2015 apartment transaction volume exceeds $1 billion for the first time

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1 Research & Forecast Report MINNEAPOLIS-ST. PAUL APARTMENT Spring apartment transaction volume exceeds $1 billion for the first time Overview The Minneapolis-St. Paul apartment market benefits from a strong, diverse regional economy steadily growing at an average of 2.5 percent over the past three years. Strong job growth puts Minnesota first in the nation on Gallup s 2015 Job Creation Index. After the final tally, 2015 transaction volume surpassed $1 billion, setting a new highwater mark for the Twin Cities market. Much of this dollar volume was contributed by large Class A stabilized and presales, a telling sign of our development landscape and how national investors perceive the Twin Cities market fundamentals. Though 2016 might hedge a bit from the banner year we saw in 2015, there are good indications that the investment, development and operational landscape will remain strong. Market Indicators Relative to prior period Spring 2016 VACANCY RENTS TRANSACTION ACTIVITY PRICE PER UNIT CAP RATES Transaction Activity With a record year in terms of dollar volume, we reviewed transaction volume to see if that picked up as well. Interestingly, our market has remained fairly steady dating back to 2012 with annual trades at or above $750,000 numbering about each year. When we solved for other minimum dollar values, the number of trades remained steady. This tells us that while private capital sales have traded at a steady annual clip post-recession, larger, institutional sales have picked up significantly. And with the number of national investors interested in the Twin Cities market, that is not a surprising theme. We expect total annual sale dollar volume to stay above historical averages as institutional investors continue to pursue large acquisitions. On the private capital side, we are experiencing a greater influx of outside capital chasing smaller deals as well. It is not unusual to work with individual or smaller private capital groups on listings below $5mm. Part of this is due to technology providing a national platform for listings, but a key piece is the fact that the Twin Cities are becoming well-known as a stable, conservative market for multifamily assets while also providing good yields. This has increased competition on listings and provided sellers greater access to the national marketplace, which we see continuing in 2016.

2 Apartment Construction: Completions by Date Un nits 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, (Forecast) Source: MPF Research Units Under Construction Monthly Employment Trends 10, ,000 6,000 4,000 2, Under Construction Completions Source: MPF Research Year-Over Over-Y Year Employment Change (%) Minn neapolis-st. Paul (1) (2) (3) (4) (5) (6) New Construction Developers delivered roughly 4,000 units in 2015, a decline from the 5,500 units delivered in The supply pipeline for 2016 looks similar, with 4,100-4,400 units expected to deliver. As a whole, new deliveries were well-received by the market. Lease-ups were successful almost across the board, with some exceptions, and absorption figures imply that demand is still unmet in urban areas, even those that have seen a large number of deliveries during this cycle. On the cost side, increasing land, labor and material pricing is having a significant affect on feasibility. Without tax credits, TIF or other subsidy sources, many projects ultimately die at the drawing board despite city approval. With construction costs increasing anywhere from 10-25% over the past two years for a given project and rental rates not seeing significant increases in many suburban markets, the numbers often don t work without some form of subsidy. A shift to suburban development is underway, with new projects being proposed in submarkets that have not experienced new construction recently. The typical strongholds like Edina, Bloomington and St. Louis Park continue to see new proposed projects, while markets like Woodbury, Eagan, Maple Grove, and Minnetonka broke through this past year. We see this shift continuing to reach further out into the suburbs and into historically less-desirable submarkets as developers search for opportunities. 2 Minneapolis-St. Paul Research & Forecast Report Spring 2016 Apartment Colliers International

3 Average Rent & Vacancy e Monthly Rent Per Unit Average $1,150 $1,100 $1,050 $1,000 $950 $900 $850 $ % 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Percent Vacant Over the past few years, development and investment has focused on in-demand areas such as Downtown Minneapolis, near the University of Minnesota, Uptown, and a few first-ring suburbs. The below transactions represent a growing trend towards development and investment outside of the urban core and into the second-ring suburbs. Average Monthly Rent Source: MPF Research Vacancy Apartment Sales $700 $160,000 $600 $140,000 otal Sales Volume To $500 $400 $300 $200 $100 $ Total Quarterly Volume $ (mil) Avg. Price Per Unit Source: Real Capital Analytics $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $0 Price Per Unit Valley Creek In the largest sale of 2015, Valley Creek was purchased by Marquette Companies for $54,250,000. Valley Creek is located in Woodbury, a second-ring suburb that is finally seeing new multifamily development. Market Statistics The vacancy rate in the Minneapolis-St. Paul apartment market is 2.9 percent as of quarter four of In terms of high occupancy, the region is in the top 10 in the nation and among the top 5 in major Midwest markets. Rental rates continue to grow across product classes, and an increase of 3.2 percent was posted for Due to the influx of supply, particularly in downtown Minneapolis, Uptown and near the University of Minnesota, Class A properties have lower, but still strong, occupancy levels which are expected to stabilize as initial lease up completes and the influx of supply tapers. Whether occupancy remains stable on Class C properties long-term is a trend to watch later in West The Doran Companies, an active multifamily developer in Minneapolis, is under construction on 610 West, a 484-unit apartment complex in Brooklyn Park. The project is located a block from Target s corporate campus. Minneapolis-St. Paul Research & Forecast Report Spring 2016 Apartment Colliers International 3

