panco strategic real estate funds ii...

The report accompanying these financial statements was issued by BDO USA, LLP, a Delaware limited liability partnership and the U.S. member of BDO International Limited, a UK company limited by guarantee.

Panco Strategic Real Estate Fund II, LP and Panco Strategic Real Estate Fund II-QP, LP Combined Financial Statements (Income tax basis) Years Ended December 31, 2015 and 2014

Panco Strategic Real Estate Fund II, LP and Panco Strategic Real Estate Fund II-QP, LP

Combined Financial Statements (Income tax basis)

Years Ended December 31, 2015 and 2014


Contents

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Independent Auditor’s Report 3-4 Combined Financial Statements (income tax basis): Statements of Assets, Liabilities and Partners’ Capital as of December 31, 2015 and 2014 6 Statements of Revenues and Expenses for the Years Ended December 31, 2015 and 2014 7 Statements of Changes in Partners’ Capital for the Years Ended December 31, 2015 and 2014 8 Statements of Cash Flows for the Years Ended December 31, 2015 and 2014 9 Notes to Combined Financial Statements 10-26

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BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms.

Independent Auditor’s Report To the Partners of Panco Strategic Real Estate Fund II, LP and Panco Strategic Real Estate Fund II-QP, LP Rochelle Park, New Jersey We have audited the accompanying combined financial statements of Panco Strategic Real Estate Fund II, LP and Panco Strategic Real Estate Fund II-QP, LP (the “Partnership”), which comprise the combined statements of assets, liabilities and partners’ capital (income tax basis) as of December 31, 2015 and 2014, and the related combined statements of revenues and expenses (income tax basis), changes in partners’ capital (income tax basis) and cash flows (income tax basis) for the years then ended, and the related notes to the combined financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these combined financial statements in accordance with the basis of accounting the Partnership uses for income tax purposes. Management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the combined financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Partnership’s preparation and fair presentation of the combined financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined financial statements.

BDO 100 Park Avenue New York, NY 10017 USA

Tel: 212-885-8000 Fax: 212-697-1299 www.bdo.com

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We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the combined financial statements referred to above present fairly, in all material respects, the assets, liabilities and partners’ capital of Panco Strategic Real Estate Fund II, LP and Panco Strategic Real Estate Fund II-QP, LP as of December 31, 2015 and 2014, and their revenues and expenses, changes in their partners’ capital and their cash flows for the years then ended, in accordance with the basis of accounting the Partnership uses for income tax purposes described in Note 2. Basis of Accounting We draw attention to Note 2 of the combined financial statements, which describes the basis of accounting the Partnership uses for income tax purposes, which is a basis of accounting other than accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter. May 5, 2016

Combined Financial Statements (Income tax basis)


Combined Statements of Assets, Liabilities and Partners’ Capital (Income tax basis)

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December 31, 2015 2014 Assets: Real estate and equipment, at cost:

Land $ 5,030,900 $ 5,030,900 Land improvements 753,899 741,608 Buildings and improvements 24,912,166 24,507,410 Equipment and fixtures 6,572,095 6,572,095

37,269,060 36,852,013

Less: Accumulated depreciation (4,421,446) (1,091,230)

32,847,614 35,760,783

Cash and cash equivalents 5,814,763 13,957,719 Tenants’ and other accounts receivable 19,071 22,673 Restricted cash 295,746 222,981 Investments in real estate joint ventures (Notes 1 and 4) 48,070,349 55,709,258 Tenants’ security deposits 84,424 83,700 Other assets 2,786,844 2,753,567 Deferred financing costs, net of accumulated amortization of $195,728 and $62,814, respectively 809,556 942,470

Total Assets $ 90,728,367 $ 109,453,151

Liabilities and Partners’ Capital

Liabilities:

Mortgage notes payable (Note 5) $ 24,915,569 $ 25,144,620 Accounts payable and accrued expenses 404,917 297,285 Tenants’ security deposits payable 83,011 82,126

Total Liabilities 25,403,497 25,524,031

Commitments and Contingencies (Note 6)

Partners’ Capital 65,324,870 83,929,120

Total Liabilities and Partners’ Capital $ 90,728,367 $ 109,453,151

See accompanying notes to the combined financial statements.


Combined Statements of Revenues and Expenses (Income tax basis)

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Years ended December 31, 2015 2014 Revenues: Rental $ 2,967,589 $ 1,470,461 Other 375,763 109,152

Total Revenues 3,343,352 1,579,613 Expenses:

Utilities 257,862 95,289 Payroll 286,666 111,771 Investment management fee (Note 3) 2,100,000 2,100,000 Property management fee (Note 3) 165,320 60,330 Real estate taxes 327,001 156,865 General and administrative 629,927 420,721 Insurance 23,871 40,045 Repairs and maintenance 297,225 194,749 Interest (Note 5) 983,797 456,760 Depreciation and amortization 3,489,902 1,154,044

Total Expenses 8,561,571 4,790,574

Operating Loss (5,218,219) (3,210,961)

