Partners and Supporters of Apartment Ventures:

As market conditions in commercial real estate, and its relationship with both the broader economy and specifically housing demand, have been a focus of the press recently, we have decided to increase the frequency of our investor letters to quarterly. The press is rarely nuanced, and we’ll try to give you a more focused view of the markets that we work in and the context that we believe make Apartment Ventures partnerships profitable in a complicated commercial real estate world.

To begin, a frequent question is – where do we bank our property operating cash funds which run millions each month? To always be mindful of investor capital, Apartment Ventures has banked with JP Morgan Chase for the past decade, prior to that we were with Bank of America. Our relationship with Chase has been strong, both on the cash management side and the lending side where we have originated over $200M of loans over the past 10 years. We take our banking relationships very seriously and while Chase often is not the best from a rate or earnings perspective, they are very secure and reliable and share our view of the profitability of quality, long term investments in commercial real estate.

We have also been asked recently if the rising interest rates and reduced liquidity in the debt market will affect cash flow in our investments. The answer is, they could over the long term but not significantly in the immediate future. The broader economy has had a decade long period of very low interest rates and this time is past. Rates on commercial mortgages have now moved higher from where they were; instead of +/- 3.5% last year we now are looking at 5.5% in some cases. At Apartment Ventures, our debt maturities are carefully tracked, and fortunately we don’t have many in the immediate future. While rates will likely be higher for loan renewals, it’s very possible increases in operating performance will offset these. The outcome is difficult to predict, but we feel that with our relatively low loan to values and strong focus on asset quality and operations we should be positioned well.

Further, some investors have expressed concern with the current value of their underlying investment and rightfully so. Green Street, a noted real estate research firm, recently reported that multifamily values on a national basis have fallen more than 20% over last year. We believe that is probably on the slightly high side, but clearly all values have fallen significantly. The good news is, with a long-term perspective the relatively rapid movements in market values do not affect the Apartment Ventures investments in the near term. We do not buy assets looking to make a quick turn and profit, rather we seek long term cash flow, capital appreciation and tax benefits from a full real estate cycle. The chart below from Greenstreet Data & Analytics – 2023 Apartment Forecast represents a macro look at anticipated housing demand for he next 5 years. As you will note, demand remains robust.

The last question we are often asked is are there going to be opportunities in the future. To that we would say yes; with care and skilled perspective, we continue to believe that a smart investment in multi-family real estate will yield above average returns for investors. Selection, operations, and capital structures are all key as is the structural timeframe used to execute business plans. As our investors know, we work hard each day to maximize these and will continue to do so.

As always, feel free to contact any of our partners with question, thoughts or concerns. We appreciate your partnership and look forward to speaking with you.

John, Lee, and Kari.

T: 714.379.9900