US Multifamily Strategy & 2016 Update

US Multifamily Strategy & 2017 Outlook

Jeff Adler Vice President, Matrix Jack Kern Director, Research and Publications

Fall 2016 Our View Point Since November 2015….

We Laid Out a Pretty Positive Case for US Multifamily Investment: 1. US macroeconomic conditions, while not great, were good enough to generate job growth of ~150-200K jobs per month  Enough to maintain MF occupancy and good, but probably decelerating, rent growth

2. Demand was a big tailwind, both Short and Long Term  Job Formation, Demographics, Affordability, and Technological change were all combining for a positive perfect storm for the next 10-20 years

3. Supply was, relatively speaking, in check and peaking in ’16/’17- which would slow, but not stop, continued rent growth  Supply surges are focused in major urban hubs of a select number of gateway and top tier cities, at very high rents

4. Oil price declines would be a net positive, but there would be regional pain- Houston, OKC, Denver, smaller oil patch

5. “18 Hour/Secondary” markets, and their emerging intellectual capital nodes represented a high probability way to target a position in US Multifamily that had good odds of generating capital appreciation with income  Value Add was a strategy that had good odds of success, given the large price gap between Luxury and Middle Market rents in most markets 2 How do Things Look Fall 2016?….Little Has Changed

The Outlook is Still Positive, but the risk of a Global Sovereign Debt Driven Macroeconomic Dislocation is still elevated: 1. Demand still looks really good, as does the Investment Thesis for “18 hour/Secondary” Markets & Value Add  Sustained high occupancy on stabilized properties- 95.8% and marginally declining  Decelerating, but Strong rent growth- ~4-5% still, but decelerating; especially in Houston, Denver, and San Fran;  Structural components of demand are still big tailwinds as before  Wage pressures in the US among skilled workers are increasing in our bifurcated economy

2. Supply is still, relatively speaking, in check and peaking in ’16/’17- which will slow, but not stop, continued rent growth  No meaningful change in New supply pipeline from prior expectations- 279K in lease-up, 652K Under Construction  (2.2% and 4.4% of total inventory) 3. Dislocation in Comm’l Real Estate Debt Markets, driven by regulatory influences, is restraining growth in new construction financing  In addition, disruption in the CMBS market due to capital regulations, is encouraging private debt funds to enter, but at a higher cost  These dislocations will extend the apartment rental growth up-cycle, absent a demand driven crack-up  Debt availability and cost is more tied than ever to global financial markets, despite the steadying influence of the GSEs (50% debt market share, and able to do more with Green/Affordable/Small Balance/ Variable Rate Programs).  Asset Value growth will be restrained, but not stopped, due to these cross-currents

3 Debt Maturity-Next Three Years

3,000

2,500 975 CMBS

2,000 723 CMBS

1,500

2,473 Loans Total 1,000

2,168 Loans Total 500

0 2016-2017 2018

4 How do Things Look Now?….Little Has Changed…Yet…

The Outlook is Still Positive, but the risk of a Global Debt Driven Macroeconomic Dislocation has risen:

4. Global Macroeconomic concerns and slow, but rebounding US GDP growth, along with stretched equity market valuations, and coincident probable equity market volatility, are the chief reasons driving near term caution  In a Deflationary, Low Yield, Central Bank driven Financial Market Environment Where Can An Investor Find Yield? INCOME PRODUCING US COMMERCIAL REAL ESTATE  Monetary Policy, and the Debt Surge it has engendered in the Govt & Publicly Traded corporate sector, has reached its limits (or very near its limits)—  Pro-Growth Structural Government Policies are Needed; since 11/8 now a possibility  Dependent Pace of Pro-Growth vs Anti-Growth policy implementation  Pace of Interest rate increases in the 10 Yr T-bill relative to income growth will drive valuations  US economy is the relative “one-eyed” man among the land of the blind- Europe, Japan, and a transforming China, that still has a lot of manufacturing capacity  US Multifamily, and US Commercial Real Estate, is still the place to be, even if the ride remains at risk of a few potential transitory bumps in the road

5 Macroeconomic Outlook Matrix National Economic Outlook 3Q 2016 » CRE is subject to the trends in the greater economy but lags » Private sector employment jumped 301,000 in September and October according to the ADP survey » Initial claims for unemployment, a key indicator below 300,000 for 87 straight weeks (through late October), continuing to move lower » Employment growth is sub-trend, but not a surprise . Total Non-Farm payroll increased by 161,000 in Oct. . Unemployment rate sits at 4.9% . Employment change for September revised up from 156,000 to 191,000 . Employment change for August revised up from 167,000 to 176,000 . Three-month average monthly gain of 176,000 » GDP increased at a SAAR of 2.9% in 3Q 2016, compared to 1.4% in 2Q 2016 . Third quarter GDP growth was 4.1% in 2013, 5.0% in 2014 and 2.0% in 2015

