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Market Feasibility Analysis for the:

Salisbury Square Residential Project

in:

Randolph, Vermont

Prepared for:

Randolph Area Community Development Corp.

Prepared by:

Douglas J. Kennedy Norwich, Vermont 05055

September 23, 2006

v. 1.5b LV #4606

Table of Contents

Introduction and Scope of Project ­ Project Site and Community Context ­

Location Project Site, Profile and Context -

3 6

6 8

Market Analysis ­

Market Area ­ Area Economy Target Markets ­ Background Demographics ­

Population-Households Trends and Characteristics ­ Household Income Levels ­

13

13 16 19 20

20 25

Housing Market Trends and Comparables ­

Housing Supply and Characteristics ­ Comparable Housing Demand

Ownership Rental

27

27 30

31 33

Market Rents Affordable Ownership Housing Overview

35 36

Market Potential

Potential Market Pools ­ Market Area Households Market Capture and Absorption Rates Summary

37

37 44 47

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

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Introduction and Scope of Project

The following report details research and analysis completed to assess the background market and market-based feasibility of a planned new mixed-use development project in Randolph, Vermont. The market analysis tested the market feasibility of the `Salisbury Square' project that will potentially provide: 1) New for-sale units oriented toward moderate income households and, as a secondary option; 2) New rental apartments oriented toward lower/moderate income households. The project may also include commercial and office space; However, the planned residential use is the focus of this report. The project will draw upon the market in the greater Randolph area. The project will include the following residential elements: 1. 19 Townhouse Units ­ mix of two and three bedroom units. Intended for sale at targeted pricing of $175,000+. 2. 10 Condominium/Apartment Units ­ multi-unit building. Intended for sale with targeted price in the $125,000 range. Secondary use option for these units would be rental apartments.1 As assessed in this report, the project will potentially involve financing programs to assist with homeownership: 1. The for-sale units will be made available to households with incomes ranging from 60 to 100 percent or 100 to 120 percent of the Orange County median. Households at the lower end of this income spectrum will receive favorable financing and are likely to be subject to equity sharing restrictions upon resale. 2. Efforts would be made to keep rental apartments ­ should this option be chosen ­ within an affordable range for households with incomes of up to 100 percent of the Orange County median. Several factors were given consideration in the assessment of the market-based feasibility of the project. Overall, the analysis was oriented toward answering several principal questions: · Given the demographics and economic situation in the market area, is there sufficient support for the elements of the project and, if so, at what rate can the residential units be expected to absorbed or rented? What is the level of demand for the elements of the project? What competition does the project face?

· ·

1

Also possible that one or two studio apartments could be included in the mix.

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Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

Is the proposed Salisbury Square site in Randolph appropriate for a project of this type? The report was prepared in response to a request from the Randolph Area Community Development Corp. (RACDC) to assess a proposed residential development. We spoke several times with a representative of RACDC to ensure that we had a thorough understanding of the project concept.2 Elements of the project are summarized below: Salisbury Square - Site is situated between School and Salisbury Streets, Randolph, Vermont ­ new construction of townhouse and condominium/apartment units. The project may also include some commercial office and other space. Developer ­ Randolph Area Community Development Corp. Location ­ the project is located on a site lying between School and Salisbury Streets in Randolph. The site is immediately adjacent to Randolph's downtown area. The site has access to public water and sewer. The project will involve: New construction of 19 for-sale townhouse units and 10 condominium/apartment units. Residential Market Orientation ­ 1) Moderate income households who meet criteria for Vermont's first time home buyer programs; 2) Moderate income households who can purchase reasonably priced units and/or; 3) households that can afford rental units priced at market levels. The project will be available to persons in any age group. The project in total will likely include 24+ units, including both townhouses and condominiums/apartments.

-

In the event that the design, rental rates, or other aspects of the project differ in significant respects from the program(s) described above, the findings contained in this report should be revised. The report covers the following major areas with respect to housing market conditions and project viability: Definition of a geographic market for the project, as well as the household types that represent the target market(s) for the project. An assessment of the local and regional context in which the project will be developed, and a summary of local and regional growth and economic conditions. A quantitative analysis of source market demographics and potential buyer pools.

2

Interviews and other contacts with Jeremy Ingpen and Amy Diller of RACDC., who provided us with background data regarding the project. In addition, we relied on project sketch plans developed by the office of T.J. Boyle and Associates.

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Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

A review of existing, comparable housing market activity and assessment of competitive offerings. Projections regarding prospective project market absorption and recommendations. Significant market findings and relevant quantitative data are contained in tables, charts and figures contained in the text of the report. The analysis and this report are based on an extensive review of available data from Federal, state, regional and local sources. In addition, a number of individuals with knowledge of local/regional housing and commercial real estate markets have been interviewed to provide additional background material for the analysis. This report, including all background data, findings and recommendations, is based on market conditions as assessed by the analyst at the time of report preparation. In the event that there are any significant changes in a number of factors, including; macro-economic conditions, local/regional economic conditions, interest rates, local/regional competition, changes in the project program, or other factors affecting the market, it is likely that the findings contained in the report will change. No guarantees are offered that the estimates, projections and findings in this report will be met. However, the findings contained in the report do reflect the judgment of the analyst, following the review of housing and commercial real estate market conditions.

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

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Project Site and Community Context

A review of the project site and host community follows:

Location

Randolph is a central Vermont community and serves as Orange County's principal commercial and service center. Randolph's regional location is show in the graphic below. Randolph - Regional Location

Randolph is located in southwestern Orange County. Orange County is located in eastcentral Vermont and shares a border with New Hampshire (along the Connecticut River) to the east. Major travel routes in the town include: Interstate-89 (Randolph is served by Exit 4) Vermont Routes: 14 and 12 for north-south travel and Route 66 for east-west travel. Highway access is good. However, topography restricts direct travel to the west.

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

Page 6

Randolph's estimated 2005 population was 5,054 persons, a 6.1 percent increase over the 1990 level - Orange County grew by 12.0 percent during the same period. As noted, Randolph is Orange County's principal commercial/service center. However, the community's influence is primarily in the western portion of the county ­ along the I-89, VT 12, VT 14 and VT 110 north-south corridors. The presence of I-89 gives the community strong links to the north and south and substantially increases the range in which Randolph residents can seek employment. Similarly, the highway's presence increases the geographic area from which Randolph businesses can seek employees. The community's range of businesses and services can serve the great majority of residents' day to day needs. However, many travel to the Upper Valley (VT/NH) or the Barre/Montpelier area for major shopping needs.

Downtown Randolph

Randolph's educational system includes the Randolph Elementary School, located at 40 Ayers Brook Road and the Randolph Union High School, located at 15 Forest Street. The high school also hosts the Randolph Career and Technical Center.

