Presentation to Ontario, CAN Apartment Association
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Presentation to Ontario, CAN Apartment Association

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This is a presentation given to the Ontario, CAN apartment association covering apartment fundamentals and investment s

This is a presentation given to the Ontario, CAN apartment association covering apartment fundamentals and investment s

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    Presentation to Ontario, CAN Apartment Association Presentation to Ontario, CAN Apartment Association Presentation Transcript

    • Lessons from a Large US Apartment Operator (AIMCO Chief Property Operations Officer 2002-2008) And US Multifamily Investment Opportunities (President, The Sanctuary Group, LLC 10/08-) Jeffrey Adler, President, CEO The Sanctuary Group, LLC www.sanctuarygroup.us.com jeff.adler@sanctuarygroup.us.com
    • Agenda 1. Lessons from a Large Operator 2. Raising Revenue in Regulatory Constrained Markets 3. Understanding Product Type Differences 4. US Multifamily Investment
    • 1. Lessons from a Large Operator • Apartments are a consumer service business trapped in a capital intensive industry • Residents expect CONSISTENCY from professionally managed firms- which can only be delivered through process mgmt • Apartments are an EMOTIONAL service, with untapped potential – Staff attitude and camaraderie are essential – Segmentation, customization, and personalization can be tackled after consistency has been achieved • Transparency and Visibility are Critical- Existing and New customers, expenses, people, capital spend • Resident Screening & Selection is the Moral Imperative of Property Mgmt
    • History of Apartment Investment & Management Company (“AIMCO”)  Initial Public Offering in 1994 with $315 million gross asset value  Rapid growth followed by an integration period.  Doubled in size every 18 months from 1994 – 2002 through several large portfolio acquisitions.  Rationalized portfolio and operations, selling more than 350 properties worth over $4.5 billion from 2001 – 2006 and substantially exiting the third-party property management business. Gross Book Value of Real Estate Number of Aimco Employees $12,000 14,000 $10,000 12,000 10,000 $8,000 $ in millions 8,000 $6,000 6,000 $4,000 4,000 $2,000 2,000 0 $0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006  Built operating infrastructure to take advantage of scale and support growth.  Operating platform stabilized by 2006, positioning AIMCO for growth- decline in values since 1Q07 has led to a rapid sell-off as stock price has fallen faster than private market value of US real estate 4
    • Background & Context – How Aimco Creates Value The primary focus is creating value through the management and redevelopment of high land value assets in good locations. This implies serving customers w/different value propositions. Acquire High Land Value Assets Customer Segment 1 Market Operational Sell at Gain Selection Excellence Operate and Customer Segment 2 Incubate Capitalization Measuring Strategy Success - NAV Aimco Value Drivers Customer  Customer-Centric Segment 1 Lease Up Customer  Property Operations Redevelopment, Segment 2 Entitlement and Tax  Redevelopment/ Entitlements Customer Credits Segment 3  Tax Credit Transactions  Finance Strategy  Joint Ventures 5
    • AIMCO Operations Philosophy  The apartment management industry has been undergoing a transformation from a cottage industry to a scale driven, professional business system that is customer-centric, driven by rising customer expectations.  AIMCO Operations has been at the forefront of this transformation, led by a team that is grounded in other geographically distributed consumer businesses.  AIMCO has refocused its Operational Philosophy into five major Components:  Customer Driven - based on a solid foundation of consumer research, we focus on the entire customer experience, measure it, and seek to differentiate ourselves beyond the physical quality of the property, in order to achieve a relative price premium.  Forward Looking & Data Driven - we measure, in detail, to manage our four pipelines 1) revenue, 2) expense, 3) people, and 4) capital spend.  Scale Driven - we seek to leverage our size into scale driven advantages, and to transform site operations from mini transaction processing centers to places of personalized experiences.  People Driven - selection, hiring, on-boarding, training, development, performance management, and succession planning is itself a set of processes that are developed, measured, and managed.  Product Driven - curb appeal, unit turn quality standards, capital investment, financial management, construction services, and the redevelopment process are all areas that receive intense focus to ensure that we are competitive on the basis of product quality and amenities. 6
    • AIMCO’s Conventional Strategy Roadmap >2008 Resident Quality is the Moral Imperative- Selection of Neighbors is the Unique function 2007/8 Customer of a management company Information as Competitive Style/Design & Advantage 2006/7 Community Building Continue migration of Expense, 2004/5 admin tasks offsite Capital &  Revenue growth Service Mgt through customer Refinement of experience, style emotion-based Revenue and product customer segments  Turn Production differentiation On-Site  Vendor/Expense experience Increasing  Management Media emphasis on  Resident quality  Customer Service Property Team-member  Mtkg and Media Websites Measurement processes and  Customer Call Center systems  Product Lines Response (phone Revenue Mgmt (Student) Web Enablement  and email) Customer Ramp up of  Underwriting  Sales (New & Redevelopment & Renewal) Retention Capital Programs People  Revenue Disney Training –  Services Management Customer Capital Invest Experience 7
