mpc trends - fort bend county | greater houston's finest ... · pdf fileft bend county...

Todd LaRue, Managing Director, RCLCO

Ft Bend County Economic Development Council Members Meeting

May 18, 2017

MPC Trends

Ft Bend County Economic Development Council | May 18, 2017

SINCE THE DOWNTURN: CONDITIONS FOR MPCS

•  Strong housing market demand and demographic fundamentals

•  Challenges delivering enough product, especially affordable, creating pent-up demand

•  Demand for rentals – multifamily and single-family (yes, in MPCs too)

•  Economic cycle risk looming

•  Increasing prices (and costs) across the board (land, lots, and homes)

•  Exciting innovations in product design and rental housing solutions

•  Developers are learning to succeed in smaller, close-in and in-fill locations

•  Amount and cost of capital for development and homebuilding improving

•  Mortgage qualification criteria for consumers still a challenge, though improving

2


20 YEARS OF TOP MPC TRENDS

Same Different

•  MPCs outperform builder subdivisions •  MPCs gross sales still recovering in many markets

•  Sunbelt •  Growth of Texas markets

•  Product/market segmentation sells •  Compressing of segmentation

•  Target wide range of buyers •  Fewer pure AAC’s on top-selling list

•  Creative amenity programs •  Less focus on golf

•  Good branding •  Internet, social media

•  Strong schools •  Charter and private schools when necessary

•  Lifestyle •  Creating employment centers to drive residential sales

•  Large projects dominate top seller list •  Newer communities are smaller

3

Source: RCLCO


RCLCO – OVER 40 YEARS STUDYING MPCS

RCLCO started studying MPCs in 1967 and we haven’t looked back since. In the last 10 years, RCLCO has worked on over 200 MPCs nationwide.


TOP-SELLING MPC’S OF 2016: TWO IN FT BEND

5

Source: RCLCO

Rank MPC MSA Location State 2016 Sales 2015 Sales % Change 1 Irvine Ranch Los Angeles–Long Beach–Santa Ana Orange County CA 1,989 1,674 19%

2 The Villages Ocala The Villages FL 1,966 2,294 -14%

3 Nocatee Jacksonville Ponte Vedra FL 973 1,105 -12%

4 Lakewood Ranch North Port-Sarasota-Bradenton Sarasota FL 775 535 45%

5 Summerlin Las Vegas-Henderson-Paradise Las Vegas NV 769 602 28%

6 Cane Bay Plantation Charleston-North Charleston Charleston SC 569 520 9%

7 Inspirada Las Vegas-Henderson-Paradise Las Vegas NV 564 389 45%

8 Great Park Neighborhoods Los Angeles–Long Beach–Santa Ana Irvine CA 530 282 88%

9 Westridge Dallas-Fort Worth-Arlington McKinney TX 528 472 12%

10 Paloma Creek Dallas-Fort Worth-Arlington Dallas TX 515 450 14%

11 Eastmark Phoenix-Mesa-Scottsdale Mesa AZ 502 554 -9%

12 Lake Nona Orlando-Kissimmee-Sanford Orlando FL 495 500 -1%

13 Stapleton Denver-Aurora-Lakewood Denver CO 471 665 -29%

14 Rancho Mission Viejo Los Angeles–Long Beach–Santa Ana San Juan Capistrano CA 458 302 52%

15 Vistancia Phoenix-Mesa-Scottsdale Peoria AZ 453 466 -3%

16 Daybreak Salt Lake City South Jordan UT 452 415 9%

17 Baker Ranch Los Angeles–Long Beach–Santa Ana Lake Forest CA 443 355 25%

18 Riverstone Houston–The Woodlands–Sugar Land Fort Bend County TX 441 609 -28%

19 Aliana Houston–The Woodlands–Sugar Land Fort Bend County TX 426 443 -4%

20 Verrado Phoenix-Mesa-Scottsdale Buckeye AZ 413 343 20% Total 13,732 12,975 6%


2016: 2 OF TOP 20 IN FT BEND, 9 OF TOP 50 IN HOUSTON METRO, 18 OF TOP 50 IN TEXAS

Arizona, [VALUE]

Calif., [VALUE]

