2011 National Apartment Report by Markus &amp Millichap

T VACANCIES SHADOW MARKET SINGLE-FAMILY OVER-SUPPLY
POPULATION PENT-UP DEMAND REVENUES BUYER ACTIVITY

Y CONDOS FOR RENT FUTURE OF FANNIE MAE RETURNS
ROFORMA ECONOMY DELIVER CAP RATES QE2 RENT GROWTH
RENT GROWTH PERCENT ABSORPTION EXPANSION PRICING
OLLOVER POTENTIAL FUNDAMENTALS URBAN DEVELOPMENT
LOCAL EXCEEDING CONDOS FOR RENT INVESTOR TRENDS
W RECESSION UNCERTAINTY RENT GROWTH ACQUISITIONS
SURGE SUSTAINABLE OPPORTUNITY FORECAST OUTLOOK
HIGH UNEMPLOYMENT GROWTH SPENDING STABILIZED
R-SUPPLY INCREASE SALES DISTRESSED RANK RESILIENCE
YER EMERGING INTEREST DECLINE CONCESSIONS BURN
AE RETURNS YEAREND LOW COMPLETIONS QE2 STRATEGY
E2 RENT GROWTH VELOCITY MOMENTUM DISCOUNTS RATE
EXPANSION PRICING PROPERTY AVERAGE BID ASK MAXIMIZE
S URBAN DEVELOPMENT INCOME NATIONWIDE STRENGTH
RENT INVESTOR TRENDS EMERGING GAINS RISK SLUMP
GROWTH ACQUISITIONS POTENTIAL UPTURN FORECLOSURE
2011
FORECAST OUTLOOK SIGNS CAPITAL NEW CONSTRUCTION
G STABILIZED INVESTMENT VACANCIES SHADOW MARKET
ANK RESILIENCE INVENTORY POPULATION PENT-UP DEMAND
Real Estate Investment Research
NS BURN SELLER RECOVERY CONDOS FOR RENT FUTURE OF
RATEGY LIMIT FISCAL PROFORMA ECONOMY DELIVER CAP
National Apartment Report
ATE LEGISLATIVE GRIDLOCK SUBMARKET RENT GROWTH
VERAGE BID ASK MAXIMIZE FOCUS HEADWINDS ROLLOVER
TIONWIDE STRENGTH PROJECTED FREDDIE MAC EXCEEDING
S RISK SLUMP DRIVERS ASSETS CASH FLOW RECESSION
AL UPTURN APARTMENT FORECLOSURE MODERATE JOB
OK SIGNS CAPITAL NEW CONSTRUCTION INFLATION TRENDS
VESTMENT VACANCIES SHADOW MARKET SINGLE-FAMILY
CE INVENTORY POPULATION PENT-UP DEMAND REVENUES
RECOVERY CONDOS FOR RENT FUTURE OF FANNIE MAE
ISCAL PROFORMA ECONOMY DELIVER CAP RATES QE2 RENT
OUNTS RATE RENT GROWTH MARKET PERCENT ABSORPTION
OCUS REBOUND ROLLOVER POTENTIAL FUNDAMENTALS
ECTED FREDDIE MAC LOCAL QE2 EXCEEDING CONDOS FOR
VERS ASSETS CASH FLOW RECESSION UNCERTAINTY RENT
ODERATE JOB GROWTH SUSTAINABLE FORECAST OUTLOOK
HIGH UNEMPLOYMENT GROWTH SPENDING STABILIZED
DISTRESSED RANK RESILIENCE INVENTORY POPULATION
EREST DECLINE CONCESSIONS BURN SELLER CONDOS FOR
MPLETIONS QE2 STRATEGY FISCAL PROFORMA ECONOMY
NCESSIONS BURN SUBMARKET RECOVERY ABSORPTION
ASK MARKET MAXIMIZE FOCUS ROLLOVER POTENTIAL
TH PROJECTED FREDDIE MAC LOCAL EXCEEDING CONDOS
INDS SLUMP DRIVERS ASSETS CASH FLOW RECESSION
URN FORECLOSURE MODERATE JOB GROWTH HEADWINDS
IGNS CAPITAL NEW CONSTRUCTION ROLLOVER RESILIENCE
FAMILY OVER-SUPPLY INCREASE SALES DISTRESSED RANK
G LOW COMPLETIONS INTEREST DECLINE CONCESSIONS
EAREND LOW COMPLETIONS QE2 STRATEGY LIMIT FISCAL
2 VELOCITY RENT GROWTH MOMENTUM DISCOUNTS RATE
ENT ABSORPTION EXPANSION PRICING PROPERTY AVERAGE
FUNDAMENTALS URBAN DEVELOPMENT INCOME NATIONWIDE
DOS FOR RENT INVESTOR TRENDS EMERGING GAINS RISK
INTY RENT GROWTH ACQUISITIONS POTENTIAL UPTURN
OPPORTUNITY FORECAST OUTLOOK SIGNS CAPITAL NEW
GROWTH SPENDING STABILIZED INVESTMENT VACANCIES
SSED RANK RESILIENCE INVENTORY POPULATION PENT-UP
NS BURN SELLER RECOVERY CONDOS FOR RENT FUTURE OF
RATEGY LIMIT FISCAL PROFORMA ECONOMY DELIVER CAP
ATE LEGISLATIVE GRIDLOCK SUBMARKET RENT GROWTH
RAGE BID ASK MAXIMIZE FOCUS HEADWINDS ROLLOVER
TIONWIDE STRENGTH ECHO BOOMERS FREDDIE MAC LOCAL
GING GAINS RISK SLUMP DRIVERS ASSETS CASH FLOW
TIAL UPTURN FORECLOSURE MODERATE JOB GROWTH SURGE
2011 National Apartment Report
To our valued clients:
The economy weathered numerous challenges and setbacks as it made slow progress toward recovery last year.
Cautious consumers and cash-heavy, but guarded, U.S. companies reflected a pervasive negative psychology, which
hampered economic momentum. To be sure, profound concerns and economic risks will linger well into 2011, par-
ticularly high unemployment, record private- and public-sector debt, and the potential for sovereign debt contagion.
The gravity of these issues, however, should not overshadow key indicators that affirm a solid footing for the U.S.
economy, including the return of core retail sales and corporate earnings to pre-recession levels and the creation of
more than 1.2 million private-sector jobs in 2010. While job creation last year was tepid, especially in light of the 8.4 mil-
lion jobs cut during the Great Recession, it is a solid start and better than the early stages of the last two recovery cycles.
Consumers, though hampered by high unemployment and limited credit, will make positive contributions to
the recovery this year, but they still lack the wherewithal to propel the economy forward as they have in previous
recoveries. In this cycle, businesses must assume the lead, a trend that will slowly manifest over the course of 2011 as
companies gain sufficient confidence to expand capital expenditures and long-term hiring. In the near term, they will
continue to rely on temporary employment to keep expenses low and options open, though easing uncertainty and
strengthening demand by midyear will encourage business spending and job creation in the second half.
The Fed’s latest round of quantitative easing signals a continued willingness by the government to mitigate defla-
tion and other near-term risks to the recovery. The extension of the Bush-era tax cuts, which were scheduled to sunset
at the end of 2010, will stimulate the economy and bring badly needed clarity to the markets. Like many policy deci-
sions developed along the learning curve of the Great Recession, the economic benefit and efficacy of these efforts in
achieving the stated goals, and even unintended consequences, may not emerge for some time.
The apartment sector will continue to lead the recovery in commercial real estate fundamentals through 2011 as
owners capitalize on lower vacancies to raise rents and scale back concessions. In addition, historically light construc-
tion levels in most markets over the next two to three years will help owners more than recover the ground lost through
the recession. These factors, along with broad-based, though limited, job growth, will propel all 44 markets covered
in this report toward falling apartment vacancies in 2011, together with climbing rents. The unprecedented breadth
of this strengthening in apartment fundamentals, coupled with low-cost debt, will continue to fuel higher apartment
investment activity. REITs and institutional investors, who led the charge in the buying surge last year, will look be-
yond top-tier assets in the best markets, which are now priced to perfection, in search of yield. Private and opportunity
investors, frustrated by the limited inventory of distressed sales, are adjusting their yield expectations and appear
poised to become more active.
To assist you in planning and executing a successful investment strategy, we are pleased to present our 2011 Na-
tional Apartment Report. Included is our National Apartment Index (NAI), a forward-looking ranking of 44 markets
based upon forecast economic, supply and demand conditions. We hope you will find this report helpful, and our
investment professionals look forward to assisting you in meeting your goals.
Sincerely,
John J. Kerin Hessam Nadji

President and Managing Director
Chief Executive Officer Research and Advisory Services
NATIONAL PERSPECTIVE
Executive Summary .......................................................................................... 3
National Apartment Index ................................................................................ 4-5
National Economy ............................................................................................ 6
National Apartment Overview .............................................................................. 7
Capital Markets ............................................................................................... 8
Apartment Investment Outlook ............................................................................ 9
MARKET OVERVIEWS
Atlanta ........................................................................................................ 10
Austin ......................................................................................................... 11
Boston ......................................................................................................... 12
Charlotte ..................................................................................................... 13
Chicago ....................................................................................................... 14
Cincinnati..................................................................................................... 15
Cleveland ..................................................................................................... 16
Columbus ..................................................................................................... 17
Dallas/Fort Worth ........................................................................................... 18
Denver ........................................................................................................ 19
Detroit ........................................................................................................ 20
Fort Lauderdale ............................................................................................. 21
Houston ....................................................................................................... 22
Indianapolis .................................................................................................. 23
Jacksonville .................................................................................................. 24
Kansas City ................................................................................................... 25
Las Vegas ..................................................................................................... 26
Los Angeles ................................................................................................... 27
Louisville ..................................................................................................... 28
Miami .......................................................................................................... 29
Milwaukee .................................................................................................... 30
Minneapolis-St. Paul ........................................................................................ 31
Statistical Summary Table ............................................................................. 32-33
New Haven ................................................................................................... 34
New Jersey ................................................................................................... 35
New York City ................................................................................................ 36
Oakland ....................................................................................................... 37
Orange County ............................................................................................... 38
Orlando ....................................................................................................... 39
Philadelphia .................................................................................................. 40
Phoenix ....................................................................................................... 41
Portland....................................................................................................... 42
Riverside-San Bernardino .................................................................................. 43
Sacramento .................................................................................................. 44
Salt Lake City ................................................................................................ 45
San Antonio................................................................................................... 46
San Diego ..................................................................................................... 47
San Francisco ................................................................................................ 48
San Jose ...................................................................................................... 49
Seattle ........................................................................................................ 50
St. Louis ...................................................................................................... 51
Tampa ......................................................................................................... 52
Tucson ......................................................................................................... 53
Washington, D.C. ............................................................................................ 54
West Palm Beach ............................................................................................ 55
CLIENT SERVICES
Research Services ........................................................................................... 56
Contacts, Sources and Definitions ........................................................................ 57
Office Locations ......................................................................................... 58-59
Written by John Chang, Vice President, Research Services, and edited by Hessam Nadji, Managing Director. The Capital Markets section was co-
authored by William E. Hughes, Managing Director, Marcus & Millichap Capital Corporation. Additional contributions were made by Marcus &
Millichap market analysts and investment brokerage professionals nationwide.
2011 Annual Report

Executive Summary
National Apartment Index (NAI)

◆ Healthy employment growth expectations and tight vacancies advanced New York City two places to the #1 spot in the NAI,
bumping Washington, D.C., to #2. California markets also fared well in the index due to perennial supply constraints that will
keep vacancy steady and generate some of the strongest effective rent gains.
◆ Tech-heavy markets led advances in the 2011 NAI, with Austin (#9), Denver (#14) and Seattle (#15) all climbing seven spots.
Fellow tech titans Boston (#3) and San Jose (#4) gained five and six positions, respectively. Other Texas markets achieved
strong momentum due to healthy job gains, favorable demographics and revenue growth prospects; Dallas/Fort Worth (#18)
and Houston (#24) rose five and four spots, respectively.
◆ Midwestern markets remain stable but slipped in the NAI, as coastal and dynamic markets offer greater growth potential this
year. Declines were led by Cleveland (#40) and Milwaukee (#25), both of which lost eight positions, while Detroit (#42) and
Columbus (#37) each dropped six spots. Minneapolis-St. Paul (#8) slipped four places but maintained a top 10 ranking.
National Economy
◆ The U.S. economy will add 2 million jobs in 2011, double the amount created in 2010. The extension of Bush-era tax cuts and
the addition of new incentives for businesses should stimulate hiring driven by export-related industries, a cyclical rebound
in technology goods and services, and the business and professional services sector.
◆ Several trends suggest the recovery will gain more traction, including moderate private-sector job growth, improving consump-
tion, stabilizing initial unemployment claims, robust temporary hiring, strong and sustained corporate profitability, and easing
bond spreads. Recent government actions signal a willingness to take strong, albeit controversial, steps to reinforce the recovery.
◆ The Fed will have to tread carefully to recalibrate monetary policy in response to stronger economic expansion to keep infla-
tion at bay. Many housing markets will also continue to struggle as foreclosures make their way through the pipeline, and
concerns will loom over solvency and trade implications as risks of sovereign debt defaults roll across the eurozone.
National Apartment Overview

◆ All 44 markets will post employment growth, vacancy declines and effective rent gains in 2011, confirming a sweeping recov-
ery and expansion in the U.S. apartment sector above expectations. This year will mark the first across-the-board reduction
in vacancy since at least 1990. This is driven by the release of pent-up demand in the aftermath of the Great Recession, lower
turnover rates, falling homeownership and job growth.
◆ Apartment completions will total 53,000 units this year, 46 percent fewer than delivered in 2010. New supply will again fall
critically short of demand, which is expected to reach 158,000 units. U.S. apartment vacancy will decrease 110 basis points in
2011 to 5.8 percent as a result, matching the decline recorded in 2010.
◆ As vacancy in 2011 aligns closely to pre-recession levels, owners will regain pricing power. Asking rents will rise 3.5 percent
to $1,067 per month, while effective rates will increase 4.5 percent to $1,002 per month.
Capital Markets
◆ Fannie Mae and Freddie Mac provide apartments a financing advantage relative to other property types, but more com-
mercial banks and life insurance companies are stepping up with competitive terms. The agencies registered a healthy delin-
quency rate of 1 percent in their multifamily portfolios, a strong indication of their continued involvement in the sector.
◆ Debt availability increased dramatically from the trough two years ago, but the overall supply remains limited and selective.
Sales of $5 million to $20 million in the Class B-minus to C-quality range face fewer financing prospects than top-tier assets.
◆ Seller financing and loan assumptions accounted for nearly 30 percent of all commercial real estate transactions last year and
will remain common in 2011. Life insurance companies and CMBS are poised to extend recent gains in volume.
Apartment Investment Outlook

◆ Dollar volume will rise further this year as the economy gains momentum, apartment fundamentals improve, debt markets
loosen, and REITs and institutions increase acquisitions. During 2010, apartment sales volume totaled an estimated $40 bil-
lion, up nearly 65 percent from the cyclical low in 2009 but less than one-third of the 2006 peak.
◆ Institutional investors led the surge in sales in 2010, with dollar volume more than doubling in the $20 million-plus segment.
Improving occupancy and rising rents, along with low-cost debt, will help assuage investors’ and lenders’ lingering trepida-
tion about values. As the year progresses, investors will move down the quality chain in search of stronger yields, resulting
in more sales in the Class B and B- categories.
◆ The average cap rate will decline in 2011 after slipping 20 basis points in 2010 to 7.2 percent, led by recompression of the most
sought-after deals. Since peaking in 2009, cap rates for top-quality properties have fallen by as much as 100 basis points.
2011 Annual Report page 3

National Apartment Index
Markets with the Highest Markets with the Highest

Expected 2011 Employment Growth Expected 2011 Completions
6.0
Austin
Washington, D.C.
Units (thousands)
4.5
Dallas/Fort Worth
Orange County
3.0
Houston
San Jose 1.5
San Antonio
West Palm Beach 0
Orlando
on
C.
in
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es
Ho h
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New York City
to
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Au
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An
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United States
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0% 1% 2% 3% 4%
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W
Nonfarm Employment (Y-O-Y Change)
Markets with the Lowest 2011 National Apartment Index

Expected 2011 Employment Growth
New Jersey Strengthening Economy Fuels Tech Markets, Texas and Florida
Detroit
Philadelphia A cyclical recovery of the technology sector will continue to lend
Cleveland strength to the national economy, benefiting tech-heavy employment
Sacramento markets. These metros led advances in the 2011 National Apartment In-
Louisville dex (NAI), with Austin (#9), Denver (#14) and Seattle (#15) rising seven
Chicago places, supported by growing hardware companies, software publishing
Cincinnati and commercial aircraft manufacturing. Fellow tech titans Boston (#3)
Kansas City and San Jose (#4) gained five and six positions, respectively.
Fort Lauderdale
United States Texas markets achieved strong momentum, generally due to healthy
0% 0.4% 0.8% 1.2% 1.6% job gains, population and migration trends, and revenue growth pros-
Nonfarm Employment (Y-O-Y Change) pects. The four major Texas MSAs lead U.S. employment growth fore-
casts for 2011, reflecting the state’s linkages to global trade, energy, tech-
nology, and business and professional services. Dallas/Fort Worth (#18)
Markets with the Highest and Houston (#24) rose five and four spots, respectively. San Antonio
12% Expected 2011 Vacancy Rates (#13) slipped one notch this year behind markets with tighter vacancies.
If Texas holds true to form, the next few years will present a good window
Vacancy Rate
10%
for superior performance before the hyper-supply cycle begins again.
8%
While Florida markets rank near the bottom of the NAI, all reflect
6% a broad-based regional vacancy rate recovery. Both central and coastal
4%
Florida metro areas strengthened in the ranking; Orlando (#30) and
Fort Lauderdale (#34) advanced five positions, while Miami (#21) and
x
on
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lu o
ns us
Ch ity
s
es
nt
ni
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b
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at
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Tampa (#36) improved four spots. Jacksonville ranked last in the index,
nv
us
Ve
m
la
Tu
Un arl
St
as
At
Ph
Or
Ho
so
d
Co
La
ck
unchanged from 2010. Despite a strong rebound in occupancies, Jack-

Ka
Ja
sonville posts a vacancy rate in double digits, and its 2011 rent growth
forecast falls well below the national average. Supported by trends simi-
Markets with the Lowest lar to those in the Florida markets, the Phoenix (#27) apartment recovery
6% Expected 2011 Vacancy Rates built momentum last year that will carry into 2011, advancing the market
seven places in the 2011 ranking.
5%
Vacancy Rate
4% New York City Edges Out Washington, D.C., for Top Spot
3% With healthy employment expected for 2011, combined with already

tight vacancies, New York City advanced two places in the NAI this year
2%
to claim the #1 spot, bumping Washington, D.C., to #2. Three other New
Fr hia
o
ty
-S se
co
n
ey
Sa aul
es
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ve
ng lan
England markets retreated, however; New Jersey (#12) and New Haven
Ci
Jo
Ne cis
at
rs
Un n, D
P
Di
Ha
Sa del
St
Je
rk
rt
an
t.
n
n
Sa
(#20) fell six places, while Philadelphia (#10) slipped five spots, primar-
Po
Yo
d
to
ila
w
ite
is
Ne
w
Ph
n
ol
Ne
ily on weak employment forecasts. Philadelphia and New Jersey’s lower

hi
ap
as
ne
ranking stems from other markets posting stronger recoveries, and each
in
M
will likely improve as their lagging labor markets recover.
page 4 2011 Annual Report

National Apartment Index
Markets with the Highest Rank Rank 10-11

Expected 2011 Absorption MSA 2011 20101 Change
10 New York City 1 3 ▲ 2
Washington, D.C. 2 1 ▼ 1
Units (thousands)
8
Boston 3 8 ▲ 5
6 San Jose 4 10 ▲ 6
4 Orange County 5 7 ▲ 2
San Diego 6 2 ▼ 4
2
San Francisco 7 9 ▲ 2
n
in
ey
An a
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Minneapolis-St. Paul 8 4 4
Au
W
▼
ng
Je
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n,
At
de
Ph
rt
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n
Austin 9 16 7
ng
Ne
Lo
Sa
Ph
s/
hi
lla
as
Da
Philadelphia 10 5 ▼ 5
W
Los Angeles 11 13 ▲ 2
Growth Markets Bypass Stable Midwestern Metros; Coastal California
Maintains Ranking in Top Quartile New Jersey 12 6 ▼ 6
San Antonio 13 12 ▼ 1
Midwestern markets fell in the 2011 NAI, largely due to being sup-
Denver 14 21 ▲ 7
planted by core, coastal and dynamic markets with greater growth poten-
tial. Cleveland (#40) and Milwaukee (#25) declined eight positions, while Seattle 15 22 ▲ 7
Detroit (#42) and Columbus (#37) dropped six spots. Minneapolis-St. Portland 16 19 ▲ 3
Paul (#8) slipped four places but remained in the top one-third due to
Oakland 17 18 ▲ 1
tight and declining vacancy and solid rent growth prospects. Chicago
(#23) receded three spots in the ranking but should move up next year as Dallas/Fort Worth 18 23 ▲ 5
employment gains momentum and vacancies tighter further. Salt Lake City 19 11 ▼ 8
New Haven 20 14 ▼ 6
Perennial supply constraints throughout much of California have
kept vacancies among the tightest in the country while generating some Miami 21 25 ▲ 4
of the highest-ranked effective rents. These factors drove most markets in Louisville 22 15 ▼ 7
the state toward the top of the NAI this year. Orange County (#5) and Los
Chicago 23 20 ▼ 3
Angeles (#11) advanced two spots in the 2011 ranking, while San Fran-
cisco (#7) also moved up two positions on a job growth projection above Houston 24 28 ▲ 4
that of the nation and strong momentum in asking rents. San Diego (#6), Milwaukee 25 17 ▼ 8
however, dropped four notches as top employment growth markets sur- Kansas City 26 24 ▼ 2
passed it.
Phoenix 27 34 ▲ 7
Index Methodology Charlotte 28 29 ▲ 1
St. Louis 29 26 ▼ 3
The NAI is a snapshot analysis that ranks 44 major apartment mar-
kets based upon a series of 12-month forward-looking economic and sup- Orlando 30 35 ▲ 5
ply and demand variables. Markets are ranked based on their cumula- Indianapolis 31 27 ▼ 4
tive weighted-average scores for various indicators, including forecast Riverside-San Bernardino 32 37 ▲ 5
employment growth, vacancy, construction, housing affordability and
Cincinnati 33 30 ▼ 3
rents. Taking into account both the forecast level and incremental change
over the next year, the index is designed to indicate relative supply and Fort Lauderdale 34 39 ▲ 5
demand conditions at the metro level. Sacramento 35 33 ▼ 2
Users of the index are cautioned to keep several important points in Tampa 36 40 ▲ 4
mind. First, the NAI is not designed to predict the performance of indi- Columbus 37 31 ▼ 6
vidual investments. A carefully chosen property in the bottom-ranked West Palm Beach 38 41 ▲ 3
market could easily outperform a poor choice in the top-ranked market.
Atlanta 39 42 ▲ 3
Second, the index ranking is a snapshot of a one-year time horizon. A
market facing difficulties in the near term may provide excellent long- Cleveland 40 32 ▼ 8
term prospects, and vice versa. Third, a market’s ranking may fall from Tucson 41 38 ▼ 3
one year to the next even if its fundamentals are strengthening.
Detroit 42 36 ▼ 6
The NAI is an ordinal index, and differences in specific rankings Las Vegas 43 43 ■ 0
should be carefully interpreted. A top-ranked market is not necessarily Jacksonville 44 44 ■ 0
twice as good as the second-ranked market, for example, nor is it 10 times
better than the 10th-ranked market. 1
See National Apartment Index Note on page 57.

National Economy
Choppy Recovery Gradually Gains Steam as

Private Sector Cautiously Takes Lead
T
Temporary vs. Nonfarm Employment
he U.S. economic recovery has unfolded in anything but a linear fash-
Temporary Employment Nonfarm Employment
ion, as tenuous, and occasionally erratic, economic growth has tested
Temporary Employment (Y-O-Y Chg.)
Nonfarm Employment (Y-O-Y Chg.)