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

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Randolph Elementary School and Randolph Union High School

Project Site, Profile, and Context

As noted, the project site lies between School Street, Salisbury Street and the railroad tracks just several blocks removed from Randolph's downtown commercial core. The site has an east-west orientation and can be accessed from either School or Salisbury Streets. The site location with respect to the downtown area is shown in the graphic below.

(Space Left Blank Intentionally)

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

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Salisbury Square: Site Location

The site was previously used for industrial purposes and is regarded as a brownfield. With the exception of several abandoned agricultural and industrial buildings, the site is principally open. Significantly, a steep bank runs from east to west through the site, effectively bifurcating the site for development purposes. As such, development occurring on the School Street side of the site (north side) can take on a different character from that occurring on the Salisbury Street/Railroad side of the site (south side.) The site is shown in several views below:

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

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Site View from end of Salisbury Street Looking Northwest

Site View looking westerly along Southern Boundary Railroad to Left

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

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Site View looking southerly from School Street

We note the following regarding the Salisbury Square site: · · The site offers easy walking access to downtown Randolph's full range of services. The site is located immediately adjacent to a town recreation area, offering open space and recreational potential.

Town Recreation Area Across School Street

· ·

The site(s) can take advantage of existing village infrastructure. The site is adjacent to, and can be linked with existing residential neighborhoods.

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Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

The most recent project site plan is shown in the graphic below.3 Salisbury Square: Current Site Plan

3

Sources: RACDC and T.J. Boyle and Associates, plan dated 6/30/06. Note that this is a working plan and that further changes are likely.

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Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

Market Analysis

Market Area

Moves by households are motivated by issues like: 1) Convenience in commuting to a job; 2) Preferences for certain communities revolving around service and transportation factors, and; 3) Search for high quality housing with affordable pricing. For older households, important issues include: 1) Security; 2) Living near family and friends and; 3) Convenient walking access to services. A number of factors were considered in making a determination of the market area for Salisbury Square, including; the regional transportation system and commuter patterns; location of local and regional competition, and; existing commuting and social patterns in the area. The table below shows commuting patterns to Randolph from other area towns.4 Commute to Randolph

Commuters to Randolph from: Randolph town Orange Co. VT Braintree town Orange Co. VT Brookfield town Orange Co. VT Bethel town Windsor Co. VT Northfield town Washington Co. VT Tunbridge town Orange Co. VT Barre town Washington Co. VT Royalton town Windsor Co. VT Barre city Washington Co. VT Chelsea town Orange Co. VT Others Total Number of Commuters 1,269 283 169 132 83 66 63 60 50 39 536 2,750 % of Total 46% 10% 6% 5% 3% 2% 2% 2% 2% 1% 19% Cumulative % 46% 56% 63% 67% 70% 73% 75% 77% 79% 81% 100%

80 percent of commuters to Randolph originate from an area within roughly 15 miles of the downtown. This is shown in the following graphic.

4

Source: US Bureau of the Census and Vermont Center for Rural Studies ­ Year 2000 data.

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Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

80 Percent Commuter-Shed: Randolph

We also collected data regarding the commuting patterns of Randolph residents. The table below shows the destination communities for Randolph commuters.5

5

Source: US Bureau of the Census and Vermont Center for Rural Studies ­ Year 2000 data.

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Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

Commute from Randolph

Commuters from Randolph to: Randolph town Orange Co. VT Lebanon city Grafton Co. NH Royalton town Windsor Co. VT Braintree town Orange Co. VT Hartford town Windsor Co. VT Barre city Washington Co. VT Montpelier city Washington Co. VT Bradford town Orange Co. VT Bethel town Windsor Co. VT Barre town Washington Co. VT Northfield town Washington Co. VT Other Locations Total Number of Commuters 1,269 114 98 92 90 82 65 63 51 48 37 478 2,487 % of Total 51% 5% 4% 4% 4% 3% 3% 3% 2% 2% 1% 19% Cumulative % 51% 56% 60% 63% 67% 70% 73% 75% 77% 79% 81% 100%

The majority (51 Percent) of Randolph commuters work in their hometown. However, we note that over 10 percent commute to the Upper Valley (VT/NH) region. Because we are assessing the potential for ownership housing programs (or possible rental) within the project, we have attempted to be inclusive without overstating the likely influence of any single element. Clearly, Randolph residents would be attracted to a project in their home community. Further, we are anecdotally aware that a number of persons who work in Randolph now live in other towns because of lesser housing costs. Again, these households would be attracted to an affordable ownership or rental option in the town. Further, we are aware that a number of workers commute to Randolph from outside the 15 mile area ­ particularly from the Upper Valley VT/NH and the Barre/Montpelier areas. For purposes of this analysis, the primary market area has been defined as a circle with a varying radius of approximately 15 miles, centered at the project site. Given the attractiveness of the study area as a place to live and the growing economy, it is also anticipated that 10 to 15 percent of the market for the project will be drawn from outside of the defined market area.

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

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Area Economy

The economy has a significant impact on the residential market, as both upward and downward economic trends affect housing availability and pricing. Because this project will have appeal to a range of prospective tenants in terms of age, a substantial portion of the potential tenants will be active in the job market. A strong economy will draw new people to a region, increasing the demand for housing and increases in pricing. The current employment situation in the region is a significant factor in the housing market. Employment trends and levels reflect economic conditions as a whole and are considered an accurate barometer of a changing economy. The following table compares labor force, employment, and unemployment rates for Orange County and Vermont. Figures are expressed as annual averages.

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

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Labor Force and Employment Comparison: Orange County, Vermont (1990 ­ 2006)

Orange County

Labor Force Employment Unemployment Rate Labor Force

Vermont

Employment Unemployment Rate

1990 1995 2000 2001 2004 2005 2006* Change 1990-2005 Note: Source:

14,350 15,050 15,550 15,900 16,400 16,550 17,000 15.3%

13,650 14,500 15,200 15,450 15,850 16,000 16,550 17.2%

4.9% 3.7% 2.3% 2.8% 3.4% 3.3% 2.6%

304,500 318,800 333,900 335,400 353,400 355,900 365,900 16.9%

289,200 305,300 324,900 326,600 340,400 343,500 353,850 18.8%

5.0% 4.2% 2.7% 2.6% 3.7% 3.5% 3.3%

All figures with exception of 2006 annual averages. 2006 figures for June. Vermont Dept. of Employment & Training

Orange County has experienced strong growth, both in terms of the size of its labor force and in terms of employment gains. Labor force and employment growth have fallen only slightly below the rate of growth for the state as whole. However, unemployment rates in Orange County are quite low. Low unemployment rates typically result in a labor shortage ­ and resultant pressure on the housing market. Similar data is shown for the Town of Randolph in the table below. Randolph serves as an employment center for much of western Orange County ­ and also draws workers from northern Windsor County and southern Washington County.

