Multifamily Research. Market Report Fourth Quarter Los Angeles County. Tight Vacancy Collides with Heightened Development in Los Angeles County

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1 Multifamily Research Market Report Fourth Quarter 217 Los Angeles County Tight Vacancy Collides with Heightened Development in Los Angeles County Diversified job growth, tight vacancy await uptick in apartment deliveries. Over the past year, the Los Angeles economy has witnessed diversified employment expansion driven by the creation of more than 3, education and health-related positions. Continued job gains have fueled household formations during a time of out-of-reach home prices for many. This combination of factors keeps vacancy below 4 percent in most submarkets, with Downtown Los Angeles the exception as new supply outstrips Class A demand. Sets of large-scale completions to gauge demand for luxury rentals. In the next four quarters more than 18, units will be completed in the metro as the total volume of multifamily construction reaches a new cycle high. Ten sizable projects are slated for finalization during this period, including a group of 5-unitplus developments. Three of these larger rentals are high-rises located in Downtown Los Angeles, while mid-rise developments with comparable unit counts open in Hollywood and Marina del Rey. Following these completions, an additional, smaller wave of deliveries is lining up, with at least 7,6 units slated to come online in late 218 and 219. Overall, the influx of new apartments over the next two years will bolster the metro s Class A stock, notably expanding Downtown s vacancy rate while pushing availability near 4 percent in other submarkets. Average Rate % % Local Apartment Yield Trends Apartment Cap Rate Year Treasury Rate * Cap rates trailing 12 months through 3Q17; 1-year Treasury rate through Oct. 2. Sources: CoStar Group, Inc.; Real Capital Analytics 9 11 Multifamily 217 Outlook Metro Downtown Los Angeles $2,3 4.5% San Fernando Valley/ Tri-Cities Vacancy 3. 4 $1, % South Bay/Long Beach 2.9% 5 $2, 5. Westside Cities $3,85 7.1% Los Angeles 4.1% 12 $2,7 6. Investment Trends Y-O-Y Basis Point Change Effective Rent Y-O-Y Change Multifamily sales volume in Los Angeles County rose by $1.5 billion over the past 12 months, with a boost in post-2-built property trades driving the overall increase. Both local and outof-state institutions remain willing to pay a premium for newer rentals in Santa Monica, Downtown Los Angeles and Hollywood in exchange for 3 to mid-4 percent initial yields. Southern California and Bay Area-based regional buyers pursue value-add opportunities in Hollywood and Mid-Wilshire, primarily acquiring sub-5-unit properties at low-3 percent to low-4 percent cap rates. A portion of these investors also target the San Fernando Valley and Tri-Cities region, obtaining comparable complexes at slightly higher yields. Private local investors targeting below-average pricing and high- 4 percent returns eye opportunities in the San Gabriel Valley, Koreatown and South Bay/Long Beach. Assets of various vintages are available in these locales at sub-$3, per unit pricing. Select 192s- to 193s-built product in Koreatown will change hands for less than $2, per door. Buyer demand for Silicon Beach apartments remains robust. In Santa Monica, properties sold for an average of $57, per unit over the past year amid a lack of new construction.

2 Los Angeles County Employment Trends EMPLOYMENT: 3% 1% Metro United States 1.1% increase in total employment Y-O-Y Metro employers created 49,6 jobs over the past year, reducing the unemployment rate by 3 basis points to 4.9 percent. During the previous period, 13, positions were added. The education and health services sector drove overall gains, yet the professional services, construction and hospitality-sectors each added more than 5, positions. and 9,8 units completed Y-O-Y Deliveries increased over the past 12 months after annual completions totaled more than 8, units in each of the previous three periods. More than half of the 9,8 apartments that recently came online were located in the Downtown Los Angeles region. Metrowide, developers have 28,2 apartments underway with completions extending into 219. Trends Metro United States 1 basis point increase in vacancy Y-O-Y Vacancy rose from a cycle-low level to 3.6 percent over the last year, as net absorption turned negative by 1,8 units. Amid the delivery of 6, rentals, Downtown Los Angeles vacancy rate increased by 31 basis points to 5.4 percent. South Bay/Long Beach remains tight, with vacancy at 2.9 percent entering the fourth quarter. 4. increase in effective rents Y-O-Y $2,1 $1,825 $1,55 $1,275 $1, A triple-digit uptick in vacancy did not hinder rent growth, with the average effective rate advancing to $2,67 per month following a 5.9 percent rise last year. Rent growth was most pronounced in Westside Cities, where the effective rate increased by 7.1 percent to $3,82 per month. The San Fernando Valley/Tri-Cities market boasts an average rent below $2, per month.

