2Q17 UNITED STATES MULTIHOUSING MARKET OVERVIEW

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1 2Q17 UNITED STATES MULTIHOUSING MARKET OVERVIEW

2 TABLE OF CONTENTS 3 Key Takeaways 4 Historical Sales Volume 5 Sales Volume Analysis 6 Top Markets by Sales Volume 7 Historical Pricing Trends 8 Cap Rates by Market 9 Capital Flow Allocation 10 Top Buyers and Sellers 11 Top Buyers by Region 12 Yield Spread 13 International Capital Overview 14 International Capital Distribution 15 Historical Rent Growth 16 Employment Growth 17 Technology Hubs 18 Historical Supply and Demand 19 New Supply Matrix 20 Rental Pricing And Momentum 21 Historical Occupancy Rate 22 Mortgage Maturities 23 Debt Outstanding 24 Lender Composition 2

3 KEY TAKEAWAYS SALES VOLUME Multihousing sales volume increased 25.2% to $33.7 billion in the second quarter, with secondary markets throughout the Southeast and Southwest continuing to attract the most capital. CAP RATES Yields compressed 20 basis points year-over-year. Cap rate compression is primarily occurring in secondary and tertiary markets, whereas major metros remain unchanged. RENT GROWTH Rental growth remains modest at 2.3% nationally, as heavy amounts of new supply are being delivered. Technology-driven employment hubs throughout the West Coast offer the strongest rental growth. SUPPLY AND DEMAND Austin, Charlotte, Dallas and Nashville have experienced substantial inventory growth over the past 12 months. Furthermore, 2018 and 2019 are forecasted to have very strong demand. INTERNATIONAL CAPITAL With $8.5 billion invested in U.S. multihousing over the past 12 months, direct and indirect foreign capital continue to be increasingly active purchasing high-quality assets nationwide. DEBT MARKETS Debt capital for well-positioned assets remains plentiful despite a pull back in the CMBS market. Meanwhile, GSE s, banks and life insurance companies have expanded their debt outstanding. 3

4 Billions HISTORICAL SALES VOLUME United States After a slow start to the year, sales volume accelerated 25.2% quarter-over-quarter with 12-month volume reaching $144.6 billion. $200 $160 $120 2Q17 $33.7B $80 $40 $ YTD 12-Month Totals Quarterly Totals Source: Newmark Knight Frank Research, Real Capital Analytics 4

5 SALES VOLUME ANALYSIS By Market Tier and Region, 12-Month Totals Secondary markets continue to outpace primary markets, as year-over-year volume rose 14.7%, while in primary markets it declined 25.2%. Mid-Atlantic 7.1% Tertiary Markets 29.4% Primary Markets 28.7% West 23.1% Midwest 8.0% Sales Volume by Market Tier Sales Volume by Region Northeast 12.3% Secondary Markets 41.9% Southwest 24.4% Southeast 25.1% Source: Newmark Knight Frank Research, Real Capital Analytics 5

6 TOP MARKETS BY SALES VOLUME 12-Month Totals Despite a national slowdown, top-tier secondary markets such as Austin, Dallas and Orlando had record first half sales volume. Minneapolis Nashville Raleigh-Durham Baltimore San Antonio Las Vegas Charlotte San Diego Boston Tampa Portland Orlando $1.3 $1.4 South Florida Metro Austin Chicago Phoenix Houston $1.7 Washington, D.C. Metro San Francisco Metro Seattle Denver Atlanta Dallas Los Angeles Metro New York City Metro $1.9 $2.0 $2.3 $2.3 $2.4 $2.6 $2.7 $2.7 $3.2 $3.6 $3.7 $4.1 $4.6 $4.6 $5.1 $5.3 $5.4 $5.4 $0 $3 $6 $9 $12 $15 Billions $8.9 $9.6 $11.3 Miami Broward South Florida Metro $1.6 B $1.2 B Palm Beach $841.5 M Washington, D.C. Metro Suburban MD Northern VA $2.3 B $2.2 B District of Columbia $624.8 M San Francisco Metro Oakland San Francisco San Jose $1.8 B $1.6 B $1.3 B Other $720.5 M Los Angeles Metro Los Angeles Orange County Inland Empire $6.9 B $1.9 B $1.8 B Other $712.0 M New York City Metro Manhattan Outer Boroughs Northern NJ Other $6.0 B $4.4 B $2.3 B $1.7 B $14.4 Source: Newmark Knight Frank Research, Real Capital Analytics 6

7 Cap Rates Price Per Unit HISTORICAL PRICING TRENDS United States Cap rates compressed 20 basis points year-over-year, while price per unit increased 6.0% to an all-time high of $140, % $150,000 8% $120,000 6% $90,000 4% $60,000 2% $30,000 0% YTD Price Per Unit Cap Rates $0 Source: Newmark Knight Frank Research, Real Capital Analytics ($25M+ Transactions) 7

