Sacramento Multifamily Summary Apartment A DVISORY T EAM PRESENTED - PowerPoint PPT Presentation

Sacramento Multifamily Summary Apartment A DVISORY T EAM PRESENTED BY: John Shaffer Brian Nelson Nicole Parrish (916) 563-3035 (916) 830-2576 (916) 563-3091 John.shaffer@colliers.com Brian.nelson@colliers.com Nicole.parrish@colliers.com 1

Sacramento Multifamily Summary Points of Discussion • MSA Market Fundamentals • Transaction Volume and Pricing Trends • New Construction Activity • Rent Control Update • Local Market Cycle • Forecast of Key Indicators • Apartment Advisory Team of Colliers Sacramento 2

Sacramento MSA Q4 Market Fundamentals YOY Change from Q4 2018 to Q4 2019 2018 2019 Overall Market Occupancy …………….…… 96.4% 96.5% Average Market Rent ……………..………… $ 1,415 $1,495 Total Net Absorption …………..……………. (80) 61 Total Unit Completions ……………………... 365 671 Total M- F Permits Issued …………………... 181 891 Units Under Construction …………………. 3,103 3,839 3 Source : MPF (Includes Properties of 5+ units in Sacramento, Placer, El Dorado, and Yolo Counties)

Sacramento MSA Rental Rate Summary Average Market Rent $1,500 $1,495 Rents have grown at an average annual $1,400 $1,415 rate of 5.24% from 2010 - 2019, and 5.7% $1,351 during 2019. $1,300 $1,247 $1,200 $1,100 $1,123 $1,000 $1,031 $978 $964 $900 $934 $906 $897 $800 $700 $600 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Dec Average Rent 4 Source : MPF (Includes Properties of 5+ units in Sacramento, Placer, El Dorado, and Yolo Counties)

Sacramento MSA Occupancy Summary Average Market Average Market Rent Occupancy $1,500 100% $1,400 98% $1,300 $1,200 96.1% 96.1% 96% 96.5% 96.5% 96.4% 95.2% $1,100 96.1% 94.3% 94.1% 94.2% $1,000 94% $900 $800 92.7% 92% $700 $600 90% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Dec Average Rent Average Occupancy 5 Source : MPF (Includes Properties of 5+ Units in Sacramento, Placer, El Dorado, and Yolo Counties)

Sacramento MSA Employment Analysis 6.0% 4.13% Year-Over-Year Change 3.51% 4.0% 3.31% 1.5% 2.0% 0.0% -2.0% MSA employment peaked in June 2007, and then proceeded to bottom in January 2011 -4.0% after losing 110,000 jobs. The pre-recession level was once again reached in October 2015, almost 5 years after bottoming. -6.0% -6.69% -8.0% 2018 2019 2011 2013 2014 2015 2016 2017 2009 2010 2012 2008 Source : Bureau of Labor Statistics (Includes Sacramento, Placer, El Dorado, and Yolo Counties) 6

Sacramento MSA Employment Analysis 5.00% November 2018 Employment Level: 1,017,000 November 2019 Employment Level: 1,032,100 Year-Over-Year Change 4.00% Jobs Gained: 15,100 (1.5% Increase in 12 Mo.) 3.00% 3.10% 2.00% 1.5% 1.00% 0.00% -1.00% Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov 2018 2019 Source : Bureau of Labor Statistics (Includes Sacramento, Placer, El Dorado, and Yolo Counties) 7

Sacramento Multifamily Summary Points of Discussion • MSA Market Fundamentals • Transaction Volume and Pricing Trends • New Construction Activity • Rent Control in the Region • Local Market Cycle • Forecast of Key Indicators • Apartment Advisory Team of Colliers Sacramento 8

Transaction Volume and Pricing Trends Sacramento MSA Sales Activity Comparison 190 126 Transactions Transactions 13,137 Units 9,076 Units $1.3 B $1.7 B Avg. Price/Unit Avg. Price/Unit $138,489 $148,178 2019 2018 Source: CoStar Sales Comparable for properties 10 units or greater in the 4-county region 9

Interest Rate – Cap Rate Relationship 10

Sacramento Multifamily Summary Points of Discussion • MSA Market Fundamentals • Transaction Volume and Pricing Trends • New Construction Activity • Rent Control Update • Local Market Cycle • Forecast of Key Indicators • Apartment Advisory Team of Colliers Sacramento 11

Sacramento MSA Multifamily Construction # Units Under Construction Q4 2019 Total: 6000 3,839 Units 5000 4,375 units 4000 3000 Average: 2,539 Units 2000 1000 0 Unit Count Source: CoStar, MPF Note: Totals above based on multifamily construction in four-county Sacramento region. 12

Sacramento Multifamily Summary Points of Discussion • MSA Market Fundamentals • Transaction Volume and Pricing Trends • New Construction Activity • Rent Control Update • Local Market Cycle • Forecast of Key Indicators • Apartment Advisory Team of Colliers Sacramento 13

