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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
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