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FIRST QUARTER 2014

DELTA ASSOCIATES

PHILADELPHIA

CLASS A APARTMENT

MARKET REPORT

SPONSORED BY

FIRST QUARTER 2014

DELTA ASSOCIATES

PHILADELPHIA

CLASS A APARTMENT

MARKET REPORT

SPONSORED BY

By Subscription Only

Prepared For Exclusive Use of Subscribers

On March 31, 2014

© Delta Associates, 2014. All rights reserved.You may neither copy nor disseminate this report. If quoted, proper attribution is required.

Please see www.DeltaAssociates.com for more information on our reports.

www.DeltaAssociates.com

DELTA ASSOCIATES | PHILADELPHIA CLASS A APARTMENT MARKET REPORT | Q1 2014 | NOT FOR REDISTRIBUTION

1. STATE OF THE ECONOMY The National Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

The Philadelphia Area Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

2. STATE OF THE MID-ATLANTIC CLASS A APARTMENT MARKET State of the Philadelphia Class A Apartment Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Table 2 .1: NCREIF Return Index for Apartment Properties U .S . Apartment Income vs . Pricing . . . . . . . . . . . . 24

3. PHILADELPHIA STATISTICAL REPORT MARKET INDICATORS

Table 3 .1: Philadelphia Metro Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Table 3 .2: Suburban Pennsylvania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Table 3 .3: Southern New Jersey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Table 3 .4: Center City Philadelphia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

ABSORPTION SUMMARY

Table 3 .5: New, Actively Marketing Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Table 3 .6: Recently Stabilized Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

CITY CENTER PHILADELPHIA NEW CONSTRUCTION PIPELINE

Table 3 .7: Apartment Projects Under Construction and/or Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Table 3 .8: Planned Apartment Projects That Could Be Delivered within 36 months . . . . . . . . . . . . . . . . . . . . . 34

Table 3 .9: Longer Term Planned Apartment Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

MULTIFAMILY BUILDING SALES

Table 3 .10: 2012 Apartment Building Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Table 3 .11: 2013 Apartment Building Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

4. EXPLANATION OF GEOGRAPHIC COVERAGE AND METHODOLOGY Class A Apartments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Philadelphia Area Apartment Submarket Map . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

TABLE OF CONTENTS


MULTIFAMILY PRACTICE TEAM

APARTMENT PRACTICE:Senior Vice President, Apartment Practice Leader A . Grant Montgomery 703-535-3542

Associate Justin Donaldson

Associate Luke Gelber

CONDOMINIUM PRACTICE:Senior Vice President, Condominium Practice Leader William E . L . Rich 703-535-3545

Associate Luke Gelber

EDITOR AND CHIEF EXECUTIVE: Gregory H . Leisch, CRE 703-836-5700

OF COUNSEL, ECONOMICS: Dr . Stephen S . Fuller 703-993-3186

Although the information contained herein is based on sources which Delta Associates (DA) believe to be reliable, DA makes 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 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.

TEAM


AVAILABLE REPORTS FROM DELTA ASSOCIATES

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

• Class A apartment building sales

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

• Mid-Year Report: Comparison of median revenue,

expense, and net operating income data for the USA

and Washington MSA .

• Year-End Report: Market-maker survey on capitalization

rates, investment posture, thoughts on the economy,

and more

WASHINGTON METROPOLITAN AREA CLASS B APARTMENT MARKET REPORT

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




• 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 .

MULTIFAMILY MARKET

• Analysis of the regional economy

• Regional apartment market summary

• Key market statistics for all major submarkets and regional totals for:


• Vacancy

• Concessions

• Class A apartment building sales

PHILADELPHIA CLASS A APARTMENT MARKET REPORT

An executive summary-style report on apartment market conditions, focusing on the following indicators:



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:


• 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 all

major submarkets and regional totals for:

• Net absorption

• Vacancy

• Construction

• Additional data include:

• Supply/demand analysis

• Rental rate and tenant improvement data

• Average lease terms and operating expenses

• Delivered, proposed, and planned SF

• 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

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 CONDOMINIUM MARKET REPORTMarket Coverage: Washington Metro and Baltimore Metro

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


• Regional apartment market summary


• Sales trends for new and resale condos

• Historic condominium price changes

• Pipeline trends


• 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



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

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

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


• Regional, metro-level and substate area (Northern Virginia,

Suburban Maryland, and Suburban Baltimore) flex/

industrial market summaries

• Key market statistics for all major submarkets and

regional totals for:

• Inventory

• Net absorption

• Vacancy

• Construction


• Supply/demand analysis

• Rental rate and tenant improvement data

• Average lease terms and operating expenses

• Delivered, proposed, and planned SF

• Building sales

• Investment returns

• Cap rate trends

Additional indicators analyzed in the Year-End reports:

FREE REPORTS

Delta Associates publishes free reports on the economy and real estate market, including:

• Washington, DC Metro Retail Outlook (quarterly)

• Washington Metro Area Housing Outlook (quarterly)

• Understanding the Economy (periodic)

• Washington TrendLines (annual)

• Houston TrendLines (annual)

Delta Associates also publishes occasional white papers on areas of interest . To view sample reports or to subscribe,

please visit www .DeltaAssociates .com .


WITH DELTA ASSOCIATESCOAST TO COASTMarket 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.

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

MARKET PUBLICATIONS GROUPAlexander (Sandy) Paul, CRE Executive Vice President P: 703.299.6373 | F: [email protected]

500 Montgomery Street, Suite 600 | Alexandria, Virginia 22314www.DeltaAssociates.com | P: 703.836.5700 |


mailto:greg.leisch%40deltaassociates.com?subject=

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Delta Associates’ Second Annual

APARTMENT MARKET OVERVIEW AND AWARDS FOR EXCELLENCE

Gregory H. Leisch, CEO of Delta Associates,

will present the latest trends and prospects

in the Philadelphia economy and apartment

market, followed by awards for excellence

in the apartment industry.

JOIN USFour Seasons Philadelphia

One Logan Square

Philadelphia, PA 19103

April 22, 2014

Schedule of Events8:00 am

Registration and Continental Breakfast

8:45 am Presentation

9:30 am Networking Reception

FREE TO SUBSCRIBERS AND FRIENDS OF THE FIRM!Thanks to The Bozzuto Group’s generous sponsorship.For your invitation, email [email protected].

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https://www.deltaassociates.com/event/7/philadelphia-apartment-market-overview

DESIGNAPARTMENT

TRENDS

2014M

AY 20

For more details, visit


CONFERENCE

Grand Hyatt Washington

1000 H Street NW

Washington, DC 20001

8:00am - 10:00am

https://www.deltaassociates.com/event/28/apartment-design-trends-conference--washington-dc

At Kettler Management, we create exceptional value for our partners by ensuring exceptional communities for our residents. Everything we do begins with our company’s core values.

COMMUNITY BUILDINGThrough strong relationships with all stakeholders, we strive to improve the broader community.

VALUE CREATIONOur team members are encouraged to apply their skills and enhance the value of everything we do.

DISTINCTIVE DESIGNWe use innovative and sustainable designs and practices that are recognized as the best in the industry.

TEAM MEMBER ENGAGEMENTWe foster a positive work environment that rewards collaboration and encourages professional growth.

INTEGRITY IN ALL WE DOOur standards of business demand high ethics, total honesty and disciplined work.

EXCEPTIONAL COMMUNITIES. UNBEATABLE RESULTS.

Kettler Management Is Leading the Way

Learn More at Kettler.com.

www.kettler.com

We put together great combinations.

Go Phill

ies!

REAL ESTATE COUNSELING

• Shopping centers

• Office buildings

• Vacant land

• Industrial projects

• Rental apartments

• Residential/office condominiums

• Hotels/special use and mixed use projects

ALBERT R. HUGHES III, MAI1201 East Hector Street, Conshohocken, PA 19428

610.238.0238 • www.arhughes.com

EXTENSIVE EXPERIENCE IN

• Valuation

• Market feasibility

• Acquisitions

• Development

• Investment analysis

COMMERCIAL REAL ESTATE APPRAISAL & CONSULTING

www.arhughes.com

http://www.urbanigloo.com/


MEDIA

DELTA INSIGHTS: EACH WEEK IN THE WASHINGTON BUSINESS JOURNAL

See Delta Associates’ weekly feature in the Washington Business Journal . In each release of Delta Insights, the WBJ highlights key

statistics and analysis from Delta that bring the local commercial real estate market into perspective .

PRESENTATIONS

PHILADELPHIA APARTMENT MARKET PRESENTATION AND AWARDS

Delta’s second annual Philadelphia Apartment Market event will be held on April 22, 2014 at the Four Seasons Hotel in

Philadelphia, PA . Delta’s CEO, Gregory Leisch, will present his Real Estate Market and Economic Overview . This event is co-

sponsored by the Bozzuto Group . To register for the 2014 event, or to download the market presentation from our 2013 event,

please visit our website .

WASHINGTON TRENDLINES

The 17th annual Washington TrendLines® event was held on February 6, 2014 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, presented his assessment of

the market prior to the presentation of the annual TrendSetter awards . The event was co-sponsored by PNC Bank, Baker Tilly,

and Transwestern . For an invitation to the 2015 event, please contact Jennifer Glaser .

The 2014 TrendLines® report and presentation are available via our website . A printed copy of the TrendLines® 2014 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 .

NEW YORK TRENDLINES

The inaugural New York TrendLines® event was held on December 10, 2013 at the Roosevelt Hotel in New York, NY . Delta’s

Executive Vice President, Sandy Paul, presented commercial real estate market conditions with an outlook for investment

and development opportunities in the period ahead . The New York TrendLines® event was co-sponsored by Transwestern . To

download the market overview presentation, please visit our website . A recording of the market presentation may be viewed

at www .TrendLinesNYC .com .