8 CAP RATES BY MARKET Institutional Averages Yields remain stable throughout the country at 5.6%, with secondary and tertiary markets primarily in the Midwest and Southwest offering the highest yields. 4.8% Seattle 4.9% Portland 5.1% Minneapolis Detroit 6.1% Boston Manhattan 5.0% 3.8% 4.0% San Francisco 4.9% San Jose Sacramento 5.2% Salt Lake City 5.5% 5.2% Denver 6.1% 5.0% Chicago 5.0% Indianapolis 5.6% Kansas City 5.8% St. Louis Wichita Philadelphia 5.5% Columbus 5.7% Washington DC 5.4% Louisville 5.9% Raleigh-Durham 5.3% Charlotte 5.4% Nashville 5.5% 4.7% Los Angeles 4.8% San Diego Las Vegas 5.5% Phoenix 5.4% 5.7% 5.9% Tulsa Oklahoma City 5.4% Dallas 5.7% Memphis Little Rock 5.4% Atlanta 6.0% Birmingham 5.7% Charleston 5.5% Jacksonville 5.5% Orlando 5.6% 5.3% Austin Houston 5.5% 5.5% Tampa South Florida 5.1% San Antonio 5.4% % % % 6.0%+ Source: Newmark Knight Frank Research, Real Capital Analytics ($25M+ Transactions) 8

9 Multihousing All Property Types (ex-multihousing) CAPITAL FLOW ALLOCATION Volume As A Percentage of Investment Sales Since 2001, investors have increased their allocations to multihousing from 23.2% to 29.4%, growing at a quicker pace than all other property types. 35% 100% 30% 90% 25% 80% 20% 70% 15% 60% 10% YTD All Property Types (ex-multihousing) Multihousing 50% Source: Newmark Knight Frank Research, Real Capital Analytics 9

10 TOP BUYERS AND SELLERS United States; 12-Month Totals Starwood Capital became the second-largest buyer of the past 12 months with its acquisition of Milestone for $3.0 billion during the second quarter. Top 20 Buyers $ in Millions Top 20 Sellers $ in Millions MAA REIT Starwood Capital Blackstone Rockpoint Group Greystar Mapletree Investments Cortland Partners CPP Investment Board Scion Group GIC Harbor Group Int'l BH Management Kennedy Wilson FPA Multifamily Carroll Organization Investcorp Guardian Life Insurance TruAmerica Multifamily Strata Equity Group Invesco $955.0 $955.0 $955.0 $917.3 $856.5 $822.5 $807.7 $789.6 $768.3 $739.9 $739.9 $731.1 $713.1 $1,229.0 $1,142.7 $1,043.9 $1,035.9 $3,242.5 $4,165.3 $3,825.2 Post Properties Milestone APTS REIT Fairfield Residential Bridge Investment Waterton Associates Blackstone Starwood Capital Investors Management Greystar Harbor Group Int'l Bascom Group Kayne Anderson Ares Management DRA Advisors Alliance Residential Holland Partners FPA Multifamily AvalonBay Lennar Corporation Trammell Crow $1,061.1 $1,031.8 $1,018.9 $987.8 $968.0 $894.9 $890.3 $882.6 $858.7 $836.0 $831.7 $1,422.0 $1,415.1 $1,338.1 $1,323.0 $1,133.5 $1,521.3 $1,498.9 $3,028.5 $3,751.8 Source: Newmark Knight Frank Research, Real Capital Analytics 10

11 NORTHEAST SOUTHEAST WEST SOUTHWEST MID-ATLANTIC MIDWEST TOP BUYERS BY REGION 12-Month Totals; $ in Millions $199.0 AllianceBernstein $208.0 Investcorp $240.7 Jamestown $100.0 Berkshire Group $120.0 DRA Advisors $405.0 Metro Loft $133.6 GID $278.9 Blackstone Income REIT $620.0 Blackstone $563.1 Blackstone $145.0 Griffis Residential $119.5 CPP Inv. Board $153.0 GID $134.0 Rockwood Capital $168.2 Korman Cos $158.1 TA Realty $232.0 American Assets Trust $262.5 Wafra $319.9 AIMCO $262.5 Pensam Capital $143.0 Monogram REIT $160.0 Bentall Kennedy $160.0 MEPT $187.3 Prospect Capital $209.0 Hampshire Properties $98.1 Virtus Real Estate $99.6 American Realty $100.0 Planned Realty $126.5 Group Fox $145.3 Alcion Ventures Source: Newmark Knight Frank Research, Real Capital Analytics 11

