atlanta, georgia - RED Capital Group

Transcription

ATLANTA, GEORGIA
MARKET OVERVIEW & MULTIFAMILY HOUSING UPDATE
RED Capital Group | 2Q14 | September 2014
2Q14 PAYROLL TRENDS AND FORECAST
PAYROLL JOB SUMMARY
Total Payrolls
2,458.1m
Annual Change
56.4m (2.3%)
2014 Forecast
54.7m
2015 Forecast
69.1m
2016 Forecast
49.4m
2017 Forecast
35.9m
Unemployment (NSA)
8.0% (July)
OCCUPANCY RATE SUMMARY
Occupancy Rate (Reis)
94.3%
47th
RED 50 Rank
Annual Chg. (Reis)
+0.8%
RCR YE14 Forecast
93.5%
RCR YE15 Forecast
93.6%
RCR YE16 Forecast
93.8%
RCR YE17 Forecast
93.7%
Mean Rent (Reis)
$832
Annual Change
4.1%
RED 50 Rent Change Rank
10th
RCR YE14 Forecast
3.0%
RCR YE15 Forecast
2.4%
RCR YE16 Forecast
2.9%
RCR YE17 Forecast
3.3%
TRADE & RETURN SUMMARY
Approx. Proceeds
Avg. Cap Rate (FNM)
Avg. Price/Unit
Goods producing industries appeared to fuel the recent advance.
Construction, manufacturing and transportation employers increased headcount at a 12,200-job, 3.3% combined rate during
the second quarter, up from 1Q14’s 8,700, 2.4% advance. Busi-
ness service sector hiring also improved, accelerating to a 16,600
-job, 3.8% annual rate, up from an 11,800-job, 2.8% 1Q14 performance. The bulk of the sequential quarter business services gain
was attributable to the temporary employment service subsector,
often a precursor of faster future employment growth.
The RCR Atlanta payroll model certainly leans that way. The
97.3% A-R2 model relies on U.S. payroll and industrial production
index variables, plus 10-year Treasury rates and the BAA bond
index. The equation yields a forecast of steady growth along
recent lines in 2H14, producing a 54,700-job gain for 2014, followed by distinctly stronger conditions in 2015, when a net increase of 69,100 (2.8%) jobs is projected, highest since 1999.
2Q14 ABSORPTION AND OCCUPANCY RATE TRENDS
The Atlanta multifamily market entered the second quarter with a
full head of steam, having absorbed nearly 10,000 units in 2012 and
2013, and 1,306 during 1Q14; nearly three times the winter quarter’s
15-year series average (Reis). But demand was considerably softer
in the seasonally stronger second quarter as tenants net leased
only 832 units, fewer than one-half of the series mean. Rapidly
rising home prices were a likely a culpable party, and new class-A
unit scarcity undoubtedly played a role as well. Developers completed only 558 units in 2Q, thereby facilitating a 10 basis point
sequential quarter occupancy rate gain to 94.3%, a 13-year high.
Axiometrics surveys of larger stabilized properties found a 93.8%
2Q14 average occupancy rate, up 70 bps year-on-year. Class-A
properties recorded the highest average occupancy (95.0%),
followed by classes B (94.4%) and C (87.4%). In-town neighborhoods enjoyed strong demand (Buckhead, Downtown, Grant Park
and Inman Park were 96% or greater occupied), while most suburban locations posted occupancy rates of 94.5% or less.
The RCR demand model achieves a 94.2% A-R2 using home price,
payroll, supply and Baa-bond index variables. The model projects
absorption of about 3,600 units in 2014; 4,050 in 2015 and 6,070 in
2016. Supply will overbalance demand by 2,000 units in 2014, but
the market should recover some lost ground in 2016.
2Q14 EFFECTIVE RENT TRENDS
EFFECTIVE RENT SUMMARY
$5mm+ Sales
Job creation in the Atlanta area gained steam during the spring
and summer following a moderate slowdown early in the year.
Establishments hired at a 62,600-job, 2.6% year-on-year pace
from May through July, up from a 47,600-job, 2.0% pace during
the previous three-month period. Likewise, seasonally-adjusted
data indicate that Atlanta employers hired a net of 29,100 new
workers during the three months ended in July after creating only
7,900 positions during the first four months of the year.
37
$882mm
6.5%
$90,760
Expected Total Return
6.4%
RED 46 ETR Rank
27th
Risk-adjusted Index
.2.48
RED 46 RAI Rank
44th
Reis report a robust $9 (1.1%) effective rent advance during the
first quarter, the fastest sequential growth since summer 2013.
Expressed on a year-on-year basis, the gain was $33 (4.1%), representing the strongest annual advance in six years. Axiometrics
surveys uncovered still faster trends as stabilized properties
surged $28 (3.2%) sequentially and $56 (6.6%) year-on-year to a
unit-weighted average of $914. Properties continuously surveyed
since 2006 (596) chalked down even faster gains, rising 8.1%.
Stabilized class-A and class-A– properties achieved the fastest rent
hikes, averaging 10.4% and 9.8%, respectively. Luxury buildings
were not as fortunate, however, as competition from properties in
lease-up held gains to 1.6% (A++) and 4.6% (A+). The class-B sector
was universally strong, posting 7.6% to 8.9% average gains. ClassC properties were mixed, with the lowest tier suffering a small
effective rent decline, while C+ assets recorded a 7.1% advance.
RCR achieved a 96.1% A-R2 using six lags of the dependent variable
and payroll, vacancy and U.S. home prices as independent variables.
Supply-driven vacancy rate increases in 2H14 and 2015 bend the
rent curve down to the mid-2% range next year, but rebounding
occupancy and weaker home price inflation help rents rebound in
2016—2018. The model projects a 2.9% compounded 5-year rent
growth rate, ranking 23rd among the RED 46 market peer group.
2Q14 PROPERTY MARKETS AND TOTAL RETURNS
Transaction velocity continued at a torrid pace over the summer as
investors closed on 36 transactions valued at $5 million or more in
July and August alone. Total sales proceeds exceeded $1.2 billion.
Velocity nearly matched 2Q14’s robust 37 transaction performance
and comfortably topped that quarter’s $880 million sales volume.
Indeed, more cash was exchanged at closing tables during these
two months than during the fourth quarter 2013, when a total of 47
large apartment sales valued at $1.0 billion were consummated.
The average price of units traded in July and August was $105,008,
up 16% from 2Q. The advance was attributable to greater participation by national fund managers, private equity investors and
REITs, which focused largely on class-B+/A suburban garden
projects and a few infill mid-rise buildings constructed since 1999.
Indeed, thirteen properties built since that year traded during the
period, commanding an average price per unit of $165,600.
Infill trophies exchanged hands at yields in the mid-4s to 5%.
Luxury garden projects were priced to caps in the 5% to 6% range,
while older properties traded at 6% to 7.5% going-in yields.
RCR chose to trim the generic Atlanta cap rate back 25 bps to
5.75%. At this level, we estimate that an investor would expect to
achieve a 6.4% 5-year, unlevered IRR, 27th highest among the RED
46 peer group. High standard error statistics in the rent model
hamper risk-adjusted returns, which rank 44th among the peers.
MARKET OVERVIEW | 2Q14 | ATLANTA, GEORGIA
Atlanta Occupancy Rate Trends
Source: Reis History, RCR Forecasts
98%
98%
Average Occupancy
RED 46 AVERAGE
ATLANTA (REIS/RCR)
96%
96%
94%
94%
93.4%
93.5%
92%
93.8%
93.7%
93.6%
92%
90%
90%
88%
88%
4Q09
4Q10
4Q11
4Q12
4Q13
4Q14f
4Q15f
4Q16f
4Q17f
4Q18f
Atlanta Absorption and Supply Trends
Units (T12 Months)
12,500
ABSORPTIONS
10,000
COMPLETIONS
7,500
5,000
2,500
0
4Q09
4Q10
4Q11
4Q12
4Q13
4Q14f
4Q15f
4Q16f
4Q17f
4Q18f
Atlanta Cap Rate Trends
Average Cap Rate
Source: eFannie.com, RCR Calculations
9.0%
8.5%
8.0%
7.5%
7.0%
6.5%
6.0%
5.5%
5.0%
8.6%
SOUTH ATLANTIC REGION
6.9%
7.1%
ATLANTA
7.2%
6.5%
6.4%
5.6% 6.1%
6.1%
6.6%
7.4%
7.6%
6.5%
5.4%
5.4%
1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14
NOTABLE TRANSACTIONS
Property Name (Submarket)
Village at Lake Park (Smyrna)
Property Class/Type
(Constr.)
