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(92) UNIT SAINT LOUIS PORTFOLIODUTCHTOWN & CARONDELET

Offering Memorandum

1

N O N - E N D O R S E M E N T A N D D I S C L A I M E R N O T I C E

Confidentiality and DisclaimerThe information contained in the following Marketing Brochure is proprietary and strictly confidential. It is intended to be reviewed only by the party receiving it from Marcus & Millichap and

should not be made available to any other person or entity without the written consent of Marcus & Millichap. This Marketing Brochure has been prepared to provide summary, unverified

information to prospective purchasers, and to establish only a preliminary level of interest in the subject property. The information contained herein is not a substitute for a thorough due

diligence investigation. Marcus & Millichap has not made any investigation, and makes no warranty or representation, with respect to the income or expenses for the subject property, the

future projected financial performance of the property, the size and square footage of the property and improvements, the presence or absence of contaminating substances, PCB's or

asbestos, the compliance with State and Federal regulations, the physical condition of the improvements thereon, or the financial condition or business prospects of any tenant, or any

tenant's plans or intentions to continue its occupancy of the subject property. The information contained in this Marketing Brochure has been obtained from sources we believe to be reliable;

however, Marcus & Millichap has not verified, and will not verify, any of the information contained herein, nor has Marcus & Millichap conducted any investigation regarding these matters

and makes no warranty or representation whatsoever regarding the accuracy or completeness of the information provided. All potential buyers must take appropriate measures to verify all of

the information set forth herein. Marcus & Millichap is a service mark of Marcus & Millichap Real Estate Investment Services, Inc. © 2018 Marcus & Millichap. All rights reserved.

Non-Endorsement NoticeMarcus & Millichap is not affiliated with, sponsored by, or endorsed by any commercial tenant or lessee identified in this marketing package. The presence of any corporation's logo or name

is not intended to indicate or imply affiliation with, or sponsorship or endorsement by, said corporation of Marcus & Millichap, its affiliates or subsidiaries, or any agent, product, service, or

commercial listing of Marcus & Millichap, and is solely included for the purpose of providing tenant lessee information about this listing to prospective customers.

ALL PROPERTY SHOWINGS ARE BY APPOINTMENT ONLY.

PLEASE CONSULT YOUR MARCUS & MILLICHAP AGENT FOR MORE DETAILS.

SAINT LOUIS PORTFOLIO

Saint Louis, MO

ACT ID Z0260078

2

TABLE OF CONTENTS

SECTION

INVESTMENT OVERVIEW 01Offering Summary

Regional Map

Local Map

Aerial Photo

FINANCIAL ANALYSIS 02Rent Roll Summary

Rent Roll Detail

Operating Statement

Notes

Pricing Detail

Acquisition Financing


3


4

INVESTMENT

OVERVIEW


#

EXECUTIVE SUMMARY

OFFERING SUMMARY

MAJOR EMPLOYERS

EMPLOYER # OF EMPLOYEES

AT&T Corp 8,340

Saint Louis University 8,275

West Central Province of The 5,500

Barnes Hospital 5,358

Pnk (river City) LLC 5,006

Wells Fargo Advisors LLC 5,000

St Louis Post-Dispatch 3,500

Barnes-Jewish Hospital 3,244

Anheuser-Busch 3,218

Union Electric 3,200

Nestle Purina Factory 3,000

St Louis Childrens Hospital 2,982

DEMOGRAPHICS

1-Miles 3-Miles 5-Miles

2017 Estimate Pop 33,255 151,557 306,727

2017 Census Pop 33,467 153,043 307,340

2017 Estimate HH 13,264 68,116 140,626

2017 Census HH 13,447 69,420 141,396

Median HH Income $29,783 $41,131 $42,220

Per Capita Income $17,071 $25,858 $27,752

Average HH Income $42,563 $57,231 $59,682

UNIT MIX

NUMBEROF UNITS

UNIT TYPEAPPROX.SQUARE FEET

52 1 Bedroom 861

40 2 Bedroom 975

92 Total 83,792

VITAL DATA

Price $3,195,000 CURRENT YEAR 1

Down Payment 30% / $958,500 CAP Rate 9.03% 14.90%

Loan Amount $2,236,500 GRM 6.03 4.15

Loan Type Proposed NewNet Operating Income

$288,533 $476,059

Interest Rate / Amortization 5.25% / 20 YearsNet Cash Flow After Debt Service

11.23% / $107,687 30.80% / $295,212

Price/Unit $34,728 Total Return 18.01% / $172,665 37.94% / $363,686

Price/SF $38.13

Number of Units 92

Rentable Square Feet 83,792

Year Built 1920

Lot Size 2 acre(s)

5


OFFERING SUMMARY

▪ 100% occupied

▪ Value add opportunity

▪ Strong cash flow

▪ Undermarket rents

INVESTMENT HIGHLIGHTS

Marcus & Millichap is pleased to present the 92 unit Dutchtown Portfolio including nineteen fourplexes and two (8) unit in Saint Louis, Missouri. This investment represents a

stable cash flow investment with value add opportunities. All properties are located near bus lines, are walking distance or a short drive to nearby essential services such as

banks, grocery stores, parks and retail shopping areas.

The the properties are located in the Dutchtown, Carondelet, and Tower Grove South neighborhoods which offers convenient workforce housing near many of Saint Louis's

largest employers. The apartments are located minutes from many large employers such as Saint Louis University, Washington University School of Medicine, and Barnes

Jewish Hospital.

INVESTMENT OVERVIEW

6


#

OFFERING SUMMARY

PROPERTY OVERVIEW

Marcus & Millichap is pleased to present the 92 unit Dutchtown Portfolio including nineteen fourplexes and two (8)

unit in Saint Louis, Missouri. This investment represents a stable cash flow investment with value add

opportunities. All properties are located near bus lines, are walking distance or a short drive to nearby essential

services such as banks, grocery stores, parks and retail shopping areas.

