to the closing of the construction loan for each Property, which includes a general contractor overhead charge of 6.00% of the construction contract amount and contingency, and profit margin of 4.00% of the construction contract amount;

• Various other fees in associated with management of each Property, including information technology fees of $150 per month, payroll fees of $100 per month, and one-time lease up fee of $100 per unit once a Property achieves at least 92% occupancy, with such fee increased by 1% of the effective gross income of any Property that is held by the Partnership longer than 42 months.

• Property management fee of $2,500 per month once on-site personnel have been hired for each Property, with such fee increased to the greater of $5,500 or 3.5% of effective gross income of the Property per month upon delivery of the first units for lease; • Reasonable hourly rates for in-house legal counsel (not to exceed $450 per hour) attributable to the Partnership and/or the acquisition, development or disposition of each Property;

Fund Overview

12

Related Party Transactions Warehoused Properties

Financing Arrangements

• Watermark (or another affiliate of the GP), to the extent that it has acquired, or committed to acquire, the Properties for transfer to the Partnership (“Warehoused Properties”), will transfer ownership of the Warehoused Properties to the Partnership in advance of (or concurrent with) closing on the construction loans for such Warehoused Properties; at a purchase price equal to each Property’s original cost plus reimbursement of all pre-closing pursuit costs, including but not limited to, earnest money, site due diligence reports, and architectural design, civil engineering and impact fees; plus financing costs equal to the greater of actual financing costs or 8% annual notional interest accrued from the date that such cost or expense was paid or accrued through the date of the assignment of the Warehoused Property.

• Instead of calling capital, the GP can, but is not required to, make a short-term loan to the Partnership, and charge the Partnership 8% interest; repayment of these short-term loans will occur prior to any Limited Partner distributions.

• The Partnership could enter financing arrangements with any financial institution or senior lender, including the GP or another Watermark affiliate, through any type of financing arrangement including any type of mortgage, line of credit, or mezzanine debt, subject to the Debt Limit.

• Prior to, or concurrent with, closing of a construction loan for each Warehoused Property, where Watermark (or another affiliate of the GP) closed on the land loan for the Property prior to the closing of the construction loan and funded the required equity, the Partnership will reimburse 100% of the funded equity for the land loan plus 8.00% interest.

Fund Overview

13

Additional Terms Default ����������������������������������������� If any Limited Partner fails to pay its required Capital Contribution when called by the GP, the GP will have the right, but not the obligation, to treat such Limited Partner as a “Defaulting Limited Partner.” As specified in the Partnership Agreement, a Defaulting Limited Partner may be subject to significant penalties, including forfeiture of its Interest in the Partnership.

Short Term Loans ���������������������� In lieu of calling capital, the GP can, but is not required to, make a short term loan to the Partnership and charge the Partnership 8% interest; repayment of these short term loans will occur prior to any Limited Partner distributions.

Tax Distributions ����������������������� If permitted in the construction loan documents for the Projects in the Partnership, and solely to the extent there is available cash as set forth in the Partnership Agreement, the Partnership intends to make quarterly cash distributions to the General Partner and the Limited Partners with respect to each Fiscal Year in an aggregate amount equal to the excess of (1) each such Partner’s deemed tax liability with respect to allocations of income by the Partnership during such Partnership Year or other relevant period over (2) the distributions made to such Partner during such Fiscal Year or other relevant period. In determining such tax liabilities, it shall be assumed that each Partner is subject to a rate of income taxation calculated assuming the maximum U.S. federal and state tax rate applicable to any Partner. Any tax distributions made to the Partners shall be treated as advances of future amounts due to such Partners, and any future distributions due to the Partners shall be adjusted to take into account such advances.

Recalls ����������������������������������������� If, in the discretion of the GP, the Partnership’s assets are insufficient to fulfill any obligation or liability of the Partnership after the maximum Capital Contributions have been contributed under the Partnership Agreement, the GP may recall distributions previously made to Limited Partners solely for the purpose of fulfilling or satisfying such obligation or liability. Each Limited Partner will be required to make such contributions upon not less than 10 days’ prior written notice from the GP of such Limited Partner’s pro rata share of the amount necessary to satisfy such liability or Fund Overview

14

obligation so as to achieve the net distributions that would result if the recalled distributions had not been made. In no event shall any Limited Partner be required to contribute capital pursuant to recall provision in excess of the lesser of (A) the amount of distributions received by such Limited Partner and (B) 25% of such Limited Partner’s Capital Commitment. In no event will the GP be permitted to recall a distribution previously made to the Limited Partners after the third anniversary of the liquidation and winding-up of the Partnership.

Transferability ���������������������������� Transfers of the Limited Partner’s interests in the Partnership are subject to significant restrictions.

All proposed transfers will be subject to the written consent of the GP in its sole discretion and proposed purchasers will be required to demonstrate their eligibility to invest in the Partnership and sufficient financial wherewithal to meet the remaining Capital Commitment obligations of the transferring Limited Partner.

Indemnification �������������������������� In general, if the GP, its members, managers, officers, employees or agents, acted in good faith, then such person will be indemnified by the Partnership against any costs and expenses incurred by such person connection with any proceeding as a result of serving in any of the foregoing capacities or having served as a director, officer, employee or agent of any organization in which the Partnership may have an interest, so long as such costs or expenses did not result from the fraud, gross negligence or willful misconduct of such person. In connection, the Partnership may pay the expenses incurred by an indemnitee person in defending an action in advance of the final disposition of such action, provided such defendant undertakes to repay such expenses if such person is adjudicated not to be entitled to indemnification.

Subscription Procedures ��������� Investors who desire to purchase an interest in the Partnership must complete and execute the Subscription Documents required of the Limited Partners. Limited Partners may be required to provide the GP at the time of subscription or thereafter with certain information to permit the GP and the Partnership to comply with certain applicable rules and regulations, including with respect to anti-money laundering, or as required by the Partnership’s lenders.

Expenses ������������������������������������� The GP will be responsible for its own day-to-day operating expenses including (to the extent applicable) compensation of employees, office space, communications expense, office supplies and other miscellaneous day-to-day expenses. The Partnership will be responsible for all expenses Fund Overview

15

incurred in the conduct of the Partnership’s business (to the extent not borne or reimbursed by a Property), including the following (“Partnership Expenses”): (a) Capital Management Fees; (b) legal, accounting, filing and other out-of-pocket expenses incurred in organizing the Partnership; (c) consulting, legal, accounting, administrative, commitment, and other fees incurred in investigating or completing investment opportunities and providing tax information and reports to Members; (d) ongoing accounting, administrative, compliance, filing and regulatory costs applicable to the Partnership; and (e) such other Partnership expenses as set forth in the Property’s development budget or as determined are necessary by the GP in its discretion, subject to the terms of the Partnership Agreement.

Partnership Agreement ����������� The terms and conditions of an investment in the Partnership will be subject to, and governed by, the Partnership Agreement (the “LP Agreement”), which has not yet been finalized. The Executive Summary and Additional Terms within the Memorandum includes a description of what the GP believes are the key terms at this time, although the terms described herein could change.

Investors should carefully review the Partnership Agreement with their legal, financial, and tax advisors prior to submitting a Subscription Agreement to the Partnership.

Fund Overview

16

Capital Contribution Schedule

PROJECTED SCHEDULE OF EQUITY CONTRIBUTIONS

THE ESTIMATED CAPITAL CONTRIBUTION SCHEDULES FOR PROJECT CLOSINGS ARE AS FOLLOWS AND ARE SUBJECT TO CHANGE, DEPENDING ON ACTUAL CLOSING DATES. There will be multiple project capital contributions, one at the construction loan closing of each project. The capital call for each investor will be prorated for each project based on their

1

percentage of the total capital committed.

Identified properties are subject to replacement in the discretion of the Partnership’s General Partner,

2

and a seventh (7th) property may be added, to the

Ocala, Florida Anticipated closing date: February 2022 Daytona Beach, Florida Anticipated closing date: March 2022

extent that the General Partner believes that a new or replacement property will meet or exceed its

3

criteria. When evaluating properties, the General Partner will use the following criteria to approve a project to be included in the Partnership: (1) Projected Investor IRR for the project will be no less

4

than 15% based on project leverage between 65%-

Woodbury, Minnesota Anticipated closing date: June 2022 Wilmington, North Carolina Anticipated closing date: July 2022

80% Loan to Cost; and (2) projected development spread between the project’s untrended development yield and current market exit cap rate

5

6

17

Anticipated closing date: September 2022

will not be less than 125 basis points or 1.25%.

Fund Overview

Fountain, Colorado

Greeley, Colorado Anticipated closing date: October 2022

Projected Project Performance Summary

PROJECTED PROJECT PERFORMANCE SUMMARY

Untrended Yield

Current Exit Cap Rate

Projected Exit Cap Rate

Spread (Untrended Yield Current Exit Cap)

Ocala, FL

6.25%

4.80%

5.10%

145 bps

Daytona, FL

6.03%

4.65%

4.95%

138 bps

Woodbury, MN

6.18%

4.65%

4.95%

153 bps

Wilmington, NC

6.03%

4.55%

4.85%

148 bps

Fountain, CO

6.07%

4.55%

4.85%

152 bps

Greeley, CO

6.01%

4.50%

4.80%

151 bps

Averages

6.10%

4.62%

4.92%

148 bps

Projected Performance Summary includes six identified properties only, and does not include any additional properties that may be developed by the Partnership. Projections of the returns are based, in part, on assumptions concerning facts and events over which the Partnership and the General Partner will have no control, and which could, if they change, produce results significantly different from those set forth above. See “Factoring the Risk - Risks Relating to Forecasts.”

Fund Overview

18

The Market Selection Process AT WATERMARK, WE FOLLOW A

more than 100 markets throughout the United

growth markets. While we are conducting

METHODICAL AND THOROUGH MARKET

States. The resultant rankings are based on

this facet of the evaluation process, the

SELECTION PROCESS TO CREATE

seven criteria, which include Macro MSA

Watermark team continues to consult its

supply-and-demand analysis and various

database of more than 1,000 investment

quality-of-life indices.

real estate and land brokers nationwide to

Ultimately, these rankings provide a strong

help identify other strong markets.

foundation for identifying the best possible

Once the team identifies a suitable macro

markets and deciding which of them to

market, efforts begin to locate the area’s

pursue. By not setting geographic barriers

submarket that best meets Watermark’s

for its expansion, Watermark can choose

standards.

DESIRABLE, HIGH-END MULTIFAMILY HOUSING THAT WE BELIEVE OFFERS THE OPPORTUNITY TO PRODUCE SUPERIOR RISK-ADJUSTED RETURNS. The first step in the process is to identify growth markets that demonstrate a need for additional multifamily housing. Each year, this exercise begins with an assessment of

Fund Overview

from among the country’s most stable

19

Once Watermark has gained site control and is preparing to start due diligence, a formal Investment Committee Process takes place where each development region compiles a significant amount of market, submarket, and site-specific data for review and discussion by key Watermark personnel.

During each Investment Committee meeting, items discussed include, but are not limited to: Site Review A complete review of site location (both immediate and overall metro areas), product type, site plan, project schedule, and at-risk budget.

Financial Review At a minimum, a detailed review of comparable rent data, financial proforma, sale analysis, tax

The Investment Committee Process

analysis, sale comparables, and investor return summaries.

Budget Review A review of all soft and hard costs with a detailed analysis of site conditions and construction costs.

Submarket Review Supply and demand metrics and the development pipeline review.

Demographic Review A detailed review of demographics for the site and metro area.

Each Investment Committee meeting concludes with a vote by key personnel and a discussion of the next steps and items that need follow up. Each development project will go through a minimum of three (3) Investment Committee meetings before the construction loan closing/construction starts with different levels of internal approval and requirements.

Fund Overview

20

Mitigating Risk RESEARCH

Intense market research.

We are focused on developing Class A real estate

DEVELOPMENT

properties based on proper

Repetition of proven real estate development model.

fundamentals that offer the

TEAM

opportunity for predictable,

Experienced developer-contractor management team.

premium returns.

APPROVAL

Disciplined underwriting and investment committee approval.

EFFICIENCY

Standardized design and model that creates efficiencies.

PROPERTY MANAGEMENT

Property Management team with strength in new property lease ups is involved through design and construction process.

Fund Overview

21

Fundamental Site Criteria

CLOSE PROXIMITY TO A HIGH TRAFFIC THOROUGHFARE

Exposure to major traffic counts increases walk-through traffic in a project and helps maximize lease-up.

Watermark seeks projects

CLOSE PROXIMITY TO JOBS

in locations that have seen

Convenience to his or her workplace is a significant factor in a resident’s decision to lease at a given location.

job growth, have not seen supply outpace demand,

CLOSE PROXIMITY TO HIGH-END HOUSING AND GOOD SCHOOLS

and where comparison

Residents want to live in an area that is considered exclusive based on the presence of well-kept, high-end homes in low-crime areas with good schools.

properties have seen stable or growing rents or increasing occupancy where

CLOSE PROXIMITY TO HIGH-END RETAIL

rents are comparable.

Beyond adding convenience for residents, this factor represents an easily recognizable indicator of growth in a submarket. Watermark confirms the submarket’s growth through its analysis.

COMPELLING STORY

Watermark seeks to develop sites in markets with a compelling story; high administrative or geographic barriers to entry that limit the amount of new competition, or a favorable supply and demand story.

Fund Overview

22

THOMPSONTHRIFT.COM/WATERMARK

Multifamily Market Outlook

23

Positive Market Outlook Multifamily real estate is performing exceptionally well as demand continues to outpace supply by a significant margin and occupancy and rents are soaring. Continuing a decades-long undersupply in housing units, we are experiencing historically low for-sale inventory levels.

Demographic and lifestyle trends continue driving more people to choose rental housing; the Covid-19 pandemic accelerated trends in motion before the health crisis. These trends include migration from “Old Growth Markets” like California, Illinois, New York, and others to more climate and business-friendly “New Growth Markets” like Arizona, Colorado, Texas, Florida, and the Carolinas. Other positive trends include more flexibility in work hours and location, and migration out of urban centers into more affordable suburban options. The multifamily sector weathered the downturn with resilience, entered 2021 showing signs of strength, and has outperformed expectations through the first half of 2021. Appetite for existing multifamily assets has continued to improve and an abundance of capital continues to aggressively compete for new product. The fundamentals for the multifamily market remain strong and point toward a very favorable environment for the Watermark business model.

On the following pages, we will provide updated market information along with our analyses and conclusions. In summation, you will see that we continue to be very optimistic about the long-term prospects of multifamily development and that there is a significant need for additional rental units for years to come. We are confident that we can continue to leverage our experience and proven model to deliver great results.

Brian Southworth Partner, Senior Vice President of Acquisitions

Multifamily Market Outlook

24

Supply and Demand

HOUSING DEMAND CONTINUES TO OUTPACE SUPPLY maintaining a decades-long trend of undersupply as evidenced by record high housing prices and historically

NUMBER OF SINGLE-FAMILY AND MULTIFAMILY HOUSING STARTS Number of Single-Family and Multifamily Housing Starts 15,000,000

low inventories in markets across the country. In the most recent 10-year period ending in 2020, housing starts fell 3.3 million below the average of the previous three 10-year periods. While

TOTAL STARTS

1981-2010 AVG: 13.9 M

13,000,000

3.3 Million Less Than Previous 3 Decades

11,000,000

9,000,000

7,000,000

this shortfall has declined in the most recent period, there remains a sizeable shortfall that suggests a robust future housing demand.

5,000,000

1981-2010 AVG: 3.0M

3,000,000

1,000,000

1981-1990

1991-2000

2011-2020

Number of Multifamily (5+) Starts

Number of Total Multifamily & Single-Family Starts

Average Number of Single-Family Starts (1987-2010)

Average Number of Multifamily Starts (1981-2010)

Average Total Multifamily and Single-Family Starts (1981-2010)

Source: U.S. Census, Compares Rolling 10-Year Periods of SF & MF Starts

Multifamily Market Outlook

2001-2010

Number of Single-Family Starts

25

Supply and Demand

Month of Supply has fallen to 1.5 from 2.9 last year and 3.9 in 2019 EXISTING AND NEW HOME INVENTORIES

MONTH OF SUPPLY HAS FALLEN TO 1.5 FROM 2.9 LAST YEAR AND 3.9 IN 2019

HAVE REACHED RECORD LOW LEVELS, driving up prices and reducing affordability in major metros across the U.S., despite mortgage rates reaching record low levels during 2020. According to John Burns Real Estate Consulting, LLC, there is currently an estimate of only 1.5 months of resale supply

Month of Supply (resale, weekly based on trailing month of pending sales 4 week totals, 28 major markets)

(resale, weekly based on trailing month of pending sales 4 week totals, 28 major markets)

6.0

5.0

2019 Comp

4.0

in the nation’s 28 largest markets. Resulting price increases, coupled with low availability,

2020 Comp

3.0

have severely constrained the ability for many to own a home, thereby strengthening

2.0

demand for multifamily housing.

Multifamily Market Outlook

Jun-2 Jun-16 Jun-30 Jul-14 Jul-28 Aug-11 Aug-28 Sep-8 Sep-22 Oct-6 Oct-20 Nov-3 Nov-17 Dec-1 Dec-15 Dec-29 Jan-12 Jan-26 Feb-2 Feb-25 Mar-8 Mar-22 Apr-5 Apr-19 May-3 May-17 May-31 Jun-14 Jun-28 Jul-12 Jul-28 Aug-9 Aug-23 Sep-8 Sep-20 Oct-1 Oct-18 Nov-1 Nov-15 Nov-28 Dec-13 Dec-27 Jan-10 Jan-24 Feb-7 Feb-21 Mar-7 Mar- 21 Apr-4 Apr-18 May-2 May-16 May-30 Jun-13 Jun-27

0.0

Mar-24 Apr-7 Apr-21 May-5 May-13

1.0

26

Household Formation and Demographic Trends

THE OVERALL LEVEL OF U.S. HOUSEHOLD GROWTH IS STEADY and projected to grow at just under 1% annually through 2025, according to projections by Oxford Economics. While availability and affordability continue to limit homeownership, demand drivers for multifamily remain strong. To some extent, household formation is being limited by the shortage of available housing units. Still sizable Millennial and

NUMBER OF HOUSEHOLDS (Thousands)

Number of households (Thousands)

140,000 120,000 100,000 80,000 60,000 40,000 20,000

growing Gen Z age cohorts continue to provide a steady pool of potential renters.

Multifamily Market Outlook

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

27

Household Formation and Demographic Trends

MILLENNIALS AND GEN Z ADULTS CONTINUE TO BE BURDENED BY INCREASING

AVERAGE STUDENT LOAN DEBT (All Loan Types)

STUDENT AND CONSUMER DEBT,

$45,000

1,800,000

HINDERING OPPORTUNITIES FOR

$40,000

1,600,000

HOMEOWNERSHIP.

$35,000

1,400,000

Although Millennials (roughly 25 to

$30,000

1,200,000

43 years of age) are now moving

$25,000

1,000,000

into adulthood, they are doing so

$20,000

800,000

at a slower pace than previous

$15,000

600,000

generations, delaying marriage,

$10,000

400,000

families, and buying a first home

$5,000

200,000

until later in life. They continue to represent a key renter segment

$0 2007

for multifamily as do younger Gen

2009

2010

2011

2012

2013

2014

Average Student Loan Debt (All Students)

Z adults (ages 24 and younger) who are now entering the workforce in growing numbers.

Multifamily Market Outlook

2008

28

2015

2016

2017

2018

2019 2020

Migration Trends

12-Month Population Growth Greatest in SE, SW and NW States 12-MONTH POPULATION GROWTH Greatest in SW, SE, and NW States

-0.1%

1.0%

0.3% 0.2%

1.0% 0.6%

0.4% 0.0%

0.3%

2.1%

0.6%

0.1%

0.4% 0.3%

A DOMINANT TREND THAT ACCELERATED THIS PAST YEAR HAS BEEN A NOTABLE

1.5%

1.5%

-0.2%

0.0%

0.1% 0.4%

0.0%

primarily from high-cost urban areas (Old

0.5% 0.3%

Growth Markets) to Sun Belt and other

0.4%

0.0%

1.2%

0.3% -0.4%

1.3%

-0.1%

0.9%

0.8% 1.8%

-0.1% -0.3%

1.0%

-0.6%

0.1%

0.2%

INCREASE IN POPULATION MIGRATION,

secondary and tertiary markets (New

-0.2% -0.1%

-0.6% 0.9%

-0.6%

0.3%

0.8%

-0.3%

-0.3%

1.1%

Growth Markets). The shift is driven by multiple factors, including greater relative affordability to their current location and a new flexibility to “work from anywhere”, along with quality of life, climate, and family considerations. It is particularly prevalent across the mountain west and southern states, and through portions of the central U.S.

Percent Change in State Population (July 2019 - July 2020) -0.6%

2.1%

*Annual estimates of the state resident population from July 1, 2019 to July 1, 2020

Migration Amid COVID-19 MIGRATION AMID COVID-19 Gateway Markets Experiencing Mass Exodus, Southwest Gains

F

Multifamily Market Outlook

29

*Full Year 2020

Migration Trends

POPULATION IS EXPANDING FASTER IN SMALLER METROS.