Equity in losses of joint ventures, net (Notes 1 and 4) (18,428,159) (13,061,306)

Excess of Expenses Over Revenues $ (23,646,378) $ (16,272,267)



Combined Statements of Changes in Partners’ Capital (Income tax basis)

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Years ended December 31, 2015 and 2014 Total Partners’ Capital at December 31, 2013 $ 48,136,351 Contributions 56,999,576 Distributions (4,934,540) Excess of expenses over revenues (16,272,267) Partners’ Capital at December 31, 2014 83,929,120 Contributions 13,000,128 Distributions (7,958,000) Excess of expenses over revenues (23,646,378) Partners’ Capital at December 31, 2015 $ 65,324,870



Combined Statements of Cash Flows (Income tax basis)

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Years ended December 31, 2015 2014

Cash Flows from Operating Activities:

Excess of expenses over revenues $ (23,646,378) $ (16,272,267) Adjustments to reconcile excess of expenses over revenues to net cash used in operating activities: Equity in losses of joint ventures 18,428,159 13,061,306 Depreciation and amortization 3,489,902 1,154,044 Decrease (increase) in assets: Tenants’ and other accounts receivable 3,602 (22,673) Restricted cash (52,269) (183,762) Tenants’ security deposits (724) (83,700) Other assets (60,049) 1,499,214 Increase in liabilities: Accounts payable and accrued expenses 107,632 70,866 Tenants’ security deposits payable 885 82,126

Total Adjustments 21,917,138 15,577,421

Net Cash Used In Operating Activities (1,729,240) (694,846)

Cash Flows from Investing Activities:

Purchase of real estate and equipment (417,047) (24,844,290) Restricted cash (20,496) (39,219) Investments in real estate joint ventures (18,250,000) (40,042,000) Distributions from real estate joint ventures 7,460,750 5,022,392

Net Cash Used In Investing Activities (11,226,793) (59,903,117)

Cash Flows from Financing Activities: Proceeds from mortgage note payable - 13,210,313 Payments of mortgage note payable (229,051) (73,416) Contributions from partners 13,000,128 56,999,576 Distributions to partners (7,958,000) (4,934,540) Financing costs - (1,005,284)

Net Cash Provided By Financing Activities 4,813,077 64,196,649

(Decrease) Increase in Cash and Cash Equivalents (8,142,956) 3,598,686

Cash and Cash Equivalents, Beginning of Year 13,957,719 10,359,033

Cash and Cash Equivalents, End of Year $ 5,814,763 $ 13,957,719

Supplemental Disclosure of Cash Flow Information: Cash paid during the year for interest $ 984,728 $ 421,210

Supplemental Disclosure of Non-Cash Financing Activities: Assumption of mortgage notes payable $ - $ 12,007,723



Notes to Combined Financial Statements (Income tax basis)

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1. Nature of Organization On July 11, 2011 Panco Strategic Real Estate Fund II, LP (“PSREF II”) and Panco Strategic Real Estate Fund II-QP, LP (“PSREF II-QP”) (together, the “Partnership”) were formed. The terms and provisions of the two partnerships are identical except that an investor who is not a “qualified purchaser” under the Investment Company Act of 1940, as amended, may only invest in PSREF II. An investor who is a qualified purchaser may invest in either PSREF II or PSREF II-QP, at the sole discretion of Panco Fund II GP LLC (the “General Partner”). The Partnership was organized under the laws of the state of Delaware for the principal purpose of, directly or indirectly through one or more direct or indirect subsidiaries, acquiring, owning, operating, managing, developing, retrofitting, rehabbing, re-developing, trading, holding, selling, exchanging, financing, restructuring, securitizing, hedging, pledging, hypothecating and otherwise dealing in and with Investments, as defined, and engaging in any other activities incidental or ancillary thereto as the General Partner deems necessary and advisable. On January 31, 2012, the Partnership had its first closing and received commitments to contribute funds from investors of $66.5 million. In 2013, the Partnership received commitments for an additional $33.5 million. The total commitments outstanding as of December 31, 2015 and 2014 were $140.0 million. At December 31, 2015 and 2014, the Partnership had called and received $140.0 million and $127.0 million in aggregate contributions, respectively. The Partnership is owned by the General Partner, having a 0.54% interest, and 246 limited partners, having a 99.46% interest (including related parties of the General Partner having an 12.36% interest). Net income or loss is allocated to the partners in such ratio or ratios as may be required to cause the balances of the partners’ capital accounts to be as nearly equal as possible to their Target Capital Account, as defined, in accordance with the Partnership Agreement. The Partnership will terminate on the date that is eight years from the Final Closing Date, as defined, unless sooner terminated or further extended by the General Partner. At December 31, 2015, the Partnership has the following investments: A 13.33% investment in PP Laurel Investors LLC (“Laurel”), which owns a 386-unit apartment

community containing 359,086 square feet located in Laurel, Maryland (“Homestead at Laurel”). Homestead at Laurel was acquired on November 30, 2015 for $52.875 million.

