united states multifamily capital markets report

U N I T E D S T AT E S M U L T I F AM I L YC A P I T A L M A R K E T S R E P O R T

TABLE OF CONTENTS

3 Key Takeaways

4 Decade in Review

5 Sales Volume

6 Sales Volume by Market

7 Yield Spread

8 Total Returns by Market

9 Cap Rates

10 Price Per Unit

11 Top Buyers and Sellers

12 Average Hold Time by Market

13 International Capital Buyers

14 International Capital Destinations

15 Effective Rent Growth

16 Effective Rent Growth by Market

17 Employment Growth

18 Supply and Demand

19 Supply and Demand by Market

20 Occupancy Rate by Market

21 Mortgage Debt Outstanding

© NEWMARK KNIGHT FRANK | RESEARCH | 2020 2

KEY TAKEAWAYS

SALES VOLUMEInvestment sales volume rose to an all-time high of $183.5 billion, increasing 4.4% year over year. Fourth-quarter volume totaled $50.5 billion, up 4.3% quarter-over-quarter. Non-major markets accounted for 72.1% of investment in 2019, as investors gravitated toward markets with a strong combination of yield and growthprospects.

CAP RATESNational multifamily cap rates compressed 8 basis points year-over-year. Although cap rates increased 16 basis points year-over-year in major markets, a surge ofinvestment activity in non-majors caused yields to fall 12 basis points.

RENT GROWTHAnnual effective rent growth climbed 30 basis points year-over-year to 3.1% nationally in 2019. After dipping slightly in 2017, rent growth rose 60 basis points abovethe long-term average, led by Sunbelt markets such as Atlanta, Charlotte and Phoenix, which are experiencing positive demographic and economic trends.

SUPPLY AND DEMANDHigh levels of new supply were met with robust demand in 2019, as absorption outpaced units delivered. Although Dallas added the largest number of units over thepast 12 months, Charlotte saw the largest inventory increase on a percentage basis at 3.3%, compared with 1.1% nationally.

INTERNATIONAL CAPITALDirect international capital sources invested $12.1 billion over the past 12 months. Canada led all countries in acquisitions in 2019, accounting for 52.2% of allinternational capital investment. Non-major markets accounted for 74.9% of international capital volume, a substantial increase from 53.2% in 2018.

DEBT MARKETSMortgage debt outstanding grew by $40.6 billion to $1.5 trillion, a 2.8% quarter-over-quarter increase. GSEs, banks, life insurance companies and CMBS all saw theirdebt outstanding increase for the quarter, led by CMBS, which grew 4.4%.

© NEWMARK KNIGHT FRANK | RESEARCH | 2020 3

© NEWMARK KNIGHT FRANK | RESEARCH | 2020

San Francisco 83.4%

Seattle 81.2%

Denver 80.9%

Portland 73.1%

Phoenix 70.2%

Nashville 69.3%

Atlanta 68.7%

Charlotte 65.8%

Sacramento 64.1%

Austin 63.4%

NATIONAL 46.5%

DECADE IN REVIEW

4

Source: NKF Research, RealPage, JobsEQ

RENT GROWTH

Net Migration

Charlotte 36.3%

Austin 31.2%

Nashville 31.2%

Raleigh-Durham 25.8%

Salt Lake City 25.2%

San Antonio 25.0%

Dallas 24.5%

Denver 23.2%

Seattle 22.7%

Orlando 19.9%

NATIONAL 11.9%

INVENTORY GROWTH

Austin 38.8%

San Francisco 36.7%

Orlando 35.6%

Nashville 34.6%

Dallas 32.3%

Las Vegas 29.9%

Phoenix 28.8%

Charlotte 28.7%

Salt Lake City 28.3%

Denver 28.0%

NATIONAL 16.4%

EMPLOYMENT GROWTH

Austin 28.6%

Orlando 22.8%

Houston 19.8%

Raleigh-Durham 19.3%

San Antonio 19.2%

Dallas 18.9%

Nashville 17.5%

Phoenix 17.4%

Charlotte 17.3%

Denver 16.7%

NATIONAL 6.5%

POPULATION GROWTH

10-YEAR TRENDS

The past decade saw multifamily surpass office to become the largest recipient of institutional capital. The markets that benefitted from the demographic shifts have been amix of supply-constrained coastal markets as well as key Sunbelt markets that have experienced unprecedented amounts of employment and population growth.

