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2014 REAL ESTATE ECONOMIC FORECAST
January 30, 2014Steve LaMotte Jr., Senior Vice PresidentDave Lockard, Senior Vice PresidentDane Wilson, Senior Associate
2 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP
AGENDA
1. Louisville Fundamentals
2. Transactions
3. New Supply
4. Capital Markets Overview
5. Strategies & Opportunities for 2014
CAPITAL MARKETS OVERVIEW
4 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP
HOLD-SELL DILEMMAS DOMINATE SELLER THINKING
5 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP
RISK PREMIUMSLouisville MSA Cap Rates to 10-Year UST at Time of Sale
20052006
20072010
20112012
20131.50%
2.50%
3.50%
4.50%
5.50%
6.50%
7.50%
8.50%
0
100
200
300
400
500
600
4.36%4.86% 4.84%
3.33%
2.65%
1.78%2.02%
6.98%7.40%
6.18%
7.99%
6.93% 6.85% 6.77%
262
254
134
466
428
507475
10-Year UST% Cap Rate Risk Premium (Cap Rate to 10-Yr. UST, bps)
6 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP
Tracking $7 Billion / 135 Multi-Housing deals• 88 Class A
20 out of 135 Requested Price Adjustment 9 out of 20: Price Adjustment Requested, Seller Declined; Still Transacted 8 out of 20: < 2% Price Adjustment 2 out of 20: 2% - 4% Price Adjustment 1 out of 20: > 4% Price Adjustment
Class AMARKET RESPONSE TO RISE IN INTEREST RATES
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Move Down the Yield Curve
10 Year Rate: 5.33% 7 Year Rate: 4.78% 5 Year Rate: 4.21% Floating Rate (Capped ARM): 3.52% 7 Year Float to Fixed: 4.20%
DEBT STRATEGIES IN A RISING INTEREST MARKET
LOUISVILLE FUNDAMENTALS
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EMPLOYMENT
Source: Bureau of Labor Statistics
Total Number of JobsCurrent Unemployment Rate
Kentucky 8.2%
U.S. 6.7%
Louisville 7.3%
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013*
570,000
580,000
590,000
600,000
610,000
620,000
630,000
640,000
*November 2013(P)National & State Unemployment as of Dec. 2013Local Unemployment as of Nov. 2013
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Louisville MSAPOPULATION GROWTH
Source: CBRE
2000 2010 2013 Est. 2018 Proj.1,000,000
1,100,000
1,200,000
1,300,000
1,400,000
1,161,992
1,283,566
1,307,7581,346,182
Num
ber o
f Peo
ple
10.5%
1.9%
2.9%
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Louisville MSAHOUSEHOLD GROWTH
Source: CBRE
2000 2010 2013 Est. 2018 Proj.400,000
450,000
500,000
550,000
462,243
514,214524,989
541,618
Num
ber o
f Hou
seho
lds
11.2%
2.1%
3.2%
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Louisville MSAOWNER-OCCUPIED HOUSING TRENDS
Source: CBRE
2008 2009 2010 2011 2012 201363%
65%
67%
69%
71%
73%
75%
71% 71%70% 69% 69%
68%
Ow
ner v
s. T
otal
Occ
upie
d U
nits
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Louisville MSAMARKET-WIDE RENTS & OCCUPANCY
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013$560
$580
$600
$620
$640
$660
$680
$700
$720
$740
80%
82%
84%
86%
88%
90%
92%
94%
96%
98%
100%
$586 $591$601
$610$625
$639 $641$656
$669
$699
$734
89.9% 90.2% 90.8%92.1%
93.2% 93.7% 93.0%93.8% 94.2% 94.7%
95.9%
Average Rent Occupancy Rate
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Louisville MSATOP-20 PROPERTIES RENTS & OCCUPANCY
Q1 09
Q3 09
Q1 10
Q3 10
Q1 11
Q3 11
Q1 12
Q3 12
Q1 13
Q3 13
$820
$840
$860
$880
$900
$920
$940
$960
$980
90%
92%
94%
96%
98%
100%
$844 $849 $857$870
$883 $893$906
$958$968 $966
92.3%
94.2% 94.7%
96.2%96.9% 96.3%
96.0% 96.1% 95.8%
94.7%
Average Quoted Rent Average Quoted Occupancy
TRANSACTIONS
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“A” GRADE YIELD EXPECTATIONS
Rubric: 2013 2014
Stabilized Cap Rate: 5.75% - 6.00% 5.75%-6.25%
Stabilized Cash-on-Cash Return: 6.00% - 8.50% 6.00% - 8.50%
10-Year IRR: 12.00% - 15.00% 12.00% - 15.00%
Investor Preferences: Core, Core+, Value-Add Core, Core+, Value-Add
Investor Tolerances:
Buyers absorbed 100-150 bps increase in cost of debt without adverse impact on pricing. Will they do it again???
