2104 bacon st - loopnet...the complex is composed of ten, 325 square foot studio / 1-bath apartments...

2104 BACON ST

Offering Memorandum

Ocean Beach, CA 92107

1

2104 BACON ST

San Diego, CA

ACT ID Z0090835

N O N - E N D O R S E M E N T A N D D I S C L A I M E R N O T I C E

Non-EndorsementsMarcus & Millichap is not affiliated with, sponsored by, or endorsed by any commercial tenant or lessee identified in this marketing package. The presence of any

corporation's logo or name is not intended to indicate or imply affiliation with, or sponsorship or endorsement by, said corporation of Marcus & Millichap, its affiliates or

subsidiaries, or any agent, product, service, or commercial listing of Marcus & Millichap, and is solely included for the purpose of providing tenant lessee information

about this listing to prospective customers.

ALL PROPERTY SHOWINGS ARE BY APPOINTMENT ONLY.

PLEASE CONSULT YOUR MARCUS & MILLICHAP AGENT FOR MORE DETAILS.

DisclaimerTHIS IS A BROKER PRICE OPINION OR COMPARATIVE MARKET ANALYSIS OF VALUE AND SHOULD NOT BE CONSIDERED AN APPRAISAL. This information has

been secured from sources we believe to be reliable, but we make no representations or warranties, express or implied, as to the accuracy of the information. References

to square footage or age are approximate. Buyer must verify the information and bears all risk for any inaccuracies. Marcus & Millichap is a service mark of Marcus &

Millichap Real Estate Investment Services, Inc. © 2018 Marcus & Millichap. All rights reserved.

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P R E S E N T E D B Y

3

TABLE OF CONTENTS

SECTION

INVESTMENT OVERVIEW 01Property Overview

Regional Map

Local Map

Aerial Photo

FINANCIAL ANALYSIS 02Rent Roll Summary

Rent Roll Detail

Operating Statement

Notes

Pricing Detail

Proposal Price

MARKET COMPARABLES 03Sales Comparables

Rent Comparables

MARKET OVERVIEW 04

Market Analysis

Demographic Analysis

2104 BACON ST

4

2104 BACON ST

5

INVESTMENT

OVERVIEW

PROPERTY OVERVIEW

2104 BACON ST

PROPERTY OVERVIEW

Marcus and Millichap is pleased to present 2104-10 Bacon Street, a rare apartment investment in one San Diego's most

gentrifying beach communities. The property consists of two buildings resting on a 7,813 square foot lot two blocks from the

ocean. The complex is composed of ten, 325 square foot studio / 1-bath apartments and one 1,100 square foot 3-bedroom / 2-

bath unit with a double garage and 8 off-street parking spots. The exterior and courtyard of the property have been newly

redesigned with a contemporary spanish style, featuring wood accents, stucco exterior and outdoor tile walkways. Substantial

upgrades have been made to the property including solar panels, a security camera system with dvr, a bike rack, flood pumps and

drainage system, flood gates, courtyard WIFI, fencing, tile work, grilling area, railings, laundry and interior renovations to select

units. All units have been well maintained and feature wood cabinets and tile flooring. The complex has a primarily gravel and

succulent landscaping, keeping grounds maintenance costs and water usage to a minimum.

This complex sits just two blocks from the water and four streets away from the heart of Ocean Beach's eclectic downtown area.

Ocean Beach offers an array of entertainment with shops, restaurants, beaches and attractions all within walking distance. Ocean

Beach is one of the closest beach communities to Downtown San Diego that has recently begun a visible transformation with new

complexes, residences and stores flourishing across the neighborhood. 2104-10 Bacon Street would be ideal for the investor

seeking a strong-performing asset in a rapidly appreciating, supply constrained market near the beach.

PROPERTY OVERVIEW

Prime Ocean Beach Location Two Blocks From The Water

Solar Panels Providing Low Utility Costs

Alluring Tile Courtyard with Grilling Amenities

Owner/Investor Occupancy Opportunity

Double Garage and 8 Off-Street Parking Options

Low Maintenance Landscape

6

REGIONAL MAP

2104 BACON ST

7

LOCAL MAP

2104 BACON ST

8

AERIAL PHOTO

2104 BACON ST

9

Marcus & Millichap closes

more transactions than any

other brokerage firm.