30% 6%
the durability of the recovery and sparked concerns of a double-dip
recession. This scenario remains improbable, however, as today’s low in-
15% 3%
terest rate and minimal inflation environment differs from conditions 30
years ago, when the U.S. experienced its last double-dip recession. Further-
0% 0%
more, recent government actions, such as the extension of Bush-era tax cuts
and the resumption of quantitative easing by the Fed, signal a willingness
-15% -3% to take strong, albeit controversial, measures to reinforce economic recov-
Recessions
ery. Several trends suggest the recovery will gain more traction, including
-30% -6% moderate private-sector job growth, improving consumption, lower initial
91 93 95 97 99 01 03 05 07 09 10***
unemployment claims, robust temporary hiring, strong and sustained cor-
porate profitability, and easing bond spreads.
U.S. GDP
10%
While overall employment growth disappointed through the lat-
Annualized Quarterly Change in GDP
ter half of 2010, job creation among the prime renter age cohort of 20- to
34-year-olds significantly outpaced the broader market. This trend helped
5%
jump-start a recovery in the apartment market, boosting absorption to lev-
els unseen since 2000, when job growth and household formations boomed,
0% a sharp contrast to current conditions. Both employment and household
growth will accelerate in 2011, but the rate of gains depends on improving
-5% corporate confidence, which is essential to increasing investment and hir-
ing. The Fed’s ability to keep inflation at bay by recalibrating monetary pol-
-10%
icy in response to economic expansion may not be fully tested in 2011 but
80 85 90 95 00 05 10* 11**
remains paramount to the recovery staying on course. The housing market,
saddled with foreclosures, will not be a contributor to the expansion until
2012. Concerns about solvency and trade implications also loom as risks of
Fallen Yield Curve Sign of Slow Growth; sovereign debt defaults roll across the eurozone.
Level Still Above Recessionary Point
2011 National Economic Outlook
Spread Between 10-Year Note &
Employment Growth to Accelerate. The U.S. economy will add 2 million

Three-Month Bill
3 ◆
jobs in 2011, double the amount created in 2010. The extension of Bush-
0 era tax cuts and the addition of new incentives for businesses should
Recessions stimulate hiring driven by export-related industries, a cyclical rebound
-3 in technology goods and services, and the business and professional ser-
vices sector. Tax-cut extensions will add 50 basis points to 75 basis points
-6 to GDP.
68 70 75 80 85 90 95 00 05 10***
◆ U.S. Economy Transitioning to Private Sector. GDP will rise by between
Retail Sales and Unemployment 2.5 percent and 3.0 percent this year as growth shifts from government
Unemployment Rate
initiatives and inventory restocking to the still-wary private sector. Cor-
porations will likely utilize a share of their cash stockpiles on new equip-
Year-over-Year Change in Retail Sales
12% Retail Sales, Excluding Auto & Gas 10%

ment and software, lending a boost to the headline rate of growth.
Unemployment Rate
9% 5%
◆ Elevated Unemployment, Weak Housing Create Drag. While foreclo-
sures will slow as irregularities in the process are examined, distress
6% 0% sales will remain an enduring theme, holding down prices in harder-hit
markets. At the same time, unemployment will stay elevated, hovering
3% -5% in the high-9 percent range through at least the first half of the year.
0% -10% ◆ Commercial Mortgage Maturities Pose Risk. Five-year loans made

00 01 02 03 04 05 06 07 08 09 10**** at the peak of the commercial real estate market in 2006 will ma-
ture in 2011, creating risk for lenders holding high-leverage notes on
underperforming assets. Banks hold approximately $1.5 trillion in com-
* Estimate ** Forecast *** Through November mercial real estate loans, or roughly 45 percent of the total, while CMBS
**** Unemployment through Nov.; retail sales through Oct. accounts for 20 percent.

National Apartment Overview
Apartment Recovery Surges Past Expectations;

Strong Momentum for Coming Year
A
Apartment Rent and Vacancy Trends
partments staged a strong recovery in 2010 well ahead of expecta-
Effective Rent
tions, despite modest job creation and stubbornly high unemploy- Vacancy Rate
ment. Net absorption surged, with occupied stock rising by nearly $1,100 10%
200,000 units, double the number of apartments constructed and the high-
Average Effective Rent

est level on record since 2000. Several factors contributed to high levels of $1,000 8%
Vacancy Rate
absorption, including the release of pent-up renter demand as households
de-bundled in the wake of the recession. In addition, apartments benefited $900 6%
from private-sector job growth in the critical 20- to 34-year-old cohort, ex-
piration of the homebuyer tax credit, displaced foreclosed homeowners en- $800 4%
tering the renter pool, immigration and lower unit turnover. Renting also
became a lifestyle and economic choice for many households as the effects $700 2%
of the housing collapse and recession persisted. Continued recovery in 2011 01 02 03 04 05 06 07 08 09 10* 11**
depends more heavily on improvements in the job market, which should

gain momentum as the year progresses. Completions vs. Units Absorbed
Units Completed
All 44 markets in the Marcus & Millichap National Apartment Index 240 Net Absorption 240
will post employment growth, vacancy declines and effective rent gains in
Units Completed (thousands)
Units Absorbed (thousands)

2011, confirming a sweeping recovery and expansion in the U.S. apartment 160 160
sector above expectations. This year will mark the first across-the-board
reduction in vacancy recorded since at least 1990; the strongest previous 80 80
performance played out in 2005, when all but three apartment markets reg-
istered declining vacancy rates. The last time all markets exhibited positive 0 0
employment trends occurred in 1999, and not since 2006 have all markets
posted effective rent growth. Further, new apartment supply will decline in
-80
all but six markets in 2011, the first time such broad-based reductions have 90 92 94 96 98 00 02 04 06 08 10*11**
emerged in 20 years. At the national level, new supply dropped to sub-
trend levels last year and completions will slip further in 2011, as tight cred-
it conditions stalled construction projects and delayed new starts through Employment in the
much of the past few years. Prime Renter Demographic
Vacancy Rate
Employment Change (millions of jobs)

10% Employment Change - Ages 20-34 1.0
2011 National Apartment Outlook 8% 0.5

Vacancy Rate
◆ Demand Outstrips New Supply. Apartment completions will total 6% 0

53,000 units this year, 46 percent fewer than delivered in 2010. New sup-
ply will again fall critically short of demand, which is expected to reach 4% -0.5
158,000 units.
2% -1.0
◆ Surging Demand Drives Vacancies Lower. U.S. apartment vacancy will 01 02 03 04 05 06 07 08 09 10*
decrease 110 basis points in 2011 to 5.8 percent, matching the decline
recorded in 2010. Strong demand drivers and expectations for increased
Apartment Revenue and Concessions
availability of debt this year, however, elevate the likelihood of a con-
Revenue per Unit
struction cycle ramping up in 2012. Concessions as a Percentage
$950 of Asking Rents 12%
Concessions as a % of Asking Rents
◆ Rents Rise, Concession Ease. With vacancy in 2011 expected to align

closely with pre-recession levels, owners will regain pricing power, par-
Revenue per Unit
$900 9%
ticularly in tight core markets. At the national level, asking rents will rise
3.5 percent to $1,067 per month, while effective rates will increase 4.5 $850 6%
percent to $1,002 per month. Last year, asking and effective rents gained
1.5 percent and 2.3 percent, respectively. $800 3%
◆ Demographic Trends Support Positive Outlook. Stronger job growth $750 0%

will spur new household formation over the next few years, as will the 01 02 03 04 05 06 07 08 09 10*
progression of echo boomers into their prime renter years. Over the next
five years, the 20- to 34-year-old cohort will expand by 3.2 million in-
dividuals. Rising interest rates, large downpayment requirements and
tight lending standards will bias young households toward renting. * Estimate ** Forecast

Capital Markets
Access to Debt Capital Dramatically

Improving, Though Favoring Top-Tier Assets
D
Multifamily Mortgage Debt Outstanding
ebt availability has increased dramatically from the trough two years
Other, 5% ago, but the overall supply remains limited and selective. Institutional
Life Insurance
Companies, 6%
debt sources share a preference for low-risk, higher-quality assets in
GSEs & Ginnie
Savings Mae, 36% top-tier markets with strong sponsors. This mandate leaves the majority of
Institutions, 7% the transaction bell-curve, which includes sales of $5 million to $20 million in
the B-minus to C-quality range, with fewer financing options. Transactions
State & Local
Governments, 9%
of this type can get funding, but the process and qualifications are more chal-
lenging, with a significant focus on sponsorship. A large number of proper-
ties remain in limbo with respect to refinancing without recapitalization or
CMBS, CDO &
Other ABS, 13% lender writedowns. An estimated $77 billion of maturing multifamily mort-
Commercial Banks, 24%
gages will weigh on the market in 2011 as reduced market values in the B- to
C- categories and higher loan-to-values (LTVs) create shortfalls for owners
in need of refinancing. This may result in more acquisition opportunities as
Commercial Mortgage Delinquency Rates many owners opt for a quick sale over additional equity contributions.
CMBS (30+ days and REO)
10% Life Companies (60+ days) Fannie Mae and Freddie Mac provide apartments a financing advan-
Fannie Mae (60+ days) tage relative to other property types, though more commercial banks and
8% Freddie Mac (60+ days)
life insurance companies are stepping up with competitive terms. Lending
Delinquency Rate
Banks & Thrifts (90+ days)

6% by life insurance companies increased nearly 150 percent last year, while
GSE volume declined 55 percent. In perspective, the GSEs currently hold 37
4% percent of the $843 billion in total multifamily mortgage debt outstanding,
while life companies account for 6 percent. Multifamily delinquencies held
2%
in the GSEs’ portfolios remain below 1 percent, supporting expectations for
0% the agencies to remain active, despite talk of reform in Washington, D.C.
4Q 4Q 4Q 4Q 4Q 4Q 4Q 4Q 4Q 4Q 4Q 4Q 3Q CMBS apartment loans continue to post high levels of distress, with delin-
98 99 00 01 02 03 04 05 06 07 08 09 10
quency in this sector hovering around 8.5 percent. Economic growth and
increases in apartment property values, particularly for high-quality assets,
Estimated Multifamily Debt will relieve some pressure and lead to more sales and refinancing. Some
Maturities by Vintage level of distress at the local- and regional-bank level with high exposure to
$100 Pre-2001 2005-2007 lower-quality assets and construction loans will persist into 2013.
2001-2004 2008
Maturing Balance (billions)
$75
2011 Capital Markets Outlook
$50 ◆ 10-Year Treasury Yields Remain Low. The extension of quantitative eas-
ing by the Fed will help restrain interest rates in the near term, holding
$25
the 10-year Treasury yield in the 3.4 percent to 4.0 percent range through
most of 2011.
$0
10
11
12
13
14
15
16
17
18
19
◆ All-in Rates Attractive; Lender Requirement Hurdles Remain. All-in

20
20
20
20
20
20
20
20
20
20
rates for smaller apartment loans range from 3.75 percent to 4.5 percent
for five-year terms, with 10-year notes pricing 100 basis points higher.
All-in Rates Trend Lower, Follow
For larger, high-quality deals, the GSEs quote all-in rates of 3.75 percent
Declining 10-Year Treasury Yield
to 4.6 percent, 100 basis points to 200 basis points lower than portfolio
10-Year Treasury Yield
8% Fannie Mae All-in Rate (Tier 2)
lenders. While rates are relatively low, stringent credit qualifications and
higher LTVs will remain challenges for many potential borrowers.
6%
◆ Seller Financing, Assumable Loans Prevalent. Seller financing and loan as-
sumptions accounted for nearly 30 percent of all commercial real estate transac-
Rate
4%
tions last year and will remain common in 2011. For more broad-based easing
2% in traditional lending sources to occur, the economy will need to post several
consecutive quarters of solid employment growth and overall expansion.
0%
07 08 09 10 ◆ Life Companies Ramp up; CMBS Re-Emerges. Motivated life insurance
companies will offer low all-in rates on top-tier assets with good credit charac-
teristics this year, regardless of asset size. CMBS issuance will continue to rise,
but its next iteration will include new regulation, oversight of ratings’ agencies
and more conservative underwriting than at the peak of CMBS dominance.

Apartment Investment Outlook
Low-Cost Debt, Rent Growth to

Increase Sales, Broaden Buyer Demand
P
Apartment Price and Cap Rate Trends
ricing for quality apartment assets in primary markets turned aggres-
Average Price per Unit
sive in 2010, leapfrogging property fundamentals. As REIT and insti- Average Cap Rate
Average Price per Unit (thousands)

tutional activity fueled momentum in the $20 million-plus category, $120 9%
the average price per unit increased and cap rates fell, though both mea-
sures are still down from levels achieved at the market’s peak. A prevailing $90 8%
Average Cap Rate

flight to quality and attractive returns over other investment alternatives
prompted buyers to compete more intensely for top-quality deals. Last $60 7%
year, the spread between the average cap rate in the apartment sector and
the 10-year Treasury yield widened to the largest gap on record in at least $30 6%
20 years before edging back to 400 basis points. For comparison, the differ-
ence between the long-term average cap rate and 10-year Treasury yield is $0 5%
290 basis points. 00 01 02 03 04 05 06 07 08 09 10**
Improving occupancies and rising rents, along with stabilized cash

flows and strong demand for quality income-producing properties, will U.S. Apartment Transactions by Quarter
continue to lend support to market pricing this year, helping assuage lin- 4
gering trepidation about values. Yield compression and limited inventory
Total Transactions (thousands)

in the upper end of the market will lead to more sales of Class B and B-
3
properties in 2011, spurring greater activity among private and opportuni-
ty investors. As the year progresses, more buyers will move down the qual-
ity chain in search of stronger yields, encouraging price discovery in the 2
lower tiers and in secondary/tertiary markets. At the end of 2010, cap rates
for mid-tier assets in tertiary markets exceeded those in primary markets 1
by approximately 200 basis points, with secondary markets falling in the
middle. This arbitrage offers attractive return spreads when viewed with
properly assessed risks and a longer, five-plus-year investment horizon. 0
06 07 08 09 10**
Yields in Primary Markets Recompress;

2011 Investment Outlook Secondary, Tertiary Trends Stabilizing
Primary Secondary Tertiary
◆ Sales Volume Rising, Still Well Below Peak Levels. Dollar volume will 9%
rise further this year as the economy gains momentum, apartment fun-
Average Cap Rate
damentals improve and debt markets loosen. During 2010, apartment 8%

sales volume totaled an estimated $40 billion, up nearly 65 percent from
the cyclical low in 2009 but less than one-third of the 2006 peak. 7%
◆ Apartment Buyer Composition Shifting. REITs and institutions will 6%

increase acquisitions in 2011. Last year, approximately 80 percent of all
transactions fell below $10 million, reflecting a highly active private- 5%
04 05 06 07 08 09 10**
buyer segment; however, public and institutional investors nearly qua-
drupled their share of transactions, while equity funds tripled their share.
Apartment Cap Rate Trends
◆ Cap Rates Recompress. The average cap rate will decline in 2011 after Apartment Cap Rate 10-Year Treasury Rate
slipping 20 basis points in 2010 to 7.2 percent, led by recompression of the 10%
most sought-after deals. Since peaking in 2009, cap rates for top-quality 400 bps Cap Rate Long-Term Avg.
properties have fallen by as much as 100 basis points. Additional sup- 8% 380 bps
Average Rate
port for prices derives from historically light construction and emerging 430 bps
demographic shifts that favor rental housing. 6% 410 bps

90 bps
10-Year Treasury
◆ Distress Creating Opportunities — in Moderation. Distressed-property 4% Long-Term Avg. 400 bps
sales increased dramatically in recent quarters, led by gains in deals over

$20 million, but distressed activity still accounts for just 12 percent of all 2%
apartment sales. While demand for high-quality distress deals will con- 90 92 94 96 98 00 02 04 06 08 10*
tinue to outpace supply, a shortage of apartment construction, combined Sales $1M and above
with a positive demand-side outlook and firming values, may turn more * Estimate ** Through 3Q
investor attention to unfinished multifamily developments. Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA

Atlanta Up 3 Places 2011 Rank: 39 2010 Rank: 42
Demand Surge Sparks Performance Gains,

Employment Trends Though Distress Lingers in Atlanta
R
Absolute Change Y-O-Y % Change
2%
enter demand will continue to improve in Atlanta during 2011 as hiring
50
accelerates, providing a foundation for property owners to raise rents
Total Nonfarm Jobs (thousands)
more aggressively as the year progresses. Asking rents in the Class A
Year-over-Year Change
0 0%
segment, especially, appear poised to grow faster than the 1 percent increase
posted last year. Submarkets such as Buckhead, Marietta and South Gwin-
-50 -2% nett County, each with a large stock of upper-tier rentals, will record some of
the greatest rent gains as availability tightens in these established core areas.
-100 -4% Asking rents at Class B/C complexes will also rise more significantly as hiring
in lower-paying sectors boosts demand for lower-tier rentals. In another posi-
-150 -6% tive trend in the market, completions will decrease this year. As demand-side
07 08 09 10* 11** conditions strengthen, however, developers will advance projects through the
pipeline, initiating a new building cycle after 2011. Potential supply growth
Supply and Demand remains greatest in the Midtown and Cherokee County submarkets, where
Completions Vacancy planned projects equal 19 percent and 12 percent of existing stock, respectively.
8 14%
Although property operations will gain ground this year, the improve-
6 12% ments may arrive too late to avert distress for many owners who purchased
Units (thousands)
assets at the peak of the market under aggressive rent growth and occu-
Vacancy Rate
4 10% pancy assumptions. Sales of lender-owned properties accounted for more

than 75 percent of Atlanta-area deals last year and will command a sizable
2 8%
proportion again in the year ahead. Potential buyers include owners of sta-
bilized assets who have met return objectives and can redeploy capital into
properties with greater upside potential. In addition to distressed assets,
0 6%
07 08 09 10* 11** stabilized complexes that can be obtained with agency debt will draw the
greatest interest, with cap rates expected to vary from 8 percent to 9 per-
Rent Trends cent. More intense competition for well-performing Class A complexes will
Asking Rents Effective Rents
compress cap rates to less than 6 percent as a result.
6%
2011 Market Outlook
3%
◆ 2011 NAI Rank: 39, Up 3 Places. Below-average rent gains limited At-
0% lanta’s rise in the NAI to just three spots this year.
◆ Employment Forecast: Employers will create 37,000 positions in 2011, a

-3%
1.6 percent increase. Last year, 21,700 jobs were added.
-6% ◆ Construction Forecast: Deliveries will subside to 1,000 units this year,
07 08 09 10* 11**
compared with 4,900 units in 2010 and the five-year average completion
of 5,700 rentals annually.
Sales Trends
$70
◆ Vacancy Forecast: Following a 140 basis point decline last year, vacancy
will fall 150 basis points in 2011 to 8.8 percent. Stronger job creation in
Median Price per Unit (thousands)
the service sectors will reduce the Class B/C vacancy rate by 140 basis
$60
points to 11.1 percent.
$50 ◆ Rent Forecast: Driven by a 3.4 percent increase in the Class A segment,
marketwide average asking rents will rise 2.5 percent this year to $853
$40
per month; Class B/C asking rents will advance 1.4 percent. Marketwide
effective rents will jump 3.1 percent to $770 per month.
$30 ◆ Investment Forecast: Distressed lower-quality assets will continue to at-
06 07 08 09 10*
tract buyers able to take a considerable equity portion in deals. Prices
* Estimate ** Forecast of approximately $20,000 per unit remain an attractive entry point for
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA investors seeking to expand local portfolios.
Market Forecast Employment: 1.6% ▲ Construction: 3,900 ▼ Vacancy: 150 bps ▼ Effective Rents: 3.1% ▲

Up 7 Places 2011 Rank: 9 2010 Rank: 16 Austin
Austin Apartment Demand to Outstrip New

Supply, Driving Above-Average Rent Growth Employment Trends
H
ealthy job and population growth will combine with reduced con- Absolute Change Y-O-Y % Change
30 4%
struction to set the stage for a potential shortage of apartments by

late 2011. Throughout the economic downturn, absorption remained
15 2%
positive in Austin, with rising vacancy largely a product of surging con-
struction as opposed to sagging demand. Many of the complexes brought
online in 2009 have since stabilized, with vacancy declining substantially 0 0%
through 2010; however, construction has commenced on just a handful of
projects. As vacancy slips to a 10-year low in 2011, supporting stronger rent -15 -2%
gains and concession burn, some planned and postponed projects will move
off the sidelines. This likely includes a few large master-planned commu- -30 -4%
nities just outside the metro’s boundaries along Highway 130. It will take 07 08 09 10* 11**
time for developers to fully reboot, though, and Austin property owners
will benefit from the lull in completions over the next 12 to 18 months. Supply and Demand
Completions Vacancy
Austin apartment prices declined to a lesser degree than anticipated 12 12%
during the downturn and even began to recover last year, rising 3 percent.
Limited discounting has driven many local investors to other Texas metros, 9 10%
Units (thousands)
a trend likely to persist through 2011 as prices edge up, particularly for bet-
Vacancy Rate
ter-quality assets. Opportunities for local investors will center around small 6 8%
properties in some level of distress, while most larger deals will be targeted
by REITs, syndicates and out-of-state, private investors. Strong competition
3 6%
has already driven down cap rates for best-of-class assets to the low-5 per-
cent range, while first-year returns on well-located Class B properties fall in
the high-6 percent range. As a result of compression, cap rates today may 0 4%
07 08 09 10* 11**
be comparable to some coastal markets, but investors in Austin anticipate
outsized rent gains over the next few years as new apartment supply falls Rent Trends
short of demand. Asking Rents Effective Rents
8%
2011 Market Outlook 4%
◆ 2011 NAI Rank: 9, Up 7 Places. The strongest rate of job growth in the 0%
nation fueled Austin’s seven-place jump in the index into the top 10.
◆ Employment Forecast: Job growth will reach 3.6 percent, or 28,000 posi- -4%
tions, in 2011. Last year, local employment rose by 3 percent.
-8%
07 08 09 10* 11**
◆ Construction Forecast: Construction will continue to wind down this
year, with 1,800 units slated for delivery. In 2009 and 2010, developers
completed 10,400 units and 2,900 units, respectively. Sales Trends
$60
Vacancy Forecast: Vacancy in Austin will decline 140 basis points in 2011
◆
to 6.2 percent, the lowest level since 2001. Last year, vacancy plummeted
250 basis points. $55
◆ Rent Forecast: This year, average asking rents will rise 4.2 percent to an $50
average of $901 per month, and effective rents will climb 5.6 percent to
$824 per month.
$45
◆ Investment Forecast: More Class A product will likely become available

this year as projects completed in 2009 and early 2010 achieve sufficient $40
06 07 08 09 10*
occupancy to support a sale. Proceeds from these deals will likely be put
toward new development as higher rents and occupancy justify con- * Estimate ** Forecast
struction costs. Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA

Boston Up 5 Places 2011 Rank: 3 2010 Rank: 8
Vacancy Decline Persists, Rents to Rise

Employment Trends Following Strong Rebound Last Year
A
90 4%
faster pace of job growth, a decline in rental construction, and im-
proving vacancy and rent trends will place Boston among the top
performing apartment markets in the country in 2011. Following a
45 2%
solid rebound in hiring last year, employers will step up the pace as de-
mand for goods and services strengthens in the months ahead. Job gains
0 0% will occur in most employment segments, with the professional and busi-
ness services and education and health services sectors expected to each
-45 -2% grow nearly 3 percent. Demand for rental housing will improve with the
employment market. Vacancy will decrease to the low-3 percent range in
-90 -4% core urban submarkets, down from more than 5 percent during the reces-
07 08 09 10* 11** sion. In the suburbs, where more than 60 percent of jobs in the metro exist,
vacancy will dip below 6 percent, enabling operators to significantly reduce
Supply and Demand concessions by the second half of 2011.
Completions Vacancy
8 7% As Boston remains a large, primary market with diverse demand driv-
ers, local apartments will generate considerable interest when listed. Gener-
6 6% ally, cap rates ranged from about 6.2 percent to 7.0 percent at the end of last
Units (thousands)
year. Low interest rates and intensified bidding will maintain downward
Vacancy Rate
4 5% pressure on cap rates throughout the first half of 2011, encouraging owners
to explore sales. Local investors will leverage price adjustments to expand
2 4%
portfolios, focusing on small properties in the city of Boston and near-in
suburbs. Institutions and REITs, which increased activity in the second half
of 2010, will target large, high-quality properties in the suburbs. The prob-
0 3%
07 08 09 10* 11** ability that more intense bidding for these assets will drive up prices as the
year progresses may compel many of these investors to seek lower-priced
Rent Trends opportunities in other markets.
6% 2011 Market Outlook
3% ◆ 2011 NAI Rank: 3, Up 5 Places. Low housing affordability and above-

average employment growth pushed Boston to the third position in this
0% year’s NAI.
◆ Employment Forecast: In 2011, employment will expand 2 percent, or by

-3%
49,000 positions, compared with a 1.5 percent increase nationwide. Last
year, local employers created 37,500 jobs.
-6%
07 08 09 10* 11**
◆ Construction Forecast: Rental stock will grow only 0.3 percent in 2011
as 600 units are completed, one of the lowest totals in the past 10 years.
Sales Trends Slightly more than 1,000 rentals were delivered in 2010.
$140
Vacancy Forecast: Waning construction and accelerated job growth will
◆
support a 100 basis point decline in vacancy this year to 4.5 percent. The
$120
release of pent-up demand generated a 90 basis point decrease in the
vacancy rate during 2010.
$100
◆ Rent Forecast: In 2011, asking rents will climb 3.5 percent to $1,777 per
$80
month, while concessions will burn as effective rents advance 4.5 percent
to $1,697 per month.
$60 ◆ Investment Forecast: Additional loosening of the capital markets will
06 07 08 09 10*
support strong bids among local buyers for small properties in the city of
* Estimate ** Forecast Boston. Investors seeking stable suburban assets will focus on the Mass
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA Pike and Route 9 corridors.
Market Forecast Employment: 2.0% ▲ Construction: 410 ▼ Vacancy: 100 bps ▼ Effective Rents: 4.5% ▲

Up 1 Place 2011 Rank: 28 2010 Rank: 29 Charlotte
Reduced Construction Supports Operations,

Draws Investors to Charlotte Employment Trends
A
projected decrease in apartment completions this year will under- Absolute Change Y-O-Y % Change
50 6%
pin a further reduction in vacancy and enable Charlotte property

operators to implement more significant rent increases. In a market
25 3%
characterized by periods of substantial development, the slowdown in
construction and permitting constitute important trends that will influ-
ence apartment operations for the next several quarters. Beyond the effects 0 0%
of minimal completions during 2011, permitting fell to one of the lowest
annual totals on record last year, assuring the construction cycle will not -25 -3%
accelerate until late 2012. The gap in the cycle provides owners the oppor-
tunity to leverage this year’s expected improvements in rental demand and -50 -6%
tenant turnover into higher rents and reduced concessions on new leases. 07 08 09 10* 11**
In areas where vacancy has already fallen well below the marketwide aver-
age, such as the Carmel and North Pineville submarkets, rent growth will Supply and Demand
significantly outpace the metrowide average. Completions Vacancy
4 12%
After two years of subdued activity, improving financing capacity, a
large stock of new properties and prices below pre-recession levels will re- 3 10%
Units (thousands)
attract investors back to the metro in 2011. Initially, most buyers will con-
Vacancy Rate
centrate on assets located within the boundaries formed by interstates 85 2 8%
and 485, along with areas with easy access to major employment nodes. As
the year progresses, though, activity will shift gradually to more suburban
1 6%
areas as the recovery in property operations gains momentum. Assets in
Gaston County and communities along the Interstate 77 and I-85 corridors
north of the downtown area may offer considerable upside for investors 0 4%
07 08 09 10* 11**
skilled in operating suburban, garden-style properties.
Rent Trends
6%
2011 Market Outlook
3%
◆ 2011 NAI Rank: 28, Up 1 Place. Charlotte remained near the middle of
the index due to below-average rent growth and high vacancy. 0%
◆ Employment Forecast: Employers will create 17,000 jobs in the metro

this year, a 2.1 percent increase and up from 2010, when 10,300 new hires -3%
were made.
-6%
07 08 09 10* 11**
◆ Construction Forecast: Projects totaling 900 units will come online in
2011, down from 1,760 units last year.
Sales Trends
◆ Vacancy Forecast: A decrease in construction and projected positive net
$70
absorption of 1,800 units will reduce the vacancy rate 100 basis points to
7.6 percent this year. Vacancy fell 270 basis points in 2010.
$60
◆ Rent Forecast: Driven by significant rent growth in low-vacancy areas
such as the Harris Boulevard and East Charlotte submarkets, marketwide $50
asking rents will rise 2.7 percent this year to $789 per month. Effective
rents will increase 3.6 percent to $717 per month.
$40
◆ Investment Forecast: Attractive investment opportunities will emerge in

several potential high-growth areas of the metro as property operations $30
06 07 08 09 10*
strengthen. Complexes that serve the growing employment base at the
North Carolina Research Park in Kannapolis, for example, will garner * Estimate ** Forecast
increased attention. Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA

Chicago Down 3 Places 2011 Rank: 23 2010 Rank: 20
Resurgent Demand Boosts

Employment Trends Operations, Pressing Prices Upward
O
perating conditions in the Chicago apartment market will strength-
80 2%
en considerably this year, building on improvements in vacancy and
rents recorded in 2010. Apartment construction will sink to one of
0 0%
the lowest levels in the past decade, minimizing competition for tenants
at a time when renewed job growth will accelerate the formation of rental
-80 -2% households. A 2 percent increase in financial services and professional and
business services employment will spur demand for apartments in higher-
-160 -4% priced city submarkets such as the Gold Coast and the Loop. As vacancy
in the city falls closer to the 5 percent threshold in 2011, rent growth and
-240 -6% a more rapid burn-off of concessions will commence in the second half.
07 08 09 10* 11** The performance of properties in inner-ring suburbs also will strengthen
this year, as apartments in these areas draw both residents from outlying
Supply and Demand sections of the metro who desire housing closer to workplaces and those
Completions Vacancy renters shut out of tighter in-city submarkets.
4 8%
Driven by low interest rates and the expanded availability of acquisi-
3 7% tion financing, the investment market will gain momentum in 2011. Buyers
Units (thousands)
will bid aggressively on high-quality properties in the city and first-ring sub-
Vacancy Rate
2 6% urbs, encouraging an increasing number of owners to list assets. Cap rates

fell across the market in 2010 but will likely remain near their current ranges
through this year. High-quality assets in city locations often command first-
1 5%
year returns of less than 6 percent, while noncore city assets and properties
in the suburbs primarily trade from 6.5 percent to 8.0 percent based upon
0 4%
07 08 09 10* 11** current operations. Distressed listings received considerable attention in
2010, but deals involving these assets will diminish as the year progresses
Rent Trends and owners facing difficulties begin to restore property operations.
6%
2011 Market Outlook
3%
◆ 2011 NAI Rank: 23, Down 3 Places. Chicago’s lagging employment mar-
0%
ket and modest rent growth dropped the metro three spots in the index.
◆ Employment Forecast: Expansion of the trade and professional and busi-

-3% ness services sectors will contribute significantly to the creation of 52,500
jobs this year, a 1.3 percent increase in total employment. Approximately
-6% 20,000 positions were eliminated in 2010.
07 08 09 10* 11**
◆ Construction Forecast: Only 700 new rentals will come online in 2011,
Sales Trends down considerably from the completion of 2,420 units last year.
$90
Vacancy Forecast: The metrowide vacancy rate will decrease 60 basis
◆
points this year to 5.5 percent on resurgent demand and minimal con-
$80 struction; vacancy also fell 60 basis points in 2010.
$70 ◆ Rent Forecast: Asking rents will rise 2.3 percent to $1,070 per month in
2011, following a 1.3 percent increase last year. Concessions will decline
to 6.1 percent of asking rents as effective rents climb 3.2 percent to $1,005
$60
per month; in 2010, effective rents advanced 2.4 percent.
$50 ◆ Investment Forecast: Investors seeking distressed assets will continue to

06 07 08 09 10*
find opportunities on the southern and western sides of the city. Prospec-
* Estimate ** Forecast tive buyers will require a long-term outlook for rehabilitating properties,
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA restoring stable operations and implementing rent increases.

Down 3 Places 2011 Rank: 33 2010 Rank: 30 Cincinnati
Major Development Projects Generate

Jobs, Support Apartment Demand Employment Trends
S
purred by an economic recovery in the city core and marketwide job Absolute Change Y-O-Y % Change
40 4%
growth, apartment operations in Cincinnati will strengthen further in

2011. The first phase of the mixed-use Banks development, located be-
2%
tween the Great American Ballpark and Paul Brown Stadium on the Ohio 20
River, will open in the second quarter of this year, expanding rental inven-
tory in the Downtown submarket by 3 percent. Nevertheless, high-paying 0 0%
job growth in the area will outpace new supply. Metrowide, employers will
add more than 5,600 positions in the professional and business services and -20 -2%
education and health services sectors this year, boosting Class A demand
near major employment centers. Operations at Class B/C complexes will -40 -4%
also improve as employment gains rise in lower-paying industries. De- 07 08 09 10* 11**
velopment of the Broadway Commons Casino, for instance, will generate
2,100 construction jobs during 2011 and 2,800 permanent positions by year- Supply and Demand
end 2012. As a result, vacancy will retreat to a 10-year low in Cincinnati. Completions Vacancy
1,000 9%
Apartment sales activity in the metro will increase this year as local
investors leave the sidelines and out-of-state syndicates explore new op- 750 8%
portunities. In the lower tiers, buyers will target older REO complexes with
Vacancy Rate
turnaround potential. Many of these properties were purchased by out-of-
Units
500 7%
state investors at the height of the market and have since been foreclosed
due to weakening operations and banks’ reluctance to refinance. Two in-
250 6%
vestment strategies are emerging with these deals. Local buyers are pur-
chasing at low per-door prices, addressing deferred maintenance issues
and stabilizing the property for long-term revenue potential. Syndicates, 0 5%
07 08 09 10* 11**
however, are re-listing assets shortly after building and occupancy condi-
tions improve. Top-tier investment activity remains focused on complexes Rent Trends
in the Downtown and Blue Ash/Amberley submarkets due to their high Asking Rents Effective Rents
barriers to entry and historically stable NOIs. Cap rates for assets in pre- 4%
mium locations currently average in the mid- to high-6 percent range and
could compress further if institutions and REITs become active.
2%
0%
2011 Market Outlook
-2%
◆ 2011 NAI Rank: 33, Down 3 Places. Below-average job growth and high
home affordability dropped Cincinnati three positions in this year’s NAI.
-4%
07 08 09 10* 11**
◆ Employment Forecast: Approximately 13,200 jobs will be added to the
work force this year, a 1.3 percent increase. In 2010, employers created
700 positions. Sales Trends
$38
◆ Construction Forecast: Following the completion of 350 units last year,

developers will deliver 700 apartments in 2011.
$36
◆ Vacancy Forecast: Vacancy will tick down 60 basis points this year to 6.3
percent. In 2010, the average vacancy rate retreated 110 basis points. $34
◆ Rent Forecast: Asking rents will increase 1.9 percent during 2011 to $715
$32
per month, and effective rents will climb 2.4 percent to $683 per month.
◆ Investment Forecast: Financing standards in Cincinnati remain slightly $30

06 07 08 09 10*
more stringent than in some other markets, creating opportunities for
cash-heavy investors to purchase quality assets in a relatively stable met- * Estimate ** Forecast
ro without competing with highly leveraged buyers. Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA
Market Forecast Employment: 1.3% ▲ Construction: 350 ▲ Vacancy: 60 bps ▼ Effective Rents: 2.4% ▲

Cleveland Down 8 Places 2011 Rank: 40 2010 Rank: 32
Cleveland Apartment Market

Employment Trends Tightens on Strength of Class A Sector
D
uring 2011, healthy hiring in the local professional and business ser-
25 2%
vices sector will drive Class A vacancies in Cleveland below those in
lower-tier properties for the first time in nearly a decade. Last year,
0 0%
white-collar payrolls expanded at the fastest pace since 1999, and continued
gains this year will fuel stronger Class A leasing activity. This trend will
-25 -2% help top-tier owners regain control over rents, especially in upscale areas
like the Beachwood and Strongsville/Berea submarkets, where vacancies
-50 -4% will settle below 3 percent in 2011. The recovery of Class B/C operations
will continue to lag until lower-paying industries post several consecutive
-75 -6% quarters of sustainable growth and unemployment levels retract. Close-in
07 08 09 10* 11** areas, including the East Cleveland submarket, will record metro-high va-
cancies as a result, hindering owners’ ability raise rents this year.
Supply and Demand
Completions Vacancy With low interest rates improving investor motivation in Cleveland,
600 8% many owners who held assets through the downturn will begin to divest,
spurring increased deal flow. Sales involving performing, higher-end as-
450 7% sets will account for a larger share of closings, though competition from
regional, high-net-worth buyers will remain fierce. The availability of up-
Vacancy Rate
scale, stabilized assets will fall short of buyer demand, potentially com-
Units
300 6%
pressing cap rates for best-in-class properties below their current average in
the low- to mid-7 percent range. Distressed-asset sales will also play a role
150 5%
as local buyers with extended outlooks target underperforming Class B/C
properties, despite some near-term challenges. Attractive per-unit prices
0 4%
07 08 09 10* 11** for assets in hard-hit areas such as Euclid may provide investors with an
opportunity to achieve healthy long-term returns once operations stabilize.
Rent Trends
6%
3%
2011 Market Outlook
0%
◆ 2011 NAI Rank: 40, Down 8 Places. Cleveland fell eight spots in the in-
dex due to below-average rent growth, slowing payroll expansion and
-3%
high home affordability.
-6% ◆ Employment Forecast: Employers will add 11,000 jobs this year, a 1.1
07 08 09 10* 11**
percent increase. During 2010, the work force grew by 17,000 positions,
marking the end of four consecutive years of payroll contractions.
Sales Trends
$45 ◆ Construction Forecast: After 290 units were added to inventory last year,
fewer than 80 units will come online in 2011.

$40 ◆ Vacancy Forecast: The vacancy rate in Cleveland will improve 40 basis
points this year to 5.6 percent, after dropping 90 basis points in 2010.
$35
◆ Rent Forecast: In 2011, asking rents will tick up 1.7 percent to $733 per
$30
month. Effective rents will appreciate 2.2 percent to $699 per month,
pulling concessions below the 10-year average.
$25 ◆ Investment Forecast: This year, cap rates for stabilized Class B assets will
06 07 08 09 10*
average in the low- to high-8 percent range, while fully occupied Class C
* Estimate ** Forecast properties will trade with initial yields between 9 percent and 10 percent,
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA providing healthy returns for buyers.

Down 6 Places 2011 Rank: 37 2010 Rank: 31 Columbus
Columbus Apartment Investments to

Attract Yield-Seeking Buyers in 2011 Employment Trends
W
hite-collar employment expansion will boost top-tier apartment Absolute Change Y-O-Y % Change
40 4%
demand in Columbus early this year, while lagging blue-collar job

gains will limit improvement among Class B/C properties until
2%
late 2011. The professional and business services and financial services sec- 20
tors will create nearly 6,000 jobs, reclaiming half the positions lost during
the recession. Additions at finance companies, including the Westerville 0 0%
office of Chase, are particularly encouraging, considering the financial ser-
vices sector entered the recession early due to the credit crisis. While lower- -20 -2%
tier conditions will not improve significantly until the second half, some ar-
eas, including Hilliard, will begin to recover sooner. Developers will break -40 -4%
ground in 2011 on the Hollywood Casino in the Hilliard submarket, gen- 07 08 09 10* 11**
erating 3,500 construction jobs. When completed in 2012, the project will
create 2,000 permanent positions, providing long-term demand for local Supply and Demand
apartment operators. Completions Vacancy
1.6 10%
As cap rates compress in major metros during the first half of 2011,
yield-seeking buyers will gravitate toward the relative safety of the Colum- 1.2 9%
Units (thousands)
bus apartment market to take advantage of initial returns that meet their
Vacancy Rate
investment goals. In addition to traditional sales, some buyers will target 0.8 8%
high-vacancy, value-add opportunities as prices for these assets dip to a
market-clearing level. Healthy job growth and a slow-moving single-family
0.4 7%
housing market will enable owners to improve occupancy more quickly this
year. Stabilized Class B/C properties, meanwhile, will trade in the mid- to
high-9 percent range. Out-of-state investors interested in these complexes 0 6%
07 08 09 10* 11**
will find opportunities in the Northeast and Southeast submarkets. Grow-
ing apartment demand and limited competition from new supply in these Rent Trends
areas provide long-term revenue potential for owners. Asking Rents Effective Rents
6%
◆ 2011 NAI Rank: 37, Down 6 Places. Below-average employment and 0%

rent growth pushed down Columbus six places in the NAI.
◆ Employment Forecast: Employers will increase payrolls by 15,000 posi- -3%

tions this year, or 1.7 percent. In 2010, only 500 jobs were created.
-6%
07 08 09 10* 11**
◆ Construction Forecast: After nearly 900 apartments came online last
year, development will slow to 785 units in 2011, expanding marketwide
inventory by just 0.6 percent. Sales Trends
$60
Vacancy Forecast: Vacancy will decline 70 basis points this year to 8.3
◆
percent on positive net absorption of more than 1,550 units. In 2010, va-
cancy fell 20 basis points. $50
◆ Rent Forecast: Marketwide asking rents will climb 1.8 percent in 2011 $40
to $675 per month, and effective rents will spike 2.4 percent to $636 per
month. Last year, asking and effective rents rose 0.6 percent and 1.3 per- $30
cent, respectively.
◆ Investment Forecast: Distressed and REO listings will become avail- $20
06 07 08 09 10*
able over the next several months as banks clear assets from their books.
Lower per-door prices for these properties will interest investors with a * Estimate ** Forecast
penchant for improving operations and realizing upside potential. Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA

Dallas/Fort Worth Up 5 Places 2011 Rank: 18 2010 Rank: 23
Household Formation Outpaces

Employment Trends Construction, Firms Operating Conditions
T
100 4%
he apartment market recovery exhibited greater strength in the Dal-
las side of the Metroplex last year but will spread throughout the
market during 2011 as job growth materializes across multiple sec-
50 2%
tors. In 2010, employment gains in the professional and business services
and education and health services sectors disproportionately benefited Dal-
0 0% las apartment complexes. While these vital segments will each add more
than 10,000 positions this year, manufacturers and government employers,
-50 -2% industries particularly important to Fort Worth apartment operators, will
join them. As a result, the vacancy gap between the two cities will narrow
-100 -4% and rent growth will accelerate across the Metroplex. Supply-side pressure
07 08 09 10* 11** will continue to abate and center in Dallas suburbs. The 4,200 apartments
that come online this year will fall far short of the demand generated from
Supply and Demand the estimated 50,000 new households that will form in the Metroplex by
Completions Vacancy year end, supporting net absorption well above the five-year average.
20 12%
A wide range of buyers are attracted to the Dallas/Fort Worth apartment
15 10% market, which should buoy deal flow again this year. Private, out-of-state syn-
Units (thousands)
dicates, in particular, will boost their presence to acquire smaller properties. Af-
Vacancy Rate
10 8% ter stabilizing and financing these complexes, these buyers will redeploy the
capital to create portfolios. Local investors with a penchant for improving op-
5 6%
erations and doing light renovations can generate upside by purchasing Class
C or lower-end Class B properties in blue-collar areas, where job growth will
accelerate this year. REITs and institutions will also remain active, targeting re-
0 4%
07 08 09 10* 11** cently stabilized properties completed immediately before the recession. In 2008
and 2009, builders delivered nearly 28,000 apartments in large complexes, many
Rent Trends of which now qualify for agency financing. Cap rates for these deals have fallen
to the low-6 percent range, 50 basis points below the previous cyclical low.
6%
2011 Market Outlook
3%
◆ 2011 NAI Rank: 18, Up 5 Places. Dallas/Fort Worth jumped five spots in
0% the index behind strong household formation and limited construction.
◆ Employment Forecast: Employers will add 77,000 positions in the

-3%
Metroplex this year as every sector expands. The pace of job growth will
reach 2.7 percent, after payrolls increased 1.2 percent during 2010.
-6%
07 08 09 10* 11**
◆ Construction Forecast: Only 4,200 apartments will come online this year,
a minor 0.7 percent rise to stock. Household growth of 2.3 percent will far
Sales Trends outpace the number of new single- and multifamily homes built in 2011.
$50
Vacancy Forecast: Average vacancy will dip to 6.7 percent by year end,
◆
80 basis points below the rate at the beginning of the year. In 2010, va-
$45
cancy plummeted 220 basis points.
$40 ◆ Rent Forecast: Asking rents will climb 3.1 percent this year to $804 per
month as effective rents jump 3.4 percent to $722 per month. Leasing
$35
incentives will fall by two days of free rent.
◆ Investment Forecast: The market’s large inventory provides investors

$30 with plenty of distressed opportunities. At the end of last year, over $850
06 07 08 09 10*
million of apartment properties were in some level of distress. Improv-
* Estimate ** Forecast ing fundamentals and renewed lender enthusiasm to clear books will
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA reduce that figure significantly by year-end 2011.

Up 7 Places 2011 Rank: 14 2010 Rank: 21 Denver
Apartment Operators Regain Pricing

Power as Vacancy Recedes to 10-Year Low Employment Trends
B
y year-end 2011, apartment vacancy in Denver will slip to the lowest Absolute Change Y-O-Y % Change
60 6%
level in a decade, allowing owners to raise rents and scale back conces-

sions. The local apartment market recovery began in 2010, fueled by
30 3%
pent-up renter demand for close-in units near employment hubs and light-rail
stations. This year, however, accelerating job growth and reduced construc-
tion should begin to spread improvements throughout the metro. Owners 0 0%
in the Denver-Downtown, Denver-Central, Denver-North and Lakewood-
South submarkets, where vacancy already falls below 5 percent, will leverage -30 -3%
tighter conditions by trimming concessions at an above-average pace. Op-
erations in hard-hit areas like Aurora will also improve, with vacancy rates -60 -6%
declining from the peak levels reached in late 2009. A significant reduction in 07 08 09 10* 11**
leasing incentives in these areas will not occur until the second half of 2011,
though, when job creation intensifies in typically lower-paying sectors, in- Supply and Demand
cluding leisure and hospitality and trade, transportation and utilities. Completions Vacancy
4 10%
Investor demand for distressed listings remains strong, but the short-
age of available supply is encouraging more investors to bid on perform- 3 8%
Units (thousands)
ing assets in traditionally sturdy locations. The limited number of distressed
Vacancy Rate
properties on the market will also curb price discounting as fierce competi- 2 6%
tion for short sales and REO listings pushes values to well above initial list
prices. Only a few newer, higher-quality distressed properties traded recent-
1 4%
ly, and banks will wait for more significant improvement in occupancy and
rents to dispose of these reclaimed assets. As unsatisfied demand for these
deals migrates to the traditional apartment investment market, cap rates 0 2%
07 08 09 10* 11**
for strong-performing properties, particularly those in close-in locations or
proximate to public transportation, have begun to decline. The most sought- Rent Trends
after high-quality assets will close at cap rates in the 6 percent range early Asking Rents Effective Rents
this year, considerably lower than the marketwide average of 7.5 percent. 6%
◆ 2011 NAI Rank: 14, Up 7 Places. Tight vacancy and healthy employment 0%
gains helped push up Denver seven places in the 2011 ranking.
◆ Employment Forecast: Denver payrolls will rise by 24,000 positions in -3%

2011, a 2 percent gain. Growth resumed in 2010 after two years of con-
traction, with local employment expanding by 0.5 percent. -6%
07 08 09 10* 11**
◆ Construction Forecast: Only 800 units are slated for completion in 2011,
down from 2,550 units last year. Sales Trends
$70
Vacancy Forecast: Reduced construction and accelerating job growth
◆
will support an 80 basis point decrease in vacancy to 5 percent this year.
During 2010, vacancy declined 220 basis points. $65
◆ Rent Forecast: Asking rents will rise 3.1 percent in 2011 to $906 per $60
month, while effective rents will climb 4.1 percent to $816 per month.
$55
◆ Investment Forecast: With investors focusing on distressed deals and
high-quality performing assets, many Class B/C properties in secondary
and tertiary locations could be overlooked. These complexes may pres- $50
06 07 08 09 10*
ent strong acquisition opportunities for buyers with longer-term hold
strategies, as some owners with maturing debt will need to adjust prices * Estimate ** Forecast
in order to minimize marketing times. Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA

Detroit Down 6 Places 2011 Rank: 42 2010 Rank: 36
Signs of Economic Stabilization Emerge;

Employment Trends Modest Job Growth Expected
F
3%
ollowing years of volatility, the Detroit economy will transition into
50
a period of relative stability as local manufacturers increase output
and employment expands for the first time in a decade. Aided by
0 0%
state grants totaling more than $2 billion and the strengthening national
economy, the Big Three will ramp up production in 2011, bolstering the
-50 -3% need for additional manpower. Ford, for instance, plans to hire nearly 1,000
workers early this year at its Sterling Heights assembly plant, generating
-100 -6% renter demand in Macomb County. As improving apartment demand
marketwide faces a lack of new supply for the second consecutive year,
-150 -9% average vacancy will fall to a four-year low. Occupancy gains will be most
07 08 09 10* 11** pronounced in higher-priced communities in Oakland County, includ-
ing Troy, Farmington Hills and Pontiac/Waterford, where elevated home
Supply and Demand prices preclude residents from ownership. Still, years of deep job cuts will
Completions Vacancy continue to weigh on hard-hit blue-collar areas in Wayne County, particu-
400 9% larly the Midtown/West Detroit submarket, where vacancy will stay above
11 percent this year.
300 8%
Improving investor sentiment and elevated cap rates will fuel an up-
Vacancy Rate
tick in sales activity in 2011. Lender-owned assets remain the focal point
Units
200 7%
for most buyers, and as 2010 came to a close, rental properties in distress
100 6%
amounted to more than $300 million. Depending on location and buyer
motivation, initial yields for these assets will reach as high as 13 percent,
while most stabilized apartments will trade at average cap rates around 10
0 5%
07 08 09 10* 11** percent. With the local economy on the cusp of recovery, yield-driven in-
vestors will perceive these returns as sufficient to offset market challenges.
Rent Trends Risk-averse buyers, meanwhile, will target Ann Arbor for seldom-traded
assets that come to market. Strong student demand for off-campus housing,
6% though, will keep cap rates for such assets well below metrowide averages.
0% ◆ 2011 NAI Rank: 42, Down 6 Places. A stagnant employment market and
limited improvement in vacancy pushed down Detroit six spots in the
2011 NAI.
-3%
◆ Employment Forecast: Local employers will resume payroll expansion

-6%
07 08 09 10* 11**
this year, adding 8,400 jobs, a 0.5 percent gain. Last year, cuts totaled
9,000 positions.
Sales Trends ◆ Construction Forecast: Rental stock growth will remain minimal this
$50 year; approximately 30 units will come online, matching the number of
new apartments added in 2010.

