RENTAL MARKET OVERVIEW

During 1999 and first 6 months of 2000, Calgary continued its trend as one of the most active multi-residential markets in Canada. The City of Calgary is the second largest head office city in Canada with 100 corporate head offices. Relative low cost of living combined with an attractive life style has attracted over 70,000 newcomers during the last three years.

VACANCY ANALYSIS

Based on the October 1999 "Rental Market Report" published by the Canada Mortgage and Housing Corporation (CMHC), the overall apartment vacancy rate for Calgary is 2.8%, which is an increase from 0.6% as of October 1998. In comparison to other centers in Canada, the overall vacancy rate is still one of the lowest in Canada. Contributing to this increase (when compared with 1998) is a combination of lower migration and more tenants purchasing homes and condos. On the other hand, however, single family starts are significantly down from the previous year, indicating that Calgarians are not as eager to leave the rental market and purchase a starter home. The vacancy rate is anticipated to remain relatively constant throughout the remainder of 2000.

An overview of apartment vacancy rates by area and room type as at October, 1999 is set forth below:

* It should be noted that the indicated vacancy rate of 6.4% includes a 190 unit apartment building located at 727- 6th Avenue SW, which was vacated by the Landlord for substantial renovations. We understand that the building was pre-leased to a 90% occupancy level before the refurbishment program was even fully completed.

Due to the increased number of vacancies, the average apartment rents increased by only 4.6% as compared to the 12% hike in 1998. Within the last year, 804 condominium conversions were completed resulting in a 0.6% decline in the rental pool.

RENTAL RATE ANALYSIS

Following a year of tight rental conditions in 1998, Calgary's average rental increase in 1999 was in the range of 4%-5%. Based on this increase, a typical one-bedroom apartment rents for $603, while an average two-bedroom unit rents at $742 per month. This increase is a significant decline from 1998, when the average rental increase ranged from a low of 6.80% to a high of 21.90% in the southeast district. The majority of rental increases, however, ranged between 10% to 14%. Presented below is a summary of the average rental rates in Calgary. As indicated, rents for the City increased by an average 4.6% for all apartment units.

NEW CONSTRUCTION

Construction of a new rental product within Calgary has been almost non-existent over the past decade. The exception is a new rental complex located at 1017 - 11th Avenue SW known as "The Carrington" containing a total of 80 units within a five storey, wood frame structure. The lack of new construction is a result of increasing land values driven by high demand for condominium apartment buildings, scarcity of development land, and high construction costs. Market rental rates remain as much as 20% below the economic rent levels. On the other hand, however, there are a number of new proposed rental projects to be constructed during the next few years. Our market analysis indicates that there is a significant demand for excellent quality, newer rental product, which would command rents significantly higher than the city's average.

INVESTMENT MARKET OVERVIEW

Small Buildings (under 30 units)

The small building market still continues to experience steady pace with investors becoming more aggressive in the market place. In spite of increasing difficulty to obtain financing, the average per unit price increased slightly from 1998 average of $52,000-$55,000 to $54,000-$58,000 for 1999. The investment market for small apartment buildings is expected to remain strong throughout 2000, while the supply of good quality rental product is expected to be in scarce.

Large Buildings (over 30 units)

The large investment market in 1999 showed signs of a decrease in activity, mostly due to lack of supply. The sales volume for 1999 was in the range of $150,000,000, which is a decrease of 30% when compared with 1998, when the total sales were $217,000,000. By comparison, the period from 1993 to 1997 averaged approximately $100,000,000 per year in sales.

It is noteworthy to point out that during 1998 values increased over 1997 levels, while the number of transactions decreased. Projected sales for 2000 are in the range of $130,000,000, while the values are not expected to increase. A large number of excellent quality rental projects are owned by large investment groups, which benefit from Calgary's healthy economic growth and low vacancy levels in the apartment sector. It should also be noted that the rapid increase of rental rates during the last three years resulted in significant capital gains for this product type. This will further assure nationwide investors that Calgary is one of the best investment centres in Canada.

FORECASTE

Overall, projections for 2000 are for a stability in vacancy rates as a result of reduced economic growth and renters moving to home ownership as rents reach levels of mortgages for starter homes. Rental rates are expected to continue increasing but at levels below those seen in the past two years. The vacancy rate is expected to remain in the range of 2.5% - 3.0% for the City.