MARKET INSIGHT MULTIFAMILY REPORT SECOND QUARTER 2018

CUSHMAN & WAKEFIELD MULTIFAMILY ADVISORY GROUP MARKET INSIGHT MULTIFAMILY REPORT SECOND QUARTER 2018 The Cushman & Wakefield Multifamily Research Team provides in-depth coverage of primary, secondary and tertiary submarkets across Northern California. In addition to analyzing multifamily rent and sales trends, these reports examine employment data, job growth trends, key economic announcements, and development pipeline news. IN THIS EDITION Bay Area Submarkets Sacramento Counties East Bay El Dorado LARKSPUR WALNUT CREEK STOCKTON North Bay Placer OAKLAND Peninsula Sacramento SAN FRANCISCO San Francisco Yolo PLEASANTON South Bay BURLINGAME PALO ALTO MARKET RESEARCH TEAM LOS ALTOS SAN JOSE ROBERT SAMMONS Regional Research Director robert.sammons@cushwake.com JASON KARBELK Senior Research Analyst jason.karbelk@cushwake.com = C&W Offices

BAY AREA 1 BAY AREA EMPLOYMENT & UNEMPLOYMENT TRENDS The unemployment rate in the Bay Area was 3.1% in June 2018, well below its 3.7% rate one year ago. The Bay Area continued its strong job growth momentum, adding 73,300 nonfarm jobs from one year ago. Since the Bay Area s most recent unemployment peak of 11.7% in the first quarter of 2010, there have been 781,100 jobs created across the region. ECONOMIC EXPANSION The following are select announcements from second quarter 2018: Unemployment across the region remains at or near record lows; there have now been 895,000 jobs added in the Bay Area since the recovery began in January 2010. BAY AREA JOB GROWTH TRENDS EMPLOYMENT IN MILLIONS & JOB GROWTH (%) 4.20 4.10 4.0% The vacancy rate, particularly in urban core or transit-oriented markets, generally continues to tighten with San Francisco leading the pack thanks to big tech taking most everything that comes available. Rents were flat to somewhat higher in the second quarter across the Bay Area; held down primarily by the fact that a number of high-priced trophy blocks were leased and thus removed from the market. 4.00 3.90 3.80 3.70 3.60 3.0% 2.0% 1.0% Q2 2016 Q2 2017 Q2 2018 FORECAST LABOR FORCE (YOY % CHANGE) 1.1% -0.2% 1.4% 4.163M EMPLOYMENT (YOY % CHANGE) 1.2% 0.4% 2.0% 4.035M UNEMPLOYMENT RATE (%) 4.2% 3.6% 3.1% Forecast is 12-month outlook 3.50 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 Source: BLS. Gov 2016 2017 2018 YOY % Job Growth JOB GROWTH & UNEMPLOYMENT RATE 2.0 60 % YOY BPS YOY Q2 employment Q2 unemployment increased by 73,300 jobs. decreased to 3.1%. 0.0% OUTLOOK In-migration to the Bay Area has slowed but will stay positive; unemployment will remain extremely low with hiring challenges prevalent for jobs at all levels. Any office project at or near a transit node (BART or Caltrain) should perform well in the current environment. Expect new mixed-use development opportunities to be announced along a soon-to-be rezoned Central SoMa in San Francisco as well as the Diridon Station area in downtown San Jose.

