multifamily market overview 2019 presented by: Kurt Shoemaker First Vice President g r e a t e r d a y t o n a p a r t m e n t a s s o c i a t i o n
agenda 01 02 03 04 05 06 macro-level economic indicators micro-level economic indicators 2018 CBRE Rent & Occupancy Survey Results investment market highlights multifamily development 2019 FORECAST
01 macro-level economic indicators
04 maintaining pace; 2.5 million jobs added in past year % 3 2 1 0-1 -2-3 cyclical drivers U.S. economy DESPITE 3.9% UNEMPLOYMENT, JOB CREATION MAINTAINING PACE Historical Employment Growth Rate Year-over-Year -4-5 Oct-08 Oct-10 Oct-12 Oct-14 Oct-16 Oct-18 1.7 JOBS WAGES +1.7% +3.1% monthly job growth 220,000 Source: U.S. BUREAU OF LABOR STATISTICS, SEASONALLY-ADJUSTED DATA THROUGH JANUARY 2018. WAGE GROWTH IS BASED ON AVERAGE HOURLY EARNINGS.
05 key rates historical Prime Rate 5-Year Treasury 5.50% 5.00% 4.50% 4.50% 5.50% 3.00% 2.50% 2.45% 2.60% 4.00% 3.50% 3.00% 2.50% 3.25% 3.50% 3.75% 2.00% 1.50% 1.00% 1.33% 1.45% 1.89% 2.00% 1/2015 1/2016 1/2017 1/2018 1/2019 0.50% 1/2015 1/2016 1/2017 1/2018 1/2019 10-Year Treasury 2.80% LIBOR (3 mo) 2.78% 2.40% 3.00% 2.60% 2.20% 1.80% 1.40% 1.00% 2.65% 2.75% 2.39% 2.02% 1.80% 1/2015 1/2016 1/2017 1/2018 1/2019 2.00% 1.60% 1.20% 0.80% 0.40% 0.00% 1.73% 1.01% 0.61% 0.26% 1/2015 1/2016 1/2017 1/2018 1/2019 Source: BLOOMBERG.COM, ACCESSED 1/22/2019
06 interest rates 10-year treasury 2 year history THREE POTENTIAL TWEAKS TO FEDERAL FUNDS RATE IN 2019 8-Year High at 3.22% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% May-17 JUN-17 JUL-17 aug-17 SEP-17 OCT-17 NOV-17 DEC-17 JAN-18 feb-18 mar-18 apr-18 may-18 jun-18 jul-18 aug-18 sep-18 oct-18 nov-18 dec-18 jan-19 Source: marketwatch.com
07 dow jones industrial average 30000-7.31% growth in 2018 first negative year since 2009 25000 20000 15000 10000 5000 2008 2010 2012 2014 2016 2018 Source: tradingeconomics.com dow jones
08 Tax & Trade Reform what s impacting our economy
09 demographics and a changing mentality secular demand drivers Demographics Remain Favorable Lifestyle changes favor Multifamily Buying a house may not be financially attainable
10 affordability u.s. multifamily rents +37% rent growth since recession; yet affordability is not just a multifamily problem. Historical Multifamily Effective Rent ($/Month/Unit) Comparative Price Changes Since Recession 1,700 1,600 1,634 % Change Total Annual Multifamily Rent 37.5 3.7 1,500 Single-Family Home Median Sales Price 57.4 5.3 1,400 1,300 1,200 1,190 1,100 Q3 2006 Q3 2008 Q3 2010 Q3 2012 Q3 2014 Q3 2016 Q3 2018 Average Hourly Earnings All Workers Average Hourly Earnings Production & Non- Supervisory Workers 22.0 2.3 21.5 2.2 Inflation - CPI All Cities 16.3 1.7 Source: CBRE Research, CBRE Econometric Advisors, National Association of Realtors, U.S. Bureau of Labor Statistics, Q3 and Q4 2018. Home price, earnings and inflation data through October 2018.
11 high levels of demand demand remains favorable for all types of multifamily communities Demand remains favorable for all types of product and geographies Units in 000s 400 300 Annual Net Absorption Totals 2010 through 2017 = 1.5 million units 215 269 317 Net absorption totaled 316,700 units ending Q3 2018, the highest four-quarter total since Q4 2000 200 100 0-100 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18* Source: CBRE Research, CBRE Econometric Advisors, Q3 2018. Total for 66 metro markets tracked by CBRE EA. Absorption is counted in the quarter in which property has stabilized. *Year ending Q3 2018.