On November 24, 2015, the Partnership and affiliated entities formed Panco Strategic Debt

Investments LLC (“Panco Strategic”). Panco Strategic and Waterfall Asset Management, in a 10%/90% partnership (the “Joint Venture”), closed on the B note and the mezzanine tranche of the Freddie Mac KF11 debt securitization. The Joint Venture purchased a 10% total ownership stake in a $1.65 billion portfolio of high quality multifamily loans. The total amount contributed by the Partnership was $5.0 million. During the year ended December 31, 2015, the Partnership earned $37,502 on this investment.

A 37.5% investment in Monterey North Bethesda Investors LLC (“Monterey North Bethesda”),

which owns a 432-unit high-rise apartment community containing 438,368 square feet located in Rockville, Maryland (“The Monterey”). The Monterey was acquired on May 1, 2015 for $110.5 million.



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A 44% investment in The Crest at Fort Lee Investors LLC (“Fort Lee”), which owns a 351-unit apartment community located in Fort Lee, New Jersey (“The Point at Fort Lee”). The Point at Fort Lee was purchased on December 3, 2014 for $120.0 million.

A 37% investment in Seven Oaks Phase II Investors, LLC (“Seven Oaks”), which owns a 264-unit

apartment community located in Odenton, Maryland (“The Point at Seven Oaks”). The Point at Seven Oaks was purchased on October 29, 2014 for $47.0 million.

A 51% investment in Sansom Street Investors, LP (“Sansom Street”), which owns a 104-unit

high-rise apartment building and three retail units containing 10,858 square feet located in Philadelphia, Pennsylvania (“The Sansom”). The Sansom was purchased on September 23, 2014 for $42.0 million.

A 100% investment in Abingdon House Investors, LLC (“Abingdon House”), which owns an 82-

unit apartment building located in Arlington, Virginia (“The Point at Arlington Park”). The Point at Arlington Park was purchased on August 12, 2014 for $18.5 million.

A 100% investment in Rittenhouse Row Investors, LP (“Rittenhouse Row”), which owns a 61%

tenancy-in-common interest in an 80-unit high-rise apartment building and five retail units containing 11,403 square feet located in Philadelphia, Pennsylvania (“The Point at Rittenhouse Row”). The Point at Rittenhouse Row was purchased on June 11, 2014 for $28.9 million.

A 40.62% investment in Bennington Investors, LLC (“Bennington”), which owns a 92.75%

tenancy-in-common interest in a 348-unit high-rise and four retail units containing 4,769 square feet located in Arlington, Virginia (“The Point at Pentagon City”). The Point at Pentagon City was purchased on March 14, 2014 for $101.1 million.

A 32.67% investment in 370 Columbus Investors LLC (“Columbus Investors”), which owns a 54-

unit apartment building and two retail units containing 2,500 square feet located in Manhattan, New York (“370 Columbus Avenue”). 370 Columbus Avenue was acquired on December 9, 2013 for $35.8 million.

A 51% investment in Haverhill Investors LLC (“Haverhill”), which owns a 350-unit apartment

community located in Manassas Park, Virginia (“The Point at Park Station”). The Point at Park Station was acquired on September 27, 2013 for $59.5 million.

A 45.45% investment in Georgian Investors LLC (“Georgian”), which owns an 891-unit high-rise

and 16 retail units containing 25,255 square feet located in Silver Spring, Maryland (“The Point at Silver Spring”). The Point at Silver Spring was acquired on August 14, 2012 for $168.0 million.

A 50% investment in 1901 West Investors LLC (“1901 West”), which owns a 300-unit apartment

community and eight retail units containing 19,211 square feet located in Annapolis, Maryland (“The Point at Annapolis”). The Point at Annapolis was acquired on March 7, 2012 for $68.0 million.



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2. Summary of Significant Accounting Policies Principles of Combination The Partnership represents a combination of certain entities that are commonly controlled. Due to their common control, the financial statements of the separate entities are presented on a combined basis. Intercompany accounts and transactions, if any, are eliminated in combination. Proportional Consolidation The Partnership’s investment in The Point at Rittenhouse Row is accounted for as a tenancy-in-common (“TIC”) interest. Assets, liabilities, revenues and expenses are accounted for on a proportional basis. Basis of Presentation The combined financial statements do not reflect assets the partners may have outside their interests in the Partnership, nor any personal obligations, including income taxes of the individual partners. The accompanying combined financial statements have been prepared from the records and accounts of the Partnership, which are maintained for income tax reporting purposes. Accordingly, such statements do not purport to present the Partnership’s combined financial position, combined revenues and expenses, and combined changes in partners’ capital in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The principal differences are as follows:

(1) Permanent declines in and, subsequently, realized losses on long-lived assets are recorded for income tax purposes when the long-lived assets are abandoned or upon disposition of the long-lived assets. Under GAAP, such losses are provided when the assets are deemed impaired under Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 360, “Property, Plant and Equipment.”