Source: BEA Gross Domestic Product; DOL Initial Unemployment Reports, BLS Employment Situation Reports; Moody’s Analytics; 7 GDP Definition: the value of goods and services produced by the nation’s economy less the value of the goods and services used in production, adjusted for price changes Job Growth Sustained in Q2/Q3; Wage Growth Still Upward

US Wage Pressure Increasing Job formation good, but a tad more volatile 4.0% 11.0% 600

500 Unemployment rate, % (R) 10.0% 3.5% 400

9.0% 300 3.0%

200 8.0%

100 2.5%

7.0% 0 2.0% -100 6.0% Monthly Change in Employment -200 (3-month MA, ths.) 1.5% Avg. hourly earnings, 5.0%

-300 % change year ago (L)

Jul-11

Jul-14

Jul-12

Jan-11

Jul-15

Nov-11 Jul-13

Sep-11 Jul-16

Mar-11

May-11

Jan-14

Jan-12

Nov-14

Sep-14

Nov-12 Jan-15

Sep-12

Jan-13

Jan-16

Nov-15

Sep-15

Nov-13

Sep-13 Mar-14

Sep-16

Mar-12

May-14

May-12

Mar-15

Mar-13 Mar-16

May-15

May-13 May-16 1.0% 4.0% Household Survey Establishment survey 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: Moody’s Analytics, BLS, CPS

8 Household Spending, Income and Oil » Household spending fueled by modest income gains (2.8%) and low oil/energy prices, gains in apparel and restaurant receipts » Light vehicle sales at 18.0 million units (SAAR) in October, a year-over year decline of 1.6% » Consumer Confidence Index at 98.6 in October » September retail* sales increased 2.2% year-over-year » Inflation in services, deflation in goods » Federal Reserve remains on hold, but governors opinions mixed on rate increases » Current oil price closed at $44.85 compared to $45.66 three months ago . One year ago, oil prices about $51/barrel . Baker-Hughes U.S. oil rig count up by 12 to 569 (up from 332 in 1Q) from a high over 1,600

Source: The Conference Board, AutoData, U.S. Census, Monthly Retail Trade and Food Services, FOMC, WTI (NYMEX) *Retail sales and food services, excludes motor vehicle and parts 9 Increasing Debt Burdens Increase Financial System Risk

Government & Publicly Traded Corporate Debt Loads are High and Increasing Monetary Policy Stimulus is at, or close to, the end of its limits Publicly Traded Corporations’ debt has been funding share buy-backs more than CapEx Tech and Energy had been the stimulus to private sector employment, both are moderating Low Interest Rates have allowed a rapid growth in unsustainable gov’t transfer payments Govt Policy has been anti-growth and credit rationing has raised hurdles to small business growth We need Global Pro-Growth Gov’t Fiscal policies; since 11/8/16 now a possibility  A “Yellow” Traffic Signal

Source: Moody’s Analytics, BLS, CPS

10 Inflation- Low, but not for Rent, Education, & Healthcare

4% Education Rent 3%

Health Care 2%

CPI 1%

CPI Less Education, Health Care, and Rent -1%

-2%

-3%

Source: Moody’s Analytics; BLS Notes: Growth numbers are YOY 6 month moving averages. CPI Less Health Care, Education and Rent is an estimate using the BLS document “Math calculations to better utilize CPI data” 11 Demographics & Real Estate Fundamentals Total Housing Supply Lags Demand Since the Recession

2,500,000

Housing Starts-Single family Housing Starts-Multifamily New Househole Formations

2,000,000

1,500,000

1,000,000

500,000

0 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 Source: Moody’s Analytics; U.S. Census Bureau

13 Real Estate Fundamentals: Demographics Favorable Demographics are in Multifamily’s favor over the long-term, especially in the younger aged cohort…

U.S. Renter Population: Age 20-34 Cohort 71

Millions 68

Source: U.S. Census Bureau (BOC) 14 Homeownership Rates Declining

Renter Households (Millions) Homeownership Rate U.S. Homeownership Rate by Age Cohort, 1994-2015 Percent 44 74% 90

65+ 80 42 72% 55-65 Renter Households 70 45-54 Homeownership Rate 40 70% 60 35-44

50 38 68%

40 36 66%

>35 30

34 64% 20

10 32 62%

0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 30 60%

Overall >35 35-44 45-54 55-65 65+ Notes: Beginning in 2000, renter household data are the revised, consistent-vintage counts. 2000-09 counts are 2010 vintage, 2010-15 are 2014 vintage. 15 Source: US Census Bureau, Housing Vacancy Surveys Significant Variation by City- but the US won’t ever look like LA/SF