    • A Fragmented Market – the AIMCO Target Bulls eye The market is fragmented and AIMCO operates in a fraction of the market. • Rentals (Fragmented Market) House Tapestry Segments % Who Rent: Townhome Global Roots = 60-80% Condo - Solo Acts = 60-70% Management Upscale Avenues = 30-60% Company Condo- Landlord Sublet 2-3 Flat We occupy only 1-2% of the “management company” AIMCO rental market Apartment Target •300 million people In the US Building with •100 million US households Professional •30 million rental units, (including condos, Management flats, individual LL etc.) Company •30-40% are professional management =9-12 million Aimco with 125,000 current units = <1% 8
    • Consumer Housing Choices 30-40% of 60-70% of available available market market Professional Management Landlord Ownership Company  Consistent standards &  Can negotiate cost/rent  Equity security  Landlord takes extra/personal  Chose neighbors (more  Access to “whole team of care (updates) scrutiny) people” 24/7  Inside has character  Free to personalize to taste  Fast/responsive (know  Deal with one person  Take pride in my space Positive building and have the  Landlord knows/chooses me appropriate resources)  Public company (meets public scrutiny)  Can escalate issues if necessary  “Cookie cutter.” No character/ • Landlord is too close for • Economic/market fluctuation personalization comfort, would rather • Maintenance/incidentals can complain to larger company  Profit oriented be a headache and costly Negative • Landlord can be greedy • Risk of community issues  Risk of many neighbors • Less consistent maintenance • Escalating Property Taxes  Can I be myself? (polarized- they are either on top of you or take a long time) The components of strategy must enhance “Perception” of uniqueness and positives, while mitigating negatives as personalization much as possible 9
    • The Market Value Equation CUSTOMER PRIORITIES Rational Drivers Emotional Drivers Service Security Location Respect/Pride & Care Friendly Community/ Price Value System Amenities Updates 10
    • Consumers Priorities are Rational Drivers + Emotional Drivers The Market Value Equation Emotional Drivers Rational Drivers Service - Clean/spotless with cues - Fast/responsive (24 hrs), Fixed the first time Fear/Risk: (lobby/main entrance, carpet/floors/paint) - Reliable/dependable (know maintenance staff Consumers by name) have fear/risk about Security Service and - Window locks, buzz in doors, gate/lighting, guard - Security you can see Security, these - “People around and watching over me” - Neighborhood 2 drivers are the - Screening (background checks/high rent weeds out) cost of entry (visual proof of guarantee Respect/Pride & Care Location needed) Dimensions Suburban • Pride in work • Green/nature/parks, close to malls/shops/restaurants • Staff enjoys job, they WANT to help me • Interstate highways, public transportation (commuting = • Appreciation/humility currency) • You are our responsibility/pride, Residents are #1 • Schools priority over prospects….”how can we help you?” • 2 way communication Urban • No surprises, makes me feel valued • Schools • Reach out and ask/listen to needs • Walk to public transportation • Empathy • Convenience stores/restaurants • Visible touch-point (family, connection, feels like home) Metro Emotion: • Consistency (change is very disruptive) • Walk to public transportation, walk to convenience Pride & Care stores, restaurants, culture/events Price Friendly Community/Value System • Washer/dryer (#1) • Friendly neighbors • Big closets/storage • Not friends, but friendly. “A smile goes a long way” • Wood floors • Shared Values/Community value system (among both • Kitchen/living area open floor plan residents and staff) • Price Range • View/ceiling to floor windows Updates Amenities • FUNCTIONAL aspect of Updates for Residents: “Justifies rent • Gym (24/7) increases” • “At my convenience” and “On my own time” • EMOTIONAL aspect of Updates for Residents: “Shows me you • Amenity value beyond Gym alone (pool, enclosed community care as much as I do, and you care about me, feels like a center) hug, and keep me updated with the latest styles/trends” 11
    • Sub Segments Consumer Demographics Cultural Pride Singles Village Collection Day-to-Day Pride Couples Family Restart Families Ultimate Goal Financial Leverage Safe Haven “Village” for my family. Cash yield through longer duration Value for a full life within a (retention) and lower operating community (a Village). costs. 12
    • Sub Segments Consumer Demographics Towne Collection Reprieve Young Professionals (Singles and Reprieve Plus Connection Couples) Families Ultimate Goal Active Adults A Peaceful Reprieve. Students/Roommates Value for their money, a home without the house (trees, Financial Leverage landscape, park, playground Scale through Net Operating feels like backyard) because Income (NOI) and Controllable “I’m/We’re sacrificing for now.” 13 Operating Expenses (COE) optimization.