HOUSTON TRENDLINES

The 13th annual Houston TrendLines® event was held on November 12, 2013 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, presented his assessment of the regional economy and commercial

market . To reserve an invitation to the 2014 event, please contact Jennifer Glaser .

The 2013 TrendLines® report and presentation are available on our website . The report includes data and analysis on the office,

industrial, multifamily, and retail market as well as a detailed forecast on the national and regional economies .

MID-ATLANTIC MULTIFAMILY AWARDS

The 17th annual Mid-Atlantic Multifamily Awards presentation was held on October 8, 2013 at the Mayflower Renaissance

Hotel in Washington, DC . Delta’s CEO, Gregory Leisch, presented his Real Estate Market and Economic Overview prior

to the awards ceremony . The Multifamily Awards event was co-sponsored by Transwestern and Greystar . To see the

list of award winners, or to download the market overview presentation, please visit the Multifamily Awards page on

our website . For your invitation to our 2014 event, please contact Jennifer Glaser .

DELTA NEWS

http://www.bizjournals.com/washington/


https://www.deltaassociates.com/

https://www.deltaassociates.com/event/5/washington-trendlines-2014

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https://www.deltaassociates.com/event/9/new-york-trendlinesreg


www.TrendLinesNYC.com

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http://www2.transwestern.net/dc/

http://www.transwestern.net/

http://www.greystar.com/

https://www.deltaassociates.com/event/12/17th-annual-mid-atlantic-multifamily-awards



DELTA NEWS

WASHINGTON AREA APARTMENT WEBINARS

On April 17, 2014, Delta Associates will host its seventh webinar covering the Washington Apartment Market, with information from

Delta Associates’ Q1 2014 Class A Apartment Report . The webinar is co-sponsored by the ROSS Companies and the Washington Business

Journal . Delta Associates’ CEO, Gregory Leisch, will provide 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 will round out the webinar .

To register for the April 17 webinar, please visit our website . Also, mark your calendar for July 15 for our Q2 2014 webinar .

RECENT SPEECHES AND PRESENTATIONS GIVEN BY DELTA EXECUTIVES

• George Mason/Northern Virginia Apartment Association Summit: 3 .18 .14

• Washington Post Broker Breakfast: 2 .28 .14

• Washington TrendLines®: 2 .6 .14

• Cardinal Bank/GMU Annual Economic Conference: 1 .16 .14

• New York TrendLines®: 12 .10 .13

• Retail VIEWPoint 2013: 11 .18 .13

• Houston TrendLines®: 11 .12 .13

• Mid-Atlantic Multifamily Presentation and Awards: 10 .8 .13

UPCOMING SPEECHES AND PRESENTATIONS BY DELTA EXECUTIVES

• Q1 2014 Washington Apartment Market Webinar: 4 .17 .14

• Philadelphia Apartment Market Presentation and Awards: 4 .22 .14

• NMHC Research Forum: 4 .29 .14

• Trends in Apartment Design – Washington, DC: 5 .20 .14

• Bisnow’s National Multifamily West Conference: 5 .22 .14

• Q2 2014 Washington Apartment Market Webinar: 7 .15 .14

• Washington Office Market Update: Sep/TBD

• Washington/Baltimore Multifamily Presentation and Awards: 10 .3 .14

• Bisnow’s National Multifamily East Conference: 11 .24 .14

PUBLICATIONSPHILADELPHIA CLASS A APARTMENT MARKET REPORT

The inaugural issue of Delta’s newest publication, Philadelphia Class A Apartment Market Report, will be released in April 2014 in conjunction

with our market presentation and awards event . To subscribe to this executive summary-style report, please contact Jennifer Glaser .

UNDERSTANDING THE ECONOMY

Delta publishes 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 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 November 2013 . The next issue of the report

will be released in April 2014 . Please subscribe to the report via our website .

WASHINGTON AREA HOUSING OUTLOOK

The Washington Area Housing Outlook is a quarterly report in which Delta provides an assessment of the region’s single-family housing

market, including data on pricing, sales volume, and days on market . The report is co-sponsored by George Mason University’s Center

for Real Estate Entrepreneurship, and is available free of charge via e-mail . The latest issue of this report was released in January 2014 .

The next issue of the report will be released in April 2014 . Please subscribe to the report via our website .

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1STATE OF

THE ECONOMY

DELTA ASSOCIATES | PHILADELPHIA CLASS A APARTMENT MARKET REPORT | Q1 2014 | NOT FOR REDISTRIBUTION 3

We think the U .S . economy is finally on a sustainable recovery

course, driven by consumer spending which represents

the backbone of the American economy – accounting for

70% of U .S . GDP . Through the current economic recovery,

consumption has continued to expand despite uneven

income growth and elevated unemployment . According to

the Federal Reserve Bank of Cleveland, personal consumption

expenditures grew at a positive average annual rate of 3 .8%

since the end of the recession . At Delta, we foresee that

personal consumption expenditures can advance even

further, as household wealth continues along the recovery

curve and consumers gradually regain comfort with the idea

of drawing income from their homes .

Household asset values resumed their growth during third

quarter 2009, and since then they have increased an average

of 5 .5% through the third quarter of 2013 . A substantial

component of the increase can be attributed to a surge in

stock, or equity, prices since the trough of the recession .

However, relatively few households benefited from a stronger

stock market, as only 20 .4% of households held stocks or

mutual funds as of year-end 2010 .

In comparison, 65 .9% of households are homeowners at

year-end 2010 . Thus, average household consumption

is more likely to respond to growth in housing prices,

increasing the value of home equity . After another solid

year of performance in home prices—increasing 13 .4%

through December 2013—households’ total asset values and

household equity as a percentage of real estate value looks to

be on the recovery curve . As home prices continue to slowly

increase, their effect should continue to boost household

wealth and consequently bolster the expansion in personal

consumption moving forward . Furthermore, after years of

deleveraging, rising home and household asset values will

fuel borrowers that are looking to access additional equity

in their homes through lines of credit . Steady growth in

household asset values and household equity should support

further sustainable economic expansion in the period ahead .

Now, for a look at major U.S. economic indicators:

PAYROLL JOBS

The national economy added just over 2 .1 million new jobs

(not seasonally adjusted) during the 12 months ending

February 2014, with the private sector accounting for more

than all of these net additions (the public sector

GROWTH IN THE ECONOMY LOOKS SUSTAINABLE, DRIVEN BY RISING HOUSEHOLD ASSET VALUES WHICH IN TURN ARE DRIVING CONSUMER SPENDING

HOUSEHOLD EQUITY REBOUNDING

Source: Federal Reserve Economic Database (FRED), Federal Reserve Bank of Cleveland, Delta Associates; March 2014.

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

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

Household Equity as a Percentageof Household Real Estate Value

Household Asset Values

*Through Q3 2013. Note: Data are not seasonally adjusted.

12

-MO

NT

H P

ER

CE

NTA

GE

CH

AN

GE

THE NATIONAL

ECONOMYFIRST QUARTER 2014

DELTA ASSOCIATES | PHILADELPHIA CLASS A APARTMENT MARKET REPORT | Q1 2014 | NOT FOR REDISTRIBUTION4

SPONSORED BY KETTLER

shed 55,000 positions) . Recent month-to-month gains have

been somewhat disappointing, as firms grappled with

disruptions from factors such as adverse weather and the

gradual implementation of Obamacare . Only 213,000 jobs

(seasonally adjusted) were added to the economy during

the months of January 2014 and December 2013, compared

to an average of 204,000 jobs added during each month of

the first eleven months of 2013 . However, 175,000 jobs were

added in February 2014, boosting optimism for a stronger

2014 . Overall, job growth has been disappointing in this

cycle compared to past economic recoveries . Because of

population growth, about 140,000 jobs must be created each

month just to keep a steady unemployment rate, though this

figure varies depending on the labor force participation rate .

Although the economy continues to move forward, it

is doing so at a measured pace, which has encouraged

businesses and consumers to alter spending patterns and

adjust to limited growth . We expect that job growth will

continue to be muted relative to previous expansion cycles,

but that it will continue on a slow and steady trend . On

balance, we forecast that payroll job growth in 2014 will be

slightly better than in 2013, with approximately 2 .4 million

jobs created .

We expect the public sector will continue to shed jobs in

2014, as governments continue to cut their workforces to

make up for the wedge between budget shortfalls and rising

liabilities . At the Federal level, these cuts will largely be

achieved through attrition . However, the national economy

will continue to see overall job growth as public sector losses

will be more than offset by continued growth in the private

sector . One benefit of Federal austerity and an enduring

economy is deficit reduction . The Congressional Budget

Office (CBO) projects that in 2015, the Federal budget deficit

will be 26% smaller than it was in 2013 . Of note, the U .S . will

still be running a deficit – we are not paying down debt, just

increasing it at a slower rate – but that is still substantial

progress in three years . In its February 2014 update, the CBO

projects that, under current law, due to lower projections

for mandatory budget outlays (Social Security, Medicare

and Medicaid), debt held by the public will equal 74% of

GDP at the end of this year, but will rise to 79% by 2024

as a higher percentage of the population receives benefits .

Nonetheless, recent legislation has gone a long way in

alleviating some of the Federal budget uncertainty that was

plaguing the economy .

PAYROLL JOB GROWTH United States | Year-Over-Year

Source: Bureau of Labor Statistics, Delta Associates; March 2014.

-5,000

-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

4,000

Feb.10

Apr.10

Jun.10

Aug.10

Oct.10

Dec.10

Feb.11

Apr.11

Jun.11

Aug.11

Oct.11

Dec.11

Feb.12

Apr.12

Jun.12

Aug.12

Oct.12

Dec.12

Feb.13

Apr.13

Jun.13

Aug.13

Oct.13

Dec.13

Feb.14

Private Sector

Public Sector

TH

OU

SAN

DS

OF

NE

W P

AY

RO

LL J

OB

S

Note: Data are not seasonally adjusted.