Homeownership Rate Homeownership Rate Homeownership Rate Homeownership Rate Metro 2006 2016 % Point Drop Metro 2006 2016 % Point Drop

Orlando 70.5% 58.4% 12.1% Austin 63.9% 57.5% 6.4%

Miami 69.2% 58.6% 10.6% Chicago 70.0% 64.3% 5.7%

Phoenix 71.2% 61.0% 10.2% Los Angeles 54.6% 49.1% 5.5%

Portland 68.3% 58.9% 9.4% Jacksonville 67.9% 62.5% 5.4%

Las Vegas 61.4% 52.1% 9.3% Baltimore 70.6% 65.3% 5.3%

Denver 70.7% 61.6% 9.1% Seattle 64.5% 59.5% 5.0%

San Diego 60.5% 51.8% 8.7% Boston 63.0% 59.3% 3.7%

San Jose 59.2% 50.7% 8.5% Sacramento 64.1% 60.8% 3.3%

Inland Empire 68.5% 61.1% 7.4% San Francisco 57.8% 56.3% 1.5%

Tampa - St Petersburg 71.7% 64.9% 6.8% San Antonio 66.0% 66.0% 0.0%

Philadelphia 73.5% 67.0% 6.5% Bottom is probably ~62%, rising slowing back to ~63% 16 Real Estate Fundamentals: Demographics Favorable ...Income Profile has skewed upward since the Great Recession

Affluent HHs: Stigma of Renting Diminishing

Composition of Renter - Occupied Housing Units by HH Income 50% 2006 2015

40%

Occupied Occupied Units -

30% Total # of $100k+ Renter-HHs MORE THAN DOUBLED

% of Total %of Total Renter From 2006 to 2015

20% Abs. Chg: +2706.2 M HHs

10%

0% < $25k $25k-$50k $50k-$75k $75k-$100k $100k-$150k $150k+

Source: Moody’s Analytics, U.S. Census Bureau (BOC), American Community Survey (ACS)

17 Many Young Adults Still Living at Home

Pent-Up Demand= ~ 3mm HH 23,000 32.0% Number (Thousand) Share 22,000 31.0%

21,000 30.0%

20,000 29.0%

19,000 28.0%

18,000 27.0%

17,000 26.0%

16,000 25.0% 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 Source: U.S. Census Bureau (BOC) 18 Millennial Tailwinds

CAGR Comparison Student Debt Med HH Income* 5.8% 0.1%

* College Educated 19 Surprise: Boomers Led Rent Demand Last Decade

Renter Household Growth, 2005–15 (Millions)

5 Millennial Generation X Baby Boom Pre-Baby Boom 4

-1 Under 30 30–49 50–69 70 and Over

Age Group

Due to Increase in Households Due to Increase in Rentership Rates Total

Note: Growth estimates are based on annual data that are three-year trailing averages.

Source: JCHS tabulations of US Census Bureau, Current Population Surveys 20 Future Rental Demand Looks Strong

55 Total Demand (Millions of Units) 50

High projection: 50-100 bps decrease in homeownership 35 Middle projection: homeownership constant Low projection: homeownership rises to mid-point between 2015 rate and historical high

Jan-09 Jan-24 Jan-05 Jan-06 Jan-07 Jan-08 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 Jan-25 Jan-26 Jan-27 Jan-28 Jan-29 Jan-30 Jan-31 Jan-32 Jan-33 Jan-34 Jan-35

High Middle Low Source: Yardi®Matrix

21 Real Estate Fundamentals: Rental Demand Stable

8% Rate of Rental Increases Has Crested 7%

Lifestyle Overall Rent-by-Necessity 1%

Source: Yardi®Matrix

22 Absolute Rent Spreads by Asset Type have Widened

Average Rental Rate by Asset Class $2,000 2010-2016 CAGR Discretionary $1,900 6.0% Discretionary $1,800

$1,700 4.8% Upper Mid-Range $1,600 4.1% Low Mid-Range $1,500 Upper Mid-Range 2.3% Workforce-Upper $1,400

$1,300 1.8% Workforce-Lower

$1,200 Low Mid-Range $1,100 Jan 2008 Oct 2016 $1,000 Discretionary- $298 $514 $900 Workforce - Upper Upper-Mid $800 Workforce - Lower $700 Discretionary- $415 $778

$600 Lower-Mid

23 Source: Yardi®Matrix GSE “Green” Programs a Boost to Value Add

Major Program Elements-

 30 - 35 bp reduction in Interest rate  15%-20% reduction in Energy and/or Water (GSEs are “or”, FHA is “and”)  Cost of Energy Plans reimbursed by Agencies  75% of Pro-forma savings written into UW NOI  Loans NOT subject to volume caps  100% audit of owner bills, 10% audit of Resident bills

