ApartmentResearch

M A R K E T R E P O RT
Miami-Dade County Fourth Quarter 2011

Miami-Dade on Track for Solid Year; Investment Picks Up

Job growth continues to propel a sure and steady recovery in property operations in Miami-Dade County. The vacancy rate remains on track to fall to less than 5-percent this year, with a fall to the mid-4 percent range projected by the middle of 2012. Property owners have started consistently raise rents on new leases and a period of more robust rent growth looms in the quarters ahead as additional residents find work and form new households. Multifamily construction appears poised to increase, although the delivery timeline of projects under way should not impair the progress of the recovery. Reported planned projects also remain minimal, but a recent increase in permitting indicates that some of these projects may soon be ready to proceed to groundbreaking. In addition to growth in rental stock, many condominium developments appear to be in the works. Several of these projects, however, may be targeted to a large pool of foreign buyers and not necessarily residents who currently occupy rentals. The investor pool in the market continues to shift. Institutional appetite for large complexes remains strong, but deal flow has been hindered by a lack of product available for sale. As a result, trades of large complexes continue to account for an increasingly smaller portion of all transactions, while sales in the $1 million to $5 million range have become more common. Investors in this type of transaction, usually a smaller Class B or Class C complex, are typically small, private buyers. Cap rates for assets selling from $1 million to $5 million can vary widely depending on an assets location and recent performance, but generally start at around 7 percent. A few recent deals, however, indicate that some investors are making optimistic assumptions regarding rent growth over the next one to three years. In general, investor sentiment on near-term property performance remains upbeat, as vacancy continues to improve and limited supply-side threats persist. Owners will continue to find the current climate represents a good time to assess portfolio mixes and determine where more profitable opportunities exist in the county.

2011 Annual Apartment Forecast

2.4% increase in total employment

Employment: Local employers will add 24,000 positions in 2011, representing a 2.4 percent increase in total employment. Approximately 5,200 jobs were created in 2010, following an aggregate loss of 91,500 jobs in the preceding two years.

273 units will be completed

Construction: Builders will deliver 273 units in 2011, following the completion of 664 units last year. An additional 550 rentals remain under construction and scheduled for delivery in 2012.

80 basis point decrease in vacancy

Vacancy: Minimal competition from new supply and steady growth in demand will combine to push down the vacancy rate 80 basis points this year to 4.9 percent. Nearly 700 additional units were occupied in 2010, reducing the vacancy rate 40 basis points.

1.1% increase in asking rents

Rents: Property owners are slowly gaining traction raising rents. This year, asking rents will rise 1.1 percent to $1,080 per month and effective rents will advance 1.5 percent to $1,024 per month. In 2010, asking rents rose 2.6 percent and effective rents registered a 4.1 percent gain.

Economy

Employment Trends
6%
Year-over-Year Change Metro Area United States

Following the addition of 4,600 positions in the third quarter, employers created 16,400 Vacancy Rate nine months of 2011. During the final nine months of jobs in the first Trends last jobs were 10% year, 4,100 Metro Area created.
United States

3% 0% -3% 6% -6% 3% 0%

8%

Employment Trends
Metro Area United States

In the private sector, approximately 16,000 new hires were made during the period. Lower-paying employment sectors continue to perform reasonably well. Construction employment declined in the first three quarters, but an increase in 6% freight volume supported the addition of approximately 5,700 trade, transportaVacancy Rate Trends 4% Metro Area tion and utilities jobs. 10%
United States

Number of Units (thousands) Existing Units (thousands) Chg.) Home Price (Y-O-YExisting Home Price (Y-O-Y Chg.) Number of Home Price Median Existing Median Chg.) Year-over-Year Change Number of Units (thousands) Median (Y-O-Y Year-over-Year Change

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

-3% 6% 40% -6% 3% 20%07 0% 0%

Employment Trends Home Price Trends

Metro Area Metro Area United States United States

Vacancy Rate

07

08

09

10

11*

Vacancy Rate

Job creation has reduced the unemployment rate in the county 90 basis points 07 08 09 10 11* this * Forecast year to 12.2 percent. Additional declines in the rate will restore more resiSources: Marcus & Millichap Research Services, Reis dents to the pool of potential renters. The unemployment rate was 4.9 percent at 6% the start of the recession, when the apartment vacancy rate was 3.9 percent. Vacancy Rate Trends Rent Trends
2% 8%

4% 10% 8%

08

09

10

11*

Year-over-YearRate Vacancy Change

4% 07

United remain Outlook: EmployersStates on track to add 24,000 positions in 2011, representEffective Rent 2% a 2.4 percent increase in total employment. ing 8%

