WASHINGTON METROPOLITAN AREA CLASS B APARTMENT …

S P O N S O R E D B Y :

WASHINGTON METROPOLITAN AREACLASS B APARTM ENT MARKET REPORT

THIRD QUA R T ER 2012

By Subscription Only

Prepared For Exclusive Use of SubscribersOn September 30, 2012

© Delta Associates, 2012. All rights reserved.You may neither copy nor disseminate this report. If quoted, proper attribution is required.

Delta Associates publishes reports on commercial real estate markets in the following metro areas:Baltimore, Chicago, Dallas/Ft. Worth, Denver, Houston, and Washington, DC.

Please see www.DeltaAssociates.com for more information.

S P O N S O R E D B Y :

WASHINGTON METROPOLITAN AREACLASS B APARTM ENT MARKET REPORT

THIRD QUA R T ER 2012

www.DeltaAssociates.com

WASHINGTON METROPOLITAN AREA CLASS B APARTMENT MARKET REPORT | THIRD QUARTER 2012

1. STATE OF THE NATIONAL AND REGIONAL ECONOMIES The National Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 The Washington Area Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

2. STATE OF THE WASHINGTON METROPOLITAN AREA CLASS B APARTMENT MARKET A Snapshot of the Class B Apartment Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24. State of the Washington Metropolitan Area Class B Apartment Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Online Marketing Basics for Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

3. WASHINGTON STATISTICAL REPORT Table 1: Estimated Effective Rent and Stabilized Vacancy Rate for Washington Metro . . . . . . . . . . . . . . . . . . . . . . . 35

LOW-RISE MARKET INDICATORS

Table 2: Washington Metro Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36. Table 3: Northern Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37. Table 4.: Suburban Maryland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38. Table 5: Prince George’s County, MD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

MID- & HIGH-RISE MARKET INDICATORS

Table 6: Washington Metro Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40. Table 7: Northern Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41. Table 8: Suburban Maryland and District of Columbia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

4. RENOVATION REPORT Table 9: Summary of Major Class B Apartment Renovations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5

5. TRANSACTION REPORT Table 10: 2011 Apartment Building Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Table 11: 2012 Apartment Building Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

6. EXPLANATION OF GEOGRAPHIC COVERAGE AND METHODOLOGY Class B Apartments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Apartment Submarket Maps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1

Photography Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2

TABLE OF CONTENTS


MULTIFAMILY PRACTICE TEAM

CONDOMINIUM PRACTICE:

Senior Vice President, Condominium Practice Leader William E. L. Rich 7.03-535-354.5Senior Associate Steven Reilly

APARTMENT PRACTICE:

Senior Vice President, Apartment Practice Leader A. Grant Montgomery 7.03-535-354.2Senior Vice President Alyson Bode Senior Associate Maeve GallagherSenior Associate Steven Reilly

EDITOR AND CHIEF EXECUTIVE: Gregory H. Leisch, CRE 7.03-8.36.-57.00

OF COUNSEL, ECONOMICS: Dr. Stephen S. Fuller 7.03-993-318.6.

Although the information contained herein is based on sources which Delta Associates (DA) and Transwestern (TW) believe to be reliable, DA and TW make no representation or warranty that such information is accurate or complete. All prices, yields, analyses, computations, and opinions expressed are subject to change without notice. Under no circumstances should any such information be considered representations or warranties of DA or TW of any kind. Any such information may be based on assumptions which may or may not be accurate, and any such assumption may differ from actual results. This report should not be considered investment advice.

MID-ATLANTIC MULTIFAMILY TEAM

MULTIFAMILY SALES:

Senior Vice President, Director Dean Sigmon 301-8.96.-908.9Senior Vice President, Director Robin Williams 301-8.96.-907.0Senior Associate Justin Shay 301-8.96.-908.2

MID-ATLANTIC LEADERSHIP:

President Eric Mockler 202-7.7.5-7.020Senior Vice President David Popp 301-8.96.-904.8.Managing Senior Vice President Ray Hite 301-8.96.-9023

TEAM


MID-ATLANTIC CLASS A APARTMENT MARKET REPORT Market Coverage: Washington Metro, Baltimore Metro, Philadelphia Metro

A comprehensive report on apartment market conditions, focusing on the following indicators:

• Analysis of the national and regional economies • Regional condo market summary • Key market statistics for 47 submarkets and

regional totals for: • Current rents and rent change • Vacancy • Concessions

• For the Washington and Baltimore Metros additional data include:

• Pipeline of planned projects and those under construction • Class A multifamily building and land sales

Additional indicators analyzed in the First Quarter and Mid-Year reports:

• First Quarter Report: Market-maker survey on capitalization rates, hard & soft development costs, investment posture, thoughts on the economy, and more.

• Mid-Year Report: Comparison of median revenue, expense, and net operating income data for the USA and Washington MSA.

WASHINGTON METROPOLITAN AREA CLASS B APARTMENT MARKET REPORT

A comprehensive report on apartment market conditions, focusing on the following indicators:

• Analysis of the national and regional economies • Key market statistics for 30 submarkets and regional

totals for: • Current rents and rent change • Vacancy

• Concessions • Renovation information including budget and timetable • Class B apartment building sales

Additional indicators analyzed in the Year-End report:

• Year-End Report: Market-maker survey on capitalization rates, investment posture, thoughts on the economy, and more.

WASHINGTON/BALTIMORE CONDOMINIUM MARKET REPORTMarket Coverage: Washington Metro and Baltimore Metro

A comprehensive report on condominium market conditions, focusing on the following indicators:

• Analysis of the national & regional economies • Regional apartment market summary • Key market statistics for 12 submarkets and regional totals

for: • Sales trends for new and resale condos • Historic condo price changes • Pipeline trends

• Additional data include: • Absorption pace • Multifamily building and land sales

Additional indicators analyzed in the Mid-Year and Year-End reports:

• Mid-Year Report: Comparison of median condo expenses in the USA and Mid-Atlantic region

• Year-End Report: Market-maker survey on capitalization rates, investment posture, thoughts on the economy, and more.

MULTIFAMILY MARKET

QUARTERLY REPORTS AVAILABLE

• Market-maker survey on capitalization rates, investment posture, thoughts on the economy, and more

COMMERCIAL MARKET

WASHINGTON/BALTIMORE OFFICE MARKET REPORTMarket Coverage: Washington Metro and Baltimore Metro

A comprehensive quarterly report on office market conditions, focusing on the following indicators:

• Analysis of the national and regional economies • Metro-level and substate area (Northern Virginia, Suburban

Maryland, District of Columbia) office market summaries • Key market statistics (All Space and Class A Space) for 4.9

submarkets and regional totals for: • Inventory • Net absorption • Vacancy • Construction/renovation

• Additional data include: • Supply/demand analysis • Rental rate and tenant improvement data • Gross leasing activity • Deliveries • Building and land sales • Investment returns • Cap rate trends

Additional indicators analyzed in the Year-End report:

• Market-maker survey on capitalization rates, hard & soft development costs, investment posture, thoughts on the economy, and more

• Development economics • Operating expenses

Special supplements to the report have included:

• Analysis of Federal bailout/stimulus spending • Impact of stimulus spending on office leasing • Office rent equilibrium zone study

WASHINGTON/BALTIMORE FLEX/INDUSTRIAL REPORTMarket Coverage: Washington Metro and Baltimore Metro; data is separated into flex/R&D, flex/warehouse, and bulk warehouse product types.

A comprehensive semi-annual report on flex/industrial market conditions, focusing on the following indicators:

• Analysis of the national and regional economies • Regional, metro-level and substate area (Northern Virginia,

Suburban Maryland, Suburban Baltimore, Center Cities) flex/industrial market summaries

• Key market statistics (All Space and Newer Space, separated by product type) for 19 submarkets and regional totals for:

• Inventory • Net absorption • Vacancy • Construction/renovation

• Additional data include: • Supply/demand analysis • Rental rate data • Gross leasing activity • Deliveries • Building and land sales

Additional indicators analyzed in the Year-End reports:




Delta Associates’ Outlook reports contain the following information:

• Economic overview of the regional economy including data on job growth, unemployment, core industry performance and job growth projections.

• Office market overview including narrative analysis and data on absorption, vacancy, construction, rents, and investment sales synopses.

• Some reports include analysis of the flex, industrial, and retail markets. See below for details

A sample of each Outlook is available via our website. If you would like to receive each issue via e-mail as it becomes available, please subscribe to the report at Delta’s website.

PUBLICATIONS

• Chicago Metro Office and Industrial Outlooks • Dallas/Ft. Worth Metroplex Office and Industrial Outlook • Denver Metro Office and Flex Outlook • Houston Metro Office, Retail, and Industrial Outlook • Washington Metro Housing Outlook • Washington Metro Retail Outlook

OUTLOOKS


WITH DELTA ASSOCIATESCOAST TO COAST

Market Studies | Repositioning Evaluations | Litigation Support

DELTA ASSOCIATESIs a firm of experienced professionals offering consulting, valuation, and data services to the commercial real estate industry for over 30 years. The firm’s practice is organized in four related areas:

CONSULTING, RESEARCH AND ADVISORY SERVICESFor commercial real estate projects, including market studies (FHA/HUD compliant), market entry strategies, asset performance enhancement studies, pre-acquisition due diligence, and financial and fiscal impact analyses.

LITIGATION SUPPORTServices include dispute resolution, from forensic fact finding to mediation and expert witness services. Damages, material adverse change, and contract disputes are specialties.

VALUATIONOf partial interests in commercial real estate assets.

SUBSCRIPTION DATAFor select metro regions for office, industrial, retail, condominium, and apartment markets.

www.DeltaAssociates.com | P: 703.836.5700 | F: 703.836.5765500 Montgomery St., Ste. 600 | Alexandria, Virginia 22314

CONSULTING AND ADVISORY SERVICESGregory H. Leisch, CRE Chief ExecutiveP: 703.836.5700 | F: [email protected]

MARKET PUBLICATIONS GROUPAlexander (Sandy) Paul, CRE National Research DirectorP: 703.299.6373 | F: [email protected]

Real value.Real results.

www.transwestern.net

AGENCY LEASING � PROPERTY AND FACILITY MANAGEMENT � INVESTMENT SERVICES � TENANT ADVISORY � DEVELOPMENT � RESEARCH

Over 70 years of experience in all phases of commercial real estate allows TRANSWESTERN

MID-ATLANTIC to carefully evaluate alternatives and customize solutions for our clients. Our long and successful track record of maximizing value during

challenging conditions has benefi ted a broad array of clients.

With an ownership mentality to repositioning assets, we employ multi-disciplinary teams of local market experts supported by national resources that help you succeed. TRANSWESTERN’s proven leadership and cycle-tested experience deliver real value and real results.

CONTACT:

ERIC MOCKLER President, Mid-Atlantic Region 1700 K Street, NW, Suite 660Washington, DC 20006 202.775.7020

Delta Multifamily Report color indd 1 2010 04 01 12:17

www.transwestern.net

Call Scott Ross301-657-8899

TheRossCompanies.com

You can’t measure commitment. Or can you?For us, the Washington metro region has been our home and the one market we’ve served for nearly a quarter of a century. We didn’t just move in when the market got stronger. Or change direction along the way. Everything we do, like multifamily renovation, is backed by years of experience. And, our partners look to us for strengths and insights others simply can’t offer. So, maybe you can’t measure commitment, but you can see it if you look.

www.therosscompanies.com

In over 105 markets nationwide, Greystar’s

5,000 team members working on over 180,000

apartment homes tailor solutions to maximize

asset value for our clients. Greystar lever-

ages local market knowledge and expertise

to deliver turnkey solutions and seamless ex-

ecution for all facets of multifamily property

management,investment, and development.

To learn more about Greystar contact:

Kevin Sheehan, Managing Director — Real Estate • 703.677.9110 • [email protected]

Redefining Excellence in Apartment Living.

G r e y s t a r . c o m

NATIONAL PLATFORM WITH LOCAL EXPERTISE

www.greystar.com

mailto:ksheehan%40greystar.com?subject=


MEDIA

DELTA ASSOCIATES IS FEATURED IN CAPITAL BUSINESS

Delta Associates is featured in Capital Business, a weekly publication of The Washington Post. Read about trends in Washington metro commercial real estate in our regular feature, the “Regional Real Estate Report.” Articles can be found at the websites of both organizations:

www.DeltaAssociates.comwww.washingtonpost.com/capital_business

Delta Associates is regularly quoted in the popular press and the real estate media. For a selection of recent citations, please visit Delta in the News.

DELTA MARKET TRENDS: EACH WEEK IN THE WASHINGTON BUSINESS JOURNAL

See Delta Associates’ weekly feature in the Washington Business Journal. In each issue, the WBJ highlights key statistics and analysis from Delta that bring the local commercial real estate market into perspective.

PRESENTATIONS

MID-ATLANTIC MULTIFAMILY AWARDS

The 16.th annual Mid-Atlantic Multifamily Awards presentation will take place on October 10, 2012. The event will be held at the Mayflower Renaissance Hotel in Washington, DC. Delta’s CEO, Gregory Leisch, will present his Real Estate Market and Economic Overview prior to the awards ceremony. The 2012 Multifamily Awards event is co-sponsored by Transwestern and Greystar. For your invitation, please contact Alyson Bode.

To see the list of award winners, or to download the market overview presentation, please visit the Multifamily Awards page on our website.

RECENT SPEECHES AND PRESENTATIONS GIVEN BY DELTA EXECUTIVES

• Delta Associates/ROSS Companies/Capital Business Q2 2012 Apartment Market Webinar: 7.17.12• Risk Management Association – Annual Real Estate Breakfast: 4.26.12• Delta Associates/ROSS Companies/Capital Business Q1 2012 Apartment Market Webinar: 4.18.12

UPCOMING SPEECHES AND PRESENTATIONS BY DELTA EXECUTIVES

• Mid-Atlantic Multifamily Awards: 10.10.12 • Houston TrendLines®: 11.15.12• Bisnow National Multifamily Conference: 11.19.12• Washington TrendLines®: 2.7..13

WASHINGTON TRENDLINES

The 15th annual Washington TrendLines® event was held on February 9, 2012 at the Ronald Reagan Building and International Trade Center in Washington, DC. TrendLines® is an invitation-only, annual presentation of market conditions with an outlook for investment and development opportunities in the period ahead. Delta’s CEO, Gregory Leisch, offered his assessment of the market prior to the presentation of the annual TrendSetter awards. The event is co-sponsored by PNC Bank, Baker Tilly, and Transwestern. The 16.th annual Washington TrendLines® event will be held on February 7., 2013; to reserve an invitation, please contact Alyson Bode.

The 2012 TrendLines® report and presentation are available via our website. A printed copy of the TrendLines® 2012 Report: Trends in Washington Commercial Real Estate is available for $45. The report includes data and analysis on office, industrial, multifamily, and retail product as well as a detailed forecast on the national and regional economies.

DELTA NEWS


PRESENTATIONS (CONTINUED)

HOUSTON TRENDLINES

The 12th annual Houston TrendLines® event will be held on November 15, 2012 at the River Oaks Country Club in Houston, TX. TrendLines® is an invitation-only, annual presentation of market conditions with an outlook for investment and development opportunities in the period ahead. Delta’s CEO, Gregory Leisch, will offer his assessment of the market. To reserve an invitation, please contact Alyson Bode.

The 2011 TrendLines® report and presentation are available via our website. The report includes data and analysis on office, industrial, multifamily, and retail product as well as a detailed forecast on the national and regional economies.

APARTMENT WEBINAR

On July 17., 2012, Delta Associates hosted its fourth webinar covering the Washington Apartment Market, with information from Delta Associates’ Q2 2012 Class A Apartment Report. The webinar was co-sponsored by the ROSS Companies and Capital Business, a publication of The Washington Post. Delta Associates’ CEO, Gregory Leisch, provided a short regional economic overview followed by a comprehensive review of the Washington Apartment market. A brief question and answer period with Greg Leisch and Scott Ross rounded out the webinar.

For information on how to attend our next apartment market webinar, please contact Alyson Bode.

PUBLICATIONS

WASHINGTON/BALTIMORE AREA SUBMARKET REPORTS

Delta now offers for sale submarket reports on 26 of the most popular office submarkets around the Washington metro area. The reports include data and analysis of the office market in each submarket – vacancy rates, absorption totals, projects under construction, rent data, investment sales, and more. Some submarket reports also include data and analysis on the flex market. For more information, please visit our website or contact Elizabeth Norton.

UNDERSTANDING THE ECONOMY

Delta has created an electronic newsletter called Understanding the Economy on changes in the national economy and their relevance to commercial real estate. This newsletter is available free of charge via e-mail, and the latest issue is released every few months. Please subscribe to the report via our website.

WASHINGTON AREA HOUSING OUTLOOK

Delta has created a quarterly report on the Washington area housing market. This report includes jurisdictional market data and analysis. A sample of the Washington Area Housing Outlook is available via our website. If you would like to receive each issue via e-mail as it becomes available, please subscribe to the report at Delta’s website.

WASHINGTON AREA RETAIL OUTLOOK

The Washington Area Retail Outlook is a quarterly report in which Delta provides a quantitative and qualitative assessment of the Washington area retail market, with a focus on grocery-anchored shopping centers. Information is included on vacancy rates, rents, investment sales, projects of interest, and key trends in the retail market. The report is co-sponsored by The Rappaport Companies, and is available free of charge via e-mail.

The latest issue of this report was released in July 2012. The next issue of the report will be released in October 2012. Please subscribe to the report via our website.

DELTA NEWS


APARTMENT AWARD WINNERS

BEST DISTRICT OF COLUMBIA APARTMENT COMMUNITY

Archstone First + M, Washington, DCArchstoneDavis, Carter, Scott Ltd.

BEST NORTHERN VIRGINIA APARTMENT COMMUNITY

Halstead Square - The Rockwell, Vienna, VADSF GroupThe Bozzuto Group SK&I Architectural Design Group, LLC

BEST SUBURBAN MARYLAND APARTMENT COMMUNITY

The Haven at Odenton Gateway, Odenton, MDJohnson Development AssociatesCharlan Brock & Associates

BEST TRANSIT-ORIENTED DEVELOPMENT – MID-ATLANTIC

Rhode Island Row, Washington, DCUrban Atlantic and A&R Development Corp.The Bozzuto Group Lessard Design, Inc.

