Austin, Texas Q4, 2010 Multifamily Market Summary

Executive Summary of Quarter 4, 2010 Austin Texas Multifamily Market
(Marcus & Millichap, Apartment Research Market Update, Austin Metro Area, Fourth Quarter 2010)

High Rise Apartments

OCCUPANCY / RENT

• Vacancy fell to 8% in Q3 2010 a year over year decrease of 270 basis points.  Over the past 6 months vacancy has been reduced by 190 basis points.

• Class A asking rents fell .5 % over the past 12 months.  However since the beginning of the year, rent has appreciated 1.1%.  Class B/C rents have risen 1.2 % year to date.

• The likelihood of a significant migration from rental units into homes is forecasted to be low for the Austin area.

• The projected shortage of Multifamily properties is expected to become apparent in 2011 and as a result it is expected that Multifamily property owners will be able to aggressively raise rents (5-8% range) .

NEW CONSTRUCTION

• Single and Multifamily permitting activity remains near historical lows.  As a result, a significant housing shortage is anticipated for end of 2011.

• Multifamily builders have been hesitant to build, pulling 740 permits in the last year, down 73% from the prior annual period.

• A 1.8% increase in new units is expected this year as 2,900 units come online.  During the prior 5 years, an average of 4,700 units were completed annually, including 10,000 units in 2009.

• Looking ahead to 2011, some 13,000 units are planned in the metro area, equating to an 8% increase in inventory.

INVESTOR MARKET ACTIVITY

• Transaction velocity increased 35% in the last 12 months.

• The median per unit price fell 25% to $42,600 over the past year.  Local buyers purchasing smaller, older properties have been the primary purchasers.

• Cap rates are expected to slide into low 7 percent range by year’s end with the likelihood of further reduction present because of strong demand.

• Class B properties are available on the market in the 6-8 cap range, up to +/- $7 mil.

• It is expected that buyers who have been waiting out pricing run ups and then the recession are now feeling comfortable enough to invest their capital in Multifamily.

• Expectation is that seldom traded core assets will soon be coming to the market.  These properties are expected to be modestly discounted due to deferred maintenance needs and financial distress – creating reposition opportunities.

• It is also being reported that institutional buyers and REITS are re entering the market targeting developer offered properties.  In Austin, these “A” properties, coveted by institutional buyers are in the $7 mil and up price range, and are currently trading in the 4.5 -5% cap range.