Presentation to Ontario, CAN Apartment Association

Lessons from a Large US Apartment Operator

(AIMCO Chief Property Operations Officer 2002-2008)

And

US Multifamily Investment Opportunities

(President, The Sanctuary Group, LLC 10/08-)

Jeffrey Adler, President, CEO The Sanctuary Group, LLC

[email protected]

Agenda

1. Lessons from a Large Operator

2. Raising Revenue in Regulatory Constrained Markets

3. Understanding Product Type Differences

4. US Multifamily Investment

1. Lessons from a Large Operator

• Apartments are a consumer service business trapped in a capital intensive industry

• Residents expect CONSISTENCY from professionally managed firms- which can only be delivered through process mgmt

• Apartments are an EMOTIONAL service, with untapped potential– Staff attitude and camaraderie are essential– Segmentation, customization, and personalization can be tackled after consistency has

been achieved

• Transparency and Visibility are Critical- Existing and New customers, expenses, people, capital spend

• Resident Screening & Selection is the Moral Imperative of Property Mgmt

4

History of Apartment Investment & Management Company (“AIMCO”)

Initial Public Offering in 1994 with $315 million gross asset value Rapid growth followed by an integration period.

Doubled in size every 18 months from 1994 – 2002 through several large portfolio acquisitions. Rationalized portfolio and operations, selling more than 350 properties worth over $4.5 billion from

2001 – 2006 and substantially exiting the third-party property management business.

Built operating infrastructure to take advantage of scale and support growth.

Operating platform stabilized by 2006, positioning AIMCO for growth- decline in values since 1Q07 has led to a rapid sell-off as stock price has fallen faster than private market value of US real estate

Gross Book Value of Real Estate

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

$ in

mill

ions

Number of Aimco Employees

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

5

Background & Context – How Aimco Creates Value

Aimco Value Drivers Customer-Centric

Property Operations

Redevelopment/ Entitlements

Tax Credit Transactions

Finance Strategy

Joint Ventures

The primary focus is creating value through the management and redevelopment of high land value assets in good locations. This implies serving customers w/different value propositions.

Customer Segment 1

Customer Segment 3

Customer Segment 2

Customer Segment 1Customer Segment 2

Customer Segment 3

6

AIMCO Operations Philosophy

The apartment management industry has been undergoing a transformation from a cottage industry to a scale driven, professional business system that is customer-centric, driven by rising customer expectations.

AIMCO Operations has been at the forefront of this transformation, led by a team that is grounded in other geographically distributed consumer businesses.

AIMCO has refocused its Operational Philosophy into five major Components: Customer Driven - based on a solid foundation of consumer research, we focus on

the entire customer experience, measure it, and seek to differentiate ourselves beyond the physical quality of the property, in order to achieve a relative price premium.

Forward Looking & Data Driven - we measure, in detail, to manage our four pipelines 1) revenue, 2) expense, 3) people, and 4) capital spend.

Scale Driven - we seek to leverage our size into scale driven advantages, and to transform site operations from mini transaction processing centers to places of personalized experiences.

People Driven - selection, hiring, on-boarding, training, development, performance management, and succession planning is itself a set of processes that are developed, measured, and managed.

Product Driven - curb appeal, unit turn quality standards, capital investment, financial management, construction services, and the redevelopment process are all areas that receive intense focus to ensure that we are competitive on the basis of product quality and amenities.

7

AIMCO’s Conventional Strategy Roadmap

Revenue

Expense,Capital &Service Mgt

Style/Design & Community Building

Customer Information as Competitive Advantage

Turn Production Vendor/Expense

Management Customer Service

Measurement Product Lines

(Student)

Revenue growth through customer experience, style and product differentiation

Increasing emphasis on Team-member processes and systems

Web Enablement Ramp up of

Redevelopment & Capital Programs

Disney Training – Customer Experience

2004/5

2006/7

2007/8

>2008

Resident quality

Mtkg and Media Customer

Response (phone and email)

Sales (New & Renewal)

Revenue Management

Continue migration of admin tasks offsite

Refinement of emotion-based customer segments

On-Site experience

Media Property

Websites Call Center Revenue Mgmt Customer

Underwriting Retention People Services Capital Invest

Resident Quality is the Moral Imperative-Selection of Neighbors is the Unique functionof a management company

8

A Fragmented Market – the AIMCO Target Bulls eye

• The market is fragmented and AIMCO operates in a fraction of the market.

