us multihousing market overview - workforce partners

MULTIHOUSING MARKET OVERVIEW3Q17 UNITED STATES

2

3 Key Takeaways

4 Historical Sales Volume

5 Sales Volume Distribution

6 Top Markets by Sales Volume

7 Property Performance

8 Historical Yields

9 Cap Rates by Metro

10 Historical Price Per Unit

11 Capital Flows

12 Top Buyers

13 Top Sellers

14 Global Multihousing Pricing

15 International Capital Buyers

16 International Capital by Region

17 International Capital Distribution

18 Historical Rent Growth

19 Rent Growth by Metro

20 Historical Supply and Demand

21 Supply and Demand by Metro

22 Historical Occupancy Rate

23 Mortgage Debt Outstanding

24 Mortgage Maturities

TABLE OF CONTENTS

3

KEY TAKEAWAYS

•Sales volume for the past 12 months totaled $148.5 billion with quarterly volume reaching $39.3 billion, representing an 11.1% quarter-over-quarter

increase and 4.0% year-over-year growth. Investors continue to pour capital into top-tier secondary markets such as Atlanta, Dallas and Denver.

Sales Volume

•Cap rates remain flat year-over-year at 5.0% for institutional-quality assets. The third quarter represents the tightest spread between major markets

and secondary markets as yield-driven capital continues to flow into secondary and tertiary markets.

Cap Rates

•Nationwide rent growth remains flat at 2.3% while still positive. Western metros such as Phoenix, Sacramento, San Diego and Seattle continue to lead

the nation in rent growth as they benefit from strong demographic and economic tailwinds.

Rent Growth

•New supply is anticipated to peak in 2017 with over 389,000 units delivered throughout the United States. This cycle has been heavily weighted toward

urban infill and luxury product compared with the previous cycle which was dominated by Class B suburban assets.

Supply and Demand

• International capital sales volume rose to $11.3 billion over the past 12 months. High net worth and sovereign wealth funds are increasingly growing

their multihousing portfolios through indirect investment vehicles and joint ventures with domestic sponsors.

International Capital

•Debt outstanding increased $21.7 billion to $1.2 trillion with Agency & GSE lending accelerating 2.5% quarter-over-quarter compared to the broader

market of 1.8%. Debt capital remains plentiful for well-positioned assets despite a slowdown in the CMBS market.

Debt Markets

4

$0

$40

$80

$120

$160

$200

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

12-Month Totals Quarterly Totals

Record 3Q Volume

$39.3B

HISTORICAL SALES VOLUMEUnited States; Dollars in Billions

Quarterly sales volume rose to $39.3 billion, representing an 11.1% quarter-over-quarter growth and a 4.0% year-over-year increase with 12-month salesvolume totaling $148.5 billion. Additionally, the third quarter sales volume of $39.3 billion is the highest third quarter volume on record.

Source: Newmark Knight Frank Research, Real Capital Analytics

5

SALES VOLUME DISTRIBUTION By Market Tier and Region; 12-Month Totals

Sales volume in major markets declined from 36.7% to 28.9% over the past 12 months, as investors continued to seek out higher yields from assets insecondary and tertiary markets, predominantly in the Southeast and West.

Major Markets28.9%

Secondary Markets56.1%

Tertiary Markets15.0%

Sales Volume by Market Tier

Mid-Atlantic8.1%

Midwest8.9%

Northeast11.9%

Southeast24.6%

Southwest23.3%

West23.2%

Sales Volume by Region


6

TOP MARKETS BY SALES VOLUME12-Month Totals; Dollars in Billions

Sales volume remains highest among supply-constrained major markets such as New York, Los Angeles and Washington, D.C. as well as emerging gatewaymarkets such as Atlanta, Dallas, Denver and Seattle.


$13.1

$11.2

$8.3

$8.2

$6.2

$5.7

$5.4

$4.9

$4.8

$4.7

$4.3

$4.3

$3.5

$3.3

$3.1

$2.8

$2.7

$2.7

$2.5

$2.0

New York City

Los Angeles

Atlanta

Dallas-Ft. Worth

Washington, D.C.

