T H E E C O N O M Y A N D M U LT I F A M I LY M A R K E T S J U N E

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1 T H E E C O N O M Y A N D M U LT I F A M I LY M A R K E T S IN THE WASHINGTON METRO AREA J U N E

2 A G E N DA 1. National and Regional Economy 2. Demographic Shifts Impact Multifamily Design 3. Washington Area Apartment Market 4. Washington Area Condominium Market Source: Delta Associates; June 2015.

3 T H E E C O N O M Y A N D M U L T I F A M I L Y M A R K E T S I N T H E W A S H I N G T O N M E T R O A R E A N AT I O N A L A N D R E G I O N A L E C O N O M Y

4 N AT I O N A L E C O N O M I C R E C O V E R Y United States U N E M P L O Y M E N T R A T E A N D A N N U A L I Z E D G D P C H A N G E 15% 51 months: Recession + Recovery 32 months: Recession + Recovery 32 months: Recession + Recovery 81 months: Recession + Recovery 10% 5% 0% % -10% Percent Change in GDP Recession Unemployment Rate Recovery Source: BLS, BEA, Center for Regional Analysis, Global Insight, Delta Associates; June 2015.

5 PAY R O L L J O B G R O W T H Selected Large Metro Areas 12 Months Ending April 2015 T H O U S A N D S O F N E W P AY R O L L J O B S LA Basin NY SF Bay DFW Atl South FL Hou Was Chi Phx Bos Denver Source: Bureau of Labor Statistics, Delta Associates; June 2015.

6 PAY R O L L J O B G R O W T H Washington Metro Area Months Ending April 2015 T H O U S A N D S O F N E W P AY R O L L J O B S Year Annual Average = 41,740/Year * Source: Bureau of Labor Statistics, Delta Associates; June 2015.

7 PAY R O L L J O B G R O W T H Washington Metro Area Months Ending April 2015 T H O U S A N D S O F N E W P AY R O L L J O B S Year Annual Average = 41,740/Year ,100/Year * Source: Bureau of Labor Statistics, Delta Associates; June 2015.

8 U N E M P L O Y M E N T R AT E Selected Large Metro Areas March 2014 vs. March 2015 U N E M P L O Y M E N T R A T E 9% March 2014 March % 7% National Rate* 6.6% 6% 5% 5.5% 4% 3% 2% 1% Basis Point Change 0% DFW Hou SF Bay Den Bos Was Phx S Fla Atl NY Chi LA Basin Source: Bureau of Labor Statistics, Delta Associates; June *Seasonally adjusted.

9 I M PAC T O F S EQ U EST E R O N GDP GROWTH Washington Metro Area % C H A N G E I N S P E N D I N G 0.0% -0.1% -0.2% -0.3% -0.4% -0.5% -0.6% -0.7% -0.8% -0.9% Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Source: Moody s Analytics, Delta Associates; June 2015.

10 P R O J E C T E D J O B G R O W T H Washington Metro Area T H O U S A N D S O F N E W P AY R O L L J O B S Year Annual Average = 41,700/Year 5-Year Projected Average = 47,300/Year District of Columbia Suburban Maryland Northern Virginia Source: Bureau of Labor Statistics, Dr. Stephen Fuller, Delta Associates; June 2015.

11 PAY R O L L J O B G R O W T H Washington Metro Area 12 Months Ending April 2015 Professional/Business Services Education/Health State and Local Government Retail Trade Leisure/Hospitality Construction/Mining Transportation/Utilities Federal Government Other Services Wholesale Trade Financial Activities Information Manufacturing +69,200-3,600-6,000-4,000-2, ,000 4,000 6,000 8,000 10,000 12,000 J O B C H A N G E Source: Bureau of Labor Statistics, Delta Associates; June 2015.

