California apartment pres june2013-show

California Economic and Apartment Market Overview and Outlook

2013

U.S. Retail Sales Have Recovered From Dramatic Drop – Headwinds to Growth Remain

Yea

r-O

ver-

Yea

r C

han

ge

$180

$210

$240

$270

$300

01 03 05 07 09 11 13*

Ret

ail S

ales

($

Bil.

)

Long-Term Total Retail Sales Monthly Retail Sales Excl. Auto and Gas

Re

ce

ss

ion

s

+12%

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

$864/person

$935/person

-15%

-10%

-5%

0%

5%

10%

15%

20%

250

350

450

550

650

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

*

Single-Family and Condo

$150

$175

$200

$225

$250

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

*

Single-Family Condo

* Through AprilSources: Marcus & Millichap Research Services, National Association of Realtors

+11%+10%

Med

ian

Pri

ce (

000s

)

Single-Family Housing and Condo Market Improving with Brighter Outlook

+10%

Ho

me

Sal

es (

000s

)

Median Home Prices Existing Home Sales

Y-O-Y Change

Y-O-Y Change

0.0

0.6

1.2

1.8

2.4

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

*

Single-Family Home Construction Household Formation

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

Single-Family Home Construction vs. Household Formation

Sin

gle

-Fam

ily H

om

e C

om

ple

tio

ns(

mill

ion

s)an

d H

ou

seh

old

Fo

rmat

ion

s (m

illio

ns)

-100%

-50%

0%

50%

100%

1953

-195

4

1960

-196

1

1969

-197

0

1973

-197

5

1981

-198

2

1990

-199

120

01

Curre

nt

Recession* Post Recession**

U.S. For-Sale Housing Contribution to GDP

* Recession periods: (2Q1953-2Q1954), (2Q1960-1Q1961), (4Q1969-4Q1970), (4Q1973-1Q1975), (3Q1981-4Q1982), (3Q1990-1Q1991), (1Q2001-4Q2001), (4Q2007-2Q2009)** Post recession defined by 15 quarters following the official end of the recession, or beginning of following recession in the event of overlapSources: Marcus & Millichap Research Services, BEA

Per

cen

t C

han

ge

Average Historical Post Recession Gain: +39.0%

Average Historical Recessionary Loss: -14.5%

U.S. Employment Gains Have Been BroadY-O-Y Sector Change Through May 2013

Sources: Marcus & Millichap Research Services, BLS

U.S. Employment Sectors Absolute Change % Change

Prof & Business Services 589,000 3.3%

Leisure & Hospitality 406,000 3.0%

Trade, Transport & Utilities 405,000 1.6%

Education and Health Services 363,000 1.8%

Construction 189,000 3.4%

Financial Activities 90,000 1.2%

Other Services 64,000 1.2%

Manufacturing 41,000 0.3%

Information 16,000 0.6%

Natural Resources and Mining 10,000 1.2%

Total Gain 2,173,000

Government -58,000 -0.3%

Total Loss -58,000

Net Change 2,115,000

Sources: Marcus & Millichap Research Services, BLS

National Employment Rank by MetroY-O-Y Absolute Change Through April 2013

Orange County: (26,400, 1.9%), Inland Empire: (19,700, 1.7%), San Diego: (26,100, 2.1%), San Francisco: (26,100, 2.6%)San Jose: (24,100, 2.7%, Oakland: (13,400, 1.4%) Sources: Marcus & Millichap Research Services, BLS

Top 10Metros

Absolute Change

PercentChange

Houston 109,300 4.1%

Dallas-Ft. Worth 93,200 3.1%

New York 75,000 1.9%

Los Angeles 74,100 1.9%

Atlanta 46,200 2.0%

Washington, D.C. 40,600 1.3%

Phoenix 40,400 2.3%

Tampa 39,000 3.4%

Boston 35,900 1.5%

Chicago 35,400 0.8%

U.S. Total 2,065,000 1.5%

Bottom 10Metros

Absolute Change

PercentChange

Cleveland -1,100 -0.1%

Milwaukee 900 0.1%

Miami 2,000 0.2%

Kansas City 5,800 0.6%

Palm Beach 5,800 1.1%

St. Louis 6,500 0.5%

Columbus 6,600 0.7%

Sacramento 8,500 1.0%

Detroit 9,300 0.5%

Fort Lauderdale 9,800 1.3%

U.S. Total 2,065,000 1.5%

-500

-250

0

250

500

-3.0

-1.5

0.0

1.5

3.0

Job Growth Net Absorption

Ind

ust

rial

Sta

rts

(in

mil

lion

s)

Quarterly Job Growthand Apartment Absorption Trends

Job

Gro

wth

(m

il.)