12 u.s. multifamily vacancy vacancy inched up in 2017, but still healthy Vacancy fell in both 2Q and 3Q, reversal of former two-year trend of modest increases Historical Vacancy Rate and Year-over-Year Change Y-o-Y Vacancy Change (bps) Vacancy Rate (%) 200 7 Down 40 bps year-over-year 150 100 50 6 5 4 Outlook over next year: +40 bps rise to 4.4% in Q3 2019 0-50 3 2 same for both baseline and Moody s Analytics forecasts -100 1-150 0 Q3 2006 Q3 2008 Q3 2010 Q3 2012 Q3 2014 Q3 2016 Q3 2018 Q3 2018 = 4.0% Source: CBRE Research, CBRE Econometric Advisors, Q3 2018.
02 micro-level economic indicators
14 area demographics dayton ohio msa population 2018 805,746 2018-2023 PROJ. GROWTH 0.15% US AVG: 0.83% household income 2018 AVERAGE $70,518 US AVERAGE $83,694 HOUSEHOLDS EARNING $25K-$34.9K 10.4% HOUSEHOLDS EARNING $35K-$49.9K 13.8% HOUSEHOLDS EARNING $50K-$74.9K 18.7% HOUSEHOLDS EARNING +75k 34% education population 25+ ASSOCIATES DEGREE 9.8% BACHELOR S DEGREE+ 29.1% COMBINED 39% US AVG: 40% Source: ESRI
15 unemployment seasonally adjusted unemployment rates as of november, 2018 DAYTON MSA 4% OHIO 4.6% KENTUCKY 4.5% INDIANA 3.6% NATIONAL 3.9% Source: BUREAU OF LABOR STATISTICS
16 single family sales dayton msa sales JAN-NOV 2018 MLS SINGLE-FAMILY & CONDO SALES 2018 2017 % Change listing solds total sale price % Sale/list price median sales price 19,834 19,617 1.11% 15,195 15,036 1.06% $2.52B $2.34B 7.49% 98.5 98.1 0.41% $ 142,000 $ 134,000 5.97% average sales price $ 165,733 $ 155,822 6.36% 25% overall increase since the recession Source: united states census bureau > building permits survey > permits by metropolitan area
17 what is an opportunity zone? Definition The deployment of debt & equity in economically challenged communities to support long-term, sustainable growth of census tracts in a state could be designated as opportunity zones census tract must have at least 20% poverty rate of median income must not exceed 80% of metro or state level designation of opportunity zone remains in effect through the end of 2028 Source: CBRE
18 opportunity zones tax advantages investors can defer taxes on capital gains until 2026 capital must be placed in an opportunity fund within 180 days unlimited amount of capital can be reinvested into an opportunity fund key benefits Temporary Deferral of Capital Gains Taxes Step up Basis Tax-Free Earnings after Year 10 Source: CBRE
19 skilled labor shortage industry trends 80% of construction firms report having a hard time filling craft positions Construction jobs are expected to grow by 11% until 2026, exceeding the average for all other occupations Source: Bureau of Labor Statistics
20 cincinnati dayton metroplex combined msa s estimated to become: 18TH LARGEST...will come to fruition within the next decade and the timing is ripe - Jill Meyer, President & CEO Cincinnati USA Regional Chamber Source: http://fox45now.com/news/local/dayton-andcincinnati-metroplex-within-the-decade
21 multifamily market cycle market position as of q3 2018 CONTRACTION Rents declining, vacancy increasing, and excess new supply additions Source: CBRE Research, Q3 2018. STABILIZATION Rents still declining or stable, vacancy increasing, or decreasing slowly and limited or new supply additions dayton Inland Empire Jacksonville Las Vegas Long Island Orlando Phoenix Providence Richmond Tampa EXPANSION Rents rising at faster pace, vacancy declining, and new supply additions underway or on the horizon Birmingham Boston Cincinnati Columbus Dayton Detroit El Paso Ft. Lauderdale Greensboro Greenville Hartford Honolulu Houston Indianapolis Los Angeles Memphis Philadelphia Pittsburgh Sacramento Salt Lake City San Diego San Francisco San Jose Tucson Ventura U.S. Suburban Multifamily Atlanta Baltimore Charlotte Colorado Sprs. Denver Ft. Worth Kansas City Louisville Miami Minneapolis Newark Norfolk Oakland Oklahoma City Omaha Orange County Portland Raleigh Washington, D.C. West Palm Beach MATURATION Rents increasing at slower pace, vacancy stable, and increased new supply additions Albuquerque Austin Chicago Cleveland Dallas Lexington Nashville New York San Antonio Seattle St. Louis Tulsa U.S. Infill Multifamily Source: CBRE