Tapestry Segments% Who Rent:

Rentals(Fragmented Market)

AIMCO Target

Global Roots = 60-80%

Solo Acts = 60-70%

Upscale Avenues = 30-60%

House

Townhome

Condo -Management

Company

Condo-Landlord

Sublet

2-3 Flat

Apartment Building withProfessional Management

Company

We occupy only 1-2% of the “management company” rental market

• 300 million people In the US• 100 million US households• 30 million rental units, (including

condos, flats, individual LL etc.)• 30-40% are professional

management =9-12 millionAimco with 125,000 current units = <1%

30-40% of available market

9

Consumer Housing Choices

Professional Management

CompanyLandlord Ownership

Positive

Consistent standards & security

Access to “whole team of people” 24/7

Fast/responsive (know building and have the appropriate resources)

Public company (meets public scrutiny)

Can escalate issues if necessary

Can negotiate cost/rentLandlord takes extra/personal

care (updates) Inside has characterDeal with one personLandlord knows/chooses me

EquityChose neighbors (more

scrutiny)Free to personalize to tasteTake pride in my space

Negative

“Cookie cutter.” No character/ personalization

Profit orientedRisk of many neighborsCan I be myself?

• Landlord is too close for comfort, would rather complain to larger company

• Landlord can be greedy• Less consistent maintenance

(polarized- they are either on top of you or take a long time)

• Economic/market fluctuation• Maintenance/incidentals can

be a headache and costly• Risk of community issues• Escalating Property Taxes

The components of strategy must enhance positives, while mitigating negatives as much as possible

30-40% of available market

60-70% of available market

“Perception” of uniqueness and personalization

10

The Market Value EquationCUSTOMER PRIORITIES

Rational Drivers Emotional Drivers

Service

Security

Location Respect/Pride & Care

PriceFriendly Community/

Value System

Amenities Updates

11

The Market Value Equation Consumers Priorities are Rational Drivers + Emotional Drivers

Respect/Pride & CareDimensions

• Pride in work• Staff enjoys job, they WANT to help me

• Appreciation/humility• You are our responsibility/pride, Residents are #1

priority over prospects….”how can we help you?” • 2 way communication

• No surprises, makes me feel valued• Reach out and ask/listen to needs

• Empathy• Visible touch-point (family, connection, feels like home)• Consistency (change is very disruptive)

Friendly Community/Value System • Friendly neighbors

• Not friends, but friendly. “A smile goes a long way”• Shared Values/Community value system (among both

residents and staff)

Updates• FUNCTIONAL aspect of Updates for Residents: “Justifies rent

increases”• EMOTIONAL aspect of Updates for Residents: “Shows me you

care as much as I do, and you care about me, feels like a hug, and keep me updated with the latest styles/trends”

Respect/Pride & CareDimensions

• Pride in work• Staff enjoys job, they WANT to help me

• Appreciation/humility• You are our responsibility/pride, Residents are #1

priority over prospects….”how can we help you?” • 2 way communication

• No surprises, makes me feel valued• Reach out and ask/listen to needs

• Empathy• Visible touch-point (family, connection, feels like home)• Consistency (change is very disruptive)

Friendly Community/Value System • Friendly neighbors

• Not friends, but friendly. “A smile goes a long way”• Shared Values/Community value system (among both

residents and staff)

Updates• FUNCTIONAL aspect of Updates for Residents: “Justifies rent

increases”• EMOTIONAL aspect of Updates for Residents: “Shows me you

care as much as I do, and you care about me, feels like a hug, and keep me updated with the latest styles/trends”

Emotional Drivers

Location Suburban

• Green/nature/parks, close to malls/shops/restaurants• Interstate highways, public transportation (commuting =

currency)• Schools

Urban• Schools• Walk to public transportation • Convenience stores/restaurants

Metro• Walk to public transportation, walk to convenience stores,

restaurants, culture/events

Price • Washer/dryer (#1)• Big closets/storage• Wood floors• Kitchen/living area open floor plan• Price Range• View/ceiling to floor windows

Amenities• Gym (24/7)• “At my convenience” and “On my own time”• Amenity value beyond Gym alone (pool, enclosed community

center)

Location Suburban

• Green/nature/parks, close to malls/shops/restaurants• Interstate highways, public transportation (commuting =

currency)• Schools

Urban• Schools• Walk to public transportation • Convenience stores/restaurants

Metro• Walk to public transportation, walk to convenience stores,

restaurants, culture/events

Price • Washer/dryer (#1)• Big closets/storage• Wood floors• Kitchen/living area open floor plan• Price Range• View/ceiling to floor windows

Amenities• Gym (24/7)• “At my convenience” and “On my own time”• Amenity value beyond Gym alone (pool, enclosed community

center)

