ULI – YLG Peer To Peer Workshop Multifamily Investing

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					ULI – YLG Peer To Peer Workshop

  Multifamily Investing: A market
analysis, project underwriting, and
        capitalization study
                   Presenters:
          Matt Holmes – CBRE Multifamily
           Alex Rouse – Wood Partners
            Mark Levine – PNC ARCS




              Nov. 10th, 2008
Revenue Growth Tracks Employment Growth
SOURCE: MPF-TWR Outlook



                                                   Year-Over-Year Change, %
         8
                                                                                                                        Forecast
         6

         4

         2

         0

        -2




                                                                                                                                      2012
                                                 2000
                                                        2001
                                                               2002
                                                                      2003
                                                                             2004
                                                                                     2005
                                                                                            2006
                                                                                                   2007




                                                                                                                                             2013
                                          1999
              1995
                     1996
                            1997
                                   1998




                                                                                                          2008
                                                                                                                 2009
                                                                                                                        2010
                                                                                                                               2011
                                                  Revenue                           Employment
Rentable Completion Rate vs. Employment Growth Rate
SOURCE: Torto Wheaton MPF Research




     3.0%
     2.5%
     2.0%
     1.5%
     1.0%
     0.5%
     0.0%
    -0.5%
    -1.0%
                  2002           2003    2004      2005       2006      2007    2008 YTD



                             Total Employment Growth      Rentable Completions Rate
Supply Completion vs. Employment & Rent Growth
SOURCE: Torto Wheaton MPF Research




     5.0%

     4.0%

     3.0%

     2.0%

     1.0%

     0.0%

    -1.0%

    -2.0%
                   2002              2003   2004       2005      2006      2007     2008 YTD



               Total Employment Growth             Rentable Completions Rate      Rent Growth
New Supply vs. Vacancy, Employment, Rent Growth
SOURCE: Torto Wheaton MPF Research




     7.0%
     6.0%
     5.0%
     4.0%
     3.0%
     2.0%
     1.0%
     0.0%
    -1.0%
    -2.0%
                   2002              2003   2004   2005       2006      2007    2008 YTD



                              Total Employment Growth     Rentable Completions Rate
                              Rent Growth                 Vacancy Rate
Nationally, Renting is Still the More Affordable Option
SOURCE: EQR, Green Street Advisors 8/13/08



          Major Market Rent vs. Mortgage Comparison (as % of median income)
      35%
                                                                                       YTD ’08
      30%                                                                               25.1%

      25%
      20%
                                                                                       YTD ’08
      15%                                                                               20.2%

      10%
        5%
        0%
                1991        1993         1995   1997   1999    2001     2003    2005   2007



                                       Rent     After-tax Mortgage and Property Tax
Declining Homeownership is Creating Renter Households
SOURCES: EQR, U.S. Census Bureau, Moody’s Economy.com


                          National Homeownership Rate (% of households)
      70%
      69%
      68%
      67%
      66%
      65%
      64%
      63%
      62%
             1984             1988            1992      1996   2000   2004   2008
      National Dollar Volume by Buyer Type
      SOURCE: Real Capital Analytics (100+ unit assets)




            $120

            $100

              $80
Billions




              $60

              $40

              $20

                $0




                                   Condo Converter        Fund           Institutional
                                  Private                 REIT/ Public   User/Other
      National Dollar Volume by Buyer Type (Core Assets)
      SOURCE: Real Capital Analytics (100+ unit assets)




                80
                70
                60
                50
Billions




                40
                30
                20
                10
                  0




                             Condo Converter              Fund   Institutional   Private   REIT/ Public
      National Dollar Volume by Buyer Type (Value-Add Assets)
      SOURCE: Real Capital Analytics (100+ unit assets)




                60

                50

                40
Billions




                30

                20

                10

                  0




                              Condo Converter             Fund   Institutional   Private   REIT/ Public
Capital Markets Update
      National Dollar Volume by Lender Type
      SOURCE: Real Capital Analytics (100+ unit assets)




              $30

              $25

              $20
Billions




              $15

              $10

                $5

                $0




           Financial                      Government Agency    Insurance            Intl. Bank
           National Bank                  Private             Regional/Local Bank   Wall Street
Sources of Acquisition Financing Comparison*
SOURCE: Real Capital analytics www.rcanalytics.com July 2008




