State of the U.S. Multifamily Market Q1 2015 Review and Forecast
Agenda Economy Leasing Fundamentals Rent and NOI Trends Single-Family Market Capital Markets
Economy page 3
GDP Growth Contributions To GDP Growth 10% Contribution to GDP Growth 5% 0% (5%) (10%) (15%) 08 09 10 11 12 13 14 15 Consumption Business Investment Residential Investment Change in Inventories Exports Imports Government Total GDP Sources: Moody's Analytics; BEA; CoStar Portfolio Strategy As of 15Q1 page 4
Employment Growth Total Nonfarm Employment 600 Monthly Jobs Gained / Lost 3-Month Moving Average Growth (Y/Y) 4% 450 3% 300 2% 150 1% 0 0% (150) (1%) (300) (2%) (450) (3%) (600) (4%) (750) (5%) (900) 05 06 07 08 09 10 11 12 13 14 15 (6%) Jobs Gained/Lost Growth (Y/Y) Sources: Moody's Analytics; BLS; CoStar Portfolio Strategy As of May 2015 page 5
Employment For Prime Renters Labor Force Participation Rate And Unemployment Rate Of Young People 14% Unemployment Rate Labor Force Participation Rate 68% 12% 10% 8% 6% 4% 2% 67% 66% 65% 64% 63% 0% 62% 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Labor Force Participation Rate 20-34 Years Old Unemployment Rate 20 Years And Over Unemployment Rate Sources: Census Bureau; BLS; CoStar Portfolio Strategy As of 15Q1 page 6
Labor Participation and Employment-Population Trends Employment To Population Ratio And Labor Force Participation Rate Of 25-34 Year Olds 86% Employment To Population Ratio & Labor Force Participation Rate 84% 82% 80% 78% 76% 74% 72% 70% 04 05 06 07 08 09 10 11 12 13 14 15 Employment To Population Ratio Labor Force Participation Rate Sources: Bureau of Labor Statistics; U.S. Census Bureau As of 15Q1 page 7
Labor Participation and Employment-Population Trends Employment To Population Ratio And Labor Force Participation Rate Of 20-24 Year Olds 78% 76% 74% 72% 70% 68% 66% 64% 62% 60% Employment To Population Ratio & Labor Force Participation Rate 58% 04 05 06 07 08 09 10 11 12 13 14 15 Employment To Population Ratio Labor Force Participation Rate Sources: Bureau of Labor Statistics; U.S. Census Bureau As of 15Q1 page 8
Part-Time Employment 20-24 Year Old Full-Time Vs. Part-Time Employment 12,000 Number of Workers* (000s) % of Workers Part-Time 40% 10,000 35% 30% 8,000 25% 6,000 20% 4,000 15% 10% 2,000 5% 0 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 20-24 Years Old Full-Time Workers 20-24 Years Old Part-Time Workers 20-24 % Part-Time Sources: Census Bureau; BLS; CoStar Portfolio Strategy As of 15Q1 *Four-quarter average 0% page 9
Unemployment Is Worse Than It Looks Unemployment Rate (%) Unemployment Rate Persons Unemployed 15 Weeks or Longer 2.3 Job losers and Persons Who Completed Temporary Jobs 2.6 Official Unemployment Rate (U3) 5.4 Plus Discouraged Workers 5.9 Plus Other Marginally Attached 6.7 Plus Part-time for Economic Reasons 10.8 0 5 10 15 Sources: Moody's Analytics; BLS; CoStar Portfolio Strategy As of May 2015 page 10
Leasing Fundamentals page 11
Entering The Late Stages Of the Apartment Cycle Real Estate Cycle Placement In 54 National Index Markets By Property Type OCC RENT OCC RENT OCC RENT OCC RENT Recovery Early Expansion Late Expansion Contraction Occupancy Rent Retail 52 2 Light Industrial 53 1 Logistics 40 13 1 Office 1 47 6 Apartment 7 47 Source: CoStar Portfolio Strategy As of 15Q1 page 12
Supply Coming But Vacancies Are Tight National Apartment Supply, Demand, and Vacancy 300 Demand & Supply (000s Units) Vacancy 8% 250 7% 200 6% 150 5% 100 50 4% 0 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Demand Change (Y/Y) Supply Change (Y/Y) Vacancy 3% Source: CoStar Portfolio Strategy As of 15Q1 page 13
