Apartment Report. solid and steady Craig McConachie, C&R Real Estate Services, Co. Apartment Report Committee SURVEY SAYS! VOL.

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1 VOL. 18 SPRING 2013 THE Apartment Report solid and steady Craig McConachie, C&R Real Estate Services, Co. Apartment Report Committee The apartment market continues to produce steady results, reflecting a healthy environment for investors. Strong fundamentals have spurred new development, as builders work to capitalize on one of the best markets in the country. Both local and national investors are aggressively looking to position equity, as attractive financing continues to remain available and vacancy rates remain below historic averages. Vacancies have decreased and rent growth continues, albeit at a slower pace than Portland/Vancouver The Portland/Vancouver vacancy factor continues to decline, and currently stands at 3.55%. This is only slightly below the 3.63% rate reported in our Fall report. Rents have flattened out, and overall average rent rates have increased by 4% from one year ago. St. John s, Tigard, SW Portland and Inner SE Portland all have vacancy factors under 3%. While Hillsboro, Lake Oswego and Clackamas vacancy factors all exceed 5%. New construction in the Hillsboro area has temporarily increased vacancies, but the resurgence in hiring should help bring that market back into balance. All unit types are less than 4% vacant with the exception of a 4.7% rate for 3 bdrm/2bath units. Wilsonville and East Vancouver lead the way with the highest percentage of properties offering rental incentives, but overall incentives are minimal. The average number of days that a unit will stay vacant for the entire area is 39, with Inner SE Portland experiencing very little down time of only nine days. That s a quick turnover! Average rent per sq. ft. for all areas has increased to $1.04. The downtown core has the highest rents with studios and one bedrooms getting close to the $2.00 p.s.f. range. Outer NE Portland and West Vancouver have the lowest rates, averaging $.85 p.s.f. The Inner and Central SE Portland area has seen a decline in rents for the first time in two years. One bedroom, one bath units are performing well across all areas, with vacancy of 3.2% and average rent per sq. ft. at $1.17. Fifty four percent of all professionally managed properties in the Portland/Vancouver area are passing through water and sewer costs to their residents. The Salem and Bend areas have been slow to implement, with only 15%, but Eugene/Springfield is up to 28%. Resident paid garbage collection has increased to 28% of all properties surveyed. Other Areas The Bend/Redmond area continues to show surprising strength with a vacancy rate close to 2%, and increasing, but still very low rents. Eugene/Springfield is under 4% vacancy, with average rents finally hitting the $1.00 p.s.f. mark. The Salem market is experiencing an increase in vacancy to 3.65%, but average rents have reached $.82 p.s.f. Operating Expenses This issue includes our annual survey of apartment operating expenses. The numbers are derived from 2012 year end operating statements at 86 stabilized properties, representing 6,366 units, throughout the Portland Metro area. Median expenses have increased for all property types by 8.5 % over the past two years from $3,917, to $4,251. This 4.25% annual escalation in operating expenses, combined with annual revenue increases of 5-6%, has allowed landlords to realize solid gains in net operating income. Newer urban apartments in Multnomah County have the highest expenses at $4,796, while older garden style units in Clark County have the lowest expenses of $3,944. Property taxes average 2 of all operating expenses. Taxes will increase by a predicted 8-1 in Portland, because of bond measures passed last year. Our Contributors Patrick and Mark Barry answer the question that s on everyone s mind, Will the Portland apartment market get overbuilt? in a comprehensive article addressing multifamily construction. They