Rational Drivers

Fear/Risk:

Consumers have fear/risk aboutService and Security, these 2 drivers are the cost of entry (visual proof of guarantee needed)

Service - Clean/spotless with cues - Fast/responsive (24 hrs), Fixed the first time (lobby/main entrance, carpet/floors/paint) - Reliable/dependable (know maintenance staff

by name)

Service - Clean/spotless with cues - Fast/responsive (24 hrs), Fixed the first time (lobby/main entrance, carpet/floors/paint) - Reliable/dependable (know maintenance staff

by name)

Security- Window locks, buzz in doors, gate/lighting, guard - Security you can see- Neighborhood - “People around and watching over me”

- Screening (background checks/high rent weeds out)

Security- Window locks, buzz in doors, gate/lighting, guard - Security you can see- Neighborhood - “People around and watching over me”

- Screening (background checks/high rent weeds out)

Emotion:Pride & Care

12

Village Collection

Sub SegmentsCultural PrideDay-to-Day PrideFamily Restart

Ultimate GoalSafe Haven “Village” for my family. Value for a full life within a

community (a Village).

Consumer DemographicsSinglesCouplesFamilies

Financial LeverageCash yield through longer duration

(retention) and lower operating costs.

13

Towne CollectionSub Segments

ReprieveReprieve Plus Connection

Ultimate GoalA Peaceful Reprieve.Value for their money, a home

without the house (trees, landscape, park, playground feels like backyard) because “I’m/We’re sacrificing for now.”

Consumer DemographicsYoung Professionals (Singles and

Couples)FamiliesActive AdultsStudents/Roommates

Financial LeverageScale through Net Operating

Income (NOI) and Controllable Operating Expenses (COE) optimization.

14

Metropolitan Collection

Sub SegmentsFiscally Minded, “PRIDE”“Wow” Factor, “FUN”

Ultimate GoalResort Living.Better quality of life (resort, things

to do nearby, restaurants, nightlife).

Consumer DemographicsPRIDE: Young ProfessionalsFUN: Financially Secure

Consumers, Artists, Singles

Financial LeverageRevenue growth through selective

investment for rent increase.

15

Improvement to Resident Quality

AIMCO’s first step to improve operations began with improving resident quality.

Neighbors are an essential ingredient to successful communities. Employ an unyielding system relying on financial stability to judge

resident quality. Results from Improving Resident Quality2003 Current

Annualized Skip/Eviction % 9-10% 6-7%

Accounts Receivable > 12.0% < 2.5%

Bad Debt 3.0% < 1.0%

91.0%

92.0%

93.0%

94.0%

95.0%

2004 2005 2006 YTD 2007

Aimco Average Physical Occupancy

16

Operational Excellence

AIMCO continues to build its platform Processes and Standards

Data-driven people and culture with the systems and tools to accomplish as much.

“Automate the Routine, Humanize the Exception” Improving productivity, the hiring profile, and in the end the customer experience. Many opportunities exist to leverage supplier “eco-systems” for smaller companies

2006/7 Accomplishments 2008

Electronic Procurement Internet Customer Experience 60% of demand web generated

Electronic Revenue Management

Electronic Lease Documentation

Operating Standards Accounts Payable

Centralization

43% of leases from web >50% growth in web demand 23% of apps on line and growing On-line leasing live in Atl/Orl

17

How Customers Search

• Our research validated a need for a differentiated web experience, which drove our investment in a new property website platform– Usage of ILS is very high: 76%– Usage of Search Engines is also high: 71%

– 68% started their search online– After online search,

• 40% - word of mouth• 32% printed resources• 31% phone calls

– Community web site: 67%– Craig’s List web site: 43%

– 3 clicks/3 bricks: Consumers average 3 web site and 3 community visits

– The web experience must be “real”, as if I was there, no glamour views that may disappoint

18

Efficiencies from ScalabilityInternal Scale vs. Vendor Scale

Transformation of communities from mini-transaction processing centers to a focus on revenue enhancing customer relationships- 2/3 of Front office time spent on administrative tasks

Community Support Centers in 2008 handle e-procurement and other administrative tasks

Centralized procurement increases standardization across Aimco Call Center to manage all leasing inquiries to Aimco

Missed calls have declined from 25% to <5% Media purchasing and development has been centralized

The national media group executes all large scale web and print buys

Goal is to eliminate the back office from Aimco’s leasing centers

Timeline for Move to Off-Site Responsibility

2005200520052005

20062006

20072007

payment, service in place

Transaction Category

Incoming leasing callsIncoming leasing e-mailsOutbound Appointment Confirmation Utility Bill paymentsElectronic procurementElectronic revenue managementElectronic Lease documentation Centralized accounts payableWeb Customer Self-Service

19

Utilization of Technological SystemsBuild vs. Buy Decisions

PROFIT Revenue Management System is a heavily data-driven tool used to accurately price rents through:

Forecasting inventory based on historical season trends. Upcoming lease expirations for the specific property. Forecasting of market demand metrics, including Aimco’s own lease pipeline

(inquiries, visits, etc.).

