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&MORAN & COMPANY
HOUSTON
MULTIFAMILY TRENDS & OBSERVATIONS
3RD QUARTER 2017
& PAGE 2&
&PAGE 3HOUSTON MULTIFAMILY TRENDS & OBSERVATIONS | 3RD QUARTER 2017
HOUSTON TRENDS TO WATCH
Post-Harvey Activity Accelerating Recovery: 215 apartment properties reporting damage of 15,662 Over 200,000 homes damaged including 15,000 homes destroyed Demand for apartments by displaced families along with an influx of recovery workers adding to
absorption Average effective rents have increased 1.5% post-Harvey Concession reduction seen throughout Houston submarkets
Caution is a Common Thread Due to Uncertainty: The length of occupancy for displaced homeowners and temporary workers implies future vacancy
from these renters. [Timing of these move-outs will likely coincided with the lowest number of new deliveries in the market since 2012.]
Timing of damaged units being repaired and made available again for lease is unknown. [It is likely that restoring these units will be done over time and not all at once.]
There is some concern whether or not job recovery will continue post Harvey. [Core industries like Medical and were barely impacted and Oil & Gas only temporarily affected.]
Disciplined New Development Will Cause Slower Growth in Supply: Uncertainty with future occupancies and rent growth is impacting debt and equity decisions for
investing in new starts Multifamily permits were only 400 units per month prior to Harvey Deliveries forecasted to continue to decline in 2018 and 2019 Occupancy Forecasted to be 95.1% by 2019
Positive Job Growth Sets a Foundation for Continued Recovery: Per US Bureau of Labor Statistics, Houston added an estimated 53,500 jobs annually as of August
2017. The Dallas Fed estimates annual job growth at 41,000 new jobs as of October September unemployment declined to 4.8% from 5.2% in August Energy industry gained 6,800 jobs since November 2016 signaling that oil-related job losses are likely over
Transaction Market Remains Robust with some Caution: Ample low cost debt and equity for all multifamily asset classes Value-add deals are still the darling of the investment market Cap rates are not materially different from other major Texas markets but lower rents producing
lower price per pound values There is continuing caution in underwriting rent growth in the near term due to uncertainties in the
market Some traditionally value-add capital is shifting its focus to newer, more stabilized assets chasing a
higher going in yield with lower capital risk Institutional investors are still cautious in the core space, but private investors fill the gapInstitutional investors considering suburban over urban core locations in attempt to find higher yields Sources: Axiometrics, Dallas Federal Reserve, Bureau of Labor Statistics, Texas Workforce Commission
&
PAGE 4
TOTAL UNITS UNITS ADDED UNITS ABSORBED
691,841 3Q YTD: 14,904 2017F: 20,508
YOY Q3:15,988
SEPTEMBER 2017F 22,353
CURRENTOCCUPANCY
PROJECTEDOCCUPANCY Q3 2018 INVENTORY GROWTH
92.5% 94.7% 2016: 3.4% 2017F: 3.0% 2018F: 2.0%
CURRENT AVERAGE EFFECTIVE RENT
EFFECTIVE RENT GROWTH SINCE 2010
EFFECTIVERENT GROWTH
$1,049 22%
YOY Q3 2017: - 1.2%
PROJECTED 2018: 3.7%
3RD QUARTER 2017 STATS AT A GLANCE
Source: Axiometrics, Bureau of Labor Statistics, U.S. Census Bureau, Natl. Asso. of Realtors, Fortune 500, & Sperling’s Best