have dissected the apartment construction pipeline and the upcoming impact that will be felt on vacancy rates in the 1 Metro area. They are tracking over 15,000 units that have been recently completed, are under construction or are being proposed for development. Last year s economic recovery in Portland remained stubbornly subpar, explains Amy Vander Vliet from the Oregon Employment Department. After averting the fiscal cliff and weathering the sequester, strong job growth is expected to come, as all of the region s major industries position for expansion in the coming year. (continued on page 2) OREGON SURVEYED AREAS 1. Portland & Vancouver 2. Salem & Vicinity 3. Eugene & Springfield 4. Bend & Redmond SURVEY SAYS! Vacancy Continues Decline Rent Growth Flattens Bend/Redmond Strong Occupancy Builders are Building TABLE OF CONTENTS PORTLAND METRO MAP TENANT PAID UTILITIES AVERAGE RENT PER SQUARE FOOT AVERAGE MARKET VACANCY RATE AVERAGE NO. OF DAY VACANT SURVEY RESULTS & 5 TREND REPORT APARTMENT VALUES ECONOMIC UPDATE LAND VALUES ON THE RISE INCENTIVES NEW APARTMENT CONSTRUCTION OPERATING EXPENSES

2 portland metro area multnomah county 5 DOWNTOWN PORTLAND 1 NW PORTLAND 13 INNER & CENTRAL SE (PORTLAND) 17 INNER & CENTRAL NE (PORTLAND) 18 NORTH PORTLAND ST. JOHNS 6 SW PORTLAND 14 OUTER SE (PORTLAND) 16 OUTER NE (PORTLAND) 15 TROUTDALE FAIRVIEW WOOD VILLAGE GRESHAM clackamas county 12 CLACKAMAS 8 LAKE OSWEGO WEST LINN 11 MILWAUKIE 10 OREGON CITY GLADSTONE 9 WILSONVILLE CANBY washington county 3 ALOHA 4 BEAVERTON 2 HILLSBORO NORTH OF HWY 26 7 TIGARD TUALATIN SHERWOOD clark county 19 WEST VANCOUVER 20 EAST VANCOUVER TENANT PAID UTILITIES MAP AREA WATER HEAT GARBAGE NW PORTLAND HILLSBORO N OF HWY 26 ALOHA BEAVERTON DOWNTOWN PORTLAND SW PORTLAND TIGARD TUALATIN SHERWOOD LAKE OSWEGO WEST LINN WILSONVILLE CANBY OREGON CITY GLADSTONE MILWAUKIE CLACKAMAS INNER & CENTRAL SE PTLD OUTER SE PORTLAND TROUTDALE FAIRVIEW WOOD VILLAGE GRESHAM OUTER NE PORTLAND INNER & CENTRAL NE PTLD NORTH PTLD ST. JOHNS WEST VANCOUVER EAST VANCOUVER SALEM VICINITY EUGENE SPRINGFIELD BEND REDMOND 73.9% 57.6% 68.8% 57.9% 47.2% 65.6% 53.3% 38.9% 70.4% 19.8% 18.5% 15% 27.6% 15.4% 72% 56.3% 87.5% 47.3% 55% 44.7% 13.5% 45.5% 92.3% 54.8% 42.7% 81.4% 93.8% 91.2% 75% 74.1% 97.8% 90.6% 98% 93.3% % % 95% 97.4% 90.9% % 5.6% 26.7% 12.1% 12.7% 7.4% 52.5% 5 63% 43.9% 44.4% % 2 29% 10.4% 8.8% 27.3% 20.7% 51.9% 84.6% 75% (continued from page 1) Robert Black with NAI Norris, Beggs and Simpson contributes his insight on apartment land values. After land sales for multifamily came to a standstill in , land values have since risen significantly. With price per sq. ft. running between $80 and $200, sellers are motivated to sell and interest from developers to buy is strong. This survey represents a total of 58,601 units from 893 properties. All of the articles have been reprinted without editing the content, in order to present unbiased opinions. We d like to thank all of the management companies and property owners who have submitted information. Their participation is critical in insuring the accuracy of our data and the continued success of this report. SECTION 42 SURVEY RESULTS SPRING 2013 TOTAL # OF PROPERTIES = 86 TOTAL # OF UNITS = 7672 UNIT TYPES VACANCY AVG. RENT RATE (%) PER SQ FT ($) STUDIO BED / 1 BATH BED / TH BED / 1 BATH BED / 2 BATH BED / 1 BATH BED / 2 BATH TOTALS

3 East Vancouver $2.00 $1.90 $1.80 $1.70 $1.60 $1.50 $1.40 $1.30 $1.20 $1.10 $1.00 $0.90 $0.80 $ average rent per square foot $ 1.37 Northwest Portland Hillsboro N of Hwy Aloha.98 Beaverton Downtown Portland SW Portland 1.06 Tigard Tualatin Sherwood.97 average market vacancy rate % NW Portland 3.3 Hillsboro N of Hwy Aloha Beaverton Downtown Portland 3.4 SW Portland 2.8 Tigard Tualatin Sherwood 2.7 Lake Oswego West Linn 1.07 Lake Oswego West Linn 5.4 Wilsonville Canby.94 Wilsonville Canby Oregon City Gladstone.89 Oregon City Gladstone Milwaukie.99 Milwaukie Clackamas.97 Clackamas 5.3 Inner & Central SE (Ptld) Inner & Central SE (Ptld) 1.17 Outer SE (Ptld).91 