12 Cap Rates & Treasury Note Spread (BPS) YIELD SPREAD Multihousing Cap Rates vs. the 10-Year Treasury Note The 10-year Treasury note has stabilized since the election results. However, the yield spread is now at its lowest level since 2011 at 329 basis points. 10% 500 8% 400 6% 300 4% 200 2% 100 0% YTD Yield Spread Multihousing Cap Rates 10-Year Treasury Rate 0 Source: Newmark Knight Frank Research, Federal Reserve Bank of St. Louis, Real Capital Analytics ($25M+ Transactions) 12

13 INTERNATIONAL CAPITAL OVERVIEW Top Buyers and Countries of Origin; 12-Month Totals Recent portfolio transactions in the student housing market pushed Singapore to the second-largest buyer behind Canada for the past 12 months. Top Countries of Origin Top Buyers ($100M+) Sweden Germany 2.4% 4.0% Kuwait 4.9% France 6.8% UK 2.3% Other 2.9% Canada 42.7% Bentall Kennedy Brookfield Asset Management CPP Investment Board Emma Capital H&R REIT Manulife Financial AXA Group CAPSSA FRANCE CANADA Milestone Apartment REIT Morguard NA Residential REIT Pure Multi-Family REIT Starlight Investments Venterra Properties Western Wealth Capital Jamestown GERMANY Israel 10.4% ISRAEL Amitim Electra Ltd Menora Mivtachim Psagot Sage Equities KUWAIT Wafra SWEDEN Akelius Residential AB SINGAPORE GIC Mapletree Investments SWITZERLAND Stoneweg SA Varia US Properties Singapore 23.6% THAILAND Land & Houses PLC UK Balfour Beatty Source: Newmark Knight Frank Research, Real Capital Analytics 13

14 INTERNATIONAL CAPITAL DISTRIBUTION Top Destinations; 12-Month Totals With nearly $8.5 billion invested over the past 12 months, overseas investors are mainly acquiring assets in secondary markets of the Southeast and Southwest. BY MARKET TIER As a % of Cross-Border Capital SEA $82M BOS $227M MAJOR MARKETS 38.3% POR $127M LA $195M LV $54M PHX $153M DEN $391M AUS $445M DFW $350M CHI $108M NASH $47M ATL $630M CHA $189M TB $157M ORL $245M NYC $910M DC $100M S. FL $267M SECONDARY & TERTIARY 61.7% BY REGION As a % of Cross-Border Capital MID-ATLATNIC 11.1% MIDWEST 5.8% NORTHEAST 14.8% SOUTHEAST 33.9% SOUTHWEST 25.2% WEST 9.2% Source: Newmark Knight Frank Research, Real Capital Analytics 14

15 Effective Rent Effective Rent Growth HISTORICAL RENT GROWTH Annual Effective Rent Rent growth for 2Q17 was 2.3%. While more modest than in previous years, growth remains near long-term averages and is still trending in a positive direction. $1,500 10% $1,200 6% $900 2% $600-2% $300-6% $ Effective Rent Effective Rent Growth -10% Source: Newmark Knight Frank Research, Axiometrics 15

16 EMPLOYMENT GROWTH Year-over-Year Change Employment growth remains positive nationwide with robust growth Atlanta, Florida, Las Vegas and Nashville strengthening demand for multihousing. SF +2.4% SAC +1.9% POR +2.5% SEA +2.5% SLC +3.2% PHX +3.0% DEN +2.6% MINN +3.3% AUS +2.8% DFW +3.3% CHI +1.3% STL +1.2% SJ +1.6% LV +3.7% MEM +2.1% OKC +1.9% LA +1.7% SD +2.0% SA +2.4% KC +2.2% HOU +1.9% DET +2.2% IND +3.1% CLE +2.0% COL +2.0% NASH +3.6% BIRM +1.3% ATL +3.5% DC +1.8% CHA +2.9% R-D +3.0% JAX +3.6% TB +3.6% ORL +4.0% BOS +2.4% NYC +1.8% PHI +2.1% MIA +3.3% Source: Newmark Knight Frank Research, U.S. Bureau of Labor Statistics (June release) 16

17 TECHNOLOGY HUBS Rental Growth; Past 5 Years The majority of technology-centric employment hubs have significantly outpaced the national average for rental growth of 17.5% over the past five years. 50% 40% 38.3% 30% 20% 18.1% 14.5% 23.0% 29.8% 21.5% 32.2% 16.5% 25.3% 33.3% 18.1% 20.5% 25.4% 25.5% 28.6% 32.4% 10% 0% Source: Newmark Knight Frank Research, Axiometrics 17