BEST ADAPTIVE REUSE DEVELOPMENT – MID-ATLANTIC

Foundry Lofts, Washington, DCForest City WashingtonSK&I Architectural Design Group, LLC

BEST RENOVATION – MID-ATLANTIC

The Milano Apartments, Oxon Hill, MDDragone Realty InvestmentsGreystarThe RKtects Studio, Inc.

BEST BALTIMORE APARTMENT COMMUNITY

Arbors at Baltimore Crossroads, Baltimore, MDSomerset Construction CompanyThe Bozzuto Group KTGY Group

BEST PHILADELPHIA APARTMENT COMMUNITY

Jefferson Pointe at West Chester, West Chester, PAJefferson Apartment GroupThe Preston Partnership


BEST LEASE-UP PACE FOR A DISTRICT OF COLUMBIA APARTMENT COMMUNITY

Residences on the Avenue, Washington, DCBoston PropertiesThe Bozzuto Group

BEST LEASE-UP PACE FOR A NORTHERN VIRGINIA APARTMENT COMMUNITY

Halstead Square - The Rockwell, Vienna, VADSF GroupThe Bozzuto Group

BEST LEASE-UP PACE FOR A SUBURBAN MARYLAND APARTMENT COMMUNITY

The Residences at Arundel Preserve, Hanover, MDSouthern Management

BEST LEASE-UP PACE FOR A BALTIMORE APARTMENT COMMUNITY

Arbors at Baltimore Crossroads, Baltimore, MDSomerset Construction CompanyThe Bozzuto Group

CONDOMINIUM AWARD WINNERS

BEST MID-ATLANTIC CONDOMINIUM COMMUNITY

Gaslight Square, Arlington, VAAbdo DevelopmentMcWilliams | BallardArchitect, Inc.

BEST MID-ATLANTIC BOUTIQUE CONDOMINIUM COMMUNITY

1020 Monroe, Washington, DCMadison InvestmentsUrban PaceJES Architecture and McGovern Design Studio

BEST MID-ATLANTIC CONDOMINIUM CONVERSION

WY18 Condos, Washington, DCUrban Investment PartnersThe Mattison Group at Long & Foster Real Estate, Inc. Bonstra | Haresign ARCHITECTS

HIGHEST SALES PACE FOR A MID-ATLANTIC CONDOMINIUM COMMUNITY

Midtown Alexandria Station, Alexandria, VAKettlerMcWilliams | Ballard

HIGHEST AVERAGE PRICE PER SQUARE FOOT FOR A MID-ATLANTIC CONDOMINIUM COMMUNITY

1706 Rittenhouse Square, Philadelphia, PAScannapieco Development Corporation and Parkway Corporation

APARTMENT AWARD WINNERS (CONTINUED)

STATE OF THE NATIONAL A ND REGIONAL ECONOM IES 1

3WASHINGTON METROPOLITAN AREA CLASS B APARTMENT MARKET REPORT | THIRD QUARTER 2012

SPONSORED BY ROSS COMPANIES

THE NATIONAL ECONOMY

Economic uncertainty remains a persistent drag on overall growth, which has led to below average job gains and consumer spending. This has created a lack of momentum needed to drive the economy into a more robust recovery. In comparison to the past four recessions, the current recovery remains sub-par. Consumers and businesses have had to adjust to a new economic reality of slower growth, which has been plagued recently by potential budget cuts and rising taxes at the start of 2013.

Congress has yet to alter the tax hikes and Federal spending cuts set to take effect in January 2013. If this plan is not altered, the national economy is headed to what has now been coined a “fiscal cliff ” which may trigger another recession. In the meantime, businesses and consumers remain cautious about spending, which has created lackluster economic growth. If the scheduled tax increases and spending cuts go into effect at the start of 2013, the projected Federal deficit will be reduced. However, this improvement comes at a cost to the already sluggish economy. The cost is perhaps another recession and rising unemployment. The Congressional Budget Office projects that if the plan goes into effect as scheduled, the GDP will decline by 2.9% during the first half of 2013 and 0.5% for the entire year. In addition, the unemployment rate would rise to 9.1% during the 2nd half of 2013.

If automatic budget cuts, known as “sequestration,” are avoided the national economy likely would continue to grow, albeit at a slow pace. GDP would rise 1.7.% during 2013 and 2.0 million jobs would be added to economy, which would leave the unemployment rate hovering around 8..0% next year.

THE NATIONAL ECONOMYThird Quarter 2012

UNCERTAINTY PREVAILS, DAMPENING RECOVERY

RECOVERY PATTERNS OF GDP FOLLOWING THE PAST FOUR RECESSIONS United States

Source: Bureau of Economic Analysis, Center for Regional Analysis, Delta Associates; September 2012.

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0 1 2 3 4 5 6 7 8 9 10 11 12

1982-Q31991-Q12001-Q42009-Q2

Cum

ulat

ive

% C

hang

e in

GDP

Quarters After Trough

FEDERAL DEFICIT OUTLOOK United States

Source: Congressional Budget Office, Delta Associates; September 2012.

Fede

ral D

efic

it (b

illio

ns o

f dol

lars

)

-1600

-1400

-1200

-1000

-800

-600

-400

-200

0

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Deficit with Sequestration

Deficit without Sequestration




Given the enormous impact to the national economy, we do not expect Congress to allow sequestration and tax increases to take hold at the start of 2013. Congress could pass a bill to delay the start date after 2013, which would allow time to devise an alternative plan to the scheduled cuts. Or, Congress, after the November election, could pass a bill that alters the current plan, allowing the cuts to take place in 2013, but with less immediate impact.

Overall, current economic conditions point to a sluggish economy – not a stalled economy. Sluggish economic growth is likely the new normal for periods of economic “expansion.” So, business success could be measured by how commerce adapts to this new slower-growth economic environment, at least for the intermediate term.

Now, for a look at the components that make up our economy:

PAYROLL JOBS

The national economy added approximately 1.8. million new jobs during the 12 months ending August 2012, with the private sector adding 2.0 million new jobs compared to the public sector shedding 200,000 positions. Month-to-month gains have been slow to progress, as 96.,000 jobs were added to the economy during the month of August 2012. Job gains have been disappointing compared to past economic recoveries. Approximately 125,000 jobs must be created per month just to keep the unemployment rate steady. Although the economy continues to move forward, it does so at a sub-

SLUGGISH ECONOMIC GROWTH IS LIKELY THE NEW NORMAL FOR PERIODS OF ECONOMIC “EXPANSION.” SO, BUSINESS SUCCESS COULD BE MEASURED BY HOW COMMERCE ADAPTS TO THIS NEW SLOWER-GROWTH ECONOMIC ENVIRONMENT, AT LEAST FOR THE INTERMEDIATE TERM.


ECONOMIC OUTLOOKUnited States

GDP 2013 2022

2.3%

2.1%

5.3%

5.3%

-0.5%

1.7%

9.1%

8.0%

With Sequestration

Without Sequestration

With Sequestration

Without Sequestration

UNEMPLOYMENT RATE

ECONOMIC TRENDS AND FORECAST United States

Source: BLS, BEA, Center for Regional Analysis, Global Insight, Delta Associates; September 2012.

Une

mpl

oym

ent R

ate

and

Annu

alize

d GD

P Ch

ange

Percent Change in GDP Unemployment Rate

Recession Recovery

-10%

-5%

0%

5%

10%

15%

81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

32 months: Recession + Recovery




PAYROLL JOB GROWTH United States | Year-Over-Year

Source: Bureau of Labor Statistics, Delta Associates; September 2012.

-8000

-6000

-4000

-2000

0

2000

4000

Jan.09

Mar.09

May.09

Jul.09

Sep.09

Nov.09

Jan.10

Mar.10

May.10

Jul.10

Sep.10

Nov.10

Jan.11

Mar.11

May.11

Jul.11

Sep.11

Nov.11

Jan.12

Mar.12

May.12

Jul.12

Private Sector

Public Sector

Thou

sand

s of N

ew P

ayro

ll Jo

bs

-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55

1981-1982

1990-1991

2001

2007-2009

Perc

ent C

umul

ativ

e Jo

b Ch

ange

fr

om P

eak

Empl

oym

ent


CUMULATIVE JOB LOSS AFTER PEAK A LOOK AT PAST RECESSIONS United States

Number of Months from Peak Employment




par pace. This sub-par pace will encourage businesses and consumers to alter spending patterns to adjust to this limited growth. We expect muted job growth in the near-term. We expect around 2.0 million jobs to be added to the national economy during 2012 and perhaps slightly more in 2013.

Companies remain cautious in hiring, as they take a wait-and-see approach. And many companies do not need to hire back laid off employees, as productivity gains have eliminated some jobs.

We expect more jobs to be trimmed from the public sector during the balance of 2012, as governments cut their workforces to make up for budget shortfalls. However, the national economy will continue to see positive job gains as these losses will be offset by continued growth in the private sector. Although we expect the private sector to grow for all of 2012, the pace of growth will be muted. We expect the pace to improve somewhat in 2013.

During the 12 months ending August 2012, the top three sectors in job gains were Professional/Business Services, Education/Health, and Leisure/Hospitality – adding a total of 1.3 million new jobs. State and Local Government shed the most workers over the past year, cutting 123,000 positions. The Government sector (both Federal and state/local) is reducing its workforce as budget austerity measures are put in place.

The Bureau of Labor Statistics projects the economy will add 19.7. million nonfarm payroll jobs through 2020, for an average annual growth rate of 1.4.%. This growth rate compares to the 20-year average of 1.0%. Education/Health is projected to be the leader in job growth through 2020, adding 6..5 million jobs. Professional/Business Services follows, adding 3.8. million positions. Although the Construction sector ranks third for the number of jobs added, this sector suffered severe job loss during the 2008. downturn and will remain below its pre-recession employment level in 2020.

Initial unemployment claims have bounced around the 15-year average since the start of 2012. Initial claims declined to 37.1,000 based on a 4.-week moving average as of the start of September. This compares to the 15-year average of 36.8.,000. We expect claims to hover at the current level during the remainder of 2012. The unemployment rate has ticked down to 8..1% as of August 2012 from 9.1% one year ago. Although this decline provides optimism for the economy, it should be observed with caution, as the decline was due in part to people giving up looking for work and dropping out of the workforce. We anticipate the unemployment rate will hover around 8..0% through year-end 2013.

PAYROLL JOB GROWTH United States | 12 Months Ending August 2012

-200 -100 0 100 200 300 400 500 600 700

State and Local Government

Federal Government

Construction/Mining

Information

Other Services

Financial Services

Transportation/Utilities

Retail Trade

Wholesale Trade

Manufacturing

Leisure/Hospitality

Education/Health

Professional/Business Services


Job Change

PROJECTED PAYROLL JOB GROWTH United States | December 2010 – December 2020

-1,000 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000

Federal Govt

Manufacturing

Information

Wholesale Trade

Financial

Other Services

Transportation/Util.

Leisure/Hospitality

State/Local Govt

Retail

Construction

Professional/Business

Education/Health

Job Change


INITIAL UNEMPLOYMENT CLAIMS United States | Four-Week Moving Average

Source: Department of Labor, Delta Associates; September 2012. Note: Data is seasonally adjusted.

Initi

al U

nem

ploy

men

t Cla

ims

300,000

400,000

500,000

600,000

700,000 Peak in Initial Unemployment Claims (Week of 4/4/09) = 658,750

15-Year Average = 368,000



We anticipate the unemployment rate will not edge down materially in the short run, as formerly discouraged job applicants start the application process again. This could push the rate higher in late 2012 and into 2013. We expect the unemployment rate will be slow to descend, remaining in the 8..0% range through 2013.

Job applicants: As of July 2012, for every job opening there are 3.5 potential applicants. This is below the peak of 6..9 applicants for every job in July 2009, but above the 10-year average of 3.1.

Drilling down to job sectors, there are too many potential applicants for too few jobs within each sector. This gap is most apparent in the construction sector where for every job opening, there are 15 potential applicants. Although BLS projects the Construction sector will add 1.8. million jobs through 2020, this sector suffered severe job loss during the downturn and will remain below its pre-recession employment level in 2020. This loss will force many unemployed construction workers to revamp their skill set in order to be hirable by another sector. The Education and Health Services sector has just 2 applicants per job opening.

GROSS DOMESTIC PRODUCT (GDP) AND CONSUMPTION

GDP increased 1.5% (annualized rate) during the 2nd quarter of 2012, compared to rising 1.9% during the 1st quarter. GDP increased 1.7.% during 2011, compared to the 20-year annual average of 2.5%. The rise in GDP during the 2nd quarter is the 12th consecutive quarter that the economy has expanded. Although the economy continues to make gains, the growth rate remains lackluster. We anticipate GDP growth to complete 2012 at around 2.1%, which is above the rise achieved during 2011, but below the pace needed to significantly lower the unemployment rate.

GDP growth during the 2nd quarter was due to personal expenditures and private domestic investment. However, the Government and exports continue to pull back, acting as a drag to overall GDP growth. Although growth has benefited from gains in consumer spending and equipment investment, these fundamentals have improved at a pace below the average of prior recoveries.

Households are currently under stress, as the unemployment rate remains elevated, prices are on the rise, and home values remain depressed, despite a modest rebound. According to the household stress index, which accounts for the rate of inflation, unemployment, and real estate values, households experienced a rise in stress during 2011.


0%

2%

4%

6%

8%

10%

12%

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12*

U.S

. Une

mpl

oym

ent R

ate

Note: Through August 2012; seasonally adjusted; shaded bars represent recessions. Source: Bureau of Labor Statistics, Delta Associates; September 2012.

UNEMPLOYMENT RATE United States

JOB-SEEKERS RATIO United States

Source: Bureau of Labor Statistics, Economic Policy Institute, Delta Associates; September 2012.

Ratio

0

1

2

3

4

5

6

7

8

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

NUMBER OF UNEMPLOYED VS. JOB OPENINGS United States | 12-Month Average Ending June 2012

Source: Bureau of Labor Statistics, Economic Policy Institute; September 2012.

Annu

al G

DP C

hang

e in

200

5 Co

nsta

nt D

olla

rs

0 200 400 600 800 1000 1200 1400 1600 1800 2000

Mining

Information

Transportation and utilities

Financial activities

Other services

Government

Education and health services

Construction

Manufacturing

Professional and business services

Leisure and hospitality

Wholesale and retail trade

Number of Job Openings

Number of Unemployed

Thousands of Jobs



The index peaked at 26. during 2008., as home values experienced a steep decline and unemployment was elevated. Although the index declined during 2009 as home values and unemployment stabilized, it climbed again in late 2010 and into 2011, as prices on consumer goods increased and housing values took another hit – although not as drastic as in 2008.

We expect the consumer to remain under elevated stress during the balance of 2012. Stress should decline to the 10-year average during 2013, as conditions improve, and fall below this average during 2014..

As household stress rises, consumers become less confident about their financial stability. This uncertainty causes consumers to tighten spending. Although spending has picked up pace recently, it remains subpar. Compared to past recoveries, consumer spending will not be a strong economic driver during this recovery period. With consumer spending responsible for 7.0% of U.S. GDP, growth in consumer spending is essential for a more robust domestic recovery.

Although consumer spending is helping to boost GDP, spending has been restrained due to below average consumer confidence. Even though confidence has edged up to 7.4..3 as of August 2012 from 55.8. at August 2011, it remains below the 20-year average of 8.8..2. This continues to hamper spending, as consumer expenditures rose 1.7.% on a year-over-year basis during the 2nd quarter of 2012, excluding auto and gas purchases. This rate is below the 15-year average of 2.9%.

Consumer spending remains below average due in part to the decline in net worth during the recession – consumers are still digging themselves out of this hole. Households lost over $17. trillion in personal wealth from the 4.th quarter of 2007. to the 1st quarter of 2009. Although households have regained some of the assets lost, gains have been uneven and it will take several years to recoup the total amount. Household net worth increased $2.8. trillion during the 1st quarter of 2012. Despite this rise during the first three months of 2012, Americans continue to struggle to recover what was lost during the downturn, as median net worth dropped 4.0%, from $126.,4.00 in 2007. to $7.7.,300 in 2010,


GDP PERCENT CHANGE United States

Source: Bureau of Economic Analysis, Delta Associates; September 2012. Note: Annualized.

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

Q212

Annu

al G

DP C

hang

e in

200

5 Co

nsta

nt D

olla

rs

20-Year Average = 2.5%

CONTRIBUTIONS TO U.S. GDP PERCENT CHANGE United States

Source: Bureau of Economic Analysis, Delta Associates; September 2012. Note: Annualized.

Annu

al G

DP C

hang

e in

200

5 Co

nsta

nt D

olla

rs

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

Q212

Personal Expenditures

Gross Private Domestic Investment

Net Exports of Goods/Services

Government Expenditures

HOUSEHOLD STRESS INDEX United States

Source: Bureau of Labor Statistics, Case/Shiller, PNC, Delta Associates; September 2012. Note: 2012 – 2014 projection.

Inde

x

-10

-5

0

5

10

15

20

25

30

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

10-Year Average = 9.0

WE EXPECT THE CONSUMER TO REMAIN UNDER ELEVATED STRESS DURING THE BALANCE OF 2012. STRESS SHOULD DECLINE TO THE 10-YEAR AVERAGE DURING 2013, AS CONDITIONS IMPROVE, AND FALL BELOW THIS AVERAGE DURING 2014.



according to the Federal Reserve. This decline in net worth puts downward pressure on future spending, as Americans will remain cautious until a broader recovery is achieved.

U.S. companies are sitting on piles of cash, waiting for clear signals that the economy is on a consistent recovery path. Corporate profits rose 6..1% during the 12 months ending June 2012. Currently, companies have $1.91 trillion in profits as of reporting at June 2012. Companies have the resources to hire, but remain wary about future demand for their products and services. In addition, with sluggish consumer demand, companies have enough labor to keep pace.