Outer SE (Ptld) Troutdale Fairview Wood Village Gresham.86 Troutdale Fairview Wood Village Gresham Outer NE (Ptld).85 Outer NE (Ptld) Inner & Central NE (Ptld) Inner & Central NE (Ptld) North Portland St. Johns 1.13 N Portland St. Johns 2.5 West Vancouver.85 West Vancouver East Vancouver 3.4 Salem.82 Eugene Springfield 1.00 Salem Eugene Springfield Bend Redmond.76 Bend Redmond 2.1 outlying areas NW Portland 35 average number of days vacant portland/vancouver Hillsboro N of Hwy Aloha Beaverton Downtown Portland SW Portland Tigard Tualatin Sherwood Lake Oswego West Linn Wilsonville Canby Oregon City Gladstone Milwaukie Clackamas Inner & Central NE (Portland) N Portland St. Johns FALL 12 SPRING outlying areas Inner & Central SE (Portland) 11 Outer SE (Ptld) Troutdale Fairview Wood Village Gresham Outer NE (Ptld) West Vancouver East Vancouver 61 Salem Eugene Springfield Bend Redmond 33

4 portland/vancouver metro area survey resultsspring 2013 AREA NAME # OF FALL 12 1 BED 2 BED 2 BED 2 BED 3 BED 3 BED DATA ALL STUDIO PROP REPORT CHANGE 1 BATH 1 BATH 2 BATH TWNHS 1 BATH 2 BATH DOWNTOWN PORTLAND 27 AVG MARKET VACANCY RATE % (5) AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED NW PORTLAND 47 AVG MARKET VACANCY RATE % (1) AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED INNER & CENTRAL SE 150 AVG MARKET VACANCY RATE % (PORTLAND) AVG RENT PER SQ FOOT $ (13) AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED INNER & CENTRAL NE 91 AVG MARKET VACANCY RATE % (PORTLAND) AVG RENT PER SQ FOOT $ (17) AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED N PORTLAND ST JOHNS 11 AVG MARKET VACANCY RATE % (18) AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED SW PORTLAND 29 AVG MARKET VACANCY RATE % (6) AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED OUTER SE (PORTLAND) 43 AVG MARKET VACANCY RATE % (14) AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED OUTER NE (PORTLAND) 35 AVG MARKET VACANCY RATE % (16) AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED TROUTDALE FAIRVIEW 30 AVG MARKET VACANCY RATE % WOOD VILLAGE GRESHAM AVG RENT PER SQ FOOT $ (15) AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED CLACKAMAS 7 AVG MARKET VACANCY RATE % (12) AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED LAKE OSWEGO WEST LINN 12 AVG MARKET VACANCY RATE % (8) AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED MILWAUKIE 23 AVG MARKET VACANCY RATE % (13) AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED OREGON CITY GLADSTONE 14 AVG MARKET VACANCY RATE % (10) AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED WILSONVILLE CANBY 9 AVG MARKET VACANCY RATE % (9) AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED ALOHA 40 AVG MARKET VACANCY RATE % (3) AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED BEAVERTON 56 AVG MARKET VACANCY RATE %

5 portland/vancouver metro area AREA NAME # OF FALL 12 1 BED 2 BED 2 BED 2 BED 3 BED 3 BED DATA ALL STUDIO PROP REPORT CHANGE 1 BATH 1 BATH 2 BATH TWNHS 1 BATH 2 BATH (4) AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED HILLSBORO N OF HWY AVG MARKET VACANCY RATE % (2) AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED TIGARD TUALATIN 47 AVG MARKET VACANCY RATE % SHERWOOD AVG RENT PER SQ FOOT $ (7) AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED WEST VANCOUVER 25 AVG MARKET VACANCY RATE % (19) AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED EAST VANCOUVER 13 AVG MARKET VACANCY RATE % (20) AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED TOTAL AVG MARKET VACANCY RATE % TOTAL AVG RENT PER SQ FOOT $ TOTAL AVG RENT PER UNIT TYPE $ TOTAL SUM OF PROPERTIES SURVEYED TOTAL SUM OF UNITS SURVEYED vacancy rate since fall 2008portland/vancouver metro area FALL 08 SPR 09 FALL 09 SPR 10 FALL 10 SPR 11 FALL 11 SPR 12 FALL 12 SPR STUDIO 1 BED/1 BATH 2 BED/1 BATH 2 BED/2 BATH 2 BED TH 3 BED/1 BATH 3 BED/2 BATH other areas SALEM & VICINITY 60 AVG MARKET VACANCY RATE % AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED EUGENE SPRINGFIELD 17 AVG MARKET VACANCY RATE % AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED BEND REDMOND 8 AVG MARKET VACANCY RATE % AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED TOTAL AVG MARKET VACANCY RATE % TOTAL AVG RENT PER SQ FOOT $ TOTAL AVG RENT PER UNIT TYPE $ TOTAL SUM OF PROPERTIES SURVEYED TOTAL SUM OF UNITS SURVEYED *Surveys received from Sec 42, Sec 8 and other subsidized affordable housing programs are not included in the current survey data. 5

