Oct 11, 2016 - Market Rate. &. Market/ .... Washington, DC 1 & 2 Star Vacancy Rates ..... ld b e rg. R e a lty A
Naturally Occurring Affordable Housing NAAHL & ULI Symposium | October 11, 2016 page 1
Slicing And Dicing Rental Housing U.S. Rental Housing Inventory By Units
Rent Subsidized 3.3 Million 8%
Market Rate & Market/Affordable 16.0 Million 37%
Sources: U.S. Census Bureau; CoStar Portfolio Strategy
1 - 4 Units 23.5 Million 55%
As of August 2016
page 2
Slicing And Dicing Rental Housing U.S. Rental Housing Inventory By Units
1 & 2 Star 5.6 Million 13%
Sources: U.S. Census Bureau; CoStar Portfolio Strategy
As of August 2016
page 3
One- And Two-Star Rating Criteria CoStar Building Rating System (BRS)
page 4
Three-Star Rating Criteria CoStar Building Rating System (BRS)
page 5
Four-Star Rating Criteria CoStar Building Rating System (BRS)
page 6
Five-Star Rating Criteria CoStar Building Rating System (BRS)
page 7
CoStar Building Rating System EXTERIOR
INTERIOR 1 Star
2 Star
3 Star
4 Star
5 Star
page 8
Affordability Issues More Significant At Top End Of Market Rent As A % Of 100% Area Median Income By Star Rating 28%
Rent As A % Of Income
26%
26.4%
24% 22%
23.4%
20% 19.6%
18% 17.8%
16% 14%
16.5% 15.3%
12% 10% 2013 1 & 2 Star Source: CoStar Group
2014 3 Star
2015
2016
4 & 5 Star As of 16Q2
page 9
1 & 2 Star Rents Remain Affordable In Most Metros 1 & 2 Star Apartment Rents As A Percent Of 100% Area Median Income
Sources: ESRI; CoStar Portfolio Strategy
As of 16Q2
page 10
1 & 2 Star Represents A Major Portion Of The Market Number Of Units By Star Rating
1&2 5,50 3
22.3% 3,393,118 36.2% 5,501,144
41.5% 6,310,441
1 & 2 Star Source: CoStar Group
3 Star
4 & 5 Star As of August 2016
page 11
The Vast Majority Of Multifamily Properties Are 1 & 2 Star Number Of Properties By Star Rating 4.7% 15,827
1&2 25 7
19.8% 66,684
75.4% 253,467
1 & 2 Star Source: CoStar Group
3 Star
4 & 5 Star As of August 2016
page 12
1 & 2 Star Properties Can Be Found Almost Anywhere 1 & 2 Star Units By Metro
Sources: ESRI; CoStar Portfolio Strategy
As of 16Q2 page 13
Los Angeles And New York Dominate 1 & 2 Star Properties By Metro 50
Number Of Properties (000s) 18.4%
45 40 35 11.6%
30 25 20 15
4.3% 3.7%
10
2.9%
2.6% 2.0% 2.0% 1.9% 1.7% 1.4% 1.4% 1.4% 1.3% 1.3% 1.2% 1.1% 1.0% 1.0% 1.0%
5
Source: CoStar Group
Denver
Cincinnati
Washington, DC
Northern NJ
Fort Lauderdale
Portland OR
San Jose
Philadelphia
Inland Empire
Boston
Minneapolis
Seattle
Orange County
Miami
East Bay
San Francisco
San Diego
Chicago
New York
Los Angeles
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
As of August 2016
page 14
Almost Half Of 1 & 2 Star Inventory In 50+ Unit Buildings Number Of Units By Building Size And Star Rating 4.0
Number Of Units (Millions)
3.5 3.0 2.5 2.0
1.5 1.0 0.5 0.0 5-9 Units 1 & 2 Star Source: CoStar Group
10-19 Units 3 Star
20-49 Units
50-99 Units 100-199 Units 200+ Units
4 & 5 Star As of August 2016
page 15
Most Units Built More Than 35 Years Ago 1 & 2 Units By Building Age 1.6
Number Of Units (Millions)
1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 1900-09
1910-19
Source: CoStar Group
1920-29
1930-39
1940-49
1950-59
1960-69
1970-79
1980-89
1990-99
2000-
As of August 2016
page 16
1 & 2 Star Properties Spread Out Around The D.C. Area Washington, DC 1 & 2 Star Inventory
Sources: ESRI; CoStar Portfolio Strategy
As of 16Q2 page 17
High Vacancy Properties Are Few And Far Between Washington, DC 1 & 2 Star Vacancy Rates
Sources: ESRI; CoStar Portfolio Strategy
As of 16Q2 page 18
1 & 2 Star Large Part Of Inventory In Close-In Submarkets 1 & 2 Star Construction As A Percent Of Inventory
Sources: ESRI; CoStar Portfolio Strategy
As of 16Q2 page 19
Vacancies Show The Effect Of Construction Average Vacancy By Star Rating 9%
Vacancy Rate
8% 7% 6% 5% 4% 3%
2% 1% 0% 2013 1 & 2 Star Source: CoStar Group
2014 3 Star
2015
2016
4 & 5 Star As of 16Q2
page 20
Rent Spread Has Widened Slightly Average Asking Rent By Star Rating $1,500
Average Asking Rent
$1,400 $1,300 $1,200
$1,100 $1,000 $900 $800 $700 $600 2013 1 & 2 Star Source: CoStar Group