HOUSING MARKET

Home prices in the 20 major metro areas increased 0.5% during the 12 months ending June 2012, the most recent data available, according to S&P/Case-Shiller. The housing market has struggled with recovery, as unemployment remains high, foreclosures dampen gains, and lending standards remain tightened. We expect home prices to stabilize during the balance of 2012 – although any year-over-year gains will be muted by foreclosures that continue to plague the market.

The number of sales increased to 4.5 million (annualized) during July 2012, compared to 4..3 million during 2011. However, the number of sales is well below the level achieved at the peak of the market. The sales price averaged $236.,000 during July 2012, up 7..1% from one year ago, according to the National Association of Realtors. Prices have risen on existing home sales, as inventory has declined from 9.3 months of supply in July 2011 to 6..4. months at July 2012. This low level is more a reflection of homeowners not putting their house on the market given the value of their home has not increased enough to justify the sale. In many cases, homeowners have negative equity, meaning their home is worth less than the remaining balance on the mortgage. In the current economic recovery, the housing market is experiencing a long-term correction, which continues to hamper broader economic conditions.

FEDERAL INTERVENTION AND INFLATION

The Federal government continues to implement programs to sustain the national economy, vowing to do what it takes to keep the economy on track.


COMPANIES HAVE THE RESOURCES TO HIRE, BUT REMAIN WARY ABOUT FUTURE DEMAND FOR THEIR PRODUCTS AND SERVICES.

PERSONAL CONSUMPTION EXPENDITURES United States

Source: Bureau of Economic Analysis, Delta Associates; September 2012. Note: Excludes auto/auto parts and gasoline. In constant dollars.

Perc

ent C

hang

e –

Year

-Ove

r-Ye

ar

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

Q212

15-Year Average = 2.9%

CHANGE IN U.S. HOUSEHOLD NET WORTH United States

Source: Federal Reserve, Delta Associates; September 2012.

Chan

ge in

Net

Wor

th (i

n tr

illio

ns)

-$6

-$5

-$4

-$3

-$2

-$1

$0

$1

$2

$3

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

Net Worth

CORPORATE PROFITS United States

Source: Bureau of Economic Analysis, Delta Associates; September 2012. *12 months ending June 2012.

Corp

orat

e Pr

ofits

in T

rillio

ns

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

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



The Federal Reserve has kept the Federal Funds Rate at its current low level, as some business sectors continue to shed jobs. Given the economy continues to grow at a slow pace, the Fed plans to keep short-term rates at its current range of 0% to 0.25% through mid-2015. Between little pressure in the economy and the Fed’s commitment, we see a low probability of a meaningful increase in long-term interest rates over the next few years. But that could change if our foreign bond holders trade out of our sovereign debt at an unexpected rate. And that could be related to the coming debt ceiling debate and probable display again of a dysfunctional Federal government. Stay tuned.

Regarding inflation, prices increased 1.4.% during the 12 months ending July 2012, which is its lowest level since November 2010. The main driver of the lower rate is a notable decline in gas prices from April to June. Consumer food prices were also tepid. However, we expect this to change in the near-term due to drought conditions pushing food prices higher. Overall, we expect inflation to be contained in the near-term, due to elevated unemployment and limited income growth, which will continue to cause lackluster consumer spending. Given this, coupled with appropriate monetary measures, inflation should remain controlled around 1.9% during 2012.

FEDERAL BUDGET AND DEBT

The Congressional Budget Office (CBO) anticipates the U.S. budget deficit for 2012 will total $1.1 trillion, compared to $1.3 trillion in 2011. As seen this past year with the debt ceiling debate and the Congressional supercommittee, gaining Federal budget balance has generated concern by both political parties, though so far a lack of broadly acceptable solutions. A split Congress and the election of many new representatives in 2010 who campaigned on the promise to cut spending sparked heated debate on how to reduce the deficit. The debate resulted in spending reductions in the 2012 budget and implications for the proposed 2013 budget, which has yet to be approved.


WE SEE A LOW PROBABILITY OF A MEANINGFUL INCREASE IN LONG-TERM INTEREST RATES OVER THE NEXT FEW YEARS. BUT THAT COULD CHANGE IF OUR FOREIGN BOND HOLDERS TRADE OUT OF OUR SOVEREIGN DEBT AT AN UNEXPECTED RATE. AND THAT COULD BE RELATED TO THE COMING DEBT CEILING DEBATE AND PROBABLE DISPLAY AGAIN OF A DYSFUNCTIONAL FEDERAL GOVERNMENT. STAY TUNED.

EXISTING HOME SALE PRICES United States

Source: S&P/Case-Shiller, Delta Associates; September 2012.

Annu

al P

erce

nt C

hang

e fo

r Med

ian

Pric

e of

Si

ngle

-Fam

ily H

omes

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

2008 2009 2010 2011 2012

EXISTING HOME SALES VS. SALES PRICE United States

Source: National Association of Realtors, Delta Associates; September 2012.

Num

ber o

f Sal

es -

Thou

sand

s of U

nits

*Annualized sales rate at July 2012.

$200,000

$210,000

$220,000

$230,000

$240,000

$250,000

$260,000

$270,000

$280,000

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

2006 2007 2008 2009 2010 2011 2012*

Number of Existing Home Sales

Average Existing Home Sales Price

Aver

age

Sale

s Pric

es

FEDERAL FUNDS RATE United States

Source: Federal Reserve Board, Delta Associates; September 2012. *Unchanged since December 16, 2008.

Rate

0%

4%

8%

12%

16%

20%

78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08*



Automatic across-the-board cuts, totaling $1.2 trillion over ten years, called “sequestration,” are slated to go into effect at the start of 2013. This dagger has been looming over the heads of businesses and consumers since November 2011, hampering economic growth due to uncertainty. Half the cuts will come from the Defense budget and half from the Domestic budget.

According to Dr. Stephen Fuller of the Center for Regional Analysis, if these cuts are allowed to take place starting in 2013, the national GDP will take a $215 billion hit and 2.15 million jobs could be lost.

This level of job loss would act as a drag on the economy, keeping the unemployment rate elevated through 2015, suppressing confidence and consumer and business spending. Much of the hit will come in 2013, as the greatest reduction in Federal spending is scheduled to take hold then. The residual impact would mean reduced demand for office space and lowered retail spending.

ECONOMIC OUTLOOK

We believe the Congress will do what is right for the economy and ultimately avoid the “fiscal cliff.” So, we believe the national economy will continue to experience slow recovery during the balance of 2012 and into 2013 and beyond.

We believe the economic outlook is as follows:

• GDP: 2.1% in 2012 and 2.0 - 2.5% in 2013. • Payroll jobs: 2.0 million added in 2012 (based on December-

to-December calculation) and slightly more in 2013. • Unemployment: hovering in the 8..0% range through 2013. • Federal Funds Rate: 0% to 0.25% through year-end 2015. • Long-term interest rates: steady. • Inflation: 1.9% during 2012. Comparably low in 2013.

NATIONAL PAYROLL JOB GROWTH SUMMARY

The U.S. economy gained 1.8. million payroll jobs over the 12 months ending August 2012. This represents a rise of 1.4.%. This compares to the 25-year annual average of 1.3 million jobs at a 1.1% average growth rate.


*Change for 12 months ending in August 2012; others are comparisons of annual averages. Note that BLS has rebenchmarked figures since their initial publication; the figures presented above are the most recent estimates.

U.S. PAYROLL JOB GROWTH

YEAR JOB CHANGE % CHANGE

1.4%

1.2%

-0.7%

-4.4%

-0.6%

1.1%

1.8%

1.7%

1.1%

-0.3%

-1.1%

1,808,000

1,503,000

-931,000

-6,008,000

-800,000

1,504,000

2,397,000

2,275,000

1,423,000

-344,000

-1,489,000

2012*

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

INFLATION United States

Source: Bureau of Labor Statistics, Delta Associates; September 2012. *12-month percentage change through July 2012 Note: data is seasonally adjusted.

Perc

ent C

hang

e in

CPI

-U

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12*

FEDERAL BUDGET DEFICIT United States


Billi

ons o

f Dol

lars

* Projected by CBO as of August 2012.

-$1,600

-$1,400

-$1,200

-$1,000

-$800

-$600

-$400

-$200

$0

$200

$400

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12*13*14*15*16*17*18*19*20*21*22*




METRO AREA # % METRO AREA # %LA Basin Portland (OR) 21,500 2.2% Los Angeles/Long Beach/Glendale 58,900 1.6% Tampa-St. Pete 20,500 1.8% Orange County (Santa Ana/Anaheim/Irvine) 27,400 2.0% Raleigh-Durham 20,500 2.6% Riverside/San Bernardino/Ontario 25,100 2.3% Columbus (OH) 18,300 2.0% Subtotal LA Basin 111,400 1.8% Indianapolis 17,500 2.0%San Francisco Bay Area Pittsburgh 17,300 1.5% San Jose/Sunnyvale/Santa Clara 40,900 4.4% Salt Lake City 17,000 2.8% San Francisco/San Mateo/Redwood City 30,400 3.5% Oklahoma City 15,700 2.8% Oakland/Fremont/Hayward 19,800 2.1% South Florida Subtotal Bay Area 91,100 3.3% Miami/Miami Beach/Kendall 5,600 0.6%New York 90,400 1.1% Fort Lauderdale 4,800 0.7%Houston 83,700 3.2% West Palm Beach/Boca Raton 3,900 0.1%Dallas/Ft. Worth 60,300 2.1% Subtotal South Florida 14,300 0.7%Boston (Metropolitan NECTA) 52,800 2.2% Philadelphia 13,200 0.5%Seattle 49,000 2.9% San Antonio 11,100 1.3%Phoenix 48,500 2.9% Orlando 10,200 1.0%Denver-Boulder 41,700 3.0% Charlotte 9,000 1.1%San Diego 35,100 2.9% Las Vegas 8,700 1.1%Minneapolis-St. Paul 32,300 1.9% Memphis 8,400 1.4%Chicago 31,900 0.7% Nashville 6,300 0.8%Atlanta 31,900 1.4% Cleveland 5,200 0.5%Detroit (Detroit/Warren/Livonia) 31,400 1.8% Kansas City 3,200 0.3%Cincinnati 27,900 2.8% Jacksonville 1,800 0.3%Washington, DC 24,300 0.8% Baltimore 700 0.1%Austin 23,200 2.9% St. Louis (200) 0.0%Sacramento 21,800 2.8% New Orleans (3,000) -0.6%Source: Bureau of Labor Statistics, Delta Associates; September 2012.

12-MONTH PAYROLL EMPLOYMENT CHANGE THROUGH JULY 2012

JOB CHANGE JOB CHANGE



The Washington metro area continues its economic expansion at a slower pace than prior expansion periods: • Slow growth due to the uncertainty associated with Federal

austerity and the threat of sequestration – a reduced Federal budget that begins January 2013.

• Continuing growth due to strengths imbedded in the regional economy such as a highly educated work force, a diversified economy (as compared to the dependence of the region on the Federal establishment in the 197.0s), growing tech and health care industries, a high quality of life, a strong housing market with sustained values, and a destination for corporate and association headquarters moves.

Payroll employment increased 24.,300 during the 12 months ending July 2012, compared to a long-term annual average of 39,8.00. But the region is used to 6.0-8.0,000 job gains per annum during expansion cycles, so this expansion feels quite anemic by comparison.

The Education/Health and Professional/Business Services sectors have been the drivers of new jobs during the past 12 months – two categories of high income. At July 2012 the unemployment rate remains the lowest in the nation among major metros, at 5.6.%. This compares to the national unemployment rate of 8..3% at July 2012.

Automatic across-the-board Federal budget cuts, totaling $1.2 trillion over ten years, are slated to go into effect at the start of 2013. This dagger has been looming over the heads of businesses and consumers since November 2011, hampering economic growth due to uncertainty. We believe the cuts will not take place as scheduled. Rather, we expect a bill will be passed either for a delay until after 2013 or a less aggressive alternative plan to start in 2013. Either way, the region is in for slower growth than it is used to in this expansionary cycle.

SLOW GROWTH UNTIL SEQUESTRATION UNCERTAINTY RESOLVED;HIGHLY EDUCATED WORKFORCE BOLSTERS ECONOMY

THE WASHINGTON AREA ECONOMYThird Quarter 2012

THE WASHINGTON AREA ECONOMY

THIRD QUARTER 2012 ECONOMIC HIGHLIGHTS

Payroll Employment: 3.0 million at July 2012.

Job Change: grew 24,300 during the 12 months ending July 2012. Compares to 39,800/annum long-term average.

Unemployment Rate: 5.6% at July 2012, down from 6.0% one year ago and lowest among the nation’s largest metro areas.

Inflation: prices increased 1.4% during the 12 months ending July 2012.

Housing Prices: increased 3.8% during the 12 months ending June 2012.

Source: Bureau of Labor Statistics, S&P/Case-Shiller; September 2012.

-60

-40

-20

0

20

40

60

80

100

120

140

82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12*

20-Year Annual Average = 39,800/Year

*12 months ending in July 2012.

Thou

sand

s of

New

Pay

roll

Jobs

(A

nnua

l Ave

rage

)


PAYROLL JOB GROWTH Washington Metro Area



PAYROLL JOBS

With 3.0 million payroll jobs, the Washington metro area ranks the fourth-largest job market among metro areas, behind New York, the LA Basin and Chicago. Payroll employment increased 24.,300 in the Washington metro area over the 12 months ending July 2012.

Although the Washington metro area added 24.,300 new jobs during the past 12 months, other metro areas continued to outpace it in job gains. LA Basin, San Francisco Bay, and New York topped job growth, spurred by growth in Professional/Business Services and Health/Education.

On a percentage basis, the Washington metro area grew by 0.8.% during the 12 months ending July 2012. This compares to the national rise of 1.4.% during this period.

JOB GROWTH BY SECTOR

There are important differences in job growth by sector occurring in the Washington metro area. The service-providing industries, made up of such industries as Professional/Business Services and Financial Activities, created 20,6.00 new positions during the 12 months ending July 2012. This compares to the goods-producing sectors, made up of such industries as Construction and Manufacturing, which added 3,7.00 positions.

The top three sectors leading job growth are Education/Health, Professional/Business Services, and Leisure/Hospitality – with a total of 31,700 new jobs added to the economy in these three sectors alone.

The Education/Health sector gained 13,000 jobs in the previous 12 months, which is above the 20-year annual average of 8.,300 new positions. Approximately 4.5% of these positions were created in the District of Columbia.

The Professional/Business Services sector gained 10,200 jobs during the last 12 months, which is below the 20-year annual average of 16.,300 new positions. The Computer Systems Design and Related Services subsector added 8.,300 of these jobs. After some softening earlier in the year, this sector is starting to pick up steam, albeit modestly compared to past recovery cycles.

The Leisure/Hospitality sector gained 8.,500 jobs during the 12 months ending July 2012, which is well above the 20-year annual average of 4.,500 new positions. The bulk of positions were added to food services and drinking places with 7.,7.00 added in this sub-sector. Hiring in this sub-sector moderated during the recession and is rebounding, as consumers are eating out more and eating establishments are entering or expanding in this market.


0

20

40

60

80

100

120

LABasin

SF Bay NY Hou DFW Bos Phx Den Chi Atl Was S. Fla

PAYROLL JOB GROWTH Large Metro Areas | 12 Months Ending July 2012

Thou

sand

s of N

ew P

ayro

ll Jo

bs


24.3

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

SF Bay Hou Den Phx Bos DFW LABasin

Atl NY Was S. Fla Chi

PAYROLL JOB CHANGE IN PERCENTAGE TERMS Large Metro Areas | 12 Months Ending July 2012

Perc

ent C

hang

e in

Pay

roll

Jobs


0.8%

PAYROLL JOB GROWTH Washington Metro Area | 12 Months Ending July 2012

-15,000 -10,000 -5,000 0 5,000 10,000 15,000


Retail Trade

Information

Federal Government

Wholesale Trade

Manufacturing

Other Services


Financial Services

Construction/Mining

Leisure/Hospitality


Education/Health

Job Change

+44,100

-19,800




Notably, the Construction and Financial Services sectors, which suffered job cuts during the recession, are starting to make gains. The Construction and Financial Services sectors each added 4.,300 payroll jobs during the 12 months ending July 2012.

Through 2016., we expect the Professional/Business Services sector to create over 4.6.,500 jobs. We expect most of these positions to be created in the Management, Scientific, and Technical Consulting Services and Computer Systems Design and Related Services sectors. We project the Education/Health and Leisure/Hospitality sectors to closely follow in job growth, adding 4.5,500 and 37.,000 positions through 2016..

Just three of these employment categories (Professional/Business Services, Education/Health, and Financial Services) will generate demand over the next 5 years for 20 million SF of office space and more than 20,000 Class A apartments.

These employment projections are further supported by occupations in the Washington metro area with the most job openings, as compiled by the Brookings Institution. As of January/February 2012 (the most recent data available), computer occupations had 7.8.,6.6.6. openings, with health diagnosing and treating practitioners, the 2nd highest, trailing with 14.,7.7.0 openings.

As high-wage jobs are added and low-wage jobs are eliminated, a labor shortage is being created in the Washington metro area in key high-wage job categories, such as within the Scientific and Technical Services sector and those requiring security clearance. This creates an imbalance in the available workforce – too few high-wage employees and too many low-wage employees – generating a demand for high-wage employees to relocate to the metro area to fill this gap. The Washington metro area continues to be a magnet for population growth. This population growth will further fuel more companies to relocate to the metro area – generating greater demand for office, retail, and housing.

Corporate headquarters relocation to the Washington metro area has ramped up over the past few years. For example, Northrop Grumman, Hilton, and Siemens have relocated headquarters to the area. What causes these companies to


JUST THREE OF THESE EMPLOYMENT CATEGORIES (PROFESSIONAL/BUSINESS SERVICES, EDUCATION/HEALTH, AND FINANCIAL SERVICES) WILL GENERATE DEMAND OVER THE NEXT 5 YEARS FOR 20 MILLION SF OF OFFICE SPACE AND MORE THAN 20,000 CLASS A APARTMENTS.

Note: In thousands of payroll jobs. Source: BLS, Delta Associates; September 2012.