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

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Labor Force and Employment: Town of Randolph (1990 ­ 2006)

Labor Force 1990 1995 2000 2004 2005 2006* Change 1990-2005 Note: Source: 2,560 2,610 2,630 2,730 2,760 2,730 7.8% Employment 2,360 2,480 2,570 2,650 2,690 2,650 14.0% Unemployment Rate 7.8% 5.0% 2.3% 2.9% 2.5% 2.9%

All figures are annual averages except 2006 2006 figures for June. Vermont Dept. of Employment & Training

Although increases have not matched those for the county as a whole, it is apparent that the employment situation in Randolph has improved over the years. Unemployment rates in Randolph are particularly low. Randolph has attracted a number of employers ­ both well established and new. Several of the community's major private employers are summarized in the table below.

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

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Major Private Employers: Randolph

Year Established Annual Sales

Company Randolph Gifford Medical Center Dubois & King New England Precision Randolph National Bank Applied Research Associates

Source:

Employees Product/Service

284 92 55 55 53

Health Services Engineering Services Metal Stamping, Tool & Die Commercial Banking Geotechnical & Environmental Equipment

1903 1962 1988 1875

$10-50Million $5-10Million $10-50Million

Vermont Business Magazine.

The community has a strong base in services and manufacturing. We note that Vermont Technical College and the Randolph School System are also major local employers. Overall, it is clear that the economy in the area of the project has grown and that it remains strong. This has the effect of increasing demand for housing and pushing housing prices up. Housing pricing typically increases in periods of economic growth. While the current economy (at this time of this writing) appears to have `softened,' we do not expect housing pricing to decline. Perhaps most significantly, the economy is drawing young workers to the area. We note that recent reports indicate that the regional housing market is `cooling,' with increases in for-sale inventories and potential price stabilization. Data presented in a later section of this report is consistent with this assessment. However, it is important to note that, to date, there has been no major correction in the housing market.

Target Markets

Given the range of affordable housing potential proposed in the project, there is no single target market group. Rather, a number of household types and ages may be interested in affordable rental or ownership housing.

Primary Target Market - Ownership Units

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

Page 19

Ownership units will be primarily attractive to younger and middle aged households attempting to `break into' the housing market. This could include couples, two persons living together and families with children. Although the potential for an older household to express interest in this housing product is a possibility, we have focused on younger and middle aged households for purposes of this analysis. Secondary Target Market -Rental Units Potential appeal to a broad range of household types, including new, young households (singles, couples, singles with children, couples with children, etc.) to older households ­ particularly single persons.

Background Demographics

Given the project profile, prospective occupants in ownership or rental units will need to meet distinct age/income profiles. As such, it is essential to complete a thorough demographic analysis in order to determine if there is are sufficient, qualified market pools to provide tenant and buyer prospects. The analysis focuses on households with characteristics that will make them eligible for tenancy or ownership in the project at various income levels, as well as households' propensity to move. Given the parameters of the project, the primary focus must be on lower to moderate income households who are seeking a housing change. Additional background demographic data has been provided in order to provide an overall sense of change in the market area and to assess the relative strengths of the target markets. The broader demographics of the region will affect the project's market acceptance, for at least two major reasons: 1) Overall market strength increases housing demand, both easing acceptance of new projects and making it easier for households to move; 2) Demographic shifts result in changes in housing needs. Critical background demographic indicators are summarized below.

Population/Household Trends and Characteristics

The table below shows historic and current population values for the market area, Randolph Town and Orange County. We have also included data for the `Region' ­ the area within 25 miles of the project site.

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

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Population Trends and Projections: Market Area, Randolph Town and Orange County (1990 ­ 2010)

1990 Market Area · % Change Randolph Town · % Change Orange County · % Change Region* · % Change Sources: 26,149 4,764 4,853 1.9% 28,226 7.4% 117,317 2000 23,125 2005 23,860 3.2% 5,054 4.1% 29,287 3.6% 118,680 1.2% 119,637 0.8% +957 Projected 2010 24,227 1.5% 2005-'10 Change +367

U.S. Bureau of the Census, ESRI Business Information Solutions, Vermont Dept. of Health

The market area, town and county have all experienced moderate population growth in recent years. Expectations are for some continued growth ­ but not at a high level. Overall, it is projected that the market area's population will increase by 367 persons during the next five years. The following table shows the current and projected market area population broken down by age group.

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

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Population by Age Bracket: Market Area (2005 ­ Projected 2010)

Total Persons Age Group 0-14 15-24 25-34 35-44 45-54 55-64 65-74 75-84 85+ Total Population Median Age Source: 2005 4,056 3,531 2,577 3,388 4,104 3,054 1,622 1,121 429 23,860 40.7 2010 3,828 3,489 2,544 3,077 4,070 3,779 1,841 1,114 485 24,227 42.6 % Change -5.6% -1.2% -1.3% -9.2% -0.8% +23.7% +13.5% -0.6% +12.8% +1.5%

ESRI Business Information Solutions

Market area population change will show significant variation by age group. Based on the projections, all of the population increase in the market area will occur in the 55 to 74 years and 85 or more years groups. Growth in the 55 to 74 years bracket is a clear reflection of the aging of the baby boom cohort, a major force in the majority of US markets. Household change is a direct indicator of housing need. The following table shows current and projected market area households and average household size for each year. Data is also shown for the region ­ the area within 25 miles of the project site. .

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

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Household Change and Average Size: Market Area and Region (2000 ­ 2010)

2000 Market Area Households · % Change Average HH Size Region Households · % Change Average HH Size Sources: 2.40 46,147 47,451 2.8% 2.35 48,337 1.9% 2.33 +886 2.41 9,279 9,764 5.2% 2.37 10,026 2.7% 2.34 2005 Projected 2010 Change 2005-'10 +262

U.S. Bureau of the Census, ESRI Business Information Solutions

The number of households in the market area is expected to increase by 262 between 2005 and 2010. This represents a market for new housing, particularly if it is oriented toward the appropriate market group. Average household size continues to decrease in this market, resulting in a 2005 to 2010 household growth rate (2.7 percent) that exceeds the overall population growth rate. Continued decreases in average household size are a reflection of aging in the market. Current and projected market area age data has been presented in terms of breakdown by age of head of household, an indicator that is specific to the housing market. This is shown in the table below.

