offering memorandum - loopnet · marcus & millichap is pleased to present the offering...

LOIS LANE DUPLEXES1401 Lois Ln • Norfolk, VA 23513

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.

LOIS LANE DUPLEXES

Norfolk, VA

ACT ID Z0600036

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TABLE OF CONTENTS

SECTION

INVESTMENT OVERVIEW 01Offering Summary

Regional Map

Local Map

Aerial Photo

Floor Plans

FINANCIAL ANALYSIS 02Rent Roll Summary

Rent Roll Detail

Operating Statement

Notes

Pricing Detail

Acquisition Financing

Growth Rate Projections

Cash Flow

MARKET COMPARABLES 03

Sales Comparables

Rent Comparables

MARKET OVERVIEW 04Market Analysis

Demographic Analysis

LOIS LANE DUPLEXES

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LOIS LANE DUPLEXES

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INVESTMENT

OVERVIEW

5

LOCATION SUMMARY

LO I S L A N E DUPLEXES

N A V A L S T A T I O N NORFOLK J O I N T B A S E

LITTLE CREEK – FORT STORY

E A S T O C E A N V I E WFISHING PIER

M A C A R T H U R C E N T E RSHOPPING MALL

D O W N T O W NNORFOLK

E A S T O C E A N V I E WFISHING PIER

N O R F O L KPREMIUM OUTLETS

D O W N T O W NNORFOLK

V I R G I N I AZOOLOGICAL PARK

LOIS LANE APARTMENTS

LOIS LANE DUPLEXES

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EXECUTIVE SUMMARY

OFFERING SUMMARY

MAJOR EMPLOYERS

EMPLOYER # OF EMPLOYEES

Norfolk Public Schools 6,730

Old Dominion University 4,851

City of Norfolk 3,734

Bank of America 3,070

Childrens Hosp of Kngs Dghters 1,905

Alabama Great Southern RR Co 1,805

Eastern Virginia Medical Schl 1,730

Academic Physicians & Surgeons 1,500

Lockheed Martin 1,276

Norfolk Southern 1,206

Amsec Corporation 1,200

United States Dept of Navy 1,192

DEMOGRAPHICS

1-Miles 3-Miles 5-Miles

2017 Estimate Pop 17,820 106,242 288,938

2017 Census Pop 17,277 103,369 278,616

2017 Estimate HH 6,796 42,511 103,995

2017 Census HH 6,604 41,503 100,125

Median HH Income $47,847 $49,310 $50,115

Per Capita Income $22,586 $25,495 $26,755

Average HH Income $59,211 $63,526 $69,419

UNIT MIX

NUMBEROF UNITS

UNIT TYPEAPPROX.SQUARE FEET

10 Two-Bedroom, One-Bath 850

10 Total 8,500

VITAL DATA

Price $750,000 CURRENT YEAR 1

Down Payment 25% / $187,500 CAP Rate 8.99% 9.73%

Loan Amount $562,500 GRM 7.15 6.69

Loan Type Proposed NewNet Operating Income

$67,441 $72,980

Interest Rate / Amortization 4.75% / 30 YearsNet Cash Flow After Debt Service

17.19% / $32,229 20.14% / $37,769

Price/Unit $75,000 Total Return 21.82% / $40,909 25.00% / $46,870

Price/SF $88.24

Number of Units 10

Rentable Square Feet 8,500

Year Built 1986

Lot Size 0.57 acre(s)

6

LOIS LANE DUPLEXES

OFFERING SUMMARY

▪ Five Turn-Key Properties

▪ Cash-on-Cash Return of 15.37%

▪ Stabilized Cap Rate of 9.73%

▪ 2.5 Miles from Norfolk Premium Outlets

▪ 3 Miles from Hampton Roads First Ikea

▪ 6 Miles from Naval Station Norfolk

INVESTMENT HIGHLIGHTS

This is a unique opportunity to acquire five duplexes on the same street, a quiet cul-de-sac located off the Norview Avenue East exit of I-64. The location is ideal as it is

within walking distance to shopping, public transportation, a short distance to neighboring military bases as well as in close proximity to the Norfolk International Airport.

Investors will see value in the acquisition of this portfolio due to the stability of the overall market fueled by a strong military presence. Hampton Roads boasts one of the

lowest vacancy rates in the country. This property offers solid brick construction, a convenient location, dependable income stream, ease of management, as well as the

opportunity to acquire a well maintained portfolio. This portfolio has a history of high occupancy, and would make an excellent addition to any investor's portfolio.

