APARTMENT TRENDS. U.S. Economic and Multi-Family Outlook. Special Client Webcast May 31, 2006

Transcription

1 APARTMENT TRENDS U.S. Economic and Multi-Family Outlook Special Client Webcast May 31, 2006

2 U.S. Apartment Market Economic and Apartment Supply-Demand Overview and Outlook

3 U.S. Economic Conditions Ideal - Employment Well Above Prior Peak /01 5/ Million 5/03 4/ Million Non-Farm Employment (millions) 115 April-06 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Sources: Marcus & Millichap Research Services, BLS, Economy.com

4 U.S. Housing Market Cooling Evident Months Supply of Inventory Rising Single Family Condo 8 Y-O-Y Change 73.2% No. of Months % 2 '04 Aug '04 Oct '04 Dec '05 Feb '05 Apr '05 Jun '05 Aug '05 Oct '05 Dec. '06 Feb. '06 April Sources: Marcus & Millichap Research Services, National Association of Realtors

5 Growth Drivers Transitioning From Consumers to Companies 20% Fixed Non-Residential Investment Retail Sales Excl. Auto 10% Annual Change 0% -10% -20% * *Forecast Sources: Marcus & Millichap Research Services, Economy.com

6 Energy Price and Core Inflation Trends Point to Eventual Rise in Prices - Hyper Inflation Unlikely $100 Oil (Left) Core CPI 20% Crude Oil (price per barrel) $75 $50 $25 15% 10% 5% Year-Over-Year % Change Core CPI $ * 0% *Through April Sources: Marcus & Millichap Research Services, Economy.com

7 U.S. Single-Family Home Price and Apartment Rent Ratio 250 Home Price to Apartment Rent Ratio U.S. Single-Family Home Price to Apartment Rent Premium 20-Year Average ( ) * *As of 1q-2006 Sources: Marcus & Millichap Research Services, Economy.com, Reis

8 U.S. Apartment Vacancy Reaching Equilibrium New Construction Balanced Completions (Thousands of Units) Completions Vacancy 9% 6% 3% Vacancy Rate * 0% * Forecast Sources: Marcus & Millichap Research Services, Reis

9 Effective Rent Growth Gaining Momentum As Concessions Burn Off 9% Asking Rent Effective Rent 6% Annual Rent Growth 3% 0% -3% * * Forecast Sources: Marcus & Millichap Research Services, Reis

10 Top 10 U.S. Apartment Markets By Vacancy Rate Forecast * Forecast Sources: Marcus & Millichap Research Services, Reis * Fort Lauderdale 2.6% 2.7% Bps Change New York-Manhattan 3.0% 2.8% (20) Las Vegas 4.0% 3.0% (100) Los Angeles 3.1% 3.0% (10) Orange County 3.2% 3.1% (10) San Diego 3.6% 3.2% (40) Orlando 4.9% 3.6% (130) Miami 3.3% 3.7% 40 Northern New Jersey 3.6% 3.7% 10 Washington, D.C. 4.0% 4.2% 20 U.S. Average 5.7% 5.3% (40) 10

11 Bottom 10 U.S. Apartment Markets By Vacancy Rate Forecast * Forecast Sources: Marcus & Millichap Research Services, Reis * Bps Change Denver 7.9% 7.3% (60) Atlanta 8.0% 7.5% (50) Portland 7.7% 7.6% (10) San Antonio 8.7% 8.0% (70) Columbus 8.9% 8.5% (40) Dallas-Fort Worth 9.5% 8.5% (100) Cincinnati 8.7% 9.0% 30 Milwaukee 8.8% 9.0% 20 Indianapolis 9.9% 9.3% (60) Houston 12.2% 10.9% (130) U.S. Average 5.7% 5.3% (40)

12 U.S. Apartment Market Capital Markets Overview and Outlook

13 Opposing Forces Driving Long-Term Interest Rates Volatility to be Expected 8% Fed Funds 10-Year 6% 4% 2% 0% Sources: Marcus & Millichap Research Services, Economy.com