3 Multifamily Research Market Report DEMOGRAPHIC HIGHLIGHTS FIVE-YEAR POPULATION GROWTH* 2, 3Q17 POPULATION AGE 2-34 (Percent of total population) Metro 23% U.S. 21% $$ 2Q17 MEDIAN HOUSEHOLD INCOME Metro $63,699 U.S. Median $58,218 2Q17 TOTAL HOUSEHOLDS T FIVE-YEAR HOUSEHOLD GROWTH* 191, * POPULATION OF AGE 25+ PERCENT WITH BACHELOR DEGREE+** Metro 31% U.S. Average 29% **2 5 Rent 4 Own T Los Angeles-Long Beach-Anaheim, CA Metropolitan Statistical Area Lowest s 3Q17 Buyers Covet Assets in Silicon Beach And Downtown, Elevating Pricing SUBMARKET TRENDS Submarket Vacancy Rate Y-O-Y Basis Point Change Effective Rents Y-O-Y % Change East Los Angeles 1. 9 $1, South Los Angeles $1, Southeast Los Angeles 2.3% 5 $1,65 3.7% South San Gabriel Valley 2. 9 $1,64 4.7% Van Nuys/Northeast San Fernando Valley Santa Monica/ Marina del Rey 2.5% $1, $3,32 6.3% South Bay 2. 1 $2, % Long Beach 3. 9 $1, % Northridge/Northwest San Fernando Valley Sherman Oaks/ North Hollywood/Encino 3. 7 $1,8 9.9% 3.1% 1 $2,5 3. Overall Metro 3. 1 $2,67 4. SALES TRENDS Sales velocity increased by nearly 6 percent when compared with the previous 12-month period as a diverse pool of buyers aggressively pursued both newer-built properties and older value-add complexes. The average price per unit advanced 6. percent to $256, per door, compressing the metro s average cap rate by 3 basis points to 4.6 percent. Outlook: Investors remain eager to acquire rentals in transitioning submarkets and higher-end neighborhoods prior to a peak in apartment development. Average Price per Unit (s) $3 $225 $ $75 $ Pricing Trends * Trailing 12 months through 3Q17 Sources: CoStar Group, Inc.; Real Capital Analytics

4 GREATER DOWNTOWN LOS ANGELES Investment Highlights The rise in Downtown Los Angeles multifamily development has been well publicized, with deliveries slated to further ramp up during the end of 217 and carry over into next year. In contrast to the last 12 months, upcoming completions will be more equally spread between Downtown, Hollywood and Mid-Wilshire. The recently high concentration of new units in Downtown has notably expanded vacancy, with the area s rate reaching double digits. This increased availability has investors focused on submarkets adjacent to the core where vacancy generally remains below 5 percent. Investors are most active in long-established neighborhoods within Hollywood and Koreatown, where a stock of older, Class C value-add opportunities are available at sub-$3, per unit pricing. Yields for these assets max out in the low-4 percent arena. Transactions involving newer-built properties drove the region s average pricing to $37, per unit over the past year, with Class A assets in Mid-Wilshire, including some 1-unit-plus complexes, trading for more than $6, per door at low-3 percent minimum returns. and ,4 units completed Y-O-Y The number of units delivered over the past year spiked by 2,3 rentals when compared with the previous period. The completion of more than 3,65 apartments in Downtown Los Angeles drove the year-over-year rise. Developers are underway on more than,7 units within the region, with projects equally split between Downtown Los Angeles and Mid-Wilshire/Hollywood. Trends Downtown Los Angeles 31 basis point increase in vacancy Y-O-Y After dipping by 3 basis points during the previous period, vacancy rose by triple digits over the past 12 months to 5.4 percent, with notable increases occurring in each of the region s three submarkets. A wave of deliveries in Downtown Los Angeles expanded local vacancy by 62 basis points to 1.1 percent, with Class A availability growing by 9 basis points. 4. increase in effective rents Y-O-Y $2,4 $2,1 $1,8 $1,5 $1,2 1 5% -5% -1 The average rent advanced to $2,377 per month. Downtown Los Angeles rate was up 9.2 percent amid a rise in concessions, as percent of available units offered incentives during the third quarter. Driven by double-digit growth in Class B rates, Hollywood s average rent increased by 4.2 percent to $2,373 per month.