The Hampton Roads economy is heavily anchored to the US Department of Defense, a major employer for the area, houses eight military installations and the second

largest concentration of military personnel in the U.S.. Naval Station Norfolk, the worlds largest naval base, employs upwards of 67,000 people and yields 6,200 acres of the

Hampton Roads commercial acquisition. With the inauguration of republican leadership, military funding and employee benefits are expected to grow in salary increases,

branch wide budget expansion, and more.

Investors are moving out of major metro areas into secondary and tertiary markets, such as the Hampton Roads/ Tidewater area, in search of higher rates of return.

Although a few distressed assets are still available at cap rates above eight percent, more investors are targeting stabilized properties with higher cash flows. Apartments

near large employers, military bases and institutions of higher learning, such as Old Dominion University, provide a steady renter base with cap rates for Class A/B assets

typically in the seven percent area.

INVESTMENT OVERVIEW

7

LOIS LANE DUPLEXES

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OFFERING SUMMARY

PROPERTY OVERVIEW

Marcus & Millichap is pleased to present the Offering Memorandum for the Lois Lane duplex portfolio located at

1401,1402,1405,1409 and 1411 Lois Lane, in Norfolk, Virginia. Lois Lane neighbors North Military Highway (0.5

mi), a primary traffic artery through the South Hampton Roads region, and a dominant route through The City of

Norfolk.

The portfolio consists of five (5) two-bedroom and 1-bathroom duplexes. The properties are serviced by I-64 (0.5

mi), known as Hampton Roads Beltway and accessible in less than a mile of the property, provides tenants access

to Norfolk's major commercial corridors and top employment drivers including the US Department of Defense,

Sentara Healthcare Centers, Old Dominion University, BAE systems, Norfolk State University and more. Tenants

with school-age children have access to public schools less than a mile away. The Norfolk International Airport,

which serves the entire Hampton Roads, is located only 1.5 miles from the property.

Downtown Norfolk recently renovated; the Waterside District ($50 Million), Hilton Main Hotel ($150 Million), The

ICON Luxury Apartments ($100 Million), and ADP ($32.5 Million). Automatic Data Processing (ADP) is expected to

bring an estimated 2,000 jobs to the area and is anticipated to produce annual regional earnings of about $158

million as the overall economic impact climbs to almost $465 million, alone. The Norfolk Premium Outlets, a

332,000 sq ft outlet mall located 2.5 miles from the property, opened July 2017 and has 50 retail and restaurant

locations for residents and tourists to experience high-end shopping. Ikea is opening its Norfolk location, the first in

Hampton Roads, in Spring of 2019 and is expected to employ over 250 local residents. The 331,000 sq ft store

located 3 miles from the property will feature nearly 10,000 items, 50 rooms, a kids play area, a food market and a

450-seat restaurant.

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▪ Ample Off-Street Parking

Common Area Amenities

▪ Close Proximity (0.5 mi) to Interstate 64

▪ Close to Public Transportation (HRT Bus)

▪ Ten (10) Two-Bedroom, One-Bathroom Units

Unit Amenities

▪ Central HVAC in All Units

▪ Washer and Dryer Connections

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LOIS LANE DUPLEXES

PROPERTY SUMMARY

OFFERING SUMMARY

PROPOSED FINANCING

First Trust Deed

Loan Amount $562,500

Loan Type Proposed New

Interest Rate 4.75%

Amortization 30 Years

Loan Term 10 Years

Loan to Value 75%

Debt Coverage Ratio 1.92

THE OFFERING

Property Lois Lane Duplexes

Price $750,000

Property Address 1401 Lois Ln, Norfolk, VA

SITE DESCRIPTION

Number of Units 10

Year Built/Renovated 1986

Rentable Square Feet 8,500

Lot Size 0.57 acre(s)

Type of Ownership Fee Simple

Parking Off-Street

Parking Ratio 1:1

Landscaping Flat

UTILITIES

Water Tenant Paid

Electric Tenant Paid

Gas Tenant Paid

CONSTRUCTION

Foundation Concrete Slab

Exterior Brick

Parking Surface Asphalt

Roof Gable

MECHANICAL

HVAC Central

Fire Protection City Code

9

REGIONAL MAP

LOIS LANE DUPLEXES

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LOCAL MAP

LOIS LANE DUPLEXES

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AERIAL PHOTO

LOIS LANE DUPLEXES

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Marcus & Millichap closes

more transactions than any other

brokerage firm.