TRENDS IN EMPLOYMENT BY MAJOR SECTORWashington Metro Area

JULY2012

Edu/Health

Prof/Business

Leisure/Hosp

Construction

Financial

Trans/Utilities

Other

Manufacturing

Wholesale

Federal Gov’t

Information

Retail Trade

St./Local Gov’t

Total

376.5

701.5

287.9

149.1

150.7

61.4

185.4

49.8

62.2

385.3

79.8

252.9

290.9

3033.4

12-MONTHCHANGE

13.0

10.2

8.5

4.3

4.3

2.5

1.3

(0.6)

(1.1)

(1.3)

(1.7)

(3.9)

(11.2)

24.3

20-YEAR ANNUAL AVERAGE

8.3

16.3

4.5

1.5

0.6

(0.1)

3.6

(0.9)

0.0

1.4

(0.1)

1.1

3.6

39.8

PROJECTED PAYROLL JOB GROWTH Washington Metro Area | 2012 – 2016

Source: Dr. Stephen Fuller, Delta Associates; September 2012.

-30,000 -20,000 -10,000 0 10,000 20,000 30,000 40,000 50,000

Federal Government

Manufacturing

Information

Wholesale Trade


Retail Trade

Other Services

Financial Services


Construction/Mining

Leisure/Hospitality

Education/Health


Job Change



relocate to the Washington metro area? One notable draw is the talented labor pool. The Washington metro area has the highest percentage of bachelor’s or advanced degrees (at 47%) among other large metro areas. Other draws are access to the power on Capitol Hill and lower taxes (of which Northern Virginia has been a draw for many relocated companies).

The Washington metro area has the smallest education gap compared to large metro areas, as of January/February 2012, according to the Brookings Institution. The small gap is driven by a high demand and high availability of educated workers. Of the total job openings in the metro area, 50% require a bachelor’s degree or higher at January/February 2012, up from 37.% one year prior. This compares to 4.7.% of people in the Washington metro area that has a Bachelor’s degree or higher, as of 2010, the most recent data available. This compares to the average of the 100 metro areas studied, with 4.3% of job openings demanding a bachelor’s degree or higher with only 32% having attained this degree. The study by the Brookings Institution found that metro areas with a small education gap were more successful, held a lower unemployment rate, and experienced more entrepreneurship. High demand and high availability of educated workers (thus a smaller education gap) competitively positions metro areas, as workers are more employable and firms more competitive and entrepreneurial, which creates more job openings for all education levels. Notably, the Washington metro area was recently ranked fourth by Venture Beat among metro areas for start-ups. The Washington metro area was fourth behind San Francisco, Los Angeles, and Denver, respectively. Although the education gap is larger for those with a high school diploma or less, the study by the Brookings Institution found that those with this level of education fared better in employment in metro areas with small education gaps, such as Washington as overall job creation is greater.

UNEMPLOYMENT RATE

The Washington area unemployment rate was 5.6.% at July 2012, down from 6..0% one year ago. This compares to the national rate of 8..3% in July 2012. The national rate edged down to 8..1% in August 2012. The Washington metro area has the lowest unemployment rate among the nation’s largest metro areas. Notably, the metro area unemployment rate has declined 4.0 basis points over the past year. The Washington metro area unemployment rate peaked in January 2010, at 7..0%, and has since declined, albeit unevenly.


CORPORATE HEADQUARTERS RELOCATION TO THE WASHINGTON METRO AREA HAS RAMPED UP OVER THE PAST FEW YEARS.

Note: January/February 2012 data is the most recent data available. Source: Brookings Institution, Delta Associates; September 2012.

OCCUPATIONS WITH THE MOST JOB OPENINGSWashington Metro Area | January/February 2012

OCCUPATION

Computer Occupations

Health Diagnosing and Treating Practitioners

Business Operations Specialists

Other Management Occupations

Operations Specialties Managers

Financial Specialists

Advertising, Marketing, Promotions, PR

Secretaries and Administrative Assistants

Media and Communication Workers

Supervisors of Sales Workers

NUMBER OF OPENINGS

78,666

14,770

13,552

11,926

10,795

9,437

9,238

8,354

6,495

6,372

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

Was Bos SF Bay Den NY Chi Atl Phx DFW LA Basin Hou

EDUCATION GAP Large Metro Areas | January/February 2012

Educ

atio

n G

ap fo

r Job

Ope

ning

s

Source: Brookings Institution, Delta Associates; September 2012. Note: Education gap for job openings is measured as percent that demand for education exceeds supply.

100 Metro Average = 5.1%

50%

19%

47%

30%

0%

10%

20%

30%

40%

50%

60%

Bachelor Degree or Higher High School Diploma or Less

Job Openings All Potential Adult Workers

Shar

e of

wor

kers

by

educ

atio

nal a

ttai

nmen

t vs.

sh

are

of jo

b op

enin

gs b

y ed

ucat

ion

requ

ired

EDUCATED WORKER SUPPLY AND DEMAND Washington Metro Area| January/February 2012

Source: Brookings Institution, Delta Associates; September 2012. Note: job openings data as of Jan/Feb 2012; worker by educational attainment as of 2010.



REGIONAL CONSUMER PRICE INDEX

Overall inflation in the Washington/Baltimore region was 1.4.% during the 12 months ending July 2012, compared to the national inflation rate of 1.4.%. The Federal Reserve expects inflation to be pushed up temporarily due to rising gas prices and reduced crop output due to drought conditions. For the year, we expect inflation to be contained, as slowly progressing economic conditions keep prices in check, with growth of around 1.5% to 2.0%. As long as appropriate monetary measures are in place, inflation should remain controlled during the balance of 2012.

HOUSING PRICES

House prices increased 3.8.% in the Washington metro area during the 12 months ending June 2012, according to the S&P/Case-Shiller Home Price Index. This compares to a rise of 0.5% in the 20 MSA Composite Index.

The Washington metro median home price was 3.1 times the median household income as of the 2nd quarter of 2012, above the U.S. ratio of 2.8.. Nationally, home price growth outpaced income growth from 2000 to 2006.. Prices started to decline in 2007. due to the Credit Crunch. The national recession further impacted home prices, as the credit markets froze and job losses increased foreclosures. The recession actually brought about a much-needed correction in housing affordability. Nationally, housing is more affordable now than at any time in the past 30 years. The New York and San Francisco Bay metro areas are the least affordable with a ratio of 6..3 as of the 2nd quarter of 2012.

We believe the Washington area housing market is in full recovery, which is supported by six quarters in a row of favorable trends. We expect that a combination of the following will bring gains to the Washington for-sale housing market in the 2012-13 period: • A slowly recovering national economy, even if in fits and starts. • Mortgage interest rates that remain near all-time lows

through 2012, with small, measured increases in 2013. • Improving affordability in the for-sale market due to the

continued high cost of renting in the area. • An expanding local labor market during the balance of

2012, notwithstanding Federal austerity measures. The automatic cuts from last summer’s debt ceiling deal, known as “sequestration,” are not due to start until 2013, and they may be modified before taking effect. There is enough political distaste from both parties for these planned cuts that a deal to revise them – perhaps extending the cuts over a longer period of time to reduce their immediate impact – seems plausible after the November election.

• An end to the local structural shift away from home ownership and toward rentals.


0%

2%

4%

6%

8%

10%

12%

14%

Was Bos DFW Hou Phx Den SF Bay Chi Atl NY S. Fla LABasin

July 2011 July 2012

Une

mpl

oym

ent R

ate

National Average

9.1% 8.3%

-150 -160 60 -80 -120 -140 -10 -150 -110 -90 -80 -40 Basis Point Change

UNEMPLOYMENT RATE Large Metro Areas | July 2011 vs. July 2012


2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

2007 2008 2009 2010 2011 2012

Washington Metro Area

United States

Note: Not seasonally adjusted. Source: Bureau of Labor Statistics, Delta Associates; September 2012.

Une

mpl

oym

ent R

ate

UNEMPLOYMENT RATE Washington Metro Area vs. United States

Source: : Bureau of Labor Statistics, Delta Associates; September 2012.

Annu

al P

rice

Inde

x Ch

ange

CONSUMER PRICE INDEX (CPI) Washington/Baltimore Region

-2%

-1%

0%

1%

2%

3%

4%

5%

Mar-09 Jul-09 Nov-09 Mar-10 Jul-10 Nov-10 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12

10-Year Annual Average = 2.9%



The pace of the housing recovery may remain volatile, however. In 2012, we expect that rising demand will yield modest yearly housing price gains with likely percentage price increases in the mid-single-digits. Of note, while underwater mortgages remain a problem locally, a significant share of those who owe more than their homes are worth only owe modestly more. According to Zillow, while 32.4.% of homeowners in this region are underwater, 35.4.% of those with negative equity are underwater by less than 20%. While this is little consolation for those who must sell right away, it does suggest that as prices continue to rise, the share of mortgage-holders in trouble here may quickly decline. In turn, this will enable more potential sellers to bring their homes to the market, increasing the very low levels of inventory and bringing out more potential buyers.

REGION’S CORE INDUSTRIES

The Washington area’s gross regional product (GRP) was $4.4.9.6. billion in 2011 in current year dollars, an increase of 5.2% in 2011 from 2010 figures. Spending by the Federal government drives economic growth in the area, although other sectors play key roles. Local Federal spending in 2011 grew 5.0% (versus 2010 data) to a total of $177.4 billion. The Federal government is the largest component of the Washington area economy, accounting for more than one-third of the Gross Regional Product (GRP).

The most important element of Federal spending in the metro area economy is procurement – the government’s purchase of goods and services from the private sector. Procurement spending rose 0.7% in 2011 (compared to revised 2010 data), to $8.3 billion, accounting for 4.7.% of all Federal funds flowing into the area economy. We expect procurement spending to decline by 1.9% during 2012 (in current year dollars), as the Federal government continues to implement budget austerity measures. Although procurement spending is set to decline during 2012, the $8.1.4. billion is enough to sustain economic growth, albeit modest, in the Washington metro area.

During 2011, Virginia firms captured approximately 57.% of the total procurement funds flowing into the area. Many firms providing government services are located in Northern Virginia, especially around the Pentagon and in the technology corridor between Tysons Corner and Dulles Airport. Despite budget pressure, this substate area is likely to remain a


ALTHOUGH PROCUREMENT SPENDING IS SET TO DECLINE DURING 2012, THE $81.4 BILLION IS ENOUGH TO SUSTAIN ECONOMIC GROWTH, ALBEIT MODEST, IN THE WASHINGTON METRO AREA.

Source: S&P/Case-Shiller, Delta Associates; September 2012.

Perc

ent C

hang

e

PERCENT CHANGE IN HOUSE PRICES Washington MSA vs. U.S. 20 MSA Composite

Note: Seasonally adjusted. *12 months ending June 2012.

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

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

Washington MSA

U.S. 20 MSA Composite

Ratio

RATIO OF MEDIAN HOME PRICE TO MEDIAN HOUSEHOLD INCOME Washington Metro Area

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

1994 1996 1998 2000 2002 2004 2006 2008 2010 MY 2012

Source: NAHB/Wells Fargo Opportunity Index, Delta Associates; September 2012.

Source: NAHB/Wells Fargo Opportunity Index, Delta Associates; September 2012.

Ratio

RATIO OF MEDIAN HOME PRICE TO MEDIAN HOUSEHOLD INCOME Select Metro Areas | Second Quarter 2012

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

NY SF Bay LA Bos Was Mia Hou DFW Chi Phx Atl

National Average = 2.8



leader in the receipt of Federal dollars, as many government contracts are technology-dependent, and Northern Virginia is the area leader in technological innovation.

We project the area’s GRP growth (in constant or inflation-adjusted dollars) in 2012 will be 2.7.%, before increasing 2.9% in 2013, as the building industry, hospitality, and health/education drive the economy. We expect the U.S. GDP will grow 2.2% and 2.4.%, respectively, in 2012 and 2013.

We expect local economic growth rates to accelerate moderately through 2014. as the metro area recovers from the most recent recession. Growth rates will plateau in 2015 and 2016., as the construction industry decelerates. In addition, much of the rebound from the recession will occur through 2014 – leveling off during 2015 and 2016.

The Washington metro area is currently bracing for right-sizing within the Federal government, as the growth rate of the Federal budget will be scaled back. This could seriously impact the Washington area, as historically 30% or more of the region’s gross regional product (GRP) has been due to Federal spending. This share jumped to around 4.0% in 2011. Given current austerity measures, we expect this share to decline to around 35.8.% in 2016..

Automatic across-the-board cuts, totaling $1.2 trillion over ten years, are slated to go into effect at the start of 2013. This dagger has been looming over the heads of businesses and consumers since November 2011, hampering economic growth due to uncertainty. Half the cuts will come from the Defense budget and half from the Domestic budget.

According to Dr. Stephen Fuller of the Center for Regional Analysis, if these cuts are allowed to take place starting in 2013:

• The national GDP will take a $215 billion hit. • Locally, the GSP in DC would decline by $12.8. billion, in

Maryland $11.5 billion, and $20.9 billion in Virginia. • Nationally, 2.15 million jobs could be lost. • Locally, Virginia could lose over 207.,000 jobs, DC over

127.,000 jobs, and Maryland over 114.,000 jobs.


Note: Current year dollars. Figures are estimates. Procurement figures do not include US Postal Service and FAA purchases.

2011 2012

GRP IN BILLIONS $ % OF GRP $ % OF GRP Total Federal $s $177.4 39.5% $183.7 38.8%

Portion Procurement $83.0 18.5% $81.4 17.2%

Technology $68.4 15.2% $72.2 15.3%

Building Industry $22.4 5.0% $23.7 5.0%

Int’l Business $20.4 4.5% $21.6 4.6%

Health/Education $20.3 4.5% $21.7 4.6%

Hospitality $9.6 2.1% $10.1 2.1%

Other $131.1 29.2% $140.0 29.6%

Total GRP $449.6 100.0% $473.0 100.0%

CORE ECONOMIC SECTORS Washington Metro Area


FEDERAL PROCUREMENT SPENDING Washington Metro Area


Dolla

rs in

Bill

ions

*Estimate; **Projected

$20

$30

$40

$50

$60

$70

$80

$90

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

FEDERAL PROCUREMENT SPENDING Washington Metro Area By Jurisdiction


57%

24%

19%

VA

MD

DC

HISTORICALLY, 30% OR MORE OF THE REGION’S GROSS REGIONAL PRODUCT (GRP) HAS BEEN DUE TO FEDERAL SPENDING. THIS SHARE JUMPED TO AROUND 40% IN 2011. GIVEN CURRENT AUSTERITY MEASURES, WE EXPECT THIS SHARE TO DECLINE TO AROUND 35.8% IN 2016.



This level of job loss would act as a drag on the economy, keeping the unemployment rate elevated through 2015, suppressing confidence and consumer and business spending. Much of the hit will come in 2013, as the greatest reduction in Federal spending is scheduled to take hold in 2013. The residual impact would mean reduced demand for office space and lowered retail spending.

Given the enormous impact to the national economy, we do not expect Congress to allow the automatic spending cuts to take hold as now planned in 2013. Congress could pass a bill to delay the start date until after 2013, which would allow time to devise an alternative plan to the scheduled cuts. Or, Congress, after the November election, could pass a bill that alters the current plan, allowing the cuts to take place in 2013, but with less immediate impact.

WASHINGTON AREA ECONOMIC OUTLOOK

We expect the Washington metro area economy to progress during 2012 much as it did during 2011. However, growth will be sluggish through year-end, as consumers and businesses remain cautious about the economy. Uncertainty persists due to the unknown outcomes of sequestration and the Bush-era tax cuts. These uncertainties continue to plague the purse strings of consumers and companies. We expect economic conditions in the Washington region to improve after the start of 2013, as the picture becomes clearer and the outcome of the Federal budget is better established.

Although we believe the local economy is in the expansion phase of the economic cycle and showing recent signs of acceleration, we expect the speed to be slower than seen in previous expansion cycles. The Washington metro area could experience a hit in 2013 if the automatic spending cuts to the Federal budget are fully implemented. However, Congress could alter this plan before the cuts are implemented.

Looking forward, we believe the Washington metro area’s GRP growth will continue to outpace the nation’s. We expect local GRP will grow 2.7.% during 2012, compared to 2.2% nationally.

In consultation with Dr. Stephen Fuller of George Mason University, we project that 36.,000 payroll jobs will be added to the Washington metro area economy during 2012. We expect the Northern Virginia substate area to be the leader in job growth with 18.,000 new jobs in 2012. The Suburban Maryland and District substate areas should produce 6.,200 and 11,8.00 new jobs, respectively. We expect job growth in the Washington metro area to gain traction during 2013, as 4.2,000 new jobs will be added to the economy. Private sector firms relocating operations to the Washington area will bolster local employment in the period ahead.


Source: Center for Regional Analysis, Delta Associates; September 2012.

PERCENT SHARE OF GROSS REGIONAL PRODUCTWashington Metro Area

2011

Federal Spending

Portion Procurement

39.5%

18.5%

2016

35.8%

13.2%

GRP VS. GDP GROWTH Washington Metro Area vs. United States

Source: IHS Global Insight, Dr. Stephen Fuller, Delta Associates; September 2012.

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Washington Metro AreaUnited States

Annu

al P

erce

nt C

hang

e

Note: Constant dollar percent change.

Thou

sand

s of

New

Pay

roll

Jobs

(A

nnua

l Ave

rage

)

Source: Bureau of Labor Statistics, Dr. Stephen Fuller, Delta Associates; September 2012.

PAYROLL JOB GROWTH Washington Metro Area

-60

-40

-20

0

20

40

60

80

100

120

140

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

District Sub. MD No. Virginia

20-Year Annual Average = 39,800/Year 5-Year Projected Average = 41,600/Year




We project job growth will average only 4.1,6.00 jobs per annum during this expansion cycle through 2016., compared to 6.0,000 in the last expansion cycle and 100,000 in the cycle before that. Although 4.1,6.00 jobs per annum is low compared to prior expansion cycles, it is sufficient to support a healthy commercial real estate market if the industry re-calibrates its demand expectations.