7

▪ Private backyard

Common Area Amenities

▪ Surface parking

▪ Laundry hookups in basement

Unit Amenities

▪ Gas Stoves

▪ Gas Furnaces

▪ Hardwood floors

7


PROPERTY SUMMARY

OFFERING SUMMARY

PROPOSED FINANCING

First Trust Deed

Loan Amount $2,236,500

Loan Type Proposed New

Interest Rate 5.25%

Amortization 20 Years

Loan Term 5 Years

Loan to Value 70%

Debt Coverage Ratio 1.6

THE OFFERING

Property Saint Louis Portfolio

Price $3,195,000

SITE DESCRIPTION

Number of Units 92

Year Built/Renovated 1920

Rentable Square Feet 83,792

Lot Size 2 acre(s)

Type of Ownership Fee Simple

8

REGIONAL MAP


9

LOCAL MAP


10

PORTFOLIO MAP


11

ADDRESS LIST


12

AERIAL PHOTO


13

PROPERTIES


14

PROPERTIES


15

PROPERTIES


16

PROPERTIES


17

PROPERTIES


18

INTERIORS


19

KITCHEN & BATH


20


21

FINANCIAL

ANALYSIS

FINANCIAL ANALYSIS


RENT ROLL SUMMARY

22

FINANCIAL ANALYSIS


23

RENT ROLL DETAIL

FINANCIAL ANALYSIS


24

RENT ROLL DETAIL

FINANCIAL ANALYSIS


25

RENT ROLL DETAIL

FINANCIAL ANALYSIS


OPERATING STATEMENT

26

FINANCIAL ANALYSIS


NOTES

27

FINANCIAL ANALYSIS


PRICING DETAIL

28


29

MARKET

COMPARABLES


SALES COMPARABLES MAP

30


(SUBJECT)

3805 Hereford St

Chadwell Arms

4984 Chippewa St

3846-3852 Bamberger Ave

Morganford Plaza

Apartments

6265 Gravois

3800 Keokuk St

Multi-Property Sale

3535 Salena St

Morganford Properties

Multi-Property Sale

Eichelberger Apartments

SALES COMPARABLES

1

2

3

4

5

7

8

6

9

10

11

12

31

Avg. $49.24

$0.00

$8.90

$17.80

$26.70

$35.60

$44.50

$53.40

$62.30

$71.20

$80.10

$89.00

FinePortfolio

3805Hereford St

ChadwellArms

4984Chippewa St

3846-3852Bamberger

Ave

MorganfordPlaza

Apartments

6265Gravois

3800Keokuk St

Multi-PropertySale

3535Salena St

MorganfordProperties

Multi-PropertySale-2

EichelbergerApartments

PROPERTY NAMESAINT LOUIS PORTFOLIO

SALES COMPARABLES

Average Price Per Square Foot

SALES COMPARABLES SALES COMPS AVG

32

Avg. $41,651

$0

$7,000

$14,000

$21,000

$28,000

$35,000

$42,000

$49,000

$56,000

$63,000

$70,000

FinePortfolio

3805Hereford St

ChadwellArms

4984Chippewa St

3846-3852Bamberger

Ave

MorganfordPlaza

Apartments

6265Gravois

3800Keokuk St

Multi-PropertySale

3535Salena St

MorganfordProperties

Multi-PropertySale-2

EichelbergerApartments

PROPERTY NAMESAINT LOUIS PORTFOLIO

SALES COMPARABLES

Average Price Per Unit

SALES COMPARABLES SALES COMPS AVG

PROPERTY NAME

MARKETING TEAM


SALES COMPARABLES

rentpropertyname1

rentpropertyaddress1

rentpropertyname1


rentpropertyname1


33

SALES COMPARABLES

Units Unit Type

Offering Price: $3,195,000 52 1 Bdr

Price/Unit: $34,728 40 2 Bdr

Price/SF: $38.13

CAP Rate: 9.03%

GRM: 6.03

Total No. of Units: 92

Year Built: 1920

Underwriting Criteria

Income $503,481 Expenses $214,948

NOI $288,533 Vacancy ($26,499)

FINE PORTFOLIO3761 Meramec St, Saint Louis, MO, 63116

1

Units Unit Type

Close Of Escrow: 5/27/2016 12 1 Bdr Bath

Sales Price: $350,000

Price/Unit: $29,167

Price/SF: $57.38


Year Built: 1928

NOTES

On May 27th 2016 the 6,100 s/f, Class C Multi Family building located at

3805 Hereford St was sold for $350,000. All of the apartment units in the

building were tenanted at the time of sale. Gloria Lu of GL International

Realty previously owned the buidling and indicated that this was part of her

investment portfolio. The building was sold to Aaron Spitzberg Smith of

River City Management. He was not available to speak on the transaction.

3805 HEREFORD ST3805 Hereford St, Saint Louis, MO, 63109

Units Unit Type


Sales Price: $785,000 8 2 Bdr Bath

Price/Unit: $41,316 1 3 Bdr 1.5 Bath

Price/SF: $62.23


Year Built: 1966

2

NOTES

Very well maintained property with lots of updates! This is a 19-unit building

in South City. This building offers 10 1-bedroom units, 8 2-bedroom units

and 1 huge 3-bedroom unit. All units have newer stoves and refrigerators.

Great investment opportunity! Positive cash flow! This is a must see!

CHADWELL ARMS4770 Kings Dr, Saint Louis, MO, 63116

PROPERTY NAME

MARKETING TEAM


SALES COMPARABLES

rentpropertyname1


rentpropertyname1


rentpropertyname1


34

SALES COMPARABLES

Units Unit Type

Close Of Escrow: 5/6/2016 8 Studio Bath


Price/Unit: $36,667 2 2 Bdr Bath

Price/SF: $41.61


Year Built: 1927

3

NOTES

12 Units. One & Two Bedroom Apartments building has many updates

Individual Forced Air furnaces,updated plumbing and electric.