12

LOIS LANE DUPLEXES

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PROPERTY PHOTO

FLOOR PLANS

LOIS LANE DUPLEXES

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FLOOR PLANS

LOIS LANE DUPLEXES

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LOIS LANE DUPLEXES

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FINANCIAL

ANALYSIS

FINANCIAL ANALYSIS

LOIS LANE DUPLEXES

RENT ROLL SUMMARY

17

FINANCIAL ANALYSIS

LOIS LANE DUPLEXES

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RENT ROLL DETAIL

FINANCIAL ANALYSIS

LOIS LANE DUPLEXES

OPERATING STATEMENT

19

FINANCIAL ANALYSIS

LOIS LANE DUPLEXES

NOTES

20

FINANCIAL ANALYSIS

LOIS LANE DUPLEXES

PRICING DETAIL

21

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

$5.63 billion

total national

volume in 2017

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 1,707

debt and equity

financings

in 2017

ACQUISITION FINANCING

LOIS LANE DUPLEXES

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FINANCIAL ANALYSIS

LOIS LANE DUPLEXES

GROWTH RATE PROJECTIONS

23

FINANCIAL ANALYSIS

LOIS LANE DUPLEXES

CASH FLOW

24

LOIS LANE DUPLEXES

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MARKET

COMPARABLES

LOIS LANE DUPLEXES

SALES COMPARABLES MAP

26

LOIS LANE DUPLEXES

(SUBJECT)

912 Druid Cir

1532 Wyoming Ave

1412 Andes Ct

203 Ethel Ave

SALES COMPARABLES

1

2

3

4

PROPERTY NAMELOIS LANE DUPLEXES

SALES COMPARABLES

27

SALES COMPARABLES

Avg. $86,063

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

Lois LaneDuplexes

912 DruidCir

1532Wyoming Ave

1412Andes Ct

203 EthelAve

Average Price Per Unit

SALES COMPARABLES SALES COMPS AVG


SALES COMPARABLES

28

SALES COMPARABLES

Avg. $101.37

$0.00

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.00

$160.00

$180.00

$200.00

Lois LaneDuplexes

912 DruidCir

1532Wyoming Ave

1412Andes Ct

203 EthelAve

Average Price Per Square Foot

SALES COMPARABLES SALES COMPS AVG

PROPERTY NAME

MARKETING TEAM

LOIS LANE DUPLEXES

SALES COMPARABLES

rentpropertyname1

rentpropertyaddress1

rentpropertyname1


rentpropertyname1


29

SALES COMPARABLES

Units Unit Type

Offering Price: $750,000 10 Two-Bdr, One-Bath

Price/Unit: $75,000

Price/SF: $88.24

CAP Rate: 8.99%

GRM: 7.15

Total No. of Units: 10

Year Built: 1986

Underwriting Criteria

Income $97,556 Expenses $30,115

NOI $67,441 Vacancy ($7,324)

LOIS LANE DUPLEXES1401 Lois Ln, Norfolk, VA, 23513

1

Units Unit Type

Close Of Escrow: 7/11/2017 2 2 Bdr 1 Bath

Sales Price: $188,000

Price/Unit: $94,000

Price/SF: $97.92


Year Built: 1969

NOTES

On July 11th, 2017 the duplex at 912 Druid Cir, Norfolk, VA sold for

$188,000. ($94,000/unit)

912 DRUID CIR912 Druid Cir, Norfolk, VA, 23504

Units Unit Type



Price/Unit: $77,750

Price/SF: $90.94


Year Built: 1972

2

NOTES

On April 10th, 2017 the duplex at 1532 Wyoming Ave, Norfolk, VA sold for

$155,500. ($77,750/unit)

1532 WYOMING AVE1532 Wyoming Ave, Norfolk, VA, 23502

PROPERTY NAME

MARKETING TEAM

LOIS LANE DUPLEXES

SALES COMPARABLES

rentpropertyname1


rentpropertyname1


rentpropertyname1


30

SALES COMPARABLES

Units Unit Type



Price/Unit: $77,500

Price/SF: $104.17


Year Built: 1981

3

NOTES

On March 30th, 2018 the duplex at 1412 Andes Ct, Norfolk, VA sold for

$155,000. ($77,500/unit)