Denver

Seattle

San Francisco

Phoenix

Houston

Chicago

Miami

Austin

Boston

Orlando

San Diego

Las Vegas

Portland

Tampa

San Antonio

7

PROPERTY PERFORMANCE By NCRIEF Region; Annualized 12-Month Returns

Total returns for multihousing were 6.22% on an annual basis throughout the United States — greater than hotel, office and retail during the same timeperiod. In particular, Western metros featuring above-average rent growth helped fuel the outperformance.

Source: Newmark Knight Frank Research, NCREIF, Real Capital Analytics

EAST

5.28%

WEST

8.35%

SOUTH

5.31%

MIDWEST

4.53%

8

HISTORICAL YIELDS

Yields of institutional-grade multihousing product remained flat year-over-year, although third-quarter 2017 represents the tightest spreads among majormarkets and secondary markets since 2010.


6.7

%

6.1

%

5.7

%

5.0

%

4.8

%

4.9

%

5.3

%

6.0

%

5.5

%

5.3

%

5.2

%

5.2

%

5.1

%

5.1

%

5.0

%

5.0

%

4.5%

5.1%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

United States Major Markets Secondary Markets

9

CAP RATES BY METRO

Overall yields have largely remained unchanged for the past 24 months, although many secondary markets have experienced slight compression resultingfrom additional capital flows into these markets as well as a lack of for sale opportunities.


SEA4.6%

POR4.8%

LV5.2%

LA4.2%

PHX5.1%

SLC5.4%

SAC5.1%

SF4.0%

DEN4.9%

DFW5.1%

HOU5.3%

ATX5.1%

CHI5.1%

SJ4.2%

SD4.3%

IND5.6%

MIN5.0%

CHA5.1%

KC5.4%

ATL5.0%

COL5.7%

JAX5.5%

NSH5.3%

MEM5.7%

BIR5.8%

CHR5.4%

PIT5.5%

RD4.9%

SA5.4%

SFL4.8%

ORL5.2%

TAM5.4%

BOS4.5%

STL5.7%

DC4.9%

NYC3.9%

OKC5.5%

LR6.0%

WIC5.9%

PHI5.4%

10

HISTORICAL PRICE PER UNITDollars in Thousands

Year-over-year, the average price per unit in the United States grew 5.8%. Despite a slowdown in volume among major markets, pricing per unit experiencedstrong growth of 10.4%, while secondary markets grew a sturdy 2.7%.


$9

3

$9

7

$1

18

$1

26

$1

31

$1

31

$1

23

$1

33

$1

37

$1

35

$1

42

$1

44

$1

52

$1

66

$1

73

$1

83

$319

$146

$0

$75

$150

$225

$300

$375

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

United States Major Markets Secondary Markets

11

CAPITAL FLOWSSelect Investor Groups; Dollars in Billions

Year-to-date, private buyers such as owner/operators and high-net-worth individuals and families are the only investor groups to be net buyers.


-$100

-$50

$0

$50

$100

2013 2014 2015 2016 2017

PRIVATE

Acquisitions Dispositions Net Investment

-$50

-$25

$0

$25

$50

2013 2014 2015 2016 2017

INSTITUTIONS

Acquisitions Dispositions Net Investment

12

TOP BUYERS12-Month Totals; Dollars in Millions

Large-scale portfolio transactions accelerated 63.0% year-over-year. Greystar, GIC and other top buyers have focused on growing their portfolios by buying inbulk, while groups such as Cortland Partners and FPA Multifamily have mostly purchased individual deals.


$0

$1,500

$3,000

$4,500

$6,000

$7,500

Greystar GIC APG Group IvanhoeCambridge

MAA StarwoodCapital

Blackstone RockpointGroup

CortlandPartners

Mapletree TruAmericaMultifamily

FPAMultifamily

Guardian Life Scion Group CPPInvestment

Board

Individual Portfolio & Entity

13

TOP SELLERS12-Month Totals; Dollars in Millions

While the top buyers far outpaced the top sellers, many of the top sellers were among the past 12 months’ entity-level transactions, such as Monogram’s saleto Greystar for $3.0 billion and Post Properties’ sale to MAA for $3.9 billion.


