Multifamily Research. Market Report Third Quarter South Florida. Rent Growth Holds Upward Momentum As New Supply Peaks in South Florida

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1 Multifamily Research Market Report Third Quarter 2017 South Florida Rent Growth Holds Upward Momentum As New Supply Peaks in South Florida High homeownership cost keeps rental demand elevated. Rising employment numbers and surging in-migration are boding well for apartment performance across South Florida. Multifamily deliveries will hit a cycle high in all three counties this year as developers work to keep up with tenant demand. More than,900 apartments are slated for completion this year, with the greatest amount coming to Miami. As each county s growth in the median home price outpaces advances made in median household income, the homeownership rate remains on a downward trend, ensuring demand for newly built apartments from incoming households and current residents as many are renting for longer periods. New supply pushes past demand this year. Construction is most concentrated in the downtown corridors of Miami, Fort Lauderdale and West Palm Beach. The pipeline is immense as 70 projects are underway totaling just over 21,700 apartments, with some complexes exceeding 400 units. Due to the volume of new apartments opening within months of each other, lease-up for these properties will stretch into next year, lifting the metro s average vacancy rate in the short term. This rise will match some of the largest vacancy rate changes of the current cycle. Even with a large number of properties in lease-up, the overall average vacancy for each county remains low, allowing tenant demand to support annual rental increases for the eighth straight year. Average Rate 1 9% Local Apartment Yield Trends Apartment Cap Rate 01 * Trailing 12 months through 2Q17 Sources: CoStar Group, Inc.; Real Capital Analytics Year Treasury Rate Multifamily 2017 Outlook Miami 3. 0 $1, Fort Lauderdale 5.1% 120 $1, % West Palm Beach Investment Trends Miami 5.5% 110 $1, % Revitalization efforts underway in the Little Haiti and Little Havana neighborhoods will spur buyer interest for older properties with value-add opportunities. Class B and C properties outside the urban core where rents are more affordable remain highly in demand and have going-in cap rates that fall in the high-6 to low-9 percent range. Fort Lauderdale Vacancy Transit improvements that will be complete soon will further spur buyer attention to downtown and Flagler Village in particular. Value-add opportunities are prevalent in Hollywood, Dania Beach, Pompano Beach and Deerfield Beach where cap rates can reach the low-8 percent area based on quality and location. West Palm Beach Basis Point Effective Rent Investors will focus on Boynton Beach and Delray Beach, where development has been elevated. Garden-style complexes with value-add components remain highly sought after. Cap rates in Palm Beach County average 40 basis points higher than those of similar assets in Miami-Dade, fueling demand from buyers in search of larger yields.

2 Miami Employment Trends EMPLOYMENT: 2. increase in total employment Year-over-Year 1% During the first half of the year 10,700 jobs were created, led by the trade, transportation and utilities sector, bringing annualized employment gains to 23,600 and growing the workforce at a greater clip than the nation. The unemployment rate compressed to 4.8 percent in the second quarter of 2017, down 50 basis points from the same time last year. Completions and Absorption CONSTRUCTION: Completions Absorption 5,235 units completed Units (thousands) In the second quarter 2,4 apartments were completed, bringing deliveries over the year to 5,235. One year earlier 5,109 rentals were opened. Construction remains elevated with 11,800 rentals working through the pipeline. Completion dates extend into 2019, with a significant number of new rentals on tap for downtown Miami and South Beach. Vacancy Rate Trends VACANCY: 210 basis point increase in vacancy Vacancy Rate Negative net absorption totaling 1,366 units over the past four quarters lifted vacancy to 3.8 percent, triggered by poor performance in the first quarter of A 0-basis-point drop was posted in June 20. Class A vacancy jumped 530 basis points in the last 12 months to 8.1 percent while Class C vacancy remained unchanged at 0.7 percent. Rent Trends RENTS: Monthly Rent Rent 8. increase in effective rents Monthly Effective Rent $1,500 $1,375 $1,250 $1,125 $1,000 Year-over-Year In the face of a substantial rise in vacancy, the average effective rent jumped 8.8 percent in June from a year earlier to $1,447 per month. A 12.7 percent increase was registered for Class A rentals, climbing to $2,012 a month. Class C apartments averaged an effective rent of $9 per month, up 7.0 percent from last year. * Forecast