12

2104 BACON ST

10

PROPERTY PHOTO




12

2104 BACON ST

11

PROPERTY PHOTO




12

2104 BACON ST

12

PROPERTY PHOTO




12

2104 BACON ST

13

PROPERTY PHOTO

2104 BACON ST

14

FINANCIAL

ANALYSIS

FINANCIAL ANALYSIS

2104 BACON ST

RENT ROLL SUMMARY

15

FINANCIAL ANALYSIS

2104 BACON ST

16

RENT ROLL DETAIL

FINANCIAL ANALYSIS

2104 BACON ST

OPERATING STATEMENT

17

FINANCIAL ANALYSIS

2104 BACON ST

PRICING DETAIL

18

2104 BACON ST

19

MARKET

COMPARABLES

2104 BACON ST

SALES COMPARABLES MAP

20

2104 BACON ST

5037 Narragansett Avenue

5101 Narragansett Avenue

4819 Santa Cruz Avenue

4941 Cape May Avenue

4850 Muir Avenue

4842-48 Pescadero Avenue

SALES COMPARABLES

1

2

3

4

5

6

21

PROPERTY NAME2104 BACON ST

SALES COMPARABLES

Avg. 3.87%

0.0

0.6

1.2

1.8

2.4

3.0

3.6

4.2

4.8

5.4

6.0

2104

Bacon St

5037-45

Narragansett

Avenue

5101-5107

Narragansett

Ave

4819 Santa

Cruz Avenue

4941-4952

Cape

May Ave

4850 Muir Ave 4842-48

Pescadero

Ave

Average Cap Rate

Avg. 17.72

0.00

2.30

4.60

6.90

9.20

11.50

13.80

16.10

18.40

20.70

23.00

2104

Bacon St

5037-45

Narragansett

Avenue

5101-5107

Narragansett

Ave

4819 Santa

Cruz Avenue

4941-4952

Cape

May Ave

4850 Muir Ave 4842-48

Pescadero

Ave

Average GRM

SALES COMPARABLES SALES COMPS AVG

22


SALES COMPARABLES

Avg. $533.80

$0.00

$80.00

$160.00

$240.00

$320.00

$400.00

$480.00

$560.00

$640.00

$720.00

$800.00

2104

Bacon St

5037-45

Narragansett

Avenue

5101-5107

Narragansett

Ave

4819 Santa

Cruz Avenue

4941-4952

Cape

May Ave

4850 Muir Ave 4842-48

Pescadero

Ave

Average Price Per Square Foot

Avg. $337,721

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

$500,000

2104

Bacon St

5037-45

Narragansett

Avenue

5101-5107

Narragansett

Ave

4819 Santa

Cruz Avenue

4941-4952

Cape

May Ave

4850 Muir Ave 4842-48

Pescadero

Ave

Average Price Per Unit

SALES COMPARABLES SALES COMPS AVG

PROPERTY NAME

MARKETING TEAM

2104 BACON ST

SALES COMPARABLES

rentpropertyname1

rentpropertyaddress1

rentpropertyname1


rentpropertyname1


23

SALES COMPARABLES

Units Unit Type

Offering Price: $3,150,000 1 3-Bdr 2-Bath

Price/Unit: $286,364 10 Studio 1-Bath

Price/SF: $724.14

CAP Rate: 3.85%

GRM: 16.58

Total No. of Units: 11

Year Built: 1953

Underwriting Criteria

Income $188,099 Expenses $66,907

NOI $121,192 Vacancy ($5,701)