Colorado, [VALUE]

Florida, [VALUE]

Nevada, [VALUE]

Texas, [VALUE]

Virginia, [VALUE]

1994-2001

Arizona, [VALUE]

Calif., [VALUE]

Colorado, [VALUE]

Florida, [VALUE]

Nevada, [VALUE]

Texas, [VALUE]

Utah, [VALUE]

2002-2006

Arizona, 9

Calif., 14

Colorado, 6

Florida, 28

Nevada, 25

Texas, 58

Utah, 2

S. Carolina, 2 Virginia, [VALUE]

2007-2016

Number of Top-Selling Communities by State (Top 20)

Since the beginning of the Great Recession: •  Texas has increased share of MPC sales •  Florida has recovered share •  Arizona and CA shares smaller


50 TOP-SELLING MPCS IN 2016 9 IN HOUSTON METRO, 18 IN TEXAS

7

MAP KEY

2016 Top-Selling MPC Ranking 1-20 Communities 21-30 Communities 31-40 Communities

41-50 Communities

Ft Bend County Economic Development Council | May 18, 2017 8

HOUSTON EMPLOYMENT CORES


OFFICE SPACE AND EMPLOYMENT CONTINUES TO MIGRATE NORTH AND WEST, DRIVING DEMAND AT MPC’S

Source: CoStar; Esri Class A Office Space by Year Built 2016


SUGAR LAND OFFICE CORE PERFORMING AMONG BEST IN HOUSTON

Source: CoStar, U.S. Census, Houston-Galveston Area Council; RCLCO

Employment Cores by Office Vacancy Regional Employment Cores

12

14 13

11

10

15

16 1

2

9

8

6 7

17 5 4 3

18

2016 ABSORPTION (000s) MAP KEY CORE

OCCUPIED SF (000s) 2016

5-YEAR AVG.

1 Downtown 42,270 -282 -239

2 Texas Medical Center 4,559 16 106

3 Greenway Plaza 10,265 252 45

4 Galleria 27,591 -815 95

5 Westpark Tollway 7,638 123 47

6 Beltway and SW Freeway 4,802 43 22

7 Sugarland/Stafford 7,493 7 22

8 Westchase 16,495 62 254

9 Katy Freeway 24,040 219 867

10 Northwest Freeway 7,123 164 -12

11 FM 1960 Tomball 6,111 33 319

12 The Woodlands 16,386 428 1,344

13 Greenspoint 7,018 -1,120 -413

14 IAH 2,939 -98 -5

15 Northeast Loop Core 753 558 137

16 Pasadena/Ship Channel 4,973 199 100

17 NASA 7,342 33 -23

18 Freeport/Lake Jackson 329 5 10

MAP KEY

Office Vacancies Below 10% Between 10% and 15% Between 15% and 20%

Above 20%


SUGAR LAND INDUSTRIAL CORE REMAINS POSITIVE AMONG STRONGEST IN HOUSTON

Source: CoStar, U.S. Census, Houston-Galveston Area Council; RCLCO

Employment Cores by Industrial/Flex Vacancy Regional Employment Cores

12

14 13

11

10

15

16 1

2

9

8

6 7

17 5 4 3

18

2016 ABSORPTION (000s) MAP KEY CORE OCCUPIED

SF (000s) 2016 5-YEAR AVG.