BAY AREA 2 MULTIFAMILY TRENDS Year-over-year asking rent growth picked up again, rising by 4.5% to $2,731 while vacancy increased 20 basis points (bps) to 4.0%. Bay Area s asking rent has doubled since 2006 setting record levels. New deliveries will provide relief to demand and asking rents, however rent growth will continue to climb. 50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% $2,731 20 % YOY BPS YOY Average asking rent increased by 4.5%. 11.2% Vacancy increased 43.6% to 4.0%. HISTORICAL & FORECASTED METRO RENT GROWTH RATES The average one-year historical asking rent growth rate increased by a modest 4.5% from the second quarter of 2017 to the second quarter of 2018, compared to an 11.2% increase over the three-year period. Both new construction and value-add properties are contributing a higher percentage of affordable housing which is curbing the increase in rental rates. The 12-month projection still calls for a 4.8% increase by yearend 2019, while the five-year projection is for a 12.0% increase by year-end 2022. BAY AREA RENT GROWTH RATES HISTORICAL & FORECAST DEVELOPMENT / INVENTORY The number of units under construction in the Bay Area is currently more than 35,000. In the past 18 months, approximately 11,552 units have delivered. Over 1,400 units were built in the second quarter and more than 23,700 have been delivered since 2016. While supply is robust, renter demand and demographic growth are also strong. Inventory has grown year-over-year at a rate of 1.5% and will likely reach an increase of 2.9% by the end of 2019. DEMOGRAPHIC FUNDAMENTALS The Bay Area is continuing to attract residents in a flourishing tech-boom cycle. Millennials are attracted to urban living with convenient amenities, efficient transportation and on-demand services. Incomes for residents ages 25 34 are on the rise in major tech markets. San Francisco County leads the Bay Area with 58% of residents making over $100K, followed by San Mateo County (52%), Santa Clara County (51%), Marin County (43%), Alameda County (35%), Contra Costa County (33%), Napa County (29%), Sonoma County (26%), and Solano County (25%). POPULATION MEDIAN PERSONAL INCOME MEDIAN HOUSEHOLD INCOME 2010: 7,265,000 2015: 7,721,000 2016: 7,763,000 2020: 8,009,000 2010: $105,183 2015: $146,835 2016: $155,242 2020: $182,281 2010: $74,978 2015: $90,280 2016: $94,015 2020: $110,589 15.0% 10.0% 5.0% 1.1% 1.0% 1.4% 4.5% 12.0% MULTIFAMILY FORECAST The following are Cushman & Wakefield s projections over the next 12 months. 0.0% Source: REIS 4Q17 1Q18 2Q18 1 Year 3 Year 5 Year 5 Year Forecast RENTS VACANCY PIPELINE % GROWTH Bay Area California United States

BAY AREA 3 INVESTMENT ACTIVITY The Bay Area s cumulative sales volume thru the second quarter 2018 reached $2.0 billion with an average of $421,100 price per unit (ppu). Market share leaders were private capital (43%) and institutional (35%) accounting for 78% of the total investment activity. Private capital accounted for 71% of all sales over $10 million, with foreign investor Brookfield AM making the period s top purchase of $169 million. $6,000 $5,000 $4,000 $3,000 $2,000 CUMULATIVE MONTHLY VOLUME ($ MILLIONS) MOST ACTIVE MARKET PLAYERS TOP FIVE BAY AREA BUYERS YEAR-TO-DATE 2018 RANK BUYER TOTAL VOLUME NO. TRANSACTIONS 1 PGIM REAL ESTATE $500,000,000 5 2 BROOKFIELD AM $168,600,000 1 3 PACIFIC URBAN $152,800,000 3 4 MAGNOLIA CAPITAL $140,000,000 1 5 TH REAL ESTATE $107,250,000 1 TOP FIVE BAY AREA SELLERS YEAR-TO-DATE 2018 RANK SELLER TOTAL VOLUME NO. TRANSACTIONS 1 CITYVIEW, LACERA $500,000,000 5 2 CARMEL PARTNERS $208,700,000 2 3 UBS $152,750,000 2 4 LAND & HOUSES $140,000,000 1 $1,000 $0 J F M A M J J A S O N D 5 SUMMERHILL HOMES $107,250,000 1 PRICING & CAP RATES Source: CoStar Group Source: CoStar Group NOTABLE SALES Class A 2018 2017 2016 2015 Carmel Partners sold Vintage Apartments (2017, 345 units) in Pleasanton for $542,000 ppu. Brookfield Property Group acquired a 49% ownership stake in the portfolio of seven multifamily properties known as Project Europa for $913.85 million. Los Angeles County Employees Retirement Association sold five properties in the Bay Area to