CBRE MULTIFAMILY

CLIENT CALL

NOVEMBER 27, 2018

AGENDA

1. WELCOME

Brian McAuliffe, President, Capital Markets

2. STATE OF U.S. MULTIFAMILY MARKET

Jeanette Rice, Americas Head of Multifamily Research

3. SALES TRENDS / ONE SIZE DOES NOT FIT ALL

Brian McAuliffe, President, Capital Markets

4. RISING RATES / WHERE ARE THEY LEADING TO

Mitchell Kiffe, Snr. Managing Director / Co-Head of National Production

Paul McPeake, Vice President, Debt & Structured Finance, Multifamily

5. Q & A

Brian McAuliffe, President, Capital Markets

CBRE 2 CBRE MULTIFAMILY NATIONAL CLIENT CALL | NOVEMBER 27, 2018
STATE OF U.S.
MULTIFAMILY MARKET
JEANETTE I. RICE, CRE
AMERICAS HEAD OF MULTIFAMILY RESEARCH
HIGH LEVELS OF MULTIFAMILY DEMAND
Demand remains favorable due to both cyclical and structural trends

Annual Net Absorption Totals

Units in 000s

400
317
300 269
215
200

100

-100
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18*

Source: CBRE Research, CBRE Econometric Advisors, Q3 2018. Total for 66 metro markets tracked by CBRE
EA. Absorption is counted in the quarter in which property has stabilized. *Year ending Q3 2018.

CBRE 4 CBRE MULTIFAMILY NATIONAL CLIENT CALL | NOVEMBER 27, 2018

U.S. MULTIFAMILY CONSTRUCTION
2018 likely to be peak year for completions in this cycle (290,000 projected)

Annual Completions
Units in 000s
350

300 273 276

261
242
250

200

150

100

50

-
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18*

Source: CBRE Research, CBRE Econometric Advisors, Q3 2018. Total for 66 metro markets tracked by CBRE EA. Completed units are counted in the quarter in
which property has stabilized.

CBRE 5 CBRE MULTIFAMILY NATIONAL CLIENT CALL | NOVEMBER 27, 2018

U.S. MULTIFAMILY RENTS
Rents rose 2.6% over prior year

Historical Rent Change Year-over-Year

%
6 5.1

4
2.6
2

-2

-4

-6

-8
Q3 2006 Q3 2007 Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014 Q3 2015 Q3 2016 Q3 2017 Q3 2018

Source: CBRE Research, CBRE Econometric Advisors, Q3 2018.

CBRE 6 CBRE MULTIFAMILY NATIONAL CLIENT CALL | NOVEMBER 27, 2018

MULTIFAMILY SEGMENTATION
Performance varies by type with suburban, garden,
Class B/C outperforming

Rent Change Year-over-Year Historical Vacancy by Major Type of Community (%)

% Garden High-Rise Garden High-Rise

8 8

4 6
3.6

2 4.8
4 4.2
0 -0.1

-2
2
-4

-6 0
Q3 2006 Q3 2008 Q3 2010 Q3 2012 Q3 2014 Q3 2016 Q3 2018 Q3 2006 Q3 2008 Q3 2010 Q3 2012 Q3 2014 Q3 2016 Q3 2018

Source: CBRE Research, CBRE Econometric Advisors, Q3 2018. Mid-rise is a separate category not included in these statistics.

CBRE 7 CBRE MULTIFAMILY NATIONAL CLIENT CALL | NOVEMBER 27, 2018

WIDE VARIATION BY METRO
2/3 of metros have greater growth in garden product, 1/3 in high-rise

Metro Rent Growth Year-over-Year by Garden & High-Rise Categories

8
Las Vegas
Left of line = garden rent Right of line = high-rise rent
growth above high-rise Orlando growth above garden
7
Phoenix Jacksonville

6 Atlanta
Long Island
Salt Lake City San Diego
Inland Empire Tampa
5 Houston San Jose
Garden

Sacramento
Pittsburgh Washington, D.C.
San Francisco Columbus
Ft. Lauderdale
4 San Jose Indianapolis
Raleigh Kansas City
Orange County Mlps Boston Miami Detroit
Ft. Worth Denver
3 Charlotte Los Angeles Philadelphia Cincinnati
New York Portland Oakland
West Palm Beach
Dallas Nashville
2 Baltimore
Newark Austin
San Antonio
Chicago
1
St. Louis

0
-4 -2 0 2 4 6 8 10 12
High-Rise

Source: CBRE Research, CBRE Econometric Advisors, Q3 2018. Mid-rise is a separate category not included in these statistics.