1 Downtown 0 0 0

2 Texas Medical Center 0 0 0

3 Greenway Plaza 797 -21 -3

4 Galleria 3,005 -28 1

5 SW Freeway/Westpark Tollway 8,016 41 22

6 Beltway & SW Freeway 7,398 10 83

7 Sugarland/Stafford 15,034 290 124

8 Westchase 6,633 16 87

9 Katy Freeway 10,070 -161 -15

10 Northwest Freeway 53,920 -1,073 135

11 FM 1960 Tomball 8,186 1,312 484

12 The Woodlands 3,282 11 51

13 Greenspoint 0 0 0

14 IAH 20,065 -383 598

15 Northeast Loop Core 6,061 374 138

16 Pasadena/Ship Channel 61,267 2,341 1,410

17 NASA 9,114 747 507

18 Freeport/Lake Jackson 1,461 44 16

MAP KEY

Industrial/Flex Vacancies Below 5% Between 5% and 10% Above 10%

No Industrial/Flex


MAP KEY CORE CORE TYPE 2015 TOTAL

EMPLOYMENT 2030 TOTAL

EMPLOYMENT ANNUAL GROWTH

TOTAL GROWTH RATE

1 Downtown Urban 159,800 167,100 490 5% 2 Texas Medical Center Catalytic 121,400 138,000 1,110 14% 3 Greenway Plaza Office 61,600 77,000 1,030 25% 4 Galleria Office 116,400 118,200 120 2% 5 SW Freeway/Westpark Tollway Office 52,300 55,800 230 7% 6 Beltway and SW Freeway Industrial 38,900 42,900 270 10% 7 Sugar Land/Stafford Industrial/Office 78,900 96,100 1,150 22% 8 Westchase Office 72,400 77,000 310 6% 9 Katy Freeway Office 128,100 142,000 930 11%

10 Northwest Freeway Corridor Industrial 195,400 228,800 2,230 17% 11 FM 1960 Tomball Retail 39,100 47,900 590 23% 12 The Woodlands Office 55,800 71,900 1,070 29% 13 Greenspoint Office 64,400 72,400 530 12% 14 IAH Industrial 68,200 83,400 1,010 22% 15 Northeast Loop Core Industrial 59,700 78,700 1,270 32% 16 Pasadena/Ship Channel Industrial 63,200 78,600 1,030 24% 17 NASA Catalytic 55,600 59,700 270 7% 18 Freeport/Lake Jackson Industrial 33,600 37,600 270 12%

Houston Cores Total 1,431,200 1,635,500 13,620 14%

STRONG LONG-TERM EMPLOYMENT PROJECTIONS FOR SUGAR LAND

Source: U.S. Census, Houston-Galveston Area Council; RCLCO

Employment Core Summary


THE GOING-FORWARD CASE FOR MASTER-PLANNED COMMUNITIES

13

RCLCO Research: •  Consumer Research on preference for suburbs •  Delayed life stages of Millennials

Lifestyle-oriented & Attainable Product: •  New product increasingly out of reach for many buyers •  Urban lifestyle not attainable for many, particularly those seeking to buy, so MPC’s

adapting to deliver urban experience

Opportunity: Unmet demand given value and lifestyle considerations


MILLENNIALS & BOOMERS DRIVE HOUSING MARKET

Source: U.S. Census Bureau

BM TO UPDATE

0

1,250

2,500

3,750

5,000

Num

ber o

f Peo

ple

(000

s)

Age

Millennials

35% of home sales

GenX

25% of home sales

Baby Boomers

31% of home sales

Silent Generation

9% of home

sales

ü Millennials: 24% of population; 35% of home purchases, but characterized by the “Great Delay” - lower headship rates, delayed marriage, and delayed childbirth.

ü Baby Boomers: 23% of population; responsible for 31% of home purchases. Aging but not retiring; characterized by the highest spending power.


HOUSING NEEDS SHIFT AS GENERATIONS MOVE THROUGH LIFE STAGES

HOUSING NEEDS: 2016 2021 2026

Student Rentals Millennials Gen Z / Millennials Gen Z

Single/Roommate Rentals Millennials Millennials Gen Z / Millennials

Young Couple Rentals Millennials Millennials Gen Z / Millennials

Buy Entry Level Gen X / Millennials Millennials Millennials

Buy Upgrade / Move-Up Home

Gen X / Baby Boomers

Gen X / Baby Boomers / Millennials

Millennials / Gen X

Buy 2nd Home Gen X / Baby Boomers


Millennials / Gen X

Buy Empty Nester Home Baby Boomers Gen X / Baby Boomers


Buy Retirement Housing Baby Boomers / Silents Baby Boomers Baby Boomers

•  Millennials will become primary buyers of entry-level, move-up for-sale housing •  Gen X will begin moving into vacation / 2nd home market •  Boomers will likely downsize as they plan for retirement retirement housing


“GREAT DELAY” IN HOUSEHOLD FORMATION WILL NOT LAST FOREVER

Millennials are getting married and buying home later than previous generations. However, they will have children at historic rates, later in life, which will create need for family housing.

