MULTIFAMILY MARKET OVERVIEW | JULY · PDF fileCUSHMAN & WAKEFIELD US MULTIFAMILY MARKET OVERVIEW | 3 1 Housing Trends Source: ... including partial interest and entity level sales

| 1C U S H M A N & W A K E F I E L D

M U L T I F A M I L Y M A R K E T O V E R V I E W | J U L Y 2 0 1 2

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U S M U L T I F A M I L Y M A R K E T O V E R V I E W | 3C U S H M A N & W A K E F I E L D

1

Housing Trends

Source: PPR, Cushman & Wakefield Capital Markets Group

Multi-Family Permits*

PPR 54

Single-Family Permits*

YTDPrevious Year

5-YearAnnual Avg

10-YearAnnual Avg

*As of May 2, 2012

Home Price Index (Base Year=1993)

YTD

YTD YTDPrevious Year

5-YearAnnual Avg

10-YearAnnual Avg

Multifamily construction is on the rise. With yields on existing inventory in core markets tighter than ever, investors are turning to new construction for investment.

Single-family permits fell slightly in March, but they were 27% above their YOY level, the strongest year-over-year comparison since in the early spring 2010. April permits increased 1.9% month-over-month.

Home price index has begun to tick up slowly as median home prices increased YOY.

HOUSING TRENDS

•Multifamily construction is on the rise. With yields on existing inventory in core markets tighter than ever, investors are turning to new construction for investment.

• Single-family permits fell slightly in March, but they were 27% above their YOY level, the strongest year-over-year comparison since in the early spring 2010. April permits increased 1.9% month-over-month.

•Home price index has begun to tick up slowly as median home prices increased YOY.

Source: PPR, Cushman & Wakefield Capital Markets Group


2Inventories Have Peaked

Number of Vacant homes for sale, ths.

Source: Moody’s Economy.com, Cushman & Wakefield Capital Markets Group

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

The number of vacant homes for sale peaked in 2008. As of the first quarter of 2012, this number has dropped below 2006 year-end levels.

The last five quarters have seen steady drops in the number of vacant homes for sale as most of the distressed properties have worked their way through the system.

As these distressed vacant homes exit the inventory, median home prices have begun to rise.

INVENTORIES HAVE PEAKED

•The number of vacant homes for sale peaked in 2008. As of the first quarter of 2012, this number has dropped below 2006 year-end levels.

•The last five quarters have seen steady drops in the number of vacant homes for sale as most of the distressed properties have worked their way through the system.

•As these distressed vacant homes exit the inventory, median home prices have begun to rise.



3Housing Is More Affordable


80

100

120

140

160

180

200

220

198619871988198919901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012

Com

posi

te H

ousi

ng A

fford

abili

ty In

dex,

(In

dex,

SA)

Housing is at its most affordable as interest rates are still low and job and income growth continues.

However, tighter underwriting guidelines and uncertain home values make purchasing homes challenging to most prospective home buyers.

HOUSING IS MORE AFFORDABLE

•Housing is at its most affordable as interest rates are still low and job and income growth continues.

•However, tighter underwriting guidelines and uncertain home values make purchasing homes challenging to most prospective home buyers.



4Household Formation Rate and Change in Population Age 20-34

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

4,00019

8819

8919

9019

9119

9219

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

1020

1120

1220

1320

1420

15

Year

ove

r Yea

r Cha

nge

(000

s)

Change in Population Age 20-34Household Formations

Fore

cast


1988 – 2015

As the number of 20-34 year old’s(prime renter cohort) has increased in the last few years, demand for rental housing has been robust.

In addition to the increase in prime renter cohort, households that were foreclosed on have turned to renting.

HOUSEHOLD FORMATION RATE & CHANGE IN POPULATION AGE 20-341988-2015

•As the number of 20-34 year old’s(prime renter cohort) has increased in the last few years, demand for rental housing has been robust.