POPULATION EXPANDING FASTER IN SMALLER METROS

Prior to the pandemic, population growth in Secondary and Tertiary markets had begun to outpace Primary markets. This trend is forecasted to continue with growth rates in smaller metros nearly double the rate of those in larger markets.

Multifamily Market Outlook

30

A Winning Cycle COINCIDING WITH THE MOVEMENT OF PEOPLE TOWARD MORE AFFORDABLE NEW GROWTH MARKETS, large companies are also being attracted to Sun Belt cities by lower operating costs, business-friendly environments, and an educated and growing workforce. We believe this has started a circular phenomenon of people migrating to these markets, further attracting employers to locate in these markets to access an attractive workforce, further drawing people who are seeking jobs (the “winning” cycle). We believe this cycle is likely to sustain a decades-long shift in population, moving away from Old Growth and northern cities toward New Growth mountain and southern metropolitan areas, as people continue migrating to these emerging job centers in lower-cost, warm weather climates.

Employers moving from high-cost urban areas to Sun Belt and other growing secondary and tertiary markets due to

People moving from high-cost urban areas to Sun Belt and other growing secondary and tertiary markets due to

Lower operating costs

Lifestyle

Business friendly environments

Affordability

Educated and growing workforce

Job opportunity

Multifamily Market Outlook

31

Suburban Shift

U.S. SUBURBS CONTINUE TO CAPTURE THE HIGHEST SHARE OF HOUSEHOLD GROWTH BY A WIDE MARGIN.

SUBURBS SEE MORE GROWTH

Suburbs to See More Growth

Share of Household Growth

Today’s Suburbs

Today’s Urban

Today’s Rural

100% 75% 50% 25% 0% 1970-1980 1980-1990 1990-2000 2000-2010 2010-2015 2015-2025* * Projected

Multifamily Market Outlook

32

Post-Pandemic Occupancy and Rent Growth

12 % NEW LEASE TRADE-OUT SURGES 10 % 8% 6% 4% 2% 0%

GROWTH ARE ON THE RISE. According to RealPage, actual annual rent growth hit 11%

-2 % -4 %

in 2021, measuring lease-over-lease trade-

-6 %

out for new leases (i.e., replacement rents

-8 %

National New Lease Trade-Out

May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Nov-12 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15 May-16 Nov-16 May-17 Nov-17 May-18 Nov-18 May-19 Nov-19 May-20 Nov-20 May-21

MULTIFAMILY OCCUPANCIES AND RENT

-- what you pay compared to the previous tenant for the same unit). This is the highest level since RealPage’s monthly reporting began in 2008.

Apartment occupancy has surged as well.

APARTMENT OCCUPANCY HAS SURGED AS WELL U.S. Apartment Occupancy Matches All-Time High in June 2021 98% 96.5%

96.5%

97% 96% 95% 94% 93% 92% 91%

Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun 00

Multifamily Market Outlook

01

02

33

03

04

05

06

07

08

09

10

11

12

13

14

15

16

17

18

19

20

21

Property Values & Cap Rates

MULTIFAMILY HAS BEEN AN ATTRACTIVE ASSET CLASS THIS PAST DECADE, and its attractiveness was strengthened by the COVID-19 pandemic as investors shied away from retail, hospitality, and office. We have seen an abundance of capital seeking yield from stabilized multifamily assets as evidenced by strong asset sale valuations and compressed cap rates. The amount of prospective buyers has increased from previous years.

Although the spread between the 10-year treasury and apartment cap rates tightened this past year, the spread remains well above average, suggesting that interest rates can rise without necessarily seeing a

U.S. APARTMENT CAP RATE YIELD SPREAD TIGHTENING; U.S. APARTMENT CAP RATE YIELD SPREAD TIGHTENING; Average Cap Rate vs.vs.

10-Year Treasury Average Cap Rate 10-Year Treasury

12%

Average Cap Rate

9%

380 bps

390 bps 430 bps

6%

390 bps

3%

120 bps

470 bps

430 bps 360 bps

0% 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21* *Through June 15 Includes sales $1 million and greater

proportionate decrease in property values.

Multifamily Market Outlook

10-Year Treasury

34

Build-for-Rent : Single-Family Rentals and Horizontal Apartments

WATERMARK’S TOWNHOMES AT DAYTON STATION • AURORA, COLORADO

THE BUILD-FOR-RENT SEGMENT IS ONE OF THE BEST PERFORMING PRODUCT TYPES WITHIN THE MULTIFAMILY SECTOR to emerge over the last year, based on documented rent increases, sale comps, and investor demand.

This segment includes single-family rentals and attached horizontal apartment homes. It constitutes a growing demand niche geared toward renters-bychoice desiring the characteristics of single-family homes, while maintaining the flexibility, amenities, and advantages of a for-rent product.

WATERMARK’S GRANDSTONE AT SUNRISE • PEORIA, ARIZONA

Multifamily Market Outlook

35

Industry Headwinds

WITH THE FUNDAMENTALS POINTING TOWARD A POSITIVE OUTLOOK FOR MULTIFAMILY, there are threats facing our industry which we continue to monitor closely.

Public policy The multifamily industry is closely watching public policy changes to overall tax policy, housing policy, and rent control.

Construction costs While lumber costs have recently moderated, overall costs are expected to continue to escalate.

WATERMARK’S GRANDSTONE AT SUNRISE • PEORIA, ARIZONA

Multifamily Market Outlook

36

Our Conclusions 1

Housing demand continues to outpace supply and maintains a decades-long trend of undersupply for both single-family and multifamily as evidenced by record high housing prices and historically low inventories.

2

While affordability and availability continue to limit homeownership, demand drivers for multifamily remain strong. The overall level of household formation in the U.S. continues to grow. Still sizable Millennial and growing Gen Z age cohorts are providing a steady pool of potential renters.

3

One key trend continuing this past year has been population migration, primarily from high cost urban areas (“Old Growth Markets”) to Sun Belt and other secondary and tertiary markets (“New Growth Markets”). The shift has been driven by multiple factors, including greater relative affordability and a new flexibility to “work from anywhere”. This trend is positive for Watermark Residential whose business model is focused on development in these suburban and New Growth Markets.

4

Coinciding with the movement of people toward more affordable markets, large companies are attracted to New Growth Markets by lower operating costs, business-friendly environments, and a growing workforce. We believe this has begun a circular phenomenon of people migrating to these markets, further drawing employers to locate in these areas to access an attractive workforce, further drawing people who are seeking jobs (the “winning” cycle). We believe this cycle is likely to continue a decades-long shift in population, moving away from coastal and northern cities toward high-growth mountain and southern metropolitan areas.

5

One of the best performing real estate sectors to emerge is that of single-family rentals and horizontal apartment homes. It constitutes a growing demand niche geared toward renters desiring the characteristics of a single-family home, while maintaining the flexibility and cost advantage of a forrent product.

6

Overall, the outlook for the multifamily industry is favorable. However, there are risks we continue to monitor.

In Summary

THE ECONOMY IS HEATING UP AS THE JOB MARKET STRENGTHENS AND THE UNEMPLOYMENT RATE HAS FALLEN TO 5.9% AS OF JULY. The pandemic accelerated an existing trend of migration to New Growth Markets and generally all suburban markets where Watermark focuses its development efforts. We see this migration of population and jobs continuing to favor these markets and increase demand for apartment homes. The fundamentals for the multifamily market remain strong and point toward a very favorable environment for the Watermark business model.

Multifamily Market Outlook

37

Key Facts 56% MILLENNIALS REMAIN UNMARRIED

21% IN THE U.S. ARE AGE 20-34

Currently, there are 67.6 mil. people between the ages of 20-34 in the U.S., representing more than one-fifth (21%) of the country’s total population (Oxford Economics 2021).

More than half (56%) of millennials are not married, compared to 47% of Gen Xers and 39% of Boomers at a comparable age (Pew Research Center 2020).

MILLENNIALS LIVE ALONE

ONLY 38% UNDER AGE 35 OWN A HOME About 38% of adults under the age of 35 own a home, compared to the national average of 66%.

62% of those between the ages 35-44 own a home, a figure that has steadily declined from 2005-2016 but has been increasing in the past few years (U.S. Census Q1 2021).

Multifamily Market Outlook

Millennials are less likely to live with a family at the same age as did previous generations. About one-third now live with a spouse and child, compared with 40% of Gen Xers at a comparable age (Pew Research Center 2020).

FEWER MILLENNIAL WOMEN ARE STARTING FAMILIES Millennial women are less likely to have given birth at this stage of life than their predecessors.

55% of Millennials (age 25-40 years) have given birth compared to 62% of Gen X and 64% of Boomers at the same age (Pew Research Center 2020).

38

SUBURBAN GROWTH OUTPACES URBAN GROWTH

Over the past few years, there has been a national trend away from urban city centers toward suburbs. In fact, 60 percent of all metro areas are experiencing more growth in the suburbs than in cities (Freddie Mac 2021).

HOME PAYMENT GAP INCREASING The payment gap between owning a home and renting is expected to increase to $451 in 2020, from a low of $42 in 2012 (Marcus & Millichap 2021).

CONSUMER DEBT CONTINUES TO INCREASE At more than $14T, consumer debt, a majority composed of mortgages and student loans, is greater than at the prior peak level in 2008 (JBREC 2021).

Multifamily Market Outlook: Disclaimer Development, ownership and operation of multifamily real estate

to subscribing for limited partnership interests. Please contact the

projects is highly competitive and involves numerous risks. For

General Partner at the address set forth on the cover page for copies

services rendered in connection with management of the Partnership

of these agreements.

and its properties, the General Partner and its affiliated entities

No Content (including ratings, credit-related analyses and data,

will receive capital management fees, construction administration,

valuations, model, software or other application or output therefrom)

financing, contingency, development and general contractor

or any part thereof (“Content”) may be modified, reverse engineered,

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reproduced or distributed in any form by any means without the prior

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The Partnership is designed only for sophisticated persons and

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involves a substantial degree of risk of, and exposure to, loss of

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PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

carefully consider the risk factors involved in ownership of limited partnership interests in the Partnership and should consult their own

This document may contain forward-looking statements or forecasts;

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Please note the publication date of this document. It may contain

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The summary of terms included in these offering materials is subject

to make an investment decision. Unless otherwise indicated, there is

to, and qualified in its entirety by, reference to the First Amended

no intention to update this document.

and Restated Limited Partnership Agreement of the Partnership.

Redistribution or reproduction is prohibited without written

Prospective investors should request and carefully review the

permission. Copyright © 2021

Limited Partnership Agreement and Subscription Agreement prior

Multifamily Market Outlook

39

THOMPSONTHRIFT.COM/WATERMARK

Sponsor Overview

40

About Our Company Thompson Thrift was established in 1986

by John Thompson and Paul Thrift as a locally-focused real estate development company. Since then, Thompson Thrift has grown into an integrated, full-service development and construction company

INDIANAPOLIS OFFICE SOCIAL HUB

with national scope. Today, the company consists of Thompson Thrift Retail Group, Thompson Thrift Construction and Watermark Residential.

WATERMARK RESIDENTIAL In 2008, John and Paul assembled the resources necessary to build the premier multifamily business unit known today as Watermark Residential.

Focused on the construction and operation of Class “A” apartment developments in affluent suburban markets, Watermark Residential has earned recognition as one of the nation’s top multifamily developers.

Our development, construction, and property management experience have given us a

JOHN THOMPSON & PAUL THRIFT

platform to develop multifamily communities that epitomize our commitment to quality, value, and meticulous attention to detail. Innovative and aesthetically pleasing designs complement their respective community’s surroundings, and care is taken to ensure that amenity packages and individual apartment home interiors are superior.

From the beginning, Thompson Thrift has always sought projects that will positively impact the communities we serve. Our primary focus is on Excellence, Service, and Leadership and is grounded in a solid foundation of basic values and fundamentals. This success is made possible by our dedicated team members.

Sponsor Overview

41 INDIANAPOLIS OFFICE SOCIAL HUB

OUR MISSION: TO POSITIVELY IMPACT OUR TEAM MEMBERS AND THE COMMUNITIES WE SERVE.

CORE VALUES:

EXCELLENCE

SERVICE

LEADERSHIP

CORE COMPETENCIES: INSTILLS TRUST

DISPLAYS CURIOSITY

COMMUNICATES EFFECTIVELY

42

DRIVES RESULTS

Watermark Leadership

Paul Thrift

Josh Purvis

Brian Southworth

CEO

Managing Partner

Partner

Thompson Thrift & Watermark Residential

Watermark Residential

Senior Vice President of Acquisitions

As CEO of Thompson Thrift Development, Paul

As Managing Partner of Watermark Residential,

oversees the company’s asset portfolio and new

Josh oversees all facets of the company, including

As Senior Vice President of Acquisitions,

market opportunities. He founded Thompson

site selection, entitlements, contract negotiations,

Brian’s principal responsibility is to lead a team

Thrift with partner John Thompson in 1986. Under

strategic planning, financing, and management.

of developers, researchers, underwriters, and

their leadership, the business has grown into

Since joining Watermark in 2008, he has played an

analysts who identify sub-markets across the

the nationally recognized full-service real estate

integral role in all aspects of its growth. Josh has

country that meet Watermark’s selection criteria.

development and construction company it is today.

specialized in developing multifamily communities

Once Brian’s team gains site control, they track

since beginning his career in 2003. To date,

occupancy and financial performance of nearby

Josh has been involved in over 50 development

apartment communities throughout the life of

projects with a total value of over $2 billion.

the project. Brian joined Watermark Residential

During his tenure as its CEO, Paul has successfully guided Thompson Thrift Development through the competitive real estate marketplace while

in 2011.

expanding its portfolio to include multifamily, institutional, industrial, and commercial mixed-use developments across the country.

Sponsor Overview

Watermark Residential

43

Ken Howell

Carrie Thrift LaFay

Greg Buckhout

Chief Financial Officer

Vice President of Capital Markets

Vice President of Capital Services

Thompson Thrift & Watermark Residential

Thompson Thrift & Watermark Residential

Thompson Thrift & Watermark Residential

As Chief Financial Officer, Ken oversees all

As Vice President of Capital Markets, Carrie

As the Vice President of Capital Services,

financial aspects of project development

is responsible for developing, implementing,

Greg’s principal focus is on maintaining

and disposition. He brings over 20 years of

and managing our capital strategy and partner

relations with our current lenders and grow

commercial, retail, and multifamily development

relationships, including partner communication

banking partnerships. He is responsible for

experience to his position. Ken is responsible for

and reporting. Since joining Thompson Thrift

the procurement and debt financing of all

all accounting, financial reporting, and treasury

in 2007, she has been involved with all our

Thompson Thrift projects. A former banker,

management, along with overseeing our

companies, and product types, including retail,

Greg joined Thompson Thrift in 2011.

accounting and finance staff.

mixed-use, multifamily and luxury leased homes.

Sponsor Overview

44

Jessica Tuttle

Chris Alexander

Jesse Houghtalen

Eric Wojak

Vice President of Development

Vice President of Development

Vice President of Development

Vice President of Development

West Region

Midwest Region

Southeast Region

Luxury Leased Homes

Watermark Residential

Watermark Residential

Watermark Residential

Watermark Residential

As Vice President of Development,

As Vice President of Development,

As Vice President of Development,

As Vice President of Development,

West Region, Jessica is responsible

Midwest Region, Chris is responsible

Southeast Region, Jesse is

Eric is responsible for all aspects

for all aspects of multifamily projects

for all aspects of multifamily projects

responsible for all aspects

of the development process for

in the West region, from reviewing

in the Midwest region, from reviewing

of multifamily projects in the

new Luxury Leased Home projects.

the financial feasibility of a project

the financial feasibility of a project in

Southeast Region, from reviewing

These duties include market

in early due diligence phases to

early due diligence phases to entitling

the financial feasibility of a project

research, site selection, entitlement

entitling the land and acquiring

the land and acquiring permits from

in early due diligence phases to

procurement, product development,

permits from the municipality for

the municipality for construction. Over

entitling the land and acquiring

and community operations. Eric has

construction. Jessica has project

his 20+ year development career,

permits from the municipality for

been with Thompson Thrift since

experience in many types of private

Chris has led projects in many US

construction. Jesse has experience

2008, and has worked on projects

development, including multifamily,

markets and across numerous product

in the areas of business analytics,

across almost every asset class

senior living, industrial, and retail.

types including industrial, office,

project management, and

nationwide and has been involved

and senior living for both public and

engineering.

in over $1 billion in real estate

private real estate companies.

Sponsor Overview

development projects.

45

Mike Margason

Dave Englert

Tyler Sauerteig

Vice President of Land Acquisitions

Vice President of Land Acquisitions

Vice President of Land Acquisitions

West Region

Midwest Region

Southeast Region

Watermark Residential

Watermark Residential

Watermark Residential

As the Director of Land Acquisitions for the West

As the Director of Land Acquisitions for the

As the Director of Land Acquisitions for the

Region, Mike is responsible for the initial market

Midwest Region, Dave is responsible for the

Southeast Region, Tyler is responsible for the

and specific site selection in the land acquisition

initial market and specific site selection in the

initial market and specific site selection in the

process, with a focus on the financial feasibility

land acquisition process, with a focus on the

land acquisition process, with a focus on the

for any development in the West region. Mike

financial feasibility for any development in the

financial feasibility for any development in the

has over 18 years of commercial real estate

Midwest region. Dave has been active in the

Southeast region.

experience and has been involved in closing over

pursuit of land development opportunities

100 transactions with a total capitalization of

in the Midwest since 2014 and has over ten

over $1.5 billion.

years of commercial real estate experience, focusing on investment sales.

Sponsor Overview

46

Steve Shaver

Aimee O’Connor

Brian Fritts

Senior Vice President of Construction

Senior Vice President of Property

General Counsel

Watermark Residential

Management

Thompson Thrift &

Watermark Residential

Watermark Residential

Steve is responsible for the overall design

As Senior Vice President of Property

As General Counsel, Brian oversees all legal

and quality of each project. He leads his

Management, Aimee is responsible for

aspects of a project’s development, from

team of seasoned construction professionals

overseeing property operations to maximize

due diligence through disposition. His team

who interact with the architects, engineers,

assets performance while increasing revenue.

focuses on ensuring that risks are adequately

general contractors, government inspectors,

She oversees the company’s portfolio of

identified and mitigated. Brian’s legal practice

and utility service providers to deliver projects

residential properties, including the strategic

has focused on the real estate development

within the schedule and financial goal, without

direction of the property management

and construction industries for over 20 years,

sacrificing quality.

division. Since joining Watermark in 2014,

with experience both as outside and in-house

Aimee has proactively led her team to achieve

counsel to multiple national developers.

As Senior Vice President of Construction,

the highest standards of excellence within the Watermark brand.

Sponsor Overview

47

THOMPSON THRIFT CONSTRUCTION HAS A TRADITION OF PRODUCING AWARD-WINNING BUILDINGS RECOGNIZED ACROSS THE COUNTRY FOR THEIR SUPERIOR QUALITY. AS A RESULT, WE HAVE DEVELOPED A REPUTATION FOR EXCELLENCE AND SERVICE WITH A RECORD OF DELIVERING PROJECTS ON TIME AND WITHIN BUDGET. Thompson Thrift Construction will be the general contractor for all projects within the Watermark 2022 Multifamily Development Fund IV. Thompson Thrift has deep roots in the field of multifamily construction. The quality of construction, the number of projects completed and individual communities’

Thompson Thrift Construction

appearance have earned Thompson Thrift a reputation as a premier builder of multifamily housing.

THE FOUNDATION OF A SOLID DEVELOPER/ CONTRACTOR TEAM • Certainty of execution and completion • Experience building Watermark communities with over 14,000 units • Financial strength, bonding capacity • Estimating and budgeting early in the process • Ownership of plans, specs, and schedule

Sponsor Overview

48

Watermark Multifamily Locations

Watermark Residential focuses on the construction and operation of Class “A” multifamily developments in affluent suburban locations in the Midwest, Southeast, and Southwest. Since closing on our first land site in 2010, we have developed over 50 projects totaling over 14,000 units.

Watermark’s corporate office is in Indianapolis, IN.

GRAND RAPIDS MI

LYON TOWNSHIP MI MOON TOWNSHIP PA CRANBERRY TOWNSHIP PA

MISHAWAKA IN WEST DES MOINES IA LONGMONT CO

ZIONSVILLE IN TERRE HAUTE IN

FISHERS IN (2) INDIANAPOLIS IN

CASTLE PINES CO LOUISVILLE KY O’FALLON MO CHESTERFIELD MO

ROGERS AR FAYETTEVILLE AR

LEXINGTON KY

HENDERSONVILLE TN FRANKLIN TN

CHARLOTTE NC

HUNTSVILLE AL (2)

PEORIA AZ

MONTGOMERY AL

Multifamily Projects Corporate Office

CONROE TX TOMBALL TX CYPRESS TX KATY TX

PANAMA CITY BEACH FL DAVENPORT FL

LEAGUE CITY TX VENICE FL

CORPUS CHRISTI TX

NAPLES FL

Note: Past Performance of Thompson Thrift/Watermark is no Guarantee of the Partnership’s Future Results.