2007 8America Comes Home to Aimco

PROFIT (Pricing Revenue Optimization and Forecast Information Tools) – AIMCO’s Revenue Management System

• Historical detail to the lease level is also available for the Property and ROC teams. (each dot is a lease)Aimco has strategically invested in technological systems which have SIGNIFICANTLY IMPROVED operating efficiency

20

Highest Emphasis Placed on Customer Experience

We involve our residents in improving the customer experience through several feedback systems.

On-line surveys are offered to residents at: 1) move-in; 2) two days after move-in; 3) 120 days after move-in 4) completion of each service request (Customer Experience Measurement).

Results are immediately available for staff review and impact the variable compensation program.

Retention has improved 3% from ’03 to ’08 A key attribute is TRANSPARENCY of the Customer Experience Net Promoter Score is our primary customer experience metric

Customer Experience Measurement

Metric 2005 2006 2007 2008

Net Promoter Score 18% 18% 31% 38%

Office Courtesy 90% 90% 93% 94%

Maintenance Overall Rating 82% 86% 90%

Customer Average Duration (months) 16 17 17 19

Willingness to Renew 70% 75% 75% 93%

Move-in Defect Rate 14% 8% 11% 11%

Unit Turn Cycle Time 34 days 15 days 15 15

Unit Availability 40% 90% >90% >90%

21

The Team Member Experience – Extending the Operating Platform

Team Member Engagement- Reduced turnover by 8%

•Selection- Behavior based hiring screens deployed mid year ‘07

•HR People Pipeline Mgmt System- START- deployed early ‘07

•Training/Development

• Continued CM training program

• Learning Management system deployed early ‘06

• New long-term training relationship with the Disney Institute

• Retention programs

• “Aiming for the Stars”, Aimco Cares, Aimco Cares4U, College Scholarships, Active Duty Service Members, Tuition Reimbursement, Scorecard payments to 63% of properties in ’06, 50% in ‘07

• Performance mgmt, career paths, succession planning programs.

22

Employees are at the Heart of Quality Customer Service

“Hire for attitude, train for skill” Aimco has developed rigorous training programs to ensure our people deliver the

highest level of customer service. Approximately 5,000 Regional and site team members have completed an

average of 10 courses per person year to date. Aimco has improved team member satisfaction through specific initiatives including

pay for performance, quarterly CEO/Executive Town Halls, active succession planning, and numerous training opportunities.

Indicator 2005 2007 Increase

EngagementJob Satisfaction, Retention,Recommending Aimco as a place to work

57% 65% 8%

On the JobTraining, Role Clarity, Information, Resources, Using Skills & Abilities

81% 88% 7%

Work Life 57% 78% 21%

Compensation (Pay & Benefits) 57% 67% 10%

Values (Living Up To) Integrity, Respect , Teamwork, Customer,

Team Member Focus, Performance66% 75% 9%

Values (Believe In) 97% 99% 2%

23

Employees are at the Heart of Quality Customer Service

“Hire for attitude, train for skill” Aimco has developed rigorous training programs to ensure our people deliver the

highest level of customer service. Approximately 5,000 Regional and site team members have completed an

average of 10 courses per person year to date. Aimco has improved team member satisfaction through specific initiatives including

pay for performance, quarterly CEO/Executive Town Halls, active succession planning, and numerous training opportunities.

Indicator 2005 2007 Increase

EngagementJob Satisfaction, Retention,Recommending Aimco as a place to work

57% 65% 8%

On the JobTraining, Role Clarity, Information, Resources, Using Skills & Abilities

81% 88% 7%

Work Life 57% 78% 21%

Compensation (Pay & Benefits) 57% 67% 10%

Values (Living Up To) Integrity, Respect , Teamwork, Customer,

Team Member Focus, Performance66% 75% 9%

Values (Believe In) 97% 99% 2%

24

Team Member Experience- CM Training Results (at 120 days post hire vs. prior year)