1412 ANDES CT1412 Andes Ct, Norfolk, VA, 23502

4

Units Unit Type



Price/Unit: $95,000

Price/SF: $112.43


Year Built: 1964

NOTES

On May 9th, 2017 the duplex at 203 Ethel Ave, Norfolk, VA sold for

$190,000. ($95,000/unit)

203 ETHEL AVE203 Ethel Ave, Norfolk, VA, 23504

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LOIS LANE DUPLEXES

RENT COMPARABLES MAP

LOIS LANE DUPLEXES

(SUBJECT)

3232 Somme Ave

1222 W 27th St

524 Connecticut Ave

772 50th St4

7

8

9

11

20

12

14

15

16

17

13

18

10

4

1

2

3

31


RENT COMPARABLES

32

AVERAGE RENT - MULTIFAMILY

Avg. $855

$0

$90

$180

$270

$360

$450

$540

$630

$720

$810

$900

Lois LaneDuplexes

3232Somme Ave

1222W 27th St

524Connecticut

Ave

772 50th St

2 Bedroom

PROPERTY NAME

MARKETING TEAM

LOIS LANE DUPLEXES

RENT COMPARABLES

rentpropertyname1


rentpropertyname1


rentpropertyname1


33

YEAR BUILT: 1986

rentpropertyname1rentpropertyaddress1

Unit Type Units SF Rent Rent/SF

Two-Bdr, One-Bath

10 850 $874 $1.03

Total/Avg. 10 850 $874 $1.03

LOIS LANE DUPLEXES1401 Lois Ln, Norfolk, VA, 23513

YEAR BUILT: 1966

1


2 Bdr 1 Bath 2 735 $800 $1.09

Total/Avg. 2 735 $800 $1.09

3232 SOMME AVE3232 Somme Ave, Norfolk, VA, 23509

2

YEAR BUILT: 1920


2 Bdr 1 Bath 2 924 $875 $0.95

Total/Avg. 2 924 $875 $0.95

1222 W 27TH ST1222 W 27th St, Norfolk, VA, 23508

PROPERTY NAME

MARKETING TEAM

LOIS LANE DUPLEXES

RENT COMPARABLES

rentpropertyname1


rentpropertyname1


rentpropertyname1


34

YEAR BUILT: 1920

3


2 Bdr 1 Bath 2 900 $850 $0.94

Total/Avg. 2 900 $850 $0.94

524 CONNECTICUT AVE524 Connecticut Ave, Norfolk, VA, 23508

YEAR BUILT: 1935

4


2 Bdr 1 Bath 2 1,125 $895 $0.80

Total/Avg. 2 1,125 $895 $0.80

772 50TH ST772 50th St, Norfolk, VA, 23508

LOIS LANE DUPLEXES

35

MARKET

OVERVIEW

MARKET OVERVIEW

HAMPTON ROADSOVERVIEW

36

Hampton Roads, also known as the Virginia Beach-Norfolk-Newport

News metropolitan area, is recognized for its miles of waterfronts and

beaches, military presence, harbors, shipyards and coal piers. The

metro is composed of James, Gloucester, Mathews, York and Isle of

Wight counties in Virginia, and Gates and Currituck counties in North

Carolina, as well as the cities of Virginia Beach, Williamsburg,

Chesapeake, Norfolk, Newport News, Hampton, Poquoson, Portsmouth

and Suffolk. Approximately 1.8 million people reside in the market,

roughly 460,000 of whom are in Virginia Beach, the market’s most

populous city.

MARKET OVERVIEW

METRO HIGHLIGHTS

MILITARY CONCENTRATION

It has the second-largest concentration of military

personnel in the U.S. with eight military installations

in the market providing a large portion of jobs.

HOSPITALITY AND TOURISM

Visitors are drawn to Williamsburg and the multiple

beaches and resorts in the area that have activities for

everyone.

SKILLED LABOR POOL

Technical knowledge learned in the military helps to

provide a highly educated and skilled labor force.

LOIS LANE DUPLEXES

MARKET OVERVIEW

ECONOMY▪ The local economy is best known for tourism and defense, but advanced manufacturing,

maritime and logistics, cybersecurity and biomedical technology are growing sectors.

▪ Fortune 500 headquarters include Norfolk Southern, Dollar Tree and Huntington Ingalls

Industries. Other companies headquartered locally include Gold Key PHR, Amerigroup, Anthem

and Stihl.

▪ The large military presence includes Naval Station Norfolk, Joint Expeditionary Base Little

Creek-Fort Story, Naval Air Station Oceana Dam Neck Annex, Joint Base Langley-Eustis Naval

Shipyard and Coast Guard Base-Portsmouth.