 Impact is ~5 - 6% of value on a typical deal –makes a difference at the margin

24 Occupancy Strongest in Grade B Assets- Rent By Necessity

97.0%

96.5% Occupancy Rent-By-Necessity

96.0% Occupancy Overall

95.5% Occupancy Upper Mid-Range

95.0% Occupancy Discretionary

94.5%

94.0%

93.5%

93.0%

92.5%

92.0% Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16

25 Occupancy Rates vs Forecast Rent Growth 2017

12% Marker size is proportionate to total units in each market as of September 2016 Sacramento 10%

Seattle Inland Empire 8% Southwest Florida Coast Tacoma Portland San Francisco Atlanta Austin Phoenix NC Triangle San Fernando Valley Rent Rent Growth Orlando Los Angeles 6% Orange County Miami TN Metro Tampa Dallas Las Vegas

2017 Forecast 2017Forecast Denver San Diego Philadelphia San Jose 4% Kansas City Boston Northern New Jersey San Antonio Jacksonville Houston Richmond Chicago Baltimore Washington DC 2%

Albuquerque Bridgeport - New Haven

0% 93.5% 94.0% 94.5% 95.0% 95.5% 96.0% 96.5% 97.0% 97.5% Current Occupancy Rate

26 Real Estate Fundamentals: Supply and Demand

Orlando

Jacksonville

Austin

Dallas

Denver

Las Vegas

Seattle

Salt Lake City

Richmond

Tampa

Portland

Atlanta

Phoenix

Miami

Washington

Boston

Baltimore

Kansas City

Philadelphia Market Rotation Occurring

New York

Houston

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% Next 2 Years Prior 2 Years

Source: Moody’s Analytics, Bureau of Labor Statistics 27 Supply Pipeline - National

400,000 4.5%

4.0% 350,000

3.5% 300,000

3.0% 250,000

2.5%

200,000

2.0% Number of Units of Number

150,000 1.5%

100,000 1.0%

50,000 0.5%

0 0.0% 2010 2011 2012 2013 2014 2015 2016 2017 Source: Yardi® Matrix

Completions % Stock 28 California

3rd Submarket 4th Submarket 5th Submarket Top Submarket 2nd Submarket Market for New Supply for New Supply for New Supply for New Supply for New Supply

El Segundo - Playa del Los Angeles Downtown Los Angeles Hollywood Hills East Venice Koreatown Rey Units 2650 2035 1145 795 727 % of Stock 15% 43% 18% 95% 15%

Orange County North Irvine South Orange County Anaheim - Central Huntington Beach West Irvine

Units 766 715 713 352 344 % of Stock 4.8% 4.2% 7.9% 3.3% 3.7%

Inland Empire Corona Redlands/Yucaipa South Ontario Murrieta/Temecula Rancho Cucamonga

Units 532 468 373 325 298 % of Stock 6.2% 9.6% 9.7% 3.3% 2.3%

San Diego Mira Mesa Central San Diego Kearny Mesa Elliot - Navajo Sweetwater

Units 1650 1244 980 444 381 % of Stock 37.2% 9.0% 5.7% 7.6% 6.3%

SF Bay Area Eastern San Francisco China Basin Central San Jose Far South San Jose Redwood City

Units 2147 1524 1233 1218 1186 % of Stock 19.5% 37.0% 22.1% 11.8% 40.6%

Source: Yardi® Matrix 29 West

Market Top Submarket 2nd Submarket 3rd Submarket 4th Submarket 5th Submarket for New Supply for New Supply for New Supply for New Supply for New Supply

Seattle Belltown Greenlake/Wallingford First Hill Bellevue-West West Seattle Units 1415 1104 1044 890 732 % of Stock 8.7% 28.1% 15.3% 12.9% 18.2% Portland Southwest Hills Pearl District Piedmont Hillside/Northwest Kerns/Buckman

Units 779 730 713 496 483 % of Stock 22.3% 14.5% 50.2% 20.9% 20.3% Phoenix South Scottsdale North Tempe Sky Harbor Gilbert Uptown Units 1737 1145 852 793 644 % of Stock 17.6% 6.7% 13.8% 13.3% 8.7% Summerlin / Blue Las Vegas Spring Valley West Henderson West Enterprise Las Vegas East Diamond Units 1525 634 462 188 168 % of Stock 15.0% 5.3% 38.9% 2.7% 4.8% CBD/Five Points/North Capital Hill/Cheesman Denver Douglas County-North Lakewood-North Arapahoe-Southwest Capital Hill Park/Hale Units 2793 1556 1032 732 666 % of Stock 13.3% 11.4% 14.4% 8.5% 3.7% Salt Lake City Orem Sandy Draper Pleasant Grove\Lehi Magna

