Annual Sales Volume Reaches Yet Another Record High

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1 Research & Forecast Report > -ST. PAUL Multifamily Year-End 2017 Annual Sales Volume Reaches Yet Another Record High Overview Vacancy and Rental Rates During the current investment cycle, total transaction volume has increased year-over-year at a rapid rate set records with the highest total sales volume in Twin Cities history, hitting the $1 Billion mark which is almost double the historical average. In 2016, total sales volume surpassed $1.5 Billion and is currently on pace to exceed that figure and approach $2 Billion. $1,300 $1,250 $1,200 $1,150 $1, % 3.0% 2.5% 2.0% 1.5% Notable Market Statistics $1,050 $1, % 0.5% The Minneapolis-St. Paul economy continues to boast one of the lowest unemployment rates in the country, currently hovering around 3.4%, which is considered full employment. Although the Twin Cities is at full employment, over 28,000 jobs have been added in the last 12 months. The metro area is home to 16 Fortune 500 company headquarters, as well as large local employers like the University of Minnesota. The local workforce ranks 11th in the country in terms of education, with 41% achieving a bachelor s degree or higher. The average annual household income of $74,500 tops the national average by 29%. Billions Total Sales Volume $2.00 $1.75 $1.50 $1.25 $1.00 $0.75 $0.50 $0.25 Average Rental Rate Vacancy Rate Abundant and excellent employment opportunities, paired with a healthy population growth rate for multifamily development, averaging around 1% per annum over the last 5 years, has led to a strong rental market. This strength is best exemplified by the metro wide 97.6% occupancy rate, which is just 0.2% below its 2-year high. The Twin Cities metro has also experienced the highest rental rate growth in the Midwest at 3.6%, contrary to its history as a slow-growth market. $ Total Metro Units Completed 10,000 8,000 6, ,000 2, * * Estimated completions based on units currently under construction.

2 Transaction Activity While total transaction volume is expected to rise in a healthy market, what sets the Twin Cities apart from other similar markets is the level of increase in total sales experienced during the past few years. What was once a fairly stable $500 Million - $750 Million annual sales market, has doubled since 2013, without any sharp pullback in sight. In our conversations with both local and national investors, the general consensus is that while the Twin Cities market has matured into a truly national marketplace in the past two years, investors suspected it would likely retreat back to historical sales volume. However, the odds that the large uptick in sales volume is a temporary aberration is becoming less likely, given the current data. As the market continues to mature into a more desirable and monitored national investment buyer marketplace, we will likely see sales volume remaining high in coming years, irrespective of macro market conditions. This will likely partially be a result of shorter hold periods for many national buyers, versus the long-term buy and hold strategy of local buyers. Because of the increase in shorter hold periods, product will have a faster turn-over rate, which will keep market prices competitive and investment bidding active. The overall surge in demand for all classes of multifamily product in the Twin Cities market should continue to drive an increasing volume of sales. Recent Team Transactions Parkway Estates Burnsville units $29,900,000 Pro One Management sold Parkway Estates, a 323-unit 1970s vintage property, to Abacus Capital this fall. The property presents a nice value-add repositioning opportunity. Grant Street Commons Minneapolis units $11,375,000 A new entrant to the Twin Cities, Calvera Partners, purchased Grant Street Commons. The property sits near Downtown East and is ripe for an urban repositioning play. Solhaus Minneapolis units $27,425,000 FPA closed on the purchase of Solhaus and Solhaus Tower, a hybrid student-housing portfolio located in Stadium Village and across from the new University of Minnesota hospital. White Pines Shakopee units $14,500,000 While the strength of the metro market as a whole is increasingly wellknown, White Pines reiterated a trend of increasing national investor appetite for outer ring suburban opportunities, which is a relatively new phenomena. Nicollet Portfolio Minneapolis 3 buildings 54 units $4,900,000 As rental demand continues to push rents in Uptown and greater South Minneapolis, opportunities to buy vintage buildings in solid locations are at a premium and attract a wide spectrum of buyers.