    • Sub Segments Consumer Demographics Metropolitan Fiscally Minded, “PRIDE” PRIDE: Young Professionals Collection “Wow” Factor, “FUN” FUN: Financially Secure Consumers, Artists, Singles Ultimate Goal Resort Living. Financial Leverage Better quality of life (resort, things Revenue growth through selective to do nearby, restaurants, investment for rent increase. nightlife). 14
    • Improvement to Resident Quality  AIMCO’s first step to improve operations began with improving resident quality.  Neighbors are an essential ingredient to successful communities.  Employ an unyielding system relying on financial stability to judge resident quality. Results from Improving Resident Quality 2003 Current Annualized Skip/Eviction % 9-10% 6-7% Accounts Receivable > 12.0% < 2.5% Bad Debt 3.0% < 1.0% Aimco Average Physical Occupancy 95.0% 94.0% 93.0% 92.0% 91.0% 2004 2005 2006 YTD 2007 15
    • Operational Excellence  AIMCO continues to build its platform  Processes and Standards  Data-driven people and culture with the systems and tools to accomplish as much.  “Automate the Routine, Humanize the Exception”  Improving productivity, the hiring profile, and in the end the customer experience.  Many opportunities exist to leverage supplier “eco-systems” for smaller companies 2006/7 Accomplishments 2008  Internet Customer Experience  Electronic Procurement 60% of demand web generated  Electronic Revenue Management 43% of leases from web  Electronic Lease Documentation >50% growth in web demand  Operating Standards 23% of apps on line and growing  Accounts Payable On-line leasing live in Atl/Orl Centralization 16
    • How Customers Search • Our research validated a need for a differentiated web experience, which drove our investment in a new property website platform – Usage of ILS is very high: 76% – Usage of Search Engines is also high: 71% – 68% started their search online – After online search, • 40% - word of mouth • 32% printed resources • 31% phone calls – Community web site: 67% – Craig’s List web site: 43% – 3 clicks/3 bricks: Consumers average 3 web site and 3 community visits – The web experience must be “real”, as if I was there, no glamour views that may disappoint 17
    • Efficiencies from Scalability Internal Scale vs. Vendor Scale  Transformation of communities from mini-transaction processing centers to a focus on revenue enhancing customer relationships- 2/3 of Front office time spent on administrative tasks  Community Support Centers in 2008 handle e-procurement and other administrative tasks  Centralized procurement increases standardization across Aimco  Call Center to manage all leasing inquiries to Aimco  Missed calls have declined from 25% to <5%  Media purchasing and development has been centralized  The national media group executes all large scale web and print buys Transaction Category Timeline for Move to Off-Site Responsibility Incoming leasing calls 2005 Incoming leasing e-mails 2005 Outbound Appointment Confirmation 2005 Utility Bill payments 2005 Electronic procurement 2006 Electronic revenue management 2006 Electronic Lease documentation 2007 Centralized accounts payable 2007 Web Customer Self-Service payment, service in place Goal is to eliminate the back office from Aimco’s leasing centers 18
    • Utilization of Technological Systems Build vs. Buy Decisions  PROFIT Revenue Management System is a heavily data-driven tool used to accurately price rents through:  Forecasting inventory based on historical season trends. PROFIT (Pricing Revenue Optimization and Forecast  Upcoming lease expirations – AIMCO’s Revenue Management for the specific property. Information Tools)  Forecasting of market demand metrics, including Aimco’s own lease pipeline System (inquiries, visits, etc.). Aimco has strategicallytoinvested in technological systems which have SIGNIFICANTLY • Historical detail the lease level is also available for the Property and ROC teams. (each dot is a lease) IMPROVED operating efficiency Home to Aimco 2007 America Comes 8 19