4 Significant Apartment Sale Activity BUILDING CITY SIZE (UNITS) YEAR BUILT BUYER SELLER SALE PRICE PRICE PER UNIT 222 Hennepin Minneapolis Weidner Apartment Homes Invesco Advisors, Inc. $91,450,000 $319,755 Dinkytown Portfolio Minneapolis University Communities Doran Companies $83,500,000 Mixed use 7 West Minneapolis Weidner Apartment Homes TE Miller Development LLC $54,500,000 $206,500 Valley Creek Woodbury Marquette Companies Trilogy Real Estate Group $54,250,000 $134,950 The Walkway Minneapolis J.P. Morgan Investment Management Inc. DM Companies $53,750,000 $437,500 The Concierge Richfield MLG Capital, LLC TE Miller Development LLC $41,000,000 $58,739 Louisiana Oaks Saint Louis Park Sidal Realty MSP Real Estate Inc $39,100,000 $195,500 The Paxon Minneapolis Clarion Partners Sherman Associates, Inc. $38,750,000 $276,786 The Residence at the COR Ramsey Weidner Apartment Homes Thomas Lake Pointe Eagan Nationwide Housing Corporation Velo Minneapolis Clarion Partners Uptown Portfolio Minneapolis 1 Hornig Companies, Inc. Provence Luxury Flaherty & Collins Properties $37,500,000 $163,043 Dominium $31,000,000 $143,519 Aurora Investments / Sentinel Management Apartment Management Co Lllp $30,975,000 $306,683 $25,180,000 $129,7 Burnsville CAPREIT Boisclair Corporation $20,150,000 $128,344 Solhem Minneapolis The Laramar Group, LLC Solhem Companies $15,675,000 $261,250 Hart Lake Columbia Heights Northstar Properties Steven Scott Management $13,300,000 $91,724 Lofts at Farmers Market Saint Paul Weidner Apartment Homes City of St. Paul $13,200,000 $231,579 Marketplace & Main Hopkins Doran Companies Beard Group, Inc. $12,800,000 $241,509 Blaine Courts & Cloverleaf Courts Blaine / Dean Pkwy Minneapolis Lang Nelson Associates, Inc. Highland Management Group Inc. Blaine Economic Development Authority $10,650,000 $68,269 Kraft and Company $9,000,000 $166,667 Granite Trails Apartment Maplewood Dennis A. Homel Canvasback Investments $7,624,000 $70,593 California Drive Saint Paul Hornig Companies, Inc. Oaks Properties, LLC $7,500,000 $69,444 Edina Seasons Edina Aldrich LLC Shawn Punjwani $6,164,056 $140,092 Seward Flats Minneapolis Quality Trusted Commercial Sherman Associates, Inc. $6,100,000 $49,593 Groveland Terrace Maple Grove Scott M. Weber Cottage Villas of Arden Hills Fountain Terrace Arden Hills St Louis Park Place Llc New Brighton The Alden Minneapolis Park Place Dellwood Centre Saint Louis Park Premier Real Estate Management LLC Cottage Villas Of Arden Hills Lp $6,050,000 $126,042 $6,000,000 $100, Real Estate Equities Interstate Partners $5,800,000 $80,556 Employment Advisors Intr Inc Community Housing Development Corporation $5,800,000 Mixed use TB2000 LLC Scott M. Weber $5,375,000 $81,439 Anoka Norlin Boyum Lafromboise, Gary $5,350,000 $89,167 Mill Pond Gables Champlin Avinity City of Champlin Economic Development Authority $4,420,329 $92,090 4 Minneapolis-St. Paul Research & Forecast Report Spring 2016 Apartment Colliers International