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

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Current and Projected Household Age Distribution: Market Area (2005 - 2010)

2005 HH Age Group 15-24 25-34 35-44 45-54 55-64 65-74 75+ Totals Source: HHs 447 1,282 1,797 2,340 1,809 1,060 1,035 9,770 % of Total 4.6% 13.1% 18.4% 24.0% 18.5% 10.8% 10.6% HHs 422 1,256 1,589 2,292 2,198 1,194 1,075 10,026 2010 % of Total 4.2% 12.5% 15.8% 22.9% 21.9% 11.9% 10.7% Change (25) (26) (208) (48) 389 134 40 256

ESRI Business Information Solutions

As noted, there is solid household growth in the market area ­ a projected increase of 256 households over the next five years. Not surprisingly, particularly strong growth is expected in the 55 to 64 years bracket, consistent with the aging of the baby boom. Overall, households with heads aged 55 years or more will account for the majority of growth in the market area. Although there will be no net increase in the number of younger households ­ housing needs will remain. The following table shows market area and `Region' households by size (number of persons in household.)

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

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Households by Household Size; Market Area and Region (2000)

Market Area HH Size (Persons) 1 2 3 4 5 6 7+ Totals Sources: Number of HHs 2,431 3,452 1,392 1,327 464 139 65 9,279 US Bureau of the Census, ESRI % of Total 26.2% 37.2% 15.0% 14.3% 5.0% 1.5% 0.7% Region - 25 Mile Radius Number of HHs 12,644 16,751 7,107 6,507 2,261 646 277 46,147 % of Total 27.4% 36.3% 15.4% 14.1% 4.9% 1.4% 0.6%

Over 63 percent of the households in the market area are composed of only one or two persons, an indication that the majority of rental demand is likely to be for smaller units.

Household Income Levels

Household income level is significant for this project. Since eligible buyers (or tenants) have been targeted within certain income guidelines, the presence (or absence) of income-eligible households is a primary indicator of the project's marketability. Household income distributions have been analyzed for the market area and region. Data is included for income brackets that have potential for residence in the project. The tables below show household age by income distributions for the market area and region for 2005. The income distributions are shown for all households.6

6

Sources: US Bureau of the Census, ESRI.

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Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

Household Income by Age Distribution: Market Area (2005)

Number of Households $25 - $34,999 # of HHs Age of HH Head 15 - 24 25 - 34 35 - 44 45 - 54 55 - 64 65-74 75+ Totals Source: 70 182 246 239 224 166 139 1,266 6% 14% 19% 19% 18% 13% 11% 83 289 379 424 305 199 104 1,783 5% 16% 21% 24% 17% 11% 6% 45 306 489 687 343 188 72 2,130 2% 14% 23% 32% 16% 9% 3% 4 63 242 307 256 78 85 1,035 0% 6% 23% 30% 25% 8% 8% % of Total $35 - $49,999 # of HHs % of Total $50 - $74,999 # of HHs % of Total $75 - $99,999 # of HHs % of Total

ESRI Business Information Solutions

Household Income by Age Distribution: Region (2005)

Number of Households $25 - $34,999 # of HHs Age of HH Head 15 - 24 25 - 34 35 - 44 45 - 54 55 - 64 65-74 75+ Totals Source: 351 860 997 982 1,007 759 706 5,662 6% 15% 18% 17% 18% 13% 12% 392 1,309 1,802 1,764 1,396 867 562 8,092 5% 16% 22% 22% 17% 11% 7% 225 1,618 2,470 3,082 1,629 796 493 10,313 2% 16% 24% 30% 16% 8% 5% 46 357 1,234 1,866 1,127 372 365 5,367 1% 7% 23% 35% 21% 7% 7% % of Total $35 - $49,999 # of HHs % of Total $50 - $74,999 # of HHs % of Total $75 - $99,999 # of HHs % of Total

ESRI Business Information Solutions

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

Page 26

Housing Market Trends and Comparables

We have provided a profile of housing stock, market dynamics and competitive housing in the study area below. The range of housing opportunities in Randolph is reasonable, as the town serves as an urbanized center and provides both low and relatively high density living situations. Overall, the Randolph area market is principally oriented toward ownership housing ­ there are a broad variety of offerings in the region. Relevant housing market data is presented below:

Housing Supply and Market Characteristics

The table below shows Census 2000 data for Randolph and Orange County. The table shows total housing units, occupied housing units, owner-occupied units, renter-occupied units and renter-occupied units as a percentage of total occupied units. Housing Stock Data: Occupied Housing Randolph Town and Orange County (2000)

Orange County (2000) Total Housing Units Occupied Housing Units - Owner-Occupied Units - Renter-Occupied Units Occupied Units as % of Total Units Renter Occupied as % of All Occupied Sources: 13,386 10,936 8,559 2,377 Randolph Town (2000) 1,905 1,769 1,245 524

82%

93%

21.7%

29.6%

U.S. Bureau of the Census ESRI Business Information Solutions

Randolph households show a higher propensity to rent than do other households in Orange County. This is a reflection of the town's more urbanized housing stock and the natural concentration of renter households within the community. Overall however, it is apparent that the county is primarily oriented toward ownership housing.

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006 Page 27

The table below accounts for vacant housing stock by type for 2000, based on U.S. Bureau of the Census data. Housing Vacancy: Randolph, Orange County (2000)

Orange County Number of Vacant Units For Rent For Sale Only Rented or Sold; Not Occupied For Seasonal, Recreational or Occasional Use Other Vacant Totals 208 132 70 1,850 190 2,450 Randolph Town Number of Vacant Units 19 21 2 65 29 136

County-wide, seasonal (vacation) housing is a significant factor in the housing stock. However, this is not the case in Randolph where the number of seasonal units is relatively small. The small number of vacant rental units is notable ­ the 2000 data implies a rental vacancy rate of only 3.5 percent; It is apparent that housing demand pressures have increased since 2000. Similarly, the data indicates that only 1.7 percent of housing units intended for owner-occupancy were vacant in 2000. Again, housing demand pressure has increased since 2000. The following tables show the year 2000 number of renter and owner households by household size for Randolph and Orange County.7

7

All data for year 2000.

