3Q17 UNITED STATES MULTIHOUSING MARKET OVERVIEW

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1 3Q17 UNITED STATES MULTIHOUSING MARKET OVERVIEW

2 TABLE OF CONTENTS 3 Key Takeaways 4 Historical Sales Volume 5 Sales Volume Distribution 6 Top Markets by Sales Volume 7 Property Performance 8 Historical Yields 9 Cap Rates by Metro 10 Historical Price Per Unit 11 Capital Flows 12 Top Buyers 13 Top Sellers 14 Global Multihousing Pricing 15 International Capital Buyers 16 International Capital by Region 17 International Capital Distribution 18 Historical Rent Growth 19 Rent Growth by Metro 20 Historical Supply and Demand 21 Supply and Demand by Metro 22 Historical Occupancy Rate 23 Mortgage Debt Outstanding 24 Mortgage Maturities 2

3 KEY TAKEAWAYS Sales Volume Sales volume for the past 12 months totaled $148.5 billion with quarterly volume reaching $39.3 billion, representing an 11.1% quarter-over-quarter increase and 4.0% year-over-year growth. Investors continue to pour capital into top-tier secondary markets such as Atlanta, Dallas and Denver. Cap Rates Cap rates remain flat year-over-year at 5.0% for institutional-quality assets. The third quarter represents the tightest spread between major markets and secondary markets as yield-driven capital continues to flow into secondary and tertiary markets. Rent Growth Nationwide rent growth remains flat at 2.3% while still positive. Western metros such as Phoenix, Sacramento, San Diego and Seattle continue to lead the nation in rent growth as they benefit from strong demographic and economic tailwinds. Supply and Demand New supply is anticipated to peak in 2017 with over 389,000 units delivered throughout the United States. This cycle has been heavily weighted toward urban infill and luxury product compared with the previous cycle which was dominated by Class B suburban assets. International Capital International capital sales volume rose to $11.3 billion over the past 12 months. High net worth and sovereign wealth funds are increasingly growing their multihousing portfolios through indirect investment vehicles and joint ventures with domestic sponsors. Debt Markets Debt outstanding increased $21.7 billion to $1.2 trillion with Agency & GSE lending accelerating 2.5% quarter-over-quarter compared to the broader market of 1.8%. Debt capital remains plentiful for well-positioned assets despite a slowdown in the CMBS market. 3

4 HISTORICAL SALES VOLUME United States; Dollars in Billions Quarterly sales volume rose to $39.3 billion, representing an 11.1% quarter-over-quarter growth and a 4.0% year-over-year increase with 12-month sales volume totaling $148.5 billion. Additionally, the third quarter sales volume of $39.3 billion is the highest third quarter volume on record. $200 $160 $120 Record 3Q Volume $39.3B $80 $40 $ Month Totals Quarterly Totals 4

5 SALES VOLUME DISTRIBUTION By Market Tier and Region; 12-Month Totals Sales volume in major markets declined from 36.7% to 28.9% over the past 12 months, as investors continued to seek out higher yields from assets in secondary and tertiary markets, predominantly in the Southeast and West. Major Markets 28.9% Mid-Atlantic 8.1% Midwest 8.9% Northeast 11.9% Tertiary Markets 15.0% Sales Volume by Market Tier West 23.2% Sales Volume by Region Southeast 24.6% Secondary Markets 56.1% Southwest 23.3% 5

6 TOP MARKETS BY SALES VOLUME 12-Month Totals; Dollars in Billions Sales volume remains highest among supply-constrained major markets such as New York, Los Angeles and Washington, D.C. as well as emerging gateway markets such as Atlanta, Dallas, Denver and Seattle. San Antonio Tampa Portland Las Vegas San Diego Orlando Boston Austin Miami Chicago Houston Phoenix San Francisco Seattle Denver Washington, D.C. Dallas-Ft. Worth Atlanta Los Angeles New York City $2.0 $2.5 $2.7 $2.7 $2.8 $3.1 $3.3 $3.5 $4.3 $4.3 $4.7 $4.8 $4.9 $5.4 $5.7 $6.2 $8.2 $8.3 $11.2 $13.1 6