4984 CHIPPEWA ST4984 Chippewa St, Saint Louis, MO, 63109

4

Units Unit Type



Price/Unit: $30,583

Price/SF: $27.56


Year Built: 1929

3846-3852 BAMBERGER AVE3846-3852 Bamberger Ave, Saint Louis, MO, TEXT6

Units Unit Type


Sales Price: $1,260,000

Price/Unit: $31,500

Price/SF: $27.83

CAP Rate: 9.00%


Year Built: 1965

5

NOTES

On December 30, 2015, the 40 unit multi-family property located at 3725-

3741 Morganford Rd., Saint Louis, MO 63116 was sold for $1,260,000, or

$31,500 per unit. The Class C multi-family property was built in 1965. It is

zoned F and sits on 1.02 acres. It was 90% occupied at the time of the

sale. The property was on the market for an undisclosed amount of time,

with an undisclosed initial asking price. The transaction was in escrow for

approximately 90 days. There were no sale conditions reported for this

transaction. The pro forma net operating income was estimated to be

$113,400 for 2015, yielding a cap rate of 9.00%. Ted Greenberg of Colliers

International represented the seller on the deal. The buyer had no

representation. The details of this transaction were verified by the buyer,

CoStar records and Public Record. Any additional information will be

verified and updated when it becomes available.

MORGANFORD PLAZA APARTMENTS3725 Morganford Rd, Saint Louis, MO, 63116

PROPERTY NAME

MARKETING TEAM


SALES COMPARABLES

rentpropertyname1


rentpropertyname1


rentpropertyname1


35

SALES COMPARABLES

Units Unit Type



Price/Unit: $68,333

Price/SF: $63.57


Year Built: 1970

6

NOTES

On May 25, 2016 the 9 Unit Class C Multi-Family Building at 6265 Gravois

Avenue in Saint Louis, MO was sold. The property was built in 1970 has a

masonry type construction, a F zoning and a lot size of 11,938 square feet

with a 8 space surfaced parking lot. The seller was motivated to divest the

property to pursue other financial projects. The buyer was attracted to the

property because of undisclosed reasons. The information was verified by

a representative of the assessor's office.

6265 GRAVOIS6265 Gravois Ave, Saint Louis, MO, 63116

7

Units Unit Type



Price/Unit: $39,000

Price/SF: $30.93


Year Built: 1930

NOTES

Party/Parties with knowledge of this transaction confirmed that this 50-Unit

apartment building sold on December 12, 2017, for $1.95 million after a 45-

day escrow. Deed is currently unavailable.

3800 KEOKUK ST3801 Keokuk St, Saint Louis, MO, 63116

Units Unit Type



Price/Unit: $38,000

Price/SF: $87.58


Year Built: 1928

8

NOTES

On October 30, 2014 the 8-unit multifamily property at 3457 Lawn Ave was

sold for $304,000, or $38,000/unit. At the time of sale, it was a 2-story,

class C building in adequate condition. The property was on the market

for approximately 4 years, with an original asking price of $315,000.

MULTI-PROPERTY SALE3457 Lawn Ave, Saint Louis, MO, 63139

PROPERTY NAME

MARKETING TEAM


SALES COMPARABLES

rentpropertyname1


rentpropertyname1


rentpropertyname1


36

SALES COMPARABLES

Units Unit Type

Close Of Escrow: 9/16/2016 4 2 Bdr 1.5 Bath


Price/Unit: $63,250

Price/SF: $46.85


Year Built: 1892

9

3535 SALENA ST3535 Salena St, Saint Louis, MO, 63118

10

Units Unit Type


Days On Market: 10 6 2 Bdr Bath


Price/Unit: $43,000

Price/SF: $71.67


Year Built: 1965

MORGANFORD PROPERTIES3530 Morganford Rd, Saint Louis, MO, 63116

Units Unit Type



Price/Unit: $39,000

Price/SF: $29.21


Year Built: 1929

11

NOTES

Party/Parties with knowledge of this transaction confirmed that this 50-Unit

apartment building sold on December 12, 2017, for $1.95 million after a 45-

day escrow. Deed is currently unavailable.

MULTI-PROPERTY SALE3858 Bamberger Ave, Saint Louis, MO, 63116

PROPERTY NAME

MARKETING TEAM


SALES COMPARABLES

rentpropertyname1


rentpropertyname1


rentpropertyname1


37

SALES COMPARABLES

Units Unit Type

Close Of Escrow: 4/6/2018 81 Bdr 1 Bath Select One

...

Days On Market: 7 8 2 Bdr 1 Bath


Price/Unit: $40,000

Price/SF: $44.44


Year Built: 1925

Underwriting Criteria

Income $110,400 Expenses $47,477

12

EICHELBERGER APARTMENTS1026 Eichelberger St, Saint Louis, MO, 63111

MARCUS & MILLICHAP CAPITAL CORPORATION

CAPABILITIES

MMCC—our fully integrated, dedicated financing arm—is committed to

providing superior capital market expertise, precisely managed execution, and

unparalleled access to capital sources providing the most competitive rates and

terms.

We leverage our prominent capital market relationships with commercial banks,

life insurance companies, CMBS, private and public debt/equity funds, Fannie

Mae, Freddie Mac and HUD to provide our clients with the greatest range of

financing options.

Our dedicated, knowledgeable experts understand the challenges of financing

and work tirelessly to resolve all potential issues to the benefit of our clients.

National platform

operating

within the firm’s

brokerage offices

$5.1 billion total

national

volume in 2016

Access to more

capital sources

than any other

firm in the

industry

Optimum financing solutions to

enhance value

Our ability to enhance buyer

pool by expanding finance

options

Our ability to enhance

seller control

• Through buyer

qualification support

• Our ability to manage buyers

finance expectations

• Ability to monitor and

manage buyer/lender progress,

insuring timely,

predictable closings

• By relying on a world class

set of debt/equity sources

and presenting a tightly

underwritten credit file

WHY MMCC?

