connecticut multi family market trends 2010 connecticut commercial real estate conference presented...

• Connecticut Multi Family Market Trends •

2010

Connecticut Commercial Real Estate Conference

Presented by: Steve Witten

Presented In February:

-800

-400

0

400

800

-8%

-4%

0%

4%

8%

06 07 08 09 10*

Monthly Employment

Note: Technical recession defined as two consecutive quarters of GDP contraction.Sources: Marcus & Millichap Research Services, BLS, Economy.com

Gross Domestic Product

Job

s in

Th

ou

san

ds

Economy Gaining Traction; Risk Levels Remain Elevated

An

nu

aliz

ed G

row

th

Jan-06 Jan-07

2005: 3.1%2006: 2.7%

2007: 2.1%2008: 0.4%

2009: -2.4%

* GDP through 2Q 2010, Employment through September

Jan-08

Jan-10

2010*: 2.7%

Jan-09

Corporate Investment Stalled Despite Healthy Balance Sheets, Unemployment Rising

0%

1%

2%

3%

4%

5%

6%

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

*

10-Yr Treasury Core Inflation Fed Funds Rate

* Through SeptemberSources: Marcus & Millichap Research Services, BLS, Federal Reserve

Rat

e

-6%

-3%

0%

3%

6%

92 94 96 98 00 02 04 06 08 10*

Metro United States

Total Nonfarm Employment ChangeNew Haven-Fairfield County vs. United States

Sources: Marcus & Millichap Research Services, Economy.com* Forecast

Yea

r-o

ver-

Yea

r C

han

ge

NH-FC: 4,600U.S.: 1,000,000

2010* Job Growth

-8

-4

0

4

8

01 02 03 04 05 06 07 08 09 10*

Mo

nth

ly C

han

ge

(th

ou

san

ds)

*Through AugustSources: Marcus & Millichap Research Services, BLS, Economy.com

Total EmploymentNew Haven-Fairfield County

New Haven-Fairfield County Sector EmploymentYear-over-Year Absolute Growth

-20 -15 -10 -5 0 5 10

Construction

Manufacturing

Financial Activities

Information

Government

Professional & Business Services

Natural Resources & Mining

Trade; Transportation; & Utilities

Other Services

Leisure & Hospitality

Education & Health Services

3Q08-3Q09 3Q09-3Q10

Sources: Marcus & Millichap Research Services, BLS, Economy.com

Thousands

0%

3%

6%

9%

12%

92 94 96 98 00 02 04 06 08 10*

Metro United States

Unemployment RateNew Haven-Fairfield County vs. United States

* Forecast

Sources: Marcus & Millichap Research Services, BLS, Economy.com

Un

emp

loym

ent

Rat

e

Job Growth is Critical to Renter Household Formation and Apartment Occupancies

2%

4%

6%

8%

10%

12%

2%

4%

6%

8%

10%

12%

Apartment Vacancy Rate Unemployment Rate 20-34 yrsOverall Unemployment Rate

Ap

artm

ent

Vac

ancy

Rat

e

* Preliminary EstimateSources: Marcus & Millichap Research Services, BLS, Reis

Un

emp

loym

ent R

ate

“Shadow” Market a Significant Factor in Rising Vacancies – More in Select Metros

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

30%

35%

40%

45%

50%

55%

2+ Unit Structure 1-Unit Structure

1-Unit as % of Total

Tota

l Vac

ant

Un

its

(in

000

s) 1-U

nit S

tructu

re as % o

f Total

Sources: Marcus & Millichap Research Services, U.S. Census Bureau

CAPITAL MARKETS

OVERVIEW and OUTLOOK

Commercial Mortgage Delinquency Rates by Lender Type

0%

1%

2%

3%

4%

CMBS (30+ days and REO) Life Companies (60+ days)Fannie Mae (60+ days) Freddie Mac (60+ days)Banks & Thrifts (90+ days)

Del

inq

uen

cy R

ates

Delinquency rates at the end of each periodSources: Marcus & Millichap Research Services, Mortgage Bankers Association

CMBS

Banks

Total Multifamily Mortgage Debt Outstanding: $911.7 billion

Sources: Marcus & Millichap Research Services, MBA

CMBS, CDO, and Other ABS

12%

GSEs and Ginnie Mae

39%

Savings Institutions

7%

Commercial Banks24%

State & Local Gov'ts

8%

Life Insurance

Co.s6%

Other5%By Lender Types ($Bil):

GSEs and Ginnie Mae $359.6

Commercial Banks $216.8

CMBS, CDO, and Other ABS $110.3

State & Local Governments $66.1

Savings Institutions $64.0

Life Insurance Companies $50.4

Other $44.4

Total CMBS Outstanding: $751.7 billion

Sources: Marcus & Millichap Research Services, MBA

Office31.1%

Industrial5.1%

Multi-Family15.2%

Retail29.8%

Hotel9.4%

Self-Storage

1.8%

Healthcare0.6% Other

7.0%By Property Types ($Bil.):Office $233.8 Retail $224.0Multifamily $114.3Hotel $70.7Industrial $38.3 Self-Storage $13.5 Healthcare $4.5Other $52.6