Buyers and sellers are watching growing supply levels, interest rates and in general are watching the clock. 2014 should be an active year on all fronts.
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“A” GRADE TRANSACTIONS, 2013
Orchard Hills373 UnitsSeller: Icon PropertiesBuyer: Bluestone
Southgate256 UnitsSeller: Inland GroupBuyer: Paladin Realty Partners
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“B” GRADE TRANSACTIONS, 2013
Park Place324 UnitsSeller: Jefferson Development GroupBuyer: Pride Rock Capital Partners
Shelby Crossing90 UnitsSeller: Underhill AssociatesBuyer: Geffen Enterprises
Heritage Hill163 UnitsSeller: Underhill AssociatesBuyer: 37th Parallel Properties
Fountain Square320 UnitsSeller: Martin L. Adams & SonsBuyer: Elmington Capital Group
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2006 2007 2008 2009 2010 2011 2012 2013$0
$50,000,000
$100,000,000
$150,000,000
$200,000,000
$250,000,000
LOUISVILLE SALES VOLUME
*
*2010 includes the partial interest sale of The Province
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“A” & “B” CAP RATES
2006 2007 2008 2009 2010 2011 2012 20136.25
6.50
6.75
7.00
7.25
7.50
7.75
8.00
8.25
7.50
6.47
6.93
7.83
7.28
6.666.75
7.3
6.45
7.67
7.92 8.03
6.82
7.03
6.78
Class "A"Class "B"
*No “A” grade sales in 2008
*
NEW SUPPLY
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NEW SUPPLY
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Louisville MSANEW SUPPLY
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Proj.
150
400
650
900
1,150
1,400
1,650
1,900
2,15049
8
1,18
0
541 61
5 590
446 20
6
190
431
1,26
9
2,11
0
879
501
747
1,46
3
1,05
8
165
460
591
1,21
4
654
Units Delivered (CBRE) Building Permits - 5+ units (US Govt.)
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Louisville MSABUILDING PERMITS
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
(P. A
ug.)
01,0002,0003,0004,0005,0006,0007,0008,0009,000
10,0007,
420
7,81
0
6,63
3
4,91
8
4,59
9
2,63
3
2,24
5
2,06
5
1,80
6
2,45
7
2,40
9
1,212 879
501
747 1,463
1,058165 460 591
1,214 1,251
Single Family Multifamily
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NEW SUPPLY
Idlewild -600 English Station Way-360 Units-Developer:Lifestyle Communities Management
26 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP
NEW SUPPLY
Watermark on Hurstbourne-10405 Watermark Place-270 Units-Developer: Watermark Residential
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NEW SUPPLY
Claiborne Crossing-14601 Pulpit Drive-242 Units-Developer: TDK Construction
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NEW SUPPLY
Applegate Farms-5503 Fernfield Drive-192 Units-Developer: Buisson Investment Corporation
29 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP
NEW SUPPLY
Overbrook-8901 Fairground Road-152 Units-Developer: AG Steier
30 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP
NEW SUPPLY
Academy Park-718 Academy Drive-154 Units-Brown Capital LTD
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NEW SUPPLY
Ellingsworth Lane Resort Apartments
-11840/11950 Ellingsworth Lane-398 Units-Faulkner/Hollenbach-Oakely
Westport Road Apartments
-8211 Old Westport Road-224 Units-Faulkner/Hollenbach-Oakely
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NEW SUPPLY
Dundee Place-2236-2242 Dundee Road
-20 Units-REI/Poe
Preston Gardens-48005 Mud Lane
-96 Units-REI/Poe
Woods at Lexington Road-2141 Lexington Road-72 Units-REI/Poe
STRATEGIES & OPPORTUNITIES FOR 2014
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Loan assumptions en vogue High demand for well-located value-add and
best-of-class Secondary/tertiary markets looking more attractive Emergence of the pre-sale Highly amenitized, high rent supply continues We’ve hit maximum sustainable occupancies The window is open but…
STRATEGIES & OPPORTUNITIES
For more information regarding this presentation please contact:CBRE Indianapolis-Cincinnati Multi-Housing Group
www.cbre.com/mhgindianapolisicmhg@cbre.com