Closed 1,651

debt and equity

financings

in 2016

ACQUISITION FINANCING


38


39

MARKET

OVERVIEW

ST. LOUISOVERVIEW

1

The St. Louis metro is near the geographic center of the United States,

within 500 miles of one-third of the U.S. population, and has more than

2.9 million residents. The metro encompasses the city of St. Louis; the

Missouri counties of St. Charles, Jefferson, Franklin, St. Louis, Lincoln,

Warren and Washington; and the Illinois counties of Madison, St. Clair,

Macoupin, Clinton, Monroe, Jersey, Bond and Calhoun. St. Louis is the

most populous county with 1 million people. The city of St. Louis, which

is located at the confluence of the Mississippi and Missouri rivers, is the

only city in the metro with a population of more than 300,000 citizens.

MARKET OVERVIEW

METRO HIGHLIGHTS

CENTRAL LOCATION

The central U.S. location and Mississippi River

accessibility allow for fast access to markets both

domestically and internationally.

EXCELLENT TRANSPORTATION SYSTEM

The St. Louis metro has extensive freight, rail and

sea transportation systems, facilitating shipping and

distribution of goods worldwide.

AFFORDABLE COST OF LIVING

Home prices are well below other large markets in

Midwestern states and the U.S. overall.


ECONOMY▪ St. Louis is highly ranked for its logistics infrastructure, bolstered by its central geographic

location and easy access to major waterways. It is a significant inland port.

▪ The region is emerging as a large financial services center, with Jones Financial locally

headquartered and Reinsurance Group-America as a major employer in the area.

▪ Government entities pursue business development and provide resources for startups, along

with incubators with guidance and inexpensive office and lab space.

SHARE OF 2017 TOTAL EMPLOYMENT

MAJOR AREA EMPLOYERS

BJC Healthcare

The Boeing Co.

Scott Air Force Base

Washington University in St. Louis

Walmart

SSM Healthcare

AT&T Communications Inc.

Schnuck Markets

St. Louis University

Express Scripts* Forecast

2

MANUFACTURING

8%GOVERNMENT

HEALTH SERVICES

EDUCATION AND

+OTHER SERVICES

4%

LEISURE AND HOSPITALITY FINANCIAL ACTIVITIES

18%

AND UTILITIES

TRADE, TRANSPORTATION CONSTRUCTION

PROFESSIONAL AND

BUSINESS SERVICES

2%INFORMATION

16%

5%

11% 11% 6%

18%


DEMOGRAPHICS

SPORTS

EDUCATION

ARTS & ENTERTAINMENT

▪ The metro is expected to add more than 82,000 people through 2022, which will result in

the formation of approximately 44,000 households.

▪ A median home price below the national level has produced a homeownership rate of

nearly 70 percent, which is well above the national rate of 64 percent.

▪ Roughly 31 percent of people age 25 and older hold bachelor’s degrees; among those

residents, 12 percent also have earned a graduate or professional degree.

The metro boasts numerous public and private golf courses, more than 100 parks, 200 miles

of trails and the Gateway Arch. Many of St. Louis’ premier attractions, including the St. Louis

Zoo, the St. Louis Art Museum, the Missouri History Museum and the Municipal Opera, are

located in Forest Park. The park features golf courses and athletic fields. The area houses

the St. Louis Cardinals, St. Louis Rams and the St. Louis Blues. Nearby is the Lake of the

Ozarks, offering destinations for hunting, fishing, camping, hiking and spelunking. There are

more than 40 colleges, universities and technical schools in the metro, enrolling around

200,000 students a year. Washington University in St. Louis is highly ranked among U.S.

universities.

QUALITY OF LIFE

3

2017 Population by Age

0-4 YEARS

6%5-19 YEARS

19%20-24 YEARS

6%25-44 YEARS

26%45-64 YEARS

28%65+ YEARS

15%

* Forecast

Sources: Marcus & Millichap Research Services; BLS; Bureau of Economic Analysis; Experian; Fortune; Moody’s

Analytics; U.S. Census Bureau


39

2017MEDIAN AGE:

U.S. Median:

37.8

$59,200

2017 MEDIAN HOUSEHOLD INCOME:

U.S. Median:

$56,300

2.8M

2017POPULATION:

Growth2017-2022*:

2.9%

1.1M

2017HOUSEHOLDS:

3.9%

Growth2017-2022*:


43

ST. LOUIS METRO AREA

* Estimate; ** Forecast; Through 3Q; Trailing 12-month average

Sources: CoStar Group, Inc.; MPF Research; Real Capital Analytics

St. Louis follows a steady growth path as vacancy declines and rents rise. The outlook is bright for the

metro. Employment will improve modestly in 2018 as employers in the prominent local sectors of healthcare

and education recently increased their pace of hiring. Adding new degreed professionals to the workforce has

helped the median level of income grow at a faster rate than the country as a whole. With rents in the area lying

well below the national average, newly formed households will look to the comparatively more affordable option

of renting. This year, persistent rental demand will outpace new completions, which are focused in the

neighborhoods west of downtown. In response, the vacancy rate will fall, resuming an eight-year trend that was

briefly interrupted in 2017 due to a construction surge. The average effective monthly rent for the area will

again rise as vacancy tightens.

Consistent asset performance and high yields create an appealing market for investors. Increased

transaction velocity over the past 12 months signals additional engagement in the market as investors are

incentivized by positive economic metrics and multifamily fundamentals. Although most trades involved local

participants, East and West Coast parties also will pursue opportunities in the market, drawn by higher yields

than what they would find at home. For Class A properties, cap rates have tightened to the low-6 percent

range. First-year returns for Class B complexes were 50 basis points higher, and Class C buildings featured

yields in the high-6 to low-7 percent range. Such values are common for suburbs west of downtown. Other

prospects present themselves farther afield in places such as Jefferson County and St. Charles, Missouri, and

O’Fallon, Illinois. Nevertheless, locales closer to the city center are especially popular; the most targeted

neighborhood in the metro was Central West End near Forest Park.