PGIM for $250 million for a 50% stake. The portfolio totals 745 units that sold for $615,000 ppu. Class B Woodmont Real Estate Services sold Vintage Ridge Apartments (1987, 140 units) to Village Investments for $163,000 ppu. The nine-building property is located in the northern suburbs of Santa Rosa. Site amenities include clubhouse, fitness center, playground, pool, and spa. The Bay Area s second quarter 2018 cap rate spread was 2.1% to 5.9% while averaging 4.4%. Sales volume increased by $458 million to $1.2 billion compared to the same time last year. Multifamily assets have become vulnerable to diminishing returns as rents have begun to peak and vacancies have risen with new supply. $450,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 6.0% 5.5% 5.0% 4.5% Class C AJ Capital Partners bought President Hotel Apartments (1948, 75 units) for $867,000 ppu. The property is located along the lively University Ave retail district in Downtown Palo Ave and sold to be turned into a hotel. $0 2011 2012 2013 2014 2015 2016 2017 2018 4.0% Source: CoStar Group

BAY AREA 4 SUBMARKET OVERVIEW SELECT SUBMARKET NEWS CONTINUED All regions year-over-year average asking rent growth remained positive: North Bay (+9.2%), San Francisco (+5.1%), Peninsula (+5.0%), Santa Clara (+4.1%), East Bay (+4.1%). Silicon Valley s continuing struggle to build additional product fast enough will push asking rents ever higher Peninsula (San Mateo County) at $2,920 and Santa Clara County at $2,632 are forecasted to reach $3,281 (+12.4%) and $3,009 (+14.3%), respectively, by 2022. Construction of roughly 30,500 units over the next five years should provide some relief to the overall Bay Area s housing shortage driving inventory to 487,000 units. BAY AREA SUBMARKET TRENDS RENT & VACANCY Curtis Development completed Town29 in the Pill Hill submarket of Oakland. The 162-unit market rate project features abundant urban amenities. The average asking rent per one-bedroom unit is $2,947. North Bay San Rafael Land Company will develop Alto Strawberry in Mill Valley. The project consists of three buildings totaling 293 units. The project is scheduled to break ground mid-2019. Peninsula San Francisco $3,535 San Francisco 4.7% Thompson Dorfman Partners delivered The Triton in April 2018. The Triton is a Class A mid-rise totaling 220 units and sits along Central Lake in Foster City. Peninsula South Bay $2,920 $2,632 Peninsula South Bay 4.5% 4.5% Prometheus Real Estate Group completed Trestle Apartments in April 2018. Coined as a modern Mission revival in the heart of San Carlos, Trestle totals 117 units at market rate and features a fitness center, pool and steps away from the San Carlos CalTrain station. San Francisco East Bay $2,286 North Bay $2,031 East Bay North Bay 2.8% 3.5% Emerald Funds highly anticipated 150 Van Ness delivered May 2018. This mixeduse project consists of 370 units at market rate, 50 units at affordable rate, and 9,000 sf of retail. An abundance of amenities and services are offered in conjunction with 100 Van Ness. The average asking rent per unit is $3,697 (one-bedroom) and $5,108 (two-bedroom). Source: REIS SELECT SUBMARKET NEWS East Bay Related California is developing The Avery, San Francisco s newest luxury highrise. Located two blocks from the new Salesforce Transit Center, The Avery will be a 56-story, 548-unit residential tower. The building layout features 118 luxury condominiums on the upper floors, 280 luxury and 150 affordable apartments on the middle to lower floors, and 17,000-sf of ground floor retail. Windflower Properties completed The Union Flats, located adjacent to BART s Union City Station. The Class A project has two buildings raising four stories totaling 243 units at market rate. The owner is CityView and Greystar is the acting property manager. Santa Clara Elan Mountain View delivered by Greystar Real Estate Partners Company in June 2018. Located in downtown Mountain View, the project offers a mix of 161 market and affordable rate units. Elan Mountain View offers 10,800-sf of retail and 300 parking spaces. The average asking rent per unit is $3,861 (one-bedroom) and $5,075 (two-bedroom).