6 trend report : portland metro area CoStar: Search criteriaresearch Status: Published; Market: Portland; PropType: Multi Family; Sale Date: 10/1/20093/31/2013; unit: 5 units and greater. CAP RATE NUMBER OF TRANSACTIONS % % % % 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 0 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 PRICE PER SQUARE FOOT $95 $90 $85 $80 $75 $70 PRICE PER UNIT (in thousands) $85 $80 $75 $70 $65 $60 $55 $65 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 $50 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 YEAR 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 # OF TRANS TTL $ VOLUME $119,831,301 $77,255,098 $163,533,750 $79,174,323 $323,868,853 $114,388,550 $235,011,069 $192,384,133 $320,159,280 $226,353,051 $149,351,870 $224,912,645 $359,410,310 $138,087,000 TTL BLDG SF 1,509, ,886 1,776,141 1,560,222 2,906,117 1,785,445 2,086,576 2,345,810 2,840,080 3,024,910 1,519,860 2,085,340 3,885,094 1,516,686 TTL UNITS 1, ,783 1,626 2,661 1,652 2,179 2,575 2,997 2,476 1,716 2,285 4,293 1,591 AVG PRICE $4,279,689 $2,759,111 $5,110,430 $2,139,847 $7,899,240 $2,789,965 $5,465,374 $3,102,970 $6,040,741 $5,520,806 $2,666,998 $4,089,321 $4,856,896 $3,633,868 AVG # OF SF 41,938 31,341 46,741 43,340 69,193 39,677 45,360 35,543 48,967 68,748 24,916 34,186 48,564 36,112 AVG PRICE BLDG SF $93.16 $86.78 $93.88 $43.70 $ $65.70 $ $90.71 $ $75.66 $99.79 $ $94.34 $93.05 MED PRICE P/SF $78.73 $72.44 $71.17 $66.32 $86.26 $65.13 $77.84 $67.51 $77.52 $80.50 $82.04 $80.84 $80.17 $81.52 AVG PRICE P/UNIT $87,724 $79,892 $93,501 $41,928 $121,985 $71,852 $109,716 $81,692 $109,907 $93,068 $88,925 $101,084 $85,933 $89,551 MED PRICE P/UNIT $58,013 $58,456 $57,917 $54,947 $67,857 $58,688 $72,500 $57,398 $69,500 $74,837 $70,122 $67,889 $68,500 $67,083 AVG # OF UNITS ACTUAL CAP RATE 7.75% 6.35% 5.96% 6.98% % 5.34% 5.71% 5.97% % 5.66% 6.66% 6.03% AVG GRM AVG GIM

7 portland economic update: solid fundamentals, modest Growth Amy Vander Vliet, Oregon Employment Department 2012 started with a bang and ended on a whimper. Businesses and consumers alike pulled back amidst concerns about the ongoing European recession, cuts in government, and uncertainty surrounding the fiscal cliff. Locally, job growth slowed from over 2 percent (annualized) in the first three quarters to barely 1 percent by the end of the fourth. Portland s economic recovery continued, although at a pace that remained stubbornly subpar by historic standards. Overall, metro employers added nearly 19,000 jobs in 2012; the same as the year before. The private sector once again carried the day as governments contracted, most notably in our public schools. Three years after hitting bottom, the Portland area has regained nearly two-thirds of the jobs lost in the Great Recession. A few major industries recently marked their return to pre-recession employment levels, including professional and business services and leisure and hospitality. Meanwhile, the jobless rate has gradually declined from a recessionary peak of 11 percent to just under 8 percent. Flipping the calendar over to 2013, the fiscal cliff was largely averted and we breathed a sigh of relief at least until sequestration came along. However, this should only be a small bump in the road. Government cutbacks and payroll tax increases will be a near-term drag, but the stage is set for growth to accelerate later this year and into next: Business balance sheets are strong; the housing recovery is solidly underway; household net worth is rising; and the stock market has regained recessionary losses. In response, consumers