WE PROJECT JOB GROWTH WILL AVERAGE ONLY 41,600 JOBS PER ANNUM DURING THIS EXPANSION CYCLE THROUGH 2016, COMPARED TO 60,000 IN THE LAST EXPANSION CYCLE AND 100,000 IN THE CYCLE BEFORE THAT. ALTHOUGH 41,600 JOBS PER ANNUM IS LOW COMPARED TO PRIOR EXPANSION CYCLES, IT IS SUFFICIENT TO SUPPORT A HEALTHY COMMERCIAL REAL ESTATE MARKET IF THE INDUSTRY RE-CALIBRATES ITS DEMAND EXPECTATIONS.

Thou

sand

s of

New

Pay

roll

Jobs

(A

nnua

l Ave

rage

)

Source: Bureau of Labor Statistics, Dr. Stephen Fuller, Delta Associates; September 2012.

PAYROLL JOB GROWTH – COMPARING PAST CYCLES Washington Metro Area

-60

-40

-20

0

20

40

60

80

100

120

140

19971998199920002001200220032004200520062007200820092010201120122013201420152016

STATE OF THE WASHINGTON M E TROPOLITAN AREA C LASS B APARTM ENT MARKET2



A SNAPSHOT OF THE CLASS B APARTMENT MARKET

A SNAPSHOT OF THE CLASS B APARTMENT MARKET

Source: Delta Associates; September 2012.

ANNUAL AVERAGE EFFECTIVE RENT GROWTH Class B Garden Apartments | Washington Metro Area Third Quarter 2012

$800 $1,000 $1,200 $1,400 $1,600

Suburban MD

Northern VA

Third Quarter 2007 Increase 2007-2012

Annual Increase Past 5

Years

Past 1 Year

3.7%

3.6%

2.0%

2.7%


ANNUAL AVERAGE EFFECTIVE RENT GROWTH Class B High-Rise Apartments | Washington Metro Area Third Quarter 2012

$1,000 $1,500 $2,000

Suburban MD

Northern VA

The District

Third Quarter 2007 Increase 2007-2012

Annual Increase Past 5

Years

Past 1 Year

-7.9%

3.4%

3.5%

6.6%

5.5%

1.2%


4.8%

7.4%

1.1% 1.6% 1.3%

2.3% 3.0%

4.7%

0%

1%

2%

3%

4%

5%

6%

7%

8%

Northern Virginia Suburban Maryland

3Q 2009 3Q 2010 3Q 2011 3Q 2012

VACANCY RATES Class B Garden Apartments | Washington Metro Area

Vaca

ncy

Rate


3.9%

7.7%

6.3%

1.0%

2.1% 1.8% 1.0% 1.0%

2.2%

3.3%

4.9%

1.5%

0%

1%

2%

3%

4%

5%

6%

7%

8%

Northern Virginia Suburban Maryland District of Columbia

3Q 2009 3Q 2010 3Q 2011 3Q 2012

Vaca

ncy

Rate

VACANCY RATES Class B High-Rise Apartments | Washington Metro Area



During the third quarter of 2012 Class B apartment market saw a material increase in vacancy, yet remains relatively low, fostering continued rent growth although at a slower pace.

• Vacancy increased 210 basis points metro-wide to 3.6.% from 1.5% this time last year. Vacancy increased in the suburbs but decreased in the District.

• Even with the jump in metro wide vacancy, average effective rent increased 0.8.% from one year ago to $1,57.3. Effective rents increased over the year in most submarkets, with The District up 6..6.%, outperforming Northern Virginia, which was up 1.6.%. Suburban Maryland was up only 0.5%.

OUTLOOK FOR CLASS B APARTMENTS IS POSITIVE

We expect to see moderating rent growth in Class B assets during the remainder of 2012 and into early 2013 despite continued low, yet increasing, vacancy. Several contributing factors will keep vacancy low but rents may be under pressure in 2013 and 2014..

1. The addition of jobs in the Washington metro area is expected to continue, though at a slower pace through year-end 2012. Conditions should improve after the start of 2013, as uncertainty is mitigated and the outcome of the Federal budget is clearer. Job growth, albeit at a decelerated rate, will support a sturdy Class B apartment market in the coming year. However, as low-wage jobs are eliminated and high-wage jobs are added, there may be higher demand for Class A apartments, as Class B apartments are generally rented by lower-wage workers. If job growth in these lower-paying categories rebounds, Class B apartment demand will follow.

VACANCY REMAINS LOW BUT IS ON THE RISE METRO-WIDE;RENT GROWTH SLOWS DUE TO RISE IN VACANCY AND LOW TURNOVER

STATE OF THE CLASS B APARTMENT MARKETThird Quarter 2012

STATE OF THE CLASS B APARTMENT MARKET

AN OVERVIEW OF THE CLASS B APARTMENT MARKET AT THIRD QUARTER 2012 BY SUB-STATE AREA;

THE TREND SINCE THIRD QUARTER 2011:

Northern Virginia:

• Effective rents up 1.6%

• Vacancy up 200 basis points to 3.2%

Suburban Maryland:


• Vacancy up 280 basis points to 4.8%

The District:


• Vacancy down 70 basis points to 1.5%


EFFECTIVE RENTAL RATE AND VACANCY RATE Class B Apartments | Washington Metro Area

$700

$800

$900

$1,000

$1,100

$1,200

$1,300

$1,400

$1,500

$1,600

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

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

Average Effective Base Rent

Vacancy

Vac

ancy

Rat

e

Aver

age

Effe

ctiv

e Ba

se R

ent

*At third quarter 2012.



2. Median home prices in the Washington metro area are 3.1 times the median household income as of the 2nd quarter of 2012, above the U.S. ratio of 2.8.. These high home prices force many people in the area to rent instead of buy. The ratio of renters relative to owners has increased substantially in the Washington region over the past few years.

3. As deliveries of Class A units increase in the remainder of the year and into 2013, pressure on the Class B market will mount as concessions may be introduced in the Class A market to lease new projects quickly. This will lead to rent compression, putting downward pressure on Class B rents.

Given this outlook, more specific opportunities are addressed at the end of this report.

VACANCY REMAINS LOW BUT IS ON THE RISE

The Washington metro area Class B apartment vacancy rate rose to 3.6.% at the end of third quarter 2012, from 1.5% one year ago.

• Mid- and high-rise vacancy is 3.3%, up from 1.2% last year

• Garden and low-rise vacancy is 3.9%, up from 1.8.% last year.

Garden and low-rise apartments post 3.9% vacancy – 210 basis points higher than last year at this time. The vacancy rate for garden and low-rise properties increased 17.0 basis points from last year in Northern Virginia to 3.0% and increased in Suburban Maryland by 24.0 basis points to 4..7.%.

Class B mid- and high-rise vacancy is 3.3% – 210 basis points higher than at the end of the third quarter of 2011. Class B mid- and high-rise vacancy rates at the end of the third quarter of 2012:

• Northern Virginia 3.3%

• Suburban Maryland 4..9%

• The District 1.5%

The District was the strongest performer in the third quarter with the lowest vacancy rate. The District was the only metro area that had a lower vacancy rate than last year at this time after falling 7.0 basis points. Northern Virginia’s vacancy rate was higher at 3.3% from 1.0% a year earlier. Suburban Maryland’s vacancy rate increased 390 basis points when compared to September 2011, to 4..9%.


Empire Group Holdings: Empirian Village (formerly Springhill Lake), Greenbelt, MD

Dragone Realty Investments: The Milano Apartments, Oxon Hill, MD



EFFECTIVE RENTS CONTINUE TO INCREASE

Effective rents at Northern Virginia properties grew 1.6.% over the year, with growth in the majority of submarkets. Suburban Maryland performed the worst due to tepid job growth, with a rent increase of 0.5%. The District’s 6..6.% growth rate was the strongest compared to the other sub-state areas.

Turnover at Class B properties is lower than for Class A communities and this lower turnover impacts rent growth opportunity. With so few units available, rent growth is statistically underreported and appears to be lower than we would expect compared to Class A assets. Also affecting rent growth this quarter is continued economic uncertainty, contributing to lower turnover and unwillingness on the part of property managers to raise rents significantly.

Class B mid- and high-rise rents are growing at a mixed pace across sub-state areas, with the average effective rent in the metro area now at $1,7.96.. The District had the best high-rise rent performance over the past year, with a 6..6.% increase since this time last year.

Effective rents in Northern Virginia are up 1.2% from this time last year, and high-rise rents in Suburban Maryland decreased by 7..9% year-over-year. Effective rents are the highest in The District at $1,915, and continue to be the highest on a per square foot basis at an average of $2.4.0.

Mid- and high-rise rent change during the past year by sub-state area:


• Suburban Maryland -7..9%

• The District 6..6.%

Upper Northwest DC was the submarket with the most expensive rents beating out Crystal City for the first time this quarter. Upper Northwest had an average effective rent of $2,17.1 while Crystal City follows in second place with average rent of $2,127.. Falls Church/North Arlington is close behind, at $2,04.6.. Mt. Vernon Square has the highest rent per square foot again this quarter at $2.55. Upper Northwest DC follows at $2.4.5 with Southwest DC in third place, at $2.22 per square foot.

Class B garden apartment effective rents in the Washington metro area have increased 2.4.% since third quarter 2011. The average effective rent for Class B garden apartments is currently $1,4.27. per month.



ANNUAL CLASS B APARTMENT RENT GROWTH Washington Metro Area | Mid- and High-Rise Submarkets Third Quarter 2012

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

Perc

ent E

ffect

ive

Rent

Gro

wth

ROSS Companies: Spring Parc, Silver Spring, MD



Rent change for garden and low-rise properties by sub-state area during the past year:

• Northern Virginia: 2.0%

• Suburban Maryland: 2.7.%

Northern Virginia: Class B garden apartment rents are up 2.0% from last year at this time with an average effective rent of $1,506., or $1.7.2 per square foot. Northern Virginia experienced positive rent growth across most submarkets over the year, with eight of ten garden submarkets showing positive rent growth; two submarkets experienced a decrease over the year. The Annandale submarket gained the most again this quarter (up 14.6% over the year) with continued upgrades to communities in this submarket. The Falls Church/Merrifield submarket was the weakest in the metro area (down 7.4%) from the third quarter of 2011.

Suburban Maryland: Class B garden apartment rent increased 2.7.% over the year in Suburban Maryland. Rockville garden rents are currently best in the Montgomery County submarket with an increase of 5.2% over the year. The Gaithersburg submarket had the weakest performance in Montgomery County, with a decrease of 2.5% during this time. Rents in Silver Spring/Wheaton are up 4..8.% since this time last year.

Prince George’s County effective rent has increased by 2.2% year-over-year, with an average effective rent rate of $1,207.. Columbia experienced rent growth of 3.9% over the year with average effective rent of $1,4.8.0.

CONCESSIONS REMAIN LOW

Concessions as a percentage of asking rent continue to be very low, at 1.1%, down from 1.2% in the third quarter of 2011.

Concessions as a percentage of asking rent at the end of third quarter 2012 by sub-state area:


• Suburban Maryland 1.2%

• The District 0.2%

VALUE-ADDED STRATEGY: RENOVATION

Opportunities continue for renovating existing B and C grade properties. In our view, these opportunities can be the most profitable where the rent spread is widest between Class A apartments on the one hand and Class B or even Class C apartments on the other hand. When Class B or C units



-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

Perc

ent E

ffect

ive

Rent

Gro

wth

ANNUAL CLASS B APARTMENT RENT GROWTH Washington Metro Area | Garden Submarkets Third Quarter 2012


3.7%

5.1%

1.9% 1.5%

2.4%

1.3% 1.2% 1.5%

0.3%

1.1% 1.2%

0.2% 0%

1%

2%

3%

4%

5%

6%

7%

Northern Virginia Suburban Maryland District of Columbia

3Q 2009 3Q 2010 3Q 2011 3Q 2012

CONCESSIONS AS A % OF ASKING RENT Class B Apartments | Washington Metro Area

Conc

essi

on %

Stellar Management: Patriot Village, Annandale, VA



are renovated, rents can be raised correspondingly and still represent a discount to the prospective tenant compared to Class A rents.

In dollar terms, the largest rent spreads between Class A and B product are currently in high-rise properties. Submarkets of note are South Arlington with a spread of $58.9, Bethesda with a spread of $6.6.8., Alexandria with a spread of $56.3 and Upper Northwest DC with a spread of $6.27..

Properties renovated to Class B+ can generally achieve rents that are $100 to $150 and more per month higher than the lower Class B’s. This allows for an $8.,000 to $12,000 per unit renovation budget, and still yields sufficient revenue ($1,200 to $1,800 or more per year) to generate a 15% + return on investment in renovations.

Value-creation in the Washington apartment market is still competitive, as illustrated by our representative sample of renovation projects (see Table 9).

There are currently 34.,6.53 units in the Washington metropolitan area in our sample with substantial renovations or upgrades planned or ongoing. The number of units renovating in our sample has increased by several thousand units over the past year, as investment conditions have improved. The average renovation budget per unit is similar to last year at this time, at approximately $20,000 per unit compared to about $22,000 in the third quarter of 2011.

SALES TRANSACTIONS ON PACE TO SURPASS 2011

Through August of 2012 there have been 26. Class B apartment sales noted; nine mid- and high-rise properties and 17. garden properties, totaling 10,100 units and approximately $1.6. billion.

In 2011 there were 4.4. Class B garden sales and 14. high-rise sales posted, comprising a total of 17.,8.16. units and $2.5 billion at an average price of $134.,4.17. for garden properties and $16.5,8.94. for high-rise properties.

WHAT DOES THE FUTURE HOLD?

Job losses among lower wage earners and excess supply of Class A units in several submarkets had dampened the Class B apartment market across the Washington metro area in 2008. and 2009. This phenomenon abated in 2010 and into early 2011.

By late 2011, moderate job growth, constrained mortgage financing, and continued high prices for housing of all types put added demand on Class B apartments as one of the more


RENOVATION VOLUME COMPARISONS TO PRIOR PERIODS

AS OF

Third Quarter 2010

Third Quarter 2011

Third Quarter 2012

# UNITS IN RENOVATION

18,266

26,148

34,653

CLASS B APARTMENT PROPERTY SALES: THROUGH AUGUST 2012

NUMBER OF TRANSACTIONS

17

9

TYPE OF PROPERTY

Garden

Mid- and High-Rise

AVERAGE PRICE PER UNIT

$135,905

$228,506


TOTAL SALES VOLUME Class B Apartments | Washington Metro Area

$465,680

$934,002

$644,009

$1,417,675

$1,677,243

$2,114,280 $2,292,574

$1,333,498

$352,300

$711,680

$2,532,606

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

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

Sale

s Vol

ume

(in th

ousa

nds)

*Through August 2012.

$1,594,331


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

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

# of units Avg renovation budget

Ave

rage

reno

vatio

n bu

dget

per

uni

t

# of

uni

ts

CLASS B PROPERTIES UNDERGOING RENOVATION Washington Metro Area

*At third quarter 2012.



affordable alternatives. However, by late 2011 and into early 2012, low turnover and uncertainty about future economic conditions have led to lower rent increases than would normally be expected at current levels of occupancy.

Turnover at Class B properties is lower than for Class A communities and this lower turnover has begun to impact rent growth opportunity. With so few units available, rent growth is statistically underreported and appears to be lower than we would expect compared to other recent quarters.

We expect continued, though constrained, Class B rent growth during the remainder of 2012 due to low vacancy in the region in Class B properties. Strong demand created by limited supply will continue to affect concessions and enable owners to increase asking rents. However, by 2013 and 2014. rent pressure may be felt as a large pipeline of Class A apartments is delivered.

Here are specific opportunities we see for Class B projects:

1. Class A supply will increase dramatically in the coming quarters and may have a dampening effect on Class B rent growth opportunities, particularly in the District. Therefore, renovation could be a good defensive strategy.

2. Convenient locations thrive. Fairfax City, South Arlington, Annandale, and all submarkets in the District. These submarkets benefit due to their easy access to employment centers via highways (I-395, I-495, I-66, etc.) and/or the Metro.

3. The differences in rent rates between Class A and Class B properties in specific submarkets continue to favor the investor who takes advantage of renovation opportunities at select locations. Look for those submarkets with the greatest spread in rents between Class A and Class B apartments.


A WORD ABOUT OUR DEFINITION OF VACANCY RATE

We sometimes hear from apartment developers and managers that their portfolio vacancy rate is 200 to 4.00 basis points higher than the numbers we report, which places them under unfair investor scrutiny. While we state methodological matters at the end of our report (Section 5), we thought it appropriate to describe here our term “vacancy.”

When we conduct our quarterly surveys, we obtain information on “units available to lease” – that is, physical vacancy. Obtaining the information this way, of course, may produce several important differences from “vacancy” as reported in your financial statements. Simply stated, the difference can be characterized as:

Delta’s Definition: Available units to leaseOperating Statement Vacancy: Economic vacancy

Our definition (available units) may therefore be understated compared to yours (economically vacant) by our exclusion of units occupied by non-paying tenants (which we cannot know), and of units not available for lease, such as employee units and model apartments. We estimate that this adds about 100 to 150 basis points to your definition of vacancy, as compared to ours. Our vacancy rate may also be understated, compared to yours, by our exclusion of what at present are economically vacant, on-notice units for which a lease to occupy in the future has been signed (hence, they are not currently available to lease). We estimate that this potentially adds another 150 to 200 basis points to your definition of vacancy, as compared to ours.



COMPETING AGAINST CLASS A APARTMENTS WITH THE VALUE AND VARIETY OF CLASS B

The landscape of marketing has changed drastically over the last few years. And the pace of new trends and emerging types of media show no signs of waning. Most metro-area multifamily marketers have seen a dramatic decrease in the effectiveness of print advertising, as most prospective renters are scouring the Internet (often from a smartphone) for information, photos, reviews, videos and real-time availability of the apartment communities within their desired location. Add into the mix the rise of social media and the growing importance of reputation management and it can appear overwhelming to figure out what is the right mix of online tactics to best market a multifamily asset. Here are some tactics we have found make an online marketing strategy more effective.

