APARTMENT TRENDSAPARTMENT TRENDS

Special Client Special Client WebcastWebcast –– May 31, 2006 May 31, 2006

U.S. Economic and MultiU.S. Economic and Multi--Family OutlookFamily Outlook

U.S. Apartment Market

Economic and Apartment Supply-Demand Overview and

Outlook

U.S. Economic Conditions Ideal -Employment Well Above Prior Peak

115

120

125

130

135

Dec-95

Dec-96

Dec-97

Dec-98

Dec-99

Dec-00

Dec-01

Dec-02

Dec-03

Dec-04

Dec-05

Sources: Marcus & Millichap Research Services, BLS, Economy.com

5/03 –4/065.2 Million2/01 – 5/03

-2.7 Million

Non

-Far

m E

mpl

oym

ent (

mill

ions

)

April-0

6

U.S. Housing Market Cooling EvidentMonths’ Supply of Inventory Rising

2

4

6

8

'04Aug

'04Oct

'04Dec

'05Feb

'05Apr

'05Jun

'05Aug

'05Oct

'05Dec.

'06Feb.

'06April

Single Family Condo

Y-O-Y Change

73.2%

40.5%

No.

of M

onth

s

Sources: Marcus & Millichap Research Services, National Association of Realtors

-20%

-10%

0%

10%

20%

97 98 99 00 01 02 03 04 05 06*

Fixed Non-Residential InvestmentRetail Sales Excl. Auto

Ann

ual C

hang

e

Sources: Marcus & Millichap Research Services, Economy.com

*Forecast

Growth Drivers Transitioning From Consumers to Companies

Energy Price and Core Inflation Trends Point to Eventual Rise in Prices - Hyper Inflation Unlikely

$0

$25

$50

$75

$100

70 74 78 82 86 90 94 98 02 06*0%

5%

10%

15%

20%Oil (Left) Core CPI

Cru

de O

il (p

rice

per b

arre

l)C

ore CPI

Year-Over-Year %

Change

*Through April

Sources: Marcus & Millichap Research Services, Economy.com

150

170

190

210

230

250

80 82 84 86 88 90 92 94 96 98 00 02 04 06*

U.S. Single-Family Home Price to Apartment Rent Premium

20-Year Average (1980-2000)

Hom

e Pr

ice

to A

part

men

t Ren

t Rat

ioU.S. Single-Family Home Price

and Apartment Rent Ratio

Sources: Marcus & Millichap Research Services, Economy.com, Reis

*As of 1q-2006

U.S. Apartment Vacancy Reaching Equilibrium New Construction Balanced

50

100

150

200

90 92 94 96 98 00 02 04 06*0%

3%

6%

9%Completions Vacancy

Com

plet

ions

(Tho

usan

ds o

f Uni

ts)

Vacancy Rate

* Forecast

Sources: Marcus & Millichap Research Services, Reis

Effective Rent Growth Gaining Momentum As Concessions Burn Off

Sources: Marcus & Millichap Research Services, Reis

* Forecast

Ann

ual R

ent G

row

th

-3%

0%

3%

6%

9%

96 98 00 02 04 06*

Asking Rent Effective Rent

Top 10 U.S. Apartment Markets By Vacancy Rate - 2006 Forecast

Sources: Marcus & Millichap Research Services, Reis

2005 2006*Bps

ChangeFort Lauderdale 2.6% 2.7%

2.8%

3.0%

Los Angeles 3.1% 3.0% (10)

3.1%

San Diego 3.6% 3.2% (40)

Orlando 4.9% 3.6% (130)

Northern New Jersey 3.6% 3.7% 10

Washington, D.C. 4.0% 4.2% 20

U.S. Average 5.7% 5.3% (40)

Miami 3.3% 3.7% 40

10

New York-Manhattan 3.0% (20)

Las Vegas 4.0% (100)

Orange County 3.2% (10)

* Forecast

Bottom 10 U.S. Apartment Markets By Vacancy Rate - 2006 Forecast

Sources: Marcus & Millichap Research Services, Reis

2005 2006*Bps

Change

Denver 7.9% 7.3% (60)

Atlanta 8.0% 7.5% (50)

Portland 7.7% 7.6% (10)

Dallas-Fort Worth 9.5% 8.5% (100)

San Antonio 8.7% 8.0% (70)

8.5%

9.0%

Milwaukee 8.8% 9.0% 20

Indianapolis 9.9% 9.3% (60)

U.S. Average 5.7% 5.3% (40)Houston 12.2% 10.9% (130)

Columbus 8.9% (40)

