Performance Update

Update on Transformation Housing Fund, LP — 4th Quarter 2020

Los Angeles, California | March 15, 2021

Year-End Reporting
This report to the Limited Partners will serve as the year-end update from the General Partner.

During the process of financial performance review, the General Partner agreed to waive all management fees for the year 2020 and to allocate the annual audit and reporting expenses in a disproportionate manner, giving a larger share of expense to the General Partner. The waiver and allocation of expenses has saved the Limited Partners approximately 1.95% on invested capital.

Overview of the Market
The wave of COVID-19 infections in the fourth quarter of 2020 renewed some of the lockdown policies and added to the delay in getting back to normal, albeit a "new normal." Despite the headwinds of governmental lockdowns, many businesses and the economy continue to recover. The process of vaccination has been contributing to the return of economic activity as known during the pre-pandemic era. A key factor is job growth and getting Americans back to work. As 70% of the US GDP is a result of consumer spending, the consumer drives the largest component of our national economic recovery. Watch for continued job growth to fuel consumer spending. We still expect a solid recovery for the job market during the year 2021.

While consumer spending and job growth will assist our economic recovery, we believe it is prudent to be concerned about some changes in governmental policies and the level of taxation. Additional government regulation and higher corporate taxes generally slow job creation and job growth. And tax increases on individuals not only have a tightening effect on family budgets, but also contribute to small business reduction of spending for equipment upgrades, slower expansion plans, and slower job creation. The new administration in Washington may present some headwinds to overall economic expansion; hopefully, a resilient US consumer can offset these challenges and spur overall growth.

Unpresented government debt is taking us all into uncharted waters; only time will show the effect of these choices. However, the monetary policy of the Federal Reserve Board and effect on interest rates should also be monitored. The Fed has kept a steady hand and interest rates remained low. We believe the government debt will dissuade the tendency to raise rates and induce a relatively low interest rate environment that will persist for several years. These low rates will help recovery and growth, which will contribute to increased rents and asset values.

The "new normal" is expected to include a continuation of social distancing, careful cleanliness, and an adjustment to how people interact with large groups. Working from home will continue as a mainstream concept, adopted and embraced as a part-time or permanent solution by workers and businesses alike. Our real estate investments will need to accentuate the positive aspects of the "new normal" by focusing on larger living spaces favored by the "work from home" professionals, and public spaces with plenty of distancing space. In addition, our Class B or workforce housing will benefit from the "value renter" who can afford a more expensive Class A apartment but prefers the value of a seasoned property with fewer amenities.

These attributes guide us in the acquisition of quality assets. We are pleased to have secured two acquisitions that meet our target requirements for current yield and long-term value creation. We are continuing to underwrite and look for an additional acquisition, which will have the fund fully invested in 2021. We are disciplined in our patience for the right opportunity.

New Investments
During this quarter, we are pleased to report the purchase of a new acquisition: the Burbank Blvd. Apartments LP. This eleven-unit apartment complex is located in the Los Angeles submarket of Tarzana, an area in the San Fernando Valley between the financial centers of Woodland Hills and West Los Angeles. The area is surrounded by jobs, economic drivers, and good schools. The property was built in 1988, boasts large units perfect for "work at home" professionals that proliferate the area, has secure parking and a high Walk Score due to proximity to a main commercial boulevard. Our underwriting showed the property had a clear path to higher income, a solid location with working tenants, and a current yield that would serve investors well during the renovation and holding period of the investment.

We still believe there will continue to be buying opportunities for well-located Class B assets with demand by workforce tenants. We expect our purchase opportunities to continue. We look forward to buying solid properties that fit our desire for current yield and long-term value creation.

Summary of the Fund Investments
The Fund has acquired two assets: 1) The Village at Moorpark (VAM) was a foreclosed retail property that was acquired from the lender. VAM has been mismanaged for many years and has a great deal of upside in occupancy and increased rental rates. In addition to a new lease with a national grocery chain, we have secured a regional dental tenant. The dentist is open and operating; the grocery is under construction and expects a grand opening in the fall. Leasing activity is active and positive; we expect additional leasing during 2021. And 2) Burbank Blvd. Apartments in Tarzana California. The size and quality of the apartments make them desirable for working professionals in the Los Angeles area; the ease of walkability adds to the appeal of this property.

Both of these assets were acquired at an advantageous price, and both demonstrate the ability to generate current yield during the rental/holding years, as well as an increase in value with a clear path to higher cash flow and asset valuation.

As of this writing, 66.33% of fund capital has been invested in suitable properties, and $1.167MM is held in cash, ready for a new acquisition.

Closing Comments
With the continued effects of COVID-19 contributing to uncertainty and change in our daily tasks, the steadiness that comes from the demand for workforce housing is limiting volatility in our sector. And providing housing to working Americans is a noble endeavor; we are honored to provide this service in a professional and compassionate manner.

Overall, we are grateful for the opportunity to invest capital on behalf of our partners and the underlying beneficiaries. We take our responsibility very seriously. We will continue to manage the properties and find additional acquisitions to achieve our mutual investment goals.

Please call or email anytime with questions or comments.

Michael D. Chesser, Manager
Aii Capital Management, LLC

About Apartment Income Investors and the Transformation Housing Fund
For the past 26 years, Apartment Income Investors has used disciplined underwriting and our proprietary business model to generate significant returns to our investors. We plan to continue this strategy as we deploy capital into the market at this time of uncertainty.

The Transformation Housing Fund was created to invest in value-add properties with a clear path to improved operations and increased valuation. The business plan generally requires active management by the property sponsor. Apartment Income Investors (Aii) has a 26-year track record of acquiring and repositioning properties. The target properties should provide a positive cashflow yield from rental operations, as well as a lift in value through renovation and improved rental operations. Acquisitions will support a total net return target of a 2X equity multiple and an IRR in the 18% range. The General Partner is actively pursuing investments that meet these requirements.

For more information, please visit or contact Michael Chesser at 805.604.2644 |

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