national - multi-family - 1/1/2008

Real Estate Investment Research

2008 National Apartment Report

APARTMENT


To our valued clients:

The U.S. economy continues to prove its resilience, posting growth through a prolonged housing downturnand capital markets turmoil. Notwithstanding the increased vulnerability to additional shocks, forward-lookingindicators point to a slower, but generally healthy economy in 2008. Despite some slowing late in 2007, corporatebalance sheets and profits are in good condition and the weakened U.S. dollar is driving exports. Consumerspending will reflect strain on household budgets as home mortgage refinancing falls and high energy pricespersist. Subprime residential mortgage losses will cause further volatility in the financial markets in the first halfof 2008 and housing will remain a drag as it looks for a bottom.

More stringent lending is resulting in higher apartment renter retention rates, while ARM resets and foreclo-sures will continue to push overextended homeowners back into the renter pool. In a number of markets, thesesame dynamics are creating a growing pool of vacant homes, condos and failed condo conversions. At the macrolevel, supply and demand are generally balanced but select metros will be overwhelmed with excess supply. Overthe next five years, echo boomer demographics, foreign immigration and limits on new supply point to a strongoutlook for apartments.

Spillover from the subprime mess has pushed conduit lenders to the sidelines, causing a temporary slowdownin velocity. Commercial banks, credit unions, life insurance companies and agencies have stepped in, andapartment investment activity is rising as a result. Tighter lending standards, particularly lower loan-to-valueratios, higher debt-service coverage ratios and focus on actual financials are here to stay, but should be character-ized as a return to normal conditions rather than a credit crisis. More lender scrutiny and capital discipline bodewell for the long-term health of the sector by limiting speculative investment and development.

Apartment prices have declined slightly nationally, with the distinction in values becoming more pronouncedbetween top-tier and lower-quality assets and primary versus secondary markets. Cap rates have increasedmodestly and additional upward correction is anticipated, though the degree of change will be driven almostentirely by property quality, current performance and location. The healthy balance between supply and demandin most markets will keep the rise in cap rates moderate and well below long-term averages. Buyers hoping formajor, systemic price correction will be disappointed.

To assist you in planning a successful strategy, we are pleased to present our 2008 National Apartment Report.Included in this report is our National Apartment Index (NAI), a forward-looking ranking of 43 markets based onforecast supply and demand conditions. We trust you will find this report helpful in formulating and executingyour investment strategies, and our investment professionals stand ready to assist you in meeting your goals.

Sincerely,

Harvey E. Green Hessam NadjiPresident and Managing DirectorChief Executive Officer Research Services

2 0 0 8 A n n u a l R e p o r t


NATIONAL PERSPECTIVEExecutive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3National Apartment Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4National Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6National Apartment Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Capital Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Investment Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

MARKET OVERVIEWSAtlanta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Austin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Boston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Charlotte . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13Chicago . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14Cincinnati . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15Cleveland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16Columbus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17Dallas/Fort Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18Denver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Detroit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Fort Lauderdale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22Indianapolis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23Jacksonville . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24Kansas City . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25Las Vegas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26Los Angeles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27Miami . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28Milwaukee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29Minneapolis-St. Paul . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30New Haven . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31Statistical Summary Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32-33New York City . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34Northern New Jersey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Oakland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36Orange County . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37Orlando . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38Philadelphia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39Phoenix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40Portland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41Riverside-San Bernardino . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42Sacramento . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43Salt Lake City . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44San Antonio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45San Diego . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46San Francisco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47San Jose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48Seattle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49St. Louis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50Tampa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51Tucson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52Washington, D.C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53West Palm Beach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

CLIENT SERVICESNational Multi Housing Group (NMHG) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56Research Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57Marcus & Millichap Capital Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58Contacts, Sources and Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59Office Locations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60-61

Written by Erica Linn, Senior Analyst, and edited by Hessam Nadji, Managing Director. The Capital Markets section was co-authored byWilliam E. Hughes, Managing Director, Marcus & Millichap Capital Corporation. Additional contributions were made by Marcus &Millichap market analysts and investment brokerage professionals nationwide.

2 0 0 8 A n n u a l R e p o r t p a g e 3


Executive SummaryNational Apartment Index

◆ San Francisco moved into the top position in this year’s index, supported by low housing affordability, improving vacancyand above-average effective rent growth.

◆ San Jose and Tucson climbed into the top 10, as both gained eight positions in the ranking. Above-average effective rentgrowth and tightening vacancy moved San Jose to #4, while vacancy improvement and strong employment growthbumped Tucson up to #9.

◆ Many of the markets that had significant gains in occupancy over the past several years due to the removal of stock forconversion are some of the hardest-hit markets in this year’s index. Stiff competition from the shadow market will weighheavily on the Florida markets in particular.

National Economy

◆ Employment growth is expected to slow slightly this year to 0.9 percent with the addition of 1.25 million jobs. Theeducational and health services and tourism sectors will remain top drivers of job creation in 2008. Unemployment isforecast to rise to approximately 5 percent this year, up from an estimated 4.8 percent at year-end 2007.

◆ GDP growth is projected to slow slightly in 2008 to 2.1 percent, with growth weighted toward the second half of the year.Further deterioration of the housing market and subprime mortgage losses pose significant risks to our outlook, however,as $216 billion of subprime and Alt-A ARM debt is due to reset for the first time in 2008. On a positive note, corporatebalance sheets are strong, and the weak U.S. dollar is generating increased export activity.

◆ Core inflation appears to be under control, even as oil prices remain elevated, and employment continues to surprise tothe upside. With prices rising at a relatively tame pace, the Fed’s ability to steer the economy away from recessionshould remain intact this year.

National Apartment Market Overview

◆ Overall construction costs are expected to rise in 2008, though the cost of specific materials may stabilize due to thecooling housing sector. High land prices, however, will continue to make it tough to pencil out new development. Rentshave increased recently, but they still fail to justify new development in many markets.

◆ Developers are expected to deliver 100,000 apartments this year, up from 84,000 units in 2007. This year’s new supply willremain moderate compared to the late 1990s through 2001, when construction averaged closer to 170,000 units per year.

◆ Apartment vacancy is forecast to hold steady at 5.8 percent in 2008 as added competition from the shadow-rental marketis offset by expansion in the renter pool due to foreclosures. Asking rents are expected to rise 4 percent this year, whileeffective rent growth will be limited as a result of the increased use of concessions to compete with shadow-rental stock.

Capital Markets

◆ The commercial mortgage market has bounced back to some degree in recent months, but fears that lax underwritingstandards have compromised the integrity of CMBS pools continue to swirl.

◆ Following the capital markets shock last year, the yield on the 10-year Treasury has declined 100 basis points to the low-4percent range, counterbalancing higher spreads. The 10-year Treasury yield is expected to end 2008 at or below 5 percent.

◆ The Fed continues to assert its intent to act as needed to prevent the broader economy from entering into recession.Assuming inflation remains under control, the Fed is likely to cut rates again in 2008.

Investment Outlook

◆ On average, cap rates are expected to climb 25 to 50 basis points to between 6.25 percent and 6.5 percent this year, withsecondary and tertiary markets experiencing the greatest increases.

◆ Apartment sales activity is anticipated to accelerate 10 percent in 2008 after a slowdown in 2007. Activity in the lower tiersis expected to pick up this year as many smaller private investors re-enter the market. Private investors will likely upgradeto higher-quality assets to mitigate cap rate risks.

◆ The median price has remained relatively flat at $113,000 per unit since 2005. Almost 70 percent of apartment investorsexpect prices to remain the same or increase in 2008.

Vaca

ncy

Rate

Markets with the LowestExpected 2008 Employment Growth

MilwaukeeDetroit

ClevelandOrange County

Northern New JerseyNew York City

CincinnatiPhiladelphiaNew HavenLos Angeles

Nonfarm Employment (Y-O-Y Change)

Markets with the LowestExpected 2008 Vacancy Rates

New Yo

rk C

ity

North

ern

New Je

rsey

San

Jose

Orang

e Cou

nty

Los A

ngele

s

San

Fran

cisco

Milwau

kee

New H

aven

Phila

delph

ia

San

Diego

Median

(43

Marke

ts)

Markets with the HighestExpected 2008 Employment Growth

United StatesHoustonSeattle

Dallas/Fort WorthPhoenix

JacksonvilleRiverside-San Bernardino

CharlotteSan Antonio

AustinSalt Lake City

Nonfarm Employment (Y-O-Y Change)0% 1% 2% 3% 4%

-0.5% 0.0% 0.5% 1.0% 1.5%United States

2%

3%

4%

5%

6%

Vaca

ncy

Rate

Markets with the HighestExpected 2008 Vacancy Rates

Housto

n

Indian

apoli

s

Dallas

/For

t Wor

thAu

stin

West P

alm B

each

Char

lotte

Orland

o

Atlan

ta

Phoe

nix

Denve

r

Median

(43

Marke

ts)0%

3%

6%

9%

12%

M arcus & Millichap is pleased to present the 2008 edition of theNational Apartment Index (NAI). The NAI is a snapshotanalysis that ranks 43 apartment markets based on a series of

12-month forward-looking supply and demand indicators. Marketsare ranked based on their cumulative weighted-average scores for var-ious indicators, including forecast employment growth, vacancy, con-struction, housing affordability and rent growth. Taking into accountboth the predicted level and degree of change over the forecast period,the index is designed to indicate relative supply and demand condi-tions at the market level.

Users of the index are cautioned to keep a few important points inmind. First, the NAI is not designed to predict the performance ofindividual investments. A carefully chosen investment in the bottom-ranked apartment market could easily outperform a poor choice in thetop-ranked market. Second, the apartment index is geared toward ashort-term time horizon. Third, a market’s ranking in the index canslip from one year to the next, even if its fundamentals are healthy orimproving. This is especially evident during shifts in the real estatecycle. For example, a number of markets will record modest vacancyincreases this year, but occupancy in many of these areas remainsbelow historical averages.

It is also important to note that because the NAI is an ordinalindex, differences in specific rankings should not be misinterpreted.For example, the top-ranked market is not necessarily twice as good asthe second-ranked market, nor is it 20 times better than the 20th-ranked market.

Housing Supply and Affordability Driving Apartment Performance

The impacts of the housing slowdown on the apartment marketare expected to vary throughout different regions of the country in2008. The glut of for-sale inventory in Florida and some high-growthmarkets in the Southwest will lead to competition from the shadow-rental market. In other more expensive housing markets, such as theBay Area and New York City, the shadow-rental market is less of athreat, and the slowdown in home sales, tightening of credit stan-dards and rising foreclosures should provide some additional renterdemand for apartments. Some of the hardest-hit housing marketsrank in the top 10 of our index, apartment fundamentals are still gen-erally strong in these markets, and for-sale housing remains out ofreach for many residents.

p a g e 4 2 0 0 8 A n n u a l R e p o r t

2008 National Apartment Index

National Apartment Index

2008 Single-Family Housing Affordability

Most Affordable Least Affordable

Aff

orda

bility

Inde

x(U

.S.

= 10

0)

Colu

mbus

Cinc

inna

ti

Indian

apoli

s

Detro

it

Clev

eland

Oaklan

d

San

Jose

Los A

ngele

s

San

Fran

cisco

New Yo

rk C

ity0

50

100

150

200

250

San Francisco Claims the Top Spot, Florida Markets Hit Hardest

In the 2008 NAI, San Francisco moved up seven places to take over the#1 position. San Francisco, already one of the tightest markets nationwide,is forecast to post the highest effective rent growth in the country and willalso rank in the top three for vacancy improvement. Seattle moved up fiveplaces to the #2 spot, as above-average employment gains, particularly byhigh-tech firms, and significant increases in the renter population will fueldemand for apartments. Last year’s leader, New York City, slipped to #3,despite ranking near the top for several metrics measured in the index;slowing employment growth and a mild uptick in vacancy caused thedecline. Technology hiring is also supporting Silicon Valley apartments,and above-average effective rent growth and tightening vacancy movedSan Jose up eight places in the index to the #4 spot. Oakland holds the #5position in the 2008 NAI, down two places from last year. Oakland has oneof the least affordable housing markets and a comparatively low vacancyrate. The reason for this year’s fall is due to a minor uptick in vacancy.

Los Angeles moved up three positions in the index to the #6 spot.Despite housing-related layoffs, Los Angeles is expected to increase pay-rolls in 2008, and the vacancy rate will remain one of the tightest in thecountry. Improving economic conditions placed Las Vegas in the #7 spot,a three-position fall from last year. Orange County dropped six positionsin this year’s ranking to #8, as fallout from the subprime collapse is slow-ing job growth, but the metro remains one of the strongest apartment mar-kets nationwide. High scores in vacancy improvement and employmentgrowth bumped Tucson up eight places in this year’s ranking to the #9spot. San Diego fell five places to round out the top 10. Despite slowing jobgrowth, San Diego ranks among the top markets for effective rent growthand metrowide vacancy levels.

The most significant downward movers outside of the top 10 are themajor Florida markets. These markets were on the forefront of the condoconversion craze and have lost a significant amount of ground due to highexposure to housing-related industries. Fort Lauderdale (#15), West PalmBeach (#24), Orlando (#27) and Tampa (#28) all dropped nine places in thisyear’s ranking. Miami (#20) also had considerable downward movement,falling seven positions.

Similar to previous years, the lower tier of the index includes mostlyslower-growing Midwestern markets, although many of these areas willimprove in 2008. Kansas City (#34) will record the nation’s strongestvacancy improvement, while Indianapolis (#32), Cleveland (#38),Columbus (#39) and Detroit (#43) are forecast to build on last year’s occu-pancy improvements with additional gains in 2008 as well.


National Apartment Index

Rank Rank 07-08MSA 2008 2007 Change

San Francisco 1 8 ▲ 7

Seattle 2 7 ▲ 5

New York City 3 1 ▼ 2

San Jose 4 12 ▲ 8

Oakland 5 3 ▼ 2

Los Angeles 6 9 ▲ 3

Las Vegas 7 4 ▼ 3

Orange County 8 2 ▼ 6

Tucson 9 17 ▲ 8

San Diego 10 5 ▼ 5

Washington, D.C. 11 14 ▲ 3

Riverside-San Bernardino 12 11 ▼ 1

Chicago 13 20 ▲ 7

Portland 14 22 ▲ 8

Fort Lauderdale 15 6 ▼ 9

Boston 16 21 ▲ 5

Phoenix 17 10 ▼ 7

Salt Lake City 18 32 ▲ 14

Northern New Jersey 19 25 ▲ 6

Miami 20 13 ▼ 7

Philadelphia 21 26 ▲ 5

Austin 22 16 ▼ 6

Dallas/Fort Worth 23 27 ▲ 4

West Palm Beach 24 15 ▼ 9

Denver 25 23 ▼ 2

Sacramento 26 24 ▼ 2

Orlando 27 18 ▼ 9

Tampa 28 19 ▼ 9

Atlanta 29 28 ▼ 1

Minneapolis-St. Paul 30 30 ■ 0

Jacksonville 31 29 ▼ 2

Indianapolis 32 36 ▲ 4

San Antonio 33 31 ▼ 2

Kansas City 34 37 ▲ 3

Milwaukee 35 34 ▼ 1

Houston 36 35 ▼ 1

Charlotte 37 33 ▼ 4

Cleveland 38 39 ▲ 1

Columbus 39 40 ▲ 1

New Haven 40 38 ▼ 2

St. Louis 41 New ■ NA

Cincinnati 42 42 ■ 0

Detroit 43 41 ▼ 2

Markets with the HighestExpected 2008 Completions

Thou

sand

s of

Uni

tsDa

llas/F

ort W

orth

Housto

n

Washi

ngto

n, D

.C.

Austi

n

Los A

ngele

s

Phoe

nix

Atlan

ta

Seat

tle

Bosto

n

Denve

r0

2

4

6

8

Job Growth Trends

-2%

0%

2%

4%

90 92 94 96 98 00 02 04 06 08**

Empl

oym

ent

Gro

wth

(Y-

O-Y

cha

nge)

-2

0

2

4

Num

ber of Jobs (millions)

Change in Employment Job Growth

U.S. GDP and Corporate Profit Trends

0%

2%

4%

6%

8%

98 99 00 01 02 03 04 05 06 07* 08**

U.S

. Re

al G

DP

(ann

ual c

hang

e)

0%

4%

8%

12%

16% Corporate Profits as % of G

DP

U.S. GDPCorporate Profits as % of GDP

Existing For-Sale Housing Supply Climbing

0

4

8

12

16

00 01 02 03 04 05 06 07*

Mon

ths

of S

uppl

y

2%

4%

6%

8%

10%

30-Year Mortgage Rate

Subprime and Alt-A ARM Reset Volume

$0

$10

$20

$30

$40

2007* 2008** 2009**Mor

tgag

e D

ebt

Faci

ng 1

st R

eset

(bi

llion

s)

Single-Family Condo 30-Year Rate

Alt-A Subprime


Moderate economic expansion is forecast this year, as healthy businessinvestment and stronger export activity help to offset slower consumerspending growth and the drag of housing-related industries. Tighter

residential lending standards are exacerbating housing market woes. Existingsingle-family home sales are down 25 percent from one year ago, and availablefor-sale inventory has increased 45 percent to 10.5 months of supply.Apartment owners are facing added competition from shadow rentals as aresult but will remain net beneficiaries of the housing downturn due to theexpanding renter pool. In addition to greater apartment renter retentiongenerated by more stringent mortgage requirements, owners will also benefitfrom the return of many homeowners to apartments as ARMs reset at substan-tially higher rates. At the national level, the housing market could near bottomby year end. Some high-growth markets, however, have several years of newresidential supply to work through preventing any real recovery from takingshape until at least 2009.

One of the most significant risks to the near-term economic outlook iseroding business confidence, as nonresidential spending is expected to accountfor a larger share of overall U.S. GDP this year. Though risks are elevated,indicators continue to reflect the relative strength of the U.S. economy. Coreinflation appears to be under control, even as oil prices hover between $90 and$100 per barrel, and employment and productivity growth continue to surpriseto the upside. With core prices rising at a relatively tame pace, the Fed’s abilityto steer the economy away from recession should remain intact this year. Thedollar has continued to weaken against foreign currencies in recent months,adding to volatility in financial markets but driving up exports and tourism.Corporations with major foreign operations will fare well, and export activityis expected to accelerate, narrowing the trade gap. Consumers have been a keydriver of growth over the past several years and have proven surprisinglyresilient; however, the effects of declining home equity withdrawal and highfuel prices will weigh more heavily on retail sales growth in 2008.

2008 National Economic Outlook

◆ Moderate Economic Growth Expected. GDP is forecast to rise 2.1percent in 2008, following an estimated gain of 2.5 percent last year.Stronger trade and business spending are expected to drive expansion.

◆ Job Growth to Continue. Total nonfarm employment growth is forecastat 0.9 percent this year, or 1.25 million jobs. Job creation in 2007 reachedan estimated 1.1 percent, though annual revisions in the spring couldreflect slower growth for the year.

◆ Rising Residential Foreclosures. Approximately $216 billion of subprimeand Alt-A ARMs will reset for the first time in 2008. Losses in themortgage market could reach $300 billion, a total that represents less than3 percent of outstanding residential mortgage debt.

◆ Unemployment to Rise Modestly. The unemployment rate is expectedto rise to approximately 5 percent in 2008. The forecast rate is stillhealthy by historical standards and is expected to support further wagegrowth during the year.

◆ Homeownership Rate on the Decline. The homeownership rate hasdeclined 90 basis points since its early 2005 peak. Foreclosure activityand the declining homeownership rate are expected to result in anadditional 3 million renter households over the next few years.

National Economy

U.S. Economic Resilience Endures DespiteUncertainty in the Housing Market

* Estimate ** Forecast

National Apartment Overview

Job growth, tighter mortgage underwriting and rising residentialforeclosure activity are expected to generate adequate demand to offsetcompetition from shadow rentals at the macro level in 2008. Apartment

development has remained in check, and only a moderate increase incompletions is anticipated this year. Some previously hot housing markets,however, are facing a glut of for-rent condos and single-family homes. Localvacancy rates in these markets are headed upward, though a majorcorrection is not expected. In South Florida, for example, the majority of newcondos are in high-rises. It is estimated that less than one-quarter of newstock could realistically compete with traditional apartments for renters,though the Class A market may encounter more competition as some luxurycondo owners lease units at discounted rates to partially offset mortgagepayments. Meanwhile, in high-growth Southwest markets, there are manyconverted condos available at competitive rents, but single-family propertiespresent a minor threat to apartments. In most cases, single-family homesoffered at affordable rents are in perimeter locations; given high gas prices,lengthy commutes will dissuade most in-town renters from moving.

Upcoming demographic shifts will work in favor of apartments, asroughly 70 million echo boomers will make their way through college overthe next decade. There are, however, some near-term trends worth watching,including an anticipated shift in performance by property class. In 2008, theClass B/C market is well-positioned to outperform Class A for the first timein several years. From 2005 through early 2006, the Class A market postedabove-average rent growth and the tightest vacancy registered since 2001, asthe sector lost almost 200,000 units to conversions. Class A vacancy is nowset to tick up to the national level due to re-conversions and competitionfrom shadow-rental stock, while Class B/C vacancy is expected to fallslightly. Residential foreclosure sales in some markets could also bring homeprices down to levels in reach of Class A renters. Fortunately, higherdownpayment and underwriting requirements will help to offset this trend.

2008 National Apartment Market Outlook

◆ Construction Aligned with Demand. There are just over 100,000apartments slated for delivery in 2008, up from 84,000 units in 2007 butstill low compared to the period between the late 1990s to 2001. Themore cautious lending environment will help to prevent overbuilding.

◆ Stable Vacancy Anticipated. Apartment vacancy is forecast to holdsteady at 5.8 percent this year as a minor uptick in Class A vacancy isoffset by a slight decline in the lower tiers of the market.

◆ Rent Growth Moderating. Healthy occupancy will support asking rentgrowth of 4 percent this year, compared with 4.5 percent in 2007.Effective rents are forecast to rise by 3.6 percent as owners increaseconcessions to compete with shadow-rental stock.

◆ Echo Boomers Renting Again. After rising 400 basis points from 2001 to2005, the homeownership rate among the 25 and younger age cohort isdeclining. The timing of this trend could not be better for apartmentowners, as echo boomers are entering their prime renting years.

◆ Conversion Trend Reversing, Still a Net Positive. Roughly 315,000apartments were converted from 2003 to 2006, 10 percent of whichrecently returned to apartment inventory. Even after consideringindividual condos for lease, supply reductions remain a net positive forthe market.

Apartment Market Positioned to Benefit fromHousing Downturn, Demographic Shifts

Effective Rent and Vacancy Trends

$400

$600

$800

$1,000

$1,200

90 92 94 96 98 00 02 04 06 08**

Effe

ctiv

e Re

nt

3%

4%

5%

6%

7%

Vacancy

Effective Rent Vacancy Rate

Apartment Construction

90 92 94 96 98 00 02 04 06 08**

Uni

ts C

ompl

eted

(th

ousa

nds)

Echo Boomers to Drive Apartment Demand

1990-95 1995-00 2000-05 2005-10** 2010-15**

Chan

ge in

Pop

ulat

ion

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

+5.5 Million

Homeownership Rate by Age Cohort

< 35 years 35-44 years 45-54 years 55-64 years 65 years+Hom

eow

ners

hip

Rate

(ba

sis

poin

t ch

g.) Year-End 2001-2005

Year-End 2005-2007*

-10%

-5%

0%

5%

10%

0

50

100

150

200

-200

-100

0

100

200



Inflation and Interest Rate Trends

0%

2%

4%

6%

8%

97 98 99 00 01 02 03 04 05 06 07*

Inte

rest

Rat

es/C

ore

Infl

atio

n

Core Inflation Fed Funds Rate10-Year Treasury

Apartment Mortgage Delinquency Rate

0%

2%

4%

6%

8%

90 92 94 96 98 00 02 04 06 07**

Del

inqu

ent

Vaca

ncy

Rate

Historical Conduit Lender SpreadsApartment Properties

01 02 03 04 05 06 07*

Avg.

Spr

ead

over

10-

Year

at

Year

End

U.S. CMBS Issuance

$0

$10

$20

$30

$40

00 01 02 03 04 05 06 07**

CMBS

Issu

ance

(bi

llion

s)

50

100

150

200

250


After years of inexpensive capital flowing into the commercial real estatemarket, a dropoff in demand for mortgage-backed securities has causedconduit lenders to scale back dramatically. The subprime residential

collapse is largely to blame for the initial capital markets shock last summer,which caused a temporary shutdown of capital flows into commercial realestate. Residential subprime losses will climb further this year, resulting inoverall volatility across credit markets. The commercial mortgage market hasbounced back to some degree, but fears that lax underwriting standards havecompromised the integrity of CMBS pools continue to swirl. Approximatelyhalf of the financing for major apartment transactions prior to the credit crisiswas securitized. As conduits face a liquidity crunch, Fannie Mae and FreddieMac, along with life insurers, credit unions, and regional and national banks,are making efforts to regain market share. At present, portfolio lender spreadsare roughly 40 basis points below conduits.