2104 BACON ST2104 Bacon St, San Diego, CA, 92107

1

Units Unit Type

Close Of Escrow: 7/12/2017 7 Bdr Bath

Sales Price: $4,250,000 8 1 Bdr 1 Bath

Price/Unit: $250,000 1 2 Bdr 1 Bath

Price/SF: $688.59 1 3 Bdr 1 Bath

CAP Rate: 5.07%

GRM: 12.42


Year Built: 1958



NOI $215,475 Vacancy $10,260

5037-45 NARRAGANSETT AVENUE5037 Narragansett Ave, San Diego, CA, 92107

Units Unit Type

Close Of Escrow: 5/22/2018 1 3 Bdr 2.5 Bath

Days On Market: 122 6 2 Bdr 1 Bath


Price/Unit: $421,875 5 Studio 1 Bath

Price/SF: $555.97

CAP Rate: 2.89%

GRM: 18.79


Year Built: 1973



NOI $226,316 Vacancy $10,777

2

5101-5107 NARRAGANSETT AVE5101 Narragansett Ave, San Diego, CA, 92107

PROPERTY NAME

MARKETING TEAM

2104 BACON ST

SALES COMPARABLES

rentpropertyname1


rentpropertyname1


rentpropertyname1


24

SALES COMPARABLES

Units Unit Type

Close Of Escrow: 6/21/2018 2 1 Bdr 1 Bath

Days On Market: 84 6 2 Bdr 1 Bath

Sales Price: $3,300,000

Price/Unit: $412,500

Price/SF: $467.42

CAP Rate: 3.75%

GRM: 16.80


Year Built: 1969



NOI $123,750 Vacancy $5,892

3

4819 SANTA CRUZ AVENUE4819 Santa Cruz Ave, San Diego, CA, 92107

4

Units Unit Type




Price/SF: $485.20

CAP Rate: 2.77%

GRM: 21.15


Year Built: 1950



NOI $89,361 Vacancy $4,255

4941-4952 CAPE MAY AVE4949-4952 Cape May Ave, San Diego, CA, 92107

Units Unit Type



Price/Unit: $348,615 2 2 Bdr 2 Bath

Price/SF: $470.86

CAP Rate: 5.24%

GRM: 19.08


Year Built: 1969



NOI $161,496 Vacancy $7,231

5

4850 MUIR AVENUE4850 Muir Ave, San Diego, CA, 92107

PROPERTY NAME

MARKETING TEAM

2104 BACON ST

SALES COMPARABLES

rentpropertyname1


rentpropertyname1


rentpropertyname1


25

SALES COMPARABLES

Units Unit Type




Price/SF: $534.76

CAP Rate: 3.48%

GRM: 18.05


Year Built: 1960



NOI $45,373 Vacancy $2,160

6

4842-48 PESCADERO AVE4842 Pescadero Ave, San Diego, CA, 92107

8

2104 BACON ST

RENT COMPARABLES MAP

2104 BACON ST

4971 W. Point Loma Blvd

2145 Spray Street

4975 Del Monte Avenue

5050 Niagara Avenue

4882 Cape May Ave

4847 Lotus Street

5025 Niagara Avenue

4968 Long Branch

4

7

8

9

11

20

12

14

15

16

17

13

18

10

4

7

8

1

2

3

5

6

26


RENT COMPARABLES

27

AVERAGE RENT - MULTIFAMILY

$0

$400

$800

$1,200

$1,600

$2,000

$2,400

$2,800

$3,200

$3,600

$4,000

2104

Bacon St

4847 Lotus

Street

5025

Niagara

Avenue

4968 Long

Branch

3 Bedroom

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

2104

Bacon St

4971 W.

Point Loma

Blvd

2145 Spray

Street

4975 Del

Monte

Avenue

Surfcaster 4882 Cape

May Ave

Studios


RENT COMPARABLES

28

AVERAGE RENT/SF BY UNIT

$0.00

$0.40

$0.80

$1.20

$1.60

$2.00

$2.40

$2.80

$3.20

$3.60

$4.00

2104

Bacon St

4847 Lotus

Street

5025

Niagara

Avenue

4968 Long

Branch

3 Bedroom

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

2104

Bacon St

4971 W.

Point Loma

Blvd

2145 Spray

Street

4975 Del

Monte

Avenue

Surfcaster 4882 Cape

May Ave

Studios

PROPERTY NAME

MARKETING TEAM

2104 BACON ST

RENT COMPARABLES

rentpropertyname1


rentpropertyname1


rentpropertyname1


29

rentpropertyname1


Unit Type Units SF Rent Rent/SF

3-Bdr 2-Bath 1 1,100 $2,895 $2.63

Studio 1-Bath 10 325 $1,294 $3.98

Total/Avg. 11 395 $1,440 $3.64

2104 BACON ST2104 Bacon St, San Diego, CA, 92107

1


Studio 1 Bath 1 375 $1,795 $4.79

Total/Avg. 1 375 $1,795 $4.79

4971 W. POINT LOMA BLVD4971 W Point Loma Blvd, San Diego, CA, 92107

2


Studio 1 Bath 1 550 $1,500 $2.73

Total/Avg. 1 550 $1,500 $2.73

2145 SPRAY STREET2145 Spray St, San Diego, CA, 92107

PROPERTY NAME

MARKETING TEAM

2104 BACON ST

RENT COMPARABLES

rentpropertyname1


rentpropertyname1


rentpropertyname1


30

3


Studio 1 Bath 1 450 $1,545 $3.43

Total/Avg. 1 450 $1,545 $3.43

4975 DEL MONTE AVENUE4975 Del Monte Ave, San Diego, CA, 92107

4


Studio 1 Bath 1 357 $1,600 $4.48

Total/Avg. 1 357 $1,600 $4.48

SURFCASTER5050 Niagara Ave, San Diego, CA, 92107

5


Studio 1 Bath 1 450 $1,400 $3.11

Total/Avg. 1 450 $1,400 $3.11

4882 CAPE MAY AVE4882 Cape May Ave, San Diego, CA, 92107

PROPERTY NAME

MARKETING TEAM

2104 BACON ST

RENT COMPARABLES

rentpropertyname1


rentpropertyname1


rentpropertyname1


31

6


3 Bdr 2 Bath 1 1,200 $3,295 $2.75

Total/Avg. 1 1,200 $3,295 $2.75

4847 LOTUS STREET4847 Lotus St, San Diego, CA, 92107

7


3 Bdr 2 Bath 1 1,100 $3,145 $2.86

Total/Avg. 1 1,100 $3,145 $2.86

5025 NIAGARA AVENUE5025 Niagara Ave, San Diego, CA, 92107

8


3 Bdr 2 Bath 1 1,200 $3,700 $3.08

Total/Avg. 1 1,200 $3,700 $3.08

4968 LONG BRANCH4968 Long Branch Ave, San Diego, CA, 92107

2104 BACON ST

32

MARKET

OVERVIEW

MARKET OVERVIEW

SAN DIEGOOVERVIEW

33

The San Diego-Carlsbad metro is located in the southwestern portion

of the state of California. Comprising San Diego County, it sits

adjacent to the Mexican border, extending north to the southern edge

of Orange County and Riverside County. From west to east, it is

situated between the Pacific Ocean and Imperial County.

San Diego is the most populous city in the county with 1.4 million

residents, followed by Chula Vista with 270,000 and Oceanside with

181,000 people. A diverse economic base includes military, finance,

tourism and real estate. Employment in these industries coupled with a

strong retail base draw many job seekers to the region.

MARKET OVERVIEW

METRO HIGHLIGHTS

WHITE-COLLAR JOBS

The professional and business services sector

accounts for a larger share of total employment than

the U.S. average.

POPULATION GROWTH

A gain of approximately 100,000 residents in the

metro over the next five years will increase the need

for basic health and education services.

HIGHLY AFFLUENT POPULATION

San Diego’s median household income of $70,800

per year is well above the national median.

2104 BACON ST

MARKET OVERVIEW

ECONOMY The San Diego metro is maintaining economic growth. Gross Metro Product (GMP) grew

3.4 percent last year versus 2.5 percent for the nation.

The U.S. Department of Defense has a significant impact on the local economy. The largest

employer in the county is the U.S. Navy at the Naval Base Coronado, which includes the

North Island Naval Air Station. Camp Pendleton is also a significant employer.

Tech firms are proliferating. Major technology and research companies include Leidos,

General Dynamics NASSCO, Qualcomm and BAE Systems.

SHARE OF 2017 TOTAL EMPLOYMENT

MAJOR AREA EMPLOYERS

Djo Finance Llc.

General Dynamics Nassco

Kaiser Permanente

Palomar Medical Center

Scripps Health

Rady Children's Hospital

Seaworld San Diego

Sharp Memorial Hospital

Sony Electronics Inc.

Tyco Health Care* Forecast

34

MANUFACTURING

7%GOVERNMENT

HEALTH SERVICES

EDUCATION AND

+

OTHER SERVICES

4%

LEISURE AND HOSPITALITY FINANCIAL ACTIVITIES

15%

AND UTILITIES

TRADE, TRANSPORTATION CONSTRUCTION

PROFESSIONAL AND

BUSINESS SERVICES

2%INFORMATION

16%

6%

17% 13% 5%

14%

2104 BACON ST

MARKET OVERVIEW

DEMOGRAPHICS

SPORTS

EDUCATION

ARTS & ENTERTAINMENT

The metro population consists of almost 3.3 million people and will expand to 3.5

million residents through 2022. During this time, 59,000 households will be added.

A median home price of $609,000 is more than double the U.S. median, resulting in

a homeownership rate of 53 percent, which is below the national rate of 64 percent.

Residents are more educated than the nation. Roughly 35 percent of the people age

25 and older have a bachelor’s degree, compared with 29 percent for the U.S.

San Diego is California’s oldest community. A large harbor, miles of beaches and

exceptional weather attract businesses, residents and tourists. San Diego still houses a

number of buildings and facilities from its past, including two missions, Old Town San

Diego, Balboa Park and the Hotel del Coronado. San Diego County has grown into a

sophisticated, urban region. Its downtown area has undergone a renaissance in the past

decade or so. Petco Park, home of the San Diego Padres, spurred redevelopment that

spread to the mid-city communities and attracted residents to the urban core. San Diego’s

major tourist attractions are the San Diego Zoo, San Diego Wild Animal Park, SeaWorld

San Diego and Legoland.