Measure Rating Comments

1 Sales Effectiveness

Strong improvement

New CM sales performance-

10.7% point increase

3.2% improvement vs. month average

2 Office Courtesy

Improvement Office Courtesy scores

10.5% improvement to above 93%

3 Employee Retention

Strong Improvement

Employee turnover improvement

+30% vs. baseline

4 FSG Tickets Strong Improvement

Reductions of FOCUS tickets vs. benchmark improvement of 2.9 tickets per 100 units

25

Results of the Operating Improvements

Aimco versus REIS Occupancy & Rent

$700

$720

$740

$760

$780

$800

$820

$840

Mar-03 Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07

Aver

age

Ren

t pe

r O

cc. Uni

t

82.0%

84.0%

86.0%

88.0%

90.0%

92.0%

94.0%

96.0%

98.0%

Occ

upan

cy

Aimco Rent REIS Rent Aimco Occ. REIS Occ.

Source: REIS.Used with permission from Reis.com

The operating improvements are further evidenced through above-market rents and occupancies.

2. Raising Revenue in Rent Constrained Markets• Ontario rent regulations are similar to several US cities (San

Francisco, Northern NJ, Alexandria VA). You are not alone!

• Utility Rebilling- a form of “Unbundling” and Risk Transfer– Does result in about a 30% reduction in usage – very “Green” – Direct Bill vs. RUBS based on physical plant and age– Electric, Heat (Oil, Nat Gas, Electric), Air Conditioning, Hot Water,

Trash and Pest Control have all been “unbudled”– Vendors in US are ISTA, NWP, RealPage– Must be included in the rent statement to be truly effective, does

require regulatory authorization, sometime regulation– Represents $1,000/unit/yr change or 10% change in total expenses– Success depends on customer type—seniors will pay up for stability

2. Raising Revenue in Rent Constrained Markets• More Unbundling- Represents 4% of Rental Income

– Comes with Danger of Being “nickled and dimed to death”• Effective with Cost Conscious Consumers- backfires in luxury/senior segments

– Renter’s Insurance- required liability insurance – Surety Bond vs. Security Deposit– Fee Income- application fees, upfront admin fees, late charges, lease

cancellation fees, month to month fees, transfer fees, lost key fees, pet rent, pet deposits, parking costs,

• Ancillary Revenues- 1% Opportunity & Growing– Communications- Internet, Phone/Wireless, Television– Vending– Laundry and/or Washer/Dryer Rentals

2. Raising Revenue in Rent Constrained Markets• Revenue Management Systems- the Biggest Opportunity

– Still only operative on 10% of US Apartment Rentals– Lift of 2-5% documented with available vendor systems– Requires a compatible Property Mgmt Operating System– Requires a documented Revenue Management Process

• Centralized Staff of some sort• Collaborative decision making—but OFF SITE• Data Driven based upon historic conversion ratios• Requires interaction of internet media sources• Assumes most demand is sensitive to price—but that’s exactly what good

segmentation should reduce!

– Enables price segmentation as to move-in date, lease duration, and unit amenities

– Next Wave will layer in resident credit stability

3. US Major Apartment Product Types

• Urban- Brownstone, Mid and High Rise– Long Useful lives among major building systems– High land values based on density, difficulty to replace– Expensive/difficult to Renovate Common area elements- elevators, HVAC,

Plumbing– The Neighborhood is the lifestyle amenity

• Suburban- Garden Apartments- predominate US Housing Apartment Style given reduced US population density– Clusters of 10-12 unit apartment buildings- 300 unit avg size– Easier to bite off Cap Ex- roofing, siding, HVAC units, hot water– Dependent on the automobile– Growing trend is along metro rail lines, universities, hospitals– Many Common areas amenities- club houses, pools, etc.

4.US Multifamily Investment

2009 APARTMENT TRENDS

A National Multifamily Market Overview

Market Divergence Continues

Fundamentals softening short-term (2009-10)

Construction starts are decreasing Future supply / demand favors appreciation Apartments remain a preferred investment

Split between: Family firms and Institutional Capital

Market Divergence Continues

• Short-term transactional value Debt and equity more expensive Investors are fearful and conservative Unemployment is damaging fundamentals Expectation of “discounted / distressed

pricing” by institutional investors

-4%

0%

4%

8%

1970

1974

1978

1982

1986

1990

1994

1998

2002

2006

2010

*

Employment Growth

Y-O

-Y P

erce

nt

Ch

ang

e

Sources: Marcus & Millichap Research Services, Blue Chip, Economy.com, Global Insight

Economic Weakness Expected Through Q3-2009 Risk Levels Remain Elevated

-10%

-5%

0%

5%

10%

15%

1970

1974

1978

1982

1986

1990

1994

1998

2002

2006

2009

*

GDP Growth

An

nu

aliz

ed G

row

th

*Forecast Assumes No Additional Major Shocks

Long-Term Avg.