The Peak Of The Echo Boom U.S. Population of Key Apartment Renting Cohorts 25 Absolute Level (Millions) Absolute Level Total Renter Cohort (Millions) 70 24 68 23 22 66 21 64 20 62 19 60 18 17 58 16 56 15 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 Age 20-24 Age 25-29 Age 30-34 Total Renter Cohort 54 Sources: Moody's Analytics; CoStar Portfolio Strategy As of 15Q1 page 14
If You re Under 40, Good Luck Getting A Loan Loans Serviced By Credit Score And Average Credit Scores By Age Conforming Home Loans Serviced ('000s) 3,350 3,150 2,950 2,750 2,550 2,350 2,150 1,950 1,750 08Q1 09Q1 10Q1 11Q1 12Q1 13Q1 14Q1 Fannie Mae - Total Loans Serviced With Original Credit Score < 660 740 720 700 680 660 640 620 600 Credit Score 637 654 18-29 30-39 40-49 50-59 60-69 70+ Avg Credit Score By Age (Years) Sources: U.S. Federal Housing Finance Agency (FHFA); FreeScore.com; Costar Group, Inc. As of 15Q1 page 15
Young People Still Underemployed Change In Population And Employment By Age Cohort (20-34-Year-Olds) 5,000 4,000 3,000 Cumulative Change in Population and Employed (000s) If labor force participation rate (71.9%) returns to historical norm (75%), there is a potential increase of 2 million employed people in primary-renting demographic. 2,000 1,000 0 (1,000) (2,000) (3,000) (4,000) 07 08 09 10 11 12 13 14 People Employed Employed at Normal Participation Rate Sources: BLS; Moody's Analytics; CoStar Portfolio Strategy As of 14Q4 page 16
Starts Continue To Climb To Historical Levels U.S. Multifamily Starts and Permits 250 Starts and Permits (000s) 200 150 100 50 0 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 Multifamily Starts Multifamily Permits Multifamily Starts Historical Average (83-Present) Sources: U.S. Census; Moody's Analytics; CoStar Portfolio Strategy As of 15Q1 page 17
New York Dallas - FW Washington, DC Seattle Atlanta Denver Los Angeles Austin Phoenix Boston San Antonio Charlotte Chicago Orlando Portland Minneapolis San Jose Nashville Miami San Francisco Philadelphia Orange County Tampa Raleigh San Diego Pockets Of Heavy Building Growth In Inventory By Metro Through 2016 (14Q4-16Q4) 35,000 New Supply (Units) New Supply (As % of Inventory) 10% 30,000 9% 8% 25,000 7% 20,000 15,000 6% 5% 4% 10,000 3% 5,000 2% 1% 0 0% Completions As A % Of Inventory South East Midwest West Source: CoStar Portfolio Strategy As of 15Q1 page 18
North Of The Line: Most Markets Forecast To Oversupply Change in Near Term (15Q1-16Q1) Supply and Demand 6% 5% 4% 3% 2% 1% Change in Supply Salt Lake City Denver Austin Charlotte Seattle San Antonio Boston Houston Orlando Nashville Raleigh Washington, DC Miami San Jose Milwaukee Pittsburgh Dallas - Fort Worth Atlanta Portland, OR San Francisco Philadelphia Phoenix Cincinnati New York Chicago Orange County Cleveland San Diego Baltimore Los Angeles St. Louis East Bay 0% 0% 1% 2% 3% 4% 5% Change in Demand South East Midwest West Source: CoStar Portfolio Strategy As of 15Q1 page 19
Detroit Norfolk New Orleans Orange County Sacramento Baltimore San Francisco Jacksonville Saint Louis Honolulu East Bay Memphis Indianapolis San Diego Inland Empire Columbus OH Las Vegas Long Island Los Angeles Dallas - FW Minneapolis Raleigh Northern NJ San Jose Hartford Philadelphia Chicago Portland Cleveland Phoenix New York Tampa Kansas City Boston Salt Lake City Richmond Charlotte Palm Beach County Miami Nashville Cincinnati San Antonio Atlanta Fort Lauderdale Oklahoma City Seattle Pittsburgh Austin Orlando Milwaukee Denver Washington, DC Stamford Houston Supply Putting Upward Pressure Most Places Vacancy Changes In Coming 12 Months 300 One Year Vacancy Change (BPS) 250 200 150 100 50 0 (50) South East Midwest West Source: CoStar Portfolio Strategy As of 15Q1 page 20
