Marcus & Millichap, Inc. · NYSE:MMI
Marcus & Millichap — National Apt Dec04 5
31 slides from Marcus & Millichap's investor presentation, December 2004
Slide 1: National Apartment Trends
NATIONAL) APARTMENT, TRENDS Client Briefing /* December 2004 Linwood C. Thompson Hessam Nadji Marcus S Millichap Managing Director Managing Director NMHG Research Services NATIONAL MULTI HOUSING GROUP
Slide 2: The Tale of Two Apartment Markets
The Tale of Two Apartment Markets Investment and Pricing Record Setting Continues Supply/Demand Recovery Disappoints Outlook Still Favorable – Patience Required
Slide 3: Corporate Balance Sheets Now Stellar
Corporate Balance Sheets Now Stellar S&P 500 Operating Earnings 180 160 S&P 500 Operating Earnings ($ Bil.) 140 120 100 Long-Term 80 Trend Line 60 40 Recession Recession 20 0 990 992 994 996 998 000 002 0 4* 1 1 1 1 1 2 2 20 *Through 3rd Quarter Sources: Marcus & Millichap Research Services, Standar
Slide 4: Employment Growth Lagging Broad Recovery
Employment Growth Lagging Broad Recovery No Recovery Bounce, Jobs Returning to “Normal” U.S. Employment (Y-O-Y % Chg, SA) U.S. GDP (Ann. % Chg, C$) 8% 20-yr Avg. GDP Growth: 3.3% 7% 6% Annualized % Change 5% 4% 3% 2% 1% 0% -1% 20-yr Avg. Job Growth: 1.9% -2% *2004: 4th Quarter Forecast, 2005: Year-E
Slide 5: U.S. Productivity Growth
U.S. Productivity Growth Non-Farm Labor Force 8% U.S. Productivity Growth 6% 20 Year Average (1980-2000) 4% 2% 0% -2% *Forecast Sources: Marcus & Millichap Research Services, Economy.com
Slide 6: Inflation and Interest Rates Rising
Inflation and Interest Rates Rising Still Below Long-Term Trend 16% 10-Year Treasury Core Inflation 12% 8% Average 4% Average 0% *Data Through November – 2005 Forecast Sources: Marcus & Millichap Research Services, Economy.com, Federal Reserve
Slide 7: U.S. Median Home Prices
U.S. Median Home Prices Existing Single-Family Homes 1990-2001 2002-2003 3Q2004 111% Data points = % growth from 1990-3Q2004 $260,000 76% $220,000 Median Home Price 103% $180,000 100% 98% $140,000 $100,000 $60,000 U.S. Northeast Midwest South West Sources: Marcus & Millichap Research Services, Econo
Slide 8: Capital Markets Driving Prices
Capital Markets Driving Prices U.S. Apartment Price and Rent Trends 15% Median Price Per Unit Avg. Effective Rent 10% Annual Change 5% 0% -5% -10% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004* •Forecast Based on First Half Sales Trends Sales of $500,000 and Above Nationally
Slide 9: U.S. Vacancy Cycle Bottomed
U.S. Vacancy Cycle Bottomed Recovery Moderate Multi-Family Starts Vacancy 800 10% 700 Starts (Thousands of Units) 600 8% 500 Vacancy 400 6% 300 200 4% 100 0 2% 80 82 84 86 88 90 92 94 96 98 00 02 2004* * 05 19 19 19 19 19 19 19 19 19 19 20 20 20 *Forecast Sources: Marcus & Millichap Research Service
Slide 10: Single-Family Home Price to Rent Ratio
Single-Family Home Price to Rent Ratio Favorable Indicator for Rental Demand 220 U.S. Single-Family Home Price to Apartment Rent Premium 210 Home Price to Apartment Rent Ratio 200 190 20-Year Average (1980-2000) 180 170 160 150 982 984 986 988 990 992 994 996 998 000 002 04 * 1 1 1 1 1 1 1 1 1 2 2 2
Slide 11: U.S. Renter Demographics Turning Positive
U.S. Renter Demographics Turning Positive 10% 5% Change in Population 0% -5% -10% -15% 1990-95 1995-00 2000-05* 2005-10* 2010-15* Ages 20-24 Ages 25-29 Ages 30-34 * Forecast Sources: Marcus & Millichap Research Services, Economy.com
Slide 12: Apartment Investment Market
Apartment Investment Market Observations and Outlook
Slide 13: Will Apartments Outperform? (2004)
Will Apartments Outperform? Total Returns (2nd Qtr - 2004) 250% 1-year 5-year 10-year 196% 203% 200% 169% 157% 152% Total Return (%) 150% 100% 74% 64% 60% 46% 50% 19% 19% 10% 8% 10% 0% -10% -50% S&P 500 Apartment Office Industrial Retail Data through Q2 2004 Sources: Marcus & Millichap Research Serv
Slide 14: Will Apartments Outperform? (2003)
Will Apartments Outperform? Total Returns (2nd Qtr - 2003) 250% 1-year 5-year 199% 200% 183% 10-year Total Return (%) 150% 150% 122% 111% 100% 68% 64% 62% 55% 50% 9% 15% 4% 7% 0% -12% -15% -50% S&P 500 Apartment Office Industrial Retail Source: Marcus & Millichap Research, Standard & Poors, NCREIF;
Slide 15: Apartments Gain Favor
Apartments Gain Favor Transparency Liquidity Resiliency Flexibility Fundamental shift in the “value” of apartments Long-term average multi-family cap rate is 8.13% Projected reduction in long-term average cap rate of 50 to 100 basis points.