THE NATIONAL ECONOMY

5DELTA ASSOCIATES | PHILADELPHIA CLASS A APARTMENT MARKET REPORT | Q1 2014 | NOT FOR REDISTRIBUTION


On December 26, 2013, President Barack Obama signed a

bipartisan budget measure to fund the Federal government

through 2015, averting another government shutdown for

two years – at least over this issue . The deal, negotiated

by House Budget Committee Chairman Paul Ryan (R-Wis .)

and Senate Budget Committee Chairwoman Patty Murray

(D-Wash .), authorized an increase in discretionary spending

in fiscal year 2014 and 2015, while providing $63 billion in

relief over two years from across-the-board Federal budget

cuts known as the sequester . The sequester relief is to be

offset by a projected $85 billion in savings elsewhere in the

budget, including increases in airport security tax and fees

that corporations must pay to have pensions guaranteed by

the government, along with other specific deficit-reduction

measures . These savings should further reduce the Federal

deficit by approximately $20 billion . We believe the two-year

budget deal will help reduce uncertainty, boost confidence

in the national economy, and aid in its recovery .

After contentious battles in both the House of

Representatives and the Senate, the president won

approval to raise the U .S . debt limit through March 2015 .

President Obama signed the extension into law on February

15, 2014, thus taking the polarizing issue off the table with

congressional elections coming up in November of this

year . The measure brought much needed relief to financial

markets that were beginning to get anxious ahead of the

late February U .S . Treasury payments that could have been

at risk if a deal was not reached .

During the 12 months ending February 2014, the top four

sectors in job gains were Professional/Business Services,

Leisure/Hospitality, Retail Trade and Education/Health

Services – adding a total of 1 .7 million new jobs and

accounting for over 77% of net new employment . Retail

employment is growing at a healthy rate, though retail jobs

have less of a multiplier effect than many others due to

their low wages . Excluding spending on automobiles, gas

and construction supplies—the most volatile components

of retail sales—retail sales rose 0 .7% during December of

2013 . Construction employment rose by 181,000 positions

in 2013, the most since 2006 . Employment growth in

specialty trade contractors—up 108,000 year-over-year, is a

healthy signal, as the labor pool of skilled craftsman tends

to shrink as home construction and renovation begins to

gain momentum . Job losses were confined to the Federal

Government and Information sectors over the past year,

with a total net loss of 87,000 and 67,000 jobs, respectively .

BASELINE BUDGET PROJECTIONS United States

Baseline budget projections as of February 2014. Source: Congressional Budget Office, Delta Associates; March 2014.

FED

ER

AL

DE

FIC

IT (

$ B

ILLI

ON

S)

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

-1,200

-1,000

-800

-600

-400

-200

0

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Deficit % of GDP

DE

FIC

IT A

S A

% O

F R

EA

L G

DP

PAYROLL JOB GROWTH United States | 12 Months Ending February 2014

-100,000 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000

Federal Government

Information

State and Local Government

Other Services

Financial Activities

Manufacturing

Transportation/Utilities

Wholesale Trade

Construction/Mining

Retail Trade

Education/Health

Leisure/Hospitality

Professional/Business Services

J O B C H A N G E

Source: Bureau of Labor Statistics, Delta Associates; March 2014. Note: Data are not seasonally adjusted.




The Bureau of Labor Statistics projects that the economy

will add approximately 15 .3 million nonfarm payroll jobs

from 2012 through 2022, for an average annual growth rate

of 1 .1% . This compares to an average annual growth rate

of 0 .3% from 2002-2012, albeit that decade was marred by

the Great Recession . Education/Health Services is projected

to be the leader in job growth through 2022, adding 5 .7

million jobs . Professional/Business Services follows, adding

3 .5 million positions . Manufacturing, Federal Government

and the Information sectors are expected to shed positions

over the next ten years . Of note, the Bureau of Labor

Statistics expects the disparity between goods-producing

jobs and service jobs as a percentage of total employment

to widen . Goods-producing jobs (Mining, Construction and

Manufacturing) will comprise 12 .1% of all jobs in 2022,

compared to 12 .6% in 2012 . Service jobs as a percentage of

all employment is forecasted to rise to 80 .9% in 2022, from

79 .9% in 2012 .

UNEMPLOYMENT

Initial unemployment claims fell steadily through 2013,

and the trend looks sustainable in 2014 . As of early March

2014, initial claims stood at 336,000 based on a four-week

seasonally-adjusted moving average, falling 5 .1% from the

same period a year ago . This compares to the 15-year average

of 379,500 . We expect unemployment claims to decline

gradually through the year in concert with improving labor

market conditions .

The unemployment rate declined to 6 .7% as of February

2014 from 7 .7% one year earlier . Recent declines in

the unemployment rate were a function of job seekers

leaving the labor market, which more than offset organic

job creation . In general, though, we anticipate that the

unemployment rate will gradually fall during 2014 as the

economic expansion continues and uncertainty dissipates .

All eyes will continue to be fixated on the Federal Reserve’s

target unemployment rate of 6 .5%, the rate at which the

central bank may begin to accelerate the tapering of long

term asset purchases known as QE3 .

A troubling feature of the current labor market recovery

is the disproportionate amount of long-term unemployed

persons in the labor pool . Over 37% of job seekers still in the

labor force have been searching for full time employment

for 27 weeks or more . Support may be wavering for the long-

term unemployed, as unemployment benefits and other


INITIAL UNEMPLOYMENT CLAIMS United States | Four-Week Moving Average

300,000

400,000

500,000

600,000

700,000Peak in Initial Unemployment Claims (Week of 3/28/09) = 660,250

15-Year Average = 379,500

INIT

IAL

UN

EM

PLO

YM

EN

T C

LAIM

S

Source: Bureau of Labor Statistics, Delta Associates; March 2014. Note: Data are not seasonally adjusted.

UNEMPLOYMENT RATE United States

0%

2%

4%

6%

8%

10%

12%

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14*

Note: Through February 2014; seasonally adjusted; shaded bars represent recessions. Source: Bureau of Labor Statistics, Delta Associates; March 2014.

U.S

. U

NE

MP

LOY

ME

NT

RA

TE

PROJECTED PAYROLL JOB GROWTH United States | December 2012 – December 2022

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

Manufacturing

Federal Govt

Information


Wholesale Trade

Other Services

Financial Activities

State/Local Govt

Retail Trade

Leisure/Hospitality

Construction/Mining

Professional/Business

Education/Health

Job Change (Thousands)




government safety nets are becoming increasingly partisan

political issues – long-term unemployment benefits have

not been extended by Congress for 2014 . The long-term

unemployed are more likely to leave the labor pool or

accept lower-wage positions . Even though the economy is

firing on many cylinders, output growth has been slow to

filter over to job growth after the recession . The long-term

unemployed certainly are feeling that squeeze .

Hires Rate: According to the Economic Policy Institute, a

method to gauge the relative strength of the current labor

market is through the hires rate, or the share of total

employment accounted for by new hires . In effect, the hires

rate captures (1) Net new hires, and (2) New hires that are

due to “churn .” The indicator is useful because top-end

payroll job growth hides a lot of shuffling in the economy,

or the natural “churn” in the job market as hires fill vacated

or lost positions . One feature of the current expansion

has been the reluctance of workers to separate from their

current job due to scarce opportunities, which is usually an

important way for many workers to advance their careers

and take advantage of better and bolder opportunities . As

shown below, the hires rate fell dramatically during the

Great Recession and has shown only modest improvement

thereafter . From 2009 to year-end 2013, net new hires

accounted for only about 3 .15% of payroll job growth on

average . The adjacent graph illustrates the fragility of the

labor market, as employees are clinging to less desirable

positions and may be missing opportunities for future

career growth .

Job Applicants: As of January 2014, for every job opening

there are 2 .6 potential applicants . This is well below the July

2009 peak of 6 .7 applicants for every job and marginally less

than the 10-year average of 3 .2 . Of note, January was the

second consecutive month the ratio remained below 2 .7,

the first time that has occurred since August 2008 .

Drilling down to job sectors, there are still 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 8 .2 potential applicants as

of December 2013 . This gap is forcing many unemployed

construction workers to revamp their skill sets in order to

be hirable in another sector . Of note, the job-seeker ratio

for the construction industry fell from 12 .5 in March 2013,

which corresponds to the rebound in homebuilding seen

over the past year . In comparison, the Education and

NUMBER OF UNEMPLOYED PERSONS BY DURATION OF UNEMPLOYMENT


0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

18,000,000

2007 2008 2009 2010 2011 2012 2013

NU

MB

ER

OF

UN

EM

PLO

YE

D

PE

RS

ON

S

27 weeks and over

15 to 26 weeks

5 to 14 weeks

Less than 5 weeks

Note: Through December 2013. Data are seasonally adjusted.

HIRES RATE United States

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

SH

AR

E O

F TO

TAL

EM

PLO

YM

EN

T T

HA

T I

S N

EW

H

IRE

S

Note: Shaded bar represents most recent recession. Source: Bureau of Labor Statistics, Economic Policy Institute, Delta Associates; March 2014.

Average 2009-2013 = 3.15%

Average 2003-2008 = 3.75%

JOB-SEEKERS RATIO United States

0

1

2

3

4

5

6

7

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

RA

TIO

OF

JOB

-SE

EK

ER

S T

O

JOB

OP

EN

ING

S

Note: Through January 2014. Source: Bureau of Labor Statistics, Economic Policy Institute, Delta Associates; March 2014.

10-Year Average = 3.2




Health Services sector has just 1 .7 potential applicants per

job opening, and Financial Activities has only 1 .6 potential

applications per job .