Commercial delinquency rates are below 0.5 percent, and only a modestincrease is anticipated in 2008. Apartment market fundamentals are alsogenerally very healthy, and the more cautious lending environment makes anoverbuilding situation unlikely over the foreseeable future. Nonetheless,lenders are closely scrutinizing deals, underwriting new loans based on actualNOIs, and requiring higher downpayments and debt-service coverage.Interest-only loans are nearly nonexistent, and debt-service coverage ratios areup 10 basis points from one year ago to 1.2x. Rebuilding investors’ confidencein CMBS will take time, especially with the potential unwinding of structuredinvestment vehicles looming. Fortunately, alternative lending sources areavailable and will continue to ramp up activity this year. Underwriting require-ments may loosen modestly in 2008, returning to longer-term historical norms.

2008 Capital Markets Outlook

◆ Banks Join Forces to Add Liquidity to Market. Several major banks arepooling capital to purchase high-quality assets from poor-performingstructured investment vehicles, adding liquidity to the market. Theseassets may otherwise be sold at significantly reduced prices, resulting infurther deterioration of the credit markets.

◆ Long-Term Rates Remain Volatile. The 10-year Treasury yield isexpected to end 2008 at or below 5 percent. Since the capital marketsshock last year, the yield on the 10-year Treasury has declined 100 basispoints to the low-4 percent range, counterbalancing higher spreads.

◆ Spreads to Remain Near Current Levels. Conduit spreads for apartmentsare currently at 190 to 230 basis points over the 10-year Treasury. Portfoliolenders are at 160 to 180 basis points over, with Fannie Mae and FreddieMac about 10 basis points lower. Spreads may narrow modestly this year,but a significant decline is unlikely.

◆ Interest Rates Vulnerable to International Forces. More than half ofU.S. long-term Treasury debt is held by foreigners. A major selloff dueto economic uncertainty and favorable returns abroad presents somerisk but is unlikely as a result of global economic ties. Stock marketvolatility, however, will help maintain domestic demand for Treasuriesthis year, keeping long-term rates below historical norms.

◆ Further Fed Action Anticipated. The Fed continues to assert its intent toact as needed to prevent the broader economy from entering intorecession. Assuming inflation remains under control, the Fed is likely tocut rates again in 2008.

Capital Markets

Liquidity Crunch Continues, but MoreCautious Lending a Positive over Long Term

* Through November 2007 ** Through 3Q 2007

Investment Outlook

Investors’ flight to quality will continue this year, creating greaterdistinction in cap rates and pricing based on property class and market. Onaverage, cap rates are expected to rise 25 to 50 basis points this year to 6.25

percent to 6.50 percent. With the exception of South Florida, cap rates in mostcoastal markets will remain resilient, while secondary and tertiary marketsare expected to register the greatest increases. Apartment transaction velocitydeclined approximately 20 percent in 2007, which is significant but belowdecreases registered in other core property sectors. Activity is forecast to riseat least 10 percent over the next year as the buyer/seller expectations gapnarrows. Low-leverage investors, such as REITs and institutions, will becomemore active; these investors were often unable to compete for properties inrecent years due to the abundance of inexpensive capital in the market. Priorto the credit crunch, approximately 45 percent of TICs and 90 percent ofprivate equity funds used CMBS financing for apartment acquisitions.Foreign investors accounted for less than 5 percent of major apartment trans-actions last year but are expected to increase acquisitions in 2008, as the U.S.dollar remains weak against foreign currencies.

The Class B/C market is expected to offer strong buying opportunitiesover the next few years. Lenders and investors have shown a preference forClass A assets, resulting in weaker investor demand in the lower tiers. Giventhat current lending standards are here to stay, cap rates for Class B/Cproperties could rise by as much as 100 basis points. Ironically, renter demandfor more affordable apartments is less vulnerable to swings in the housingmarket. If housing prices decline significantly, renter loss to homeownershipwould be limited primarily to the Class A sector. Furthermore, recentabsorption trends suggest the Class B/C sector is already accelerating. Latelast year, overall absorption moved at its strongest pace since 2000, with thelower tiers accounting for the most significant share of the total since the 1990s.

2008 Investment Outlook

◆ Velocity in Lower Tiers to Pick Up. Last year’s decline in velocity wasled by cooling in the $1 million to $10 million price range. Activity in thelower tiers is expected to pick up as smaller private investors re-enter themarket; many are expected to upgrade portfolios to mitigate cap rate risk.

◆ Overall Apartment Values Steady. The median price has beenrelatively flat at $113,000 per unit since 2005, despite the virtual disap-pearance of conversion sales starting in the second half of 2006 and thecapital markets turmoil of 2007. Pricing will be driven by renewed buyerdiscretion, with “safety” fetching a premium.

◆ Cap Rates Edge Up in Secondary Locations. Cap rates for primary andsecondary/tertiary markets will continue to diverge, as investors remainfocused on core, supply-constrained markets, particularly along the coasts.The cap rate spread between primary and tertiary markets expanded to 150basis points in late 2007, compared with 85 basis points at year end 2006.

◆ Apartment Returns Favorable. Apartments boast a 10-year total returnmore than two-times as great as stocks. Baby boomers will findapartments increasingly attractive as the need for stable cash-flowinvestments rises and stock market volatility persists.

◆ Strong Opportunity for Value-Add Plays. Lenders are basing decisionson current NOIs, limiting the buyer pool for value-add deals. High landand development costs create opportunities to add value through cost-effective renovations or improved management.

Quality, Location Driving Investor Demand,Creating Opportunities in Class B/C Market

Apartment Price Trends

$25

$50

$75

$100

$125

00 01 02 03 04 05 06 07*

Med

ian

Pric

e pe

r U

nit

2%

4%

6%

8%

10%

Average Cap Rate

Median Price per UnitAverage Cap Rate

Cap Rate Distinction Based on Quality, Market More Pronounced

0

40

80

120

160

1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07

Dif

fere

nce

of C

ap R

ates

(bp

s)

Primary vs. Secondary Cap RatesPrimary vs. Tertiary Cap Rates

Average Cap Rates by U.S. Region

4%

5%

6%

7%

8%

Mid-Atlantic

Mid-west

NE SE SW West

Aver

age

Cap

Rate

s ($

5+ m

illio

n sa

les) Primary Markets Tertiary Markets

Real Estate Outperforms Stock MarketOver the Long Term

S&P 500 Apartment Office Retail

Tota

l Com

poun

ded

Retu

rn (

as o

f 3Q

07)

1-year 5-year 10-year

0%

75%

150%

225%

300%


* Estimate

0

20

40

60

80

Tota

l Non

farm

Job

s (t

hous

ands

)

Absolute Change Y-O-Y % Change

0%

1%

2%

3%

4%

Employment Trends

05 06 07* 08**04

Year-over-Year Change

2

3

4

5

6

Uni

ts (

thou

sand

s)

Completions Vacancy

4%

6%

8%

10%

12%

Supply and Demand

05 06 07* 08**04Vacancy Rate

$30

$40

$50

$60

$70

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e

Asking Rents Effective Rents

-4%

-2%

0%

2%

4%

Rent Trends

05 06 07* 08**04

The outlook for Atlanta’s apartment market remains bright,underpinned by stable job growth and moderate deliveries. Althoughthe local economy is experiencing some cooling, overall employment is

healthy, with nearly all sectors projected to add jobs in 2008. The higher-paying professional and business services, and educational and healthservices sectors will create nearly 40 percent of the new positions in themetro this year. The leisure and hospitality sector is forecast to record thehighest growth rate of any employment category by year end, as the hotelindustry continues to expand in the wake of improvements to areaattractions. On the supply side, developers are expected to bring 4,100apartments online this year, up only slightly from 2007. With completionsand renter demand healthy, marketwide vacancy will drop slightly by yearend, allowing apartment owners to implement modest rent increases.

Transaction velocity in Atlanta’s apartment market has not returned tothe record levels of previous years, but investor demand remains healthy,and properties continue to change hands at elevated prices. Cap rates, whichhave compressed as a result of competition among buyers for limitedavailable inventory, are currently averaging in the mid- to high-6 percentrange, down approximately 50 basis points from the previous year. Goingforward, investment activity in the market will be primarily driven by long-term owners underwriting deals based on more traditional operatingobjectives. Investors may want to consider opportunities near the newRubbermaid headquarters in Sandy Springs; the company plans toconsolidate its operations late in the year at the site and double its workforce, spurring residential demand in the area.

2008 Market Outlook

◆ 2008 NAI Rank: 29, Down 1 Place. Above-average vacancy and modestrent growth moved Atlanta down one spot in the index this year.

◆ Employment Forecast: Employers are expected to increase payrolls 1.6percent in 2008, adding 41,000 positions. Last year, 42,000 jobs werecreated in the metro.

◆ Construction Forecast: Approximately 4,100 units will be delivered thisyear, up from 4,000 units in 2007. The Sandy Springs/Dunwoodysubmarket is forecast to add nearly 1,200 units by year end, boosting thearea’s apartment stock by 5 percent.

◆ Vacancy Forecast: After a 40 basis point decrease last year, vacancy willfall 20 basis points to 7.9 percent by year-end 2008.

◆ Rent Forecast: Modest levels of new Class A inventory and moderatejob growth will drive up asking rents 2.3 percent in 2008 to $862 permonth. In addition, effective rents are forecast to advance 2.5 percent to$772 per month.

◆ Investment Forecast: Despite additions to inventory, properties in theRoswell/Alpharetta submarket are well positioned for above-averageprice appreciation, as tight market conditions will lead to effective rentgrowth nearing 4 percent.* Estimate ** Forecast

p a g e 1 0 2 0 0 8 A n n u a l R e p o r t

Atlanta Down 1 Place 2008 Rank: 29 2007 Rank: 28

Prices Continue to Push Higher in Atlanta,Despite Cooling Transaction Velocity

Market Forecast Employment: 1.6% ▲ Construction: 3% ▲ Vacancy: 20 bps ▼ Asking Rents: 2.3% ▲

Austin

Austin’s growing economy and expanding student population willdrive renter demand for apartments this year, though fundamentalswill remain mixed as new supply slightly outpaces absorption. The

Central submarket, home to the University of Texas, the state capitol andseveral major employers, has been a hotbed of condo construction andconversion projects that have depleted rental stock in recent years. As aresult of the increased presence of for-sale units in the Central submarket,renters are beginning to spill over into neighboring areas. The Near NorthCentral and Near South Central submarkets are expected to benefit from thistrend in 2008 as local residents flock to more affordable properties,supporting revenue growth above the metro average. In the suburbsnorthwest and southwest of the city center, a healthy local economy willproduce some migration-generated demand. The renter pool is expected tobe further enhanced by tighter mortgage standards, which may convincepotential homebuyers to remain in Class A units longer than anticipated.

A healthy long-term economic outlook and cap rates in the mid-7percent range will keep investor sentiment positive for Austin apartmentassets in 2008. Out-of-state investors with exchange capital are expected toremain active over the next several months in established areas such as theFar Northwest submarket, targeting newer assets that require littlemanagement attention. Local investors, on the other hand, will likely focusmore on value-add and repositioning opportunities adjacent to the Centralsubmarket. Since most of the new condos and apartments in the area arehigh-end projects, niche renter demand for upgraded Class B units is likelyto emerge. Additionally, lower-tier assets in the Southeast submarket willattract investors due to potential upside generated by college studentsmoving into the area and increasing occupancy levels.

2008 Market Outlook

◆ 2008 NAI Rank: 22, Down 6 Places. Significant levels of new construc-tion and above-average vacancy moved Austin down six places in theNAI this year.

◆ Employment Forecast: Employers are expected to expand payrolls 2.8percent in 2008 with the addition of 21,500 positions. Approximately24,800 new jobs were created last year.

◆ Construction Forecast: After completing 4,800 units in 2007, developersare forecast to bring 5,100 apartments online this year, a 3.6 percentboost to stock.

◆ Vacancy Forecast: The metrowide vacancy rate is expected to inch up 30basis points to 7.6 percent in 2008 due to elevated construction levelsand slower job growth. Last year, vacancy climbed 40 basis points.

◆ Rent Forecast: Asking rents are forecast to rise 3.7 percent to $851 permonth, while effective rents advance 3.4 percent to $767 per month.

◆ Investment Forecast: Opportunities may emerge in the San Marcos areathis year, as builders have been slow to react to rising renter demandgenerated by the presence of Texas State University.

Investor and Renter Demand Shifting Toward Austin’s Suburban Submarkets

0

10

20

30

40

Tota

l Non

farm

Job

s (t

hous

ands

)


1%

2%

3%

4%

5%

Employment Trends

05 06 07* 08**04


0

2

4

6

8

Uni

ts (

thou

sand

s)

Completions Vacancy

4%

6%

8%

10%

12%

Supply and Demand

05 06 07* 08**04

Vacancy Rate

$20

$30

$40

$50

$60

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


-4%

-2%

0%

2%

4%

Rent Trends

05 06 07* 08**04

2 0 0 8 A n n u a l R e p o r t p a g e 1 1


Down 6 Places 2008 Rank: 22 2007 Rank: 16

Market Forecast Employment: 2.8% ▲ Construction: 6% ▲ Vacancy: 30 bps ▲ Asking Rents: 3.7% ▲

0

8

16

24

32

Tota

l Non

farm

Job

s (t

hous

ands

)


0%

1%

2%

3%

4%

Employment Trends

05 06 07* 08**04


0

2

4

6

8

Uni

ts (

thou

sand

s)

Completions Vacancy

4%

5%

6%

7%

8%

Supply and Demand

05 06 07* 08**04Vacancy Rate

$90

$100

$110

$120

$130

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


0%

1%

2%

3%

4%

Rent Trends

05 06 07* 08**04

Boston’s apartment market remains well-balanced, and slowing con-struction will foster additional improvement in fundamentals this year.The metro’s employment growth will continue to advance at a steady

clip, with payroll additions forecast to be heaviest in the educational andhealth services sector, followed by leisure and hospitality, an employmentcategory whose workers tend to rent rather than own. As local economicgrowth generates renter demand for apartment properties, completions willslow to the lowest rate in three years, increasing inventory by just 1.5 percent.As a result, vacancy is projected to end the year below 6 percent, enablingowners to raise rents and continue to trim concessions moderately.

Apartment investors are expected to stay active in Boston, attracted tothe market’s steady pace of job growth and low housing affordability. Salesactivity has receded from the elevated levels achieved in recent years but isstill approximately 20 percent above the metro’s five-year average.Institutional buyers are expected to continue to target well-located Class Aassets in supply-constrained submarkets including Central City/BackBay/Beacon Hill. Boston’s apartment cap rates currently average in the low-7 percent range, down slightly over the past year. Investor competitionamong large buyers could apply some additional downward pressure oncap rates for top-tier properties in the next 12 months. Private investors,eyeing opportunities for long-term revenue growth, may opt to extendholding periods, causing a reduction in velocity and placing upwardpressure on cap rates for lower-tiered product.

2008 Market Outlook

◆ 2008 NAI Rank: 16, Up 5 Places. Healthy employment growth, fallingvacancy and steady effective rent gains pushed Boston up five positionsin the index.

◆ Employment Forecast: Local employers are expected to increasepayrolls 1.1 percent in 2008 with the addition of 26,000 positions. Lastyear, 26,700 new jobs were created.

◆ Construction Forecast: Builders are forecast to deliver 3,000 units thisyear, down from 5,100 units in 2007. The Cambridge/Watertownsubmarket is expected to add nearly 675 units by year end, increasingapartment inventory in the area by 2.4 percent.

◆ Vacancy Forecast: After a 90 basis point rise last year, vacancy will fall30 basis points to 5.6 percent by year-end 2008. Vacancy within theBrookline/Brighton submarket is expected to remain below 4 percent,the lowest rate in the metro.

◆ Rent Forecast: Tight vacancy levels, coupled with modest job growth, willdrive asking rents up 3.3 percent this year to $1,753 per month. Effectiverents are forecast to increase 3.7 percent to $1,658 per month.

◆ Investment Forecast: Investors with long-term objectives might want toconsider opportunities in South Boston, near the new Silver Line transitsystem. Ease of access in the area will continue to promote renterdemand, pushing revenue higher via tighter occupancy levels andsteeper rents.


Boston Up 5 Places 2008 Rank: 16 2007 Rank: 21

Institutional Buyers Remain Active inBoston, Driving Investment Velocity

Market Forecast Employment: 1.1% ▲ Construction: 41% ▼ Vacancy: 30 bps ▼ Asking Rents: 3.3% ▲


Charlotte

Although apartment developers will increase deliveries in Charlotte in2008, healthy job growth will drive renter demand. This year will markthe fifth consecutive period of above-average employment growth in

the metro, with nearly every sector expected to add jobs. The leisure andhospitality sector, which typically employs a high percentage of renters, willlead job growth. In addition, steady growth in local home prices has madeaffordability more challenging, which, combined with more conservativelending standards, will keep current renters in apartments. Elevateddeliveries will put upward pressure on vacancy, despite strong renterdemand. Owners will be able to implement steady rent gains, however, andconcessions should remain near their current ranges.

Investment activity in Charlotte is expected to stay healthy this year asbuyers target the market for its strong, long-term growth prospects. Cap ratesare currently in the low-6 percent range, and as institutions continue topursue Class A properties in prime locations, such as Uptown, cap rates forpremium assets are expected to remain essentially unchanged. Solidinvestment activity in the Lake Norman and Ballantyne submarkets willpersist as buyers seek apartments near residential expansion north and southof downtown. Investors with long-term holding objectives may want toconsider opportunities in the Concord/North Concord submarket, whereDole owner David Murdock has partnered with the University of NorthCarolina to develop a 350-acre research campus in Kannapolis. The project isexpected to create an additional 35,000 direct and indirect jobs, driving robustdemand for the area’s apartments.

2008 Market Outlook

◆ 2008 NAI Rank: 37, Down 4 Places. Ramped up construction and avacancy rise caused Charlotte to fall four spots in this year’s ranking.

◆ Employment Forecast: Local employers are expected to increasepayrolls 2.4 percent in 2008 with the addition of 19,900 positions. Lastyear, 21,500 jobs were created.

◆ Construction Forecast: Approximately 2,300 units will be delivered thisyear, up from 1,000 units in 2007. Deliveries will account for a 2.7percent increase to metrowide inventory.

◆ Vacancy Forecast: After a 70 basis point decrease last year, vacancy willrise 80 basis points to 7 percent by year-end 2008. The Harris Boulevardsubmarket will receive approximately 47 percent of the metro’s newinventory, pushing vacancy in the area up 100 basis points into the low-7 percent range.

◆ Rent Forecast: Modest levels of new, premium supply, coupled withstrong job growth, will increase asking rents 3.1 percent in 2008 to $785per month, while effective rents will rise 3 percent to $711 per month.

◆ Investment Forecast: Demand continues to firm for properties east ofdowntown due to the widening of U.S. 74. Some apartments in theeastern part of the metro are selling at a discount, offering strong value-add opportunities, as renter demand will improve revenues over thenext year.

Healthy Economy Generating Investor Interest in Charlotte Apartments

0

6

12

18

24

Tota

l Non

farm

Job

s (t

hous

ands

)


0%

1%

2%

3%

4%

Employment Trends

05 06 07* 08**04


0

1

2

3

4

Uni

ts (

thou

sand

s)

Completions Vacancy

4%

6%

8%

10%

12%

Supply and Demand

05 06 07* 08**04

Vacancy Rate

$40

$50

$60

$70

$80

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


-2%

0%

2%

4%

6%

Rent Trends

05 06 07* 08**04





20

30

40

50

60

Tota

l Non

farm

Job

s (t

hous

ands

)


0%

1%

2%

3%

4%

Employment Trends

05 06 07* 08**04


0

1

2

3

4

Uni

ts (

thou

sand

s)

Completions Vacancy

4%

5%

6%

7%

8%

Supply and Demand

05 06 07* 08**04Vacancy Rate

$60

$70

$80

$90

$100

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


0%

2%

4%

6%

8%

Rent Trends

05 06 07* 08**04

Operating conditions in the Chicago apartment market will remainreasonably strong in 2008. Employment growth will sustain renterdemand and difficulties in the residential mortgage market will add

to a large pool of potential renters, leading to a slight decline in vacancy.Additionally, rents are expected to rise at a healthy rate. Among the demand-side trends to watch in 2008 is employment in the financial activities sector,which tapered off in late 2007. This year, the Chicago Mercantile Exchangewill cut 380 positions, and Bank of America will reduce local payrolls due tothe firm’s merger with LaSalle Bank. The possibility of financial firmscontinuing to trim staffing levels and a 1.3 percent gain in supply will likelycause the downtown vacancy rate to lag the overall metro slightly this year.Consequently, Class B/C properties in the downtown area will likely farebetter in the short term due to their working-class tenant mix. In the suburbs,meanwhile, vacancy is forecast to remain at less than 5 percent this year, andrents will climb at a pace greater than the marketwide average, as no newstock is scheduled for completion by year end.

In the months ahead, investment activity will continue to settle into amore sustainable level, as a greater number of apartment operators re-enterthe market after several periods where converters played a dominant role.Property owners should expect a more gradual pace of price appreciation inthe near term and some upward movement in cap rates for lesser-qualityassets. After experiencing several years of healthy gains, Class A propertiescould post slightly higher vacancy and a reduced pace of rent growth in thenear term as renter demand shifts to the lower tiers.

2008 Market Outlook

◆ 2008 NAI Rank: 13, Up 7 Places. Modest vacancy improvement andminimal additions to apartment inventory support Chicago’s seven-spotrise in this year’s ranking.

◆ Employment Forecast: After adding 40,000 new positions in 2007,employers will create 30,000 jobs this year, a 0.6 percent increase.

◆ Construction Forecast: Developers are expected to complete 2,200 unitsin 2008, up from 400 units last year but an amount equal to a scant 0.5percent uptick in rental stock.

◆ Vacancy Forecast: Renter demand will remain steady, driving a 20 basispoint decline in vacancy to 4.5 percent. In the suburbs, limited additionsto stock and a soft for-sale market will cut vacancy 30 basis points to 4.4percent, while a 10 basis point drop to 4.6 percent is forecast fordowntown submarkets.

◆ Rent Forecast: Asking rents are expected to increase 3.2 percent to$1,079 per month in 2008, and effective rents will reach $1,010 permonth, also a 3.2 percent gain.

◆ Investment Forecast: Investors may want to track the progress of hoteldevelopment around McCormick Place, where approximately 2,100 newrooms are planned. In the suburbs, a major expansion of O’Hare Airportwill create jobs and bolster renter demand for area apartment units.


Chicago Up 7 Places 2008 Rank: 13 2007 Rank: 20

Renter Demand to Remain Strong, Leadingto Lower Vacancy in Chicago Market



Cincinnati

Cincinnati’s apartment market will post gradual improvement in 2008,aided by continued job growth and a weak housing market that isexpanding the renter pool. As residential foreclosures continue to

creep higher, many distressed homeowners will return to the apartmentmarket. Renter demand is also being bolstered as Cincinnati’s labor markettransitions, with job losses in construction and manufacturing expected to beoffset by additions in the higher-paying professional and business services,and educational and health services sectors in 2008. The long-termemployment outlook remains positive, as evidenced by the continuedexpansion efforts of white-collar employers including Fidelity Investments.On the supply side, completions will double this year to a modest 700 units,while rents will continue to increase at a fairly steady pace.

Sales activity for Cincinnati apartment assets is expected to remainelevated this year, as modest revenue gains and competitive initial yieldslure investors to the area. Cap rates have compressed into the low- to mid-8percent range but will likely rise slightly this year, following the nationaltrend. The median sales price has declined recently, due primarily to thechanging mix of properties that are being sold. In recent periods, a greaternumber of smaller, lower-tier properties have changed hands, a trend thatshould continue going forward. Buyers may want to consider propertiesnear Interstate 75 in the Warren/Butler County submarket. Office expansioncontinues along this transportation corridor north of Cincinnati, drivingrenter demand for area apartments and potentially supporting above-average rent growth in the long term.

2008 Market Outlook

◆ 2008 NAI Rank: 42, No Change. An above-average vacancy rate and com-paratively low employment growth kept Cincinnati near the bottom ofthe NAI this year.

◆ Employment Forecast: Employers are expected to expand payrolls 0.5percent in Cincinnati this year, adding 5,000 new jobs.

◆ Construction Forecast: Apartment deliveries are forecast to double in 2008,with 700 units expected to come online.

◆ Vacancy Forecast: A cooling housing market and a high foreclosure ratewill support renter demand for apartment properties this year. As aresult, the impact of new construction is expected to be modest andvacancy is expected to inch up 10 basis points to 7.5 percent by year end.

◆ Rent Forecast: Steady demand for apartments will fuel rent growth in2008. Asking rents are expected to gain 2.4 percent to $705 per month,while effective rents will rise 2.7 percent to $668 per month. Rent growthwas similar last year, when asking and effective rents edged up 2.5percent and 2.8 percent, respectively.

◆ Investment Forecast: Office lease signings in the Blue Ash submarket bycompanies including Citigroup and Oracle are encouraging apartmentbuyers to seek opportunities in the area. Going forward, job growth willcontinue to be concentrated in this already tight submarket, generatinghealthy revenue gains for apartment properties.