SALES VOLUMEUNITED STATES; DOLLARS IN BILLIONS

Investment sales volume rose to an all-time high of $183.5 billion, increasing 4.4% year-over-year. Fourth-quarter volume totaled $50.5 billion, up 4.3% quarter-over-quarter.Portfolio transactions accelerated to $35.5 billion, accounting for 19.3% of sales volume for the year.

5© NEWMARK KNIGHT FRANK | RESEARCH | 2020

Source: NKF Research, Real Capital Analytics

$36.

1

$38.

2

$36.

4

$46.

4

$49.

6 $48.

4

$53.

8 $50.

5

$0

$40

$80

$120

$160

$200

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

1Q 2Q 3Q 4Q

SALES VOLUME BY MARKET12-MONTH TOTALS; DOLLARS IN BILLIONS

Supply-constrained markets such as New York and Los Angeles attracted the largest amount capital over the past 12 months, although non-major markets such as Seattle(71.7%), Las Vegas (65.6%) and Charlotte (30.3%) experienced the largest year-over-year increases. Non-major markets accounted for 72.1% of total investment in 2019, asinvestors gravitated toward markets with a strong combination of yield and growth prospects.



101.2% Year-over-Year Growth



Record High First Half Volume ($2.9 Billion)

SFL$4.0

ATL$9.2

DEN$5.7

MSP$1.7

NSH$2.0

ORL$3.1

PHI$2.7

PHX$8.0

POR$2.2

RD$3.3

SA$2.5

AUS$4.8

DFW$10.5

SF$6.7 DC

$8.9

LA$12.4

NYC$13.6

HOU$6.6

$5.0+ $2.6-4.9

$1.5-$2.5

CHA$3.7

TAM$3.5

SEA$8.3

BOS$4.0

* Major markets: Boston, Chicago, Los Angeles metro, New York metro, San Francisco metro, Washington, D.C. metro. Non-major markets: all other markets.

CHI$3.8

SD$2.6

LV$3.8

YIELD SPREADUNITED STATES

The 10-year treasury note increased 24 basis points quarter-over-quarter to 1.92% in the fourth quarter. The yield spread between multifamily cap rates and the 10-yeartreasury rate decreased marginally to 339 basis points, remaining above the long-term average of 307.


Source: NKF Research, Federal Reserve Bank of St. Louis, Real Capital Analytics (Transactions $10 million and greater)

339

5.31%

1.92%

0

100

200

300

400

500

0%

2%

4%

6%

8%

10%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Yield Spread US Multifamily Average Cap Rate 10-Year Treasury Rate

TOTAL RETURNS BY MARKETANNUALIZED TOTALS

Over the past 12 months, multifamily total returns nationally averaged 5.51%, contracting 56 basis points year-over-year. Sunbelt markets, including Phoenix (13.65%), Tampa(9.49%), Orlando (9.46%) and Austin (9.34%) continue to outperform the broader market.


Source: NKF Research, NCREIF

13.6

5%

9.49

%

9.46

%

9.34

%

8.38

%

8.34

%

7.75

%

6.91

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6.18

%

6.07

%

5.72

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5.63

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5.58

%

5.56

%

5.42

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4.64

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4.53

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4.09

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%

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%

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%

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6%

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US Multifamily Total Return Average = 5.51%

CAP RATESUNITED STATES; 12-MONTH AVERAGE

National multifamily cap rates compressed 8 basis points year-over-year. Although cap rates increased 16 basis points year-over-year in major markets, a surge of investmentactivity in non-major markets caused yields to fall 12 basis points.