* Forecast

Sources: Marcus & Millichap Research Services; BLS; Bureau of Economic Analysis; Experian; Fortune; Moody’s

Analytics; U.S. Census Bureau

QUALITY OF LIFE

35

2017 Population by Age

0-4 YEARS

7%5-19 YEARS

18%20-24 YEARS

8%25-44 YEARS

29%45-64 YEARS

24%65+ YEARS

13%

2104 BACON ST

35.5

2017MEDIAN AGE:

U.S. Median:

37.8

$70,800

2017 MEDIAN HOUSEHOLD INCOME:

U.S. Median:

$56,300

3.3M

2017POPULATION:

Growth2017-2022*:

2.9%

1.2M

2017HOUSEHOLDS:

5%

Growth2017-2022*:

36

Higher-paying job growth encourages relocations. San Diego employers added an

average of 32,000 positions annually during the past five years, attracting thousands

of new residents. Many of these transplants have been young professionals, as the

county’s 20-to-34-year-old cohort has grown by 6,800 people on average since 2013.

An expanding younger populace with a high propensity to lease has supported a rise

in household formations, increasing demand for available apartments while home

prices remain out of reach for most. Responding to an extended span of sub-4

percent vacancy, developers complete more than 5,000 units this year, the largest

annual total in the past two cycles. As a result, softening conditions should occur in

Downtown San Diego along with the northwest and northeast portions of the city.

New residents presented with limited options. Single-family home prices continue to

escalate at a faster pace than rents, rising by more than 9 percent over the past year.

Despite median household income increasing to $74,000 annually, many households

are unable to afford the county’s median-priced home of $633,000, in the first

quarter. This barrier to homeownership maintains strong apartment demand this year,

supporting another period of 5-percent-plus rent growth.

Homeownership Rate, Tight Vacancy

Warrant Cycle-High Development

SAN DIEGO METRO AREA

* Cap rate trailing 12-month average through 1Q; Treasury rate as of March 29th

Sources: CoStar Group, Inc.; Real Capital Analytics

2104 BACON ST

Investment Trends

Multifamily 2018 Outlook

5,130 units

will be completed

5.3% increase in

effective rents

80 basis point

increase in vacancy

Construction:

Rents:

Vacancy:

Delivery volume eclipses the 3,700 rentals

finalized last year. A 416-unit property in San

Marcos is the largest completion slated for

the remainder of 2018.

Tight Class C vacancy and development

drive a third year of 5 percent-plus rent

growth, boosting the average market rate to

$1,980 per month.

Heightened construction places upward

pressure on vacancy, elevating the metro’s

rate to 4.4 percent despite the absorption of

nearly 2,500 rentals.

• Potential regulatory changes surrounding the repeal of the Costa-Hawkins

Act are weighing on investor sentiment, adding another level of concern to

transactions in front of a possible shift in the legal framework surrounding

rent control. While the potential changes would likely take years to fully

implement, the possible impact of this regulation in the marketplace is being

felt today.

• The Class C cohort witnessed the largest increase in listings, translating to a

nearly 30 percent rise in year-over-year sales activity. Well-located

complexes trade at sub-3 percent minimum yields. Investors seeking higher

returns for comparable assets target El Cajon, Vista and Chula Vista, home

to low-4 percent initial cap rates.

• Chances to acquire higher-quality rentals have dwindled for local buyers

amid a decline in Class A and B listings and an influx of Bay Area-based

buyers willing to pay top dollar for assets.

37

• Employers added 25,000

positions over the past 12

months after expanding staffs by

35,800 workers during the

previous period. Recent hiring

reduced the metro’s

unemployment rate to 3.5

percent.

• The creation of nearly 8,700

professional and business

services positions, along with the

addition of 4,800 education and

health workers, steered overall

job growth.

EMPLOYMENT

• Completions surpassed 4,100

units for a second straight 12-

month period, with deliveries

primarily concentrated in

Downtown San Diego, Carmel

Valley and Far North San Diego.

• Developers are underway on

7,800 apartments with delivery

dates extending into 2021. More

than 40 percent of this pipeline

will be finalized in the next three

quarters.

CONSTRUCTION

• Vacancy held at 3.9 percent

over the past year on net

absorption of 3,950 units,

negating the short-term impact

of new supply. A 20-basis-point

increase was recorded during

the prior period.

• Downtown San Diego’s rental

stock grew by nearly 1,200 units

over the past four quarters, yet

vacancy declined by 140 basis

points, falling to 4.8 percent.

VACANCY

• The average effective rent rose

at an accelerated pace during

the past 12-month span,

reaching $1,908 per month in

March. Rent gains were most

pronounced at Class C

properties, where the average

monthly rate rose by 7.7 percent

to $1,346.

• Carlsbad-Encinitas-Del Mar,

Oceanside and Northwest San

Diego all witnessed above-

average boosts in rent.

RENTS


increase in effective

rents Y-O-Y7.1%basis point change in

vacancy Y-O-Y0units completed

Y-O-Y4,120increase in total

employment Y-O-Y1.7%

* Forecast

2104 BACON ST

1Q18 – 12-Month Period

38

Renter Demand for Affordable Units Reinforces Investors’

Confidence in Value-Add Space

Outlook: The delivery of 20,000 units over

a five-year span could present more

opportunities for regional and institutional

investors seeking newer-built properties

at a slight discount to their home markets.

Vacancy

Rate

Y-O-Y

BasisPoint

Change

SubmarketEffective

Rent

Y-O-Y%

Change

Mid-City-National City 2.1% -30 $1,549 5.8%

El Cajon-Santee-

Lakeside3.1% 30 $1,488 4.3%

Escondido 3.1% 0 $1,537 6.9%

La Mesa-Spring Valley 3.3% -20 $1,670 5.6%

Far North San Diego 3.5% -70 $2,008 5.7%

Carlsbad-Encinitas-Del

Mar3.6% -40 $2,403 9.4%

Chula Vista-Imperial

Beach3.8% 0 $1,722 6.0%

La Jolla-University City 3.8% -70 $2,287 5.2%

Northwest San Diego 3.8% 50 $1,893 7.9%

Oceanside 4.0% 90 $1,722 8.0%

Northeast San Diego 4.6% -60 $2,170 5.4%

Overall Metro 3.9% 0 $1,908 7.1%

Submarket Trends

Lowest Vacancy Rates 1Q18

Sales Trends


• Heightened Class C deal flow supported a 13 percent rise in overall transaction

velocity during the past 12 months. Outside the city of San Diego, most sales were in

East County and along the 78 Corridor.

• Steady rent growth and a prolonged span of sub-4 percent vacancy increased the

value of available apartments, pushing the average sales price to $247,500 per unit, a

year-over-year gain of 8 percent.

