Apartment Market Overview and Outlook NMHC Research … · Mortgage payments based on 4Q 2014 median home price for a 30- year fixed rate conventional mortgage, 90% LTV, and 1.5%

Apartment Market Overview and OutlookNMHC Research Conference

Millennials ReshapingMultifamily Demand

3.0

3.5

4.0

4.5

5.0

18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64

Popu

latio

n (M

illio

ns)

Millennial Cohort Bigger Than Baby BoomU.S. 2014 Population by Age

Age

20-34 Year Old 5-Year Growth: 1,400,000

66.4 Million

Note: Total Baby Boomer Population 75 million. Total Millennial Population 80 millionSources: Marcus & Millichap Research Services, U.S. Census Bureau

Two-Thirds of Millennials Rent……If Not Living with Parents

54

58

62

66

70

1990

1993

1996

1999

2002

2005

2008

2011

201420

17*20

20*

20-3

4 Ye

ar O

ld P

opul

atio

n (M

il.)

* Forecast** 2013 American Community SurveyNote: Unmarried college students living in dormitories are counted as living in their parents’ homeSources: Marcus & Millichap Research Services, U.S. Census Bureau

Millennial Propensity to Rent**

68%

5-Year Growth: 1,400,000

16

18

20

22

24

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011

2014

22.8M

Long-Term Average:19.2M

Young Adults Living with Parents 3.6M Above Long-Term Average

18-3

4 Ye

ar O

lds

Livi

ng W

ith P

aren

ts (M

il.)

Millennials – Live/Work/Play

20-34 Year Old Population Growth –Low (Below -0.9%)20-34 Year Old Population Growth -Below Average (-0.9% to -0.2%)20-34 Year Old Population Growth -Average (-0.2% to 0.5%)20-34 Year Old Population Growth -Above Average (0.5% to 1.25%)20-34 Year Old Population Growth -High (Above 1.25%)

Portland 20-34 Cohort Growth (2014-2019)

-6%

-3%

0%

3%

6%

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

*20

18*

2020

*

0.8

0.9

1.0

1.1

1.2

Births 16-34 Year Old Employment**

Y-O

-Y C

hang

e in

Em

ploy

men

t

* Forecast** Through 4Q 2014Sources: Marcus & Millichap Research Services, U.S. Census Bureau, BLS

Births (M

illions)Economic Gains Support Family Formation

Could Push Millennials to Suburbs

Median Age at Marriage2000: 25-262014: 27-29

35-54 Year Old Population Growth –Low (Below -0.9%)35-54 Year Old Population Growth -Below Average (-0.9% to -0.2%)35-54 Year Old Population Growth -Average (-0.2% to 0.5%)35-54 Year Old Population Growth -Above Average (0.5% to 1.25%)35-54 Year Old Population Growth -High (Above 1.25%)

Portland 35-54 Cohort Growth (2014-2019)

Pacific Region Apartment Market Trends

0

3,000

6,000

9,000

12,000

15,000

0 30,000 60,000 90,000 120,000

Pacific RegionApartment Construction vs. Employment Growth

*ForecastSources: Marcus & Millichap Research Services, BLS, MPF Research

San FranciscoSan Jose

OaklandSacramento

Los Angeles

Orange County

Inland Empire

San Diego

Seattle

Portland

2015

Apa

rtm

ent C

ompl

etio

ns* (

Uni

ts)

2015 Employment Growth*

Upward Pressure on Vacancies

Downward Pressure on Vacancies

0

20

40

60

80

Portlan

d

San Jo

se

Sacram

ento

Oaklan

d

San Fran

cisco

Orange

Cou

nty

Seattle

San D

iego

Inlan

d Empir

e

Los A

ngele

s

20-34 Year Old Population Growth Potential Demand Growth

Popu

latio

n (0

00s)

Pacific Region Five-Year Millennial Apartment Demand Growth*

* 2015-2019** Propensity to rent based on 2012 American Community SurveySources: Marcus & Millichap Research Services, U.S. Census Bureau