• In addition to the increase in prime renter cohort, households that were foreclosed on have turned to renting.



5US Share of Investment in Apartment

Foreign10%

Equity Fund12%

Institutional13%

Private11%

Public33%

User/Other21%

[Dollar volume change from prior year]

[+108%]

[+96%]

[+372%]

Source: Real Capital Analytics Inc., Cushman & Wakefield Capital Markets Group

[+20%]

[-37%]

PROPERTY BY CAPITAL SOURCE 2012Q1

Closed deals $5M+, including partial interest and entity level sales.

Public buyers were the most active buyers at 33% of total apartment investors in the first quarter of 2012.

Top buyers included:– UDR Inc. in JV with MetLife

purchased a portfolio of Manhattan properties in New York’s Upper West Side for $630M from the JV of Chetrit Group and Stellar Management.

[+151%]

US SHARE OF INVESTMENT IN APARTMENT PROPERTY BY CAPITAL SOURCE 2012Q1

• Public buyers were the most active buyers at 33% of total apartment investors in the first quarter of 2012.

•Top buyers included: UDR Inc. in JV with MetLife purchased a portfolio of Manhattan properties in New York’s Upper West Side for $630M from the JV of ChetritGroup and Stellar Management.




0Top Apartment Investment Markets

$0 $3 $6 $9 $12

NYC Boroughs

Chicago

Seattle

DC VA burbs

Houston

Phoenix

Atlanta

Dallas

Los Angeles

Manhattan

Sales Volume (Billions)

2012Q1 2011 2010 2009 2008 2007 2006 2005


BY SALES VOLUME 2005 – 2012Q1


Apartment sales volume totaled $10.8B in the first quarter of 2012, 31% higher YOY.

The top ten apartment investment sales markets accounted for 50% of total sales transactions in the first quarter of 2012.

Manhattan deal volume for the first quarter is almost half of it’s total year 2011 volume. Manhattan rents have risen to all time highs.

TOP APARTMENT INVESTMENT MARKETSBY SALES VOLUME 2005-2012Q1

•Apartment sales volume totaled $10.8B in the first quarter of 2012, 31% higher YOY.

•The top ten apartment investment sales markets accounted for 50% of total sales transactions in the first quarter of 2012.

•Manhattan deal volume for the first quarter is almost half of it’s total year 2011 volume. Manhattan rents have risen to all time highs.

Closed deals $5M+, including partial interest and entity level sales.Source: Real Capital Analytics Inc., Cushman & Wakefield Capital Markets Group



0% 2% 4% 6% 8% 10% 12%

NYC Boroughs

Chicago

Seattle

DC VA burbs

Houston

Phoenix

Atlanta

Dallas

Los Angeles

Manhattan

Weighted Average Capitalization Rate

2012Q1 2011 2010 2009 2008 2007 2006 2005


AVERAGE CAPITALIZATION RATE, 2005 – 2012Q1

Closed deals $5M+, not including partial interest sales.

Apartment cap rates edged up slightly by 10bp to 5.9%, however, this is more of a moderation of the cap rates.

Cap rates in the prime markets of Manhattan and Los Angeles continued to tighten. This has given rise to renewed interest in construction, which is restrained in these markets due to the lack of buildable sites.

TOP APARTMENT INVESTMENT MARKETSAVERAGE CAPITALIZATION RATE, 2005-2012Q1

•Apartment cap rates edged up slightly by 10bp to 5.9%, however, this is more of a moderation of the cap rates.

•Cap rates in the prime markets of Manhattan and Los Angeles continued to tighten. This has given rise to renewed interest in construction, which is restrained in these markets due to the lack of buildable sites.

Closed deals $5M+, not including partial interest sales.