and businesses will (cautiously) increase spending. Stronger job growth should follow. All of the region s major industries are expected to expand this year, including finance and government- the 2 broad industries that arrived late to the (subdued) party. If current expectations hold, metro-area employment will finally return to pre-recession levels by early next year. The jobless rate will continue its slow and steady decline, but still end the year well above historic norms. Amy Vander Vliet is an Economist for the Oregon Employment Department, covering the Portland metropolitan area. She produces and analyzes employment trends, including the unemployment rate and monthly job growth in the region s major industries. do you offer incentives? MAP AREA NW Portland Hillsboro/North of Hwy 26 Aloha Beaverton Downtown Portland SW Portland Tigard/Tualatin/Sherwood Lake Oswego/West Linn Wilsonville/Canby Oregon City/Gladstone Milwaukie Clackamas Inner & Central SE (Portland) Outer SE (Portland) Troutdale/Fairview/Wood Village/Gresham Outer NE (Portland) Inner & Central NE (Portland) North Portland/St. Johns West Vancouver East Vancouver Salem/Vicinity Eugene/Springfield Bend/Redmond FALL 2012 SPRING % 3.4% 6.3% 4.4% 4.4% 4.8% 1.8% 4.9% 8.3% 2.6% 3.1% 5.6% % 7.7% 18.8% 3.7% 1 1.8% 0.6% 5.4% 5.5% 12.1% 1 2.6% 5.3% % % 4.9% 23.1% 6.3% 3.2% 17.2% 6.7% portland multifamily land values on the rise Robert Black, Vice President, NAI Norris, Beggs & Simpson During 2009 and early 2010, the multifamily land sales market was at a virtual standstill, but interest from a number of experienced, well-capitalized local developers began to pick up toward the end of These developers sought urban infill opportunities, with a focus on downtown, close-in eastside and the Pearl District. In 2011 and into 2012, apartment land sold for $30-$50 per sf close-in, or $60-$100 in prime urban areas. Much of the activity at this point was in popular areas in close-in eastside such as Hawthorne, Division and N. Williams. The first few properties to deliver in the new building cycle, including ecoflats (spring 2011) and The Albert (summer 2012), both on N. Williams, saw high demand and quick lease-up at strong rates for both apartments and retail, which further encouraged developers. In the second half of 2012, a second wave of developers sought sites, pushing land to $40-$70 in the eastside and $60-$125 in the CBD and Pearl District. Now, in 2013, we re seeing a third wave of activity, with regional developers who may have been priced out of other markets, or were unable to find sites there, seeking to build in Portland. Buyers are paying $80-$100 per sf on the eastside, and up to $150-$200+ per sf in the Pearl. These higher prices are motivating owners to sell, so we re not yet seeing a shortage of developable sites. Robert Black is an Associate Vice President specializing in multifamily investment sales at NAI Norris, Beggs & Simpson, a real estate brokerage and asset/property management company. Contact him at or rblack@nbsrealtors.com. 7

8 portland metro apartment construction: will we get overbuilt? By Patrick O. Barry and Mark D. Barry, MAI When driving around town, one can t help but notice all of the cranes, with new apartments going up throughout the close-in urban area. There is also considerable apartment construction occurring in the suburban west side and suburbs to the south off the I-5 freeway. Will the Portland apartment market get overbuilt? This article analyzes where we are in the current construction cycle, and the expected impact on apartment vacancies. In order to get a true snapshot of where we stand today, we visited every site with apartments recently completed, under construction, or proposed. Inventory and Vacancy Based on information provided by the 2010 US Census and with adjustment for apartment permits in more recent years, the Portland Metro area has around 265,000 multi-family units. Using the 3.6% apartment vacancy rate from the Spring 2013 Multifamily NW report, we have around 9,500 vacant units. If one assumes that a market in balance will show a 5. vacancy rate, then there is a current shortage of 3,750 units. 