SHARE OF 2017 TOTAL EMPLOYMENT

MAJOR AREA EMPLOYERS

Huntington Ingalls Industries Inc.

Sentara Healthcare

Naval Medical Center Portsmouth

Norfolk Naval Shipyard

Riverside Health System

The Colonial Williamsburg Foundation

Joint Expeditionary Base Little Creek-Ft. Story

GEICO General Insurance Co.

Naval Air Station Oceana-Dam Neck

Nasa Langley Research University* Forecast

37

MANUFACTURING

7%GOVERNMENT

HEALTH SERVICES

EDUCATION AND

+OTHER SERVICES

5%

LEISURE AND HOSPITALITY FINANCIAL ACTIVITIES

17%

AND UTILITIES

TRADE, TRANSPORTATION CONSTRUCTION

PROFESSIONAL AND

BUSINESS SERVICES

1%INFORMATION

14%

5%

21% 11% 5%

15%

LOIS LANE DUPLEXES

MARKET OVERVIEW

DEMOGRAPHICS

SPORTS

EDUCATION

ARTS & ENTERTAINMENT

▪ The metro is projected to expand by 58,200 people through 2022, resulting in the

formation of 28,200 households during this period.

▪ Median home prices that are above the U.S. level contribute to a homeownership rate

of 61 percent, which is slightly below the national rate of 64 percent.

▪ Approximately 29 percent of residents age 25 and older hold a bachelor’s degree; of

those residents, 11 percent also have earned a graduate or professional degree.

Known for its beaches and water recreation, the region has much to offer by way of outdoor

activities and entertainment. Busch Gardens Williamsburg, Colonial Williamsburg, the USS

Wisconsin and the Virginia Aquarium are prominent attractions that draw tourist and locals

alike. Cultural activities are available at the Virginia Museum of Contemporary Art, Virginia

Aquarium & Marine Science Center and Virginia Beach Amphitheater. Sports teams play at

the Virginia Beach Sportsplex, Harbor Park and Scope Arena, while the Kingsmill

Championship is held here as a part of the LPGA Tour. Universities include the College of

William & Mary, Old Dominion University, Virginia Wesleyan College, Hampton University

and Norfolk State University.

QUALITY OF LIFE

38

2017 Population by Age

0-4 YEARS

6%5-19 YEARS

19%20-24 YEARS

9%25-44 YEARS

28%45-64 YEARS

25%65+ YEARS

13%

* Forecast

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

Analytics; U.S. Census Bureau

LOIS LANE DUPLEXES

35.5

2017MEDIAN AGE:

U.S. Median:

37.8

$60,500

2017 MEDIAN HOUSEHOLD INCOME:

U.S. Median:

$56,300

1.8M

2017POPULATION:

Growth2017-2022*:

3.3%

658K

2017HOUSEHOLDS:

4.3%

Growth2017-2022*:

MARKET OVERVIEW

LOIS LANE DUPLEXES

39

* 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

MARKET OVERVIEW

LOIS LANE DUPLEXES

40

** 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)

MARKET OVERVIEW

LOIS LANE DUPLEXES

41

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.

MARKET OVERVIEW

LOIS LANE DUPLEXES

42

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

MARKET OVERVIEW

LOIS LANE DUPLEXES

43

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

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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.

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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.

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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.

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47

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

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48

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.

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49

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

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50

* 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

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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

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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