12 JOBS THAT SUPPORT CLASS A APARTMENTS Washington Metro Area 12 Months Ending April 2015 Professional/Business Services Education/Health State and Local Government Retail Trade Leisure/Hospitality Construction/Mining Transportation/Utilities Federal Government Other Services Wholesale Trade Financial Activities Information Manufacturing -6,000-4,000-2, ,000 4,000 6,000 8,000 10,000 12,000 J O B C H A N G E Source: Bureau of Labor Statistics, Delta Associates; June 2015.

13 JOBS THAT SUPPORT CLASS B APARTMENTS Washington Metro Area 12 Months Ending April 2015 Professional/Business Services Education/Health State and Local Government Retail Trade Leisure/Hospitality Construction/Mining Transportation/Utilities Federal Government Other Services Wholesale Trade Financial Activities Information Manufacturing -6,000-4,000-2, ,000 4,000 6,000 8,000 10,000 12,000 J O B C H A N G E Source: Bureau of Labor Statistics, Delta Associates; June 2015.

14 J O B S T H AT S U P P O R T C O N D O M I N I U M S Washington Metro Area 12 Months Ending April 2015 Professional/Business Services Education/Health State and Local Government Retail Trade Leisure/Hospitality Construction/Mining Transportation/Utilities Federal Government Other Services Wholesale Trade Financial Activities Information Manufacturing -6,000-4,000-2, ,000 4,000 6,000 8,000 10,000 12,000 J O B C H A N G E Source: Bureau of Labor Statistics, Delta Associates; June 2015.

15 T H E E C O N O M Y A N D M U L T I F A M I L Y M A R K E T S I N T H E W A S H I N G T O N M E T R O A R E A D E M O G R A P H I C S H I F T S I M P A C T M U LT I F A M I LY D E S I G N

16 R E N T E R P R E F E R E N C E Renter Households Washington Metro vs. United States R E N T E R S A S A P E R C E N TA G E O F T O T A L H O U S E H O L D S 37% 36% 35% U.S. 34% 33% 32% WASHINGTON METRO 31% 30% 29% 28% Y E A R Source: U.S. Census Bureau, Delta Associates; June 2015.

17 O W N v s. R E N T R E S I D E N C E United States P E R C E N T O F G E N E R A T I O N Own Rent 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 54% Millennials 20% Baby Boomer Source: 2013 ULI/BRS National Survey, Delta Associates; June 2015.

18 SHARE OF POPULATION BETWEEN YEARS OLD Largest Metro Areas 2013 P E R C E N T O F P O P U L A T I O N Y E A R S O L D 16% 15.7% Arlington County: 28% City of Alexandria: 24% 15% The District: 23% 14% 13% 12% 11% Source: U.S. Census Bureau, Delta Associates; June 2015.