(2) In accordance with ASC Topic 740, “Income Taxes,” the Partnership would be required to

evaluate its uncertain tax positions and recognize a liability with respect to the likely outcome of each uncertain position, if applicable.

(3) Expenses related to contingent losses are not recognized for income tax purposes.

(4) Other than temporary declines in and, subsequently, realized losses on investments in joint ventures are recorded for income tax purposes when the investments are completely abandoned or disposed of. Under GAAP, any decline that is not expected to be recovered is considered other than temporary and an impairment charge is recorded as a reduction in the carrying value of the investment.

(5) Rents received in advance are recognized as income in the period received, rather than when earned under GAAP.

(6) Bad debts are recognized when substantially all collection efforts have been exhausted

(direct write-off method) instead of when losses become probable (reserve method).



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(7) Depreciation of real estate assets is computed using applicable income tax methods which primarily are accelerated methods over specified recovery periods, the Modified Accelerated Cost Recovery System (“MACRS”), instead of the straight-line method over the estimated useful lives of individual assets.

(8) The purchase price allocated to land and buildings does not include an assessment of the

fair value of the acquired tangible and intangible assets and does not allocate the purchase price to the acquired assets based on the estimated value.

Investments in Real Estate Joint Ventures The Partnership accounts for its investments in real estate joint ventures under the equity method of accounting. The investments in real estate joint ventures balance is increased or decreased for the Partnership’s share of the ventures’ earnings or losses, capital contributions, and distributions received. Rental Property Rental property is recorded at cost. Depreciation is computed on the MACRS method of the Internal Revenue Code over 5, 7, 15, 27.5 and 39 years. Expenditures for maintenance and repairs are expensed as incurred. Cash and Cash Equivalents The Partnership considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed Federally insured limits. The Partnership has never experienced any losses related to these balances. The Partnership maintains cash accounts at various financial institutions, which are insured up to a maximum of $250,000 at each bank. At various times during the year, balances exceeded the insured limits. Due to the stature and high quality of the financial institutions, such credit risk is considered to be minimal. Restricted Cash Restricted cash is comprised of escrow and reserve funds for capital expenditures and operating costs as required by the loan agreements. Other Assets Other assets include syndication costs incurred in connection with the formation of the Partnership (see Note 3). Syndication costs are not amortized. Deferred Financing Costs Financing costs, such as loan commitment fees, servicing fees, and certain legal costs, incurred in obtaining financing are deferred and amortized on a straight-line basis over the term of the related debt.



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Income Taxes No provision is made for Federal or state income taxes, since income or loss of the entity is required to be reported by the respective partners on their individual tax returns. The Partnership has not identified any unsubstantiated tax position that would require provision of a liability under ASC Topic 740. The Partnership’s tax returns for the preceding three years are subject to review by the Internal Revenue Service. Use of Estimates The preparation of financial statements in conformity with the income tax basis of accounting requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. Related Party Transactions In accordance with the Partnership Agreement, Panco Fund II Manager LLC, an affiliate of the General Partner, in its capacity as investment manager to the Partnership, earns a management fee equal to 1.5% per annum of the Capital Commitment, as defined, of each limited partner. During 2014, the Partnership paid fees of $360,231 and $396,309 to PSREF Management LLC (“PSREFM”) in connection with the financing of the mortgage notes for The Point at Arlington Park and The Point at Rittenhouse Row, respectively. These fees reimbursed PSREFM for expenses incurred for due diligence and for guarantees of certain recourse obligations by Edward S. Pantzer, Jason M. Pantzer and Jordan M. Pantzer (see Note 5). These amounts are included in deferred financing costs on the accompanying combined statements of assets, liabilities and partners’ capital and is being amortized over the lives of the loans. PSREFM is the property manager for The Point at Rittenhouse Row and The Point at Arlington Park. PSREFM earns a management fee of 5% of cash collections at the properties. Property management fees were $165,320 and $60,330 for the years ended December 31, 2015 and 2014, respectively. 4. Investments in Real Estate Joint Ventures 1901 West Investors LLC In March 2012, the Partnership invested $9,327,412 for a 50.00% interest in 1901 West, a joint venture between the Partnership, Panco Strategic Real Estate Fund I, LP and Panco Strategic Real Estate Fund I-QP, LP. 1901 West owns The Point at Annapolis, which includes 300 apartment units and eight retail units containing 19,211 square feet, located in Annapolis, Maryland. During the years ended December 31, 2015 and 2014, the Partnership received $475,000 and $425,000, respectively, in distributions. PSREFM is the property manager for The Point at Annapolis and its responsibilities include the collecting of rents and processing of expense payments.



