Appraisal Institute Conditions of the Chicago Real Estate Market - 2018 Multi-Family April 4, 2018 David Bradley Regional Manager Downtown Chicago Office Dean Giannakopoulos First Vice President – Capital Markets Marcus & Millichap Capital Corporation John Bailey First Vice President Investments Downtown Chicago Office

Over 1,700 Investment Professionals in Offices Throughout the U. S Over 1,700 Investment Professionals in Offices Throughout the U.S. and Canada Briefly, Marcus & Millichap has 84 offices in the United States and recently in Canada. If you have assignments or questions about any of these markets, David Bradley, our Chicago Regional Manager, can direct you to the right office or the right team.

REAL ESTATE INVESTMENT SALES SERVICES OFFERED BY MARCUS & MILLICHAP REAL ESTATE INVESTMENT SALES FINANCING RESEARCH ADVISORY SERVICES Largest commercial real estate brokerage firm in the country, with specialization in all major property types and more than 1,700 professionals collaborating at every stage Access to the industry’s largest inventory of quality investment opportunities Superior capital market expertise, precisely managed financing, and unparalleled access to the most competitive rates, terms, and capital sources through MMCC Prominent capital market relationships with commercial banks, secured lenders, debt and equity funds, life insurance companies, private and public funds, etc. Provides clients with the latest local and national market trends based on real-time data to create optimal positioning, pricing, and marketing strategies Industry’s most in-depth understanding of a variety of property types in numerous local and national markets, with over 1,000 research products produced annually Comprehensive advisory and consulting services to give you buy-sell-hold decisions based on real-time market knowledge and research Maximizes value for our clients in each transaction and shapes long-term portfolio strategies We offer Real Estate Investment Sales, financing and capital market expertise, maintain a large and well-staffed full time Research department and put the right teams together to aid clients as advisors

SINGLE TENANT NET-LEASE BROKERAGE BY PRODUCT TYPE SINGLE TENANT NET-LEASE AFFORDABLE HOUSING MULTIFAMILY FINANCING RETAIL OFFICE HOSPITALITY While our largest practice both in dollar volume and percent of our business is Multifamily, we have expertise in brokerage of nearly every type of real estate. However since our founding, we have not done leasing or management. Frankly, we choose not to do leasing and management so our clients can share information freely MANUFACTURED HOUSING SENIORS HOUSING STUDENT HOUSING LAND INDUSTRIAL SELF-STORAGE HEALTHCARE

75% 69% 77% 62% MOVING CAPITAL, MAXIMIZING VALUE % of out of area Buyers M&M All Regional Transactions All Transactions Regional 75% Out of Area Buyers 69% Out of Area Buyers M&M Apartment Transactions 4% # Total Apartment Transactions I like this slide. The arrows show "Moving of Capital“ which is a result of our national company market place. We maintain constant reach between offices and agents and that enables us to be successful in the transfer of capital both between regions and between product types. Quickly, we will look at the flows of investment money. 77% Out of Area Buyers 62% Out of Area Buyers

Marcus & Millichap Capital Migration Helping West Coast Investors Access $714 Million $357M $149M $73M $128M $7M Trailing 12 through 4Q 2017 Sources: Marcus & Millichap Research Services, MNet

Marcus & Millichap 2017 Capital Migration Helping Northeast Investors Access $718 Million $347M $46M $205M $102M $18M Trailing 12 through 4Q 2017 Sources: Marcus & Millichap Research Services, MNet

Marcus & Millichap 2017 Capital Migration Helping Mountain Region Investors Access $1.8 Billion $379M $60M $1.2B $114M $26M Trailing 12 through 4Q 2017 Sources: Marcus & Millichap Research Services, MNet

Marcus & Millichap 2017 Capital Migration Helping Texas/Oklahoma Investors Access $2.0 Billion $393M $235M $117M $770M $475M Trailing 12 through 4Q 2017 Sources: Marcus & Millichap Research Services, MNet

Marcus & Millichap 2017 Capital Migration Helping Southeast Investors Access $3.6 Billion $1.7B $410M $420M $910M $142M Trailing 12 through 4Q 2017 Sources: Marcus & Millichap Research Services, MNet