* Trailing 12 months through 1Q18

Pricing trend sources: CoStar Group, Inc.; Real Capital Analytics

2104 BACON ST

*Mortgage payments based on quarterly median home price with a 30-year fixed-rate conventional mortgage, 90%

LTV, taxes, insurance and PMI. **2017-2022 Annualized Rate

39

2104 BACON ST


• Fed raises benchmark interest rate, plots path for additional increases. The Federal

Reserve increased the federal funds rate by 25 basis points, lifting the overnight lending rate

to 1.5 percent. While the Fed noted that the inflation outlook had moderated in recent months,

an upgraded economic forecast factoring in recent tax cuts and a rollback in regulation

strengthened growth projections for the next two years. As a result, the Fed has guided

toward two additional rate hikes this year, while setting the stage for as many as four

increases in 2019.

• Lending costs rise alongside Fed rate increase. As the Federal Reserve lifts interest rates,

lenders will face a rising cost of capital, which may lead to higher lending rates for investors.

However, in an effort to compete for loan demand, lenders may also choose to absorb a

portion of the cost increases. While higher borrowing costs may prompt buyers to seek higher

cap rates, the positive economic outlook should provide rent growth that outpaces inflation

over the coming year. As a result, sellers remain committed to higher asking prices, which has

begun to widen an expectation gap as property performance and demand trends remain

positive.

• The capital markets environment continues to be highly competitive. Government

agencies continue to consume the largest share, just slightly over 50 percent, of the

apartment lending market. National and regional banks control approximately a quarter of the

market. Global markets and foreign central banks are keeping pressure down on long-term

interest rates. Pricing resides in the 4 percent realm with maximum leverage of 75 percent.

Portfolio lenders will typically require loan-to-value ratios closer to 70 percent with interest

rates in the high-3 to mid-4 percent range. The passage of tax reform and rising fiscal stimulus

will keep the U.S. economy growing strongly and rental demand will remain high with the

national apartment vacancy rate at 5 percent at the end of 2017.

Include sales $2.5 million and greater

Sources: CoStar Group, Inc.; Real Capital Analytics

Capital Markets

MARKET OVERVIEW

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* 2007-2017 Average annualized appreciations in price per unit

Sources: Marcus & Millichap Research Services; CoStar Group, Inc.; Real Capital Analytics

2018 PRICING & VALUATION TRENDS

Yield Range Offers Compelling Options for Investors; Most Metros Demonstrate Strong Appreciation Rates

MARKET OVERVIEW

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41

** Price per unit for apartment properties $1 million and greater

Sources: Marcus & Millichap Research Services; CoStar Group, Inc.; Real Capital Analytics

AVERAGE PRICE PER UNIT RANGE**

(Alphabetical order within each segment)

MARKET OVERVIEW

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42

2018 NATIONAL MULTIFAMILY INDEX

U.S. Multifamily Index

Coastal Markets Top National Multifamily Index;

Several Unique Markets Climb Ranks

Trading places. Seattle-Tacoma leads this year’s Index after moving up one notch, driven by robust

employment in the tech sector and soaring home prices that keep rental demand ahead of elevated

deliveries. The metro outperforms last year’s leader, Los Angeles (#2), which slid one spot. Midwest metro

Minneapolis-St. Paul (#3) rose one notch as its diverse economy generates steady job growth and robust

rental demand, maintaining one of the lowest vacancy rates among larger U.S. markets. San Diego (#4)

jumped five spots as deliveries slump while household formation proliferates, resulting in sizable rent growth.

Portland (#5) inches up a slot to round out the top five markets. East Coast markets fill the next two positions:

Boston (#6) moves down three slots as rent growth slows while vacancy ticks up, and New York City (#7)

rises three places as stout renter demand holds vacancy tight.

Index reshuffles with big moves. Sacramento (#8) posted the largest increase in the Index, vaulting 12

positions to lead a string of California markets that fill the next five slots. Robust rent growth and low vacancy

pushed the market up in the ranking. Other double-digit movers were Orlando (#17) and Detroit (#28), which

each leaped 10 places. Employment gains and in-migration are generating the need for apartments in

Orlando, maintaining ample rent advancement. In Detroit, steady employment and a slow construction

pipeline keep demand above supply, allowing rents to flourish. The most significant declines were registered

in Austin, Nashville and Baltimore. Austin (#31) tumbled nine spaces as elevated deliveries overwhelm

demand slowing rent growth. Nashville (#35) and Baltimore (#45) each moved down six steps as demand has

yet to absorb multiple years of elevated inventory gains. Although Kansas City (#46) retains the bottom slot,

there is greater change in the lower half of the NMI as more Midwest markets rise.

MARKET OVERVIEW

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43

Growth Cycle Invigorated by Confidence;

Tax Laws Could Transform Housing

U.S. ECONOMY

Tight labor market restrains hiring as confidence surges. The steady economic tailwind benefiting apartment

performance is poised to carry through 2018 as a range of positive factors align to support growth. Consumer

confidence recently reached its highest point since 2000 while small-business sentiment attained a 31-year

record level, both reinforcing indications that consumption and hiring will be strong. The total number of job

openings has hovered in the low-6 million range through much of 2017, illustrating that companies have

considerable staffing needs, but with unemployment entrenched near 4 percent, companies will continue to

face challenges in filling available positions. These tight labor conditions should place additional upward

pressure on wages, potentially boosting inflationary pressure in the coming year. The strong employment

market, rising wages and elevated confidence levels could unlock accelerated household formation,

particularly by young adults. Last year, the number of young adults living with their parents ticked lower for the

first time since the recession, signaling that these late bloomers may finally be considering a more

independent lifestyle.

Housing preferences may change under new tax laws. The new tax laws could play a significant role in

shaping both the economy and housing demand in 2018. Reduced taxes will be a windfall for corporations,

potentially sparking invigorated investment into infrastructure. The rise in CEO confidence over the last year

already boosted companies’ investment by more than 6 percent, accelerating economic growth. However, the

tax incentive-based stimulus will likely offer only a modest bump to GDP in 2018 because corporate

investment comprises just 12 percent of economic output. One factor that could weigh on economic

expansion under the new tax laws is the housing sector, which added just 3 percent to the economy last year,

about two-thirds of normal levels. The increased standard deduction and restrictions on housing-related

deductions will reduce some of the economic incentive to purchase a home, further sapping the strength of

the housing sector. Nonetheless, the increased standard deduction could benefit apartment investors,

encouraging renters to stay in apartments longer and reducing the loss of tenants to homeownership.