GROSS DOMESTIC PRODUCT (GDP)

Real GDP increased at a 2 .4% annualized rate during the 4th

quarter of 2013 according to the second estimate released

by the Bureau of Economic Analysis . Real GDP growth in the

4th quarter reflected positive contributions from personal

consumption (though smaller than previously estimated

in the first estimate), private inventory investment, a rise

in exports and an uptick in state and local government

spending . The rise in GDP during the 4th quarter represents

the 11th consecutive quarter in which the economy has

expanded . We believe momentum is returning to the U .S .

economy as business and consumer confidence strengthens

and Europe emerges from its recession . However, global

economic growth could face near-term constraints from a

combination of current account deficits/weak currencies in

emerging economies and questions about the rate of future

growth in China . And, of course, there are always worries

about geo-political events . Despite those concerns, we

project GDP growth during 2014 to slightly outpace the 20-

year annual average growth rate of 2 .5% if the current cycle

holds steady .

The national economic expansion remains on track, even if

its performance is slow and uneven from month to month .

This is due in part to consumer’s improved outlook due to:

• Higher-income Americans feeling wealthier due to a 19%

gain in the S&P 500 year-to-date;

• Middle-income Americans feeling better due to a 13 .4%

gain in housing prices over the past 12 months; and

• Lower- and middle-income earners benefiting from low

inflation and flat gasoline prices over the last year .

In addition, as households continue to fuel growth in the

economy through consumption expenditures, household

wealth accumulation (e .g ., residential investment)

continues to be on the mend . Non-residential investment

as a percentage of GDP is returning to pre-recession levels,

as inventory stock has been building up and commercial

construction is ramping up . Residential investment, which

includes new housing starts and upgrades to existing

residential buildings, has historically been a significant

contributor to GDP growth following the last four recessions,


GDP PERCENT CHANGE United States

Source: Bureau of Economic Analysis, Delta Associates; March 2014. 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

Q312

Q412

Q113

Q213

Q313

Q413

AN

NU

AL

GD

P C

HA

NG

E I

N 2

00

9

CO

NST

AN

T D

OLL

AR

S

20-Year Average = 2.5%

FIXED INVESTMENT CONTRIBUTIONS TO GROSS DOMESTIC PRODUCT (GDP)

Source: Federal Reserve Economic Database (FRED), Delta Associates; March 2014.

0%

2%

4%

6%

8%

10%

12%

14%

16%

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

PE

RC

EN

TAG

E O

F R

EA

L G

DP

RI %GDPNRI % GDP

Residential Private Investment Nonresidential Private Investment

*Through Q4 2013. Note: data are seasonally adjusted at annual rates.

NUMBER OF UNEMPLOYED VS. JOB OPENINGS 12-Month Average Ending December 2013

0 200 400 600 800 1,000 1,200 1,400 1,600

Wholesale and retail trade

Leisure and hospitality

Professional and business services

Education and health services

Manufacturing

Construction

Government

Other services

Financial activities

Transportation and utilities

Information

Mining

Number of Job Openings

Number of Unemployed

T H O U S A N D S O F J O B S

Note: Based on 12-month trailing average. Data are not seasonally adjusted. Source: Bureau of Labor Statistics, Delta Associates; March 2014.



$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

$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 2013*

Corporate Profits

S&P 500 12-Month EPS

*Through Q3 2013; seasonally adjusted at annual rates. EPS through September 2013.

U.S. CORPORATE PRE -TAX PROFITS

Source: Bureau of Economic Analysis, Multpl.com, Delta Associates; March 2014.

CO

RP

OR

AT

E P

RO

FIT

S I

N T

RIL

LIO

NS

S&

P 5

00

12

-MO

NT

H E

PS

ANNUAL CHANGE IN EXISTING HOME SALE PRICES United States

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

PE

RC

EN

T C

HA

NG

E F

OR

ME

DIA

N P

RIC

E

OF

SIN

GLE

-FA

MIL

Y H

OM

ES

Source: S&P/Case-Shiller, Delta Associates; March 2014.

2008 2009 2010 2011 2012

Note: Data reflect 20-city composite index.

2013


but growth in residential investment following the latest

recession has been sub-par . We expect residential fixed

investment as a percentage of GDP will increase during the

coming year, as home values continue to rise and home

construction picks up . Much like our expectation that

personal consumption expenditures is poised to expand as

household equity continues to mend, a rise in residential

fixed investment should translate into accelerating GDP

growth in the coming year or two .

CORPORATE PROFITS

U .S . corporate profits totaled a revised $2 .13 trillion during

the 3rd quarter of 2013 on an annualized basis, a 5 .8%

increase over year-end 2012 . Companies have the resources

to hire but remain wary about future demand for products

and services . Corporate cash was primarily used in 2013 to

fund share buybacks and support earnings growth . We expect

that record corporate profits will gradually decline over the

next few years as uncertainty fades, businesses expand their

capital expenditures and M&A activity ramps up .

HOUSING MARKET

Home prices in the 20 major metro areas increased 13 .4%

during the 12 months ending December 2013, the most

recent data available, according to S&P/Case-Shiller . The

housing market performed well in 2013 but is still off

pre-recession highs in most areas of the country . Rapidly

growing metro areas continue to outpace the average . Home

price growth was strong in 2013 despite rising mortgage

rates, wintry weather conditions, and more sellers entering

the market .

The number of U .S . home sales fell to 4 .6 million (on an

annualized basis) in January 2014 from 4 .9 million a month

earlier . The 4 .6 million-unit pace is 5 .1% below the 4 .9

million-unit pace from the same period a year ago . January

home sales were unexpectedly soft following multiple

consecutive months of expansion, and may have been

exacerbated due to adverse weather conditions . However,

a shallow inventory continues to lift prices across most

of the nation . The average existing home sales price

was $237,500 in January 2014 according to the National

Association of Realtors, rising approximately 9% year-

over-year . Listed inventories declined 1 .6% from December

2012 to December 2013 . If the inventory remains tight,

prices could appreciate further .

Source: National Association of Realtors, Delta Associates; March 2014.

$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 2013 2014*

Number of Existing Home Sales

Average Existing Home Sales Price

NU

MB

ER

OF

SALE

S –

T

HO

USA

ND

S O

F U

NIT

S

U .S . EXISTING HOME SALES VS. SALES PRICE A

VE

RA

GE

SA

LES

PR

ICE

*Seasonally adjusted annual sales rate; data as of January 2014.



FEDERAL INTERVENTION AND INFLATION

Janet Yellen, the Federal Reserve’s new Chair, has made

it clear that she intends to follow the principles of her

predecessor, Ben Bernanke . Accordingly, the Fed plans to

keep short-term rates at their current range of 0% to 0 .25%

until the unemployment rate drops to 6 .5% or inflation

becomes problematic . However, on December 18, 2013, after

encouraging signs from the economy and the labor market,

the Fed decided to taper its quantitative easing policy by $10

billion per month, to $75 billion . The program is expected

to wind down steadily through 2014 and conclude by year-

end . Indeed, on January 29, 2014, the Fed cut QE3 by another

$10 billion, bringing down total long-term bond purchases

to $65 billion per month .

For commercial real estate investors, we perceive the

tapering decision as a net positive . The Fed’s announcement

should provide more clarity as to the central bank’s

monetary guidance going forward . The move also sheds

light on the improving economic prospects of the U .S .

economy, and it should remove a portion of the all-too-

familiar uncertainty that has plagued business decision-

making and capital investment for some time .

How will markets react going forward? Time will tell, but we

expect some short-term volatility, especially in emerging

economies that benefited from record-low borrowing rates .

As expected, rates are rising as the market prices-in the

taper . As the year progresses, we expect market jitters to

subside and for long-term rates to rise modestly on balance

during 2014 . The key to the speed with which this happens

may be the temperament of our foreign bond holders and

accelerating inflation – will U .S . debt continue to look

attractive compared to alternatives? If so, then rates will

remain lower for longer . If not, then rates will rise faster

and sooner .

Regarding inflation, prices increased 1 .1% during the 12

months ending February 2014 . The personal consumption

expenditure price index (PCEPI), which takes into account

changes in consumption habits as people substitute away

from some goods and services towards others, rose 1 .2%

during the 12 months ending January 2014, the most recent

data available at this writing . Relatively cheap energy

continues to thwart a rise in the overall price level, even

though the electricity and natural gas components of the CPI

have both risen sharply . We expect inflation to be contained


SELECTED U.S. GOVERNMENT INTEREST RATES

0

1

2

3

4

5

6

7

2000 2001 2002 2003 2005 2006 2007 2008 2010 2011 2012 2013

INT

ER

EST

RA

TE

S (

%)

Federal Funds Rate

10-Year Treasury

30-Year Treasury

Source: Federal Reserve Economic Data (FRED), Delta Associates; March 2014. Note: Federal Funds Rate unchanged since December 16, 2008. 30-Year Treasury not issued between Q2 2002-2005.



in the near-term due to still-elevated unemployment and

weak wage growth, coupled with the fact that price pressure

tends to lag economic growth by a year or more . Given this,

coupled with appropriate monetary measures, inflation

looks soft and should hover slightly above 2 .0% during the

balance of 2014 .

ECONOMIC OUTLOOK

Thus far in 2014 the U .S . economy looks set to continue on

a slow and steady upward trend – sustainable, in our view .

Financial markets may face some headwinds as they adjust

to less stimulus from the Federal Reserve . Adverse weather

conditions were a drag on economic activity as 2013 came

to an end, but its impact should have little bearing on the

trajectory of U .S . growth going forward . The private and

public sectors are each learning to adapt, and national

economic growth has continued, though at a level that is

weak for a post-recession recovery . Households should

remain upbeat due to increases in net worth from home

prices and the stock market . On balance, we look for this

recovery to continue on its slow but steady course through

2017 or so, barring a catastrophic event .

Specifically, we believe the economic outlook is as follows:

• Real GDP growth: 2 .5% to 3 .0% in 2014 .

• Payroll jobs: 2 .4 million added in 2014, slightly outpacing

the 2013 total .

• Housing: Price appreciation around 10% in 2014, slightly

off last year’s performance .

• Unemployment rate: Hovering in the 6 .5% to 6 .9% range

as 2014 progresses .