Source: US Census PUMS; RCLCO

20

23

25

28

30

Age

Men Women

Silent Generation starts getting married

Baby Boomers start getting married

Gen X starts getting married

Millennials start getting

married


DELAYED LIFE STAGE

17

Source: U.S. Census Bureau; RCLCO

•  In a study of household activity in the top ten metropolitan regions, data shows that a resurgence of urban living is driven by the younger childless Millennials, while older child-present Millennial households demonstrate similar propensities for urban living as past generations

•  Household composition is one important indicator of preference, and as shown below households with children prefer a more suburban environment than nonfamily or married couples without children.

58.9% 58.8% 59.2% 58.9% 61.8% 62.0% 62.4% 62.3% 62.4% 62.5%

51.1% 50.3% 49.9% 49.7% 53.3% 53.2% 53.1% 53.8% 53.8% 54.2%

49.4% 48.4% 48.1% 47.8% 49.6% 48.9% 49.3% 49.5% 49.7% 49.4%

40%

45%

50%

55%

60%

65%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Aver

age

Urb

an P

rope

nsity

Scor

e

Age 22-34 Households' Residential Locations by Household Type

Nonfamily Married Couple w/o Children Households w/ Children

Live

s M

ore

Den

se


DELAYED LIFE STAGE

18

Source: U.S. Census Bureau; RCLCO

•  Delayed family formation most dramatically impacts the age 25-29 cohort, where the proportion of family households fell from 42.5% to 35% in the past nine years.

•  Older cohorts have been less affected by this trend •  Residential locations of households with children are relatively consistent across each sub-

age group and remain consistent over the last 10 years •  As younger millennials form households and have children later, they are likely to behave as

past generations

54.0% 56.0%

57.2%

52.9% 54.7%

54.5%

50.6% 50.9% 51.9%

45%

50%

55%

60%

65%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Aver

age

Urb

an P

rope

nsity

Sco

re Households' Residential Locations by Age

25-29 30-34 35-39

Live

s M

ore

Den

se


THE SUBURBS ARE VERY MUCH ALIVE

•  Don’t believe the urban hype – the re-urbanization of the U.S. is being driven primarily by wealthy singles and childless couples – the suburbs are alive and well….but urban lessons abound and expected in some form in the suburbs.

•  Walkable suburban areas with mix of housing, retail appeal to all groups

Source: RCLCO 2016 Survey

0%

10%

20%

30%

40%

City – near a mix of offices,

apartments, and shops

City – mostly residential

neighborhood

Suburban neighborhood with a mix of

houses, shops and businesses

Suburban neighborhood

with only residential uses

Small town Rural area

Rented Bought

Preference of Home Location of Millennial Renters vs. Owners


0%

5%

10%

15%

20%

25%

30%

35%

City Downtown City Residential Area

Suburban Mixed Suburb Housing Only

Small Town Rural

All Generations Millennials

LOCATION PREFERENCES

20

Source: NAR Community Preference Survey


0%

11%

23%

34%

45%

Definitely Own Most Likely Own, But Would Consider Renting

Likely/Definitely Rent

Less than 800 sf 800 sf - 1,200 sf 1,200 sf - 1,500 sf

1,500 sf - 2,000 sf 2,000 sf - 2,500 sf Over 2,500 sf

Many Empty Nesters desire to live in homes that are smaller than their current homes, as shown below.

59% OF BOOMERS MOVING WITHIN 5 YEARS AND ARE CONSIDERING DOWNSIZING OR EVEN RENTING (35%)


[CELLRANGE]

[CELLRANGE]

[CELLRANGE]

[CELLRANGE]

Plus, many plan to move over near-term.


FUTURE EXPECTATIONS - MILLENNIALS

22

•  Regardless of future tenure or housing type, seven out of ten Millennials believe they will live in a detached or attached single-family home by 2020. These forward looking expectations are almost identical to a survey from 2010.