72.2%79.0%

70.8% 77.3% 86.6%78.2%

73.4% 79.1%

65.9%

82.9%

$0 $800 $1,600 $2,400 $3,200

Inland Empire

Sacramento

Portland

Los Angeles

Seattle

San Diego

Orange County

Oakland

San Jose

San Francisco

Affordability GapAs of 4Q 2014Mortgage payments based on 4Q 2014 median home price for a 30-year fixed rate conventional mortgage, 90% LTV, and 1.5% taxes and insuranceSources: Marcus & Millichap Research Services, MPF Research, Freddie Mac, National Association of Realtors

Pacific Region Housing AffordabilityBased on Home Mortgage Payment and Rent Gap

0%

2%

4%

6%

8%

San Fran

cisco

San Jo

se

Oaklan

d

Sacram

ento

Los A

ngele

s

Orange

Cou

nty

Inlan

d Empir

e

San D

iego

Seattle

Portlan

d

2013 2014 2015*

Apartment Vacancy Rate Trends

Aver

age

Vaca

ncy

Rat

e

* ForecastSource: Marcus & Millichap Research Services, MPF Research

2015 U.S. Average: 4.8%

0%

4%

8%

12%

16%

San Fran

cisco

San Jo

se

Oaklan

d

Sacram

ento

Los A

ngele

s

Orange

Cou

nty

Inlan

d Empir

e

San D

iego

Seattle

Portlan

d

2013 2014 2015*

Apartment Effective Rent Growth Trends

Y-O

-Y P

erce

nt C

hang

e


2015 U.S. Average: 3.4%

Southwest/Mountain Region Apartment Market Trends

0

5,000

10,000

15,000

20,000

25,000

0 20,000 40,000 60,000 80,000 100,000

Southwest/Mountain RegionApartment Construction vs. Employment Growth

2015

Apa

rtm

ent C

ompl

etio

ns* (

Uni

ts)

2015 Employment Growth*

Salt Lake City

Denver

Las Vegas

PhoenixAustin

Dallas-Ft. WorthHouston

San Antonio

*ForecastSources: Marcus & Millichap Research Services, BLS, MPF Research

Upward Pressure on Vacancies

Downward Pressure on Vacancies

0

40

80

120

160

Salt La

ke C

ity

San A

ntonio

Denve

r

Austin

Las V

egas

Housto

n

Phoen

ix

Dallas

-Ft. W

orth

20-34 Year Old Population Growth Potential Demand Growth

Popu

latio

n (0

00s)

Southwest/Mountain Region Five-Year Millennial Apartment Demand Growth*

* 2015-2019** Propensity to rent based on 2012 American Community SurveySources: Marcus & Millichap Research Services, U.S. Census Bureau


54.8%68.6%

67.4%73.8%

72.1%

68.6%67.2%

71.6%

$0 $150 $300 $450 $600

Dallas-Ft. Worth

San Antonio

Houston

Austin

Phoenix

Salt Lake City

Las Vegas

Denver

Affordability GapAs of 4Q 2014Mortgage payments based on 4Q 2014 median home price for a 30-year fixed rate conventional mortgage, 90% LTV, and 1.5% taxes and insuranceSources: Marcus & Millichap Research Services, MPF Research, Freddie Mac, National Association of Realtors

Southwest/Mountain Region Housing AffordabilityBased on Home Mortgage Payment and Rent Gap

0%

3%

6%

9%

12%

Salt La

ke C

ity

Denve

r

Las V

egas

Phoen

ixAus

tin

Dallas

-Ft. W

orth

Housto

n

San A

ntonio

2013 2014 2015*

Apartment Vacancy Rate Trends


Aver

age

Vaca

ncy

Rat

e

2015 U.S. Average: 4.8%

0%

3%

6%

9%

12%

Salt La

ke C

ity

Denve

r

Las V

egas

Phoen

ixAus

tin

Dallas

-Ft. W

orth

Housto

n

San A

ntonio

2013 2014 2015*

Apartment Effective Rent Growth Trends


Y-O

-Y P

erce

nt C

hang

e

2015 U.S. Average: 3.4%

Apartment Market Overview and OutlookNMHC Research Conference

page 1

NMHC Research ConferenceApril 1-2, 2015

page 2

Macro Multifamily Trends

page 3

Supply Wave Puts a Stop to RecoveryNational Apartment Supply, Demand, and Vacancy

Source: CoStar Portfolio Strategy As of 14Q4

3%

4%

5%

6%

7%

8%

0

50

100

150

200

250

300

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Demand Change (Y/Y) Supply Change (Y/Y) Vacancy

Demand & Supply (000s Units) Vacancy

page 4

If You’re Under 40, Good Luck Getting A Loan…Loans Serviced By Credit Score And Average Credit Scores By Age

Sources: U.S. Federal Housing Finance Agency (FHFA); FreeScore.com; Costar Group, Inc. As of 15Q1

1,7501,9502,1502,3502,5502,7502,9503,1503,350

08Q1 09Q1 10Q1 11Q1 12Q1 13Q1 14Q1Fannie Mae - Total Loans Serviced With Original Credit Score < 660

Conforming Home Loans Serviced ('000s)

600620640660680700720740

18-29 30-39 40-49 50-59 60-69 70+Avg Credit Score By Age (Years)

Credit Score

654637

page 5

Young People Still UnderemployedChange In Population And Employment By Age Cohort (20-34-Year-Olds)

Sources: BLS; Moody's Analytics; CoStar Portfolio Strategy As of 14Q4

(4,000)

(3,000)

(2,000)

(1,000)

0

1,000

2,000

3,000

4,000

5,000

07 08 09 10 11 12 13 14

People Employed Employed at Normal Participation Rate

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.

page 6

Uncoupling Of Households Leaves Demand Upside Population And Household Growth For Those 20-34

Sources: US Census Bureau; Moody's Analytics; CoStar Portfolio Strategy As of 14Q4

(2%)

(1%)

0%

1%

2%

3%

4%

01 02 03 04 05 06 07 08 09 10 11 12 13 14Population Households

Growth in 20-34-Year-Olds (Y/Y)

2.252.302.352.402.452.502.552.60

01 02 03 04 05 06 07 08 09 10 11 12 13Persons Per Household

20-34-Year-Old Persons/HH

Recent Historical Average

Return to recent average equates to 1.53 million more young households.

page 7

4 & 5 Star Vacancies To Surpass 3 Star VacanciesVacancy Rate for The National Index


3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

3 Star 4 & 5 Star

Vacancy Rate

page 8

4 & 5 Star Rents Racing AheadNational Asking Rents By Class


800

900

1,000

1,100

1,200

1,300

1,400

1,500

06 07 08 09 10 11 12 13 143 Star 4 & 5 Star

Average Asking Rent ($/Month)

$170 or13% above

prerecession high

$90 or9% above

prerecession high

4.1% Average Annual Growth

3.2% Average Annual Growth

page 9

Investors Can't Fall Out Of Love With ApartmentsU.S. Quarterly Sales Volume and Price Per Unit

Source: CoStar Portfolio Strategy As Of 14Q4

60

70

80

90

100

110

120

130

140

0

5

10

15

20

25

30

35

05 06 07 08 09 10 11 12 13 14Sales VolumeAvg $/Unit (3 Quarter Moving Average)Avg. $/Unit Since 2005

Total Sales ($ Billions) $/Unit (000s)

page 10

Widening Spread For CBD Over SuburbanTwo Quarter Cap Rate Moving Average In "Sexy Six" Metros

*"Sexy Six" metros include: Boston, Chicago, Los Angeles, New York, San Francisco, and Washington, D.C.Source: CoStar Portfolio Strategy As of 14Q4

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

2006 2007 2008 2009 2010 2011 2012 2013 2014

CBD Suburban

Cap Rate (2 Qtr Moving Average)

page 11

Northeast Markets

page 12

Northeast Markets: Supply Versus DemandChange In Near Term (14Q4-16Q4) Supply And Demand


Baltimore

Boston

Long Island

New YorkNorfolk

Northern New Jersey

Philadelphia

PittsburghWashington, DC

0%

1%

2%

3%

4%

5%

6%

7%

8%

0% 1% 2% 3% 4% 5% 6%

Change in Supply

Change in Demand

page 13

Northeast Market Vacancies (Present, Future, Historic)Marketwide Vacancy Rate


2%

3%

4%

5%

6%

7%

8%

Was

hing

ton

- NoV

A -

MD

Pitts

burg

h

Har

tford

Bost

on

Balti

mor

e

Phila

delp

hia

New

Yor

k

Nor

ther

n N

ew J

erse

y

Long

Isla

nd

Nat

iona

l

2014 2015 Historic Average (2000-2014)

page 14

Construction Has Spread Throughout DC


Heat Map For New Multifamily Construction

page 15

Northeast Asking Rent Growth By Class - 2014Year-Over-Year Rent Growth


0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

Bost

on

New

Yor

k

Har

tford

Balti

mor

e

Nor

ther

n N

ew J

erse

y

Was

hing

ton

- NoV

A -

MD

Phila

delp

hia

Long

Isla

nd

Pitts

burg

h

4 & 5 Star 3 Star

page 16

Northeast Asking Rents By Class - Projected 2015Year-Over-Year Rent Growth


(1.0%)

(0.5%)

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

Bost

on

New

Yor

k

Har

tford

Balti

mor

e

Nor

ther

n N

ew J

erse

y

Was

hing

ton

- NoV

A -

MD

Phila

delp

hia

Long

Isla

nd

Pitts

burg

h

4 & 5 Star 3 Star

page 17

Southeast Markets

page 18

Southeast Markets: Supply Versus DemandChange In Near Term (14Q4-16Q4) Supply And Demand


Atlanta

Charlotte

Ft. LauderdaleJacksonville

Memphis

Miami

Nashville

New OrleansOrlando

Palm Beach County

Raleigh

RichmondTampa

2%

3%

4%

5%

6%

7%

8%

2% 3% 4% 5% 6% 7%

Change in Supply

Change in Demand

page 19

Southeast Market Vacancies (Present, Future, Historic)Marketwide Vacancy Rate


4%

5%

6%

7%

8%

9%

10%

Mem

phis

Ric

hmon

d

Ral

eigh

Atla

nta

Jack

sonv

ille

New

Orle

ans

Nas

hville

Tam

pa

Ft. L

aude

rdal

e

Mia

mi

Cha

rlotte

Orla

ndo

Palm

Bea

ch C

ount

y

Nat

iona

l


page 20

Southeast Asking Rents By Class - 2014Year-Over-Year Rent Growth


0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

Palm

Bea

ch C

ount

y

Orla

ndo

Ft. L

aude

rdal

e

Atla

nta

Nas

hville

Tam

pa

Mia

mi

Jack

sonv

ille

Cha

rlotte

New

Orle

ans

Ral

eigh

Mem

phis

4 & 5 Star 3 Star

page 21

4&5 Star Vacancies Surging In NashvilleVacancy Rate By Star Rating – Southeast Region


0% 2% 4% 6% 8% 10%

4&5 Star 3 Star

Miami

Nashville

Raleigh

New Orleans

Charlotte

Change in Vacancy Rate by Rating, 13Q4-14Q4

Atlanta

Tampa

Palm Beach

Memphis

Orlando

Jacksonville

page 22

West End-CBD, Nashville: Inventory Doubling By 2016Heat Map For New Multifamily Construction


page 23

Southeast Asking Rents By Class - Projected 2015Year-Over-Year Rent Growth


(1.0%)