5 WESTSIDE CITIES Investment Highlights Home to an ever-expanding tech sector that includes the industry s heavy hitters, along with incubators and startups, the Westside boasts a host of higher-earning individuals and households that opt to rent rather than own a home. A lack of developable space within Silicon Beach has heightened renter demand for existing units over the past year, further reducing the area s limited vacant stock. With a bump in Westside completions slated to occur in 218, some investors will attempt to acquire assets prior to this wave of new units, namely in Palms/Mar Vista and Marina del Rey, where largescale deliveries are upcoming. Deliveries remain minimal moving forward, driving pricing and investor demand for Class A properties built this decade. These assets commonly trade for more than $6, per unit, with several complexes netting $1 million per door. Bay Area and out-of-state buyers have acquired these assets in Santa Monica and in Beverly Hills/Century City/UCLA at low-3 percent yields. Apart from newer rentals, pre-197s-built complexes drive overall deal flow, with value-add assets in Culver City and West Hollywood selling for less than $4, per unit, at cap rates that rarely exceed the mid-3 percent realm. and units completed Y-O-Y Led by the delivery of 525 rentals in Brentwood/ Westwood/Beverly Hills, completions increased over the last 12 months after roughly 25 units came online during the previous period. -4 Construction is underway on 3,25 rentals. Three projects in Marina del Rey and a property in Palms/Mar Vista account for 1,7 of these units. Trends Westside Cities Los Angeles 6 basis point increase in vacancy Y-O-Y Vacancy rose to 3.2 percent, a relatively high rate for the region spanning the past seven years. Availability in Santa Monica/Marina del Rey remained low, dipping 5 basis points to 2.6 percent amid a lack of new deliveries. Vacancy in Palms/Mar Vista and Brentwood/Westwood/Beverly Hills remained below 4 percent entering the fourth quarter. 7.1% increase in effective rents Y-O-Y $3,2 $2,9 $2,6 $2,3 $2, 1 9% 3% The pace of rent growth accelerated over the past year, advancing to $3,82 per month. Tightening vacancy allowed the average rate in Santa Monica/Marina del Rey to increase by roughly $2 per month. A 1.7 percent lift in two-bedroom rents within Brentwood/ Westwood/Beverly Hills pushed the submarket s average rate up 8.5 percent to $3,295 per month.