CBRE 8 CBRE MULTIFAMILY NATIONAL CLIENT CALL | NOVEMBER 27, 2018

RENT GROWTH FOR MAJOR METROS
Orlando, Phoenix & Tampa among leaders

Rent Change Rent Change

Rank Metro Market Rank Metro Market
Y-o-Y (%) Y-o-Y (%)
Sum of Markets 2.6
1 Las Vegas 6.8 18 Kansas City 2.8
2 Orlando 6.3 19 Austin 2.8
3 Phoenix 6.3 20 Raleigh 2.8
4 Tampa 4.8 21 Charlotte 2.7
5 San Diego 4.3 22 Minneapolis 2.7
6 Houston 4.0 23 Cincinnati 2.3
7 Atlanta 3.8 24 Portland 2.2
8 Los Angeles/So. Cal. 3.7 25 Washington, D.C. 2.2
9 Columbus 3.7 26 Chicago 2.1
10 Sacramento 3.7 27 Seattle 2.0
11 San Francisco Bay Area 3.7 28 Nashville 1.8
12 Detroit 3.6 29 Dallas/Ft. Worth 1.8
13 Indianapolis 3.4 30 Baltimore 1.4
14 Miami/South Florida 3.1 31 San Antonio 1.4
15 Philadelphia 3.0 32 Cleveland 1.1
16 Boston 3.0 33 New York Metro 1.1
17 Denver 2.8 34 St. Louis 1.0

Source: CBRE Research, CBRE Econometric Advisors, Q3 2018. Metros with an inventory of 125,000+ units.

CBRE 9 CBRE MULTIFAMILY NATIONAL CLIENT CALL | NOVEMBER 27, 2018

METROS – NOT ALL CREATED EQUAL
All metros gaining jobs, many very dynamic

Employment Growth – Number and Rate – Year Ending September 2018

6
MOST DYNAMIC Orlando

5
Percentage Employment Growth

Austin Miami Houston

4
Tampa Phoenix
Las Vegas
San Jose Seattle
Salt Lake City
3 Raleigh - Durham Dallas/Ft. Worth
Inland Empire
Cleveland Denver
Charlotte Atlanta
Indianapolis Portland
2 Kansas City Boston D.C.
Nashville San Diego San Francisco U.S. average
Columbus CincinnatiBaltimore Philadelphia
Minneapolis
1San Antonio Sacramento St. Louis Los Angeles NYC
Chicago
Pittsburgh Detroit
0
0 20 40 60 80 100 120 140
Number Emploment Growth (000s)
Source: U.S. Bureau of Labor Statistics, not seasonally adjusted, September data published November 2018. Largest 38 metros (900,000+ jobs or about 1.8+ m
population). Employment growth for metros tracked = 2.1%; for all U.S. = 1.7%.

CBRE 10 CBRE MULTIFAMILY NATIONAL CLIENT CALL | NOVEMBER 27, 2018

LEADING METROS FOR COMPLETIONS
NY, Seattle, Austin construction challenging market performance

Units Comple-
Added tions to
Metro
Past 4 Inventory
Qtrs. (%)*
Sum of Markets 276,300 1.9
1 New York Metro 34,000 1.5 Numbers on map represent units added in thousands.
2 Dallas/Ft. Worth 21,000 3.0
3 Los Angeles/So. Calif. 18,800 1.2
12 Seattle
4 Washington, D.C. 12,300 2.1
5 Seattle 12,000 3.2
6 Denver 11,400 3.7 7 Boston
10
7 San Francisco Bay Area 10,500 1.8 34
Chicago 9 New York City
8 Boston 10,100 2.1
9 Miami/South Florida 9,700 1.7 12 SF Bay Area 12
Washington, D.C.
10 Chicago 8,900 1.2 11 Denver
11 Atlanta 8,700 2.0 LA/So Cal
Nashville 6 8 Charlotte
12 Orlando 8,100 4.0 19
8 Phoenix
13 Charlotte 7,700 4.9 Dallas/Ft. Worth 9 Atlanta
14 Phoenix 7,600 2.2 21
15 San Antonio 7,500 4.5 Austin 7
San Antonio 8
16 Austin 6,800 3.3 6 Houston 8 Orlando
17 Nashville 5,900 4.4 10 South Florida
18 Houston 5,600 0.9
Source: CBRE Research, CBRE Econometric Advisors, Q3 2018. *On table, markets highlighted in red have greater risk of overbuilding based on high
completions-to-inventory ratio.