Developers and Investors Target Western

St. Louis Amid Steadfast Economic Progress


44

ST. LOUIS METRO AREA

2018 Market Forecast

* Estimate ** Forecast

Sources: Marcus & Millichap Research Services; CoStar Group, Inc.;

Real Capital Analytics

A sharp drop in deliveries tightens vacancy and moves St. Louis up in the NMI.

St. Louis employers will add 8,700 workers during 2018. Last year, total

employment rose by 0.7 percent. The unemployment rate remains below 4

percent.

New development declined 62 percent from last year’s 2,800 units, the highest

level of construction observed so far this cycle.

Vacancy will fall to 5 percent this year following the 70-basis-point jump that

occurred in 2017 when construction notably outpaced net absorption.

Tightening vacancy will help grow the average effective rent by $20 to $880 per

month. Last year rents climbed 3.7 percent.

In addition to being the most popular neighborhood among investors, Central

West End is also receiving the most new units in 2018, creating an

environment rich in both redevelopment and long-term hold strategies.

NMI Rank

40, up 4 places

Employment

up 0.6%

Construction

1,070 units

Vacancy

down 30 bps

Rent

up 2.3%

Investment


45

* 2007-2017 Average annualized appreciations in price per unit

Sources: Marcus & Millichap Research Services; CoStar Group, Inc.; Real Capital Analytics

2018 PRICING & VALUATION TRENDS

Yield Range Offers Compelling Options for Investors; Most Metros Demonstrate Strong Appreciation Rates


46

** Price per unit for apartment properties $1 million and greater

Sources: Marcus & Millichap Research Services; CoStar Group, Inc.; Real Capital Analytics

AVERAGE PRICE PER UNIT RANGE**

(Alphabetical order within each segment)


47

2018 NATIONAL MULTIFAMILY INDEX

U.S. Multifamily Index

Coastal Markets Top National Multifamily Index;

Several Unique Markets Climb Ranks

Trading places. Seattle-Tacoma leads this year’s Index after moving up one notch, driven by robust

employment in the tech sector and soaring home prices that keep rental demand ahead of elevated deliveries.

The metro outperforms last year’s leader, Los Angeles (#2), which slid one spot. Midwest metro Minneapolis-

St. Paul (#3) rose one notch as its diverse economy generates steady job growth and robust rental demand,

maintaining one of the lowest vacancy rates among larger U.S. markets. San Diego (#4) jumped five spots as

deliveries slump while household formation proliferates, resulting in sizable rent growth. Portland (#5) inches up

a slot to round out the top five markets. East Coast markets fill the next two positions: Boston (#6) moves down

three slots as rent growth slows while vacancy ticks up, and New York City (#7) rises three places as stout

renter demand holds vacancy tight.

Index reshuffles with big moves. Sacramento (#8) posted the largest increase in the Index, vaulting 12

positions to lead a string of California markets that fill the next five slots. Robust rent growth and low vacancy

pushed the market up in the ranking. Other double-digit movers were Orlando (#17) and Detroit (#28), which

each leaped 10 places. Employment gains and in-migration are generating the need for apartments in Orlando,

maintaining ample rent advancement. In Detroit, steady employment and a slow construction pipeline keep

demand above supply, allowing rents to flourish. The most significant declines were registered in Austin,

Nashville and Baltimore. Austin (#31) tumbled nine spaces as elevated deliveries overwhelm demand slowing

rent growth. Nashville (#35) and Baltimore (#45) each moved down six steps as demand has yet to absorb

multiple years of elevated inventory gains. Although Kansas City (#46) retains the bottom slot, there is greater

change in the lower half of the NMI as more Midwest markets rise.


48

Growth Cycle Invigorated by Confidence;

Tax Laws Could Transform Housing

U.S. ECONOMY

Tight labor market restrains hiring as confidence surges. The steady economic tailwind benefiting

apartment performance is poised to carry through 2018 as a range of positive factors align to support growth.

Consumer confidence recently reached its highest point since 2000 while small-business sentiment attained a

31-year record level, both reinforcing indications that consumption and hiring will be strong. The total number of

job openings has hovered in the low-6 million range through much of 2017, illustrating that companies have

considerable staffing needs, but with unemployment entrenched near 4 percent, companies will continue to face

challenges in filling available positions. These tight labor conditions should place additional upward pressure on

wages, potentially boosting inflationary pressure in the coming year. The strong employment market, rising

wages and elevated confidence levels could unlock accelerated household formation, particularly by young

adults. Last year, the number of young adults living with their parents ticked lower for the first time since the

recession, signaling that these late bloomers may finally be considering a more independent lifestyle.

Housing preferences may change under new tax laws. The new tax laws could play a significant role in

shaping both the economy and housing demand in 2018. Reduced taxes will be a windfall for corporations,

potentially sparking invigorated investment into infrastructure. The rise in CEO confidence over the last year

already boosted companies’ investment by more than 6 percent, accelerating economic growth. However, the

tax incentive-based stimulus will likely offer only a modest bump to GDP in 2018 because corporate investment

comprises just 12 percent of economic output. One factor that could weigh on economic expansion under the

new tax laws is the housing sector, which added just 3 percent to the economy last year, about two-thirds of

normal levels. The increased standard deduction and restrictions on housing-related deductions will reduce

some of the economic incentive to purchase a home, further sapping the strength of the housing sector.

Nonetheless, the increased standard deduction could benefit apartment investors, encouraging renters to stay

in apartments longer and reducing the loss of tenants to homeownership.

* Forecast

** Through 3Q


49

2018 National Economic Outlook

U.S. ECONOMY

▪ Labor force shortage weighs on job creation. The economy has added jobs every month for more than

seven years, the longest continuous period of job creation on record. The trend will continue in 2018, but the

pace of job additions will moderate, falling below 2 million for the year as the low unemployment rate

restricts the pool of prospective employees.

