20172017National Multi Family Market

Overview and OutlookJohn S. SebreeNational Director – National Multi Housing GroupJohn.Sebree@marcusmillichap.com312-327-5417 October 2017

-10%

-5%

0%

5%

10%

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

*

0

35

70

105

140

GDP Growth Consumer Confidence

Ann

ualiz

ed Q

uart

erly

Per

cent

Cha

nge

Consum

er Confidence Index

U.S. GDP in Eighth Year of Expansion;Growth Moderate But Picking Up in 2017

* Forecast GDP; consumer confidence through AugustSources: Marcus & Millichap Research Services, BEA, The Conference Board

Employment Growth Durable and Remarkably Stable

-2.7

-1.8

-0.9

0.0

0.9

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

*Q

uart

erly

Job

Gro

wth

(Mill

ions

)

+8.3 Million +17.0 Million**

-8.7 Million

83 Months of Continuous Gains**Monthly Average: 197,000 Jobs

2016 Total: 2,240,0002017 Forecast: 2,000,000

* Through 2Q** Through August 2017Sources: Marcus & Millichap Research Services, BLS

National Employment Rank by MetroY-O-Y Percent Change Through August 2017

Top 10Metros

Absolute Change

PercentChange

Dallas-Fort Worth 101,400 2.9%

Atlanta 85,000 3.2%

New York 73,200 1.7%

Washington, D.C. 70,800 2.2%

Houston 54,800 1.8%

Seattle-Tacoma 48,900 2.5%

Boston 48,800 1.8%

Philadelphia 45,800 1.6%

Tampa 39,600 3.0%

Detroit 39,600 2.0%

U.S. Total 2,097,000 1.4%

Bottom 10Metros

Absolute Change

PercentChange

Milwaukee -6,500 -0.8%

Orange County -500 0.0%

Cleveland 9,100 0.9%

St. Louis 10,300 0.8%

San Jose 11,300 1.0%

Northern New Jersey 12,000 0.6%

Sacramento 14,400 1.5%

West Palm Beach 14,600 2.4%

Jacksonville 15,600 2.3%

Indianapolis 16,500 1.6%

U.S. Total 2,097,000 1.4%

Sources: Marcus & Millichap Research Services, BLS

National Apartment Vacancy vs. Construction

0

100

200

300

400

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17*

2%

4%

6%

8%

10%Completions Vacancy Rate

Com

plet

ions

(000

s of

Uni

ts)

Average Vacancy Rate

* ForecastSources: Marcus & Millichap Research Services, MPF Research

Top 10Metros

2017 Completions*

Completions as % Inv.

Dallas-Fort Worth 31,800 4.4%

New York 29,700 1.6%

Houston 18,000 2.8%

Atlanta 17,300 3.6%

Washington, D.C. 16,400 2.8%

Seattle-Tacoma 14,300 3.5%

Denver 12,500 4.5%

Los Angeles 11,900 1.1%

Austin 11,800 5.2%

Nashville 9,700 7.3%

U.S. Total 365,000 2.3%

Bottom 10Metros

2017 Completions*

Completions as % Inv.

Sacramento 1,100 0.8%

Inland Empire 1,100 0.6%

Cleveland 1,900 1.2%

Jacksonville 2,000 1.9%

Cincinnati 2,300 1.5%

Detroit 2,400 0.7%

Indianapolis 2,900 2.0%

St. Louis 3,000 1.9%

Baltimore 3,300 1.6%

Las Vegas 3,300 1.6%

U.S. Total 365,000 2.3%

National Apartment Rank by Metro2017 Completions*

* ForecastSources: Marcus & Millichap Research Services, MPF Research, CoStar Group, Inc.

2%

4%

6%

8%

10%

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

*

Class A Class B Class C

Vaca

ncy

Rat

e

U.S. Apartment Vacancy Trends by Class

* Through 2QTrailing 12-month averageSources: Marcus & Millichap Research Services, MPF Research

2.0%

3.5%

5.0%

6.5%

8.0%

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

*Housing Contribution to GDP

Long-Term Average: 4.6%Con

trib

utio

n to

GD

P

* Through 2QRecession periods: (3Q1981-4Q1982), (3Q1990-1Q1991), (1Q2001-4Q2001), (4Q2007-2Q2009)Sources: Marcus & Millichap Research Services, BEA

Rec

essi

ons

Housing Construction Has Fallen Short of Demand

0.0

0.5

1.0

1.5

2.0

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

*

Single-Family Completions Multifamily Completions Household Growth

2000-2007 Oversupply: 2.6M2008-2017* Undersupply: 1.8M

Com

plet

ions

/ H

ouse

hold

Gro

wth

(Mil.