$45
◆ Vacancy Forecast: Following a 120 basis drop last year, vacancy will im-
prove 40 basis points in 2011 to 6.5 percent.
$40
◆ Rent Forecast: Asking rents will advance 1.1 percent this year to $815 per
$35
month, and effective rents will gain 1.4 percent to $736 per month.
◆ Investment Forecast: Midwestern investors with a five- to 10-year out-

$30 look will seek to capitalize on the metro’s higher cash-on-cash returns.
06 07 08 09 10*
Given the availability of deeply discounted assets and early signs of re-
* Estimate ** Forecast covery, these investors may be well positioned to achieve healthy long-
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA term returns.
Market Forecast Employment: 0.5% ▲ Construction: 0 ■ Vacancy: 40 bps ▼ Effective Rents: 1.4% ▲

Up 5 Places 2011 Rank: 34 2010 Rank: 39 Fort Lauderdale
Recovery in Broward County Continues;

Declining Cap Rates to Spur Listing Activity Employment Trends
R
enter demand in Broward County spiked during 2010, and an addi- Absolute Change Y-O-Y % Change
50 8%
tional reduction in vacancy will occur this year as job creation stimu-

lates rental household formation. Even as vacancy edges closer to 5.5
25 4%
percent, the rate recorded at the start of the recession, property owners will
face challenges in restoring rents and withdrawing concessions for a few
more quarters. Effective rents have fallen sharply since the recession began 0 0%
due to waning tenant demand in most submarkets. The Deerfield Beach
and West Hollywood submarkets will be an exception this year, however, -25 -4%
as apartment operators will leverage improvements in demand to steadily
reclaim some of the steepest rent declines recorded during the recession. -50 -8%
Only modest rent increases are projected countywide, though, and a recov- 07 08 09 10* 11**
ery to pre-recession levels in many submarkets may not occur until 2012.
Supply and Demand
Cap rates compressed throughout 2010 as investors bid aggressively Completions Vacancy
on the limited number of quality properties available, and downward pres- 2.0 10%
sure on first-year returns will persist this year. With the volume of assets
listed remaining low, owners contemplating a near-term disposition will in- 1.5 8%
Units (thousands)
creasingly take advantage of the keen bidding climate to capture premium
Vacancy Rate
pricing before listed competition grows. Currently, cap rates on genuine 1.0 6%
Class A properties vary from 5.5 percent to 6.0 percent. Initial yields among
lower-tier assets range between 7.5 percent and 8.0 percent, with greater
0.5 4%
financing capacity from local banks and Fannie Mae continuing to revital-
ize the market for such properties. Overall, improving occupancy will help
stabilize cash flows at many complexes in the months ahead, though rising 0 2%
07 08 09 10* 11**
expenses could begin to pressure bottom lines. Property taxes will likely
increase as many municipalities seek to raise revenues to cover projected Rent Trends
budget shortfalls; utilities and insurance rates also may climb. Asking Rents Effective Rents
8%
4%
2011 Market Outlook
0%
◆ 2011 NAI Rank: 34, Up 5 Places. Fort Lauderdale improved five places in
the index, as improving demand will be met with few new apartments.
-4%
◆ Employment Forecast: Eight of 10 primary employment sectors should
add jobs in 2011 due to rising demand for goods and services. During the -8%
07 08 09 10* 11**
year, total employment will expand by 1.4 percent, or 9,500 positions; in
2010, employers created 1,000 jobs.
Sales Trends
◆ Construction Forecast: New rentals will provide limited competition in $120
2011, as only 200 units will come online. Last year, two projects contain-
ing an aggregate 740 units were delivered.
$90
◆ Vacancy Forecast: Countywide vacancy will decline 80 basis points this
year to 5.8 percent. In 2010, the rate decreased 200 basis points. $60
◆ Rent Forecast: Asking rents will advance 2.1 percent in 2011 to $1,080 per $30
month, and effective rents will gain 3 percent to $1,021 per month.
◆ Investment Forecast: The possibility of foreclosed single-family homes $0

06 07 08 09 10*
purchased by investors entering the shadow rental market may elevate
competition for tenants and impede the restoration of healthy operations * Estimate ** Forecast
at many apartment properties. Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA

Houston Up 4 Places 2011 Rank: 24 2010 Rank: 28
Top-Tier Apartments Attract Renters;

Employment Trends Class B Assets Lure Syndicated Buyers
A
s companies consolidate operations in major office districts, employ-
100 4%
ees will continue to migrate closer to workplaces, a trend that will
remain the most prevalent force behind Houston apartment leasing
2%
50 activity during the first several months of 2011. These well-paid profession-
als have already begun to seek out new units as their leases expire, pushing
0 0% the gap between Class A and Class B/C vacancy to an all-time high. This
disparity will persist through the spring, but sparse additions to inventory
-50 -2% and healthy household growth will enable operators of Class B/C proper-
ties to begin closing the vacancy gap by midyear. Although improvement in
-100 -4% lower-tier vacancy will be robust during the second half, overall occupancy
07 08 09 10* 11** in predominately Class B/C areas will continue to lag. In the Heights, Bay-
town and San Jacinto/Galena Park submarkets, for example, vacancy will
Supply and Demand improve by an average of 350 basis points, though all three areas will report
Completions Vacancy overall vacancy above 13 percent at the end of 2011.
20 14%
Investors will move into the Houston apartment market in greater
15 12% numbers during the first half, taking advantage of increased acquisition
Units (thousands)
prospects. The market’s late entry into the recession delayed the weaken-
Vacancy Rate
10 10% ing of apartment operations and subsequently suppressed the volume of

distressed listings. More opportunities to acquire complexes with deferred
maintenance and low occupancies will emerge in early 2011 as some of the
5 8%
nearly $1.5 billion in distressed apartment assets in the metro start to clear
the market. Buyers will have to deploy considerable cash to execute deals,
0 6%
07 08 09 10* 11** however, encouraging the formation of syndicates that include strong op-
erators. After stabilizing these properties, which currently trade at per-door
Rent Trends prices in the $10,000 to $20,000 range, syndicate-owners will be able to re-
list or refinance through Freddie Mac or Fannie Mae.
6%
2011 Market Outlook
3%
◆ 2011 NAI Rank: 24, Up 4 Places. Job growth supported Houston’s four-
0%
position improvement in the NAI.
◆ Employment Forecast: Recovery of the Houston employment market

-3% will gather speed this year as payrolls expand by 65,000 positions, or 2.6
percent. In 2010, only 18,000 jobs were added.
-6%
07 08 09 10* 11**
◆ Construction Forecast: After delivering 7,600 apartments last year, de-
velopers will bring online just 2,100 units in 2011, the lowest amount in
Sales Trends 20 years. Permitting activity accelerated in late 2010, an indication con-
$55 struction will pick up in 2012.
◆ Vacancy Forecast: Vacancy will fall 130 basis points in 2011 to 9.8 percent,
$50 driven by Class A improvements early in the year and stronger Class B/C
demand in the second half. In 2010, vacancy declined 120 basis points.
$45
◆ Rent Forecast: This year, asking rents will climb to $792 per month and
effective rents will reach $732 per month, annual gains of 3.5 percent and
$40
4.9 percent, respectively. Concessions will fall to 28 days of free rent.
$35 ◆ Investment Forecast: Stabilized apartments will continue to attract bids

06 07 08 09 10*
from large buyers, trading in the high-7 percent range during the begin-
* Estimate ** Forecast ning of the year, while properties within the Loop can achieve 150 basis
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA point premiums.

Down 4 Places 2011 Rank: 31 2010 Rank: 27 Indianapolis
Low Interest Rates Motivate Investor

Acquisitions; Class A Deal Flow to Surge Employment Trends
T
he Indianapolis apartment market will continue to improve in 2011, Absolute Change Y-O-Y % Change
40 6%
with an employment-generated increase in renter demand pushing

vacancy below pre-recession levels. Office-using sectors will lead job
3%
gains, helping Class A assets near office corridors outperform as young 20
professionals lease units. In the Central submarket, owners of top-tier
complexes will report vacancies in the extremely tight low-3 percent range 0 0%
in 2011. Class B/C leasing activity will also gain momentum downtown,
where development of the new Clarian Health neuroscience facility will -20 -3%
create more than 1,000 construction jobs early this year. Property perfor-
mance will vary outside of the core, though, with a less robust recovery ex- -40 -6%
pected in overbuilt pockets of Hamilton County. Ongoing development in 07 08 09 10* 11**
the county will keep vacancy near 10 percent in the first half before improv-
ing gradually through year end. Owners will also continue to face chal- Supply and Demand
lenges restoring operations in the Far Northeast submarket, which includes Completions Vacancy
the city of Lawrence, where years of job cuts drove vacancy in the lower 2.0 12%
tiers to above 15 percent last year. As a result, several periods of blue-collar
job growth in the area will be required to return more households to the 1.5 10%
Units (thousands)
local rental market.
Vacancy Rate
1.0 8%
Indianapolis apartment buildings will trade more frequently in 2011,
fueled by increased financing availability and low interest rates. While dis-
0.5 6%
tressed listings will remain present and trade at cap rates in the low- to
mid-9 percent range, loan modifications will moderate the number of these
assets coming to market. More listings of stabilized properties will be the 0 4%
07 08 09 10* 11**
impetus for strong deal flow as owners attempt to capitalize on heightened
investor interest. Institutions, in particular, will bring seldom-listed assets Rent Trends
to market to raise capital for redeployment into other major metros, pre- Asking Rents Effective Rents
senting long-awaited investment opportunities for private buyers. Compe- 6%
tition from high-net-worth investors to acquire these complexes will inten-
sify, pushing down cap rates for larger mid- and top-tier properties to the
3%
low- to mid-8 percent range, though cap rates for some best-in-class assets
may dip below 8 percent.
0%
2011 Market Outlook -3%
◆ 2011 NAI Rank: 31, Down 4 Places. Indianapolis slipped four spots in
the ranking due to high housing affordability and slow rent growth. -6%
07 08 09 10* 11**
◆ Employment Forecast: Payrolls will grow by 16,000 jobs, or 1.8 percent,

in 2011, up from the addition of 8,400 workers last year. Sales Trends
$50
◆ Construction Forecast: Construction output will total 950 units this year,
modestly lower than the 1,030 apartments completed in 2010.
$45
◆ Vacancy Forecast: Resumed employment growth will push down va-
cancy 80 basis points in 2011 to 7.1 percent, 160 basis points below the $40
metro’s five-year average. Vacancy improved 220 basis points last year.
$35
◆ Rent Forecast: Asking rents will appreciate 2.7 percent this year to $680
per month, and effective rents will gain 3.4 percent to $641 per month.
$30
06 07 08 09 10*
◆ Investment Forecast: The availability of distressed assets will dissipate as
the year progresses, but a few opportunities will emerge. As 2010 came to * Estimate ** Forecast
a close, $150 million of apartment properties were in some level of distress. Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA

Jacksonville No Change 2011 Rank: 44 2010 Rank: 44
Late Emergence from Recession

Employment Trends Creating Distressed-Asset Opportunities
J
acksonville will retain one of the highest vacancy rates in the coun-
30 6%
try during 2011, but operating conditions will improve as demand
strengthens and development subsides. Vacancy plummeted last year
15 3%
as households de-bundled and single-family foreclosures shifted many
owner-occupied households to the rental sector. As a result, the number
0 0% of occupied rentals in the market rose an unprecedented 4.4 percent in
2010, compared with a 2 percent increase nationwide. While ongoing fore-
-15 -3% closures will expand the renter pool, a healthier pace of job creation will
become the dominant driver of demand in the months ahead. The most
-30 -6% significant trend, however, will be another decline in completions. Limited
07 08 09 10* 11** supply constraints have historically emboldened developers, but projects
slated for delivery in 2011 represent one of the lowest annual totals in the
Supply and Demand past 15 years. Although the improving economy will encourage developers
Completions Vacancy to refill the construction pipeline, still-high vacancy will restrain supply
4 16% growth for the next two years.
3 14% Many sales late last year involved large, lender-owned properties, and
Units (thousands)
additional sales of this type will occur in the first half of 2011 while the re-
Vacancy Rate
2 12% covery in property operations gains momentum. Distressed assets typically

sell for less than $30,000 per unit, providing investors an attractive entry
point and an opportunity to raise the value of a property through improv-
1 10%
ing occupancy. In addition, stabilized, cash-flowing complexes will come
to market more frequently this year as owners record several months of
0 8%
07 08 09 10* 11** strengthening operations. Properties in the Southside/Baymeadows area
will attract attention, but revitalized service-sector hiring will also help sta-
Rent Trends bilize operations in older sections of the market. Cap rates can vary widely,
but for many Class B/C properties, first-year returns of 9 percent or more
4% will garner interest.
0%
◆ 2011 NAI Rank: 44, No Change. The nation’s highest vacancy rate kept
Jacksonville at the bottom of this year’s NAI.
-2% ◆ Employment Forecast: Local employers will add 9,000 positions this
year, a 1.5 percent increase and an improvement from 2010, when only
-4% 1,200 jobs were created. The greatest gains will occur in the trade and
07 08 09 10* 11**
education and health services sectors.
Sales Trends ◆ Construction Forecast: Supply growth will wane for the second consecu-
$80 tive year, as developers will complete 500 units in 2011, down from 790
rentals last year.

$60 ◆ Vacancy Forecast: Easing construction will support a 50 basis point drop
in vacancy to 10.9 percent this year, after the average rate declined 300
$40 basis points in 2010.
$20 ◆ Rent Forecast: During 2011, marketwide asking rents will advance 1.4
percent to $783 per month, accompanied by a 1.8 percent bump in effec-
tive rents to $746 per month.
$0
06 07 08 09 10*
◆ Investment Forecast: Class A property investors will continue to focus
* Estimate ** Forecast on new complexes in areas of southeastern Duval and northern St. Johns
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA counties, where supply growth was strongest over the past several years.

Down 2 Places 2011 Rank: 26 2010 Rank: 24 Kansas City
Stabilizing Class A Sector to

Drive Concession Burn in 2011 Employment Trends
T
he Kansas City apartment market will approach equilibrium in 2011 Absolute Change Y-O-Y % Change
40 4%
as job growth intensifies leasing activity and development slows.

During 2010, foreclosure activity lowered the homeownership rate
2%
and pushed up occupancy despite the absence of job gains. This year, 20
though, payroll expansion will take the reins of the local apartment re-
covery, particularly in the southwestern suburbs. In Johnson County, a 0 0%
diverse mix of companies will begin to rehire, attracting previously un-
employed residents to primarily one-bedroom units. As a result, Class -20 -2%
B/C vacancies in Overland Park will fall well below the marketwide av-
erage this year. The Class A segment, meanwhile, will build on the 200 -40 -4%
basis point vacancy improvement registered in 2010 as recently completed 07 08 09 10* 11**
complexes stabilize. At the close of last year, vacancy in newer apartment
buildings exceeded 20 percent, encouraging owners to offer high leasing Supply and Demand
incentives. An uptick in renter demand and decline in construction should Completions Vacancy
accelerate occupancy gains in properties built after 2009, enabling opera- 1.6 10%
tors to withdraw concessions.
1.2 9%
Units (thousands)
Investment activity will increase in 2011 as lower-tier property owners
Vacancy Rate
divest ahead of refinance deadlines and more buyers resurface to secure 0.8 8%
low-cost debt. Deal flow accelerated last year in several areas, including the
Midtown submarket. When vacancy in Midtown jumped above 17 percent
0.4 7%
at the height of the recession, cap rates far exceeded the metrowide aver-
age. Now that property operations in the submarket have improved for
a few quarters, buyers are seeking value-add offerings at first-year yields 0 6%
07 08 09 10* 11**
in the mid-9 percent range, still 100 basis points above the overall aver-
age. Investors also continue to seek underperforming assets, though most Rent Trends
of these are small, vintage properties. As operations improve, the number Asking Rents Effective Rents
of distressed assets available will diminish, limiting this strategy to the first 6%
half of the year.
3%
◆ 2011 NAI Rank: 26, Down 2 Places. Below-average employment growth

-3%
and rent gains drove down Kansas City two positions in the ranking.
◆ Employment Forecast: After shedding 2,200 positions in 2010, employ- -6%

07 08 09 10* 11**
ers will create 13,000 jobs this year, a 1.3 percent gain.
◆ Construction Forecast: Apartment stock will expand 0.5 percent during Sales Trends
2011 as 600 units come online. Last year, 990 rentals were completed. $60
◆ Vacancy Forecast: Metrowide vacancy will fall 70 basis points this year
to 7.7 percent, matching the improvement registered in 2010. $55
◆ Rent Forecast: By year-end 2011, asking rents will appreciate 2 percent to $50
$707 per month, after advancing 1.2 percent last year. Effective rents will
rise 2.8 percent to $662 per month.
$45
◆ Investment Forecast: Cap rates will vary greatly by age and location this
year. Class A properties will trade in the mid-6 percent range, while mid- $40
06 07 08 09 10*
tier properties will average yields in the low- to high-7 percent range.
Stabilized Class C assets will continue to change hands with first-year * Estimate ** Forecast
returns above 8 percent. Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA

Las Vegas No Change 2011 Rank: 43 2010 Rank: 43
Accelerating Tourism Sparks

Employment Trends Hospitality Sector; Apartments to Benefit
G
radual recovery in the local gaming industry will strengthen apart-
30 3%
ment operations in Las Vegas this year. As the national economy re-
covers, stronger consumer spending will help elevate tourist activity
0 0%
in the metro. During 2011, the number of visitors to Las Vegas will increase
by 2 percent, supporting a 3 percent gain in the leisure and hospitality sec-
-30 -3% tor, a key driver of local apartment operations. A large number of these
typically low-paying positions will be created by the Cosmopolitan Hotel
-60 -6% and Casino, which opened last December at the southern end of the Strip.
The new facility will generate 5,000 jobs into 2011, potentially resulting in
-90 -9% the absorption of more than 1,000 units in the University, Spring Valley
07 08 09 10* 11** and North Central submarkets. Net absorption metrowide also will receive
a boost by the formation of 10,000 new households this year; positive net
Supply and Demand absorption in 2011 is projected to total nearly 2,000 apartments, after 3,100
Completions Vacancy units were absorbed last year.
4 12%
Over the past several quarters, Las Vegas apartments changed hands
3 10% at extremely sharp discounts, making banks hesitant to consider moving
Units (thousands)
properties off their books. In 2011, however, stabilizing operations and low
Vacancy Rate
2 8% interest rates will draw investors into the metro, helping close the buyer/
seller expectation gap and encouraging lenders to list assets that qualify for
agency financing. Class A cap rates will need to average in the mid-6 per-
1 6%
cent range for banks to list, however, and mid-tier properties will not come
to market until yields average in the mid-7 percent range. Class C complex-
0 4%
07 08 09 10* 11** es currently trade with cap rates in the double digits, a larger-than-average
spread from the two higher tiers. Most of these listings have high vacancy
Rent Trends and deferred maintenance, making financing exceptionally difficult to ob-
tain. As a result, out-of-state buyers targeting these value-add plays may
10% form syndicates to raise capital.
5%
2011 Market Outlook
0%
◆ 2011 NAI Rank: 43, No Change. Las Vegas remained near the bottom of
the NAI due to high vacancy and modest rent growth forecasts.
-5%
◆ Employment Forecast: Employers will expand payrolls by 14,000 work-
-10% ers this year, a gain of 1.8 percent. In 2010, companies cut 8,900 jobs.
07 08 09 10* 11**
◆ Construction Forecast: Developers will complete 900 multifamily units

Sales Trends in 2011, an increase to local inventory of 0.7 percent and down from the
$100 delivery of nearly 1,550 apartments last year.
◆ Vacancy Forecast: Apartment vacancy in the metro will retreat 80 basis

$80 points this year to 9.1 percent. In 2010, the vacancy rate fell 130 basis
points as pent-up demand was released.
$60
◆ Rent Forecast: Owners will raise asking rents 0.5 percent in 2011 to $808
per month, the first annual increase in three years. Effective rents will
$40
climb 0.9 percent to $756 per month.
$20 ◆ Investment Forecast: A limited portion of the $140 million in local dis-
06 07 08 09 10*
tressed properties will become available this year. Assets in the Univer-
* Estimate ** Forecast sity submarket will remain the most sought after due to steady renter
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA demand generated by casinos and the University of Nevada, Las Vegas.

Up 2 Places 2011 Rank: 11 2010 Rank: 13 Los Angeles
Job Gains Strengthen Operations in

Core Areas; Outer Locations Lag Employment Trends
R
ecovery in the Los Angeles County apartment market will gain trac- Absolute Change Y-O-Y % Change
100 2%
tion in 2011 as rehiring efforts boost rental household formation and

completions fall to a 16-year low. Core submarkets will register the
0 0%
strongest operational improvements as below-peak rents encourage resi-
dents to relocate. Newly re-employed workers returning to the apartment
market will migrate to premier communities in the Westside Cities, South -100 -2%
Bay and close-in parts of San Fernando Valley, primarily along Ventura
Boulevard, facilitating more significant concession burn this year. In the -200 -4%
Greater Downtown area, office-using job growth early this year will sup-
port a drop in vacancy to historical levels by late summer and a reduction -300 -6%
in leasing incentives by the fourth quarter. The pace of recovery will not 07 08 09 10* 11**
be uniform, however, with locations farthest from job centers, including
the San Gabriel Valley, the northern portion of the San Fernando Valley Supply and Demand
and some infill, lower-tier complexes downtown, expected to struggle with Completions Vacancy
above-trend vacancies through 2011. 6.0 6%
Deal flow will increase this year as low interest rates encourage inves- 4.5 5%
tors to restructure portfolios, though strategies will remain concentrated
Vacancy Rate
at either end of the cap rate spectrum. Risk-averse, high-net-worth buyers
Units
3.0 4%
will target high-end properties in supply-constrained locations such as the
Westside Cities and South Bay, where minimal future development will
1.5 3%
drive sizable rent gains through the recovery. This flight-to-safety trend
pushed down cap rates for Class A and well-located Class B product to the
high-5 percent to low-6 percent range last year, with further compression 0 2%
07 08 09 10* 11**
likely in 2011 as operations strengthen. Favorable interest rates will encour-
age private buyers to consider properties with greater risk, and many of Rent Trends
these investors will circle the metro for value-add deals. Cap rates for as- Asking Rents Effective Rents
sets with some level of distress and located in perimeter areas will average 8%
above 7 percent in the early part of 2011. As increased investment activity
and renter demand spills into periphery locations, however, cap rates for
4%
these properties will start to fall.
0%
2011 Market Outlook
-4%
◆ 2011 NAI Rank: 11, Up 2 Places. Low vacancy and limited supply growth
nearly pushed Los Angeles into the top 10 of this year’s NAI.
-8%
07 08 09 10* 11**
◆ Employment Forecast: Following the loss of 21,100 jobs in 2010, payrolls
will expand by 56,000 positions this year, a 1.5 percent gain.
Sales Trends
◆ Construction Forecast: Developers will bring online 1,200 units in 2011, $150
down significantly from the 3,300 units completed last year.
◆ Vacancy Forecast: The average vacancy rate will fall 50 basis points to 4.4 $140
percent this year; vacancy improved 40 basis points in 2010.
$130
◆ Rent Forecast: Asking rents will reach $1,395 per month by year end, up
1.8 percent from last year, while effective rents will advance 2.7 percent
$120
to $1,354 per month.
◆ Investment Forecast: As buyers seek to execute deals before healthier $110

06 07 08 09 10*
operational improvements drive strong revenue gains, bidding activity
will accelerate, encouraging many owners who retained assets through * Estimate ** Forecast
the downturn to begin selling. Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA

Louisville Down 7 Places 2011 Rank: 22 2010 Rank: 15
Private Investors Target Emerging

Employment Trends Opportunities as Employment Stages Recovery
S
trong employment growth and a dearth of new inventory will help
20 4%
solidify apartment operations in Louisville this year. A large portion
of job gains will be associated with the recently completed KFC Yum!
10 2%
Center, located near the University of Louisville. Staff additions around the
center will help contribute to expanding the leisure and hospitality sector
0 0% by 6 percent during 2011 as hotels ramp up hiring. Moreover, the signifi-
cant rise in traffic to the area during events will generate hundreds of retail-
-10 -2% sector jobs at local shops and restaurants, a strong driver of apartment
demand. White-collar payrolls will also expand in Louisville this year, es-
-20 -4% pecially at the site of the old Haymarket in the West Central submarket. A
07 08 09 10* 11** life sciences center has cleared construction and financing hurdles; devel-
opment is commencing on the first phase of the project. These high-paying
Supply and Demand jobs will contribute to an overall increase of 5,700 office-using positions
Completions Vacancy marketwide, supporting a jump in Class A occupancy. With these jobs
600 8% largely concentrated in the city core, the apartment vacancy rate in the area
will dip below 4 percent by year end. Vacancy will also trend lower at the
450 7% metro level as the 5,500 new households created this year surpass the pro-
jected addition of 2,500 single- and multifamily homes.
Vacancy Rate
Units
300 6%
As institutions pull out of Louisville to redeploy capital in larger,
coastal markets, some rarely traded apartment assets will be listed, allow-
150 5%
ing private buyers and syndicates to acquire properties with long-term
stability. Cash-heavy investors will target assets in the core, specifically
0 4%
07 08 09 10* 11** near the main campus of the University of Louisville, which houses 20,000
students. Northeastern Jefferson County, which will post one of the low-
Rent Trends est suburban vacancy rates in the metro this year, will remain attractive
to risk-averse buyers. As private investors compete for quality, stabilized
6% properties, Class A cap rates will dip into the mid-7 percent range. Lower-
tier complexes will trade 100 basis points to 150 basis points above that rate.
3%
0%
2011 Market Outlook
-3%
◆ 2011 NAI Rank: 22, Down 7 Places. Louisville remained near the middle
of the NAI as low vacancy was offset by below-average rent growth.
-6%
07 08 09 10* 11**
◆ Employment Forecast: Employment in Louisville will increase by 7,000
positions in 2011, a 1.2 percent gain. Last year, cuts totaled 3,400 jobs.
Sales Trends
$50 ◆ Construction Forecast: This year, developers will deliver 200 new apart-
ment units, a 0.5 percent addition to inventory and up from 2010, when
just 100 units came online.
$45
◆ Vacancy Forecast: The average vacancy rate will decrease 60 basis points
$40 in 2011 to 5 percent, after sliding 140 basis points last year.
◆ Rent Forecast: Asking rents will rise 2.2 percent this year to $664 per
$35
month as effective rents advance 2.3 percent to $632 per month. In 2010,
asking rents grew 1.7 percent, while effective rents increased 2.1 percent.
$30
06 07 08 09 10*
◆ Investment Forecast: Redevelopment in downtown Louisville and re-
* Estimate ** Forecast cent expansions to the university will continue to entice syndicates and
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA private buyers to the area.