Vacancies Will Remain Tighter In West Coast Markets Regional Vacancy Rates 10% Vacancy Rate 9% 8% 7% 6% 5% 4% 3% 2% 01 03 05 07 09 11 13 15 East South Midwest West National Index Source: CoStar Portfolio Strategy As of 15Q1 page 21
Developers Heavily Focused on Urban Locations Units Under Construction As A Percentage Of Inventory In Top U.S. Markets 200 180 160 140 120 100 80 60 40 20 Units (000s) % Of Existing Inventory 8% 7% 6% 5% 4% 3% 2% 1% 0 Urban Suburban 0% Units Under Construction % of Inventory Under Construction Sources: CoStar Portfolio Strategy As of 15Q1 page 22
Vacancies In 3 Star Properties Still Tightening Change In Vacancy By Star Over Last 2 Years By Star Rating 1.0% Vacancy Change 0.8% 0.6% 0.4% 0.2% 0.0% (0.2%) (0.4%) (0.6%) 4 & 5 Star 3 Star 1 & 2 Star Y/Y Change in Vacancy Source: CoStar Portfolio Strategy As of 15Q1 page 23
New Deliveries Pushing Vacancies In Many Metros Vacancy Rate By Star Rating Minneapolis Philadelphia Washington DC Boston Houston Austin Denver Chicago Los Angeles San Francisco New York San Diego East Bay Miami Orange County Detroit Dallas - FW Atlanta Phoenix Seattle Change in Vacancy Rate by Rating, 13Q1-15Q1 0% 2% 4% 6% 8% 4&5 Star 3 Star Source: CoStar Portfolio Strategy As of 15Q1 page 24
Rent and NOI Trends page 25
San Francisco San Jose Denver East Bay Seattle Miami Houston Los Angeles San Diego Boston Oklahoma City Dallas - FW Dallas - Fort Worth Baltimore Minneapolis Orange County Chicago Fort Lauderdale Cleveland Washington, DC Atlanta Milwaukee Sacramento Inland Empire New York Orlando Richmond Phoenix Northern New Jersey Stamford Las Vegas Some Markets Are Now Very Expensive Current Asking Rents As A % Of Prerecession Peak 135% 130% 125% 120% 115% 110% 105% 100% 95% 90% Rent As A % Of Prerecession Peak Asking Rent ($) 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Rent As A % Of Prerecession Peak Current Rent South East Midwest West Source: CoStar Portfolio Strategy As of 15Q1 page 26
Rent Growth Slowing Across Market Tiers Y/Y Effective Rent Growth By Tier (National Index) 8% Effective Rent Growth (Y/Y) 6% 4% 2% 0% (2%) (4%) (6%) 10 11 12 13 14 15 16 Primary Secondary Tertiary Source: CoStar Portfolio Strategy As of 15Q1 page 27
Apartment NOI Growth Has Been Slowing NOI growth by property type 12% NOI Growth (Y/Y) 10% 8% 6% 4% 2% 0% (2%) (4%) (6%) (8%) 93 95 97 99 01 03 05 07 09 11 13 15 Apartment Office Retail Warehouse Source: CoStar Portfolio Strategy As of 15Q1 page 28
Single-Family Market page 29
Housing In Recovery Mode Home Price Indices 220 Index (2000 = 100) Quarterly Housing Starts (Thousands) 8000 200 7000 180 6000 160 140 5000 4000 3000 120 2000 100 1000 80 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Starts NAR FHFA (Purchase Only) Case-Shiller 20-City 0 Sources: Moody's Analytics; NAR; FHFA; Case-Shiller; U.S. Census Bureau; PPR As of 15Q1 page 30
Austin Houston Denver Dallas Pittsburgh San Jose Raleigh San Francisco Boston Philadelphia Seattle Orange County East Bay Atlanta New York Washington, D.C. San Diego Los Angeles Phoenix Chicago Miami Las Vegas Detroit Home Prices Rebounding Across The Country But Housing Market Varies By Metro 40% Home Price - Current Relative to 2006-07 Level* 30% 20% 10% 0% (10%) (20%) (30%) (40%) (50%) Home Price - Current Relative to 2006-07 Level Sources: Moody's Analytics; BLS; CoStar Portfolio Strategy *Average Median Home Price From 2006-2007 As of 15Q1 page 31
Housing Affordability But Housing Affordability Still High 9% Interest Rates Housing Affordability Index 200 8% 180 7% 160 6% 5% 4% 3% 140 120 100 80 60 2% 40 1% 20 0% 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Composite Housing Affordability Index, (Index, SA) FHLMC: 30-Year Commitment Rate - Fixed Rate - National, (%, NSA) FHLMC: 15-year fixed commitment rate, (%, NSA) 0 Sources: Moody's Analytics; NRA; CoStar Portfolio Strategy As of 15Q1 page 32