)

* ForecastTrailing 24-month average for household growthSources: Marcus & Millichap Research Services, U.S. Census Bureau

0

4

8

12

16

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17*

$1M-$10M $10M-$20M $20M+

* Trailing 12-months through 2QIncludes sales $1 million and greaterSources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics

Tota

l Tra

nsac

tions

(000

s)U.S. Apartment Investment Trends

Transaction Activity by Price Tranche

+6.9% -8.4%

Apartment Investors Pursue Yield –Capital Allocations Moving Beyond the Core

$0.0

$4.5

$9.0

$13.5

$18.0

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

**

30%

40%

50%

60%

70%Secondary/Tertiary Market Dollar Volume- $15M+Percent in Secondary/Tertiary Markets*

Dol

lar V

olum

e (B

illio

ns)

Percent of Dollar Volum

e

* Trailing 12-month average** Through 2QIncludes sales $15 million and greaterSources: Marcus & Millichap Research Services, Real Capital Analytics, CoStar Group, Inc.

Apartment Housing Affordability

Least Affordable Markets

2Q 2017 Monthly Home Payment

2Q 2017Average Rent Affordability Gap

Manhattan* $10,769 $3,572 $7,197

San Jose $5,725 $2,598 $3,127

San Francisco $5,639 $3,119 $2,520

Orange County $4,021 $1,946 $2,075

Oakland $3,760 $2,167 $1,593

San Diego $3,084 $1,821 $1,263

Seattle-Tacoma $2,444 $1,555 $889

Portland $2,100 $1,287 $813

Los Angeles $2,792 $2,020 $772

Austin $1,967 $1,213 $754

U.S. Average $1,487 $1,337 $150

Least Affordable MarketsBased on Home Mortgage Payment and Rent Gap

* Includes condominiumsMortgage payments based on 2Q 2017 median home price for a 30-year fixed rate conventional mortgage, 90% LTV, taxes, insurance, and PMISources: Marcus & Millichap Research Services, MPF Research, Freddie Mac, National Association of Realtors, Douglas Elliman Real Estate

Most Affordable Markets

2Q 2017 Monthly Home Payment

2Q 2017Average Rent Affordability Gap

Atlanta $1,176 $1,117 $59

Cleveland $970 $886 $84

Cincinnati $1,037 $931 $106

Philadelphia $1,391 $1,285 $106

Indianapolis $1,019 $845 $174

Detroit $1,121 $945 $176

St. Louis $1,081 $865 $216

Baltimore $1,524 $1,294 $230

Charlotte $1,298 $1,064 $234

Nashville $1,390 $1,136 $254

U.S. Average $1,487 $1,337 $150

Most Affordable MarketsBased on Home Mortgage Payment and Rent Gap

Mortgage payments based on 2Q 2017 median home price for a 30-year fixed rate conventional mortgage, 90% LTV, taxes, insurance, and PMISources: Marcus & Millichap Research Services, MPF Research, Freddie Mac, National Association of Realtors, Douglas Elliman Real Estate

2010-2015Note: Those who grew up in one state, went to college in another, and then moved again are counted as migrating from the state where they attended collegeSources: Marcus & Millichap Research Services, IPUMS-USA, University of Minnesota, New York Times

Where Young College Graduates Tend to MoveNet Migration of College Educated People Under 40

1%0%-2%-4%

2%

Apartment Vacancy vs. Homeownership Rate

3.0%

4.5%

6.0%

7.5%

9.0%

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

*

62%

64%

66%

68%

70%

Apartment Vacancy Homeownership Rate

Apa

rtm

ent V

acan

cyH

omeow

nership Rate

* Through 2QSources: Marcus & Millichap Research Services, MPF Research, U.S. Census Bureau

