© 2013, CBRE, Inc.

U.S. Multi-Housing MarketView

CBRE Global Research and Consulting Q3 2013

NATIONAL MARKET FUNDAMENTALS STABLEU.S. multi-housing market fundamen-tals remained stable in Q3 2013 with the national vacancy rate inching up 10 basis points from a year ago to 4.6%. Over the past four quarters, more than 172,000 units have been absorbed,1 reflecting 1.2% annual growth in apartment demand.

Multi-housing demand has gained real traction in 2013, especially in coastal technology hubs and the Texas energy markets. Top performers over the past four quarters included Houston, Dallas, Seattle, Atlanta, Washington, D.C., Austin, Denver, Raleigh, Portland, San Jose, Los Angeles and Boston, which each ranked among the top 15 markets in the U.S. in terms of net absorption of multi-housing units over the past 12 months. Demand for multi-housing space is closely aligned with employ-ment growth, and the high-tech and

energy sectors have been major drivers of job creation in the lackluster U.S. labor market. Going forward, CBRE Econometric Advisors expects this theme to continue with emerging tech clusters such as Austin, Fort Worth and Salt Lake City expected to lead employ-ment growth in the U.S. over the next two years.

Construction completions were the main culprit for the modest bump in vacancy. More than 194,000 units were delivered during the past 12 months ending in September, and the outlook for development appears to be accelerating—over the next four quarters, another 252,000 units are in the pipeline for completion, but the new supply should be aligned with real economic expansion in the overall economy. The underlying fundamentals of the U.S. economy—private consumption, in particular—have remained strong and households

MULTI-HOUSING DEMAND ACCELERATES IN TECH AND ENERGY HUBS

Executive Summary

• The U.S. multi-housing sector remained stable in Q3 2013 with the national vacancy rate edging up 10 basis points from a year ago to 4.6%.

• Multi-housing demand has gained traction in technology hubs such as San Jose and Seattle, as well as energy markets such as Dallas, Denver and Houston.

• Construction is expected to pick up over the next four quarters with 252,000 units in the pipeline.

• While inflation-adjusted rents in urban submarkets stood above previous peak levels of Q2 2009, rent growth could begin to moderate in the coming months.

• Year-to-date debt origination has increased due, in large part, to the reemergence of regional and national banks and CMBS conduits, which added some liquidity to all commercial real estate property sectors.

NET ABSORPTION† 172,085 Units

VACANCY RATE4.6%

RENTABLE COMPLETIONS† 194,056 Units

Y-o-Y RENT CHANGE2.6%

*Arrows indicate change from previous year. † Total last four quarters

1 Top 50 U.S. markets

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have successfully deleveraged and improved their balance sheets. Political headwinds (the October government shutdown and debt ceiling crisis)—albeit temporary—have negatively impacted the economic outlook for 2013 in the U.S. with consensus forecasts near 1.5% of real GDP growth. However, the long-term outlook for the U.S. economy is bright and economic growth is expected to accelerate heading into 2014.

Multi-housing rent levels have remained bifurcated between urban and suburban submarkets. Real (inflation-adjusted) rents in urban submarkets have surpassed

previous peak levels of Q2 2009 (Figure 2). On the other end of the spectrum, real (inflation-adjusted) rents in suburban submarkets were 2.7% below the peak of Q3 2007. The baseline forecast from CBRE Econometric Advisors projects suburban multi-housing rents reaching peak levels in 2016. Given the significant acceleration of rent growth in urban submarkets since its 2010 trough, it is possible that a number of urban submarkets could experience a slowdown in rent growth in the near future. Displayed in Figure 3, CBRE Econometric Advisors expects rent growth in the next 2-3 years as income growth appears to be reverting to more normal levels.

DEMAND FOR MULTI-HOUSING SPACE IS CLOSELY ALIGNED WITH EMPLOYMENT GROWTH; THE HIGH-TECH AND ENERGY SECTORS HAVE BEEN MAJOR DRIVERS OF JOB CREATION.