Approx. Date of
Transaction
Total Price /
<Appr. Value>
(in millions)
Price /
<Appr. Value>
per unit
Estimated
<Underwritten>
Cap Rate
B+ / GLR (1983)
5-Jul-2014
$150.5
$86,575
6.6%
Oaks at Johns Creek (Roswell / Alpharetta)
A / GLR (2013)
12-Jul-2014
$45.6
$183,902
5.0% / 5.6% p.f.
Glenridge Walk (Sandy Springs / Dunwoody)
A- / GLR (1996)
14-Aug-2014
$50.0 (Allocated)
$169,000
5.0%
City View Apartments (Old Fourth Ward)
B+ / MR (2003)
28-Aug-2014
$30.3
$150,000
4.6%
A / MR (2004)
28-Aug-2014
$46.0
$181,738
6.1%
B+ / GLR (1995)
30-Aug-2014
$18.5
$101,401
5.9%
Mariposa Loft Apartments (Inman Park)
Concord Village (So. Fulton/Peachtree City)
RED Capital Research | September 2014
Atlanta Effective Rent Trends
Sources: Reis, Inc., Axiometrics and RCR Forecast
YoY Rent Trend
7.5%
7.5%
5.0%
5.0%
4.1%
2.5%
3.0%
2.4%
2.9%
3.4% 2.5%
3.3%
0.0%
0.0%
RED 46 AVERAGE
-2.5%
4Q09
4Q10
4Q11
ATL (REIS/RCR)
4Q12
4Q13
ATL AXIOMETRICS SAME-STORE
4Q14f
4Q15f
4Q16f
4Q17f
-2.5%
4Q18f
Atlanta Home Price Trends
YoY Growth Trend
Source: S&P Case-Shiller Home Price Indices and RCR Forecasts
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
11.1%
7.5%
9.4%
1.6%
CASE-SHILLER TOP 20 METRO
2011
2012
2013
2014
2015
2016
Source: BLS, BEA Data, RCR Forecasts
3.0%
-1.2%
ATLANTA CASE-SHILLER HPI
Atlanta Payroll Employment Trends
3.5%
YoY Growth Trend
2.4%
2.5%
2017
20%
15%
10%
5%
0%
-1.6% -5%
-10%
-15%
-20%
2018
US GDP GROWTH
3.5%
US.JOB GROWTH
3.0%
ATLANTA JOB GROWTH
2.5%
2.0%
2.0%
1.5%
1.5%
1.0%
1.0%
0.5%
0.5%
0.0%
0.0%
2011
2012
2013
2014
2015
2016
2017
2018
The information contained in this report was prepared for general information purposes only and is not intended as legal, tax, accounting or financial advice, or recommendations to buy or sell currencies or securities or to engage in any specific transactions. Information has been gathered from third party sources and has not been
independently verified or accepted by RED Capital Group. RED makes no representations or warranties as to the accuracy or completeness of the information, assumptions, analyses or conclusions presented in the report. RED cannot be held responsible for any errors or misrepresentations contained in the report or in the information
gathered from third party sources. Under no circumstances should any information contained herein be used or considered as an offer or a solicitation of an offer to
participate in any particular transaction or strategy. Any reliance upon this information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other advisor regarding your specific situation. Any views expressed herein are subject to change without notice due to market conditions and other factors.
RED Capital Research | September 2014
SUBMARKET TRENDS
Effective Rent
Submarket
Buckhead
Central I-75 West
Physical Vacancy
2Q13
2Q14
Change
2Q13
2Q14
Change
$1,085
$1,154
6.3%
3.7%
3.3%
-40 bps
$850
$892
5.0%
8.5%
8.0%
-50 bps
Cherokee County
$795
$845
6.3%
5.7%
4.6%
-110 bps
Clarkston /Stone Mountain
$643
$654
1.7%
10.3%
8.6%
-170 bps
Clayton Count /Henry County
$703
$723
2.8%
7.6%
6.5%
-110 bps
Decatur / Avondale
$760
$791
4.1%
8.6%
9.8%
120 bps
I-20 East
$723
$748
3.4%
7.4%
5.0%
-240 bps
I-20 West
$695
$723
4.0%
8.3%
5.7%
-260 bps
-60 bps
Marietta
$780
$808
3.6%
5.0%
4.4%
Midtown
$1,056
$1,135
7.5%
3.9%
4.3%
40 bps
$877
$903
3.1%
5.4%
4.7%
-70 bps
North Gwinnett
$777
$807
3.9%
5.1%
5.1%
0 bps
Roswell / Alpharetta
$853
$885
3.8%
3.3%
2.9%
-40 bps
Sandy Spring / Dunwoody
$873
$910
4.2%
4.2%
3.2%
-100 bps
Smyrna
$754
$797
5.7%
4.7%
4.2%
-50 bps
South DeKalb
$570
$608
6.6%
22.2%
18.4%
-380 bps
South Fulton
$718
$738
2.9%
11.8%
10.1%
-170 bps
$725
$750
3.5%
4.6%
4.6%
0 bps
$799
$832
4.1%
6.5%
5.7%
-80 bps
North DeKalb
South Gwinnett
Metro
FOR MORE INFORMATION ABOUT RED’S RESEARCH CAPABILITIES CONTACT:
Daniel J. Hogan
James P. Hensley
Director of Research
[email protected]
+1.614.857.1416 oﬃce
+1.800.837.5100 toll free
Senior Managing Director
Head of Multifamily Originations
[email protected]
+1.770.753.6472 oﬃce
+1.800.837.5100 toll free
THE FACE OF LENDING
RED Capital Group, LLC  RED Mortgage Capital, LLC  RED Capital Markets, LLC (Member FINRA/SIPC)  RED Capital Partners, LLC
Two Miranova Place, Columbus, Ohio 43215
 redcapitalgroup.com  +1.800.837.5100
© 2014 RED Capital Group, LLC
RED CAPITAL GROUP® | MARKET OVERVIEW
Atlanta, Georgia
Multifamily Housing Update 4Q13 February 2014
Payroll Job Summary
Total Payrolls
2,444.2m
Annual Change
60.4m(2.5%)
2014 Forecast
45.4m
2015 Forecast
43.4m
2016 Forecast
47.7m
2017 Forecast
38.8m
Unemployment
6.8% (Dec.)
4Q13 Payroll Trends and Forecast
Atlanta sustained robust payroll job creation in the
fall. Establishments hired at a 60,400-job, 2.5%
annual pace, moderately slower than 3Q’s 67,300
-job rate yet the second strongest quarter recorded in seven years. Service industries provided
most of the forward momentum as business, education, health care, accommodations and food
service concerns expanded at a collective 34,600job, 3.7% rate. The surging housing market also
made a material contribution to employment
growth, yielding new payroll positions in construction at a 9,200-job, 10.5% annual rate.
Occupancy Rate Summary
4Q13 Absorption and Occupancy Rate Trends
Above average demand persisted in 4Q as renters
occupied a net of 1,426 units, according to Reis,
64% above the 14-year fourth quarter average.
The performance was especially impressive as no
supply was added to the Reis inventory during the
period, contributing to 30 basis point sequential
and 100 bps year-over-year average occupancy
gains to 94.1%. Axiometrics surveys of larger properties indicate that occupancy at same-store stabilized complexes averaged 94.2%, up 20 bps y-o-y,
but down 20 bps over sequential quarters.
RED 50 Rank
94.1%
47th
Annual Chg. (Reis)
+1.0%
RCR YE14 Forecast
94.4%
RCR YE15 Forecast
94.4%
RCR YE16 Forecast
94.2%
RCR YE17 Forecast
93.7%
Effective Rent Summary
Mean Rent (Reis)
$816
Annual Change
3.6%
RED 50 Rank
15th
RCR YE14 Forecast
4.1%
RCR YE15 Forecast
4.0%
RCR YE16 Forecast
3.6%
RCR YE17 Forecast
2.3%
Trade & Return Summary
$5mm+ Sales
Approx. Proceeds
Avg. Cap Rate (FNM)
Avg. Price/Unit
37
$791mm
7.6%
$60,503
7.7%
RED 46 ETR Rank
24th
Risk-adjusted Index
1.50
RED 46 RAI Rank
41st
Seasonally-adjusted data were consistent with the
year-on-year comparisons. This series indicates
that Atlanta added 16,700 jobs October to December, the strongest quarterly gain since 4Q12.
RCR’s payroll model offers a cautious note. Our
statistical analysis identifies national payroll
trends and metro housing prices as the principal
factors affecting the direction of metro job growth.