Sponsor Overview

49

PORT ST LUCIE FL STUART FL

Operating/Under Construction Portfolio HUNTSVILLE, ALABAMA

PEORIA, ARIZONA

NAPLES, FLORIDA

FarmHaus by Watermark

(PHOENIX MSA)

Edge 75 by Watermark

DATE BUILT 2021 TOTAL UNITS 324

DATE BUILT 2021 TOTAL UNITS 140

DATE BUILT 2021 TOTAL UNITS 320

KANSAS CITY, MISSOURI

CRANBERRY TOWNSHIP,

SPRING, TEXAS

The Element by Watermark

PENNSYLVANIA

(HOUSTON MSA)

Meeder Flats by Watermark

Magnolia by Watermark

DATE BUILT 2021 TOTAL UNITS 276

DATE BUILT 2020 TOTAL UNITS 336

DATE BUILT 2021 TOTAL UNITS 276

Our Work

Grandstone at Sunrise Promenade

CONROE, TEXAS

GILBERT, ARIZONA

FISHERS, INDIANA

(HOUSTON MSA)

(PHOENIX MSA)

(INDIANAPOLIS MSA)

Watermark at Grand Central Park

The Wyatt by Watermark

The Mark

DATE BUILT 2021 TOTAL UNITS 288

DATE BUILT 2021 TOTAL UNITS 216

DATE BUILT 2020 TOTAL UNITS 260

PANAMA CITY BEACH, FLORIDA

DAVENPORT, FLORIDA

LONGMONT, COLORADO

Watermark at Urban Blu

Thrive by Watermark

(DENVER MSA)

DATE BUILT 2021 TOTAL UNITS 312

DATE BUILT 2021 TOTAL UNITS 328

Watermark at Harvest Junction DATE BUILT 2019 TOTAL UNITS 276

GRAND RAPIDS, MICHIGAN

STUART, FLORIDA

PARKER, COLORADO

The Grove by Watermark

Axis One by Watermark

(DENVER MSA)

DATE BUILT 2021 TOTAL UNITS 320

DATE BUILT 2021 TOTAL UNITS 284

50

Watermark on Twenty Mile DATE BUILT 2018 TOTAL UNITS 294

Note: Past Performance of Thompson Thrift/Watermark is no Guarantee of the Partnership’s Future Results.

Operating/Under Construction Portfolio FAYETTEVILLE, ARKANSAS

ZIONSVILLE, INDIANA

LYON TOWNSHIP, MICHIGAN

Watermark at Steele Crossing

The Villas by Watermark

The Crossings

DATE BUILT 2017 TOTAL UNITS 306

DATE BUILT 2015 TOTAL UNITS 266

UNDER CONSTRUCTION TOTAL UNITS 304

CORPUS CHRISTI, TEXAS

FRANKLIN, TENNESSEE

CASTLE PINES, COLORADO

(HOUSTON MSA)

(NASHVILLE MSA)

The Summit

The Retreat by Watermark

Townhomes at Oakbrook

DATE BUILT 2017 TOTAL UNITS 324

UNDER CONSTRUCTION TOTAL UNITS 89

MISSOURI CITY, TEXAS

COLORADO SPRINGS, COLORADO

CHARLOTTE, NORTH CAROLINA

(HOUSTON MSA)

Ascent by Watermark

Taylor Farms by Watermark

UNDER CONSTRUCTION TOTAL UNITS 360

UNDER CONSTRUCTION TOTAL UNITS 276

The Ranch at Sienna Plantation DATE BUILT 2016 TOTAL UNITS 312

Our Work

UNDER CONSTRUCTION TOTAL UNITS 214

WEST DES MOINES, IOWA

O’FALLON, MISSOURI

PORT ST. LUCIE, FLORIDA

Watermark at Jordan Creek

Avenue64 by Watermark

The Boardwalk at Tradition

DATE BUILT 2015 TOTAL UNITS 176

UNDER CONSTRUCTION TOTAL UNITS 316

UNDER CONSTRUCTION TOTAL UNITS 214

51

Note: Past Performance of Thompson Thrift/Watermark is no Guarantee of the Partnership’s Future Results.

Sold Properties MONTGOMERY, ALABAMA

TERRE HAUTE, INDIANA

SPRING, TEXAS

Watermark at EastChase

(INDIANAPOLIS MSA)

(HOUSTON MSA)

DATE BUILT 2011 TOTAL UNITS 272 SOLD

Sycamore Terrace Phases I & II

Watermark at Harmony

DATE BUILT 2013

DATE BUILT 2015 TOTAL UNITS 308 SOLD

TOTAL UNITS 250 SOLD

OKLAHOMA CITY, OKLAHOMA

LOUISVILLE, KENTUCKY

AURORA, COLORADO

Watermark at Quail North

Watermark on Hurstbourne

(DENVER MSA)

DATE BUILT 2012 TOTAL UNITS 240 SOLD

DATE BUILT 2014 SOLD

DATE BUILT 2015 TOTAL UNITS 300 SOLD

KATY, TEXAS

CYPRESS, TEXAS

LEXINGTON, KENTUCKY

(HOUSTON MSA)

(HOUSTON MSA)

Watermark at Katy Ranch

Watermark at Barker Cypress

Watermark at Hamburg Place

DATE BUILT 2013 TOTAL UNITS 260 SOLD

DATE BUILT 2014 TOTAL UNITS 318

DATE BUILT 2015 TOTAL UNITS 150 SOLD

SOLD

MISSOURI CITY, TEXAS

FISHERS, INDIANA

LEAGUE CITY, TEXAS (HOUSTON MSA)

(HOUSTON MSA)

(INDIANAPOLIS MSA)

Watermark at Sienna Plantation

Watermark on Cumberland

Watermark at Walker Commons

DATE BUILT 2013 TOTAL UNITS 240 SOLD

DATE BUILT 2014 TOTAL UNITS 220 SOLD

DATE BUILT 2016 TOTAL UNITS 368 SOLD

HENDERSONVILLE, TENNESSEE

MISSOURI CITY, TEXAS

OKLAHOMA CITY, OKLAHOMA

(NASHVILLE MSA)

(HOUSTON MSA)

Watermark at Indian Lake Village

The Villas at Sienna Plantation

The Reserve at Quail North

DATE BUILT 2013

DATE BUILT 2014 TOTAL UNITS 190 SOLD

TOTAL UNITS 206 SOLD

Our Work

TOTAL UNITS 270

Watermark at Southlands

52

DATE BUILT 2016 TOTAL UNITS 240 SOLD

Note: Past Performance of Thompson Thrift/Watermark is no Guarantee of the Partnership’s Future Results.

Sold Properties PARKER, COLORADO

HUNTSVILLE, ALABAMA

KANSAS CITY, MISSOURI

(DENVER MSA)

Watermark on Mainstreet

Watermark at Bridge Street Town Centre

Watermark at Tiffany Springs

DATE BUILT 2016 TOTAL UNITS 306 SOLD

DATE BUILT 2019 TOTAL UNITS 244 SOLD

TOMBALL, TEXAS

MISHAWAKA, INDIANA

GILBERT, ARIZONA

(HOUSTON MSA)

The Villas on Fir

(PHOENIX MSA)

Watermark at Spring Cypress DATE BUILT 2016 TOTAL UNITS 328 SOLD

Watermark at Gateway Place

DATE BUILT 2019 TOTAL UNITS 290 SOLD

DATE BUILT TOTAL UNITS SOLD

2019 250

ROGERS, ARKANSAS

COLORADO SPRINGS, COLORADO

AURORA, COLORADO

Watermark on Walnut Creek

Watermark on Union

(DENVER MSA)

DATE BUILT 2017 TOTAL UNITS 220 SOLD

DATE BUILT 2019 TOTAL UNITS 244 SOLD

Townhomes at Dayton Station DATE BUILT 2019 TOTAL UNITS 63 SOLD

DENVER, COLORADO

CHESTERFIELD, MISSOURI

DENVER, COLORADO

Watermark at First Creek

(ST. LOUIS MSA)

The Haven by Watermark

DATE BUILT 2018 TOTAL UNITS 264 SOLD

Our Work

DATE BUILT 2019 TOTAL UNITS 276 SOLD

Watermark at Chesterfield Village DATE BUILT 2019 TOTAL UNITS 345 SOLD

53

DATE BUILT 2020 TOTAL UNITS 206 SOLD

Note: Past Performance of Thompson Thrift/Watermark is no Guarantee of the Partnership’s Future Results.

Historical Investment Returns: Projects Sold “FULL CYCLE” PROJECTS SOLD

LOCATION

UNITS

SALE DATE

INVESTMENT TERM (MONTHS)

APPROXIMATE NET INVESTOR IRR

EQUITY MULTIPLE

Watermark at EastChase

Montgomery, AL

272

Oct-12

31

35.3%

2.30

Sycamore Terrace

Terre Haute, IN

250

Oct-12

21

50.0%

1.95

Watermark at Indian Lake Village

Hendersonville, TN (Nashville)

204

Sep-13

27

37.2%

1.95

Watermark at Hamburg Place

Lexington, KY

150

Sep-13

21

23.6%

1.42

Watermark at Quail North

Oklahoma City, OK

240

Jun-13

26

31.9%

2.14

Watermark at Katy Ranch

Katy, TX (Houston)

260

Dec-13

22

34.9%

1.74

Watermark at Sienna Plantation

Missouri City, TX (Houston)

240

Dec-13

32

53.3%

2.45

Watermark on Hurstbourne

Louisville, KY

270

Jun-14

24

45.1%

2.12

Watermark on Cumberland

Fishers, IN (Indianapolis)

220

Mar-15

28

29.9%

1.83 2.08

Watermark at Barker Cypress

Cypress, TX (Houston)

318

Sep-15

35

29.5%

The Villas at Sienna Plantation

Missouri City, TX (Houston)

190

Oct-15

26

22.8%

1.56

Watermark at Southlands

Aurora, CO (Denver)

300

Feb-16

29

56.7%

2.94

Watermark on Mainstreet

Parker, CO (Denver)

306

May-16

26

56.2%

2.53

Watermark at Harmony

Spring, TX (Houston)

308

May-17

41

12.2%

1.48

Watermark at Walker Commons

League City, TX (Houston)

368

May-17

37

19.4%

1.64

Watermark Spring Cypress

Tomball, TX (Houston)

324

Nov-17

35

15.8%

1.51

The Reserve at Quail North

Oklahoma City, OK

280

Oct-19

60

11.0%

1.65

Watermark at Walnut Creek

Rogers, AR

220

Feb-20

53

11.7%

1.61

Watermark on Union (5)

Colorado Springs, CO

244

Feb-20

29

29.0%

1.85

Watermark at Bridge Street Towne Centre (5)

Huntsville, AL

244

Jul-20

37

27.8%

2.12

Watermark at Tiffany Springs

Kansas City, MO

276

Oct-20

36

20.2%

1.75

Watermark at Gateway Place

Gilbert, AZ

250

Dec-20

28

44.6%

2.50

Watermark at First Creek

Devner, CO

264

Dec-20

49

27.6%

2.56

Villas on Fir (5)

Mishawaka, IN

290

Dec-20

44

20.7%

2.00

Watermark at Chesterfield

Chesterfield, MO

345

Mar-21

49

18.5%

2.01

Dayton Station Townhomes

Aurora, CO (Denver)

63

Apr-21

26

22.2%

1.54

The Haven by Watermark

Denver, CO

206

Jun-21

34

28.0%

2.03

6,902

Averages

34 Months

30.2% IRR

1.97 Multiple

Total Projects: 27 NOTES

1.

The performance presented in the Historical Investment Returns reflects the results of investments actually realized by Watermark Residential and its affiliated entities since October, 2012. The projects included in the Historical Investment Returns represent all projects sold by Watermark Residential.

2. All realized investments from the Watermark Residential and its affiliated companies from October, 2012 to June, 2021 are included.

3. The past performance information for the Watermark Residential and its affiliated companies’ principals and management team is not indicative of future results. Actual realized value of currently unrealized investments will depend on, among other factors, future operating results, the value of the assets and market conditions at the time of disposition, any related transaction costs and the timing and manner of sale, all of which may differ from the assumptions and circumstances on which current potential unrealized valuations are based.

Accordingly, actual realized values of unrealized investments may differ materially from the potential values indicated herein. Please carefully review “Factoring the Risk”.

4. The reported Approximate IRR and Equity Multiple calculations are unaudited; these represent total returns to the investor and are net of any selling costs, fees, or carried interest. The projects represented in the Historical Investment Returns had various investor return distribution structures.

5. Note that projects indicated with note (5) above are within the Watermark 2016 Fund.

6. Properties included in the Watermark 3G Multifamily Development Fund II, LP or the Watermark 2021 Mutlifamily Development Fund III, LP have not yet been sold and are not included.

Performance History

54

Watermark Borrowing History CONSTRUCTION LENDING HISTORY FOR WATERMARK RESIDENTIAL, INCLUDING SOURCES AND THE AMOUNT FUNDED FOR EACH DEAL THAT WE HAVE DEVELOPED. From a lending perspective, Watermark has fully funded over 54 development projects, which equates to nearly $1.8 billion in loans from 24 different sources.

Watermark’s commercial banking relationships continue to grow due to our past performance and Watermark is very comfortable in our ability to finance real estate projects.

Note: Past Performance of Thompson Thrift/Watermark is no Guarantee of the Partnership’s Future Results.

Performance History

LOCATION

UNITS

FINANCING CLOSED

LENDER

Montgomery, AL Terre Haute, IN Oklahoma City, OK Missouri City, TX (Houston) Hendersonville, TN (Nashville) Lexington, KY Katy, TX (Houston) Louisville, KY Cypress, TX Fishers, IN (Indianapolis) Missouri City, TX (Houston) Aurora, CO West Des Moines, IA Whitestown, IN Spring, TX Parker, CO League City, TX Oklahoma City, OK Missouri City, TX (Houston) Tomball, TX Corpus Christi, TX Rogers, AR Fayetteville, AR Longmont, CO Parker, CO Denver, CO Chesterfield, MO Mishawaka, IN Huntsville, AL Colorado Springs, CO Kansas City, MO Fishers, IN (Indianapolis) Gilbert, AZ Denver, CO Davenport, FL Spring, TX Aurora, CO Stuart, FL Naples, FL Conroe, TX Cranberry, PA Huntsville, AL Peoria, AZ Kansas City, MO Gilbert, AZ Panama City Beach, FL Franklin, TN Grand Rapids, MI O’Fallon, MO Colorado Springs, CO Lyon Township, MI Charlotte, NC Port St. Lucie, FL Castle Pines, CO

272 250 240 240 206 150 260 270 318 220 190 300 176 266 308 306 368 280 312 328 324 220 306 276 294 264 345 290 244 244 276 260 250 206 328 336 63 284 320 288 276 324 140 276 216 312 89 320 316 360 304 276 214 214

Apr-10 Dec-10 Apr-11 May-11 Jul-11 Dec-11 Feb-12 Jun-12 Oct-12 Dec-12 Aug-13 Sep-13 Oct-13 Dec-13 Dec-13 Apr-14 May-14 Oct-14 Nov-14 Dec-14 Feb-15 Sep-15 Dec-15 Jan-16 Sep-16 Nov-16 Feb-17 Apr-17 Jun-17 Sep-17 Oct-17 Jun-18 Aug-18 Aug-18 Jan-19 Feb-19 Mar-19 Sep-19 Dec-19 Dec-19 Dec-19 Jan-20 Feb-20 Mar-20 Jun-20 Jul-20 Aug-20 Aug-20 Oct-20 Oct-20 Feb-21 Apr-21 Jun-21 June-21

HUD-221 D4 Edgar County Bank HUD-221 D4 HUD-221 D4 US Bank Associated Bank Key Bank Huntington Bank Bank of America Huntington Bank Wells Fargo Bank of America Associated Bank Key Bank BMO Harris Bank of America Wells Fargo Huntington Bank Compass Fifth Third Bank of America Associated Bank Fifth Third US Bank BMO Harris Cross First Simmons Bank First Merchants US Bank Bank of America Associated Bank Fifth Third Flagstar First Merchants BB&T Associated Bank Stifel Bank Bank of America Wells Fargo Pinnacle Financial Regions Fifth Third Johnson Bank Associated Bank Old National Bank Merchants Bank Trustmark Bank Fifth Third Stifel Bank Flagstar Associated Bank UMB Bank Old National Bank Bank of America

$19,457,700 $18,837,000 $16,851,400 $17,446,500 $14,000,000 $11,000,000 $19,275,000 $19,650,000 $26,000,000 $18,655,000 $17,275,000 $38,206,980 $15,075,000 $25,380,000 $29,164,477 $40,418,363 $34,310,778 $30,760,472 $30,611,819 $28,326,642 $30,450,000 $23,765,000 $33,200,000 $41,700,000 $41,443,106 $35,790,712 $54,612,174 $37,809,994 $26,525,215 $31,972,435 $31,117,371 $53,666,900 $37,696,000 $32,650,000 $45,000,000 $35,600,000 $19,030,698 $41,100,000 $52,600,000 $31,900,000 $40,900,000 $39,477,739 $24,080,000 $31,200,000 $33,365,052 $36,487,600 $25,231,608 $44,437,000 $42,900,000 $51,500,000 $51,000,000 $40,860,000 $41,300,000 $57,300,000

Total Projects

Total Units

Different Lenders

Total Loan Dollars

54

14,315

24

55

LOAN AMOUNT

$1,768,370,735

Why Residents Choose Watermark AMONG THE MANY FEATURES ENJOYED AT

OUR PEOPLE Besides having outstanding locations, resort-style amenities, and the highest quality unit finishes, our on-site team members are what sets us apart. Our management teams are committed to the highest level of service for our residents.

OUR COMMUNITIES: • Professionally-decorated clubhouses with TVs, kitchens, conference rooms, technology centers, coffee bars, gaming dens, movie lounges, and screened-in porches.

RESIDENT EXPERIENCE From the moment our residents step onto a Watermark property, they are met with details curated, especially with them in mind.

• WiFi hot spots throughout the clubhouse and pool area.

• 24-hour fitness centers with state-of-the-art cardiovascular, free weight, circuit and core training, Fitness On DemandTM virtual training kiosks, spinning rooms and kids’ play areas.

THRIVE BY WATERMARK • DAVENPORT, FLORIDA

• Resort-style swimming pools with cabanas, poolside hammocks, gas grills, sand volleyball courts, fire pits.

• Courtyards with water features.

• Bark Parks and Doggie Spas.

• Community gardens, fitness trails, boulder climbers, sports courts, sandpits, playgrounds, bike repair shops, and bike-parking plazas.

• Gated access.

• 24-hour emergency maintenance.

• Valet trash and recycling service.

• Smart Rent Technology Package including smart locks, thermostats, and lighting controllable with mobile device.

Sponsor Overview

56

THRIVE • DAVENPORT, FLORIDA

Sponsor Overview

57

EDGE 75 • NAPLES, FLORIDA

Sponsor Overview

58

THE ELEMENT • KANSAS CITY, MISSOURI

Sponsor Overview

59

WATERMARK AT GRAND CENTRAL PARK • CONROE, TEXAS

Sponsor Overview

60

THE MARK AT FISHERS DISTRICT • FISHERS, INDIANA

Sponsor Overview

61

THE MARK AT FISHERS DISTRICT • FISHERS, INDIANA

Sponsor Overview

62

THOMPSONTHRIFT.COM/WATERMARK

Identified Projects

63

Identified Projects THESE TARGETED PROJECTS ARE INCLUDED IN THE

1

OCALA, FLORIDA Anticipated closing date: February 2022

2

DAYTONA BEACH, FLORIDA Anticipated closing date: March 2022

3

WOODBURY, MINNESOTA Anticipated closing date: June 2022

entitlement of a potential project, projects can be delayed or

4

WILMINGTON, NORTH CAROLINA Anticipated closing date: July 2022

terminated subject to certain discoveries, market shifts, or

5

FOUNTAIN, COLORADO Anticipated closing date: September 2022

entitlement issues.

6

GREELEY, COLORADO Anticipated closing date: October 2022

WATERMARK 2022 MULTIFAMILY DEVELOPMENT FUND IV. Given the nature of the multifamily development business and the many variables faced during the design and

Identified properties are subject to replacement in the discretion of the Partnership’s General Partner, and a seventh (7th) property may be added, to the extent that the General Partner believes that a new or replacement property will meet or exceed its criteria. When evaluating properties, the General Partner will use the following criteria 3

to approve a project to be included in the Partnership: (1)

WOODBURY, MN

Projected Investor IRR for the project will be no less than 15% based on project leverage between 65%-80% Loan to Cost; and (2) projected development spread between the

6

GREELEY, CO

5

FOUNTAIN, CO

project’s untrended development yield and current market 4

exit cap rate will not be less than 125 basis points or 1.25%.

WILMINGTON, NC

Project descriptions are available on the following pages.

Detailed information including a final Property Development Budget will be distributed before a project closing and

OCALA, FL

capital call.

All of these projects are under contract and Watermark is currently executing due diligence, design, and pursuing entitlements.