19 C L A S S A T E N A N T P R O F I L E Washington Metro Area Source: The Bozzuto Group, Delta Associates; June 2015.

20 C L A S S A T E N A N T P R O F I L E Washington Metro Area Source: The Bozzuto Group, Delta Associates; June 2015.

21 C L A S S A T E N A N T P R O F I L E Washington Metro Area Source: The Bozzuto Group, Delta Associates; June 2015.

22 C L A S S A T E N A N T P R O F I L E Washington Metro Area Source: The Bozzuto Group, Delta Associates; June 2015.

23 C L A S S B T E N A N T P R O F I L E Washington Metro Area Source: ROSS Companies, Delta Associates; June 2015.

24 C L A S S B T E N A N T P R O F I L E Washington Metro Area Source: ROSS Companies, Delta Associates; June 2015.

25 C L A S S B T E N A N T P R O F I L E Washington Metro Area Source: ROSS Companies, Delta Associates; June 2015.

26 C L A S S B T E N A N T P R O F I L E Washington Metro Area Source: ROSS Companies, Delta Associates; June 2015.

27 N E W T E N A N T P R O F I L E District of Columbia Source: The Bozzuto Group, Delta Associates; June 2015.

28 N E W T E N A N T P R O F I L E District of Columbia Source: The Bozzuto Group, Delta Associates; June 2015.

29 N E W T E N A N T P R O F I L E District of Columbia Source: The Bozzuto Group, Delta Associates; June 2015.

30 N E W T E N A N T P R O F I L E District of Columbia Source: The Bozzuto Group, Delta Associates; June 2015.

31 N E W T E N A N T P R O F I L E District of Columbia Source: The Bozzuto Group, Delta Associates; June 2015.

32 C H A N G I N G D E M A N D PAT T E R N S Residents Without Cars in Bozzuto- and Kettler-Managed Buildings 2014 S H A R E O F R E S I D E N T S W I T H O U T C A R S 60% 51% 40% 36% 27% 26% 20% 10% 0% District RB Corridor Bethesda Pentagon City Reston Source: Kettler, The Bozzuto Group, Delta Associates; June 2015.

33 A V E R A G E U N I T S I Z E ( S Q U A R E F E E T ) AV E R A G E S I Z E O F N E W LY - D E L I V E R E D M U LT I FA M I LY U N I T S District of Columbia Apartments Condos Source: Delta Associates; June 2015.

34 A PA R T M E N T S Changing Nature of Space

35 A PA R T M E N T S Changing Nature of Space

36 A PA R T M E N T S Changing Nature of Space

37 A V E R A G E R E N O V A T I O N B U D G E T P E R U N I T N U M B E R O F U N I T S APARTMENT PROPERTIES UNDERGOING RENOVATION Washington Metro Area $40,000 Number of Units Average Renovation Budget 35,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 30,000 25,000 20,000 15,000 10,000 5,000 $0 0 Source: Delta Associates; June *As of the First Quarter.

38 T H E E C O N O M Y A N D M U L T I F A M I L Y M A R K E T S I N T H E W A S H I N G T O N M E T R O A R E A W A S H I N G T O N A R E A A P A R T M E N T M A R K E T

39 LONG TERM ANNUAL APARTMENT ABSORPTION National Market Leaders L O N G T E R M A N N U A L A B S O R P T I O N O F A L L C L A S S E S O F U N I T S 10,000 9,000 8,000 7,000 6,000 5,637 5,000 4,000 3,000 2,000 1,000 0 DFW Hou Atl Was LA Phx Balt Phil Chi Pgh Source: REIS, Delta Associates; June Note: Excludes NY metro to conserve scale.

40 LONG TERM ANNUAL APARTMENT ABSORPTION National Market Leaders L O N G T E R M A N N U A L A B S O R P T I O N O F A L L C L A S S E S O F U N I T S 10,000 9,000 Past 12 Months: 16,404 8,000 7,000 6,000 5,637 5,000 4,000 3,000 2,000 1,000 0 DFW Hou Atl Was LA Phx Balt Phil Chi Pgh Source: REIS, Delta Associates; June Note: Excludes NY metro to conserve scale.

41 LONG TERM ANNUAL APARTMENT ABSORPTION National Market Leaders L O N G T E R M A N N U A L A B S O R P T I O N O F A L L C L A S S E S O F U N I T S 10,000 9,000 Past 12 Months: 16,404 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 5,637 Class A Only Past 12 Months: 12,623 0 DFW Hou Atl Was LA Phx Balt Phil Chi Pgh Source: REIS, Delta Associates; June Note: Excludes NY metro to conserve scale.

42 LONG TERM ANNUAL APARTMENT ABSORPTION National Market Leaders L O N G T E R M A N N U A L A B S O R P T I O N O F A L L C L A S S E S O F U N I T S 10,000 9,000 Past 12 Months: 16,404 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 5,637 Class B Only Past 12 Months: 3,781 0 DFW Hou Atl Was LA Phx Balt Phil Chi Pgh Source: REIS, Delta Associates; June Note: Excludes NY metro to conserve scale.

43 C L A S S B A PA R T M E N T A B S O R P T I O N Washington Metro Area C L A S S B A P A R M E N T U N I T S Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q ,000 4,000 2, ,000-4,000-6,000 Source: Delta Associates; June Note: Each quarter shows absorption over the past 12 months.