Both are likely to turn moderately weaker in 201415. Consequently, hiring in Atlanta is likely to
moderate to some degree, slowing to the 40,000
(1.6%) - to - 50,000 (2.0%) job annual range.
Class-A assets posted the highest occupancy at
95.3%, followed by class-B (94.4%) and class-C
(91.4%). Assets delivered in 2012 and 2013
leased up rapidly, recording 94.7% average occupancy after absorbing an average of 16 units per
month per property during the second half 2013.
RCR’s absorption model suggests that demand is
likely to remain very healthy. But supply will overbalance it in the forecast out-years, pulling occupancy down to the high-93% area by 2017, after
approaching a 13-year peak 94.5% rate this year.
4Q13 Effective Rent Trends
The Reis effective rent series increased $8 (1.0%)
sequentially, following 3Q’s equal 5-year high $9
(1.2%) surge. Expressed on a year-over-year basis,
average rent increased 3.6%, representing the
fastest annual rent growth recorded in Atlanta
since 2001. Axiometrics surveys found still stronger rent growth among larger properties, averaging
6.1% y-o-y, the fastest annual rent growth recorded in this service’s 16-year quarterly data history.
Class-A properties chalked down the largest same
store gains (6.2%), followed by class-B (5.6%) and
class-C (3.8%) assets. The largely class-A Buck-
town inventory ran counter-trend, rising only 1.9%.
Clarkston and Clayton submarkets also lagged the
average, clocking 2.5% and 2.2% increases, respectively. North suburban submarkets posted the
fastest growth, led by Sandy Springs (7.6%), North
Gwinnett (7.1%) and Roswell (7.0%). Downtown/
Midtown posted a 6.8% average gain to $1,332.
Exogenous factors affecting RCR’s Atlanta rent
model include U.S. inflation, payroll and home
price trends and metro vacancy. Each will be favorable through 2016, contributing to 3.5%+ annual growth. Growth will moderate thereafter.
4Q13 Property Markets and Total Returns
Multifamily asset sales velocity was brisk during
the second half 2013 as 77 properties exchanged
hands in single-asset transactions, up from 45
during the first half. Proceeds totaled about $1.8
billion (up from $1.2bn during 1H13), inclusive of
$790mm during 4Q. The average price of units
traded was $75,380 during the second half
($60,503 during 4Q), versus $95,795 in 1H13.
The declining average unit price reflected the
growing willingness among investors to acquire
older, class-B assets in suburban submarkets. In
fact, these assets dominated fall and winter trade.
Class-B cap rates gravitated to the low-6% to mid7% range, while class-A properties traded about
75 to 125 basis points tighter to the curve.
Robust trade notwithstanding, RCR don’t detect
further cap rate compression. Indeed, CoStar analytics suggest a modest uptick. Maintaining our
5.75% generic purchase yield assumption, the
total return model estimates that expected 5-year
unlevered annual returns are 7.7%, 24th among
the RED 46. This metric is down from 7.9% and
17th rank in 2Q13. The RAI remains relatively low
at 1.50, ranking RED 46 #41, up from #44.
MARKET OVERVIEW 4Q13 | ATLANTA, GEORGIA
Atlanta Occupancy Rate Trends
Average Occupancy Rate
97%
96%
95%
94%
93%
92%
91%
90%
89%
88%
4Q08
RED 46 AVERAGE
A TL A NTA (REIS/RC R)
4Q09
4Q10
4Q11
4Q12
94.4%
94.4%
94.1%
4Q13
4Q14f
4Q15f
94.2%
93.6%
4Q16f
4Q17f
93.2%
4Q18f
Atlanta Absorption and Supply Trends
Units (T12 Months)
12,000
ABSORPTIONS
COMPLETIONS
10,000
8,000
6,000
4,000
2,000
0
-2,000
-4,000
4Q08
4Q09
4Q10
4Q11
4Q12
4Q13
4Q14f
4Q15f
4Q16f
4Q17f
4Q18f
Atlanta Cap Rate Trends
Average Cap Rate
9.0%
8.5%
8.0%
7.5%
7.0%
6.1%
6.5%
6.0%
5.5%
5.0%
1Q11
8.6%
SO UTH AT LANT IC RE G IO N
6.5%
2Q11
6.9%
3Q11
7.1%
4Q11
A TLANTA
1Q12
7.6%
7.4%
7.2%
6.4%
5.6%
6.1%
5.4%
2Q12
3Q12
4Q12
1Q13
6.6%
2Q13
3Q13
4Q13
1Q14
Property Class/
Type (Constr.)
Falls at Gwinnett Place (North Gwinnett)
Approx. Date of
Transaction
Total Price /
<Appr. Value>
(in millions)
Price /
<Appr. Value>
per unit
Estimated
<Underwritten>
Cap Rate
B-/ GLR (1986)
23-Nov-2013
$32.0
$61,503
6.5%
The Ashford (Sandy Springs / Dunwoody) A / GLR (1968)
10-Dec-2013
$32.0
$144,796
5.8%
Promenade at Berkeley (North Gwinnett)
Woodland Ridge (South Gwinnett)
Elle of Buckhead (Buckhead)
Heights Stillhouse Ridge (Smyrna/Vngs)
11-Dec-2013
20-Dec-2013
15-Jan-2014
11-Feb-2014
$33.7
$17.4
$106.5
$71.5
$68,496
$57,577
$285,623
$236,755
7.0%
7.0%
4.8%
5.1%
B / GLR (1986)
B-/ GLR (1986)
A+ / MR (2013)
A / MR (2013)
RED CAPITAL Research | February 2014
YoY Rent Trend
Atlanta Effective Rent Trends
Sources: Reis, Inc., Axiometrics, RCR Forecast
6.1%
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
4Q08
4.1%
3.6%
3.6%
3.8%
2.3%
1.6%
RED 46 AVERAGE
ATLANTA AXIOMETRICS SAME-STORE
ATLANTA (REIS/RCR)
4Q09
4Q10
4Q11
4Q12
4Q13
4Q14f
4Q15f
4Q16f
4Q17f
4Q18f
Atlanta Home Price Trends
Y-o-Y % Change
Source: FHFA Home Price Indices and RCR Forecasts
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
7.7%
7.0%
6.7%
4.6%
3.2%
U.S.A.
2011
2012
2013
2014f
2015f
2.2%
ATLANTA
2016f
2017f
2018f
Atlanta Payroll Employment Trends
Source: BLS, Institute for Economic Competitiveness at UCF & RCR
3.0%
Y-o-Y % Change
2.5%
1.5%
2.0%
2.1%
U.S.A.
ATLANTA
1.9%
2.5%
1.3%
1.5%
1.2%
1.0%
0.5%
0.0%
2011
2012
2013
2014f
2015f
2016f
2017f
2018f
The information contained in this report was prepared for general information purposes only and is not intended as legal, tax, accounting or
financial advice, or recommendations to buy or sell currencies or securities or to engage in any specific transactions. Information has been
gathered from third party sources and has not been independently verified or accepted by RED CAPITAL GROUP. RED makes no representations or warranties as to the accuracy or completeness of the information, assumptions, analyses or conclusions presented in the report.