Business Expansion Supporting Cincinnati Apartment Properties

0

4

8

12

16

Tota

l Non

farm

Job

s (t

hous

ands

)


0%

1%

2%

3%

4%

Employment Trends

05 06 07* 08**04


0.00

0.25

0.50

0.75

1.00

Uni

ts (

thou

sand

s)

Completions Vacancy

6%

7%

8%

9%

10%

Supply and Demand

05 06 07* 08**04

Vacancy Rate

$20

$25

$30

$35

$40

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


0%

1%

2%

3%

4%

Rent Trends

05 06 07* 08**04


No Change 2008 Rank: 42 2007 Rank: 42



-3

0

3

6

9

Tota

l Non

farm

Job

s (t

hous

ands

)


-1%

0%

1%

2%

3%

Employment Trends

05 06 07* 08**04


0.00

0.25

0.50

0.75

1.00

Uni

ts (

thou

sand

s)

Completions Vacancy

4%

5%

6%

7%

8%

Supply and Demand

05 06 07* 08**04Vacancy Rate

$10

$20

$30

$40

$50

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


0%

1%

2%

3%

4%

Rent Trends

05 06 07* 08**04

Although home prices in Cleveland remain affordable, the renter pool isexpanding, due in part to residential foreclosures. In addition,employment is expected to add jobs again in 2008, with the

educational and health services sector experiencing some of the strongestgrowth. Renter demand will likely build momentum, while development ofnew units is expected to remain muted. Additions to inventory are forecastto run approximately 35 percent below the five-year average, with mostbuilders delivering small projects that contain fewer than 60 units. Withlimited amounts of new construction scheduled, vacancy should improvesomewhat, enabling owners to increase rents at the most significant raterecorded in nearly 10 years.

Improving conditions and revenue growth will support steady investordemand for Cleveland apartment properties in 2008, although more conser-vative underwriting practices could slow sales activity. Cap rates haveremained fairly stable over the past year and are currently averaging in themid- to high-8 percent range, while improvements to market fundamentalshave allowed for modest price growth. Institutional investment activityremains limited, with the buyer pool comprised largely of local privatebuyers and out-of-state individuals attracted to the market by some of thenation’s highest cap rates. Investors with long-term holding periods maywant to consider properties southeast of downtown in the Bedford/GarfieldHeights submarket, where development planned along the Macedonia/StateRoute 8 corridor could add nearly 2 million square feet of retail space to thearea. Apartment demand in the submarket is expected to rise as a result,supporting revenue growth and potential price appreciation.

2008 Market Outlook

◆ 2008 NAI Rank: 38, Up 1 Place. Minimal deliveries and declining vacancypushed Cleveland up one place in this year’s index.

◆ Employment Forecast: Cleveland employers will expand payrolls byjust 1,100 positions this year, a 0.1 percent increase. Growth was similarin 2007, when 1,200 new jobs were created.

◆ Construction Forecast: Construction remains subdued in Cleveland, asdevelopers are expected to build approximately 275 units in 2008, downfrom 430 apartments last year.

◆ Vacancy Forecast: Renter demand for apartments will outpace additionsto inventory this year, and vacancy is expected to fall 20 basis points byyear end to 5.2 percent.

◆ Rent Forecast: Limited new supply, coupled with rising demand forarea apartments, will support asking rent growth of 2.9 percent to $737per month this year. Modest concession burn will cause effective rentsto advance 3.2 percent to $702 per month.

◆ Investment Forecast: Continental Airlines recently announced plans toexpand its operations at Cleveland-Hopkins International Airport,adding a projected 700 new jobs to the Strongsville/Berea/Brook Parksubmarket. These positions should drive renter demand for areaapartments, and vacancy is expected to edge lower in the coming years.


Cleveland Up 1 Place 2008 Rank: 38 2007 Rank: 39

Higher Yields and Stable Revenue GrowthMake Cleveland Apartments Attractive



Columbus

The Columbus apartment market will improve modestly in 2008, aidedby steady job growth and a lack of multi-family development.Employment is forecast to expand for the fifth consecutive year, led by

the educational and health services, and government sectors. The metro’seconomic base continues to become increasingly diversified through itsdeveloping research and technology corridor, which now ranks as one of thelargest in the nation. This area, which includes the Ohio State Universitycampus and four major hospitals, manages more than $1 billion in researchgrants and $1 billion in development proposals, underpinning metrowidestability. While economic conditions are expected to drive modest improve-ments in renter demand this year, completions will also be minimal. As aresult, vacancy is projected to gradually improve throughout the year, fallingto levels not recorded since 2002 and allowing owners to raise rents at thehighest clip in nearly seven years.

Investment activity in Columbus is expected to remain steady in 2008, asbuyer demand will be driven by long-term prospects of revenue growthrather than short-term capital appreciation. Changes in the capital marketshave led to a cooling in transaction velocity, as lenders are underwritingdeals more conservatively. Despite the activity slowdown, cap rates declined90 basis points in 2007 to the high-7 percent to low-8 percent range due toboth in-state and out-of-market private buyers competing for the metro’smost attractive assets. Value opportunities exist for repositioning lower-tiered apartments in the Whitehall/Gahanna submarket. While Class B/Cproperties in the submarket are suffering from above-average vacancy, ClassA assets are heavily occupied, suggesting that unfulfilled demand goingforward may be satisfied by upgrading underperforming properties.

2008 Market Outlook

◆ 2008 NAI Rank: 39, Up 1 Place. Columbus remains in the lower tier of theranking but moves up one place due to a modest vacancy decline.


◆ Construction Forecast: Approximately 400 units are forecast for deliverythis year, compared with 100 apartments in 2007. The University/Down-town submarket is expected to add nearly 160 units by year end, a 1.8percent uptick to total stock.

◆ Vacancy Forecast: After a 130 basis point decline last year, vacancy isprojected to shed 30 basis points to 6.3 percent in 2008.

◆ Rent Forecast: Declining vacancy levels and steady job growth willdrive asking rents up 2.9 percent this year to $672 per month, whileeffective rents are forecast to increase 3 percent to $626 per month.

◆ Investment Forecast: Investors can expect occupancy to make gradualimprovements in the Bexley submarket, as no new supply is projectedfor the next few years. Vacancy is forecast to fall 130 basis points to themid-8 percent range by year end, allowing for modest rent growth.

Stable Economic Conditions DrawingInvestors to Columbus Apartments

0

3

6

9

12

Tota

l Non

farm

Job

s (t

hous

ands

)


0%

1%

2%

3%

4%

Employment Trends

05 06 07* 08**04


0

1

2

3

4

Uni

ts (

thou

sand

s)

Completions Vacancy

6%

7%

8%

9%

10%

Supply and Demand

05 06 07* 08**04

Vacancy Rate

$20

$30

$40

$50

$60

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


-1%

0%

1%

2%

3%

Rent Trends

05 06 07* 08**04


Up 1 Place 2008 Rank: 39 2007 Rank: 40



20

40

60

80

100

Tota

l Non

farm

Job

s (t

hous

ands

)


0%

1%

2%

3%

4%

Employment Trends

05 06 07* 08**04


2

4

6

8

10

Uni

ts (

thou

sand

s)

Completions Vacancy

8%

9%

10%

11%

12%

Supply and Demand

05 06 07* 08**04Vacancy Rate

$28

$30

$32

$34

$36

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


-2%

0%

2%

4%

6%

Rent Trends

05 06 07* 08**04

After arriving late to the most recent economic recovery, the Dallas/FortWorth Metroplex will sustain relatively strong growth this year,supporting local apartment demand. Specifically, the rate of job

growth will remain significantly above the national average, including amore than 3 percent expansion in the traditionally lower-paying leisure andhospitality sector. Expansion will be widespread, but urban developmentinto Denton and Collin counties in particular will bolster renter demand forlocal apartments this year. Builders are responding to the metro’s healthygrowth prospects by accelerating the rate of deliveries, however, which willkeep vacancy in the mid-8 percent range. With plenty of available land,especially in suburban markets, builders are delivering almost exclusivelylarge complexes. The planning pipeline has slowed by more than 20 percentrecently, however, indicating the construction of new units could taper off inthe years to come.

The Metroplex’s positive long-term economic outlook and above-average returns will continue to attract investors in 2008. Dallas/FortWorth’s low per-unit prices facilitate portfolio expansion or upgrades fromhigher-priced coastal markets. Out-of-state buyers are expected to remainactive, focusing largely on assets in close-in submarkets. Local investors,seeing that the end of the current building boom is in sight, could be nudgedoff the sidelines by cap rates in the high-7 percent to low-8 percent range.Repositioning deals, though limited, will persist in established high-endsubmarkets, such as Oaklawn/Uptown/CBD. Moreover, value-add plays inprime locations near major transportation arteries will attract hands-onowners. Some of these assets that were purchased by out-of-state investors inrecent years could re-enter the market in 2008 after falling short ofanticipated returns.

2008 Market Outlook

◆ 2008 NAI Rank: 23, Up 4 Places. Robust job growth, coupled with stablevacancy pushed Dallas/Fort Worth up four places in the NAI.

◆ Employment Forecast: Employers will continue to expand and migrateinto the Metroplex this year, boosting payrolls 1.9 percent with theaddition of 57,500 jobs, down from 81,300 positions in 2007.

◆ Construction Forecast: After delivering 5,260 units last year, buildersare ramping up construction activity, with 8,000 units forecast for 2008.

◆ Vacancy Forecast: Steady absorption is expected to offset deliveries in theMetroplex, leaving vacancy unchanged at 8.5 percent this year. In 2007,when completions were more modest, vacancy shed 100 basis points.

◆ Rent Forecast: Owners are expected to realize healthy rent gains due torelatively strong fundamentals. Asking rents are forecast to climb to$780 per month by year end, while effective rents will reach $716 permonth, gains of 3 percent and 3.3 percent, respectively.

◆ Investment Forecast: Extension of state Highway 121 into the SouthwestFort Worth submarket will facilitate shorter commute times into the FortWorth CBD, making the area more attractive to potential residents andapartment owners.


Dallas/Fort Worth Up 4 Places 2008 Rank: 23 2007 Rank: 27

Steady Growth, Above-Average Cap RatesForecast for the Metroplex

Market Forecast Employment: 1.9% ▲ Construction: 52% ▲ Vacancy: 0 bps ■ Asking Rents: 3% ▲


Denver

Renter demand for Denver apartment properties will remain strong in2008, supported by an expanding pool of renters and the metro’s fifthconsecutive year of healthy employment growth. While job gains will

be more modest in 2008 than in recent years, population growth willgenerate additional renter demand going forward, with an annual average of29,000 new residents forecast to enter the metro over the next five years. Onthe supply side, apartment builders will accelerate construction activity thisyear, particularly in the Aurora-South submarket, where deliveries willresult in a 5 percent inventory gain by year end. Higher levels of condo con-struction, some of which could ultimately enter the market as shadow-rentalstock or high-end rentals, may provide some competition for apartmentowners, especially in the Denver-North area.

Investors will continue to view Denver as an attractive long-termgrowth market, sustaining healthy transaction activity. Out-of-stateinvestors, which represented nearly 50 percent of all buyers in the metro in2007, are expected to play a considerable role again this year, drawn by caprates that are higher than those available in major coastal markets. A morestringent lending environment could result in cap rates edging higher fromtheir current low-6 percent range into the mid-6 percent range by year end.Local, private investors are expected to find emerging opportunities in ClassB/C assets in the Arvada-Broomfield submarket, where the technologyrebound continues to fuel healthy employment growth and cap rates remainabove the metro average. Meanwhile, the Aurora-Central-Southeast andAurora-Central-Southwest submarkets, where there are a number ofmanagement-intensive properties with upside revenue potential, couldattract some opportunistic cash buyers this year.

2008 Market Outlook

◆ 2008 NAI Rank: 25, Down 2 Places. Denver declined two spots in the NAIdue to rising completions and above-average vacancy.

◆ Employment Forecast: After 16,400 positions were created in 2007, thepace of employment growth is forecast to slow this year. Roughly 13,200new jobs are anticipated by year end, a 1.1 percent increase.

◆ Construction Forecast: Nearly 2,800 apartments are scheduled fordelivery in 2008, up from 900 units last year. Construction will be con-centrated primarily in the southeastern quadrant of the metro,accounting for nearly half of the metro’s apartment development.

◆ Vacancy Forecast: More modest job growth and an accelerated pace ofconstruction activity are forecast to drive vacancy 60 basis points higherin 2008 to 7.8 percent.

◆ Rent Forecast: Asking and effective rents are expected to advance 2.8percent by year end to $893 per month and $795 per month, respectively.

◆ Investment Forecast: Buyers seeking stability may target the northwestquadrant of the metro, particularly in Arvada and Broomfield, due tohealthy employment gains. Several years of limited construction willbenefit the Denver-South submarket, which should allow the area tooutperform the rest of the market in the short term.

Ongoing Technology Rebound FuelingOut-of-State Investor Demand in Denver

0

8

16

24

32

Tota

l Non

farm

Job

s (t

hous

ands

)


0%

1%

2%

3%

4%

Employment Trends

05 06 07* 08**04


0

1

2

3

4

Uni

ts (

thou

sand

s)

Completions Vacancy

6%

7%

8%

9%

10%

Supply and Demand

05 06 07* 08**04

Vacancy Rate

$55

$60

$65

$70

$75

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


0%

1%

2%

3%

4%

Rent Trends

05 06 07* 08**04





-60

-40

-20

0

20

Tota

l Non

farm

Job

s (t

hous

ands

)


-3%

-2%

-1%

0%

1%

Employment Trends

05 06 07* 08**04


0.0

0.5

1.0

1.5

2.0

Uni

ts (

thou

sand

s)

Completions Vacancy

6%

7%

8%

9%

10%

Supply and Demand

05 06 07* 08**04Vacancy Rate

$10

$20

$30

$40

$50

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


0%

1%

2%

3%

4%

Rent Trends

05 06 07* 08**04

Improving health care and gaming industries should stem the tide of joblosses in Detroit this year, a trend that will benefit local apartment owners.The metro’s aging population is elevating demand for health care workers,

many of whom may choose to rent, given the uncertainty surrounding thelocal housing market. In addition, the leisure and hospitality sector, which isbuttressed by the local gaming industry, will add 1,500 traditionally lower-paying positions in 2008, supporting demand for local apartments. On thesupply side, the rate of inventory expansion has slowed significantly, whileapartment builders are struggling to find sites where rents justify higher con-struction costs. Subsequently, many developers are concentrating on condos.Nearly 80 percent of multi-family units slated for completion this year are con-dominiums, most of which will be located in the Downtown submarket.

While the local economy remains in flux, investment activity for Detroitapartment properties is fairly healthy. Cap rates in the high-8 percent to low-9 percent range are among the highest of any major metro in the country andhave served as an inducement to yield-conscious buyers. Private out-of-statebuyers have stayed active, accounting for approximately 25 percent of allsales and more than half of all transactions in properties priced above $5million. This trend is expected to continue in 2008, particularly in WashtenawCounty, an area that includes the Ann Arbor submarket and benefits from theUniversity of Michigan student population. Cap rates in the county, whichboasts above-average rents and consistently features some of the lowestvacancy levels in the Detroit MSA, are currently near the metro average.Additionally, some buyers may choose to target distressed areas such asMidtown/West Detroit, where residents have few alternative housingoptions and revenue upside can be achieved through occupancy gains.

2008 Market Outlook

◆ 2008 NAI Rank: 43, Down 2 Places. Weak job growth and affordablehousing caused Detroit to slide two places to the bottom of the NAI.

◆ Employment Forecast: Local employers will add 1,600 positions thisyear, a 0.1 percent increase to payrolls. The modest gain is animprovement from 2007, when the metro posted a net loss of 6,000 jobs.

◆ Construction Forecast: Only 500 units are currently slated for deliveryin 2008, a 0.2 percent addition to stock. The number of outdated unitsremoved from inventory, however, may exceed new construction.

◆ Vacancy Forecast: Apartment inventory will remain essentiallyunchanged, while demand will pick up slightly, causing vacancy todecline 10 basis points to 6.8 percent in 2008.

◆ Rent Forecast: Despite the relatively stable conditions, owners will findchallenges in raising rents. Asking rents are forecast to finish the year at$838 per month, while effective rents will advance to $772 per month,both gains of 0.8 percent.

◆ Investment Forecast: Livingston County, located on the west side of themetro, will remain Detroit’s fastest growing area. The county’s fewapartment listings are subsequently expected to garner the mostcompetitive bids in the coming year.


Detroit Down 2 Places 2008 Rank: 43 2007 Rank: 41

Motor City Recovery Gaining Steam asLocal Economy Evolves



Fort Lauderdale

Another year of supply and demand realignment awaits apartmentproperty owners and investors in Broward County. The condo markethas cooled considerably and some units originally slated for

conversion are expected to re-enter the market as rentals in 2008, resulting ina forecast vacancy increase into the mid-5 percent range. Apartment demandwill continue to be generated by the many households for whom homeownership remains unaffordable. In addition, swelling foreclosure rates willforce existing homeowners from single-family residences into rentals. In theyear ahead, however, submarkets where Class A units comprise the bulk ofrental inventory, such as Miramar and Coral Springs, will face the greatestpressure from condo reversions. Vacancy in these areas will likely trendhigher than the marketwide rate this year, and concessions could increasesignificantly due to competition from the shadow-rental market. In largelyClass B/C submarkets, especially those located east of Florida’s Turnpike,vacancy and concessions are expected to outperform the entire market dueto the working-class mix of renters.

In the investment market, the rate of price appreciation has slowed con-siderably, and values are forecast to stabilize or even fall slightly in thequarters ahead as yield-oriented investors play a larger role. A greaternumber of failed conversion projects are expected to reach the market in2008, drawing opportunistic investors seeking bargains. Properties in thepath of projected population growth in the western half of the county maybe especially coveted. Meanwhile, apartment operators should track ClassB/C properties marketwide, as these assets are likely to outperform in thenear term and typically provide stable returns over the long term. Limitedland availability should discourage new construction in the years ahead,further insulating existing owners from the threat of overbuilding. Somedownside persists, as owners may need to increase concessions more signif-icantly if vacancy rises above the forecast rate.

2008 Market Outlook

◆ 2008 NAI Rank: 15, Down 9 Places. The shadow market will causevacancy to rise, knocking Fort Lauderdale down nine places in the NAI.

◆ Employment Forecast: Led by ongoing growth in the professional andbusiness services sector, employers will create 8,500 jobs this year, a 1.1percent increase. In 2007, 7,900 jobs were added.

◆ Construction Forecast: This year, builders are expected to complete 800apartments, the same number as in 2007.

◆ Vacancy Forecast: A resilient Class B/C sector will partly offset softerrenter demand at high-end properties. Still, vacancy is forecast to rise 80basis points this year to 5.6 percent.

◆ Rent Forecast: Asking rents will increase 1.9 percent in 2008 to $1,134 permonth, while rising concessions slow effective rent growth to 0.5 percent.

◆ Investment Forecast: Property owners who held their assets through theconversion boom have built up considerable equity. As credit marketsstabilize, an increasing number of these properties will enter the market.

Investors to Target Unsuccessful Condo Conversion Projects

0

15

30

45

60

Tota

l Non

farm

Job

s (t

hous

ands

)


0%

2%

4%

6%

8%

Employment Trends

05 06 07* 08**04


0.0

0.5

1.0

1.5

2.0

Uni

ts (

thou

sand

s)

Completions Vacancy

2%

3%

4%

5%

6%

Supply and Demand

05 06 07* 08**04

Vacancy Rate

$40

$60

$80

$100

$120

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


0%

2%

4%

6%

8%

Rent Trends

05 06 07* 08**04



Market Forecast Employment: 1.1% ▲ Construction: 0% ■ Vacancy: 80 bps ▲ Asking Rents: 1.9% ▲


0

30

60

90

120

Tota

l Non

farm

Job

s (t

hous

ands

)


1%

2%

3%

4%

5%

Employment Trends

05 06 07* 08**04


4

6

8

10

12

Uni

ts (

thou

sand

s)

Completions Vacancy

6%

8%

10%

12%

14%

Supply and Demand

05 06 07* 08**04Vacancy Rate

$20

$30

$40

$50

$60

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


0%

1%

2%

3%

4%

Rent Trends

05 06 07* 08**04

Houston’s apartment market is expected to stay on solid ground thisyear, as job growth continues to fall above the national average.Vacancy in close-in submarkets such as Montrose/River Oaks and

Downtown will remain the lowest in the metro, as renter demand is generatedby young professionals choosing to live near work and entertainment options.As vacancy tightens, renter demand will likely spill over into adjacent areas,particularly the Galleria and Energy Corridor submarkets, facilitating robustrent growth and some of the highest revenue gains in the metro. To the south,Class A assets in the Sugarland/Fort Bend submarket will fare well this year,capitalizing on migration-generated demand from the area’s high-paying jobmarket. Southeast of the city center, the Baytown and Clear Lake submarketsare expected to be supported by thousands of new jobs associated with thenew cargo terminal, enabling owners to realize occupancy gains. Meanwhile,demand in Montgomery County will continue to be buttressed by the area’sproximity to major employers, including George Bush International Airport.

Houston’s investment climate will remain positive this year. A mix ofout-of-state and local buyers will compete for apartment assets, attracted bythe market’s long-term economic outlook, as well as cap rates in the mid-7percent to mid-8 percent range. Some out-of-state owners that bought in thewake of hurricanes Katrina and Rita are listing assets, due to difficultyoperating properties that now face occupancy challenges. This developmentis creating opportunities for local investors with a higher risk tolerance and awillingness to invest resources to upgrade properties in an effort to attractnew tenants. Some value-add possibilities can also be found in the first-ringsuburbs, where demand for top-tier units from renters that have been pricedout of the most popular submarkets is rising.

2008 Market Outlook

◆ 2008 NAI Rank: 36, Down 1 Place. Strong employment growth willincrease renter demand for apartments, but Houston’s comparatively highvacancy rate kept it in the lower tier of the index.

◆ Employment Forecast: Employment growth is expected to slow to 1.8percent in 2008, as 46,400 positions will be created. Last year, localemployers added 63,100 jobs.

◆ Construction Forecast: Deliveries of new apartments will accelerate to7,500 units this year, expanding inventory 1.5 percent. Builders brought6,800 units online in 2007.

◆ Vacancy Forecast: After improving 10 basis points last year, vacancy isexpected to inch down 20 basis points in 2008 to 11 percent. The mostimpressive gains will be realized in the western half of the Inner Loop.

◆ Rent Forecast: Tighter conditions will enable owners to trim concessionsand raise rents. Asking rents are forecast to reach $760 per month byyear end, while effective rents climb to $707 per month, gains of 3.1percent and 3.5 percent, respectively.

◆ Investment Forecast: As occupancy rises along Memorial Drive in theMontrose/River Oaks submarket, renter demand is expected to movenorth of Interstate 10 to properties near Westview and Longmont.


Houston Down 1 Place 2008 Rank: 36 2007 Rank: 35

Investor Demand for Houston ApartmentsShifting to First-Ring Suburbs



Indianapolis

An uneasy housing market and steady employment gains will supportthe Indianapolis apartment market this year. Potential job losses in themanufacturing sector will be more than offset by gains in other

industries, particularly the educational and health services, and governmentsegments. Comparatively low business costs are attracting health carecompanies such as Arcadia Resources Inc., which plans to move its head-quarters to Indianapolis in 2008, adding 400 positions by 2010. Years ofgrowth north of the metro have congested traffic leading to the city center,driving renters to seek apartments in the western suburbs. As a result,effective rents in the Hendricks/Boone submarket are projected to advancea metro-leading 4 percent this year. Additionally, the above-average gapbetween rents and mortgage payments in popular Hamilton County willfacilitate healthy rent gains in the area. On the supply side, apartmentsdevelopment will again be restrained in 2008, as there are a limited numberof sites where asking rents justify current construction costs.

Improving fundamentals and competitive initial yields will continue toattract investors to the Indianapolis apartment market this year. Cap ratesare currently in the mid- to high-7 percent range, lower than other Midwestmarkets that are experiencing slower economic growth, but still offering apremium over the national average. Class A assets in affluent neighborhoodssuch as Carmel will attract out-of-state and institutional buyers with longholding periods, seeking to take advantage of the mortgage-rent gap in thearea. Demand for Class B/C properties will likely remain highly localizedthis year; areas adjacent to downtown and near the metro’s two universitiesare expected to attract the most investor interest.

2008 Market Outlook

◆ 2008 NAI Rank: 32, Up 4 Places. Indianapolis gained four places in theindex due to forecasts for moderate job growth and improving vacancy.

◆ Employment Forecast: Supported by the educational and healthservices and government sectors, local employers are expected toexpand payrolls 1.1 percent this year with the addition of 10,000 jobs. In2007, 11,500 positions were created in the metro.

◆ Construction Forecast: After delivering 775 apartments last year,builders are forecast to bring 900 units online in 2008. Looking ahead,the market’s relatively affordable housing market will continue tohinder apartment development.