        Jan ‘06 – Jun ‘071                                                                      Jan ’08 – June ‘082
           33%                                                  Wall Street            1%
                    26%                                       National Bank                    8%
                             18%                                 Int'l Bank                           15%
                                         9%                 Finance/ Mtg Co                 5%
                                           7%              Reg'l Bnk /Savings              5%
                                            6%                Insurance Co                   7%
                                                  1%          Gov't Agency                5%
                                                    0%           Assumed                                              50%
                                                    0%       Seller Financed             4%




 1. Based on $405 billion of acquisition financing from January 2006 to June 2007
  2. Based on $33 billion of acquisition financing from Jan '08 to June ‘08 (including deals under contract)
* all property types, as a percentage of acquisition price
                                                                                The Boom n’ Bust: CMBS Issuance

                                                                           MS S A C
                                                                          C B IS U N E

              $250
                                                                                        ’05 – ’08 totaled over half
                                                                                         the volume of previous
                                                                                                 12 years!
              $200
                                                Vintage Loans:
                                        •       Much more Interest
                                                      Only
              $150
                                               •      Higher LTV
In billions




                                               •      Lower DCR
              $100



              $50



                $0
                       1990

                              1991

                                     1992

                                             1993

                                                    1994

                                                           1995

                                                                  1996

                                                                         1997

                                                                                 1998

                                                                                          1999

                                                                                                 2000

                                                                                                        2001

                                                                                                               2002

                                                                                                                      2003

                                                                                                                             2004

                                                                                                                                    2005

                                                                                                                                           2006

                                                                                                                                                  2007

                                                                                                                                                          *2008
                                                                                                                                                  *1st Half 2008




               Source: Mortgage Bankers Association 2008
How Did We Get Here?




        Source: JP Morgan, ING 2Q 2008
San Francisco Bay Area
Demographics—San Jose MSA vs. The United States
SOURCE: Claritas




                                               San Jose MSA   United States
        2008 Est. Average Household Income       $110,253       $67,918


        2008 Estimated Housing Units/ Per         0.344          0.419
        Resident
        2008 Est. Owner Occupied Units            57.8%         60.40%


        2008 Est. Renter Occupied Units           39.2%         29.60%


        2008 Est. Median Housing Value          $708,799       $176,945


        2008 Est. Renter Occupied Units           39.2%         29.60%


        Population over 25 with a Bachelor's       39.1           24.7
        Degree or greater (percent)
Renting Remains a Cost-effective Alternative to Ownership
SOURCES: DataQuick-August 2008 Median Home Prices; Real Facts, Inc. 2Q’08 Rental Data, 100+ Units

                  Median         Median          Median           Median           Median          Median           Median             Median     Median
                  Price:         Price:          Price:           Price:           Price:          Price:           Price:             Price:     Price:
                 $440,000       $330,000        $675,000         $453,000         $725,000        $632,000         $555,500           $270,000   $350,000

   $6,000

   $5,000

   $4,000

   $3,000

   $2,000

   $1,000

          $0




          House Payment - Median Priced Home August '08                                                      Avg Rental Payment 2Q’08
                       PITI Payment based on a 6.5% 30-year fixed rate mortgage, with an 80% Loan/Purchase Price ratio.
                       Property taxes and homeowners insurance are estimated to be 1% and .38% of the purchase price, respectively.
                       Home prices reflect new and existing houses as well as condos.
Anticipated Percentage Job Growth by MSA (2005-2030)
SOURCE: Association of Bay Area Governments 2007, EDD March 2008




  50.00%

  40.00%

  30.00%

  20.00%

  10.00%

   0.00%
  Largest Employers - San Jose MSA
  SOURCE: San Jose Business Times Book of Lists, 2007; CBRE Research