    • Highest Emphasis Placed on Customer Experience  We involve our residents in improving the customer experience through several feedback systems.  On-line surveys are offered to residents at:  1) move-in; 2) two days after move-in; 3) 120 days after move-in  4) completion of each service request (Customer Experience Measurement).  Results are immediately available for staff review and impact the variable compensation program.  Retention has improved 3% from ’03 to ’08  A key attribute is TRANSPARENCY of the Customer Experience  Net Promoter Score is our primary customer experience metric Customer Experience Measurement 2007 2008 Metric 2005 2006 Net Promoter Score 18% 18% 31% 38% Office Courtesy 90% 90% 93% 94% Maintenance Overall Rating 82% 86% 90% Customer Average Duration (months) 16 17 17 19 Willingness to Renew 70% 75% 75% 93% Move-in Defect Rate 14% 8% 11% 11% Unit Turn Cycle Time 34 days 15 days 15 15 Unit Availability 40% 90% >90% >90% 20
    • The Team Member Experience – Extending the Operating Platform Team Member Engagement- Reduced turnover by 8% •Selection- Behavior based hiring screens deployed mid year ‘07 •HR People Pipeline Mgmt System- START- deployed early ‘07 •Training/Development •Continued CM training program •Learning Management system deployed early ‘06 •New long-term training relationship with the Disney Institute • Retention programs • “Aiming for the Stars”, Aimco Cares, Aimco Cares4U, College Scholarships, Active Duty Service Members, Tuition Reimbursement, Scorecard payments to 63% of properties in ’06, 50% in ‘07 • Performance mgmt, career paths, succession planning programs. 21
    • Employees are at the Heart of Quality Customer Service  “Hire for attitude, train for skill”  Aimco has developed rigorous training programs to ensure our people deliver the highest level of customer service.  Approximately 5,000 Regional and site team members have completed an average of 10 courses per person year to date.  Aimco has improved team member satisfaction through specific initiatives including pay for performance, quarterly CEO/Executive Town Halls, active succession planning, and numerous training opportunities. Indicator 2005 2007 Increase Engagement Job Satisfaction, Retention, 57% 65% 8% Recommending Aimco as a place to work On the Job Training, Role Clarity, Information, 81% 88% 7% Resources, Using Skills & Abilities Work Life 57% 78% 21% Compensation (Pay & Benefits) 57% 67% 10% Values (Living Up To) Integrity, Respect , Teamwork, Customer, 66% 75% 9% Team Member Focus, Performance Values (Believe In) 97% 99% 2% 22
    • Employees are at the Heart of Quality Customer Service  “Hire for attitude, train for skill”  Aimco has developed rigorous training programs to ensure our people deliver the highest level of customer service.  Approximately 5,000 Regional and site team members have completed an average of 10 courses per person year to date.  Aimco has improved team member satisfaction through specific initiatives including pay for performance, quarterly CEO/Executive Town Halls, active succession planning, and numerous training opportunities. Indicator 2005 2007 Increase Engagement Job Satisfaction, Retention, 57% 65% 8% Recommending Aimco as a place to work On the Job Training, Role Clarity, Information, 81% 88% 7% Resources, Using Skills & Abilities Work Life 57% 78% 21% Compensation (Pay & Benefits) 57% 67% 10% Values (Living Up To) Integrity, Respect , Teamwork, Customer, 66% 75% 9% Team Member Focus, Performance Values (Believe In) 97% 99% 2% 23