•  70% expect to own by 2020 while only 26% currently owned at the time of the survey in Nov 2014

•  Top reasons for homeownership include: o  Building equity, not paying rent (60%) o  More control over space (54%) o  More privacy (41%) o  More room (31%) o  Feel more settled (31%)

Source: UDR/Lachman Associates Survey for ULI, Nov 2014


BETTER VALUE AND A LARGER SIZE LEAD TREND IN PURCHASING EXISTING HOMES OVER NEW

23

0 100 200 300 400 500 600

Other

Not living around construction

Larger lot and mature landscaping

Limited or no new homes where we wanted to live

More house for the money

Better price/value

Why Respondents Chose Existing



FIRST-TIME BUYERS DOWN, LARGELY DUE TO PRICE

•  In 2015, the share of first-time buyers dropped for the third straight year to 32%, the lowest level since 1987 and 8% below the long-term average of 40%.

•  The FHA has lowered lending premiums to bring in more borrowers, especially first-time buyers, but this won’t solve the biggest problem: home prices.

Source: RCLCO December 2015 national survey of recent first-time homebuyers. N=1,077.

20%

21%

26%

35%

39%

53%

0% 10% 20% 30% 40% 50% 60%

Product: Lack of home types I wanted, regardless of price

Financing: low credit score or other debt

Knowledge: Did not know where to start

Low Supply: Attractive homes sold fast, got multiple offers

Saving for down payment

Cost: Hard to find homes in my price range

Deterrents to Purchasing A Home, According to Sample of 2014-2015 First-Time Buyers

24


BUT FIRST-TIME HOMEBUYERS STILL SEE OWNERSHIP AS A GOOD INVESTMENT

25

•  The top reasons that first-time homebuyers gave when asked why they chose to own included:

o  Building equity

o  Getting a future return on investment

o  Having more space

o  Having control over space

2.59

3.42

3.55

3.72

3.73

3.84

3.89

4.00

4.08

4.08

4.28

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0

I recently got married and am ready to establish a household with my partner

Owning means my housing costs won’t increase

Owning is more prestigious

Owning means I can live in a quiet neighborhood with less traffic and more

Owning means I can live in a better neighborhood

Owning means I can have a yard

Owning is cheaper than renting

I want to build equity through homeownership

Owning means I can have a larger space

My house will appreciate in value and I will earn a return on my investment

Owning allows me more control over my space and to make changes to my



BUT, PRICING CONTINUES TO INCREASE

Source: U.S. Census; NAR; Standard & Poor’s; Federal Reserve Bank of St. Louis

0

50

100

150

200

250

300

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

Median Home Price and Case-Shiller 20-City Price Index (2000 – Q1 2017)

Median New Home Price Median Existing Home Prices Case-Shilller 20-City Index

Ft Bend County Economic Development Council | May 18, 2017 27 Prospectus Evaluation of East River Development | KBRN, LP | May 19, 2017 | U7-13942.00 (DRAFT)

Source: US Census Survey of Construction; Current Population Survey

HOME SIZE FINALLY TAKING A DIP

2.45

2.50

2.55

2.60

2.65

2.70

1,600

1,700

1,800

1,900

2,000

2,100

2,200

2,300

2,400

2,500

2,600

Completed New Homes and Household Size - United States

Median Square Feet (L) Average Household Size (R)


New Home Sales by Price Band Relative Pre-Recession Levels (2003-2006 Average = 100%) United States

Source: U.S. Census

NEW HOMES NO LONGER AVAILABLE IN AFFORDABLE PRICE BANDS

0%

20%

40%

60%

80%

100%

120%

Under $200,000 to $300,000 to $400,000 to $500,000 to $750,000

Under $200,000 to $300,000 to $400,000 to $500,000 to $750,000 $200,000 $299,999 $399,999 $499,999 $749,999 and over Overall

2003-2006 Average 481 306 171 85 78 34 1,156 2012 120 120 63 33 23 9 368 2013 113 139 85 40 36 16 429 2014 100 141 88 47 41 21 438 2015 95 159 102 63 54 28 501 2016 96 162 134 76 64 30 562

Absolute New Home Sales by Price Band (000s) United States


New Home Sales by Price Band Relative Pre-Recession Levels (2003-2006 Average = 100%) Houston, TX MSA

Source: Metrostudy

SIMILAR STORY IN HOUSTON

Under $200,000 to $300,000 to $400,000 to $500,000 to $750,000 $200,000 $299,999 $399,999 $499,999 $749,999 and over Overall