44 C L A S S A A PA R T M E N T A B S O R P T I O N Washington Metro Area C L A S S A A P A R M E N T U N I T S Long-Term Average = 6,282 Average Since 2008 = 7,188 14,000 12,000 10,000 8,000 6,000 4,000 2, * Source: Delta Associates; June *12 months trailing March 2015.

45 C L A S S A A PA R T M E N T A B S O R P T I O N Washington Metro Area C L A S S A A P A R M E N T U N I T S Long-Term Average = 6,282 Average Since 2008 = 7,188 Annual Average = 9,167 14,000 12,000 10,000 8,000 6,000 4,000 2, * Source: Delta Associates; June *12 months trailing March 2015.

46 ABSORPTION PACE PER PROJECT PER MONTH For Projects in Initial Lease-Up Washington Metro Area M O N T H LY A B S O R P T I O N P A C E P E R P R O J E C T S I N C E M A R K E T I N G B E G A N 3/08 3/09 3/10 3/11 3/12 3/13 3/14 3/15 Source: Delta Associates; June 2015.

47 ABSORPTION PACE PER PROJECT PER MONTH For Projects in Initial Lease-Up Washington Metro Area M O N T H LY A B S O R P T I O N P A C E P E R P R O J E C T S I N C E M A R K E T I N G B E G A N N U M B E R O F P R O J E C T S I N A C T I V E L E A S E U P /08 3/09 3/10 3/11 3/12 3/13 3/14 3/15 15 Source: Delta Associates; June 2015.

48 A PA R T M E N T VA C A N C Y R AT E S Major Apartment Markets First Quarter 2015 V A C A N C Y R A T E ( A L L C L A S S E S ) 7.0% 6.0% National Rate: 4.2% 5.0% 4.0% 4.2% 3.0% 2.0% 1.0% 0.0% LA NY Chi Wash Phx DFW Atl Hou Phi Balt Source: REIS, Delta Associates; June 2015.

49 A PA R T M E N T VA C A N C Y R AT E S Major Apartment Markets First Quarter 2015 V A C A N C Y R A T E ( A L L C L A S S E S ) 7.0% 6.0% Class A Only : 4.6% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% LA NY Chi Wash Phx DFW Atl Hou Phi Balt Source: REIS, Delta Associates; June 2015.

50 A PA R T M E N T VA C A N C Y R AT E S Major Apartment Markets First Quarter 2015 V A C A N C Y R A T E ( A L L C L A S S E S ) 7.0% 6.0% Class B Only : 3.4% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% LA NY Chi Wash Phx DFW Atl Hou Phi Balt Source: REIS, Delta Associates; June 2015.

51 A N N U A L E F F E C T I V E R E N T G R O W T H Class A Apartments Washington Metro Area E F F E C T I V E R E N T G R O W T H 10% 8% Long Term Average Rent Growth = 4.1% 6% 4% 3.4% 2% 0% -2% -0.6% -4% * 2014 W A S H I N G T O N M E T R O U. S. Source: REIS, Delta Associates; June *12-months ending First Quarter 2015.

52 A N N U A L E F F E C T I V E R E N T G R O W T H Class A Apartments Washington Metro Area E F F E C T I V E R E N T G R O W T H 10% 8% Long Term Average Rent Growth = 4.1% 6% 4% 3.4% 2% 0% -2% -0.6% -4% * 2014 W A S H I N G T O N M E T R O U. S. Source: REIS, Delta Associates; June *12-months ending First Quarter 2015.

53 A F F O R D A B I L I T Y Class A High-Rise Submarkets Washington Metro Area Source: ESRI, Delta Associates; June 2015.

54 A F F O R D A B I L I T Y Class A High-Rise Submarkets Washington Metro Area Source: ESRI, Delta Associates; June 2015.

55 EFFECTIVE RENTAL RATE AND VACANCY RATE Class B Apartments Washington Metro Area A V E R A G E E F F E C T I V E B A S E R E N T V A C A N C Y R A T E $1,600 Average Effective Base Rent Vacancy 5.5% $1,500 $1, % 4.5% 4.0% $1, % $1,200 $1, % 2.5% 2.0% $1, % Source: Delta Associates; June Note: Data is from First Quarter of each year.