Source: MPF Research, CBRE Econometric Advisors, Q3 2013.

Source: MPF Research, CBRE Econometric Advisors, Q3 2013.

Figure 1: Demand And Construction Activity Gaining Momentum; Fundamentals Expected To Remain Stable Going Forward

Figure 2: Inflation-Adjusted Rents In Urban Centers Above Pre-Recession Peak; Suburban Markets Still 2.7% Below Peak

0%

1%

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5%

8%

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-200

-100

0

100

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2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Units (000’s) Vacancy Rate, %

FORECAST

Suburban (L) Urban (L) Vacancy Rate % (R)

902005 2006 2007 20092008 2010 2012 20132011

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92

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Suburban Pre-Recession PeakUrban

U.S. Multi-Housing Supply & Demand Outlook

U.S. Urban vs. Suburban Real Rent

Source: MPF Research, CBRE Econometric Advisors, Q3 2013.

Figure 3: Pace Of Rent Growth Slowing In Both Urban And Suburban Submarkets

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-4%

-2%

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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

YoY Change in Real Rent, 4 Quarter Moving Average

FORECAST

Suburban Urban

U.S. Urban vs. Suburban Rent Outlook

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MULTI-HOUSING CAPITAL MARKETS TRENDS

According to an underwriting criteria survey of CBRE pro-fessionals, buyers valued prime asking rents for Class A assets in Manhattan and South of Market in San Francisco at $5.80 and $5.50 per sq. ft. per month, respectively, in Q3 2013 (Figure 4). Unlevered internal rate of return targets for prime assets across the U.S. varied between 5.75% for high-quality, mid-rise apartment buildings in South of Market in San Francisco, to as high as 8% for a high-rise asset in downtown Denver. Buyer underwriting criteria for prime assets in the Montrose/Museum District in Houston assumed the highest exit cap rate of all surveyed prime markets (6% during a holding period of 2-4 years) with strong rent growth underwriting of 6% and 5%, respectively, in the first two fiscal years beginning Q3 2013. Among the top five major U.S. markets, Houston was the top performer for institutional investors in Q3 2013 in both income and appreciation returns (Figure 5), which was particularly noteworthy given that overall pricing for multi-housing assets has approached 2007 peak levels.2

According to Real Capital Analytics, U.S. apartment transaction volume totaled more than $22 billion in Q3

Market Submarket

Multi-Housing Subtype

Q3 2013 Prime Gross Asking Rent ($/SF/PM)

Future Rent Growth

Underwriting, FY 1(%)

Future Rent Growth

Underwriting, FY 2(%)

Future Rent Growth

Underwriting, FY 3(%)

Unlevered IRR Target

(%)

Going-in Cap Rate

(%)

Exit Cap Rate(%)

HoldingPeriod(Years)