2003-2006 Average 28,682 8,093 2,831 935 713 708 41,961 2012 9,596 6,114 3,060 1,316 989 641 21,716 2013 9,310 7,516 4,202 2,149 1,586 829 25,592 2014 8,559 8,291 5,148 2,961 2,343 1,249 28,551 2015 6,151 9,113 5,640 3,270 2,637 1,154 27,965 2016 4,430 10,381 6,196 3,087 2,051 888 27,033

Absolute New Home Sales by Price Band Houston, TX MSA

0%

50%

100%

150%

200%

250%

300%

350%

400%

Under $200,000 to $300,000 to $400,000 to $500,000 to $750,000


THERE IS A “MISSING MIDDLE” OF SCALE, PRICE

•  Missing middle housing is “a range of multi-unit or clustered housing types compatible in scale with single-family homes that... provides a solution to the mismatch between the available U.S. housing stock and shifting demographics combined with the growing demand for walkability.”

30

Source: Opticos Design


THE RESULT IS UNMET DEMAND

•  Today’s new housing supply tends toward small units in urban, midrise/high-rise multifamily buildings, or large, exurban single-family detached homes. This leaves key segments underserved because it does not offer them the value and/or lifestyle they seek.

31

Young families and first-time buyers: They may be priced out of detached product, but want or need more space than an apartment or small condo. Location of new detached product may be too suburban for their preferred lifestyle, or too $$ because too large (lot and/or home).

Empty nesters: They want to downsize, but may not be ready to give up their front door, porch, garden, quality, etc.

Low- and middle-income renters: They cannot afford the largely “luxury” product coming online today.


DEFINING THE “MISSING MIDDLE”

32

Appeals to…

As a value play: •  6-12 units/acre •  Smaller unit sizes •  Simple construction (Type V) •  Lower parking ratios

•  Young families •  First-time buyers •  Middle-income buyers

As a lifestyle choice: •  Lower perceived density •  Walkable •  High-quality finishes •  Low maintenance •  Can be integrated into various community contexts (as own

neighborhood, as transition into mixed-use node, etc.)

•  Empty nesters •  Professional singles/

couples


WHY CAN’T WE BUILD MIDSCALE, MIDPRICE?

Barriers include: •  Zoning regulations •  High land, labor, and materials

costs •  Density is a dirty word •  Lack of product innovation

What new communities are innovating to build more midpriced and/or midscaled housing?

33

Zoning and Regulation

Consumer Preferences

Market and Land Value

This is what gets built.


DNA OF SUCCESSFUL MPC OF THE FUTURE

34

Source: RCLCO

•  Increasingly integrates technology into community, stays on the cutting edge of trends affecting real estate (self driving cars, the cloud, Google Fiber, new developments in glass, batteries, sensors, etc…)

•  Environmental Stewardship: Ties community to the outdoors with experiences, celebrates nature or eco-friendly ideals

•  Connection with local food important – integrates community gardens, a CSA, cooking classes, restaurant

•  Attracts on-site or nearby employment and high-quality education, critical for large multi-phase MPCs


DNA OF SUCCESSFUL MPC OF THE FUTURE

35

Source: RCLCO

•  Builds a brand that tells a story, describes a way of life, doesn’t sell product but lifestyle

•  Focuses on a sense of community and the people that inhabit it, include programming but make residents comfortable to create their own experiences

•  Has Authentic Spaces and Experiences, integrate values and purpose in the design process

•  Invests in mobility and accessibility, walkability in both urban and suburban settings (bring urban to suburban)


APARTMENTS


Q-O-Q VACANCY INCREASES AS NET ABSORPTION IS NEGATIVE FOR THE FIRST TIME SINCE 2001

Note: Apartment criteria filtered as follows: multifamily property (secondary type is apartment), 50+ units, and a 3-star or greater CoStar rating Source: CoStar; RCLCO

(4.0%)

(2.0%)

0.0%

2.0%

4.0%

6.0%

8.0%

(150,000)

(100,000)

(50,000)