Marcus & Millichap 2017 Capital Migration Helping Midwest Investors Access $2.1 Billion $660M $708M $319M You will see $2.1 billion from other M&M offices flows into all of the Midwest. Certainly a lot comes into Chicago, but it also goes to the other first tier cities, the secondary markets and the tertiary areas as investors pursue yields and more favorable CAP rates. $303M $129M Trailing 12 through 4Q 2017 Sources: Marcus & Millichap Research Services, MNet

WHERE WE SOURCE OUR INVESTORS Foreign and International Buyers 1031 Exchange Capital PREMIER ACCESS TO INVESTOR PROFILES Cross-Product Capital 1st Tier Investors Pension funds, advisors, banks, REITs, and life insurance companies 2nd Tier Investors Syndicators, developers, merchant builders, general partnerships, and professional investors 3rd Tier Investors Private, individual investors who account for the majority of transactions in the marketplace

1,700 MARCUS & MILLICHAP PREMIER INVESTMENT SERVICES MORE THAN Marcus & Millichap is the premier commercial real estate investment services firm in the United States. Founded in 1971 on a unique model that matches each property with the largest pool of pre-qualified investors, we leverage four decades worth of experience and relationships to handle all of your commercial real estate needs. Our team of more than 1,700 professionals in the U.S. and Canada focuses exclusively on real estate investment sales, financing, research, and advisory services. 1,700 Founded in 1971 on a unique methodology Largest pool of pre-qualified investors in the industry Moves capital across our network of investment professionals More than 1,700 investment professionals in the U.S. and Canada WITH AN EXCLUSIVE FOCUS ON real estate investment sales, financing, research, and advisory services

Chicago Apartment Market 2018 National Multi Housing Group Who are the typical buyers we are seeing? Chicago Apartment Market Overview and Outlook John Bailey National Multi Housing Group April 2018

U.S. GDP in Eighth Year of Expansion; Growth Moderate But Picking Up Annualized Quarterly Percent Change Consumer Confidence Index Industrial Starts (in millions) Looking back to 2001, the GDP growth and the Consumer Confidence Index have tracked pretty much in parallel, then in late 2016 around the election Consumer Confidence has bounded upwards. * Forecast GDP; Consumer confidence through February Sources: Marcus & Millichap Research Services, BEA, The Conference Board

Employment Growth Durable and Remarkably Stable -8.7 Million +8.2 Million +18.5 Million* Quarterly Job Growth (Millions) Since the recession, employment has steadily improved 2017 Total: 2,188,000 2018 Forecast: 1,800,000 89 Months of Continuous Gains* Monthly Average: 200,000 Jobs * Through February 2018 Sources: Marcus & Millichap Research Services, BLS

National Employment Rank by Metro Y-O-Y Absolute Change Through December 2017 Top 10 Metros Absolute Change Percent Change Dallas-Fort Worth 80,000 2.2% Atlanta 56,000 2.1% New York 1.3% Seattle-Tacoma 54,700 2.8% Washington, D.C. 53,700 1.7% Boston 49,800 1.8% Inland Empire 47,300 3.3% Los Angeles 46,700 1.1% Orlando 46,100 3.8% Houston 45,500 1.5% U.S. Total 2,188,000 Bottom 10 Metros Absolute Change Percent Change Northern New Jersey 800 0.0% Cleveland 1,600 0.2% Cincinnati 4,400 0.4% Milwaukee 7,700 0.9% Baltimore 8,500 0.6% Kansas City 9,600 St. Louis 9,800 0.7% West Palm Beach 11,200 1.8% Oakland 12,900 1.1% Columbus 15,000 1.4% U.S. Total 2,188,000 1.5% Chicago is neither in the top or bottom Metros-Chicago’s job change was about 26,100 or 6/10ths of a percent Chicago: (26,100, 0.6%) Sources: Marcus & Millichap Research Services, BLS

Completions (000s of Units) National Apartment Vacancy vs. Construction Vacancy Rate Completions (000s of Units) Since 2015, nationally we have seen steady growth of apartment completion and along with that an overall rise in vacancies * Forecast Sources: Marcus & Millichap Research Services, RealPage, Inc.