Up 4 Places 2011 Rank: 21 2010 Rank: 25 Miami
Negligible Completions, Demand Revival

Drive Miami-Dade Apartment Strengthening Employment Trends
T
he Miami-Dade apartment market will record additional improve- Absolute Change Y-O-Y % Change
50 8%
ments in vacancy and rents in 2011, confirming its status as the top

performing market in Florida. Completions will remain minimal,
25 4%
while a lack of affordable housing alternatives for blue-collar residents and
an accelerating pace of employment growth will generate strong renter de-
mand. Class B/C rentals in typically robust submarkets such as Hialeah 0 0%
and Kendall East/Coral Gables will continue to recover as hiring rebounds.
Vacancy in each area will fall to the high-3 percent range this year, after -25 -4%
rising to more than 5 percent at the peak of the recession. Elsewhere, opera-
tors in the Miami and South Beach submarkets continue to face competition -50 -8%
from shadow rentals, but demand for Class A apartments surged last year 07 08 09 10* 11**
due to elevated concessions. As a recovery in the for-sale market progresses
and shadow stock dissipates, owners will withdraw leasing incentives. Supply and Demand
Completions Vacancy
Strengthening operating conditions will improve investor optimism 1,000 7%
for Miami-Dade apartment assets. The availability of Fannie Mae and Fred-
die Mac financing, plus a greater willingness to lend by local and communi- 750 6%
ty banks, will support an intense bidding climate, facilitating sellers’ efforts
Vacancy Rate
to dispose of properties. Class A listings are already attracting investors,
Units
500 5%
helping drive down cap rates to less than 6 percent in some cases. First-year
yields for lower-quality assets are also compressing to pre-conversion-era
250 4%
ranges from approximately 7 percent to 8 percent. In areas with supply
constraints, including Hialeah and waterfront locations, initial returns can
be 100 basis points lower, as properties in these areas generally attract mul- 0 3%
07 08 09 10* 11**
tiple bids when listed.
Rent Trends
8%
2011 Market Outlook
4%
◆ 2011 NAI Rank: 21, Up 4 Places. Florida’s tightest vacancy rate and
above-average employment growth supported Miami’s four-place rise 0%
in the ranking.
◆ Employment Forecast: Total employment in Miami-Dade County will -4%

expand 1.8 percent in 2011 with the addition of 18,000 jobs. Hiring re-
sumed last year, when 7,500 positions were created. -8%
07 08 09 10* 11**
◆ Construction Forecast: This year, developers will complete only 200

units, representing a meager 0.2 percent addition to rental stock; 660 Sales Trends
rentals came online in 2010. $110
◆ Vacancy Forecast: The release of pent-up demand contributed to a 40

basis point decrease in the vacancy rate last year. In 2011, job growth will $100
help push down vacancy 110 basis points to 4.6 percent.
$90
◆ Rent Forecast: Asking rents will rise 3.3 percent this year to $1,089 per
month, and effective rents will advance 4.1 percent to $1,032 per month.
$80
In 2010, asking rents ticked up 1.2 percent, while effective rents gained
2.3 percent.
$70
06 07 08 09 10*
◆ Investment Forecast: Miami’s stature as an international gateway, plus
the devaluation of the U.S. dollar relative to foreign currencies, will at- * Estimate ** Forecast
tract increasing foreign investment to the market in the quarters ahead. Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA

Milwaukee Down 8 Places 2011 Rank: 25 2010 Rank: 17
Milwaukee Apartments Staged for

Employment Trends Continued Strengthening
F
ollowing a relatively mild softening, the Milwaukee apartment mar-
20 2%
ket will improve steadily in 2011. Property operations began to re-
cover early last year on modest employment gains, despite above-
0 0%
trend supply growth. As the rate of job growth increases nearly threefold
this year and builders ease deliveries, vacancy will retreat to pre-recession
-20 -2% levels in the low-4 percent range. The degree of strengthening will vary by
property class and location, however, with densely populated suburban
-40 -4% submarkets such as Wauwatosa/West Allis posting the most significant
occupancy and rent gains. In the City East submarket, the resumption of
-60 -6% white-collar payroll expansion will help upscale complexes stage a healthy
07 08 09 10* 11** recovery as stock additions slow. Class B/C apartments in the City West
submarket will continue to face headwinds until job additions in lower-
Supply and Demand paying sectors gain steam. While weak pockets exist within the metro, tight
Completions Vacancy conditions overall will support owners in lease negotiations, facilitating a
800 6% cut in concessions to a 10-year low.
600 5% Improved sales momentum during the last half of 2010 will carry into
this year as firming operations and low interest rates encourage both buy-
Vacancy Rate
ers and sellers to reset portfolios. Investors seeking REO listings will be dis-
Units
400 4%
appointed, however, as the Greater Milwaukee area has fewer distressed
properties than any other major Midwestern market. Demand for perform-
200 3%
ing assets will intensify as buyers take advantage of low interest rates,
which should persuade some owners to list quality complexes in affluent
0 2%
07 08 09 10* 11** suburban areas and near dense office districts. Although for-sale stock will
expand, listings will fall short of investor demand, driving down cap rates
Rent Trends for performing top-tier assets from their current average in the mid- to
high-7 percent range. Initial yields for lower-tier listings will average in the
6% mid-8 percent range through the first half of the year.
3%
2011 Market Outlook
0%
◆ 2011 NAI Rank: 25, Down 8 Places. Milwaukee’s eight-position drop
was the result of stronger improvement in other index markets. Condi-
-3%
tions in the metro remain tight and the economy is gaining momentum.
-6% ◆ Employment Forecast: Job creation will total 14,600 positions this year, a
07 08 09 10* 11**
1.8 percent gain. In 2010, employers hired 5,500 workers.
Sales Trends ◆ Construction Forecast: Approximately 450 units will come online by
$70 year end, following the addition of 560 apartments last year.
◆ Vacancy Forecast: After retreating 30 basis points in 2010, vacancy will

$60 decrease 50 basis points to 4.3 percent this year.
$50 ◆ Rent Forecast: Asking rents will rise 2.5 percent during 2011 to $833 per
month, while effective rents will advance 3.3 percent to $806 per month.
Marketwide concessions will slip to just 3.2 percent of asking rents.
$40
◆ Investment Forecast: With the pipeline of distressed assets remaining

$30 small, buyers seeking value-add plays will target poorly managed mid-
06 07 08 09 10*
tier complexes with deferred maintenance. Properties in affluent areas of
* Estimate ** Forecast Waukesha County will command the most attention, limiting the achiev-
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA able yield premium for these listings.

Down 4 Places 2011 Rank: 8 2010 Rank: 4 Minneapolis-St. Paul
Stabilizing Operations in Urban Core to

Spill into Outlying Neighborhoods Employment Trends
T
he Twin Cities apartment market will outperform most other Mid- Absolute Change Y-O-Y % Change
30 2%
western metros in 2011 as the combination of payroll expansion and

minimal supply growth drives vacancy to a 10-year low. The region’s
0 0%
recent economic turnaround and comparatively low unemployment rate fu-
eled operational improvements in each quarter of 2010, led by the Southwest
submarket. The area will continue to outperform the metro in gains this year -30 -2%
as renter demand generated by the relocation of US Bancorp occurs during
the seventh consecutive year of virtually zero completions. The Fortune 500 -60 -4%
company transferred approximately 1,600 jobs from St. Paul to Richfield at
the start of 2011, strengthening demand for nearby units. As a result, the aver- -90 -6%
age vacancy rate in the submarket will fall below 3 percent for the first time 07 08 09 10* 11**
since 2000, enabling area owners to post the largest rent gains in the metro
this year. Elsewhere, job growth will benefit properties within the interstate Supply and Demand
belt as re-employed individuals in the prime renter age cohorts lease units in Completions Vacancy
dense, urban areas. With nearly every employment sector on the mend and 2.0 6%
former homeowners returning to rentals, outlying suburban communities
also will begin to stabilize, with rents rising modestly as the year progresses. 1.5 5%
Units (thousands)
Vacancy Rate
Sales velocity will improve throughout the Twin Cities in 2011 as sellers 1.0 4%
reluctant to list properties last year seek to capitalize on rising demand. Low
interest rates will encourage more investors to redeploy capital into either
0.5 3%
high-end properties or higher-yielding assets, resulting in some seldom-listed
complexes coming to market. These listings will receive multiple offers, and
buyers looking to utilize low interest rates may need to stretch for top-tier 0 2%
07 08 09 10* 11**
deals. Ongoing operational improvements and strong investor demand for
these assets will compress cap rates, with initial yields for well-located com- Rent Trends
plexes in the Uptown, Southwest and West areas projected to average in the Asking Rents Effective Rents
low- to mid-7 percent range. Metrowide, though, cap rates for assets contain- 6%
ing fewer than 50 units will still average in the low- to mid-8 percent range.
3%
2011 Market Outlook
0%
◆ 2011 NAI Rank: 8, Down 4 Places. Very tight vacancy kept Minneapolis-St.
Paul from falling out of the top 10, despite average improvement in the
-3%
local employment market.
◆ Employment Forecast: Employers will hire 25,500 workers in 2011, a 1.5 -6%
07 08 09 10* 11**
percent gain. Last year, 13,000 jobs were added.
◆ Construction Forecast: After 330 units came online in 2010, rental inven- Sales Trends
tory will expand by 500 units, or 0.3 percent, this year. During the past $68
five years, completions averaged 660 units annually.
◆ Vacancy Forecast: In 2011, limited construction and accelerating job $66

growth will drive down vacancy 50 basis points to 3.6 percent; vacancy
declined 130 basis points in 2010. $64
◆ Rent Forecast: Asking rents will advance 3.1 percent to $965 per month
$62
this year, while effective rents will increase 3.9 percent to $915 per month.
◆ Investment Forecast: With cap rates already compressing for most well- $60
06 07 08 09 10*
located assets, investors seeking to acquire properties with considerable
upside under still-favorable interest rates will have to venture farther * Estimate ** Forecast
into the suburbs or step down the quality ladder. Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA

Statistical
Employment Vacancy Asking Rent
Growth2 (Year-End)2 (Year-End)2
MSA Name 08 09 10* 11** 08 09 10* 11** 08 09 10* 11**

Atlanta -3.5% -5.0% 1.0% 1.6% 10.3% 11.7% 10.3% 8.8% $862 $825 $832 $853
Austin 0.6% -2.4% 3.0% 3.6% 7.7% 10.1% 7.6% 6.2% $870 $844 $865 $901
Boston -0.8% -3.5% 1.6% 2.0% 6.0% 6.4% 5.5% 4.5% $1,742 $1,670 $1,717 $1,777
Charlotte -2.8% -5.6% 1.3% 2.1% 8.2% 11.3% 8.6% 7.6% $798 $761 $768 $789
Chicago -2.7% -5.3% -0.5% 1.3% 5.4% 6.7% 6.1% 5.5% $1,071 $1,033 $1,046 $1,070
Cincinnati -2.4% -3.6% 0.1% 1.3% 6.8% 8.0% 6.9% 6.3% $710 $692 $702 $715
Cleveland -3.0% -5.1% 1.7% 1.1% 6.1% 6.9% 6.0% 5.6% $739 $715 $721 $733
Columbus -1.7% -3.6% 0.1% 1.7% 8.1% 9.2% 9.0% 8.3% $677 $659 $663 $675
Dallas/Fort Worth -1.2% -3.0% 1.2% 2.7% 7.3% 9.7% 7.5% 6.7% $786 $765 $780 $804
Denver -1.3% -4.5% 0.5% 2.0% 7.9% 8.0% 5.8% 5.0% $887 $853 $879 $906
Detroit -5.3% -7.9% -0.5% 0.5% 6.9% 8.1% 6.9% 6.5% $835 $808 $806 $815
Fort Lauderdale -6.1% -5.3% 0.1% 1.4% 6.9% 8.6% 6.6% 5.8% $1,115 $1,054 $1,058 $1,080
Houston 0.7% -3.8% 0.7% 2.6% 10.1% 12.3% 11.1% 9.8% $769 $746 $765 $792
Indianapolis -2.6% -4.2% 1.0% 1.8% 7.8% 10.1% 7.9% 7.1% $675 $649 $662 $680
Jacksonville -3.9% -4.3% 0.2% 1.5% 12.3% 14.4% 11.4% 10.9% $799 $779 $772 $783
Kansas City -1.2% -3.2% -0.2% 1.3% 7.8% 9.1% 8.4% 7.7% $701 $685 $693 $707
Las Vegas -6.0% -8.0% -1.1% 1.8% 8.2% 11.2% 9.9% 9.1% $865 $821 $804 $808
Los Angeles -3.5% -5.5% -0.6% 1.5% 4.5% 5.3% 4.9% 4.4% $1,463 $1,374 $1,370 $1,395
Louisville -2.4% -2.8% -0.6% 1.2% 7.0% 7.0% 5.6% 5.0% $646 $639 $650 $664
Miami -4.6% -4.2% 0.8% 1.8% 5.1% 6.1% 5.7% 4.6% $1,104 $1,041 $1,054 $1,089
Milwaukee -1.8% -5.8% 0.7% 1.8% 3.7% 5.1% 4.8% 4.3% $841 $803 $813 $833
Minneapolis-St. Paul -2.0% -4.6% 0.8% 1.5% 4.4% 5.4% 4.1% 3.6% $957 $929 $936 $965
New Haven -2.6% -5.6% 0.1% 1.5% 4.0% 4.6% 4.5% 4.1% $1,593 $1,521 $1,551 $1,606
New Jersey -2.8% -2.9% -1.1% 0.5% 4.0% 4.9% 4.8% 3.9% $1,308 $1,268 $1,290 $1,325
New York City -0.3% -3.5% 2.0% 2.3% 2.3% 2.9% 3.8% 3.0% $2,879 $2,688 $2,833 $3,010
Oakland -4.0% -6.0% -1.3% 1.4% 4.7% 5.8% 4.7% 4.3% $1,385 $1,265 $1,274 $1,305
Orange County -4.8% -6.7% 2.0% 2.6% 5.1% 6.4% 5.7% 4.4% $1,571 $1,463 $1,480 $1,535
Orlando -4.7% -4.8% 0.6% 2.3% 10.0% 11.2% 9.6% 8.4% $890 $842 $845 $864
Philadelphia -1.4% -3.6% 0.5% 1.0% 5.7% 6.5% 5.5% 3.9% $1,023 $1,002 $1,019 $1,055
Phoenix -5.7% -6.4% 1.5% 2.1% 11.1% 12.3% 10.1% 8.9% $777 $751 $752 $773
Portland -3.2% -5.5% 0.2% 1.9% 5.2% 6.9% 4.8% 4.1% $825 $803 $818 $844
Riverside-San Bernardino -6.3% -6.8% -1.4% 1.5% 7.0% 8.0% 7.0% 6.3% $1,058 $1,006 $1,008 $1,025
Sacramento -4.0% -5.8% -1.5% 1.2% 5.8% 7.3% 6.3% 5.7% $939 $893 $900 $916
Salt Lake City -1.9% -4.2% -0.2% 2.0% 5.0% 7.2% 7.0% 5.8% $752 $732 $735 $758
San Antonio 0.3% -2.4% 0.9% 2.4% 9.0% 10.2% 9.0% 7.6% $701 $685 $711 $744
San Diego -2.5% -5.4% 0.6% 1.9% 4.1% 4.9% 4.3% 3.6% $1,344 $1,306 $1,316 $1,370
San Francisco -1.5% -6.1% -0.7% 2.2% 3.6% 4.8% 4.7% 3.9% $1,934 $1,757 $1,795 $1,884
San Jose -2.2% -6.2% 1.7% 2.5% 4.4% 5.1% 3.8% 3.4% $1,589 $1,401 $1,445 $1,505
Seattle -1.8% -5.4% 1.0% 2.2% 5.8% 7.5% 6.5% 5.7% $1,014 $955 $989 $1,026
St. Louis -2.5% -3.4% 1.0% 1.7% 7.8% 9.2% 7.9% 7.0% $729 $708 $716 $731
Tampa -5.1% -4.8% 0.9% 2.1% 8.7% 10.7% 8.5% 7.5% $843 $797 $806 $828
Tucson -2.8% -4.7% 0.8% 2.2% 11.0% 12.2% 10.1% 9.1% $651 $632 $642 $660
Washington, D.C. -0.7% -1.7% 2.4% 2.8% 5.5% 6.3% 5.1% 4.3% $1,364 $1,332 $1,372 $1,435
West Palm Beach -5.4% -6.0% 1.5% 2.4% 7.9% 9.2% 7.8% 6.9% $1,109 $1,061 $1,081 $1,111
* Estimate ** Forecast 2
See Statistical Summary Note on page 57.

Summary
Median Sales Price Completions
per Unit2 (Units)2
08 09 10* 08 09 10* 11** MSA Name

$62,600 $45,800 $37,800 6,802 7,116 4,900 1,000 Atlanta
$53,068 $48,664 $50,085 4,836 10,337 2,900 1,800 Austin
$117,000 $102,500 $93,300 4,099 3,973 1,005 600 Boston
$49,419 $41,667 $38,454 2,373 3,623 1,763 900 Charlotte
$75,594 $72,857 $78,212 2,195 1,850 2,421 700 Chicago
$35,556 $32,826 $32,333 170 644 348 700 Cincinnati
$34,028 $33,119 $34,694 144 280 286 75 Cleveland
$41,896 $34,596 $29,662 204 1,143 884 785 Columbus
$40,205 $39,246 $38,364 10,674 17,050 7,775 4,200 Dallas/Fort Worth
$61,235 $62,150 $64,796 2,035 2,770 2,550 800 Denver
$36,219 $32,460 $36,741 280 297 28 30 Detroit
$85,500 $77,925 $46,500 1,131 862 741 200 Fort Lauderdale
$45,448 $49,700 $51,974 14,225 13,956 7,616 2,100 Houston
$39,946 $37,212 $34,913 452 1,639 1,031 950 Indianapolis
$48,400 $34,100 $24,200 2,138 2,489 792 500 Jacksonville
$47,750 $51,891 $53,950 1,069 866 988 600 Kansas City
$66,333 $56,281 $47,808 3,771 3,081 1,549 900 Las Vegas
$135,897 $124,826 $127,483 5,608 1,799 3,300 1,200 Los Angeles
$40,779 $39,980 $41,887 240 584 100 200 Louisville
$87,800 $79,300 $75,000 861 0 664 200 Miami
$54,564 $50,464 $45,529 91 460 558 450 Milwaukee
$64,529 $63,990 $66,178 1,091 688 333 500 Minneapolis-St. Paul
$75,732 $76,181 $76,111 511 363 1,123 912 New Haven
$83,000 $85,000 $75,889 1,446 2,177 2,357 1,100 New Jersey
$126,611 $112,041 $117,500 2,097 1,377 7,600 1,451 New York City
$126,000 $117,000 $120,000 1,972 1,210 450 422 Oakland
$145,948 $143,259 $137,778 1,343 3,643 2,300 300 Orange County
$55,000 $53,100 $30,600 3,714 2,176 1,328 700 Orlando
$72,600 $81,193 $76,667 1,323 442 1,187 500 Philadelphia
$57,446 $51,162 $47,200 4,660 6,181 2,675 1,500 Phoenix
$73,438 $70,083 $64,776 1,764 2,034 660 120 Portland
$90,769 $74,104 $68,750 440 1,499 1,015 600 Riverside-San Bernardino
$94,660 $68,649 $57,789 168 81 430 125 Sacramento
$72,377 $70,446 $66,563 369 1,960 3,036 800 Salt Lake City
$49,338 $50,000 $50,091 1,663 4,771 2,681 1,500 San Antonio
$122,411 $115,000 $115,948 935 918 1,281 500 San Diego
$210,948 $183,043 $180,882 281 452 867 76 San Francisco
$169,811 $148,850 $145,833 861 491 560 472 San Jose
$114,321 $102,877 $105,723 2,780 3,614 4,900 1,500 Seattle
$52,793 $48,834 $48,834 228 267 38 600 St. Louis
$61,800 $54,600 $43,800 2,646 1,814 1,626 500 Tampa
$45,923 $40,505 $37,359 176 288 96 0 Tucson
$93,800 $92,800 $107,800 6,239 5,440 6,300 2,000 Washington, D.C.
$77,300 $55,900 $66,500 205 494 217 300 West Palm Beach
* Estimate ** Forecast 2
See Statistical Summary Note on page 57.

New Haven Down 6 Places 2011 Rank: 20 2010 Rank: 14
Local, Regional Hiring Sustains

Employment Trends Performance in New Haven, Fairfield
A
20 2%
strengthening economy will push vacancy lower in New Haven and
Fairfield counties this year, solidifying the area’s status as one of the
top performing markets on the East Coast. Despite minimal employ-
0 0%
ment growth, property performance in the two counties improved notably
last year as households that merged during the recession de-bundled. Job
-20 -2% growth in New York City and Westchester County also bolstered rental
property performance, especially in Fairfield County. Additional strength-
-40 -4% ening will occur in the county this year as completions fall to 460 units
and projects delivered last year stabilize further. As a result, vacancy in
-60 -6% Fairfield will decrease 70 basis points to below 5 percent, the lowest level in
07 08 09 10* 11** more than three years. In New Haven County, vacancy was an extremely
low 2.3 percent at the end of last year but will rise modestly in 2011 as
Supply and Demand newly completed units lease up only gradually.
Completions Vacancy
2.0 6% Investment activity in the counties lags improvements in property
performance thus far, but the continuation of low interest rates will gen-
1.5 5% erate additional transactions. Besides the projected reduction in vacancy
Units (thousands)
and increase in rents, other factors will support strong and profitable
Vacancy Rate
1.0 4% property operations this year and next. After 2011, construction will slow
considerably, minimizing the competitive pressures posed by new units.
0.5 3%
In addition, the renter base will remain sizable as tougher mortgage un-
derwriting standards discourage the movement of younger households to
homeownership; empty nesters will also constitute a large share of renters.
0 2%
07 08 09 10* 11** Capable investors who purchase properties in the near term will face the
prospect of steady income gains and the potential for asset appreciation.
Rent Trends Cap rates vary from less than 5 percent for Class A product to the low-6
percent range for stabilized Class B assets.
8%
0% ◆ 2011 NAI Rank: 20, Down 6 Places. Despite overall healthy conditions,
limited improvement in the local vacancy rank pushed down New Ha-
ven six positions in the index.
-4%
◆ Employment Forecast: Payrolls will expand 1.5 percent, or by 11,700

-8%
07 08 09 10* 11**
jobs, in 2011, following a gain of only 500 positions last year. Hiring in
the financial services sector will support the creation of 6,800 jobs in Fair-
field County, a 1.7 percent increase.
Sales Trends
$80 ◆ Construction Forecast: Builders will complete 900 units in 2011, down
from more than 1,100 units last year. The 452-unit 360 State Street in New
Haven constitutes the largest project slated for completion.
$75
◆ Vacancy Forecast: During 2011, the marketwide vacancy rate will de-
$70 crease 40 basis points to 4.1 percent. Despite significant completions in
2010, vacancy ticked down 10 basis points.
$65
◆ Rent Forecast: This year, asking rents will rise 3.5 percent to $1,606 per
month. Effective rents will climb 4.7 percent to $1,560 per month.
$60
06 07 08 09 10*
◆ Investment Forecast: Local investors will continue to dominate the trans-
* Estimate ** Forecast action market. Class A properties with convenient access to commuter-
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA rail stations will generate the greatest interest.

Down 6 Places 2011 Rank: 12 2010 Rank: 6 New Jersey
Strong Operations, Tightening Vacancies

Draw Investor Interest Employment Trends
A
partment vacancy will continue to fall in New Jersey this year, with Absolute Change Y-O-Y % Change
40 2%
the most significant improvements anticipated in the northern and

southern sections of the state. Private-sector employers will add
0 0%
28,000 jobs during 2011, spurring the creation of new rental households,
while deliveries will slow further from last year. In Northern New Jersey,
where more than 2,100 units came online in 2010, construction will virtu- -40 -2%
ally cease this year, while hiring will pick up in Essex, Hudson and Bergen
counties, as well as in nearby New York City. As a result, vacancy in this -80 -4%
section of the state will fall to the lowest level in three years. Elsewhere,
only one project remains slated for completion in Southern New Jersey. -120 -6%
Renter demand in this part of the state will continue to improve due to 07 08 09 10* 11**
tightening occupancies in neighboring Philadelphia and its close-in sub-
urbs. In Central New Jersey, where conditions were tight as 2011 began, Supply and Demand
vacancy will fall 60 basis points this year to 3.4 percent, the lowest rate Completions Vacancy
among the three sections of the state. 4 6%
The resumption of job growth in New Jersey will support greater in- 3 5%
Units (thousands)
vestment activity, providing encouragement to buyers awaiting additional
Vacancy Rate
indications of a sustainable recovery in property operations. Financing also 2 4%
continues to improve, with community banks becoming more active and
offering historically low rates and favorable terms to qualified borrowers.
1 3%
Low interest rates and investor demand for properties in densely populated
areas near major employment centers will maintain average statewide cap
rates in the low-7 percent range through the first half of 2011. Interest in 0 2%
07 08 09 10* 11**
properties in Hudson County will intensify as recently completed rentals
stabilize. In the central and southern regions of the state, strengthening ten- Rent Trends
ant demand will sustain investors’ interest in local complexes. Average cap Asking Rents Effective Rents
rates in these areas will range from about 7.3 percent to 7.8 percent this year. 6%
◆ 2011 NAI Rank: 12, Down 6 Places. New Jersey slipped six spots in the 0%
NAI due to slow employment growth and state budget woes.
◆ Employment Forecast: In 2011, statewide employment will increase 0.5 per- -3%
cent, or by 18,500 jobs, led by an acceleration in private-sector hiring. Last
year, 44,000 positions were eliminated, primarily in the government sector. -6%
07 08 09 10* 11**
◆ Construction Forecast: Projects containing an aggregate 1,100 units will

come online this year, down from nearly 2,400 units in 2010. More than Sales Trends
half of the rentals due in 2011 will be delivered in Central New Jersey. $100
◆ Vacancy Forecast: Fueled by a 110 basis point drop in vacancy in North-

ern New Jersey, statewide vacancy will decline 90 basis points this year $90
to 3.9 percent. In 2010, vacancy fell 10 basis points.
$80
◆ Rent Forecast: Asking rents in New Jersey will advance 2.7 percent in
2011 to $1,325 per month, and effective rents will increase 3.8 percent to
$70
$1,270 per month.
◆ Investment Forecast: Investors will bid aggressively, as the current lull $60
06 07 08 09 10*
in construction and a thin pipeline of planned projects across the state
will provide an opportunity to rebuild robust property operations before * Estimate ** Forecast
the development cycle accelerates. Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA

New York City Up 2 Places 2011 Rank: 1 2010 Rank: 3
Institutions Eye Manhattan;

Employment Trends Interest in Outer Boroughs Intensifies
V
acancy at large market-rate rental properties in New York City will
140 4%
decline in 2011 as tenant demand intensifies and construction activity
subsides, following a substantial surge in completions last year. His-
70 2%
torically, more than half of new market-rate properties delivered annually
stabilize within the first year of operation, but the proportion fell to about
0 0% 30 percent in 2010 as the pipeline of new units overwhelmed demand.
Stronger job growth will accelerate the stabilization of new properties this
-70 -2% year, contributing to a decrease in vacancy in each borough. In Manhattan,
completions totaled more than 4,900 units last year but will fall to approxi-
-140 -4% mately 1,200 units in 2011, helping market-rate vacancy improve 120 basis
07 08 09 10* 11** points to 3 percent. Vacancy will decline 40 basis points and 20 basis points
in Brooklyn and Queens, respectively, as construction slows and demand
Supply and Demand for less expensive rentals strengthens amid a recovering economy.
Completions Vacancy
8 5% Investment activity in the city will continue to accelerate through the
first half of 2011, fueled by the low cost of capital and healthy growth in
6 4% the local economy. Institutions will increase their activity in Manhattan
Units (thousands)
as large-property operations improve and the need to place cash intensi-

Vacancy Rate
4 3% fies. Average cap rates in the borough rose to the high-5 percent range last
year, reflecting sales of smaller properties, but some compression is likely
in 2011 as institutions and REITs aggressively value large assets. In the
2 2%
other boroughs, cap rates generally average from 6.0 percent to 6.5 percent
for most stable and performing properties. Local investors, the dominant
0
07 08 09 10* 11**
1% buyer group, will increase activity in these areas as financing capacity ex-
pands. Interest in rent-stabilized properties remains constant among less
Rent Trends risk-tolerant investors. New guidelines for rent increases on these units will
be issued at midyear and guide underwriting assumptions.
10%
5%
◆ 2011 NAI Rank: 1, Up 2 Places. The nation’s lowest vacancy rate and
-5%
strong forecast employment growth helped New York City claim the top
spot in the 2011 NAI.
-10%
07 08 09 10* 11**
◆ Employment Forecast: This year, employers in the city will add 84,000
positions, a 2.3 percent gain and up from the creation of 71,000 jobs in 2010.
Sales Trends
$130 ◆ Construction Forecast: The inventory of market-rate apartments in the
city will expand 0.9 percent in 2011 with the completion of 1,450 units.
Last year, 7,600 units were added, the most in the past decade.
$120
◆ Vacancy Forecast: Vacancy at large properties will decline 80 basis points
$110 this year to 3 percent. The vacancy rate rose 90 basis points in 2010.
◆ Rent Forecast: In 2011, asking rents at large, market-rate complexes will

$100
advance 6.2 percent to $3,010 per month, while effective rents will climb
6.9 percent to $2,901 per month.
$90
06 07 08 09 10*
◆ Investment Forecast: Foreign ownership will increase in the city, as the
* Estimate ** Forecast low value of the dollar will enable well-capitalized investors from over-
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA seas to aggressively pursue high-quality, well-located properties.