56 36 MONTH APARTMENT DEVELOPMENT PIPELINE Washington Metro Area M A R K E T R A T E U N I T S P L A N N E D A N D U N D E R C O N S T R U C T I O N 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5, * Source: Delta Associates; June * As of First Quarter 2015.

57 D E M A N D A N D D E L I V E R Y P R O J E C T I O N S Class A Apartments Three Years Ending March 2018 M A R K E T R A T E U N I T S I N T H O U S A N D S Demand Net Absorption: 9,167/Year = 27,500 Deliveries Planned and may deliver by 3/18: 5,820 units Under construction: 33,123 units 0 The District Suburban Maryland Northern Virginia 4.3% 3.6% 5.0% Projected Stabilized Vacancy % at March % Metro-Wide Total = 38,943 units Source: Delta Associates; June 2015.

58 C L A S S A A PA R T M E N T R E N T G R O W T H Washington Metro Area P E R C E N T E F F E C T I V E R E N T G R O W T H 10% 8% Long-Term Average = 4.1% 6% 4% 2% 0% -2% -4% * Source: Delta Associates; June *Annual rent change at First Quarter 2015 is -0.6%.

59 Y E A R S O F S U P P LY Class A Low-Rise Submarkets Washington Metro Area Source: Delta Associates; June 2015.

60 Y E A R S O F S U P P LY Class A High-Rise Submarkets Washington Metro Area Source: Delta Associates; June 2015.

61 O P P O R T U N I T I E S D U R I N G T H I S C Y C L E Washington Metro Area Apartment Market 1. U P G R A D E W E L L - L O C AT E D C L A S S B A S S E T S 2. R E P U R P O S E O R B U I L D N E W A S S E T S T H AT A P P E A L T O M I L L E N I A L P R E F E R E N C E S 3. B U I L D N E W U N I T S T H AT A P P E A L T O E M P T Y - N E S T E R S / B A B Y B O O M E R S 4. A C C O M M O D AT E W O R K - AT- H O M E T E N A N T S Source: Delta Associates; June 2015.

62 T H E E C O N O M Y A N D M U L T I F A M I L Y M A R K E T S I N T H E W A S H I N G T O N M E T R O A R E A W A S H I N G T O N A R E A C O N D O M I N I U M M A R K E T

63 N U M B E R O F U N I T S T H E C O N D O M I N I U M M A R K E T New Condominiums Actively Marketing or Under Construction Washington Metro Area 2007 March ,000 16,000 16,080 14,000 12,000 10,000 8,969 8,000 6,000 4,000 5,314 4,261 3,746 2,577 3,176 3,281 3,226 2, Q Source: Delta Associates; June 2015.

64 NUMBER OF NEW UNITS SOLD T H E C O N D O M I N I U M M A R K E T Past and Projected New Condominium Unit Sales Washington Metro Area ,000 3,500 3,000 2,500 2,000 1,500 1,470 1, * 2015 Source: Delta Associates; February * 12 months ending March.

65 T H E C O N D O M I N I U M M A R K E T Past and Projected New Condominium Unit Sales Washington Metro Area NUMBER OF NEW UNITS SOLD 4,000 3,500 3,000 2,500 2,000 1,500 1,000 1,470 1, * 2015 Source: Delta Associates; February * 12 months ending March.

66 T H E C O N D O M I N I U M M A R K E T Months of New Condo Inventory Washington Metro Area MONTHS OF INVENTORY '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 Q1 Q2 Q3 Q Source: Delta Associates; June 2015.

67 MONTHS OF INVENTORY T H E C O N D O M I N I U M M A R K E T Months of New Condo Inventory Washington Metro Area '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 Q1 Q2 Q3 Q Source: Delta Associates; June 2015.

