2014 REAL ESTATE ECONOMIC FORECAST January 30, 2014 Steve LaMotte Jr., Senior Vice President Dave Lockard, Senior Vice President Dane Wilson, Senior Associate

2014 REAL ESTATE ECONOMIC FORECAST

January 30, 2014

Steve LaMotte Jr., Senior Vice PresidentDave Lockard, Senior Vice PresidentDane Wilson, Senior Associate

2 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP

AGENDA

1. Louisville Fundamentals

2. Transactions

3. New Supply

4. Capital Markets Overview

5. Strategies & Opportunities for 2014

CAPITAL MARKETS OVERVIEW


HOLD-SELL DILEMMAS DOMINATE SELLER THINKING


RISK PREMIUMSLouisville MSA Cap Rates to 10-Year UST at Time of Sale

20052006

20072010

20112012

20131.50%

2.50%

3.50%

4.50%

5.50%

6.50%

7.50%

8.50%

0

100

200

300

400

500

600

4.36%

4.86% 4.84%

3.33%

2.65%

1.78%2.02%

6.98%7.40%

6.18%

7.99%

6.93% 6.85% 6.77%

262

254

134

466

428

507475

10-Year UST% Cap Rate Risk Premium (Cap Rate to 10-Yr. UST, bps)


Tracking $7 Billion / 135 Multi-Housing deals

• 88 Class A

20 out of 135 Requested Price Adjustment

9 out of 20: Price Adjustment Requested, Seller Declined; Still Transacted

8 out of 20: < 2% Price Adjustment

2 out of 20: 2% - 4% Price Adjustment

1 out of 20: > 4% Price Adjustment

Class AMARKET RESPONSE TO RISE IN INTEREST RATES


Move Down the Yield Curve

10 Year Rate: 5.33%

7 Year Rate: 4.78%

5 Year Rate: 4.21%

Floating Rate (Capped ARM): 3.52%

7 Year Float to Fixed: 4.20%

DEBT STRATEGIES IN A RISING INTEREST MARKET

LOUISVILLE FUNDAMENTALS


EMPLOYMENT

Source: Bureau of Labor Statistics

Total Number of JobsCurrent Unemployment Rate

Kentucky 8.2%

U.S. 6.7%

Louisville 7.3%

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013*

570,000

580,000

590,000

600,000

610,000

620,000

630,000

640,000

*November 2013(P)National & State Unemployment as of Dec. 2013Local Unemployment as of Nov. 2013


Louisville MSAPOPULATION GROWTH

Source: CBRE

2000 2010 2013 Est. 2018 Proj.1,000,000

1,100,000

1,200,000

1,300,000

1,400,000

1,161,992

1,283,566

1,307,7581,346,182

Nu

mb

er

of

Pe

op

le

10.5%

1.9%

2.9%


Louisville MSAHOUSEHOLD GROWTH

Source: CBRE

2000 2010 2013 Est. 2018 Proj.400,000

450,000

500,000

550,000

462,243

514,214524,989

541,618

Nu

mb

er

of

Ho

use

ho

lds

11.2%

2.1%

3.2%


Louisville MSAOWNER-OCCUPIED HOUSING TRENDS

Source: CBRE

2008 2009 2010 2011 2012 201363%

65%

67%

69%

71%

73%

75%

71% 71%70% 69%

69%68%

Ow

ne

r vs

. T

ota

l Occ

up

ied

Un

its


Louisville MSAMARKET-WIDE RENTS & OCCUPANCY

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013$560

$580

$600

$620

$640

$660

$680

$700

$720

$740

80%

82%

84%

86%

88%

90%

92%

94%

96%

98%

100%

$586 $591$601

$610

$625$639 $641

$656$669

$699

$734

89.9% 90.2%90.8%

92.1%93.2% 93.7%

93.0%93.8% 94.2% 94.7%

95.9%

Average Rent Occupancy Rate


Louisville MSATOP-20 PROPERTIES RENTS & OCCUPANCY

Q1 09

Q3 09

Q1 10

Q3 10

Q1 11

Q3 11

Q1 12

Q3 12

Q1 13

Q3 13

$820

$840

$860

$880

$900

$920

$940

$960

$980

90%

92%

94%

96%

98%

100%

$844 $849$857

$870

$883$893

$906

$958$968 $966

92.3%

94.2% 94.7%

96.2%96.9%

96.3%96.0% 96.1% 95.8%

94.7%

Average Quoted Rent Average Quoted Occupancy

TRANSACTIONS


“A” GRADE YIELD EXPECTATIONS

Rubric: 2013 2014

Stabilized Cap Rate:

5.75% - 6.00% 5.75%-6.25%

Stabilized Cash-on-Cash Return:

6.00% - 8.50% 6.00% - 8.50%

10-Year IRR: 12.00% - 15.00% 12.00% - 15.00%

Investor Preferences:

Core, Core+, Value-Add Core, Core+, Value-Add

Investor Tolerances:

Buyers absorbed 100-150 bps increase in cost of debt without adverse impact on pricing. Will they do it again???