Up 1 Place 2011 Rank: 17 2010 Rank: 18 Oakland
East Bay Apartment Market Recovering,

Remains Well Below Recent Cyclical Peak Employment Trends
A
nother year of minimal construction activity in the East Bay, along Absolute Change Y-O-Y % Change
30 2%
with the resumption of job growth, will reinforce the under way re-

covery in apartment operations. With vacancy in the mid-4 percent
0 0%
range, property owners in the region will continue to regain pricing power
through 2011, placing upward pressure on rents and allowing for further
concession burn. While improving operations may encourage developers -30 -2%
to plan new projects or pull postponed apartments from the sidelines, rents
will need to increase considerably before any large-scale construction be- -60 -4%
comes feasible. Even after accounting for anticipated growth in 2011, effec-
tive rents in the East Bay will remain more than 6 percent below the cyclical -90 -6%
high levels achieved in late 2008. Rent reductions over the past two years 07 08 09 10* 11**
have resulted in a recent surge in demand for Class A units, however, as
many renters can now afford to upgrade. Supply and Demand
Completions Vacancy
The combination of improving property operations and low interest 2.0 7%
rates will drive stronger transaction velocity this year, though limited high-
quality, for-sale inventory will hamper gains. Overall, average cap rates in 1.5 6%
Units (thousands)
the East Bay have settled into the low-7 percent range and could contract
Vacancy Rate
further as more investors re-enter the marketplace and buyer demand in- 1.0 5%
tensifies. First-year yields will continue to vary sharply by property quality
and location, however, with deals involving performing assets in supply-
0.5 4%
constrained locations likely to trade at cap rates of 6 percent or less.
0 3%
07 08 09 10* 11**
2011 Market Outlook Rent Trends

◆ 2011 NAI Rank: 17, Up 1 Place. Slower-than-average job growth and low 12%
housing affordability combined to keep Oakland near the middle of the
2011 NAI. 6%
◆ Employment Forecast: Employment growth will reach 1.4 percent in 2011

0%
with the addition of 13,400 jobs, driven by expansion in the professional
and business services and trade, transportation and utilities sectors.
-6%
◆ Construction Forecast: Approximately 420 apartments will come online
in 2011, just shy of the 2010 total but well below the 10-year annual av- -12%
07 08 09 10* 11**
erage of 975 units. The largest project slated for completion this year, a
256-unit downtown high-rise, was originally planned as condos.
Sales Trends
◆ Vacancy Forecast: Vacancy will decline 40 basis points in 2011 to 4.3 per-
$140
cent. Improvement began last year, with the release of pent-up demand
and de-bundling of households driving a 110 basis point reduction in the

vacancy rate. $130
◆ Rent Forecast: Rent growth resumed in mid-2010 and will continue this $120
year. Asking rents will rise 2.4 percent to $1,305 per month, while effec-
tive rents will gain 2.6 percent to $1,234 per month.
$110
◆ Investment Forecast: Investors will remain focused on assets in commu-

nities along the Interstate 580 and Interstate 880 corridors. Apartment $100
06 07 08 09 10*
rental operations in these areas will benefit significantly this year from
increased demand stemming from strengthening job creation in Oakland * Estimate ** Forecast
and across the bay. Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA

Orange County Up 2 Places 2011 Rank: 5 2010 Rank: 7
Rising Job Growth, Minimal Development

Employment Trends Fuel Broad-Based Strengthening
J
ob creation in Orange County will outpace other major California
40 3%
markets for the second consecutive year, fueling considerable occu-
pancy gains as completions slip to historic lows. Broad-based hiring
0 0%
and a lack of housing options for lower-income workers will accelerate
leasing activity for Class B/C complexes, particularly to the north. In Ful-
-40 -3% lerton and Buena Park, for example, Class B/C vacancies will fall into the
low-3 percent range as residents return to the work force and households
-80 -6% de-bundle. White-collar employment growth will reinforce absorption in
Class A properties, building on the 100 basis point vacancy improvement
-120 -9% already achieved thus far in the recovery. Rising occupancy across all prop-
07 08 09 10* 11** erty classes will enable owners to withdraw concessions. In the South Ana-
heim submarket, however, a 15 percent expansion in Class A rental inven-
Supply and Demand tory over the past two years will keep operations soft through 2011 and
Completions Vacancy force owners to maintain concessions at nearly twice the metro average.
4 8%
Following a rebound in bidding activity last year, low interest rates
3 6% and improving economic conditions will facilitate an increase in sales vol-
Units (thousands)
ume in 2011 as investors reset their strategies and reposition equity. Fa-
Vacancy Rate
2 4% vorable interest rates are pulling buyers into the market, and owners who
weathered the downturn are poised to divest while investor enthusiasm is
strong. Realistically priced Class B/C assets will garner multiple offers, a
1 2%
trend that emerged in the second half of 2010 and dropped cap rates into
the low- to mid-6 percent range. As buyer competition intensifies, initial
0 0%
07 08 09 10* 11** yields will compress modestly this year, barring any significant interest
rate spikes. Top-tier complexes and coastal properties will command siz-
Rent Trends able premiums, trading at cap rates more than 100 basis points below the
metro average.
8%
2011 Market Outlook
4%
◆ 2011 NAI Rank: 5, Up 2 Places. Orange County claimed the highest po-
0%
sition among Southern California markets due to healthy employment
projections and very low home affordability.
-4% ◆ Employment Forecast: After 27,000 jobs were added last year, payrolls
will expand by 36,000 positions in 2011, a 2.6 percent gain.
-8%
07 08 09 10* 11**
◆ Construction Forecast: This year, developers will deliver just 300 units,
down significantly from the 2,300 rentals completed in 2010.
Sales Trends
◆ Vacancy Forecast: The average vacancy rate will fall 130 basis points in
$170
2011 to 4.4 percent, in line with the 10-year average. Last year, vacancy
decreased 70 basis points.

$160
◆ Rent Forecast: Owners will raise asking rents 3.7 percent this year to
$150 $1,535 per month, while effective rents will advance 4.5 percent to $1,482
per month, resulting in a concession pullback to 13 days of free rent.
$140
◆ Investment Forecast: Last year, multifamily permit issuance fell 80 per-
cent below 2007 peak levels, indicating subdued completions in the near
$130 term. With tourism-related job growth to accelerate going forward and
06 07 08 09 10*
minimal future completions to create a supply/demand imbalance, in-
* Estimate ** Forecast vestors able to secure currently low interest rates will be well positioned
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA to achieve significant revenue growth as rents appreciate.

Up 5 Places 2011 Rank: 30 2010 Rank: 35 Orlando
Recovery Tourism, Service Sectors

Spark Performance Improvements Employment Trends
L
ingering uncertainty in the Orlando housing market and a rebound Absolute Change Y-O-Y % Change
60 6%
in tourism will accelerate the recovery in apartment operations that

began last year. During 2010, ongoing single-family foreclosures low-
30 3%
ered the homeownership rate from approximately 72 percent to 68 percent,
initiating the movement of many former homeowners into the renter pool.
The likelihood of additional foreclosures will further expand the renter 0 0%
base throughout 2011. Also, hiring trends in services sectors will serve as an
indicator of future leasing traffic and unit absorption. Approximately 8,000 -30 -3%
leisure and hospitality jobs will be created this year as theme park atten-
dance continues to recover and foreign tourist volume increases as a result -60 -6%
of the weaker dollar. Additionally, the expansion of local medical facilities 07 08 09 10* 11**
will support the hiring of 4,400 education and health services workers dur-
ing 2011, generating Class A apartment demand. Supply and Demand
Completions Vacancy
The decline in property prices stemming from the cessation of conver- 4 12%
sion activity and subsequent erosion of operating income due to the re-
cession will present opportunities for investors. Sales of lender-owned or 3 10%
Units (thousands)
distressed assets will continue in the first half of 2011, although expected
Vacancy Rate
improvements in vacancy and rents may enable some owners to avert fur- 2 8%
ther difficulties. Prices for distressed assets can drop to less than $30,000 per
unit, providing an attractive entry point for investors capable of executing
1 6%
value-add strategies. Well-located, stabilized properties will also generate
intense bidding, as the lack of rental construction will enable operators to
raise rents without concern for newer assets in lease-up. Areas of interest 0 4%
07 08 09 10* 11**
will include the southern part of the metro near tourist attractions, as well
as properties that will benefit from steady enrollment at the University of Rent Trends
Central Florida. Asking Rents Effective Rents
3%
0%
2011 Market Outlook
-3%
◆ 2011 NAI Rank: 30, Up 5 Places. Orlando’s five-spot jump in the ranking
is supported by above-average job growth and healthy absorption.
-6%
◆ Employment Forecast: Employers will create 23,500 jobs this year, a 2.3
percent increase to payrolls and an improvement from 2010, when 6,000 -9%
07 08 09 10* 11**
jobs were added.
◆ Construction Forecast: Developers will complete only 700 units in 2011, Sales Trends
down from 1,300 units last year and well below the five-year average of $80
2,000 rentals.
◆ Vacancy Forecast: Projected net absorption of 2,100 units will push $60
down vacancy 120 basis points this year to 8.4 percent; the vacancy rate
decreased 160 basis points in 2010. $40
◆ Rent Forecast: During 2011, asking rents will rise 2.2 percent to $864 per $20
month. Concessions will decline 50 basis points to 7.8 percent of asking
rents as effective rents grow 2.8 percent to $797 per month.
$0
06 07 08 09 10*
◆ Investment Forecast: Cap rates higher than the national average will
support strong out-of-state bidding for Orlando properties. Lower per- * Estimate ** Forecast
unit prices will also enable investors to build scale relatively quickly. Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA

Philadelphia Down 5 Places 2011 Rank: 10 2010 Rank: 5
Apartments Post Positive Trends as

Employment Trends Job Growth Returns
T
he Philadelphia apartment market staged a solid turnaround last
40 2%
year and will continue to settle into its traditional pattern of limited
development, steady tenant demand and rising rents in 2011. Follow-
0 0%
ing two years of depressed multifamily permitting, deliveries of new rent-
als will drop to one of the lowest annual totals in the past decade. Permit-
-40 -2% ting will remain subdued as the challenging process of advancing projects
from conception to completion deters all but the most capable develop-
-80 -4% ers. The current lull in construction will magnify improvements in tenant
demand in the months ahead. Nearly every submarket recorded positive
-120 -6% net absorption last year, and additional gains will occur in 2011. Stronger
07 08 09 10* 11** job growth will drive greater demand in Center City and the New Jersey
submarkets, areas where positive trends have slightly lagged improve-
Supply and Demand ments in marketwide conditions. A significant reduction in vacancy will
Completions Vacancy also occur in New Castle County as the creation of 6,000 jobs spurs rental
2.0 7% housing demand.
1.5 6% Strong operations will continue to lure some out-of-area buyers, but
Units (thousands)
Philadelphia will remain dominated by local investors. Many owners will

Vacancy Rate
1.0 5% utilize low interest rates to refinance and improve properties, while oth-
ers will dispose assets to reinvest in others with greater upside potential.
Interest in properties in prime central locations will remain intense, while
0.5 4%
lower-quality assets in secondary locations will garner greater interest as
operations strengthen. Cap rates compressed in 2010 but will likely stay
0 3%
07 08 09 10* 11** near current levels as long. Assuming that low interest rates persist, top
Class A assets will trade in the 5.5 percent to 6.0 percent range, while com-
Rent Trends plexes in strong suburban locations will sell from 6.5 percent to 7.5 percent.
6%
0%
◆ 2011 NAI Rank: 10, Down 5 Places. Philadelphia retained a top 10 posi-
tion in the NAI due to a rapidly falling vacancy rate.
-3% ◆ Employment Forecast: Expansion of the trade and education and health
services sectors will increase total employment 1 percent in 2011 with the
-6% creation of 28,000 jobs. Last year, 13,000 positions were added.
07 08 09 10* 11**
◆ Construction Forecast: Approximately 1,200 units were completed in

Sales Trends 2010, but developers will deliver just 500 units this year.
$90
Vacancy Forecast: The vacancy rate will dip 160 basis points in 2011 to
◆
3.9 percent due to the slowdown in construction and continued strength-
$80 ening of demand. Last year, vacancy fell 100 basis points.
$70 ◆ Rent Forecast: Following a 1.7 percent increase in 2010, asking rents will
surge 3.5 percent during the year ahead to $1,055 per month. Effective
rents will advance 4.1 percent to $1,011 per month, compared with a 2.6
$60
percent gain last year.
$50 ◆ Investment Forecast: The low 10-year Treasury rate continues to raise
06 07 08 09 10*
prepayment penalties and yield maintenance requirements as a potential
* Estimate ** Forecast impediment in transactions involving properties with existing financing.
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA Nonetheless, improved financing capacity will drive robust sales activity.

Up 7 Places 2011 Rank: 27 2010 Rank: 34 Phoenix
Residential Foreclosures Expand

Renter Pool, Boost Apartment Absorption Employment Trends
A
partment operations in Phoenix will improve further in 2011 as job Absolute Change Y-O-Y % Change
50 3%
creation doubles from last year’s pace, construction falls to the lowest

level in more than 15 years and single-family foreclosures push many
0 0%
former homeowners into rentals. An estimated two-thirds of homeowners
with mortgages in the metro area owe more than their homes are worth,
which will continue to encourage strategic defaults and expand the renter -50 -3%
pool. Demand for apartments surged in 2010, especially in the North Scotts-
dale/Fountain Hills, North Tempe, Peoria/Sun City/Surprise and Chandler -100 -6%
submarkets. Class A units accounted for most of the absorption last year, due
in part to renewed job growth in the typically higher-paying professional -150 -9%
and business services sector. At the beginning of 2011, Class A vacancy was 07 08 09 10* 11**
around 8 percent, only slightly higher than the levels recorded prior to the
recession. Class B/C vacancy, meanwhile, remained in the double digits, a Supply and Demand
trend likely to persist until blue-collar industries, including construction and Completions Vacancy
manufacturing, begin to post stronger growth in late 2011 or early 2012. 8 14%
Many large investors have re-entered the Phoenix market, targeting both 6 12%
Units (thousands)
REO listings and well-located, high-quality assets offered at attractive prices
Vacancy Rate
compared to just a few years ago. Marketwide, the median price per unit 4 10%
has slipped 35 percent from the 2007 peak. While more lenders have started
to clear their books of reclaimed assets, many will stabilize high-vacancy
2 8%
properties and address deferred maintenance ahead of taking them to mar-
ket. This trend may become more pronounced this year in light of expecta-
tions for above-average job growth and declines in vacancy rates, limiting 0 6%
07 08 09 10* 11**
the degree of price discounting. Increased buyer interest in the market has
compressed cap rates for Class A and well-located Class B properties, with Rent Trends
top-tier complexes changing hands in the high-5 percent to high-6 percent Asking Rents Effective Rents
range. Cap rates for mid-tier apartments have remained relatively steady, 6%
with assets typically trading at yields between 7.25 percent and 7.75 percent.
3%
2011 Market Outlook
0%
◆ 2011 NAI Rank: 27, Up 7 Places. Phoenix’s seven-place rise in the NAI is
attributed to the rapidly improving employment situation and projected
-3%
household growth.
◆ Employment Forecast: Total employment in Phoenix will increase by 2.1 -6%

07 08 09 10* 11**
percent in 2011 with the addition of 36,000 jobs. After contracting in 2008
and 2009, payrolls expanded by 1.5 percent last year.
Sales Trends
◆ Construction Forecast: Builders will complete 1,500 units this year, down $80
from 2,675 units in 2010 and the lightest year for new supply since 1994.
◆ Vacancy Forecast: Apartment vacancy will decline 120 basis points in $70
2011 to 8.9 percent, approaching levels last reported in early 2008. In
2010, vacancy dropped 220 basis points on net absorption of 8,000 units. $60
◆ Rent Forecast: Asking rents will rise 2.8 percent this year to $773 per
$50
month, while effective rents will gain 3.7 percent to $705 per month.
◆ Investment Forecast: Investors may need to move down the quality scale $40
06 07 08 09 10*
to achieve the most attractive returns. Opportunities will likely arise for
Class B/C properties priced under $5 million, where buyer demand re- * Estimate ** Forecast
mains limited. Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA

Portland Up 3 Places 2011 Rank: 16 2010 Rank: 19
Expansion of Major Employers, Below-Trend

Employment Trends Deliveries Reinforce Apartment Recovery
A
ccelerating employment gains and historically low rental stock
20 2%
growth will generate strong absorption activity in Portland this year,
enabling apartment owners to quicken the pace of rent increases.
0 0%
Leasing of lower-tier units in the Beaverton/Aloha submarket will pick
up considerably early in 2011 as the development of the new Intel Corp.
-20 -2% research facility in Hillsboro creates thousands of construction jobs. Ad-
ditionally, completion of the site in 2013 will help boost demand for area
-40 -4% Class A units, as hundreds of skilled permanent workers will be needed to
staff the location. Elsewhere, continued white-collar job growth will fur-
-60 -6% ther align the supply/demand imbalance in the Northwest/Downtown
07 08 09 10* 11** submarket, a process that already improved top-tier vacancy rates from the
20 percent range recorded at the height of the recession to single-digit terri-
Supply and Demand tory. As renter demand builds in the area, Class A vacancy will settle at its
Completions Vacancy long-term average, resulting in considerable concession burn. Blue-collar
4 10% employment will also pick up through the year, helping lower-tier com-
plexes in East County record sustainable absorption by midyear and laying
3 8% the groundwork for modest rent gains in the second half.
Units (thousands)
Vacancy Rate
2 6% With interest rates low and economic conditions improving, more lo-
cal investors will re-enter the metro to execute deals during the early stages
of recovery. Rising occupancies and rents signaled a turning point for the
1 4%
Portland apartment market late last year, and a sharp deceleration in con-
struction activity in 2011 will attract buyers seeking to capitalize on future
0 2%
07 08 09 10* 11** revenue gains. This shift in investor confidence will intensify bidding ac-
tivity for best-in-class assets in historically strong areas like Hillsboro and
Rent Trends Beaverton. Cap rates for Class A and Class B assets in these locations edged
down to the low-6 percent range in 2010, and greater availability of list-
8% ings this year will sustain initial yields for these high-end complexes in that
range. Marketwide, cap rates will average in the low-7 percent range.
4%
2011 Market Outlook
0%
◆ 2011 NAI Rank: 16, Up 3 Places. Limited supply growth and tight over-
all conditions boosted Portland three spots in the ranking.
-4%
◆ Employment Forecast: Led by additions in the professional and business
-8% services sector, metrowide payrolls will expand by 18,500 positions, or
07 08 09 10* 11**
1.9 percent, this year. In 2010, total employment grew by 1,500 jobs.
Sales Trends ◆ Construction Forecast: Developers will deliver 120 units in 2011, a 0.1
$80 percent inventory increase. Last year, 660 apartments came online.
◆ Vacancy Forecast: After improving 210 basis points in 2010, vacancy will
$75 fall 70 basis points this year to 4.1 percent, a rate 140 basis points below
the 10-year average.
$70
◆ Rent Forecast: Asking rents will rise 3.2 percent to $844 per month in
2011 as effective rents climb 4.3 percent to $775 per month.
$65
◆ Investment Forecast: While cap rates among well-located properties de-

$60 clined modestly in 2010, lower-tier complexes farther from downtown
06 07 08 09 10*
amenities, particularly those on the eastern edges of the metro, will likely
* Estimate ** Forecast require yields above 7.5 percent to clear the market this year due to the
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA availability of Class C listings.

Up 5 Places 2011 Rank: 32 2010 Rank: 37 Riverside-San Bernardino
Apartment Recovery Gains Momentum,

Led by Western Submarkets Employment Trends
I
nland Empire apartment operations will strengthen in 2011 as payroll ex- Absolute Change Y-O-Y % Change
30 3%
pansion resumes and the pace of new construction remains constrained.

The surge in apartment demand late last year stemmed from single-
0 0%
family residential foreclosures and the de-bundling of households. In 2011,
however, job gains will become a primary driver of renter demand growth.
Total employment will post net gains for the first time since 2006, and occu- -30 -3%
pancies will continue to rise, led by strong absorption near dense job centers
along the western boundary, like Ontario and Chino. As a result, conces- -60 -6%
sions in properties near coastal counties will burn faster than in other parts
of the Inland Empire as rents continue to recover. Elsewhere, large-scale -90 -9%
commercial projects in Moreno Valley, including the 6 million-square foot 07 08 09 10* 11**
March LifeCare campus and 1.8 million-square foot Skechers distribution
facility, will add thousands of construction jobs in 2011 and boost renter de- Supply and Demand
mand for nearby complexes. Challenges will linger, however, particularly Completions Vacancy
in far-reaching communities like Hemet, Victorville and Perris, where the 4 9%
threat of shadow rentals continues to moderate the pace of recovery.
3 8%
Units (thousands)
Investment activity in the region will continue to improve in 2011 as
Vacancy Rate
long-term hold buyers purchase bank-owned assets. Opportunities to acquire 2 7%
REO listings and value-add properties will remain prevalent to the east and
north, where the effects of the downturn were most significant, making apart-
1 6%
ment operations in both areas weaker than elsewhere in the metro. Cap rates
for these assets will average in the mid-7 percent to low-8 percent range this
year, 175 basis points above first-year returns for close-in, stabilized proper- 0 5%
07 08 09 10* 11**
ties in the west. Demand for assets closer to Los Angeles County employment
centers will outstrip supply, which, barring a dramatic uptick in interest rates, Rent Trends
will likely place downward pressure on yields as the year progresses. Asking Rents Effective Rents
8%
2011 Market Outlook
4%
◆ 2011 NAI Rank: 32, Up 5 Places. The Inland Empire gained five positions
in the NAI, though above-average vacancy kept the market in the bottom 0%
half of the ranking.
◆ Employment Forecast: Total employment in the two-county region will -4%

expand by 16,300 positions this year, or 1.5 percent. In 2010, employers
shed 15,000 workers. -8%
07 08 09 10* 11**
◆ Construction Forecast: Apartment stock will increase by 600 units in

2011, down from 1,000 units last year and nearly 70 percent below the Sales Trends
five-year average. $120
◆ Vacancy Forecast: The average vacancy rate will fall 70 basis points this
year to 6.3 percent. Vacancy improved 100 basis points in 2010. $100
◆ Rent Forecast: Asking rents will end the year at $1,025 per month, while $80
effective rents will reach $975 per month, gains of 1.7 percent and 2.2
percent, respectively.
$60
◆ Investment Forecast: Although REO and top-tier deals will dominate

sales this year, some unique opportunities will emerge for buyers willing $40
06 07 08 09 10*
to explore middle-market properties. With the recovery taking shape,
however, the window to acquire traditional listings with significant up- * Estimate ** Forecast
side will last only a few quarters. Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA

Sacramento Down 2 Places 2011 Rank: 35 2010 Rank: 33
Discounted REO Listings Provide

Employment Trends Opportunities for Smaller Investors
A
partment property operations will continue to improve in 2011 as
20 2%
employment growth resumes and construction slips to a 15-year
low. Recovery began in the second half of 2010 despite persistent job
0 0%
losses through most of the year, as individuals who doubled up or moved
in with family during the recession started to lease apartments. Absorption
-20 -2% also remains driven by a surge in Class A demand, as a 6 percent reduc-
tion in top-tier effective rents through the downturn encouraged renters to
-40 -4% upgrade to higher-quality units. Recent occupancy gains were strongest in
higher-priced submarkets, such as Downtown Sacramento, Orangevale/
-60 -6% Folsom and Roseville, where owners have successfully attracted tenants
07 08 09 10* 11** with above-average rent reductions and concessions. Demand may shift
in 2011, however, as rents tick up and the resumption of job creation in
Supply and Demand predominantly blue-collar sectors, including construction and trade, trans-
Completions Vacancy portation and utilities, spurs additional demand for more affordable Class
800 8% B/C units.
600 7% Smaller, private investors will dominate sales activity in 2011, target-
ing properties with 50 units or fewer. Assets in central, high-density areas
Vacancy Rate
will account for a significant portion of transactions and remain attractively

Units
400 6%
priced, with cap rates averaging around 8 percent. While institutions and
REITs have re-focused on acquisitions in major markets, limited for-sale
200 5%
inventory of newer, garden-style complexes in near-in suburbs, such as Fol-
som, Roseville and Rocklin, has restricted Class A deal flow. Strong com-
0 4%
07 08 09 10* 11** petition for the relatively few large, high-quality properties that become
available over the next few quarters will keep cap rates in this segment
Rent Trends under 6 percent.
3%
2011 Market Outlook
0%
◆ 2011 NAI Rank: 35, Down 2 Places. Ongoing budget concerns in Califor-
-3%
nia pushed down its state capital two places in the index.
◆ Employment Forecast: Payrolls will rise by 9,500 jobs in 2011, a 1.2 per-
-6% cent gain. This year’s performance will mark the first annual increase in
head counts recorded since 2006.
-9%
07 08 09 10* 11**
◆ Construction Forecast: Only 125 units are slated for completion in 2011,
down from 430 units last year. With a recovery in operations anticipated,
Sales Trends however, construction could proceed on some projects postponed dur-
$125 ing the downturn.
◆ Vacancy Forecast: Vacancy will decline 60 basis points this year to 5.7
$100 percent. In 2010, vacancy fell 100 basis points, largely due to the release
of pent-up demand.
$75
◆ Rent Forecast: In 2011, asking rents will increase 1.8 percent to $916 per
month. Effective rents will grow at a faster clip of 2.3 percent to $855 per
$50
month as owners trim concessions in response to tighter conditions.
$25 ◆ Investment Forecast: REO sales will rise in Sacramento as improving

06 07 08 09 10*
fundamentals encourage lenders to dispose of reclaimed assets. Similar
* Estimate ** Forecast to 2010, most bank-owned sales will involve small, older properties, pre-
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA senting investment opportunities in the $1.5 million or less range.