5 Significant Apartment Sale Activity BUILDING CITY SIZE (UNITS) YEAR BUILT BUYER SELLER SALE PRICE PRICE PER UNIT The Denn Minneapolis Phalen Shores CPM Companies - The Elysian Saint Paul Steven Scott Management Crest Oak Coon Rapids Crest Oaks LLC Christensen & Laue PA $4,250,000 $90,426 Lake Phalen Housing Limited Partnership West Suburban Housing Partners $4,150,000 $78,302 $4,117,820 $68,630 Crest Oak Coon Rapids Steven Scott Management Stifel, Nicolaus & Co., Inc. $4,117,820 $68,630 Cornerstone Estates Saint Paul InMotion Company Pine Ridge Capital $3,910,000 $61,0 Multi-Property Sale Minneapolis Hornig Companies, Inc. Apartment Management Co - Calhoun Beach $3,887,000 $169,000 The Crystal Minneapolis Pergola Management Nath Companies, Inc. $3,650,000 $89,024 Maplewood Townhomes Maplewood H.V Val J. Rothschild, Inc. Everwood Development $3,600,000 $85,714 Douglas Drive Terrace Minneapolis Bob Gardner Lori S Bart $3,100,000 $67, West Bloomington Buck Properties II, LLP Liechty Associates $3,000,000 $83,333 Imperial Heights West Saint Paul 67 Reacor Ltd. Evergreene Osseo Mala Himraj Duke Financial Group, Inc. Hall Property Management $2,995,000 $69,651 $2,990,000 $66,444 Queens Lane Anoka Brett C Lillemoe Dennis A. Homel $2,970,000 $247,500 George Street Saint Paul Hempel Sela Investments, LLC $2,850,000 $63,333 Twin Lakes Robbinsdale Scott Cooper At Home - Twin Lakes $2,690,000 $74,722 Anoka Flats Anoka Dan Kraft Scott M. Weber $2,628,000 $73,000 Multi-Property Sale Saint Paul /1974 Real Estate Equities Christine Stassart $2,525,235 $70,145 Lonnie Adkins Court Saint Paul Dominium H.V Val J. Rothschild, Inc. $2,407,609 $31,268 Brookview Manor Maplewood Azam Haji M & Huma Z R&R Commercial Properties, LLC $2,225,000 $61, /20 Cedar Ave. Richfield M Club Investments Llc Hornig Companies, Inc. $2,132,500 $59,236 Cottage Grove Estates Cottage Grove Cottage Grove Estates LLC Eagan Hills, LLC $2,125,000 $88,542 Oak Hills Fridley Brett C Lillemoe Scott Weber Humboldt, LLC $1,975,000 $58,088 Beltami Park Minneapolis Alma Equities Llc Michael & Charity Seeger $1,900,000 $79,167 Art Institute Apts Minneapolis TLP Services Shawn Punjwani $1,818,100 $49,138 Pleasant Avenue Villas Saint Paul Pleasant Avenue LLC Pleasant Avenue Properties, LLC $1,750,000 $76, Virginia Saint Paul Scott M. Weber John T & Gina Mcgovern $1,700,000 $73,913 Beard Avenue Brooklyn Center , LLC Holmgren II Minneapolis /1970 Southeast Flats Llc The Gables Minneapolis Maven Real Estate Partners Quality Trusted Commercial Gary G & Susan D Holmgren Persaud Properties Investments, Inc. $1,700,000 $70,833 $1,680,000 $62,222 $1,675,000 $98,529 Minneapolis-St. Paul Research & Forecast Report Spring 2016 Apartment Colliers International 5

6 New Apartment Construction Ramsey Otsego Proposed (61) Columbus Forest Under Construction (41) Lake Recently Completed (53) Ham Lake Andover Anoka Dayton Lino Lakes Coon Rapids Champlin Blaine 61 Hugo Maple Corcoran Grove Brooklyn Park 35E Shoreview Fridley North Oaks Medina Grant 6 Plymouth 6 36 Lake Maplewood Roseville 35E Golden Elmo Valley 12 St. Paul Orono 100 Minnetonka 10 Minneapolis Woodbury Edina 62 5 Richfield Chanhassen Eden 3 35E Prairie Bloomington Eagan Cottage Grove 52 35E Inver Grove Heights Burnsville Savage Minneapolis Prior 3 Lake Lakeville 35 Golden Valley Shakopee 280 M iss i s 3 si p pi Riv er Apple Valley Rosemount 55 6 Farmington Minneapolis-St. Paul Research & Forecast Report Spring 2016 Apartment Colliers International Miles

7 For further information please contact: Ted Bickel Vice President DIR Julie Lux Sr. Associate DIR Kevin Doyle Vice President DIR Minneapolis-St. Paul Research & Forecast Report Spring 2016 Apartment Colliers International 7

8 554 offices in 66 countries on 6 continents United States: 153 Canada: 34 Latin America: 24 Asia Pacific: 231 EMEA: 112 $2.5 billion in annual revenue BROKERAGE SERVICES CONTACT: William M. Wardwell SIOR Executive Vice President Brokerage Minneapolis-St. Paul bill.wardwell@colliers.com FOR MORE INFORMATION: Maura Carland Director of Research Minneapolis-St. Paul maura.carland@colliers.com Colliers International Minneapolis-St. Paul 4350 Baker Road, Suite 400 Minnetonka, MN billion square feet under management 16,000 professionals and staff Copyright 2016 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.