◆ Vacancy Forecast: Vacancy in Indianapolis is expected to shed 30 basispoints this year to 8.6 percent. In 2007, vacancy improved 40 basis points.

◆ Rent Forecast: Rent growth in 2008 will be limited by the relativelyaffordable local housing market. Asking rents are forecast to climb 2.1percent to $671 per month, while effective rents will gain 2.4 percent to$634 per month by year end.

◆ Investment Forecast: The new Lucas Oil Stadium and the expandedconvention center, which are scheduled to open in 2008 and 2010,respectively, will add local jobs and generate additional demand forapartment units in the area.

Growing Economy and Higher ReturnsDrawing Out-of-State Buyers to Indianapolis

0

4

8

12

16

Tota

l Non

farm

Job

s (t

hous

ands

)


0%

1%

2%

3%

4%

Employment Trends

05 06 07* 08**04


0.0

0.5

1.0

1.5

2.0

Uni

ts (

thou

sand

s)

Completions Vacancy

7%

8%

9%

10%

11%

Supply and Demand

05 06 07* 08**04

Vacancy Rate

$28

$30

$32

$34

$36

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


0%

1%

2%

3%

4%

Rent Trends

05 06 07* 08**04


Up 4 Places 2008 Rank: 32 2007 Rank: 36



0

8

16

24

32

Tota

l Non

farm

Job

s (t

hous

ands

)


1%

2%

3%

4%

5%

Employment Trends

05 06 07* 08**04


0

1

2

3

4

Uni

ts (

thou

sand

s)

Completions Vacancy

2%

4%

6%

8%

10%

Supply and Demand

05 06 07* 08**04Vacancy Rate

$20

$30

$40

$50

$60

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


1%

2%

3%

4%

5%

Rent Trends

05 06 07* 08**04

Jacksonville’s apartment market will record a mixed performancethrough 2008, as renter demand for properties will be aided bycontinued job growth and business development, but increased rental

supply will drive apartment vacancy higher. Companies seeking to relocateand/or expand continue to choose the metro for its skilled, educated workforce. Nearly every sector of the local economy is expected to increasepayrolls in 2008, with the expansion of the Jacksonville Port Authority(JAXPORT) sustaining exceptional growth in the trade, transportation andutilities industry. Healthy demand drivers have stimulated developmentactivity, and apartment completions in 2008 are forecast to double themetro’s five-year average. In addition, many of the metro’s condo propertiesare expected to compete with apartments, and marketwide vacancy isforecast to rise. The metro’s historical performance suggests that concessionswill remain in their current ranges, although a greater-than-forecast impactfrom shadow rentals could slow effective rent growth further.

Investment activity has cooled from recent levels, but buyers remainactive in Jacksonville, drawn to the metro’s prospects for sustainable long-term growth. With investors and lenders focused primarily on a property’scurrent operating fundamentals, cap rates rose nearly 100 basis points in2007 to the mid-7 percent range. Looking ahead, buyers may want toinvestigate opportunities near JAXPORT, as expansion efforts will driveemployment growth and subsequent demand for nearby housing. The EastJacksonville submarket also remains tight, with vacancy in the mid-4 percentrange, positioning area assets for upside rent potential. Meanwhile, ownersin Northwest Jacksonville should be mindful of competition stemming fromfuture construction; the submarket’s inventory is expected to increase 22percent over the next two years, potentially slowing rent growth.

2008 Market Outlook

◆ 2008 NAI Rank: 31, Down 2 Places. Elevated construction and addedcompetition from shadow-rental stock are forecast to result in highervacancy, pushing Jacksonville down two spots in this year’s ranking.

◆ Employment Forecast: Payrolls are expected to increase 2 percent in 2008with the addition of 12,800 positions. Last year, 14,600 jobs were created.

◆ Construction Forecast: Apartment developers are building in advanceof the metro’s population growth. Approximately 2,000 units areforecast for delivery this year, up from 1,000 units in 2007.

◆ Vacancy Forecast: After a 140 basis point increase last year, vacancy isexpected to rise 180 basis points to 8.6 percent by year-end 2008.

◆ Rent Forecast: Moderate renter demand and steady job growth willgenerate asking rent growth of 2.4 percent to $820 per month in 2008,while effective rents will rise 2.1 percent to $784 per month.

◆ Investment Forecast: Occupancy is forecast to remain tight in theGreater Arlington submarket as a result of limited new stock and risingtenant demand. The area’s projected effective rent growth of nearly 4percent by year end is expected to lead the metro.


Jacksonville Down 2 Places 2008 Rank: 31 2007 Rank: 29

Growth Prospects Driving Investment,Construction Activity in Jacksonville



Kansas City

Kansas City apartment market fundamentals will continue to postmodest improvements, aided primarily by steady population and jobgrowth, as well as a limited development pipeline. Rising construction

costs, coupled with increases to the cost of capital, have restricted thedelivery of new units in recent years. By year end, developers are expectedto bring the fewest number of new units to the metro in more than 20 years,adding just 0.4 percent to total inventory. In the meantime, regionaleconomic growth is mounting as the metro continues to build its intermodaltransportation infrastructure. Construction of distribution facilities aboundsas companies expand their presence within the market. FedEx, Kimberly-Clark and Pacific Sunwear have all recently established operations in KansasCity, generating added economic momentum. Job growth will remainhealthy this year, with most sectors forecast to expand. As renter demandbuilds, apartment vacancy is expected to improve steadily, which shouldallow for continued rent growth.

A positive, long-term outlook for Kansas City’s apartment market willsupport investor interest in local assets this year. Cap rates are currently in thehigh-7 percent to low-8 percent range, down slightly over the past year butstill high enough to attract local and out-of-state buyers. Redevelopmentefforts will continue to underpin rising renter demand for downtownapartments, generating impressive occupancy improvements and market-leading revenue growth. Investors with long-term objectives may want toconsider properties located near Leawood’s newest mixed-use development,Park Place. The 1.2 million-square foot project will include retail, office andresidential space when complete, generating apartment demand in the area,and potentially driving appreciation of nearby real estate. The project’s firstphase is scheduled for delivery this year.

2008 Market Outlook

◆ 2008 NAI Rank: 34, Up 3 Places. Employment gains will drive demandfor apartments this year, pushing Kansas City up three spots in the index.

◆ Employment Forecast: Kansas City employers are forecast to expandpayrolls by 14,200 positions this year, a 1.4 percent increase. Growth wasslower in 2007, when 12,600 jobs were created.

◆ Construction Forecast: Construction will bottom out this year, asbuilders will add just 500 units, down from 1,200 apartments in 2007.

◆ Vacancy Forecast: Absorption is expected to far surpass completions in2008, causing vacancy to shed 70 basis points to 5.7 percent.

◆ Rent Forecast: Steady job growth, coupled with minimal newcompetition, is allowing owners to increase rents. Asking rents areexpected to rise 2.7 percent to $697 per month in 2008, while effectiverents advance 3 percent to $655 per month.

◆ Investment Forecast: Investors may want to consider the pro-growthsubmarkets of Olathe and Shawnee/Lenexa. These cities are activelyseeking business expansion, creating a competitive advantage that isattracting corporate relocations and generating apartment demand.Investor demand will likely follow in these growing areas.

Modest Construction to Boost OccupancyGains, Revenue Growth in Kansas City

0

4

8

12

16

Tota

l Non

farm

Job

s (t

hous

ands

)


0%

1%

2%

3%

4%

Employment Trends

05 06 07* 08**04


0.0

0.5

1.0

1.5

2.0

Uni

ts (

thou

sand

s)

Completions Vacancy

5%

6%

7%

8%

9%

Supply and Demand

05 06 07* 08**04

Vacancy Rate

$10

$20

$30

$40

$50

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


-2%

0%

2%

4%

6%

Rent Trends

05 06 07* 08**04





0

20

40

60

80

Tota

l Non

farm

Job

s (t

hous

ands

)


0%

2%

4%

6%

8%

Employment Trends

05 06 07* 08**04


0

1

2

3

4

Uni

ts (

thou

sand

s)

Completions Vacancy

3%

4%

5%

6%

7%

Supply and Demand

05 06 07* 08**04Vacancy Rate

$40

$60

$80

$100

$120

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


2%

3%

4%

5%

6%

Rent Trends

05 06 07* 08**04

Apartment fundamentals in Las Vegas are expected to stabilize this year,as forecasts call for slower construction and accelerating job growth.Volatility in the housing and mortgage markets hampered

employment gains in 2007, but the metro’s tourism industry continues tothrive, supporting expansion in the leisure and hospitality sector. This trendshould continue in 2008, as the weak dollar generates increased foreigntravel into the United States, with Las Vegas being one of the country’s mostpopular destinations. The surplus of homes purchased by investors willforce apartment owners to compete with shadow-rental stock; however,tighter residential lending standards and uncertainty in the housing marketwill encourage renters to delay home purchases, supporting demand.Apartment construction is forecast to decelerate, with projected deliveries in2008 coming in well below the metro’s five-year average. North Las Vegas isexpected to record some of the market’s healthiest performance in 2008, asrapid population growth in the area allows owners to fill vacant units andreduce concessions.

Strong fundamentals and healthy prospects for long-term growth aresupporting prices for local apartment assets. Cap rates are averaging in thehigh-5 percent to low-6 percent range; however, initial yields can vary signifi-cantly depending on asset quality. For example, investor demand forapartment properties is strongest for large Class A assets, which can trade atcap rates in the low-5 percent range, while rates in the lower tiers can reach 7percent. Some Class C properties may offer value to investors, as many assetsfeature rents that are well below current market rates, allowing for upsidethrough improved management. Investors seeking more stability may findopportunities in the Henderson area, where vacancy is among the lowest inthe metro, the development pipeline is modest, and attractive long-termpopulation forecasts should support future tenant demand for apartments.

2008 Market Outlook

◆ 2008 NAI Rank: 7, Down 3 Places. Competition from the shadow-rentalmarket will somewhat offset strong employment growth, moving LasVegas down three spots in this year’s index.

◆ Employment Forecast: Job growth will accelerate this year, as localemployers are expected to add 17,000 positions, a 1.8 percent increase. In2007, weakness in the housing market limited expansion to 0.6 percent.

◆ Construction Forecast: Multi-family builders are expected to deliver1,500 apartments this year, down from approximately 2,500 units in 2007.

◆ Vacancy Forecast: Vacancy will likely edge slightly higher in 2008, dueto some competition from shadow rentals. By year end, vacancy isexpected to increase 30 basis points to 5.7 percent.

◆ Rent Forecast: This year, asking rents are forecast to rise 2.9 percent to$876 per month, while effective rents gain 2.7 percent to $836 per month.

◆ Investment Forecast: Risk-averse investors may want to look to theUniversity submarket, which features a large student population thatsupports steady renter demand and a modest development pipeline,which keeps competition from new units in check.


Las Vegas Down 3 Places 2008 Rank: 7 2007 Rank: 4

Employment Resurgence to Attract Investors to Las Vegas

Market Forecast Employment: 1.8% ▲ Construction: 40% ▼ Vacancy: 30 bps ▲ Asking Rents: 2.9% ▲


Los Angeles

Apartment properties in Los Angeles are expected to record strongperformance in 2008 due to tight operating conditions and lowhousing affordability. Layoffs in housing-related industries have

slowed employment expansion in recent quarters, but job growth is forecastto accelerate slightly this year, supporting renter demand for apartments. Inaddition, the income required to purchase the median-priced home is nearly$100,000 higher than the metro’s median household income, and with creditfor marginal buyers essentially nonexistent, the transition from renting toowning has become more difficult. With homeownership out of reach for theforeseeable future, some renters will look to upgrade into high-endapartments, particularly in the Westside Cities, which is expected to recordthe metro’s strongest absorption and lowest vacancy rate by the end of 2008.

Strong revenue growth should support apartment prices in the LosAngeles market this year, although sales velocity will be influenced by theavailability of capital. In recent years, many local investors have re-allocatedexchange capital into higher-yielding secondary markets. This trend isreversing, however, as private in-state investors are accounting for a greatershare of buyers as the national emphasis is returning to quality assets and top-tier markets. In 2007, cap rates edged up approximately 30 basis points intothe low- to mid-5 percent range, causing prices to stabilize. Buyers can findhigher yields in areas such as South Bay/Long Beach, where cap rates oftenexceed 6 percent. In locations poised for more rapid rent growth, such as theWestside Cities, properties often trade with initial yields below 5 percent.Going forward, investors seeking upside potential may want to monitor theimpact of downtown redevelopment and gentrification efforts, including L.A.Live and the Park Fifth Towers.

2008 Market Outlook

◆ 2008 NAI Rank: 6, Up 3 Places. Slight acceleration in job growth andbelow-average vacancy pushed Los Angeles up three spots in the NAI.

◆ Employment Forecast: Employment growth is forecast to rise slightly in2008. The projected addition of 23,000 new jobs will result in a 0.6percent increase to metrowide payrolls, up from 0.5 percent in 2007.

◆ Construction Forecast: Apartment construction is expected to total 4,700units this year, compared with 4,500 units in 2007. New developmentwill increase the metro’s apartment inventory by a modest 0.6 percent.

◆ Vacancy Forecast: Vacancy is expected to edge up 20 basis points in 2008to a still-tight 3.7 percent, well below the national rate.

◆ Rent Forecast: Owners will be able to implement steady rent gains,despite competition from new stock. Asking rents are forecast toadvance 5 percent to $1,504 per month by year end, while effective rentspick up 4.8 percent to reach $1,452 per month. In 2007, asking andeffective rents climbed 5.7 percent and 5.5 percent, respectively.

◆ Investment Forecast: Revenue growth will offset rising cap rates,keeping prices near current ranges. Owners seeking to insulatethemselves from the threat of new construction may look to the SouthBay/Long Beach area, where development is expected to be modest.

Local Investors Re-Entering the Los Angeles Apartment Market

0

15

30

45

60

Tota

l Non

farm

Job

s (t

hous

ands

)


0%

1%

2%

3%

4%

Employment Trends

05 06 07* 08**04


2

3

4

5

6

Uni

ts (

thou

sand

s)

Completions Vacancy

1%

2%

3%

4%

5%

Supply and Demand

05 06 07* 08**04

Vacancy Rate

$80

$100

$120

$140

$160

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


4%

5%

6%

7%

8%

Rent Trends

05 06 07* 08**04



Market Forecast Employment: 0.6% ▲ Construction: 4% ▲ Vacancy: 20 bps ▲ Asking Rents: 5% ▲


0

10

20

30

40

Tota

l Non

farm

Job

s (t

hous

ands

)


0%

1%

2%

3%

4%

Employment Trends

05 06 07* 08**04


0.0

0.5

1.0

1.5

2.0

Uni

ts (

thou

sand

s)

Completions Vacancy

2%

3%

4%

5%

6%

Supply and Demand

05 06 07* 08**04Vacancy Rate

$40

$60

$80

$100

$120

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


0%

2%

4%

6%

8%

Rent Trends

05 06 07* 08**04

This year will mark a period of transition for the Miami-Dade Countyapartment market. Renter demand is expected to taper off somewhatin response to slower economic expansion and more restrained

population growth than in recent years. A lack of affordable housing,however, will curb the projected increase in vacancy, especially in themarket’s Class B/C segment. Vacancy in Class A properties, though, will besusceptible to the effects of shadow-rental stock likely to emerge from a con-siderable pool of unsold condos. Accordingly, rents for Class B/C assets areprojected to grow at a slightly faster pace than the marketwide average thisyear. Also, concessions are expected to rise in Class A complexes, particular-ly within the Airport West and Kendall Lakes submarkets, where manyconversions occurred. No notable new apartment projects are due to bedelivered in 2008, although supply may expand more than currentlyanticipated if some projects originally planned as condos enter than marketas apartments. Still, it would take several years of construction to replace theapproximately 25,000 units that have been removed for conversion duringthe past four years.

The local investment market is also undergoing a transition. Cap ratesare once again the focus of investors, although some isolated conversiondeals may still occur. Cap rates in 2008 are expected to rise gradually to arange from 6.5 percent to 7.5 percent for Class B/C properties andmarginally lower for the best of the Class A assets. Buyers will try to leveragethe presence of excess condo stock to push cap rates higher, especially whenconsidering the purchase of a top-tier property. Meanwhile, operatingexpenses have stabilized, with property taxes not much greater than twoyears ago and insurance rates down modestly.

2008 Market Outlook

◆ 2008 NAI Rank: 20, Down 7 Spaces. Reconversions and a growingshadow-rental market will put upward pressure on vacancy, causingMiami to fall seven spots in this year’s index.

◆ Employment Forecast: Employers are projected to add 8,000 workers thisyear, a 0.7 percent increase. In 2007, 13,000 positions were created.

◆ Construction Forecast: Developers are forecast to deliver 700 rentalunits this year, up from 500 units in 2007. Over the long term, additionsto rental stock should be minimal, as multi-family permit issuancedecreased 70 percent last year to nearly 3,000 units.

◆ Vacancy Forecast: Marketwide vacancy will rise 50 basis points in 2008to 4.7 percent. Shadow-rental stock should elevate Class A vacancy toabove 5 percent, while the Class B/C rate will hover around 4 percent.

◆ Rent Forecast: Asking rents are expected to advance 1.6 percent to$1,135 per month this year, while effective rents gain 1.3 percent to$1,080 per month. If shadow-rental stock exceeds expectations,concessions would likely rise by a greater degree than forecast.

◆ Investment Forecast: Property fundamentals, not conversion value, willcontinue to be the primary focus of potential buyers. Investors may stillfind profitable opportunities in undermanaged properties where rentsare significantly less than the market rate.


Miami Down 7 Places 2008 Rank: 20 2007 Rank: 13

Class B/C Properties in Miami toOutperform in 2008



Milwaukee

Healthy renter demand for Milwaukee apartments will keep vacancytight, facilitating modest rent gains this year. Metrowide vacancy isexpected to edge higher in 2008, but Class A properties will likely post

marginal improvement as renters continue to postpone home purchases.This year, the metro’s largest occupancy gains are projected in theNorthshore/Northwest submarket due to spillover demand from renterspriced out of the City East submarket. Some of this demand may be offset bycondo development in the city center, however, creating a small shadow-rental market. South of the City East area, the Cudahy/SouthMilwaukee/Oak Creek submarket will be supported in the years ahead byhealthy job growth in the suburbs that lie between Milwaukee and Chicago.Abbott Laboratories, for instance, is building a campus in Pleasant Prairie,which could generate as many as 12,500 positions over the next several years.

The metro’s healthy supply-demand balance and cap rates in the mid-7percent range will support steady transaction velocity in Milwaukee this year.Consequently, regional investors willing to reposition assets will increasetheir stakes in the city, targeting older, underperforming assets that can bebrought in line with the metro’s current tight conditions. Sales activity forthese properties is expected to be most prevalent in the Cudahy/SouthMilwaukee/Oak Creek submarket, where renter demand is mounting due tolocal employment growth south of the metro. Other repositioning playsmight be found in the Northshore/Northwest submarket, which has thelargest inventory of lower-tier properties. Young professionals waiting outthe housing downturn will likely be drawn to the Northshore/Northwestarea, adjacent to many of the city’s white-collar employment centers.

2008 Market Outlook

◆ 2008 NAI Rank: 35, Down 1 Place. A modest decrease in employmentand below-average rent growth are responsible for Milwaukee’s one-spotdecline in the NAI this year.

◆ Employment Forecast: Milwaukee employers are expected to eliminate600 jobs in the metro this year, a decrease of 0.1 percent. In 2007, 4,900positions were created by local employers.

◆ Construction Forecast: Developers are forecast to add 700 units, a 0.7percent increase to total inventory. Builders have been cautious to takeon apartment projects in the metro, adding a total of only 2,400 units toinventory since the beginning of the decade.

◆ Vacancy Forecast: Metrowide vacancy is expected to reach 4.2 percent byyear end, a 30 basis point increase. In 2007, vacancy shed 100 basis points.

◆ Rent Forecast: Still-tight conditions will enable some concession burnthis year. Asking and effective rents are forecast to climb 2.2 percent and2.4 percent to $848 per month and $813 per month, respectively.

◆ Investment Forecast: Apartment investments in West WaukeshaCounty should present opportunities to buyers due to the area’s lowvacancy and minimal planned construction. Class A units in particularcould provide an attractive alternative to residents who are wary ofbuying a home, given the metro’s underlying housing uncertainty.

Tight Conditions Attracting RegionalInvestors to Milwaukee

-3

0

3

6

9

Tota

l Non

farm

Job

s (t

hous

ands

)


-1%

0%

1%

2%

3%

Employment Trends

05 06 07* 08**04


0.0

0.5

1.0

1.5

2.0

Uni

ts (

thou

sand

s)

Completions Vacancy

0%

2%

4%

6%

8%

Supply and Demand

05 06 07* 08**04

Vacancy Rate

$20

$30

$40

$50

$60

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


0%

1%

2%

3%

4%

Rent Trends

05 06 07* 08**04


Down 1 Place 2008 Rank: 35 2007 Rank: 34

Market Forecast Employment: 0.1% ▼ Construction: 203% ▲ Vacancy: 30 bps ▲ Asking Rents: 2.2% ▲


12

15

18

21

24

Tota

l Non

farm

Job

s (t

hous

ands

)


0%

1%

2%

3%

4%

Employment Trends

05 06 07* 08**04


0.0

0.5

1.0

1.5

2.0

Uni

ts (

thou

sand

s)

Completions Vacancy

3%

4%

5%

6%

7%

Supply and Demand

05 06 07* 08**04Vacancy Rate

$30

$40

$50

$60

$70

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


-2%

0%

2%

4%

6%

Rent Trends

05 06 07* 08**04

Solid gains in the Minneapolis-St. Paul job market will offset elevatedconstruction and support healthy apartment fundamentals in 2008. Jobgains this year will be concentrated in the educational and health

services, and leisure and hospitality industries. Many of these positions willbe located in the Downtown Minneapolis submarket, where apartmentvacancy is below 3 percent and several for-sale projects have been scaleddown or canceled. Plans for the 222 Hennepin project, for instance, whichoriginally consisted of a 33-story condo tower, have changed to include top-tier rental units. Indeed, demand for condo units has dissipated inMinneapolis, and many residents are turning to premium apartments as analternative. This trend is generating demand for Class A units in outlyingsuburbs where some vacancy in the top tier persists.

In the investment market, buyer activity will be sustained by an activepool of local investors, some out-of-state capital and portfolio expansion byinstitutional buyers. Local investors with an eye on repositioning assets willfocus on older, infill properties that are selling below replacement costs.With access to capital restrained, value-add plays will tend to involve assetswith fewer than 50 units. Out-of-state buyers, however, are venturing intothe suburbs, where conditions are still tight and large complexes offerfavorable long-term revenue growth forecasts. Metrowide, average cap ratesare in the low-7 percent range, with some upward pressure being applied asoperations-based fundamentals dominate pricing. Strong Class Aperformance has generated an increased institutional presence in themarketplace in recent quarters, deepening and diversifying the buyer pool.

2008 Market Outlook

◆ 2008 NAI Rank: 30, No Change. Below-average vacancy offset rising con-struction and slower job growth, keeping Minneapolis stable in the NAI.

◆ Employment Forecast: Supported by healthy gains in the educationaland health services sector, metro employers will add 14,200 positionsthis year, expanding payrolls 0.8 percent. In 2007, 18,800 jobs werecreated in Minneapolis-St. Paul.

◆ Construction Forecast: This year, construction activity is expected torise to 1,200 apartments, up from fewer than 600 units completed in2007. Completions will increase inventory by a modest 0.8 percent.

◆ Vacancy Forecast: Heightened deliveries will push the metrowidevacancy rate up 20 basis points to a still healthy 4.5 percent by year end.Vacancy decreased 60 basis points in 2007, as demand was bolstered byhealthy job growth.

◆ Rent Forecast: With vacancy remaining below 5 percent, owners areexpected to trim concessions and accelerate rent growth. Asking rentsare forecast to reach $968 per month, up 3.5 percent, while effective rentswill advance 3.8 percent to $911 per month by year end.

◆ Investment Forecast: Buyer demand for apartments will increase alongthe Northstar Corridor Rail Project, which received federal funding lastyear. The 40-mile line will connect Big Lake with downtown Minneapolisand pass through Anoka, Coon Rapids, Elk River and Fridley.


Minneapolis-St. Paul No Change 2008 Rank: 30 2007 Rank: 30

Renter Demand Spilling into Close-in Suburbs in the Twin Cities



New Haven

The apartment sector in Fairfield and New Haven counties will continueto record low vacancy and steady rent growth in 2008, helping toattract a larger pool of potential apartment investors. In the months

ahead, tenant demand for rental housing will be driven by a modest rate ofjob growth in the market, and supplemented by strong employment innearby New York City and Hartford. High home prices in Fairfield Countyand a healthy balance between housing supply and demand in New HavenCounty will also support solid demand-side measures for rental properties.As for new supply, projects scheduled for completion in 2008 will increaserental stock 1.6 percent, causing vacancy in the metro to creep to the high endof a traditionally tight band. Future construction in the market will becentered in Stamford, which possesses a large employment base, and inBridgeport, where two large mixed-use projects with residential componentsare progressing through the pipeline.