Slide 16: Looking Forward
Looking Forward Bullish outlook for next cyclical “run” Last run (1995 – 2000) was into a headwind • 1.1 million net loss of prime potential renter households (ages 20-35) • Home ownership from 64% to 68% (500,000 rental households evaporated) Next run (2005 / 2010) will be with a tailwind • 1
Slide 17: Emerging From The Last Cycle
Emerging From The Last Cycle Last expansion cycle started from base of: Distressed pricing (RTC – Bank REO) Waning buyer interest (counter-cyclical investing) More sellers than buyers Seller / buyer equilibrium achieved through price reductions Short-term / mid-term yields were “above the
Slide 18: Emerging From The Current Cycle
Emerging From The Current Cycle Current expansion cycle starting from: Significantly more buyers than sellers Seller / buyer “equilibrium" achieved through price increases Historically high prices Short-term / mid-term yields are “below the curve” Assets being acquired at a premium Limit
Slide 19: What Could Go Wrong?
What Could Go Wrong? Are we kidding ourselves about future job growth? Are we kidding ourselves about future interest rates? Trend towards home ownership continues? Capital flight… Buyer demand? Decrease in transaction velocity in Southern California and Southern Florida
Slide 20: What Could Go Right?
What Could Go Right? Demand from immigration Demand from echo-boomers The economy’s need to move beyond “productivity gains” to “employment gains” Corporate cash flows at historic highs… but they have not yet “invested in jobs” Transaction velocity will increase in most markets Increased
Slide 21: Underlying Things to Watch
Underlying Things to Watch The impacts of “quarks” (exchange buyers +) The impact of “TIC” buyers Impact of condominium converters
Slide 22: Key Observations 2004
Key Observations 2004 No systemic “pricing bubble” Demand for apartments will increase More product coming to the market Private clients becoming more sophisticated Institutional clients becoming more entrepreneurial Investment hurdle rates continue to decrease Pressure on industry con
Slide 23: Don't miss the next cycle!
Don’t miss the next cycle! Marcus ¢ Millichap
Slide 24: U.S. Apartment Market Outlook
U.S. Apartment Market Outlook Regional Summary
Slide 25: Northeast Region Apartment Markets
Northeast Region Apartment Markets 2004 2005 YE 2004 YE 2005 2005 Effective 2004 Median Job growth Job growth Vacancy Vacancy Rent Growth Price/Unit* New York 1.5% 1.7% 4.2% 3.5% 4.6% $ 125,730 Philadelphia 0.5% 1.5% 3.8% 3.8% 4.1% $ 54,680 New Haven 0.5% 1.6% 4.5% 4.0% 2.8% $ 54,950 Boston 0.8% 2.0
Slide 26: Southeast Region Apartment Markets
Southeast Region Apartment Markets 2005 2004 2005 YE 2004 YE 2005 Effective 2004 Median Job growth Job growth Vacancy Vacancy Rent Growth Price/Unit* Fort Lauderdale 2.9% 4.0% 5.4% 5.4% 0.9% $ 75,000 Jacksonville 2.5% 2.5% 5.1% 5.5% 0.6% $ 67,500 Miami 1.5% 2.1% 6.7% 7.0% 1.4% $ 70,000 Orlando 2.5%
Slide 27: Midwest Region Apartment Markets
Midwest Region Apartment Markets 2004 2005 YE 2004 YE 2005 2005 Effective 2004 Median Job growth Job growth Vacancy Vacancy Rent Growth Price/Unit* Minneapolis 1.0% 2.1% 6.8% 6.6% 1.0% $ 46,000 Detroit 0.2% 1.1% 7.0% 6.8% 2.2% $ 46,000 Cleveland 0.4% 1.6% 7.0% 6.8% 1.5% $ 30,895 Chicago 0.2% 1.2% 7.
Slide 28: Southwest Region Apartment Markets
Southwest Region Apartment Markets 2004 2005 YE 2004 YE 2005 2005 Effective 2004 Median Job growth Job growth Vacancy Vacancy Rent Growth Price/Unit Las Vegas 4.2% 4.8% 6.4% 5.8% 4.0% $ 49,062 Tucson 2.0% 2.8% 7.5% 6.9% 3.0% $ 34,450 San Antonio 2.2% 3.7% 8.5% 8.2% 2.2% $ 40,198 Phoenix 2.8% 4.2% 9.
Slide 29: Southern California Apartment Markets
Southern California Apartment Markets 2005 2004 2005 Effective Job Job YE 2004 YE 2005 Rent 2004 Median growth growth Vacancy Vacancy Growth Price/Unit Los Angeles 0.6% 1.5% 3.2% 3.0% 6.0% $ 105,000 San Diego 2.3% 2.8% 3.5% 3.2% 4.0% $ 120,000 Riverside-San Bernardino 3.0% 3.5% 3.9% 3.5% 5.0% $ 85,0
Slide 30: Northwest Region Apartment Markets
Northwest Region Apartment Markets 2005 2004 2005 YE 2004 YE 2005 Effective Rent 2004 Median Job growth Job growth Vacancy Vacancy Growth Price/Unit San Jose 0.4% 2.5% 6.4% 5.9% 2.6% $ 132,000 San Francisco 1.2% 2.0% 6.0% 6.0% 1.0% $ 180,385 Oakland 1.2% 2.0% 7.0% 6.9% 1.4% $ 117,500 Sacramento 0.4%
Slide 31: National Apartment Trends
NATIONAL) APARTMENT, TRENDS Client Briefing /* December 2004 Linwood C. Thompson Hessam Nadji Marcus S Millichap Managing Director Managing Director NMHG Research Services NATIONAL MULTI HOUSING GROUP