Signs Point To Continued Recovery Housing Delinquencies, Foreclosures, And For-Sale Inventory 12% Delinquencies and Foreclosures (% of Loans) Months Supply of Single-Family Homes 12 10% 11 10 8% 9 8 6% 7 4% 6 5 2% 4 3 0% 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 2 Months Supply of SF Homes Foreclosures Delinquencies Average SF Home Supply Sources: BEA; Moody's Analytics; CoStar Portfolio Strategy As of May 2015 page 33
Is Condo Market Coming Back? U.S. Condo Inventory And Condo Sales Price Change 12% Homeownership Vacancy and Quarterly Price Change Condos For Sale (000s) 700 10% 8% 600 6% 500 4% 400 2% 0% 300 (2%) 200 (4%) (6%) 100 (8%) 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Condos Available for Sale Change in Condo Sales Price - 4 Qrtr Moving Avg (Q/Q) 5+ Unit Homeownership Vacancy 0 Sources: NAR; Moody's Analytics; CoStar Portfolio Strategy As of 15Q1 page 34
Homeownership Rate Continues To Decline Homeownership Rate And Renter Occupied Households 70 Homeownership Rate (%) Renter Occupied Households (Millions) 44 65 42 60 40 55 38 50 45 36 40 34 35 32 30 94 96 98 00 02 04 06 08 10 12 14 30 Renter Households Under 35 Years HO Rate U.S. HO Rate Sources: Moody's Analytics; U.S. Census Bureau; CoStar Portfolio Strategy As of 15Q1 page 35
Reasons Not To Own FED Survey: Reason To Rent Or Own (Asked To Renters) 60% Percent of Respondents 50% 40% 30% 20% 10% 0% 18-29 Years Old 30-44 Years Old 45-59 Years Old 60+ Years Old Cheaper To Rent Than Own More Convenient To Rent Plan On Moving In The Near Future Can't Qualify For A Mortgage Can't Afford The Down Payment Simply Prefer To Rent Currently Looking To Buy Sources: Federal Reserve (2013 Survey of Consumer Finances); CoStar Portfolio Strategy As of 15Q1 page 36
Capital Markets page 37
Volume Remains High U.S. Quarterly Sales Volume 40 Total Sales ($ Billions) 35 30 25 20 15 10 5 0 05 06 07 08 09 10 11 12 13 14 15 Sales Volume Archstone Deal Source: CoStar Portfolio Strategy As Of 15Q1 page 38
Volume Remains High; On Pace For Another Record Year U.S. Quarterly Sales Volume $120 Total Sales ($ Billions) $100 $80 $60? $40 $20 $0 05 06 07 08 09 10 11 12 13 14 15 Sales Volume Year End 2015? Source: CoStar Portfolio Strategy As Of 15Q1 page 39
Sales Volume by Tier 40 Total Sales ($ Billions) 35 30 25 20 15 10 5 0 08 09 10 11 12 13 14 15 Primary Market Sales Volume Secondary Volume Tertiary Volume Source: CoStar Portfolio Strategy As Of 15Q1 page 40
Sales Volume by Region 40 Total Sales ($ Billions) 35 30 25 20 15 10 5 0 08 09 10 11 12 13 14 15 Northeast Southeast Central West Coast Source: CoStar Portfolio Strategy As Of 15Q1 page 41
Sales Volume By Star Rating 40 Total Sales ($ Billions) 35 30 25 20 15 10 5 0 08 09 10 11 12 13 14 15 5 Star 4 Star 3 Star 2 Star Source: CoStar Portfolio Strategy As Of 15Q1 page 42
Volume By Star Rating For Primary Metros Only 18 Total Sales ($ Billions) 16 14 12 10 8 6 4 2 0 08 09 10 11 12 13 14 15 5 Star 4 Star 3 Star 2 Star Source: CoStar Portfolio Strategy As Of 15Q1 page 43
Sales Volume, CBD vs. Suburbs 40 Total Sales ($ Billions) 35 30 25 20 15 10 5 0 08 09 10 11 12 13 14 15 CBD Sales Volume Suburban Sales Volume Source: CoStar Portfolio Strategy As Of 15Q1 page 44
SALES VOLUME ABOVE AND BELOW $25 MILLION PER ASSET 40 Total Sales ($ Billions) 35 30 25 20 15 10 5 0 08 09 10 11 12 13 14 15 Buildings Sold at $10M and Over Buildings Sold for Less Than $10M Source: CoStar Portfolio Strategy As Of 15Q1 page 45
Price Per Unit Across Market Tiers $300 Price Per Unit $250 $200 $150 $100 $50 $0 08 09 10 11 12 13 14 15 Primary Markets Secondary Markets Tertiary Markets Source: CoStar Portfolio Strategy As Of 15Q1 page 46