National Apartment Rank by Metro 2018 Completions* Top 10 Metros 2018 Completions* Completions as % Inv. Dallas-Fort Worth 32,000 4.2% New York 17,530 1.0% Los Angeles 17,200 1.6% Washington, D.C. 15,700 2.5% Denver 14,300 5.1% Atlanta 13,000 2.6% Houston 12,400 1.8% Seattle-Tacoma 12,100 3.1% Chicago 10,500 1.5% Northern NJ 10,200 U.S. Total 335,000 1.9% Bottom 10 Metros 2018 Completions* Completions as % Inv. St. Louis 1,100 0.7% Detroit 1,500 0.6% Cleveland 1,600 1.0% West Palm Beach 1.4% Inland Empire 1,700 0.9% Orlando 1,800 0.8% Sacramento 1,900 1.3% Cincinnati 2,100 Oakland 2,500 1.2% San Francisco U.S. Total 335,000 1.9% Chicago in 2018 we project to add some 10,500 units or about a 1.5% in completions as a percent of existing inventory * Forecast Sources: Marcus & Millichap Research Services, RealPage, Inc., CoStar Group, Inc.

Housing Contribution to GDP Long-Term Average: 4.6% Recessions * Through 4Q Recession periods: (3Q1981-4Q1982), (3Q1990-1Q1991), (1Q2001-4Q2001), (4Q2007-2Q2009) Sources: Marcus & Millichap Research Services, BEA

Completions / Household Growth (Mil.) Housing Construction Has Fallen Short of Demand 2000-2007 Oversupply: 2.5M 2008-2018* Undersupply: 2.2M Completions / Household Growth (Mil.) Our research people have suggests household growth has been exceeding the supply of both single family homes and apartments * Forecast Trailing 24-month average for household growth Sources: Marcus & Millichap Research Services, U.S. Census Bureau, RealPage, Inc.

U.S. Apartment Vacancy Trends by Class Vacancy Rate 5.2% Since 2016, we have found an inversion of vacancies by class. Suddenly, C class has tightened to a 4.5% vacancy, while B and C apartments have seen their vacancies increase. 4.8% 4.5% Trailing 12-month average Sources: Marcus & Millichap Research Services, RealPage, Inc.

U.S. Apartment Rent Growth Trends by Class +6.1% +4.5% +3.8% Y-O-Y Percent Change Class Change Since 2009 Class A +41.3% Class B +39.2% Class C +33.2% We see in 2018 that nationally C rents should go up an average of 6.1%, A class up 4.5% and B type apartments only 3.8% Sources: Marcus & Millichap Research Services, RealPage, Inc.

National Apartment Rent and Home Payment Trends $209 Monthly Payment $741 $21 Cost of single family home payments given interest rates has not gapped and is forecasted to be a little above $200 more than rents Mortgage payments based on quarterly median home price for a 30-year fixed rate conventional mortgage, 90% LTV, taxes, insurance, and PMI Sources: Marcus & Millichap Research Services, RealPage, Inc., Freddie Mac, National Association of Realtors

Total Transactions (000s) U.S. Apartment Investment Trends Transaction Activity by Price Tranche +6.9% -4.5% Total Transactions (000s) Includes sales $1 million and greater Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics

U.S. Apartment Cap Rate Trends Average Cap Rates vs. 10-Year Treasury Cap Rate Long-Term Avg. 390 bps 380 bps 430 bps 390 bps Average Rate 100 bps 450 bps 230 bps 10-Yr Treasury Long-Term Avg. Includes sales $1 million and greater Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics, Federal Reserve

Dollar Volume (Billions) Percent of Dollar Volume Apartment Investors Pursue Yield – Capital Allocations Moving Beyond the Core Dollar Volume (Billions) Percent of Dollar Volume Both nationally and locally we have seen movement to secondary and tertiary markets by investors * Trailing 12-month average ** Through 3Q Includes sales $15 million and greater Sources: Marcus & Millichap Research Services, Real Capital Analytics, CoStar Group, Inc.

Chicago Economic Overview and Outlook

Completions (000s of Units) Chicago Apartment Construction and Vacancy Trends Completions (000s of Units) Vacancy Rate Chicago does reflect the national apartment scene with a large increase in completions and a rising vacancy rate * Forecast Sources: Marcus & Millichap Research Services, RealPage, Inc.

Chicago Apartment Vacancy Rate Trends by Class Earlier, we spoke about an inversion of vacancies by class. This holds true in Chicago where C class apartments are seeing a flat vacancy just above 5% and the holds true for B class units as well. On the other hand, a units are showing a softness, a slowing of filling rate and vacancy approaching the 6% level Trailing 12-month average Sources: Marcus & Millichap Research Services, RealPage, Inc.