Metro Area Asking Rent

08

09

10

11*

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

* Forecast Sources: Marcus & Millichap Research Services, Reis

6% Housing and Demographics 0%

-3% -20% 40% -6% -40%07 20% 07 0%

Home Price Trends

Metro Area United States

* Forecast * Trailing 12-Month Period Sources: Marcus & Millichap Research Services, BLS, Economy.com Sources: Marcus & Millichap Research Services, Economy.com, NAR

08 08

09 09

10 10

11* 11*

Median Median Year-over-Year Change Median Price per Unit (thousands) Price per Unit (thousands)Price per Unit (thousands) Year-over-Year Change

An influx of offshore buyers and foreclosure sales sparked a 4 percent increase in Rent Trends of existing single-family homes during the 12 months ending in the third Asking Rent quarter of this Effective Rent year. Velocity closely approximates the level recorded in late 2006 2% and early 2007, before the onset of the recession. -8% 4%
4% sales -4% 8% 07 07 08 08 09 09 10 10 11* 11*

Forecast ** Forecast Sources: Marcus & Millichap Research Services, Reis Sources: Marcus & Millichap Research Services, Reis
0%

-20% 40% 8 -40% 20% 07 6 0% 4 -20% 2 8 0 -40% 6 07 4

Home Price Trends ConstructionTrends

Metro Area Apartment Completions United States Multifamily Permits

The median price of an existing single-family home continues to trend downward, falling 3 percent in the third quarter to $170,200. Measured year over year, Rent Trends Sales Trends the -4% median price declined 8.5 percent. Asking Rent
8% $100
Effective Rent

08

09

10

11*

* Trailing 12-Month Period Sources: Marcus & Millichap Research Services, Economy.com, NAR

Construction Trends
Apartment Completions Multifamily Permits

A household income of roughly $42,500 is required to qualify for a mortgage to 4% 07 09 10 11* $85 purchase a08 median-priced home in the county. Approximately 400,000 house* Forecast Sources: Marcus & Millichap Research Services, Reis holds fail to meet that income threshold, representing more than 40 percent of 0% $70 all households in the county. Sales Trends
-8% $100

* Trailing 12-Month Period * Forecast Sources: Marcus & Millichap Research Services, Economy.com, NAR Sources: Marcus & Millichap Research Services, U.S. Census Bureau

07

08 08

09 09

10 10

11* 11*

Forecast ** Trailing 12-Month Period Sources: Marcus Millichap Research Services, CoStar Sources: Marcus && Millichap Research Services, Reis Group, Inc., RCA

Outlook: Rental housing, including multifamily units, will remain the most affordable housing option for many households and those employed in lower-8% $40 08 08 09 10 11* $8507 07 service sectors such as10 09 11* paying trade, and leisure and hospitality.
$70

-4% $55

2 8 0 6 4 2 0

Construction Trends
Apartment Completions Multifamily Permits

07

08

09

10

11*

* Forecast Sources: Marcus & Millichap Research Services, U.S. Census Bureau

completed 183 units in the past 12 months, with all of the comin the third quarter. New additions to stock include the 80-unit Stadium Tower in the Miami submarket, and 103 rentals in the Sunshine Lakes $40 08 09 10 11* $85 07 complex in the Opa-Locka/Brownsville submarket. * Trailing 12-Month Period

Construction Sales Trends

Developers have $55 $100 pletions coming

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

Work continues on an additional 640 units spread over five projects. Two properties consisting of an aggregate 90 rentals are slated for delivery in the fourth $55 quarter this year.
$40

$70

07

08

09

10

11*

* Forecast Sources: Marcus & Millichap Research Services, U.S. Census Bureau

07 08 09 11* Multifamily permit issuance, 10 indicator of future construction, nearly doubled an * Trailing 12-Month Period Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA in the last year to 2,700 units. In addition, construction started on approximately 1,800 units of multifamily housing during the first three quarters of 2011.

Outlook: In 2011, builders will deliver projects containing 273 units. Last year, 664 rentals were brought online.
Marcus & Millichap
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Apartment Research Report

Vacancy

The vacancy rate ticked down 30 basis points in the third quarter to 5.1 percent, the lowest level in the past three years. Thus far inEmployment Trends more 2011, net absorption of Metro Area than 1,100 rentals has reduced the vacancy rate 60 basis points. 6%
United States

Vacancy Rate Trends

10% 8%
Vacancy Rate Metro Area United States

In the Class B/C segment, the improving3% market supported a 30-basis-point job drop in the vacancy rate to 5.2 percent in the third quarter. Over the first three quarters, the vacancy rate in the markets0% lower-tier properties decreased 50 basis points. Employment Trends
Number of Units (thousands) Median (Y-O-Y Year-over-Year Change Number of Home Price Median Existing Median Chg.) Number of Units (thousands) Existing Units (thousands) Chg.) Home Price (Y-O-YExisting Home Price (Y-O-Y Chg.) Year-over-Year Change