• Federal Funds Rate: 0% to 0 .25% through year-end 2015 .

• Long-term interest rates: Edging higher during 2014 .

• Inflation: Accelerating modestly in 2014 – slightly above

2 .0% – as consumer demand strengthens .

NATIONAL PAYROLL JOB GROWTH SUMMARY

The U .S . economy gained 2 .2 million payroll jobs over the

12 months ending February 2014 (seasonally adjusted),

representing an increase of 1 .6% . This compares to the 25-

year annual average of 1 .2 million jobs at a 1 .1% average

growth rate .


*Seasonally-adjusted change for 12 months ending in February 2014; 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

1.6%

1.7%

1.7%

1.2%

-0.7%

-4.3%

-0.6%

1.1%

1.8%

1.7%

1.1%

-0.2%

-1.1%

2,158,000

2,264,000

2,250,000

1,576,000

-948,000

-5,949,000

-765,000

1,532,000

2,407,000

2,265,000

1,417,000

-313,000

-1,451,000

2014*

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

U.S. INFLATION AND PERSONAL CONSUMPTION EXPENDITURE INDEX

Source: Federal Reserve Economic Database (FRED), Delta Associates; March 2014.

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14*

PE

RC

EN

TAG

E C

HA

NG

E

Series1

Series2

CPI-U PCEPI

Note: *Through January 2014. 12-month seasonally-adjusted percentage change.



METRO AREA # % METRO AREA # %LA Basin Tampa-St. Pete 29,400 2.5% Los Angeles/Long Beach/Glendale 91,100 2.3% Portland (OR) 29,300 2.9% Santa Ana/Anaheim/Irvine 38,700 2.7% Nashville 28,800 3.7% Riverside/San Bernardino/Ontario 37,400 3.1% San Diego 28,300 2.2% Subtotal LA Basin 167,200 2.5% Minneapolis-St. Paul 26,900 1.5%New York 135,600 1.6% Charlotte 24,800 2.9%San Francisco Bay Area Raleigh-Durham 24,400 3.0% San Jose/Sunnyvale/Santa Clara 41,100 4.4% Las Vegas 22,300 2.7% San Francisco/San Mateo/Redwood City 37,100 3.6% Jacksonville 21,100 3.6% Oakland/Fremont/Hayward 20,700 2.0% Washington, DC 20,900 0.7% Subtotal Bay Area 98,900 3.3% San Antonio 20,200 2.3%Houston 95,900 3.2% Oklahoma City 18,100 3.1%Dallas/Ft. Worth 91,300 3.4% Cincinnati 18,000 1.8%South Florida Philadelphia 17,500 0.6% West Palm Beach/Boca Raton 14,100 2.6% Sacramento 14,800 1.7% Fort Lauderdale 24,100 3.3% Salt Lake City 11,900 1.8% Miami/Miami Beach/Kendall 30,500 2.9% Baltimore 9,300 0.7% Subtotal South Florida 68,700 3.0% Indianapolis 9,200 1.0%Atlanta 58,600 2.5% St. Louis 7,200 0.6%Chicago 55,200 1.3% New Orleans 6,400 1.2%Phoenix 48,400 2.7% Kansas City 5,800 0.6%Seattle 41,300 2.4% Columbus (OH) 4,700 0.5%Denver-Boulder 40,400 2.8% Cleveland 3,000 0.3%Austin 37,700 4.5% Detroit (Detroit/Warren/Livonia) 2,500 0.1%Boston (Metropolitan NECTA) 37,500 1.5% Memphis 2,400 0.4%Orlando 36,400 3.5% Pittsburgh (1,100) -0.1%

Note: Data are not seasonally adjusted.Source: Bureau of Labor Statistics, Delta Associates; March 2014.

12-MONTH PAYROLL EMPLOYMENT CHANGE THROUGH JANUARY 2014

JOB CHANGE JOB CHANGE



THE PHILADELPHIA

AREA ECONOMY

FIRST QUARTER 2014

The Philadelphia metro area economy is expanding .

Payroll employment increased 18,500 during the 12 months

ending January 2014 and added 23,600 net new payroll jobs

during 2013 . This compares to a 20-year annual average of

16,800 . The Education and Health Services sector powered

the local economy during the past 12 months . Compared

to past recovery cycles, this sector has achieved healthy

gains in jobs since the end of the most recent recession .

Moreover, the Construction and the Professional/Business

Services sectors played important roles as well . Hindering

more robust job growth is the 1,300 payroll positions

lost in the 12 months ending January 2014 in both the

Information and Financial Services sectors . The area’s

unemployment rate is at 6 .4% as of December 2013, down

from 8 .3% one year earlier .

The Philadelphia metro economy should maintain its job

growth pace relative to other comparably-sized metro

areas . Unlike nearby Washington, Philadelphia escaped

the full brunt of Federal austerity measures . Moreover,

the reduction of economic uncertainty thanks to the

recent two-year Federal budget deal and suspension of

the national debt limit until March 2015 should provide

greater confidence to the region’s decision-makers . With

an emerging advanced manufacturing sector bolstered by

its strong education/healthcare and professional/business

services industries, the Philadelphia economy is poised to

experience long-term growth .

PAYROLL JOBS

The Philadelphia-Camden-Wilmington metropolitan area

ranks sixth in population among the nation’s metro

ECONOMIC STABILITY TO FUEL JOB GROWTH; HUBS FOR THE ADVANCED MANUFACTURING SECTOR SERVE AS CATALYSTS FOR GROWTH

P A Y R O L L E M P L O Y M E N T

ECONOMIC HIGHLIGHTSP H I L A D E L P H I A - C A M D E N - W I L M I N G T O N

M E T R O A R E A

2.7m i l l i o n

at January

2014

J O B C H A N G E

18.5t h o u s a n d

12 months ending Jan

2014

U N E M P L O Y M E N T R AT E

6.4% down from

8.3% one year ago

I N F L AT I O N

1.0%12 months ending Feb

2014

H O U S I N G P R I C E S

3.0%12 months ending Dec

2013Source: BLS, FHFA: March 2014.

at December 2013


SPONSORED BY KETTLERTHE PHILADELPHIA AREA ECONOMY

areas, with approximately 6 .0 million residents . With 2 .7

million payroll jobs, the Philadelphia metro area ranks as

the eight-largest job market . The Philadelphia metro area

economy added 18,500 new payroll positions during the

12 months ending January 2014, trailing its peer group .

Payroll job growth, however, is above the 20-year annual

average of 16,800 .

JOB GROWTH BY SECTOR

Over the past 12 months, six sectors added jobs in the

Philadelphia metro area . The top three sectors are Education/

Health Services, Construction/Mining, and Professional/

Business Services – with a total of 19,200 net new jobs

added to the economy in these three sectors alone . Of these

sectors, Education/Health Services was the frontrunner,

adding 8,900 payroll jobs to the economy during the past

12 months – slightly below the 20-year annual average of

9,100 jobs .

INCUBATING ADVANCED MANUFACTURING JOBS

The Philadelphia metro area’s strong Education/Health

Services industry is also playing a role in making the

region a prominent locale for the advanced manufacturing

sector . More specifically, the growing number of research/

industrial parks affiliated with academic medical centers

has accelerated not only the commercialization of

innovative advanced manufacturing products, but also the

creation of regional jobs within this emerging sector .

Unlike traditional manufacturing, advanced manufacturing

centers on technology-based research and development

(R&D) in the Life Sciences, Clean Technology, and Energy

(petroleum refining and natural gas) . The Greater

Philadelphia Chamber of Commerce reports that the sector

currently accounts for about 65,000 employees or 36% of

total manufacturing employment in the region, compared

to the national figure of 25% .

The research parks that house advanced manufacturing

entrepreneurs have helped bolster this number . According

to a study by the University City Science Center in 2009 –

the nation’s first urban research park – organizations that

started at their incubator hub have created over 15,000

jobs in the metro, with each employee supporting an

additional 2 .68 jobs due to indirect and induced economic

demand . The redevelopment of the Philadelphia Navy

PAYROLL JOB GROWTH Comparable Metro Areas | 12 Months Ending January 2014

TH

OU

SAN

DS

OF

NE

W

PAY

RO

LL J

OB

S


-10

0

10

20

30

40

50

60

Chicago Washington Philadelphia Baltimore St. Louis Cleveland Pittsburgh

18.5

PAYROLL JOB GROWTH Philadelphia-Camden-Wilmington Metro Area

-6,000 -4,000 -2,000 0 2,000 4,000 6,000 8,000 10,000

State and Local Government

Information

Financial Services

Other Services

Manufacturing

Federal Government

Retail Trade


Wholesale Trade

Leisure/Hospitality

Professional/Business Services

Construction/Mining

Education/Health

J O B C H A N G E *

+25,700

-8,200

Source: Bureau of Labor Statistics, Delta Associates; March 2014. *12 months ending in January 2014.

-120

-100

-80

-60

-40

-20

0

20

40

60

80

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14*

20-Year Annual Average = 16,800/Year

TH

OU

SAN

DS

OF

NE

W P

AY

RO

LL

JOB

S (

AN

NU

AL

AV

ER

AG

E)

PAYROLL JOB GROWTH Philadelphia-Camden-Wilmington Metro Area

*12 months ending in January 2014. Source: Bureau of Labor Statistics, Delta Associates; March 2014.



Yard into a mixed-use industrial/technology campus also

reinforces the growing ties between the larger education/

health services industry and the emerging advanced

manufacturing sector of the metro area . The Navy Yard is

currently home to 143 companies in the office, industrial/

manufacturing, and R&D sectors including pharmaceutical

companies like GlaxoSmithKline and energy/building

research organizations like the Energy Efficient Buildings

Hub . It is expected to generate a total of 30,000 jobs at full

build-out . More recently, a 23-acre research park being

planned by the University of Pennsylvania as a university-

based business incubator equipped with high-technology

facilities will create additional growth opportunities for

this sector .