&
PAGE 5HOUSTON MULTIFAMILY TRENDS & OBSERVATIONS | 3RD QUARTER 2017
SEPTEMBER 2017WORKFORCE JOB GROWTH
SEPTEMBER 2017UNEMPLOYED
3,013,600 AVG. 2017 YOY:53,500
2010-2016:434,500+
HOUSTON: 4.8% U.S. 4.8%
CENSUS BUREAUJULY 31, 2016 POPULATION
2010-2016 POPULATION GROWTH
2010-2050 PROJECTED POPULATION GROWTH
6,772,470 13.9% 8,300,000+
RIG COUNTFORTUNE 500
FORTUNE 1000CLASS A OFFICESPACE Q3 2017
11/2016: 593 11/2017: 923
YOY INCREASES: 56%
FORTUNE 500: 20FORTUNE 1000: 38
143 MM SF $35+/SF
Q3 2017MEDIAN HOME PRICES
YOY % GROWTHMEDIAN HOME PRICES
COST OF LIVING INDEX SPERLING’S BEST PLACES
$233,900 7.6% HOUSTON: 102
CHICAGO: 111
DENVER: 128
SEATTLE: 177
BENCHMARK: 100
ECONOMIC DRIVERS AT A GLANCE
&
PAGE 6
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
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
2016
Mul
tifam
ily P
erm
its
Popu
latio
n
Population MF Permits
HOUSTON MULTIFAMILY STARTS
Fewer permits with almost twice the total population vs. the 1980sMultifamily starts seeing a dramatic decline
on a much larger base of units and population
HOUSTON POPULATION PROJECTIONS 2010 - 2050
2010 – 2050 (Estimate) = + 10 million peopleAt 2.7 people per HH = 3.1MM HHs
= 77,000 HH per year
2,195,147
3,628,588
5,826,108 6,772,470
14,221,267
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
1970 1980 1990 2000 2010 2020 2030 2040 2050
2016
1985
2009
1970
2050
Source: U.S. Census Bureau/Real Estate Center at Texas A & M University
Source: U.S. Census Bureau, Real Estate Center at Texas A&M University, Texas Demographic Center
&
PAGE 7HOUSTON MULTIFAMILY TRENDS & OBSERVATIONS | 3RD QUARTER 2017
13.9% 13.5%
9.8% 9.9%9.0%
6.6%
5.3%
3.8%
1.8%
0.5%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
Houston (5)
Dallas-Fort Worth(4)
Washington DC(7)
Atlanta(9)
Miami(8)
New York(1)
Boston(10)
Los Angeles(2)
Philadelphia(6)
Chicago(3)
2010-2016 POPULATION GROWTH OF TEN LARGEST US METROS
Population increase Houston 2010-2016 = 825,670Average = 117,953/year
20%
18%17% 17%
13%
11% 11%
10%
8%
6%
0%
5%
10%
15%
20%
25%
Dallas-FortWorth
(579,000)
Miami(389,800)
Atlanta(391,700)
Houston(434,500)
Los Angeles(676,300)
Boston(271,200)
New York(9836,600)
Chicago(408,400)
WashingtonDC
(243,300)
Philadelphia(172,200)
2010-2016 YTD JOB GROWTH TO TEN LARGEST U.S. METROS
September 2017 T12 = 19,500 Jobs Added - 0.7% Year-Over-Year Growth Rate
HOUSTON JOBS CREATED2010 - 2016
434,500+
Source: Real Estate Center at Texas A&M University
Source: Bureau of Labor Statistics
&
PAGE 8
PUBLIC & PRIVATE CAPITAL INVESTMENT
21%
17%
12%12%
11%
8%
8%
6%4%
2% Trade, Transportation, and Utilities (768,000)
Professional and Business Services (612,000)
Education and Health Services (441,000)
Government (416,000)
Leisure and Hospitality (391,000)
Financial Activties (294,000)
Manufacturing (273,000)
Mining, Logging, and Construction (211,000)
Other Services (128,000)
Information (82,000)
EMPLOYMENT BY SECTOR – 3,013,600 JOBS – September 2017
Source: Bureau of Labor Statistics
I-35 CORRIDOR DISCOVERY GREEN
CITYPLACE SPRINGWOOD VILLAGE
SH 99 GRAND PARKWAY
GENERATION PARK
MIDTOWN PARK
&
PAGE 9HOUSTON MULTIFAMILY TRENDS & OBSERVATIONS | 3RD QUARTER 2017
BILLION $ COMPANIES AMONG HOUSTON’S FORTUNE 500/1000
2017 Fortune 500 / 1000
RANK REVENUE(Billions)
34 Phillips 66 72.357 Sysco 50.3
