1. TRENDS IN RESIDENTIAL PROPERTY MANAGEMENT AND BROKERAGE A Presentation to NARPM April 11, 2016

2. Trends in Residential Property Management and Brokerage Demographic trends Business trends Regulatory changes

3. Demographic trends Growth of renter occupied single family (SF) largest in last 50 years measured by percentage and total numbers Homeownership rate peaked in 2004 at nearly 69 percent Today homeownership rate at 63.5 percent

4. Demographic trends With total households of approx. 124 million the shift means that some 8 million households who may have been homeowners in 2004 are now renters Joint Center for Housing Studies estimates that renter households grew by over 9 million between 2005 and 2015 Over 42 million households are now renting

5. Demographic trends Rental households have increased among all age groups not just Millennials Fastest growing segment of rental households is the over 50 age group where the rise was from 10 million households to 15 million households – accounting for over half the growth in rental households in last 10 years

6. Demographic Trends New household formations hit a net 1.05 million (JCHS) in 2015 the highest level since the boomers came of age in the 1970’s Renter households with children represented over 25 percent of the growth in the last ten years and are projected to grow that percentage in the years ahead Growth in renter households is occurring across all income groups not just the lower quartiles of family incomes

7. Home sales were up 9.5 percent in 2015 over 2014 and new and existing home sales hit 6.1 million – highest level since 2006 Total aggregate value of home sales was approx. $1.6 trillion Demographic trends

8. Homeownership rate overall at 63.5 percent For Millennials it is 6-7 percent less than historic norms at 27 percent For Generation X it is 3-4 percent less than historic norms Boomer homeownership rate still above 77 percent but declining Demographic trends

9. Purchases by foreign households in the 8-10 percent range Estimated purchases by investors both individual and corporate are range from a low of 12 percent to as high as 16 percent depending on source of information Corporate investors while garnering great notice are less than 2 percent of all purchases nationally

10. Demographic trends Households who move from a single family rental also tend to move to another single family rental – 48 percent Affordability is a large and growing issue among both owners and renters Affordability crisis among those wishing to buy is most critical in large metropolitan areas both in coastal markets and some in midwest

11. Demographic trends Among rental households nearly 25 percent are spending 50 percent or more of their monthly incomes on rent Cost for renting have grown faster than for cost of owning in most markets while the national apartment vacancy rate has fallen to less than 4.5 percent – nearing record lows

12. Demographic trends With household formation set to grow significantly higher the future for both owner and renter households will be a problem only in where and how will the inventory requirements be met not whether we have customers for housing With household income growth less than historical norms the challenge is also can ownership and/or rental opportunities be affordable

13. Business trends Revenues for the residential property management industry are estimated at $39 billion for 2015 This is shared among an estimated 34,000 discreet firms offering some form of residential property management The average firm in the industry has grosses revenues of slightly over $1.2 million

14. Business trends The residential brokerage industry received nearly $68 billion in gross revenues in 2015 up slightly over 2014 results There are an estimated 80,000 brokerage firms and 1.2 million real estate agents serving this segment of the industry The 500 largest brokerage firms have approx. 30 percent of this total and the average real estate agent grosses approx. $56,700 before costs

15. Business trends One source indicates that residential property management firms have an average operating margin of approx. 16.0 percent before taxes (AnythingResearch, 2015) REAL Trends data on residential brokerage businesses shows that typical pretax operating margins are 4.0 to 5.0 percent pretax as a percent of gross commission and fee revenue

16. Business trends While consolidation is a topic of conversation and is taking place it is not yet having a significant impact on new business formations or barriers to entry The 20 largest residential property management firms have less than 5 percent of total industry revenues The 20 largest residential brokerage firms have less than 10 percent of total industry revenues

17. Business trends Both industries are faced with increasing costs for technology, marketing, operating overhead and compliance related costs As a result while both businesses face positive growth prospects in the years ahead they are also both faced with downward pressure on margins

18. Business trends There is a small but growing trend of residential brokerage firms entering the residential property management business It is being driven by a) search for new revenue and profit, b) the decline of access to the mortgage and other settlement services and c) the realization that nearly 40 percent of households are renting not purchasing

19. Business trends A significant percentage of all SF investor owned properties are owned by private investors (> 80 percent of all SF owned and rented properties) Most private investors either own 1-2 SF investment properties or more than 8 SF properties (both about 28 percent of all investor owned SF properties) (Invaluable Investor Report, 2013)

20. Business trends A majority of those owning from 1-4 SF investment properties do their own PM However as they own more than 4 SF investment properties they tend to start using PM firms for a full range of services

21. Business trends Franchising in residential brokerage is well developed – nearly 42 percent of all agents are associated with a national franchsie company Franchising in property management is not as well developed and while it has been around for over 25 years it has not had the same penetration into the industry

22. Business trends Merger and acquisition activity in the brokerage business is extremely strong and should set new highs in 2015-2017 period Merger and acquisition activity in property management is also picking up In both industries pressure on margins, aging of the ownership and increased regulatory issues will drive consolidation

23. Business trends In both industries one hidden issue that is starting to be felt at all levels is finding the talent to manage and run the business Employment and benefit costs are rising significantly and there are no factors known at this time that will mitigate this in the next few years (minimum wage increases, health insurance costs, training costs, etc)

24. Regulatory issues FHA CFPB EPA ADA