DFW MULTIFAMILY TRENDS & OBSERVATIONS Q2 2017

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1 DFW MULTIFAMILY TRENDS & OBSERVATIONS Q2 2017

2 DALLAS / FORT WORTH The Top US Demand Driven Apartment Market

3 DFW MULTIFAMILY STARTS A HISTORY LESSON!!! The challenge boom or bust perception vs recent history and reality today Half the MF permits with twice the total population vs. the 1980s 8,000,000 7,000, M People 80,000 70,000 6,000,000 60,000 Population 5,000,000 4,000,000 3,000, M People 50,000 40,000 30,000 Multifamily Permits 2,000,000 20,000 1,000,000 10, Population MF Permits Source: US Census Bureau/Real Estate Center at Texas A&M University

4 DFW POPULATION PROJECTIONS (Estimate) = + 10 million people At 2.7 people per HH = 3.7MM HHs = 92,500 HH per year 18,000,000 16,000, ,367,293 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000, ,624, ,341, ,233,323 2,000, ,428, Source: US Census Bureau

5 POPULATION GROWTH OF TEN LARGEST US METROS Population increase DFW = 807,109 Average = 115,301/year 16.0% 14.0% 12.0% 14.4% 12.6% 10.0% 9.5% 9.0% 8.8% 8.0% 6.0% 5.3% 4.0% 3.8% 3.0% 2.0% 0.0% Houston Dallas-Fort Worth Atlanta Miami Washington DC 1.8% 0.5% Boston Los Angeles New York Philadelphia Chicago Source: US Census Bureau

6 YTD JOB GROWTH OF TEN LARGEST US METROS May 2017 T12 = 115,800 Jobs Added - 3.3% Year-Over-Year Growth Rate 25% 20% 20% 18% 17% 17% Dallas Jobs Created 2010-December ,000 15% 10% 13% 11% 11% 10% 8% 6% 5% 0% Dallas-Fort Worth (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) Washington DC (243,300) Philadelphia (172,200) Source: Bureau of Labor Statistics

7 DFW EMPLOYMENT BY SECTOR 3,597,000 JOBS 2016 Trade, Transportation, and Utilities (790,000) Professional and Business Services (598,000) 6% 3% 2% 22% Education and Health Services (440,000) 7% Government (432,000) 8% Leisure and Hospitality (373,000) 10% 17% Financial Activties (296,000) Manufacturing (261,000) Mining, Logging, and Construction (205,000) 12% 12% Other Services (120,000) Information (82,000) Source: Bureau of Labor Statistics

8 This image cannot currently be displayed. HEADQUARTER MOVES TO DALLAS / FORT WORTH Source: Dallas Regional Chamber

9 COMPANIES HEADQUARTERED IN DFW NORTH AMERICA COMING SOON COMING SOON 9

10 DFW APARTMENT MARKET FUNDAMENTALS TODAY Quarter DFW Metro Dallas Fort Worth Existing Apartment Units 709, , ,697 Units added since ,709 87,217 17,492 *Absorption Exceeding Supply Units absorbed since , ,196 25,361 Average Gross Occupancy Q % 95.2% 95.7% Annual % Change -0.5% -0.7% -0.1% Current Period Effective Rent Q $1,121 $1,147 $1,045 Annual % Change 3.1% 2.6% 4.5% Source: Axiometrics

11 DFW EFFECTIVE RENT GROWTH AND OCCUPANCY (projection) 34% rent increase 2010 to 2016 YTD $1,200 $1,148 96% $1,100 95% $1,000 95% $900 $800 $808 94% $700 94% $600 93% $ (P) 2018 (P) 93% Rent Occupancy Source: Axiometrics

12 DFW TOTAL HOUSING PRODUCTION Total housing production still below peak DFW added 890,000(+/-) people since ,000 60,000 50,000 59,466 49,644 54,871 Housing Permits 40,000 30,000 29,637 20,000 10,000 9,822 20,571 15,581 4,990 25, Multifamily (5+) Single Family Total Source: US Census Bureau

13 DFW HOME OWNERSHIP Dearth of affordable single-family homes as prices rise and inventory declines Current 1.8 month inventory = 25-year low Building fewer homes and at higher price point , , , , , , Avg Price Months Inventory Source: Real Estate Center at Texas A&M University

14 FOCUS ON SUPPLY (AND ABSORPTION)

15 WHERE IS THE PIPELINE CONCENTRATED? THINK JOBS!!! Current lease-ups and projects under construction

16 DFW THE DEMAND DRIVEN MARKET Demand outpaced new supply ; this trend is expected to continue in ,000 Actual (Demand outperforms expectations) 96% 30,000 Demand Projection as of Q216 96% 95% Units 25,000 20,000 15,000 10,000 95% 94% 94% 93% 93% 92% Occupancy 5,000 92% 91% (F) 2018 (F) Supply Demand Occupancy 91% Source: Axiometrics

17 SALES TRENDS

18 DFW APARTMENT SALES Property or portfolio sales $10 million or greater 58 Properties $1.15 Billion Total Volume $19.9 Million Average Deal Size $10,000,000, Properties $8.8 Billion Total Volume $30.0 Million Average Deal Size 350 $9,000,000,000 $8,000,000,000 $7,000,000, Volume $6,000,000,000 $5,000,000,000 $4,000,000, # of Properties $3,000,000,000 $2,000,000,000 $1,000,000, $ Volume # of Properties Source: Real Capital Analytics

19 MF INVESTMENT ACTIVITY BY BUYER TYPE Property or portfolio sales $5 million or greater DFW MARKET USA MARKET 27% 41% 29% 21% 4% Institutional 29% 11% 5% 17% 6% 3% 5% 12% Cross-Border Public Listed/REITs 6% 5% Private 57% 51% 49% 63% User/Other 58% 0.0% 0.4% 0.1% 0.8% 1.0% Source: Real Capital Analytics

20 CURRENT SALES TRENDS 1. Still see ample and affordable debt & equity for all asset classes 2. Institutional investors increasingly cautious in the core space but private 1031 fills the gap 3. Value Add (Core Plus?) still red hot 4. Some caution in underwriting rent growth in the near term in submarkets with higher development pipeline 5. Dramatic price increases driven by rent increases and cap rate compression leveling off in the near term.

21 RECENT NOTEWORTHY TRADES Product Type: Core Seller: Principal/Alamo Manhattan Buyer: J.I Kislak, Inc. Units: 208 with 756 SF Avg Built: 2015 Net Rent: $/1700unit, $/2.25sf ROUTH STREET FLATS AMLI KNOX-HENDERSON Product Type: Urban Value Add Seller: AMLI Residential Buyer: Knightvest JV Miramar Holdings Units: 180 with 875 SF Avg Built: 1994 Net Rent: $1,500/unit, $1.72/sf Product Type: Core Plus Seller: PM Realty Group JV NATA Buyer: AMLI Residential JV Allianz Units: 314 with 996 SF Avg Built: 2012 Net Rent: $2,201/unit, $2.21/sf 1400 HI LINE Product Type: Core Plus Seller: UBS Realty Advisors Buyer: Kislak Organization (1031) Units: 144 with 975 SF Avg Built: 2003 Net Rent: $1,670/unit, $1.71/sf MCKINNEY UPTOWN THE DAVIS HEIGHTS OF CITYVIEW Product Type: Suburban Core Seller: Alliance Residential JV Prudential Buyer: Olympus Property Units: 392 with 849 SF Avg Built: 2015 Net Rent: $1,273/unit, $1.50/sf Product Type: Suburban Value Add Seller: JP Morgan Buyer: Beachwold JV SPI Holdings (1031) Units: 344 with 984 SF Avg Built: 1999 Net Rent: $1,015/unit, $1.03/sf

22 KEY TAKEAWAYS LOOKING FORWARD 1. DFW is a leader in population, HH formation, and job growth 2. Overall Housing starts have not been keeping up with demand 3. Apartment market fundamentals are strong with record high occupancy and effective rent 4. New supply should be viewed with absorption (demand driven market) 5. Investment markets remain favorable for multifamily DFW is a safe long term bet.

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