Transaction velocity in the market increased last year and is expected torise again in 2008. The growing number of deals is improving visibility ofmarket conditions and eliciting more sellers. Class A properties in andaround the city of New Haven and portions of Fairfield County, wheresingle-family housing is expensive, will likely trade at cap rates in the high-6 percent to low-7 percent range, up slightly from 2007. Meanwhile, ClassB/C properties in centrally located communities, such as Waterbury andMeriden, will continue to attract buyers seeking to add value either byraising occupancy levels or by lifting rents to current market rates or higher.

2008 Market Outlook

◆ 2008 NAI Rank: 40, Down 2 Places. A rise in vacancy and below-averagejob growth caused New Haven to slide two places in the index this year.

◆ Employment Forecast: Total employment in New Haven and Fairfieldcounties is expected to rise 0.6 percent this year with the addition of5,300 workers, compared with 4,900 new hires in 2007. Approximately2,900 jobs are expected in New Haven in 2008, one year after contractionin the manufacturing sector led to a decline in total employment.

◆ Construction Forecast: Builders are forecast to deliver 900 units this year,up from 700 units in 2007. All of the properties are in Fairfield County.

◆ Vacancy Forecast: The marketwide vacancy rate is expected to climb 50basis points to 4.2 percent in 2008. In Fairfield County, an increase inrental inventory and softer employment-generated demand growth willproduce a 50 basis point increase in vacancy to 3.9 percent. Meanwhile,normal demand fluctuations in the smaller New Haven market areforecast to push vacancy up by 50 basis points to 4.8 percent this year.

◆ Rent Forecast: Asking rents are expected to increase 3.8 percent this yearto $1,626 per month, and effective rents will add 3.4 percent to reach$1,573 per month by the end of 2008.

◆ Investment Forecast: Investors looking for the next emerging area havea few in the market to consider. For example, the planned redevelopmentof a 170-acre site in North Haven, once owned by Pratt & Whitney, couldinclude 1.4 million square feet of job-generating commercial space.

Steady New Haven Market to Attract Value-Add Investors

0

3

6

9

12

Tota

l Non

farm

Job

s (t

hous

ands

)


0%

1%

2%

3%

4%

Employment Trends

05 06 07* 08**04


0.0

0.5

1.0

1.5

2.0

Uni

ts (

thou

sand

s)

Completions Vacancy

2%

3%

4%

5%

6%

Supply and Demand

05 06 07* 08**04

Vacancy Rate

$60

$70

$80

$90

$100

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


0%

2%

4%

6%

8%

Rent Trends

05 06 07* 08**04





Atlanta

Austin

Boston

Charlotte

Chicago

Cincinnati

Cleveland

Columbus

Dallas/Fort Worth

Denver

Detroit

Fort Lauderdale

Houston

Indianapolis

Jacksonville

Kansas City

Las Vegas

Los Angeles

Miami

Milwaukee

Minneapolis-St. Paul

New Haven

New York City

Northern New Jersey

Oakland

Orange County

Orlando

Philadelphia

Phoenix

Portland

Riverside-San Bernardino

Sacramento

Salt Lake City

San Antonio

San Diego

San Francisco

San Jose

Seattle

St. Louis

Tampa

Tucson

Washington, D.C.

West Palm Beach


Statistical

MSA Name 05 06 07* 08** 05 06 07* 08** 05 06 07* 08**

Vacancy Asking RentEmployment Growth (%)1 (Year-End, %)1 (Year-End, $)1

8.0 8.5 8.1 7.9

7.6 6.9 7.3 7.6

4.7 5.0 5.9 5.6

8.3 6.9 6.2 7.0

6.5 5.7 4.7 4.5

8.7 8.2 7.4 7.5

6.5 6.5 5.4 5.2

8.3 7.9 6.6 6.3

9.5 9.5 8.5 8.5

7.9 8.3 7.2 7.8

7.3 7.4 6.9 6.8

2.6 3.2 4.8 5.6

8.2 11.3 11.2 11.0

9.9 9.3 8.9 8.6

3.8 5.4 6.8 8.6

7.6 7.2 6.4 5.7

4.0 4.6 5.4 5.7

3.1 3.1 3.5 3.7

3.3 3.5 4.2 4.7

6.2 4.9 3.9 4.2

5.3 4.9 4.3 4.5

4.0 3.9 3.7 4.2

2.9 3.0 2.5 2.8

3.6 3.9 3.3 3.1

5.6 4.0 4.3 4.5

3.2 3.3 3.5 3.5

4.8 4.6 7.3 8.1

4.4 4.2 3.9 4.2

6.7 5.2 7.7 8.6

5.9 5.2 4.4 4.7

4.6 5.4 6.0 6.6

7.4 7.5 6.1 6.3

5.7 5.6 4.7 4.8

6.1 7.4 6.4 6.3

3.6 3.8 4.3 4.3

4.7 4.1 4.3 4.0

4.6 3.8 3.3 3.2

5.8 5.0 4.6 4.9

8.0 8.0 6.9 6.8

5.1 5.4 6.7 7.5

6.2 5.7 5.7 5.3

4.1 4.3 4.6 5.0

4.5 4.9 7.5 8.1

824 825 843 862

768 790 821 851

1,579 1,646 1,697 1,753

737 751 761 785

969 1,001 1,044 1,079

660 672 689 705

689 701 716 737

634 639 653 672

722 734 757 780

849 847 869 893

812 816 831 838

1,025 1,098 1,113 1,134

701 715 737 760

632 638 657 671

760 781 801 820

651 664 679 697

794 829 851 876

1,275 1,355 1,432 1,504

1,025 1,089 1,117 1,135

789 807 830 848

889 906 935 968

1,463 1,487 1,568 1,626

2,399 2,578 2,800 2,976

1,366 1,410 1,468 1,534

1,201 1,281 1,349 1,410

1,367 1,452 1,544 1,624

819 865 881 899

921 958 1,006 1,051

707 749 774 802

719 756 793 825

976 1,024 1,069 1,110

913 948 970 998

654 685 726 769

639 660 686 705

1,191 1,240 1,298 1,350

1,579 1,694 1,850 1,995

1,332 1,482 1,598 1,682

877 941 1,009 1,072

686 700 716 736

771 819 835 852

590 618 643 667

1,190 1,250 1,309 1,357

1,053 1,111 1,120 1,138

3.1 2.3 1.7 1.6

3.9 4.7 3.4 2.8

0.6 0.8 1.1 1.1

2.1 1.5 2.7 2.4

1.1 1.2 1.0 0.6

1.1 1.2 0.8 0.5

-0.3 -0.1 0.4 0.1

0.5 0.6 0.7 0.6

2.9 3.3 2.8 1.9

2.2 1.5 1.3 1.1

-0.8 -2.7 -0.3 0.1

4.4 4.9 1.0 1.1

3.3 4.3 2.5 1.8

0.4 1.7 1.3 1.1

3.9 2.9 2.3 2.0

0.9 1.3 1.3 1.4

6.8 4.8 0.6 1.8

0.8 1.2 0.5 0.6

2.1 3.0 1.2 0.7

-0.3 1.0 0.6 -0.1

1.0 0.9 1.0 0.8

0.1 1.2 0.5 0.6

1.1 1.4 1.0 0.4

-0.2 0.6 0.6 0.4

1.6 1.4 0.8 0.7

1.8 1.3 0.1 0.7

5.4 3.1 2.3 1.7

0.8 1.7 1.0 0.6

6.1 4.6 2.4 2.0

2.7 1.7 1.4 1.2

3.7 2.0 3.6 2.3

3.0 0.8 1.2 0.9

4.8 4.0 3.0 3.1

3.2 3.3 2.3 2.6

1.5 1.4 1.2 0.9

0.9 1.8 1.3 1.0

0.6 1.1 1.2 0.7

3.8 2.7 3.0 1.9

0.9 1.1 1.3 0.7

3.7 2.0 1.0 1.1

1.5 4.9 2.8 1.7

2.0 2.3 1.5 0.8

4.0 3.6 1.7 1.5



Atlanta

Austin

Boston

Charlotte

Chicago

Cincinnati

Cleveland

Columbus

Dallas/Fort Worth

Denver

Detroit

Fort Lauderdale

Houston

Indianapolis

Jacksonville

Kansas City

Las Vegas

Los Angeles

Miami

Milwaukee

Minneapolis-St. Paul

New Haven

New York City

Northern New Jersey

Oakland

Orange County

Orlando

Philadelphia

Phoenix

Portland

Riverside-San Bernardino

Sacramento

Salt Lake City

San Antonio

San Diego

San Francisco

San Jose

Seattle

St. Louis

Tampa

Tucson

Washington, D.C.

West Palm Beach

05 06 07* 05 06 07* 08** MSA Name

Median Sales Price Completionsper Unit ($)1 (Units)1

1See Statistical Summary Note on page 592 0 0 8 A n n u a l R e p o r t p a g e 33

Summary

52,800 55,200 63,200

56,000 54,700 54,300

123,000 121,500 125,400

56,000 59,000 63,000

83,400 78,300 82,700

37,000 33,700 27,800

33,600 38,500 42,100

43,200 47,900 35,800

33,100 33,000 34,900

68,600 67,200 71,300

43,500 38,250 35,200

106,300 102,500 92,800

35,900 38,000 43,400

34,000 32,000 30,200

46,200 55,000 48,800

38,000 46,500 45,900

73,500 92,900 95,700

133,300 142,900 138,900

95,000 100,000 94,400

44,000 57,500 54,600

53,700 63,700 63,400

81,500 82,300 71,800

128,800 146,700 151,700

82,100 80,600 76,700

133,300 137,500 141,700

158,900 180,900 169,300

74,800 73,000 63,400

67,300 69,400 71,000

56,900 66,500 71,400

60,000 66,500 69,400

101,300 114,100 103,100

94,900 90,900 83,200

48,000 61,000 70,150

45,100 48,700 47,800

146,300 138,700 127,300

208,300 230,000 252,000

145,800 164,000 150,700

90,900 102,600 118,200

72,200 55,200 48,700

65,300 67,800 63,100

50,900 54,700 52,900

91,700 103,100 102,100

104,100 119,400 101,300

5,100 4,600 4,000 4,100

1,400 2,350 4,800 5,100

2,200 4,200 5,100 3,000

1,660 1,226 1,000 2,300

2,000 2,200 400 2,200

375 800 350 700

295 300 430 275

2,164 1,200 100 400

5,800 6,433 5,260 8,000

1,715 2,210 900 2,800

110 1,100 485 500

344 300 800 800

6,683 5,416 6,800 7,500

1,065 710 775 900

400 1,189 1,000 2,000

1,117 1,100 1,200 500

1,040 1,628 2,500 1,500

4,900 5,100 4,500 4,700

969 400 500 700

275 300 231 700

705 575 593 1,200

849 469 700 900

3,975 2,200 3,600 2,800

398 1,000 2,250 1,000

900 700 1,100 1,300

1,600 1,900 2,000 1,250

2,500 1,200 600 1,300

2,738 2,000 800 1,300

6,100 6,086 5,800 4,200

598 1,650 700 1,700

3,800 3,900 2,350 1,550

2,600 850 750 800

1,117 700 800 1,800

3,148 3,267 3,470 2,800

1,550 1,850 900 1,200

400 450 750 800

800 1,000 700 900

1,800 2,325 2,500 3,500

644 958 550 600

905 2,383 900 1,400

575 25 30 350

3,000 4,000 5,500 5,600

0 500 0 500

0

15

30

45

60

Tota

l Non

farm

Job

s (t

hous

ands

)


0%

1%

2%

3%

4%

Employment Trends

05 06 07* 08**04


0

1

2

3

4

Uni

ts (

thou

sand

s)

Completions Vacancy

0%

1%

2%

3%

4%

Supply and Demand

05 06 07* 08**04Vacancy Rate

$80

$100

$120

$140

$160

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


2%

4%

6%

8%

10%

Rent Trends

05 06 07* 08**04


New York City Down 2 Places 2008 Rank: 3 2007 Rank: 1

Vigorous New York City Market Stirs Investors’ Interest



Vacancy will remain low across the entire city in 2008, though the rate inManhattan is expected to rise slightly to 2.5 percent. Supply growth inthe borough is still minimal, but demand may be somewhat softer this

year due to a projected slower rate of hiring in the financial services sector.Nevertheless, interest in apartment properties remains keen, as local privateinvestors and an increasing number of foreign buyers are expected to beactive. In other boroughs, multi-family permit issuance, an indicator of futureconstruction activity, climbed 50 percent in Queens last year to more than4,000 units. Housing demand in the borough remains elevated, which willencourage more investors to consider purchasing local properties. In theBronx, as in all boroughs of the city, rent regulations assure steady growth forowners and promise considerable upside when buildings are removed fromrent regulation. The borough has just begun its resurgence, a process that willpick up with the completion of the Gateway Center mixed-use project in 2009.

In Brooklyn, meanwhile, multi-family permit issuance also picked uplast year as developers sought to take advantage of growing housingdemand in the borough. The recent rezoning of areas including DykerHeights, Fort Hamilton and Bedford-Stuyvesant, in addition to the FlatbushAvenue Extension, will open up new areas for development, including theconstruction of residential units. Meanwhile, the redevelopment of vacantindustrial properties such as the Domino Sugar factory has elevated interestin other similar structures, stimulating the flow of investment capital into theborough. While these types of projects are vast in scale, smaller sites areavailable in many neighborhoods for mixed-use development, and demandfor similar properties will remain intense in the quarters ahead.

2008 Market Outlook

◆ 2008 NAI Rank: 3, Down 2 Places. A slight uptick in vacancy caused NewYork City to fall two spots in the index this year.

◆ Employment Forecast: Citywide job growth will slow to 0.4 percent, or16,000 new hires, in 2008. Last year 34,300 positions were created.

◆ Construction Forecast: Builders delivered 3,600 market-rate units in allboroughs of the city in 2007; production will slow to 2,800 units in 2008.

◆ Vacancy Forecast: Tenant demand in the city will moderate this year,resulting in a 30 basis point increase in the vacancy rate to 2.8 percent.In Manhattan, vacancy will edge up 30 basis points to end 2008 at 2.5percent; a 20 basis point increase to 3 percent is projected in Brooklyn.

◆ Rent Forecast: In market-rate units, asking rents are expected to increase6.3 percent to $2,976 per month, while effective rents advance 6.6percent to $2,922 per month. Rents on rent-stabilized units are permittedby law to increase 3 percent on one-year leases and 5.75 percent on two-year commitments.

◆ Investment Forecast: Investors will monitor activity in the statelegislature this year. Affordable housing initiatives currently beingdiscussed may contain a provision that raises the maximum rentallowable in a rent-regulated unit. Such a provision would affect theamount investors would offer for a multi-family property.

Northern New Jersey

Strong Outlook for Lower-Tier PropertiesWill Sustain Investment Activity

-10

0

10

20

30

Tota

l Non

farm

Job

s (t

hous

ands

)


-0.5%

0.0%

0.5%

1.0%

1.5%

Employment Trends

05 06 07* 08**04


0

1

2

3

4

Uni

ts (

thou

sand

s)

Completions Vacancy

2%

3%

4%

5%

6%

Supply and Demand

05 06 07* 08**04

Vacancy Rate

$20

$40

$60

$80

$100

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


2%

3%

4%

5%

6%

Rent Trends

05 06 07* 08**04





The Northern New Jersey region will maintain its status this year as aconsistently strong-performing apartment market. With a heavy con-centration of Class B/C properties, the area continues to record tight

vacancy and steady, sustainable rent growth. Vacancy in 2008 is expected todip into the low-3 percent range, and rents will climb considerably, carryingforward the momentum established late last year. The only submarket thathas underperformed recently is East Essex County, an urbanized area thatincludes Newark. Led by robust renter demand in the Class B/C sector,however, vacancy in East Essex is expected to fall to the mid-4 percent rangethis year as growth in lower-paying service industries stimulates apartmentdemand. Going forward, employment opportunities arising from anexpansion of warehouse and distribution operations near the airport willsupport additional demand for rental housing in the submarket.

In the investment arena, strong underlying fundamentals will help tosupport prices for local assets. As underwriting based on recent operatinghistory becomes a more common practice this year, investment activity inNorthern New Jersey may recover faster than in other markets. The metro’spredominance of Class B/C stock, where operating results are typically stableand fairly predictable, will likely experience fewer underwriting challenges.Additionally, on a trailing 12-month basis, rents in Northern New Jersey haveincreased at a rate somewhat above the long-term trend, which shouldsupport strong valuations for properties coming to market this year. Localbuyers that know the nuances of specific neighborhoods and municipalities,however, will likely not stretch for purchases.

2008 Market Outlook

◆ 2008 NAI Rank: 19, Up 6 Places. Strong rent growth and tight vacancysupports Northern New Jersey’s six-spot rise in this year’s rankings.

◆ Employment Forecast: Employers in the Northern New Jersey regionare forecast to add 8,100 jobs this year, a 0.4 percent gain, but down from10,600 new positions created in 2007. A greater pace of hiring in lower-paying service industries will boost employment by 4,800 jobs in theNewark portion of the metro, up from 3,000 new hires in 2007.

◆ Construction Forecast: Developers are expected to complete 1,000apartment units this year, compared with 2,250 units in 2007.

◆ Vacancy Forecast: Expensive single-family housing will augmentdemand generated by a modest increase in employment, producing a 20basis point improvement in the vacancy rate this year to 3.1 percent.

◆ Rent Forecast: In 2008, asking rents are expected to rise 4.5 percent to$1,534 per month, while effective rents will advance 4.9 percent to $1,473per month. Class B/C asking rents are forecast to climb at a greater ratethan the overall market in tight areas including Union County andsuburban Essex County.

◆ Investment Forecast: Ambitious projects, such as the Harrison Metro-centre, the planned redevelopment of downtown Kearny and revitaliza-tion in Rahway, will change the complexion of communities and alsocreate new job centers that will generate rental housing demand.

0

5

10

15

20

Tota

l Non

farm

Job

s (t

hous

ands

)


0%

1%

2%

3%

4%

Employment Trends

05 06 07* 08**04


0.0

0.5

1.0

1.5

2.0

Uni

ts (

thou

sand

s)

Completions Vacancy

3%

4%

5%

6%

7%

Supply and Demand

05 06 07* 08**04Vacancy Rate

$80

$100

$120

$140

$160

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


-3%

0%

3%

6%

9%

Rent Trends

05 06 07* 08**04

Steady population growth and low housing affordability will drive renterdemand for Oakland apartments in the coming years. The metro isexpected to add 8,600 households in 2008, a 0.9 percent uptick, with

similar gains forecast for the next five years. Household growth this year,while similar to the national rate, is approximately twice the metro’s five-yearannual average. Although the East Bay’s population is expanding steadily,residential construction is modest, which is expected to keep vacancy in anarrow band over the next several years. Furthermore, corporate relocationsfrom more expensive Bay Area metros should provide an additional source ofrenter demand, a trend that is likely to continue in the years ahead as officerents escalate and vacancy rates tighten. Late last year, for example, theCalifornia State Automobile Association announced plans to relocate itsheadquarters from San Francisco to the East Bay.

Tight conditions and healthy revenue growth will support investordemand for local apartment properties this year and well into the future,although higher cap rates may slow sales activity. Cap rates have increased30 basis points to the low- to mid-5 percent range over the past year, butstrong revenue growth has kept upward pressure on prices. Condoconversion deals have come to an end, and with less capital available in theCMBS market, private local investors are comprising a greater share ofbuyers. As a result, investor demand for the metro’s smaller Class B/C assetsshould increase, especially in areas such as Fremont and Newark, wherevacancy levels are forecast to decline, creating solid upside potential forfuture rent growth.

2008 Market Outlook

◆ 2008 NAI Rank: 5, Down 2 Places. Low housing affordability keptOakland in the top five despite a slight vacancy increase.

◆ Employment Forecast: Oakland employers will expand payrolls by7,900 positions in 2008, a 0.7 percent increase. In 2007, growth wasslightly higher, as 8,300 new jobs were created.

◆ Construction Forecast: Construction is up slightly in the East Bay. In2008, 1,300 apartment units are forecast for delivery, compared to 1,100units last year.

◆ Vacancy Forecast: As completions accelerate slightly this year, vacancywill record a 20 basis point uptick to 4.5 percent.

◆ Rent Forecast: Owners are responding to ongoing for-sale affordabilitychallenges by raising rents throughout the East Bay. Asking rents areforecast to gain 4.5 percent to $1,410 per month, while effective rents willadvance 4.3 percent to $1,334 per month in 2008. Last year, asking andeffective rents climbed 5.3 percent and 5.1 percent, respectively.

◆ Investment Forecast: Buyers will continue to find attractive opportuni-ties in the Oakland apartment market due to the region’s steady revenuegrowth. Sales activity is expected to be concentrated in the NorthAlameda and West Contra Costa submarkets as a result of theirproximity to San Francisco. Properties with convenient access to BARTstations will also command a premium.


Oakland Down 2 Places 2008 Rank: 5 2007 Rank: 3

Household Growth Driving ApartmentPerformance in Oakland



Orange County

Investors Targeting Inland Properties in Orange County

0

8

16

24

32

Tota

l Non

farm

Job

s (t

hous

ands

)


0%

1%

2%

3%

4%

Employment Trends

05 06 07* 08**04


0

1

2

3

4

Uni

ts (

thou

sand

s)

Completions Vacancy

1%

2%

3%

4%

5%

Supply and Demand

05 06 07* 08**04

Vacancy Rate

$100

$125

$150

$175

$200

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


3%

4%

5%

6%

7%

Rent Trends

05 06 07* 08**04



Market Forecast Employment: 0.7% ▲ Construction: 38% ▼ Vacancy: 0 bps ■ Asking Rents: 5.2% ▲


Hiring activity is expected to pick up this year, following minimal gainsin 2007 due to the housing slump and collapse of the subprimelending market. Despite some recent local economic slowing, Orange

County apartment market fundamentals remain among the strongest in thenation, and emerging demographic trends support a positive outlook forproperties in the metro. While the professional and business services, andinformation sectors are forecast to post steady gains in the years ahead, muchof the market’s employment growth in 2008 will occur in the leisure andhospitality, and retail sectors, where employees tend to be renters. Homeprices have declined in recent quarters, but affordability remains a challengeto the majority of households. In addition, uncertainty in the housing marketshould generate renter demand for apartments going forward.

Healthy revenue gains and elevated replacement costs will supportinvestor demand for existing apartment assets in Orange County this year.Over the past few quarters, cap rates have increased approximately 50 basispoints, with most properties trading in the low- to mid-5 percent range. Salesvelocity slowed in 2007, though there are still pockets of strong investmentactivity in the market, including Anaheim and Santa Ana. Buyers havefocused on properties in these higher-yielding inland cities in response totightening underwriting standards and a greater emphasis on currentoperating income rather than pro forma. This trend is likely to persist giventhe current lending environment, although buyers seeking premium assetsand the greatest rent growth potential will target coastal properties.

2008 Market Outlook

◆ 2008 NAI Rank: 8, Down 6 Places. Strong rent growth and stable vacancykept Orange County in the top 10 despite the forecast for only modestemployment gains this year.

◆ Employment Forecast: Employers are expected to increase hiring effortsin 2008, adding 10,000 positions to the metro, a 0.7 percent gain. Lastyear, a stream of layoffs by several major mortgage firms hampered totalemployment growth, and only 2,000 jobs were created.

◆ Construction Forecast: Builders will deliver 1,250 units in 2008, downfrom approximately 2,000 units last year. Much of the new constructionis concentrated in the rapidly expanding Irvine and Anaheim areas.

◆ Vacancy Forecast: Healthy renter demand will keep metrowide vacancystable at 3.5 percent this year, following a 20 basis point uptick in 2007.

◆ Rent Forecast: With vacancy expected to remain tight, apartmentowners will implement strong rent gains. In 2008, asking rents areexpected to advance 5.2 percent to $1,624 per month, while effectiverents increase 5.3 percent to $1,574 per month.

◆ Investment Forecast: Attractive fundamentals should continue to driveinvestment activity in Orange County, but the expectations gap betweenbuyers and sellers will have to narrow for velocity to gain momentum.Coastal areas including Huntington Beach and Costa Mesa are recordingthe metro’s strongest rent growth, which should attract buyers who arelooking for properties with short-term upside potential.

0

15

30

45

60

Tota

l Non

farm

Job

s (t

hous

ands

)


0%

2%

4%

6%

8%

Employment Trends

05 06 07* 08**04


0

1

2

3

4

Uni

ts (

thou

sand

s)

Completions Vacancy

2%

4%

6%

8%

10%

Supply and Demand

05 06 07* 08**04Vacancy Rate

$40

$50

$60

$70

$80

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


0%

2%

4%

6%

8%

Rent Trends

05 06 07* 08**04


Orlando Down 9 Places 2008 Rank: 27 2007 Rank: 18

Post-Conversion Boom AdjustmentPeriod Under Way in Orlando



The Orlando apartment market will continue to adjust in 2008 followingthe conversion boom, forcing apartment owners and investors to fine-tune near-term expectations while taking a longer view of the market’s

potential. Vacancy will climb into the low-8 percent range, slightly higherthan the metro’s long-term average. In the near term, submarkets with agreater proportion of Class A units, including the Far North and Far Southareas, will likely be susceptible to shadow-rental stock and key metrics, suchas vacancy and rent growth, in these submarkets will subsequently lag theoverall market. Meanwhile, the Class B/C segment, particularly in areassuch as the Southeast and South Central submarkets, will outperform due tojob growth in lower-paying sectors and restrained entry-level home buying.

