2014 was a breakout year for the economy and the rental market where we saw record occupancy rates and a rise in residential development. But will this rental housing boom continue through 2015? We reveal the answer to this question and more in this essential forecast from Senior Economist, Ryan Severino.

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March 24, 2015
Ryan Severino, CFA
Senior Economist and Director of Research
Twitter: @rseverino_reis
2015: A Year of Change for Real
Estate

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• Oh, how the US economy grew in 2014.
• Review of major demographic forces.
• Recent trends in the housing market.
• Broader trends that have changed the strategic landscape for
housing (and that will continue to influence investment and
development decisions in the near term).
• Update on capital markets.
2
Agenda

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4.9
1.2
0.4
3.2
0.2
3.1 2.7
1.4
-2.7
2
-1.9
-8.2
-5.4
-0.5
1.3
3.9
1.7
3.9
2.7 2.5
-1.5
2.9
0.8
4.6
2.3
1.6
2.5
0.1
2.7
1.8
4.5
3.5
-2.1
4.6 5
2.2
-10
-8
-6
-4
-2
0
2
4
6
1
4.6
2.1 2.4
4.1
2.1
1.4
1.8
0.5
-0.8
0.7
-2.9
-4.7
-1.4
-1.8
2.4
0
2.2
3.3
2.6
4.2
2
0.8
1.8
1.4
2.8
1.3
1.9 1.9
3.6
1.8 2
3.7
1.2
2.5
3.2
4.2
-6
-4
-2
0
2
4
6
3
The Macroeconomic Backdrop
GDP
Percentage
Change at
Annual Rate
Consumer
Spending
Percentage
Change at
Annual Rate
Source: Bureau of Economic Analysis
4.9
1.2
0.4
3.2
0.2
3.1
2.7
1.4
-2.7
2
-1.9
-8.2
-5.4
-0.5
1.3
3.9
1.7
3.9
2.7 2.5
-1.5
2.9
0.8
4.6
2.3
1.6
2.5
0.1
2.7
1.8
4.5
3.5
-2.1
4.6
5
2.6
-10
-8
-6
-4
-2
0
2
4
6
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2006 2007 2008 2009 2010 2011 2012 2013 2014

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0
50
100
150
200
250
300
350
400
450
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
2011 2012 2013 2014 '15
Payrolls(Thousands)
Monthly Net Change 12-month Rolling Avg
Payroll Growth Accelerated in 2014
Source: BLS
4

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-2%
-1%
0%
1%
2%
3%
4%
5%
6%
2Q04 1Q05 4Q05 3Q06 2Q07 1Q08 4Q08 3Q09 2Q10 1Q11 4Q11 3Q12 2Q13 1Q14 4Q14
Long Run Inflation Target
Annualized Inflation Rate
5
Inflation Accelerating
Current Inflation Rate vs. Long Run Inflation Target
Annualized Inflation Rate, 2004Q2-2014Q4
Source: Moody’s Analytics

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-15,000,000 -10,000,000 -5,000,000 0 5,000,000 10,000,000 15,000,000
0 - 4
5 - 9
10 - 14
15 - 19
20 - 24
25 - 29
30 - 34
35 - 39
40 - 44
45 - 49
50 - 54
55 - 59
60 - 64
65 - 69
70 - 74
75 - 79
80 - 84
85 + Male
Female
Population Pyramid
6
Source: Census

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-0.8%
-0.6%
-0.4%
-0.2%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
43.4
43.6
43.8
44.0
44.2
44.4
44.6
44.8
45.0
45.2
45.4
2014 2016 2018 2020 2022 2024 2026 2028 2030
AnnualChange
PeopleinMillions
Age 20-29 Growth Rate
Echo Boom Times Ahead
7
Source: Moody’s Analytics

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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Less than 25 25 - 29 30 - 34 35 - 44 US (total) 45 - 54 55 - 64 65 and older
1984 1994 2004 4Q 2014
Trends in Homeownership Across Age Groups
Source: Census
8
Homeownership Rates by Age of Householder