CBRE 11 CBRE MULTIFAMILY NATIONAL CLIENT CALL | NOVEMBER 27, 2018

RENT GROWTH OUTLOOK NEXT 12 MONTHS
Rents to rise everywhere, but rent projections vary significantly

Rent Change Rent Change Rent Change

Rank Metro Market Rank Metro Market Rank Metro Market
Y-o-Y (%) Y-o-Y (%) Y-o-Y (%)

1 Sacramento 6.1 17 Ft. Worth 3.2 32 Cincinnati 2.3

2 Houston 6.0 18 Oakland 3.2 33 Denver 2.3
3 Orlando 5.7 19 Miami 3.2 34 Seattle 2.3
4 San Francisco 5.3 20 Portland 3.0 35 Inland Empire 2.2
5 Jacksonville 5.1 21 Washington, D.C. 3.0 36 Norfolk 2.1
6 Las Vegas 5.1 22 Pittsburgh 2.9 37 Chicago 2.0
7 Phoenix 5.0 23 Columbus 2.9 38 Indianapolis 1.8
8 Tampa 4.9 24 Atlanta 2.9 39 Orange Co. 1.7
9 Salt Lake City 3.9 25 Los Angeles 2.9 40 Kansas City 1.5
10 San Diego 3.9 U.S. 2.8 41 St. Louis 1.5
11 Dallas 3.9 26 San Jose 2.7 42 New York 1.5
12 Philadelphia 3.8 27 West Palm Beach 2.6 43 Austin 1.0
13 Newark 3.6 28 Raleigh 2.5 44 Detroit 0.8
14 Minneapolis 3.4 29 Nashville 2.4 45 San Antonio 0.3
15 Boston 3.4 30 Cleveland 2.4 46 Charlotte 0.1
16 Ft. Lauderdale 3.3 31 Baltimore 2.4

Source: CBRE Research, CBRE Econometric Advisors, Q3 2018. Economic scenario is “Moody’s Analytics.” Metros with an inventory of 100,000+ units.

CBRE 12 CBRE MULTIFAMILY NATIONAL CLIENT CALL | NOVEMBER 27, 2018

SUMMARY OF METRO MARKET STATISTICS
For selected top performing markets and underperformers

Net Absorption Past 12

Construction Effective Rents
Months

Completions Ratio to Vacancy Monthly

Starts Past Under Past 12 Ratio to Change
Inventory Past 12 Inventory Rent Per
12 Months Construction Months Inventory YOY (%)
Months (%) Unit

Orlando 203,663 8,666 10,130 8,137 4.2 8,308 4.4 3.4 1,248 6.3

Phoenix 350,955 6,541 10,509 7,585 2.2 10,853 3.3 4.4 1,065 6.3

Tampa 236,446 4,257 6,290 5,408 2.3 6,246 2.8 4.0 1,192 4.8

Austin 208,486 11,138 14,247 6,816 3.4 7,387 3.9 4.8 1,240 2.8

New York 1,952,186 32,469 54,271 29,369 1.5 35,416 1.9 2.8 2,662 1.0

Seattle 374,151 14,375 20,395 11,958 3.3 12,230 3.5 4.1 1,698 2.0

Source: CBRE Research, CBRE Econometric Advisors, Q3 2018.

CBRE 13 CBRE MULTIFAMILY NATIONAL CLIENT CALL | NOVEMBER 27, 2018

SALES TRENDS /
WHERE ARE THEY LEADING TO?
BRIAN MCAULIFFE
PRESIDENT, CAPITAL MARKETS
U.S. MULTIFAMILY – YTD 2018 ACQUISITIONS VOLUME
Ytd 2018 total is 12% over 2017; if 4Q is average of prior three quarters,
2018 will set new record (4% over 2017)

Cumulative Investment Volumes Through Year ($ B) Ytd through Sept Total ($ billions) Chg (%)

2013 2014 2015 2016 2017 2018 2018 2017 Y-o-Y

160 Individual Assets 91.4 81.3 12.3
Portfolios 24.1 19.4 24.1

120 Entity-Level 4.7 6.5 -27.8

80
Garden 75.7 73.7 2.8
Mid/High-Rise 44.4 33.6 32.4

40
Total 120.1 107.2 12.0

0
J F M A M J J A S O N D

Source: CBRE Research, Real Capital Analytics, Q3 2018. Calculations based on unrounded totals; column sums may not total due to rounding.