Year-over-Year Change

6% 4% 10% 2% 8%

Vacancy Rate

Demand for the limited supply of Class A apartments remains solid, as the vacancy rate slipped 50 basis points in the-6% 07nine months of 2011 to 510 first percent. 3% 08 09 11* Net absorption during the period totaled more than 200 units, representing a 0.8 * Forecast Sources: Marcus & Millichap Research Services, BLS, Economy.com percent rise in occupied units, or demand. 0%
Employment Trends Home points -3% Outlook: The vacancy rate in the county will fall 80 basis Price this year to 4.9 Metro Area Metro Area 6% 40% United States percent, building on a 40-basis-point decrease in 2010. United States
-6% 3% 07 20% 08 09 10 11*
* Forecast Sources: Marcus & Millichap Research Services, BLS, Economy.com

-3% 6%

Vacancy Rate Trends

Metro Area United States

Metro Area United States

07

08

09

10

11*

* Forecast Sources: Marcus & Millichap Research Services, Reis

6%

4% 10% 8% 2% 8% 07 4% 6% 0%

VacancyTrends Rent Rate Trends

Metro Rent Asking Area United States Effective Rent

Vacancy Change Year-over-YearRate

Rents

08

09

10

11*

** Forecast A modest pullback in concessions is under 12-Month Period Trailing way, as effective rents have increased Sources: Marcus & Millichap Research Services, BLS, Economy.com Sources: Marcus & Millichap 0.5 percent year to date, to $1,014 per month. Most of Research Services, Economy.com, the the gain occurred in NAR 0% third quarter, when effective rents rose 0.4 percent. Home Price Trends Construction Trends

08 08

09 09

10 10

11* 11*

Median Price per Unit (thousands) Price per Unit (thousands) Price per Unit Change Year-over-Year (thousands) Median Median Year-over-Year Change

0% Average asking rents in the county ticked 0% 0.4 percent in the third quarter to up $1,071 per month. Despite the increase, asking rents have Priceonly 0.3 percent Home risen Trends -3% Metro Area through the first three quarters, indicating that many property owners continue -20% 40% United States to face challenges regaining pricing power. -6% -40% 20% 07 07

* Forecast Sources: Marcus & Millichap Research Services, Reis

4% -4% 8% 2% -8% 4% 07 0%

Rent Trends
Asking Rent Effective Rent

* Forecast * Forecast Sources: Marcus & Millichap Research Services, Reis Sources: Marcus & Millichap Research Services, Reis

08 08

09 09

10 10

11* 11*

The Class B/C segment continues to drive rent growth; asking rents in the markets lower tier were up 0.8 percent over the first three quarters to $966 per -40% 20% 07 08 09 10 11* 6 month. Competition from shadow stock remains aPeriod in the Class A segment, * Trailing 12-Month factor Sources: Marcus & Millichap Research Services, Economy.com, NAR as asking rents at high-end apartments declined 0.6 percent in the first three 0% 4 quarters to $1,368 per month. Construction Trends Outlook: This year, asking rents in the will advance 1.1 percent to $1,080 per month and effective rents will gain 1.5 percent to $1,024 per month. Asking 0 -40% 607 11* 11* rents rose 2.6 percent in 2010 as property owners07 08 08 to a09 responded 09surge in10 demand * Forecast * Trailing 12-Month Period Sources: Marcus & percent last year. Sources: Marcus & Millichap Research Services, U.S. Census Bureau that initiated the recovery. Effective rents rose 4.1 Millichap Research Services, Economy.com, NAR
4 2 8 -20% 2 8 county
Apartment Completions Multifamily Permits

-20% 40% 8

Metro Completions Apartment Area United Permits Multifamily States

-4% 8% $100 -8% 4% 07 $85 0% $70

Rent Trends Sales Trends

Asking Rent Effective Rent

08

09

10

11*

* Forecast Sources: Marcus & Millichap Research Services, Reis

-4% $55 $100 -8% $40 07 $85 07 $70

Sales Trends

08 08

09 09

10 10

11* 11*

* Forecast Trailing 12-Month Period Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA Marcus & Millichap Research Services, Reis

Sales Trends**

Construction Trends
Apartment Completions Multifamily Permits

Transaction velocity increased more than 40 percent over the past 12 months. Activity surged during the final six months 0 the period, when 55 percent of all of 07 08 09 10 11* 6 the sales for the entire year occurred. * Forecast
Sources: Marcus & Millichap Research Services, U.S. Census Bureau

$55 $100 $40 $85 $70 $55 $40 07

Sales Trends

08

09

10

11*

* Trailing 12-Month Period Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA

The median price of properties sold decreased about 5 percent over the past 12 months to $69,600 per unit. The median price over the past 12 months is also 21 2 percent less than the level recorded in 2007.
07 08 09 10 11* Properties pricing from $1 million to *$5 million, which account for an increasForecast Sources: generally trade at cap U.S. Census Bureau ingly significant portion of all transactions,Marcus & Millichap Research Services, rates varying from the low-7-percent range to 8.5 percent, depending upon the assets location. 0

07

08

09

10

11*

* Trailing 12-Month Period Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA

Outlook: Opportunities to purchase assets at prices much lower than before the recession will enable local investors to expand portfolios and position for a period of more robust economic growth.
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** Data reflect a full 12-month period, calculated on a trailing 12-month basis by quarter.