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Condensed financial information for 1901 West is as follows:

Condensed Statements of Assets, Liabilities and Members’ Equity

December 31, 2015 2014 Assets: Cash and cash equivalents $ 144,358 $ 121,718 Restricted cash, escrows and replacement reserves 482,146 419,929 Investment in rental property, net 51,075,996 54,215,653 Other assets, net 763,238 787,134 Total assets $ 52,465,738 $ 55,544,434

Liabilities and Members’ Equity: Mortgages payable $ 51,986,000 $ 51,986,000 Other liabilities 424,101 452,411 Members’ equity 55,637 3,106,023 Total liabilities and members’ equity $ 52,465,738 $ 55,544,434 Partnership’s investment in 1901 West Investors LLC $ 27,823 $ 1,553,014

Condensed Statements of Revenues and Expenses

Years ended December 31, 2015 2014 Revenues: Rental $ 6,004,728 $ 5,893,725 Other 466,114 510,920 Total revenues 6,470,842 6,404,645 Expenses: Operating 2,873,414 3,018,318 Interest 2,099,313 2,098,921 Depreciation and amortization 3,598,500 4,715,842 Total expenses 8,571,227 9,833,081 Excess of expenses over revenues $ (2,100,385) $ (3,428,436) Partnership’s equity in losses of 1901 West Investors LLC $ (1,050,191) $ (1,714,218)

Georgian Investors LLC In August 2012, the Partnership invested $25,000,000 for a 45.45% interest in Georgian, a joint venture between the Partnership, Panco Strategic Real Estate Fund I, LP, Panco Strategic Real Estate Fund I-QP, LP, and an affiliated entity. Georgian owns The Point at Silver Spring, an 891- unit high-rise and 16 retail units containing 25,255 square feet, located in Silver Spring, Maryland. During the years ended December 31, 2015 and 2014, the Partnership received $1,725,000 and $1,222,852, respectively, in distributions. PSREFM is the property manager for The Point at Silver Spring and its responsibilities include the collecting of rents and processing of expense payments.



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Condensed financial information for Georgian is as follows:


December 31, 2015 2014 Assets: Cash and cash equivalents $ 422,250 $ 117,466 Restricted cash, escrows and replacement reserves 1,293,229 841,672 Investment in rental property, net 126,159,642 135,195,990 Other assets, net 2,589,471 2,869,879 Total assets $ 130,464,592 $ 139,025,007

Liabilities and Members’ Equity: Mortgages payable $ 120,780,000 $ 120,780,000 Other liabilities 1,424,785 1,202,167 Members’ equity 8,259,807 17,042,840 Total liabilities and members’ equity $ 130,464,592 $ 139,025,007 Partnership’s investment in Georgian Investors LLC $ 3,753,121 $ 7,745,581


Years ended December 31, 2015 2014 Revenues: Rental $ 15,866,843 $ 15,362,945 Other 2,401,105 2,276,460 Total revenues 18,267,948 17,639,405 Expenses: Operating 9,611,135 9,997,361 Interest 4,217,800 4,221,644 Depreciation and amortization 9,427,047 14,466,234 Total expenses 23,255,982 28,685,239 Excess of expenses over revenues $ (4,988,034) $ (11,045,834) Partnership’s equity in losses of Georgian Investors LLC $ (2,267,460) $ (5,021,215)

Investment in Haverhill Investors LLC In September 2013, the Partnership invested $10,710,000 for a 51% interest in Haverhill, a joint venture between the Partnership and an affiliated entity. Haverhill owns The Point at Park Station, which includes 350 apartment units located in Manassas Park, Virginia. During the years ended December 31, 2015 and 2014, the Partnership received $1,020,000 and $2,626,500 in distributions, respectively. PSREFM is the property manager for The Point at Park Station and its responsibilities include the collecting of rents and processing of expense payments.



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Condensed financial information for Haverhill is as follows:


December 31, 2015 2014 Assets: Cash $ 203,521 $ 720,891 Restricted cash 188,296 161,092 Investment in rental property 49,328,317 53,605,380 Other assets, net 1,067,691 703,897 Total assets $ 50,787,825 $ 55,191,260

Liabilities and Members’ Equity: Mortgages payable $ 45,525,000 $ 45,525,000 Other liabilities 325,610 268,475 Members’ equity 4,937,215 9,397,785 Total liabilities and members’ equity $ 50,787,825 $ 55,191,260 Partnership’s investment in Havervill Investors LLC $ 2,562,096 $ 4,824,806


Years ended December 31, 2015 2014 Revenues: Rental $ 5,391,939 $ 5,326,308 Other 602,699 711,100 Total revenues 5,994,638 6,037,408 Expenses: Operating 3,119,480 3,377,579 Interest 919,442 1,079,864 Depreciation and amortization 4,416,286 6,940,904 Total expenses 8,455,208 11,398,347 Excess of expenses over revenues $ (2,460,570) $ (5,360,939) Partnership’s equity in losses of Havervill Investors LLC $ (1,242,710) $ (2,707,543)

Investment in 370 Columbus Investors LLC In December 2013, the Partnership invested $6,000,000 for a 32.67% interest in Columbus Investors, a joint venture between the Partnership and an affiliated entity. The Partnership contributed an additional $100,000 to 370 Columbus in April 2014. Columbus Investors owns 370 Columbus Avenue, which includes 54 apartment units and two retail units containing 2,500 square feet, located in Manhattan, New York. During the year ended December 31, 2015, the Partnership received $75,000 in distributions. No distributions were received during 2014. PSREFM is the property manager for 370 Columbus Avenue and its responsibilities include the collecting of rents and processing of expense payments.