18 New Supply & Absorption (Units) Inventory Growth HISTORICAL SUPPLY AND DEMAND United States Although supply has outpaced demand for the past two years, strong absorption is anticipated with less new product coming to market in 2018 and , % 600, % 450, % 300, % 150, % * 2018* 2019* New Supply Absorption Inventory Growth 0.0% Source: Newmark Knight Frank Research, Axiometrics 18

19 New Supply (Units) NEW SUPPLY MATRIX 12-Month Totals Inventory in Dallas, Austin, Nashville and Charlotte is growing at twice the pace over the trailing 12 months as the national average of 1.5%. 30,000 25,000 NYC HOU DFW 20,000 15,000 ATL DC SEA 10,000 AUS NASH CHI MIA BOS ORL PHX DEN CHA SA SD POR 5,000 TB MINN SF PHI LV SJ KC R-D IND STL JAX SLC LA OKC SAC MEM 0 0% 1% 2% 3% 4% 5% Inventory Growth Source: Newmark Knight Frank Research, Axiometrics 19

20 $1.10 $1.38 $2.56 $1.10 $1.92 $1.30 $1.62 $1.01 $2.61 $1.73 $1.22 $3.50 $1.24 $1.72 $1.13 $1.60 $1.08 $1.63 $2.18 $4.18 $3.19 $2.22 $1.20 $1.99 $1.18 Rent Per Square Foot Year-over-Year Rental Change RENTAL PRICING AND MOMENTUM Top 25 Markets Rental rates are highest in supply-constrained coastal markets with the strongest year-over-year growth in Orlando, Sacramento and Seattle. $5 14% $4 9.4% 10% $3 $2 $1 3.8% 1.0% 2.0% 2.8% 1.1% 2.4% 2.5% 4.1% 3.6% 1.8% 1.7% -0.8% 5.1% 1.2% 4.6% 1.9% 2.9% 4.8% 0.5% 1.9% 5.7% 2.6% 1.5% 7% 3% -1% -2.5% $0-4% Rent Per Square Foot Year-over-Year Change Source: Newmark Knight Frank Research, Axiometrics 20

21 HISTORICAL OCCUPANCY RATE United States Strong demand nationwide has pushed the occupancy rate to 95.0%, a 40-basis-point increase over the first quarter. 96% 95% 95.0% 94% Long-Term Average = 94.1% 93% 92% 91% Occupancy Rate Long-Term Average Source: Newmark Knight Frank Research, Axiometrics 21

22 Billions MORTGAGE MATURITIES By Lender Type Mortgage maturities are set to rise to $114.7 billion in 2017, up 12.6% from 2016, when mortgage maturities totaled $101.9 billion. $150 $120 $90 $60 $30 $ Banks CMBS Life Insurance Other Source: Newmark Knight Frank Research, Federal Reserve Bank, Trepp 22

23 Millions DEBT OUTSTANDING United States Year-over-year CMBS declined 19.7%, while agency and GSEs increased their debt outstanding 14.3%, banks by 11.4% and life insurance companies by 9.7%. $1,500 $1,250 $1,213.7 $1,000 $750 Gov't 8.6% Banks 35.7% $500 $250 Agency & GSE 42.9% CMBS 4.1% Life Co 5.6% $0 1.5% YTD Others Source: Newmark Knight Frank Research, Federal Reserve Bank of St. Louis, Mortgage Bankers Associates 23

24 LENDER COMPOSITION United States; 12-Month Totals Lending in major metros has benefitted from regional banks expanding their real estate balance sheets, while larger national banks remain more risk averse. 100% 80% 1.5% 1.5% 1.4% 0.8% 0.7% 1.4% 1.8% 1.6% 1.7% 7.1% 9.1% 4.7% 6.7% 11.2% 13.4% 5.5% 14.2% 5.8% 24.1% 7.9% 7.4% 1.4% 5.3% 1.1% 1.5% 6.6% 0.6% 1.4% 7.1% 3.3% 35.2% 7.4% 7.8% 7.2% 1.3% 19.1% 9.0% 60% 16.8% 3.5% 12.9% 2.2% 6.6% 8.4% 4.7% 40% 66.0% 71.9% 64.6% 60.9% 8.5% 72.3% 67.8% 50.0% 20% 37.3% 28.4% 0% 6.0% 7.2% 6.1% 3.3% 8.5% 5.1% 7.9% 5.7% 4.9% 1.2% 2.1% 3.0% 1.0% 2.5% 1.0% 2.0% 3.6% 1.4% Major Metros Secondary Markets Tertiary Markets Mid-Atlantic Midwest Northeast Southeast Southwest West CMBS Financial Gov't Agency Insurance Int'l Bank Na'l Bank Regl/Local Bank Private/Other Source: Newmark Knight Frank Research, Real Capital Analytics 24

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