03 2018 CBRE rent and occupancy survey
23 cbre survey results 5-year occupancy history North South 100.0% 100.0% 95.0% 90.0% 85.0% 89.5% 94.0% 95.3% 93.0% 94.2% 95.0% 90.0% 85.0% 93.9% 95.0% 93.5% 94.2% 94.1% 80.0% 80.0% 75.0% 2014 2015 2016 2017 2018 75.0% 2014 2015 2016 2017 2018 East Central 100.0% 100.0% 95.0% 90.0% 93.1% 95.2% 94.2% 93.6% 93.3% 95.0% 90.0% 95.3% 96.4% 91.4% 95.5% 85.0% 80.0% 85.0% 80.0% 84.3% 75.0% 2014 2015 2016 2017 2018 75.0% 2014 2015 2016 2017 2018 Source: cbre
24 cbre survey results 5-year occupancy history Greater Dayton MSA, Overall 100.0% 95.0% 90.0% 85.0% 91.9% 94.9% 94.2% 93.6% 94.4% 80.0% 75.0% 2014 2015 2016 2017 2018 Source: cbre
25 cbre survey results ye 2018 average effective rent Overall North South East Central $805 / UNIT Average asking rent $667 / UNIT Average asking rent $837 / UNIT Average asking rent $825 / UNIT Average asking rent $827 / UNIT Average asking rent } } } } } $700 1 Bed / 1 Bath $581 1 Bed / 1 Bath $748 1 Bed / 1 Bath $693 1 Bed / 1 Bath $714 1 Bed / 1 Bath $703 2 Bed / 1 Bath $670 2 Bed / 1 Bath $743 2 Bed / 1 Bath $666 2 Bed / 1 Bath $683 2 Bed / 1 Bath $971 2 Bed / 2 Bath $709 2 Bed / 2 Bath $969 2 Bed / 2 Bath $1,012 2 Bed / 2 Bath $1,367 2 Bed / 2 Bath $987 3 Bed Average $809 3 Bed Average $1,110 3 Bed Average $1,100 3 Bed Average $1,300 3 Bed Average yoy 2017-2018 average effective rent growth + 5.5% + 5.2% + 5.3% + 4.3% + 10.7% Source: cbre
26 cbre survey results key take aways occupancies improved Rent increases city wide downtown dayton is on fire Results surpassing most submarkets
04 Investment Market Highlights
28 u.s. multifamily acquisitions 2018 highest volume in rca history at roughly $175 billion 2017 s $154 billion total investment volume was down 3.2% from the prior year Total volume was second highest in the past 17 years (and likely all history) 2018 total is estimate based on mid january total of $165 billion. estimate is $175 billion which would be a 14% gain over 2017 2019 investment - a modest decline of 8% to 12% estimated Source: real capital analytics, cbre research, q4 2018, 2018 estimate is for all types of transactions
29 Annual HISTORICAL TRANSACTION volume 2018 multifamily sales GREATER DAYTON MSA multifamily SALES $1M+ OR 100 UNITS+ YOY 2017-2018 Percentage Change: total consideration: $141 million - 12.5% Consideration + 26% Transactions no. transactions: 19 UNITS: 2,509-9.7% Units Source: cbre
30 2018 multifamily sales GREATER DAYTON MSA multifamily SALES $1M+ OR 100 UNITS+ 10-YEAR HISTORY TRANSACTION SALE VOLUME Millions $180 $160 $140 $120 $100 $80 $60 $40 $20 $0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: cbre
31 2018 multifamily sales GREATER DAYTON MSA multifamily SALES $1M+ OR 100 UNITS+ $70 $60 10-YEAR AVERAGE / SALE PRICE PER UNIT 2018 AVG. $53,000 per unit Thousands $50 $40 $30 $20 $10 $0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: cbre
32 Interest rates & cap rates interest rates & cap rates not always trending together Historical Treasury Rates and Multifamily Cap Rates 10-Year Treasury Multifamily Cap Rate 8 6 4 4.21 2.92 2 0 Q3 2002 Q3 2004 Q3 2006 Q3 2008 Q3 2010 Q3 2012 Q3 2014 Q3 2016 Q3 2018 Historical Spread Between Interest Rates and Cap Rates Average (197) Spread (BPs) 400 356 300 200 100 129 Other factors to consider for cap rate pricing Mortgage rates Spreads between interest rates and mortgage rates Overall investment volume Cross-border buying activity Availability of debt capital Product availability Economic performance Market fundamentals Actual/potential tax changes 0-100 Q3 2002 Q3 2004 Q3 2006 Q3 2008 Q3 2010 Q3 2012 Q3 2014 Q3 2016 Q3 2018 Source: CBRE Research, CBRE Econometric Advisors, NCREIF, U.S. Department of the Treasury, Q3 2018.