CBRE 15 CBRE MULTIFAMILY NATIONAL CLIENT CALL | NOVEMBER 27, 2018

 U.S. MULTIFAMILY PORTFOLIO SALES UP 23% YOY

U.S. Multifamily Portfolio Sales

2017 2018 YoY Change

YTD thru 3Q $19,428,803,281 $23,982,138,753 23%

T-4 Quarters $28,967,897,417 $34,310,411,844 18%

This data represents all sales $2.5M+ and excludes any entity level transactions.
RCA defines a portfolio as comprised of two or more distinct assets that trade
together between the same buyer and seller.

Source: RCA Data Integration, November 1st, 2018.

CBRE 16 CBRE MULTIFAMILY NATIONAL CLIENT CALL | NOVEMBER 27, 2018

INSTITUTIONAL MULTIFAMILY RETURNS
Garden significantly outperforming high-rise

One-Year NCREIF Returns (%)

Appreciation Income Total 20-Year Average

10 9.5
9.3 9.1
9 9.0

7
6.4
6

5 4.9
4

0
All Garden High-Rise

Source: CBRE Research, NCREIF, Q3 2018.

CBRE 17 CBRE MULTIFAMILY NATIONAL CLIENT CALL | NOVEMBER 27, 2018

ACQUISITIONS BY BUYER TYPE
Private buyers dominate in 2018 ytd through Q3

Cross-Border Institutional REITs Private

Total ($b) 7.9 25.3 3.2 79.9

Market Share (%) 6.6 21.1 2.6 66.5

Y-o-Y Change (%) -20.4 9.3 37.0 20.6

Net Buyer/Seller? net buyer net seller net seller net buyer

Ratio Acquisitions to Dispositions 1.4 to 1 - - 1.1 to 1

Ratio Dispositions to Acquisitions - 1.1 to 1 3.3 to 1

Source: CBRE Research, Real Capital Analytics, Q3 2018. There are also “other” and “unknown” categories to bring the market share totals to 100%.

CBRE 18 CBRE MULTIFAMILY NATIONAL CLIENT CALL | NOVEMBER 27, 2018

CROSS-BORDER SALES VOLUME
International capital = 7% of Ytd 2018 acquisitions

Total Direct Multifamily Investment by Offshore Buyers • Ytd 2018 acquisitions by offshore
$ billions Garden Mid/High-Rise
buyers = $7.9 billion, -20.4% from
the prior year
18
• Ytd 2018 market share was 6.6%
down from last year’s ytd figure of
15
9.3%
• Canada is leading country source
12 by far for direct investment.
-------------------------------------------------
9
• International capital is also
making multifamily investment via
6 other avenues:
• Development
• Debt financing
3
• REIT stock purchasing
• Fund investment
0 • Equity investment in
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 Ytd Ytd companies
17 18

Source: CBRE Research, Real Capital Analytics, Q3 2018.

CBRE 19 CBRE MULTIFAMILY NATIONAL CLIENT CALL | NOVEMBER 27, 2018

RISING RATES /
WHERE ARE THEY LEADING TO?
MITCHELL KIFFE - SENIOR MANAGING DIRECTOR /
CO-HEAD OF NATIONAL PRODUCTION
PAUL MCPEAKE, VICE PRESIDENT, DEBT AND
STRUCTURED FINANCE, MULTIFAMILY
TOTAL MULTIFAMILY MORTGAGE ORIGINATION VOLUME

Multifamily Mortgage Originations

$350

$300

$310
$302
$285
$250

$261
$250
$ Billions

$200

$195
$173
$150

$148

$146
$138
$133

$100

$110
$108
$104

$88
$83
$73

$50

$69
$53
$50

$0
00

01

02

03

04

05

06

07

08

09

10

11

12

13

14

15

16

17

F
18

19
20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20
Sources: FFIEC (HMDA), OTS Thrift Financial Report, ACLI
Investment Bulletin, MBA Commercial Mortgage Banker
Origination Survey, MBA CREF Forecast, and Freddie Mac, 2018.