7 PROPERTY PERFORMANCE By NCRIEF Region; Annualized 12-Month Returns Total returns for multihousing were 6.22% on an annual basis throughout the United States greater than hotel, office and retail during the same time period. In particular, Western metros featuring above-average rent growth helped fuel the outperformance. MIDWEST WEST 8.35% 4.53% EAST 5.28% SOUTH 5.31% Source: Newmark Knight Frank Research, NCREIF, Real Capital Analytics 7

8 6.7% 6.1% 5.7% 5.0% 4.8% 4.9% 5.3% 6.0% 5.5% 5.3% 5.2% 5.2% 5.1% 5.1% 5.0% 5.0% HISTORICAL YIELDS Yields of institutional-grade multihousing product remained flat year-over-year, although third-quarter 2017 represents the tightest spreads among major markets and secondary markets since % 7.0% 6.0% 5.0% 5.1% 4.5% 4.0% 3.0% United States Major Markets Secondary Markets 8

9 CAP RATES BY METRO Overall yields have largely remained unchanged for the past 24 months, although many secondary markets have experienced slight compression resulting from additional capital flows into these markets as well as a lack of for sale opportunities. SF 4.0% SJ 4.2% SAC 5.1% POR 4.8% LA 4.2% SEA 4.6% LV 5.2% SLC 5.4% PHX 5.1% DEN 4.9% WIC 5.9% MIN 5.0% OKC 5.5% KC 5.4% CHI 5.1% STL 5.7% LR 6.0% MEM 5.7% IND 5.6% COL 5.7% NSH 5.3% BIR 5.8% PIT 5.5% CHA 5.1% ATL 5.0% RD 4.9% CHR 5.4% BOS 4.5% NYC 3.9% PHI 5.4% DC 4.9% SD 4.3% ATX 5.1% DFW 5.1% HOU 5.3% JAX 5.5% TAM 5.4% ORL 5.2% SFL 4.8% SA 5.4% 9

10 $93 $97 $118 $126 $131 $131 $123 $133 $137 $135 $142 $144 $152 $166 $173 $183 HISTORICAL PRICE PER UNIT Dollars in Thousands Year-over-year, the average price per unit in the United States grew 5.8%. Despite a slowdown in volume among major markets, pricing per unit experienced strong growth of 10.4%, while secondary markets grew a sturdy 2.7%. $375 $300 $319 $225 $150 $146 $75 $ United States Major Markets Secondary Markets 10

11 CAPITAL FLOWS Select Investor Groups; Dollars in Billions Year-to-date, private buyers such as owner/operators and high-net-worth individuals and families are the only investor groups to be net buyers. PRIVATE INSTITUTIONS $100 $50 $50 $25 $0 $0 -$50 -$25 -$ $ Acquisitions Dispositions Net Investment Acquisitions Dispositions Net Investment 11

12 TOP BUYERS 12-Month Totals; Dollars in Millions Large-scale portfolio transactions accelerated 63.0% year-over-year. Greystar, GIC and other top buyers have focused on growing their portfolios by buying in bulk, while groups such as Cortland Partners and FPA Multifamily have mostly purchased individual deals. $7,500 Individual Portfolio & Entity $6,000 $4,500 $3,000 $1,500 $0 Greystar GIC APG Group Ivanhoe Cambridge MAA Starwood Capital Blackstone Rockpoint Group Cortland Partners Mapletree TruAmerica Multifamily FPA Guardian Life Scion Group Multifamily CPP Investment Board 12

13 TOP SELLERS 12-Month Totals; Dollars in Millions While the top buyers far outpaced the top sellers, many of the top sellers were among the past 12 months entity-level transactions, such as Monogram s sale to Greystar for $3.0 billion and Post Properties sale to MAA for $3.9 billion. $7,500 Individual Portfolio & Entity $6,000 $4,500 $3,000 $1,500 $0 Monogram Res Trust Post Properties Milestone REIT Starwood Capital Bridge Investment Fairfield Residential Blackstone Waterton Associates PGIM Investors Management JP Morgan Kayne Anderson AVR Realty Harbor Group Holland Partners 13