33 2018 multifamily sales greater dayton msa notable transactions Dayton Towers 206 Total Units dec 2018 SALE DATE ± $65,000 PRICE PER UNIT 1964 year built Source: CBRE
05 multifamily development
35 development pipeline DAYTON MSA PERMITS ISSUED SINGLE-FAMILY PERMITS YTD OCT 2018 PERMITS 1,083 2017-2018 YOY % CHANGE +18.1% 2009-2018 TOTAL PERMITS 8,109 2009-2018 ANNUAL AVERAGE PERMITS 811 Source: united states census bureau > building permits survey > permits by metropolitan area
36 development pipeline DAYTON MSA PERMITS ISSUED multifamily YTD OCT 2018 PERMITS 166 2017-2018 YOY % CHANGE -4.6% 2009-2018 TOTAL PERMITS 1,157 2009-2018 ANNUAL AVERAGE PERMITS 116 Source: united states census bureau > building permits survey > permits by metropolitan area
37 development pipeline DAYTON MSA CBRE PROJECTED MULTIFAMILY DELIVERIES 3-YEAR MF UNIT DELIVERY PROJECTION 1,200 1,000 800 1,013 600 400 494 200 0 2019 322 2020 2021 Source: cbre
38 Development Pipeline Multifamily Projects under construction WATERFORD AT SUGAR CREEK South Submarket: Sugarcreek Township MILLER VALENTINE GROUP & ACKERMANN GROUP 231 Units MARCH 2018 - FIRST UNITS Final units being delivered Spring 2019
39 Development Pipeline Multifamily Projects under construction Allure South Submarket: Centerville Hills Properties 312 Units leasing Started Leasing December 2018 Summer 2019 Stabilization
40 Development Pipeline Multifamily Projects under construction Element Oakwood South Submarket: Oakwood Hills Properties 84 Units leasing Expected to start leasing in March 2019
41 Development Pipeline Multifamily Projects under construction Centerfield Flats Central Submarket: CBD Crawford Hoying 112 units with First Floor Retail leasing Expected to start leasing in March 2019, Occupying in September 2019
06 2019 forecast
43 2019 apartment market kurt shoemaker s forecast 2018 RECAP 2019 FORECAST Rents up by 1.5% Cap rates compress even further Development pipeline will slow Fundamentals will remain solid Overall rents will slow to 2% CBD rents and occupancies will have growing pains with new product Development pipeline will be very thin Fundamentals will continue to remain solid Sales Volume will decrease Opportunity Zone to replace Value Add as most used brokerage term
44 cbre team CENTRAL MIDWEST MULTIFAMILY CINCINNATI TEAM MEMBERS DAVE LOCKARD, CCIM Senior Vice President +1 513 369 1347 dave.lockard@cbre.com KURT SHOEMAKER First Vice President +1 513 369 1383 kurt.shoemaker@cbre.com EMILY CANTLEY Sr. Capital Mkts Ops Analyst +1 513 369 1328 emily.cantley@cbre.com katlyn geiger Capital Mkts Ops Analyst +1 513 369 1604 katlyn.geiger@cbre.com To download today s presentation: www.cbre.com/invcmmultifamily