Estimated Multifamily Debt Maturities by Lender Type

$0

$25

$50

$75

$100

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

CMBS Banks GSE/Other Life Companies

Bill

ion

s $

Sources: Marcus & Millichap Research Services, Foresight Analytics

Total Multifamily Debt Maturities by Vintage

$0

$25

$50

$75

$100

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Pre-2001 2001-2004 2005-2007 2008

Mat

uri

ng

Bal

ance

(B

illio

ns

$)

Sources: Marcus & Millichap Research Services, Foresight Analytics

-11%

-6%

-1%

5%

10%

2000-2004 2005-2009 2010-2014*

Ages 20-24 Ages 25-29 Ages 30-34

* ForecastSources: Marcus & Millichap Research Services, U.S. Census Bureau

Ch

ang

e in

Po

pu

lati

on

Renter Demographics New Haven-Fairfield County

New Housing PermitsNew Haven-Fairfield County

0

500

1,000

1,500

2,000

2,500

3,000

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10*

Single-Family Multifamily

New

Ho

usi

ng

Per

mit

s

* ForecastSources: Marcus & Millichap Research Services, Economy.com

Supply and DemandApartment

0

250

500

750

1,000

02 04 06 08 10*

3%

4%

5%

6%

Completions Vacancy

0

40

80

120

160

02 04 06 08 10*

2%

4%

6%

8%

10%

Completions Vacancy

United StatesNew Haven-Fairfield County

* ForecastSources: Marcus & Millichap Research Services, Reis

Un

its

(000

s)

Vacan

cy Rate U

nit

s (0

00s)

Vacan

cy Rate

Apartment Metro Vacancy Ranking2Q 2010

Top 15Markets

2Q 2010 Vacancy

Y-O-Y Bps Change

Denver 6.1% (290)

Austin 9.6% (90)

San Jose 4.2% (80)

Tucson 11.8% (80)

Jacksonville 13.2% (60)

Fort Lauderdale 7.6% (50)

New Haven-Fairfield County 4.3% (50)

Portland 5.8% (40)

Boston 6.2% (30)

Louisville 6.7% (20)

New York 3.0% (20)

Oakland-East Bay 5.5% (20)

Phoenix 11.5% (20)

Sacramento 7.1% (10)

Washington, D.C. 6.3% (10)