The collaboration between the education/healthcare

and advanced manufacturing sectors at these research

parks has made the Philadelphia metro area’s innovation

index competitive against other comparable metro areas .

Further, the clustering of high-technology resources and

a highly-skilled workforce is helping the region redefine

its declining manufacturing sector into a more advanced,

scientific industry . Continued access to highly-qualified

talent and to flexible capital at these institution-sponsored

research parks could further leverage this emerging sector

in the Philadelphia metro area .

UNEMPLOYMENT RATE

The Philadelphia area unemployment rate was 6 .4% at

December 2013, down from 8 .3% one year earlier . This

compares to the national rate of 6 .7% as of December 2013 .

This national rate remained unchanged at 6 .7% as of February

2014 . Among comparable metro areas, Philadelphia holds

the fourth-lowest unemployment rate as of December 2013 .

We expect the Philadelphia metro area’s unemployment

rate to remain near 6 .5% in 2014 . The rate could edge up

in the near-term as economic uncertainty dissipates and

optimism in the region’s commercial and residential real

estate markets encourage unemployed workers to re-enter

the labor force in search of a job .

REGIONAL CONSUMER PRICE INDEX

Overall inflation in the Philadelphia-Camden-Wilmington

region was 1 .0% during the 12 months ending February

2014, compared to the national inflation rate of 1 .1% . Price

growth for medical expenses in the Philadelphia metro area

40.0 50.0 60.0 70.0 80.0 90.0 100.0 110.0 120.0

Cleveland

Detroit

Pittsburgh

St. Louis

Chicago

Houston

Atlanta

Baltimore

Philadelphia

Washington

Boston

SF Bay Area

INNOVATION INDEX Metro Areas | 2010

I N N O V A T I O N I N D E X

102.7%

Includes weighted components: human capital, economic dynamics, productivity, and economic well-being. Source: Stats America, Manufacturing Task Force, Delta Associates; March 2014.

UNEMPLOYMENT RATES Comparable Metro Areas | December 2012 vs. December 2013

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Washington Pittsburgh Baltimore Philadelphia St. Louis Cleveland Chicago

December 2012December 2013

UN

EM

PLO

YM

EN

T R

AT

E

National Average

6.7%

7.9%

Basis Point Change -30 -40 -190 -100 -150 -70


0

TRENDS IN EMPLOYMENT BY MAJOR SECTORPhiladelphia Metro Area | In Thousands

JANUARY 2014

Education/Health

Construction/Mining

Prof/Business Services

Leisure/Hospitality

Wholesale Trade


Retail Trade

Federal Government

Manufacturing

Other Services

Financial Services

Information

State/Local Gov

Total

573.6

99.6

426

226.9

121.7

92.3

291.8

51.4

178.4

118.4

200.4

46.7

283.3

2,710.5

12-MONTHCHANGE

8.9

5.3

5.0

4.4

1.2

0.9

(0.2)

(1.0)

(1.0)

(1.2)

(1.3)

(1.3)

(2.2)

17.5

20-YEAR ANNUAL AVERAGE

9.1

0.7

6.5

3.8

0.4

0.5

0.8

(1.0)

(5.9)

1.3

0.3

-0.6

0.5

16.8



decelerated to 1 .2% for the 12 months ending February 2014,

compared to a 3 .2% price increase during the preceding 12

months . Growth in transportation costs also experienced

a notable deceleration, at 2 .4%, from 4 .3% as of February

2013 . Gasoline prices dropped 3 .8% during 2013 and

continued to trend downward as of February 2014 . For all of

2014, we expect inflation to be contained locally, as slowly

progressing economic conditions keep prices in check, with

growth of 1 .5% to 2 .5% . As long as appropriate monetary

measures are in place at the Federal level, inflation should

remain controlled .

HOUSING PRICES

House prices in the Philadelphia metro area increased 3 .0%

in the final quarter of 2013 compared with the final quarter

of 2012, according to the Federal Housing Finance Agency

(FHFA) . This compares to a national increase of 7 .7% during

the same period and a Philadelphia metro area increase

of 7 .6% a year earlier . The Philadelphia metro area’s job

growth has performed above the long-term average, which

will support a healthy local housing market in the year

ahead . However, while market indicators show stable

demand, we expect the rate of price growth to decelerate in

2014 due to expected increases in mortgage rates – as the

Federal bond-buying program continues to taper off – and

due to the fact that housing has become less affordable

due to the slower acceleration of wage growth, especially

in urban households .

REGION’S CORE INDUSTRIES

The Gross Metropolitan Product (GMP) was $373 .9 billion

in 2013 in real terms, an increase of 1 .5% over 2011 . This

number is expected to grow to $388 .4 billion in 2014

according to a report by the U .S . Conference of Mayors .

Financial activities make up a notable portion of the

economy, generating 30% of the Philadelphia metro area’s

economic activity . Other significant components of the

region’s economy are the professional/technical services

and trade sectors, which together account for almost a third

of the GMP . Manufacturing has become a smaller share of

the region’s economy, losing 2 .3% on a compounded annual

basis over the last ten years . This sector’s share of the gross

regional product stood at 7% in 2013 . The Education and

Healthcare sector still remains a Philadelphia metro area

staple, contributing 11% to the GMP .

HOME PRICES Philadelphia Metro Area vs. United States

Source: Federal Housing Finance Agency, Delta Associates; March 2014.

PE

RC

EN

T C

HA

NG

E

Note: Seasonally adjusted. Price change at 4th quarter year-over-year.

-15%

-10%

-5%

0%

5%

10%

15%

20%

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

Philadelphia MSAUnited States

Note: Estimate. Percentages may not add to 100% due to rounding.

2013

GMP IN BILLIONS $ % OF GMP Financial Activities $112.2 30%

Professional/Technical Services $56.1 15%

Wholesale and Retail Trade $44.9 12%

Education and Health Services $41.1 11%

Federal and State Government $29.9 8%

Manufacturing $26.2 7%

Leisure and Hospitality $11.2 3%

Transportation and Warehousing $7.5 2%

Other Smaller Core Sectors and Local-Serving Economic Activities $44.9 12%

Total GMP $373.9 100%

CORE ECONOMIC SECTORS Philadelphia-Camden-Wilmington Metro Area

Source: U.S. Census, BEA, U.S. Conference of Mayors, Delta Associates; March 2014.

AN

NU

AL

PR

ICE

IN

DE

X C

HA

NG

E

CONSUMER PRICE INDEX (CPI ) Philadelphia-Camden-Wilmington Metro Area

-3%

-2%

-1%

0%

1%

2%

3%

4%10-Year Annual Average = 2.5%

Note: Data is 12 months ending in each period, through February 2014. Source: Bureau of Labor Statistics, Delta Associates; March 2014.



PHILADELPHIA AREA ECONOMIC OUTLOOK

We expect the Philadelphia metro economy to continue

improving through the remainder of 2014 . As jobs continue

to be added to the metro area at a slightly faster rate than

the 20-year annual average, we expect the unemployment

rate to remain similar to the national rate .

The local economy will continue to generate jobs at a rate

above the 20-year average during the 2014-16 period . We

project that the Philadelphia metro area economy will add

25,600 net new jobs in 2014, followed by 27,200 in 2015

and 24,800 in 2016 . We expect most of the hiring to be

generated by the Philadelphia region’s economic mainstay:

the Education and Healthcare sector . The Professional/

Business Services sector will also become a long-term

driver for the local economy as it increasingly supports

the nonproduction activities – from engineering design to

marketing occupations – of the region’s entrepreneurial

advanced manufacturing companies .

JOB GROWTH Philadelphia-Camden-Wilmington Metro Area

TH

OU

SAN

DS

OF

NE

W P

AY

RO

LL

JOB

S (

AN

NU

AL

AV

ER

AG

E)

-120

-100

-80

-60

-40

-20

0

20

40

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

20-Year Average = 16,800/Year


3-Year Projected Average = 25,900/Year


2STATE OF THE

PHILADELPHIA CLASS A

APARTMENT MARKET


SHORT TERM PAIN;LONG TERM HEALTH

The Philadelphia metro area’s stabilized Class A vacancy

rate stands at 4 .6% — 70 basis points higher than the 3 .9%

rate registered at this time last year . Vacancy increased over

the year in Suburban Pennsylvania, Southern New Jersey,

and the City of Philadelphia .

• Suburban Pennsylvania vacancy is up 40 basis points

compared with March 2013, at 4 .5% .

• Vacancy in Southern New Jersey, at 5 .5%, rose by 80 basis

points from 4 .7% at March 2013 .

• Vacancy in Philadelphia is up 110 basis points to 4 .0% in

the same time period .

The substate areas of Southern New Jersey and Suburban

Pennsylvania experienced differing rent conditions, with

overall rent growth in the suburbs of -0 .8% over the year

and average effective rents at $1,411 .

• The rents in Philadelphia did not fare well, with a

decrease of 6 .6% since last year at this time .

• Rent growth in Southern New Jersey was the best, as

rents grew by 2 .4% over the same period .

• Effective rents across the entire Philadelphia metro area

decreased by 2 .5% over the past year .

For the metro area as a whole, average effective rental rates

are $1,597 ($1 .59 per SF) . Effective rents in Philadelphia

average $2,039 ($2 .10 per SF) vs . $1,411 ($1 .40 per SF) in

the suburbs .

STATE OF THE PHILADELPHIA

CLASS A APARTMENT MARKET

FIRST QUARTER 2014

S U B U R B A N P E N N S Y LV A N I A

PHILADELPHIA APARTMENT MARKET OVERVIEWFIRST QUARTER 2014 BY SUB-STATE AREA;

THE TREND SINCE FIRST QUARTER 2013

E F F E C T I V E R E N T S

6.6%V A C A N C Y

4.5%up 40 basis points

S O U T H E R N N E W J E R S E Y


2.4%V A C A N C Y


P H I L A D E L P H I A


2.5%V A C A N C Y




CITY OF PHILADELPHIA

An increase in supply over recent quarters has led to rent

declines and rising vacancy in Philadelphia . The number of

units under construction has risen slightly, and as a result,

we project that the 36-month supply will slightly exceed

the number of units that will be absorbed in Philadelphia by

the end of our 36-month forecast period . This can already

be seen by the rising vacancy rates in the last quarter .