RED cannot be held responsible for any errors or misrepresentations contained in the report or in the information gathered from third party
sources. Under no circumstances should any information contained herein be used or considered as an offer or a solicitation of an offer to
RED CAPITAL Research | February 2014
SUBMARKET TRENDS (REIS)
5.8%
4.5%
5.3%
-1.5%
4.5%
1.5%
1.5%
2.3%
4.2%
7.0%
4.2%
3.3%
4.7%
3.4%
5.3%
2.5%
3.7%
1.6%
3.6%
4.3%
8.3%
3.8%
11.1%
8.0%
8.4%
8.0%
9.6%
4.7%
4.3%
6.0%
4.9%
4.5%
4.4%
4.3%
23.9%
12.4%
4.8%
6.9%
3.9%
7.8%
6.0%
9.3%
6.8%
8.4%
6.0%
6.8%
4.4%
3.8%
4.7%
5.1%
3.5%
3.4%
4.0%
20.4%
10.6%
4.2%
5.9%
Change
-40 bps
-50 bps
220 bps
-180 bps
-120 bps
0 bps
-200 bps
-280 bps
-30 bps
-50 bps
-130 bps
20 bps
-100 bps
-100 bps
-30 bps
-350 bps
-180 bps
-60 bps
-100 bps
15%
$1,131
$877
$819
$641
$715
$774
$740
$706
$798
$1,099
$893
$793
$875
$885
$778
$594
$732
$729
$816
5%
$1,069
$840
$778
$651
$684
$763
$729
$690
$766
$1,027
$858
$767
$836
$856
$739
$580
$706
$718
$788
0%
4Q13
-5%
4Q12
-10%
Change
-15%
4Q13
20%
4Q12
15%
10%
5%
0%
-5%
-10%
Buckhead
Central Interste-75 West
Cherokee County
Clarkston / Stone Mountain
Clayton / Henry
Decatur / Avondale
Interstate-20 East
Interstate-20 West
Marietta
Midtown
North DeKalb
North Gwinnett
Smyrna
South DeKalb
South Fulton
South Gwinnett
Metro
Physical Vacancy
10%
Effective Rent
Submarket
RED CAPITAL GROUP
For more information about RED’s research capabilities contact:
Daniel J. Hogan, Director of Research
[email protected]
614.857.1416
James P. Hensley, Senior Managing Director
Head of Mortgage Origination
[email protected]
770.753.6472
Atlanta, Georgia
Multifamily Housing Update 2Q13 August 2013
Payroll Job Summary
Total Payrolls
2,405.5m
Annual Change
51.6m(2.2%)
2013 Forecast
51.6m
2014 Forecast
57.4m
2015 Forecast
58.1m
2016 Forecast
60.7m
Unemployment
8.9% (June)
Atlanta payroll job formation slowed during the
second quarter, decelerating from 1Q13’s six-year
high 58,400-job, 2.5% annual rate to a 51,600,
2.2% pace. Weaker conditions in manufacturing
and wholesale trade and slower hiring in the leisure services sector were largely responsible. By
contrast, expansion in the business, health care
and telecom sectors continued at an exceptionally
brisk clip, suggesting that the recovery in the
skilled service core remains on solid ground. Indeed, signs of a summer hiring boom were evident as seasonally-adjusted headcounts exploded
2Q13 Absorption and Occupancy Rate Trends
Apartment demand was moderately weaker during
the second quarter, according to Reis, as tenants
occupied a net of 855 vacant units, down from
1,523 during the seasonally slower first quarter
and considerably below the 1,834-unit, 14-year
second quarter average. But supply also came in
below average at 661 units, further reduced by
the conversion of 250 units to for-sale status. As a
result, occupancy increased 10 basis points sequentially to 93.5%, a twelve-year series high.
RED 50 Rank
93.5%
48th
Annual Chg. (Reis)
+0.9%
RCR YE13 Forecast
93.5%
RCR YE14 Forecast
94.0%
RCR YE15 Forecast
93.8%
RCR YE16 Forecast
93.9%
Mean Rent (Reis)
$798
Annual Change
2.2%
RED 50 Rank
44th
RCR YE13 Forecast
1.6%
RCR YE14 Forecast
2.4%
RCR YE15 Forecast
2.8%
RCR YE16 Forecast
2.3%
$5mm+ Sales
Approx. Proceeds
Avg. Cap Rate (FNM)
Avg. Price/Unit
51
$992mm
5.6%
$66,453
7.9%
RED 46 ETR Rank
17th
Risk-adjusted Index
1.52
RED RAI Rank
44th
Axiometrics surveys of larger properties found an
by 26,900 jobs in June and July and the July yearover-year comparison soared to 72,000 (3.1%)
jobs, largest 12-month gain posted in seven years.
RCR’s Atlanta payroll model (Adj. R2=97.9%) produces a bullish job forecast for the New South
Capital. Adjusted for July’s strong performance,
the model anticipates a steady diet of low– to mid
-2% annual growth rates for the duration of the
five-year forecast, fueled by a positive GDP growth
backdrop and improved conditions in the metro
for-sale housing market. Annual gains in the 5060,000 range are the most probable outcome..
average occupancy rate of 92.2%, up 70bps sequentially; 90bps year-on-year. The service added
17 properties to inventory in 2012 and 2013.
Among the new assets, occupancy was 60.7% in
June; 2Q13 lease-up averaged 22 units/month.
RCR models indicate that supply is likely to keep
pace with tenant demand over the next five years,
holding average occupancy within a tight 93.5% to
94.0% range. We expect occupancy to hold steady
at about 93.5% through YE13 and rise to 94.0% in
2014 before retreating to the high 93% area.
2Q13 Effective Rent Trends
Pricing trends held steady during the second quarter, according to Reis, as owners achieved an
asking rent advance of $5 (0.6%) and unchanged
concession levels for a second consecutive quarter. Effective rents increased $5 (0.6%) sequentially and $17 (2.2%) year-over-year. The latter
metric was the slowest in five quarters, suggesting
a degree of trend deceleration. Axiometrics samestore data showed stronger 3.8% y-o-y growth,
unchanged from the first quarter performance.
Reis report that rents declined sequentially in only
two submarkets on the East side (South DeKalb/
Decatur). Suburban Cherokee Co. (1.0%) and
Smyrna (1.2%) posted the largest gains, while infill
Midtown (0.7%); Sandy Spring (0.6%) and Buckhead (0.5%) recorded constructive rent growth.
RCR modeling exercises indicate that payroll employment growth and home prices are the factors
principally influencing Atlanta rent growth. We
expect strength in the former and generally weak
price trends in the latter. Both factors will serve as
constructive forces for metro rent trends.
Sales velocity accelerated during the spring as 51
properties of 80 units or more and values exceeding $5 million exchanged hands for total proceeds
near $900mm. These statistics compare to 41
trades for about $1.0 billion during the previous
quarter. The average price per unit was $66,453,
relatively lower than 1Q’s $74,260 as the asset
mix contained a higher concentration of older
assets (the median age of properties traded in
2Q13 was 33 years compared to 18 years during
1Q). Cap rates compressed moderately as investors appeared to blur the distinction between
class-B-, B and B+ quality assets to a greater degree. Class-A and -B+ properties traded in the low
– to high-5% yield range, while B and B- assets
were valued in the low– to mid-6s.
Consequently, we elected to trim the generic purchase cap rate assumption by 0.15% to 5.6%. At
this rate and a 6.0% terminal cap rate assumption, RCR estimate that a base IRR for Atlanta
assets is 7.9%, ranking 17th among the RED 46.
But economic volatility causes Atlanta’s riskadjusted index to fall to RED 46 44th rank.
Metro Occupancy Rate Trends
Average Occupancy Rate
96%
RED 46 AVERAGE
ATLANTA
94%
94.0%
93.5%
92%
93.8%
94.0%
90%
88%
86%
2Q 07
2Q 08
2Q 09
2Q 10
2Q 11
2Q 12
2Q 13
2Q 14
2Q 15
2Q 16
2Q 17
Metro Cap Rate Trends
Average Cap Rate
7.5%
ATLA NTA
7.0%
SOUTH ATL REGION
6.5%
6.0%
5.5%
6. 9%
6. 2%
7. 2%
5.0%
6. 0%
5. 6%
5. 4%
5. 3%
5. 6%
4Q12
1Q13
2Q13
6. 7%
4.5%
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
3Q13
Metro Payroll History and Forecast
Annual Chg (000)
Source: BLS History, RCR Forecasts
75
50
25
0
-25
-50
-75
-100
-125
-150
ATLA NTA
2008
2009
2010
2011
2012
2013f
2014f
2015f
2016f
2017f
- 26. 5
- 136. 1
- 20. 8
35. 5
43. 9
51. 6
57. 4
58. 1
60. 7
62. 2
Property Class/
Type (Constr.)
Date of
Transaction
Total Price
(in millions)
Price per unit
Estimated
Cap Rate
Tuscany at Lindbergh (Buckhead)
Reserve at Sugarloaf (North Gwinnett Co.)
Century Windermere (Forsyth Co.)
A-/GLR (2001)
A-/GLR (2001)
B+/GLR (2001)
13-Jun-2013
14-Jun-2013
20-Jun-2013
$49.5
$47.0
$46.0
$152,775
$141,141
$132,948
6.0%
5.7%
5.8%
Dunwoody Station (Sandy Sprg/Dunwoody)
Montage Old Fourth Ward (Midtown)
A-/GLR (1989)
A-/MR (2007)
28-Jun-2013
16-Jul-2013
$73.0
$26.7
$137,736
$131,000
5.1%
5.4%
RED CAPITAL Research | August 2013
Metro Effective Rent Trends
Sources: Reis, Inc., Axiometrics, RCR Forecast
5.0%
YoY Rent Trend
2.5%
3. 3%
2. 1%
0.0%
3. 4%
3. 0%
-2.5%
-5.0%
RED 46 AVERAGE
ATL AXIOMETRICS SAME-STORE
ATLANTA (REIS/RCR)
-7.5%
-10.0%
2Q 07
2Q 08
2Q 09
2Q 10
2Q 11
2Q 12
2Q 13
2Q 14
2Q 15
2Q 16
2Q 17
Metro Home Price Trends
Source: FHFA Home Price Indices and RCR Forecasts
4%
2%
Y-o-Y % Change
0%
-2%
-4%
-6%
U. S. A .
-8%
A TL A NTA
SO ATL REGION
-10%
2011
2012
2013f
2014f
2015f
2016f
2017f
Metro Payroll Employment Trends
Source: BLS, Institute for Economic Competitiveness at UCF & RCR
3.0%
Y-o-Y % Change
2.5%
2.0%
U.S.A.