14 Core Inflation and Interest Rates Still Below Long-Term Trend 16% 10-Year Treasury Core Inflation 16% 10-Year Treasury 12% 8% 4% Average Average 12% 8% 4% Core Inflation Y-O-Y Change 0% * 0% *Through April Sources: Marcus & Millichap Research Services, Economy.com, Federal Reserve

15 U.S. Apartment Market Apartment Investment Market Overview and Outlook

16 U.S. Apartment Market Buoyed By Capital Flows, Condo Conversions a Major Factor $120,000 Price per Unit Cap Rate 12% Median Price per Unit $90,000 $60,000 $30,000 9% 6% 3% Cap Rate *As of 1Q-2006 $ * 0% Sources: Marcus & Millichap Research Services, CoStar Group, Inc.

17 U.S. Condo Conversion Sales Outpaced Ground-Up Development in ; Balance to Tilt in Ground-Up Condo Development Apartment Conversion Sales No. of Units (000s) Q06 Sources: Marcus & Millichap Research Services, Real Capital Analytics, Dodge

18 Traditional Apartments a Benefactor Units Sold for Conversion as a % of Rental Stock * Market % of Stock 1Q 2006 Vacancy Bp Change in Vacancy * West Palm Beach 22.9% 4.1% (560) Washington D.C. Miami/Ft. Lauderdale 21.7% 20.7% 4.0% 3.1% (80) (290) Orlando 19.1% 4.6% (340) Tampa Las Vegas San Diego Jacksonville Phoenix NYC/Manhattan Tucson 13.5% 10.9% 9.2% 9.0% 7.6% 5.0% 4.4% 5.0% 3.7% 3.6% 4.2% 6.2% 3.2% 6.5% (320) (300) (40) (170) (340) (150) (160) * Through 2006 Q1 Source: Marcus & Millichap Research Services

19 Capital Flows Apartment Cap Rate and 10-Year Treasury 10% 10-Year Treasury Apartment Cap Rate Average Annual Rate 8% 6% 4% 2% * * Forecast Sources: Marcus & Millichap Research Services, CoStar Group, Inc.

20 Real Estate Returns Outperforming Stocks In Recent Years 20 1-year 5-year 10-year 150% 125% 125% 128% 126% Total Return (%) 100% 50% 29% 112% 62% 48% 58% 82% 12% 21% 20% 21% 19% 0% S&P 500 Apartment Office Industrial Retail * As of 1Q 2006 Sources: Marcus & Millichap Research Services, NCREIF, Standard & Poors

21 U.S. Renter, First-Time Home Buyer Demographics Turning Positive 5.5 million Increase 10% Change in Population 5% 0% -5% -10% * * Ages Ages Ages * Forecast Sources: Marcus & Millichap Research Services, Economy.com

22 Sources: Marcus & Millichap Research Services, Economy.com, Harvard University U.S. Household Growth Own Rent 32% 4.3m new renter households 9.1m new owner households 68% 13.4 million net new households

23 Multi-family Trends and Outlook Demand exceeds acquisition opportunities Interest rates increasing but remain below long term avg. Compressed yields Operational recovery Shortened holding periods (turnover +) Positive demographics (renter households) Urbanization (changing life styles) Density Shortfall of in-fill development dirt High development costs Possible demand / supply imbalance in many markets

24 Risks and Challenges Interest rates rising faster than NOIs Asian fund flows to U.S. declining more than expected Inflation surprise Capital market shock (i.e. currency dynamics, hedge funds, emerging markets) Fed over-reaction to inflation data rising rates too much Housing slowdown more dramatic than the expected soft landing (would impact broader economy, employment growth) Market selection Asset selection (value-add component more critical) Portfolio optimization (cap rate reversion risk based on asset, market quality) Missing the upside of the next cycle due to short-term concerns

25 It s an excellent time to own and invest in U.S. apartments!

26 APARTMENT TRENDS U.S. Economic and Multi-Family Outlook Special Client Webcast May 31, 2006