20 pettygrove nw portland 90 units platform 14 hillsboro 190 units Historical Apartment Permits The Portland Metro Area has seen many apartment construction cycles over the last 100 years. Periods of strong apartment construction include , , , , , , , and 2003 to When apartment construction is hot, it is typically really hot. But the opposite is also true. While we saw a record of almost 10,000 units in 1972, permits were issued for just 1,000 units at the depth of the recession in Over the past 10 years, the Portland Metro area has averaged permits for just over 3,400 apartment units per year, with over 5 of the permits being issued in Multnomah County. However, the level of activity is distorted by record low apartment construction from 2009 to Specific information on the permit history for the four County metro area from 1990 through 2012 is summarized as follows: (continued on page 9) 8

9 (continued from page 8) New Apartment Construction The apartment construction cycle has officially commenced! Increased apartment construction is due to low vacancies, rising rents, population increases of 25,000 to 30,000 per year, limited new supply completed in recent years, a better economy, and record low interest rates. While the commercial and single-family construction markets remain stagnant, developers have flocked towards apartments. Permits were issued for 3,333 new apartment units in While this may seem like a lot of new units, this is party due to such slow apartment construction in recent years. Permits were issued for an average of 4,700 units per year for the 18 years prior to 2008, so the apartment construction in 2012 was below the historic trend line. b street apartments ne portland 50 units Our figures show that there are at least 136 projects recently completed, under construction or proposed. These projects include around 15,400 units across the Portland/Vancouver area. Our research shows that a total of 2,614 units in 26 projects came on the market during units 4,000 3,500 3,000 2,500 2,000 1,500 1, NORTH PTLD CLOSE IN E. PTLD CLOSE IN W. PTLD units by location complete under construction proposed SUB. WEST SUB. EAST SUB. SOUTH CLARK COUNTY Trends Apartment construction is up across all submarkets, but some trends have emerged. These trends include: There are twice as many units under construction as there are units that have recently been completed. In addition, there are almost three times as many units proposed as recently completed. Thus, a wave of new units will be coming on the market over the next two years. The close in east Portland area accounts for almost a third of the proposed units, though new parking requirements may derail some of these projects. There is virtually no interest in market rate apartment construction in the East Multnomah County area. The typical urban multifamily property under construction or recently completed was built or is being built by a local developer. The average size is around 50 units in the urban east side, and 100 units in the urban west side. The developers include various players, some of whom are better known in the single family, commercial, and retail markets. Three developers alone account for around 2,500 units. In the suburbs, a national or regional developer, and large complexes characterize the typical project. Most of the suburban projects under construction and recently completed are over 150 units. cathedral park village st. johns 72 units Another 5,363 units across 50 projects are under construction and scheduled for completion in 2013 or The remaining 7,447 units in 60 complexes have been proposed. While many of these projects may never be built, other new projects not yet announced or still in the planning stage are likely to emerge. The chart and graph below summarizes the new units by submarket as of the early spring of proposed uc complete total north portland 1, ,580 close in e portland 2, ,607 close in w portland 1, ,542 suburban west 1,682 1, ,520 suburban east suburban south ,631 clark county ,379 total 7,447 5,363 2,614 15,424 (continued on page 10) 9