Down 8 Places 2011 Rank: 19 2010 Rank: 11 Salt Lake City
Apartment Listings to Increase,

Fall Short of Buyer Demand Employment Trends
R
ecovery of the Salt Lake City apartment market will resume during Absolute Change Y-O-Y % Change
30 6%
2011, following a temporary setback late last year. Vacancy rates de-

clined through most of 2010 but rose during the fourth quarter due
15 3%
to a surge in new supply, particularly in West Jordan. Developers will slow
the pace of deliveries dramatically in 2011, however, providing time for
owners to fill new, vacant units as job growth gains momentum. At the 0 0%
metro level, rents will recover some of the ground lost in recent quarters,
and concessions will retreat from record-high levels. Improvements will -15 -3%
vary significantly by submarket; close-in areas will take the lead as West
Jordan lags, with concessions in the submarket likely to remain near five -30 -6%
weeks of free rent through at least the first half of 2011. 07 08 09 10* 11**
Transaction velocity will rise moderately this year after slowing Supply and Demand
in 2010, as improving apartment fundamentals and firming values will Completions Vacancy
prompt more owners to list properties. Last year’s deceleration was due 4 10%
largely to a dearth of quality for-sale inventory as opposed to low buyer
demand. In fact, many investors stepped back into the marketplace after 3 8%
Units (thousands)
realizing a wave of deeply discounted REO deals was unlikely to emerge.
Vacancy Rate
Cap rates for stabilized, top-tier complexes have compressed as a result 2 6%
of strong demand and will likely slip into the mid-6 percent to 7 percent
range in 2011. Demand for lower-quality deals remains slower, holding ini-
1 4%
tial yields in the Class B/C sector within the mid-7 percent to low-8 percent
range throughout most of this year.
0 2%
07 08 09 10* 11**
Rent Trends
2011 Market Outlook Asking Rents Effective Rents
6%
◆ 2011 NAI Rank: 19, Down 8 Places. Despite healthy indicators, eight
markets with stronger prospects pushed ahead of Salt Lake City in the 3%
index this year.
0%
◆ Employment Forecast: After three consecutive years of declining em-
ployment, payrolls in the Salt Lake City metro area will rise by 2 percent,
or 12,000 jobs, in 2011. -3%
◆ Construction Forecast: Developers will deliver only 800 units this year, -6%
07 08 09 10* 11**
after 3,000 units came online in 2010.
◆ Vacancy Forecast: In 2011, vacancy will decline 120 basis points to 5.8 Sales Trends
percent. Last year, vacancy improved just 20 basis points, as strong gains
$80
in the first nine months of the year were offset by a supply-related in-
crease in the fourth quarter.

$75
◆ Rent Forecast: Rent growth will accelerate this year. Asking rents will
rise 3.1 percent to $758 per month, while effective rates will climb 4.4 $70
percent to $706 per month. In 2010, asking rents ticked up 0.4 percent,
while effective rents inched 0.2 percent higher.
$65
◆ Investment Forecast: Owners of large, high-quality properties will lever-

age current market conditions to command healthy prices. Demand for $60
06 07 08 09 10*
complexes of 100 units or more remains particularly strong relative to
available supply, which, along with low interest rates, has placed down- * Estimate ** Forecast
ward pressure on cap rates and elevated values. Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA

San Antonio Down 1 Place 2011 Rank: 13 2010 Rank: 12
Investor Demand for Class B Apartments

Employment Trends Intensifies in the Alamo City
A
partment operations in the San Antonio market will build on demand
30 4%
generated by the slow nature of corporate expansion amid concerns
over future business expenses. Nonfinancial companies’ coffers are
15 2%
25 percent above pre-recession levels and corporate payroll expansion is
proceeding cautiously at best. These trends are benefiting San Antonio,
0 0% which holds a large concentration of back-office call centers due to its cen-
tral location and bilingual work force. Several companies, including West
-15 -2% Corp., Kohl’s, Chase and Allstate, are adding thousands of low-paying cus-
tomer support positions, which typically bolster apartment demand. Areas
-30 -4% where supply growth was particularly robust over the past two years, such
07 08 09 10* 11** as the Far North Central and Far West submarkets, will post the largest job
growth-related improvements in vacancy. Owners in these locations uti-
Supply and Demand lized aggressive leasing incentives to pull renters into new units, leaving
Completions Vacancy plenty of empty Class B/C units for newly employed workers to occupy.
8 12%
Optimism about the recovery in local apartment conditions has spilled
6 10% into the investment arena, with long-term hold buyers moving into the
Units (thousands)
market to acquire stabilized assets. Class B properties, in particular, remain

Vacancy Rate
4 8% sought after by local and national syndicates targeting highly occupied

complexes at cap rates in the low- to mid-7 percent range. Many of these
buyers have been priced out of the national Class A apartment market by
2 6%
REITs and institutions seeking to place capital and willing to bid aggres-
sively for best-in-class offerings. Top-tier properties that trade in San An-
0 4%
07 08 09 10* 11** tonio this year will be offered at first-year yields near 6 percent, and REITs
will remain interested in the area when listings arise. A thin pipeline of
Rent Trends developer-owned Class A properties will limit the number of deals that
come to market, however, forcing most buyers to consider mid-tier assets.
6%
0%
◆ 2011 NAI Rank: 13, Down 1 Place. San Antonio’s above-average vacan-
cy rate resulted in a one-spot drop in the NAI, despite one of the highest
rates of job growth.
-3%
◆ Employment Forecast: Payrolls will expand 2.4 percent this year as met-
-6% ro employers hire 20,000 workers. Last year, additions totaled 7,500 jobs.
07 08 09 10* 11**
◆ Construction Forecast: After 2,700 apartments came online in 2010, de-

Sales Trends velopment will slow to 1,500 units this year, a modest 1 percent increase
$55 in stock.
◆ Vacancy Forecast: Marketwide vacancy will fall to 7.6 percent in 2011, a

$50 140 basis point improvement from last year. Apartment demand will rise
2.6 percent.
$45
◆ Rent Forecast: Asking rents will reach $744 per month this year as effec-
tive rents climb to $697 per month, annual gains of 4.6 percent and 5.1
$40
percent, respectively.
$35 ◆ Investment Forecast: The military’s planned consolidation of medical

06 07 08 09 10*
training at Fort Sam Houston will support apartment operations in the
* Estimate ** Forecast Northeast and adjacent submarkets. When the moves are completed this
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA year, 5,000 permanent jobs and 4,000 students will be located in the area.

Down 4 Places 2011 Rank: 6 2010 Rank: 2 San Diego
Investors Venture Down Class Spectrum to

Expand Holdings in San Diego Employment Trends
R
ecovery in the local apartment market will gain ground this year, Absolute Change Y-O-Y % Change
30 2%
helping San Diego remain one of the strongest performing markets in

the nation. As business activity and biotech employment accelerates,
0 0%
the addition of higher-paying jobs will fuel an uptick in Class A absorp-
tion, especially near the downtown area. One of the primary catalysts for
renter demand, however, stems from the more than $1 billion in military- -30 -2%
related development projects under way. The 500,000-square foot hospital
at Camp Pendleton, for instance, will create up to 1,000 construction jobs -60 -4%
during build-out, underpinning demand for Class B/C complexes near the
site. As a result, lower-tier vacancy in the Oceanside submarket will fall -90 -6%
into the low-3 percent range this year, enabling area owners to raise rents 07 08 09 10* 11**
considerably. Additionally, the local concentration of military personnel
will expand by an estimated 4,000 Marines and 7,000 sailors in the coming Supply and Demand
years, aiding absorption near military installations, especially Naval Base Completions Vacancy
San Diego and Camp Pendleton. Owners metrowide, though, will benefit 1.6 6%
from the thinning development pipeline, which will bolster a recovery in
operations by facilitating vacancy improvements in each submarket. 1.2 5%
Units (thousands)
Vacancy Rate
Investor demand will outstrip the supply of marketed properties this 0.8 4%
year, but velocity will gain momentum as private buyers widen their range
of acceptable assets to expand portfolios. In addition, improving operations
0.4 3%
and low interest rates will encourage nondistressed owners to reposition
portfolios, driving more to list mid-tier assets in an effort to redeploy capital
toward higher-yielding Class C properties poised for operational improve- 0 2%
07 08 09 10* 11**
ment. As more investors target lower-quality complexes in communities
viewed as less desirable in 2010, such as those in eastern San Diego County, Rent Trends
yields for vintage Class C assets in these areas will steady in the mid-7 per- Asking Rents Effective Rents
cent range. Demand for top-tier properties that come to market will remain 6%
intense, and cap rates for best-in-class assets near Balboa Park will further
compress from the current average in the low- to mid-6 percent range.
3%
◆ 2011 NAI Rank: 6, Down 4 Places. One of the nation’s tightest vacancy
-3%
rates helped San Diego retain a top 10 ranking in the NAI.
◆ Employment Forecast: Employers will add 23,400 jobs this year, a 1.9 -6%
07 08 09 10* 11**
percent increase. In 2010, roughly 7,000 positions were created.
◆ Construction Forecast: Deliveries will shrink to just 500 units in 2011, the Sales Trends
lowest level of completions since 1997. Last year, 1,280 units came online. $140
◆ Vacancy Forecast: As employers restaff and construction slows, vacancy

will slide 70 basis points this year to 3.6 percent, after falling 60 basis $130
points in 2010.
$120
◆ Rent Forecast: During 2011, asking rents will gain 4.1 percent to $1,370
per month, and effective rents will rise 4.7 percent to $1,327 per month.
$110
◆ Investment Forecast: Many investors will focus on Class B/C proper-

ties proximate to military installations catering to government person- $100
06 07 08 09 10*
nel. Long-term growth at these sites, along with minimal new apartment
development, will benefit nearby operations, with local owners likely to * Estimate ** Forecast
achieve outsized rent gains through the coming years. Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA

San Francisco Up 2 Places 2011 Rank: 7 2010 Rank: 9
Tech Renaissance Gains Momentum,

Employment Trends Fuels Demand for High-End Rentals
A
strong resurgence in San Francisco’s key technology industry will re-
30 3%
vitalize Class A renter demand in the city through 2011 as relocating
and expanding companies, including Zynga and Twitter, bring an
0 0%
influx of young professionals to the area. Other tech companies will follow
suit, helping the metro recoup 25 percent of the office-using jobs lost during
-30 -3% the recession and driving down in-city apartment vacancy rates consider-
ably. Complexes near office districts and desirable northern neighborhoods
-60 -6% will lead absorption early in the year, fueled by renters upgrading into
high-end units offered at discounts nearly 10 percent below peak levels.
-90 -9% In premier districts such as the Russian Hills/Embarcadero and Marina/
07 08 09 10* 11** Pacific Heights submarkets, vacancy will fall close to pre-recession levels in
the high-2 percent range, generating rent growth surpassing 7 percent. By
Supply and Demand midyear, lower-paying, population-serving job gains will resume, support-
Completions Vacancy ing leasing activity in Class B/C complexes throughout the metro.
1,000 6%
Transaction volume will continue to accelerate in 2011 as experienced
750 5% local investors capitalize on low interest rates to expand holdings. Improv-
ing rents and vacancies have diminished buyers’ concerns over eroding
Vacancy Rate
NOIs, leaving more investors willing to deploy large amounts of cash to-
Units
500 4%
ward deals. High-net-worth buyers are looking to reposition portfolios, tar-
geting high-profile assets in the city’s northern neighborhoods, where cap
250 3%
rates for premier properties average in the mid-4 percent to low-5 percent
range. Although sales activity in the city will build momentum as the year
0 2%
07 08 09 10* 11** progresses, closings in periphery communities will remain constrained as
buyers focus on performing assets in the core. First-year returns for com-
Rent Trends plexes in outlying areas will average between 5.5 percent and 6.0 percent
in 2011.
12%
6%
◆ 2011 NAI Rank: 7, Up 2 Places. Low housing affordability and a rebound

-6%
in job growth pushed up San Francisco two spots in the index.
-12% ◆ Employment Forecast: In 2011, employers will add 20,400 jobs, a 2.2 per-
07 08 09 10* 11**
cent gain and a reversal from last year, when 6,500 positions were cut.
Sales Trends ◆ Construction Forecast: Developers will complete fewer than 80 units this
$240 year, down from 870 rentals in 2010.
◆ Vacancy Forecast: After declining 10 basis points last year, vacancy will
$220 retreat 80 basis points in 2011 to 3.9 percent.
$200 ◆ Rent Forecast: Occupancy gains will facilitate a 5 percent increase in ask-
ing rents this year to $1,884 per month. Effective rents will advance 5.4
percent to $1,802 per month.
$180
◆ Investment Forecast: Distressed deals will remain limited in the mar-

$160 ket, minimizing their impact on investment activity and driving buyers
06 07 08 09 10*
to performing assets. Stronger investor demand will encourage more
* Estimate ** Forecast owners to list, and traditional-asset transactions will account for a larger
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA share of deals.

Up 6 Places 2011 Rank: 4 2010 Rank: 10 San Jose
Pent-up Corporate Demand for Tech Goods to

Benefit Local Firms, Spur Strong Job Gains Employment Trends
A
s employers restaff this year and low housing affordability relegates Absolute Change Y-O-Y % Change
25 3%
a sizable share of residents to the rental market, South Bay apartment

vacancy will fall to one of the lowest levels in a decade. Tech firms,
0 0%
crucial to the local economy, are especially well positioned to begin adding
to payrolls after posting strong profits and stockpiling cash in 2010. As the
national economy continues to strengthen and corporations move forward -25 -3%
with delayed information-technology spending, a pick-up in job growth
will spur apartment absorption across the region. Complexes near major -50 -6%
employment hubs in the Sunnyvale and Santa Clara submarkets will field
the bulk of leasing activity, and projected demand growth of more than 5 -75 -9%
percent will pull vacancies below 3 percent in these areas. As these trends 07 08 09 10* 11**
manifest, owners will withdraw concessions and raise rents at a faster clip
than the metrowide average. While backfilling Class C units will take a Supply and Demand
while longer, especially in periphery communities, a shortage of affordable Completions Vacancy
housing will propel a recovery starting in the second half as job growth 1,000 6%
broadens across nearly all sectors.
750 5%
Sustainable economic growth will improve investor sentiment for
Vacancy Rate
San Jose apartment properties, and some sellers who delayed dispositions
Units
500 4%
through the downturn will divest, intensifying deal flow. Premier assets
in Mountain View, Sunnyvale and Santa Clara will remain prime targets
250 3%
for REITs, a trend that emerged late last year and compressed cap rates for
best-in-class listings to the low- to mid-5 percent range. Private buyers also
will re-emerge to account for a greater share of activity. These investors 0 2%
07 08 09 10* 11**
will transition capital from low-yielding, non-real estate investments into
income-producing apartment complexes containing 20 units or fewer. As Rent Trends
bidding activity intensifies for these smaller assets, cap rates will stabilize Asking Rents Effective Rents
in the low- to high-6 percent range. 16%
◆ 2011 NAI Rank: 4, Up 6 Places. The second lowest vacancy rate in the 0%
nation and robust rent growth carried San Jose into the top five.
◆ Employment Forecast: Following the creation of 14,000 positions last -8%

year, Silicon Valley employers will expand head counts by 21,000 work-
ers in 2011, a gain of 2.5 percent. -16%
07 08 09 10* 11**
◆ Construction Forecast: Completions will total 470 units this year, a 0.4
percent rental stock increase and down from 2010, when 560 units were Sales Trends
placed into service. $170
◆ Vacancy Forecast: Payroll expansion helped push down the vacancy

rate by 130 basis points last year and will further bolster improvements $160
through 2011. This year, vacancy will slide 40 basis points to 3.4 percent,
a rate 140 basis points below the 10-year average. $150
◆ Rent Forecast: In 2011, asking rents will advance 4.2 percent to $1,505 per
$140
month, and effective rents will increase 4.9 percent to $1,417 per month.
◆ Investment Forecast: Cash-heavy private buyers will find opportunities $130

06 07 08 09 10*
this year to purchase lower-tier properties in densely populated, blue-
collar communities, including East San Jose, ahead of a more robust up- * Estimate ** Forecast
swing in rents. Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA

Seattle Up 7 Places 2011 Rank: 15 2010 Rank: 22
Operational Improvements to Gain

Employment Trends Momentum as Building Cycle Winds Down
P
uget Sound apartment vacancy will tighten further in 2011 as employ-
100 6%
ment gains surpass the national average and completions slow to one
of the lowest levels on record. Last year, declining homeownership
3%
50 rates and the resumption of job growth fueled a surge in apartment de-
mand, pulling the vacancy rate in line with the 10-year average, despite
0 0% the influx in deliveries. During 2011, operations will improve as stock ad-
ditions decelerate and re-employed young professionals migrate to neigh-
-50 -3% borhoods near major employment hubs such as Capitol Hill, Queen Anne,
Ballard and downtown Tacoma. As conditions strengthen in these Class A-
-100 -6% heavy areas through the first half, owners will begin pushing rents higher
07 08 09 10* 11** and easing concessions. In the Bellevue/Issaquah submarket, however, the
13 percent jump in top-tier stock last year will limit operators’ ability to
Supply and Demand cut leasing incentives dramatically in 2011. As for the metro’s lower-tier
Completions Vacancy complexes, renter demand will build momentum this year as blue-collar
8 10% employers, including manufacturers, add to payrolls.
6 8% Seller-financed and all-cash deals will account for a large share of clos-
Units (thousands)
ings in 2011, but improving lender financing capacity will broaden the in-
Vacancy Rate
4 6% vestor pool and help spur activity. Private buyers will utilize low-interest-
rate loans to acquire properties capable of achieving outsized revenue gains
as rents increase. Value-add sales activity will center on smaller assets in
2 4%
suburban communities within southern King and Pierce counties, where
cap rates will stabilize in the high-7 percent to low-8 percent range. Inves-
0 2%
07 08 09 10* 11** tor interest in top-tier assets in areas such as Queen Anne and Capitol Hill
also will intensify, and institutions will look to purchase newer buildings
Rent Trends reclaimed by lenders. Complexes in these core areas will trade with yields
in the high-5 percent to low-6 percent range this year.
8%
4%
2011 Market Outlook
0%
◆ 2011 NAI Rank: 15, Up 7 Places. Slowing construction and impressive
revenue gains raised the Puget Sound seven positions in the NAI.
-4%
◆ Employment Forecast: Total employment will increase by 36,000 posi-
-8% tions in 2011, or 2.2 percent, double last year’s pace.
07 08 09 10* 11**
◆ Construction Forecast: Development will slow to just 1,500 units this

Sales Trends year, down from 4,900 units in 2010 and below the five-year average of
$130 3,200 units annually.
◆ Vacancy Forecast: As newly completed buildings fill, the average va-

$120 cancy rate will fall 80 basis points this year to 5.7 percent. During 2010,
vacancy decreased 100 basis points.
$110
◆ Rent Forecast: Asking rents will advance 3.7 percent to $1,026 per month
in 2011, while effective rents will rise 4.4 percent to $966 per month.
$100
◆ Investment Forecast: With rising occupancies and rents restoring rev-

$90 enue streams, the distressed-asset pipeline will thin, narrowing the gap
06 07 08 09 10*
between buyers’ and sellers’ expectations. Troubled-asset sales will re-
* Estimate ** Forecast main present, however, as properties amounting to more than $300 mil-
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA lion were in some level of distress at the close of 2010.

Down 3 Places 2011 Rank: 29 2010 Rank: 26 St. Louis
Top-Quality Properties, Desirable Areas

Maintain Lead in Apartment Recovery Employment Trends
A
drop-off in apartment construction in 2010, along with the resump- Absolute Change Y-O-Y % Change
50 4%
tion of job growth, initiated the ongoing recovery of the St. Louis

apartment market. While completions will rise dramatically in 2011
25 2%
compared to last year, job growth will also accelerate, generating sufficient
renter demand to draw down the vacancy rate. Property performance, how-
ever, will vary widely based on quality and location. The Class A segment 0 0%
and historically tight pockets of the metro, such as the South submarket
and St. Charles County, will lead in occupancy and rent growth this year, -25 -2%
while recovery in the St. Louis City South submarket, home to the majority
of new construction, will lag. Other areas, such as St. Louis City North and -50 -4%
Clayton/Mid-County will post vacancy near 10 percent, keeping condi- 07 08 09 10* 11**
tions weak until the region regains a more significant share of the jobs lost
through the downturn. Supply and Demand
Completions Vacancy
More investors, particularly local, private owners, will return to St. 800 10%
Louis this year. Many of these prospective buyers recognize operations
have stabilized or begun to recover and the financing climate in the metro 600 9%
has become more favorable in recent quarters. Stronger demand for high-
Vacancy Rate
quality, performing assets will likely compress Class A cap rates modestly,
Units
400 8%
while returns will rise for some lower-tier properties, especially those in
underperforming areas like downtown or North City/North County. As
200 7%
Class B/C cap rates push past 9 percent, less risk-averse investors may find
strong acquisition opportunities by moving down the quality spectrum.
0 6%
07 08 09 10* 11**
Rent Trends
◆ 2011 NAI Rank: 29, Down 3 Places. St. Louis slipped three spots in the 2%
ranking due to high vacancy and an increase in construction.
0%
◆ Employment Forecast: Nonfarm employment in St. Louis will climb by
22,000 jobs in 2011, a 1.7 percent gain. Last year, local payrolls increased
by 1 percent. -2%
◆ Construction Forecast: Approximately 600 apartments will come online -4%

07 08 09 10* 11**
in the metro this year, up dramatically from 2010, when just 38 units
were delivered.
Sales Trends
◆ Vacancy Forecast: Following a decline of 130 basis points last year, the
$70
vacancy rate will slip 90 basis points to 7 percent in 2011. Recovery will
be uneven, however, with the strongest gains expected in more desirable

submarkets and among higher-quality properties. $60
◆ Rent Forecast: In 2011, asking will rise 2.1 percent to $731 per month, $50
while effective rents will increase 2.7 percent to $687 per month. Last
year, asking and effective rents both ticked up 1.1 percent.
$40
◆ Investment Forecast: Cap rates in the lower tiers could rise further
through 2011 as values decline modestly, creating a more challenging en- $30
06 07 08 09 10*
vironment for owners in need of refinancing or a quick sale. As a result,
owners of lower-quality properties with debt maturing over the next few * Estimate ** Forecast
years may want to consider listing in the near term. Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA

Tampa Up 4 Places 2011 Rank: 36 2010 Rank: 40
Rents Make Headway Toward

Employment Trends Recovery as Development Falls
A
30 3%
n accelerated pace of job creation and a depleted construction pipe-
line will drive improvements in Tampa apartment operating condi-
tions during 2011. Last year marked a transition in the market, as
0 0%
modest employment growth and the release of pent-up demand sparked
the absorption of nearly 5,000 apartments. Effective rents in most of the 17
-30 -3% submarkets, however, remained substantially less than when the recession
began. As 2011 progresses, restoring effective rents to those levels will re-
-60 -6% main a challenge for many owners. For investors who purchased properties
at peak pricing and must manage significant monthly debt service, a slight
-90 -9% increase in tenant demand this year will provide an opportunity to bolster
07 08 09 10* 11** income and avert loan-related difficulties. The ability for all owners to re-
gain pricing power, though, rests upon a successful spring and summer
Supply and Demand leasing season that greatly boosts occupancies and supports more substan-
Completions Vacancy tial rent growth.
4 12%
Minimal multifamily rental development and improving NOIs this
3 10% year will provide a solid foundation for the next significant upswing in
Units (thousands)
the market and boost investment activity. Distress will linger, with well-
Vacancy Rate
2 8% located properties under financial or operational difficulty presenting via-

ble value-add opportunities for capable operators. Institutional-grade Class
1 6%
A assets in the Hillsborough or Pinellas County submarkets will also garner
interest. Cap rates for these properties fell to about 6 percent last year and
may compress slightly more in 2011 while low interest rates persist. Own-
0 4%
07 08 09 10* 11** ers contemplating a sale will increasingly take advantage of the competitive
bidding climate for top-grade properties and seek to dispose assets in the
Rent Trends year ahead. Lower-quality properties will also continue to sell, with cap
rates ranging up to 10 percent on the lowest-quality Class C/D buildings.
8%
2011 Market Outlook
4%
◆ 2011 NAI Rank: 36, Up 4 Places. Above-average employment growth
0% boosted Tampa four places in the ranking, though high vacancy kept the
market in the bottom half of the index.
-4%
◆ Employment Forecast: Total employment will expand 2.1 percent, or by
24,000 positions, in 2011. Last year, 10,000 jobs were created in the metro.
-8%
07 08 09 10* 11**
◆ Construction Forecast: Developers will complete only 500 units this year,
one of the lowest annual totals on record. In 2010, approximately 1,600 rent-
Sales Trends als were delivered in projects located primarily in Hillsborough County.
$80
Vacancy Forecast: During 2011, marketwide vacancy will decline 100 ba-
◆
sis points to 7.5 percent on minimal supply growth and steady improve-
$70
ment in demand; vacancy dropped 220 basis points in 2010. Hillsborough
County vacancy will fall 100 basis points this year to 7.5 percent, while an
$60 80 basis point decline to 7.2 percent will occur in Pinellas County.
$50
◆ Rent Forecast: In 2011, asking rents will rise 2.7 percent to $828 per
month, while effective rents will increase 3.4 percent to $784 per month.
$40 ◆ Investment Forecast: Investors will focus on properties in established
06 07 08 09 10*
core areas, such as the neighborhoods surrounding the University of
* Estimate ** Forecast South Florida and employment nodes like downtown Tampa, St. Peters-
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA burg, Clearwater and Westshore.