    • (at 120 Team Member Experience- CM Training Results days post hire vs. prior year) Measure Rating Comments 1 Sales Strong New CM sales performance- Effectiveness improvement 10.7% point increase 3.2% improvement vs. month average 2 Office Courtesy Improvement Office Courtesy scores 10.5% improvement to above 93% 3 Employee Strong Employee turnover improvement Retention Improvement +30% vs. baseline 4 FSG Tickets Strong Reductions of FOCUS tickets vs. Improvement benchmark improvement of 2.9 tickets per 100 units 24
    • Results of the Operating Improvements The operating improvements are further evidenced through above-market rents and occupancies. Aimco versus REIS Occupancy & Rent $840 98.0% 96.0% $820 94.0% Average Rent per Occ. Unit $800 92.0% Occupancy $780 90.0% $760 88.0% $740 86.0% $720 84.0% $700 82.0% Mar-03 Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Aimco Rent REIS Rent Aimco Occ. REIS Occ. Source: REIS. Used with permission from Reis.com 25
    • 2. Raising Revenue in Rent Constrained Markets • Ontario rent regulations are similar to several US cities (San Francisco, Northern NJ, Alexandria VA). You are not alone! • Utility Rebilling- a form of “Unbundling” and Risk Transfer – Does result in about a 30% reduction in usage – very “Green” – Direct Bill vs. RUBS based on physical plant and age – Electric, Heat (Oil, Nat Gas, Electric), Air Conditioning, Hot Water, Trash and Pest Control have all been “unbudled” – Vendors in US are ISTA, NWP, RealPage – Must be included in the rent statement to be truly effective, does require regulatory authorization, sometime regulation – Represents $1,000/unit/yr change or 10% change in total expenses – Success depends on customer type—seniors will pay up for stability
    • 2. Raising Revenue in Rent Constrained Markets • More Unbundling- Represents 4% of Rental Income – Comes with Danger of Being “nickled and dimed to death” • Effective with Cost Conscious Consumers- backfires in luxury/senior segments – Renter’s Insurance- required liability insurance – Surety Bond vs. Security Deposit – Fee Income- application fees, upfront admin fees, late charges, lease cancellation fees, month to month fees, transfer fees, lost key fees, pet rent, pet deposits, parking costs, • Ancillary Revenues- 1% Opportunity & Growing – Communications- Internet, Phone/Wireless, Television – Vending – Laundry and/or Washer/Dryer Rentals
    • 2. Raising Revenue in Rent Constrained Markets • Revenue Management Systems- the Biggest Opportunity – Still only operative on 10% of US Apartment Rentals – Lift of 2-5% documented with available vendor systems – Requires a compatible Property Mgmt Operating System – Requires a documented Revenue Management Process • Centralized Staff of some sort • Collaborative decision making—but OFF SITE • Data Driven based upon historic conversion ratios • Requires interaction of internet media sources • Assumes most demand is sensitive to price—but that’s exactly what good segmentation should reduce! – Enables price segmentation as to move-in date, lease duration, and unit amenities – Next Wave will layer in resident credit stability
    • 3. US Major Apartment Product Types • Urban- Brownstone, Mid and High Rise – Long Useful lives among major building systems – High land values based on density, difficulty to replace – Expensive/difficult to Renovate Common area elements- elevators, HVAC, Plumbing – The Neighborhood is the lifestyle amenity • Suburban- Garden Apartments- predominate US Housing Apartment Style given reduced US population density – Clusters of 10-12 unit apartment buildings- 300 unit avg size – Easier to bite off Cap Ex- roofing, siding, HVAC units, hot water – Dependent on the automobile – Growing trend is along metro rail lines, universities, hospitals – Many Common areas amenities- club houses, pools, etc.
    • 4.US Multifamily Investment 2009 APARTMENT TRENDS A National Multifamily Market Overview