115 ConocoPhillips 24.3122 Enterprise Products Partners 23141 Plains GP Holdings 20.1173 Haliburton 15.8201 Waste Management 13.6215 Kinder Morgan 13261 Group 1 Automotive 10.8278 Occidential Petroleum 10.3285 Baker Hughes 9.8289 Huntsman 9.6344 Anadarko Petroleum 7.8355 Quanta Services 7.6356 EOG Resources 7.6362 CenterPoint Enerby 7.5375 National Oilwell Varco 7.2400 Calpine 6.7402 Targa Resources 6.6488 Apache 5.3507 Westlake Chemical 5519 Spectra Energy 4.9536 Marathon Oil 4.6543 FMC Technonogies 4.5 561 Dynegy 4.3567 KBR 4.2596 Crown Castle International 3.9653 Noble Energy 3.5667 Tailored Brands 3.3685 Buckeye Partners 3.2703 Southwestern Energy 2.4726 MRC Global 3729 Service Corp. International 3805 Crestwood Equity Partners 2.5871 Oceaneering International 2.2910 NOW 2.1935 Stewart Information Systems 2974 Par Pacific Holdings 1.8
Source: Fortune
&
PAGE 10
HOUSTON APARTMENT MARKET FUNDAMENTALS TODAY - Q3 2017
EFFECTIVE RENT GROWTH AND OCCUPANCY
HOUSTON-THE WOODLANDS-SUGARLAND Q3 2017 FORECASTQ3 2018
FORECASTQ3 2019
Existing Apartment Units 691,841 705,952 716,509
Units Added Annually 23,697 14,111 10,557
Units Absorbed Anually 12,011 28,718 14,297
Average Gross Occupancy 92.6% 94.7% 95.3%
Current Period Effective Rent $1,073 $1,095 $1,140
$800
$1,063$1,101
90%
95%
87%
88%
89%
90%
91%
92%
93%
94%
95%
$500
$600
$700
$800
$900
$1,000
$1,100
$1,200
2010 2011 2012 2013 2014 2015 2016 2017 (P) 2018 (P)
Rent Occupancy
2010 – 2018 (projection)22% Rent Increase 2010 to Year-End 2017
Source: Axiometrics
Source: Axiometrics
&
PAGE 11HOUSTON MULTIFAMILY TRENDS & OBSERVATIONS | 3RD QUARTER 2017
TOTAL HOUSING PRODUCTION
HOME OWNERSHIP
7,631
6,643
16,586
10,468
20,312
4,709
25,044
19,798
9,054
25,617
51,202
22,369
34,543 38,3193536733,248
51,271 52,642
66,935
32,897
59,587 58,117
44,421
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Hous
ing
Perm
its
Multifamily (5+) Single Family Total
Total housing production still below peakHouston added 850,000(+/-) people since 2009
0
2
4
6
8
10
12
14
16
160,000
180,000
200,000
220,000
240,000
260,000
Avg Price Months Inventory
Dearth of affordable single-family homes as prices rise and inventory declinesCurrent 3.4 month inventory
Building fewer homes and at higher price point
Source: U.S. Census Bureau
Source: Real Estate Center at Texas A & M University
&
PAGE 12
WHERE IS THE PIPELINE CONCENTRATED? THINK JOBS!!!
HOUSTON DEMAND EXPECTED TO EXCEED SUPPLY 2017-2018
Current lease-ups and projects under construction
88%
89%
90%
91%
92%
93%
94%
95%
0
5,000
10,000
15,000
20,000
25,000
30,000
2010 2011 2012 2013 2014 2015 2016 2017 (F) 2018 (F)
Occup
ancy
Units
Supply Demand Occupancy
Demand and Occupancy Expected to Strongly Rebound in 2017
Source: Axiometrics
Source: Axiometrics
&
PAGE 13HOUSTON MULTIFAMILY TRENDS & OBSERVATIONS | 3RD QUARTER 2017
Source: Real Capital Analytics
APARTMENT SALES
0
50
100
150
200
250
$0
$1,000,000,000
$2,000,000,000
$3,000,000,000
$4,000,000,000
$5,000,000,000
$6,000,000,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Volume # of Properties
Property or Portfolio Sales $10 Million or Greater70 Properties
$1.33 Billion Total Volume$19.1 Million Average Deal Size
166 Properties$4.5 Billion Total Volume
$26.8 Million Average Deal Size
LOWEST # OF PROPERTIES UNDER CONSTRUCTION SINCE 2012
Houston Oversuppplied - Think Again......
