pcbc multifamily trends conference

www.sullivangroupadvisors.comPhone 858.523.1443

For: Multifamily Trends 2009

June 16, 2009

SULLIVAN GROUP REAL ESTATE ADVISORS

Peter Dennehy, Sr. Vice President

(858) 523-1443 x118

[email protected]

Multifamily Housing Market Outlook: Developer’s Guide to Surviving the

Downturn, Thriving on the Recovery


The Current SituationWhere Are We Now?


‘90-’91 Recession

‘81-’82 Recession

‘01 Recession

GDP Growth is Declining12/07-? R

ecession

-8%-6%-4%-2%0%2%4%6%8%

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

1Q 2009 = -5.7%1Q 2009 = -5.7%

2009* using 1st qtr. dataSource: Bureau of Economic Analysis, released May 29, 2009; Sullivan Group


-800,000-700,000-600,000-500,000-400,000-300,000-200,000-100,000

0100,000200,000300,000400,000

Jan

-05

Mar

-05

May

-05

Jul-

05S

ep-0

5N

ov-

05Ja

n-0

6M

ar-0

6M

ay-0

6Ju

l-06

Sep

-06

No

v-06

Jan

-07

Mar

-07

May

-07

Jul-

07S

ep-0

7N

ov-

07Ja

n-0

8M

ar-0

8M

ay-0

8Ju

l-08

Sep

-08

No

v-08

Jan

-09

Mar

-09

May

-09

Source: Bureau of Labor Statistics (Non-Farm Employment, in Thousands); Sullivan Group

May 2009-345,000 Jobs

May 2009-345,000 Jobs

U.S. Lost Over 6 Million Jobs Since Jan. 2008


81-82 Recession

90-91 Recession

2001 Recession

So Unemployment is Increasing

2009* – MaySource: Bureau of Labor Statistics; Sullivan Group

12/07-? Recession

3%4%5%6%7%8%9%

10%11%

19

75

19

77

19

79

19

81

19

83

19

85

19

87

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

Avg. 1980 to 2008 = 6.1% May 2009 = 9.4%

Avg. 1980 to 2008 = 6.1% May 2009 = 9.4%


-3.00%

-3.40%

-3.50%

-4.00%

-4.10%

-4.10%

-4.20%

-4.40%

-4.80%

-4.80%

-5.90%

-6.80%

Salt Lake City

Seattle

San Diego

San Francisco

Los Angeles

Denver

Oakland

San Jose

Portland

Orange County

Las Vegas

Phoenix

All Western Metros Posting Negative Employment

Annual Change in Employment by Metro AreaApr ’08 vs Apr ’09 and 2009 Forecast

Source: Bureau of Labor Statistics; Marcus & Millichap; Sullivan Group


90-9

1 R

ece

ssion

200

1 R

ecession

12/0

7-? R

ecessio

n

81-8

2 R

ece

ssion

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2009* as of June 11Source: Freddie Mac; Sullivan Group

June 2009* = 5.59%

30-Year Fixed Rate Mortgages areHistorically Low


0

20

40

60

80

100

120

140

160

88-2

89-2

90-2

91-2

92-2

93-2

94-2

95-2

96-2

97-2

98-2

99-2

00-2

01-2

02-2

03-2

04-2

05-2

06-2

07-2

08-2

09-2

U.S. Consumer Confidence is Low, But Improving

2Q09* = 54.92Q09* = 54.9

*2nd Qtr 2009 as of MaySource: The Conference Board, released May 26, 2009; Sullivan Group

3-Year rough patch


0

200

400

600

800

1,000

1,200

1,400

19

65

19

67

19

69

19

71

19

73

19

75

19

77

19

79

19

81

19

83

19

85

19

87

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

Note: 2009 as of April Source: Census Bureau, released May 28, 2009; Sullivan Group

2005 = 1,283,000 Peak2008 = 485,0002009*= 352,000

2005 = 1,283,000 Peak2008 = 485,0002009*= 352,000

New Home Sales Continue to Fall:Lowest in Two Generations

Stole demand from future


Western New Home Sales 78% Off Pace in 2005

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Ne

w H

om

e S

ale

s (

An

nu

aliz

ed

)

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

Pri

ce

Sales (Ths) Median Price Average Price

New Home Sales, Median Price, and Average PriceWestern United States, 2000 - April 2009