3 Multifamily Research Market Report DEMOGRAPHIC HIGHLIGHTS 2Q17 MEDIAN HOUSEHOLD INCOME $47,009 U.S. Median $58,672 2Q17 AFFORDABILITY GAP Renting is $6 Per Month Lower Average Effective Rent vs. Mortgage Payment* MULTIFAMILY (5+ Units) PERMITS 7,589 1H 2017 h % Q17 MEDIAN HOME PRICE $346,900 U.S. Median $246,000 FIVE-YEAR HOUSEHOLD GROWTH** 84,000 or 1.7% Annual Growth U.S. 1.1% Annual Growth SINGLE-FAMILY PERMITS 2,718 1H g *Mortgage payments based on quarterly median home price with a 30-year fixed-rate conventional mortgage, 9 LTV, taxes, insurance and PMI. ** Annualized Rate SUBMARKET TRENDS Lowest Vacancy Rates 2Q17 Submarket North Central Miami 0. 0 $ Homestead/ South Dade County $ Hialeah/Miami Lakes 1.7% 60 $1, Miami Gardens $1, % Northeast Miami $1, % West Miami/Doral 3.7% 0 $1, Westchester/Kendall 5.5% 360 $1, Downtown Miami/ South Beach Coral Gables/ South Miami Vacancy Rate Basis Point Effective Rents % 6.1% 530 $1, % $1, Overall $1, SALES TRENDS High Yields Remain Available in Parts Of Miami-Dade County Deal flow slowed percent over the previous four quarters from the prior period with a high volume of sales in the Bal Harbour/South Beach and Brickell/ Downtown Miami submarkets. Pricing dipped 7 percent over the last 12 months, averaging $3,900 per unit. In Bal Harbour and South Beach, many smaller properties changed hands over the past year, averaging $208,500 per unit. Outlook: Buyers in search of higher yields on apartment investments will be drawn to the Miami Gardens/Opa-locka submarket, where cap rates average 7.5 percent. Average Price per Unit (000s) $180 $0 $0 $120 $100 Pricing Trends * ** Trailing 12 months through 2Q17 Pricing trend sources: CoStar Group, Inc.; Real Capital Analytics

4 Fort Lauderdale Employment Trends EMPLOYMENT: Year-over-Year 1% 4. increase in total employment Led by the creation of 12,000 jobs in the professional and business services sector, year-over-year employment gains totaled 33,000 in June, far surpassing the 21,000 jobs created a year ago. The jobless rate fell 80 basis points from June 20, reaching 3.8 percent to account for the tightest local labor force since Completions and Absorption CONSTRUCTION: Completions Absorption 4,067 units completed Units (thousands) Deliveries surged over the past four quarters as 4,067 apartments were brought online, far more than the 1,538 units completed in the prior period. The largest delivery was the 555-unit Modera Port Royale. There are 19 projects underway comprising 5,600 units. They have completion dates reaching into In Fort Lauderdale proper, 1,850 units are rising. Vacancy Rate Trends VACANCY: Vacancy Rate 0 basis point increase in vacancy Net absorption of 1,500 units fell behind deliveries to push the vacancy rate up to 5 percent in the second quarter. A 10-basis-point drop was observed a year ago. Class A vacancy was at 8.6 percent in June, up 360 basis points from last year while a 20-basis-point drop was registered at Class C complexes to bring the rate to a tight 1.9 percent. Rent Trends RENTS: Monthly Rent Rent 0. increase in effective rents Monthly Effective Rent $1,500 $1,375 $1,250 $1,125 $1, % Year-over-Year The average effective rent inched up to $1,474 a month, rising much slower than the 6.9 percent pace set last year. Class C rents climbed at the greatest clip, up 1.7 percent over the year to reach a monthly rent of $1,065 while Class B apartments posted a 0.3 percent reduction to average $1,472 per month. Class A rent averaged $1,850 monthly, up 0.7 percent. * Forecast

5 Multifamily Research Market Report DEMOGRAPHIC HIGHLIGHTS 2Q17 MEDIAN HOUSEHOLD INCOME $58,047 U.S. Median $58,672 2Q17 AFFORDABILITY GAP Renting is $317 Per Month Lower Average Effective Rent vs. Mortgage Payment* MULTIFAMILY (5+ Units) PERMITS 2,852 1H 2017 h Q17 MEDIAN HOME PRICE $294,800 U.S. Median $246,000 FIVE-YEAR HOUSEHOLD GROWTH** 87,000 or 2. Annual Growth U.S. 1.1% Annual Growth SINGLE-FAMILY PERMITS 1,983 1H % g *Mortgage payments based on quarterly median home price with a 30-year fixed-rate conventional mortgage, 9 LTV, taxes, insurance and PMI. ** Annualized Rate Lowest Vacancy Rates 2Q17 Buyers Broaden Acquisition Criteria For Well-Performing Apartment Complexes SUBMARKET TRENDS Submarket Pompano Beach/ Deerfield Beach Vacancy Rate Basis Point Effective Rents % 2.7% -80 $1, % Pembroke Pines/Miramar $1, % Fort Lauderdale 4.5% 0 $1, Margate/Coconut Creek/ North Lauderdale $1, Coral Springs 5.5% 200 $1, Plantation/Davie/Weston 5.7% 0 $1, Hollywood $1, Sunrise/Lauderhill $1, Overall 5. 0 $1, SALES TRENDS Sales slowed 19 percent in the last 12 months from the prior period. Investment activity jumped in the Pompano Beach/Deerfield Beach submarket. Pricing averaged $5,400 per unit, up 1 percent from the previous 12 months while initial cap rates held stable in low-6 percent territory. Complexes in the Hollywood and Dania Beach submarket traded at a discount, averaging $98,700 per unit. Outlook: In the Oakland Park/Lauderhill and Hollywood/ Dania Beach submarkets, first-year yields are in the mid-6 to low-8 percent band, fueling buyer interest here. Average Price per Unit (000s) $0 $5 $110 $85 $60 Pricing Trends * ** Trailing 12 months through 2Q17 Pricing trend sources: CoStar Group, Inc.; Real Capital Analytics

6 West Palm Beach Employment Trends EMPLOYMENT: Year-over-Year 2.7% increase in total employment Job gains in the last four quarters totaled,300, led by the leisure and hospitality sector and the professional and business services sector, which each contributed 4,400 jobs. Employment growth outpaced the nation. The unemployment rate dropped 70 basis points since the second quarter last year to 4.1 percent, below the national rate. Completions and Absorption CONSTRUCTION: Completions Absorption 2,954 units completed Units (thousands) Deliveries over the year ended in June surpassed the 1,661 units opened during the previous yearlong stretch. Palmetto Promenade, a 378-unit complex, accounted for the largest completion over the last 12 months. There are 17 projects in the pipeline that are anticipated to finish in the next 18 months, totaling 4,300 units. The largest is Altis Boca Raton at 398 doors. Vacancy Rate Trends VACANCY: Vacancy Rate 20 basis point increase in vacancy The vacancy rate climbed to 4.6 percent in the second quarter on net absorption of 2,260 units over the past year. A 30-basis-point drop was observed a year ago. Class C vacancy tightened 80 basis points to 1.6 percent in the second quarter while an influx of top-tier units pushed Class A availability to 7.2 percent, a 90-basis-point increase from last June. Monthly Rent Rent Trends Rent RENTS: 3.5% increase in effective rents Monthly Effective Rent $1,600 $1,450 $1,300 $1,0 $1, % Year-over-Year Year over year in the second quarter, the average rent climbed to $1,504 per month. One year earlier, rents grew at a much more robust pace, rising 6.4 percent. Class B units increased rents at the greatest rate, up 7.5 percent year over year to $1,512 a month. Class C rates rose 2.6 percent to $1,038 monthly while Class A units posted a 4.2 percent increase to $1,924 per month. * Forecast

7 Multifamily Research Market Report DEMOGRAPHIC HIGHLIGHTS 2Q17 MEDIAN HOUSEHOLD INCOME $61,524 U.S. Median $58,672 2Q17 AFFORDABILITY GAP Renting is $490 Per Month Lower Average Effective Rent vs. Mortgage Payment* MULTIFAMILY (5+ Units) PERMITS 912 1H 2017 h 45% Q17 MEDIAN HOME PRICE $334,000 U.S. Median $246,000 FIVE-YEAR HOUSEHOLD GROWTH** 107,000 or 3. Annual Growth U.S. 1.1% Annual Growth SINGLE-FAMILY PERMITS 2,799 1H % g *Mortgage payments based on quarterly median home price with a 30-year fixed-rate conventional mortgage, 9 LTV, taxes, insurance and PMI. ** Annualized Rate Lowest Vacancy Rates 2Q17 Limited Listings Pull Back Sales Activity, Though It Remains Above Level Submarket Vacancy Rate Basis Point Effective Rents % Deal flow slowed 11 percent in the last 12 months from the previous period, with a strong focus on West Palm Beach and Lake Worth. SUBMARKET TRENDS Lake Worth/Greenacres/ Wellington $1, West Palm Beach $1, North Palm Beach County 4.9% 30 $1, % Boca Raton 5. 0 $1, % Boynton Beach/ Delray Beach 6.5% 120 $1, Overall $1, % SALES TRENDS Properties traded in the last 12 months commanded an average price per unit of $3,900, a nominal increase from the prior 12 months. Outlook: Higher yields are more readily available in Palm Beach County than the rest of South Florida, spurring greater investor interest in the county. Older mid-rise and garden-style properties will be in high demand for value-add opportunities. Average Price per Unit (000s) $0 $5 $0 $1 $100 Pricing Trends * ** Trailing 12 months through 2Q17 Pricing trend sources: CoStar Group, Inc.; Real Capital Analytics

8 Multifamily Research Market Report Private, 6 Apartment Acquisitions By Buyer Type* Other, 1% Cross-Border, Equity Fund & Institutions, 2 Listed/REITs, By WILLIAM E. HUGHES, Senior Vice President, Marcus & Millichap Capital Corporation Monetary policy in transition. Despite the Fed raising its benchmark short-term rate three times in seven months and signaling another rise before the end of the year, long-term rates have remained stable. The yield on the 10-year U.S. Treasury bond remained in the low- to mid-2 percent range throughout the second quarter of The Federal Reserve wants to normalize monetary policy and, in addition to rate hikes, will likely start paring its balance sheet. Percent of Dollar Volume 10 75% 5 25% Apartment Mortgage Originations By Lender Sources: CoStar Group, Inc.; Real Capital Analytics National Multi Housing Group Visit John Sebree First Vice President, National Director National Multi Housing Group Tel: (312) john.sebree@marcusmillichap.com Prepared and edited by Michael Murphy Research Analyst Research Services * Trailing 12 months through 2Q17 For information on national apartment trends, contact: John Chang First Vice President Research Services Tel: (602) john.chang@marcusmillichap.com Gov't Agency Financial/Insurance Reg'l/Local Bank Nat'l Bank/Int'l Bank CMBS Pvt/Other CAPITAL MARKETS Miami Office: Sound economy a balancing act for Fed. With unemployment hovering in the low-4 percent range, the lowest level since 2007, the Federal Reserve will remain vigilant regarding the possible rapid increase in inflation if wage growth takes off. Additionally, business confidence and job openings are near all-time highs. Businesses finally have the assurance to expand their footprints after years of tepid growth following the Great Recession. These conditions are allowing pent-up households to form, creating new apartment demand. The Fed, however, must now balance economic growth and job creation against wage growth and inflationary pressures. Underwriting discipline persists; ample debt capital remains. Overall, leverage on acquisition loans has continued to reflect disciplined underwriting, with LTVs typically ranging from 65 percent to 75 percent for most apartment properties. At the end of 20, the combination of higher rates, conservative lender underwriting and fiscal policy uncertainty encouraged some investor caution that slowed deal flow, a trend that has extended into A potential easing of regulations on financial institutions, though, could liberate additional lending capacity and higher interest rates may also encourage additional lenders to participate. Kirk A. Felici First Vice President Regional Manager (786) kirk.felici@marcusmillichap.com 5201 Blue Lagoon Drive Suite 100 Miami, FL Fort Lauderdale Office: Ryan Nee Vice President Regional Manager Tel: (954) ryan.nee@marcusmillichap.com 5900 North Andrews Avenue Suite 100 Fort Lauderdale, FL Price: $750 Marcus & Millichap The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no representation, warranty or guarantee, express or implied, may be made as to the accuracy or reliability of the information contained herein. Note: -level employment growth is calculated based on the last month of the quarter/year. Sales data includes transactions valued at $1,000,000 and greater unless otherwise noted. This is not intended to be a forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide specific investment advice and should not be considered as investment advice. Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; Experian; National Association of Realtors; Moody s Analytics; Real Capital Analytics; MPF Research; TWR/Dodge Pipeline; U.S. Census Bureau.