CBRE 21 CBRE MULTIFAMILY NATIONAL CLIENT CALL | NOVEMBER 27, 2018

U.S. MULTIFAMILY MORTGAGE HOLDINGS
Banks and GSE’s dominate

Holders of Multifamily Mortgages

CMBS Issuers
Life 3%
Companies
6% Lender Category
Total $ Billions
Q2 2018
GSEs 632
Others
10% Commercial Banks 460

GSEs Others 143

47%
Life Companies 77

CMBS Issuers 41

Commercial Banks
34% Total 1,352

Source: CBRE Research, Federal Reserve Bank, Q2 2018.

CBRE 22 CBRE MULTIFAMILY NATIONAL CLIENT CALL | NOVEMBER 27, 2018

RATES AND CREDIT SPREAD
10 Year Fixed Multifamily Mortgage Rates (1.25x DSCR)
10 yr UST All-In Rates Spreads

4/26/2018, 4.64
5 1/11/2017, 4.35

4
11/21/2018, 4.52

6/25/2018, 4.14
1/11/2018, 3.88
9/7/2017, 3.43
3

0
7

8
17

17

17

18

18
01

01

01

01

01

01

01

01

01

01

01

01

01

01

01

01

01

01
20

20

20

20

20
/2

/2

/2

/2

/2

/2

/2

/2

/2

/2

/2

/2

/2

/2

/2

/2

/2

/2
1/

1/

1/

1/

1/
11

11

11

11

11

11

11

11

11

11

11

11

11

11

11

11

11

11
/1

/1

/1

/1

/1
1/

2/

3/

4/

5/

6/

7/

8/

9/

1/

2/

3/

4/

5/

6/

7/

8/

9/
10

11

12

10

11
CBRE 23 CBRE MULTIFAMILY NATIONAL CLIENT CALL | NOVEMBER 27, 2018
 WHY GE MATTERS: THE IMPACT OF BROADER MARKET
VOLATILITY ON AGENCY CMBS

• Investment Grade Corp debt serves as a proxy for ABS/Agency CMBS buyers.
• Corp credit spreads have widened and as a result, fixed income credit instruments, such as CMBS,
Fannie Mae and Freddie Mac MBS, has widened as well to meet the broader market yield expectations.
• Sector-specific Agency CMBS supply has been a factor recently and will remain a headwind through
year-end.
CBRE 24 CBRE MULTIFAMILY NATIONAL CLIENT CALL | NOVEMBER 27, 2018
HEADWINDS

• Urban Core Rents

• Interest Rates and Spreads – Recent Upward Trend

• January 2018 10 Year Treasury Rate at 2.40

• Flat Yield Curve

• Higher Rates Put Pressure on Residual Cap Rate

• Capital Appreciation has Waned

CBRE 25 CBRE MULTIFAMILY NATIONAL CLIENT CALL | NOVEMBER 27, 2018

TAILWINDS

• Capital Flows are positive

• Abundant Debt Availability

• Investor Returns Have Not Changed

• Construction Costs Escalating

• GDP, Wage Growth and Employment All Positive

• Home Sales are Down Due to Higher Mortgage Rates and Continued
Tight Credit

• Tax Reform

CBRE 26 CBRE MULTIFAMILY NATIONAL CLIENT CALL | NOVEMBER 27, 2018

Q&A
BRIAN MCAULIFFE
PRESIDENT, CAPITAL MARKETS
INTEREST RATES & CAP RATES
Interest rates and cap rates not always trending together
Historical Treasury Rates and Multifamily Cap Rates
10-Year Treasury Multifamily Cap Rate
8

0
Q3 2002 Q3 2004 Q3 2006 Q3 2008 Q3 2010 Q3 2012 Q3 2014 Q3 2016 Q3 2018

Historical Spread Between Interest Rates and Cap Rates

Average (199) Spread (BPs)
400

300

200

100

-100
Q2 2002 Q2 2004 Q2 2006 Q2 2008 Q2 2010 Q2 2012 Q2 2014 Q2 2016 Q2 2018

Source: CBRE Research, CBRE Econometric Advisors, NCREIF, Q2 2018 (cap rates), U.S. Department of the Treasury, Q3 2018 (10-year).

CBRE 28 CBRE MULTIFAMILY NATIONAL CLIENT CALL | NOVEMBER 27, 2018

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