U S M U L T I F A M I L Y M A R K E T O V E R V I E W | 1 0C U S H M A N & W A K E F I E L D


$0 $50 $100 $150 $200 $250 $300 $350 $400 $450 $500 $550

NYC Boroughs

Chicago

Seattle

DC VA burbs

Houston

Phoenix

Atlanta

Dallas

Los Angeles

Manhattan

Average Sales Price per Unit (000s)

2012Q1 2011 2010 2009 2008 2007 2006 2005


AVERAGE SALES PRICE PER UNIT, 2005 – 2012Q1


Apartments continue to be most expensive to purchase in Manhattan where 13 properties traded for $500,000+ per unit in the first quarter of 2012. However, the vacancy rate is below 2% and the rents are the highest nation.

TOP APARTMENT INVESTMENT MARKETSAVERAGE SALES PRICE PER UNIT, 2005-2012Q1

•Apartments continue to be most expensive to purchase in Manhattan where 13 properties traded for $500,000+ per unit in the first quarter of 2012. However, the vacancy rate is below 2% and the rents are the highest nation.




9

Source: Reis, Cushman & Wakefield Capital Markets Group

$500

$1,000

$1,500

$2,000

$2,500

$3,000

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Q1

Mon

thly

Effe

ctiv

e R

ent

New York City Los Angeles Atlanta PhoenixDallas DC VA burbs Houston Seattle

APARTMENT RENTAL RATES AS OF END OF PERIOD, 1997 – 2012Q1Top Apartment Investment Markets

Apartment rents continue to climb throughout the nation. Effective rents increased 0.6% QOQ in the first quarter of 2012. YOY rents increased 2.7%.

New York City rents grew the most YOY at 3.3%, followed by Dallas and Seattle at 3.1% each.

TOP APARTMENT INVESTMENT MARKETSAPARTMENT RENTAL RATES AS OF END OF PERIOD, 1997-2012Q1

•Apartment rents continue to climb throughout the nation. Effective rents increased 0.6% QOQ in the first quarter of 2012. YOY rents increased 2.7%.

•New York City rents grew the most YOY at 3.3%, followed by Dallas and Seattle at 3.1% each.



10


0%

2%

4%

6%

8%

10%

12%

14%

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Q1

Vaca

ncy

Rat

e

New York Los Angeles Atlanta PhoenixDallas DC VA Suburbs Houston Seattle

APARTMENT VACANCY RATES AS OF END OF PERIOD, 1997 – 2012Q1Top Apartment Investment Markets

The national apartment vacancy rate dropped 30bp QOQ and 132bp YOY.

New York City vacancy rates are the lowest in the nation at 1.97%. Phoenix had the steepest drop in vacancy from their 2009 high, dropping 580bp to it’s current 6.7% vacancy rate.

TOP APARTMENT INVESTMENT MARKETSAPARTMENT VACANCY RATES AS OF END OF PERIOD, 1997-2012Q1

•The national apartment vacancy rate dropped 30bp QOQ and 132bp YOY.

•New York City vacancy rates are the lowest in the nation at 1.97%. Phoenix had the steepest drop in vacancy from their 2009 high, dropping 580bp to it’s current 6.7% vacancy rate.