Marcus & Millichap

Apartment Research Report

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Capital Markets
By WILLIAM E. HUGHES, Senior Vice President, Marcus & Millichap Capital Corporation

Visit www.NationalMultiHousingGroup.com or call:

Increased Fed intervention, such as Operation Twist, should keep interest rates relatively low through the end of the year. As of late-October, the yield on the 10-year Treasury was hovering around 2.3 percent, approximately 175 basis points below the 10-year average. Apartment mortgage originations more than doubled in the first half of 2011 when compared with the same period last year, driven largely by agency lenders Fannie Mae and Freddie Mac, life insurance companies and local/regional banks. While agency originations increased over past year, the re-emergence of life companies and banks caused their market share to drop from 62 percent in 2010 to 44 percent in the first half. Lenders view apartments as preferred assets and are moving down the quality chain to finance Class B properties in strong locations, encouraged by healthy occupancy gains and firming values. Nonetheless, financing lower-tier properties in secondary and tertiary markets remains a challenge. Portfolio lenders generally originate new loans at 55 percent to 75 percent LTVs, while agency lenders provide up to 80 percent leverage on high-quality assets in core metros. All-in rates for $3 million-plus mortgages start around 3.75 percent for a five-year term, with seven-year loans pricing in the low- to mid-4-percent range, and 10-year notes averaging 4.5 percent to 5.0 percent. All-in rates for smaller loans are typically 10 to 25 basis points higher.

John Sebree National Director National Multi Housing Group Tel: (925) 953-1700 john.sebree@marcusmillichap.com

Submarket Overview

Projects under construction and slated for delivery in 2012 include the 250-unit Gables Ponce in Coral Gables. In addition, the 270-unit Residences at Lakehouse in Miami Lakes is scheduled to come online in the final quarter of next year. In addition to 3,100 planned rentals, approximately 5,500 condos are planned in the market, primarily in areas such as South Beach and North Miami Beach. The total represents a slight increase from midyear, and additional projects will enter the pipeline as developers continue to respond to strong demand from international buyers. Some financial services firms have announced layoffs. Wells Fargo will cut more than 250 jobs at its location in Doral, while announced layoffs by Bank of America may affect employment at locations throughout South Florida.

Prepared and edited by Art Gering Senior Market Analyst Research Services For information on national apartment trends, contact John Chang Vice President, Research Services Tel: (602) 687-6700 ext. 6803 john.chang@marcusmillichap.com Miami Office: Kirk Felici Regional Manager kfelici@marcusmillichap.com 5201 Blue Lagoon Drive Suite 100 Miami, Florida 33126 Tel: (786) 522-7000 Fax: (786) 522-7010 Price: $150 Marcus & Millichap 2010 www.MarcusMillichap.com

Submarket Vacancy Ranking

Rank
1 2 3 4 5 6 7 8 9 10

Submarket
Kendall West South Beach/Miami Bayshore Miami Miami Lakes Kendall East/Coral Gables North Miami/Bayshore Hialeah N. Miami Bch./Bal Harbour Kendall Lakes/Hammond Opa-Locka/Brownsville

Vacancy Rate
3.6% 3.6% 3.8% 4.1% 4.3% 4.4% 4.6% 5.2% 5.6% 5.6%

Y-O-Y Basis Point Change

-180 -40 -60 -130 -60 -30 -100 -60 -120 -540

Effective Rents
$995 $1,413 $884 $979 $1,194 $773 $843 $1,232 $989 $578

Y-O-Y % Change
2.5% 3.4% 1.3% 1.5% 0.8% 0.5% 2.4% 2.7% 2.3% 1.2%

The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no representation, warranty or guarantee, express or implied, may be made as to the accuracy or reliability of the information contained herein. Note: Metro-level employment growth is calculated using seasonally adjusted quarterly averages. Sales data includes transactions valued at $500,000 and greater unless otherwise noted. Sources: Marcus & Millichap Research Services, Bureau of Labor Statistics, CoStar Group, Inc., Economy.com, National Association of Realtors, Real Capital Analytics, Reis, TWR/Dodge Pipeline, U.S. Census Bureau.