0
20
40
60
80
100
120
140Se
p-12
Nov
-12
Jan-
13M
ar-1
3M
ay-1
3Ju
l-13
Sep-
13N
ov-1
3Ja
n-14
Mar
-14
May
-14
Jul-1
4Se
p-14
Nov
-14
Jan-
15M
ar-1
5M
ay-1
5Ju
l-15
Sep-
15N
ov-1
5Ja
n-16
Mar
-16
May
-16
Jul-1
6Se
p-16
Nov
-16
Jan-
17M
ar-1
7M
ay-1
7Ju
l-17
Sep-
17
Lease Up Under Construction
Source: Axiometrics
&
PAGE 14
LEASE-UP ABSORPTION
LEASE-UP ABSORPTION & RENTS
September lease-up properties experience highest absorption rate 2,500+ Units Absorbed
1400
1450
1500
1550
1600
1650
1700
0
5
10
15
20
25
Oct 16 Nov 16 Dec 16 Jan 17 Feb 17 Mar 17 Apr 17 May 17 Jun 17 Jul 17 Aug 17 Sep 17
Houston Rent & Absorption
Absorption Rent
Increased Demand For Temporary Housing led to Rent Increases in September23+ Units Absorbed Per Property
Source: Axiometrics
Source: Axiometrics
0
500
1000
1500
2000
2500
3000
Jan
13
Mar
13
May
13
Jul 1
3
Sep
13
Nov
13
Jan
14
Mar
14
May
14
Jul 1
4
Sep
14
Nov
14
Jan
15
Mar
15
May
15
Jul 1
5
Sep
15
Nov
15
Jan
16
Mar
16
May
16
Jul 1
6
Sep
16
Nov
16
Jan
17
Mar
17
May
17
Jul 1
7
Sep
17
Houston Total Units in Lease-Up Absorbed by Month
&
PAGE 15HOUSTON MULTIFAMILY TRENDS & OBSERVATIONS | 3RD QUARTER 2017
GROWTH INDUSTRIES IN HOUSTON
2016 TOP HOUSTON AREA CAPITAL INVESTMENT PROJECTS
2016 - Texas received its fifth consective Governor’s Cup fromSite Selection Magazine which recognizes capital investment with the state.
2015 & 2016 Texas ranked #1 for the highest total # projects with 642 in 2016.
Company City Product $US Millions
ExxonMobil Corp Beaumont Petroleum Refineries 1200Meglogbal Americas Freeport Chemicals 1000Lyondellbasell Industries N.V. La Porte Chemicals 700Ineos Americas Alvin Nitrogenous Fertilizer 550Raven Petroleum Freer Petroleum Refineries 500Gunvor USA Houston Petroleum Refineries 500Howard Midstream Energy PartnersRobstown Industrial Supplies 500Chemours Co. Ingleside Chemicals 230Air Liquide La Porte Engineering Services 230Targa Terminals Channelview Consulting Services 140Rangeland Energy II Corpus Christi Petroleum Refineries 100
Source: Conway Projects Database
MEDICALMedical industry drives employment - Currently over $5 billion in new development for medical facilities
$1.5 BillionNew 30-acre campus
$650 MillionMH Expansion in TMC
$540 MillionNew Tower in TMC
$506 MillionExpansion in TMC
PORT OF HOUSTONPort of Houston Upgrades and Infrastructure improvements
Traffic at Houston Port expected to grow with expansion of Panama Canal
1stIn Import Tonnage
2nd In Total Tonnage
Largest Gulf Coast
Container PortPETROCHEMICAL DEVELOPMENT PROJECTS
$32.7 B New EastHouston Plants
$6.7 B For Natural Gas Liquification Plants
For Exports
$4.7 B New Refinery Projects
$3.7 B New Natural Gas Processing Plants
Houston has theLargest export market
in the U.S.