$0

$1,500

$3,000

$4,500

$6,000

$7,500

MonogramRes Trust

PostProperties

MilestoneREIT

StarwoodCapital

BridgeInvestment

FairfieldResidential

Blackstone WatertonAssociates

PGIM InvestorsManagement

JP Morgan KayneAnderson

AVR Realty HarborGroup

HollandPartners

Individual Portfolio & Entity

14

GLOBAL MULTIHOUSING PRICINGCap Rates and Price Per Unit; 12-Month Totals

On a risk-adjusted basis, the United States continues to offer competitive yields and resilient total returns compared with other regions of the world.


United States

5.0%

$182,804

EMEA

5.0%

$194,109

Asia Pacific

4.8%

$324,676

15

INTERNATIONAL CAPITAL BUYERSTop Countries of Origin and Buyers; 12-Month Totals

International capital sales volume rose to $11.3 billion over the past 12 months, as overseas investors continue to seek out well-positioned assets in primaryand secondary markets.


Canada44.6%

Singapore19.5%

Israel15.4%

France7.3%

Sweden3.9%

Switzerland2.7%

Other6.6%

Top Countries by Sales Volume

Invested Capital - $250M+

Akelius Residential AB Sweden

Amitim Israel

APG Group Netherlands

AXA Group France

Brookfield Asset Management Canada

CAPSSA France

CPP Investment Board Canada

GIC Singapore

Ivanhoe Cambridge Canada

Manulife Financial Canada

Mapletree Investments Singapore

Menora Mivtachim Israel

Milestone Apartment REIT Canada

Morguard North American Residential REIT Canada

Psagot France

Pure Multi-Family REIT Canada

Starlight Investments Canada

16

Multihousing has benefited from high-net-worth families and sovereign wealth funds shifting requirements from trophy offices and hotels. Year-to-date, themajority of investment from these groups has been through indirect investment vehicles and joint ventures with domestic sponsors.


INTERNATIONAL CAPITAL BY REGION$

1,1

86

$1

,05

4

$5

,01

8

$2

,18

5

$4

,29

5

2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7

EUROPE

Past 5 Years; Dollars in Millions

$7

74

$5

01

$1

,41

1

$9

06

$4

,82

9

2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7

ASIA PACIFIC

$9

23

$8

02

$1

,73

1

$2

,83

0

$4

38

2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7

MIDDLE EAST

17

MAJOR MARKETS 38.3%

BY MARKET TIERAs a % of Cross-Border Capital

BY REGIONAs a % of Cross-Border Capital

SECONDARY & TERTIARY 61.7%

MID-ATLATNIC 11.1%

MIDWEST 5.8%

NORTHEAST 14.8%

SOUTHEAST 33.9%

SOUTHWEST 25.2%

WEST 9.2%

NYC$910M

ATL$630M

AUS$445M

DEN$391M

S. FL$267M

ORL$245M

TB$157M

BOS$227M

LA$195M

CHA$189M

PHX$153M

POR$127M

CHI$108M

DC$100M

SEA$82M

NASH$47M

DFW$350M

INTERNATIONAL CAPITAL DISTRIBUTIONTop Destinations; 12-Month Totals

While major markets have historically attracted the most capital from overseas investors, high-quality secondary markets such as Atlanta, Austin, Dallas,Denver and Miami have seen over $250 million invested in the past 12 months.


18

-7.5%

-4.5%

-1.5%

1.5%

4.5%

7.5%

$0

$300

$600

$900

$1,200

$1,500

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Effective Rent Effective Rent Growth

HISTORICAL RENT GROWTHAnnual Effective Rent

Annual rent growth remains flat at 2.3%. While more modest than in previous years, growth remains near long-term averages and is still trending in a positivedirection. Rents are projected to increase in the coming years, as new supply levels off.

Source: Newmark Knight Frank Research, Axiometrics

19

RENT GROWTH BY METROYear-over-Year Change

Western metros such as Phoenix, Sacramento, San Diego and Seattle continue to lead the nation in rent growth as they continue to benefit from strongdemographic tailwinds paired with above-average job growth.


7.4%

4.5% 4.5% 4.4%4.0% 4.0%

3.7% 3.6%3.2% 3.2% 3.2% 3.1%

2.9%2.7% 2.7% 2.5%

2.3% 2.3%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

20

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

0

100,000

200,000

300,000

400,000

500,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

New Supply (Left Axis) Absorption (Left Axis) Inventory Growth (Right Axis)

HISTORICAL SUPPLY AND DEMANDUnited States

New supply is anticipated to peak in 2017 with over 389,000 units delivered throughout the United States. This cycle has been heavily weighted toward urbaninfill and luxury product compared with the previous cycle which was dominated by Class B suburban assets.