10 (continued from page 9) New Units and Impact On Apartment Vacancy Rates In 2013 and 2014, we expect completion of around 10,000 to 12,000 new apartment units. This figure includes the units currently under construction and as well as proposed units. While some proposed apartment will not get built, it is likely that many others will emerge and get built. a special thank you to... Contributors to the Multifamily NW Expense Survey of the Spring 2013 Apartment Report BLUESTONE & HOCKLEY REAL ESTATE SERVICES terrace apartments wilsonville 288 units BRISTOL EQUITIES C&R REAL ESTATE SERVICES CAPITAL PROPERTY MANAGEMENT DALTON MANAGEMENT GUARDIAN MANAGEMENT PRINCETON PROPERTY MANAGMENT TOKOLA PROPERTIES A few large projects account for a high proportion of the proposed units. For the ease of calculations, lets assume that 11,000 units instantly hit the market. This would result in 276,000 apartment units in the Portland Metro area, with a vacancy rate of around 7.5%. But if one assumes population growth of 25,000 to 30,000 per year in 2013 and 2014, and some demolition, any increase in apartment vacancies will be considerably lower. This assumes a stable ratio of renters to homeowners. burton park apartments vancouver 112 units Conclusions on Expected Apartment Vacancies Based on the current level of units under construction and proposed, the overall Portland metro area apartment market will not become saturated, and will not result in an overbuilt market. However, some neighborhoods will experience slow absorption, higher vacancies, and possible concessions until there is sufficient time for the new units to be absorbed. We expect that rent increases will be reined in after mid 2013, and will flatten out over the next two years as landlords compete for tenants. We expect apartment vacancies to increase to 4. to 4.5% by late 2013, and 4.5% to possibly as high as 5.5% by the end of This will result in a shift from a landlords market to a market more in balance over the next 18 to 24 months. Patrick O. Barry (pb@barryapartmentreport.com) is an Appraiser Assistant with Mark D. Barry & Associates, which specializes in apartment appraisal work in the Portland metropolitan area. Patrick is an engineering graduate of the University of Colorado. He was assisted by Mark D. Barry. 10

11 TOTAL # OF UNITS TOTAL # OF PROPERTIES EXPENSES REAL ESTATE TAXES PROPERTY INSURANCE PROFESSIONAL OFF-SITE MGMT ON-SITE MGMT/LEASING MAINT STAFF OFFICE/ADMINISTRATION ELECTRICITY WATER AND SEWER GARBAGE GAS/OIL TELEPHONE/INTERNET ADVERTISING/MARKETING LANDSCAPE/GROUNDS MAINTENANCE MAINTENANCE AND REPAIRS (int&ext) TURNOVER COSTS (painting, cleaning, etc.) MISCELLANEOUS TOTAL 2012 PORTLAND MSA APARTMENT OPERATING EXPENSES (not including capital expenses or reserves) NEWER MULTNOMAH COUNTY OLDER NEWER URBAN-STYLE 1951-CURRENT OLDER URBAN-STYLE WASHINGTON COUNTY CLACKAMAS COUNTY CLARK COUNTY NEWER OLDER NEWER OLDER NEWER OLDER , , , , , , $4.48 $3,960 $4.96 $4,066 $6.87 $4,796 $8.80 $4,468 $4.93 $4,252 $5.02 $4,519 $4.39 $4,041 $5.04 $4,203 $4.46 $4,263 $4.73 $3,944 11

12 THE Apartment Report Thank you to all who contributed to the making of this report NE TILLAMOOK ST SW 18TH AVE SE FULLER RD NE FALOMA RD SE ASH ST SE BUSH ST NE 183RD AVE NE 108TH AVE NE 60TH AVE NE HANCOCK ST SW HALL BLVD 1515 SW JEFFERSON ST 1601 SW REINDEER AVE 1621 SE WASHINGTON ST SE ABERNETHY LN SE YAMHILL ST NW NORTHRUP ST 2215 SE MILLER ST 2228 NE MULTNOMAH ST 2404 N FLINT AVE 3951 N WILLIAMS AVE 530 NW 23RD AVE 5520 NE GLISAN ST 6030 N LOMBARD ST 630 SE YAMHILL ST N RICHMOND AVE 7202 SW GARDEN HOME RD NE FAILING ST 9457 N BRISTOL AVE A SQUARE LLC A&G RENTAL MANAGEMENT, LLC AFFINITY PROPERTY MANAGEMENT ALBERT A KEUFTEDJIAN AMERICAN PROPERTY MANAGEMENT ARCADIA MANAGEMENT BARRINGTON SQUARE BLANTON TURNER LLC BLUESTONE & HOCKLEY REALTY BOWERS, VERNON