There are currently about 4,763 units under construction

or planned that may deliver within the next 36 months in

Philadelphia . Philadelphia’s supply/demand relationship

indicates that vacancy will continue to edge up slightly,

and rent growth is likely to stay negative over the next 24

months . This trend will be temporary, however, and we

expect Philadelphia to remain a healthy market .

SUBURBAN PENNSYLVANIA

Effective rents in Suburban Pennsylvania are down by

2 .2% when compared with rents at March 2013 . Stabilized

vacancy is currently 4 .5% compared with last year’s level

of 4 .1% . Concessions have dropped slightly over the last

year, from 1 .5% of asking rent at March 2013 to 1 .1% in

the current quarter . Effective rents in Montgomery County

are down 3 .0% over the year, while Chester and Delaware

counties experienced a negative growth of 2 .2% . Bucks

County experienced a decline as well over the year of 1 .1% .

Stabilized vacancy is currently the highest in Montgomery

County at 6 .6% . Stabilized vacancy in Bucks County is 3 .9%,

and Chester and Delaware counties have a vacancy rate of

3 .1% at March 2014 .

SOUTHERN NEW JERSEY

Mercer County currently has the lowest stabilized vacancy

rate in Southern New Jersey, at 2 .7%, down from 3 .2% at

first quarter 2013 . Camden County has a stabilized rate of

7 .4%, and Burlington County has a stabilized rate of 3 .9% .

Burlington County experienced the same vacancy rate

as one year ago, while Camden County experienced an

increase in the stabilized vacancy rate of 180 basis points .

Excluding Mercer County, the vacancy rate for stabilized

properties in Southern New Jersey rose by 80 basis points,

from 4 .7% at first quarter 2013 to 5 .5% currently .

STATE OF THE PHILADELPHIA CLASS A APARTMENT MARKET

ANNUAL ABSORPTION OF APARTMENTS Major Apartment Markets | Long-Term Average

Source: REIS Services LLC, Delta Associates; March 2014.

AN

NU

AL

NE

T A

BS

OR

PT

ION

OF

UN

ITS

896

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

DFW Hou Atl Was LA Phx Balt Phil Chi Pgh

Note: Excludes NY metro to conserve scale

Note: Excludes NY metro to conserve scale.

RENTER HOUSEHOLDS Philadelphia Metro Area vs. U.S. | 2006 - 2013

Source: U.S. Census Bureau, Delta Associates; March 2014.

RE

NT

ER

S A

S %

OF

TO

TAL

HO

US

EH

OLD

S

26%

27%

28%

29%

30%

31%

32%

33%

34%

35%

36%

37%

2006 2007 2008 2009 2010 2011 2012 2013

Philadelphia Metro

U.S.

EFFECTIVE RENTAL RATE AND VACANCY RATE Class A Apartments | Philadelphia

$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%6.0%6.5%7.0%7.5%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*

Average Effective Base RentStabilized Vacancy

STA

BIL

IZE

D V

AC

AN

CY

RA

TE

AV

ER

AG

E E

FF

EC

TIV

E B

AS

E R

EN

T

Source: Delta Associates, March 2014.

2 . 2 % / Y E A R L O N G - T E R M R E N T G R O W T H

* At First Quarter 2014


SPONSORED BY KETTLERSTATE OF THE PHILADELPHIA CLASS A APARTMENT MARKET

A W O R D A B O U T O U R D E F I N I T I O N O F VA C A N C Y R AT E

We sometimes hear from apartment developers and managers

that their portfolio vacancy rate is 200 to 400 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 lease

Operating 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 with ours. Our vacancy rate may also be

understated, compared with yours, by our exclusion of what

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.

CLASS A APARTMENT RENT PER SF Philadelphia Metro Area | 2002 - 2013

Source: Delta Associates; March 2014.

$1.00

$1.20

$1.40

$1.60

$1.80

$2.00

$2.20

$2.40

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Center City So. NJ Sub. PA Phil Metro

$2.10

$1.59

Note: Data for 2014 is as of 1st quarter.

OUTLOOK

In the short run, the Philadelphia apartment market will

experience downward pressure on rents and occupancy due

to an excessive pipeline of development . This will pass as

pro forma rents no longer support rising development costs .

In the intermediate and longer term, demographic shifts

support a surge in demand for apartments . Therefore we

expect by 2017 regional rents to return to their longer term

average annual increase of 3% . With strong development

prospects in many submarkets by then .



12-MONTH METRO AREA TOTAL RETURN 1

Houston 15.20%

Atlanta 14.10%

Dallas 12.81%

Chicago 10.86%

Austin 10.85%

National Average 10.42%

Baltimore 10.19%

Phoenix 8.48%

Philadelphia 7.31%

Washington 6.48%

1 NCREIF compiles returns based on its members' $70 billion apartment portfolio. The index includes both current income and estimated capital appreciation returns.

Source: Delta Associates, based on trailing 12-month data in NCREIF "Real Estate Performance Report: Year End 2013".

TABLE 2.1

Investment Grade Apartment PropertiesReturn Index: 12 Months Ending Year End 2013 1

NATIONAL COUNCIL OF REAL ESTATE INVESTMENT FIDUCIARIES

TOTAL APARTMENT INVESTOR RETURNS Philadelphia Metro vs. U.S. | 2007 – Fourth Quarter 2013

-35

-25

-15

-5

5

15

25

U.S.Philadelphia Metro

Source: NCREIF, Delta Associates, March 2014.

TOTA

L RE

TURN

(IN

COM

E +

APPR

ECIA

TIO

N)

*As of Year-End 2013.

2007 2008 2009 2010 2011 2012 2013

NATIONAL COUNCIL OF REAL ESTATE INVESTMENT FIDUCIARIES


PHILADELPHIA

STATISTICAL

REPORT

3



GEOGRAPHIC AREA

Number of Units Surveyed 7,068 3,243 10,311 4,343 14,654

Rent Levels ( Avg. of All Unit Sizes)

Face Rent $1,436 $1,412 $1,428 $2,047 $1,612

Concession as a % of Face Rents 1.1% 1.5% 1.2% 0.4% 0.9%

Effective Rent $1,420 $1,391 $1,411 $2,039 $1,597

Effective Rent per Square Foot $1.38 $1.39 $1.40 $2.10 $1.59

Per Annum Effective Rent Increase to March 1999Per Annum Effective Rent Increase

- Since 03/31/09 1.7% 2.2% 1.8% 1.5% 1.7%

- Since 03/31/13 1 -2.2% 2.4% -0.8% -6.6% -2.5%

Vacancy March 2014

Overall 2 6.2% 5.5% 6.0% 6.6% 6.2%

Stabilized 3 4.5% 5.5% 4.8% 4.0% 4.6%Vacancy March 2013

Overall 2 4.9% 4.7% 4.8% 8.9% 6.0%

Stabilized 3 4.1% 4.7% 4.3% 2.9% 3.9%

1 Excludes projects that were not actively marketing at date of previous survey, i.e. same project/unit price comparison.2 Includes actively marketing projects.3 Excludes actively marketing projects.Source: Compiled by Delta Associates, 500 Montgomery St., Suite 600, Alexandria, Virginia 22314Phone: (703) 836-5700. Last Update: 3/2014

TABLE 3.1KEY MARKET INDICATORS FOR CLASS A RENTAL APARTMENTS

Summary | Philadelphia Metropolitan AreaFirst Quarter 2014

MARKET INDICATOR SUBURBAN PENNSYLVANIA

SOUTHERN NEW JERSEY

SUBTOTAL- PHILADELPHIA

SUBURBS

CITY OF PHILADELPHIA

PHILADELPHIA METRO AREA

TOTAL/AVERAGE

Table 5.1 1Q 2014 14222 A Tables.xlsxX:\DELTA\OLDSERV\Open Projects\14222\Tables\1Q 2014 14222 A Tables.xlsx

PHILADELPHIA STATISTICAL REPORT



Number of Units Surveyed 2,391 3,255 1,422 7,068

Rent Levels

Face Rent $1,419 $1,454 $1,421 $1,436

Concession as a % of Face Rents 0.0% 1.7% 1.5% 1.1%

Effective Rent $1,419 $1,430 $1,399 $1,420

Effective Rent per Square Foot $1.37 $1.36 $1.45 $1.38

Per Annum Effective Rent Increase

- Since 03/31/09 1.8% 2.3% -0.1% 1.7%

- Since 03/31/13 2 -3.0% -2.2% -1.1% -2.2%

Vacancy March 2014

Overall 3 6.6% 7.0% 3.9% 6.2%

Stabilized 4 6.6% 3.1% 3.9% 4.5%

Vacancy March 2013

Overall 3 4.5% 3.8% 8.2% 4.9%

Stabilized 4 4.5% 3.8% 3.9% 4.1%

1 Includes walk-up and elevator-served apartments of one to four stories.2 Excludes projects that were not actively marketing at date of previous survey, i.e. same project/unit price comparison.3 Includes actively marketing projects.4 Excludes actively marketing projects.