The exit of converters resulted in reduced deal flow last year, but 2008will mark a return to a more normal level of activity, with operatorsaccounting for the bulk of the purchasing activity. Opportunistic investorslooking for bargains in failed conversion deals will invariably turn theirattention to assets in the southern half of the metro area. Owners who sat outduring the recent flurry of sales, meanwhile, may increasingly put propertieson the market in order to unlock the value created through several years ofabove-trend rent growth. With conditions cooling, prices are expected to stayin their current ranges in the quarters ahead. Top-tier assets will still trade atcap rates of approximately 7 percent, while a slow decompression of initialyields for lower-quality properties is likely.

2008 Market Outlook

◆ 2008 NAI Rank: 27, Down 9 Places. Competition from shadow rentalsand new supply will outpace renter demand growth this year, causing anine-spot drop in the index.

◆ Employment Forecast: Employers will add 19,000 jobs in 2008, a 1.7percent increase but a decline from the 25,100 positions created last year.The leisure and hospitality sector, whose work force is a traditionallysignificant source of renters, is expected to add 5,900 positions this year.

◆ Construction Forecast: Completions are forecast to reach 1,300 units in2008, compared with 600 units last year. Increased multi-familydevelopment is likely to occur in Lake County, where 800 apartmentswere permitted in 2007, three times more than during the prior period.

◆ Vacancy Forecast: Declining employment-generated demand willunderpin an 80 basis point increase in vacancy this year to 8.1 percent.More subprime borrowers, however, should re-enter the renter pool.

◆ Rent Forecast: Asking rents are expected to climb 2 percent in 2008 to$899 per month, with much of the growth occurring in the Class B/Csector. By year end, effective rents are projected to gain 0.3 percent to$824 per month. If the shadow-rental market has a more pronouncedeffect than is forecast, concessions will likely increase at a greater rate.

◆ Investment Forecast: A bulging hotel development pipeline containsseveral large properties along International Drive. The employmentgrowth that will accompany the new openings will bolster renterdemand at nearby apartment assets in the coming years.

Philadelphia

Steady Performance Enhancing Appeal ofPhiladelphia Apartment Market

0

15

30

45

60

Tota

l Non

farm

Job

s (t

hous

ands

)


0%

1%

2%

3%

4%

Employment Trends

05 06 07* 08**04


0

1

2

3

4

Uni

ts (

thou

sand

s)

Completions Vacancy

2%

3%

4%

5%

6%

Supply and Demand

05 06 07* 08**04

Vacancy Rate

$40

$50

$60

$70

$80

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


2%

3%

4%

5%

6%

Rent Trends

05 06 07* 08**04





Vacancy in Philadelphia this year is expected to remain near the lowlevel registered at year-end 2007, and rents are projected to rise at ahealthy clip, supporting investor interest. Supply growth will be

minimal again in 2008 and over the longer term, as steering new projectsthrough to completion remains challenging in most areas. As for rentgrowth, owners of properties in high-density areas like Center City areforecast to implement rent increases of 5 percent or more as vacancy remainslow. Owners of market-rate properties in South Jersey should also be able toachieve rent growth in the 4.5 percent to 5 percent range due to the state’sshortage of affordable housing. Additionally, low vacancy in the Class B/Csector of Montgomery County will permit owners to realize rent growth inexcess of the marketwide average.

From an investment perspective, local properties will remain attractivefor their relatively predictable cash flow growth and the difficulties likely tobe incurred in new construction. Property prices may grow only modestly inthe months ahead, however, due to more conservative underwriting and theextreme contraction of the speculative- and conversion-related buyer pool.Still, the absence of rent controls in Pennsylvania counties, Delaware andseveral South Jersey communities will continue to draw buyers eager to addvalue by raising rents to market rates. Also, assets located near train stationswill generate strong investor interest. Overall, Class A properties willcontinue to trade in the mid-5 percent to low-6 percent range this year, whilethere will likely be upward pressure on initial yields for lower-quality assets.

2008 Market Outlook

◆ 2008 NAI Rank: 21, Up 5 Places. Healthy rent growth and tight vacancyhelped drive Philadelphia up five places in the ranking.

◆ Employment Forecast: Local employers are expected to add 19,000 jobsto the metro in 2008, a 0.6 percent increase. Job growth will slowmarketwide, with 8,000 positions forecast in Pennsylvania counties,6,000 jobs in South Jersey and 5,000 new hires projected in Wilmington.

◆ Construction Forecast: Developers are expected to complete 1,300 unitsin 2008, representing a 0.7 percent boost to apartment stock.

◆ Vacancy Forecast: Renter demand will moderate in response to aslackened pace of employment growth, leading to a 30 basis pointincrease in the vacancy rate to 4.2 percent this year.

◆ Rent Forecast: Asking rents are expected to increase 4.5 percent in 2008to $1,051 per month, compared with a 5 percent jump in 2007, whileeffective rents will advance 4.4 percent to $1,014 per month. Rent growthin Center City and Montgomery County will likely exceed themarketwide average.

◆ Investment Forecast: Investors in the Philadelphia metro area willcontinue to pursue value-add strategies in the months ahead. Justoutside of the metro, properties in the Lehigh Valley and Harrisburgmay draw greater investor attention this year due to favorable long-termrenter demand trends.

0

30

60

90

120

Tota

l Non

farm

Job

s (t

hous

ands

)


0%

2%

4%

6%

8%

Employment Trends

05 06 07* 08**04


3

4

5

6

7

Uni

ts (

thou

sand

s)

Completions Vacancy

4%

6%

8%

10%

12%

Supply and Demand

05 06 07* 08**04Vacancy Rate

$0

$20

$40

$60

$80

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


0%

2%

4%

6%

8%

Rent Trends

05 06 07* 08**04

Strong population growth and uncertainty in the local housing market willsustain renter demand in 2008, positioning the Phoenix apartment marketto record relatively healthy performance. The metro’s strong long-term

demand drivers, including the projected addition of 40,000 new householdsannually over the next five years, supports a positive forecast for apartmentfundamentals in the years to come. Some pockets of the market, however, suchas the rapidly expanding Chandler/Gilbert submarket, have an excess ofnewly built single- and multi-family homes that may compete with top-tierapartments until the housing market begins to rebound. The shadow-rentalmarket will cause metrowide vacancy to push higher in the near term, andconcessions will likely return closer to historical norms. The renter pool isexpected to continue to expand however, as tighter residential mortgagerequirements and the resetting of adjustable-rate mortgages create a climatewhere current renters are hesitant to leap into the for-sale market.

With indicators pointing to continued economic growth, investors willmaintain a cautiously optimistic outlook for the market this year. Cap ratesare expected to trend higher into the mid-6 percent range due to moremodest sales activity and tighter underwriting standards. Out-of-state andinstitutional investors will remain active, attracted to the metro’s healthylong-term growth forecasts. As the rental market normalizes, local investorswith accumulated equity will target the metro’s stable locations along theInterstate 17 corridor. Value-add opportunities also exist in the CentralPhoenix North submarket, for example, where owners have been slow torespond to current market rent increases, and cap rates consistently hoverabove the metro average.

2008 Market Outlook

◆ 2008 NAI Rank: 17, Down 7 Places. Phoenix slipped seven positions inthe index due to concerns of for-sale units competing with apartments.

◆ Employment Forecast: Job growth is forecast to slow to 2 percent thisyear, down from 2.4 percent in 2007. Growth will be concentrated in theprofessional and business services, and educational and health servicessectors, which are expected to account for nearly 40 percent of the 38,700new jobs anticipated in 2008.

◆ Construction Forecast: After adding 5,800 new apartments to inventoryin 2007, developers are scheduled to deliver 4,200 units this year.

◆ Vacancy Forecast: Steady household growth will drive absorption, butongoing delivery of new supply and an expanding shadow-rentalmarket will cause vacancy to rise 90 basis points to 8.6 percent in 2008.

◆ Rent Forecast: Owners will increase concessions through 2008 in aneffort to attract and retain tenants. Asking rents are forecast to rise 3.6percent to $802 per month by year end, while effective rents gain 2.4percent to $732 per month.

◆ Investment Forecast: Although the I-17 corridor is expected to receivesignificant investor attention this year, local buyers may target infillsubmarkets shielded from threats associated with new construction,such as North Tempe and Northeast Phoenix.


Phoenix Down 7 Places 2008 Rank: 17 2007 Rank: 10

Robust Household Growth Driving Apartment Performance in Phoenix

Market Forecast Employment: 2% ▲ Construction: 28% ▼ Vacancy: 90 bps ▲ Asking Rents: 3.6% ▲


Portland

Strong household growth in Portland will continue to drive healthyperformance for apartment properties in 2008 and beyond. Over thenext five years, 90,000 new households are expected in the metro, up

from fewer than 60,000 households added during the past five years. As aresult, population-serving employment segments are expanding at a steadyrate, more than offsetting layoffs in the manufacturing sector. While housingdemand is increasing, the threat of overbuilding remains minimal, as thelocal government tends to be resistant to new development. Apartment con-struction will increase in 2008, however, with the projected deliveries of the244-unit Wyatt and the 190-unit Ladd Tower to the Northwest submarket.Both properties were originally planned as condos but will instead comeonline as apartments due to softening in the for-sale market.

Forecasts for strong revenue and renter demand growth will continue tomake the Portland apartment market popular with investors. While salesvelocity has dropped off throughout much of the nation, investors haveremained active in Portland, as cap rates in the high-5 percent to mid-6percent range offer a premium over most other West Coast markets. Privateout-of-state investors continue to make up more than one-third of the buyerpool; however, local owners are now taking advantage of the healthy priceappreciation posted in recent years to expand and upgrade their portfolios.Going forward, redevelopment efforts in the metro’s Old Town neighbor-hood could present favorable opportunities for investors seeking upside,while the Northwest submarket should record some of the region’s strongestrevenue growth in the coming years.

2008 Market Outlook

◆ 2008 NAI Rank: 14, Up 8 Places. Robust rent gains and active hiringpushed Portland up eight spots in this year’s ranking.

◆ Employment Forecast: The Portland metro will add 12,800 new jobs thisyear, a 1.2 percent gain. In 2007, 14,400 positions were created.

◆ Construction Forecast: Robust fundamentals and a slowing condomarket are encouraging apartment builders. In 2008, 1,700 apartmentsare expected to come online, up from 700 units last year.

◆ Vacancy Forecast: With job growth slowing and completions increasing,metrowide vacancy is forecast to record a 30 basis point uptick to end2008 at a still-low 4.7 percent.

◆ Rent Forecast: Owners are responding to tight operating conditions byimplementing healthy rent gains. By year end, asking and effectiverents are forecast to advance 4 percent to $825 per month and $772 permonth, respectively.

◆ Investment Forecast: Portland’s attractive fundamentals andcompetitive cap rates will continue to draw apartment investors frommore expensive West Coast markets. In addition, local buyers areexpected to use accumulated equity from current investments totransition into higher-quality properties. Investors may want to exploreopportunities on the east side of Portland, where the future streetcarproject is expected to create jobs and attract new residents.

Local Investors Increasing Activityin Portland Apartment Market

0

8

16

24

32

Tota

l Non

farm

Job

s (t

hous

ands

)


0%

1%

2%

3%

4%

Employment Trends

05 06 07* 08**04


0

1

2

3

4

Uni

ts (

thou

sand

s)

Completions Vacancy

2%

4%

6%

8%

10%

Supply and Demand

05 06 07* 08**04

Vacancy Rate

$50

$55

$60

$65

$70

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


0%

2%

4%

6%

8%

Rent Trends

05 06 07* 08**04





0

20

40

60

80

Tota

l Non

farm

Job

s (t

hous

ands

)


0%

2%

4%

6%

8%

Employment Trends

05 06 07* 08**04


1

2

3

4

5

Uni

ts (

thou

sand

s)

Completions Vacancy

3%

4%

5%

6%

7%

Supply and Demand

05 06 07* 08**04Vacancy Rate

$40

$60

$80

$100

$120

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


3%

4%

5%

6%

7%

Rent Trends

05 06 07* 08**04

The Inland Empire’s healthy demand drivers will continue to supportapartment performance in 2008, as new supply is expected to come inwell below the region’s long-term average. The MSA is forecast to add

an average of 25,000 new households, or 2 percent of the metro total,annually over the next five years, driving demand for residential properties.In recent years, developers have chosen to build in advance of the metro’sgrowth, but the housing downturn is resulting in reduced constructionlevels. Further supporting apartment demand in the region are the morethan 8,000 residences in Riverside and San Bernardino counties that are inforeclosure, a number that will grow as ARMs reset in the coming quarters.Demand for apartment properties will increase, though the shadow-rentalmarket will provide additional competition for renters, and vacancy willedge higher going forward. Owners will need to offer greater concessionsthan in recent periods to offset the impact of shadow-rental stock.

Investment activity has slowed throughout much of SouthernCalifornia, but buyers remain active in the Inland Empire, drawn to theregion’s prospects for sustainable long-term growth. Cap rates increased 40basis points in 2007 to the mid- to high-5 percent range, where they areexpected to stay this year, barring a spike in interest rates. While metrowidesales activity has remained fairly steady in recent quarters, investors aretargeting more properties in the eastern portion of the metro. Late last year,the 210 freeway was extended for seven miles between Rialto and SanBernardino, which has made commuting to and from these areas moreaccessible. In addition, as the economy continues to diversify, there will befewer residents commuting to Los Angeles and Orange counties. As a result,current owners may want to investigate repositioning their portfolios toinclude properties in areas such as Moreno Valley and San Bernardino.

2008 Market Outlook

◆ 2008 NAI Rank: 12, Down 1 Place. Concerns about shadow-rental stockpushed the Inland Empire just outside the top 10 in this year’s index.

◆ Employment Forecast: Payrolls will expand by 2.3 percent in 2008 withthe addition of 31,000 jobs. Last year, 46,000 positions were created.

◆ Construction Forecast: Apartment completions are expected to total1,550 units this year, down from 2,350 units in 2007 and well below themetro’s five-year annual average of 2,700 units.

◆ Vacancy Forecast: Steady renter demand will not completely offset theimpact of the shadow market, causing vacancy to rise 60 basis points to6.6 percent this year.

◆ Rent Forecast: In 2008, asking rents are forecast to advance 3.8 percentto $1,110 per month, while effective rents increase 3.4 percent to $1,065per month as concessions play a larger role than in recent years.

◆ Investment Forecast: Healthy long-term demand drivers will continueto encourage investment in the Riverside-San Bernardino metro. Caprates could edge somewhat higher this year but a major upwardcorrection is not anticipated. Buyers focused on upside potential maywant to target assets in the metro’s growing eastern submarkets.


Riverside-San Bernardino Down 1 Place 2008 Rank: 12 2007 Rank: 11

Growth Patterns Directing Investors toPursue New Locations in the Inland Empire



Sacramento

Apartment properties in Sacramento are poised for a solid year ofgrowth, supported by modest job gains and a weak housing market.The metro’s apartment demand drivers remain steady, with household

expansion forecast at 2 percent annually for the next five years, considerablyfaster than in other Northern California metros. Although layoffs in housing-related fields will hamper total employment growth in the short term, thelarge government sector will once again add stability to the metro’s economicoutlook. Further strengthening renter demand is the housing market, whichmay not hit bottom until 2009 or later and is discouraging current rentersfrom making home purchases. In addition, the metro’s residential foreclosurerate is elevated and rising, which could drive some distressed owners toapartments, particularly to the lower tiers. Additions to supply will bemodest this year, but several postponed condo projects, especially in thedowntown area, could eventually become apartment developments.

Apartment properties throughout the Sacramento metro are expected toremain popular with investors this year, and sales activity should accelerateas revenues push higher. Cap rates, which have stayed within the mid- tohigh-5 percent range, are likely to edge higher in 2008, similar to the nationaltrend. The median price has declined from its peak during the condoconversion boom, due primarily to the mix of assets changing hands, ratherthan a decrease in actual values. Going forward, local housing woes areexpected to result in heightened renter demand for affordable apartmentproperties, and buyers may find that well-located Class B/C assets offersignificant upside potential in 2008.

2008 Market Outlook

◆ 2008 NAI Rank: 26, Down 2 Places. The shadow-rental market willrestrict rent growth, pushing Sacramento down two spots in the NAI.

◆ Employment Forecast: Sacramento employers are expected to expandpayrolls by 0.9 percent this year, adding 8,400 jobs. Last year, gains weresomewhat stronger, as 11,000 positions were created.

◆ Construction Forecast: Apartment construction is forecast to riseslightly in 2008, with 800 units projected for delivery by year end, upmodestly from 750 units in 2007. This year’s completions will accountfor a 0.8 percent inventory increase.

◆ Vacancy Forecast: A weak housing market is expected to help supportrenter demand for apartments in 2008, though a slowing economy willgenerate a 20 basis point increase in vacancy to 6.3 percent.

◆ Rent Forecast: Asking rents are forecast to gain 2.9 percent to $998 permonth, while effective rents rise 2.7 percent to $950 per month. Despitea considerable vacancy decline last year, asking and effective rentsincreased just 2.3 percent and 2.9 percent, respectively.

◆ Investment Forecast: With much of the metro’s absorption likely tooccur in the lower tiers, buyers may find potential for above-averagerevenue growth in Class B/C assets in the West University and RanchoCordova submarkets, where a number of properties could record steadyoccupancy gains in the coming quarters.

Investors Targeting Apartment Properties inSacramento’s Class B/C Segments

0

8

16

24

32

Tota

l Non

farm

Job

s (t

hous

ands

)


0%

1%

2%

3%

4%

Employment Trends

05 06 07* 08**04


0

1

2

3

4

Uni

ts (

thou

sand

s)

Completions Vacancy

5%

6%

7%

8%

9%

Supply and Demand

05 06 07* 08**04

Vacancy Rate

$60

$70

$80

$90

$100

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


0%

2%

4%

6%

8%

Rent Trends

05 06 07* 08**04





0

10

20

30

40

Tota

l Non

farm

Job

s (t

hous

ands

)


2%

3%

4%

5%

6%

Employment Trends

05 06 07* 08**04


0.0

0.5

1.0

1.5

2.0

Uni

ts (

thou

sand

s)

Completions Vacancy

4%

5%

6%

7%

8%

Supply and Demand

05 06 07* 08**04Vacancy Rate

$20

$40

$60

$80

$100

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


-3%

0%

3%

6%

9%

Rent Trends

05 06 07* 08**04

Steady job growth and rising single-family home prices support apositive outlook for the Salt Lake City apartment market in 2008. Themetro has consistently featured one of the highest employment growth

rates in the country, a trend likely to continue through this year and into2009. In fact, as the national economy slows, Salt Lake City is one of only ahandful of metros that is on pace to record faster job growth this year thanin 2007. The local economy’s health and stability are consistently attractiveto individuals and companies such as Hershey and Proctor & Gamble,driving robust in-migration rates and generating demand for housing.Despite a national slowdown, home prices in Salt Lake City continue tocreep higher. As a result, affordability is declining, which combined withtightening lending standards, will fuel renter demand for local apartments.Builders are responding to heightened demand by ramping up constructionactivity. The 1,800 units coming online in 2008 will represent the largestannual addition to inventory in the metro in the last decade. Even as vacancyedges higher, conditions will remain tight enough to allow for some of thenation’s strongest rent growth this year.

Investment activity will stay healthy this year as out-of-state and insti-tutional investors remain active in the market, attracted to robustfundamental growth and a handful of condo conversion opportunities. Tightconditions will lead to strong revenue growth throughout the metro, andinvestors will likely find some of the more attractive prospects neardowntown, where development efforts continue to drive renter demand.Outside of the city, development of transit-oriented communities, such asMurray City’s Birkhill at Fireclay, will become more prevalent. Assets nearTRAX stations will also garner interest from renters and investors, underpin-ning the potential for price appreciation in surrounding areas.

2008 Market Outlook

◆ 2008 NAI Rank: 18, Up 14 Places. Salt Lake City will record the nation’sstrongest employment growth in 2008, which combined with a below-average vacancy forecast, fueled a 14-spot rise in this year’s ranking.

◆ Employment Forecast: Local employers are expected to increasepayrolls 3.1 percent in 2008 with the addition of 20,000 positions. Lastyear, 19,000 jobs were created, a 3 percent gain.

◆ Construction Forecast: Approximately 1,800 units are forecast fordelivery in 2008. Builders continue to target West Jordan, which willaccount for 56 percent of the metro’s completions this year.

◆ Vacancy Forecast: After a 90 basis point improvement in 2007, vacancyis expected to increase 10 basis points to a still-tight 4.8 percent this year.

◆ Rent Forecast: Asking and effective rents are forecast to rise 6 percentand 6.2 percent to $769 per month and $726 per month, respectively, byyear end.

◆ Investment Forecast: Strong economic conditions and elevated homeprices will drive investor demand for Salt Lake City’s apartments thisyear, keeping transaction velocity healthy and cap rates compressed.


Salt Lake City Up 14 Places 2008 Rank: 18 2007 Rank: 32

Robust Economic Growth OffsettingHeightened Completions in Salt Lake City



San Antonio

Rapid Employment Growth Fueling InvestorDemand for San Antonio Apartments

0

8

16

24

32

Tota

l Non

farm

Job

s (t

hous

ands

)


0%

1%

2%

3%

4%

Employment Trends

05 06 07* 08**04


0

1

2

3

4

Uni

ts (

thou

sand

s)

Completions Vacancy

5%

6%

7%

8%

9%

Supply and Demand

05 06 07* 08**04

Vacancy Rate

$30

$35

$40

$45

$50

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


0%

1%

2%

3%

4%

Rent Trends

05 06 07* 08**04





Afavorable supply-demand balance in San Antonio’s apartment marketwill support a solid year for local properties. Job growth, especially inthe traditionally lower-paying leisure and hospitality sector, is

expected to push vacancy to its lowest level in two years. Congestion on the281 freeway is causing renters to seek Class A alternatives along theInterstate 10 corridor in the Far Northwest and Far North Centralsubmarkets. Local high-end units in proximity to major employers such asValero Energy, and new shopping and entertainment options, including theShops at La Cantera, are becoming increasingly popular with renters. Thisyear, the Southeast submarket is expected to record some of the metro’sstrongest revenue growth, as vacancy tightens due to the area’s increasingnumber of new jobs. In addition, healthy spillover renter demand into theFar Northeast submarket will provide owners with sufficient leverage toreduce concessions, and the area is expected to post some of the metro’shighest effective rent growth this year.

Optimistic long-term economic forecasts will continue to generateinvestment activity for San Antonio’s apartment properties in 2008. Caprates averaged in the low-7 percent range in 2007, high enough to attractattention from institutions and out-of-state investors. Syndicators and REITsare targeting Class A complexes, which now comprise more than 40 percentof the market’s inventory. With vacancy in high-end properties well belowthe metro average, Class B properties could see a boost in renter demand,especially in the East submarket, where some of the metro’s best schooldistricts are located. Infill repositioning deals will gain popularity withinvestors this year, though available listings could be limited. Private, hands-on investors may find some underperforming lower-tier assets near the citycenter. Many of these properties were largely vacant during the second halfof last year and could offer strong upside potential.

2008 Market Outlook

◆ 2008 NAI Rank: 33, Down 2 Places. Strong employment gains are offsetby slowing rent growth, pushing San Antonio down two spots in the NAI.

◆ Employment Forecast: Employment growth in San Antonio is expectedto outpace the national average again this year with the creation of 21,500positions, a 2.6 percent increase. In 2007, 18,000 jobs were added.

◆ Construction Forecast: Completions are anticipated to slow to 2,800units in 2008, down from 3,470 units last year.

◆ Vacancy Forecast: Renter demand will outpace supply modestly, thisyear and vacancy will shed 10 basis points to finish 2008 at 6.3 percent.In 2007, the metrowide vacancy rate improved 100 basis points.

◆ Rent Forecast: Tight conditions will facilitate healthy rent growth in themetro. Asking and effective rents are forecast to advance 2.8 percent to$705 per month and $662 per month, respectively, by year end.

◆ Investment Forecast: Buyers may want to seek assets in the Far Westsubmarket, where occupancy levels are expected to improve as demandshifts toward some of the area’s major employers.