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Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

Renter Household Distribution by Size of Household: Randolph and Orange County (2000)

Orange County (2000) HH Size (Persons) 1 2 3 4 5 6 7+ Totals Number of HHs 866 715 367 251 123 37 18 2,377 % of Total 36% 30% 15% 11% 5% 2% 1% Randolph Town (2000) Number of HHs 201 167 62 56 27 7 4 524 % of Total 38% 32% 12% 11% 5% 1% 1%

Owner Household Distribution by Size of Household: Randolph and Orange County (2000)

Orange County (2000) HH Size (Persons) 1 2 3 4 5 6 7+ Totals Number of HHs 1,690 3,327 1,389 1,401 538 138 76 8,559 % of Total 20% 39% 16% 16% 6% 2% 1% Randolph Town (2000) Number of HHs 289 448 208 188 70 25 17 1,245 % of Total 23% 36% 17% 15% 6% 2% 1%

The majority of Randolph and Orange County's renter households are composed of small households ­ either one or two persons, an indication that market demand is primarily for smaller units (70 percent in Randolph; 66 percent in Orange County). While the majority of the market demand is generated among smaller households, it is important to note that there are larger households in the rental market. Households in ownership housing are typically

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006 Page 29

somewhat larger, 38 percent of Randolph's owner households composed of three, four or five persons and 38 percent of Orange County's owner households composed of three, four or five persons. The table below shows residential building permits issued in Randolph and Orange County since 1996, broken down by type, including single family and multi-family units.8 Building Permits Issued: Randolph Town and Orange County (1996 ­ 2005)

1996 Randolph Single Family Multi-Family Totals Orange County Single Family Multi-Family Totals 58 0 58 39 0 39 54 0 54 58 0 58 50 2 52 70 0 70 60 8 68 117 0 117 100 0 100 79 8 87 685 18 703 97% 3% 8 0 8 5 0 5 13 0 13 9 0 9 9 0 9 16 0 16 10 8 18 20 0 20 19 0 19 12 8 20 121 16 137 88% 12% 1997 1998 1999 2000 2001 2002 2003 2004 2005 % of Totals Total

The data make it clear that the rate of residential development in Randolph has accelerated in recent years. During the past five years (2001 ­ 2005) Randolph averaged 18 to 19 new residential units on an annual basis and accounted for over 20 percent of all residential development in Orange County. Further, the data make it clear that the great majority of recent housing development has been in single family development.

Comparable Housing Demand

A review of comparable housing demand in the area is useful for several reasons: As an assessment of current demand and occupancy levels. To assess general market conditions in the ownership market and rental housing availability for lower and moderate income households and;

8

Building permit data source: HUD User State of the Cities Data Systems. Building permit data not available for Randolph.

Page 30

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

As an aid in determining the potential market area for the project (See Market Area above).

The primary focus of the review was on establishing that there is demand for existing affordable housing options in the area ­ particularly those that provide housing for lower and moderate income households.

Ownership Housing Market Trends We have collected data regarding residential sales to provide background regarding the ownership market. The table below summarizes R1 property sales for 2000 through 2005 in Randolph and Orange County. R1 properties are year-round residential properties on less than six acres and are generally regarded as the most representative of the year-round residential market. The table shows total transactions, total dollar volume, average transaction and median transaction amounts.9 R1 Sales Trends 2000 to 2005; Randolph and Orange County

2000 Randolph Town Transactions Volume ($Millions) Average Median Orange County Transactions Volume ($Millions) Average Median 243 $26.61 $109,497 $92,000 204 $20.79 $101,925 $90,000 248 $28.79 $116,107 $104,500 229 $27.95 $122,034 $113,000 249 $32.85 $131,941 $125,000 264 $39.85 $150,955 $139,450 43 $4.58 $106,416 $95,000 47 $4.42 $93,966 $89,900 44 $5.24 $119,011 $110,000 44 $5.03 $114,292 $116,000 60 $7.59 $126,520 $128,000 47 $8.82 $187,647 $145,000 2001 2002 2003 2004 2005

9

Source: Vermont Department of Taxes ­ Division of Property Valuation and Review. Transactions recorded in the R1 category include some sales to seasonal home buyers.

Page 31

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

The number of R1 transactions in the town or county has not changed dramatically during the years shown in the table. During the most recent years, Randolph averaged about 50 transactions and accounted for roughly 20 percent of all of Orange County's transactions. While the number of transactions did not increase significantly, significant increases in average transaction amounts have resulted in substantially higher sales volumes. In Randolph, the average R1 transaction increased in value by 76 percent between 2000 and 2005. There was a 48 percent increase between 2004 and 2005 alone. We also assessed recent price trends over time by looking at the average of 40 trailing transactions for the 2003 through 2006 period. This is shown in the graphic below. Trailing 40 R1 Transactions: Randolph; (2003 ­ 2006)

$180,000 $170,000 $160,000 $150,000 $140,000 $130,000 $120,000

Trailing Average - 40 Sales

100

109

118

127

136

145

154

163

The graphic shows clear price increases over the period from 2003 to 2005. The most recent data (2006) is consistent with the recent slowdown in the real estate market as widely reported in the media. Finally, we assessed price bracketing in the market by breaking down R1 transactions by price group ­ both for the 2003/2004 and 2005 through current period. This is shown in the graphic below.

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

172

10

19

28

37

46

55

64

73

82

91

1

2003

2004

2005

2006

Page 32

R1 Transactions by Price Bracket: Randolph; (2003-2004, 2005-Current)

35% 30%

30.0%

33.3%

Percentage of Total Sales

15% 10%

20.0%

20.8%

20%

25.0%

25%

2003-04 2005-Current

13.1%

13.8%

9.2%

11.9%

3.6%

2.3%

0%

<$50,000

$50-99,999

$100-149,999

$150-199,999

$200-249,999

$250-299,999

$300,000+

Price Bracket

The graphic makes it clear that the number of higher value transactions has increased in the 2005-Current period. In the 2003/2004 period, transactions of $250,000 or more accounted for 6.2 percent of the total; this had increased to 13.1 percent of the total in the 2005Current period. However, we note that the `core' of the market remains in the $100,000 to $199,999 range. Finally, a review of area listings indicates that there are properties in the $100,000 to $200,000 range.10 While a number of these properties clearly need work and/or are relatively small, the Randolph area market remains one with some affordable ownership opportunities. However, our research did not uncover any new units in this price bracket.

Rental Housing Overview There are a number of rental housing projects with an orientation toward lower/moderate income renters in the Randolph area. A summary of existing subsidized and partially subsidized projects in study area follows:11

10 11

Source: NNEREN-MLS. Sources: Interviews and data from RACDC, Interview with Rob Caron, Interviews with additional area contacts ­ Ellen Baker, Steve Reid.

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006 Page 33

3.8%

6.0%

5%

7.1%

Branchwood Apartments, Pearl Street, Randolph ­ this is a 12 unit project, including one, two and three bedroom units. There is no rental assistance (deep subsidies) but rents are held at an affordable level using the LIHTC, HOME program and VHCB funding. As of a recent report, all units were fully occupied and waiting periods for persons on the wait list ranged from six to nine months. Sass Apartments, Hedding Drive, Randolph ­ this is a 16 unit project, including one and two bedroom units. There is no rental assistance (deep subsidies) but rents are held at an affordable level using the LIHTC. As of a recent report, all units were fully occupied and waiting periods for persons on the wait list ranged from six to nine months. Prospect-Forest Homes, Forest and Church Streets, Randolph ­ a total of nine units, including two, three and four bedroom units. These are deeply subsidized units, with project-based Section 8 subsidies. As of a recent report, the units were fully occupied and there were waiting lists for each of the unit sizes.