Community Website with Search Engine Optimization (SEO). When it comes to online web presence, content is king. A robust yet user-friendly website featuring floor plans, photos, videos and neighborhood information is the most powerful tool for getting renters to the community. Walkscore ratings, a live Google map, links to social media sites, and online reservation software are what prospective renters are looking for. Utilizing a marketing agency is a must to optimize your community’s website with key words and phrases to make it easier for search engines to locate your site and match it to similar search criteria. Elaborate Flash or animated intro presentations are unnecessary. Adding a blog with regular updates and responses to posters will also help enhance the SEO of the site. Pay per Click campaigns (PPC) can also be implemented to support the marketing of the community website through a marketing agency.

Reputation Management Tools, Resident Surveys and Social Media. More than 50% of prospective renters read reviews which rate, score and critique the multifamily industry. An inexpensive and proactive approach to this is to purchase a manager’s subscription to online review sites and have a set of pre-scripted responses for common issues such as maintenance and noise. By having an email alert sent to the community email address each time a comment is posted to a social media/blog source, the property manager can post a prompt and courteous response which will diffuse the situation and take the conversation off-line and into the manager’s office.

The utilization of resident surveys like Satisfacts also provides data – which can be exported to several online platforms – about how residents feel about the quality of living at your community. Being able to collect and publish verified positive feedback from actual residents will make a strong and favorable impression on prospective renters.

Creating Facebook pages, Pinterest accounts and YouTube channels are easy and low-cost methods to engage online dialog about your community and boost SEO efforts. Prompt responses coupled with frequent posts and updates will make these new media outlets highly effective to your online marketing program.

Mobile. The growth of mobile media consumption is continuing at a rapid rate. More than 250 million Americans have smartphones with Internet access. According to Comscore, social media engagement, online searches for information, retail and video make up nearly 50% of the phones’ usage. This means multifamily marketers must go mobile with community websites. By having a version of your website that is mobile-friendly, prospective renters can use it not only to gather information, but they can also view video, get GPS-based directions or reserve a unit from their phone. Many online services, like Vaultware offer mobile website creation and templates at very low costs.

Email Marketing. Every marketer loves fast, effective and practically free tools for generating traffic. One of the best uses of email marketing is for generating referrals. Using existing residents as a captive audience to generate leases with virtually no marketing cost is a great way to boost occupancy. By offering a referral incentive and sending an e-blast or email through your resident portal or email-blasting tool regularly, you can quickly and effectively get prospective renters in your leasing office who are already highly interested in the community.

While the perfect online marketing mix will differ for every community, these tools are essential to marketing your community online. Be sure to register your community website for a Google Analytics account. Google Analytics allows tracking visitors to your website, which online sources referred them to your website, and what content is most popular. A monthly review of your Google Analytics arms you with the information you need to make adjustments to your online marketing plan. Developing and delivering the informational content prospects desire, managing online reputation, and staying current with latest search engine marketing trends will make your online marketing program more effective, efficient and useful to tomorrow’s resident.

Elaine De Lude is Chief Marketing Officer & Brent Stephens is Director of Advertising and Corporate Communications at ROSS Management Services

ONLINE MARKETING BASICS FOR MULTIFAMILYBy Elaine De Lude & Brent Stephens

WASHINGTON STATIST ICAL RE PORT 3



WASHINGTON STATISTICAL REPORT

GEOGRAPHIC AREA

NORTHERN VIRGINIA SUBURBAN MARYLAND THE DISTRICT WASHINGTON METRO AREA

Total Units Responding to Survey:

91,526 63,339 15,758

CLASS A APARTMENTS VACANCY EFF RENT VACANCY EFF RENT VACANCY EFF RENT VACANCY EFF RENT

Low-rise 3.0% $1,630 5.4% $1,576 NA NA 4.1% $1,605

Mid & High-Rise 3.0% $2,261 4.4% $2,270 3.5% $2,627 3.4% $2,384

Total Class A 3.0% $1,825 5.2% $1,697 3.5% $2,627 3.9% $1,867

Comparison at 2011: 3.6% $1,771 4.3% $1,664 1.6% $2,582 3.7% $1,815

CLASS B APARTMENTS VACANCY EFF RENT VACANCY EFF RENT VACANCY EFF RENT VACANCY EFF RENT

Low-rise 3.0% $1,506 4.7% $1,343 NA NA 3.9% $1,427

Mid & High-Rise 3.3% $1,787 4.9% $1,726 1.5% $1,915 3.3% $1,796

Total Class B 3.2% $1,632 4.8% $1,423 1.5% $1,915 3.6% $1,573

Comparison at 11: 1.2% $1,621 2.0% $1,405 2.2% $1,886 1.5% $1,561

Total Class A and B 3.1% $1,740 5.0% $1,582 2.9% $2,416 3.8% $1,744

Comparison at 11: 2.5% $1,705 3.4% $1,556 1.8% $2,257 2.8% $1,708

Comparison at 07: 2.6% $1,437 3.1% $1,337 1.0% $2,069 2.7% $1,433

RENT INCREASE/ANNUM: VACANCY EFF RENT VACANCY EFF RENT VACANCY EFF RENT VACANCY EFF RENT

-Since 11: -- 2.9% -- 1.4% -- 7.2% 2.7%

-Since 07: -- 3.9% 3.4% 3.1% 4.0%

Source: Compiled by Delta Associates, 500 Montgomery St., Suite 600, Alexandria, Virginia 22314Phone: (703) 836-5700. Last Update: 9/2012

TABLE 1ESTIMATED EFFECTIVE RENT AND STABILIZED VACANCY RATE FOR INVESTMENT GRADE CLASS A AND CLASS B APARTMENTS

Washington Metropolitan Area | Investment Grade Class A and Class B ApartmentsThird Quarter 2012

170,623




TABLE 2KEY MARKET INDICATORS FOR INVESTMENT GRADE CLASS B RENTAL GARDEN APARTMENTS

Summary: Washington Metropolitan Area

Number of Units 22,289 20,943 43,232

Rent Levels ( Avg. of All Unit Sizes)

Face Rent $1,528 $1,357 $1,445

Concession as a % of Face Rents 1.4% 1.0% 1.2%

Effective Rent $1,506 $1,343 $1,427

Effective Rent per Square Foot $1.72 $1.48 $1.60

Per Annum Effective Rent Increase

Since 2011 2.0% 2.7% 2.4%

Since 2007 3.7% 3.6% 3.7%

Since Early 1990s 3.4% NA 3.4%

Vacancy 2012 3.0% 4.7% 3.9%

Vacancy 2011 1.3% 2.3% 1.8%

1 Includes all surveyed submarkets in Prince George's County, Montgomery County, and Columbia.2 Starting with the Year End 2001 Class B Apartment Report, Suburban Maryland weighted averages reflect the inclusion of all Prince George's County submarkets.

Source: Compiled by Delta Associates, 500 Montgomery St., Suite 600, Alexandria, Virginia 22314Phone: (703) 836-5700. Last Update: 9/2012

Third Quarter 2012

NORTHERN VIRGINIA SUBURBAN MARYLAND1WASHINGTON SUBURBAN AREA TOTAL/WEIGHTED

AVERAGE2

MARKET INDICATOR

GEOGRAPHIC AREA

TABLE 2 12206 Class B Tables.xlsx X:\DELTA\OLDSERV\Open Projects\12206\3rdQtr2012\Report Tables and Text\CLASS B\12206 Class B Tables.xlsx



WASHINGTON STATISTICAL REPORTTA

BLE

3KE

Y M

ARKE

T IN

DICA

TORS

FO

R IN

VEST

MEN

T GR

ADE

CLAS

S B

REN

TAL G

ARDE

N A

PART

MEN

TS

Selec

ted S

ubm

arke

ts |

North

ern V

irgin

ia

Num

ber o

f Uni

ts S

urve

yed

1,38

73,

554

2,89

31,

311

1,45

170

61,

171

3,67

94,

237

1,90

022

,289

Aver

age

Year

Bui

lt of

Pro

duct

Sur

veye

d19

7919

7919

6619

4419

5419

4819

4519

7319

7119

7019

66Re

nt L

evel

s (Av

g. o

f All

Uni

t Siz

es) 2

Face

Ren

t$1

,485

$1,5

33$1

,717

$1,7

19$1

,403

$1,4

00$1

,354

$1,3

67$1

,528

$1,6

88$1

,528

Conc

essio

n as

a %

of F

ace

Rent

s1.

8%0.

9%5.

8%0.

1%0.

0%0.

0%0.

1%0.

3%1.

4%0.

1%1.

4%Ef

fect

ive

Rent

$1,4

58$1

,519

$1,6

18$1

,717

$1,4

03$1

,400

$1,3

52$1

,363

$1,5

06$1

,687

$1,5

06Ef

fect

ive

Rent

per

Squ

are

Foot

$1.5

2$1

.76

$1.7

1$2

.37

$1.8

6$1

.96

$1.9

6$1

.60

$1.5

5$1

.57

$1.7

2Pe

r Ann

um E

ffec

tive

Rent

Incr

ease

Sinc

e 20

11-1

.4%

5.8%

-7.4

%0.

5%4.

4%1.

1%3.

4%2.

0%0.

3%14

.6%

2.0%

Sinc

e 20

071.

7%2.

3%4.

0%3.

6%4.

1%4.

6%3.

4%2.

8%4.

3%5.

3%3.

7%Si

nce

Early

199

0's

3.6%

33.

5% 5

NA

NA

NA

3.6%

43.

2% 3

3.1%

3N

AN

A3.

4%Va

canc

yVa

canc

y 20

123.

9%2.

6%3.

7%3.

5%1.

5%2.

3%3.

2%3.

7%2.

9%2.

4%3.

0%Va

canc

y 20

111.

7%1.

2%1.

3%0.

3%0.

1%1.

3%1.

9%1.

7%1.

3%1.

8%1.

3%

1 F

orm

erly

the

Old

Tow

n Al

exan

dria

subm

arke

t.2

Ren

ts in

clud

e/as

sum

e la

ndlo

rd-p

aid

utili

ties

3 E

ffect

ive

rent

incr

ease

sinc

e 19

90.

4 E

ffect

ive

rent

incr

ease

sinc

e 19

92.

5 E

ffect

ive

rent

incr

ease

sinc

e 19

93.

Sour

ce: C

ompi

led

by D

elta

Ass

ocia

tes,

500

Mon

tgom

ery

St., S

uite

600

, Ale

xand

ria,

Vir

gini

a 22

314

Phon

e: (7

03) 8

36-5

700.

Las

t Upd

ate:

9/2

012

SUBM

ARKE

T

Third

Qua

rter 2

012

MAR

KET

INDI

CATO

RRE

STO

NFA

IRFA

X CI

TYFA

LLS

CH./

M

ERRI

FIEL

DRO

SSLY

N/

BALL

STO

NSO

UTH

AR

LIN

GTO

NEA

ST

ALEX

ANDR

IA1

ARLA

NDR

IART

. 1

CORR

IDO

R AL

EXAN

DRIA

WES

T AL

EXAN

DRIA

ANN

ANDA

LE

OVE

RALL

TO

TAL/

WEI

GHTE

D AV

ERAG

E

Tabl

e 3

1220

6 C

lass

B T

able

s.xl

sxX:

\DE

LTA

\OLD

SE

RV

\Ope

n P

roje

cts\

1220

6\3r

dQtr2

012\

Rep

ort T

able

s an

d Te

xt\C

LAS

S B

\122

06 C

lass

B T

able

s.xl

sx





Selected Submarkets | Suburban Maryland

SUBMARKET

Number of Units Surveyed 1,498 1,844 3,368 6,710 3,214 11,019 20,943Average Year Built of Projects Surveyed 1976 1977 1970 1974 1980 1967 1971

Rent Levels (Avg. of all Unit Sizes) 1

Face Rent $1,649 $1,379 $1,528 $1,514 $1,480 $1,226 $1,357Concession as a % of Face Rents 0.0% 3.1% 0.0% 0.8% 0.0% 1.5% 1.0%Effective Rent $1,649 $1,336 $1,528 $1,502 $1,480 $1,207 $1,343Effective Rent per Square Foot $1.80 $1.37 $1.62 $1.59 $1.53 $1.39 $1.48Per Annum Effective Rent Increase

Since 2011 5.2% -2.5% 4.8% 2.9% 3.9% 2.2% 2.7%Since 2007 3.4% 1.6% 5.4% 3.9% 5.1% 3.0% 3.6%

VacancyVacancy 2012 4.5% 6.6% 2.3% 4.0% 3.7% 5.5% 4.7%Vacancy 2011 4.3% 4.1% 0.6% 2.8% 1.9% 2.2% 2.3%

1 Rents include/assume landlord-paid utilities.2 See Table 5 for Prince George's Submarkets.

Source: Compiled by Delta Associates, 500 Montgomery St., Suite 600, Alexandria, Virginia 22314

Phone: (703) 836-5700. Last Update: 9/2012

SUBMARKET

Third Quarter 2012

MARKET INDICATORSUBTOTAL-

MONTGOMERY COUNTY COLUMBIA

SUBTOTAL - PRINCE

GEORGE'S COUNTY 2

SUBURBAN MARYLAND

OVERALL TOTAL/WEIGHTED

AVERAGE

ROCKVILLE GAITHERSBURGSILVER

SPRING/ WHEATON

TABLE 4 12206 Class B Tables.xlsxX:\DELTA\OLDSERV\Open Projects\12206\3rdQtr2012\Report Tables and Text\CLASS B\12206 Class B Tables.xlsx





Selected Submarkets | Prince George's County Maryland

Number of Units Surveyed 1,945 2,039 2,617 2,108 2,310 11,019Average Year Built of Projects Surveyed 1964 1972 1968 1967 1967 1967

Rent Levels (Avg. of All Unit Sizes) 1

Face Rent $1,119 $1,116 $1,251 $1,365 $1,256 $1,226Concession as a % of Face Rents 1.3% 1.0% 0.4% 0.7% 4.2% 1.5%Effective Rent $1,104 $1,105 $1,246 $1,355 $1,203 $1,207Effective Rent per Square Foot $1.41 $1.15 $1.45 $1.55 $1.38 $1.39

Per Annum Effective Rent IncreaseSince 2011 -0.4% 3.3% 7.1% 1.6% -1.6% 2.2%Since 2007 1.2% 1.7% 4.3% 5.9% 1.8% 3.1%

VacancyVacancy 2012 7.0% 5.0% 5.6% 4.5% 5.5% 5.5%Vacancy 2011 4.5% 1.0% 2.1% 1.7% 1.4% 2.2%

1 Rents include/assume landlord-paid utilities.



SUBMARKET

Third Quarter 2012

MARKET INDICATORSUBTOTAL- PRINCE GEORGE'S COUNTYANDREWS

OXON HILL/ CAMP SPRINGS

LANDOVER/ NEW

CAROLLTON

GREENBELT/ TAKOMA PARK

LAUREL

TABLE 5 12206 Class B Tables.xlsxX:\DELTA\OLDSERV\Open Projects\12206\3rdQtr2012\Report Tables and Text\CLASS B\12206 Class B Tables.xlsx




Number of Units Surveyed 18,033 5,549 4,671 28,253Rent Levels ( Avg. of All Unit Sizes) Face Rent $1,800 $1,762 $1,919 $1,812Concession as a % of Face Rents 0.7% 2.0% 0.2% 0.9%Effective Rent $1,787 $1,726 $1,915 $1,796Effective Rent per Square Foot $1.95 $1.81 $2.40 $2.00Per Annum Effective Rent Increase

Since 2011 1.2% -7.9% 6.6% 0.3%Since 2007 5.5% 3.5% 3.4% 4.8%

Vacancy 2012 3.3% 4.9% 1.5% 3.3%Vacancy 2011 1.0% 1.0% 2.2% 1.2%



TABLE 6

GEOGRAPHIC AREA

KEY MARKET INDICATORS FOR INVESTMENT GRADE CLASS B RENTAL HIGH-RISE APARTMENTS Summary: Washington Metropolitan Area

Third Quarter 2012

MARKET INDICATOR NORTHERN VIRGINIA

SUBURBAN MARYLAND

DISTRICT OF COLUMBIA

TOTAL/ WEIGHTED AVG

Table 6 12206 Class B Tables.xlsx X:\DELTA\OLDSERV\Open Projects\12206\3rdQtr2012\Report Tables and Text\CLASS B\12206 Class B Tables.xlsx




TABLE 7KEY MARKET INDICATORS FOR INVESTMENT GRADE CLASS B RENTAL HIGH-RISE APARTMENTS

Selected Submarkets | Northern Virginia

Number of Units Surveyed 5,628 2,755 981 5,255 3,414 18,033Average Year Built of Projects Surveyed 1987 1964 1963 1981 1981 1978


Face Rent $2,046 $1,542 $1,410 $1,524 $2,140 $1,800Concession as a % of Face Rents 0.0% 1.4% 0.5% 1.5% 0.6% 0.7%Effective Rent $2,046 $1,521 $1,403 $1,501 $2,127 $1,787Effective Rent per Square Foot $2.29 $1.82 $1.86 $1.61 $2.05 $1.95

Per Annum Effective Rent IncreaseSince 2011 4.2% 2.7% 4.9% -0.3% -4.0% 1.2%Since 2007 7.7% 4.1% 3.7% 5.3% 4.0% 5.5%

VacancyVacancy 2012 2.6% 2.4% 1.0% 3.2% 5.9% 3.3%Vacancy 2011 0.6% 0.5% 0.2% 1.6% 1.5% 1.0%

1 Rents include/assume landlord-paid utilities.



SUBMARKET

Third Quarter 2012

MARKET INDICATORFALLS

CHURCH/ NORTH

ARLINGTON

SOUTH ARLINGTON

ARLANDRIAWEST

ALEXANDRIACRYSTAL CITY

SUBTOTAL/ WEIGHTED AVERAGE

TABLE 7 12206 Class B Tables.xlsx

X:\DELTA\OLDSERV\Open Projects\12206\3rdQtr2012\Report Tables and Text\CLASS B\12206 Class B Tables.xlsx




TABLE 8KEY MARKET INDICATORS FOR INVESTMENT GRADE CLASS B RENTAL HIGH-RISE APARTMENTS

Selected Submarkets | Suburban Maryland and Washington D.C.

