Historical

Multifamily Report

June 2020

Employment

Though U.S. employment was at a level in May not seen since 2012, a major surge in hiring of 2.5 million workers in May was a welcome sign that the nation was moving past the crushing economic effects of the pandemic.

138,470

131,314

133,342

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Total U.S. Nonfarm Employment (Thousands)

Source: Bureau of Labor. All annual figures through May.

120K

125K

130K

135K

140K

145K

150K

155K

2.5M Jobs Added in May. Unemployment Slid to

16.3% From 19.7% in April.

368KRetail

1.2MLeisure & Hospitality

44KConstruction

225KManufacturing

312KHealthcare

2 Historical Multifamily Report

Apartment Sales

Thus far, apartment sales by volume is down 36% May 2020 over May 2019. At this pace annualized, 2020 would finish around the $87.4 billion mark as compared to $163.0 billion in 2019, though improving fundamentals as the year marches on are likely to temper this scenario.

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20*

BILL

IONS

Annual Multifamily Sales Volume

Source: CoStar, 20+ Units, U.S., *Through May.

$87.4BAt Current Pace

2020 Annualized

$36.4BThrough May

$13.7B

$163.1B

The total number of multifamily transactions for 2020 through May also tells a story of uncertainty. Buyers and sellers appeared to “wait it out” amidst a lot of unknowns about the impact of COVID-19 on the U.S. economy. At an annualized basis, the sales transaction pace was also off by 36% from the year prior.

2,459

10,409 2,654

0 2,000 4,000 6,000 8,000 10,000 12,000

'04

'06

'08

'10

'12

'14

'16

'18

'20*

Total Number of Multifamily Transactions

Source: CoStar, 20+ Units, U.S., *Through May.

6,639At Current Pace

2020 Annualized

Historical Multifamily Report 3

At first glance, the average multifamily sales price per unit looks relatively unscathed from the year prior, at $148,990 YTD through May compared to $149,952 for 2019. At a deeper look, prices in 2019 were up 9.2% from the year prior. At the price level we see through May (a slight decline from 2019), YoY appreciation for 2020 appears to be a far-flung wish.

Some, but not all, of the softness in pricing is likely due to the quality of deals that have traded thus far in 2020. The average deal size of 121 units through May of this year is the lowest on average of the past 10 years (125.5), indicating more mom-and-pop / private deals transacted while institutional owners were not big sellers.

RealCapitalAnalytics reports that private sales soared to 74.4% of all deals thus far in 2020 compared to 61.4% in 2019. Conversely, institutional sellers measured 17.1% for the year, down from 25.6% in 2019.

$8,125,221

$11,337,453

$11,583,822

$14,960,041

$9,424,741

$6,798,784

$9,753,714

$11,491,400

$12,147,573

$12,876,029

$13,393,173

$15,942,411

$17,048,063

$16,992,771

$17,984,017

$19,749,703

$17,467,440

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20*

Average Multifamily Transaction Sale Price

Source: CoStar, 20+ Units, U.S., *Through May.

134

141

133 131 131 131

125129

121

'11 '12 '13 '14 '15 '16 '17 '18 '19 '20*

Average Deal Size by # Units

Source: CoStar, 20+ Units, *Through May.

122

4 Historical Multifamily Report

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20*

Average Actual Multifamily Cap Rate

Source: CoStar, 20+ Units, U.S., *Through May

7.7%

5.9%

Cap rates have compressed 10 bps from last year’s level, to 5.9% indicating that pricing continues to be tight.

Historical Multifamily Report 5

CoStar Update on Market Performance

The national multifamily average vacancy rate rose in 1Q 2020 for the first time on record for a first quarter, and as of June at 6.7%, now matches its highest level since 2011.

Vacancies are expected to continue to rise above 8% nationwide, the highest level since at least 2000.

CoStar’s daily rent series, which draws on more than 4 billion rent data points collected via Apartments.com, shows apartment rents falling about 1% from March 10 through May.

CoStar’s new baseline forecast scenario calls for steep rent losses through 2020, with rents dropping by about 10% on the year. However, rents are projected to bounce back in 2021, with growth of about 9%, but slow thereafter as the initial economic recovery fades, demographic growth slows.

Late Rent Payments

The National Multifamily Housing Council (NMHC)’s Rent Payment Tracker found 93.3% of apartment households made a full or partial rent payment by May 27 in its survey of 11.4 million units of professionally managed apartment units across the country. This is a 1.5-percentage point decrease in the share who paid rent through May 27, 2019. The 93.3%, however, was an increase from the month prior, in which 91.7% had paid by April 27, 2020.

NMHC Rent Payment Tracker Finds 93.3% of Apartment Households Paid Rent as of May 27

May 1 - 27 2020, % Rent Payments Made

93.3%

6.1%

6.4%

6.7%

6.4%

6.4%

7.8%

8.5%

8.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

2015 2016 2017 2018 2019 2020* 2021* 2022*

National Multifamily Vacancy Rate

Source: CoStar. *Projected

6 Historical Multifamily Report

Largest Monthly Jump Ever in May 2020

Trepp has released its May 2020 report, and as expected, a surge in CMBS delinquencies was reported. Key takeaways include:

■ The overall U.S. CMBS delinquency rate climbed 481 basis points in May to 7.15%

■ This was the largest increase since Trepp started tracking this metric in 2009

■ The all-time high on this basis was 10.34% registered in July 2012

■ The percentage of A/B loans (i.e. loans in “grace period” or “beyond grace” period) was 7.60% in May

■ Year-to-date through May, the overall U.S. CMBS delinquency rate was up 449 basis points. One year ago, the U.S. CMBS delinquency rate was 2.66%.

CMBS Delinquency Rate Records

0%1%2%3%4%5%6%7%8%9%

10%

'00 '02 '04 '06 '08 '10 '13 '15 '17 '19

CMBS Commercial / MultifamilyMortgage Delinquency Rates

30+ Day & REO

Source: MBA, Trepp, *As of May 2020

8.71%7.15%

0.39%

Delinquency Rate by Property Type (% 30 Days +)

May ‘20 Apr ‘20 Mar ‘20 3 Mo. 6 Mo. 12 Mo.

Industrial 1.82 1.36 1.35 1.45 2.00 2.05

Lodging 19.13 2.71 1.53 1.60 1.52 1.42

Multifamily 3.25 1.92 1.63 1.79 2.01 2.16

Office 2.40 1.92 1.86 1.72 1.97 2.98

Retail 10.14 3.67 3.89 3.62 4.36 4.29

Source: Trepp

Historical Multifamily Report 7

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