Forest and Church Street Units

Randolph Circle, Village Circle, Randolph ­ this is a 20 unit project, including two, three and four bedroom units. These are deeply subsidized units, with project-based Section 8 subsidies. As of a recent report, the units were fully occupied and there were waiting lists for each of the unit sizes. Randolph House and Red Lion Inn, Downtown Randolph ­ both of these projects are oriented toward the senior market and, as of a recent report, were fully occupied with waiting lists. Both projects are deeply subsidized.

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

Page 34

Market Rents

There appears to be solid demand for rentals in the study area ­ vacancies are low and good quality, affordable units are hard to find. Just as significantly, housing development oriented toward first time buyers is rare. Market pricing can vary as rentals occur in a variety of unit types, ranging from efficiencies to single family. Generally, contacts indicate that the quality of housing in the market is reasonable. However, they further indicate that it is difficult to secure a high quality rental because of the high level of demand. Projects that have differentiated themselves in terms of quality, real amenities (garage, in-unit washer/dryer, etc), or location command higher rents; a so-called `quality premium.' Rents in the region have increased at a strong rate in recent years. An annual survey of rental rates in the region by a major housing organization indicates that median rents increased at an annual rate of 5.8 percent between 1998 and 2006.12 This is well ahead of the pace of inflation. According to another recent study, rents in the Upper Valley Region have been increasing at an annual rate of 10 percent in recent years.13 We reviewed a number of publications and databases to determine current market rental pricing in the Randolph area.14 Our findings indicate the following: · · · Studio ­ gross monthly rentals (including heat and other utilities) appear to average $570. (We note that there are few of these units in the market.) One Bedroom Units ­ gross monthly rentals (including heat and other utilities) appear to average $700. Two/Three Bedroom Units ­ gross monthly rentals (including heat and other utilities) appear to average $870.

Rental units are attractive when they are competitive with the prevailing market rent, particularly if the unit is in good to excellent condition. It is expected that if a decision to include rental apartments is made ­ that project rents will be comparable to prevailing market rents. However, the units would be competitive because they are new and because they are managed by RACDC ­ which has a solid reputation in the market.

12

Based on data from Residential Rental Cost Survey produced annually by the New Hampshire Housing Finance Authority. Data for Grafton County, NH ­ where trends are similar to those in Orange County, Vermont. 13 Source: Upper Valley Housing Needs Analysis. 14 Sources include print and online versions of: The Herald, The Valley News ­ March through July of 2006.

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006 Page 35

Affordable Ownership Housing Overview

The shortage of affordable ownership housing has been well documented in the regional media. While a number of committees and organizations are working toward affordable housing development, it is apparent that the production of these units is not occurring at the pace required to satisfy demand. The May 2005 Presentation to the Vermont Affordable Housing Coalition ­ Vermont Housing Needs Assessment, found that:15

"Orange County has not produced an adequate number of new owner or rental marketable units between 2000 and 2005 to meet the growing housing demand. Orange has added just 2 percent new owner units and 2.4 percent renter units, compared with the state rates of over 4 percent in each category."

15

Source: The Vermont Housing Council & Consolidated Plan Advisory Group.

Page 36

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

Market Potential

The market success of the project will hinge on several factors. Major points regarding the proposal are summarized below: · The project has an excellent location: - The project site is in a central location in Randolph, with easy access to all downtown services. - The location is in Randolph, the area job center. - The project can be integrated into a stable residential neighborhood. The demographic analyses indicate that there are solid pools of income-qualified households in the targeted markets for the project (see below). These markets will experience growth, given the positive economy. The study area's solid economy and growth trends are significant. Affordable housing residents are likely to be persons drawn to the area by new jobs. The study area is subject to strong housing pressures. Selective additions to the affordable housing stock will meet with substantial demand. It is reasonable to assume that the potential market for affordable housing projects in the study area is larger than the market area analyses show. Randolph is regarded as an attractive place to live ­ new housing options would almost certainly draw households in from outside the defined market area. For purposes of this analysis, we have assumed that an additional 10 to 15 percent of the market for the components of the project can be drawn from outside of the study area.

·

·

·

·

These factors indicate that there is market potential for the project. Additional assessment is presented below, for each of the project's potential markets.

Potential Market Pools--Market Area Households

The raw background demographic data can be analyzed to estimate the total available market pools for the for-sale or rental components of the project, in terms of numbers of households meeting relevant age and income criteria. Three market pool analyses have been completed: 1. Ownership units ­ a) 19+ units in the townhouse structures. The units would have two or three bedrooms and will sell for approximately $175,000 and; b) 10+ condominium units in one and two bedroom configurations ­ targeted selling price

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006 Page 37

of approximately $125,000 (these units could also be marketed for rental ­ see below). Financial features are summarized below. The ownership market has been assessed in terms of households with incomes at 60 to100 percent of median income and 100 to 140 percent of median income. 2. Lower/Moderate income rental units ­ to include 10+ units in an apartment building, with unit sizes ranging from Studio to two bedroom, this market pool could include younger or elderly households with household sizes ranging from one to four persons. Limited to households with incomes less than 100 percent of the Orange County median. Ability to afford project rents will determine `base' income eligibility for these units. 60, 80, 100 and 140 percent households income limits ­ by household size ­ for Orange County are shown in the table below.16 Household Income Limits: Orange County, Vermont (2006)

Household Size 1 60% of Median Limit 80% of Median 100% of Median 140% of Median $24,720 $32,960 $41,200 $57,680 2 $28,260 $37,680 $47,100 $65,940 3 $31,800 $42,400 $53,000 $74,200 4 $35,340 $47,120 $58,900 $82,460 5 $38,160 $50,880 $63,600 $89,040 6 $40,980 $54,640 $68,300 $95,620

The market pool analyses has been completed in two major steps: 1. Calculate the size of the age/income eligible market pools ­ the number of households that can take advantage of a particular housing program (ownership or rental) by virtue of their age and household income level. 2. Estimate the propensity to move within each market pool. Only a segment of each age/income qualified households will seek a change in housing at any given time. As such, it is helpful to assess the `propensity to move' within age/income categories in order to develop a realistic estimate of the size of the housing market. Households in various age and income groupings display markedly varied propensities to move within the course of a year. Most significantly, the propensity to move declines with increased

16

Source: HUD ­ 2006 limits.