Price Per Unit Across Market Tiers $300 Price Per Unit $250 $200 99% $150 $100 67% 54% $50 $0 08 09 10 11 12 13 14 15 Primary Markets Secondary Markets Tertiary Markets Source: CoStar Portfolio Strategy As Of 15Q1 page 47
PRICE/UNIT IN PRIMARY METROS, CBD vs. SUBURBAN 600 Price Per Unit 500 400 300 200 100 0 08 09 10 11 12 13 14 15 Primary CBD Primary Suburban Source: CoStar Portfolio Strategy As Of 15Q1 page 48
Cap Rates By Region 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 04 05 06 07 08 09 10 11 12 13 14 Northeast Southeast Central West Coast Source: CoStar Portfolio Strategy As Of 15Q1 page 49
Cap Rates By Market Tier 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 04 05 06 07 08 09 10 11 12 13 14 Primary Secondary Tertiary Source: CoStar Portfolio Strategy As Of 15Q1 page 50
Cap Rates By Property Type 9.5% 9.0% 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 05 06 07 08 09 10 11 12 13 14 15 Apartment Office Warehouse Retail Source: CoStar Portfolio Strategy As Of 15Q1 page 51
Too Early To Call A Trend, But % Of Ask Continues To Fall Trends Of Properties Listed For Sale On CoStar 104% Percent Of Ask Months To Close 3.0 102% 100% 2.5 98% 96% 2.0 94% 1.5 92% 90% 1.0 88% 86% 0.5 84% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 0.0 Months To Close Percent of Ask Source: CoStar Portfolio Strategy As Of 15Q1 page 52
Select Top Multifamily Deals 1Q 2015 Praedium/Blackstone Multi-State Portfolio Praedium Group sold a 36-complex, 11,029 unit apartment portfolio to The Blackstone Group for $1.70 billion. Nationwide in scope, the Class A & B portfolio traded at $154,000 per unit. MODE by Alta San Jose, CA Wood Partners sold the 111-unit luxury complex to Land & Houses, LLC for $73.63 million. Having delivered in late 2014, the 663,288 per unit complex has a pro-forma cap rate of 4.0% OneEleven Chicago, IL The Related Companies to the 504-Unit ultra-luxury tower to Heitman, LLC for $328.23 million or $641,240 per unit. Conceived as a hotel, the seller redeveloped the site since 2011 and it sold with an 80% occupancy. 8 th & Hope Los Angeles, CA Wood Partners sold the 290-unit 8 th & Hope to Essex Property Trust for 200.00 million. The building delivered in 4 th Q 2014, transferred at 55% leased and is expected to stabilize by 3 rd Q 2015 and a 3.75% cap rate. Residences on the Avenue Washington, DC Boston Properties sold the 335 unit /50,000 sf retail building to the Kuwaitbased WAFRA Investment Advisory Group for $196.00 million. With a 94% apartment occupancy and fully leased retail the property traded at a 4.1% cap.. 4 Complex Student Housing Portfolio FL. GA, MO & TX A venture of JLL Income Property Trust sold Starwood Capital a four-complex portfolio for $123.81 million. Consisting of 1,212 units /3,480 beds it sold for 101,500 unit and at a 5.77% cap rate. page 53
Copyright 2015 CoStar Realty Information, Inc. No reproduction or distribution without permission. The following information includes projections and analyses that are based on various assumptions by CoStar concerning future events and circumstances, as well as historical and current data maintained in CoStar s database, obtained from public sources or provided by proprietary sources. Actual results may vary materially from the projections presented. The information in this presentation speaks only as of the date(s) referenced and is provided as is. CoStar expressly disclaims any guarantees, representations or warranties of any kind, including those of merchantability and fitness for a particular purpose. You should not construe any of the information herein as investment, tax, accounting or legal advice. page 54