3 Construction New construction has continued at a healthy pace, albeit with an expectation that overall deliveries will drop in the coming years. Over the last four quarters, the metro area has received over 6,611 new units, with close to 9,413 units slated to be delivered over the next twelve months. A keynote theme from last year, the shift from urban to suburban development, shows no signs of slowing. As pockets throughout the metro like West End, Southdale and South Loop reach capacity both from a demand perspective and land availability, new submarkets have begun to emerge. Opus Park, Western Woodbury and Arbor Lakes have a slew of new construction and proposed projects in the pipeline. We should also note that St. Paul is experiencing an influx of new projects with more planned development on the way. While the vast majority of new urban deliveries during this cycle were in Minneapolis, a few, new notable projects were completed in and around downtown St. Paul. With the success of these new developments in St. Paul, like the Vintage on Selby and the Oxbo, developers have taken note and recognized a pent-up demand both in the St. Paul CBD and in nearby neighborhoods. The Green Line spurred a number of new projects on its path and the completion of the new Major League Soccer stadium at University and Snelling in Midway is likely to drive further interest and development in new housing projects around the area. Units Completed University East Summit MacGroveland Southwest Suburban Southeast Suburban South Minneapolis South Central Suburban Southeast St. Paul Northwest Suburban Northeast University Northeast Suburban North Minneapolis North Central Suburban Downtown St. Paul Downtown Minneapolis Uptown Lakes * * Estimated completions based on units currently under construction. A LOOK AT COST OF HOMEOWNERSHIP ACROSS MARKETS CITY AVG SINGLE-FAMILY HOME PRICE MEDIAN INCOME HOME PRICE TO INCOME RATIO San Francisco, CA $916,600 $94, Seattle, WA $478,000 $79, Denver, CO $398,800 $74, Phoenix, AZ $254,400 $58, Minneapolis-St. Paul, MN $256,900 $74, United States $201,300 $58, Chicago, IL $222,900 $66, Minneapolis-St. Paul has the same home affordability ratio as the national average. Affordability is calculated from comparing average single family home prices to median income.

4 Suburban Submarket Minneapolis-St. Paul Multifamily Submarkets NORTHWEST NORTH CENTRAL NORTHEAST ST. PAUL SOUTHWEST SOUTHEAST SOUTH CENTRAL Core Minneapolis Market Core St. Paul Market NORTHWEST DOWNTOWN NORTHEAST UNIVERSITY EAST ST. PAUL SOUTHEAST UPTOWN LAKES SUMMIT MACGROVELAND DOWNTOWN ST.PAUL SOUTHWEST

5 Spotlight Trend: NOAH Impact Fund Having just opened its doors in June of this year, the Naturally Occurring Affordable Housing Impact Fund (NOAH) has lived up to its name and has already had a major impact on the multifamily investment landscape. The fund s mission, to preserve 2,000 unsubsidized, affordable rental apartment homes in the Twin Cities metropolitan area for the benefit of low- and moderate-income working families, individuals and seniors is well on its way to achieving that goal. The NOAH Impact Fund was created to combat the rising popularity of value-add development and its impact on affordable rents. In recent years, many of the aging and affordable housing options around the Twin Cities have been purchased by value-add strategists and redeveloped to cater to a higher income tenant base. This results in the displacement of any residents who are unable to afford the higher rents. The NOAH Impact Fund seeks to curb this trend by helping buyers interested in maintaining affordability, the ability to compete on price with the value-add strategists. To accomplish this task, the Fund will partner with the acquiring party and fund up to 90% of the equity against a 70% first mortgage. This gives a buyer significant leverage advantages to help fund a transaction without having to secure a conventional down payment. Refer to the proposed capital stack graph to see how partnering with the NOAH Impact Fund allows investors to purchase a $10 million-dollar property with only $300,000 down. The NOAH Impact Fund targets 60+ unit multifamily properties, in high demand rental locations, that are considered at risk of displacing tenants through rising rents. The fund has already played a vital role in several large acquisitions in the Twin Cities that are outlined below. In addition to leveraging advantages, the NOAH Impact Fund requires a relatively modest return to meet its benchmark IRR target as compared to typical joint venture equity partners. In exchange for these advantages, the Fund will record a 15-year land use restriction agreement that requires a portion of the tenants earn 80% or 60% of the area median income. These affordability terms are subject to project-specific factors and are negotiable between the acquiring developer and the fund. The Fund targets a 10-year holding period and will exit the investment at that time via a partnership buyout, refinance or market sale. Their goal is to leave the acquiring partner with full control of the asset and 5 years left on the land use restriction agreement. Brady Devore Associate Direct brady.devore@colliers.com Fountain Terrace New Brighton 72 units, purchased as a pilot for The NOAH Impact Fund in partnership with Real Estate Equities. Masada Manor Bloomington Part of a 10 property, 768 unit portfolio. Funded by The NOAH Impact Fund in partnership with Aeon and Enterprise Community Investment, Inc.

6 Significant Apartment Sale Activity BUILDING CITY SIZE (UNITS) YEAR BUILT BUYER SELLER SALE PRICE PRICE PER UNIT SALE DATE The WaHu Minneapolis Mapletree Investments Kayne Anderson *N/A N/A 6/1/2017 Latitude 45 Minneapolis Mapletree Investments Kayne Anderson *N/A N/A 6/1/2017 The Grand Reserve Woodbury Goldman Sachs Group Invesco Real Estate $96,775,000 $245,622 7/13/2017 Park Place Plymouth Investors Real Estate Raith Capital $92,300,000 $184,600 9/13/2017 The Vintage on Selby Saint Paul Zurich North America The Excelsior Group/ Ryan Cos $87,000,000 $414,286 9/26/2017 ARRIVE Eden Prairie Eden Prairie FPA Multifamily Invesco Advisors $84,750,000 $166,831 2/6/2017 Oxbo Saint Paul Investors Real Estate The Opus Group $61,500,000 $321,990 5/25/2017 The Bridges Minneapolis TIAA-CREF Investment Doran Companies $60,720,000 $289,142 7/13/2017 Track 29 Minneapolis RREEF Management RMF Group $53,200,000 $268,687 7/19/ on Washington Minneapolis Mapletree Investments Kayne Anderson $52,500,000 $535,714 6/1/2017 Bristol Village Apartments Bloomington TH Real Estate Dominium $50,750,000 $175,000 3/15/2017 City Walk Woodbury LeCesse Development TA Realty $43,650,000 $209,856 1/17/2017 Watertower Apartments Eden Prairie FPA Multifamily KBS Realty Advisors $42,500,000 $186,404 9/12/2017 Seasons Park Apartments Richfield Aeon Forum Real Estate $36,000,000 $85,308 9/7/2017 Twelve 501 Burnsville FPA Multifamily Town Management $35,350,000 $105,522 1/18/2017 Oak Grove Towers Minneapolis The Laramar Group Sentinel Management $33,200,000 $145,614 5/5/2017 The Knoll Minneapolis TIAA-CREF Investment Doran Companies $32,280,000 $319,603 7/13/2017 Hinton Heights Rental Cottage Grove Curtis Capital Group Belgarde Property $32,000,000 $128,514 2/28/2017 Equinox Saint Anthony The Laramar Group Sentinel Management $31,200,000 $117,293 6/19/2017 Parkway Estates of Burnsville Abacus Capital Group Pro One Management $29,900,000 $92,570 9/27/2017 Park Terrace Apartments Minneapolis The Laramar Group Sentinel Management $19,600,000 $100,000 5/5/2017 Remington Cove Apartments Apple Valley CAPREIT Trident Development $19,050,000 $188,614 11/2/2017 The Atwood Eden Prairie FPA Multifamily Belgarde Property $17,550,000 $110,377 3/10/2017 Laguna Apartments Minneapolis Peter Michael Heinemann TLP Group $17,000,000 $377,778 3/16/2017 Solhaus Minneapolis FPA Multifamily Forum Real Estate $14,320,000 $190,933 12/12/2017 * Asset-level sale with non-verified allocations

7 Significant Apartment Sale Activity BUILDING CITY SIZE (UNITS) YEAR BUILT BUYER SELLER SALE PRICE PRICE PER UNIT SALE DATE Chardon Court Apartments New Hope Scott Weber Anderson Pattee Realty Services $13,900,000 $107,752 10/30/2017 Country Club Manor West Saint Paul Scott Weber Donald Bakewell $13,500,000 $128,571 5/31/2017 Solhaus Tower Minneapolis FPA Multifamily Forum Real Estate Group $13,120,000 $174,933 12/12/2017 Bass Lake Crossing New Hope Aeon Towers Management $12,460,000 $89,000 10/31/2017 Metropolitan Towers Bloomington Aeon Towers Management $12,056,000 $111,629 10/31/ On The Park Minneapolis Kevin McMullen The Apartment Shop $12,000,000 $166,667 8/31/2017 Brookside Mobile Home Park Saint Paul Summit Real Estate & Management Tri-Park Investments $11,400,000 $52,778 5/31/2017 Grant Street Commons Minneapolis Calvera Partners Scott M. Weber $11,375,000 $133,824 5/30/2017 The Hollywood Minneapolis Mint Properties The Apartment Shop $10,800,000 $337,500 11/16/2017 Kings Manor Minneapolis Aeon Towers Management $8,857,070 $101,805 10/31/2017 Interlachen Court Edina Scott Weber Ann Krebes Revocable Trust $8,700,000 $142,623 3/31/2017 Chateau de France Bloomington Country Inn Properties Gerald L. Spande $8,576,667 $103,333 7/14/2017 Rainbow Plaza Apartments Anoka Common Bond Communities John L. Washburn JR $8,450,000 $80,476 7/6/2017 Nicollet Court Bloomington Aeon Towers Management $8,042,460 $93,516 10/31/2017 Sunfish Lake Apartments West Saint Paul Peter Eisenhuth Nile L & Lucinda Hallett $7,500,000 $122,951 2/28/2017 Vesta Minneapolis Mint Properties SS Quarters, Inc. $7,300,000 $105,797 8/31/2017 Queen Anne Courts Lakeville 160 Riverstone Communities John B Goodman Enterprises $7,250,000 $46,178 5/10/2017 Isles West Minneapolis Hartley Properties, Inc. TLP Group $6,923,000 $161,000 11/3/2017 Orono Woods Senior Living Long Lake Lang Nelson Associates Volunteers of America $6,840,000 $110,323 9/29/2017 Courtly Park Townhomes Woodbury Courtly Commercials Madison Equities $6,800,000 $89,474 3/9/2017 Isle East Minneapolis Hartley Properties TLP Group $6,762,000 $161,000 11/3/2017 The Arbors Bloomington Aeon Towers Management $6,692,000 $121,672 10/31/2017 The Parkway Minneapolis TE Miller Development Inroads Capital Partners $6,525,000 $93,214 2/9/2017 Cedar Glen Bloomington Aeon Towers Management $5,984,000 $93,500 10/31/2017

8 403 offices in 68 countries on 6 continents United States: 153 Canada: 29 Latin America: 24 Asia Pacific: 86 EMEA: 111 $2.6 billion in annual revenue 2 billion square feet under management 16,000 professionals and staff FOR FURTHER INFORMATION PLEASE CONTACT: Colliers International Minneapolis-St. Paul 4350 Baker Road, Suite 400 Minnetonka, MN colliers.com/msp Ted Bickel Senior Vice President DIR ted.bickel@colliers.com Jeff Budish Vice President DIR jeff.budish@colliers.com Brady DeVore Associate DIR brady.devore@colliers.com SUBSCRIBE TO OUR BLOG Copyright 2017 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.