Source: Compiled by Delta Associates, 500 Montgomery St., Suite 600, Alexandria, Virginia 22314Phone: (703) 836-5700. Last Update: 3/2014

TABLE 3.2KEY MARKET INDICATORS FOR CLASS A LOW-RISE RENTAL APARTMENTS 1

Selected Submarkets | Suburban Pennsylvania

SUBMARKET

First Quarter 2014

MONTGOMERY COUNTY

DELAWARE & CHESTER COUNTIES

BUCKS COUNTY

SUBURBAN PENNSYLVANIA

TOTAL/WEIGHTED AVERAGE

MARKET INDICATOR





Number of Units Surveyed 1,411 1,832 3,243 1,929

Rent Levels

Face Rent $1,508 $1,338 $1,412 $1,650

Concession as a % of Face Rents 3.2% 0.0% 1.5% 0.0%

Effective Rent $1,459 $1,338 $1,391 $1,650

Effective Rent per Square Foot $1.40 $1.38 $1.39 $1.54


- Since 03/31/09 2.0% 2.3% 2.2% 1.2%

- Since 03/31/13 2 0.2% 4.0% 2.4% -0.2%

Vacancy March 2014

Overall 3 7.4% 3.9% 5.5% 2.7%

Stabilized 4 7.4% 3.9% 5.5% 2.7%

Vacancy March 2013

Overall 3 5.6% 3.9% 4.7% 3.2%

Stabilized 4 5.6% 3.9% 4.7% 3.2%

1 Includes garden and low-rise style apartments, mid-rise apartments, high-rise apartments, and warehouse conversions.2 Excludes projects that were not actively marketing at date of previous survey, i.e. same project/unit price comparison.3 Includes actively marketing projects.4 Excludes actively marketing projects.

Source: Compiled by Delta Associates, 500 Montgomery St., Suite 600, Alexandria, Virginia 22314Phone: (703) 836-5700. Last Update: 3/2014

TABLE 3.3

Selected Submarkets | Southern New JerseyKEY MARKET INDICATORS FOR CLASS A LOW-RISE RENTAL APARTMENTS 1

First Quarter 2014

MARKET INDICATOR MERCER COUNTYSOUTHERN NEW JERSEY

TOTAL/WEIGHTED AVERAGE

SUBMARKET

CAMDEN COUNTYBURLINGTON

COUNTY





SUBMARKET

CITY OFPHILADELPHIA

Number of Units Surveyed 4,343

Rent Levels

Face Rent $2,047

Concession as a % of Face Rents 0.4%

Effective Rent $2,039

Effective Rent per Square Foot $2.10


- Since 1988 3.1%

- Since 03/31/09 1.5%

- Since 03/31/13 1 -6.6%

Vacancy March 2014

Overall 2 6.6%

Stabilized 3 4.0%

Vacancy March 2013

Overall 2 8.9%

Stabilized 3 2.9%

Absorption TrendsMonthly Absorption Pace Per Project

For Most Recently Delivered Market-Rate Projects 30

(Year of Most Recently Marketed Project) (2012)

Supply Projections# of Market Rate Units Under Construction & Available

Plus Planned Which Are Likely to Be Delivered

in the Next 36 Months 4 4,763

1 Excludes projects that were not actively marketing at date of previous survey, i.e. same project/unit price comparison.2 Includes actively marketing projects.3 Excludes actively marketing projects.4 See list of under construction and planned projects on Tables 5.6 and 5.7. Does not account for attrition.Source: Compiled by Delta Associates, 500 Montgomery St., Suite 600, Alexandria, Virginia 22314

Phone: (703) 836-5700. Last Update: 3/2014

TABLE 3.4

City of PhiladelphiaKEY MARKET INDICATORS FOR CLASS A RENTAL HIGH-RISE APARTMENTS

First Quarter 2014

MARKET INDICATOR




1. Tower Place - Ph. 1 188 12/12 12Philadelphia, Pennsylvania

2. 2116 Chestnut Street 164 2/13 12Philadelphia, Pennsylvania

3. Goldtex Building 78 3/13 6Philadelphia, Pennsylvania

4. The Granary 126 5/13 13Philadelphia, Pennsylvania

Total: 556 -- 10

1 Includes market rate units only.2 Data for the number of units absorbed was unavailable due to omission of property.

Source: Delta Associates, 500 Montgomery St., Suite 600, Alexandria, VA 22314. Phone: (703) 836-5700, Fax (703) 836-5765.

Last update: 3/2014

TABLE 3.5

OVERALL MONTHLY LEASE-UP PACE

City of Philadelphia | First Quarter 2014ACTIVELY MARKETING RENTAL APARTMENT PROJECTS

ABSORPTION SUMMARY

DATE MARKETING BEGAN

204

COMP. # PROJECT NAME/LOCATION TOTAL UNITS 1 UNITS ABSORBED

163

915

321

227




TABLE 3.6ABSORPTION SUMMARY

RECENTLY STABILIZED APARTMENT PROJECTSCity of Philadelphia | First Quarter 2014

1. 600 on Broad 7/11 2/12 13Philadelphia, Pennsylvania

2. The Commonwealth 9/11 4/12 8Philadelphia, Pennsylvania

3. Penn Treaty Village Pennthouses, Ph. 1 11/11 3/13 8Philadelphia, Pennsylvania

4. 229 Arch 2/12 6/13 13Philadelphia, Pennsylvania

5. The Arch 7/12 2/13 14Philadelphia, Pennsylvania

6. 2040 Market Street 8/12 6/13 26Philadelphia, Pennsylvania

7. 320 Walnut 5/13 12/13 11Philadelphia, Pennsylvania

8. The Sansom 4/13 3/14 8Philadelphia, PennsylvaniaTotal High-Rise: -- -- 12963

1 Includes market rate units only.

Source: Delta Associates, 500 Montgomery St., Suite 600, Alexandria, VA 22314. Phone: (703) 836-5700, Fax (703) 836-5765.

Last update: 3/2014

111

65

OVERALL MONTHLY LEASE-UP PACE

104

100

77

126

98

282

COMP. # PROJECT NAME/LOCATION TOTAL UNITS 1DATE MARKETING

BEGANDATE

STABILIZED




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Total Per UnitCLASS A LOW-RISE APARTMENTS

1. Comparable #1 4/13 216 1991 $29,300,000 $135,648Philadelphia, Pennsylvania

2. Comparable #2 12/13 139 1999 $22,770,000 $163,813Lafayette Hill, Pennsylvania

Total/Average: -- 355 -- $52,070,000 $146,676

CLASS A MID-RISE/HIGH-RISE1. Comparable #1 5/13 128 2007 $28,500,000 $222,656

Philadelphia, Pennsylvania

2. Comparable #2 10/13 227 2013 $120,000,000 $528,634Philadelphia, Pennsylvania

Total/Average: -- 355 -- $148,500,000 $418,310

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: 3/2014.

TABLE 3.10SUMMARY OF CLASS A LOW-RISE AND HIGH-RISE APARTMENT BUILDING SALES

PHILADELPHIA METROPOLITAN AREA 2013

Project Name/Location Date of Sale # of Units Year BuiltSale Price




Total Per UnitCLASS A LOW-RISE APARTMENTSNo published information available to date

CLASS A MID-RISE/HIGH-RISEComparable #1 1/14 40 2009 $12,000,000 $300,000Philadelphia, Pennsylvania

Total/Average: -- 40 -- $12,000,000 $300,000

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: 3/2014.

TABLE 3.11SUMMARY OF CLASS A LOW-RISE AND HIGH-RISE APARTMENT BUILDING SALES

PHILADELPHIA METROPOLITAN AREA 2014 Through March

Project Name/Location Date of Sale # of Units Year BuiltSale Price


4EXPLANATION OF

GEOGRAPHIC COVERAGE

AND METHODOLOGY


MARKET AREA COVERAGE

Delta Associates currently surveys Class A garden and high-rise

apartment units in 7 submarkets in the Philadelphia Region .

The map on the following page depict the geographic areas

covered in this report .

Delta Associates collects data on a statistically significant

sample of the Class A product in each covered submarket . A

total of approximately 15,000 units are surveyed at the end

of each quarter .

PRODUCT DEFINITION

“Class A” product is defined by Delta Associates generally

as built in 1991 or later and offering a separate clubhouse,

decorated model units, two bedroom/two bath units, and a

large community amenity package most often including a

fitness center and swimming pool . The tenant pays gas and/

or electric in addition to telephone and cable television . The

projects are typically 200+ units except in submarkets where

quality product is scarce .

INTRODUCTION OF NEW, ACTIVELY MARKETING UNITS

New communities are added to submarket surveys as soon as

they begin pre-leasing units . The overall current asking and

effective rents and rents per square foot of gross leasable area

include these new communities . However, in comparing current

quarter rents to previous year rents, these new communities

are excluded until they have been marketing for one full year .

This is done so as to dilute the impact on rent rate increases

often associated with newly introduced product .

FACE RENT

Face rent is the asking rent for each unit, excluding any

concessions or rent specials given . Delta Associates quotes

the weighted average asking base rent for each sub-market

– the asking rent for a first floor unit without any premiums

for fireplaces, views, etc .

EFFECTIVE RENT

Effective rent deducts from face rent any concessions or

rent specials for any unit type offered at a surveyed project .

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 says 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

METHODOLOGY

AND GLOSSARY



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 .

OVERALL VACANCY

“Overall vacancy” is defined to include all physically vacant,

unrented units in all projects surveyed, including those in

actively marketing communities . Therefore, the overall

vacancy figures include new, unrented units still in initial

lease-up .

PLANNING PIPELINE

The planning pipeline includes projects in the advanced

planning stages . This pipeline, as defined here, does not

include all projects being planned . To be included on this list,

a planned community typically would have financing and

approvals in place . Some communities are included if Delta

Associates feels that financing and/or site plan approval are

imminent, but are so note .

EXPLANATION OF GEOGRAPHIC COVERAGE AND METHODOLOGY


SPONSORED BY KETTLERPHILADELPHIA AREA APARTMENT SUBMARKETS

2

1

3

4

5

6

7

PHILADELPHIA AREAAPARTMENT SUBMARKETS

Chester Co./Delaware Co. 1

Montgomery Co. 2

Bucks Co. 3

Camden Co. 4

Burlington Co. 5

Mercer Co. 6

City of Philadelphia 7

SUBMARKETS

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