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DEMOGRAPHICS

Source: © 2017 Experian

Created on May 2018

POPULATION 1 Miles 3 Miles 5 Miles

▪ 2022 Projection

Total Population 18,260 105,570 289,188

▪ 2017 Estimate


▪ 2010 Census


▪ 2000 Census


▪ Daytime Population

2017 Estimate 14,497 108,120 363,495

HOUSEHOLDS 1 Miles 3 Miles 5 Miles

▪ 2022 Projection

Total Households 7,064 42,660 105,277

▪ 2017 Estimate


Average (Mean) Household Size 2.62 2.49 2.44

▪ 2010 Census


▪ 2000 Census


Growth 2015-2020 3.94% 0.35% 1.23%

HOUSING UNITS 1 Miles 3 Miles 5 Miles

▪ Occupied Units

2022 Projection 7,064 42,660 105,277

2017 Estimate 7,341 46,391 113,330

Owner Occupied 3,544 21,669 48,568

Renter Occupied 3,252 20,843 55,427

Vacant 546 3,880 9,335

▪ Persons In Units

2017 Estimate Total Occupied Units 6,796 42,511 103,995

1 Person Units 25.77% 28.34% 29.76%

2 Person Units 30.97% 32.27% 32.16%

3 Person Units 18.97% 17.81% 17.21%

4 Person Units 12.99% 12.05% 11.90%

5 Person Units 6.46% 5.69% 5.49%

6+ Person Units 4.86% 3.84% 3.47%

HOUSEHOLDS BY INCOME 1 Miles 3 Miles 5 Miles

▪ 2017 Estimate

$200,000 or More 1.53% 2.24% 3.42%

$150,000 - $199,000 2.56% 2.71% 3.47%

$100,000 - $149,000 8.99% 9.84% 10.62%

$75,000 - $99,999 11.46% 12.12% 12.07%

$50,000 - $74,999 22.89% 22.31% 20.55%

$35,000 - $49,999 17.71% 16.56% 15.12%

$25,000 - $34,999 10.56% 11.07% 10.54%

$15,000 - $24,999 11.05% 10.61% 10.54%

Under $15,000 13.26% 12.55% 13.69%

Average Household Income $59,211 $63,526 $69,419

Median Household Income $47,847 $49,310 $50,115

Per Capita Income $22,586 $25,495 $26,755

POPULATION PROFILE 1 Miles 3 Miles 5 Miles

▪ Population By Age

2017 Estimate Total Population 17,820 106,242 288,938

Under 20 25.43% 24.26% 23.79%

20 to 34 Years 25.38% 25.80% 33.33%

35 to 39 Years 6.10% 6.46% 6.31%

40 to 49 Years 11.50% 11.51% 9.92%

50 to 64 Years 19.26% 19.54% 15.99%

Age 65+ 12.33% 12.44% 10.66%

Median Age 34.44 34.96 30.65

▪ Population 25+ by Education Level

2017 Estimate Population Age 25+ 11,871 72,188 179,975

Elementary (0-8) 2.62% 2.52% 2.25%

Some High School (9-11) 11.08% 10.70% 9.09%

High School Graduate (12) 31.37% 30.63% 27.22%

Some College (13-15) 29.02% 26.59% 25.93%

Associate Degree Only 7.98% 8.19% 7.70%

Bachelors Degree Only 11.13% 12.96% 16.19%

Graduate Degree 5.36% 7.00% 10.53%

▪ Population by Gender

2017 Estimate Total Population 17,820 106,242 288,938

Male Population 47.96% 48.84% 51.77%

Female Population 52.04% 51.16% 48.23%

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Income

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

$47,847, compare this to the US average which is currently $56,286.

The median household income for your area has changed by 41.63%

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

area will be $58,162 five years from now, which represents a change

of 21.56% from the current year.

The current year per capita income in your area is $22,586, compare

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

household income in your area is $59,211, compare this to the US

average which is $81,217.

Population

In 2017, the population in your selected geography is 17,820. The

population has changed by -1.03% since 2000. It is estimated that the

population in your area will be 18,260.00 five years from now, which

represents a change of 2.47% from the current year. The current

population is 47.96% male and 52.04% female. The median age of the

population in your area is 34.44, compare this to the US average

which is 37.83. The population density in your area is 5,667.85 people

per square mile.

Households

There are currently 6,796 households in your selected geography. The

number of households has changed by -0.57% since 2000. It is

estimated that the number of households in your area will be 7,064

five years from now, which represents a change of 3.94% from the

current year. The average household size in your area is 2.62

persons.

Employment

In 2017, there are 4,083 employees in your selected area, this is also

known as the daytime population. The 2000 Census revealed that

53.47% of employees are employed in white-collar occupations in this

geography, and 46.59% are employed in blue-collar occupations. In

2017, unemployment in this area is 5.35%. In 2000, the average time

traveled to work was 25.00 minutes.

Race and Ethnicity

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

34.49% White, 50.99% Black, 0.39% Native American and 6.77%

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 7.24% of the current year

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

17.88%.

PROPERTY NAME

MARKETING TEAM

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Housing

The median housing value in your area was $178,006 in 2017,

compare this to the US average of $193,953. In 2000, there were

3,698 owner occupied housing units in your area and there were 3,136

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

time was $473.

Source: © 2017 Experian

DEMOGRAPHICS

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DEMOGRAPHICS

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