▪ Wage growth poised to accelerate. Average wage growth has been creeping higher in the post-recession

era, with compensation gains in construction, professional services and the hospitality sectors outpacing the

broader trend. The tight labor market will continue to pressure wage growth, potentially sparking inflation in

the process.

▪ Tax laws could invigorate apartment demand. Since 2011 household formations have outpaced total

housing construction, a key ingredient in the tightening of apartment vacancies. The new tax laws could

cause homebuilders to reduce construction while shifting a portion of the housing demand from

homeownership to rentals, and a rental housing shortage could ensue. If this behavior change occurs in

conjunction with additional young adults moving out of their own, apartment demand could dramatically

outpace completions.

* Forecast

** Through 3Q


50

Demand Outlook Sturdy as Pace

Of Construction Begins to Retreat

U.S. APARTMENT OVERVIEW

* Forecast

Investors wary of apartment construction. The wave of apartment completions entering the market in recent

years has permeated the investor psyche, raising concerns of overdevelopment and escalating vacancy rates,

but numerous demand drivers have held this risk in check. Steady job creation, positive demographics, above-

trend household formation and elevated single-family home prices have converged to counterbalance the

addition of 1.37 million apartments over the last five years, at least on a macro level. Though a small number of

markets have faced oversupply risk, the affected areas tend to be concentrated pockets, with upper-echelon

units facing the greatest competition. For traditional workforce housing, Class B and C apartments, the risks

stemming from overdevelopment have been nominal, and in most metros, even the Class A tranche has

demonstrated sturdy performance. In the coming year, rising development costs, tighter construction financing

and mounting caution levels will curb the pace of additions from the 380,000 units delivered in 2017 to

approximately 335,000 apartments. However, the list of markets facing risk from new completions will stretch

beyond the dozen metros that builders have concentrated on thus far. This will heighten competition, requiring

investors to maintain an increasingly tactical perspective integrating vigilant market scrutiny and strong property

management.

Competitive nuances increasingly granular. Although the pace of apartment completions will moderate in

2018, additions will still likely outpace absorption. This imbalance will most substantively affect areas where

development has been focused, such as the urban core where vacancy rates have risen above suburban rates

for the first time on record. Nationally, Class A vacancy rates have advanced to 6.3 percent in 2017 and will

continue their climb to the 6.8 percent range over the next year. Vacancy rates for Class B and C assets will

rise less significantly in 2018, pushing to 5.0 percent and 4.7 percent, respectively. Although vacancy levels are

rising, three-fourths of the major metros have rates below their 15-year average. Still, the magnitude of new

completions coming to market and the high asking rents these new units command will spark increased

competition for tenants, generating a more liberal use of concessions in 2018 as landlords attempt to entice

move-up tenants.


51

2018 National Apartment Outlook

U.S. APARTMENT OVERVIEW

** Estimate

▪ Rent growth tapers as concession use edges higher. Average rent growth will taper to 3.1 percent in

2018 as concessions become more prevalent, particularly in Class A properties. Rent gains in the Class C

space, which were particularly strong last year, will face greater challenges as affordability restrains

demand. Although job growth has been steady for seven years, wage growth has been relatively weak,

particularly for low-skilled labor.

▪ Congress may nudge apartment demand. The new tax laws could reinforce apartment living as the larger

standard deduction reduces the economic incentive of homeownership. Previous tax rules encouraged

homeownership with itemized deductions for property taxes and mortgage interest that often surpassed the

standard deduction. These advantages have largely been eliminated, particularly for first-time buyers.

▪ Are millennials finally moving out on their own? The 80 million-strong millennial age cohort, now

pushing into their late 20s, may finally be showing independence. Since the recession, the percentage of

young adults living with their parents increased dramatically, but last year that trend reversed. Should the

share of young adults living with family recede toward the long-term average, an additional 3 million young

adults would need housing.


52

Fed Normalization Portends Rising Interest Rates;

Capital Availability for Apartments Elevated

U.S. CAPITAL MARKETS

* Through December 12

** Through December 6

Fed cautiously pursues tighter policies. Investors have largely adapted to the modestly higher interest rate

environment, and most anticipate additional increases in 2018 as the Federal Reserve normalizes both its

policies and its balance sheet. The Fed is widely expected to continue raising its overnight rate through 2018 as

it tries to restrain potential inflation risk and create some dry powder to combat future recessions. The Fed will,

however, be cautious about pushing short-term rates into the long-term rates, which would create an inverted

yield curve. The spread between the two-year Treasury rate and the 10-year Treasury rate has tightened

significantly, and if the Fed is too aggressive in its policies, the short-term interest rates could climb above long-

term rates. This inversion is a commonly watched leading indicator of an impending recession. The new

chairman of the Fed, Jerome Powell, will likely make few changes to the trajectory of Fed policies, and he is

widely expected to continue the reduction of the Fed balance sheet. Powell may consider accelerating the

balance sheet reduction to ensure long-term rates move higher. That said, Powell is widely perceived to be a

dovish leader who will advance rates cautiously.

Readily available debt backed by sound underwriting. Debt availability for apartment assets remains

abundant, with a wide range of lenders catering to the sector. Apartment construction financing has

experienced some tightening, a generally favorable trend for most investors. Fannie Mae and Freddie Mac will

continue to serve a significant portion of the multifamily financing, with local and regional banks targeting

smaller transactions and insurance companies handling larger deals with low-leverage needs. In general,

lenders have been loosening credit standards on commercial real estate lending, but underwriting standards

remain conservative with loan-to-value ratios for apartments in the relatively conservative 66 percent range. An

important consideration going forward, however, will be investors’ appetite for acquisitions as the yield spread

between interest rates and cap rates tightens.


53

2018 Capital Markets Outlook

U.S. CAPITAL MARKETS

▪ Yield spread tightens amid rising interest rates. Average apartment cap rates have remained relatively

stable in the low-5 percent range for the last 18 months, with a yield spread above the 10-year Treasury of

about 280 basis points. Many investors believe cap rates will rise in tandem with interest rates, but this has

not been the case historically. Given the strong performance of the apartment sector, it’s more likely the

yield spread will compress, reducing the positive leverage investors have enjoyed in the post-recession era.