Source: NKF Research, Real Capital Analytics (Transactions $10 million and greater)

5.31%4.85%

5.45%

0%

2%

4%

6%

8%

10%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

United States Major Markets Non-Major Markets


PRICE PER UNITUNITED STATES; 12-MONTH AVERAGE; DOLLARS IN THOUSANDS

The national average price per unit increased to $188,000, up 10.0% year-over-year. Price per unit in both major and non-major markets grew year-over-year, by 10.8% and10.2%, respectively. Non-major markets grew by an extraordinary 116.2% in the last decade, compared with 89.2% for major markets.


Source: NKF Research, Real Capital Analytics (Transactions $10 million and greater)

$188

$316

$159

$0

$75

$150

$225

$300

$375

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

United States Major Markets Non-Major Markets


TOP BUYERS AND SELLERSUNITED STATES; 12-MONTH TOTALS; DOLLARS IN MILLIONS

Portfolio and entity-level transactions accounted for 20.8% of volume in 2019, as the largest buyers increasingly view large-scale transactions as the most efficient entrypoint. BREIT and Blackstone acquired $3.1 billion combined in portfolio and entity-level deals in 2019, primarily through a series of regional portfolios.



$0

$1,000

$2,000

$3,000

$4,000

BREIT Cortland MorganProperties

UDR Nuveen Blackstone EquityResidential

GoldmanSachs

Tricon Invesco RealEstate

AmericanLandmark

Bridge InvGrp

KushnerCompanies

GuardianLife

Brookfield

Top Buyers

$0

$1,000

$2,000

$3,000

$4,000

Lone Star Brookfield Greystar Blackstone AllianceResidential

PGIM RealEstate

JP Morgan HollandPartners

StarlightInvestments

EquityResidential

BerkshireGroup

MorganMgmt

CarlyleGroup

FairfieldResidential

WoodPartners

Top Sellers

Single Asset Portfolio & Entity

AVERAGE HOLD TIME BY MARKETNUMBER OF MONTHS; TRADES OVER THE PAST 12 MONTHS

In 2019, Atlanta, Denver and Orlando experienced the shortest hold times of multifamily assets, as investors cashed in on returns from value-add product in these markets.Turnover was much lower in markets with lower yields, such as New York and Washington, D.C.



44.8 46

.3 49.1

49.5 51

.4 53.7

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54.3

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54.7 56

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60.8

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.1 65.8 68

.3 71.7 74

.2

74.2

74.2

0

10

20

30

40

50

60

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INTERNATIONAL CAPITAL BUYERSUNITED STATES; 12-MONTH TOTALS



BY COUNTRY

Canada52.2%

Bahrain7.9%

Netherlands7.6%

Israel5.7%

Japan3.8%

South Korea3.6%

Switzerland3.3%

Qatar3.0%

UK2.6%

Singapore2.5%

China2.5%

Other5.3%

Direct international capital sources invested $12.1 billion over the past 12 months, a 26.5% decrease in cross-border acquisition volume from the previous year. Canada led allcountries in acquisitions in 2019, accounting for 52.2% of all international capital investment led by Tricon’s acquisition of Starlight’s 7,289-unit U.S. multifamily fifth corefund, concentrated in the Carolinas, Florida and Texas.

TOP BUYERS (DOLLARS IN MILLIONS)

$220

$232

$238

$305

$311

$353

$365

$400

$452

$540

$589

$915

$956

$1,195

$1,400

GMF Capital (Switzerland)

Mitsubishi (Japan)

Korea Inv Holdings (Korea)

OMERS (Canada)

Low Tide Properties (Canada)

BentallGreenOak (Canada)

QIA (Qatar)

Western Weath Capital (Canada)

Starlight Investments (Canada)

Delek Group (Israel)

Aegon (Netherlands)

PSP Investments (Canada)

Investcorp (Bahrain)

Brookfield (Canada)

Tricon (Canada)

