1. Appraisal Institute
Conditions of the Chicago Real Estate Market
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

2. 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.

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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: ,188,000
2018 Forecast: ,800,000
89 Months of Continuous Gains*
Monthly Average: 200,000 Jobs
* Through February 2018
Sources: Marcus & Millichap Research Services, BLS

17. 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

18. 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.

19. 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.

20. 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

21. Completions / Household Growth (Mil.)
Housing Construction Has Fallen Short of Demand
Oversupply: 2.5M
* 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.

22. 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.

23. 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.

24. 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

25. 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

26. 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

27. 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.

28. Chicago Economic Overview and Outlook

29. 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.

30. 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.

31. 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

32. 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

33. 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.

34. 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,

35. 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,

36. 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,

37. 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,

38. 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

39. 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

40. 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