11

BostonChicagoDallas DC VA Suburbs

Houston

Los AngelesNew York City

Phoenix

Seattle

Atlanta

US

85.0%

87.5%

90.0%

92.5%

95.0%

97.5%

100.0%

$500 $750 $1,000 $1,250 $1,500 $1,750 $2,000 $2,250 $2,500 $2,750 $3,000

Occ

upan

cy R

ate

Overall Asking Rent

Monthly Effective Rent vs. Occupancy Rate

YEAR-OVER-YEAR CHANGE IN ASKING RENT AND VACANCY RATE

TOP US APARTMENT MARKETS

BostonChicago

DallasDC VA Suburbs

Houston

Los Angeles

Phoenix

Seattle

Atlanta

US

85.0%

87.5%

90.0%

92.5%

95.0%

97.5%

100.0%

$500 $750 $1,000 $1,250 $1,500 $1,750

Occ

upan

cy R

ate

Overall Asking Rent

BostonChicagoDallas DC VA Suburbs

Houston

Los Angeles New York City

Phoenix

Seattle

Atlanta

US

85.0%

87.5%

90.0%

92.5%

95.0%

97.5%

100.0%

$500 $750 $1,000 $1,250 $1,500 $1,750 $2,000 $2,250 $2,500 $2,750 $3,000

Occ

upan

cy R

ate

Overall Asking Rent

Boston

ChicagoDallas

DC VA Suburbs

Houston

Los Angeles

Phoenix

Seattle

Atlanta

US

85.0%

87.5%

90.0%

92.5%

95.0%

97.5%

100.0%

$500 $750 $1,000 $1,250 $1,500 $1,750

Occ

upan

cy R

ate

Overall Asking Rent

2011Q12012Q1

2011Q42012Q1


QUARTERLY CHANGE IN ASKING RENT AND VACANCY RATE

National occupancy and rental rates experienced significant momentum YOY as the demand for rental properties increased. Core apartment markets of NY, Boston, LA and DC are significantly above national rent and occupancy levels. Secondary markets Phoenix, Houston and Atlanta experienced large movements in occupancy, but are all below national levels.

Although it seems that occupancy is at its maximum levels, QOQ levels increased, although by a small margin. All markets experienced QOQ increases in momentum, although Boston rents slipped 0.4%.

MONTHLY EFFECTIVE RENT VS. OCCUPANCY RATETOP US APARTMENT MARKETS

•National occupancy and rental rates experienced significant momentum YOY as the demand for rental properties increased. Core apartment markets of NY, Boston, LA and DC are significantly above national rent and occupancy levels. Secondary markets Phoenix, Houston and Atlanta experienced large movements in occupancy, but are all below national levels.

•Although it seems that occupancy is at its maximum levels, QOQ levels increased, although by a small margin. All markets experienced QOQ increases in momentum, although Boston rents slipped 0.4%.


US IN

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U S I N V E S T M E N T M A R K E T O V E R V I E W | 1 5C U S H M A N & W A K E F I E L D

1


Investment Sales Volumes

$64 $78 $100$159

$228 $253 $244

$110$45

$96$148

$30

$17$23

$25

$60

$76$81

$149

$35

$10

$29

$46

$14

$3

$11 $32

$116

$27.6

$9

$0

$100

$200

$300

$400

$500

$600

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Q1

$ B

illio

ns

Individual Asset Sales Portfolio (Non-privatization) Privatizations

Closed deals $5M+, including partial interest and entity level sales. Not including dev sites.

Sales volume for the first quarter 2012 totaled $44.2B, 41% higher YOY.

Portfolio sales comprised 1/3 of total sales volume.

C&W’s outlook forecasts total 2012 sales to increase 25% YOY.

INVESTMENT SALES VOLUMES

• Sales volume for the first quarter 2012 totaled $44.2B, 41% higher YOY.

• Portfolio sales comprised 1/3 of total sales volume.

•C&W’s outlook forecasts total 2012 sales to increase 25% YOY.




6US Capitalization Rates by Core Property Type


7.6%

6.5%

7.2%

5.8%

5.6%

7.4%

6.2%

6.4%

5.9%

5.8%

2% 3% 4% 5% 6% 7% 8% 9%

Industrial

Hotel

Retail

Apartment

Office

Weighted Average Capitalization Rate2012Q1

2011Q4

2011Q3

2011Q2

2011Q1

AVERAGE BY QUARTER, 2011Q1-2012Q1

Closed deals $5M+, does not include partial interest sales.

7.8%

6.8%

7.6%

6.3%

7.0%

7.8%

7.6%

7.3%

6.5%

7.1%

2% 3% 4% 5% 6% 7% 8% 9%

Industrial

Hotel

Retail

Apartment

Office

Un-Weighted Average Capitalization Rate2012Q1

2011Q4

2011Q3

2011Q2

2011Q1

US CAPITALIZATION RATES BY CORE PROPERTY TYPEAVERAGE BY QUARTER, 2011Q1-2012Q1

Closed deals $5M+, does not include partial interest sales.