21

SUPPLY AND DEMAND BY METROSelect Markets; Year-to-Date

New supply outweighs absorption in the vast majority of markets. However, the underlying fundamentals for multihousing assets remain strong with rentalgrowth expected to rise nationally in 2018 and 2019.


0

7,500

15,000

22,500

30,000

37,500

0

6,000

12,000

18,000

24,000

30,000

New Supply (Left Axis) Absorption (Right Axis)

22

95.0%

91.0%

92.0%

93.0%

94.0%

95.0%

96.0%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Long-Term Average = 94.0%

HISTORICAL OCCUPANCY RATEUnited States

Strong demand nationwide continues to push occupancy rates to historically high levels. As of third-quarter 2017, the occupancy rate stands 100 basispoints above the long-term average of 94.0%.


23

MORTGAGE DEBT OUTSTANDINGBy Group

Multihousing debt outstanding rose $21.7 billion for the quarter, with Agency and GSE seeing their total debt outstanding rise to $553.3 billion, representing a2.5% quarterly growth compared with the broader market increase of 1.8%.

Source: Newmark Knight Frank Research, Mortgage Bankers Association, Real Capital Analytics, Federal Reserve Bank

Agency & GSE46.3%

Bank & Thrift33.3%

State & Local Gov't7.7%

Life Co's5.9%

CMBS3.4%

Other3.4%

Debt Outstanding by Group As a Percentage of Total

$5

53

,26

1

$3

98

,49

5

$9

1,6

76 $

70

,52

3

$4

1,1

91

$4

0,5

67

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

Agency & GSE Bank & Thrift State & LocalGov't

Life Co's CMBS Other

Dollars in Millions

24

MORTGAGE MATURITIESBy Lender Type; Dollars in Billions

Mortgage maturities are expected to rise to $114.8 billion, up from $102.0 billion the previous year, representing a 12.5% increase year-over-year.

Source: Newmark Knight Frank Research, Federal Reserve Bank, Trepp

$21.7 $24.7 $28.9 $32.5 $33.1 $33.0 $31.9 $29.0 $26.6 $23.9 $27.3$34.2

$41.8$49.2$5.2

$10.4$9.3

$8.1 $8.6 $10.2 $10.4 $12.8 $14.9$15.7

$21.2 $5.9

$5.4

$3.5

$2.9

$3.1$3.3

$3.4 $3.7 $4.0 $4.0 $3.8 $3.9 $4.4

$4.5

$4.4

$4.2

$4.6

$31.3

$35.1$38.4

$40.2$44.8

$49.6 $53.2 $54.8 $54.9 $58.2

$61.8

$66.4

$66.8

$69.7

$0

$20

$40

$60

$80

$100

$120

$140

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Banks CMBS Life Co's Other

www.aranewmark.com

New York City

HEADQUARTERS

125 Park Avenue

New York, NY 10017

212.372.2000

Blake OklandVice Chairman, Head of US MultifamilyARA, A Newmark [email protected]

Jeff DayChief Executive OfficerBerkeley Point [email protected]

Jonathan MazurSenior Managing Director, National ResearchNewmark Knight [email protected]

Michael WolfsonAssociate Director, Capital Markets ResearchNewmark Knight [email protected]

Newmark Knight Frank Research Reports are also available at www.ngkf.com/research

All information contained in this publication is derived from sources that are deemed to be reliable. However, Newmark Knight Frank (NKF) has not verified any such information, and the same constitutes the statements and representations only of the source thereof, and not of NKF. Any recipient of this publication should independently verify such information and all other information that may be material to any decision that recipient may make in response to this publication, and should consult with professionals of the recipient’s choice with regard to all aspects of that decision, including its legal, financial, and tax aspects and implications.

Any recipient of this publication may not, without the prior written approval of NKF, distribute, disseminate, publish, transmit, copy, broadcast, upload, download, or in any other way reproduce this publication or any of the information it contains.

us multihousing market overview - workforce partners

Documents