6 SAN FERNANDO VALLEY/TRI-CITIES MARKET Investment Highlights The region is increasingly becoming a hot spot for both renters and corporate tenants seeking less expensive space in relative proximity to Downtown Los Angeles and Westside Cities. Steady demand for apartments has equated to tight vacancy throughout the area over the last four years. Developers have responded, with more than 2, units underway in both the San Fernando Valley and Tri-Cities submarkets. Investors view the region as a less volatile locale based on its history of stable vacancy and consistent rent growth. The Studio City/North Hollywood and Tri-Cities submarkets drive overall deal flow and average pricing, which reached nearly $36, per unit over the past year. California-based investors and out-of-state buyers vie for post-2-built complexes in Studio City/North Hollywood, accepting mid-3 percent minimum yields, while value-add players target smaller properties in Glendale, Pasadena and Burbank at low-3 percent to low-4 percent cap rates. The Tri- Cities submarket remains a popular area for investors wishing to deploy $8 million to $12 million for Class B and C assets at pricing comparable to the metro s average. and ,52 units completed Y-O-Y Recent deliveries were concentrated in Glendale and Pasadena, where 1, rentals came online. During the previous period 1, apartments were completed. Developers are underway on more than 4,9 rentals with delivery dates extending into summer 219. The 494-unit Next on Lex in Glendale and 24, a 66-unit complex in Chatsworth, represent the largest projects. Trends San Fernando Valley Los Angeles 6 basis point increase in vacancy Y-O-Y After hovering below 3 percent in much of the last three years, vacancy rose to 3.2 percent over the past 12 months. Vacancy in Van Nuys/Northeast San Fernando Valley increased by basis points to 2.5 percent after reaching an extremely low level last year. The delivery of more than 1,1 rentals minimally impacted vacancy in the Tri-Cities, with availability climbing 3 basis points. 4. increase in effective rents Y-O-Y $2,1 $1,825 $1,55 $1,275 $1, 1 9% 3% Rent growth persists, albeit at a more moderate pace, following a 7 percent boost last year. Entering the fourth quarter, the region s average rate was up 4.4 percent year over year to $1,979 per month. Tight vacancy propelled rent gains in Northridge/ Northwest San Fernando Valley and Woodland Hills, where rates rose 9.9 percent and 6 percent, respectively.

7 SOUTH BAY/LONG BEACH Investment Highlights Company relocations and increased office construction indicate the region s employment base will receive a boost moving forward, with Boeing Co. moving more than 1, jobs to El Segundo and Long Beach and other companies filling newlydelivered space. Properties near employment hubs or areas of limited apartment construction will be coveted by investors priced out of other submarkets; yet, listings could be minimal as owners evaluate holding during a span of tight vacancy and steady rent growth, or selling while prices are much higher compared with the past five to seven years. Local private investors compete for Class C properties in El Segundo, Hawthorne and Long Beach, netting low-3 to mid-4 percent yields. These trades drive deal flow in the region, with most selling for less than $25, per door. Larger properties and Class A assets are rarely exchanged in the region, with trades occasionally occurring in Long Beach and Torrance. The limited number of available listings lifts pricing for these complexes when they do hit the market, with price tags exceeding $35, per unit. A 232-unit Class A property recently sold for $595, per door in Long Beach, representing a potential price benchmark for the submarket. and units completed Y-O-Y Deliveries notably dipped over the past year, as a lone conventional property came online, the 6-unit Edison in Long Beach. During the previous 12-month period, 2,23 rentals were completed. Developers are underway on nearly 2,5 units, most of which will come online during 218. More than 1,4 rentals are under construction in Long Beach. Trends San Fernando Valley Los Angeles 5 basis point increase in vacancy Y-O-Y After dipping to a cycle-low level, the region s vacancy rate rose 5 basis points over the past 12 months to 2.9 percent, as more units became available in Long Beach. Vacancy in the South Bay has hovered around 3 percent for the past five years, rising 1 basis points over the past 12 months to 2.8 percent. 5. increase in effective rents Y-O-Y $2,1 $1,825 $1,55 $1,275 $1, 1 9% 3% Sub-3 percent vacancy supported rent growth over the past year, with the average monthly rate increasing to $2, per month. Rent remains affordable in Long Beach at $1,795 per month despite a recent 7.3 percent bump in monthly rates. The average rent in the South Bay advanced at a consistent pace, rising 4.1 percent to $2,262 per month.