New York Manhattan High Rise 5.80 4.0 4.0 4.0 7.0 4.0 4.5 10

San Francisco South of Market Mid Rise 5.50 5.0 5.0 5.0 5.8 3.8 4.8 10

Washington, D.C. West End High Rise 4.54 2.5 3.0 3.0 6.3 4.5 4.8 7

Boston Downtown High Rise 4.28 5.0 4.0 3.0 6.5 4.3 5.0 7-10

Chicago River North High Rise 3.35 3.5 3.5 3.5 6.5 4.8 5.5 7

Seattle Downtown Mid Rise 3.00 4.0 4.0 4.0 6.0 4.0 5.0 10

Los Angeles West Los Angeles Mid Rise 2.90 5.0 5.0 5.0 7.0-8.0 4.5 5.3 5-7

Austin Downtown High Rise 2.90 4.0 4.0 4.0 6.0 4.3 5.0 10

Houston Montrose/Museum District High Rise 2.58 6.0 5.0 4.0 6.0-8.0 5.0 6.0 2-4

Miami Downtown/Brickell High Rise 2.50 3.0 3.0 3.0 7.0-7.3 4.0-4.5 5.0-5.3 5-7

Denver Downtown High Rise 2.50 2.0 3.0 4.0 8.0 4.8 5.5 7

Dallas Intown Dallas High Rise 2.50 4.0 4.0 4.0 6.5-7.0 4.3-4.5 4.8-5.0 7

Atlanta Midtown High Rise 2.20 4.0 4.0 4.0 7.2 5.0 5.5 7

Phoenix Camelback Mid Rise 2.00 3.0 3.0 3.0 7.0-7.5 4.8 5.3-5.5 10

Figure 4: Buyer Valuation Underwriting Survey

Prime/Class-A Multi-Housing Assets

Note: The prime statistics displayed above are an estimate of current buyer underwriting assumptions for the highest quality assets in the best locations of a particular market. The quoted prime rents reflect the level at which top-tier relevent transactions are being completed. Estimates are based on the expert opinion of CBRE brokers in these markets.

Source: CBRE Research, Q3 2013.

2 Moody’s/Real Capital Analytics CPPI, Q3 2013.

Note: All returns are reported on an unlevered basis.Source: NCREIF, Q3 2013.

Figure 5: Benchmarking Institutional Apartment

Returns Across Major Markets

1-Year Annualized Apartment Returns (Unlevered)

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Houston Los Angeles Chicago New York Washington, D.C.

Appreciation Return Income Return Total Return

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2013, which was down significantly on a year-over-year basis. This was largely due to a number of major portfolio deals that transacted in Q3 2012 as individual property sales were nearly even on a year-over-year basis, and the quarter’s sales volume was well above the longer-term historic average (Figure 6). In terms of segments, garden apartment sales volume was particularly robust during the quarter.

Year-to-date debt originations has increased due, in particular, to the reemergence of regional and national banks and CMBS conduits, which has added some liquidity to all commercial real estate property sectors. Nevertheless, lender composition is shifting (Figure 7). Government-mandated reductions for agency lenders Fannie Mae and Freddie Mac have changed the lending mix, but regional and national banks, finance and life insurance companies and CMBS conduits have all increased lending activity.

MARKET SPOTLIGHT: DEVELOPMENT PIPELINE IN DOWNTOWN SAN FRANCISCO Since the recession, San Francisco has emerged as a major competitor to Silicon Valley for where tech companies choose to locate in the Bay Area. Between 2010 and 2012, high-tech industry employment expanded by more than 60% in San Francisco as tech firms have migrated to San Francisco to lure and retain talent, especially the echo boomer generation, which has a propensity to rent in urban centers.

During the same period of rapid tech employment growth, multi-housing rents increased by more than 20% at the overall market level. Aside from demand pressures, San Francisco was supply-constrained during 2010 and 2011, with less than 1,000 total rentable units delivered during the two-year period. However, as of Q3 2013, nearly 3,700 rentable apartment units were under construction in downtown San Francisco (Figure 9), which should slow the pace of rent growth that San Francisco has experienced since 2010.

Source: Real Capital Analytics, Q3 2013.

Figure 6: Investment Sales Growth Slowing, But Volume Remains High

5.6%

5.8%

6.2%

6.0%

6.4%

6.6%

7.2%

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2005 2006 2007 2008 2009 2008 2010 2011 2012 2013

Cap RateTransaction Volume, in Billions

FORECAST

$-

$5

$15

$10

$20

$25

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$35

$30

Mid/High-Rise Garden Average U.S. Apartment Cap Rate

0%2009 2010 2011 2012 H1 2013

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100%1%

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2%

86%

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15%

1%8%

76%

1%

16%

4%

11%

67%

1%

17%

7%

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65%

2%

21%

8%

14%

54%

Agency Bank Finance & Insurance CMBS Other

Source: Real Capital Analytics, Q3 2013.

U.S. Apartment Sales Transaction Trends

Figure 7: CMBS And Bank Lending Gains Share Of Lender Composition In 2013

Apartment Lender Composition

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CBRE Econometric Advisors and MPF Research, Q3 2013.