Cincinnati 8.7% 30

* Forecast

U.S. Apartment Market

Capital Markets Overview and Outlook

Opposing Forces Driving Long-Term Interest Rates – Volatility to be Expected

Sources: Marcus & Millichap Research Services, Economy.com

0%

2%

4%

6%

8%

00 01 02 03 04 05 06

Fed Funds 10-Year

Core Inflation and Interest RatesStill Below Long-Term Trend

0%

4%

8%

12%

16%

67 70 73 76 79 82 85 88 91 94 97 00 03 06*0%

4%

8%

12%

16%10-Year Treasury Core Inflation

Sources: Marcus & Millichap Research Services, Economy.com, Federal Reserve

Average

Average

*Through April

10-Y

ear T

reas

ury

Core Inflation Y-O

-Y Change

U.S. Apartment Market

Apartment Investment Market Overview and Outlook

U.S. Apartment Market Buoyed By Capital Flows, Condo Conversions a Major Factor

Sources: Marcus & Millichap Research Services, CoStar Group, Inc.

$0

$30,000

$60,000

$90,000

$120,000

99 00 01 02 03 04 05 06*0%

3%

6%

9%

12%Price per Unit Cap Rate

*As of 1Q-2006

Med

ian

Pric

e pe

r Uni

tC

ap Rate

U.S. Condo Conversion Sales Outpaced Ground-Up Development in 2004-05; Balance to Tilt in 2006

0

100

200

300

2002 2003 2004 2005 1Q06

Ground-Up Condo DevelopmentApartment Conversion Sales

No.

of U

nits

(000

s)

Sources: Marcus & Millichap Research Services, Real Capital Analytics, Dodge

Source: Marcus & Millichap Research ServicesSource: Marcus & Millichap Research Services

Traditional Apartments a BenefactorUnits Sold for Conversion as a % of Rental Stock 2003-2006*

Market % of Stock1Q 2006 Vacancy

22.9% 4.1%

4.0%

3.1%

Orlando 19.1% 4.6% (340)

5.0%

3.7%

3.6%

4.2%

6.2%

3.2%

6.5%

21.7%

20.7%

13.5%

10.9%

9.2%

9.0%

7.6%

5.0%

4.4%

Bp Change in Vacancy 2003-2006*

NYC/Manhattan (150)

Tucson (160)

West Palm Beach (560)

Washington D.C. (80)

Miami/Ft. Lauderdale (290)

Las Vegas (300)

San Diego (40)

Phoenix (340)

Jacksonville (170)

Tampa (320)

* Through 2006 Q1

Sources: Marcus & Millichap Research Services, CoStar Group, Inc.

2%

4%

6%

8%

10%

99 00 01 02 03 04 05 06*

10-Year Treasury Apartment Cap Rate

* Forecast

Ave

rage

Ann

ual R

ate

Capital FlowsApartment Cap Rate and 10-Year Treasury

Sources: Marcus & Millichap Research Services, NCREIF, Standard & Poors

20

Tota

l Ret

urn

(%)

Real Estate Returns Outperforming Stocks In Recent Years

* As of 1Q 2006

12%21% 20% 21% 19%

62%

48%58%

82%

112%125% 125% 128% 126%

29%

0%

50%

100%

150%

S&P 500 Apartment Office Industrial Retail

1-year 5-year 10-year

U.S. Renter, First-Time Home Buyer Demographics Turning Positive

Sources: Marcus & Millichap Research Services, Economy.com

-10%

-5%

0%

5%

10%

1990-95 1995-00 2000-05 2005-10* 2010-15*

Ages 20-24 Ages 25-29 Ages 30-34

Cha

nge

in P

opul

atio

n

5.5 million Increase

* Forecast

U.S. Household Growth2005 - 2015

32%

68%

Own Rent

4.3m new renter households

9.1m new owner households

13.4 million net new households

Sources: Marcus & Millichap Research Services, Economy.com, Harvard University

Multi-family Trends and OutlookDemand exceeds acquisition opportunitiesInterest rates increasing but remain below long term avg.Compressed yieldsOperational recoveryShortened “holding periods” (turnover +)Positive demographics (renter households)Urbanization (changing life styles)DensityShortfall of “in-fill” development “dirt”High development costsPossible demand / supply imbalance in many markets

Risks and ChallengesInterest rates rising faster than NOIs

Asian fund flows to U.S. declining more than expectedInflation surpriseCapital market shock (i.e. currency dynamics, hedge funds, emerging markets)

Fed over-reaction to inflation data – rising rates too muchHousing slowdown more dramatic than the expected soft landing (would impact broader economy, employment growth)Market selectionAsset selection (value-add component more critical)Portfolio optimization (cap rate reversion risk based on asset, market quality)Missing the upside of the next cycle due to short-term concerns

It’s an excellent time to own and invest in

U.S. apartments!

APARTMENT TRENDSAPARTMENT TRENDS

Special Client Special Client WebcastWebcast –– May 31, 2006 May 31, 2006

U.S. Economic and MultiU.S. Economic and Multi--Family OutlookFamily Outlook