8 Multifamily Research Market Report Percent of Dollar Volume Private, % 5 25% Apartment Acquisitions By Buyer Type* Other, 1% Cross-Border, Apartment Mortgage Originations By Lender 12 * * Trailing 12 months through 2Q17 ** Through first half 217 Include sales $2.5 million and greater Sources: CoStar Group, Inc.; Real Capital Analytics National Multi Housing Group Visit John Sebree First Vice President, National Director National Multi Housing Group Tel: (312) john.sebree@marcusmillichap.com Edited by: James Reeves Publications Director Research Services Equity Fund & Institutions, 23% Listed/REITs, Gov't Agency Financial/Insurance Reg'l/Local Bank Nat'l Bank/Int'l Bank CMBS Pvt/Other CAPITAL MARKETS By WILLIAM E. HUGHES, Senior Vice President, Marcus & Millichap Capital Corporation Monetary policy in transition. Despite the Fed raising its benchmark short-term rate three times in seven months and signaling another rise before the end of the year, long-term rates have remained stable. The yield on the 1-year U.S. Treasury bond remained in the low- to mid-2 percent range throughout the third quarter of 217. The Federal Reserve wants to normalize monetary policy and, in addition to raising its funds (or overnight lending) rate, has announced it will begin to taper its balance sheet by allowing an initial $1 billion in securities to mature without reinvestment. By reducing its acquisitions of securities, 1-year Treasury rates should drift upward, thereby widening the spread between short- and long-term rates. Increase in interest rates over the course of the year, pushing up the cost of capital. While commercial real estate fundamentals remain strong, rising costs associated with debt financing will tighten the spread between cap rates and lending benchmarks. This environment could weigh on transaction activity as investors evaluate their yield options. Cap rates have remained relatively stable over the last year, but upward movement in Treasury rates has amplified the expectation gap between buyers and sellers. The capital markets environment continues to be highly competitive. Government agencies continue to consume the lion s share, just slightly over 5 percent, of the apartment lending market. National and regional banks control approximately a quarter of the market. Growing uncertainty about federal policy and global geopolitical concerns are keeping long-term interest rates down with pricing residing in the 4 percent realm with maximum leverage of 8 percent. Portfolio lenders will typically require loan-to-value ratios closer to 75 percent with interest rates in the high-3 to mid-4 percent range. As uncertainty remains regarding the possibility of tax policy revision, rental demand remains strong with the national apartment vacancy at 4.5 percent. For information on national apartment trends, contact: John Chang First Vice President Research Services Tel: (62) john.chang@marcusmillichap.com Price: $25 Marcus & Millichap The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no representation, warranty or guarantee, express or implied, may be made as to the accuracy or reliability of the information contained herein. Note: Metro-level employment growth is calculated based on the last month of the quarter/year. Sales data includes transactions valued at $1,, and greater unless otherwise noted. This is not intended to be a forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide specific investment advice and should not be considered as investment advice. Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; Experian; National Association of Realtor s; Moody s Analytics; Real Capital Analytics; MPF Research; TWR/Dodge Pipeline; U.S. Census Bureau Adam Christofferson Senior Vice President Division Manager adam.christofferson@marcusmillichap.com Encino Office: James Markel Regional Manager Tel: (818) jim.markel@marcusmillichap.com 83 Ventura Boulevard, Suite 1 Encino, CA 936 Los Angeles Office: Enrique Wong Vice President Regional Manager Tel: (2) enrique.wong@marcusmillichap.com 5 South Flower Street, Suite 5 Los Angeles, CA 971 West Los Angeles Office: Tony Solomon First Vice President Regional Manager Tel: (31) tony.solomon@marcusmillichap.com 121 West Olympic Boulevard, Suite 35 Los Angeles, CA 964 Long Beach Office: Damon Wyler Regional Manager Tel: (562) damon.wyler@marcusmillichap.com One World Trade Center, Suite 21 Long Beach, CA 9831