Down 3 Places 2011 Rank: 41 2010 Rank: 38 Tucson
Distressed Sales Dominate Transaction

Velocity Despite Improving Operations Employment Trends
T
ucson apartment vacancy will retreat in 2011, though the pace of Absolute Change Y-O-Y % Change
20 6%
improvement will slow from last year, when the release of pent-

up renter demand helped jump-start a recovery. Competition from
10 3%
single-family shadow rentals will remain intense, likely delaying more sig-
nificant gains in apartment fundamentals until 2012. Nonetheless, vacancy
will decline to levels sufficient to support modest rent increases this year, 0 0%
and owners will begin to trim concessions, which hit a 20-plus-year high in
2010. After coming to a near standstill, apartment development has started -10 -3%
to show signs of life, with construction expected to commence this year
on a handful of projects totaling roughly 800 units. While job growth will -20 -6%
remain sluggish through the first several months of 2011, it should acceler- 07 08 09 10* 11**
ate by the fourth quarter, generating sufficient renter demand to absorb the
limited development pipeline targeted for completion in 2012. Supply and Demand
Completions Vacancy
Local and out-of-state investors have stepped off the sidelines in Tuc- 300 14%
son, with many targeting REO deals and failed condo conversion projects,
some of which underwent considerable upgrades ahead of the housing 225 12%
bust. Large sales involving lender-owned portfolios have traded at prices of
Vacancy Rate
$25,000 per unit to $30,000 per unit, well below the marketwide median of
Units
150 10%
$37,400 per unit. While operations have started to recover, more distressed
assets will reach the market, as Tucson experienced a surge in transaction
75 8%
velocity from 2005 to 2007, when prices peaked and high-leverage loans
were commonplace. Many owners who purchased during this time are
now underwater on their investments and unable to refinance maturing 0 6%
07 08 09 10* 11**
debt without considerable equity contributions. Significant competition for
distressed-property deals will buoy values to some degree, and fire-sale Rent Trends
prices for performing assets will remain unlikely. Asking Rents Effective Rents
6%
2011 Market Outlook
3%
◆ 2011 NAI Rank: 41, Down 3 Places. High vacancy and modest rent gains
kept Tucson near the bottom of the index this year. 0%
◆ Employment Forecast: Job creation will remain moderate through the

first several months of 2011 and accelerate late in the year. Growth will -3%
reach 2.2 percent this year with the addition of 7,800 positions.
-6%
07 08 09 10* 11**
◆ Construction Forecast: No new units will come online in 2011, though
developers will break ground on a few projects. Last year, builders com-
pleted just 96 apartments, down from the five-year average of 236 units. Sales Trends
$60
Vacancy Forecast: Apartment vacancy in Tucson will decline 100 basis
◆
points this year to 9.1 percent. Recovery began in 2010, with vacancy
sliding 210 basis points. $50
◆ Rent Forecast: In 2011, asking rents will advance 2.8 percent to $660 per $40
month, while effective rents will rise 3.5 percent to $621 per month. Con-
cessions will account for just 5.9 percent of asking rents, down from the $30
peak of 7 percent of asking rents in late 2009.
◆ Investment Forecast: With operations on the upswing and values firm- $20
06 07 08 09 10*
ing, investors who purchase Class C deals at deeply discounted pricing
in 2011 may be able to realize gains over the next few years through * Estimate ** Forecast
minimal capital expenditures. Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA

Washington, D.C. Down 1 Place 2011 Rank: 2 2010 Rank: 1
Apartments Continue to Strengthen as

Employment Trends Employment Gains Mount, Construction Falls
R
100 4%
obust job growth and limited construction will support an improve-
ment in operations across the Washington, D.C., metro this year,
though future supply concerns could re-emerge as early as 2012. In
50 2%
the district, strong tenant demand will push down vacancy 30 basis points to
4.5 percent. With the recovery in full swing, the local construction pipeline
0 0% will fill, although developers will likely concentrate on condo projects due
to an expected shortage of owner-occupied housing over the next two years.
-50 -2% The construction pipeline also constitutes an important reference point in
Virginia, where an aggressive pace of building persisted through the reces-
-100 -4% sion. Completions will fall this year, but the steady climb in rents will en-
07 08 09 10* 11** courage builders to accelerate development timelines beyond 2011 to fulfill
robust demand. In Maryland, resurgent tenant demand for Class B/C units
Supply and Demand in Prince George’s County late last year indicates the recovery in property
Completions Vacancy operations has started to spill over from the district and Montgomery Coun-
8 7% ty. Additional improvement will occur as job creation picks up momentum.
6 6% The security and stability of local apartment properties will sustain

Units (thousands)
intense investment activity throughout 2011. As 2010 concluded, most

Vacancy Rate
4 5% quality, well-located properties were receiving multiple offers, driving up

pricing and placing downward pressure on cap rates. Prospective investors
2 4%
continue to come in with strong offers under assumptions for significant
improvements in property performance over projected holding periods.
For owners planning to sell within the next three to five years, the current
0 3%
07 08 09 10* 11** climate provides an opportunity to capture premium pricing before inves-
tors shift their attention to other markets and interest rates rise. In early
Rent Trends 2011, buyers will underwrite cap rates varying from about 5 percent in the
district to the low-6 percent range for most assets in close-in areas. Proper-
6% ties located in the outer reaches of the metro received little attention from
investors last year, and prospective buyers will continue to demand higher
first-year returns.
3%
◆ 2011 NAI Rank: 2, Down 1 Place. Supported by the most new jobs in the
-3%
nation, Washington, D.C., claimed the second spot in the index.
-6%
07 08 09 10* 11**
◆ Employment Forecast: Employers will add 85,300 positions in 2011, a 2.8
percent increase. Last year, 70,000 workers were hired.
Sales Trends ◆ Construction Forecast: This year, 2,000 rentals will come online, down
$120 from 6,300 units in 2010. Approximately 1,000 units will be delivered in
Virginia, compared with 3,700 units in 2010.

$110
◆ Vacancy Forecast: The metrowide average vacancy rate will fall 80 ba-
sis points to 4.3 percent in 2011 on positive net absorption of more than
$100 5,000 units. Last year, vacancy declined 120 basis points.
$90
◆ Rent Forecast: Asking rents will advance 4.6 percent this year to $1,435
per month, while effective rents will gain 5.5 percent to $1,375 per month.
$80 ◆ Investment Forecast: Buoyed by expectations of a strong condo market
06 07 08 09 10*
in 2012 and 2013, converters will continue to take a prominent role as
* Estimate ** Forecast bidders on properties with less than 100 units in the Northwest District,
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA Montgomery County and Virginia suburbs.

Up 3 Places 2011 Rank: 38 2010 Rank: 41 West Palm Beach
Property Owners Set to Withdraw

Concessions in Palm Beach County Employment Trends
A
partment operations in the Palm Beach County market will further Absolute Change Y-O-Y % Change
36 8%
stabilize this year as strengthening demand and limited construction

push vacancy below the 10-year average of 7.6 percent. In 2010, a re-
18 4%
covery in demand in the southern half of the county fueled the marketwide
reduction in vacancy. More than 70 percent of the units absorbed in the
county were in Boynton Beach, Delray Beach and Boca Raton. Demand for 0 0%
rental housing in these areas will remain strong due to the presence of ma-
jor employers and desirable neighborhoods, enabling owners to withdraw -18 -4%
leasing incentives. An accelerated pace of hiring, plus the gradual resump-
tion of in-migration from other areas of the country, will also help to reduce -36 -8%
vacancy in the northern half of the county, which has lagged in the recovery 07 08 09 10* 11**
thus far.
Supply and Demand
Conditions in the investment market continue to improve, as velocity Completions Vacancy
picked up at the end of last year. The ability of buyers to put a consider- 500 10%
able amount of cash into deals will ensure quick execution in the early part
of 2011, although financing capacity has expanded, especially for qualified 375 9%
operators. Investors will remain focused on either quality, turnkey assets or
Vacancy Rate
properly priced turnaround opportunities. In fact, the projected improve-
Units
250 8%
ment in demand and concession burn stemming from an expanded tenant
base will enhance the probability of value-add strategies succeeding. While
125 7%
many investors will evaluate opportunities on a price-per-unit basis, others
seeking properties with stable cash flows will respond to listings offered at
cap rates from 8.0 percent to 8.5 percent. 0 6%
07 08 09 10* 11**
Rent Trends
2011 Market Outlook Asking Rents Effective Rents
6%
◆ 2011 NAI Rank: 38, Up 3 Places. A healthy rate of payroll expansion
pulled West Palm Beach three places higher in the NAI. 3%
◆ Employment Forecast: Total employment will expand 2.4 percent in

0%
2011 through the creation of 12,000 jobs, after 7,400 positions were added
last year. The education and health services and leisure and hospitality
sectors will post the largest gains, hiring a combined 5,000 workers. -3%
◆ Construction Forecast: Supply pressures will remain limited for the next -6%
07 08 09 10* 11**
two years. Only 300 units will come online in 2011, following the comple-
tion of 220 rentals in 2010.
Sales Trends
◆ Vacancy Forecast: After declining 140 basis points last year, marketwide
$120
vacancy will decrease 90 basis points in 2011 to 6.9 percent, the lowest
rate in four years. Renter demand in the northern half of the county will
strengthen as job growth accelerates. $90
◆ Rent Forecast: This year, asking rents will increase 2.8 percent to $1,111 $60
per month, accompanied by a 3.7 percent jump in effective rents to $1,039
per month. Average concessions will fall to 6.5 percent of asking rents as $30
a result.
◆ Investment Forecast: Properties in primary areas such as Boca Raton, $0

06 07 08 09 10*
Delray Beach, Boynton Beach and Lake Worth will continue to attract
interest when listed at realistic prices and cap rates in the 7 percent to 8 * Estimate ** Forecast
percent range. Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA

Research Services
M
arcus & Millichap’s Research Services group utilizes a two-tiered approach of combining local mar-
ket research with national economic and real estate analysis to develop premier research services
for real estate investors. Marcus & Millichap’s research capabilities are customized by property
type to service the unique needs of owners and investors in various property sectors. Market reports are
produced on a regular basis in addition to specific submarket and area analyses to support clients’ invest-
ment decisions.
Fact-Based Investment Strategies
Multifamily Demand Analysis

■ Extensive demographic analyses are performed, including studies of population, age, employment, edu-
cation, income and traffic volume. Housing affordability, household formation and housing value trends
are tracked and analyzed for their impact on renter demand. Customized maps and reports are produced
for submarket and property comparisons.
■ Comprehensive economic analysis and forecasts are produced based on data provided by respected pri-
vate, academic and government sources. Indicators such as job formation, growth by industry, major
employers and income trends are monitored constantly.
Multifamily Property Analysis

■ Marcus & Millichap Research Services routinely updates and analyzes rents, vacancies, sales and construc-
tion activity locally and nationally.
Financial Analysis
■ Our team works closely with clients to create financial analysis scenarios supporting acquisition, disposi-
tion, portfolio analysis, pricing strategies and market selection.
Customized Research and Consulting Services

■ In addition to multifamily publications and reports, we provide customized market studies, property and
portfolio analysis, and development feasibility studies. These services are designed to help clients formu-
late strategies ranging from acquisitions and dispositions to maximizing returns during the hold period.

Prepared by: Senior Management Team

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Research and Advisory Services Tel: (818) 212-2700 | john.kerin@marcusmillichap.com
Tel: (925) 953-1700 | hessam.nadji@marcusmillichap.com
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Tel: (602) 687-6700 | john.chang@marcusmillichap.com
Tel: (415) 963-3000 | gary.lucas@marcusmillichap.com
National Research Team Hessam Nadji, Senior Vice President, Managing Director,
John Chang, Vice President, Research Services Research and Advisory Services
Steve Hovland, National Publications Manager Tel: (925) 953-1700 | hessam.nadji@marcusmillichap.com
Sarah Brewer, Research Administrator
Justin Britto, Research Associate William E. Hughes, Senior Vice President, Managing Director
Michael Brown, Research Analyst Marcus & Millichap Capital Corporation
Amber Bryan, Assistant Editor Tel: (949) 419-3200 | william.hughes@marcusmillichap.com
Art Gering, Senior Market Analyst
Erica Linn, Senior Analyst
Paul S. Mudrich, Senior Vice President, Managing Director,
Paul Sammis, Research Associate
Chief Legal Officer
Phillip Solano, Research Associate
Tel: (650) 391-1700 | paul.mudrich@marcusmillichap.com
Jarrod Thuener, Data Analyst
Michael Yeager, Research Associate
Gene A. Berman, Senior Vice President, Managing Director
Tel: (954) 245-3400 | gene.berman@marcusmillichap.com
Communications/Graphic Design
Michelle Cocagne, First Vice President, Alan L. Pontius, Senior Vice President, Managing Director
Corporate Communications Commercial Property Groups
Stacey Corso, Public Relations Manager Tel: (415) 963-3000 | al.pontius@marcusmillichap.com
Contact: Steven R. Chaben, Senior Vice President, Managing Director

Tel: (248) 415-2600 | steven.chaben@marcusmillichap.com
John Chang
Vice President, Research Services
2398 E. Camelback Road, Suite 550 Kent R. Williams, Senior Vice President, Managing Director
Phoenix, Arizona 85016 Tel: (858) 373-3100 | kent.williams@marcusmillichap.com
Tel: (602) 687-6700, ext. 6803
Fax: (602) 687-6710 Marty Louie, Chief Financial Officer
john.chang@marcusmillichap.com Tel: (818) 212-2700 | marty.louie@marcusmillichap.com
National Apartment Index Note: Employment and apartment data forecasts for 2011 are based on the most up-to-date information available as of Octo-
ber 2010 and are subject to change.
Statistical Summary Note: Metro-level employment, vacancy, and annual asking and effective rents are year-end figures and are based on the most up-
to-date information available as of November 2010. Effective rent is equal to asking rent less concessions. Median prices and cap rates are a function of the
age, class and geographic area of the properties trading and therefore may not be representative of the market as a whole. Forecasts for employment and
apartment data are made during the fourth quarter and represent estimates of future performance. No representation, warranty or guarantee, express of
implied may be made as to the accuracy or reliability of the information contained herein.
Sources: Marcus & Millichap Research Services, American Council of Life Insurers, Blue Chip Economic Indicators, Bureau of Economic Analysis, Califor-
nia Association of Realtors, California Employment Development Department, Commercial Mortgage Alert, CoStar Group Inc., Deutsche Bank, Dupre +
Scott Apartment Advisors Inc., Economy.com, Fannie Mae, Federal Reserve, Foresight Analytics, Freddie Mac, Morgan Stanley, Mortgage Bankers Asso-
ciation, National Association of Realtors, National Council of Real Estate Investment Fiduciaries, National Real Estate Index, Real Capital Analytics, Real
Data, Real Estate Center at Texas A&M University, RealFacts, RealPoint, Reis, Standard & Poor’s, The Conference Board, Trepp, TWR/Dodge Pipeline,
U.S. Bureau of Labor Statistics, U.S. Census Bureau, U.S. Securities and Exchange Commission, U.S. Treasury Department.
© Marcus & Millichap 2010

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INCREASE SALES DISTRESSED RANK RESILIENCE INVENTORY POPU
INTEREST DECLINE CONCESSIONS BURN SELLER RECOVERY CO
YEAREND LOW COMPLETIONS QE2 STRATEGY LIMIT FISCAL PROFOR
VELOCITY MOMENTUM DISCOUNTS RATE REBOUND SUBMARKET RENT
PROPERTY AVERAGE BID ASK MAXIMIZE FOCUS HEADWINDS ROLLOV
INCOME NATIONWIDE STRENGTH PROJECTED FREDDIE MAC LOCAL
EMERGING GAINS RISK SLUMP DRIVERS ASSETS CASH FLOW REC
POTENTIAL UPTURN FORECLOSURE MODERATE JOB GROWTH SURG
SIGNS CAPITAL NEW CONSTRUCTION INFLATION TRENDS HIGH
INVESTMENT VACANCIES SHADOW MARKET SINGLE-FAMILY OVER-SUP
INVENTORY POPULATION PENT-UP DEMAND REVENUES BUYER E
SELLER RECOVERY CONDOS FOR RENT FUTURE OF FANNIE MAE RE
LIMIT FISCAL PROFORMA ECONOMY DELIVER CAP RATES QE2 RE
VELOCITY SUBMARKET RENT GROWTH PERCENT ABSORPTION EXPA
FOCUS HEADWINDS ROLLOVER POTENTIAL FUNDAMENTALS URB
PROJECTED FREDDIE MAC LOCAL EXCEEDING CONDOS FOR REN
DRIVERS ASSETS CASH FLOW RECESSION UNCERTAINTY RENT GROW
MODERATE JOB GROWTH SURGE SUSTAINABLE OPPORTUNITY FORE
INFLATION TRENDS HIGH UNEMPLOYMENT GROWTH SPENDING ST
SINGLE-FAMILY OVER-SUPPLY INCREASE SALES DISTRESSED RANK R
REVENUES BUYER EMERGING INTEREST DECLINE CONCESSIONS BU
FANNIE MAE RETURNS YEAREND LOW COMPLETIONS QE2 STRATEG
RATES QE2 RENT GROWTH VELOCITY MOMENTUM DISCOUNTS RATE L
PERCENT ABSORPTION EXPANSION PRICING ECHO BOOMERS AVERA
POTENTIAL FUNDAMENTALS URBAN DEVELOPMENT INCOME NATIONW
CONDOS FOR RENT INVESTOR TRENDS EMERGING GAINS RIS
UNCERTAINTY RENT GROWTH LOCAL ACQUISITIONS POTENTIAL U
GROWTH SURGE SUSTAINABLE OPPORTUNITY FORECAST OUTLOOK S
HIGH UNEMPLOYMENT GROWTH SPENDING STABILIZED INVESTM
OVER-SUPPLY SALES INCREASE DISTRESSED RANK RESILIENCE INV
BUYER EMERGING INTEREST CONCESSIONS BURN SELLER RECO
RETURNS YEAREND LOW COMPLETIONS QE2 STRATEGY LIMIT FISCA
GROWTH HEADWINDS VELOCITY MOMENTUM SUBMARKET DISCOUNT
EXPANSION PRICING PROPERTY AVERAGE BID ASK MAXIMIZE FOCUS
URBAN DEVELOPMENT INCOME NATIONWIDE STRENGTH PROJECTED
RENT INVESTOR TRENDS EMERGING GAINS RISK SLUMP DRIVERS
GROWTH ACQUISITIONS POTENTIAL UPTURN FORECLOSURE MODER
SIGNS CAPITAL NEW CONSTRUCTION INFLATION TRENDS HIGH
INVESTMENT VACANCIES SINGLE-FAMILY OVER-SUPPLY SALES DISTR
PENT-UP DEMAND TRENDS REVENUES BUYER EMERGING INTERES
RENT FUTURE OF FANNIE MAE RETURNS YEAREND LOW COMPLET
DELIVER CAP RATES VELOCITY MOMENTUM DISCOUNTS CONCES
EXPANSION PRICING PROPERTY AVERAGE SHADOW BID ASK
FUNDAMENTALS URBAN DEVELOPMENT NATIONWIDE STRENGTH PR
FOR RENT INVESTOR TRENDS EMERGING GAINS HEADWINDS
UNCERTAINTY RENT GROWTH ACQUISITIONS POTENTIAL UPTURN F
SURGE SUSTAINABLE OPPORTUNITY FORECAST OUTLOOK SIGNS
SPENDING INVESTMENT VACANCIES SHADOW MARKET SINGLE-FAMIL
POPULATION PENT-UP DEMAND REVENUES BUYER EMERGING LO
Research Services: BURN SELLER SPENDING FUTURE OF FANNIE MAE RETURNS YEARE
PROFORMA ECONOMY DELIVER CAP RATES DISTRESSED QE2 VE
2398 E. Camelback Road
LEGISLATIVE GRIDLOCK SUBMARKET RENT GROWTH PERCENT A
Suite 550 BID ASK MAXIMIZE FOCUS HEADWINDS ROLLOVER POTENTIAL FUND
Phoenix, AZ 85016 STRENGTH PROJECTED FREDDIE MAC LOCAL EXCEEDING CONDOS
(602) 687-6700 SLUMP DRIVERS ASSETS CASH FLOW RECESSION UNCERTAINTY
FORECLOSURE MODERATE JOB GROWTH SURGE SUSTAINABLE OPP
Offices Throughout the United States CONSTRUCTION INFLATION TRENDS HIGH UNEMPLOYMENT GROW
SHADOW MARKET SINGLE-FAMILY OVER-SUPPLY SALES DISTRESSED
DEMAND REVENUES BUYER INTEREST DECLINE CONCESSIONS BU
FANNIE MAE RETURNS YEAREND LOW COMPLETIONS QE2 STRATEG
www.MarcusMillichap.com RATES QE2 RENT GROWTH VELOCITY MOMENTUM DISCOUNTS RATE L
PERCENT ABSORPTION EXPANSION PRICING PROPERTY AVERAGE
POTENTIAL FUNDAMENTALS URBAN DEVELOPMENT INCOME NATIONW
EXCEEDING CONDOS FOR RENT INVESTOR TRENDS EMERGING

2011 National Apartment Report by Markus &amp Millichap

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T VACANCIES SHADOW MARKET SINGLE-FAMILY OVER-SUPPLY

POPULATION PENT-UP DEMAND REVENUES BUYER ACTIVITY

To our valued clients:

John J. Kerin Hessam Nadji

2011 Annual Report

National Apartment Index (NAI)

National Apartment Overview

Apartment Investment Outlook

2011 Annual Report page 3

Markets with the Highest Markets with the Highest

Markets with the Lowest 2011 National Apartment Index

unchanged from 2010. Despite a strong rebound in occupancies, Jack-

3% With healthy employment expected for 2011, combined with already

ily on weak employment forecasts. Philadelphia and New Jersey’s lower

will likely improve as their lagging labor markets recover.

page 4 2011 Annual Report

Markets with the Highest Rank Rank 10-11

2011 Annual Report page 5

Choppy Recovery Gradually Gains Steam as

Nonfarm Employment (Y-O-Y Chg.)

Employment Growth to Accelerate. The U.S. economy will add 2 million

12% Retail Sales, Excluding Auto & Gas 10%

0% -10% ◆ Commercial Mortgage Maturities Pose Risk. Five-year loans made

page 6 2011 Annual Report

Apartment Recovery Surges Past Expectations;

Average Effective Rent

depends more heavily on improvements in the job market, which should

Units Completed (thousands)

Units Absorbed (thousands)

Employment Change (millions of jobs)

2011 National Apartment Outlook 8% 0.5

◆ Demand Outstrips New Supply. Apartment completions will total 6% 0

◆ Rents Rise, Concession Ease. With vacancy in 2011 expected to align

◆ Demographic Trends Support Positive Outlook. Stronger job growth $750 0%

2011 Annual Report page 7

Access to Debt Capital Dramatically

Banks & Thrifts (90+ days)

◆ All-in Rates Attractive; Lender Requirement Hurdles Remain. All-in

page 8 2011 Annual Report

Low-Cost Debt, Rent Growth to

Average Price per Unit (thousands)

Average Cap Rate

Improving occupancies and rising rents, along with stabilized cash

Total Transactions (thousands)

Yields in Primary Markets Recompress;

damentals improve and debt markets loosen. During 2010, apartment 8%

◆ Apartment Buyer Composition Shifting. REITs and institutions will 6%

demographic shifts that favor rental housing. 6% 410 bps

sales increased dramatically in recent quarters, led by gains in deals over

2011 Annual Report page 9

Demand Surge Sparks Performance Gains,

more aggressively as the year progresses. Asking rents in the Class A

4 10% pancy assumptions. Sales of lender-owned properties accounted for more

◆ Employment Forecast: Employers will create 37,000 positions in 2011, a

page 10 2011 Annual Report

Austin Apartment Demand to Outstrip New

Total Nonfarm Jobs (thousands)

2011 Market Outlook 4%

◆ Investment Forecast: More Class A product will likely become available

2011 Annual Report page 11

Vacancy Decline Persists, Rents to Rise

performing apartment markets in the country in 2011. Following a