9

Source: NCREIF, Cushman & Wakefield Capital Markets Group

Strong Equity Capital Flows

Over a 1 and 10-year investment period, real estate outperformed both the bond and stock markets, driving more capital into real estate investments.

-5% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

1-year

3-year

5-year

10-year

Annualized Returns

NAREIT Equity REIT Index NCREIF Property Index Barclays Capital Government Bond S&P 500 Index

ALTERNATIVE INVESTMENT RETURNS AS OF 2012Q1STRONG EQUITY CAPITAL FLOWSALTERNATIVE INVESTMENT RETURNS AS OF 2012Q1

Over a 1 and 10-year investment period, real estate outperformed both the bond and stock markets, driving more capital into real estate investments.



10Private Equity Annual Returns by Property Type

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Rol

ling

4-qu

arte

r Ret

urn

Apartment Hotel Industrial CBD Office Suburban Office Retail


1982-2012Q1PRIVATE EQUITY ANNUAL RETURNS BY PROPERTY TYPE1982-2012Q1



11Cap Rate Spreads to 10-year Treasuries

Source: NCREIF, Moody’s Economy.com, Cushman & Wakefield Capital Markets Group

1983-2012Q1

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Current Value Cap Rate 10-yr Treasury Yield Spread

CAP RATE SPREADS TO 10-YEAR TREASURIES1983-2012Q1

Source: NCREIF, Moody’s Economy.com, Cushman & Wakefield Capital Markets Group


2


$0

$10

$20

$30

$40

$50

$60

$70

2011Q1 2011Q2 2011Q3 2011Q4 2012Q1

Sale

s Vo

lum

e (in

$bi

llion

s)

Office Apartment Retail Hotel Industrial All Property Types

Quarterly Investment Volume, 2011-2012Q1


Sales of office properties totaled $13.7B in the first quarter of 2012, a 33% increase over the first quarter 2011.

Apartment sales increased 31% YOY with total sales volume of $10.8B.

Retail sales doubled in the first quarter 2012 from their previous year level to $11.4B.

Sales of industrial properties totaled $4.7B in the first quarter of 2012, 36% increase over the first quarter 2011.

Hotel sales decreased 3% YOY to $3.5B

QUARTERLY INVESTMENT VOLUME, 20112012Q1

• Sales of office properties totaled $13.7B in the first quarter of 2012, a 33% increase over the first quarter 2011.

•Apartment sales increased 31% YOY with total sales volume of $10.8B.

•Retail sales doubled in the first quarter 2012 from their previous year level to $11.4B.

• Sales of industrial properties totaled $4.7B in the first quarter of 2012, 36% increase over the first quarter 2011.

•Hotel sales decreased 3% YOY to $3.5B



3US Annual Sales Volumes by Core Property Type

$30.2

$19.0

$38.1

$49.7

$61.3

$4.7

$3.5

$11.4

$10.8

$13.8

$0 $25 $50 $75 $100 $125 $150 $175 $200 $225

Industrial

Hotel

Retail

Apartment

Office

Dollar Volume (billions)

2012Q1 2011 2010 2009 2008 2007 2006 2005 2004


2004-2012Q1, $BILLIONS

Closed deals $5M+, including partial interest and entity level sales..

Sales volume across all property types increased YOY with the exception of hotel.

US ANNUAL SALES VOLUMES BY CORE PROPERTY TYPE2004-2012Q1, $BILLIONS

• Sales volume across all property types increased YOY with the exception of hotel.

Closed deals $5M+, including partial interest and entity level sales..