Page 38

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

age and income. Thus, younger, lower income households are most likely to move, while older, high income households are least likely to move. As a measure of the volume of activity, the market pool estimates, as broken down by age and income, have been applied to propensity to move factors specific to each age/income group, based upon a variety of research studies.17 The result of these calculations is an estimate of the number of market pool households likely to be seeking to move within the course of one year. Note that these figures include moves to all types of housing. The market pool estimates follow:

Homeownership Program - 60 to 100 Percent Median (Lower/Moderate Income) ­ · Ownership units are typically made affordable using two basic approaches: 1. Financing ­ reduced down-payments, low interest rates, etc. 2. Subsidized Price ­ achieved through direct subsidy, land write-downs, etc. In combination, these tools can result in significant reductions in monthly housing costs, reducing the required income level for home ownership. · Depending on the level of assistance, home purchasers may be subject to some restrictions, most often in the instance of resale. Typically, buyers would face a restriction on gain upon sale and only be able to take 25 percent of the appraised gain in property value from the initial sale value. This factor does limit the potential market for the project ­ as some households do not find this limitation to be acceptable. Our analysis of home ownership market potentials focuses on households with heads aged less than 55 years, under the assumption that there are few first time buyers in age brackets above this level. Our analysis for the income strata was conducted in several major steps:

·

·

17

Sources include: · Ernst and Young Real Estate Journal · American Demographics · American Housing Survey - U.S. Bureau of the Census · Current Population Reports - U.S. Bureau of the Census · Census 2000 - U.S. Bureau of the Census Propensities to move values have been adjusted to account for lower than average propensities in this region.

Page 39

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

1. Calculate the number of age/income qualified households in the income bracket: 60 to 100 percent median; 2. Estimate the segment of the income qualified pool that already own homes; 3. Estimate the annualized propensity to move for each pool and; 4. Estimate the capture rate that an affordable housing project could achieve (final section of report.) The appropriate income parameters were applied to the demographic data in order to develop estimates of the size of the age/income qualified market pool now living in the market area. The table below shows the results of the first three steps of the above analysis: 1) Age/Income qualified households; 2) Estimate the segment of the above group that are not already homeowners, and; 3) Estimate the segment of the above group that will exhibit a propensity to move within the next year. The analysis has been completed using the raw demographic data. Results are broken down by head of household age group. Market Pool: 60 to 100 Percent of Median Market

HH Age Group HH Income 60 to 100% Median Factor out Homeowners Propensity to Move <25 147 125 83 25-34 566 258 85 35-44 798 199 38 45-54 955 171 23 Totals 2,467 752 229

Based on the analysis, in 2005 there were 2,467 age/income (60-100 Median) households in the market area; 752 of these households are not homeowners, and; 229 of these households are likely to be seeking a new residence within the next year. Our analysis of the `capture rate' that the Randolph project could achieve in this market follows in the next report section.

Homeownership Program - 100 to 140 Percent Median (Moderate Income) ­ · Ownership units are typically made affordable using two basic approaches: 1. Financing ­ reduced down-payments, low interest rates, etc. 2. Subsidized Price ­ achieved through direct subsidy, land write-downs, etc.

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

Page 40

In combination, these tools can result in significant reductions in monthly housing costs, reducing the required income level for home ownership. Subsidies for the 100 to 140 percent of median buyer will be less generous than those for the 60 to 100 group. Depending on the level of assistance, home purchasers may be subject to some restrictions, most often in the instance of resale. Typically, buyers would face a restriction on gain upon sale and only be able to take 25 percent of the appraised gain in property value from the initial sale value. Restrictions on resale will be reduced given lesser subsidies for households in the 100 to 140 percent of median bracket. · Our analysis of home ownership market potentials focuses on households with heads aged less than 55 years, under the assumption that there are few first time buyers in age brackets above this level. Our analysis for the income strata was conducted in several major steps: 1. Calculate the number of age/income qualified households in the income bracket: 100 to 140 percent median; 2. Estimate the segment of the income qualified pool that already own homes; 3. Estimate the annualized propensity to move for each pool and; 4. Estimate the capture rate that an affordable housing project could achieve (final section of report.) The appropriate income parameters were applied to the demographic data in order to develop estimates of the size of the age/income qualified market pools now living in the market area. The table below shows the results of the first three steps of the above analysis: 1) Age/Income qualified households; 2) Estimate the segment of the above group that are not already homeowners, and; 3) Estimate the segment of the above group that will exhibit a propensity to move within the next year. The analysis has been completed using the raw demographic data. Results are broken down by head of household age group. Market Pool: 100 to 140 Percent of Median Market

HH Age Group HH Income 100 to 140% Median Factor out Homeowners Propensity to Move <25 60 46 29 25-34 392 157 49 35-44 707 152 28 45-54 955 145 19 Totals 2,115 499 125

·

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

Page 41

Based on the analysis, in 2005 there were 2,115 age/income (100-140 Median) households in the market area; 499 of these households are not homeowners, and; 125 of these households are likely to be seeking a new residence within the next year. Our analysis of the `capture rate' that the Randolph project could achieve in this market follows in the next report section.

Rental Units ­ Up to 100 Percent Median (Lower Income) Rental units (should they be offered) will be available to households with incomes of up to 100 percent of the Orange County median. `Base' level incomes will be determined by assuring that renter households have sufficient income to afford the gross rental cost within their overall household budget. · · The analysis has been performed on the demographics for the defined market area. All tenants in the rental units must be households with incomes at 100 percent or less of the median. The upper income limit varies dependent on household size ­ as shown above. We have focused the analysis on households with heads aged 18 to 64 years ­ the `family' market. We would expect household sizes to range from one to four persons for family households. The potential for elderly households (household head aged 65 years or more) to become a tenant represents an upside to the analysis as presented below. Prospective tenants must have sufficient income to make the rent cost work within their budgets. Note the following: - A review of tenant policies in family projects throughout the northeast indicates that project management typically qualifies potential family tenants by ensuring that the gross monthly rental cost will not exceed 37 percent of the household income. This standard ensures that households will be able to afford the unit and make timely rental payments.

·

·

The appropriate income parameters have been applied to the raw demographic data in order to develop estimates of the size of the qualified market pool now living in the market area. This is shown in the table below. The market pool has been broken down in terms of age bracket (Head of Household) and household size.

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

Page 42

Market Pool: Rental Units; `Family' Households

Income-Qualified Households: Distribution by Head of HH Age: Age Group 18-24 25-34 35-44 45-54 55-64 Number of HHs 127 378 520 616 439 % of Total 6% 18% 25% 30% 21% Income Qualified Households: Distribution by HH Size HH Size 1 2 3 4 5 6 Number of HHs 470 884 346 380 0 0 % of Total 23% 42% 17% 18% 0% 0%

Total

2,080

Total

2,080

The family age/income qualified market is estimated at 2,080 households. As noted, only a segment of the total age/income qualified pools will consider moving at any given time. The total market pool (above) has been applied to propensity to move factors in order to estimate the number of qualified households that may be seeking housing during the next years. This is shown for the family pool in the table below. Market Pool: Rental Units; Propensity to Move; `Family' Households

Income Qualified Annual Market Head of HH Age Bracket 18-24 25-34 35-44 45-54 55-64 Number of HHs 95 141 113 96 41 % of Total 20% 29% 23% 20% 8% 100%

Total

486

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

Page 43

The potential family market includes 486 households. Note that this includes moves to all housing options ­ not just the project. The potential capture rate of an affordable rental project is assessed later in this report.