$600

$900

$1,200

$1,500

$1,800

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

*

Home Payment Apartment Rent

Mon

thly

Pay

men

t

$716

-$25

* Through 2QMortgage payments based on quarterly median home price for a 30-yearfixed rate conventional mortgage, 90% LTV, and 1.5% taxes and insuranceSources: Marcus & Millichap Research Services, MPF Research, Freddie Mac, National Association of Realtors

$150

National Apartment Rent and Home Payment Trends

-6%

-3%

0%

3%

6%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

*

Effective Rent Growth Wage Growth

Y-O

-Y P

erce

nt C

hang

eRent Growth Outpacing Wages on Percentage Basis

But Wages Increasing More in Absolute Dollars

* ForecastSources: Marcus & Millichap Research Services, MPF Research, BLS (Employment Cost Index)

+3.8%

+2.7%

$10

$30

$50

$70

$90

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Second Highest Third Highest Fourth Highest

Ann

ual H

ouse

hold

Inco

me

(000

s)

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

Wealthiest Income Quintiles Rising Fastest

$84,200

$29,000

$50,600

15%

20%

25%

30%

35%

40%

45%

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Class A Class B Class C

Perc

ent o

f Ave

rage

Hou

seho

ld In

com

e

Class A rents as a share of second-highest income quintile; Class B rents as a share of third-highest income quintile;Class C rents as a share of fourth-highest income quintileSources: Marcus & Millichap Research Services, U.S. Census Bureau, MPF Research

Housing Cost as Percentage of IncomeStill In Alignment On a Long-Term Basis

35.7%

26.8%

23.3%

$400

$800

$1,200

$1,600

$2,000

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

*

Class A Class B Class C

Aver

age

Effe

ctiv

e R

ent

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

Class A Rents Generating Strongest Rise

Class Change Since 2009Class A +$487Class B +$292Class C +$178

-8%

-4%

0%

4%

8%

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

*

Class A Class B Class C

Y-O

-Y P

erce

nt C

hang

e

U.S. Apartment Rent Growth Trends by Class

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

Class Change Since 2009Class A +39.7%Class B +33.4%Class C +24.7%

0%

4%

8%

12%

16%

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

*

20-34 yrs 35-54 yrs 55+ yrs

Une

mpl

oym

ent R

ate

Unemployment Range by Age Cohort

* Through AugustSources: Marcus & Millichap Research Services, BLS

U.S. Population in Poverty

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

Pove

rty

Rat

e

0%

6%

12%

18%

24%

1960

1964

1968

1972

1976

1980

1984

1988

1992

1996

2000

2004

2008

2012

2016

0

12

24

36

48Population in Poverty Poverty Rate

Population in Poverty (Millions)

U.S. Multifamily CompletionsU

nit C

ompl

etio

ns (0

00s)

0

100

200

300

400

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

*

Apartment Condo Affordable Housing

* Preliminary estimate** ForecastSources: Marcus & Millichap Research Services, MPF Research, TWR, U.S. Census Bureau

4%

5%

6%

7%

8%

9%

04 05 06 07 08 09 10 11 12 13 14 15 16 17*

Preferred Primary Secondary Tertiary

Apartment Cap Rate Spreads Compressas Investors Pursue Yields Beyond Core

Aver

age

Cap

Rat

e

* Through 2QIncludes sales $1 million and greaterPreferred Markets Include: NY, DC, BOS, SD, LA, OC, SJ, SF, SEASources: Marcus & Millichap Research Services, Real Capital Analytics, CoStar Group, Inc.

120 bps

370 bps

200 bps

U.S. Apartment Cap Rate Trends Average Cap Rates vs. 10-Year Treasury

0%

2%

4%

6%

8%

10%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

*

Apartment Cap Rate 10-Year Treasury Rate

Aver

age

Rat

e

10-Yr Treasury Long-Term Avg.

Cap Rate Long-Term Avg.

380

bps

430

bps

390

bps

100 bps

300

bps

390

bps

450

bps

* Through September 26Includes sales $1 million and greaterSources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics, Federal Reserve

20172017National Multi Family Market

Overview and OutlookJohn S. SebreeNational Director – National Multi Housing GroupJohn.Sebree@marcusmillichap.com312-327-5417 October 2017