▪ Inflation restrained but could emerge. Inflation has been nominal throughout the current growth cycle, but

pressure could mount as the tight labor market spurs rising wages. Elevated wages and accelerating

household wealth could boost consumption, creating additional economic growth and inflation. The Fed has

become increasingly proactive in its efforts to head off inflationary pressure, but the stimulative effects of tax

cuts could overpower the Fed’s efforts.

▪ Policies likely to strengthen dollar and could pose new risks. One wild card that could create an

economic disruption is the strengthening dollar. The economic stimulus created by tax cuts together with

tightening Fed monetary policy place upward pressure on the value of the dollar relative to foreign

currencies. This could restrain foreign investment in U.S. commercial real estate, but it could also weaken

exports and make it more difficult for other countries to pay their dollar-denominated debt, which in turn

weakens global economic growth.

* Through December 12

Estimate


54

Apartment Investors Recalibrate Strategies;

Broaden Criteria to Capture Upside Opportunities

U.S. INVESTMENT OUTLOOK

* Through 3Q

** Trailing 12 months through 3Q

Appreciation flattens as buyers recalibrate expectations. The maturing apartment investment climate has

continued its migration from aggressive growth to a more stable but still positive trend. Investors have reaped

strong returns in the post-recession era through significant gains in fundamentals and pricing, but the growth

trajectory has flattened as the market has normalized. The pace of apartment rental income growth has moved

back toward its mid-3 percent long-term average and investor caution has flattened cap rates, moderating

appreciation. With much of the gains created by the post-recession recovery absorbed and most of the value-

add opportunity already extracted, it has been increasingly difficult for investors to find opportunities with

substantive upside potential. At the same time, apartment construction has finally brought macro-level housing

supply and demand back toward equilibrium, restraining upside potential in markets with sizable deliveries.

These challenges have been compounded by a widened bid/ask gap, with many would-be apartment sellers

retaining a highly optimistic perception of their asset’s value. It will take time for investor expectations to realign,

but buyers and sellers are discovering a flattening appreciation trajectory. Still, a range of opportunities remain.

Investors broaden criteria as they search for yield upside. Investors are recalibrating strategies, broadening

their search and sharpening their efforts to find investment options with upside potential. They have expanded

criteria to include a variety of Class B and Class C assets, outer-ring suburban locations, and properties in

secondary or tertiary markets. The yield premium offered by these types of assets has drawn an increasing

amount of multifamily capital. In the last year, nearly half of the dollar volume invested in apartment properties

over $1 million went to secondary and tertiary markets, up from 42 percent of the capital in 2010. This influx of

activity has caused cap rates in tertiary markets to fall from the high-8 percent range in 2010 to their current

average near 6 percent. During the same period, national cap rates of Class B/C apartment properties have

fallen by 200 basis points to the mid-5 percent range. Considering the low cost of capital, these yields have

remained attractive to investors with longer-term hold plans.


55

2018 Investment Outlook

U.S. INVESTMENT OUTLOOK

▪ New tax laws could shift investor behavior. Additional clarity on taxes should alleviate some of the

uncertainty that held back investor activity over the last year while helping to mitigate the expectation gap

between buyers and sellers. Reduced tax rates on pass-through entities could spark some repositioning

efforts, bringing additional assets to market and supporting market liquidity.

▪ Tighter monetary policy could narrow yield spreads. Prospects of a rising interest rate environment

could weigh on buyer activity as the yield spread tightens. Cap rates have held relatively stable over the last

two years, and the sturdy outlook for apartment fundamentals is unlikely to change substantively in the

coming year. As a result, investors’ pursuit of yield will likely push activity toward assets and markets that

have traditionally offered higher cap rates.

▪ Transaction activity retreats from peak levels. Apartment sales continued to migrate toward more normal

levels last year as investors’ search for upside and value-add opportunities delivered fewer candidates.

Markets with a limited construction pipeline but with respectable employment and household formation

growth will see accelerated activity, while markets facing an influx of development could see moderating

investor interest.

* Through 3Q

** Trailing 12 months through 3Q


56

* Forecast

REVENUE TRENDS

Five-Year Apartment Income Growth by Metro

Percent Change 2013-2018*

FIVE-YEAR TREND:

Outperforming Through

Development Cycle

2013-2018*

▪ U.S. creates 11.8 million jobs over five years

▪ Developers add 1.5 million new apartments

▪ Absorption totals 1.4 million apartments

▪ U.S. vacancy rate to match 2013 at 5.0 percent

▪ U.S. average rent rises 23.2 percent


57

Sources: Marcus & Millichap Research Services; MPF Research

2018 NATIONAL INVENTORY TREND

Five-Year Development Wave Transforms Rental Landscape

Inventory Growth 2013-2018

Inventory Change by Market

2013 to 2018


58

Sources: Marcus & Millichap Research Services; MPF Research

2018 NATIONAL INVENTORY TREND

Largest Growth Five-Year Inventory Change Five-Year Rent Growth

Austin 23.6% 22%

Charlotte 22.9% 30%

Nashville 21.7% 31%

Salt Lake City 20.9% 31%

Raleigh 19.5% 27%

San Antonio 18.7% 20%

Denver 17.9% 41%

Seattle-Tacoma 15.9% 41%

Orlando 15.3% 35%

Dallas/Fort Worth 15.3% 30%

U.S. 9.8% 23%

Top 10 Markets by Inventory Change

Smallest Growth Five-Year Inventory Change Five-Year Rent Growth

Cincinnati 6.6% 24%

Chicago 6.2% 21%

Oakland 5.8% 40%

Riverside-San Bernardino 5.6% 36%

St. Louis 5.5% 14%

Los Angeles 5.4% 31%

New York City 4.6% 15%

Cleveland 4.6% 15%

Sacramento 3.8% 48%

Detroit 2.9% 25%

PROPERTY NAME

MARKETING TEAM


DEMOGRAPHICS

Source: © 2017 Experian

Created on April 2018

POPULATION 1 Miles 3 Miles 5 Miles

▪ 2022 Projection

Total Population 32,331 148,118 304,425

▪ 2017 Estimate


▪ 2010 Census


▪ 2000 Census


▪ Daytime Population

2017 Estimate 19,656 132,759 421,192

HOUSEHOLDS 1 Miles 3 Miles 5 Miles

▪ 2022 Projection

Total Households 13,054 67,590 141,865

▪ 2017 Estimate


Average (Mean) Household Size 2.49 2.20 2.12

▪ 2010 Census


▪ 2000 Census


Growth 2015-2020 -1.58% -0.77% 0.88%

HOUSING UNITS 1 Miles 3 Miles 5 Miles

▪ Occupied Units

2022 Projection 13,054 67,590 141,865

2017 Estimate 16,825 81,305 165,694

Owner Occupied 5,317 33,742 69,351

Renter Occupied 7,947 34,374 71,275

Vacant 3,561 13,188 25,068

▪ Persons In Units

2017 Estimate Total Occupied Units 13,264 68,116 140,626

1 Person Units 34.78% 39.14% 41.74%

2 Person Units 27.25% 30.95% 30.44%

3 Person Units 15.16% 13.73% 12.94%

4 Person Units 11.01% 8.90% 8.49%

5 Person Units 6.04% 4.17% 3.78%

6+ Person Units 5.76% 3.12% 2.61%

HOUSEHOLDS BY INCOME 1 Miles 3 Miles 5 Miles

▪ 2017 Estimate

$200,000 or More 0.90% 2.07% 2.48%

$150,000 - $199,000 1.29% 2.53% 2.91%

$100,000 - $149,000 4.36% 8.88% 9.11%

$75,000 - $99,999 7.52% 10.26% 10.36%

$50,000 - $74,999 14.67% 17.39% 17.49%

$35,000 - $49,999 14.66% 15.90% 15.41%

$25,000 - $34,999 13.21% 11.65% 11.41%

$15,000 - $24,999 18.08% 13.34% 12.63%

Under $15,000 25.31% 17.97% 18.19%

Average Household Income $42,563 $57,231 $59,682

Median Household Income $29,783 $41,131 $42,220

Per Capita Income $17,071 $25,858 $27,752

POPULATION PROFILE 1 Miles 3 Miles 5 Miles

▪ Population By Age

2017 Estimate Total Population 33,255 151,557 306,727

Under 20 26.98% 22.22% 21.62%

20 to 34 Years 25.27% 27.04% 27.90%

35 to 39 Years 7.65% 7.92% 7.40%

40 to 49 Years 13.11% 12.83% 11.93%

50 to 64 Years 18.20% 19.47% 19.28%

Age 65+ 8.78% 10.53% 11.86%

Median Age 33.73 35.42 35.28

▪ Population 25+ by Education Level

2017 Estimate Population Age 25+ 22,060 108,702 217,673

Elementary (0-8) 7.45% 4.49% 3.46%

Some High School (9-11) 13.80% 10.29% 9.13%

High School Graduate (12) 31.07% 24.16% 23.93%

Some College (13-15) 21.95% 20.84% 20.95%

Associate Degree Only 6.20% 7.09% 6.56%

Bachelors Degree Only 11.44% 18.67% 19.84%

Graduate Degree 5.88% 12.89% 14.88%

▪ Population by Gender

2017 Estimate Total Population 33,255 151,557 306,727

Male Population 49.13% 48.97% 48.77%

Female Population 50.87% 51.03% 51.23%

59

Income

In 2017, the median household income for your selected geography is

$29,783, compare this to the US average which is currently $56,286.

The median household income for your area has changed by 22.91%

since 2000. It is estimated that the median household income in your

area will be $34,743 five years from now, which represents a change

of 16.65% from the current year.

The current year per capita income in your area is $17,071, compare

this to the US average, which is $30,982. The current year average

household income in your area is $42,563, compare this to the US

average which is $81,217.

Population

In 2017, the population in your selected geography is 33,255. The

population has changed by -7.76% since 2000. It is estimated that the

population in your area will be 32,331.00 five years from now, which

represents a change of -2.78% from the current year. The current

population is 49.13% male and 50.87% female. The median age of the

population in your area is 33.73, compare this to the US average

which is 37.83. The population density in your area is 10,572.97

people per square mile.

Households

There are currently 13,264 households in your selected geography.

The number of households has changed by -8.58% since 2000. It is

estimated that the number of households in your area will be 13,054

five years from now, which represents a change of -1.58% from the

current year. The average household size in your area is 2.49

persons.

Employment

In 2017, there are 5,272 employees in your selected area, this is also

known as the daytime population. The 2000 Census revealed that

44.70% of employees are employed in white-collar occupations in this

geography, and 54.69% are employed in blue-collar occupations. In

2017, unemployment in this area is 7.23%. In 2000, the average time

traveled to work was 29.00 minutes.

Race and Ethnicity

The current year racial makeup of your selected area is as follows:

44.78% White, 38.70% Black, 0.02% Native American and 7.13%

Asian/Pacific Islander. Compare these to US averages which are:

70.42% White, 12.85% Black, 0.19% Native American and 5.53%

Asian/Pacific Islander. People of Hispanic origin are counted

independently of race.

People of Hispanic origin make up 10.52% of the current year

population in your selected area. Compare this to the US average of

17.88%.

PROPERTY NAME

MARKETING TEAM


Housing

The median housing value in your area was $95,610 in 2017, compare

this to the US average of $193,953. In 2000, there were 6,321 owner

occupied housing units in your area and there were 8,189 renter

occupied housing units in your area. The median rent at the time was

$323.

Source: © 2017 Experian

DEMOGRAPHICS

60

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