* Forecast

** Through 3Q

MARKET OVERVIEW

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44

2018 National Economic Outlook

U.S. ECONOMY

Labor force shortage weighs on job creation. The economy has added jobs every month for more than

seven years, the longest continuous period of job creation on record. The trend will continue in 2018, but

the pace of job additions will moderate, falling below 2 million for the year as the low unemployment rate

restricts the pool of prospective employees.

Wage growth poised to accelerate. Average wage growth has been creeping higher in the post-recession

era, with compensation gains in construction, professional services and the hospitality sectors outpacing

the broader trend. The tight labor market will continue to pressure wage growth, potentially sparking

inflation in the process.

Tax laws could invigorate apartment demand. Since 2011 household formations have outpaced total

housing construction, a key ingredient in the tightening of apartment vacancies. The new tax laws could

cause homebuilders to reduce construction while shifting a portion of the housing demand from

homeownership to rentals, and a rental housing shortage could ensue. If this behavior change occurs in

conjunction with additional young adults moving out of their own, apartment demand could dramatically

outpace completions.

* Forecast

** Through 3Q

MARKET OVERVIEW

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Demand Outlook Sturdy as Pace

Of Construction Begins to Retreat

U.S. APARTMENT OVERVIEW

* Forecast

Investors wary of apartment construction. The wave of apartment completions entering the market in recent

years has permeated the investor psyche, raising concerns of overdevelopment and escalating vacancy rates,

but numerous demand drivers have held this risk in check. Steady job creation, positive demographics,

above-trend household formation and elevated single-family home prices have converged to counterbalance

the addition of 1.37 million apartments over the last five years, at least on a macro level. Though a small

number of markets have faced oversupply risk, the affected areas tend to be concentrated pockets, with

upper-echelon units facing the greatest competition. For traditional workforce housing, Class B and C

apartments, the risks stemming from overdevelopment have been nominal, and in most metros, even the

Class A tranche has demonstrated sturdy performance. In the coming year, rising development costs, tighter

construction financing and mounting caution levels will curb the pace of additions from the 380,000 units

delivered in 2017 to approximately 335,000 apartments. However, the list of markets facing risk from new

completions will stretch beyond the dozen metros that builders have concentrated on thus far. This will

heighten competition, requiring investors to maintain an increasingly tactical perspective integrating vigilant

market scrutiny and strong property management.

Competitive nuances increasingly granular. Although the pace of apartment completions will moderate in

2018, additions will still likely outpace absorption. This imbalance will most substantively affect areas where

development has been focused, such as the urban core where vacancy rates have risen above suburban rates

for the first time on record. Nationally, Class A vacancy rates have advanced to 6.3 percent in 2017 and will

continue their climb to the 6.8 percent range over the next year. Vacancy rates for Class B and C assets will

rise less significantly in 2018, pushing to 5.0 percent and 4.7 percent, respectively. Although vacancy levels

are rising, three-fourths of the major metros have rates below their 15-year average. Still, the magnitude of

new completions coming to market and the high asking rents these new units command will spark increased

competition for tenants, generating a more liberal use of concessions in 2018 as landlords attempt to entice

move-up tenants.

MARKET OVERVIEW

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46

2018 National Apartment Outlook

U.S. APARTMENT OVERVIEW

** Estimate

Rent growth tapers as concession use edges higher. Average rent growth will taper to 3.1 percent in 2018

as concessions become more prevalent, particularly in Class A properties. Rent gains in the Class C

space, which were particularly strong last year, will face greater challenges as affordability restrains

demand. Although job growth has been steady for seven years, wage growth has been relatively weak,

particularly for low-skilled labor.

Congress may nudge apartment demand. The new tax laws could reinforce apartment living as the larger

standard deduction reduces the economic incentive of homeownership. Previous tax rules encouraged

homeownership with itemized deductions for property taxes and mortgage interest that often surpassed

the standard deduction. These advantages have largely been eliminated, particularly for first-time buyers.

Are millennials finally moving out on their own? The 80 million-strong millennial age cohort, now pushing

into their late 20s, may finally be showing independence. Since the recession, the percentage of young

adults living with their parents increased dramatically, but last year that trend reversed. Should the share

of young adults living with family recede toward the long-term average, an additional 3 million young adults

would need housing.

MARKET OVERVIEW

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47

Fed Normalization Portends Rising Interest Rates;

Capital Availability for Apartments Elevated

U.S. CAPITAL MARKETS

* Through December 12

** Through December 6

Fed cautiously pursues tighter policies. Investors have largely adapted to the modestly higher interest rate

environment, and most anticipate additional increases in 2018 as the Federal Reserve normalizes both its

policies and its balance sheet. The Fed is widely expected to continue raising its overnight rate through 2018

as it tries to restrain potential inflation risk and create some dry powder to combat future recessions. The Fed

will, however, be cautious about pushing short-term rates into the long-term rates, which would create an

inverted yield curve. The spread between the two-year Treasury rate and the 10-year Treasury rate has

tightened significantly, and if the Fed is too aggressive in its policies, the short-term interest rates could climb

above long-term rates. This inversion is a commonly watched leading indicator of an impending recession.

The new chairman of the Fed, Jerome Powell, will likely make few changes to the trajectory of Fed policies,

and he is widely expected to continue the reduction of the Fed balance sheet. Powell may consider

accelerating the balance sheet reduction to ensure long-term rates move higher. That said, Powell is widely

perceived to be a dovish leader who will advance rates cautiously.

Readily available debt backed by sound underwriting. Debt availability for apartment assets remains

abundant, with a wide range of lenders catering to the sector. Apartment construction financing has

experienced some tightening, a generally favorable trend for most investors. Fannie Mae and Freddie Mac will

continue to serve a significant portion of the multifamily financing, with local and regional banks targeting

smaller transactions and insurance companies handling larger deals with low-leverage needs. In general,

lenders have been loosening credit standards on commercial real estate lending, but underwriting standards

remain conservative with loan-to-value ratios for apartments in the relatively conservative 66 percent range.