14 GLOBAL MULTIHOUSING PRICING Cap Rates and Price Per Unit; 12-Month Totals On a risk-adjusted basis, the United States continues to offer competitive yields and resilient total returns compared with other regions of the world. EMEA United States 5.0% $182, % $194,109 Asia Pacific 4.8% $324,676 14

15 INTERNATIONAL CAPITAL BUYERS Top Countries of Origin and Buyers; 12-Month Totals International capital sales volume rose to $11.3 billion over the past 12 months, as overseas investors continue to seek out well-positioned assets in primary and secondary markets. Invested Capital - $250M+ Akelius Residential AB Sweden Other 6.6% Canada 44.6% Amitim APG Group AXA Group Brookfield Asset Management Israel Netherlands France Canada Switzerland 2.7% Sweden 3.9% Top Countries by Sales Volume CAPSSA CPP Investment Board GIC Ivanhoe Cambridge France Canada Singapore Canada France 7.3% Manulife Financial Mapletree Investments Canada Singapore Menora Mivtachim Israel Israel 15.4% Singapore 19.5% Milestone Apartment REIT Morguard North American Residential REIT Psagot Canada Canada France Pure Multi-Family REIT Canada Starlight Investments Canada 15

16 $774 $501 $1,186 $1,054 $438 $1,411 $906 $4,829 $802 $2,185 $923 $1,731 $4,295 $5,018 $2,830 INTERNATIONAL CAPITAL BY REGION Past 5 Years; Dollars in Millions Multihousing has benefited from high-net-worth families and sovereign wealth funds shifting requirements from trophy offices and hotels. Year-to-date, the majority of investment from these groups has been through indirect investment vehicles and joint ventures with domestic sponsors. EUROPE MIDDLE EAST ASIA PACIFIC

17 INTERNATIONAL CAPITAL DISTRIBUTION Top Destinations; 12-Month Totals While major markets have historically attracted the most capital from overseas investors, high-quality secondary markets such as Atlanta, Austin, Dallas, Denver and Miami have seen over $250 million invested in the past 12 months. BY MARKET TIER As a % of Cross-Border Capital SEA $82M BOS $227M MAJOR MARKETS 38.3% POR $127M DEN $391M CHI $108M NASH $47M CHA $189M NYC $910M DC $100M SECONDARY & TERTIARY 61.7% BY REGION As a % of Cross-Border Capital MID-ATLATNIC 11.1% LA $195M PHX $153M AUS $445M DFW $350M ATL $630M TB $157M ORL $245M S. FL $267M MIDWEST 5.8% NORTHEAST 14.8% SOUTHEAST 33.9% SOUTHWEST 25.2% WEST 9.2% 17

18 HISTORICAL RENT GROWTH Annual Effective Rent Annual rent growth remains flat at 2.3%. While more modest than in previous years, growth remains near long-term averages and is still trending in a positive direction. Rents are projected to increase in the coming years, as new supply levels off. $1, % $1, % $ % $ % $ % $ Effective Rent Effective Rent Growth -7.5% Source: Newmark Knight Frank Research, Axiometrics 18

19 RENT GROWTH BY METRO Year-over-Year Change Western metros such as Phoenix, Sacramento, San Diego and Seattle continue to lead the nation in rent growth as they continue to benefit from strong demographic tailwinds paired with above-average job growth. 10.0% 8.0% 7.4% 6.0% 4.5% 4.5% 4.4% 4.0% 4.0% 4.0% 3.7% 3.6% 3.2% 3.2% 3.2% 3.1% 2.9% 2.7% 2.7% 2.5% 2.3% 2.3% 2.0% 0.0% Source: Newmark Knight Frank Research, Axiometrics 19

20 HISTORICAL SUPPLY AND DEMAND United States New supply is anticipated to peak in 2017 with over 389,000 units delivered throughout the United States. This cycle has been heavily weighted toward urban infill and luxury product compared with the previous cycle which was dominated by Class B suburban assets. 500, % 400, % 300, % 200, % 100, % New Supply (Left Axis) Absorption (Left Axis) Inventory Growth (Right Axis) 0.0% Source: Newmark Knight Frank Research, Axiometrics 20