LT Avg. 3Q2008-Q22009 = -3.1%

2009 Annual = -2.2%

2010 Annual = 2.5%

Text Boxes Below = Peak-to-Trough During Contraction Period

08-09: -5.9M

01-03: -2.7M81-82:

-2.8M

90-91: -1.6M

70: -1.0M74-75: -2.2M

U.S. Employment Losses Have Reached Extreme Levels in Recent Months

-750

-500

-250

0

250

500

00 01 02 03 04 05 06 07 08 09*

*Through February 2009Sources: Marcus & Millichap Research Services, Bureau of Labor Statistics

Monthly Absolute ChangeMay: -137,000June: -161,000July: -128,000August: -175,000September: -321,000October: -380,000November: -597,000December: -681,000January 09: -655,000February 09: -651,000

Th

ou

san

ds

of

Job

s

Retail Sales Continue to Decline Despite Relief from High Energy Prices

-10%

-5%

0%

5%

10%

00 01 02 03 04 05 06 07 08 09*

$0

$30

$60

$90

$120Retail Sales Oil Prices

Cru

de O

il (Price p

er Barrel)

Ret

ail S

ales

(Y

-O-Y

Ch

ang

e)

* Retail Sales YOY as of February, Oil as of March 18 th

Sources: Marcus & Millichap Research Services, Economy.com

The Fed and Treasury Have Become Aggressive – Helped by Falling Inflation

0%

2%

4%

6%

8%

00 01 02 03 04 05 06 07 08 09

0%

2%

4%

6%

8%

Fed Funds Rate Ten-Year Treasury Core Inflation

Fed

Fu

nd

s an

d T

en-Y

ear

Rat

es

Co

re Inflatio

n (Y

-O-Y

Ch

ang

e)

* Ten-Year/Fed Funds through March, Core Inflation through FebruarySources: Marcus & Millichap Research Services, BLS, Federal Reserve Board

*

0

4

8

12

16

20

01 02 03 04 05 06 07 08 09*

Single-Family Condo

* Through FebruarySources: Marcus & Millichap Research Services, National Association of REALTORS®

Y-O-Y Change

-1%

17%

Nu

mb

er o

f M

on

ths

Housing Inventory Overhang Indicates

Further Weakness (months of supply)

U.S. Existing Single-Family Home Trends

$0

$100

$200

$300

$400

U.S. Northeast Midwest South West

1990-2007 2008 2009*

Med

ian

Ho

me

Pri

ce (

000s

)

Sources: Marcus & Millichap Research Services, Economy.com, National Association of REALTORS ®

Change: ’02 to ’Peak: 34% 49% 21% 23% 51%Change: Peak to Present -22% -5% -15% -16% -38%

* Through February

Y-O-Y Feb. 2009 Employment RankingTop 10 & Bottom 10 Markets

Top 10Markets

Y-O-YPercent Change

Oklahoma City 0.5%

Austin 0.1%

San Antonio -0.1%

Washington D.C. -0.1%

Houston -0.3%

Dallas/Ft. Worth -1.1%

Kansas City -1.3%

Boston -1.5%

Columbus -1.6%

New Haven/Fairfield Cty. -1.6%

United States -3.0%

Bottom 10Markets

Y-O-YPercent Change

Fort Lauderdale -4.2%

Atlanta -4.4%

Las Vegas -4.5%

Orange County -4.7%

Orlando -5.0%

Sacramento -5.2%

Charlotte -5.5%

Inland Empire -6.3%

Phoenix -7.3%

Detroit -7.4%

United States -3.0%

Sources: Marcus & Millichap Research Services, BLS

Notice of Default RankingTop 10 & Bottom 10 Markets Past 12 Months vs. Previous 12 Months

Top 10Markets

Y-O-YPercent Change

Denver -12%

Oklahoma City -4%

Boulder -2%

St. Louis -1%

Memphis 11%

Anchorage 17%

Albuquerque 19%

Sacramento 22%

New York/NNJ 25%

Santa Barbara 26%

U.S. Average 39%

Bottom 10Markets

Y-O-YPercent Change

Oakland 39%

Inland Empire 41%

Bakersfield 42%

San Francisco 42%

Los Angeles 46%

Orange County 52%

San Jose 60%

Las Vegas 84%

Portland 86%

Honolulu 176%

U.S. Average 39%

* 12 months ending in FebruarySources: Marcus & Millichap Research Services, DataQuick Information Systems