Market Capture and Absorption Rates

The majority of the project buyers/tenants will be drawn from qualified households living in the market area. These pools are assessed below: The following has been considered in estimating the project's capture rates from the available market pools: · Existing Housing Options ­ With demand for rental apartment units at a high level, good to excellent quality units are typically hard to find. In most instances, lower income households settle for one of the lower quality, cheaper apartments available in the Randolph area. However, vacancy rates for these units are also low. The housing market review makes it clear there are options available for buyers seeking ownership housing in the $150,000 to $200,000 price bracket. · Potential New Competition ­ our research did not uncover any comparable new housing projects in the market area. Location ­the project location is excellent with respect to public and commercial services and offers a quality setting for housing.

·

Current market conditions will give project units distinct competitive advantages: 1) Demand will increase as the market area grows; 2) The units will offer a level of quality not usually available within the market area, except for higher priced/rent units and; 3) Any new construction activity will attract attention and potential buyers/tenants, particularly since new units will be made available. Given these circumstances, it is likely that the project can achieve a solid capture rate ­ for each of its ownership or rental programs. Projected capture rates ­ for each component - by household age group - are shown in the tables below. These capture rates, when applied to the number of qualified households who are likely to move within one year, offer an estimate of the project's potential absorption rate. Realistically, an additional 10 to 15 percent of the will be made up of households from outside of the defined market area. Experience with similar projects throughout the Northeast has shown that there is a steady stream of persons who will move outside their home area to find good quality and affordable housing. Randolph is well regarded from several perspectives: 1) High quality of life and; 2) Reasonable access to transportation and; 3) Location in a job center. A number of persons from outside the market area will view the

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006 Page 44

opportunity created by this project as a chance to live affordably. On this basis, the annual absorption rate for the project's components will increase by 10 to 15 percent over that which would be available from the defined market area alone. This is shown in the capture rate tables.

Ownership Components:

Estimated Capture/Absorption Rate: Ownership Units - 60 to 100 Percent Median Market

HH Age Group Market Pool: Age/Income, Non-Owner, Likely to Move Adjust for: Location, Development Type, Applicable Restrictions Adjust for: Competition, Non-Market Buyers <25 25-34 35-44 45-54 Totals

83

85

38

23

229

21

22

10

6

58

4.8

5.0

2.2

1.3

13

Estimated Capture/Absorption Rate: Ownership Units - 100 to 140 Percent Median Market

HH Age Group Market Pool: Age/Income, Non-Owner, Likely to Move Adjust for: Location, Development Type, Applicable Restrictions Adjust for: Competition, Non-Market Buyers <25 25-34 35-44 45-54 Totals

29

49

28

19

125

10

17

9

6

42

2.3

3.8

2.1

1.5

10

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

Page 45

Rental Units

Projected Capture and Absorption Rates: Rental Units ­ Family

Head of HH Age Bracket 18-24 25-34 35-44 45-54 55-64 Totals Number of HHs Expected to Move 95 141 113 96 41 486 Draw from Outside Market Area Total Rates Annual Absorption Rate (HHs) 7 22 16 12 2 59.6 12.5% 67.1 Monthly Absorption Rate 5.0 12.5% 5.6

Capture Rate 7% 15% 14% 12% 5%

The capture rate analyses indicate that the project's components could achieve annual absorption rates of: 67 Units for the rental units and; 23 units for the ownership units. On a combined basis, it is projected that the market has potential for absorption of 90+ units on an annual basis, or 7.5 units on an average monthly basis. Realistically, average rates of absorption will be exceeded during the initial months of listing/leasing activity on the project, as pent-up demand for affordable housing and the marketing effect of new project construction will create an above average rate of demand. The table below summarizes the projected monthly and cumulative absorption rate for each potential component of the project. The absorption schedule assumes that marketing and preleasing/selling activity will occur during the construction of the units, with active leasing/sales starting three months before the completion of construction and initial occupancy. Because of pent-up demand, it is reasonable to expect that the rate of absorption will be above average during the first few months and particularly near the time when the project is ready for occupancy.

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

Page 46

Absorption and Rent-Up Period:

Leasing/Sales Activity Starts Occupancy Starts

2 3 4 5

Month Rental Monthly Cumulative

1

6

7

8

9

10

11

12

6.2 6

7.3 13

Ownership - 60-100 Percent Median Monthly Cumulative 1.2 1 1.4 3 1.6 4 1.6 6 1.5 7 1.3 9 1.2 10 1.1 11 1.1 12 1.1 13 1.1 14 1.1 15

Ownership - 80-100 Percent Median Monthly Cumulative Ownership - Combined Monthly Cumulative 2.1 2 2.5 5 2.8 7 2.8 10 2.7 13 2.4 15 2.2 18 2.1 20 1.9 22 1.9 23 1.9 25 1.9 27 0.9 1 1.1 2 1.2 3 1.2 4 1.2 6 1.1 7 1.0 8 1.0 9 0.8 9 0.8 10 0.8 11 0.8 12

Based on the absorption projections, it would take only two months after leasing activity is initiated to completely lease rental units; and projections indicated that 27 ownership units could be committed within a 12 month period. As such, the project's ownership or rental units could be substantially occupied within one year after the completion of the completion of construction.

Summary

· Given the combination of a solid economy and the attractiveness of Randolph as a place to live, a well-planned affordable ownership or rental housing option will experience solid demand. The commencement of construction activity on any project will immediately spur inquiries and potential sales or leasing activity. The project will generate strong demand within the market and attract buyers and tenants from outside the defined market area.

Page 47

·

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

·

The findings of the analysis indicate that there is sufficient demand to build the project in one phase. However, a two-phase construction program may better enable RACDC to react to initial market demands ­ particularly with respect to unit mix. Unit mix ­ The proposed unit mix for the rental apartments appears reasonable given the demographics of the market. Initially, we feel that a 60/40 mix between two and three bedroom units makes sense for the townhouse/for-sale units. However, we strongly recommend conducting a pre-sales survey period and adjusting this mix if the indications of demand make it clear that a different mix will better match demands.

·

It is the overall finding of this analysis that there is more than sufficient market demand for the Salisbury Square project and that the leasing/sales activity will result in substantially complete occupancy within 12+ months of the initiation of construction of the project. Strong demand and a high occupancy rate are projected for the foreseeable future.

Market Analysis: Salisbury Square; Randolph, Vermont; September 2006

Page 48

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