* Through 1QSources: Marcus & Millichap Research Services, BLS, MPF Research

Net A

bso

rptio

n (000s)

Apartment Market Near Pre-Recession Metrics New Supply Becoming a Concern

0

50

100

150

200

250

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

0%

2%

4%

6%

8%

10%

Completions Class A Vacancy Class B/C Vacancy

Un

it C

om

ple

tio

ns

(000

s) Averag

e Vacan

cy Rate

* ForecastClass A: Properties built 2000+, Class B/C: Properties built pre-2000Sources: Marcus & Millichap Research Services, MPF Research

0%

15%

30%

45%

60%

2009

2010

2011

2012

2013

*

Per

cen

t o

f F

irst

Tim

e B

uye

rs

First Time Home Buyers’ Share of Home Sales

* Through AprilSources: Marcus & Millichap Research Services, National Association of Realtors

National Apartment Rank by Metro1Q 2013 Vacancy Rate

Top 10Metros

1Q 2013Vacancy

YOY Bps.Chg.

New York 2.6% 30

Minneapolis 2.8% 0

Northern NJ 3.2% 0

Miami 3.2% -30

Milwaukee 3.3% 100

Salt Lake City 3.3% -10

Oakland 3.4% 50

Boston 3.5% 30

San Jose 3.5% 70

Portland 3.6% 0

U.S. Average 5.1% 0

Los Angeles: (3.7%, +20bps), Orange County: (4.4%, +40bps), Inland Empire: (5.7%, +50bps), Sacramento: (5.1%, +40bps) San Diego: (4.1%,+10bps), San Francisco: (4.4%, +80bps)Sources: Marcus & Millichap Research Services, MPF Research

Bottom 10Metros

1Q 2013Vacancy

YOY Bps.Chg.

Las Vegas 8.8% 70

Atlanta 8.5% -70

Jacksonville 8.5% -100

Indianapolis 8.2% 190

Houston 7.7% -50

St. Louis 7.3% -10

San Antonio 7.1% 40

Phoenix 6.6% -70

Dallas-Ft. Worth 6.4% -50

Tampa 6.3% -80

U.S. Average 5.1% 0

0%

1%

2%

3%

4%

2010

2011

2012

2013

*

Core Inflation 10-Year TreasuryAvg. Core Inflation Avg. 10-Year Treasury

Rat

e

* Through AprilSources: Marcus & Millichap Research Services, Federal Reserve

Core Inflation vs. 10-Year Treasury

3.61%

1.90%

$0

$40

$80

$120

$160

00 01 02 03 04 05 06 07 08 09 10 11 12 13*

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

U.S. Apartment Investment TrendsAnnual Dollar Volume by Price Tranche

* Annualized 1Q preliminary estimateIncludes sales $1 million and greaterApartment excl. 220 trans. & $17.8B in $ vol. due to Archstone deal in Q407Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics

Tota

l Do

llar

Vo

lum

e (B

il.)

$50

$75

$100

$125

$150

00 01 02 03 04 05 06 07 08 09 10 11 12 13*

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

Med

ian

Pri

ce p

er U

nit

(00

0s)

U.S. Apartment Pricing Trends by TrancheMedian $/Unit

* Through 1QIncludes sales $1 million and greaterSources: Marcus & Millichap Research Services, Real Capital Analytics, CoStar Group, Inc.

U.S. Apartment Cap Rates by Class

4%

5%

6%

7%

8%

9%

00 01 02 03 04 05 06 07 08 09 10 11 12 13*

Class A Preferred MarketsClass A

Class B/C

Ave

rag

e C

ap R

ate

* Through 1QIncludes sales $1 million and greaterAssumes properties less than 10 years old at time of sales to be Class A, properties older than 10 years assumed to be Class B/CPreferred Markets Include: NY, DC, BOS, SD, LA, OC, SJ, SF, SEASources: Marcus & Millichap Research Services, CoStar Group, Inc.

4%

5%

6%

7%

8%

9%

04 05 06 07 08 09 10 11 12 13*

Primary Secondary Tertiary Preferred

Ave

rag

e C

ap R

ate

* Through 1QIncludes sales $1 million and greaterSources: Marcus & Millichap Research Services, Real Capital Analytics, CoStar Group, Inc.

Repricing of Risk by Quality Reflected in Apartment Cap Rate Trends by Market

U.S. Public REIT Valuation Indices vs. S&P 500

0

250

500

750

1,000

S&P 500All REITsApartment REITs

* Through June 7Index: December 1993=100Sources: Marcus & Millichap Research Services, NAREIT, Standard & Poor’s

Ind

ex (

Dec

. 199

3 =

100

)

Peak-Trough Trough-Current

S&P 500: -51% +145%

All REITs: -68% +236%

Apt. REITs: -68% +277%

0%

2%

4%

6%

8%

10%

Apartment Cap Rate 10-Year Treasury Rate

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

* Through June 10Includes sales $1 million and greaterSources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics

Ave

rag

e R

ate

10-Yr Treasury Long-Term Avg.