2014 3 Star
2015
2016
4 & 5 Star As of 16Q2
page 21
$3,000
San Francisco San Jose East Bay New York Honolulu Long Island Orange County Boston Los Angeles San Diego Washington, DC Northern NJ Miami Seattle Fort Lauderdale Stamford Denver Inland Empire Portland OR Hartford Austin Baltimore Palm Beach Philadelphia Sacramento Chicago Minneapolis Nashville Raleigh Norfolk Orlando Pittsburgh Salt Lake City New Orleans Tampa Dallas - FW Houston Atlanta Richmond Detroit Milwaukee Charlotte San Antonio Phoenix Jacksonville Kansas City Cleveland Saint Louis Las Vegas Indianapolis Columbus OH Cincinnati Oklahoma City Memphis
Core Coastal Metros Are The Priciest
1 & 2 Star Average Asking Rent By Metro Average Asking Rent
$2,500
$2,000
$1,500
$1,000
$500
$0
South East
Source: CoStar Group
Midwest West As of 16Q2
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But On A Comparative Basis May Be Relatively Cheap 1 & 2 Star Apartment Rents As A Percent Of Market Rent
Sources: ESRI; CoStar Portfolio Strategy
As of 16Q2 page 23
Strong Long-Term Rent Growth In 1 & 2 Star Segment Average Rent Growth By Star Rating 8%
Rent Growth
7%
6.4% 5.6%
6%
5.0% 5% 4% 3% 2% 1% 0% 1 & 2 Star
3 Star
Average Annual Rent Growth Since 2013
Source: CoStar Group
4 & 5 Star Y/Y Rent Growth
As of 16Q2
page 24
Lower Vacancies Levels The Playing Field Average Rent Growth By Star Rating 8%
Rent Growth
7%
5.96%
5.80%
3 Star
4 & 5 Star
5.60% 6% 5% 4% 3% 2% 1% 0% 1 & 2 Star
Average Annual Rent Growth Since 2013 Average Annual Economic Rent Growth Source: CoStar Group
Y/Y Rent Growth
As of 16Q2
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Lower Vacancies Levels The Playing Field Average Rent Growth By Star Rating 8%
Rent Growth
7% 6% 5% 4% 3%
3.88%
4.02%
2%
2.67%
1% 0% 1 & 2 Star
3 Star
Average Annual Rent Growth Since 2013
4 & 5 Star Y/Y Rent Growth
Y/Y Economic Rent Growth Source: CoStar Group
As of 16Q2
page 26
Source: CoStar Portfolio Strategy
Atlanta
Baltimore
Fort Lauderdale
Sacramento
Dallas - FW
Honolulu
Denver
Northern NJ
Inland Empire
Portland OR
Washington, DC
Houston
Minneapolis
Miami
Philadelphia
Boston
Seattle
Chicago
San Jose
East Bay
Orange County
San Diego
San Francisco
Los Angeles
$180
New York
Market Capitalization Of 1 & 2 Star Inventory
Market Capitalization (Billions)
$160
$140
$120
$100
$80
$60
$40
$20
$0
As of 16Q2
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Pricing Plays A Role In Values Market Capitalization Of 1 & 2 Star Inventory $180
Average Price Per Unit (000s)
Market Capitalization (Billions)
$160
$350 $300
$140 $250
$120 $100
$200
$80
$150
$60
$100
$40 $50
$20
Source: CoStar Portfolio Strategy
Atlanta
Baltimore
Fort Lauderdale
Sacramento
Dallas - FW
Honolulu
Denver
Northern NJ
Inland Empire
Portland OR
Washington, DC
Houston
Minneapolis
Miami
Philadelphia
Boston
Seattle
Chicago
San Jose
East Bay
Orange County
San Diego
San Francisco
Los Angeles
$0
New York
$0
As of 16Q2
page 28
Pricing Plays A Role In Values Market Capitalization Of 1 & 2 Star Inventory $180
Average Price Per SF
Market Capitalization (Billions)
$160
$400 $350
$140
$300
$120
$250
$100 $200
$80 $150
$60
$100
$40
Source: CoStar Portfolio Strategy
Atlanta
Baltimore
Fort Lauderdale
Sacramento
Dallas - FW
Honolulu
Denver
Northern NJ
Inland Empire
Portland OR
Washington, DC
Houston
Minneapolis
Miami
Philadelphia
Boston
Seattle
Chicago
San Jose
East Bay
Orange County
San Diego
$0
San Francisco
$0
Los Angeles
$50
New York
$20
As of 16Q2
page 29
Cap Rate Spreads Are Narrowing Cap Rates By Star Rating 9.0%
Average Cap Rate
Spread (BPS)
350
8.5%
300
8.0%
250
7.5%
200
7.0%
150
6.5%
100
6.0%
50
5.5%
0
5.0%
(50)
4.5%
(100)
4.0%
(150) 05
06
07
08
1 & 2 Star Cap Rate 4 & 5 Star Spread Source: CoStar Group
09
10
11
12
13
14
15
16
Historical Average (2005-Present) 3 Star Spread As of 16Q2
page 30
More Attractive Spreads Outside Of New York And L.A. Cap Rates By Star Rating Excluding New York And Los Angeles 9.0%
Average Cap Rate
Spread (BPS)
350
8.5%
300
8.0%
250
7.5%
200
7.0%
150
6.5%
100
6.0%
50
5.5%
0
5.0%