ATLANTA
1.5%
1.0%
0.5%
2011
2012
2013f
2014f
2015f
2016f
2017f
gathered from third party sources and has not been independently verified or accepted by RED CAPITAL GROUP. RED makes no representations or warranties as to the accuracy or completeness of the information, assumptions, analyses or conclusions presented in the report.
RED cannot be held responsible for any errors or misrepresentations contained in the report or in the information gathered from third party
sources. Under no circumstances should any information contained herein be used or considered as an offer or a solicitation of an offer to
SUBMARKET TRENDS
Effective Rent
Submarket
Buckhead
Physical Vacancy
2Q12
2Q13
Change
2Q12
2Q13
Change
$1,070
$1,085
1.4%
4.8%
3.7%
-110 bps
Central I-75 West
$831
$850
2.2%
8.2%
8.5%
30 bps
Cherokee County
$773
$795
2.8%
4.1%
5.7%
160 bps
$647
$643
-0.6%
12.1%
10.3%
-180 bps
Clayton / Henry
$684
$703
2.8%
8.4%
7.6%
-80 bps
Decatur / Avondale
$763
$760
-0.4%
8.4%
8.6%
20 bps
I-20 East
$726
$723
-0.3%
7.9%
7.4%
-50 bps
I-20 West
$686
$695
1.3%
11.0%
8.3%
-270 bps
Marietta
$761
$780
2.5%
5.6%
5.0%
-60 bps
Midtown
$1,016
$1,056
4.0%
5.3%
3.9%
-140 bps
North DeKalb County
$853
$877
2.7%
6.8%
5.4%
-140 bps
North Gwinnett County
$765
$777
1.5%
6.1%
5.1%
-100 bps
$832
$853
2.5%
5.1%
3.3%
-180 bps
$849
$873
2.8%
4.9%
4.2%
-70 bps
Smyrna
$727
$754
3.7%
4.7%
4.7%
Unchd
South DeKalb County
$580
$570
-1.7%
20.3%
22.2%
190 bps
South Fulton County
$703
$718
2.1%
10.8%
11.8%
100 bps
South Gwinnett County
$711
$725
1.9%
6.0%
4.6%
-140 bps
$781
$798
2.2%
7.4%
6.5%
-90 bps
Metro
Total Return
12%
A TL (R A I =1. 52)
R ED 46 AV G. (R AI =3. 89)
Total Return Distributions
Source: RED CAPITAL Research
9.4%
9.1%
10%
7.1%
8%
6.8%
7.9%
5.6%
6%
3.6%
4%
2%
11.8%
4.8%
0.0%
0%
90%
70%
50%
30%
P roba bility of Ac hie ving S ta te d Re turn or G re a te r
10%
RED CAPITAL GROUP
[email protected]
614-857-1416
Kenneth H. Bowen, President, Red Mortgage Capital, LLC
[email protected]
800-837-5100
Atlanta, Georgia
Multifamily Housing Update 4Q12 April 2013
Payroll Job Summary
Total Payrolls
2,383.5m
Annual Change
50.4 (2.2%)
2013 Forecast
52.3m
2014 Forecast
59.2m
2015 Forecast
58.2m
2016 Forecast
56.3m
Unemployment
8.7% (Jan)
Re-benchmarked Atlanta payroll data reveal that
2012 metro job creation was considerably stronger than previously understood. The revisions show
that establishments created 43,900 jobs rather
than the 34,200 indicated earlier. Moreover, the
upward revisions were heavily concentrated in the
year’s second half (payroll growth in 4Q12 proceeded at 2.2% annual rate, up from an earlier
1.6% estimate), showing economic acceleration in
late 2012, quite at odds with the plateauing exhibited earlier. Late year gains were propelled by
bursts of hiring in the retail, transportation, infor-
4Q12 Absorption and Vacancy Rate Trends
Apartment demand during the seasonally-slow
fourth quarter was above average for the third
consecutive year as new tenants occupied 2,102
vacant units during the period, four times the 510unit 1999–2009 average. As completions totaled
only 188 units, metro occupancy soared 50 basis
points sequentially to 93.2%, an 11-year high,
among the largest quarter-to-quarter advances
recorded among the RED 50 markets.
RED 50 Rank
93.2%
48th
Annual Chg. (Reis)
+1.2%
RCR YE13 Forecast
94.0%
RCR YE14 Forecast
94.7%
RCR YE15 Forecast
94.5%
RCR YE16 Forecast
94.0%
Mean Rent (Reis)
$714
Annual Change
3.5%
RED 50 Rank
46th
RCR YE13 Forecast
4.2%
RCR YE14 Forecast
4.7%
RCR YE15 Forecast
4.0%
RCR YE16 Forecast
2.9%
$5mm+ Sales
Approx. Proceeds
Median Cap Rate (FNM)
Avg. Price/Unit
46
$1.1bn
.%
$77,326
7.9%
RED 46 ETR Rank
18Th
Risk-adjusted Index
2.38
RED RAI Rank
37th
Demand was strongest in suburban submarkets
east and north of midtown: North DeKalb and
mation and leisure service sectors.
The strong late-year performance affects our forecast materially. Our model now expects metro job
growth to rise above 2% in 1H13 before accelerating to the 2.3% to 2.7% range in 2H13 and 2014.
As a result, we expect Atlanta employers to add
about 52,000 workers in 2013 up from our earlier
42,500-job forecast. The out-years of the projection also should be constructive for apartment
demand as the model now projects annual gains
ranging of 52,000 to 60,000 for 2014—2017.
Gwinnet County submarkets notched sequential
occupancy gains ranging from 60 to 130 bps.
Infill submarkets still enjoyed the tightest market
conditions, however, as Midtown, Buckhead and
Sandy Spring reported occupancy above 95.5%.
Our absorption model anticipates steady annual
apartment demand ranging from 1.2% to 2.0% of
stock through 2017; enough to allow Atlanta occupancy to rise to 95% by 2015. But supply is projected to catch-up to demand thereafter, giving
rise to a 50 to 70 bps occupancy decline in 2016.
4Q12 Rent Trends
Rent trends lost momentum during the fourth
quarter despite robust tenant demand. Average
effective rents increased only $2 (0.3%) to $788,
according to Reis, the smallest sequential advance since 4Q11 and the 6th slowest gain recorded among the RED 50. Year-on-year growth
accelerated to 2.7% from 2.3% during 3Q12, however, attributable to a weak 4Q11 comparison.
Submarket performance was mixed. Eleven submarkets posted sequential quarter gains, led by
Sandy Spring (1.3%) and Marietta (1.1%). By the
same token, six submarkets recorded net declines, most severely in the east suburbs, as South
DeKalb Co. and Clarkston suffered respective net
declines of $9 (–1.4%) and $7 (–1.1%).
The RCR rent model suggests that Atlanta rent
trends are poised for a strong upside breakout.
Statistically, Atlanta rents are primarily determined
by payroll and personal income growth. Both
promise to increase in abundance. Rents are projected to rise 4.2% in 2013 and compound annual
growth through 2017 is projected to be 3.6%.
Atlanta long has been among the most active
apartment property markets in America, but 4Q12
was notable even by its lofty standards. Investors
acquired at least 46 larger properties during the
period, up from 26 comparable trades during the
third quarter. Total sales proceeds were $1.1 billion, an increase of 133% over the prior quarter.
Buyers moved up the quality spectrum, buying 12
properties at prices above $100/ft2 at initial yields
dipping into the low– to mid-5% range. The average price of a unit was $77,326, up 19% from the
$64,935 third quarter average.
Urban infill assets traded to initial yields in the mid
-5% range. Class-A suburban GLRs traded behind,
mostly in the low– to mid-6% area. Class-B– and
class-C property cap rates ranged from 7%-9%.