Private Sector Employers                  Employees                    Public Sector Employers                   Employees
Stanford University, Hospital & Clinics          23,756                Santa Clara County                            15,012
Cisco Systems, Inc.                              16,500                State of California                            7,568
AT&T                                             15,500                City of San Jose                               7,169
Lockheed Martin                                   7,951                San Jose Unified School District               2,927
Oracle-Peoplesoft                                 7,500                San Jose State University                      4,100
Hewlett-Packard Co.                               7,000                Santa Clara Valley Transportation Auth.        2,035
IBM Corp.                                         6,500                Santa Clara County Office of Education         1,800
Intel Corp.                                      5,700                                                  Total:       40,611
New United Motor Manufacturing                   5,500
Google, Inc.                                     5,000
Apple Computer, Inc.                             4,344
Applied Materials, Inc.                          4,200
Sun Microsystems                                 3,500
Hitachi American Ltd.                            2,880
Network Appliance Inc.                           2,324
Xilinx                                           2,300
eBay, Inc.                                       2,200
Sanmina                                          2,100
National Semiconductor                           2,000
Adobe Systems                                    2,000
                            Total:            128,755
Supply
Apt Development Pipeline – Oakland Has Largest New Supply
SOURCE: CBRE Multi-Housing Research; Real Facts, Inc.


                                                   Supply by MSA
     3,000

     2,500

     2,000

     1,500

     1,000

        500

            0




                                         Napa-Solano MSA’s     Oakland MSA
                                          San Francisco MSA    San Jose MSA
Rents
Q: Why SHOULD Cap Rates be Lower in the Bay Area?
A: Bay Area Rent Growth is Second Among All Large MSAs
SOURCE: US Department of Housing and Urban Development – 2008 Data

                                       Annual Geometric Rent Growth 1983-2008
      5.0%
      4.5%
      4.0%
      3.5%
      3.0%
      2.5%
      2.0%
      1.5%
      1.0%
      0.5%
      0.0%
                  SanFran            L.A./Long          Dallas       Chicago   New York   Atlanta
                   PSMA                Beach             MSA          MSA       PMSA       MSA
                                       PMSA
      Dollar Volume Continues to Fall From ’05 Levels
      SOURCE: CBRE Research



       Nine-County Bay Area Market-Rate Transactions – 100+ Units
           $3.5

           $3.0

           $2.5
Billions




           $2.0

           $1.5

           $1.0

           $0.5

             $0
                     1999     2000   2001   2002   2003   2004   2005   2006   2007   2008
                                                                                      YTD
Average Price Per Unit Has Dropped Below 2006 Levels
SOURCE: CBRE Research



 Nine-County Bay Area Market-Rate Transactions – 100+ Units
$300,000

$250,000

$200,000

$150,000

$100,000

 $50,000

        $0
              1999      2000   2001   2002   2003   2004   2005   2006   2007   2008
                                                                                YTD
Investment Underwriting – Case Study
Project Underwriting
Project Underwriting:
Project Underwriting – Assumptions
Project Underwriting – 60 Months Cash Flow
Project Underwriting – Unlevered Return
Project Underwriting – Levered Return
Why Are Values Going Down?

                               October 2007    October 2008

Asset Value (6.25% Cap Rate)     $40,000,000            $40,000,000



Net Operating Income              $2,500,000             $2,500,000

Treasury                              4.63%                   3.90%

Spread                                1.20%                   3.50%

Rate                                  5.83%                   7.40%

Years of Amortization                     0                     30

Constant                              5.83%                   8.31%

Minimum Coverage                       1.15x                  1.25x

Proceeds                         $32,000,000            $24,000,000

Max Loan-To-Value                    80.00%                 60.00%
Equity Required                   $8,000,000            $16,000,000
                                                           $505,946
Free Cash Flow After DS            $634,400
                                                             3.16%
Cash on Cash Return                  7.93%
Debt Underwriting: What’s In & What’s Out

                                        CHANGING MARKET DYNAMICS

 IN                                                                                        OUT
 On-Book Lending                                                                             CMBS

 Conservative Leverage                                                  High Octane Capital Stack

 Equity In-Deal                                                               Cash Out Financing

 Risk Based Pricing                                                   Inefficient Pricing of Capital

 Correspondent & Relationship Lending                                             Loan Brokerage

 High Touch Loan Servicer                                          Securitized/Impersonal Servicer

 Amortization- 30 Year Schedule                                        Amortization- Interest Only

 Reserves Funded in Cash                                                       No Funded Escrow

 250+/- Spreads                                                                    100+/- Spreads

				
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