Identified Projects

64

1

2

DAYTONA BEACH, FL

Project 1

Ocala, Florida

65

Project Highlights Facts & Figures

LOCATION 4945 SW 49th Pl Ocala, FL 34474 UNITS 320 units ACREAGE 23.19 acres ARCHITECTURE Sixteen 2-Story garden style buildings with direct unit entry and 96 detached garages; all wood frame construction

Ocala, Florida

Site Highlights

• The site is just off SR 200 (41,000 VPD), which is the primary retail corridor in the Ocala market, and a short 15-minute drive to Historic Downtown Ocala.

• The site’s competitive set has a very strong occupancy (98%), showing a high demand for apartments within the market.

Canterbury Circle, the best comp and the only Class A comp in the market, is currently 99% occupied and 100% pre-leased, with a waiting list on all units.

• The site’s competitive set has experienced substantial rent growth through the COVID-19 pandemic, which is rarely seen across markets, with a rent growth of 11.02% for our four competitive properties since we began internally tracking property information in December 2020 and 9.32% rent growth for Canterbury Circle in that same time frame.

• The subject property is across the street from the West Marion Community Hospital, part of the Ocala Health network that employs over 1,800 people in the Ocala market. The West Marion Community Hospital has 186 beds and offers a full-service emergency room, as well as Marion County’s only inpatient Orthopedic Joint Care Center.

OCALA, FL

• The site is well located in close proximity (0.79 Mi E) to Market Street at Heathbrook, which is a mixed-use development including 560,000 square feet of retail and office space. Market Street at Heathbrook is anchored by Dillard’s, Dick’s Sporting Goods, Barnes & Noble, Ulta Beauty, HomeGoods and DSW Shoes and is Ocala’s premier outdoor shopping destination. Various other fashion retailers, popular restaurants, and entertainment options are offered as well, including a new Epic Theatre that opened in March of 2020, which boasts electric reclining seats in every auditorium, as well as a full liquor, beer, and wine bar.

• The subject property is 4 miles northeast of On Top of the World Communities, which is Ocala’s premier 55+ active adult community, with over 10,000 homes, multiple restaurants, 15 recreation and activity facilities, and three 18-hole golf courses.

Ocala, Florida

• Strong population growth trends of 1.5% annually within a 5-mile radius of the site.

66

Market Highlights

• There has been a significant lack of supply in the Ocala MSA, with only one 304-unit market-rate apartment complex delivered since 2010. During the same time frame, 15,500 jobs were added, leading to a shortfall of nearly 2,800 units based on the 5 to 1 jobs ratio. Further, based on the MSAs household growth, there is a shortfall of nearly 3,600 units. Despite both of these shortfalls, there is only one market-rate multifamily complex under construction (286 units) in the Ocala MSA at this time.

• The World Equestrian Center recently opened its doors west of downtown Ocala, contributing to the city’s international draw. Larry Roberts (owner of R+L Carriers) has invested $600+ million into this development, which comprises 3,200 acres, 678 of which are already developed and open to the public, and 300 more acres on reserve for future expansion of the show venue.

Highlights to this development are hotels, including a 5-star centerpiece: a three-acre stadium, an array of rings as a part of 1.5 million square feet of riding space, a chapel, shops, and restaurants.

• Ocala is just under 40 minutes northwest of the master planned retirement community known as The Villages, which was the fastest-growing metropolitan area in the nation over the last decade, per the 2020 census data.

Over the course of the past 10 years, the population has jumped from 93,000 to 130,000 residents and is showing no signs of slowing down anytime soon. With The Villages being a 55+ community requiring 80% of the households to have a member 55+ and no persons residing under age 19, workers in The Villages are commuting from Ocala based on lack of available housing.

• The equestrian industry is a dominant industry in Ocala and accounts for approximately 20,000 jobs in the MSA.

Market Aerial

World Equestrian Center 4.7 mi Downtown Ocala

Ocala International Airport

SITE SITE

Ocala, Florida

67

West Marion Community Hospital

Market Street at Heath Brook

Nearby Retail

West Marion Community Hospital

SITE Market Street at Heath Brook

SITE

Ocala, Florida

68

Major Employers 11 8

9

1*

Ocala 5 3

7

10

SITE Major Employers

# Employees

Distance

1*

Equestrian Industry

+/-20,000

4.8 mi

2*

Marion County Schools

6,000

5.3 mi

3

Munroe Regional Med Center

2,500

4.7 mi

4

Ocala Regional Med Center

1,200

4.7 mi

5

City of Ocala

1,000

5.2 mi

6

Lockhead Martin

950

12.9 mi

7

E-ONE

900

2.7 mi

8

Chewy

700

6.1 mi

9

Hale Products

700

4.3 mi

10

West Marion Community Hospital (OH)

600

0.3 mi

11

Amazon

120

6.2 mi

* Various Locations Ocala, Florida

69

2*

4

6

Site Plan

Ocala, Florida

70

Stabilized Proforma

Stabilized Proforma

Income Unit Count 128 160 32 320

Percent of Total 40% 50% 10% 100% All Units at Market Rent Loss-to-Lease (-)

Average Unit Size

Unit Type One Bedroom One Bath Two Bedroom Two Bath Three Bedroom Two Bath

Projected Rent Growth Gross Potential Rent

Total SF

Market Rents

Average Rent

828 1,234 1,484 1,097 $6,389,760 $0

105,920 197,472 47,488 350,880

$1,513 $1,728 $1,950 $1,664

$1,513 $1,728 $1,950 $1,664

$134,185 $6,523,945

2.10%

0.00%

Average Rent/SF

Scheduled Monthly Rent

$1.83 $193,600 $1.40 $276,480 $1.31 $62,400 $1.52 $532,480 Average Unit Size 1,097 Square Feet Average Rent $1,664 Per Unit

Per Unit Per Month

%

$3,093

$9.67

4.03%

$6,160 $1,600

$19.25 $5.00

8.03% 2.09%

$164,160 $139,536

$13,680 $11,628

$42.75 $36.34

17.84% 15.16%

Trash Income

$91,200

$7,600

$23.75

9.91%

Late Fees

$27,360

$2,280

$7.13

2.97%

Lease Termination Fees

$26,624

$2,219

$6.93

2.89%

$3,600

$300

0.39%

Damages/Cleaning/Security Deposit Forfeitures

$25,536

$2,128

$0.94 $6.65

Smart Rent Package Revenue Fenced First Floor Units

$182,400 $45,600

$15,200 $3,800

$47.50 $11.88

19.82% 4.96%

$21.88 $239.65

100.00%

Annual Income

Monthly

Application/Administration Fees

$37,120

Pet Deposit Fees & Rent Short-Term Lease Fees

$73,920 $19,200

Detached Garages (96 units) Water/Sewer Income

Other Income

Miscellaneous Income

Premium Units

$84,000

$7,000

Total Other Income

$920,256

$76,688

Gross Potential Income (GPI)

2.77%

9.13%

$7,444,201

Vacancy^

$326,197

5.00%

Collections Loss (Bad Debt) Concessions

$32,620 $65,239

0.50% 1.00%

$7,020,145

6.50%

Annual Expenses

Expenses Per Unit

Expenses Per SF

Expenses % of GPI

On-Site Personnel & Benefits Advertising and Marketing

$432,000 $90,000

$1,350 $281

$1.23 $0.26

5.80% 1.21%

Turnover Costs Repairs & Maintenance / Contract Services

$91,334 $192,000

$285 $600

$0.26 $0.55

1.23% 2.58%

Utilities Administrative Expense

$331,392 $112,000

$1,036 $350

$0.94 $0.32

4.45% 1.50%

Total Controllable Expenses Property Taxes Insurance

$1,248,726 $788,160 $176,000

$3,902 $2,463 $550

$3.56 $2.25 $0.50

16.77% 10.59% 2.36%

HOA Professional Management (3.5% of EGI)

$0 $245,705

$0 $768

$0.00 $0.70

0.00% 3.30%

Reserves (Capital Improvements) Total Non-Controllable Expenses

$48,000 $1,257,865

$150 $3,931

$0.14 $3.58

0.64% 16.90%

Total Expenses

$2,506,591

$7,833

$7.14

33.67%

Net Operating Income

$4,513,554

Effective Gross Income (EGI) ^ Calculated as a Percentage of Gross Potential Rent

Total Economic Vacancy

Expenses

UNTRENDED DEVELOPMENT YIELD

Ocala, Florida

8/23/21

6.25%

71

Note: Projections of income, expenses, sales proceeds and other information above are based, in part, on assumptions concerning facts and events over which the Partnership and the General Partner will have no control, and which could, if they change, produce results significantly different from those set forth above. See “Factoring the Risk - Risks Relating to Forecasts.”

Budget

Sale Analysis

Total Budget

Projected Hypothetical Sale Analysis - Untrended

Land Cost Brokerage Commission Subtotal Land Cost Survey

$5,333,700 $175,000 $5,508,700 $67,800

Appraisal Environmental Reports Geotechnical/Materials Testing

$7,500 $5,000 $109,000

Title/Closing Fees Loan Fees Internal Financing Fee

$377,963 $252,694 $126,347

Miscellaneous Closing Costs Lender Inspection Fees Construction Admin/Owners Rep

$25,000 $25,000 $1,263,468

Civil Engineering Architectural Permits/Impact Fees

$224,000 $448,200 $2,354,638

Construction Interest Land Carry Interest Pre Construction Interest

$2,058,661 $87,893 $25,000

Property Taxes Legal Insurance FFE/Startup Cost/Marketing Development Overhead

$75,000 $75,000 $430,000 $856,568 $1,804,954

Soft Cost Contingency Subtotal Soft Cost Construction Costs Contingency Subtotal Hard Cost

Stabilized NOI (untrended)

$

Assumed Cap Rate

4,513,554 5.10%

Sale Price

$

88,501,058

Sale Price Per Unit

$

276,566

Sale Price Per Sq. Ft.

$

*Less Selling Expenses @ 1.25%

$

Net Sale Proceeds

$

Accumulated Cash

$

2,283,735

Outstanding mortgage

$

(50,538,718)

Cash Available for Distribution

$

39,139,812

252 (1,106,263) 87,394,795

$133,802 $10,833,487 $53,967,132 3.50%

Total Development Budget

$1,888,850 $55,855,981 $72,198,168

Total Cost Per Unit

$225,619

Capital Stack Bank Loan To Cost

70%

$50,538,718

Required Equity

30%

$21,659,451 $72,198,168 $21,659,451 $0 $21,659,451

Investor Equity Watermark Equity

Ocala, Florida

100% 0%

72

Note: Projections of income, expenses, sales proceeds and other information above are based, in part, on assumptions concerning facts and events over which the Partnership and the General Partner will have no control, and which could, if they change, produce results significantly different from those set forth above. See “Factoring the Risk - Risks Relating to Forecasts.”

Project 2

Daytona Beach, Florida

73

Project Highlights

Facts & Figures

Daytona Beach, Florida

Site Highlights

Market Highlights

LOCATION

• The site is near the corner of I-95 (85,500 VPD) and Williamson Blvd (16,000 VPD), which provides easy access to various attractive beaches Southeast Corner of and cities. The location presents a great opportunity for the workforce to N Williamson Blvd. and Hand Ave travel to various surrounding communities: Ormand Beach, FL • Ormond Beach: 4.0 miles / 15 minutes • Daytona Beach: 5.5 miles / 20 minutes (Daytona Beach MSA) • New Smyrna Beach: 19.0 miles / 30 minutes UNITS • Orlando: 51.5 miles / 60 minutes 300 units • Jacksonville: 81.5 miles / 1 hour 15 minutes

ACREAGE 29.73 acres ARCHITECTURE Nine 3-Story garden style buildings and 88 detached garages; all wood frame construction

• The competitive set has shown both strong rent growth as well as quick lease-up paces and strong occupancy figures. The current stabilized comp set is achieving an average occupancy of 95% and has experienced 11% rent growth from January 2021 to July 2021.

• The Napier, which is the best competitor and adjacent to the south, is averaging 25 leases per month.

• Madison Pointe recently stabilized and averaged 35 leases per month through lease-up.

• 500 East, which delivered March 2020, is leased at 96% and averaged 25 leases per month through lease-up.

• The site is located 5.0 miles from Daytona International Speedway, seating over 101,000 people each year for one of racings’ biggest events: the Daytona 500.

DAYTONA BEACH, FL

• The site is book-ended by Tomoka Town Center (410,500 SF) and Tanger Outlets (350,000 SF) to the south and Ormond Town Square (251,600 SF) to the north, providing complete access to a wide variety of daily needs.

• The site is across the street and shares a signal with Advent Health Daytona, home to 1,700 employees and 327 hospital beds.

• The site is located roughly one mile east of the new 3,000-acre Avalon Park Daytona Beach planned development which will be an approximately 20-year build-out with the first homes starting in late 2021. At full buildout, the community will be home to 10,000 new homes and approximately 1 million square feet of commercial space.

Daytona Beach, Florida

74

• The Deltona – Daytona Beach – Ormond Beach MSA shows 5-year annualized household growth of 15,000, outpacing similar-sized MSA’s including Charleston – North Charleston SC, Boise ID, Durham – Chapel Hill NC, Cape Coral – Fort Myers FL, and Huntsville AL. • Growth of over 34,000 households to the Deltona-Daytona BeachOrmond Beach MSA over the past ten years, creating a multifamily shortfall of 6,549 units.

• On average from 2015-2020, a little over 14,000 people migrated to the Deltona-Dayton Beach – Ormond Beach MSA each year, for a total of about 85,000 new residents. In 2020, its population increased 1.5% and is the 41st fastest growing MSA in the U.S..

• According to a RealPage article, the rise of remote work has led beach towns to significantly increase leasing activity. The Deltona-Daytona Beach-Ormond Beach MSA ranks fourth in the U.S. for percentage growth in occupied units from April 2020-April 2021 at 8.4%. While remote workers contribute to the local economy, employment growth is also being driven by on-site employers in medical equipment manufacturing, health care, and insurance.

• B. Braun, a medical equipment manufacturer, made a $100 million investment in the Daytona Beach market through a 339,000-square feet expansion and has been a key job driver, according to representatives from competitive communities.

• Daytona’s healthcare sector is a large part of the local economy and drives medical office demand. About 40,000 people work in healthcare and education jobs in Daytona, roughly a fifth of the local workforce.

•

In December 2020, Brown & Brown, Inc. Insurance completed construction of a new office building in downtown Daytona Beach, part of an overhaul of its campus that includes 15 acres of land. The new 11-story building will be home to its corporate headquarters and support up to 900 employees, including 600 new jobs in Volusia County.

Ormond Beach

Daytona Beach

Market Aerial

Volusia Mall

One Daytona Mall

SITE

Daytona International Speedway

Advent Health Tamoka Town Center

Tanger Outlets Daytona Beach

SITE Advent Health

Daytona Beach, Florida

Daytona Beach International Airport

75

Nearby Retail

Daytona Beach, Florida

76

Major Employers

9

SITE

Ormond Beach

4 1

Daytona Beach International Airport

8 3 7

Daytona International Speedway

2

Daytona Beach

6

5

10

Major Employers

SITE 2

Daytona Beach, Florida

77

# Employees

Distance

1

Volusia County Schools

8,254

5.3 mi

2

Advent Health Systems

6,053

.3 mi

3

Halifax Hospital Systems

4,045

5 mi

4

Volusia County Government

3,411

6.2 mi

5

State of Florida Government

2,528

19.9 mi

6

Stetson University

1,921

18.9 mi

7

Embry-Riddle Aeronautical University

1,601

6 mi

8

Daytona State College

1,485

6 mi

9

Florida Healthcare Plans

1,287

3.4 mi

10

Sykes Communications

1,074

20.7 mi

Site Plan

Daytona Beach, Florida

78

Stabilized Proforma

Stabilized Proforma

Income Unit Count 120 144 36 300

Percent of Total 40% 48% 12% 100% All Units at Market Rent Loss-to-Lease (-) Projected Rent Growth

Average Unit Size

Unit Type One Bedroom One Bath Two Bedroom Two Bath Three Bedroom Two Bath

719 1,111 1,300 977 $5,935,680 $0 $160,263

Gross Potential Rent

Total SF

Market Rents

Average Rent

86,266 160,032 46,782 293,080

$1,461 $1,737 $1,923 $1,649

$1,461 $1,737 $1,923 $1,649

0.00% 2.70%

$6,095,943

Scheduled Monthly Rent

$2.03 $175,290 $1.56 $250,140 $1.48 $69,210 $1.69 $494,640 Average Unit Size 977 Square Feet Average Rent $1,649 Per Unit

Annual Income

Monthly

Application/Administration Fees Pet Deposit Fees & Rent Short-Term Lease Fees Detached Garages (88 units) Water/Sewer Income

$34,800 $75,600 $18,000 $150,480 $130,815

$2,900 $6,300 $1,500 $12,540 $10,901

Trash Income Late Fees Lease Termination Fees Miscellaneous Income

$85,500 $25,650 $24,735 $3,600

$7,125 $2,138 $2,061 $300

Damages/Cleaning/Security Deposit Forfeitures Smart Rent Package Revenue Fenced First Floor Units

$23,940 $171,000 $57,000

Premium Units Total Other Income

$81,000 $882,120

Other Income

Average Rent/SF

Per Unit Per Month $9.67 $21.00 $5.00 $41.80 $36.34 $23.75 $7.13

% 3.95% 8.57% 2.04% 17.06% 14.83% 9.69% 2.91% 2.80% 0.41%

$1,995 $14,250 $4,750

$6.87 $1.00 $6.65 $47.50 $15.83

2.71% 19.39% 6.46%

$6,750 $73,510

$22.50 $245.03

9.18% 100.00%

Gross Potential Income (GPI)

$6,978,063

Vacancy^ Collections Loss (Bad Debt) Concessions Effective Gross Income (EGI) ^ Calculated as a Percentage of Gross Potential Rent

$304,797 $30,480 $60,959 $6,581,827

5.00% 0.50% 1.00% 6.50%

Annual Expenses

Expenses Per Unit

Expenses Per SF

Expenses % of GPI

On-Site Personnel & Benefits Advertising and Marketing

$405,000 $72,000

$1,350 $240

$1.38 $0.25

5.80% 1.03%

Turnover Costs Repairs & Maintenance / Contract Services Utilities Administrative Expense

$85,625 $157,500 $310,920 $75,000

$285 $525 $1,036 $250

$0.29 $0.54 $1.06 $0.26

1.23% 2.26% 4.46% 1.07%

Total Economic Vacancy

Expenses

Total Controllable Expenses

$1,106,045

$3,687

$3.77

15.85%

Property Taxes

$836,100

$2,787

$2.85

11.98%

Insurance HOA Professional Management (3.5% of EGI) Reserves (Capital Improvements)

$180,000 $0 $230,364 $45,000

$600 $0 $768 $150

$0.61 $0.00 $0.79 $0.15

2.58% 0.00% 3.30% 0.64%

Total Non-Controllable Expenses

$1,291,464

$4,305

$4.41

18.51%

Total Expenses

$2,397,509

$7,992

$8.18

34.36%

Net Operating Income

$4,184,318

UNTRENDED DEVELOPMENT YIELD

Daytona Beach, Florida

8/23/21

6.03%

79

Note: Projections of income, expenses, sales proceeds and other information above are based, in part, on assumptions concerning facts and events over which the Partnership and the General Partner will have no control, and which could, if they change, produce results significantly different from those set forth above. See “Factoring the Risk - Risks Relating to Forecasts.”

Budget

Sale Analysis

Daytona Beach - N Williamson Blvd

Total Budget

Projected Hypothetical Sale Analysis - Untrended

Land Cost

$5,500,000

Subtotal Land Cost Survey

$5,500,000 $39,000

Appraisal

$7,500

Environmental Reports Geotechnical/Materials Testing

$14,800 $94,000

Title/Closing Fees Loan Fees

$351,978 $242,687

Internal Financing Fee

$121,344

Miscellaneous Closing Costs Lender Inspection Fees

$25,000 $25,000

Construction Admin/Owners Rep Civil Engineering Architectural

$

Assumed Cap Rate

4,184,318 4.95%

Sale Price

$

84,531,684

Sale Price Per Unit

$

281,772

Sale Price Per Sq. Ft.

$

*Less Selling Expenses @ 1.25%

$

Net Sale Proceeds

$

Accumulated Cash

$

2,079,932

Outstanding mortgage

$

(48,537,452)

Cash Available for Distribution

$

37,017,518

288 (1,056,646) 83,475,038

$427,000

Permits/Impact Fees Construction Interest Land Carry Interest Pre Construction Interest Property Taxes Legal Insurance FFE/Startup Cost/Marketing Development Overhead Soft Cost Contingency Subtotal Soft Cost Construction Costs Contingency Subtotal Hard Cost

$1,213,436 $243,600

Stabilized NOI (untrended)

$3,758,190

3.50%

Total Development Budget

$2,018,578 $0 $25,000 $50,000 $75,000 $380,000 $838,444 $1,733,480 $126,066 $11,810,104 $50,269,675 $1,759,439 $52,029,114 $69,339,218

Total Cost Per Unit

$231,131

Capital Stack Bank Loan To Cost Required Equity Investor Equity Watermark Equity

Daytona Beach, Florida

70% 30% 100% 0%

$48,537,452 $20,801,765 $69,339,218 $20,801,765 $0 $20,801,765

80

Note: Projections of income, expenses, sales proceeds and other information above are based, in part, on assumptions concerning facts and events over which the Partnership and the General Partner will have no control, and which could, if they change, produce results significantly different from those set forth above. See “Factoring the Risk - Risks Relating to Forecasts.”