Using a 5.5% going-in cap rate and RCR metro
rent, occupancy and exit cap rate forecasts, we
estimate that Atlanta expected total returns are
about 7.9% over five years. Atlanta ranks 18th
highest among the RED 46 peer group.
Metro Occupancy Rate Trends
Metro Occupancy Rate
97%
96%
95%
94%
93%
92%
91%
90%
89%
88%
RED 46 AVERAGE
4Q 06
4Q 07
4Q 08
ATLANTA
4Q 09
4Q 10
RCR FORECAST
4Q 11
4Q 12
4Q 13
4Q 14
4Q 15
4Q 16
Average Cap Rate
8.0%
A TLANTA
SOUTH ATL REGION
7.0%
6.0%
5.0%
6. 3%
6. 9%
6.1%
7. 3%
5.6%
6. 0%
5. 4%
5. 3%
4Q12
1Q13
4.0%
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
Annual Chg (000)
60
40
20
0
-20
-40
-60
-80
-100
-120
-140
ATLA NTA
2008
2009
2010
2011
2012
2013f
2014f
2015f
2016f
2017f
(26. 5)
(136. 1)
(20. 8)
35. 5
43. 9
52. 3
59. 2
58. 2
56. 3
49. 7
Property Class/
Type (Constr.)
Date of
Transaction
Total Price
(in millions)
Price per unit
Estimated
Cap Rate
Hawthorne Gates (Sandy Spg./Dunwoody)
B+/GLR (1995)
20-Jan-2013
$19.5
$118,902
6.2%
Century Skyline (Midtown/Downtown)
Block Lofts (Midtown)
A- / MR (2007)
A- / MR (2005)
27-Nov-2012
16-Nov-2012
$30.0
$34.2
$133,333
$140,164
5.37%
5.8%
Miller Station (North DeKalb)
A- / GLR (2007)
7-Dec-2012
$22.3
$116,270
6.2%
Holland Park (South Gwinnett)
B / GLR (1998)
10-Dec-2012
$41.5
$83,669
6.1%
Arbor Hills (North DeKalb)
B+ /GLR (1987)
26-Dec-2012
$48.2
$96,400
7.0%
RED CAPITAL Research | April 2013
Source: Reis, Inc., Axiometrics, RCR Forecast
6%
4%
YoY Rent Trend
2%
0%
-2%
RED 46 AVERAGE
-4%
-6%
ATL (REIS)
ATL (AXIOM)
-8%
-10%
4Q 06
4Q 07
4Q 08
4Q 09
4Q 10
4Q 11
4Q 12
4Q 13
4Q 14
4Q 15
4Q 16
Metro Home Value Rent Trends
Source: S&P Case-Shiller Home Price Index
15%
Y-o-Y % Change
10%
5%
0%
Source: FHFA HPI
-5%
-10%
-15%
C SX - 20 METROS
Atlanta
-20%
2009
2010
2011
2012
2013
Y-o-Y % Change
Source: BLS , INSITUTE FOR ECONOMIC COMPETITIVENESS & RCR
3%
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
-6%
-7%
U.S.A.
2008
2009
2010
2011
2012
2013f
2014f
2015f
METRO
2016f
gathered from third party sources and has not been independently verified or accepted by RED CAPITAL GROUP. RED makes no representations
or warranties as to the accuracy or completeness of the information, assumptions, analyses or conclusions presented in the report. RED cannot
be held responsible for any errors or misrepresentations contained in the report or in the information gathered from third party sources. Under
no circumstances should any information contained herein be used or considered as an offer or a solicitation of an offer to participate in any
particular transaction or strategy. Any reliance upon this information is solely and exclusively at your own risk. Please consult your own counsel,
accountant or other advisor regarding your specific situation. Any views expressed herein are subject to change without notice due to market
conditions and other factors.
RED CAPITAL Research | April 2013
SUBMARKET TRENDS
Effective Rent
Submarket
Buckhead
Physical Vacancy
4Q11
4Q12
Change
4Q11
4Q12
Change
$1,057
$1,073
1.6%
5.4%
4.3%
-110 bps
Central Interstate-75 West
$822
$845
2.9%
9.1%
8.3%
-80 bps
Cherokee County
$767
$781
1.7%
4.0%
3.8%
-20 bps
$634
$644
1.6%
13.1%
11.1%
-200 bps
Clayton / Henry Counties
$676
$690
2.2%
7.7%
8.0%
30 bps
Decatur / Avondale
$755
$759
0.4%
9.4%
8.4%
-100 bps
Interstate-20 East
$721
$726
0.6%
9.4%
8.0%
-140 bps
Interstate-20 West
$681
$684
0.5%
12.9%
9.6%
-330 bps
Marietta
$742
$775
4.4%
5.9%
4.7%
-120 bps
Midtown
$996
$1,032
3.7%
6.0%
4.3%
-170 bps
North DeKalb
$835
$863
3.3%
7.8%
6.0%
-180 bps
North Gwinnett
$744
$768
3.2%
7.1%
4.9%
-220 bps
$803
$835
4.1%
5.4%
4.5%
-90 bps
$827
$867
4.9%
4.5%
4.4%
-10 bps
Smyrna
$722
$741
2.6%
5.3%
4.3%
-100 bps
South DeKalb
$566
$571
0.9%
18.2%
23.9%
570 bps
South Fulton
$689
$709
2.9%
11.3%
12.4%
110 bps
South Gwinnett
Metro
$698
$713
2.2%
6.4%
4.8%
-160 bps
$767
$788
2.7%
8.0%
6.8%
-120 bps
Total Return Distributions
Total Return
12%
A tl an ta (R A I =2. 38)
Source: RED CAPITAL Research
R ED 46 AV G. (R AI =3. 40)
10%
8.0%
8%
6%
6.3%
3.7%
11.9%
10.1%
9.6%
8.4%
7.2%
5.9%
3.9%
4%
2%
0%
90%
70%
50%
30%
P roba bility of Ac hie ving S ta te d Re turn or G re a te r
10%
RED CAPITAL GROUP
[email protected]
614-857-1416
[email protected]
800-837-5100
Atlanta, Georgia
Multifamily Housing Update 1Q12 May 2012
Payroll Job Summary
Total Payrolls
2,311.4m
Annual Change
45.3m
2012 Forecast
48.4m
2013 Forecast
55.0m
2014 Forecast
63.5m
2015 Forecast
72.5m
Unemployment
8.7% (Mar)
Vacancy Rate Summary
Vacancy Rate (Reis)
7.4%
RED 50 Rank
48th
Annual Chg (Reis)
<1.8%>%
RCR YE12 Forecast
7.0%
RCR YE13 Forecast
7.1%
RCR YE14 Forecast
7.1%
RCR YE15 Forecast
7.3%
Mean Rent (Reis)
$772
Annual Change
1.8%
RED 50 Rank
44th
RCR YE12 Forecast
2.8%
RCR YE13 Forecast
2.4%
RCR YE14 Forecast
2.5%
RCR YE15 Forecast
2.6%
$5mm+ Sales (1Q12)
18
Approx. Proceeds
$369mm
Median Cap Rate
6.5%
Avg. Price/Unit
$81,750
5.7%
RED 46 ETR Rank
41st
Risk-adjusted Index
1.63
RED RAI Rank
36th
The Atlanta labor market finally found traction in
the first quarter as hiring accelerated to the fastest pace in five years. Metro establishments hired
workers at a 45,300-job, 2.0% year-on-year pace,
up from the prior quarter’s 29,600-job rate. Likewise, seasonally-adjusted data registered a sequential quarter gain of 7,000 jobs.
Momentum was largely attributable to rapid expansion by retail trade (11,800 jobs/4.8%) and
business service (22,500 jobs/5.8%) concerns as
well as improvement in the construction and man-
ufacturing industries. Conversely, growth was
constrained by lingering weakness in the transportation, information and financial service sectors.
Although the March and April data were disappointing, our forecasting models continue to anticipate solid job growth over the next several years.
For 2012, the model projects average monthly
growth of 45,300 jobs. Employers should create
about 55,000 positions next year and nearly
65,000 in 2014, setting the stage for what may
be the largest jobs harvest since 1999 in 2015.
Metro area apartment owners enjoyed healthy
space demand during the first quarter, boosted by
an improving job market and the falling appeal of
homeownership due to real estate value declines.
Tenants net leased 1,341 units, according to Reis,
down from the seasonally stronger fourth quarter
(2,471) but considerably greater than the yearearlier period (1,192) and the 12-year fourth quarter average net absorption total of 341 units.
Metro occupancy spiked 50 basis points sequentially and 180 bps year-on-year to 92.6% as a re-
sult, the highest metric in nearly twelve years.
Lower average rent suburban submarkets attracted the largest share of tenant interest as North
DeKalb; North Gwinnett and Smyrna each gained
a net of 150 tenants or more. Some infill areas
also fared well, especially Buckhead and Midtown;
each added nearly 100 tenants during 1Q12.
RCR models project that the Atlanta rally has another year to run before supply pressures return.
Vacancy is likely to fall to 7% before stabilizing.
1Q12 Rent Trends
Metro effective rent trends rebounded from
4Q11’s disappointing –0.1% decline with a solid
0.7% sequential quarter advance, raising average
real rents from $767 to $772. The gain elevated
mean Atlanta rent to within $1 of the series record
set in 3Q08. Progress was largely attributable to
concession recession, however, as face rents only
recovered the prior quarter’s -$2 sequential net
loss. By way of comparison, the value of the typical rent concession package fell –3.3% ($3).
Sequential quarter effective rent trends were posi-
tive in every submarket with the exceptions of
Buckhead (-0.2%); Cherokee Co. (-0.3%); and I-20
East and West (-0.1%/-0.5%). By contrast, gains
greater than 1% were chalked down in Roswell;
Marietta; Midtown; and Sandy Spring submarkets.
RCR econometric rent models find that personal
income growth is the greatest determinant of rent
trends. Unfortunately, the model suggests that
metro P.I. growth is likely to be sluggish, holding
annual rent increases below the 3% level through
the duration of our five-year forecast period.
The pace of Atlanta apartment property sales
hardly missed a beat over the winter as a total of
18 properties valued at $5 million or more exchanged hands from January to March, accounting
for total proceeds of $369mm. These data compare to 20 transactions for $478mm in the previous quarter. The average price of the 4,509 units
traded was $81,750, up 13.3% quarter-to-quarter,
suggesting investors concentrated increasingly on
stabilized properties as opposed to the class-B
repositioning plays that were popular last year.
Five sales closed year-to-date were priced at the
equivalent of $145,000/unit or greater, demonstrating the eagerness of funds and institutions to
increase exposure to the Atlanta market. Cap
rates were mostly in the mid-5% to 6% range.
Employing a 5.75% generic cap rate, RCR models
derive a below-average 5.7% expected total return, owing largely to our cautious outlook for metro rents. The moderate return projection coupled
with above average historical NOI volatility also
produce a low (36th ranked) risk-adjusted index.
Metro Vacancy Rate Trends
Metro Vacancy Rate
Source: Reis, Inc. History, RCR Forecasts
12%
11%
10%
9%
8%
7%
6%
5%
4%
3%
ATLANTA
RED 46
7. 0%
6. 8%
7. 0%
7. 3%
4.9%
1Q 06
1Q 07
1Q 08
1Q 09
1Q 10
1Q 11
1Q 12
1Q 13
1Q 14
1Q 15
1Q 16
Average Cap Rate
7.5%
A TLA NTA
SOU TH A TLA NTI C R EGI ON
7.0%
6.5%
6.0%
7.0%
7.0%
7.0%
6.4%
6.8%
6.7%
7.0%
6.6%
6.5%
5.5%
1Q 10
2Q 10
3Q 10
4Q 10
1Q 11
2Q 11
3Q 11
4Q 11
1Q 12
Annual Chg (000)
80
60
40
20
0
-20
-40
-60
-80
-100
-120
-140
ATLA NTA
2004
2005
2006
2007
2008
2009
2010
2011
2012f
2013f
2014f
2015f
30. 3
69. 7
67. 0
49. 7
(26. 0)
(135. 5)
(19. 9)
28. 8
48. 4
55. 0
63. 5
72. 5
Property Class/
Type (Constr.)
Date of
Transaction
Total Price
(in millions)
Price per unit
Estimated
Cap Rate
Mariposa Lofts (Midtown)
A-/MR (2003)
Mar-2012
$40.0
$158,103
6.0%
Allure at Buckhead (Buckhead)
Axis at Perimeter Center (Sandy Springs)
A-/MR (2002)
A/MR (2010)
May-2012
Apr-2012
$30.0+
$53.5
$140,000+
$171,474
5.0%
5.8%
Post Biltmore (Midtown)
A/MR (2002)
Mar-2012
$51.1
$185,054
4.9%
Alexan Brookhaven Ph I (North DeKalb)
Rocca at Piazza (Buckhead)
A/MR (2009)
A/MR (2002)
May-2012
Feb-2012
$53.8
$19.5
$187,456
$243,750
5.5%
5.9%
RED CAPITAL Research | May 2012
Source: Reis, Inc., RCR Forecasts
6%
3.3%
YoY Rent Trend
4%
2. 8%
2%
2. 7%
2. 4%
2. 4%
0%
-2%
RED 46 AVG
ATLANTA
-4%
1Q 06
1Q 07
1Q 08
1Q 09
1Q 10
1Q 11
1Q 12
1Q 13
1Q 14
1Q 15
1Q 16
Source: S&P Case Shiller Repeat Sales Index
Y-o-Y % Change
5%
- 2. 9%
0%
-5%
-10%
- 16. 1%
-15%
C SX - 20 METROS
ATLANTA
-20%
2009
2010
2011
2012
Source: BLS Data, RCR Forecasts
Y-o-y Growth Rate
3%
2%
1%
0%
-1%
-2%
ATLANTA
USA
-3%
-4%
2010
2011
2012f
2013f
2014f
RED CAPITAL Research | May 2012
SUBMARKET TRENDS
Effective Rent
Submarket
Physical Vacancy
1Q11
1Q12
Change
1Q11
1Q12
Central I-75 West
$790
$824
4.3%
12.1%
8.3%
-380 bps
Cherokee County
$763
$765
0.3%
5.1%
3.6%
-150 bps
$628
$638
1.7%
13.7%
12.6%
-110 bps
Clayton / Henry Counties
$666
$680
2.1%
9.8%
8.6%
-120 bps
Decatur / Avondale
$735
$755
2.8%
10.6%
8.9%
-170 bps
I-20 East
$714
$721
0.9%
11.2%
8.5%
-270 bps
I-20 West
$665
$678
2.0%
10.8%
11.8%
100 bps
Marietta
$738
$752
1.9%
7.9%
5.7%
-220 bps
Midtown
$984
$1,012
2.9%
9.0%
5.4%
-360 bps
North DeKalb
$828
$843
1.8%
9.4%
7.3%
-210 bps
North Gwinnett
$750
$752
0.2%
7.8%
6.4%
-140 bps
$809
$815
0.8%
6.0%
5.1%
-90 bps
$828
$837
1.1%
5.7%
5.0%
-70 bps
Smyrna
$704
$723
2.7%
6.8%
4.7%
-210 bps
South DeKalb
$564
$570
1.2%
20.2%
20.3%
10 bps
South Fulton
$672
$694
3.2%
13.3%
11.3%
-200 bps
South Gwinnett
$692
$703
1.6%
6.6%
6.0%
-60 bps
$758
$772
1.8%
9.2%
7.4%
-180 bps
Metro
Change
Metro Total Return Probability Distribution
Total Return
Source: RCR Model Forecasts
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
- 2.0%
A TLA NTA (R A I =1. 63)
R ED 46 AV G. (R AI =3. 17)
5.3%
1.4%
3.1%
10.2%
5.9%
6.8%
7.7%
10.3%
8.3%
4.0%
90%
70%
50%
30%
10%
P roba bility of Ac hie ving S ta te d Re turn or Highe r
RED CAPITAL GROUP
[email protected]
614-857-1416
[email protected]
800-837-5100
Atlanta, Georgia
Multifamily Housing Update 4Q11 March 2012
Payroll Job Summary
Total Payrolls
2,329m
Annual Change
+29.6m
2012 Forecast
+26.1m
2013 Forecast
+26.2m
2014 Forecast
+54.8m
2015 Forecast
+78.5m
Vacancy Rate (Reis)
7.7%
RED 50 Rank
48th
Annual Chg (Reis)
-2.1%
RCR YE12 Forecast
7.3%
RCR YE13 Forecast
7.7%
RCR YE14 Forecast
7.3%
Mean Rent (Reis)
$767
RED 50 Rank
40th
Annual Change
1.6%
RCR YE12 Forecast
2.8%
RCR YE13 Forecast
2.0%
RCR YE14 Forecast
2.8%
Q4 Trade & Return Summary
$5mm+ Sales
25
Approx. Proceeds
$543mm
Median Cap Rate
6.6%
Avg. Price/Unit
$70,815
6.0%
RED 45 Rank
29th
The Atlanta economy improved last year and is off
to a great start in 2012. After trimming –20,200
(-0.9%) positions from payrolls in 2010, area employers added 30,300 (1.3%) jobs in 2011. Moreover, preliminary BLS data show that headcounts
rose 68,400 (3.1%) year-over-year in January, the
largest increase since March 2007.