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Condensed financial information for Columbus Investors is as follows:


December 31, 2015 2014 Assets: Cash $ 178,883 $ 27,279 Restricted cash 848,589 1,072,456 Investment in rental property 31,808,753 33,640,457 Other assets, net 721,148 1,195,122 Total assets $ 33,557,373 $ 35,935,314

Liabilities and Members’ Equity: Mortgages payable $ 21,500,000 $ 21,500,000 Other liabilities 257,718 222,269 Members’ equity 11,799,655 14,213,045 Total liabilities and members’ equity $ 33,557,373 $ 35,935,314 Partnership’s investment in 370 Columbus Investors LLC $ 3,983,266 $ 4,765,853


Years ended December 31, 2015 2014 Revenues: Rental $ 1,683,820 $ 1,521,210 Other 26,610 28,212 Total revenues 1,710,430 1,549,422 Expenses: Operating 950,355 1,677,736 Interest 773,348 764,057 Depreciation and amortization 2,175,136 2,916,935 Total expenses 3,898,839 5,358,728 Excess of expenses over revenues $ (2,188,409) $ (3,809,306) Partnership’s equity in losses of 370 Columbus Investors LLC $ (707,587) $

(1,244,374)

Investment in Bennington Investors, LLC In March 2014, the Partnership invested $13,000,000 for a 40.62% interest in Bennington, a joint venture between the Partnership and an affiliated entity. Bennington owns a 92.75% tenancy-in-common interest in The Point at Pentagon City, which includes a 348-unit high-rise and four retail units containing 4,769 square feet, located in Arlington, Virginia. No distributions were received during 2015. During the year ended December 31, 2014, the Partnership received $373,040 in distributions. PSREFM is the property manager for The Point at Pentagon City and its responsibilities include the collecting of rents and processing of expense payments.



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Condensed financial information for Bennington is as follows:


December 31, 2015 2014 Assets: Cash $ 277,098 $ 234,978 Restricted cash 455,144 406,501 Investment in rental property 79,414,970 88,936,632 Other assets, net 1,298,735 1,622,010 Total assets $ 81,445,947 $ 91,200,121

Liabilities and Members’ Equity: Mortgages payable $ 63,055,209 $ 64,231,298 Other liabilities 488,254 450,740 Members’ equity 17,902,484 26,518,083 Total liabilities and members’ equity $ 81,445,947 $ 91,200,121 Partnership’s investment in Bennington Investors, LLC $ 7,274,545 $ 10,773,373


Years ended December 31, 2015 2014 Revenues: Rental $ 6,374,783 $ 5,273,581 Other 944,058 655,664 Total revenues 7,318,841 5,929,245 Expenses: Operating 3,507,441 2,782,945 Interest 2,497,517 2,037,724 Depreciation and amortization 9,928,257 5,672,242 Total expenses 15,933,215 10,492,911 Excess of expenses over revenues $ (8,614,374) $ (4,563,666) Partnership’s investment in Bennington Investors, LLC $ (3,498,828) $ (1,853,587)

Investment in Sansom Street Investors, LP In September 2014, the Partnership invested $6,222,000 for a 51% interest in Sansom Street, a joint venture between the Partnership and an affiliated entity. Sansom Street owns The Sansom, which includes a 104-unit high-rise apartment building and four retail units containing 10,858 square feet, located in Philadelphia, Pennsylvania. During the years ended December 31, 2015 and 2014, the Partnership received $471,750 and $153,000 in distributions, respectively. PSREFM is the property manager for The Sansom and its responsibilities include the collecting of rents and processing of expense payments.



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Condensed financial information for Sansom Street is as follows:


December 31, 2015 2014 Assets: Cash $ 155,101 $ 244,518 Restricted cash 9,458 7,209 Investment in rental property 36,949,299 41,559,913 Other assets, net 1,183,215 1,304,173 Total assets $ 38,297,073 $ 43,115,813

Liabilities and Members’ Equity: Mortgages payable $ 31,500,000 $ 31,500,000 Other liabilities 105,434 171,876 Members’ equity 6,691,639 11,443,937 Total liabilities and members’ equity $ 38,297,073 $ 43,115,813 Partnership’s investment in Sansom Street Investors, LP $ 3,412,736 $ 5,836,408


Years ended December 31, 2015 2014 Revenues: Rental $ 2,792,641 $ 1,052,918 Other 45,380 16,365 Total revenues 2,838,021 1,069,283 Expenses: Operating 927,976 269,342 Interest 998,047 273,438 Depreciation and amortization 4,739,297 982,567 Total expenses 6,665,320 1,525,347 Excess of expenses over revenues $ (3,827,299) $ (456,064) Partnership’s investment in Sansom Street Investors, LP $ (1,951,922) $ (232,592) Investment in Seven Oaks Phase II Investors, LLC In October 2014, the Partnership invested $4,400,000 for a 37% interest in Seven Oaks, a joint venture between the Partnership and an affiliated entity. Seven Oaks owns The Point at Seven Oaks, a 264-unit apartment community located in Odenton, Maryland. During the years ended December 31, 2015 and 2014, the Partnership received $444,000 and $222,000 in distributions, respectively. PSREFM is the property manager for The Point at Seven Oaks and its responsibilities include the collecting of rents and processing of expense payments.