Project 3

Woodbury, Minnesota

81

Project Highlights

Woodbury, Minnesota

Facts & Figures

LOCATION

Site Highlights

The site is located within the strongest retail corridor in the state. The City Place development provides walkable amenities for future residents: Whole Foods, Nordstrom Rack, Sur La Table, fitness, and restaurant options.

•

Great access and visibility to I-94, which sees 109,000 VPD.

•

Short commute to both downtowns in the MSA; 8 miles (15 minutes) to St. Paul and 16 miles (25 minutes) to downtown Minneapolis.

• Woodbury was named by Money Magazine as the 9th Best Place to Live in America, #1 in Minnesota.

•

Strong demos and population growth within a 5-mile radius of the proposed site:

• Woodbury’s commercial sector has experienced significant growth over the last several years and now boasts over 10 million square feet of development. More than 900,000 square feet of new construction and $80 million of reinvestment has been added in the last three years.

and Spring Hill Drive UNITS 90 units ACREAGE 6.2 acres ARCHITECTURE

• Woodbury is one of Minnesota’s fastest growing cities. With a population of approximately 70,000 (26,00 households), it is the state’s 9th largest city and is projected to reach 88,000 people by 2040.

•

NW corner of City Place Blvd Woodbury, MN 55125

Market Highlights

•

Townhomes with attached garages. Mix of 3 bed/3.5 bath and 4 bed/3.5 bath units

Median household income within a 1-3-5-mile radius is well above US average, which in 2019 was $68,703.

•

1-mile median HHI: $110,192

•

3-mile median HHI: $100,661

•

5-mile median HHI: $90,950

•

Anticipated population growth over the next five years within 1-mile of the site is 2.3%.

•

Average home value within a 5-mile radius is $335,191.

• Woodbury is known for its attractive residential neighborhoods, which are connected by more than 140 miles of multi-use trails. The city contains approximately 3,100 acres of parkland and eight small lakes, most with public parks and pathways. The park system consists of 55 parks.

• Minneapolis is ranked #8 Best Cities for Young Professionals in America by Niche.com.

• Minneapolis is home to 16 Fortune 500 companies.

WOODBURY, MN

Woodbury, Minnesota

82

Market Aerial

SITE

Maplewood

St Paul

SITE

St. Paul Downtown Airport

Woodbury

Woodbury, Minnesota

83

Nearby Retail

SITE

Aloha Poke Potbelly Sandwiches Barnes & Noble/Cafe Chuck & Don’s Waxing the City

Woodbury, Minnesota

84

Sierra Trading Post Cafe Zuppa Crumbl Cookies Qdoba

N

Major Employers 6 694

94

4

Minneapolis 694

35E

11

1

5

10

394

94

8

94

2

Saint Paul Downtown Airport

3

494

Major Employers

9 7

Woodbury, Minnesota

SITE

MinneapolisSaint Paul International Airport

85

# Employees

Distance

1

Target

31,000

17.0 mi

2

Allina Health System

28,896

16.2 mi

3

UnitedHealth Group

18,200

25.4 mi

4

3M

14,883

3.3 mi

5

US Bancorp

13,900

16.9 mi

6

Medtronic

10,800

18.0 mi

7

Best Buy

8,000

19.2 mi

8

Cargill

6,600

26.8 mi

9

Life Time Fitness, Inc

6,015

33.1 mi

10

Ameriprise Financial

5,181

16.7 mi

11

General Mills

4,400

23.1 mi

94

Site Plan

Woodbury, Minnesota

86

Stabilized Proforma

Stabilized Proforma

Income Unit Count 73 17 90

Percent of Total 81% 19% 100% All Units at Market Rent

Average Unit Size

Unit Type Three Bedroom Three and Half Bath - attached garage Four Bedroom Three and Half Bath - attached garage

Loss-to-Lease (-) Projected Rent Growth Through Start of Construction Gross Potential Rent

Total SF

Market Rents

Average Rent

1,802 2,134 1,865 $3,629,640

131,546 36,278 167,824

$3,340 $3,450 $3,361

$3,340 $3,450 $3,361

$0 $130,667 $3,760,307

0.00%

Average Rent/SF

Scheduled Monthly Rent

$1.85 $243,820 $1.62 $58,650 $1.80 $302,470 Average Unit Size 1,865 Square Feet Average Rent $3,361 Per Unit

Annual Income

Other Income

Monthly

Application/Administration Fees

$10,440

$870

Pet Deposit Fees & Rent Short-Term Lease Fees

$32,400 $5,400

$2,700 $450

Water/Sewer Income Trash Income

$39,245 $25,650

$3,270 $2,138

Late Fees Lease Termination Fees Miscellaneous Income

$7,695 $26,888 $3,600

$641 $2,241 $300

Damages/Cleaning/Security Deposit Forfeitures Smart Rent Package

$7,182 $66,690

$599 $5,558

Premium Units Total Other Income

$18,000 $243,190

$1,500 $20,266

Gross Potential Income (GPI)

Per Unit Per Month

%

$9.67 $30.00

4.29% 13.32% 2.22%

$5.00 $36.34

16.14% 10.55%

$23.75 $7.13 $24.90

3.16% 11.06% 1.48%

$3.33 $6.65 $61.75 $16.67 $225.18

2.95% 27.42% 7.40% 100.00%

$4,003,497

Vacancy^ Collections Loss (Bad Debt) Concessions

$188,015 $18,802 $37,603

Effective Gross Income (EGI) ^ Calculated as a Percentage of Gross Potential Rent

$3,759,077

5.00% 0.50% 1.00% 6.50% Total Economic Vacancy

Expenses Annual Expenses

Expenses Per Unit

Expenses Per SF

Expenses % of GPI

On-Site Personnel & Benefits

$135,000

$1,500

$0.80

3.37%

Advertising and Marketing Turnover Costs

$28,200 $23,940

$313 $266

$0.17 $0.14

0.70% 0.60%

Repairs & Maintenance / Contract Services Utilities

$51,750 $94,530

$575 $1,050

$0.31 $0.56

1.29% 2.36%

Administrative Expense Total Controllable Expenses

$27,000 $360,420

$300 $4,005

$0.16 $2.15

0.67% 9.00%

Property Taxes Insurance

$425,494 $74,250

$4,728 $825

$2.54 $0.44

10.63% 1.85%

HOA Professional Management (3.5% of EGI)

$22,480 $131,568

$250 $1,462

$0.13 $0.78

0.56% 3.29%

Reserves (Capital Improvements) Total Non-Controllable Expenses

$13,500 $667,292

$150 $7,414

$0.08 $3.98

0.34% 16.67%

$1,027,712 $2,731,365

$11,419

$6.12

25.67%

Total Expenses Net Operating Income UN TRENDED DEVELOPMENT YIELD

Woodbury, Minnesota

8/23/21

6.18%

87

Note: Projections of income, expenses, sales proceeds and other information above are based, in part, on assumptions concerning facts and events over which the Partnership and the General Partner will have no control, and which could, if they change, produce results significantly different from those set forth above. See “Factoring the Risk - Risks Relating to Forecasts.”

Budget

Sale Analysis

Total Budget

Projected Hypothetical Sale Analysis - Untrended

Land Cost Subtotal Land Cost Survey Appraisal

$3,850,000 $3,850,000 $51,500 $10,000

Environmental Reports Geotechnical/Materials Testing Title/Closing Fees

$5,000 $97,000 $75,000

Loan Fees Internal Financing Fee Miscellaneous Closing Costs

$154,771 $68,135 $25,000

Lender Inspection Fees Construction Admin/Owners Rep Civil Engineering

$25,000 $773,853 $155,000

Architectural Permits/Impact Fees Construction Interest

$

Assumed Cap Rate

2,731,365 4.95%

Sale Price

$

55,179,093

Sale Price Per Unit

$

613,101

Sale Price Per SF

$

*Less Selling Expenses @ 1.25%

$

Net Sale Proceeds

$

Accumulated Cash

$

1,872,414

Outstanding mortgage

$

(30,954,104)

Cash Available for Distribution

$

25,407,664

329 (689,739) 54,489,354

$328,000 $1,298,358 $1,331,687

Land Carry Interest Pre Construction Interest Property Taxes

$167,375 $25,000 $187,333

Legal Insurance FFE/Startup Cost/Marketing Development Overhead Soft Cost Contingency Subtotal Soft Cost Construction Costs Contingency

Stabilized NOI (untrended)

$95,000 $200,000 $769,050 $1,105,504 $98,644

3.50%

$7,046,210 $32,197,042 $1,126,896

Subtotal Hard Cost

$33,323,938

Total Development Budget

$44,220,148

Total Cost Per Unit

$491,335

Capital Stack Bank Loan To Cost Required Equity

Woodbury, Minnesota

70% 30%

$30,954,104 $13,266,044 $44,220,148

88

Note: Projections of income, expenses, sales proceeds and other information above are based, in part, on assumptions concerning facts and events over which the Partnership and the General Partner will have no control, and which could, if they change, produce results significantly different from those set forth above. See “Factoring the Risk - Risks Relating to Forecasts.”

Project 4

Wilmington, North Carolina

89

Project Highlights Facts & Figures

LOCATION 6124 Carolina Beach Rd. Wilmington, NC 28412 UNITS 300 units ACREAGE 20.53 acres ARCHITECTURE Fifteen 2-Story garden style buildings with direct unit entry and 88 detached garages; all wood frame construction

Wilmington, North Carolina

Site Highlights

Market Highlights

• The site has great frontage along Carolina Beach Rd (49,500 VPD), which provides easy access to Carolina Beach 10 minutes to the south, historic downtown Wilmington 15 minutes to the north, and Wrightsville Beach 20 minutes to the northeast.

• The subject property is located in close proximity to strong retail, such as Beau Rivage Marketplace (0.25 miles), Villages at Myrtle Grove (1.29 miles), and the Independence Mall (6.47 miles), which include the following shopping and restaurant options: • Beau Rivage Marketplace: Harris Teeter, Starbucks, Eggs Up Grill, Walgreens, Taco Bell, Firehouse Subs, Pet Supplies Plus.

• Villages at Myrtle Grove: The Home Depot, Starbucks, Buffalo Wild Wings, Dunkin Donuts, Port City Java, Hibachi Bistro, Michelangelo’s Pizza, Tequila Comida & Cantina.

• Independence Mall (1M SF): Dick’s Sporting Goods, Express, Whole Foods, Dillard’s, Belk, Trader Joe’s, Lidl, Sephora, Aeropostale, American Eagle, Food Lion, Chick-Fil-A, First Watch.

• There is strong demand for rental products, evidenced by high occupancies and strong rent growth for our site’s competitive set: • Currently, the stabilized properties within the competitive set are currently averaging 97% occupancy and has averaged at or above 96% occupied since we began internally tracking property information in February 2020.

• Our competitive set experienced over 9.31% YoY effective rent growth from June 2020 to June 2021.

• Ansley Park Apartments began occupying units on March 31, 2021, and has averaged 32 leases/month.

WILMINGTON, NC

• Strong population growth trends of 2.01% annually within a 3-mile radius of the site.

• High home values surrounding the immediate location, with estimated prices ranging from $350K-$650K in Willow Glen directly west of the site, newly built homes ranging from $325K-$400K in Covington directly east of our site, and an average home value of $300K within a 5-mile range.

Wilmington, North Carolina

90

• Wilmington continues to be ranked highly regarding in-migration and shows no signs of slowing down. In 2020, Wilmington ranked #1 in the country for inbound moves, outpacing out-migration by nearly 4 to 1. Long-term projections continue to pin Wilmington as an attractive market that will see further sustained growth.

• Over the past ten years, the Wilmington MSA has sustained steady annual population increases of 1-2%, exceeding the growth rate of North Carolina and the U.S..

• 17,300 jobs added from April 2020 to April 2021, leading to a job growth percentage of 15.4%, outpacing the state job growth of 10.1% and national job growth of 10.9% in the same time frame.

• Wilmington MSA home values continue to outpace the national average by a substantial margin, with the average home value at $339,934 in Wilmington and $293,349 at the national level.

• The average household income in the Wilmington MSA of $84,160 significantly outpaces the North Carolina average of $54,602.

• Higher education options are present in high density in Wilmington, as the region is served by 10 unique institutions including UNC Wilmington which annual enrollment is over 17,915 and employs more than 1,860 faculty and staff members.

• Wilmington continues to see positive economic news and expansions. In October 2020, Pender Commerce Partners announced plans to acquire additional land at Pender Commerce Industrial Park for development over the next two years, a $115M investment. In February 2021, Cardinal Foods announced plans to invest $26M in the Wilmington MSA, becoming one of the largest sweet potato fry production facilities in the world.

Market Aerial

Wilmington Intl Airport

Wilmington

University of North Carolina Wilmington

Historic Downtown Wilmington

Wrightsville Beach

SITE

Wilmington, North Carolina

91

Willow Glenn Neighborhood Homes ranging from $350k - $650k

Carolina Beach

SITE

Covington Neighborhood New homes ranging from $325k - $400k

Nearby Retail

SITE

Wilmington, North Carolina

92

Major Employers Wilmington MSA 5

Major Employers

# Emp

Distance

1

New Hanover Regional Med Center

7,000

6 mi

2

University of NC -Wilmington

3,600

7.4 mi

3*

New Hanover Public Schools

3,500

8.3 mi

4*

Liberty Homecare and Hospice

3,500

8.7 mi

5

Interoll

2,300

13 mi

6

New Hanover County Government

1,300

8.5 mi

7

PPD Development LLC

1,300

9.25 mi

*Various Locations

7 6

4*

3* 2

SITE1

Wilmington Leland SITE

Wilmington, North Carolina

SITE 93

Site Plan

Wilmington, North Carolina

94

Stabilized Proforma

Stabilized Proforma

Income Unit Count

Percent of Total

120 150 30 300

40% 50% 10% 100% All Units at Market Rent Loss-to-Lease (-) Projected Rent Growth Gross Potential Rent

Average Unit Size

Unit Type One Bedroom One Bath Two Bedroom Two Bath Three Bedroom Two Bath

828 1,234 1,484 1,097 $5,866,200 $0 $228,782 $6,094,982

Total SF

Market Rents

Average Rent

99,300 185,130 44,520 328,950

$1,358 $1,771 $2,010 $1,630

$1,358 $1,771 $2,010 $1,630

0.00% 3.90%

Monthly

$34,800 $78,000 $18,000 $150,480 $130,815 $85,500 $25,650 $24,450 $3,600 $23,940 $171,000 $68,400 $75,000 $889,635

$2,900 $6,500 $1,500 $12,540 $10,901 $7,125 $2,138 $2,038 $300 $1,995 $14,250 $5,700 $6,250 $74,136

$6,984,617 $304,749 $30,475 $60,950 $6,588,443

5.00% 0.50% 1.00% 6.50%

Annual Expenses

Expenses Per Unit

Expenses Per SF

Expenses % of GPI

On-Site Personnel & Benefits Advertising and Marketing Turnover Costs Repairs & Maintenance / Contract Services Utilities Administrative Expense Total Controllable Expenses

$420,000 $72,000 $85,625 $157,500 $310,920 $75,000 $1,121,045

$1,400 $240 $285 $525 $1,036 $250 $3,737

$1.28 $0.22 $0.26 $0.48 $0.95 $0.23 $3.41

6.01% 1.03% 1.23% 2.25% 4.45% 1.07% 16.05%

Property Taxes Insurance HOA Professional Management (3.5% of EGI) Reserves (Capital Improvements) Total Non-Controllable Expenses

$600,600 $165,000 $0 $230,595 $45,000 $1,041,195

$2,002 $550 $0 $769 $150 $3,471

$1.83 $0.50 $0.00 $0.70 $0.14 $3.17

8.60% 2.36% 0.00% 3.30% 0.64% 14.91%

Total Expenses Net Operating Income

$2,162,240 $4,426,203

$7,207

$6.57

30.96%

Application/Administration Fees Pet Deposit Fees & Rent Short-Term Lease Fees Detached Garages (88 units) Water/Sewer Income Trash Income Late Fees Lease Termination Fees Miscellaneous Income Damages/Cleaning/Security Deposit Forfeitures Smart Rent Package Revenue Fenced First Floor Units Premium Units Total Other Income Gross Potential Income (GPI) Vacancy^ Collections Loss (Bad Debt) Concessions Effective Gross Income (EGI) ^ Calculated as a Percentage of Gross Potential Rent

Scheduled Monthly Rent

$1.64 $162,900 $1.43 $265,650 $1.35 $60,300 $1.49 $488,850 Average Unit Size 1,097 Square Feet Average Rent $1,630 Per Unit

Annual Income

Other Income

Average Rent/SF

Per Unit Per Month $9.67 $21.67 $5.00 $41.80 $36.34 $23.75 $7.13 $6.79 $1.00 $6.65 $47.50 $19.00 $20.83 $247.12

% 3.91% 8.77% 2.02% 16.91% 14.70% 9.61% 2.88% 2.75% 0.40% 2.69% 19.22% 7.69% 8.43% 100.00%

Total Economic Vacancy

Expenses

UNTRENDED DEVELOPMENT YIELD

Wilmington, North Carolina

8/23/21

6.03%

95

Note: Projections of income, expenses, sales proceeds and other information above are based, in part, on assumptions concerning facts and events over which the Partnership and the General Partner will have no control, and which could, if they change, produce results significantly different from those set forth above. See “Factoring the Risk - Risks Relating to Forecasts.”

Budget

Sale Analysis

Total Budget

Projected Hypothetical Sale Analysis - Untrended

Land Cost Subtotal Land Cost Survey Appraisal

$7,335,500 $7,335,500 $87,161 $7,500

Environmental Reports Geotechnical/Materials Testing Title/Closing Fees

$10,700 $104,700 $64,971

Loan Fees Internal Financing Fee Miscellaneous Closing Costs

$256,810 $128,405 $25,000

Lender Inspection Fees Construction Admin/Owners Rep Civil Engineering

$25,000 $1,284,050 $256,000

Architectural Permits/Impact Fees Construction Interest

$431,600 $879,679 $2,154,033

Land Carry Interest Pre Construction Interest Property Taxes

$

Assumed Cap Rate

4,426,203 4.85%

Sale Price

$

91,261,913

Sale Price Per Unit

$

304,206

Sale Price Per Sq. Ft.

$

*Less Selling Expenses @ 1.25%

$

Net Sale Proceeds

$

Accumulated Cash

$

2,124,881

Outstanding mortgage

$

(51,361,997)

Cash Available for Distribution

$

40,884,023

277 (1,140,774) 90,121,139

$0 $25,000 $150,000

Legal Insurance FFE/Startup Cost/Marketing Development Overhead Soft Cost Contingency Subtotal Soft Cost Construction Costs Contingency

Stabilized NOI (untrended)

$100,000 $355,000 $820,482 $1,834,357 $119,406

3.50%

$9,119,853 $54,994,134 $1,924,795

Subtotal Hard Cost

$56,918,928

Total Development Budget

$73,374,282

Total Cost Per Unit

$244,581

Capital Stack Bank Loan To Cost Required Equity Investor Equity Watermark Equity

70% 30% 100% 0%

Wilmington, North Carolina

$51,361,997 $22,012,284 $73,374,282 $22,012,284 $0 $22,012,284

96

Note: Projections of income, expenses, sales proceeds and other information above are based, in part, on assumptions concerning facts and events over which the Partnership and the General Partner will have no control, and which could, if they change, produce results significantly different from those set forth above. See “Factoring the Risk - Risks Relating to Forecasts.”

Project 5

Fountain, Colorado

97

Project Highlights

Facts & Figures

LOCATION 6715 Mesa Ridge Pkwy, Fountain, CO 80817 UNITS 336 units ACREAGE 22 acres ARCHITECTURE 3-story garden-style buildings, all wood frame construction

FOUNTAIN, CO

Fountain, Colorado

Site Highlights

Market Highlights

• The site is located two miles from Fort Carson Army Base, the largest employer in Colorado (25,099 active duty military and 8,401 civilian employees).

Fort Carson is a sizeable military installation encompassing 373,000 total acres and featuring 3,999 buildings totaling 20.8 million square feet of real property. As of March 2021, the total population of Fort Carson was 71,961. This includes 38,000 family members and 6,400 civilians, and additional contractors and reserve military. Approximately 57% of soldiers and their families (29,300 people) live off post. Given the lack of supply in the immediate area, there is substantial pent-up demand for quality housing.

• The second-largest city within El Paso County, Fountain is located 15 minutes south of downtown Colorado Springs off of Interstate 25. The city’s origin began as a suburban market, a natural neighbor to the Fort Carson Army Installation, and a part of the overall Colorado Springs MSA region. Today, the city has grown into an economic engine contributing to regional business development. A growing community with a five-year projected population growth of 13.7%, Fountain serves the greater Fountain Valley population of 97,653.