Number of Transactions Midwest and Chicago Apartment Transaction Activity Number of Transactions Chicago continues to be our largest apartment market and has the largest volume share * Trailing 12-months through 3Q Includes sales $1 million and greater Midwest includes: Chicago, Cincinnati, Cleveland, Columbus, Detroit, Indianapolis, Kansas City, Milwaukee, Minneapolis, and St. Louis Sources: Marcus Millichap Research Services, CoStar Group, Inc., Real Capital Analytics

Average Price per Unit (000s) Apartment Pricing Trends +55% +41% +46% Average Price per Unit (000s) As you can see, the price per unit has trended upward by 55% in Chicago, 46% in the Midwest and 41% nationally. Both in increase in value and over all price per unit, Chicago show a good lead. Includes sales $1 million and greater Midwest includes: Chicago, Cincinnati, Cleveland, Columbus, Detroit, Indianapolis, Kansas City, Milwaukee, Minneapolis, and St. Louis Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics

Apartment Cap Rate Spreads Compress as Investors Pursue Yields Beyond Core Average Cap Rate 370 bps Prefered markets are NY, DC, Boston, San Diego, LA, Orange County, San Jose, San Francisco and Seattle all of which are coastal east and west. Chicago is considered a primary market However Tertiary markets have come down from a spread of 370 basis points to be now around 190 basis points. We see this every day as investors are willing to look at secondary places like South Bend or Rockford but also going to teriary markets like Danville and the Quad Cities and La Crosse 120 bps 190 bps Preferred Markets Include: NY, DC, BOS, SD, LA, OC, SJ, SF, SEA Sources: Marcus & Millichap Research Services, Real Capital Analytics, CoStar Group, Inc.

2017 Midwest Multi-Family Transactions By the Chicago Offices This map shows the locations where our Chicago Offices represented buyers and sellers in 2017 Source: Marcus & Millichap Research Services,

2017 Chicago MSA Multi-Family Transactions By the Chicago Offices Looking more locally this is the distribution of where we had apartment transactions Source: Marcus & Millichap Research Services,

2017 Chicago Multi-Family Transactions By the Chicago Offices North Side Between the Eisenhower and the Evanston Border 19 City Transactions $1,734,558 average price 6.21% average CAP rate South Side South of the Eisenhower 25 City Transactions $1,094,404 average price 11.55% average CAP rate On the north side, we had 19 City of Chicago apartment sales and the average price was $1,734,558 and the CAP average was 6.21% On the south side, we sold 25 apartment buildings and the average of those was $1,094,404 with a CAP of 11.55% Source: Marcus & Millichap Research Services,

Vacancy & Rent Comparison for Three Markets Chicago Denver Minneapolis What do investors think? From my own experience, we have a Chicago based client who in 2017 was very quiet and was unenthusiastically looking at Chicago apartments. They also own in Denver and Minneapolis. Both of those cities have given them better results. Chicago vacancies have steadily been climbing. While Denver has about the same overall vacancy. Minneapolis is an amazing low vacancy city hovering around 3%. However whereas Chicago rents are declining, Denver continues above 6% and Minneapolis was 8% last year and is forecast to be just under 5% this year. Our client would rather add to inventories in Denver and Minneapolis and he tells us Chicago is no longer as attractive. Source: Marcus & Millichap Research Services,

In 2018 we see more people thinking they are or should be Buyers In 2018 we see more people thinking they are or should be Buyers. Over the last two years 46% said they would hold but in 2018 that slips to 41%. In talking to owners, we believe in 2016 and 2017 they were beginning to feel the winds at their backs and wanted to enjoy the results of rent increases and benefit from all the work they put into their buildings. In 2018, they believe between real estate taxes especially in Cook County and additionally the increase in water costs is chipping away at their yields. Why then with expense pressures are more people looking to buy? These are the believers who think CAP rates will steadily increase and prices decrease to compensate for buying. Also, the cost of money plays into this change of scenarios as Dean will address

Chicago Apartment Market 2018 National Multi Housing Group Chicago Apartment Market Overview and Outlook The Fianancing Perspective Dean Giannakopoulos First Vice President – Capital Markets Marcus & Millichap Capital Corporation April 2018

Thank You Conditions of the Chicago Real Estate Market - 2018 April 4, 2018 David Bradley Regional Manager Downtown Chicago Office Dean Giannakopoulos First Vice President – Capital Markets Marcus & Millichap Capital Corporation John Bailey First Vice President Investments Downtown Chicago Office