8

12

16

20

24

Tota

l Non

farm

Job

s (t

hous

ands

)


0%

1%

2%

3%

4%

Employment Trends

05 06 07* 08**04


0

1

2

3

4

Uni

ts (

thou

sand

s)

Completions Vacancy

2%

3%

4%

5%

6%

Supply and Demand

05 06 07* 08**04Vacancy Rate

$80

$100

$120

$140

$160

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


2%

3%

4%

5%

6%

Rent Trends

05 06 07* 08**04

The apartment market in San Diego is expected to continue to postmodest improvement this year, supported by steady job growth, highhome prices and limited new supply. Employers will expand payrolls

again in 2008, most notably in the leisure and hospitality sector, which isexpected to add nearly 3,000 positions, fueling additional renter demand.Homes remain expensive in the metro, and a more conservative lendingenvironment will continue to drive renter demand for San Diego’sapartments. Short-term demand could receive a boost as the county recoversfrom the wildfires of late 2007, which displaced thousands of area residentsand destroyed hundreds of homes. Additionally, rebuilding efforts couldresult in a much-needed stimulus to the metro’s ailing construction sector.On the supply side, rising development costs will once again restrain con-struction activity, and deliveries will account for less than 1 percent ofmetrowide inventory again this year.

Investment activity within San Diego’s apartment market is expected tomaintain its pace, supported by a positive long-term outlook for the metro’sfundamentals. Cap rates, which are currently in the mid- to high-5 percentrange, could increase this year, although steady revenue gains should keepprices in their current range. Investors with long-term holding periods maywant to consider prospects in the Mira Mesa/Rancho Bernardo submarket.The redevelopment within the area of industrial properties into office spacecontinues along Interstate 15 as major tenants such as Sony are looking tomove operations closer to desirable residential communities. An estimated 6million square feet of office space is under way in this submarket, which willultimately drive demand for nearby apartment properties.

2008 Market Outlook

◆ 2008 NAI Rank: 10, Down 5 Places. Tight conditions and healthy revenuegrowth kept San Diego in the top 10. Cooling employment growth,however, resulted in a five-spot drop in the ranking.


◆ Construction Forecast: Approximately 1,200 units will be delivered inSan Diego this year, up from 900 units in 2007. Nearly 50 percent of themetro’s new stock is projected to come online in the Mira Mesa/RanchoBernardo submarket.

◆ Vacancy Forecast: Demand arising from moderate job growth and a lackof affordable housing will offset new supply. After a 50 basis pointincrease in 2007, vacancy is expected to remain at 4.3 percent this year.

◆ Rent Forecast: Tight occupancy levels will drive asking rents up 4percent in 2008 to $1,350 per month, while effective rents are expected toadvance 4.1 percent to $1,304 per month.

◆ Investment Forecast: As local buyers begin to play a larger role, salesactivity could pick up for Class B/C assets that meet fundamental yieldrequirements, particularly those located within inland submarkets.


San Diego Down 5 Places 2008 Rank: 10 2007 Rank: 5

Limited Construction to Keep ApartmentConditions Tight in San Diego

Market Forecast Employment: 0.9% ▲ Construction: 33% ▲ Vacancy: 0 bps ■ Asking Rents: 4% ▲


San Francisco

San Francisco Apartments Expected to Post Nation’s Strongest Rent Gains in 2008

0

5

10

15

20

Tota

l Non

farm

Job

s (t

hous

ands

)


0%

1%

2%

3%

4%

Employment Trends

05 06 07* 08**04


0.0

0.5

1.0

1.5

2.0

Uni

ts (

thou

sand

s)

Completions Vacancy

3%

4%

5%

6%

7%

Supply and Demand

05 06 07* 08**04

Vacancy Rate

$100

$150

$200

$250

$300

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


0%

3%

6%

9%

12%

Rent Trends

05 06 07* 08**04



Market Forecast Employment: 1% ▲ Construction: 7% ▲ Vacancy: 30 bps ▼ Asking Rents: 7.8% ▲


San Francisco’s healthy economy is driving apartment demand, as bothemployment and population growth are forecast to record increases in2008 that are considerably higher than the metro’s long-term averages.

The market’s very high desirability among renters and active hiring in itslargest employment sector, professional and business services, will continueto support apartment demand. Housing affordability remains among thelowest in the country, forcing many of San Francisco’s new residents into therenter pool. Development costs are elevated to the extent that few apartmentproperties are brought online, as builders instead choose to construct for-salecondo units and office space. Given the metro’s healthy demand drivers andlack of significant new apartment construction, metrowide vacancy willtighten in 2008, with the Haight-Ashbury and Outer Richmond/Sunsetsubmarkets recording the strongest improvements. In turn, occupancy gainsthis year will provide apartment owners leverage to aggressively raise rents.

Robust demand from private buyers, outstanding market fundamentalsand a depleted inventory of for-sale apartment properties will push priceshigher this year. Many investors remain willing to accept lower initialreturns, currently averaging in the mid-3 percent to mid-4 percent range, asthey expect to substantially increase revenues going forward. Years ofhealthy price appreciation are driving some local buyers to expand orupgrade their holdings, with many investors targeting prime assets north ofCalifornia Street in the Marina/Pacific Heights submarket. The CivicCenter/Downtown submarket also offers some upside potential, ascontinued condo development is increasing the area’s popularity withresidents, while apartment owners have been slow to bring rents up tomarket rates.

2008 Market Outlook

◆ 2008 NAI Rank: 1, Up 7 Places. San Francisco claims the top spot in thisyear’s ranking as housing affordability is among the lowest in thecountry and tenant demand remains elevated.

◆ Employment Forecast: Employers will add 10,200 workers to payrolls in2008, a 1 percent increase and down slightly from last year.

◆ Construction Forecast: Apartment construction remains limited asdevelopers concentrate their resources on condo projects. This year, 800apartments are forecast to come online, up from 750 units in 2007.

◆ Vacancy Forecast: Limited new supply and increased renter demandwill likely push the metrowide vacancy rate down 30 basis points to 4percent this year after a 20 basis point rise in 2007.

◆ Rent Forecast: With conditions tightening and the economy relativelyhealthy, owners will continue to increase rents. Asking rents are forecastto gain 7.8 percent to $1,995 per month by year end, while effective rentsadvance 8.6 percent to $1,904 per month.

◆ Investment Forecast: Tightening credit markets may become the onlyimpediment for the market’s aggressive local buyers. Some ownerscontinue to deploy accumulated equity from existing holdings into lessmanagement-intensive assets.

0

3

6

9

12

Tota

l Non

farm

Job

s (t

hous

ands

)


0%

1%

2%

3%

4%

Employment Trends

05 06 07* 08**04


0

1

2

3

4

Uni

ts (

thou

sand

s)

Completions Vacancy

3%

4%

5%

6%

7%

Supply and Demand

05 06 07* 08**04Vacancy Rate

$100

$120

$140

$160

$180

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


-4%

0%

4%

8%

12%

Rent Trends

05 06 07* 08**04

Strong renter demand for San Jose apartments will fuel continuedrevenue growth in 2008. The metro’s demand drivers, particularlyhousehold and employment growth, are expected to post steady gains

this year, while elevated land and development costs will keep constructionin check. In addition, much of the metro’s residential deliveries will be in theform of for-sale projects, which offer little competition to apartmentproperties as a result of the metro’s declining first-time homebuyer afford-ability. It is estimated that only 20 percent of metro households can afford themedian-priced entry-level home, one of the lowest rates in California anddown from 29 percent just one year ago. Subsequently, owners will be ableto leverage tight conditions and rising personal incomes to increase rents andkeep concessions modest, particularly in the metro’s Class B/C sector, asdemand for affordable housing outpaces current supply.

The investment outlook for San Jose apartments remains positive, butrising cap rates have cooled sales activity, as sellers have been slow to meetbuyers’ changing expectations. Cap rates increased 40 basis points in 2007,with most properties trading in the high-4 percent to mid-5 percent range.Private investors have accounted for a larger share of buyers in recent deals, atrend that could result in a greater number of smaller properties changinghands in the coming quarters. Barring further volatility in the credit markets,buyers’ and sellers’ expectations should converge in 2008, and sales velocitywill increase moderately. Yield-conscious buyers will likely target propertiesin the Northeast San Jose area, where cap rates are the highest in the metro.Investors looking for upside revenue potential may seek properties in theSunnyvale area, where renter demand is strong, and the Moffett Towers officeproperty is expected to attract some of the metro’s leading employersbeginning this year.

2008 Market Outlook

◆ 2008 NAI Rank: 4, Up 8 Places. San Jose rose eight places and cracked thetop five in this year’s index, boosted by forecasts for low and decliningvacancy and strong rent growth.

◆ Employment Forecast: Employers are expected to add 8,400 jobs to theSan Jose metro in 2008, increasing payrolls 0.7 percent. Last year, 11,000positions were created.

◆ Construction Forecast: Apartment builders will deliver 900 apartmentsto the market by year end, up from 700 units in 2007.

◆ Vacancy Forecast: Following a 50 basis point decline last year, vacancyis expected to decrease by another 10 basis points in 2008 to 3.2 percent.

◆ Rent Forecast: Tight conditions will allow apartment owners to increaserents at an above-average rate in 2008. Asking rents are forecast to rise5.3 percent to $1,682 per month, while effective rents gain 5.5 percent to$1,612 per month.

◆ Investment Forecast: Institutional buyers still account for nearly two-thirds of all transactions over $5 million, but local individuals haveincreased their activity in recent quarters, a trend that is expected tocontinue this year as fundamentals improve.


San Jose Up 8 Places 2008 Rank: 4 2007 Rank: 12

Local Investors Targeting Apartments in San Jose’s Class B/C Market



Seattle

Economic growth in the Puget Sound region will be among the strongestin the nation this year, creating renter demand for apartments anddriving hearty rent growth. Local employers, particularly technology

companies such as Microsoft, Yahoo and Google, are aggressively leasinglarge blocks of office space in the eastern parts of the metro and expandingpayrolls at a healthy pace. Over the next five years, growth will be concen-trated in the 20- to 34-year-old age cohort, which should expand by 86,000residents, a rate that is nearly twice as fast as the metro’s total populationgrowth. This age group is increasingly drawn to the benefits of downtownliving and should provide sufficient demand for apartment properties in theregion’s core growth areas, including the Downtown/Capitol Hill and NorthSeattle submarkets. Several high-end condo developments are under waydowntown, although these units are unlikely to compete with apartmentsdue to the wide gap between renting and owning in the submarket.

Investors are responding favorably to the Seattle area’s outstandinglong-term demand drivers by aggressively pursuing apartment properties.In 2007, transaction velocity remained elevated, even as capital became moredifficult to obtain and cap rates compressed into the low- to mid-5 percentrange. While institutions and out-of-state investors continue to acquire assetsthroughout the region, local residents have accounted for the majority of thebuyer pool, using accumulated equity to expand and reallocate their realestate portfolios. Going forward, properties in the metro’s supply-constrained growth centers near the city core will continue to command top-dollar pricing. In addition, smaller, individual investors may find attractiveopportunities in areas such as Federal Way and Auburn, where renterdemand for affordable housing is expected to be particularly strong in thecoming years.

2008 Market Outlook

◆ 2008 NAI Rank: 2, Up 5 Places. Seattle jumped into the second spot dueto strong gains in the prime renter age cohort and healthy job growth.

◆ Employment Forecast: Payrolls will continue to expand throughout thePuget Sound region as employers add 34,000 jobs this year, a 1.9 percentgain. In 2007, 51,000 positions were created.

◆ Construction Forecast: Robust economic growth is encouraging multi-family builders, who are forecast to bring 3,500 apartments to the metroin 2008, up from 2,500 units last year.

◆ Vacancy Forecast: Apartment deliveries are expected to slightly outpacerenter demand, causing vacancy to increase 30 basis points to 4.9 percent.

◆ Rent Forecast: Despite the mild vacancy uptick, apartment owners willcontinue to raise rents at a healthy clip this year. Asking rents areexpected to increase 6.2 percent to $1,072 per month, while effectiverents advance 6 percent to $1,009 per month.

◆ Investment Forecast: The Seattle apartment market’s growth profile willsustain incoming buyer capital. Following the larger national trend, caprates may edge higher in the near term, though any increase will beoffset by healthy revenue growth, keeping prices near current ranges.

Expanding Technology Companies Generating Increased Renter, Investor Demand in Seattle

0

20

40

60

80

Tota

l Non

farm

Job

s (t

hous

ands

)


1%

2%

3%

4%

5%

Employment Trends

05 06 07* 08**04


0

1

2

3

4

Uni

ts (

thou

sand

s)

Completions Vacancy

3%

4%

5%

6%

7%

Supply and Demand

05 06 07* 08**04

Vacancy Rate

$40

$60

$80

$100

$120

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


0%

2%

4%

6%

8%

Rent Trends

05 06 07* 08**04





0

5

10

15

20

Tota

l Non

farm

Job

s (t

hous

ands

)


0%

1%

2%

3%

4%

Employment Trends

05 06 07* 08**04


0.0

0.5

1.0

1.5

2.0

Uni

ts (

thou

sand

s)

Completions Vacancy

6%

7%

8%

9%

10%

Supply and Demand

05 06 07* 08**04Vacancy Rate

$40

$50

$60

$70

$80

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


0%

1%

2%

3%

4%

Rent Trends

05 06 07* 08**04


St. Louis New to NAI 2008 Rank: 41 2007 Rank: NA

Renter Demand for Apartments Strengthening in St. Louis Office Districts



Apartment demand in St. Louis will continue to be strongest in themajor white-collar job districts and adjacent submarkets this year,leading to pronounced vacancy and revenue improvements in these

areas. As such, nearly all of the metro’s apartment construction will occurwithin the few remaining sites of the Golden Triangle, an area bounded byInterstate 70, Highway 40 and the Missouri River. In Clayton, for example,plans for 130 luxury rentals have been finalized, a dramatic shift away fromthe condo developments that dominated building in recent years. The city’sslowing condo market and tighter lending standards are eliminating muchof the demand aimed at for-sale units, which are quickly being removedfrom some mixed-use developments, such as the Bottle District project. Onthe supply side, few suburban projects can command rents high enough tojustify development. As a result, builders will focus on high-end units nearmajor office districts.

Investment activity in St. Louis will remain steady this year as increasedout-of-state buyer activity offsets some of the condo conversion transactionsthat have faded from the market. Out-of-state investors still holdingexchange capital are turning to the metro for above-average cap rates, whichare currently in the low- to mid-7 percent range. In affluent submarkets, suchas the Clayton/Mid-County area, the gap between rents and monthlymortgage payments is significant, and occupancy rates in some assets willimprove with continued spillover demand from the downtown submarkets.Additional opportunities for revenue growth can be found in the Manchestersubmarket, where tight conditions will generate the metro’s largest decreasein concessions this year. Investors may want to pursue affordable propertiesin the South submarket, near the new River City Casino. The project, whichopens this fall, will create 7,000 traditionally lower-paying leisure andhospitality positions in the area, helping to further spur renter demand overthe next few years.

2008 Market Outlook

◆ 2008 NAI Rank: 41, New to Ranking. Slowing employment growth andabove-average vacancy placed St. Louis in the lower tier of the index.

◆ Employment Forecast: After 18,000 positions were added in the St.Louis area last year, employment growth will slow to 9,500 jobs in 2008,an increase of 0.7 percent.

◆ Construction Forecast: Approximately 600 apartments will come onlinein St. Louis this year. In 2007, 550 units were added to stock.

◆ Vacancy Forecast: The vacancy rate is expected to improve 10 basispoints to 6.8 percent in 2008, following a 110 basis point drop last year.

◆ Rent Forecast: Asking rents are forecast to rise 2.8 percent to $736 permonth, while effective rents advance 3 percent to $697 per month.

◆ Investment Forecast: Local investors with extended holding periodsmay want to target Class B/C assets in the Airport/Interstate 70 andEast of Interstate 44 submarkets. Properties in these areas do notcompete with the local housing market and area renters have fewalternative housing options.

Tampa

More housing alternatives will emerge for metro residents, and thesoftening housing market is expected to drive more modest gains forapartment owners in 2008 than in recent years. The affordable single-

family rental market, especially in newer suburbs such as North HillsboroughCounty, will compete directly with Class A properties, causing some localapartment owners to elevate concessions to maintain occupancy levels. Inclose-in submarkets, the shadow-rental market will include a few high-endcondos recast as rentals and some units previously removed from inventoryfor conversion will come back online as apartments. In the Central St.Petersburg area, for example, a 270-unit complex that sold for conversion inearly 2006 will instead be upgraded and restored to apartment inventory.Demand-side indicators will remain positive, however, as job growthaccelerates in most sectors, indicating that the rise in vacancy will be short-lived. In particular, the traditionally lower-paying leisure and hospitalitysector is forecast to expand nearly 2 percent by year end, due in part tocurrency exchange rates that encourage overseas tourists to visit the metro.

Transaction velocity and prices will return to normalized levels inTampa this year, enabling buyers and sellers to close the expectations gap.As such, cap rates that currently average in the low- to mid-6 percent rangeare beginning to inch up, as transactions reflect more restrained short- andlong-term growth prospects going forward. In addition, some out-of-statebuyers that arrived late to the most recent economic upturn are listingproperties at favorable prices, generating opportunities for cash-heavy insti-tutions and REITs to expand their high-end portfolios at a discount.

2008 Market Outlook

◆ 2008 NAI Rank: 28, Down 9 Places. Competition from shadow rentalswill raise vacancy and slow rent growth, pushing Tampa down nine spotsin the index.

◆ Employment Forecast: Employers are expected to expand payrolls 1.1percent in 2008 with the addition of 15,300 positions. Last year, 13,400jobs were created in the Tampa metro.

◆ Construction Forecast: Nearly 1,400 units will come online this year asbuilders shift their focus away from condos, increasing the metro’s rentalinventory 1 percent. In 2007, developers delivered 900 apartment units.

◆ Vacancy Forecast: Tampa’s vacancy rate is forecast to gain 80 basispoints to 7.5 percent by year end after climbing 130 basis points in 2007.

◆ Rent Forecast: Asking rents are expected to finish 2008 at $852 permonth, a 2 percent uptick, while effective rents will advance 0.7 percentto $799 per month as owners utilize concessions to help stabilizeoccupancy. Owners may need to increase concessions more significant-ly if vacancy rises above the forecast rate due to reconversions andshadow-rental stock.

◆ Investment Forecast: Opportunities for private investors may be foundamong Class B/C assets in urban submarkets. These properties aretrading in the high-7 percent range and face limited competition fromthe weakening for-sale housing market.

Tampa’s Soft Housing Market CreatingOpportunities for Apartment Investors

0

20

40

60

80

Tota

l Non

farm

Job

s (t

hous

ands

)


0%

2%

4%

6%

8%

Employment Trends

05 06 07* 08**04


0

1

2

3

4

Uni

ts (

thou

sand

s)

Completions Vacancy

4%

5%

6%

7%

8%

Supply and Demand

05 06 07* 08**04

Vacancy Rate

$30

$40

$50

$60

$70

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


0%

2%

4%

6%

8%

Rent Trends

05 06 07* 08**04





0

5

10

15

20

Tota

l Non

farm

Job

s (t

hous

ands

)


1%

2%

3%

4%

5%

Employment Trends

05 06 07* 08**04


0.0

0.5

1.0

1.5

2.0

Uni

ts (

thou

sand

s)

Completions Vacancy

4%

5%

6%

7%

8%

Supply and Demand

05 06 07* 08**04Vacancy Rate

$20

$30

$40

$50

$60

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


0%

2%

4%

6%

8%

Rent Trends

05 06 07* 08**04

Corporate relocations and expansions will continue to bolster Tucson’seconomy, generating renter demand for apartments. A comparativelylow cost of living, pro-business environment and proximity to major

trade corridors are expected to keep Tucson among the fastest-growing smallMSAs in the country. The influx of new jobs, coupled with the large studentpopulation at the University of Arizona, will generate healthy levels of renterdemand, particularly in the University/Central submarket. On the supplyside, metrowide completions are forecast to increase in 2008 after twoconsecutive years of minimal construction, but the overall addition toinventory will be modest. Vacancy should be tight and decline throughoutmuch of the metro, though owners in the North/Northwest submarket mayfeel added competition this year as new units come online and somepreviously converted apartments re-enter the market as shadow rentals.

Tucson’s attractive fundamentals and competitive returns will supportinvestor demand this year, but sales velocity may be restrained by reducedactivity from out-of-state buyers. An abundance of exchange capital fromneighboring markets, specifically Southern California and Phoenix, hasfueled investment activity in recent years, particularly within the $5 million-plus segment. With price appreciation subsiding throughout much of theWest Coast, local buyers are accounting for a greater share of deals, a trendthat is expected to continue this year. Although out-of-state investmentactivity may taper off in the near term, cap rates in the low- to high-6 percentrange offer a premium over other West Coast markets and will attract someyield-conscious buyers. For investors whose primary objective is immediateincome, the South Tucson area may present opportunities, as cap rates tendto come in approximately 70 basis points higher than the metro average, withmany properties trading above 7 percent.

2008 Market Outlook

◆ 2008 NAI Rank: 9, Up 8 Places. Tucson jumped into the top 10 this yeardue to minimal completions, declining vacancy and strong rent growth.

◆ Employment Forecast: Tucson remains a popular metro for firmsseeking relocation and expansion options, which should result in anemployment increase of 1.7 percent, or 6,600 new jobs, this year.

◆ Construction Forecast: Completions will total 350 units in 2008 afterminimal construction over the past two years. Projected deliveries byyear end represent a 0.6 percent increase to metrowide apartment stock.

◆ Vacancy Forecast: Renter demand for apartments will outpace newsupply, resulting in a 40 basis point decline in vacancy to 5.3 percent.

◆ Rent Forecast: Buoyed by steady absorption and a healthy economy,apartment owners will continue to push rents higher. In 2008, askingrents are forecast to advance 3.7 percent to $667 per month, witheffective rents expected to gain 3.9 percent to $635 per month.

◆ Investment Forecast: With the local housing market experiencing someweakness, owners may find upside potential in Class A assets, wherecurrent asking rents are well below the average monthly mortgagepayments for local condos and single-family homes.


Tucson Up 8 Places 2008 Rank: 9 2007 Rank: 17

Favorable Business Climate Driving JobGrowth, Apartment Demand in Tucson

Market Forecast Employment: 1.7% ▲ Construction: 1,067% ▲ Vacancy: 40 bps ▼ Asking Rents: 3.7% ▲


Washington, D.C.

Tight Conditions Downtown DrivingApartment Performance in Nation’s Capital

20

40

60

80

100

Tota

l Non

farm

Job

s (t

hous

ands

)


0%

1%

2%

3%

4%

Employment Trends

05 06 07* 08**04


0

2

4

6

8

Uni

ts (

thou

sand

s)

Completions Vacancy

3%

4%

5%

6%

7%

Supply and Demand

05 06 07* 08**04

Vacancy Rate

$70

$80

$90

$100

$110

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


2%

3%

4%

5%

6%

Rent Trends

05 06 07* 08**04





Key operating metrics will remain strong at properties in theWashington, D.C., metro area this year. A combination of slower renterdemand growth and a 1.5 percent marketwide expansion in

apartment inventory, however, will raise vacancy and somewhat limit theextent of rent increases. Minimal supply growth and steady renter demandwill keep vacancy in the District in the low-4 percent range in 2008, onlymarginally higher than in 2007. Market-rate properties will be able to postrent growth in excess of the metrowide average, while rent-controlled assetswill realize increases greater than the rate of inflation. In the Marylandsuburbs, rental supply is expected to rise 1.7 percent, causing vacancy topush 50 basis points higher to 5 percent. A 40 basis point upward vacancybump to 5.4 percent is projected in suburban Virginia, due largely to thedelivery of 2,800 apartments. Throughout the MSA, higher gas prices and thearea’s traffic congestion should sustain a greater level of renter demand atproperties located near mass transit options.

Strong fundamentals in Washington, D.C., will continue to generateinvestor demand for apartment properties, although sales velocity couldmoderate further as buyers evaluate the impact of slower job growth. Withfewer properties changing hands, prices will likely stay in their currentranges in the near term. Cap rates for Class B/C properties in all sections ofthe market will rise incrementally in the months ahead, while Class A assetsin suburban Maryland and Virginia will continue to trade with initial yieldsnear 6 percent. In the District, rent-regulated properties will commandattention from yield-conscious buyers, though less risk-averse investors maylook to emerging areas such as the Anacostia waterfront.

2008 Market Outlook

◆ 2008 NAI Rank: 11, Up 3 Places. Strong renter demand and low housingaffordability moved Washington, D.C., up three spots in the NAI.

◆ Employment Forecast: This year, employers are forecast to create 25,000new jobs, a 0.8 percent gain. Nearly all of this year’s new positions areprojected for the District and Virginia.

◆ Construction Forecast: Builders are expected to construct 5,600 unitsthis year, up from 5,500 units in 2007.

◆ Vacancy Forecast: Slower job growth is expected to temper renterdemand in 2008, causing vacancy to rise 40 basis points to 5 percent.

◆ Rent Forecast: Marketwide asking rents are projected to climb 3.7percent this year to $1,357 per month, led by a 5.2 percent jump in theDistrict. Monthly effective rents are forecast to rise 3.4 percent in theentire market to $1,302 per month.

◆ Investment Forecast: The largest hospitality portion of the NationalHarbor mixed-use project in Prince George’s County is slated to openthis year, generating thousands of new jobs and boosting apartmentdemand in nearby communities. Forward-looking investors willincreasingly assess opportunities near the development, which willcontain five more hotels and 1 million square feet of office space.