5 EMPLOYMENT & UNEMPLOYMENT TRENDS The unemployment rate in the Sacramento Region was 4.1% in June 2018, up from 3.9% in March and down from 4.8% one year ago. The total labor force is approaching 1.1 million, with just over 1.0 million of its residents employed. The Sacramento Region is at full employment adding 15,300 nonfarm jobs from one year ago. Since its peak unemployment rate of 12.7% in the first quarter of 2010, there have been 166,000 jobs created. JOB GROWTH TRENDS EMPLOYMENT IN (MILLIONS) & JOB GROWTH (%) 1.20 4.0% ECONOMIC EXPANSION The following are select announcements from second quarter 2018: The unemployment rate tumbled below 4.0% in the second quarter with the office sector led by government/education and health services propelling the market. Office leasing activity was 1.3 million square feet (msf) in the second quarter, the fifth quarter in a row above 1.0 msf. Industrial vacancy continued to fall, reaching a market record low of 4.4% in the second quarter even as construction completions pushed inventory to a record high 142.0 msf. 1.00 0.80 3.0% Q2 2016 Q2 2017 Q2 2018 FORECAST LABOR FORCE (YOY % CHANGE) 1.7% -0.4% 1.2% 1.078M 0.60 0.40 0.20 0.00 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 Source: BLS. Gov JOB GROWTH & UNEMPLOYMENT RATE 1.5 70 % YOY BPS YOY Q2 employment Q2 unemployment increased by 15,300 jobs. declined to 4.1%. 2.0% 1.0% 0.0% EMPLOYMENT (YOY % CHANGE) 2.2% 0.2% 1.2% 1.034M UNEMPLOYMENT RATE (%) 5.4% 4.8% 4.1% OUTLOOK Forecast is 12-month outlook In-migration, particularly from the Bay Area, is expected to continue, driven by a cost-of-living that is well below that region. With office tenant demand remaining strong, rent growth is expected to continue and is nearing the tipping point where new construction becomes feasible. There is currently a lack of big block industrial under construction, although that may change soon with proposed projects likely moving forward in West Sacramento and McClellan.

6 MULTIFAMILY TRENDS Year-over-year asking rent growth was 6.6% reaching $1,283, while vacancy ticked down 30 basis points (bps) to 2.7%. Vacancy has remained low with 17 consecutive quarters under 3.0%. $1,283 Average asking rent increased by 6.6%. 34.8% 30 % YOY BPS YOY Vacancy increased to 2.7%. HISTORICAL & FORECASTED METRO RENT GROWTH RATES The average one-year historical asking rent growth rate was positive 6.6%, with the three-year at 21.1%, and the five-year at 34.8%. Housing demand has quite clearly pushed rental rates upward; the five-year projection is for a 13.3% increase by year-end 2022. The delivery of affordable units are expected to decelerate even steeper increases. RENT GROWTH RATES HISTORICAL & FORECAST DEVELOPMENT / INVENTORY The number of units under construction in the Sacramento Region is currently more than 3,600. In the past 18 months, approximately 900 units have delivered. Over 200 units have been built year-to-date while an additional 2,300 units are expected to be delivered by year-end 2018. Supply is playing catch-up to renter demand in the urban core, with a bulls-eye on the downtown submarket. Inventory has expanded year-overyear at a rate of 0.3% and will likely climb by 4.3% from year-end 2017 to year-end 2022. DEMOGRAPHIC FUNDAMENTALS Sacramento County is the most populous in the region with 1.5 million residents. In