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Condensed financial information for Seven Oaks is as follows:


December 31, 2015 2014 Assets: Cash $ 71,944 $ 1,625,393 Restricted cash 586,256 165,625 Investment in rental property 42,400,045 46,967,861 Other assets, net 1,513,486 513,158 Total assets $ 44,571,731 $ 49,272,037

Liabilities and Members’ Equity: Mortgages payable $ 38,250,000 $ 38,250,000 Other liabilities 608,820 256,259 Members’ equity 5,712,911 10,765,778 Total liabilities and members’ equity $ 44,571,731 $ 49,272,037 Partnership’s investment in Seven Oaks Phase II Investors, LLC $

2,113,776 $

3,983,338


Years ended December 31, 2015 2014 Revenues: Rental $ 4,200,485 $ 714,387 Other 354,442 22,392 Total revenues 4,554,927 736,779 Expenses: Operating 2,464,740 481,591 Interest 907,832 156,799 Depreciation and amortization 5,035,223 732,611 Total expenses 8,407,795 1,371,001 Excess of expenses over revenues $ (3,852,868) $ (634,222) Partnership’s equity in losses of Seven Oaks Phase II Investors, LLC $ (1,425,562) $

(234,662)

Investment in The Crest at Fort Lee Investors LLC In December 2014, the Partnership invested $16,280,000 for a 44% interest in Fort Lee, a joint venture between the Partnership and an affiliated entity. Fort Lee owns The Point at Fort Lee, a 351-unit apartment community located in Fort Lee, New Jersey. During the year ended December 31, 2015, the Partnership received $2,200,000 in distributions. No distributions were received during 2014. PSREFM is the property manager for The Point at Fort Lee and its responsibilities include the collecting of rents and processing of expense payments.



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Condensed financial information for Fort Lee is as follows:


December 31, 2015 2014 Assets: Cash $ 739,631 $ 5,094,008 Restricted cash 599,136 798,491 Investment in rental property 106,541,789 119,888,182 Other assets, net 3,845,649 1,606,561 Total assets $ 111,726,205 $ 127,387,242

Liabilities and Members’ Equity: Mortgages payable $ 90,000,000 $ 90,000,000 Other liabilities 711,683 507,958 Members’ equity 21,014,522 36,879,284 Total liabilities and members’ equity $ 111,726,205 $ 127,387,242 Partnership’s investment in The Crest at Fort Lee Investors LLC $

9,246,585 $

16,226,885


Years ended December 31, 2015 2014 Revenues: Rental $ 9,182,949 $ 931,868 Other 1,151,941 82,944 Total revenues 10,334,890 1,014,812 Expenses: Operating 5,396,094 406,599 Interest 1,878,816 146,740 Depreciation and amortization 13,924,298 582,189 Total expenses 21,199,208 1,135,528 Excess of expenses over revenues $ (10,864,318) $ (120,716) Partnership’s equity in losses of The Crest at Fort Lee Investors LLC $ (4,780,300) $

(53,115)

Investment in Monterey North Bethesda Investors LLC In May 2015, the Partnership invested $11,250,000 for a 37.5% interest in Monterey North Bethesda, a joint venture between the Partnership and an affiliated entity. Monterey North Bethesda owns The Monterey, which includes a 432-unit high-rise apartment building containing 438,368 square feet located in Rockville, Maryland. During the year ended December 31, 2015, the Partnership received $1,050,000 in distributions. PSREFM is the property manager for The Monterey and its responsibilities include the collecting of rents and processing of expense payments.



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Condensed financial information for Monterey North Bethesda is as follows:

Condensed Statement of Assets, Liabilities and Members’ Equity

December 31, 2015 Assets: Cash $ 248,774 Restricted cash 316,387 Investment in rental property 106,762,761 Other assets, net 3,409,796 Total assets $ 110,737,718

Liabilities and Members’ Equity: Mortgages payable $ 87,000,000 Other liabilities 512,921 Members’ equity 23,224,797 Total liabilities and members’ equity $ 110,737,718 Partnership’s investment in Monterey North Bethesda Investors LLC

$

8,709,299

Condensed Statement of Revenues and Expenses

Year ended December 31, 2015 Revenues: Rental $ 5,985,502 Other 830,474 Total revenues 6,815,976 Expenses: Operating 3,681,795 Interest 1,256,368 Depreciation and amortization 5,853,016 Total expenses 10,791,179 Excess of expenses over revenues $ (3,975,203)Partnership’s equity in losses of Monterey North Bethesda Investors LLC $ (1,490,701) Investment in PP Laurel Investors, LLC In November 2015, the Partnership invested $2,000,000 for a 13.33% interest in Laurel Investors, a joint venture between the Partnership and an affiliated entity. Laurel Investors owns Homestead at Laurel, a 386-unit apartment community containing 359,086 square feet located in Laurel, Maryland. PSREFM is the property manager for Homestead at Laurel and its responsibilities include the collecting of rents and processing of expense payments.