0

7

14

21

28

Tota

l Non

farm

Job

s (t

hous

ands

)


1%

2%

3%

4%

5%

Employment Trends

05 06 07* 08**04

Year-over-Year Change0

1

2

3

4

Uni

ts (

thou

sand

s)

Completions Vacancy

4%

6%

8%

10%

12%

Supply and Demand

05 06 07* 08**04Vacancy Rate

$40

$60

$80

$100

$120

Med

ian

Pric

e pe

r U

nit

(tho

usan

ds)

Sales Trends

04 05 06 07*03

Year

-ove

r-Ye

ar C

hang

e


0%

2%

4%

6%

8%

Rent Trends

05 06 07* 08**04

More than 9,000 new households are projected annually in Palm Beachfor the next five years. Accordingly, apartment property owners andinvestors may want to consider this favorable view of the market’s

potential, even as a realignment of housing supply and demand linger in thenear term. The growing number of residents looking for housing in thequarters ahead will have more options, due to an expanding stock ofunoccupied or unsold for-sale homes. As such, vacancy is expected to rise thisyear, although several forces at work will supplement the renter pool andlimit the extent of the increase. These forces include low housing affordabili-ty, demand generated by growth in low-paying employment sectors and fore-closures relegating some homeowners to renter status. Against this backdrop,many local apartment owners may choose to increase concessions and accepta lower rate of rent growth in exchange for maintaining occupancy.

The median price per unit began to retreat last year, and there appearsto be little stimulus for further price appreciation in the near term, given theexpectations for minimal rent growth. An increasing number of failedconversion deals are expected to come onto the market this year, andproperties in high-demand areas such as Boca Raton will likely generateinvestor interest. Meanwhile, well-maintained and well-operated Class B/Cassets will become a greater draw for investors, as these properties should beless affected by condo reversions and stand to benefit from the county’s lackof affordable housing. Long-time owners who have consistently raised rentsto market level over the past five years may be encouraged to cash in on therise in value they have achieved. Overall, cap rates are expected to settle ina range from 6.3 percent to 7.5 percent.

2008 Market Outlook

◆ 2008 NAI Rank: 24, Down 9 Places. Condo reversions and shadow rentalswill add competition to the apartment market, pushing vacancy higher.As a result, West Palm Beach moved down nine spots in the index.

◆ Employment Forecast: In 2008, employers will add 8,800 workers, a 1.5percent increase but a decline from the 10,000 jobs created last year.

◆ Construction Forecast: No new rentals were delivered in 2007, butdevelopers are forecast to complete 500 units this year. The return offailed condos to rental stock will exert more supply-side pressure thannew apartment units in the near term.

◆ Vacancy Forecast: Abundant housing options, consisting primarily ofapartments and for-sale units being employed as rentals, will increasethe vacancy rate 60 basis points this year to 8.1 percent.

◆ Rent Forecast: Overall asking rents are forecast to advance 1.6 percentto $1,138 per month, although rent growth in the Class B/C sector mayrise at a slightly faster pace. Effective rents are expected to move up 0.7percent to $1,065 per month by year end.

◆ Investment Forecast: Opportunistic investors will increasingly attemptto find bargains in failed conversion projects. Such deals, if and whenthey are completed, will place downward pressure on the median price.* Estimate ** Forecast *** No completions in 2007


West Palm Beach Down 9 Places 2008 Rank: 24 2007 Rank: 15

Palm Beach County’s Class B/C Inventory to Remain Popular with Buyers

Market Forecast Employment: 1.5% ▲ Construction: NA*** Vacancy: 60 bps ▲ Asking Rents: 1.6% ▲

[This page intentionally left blank.]


Marcus & Millichap’s National Multi Housing Group (NMHG) is comprised of experienced andqualified multi-family investment professionals who provide advisory and transactionservices across the country. This national team of multi-family experts provides private

investors, institutions, investment advisors and developers with custom disposition, acquisitionand market analysis capabilities through an expertly managed process.

Turning Expertise Into Investor Value

Setting the Standard for Market and Asset Analysis■ The foundation of our ability to create investor value is our approach to analyzing multi-

family properties and markets. From thorough submarket research, including detailedinspection of competing assets and forecasting supply/demand trends, to comprehensiveanalysis of income and expenses, every factor is examined to compile a credible assessmentof the investment’s current and future value.

Integrating Research, Marketing and Transaction Expertise■ Our NMHG professionals work with clients to formulate the right marketing strategy and execute

each transaction with maximum efficiency and confidence. The combination of our specializedresearch, financial analysis and marketing experience has resulted in an impressive list ofsatisfied clients and a large volume of repeat business.

Unprecedented Marketing Capacity; Tightly Coordinated Process■ For each assignment, a team of qualified multi-family specialists is formed by the NMHG

based on the project and the specific objectives of the client. A custom marketing strategy isthen designed to assure the proper exposure, investor targeting and control.

Unparalleled Access to Private and Institutional Investors■ Our NMHG management and multi-family professionals are in constant communication with

institutional investors as well as high-net worth individuals, syndicators and developers. Our37-year history of maintaining personal relationships with a diverse base of investors createsthe most effective exposure to the right investors. The result is maximum value through areliable and timely process.

For further information, contact:Linwood C. ThompsonManaging Director, National Multi Housing GroupMarcus & Millichap500 Northpark Town Center1100 Abernathy Road, N.E.Building 500, Suite 600Atlanta, Georgia 30328Tel: (678) [email protected]

National Multi Housing Group



Multi-Family Research Services

Marcus & Millichap’s Research Services group utilizes a two-tiered approach of combininglocal market research with national economic and real estate analysis to developpremier research services for real estate investors. Marcus & Millichap’s research capa-

bilities are customized by property type to service the unique needs of owners and investors invarious property sectors. Market reports are produced on a regular basis in addition to specificsubmarket and area analysis to support clients’ investment decisions.

Fact-Based Investment Strategies

Multi-Family Demand Analysis■ Extensive demographic analyses are performed, including studies of population, age,

employment, education, income and traffic volume. Housing affordability, householdformation and housing value trends are tracked and analyzed for their impact on renterdemand. Customized maps and reports are produced for submarket and propertycomparisons.

■ Comprehensive economic analysis and forecasts are produced based on data provided byrespected private, academic and government sources. Indicators, such as job formation,growth by industry, major employers and income trends, are constantly monitored.

Multi-Family Property Analysis■ Marcus & Millichap Research Services routinely updates and analyzes rents, vacancies, sales

and construction activity nationally.

Financial Analysis■ Our team works closely with clients to create financial analysis scenarios supporting

acquisition, disposition and pricing strategies.

Customized Research and Consulting Services■ In addition to multi-family publications and reports, we provide customized market studies,

property and portfolio analysis, and development feasibility studies. These services aredesigned to help clients formulate strategies ranging from acquisitions and dispositions tomaximizing returns during the hold period.

For further information, contact: Hessam NadjiSenior Vice President, Managing Director Research ServicesMarcus & Millichap2999 Oak Road, Suite 210Walnut Creek, California 94597Tel: (925) [email protected]



Marcus & Millichap Capital Corporation provides owners and investors access to the mostcompetitive real estate financing through prominent national and regional lenders. Ournetwork of experienced and dedicated finance professionals assures that each

refinance, acquisition or development financing receives the ideal rate and terms available inthe marketplace. Each transaction is executed through a reliable and closely managed process.

Experience, Relationships Produce Optimal Financing

Specialized Financing Expertise■ Our national team of finance professionals has specialized experience in providing financing

for a full range of investment property types. Our goal is to secure the most competitivefinancing in both loan terms and proceeds by leveraging our expertise in local real estatemarkets as well as the national capital markets.

Proactive Loan Package Design■ Our financing experts optimize the loan package, structure and terms based on the specific

needs and objectives of the client. From the application process to lender selection andmanaging the funding, we use a proactive approach to simplify the entire process for the client.

■ The track record and market knowledge of our representatives play a critical role indesigning the right loan package up front. Each transaction is positioned to achieve the bestfinancing before the application process begins. Based on the latest local real estate marketconditions, we produce a detailed assessment of the subject property and current capitalmarket conditions.

A Broad Selection of Lender Relationships■ Through our long-term relationships with well-established and respected lenders, our profes-

sionals are able to secure the right financing, with the most attractive rates and terms, foreach transaction.

■ Reliability and the ability to deliver the ideal financing package on time are key aspects of ourlender selection, which includes commercial banks, securitized lenders, Fannie Mae, FreddieMac, life insurance companies and other capital sources. Only lenders with a proven historyof execution are chosen on behalf of our clients.

For further information, contact:William E. HughesManaging Director, Marcus & Millichap Capital Corporation19800 MacArthur Blvd., Suite 150Irvine, California 92612Tel: (949) 851-3030Fax: (949) [email protected]

Marcus & Millichap Capital Corporation




National Multi Housing GroupLinwood C. Thompson, Managing Director,

National Multi Housing Group

National Research TeamBryan O’Keefe, National Client Services ManagerPeter O’Neil, National Publications ManagerThomas Hershey, Senior AnalystErica Linn, Senior AnalystSarah Brewer, Research AdministratorMichael Brown, Research AssociateAmber Bryan, Assistant EditorJustin Buckley, Research AnalystGreg Clemmer, Market AnalystJustin Davenport, Research AnalystJonni deGraaf, Research AnalystDavid Delich, Research AnalystDavid DeMarti, Research AssociateNeil Evans, Research AssociateArt Gering, Senior Market AnalystJosh Gisselquist, Research AssociateSteve Hovland, Market AnalystKevin Major, Research AnalystJon McNulty, Research AssociateNancy Olmsted, Research AssociatePaul Salinas, Research AssociateDavid Sours, Research AssociateJarrod Thuener, Research AssociatePatricia Trinidad, Research AssociateChristopher Wright, Research Associate

Communications/Graphic Design

Michelle Cocagne, First Vice President,Corporate Communications

John Sterns, Marketing ManagerStacey Corso, Public Relations Manager

Contact:Peter O’NeilNational Publications Manager2398 E. Camelback Road, Suite 550 Phoenix, Arizona 85016 Tel: (602) 952-9669Fax: (602) [email protected]

Statistical Summary Note: Metro-level employment growth is calculated on a year-over-year basis using a fourth quarter average. Vacancy and annual asking andeffective rent are year-end figures. Effective rent is equal to asking rent less concessions. Median prices and cap rates are a function of the age, class and geograph-ic area of the properties trading and therefore may not be representative of the market as a whole.

Note: Averages and medians may be based on all property classes or Class A and Class B only in some markets. Geographic market boundaries, survey samples,methodologies and data may change, affecting historical reporting basis and comparability with past reports or analyses. In the event of a basis change, historicaldata is recalculated. If you have any questions regarding a historical series or methodology, please contact Peter O’Neil at [email protected]. The infor-mation contained in this report is deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no representation, warran-ty or guarantee, expressed or implied, may be made as to the accuracy or reliability of the information contained herein.

Sources: Marcus & Millichap Research Services, American Council of Life Insurers, Blue Chip Economic Indicators, Bureau of Economic Analysis, California Association ofRealtors, California Employment Development Department, CoStar Group Inc., Dupre + Scott Apartment Advisors Inc., economy.com, Federal Reserve, Freddie Mac, MorganStanley, National Association of Realtors, National Council of Real Estate Investment Fiduciaries, National Real Estate Index, O’Connor and Associates, Property & PortfolioResearch, Real Data, Real Estate Center at Texas A&M University, RealFacts, Reis, The Conference Board, TWR/Dodge Pipeline, U.S. Bureau of Labor Statistics, U.S. CensusBureau, U.S. Securities and Exchange Commission, U.S. Treasury Department.

© Marcus & Millichap 2008

Managing DirectorsKevin A. Assef, Senior Vice President, Managing DirectorTel: (909) 456-3400 / [email protected]

Gene A. Berman, Senior Vice President, Managing DirectorTel: (954) 245-3400 / [email protected]

Harvey E. Green, President, Chief Executive OfficerTel: (818) 907-0600 / [email protected]

Bernard J. Haddigan, Senior Vice President, Managing DirectorNational Retail GroupTel: (678) 808-2700 / [email protected]

William E. Hughes, Senior Vice President, Managing DirectorMarcus & Millichap Capital CorporationTel: (949) 851-3030 / [email protected]

Stuart E. Kaiser, Chief Financial Officer, Managing DirectorTel: (818) 907-0600 / [email protected]

John J. Kerin, Senior Vice President, Managing DirectorTel: (818) 907-0600 / [email protected]

Mitchell R. LaBar, Senior Vice President, Managing DirectorTel: (818) 907-0600 / [email protected]

Donald A. Lorenz, Senior Vice President, Managing DirectorTel: (650) 494-1400 / [email protected]

Gary R. Lucas, Senior Vice President, Managing DirectorTel: (415) 963-3000 / [email protected]

Greg A. Moyer, Senior Vice President, Managing DirectorTel: (773) 867-1500 / [email protected]

Paul S. Mudrich, General Counsel, Managing DirectorTel: (650) 396-1900 / [email protected]

Hessam Nadji, Senior Vice President, Managing DirectorResearch ServicesTel: (925) 953-1700 / [email protected]

Alan L. Pontius, Senior Vice President, Managing DirectorNational Office and Industrial Properties GroupTel: (415) 963-3000 / [email protected]

Linwood C. Thompson, Senior Vice President, Managing DirectorNational Multi Housing GroupTel: (678) 808-2700 / [email protected]

David A. Wetta, Senior Vice President, Managing DirectorTel: (602) 952-9669 / [email protected]


Corporate HeadquartersMarcus & MillichapFirst Financial Plaza16830 Ventura BoulevardSuite 352Encino, CA 91436Tel: (818) 907-0600www.MarcusMillichap.com

Albany595 New Loudon RoadSuite 220Latham, NY 12110Tel: (518) 465-2486Gary R. Lucas

Atlanta500 Northpark Town Center1100 Abernathy Road N.E.Building 500, Suite 600Atlanta, GA 30328Tel: (678) 808-2700John M. Leonard

Austin8310 N. Capital of Texas HighwaySuite 150Austin, TX 78731Tel: (512) 338-7800Bradley H. Bailey

Baltimore1720 Belt StreetBaltimore, MD 21230Tel: (410) 878-2062Gary R. Lucas

Birmingham1500 Urban Center DriveSuite 420Vestavia Hills, AL 35242Tel: (205) 747-3700Matthew Fitzgerald

Boise14460 Bighorn DriveNampa, ID 83651Tel: (208) 442-4360Gary R. Lucas

Boston2 International Place16th FloorBoston, MA 02110Tel: (781) 388-2680Gary R. Lucas

Brooklyn16 Court StreetFloor 2ABrooklyn, NY 11241Tel: (718) 475-4300J.D. Parker

Central Illinois328 Susan DriveSuite 400Normal, IL 61761Tel: (309) 451-7300Matthew Fitzgerald

Charlotte405 Eagle Bend DriveWaxhaw, NC 28173Tel: (704) 443-0600Gary R. Lucas

Charlotte Uptown101 S. Tryon StreetSuite 2460Charlotte, NC 28280Tel: (704) 831-4600Gary R. Lucas

Chicago8750 W. Bryn Mawr AvenueSuite 650Chicago, IL 60631Tel: (773) 867-1500Greg A. Moyer

Chicago Downtown333 W. Wacker DriveSuite 200Chicago, IL 60606Tel: (312) 327-5400John M. Przybyla

Cincinnati201 E. Fifth StreetSuite 2050Cincinnati, OH 45202Tel: (513) 241-9002Greg A. Moyer

Cleveland5005 Rockside RoadSuite 1100Independence, OH 44131Tel: (216) 654-0500Michael Glass

Columbus21 E. State StreetSuite 2300Columbus, OH 43215Tel: (614) 360-9800Greg A. Moyer

DallasCentura Tower14185 N. Dallas ParkwaySuite 650Dallas, TX 75254Tel: (972) 755-5200Tim A. Speck

Denver1401 Seventeenth StreetSuite 1100Denver, CO 80202Tel: (303) 320-1300Adam P. Christofferson

Detroit28411 Northwestern HighwaySuite 750Southfield, MI 48034Tel: (248) 415-2600Steven R. Chaben

EncinoFirst Financial Plaza16830 Ventura BoulevardSuite 100Encino, CA 91436Tel: (818) 907-0600John J. Kerin

Fort CollinsFirst Community Bank Plaza3711 JFK ParkwaySuite 320Fort Collins, CO 80525Tel: (970) 267-3300Adam P. Christofferson

Fort Lauderdale5900 N. Andrews AvenueSuite 100Fort Lauderdale, FL 33309Tel: (954) 245-3400Gene A. Berman

Fort Worth500 Throckmorton StreetSuite 325Fort Worth, TX 76102Tel: (682) 478-1200Andrew Kile

Grand Rapids99 Monroe Avenue N.W.Suite 201Grand Rapids, MI 49503 Tel: (616) 482-1600 Steven R. Chaben

Greenville538 Old Howell RoadSuite 101Greenville, SC 29615Tel: (864) 292-4717John M. Leonard

Houston777 Post Oak BoulevardSuite 900Houston, TX 77056Tel: (713) 626-3040Michael E. Hoffman

Indianapolis900 E. 96th StreetSuite 150Indianapolis, IN 46240Tel: (317) 218-5300Greg A. Moyer

Jacksonville4600 Touchton Road EastBuilding 100, Suite 150Jacksonville, FL 32246Tel: (904) 296-6765Steven M. Ekovich

Kansas City2 Emanuel Cleaver II BoulevardSuite 410Kansas City, MO 64112Tel: (816) 410-1010Gary R. Lucas

Lafayette140 Rue BeauregardSuite ALafayette, LA 70508Tel: (337) 231-5174Michael E. Hoffman

Las Vegas3993 Howard Hughes ParkwaySuite 300Las Vegas, NV 89169Tel: (702) 215-7100John Vorsheck

Long BeachOne World Trade CenterSuite 2100Long Beach, CA 90831Tel: (562) 436-5800John F. Rodiles

Los Angeles915 Wilshire BoulevardSuite 1700Los Angeles, CA 90017Tel: (213) 943-1800Scott Lamontagne

Los Angeles — West12100 W. Olympic BoulevardSuite 350Los Angeles, CA 90064Tel: (310) 909-5500Justin White

Louisville9300 Shelbyville RoadSuite 605Louisville, KY 40222Tel: (502) 329-5900Gary R. Lucas


Office Locations

Madison1468 N. High Point RoadSuite 201Middleton, WI 53562Tel: (608) 830-2500Matthew Fitzgerald

Melbourne4880 Stack BoulevardSuite E-5Melbourne, FL 32901Tel: (321) 821-2800Gene A. Berman

Memphis5050 Poplar AvenueSuite 1028Memphis, TN 38157Tel: (901) 620-3600Matthew Fitzgerald

Miami5201 Blue Lagoon DriveSuite 100Miami, FL 33126Tel: (786) 522-7000Kirk A. Felici

Milwaukee13845 Bishop’s DriveSuite 150Brookfield, WI 53005Tel: (262) 364-1900Matthew Fitzgerald

Minneapolis8300 Norman Center DriveSuite 810Bloomington, MN 55437Tel: (952) 852-9700Solomon Poretsky

Nashville3100 W. End AvenueSuite 905Nashville, TN 37203Tel: (615) 297-4449Gary R. Lucas

New Haven265 Church StreetSuite 210New Haven, CT 06510Tel: (203) 672-3300Edward Jordan

New JerseyRiver Drive Center 3611 River DriveFourth FloorElmwood Park, NJ 07407Tel: (201) 582-1000Michael J. Fasano

Newport Beach19800 MacArthur BoulevardSuite 150Irvine, CA 92612Tel: (949) 851-3030John M. Przybyla

New York City — Manhattan270 Madison AvenueSeventh FloorNew York, NY 10016Tel: (212) 430-5100Edward Jordan

Oak BrookOne Mid America PlazaSuite 200Oakbrook Terrace, IL 60181Tel: (630) 570-2200Tim Rios

Oakland500 12th StreetSuite 260Oakland, CA 94607Tel: (510) 379-1200Jerry C. Smith

Oklahoma City5609 N. Classen BoulevardSuite 100Oklahoma City, OK 73118Tel: (405) 254-2200Gary R. Lucas

Omaha10050 Regency CircleSuite 515 Omaha, NE 68114Tel: (402) 343-9700Matthew Fitzgerald

OntarioOne Lakeshore Center3281 E. Guasti RoadSuite 800Ontario, CA 91761Tel: (909) 456-3400Kevin A. Assef

Orlando1900 Summit Tower BoulevardSuite 650Orlando, FL 32810Tel: (407) 557-3800Gregory Matus

Palo Alto2626 Hanover StreetPalo Alto, CA 94304Tel: (650) 494-8900Steven J. Seligman

Philadelphia8 Penn Center1628 John F. Kennedy BoulevardSuite 1200Philadelphia, PA 19103Tel: (215) 531-7000Spencer Yablon

Phoenix2398 E. Camelback RoadSuite 550 Phoenix, AZ 85016Tel: (602) 952-9669David A. Wetta

Portland1800 S.W. First AvenueSuite 110Portland, OR 97201Tel: (503) 220-2333Tony Cassie

Reno255 W. Moana LaneSuite 209 Reno, NV 89509Tel: (775) 827-5700Robert B. Hicks

Reston11710 Plaza America DriveSuite 2000Reston, VA 20190Tel: (703) 871-5396Ramon Kochavi

Sacramento3741 Douglas BoulevardSuite 200Roseville, CA 95661Tel: (916) 677-4100Robert B. Hicks



Salt Lake City299 S. Main StreetSuite 1300Salt Lake City, UT 84111Tel: (801) 350-9111Adam P. Christofferson

San Antonio7550 IH-10 WestSuite 200San Antonio, TX 78229Tel: (210) 343-7800Bradley H. Bailey

San Diego9255 Towne Centre DriveSuite 700San Diego, CA 92121Tel: (858) 452-8300Kent R. Williams

San Francisco750 Battery StreetFifth FloorSan Francisco, CA 94111Tel: (415) 963-3000Jeffrey M. Mishkin

Santa Fe551 W. Cordova RoadSuite 462Santa Fe, NM 87505Tel: (505) 466-7027Gary R. Lucas

Seattle1420 Fifth AvenueSuite 1600Seattle, WA 98101Tel: (206) 826-5700Gregory S. Wendelken

St. Louis120 S. Central AvenueSuite 630St. Louis, MO 63105Tel: (314) 889-2500Jeffrey R. Algatt

Tampa7650 Courtney Campbell CausewaySuite 920Tampa, FL 33607Tel: (813) 387-4700 Steven M. Ekovich

Tucson6083 E. Grant RoadTucson, AZ 85712Tel: (520) 296-3232David A. Wetta

Washington, D.C.1620 L Street N.W.Suite 600Washington, D.C. 20036Tel: (202) 536-3700Ramon Kochavi

Williamsburg509 S. Boundary StreetWilliamsburg, VA 23185Tel: (757) 476-6813Gary R. Lucas

Yuma17490 S. Avenue ESomerton, AZ 85350Tel: (928) 627-3833Gary R. Lucas

[This page intentionally left blank.]

Market Reports Via E-mailMarcus & Millichap Research Services will continue to produce updates to this report and compileadditional publications that will be available via e-mail. To receive our reports as fast as possible,register for our e-mail distribution network. As an e-mail subscriber, you will receive the latest, mostcomprehensive real estate market research and forecasts, complete with easy-to-read charts detailingtrends in the industry, all delivered in a convenient electronic format.

You can sign up for this service by selecting one of the following methods:◆ Fax: Simply complete this page, tear it out and fax to 1-800-515-8434.◆ E-mail: Send an e-mail with your contact information, your e-mail address and which reports

you would like to receive to [email protected]. Please type “New Subscriber” or“Subscription Update” in the subject line.

◆ Internet: Visit www.MarcusMillichap.com and click “Research.”◆ Mail: Complete the attached postage-paid reply card, and drop it in the mail.

E-mail Address:

Name:(as it appears on your label)

Signature:(required for future mailings)

Reports/analysis you are interested in receiving (please check all that apply):

❏ Apartment ❏ Retail ❏ Office ❏ Single-Tenant

❏ Hospitality ❏ Seniors Housing ❏ Industrial ❏ Self-Storage

Are you interested in receiving a submarket or property-specific analysis? ❏ Yes ❏ No

❏ New subscription❏ Please confirm your contact information:

Name:

Company:

Address:

City: State: Zip:

Telephone: Fax:

Please tell us how you would rate this report:

❏ Excellent ❏ Good ❏ Fair ❏ Poor

Suggestions/comments:

2398 E. Camelback Road, Suite 550 ◆ Phoenix, Arizona 85016www.MarcusMillichap.com

NAR08

Registration allows Marcus & Millichap to contact and/or send information related to real estate sales, trendsand research to your home or business.

Corporate Headquarters:16830 Ventura Blvd.Suite 352Encino, CA 91436(818) 907-0600

Research Services:2398 E. Camelback RoadSuite 550Phoenix, AZ 85016(602) 952-9669

Offices Throughout the United Stateswww.MarcusMillichap.com

national - multi-family - 1/1/2008

Documents