68 T H E C O N D O M I N I U M M A R K E T Months of New Condo Inventory Washington Metro Area First Quarter 2015 Note: Calculated by dividing actively marketing inventory by sales during the past 12 months and multiplying by 12. Source: Delta Associates; June 2015.

69 T H E C O N D O M I N I U M M A R K E T New Condominium Prices Per SF Washington Metro Area First Quarter 2015 A V E R A G E E F F E C T I V E C O N T R A C T P R I C E P E R S F $1,000 $800 $600 $400 $800 $650 $495 $495 $440 $300 $275 $200 $0 $175 No Sales Data Source: Delta Associates; June 2015.

70 T H E C O N D O M I N I U M M A R K E T New Condominium Prices Per SF Selected Downtown Areas in the U.S. First Quarter 2015* A V E R A G E P R I C E P E R S F $1,800 $1,600 $1,634 $1,400 $1,200 $1,176 $1,000 $800 $800 $776 $733 $728 $600 $400 $415 $200 $0 Manhattan San Francisco Central DC Downtown L.A. Downtown Boston Downtown Seattle Baltimore City Source: The Mark Company, StreetEasy, The Collaborative Company, Delta Associates; June * Year-End 2014 data except for Central DC and Baltimore City, which are as of March 2015.

71 A N N U A L E F F E C T I V E P R I C E C H A N G E T H E C O N D O M I N I U M M A R K E T New Condominium Effective Price Change Washington Metro Area % 8% 6% 4% 2% 0% -2% -4% -6% -8% 8.8% Source: Delta Associates; June 2015.

72 A N N U A L E F F E C T I V E P R I C E C H A N G E T H E C O N D O M I N I U M M A R K E T New Condominium Effective Price Change Washington Metro Area % 8% 6% 4% 2% 0% -2% -4% -6% 8.8% 7.0% -8% * Source: Delta Associates; June * Prices increased by 7.6% for the 12-month period ending March 2015.

73 T H E C O N D O M I N I U M M A R K E T Resale Condo Active Listings Trend Washington Metro Area N U M B E R O F L I S T I N G S 7,000 6,000 5,000 District Sub MD NoVA 4,000 3,000 2,000 1, * Source: Delta Associates; June *As of February 2015.

74 T H E C O N D O M I N I U M M A R K E T Resale Condo Sales Price Change Washington Metro Area % C H A N G E 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% * Source: Delta Associates; June *12 months ending February

75 T H E C O N D O M I N I U M M A R K E T Condo Unit Deliveries Washington Metro Area M A R K E T R A T E U N I T S 12,000 10,000 District SubMD NoVa 8,000 6,000 Normalized range 4,000 2, Source: Delta Associates; June 2015.

76 T H E C O N D O M I N I U M M A R K E T Condo Demand and Supply Projections Washington Metro Area First Quarter 2015 First Quarter 2018 M A R K E T R A T E U N I T S 4,000 3,500 3,000 2,500 D E M A N D Net Sales: 2,200/Year = 6,600 units S U P P LY 1 2,000 1,500 1, The District No VA Sub MD Planned and May Begin Marketing by 3/18: 2,466 units Under Construction and/or Marketing: 3,226 units 2 Total = 5,692 units 1 Probable supply after projected attrition. 2 Includes unsold units at projects selling. Source: Delta Associates; June 2015.

77 O P P O R T U N I T I E S D U R I N G T H I S C Y C L E Washington Metro Area Condominium Market 1. M AT C H N E W D E V E L O P M E N T D E S I G N T O F I R S T - T I M E B U Y E R S 2. S E L E C T S U P E R I O R L O C AT I O N S A N D D E S I G N U N I T S W I T H L A R G E R R O O M S F O R B O O M E R S I N S E A R C H O F A N E M P T Y N E S T 3. C R E AT E P L A C E - M A K I N G I N A M I X E D - U S E S E T T I N G Source: Delta Associates; June 2015.

78 T H E E C O N O M Y A N D M U LT I F A M I LY M A R K E T S IN THE WASHINGTON METRO AREA J U N E

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