21 SUPPLY AND DEMAND BY METRO Select Markets; Year-to-Date New supply outweighs absorption in the vast majority of markets. However, the underlying fundamentals for multihousing assets remain strong with rental growth expected to rise nationally in 2018 and ,000 37,500 24,000 30,000 18,000 22,500 12,000 15,000 6,000 7, New Supply (Left Axis) Absorption (Right Axis) Source: Newmark Knight Frank Research, Axiometrics 21

22 HISTORICAL OCCUPANCY RATE United States Strong demand nationwide continues to push occupancy rates to historically high levels. As of third-quarter 2017, the occupancy rate stands 100 basis points above the long-term average of 94.0%. 96.0% 95.0% 95.0% 94.0% Long-Term Average = 94.0% 93.0% 92.0% 91.0% Source: Newmark Knight Frank Research, Axiometrics 22

23 $91,676 $70,523 $41,191 $40,567 $398,495 $553,261 MORTGAGE DEBT OUTSTANDING By Group Multihousing debt outstanding rose $21.7 billion for the quarter, with Agency and GSE seeing their total debt outstanding rise to $553.3 billion, representing a 2.5% quarterly growth compared with the broader market increase of 1.8%. $600,000 Dollars in Millions Other 3.4% Agency & GSE 46.3% $500,000 CMBS 3.4% $400,000 Life Co's 5.9% State & Local Gov't 7.7% Debt Outstanding by Group As a Percentage of Total $300,000 $200,000 Bank & Thrift 33.3% $100,000 $0 Agency & GSE Bank & Thrift State & Local Gov't Life Co's CMBS Other Source: Newmark Knight Frank Research, Mortgage Bankers Association, Real Capital Analytics, Federal Reserve Bank 23

24 MORTGAGE MATURITIES By Lender Type; Dollars in Billions Mortgage maturities are expected to rise to $114.8 billion, up from $102.0 billion the previous year, representing a 12.5% increase year-over-year. $140 $120 $100 $69.7 $80 $60 $40 $20 $35.1 $31.3 $3.1 $2.9 $10.4 $5.2 $21.7 $24.7 $38.4 $3.3 $9.3 $28.9 $61.8 $66.4 $49.6 $53.2 $54.8 $54.9 $58.2 $44.8 $40.2 $4.5 $3.4 $3.7 $4.0 $4.0 $3.8 $3.9 $4.4 $4.4 $8.1 $8.6 $10.2 $10.4 $21.2 $12.8 $5.9 $14.9 $15.7 $32.5 $33.1 $33.0 $31.9 $34.2 $29.0 $26.6 $23.9 $27.3 $66.8 $4.2 $5.4 $41.8 $4.6 $3.5 $49.2 $ Banks CMBS Life Co's Other Source: Newmark Knight Frank Research, Federal Reserve Bank, Trepp 24

25 New York City HEADQUARTERS 125 Park Avenue New York, NY Blake Okland Vice Chairman, Head of US Multifamily ARA, A Newmark Company okland@aranewmark.com Jeff Day Chief Executive Officer Berkeley Point Capital jeff.day@berkpoint.com Jonathan Mazur Senior Managing Director, National Research Newmark Knight Frank jmazur@ngkf.com Michael Wolfson Associate Director, Capital Markets Research Newmark Knight Frank mwolfson@ngkf.com Newmark Knight Frank Research Reports are also available at All information contained in this publication is derived from sources that are deemed to be reliable. However, Newmark Knight Frank (NKF) has not verified any such information, and the same constitutes the statements and representations only of the source thereof, and not of NKF. Any recipient of this publication should independently verify such information and all other information that may be material to any decision that recipient may make in response to this publication, and should consult with professionals of the recipient s choice with regard to all aspects of that decision, including its legal, financial, and tax aspects and implications. Any recipient of this publication may not, without the prior written approval of NKF, distribute, disseminate, publish, transmit, copy, broadcast, upload, download, or in any other way reproduce this publication or any of the information it contains.