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0%
10%
20%
30%
40%
50%
60%
70%
18-20 21-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85+
% of Households Living in Multi-Unit Buildings, by Age of Householder, 2013
Renter Lifecycle
9
Source: Census, Trulia
% of Households Living in Multi-Unit Buildings, by Age of Householder – 2013

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10%
15%
20%
25%
30%
35%
40%
45%
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Less than 25 years Less than 25 Average
25 to 29 years 25 to 29 Average
Homeownership Rate by Age, 1990-2014
Homeownership Rates
Source: Census
10

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Homeownership Rate by Age, 1990-2014
40%
44%
48%
52%
56%
60%
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
30 to 34 30 to 34 Average
Homeownership Rates
Source: Census
11

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0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Very Good Somewhat Good Neutral Somewhat Bad Very Bad
Renter Owner
Is Housing a Good or Bad Investment?
Source: New York Fed’s Survey of Consumer Expectations
12
PercentofSurveyRespondents

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13
400
500
600
700
800
900
1000
1100
1200
2008 2009 2010 2011 2012 2013 2014 2015
Thousands,Annualized
Housing Starts Building Permits
Housing Starts & Building Permits
Source: Census

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Year Qt r
Asking
Rent
Percent
Change
Effect ive
Rent
Percent
Change
Vacancy
Rat e
2007 4 $1,026 1.0% $974 1.0% 5.7%
2008 1 $1,035 0.9% $982 0.8% 6.0%
2008 2 $1,046 1.0% $992 1.0% 6.1%
2008 3 $1,052 0.6% $998 0.6% 6.2%
2008 4 $1,050 -0.2% $993 -0.4% 6.7%
2009 1 $1,045 -0.5% $983 -1.1% 7.4%
2009 2 $1,039 -0.5% $974 -0.9% 7.7%
2009 3 $1,033 -0.5% $971 -0.3% 7.9%
2009 4 $1,026 -0.7% $964 -0.7% 8.0%
2010 1 $1,028 0.2% $967 0.3% 8.0%
2010 2 $1,033 0.4% $975 0.7% 7.8%
2010 3 $1,038 0.5% $981 0.7% 7.1%
2010 4 $1,043 0.5% $987 0.6% 6.6%
2011 1 $1,048 0.4% $992 0.5% 6.2%
2011 2 $1,054 0.6% $998 0.6% 5.9%
2011 3 $1,060 0.7% $1,005 0.7% 5.6%
2011 4 $1,065 0.4% $1,011 0.5% 5.3%
2012 1 $1,071 0.6% $1,020 0.9% 5.0%
2012 2 $1,082 1.1% $1,033 1.3% 4.8%
2012 3 $1,092 0.9% $1,043 0.9% 4.7%
2012 4 $1,098 0.6% $1,050 0.6% 4.6%
2013 1 $1,104 0.5% $1,056 0.6% 4.4%
2013 2 $1,112 0.7% $1,064 0.8% 4.3%
2013 3 $1,123 1.0% $1,075 1.1% 4.3%
2013 4 $1,133 0.9% $1,085 0.9% 4.3%
2014 1 $1,141 0.7% $1,093 0.8% 4.1%
2014 2 $1,152 1.0% $1,105 1.1% 4.1%
2014 3 $1,165 1.1% $1,117 1.2% 4.2%
2014 4 $1,172 0.6% $1,124 0.6% 4.2%
National Apartment Market
Quarterly and Annual Market Conditions
14Source: Reis; 79 of 275 Apartment Markets
• National vacancy was unchanged
during the quarter at 4.2%. For 2014,
national vacancy was down only 10
basis points.
• Asking and effective rent growth
decelerated versus the third quarter,
both increasing by 0.6%.
• Annual rent growth for 2014
strongest since 2007.
Year
Asking
Rent
Percent
Change
Effect ive
Rent
Percent
Change
Vacancy
Rat e
2005 $944 2.5% $891 3.0% 5.7%
2006 $982 4.0% $930 4.4% 5.8%
2007 $1,026 4.4% $974 4.7% 5.7%
2008 $1,050 2.4% $993 2.0% 6.7%
2009 $1,026 -2.3% $964 -2.9% 8.0%
2010 $1,043 1.7% $987 2.3% 6.6%
2011 $1,065 2.1% $1,011 2.4% 5.3%
2012 $1,098 3.1% $1,050 3.9% 4.6%
2013 $1,133 3.2% $1,085 3.3% 4.3%
2014 $1,172 3.5% $1,124 3.6% 4.2%
2015 $1,213 3.5% $1,161 3.3% 4.8 %
2016 $1,251 3.1% $1,194 2.8 % 5.1%
2017 $1,28 4 2.7% $1,222 2.4% 5.4%
2018 $1,315 2.4% $1,250 2.2% 5.5%
2019 $1,344 2.2% $1,28 0 2.4% 5.8 %