Cap Rate Long-Term Avg.

380 bps

430 bps

390 bps

100 bps

380 bps

390 bps

400 bps

California Overview

California Employment Rank by MetroY-O-Y Percent Change Through April 2013

MetrosY-O-Y Absolute

ChangeY-O-Y Percent

ChangeNet Gain/Loss

from 2007 Peak

San Jose 24,100 2.7% 6,300

San Francisco 26,100 2.6% 20,300

San Diego 26,100 2.1% -34,300

Los Angeles 74,100 1.9% -212,600

Orange County 26,400 1.9% -102,000

Inland Empire 19,700 1.7% -112,700

Oakland 13,400 1.4% -61,200

Sacramento 8,500 1.0% -75,700

U.S. Total 2,065,000 1.5% -2,580,000

Sources: Marcus & Millichap Research Services, BLS

0

20

40

60

80

100

120

140

160

180

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

*

Single Family Multifamily

California Permit Issuance Single-Family vs. Multifamily

Per

mit

s (0

00s)

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

California Apartment Rank by Metro2013 Forecast Completions

Metro 2013 Completions* Percent Change in Inventory*

Los Angeles 6,000 0.6%

Orange County 4,000 1.7%

San Jose 3,000 2.0%

San Francisco 3,000 1.3%

San Diego 2,000 0.7%

Oakland 2,000 1.0%

Inland Empire 1,000 0.6%

Sacramento 390 0.3%

U.S. Total 145,000 1.0%

* ForecastSources: Marcus & Millichap Research Services, MPF Research

3.4%

3.5%

3.7%

4.1%

4.4%

4.4%

5.1%

5.1%

5.7%

0.0% 1.5% 3.0% 4.5% 6.0%

Oakland

San Jose

Los Angeles

San Diego

Orange County

San Francisco

Sacramento

U.S. Average

Inland Empire

* ForecastSources: Marcus & Millichap Research Services, MPF Research

1Q 2013 Vacancy Rate

California Apartment Vacancy Rate by Metro

California Apartment Rent Change by Metro

Metro1Q 2013

Effective Rent Percent Change

2001- 1Q 2013Percent Change

2007- 1Q 2013

San Francisco $2,359 43.4% 16.5%

San Jose $1,916 32.0% 16.4%

Oakland $1,525 27.0% 15.1%

San Diego $1,417 31.8% 8.0%

Los Angeles $1,654 45.8% 6.1%

Orange County $1,588 32.8% 2.7%

Inland Empire $1,086 35.7% -1.3%

Sacramento $962 5.3% -1.6%

U.S. Average $1,093 23.1% 6.8%

Sources: Marcus & Millichap Research Services, MPF Research

California Metros By Affordability Gap

Metro1Q 2013

Effective RentMortgage Payment on Median Priced Home Affordability Gap

San Francisco $2,359 $4,089 $1,730

San Jose $1,916 $3,492 $1,576

Oakland $1,525 $2,916 $1,391

Orange County $1,588 $2,886 $1,298

San Diego $1,417 $2,025 $608

Los Angeles $1,654 $1,712 $58

Sacramento $962 $960 -$2

Inland Empire $1,086 $998 -$88

U.S. Average $1,093 $947 -$146

Sources: Marcus & Millichap Research Services, MPF Research, National Association of Realtors

0%

2%

4%

6%

8%

Southern California Northern California United States

2003-2010 2011 2012 2013*

Ave

rag

e C

ap R

ate

Apartment Class A Cap Rate Trends

* Through 1QIncludes sales $1 million and greaterSources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics

1Q 2013 U.S. Average Cap Rate: 5.4 %

0%

2%

4%

6%

8%

Southern California Northern California United States

2003-2010 2011 2012 2013*

Ave

rag

e C

ap R

ate

Apartment Class B/C Cap Rate Trends

* Through 1QIncludes sales $1 million and greaterSources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics

1Q 2013 U.S. Average Cap Rate: 6.4 %

U.S. Demographics - Major Factor BehindFavorable Long-Term Economic and Real Estate Outlook

80 Million Baby Boomers

Bill GatesFounder, Microsoft

Steve JobsFounder, Apple

Michael DellFounder, Dell

U.S. Demographics - Major Factor BehindFavorable Long-Term Economic and Real Estate Outlook

80 Million Echo Boomers

California Apartment Market Overview and Outlook

2013