Figure 8: Q3 2013 Top 50 Markets Overall Multi-Housing Fundamentals

Net Absorption,Inventory Vacancy Rate Last 4 Quarters Rent per Unit Y-o-Y Rent

Rank Market Vacancy Rate (%) Y-o-Y Change (bps)* (Units) ($) Change (%)1 New York 5.2 40 3,835 2,498 2.02 Los Angeles 3.6 30 4,536 1,717 2.93 Chicago 3.9 10 3,306 1,240 2.74 Houston 5.9 -80 16,298 901 4.45 Washington, D.C. 4.4 40 8,091 1,553 1.16 Dallas 4.9 -80 15,379 882 2.97 Boston 3.2 0 4,461 1,708 3.08 Atlanta 6.7 -90 8,282 855 2.09 Phoenix 6.9 20 1,992 768 2.310 Seattle 3.7 -70 10,086 1,169 5.111 San Diego 3.1 0 3,182 1,465 2.712 Philadelphia 4.7 10 3,277 1,148 1.613 Denver 3.2 -40 7,138 1,057 6.014 Miami 2.8 -30 2,953 1,194 3.215 Detroit 4.3 20 -242 812 2.216 Minneapolis 2.2 0 3,864 1,011 2.217 Orange County 4.2 10 2,958 1,643 3.318 San Francisco 3.6 20 3,080 2,510 7.219 Tampa 5.4 -30 3,879 891 1.920 Oakland 2.6 0 2,389 1,641 7.121 Austin 4.2 10 8,043 1,001 4.322 Baltimore 4.4 0 2,950 1,199 2.323 Orlando 4.3 -70 5,098 917 2.224 Las Vegas 7.6 -10 1,104 737 -1.025 Riverside 4.9 -40 2,188 1,106 1.526 Portland 2.8 -80 4,738 990 4.627 Fort Lauderdale 4.2 10 1,383 1,232 2.228 Fort Worth 5.9 -20 3,096 767 3.029 Cleveland 4.2 140 -1,844 800 2.230 San Antonio 5.9 70 2,125 809 2.731 Newark 3.4 40 1,003 1,331 2.132 Cincinnati 4.3 60 -271 774 2.233 San Jose 2.8 20 4,636 2,075 6.034 Sacramento 4.1 -100 1,985 979 1.135 Columbus 4.1 110 1,954 753 2.936 Indianapolis 7.2 80 -17 727 1.737 St. Louis 6.7 120 -819 788 2.038 Pittsburgh 3.1 150 -1,702 1,028 2.439 Kansas City 5.7 40 583 765 2.740 Charlotte 4.2 60 3,421 868 3.141 Nashville 3.9 -20 2,282 902 3.742 Raleigh 4.5 -50 5,488 906 2.943 Edison 2.9 0 1,772 1,279 2.744 Norfolk 5.6 0 2,883 946 0.345 Providence 3.3 -50 484 1,196 1.646 West Palm Beach 4.7 -80 3,218 1,196 3.847 Jacksonville 6.8 -80 3,339 819 2.048 Memphis 7.7 20 910 743 1.049 Hartford 3.8 60 -108 1,120 0.750 Salt Lake City 4.6 160 247 833 2.0

National 4.6 10 172,085 1,454 2.6

Figure 9: Downtown San Francisco Residential Development Pipeline

Recently Completed, 50+ UnitsBuilding Address – Name Completion Developer/Owner Units

1 1190 Mission St - Trinity Plaza II Q3 2013 Trinity Properties 4172 333 Harrison St - Rincon Green Q1 2013 Emerald Fund 3083 277 Golden Gate Q3 2013 Dolmen Property Group 88

Total 813Under Construction, 50+ Units

Building Address – Name Completion Developer/Owner Units4 Mission Bay - Block 2 Q4 2013 UDR 3155 Mission Bay - Block 3 West Q3 2013 SummerHill 1476 333 Fremont St Q4 2013 City-Core Development, Inc. 73