• The site sits adjacent to The Markets at Mesa Ridge, a regional shopping center featuring a Safeway, Lowe’s, Walgreens, and a collection of national retailers including Chick-fil-A, Starbucks, and McDonald’s.

• The multifamily competition in Fountain is extremely limited, with only one existing Class A/B property in the market, Mesa Ridge Apartments.

• The site is located at the intersection of two major arterials, Fountain Mesa Road (17,600 VPD) and Mesa Ridge Parkway (11,000 VPD), allowing easy access to l-25 and Colorado Springs to the north.

• The project will benefit from a very limited supply pipeline in the market. There are currently no projects planned or under construction within 5 miles of the subject site.

• The property will offer residents unobstructed views of the Cheyenne Mountain State Park mountain range to the west.

Fountain, Colorado

98

• The city benefits from proximity to the Colorado Springs Airport (10 minutes) as well as easy access to Colorado Springs (21 minutes), Pueblo to the south (25 minutes) and Denver to the north (1.25 hours).

• Fountain was recently recognized as one of the “Best Places in Colorado for Young Families” and an “American City on the Rise” by Nerd Wallet, as well as a top “Millennium City” by the New York Times.

• El Paso is the fastest-growing county in the state of Colorado, and Colorado Springs ranks as the 29th fastest growing large city in the United States. The population of the market has grown by more than 37% since the year 2000.

• Health care, construction, and professional and technical services have all experienced double-digit growth in the past five years in the Colorado Springs MSA. Amazon is currently under construction on a new fulfillment facility near the airport that will generate 1,000 jobs in the market.

• Household growth within the Colorado Springs MSA over the last ten years, relative to the number of multifamily completions In the market, indicates a shortfall of more than 8,800 units in the market. Additionally, the Colorado Springs MSA single-family housing market is struggling to keep pace with demand. According to the Pikes Peak Association of Realtors, there were just 981 homes listed for sale in July 2021, down 29% from only one year ago and continuing a trend of below average inventory in the market.

• Colorado Springs ranked as the 21st “Best City in the United States to Start a Business” in a 2020 Startup study by Genome, based on seven key economic and demographic indicators: the city was ranked No. 5 for wage growth, No. 11 for population growth (driven by millennials), No. 11 for the rate of entrepreneurship, and No. 12 for education. The market also ranked the “#1 Most Desirable Place to Live” by US News and World Report in 2019.

Market Aerial Colorado Springs

City of Colorado Springs Municipal Airport

SITE

Fort Carson

SITE Fountain, Colorado

99

Fountain

Nearby Retail

aR

idg

eP

Fou

Mes 1.6 miles to I-25 and all major employers

Janitell Junior High School

ntai

n Me

sa R

d

Mesa Ridge High School

kwy

SITE The Markets at Mesa Ridge

Mesa Rd

Fountain, Colorado

Cross Creek

100

N

Major Employers 2

8 3

5

Colorado Springs

7 6

4 9

Colorado Springs Airport

Fort Carson Military Base

Major Employers

1

25

SITE

Fountain, Colorado

101

Fountain

# Employees

Distance

33,500

4.7 mi

US Airforce Academy

6,410

20.8 mi

Vectrus

5,600

15.3 mi

4

Peterson Airforce Base

5,542

7 mi

1

Fort Carson

2 3

5

Colorado Tech University

3,400

13.7 mi

6

Memorial Hospital

3,100

9.6 mi

7

Penrose - St. Francis Health

2,981

14.9 mi

8

Hewlett Packard Enterprise

2,200

15.6 mi

9

Schriever Airforce Base

2,107

11 mi

Site Plan

Fountain, Colorado

102

Site Plan

Fountain, Colorado

103

Stabilized Proforma

Stabilized Proforma

Income Unit Count 132 168 36 336

Percent of Total

Average Unit Size

Unit Type

39% One Bedroom One Bath 50% Two Bedroom Two Bath 11% Three Bedroom Two Bath 100% All Units at Market Rent Loss-to-Lease (-) Projected Rent Growth Through Start of Construction

728 1,139 1,316 996 $7,016,640 $0 $294,699

Total SF

Market Rents

Average Rent

96,036 191,364 47,376 334,776

$1,541 $1,849 $1,960 $1,740

$1,541 $1,849 $1,960 $1,740

0.00% 4.20%

Gross Potential Rent

$7,311,339

Other Income

Annual Income

Monthly

Per Unit Per Month

Application/Administration Fees Pet Deposit Fees & Rent Short-Term Lease Fees Detached Garages (128 units) Water/Sewer Income

$38,976 $84,672 $20,160 $138,240 $146,513

$3,248 $7,056 $1,680 $11,520 $12,209

$21.00 $5.00 $34.29

Trash Income Late Fees

$95,760 $28,728

$7,980 $2,394

Lease Termination Fees Miscellaneous Income Damages/Cleaning/Security Deposit Forfeitures

$29,232 $3,600 $26,813

$2,436 $300 $2,234

$7.25

Smart Rent Fenced First Floor Units

$191,520 $29,070

$15,960 $2,423

Premium Units Total Other Income

$55,200 $888,484

$4,600 $74,040

$47.50 $7.21 $13.69

Average Rent/SF

Scheduled Monthly Rent

$2.12 $203,460 $1.62 $310,700 $1.49 $70,560 $1.75 $584,720 Average Unit Size 996 Square Feet Average Rent $1,740 Per Unit

$9.67

$36.34 $23.75 $7.13 $0.89 $6.65

$220.36

% 4.39% 9.53% 2.27% 15.56% 16.49% 10.78% 3.23% 3.29% 0.41% 3.02% 21.56% 3.27% 6.21% 100.00%

Gross Potential Income (GPI)

$8,199,823

Vacancy^ Collections Loss (Bad Debt) Concessions Effective Gross Income (EGI) ^ Calculated as a Percentage of Gross Potential Rent

$365,567 $36,557 $73,113 $7,724,586

5.00% 0.50% 1.00% 6.50%

Annual Expenses

Expenses Per Unit

Expenses Per SF

Expenses % of GPI

On-Site Personnel & Benefits Advertising and Marketing Turnover Costs

$478,800 $72,000 $95,900

$1,425 $214 $285

$1.43 $0.22 $0.29

5.84% 0.88% 1.17%

Repairs & Maintenance / Contract Services

$184,800

$550

$0.55

2.25%

Utilities Administrative Expense Total Controllable Expenses

$354,451 $84,000 $1,269,951

$1,055 $250 $3,780

$1.06 $0.25 $3.79

4.32% 1.02% 15.49%

Property Taxes Insurance

$441,840 $117,600

$1,315 $350

$1.32 $0.35

5.39% 1.43%

Total Economic Vacancy

Expenses

HOA

$0

$0

$0.00

0.00%

Professional Management (3.5% of EGI) Reserves (Capital Improvements) Total Non-Controllable Expenses

$270,361 $50,400 $880,201

$805 $150 $2,620

$0.81 $0.15 $2.63

3.30% 0.61% 10.73%

Total Expenses

$2,150,152

$6,399

$6.42

26.22%

Net Operating Income

$5,574,434

UNTRENDED DEVELOPMENT YIELD

Fountain, Colorado

8/23/21

6.07%

104

Note: Projections of income, expenses, sales proceeds and other information above are based, in part, on assumptions concerning facts and events over which the Partnership and the General Partner will have no control, and which could, if they change, produce results significantly different from those set forth above. See “Factoring the Risk - Risks Relating to Forecasts.”

Budget

Sale Analysis

Fountain, CO (Metropolitan Rd)

Total Budget

Projected Hypothetical Sale Analysis - Untrended

Land Cost

$4,791,600

Subtotal Land Cost Survey Appraisal Environmental Reports Geotechnical/Materials Testing Title/Closing Fees Loan Fees Internal Financing Fee Miscellaneous Closing Costs Lender Inspection Fees Construction Admin/Owners Rep Civil Engineering Architectural Permits/Impact Fees Construction Interest Land Carry Interest Pre Construction Interest Property Taxes

$4,791,600 $119,000 $10,000 $12,900 $223,000 $84,517 $321,261 $160,631 $25,000 $25,000 $1,606,307 $279,062 $619,400 $4,532,198 $2,687,069 $122,251 $25,000 $250,000

Legal Insurance FFE/Startup Cost/Marketing Development Overhead Soft Cost Contingency Subtotal Soft Cost Construction Costs Contingency Subtotal Hard Cost

Stabilized NOI (untrended)

$

Assumed Cap Rate

5,574,434 4.85%

Sale Price

$

114,936,781

Sale Price Per Unit

$

342,074

Sale Price Per Sq. Ft.

$

*Less Selling Expenses @ 1.25%

$

Net Sale Proceeds

$

343 (1,436,710) 113,500,071

Accumulated Cash

$

2,564,052

Outstanding mortgage

$

(64,252,262)

Cash Available for Distribution

$

51,811,861

$95,000 $268,400 $978,884

3.50%

Total Development Budget

$2,294,724 $147,008 $14,886,611 $69,672,208 $2,438,527 $72,110,735 $91,788,946

Total Cost Per Unit

$273,181

Capital Stack Bank Loan To Cost Required Equity

Fountain, Colorado

70% 30%

$64,252,262 $27,536,684 $91,788,946

105

Note: Projections of income, expenses, sales proceeds and other information above are based, in part, on assumptions concerning facts and events over which the Partnership and the General Partner will have no control, and which could, if they change, produce results significantly different from those set forth above. See “Factoring the Risk - Risks Relating to Forecasts.”

Project 6

Greeley, Colorado

106

Project Highlights Facts & Figures

LOCATION 4110 Centerplace Dr. Greeley, CO 80634 UNITS 336 units ACREAGE 23.5 acres ARCHITECTURE 3-story wood frame construction

Greeley, Colorado

Site Highlights

Market Highlights

• The site is located in west Greeley with excellent visibility from Highway 34 (39,000 VPD) and adjacent to Centerplace of Greeley market center.

• Centrally located within the highest tax producing zone of Greeley and an abundance of retail, restaurant, and entertainment options in close proximity including Centerplace of Greeley, Elk Lakes Shopping Center, Greeley Commons, and Greeley Mall. There are multiple grocery store options within a one-mile radius of the site, including Safeway, Target, Sprouts and Natural Grocers.

• Highway 34 provides easy access to I-25 (20 min.) and other front range cities: Denver (1 hour), Ft Collins (45 min.), Loveland (30 min.), Longmont (45 min.).

• The site offers accessibility to outdoor recreation including an existing trail on the south end of the site, three parks within walking distance and connectivity to Greeley’s 30 miles of walking trails and 1,000 acres of natural areas.

• Greeley ranked 43 out of 200 cities nationally on Milken Institute’s 2021 Best-Performing Large Cities – Foundations for Growth and Recovery report, which indexes a set of metrics including job creation, output growth, and wage gains.

• The Greeley MSA ranked as the No. 3 fastest-growing nationwide from July 2018 to June 2019 and the No. 6 fastest-growing in the country from 2010-2019, per U.S. Census Bureau data.

• Currently ranks No. 6 in Jobs & Economy and No. 48 overall on Wallethub’s Fastest-Growing Cities in the U.S., ranking ahead of all other Colorado MSA’s except for Denver.

• Since 2010, Greeley’s multi-family housing vacancy rate has averaged 3.8%, per the city’s 2021 Growth & Development Projection Report.

• Population is projected to grow by 1.5% annually through 2025, higher than the averages for both the U.S. and the Southwest & Mountains region, per Oxford Economics.

• Annual Rent Growth for rent comparables has been strong with an average growth rate of 3.4%.

• Ranked as the No. 5 Boomtown in America – 2019 Edition by SmartAsset.

• Strong Demographics:

GREELEY, CO

• Greeley is in northeast Colorado and is part of the Greeley/Evans MSA, home to over 334,000 residents.

• 1-mile Annual Population Growth: 2.38% • 1-mile Household Income: $85,473 • 1-mile Average Home Value $328,008

• Greeley has a diversified economy with the top employing industries in 2020 being Health Care and Social Assistance, Retail Trade, Manufacturing, Educational Services and Food Services, poising the city to be a top economic player in the region with increased job growth opportunities.

• Year-over-year job growth from 2010-2020 (pre-COVID) in Greeley MSA averaged 4.2% or twice the State average job growth of 2%.

Greeley, Colorado

107

Market Aerial Fort Collins

SITE

Windsor

Greeley

SITE

University of Northern Colorado

Evans Loveland Greeley, Colorado

108

62 miles to Denver

Nearby Retail

SITE

Greeley, Colorado

109

N

3

Major Employers

North Colorado Med Center

Fort Collins 7 1 Major Employers

# Employees

Distance

1

JBS Swift Co

4,684

6.00 mi

2

Banner Health/Northern Colorado

3,560

2.30 mi

3

Vestas-Americas

2,270

7.23 mi

4

Greeley/Evans School District 6

2,312

3.24 mi

5

University of Northern Colorado

1,723

3.19 mi

6

Weld County

1,615

3.30 mi

7

State Farm Insurance Companies

944

6.17 mi

8

City of Greeley

925

3.28 mi

9*

Walmart

857

1.37 mi

10

UCHealth - Greeley

750

2.40 mi

11

Colorado Premium Foods

630

3.30 mi

12

Aims Community College

621

1.50 mi

2

12

SITE 10

9*

University of Northern Colorado

8 6 4 5 11

Eaton

*Various Locations

Greeley

Northern Colorado Regional Airport

Loveland

Greeley, Colorado

SITE 110

62 miles to Denver

Site Plan

Greeley, Colorado

111

Stabilized Proforma

Stabilized Proforma

Income Unit Count 132 168 36 336

Percent of Total 39% 50% 11% 100% All Units at Market Rent

Average Unit Size

Unit Type One Bedroom One Bath Two Bedroom Two Bath Three Bedroom Two Bath

Loss-to-Lease (-) Projected Rent Growth Through Start of Construction Gross Potential Rent

Total SF

Market Rents

Average Rent

728 1,139 1,316 996 $6,844,800

96,036 191,364 47,376 334,776

$1,458 $1,806 $2,070 $1,698

$1,458 $1,806 $2,070 $1,698

$0

0.00%

$287,482 $7,132,282

4.20%

Average Rent/SF

Scheduled Monthly Rent

$2.00 $192,480 $1.59 $303,400 $1.57 $74,520 $1.70 $570,400 Average Unit Size 996 Square Feet Average Rent $1,698 Per Unit

Annual Income

Monthly

Application/Administration Fees Pet Deposit Fees & Rent

$38,976 $84,672

$3,248 $7,056

Short-Term Lease Fees

$20,160

$1,680

Detached Garages (128 units) Water/Sewer Income

$182,400 $146,513

$15,200 $12,209

Trash Income

$95,760

$7,980

Late Fees Lease Termination Fees

$28,728 $28,526

$2,394 $2,377

Miscellaneous Income Damages/Cleaning/Security Deposit Forfeitures

$3,600 $26,813

$300 $2,234

Smart Rent

$191,520

Fenced First Floor Units

$33,516

Premium Units Total Other Income

Other Income

Gross Potential Income (GPI)

Per Unit Per Month $9.67 $21.00 $5.00 $45.24 $36.34 $23.75 $7.13 $7.07 $0.89

% 4.10% 8.91% 2.12% 19.20% 15.42% 10.08% 3.02% 3.00% 0.38% 2.82%

$15,960

$6.65 $47.50

20.16%

$2,793

$8.31

3.53%

$69,000

$5,750

$17.11

7.26%

$950,184

$79,182

$235.66

100.00%

$8,082,466

Vacancy^ Collections Loss (Bad Debt) Concessions

$356,614 $35,661

5.00% 0.50%

$71,323

1.00%

$7,618,868

6.50%

Annual Expenses

Expenses Per Unit

Expenses Per SF

Expenses % of GPI

On-Site Personnel & Benefits

$478,800

$1,425

$1.43

5.92%

Advertising and Marketing

$72,000

$214

$0.22

0.89%

Turnover Costs

$95,900

$285

$0.29

1.19%

Repairs & Maintenance / Contract Services Utilities

$176,400 $336,710

$525 $1,002

$0.53 $1.01

2.18% 4.17%

Effective Gross Income (EGI) ^ Calculated as a Percentage of Gross Potential Rent

Total Economic Vacancy

Expenses

Administrative Expense

$84,000

$250

$0.25

1.04%

Total Controllable Expenses

$1,243,810

$3,702

$3.72

15.39%

Property Taxes

$474,768

$1,413

$1.42

5.87%

Insurance HOA

$117,600 $0

$350 $0

$0.35 $0.00

1.46% 0.00%

Professional Management (3.5% of EGI)

$266,660

$794

$0.80

3.30%

Reserves (Capital Improvements) Total Non-Controllable Expenses

$50,400 $909,428

$150 $2,707

$0.15 $2.72

0.62% 11.25%

$2,153,238 $5,465,630

$6,408

$6.43

26.64%

Total Expenses Net Operating Income UNTRENDED DEVELOPMENT YIELD

Greeley, Colorado

8/23/21

6.01%

112

Note: Projections of income, expenses, sales proceeds and other information above are based, in part, on assumptions concerning facts and events over which the Partnership and the General Partner will have no control, and which could, if they change, produce results significantly different from those set forth above. See “Factoring the Risk - Risks Relating to Forecasts.”

Budget

Sale Analysis

Total Budget

Projected Hypothetical Sale Analysis - Untrended

Land Cost Subtotal Land Cost Survey Appraisal

$8,100,000 $8,100,000 $60,700 $10,000

Environmental Reports Geotechnical/Materials Testing Title/Closing Fees

$13,300 $189,480 $92,032

Loan Fees Internal Financing Fee Miscellaneous Closing Costs

$318,478 $159,239 $25,000

Lender Inspection Fees Construction Admin/Owners Rep Civil Engineering

$28,800 $1,592,390 $358,000

Architectural Permits/Impact Fees Construction Interest

$591,400 $7,455,117 $2,675,313

Land Carry Interest Pre Construction Interest Property Taxes

$

Assumed Cap Rate

5,465,630 4.80%

Sale Price

$

113,867,283

Sale Price Per Unit

$

338,891

Sale Price Per Sq. Ft.

$

*Less Selling Expenses @ 1.25%

$

Net Sale Proceeds

$

112,443,942

Accumulated Cash

$

2,463,166

Outstanding mortgage

$

(63,695,581)

Cash Available for Distribution

$

51,211,527

340 (1,423,341)

$0 $25,000 $250,000

Legal Insurance FFE/Startup Cost/Marketing Development Overhead Soft Cost Contingency Subtotal Soft Cost Construction Costs Contingency

Stabilized NOI (untrended)

$95,000 $268,400 $1,050,026 $2,274,842 $148,917

3.50%

$17,681,434 $63,007,008 $2,205,245

Subtotal Hard Cost

$65,212,253

Total Development Budget

$90,993,687

Total Cost Per Unit

$270,815

Capital Stack Bank Loan To Cost Required Equity Investor Equity Watermark Equity

Greeley, Colorado

70% 30% 100% 0%

$63,695,581 $27,298,106 $90,993,687 $27,298,106 $0 $27,298,106

113

Note: Projections of income, expenses, sales proceeds and other information above are based, in part, on assumptions concerning facts and events over which the Partnership and the General Partner will have no control, and which could, if they change, produce results significantly different from those set forth above. See “Factoring the Risk - Risks Relating to Forecasts.”

WATERMARK RESIDENTIAL.COM

Factoring the Risk

114

Factoring the Risk FACTORING THE RISK I. CONFLICTS OF INTEREST There will be occasions when Watermark, the GP and their respective affiliates encounter potential conflicts of interest in connection with the Partnership. The following considerations, among others, should be carefully evaluated before making an investment in the Partnership. Capitalized terms used but not defined below shall have the meaning ascribed to them in the Partnership Agreement. The terms described in the offering materials are qualified in their entirety by reference to the Partnership Agreement. Potential limited partners should carefully review the Partnership Agreement and consult their own financial, legal and tax advisers below submitting a binding Subscription Agreement to acquire limited partnership interests in the Partnership (the “Interests”). Capitalized terms used herein but not defined shall have their respective meanings set forth in the Partnership Agreement.

Time Demands on Watermark Principals.

Watermark currently, and will in the future, conduct other businesses, including real estate development, financing and other businesses, and manage other private real estate funds, which may have different strategies, properties and different investor bases. Conflicts may arise in the allocation Factoring the Risk

of Watermark’s principals’ time among their various business activities. Watermark and its affiliates currently advise Watermark 3G Multifamily Development Fund II, LP and Watermark 2021 Multifamily Development Fund III, LP. In the future, they could manage Parallel Funds, Feeder Funds, Alternative Investment Vehicles, and any other investment vehicle or separate account that co-invests with, or invests alongside, the Partnership, including any private value-add or opportunistic real estate fund or syndications formed after the date hereof by the GP. These other investment vehicles could have the same objectives as, or similar to those of, the Partnership or they could invest in the same type of real estate properties as the Partnership or related properties and may compete with the Partnership for the same real estate opportunities.

estate opportunities.

Allocation of Real Estate Opportunities.