An important consideration going forward, however, will be investors’ appetite for acquisitions as the yield

spread between interest rates and cap rates tightens.

MARKET OVERVIEW

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48

2018 Capital Markets Outlook

U.S. CAPITAL MARKETS

Yield spread tightens amid rising interest rates. Average apartment cap rates have remained relatively

stable in the low-5 percent range for the last 18 months, with a yield spread above the 10-year Treasury of

about 280 basis points. Many investors believe cap rates will rise in tandem with interest rates, but this has

not been the case historically. Given the strong performance of the apartment sector, it’s more likely the

yield spread will compress, reducing the positive leverage investors have enjoyed in the post-recession

era.

Inflation restrained but could emerge. Inflation has been nominal throughout the current growth cycle, but

pressure could mount as the tight labor market spurs rising wages. Elevated wages and accelerating

household wealth could boost consumption, creating additional economic growth and inflation. The Fed

has become increasingly proactive in its efforts to head off inflationary pressure, but the stimulative effects

of tax cuts could overpower the Fed’s efforts.

Policies likely to strengthen dollar and could pose new risks. One wild card that could create an economic

disruption is the strengthening dollar. The economic stimulus created by tax cuts together with tightening

Fed monetary policy place upward pressure on the value of the dollar relative to foreign currencies. This

could restrain foreign investment in U.S. commercial real estate, but it could also weaken exports and

make it more difficult for other countries to pay their dollar-denominated debt, which in turn weakens

global economic growth.

* Through December 12

Estimate

MARKET OVERVIEW

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49

Apartment Investors Recalibrate Strategies;

Broaden Criteria to Capture Upside Opportunities

U.S. INVESTMENT OUTLOOK

* Through 3Q

** Trailing 12 months through 3Q

Appreciation flattens as buyers recalibrate expectations. The maturing apartment investment climate has

continued its migration from aggressive growth to a more stable but still positive trend. Investors have reaped

strong returns in the post-recession era through significant gains in fundamentals and pricing, but the growth

trajectory has flattened as the market has normalized. The pace of apartment rental income growth has moved

back toward its mid-3 percent long-term average and investor caution has flattened cap rates, moderating

appreciation. With much of the gains created by the post-recession recovery absorbed and most of the value-

add opportunity already extracted, it has been increasingly difficult for investors to find opportunities with

substantive upside potential. At the same time, apartment construction has finally brought macro-level

housing supply and demand back toward equilibrium, restraining upside potential in markets with sizable

deliveries. These challenges have been compounded by a widened bid/ask gap, with many would-be

apartment sellers retaining a highly optimistic perception of their asset’s value. It will take time for investor

expectations to realign, but buyers and sellers are discovering a flattening appreciation trajectory. Still, a

range of opportunities remain.

Investors broaden criteria as they search for yield upside. Investors are recalibrating strategies, broadening

their search and sharpening their efforts to find investment options with upside potential. They have expanded

criteria to include a variety of Class B and Class C assets, outer-ring suburban locations, and properties in

secondary or tertiary markets. The yield premium offered by these types of assets has drawn an increasing

amount of multifamily capital. In the last year, nearly half of the dollar volume invested in apartment properties

over $1 million went to secondary and tertiary markets, up from 42 percent of the capital in 2010. This influx of

activity has caused cap rates in tertiary markets to fall from the high-8 percent range in 2010 to their current

average near 6 percent. During the same period, national cap rates of Class B/C apartment properties have

fallen by 200 basis points to the mid-5 percent range. Considering the low cost of capital, these yields have

remained attractive to investors with longer-term hold plans.

MARKET OVERVIEW

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50

2018 Investment Outlook

U.S. INVESTMENT OUTLOOK

New tax laws could shift investor behavior. Additional clarity on taxes should alleviate some of the

uncertainty that held back investor activity over the last year while helping to mitigate the expectation gap

between buyers and sellers. Reduced tax rates on pass-through entities could spark some repositioning

efforts, bringing additional assets to market and supporting market liquidity.

Tighter monetary policy could narrow yield spreads. Prospects of a rising interest rate environment could

weigh on buyer activity as the yield spread tightens. Cap rates have held relatively stable over the last two

years, and the sturdy outlook for apartment fundamentals is unlikely to change substantively in the coming

year. As a result, investors’ pursuit of yield will likely push activity toward assets and markets that have

traditionally offered higher cap rates.

Transaction activity retreats from peak levels. Apartment sales continued to migrate toward more normal

levels last year as investors’ search for upside and value-add opportunities delivered fewer candidates.

Markets with a limited construction pipeline but with respectable employment and household formation

growth will see accelerated activity, while markets facing an influx of development could see moderating

investor interest.

* Through 3Q

** Trailing 12 months through 3Q

MARKET OVERVIEW

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51

* Forecast

REVENUE TRENDS

Five-Year Apartment Income Growth by Metro

Percent Change 2013-2018*

FIVE-YEAR TREND:

Outperforming Through

Development Cycle

2013-2018*

U.S. creates 11.8 million jobs over five years

Developers add 1.5 million new apartments

Absorption totals 1.4 million apartments

U.S. vacancy rate to match 2013 at 5.0 percent

U.S. average rent rises 23.2 percent

MARKET OVERVIEW

2104 BACON ST

52

Sources: Marcus & Millichap Research Services; MPF Research

2018 NATIONAL INVENTORY TREND

Five-Year Development Wave Transforms Rental Landscape

Inventory Growth 2013-2018

Inventory Change by Market

2013 to 2018

MARKET OVERVIEW

2104 BACON ST

53

Sources: Marcus & Millichap Research Services; MPF Research

2018 NATIONAL INVENTORY TREND

Largest Growth Five-Year Inventory Change Five-Year Rent Growth

Austin 23.6% 22%

Charlotte 22.9% 30%

Nashville 21.7% 31%

Salt Lake City 20.9% 31%

Raleigh 19.5% 27%

San Antonio 18.7% 20%

Denver 17.9% 41%

Seattle-Tacoma 15.9% 41%

Orlando 15.3% 35%

Dallas/Fort Worth 15.3% 30%

U.S. 9.8% 23%

Top 10 Markets by Inventory Change

Smallest Growth Five-Year Inventory Change Five-Year Rent Growth

Cincinnati 6.6% 24%

Chicago 6.2% 21%

Oakland 5.8% 40%

Riverside-San Bernardino 5.6% 36%

St. Louis 5.5% 14%

Los Angeles 5.4% 31%

New York City 4.6% 15%

Cleveland 4.6% 15%

Sacramento 3.8% 48%

Detroit 2.9% 25%

PROPERTY NAME

MARKETING TEAM

2104 BACON ST

DEMOGRAPHICS

Source: © 2017 Experian

Created on August 2018

POPULATION 1 Miles 3 Miles 5 Miles

2022 Projection

Total Population 20,435 75,269 187,615

2017 Estimate


2010 Census


2000 Census


Daytime Population

2017 Estimate 12,099 98,975 253,643

HOUSEHOLDS 1 Miles 3 Miles 5 Miles

2022 Projection

Total Households 10,757 35,184 87,269

2017 Estimate


Average (Mean) Household Size 1.87 2.04 2.03

2010 Census


2000 Census


Growth 2015-2020 0.47% 1.66% 1.83%

HOUSING UNITS 1 Miles 3 Miles 5 Miles

Occupied Units

2022 Projection 10,757 35,184 87,269

2017 Estimate 11,011 36,119 88,238

Owner Occupied 2,446 12,834 33,955

Renter Occupied 8,261 21,776 51,743

Vacant 305 1,509 2,540

Persons In Units

2017 Estimate Total Occupied Units 10,707 34,610 85,698

1 Person Units 41.53% 38.03% 38.46%

2 Person Units 39.85% 37.32% 37.61%

3 Person Units 11.17% 12.60% 12.59%

4 Person Units 5.36% 8.56% 7.64%

5 Person Units 1.57% 2.53% 2.52%

6+ Person Units 0.50% 0.95% 1.19%

HOUSEHOLDS BY INCOME 1 Miles 3 Miles 5 Miles

2017 Estimate

$200,000 or More 3.92% 9.11% 9.38%

$150,000 - $199,000 5.16% 6.90% 7.97%

$100,000 - $149,000 15.46% 15.79% 16.33%

$75,000 - $99,999 14.43% 14.60% 14.65%

$50,000 - $74,999 19.73% 17.93% 17.22%

$35,000 - $49,999 13.26% 11.17% 11.19%

$25,000 - $34,999 7.92% 6.79% 7.04%

$15,000 - $24,999 10.26% 8.49% 7.42%

Under $15,000 9.86% 9.23% 8.79%

Average Household Income $78,933 $101,688 $105,106

Median Household Income $61,519 $70,081 $72,559

Per Capita Income $41,590 $49,247 $50,427

POPULATION PROFILE 1 Miles 3 Miles 5 Miles

Population By Age

2017 Estimate Total Population 20,392 74,062 185,096

Under 20 10.87% 15.86% 15.86%

20 to 34 Years 42.54% 35.45% 35.16%

35 to 39 Years 11.05% 8.04% 8.13%

40 to 49 Years 12.32% 10.94% 11.22%

50 to 64 Years 15.40% 16.54% 15.88%

Age 65+ 7.83% 13.16% 13.72%

Median Age 33.85 34.35 34.50

Population 25+ by Education Level

2017 Estimate Population Age 25+ 16,363 54,770 137,687

Elementary (0-8) 0.96% 1.42% 1.63%

Some High School (9-11) 2.45% 2.33% 2.79%

High School Graduate (12) 11.79% 12.24% 12.44%

Some College (13-15) 21.33% 20.91% 19.70%

Associate Degree Only 9.43% 7.56% 6.98%

Bachelors Degree Only 37.49% 34.12% 34.22%

Graduate Degree 16.30% 21.16% 21.76%

Population by Gender

2017 Estimate Total Population 20,392 74,062 185,096

Male Population 53.04% 52.05% 52.69%

Female Population 46.96% 47.95% 47.31%

54

Income

In 2017, the median household income for your selected geography is

$61,519, compare this to the US average which is currently $56,286.

The median household income for your area has changed by 60.42%

since 2000. It is estimated that the median household income in your

area will be $69,634 five years from now, which represents a change

of 13.19% from the current year.

The current year per capita income in your area is $41,590, compare

this to the US average, which is $30,982. The current year average

household income in your area is $78,933, compare this to the US

average which is $81,217.

Population

In 2017, the population in your selected geography is 20,392. The

population has changed by 8.49% since 2000. It is estimated that the

population in your area will be 20,435.00 five years from now, which

represents a change of 0.21% from the current year. The current

population is 53.04% male and 46.96% female. The median age of

the population in your area is 33.85, compare this to the US average

which is 37.83. The population density in your area is 6,491.93 people

per square mile.

Households

There are currently 10,707 households in your selected geography.

The number of households has changed by 7.84% since 2000. It is

estimated that the number of households in your area will be 10,757

five years from now, which represents a change of 0.47% from the

current year. The average household size in your area is 1.87 persons.

Employment

In 2017, there are 3,643 employees in your selected area, this is also

known as the daytime population. The 2000 Census revealed that

66.77% of employees are employed in white-collar occupations in

this geography, and 33.20% are employed in blue-collar occupations.

In 2017, unemployment in this area is 3.24%. In 2000, the average

time traveled to work was 24.00 minutes.

Race and Ethnicity

The current year racial makeup of your selected area is as follows:

86.51% White, 1.65% Black, 0.21% Native American and 2.69%

Asian/Pacific Islander. Compare these to US averages which are:

70.42% White, 12.85% Black, 0.19% Native American and 5.53%

Asian/Pacific Islander. People of Hispanic origin are counted

independently of race.

People of Hispanic origin make up 11.73% of the current year

population in your selected area. Compare this to the US average of

17.88%.

PROPERTY NAME

MARKETING TEAM

2104 BACON ST

Housing

The median housing value in your area was $591,929 in 2017,

compare this to the US average of $193,953. In 2000, there were

2,457 owner occupied housing units in your area and there were

7,471 renter occupied housing units in your area. The median rent at

the time was $727.

Source: © 2017 Experian

DEMOGRAPHICS

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DEMOGRAPHICS

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