2009 annualized using data through April.Source: National Association of Realtors; Sullivan Group


Existing Condo Sales 43% Off Peak in 2005Prices at 2001 Level

0

25,000

50,000

75,000

100,000

125,000

150,000

175,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Ex

isti

ng

Co

nd

o/C

o-o

p S

ale

s

(An

nu

aliz

ed

)

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

Me

dia

n P

ric

e

Existing Condo/Co-op Sales Median Price

Existing Condo/Co-op Sales and Median PriceWestern United States



Big Pullback in Multifamily Construction to Lowest Level in Three Decades

12

6

29

5

35

938

4

38

9

36

6

34

6

34

1

33

5

32

9

35

1

35

6

31

0

29

0

27

1

24

1

16

0

13

815

2

26

3

34

0

38

642

1

58

4

65

7

61

7

57

0

36

6

31

936

6

0

100

200

300

400

500

600

700

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

Multifamily Building Permits NSA, Ths. (5+ units per building)United States

2009 annualized using data through AprilSource: US Census Bureau; Sullivan Group

Historical Average = 355


U.S. Home Prices DecliningPrices at 2003 Level

100

120

140

160

180

200

220

240

260

280

300

Jan

-00

Jul-

00

Jan

-01

Jul-

01

Jan

-02

Jul-

02

Jan

-03

Jul-

03

Jan

-04

Jul-

04

Jan

-05

Jul-

05

Jan

-06

Jul-

06

Jan

-07

Jul-

07

Jan

-08

Jul-

08

Jan

-09

Phoenix

Los Angeles

San Diego

San Francisco

Denver

Las Vegas

Portland

Seattle

Tracks changes I the value of the residential real estate market in 20 metropolitan regions across the US, collecting data on single-family home resales, capturing re-sold sale prices to form sale pairs.The Composite of 10 has a longer history than the Composite of 20 and includes: Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco, Washington DCSource: S&P/Case-Shiller released May 26, 2009; Sullivan Group

S&P/Case-Shiller Home Price IndexSelected Metropolitan Areas (Resales)


Existing Condo Sales 56% Off Peak in 2005Price Declines are More Recent Phenomenon

300

400

500

600

700

800

900

1,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Ex

isti

ng

Co

nd

o/C

o-o

p S

ale

s

$100,000

$125,000

$150,000

$175,000

$200,000

$225,000

$250,000

$275,000

Me

dia

n P

ric

e

Sales (Ths) Median Price

Existing Condo/Co-op Sales and Median PriceUnited States, 2000-April 2009



Apartment Market Showing Increased Vacancy and Flat Rent (Overall)

$700

$750

$800

$850

$900

$950

$1,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Av

era

ge

Eff

ec

tiv

e R

en

t

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

Av

era

ge

Va

ca

nc

y R

ate

Effective Rent Vacancy Rate

Effective Rent and Vacancy RateUnited States, 2000-2009

2009 annualized using data through April.Source: Marcus & Millichap; Sullivan Group


12.80%

12.20%

8.90%

8.20%

7.90%

7.90%

7.80%

6.60%

6.60%

6.40%

5.90%

5.70%

5.60%

4.50%

4.30%

Tucson

Phoenix

Las Vegas

Denver

Sacramento

Salt Lake City

Inland Empire

Seattle

Portland

Oakland

Orange County

Los Angeles

San Jose

San Francisco

San Diego

Rent and Vacancy Trends Vary at Metro LevelForecasted Apartment Vacancy Rate2009

Source: Marcus & Millichap; Sullivan Group

National Avg. 7.7%


3.52%

3.48%

2.90%

2.77%

2.65%

2.55%

2.52%

2.50%

2.27%

2.25%

0.31%

-0.23%

-1.25%

-1.31%

-1.41%

San Francisco

San Diego

Orange County

Oakland

Seattle

Portland

Denver

Los Angeles

San Jose

Salt Lake City

Sacramento

Las Vegas

Tucson

Inland Empire

Phoenix

Rent and Vacancy Trends Vary at Metro LevelForecasted Apartment Asking RentPercent Change 2008 vs. 2009