this long-running cycle of growth, the county has begun to attract Silicon Valley s technology workforce along with talent from local colleges and universities. The cost of doing business and the cost of living are significantly lower than the Bay Area. Residents are close to entertainment like the new Golden 1 Center, along with close proximity to outdoor activities from Lake Tahoe s ski resorts to Napa s wineries. POPULATION MEDIAN PERSONAL INCOME 2010: 2,165,000 2015: 2,282,000 2016: 2,306,000 2020: 2,398,000 2010: $89,808 2015: $115,280 2016: $120,797 2020: $146,194 21.1% 13.3% MEDIAN HOUSEHOLD INCOME 2010: $55,976 2015: $63,740 2016: $65,865 2020: $74,733 6.6% MULTIFAMILY FORECAST 1.1% 3.0% 2.4% The following are Cushman & Wakefield s projections over the next 12 months. Source: REIS 4Q17 1Q18 2Q18 1 Year 3 Year 5 Year 5 Year Forecast RENTS VACANCY PIPELINE % GROWTH

7 INVESTMENT ACTIVITY The Sacramento Region s cumulative sales volume as of June 2018 reached $509 million with an average of $167,850 price per unit (ppu). The top investment sale in the second quarter was Blackstone s acquisition of a six-property, multi-state portfolio that included the sale of Roseville s Slate Creek at Johnson Ranch for $147.7 million. MOST ACTIVE MARKET PLAYERS TOP FIVE BUYERS YEAR-TO-DATE 2018 RANK BUYER TOTAL VOLUME NO. TRANSACTIONS 1 BREIT $148,700,000 1 2 DEMMON PROPERTIES $78,552,000 2 3 CROWN ACQUISITIONS $50,250,000 1 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 CUMULATIVE MONTHLY VOLUME ($ MILLIONS) 4 ALBERT GOMEZ $35,000,000 1 5 KEECH PROPERTIES $26,350,000 2 TOP FIVE SELLERS YEAR-TO-DATE 2018 RANK SELLER TOTAL VOLUME NO. TRANSACTIONS 1 KENNEDY WILSON $148,700,000 1 2 GREEN LEAF PARTNERS $50,250,000 1 3 FPA MULTIFAMILY $46,023,000 1 4 JCM PARTNERS $37,350,000 2 5 REALTY CENTER MANAGEMENT $35,000,000 1 Source: CoStar Group $0 Source: CoStar Group NOTABLE SALES Class B J F M A M J J A S O N D Blackstone Real Estate Income Trust acquired Slate Creek at Johnson Ranch (1989, 612 units) for $243,000 ppu. Kennedy- Wilson Properties was the seller of the six property portfolio totaling $422 million at $191,900 ppu. RW Zukin Real Estate Services acquired Morningside Creek Apartments (1999, 178 units) for $148,000 ppu with a 5.3% cap rate. PRICING & CAP RATES The Sacramento Region s year-to-date cap rate spread was 3.6% to 6.6% while averaging 5.3%. Annual cap rates will remain stable with quality products reaching full occupancy. $200,000 $180,000 $160,000 $140,000 $120,000 $100,000 9.0% 8.0% 7.0% 6.0% Class C In Sacramento, The Arun Iyengar acquired Solstice Apartments (1970, 80 units) for $137,500 ppu with a 5.6% cap rate. $80,000 $60,000 $40,000 5.0% 4.0% $20,000 $0 2011 2012 2013 2014 2015 2016 2017 2018 3.0% Source: Costar Group Avg Price / Unit Avg Cap Rate

8 SUBMARKET OVERVIEW SELECT SUBMARKET NEWS Average asking rents were up year-over-year across the following counties: Yolo County (+18.1%), Sacramento County (+6.2%), and Placer County (+2.0%). Average vacancy rates were a mixed bag over the same period: Placer increased 110 bps to 4.4%, Sacramento County increased 20 bps to 2.5%, and Yolo County decreased 10 bps to 1.3%. With approximately 2,500 units delivering in 2018, demand should be sated while rent growth, though still climbing, should slow. The region s asking rates are forecasted