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Expectations and market reality in Real Estate 2010.

Following are highlights from a forecast issued in March by Real Estate Research Corp., Holliday Fenoglio Fowler (HFF) and Real Capital Analytics.

* Distressed sales in Q4 2009 accounted for 20 percent of all apartment sales by dollar volume. However, based on the number of properties sold, the proportion of sales associated with distress rose above 30 percent in Q4, nearly twice the average for all property types.

* The increasing volume of distressed sales certainly helped drive the increase in transaction volume in Q4 2009, and December apartment sales volume tripled over April activity. Another factor contributing to the increased volume is that larger properties are starting to trade again.

* The $5 billion of significant apartment sales in Q4 was not only the highest of 2009, but also exceeded volume in Q4 2008, the first year-over-year increase in almost two years. Early indications in 2010 are that apartment sales will continue their upward momentum.

* For most of the past two years, new apartment offerings on the market far outpaced closed deals, resulting in a significant overhang of properties available for sale. Most of that product came from investors looking for a read on values in a transaction-starved environment. Now, however, sellers actually are bringing assets to the block in hopes of concluding a sale.

* Through December 2009, a total of $41.8 billion in apartment buildings has become distressed, of which only $7 billion has been resolved.

* Out of 88 markets reported on monthly, 55 also reported an increase in effective rental rates in January. Could this signify the beginning of a recovery?

When measured by potential rental revenue per unit per month (defined as the effective rental rate times the occupancy rate), the U.S. apartment market was expected to bottom in Q1 2010, and thus begin its recovery. It appears that this may be occuring.

The current contraction phase began in Q3 2007. If the trough occurs in Q1 2010, the peak-to-trough decline over the 2 1/2-year period will be 9.4 percent. From this trough, potential rental revenue is expected to expand by 16 percent, or at an annual rate of 3.6 percent through the end of Q3 2014.

* Potential rental revenues will be up slightly in 2010, increasing at an annual rate of just 0.2 percent. However, by Q4 2011, potential rental revenues are expected to grow at an annual rate of 4.5 percent before peaking at 4.7 percent in Q1 2012 and then declining to an annual growth rate of 2.3 percent by Q3 2014 as more supply is delivered into the market and the rate of job growth declines. (See Table on page 44).

Annual Rental Revenue Growth During Expansion Period (By Market)

The date expansion begins by market, along with the average annual rental revenue growth (RRG) rates expected during the expansion period.

"Expectations & Market Realities in Real Estate 2010"
Date Expansion Begins (Trough)


Early Recovery 2009 1Q09 Metro DC 3.8% 5.50

 Baltimore 3.3% 5.50

 San Antonio 3.0% 5.50

 2Q09 Miami 5.4% 5.25

 Denver 3.6% 5.25

 3Q09 W. Palm B. 5.0% 5.00

 4Q09 San Jose 5.9% 4.75

 Ft. L'dale 5.3% 4.75

 Boston 5.2% 4.75

 Phoenix 5.1% 4.75

 LA 4.9% 4.75

 Seattle 4.4% 4.75

 Orlando 3.5% 4.75

 Raleigh 3.0% 4.75

 Durham 2.9% 4.75

 Sacramento 2.7% 4.75

Recovery 2010 1Q10 New York 7.2% 4.50

 San Fran. 6.2% 4.50

 Bethesda 5.5% 4.50

 Dallas 4.9% 4.50

 Charlotte 4.7% 4.50

 Atlanta 4.6% 4.50

 Orange Cty 4.6% 4.50

 Fort Worth 4.6% 4.50

 San Diego 4.4% 4.50

 Chicago 4.1% 4.50

 Oakland 4.0% 4.50

 Riverside 4.0% 4.50

 Austin 3.9% 4.50

 Tampa 3.7% 4.50

 Richmond 3.4% 4.50

 Portland 2.4% 4.50

 US 3.6% 4.50

 2Q10 Houston 4.8% 4.25

 Las Vegas 3.6% 4.25
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Date:May 1, 2010
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