INTERNATIONAL CAPITAL DESTINATIONS12-MONTH TOTALS



MAJOR MARKETS 25.1%

BY MARKET TIERAs a % of Cross-Border Capital

BY REGIONAs a % of Cross-Border Capital

NON-MAJOR MARKETS 74.9%

MID-ATLANTIC 12.2%

MIDWEST 6.1%

NORTHEAST 5.2%

SOUTHEAST 32.3%

SOUTHWEST 24.1%

WEST 20.1%


ATL$878M

BOS$123M

CHI$394M

DFW$339M

DC$921M

DEN$395M

HOU$627M

LA$715M

NYC$800M

ORL$470M

PHX$407M

RD$428M

SF$724M

SEA$746M

TAM$470M

CHA$244M

AUS$720M

LV$277M

Much like their U.S. counterparts, direct international capital sources focused the majority of their capital on growth markets outside of the six major markets in 2019. Non-major markets accounted for 74.9% of international capital, a substantial increase from 53.2% in 2018, as international investors chase yield and strong demographic trendsinto quality non-major markets.

NSH$227M

SFL$210M

EFFECTIVE RENT GROWTHUNITED STATES; ANNUALIZED

Annual effective rent growth climbed 30 basis points year-over-year to 3.1% nationally in 2019. After dipping slightly in 2017, rent growth is now 60 basis points above thelong-term average of 2.5%. Nominal effective rents increased 46.5% over the past decade, from $956 to $1,400 on average.


Source: NKF Research, RealPage

$840

$870

$853

$850

$868

$898

$944

$976

$990

$949

$956

$996

$1,0

29

$1,0

67

$1,1

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$1,1

84

$1,2

39

$1,2

84

$1,3

39

$1,4

00

3.1%

-5.0%

-2.5%

0.0%

2.5%

5.0%

7.5%

$0

$300

$600

$900

$1,200

$1,500

4Q00 4Q01 4Q02 4Q03 4Q04 4Q05 4Q06 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 4Q13 4Q14 4Q15 4Q16 4Q17 4Q18 4Q19

Effective Rent Effective Rent Growth Long-Term Effective Rent Growth Average

US Long-Term Effective Rent Growth Average = 2.5%

EFFECTIVE RENT GROWTH BY MARKETANNUALIZED; SELECT MARKETS

Sunbelt markets with robust net migration and low cost of living, such as Atlanta, Austin, Charlotte, Las Vegas and Phoenix, have seen a surge in absorption, translating toabove-average effective annual rental growth compared with the national average.



8.2%

7.6%

4.9%

4.7%

4.6%

4.4%

4.4%

4.3%

4.0%

3.9%

3.4%

3.4%

3.3%

3.2%

3.2%

3.1%

3.0%

2.9%

2.9%

2.8%

2.8%

2.8%

2.8%

2.7%

2.6%

2.5%

2.5%

2.4%

2.2%

2.0%

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1.9%

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4%

6%

8%

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US Annual Average Effective Rent Growth = 3.1%

EMPLOYMENT GROWTHYEAR-OVER-YEAR; SELECT MARKETS

Over the past 12 months, the market that saw the greatest number of new jobs was the Dallas metro with 120,700 non-farm jobs added. The markets that experienced thehighest employment growth relative to their total number of employees were Raleigh-Durham (3.8%), Dallas (3.2%), and San Antonio (3.2%).


Source: NKF Research, U.S. Bureau of Labor Statistics (November release)

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

0

25,000

50,000

75,000

100,000

125,000

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Employment Growth (#) Employment Growth (%)

SUPPLY AND DEMANDUNITED STATES

In 2019, demand outpaced new supply with 249,721 units absorbed compared with 246,779 units delivered. Inventory growth has steadily fallen each year since 2016,although that is expected to reverse course in 2020. Just over 370,000 units are expected to be delivered in 2020, equivalent to 2.1% inventory growth.



1.5%1.3% 1.2%

0.9%

0.6%

0.1%

0.6% 0.7%

1.1% 1.0%

0.7%

0.4%

0.7%

1.2%1.4% 1.5%

1.8% 1.7%

1.4%

1.1%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

-150,000

-25,000

100,000

225,000

350,000

475,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

New Supply Demand Inventory Growth

SUPPLY AND DEMAND BY MARKET

Dallas and New York saw the largest new supply of multifamily deliveries in 2019, while both markets saw strong levels of demand. The markets that experienced the largestpercentage of total inventory growth this year were Charlotte (3.3%), Dallas (2.7%) and Denver (2.5%).