2013 Subtotal 5357 1411 Market St - Nema Q1 2014 Crescent Heights 7198 401 Harrison - One Rincon - Phase II Q3 2014 Principal Global Investors 2929 260 5th St Q1 2014 Essex Property Trust, Inc. 26910 55 9th St Q3 2014 Avalon Bay 26011 900 Folsom St Q1 2014 Essex Property Trust, Inc. 17912 973 Market St Q1 2014 Raintree Partners 6713 527-529 Stevenson St 2014 Henry Wong 67

2014 Subtotal 1,85314 100 Van Ness Ave Q1 2015 Emerald Fund 40015 45 Lansing St Q3 2015 Crescent Heights 32016 Mission Bay Block 13W Q1 2015 Equity Residential 26817 Mission Bay - Block 5 Q3 2015 BRE Properties 19818 1415 Mission St Approved Martin Building Company 117

2015 Subtotal 1,303Total 3,691

Pending Construction, 50+ UnitsBuilding Address – Name Completion Developer/Owner Units

19 33 8th St - Trinity Plaza III Approved Trinity Properties 57020 1400 7th St - Daggett Place Approved Equity Residential 47021 399 Fremont Approved UDR 45222 350 8th St Approved Avalon Bay 40823 340-350 Fremont St Approved Jackson Pacific/AvalonBay 38424 1171 Mission St - Trinity Plaza IV Approved Trinity Properties 33025 1390 Market St - Fox Plaza Approved Essex Property Trust, Inc. 25026 55 Division St Approved Equity Residential 21527 Mission Bay - Block 11 Approved BRE Properties 17028 Mission Bay - Parcel 6 Approved Strada Investment Company 13529 325 Fremont St Approved Crescent Heights 11930 Mission Bay - Block 4E Approved SFCC Real Estate Company 9431 Essex Hotel Site Approved SFCC Real Estate Company 8432 72 Townsend St Approved KB Home 74

Total 3,755

Source: CBRE Research, Q3 2013.

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© 2013, CBRE, Inc.

GLOBAL RESEARCH AND CONSULTINGThis report was prepared by the CBRE U.S. Research Team which forms part of CBRE Global Research and Consulting – an integrated community of preeminent researchers and consultants who provide real estate market research, econometric forecasting, and corporate and public sector strategies to investors and occupiers around the globe.

Additional U.S. research produced by Global Research and Consulting can be found at www.cbre.us/research.

DISCLAIMER Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of the CBRE Global Chief Economist.

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CONTACTSFor more information about this U.S. Multi-Housing MarketView, please contact:

Peter Donovan Senior Managing Director CBRE Capital Markets Multi-Housing Group t: +1 617 217 6035 e: peter.donovan@cbre.com

Brian McAuliffe Senior Managing Director CBRE Capital Markets Multi-Housing Group t: +1 312 935 1891 e: brian.mcauliffe@cbre.com

Colleen Pentland Lally Director, Capital Markets Operations CBRE Capital Markets Multi-Housing Group t: +1 617 217 6041 e: colleen.pentlandlally@cbre.com

Brook Scott Interim Head of Research, Americas and Head of Occupier Research, Americas CBRE Global Research and Consulting t: +1 415 772 0337 e: brook.scott@cbre.com

Jim Costello Managing Director, Head of Americas Investment, Consulting and Strategy, CBRE Global Research and Consulting t: +1 617 912 5326 e: jim.costello@cbre.com

John Vitou Senior Research Analyst and Multi-Housing Specialist CBRE Global Research and Consulting t: +1 415 772 0238 e: john.vitou@cbre.com Follow John on Twitter: @JohnVitouCRE

Andrea Walker Director Head of Americas Research Publications and Data, CBRE Global Research and Consulting t: +1 919 376 8608 e: andrea.walker@cbre.com

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