• Sales volume for the first quarter 2012 totaled $44.2B, up 41% on a year over year basis.•Global geopolitical and economic uncertainty continues making investor cautious despite abundant debt and equity

capital allocated to the sector.• Investors are refocusing on top markets and assets and pursuing select secondary markets and assets with durable

cash flows.•Rent growth is under close scrutiny in all cases. Many markets have rent growth which starts at 0% the first year,

thus deferring previously underwritten rent growth by 12-18 months.• Exit cap rates are experiencing upward pressure.•Major office markets continued to dominate in the first quarter of 2012, with the top six markets (Manhattan,

Boston, Chicago, Washington DC ,San Francisco and Los Angeles) accounting for approximately 51% of total office sales volume.

•Cap rates compressed further for top assets in top markets due to low interest rate levels, but are flattening. There is potential for some cap rate compression in late 2012 in secondary markets where renewed CMBS lending should increase activity.

2ND HALF 2012 OUTLOOK•Continued RE market bifurcation, with prices on core assets in secondary markets firming in the second half of 2012.•An uptick in recapitalizations and distressed asset sales 2012-2014.•Higher risk RE strategies to become more popular year end.

REAL ESTATE MARKET THEMES & TRENDS

US D

EBT O

VERV

IEW

U S D E B T O V E R V I E W | 2 4C U S H M A N & W A K E F I E L D

1

Commercial/Multifamily Mortgage BankersOrigination Index

Source: Mortgage Bankers Association

68

11098

145

100

137 144

188

109

172 172

207

153

215

283

318

205

253 258

328

280

352

247

275

132 130116

5440

60 53 6145

61 70

114

83

126138 129

113

0

50

100

150

200

250

300

350

400

2002

Q1

2002

Q2

2002

Q3

2002

Q4

2003

Q1

2003

Q2

2003

Q3

2003

Q4

2004

Q1

2004

Q2

2004

Q3

2004

Q4

2005

Q1

2005

Q2

2005

Q3

2005

Q4

2006

Q1

2006

Q2

2006

Q3

2006

Q4

2007

Q1

2007

Q2

2007

Q3

2007

Q4

2008

Q1

2008

Q2

2008

Q3

2008

Q4

2009

Q1

2009

Q2

2009

Q3

2009

Q4

2010

Q1

2010

Q2

2010

Q3

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

2001 quarterly average=100

COMMERCIAL/MULTIFAMILY MORTGAGE BANKERSORIGINATION INDEX



2

Commercial/Multifamily Mortgage BankersOrigination Forecast


COMMERCIAL/MULTIFAMILY MORTGAGE BANKERSORIGINATION FORECAST



5Commercial Real Estate Maturities

Source: Trepp

BY INVESTOR TYPE

Commercial Real Estate Maturities Set to Peak in 2013

0

50

100

150

200

250

300

350

400

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

$Bill

ions

Banks CMBS Life Cos Other

COMMERCIAL REAL ESTATE MATURITIESBY INVESTOR TYPE

Commercial Real Estate Maturities Set to Peak in 2013

Source: Trepp

BRETT POLACHEKDirectorMultifamily Advisory Group | Capital MarketsCushman & Wakefield of Arizona, Inc.2555 East Camelback RoadSuite 300Phoenix, Arizona [email protected] (602) 229-5989

JIM CREWSSenior DirectorMultifamily Advisory Group | Capital MarketsCushman & Wakefield of Arizona, Inc.2555 East Camelback RoadSuite 300Phoenix, Arizona [email protected] (602) 229-5992

TARA LEWISAssociateMultifamily Advisory Group | Capital MarketsCushman & Wakefield of Arizona, Inc.2555 East Camelback RoadSuite 300Phoenix, Arizona [email protected] (602) 229-5921

Documents

MULTIFAMILY MARKET OVERVIEW | JULY · PDF fileCUSHMAN & WAKEFIELD US MULTIFAMILY MARKET OVERVIEW | 3 1 Housing Trends Source: ... including partial interest and entity level sales