Rent Control Update Sacramento Update • AB-1482 Tenant Protection Act of 2019 is now in effect statewide as of January 1, 2020. • Sacramento City Tenant Protection and Relief Act went into effect September 13, 2019. • The City and State are now consistent on rental rate increase limitations. Regarding just-cause protections, the City Ordinance applies to properties in the City, and the State Law applies to all other properties in the MSA, that are subject to the protections. • The California Rent Control Initiative qualified for the ballot as an initiated state statue on November 3, 2020. This is a “second bite at the apple” to repeal the Costa -Hawkins Act. 14

Sacramento MSA Rental Rate Growth Local ordinance in effect 9/13/2019. State law AB-1482 in effect 1/1/2020. % Rent Growth 15.0% 14.0% This is when the recent rent control discussion first 13.0% began. 12.0% Market dynamics do work. They will 11.0% correct themselves 10.0% 11.0% if left alone. 9.0% Allowable rent growth rate per rent control is 8.34% 8.9% 8.0% 8.3% 7.0% 6.0% Actual average rent growth rate is 5.24% 5.0% 5.4% 5.7% 4.0% 4.7% 3.0% 3.2% 3.1% 2.0% 1.0% 1.5% 1.0% 0.0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Dec Rent Growth % 15 Source : MPF (Includes Properties of 5+ units in Sacramento, Placer, El Dorado, and Yolo Counties)

Rent Control Update Sacramento Update • AAT Colliers Sacramento published “Rent Control 101” in June 2017, and has now updated the white paper to reflect changes in this issue since that date. Please email the following for a copy: john.shaffer@colliers.com 16

Sacramento Multifamily Summary Points of Discussion • MSA Market Fundamentals • Transaction Volume and Pricing Trends • New Construction Activity • Rent Control Update • Local Market Cycle • Forecast of Key Indicators • Apartment Advisory Team of Colliers Sacramento 17

Sacramento MSA Multifamily Cycle Market Statistics Sacramento Today Adjusted Sacramento 2017 Rent Growth: 8.3% Apartment Cycle Line 2018 Rent Growth: 4.7% 2019 Rent Growth: 5.7% (Supply constraints will result in 5-YR Rent Growth: 7.7% an extended market cycle peak period.) Q4 2016 Vacancy: 3.9% Q4 2017 Vacancy: 3.5% Q4 2018 Vacancy: 3.6% Q4 2019 Vacancy: 3.5% 18

Sacramento Multifamily Summary Points of Discussion • MSA Market Fundamentals • Transaction Volume and Pricing Trends • New Construction Activity • Rent Control in the Region • Local Market Cycle • Forecast of Key Indicators • Apartment Advisory Team of Colliers Sacramento 19

Sacramento MSA Forecast of Key Indicators Next 3 Months Next 12 Months Employment Growth N/A 2.00% New Apt. Unit Supply 601 2,004 Apt. Demand (absorption) Neutral Negative Occupancy Rate 96.5% 96.2% Rent Growth 1.1% 5.4% Rent Concessions Insignificant Insignificant Apt. Sales Volume Strong Strong 20

Sacramento MSA Rental Rate Forecast Average Market Rent FORECAST $1,600 Rents forecast to increase 1.1% over the $1,575 $1,555 $1,500 $1,533 next 3 months, and increase 5.4% over $1,512 $1,495 the next 12 months. $1,400 $1,415 $1,351 $1,300 $1,247 $1,200 $1,100 $1,123 $1,000 $1,031 $978 $964 $900 $934 $906 $897 $800 $700 09 10 11 12 13 14 15 16 17 18 19 20 20 20 20 Dec Q1 Q2 Q4 Q3 21 Source : MPF (Includes Properties of 5+ units in Sacramento, Placer, El Dorado, and Yolo Counties)

Sacramento MSA Occupancy Forecast Average Market Average Market Rent Occupancy FORECAST $1,600 100% Occupancy forecast to remain steady over the next 3 months, and slightly $1,500 decline 30 basis points over the next 12 months. 98% $1,400 $1,300 96% 96.5% 96.5% 96.5% 96.4% 96.4% 96.3% 95.2% 96.1% $1,200 96.2% 97.0% 96.1% 94.3% 94.1% $1,100 94% 94.2% $1,000 92.7% $900 92% $800 $700 90% 09 10 11 12 13 14 15 16 17 18 19 20 20 20 20 Dec Q1 Q2 Q3 Q4 Average Rent Average Occupancy 22 Source : MPF (Includes Properties of 5+ Units in Sacramento, Placer, El Dorado, and Yolo Counties)

Sacramento MSA Employment Forecast Projected Employment Base University Of The Pacific Predicts a Slowdown in CA Economy 1,200,000 1,100,000 1,070,800 1,058,100 1,037,000 1,020,200 1,000,000 (2.0%) (1.2%) (1.7%) 900,000 800,000 700,000 600,000 2018 2019 2020 2021 (Actual) Source: University Of The Pacific and Bureau of Labor Statistics 23

Sacramento MSA Forecast Results Q3 2019 Forecast Q3 2019 Actual Employment Growth 1.80% 1.90% New Apt. Unit Supply 2,200 1,575 Occupancy Rate 96.2% 96.9% Average Rent $1,487 $1,495 Apt. Sales Volume Strong Strong ($1.7B) 24