BUNTING MANAGEMENT GROUP BURLINGTON APARTMENTS LLC BURTON & BARBARA B STEIN C&R REAL ESTATE SERVICES CAMBRIDGE REAL ESTATE SERVICES CANYON PROPERTY MANAGEMENT CAPITOLA COMMONS CARLA PROPERTIES CAROLYN L & NICOLE OVERBY CASCADE MANAGEMENT INC/HAP CASCADE VIEW APARTMENTS CHERRY BLOSSOM ESTATES CHERRY RIDGE CLAIR ADKINS & ASSOC QUALITY HOMES COLLEGE HOUSING NORTHWEST COMMERCE INVESTMENT INC COMMONWEALTH RESIDENTIAL COUNTRYSIDE APARTMENTS Multifamily NW TM SW Upper Boones Ferry Road Suite 105 Tigard, OR This report would not be possible without the dedication and commitment of the Multifamily NW staff and the Apartment Report Committee. Thank you to the many contributors, writers and consultants who have generously taken the time to provide this information. COURTYARD PROPERTIES CSM CORPORATION CTL MANAGEMENT, INC. D-3 PROPERTIES INC. DALTON MANAGEMENT DONALD H ADLER DORINNE J PEDERSEN E P PROPERTIES EMMERT DEVELOPMENT EQUITY RESIDENTIAL ERIC STACEY FARMERS UNION SENIOR HOUSING FIX FJK PROPERTIES FORTRESS PROPERTY MANAGEMENT GARY E MERTZ GENEVIE ANDERSON GERDING EDLEN DEVELOPMENT GLEN GARDEN APARTMENTS GMC PROPERTIES GRAND PEAKS PROPERTY MANAGE- MENT GSL PROPERTIES GUARDIAN MANAGEMENT HALL EQUITIES GROUP HAROLD K MARKEN HAWTHORNE PROPERTY MANAGEMENT HERBERT & ELLA OSTROFF HNN ASSOCIATES HOLLAND RESIDENTIAL HUDSONS POINTE I M TATTI IBF OF BURLINGAME LIMITED PART IDM INCOME PROPERTY MANAGEMENT INFINITY PROPERTY MANAGEMENT IVAN CLARK IVAN D & THERESA R CHILCOTE JAXON PROPERTIES JEAN R & LEROY L LAACK JIL DEVELOPMENT JK MANAGEMENT JOHN M WONG JPM REAL ESTATE JUNCO CO. JW GIBBONS JWP PROPERTIES LLC KAY L & DENNIS V FANTZ KEITH L & LINDA JO WILSON KEN RANDALL REAL ESTATE KENNETH J ELKINS KEY PROPERTY SERVICES KNOLL WEST PROPERTIES LLC LOCKWOOD PROPERTIES LURELLE ROBBINS MAINLANDER PROP MANAGEMENT MARK KOBERNICK MCCLOUD PROPERTIES MELBA BOWEN MEVKO PROPERTIES LLC MICHAEL D AND LAWRENCE D KAY LLC MUDRICK FAMILY LIMITED PARTNER NBS MULTIFAMILY MANAGEMENT NORTHSHORE NORTHWEST HOUSING ALTERNATIVES OAK GLEN APARTMENTS OT2 LLC O'TOOLE, PATRICK PARK HOLLYWOOD APARTMENTS PINNACLE, AN AMS NW CO PRINCETON PROPERTY MANAGEMENT PROBIS PATEO, LLC PROMETHEUS REAL ESTATE GROUP QUANTUM RESIDENTIAL R LAWRENCE PROPERTIES R P WILL LLC RAPPOLD PROPERTY MANAGEMENT REACH COMMUNITY DEVELOPMENT, INC. REALVEST ASSET MANAGEMENT REGENCY MANAGEMENT INC REGENCY PROPERTY MANAGEMENT RKB PROPERTIES ROBERT & CONNIE MAGER ROBERT J ELLIOT ROSE PLACE APTS LLC ROYAL OAKS APARTMENTS RUSSELLVILLE COMMONS S.L.S. PROPERTIES, INC. SCHAEFFER & ASSOCIATES SCHULER, G. SEAMAST VISTA LLC SIMPSON PROPERTIES SIMPSON PROPERTY GROUP SKYNAT LIMITED PARTNERSHIP SOLARES HOMES ST FRANCIS LIMITED PARTNERSHIP STADIUM STATION APARTMENTS STEPHEN SARGENT SUNSHINE MEADOWS SUSAN MARIE TELLCO PROPERTY MANAGEMENT THE LODGES AT LAKE SALISH THE MANAGEMENT GROUP THE PINES THERESA TERRACE APTS. TRINITY PROPERTY CONSULTANTS UDR VALERIE BELL VISTA VIEW LLC W MICHAEL WARWICK WESTON INVESTMENT CO WILSONVILLE SUMMIT WINDSOR SUNPOINTE INC WOODWINDS & JENNINGS LLC WPL ASSOCIATES For more information on Multifamily NW or to comment on this report, please visit us on the web at The opinions contained in this report are those of the authors and do not necessarily represent the opinions or positions of Multifamily NW multifamily nw board of s Paul Hoevet HD Supply Facilities Maintenance president Pam McKenna Riverstone Residential vice president Kirsten Bailey Bristol Equities, Inc. secretary Chris Hermanski Mainlander Property Management treasurer Jeff Denson Dalton Management, Inc. immediate past president Scott Arena Quantum Residential, Inc. Dave Bachman Cascade Management, Inc. Gary Fisher Background Investigations, Inc. Andy Hahs Bittner & Hahs, P.C. Eve Henderson C&R Real Estate Services Co. Andrew Johnson J.R. Johnson, Inc. Jill Keoppel Income Property Management Greg Knakal Princeton Property Management Renee Larsen Apartment Finder Janine Lind Guardian Management Maureen MacNabb Capital Property Management, Inc. Jami Sterling Sterling Management Group, Inc.