to increase from $1,283 to $1,313 by year-end 2018 and to $1,450 by year-end 2022. SUBMARKET TRENDS RENT & VACANCY Sacramento County Heller Pacific delivered the highly anticipated Ice Blocks in April 2018. The mixed-use mid-rise consists of 142 units at market rate. Located in Midtown s historic R Street Corridor, the project combines industrial style with rich amenities, office, and retail. The Downtown Sacramento year-over-year asking rate increased 3.4% from $1,571 to $1,624. Over the same period, vacancy increased 80 bps from 4.8% to 5.6%. We expect to see the upcoming completions push the overall market rate up and temporarily increase the vacancy rate during this economic boom. Davis $1,727 Roseville 4.4% Placer County Folsom Roseville Citrus Heights Sacramento Rancho Cordova North Highlands Woodland Carmichael $1,497 $1,497 $1,264 $1,219 $1,202 $1,159 $1,055 $1,015 Folsom Sacramento Carmichael North Highlands Citrus Heights Rancho Cordova Davis Woodland 2.9% 2.8% 2.5% 2.4% 1.9% 1.8% 1.3% 1.3% Scott Canel & Associates is nearing completion of Campus Oaks Apartments, a 396-unit garden community in Roseville. The project consists of 30 buildings with access to amenities such as cabana, clubhouse, fitness center, game room, pool, and picnic area. The market rate community will consist of 132 one-bedroom, 176 two-bedroom, and 88 three-bedroom units. Yolo County The city of Davis year-over-year asking rate increased 20.5% from $1,433 to $1,727. The spike in asking rent shows signs of high demand, lack of new housing, and narrowing the market rate gap. UC Davis is easing demand by expanding student housing at Webster Hall from 266 to 390 beds, delivering fall of 2019. Source: REIS

OFFICE LOCATIONS BURLINGAME 1350 Bayshore Highway Suite 900 Burlingame, CA 94010 T: +1 650 347 3700 F: +1 650 347 4307 WALNUT CREEK 1333 N. California Boulevard Suite 550 Walnut Creek, CA 94596 T: +1 925 935 0770 F: +1 925 935 3409 OAKLAND 555 12th Street Suite 1400 Oakland, CA 94607 T: +1 510 465 8000 F: +1 510 465 1350 PLEASANTON 5000 Hopyard Road Suite 205 Pleasanton, CA 94588 T: +1 925 621 3840 F: +1 925 621 3841 PALO ALTO 1950 University Avenue Suite 220 East Palo Alto, CA 94303 T: +1 650 852 1200 F: +1 650 856 1098 400 Capitol Mall Suite 1800 Sacramento, CA 95814 T: +1 916 288 4800 F: +1 916 446 0024 SAN JOSE 300 Santana Row Fifth Floor San Jose, CA 95128 T: +1 408 615 3400 F: +1 408 615 3400 STOCKTON 3255 W March Lane Suite 230 Stockton, CA 95219 T: +1 209 425 3980 F: +1 209 477 7007 SAN FRANCISCO 425 Market Street Suite 2300 San Francisco, CA 94105 T: +1 415 397 1700 F: +1 415 397 0933 LARKSPUR / NORTH BAY 900 Larkspur Landing Circle Suite 925 Larkspur, CA 94939 T: +1 415 485 0500 F: +1 415 485 1341 Cushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop, and live. The firm s 43,000 employees in more than 60 countries provide deep local and global insights that create significant value for occupiers and investors around the world. Cushman & Wakefield is among the largest commercial real estate services firms with revenue of $5 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and valuation & advisory. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter. Copyright 2018 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple sources considered to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy.