CRE PORT - Greysteel · Washington, D.C. Q1 2017 Transactional Trends Sales volume in the Washington, D.C. Metro is down year-over-year, with just $638 million worth of assets trading

Q1

2017 CREPORT

WASHINGTON, D.C. MULTIFAMILY

Q1 CRE Report / 02 © 2017 Greysteel

Washington, D.C. | Q1 2017

Pipeline Vs Effective Rental Rate PSF

$1.45

$1.50

$1.55

$1.60

$1.65

$1.70

$1.75

$1.80

$1.85

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2012 2013 2014 2015 2016 YTD

UNITS EFFECTIVE RENT PSF

Under Construction Delivered Effective Rent PSF

Trendlines

High levels of net absorption are the new normal:

Due to a combination of Washington, D.C.’s innate resilience to economic downturns and a massive development pipeline, the market continues to post incredibly high positive net absorption figures, totaling over 2,600 units just one quarter into the new year and more than 24,000 units in the last five years. Rental demand is robust in the D.C. Metro — 35% of area residents are apartment dwellers and that percentage is growing — and population totals are increasing exponentially, with the region projected to accommodate nearly six and a half million people by 2021. 0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD

Net Absorption, 10-Year HistoryUNITS

Oversupply not precursor to down marketonce thought:

Following the Great Recession, real estate industry experts warned of the dangers of developing too much too quickly. The widespread narrative was one of oversupply in the multifamily sector, culminating in years of doom and gloom followed by another devastating downturn. In the D.C. region, however, these fears have not been realized, as the market has seen little negative movement despite a record-setting pipeline. The current vacancy rate of 6.4% is 30 basis points lower than a year ago despite the delivery of roughly 8,300 units in 2016, and based on current velocity, the high rate of units absorbed will continue in coming years.

Washington, D.C.’s multifamily market grows in strength as the local economy’s dependence on federal spending weakens

The region continues to perform at a high level as increased private sector hiring, especially in STEM fields and the healthcare sector, counteracts uncertainty concerning the budget and federal employment. In the D.C. Metro, oversupply is largely a myth; the delivery of over 32,000 units since 2012 has done little to hinder growth and has had minimal impact on the region’s fundamentals. Average effective rents are currently at a record-high $1.82 per square foot, rising 13.8% in the last five years. Washington, D.C.’s mutlifamily outlook is rosy, and the market will remain a top destination for domestic and foreign investors to place capital in the long-term.

GEO

GRA

PHIC

BRE

AK

DO

WN

WDC Class A Class B Class C

Effective Rent Growth 0.7% 1.1% 3.2%

Vacancy Rate 13.1% 6.9% 5.2%

Net Absorption 800 -131 4

NOVA Class A Class B Class C

Effective Rent Growth 3.0% 3.2% 11.6%

Vacancy Rate 8.6% 4.6% 5.3%

Net Absorption 725 419 -4

SUB MD Class A Class B Class C

Effective Rent Growth -1.0% 2.7% 2.0%

Vacancy Rate 11.7% 4.6% 4.4%

Net Absorption 644 223 -40



Key Economic Indicators

LABOR Q1 2016 Q1 2017 Change

EMPLOYMENT 2.50M 2.55M +1.9%

PUBLIC SECTOR 583K 588K +0.8%

PRIVATE SECTOR 1.92M 1.97M +2.6%

UNEMPLOYMENT RATE 4.3% 4.0% -0.3%

10-YR TREASURY YIELD 1.78 2.40 +0.62

PEOPLE 2010 CurrentProjected

(2021)

POPULATION 5.64M 6.01M 6.49M

% CHANGE — 7.6% 7.0%

HOUSEHOLDS 2.09M 2.24M 2.39M

% CHANGE — 6.7% 6.7%

HOUSING UNITS 2.24M 2.39M 2.54M

OWNER-OCCUPIED 1.35M 1.39M 1.48M

RENTER-OCCUPIED 746K 843K 902K

MEDIAN HH INCOME $91,885 $93,489 $103,124

% CHANGE — 1.8% 10.3%

DEVELOPMENT 2014 2015 2016

MF PERMITS ISSUED (UNITS) 12,371 10,385 12,087

UNITS DELIVERED 8,155 7,891 8,295

Source: Greysteel Research, ESRI, Bureau of Labor Statistics

58.3%

35.3%

OwnerOccupied

RenterOccupied

6.4%

Vacant

Housing Profile

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

20 - 24 25 - 34 35 - 44 45 - 54 55 - 64

Population Count By Age

2012 2016 2021 Projection

AGE RANGE

30.4%Of D.C. Metro Millennials Aged 25-34 Are Renters

53.5%Of D.C. Metro Population Aged 25-44 Are Renters

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

Unemployment Rate, 10-Year History



Pipeline & Deliveries

8,100WASHINGTON, D.C

MARKET-RATE UNITS UNDER CONSTRUCTION:

6,500NORTHERN VIRGINIA

2,900SUBURBAN MARYLAND

17,500T O TA L U N I T S

Under Construction Planned

Percentage of Southwest/Navy

Yard inventory under construction

41.4%

Percentage of Tysons Corner inventory

under construction

19.8%

UNITS

Hot Submarkets

0

2,000

4,000

6,000

8,000

10,000

12,000

Southwest/Navy Yard

H Street/NoMa

TysonsCorner

Hyattsville R-B Corridor AdamsMorgan/ColumbiaHeights

Crystal City/Pentagon

City

Rockville



Transactional Trends

Sales volume in the Washington, D.C. Metro is down year-over-year, with just $638 million worth of assets trading compared to $1.2 billion traded through the first quarter of 2016. As is the case in many primary markets, institutions have long been focused on buying newer, high-quality assets in the urban core; in D.C., this has been done at such a frantic pace that there simply are not as many options available for purchase and transaction volume has tapered off. As a result, activity outside of the Transit Oriented Developments (TODs) has increased in recent times. Additionally, activity in the Class B and C markets has picked up speed, especially in the private capital community, as investors aim to add assets in need of significant capital expenditure to their portfolios. The prevalence of these types of value-add plays was thought to be in decline but recent deals have demonstrated the potential for buyers to achieve cap rates in excess of 6.0% on older, non-core assets while core product often trades at sub-5.0%. Sales activity, especially of non-core B and C properties, can be expected to pick up as the year progresses.

PROPERTY CITYSALE DATE

SALE PRICE PRICE/UNIT UNITS BUYER SELLER

The Beacon Clarendon Arlington Feb-17 $98,300,000 $525,668 187 USAA Real Estate ZOM Inc.

Anthology Washington, D.C. Oct-16 $160,000,000 $521,173 307 MEPT Jair Lynch

19Nineteen Clarendon Arlington Feb-17 $90,000,000 $471,204 191 USAA Real Estate ZOM Inc.

Villas at Rockville Rockville Nov-16 $61,400,125 $292,382 210 Cove Property Management AvalonBay Communities

Ridgeleigh at Van Dorn Alexandria Mar-17 $91,500,000 $254,167 360 Klingbeil Capital Waterton Associates

The Sutton Woodbridge Oct-16 $104,000,000 $247,619 420 Dweck Properties JLB Partners

Ashborough Apartments Ashburn Dec-16 $119,000,000 $236,111 504 CBRE Global Investors Fairfield Residential

The Park at Kingsview Village Germantown Oct-16 $70,400,000 $215,951 326PRP Real Estate Management

TA Realty

The Mark at Brickyard Beltsville Feb-17 $90,750,000 $209,584 433 Harbor Group JLB Partners

Bellemeade Farms Leesburg Feb-17 $60,900,000 $192,722 316 The Bainbridge Companies Waterton Associates

Dominion Towers Arlington Oct-16 $63,500,000 $192,424 330 Capital Investment Advisors MacFarlane Partners

Seneca Village Gaithersburg Feb-17 $117,000,000 $171,053 684 The Orlo Fund AvalonBay Communities

Avenue Apartments Forestville Dec-16 $85,747,633 $143,390 598Quest Management JV

BDMGFederal Capital Partners

Landmark Apartments Hyattsville Dec-16 $96,980,973 $127,606 760Quest Management JV

BDMGFederal Capital Partners

Recent Transactions

$100.00

$120.00

$140.00

$160.00

$180.00

$200.00

$220.00

$240.00

$260.00

$100,000

$120,000

$140,000

$160,000

$180,000

$200,000

$220,000

$240,000

$/UNIT $/PSF

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

2008 2009 2010 2011 2012 2013 2014 2015 2016

Price Per Unit Price PSF

Class A Class B/C

Price per unit vs price per SFCap Rates

*Sorted highest to lowest by per unit sales price



Washington, D.C. Investment SalesW. KYLE TANGNEY RAWLES M. WILCOX ALICIA ORKISZ

Managing [email protected]

[email protected]

Senior Investment [email protected]

ARI AZARBARZIN HERBERT SCHWAT MAX FREEDMAN

Senior Investment [email protected]

Investment [email protected]

Investment [email protected]

Sources & MethodologyAll data is obtained from sources recognized as reliable but Greysteel makes no guarantees as to the accuracy thereof.

(1) Rental & occupancy trends take into account only multifamily assets larger than 50 units, except in the case of development and sales analysis.

(2) The Washington, D.C. region, as defined by Greysteel Research, is comprised of Prince George’s Co., Montgomery Co., Arlington Co., Alexandria City, Fairfax Co., Falls Church City, Manassas City, Manassas Park, Loudoun Co., the District of Columbia, Prince William County, and Fairfax City.

(3) Affordable properties are not analyzed in this report; this includes, but is not limited to, LIHTC, Section 8, HCVP, senior housing, military housing, corporate housing, and student housing.

(4) Data provided courtesy of Greysteel Research, CoStar Realty Information, Inc., REIS, Bureau of Labor Statistics, Bureau of Economic Analysis, and the U.S. Census Bureau.

Debt & Structured Finance

BRENDAN SCANLON MARK BITTENBENDER BRITTANY WISMER

Senior [email protected]

[email protected]

Senior Finance [email protected]

Greysteel Research

JARED EMERY RYAN HILL

Lead Research [email protected]

Senior Research [email protected]

GREG EDMONDS WILL CLARKE

Research [email protected]

Research [email protected]

Corporate Leadership

ARI FIROOZABADI DUERK BREWER

President & CEO Chief Operating Officer

ANDREW STIEF YASSI FARZANEH

VP of Marketing Director of Corporate Services

Greysteel’s CREport focuses on any subject that potentially impacts, or relates to, the commercial real estate sector, ranging from studies of the performance of a specific asset type or region to economic and demographic studies, and anything in between. Readers will benefit from our professionals’ expertise and insight into the economic and market trends that affect all sectors of commercial real estate, as well as our expansive knowledge of local markets. For more information about the CREport, or to request information for a specific region, please contact [email protected].

* For more information or to inquire about Greysteel, please contact Ari Firoozabadi, CEO & President ([email protected] | 202.417.3873)

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CRE PORT - Greysteel · Washington, D.C. Q1 2017 Transactional Trends Sales volume in the Washington, D.C. Metro is down year-over-year, with just $638 million worth of assets trading