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U.S. Apartment Markets: Is the Bad News True?

U.S. Apartment Markets: Is the Bad News True? Agenda for Call National Market Overview Market Update Demand Drivers Supply Drivers Rental Market Outlook Local Market Prospects A Tale of Three Markets The Landscape from Here Q&A U.S. Apartment Market Update

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U.S. Apartment Markets: Is the Bad News True?

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  1. U.S. Apartment Markets:Is the Bad News True? Conference Call for Lehman Brothers July 10, 2008

  2. Agenda for Call • National Market Overview • Market Update • Demand Drivers • Supply Drivers • Rental Market Outlook • Local Market Prospects • A Tale of Three Markets • The Landscape from Here • Q&A Conference Call for Lehman Brothers July 10, 2008

  3. U.S. Apartment Market Update Conference Call for Lehman Brothers July 10, 2008

  4. 1Q occupancy off less than expected; rent growth just shy of forecast Source: Witten Advisors Conference Call for Lehman Brothers July 10, 2008

  5. Propensity to rent at a six-year high; steady in 1Q08 Source: U.S. Department of Commerce Conference Call for Lehman Brothers July 10, 2008

  6. Single-family rentals losing favor? Source: Witten Advisors calculations Conference Call for Lehman Brothers July 10, 2008

  7. Apartment Demand Drivers Easing Conference Call for Lehman Brothers July 10, 2008

  8. Losses in 2008; 2009 a mild recovery year Source: Historical data from U.S. Bureau of Labor Statistics; consensus forecast Conference Call for Lehman Brothers July 10, 2008

  9. Employment Growth 12 Months ending April 2008 Houston 71.1k Dallas 47.4k Atlanta 28.6k Washington DC 28.4k Raleigh 27.7k Seattle 27.6k Riverside -17.9k Orange County -19.7k Detroit -50.9k April 2008 Actuals:Job Growth Highlights Employment Growth Rate 12 Months ending April 2008 Raleigh +3.5% Houston +2.8% Austin +2.7% San Francisco +2.3% San Antonio +2.3% Dallas +2.3% Fort Worth +2.2% Salt Lake City +2.2% Source: U.S. Bureau of Labor Statistics Conference Call for Lehman Brothers July 10, 2008

  10. Wide rent-buy spread still helps rental demand Source: Witten Advisors Conference Call for Lehman Brothers July 10, 2008

  11. Housing market remains overbuilt Source: Witten Advisors Conference Call for Lehman Brothers July 10, 2008

  12. SF starts in freefall, approaching 25+ year lows Source: U.S. Department of Commerce Conference Call for Lehman Brothers July 10, 2008

  13. Home prices plummeting; more declines ahead Source: Calculated from OFHEO home price series 1976-1987; Case-Schiller home price series1988+; forecast by Witten Advisors Conference Call for Lehman Brothers July 10, 2008

  14. Multifamily Supply Drivers Muted Conference Call for Lehman Brothers July 10, 2008

  15. MF financing volumes fall; other RE much more so Source: Flow of Funds Report, Federal Reserve Board Conference Call for Lehman Brothers July 10, 2008

  16. Apartment cap rates rise, but less than other RE Source: Real Capital Analytics Conference Call for Lehman Brothers July 10, 2008

  17. Are apartment values holding? Conference Call for Lehman Brothers July 10, 2008

  18. MF development cost picture is mixed Sources: U.S. Bureau of Labor Statistics, Federal Reserve Board study Conference Call for Lehman Brothers July 10, 2008

  19. Banks remain cautious about RE lending in general Source: Federal Reserve Board survey Conference Call for Lehman Brothers July 10, 2008

  20. MF rental starts expected to pull back Predicted starts based on return on new development relative to U.S. Treasuries and inflation, availability of debt and equity financing Source: Witten Advisors Conference Call for Lehman Brothers July 10, 2008

  21. Outlook for the U.S. Apartment Market Conference Call for Lehman Brothers July 10, 2008

  22. Demand lags net supply until mid-2009 Source: Witten Advisors Conference Call for Lehman Brothers July 10, 2008

  23. Occupancy, rent growth ease in 2008, better in 2009 Source: Witten Advisors Conference Call for Lehman Brothers July 10, 2008

  24. Local Market Prospects Conference Call for Lehman Brothers July 10, 2008

  25. Mid-2008 Snapshot: A Tale of 3 Markets • Orlando FL: Too little growth, too much housing • Dallas TX: Strong economy, easy to buy, starts peaking? • Seattle WA: From great to good as supply surge arrives Conference Call for Lehman Brothers July 10, 2008

  26. Orlando: Too little growth, too much housing Source: Witten Advisors Conference Call for Lehman Brothers July 10, 2008

  27. Dallas: Strong economy, easy to buy, starts peaking? Source: Witten Advisors Conference Call for Lehman Brothers July 10, 2008

  28. Seattle: From great to good as supply surge arrives Source: Witten Advisors Conference Call for Lehman Brothers July 10, 2008

  29. Most markets challenged before recovery in 2009 Source: Witten Advisors Conference Call for Lehman Brothers July 10, 2008

  30. Summary • 2008: Challenging • 2009: Turning the corner • 2010-2011: Return to strong market fundamentals Conference Call for Lehman Brothers July 10, 2008

  31. Questions Conference Call for Lehman Brothers July 10, 2008

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