(50)
4.5%
(100)
4.0%
(150) 05
06
07
08
1 & 2 Star Cap Rate 4 & 5 Star Spread Source: CoStar Group
09
10
11
12
13
14
15
16
Historical Average (2005-Present) 3 Star Spread As of 16Q2
page 31
Units
Source: CoStar Group
0 Samuel Geltman & Company
Kamson Corporation
Middlesex Management
Units
GFI Capital Resources Group
Churchill Forge Properties
Goldberg Realty Associates
Estates NY Real Estate Services
Morgan Properties
Western National Group
The Peterson Companies
New Life Multi-Family Mgmt
ROCO Real Estate
J.K. Residential Services
Hartman & Tyner
Monarch Investment
Kushner Companies
Warren Properties
Pama Management
Regional Management
Elon Property Management
Pangea Real Estate
Hendersen-Webb
Morgan Management
Princeton Enterprises
12,000
Edward Rose & Sons
Ownership Concentrated In Regional And Local Players
Top Owners Of 1 & 2 Star Properties Properties
10,000
8,000
4,000
2,000 200 Rank
160
120
6,000
80
40
0
Properties
As of 16Q2
page 32
Shaw Lupton
[email protected] Ethan Vaisman
[email protected]
page 33
Appendix
page 34
CoStar Building Rating System
page 35
Average 1 & 2 Star Asking Rents By Metro
Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27
Metro Name San Francisco San Jose East Bay New York Honolulu Long Island Orange County Boston Los Angeles San Diego Washington, DC Northern NJ Miami Seattle Fort Lauderdale Stamford Denver Inland Empire Portland OR Hartford Austin Baltimore Palm Beach Philadelphia Sacramento Chicago Minneapolis
Source: CoStar Group
Average Asking Rent $ 2,589 $ 2,188 $ 1,973 $ 1,763 $ 1,742 $ 1,696 $ 1,551 $ 1,484 $ 1,477 $ 1,362 $ 1,321 $ 1,249 $ 1,180 $ 1,103 $ 1,094 $ 1,060 $ 1,042 $ 1,034 $ 1,030 $ 1,012 $ 991 $ 987 $ 987 $ 975 $ 950 $ 898 $ 882
Rank 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54
Metro Name Minneapolis Nashville Raleigh Norfolk Orlando Pittsburgh Salt Lake City New Orleans Tampa Dallas - FW Houston Atlanta Richmond Detroit Milwaukee Charlotte San Antonio Phoenix Jacksonville Kansas City Cleveland Saint Louis Las Vegas Indianapolis Columbus OH Cincinnati Oklahoma City
Average Asking Rent $ 882 $ 875 $ 860 $ 841 $ 840 $ 835 $ 821 $ 806 $ 805 $ 796 $ 795 $ 794 $ 765 $ 761 $ 761 $ 729 $ 729 $ 713 $ 702 $ 682 $ 677 $ 670 $ 646 $ 645 $ 635 $ 635 $ 610 As of 16Q2
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These CoStar Portfolio Strategy materials contain financial and other information from a variety of public and proprietary sources. CoStar Group, Inc. and its affiliates (collectively, “CoStar”) have assumed and relied upon, without independent verification, the accuracy and completeness of such third party information in preparing these materials. The modeling, calculations, forecasts, projections, evaluations, analyses, simulations, or other forward-looking information prepared by CoStar and presented herein (the “Materials”) are based on various assumptions concerning future events and circumstances, which are speculative, uncertain and subject to change without notice. You should not rely upon the Materials as predictions of future results or events, as actual results and events may differ materially. All Materials speak only as of the date referenced with respect to such data and may have materially changed since such date. CoStar has no obligation to update any of the Materials included in this document. You should not construe any of the data provided herein as investment, tax, accounting or legal advice. CoStar does not represent, warrant or guaranty the accuracy or completeness of the information provided herein and shall not be held responsible for any errors in such information. Any user of the information provided herein accepts the information “AS IS” without any warranties whatsoever. To the maximum extent permitted by law, CoStar disclaims any and all liability in the event any information provided herein proves to be inaccurate, incomplete or unreliable. © 2016 CoStar Realty Information, Inc. No reproduction or distribution without permission.
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