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-50%
0%
50%
100%
150%
200%
250%
300%
350%
1979 1983 1987 1991 1995 1999 2003 2007 2011
Lowest Quintile 21st to 80th Percentiles
81st to 99th Percentiles Top 1 Percent
Cumulative Growth in Average Inflation-Adjusted After-Tax Income, by Income Group
Income Inequality
Source: Congressional Budget Office
15

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2.0%
2.2%
2.4%
2.6%
2.8%
3.0%
3.2%
3.4%
3.6%
3.8%
Asking Rent Effective Rent
1988-1993 2010-2014
16
Average Annual Apartment Rent Growth
1988-1993 vs. 2010-2014
Source: Reis Inc

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9.6%
7.4% 7.1% 7.1%
4.0% 3.7%
1.3% 1.3% 1.1% 0.8%
-0.2%
-10%
-5%
0%
5%
10%
15%
20%
San Jose Oakland-
East Bay
Denver San
Francisco
Chicago US
Aggregate
Fairfield
County
Wichita Little Rock Westchester District of
Columbia
17
Top and Bottom Apartment Markets
Year-Over-Year Comparisons for the Fourth Quarter of 2014
Effective Revenue Per Unit, Percent Change 2013Q4-2014Q4
Source: Reis

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6.0%
6.2%
6.4%
6.6%
6.8%
7.0%
7.2%
7.4%
7.6%
4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14
Mean Cap Rate 12 Month Rolling Cap Rate
National Apartment Market
Cap Rate Trends
18Source: Reis
5.8%
6.2%
6.6%
7.0%
7.4%
7.8%
2Q07 3Q07 4Q07 1Q08 2Q08 3Q084Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12
Mean Cap Rate 12 Month Rolling Cap Rate
CapRate

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0
50
100
150
200
250
300
1Q05 4Q05 3Q06 2Q07 1Q08 4Q08 3Q09 2Q10 1Q11 4Q11 3Q12 2Q13 1Q14 4Q14
1Q05=100
Apartment
Office
Retail
Mortgage Originations - 12-month Rolling Avg.
19
Source: Reis
Transaction Volume
Indexed Transaction Volume, 1Q05-4Q14
II

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0
10
20
30
40
50
60
70
First Holding Period Second Holding Period Third Holding Period Fourth Holding Period
AverageHoldingPeriod(Months)
Property Transactions Before 2009
Property Transactions After 2009
20
Source: Reis
Longer Holding Periods
Average Holding Period – Gateway Markets’ Apartment Transactions

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0%
2%
4%
6%
8%
10%
12%
'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
All Residential Commercial
Commercial and Residential Mortgage Delinquency Rates
21
Source: Federal Reserve; FDIC Quarterly Banking Profile
Mortgage Performance

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• Multifamily fundamentals remained strong, but vacancies may really
begin to rise this year.
• The for-sale housing market is rebounding and should accelerate along
with the macroeconomy.
• The US is unlikely to be bogged down in stagnation; but given our
integration with the global economy, non-domestic idiosyncratic factors
(very challenging to forecast) now represent the highest risk to the
rosiest of predictions for US growth in 2015.
22
Summary and Conclusions

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March 24, 2015
Ryan Severino, CFA
Senior Economist and Director of Research
Twitter: @rseverino_reis
2015: A Year of Change for Real
Estate