&
PAGE 16
WE AREMORAN & COMPANY
––––––––– With over 22 years in business, we are the team you want on your side. –––––––––
We are... Nationally recognized leader in providing disposition, capitalization and advisory services
... Exclusively serving the multifamily industry
... Passionate client advocates with seasoned, dedicated professionals
... Capable, offering national coverage provided by 12 highly experienced partners operating from 8 regional offices
... Regarded as a dominant intermediary for transactions in excess of $100 Million and for ex-ecutions requiring higher levels of senior expe-rience and focused attention
THOMAS F. MORAN
FOUNDER & CO-CHAIRMAN
MARY ANN KING
CO-CHAIRMAN
DAVID MARTIN PRESIDENT | WESTERN REGION
PETER EVANS
PRESIDENT | EASTERN REGION
Moran & Company––––––––– National Leadership –––––––––
Moran & Company Southwest––––––––– Regional Team –––––––––
Paul Harris Managing Partner Southwest Thad Wetterau
Director - DallasGreg Smith
Director - Dallas
Jeffrey SkipworthDirector - Houston
Eric Calub Director - Dallas
&
PAGE 17HOUSTON MULTIFAMILY TRENDS & OBSERVATIONS | 3RD QUARTER 2017
SOUTHWEST LEADERSHIP
Education• SOUTHERN METHODIST UNIVERSITY, M.B.A. (2005)• AUSTIN COLLEGE, B.A. (1999)
Work Experience • MORAN & COMPANY - BROKERAGE (2006-PRESENT)• FIDELITY INVESTMENTS - FINANCIAL & TAX ANALYSIS (2005-2006)• FIDELITY INVESTMENTS - INSTITUTIONAL MANAGEMENT (1999-
2005)
Jeffrey SkipworthDIRECTOR | SOUTHWEST
Jeffrey Skipworth is the Director for Moran & Company in Houston, an office he opened with Paul Harris in 2011. Jeffrey started his career with Moran & Company in 2006, and has worked on $1 billion of real estate during his tenure at the firm. Jeffrey has extensive experience at all levels of the marketing process including underwriting, marketing presentation, research and investor solicitation. Prior to joining Moran & Company, Jeffrey was a senior analyst and relationship manager for Fidelity Investments, where he represented a num-ber of billion dollar companies in large investment transactions in addition to conducting tax analysis for large multinational firms. He is a licensed real estate broker for the state of Texas.
Education• TEXAS TECH UNIVERSITY, B.A. (1977)
Work Experience • MORAN & COMPANY (2003-PRESENT)• ARCHON GROUP (1994-2003)• NORTHCORP REALTY ADVISORS (1989-1994)
Professional Affiliations• NATIONAL MULTIFAMILY HOUSING COUNCIL• DALLAS REAL ESTATE COUNCIL
Paul HarrisMANAGING PARTNER | SOUTHWEST
Since opening the Dallas office in 2003, Paul has been responsible for all marketing assignments and client re-lationships in the Southwest Region with particular emphasis on the major Texas markets. Paul and his team have closed over $4.4 billion in multifamily dispositions and recapitalization since joining Moran. Prior to joining Moran, Paul was Director of Multifamily Investments for Archon Residential, a Goldman Sachs subsidiary, with responsibility for Archon’s national multifamily acquisition and disposition efforts. During his eight years with Archon, Paul completed the sale of 255 multifamily properties comprising over 56,000 units in 32 states with $3 billion in value. Paul has focused exclusively on multifamily transactions since 1995 and he is active in the National Multi Housing Council (NMHC).
&
PAGE 18
SOUTHWEST LEADERSHIP
Education• TEXAS CHRISTIAN UNIVERSITY, M. B.A. (1997)• TEXAS A&M UNIVERSITY, B.B.A. (1989)
Work Experience • MORAN & COMPANY (2005-PRESENT)• GOLDMAN SACHS / ARCHON GROUP (1997-2005)• TEXAS COMMERCE BANK (1995-1997)• THE WALT DISNEY COMPANY (1992-1995)• COOPERS & LYBRAND CPA’S (1989-1992)
Professional Affiliations• NATIONAL MULTIFAMILY HOUSING COUNCIL• URBAN LAND INSTITUTE• DALLAS REAL ESTATE MINISTRIES (DREM)
Greg SmithDIRECTOR | SOUTHWEST
Greg’s responsibilities include business development, economic underwriting, marketing, and due diligence for assignments in the Southwest region. Prior to Moran & Company, he managed investment sale transactions for Goldman Sachs of all property types. Gregory is a licensed CPA and real estate broker and also has experience in commercial banking and public accounting, along with positions at two Fortune 500 companies. Greg graduated as a Neeley Scholar from the Masters of Business Administration program at Texas Christian University and cum laude with a BBA from Texas A&M University.
Thad WetterauDIRECTOR | SOUTHWEST
Since joining Moran & Company in 1999, he has completed over $3 billion in multifamily transactions, pri-marily in Texas, but also in major markets across the southeastern U.S. He brings to bear his background in institutional real estate research, development consulting, appraisal, and transactions on every investment assignment. His current responsibilities cover the entire multifamily investment sales process, including cli-ent service, relationship management, deal management, property valuation, economic analysis, marketing and due diligence.
Education• BAYLOR UNIVERSITY, M.B.A. (1988)• BAYLOR UNIVERSITY, B.A. (1986)
Work Experience • MORAN & COMPANY (1999-PRESENT)• LEND LEASE (1998-1999)• L&B GROUP (1997-1998)• AMRESCO (1996-1997)• M/PF RESEARCH (1994-1996)• COMMERCIAL REAL ESTATE APPRAISAL (1989-1994)
&
PAGE 19HOUSTON MULTIFAMILY TRENDS & OBSERVATIONS | 3RD QUARTER 2017
SOUTHWEST LEADERSHIP
Education• UNIVERSITY OF MICHIGAN-ANN ARBOR, B.B.A.
Work Experience • MORAN & COMPANY• PASSCO COMPANIES, INC• THE KISLAK ORGANIZATION• BERKSHIRE REALTY• WALDEN RESIDENTIAL• THE PRIME GROUP
Professional Affiliations• NATIONAL MULTI HOUSING COUNCIL• THE REAL ESTATE COUNCIL - DALLAS
Eric CalubDIRECTOR | SOUTHWEST
Eric has spent most of his career in the multi-family sector on the principal side as both an Acquisitions and Dispositions officer in addition to asset managing a portfolio of properties. Eric has worked for both large public entities (Berkshire Realty and Walden Residential - REITS) and smaller private companies (The Kislak Organization and Passco Companies – TIC/DST sponsor). Eric has over two decades of experience include executing transactions involving single asset entities and portfolios of core, core-plus, and value-add properties, as well as performing and non-performing loans. Throughout his career Eric has successfully closed acquisitions and dispositions in excess of $2 billion.
&
&
Paul Harris Managing Partner Southwest
D: 972.764.8490 M: 214.232.8689
Thad Wetterau Director - Dallas D: 972.764.8491 M: 972.754.5420
Greg Smith Director - Dallas D: 972.764.8499 M: 817.313.7081
Jeffrey SkipworthDirector - Houston D: 713.425.4942 M: 214.533.3322
Eric Calub Director - Dallas D: 972.764.8492 M: 972.567.3560
DALLAS OFFICE 5440 Harvest Hill, Ste. 146
Dallas, TX 75230 972.387.2500
HOUSTON OFFICE 12 Greenway Plaza, Ste. 1100
Houston, TX 77046 712.425.4942
SOUTHWESTDALLAS, TX
HOUSTON, TX
MOUNTAIN STATESDENVER, COPHOENIX, AZ
PACIFIC NORTHWESTSEATTLE, WA
MIDWESTCHICAGO, IL
SOUTHEASTATLANTA, GA
Moran & Company Offices
NORTHEAST & MID-ATLANTIC
BOSTON, MAWASHINGTON, DCWEST
SAN FRANCISCO, CAIRVINE, CA