Conflicts of interest could arise in connection with real estate transactions for the accounts of the Partnership, and other real estate vehicles or accounts the GP or its Affiliates are currently or may in the future be involved.

These real estate transactions could differ in substance, timing, and amount, due to, among other things, differences in investment objectives or other factors affecting the appropriateness or suitability of particular investment activities to the Partnership or to limitations on the availability of particular real

Related Party Fees and Expenses. For services rendered in connection with management of the Partnership and its Properties, the GP (or any Affiliate as the GP determines from time to time) will receive the following fees (collectively, the “Related Party Fees”):

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The Partnership Agreement permits the GP to offer the right to participate in real estate opportunities of the Partnership to other private investors, groups, partnerships, corporations or other entities, including, without limitation, any Limited Partner, any successor funds and any investment funds managed by the GP whenever the GP, in its sole discretion, so determines.

Other than as described above, the GP and its affiliates have no obligation to provide the Partnership or any other account with any particular real estate opportunity or to refrain from taking advantage of an real estate opportunity that could be beneficial to the Partnership and will allocate opportunities in a manner they believe to be as equitable as feasible.

• annual Capital Management Fee equal to 1% multiplied by the average capital account balance of each unaffiliated Limited Partner for the calendar year, beginning on the date of the initial Capital Call to fund the acquisition of the Property and ending on the earlier of: (i) the

date of the disposition date of the Property or (ii) the 42nd month after the date of such initial Capital Call.

• internal Financing Fee of 0.25% of land and construction loan amounts will be paid to Watermark.

• construction administration/owner’s representation fees of 1.75% of each Property’s development budget; • development overhead fees of 2.50% of each Property’s development budget; • each Property will sign a fixed sum contract with Thompson Thrift Construction, Inc., an affiliate of the GP, prior to the closing of the construction loan for each Property, which includes a general contractor overhead charge of 6.00% of the construction contract amount and contingency, and profit margin of 4.00% of the construction contract amount; • property management fee of $2,500 per month once on-site personnel have been hired for each Property, with such fee increased to the greater of $5,500 or 3.5% of effective gross income of the Property per month upon delivery of the first units for lease; • reasonable hourly rates for in-house legal counsel (not to exceed $450 per hour) attributable to the Partnership and/or the acquisition, development or disposition of each Property; • prior to or simultaneously with closing of a construction loan for each Property, Thompson Thrift Development, Inc. will be reimbursed by the Partnership for all pursuit Factoring the Risk

costs plus 8.00% interest for all pre-closing pursuit costs, including, but not limited to, earnest money, site due diligence reports, architectural design, civil engineering, and impact fees; • prior to or concurrent with closing of a construction loan for each Warehoused Property, where the GP (or an affiliate thereof) closed on the land loan for the Property prior to the closing of the construction loan and funded the required equity, the Partnership will reimburse 100% of the funded equity for the land loan plus 8.00% interest; and • various other fees in associated with management of each Property, including information technology fees of $150 per month, payroll fees of $100 per month, and one-time lease up fee of $100 per unit once a Property achieves at least 92% occupancy, with such fee increased by 1% of the effective gross income of any Property that is held by the Partnership longer than 42 months.

Diverse Investors. The Limited Partners may have conflicting investment, tax, and other interests with respect to their investments in the Partnership. The conflicting interests of individual investors may relate to or arise from, among other things, the nature of investments made by the Partnership, the structuring or the acquisition of investments, and the timing of disposition of investments. As a consequence, different investment returns may be realized by different investors and conflicts of interest may arise in connection 116

with decisions made by the GP, including with respect to the nature or structuring of investments that may be more beneficial for one investor than for another investor, particularly with respect to investors’ individual tax situations. In addition, the GP and its affiliates and employees may invest directly in the Partnership. In selecting and structuring real estate investments appropriate for the Partnership, the GP will consider the investment and tax objectives of the Partnership as a whole, not the investment, tax, or other objectives of any investor individually.

Real Estate Co- Investment Opportunities.

The GP may offer co-investment opportunities in certain real estate transactions to select Limited Partners, as well as to other private real estate investors, groups and/ or individuals. Given the nature and timing of co-investment opportunities, while the GP may bring co-investment opportunities to the attention of certain Limited Partners, there is no guarantee that the GP will bring co-investment opportunities to the attention of any other Limited Partners notwithstanding that certain Limited Partners may have been invited to participate. Any Limited Partner participating in a co-investment must satisfy independently the investor qualification standards and other regulatory conditions applicable to such co-investment and, in any event, the GP shall reserve the final right to accept or reject the participation of such investors in the co-real estate opportunity.

Waivers and Modifications. As noted in the Partnership Agreement, the GP has the authority and discretion to waive, alter or otherwise modify many of the requirements generally applicable to The Limited Partners.

For example, the GP may with respect to certain Limited Partners waive or alter any Capital Management Fee, the minimum investment amounts and capital withdrawal requirements and limitations. These waivers or modifications are made pursuant to separate written agreements (sometimes called “side letters”) between the Partnership and The Limited Partners involved. The GP enters into these side letters when it believes that doing so is in the best interests of the Partnership and the Limited Partners or does not otherwise contravene applicable laws.

Formation of New Real Estate Funds.

Subject to certain limitations set forth in the Partnership Agreement, Watermark or its affiliates may establish additional private real estate funds, which may be competitive with the Partnership. There can be no assurance that the creation of such additional funds will not give rise to conflicts of interest between the Limited Partners of the respective funds.

Carried Interest Distributions. The GP Interest Distributions that the GP will receive may create an incentive for the GP to approve and cause the Partnership to make riskier or more speculative real estate investments than it would otherwise make in the absence of such compensation based on net profits from sales of real estate investments.

Factoring the Risk

Effect of Fees and Expenses on Returns. The Partnership will pay the Related Party Fees described above, and will bear the expenses related to the Partnership’s operations.

Such fees will reduce the actual returns to Limited Partners. Fees and expenses will be paid regardless of whether the Partnership produces positive returns. If the Partnership does not produce significant positive returns, these fees and expenses could reduce the amount of the distributions recovered by a Limited Partner to an amount less than the amount invested in the Partnership by such Limited Partner.

Use of Third Party Services. The GP may enter into arrangements with third parties who may provide the GP with supporting due diligence services. Such service providers may receive consulting fees, and may therefore be deemed to have a conflict of interest.

Valuation of Assets. The value of Fund assets is determined in such manner as the GP deems fair and reasonable. The GP may amend or replace those policies, or deviate from them, in its sole discretion. The GP has a conflict of interest in that the GP could receive a higher Carried Interest with respect to assets distributed in-kind to Limited Partners if the investments are given a favorable valuation.

Legal Counsel. Bryan Cave Leighton Paisner LLP (“BCLP”) is legal counsel for Watermark, the GP and the Partnership. BCLP has relied upon certain information furnished to it by 117

Watermark or the GP and has not investigated or verified the accuracy or completeness of such information. In connection with this offering and subsequent advice to the Partnership, Watermark, the GP and their respective Affiliates, BCLP’s engagement is limited to the specific matters as to which it is consulted and, therefore, there may exist facts or circumstances that could have a bearing on the Partnership’s (or the GP’s or Watermark’s) financial condition or operations with respect to which BCLP has not been consulted and for which it expressly disclaims any responsibility.

BCLP does not and will not serve as counsel for or represent the interests of the Limited Partners, and such counsel has disclaimed any fiduciary or attorney-client relationship with the Limited Partners. Prospective investors should obtain the advice of their own counsel regarding legal matters.

II. RISKS RELATED TO THE PARTNERSHIP Investment in the Partnership is designed only for sophisticated persons and involves a substantial degree of risk of, and exposure to, loss of capital. Prospective investors should carefully consider the risk factors involved in an investment in the Partnership and should consult their own legal, tax and financial advisers with respect to such risks.

Lack of Operating History. The Partnership has no operating history. While certain of Watermark’s managing principals and its Affiliates have substantial experience with real estate development, management and real estate financing, the prior performance of

the GP’s historical real estate developments is no guarantee of the Partnership’s future success. There can be no assurance that the Partnership’s acquisition, development or financing of certain Properties will be successful, and no assurance can be given that Limited Partners will realize a return on their investment in the Partnership.

Reliance on the GP. The Partnership will rely primarily on the efforts and expertise of the GP and Watermark’s principals. In the event that the GP is no longer engaged in the active day-to-day management of the Partnership, the Partnership may not be able to continue financing real estate opportunities or successfully realize positive returns from existing real estate investments. The loss of services of the GP or any Watermark principal could have an adverse impact on the Partnership’s ability to achieve its investment objectives.

Penalty for Failure to Make Capital Contributions. If a Limited Partner fails to fund its Capital Commitment obligation or make required Capital Contributions when due, the Partnership may be unable to avail itself of a real estate opportunity or pay its obligations when due, thereby resulting in potential losses for the Partnership. In addition, a defaulting Limited Partner is subject to customary default provisions, including forfeiture of a substantial portion of its Interest.

No Market or Liquidity for Fund’s Interest.

The Interests have not been registered under the Securities Act of 1933, the securities laws Factoring the Risk

of any state, or the securities laws of any other jurisdiction (foreign or domestic) and, therefore, cannot be resold unless they are subsequently registered under the Securities Act and other applicable securities laws or an exemption from registration is available. There is no public market for Interests and one is not expected to develop. In addition, Limited Partners will generally not be permitted to assign their Interests, except by operation of law, without the GP’s prior written consent, which consent may be given or withheld in the GP’s sole and absolute discretion. Voluntary withdrawals from the Partnership will not be permitted. Accordingly, Limited Partners must be prepared to bear the risks of owning their Interests for an extended period of time.

Restrictions on Transfers of Interests.

Transferability of the Interests is severely restricted and limited. Interests may be acquired for investment purposes only and not with a view to or for resale in connection with any distribution thereof. The Interests will not be registered under the Securities Act of 1933 for resale or public sale, in reliance upon an exemption therefrom, which depends in part, upon the investment intent of the Limited Partners. Unless an exemption from registration is available, Limited Partners may not transfer their Interests without violating the Securities Act of 1933. The Partnership has no present intention of registering the Units in the future. In addition, certain states in which the Interests may be sold impose further restrictions on the transfer of Interests in the Partnership. Transfers must comply 118

with all applicable securities laws, must be approved by the GP and must comply with all applicable portions of the Partnership Agreement. Pursuant to the Partnership Agreement, the GP may refuse to grant such approval for any reason or no reason. Limited Partners will not have the right to withdraw their capital contributions or other funds from the Partnership or to receive the return of all or any portion of their capital contributions or other funds, except pursuant to the terms of the Partnership Agreement. Furthermore, the GP may refuse to consent to an election to adjust the basis of a transferred company interest pursuant to §754, §743 or §734 of the Internal Revenue Code. Such refusal could further limit the marketability of such Interests.

No Right to Control the Partnership’s Operations. In order to maintain Limited Partners’ limited liability for the liabilities and obligations of the Partnership, Limited Partners must rely entirely on the GP to conduct and manage the Properties and business affairs of the Partnership.

Accordingly, Limited Partners will have no opportunity to control the Partnership’s dayto-day operations, including acquisition and disposition decisions regarding the Properties.

Indemnity Obligations; Potential Requirement to Return Distributions. The GP, its Affiliates, and other parties are entitled to indemnification, except under certain circumstances, from the Partnership. The assets of the Partnership will be available to satisfy these indemnification obligations and

Limited Partners may be required to make capital contributions and return distributions to satisfy such obligations. Such obligations will survive the dissolution of the Partnership.

distribution or that any distributions made would be less than the income tax liabilities incurred by the Limited Partners as a result of owning Interests in the Partnership.

Follow-On Investments. The Partnership may be called upon to provide additional funding with respect to a Property. These funds may be necessary, among other things, to correct defects or make improvements to a Property. There can be no assurance that the Partnership will wish to make follow-on investments or that it will have sufficient funds to do so. Any decision by the Partnership not to make follow-on investments or its inability to make them may have a substantial negative impact on a Property in which the Partnership invests that is in need of such an investment or may diminish the Partnership’s ability to influence the Property’s future development if such capital is funded by a third party. Further, if follow on investments are required to correct defects or damage to one or more Properties and the Partnership is unable to provide such funds, the relevant Property may be adversely affected.

Litigation. In the ordinary course of its business, the Properties could be subject to litigation from time to time. The outcome of such proceedings may materially adversely affect the value of the Properties and may continue without resolution for extended periods of time. Any litigation may require the time, attention, and resources of the GP and its managing principals.

Potential Lack of Distributions. As a tax partnership, items of income, gains, loss, and deduction of the Partnership are passed through to its Limited Partners for federal tax purposes regardless of whether any distributions have been made. Subject to having available funds, the Partnership intends to make distributions to its partners to cover their tax liabilities attributable to their share of the Partnership’s income. It is possible however, that no funds will be available for Factoring the Risk

System Failure or Cyber Security Attacks.

The GP’s information systems are vulnerable to damages from any number of sources, including energy blackouts, natural disasters, terrorism, war, telecommunication failures and cyber security attacks, such as computer viruses or unauthorized access. Any system failure or accident that disrupts operations could result in a material disruption to the Partnership or the Properties. The Partnership or the Properties may also incur additional costs to remedy damages caused by such disruptions. Any compromise of security could result in a violation of applicable privacy and other laws, unauthorized access to information of the Partnership and Limited Partners and others, significant legal and financial exposure, damage to their reputations, loss or misuse of the information and a loss of confidence in their security measures, which could harm their business.

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III. RISKS RELATED TO REAL ESTATE DEVELOPMENTS General Real Estate Risks. Development, ownership and operation of real estate, including the Properties, is highly competitive and involves numerous risks, including those described herein. Transfer of a Property may be subject to significant legal, contractual, and/or practical restrictions. Multifamily developments are subject to the risks of fluctuations in rents, occupancy rates and operating expenses, which in turn may be affected adversely by changes in general local economic conditions, adverse changes in interest rates and availability of permanent mortgage funds that may render the sale or refinancing of the Properties difficult or unattractive, adverse changes in real estate zoning laws and land use regulations, environmental issues including discovery of hazardous waste or other unsafe conditions on such property, acts of God and other factors that are beyond the control of the GP, the supply and demand for housing, changes in the population of the area, failure of tenants to pay rent, vandalism, adverse use of adjacent or neighboring real estate, oversupply of available residential units, reduced employment in the area of a Property, ongoing need for capital improvements, reduced costs of operating competing developments, and increased real property taxes. Because certain costs of real estate ownership (principally real estate taxes, note payments, and insurance) do not generally decrease with decreases in occupancy rates, the cost of operating the

Properties may exceed the income therefrom.

The Partnership may sustain a loss of all or a part of its equity investment in a Property as a result of the foreclosure of the lender’s mortgage or deed of trust. If the income from a Property is not sufficient to meet operating expenses, the Partnership may be required to advance funds to protect its investment or dispose of the Property on unfavorable terms in order to raise needed funds.

Special Risks Relating to Investments in Multifamily Real Estate Properties. The Partnership intends to invest in Properties that are multifamily real estate properties.

Factors that may affect the value and successful operation of a multifamily real estate property include, but are not limited to: the location of the Property, including whether the neighborhood in which the Property is located has changed over time; construction quality; types of services or amenities that the Property provides; the level of mortgage interest rates, which may encourage tenants to purchase rather than lease housing; the tenant mix; government programs that provide rent subsidies to tenants pursuant to tenant voucher programs, which vouchers may be used at other Properties and influence tenant mobility; and the ability of management to provide adequate maintenance to the Property. Furthermore, certain jurisdictions may regulate the relationship of the Partnership and the tenants residing at the Properties, with such regulations largely favoring the tenants. Each of these factors could affect the profitability of Factoring the Risk

the Partnership’s investment in a multifamily Property.

Investment in apartments involve certain special risks. Apartment complexes have individual residential tenants with limited net worth and with lease terms that are typically shorter than those of a commercial lease. As a result, apartments are particularly vulnerable to, among other things, competition from new development, and to changes in economic conditions or employment conditions in the surrounding geographic area. The occurrence of any such risks could diminish the resale value of the property and, consequently, limit the Partnership’s return on such Investment.

In addition, tenant turnover at apartment complexes can cause the property owner to incur significant fix-up costs in order to prepare units for new tenants.

A Property may incur vacancies due to the inability of the Partnership to attract tenants, default by tenants under their leases or the expiration of tenant leases. If vacancies continue for a long period of time, the Partnership may suffer reduced revenues. In such an event, resale value of the property could be diminished. The success of the Partnership’s investments may be materially dependent on the financial stability of its tenants. In the event of a tenant default, the Partnership may experience delays in enforcing its rights as landlord and may incur substantial costs in protecting its investment.

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Reassessments for Property Tax Purposes Could Increase the Partnership’s Tax Burden. Properties will likely be subject to real property taxes and, in some instances, personal property taxes. Such real and personal property taxes may be at a reduced or incentive rate for a specific period of time or may naturally increase as property tax rates change and as the properties are assessed or reassessed by taxing authorities. An increase in property taxes on the Partnership’s real property could adversely affect the Partnership’s results from operations and could decrease the value of that real property. An increase in property taxes on any Properties could adversely affect the Partnership’s revenues.

Lack of Skillful Property Management. The successful operation of a real estate project depends upon the GP’s performance and viability. The property manager is responsible for, amongst other duties, (a) responding to changes in the local market; (b) operating the property and providing building services; (c) managing operating expenses; and (d) ensuring that maintenance and capital improvements are carried out in a timely fashion. Properties deriving revenues primarily from short-term sources, such as short-term or month-to-month leases, are generally more management intensive than properties leased to creditworthy tenants under long-term leases. There can be no assurance as to the skills of any managers of Properties in which the Partnership may invest, including the GP or another Watermark Affiliate.

Competition for Properties. Real estate development is highly competitive and involves a high degree of uncertainty. The GP seeks to acquire and develop various Properties that may attract other competitive buyers, such as individuals, corporations, public and private real estate investment trusts and other entities engaged in real estate activities substantially similar to the Partnership. There can be no assurance that the Partnership will be able to acquire and develop Properties that satisfy the Partnership’s objectives.

Property-Level Debt. The Partnership’s investments will involve substantial amounts of debt financing at the Property level. Debt service requirements may deplete cash flows of the Properties, and relatively small changes in the overall value of investments will have a magnified impact on the value of the equity of the Partnership. If a Property was unable to generate sufficient cash flow to meet principal and interest payments on its indebtedness, the value of the Property might be significantly reduced or even eliminated.

Tax-exempt Limited Partners will be subject to unrelated business income taxation because of the Partnership’s use of leverage. See below, “Risks Relating to Federal Income Tax Aspects.”

The use of leverage involves a high degree of financial risk and will increase the exposure of the Properties to adverse economic factors such as rising interest rates, downturns in the economy, or deterioration in the condition of the investments.

Factoring the Risk

Some Property-level leverage may be in the form of structurally subordinated mezzanine loans, either directly or indirectly through a Property-owning entity. Subordinated debt will be subordinated to the senior obligations of the Property. Greater credit risks are usually attached to subordinated debt than to a borrower’s first mortgage or other senior obligations. In addition, subordinated debt may not be protected by financial or other covenants and may have limited liquidity.

Adverse changes in a Property’s financial condition and/or in general economic conditions may impair the ability of the Property to make payments on subordinated debt and cause it to default more quickly with respect to such securities than with respect to the Property’s senior obligations. In many cases, the GP’s (or an Affiliate’s) management of the Properties and the Partnership’s profits interests in such Properties, will be subject to the rights of its senior and subordinated lenders.

recognize full value for any Property that the Partnership is required to sell for liquidity reasons. The Partnership may not be able to dispose of Properties on timeframes with respect to which it desires to do so, or at all.

The Properties rely on the availability of debt capital. The inability to obtain debt capital on terms and conditions favorable to us may prevent the Partnership from acquiring the Properties.

Redevelopment of Properties. The Partnership could acquire Properties that require redevelopment (that is clearance and rebuilding of a Property), which may often be non-income producing. To the extent that the Partnership acquires such assets, it will be subject to the risks normally associated with such assets and redevelopment activities.

Such risks include, without limitation, risks relating to the availability and timely receipt of zoning and other regulatory or environmental approvals, the cost and timely completion of construction (including risks beyond the

Real Estate is Illiquid. Real estate investments are relatively illiquid. The ability of the Partnership to exit the Properties in response to changes in economic and other conditions will be limited. No assurances can be given that the fair market value of any Property acquired by the Partnership will not decrease in the future or that the Partnership will 121

Occupancy of a Property. If a Property does not maintain adequate occupancy levels, the Property may not generate sufficient revenue to satisfy its operating obligations, which ultimately may result in a foreclosure of the deed of trust or mortgage covering the Property, a loss of the Partnership’s equity in the Property, and adverse tax consequences to the Partnership and the Limited Partners.

