2003 Witten

Slide1: 

Steve Witten, Senior Director National Multi Housing Group

Unusual RecessionThe Perfect Storm for Apartment Fundamentals: 

Unusual Recession The Perfect Storm for Apartment Fundamentals A Mild GDP Recession, Severe Job Recession Unprecedented Home Buying Wave Active Development Pipeline

Severe Corporate Earnings Downturn: 

Severe Corporate Earnings Downturn Source: Standard & Poors, Operating Earnings (vs. Reported Earnings) Through 2003 Q1 Recession Recession 3 S&P 500 Operating Earnings ($ Bil.) Long-Term Trend Line

Employment Lags Broad Recovery: 

Employment Lags Broad Recovery Source: Economy.com, BEA Annualized % Change 20-yr Avg. Employment Growth: 1.9% 20-yr Avg. GDP Growth: 3.3% Avg. GDP Avg. Employment 4

Youngest and Oldest Cohorts Have Experienced the Largest Increases: 

Youngest and Oldest Cohorts Have Experienced the Largest Increases Sources: Marcus & Millichap Research Services, U.S. Census Bureau

Absorption Plummeted, Has Stabilized: 

Absorption Plummeted, Has Stabilized *Forecast Sources: Marcus & Millichap Research Services, REIS, BLS

Drop in Rent Growth Inline with Incomes : 

Drop in Rent Growth Inline with Incomes Sources: Marcus & Millichap Research Services, Reis, Economy.com

National Apartment Prices and Rents: 

National Apartment Prices and Rents Sources: Marcus & Millichap Research Services, NREI, Comps, REIS; National data for transactions valued at $500,000 and above

Why a Strong Apartment Investment Outlook?: 

Why a Strong Apartment Investment Outlook? Apartment Demand Will Turn and Grow

Business Recovery Forming: 

Business Recovery Forming Corporate Profits 2003 Q1 2000 Q2 (high) 2001 Q2 (low) Capital Expenditures 2003 Q2 2000 Q3 (high) 2002 Q3 (low) Manufacturing Activity August ‘03 Past 12 month average $ 115.2 Bil. $ 127.7 Bil. $ 81.2 Bil. $ 1.61 Tril. $ 1.70 Tril. $ 1.57 Tril. 54.7 50.3 Corporate Bond Spread August ‘03 July ’96 (low) October ’01 (high) 1.4% 2.5% 0.8% Fixed investment recovering, but still below 2000 levels Spread between 10-yr T-Note and AAA bonds tightening ISM Index above 50 benchmark S&P 500 Operating Earnings rebounding 10 October ’01 (low) 38.9

Consumers Still Holding Up: 

Consumers Still Holding Up Moderate Unemployment August ‘03 Past Recessions Avg. Highest: 1982 Increasing Confidence August ‘03 November ‘01 February ’92 Income Growth ’03 Q2 Income ’03 Q2 CPI 6.1% 7.7% 10.8% 81 85 47 2.4% 2.2% Retail Sales (Excl. Auto) August ‘03 Second Half ‘02 First Half ‘03 8.1% 5.9% 3.1% Employment Weak, but Expectations Remain Steady Spending Remains Strong Weak Employment Market Dampening Income Growth Will Remain Elevated Due to Discouraged Workers 11 Source: Economy.com; Percentages Annualized

Job Loss Recovery Ending – Interest Rates Rising: 

Job Loss Recovery Ending – Interest Rates Rising Sources: Blue Chip Economic Indicators, Economy.com, Consensus; YTD Employment through Aug = -437,000 12

Higher Home Prices Lowering Affordability: 

Higher Home Prices Lowering Affordability Sources: National Association of Realtors, Marcus & Millichap Research Services Median Home Price Existing Home Prices 1990-2003

Renter Demographics Turning Positive : 

Renter Demographics Turning Positive Sources: Marcus & Millichap Research Services, Economy.com

U.S. Immigration - a Demand Generator : 

U.S. Immigration - a Demand Generator **Forecast Sources: Marcus & Millichap Research Services, U.S. Census Bureau; INS

2004 Vacancy Forecast: 

2004 Vacancy Forecast Los Angeles Riverside-S.B. Orange County San Diego New York Philadelphia <5% Vacancy Northern New Jersey Boston Minneapolis New Haven Oakland San Francisco Fort Lauderdale San Jose St. Louis Washington, D.C. Cleveland Sacramento 5.0% to 6.9% Vacancy Sources: Marcus & Millichap Research Services, Reis Chicago Miami Detroit Las Vegas Seattle Salt Lake City Stamford Tucson Portland Columbus Kansas City Indianapolis Hartford West Palm Beach Cincinnati Houston Milwaukee Orlando Tampa Charlotte Dallas/Ft. Worth Phoenix Denver Atlanta Austin 7.0% to 13.0% Vacancy

Why a Strong Apartment Investment Outlook?: 

Why a Strong Apartment Investment Outlook? Expect a Capital Shift - Not “Flight”

Rising Apartment Prices, Falling Rents: 

Rising Apartment Prices, Falling Rents Sources: Marcus & Millichap Research Services, Comps, REIS; National data for transactions valued at $500,000 and above

Balance Between Change in Price and Rents: 

Balance Between Change in Price and Rents Sources: Marcus & Millichap Research Services, Reis Washington, D.C. 59% 3.6% Sacramento 47% 6.2% Jacksonville 44% 4.4% San Diego 43% 7.0% Riverside-S.B. 38% 10.9% Connecticut 19.7% 9.0% Boston 31% -2.7% Orange County 27% 4.0% Ft. Lauderdale 27% 0.2% New York City 26% -8.0% 01-03 Chge. 01-03 Chge Least Alligned Med. Price Eff. Rents

Growth Cycle Drivers : 

Growth Cycle Drivers Sources: Marcus & Millichap Research Services; Economy.com; Census Bureau * Based on projected percent increase in jobs, households, renter population and inmigration

Apartment Sellers’ Re-Investment Choices: 

Apartment Sellers’ Re-Investment Choices Sources: Marcus & Millichap Research Services; Based on a custom survey of apartment sellers nationwide Survey of 400+ Transactions – Past 12 Months

Apartment Sales 1996-2003Connecticut Statewide Synopsis ($ per Unit): 

Apartment Sales 1996-2003 Connecticut Statewide Synopsis ($ per Unit) Average $ per unit

Apartment Sales 1996-2002Statewide Synopsis ($ per S/F): 

Apartment Sales 1996-2002 Statewide Synopsis ($ per S/F) Average $ per square foot

Apartment Investment Market Summary: 

Apartment Investment Market Summary Macro Forces Supporting Values: Job growth and leveling off of home ownership Echo boomers, empty nesters entering the market Shift in capital and cap rates to be moderate Recovery of Markets Requires Local “Look” Investment Strategies Need a Fresh “Look”

Apartment Sales 1996-2002New Haven County: 

Apartment Sales 1996-2002 New Haven County Average $ per unit

Apartment Sales 1996-2003Hartford County: 

Apartment Sales 1996-2003 Hartford County Average $ per unit

Apartment Sales 1996-2003Fairfield County: 

Apartment Sales 1996-2003 Fairfield County Average $ per unit

Apartment Sales 1996-2003New London County: 

Apartment Sales 1996-2003 New London County Average $ per unit

Apartment Sales 1996-2003Tolland County: 

Apartment Sales 1996-2003 Tolland County Average $ per unit

Slide30: 

Steve Witten, Senior Director National Multi Housing Group switten@marcusmillichap.com