12-MONTH TOTALS; SELECT MARKETS

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

0

5,000

10,000

15,000

20,000

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OCCUPANCY RATE BY MARKET12-MONTH TOTALS; SELECT MARKETS

The annual average occupancy rate nationally rose to the highest level this cycle at 95.8%, driven by strong economic trends. New York (97.3%), Minneapolis (97.0%) andBoston (96.7%) led the country with the highest occupancy rates.



97.3

%

97.0

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96.7

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96.6

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96.4

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96.4

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96.4

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96.3

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96.3

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96.2

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96.2

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96.1

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96.1

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96.1

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96.1

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95.8

%

95.8

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95.8

%

95.6

%

95.5

%

95.5

%

95.5

%

95.4

%

95.3

%

95.2

%

95.2

%

95.2

%

95.0

%

94.9

%

93.9

%

93.6

%

91%

92%

93%

94%

95%

96%

97%

98%

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US Annual Average Occupancy Rate = 95.8%

MORTGAGE DEBT OUTSTANDINGUNITED STATES

Mortgage debt outstanding grew by $40.6 billion to $1.5 trillion, a 2.8% quarter-over-quarter increase. GSEs, banks, life insurance companies and CMBS all saw their debtoutstanding increase for the quarter, led by CMBS, which grew 4.4%.


Source: NKF Research, Mortgage Bankers Association

DEBT OUTSTANDING BY GROUP AS A PERCENTAGE DEBT OUTSTANDING BY GROUP IN BILLIONS

$728

.1

$452

.0

$147

.0

$90.

4 $43.

7

$44.

1

$0

$150

$300

$450

$600

$750

GSEs Bank &Thrifts

Life Co State &Local Gov't

CMBS Other

GSEs48.4%

Banks & Thrifts 30.0%

Government9.8%

Insurance Companies

6.0%

CMBS2.9%

Other2.9%

NEW YORK CITYHEADQUARTERS125 Park AvenueNew York, NY 10017212.372.2000

Newmark Knight Frank has implemented a proprietary database and our tracking methodology has been revised. With this expansion and refinement in our data, there may be adjustments in historical statistics including availability, asking rents, absorption and effective rents.

Newmark Knight Frank Research Reports are also available at www.ngkf.com/research

All information contained in this publication is derived from sources that are deemed to be reliable. However, Newmark Knight Frank (NKF) has not verified any such information, and the same constitutes the statements and representations only of the source thereof, and not of NKF. Any recipient of this publication should independently verify such information and all other information that may be material to any decision that recipient may make in response to this publication, and should consult with professionals of the recipient’s choice with regard to all aspects of that decision, including its legal, financial, and tax aspects and implications.

Any recipient of this publication may not, without the prior written approval of NKF, distribute, disseminate, publish, transmit, copy, broadcast, upload, download, or in any other way reproduce this publication or any of the information it contains.

Jeff DayPresidentHead of Multifamily Capital [email protected]

Blake OklandVice ChairmanHead of Multifamily Investment [email protected]

Sharon KaraffaVice ChairmanCo-Head of [email protected]

Jonathan MazurSenior Managing DirectorNational [email protected]

Mike WolfsonDirectorCapital Markets [email protected]

Sean MarmoraResearch AnalystMultifamily [email protected]

AFRICABotswanaKenyaMalawiNigeriaSouth AfricaTanzaniaUgandaZambiaZimbabwe

LATIN AMERICAArgentinaBrazilChileColombiaCosta RicaDominican RepublicMexicoPeruPuerto Rico

ASIA-PACIFICAustraliaCambodiaChinaIndiaIndonesiaMalaysiaNew ZealandPhilippinesSingaporeSouth KoreaTaiwan

Thailand

EUROPEAustriaBelgiumCzech RepublicFranceHungaryGermanyIrelandItalyNetherlandsPolandPortugalRomaniaRussiaSpainSwitzerlandUnited Kingdom

NORTH AMERICACanadaUnited States

MIDDLE EASTSaudi ArabiaUnited Arab Emirates

united states multifamily capital markets report

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