    • Market Divergence Continues  Fundamentals softening short-term  (2009-10)  Construction starts are decreasing  Future supply / demand favors appreciation  Apartments remain a preferred investment  Split between:  Family firms and Institutional Capital
    • Market Divergence Continues • Short-term transactional value  Debt and equity more expensive  Investors are fearful and conservative  Unemployment is damaging fundamentals  Expectation of “discounted / distressed pricing” by institutional investors
    • Economic Weakness Expected Through Q3- 2009 Risk Levels Remain Elevated GDP Growth Employment Growth 15% 8% 3Q2008-Q22009 = -3.1% LT Avg. Text Boxes Below = Peak-to-Trough 2009 Annual = -2.2% Y-O-Y Percent Change Long-Term Avg. During Contraction 10% Annualized Growth Period 2010 Annual = 2.5% 4% 5% 0% 0% 74-75: 70: -1.0M 90-91: -5% -2.2M -1.6M 01-03: 08-09: -2.7M 81-82: -5.9M -2.8M -4% -10% * 19 0 19 4 19 8 19 2 19 6 19 0 19 4 20 8 20 2 20 6 10 * 19 0 19 4 19 8 19 2 19 6 19 0 19 4 20 8 20 2 20 06 7 7 7 8 8 9 9 9 0 0 09 7 7 7 8 8 9 9 9 0 19 19 *Forecast Assumes No Additional Major Shocks Sources: Marcus & Millichap Research Services, Blue Chip, Economy.com, Global Insight
    • U.S. Employment Losses Have Reached Extreme Levels in Recent Months 500 250 Thousands of Jobs 0 Monthly Absolute Change May: -137,000 June: -161,000 -250 July: -128,000 August: -175,000 September: -321,000 -500 October: -380,000 November: -597,000 December: -681,000 January 09: -655,000 -750 February 09: -651,000 00 01 02 03 04 05 06 07 08 * 09 *Through February 2009 Sources: Marcus & Millichap Research Services, Bureau of Labor Statistics
    • Retail Sales Continue to Decline Despite Relief from High Energy Prices Retail Sales Oil Prices 10% $120 Crude Oil (Price per Barrel) 5% $90 Retail Sales (Y-O-Y Change) 0% $60 -5% $30 -10% $0 00 01 02 03 04 05 06 07 08 09* * Retail Sales YOY as of February, Oil as of March 18th Sources: Marcus & Millichap Research Services, Economy.com
    • The Fed and Treasury Have Become Aggressive – Helped by Falling Inflation Fed Funds Rate Ten-Year Treasury Core Inflation 8% 8% Core Inflation (Y-O-Y Change) 6% 6% Fed Funds and Ten-Year Rates 4% 4% 2% 2% 0% 0% * 00 01 02 03 04 05 06 07 08 09 * Ten-Year/Fed Funds through March, Core Inflation through February Sources: Marcus & Millichap Research Services, BLS, Federal Reserve Board
    • Housing Inventory Overhang Indicates Further Weakness (months of supply) Single-Family Condo Y-O-Y 20 Change Number of Months 16 17% 12 -1% 8 4 0 01 02 03 04 05 06 07 08 09* * Through February Sources: Marcus & Millichap Research Services, National Association of REALTORS®
    • U.S. Existing Single-Family Home Trends 1990-2007 2008 2009* Change: ’02 to ’Peak: 34% 49% 21% 23% 51% Change: Peak to Present -22% -5% -15% -16% -38% $400 Median Home Price (000s) $300 $200 $100 $0 U.S. Northeast Midwest South West * Through February Sources: Marcus & Millichap Research Services, Economy.com, National Association of REALTORS ®
    • Y-O-Y Feb. 2009 Employment Ranking Top 10 & Bottom 10 Markets Bottom 10 Y-O-Y Top 10 Y-O-Y Markets Percent Change Markets Percent Change Fort Lauderdale -4.2% Oklahoma City 0.5% Austin 0.1% Atlanta -4.4% San Antonio -0.1% Las Vegas -4.5% Washington D.C. -0.1% Orange County -4.7% Houston -0.3% Orlando -5.0% Dallas/Ft. Worth -1.1% Sacramento -5.2% Kansas City -1.3% Charlotte -5.5% Inland Empire -6.3% Boston -1.5% Phoenix -7.3% Columbus -1.6% Detroit -7.4% New Haven/Fairfield Cty. -1.6% United States -3.0% United States -3.0% Sources: Marcus & Millichap Research Services, BLS
    • Notice of Default Ranking Top 10 & Bottom 10 Markets Past 12 Months vs. Previous 12 Months Bottom 10 Y-O-Y Top 10 Y-O-Y Markets Percent Change Markets Percent Change Oakland 39% Denver -12% Oklahoma City -4% Inland Empire 41% Boulder -2% Bakersfield 42% St. Louis -1% San Francisco 42% Memphis 11% Los Angeles 46% Anchorage 17% Orange County 52% Albuquerque 19% San Jose 60% Las Vegas 84% Sacramento 22% Portland 86% New York/NNJ 25% Honolulu 176% Santa Barbara 26% U.S. Average 39% U.S. Average 39% * 12 months ending in February Sources: Marcus & Millichap Research Services, DataQuick Information Systems
    • Apartment Vacancy Ranking (2008) Top 10 & Bottom 10 Markets Top 10 2008 Bps Bottom 10 2008 Bps Markets Vacancy Change Markets Vacancy Change Indianapolis 7.6% -70 San Jose 5.2% 130 Palm Beach 7.6% -40 Las Vegas 7.7% 160 Milwaukee 3.7% -40 Jacksonville 11.6% 170 Cincinnati 6.7% -30 Tampa 8.6% 170 Atlanta 10.2% 200 San Francisco 3.6% -30 Charlotte 8.0% 200 Minneapolis 4.3% 20 San Antonio 8.7% 210 New York 2.3% 20 Orlando 9.7% 250 Oakland-East Bay 5.3% 20 Phoenix 10.9% 260 San Diego 3.9% 20 Tucson 11.2% 300 Boston 6.0% 30 United States 6.7% 90 United States 6.7% 90 Sources: Marcus & Millichap Research Services, Reis
    • Apartment Vacancy Ranking for 2009* Top 10 & Bottom 10 Markets Top 10 2009* Bottom 10 2009* Markets Vacancy Markets Vacancy New York 3.6% Charlotte 9.8% Milwaukee 4.4% San Antonio 10.0% San Diego 4.4% Tampa-St. Petersburg 10.4% San Francisco 4.6% Austin 10.5% New Jersey 4.8% Houston 10.9% New Haven-Fairfield Co. 5.2% Atlanta 11.1% Minneapolis 5.4% Orlando 11.1% Phoenix 12.6% Los Angeles 5.7% Jacksonville 12.7% San Jose 5.9% Tucson 13.3% Oakland-East Bay 6.1% U.S. Average 7.7% U.S. Average 7.7% * Forecast Sources: Marcus & Millichap Research Services, Reis
    • Apartment Rent Growth Asking Rent Effective Rent 12% 8% Y-o-Y Percent Change 4% 0% -4% 96 97 98 99 00 01 02 03 04 05 06 07 08 09* * Forecast Sources: Marcus & Millichap Research Services, Reis
    • Apartment Effective Rent Ranking (2008) Top 10 & Bottom 10 Markets Top 10 2008 % Bottom 10 2008 % Markets Eff. Rent Change Markets Eff. Rent Change Seattle-Tacoma $958 4.9% New Haven-Fairfield $1,536 0.6% Oklahoma City $519 4.6% New York $2,801 0.6% Houston $715 4.4% Sacramento $921 0.4% Austin $783 3.8% Jacksonville $757 0.1% San Francisco $1,827 3.6% Detroit $768 -0.4% San Diego $1,303 3.4% Phoenix $710 -0.4% Louisville $618 3.3% Fort Lauderdale $1,050 -0.6% Washington D.C. $1,307 3.3% Inland Empire $1,018 -0.7% Oakland-East Bay $1,332 3.2% Palm Beach $1,040 -0.8% Boston $1,651 3.1% Miami $1,041 -2.0% United States $995 2.1% United States $995 2.1% Sources: Marcus & Millichap Research Services, Reis
    • Construction Starts Declining Multi-Family Single-Family 500 2,000 (SAAR, in thousands) Single-Family Starts 400 1,600 (SAAR, in thousands) Multi-Family Starts 300 1,200 200 800 100 400 0 0 4 4 4 4 4 4 4 4 4 4 Q Q Q Q Q Q Q Q Q Q 90 92 94 96 98 00 02 04 06 08 19 19 19 19 19 20 20 20 20 20 Sources: Marcus & Millichap Research Services, U.S. Census Bureau
    • Reversal in Home Ownership Rate Points to Increase in Renter Households Homeownership Rate Renter Households Number of Household (millions) 72% 40 Homeownership Rate 69% 35 66% 30 63% 25 60% 20 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010* * Forecast Sources: Marcus & Millichap Research Services, U.S. Census Bureau
    • “Shadow” Rentals a Significant Factor in Rising Vacancies 2+ Unit Structure 1-Unit Structure 7,000 1-Unit as % of Total 55% 1-Unit Structure as % of Total 6,000 50% Units (in 000s) 5,000 45% 4,000 3,000 40% 2,000 35% 1,000 0 30% 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08* * As of 3Q Sources: Marcus & Millichap Research Services, U.S. Census Bureau
    • Fannie Mae Composite Rates Apartment Spreads 10-Yr. Treasury 400 8% Average Conduit Spread (Large Loan) All-In Rate** 10-Yr. Treasury and All-In Rate 300 6% 200 4% 100 2% 0 0% 02 03 04 05 06 07 08 * 09 20 20 20 20 20 20 20 20 * Through Feb 13, 2009 **10-Year Treasury Yield Plus Average Conduit Spread Sources: Marcus & Millichap Research Services, Marcus & Millichap Capital Corp.
    • U.S. Commercial Mortgage Backed Securities (CMBS) Issuance: 2004-2007 Vintage at Highest Risk Level U.S. CMBS $250 $230.2 $205.6 $200 $169.2 CMBS Issuance (billions) $150 $93.1 $100 $77.8 $74.4 $52.1 $48.7 $50 $12.1 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 Sources: Marcus & Millichap Research Services, Commercial Mortgage Alert, MBA
    • Apartment Investment Trends Dollar Volume by Price Category $1M - $9.99M $10M - $19.99M $20M+ $120 $104 Billion $100 Billion Total Dollar Volume ($bil) $90 $85 Billion $60 $45 Billion $30 $0 00 01 02 03 04 05 06 07 08 Excludes Archstone Privatization Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics
    • Commercial Mortgage Delinquency Rates by Group CMBS (30+ days and REO) Life Companies (60+ days) Fannie Mae* (60+ days) Freddie Mac (60+ days) 2.0% Banks & Thrifts (90+ days) 1.5% 1.0% Delinquency Rates 0.5% 0.0% 4Q 97 4Q 98 4Q 99 4Q 00 4Q 01 4Q 02 4Q 03 4Q 04 4Q 05 4Q 06 1Q 07 2Q 08 3Q 08 4Q 08 08 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 4Q Delinquency rates at the end of each period Sources: Marcus & Millichap Research Services, Mortgage Bankers Association
    • Total CMBS Outstanding: $799.7 billion Self- Healthcare Other • By Property Types: Storage 0.6% 7.7% • Office 30.2% 1.8% • Multifamily 15.6% Hotel Office • Retail 29.5% 9.5% 30.2% • Industrial 5.1% • Industrial Hotel 9.5% 5.1% • Self-Storage 1.8% • Healthcare 0.6% • Other 7.7% Multifamily Retail 15.6% 29.5% Sources: Marcus & Millichap Research Services, MBA
    • Apartment Sales Trends Average Price per Unit vs. Average Cap Rate Avg. Price per Unit Average Cap Rate $120 9% Avg. Price per Unit (000s) $90 8% Avg. Cap Rate 7% $60 $30 6% $0 5% 01 02 03 04 05 06 07 08 09* * 1Q Estimate Sales $1 million and greater Sources: Marcus & Millichap Research Services, CoStar Group, Inc.
    • Re-Pricing of Risk Trends By Market Quality Primary Secondary Tertiary 9% 8% Average Cap Rate 7% 6% 5% 04 04 05 05 06 06 07 07 08 08 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q Sales $5 million and greater Sources: Marcus & Millichap Research Services, Real Capital Analytics
    • 12 – Month Cap Rate Adjustment Matrix * Class “A” Class “B” Class “C” 1.25 Primary .65 1.00 1.50 1.00 1.25 Secondary 1.50 2.00 1.25 Tertiary * Change in cap rates last 15 months
    • 12 – Month Pricing Adjustment Matrix Class “A” Class “B” Class “C” -20% Primary -12% -17% -24% -16% -21% Secondary -22% -26% -30% Tertiary 6.00 / 6.75 5.50 / 6.25 Base = 5.00 / 5.50
    • 2009 Commentary  Capital markets remain fractured and expensive  Investor demand tempered, motivated by anticipated discounts  Vacancy rate approaches 9% (+2%)  Effective rents erode due to concessions  Velocity remains low during 2009  Distressed asset sales escalate in 3rd / 4th Qtrs  Cap rates continue to increase 50 bps
    • 4.US Multifamily Investment 2009 APARTMENT TRENDS THE CASE FOR OPTIMISM
    • Echo Boomer Demand Supports Appreciation Ages 20-24 Ages 25-29 Ages 30-34 10% Change in Population 5% 0% -5% 6.5 Million Increase -10% 1990-95 1995-00 2000-05 2005-10* 2010-15* * Forecast Sources: Marcus & Millichap Research Services, Economy.com
    • U.S. Population Trends Favorable For Rental Market (Projected 20-34 Year Old) 70,000 20-34 Yr Old Population (000s) 66,000 62,000 58,000 54,000 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 Sources: Marcus & Millichap Research Services, U.S. Census Bureau
    • Demand From Immigration Supports Appreciation 2.0 Number of Individuals (millions) 1.5 6.4 million increase 1.0 0.5 0.0 80 85 90 95 00 05 10* 15* * Forecast Sources: Marcus & Millichap Research Services, Economy.com
    • Summary Apartments are a Consumer Business as well as a Financial One Value to Consumers Can be Unbundled Successfully Apartments are an Attractive Investment in the US (and Canada!).