U.S. Average 7.8% 10

Bottom 15Markets

2Q 2010 Vacancy

Y-O-Y Bps Change

Detroit 7.9% 30

Minneapolis 5.1% 40

Charlotte 10.5% 40

Cincinnati 7.7% 40

Palm Beach 8.6% 40

Tampa-St. Petersburg 9.8% 40

Dallas-Ft. Worth 8.9% 50

Orlando 11.0% 50

Oklahoma City 10.2% 60

Kansas City 9.4% 80

Houston 12.4% 90

Las Vegas 11.1% 100

Indianapolis 9.6% 110

Salt Lake City 7.1% 120

Columbus 9.7% 170

U.S. Average 7.8% 10

Sources: Marcus & Millichap Research Services, Reis

Apartment Vacancy by ClassNew Haven-Fairfield County

0%

2%

4%

6%

8%

00 01 02 03 04 05 06 07 08 09 10*

Class A Class B/C

Ave

rag

e V

acan

cy R

ate

* Through 2QSources: Marcus & Millichap Research Services, Reis

Apartment Vacancy Ranking by Submarket

New Haven-Fairfield County

Submarkets2Q

20092Q

2010Bps

Change

New Haven Harborside 3.2% 3.1% -10

Naugatuck/Waterbury 3.8% 3.6% -20

West Fairfield County 5.0% 4.5% -50

East Fairfield County 6.6% 5.8% -80

North Haven/Wallingford/Meriden 3.3% 2.4% -90

Metro Average 6.1% 6.0% -10

Sources: Marcus & Millichap Research Services, Reis

Apartment Asking Rent Trends New Haven-Fairfield County

-8%

-4%

0%

4%

8%

Metro United States

2002-2009 2010*

* ForecastSources: Marcus & Millichap Research Services, Reis

Ask

ing

Ren

t A

nn

ual

Ch

ang

e

$1,544$1,036

2% to 3% annual growth

Apartment Metro Effective Rent Growth Ranking2Q 2010

Top 15Markets

2Q 2010Eff. Rent

Y-O-Y % Change

San Diego $1,256 1.3%

San Antonio $648 0.8%

New Haven-FF County $1,465 0.3%

Fort Lauderdale $995 0.1%

Seattle-Tacoma $909 0.0%

Tucson $596 -0.2%

Washington, D.C. $1,272 -0.2%

Salt Lake City $682 -0.3%

Oklahoma City $514 -0.4%

St. Louis $662 -0.5%

Chicago $964 -0.5%

Atlanta $736 -0.5%

Cleveland $685 -0.6%

Austin $765 -0.6%

Philadelphia $957 -0.8%

U.S. Average $946 -1.4%

Bottom 15Markets

2Q 2010Eff. Rent

Y-O-Y % Change

Palm Beach $993 -2.2%

Dallas-Ft. Worth $690 -2.3%

Phoenix $678 -2.3%

Milwaukee $772 -2.4%

Los Angeles $1,311 -2.5%

San Francisco $1,673 -2.5%

Indianapolis $613 -2.5%

Houston $688 -2.7%

Oakland-East Bay $1,190 -3.0%

Sacramento $828 -3.0%

Orange County $1,401 -3.3%

Tampa-St. Petersburg $751 -3.5%

San Jose $1,317 -3.8%

Orlando $767 -4.1%

Las Vegas $755 -4.4%

U.S. Average $946 -1.4%

Sources: Marcus & Millichap Research Services, Reis

Investment TrendsApartment

$0

$25

$50

$75

$100

02 04 06 08 10*

4%

6%

8%

10%

12%

Median Price Cap Rate

$0

$25

$50

$75

$100

02 04 06 08 10*

5%

6%

7%

8%

9%

Median Price Cap Rate

United StatesNew Haven-Fairfield County

Med

ian

Pri

ce p

er U

nit

(00

0s)

Averag

e Cap

Rate

Med

ian

Pri

ce p

er U

nit

(00

0s)

Averag

e Cap

Rate

* Through 1H 2010Sales $500,000 and greaterSources: Marcus & Millichap Research Services, Reis

0

75

150

225

300

375

02 03 04 05 06 07 08 09 1H09

1H10

$1M-$9.99M $10M-$19.99M $20M+

Tota

l Tra

nsa

ctio

ns

(000

s)

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

$0

$1

$2

$3

$4

02 03 04 05 06 07 08 09 1H09

1H10

$1M-$9.99M $10M-$19.99M $20M+

Tota

l Do

llar

Vo

lum

e (B

il.)

Total Dollar VolumeTotal Transactions

Apartment Sales TrendsNew Haven-Fairfield County

U.S. Apartment Buyer Composition

13%5%

2%

1%3%

10%

4%

9%

3%

2%

65%

84%

0%

25%

50%

75%

100%

2008 2009*

Private

User/Other

Equity Fund

Public

Foreign

Institutional

Sales $5 Million and greaterSources: Marcus & Millichap Research Services, Real Capital Analytics

* YTD through September

Per

cen

t o

f S

ales

Vo

lum

e

$0

$25

$50

$75

$100

$125

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

5%

6%

7%

8%

9%

10%

Average Price Cap Rates

* EstimateIncludes sales $1Million and GreaterSources: Marcus & Millichap Research Services, Costar Group, Inc.

National Apartment Price and Cap Rates

Ave

rag

e P

rice

per

Un

it (

000s

)A

verage C

ap R

ate

24 – Month Cap Rate Adjustment Matrix *

Primary

Secondary

Tertiary

Class “A” Class “B” Class “C”

1.00 1.25 1.75

1.25 1.75 2.25

2.25 2.752.00

* Change in cap rates last 24 months

24 – Month Pricing Adjustment Matrix

Primary

Secondary

Tertiary

Class “A” Class “B” Class “C”

-20% -23% -32%

-24% -30% -36%

-33% -35% -41%

* Change in property value last 24 months

Why the Long-Term Outlook for U.S. Apartments is Extremely Favorable

U.S. will experience a fundamental change in housing dynamics favoring the density, efficiency, flexibility and affordability of apartment living:

1. Population growth2. Changing demographics3. Environmental concerns4. Budget / expense factors5. Sharp decrease in new supply6. Affordability7. Rent vs. own

Population Dynamics

250

270

290

310

330

350

370

390

2000 2030

U.S. population is expected to increase 33% by 2030 to 376 million.

To accommodate this growth, the nation needs 60 million new housing units.

Mill

ions

94 Million

Demographic Dynamics

Married couples with children are projected to decline to under 1 in 5 households by 2025

Singles and un-related individuals living together will comprise 1 in 3 households by 2020

78 million echo boomers are getting ready to enter their prime renting years

10 million legal immigrants will enter the country in next ten years

7.4 Million Net New Households

3.2 MillionNew Renter Households

4.1 MillionNew Owner Households

* ForecastSources: Marcus & Millichap Research Services, Economy.com, Harvard University

U.S. Household Growth Projection2010 - 2015*

56%

44%

Own Rent

Budget / Fiscal Dynamics

Urban / suburban sprawl is expensive Compact development reduces infrastructure

costs and saves money The U.S. can save over $100 billion in

infrastructure costs over 25 years by growing compactly

State of Connecticut Apartment Sales 2000 - 2010

2010 (as of 10/1): 1,131 units traded for $94,399,0002009: 2,251 units traded for $188,532,8802008: 5,532 units traded for $758,785,0002007: 6,247 units traded for $891,958,998

2010

Connecticut Commercial Real Estate Conference

Steve Witten, Senior Director265 Church Street, Suite 210

New Haven, CT 06510203.672.3320

Steve.witten@marcusmillichap.com