Apartment Vacancy Ranking (2008)Top 10 & Bottom 10 Markets

Top 10Markets

2008Vacancy

BpsChange

Indianapolis 7.6% -70

Palm Beach 7.6% -40

Milwaukee 3.7% -40

Cincinnati 6.7% -30

San Francisco 3.6% -30

Minneapolis 4.3% 20

New York 2.3% 20

Oakland-East Bay 5.3% 20

San Diego 3.9% 20

Boston 6.0% 30

United States 6.7% 90

Bottom 10Markets

2008Vacancy

BpsChange

San Jose 5.2% 130

Las Vegas 7.7% 160

Jacksonville 11.6% 170

Tampa 8.6% 170

Atlanta 10.2% 200

Charlotte 8.0% 200

San Antonio 8.7% 210

Orlando 9.7% 250

Phoenix 10.9% 260

Tucson 11.2% 300

United States 6.7% 90

Sources: Marcus & Millichap Research Services, Reis

Apartment Vacancy Ranking for 2009*Top 10 & Bottom 10 Markets

Top 10Markets

2009*Vacancy

New York 3.6%

Milwaukee 4.4%

San Diego 4.4%

San Francisco 4.6%

New Jersey 4.8%

New Haven-Fairfield Co. 5.2%

Minneapolis 5.4%

Los Angeles 5.7%

San Jose 5.9%

Oakland-East Bay 6.1%

U.S. Average 7.7%

Bottom 10Markets

2009*Vacancy

Charlotte 9.8%

San Antonio 10.0%

Tampa-St. Petersburg 10.4%

Austin 10.5%

Houston 10.9%

Atlanta 11.1%

Orlando 11.1%

Phoenix 12.6%

Jacksonville 12.7%

Tucson 13.3%

U.S. Average 7.7%

* ForecastSources: Marcus & Millichap Research Services, Reis

-4%

0%

4%

8%

12%

96 97 98 99 00 01 02 03 04 05 06 07 08 09*

Asking Rent Effective Rent

Apartment Rent Growth

Sources: Marcus & Millichap Research Services, Reis* Forecast

Y-o

-Y P

erce

nt

Ch

ang

e

Apartment Effective Rent Ranking (2008)Top 10 & Bottom 10 Markets

Top 10Markets

2008Eff. Rent

%Change

Seattle-Tacoma $958 4.9%

Oklahoma City $519 4.6%

Houston $715 4.4%

Austin $783 3.8%

San Francisco $1,827 3.6%

San Diego $1,303 3.4%

Louisville $618 3.3%

Washington D.C. $1,307 3.3%

Oakland-East Bay $1,332 3.2%

Boston $1,651 3.1%

United States $995 2.1%

Bottom 10Markets

2008Eff. Rent

%Change

New Haven-Fairfield $1,536 0.6%

New York $2,801 0.6%

Sacramento $921 0.4%

Jacksonville $757 0.1%

Detroit $768 -0.4%

Phoenix $710 -0.4%

Fort Lauderdale $1,050 -0.6%

Inland Empire $1,018 -0.7%

Palm Beach $1,040 -0.8%

Miami $1,041 -2.0%

United States $995 2.1%

Sources: Marcus & Millichap Research Services, Reis

0

100

200

300

400

500

0

400

800

1,200

1,600

2,000Multi-Family Single-Family

Construction Starts Declining

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

Mu

lti-

Fam

ily S

tart

s (S

AA

R, i

n t

ho

usa

nd

s)

Sin

gle-F

amily S

tarts (S

AA

R, in

tho

usan

ds)

60%

63%

66%

69%

72%

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010*

20

25

30

35

40

Homeownership Rate Renter Households

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

Reversal in Home Ownership Rate Points to Increase in Renter Households

Ho

meo

wn

ersh

ip R

ate

Nu

mb

er of H

ou

seho

ld (m

illion

s)

“Shadow” Rentals a SignificantFactor in Rising Vacancies

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

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

30%

35%

40%

45%

50%

55%

2+ Unit Structure 1-Unit Structure

1-Unit as % of Total

Un

its

(in

000

s)

1-Un

it Stru

cture as %

of To

tal

Sources: Marcus & Millichap Research Services, U.S. Census Bureau* As of 3Q

Fannie Mae Composite Rates

0

100

200

300

400

0%

2%

4%

6%

8%Apartment Spreads 10-Yr. Treasury

All-In Rate**

* Through Feb 13, 2009**10-Year Treasury Yield Plus Average Conduit Spread Sources: Marcus & Millichap Research Services, Marcus & Millichap Capital Corp.