Number of Units Surveyed 2,957 1,544 1,048 5,549 2,186 1,039 1,446 4,671Average Year Built of Projects Surveyed 1974 1972 1974 1973 1965 1967 1974 1968


Face Rent $1,611 $2,024 $1,804 $1,762 $2,181 $1,769 $1,632 $1,919Concession as a % of Face Rents 0.5% 4.0% 2.7% 2.0% 0.5% 0.0% 0.0% 0.2%Effective Rent $1,603 $1,943 $1,755 $1,726 $2,171 $1,769 $1,632 $1,915Effective Rent per Square Foot $1.65 $2.09 $1.86 $1.81 $2.45 $2.55 $2.22 $2.40

Per Annum Effective Rent IncreaseSince 2011 -11.2% -2.5% -6.7% -7.9% 8.4% 3.3% 6.1% 6.6%Since 2007 3.6% 2.9% 3.7% 3.5% 3.6% 2.1% 3.9% 3.4%

VacancyVacancy 2012 4.7% 3.9% 6.7% 4.9% 2.1% 1.7% 0.4% 1.5%Vacancy 2011 1.0% 0.3% 1.9% 1.0% 3.3% 1.2% 1.2% 2.2%

1 Rents include/assume landlord-paid utilities



SUBTOTAL DISTRICT

Third Quarter 2012SUBMARKET

SUBURBAN MARYLAND DISTRICT OF COLUMBIA MARKET INDICATOR

SILVER SPRINGBETHESDA/

CHEVY CHASEROCKVILLE

SUBTOTAL MARYLAND UPPER

NORTHWESTMT. VERNON SQUARE, NW

SOUTHWEST

TABLE 8 12206 Class B Tables.xlsx

X:\DELTA\OLDSERV\Open Projects\12206\3rdQtr2012\Report Tables and Text\CLASS B\12206 Class B Tables.xlsx

R ENOVATION REPORT 4



RENOVATION REPORT

Page 1 of 6

COMP #

PROJECT NAME/�LOCATION # OF UNITS

SPONSOR TYPEDATE OF

ORIGINAL CONST.

TOTAL REN. COST

REN. COST PER

UNITCOMMENTS

TABLE 9SUMMARY OF MAJOR CLASS B APARTMENT RENOVATIONS

WASHINGTON METROPOLITAN AREAThird Quarter 2012

Units: Full renovation of the kitchens and baths., adding W/D and microwaves to each unit, new windows and doors

Common Area: Full rehab includes painting entryways and buildings and upgrading lighting Units: Full rehab includes new windows, patio doors, ktichen and baths, and installing washer/dryer units

Units: new cabinets, flooring, light fixtures, countertops, appliances.

Units: Kitchens and bathrooms being upgraded; new cabinets, flooring, carpet, paint, lighting, and appliances.

Units: Updating kitchens and bathrooms with new appliances, vinyl floors, new carpet and two-tone paint, replacing ceiling fans, lighiting and blinds, full zise washer/dryer for 2Br

Units: Updating kitchens and bathrooms with new cabinets, countertops and flooring

Units: upgrades to the kitchens and baths on an ongoing basis

Units: new kitchen cabinets, countertops, flooring in the kitchens and baths, appliances and vanities.

Community: Seeking LEED certification, new laundry rooms/machines, new party room, new fitness centerUnits: Updating kitchens and bathrooms

Units: updating kitchens and bathrooms

New Fitness center has been completed Q32012Units: Upgraded kitchen, bathroom, light fixtures, granite countertops, hardwood floors

Units: Full renovation to 50% of vacant units

Units: Kitchen upgrades as units become available

Common Area renovations are completeUnits: full rehab on kitchens and baths

NA

NA

NA

NA

NA

NA

$5,192

NA

NA

$13,025

NA

NA

$73,597

$20,270

NA

NA

NA

NA

NA

NA

NA

NA

$4,500,000

$15,000,000

NA

NA

$6,100,000

$80,000,000

1958

1960

1960

1990

1985

1988

1971

1972

1965

NA

1969

1968

1968

1976

High-Rise

Garden

High-Rise

Garden

Garden

Garden

Garden

Garden

Mid-Rise

Garden

Garden

Garden

Garden

Mixed Use

McKinney Properties

Virginia Management

Southern Management

RREEF

Equity Residential

Dragone Realty

250

191

144

406

2,889

222

1,087

214

250

Meadow WoodsAlexandria, Virginia

Merrifield at Dunn LoringFairfax, Virginia

Coves at ChesapeakeGlen Burnie, Maryland

The Potomac TowersArlington, Virginia

Daniel's Run ApartmentsAdelphi, Maryland

Poplar GlenColumbia, Maryland

Windsor at Fair LakesFairfax, Virginia

Verona at Oakland MillColumbia, Maryland

The Verona at Silver HillSuitland Maryland

The BlairsWashington, DC

Takoma LandingTakoma Park, Maryland

4.

3.

2.

1.

9.

8.

7.

Heritage ParkAdelphi, Maryland

Franklin Park at Greenbelt StationGreenbelt, Maryland

Potomac at River HouseArlington, Virginia

6.

5.

299

647

469

706

764

Fieldstone Properties

The Tower Companies

Dragone Realty

Dreyfuss Management

Vornado Realty Trust

Home Properties

Melkin Properties

Scott Properties

14.

13.

12.

11.

10.

Page 1 of 6



RENOVATION REPORT

Page 2 of 6

COMP #


SPONSOR TYPEDATE OF

ORIGINAL CONST.

TOTAL REN. COST

REN. COST PER

UNITCOMMENTS



Units: upgrades to the kitchens and baths on an ongoing basisNANA1960Garden1. Heritage ParkAdelphi, Maryland

299 Dreyfuss Management

The Donaldson Group

Units: Install upscale kitchens, new carpet, doors, washer/dryers, and bathrooms. Repair 77 vacant units that were damaged in fire, replace outdated central heating/cooling plant with individual high-efficiency electric heat pumps.Common Areas: Build new clubhouse with fitness center, business center, and leasing office. REnnovate swimming pool and bathouse. Upgrade facades,replace balcony railings and roofs. Improve parking lots and landscape.

Units: Remodel kitchens with new cabinets, pantry, and light fixtures. Appliances are updated only if needed. Upgrade bathrooms.

Units: white cabinets, grey countertops, brushed nickel light fixtures in dining room.

Units: Renovated as units become available. Upgraded kitchens, bathrooms, foyers.

Gutting the entire building and replacing all systems and units.

Common Areas: Improving community center, build fitness center, business center, entrance, lobby, landscaping completed 3Q2012Units: Kitchens, bathrooms with updated water conserving fixtures, new capreting, individual washer/dryer new windows and sliding doors, new balcony railings, upgrades to mechanical, electrical and plumbing systems

Units: Venetian gold granite countertops, custom dark wood cabinets, Berber carpeting, new fixtures, showerheads, curtain rods, stainless steel General Electric appliances.

Units: new kitchens and bathrooms

Units: kitchen, bathrooms, floors. fixtures, appliances.

Units: Renovated as units become available. Upgraded kitchens, new appliances.

Renovate Common Areas

Units: Upgrading kitchens to darker wood cabinets, gas range, frost-free refrigerator, and breakfast bars. Upgrading bathroom vanity, tile, tub, and lighting.

55 Units completed, Total number is TBD, make decisions when residents move out

NA

NA

NA

NA

NA

NA

$26,711

NA

NA

NA

$31,148

$18,519

NA

$16,000,000

NA

NA

NA

NA

NA

NA

NA

$9,500,000

$8,500,000

NA

NA

NA

1965

1978

1974

1968

1963

1966

1960

1970

1960

1965

2001

1966

1983

High-Rise

Garden

Garden

Garden

Garden

High-Rise

High-Rise

Garden

Garden

Garden

High-Rise

Garden

GardenHome Properties

Milestone Group

Jack Izower

Harbor Group

UDR

Zuckerman Gravely

Invesco Realty

Donaldson Group &Angelor, Gordon & Co.

Dragone Realty

Spektor, Alex C. & Mira

JBG

Southern Management

331

230

599

727

325

459

305

597

172

320

350

327

185

Heather Hill ApartmentsTemple Hills, Maryland

The Metropolitan at Pentagon CityArlington, Virginia

Beacon Hill Alexandria, Virginia

The SycamoresReston, Virginia

Ellicott HouseWashington, DC

Dominion TowersArlington, Virginia

Carleton EastLanham, Maryland

The MilanoOxon Hill, Maryland

The HanoverGreenbelt, Maryland

Dominion Kings PlaceColumbia, Maryland

Regency Pointe ApartmentsForestville, Maryland

Forest HillsOxon Hill, Maryland

17.

16.

15.

27.

26.

23.

22.

21.

20.

19.

18.

25.

24.

Cavalier ClubFalls Church, Virginia

Page 2 of 6



RENOVATION REPORT

Page 3 of 6

COMP #


SPONSOR TYPEDATE OF

ORIGINAL CONST.

TOTAL REN. COST

REN. COST PER

UNITCOMMENTS





NA

NA

NA

Urban Investment Partners

Westover Companies

Lerner Residential

Units: Kitchen upgrades with new cabinets, appliances, countertops. Bathroom upgrades.Common Areas: Pool, pool furniture, lobbies, hallways, and landscaping

Units: Appliances, countertops, cabinets, floors, tiles, bath, etc.

Units: Upgrade kitchens. Install hardwood floors, new balconies, etc.

Units: Increase energy efficiency, add new systems, and new finishes. Bump out walls to create larger, family-sized unitsCommon Areas: Build new playground and community space to house a proposed onsite resident services program

Overall upgrades of the four properties.

Units: Upgrade upon turnover. New hardwood floors, granite countertops, stainless steel appliances, etc.

Units: Upgrade kitchens and baths upon turnover

Exterior: Replaced entry-way doors, exterior lighting, painting, jetted plumbing lines. Considering filling in pool and replacing with more parking.

Common areas: New fitness center, remodeled hallways and lobby spaces

Units: Replacing air conditioning units, and windows.

Common areas: painting balconies, hallways, exterior work

Common areas: Laundry room, hallways, parking spaces, building systems.

Units: Energy Star appliances, kitchen cabinets and countertops, closet space, and new large windows.

Update amenities, interiors, exteriors, landscaping, and signage on seven properties.

$10,840

$11,111

$29,377

$20,370

$12,953

$46,154

NA

NA

$150,000

$4,779

NA

$43,478

$8,303

$2,600,000

$25,000,000

$2,600,000

NA

$4,000,000

$3,300,000

NA

$1,650,000

$12,000,000

$5,000,000

$2,400,000

NA

$13,500,000

NA

1963

1929

1948

1965

NA

1965

1966

2002

1987

1975

1949

1962-1966

1952

1987-2001

High-Rise

Garden

Garden

Garden

Garden

High-Rise

High-Rise

Garden

Garden

Garden

Mid-Rise

Garden

Mid-Rise

Garden

Harbor Group International

Home Properties

Home Properties

NA

NA

Hamel Commercial Inc.

Foulger-Pratt

Equity Residential

Starwood Capital & Bainbridge Management

851

234

386

162

92

92

544

1,107

111

357

220

52

1,626

556

Montpelier CrossingLaurel, Maryland

Tower 2000Alexandria, Virginia

Buchanan GardensArlington, Virginia

Meridian HillWashington, DC

Belvedere TowersBaltimore, Maryland

Arbor ParkAlexandria, Virginia

Cambridge CourtWhite Marsh, Maryland

Parkwood CourtAlexandria, Virginia

La ReineWashington, DC

South Pointe ApartmentsTemple Hill, Maryland

1500 Massachusetts Ave. NWWashington, DC

Foulger-Pratt's 4 property portfolio Properties: Pennbrooke Terrace, Valleybrook Apartments, Cheverly Terrace, Hanson Arms Forestville and Cheverly, Maryland

Spring House ApartmentsLaurel, Maryland

34.

33.

32.

31.

41.

40.

39.

38.

37.

36.

35.

30.

29.

28.

Starwood Capital & Bainbridge 7 property portfolio Properties: Saddle Ridge, Reserve at Regency Park, Westfield Village, Woodside, Clary's Crossing, Amberton, Rerserve at Town Center Virginia and Maryland

Page 3 of 6



RENOVATION REPORT

Page 4 of 6

COMP #


SPONSOR TYPEDATE OF

ORIGINAL CONST.

TOTAL REN. COST

REN. COST PER

UNITCOMMENTS





Units: Mocha cabinets, brushed nickel appliances, breakfast bar.

Units: New renovated kitchens with breakfast bar

Total property renovation. No leasing at this time.

Units: Updating kitchens and bathrooms with eco-friendly appliances, lighting, paint, etc.

Units: Kitchens when vacant

Units: Installing hardwood flooring in living area, stainless steel appliances, granite countertops, and cherry wood cabinets.

Units: Installing hardwood flooring in at least half of the units.

Units: Replacing cabinets, countertops, hardware, and flooring.

Units: renovating kitchens and bathrooms

--

Units: Renovating kitchens and baths.

Units: Install new cabinets and floors in kitchens and baths.

Units: New appliances, etc. at turnover

Units: Renovating entire unit as they are vacant

Units: Putting upgraded maple cabinets, stainless steel appliances, chair railing, granite countertops, and ceramic flooring in some units

Units: New clean steel appliances, and new countertops, etc.

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

1962

1974

1989

1967

1985

1948

1991

2002

1990

1997

1987

1991

1972

NA

1972

1960

High-Rise

High-Rise

Garden

Garden

Garden

Garden

High-Rise

Garden

Garden

High-Rise

Garden

Equity Residential

High-Rise

Garden

Garden

Garden

Garden

UDR

Avalon

Bozzuto

Ross

Forest City Enterprises

Laramar Communities

UDR

UDR

NA

Forest City Enterprises

Ross

Dreyfuss

Home Properties

Panco

AIMCO

308

299

273

288

586

84

344

285

540

219

196

314

234

102

204

937

Calvert's WalkBel Air, Maryland

Lloyd ApartmentsAlexandria, Virginia

Lenox ClubArlington, Virginia

Park Place at Van DornAlexandria, Virginia

Avalon at Ballston-Washington TowersWashington, DC

Liriope ApartmentsBelcamp, Maryland

Waterside ApartmentsReston, Virginia

Arborview Apartments at RiversideBelcamp, Maryland

Fenland FieldColumbia, Maryland

Lenox ParkSilver Spring, Maryland

Park Vue of AlexandriaAlexandria, Virginia

Ravensworth TowersAnnandale, Virginia

The Point at AlexandriaAlexandira, Virginia

Newport Village ApartmentsAlexandria, Virginia

Spring Ridge ApartmentsGaithersburg, Maryland

Caylor GardensAlexandria, Virginia

49.

57.

56.

55.

54.

53.

52.

51.

50.

48.

47.

46.

45.

44.

43.

42.

Page 4 of 6



RENOVATION REPORT

Page 5 of 6

COMP #


SPONSOR TYPEDATE OF

ORIGINAL CONST.

TOTAL REN. COST

REN. COST PER

UNITCOMMENTS





Units: Kitchen at bathroom upgrades at turnover

Units: Kitchen areas when vacant

Units: Switching appliances to stainless steel and recarpeting hallways

Units: All new double pane thermo pane windows, sliding glass windows to balcony, new balcony rails, corner brick

Units: Renovating floors, kitchens, and bathrooms

Units: Total unit renovation upon vacancy. Replacing cabinets with cherry wood, new countertops, updating flooring, replacing mini-blinds with Venetian wood blinds, new lighting, mirrors, hardware, etc.

Units: upgrades to kitchen when vacant

Units: New Hardwood floors

New Pool

Rooftop grills, Renovating pool, new fitness center

Units: Flooring, countertops, cabinets, and electrical fixtures.

Units: new appliances and flooring in the kitchens and baths.

Units: Updating kitchens with faux-granite black countertops, black appliances, and new cabinets.

Units: Total unit renovation. Replacing cabinets, countertops, flooring, appliances, fixtures, vanities, etc.

Units: Kitchen at bathroom upgrades at turnover

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

$7,420

NA

NA

NA

NA

NA

NA

NA

$11,000

NA

NA

NA

NA

NA

$3,242,564

NA

$2,090,000

NA

NA

NA

1996

1990

1967

1987

1960

1986

1965

2002

1963

1962

1962

1967

1997/2001

1966

2007

Mid-Rise

Garden

Garden

Garden

Mid-Rise

High-Rise

High-Rise

Garden

High-Rise

Mid-Rise

High-Rise

Garden

Garden

Garden

High-Rise

Virginia Management Inc.

WRIT

Archstone

Beacon Hill Management

Dittmar Company

NA

Fairfield Residential

E. G. Reinsch

Riverstone Residential Group

Southern Management

Madison Apartment Group

Lenkin Company Management Inc.

Finesa Management

Bozzuto

Bozzuto

206

349

249

288

190

300

437

227

230

395

184

727

491

264

230

Westmont Gardens Arlington, Virginia

Shadyside GardensSuitland, Maryland

The Promenade Washington, DC

Manor at England RunFredricksburg, Virginia

Cavalier ClubFalls Church, Virginia

The AlexanderAlexandria, Virginia

Randolph TowersArlington, Virginia

Beacon HillAlexandria, Virginia

Archstone Virginia SquareArlington, Virginia

Country Club TowersArlington, Virginia

Shirlington HouseArlington, Virginia

Residences at BelmontFredricksburg, Virginia

Apartments at Harbor ParkReston, Virginia

Kendall RidgeColumbia, Maryland

Warwick ApartmentsSilver Spring, Maryland

62.

61.

60.

59.

58.

66.

65.

64.

63.

72.

71.

70.

69.

68.

67.

Page 5 of 6


SPONSORED BY ROSS COMPANIES Page 6 of 6

COMP #


SPONSOR TYPEDATE OF

ORIGINAL CONST.

TOTAL REN. COST

REN. COST PER

UNITCOMMENTS





Total/Average: 34,653 -- -- -- $219,482,564 $20,440

Note: If you have any major renovations planned or underway which we have overlooked, please call or fax us.