There can be no assurance that the tenants of a Property will timely pay all rents due to the Property. There can be no assurance that the Properties will maintain occupancy levels sufficient to generate adequate revenue with which to meet such obligations or that forecasted rental increases will take place, if at all, within the projected time periods, or that expenses will be within forecasted amounts.

control of the Partnership, such as weather or labor conditions or material shortages), and the availability of financing on favorable terms. These risks could result in substantial unanticipated delays or expenses and, under certain circumstances, could prevent completion of redevelopment activities once undertaken, any of which could have an adverse effect on the Partnership. Properties under redevelopment or properties acquired for redevelopment may receive little or no cash flow from the date of acquisition through the date of completion of development and may experience operating deficits after the date of completion. In addition, changes in market conditions during the course of redevelopment may make such activities less attractive than at the time they were commenced.

Environmental Matters. The Properties will be subject to U.S. federal and state environmental laws, regulations, and administrative rulings, which, among other things, establish standards for the treatment, storage and disposal of solid and hazardous waste. The Partnership, as owner of the Properties, will be subject to U.S. federal and state environmental laws which impose joint and several liabilities on past and present owners and users of real property for hazardous substance remediation and removal costs. Therefore, there may be exposure to substantial risk of loss from environmental claims arising in respect of any Property with undisclosed or unknown environmental problems or as to which inadequate reserves have been Factoring the Risk

established. These laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous or toxic substances. In addition, the Partnership’s liability as to any Property generally is not limited under such laws and regulations and could exceed the value of the property and/or the aggregate assets of the owner. The presence of such substances, or the failure to remediate such substances properly, may also adversely affect the owner’s ability to sell or lease the property or to borrow using the property as collateral. The Partnership also may be liable for environmental contamination of Properties that are sold or for the release of hazardous or toxic substances from such properties.

Some laws and regulations impose liability for the release of certain materials into the air or water from a property, including asbestos, and such release can form the basis for liability to third persons for personal injury or other damages. Other laws and regulations can limit the development of, and impose liability for, the disturbance of wetlands or the habitats of threatened or endangered species.

Harmful Mold and Other Air Quality Issues.

When excessive moisture accumulates in buildings or on building materials, mold may grow, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other 122

biological contaminants such as pollen, viruses, and bacteria. Indoor exposure to airborne toxins or irritants above certain levels can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other airborne contaminants at any of the Properties could require the Partnership to undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the affected Property, increase indoor ventilation, necessitate the temporary relocation of some or all of the Property’s tenants, or in extreme cases require extensive rehabilitation of the affected Property. In addition, the presence of significant mold or other airborne contaminants could expose the Partnership to liability from its tenants, employees of its tenants, and others if property damage or health concerns arise. No assurances can be made that the Partnership will have full coverage under its existing policies for property damage or liabilities to third parties arising as a result of exposure to mold or a claim of exposure to mold at a particular Property.

Possibility of Future Terrorist Activity.

Terrorist attacks can disrupt financial and insurance markets and negatively impact economies in general, increasing many of the risks noted in this Memorandum. The Properties, or the areas in which they are located, could be subject to future acts of terrorism. In addition to the potential direct impact of any such future act, future

terrorist attacks and the anticipation of any such attacks could have an adverse impact on financial and insurance markets and economies, thus harming leasing demand for, and the value of, the Properties. It is not possible to predict the severity of the effect that such future events would have on financial and insurance markets and economies or the Properties. These events may have a negative effect on the business and performance results of one or more of the Properties, including by raising insurance premiums and deductibles and limiting available insurance coverage for the Properties.

to plaintiffs, substantial ligation costs, and substantial costs of remediation. Future changes to federal, state and local laws also may require modifications to the Properties or restrict the Partnership’s ability to renovate its Properties. The Partnership cannot predict the ultimate cost of compliance with the ADA, FHAA or other legislation. If the Partnership incurs substantial costs to comply with the ADA, FHAA, and any other similar legislation, the Partnership’s financial condition, results of operations, cash flow, cash available for distribution and ability to satisfy its debt service obligations could be materially adversely affected.

Americans with Disabilities Act and Similar Laws. Under the Americans with Disabilities Act of 1990 (the “ADA”), all public accommodations must meet federal requirements related to access and use by disabled persons. If one or more of the Properties does not comply with the ADA, then the Partnership may be required to incur costs to bring the property into compliance, which may or may not have been foreseen at the time of acquisition. A number of additional U.S. federal, state and local laws exist that impact the Properties with respect to access thereto by disabled persons. For example, the Fair Housing Amendments Act of 1988 (the “FHAA”) requires that apartment communities be accessible to the handicapped. Noncompliance with the FHAA could result in the imposition of fines, an award of damages to private litigants, payment of attorneys’ fees and other costs

Competition with the Properties. There are properties available in the vicinity of or otherwise competitive with each of the Properties held by the Partnership. To the extent these competing properties are more successful than the Partnership’s Properties, whether because of location, amenities, better management, lower rents, or other factors, it will be more difficult for the Properties to achieve and maintain occupancy levels sufficient to generate adequate revenue to profitably operate the Property.

Factoring the Risk

No Assurance of Property Appreciation or Fund Profits. There can be no assurance that the Properties will operate at a profit, will appreciate in value or will be sold at a profit. The marketability and value of the Properties will depend upon many factors beyond the control of the GP. There also can be no assurance that there will be a market for resale of the Properties.

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Prolonged Economic Slowdown, Lengthy or Severe Recession, or Declining Real Estate Values Could Harm the Partnership’s Returns. A prolonged economic slowdown, a recession or declining real estate values could harm the Partnership’s financial condition, and limit tenant’s ability to pay rent. Declining real estate values are likely to have one or more of the following adverse consequences: • reduce the Properties available to be acquired by the Partnership or the level of financing available to the Partnership; • make it more difficult for existing tenants and lessees to remain current on their payment obligations to the Partnership; and • any sustained period of increased payment delinquencies, foreclosures or losses could adversely affect the Partnership’s interest income from Properties in its portfolio, which could adversely affect its business, financial condition and operating results and its ability to make distributions of income to its Limited Partners.

Availability of Financing. Market conditions existing at the time of the desired sale of a Property could make the financing or the sale to prospective purchasers difficult or costly to obtain financing and, therefore, reduce the ability of the Partnership to sell the Property for an acceptable price. In addition, in connection with a decision as to whether to sell a Property, the GP and Limited Partners may have opposing interests.

Contingent Liabilities May Exist on Disposition of Properties. In connection with the disposition of a Property, the Partnership may be required to make certain representations and warranties about such Property. The Partnership may also be required to indemnify the purchasers of such Properties in case any such representations and warranties are inaccurate, incorrect or misleading. These arrangements may create contingent liabilities of the Partnership, for which the GP may establish reserves or escrow accounts.

Uninsured Losses. The Partnership will cause the Partnership and/or each Property to procure and maintain public liability and casualty insurance for the full replacement cost of the Property with such coverages as the GP shall determine using prudent business judgment. Certain types of losses may not be insured against at a reasonable cost. Should such a loss occur, the Partnership could lose its invested capital. Liability claims could also materially and adversely affect the Partnership if resulting judgments exceed insurance proceeds or coverage. The cost of insurance coverage has substantially increased in recent years and will likely continue to increase, which will make certain types of insurance coverage difficult to obtain at reasonable costs.

Risks Associated with COVID-19. In recent years, the outbreaks of a number of diseases, including avian influenza, H1N1, and various other “superbugs,” have increased the risk of a pandemic. In December 2019, a novel Factoring the Risk

coronavirus was reported to have surfaced in Wuhan City, Hubei Province, China. The virus, referred to as SARS-CoV-2, coronavirus or COVID-19, has since spread around the globe, including the United States. COVID-19 has been reported in every state in the United States, including those in which the Partnership intends to own and operate Properties. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the U.S. declared a national emergency with respect to COVID-19. Many countries, including the United States, have reacted by instituting quarantines, restrictions on travel and limiting operations for non-essential businesses. Pertinent to the Partnership’s investment strategy, United States, state and local governmental bodies and agencies have also imposed temporary restrictions on residential evictions. Such actions are creating disruption in global supply chains and adversely impacting a number of industries as well as negatively impacting most investment asset classes, including real estate. The potential impact and duration of the COVID-19 pandemic has had, and continues to have, a significant adverse impact across regional and global economies and financial markets.

It is impossible to predict with any certainty the extent to which the decline in market conditions caused by the COVID-19 pandemic will impact the business of the Partnership and its Properties, including achieving expected rental income targets, and the Partnership’s ability to dispose of Properties in the time 124

frame desired. The impact of the COVID-19 pandemic and measures to prevent its spread could negatively impact operating costs and results of a Property until it is disposed of by the Partnership, as well as the market prices at which Properties can be disposed. In addition, the COVID-19 pandemic has also caused, and is likely to continue to cause, severe economic, market and other disruptions worldwide.

Conditions in the bank lending, capital and other financial markets may continue to deteriorate as a result of the pandemic, and access to capital and other sources of funding for Property acquisitions or dispositions may be constrained.

The COVID-19 pandemic and containment measures could result in, among other things: • Significant and rapid economic contraction and a record rise in unemployment.

• Adverse impacts on the progress of construction of Properties and Watermark’s ability to develop Properties in accordance with the terms of their loans.

• Adverse impacts on the demand for and the value of commercial real estate generally and multifamily developments in particular.

• A significant increase in tenants in default and slowdown in the rate of development, primarily as a result of the adverse impacts on the creditworthiness of the developer.

• Adverse impacts on capital and credit market conditions, which may limit the Partnership’s access to, and increase the cost

of, capital.

• Supply chain disruptions and/or lack of qualified construction crews.

• An increased risk of potential delays in foreclosure proceedings and the enforcement of the Partnership’s rights with respect to tenants in default.

• An increased risk of an information or cyber-security incident, fraud, or a failure to maintain the uninterrupted operation of Watermark’s information systems, among other things, as a result of an increase in remote work.

IV. RISKS RELATING TO FEDERAL INCOME TAX ASPECTS CERTAIN TAX CONSEQUENCES TO LIMITED PARTNERS WILL VARY FROM LIMITED PARTNER TO LIMITED PARTNER DEPENDING ON THE LIMITED PARTNER’S PARTICULAR CIRCUMSTANCES. ACCORDINGLY, EACH LIMITED PARTNER SHOULD CONSULT ITS OWN ADVISORS REGARDING ALL OF THE FEDERAL, STATE, LOCAL AND FOREIGN TAX AND REGULATORY CONSEQUENCES RELATING TO AN INVESTMENT IN THE PARTNERSHIP BASED ON EACH LIMITED PARTNER’S SPECIFIC CIRCUMSTANCES. EACH TAXPAYER SHOULD SEEK ADVICE BASED ON ITS PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR. NEITHER THE PARTNERSHIP NOR THE GP IS PROVIDING ANY TAX ADVICE TO ANY PROSPECTIVE INVESTOR.

Risk of Audit. The Partnership could be audited by the Internal Revenue Service (the “IRS”). An audit adjustment to the Partnership’s tax return for any tax year (a “Prior Year”) could result in a tax liability (including interest and penalties) imposed on the Partnership for the year during which the adjustment is determined (the “Current Year”).

The tax liability generally is determined by using the highest tax rates under the Internal Revenue Code applicable to U.S. taxpayers, although the Partnership may be able to use a lower rate to compute the tax liability by taking into account (to the extent it is the case and the implementing rules permit) any of the Partnership’s tax-exempt or foreign Limited Partners. Alternatively, the Partnership may be able to elect with the IRS to pass through such adjustments for any year to the partners who participated in the Partnership for the Prior Year, in which case each Prior Year participating partner, and not the Partnership, would be responsible for the payment of any tax deficiency, determined after including its share of the adjustments on its tax return for that year.

If such an election is made by the Partnership, interest on any deficiency will be at a rate that is two percentage points higher than the otherwise applicable interest rate on tax underpayments. If such an election is not made, Current Year partners may bear the tax liability (including interest and penalties) arising from audit adjustments at significantly higher rates and in amounts that are unrelated to their Prior Year economic interests in the 125

partnership items that were adjusted.

“At Risk” Limitations. If the Partnership generates tax losses, the “at risk” rules of Section 465 of the Code, which are applicable to individuals, partnerships, and closely-held corporations but not widely-held corporations, and which apply to the activity of holding real property, may limit the amount of such losses that the Limited Partners may utilize, or when they can utilize a loss.

Alternative Minimum Tax. An investment in the Partnership may affect the liability of a Limited Partner for the alternative minimum tax. Prospective investors should review the effect of an investment in the Partnership on their liability for the alternative minimum tax with their own tax advisors.

Passive Income and Losses. If the Partnership generates tax losses, such losses would be considered “passive activity losses” and, for certain taxpayers, including individuals, would be deductible only against “passive activity income,” pursuant to Section 469 of the Code.

If a Limited Partner is subject to Section 469, such Limited Partner’s ability to deduct losses from the Partnership will be severely limited.

Any income earned by the Partnership will be treated as “passive income” under Section 469 and Limited Partners will be able to utilize their share of such passive income to offset against any passive losses arising out of the Partnership or other passive sources of such Limited Partner.

Allocation of Taxable Income and Losses.

The IRS may challenge the Partnership’s allocations of taxable income and losses and assert that Limited Partners in the Partnership should be allocated a different share of the taxable income and losses. This might alter the tax treatment afforded to Limited Partners.

If the IRS audits the Partnership, the IRS may seek to allocate such taxable income and losses for tax purposes in a manner less favorable to the Limited Partners than that claimed by the Partnership.

The foregoing is based on existing Federal income tax law and interpretations thereof by the Treasury Department and IRS, including the regulations under Section 704(b) of the Code. These regulations pertain to the determination of a Limited Partner’s distributive share of income, gain, loss, deduction or credit (or an item thereof).

Changes in the regulations, or changes in the Code or in any other interpretation thereof, could adversely affect the realization of the projected benefits by a Limited Partner.

Disallowance of Deductions of Certain Fees and Expenses by the Partnership. The IRS may challenge some of the deductions the Partnership will take, including fees paid to the GP, which could be deemed de facto distributions by the Partnership to a Limited Partner or else unreasonable in amount in relation to the services rendered. Because the deductibility of a fee depends in part upon proving specific facts with respect to each fee, there can be no assurance that such a challenge would not be successful. If the

IRS were to challenge the treatment of such expenses or fees, it is possible that some portion of the deductions claimed by the Partnership with respect to these expenses or fees would be eliminated or deferred, either as a result of a settlement with the IRS or as a result of litigation. Depending on the nature of such a result, there could be reduced benefits to the Limited Partners in the years in which such deductions were disallowed. In addition, it is anticipated that the certain of the Partnership’s expenses may be investment expenses treated as miscellaneous itemized deductions. The Tax Cuts and Jobs Act disallows most itemized deductions for tax years beginning after December 31, 2017 and before January 1, 2026, with the result that any individual who is a Limited Partner may not be permitted to claim, a US federal income tax deduction for such expenses.

Gain on Disposition of a Property. For Federal income tax purposes, any gain realized on the sale of a Property would generally be treated as long-term capital gain (assuming the appropriate holding period requirement were met) except to the extent of certain depreciation recapture.

Taxable Gain or Loss on Sale of a Limited Partner’s Interest in the Partnership. Upon the sale by a Limited Partner of all or a portion of its Interest in the Partnership, such Limited Partner will recognize gain or loss in an amount equal to the difference between (i) the consideration, if any, such Limited Partner receives upon the sale of its Interests, including such Limited Partner’s allocable 126

share of relief from the Partnership’s debt, and (ii) such Limited Partner’s tax basis in such Interests. Except as noted below, gain or loss recognized by a Limited Partner on a sale or other taxable disposition of such Limited Partner’s Interests will generally be classified as capital gain or loss. Capital gain recognized by an individual on the sale or other taxable disposition of Interests in the Partnership held for more than one year will generally be classified as long-term capital gain, currently taxable at a maximum federal income tax rate of twenty percent (20%), plus the three and eight-tenths percent (3.8%) surtax on investment income.

However, that portion of such gain or loss attributable to a Limited Partner’s share of the Partnership’s “unrealized receivables” (including depreciation recapture) or substantially appreciated “inventory items” each as defined for purposes of the Code (the “Section 751 Assets”) will generally be classified as ordinary income or loss. Ordinary income attributable to Section 751 Assets may exceed net taxable gain realized on the sale of an Interest and may be recognized even if there is a net taxable loss realized on the sale of such interest. Thus, a Limited Partner may recognize both ordinary income and a capital loss upon a sale of an Interest. Net capital losses may offset capital gains and no more than $3,000 of ordinary income in the case of individuals. In the case of corporations, capital losses may offset only capital gains.

Interest and Penalties on Understatement of Tax Liability. The Code provides that the interest rate on a taxpayer’s underpayment of tax liability (other than a “large corporate underpayment”) under Section 6621 of the Code is based upon the Federal short-term rate plus three percentage points, and that such interest rates will be adjusted quarterly, with the rate determined during the first month of the calendar quarter, effective for the following calendar quarter. Additional penalties may be applicable in the case of the underpayment of a taxpayer’s tax liability due to negligence, the intentional disregard of rules or regulations or when there is a substantial understatement of income tax liability or a substantial valuation misstatement.

from a registered investment company.

Limited Partner do not have the benefits and protections arising out of the registration under the Investment Company Act. However, if the Partnership was to become subject to the Investment Company Act because of a change of law or otherwise, the various restrictions imposed by the Investment Company Act and the substantial costs and burdens of compliance therewith could adversely affect the operating results and financial performance of the Partnership.

Moreover, parties to a contract with an entity that has improperly failed to register as an investment company under the Investment Company Act may be entitled to cancel or otherwise void their contracts with the unregistered entity.

Such additional penalties are in addition to any other penalties and any interest payable with respect to the underpayment. A challenge of any of the Partnership’s tax positions, possibly arising from one or more of the tax risks described above, could further result in Limited Partners being subject to these interest and penalty provisions.

Investment Advisers Act. The GP is not registered with the U.S. Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940, as amended.

V. REGULATORY RISKS Investment Company Act. The Partnership will not register under the Investment Company Act of 1940, as amended. The Partnership conducts its activities so as not to be subject to the restrictions to which a registered investment company under the Investment Company Act would be subject and differs significantly in many respects

VI. RISKS RELATING TO FORECASTS Factors Affecting Financial Forecasts. Any financial forecasts, models, or projections of returns (the “Forecasts”) provided by Watermark about the Partnership or the Properties to potential investors are based in part, on assumptions concerning facts and events over which the Partnership and the GP will have no control, and which could, if they change, produce results significantly different from those set forth in the Forecasts.

Such assumed facts and events on which 127

the Forecasts are based include, without limitation, the admission of the Limited Partners to the Partnership and the acquisition of the Properties; the continuation of certain provisions of the Federal income tax laws; that certain assumptions upon which the Forecasts are based (e.g., the useful lives attributed to certain components of the Properties for depreciation purposes and the deduction of various fees) will be recognized for Federal income tax purposes; high rates of occupancy of the Properties (which may be adversely affected by various local factors, including an increase in unemployment, overbuilding and other local conditions); and fixed annual percentage increases of both operating expenses; estimated rents (which are subject to various contingencies and depend, in part, upon the management capabilities of the GP and its Affiliates) and achieving the target price upon the sale of a Property.

PAST PERFORMANCE OF WATERMARK OR ITS AFFILIATES IS NO GUARANTEE OF THE PARTNERSHIP’S FUTURE PERFORMANCE. ANY FORECASTS THAT HAVE BEEN PROVIDED BY WATERMARK FOR REVIEW

BY POTENTIAL INVESTORS HAVE ONLY BEEN COMPILED, MEANING THAT NO PARTY HAS EXAMINED THE ASSUMPTIONS UPON WHICH THE FORECASTS WERE BASED NOR PASSED UPON THE REASONABLENESS THEREOF. ANY FORECASTS ARE BASED ON ASSUMPTIONS AS TO FUTURE EVENTS AS WELL, WHICH ARE SUBJECT TO CHANGE. FORECASTS SHOULD MERELY BE VIEWED

AS AN ORDERLY REPRESENTATION OF THE RESULTS THAT MIGHT BE ACHIEVED SHOULD ALL OF THE ASSUMPTIONS BE REALIZED. NO ASSURANCES CAN BE GIVEN AS TO THE PROBABILITY OR THAT THE FORECASTED RESULTS WILL BE ACHIEVED. Any Forecasts have been based on estimates and assumptions that represent the best estimates by Watermark as to what the actual experiences of the Partnership may be. In certain circumstances, however, some of the assumptions may be arbitrarily chosen for the purposes of the Forecast because of the impossibility of making meaningfully precise predictive assumptions or because of the possibility of offsetting changes in assumed facts. Moreover, changes in assumptions, estimates and forecasts, including interest and rents, could vary actual operating results from those that have been forecasted.

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THOMPSON THRIFT & WATERMARK RESIDENTIAL HEADQUARTERS MONUMENT CIRCLE, INDIANAPOLIS, INDIANA

Terre Haute 901 Wabash Avenue, Suite 300 Terre Haute, IN 47807 812-235-5959

Indianapolis 111 Monument Circle, Suite 1500 Indianapolis, IN 46204 800-687-0012

Phoenix 2398 E Camelback Road, Suite 210 Phoenix, AZ 85016 602-313-8631

Houston 17314 SH 249, Suite 320 Houston, TX 77064 281-971-4016

THOMPSONTHRIFT.COM/WATERMARK