Ave

rag

e C

on

du

it S

pre

ad (

Lar

ge

Lo

an) 10-Y

r. Treasury an

d A

ll-In R

ate

U.S. Commercial Mortgage Backed Securities (CMBS) Issuance:

2004-2007 Vintage at Highest Risk Level

$48.7

$74.4

$52.1

$77.8$93.1

$169.2

$205.6

$230.2

$12.1

$0

$50

$100

$150

$200

$250

2000 2001 2002 2003 2004 2005 2006 2007 2008

U.S. CMBS

CM

BS

Issu

ance

(b

illio

ns)

Sources: Marcus & Millichap Research Services, Commercial Mortgage Alert, MBA

Apartment Investment Trends Dollar Volume by Price Category

Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics

$0

$30

$60

$90

$120

00 01 02 03 04 05 06 07 08

To

tal

Do

lla

r V

olu

me

($

bil

)

$1M - $9.99M $10M - $19.99M $20M+

$104 Billion$100 Billion

$45 Billion

Excludes Archstone Privatization

$85 Billion

Commercial Mortgage Delinquency Rates by Group

0.0%

0.5%

1.0%

1.5%

2.0%

CMBS (30+ days and REO) Life Companies (60+ days)Fannie Mae* (60+ days) Freddie Mac (60+ days)Banks & Thrifts (90+ days)

Del

inq

uen

cy R

ates

Delinquency rates at the end of each periodSources: Marcus & Millichap Research Services, Mortgage Bankers Association

Total CMBS Outstanding: $799.7 billion

Sources: Marcus & Millichap Research Services, MBA

Office30.2%

Multifamily15.6%

Retail29.5%

Hotel9.5%

Industrial5.1%

Self-Storage

1.8%

Healthcare0.6%

Other7.7%

• By Property Types:• Office 30.2%• Multifamily 15.6%• Retail 29.5%• Industrial 5.1% • Hotel 9.5%• Self-Storage 1.8% • Healthcare 0.6%• Other 7.7%

Apartment Sales Trends Average Price per Unit vs. Average Cap Rate

$0

$30

$60

$90

$120

01 02 03 04 05 06 07 08 09*

5%

6%

7%

8%

9%Avg. Price per Unit Average Cap Rate

Sources: Marcus & Millichap Research Services, CoStar Group, Inc.

Sales $1 million and greater

Avg

. Pri

ce p

er U

nit

(00

0s)

Avg

. Cap

Rate

* 1Q Estimate

5%

6%

7%

8%

9%Primary Secondary Tertiary

Ave

rag

e C

ap R

ate

Sales $5 million and greaterSources: Marcus & Millichap Research Services, Real Capital Analytics

Re-Pricing of Risk TrendsBy Market Quality

12 – Month Cap Rate Adjustment Matrix *

Primary

Secondary

Tertiary

Class “A” Class “B” Class “C”

.65 1.00 1.25

1.00 1.25 1.50

1.50 2.001.25

* Change in cap rates last 15 months

12 – Month Pricing Adjustment Matrix

Primary

Secondary

Tertiary

Class “A” Class “B” Class “C”

-12% -17% -20%

-16% -21% -24%

-26% -30%-22%

Base = 5.00 / 5.50 5.50 / 6.25 6.00 / 6.75

2009 Commentary

Capital markets remain fractured and expensive

Investor demand tempered, motivated by anticipated discounts

Vacancy rate approaches 9% (+2%) Effective rents erode due to concessions Velocity remains low during 2009 Distressed asset sales escalate in 3rd / 4th Qtrs Cap rates continue to increase 50 bps

4.US Multifamily Investment

2009 APARTMENT TRENDS

THE CASE FOR OPTIMISM

* ForecastSources: Marcus & Millichap Research Services, Economy.com

-10%

-5%

0%

5%

10%

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

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

Ch

ang

e in

Po

pu

lati

on

Echo Boomer DemandSupports Appreciation

6.5 MillionIncrease

U.S. Population Trends Favorable ForRental Market (Projected 20-34 Year Old)

54,000

58,000

62,000

66,000

70,000

20-3

4 Y

r O

ld P

op

ula

tio

n (

000s

)

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

0.0

0.5

1.0

1.5

2.0

80 85 90 95 00 05 10* 15*

* ForecastSources: Marcus & Millichap Research Services, Economy.com

Nu

mb

er o

f In

div

idu

als

(mill

ion

s)

6.4 millionincrease

Demand From ImmigrationSupports Appreciation

Summary

Apartments are a Consumer Business as well as a Financial One

Value to Consumers Can be Unbundled Successfully

Apartments are an Attractive Investment in the US (and Canada!).