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Palm

Bea

ch C

ount

y

Orla

ndo

Ft. L

aude

rdal

e

Atla

nta

Nas

hville

Tam

pa

Mia

mi

Jack

sonv

ille

Cha

rlotte

New

Orle

ans

Ral

eigh

Mem

phis

4 & 5 Star 3 Star

page 24

Midwest Markets

page 25

Midwest Markets: Supply Versus DemandChange In Near Term (14Q4-16Q4) Supply And Demand


ChicagoCincinnati

Cleveland

Columbus OH

Detroit

Indianapolis

Kansas City

MilwaukeeMinneapolis

St. Louis

0%

1%

2%

3%

4%

5%

0% 1% 2% 3% 4% 5%

Change in Supply

Change in Demand

page 26

Midwest Vacancies (Present, Future, Historic)Marketwide Vacancy Rate


2%

3%

4%

5%

6%

7%

8%

9%

Indi

anap

olis

Okl

ahom

a C

ity

St. L

ouis

Cin

cinn

ati

Kans

as C

ity

Cle

vela

nd

Chi

cago

Col

umbu

s O

H

Milw

auke

e

Min

neap

olis

Det

roit

Nat

iona

l


page 27

Cleveland’s Construction Moving Downtown Heat Map For New Multifamily Construction


page 28

New Construction Pushing 4 & 5 Star VacanciesVacancy Rate By Star Rating - Midwest Region


0% 2% 4% 6% 8%

4&5 Star 3 Star

Cleveland

Indianapolis

Cincinnati

Minneapolis

Chicago

Columbus OH

Change in Vacancy Rate by Rating, 13Q4-14Q4

Kansas City

Saint Louis

Detroit

Milwaukee

page 29

Midwest Asking Rents By Class - 2014Year-Over-Year Rent Growth


0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

Cle

vela

nd

Det

roit

Indi

anap

olis

Cin

cinn

ati

Col

umbu

s O

H

Chi

cago

Kans

as C

ity

Milw

auke

e

Min

neap

olis

St. L

ouis

4 & 5 Star 3 Star

page 30

Midwest Asking Rents By Class - Projected 2015Year-Over-Year Rent Growth


0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

Cle

vela

nd

Det

roit

Indi

anap

olis

Cin

cinn

ati

Col

umbu

s O

H

Chi

cago

Kans

as C

ity

Milw

auke

e

Min

neap

olis

St. L

ouis

4 & 5 Star 3 Star

page 31

Francis Yuen, Senior Real Estate [email protected]

These CoStar Portfolio Strategy materials contain financial and other information from a variety of public and proprietary sources. CoStar Group, Inc. and its affiliates (collectively, “CoStar”) have assumed and relied upon, without independent verification, the accuracy and completeness of such third party information in preparing these materials.

The modeling, calculations, forecasts, projections, evaluations, analyses, simulations, or other forward-looking information prepared by CoStar and presented herein (the “Materials”) are based on various assumptions concerning future events and circumstances, which are speculative, uncertain and subject to change without notice. You should not rely upon the Materials as predictions of future results or events, as actual results and events may differ materially. All Materials speak only as of the date referenced with respect to such data and may have materially changed since such date. CoStar has no obligation to update any of the Materials included in this document. You should not construe any of the data provided herein as investment, tax, accounting or legal advice.

CoStar does not represent, warrant or guaranty the accuracy or completeness of the information provided herein and shall not be held responsible for any errors in such information. Any user of the information provided herein accepts the information “AS IS” without any warranties whatsoever. To the maximum extent permitted by law, CoStar disclaims any and all liability in the event any information provided herein proves to be inaccurate, incomplete or unreliable.

© 2014 CoStar Realty Information, Inc. No reproduction or distribution without permission.

Documents

Apartment Market Overview and Outlook NMHC Research … · Mortgage payments based on 4Q 2014 median home price for a 30- year fixed rate conventional mortgage, 90% LTV, and 1.5%