0

50,000

100,000

150,000

200,000

250,000

300,000

Uni

ts

U.S. Apartment Absorption, Vacancy, Rent Growth

Completions Net Absorption Vacancy % Rent Growth %


CURRENT VACANCY EXCEEDS LONG-TERM AVERAGE VACANCY IN AN INCREASING NUMBER OF MARKETS

Note: The markets in the above chart are not necessarily MSAs or central cities, but are CoStar-defined real estate markets Note: Apartment criteria filtered as follows: multifamily property (secondary type is apartment), 50+ units, and a 3-star or greater CoStar rating Source: CoStar; RCLCO

0%

2%

4%

6%

8%

10%

12%

14%

Apartment Current and Long-term Vacancy Green box - current vacancy < LT avg. Red box - current vacancy > LT avg.

LT Average Vacancy

Current Vacancy

Max

Min

Current Vacancy

LT Average Vacancy


*As of Q1 2017 Note: Apartment criteria filtered as follows: multifamily property (secondary type is apartment), 50+ units, and a 3-star or greater CoStar rating Note: The markets in the above chart are not necessarily MSAs or central cities, but are CoStar-defined real estate markets Source: CoStar; RCLCO

APARTMENT VACANCIES INCREASING FROM HISTORIC LOWS IN DIVERSE MARKETS; HOUSTON VACANCY HAS RETURNED TO RECESSIONARY LEVELS

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

Vacancy in Five Largest Apartment Markets, 2000-2017

United States New York Los Angeles Chicago Houston Philadelphia


WHERE ARE WE TODAY?


REAL ESTATE PERFORMANCE INDICATORS AND IMPLICATIONS, MAY 2017

DRIVERS/INDICATORS (EXAMPLES) IMPACT ON PERFORMANCE/

PRICING IMPLICATIONS

Property Market Fundamentals

Demand •  Employment •  Household formation •  Consumer spending

Positive (Job, population, spending growth

enhance demand) Fundamentals are still

healthy overall, but enhanced focus on local

market conditions is required

Supply •  Occupancy •  Construction

Neutral to Slight Negative (Construction catching up,

sometimes exceeding, absorption)

Capital Market Fundamentals

Equity Demand (Buyers)

•  Fundraising/“dry powder” •  Qualified offers per

transaction Neutral

(Plenty of dry powder, but fundraising is slowing and cap

rates are holding steady)

Currently, neutral to slight negative pressure on

asset pricing

Supply (Sellers) •  Transaction volume trends

Debt Demand (Borrowers) •  Fundraising/“dry powder”

Slight Negative (Lenders continue to be highly

judicious; slight upward pressure on interest rates)

Supply (Lenders) •  Lending standards

•  Interest rates/spreads


INDICATORS AND IMPLICATIONS BY PROPERTY TYPE, MAY 2017

Multifamily

Property: Supply reaching equilibrium in most markets, and exceeding it in some; expect record NOI growth to moderate.

Capital: Generally more capital available for MF than other property types thanks to GSEs, though expect slowing appetite as fundamentals moderate.

Office

Property: In 1Q 2017, for the first time in 5 years, absorption did not exceed new deliveries. Expect to see flattening performance improvement in most markets.

Capital: Continues to be abundant for quality buildings in “Gateway” CBDs and is now (cautiously) chasing yield in lesser quality assets and locations

Retail

Property: Very limited construction activity continues to benefit operating performance, but certain retail types and locations may suffer from “structural obsolescence,” thanks primarily to e-commerce.

Capital: Investor appetite insatiable for “trophy” malls and well-located grocery-anchored centers, but muted for retail types facing threats (obsolete malls, power centers).

Industrial

Property: The healthiest major property sector as demand continues to outpace new supply deliveries.

Capital: Continued growth in capital interest for industrial as investors view past performance and perceive structural changes in shopping patterns.


FINANCE RESIDENTIAL HOSPITALITY TRANSPORTATION OFFICE RETAIL CONSTRUCTION

REAL ESTATE DISRUPTORS

RCLCO 221 W. Sixth Street

Suite 2030

Austin, Texas 78701

Phone: (512) 215-3156

www.rclco.com

Todd C. LaRue Managing Director

Phone: (512) 215-3157

[email protected]

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