Source: Marcus & Millichap; Sullivan Group


-66%

-72%

-94%

-81%

-51%

-68%

101%

-54%

-62%

-75%

-60%

-46%

-55%

-55%

Seattle

Portland

San Jose

San Fran-Oakland

San Diego

Los Angeles-Orange

Salt Lake City

Las Vegas

Denver

Phoenix

PACIFIC

MOUNTAIN

WEST

UNITED STATES

Significant Slowdown in Multifamily Activity in Most Western Metro Areas

Annual Change in Multifamily Permits IssuedYTD April 2009 versus YTD April 2008

Source: NAHB; U.S. Census Bureau; Sullivan Group


Looking Forward


There is a New Wave Behind Boomers

Generation Born 2008 2007 % of Nation2007

Population

Eisenhowers Before 1946 62+ 17% 51M

Baby Boomers 1946 – 1964 43 – 62 27% 78M

Gen X 1965 – 1980 27 – 43 18% 52M

Gen Y(Echo/Millenials)

1981 – 1999 8 – 27 27% 80M

Gen Z 2000 and after 0 – 8 10% 30M

Source: Claritas, National Center for Health Statistics; Sullivan Group


If Gen Y Acts Like Previous Generations, Rental and High Density Are Good Bets

Source: Claritas, Inc.; National Center for Health Statistics; Sullivan Group

StudentHousing

Single &Roommate

Rental

Rent asCouple/

1st Home

YoungFamilyOwn

MatureFamilyOwn

EmptyNester

DownsizeOwn

RetireeSenior

Housing

2006 Gen Y Gen Y Gen X Gen XGen X,Baby B

Baby BEisen,Baby B

2010 Gen Y Gen Y Gen Y Gen XGen X,Baby B

Baby BEisen,Baby B

2015 Gen Y Gen Y Gen Y Gen Y Gen XGen X,Baby B

Eisen,Baby B

2020 Gen Z Gen Y Gen Y Gen YGen X,Gen Y

Gen X,Baby B

Eisen,Baby B


Rental Housing Propensity by AgeRenters Dominate Under 35 Years

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Under25

25-34 35-44 45-54 55-59 60-64 65-74 75-84 85 andOver

% R

ente

rs b

y A

ge o

f Hou

seho

lder

Source: U.S. Census Bureau, 2006; Sullivan Group


62%

63%

64%

65%

66%

67%

68%

69%

70%

19

61

19

63

19

65

19

67

19

69

19

71

19

73

19

75

19

77

19

79

19

81

19

83

19

85

19

87

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

*

U.S. Homeownership Rate Linear (U.S. Homeownership Rate)

7.0% ARM interestRates in 2000


Mar 2009=67.3%

There are over 1 million homeowners moretoday than long-term trends would indicate



2009* as of MarchSource: Census Bureau; Sullivan Group


Demographics are positive but, due to affordability, current and future growth will be dominated by renters

60%

61%

62%

63%

64%

65%

66%

67%

68%

69%

70%

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

Ho

meo

wn

ers

hip

Rat

e

20

22

24

26

28

30

32

34

36

38

40

Ren

ter

Ho

use

ho

lds,

Mil

.

Renter Households, Mil. U.S. Homeownership Rate

Source: U.S. Census Bureau: American Community Survey; Sullivan Group

Rental demand expanding after Decade of DeclineRental demand expanding after Decade of Decline


Demographic Shifts Over The Next 10 Years Favor Multi-Family Development

1,300,000

170,000

1,500,009

4,100,000

5,400,000

5,000,000

3,500,000

-400,000

-1,900,000

-1,500,000

1,000,000

2,600,000

1,600,000

-200,000

85+

80-84

75-79

70-74

65-69

60-64

55-59

50-54

45-49

40-44

35-39

30-34

25-29

20-24

Source: U.S. Census Bureau; RCLCO

Apartments and Condos:Single and RoommateRentals; Entry-Level andFirst Move-Up Condos

Apartments and Condos:Move-Down/DownsizingAnd Lifestyle Product

Senior Living

Projected Total Population Growth Rate by Age2008-2018


For: Multifamily Trends 2009

June 16, 2009

SULLIVAN GROUP REAL ESTATE ADVISORS

Peter Dennehy, Sr. Vice President

(858) 523-1443 x118

[email protected]

Multifamily Housing Market Outlook: Developer’s Guide to Surviving the

Downturn, Thriving on the Recovery

pcbc multifamily trends conference

Documents