Buyers and sellers are watching growing supply levels, interest rates and in general are watching the clock. 2014 should be an active year on all fronts.


“A” GRADE TRANSACTIONS, 2013

Orchard Hills373 UnitsSeller: Icon PropertiesBuyer: Bluestone

Southgate256 UnitsSeller: Inland GroupBuyer: Paladin Realty Partners


“B” GRADE TRANSACTIONS, 2013

Park Place324 UnitsSeller: Jefferson Development GroupBuyer: Pride Rock Capital Partners

Shelby Crossing90 UnitsSeller: Underhill AssociatesBuyer: Geffen Enterprises

Heritage Hill163 UnitsSeller: Underhill AssociatesBuyer: 37th Parallel Properties

Fountain Square320 UnitsSeller: Martin L. Adams & SonsBuyer: Elmington Capital Group


2006 2007 2008 2009 2010 2011 2012 2013$0

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

LOUISVILLE SALES VOLUME

*

*2010 includes the partial interest sale of The Province


“A” & “B” CAP RATES

2006 2007 2008 2009 2010 2011 2012 20136.25

6.50

6.75

7.00

7.25

7.50

7.75

8.00

8.25

7.50

6.47

6.93

7.83

7.28

6.666.75

7.3

6.45

7.67

7.92 8.03

6.82

7.03

6.78

Class "A"Class "B"

*No “A” grade sales in 2008

*

NEW SUPPLY


NEW SUPPLY


Louisville MSANEW SUPPLY

20042005

20062007

20082009

20102011

20122013

2014 Pro

j.150

400

650

900

1,150

1,400

1,650

1,900

2,1504

98

1,1

80

54

1 61

5 59

0

44

6 20

6

19

0

43

1

1,2

69

2,1

10

87

9

50

1

74

7

1,4

63

1,0

58

16

5

46

0

59

1

1,2

14

65

4

Units Delivered (CBRE) Building Permits - 5+ units (US Govt.)


Louisville MSABUILDING PERMITS

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

(P. A

ug.)

01,0002,0003,0004,0005,0006,0007,0008,0009,000

10,0007

,42

0

7,8

10

6,6

33

4,9

18

4,5

99

2,6

33

2,2

45

2,0

65

1,8

06

2,4

57

2,4

09

1,212 879

501

747 1,463

1,058165 460 591

1,214 1,251

Single Family Multifamily


NEW SUPPLY

Idlewild -600 English Station Way-360 Units-Developer:Lifestyle Communities Management


NEW SUPPLY

Watermark on Hurstbourne-10405 Watermark Place-270 Units-Developer: Watermark Residential


NEW SUPPLY

Claiborne Crossing-14601 Pulpit Drive-242 Units-Developer: TDK Construction


NEW SUPPLY

Applegate Farms-5503 Fernfield Drive-192 Units-Developer: Buisson Investment Corporation


NEW SUPPLY

Overbrook-8901 Fairground Road-152 Units-Developer: AG Steier


NEW SUPPLY

Academy Park-718 Academy Drive-154 Units-Brown Capital LTD


NEW SUPPLY

Ellingsworth Lane Resort Apartments

-11840/11950 Ellingsworth Lane-398 Units-Faulkner/Hollenbach-Oakely

Westport Road Apartments

-8211 Old Westport Road-224 Units-Faulkner/Hollenbach-Oakely


NEW SUPPLY

Dundee Place-2236-2242 Dundee Road

-20 Units-REI/Poe

Preston Gardens-48005 Mud Lane

-96 Units-REI/Poe

Woods at Lexington Road-2141 Lexington Road-72 Units-REI/Poe

STRATEGIES & OPPORTUNITIES FOR 2014


Loan assumptions en vogue High demand for well-located value-add and

best-of-class Secondary/tertiary markets looking more attractive Emergence of the pre-sale Highly amenitized, high rent supply continues We’ve hit maximum sustainable occupancies The window is open but…

STRATEGIES & OPPORTUNITIES

For more information regarding this presentation please contact:CBRE Indianapolis-Cincinnati Multi-Housing Group

www.cbre.com/[email protected]

Documents

2014 REAL ESTATE ECONOMIC FORECAST January 30, 2014 Steve LaMotte Jr., Senior Vice President Dave Lockard, Senior Vice President Dane Wilson, Senior Associate