Units 1069 844 728 422 288

% of Stock 31.4% 21.6% 22.9% 15.1% 110.8% Source: Yardi® Matrix 30 Texas

3rd Submarket 4th Submarket 5th Submarket Top Submarket 2nd Submarket Market for New Supply for New Supply for New Supply for New Supply for New Supply

Piney Point Village - Houston West End/Downtown Katy Louetta Addicks north Units 3570 1973 1872 1471 1255 % of Stock 17.6% 10.7% 29.1% 12.3% 8.1% North Carrollton/The Dallas/Fort Worth Uptown Cityscape/Downtown East Plano/Allen West Plano Colony Units 2027 1891 1772 1321 1187 % of Stock 9.7% 13.9% 12.5% 13.5% 9.8%

Austin Downtown - north Pleasant Hill - east Cedar Park Oak Hill San Marcos/Kyle

Units 1450 1192 1112 1098 991 % of Stock 33.2% 24.5% 14.5% 13.0% 6.3% Southtown/King San Antonio Shavano Park Helotes Leon Valley - west Beckmann William

Units 1566 1338 1274 664 628 % of Stock 17.3% 17.7% 36.8% 10.9% 10.0%

Source: Yardi® Matrix

31 Florida

3rd Submarket 4th Submarket 5th Submarket for Top Submarket 2nd Submarket Market for New Supply for New Supply New Supply for New Supply for New Supply

Miami Downtown Miami Glenvar Heights Kendale Lakes Coral Way - Flagler Fountainbleau

Units 1623 1265 957 617 535

% of Stock 35.0% 47.5% 17.3% 24.2% 7.9%

Orlando Downtown Orlando Lake Nona Oak Ridge - west Lake Bryan Longwood

Units 901 873 832 626 575

% of Stock 19.4% 24.9% 15.1% 13.4% 29.2%

Downtown St Tampa Garver City Clair-Mel City Safety Harbor Downtown Tampa / Ybor City Petersburg

Units 706 634 430 426 351

% of Stock 9.7% 33.6% 8.3% 9.3% 14.1%

Source: Yardi® Matrix

32 Southeast

3rd Submarket 4th Submarket 5th Submarket for Top Submarket 2nd Submarket Market for New Supply for New Supply New Supply for New Supply for New Supply

Martin Luther King North Atlanta Midtown South Buckhead Lindbergh Historic District Decatur/Clarkston/Scottdale

Units 1341 973 773 734 633

% of Stock 26.1% 8.8% 12.5% 12.6% 5.5%

Nashville Midtown/Music Row Mount Juliet Downtown - north West Nashville Hendersonville

Units 1768 1020 951 447 374 % of Stock 27.1% 59.0% 28.2% 31.4% 5.8% Ballantyne - Charlotte Rock Hill - east Wedgewood Morningside Fort Mill Providence

Units 1098 850 834 767 650

% of Stock 21.2% 21.4% 19.3% 33.1% 26.7%

Source: Yardi® Matrix

33 Secondary Investment Grade Market Selection

Jeff Adler Vice President, Matrix The Investment Decision-making Process

Business incentives supporting the creation and retention of Intellectual Capital nodes

1 Amenities that support the Intellectual 1 Capital attraction and retention of talent High Job 3 Growth Weather Civic Leadership 2 Access to high quality Business education for the poor 3 2 Climate Obstacles to Favorable New Supply Demographics

Will to maintain effective Urban Policing College Educated, Don’t need all three 22 to 40 year-olds to enter a market

Sources: National Resource Network Anchor Institutions Report, 2015; ULI Emerging Trends in Real Estate Report, 2015, 2016; Stephen Klineberg, Kinder Institute for Urban Research; Levitz, Jennifer. “Charter School Battle Heats Up.” The Wall Street Journal 11 Oct. 2015 35 Crime on the Rise?...So Far, Not Yet a Significant Problem….BUT

Comey, James. "Something Deeply Disturbing Is Happening All Across America." The Wall Street Journal, 28 Oct. 2015. Web, and Update to Director Comey’s comments, 24 May 2016.