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Condensed financial information for Laurel Investors is as follows:

Condensed Statement of Assets, Liabilities and Members’ Equity

December 31, 2015 Assets: Cash $ 3,934,344 Restricted cash 541,833 Investment in rental property 53,308,140 Other assets, net 707,192 Total assets $ 58,491,509

Liabilities and Members’ Equity: Mortgages payable $ 43,500,000 Other liabilities 369,496 Members’ equity 14,622,013 Total liabilities and members’ equity $ 58,491,509 Partnership’s investment in PP Laurel Investors, LLC $ 1,949,600

Condensed Statement of Revenues and Expenses

Year ended December 31, 2015 Revenues: Rental $ 527,657 Other 25,801 Total revenues 553,458 Expenses: Operating 368,480 Interest 95,174 Depreciation and amortization 467,791 Total expenses 931,445 Excess of expenses over revenues $ (377,987)Partnership’s equity in losses of PP Laurel Investors, LLC $ (50,400) 5. Mortgage Notes Payable On August 12, 2014, the Partnership assumed a mortgage loan of $12,007,724 (the “Arlington Note”) in connection with the acquisition of The Point at Arlington Park. The note bears interest at 4.72% and matures on December 1, 2020. The note is collateralized by the property and equipment, an assignment of rents and a guarantee of certain resource liabilities by Edward S. Pantzer, Jason M. Pantzer and Jordan M. Pantzer. The balance of the Arlington Note was $11,705,256 and $11,934,307 at December 31, 2015 and 2014, respectively. Interest expense on the Arlington Note for the year ended December 31, 2015 and the period from August 12, 2014 to December 31, 2014 was $565,241 and $222,828, respectively.



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On June 11, 2014, The Point at Rittenhouse Row obtained a mortgage loan of $21,656,250 (the “Rittenhouse Note”) in connection with the acquisition of The Point at Rittenhouse Row. The Partnership’s TIC interest in the Rittenhouse Note was $13,210,313 at both December 31, 2015 and 2014. The Rittenhouse Note matures on July 1, 2024, bears interest at 3.125% and requires interest only payments through July 1, 2016. Commencing August 1, 2016 and continuing through July 1, 2019, the Rittenhouse Note requires principal and interest payments of $93,310. Commencing August 1, 2019 through maturity on July 1, 2024, the loan requires monthly payments based on the Adjusted Interest Rate, as defined. The note is collateralized by the property and equipment, an assignment of rents and a guarantee of certain recourse liabilities by Edward S. Pantzer, Jason M. Pantzer and Jordan M. Pantzer. Interest expense on the Rittenhouse Note for the year ended December 31, 2015 and the period from June 11, 2014 to December 31, 2014 was $418,556 and $233,932, respectively. Required principal payments on the mortgage notes payable over the next five years and thereafter are as follows: 2016 $ 348,387 2017 523,821 2018 544,886 2019 566,835 2020 10,971,105 Thereafter 11,960,535 $ 24,915,569

6. Commitments and Contingencies The Partnership is not presently involved in any litigation nor to its knowledge is any litigation threatened against the Partnership or its subsidiaries that, in management’s opinion, would result in any material adverse effect on the Partnership’s ownership, management or operation of its properties, or which is not covered by the Partnership’s liability insurance. 7. Subsequent Events On February 29, 2016, the Partnership invested $6.0 million for an approximate 30% interest in Executive House Investors, LP, a joint venture between the Partnership, Panco Strategic Real Estate Fund III, LP, Panco Strategic Real Estate Fund III-QP, LP and an affiliated entity. Executive House Investors, LP owns The Point at City Line, a 302-unit high-rise apartment building located in Philadelphia, Pennsylvania, which was purchased for $65.4 million. On March 31, 2016, the Partnership invested $7.0 million for an approximate 34% interest in Keswick Investors, LLC, a joint venture between the Partnership, Panco Strategic Real Estate Fund III, LP, Panco Strategic Real Estate Fund III-QP, LP and an affiliated entity. Keswick Investors, LLC owns The Point at Crofton, a 406-unit apartment community located in Crofton, Maryland, which was purchased for $85 million.



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The Partnership’s management has performed subsequent event procedures through May 5, 2016, which is the date the combined financial statements were available to be issued, and there were no subsequent events requiring adjustments to, or disclosures in, the combined financial statements.

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