Source: Compiled by Delta Associates, 500 Montgomery St., Suite 600, Alexandria, Virginia 22314; Phone: (703) 836-5700; Fax: (703) 836-5765. Last update 9/2012.

2005 Building fitness Center Upgrading Lobby and Community RoomsCompleted building a playground

Redoing elevators

Club House and office renovations

Redoing club house and repaved parking

Redoing Balconies

Roof Repairs

Lobby is being completely redone

Halways being redone, recarpeted and painted

Units: Only about 15% of the units are planned to be renovated. They will have dark wood cabinets, laminate countertops, stainless-steel appliances, faux-wood floors in the kitchen, and new laminate floor/cabinetry in bathrooms

Fitness center

Units: Upon vacancy, units are getting entirely renovated. Kitchens and bathrooms will get new ceramic tile, upgraded cabinets, and nickel light fixtures. Kitchen appliances will be replaced with black appliances, and when needed the carpeting will be replaced with a gree-color carpet product

Units: kitchens and bath at turnover

Units being upgraded

Units: remodel kitchens and baths

$10,331

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

NA

$2,500,000

NA

NA

NA

NA

NA

NA

NA

2004

1992

1900

2009

1999

2007

1968

1962

1966

1979

1963

1954

1993

2000

High-Rise

High-Rise

Garden

Garden

Garden

High-Rise

High-Rise

Garden

Garden

Garden

High-Rise

High-Rise

High-Rise

High-Rise

High-Rise

Greystar

Westover Companies

NA

Camden

Archstone

NA

WRIT

Borger Management

Archstone

Avalon Communities

A & R

Federal Capital Partners

Polinger Shannon & Luchs

Southern Management

Southern Management

Archstone Ballston SquareArlington, VA

The CambridgeWashington, DC

442

401

191

236

714

242

539

Camden Ashburn FarmArlington, VA

The Residence at WaterstonePikesville, Maryland

Waterloo PlaceBaltimore, Maryland

Redwood TowersBaltimore, Maryland

Avalon CenterpointBaltimore, Maryland

Warwick ApartmentsSilver Spring, Maryland

Colesville TowersSilver Spring, Maryland

Archstone Columbia CrossingArlingotn, Virginia

162

247

279

392

151

172

255

395

Roosevelt TowersFalls Churchm Virginia

The ChateauSilver Spring, Maryland

Kings GardenAlexandria, Virginia

Rollins ParkRockville, Maryland

North Pointe Previously known as Ager Road Station ApartmentsHyatsville, Maryland

81.

87

86.

85.

84.

83.

80.

79.

78.

77.

76.

75.

74.

73.

82.

Page 6 of 6

5TRANSACTION REPORT



TRANSACTION REPORTPage 277 of 279

Total Per Unit

CLASS B GARDEN/MID-RISE APARTMENTS1. Comparable #1 1/11 240 1987 $31,000,000 $129,167

Silver Spring, Maryland

2. Comparable #2 2/11 200 1995 $18,250,000 $91,250

Fredricksburg, Virginia

3. Comparable #3 3/11 532 1989 $115,770,100 $217,613

Alexandria, Virginia

4. Comparable #4 3/11 408 1990 $61,779,338 $151,420

Manassas, Virginia

5. Comparable #5 3/11 134 1986 $18,864,718 $140,781

Leesburg, Virginia

6. Comparable #6 3/11 467 1990 $74,541,410 $159,618

Ashburn, Virginia

7. Comparable #7 3/11 283 1990 $50,681,592 $179,087

Herndon, Virginia

8. Comparable #8 3/11 218 1990 $36,407,818 $167,008

Germantown, Maryland

9. Comparable #9 3/11 210 1974 $31,273,878 $148,923

Gaithersburg, Maryland

10. Comparable #10 3/11 400 1980 $58,000,000 $145,000


11. Comparable #11 3/11 228 1984 $31,250,000 $137,061

Frederick, Maryland

12. Comparable #12 3/11 297 1981/1986 $19,250,000 $64,815

Frederick, Maryland

13. Comparable #13 4/11 108 1984 $7,000,000 $64,815

Frederick, Maryland

14. Comparable #14 4/11 216 1989 $36,000,000 $166,667

Ashburn, Virginia

15. Comparable #15 4/11 252 1988 $45,250,000 $179,563

Centreville, Virginia

16. Comparable #16 4/11 228 1988 $43,000,000 $188,596

Centreville, Virginia

17. Comparable #17 4/11 252 1987 $44,500,000 $176,587

Lorton, Virginia

18. Comparable #18 4/11 198 NA $35,500,000 $179,293

Columbia, Maryland

19. Comparable #19 4/11 190 1990 $24,650,000 $129,737

Manassas, Virginia

20. Comparable #20 5/11 404 1963 $26,276,160 $65,040

Forestville, Maryland 1/

21. Comparable #21 5/11 147 1966 $9,560,880 $65,040

Forestville, Maryland 1/

22. Comparable #22 5/11 366 1962 $23,804,640 $65,040

Cheverly, Maryland 1/

23. Comparable #23 5/11 190 1963 $12,357,600 $65,040

Cheverly, Maryland 1/

24. Comparable #24 5/11 492 1965 $27,400,000 $55,691

Suitland, Maryland

25. Comparable #25 5/11 599 1963 $20,000,000 $33,389

Forestville, Maryland

26. Comparable #26 6/11 134 1945 $13,000,000 $97,015

Arlington, Virginia

27. Comparable #27 6/11 210 1966 $49,500,000 $235,714

Rockville, Maryland

28. Comparable #28 7/11 76 1958 $9,120,000 $120,000

Arlington, Virginia approx

29. Comparable #29 8/11 72 1977 $12,100,000 $168,056

Alexandria, Virginia approx

30. Comparable #30 8/11 150 1970 $14,100,000 $94,000

Woodbridge, Virginia approx

TABLE 10SUMMARY OF CLASS B GARDEN AND HIGH-RISE APARTMENT BUILDING SALES

WASHINGTON METROPOLITAN AREA 2011

Sale PriceProject Name/Location Date of Sale # of Units Year Built

Page 1 of 2



TRANSACTION REPORTPage 278 of 279

Total Per Unit

TABLE 10SUMMARY OF CLASS B GARDEN AND HIGH-RISE APARTMENT BUILDING SALES

WASHINGTON METROPOLITAN AREA 2011


31. Comparable #31 8/11 84 1973 $6,825,000 $81,250

Middletown, Maryland

32. Comparable #32 8/11 172 1977 $28,800,000 $167,442


33. Comparable #33 9/11 244 1978 $40,800,000 $167,213


34. Comparable #34 9/11 634 1988 $102,000,000 $160,883

Elkridge, Maryland

35. Comparable #35 10/11 937 1969 $205,000,000 $218,783

Alexandria, Virginia Renov. 2005

36. Comparable #36 10/11 386 1965 $33,600,000 $87,047

Laurel, Maryland Renov. 2002

37. Comparable #37 10/11 92 1929 $17,125,000 $186,141

Washington, DC

38. Comparable #38 11/11 189 1963 $23,000,000 $121,693


39. Comparable #39 11/11 170 1969 $15,200,000 $89,412

Fort Washington, Maryland

40. Comparable #40 12/11 21 1917 $3,700,000 $176,190

Washington DC

41. Comparable #41 12/11 930 1965 $62,093,212 $66,767

Suitland, Maryland

42. Comparable #42 12/11 432 1987 $68,725,000 $159,086

Manassas, Virginia

43. Comparable #43 12/11 65 1986 $7,100,000 $109,231

Gaithersburg, Maryland

44. Comparable #44 12/11 1,180 1973/2000 $192,000,000 $162,712


Total/Average: -- 13,437 -- $1,806,156,346 $134,417

CLASS B HIGH-RISE APARTMENTS1. Comparable #1 1/11 40 NA $4,500,000 $112,500

Washington, DC

2. Comparable #2 3/11 1,116 1966 $103,000,000 $92,294


3. Comparable #3 3/11 128 1949 $6,500,000 $50,781

Laurel, Maryland

4. Comparable #4 4/11 415 1978 $89,200,000 $214,940

Falls Church, Virginia

5. Comparable #5 5/11 556 1952 $95,000,000 $170,863

Washington, DC

6. Comparable #6 5/11 570 1974 $93,000,000 $163,158

Alexandria, Virginia 1965/1973

7. Comparable #7 5/11 41 1926 $4,000,000 $97,561

Washington, DC approx

8. Comparable #8 6/11 26 1908 $3,300,000 $126,923

Washington, DC

9. Comparable #9 6/11 101 1951 $7,100,000 $70,297

Washington, DC

10. Comparable #10 7/11 395 1967 $65,100,000 $164,810


11. Comparable #11 8/11 204 1957/1990 $30,800,000 $150,980

Washington, DC

12. Comparable #12 8/11 196 1965 $29,750,000 $151,786


13. Comparable #13 9/11 52 1944 $4,200,000 $80,769

Washington, DC approx

14. Comparable #14 9/11 539 1966/2000 $191,000,000 $354,360

Arlington, Virginia

Total/Average: -- 4,379 -- $726,450,000 $165,894

1/ This property was part of a portfolio sale totaling $75m.Note: Delta Associates no longer provides the name of each project listed above except to appraisal clients of the firm and those who provide this type of transaction data to Delta. If you wish a list of project names and you qualify to receivesame, email your request to: [email protected]: Compiled by Delta Associates, 500 Montgomery St., Suite 600, Alexandria, Virginia 22314.Phone: (703) 836-5700; Fax (703) 836-5765. Last update: 9/2012.

Page 2 of 2



TRANSACTION REPORT

Total Per UnitCLASS B GARDEN/MID-RISE APARTMENTS

1. Comparable #1 1/12 57 1944/1990 $3,705,000 $65,000

Washington, DC

2. Comparable #2 1/12 198 1947 $35,000,000 $176,768

Arlington, Virginia

3. Comparable #3 3/12 65 1987 $11,000,000 $169,231

Laurel, Maryland

4. Comparable #4 4/12 180 1973 $22,700,000 $126,111


5. Comparable #5 4/12 300 1985 $47,500,000 $158,333


6. Comparable #6 4/12 200 1989 $21,100,000 $105,500

Fredericksburg, Virginia

7. Comparable #7 5/12 234 1954 $14,800,000 $63,248

Hyattsville, Maryland

8. Comparable #8 5/12 165 1964 $16,200,000 $98,182

Leesburg, Virginia

9. Comparable #9 5/12 577 1969 $111,000,000 $192,374

McLean, Virginia

10. Comparable #10 5/12 1,242 1995 $182,000,000 $146,538

Landover, Maryland

11. Comparable #11 5/12 113 1950 $14,500,000 $128,319


12. Comparable #12 6/12 1,350 1967 $186,000,000 $137,778

Ellicott City, Maryland

13. Comparable #13 6/12 556 1991 $125,500,000 $225,719


14. Comparable #14 7/12 240 1968 $30,900,000 $128,750

Millersville, Maryland

15. Comparable #15 8/12 590 1964 $48,164,409 $81,635

Hyattsville, Maryland

16. Comparable #16 8/12 982 1972 $102,000,000 $103,870

Laurel, Maryland

17. Comparable #17 8/12 768 1982 $90,300,000 $117,578


Total/Average: -- 7,817 -- $1,062,369,409 $135,905

CLASS B HIGH-RISE APARTMENTS1. Comparable #1 1/12 88 1937 $6,961,500 $79,108

Washington, DC

2. Comparable #2 1/12 79 1929/1986 $22,000,000 $278,481

Washington, DC

3. Comparable #3 3/12 442 1972 $175,000,000 $395,928

Arlington, Virginia

4. Comparable #4 4/12 115 1930 $26,000,000 $226,087

Washington, DC

5. Comparable #5 5/12 324 1966 $28,500,000 $87,963

Fort Washington, Maryland

6. Comparable #6 6/12 890 1968 $168,000,000 $188,764


7. Comparable #7 7/12 64 1923 $11,000,000 $171,875

Washington, DC

8. Comparable #8 7/12 89 1929 $19,000,000 $213,483

Washington, DC

9. Comparable #9 8/12 237 1987 $75,500,000 $318,565

North Bethesda, Maryland

Total/Average: -- 2,328 -- $531,961,500 $228,506

Note: Delta Associates no longer provides the name of each project listed above except to appraisal clients of the firm and those who provide this type of transaction data to Delta. If you wish a list of project names and you qualify to receivesame, email your request to: [email protected]: Compiled by Delta Associates, 500 Montgomery St., Suite 600, Alexandria, Virginia 22314.Phone: (703) 836-5700; Fax (703) 836-5765. Last update: 9/2012.

2012 Through AugustWASHINGTON METROPOLITAN AREA

SUMMARY OF CLASS B GARDEN AND HIGH-RISE APARTMENT BUILDING SALESTABLE 11


6EXPL ANATION OF GEOGRAPHIC COVERAGE A ND METHODOLOGY



MARKET AREA DEFINITION

Delta Associates currently surveys 30 Class B garden and high-rise apartment submarkets in the Washington Metropolitan Area. The ten Northern Virginia garden apartment submarkets included are: Reston, Fairfax City, Falls Church/Merrifield, Rosslyn/Ballston, South Arlington, Old Town Alexandria, Arlandria, Route 1 Corridor of Alexandria, West Alexandria, and Annandale. The nine Class B garden apartment submarkets included in Suburban Maryland are: Rockville, Gaithersburg, Columbia, Landover/New Carrollton, Andrews, Oxon Hill/Camp Springs, Greenbelt/Takoma Park, Laurel, and Silver Spring. The eleven high-rise Class B apartment submarkets are: Arlandria, West Alexandria, Falls Church/North Arlington, South Arlington, and Crystal City, Virginia; Rockville, Silver Spring and Bethesda/Chevy Chase, Suburban Maryland; Upper Northwest, Mount Vernon Square, and Southwest, Washington, D.C.

COVERAGE

Delta Associates inspects and collects data on a representative sampling of the Class B product in each submarket. To date, a total of approximately 200 Class B properties are surveyed by Delta Associates each quarter – accounting for nearly 70,000 units.

PRODUCT DEFINITION

“Class B” product is defined by Delta Associates as well maintained, older product, generally built in the 196.0’s or 197.0’s (some submarkets only have product older than 1960, so that is surveyed), and which does not offer a separate clubhouse nor decorated model unit nor two bedroom/two bathroom floor plans. Class B communities typically offer limited project amenities. The landlord typically pays gas and/or electric for the common areas and individual units. The projects are typically 200+ units except in submarkets where product is scarce.

FACE RENT/UTILITIES

Face rent is the asking rent for each unit, excluding any concessions or rent specials. Delta Associates quotes the weighted average asking base rent for each submarket – the asking rent for a first floor unit without any premiums for fireplace, view, etc. A few Class B projects are separately metered and tenants pay their own utilities. In these cases, rents are adjusted to include all utilities as follows:

EXPLANATION OF GEOGRAPHIC COVERAGE AND METHODOLOGY

EFFICIENCY

Utility Adjustment

1 BEDROOM 2 BEDROOM 3 BEDROOM

$28 $40 $51 $62




Beginning with the 2nd Quarter 2006 publication, Delta Associates has utilized one utility adjustment for all projects that require tenants to pay their own utilities, regardless of the type of utilities. Delta has found that the variety of utility arrangements varies much more widely and changes more often than previously recognized. This reporting change will help to eliminate inconsistencies due to these variances.

EFFECTIVE RENT

Effective rent is face rent adjusted downward for concessions or rent specials. Typically, concessions are used selectively to lease weaker floor plans or surplus units.

STABILIZED VACANCY

“Stabilized Vacancy” as used herein is the rate of “available units” in stabilized properties. Once a property achieves 95% occupancy, it is considered “stabilized” and stays in our pool of stabilized properties even if it falls below 95% at a subsequent reporting date.

We obtain information on “available units” when conducting our surveys. Obtaining the information this way may produce several important differences from “vacancy” as reported in financial statements. Simply stated, the difference can be characterized as:

• Delta’s: Available units to lease • Financial statement: Economic vacancy

“Available units” is understated compared to “economically vacant” by our exclusion of units occupied by dead-beat tenants and units not available for lease, such as employee units and model apartments. Our occupancy rate is overstated compared to financial reporting by our exclusion of economically vacant, on-notice units for which a lease to occupy in the future has been signed. As compared to the “vacancy rate” as used in financial reports, we estimate that the former reduces our “available units” (vacancy rate) estimate by about 100 to 150 basis-points and the latter another 150 to 200 basis-points.




WASHINGTON AREACLASS B APARTMENT SUBMARKETS

WASHINGTON AREA CLASS B APARTMENT SUBMARKETS

Gaithersburg

Rockville

Bethesda/ Chevy Chase

D.C.

Silver Spring/ Wheaton

Reston

Crystal City

North Arlington

South Arlington

Falls Church/ Merrifield

Fairfax City

Greenbelt/ Takoma Park

Landover/ New Carrollton

Andrews

Oxon Hills/ Camp Springs

Rte. 1 Corridor

W. Alexandria

Arlandria

Old Town

Columbia

Laurel



We would like to thank the following sources for the photography used in this report.

Page 23 & 25: ROSS CompaniesSeven Springs Village, College Park, MD

Page 26 (Top): Empire Group HoldingsEmpirian Village (formerly Springhill Lake), Greenbelt, MDDelta Associates’ 2008 Winner of Sale Transaction of the Year

Page 26 (Bottom): Dragone Realty InvestmentsThe Milano Apartments, Oxon Hill, MDDelta Associates’ 2012 Winner of Best Renovation – Mid-Atlantic

Page 27: ROSS CompaniesSpring Parc, Silver Spring, MD

Page 28: Stellar ManagementPatriot Village, Annandale, VADelta Associates’ 2008 Winner of Landmark Mid-Atlantic Class B Garden Apartment Sale

PHOTOGRAPHY CREDITS

PHOTOGRAPHY CREDITS

S P O N S O R E D B Y : | www.TheRossCompanies.com

www.De l taAssoc ia tes .com

www.TheRossCompanies.com

www.DeltaAssociates.com

Documents

WASHINGTON METROPOLITAN AREA CLASS B APARTMENT …