36 Urbanization Demographics

• Shift to cities seen most dramatically in young, educated, high income demographic • Delayed marriage and children bearing allows individuals to seek urban lifestyle without need for suburban amenities • Urban centers are definitely not dead but suburbs will revitalize too

Source: Jed Kolko, jedkolko.com, candysdirt.com

37 2016 Presidential Vote by County

38 Secondary Investment Grade Markets List

Atlanta Philadelphia Austin Phoenix Baltimore Portland Dallas Richmond Denver Sacramento Houston San Antonio Jacksonville San Diego Kansas City Seattle Nashville/Knoxville Tampa NC Triangle (Charlotte and Raleigh- Twin Cities Durham) Orlando

39 Transactions

Class B Cap Rate Forecast Market Cap Rate Forecast Atlanta 5.38% Austin 6.00% Sales Price: 2016 vs 2007 Peak Boston 5.13% 250% Charlotte 5.63% Dallas 5.63% Denver 5.50% 200% Houston 6.00% Indianapolis 6.63% Jacksonville 6.25% 150% Minneapolis 6.00% Nashville 5.38% Orlando 5.75% 100% Philadelphia 6.00% Phoenix 5.50% Portland 5.13% 50% Raleigh 5.63% San Antonio 5.50% San Diego 4.63% 0% Seattle 5.00% Tampa 5.75% Washington DC 5.38%

Source: Yardi® Matrix Source: HFF 40 US Multifamily Sales Price Per Unit-Index 2008=100

150

140

130

120

110

100

Lifestyle Rent by Necessity Overall

41 Per Unit Sales Price vs Rent Growth for US Apartments

15% Bubble size is proportional to the number of units in the market

Portland Seattle Cap Rate compression has 10% been the norm the past five Denver Sacramento years Orlando Atlanta

2016) Tampa - Austin NC Triangle Dallas Phoenix

5% Houston San Diego Rent Growth (CAGR 2011(CAGR Growth Rent

Richmond San Antonio Jacksonville Baltimore

0% -5% 0% 5% 10% 15% 20% 25% 30% 35%

Sales Price Per Unit Growth (CAGR 2011-2016) 42 Source: Yardi® Matrix Employment vs Supply; Few Markets in Danger of Oversupply

6.0% Definitions Higher Growth, Potential Supply Absorption Issues Job Growth: Year over year employment wage growth on 6-mo moving avg (Jun-15 to Jun-16). Austin

Completions as a % of Stock: Completions divided by total supply. 5.0% -Completions as of Aug 2016 -Total supply as of Aug 2016

Marker size is proportionate to total units in each market as of Seattle Aug2016. Portland Denver 4.0% = <4.0% forecasted rent growth NC Triangle = 4.0%-7.0% forecasted rent growth Nashville/ Knoxville San Antonio = >7.0% forecasted rent growth

Slower growth, Potential Supply Absorption Issues Orlando 3.0% San Diego Phoenix

Houston Completions Completions a as Stock of % Twin Cities Baltimore 2.0% Atlanta

Kansas City Tampa

Philadelphia Las Vegas Inland Empire 1.0%

Jacksonville Sacramento Higher Growth, Not yet oversupplied

0.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% Job Growth YoY Source: Yardi® Matrix 43 Supply Pipeline – Secondary Market

200,000 4.0%

180,000 3.5%

160,000 3.0% 140,000

2.5% 120,000

Number Number of Units 100,000 2.0%

80,000 1.5%

60,000 1.0% 40,000

0.5% 20,000

0 0.0% 2010 2011 2012 2013 2014 2015 2016 2017

Completions % Stock

Source: Yardi® Matrix 44 Potential Secondary Investment Grade Markets

Market Intellectual Node Business Climate Physical Climate Energy & Mining Government Denver Healthcare  Communications Good But Oversupplied Short Term Healthcare Portland Apparel • Charlotte Tech • Raleigh-Durham Tech Seattle Aerospace Education

Healthcare Atlanta Media Communications Structurally Unattractive, But Open to Being Oil & Gas Persuaded Houston Healthcare • Jacksonville Aerospace Dallas Healthcare • Phoenix Banking • Orlando Healthcare Tampa Retail Education

Tech Austin Education

Healthcare NC Triangle Banking Tech

45 Tertiary Markets to Consider

th Intellectual Node Business Climate Physical Climate 4 Level- Early Stage Tech Healthcare • Columbia, SC Nashville, TN Entertainment  • San Antonio, TX

Salt Lake City, • Sacramento, CA Technology UT • Gainesville, FL Healthcare Kansas City, Telecom • Tallahassee, FL MO/KS Advanced Mfg • Louisville/Lexington, KY Oklahoma City Energy Great Midwest Hopes- Univ. Towns Aerospace Greenville, SC Automobile • Ann Arbor, MI Manufacturing • Madison, WI Colorado Aerospace Springs, CO Military • Pittsburgh, PA

Ft. Lauderdale/ • Columbus, OH Lower Cost Market West Palm Extensions of Miami Beach True Longshots Inland Redeveloping Areas of Empire/Down- Metro LA • Indianapolis, IN town LA • Cleveland, OH Northern NJ/ Lower Cost Areas of Long Island Metro NY • Cincinnati, OH

46 Trailing 12 month Rent Growth- Decelerating Markets

47 Trailing 12 month Rent Growth- Accelerating Markets

48 Rent Forecasts – High (5.0%+)

Market 2016 2017 2018 Sacramento 11.0% 10.0% 8.5% Seattle 9.5% 8.6% 7.4% Reno 9.2% 8.0% 7.5% Phoenix 8.6% 6.5% 5.0% Tacoma 8.5% 8.0% 7.6% Bay Area - East Bay 8.5% 7.4% 5.0% Portland 8.3% 7.0% 6.2% Eugene 7.8% 6.8% 3.4% Inland Empire 7.7% 8.0% 7.5% National Southwest Florida Coast 7.6% 7.5% 5.5% Overall North Central Florida 7.6% 5.5% 5.0% 4.1%/3.9%/3.8% Las Vegas 7.5% 4.7% 4.0% Suburban Atlanta 7.5% 7.0% 6.5% Fort Worth 7.4% 7.4% 4.4% Urban Atlanta 7.4% 6.9% 6.3% Orlando 7.2% 6.2% 5.0% Central Valley 7.2% 6.0% 5.0% Nashville 6.9% 6.9% 5.0% San Fernando Valley - Ventura County 6.7% 5.3% 4.8% Eastern Los Angeles County 6.5% 6.2% 6.0% San Diego 6.5% 5.0% 4.0% 49 Rent Forecasts – High (5.0%+)

Market 2016 2017 2018 Portland ME 6.5% 6.0% 5.0% Austin 6.4% 6.9% 5.0% Salt Lake City 6.3% 6.0% 5.5% Orange County 6.3% 5.4% 3.1% Spokane 6.3% 4.3% 3.9% Carolina Triangle 6.1% 5.8% 5.0% West Palm Beach - Boca Raton 6.1% 5.0% 4.6% Metro Los Angeles 6.0% 5.0% 5.0% National Colorado Springs 5.9% 6.0% 4.0% San Francisco - Peninsula 5.8% 5.5% 4.9% Overall 4.1%/3.9%/3.8% Ft Lauderdale 5.7% 5.4% 4.9% Miami 5.7% 5.5% 5.0% Charlotte 5.7% 6.0% 5.8% Tampa - St Petersburg - Clearwater 5.6% 5.5% 5.0% Urban Philadelphia 5.5% 4.9% 4.8% Denver 5.3% 5.0% 5.0% North Dallas 5.2% 5.0% 4.9% Suburban Dallas 5.2% 5.0% 4.8% Savannah - Hilton Head 5.2% 3.5% 3.0% Northern New Jersey 5.1% 4.4% 4.4% Bay Area - South Bay 5.1% 5.0% 5.0% 50 Submarket Selection

Jeff Adler Vice President, Matrix Determining Intellectual Nodes

Evidence of knowledge-based job & business Public/Private formation/expansion partnerships for education and healthcare initiatives

Examples of multifamily & commercial development

52 Dallas – Fort Worth – Intellectual Capital Nodes

DFW Metro 34% Rent Growth 14% Supply Growth Frisco Allen 25% Rent Growth 21% Rent Growth 21% Supply Growth 32% Supply Growth

Plano 33% Rent Growth Farmers Branch 30% Supply Growth 43% Rent Growth 42% Supply Growth

Irving 36% Rent Growth 4% Supply Growth Uptown Dallas 21% Rent Growth 57% Supply Growth

Fort Worth 22% Rent Growth 55% Supply Growth

*Rent and supply growth based on September 2011 through September 2016

53 Atlanta – Intellectual Capital Nodes

Alpharetta Atlanta Metro 44% Rent Growth 39% Rent Growth 5% Supply Growth 11% Supply Growth

Vinings 45% Rent Growth 8% Supply Growth Sandy Springs 36% Rent Growth 10% Supply Growth

Buckhead Midtown Atlanta 39% Rent Growth 42% Rent Growth 29% Supply Growth 45% Supply Growth

*Rent and supply growth based on September 2011 through September 2016

54 Primary and Secondary Intellectual Capital Nodes Emerge

Denver Metro 50% Rent Growth 21% supply Growth • Primary nodes exist where significant supply has recently been added • Absorption has been strong, but rent growth slower due to new supply • Often corresponds with the Metro’s CBD

Broomfield Corridor • Optimal location for new development 41% Rent Growth 49% Supply Growth • Secondary nodes offer stronger rent growth prospects Downtown Denver 38% Rent Growth • Room for value add investment in secondary markets 80% Supply Growth • Transit oriented and regional commerce hubs support multifamily

Office Development

Denver Tech Center Multifamily Development 34% Rent Growth 30% Supply Growth New Light Rail Line Existing Light Rail Line 55 *Rent and supply growth based on September 2011 through September 2016 Intellectual Node Growth Cycle Framework

Early Starting Mid Late Critical mass Critical mass Critical mass Critical mass well recognized, not evidenced or existent, not recognized significant out of town investment recognized fully recognized *Expected Growth Trajectory

Aurora Broomfield DTC Downtown

56 Intellectual Capital and Local Government

Importance of Public Private Partnership • PPP can either act as a catalyst or prevention of growth • Nurture growth with funding for universities and business development • Overregulation and misuse of city resources limits progress • Cities using technology to improve parking, traffic, housing infrastructure • Need for cheaper housing has increased viability of microunits and microsuites • Some cities opposed to zoning regulations that would increase population density • High regulation cities and states dampen economic progress and ability of intellectual capital nodes to excel

57 A vs. C Property – Denver, CO

Element 47 Residence at Governors Park $/Unit $/Unit Metrics Competitive Set Submarket Subject Property Metrics Competitive Set Submarket Subject Property Operating Income $ 18,909 $ 21,558 $ 21,613 Operating Income $ 12,791 $ 18,125 $ 16,385 Operating Expenses $ (6,345) $ (7,048) $ (6,345) Operating Expenses $ (4,925) $ (6,662) $ (4,925) Net Operating Income $ 12,563 $ 14,510 $ 15,267 Net Operating Income $ 7,866 $ 11,462 $ 11,460 Capital Expenditures $ (370) $ (833) $ (370) Capital Expenditures $ (893) $ (1,517) $ (893)

Cap Rate Cap Rate Net Operating Income $ 12,563 $ 14,510 $ 15,267 Net Operating Income $ 7,866 $ 11,462 $ 19,757 Value per Unit $ 241,140 $ 314,072 Value per Unit $ 112,377 $ 208,408 Cap Rate 5.21% 4.62% Cap Rate 7.00% 5.50% 180 basis point spread between Class A and Class C properties 58 Urban vs. Suburban – Phoenix, AZ

The Escape Broadstone Lincoln $/Unit $/Unit Metrics Competitive Set Submarket Subject Property Metrics Competitive Set Submarket Subject Property Operating Income $ 9,428 $ 10.035 $ 18,655 Operating Income $ 14,147 $ 14,566 $ 18,737 Operating Expenses $ (4,708) $ (4,745) $ (4,708) Operating Expenses $ (5,291) $ (5,274) $ (5,291) Net Operating Income $ 4,719 $ 5,290 $ 13,946 Net Operating Income $ 8,856 $ 9,291 $ 13,446 Capital Expenditures $ (511) $ (379) $ (511) Capital Expenditures $ (1,463) $ (1,501) $ (1,463)

Cap Rate Cap Rate Net Operating Income $ 4,719 $ 5,290 $ 13,946 Net Operating Income $ 8,856 $ 9,291 $ 13,446 Value per Unit $ 87,888 $ 69,982 Value per Unit $ 140,348 $ 138,054 Cap Rate 5.37% 7.56% Cap Rate 6.31% 6.73% 100 basis point spread between Urban and Suburban 59 Urban vs. Suburban – Denver, CO

The Battery on Blake Street Arvada Station $/Unit $/Unit Metrics Competitive Set Submarket Subject Property Metrics Competitive Set Submarket Subject Property Operating Income $ 20,938 $ 21,558 $ 26,531 Operating Income $ 14,985 $ 13,792 $ 20,235 Operating Expenses $ (7,065) $ (7,048) $ (7,065) Operating Expenses $ (5,316) $ (5,039) $ (5,316) Net Operating Income $ 13,872 $ 14,510 $ 9,466 Net Operating Income $ 9,669 $ 8,752 $ 4,919 Capital Expenditures $ (662) $ (833) $ (662) Capital Expenditures $ (602) $ (788) $ (602)

Cap Rate Cap Rate Net Operating Income $ 13,872 $ 14,510 $ 19,466 Net Operating Income $ 9,669 $ 8,752 $ 19,757 Value per Unit $ 285,446 $ 314,072 Value per Unit $ 167,573 $ 77,533 Cap Rate 4.86% 4.62% Cap Rate 5.77% 4.93% 90 basis point spread between Urban and Suburban 60 Matrix Expert – Customized Comps

61 Matrix Expert – P&L to NOI

62 Disclaimer

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63 Contact Information

»Jeff Adler, Vice President & General Manager of Yardi Matrix . [email protected], 1-800-866-1124 x2403 »Jack Kern, Director of Research and Publications . [email protected], 1-800-866-1124 x2444

Source: GDP from BEA April 28th, 2016; BLS Employment Situation Reports; Moody’s Analytics; FTSE Nareit U.S. Real Estate Index 64 GDP Definition: the value of goods and services produced by the nation’s economy less the value of the goods and services used in production, adjusted for price changes Copyright Notice

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