Economy.com expect payroll growth to decelerate
throughout the rest of the year, producing a modest 35,170-job increase, only a slight improve-
ment from 2011 job creation. But the source is
optimistic thereafter, projecting a 99,570-job gain
in 2013 and 135,680-job expansion in 2014.
The RCR econometric model produces comparatively conservative forecasts. Indeed, the pace of
job creation is forecast to decelerate through
2013. Furthermore, our forecast for 2014 job
growth (54,800) is less than half of the Economy.com estimate.
Economic improvements contributed to strong
rental demand last year. Positive net absorption
totaled 8,678 units, including 2,892 units during
the fourth quarter. Managers of Class-A properties net leased 5,662 units in 2011. Class B/C
absorption was slower (2,796 units), owing to a
weak first half.
Supply was subdued. Developers completed only
1,988 units last year, far below the 6,244-unit tenyear average. As a result, the metro vacancy rate
plunged 70 basis points sequentially and 210
basis points year-over-year to 7.7% in 4Q11.
According to Reis, developers will add 1,295 units
to the rental inventory this year, fewer still than
the 2011 total. Based on Economy.com’s employment forecast, Reis expect robust apartment demand to produce a 110 basis point drop in vacancy to 6.6% this year, the lowest since 2001. By
comparison, RCR’s conservative payroll estimate
produces a lower absorption forecast and a 7.3%
vacancy rate by year-end.
4Q11 Rent Trends
Despite economic improvements and rising occupancy, area rent trends were weak. Metro average effective rent was unchanged sequentially,
following five consecutive quarterly increases. As
a result, the pace of year-over-year rent growth
slowed from 1.9% in 3Q11 to 1.6%.
Performance varied across submarkets last year.
Two of the metro’s 18 submarket generated annual rent growth above 4.0% (Central I-75 West and
Smyrna) while one submarket (Roswell / Alpharet-
ta) suffered rent declines.
Effective rent trends were disappointing last year
and RCR foresee modest improvement over the
next few years as rents advance 2.8% this year
and 2.0% and 2.8% in 2013 and 2014, respectively. Reis remain optimistic, however. The
source forecasts a 5.0% increase this year, followed by annual increases between 4.0% and
5.0% through 2016.
According to Loopnet.com, metro Atlanta multifamily transaction activity accelerated last year.
The source identified 111 transactions totaling
$2,043 million in transaction volume that closed
in 2011. The figures compare favorably to the 45
sales and $980.3 million volume comparisons
from 2010.
CBRE’s February cap rate survey shows going-in
yields between 5.0% and 6.0% for stabilized ClassA assets and 5.75% and 7.5% for stabilized Class-
B properties. Furthermore, survey respondents
expect cap rates to remain flat in 1H12.
Using our rent and occupancy forecasts, RCR calculate a 6.0% unlevered five-year holding period
total return, 29th highest among the RED 45. Atlanta ranks 34th in risk-adjusted return index due
to high levels of NOI growth trend volatility. We
expect that generic metro average cap rates will
rise 90 basis points over the holding period, from
5.5% to 6.4%.
Apartment Vacancy Trends
Sources: Reis, Inc., RCR Metro Forecasts
Metro Vacancy Rate
13%
11%
ATLANTA
U.S.A.
7.7%
9%
7%
5%
3%
1Q 05
1Q 06
1Q 07
1Q 08
1Q 09
1Q 10
1Q 11
1Q12
1Q13
1Q14
Metro Multifamily Cap Rate Trends
Sources: Fannie, Freddie, RCR, Reis
8.5%
Average Cap Rate
8.0%
7.5%
7.0%
6.5%
REIS A TLA NTA (T12 A VG)
REIS A TLA NTA CLA SS-A (T12 A VG)
FNM A So uth A tlantic
6.0%
5.5%
5.0%
1Q 10
2Q 10
3Q 10
4Q 10
1Q 11
2Q 11
3Q 11
4Q 11
Payroll Employment Growth
Sources: BLS Data & RCG Research Forecast
Annual Chg (000)
100
26.1 26.2
50
0
-50
-100
-150
00
01
02
03
04
05
06
07
08
09
10
11
12f
13f
Property Class
Date of
Transaction
Total Price
(in millions)
Price per unit
Estimated
Cap Rae
Post Biltmore (Midtown)
A
Feb. 2012
$51.2
$185,054
4.3%
Colonnade at Spring Hill (Smyrna)
B
Feb. 2012
$30.0
$79,576
6.2%
AMLI at Mill Creek (North Gwinnett)
A
Dec. 2011
$40.5
$101,250
5.5%
AMLI at Barrett Lakes
A
Oct. 2011
$47.5
$106,502
5.5%
RED CAPITAL Research | March 2012
Apartment Effective Rent Trends
Sources: Reis, Inc., RCR Metro Forecasts
6%
YoY Rent Trend
4%
2%
1.6%
0%
ATLANTA
-2%
U.S.A.
-4%
1Q 05
1Q 06
1Q 07
1Q 08
1Q 09
1Q 10
1Q 11
1Q12
1Q13
1Q14
Metro Median Single-Family Home Prices
Y-o-Y % Change
Source: Case-Shiller Home Price Index
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
USA
2005
2006
Atlanta
2007
2008
2009
2010
2011
Year-over-year Payroll Growth Rate
Sources: BLS, RCG Research Forecasts
4%
2%
Rate
0%
-2%
-4%
ATLANTA
USA
-6%
-8%
05
06
07
08
09
10
11
12f
13f
RED CAPITAL Research | March 2012
SUBMARKET TRENDS
Submarket
Effective Rent
Physical Vacancy
4Q10
4Q11
Change
4Q10
4Q11
$1,044
$786
$761
$624
$670
$735
$719
$661
$1,057
$822
$767
$634
$676
$755
$721
$681
1.2%
4.6%
0.9%
1.5%
0.8%
2.8%
0.4%
3.1%
8.2%
13.1%
5.8%
12.3%
11.2%
10.3%
11.4%
11.9%
5.4%
9.1%
4.0%
13.1%
7.7%
9.4%
9.4%
12.9%
-280 bps
-400 bps
-180 bps
80 bps
-350 bps
-90 bps
-200 bps
100 bps
Marietta
Midtown
North DeKalb
North Gwinnett
$738
$986
$817
$735
$811
$742
$996
$835
$744
$803
0.5%
0.9%
2.3%
1.3%
-1.0%
8.6%
10.2%
10.0%
8.4%
6.4%
5.9%
6.0%
7.8%
7.1%
5.4%
-270 bps
-420 bps
-220 bps
-130 bps
-100 bps
Sandy Springs / Dunwoody
$822
$827
0.6%
6.2%
4.5%
-170 bps
Smyrna
$692
$722
4.3%
7.4%
5.3%
-210 bps
South DeKalb
$561
$566
0.8%
19.0%
18.2%
-80 bps
South Fulton
$666
$689
3.4%
15.1%
11.3%
-380 bps
South Gwinnett
$691
$698
1.0%
7.0%
6.4%
-60 bps
$755
$767
$1.6
9.8%
7.7%
-210 bps
Buckhead
Central I-75 West
Cherokee County
Clayton / Henry
Decatur / Avondale
I-20 East
I-20 West
Metro
RED CAPITAL GROUP
Daniel J. Hogan
[email protected]
614-857-1416
Kenneth H. Bowen
President, Red Mortgage Capital, LLC
[email protected]
800-837-5100
Change
Atlanta, Georgia
Multifamily Housing Update 3Q11 December 2011
Payroll Job Summary
Total Payrolls:
2,236.0m
Annual Change:
-27.2m
2011 Forecast
-16.0m
2012 Forecast
+22.0m
2013 Forecast
+55.0m
The economy struggled to find sure footing during
3Q11, and payroll job losses mounted. Attrition
proceeded at a 27,200-job, -1.2% annual rate,
down from 2Q’s 21,300-job loss and comprehensively trailing the nation’s comparable 1.1% advance. Cuts in construction, finance and government headcounts were primarily responsible, collectively accounting for 30,700 (-5.6%) job losses
expressed on a year-on-year basis.
Unemployment
9.9% (ATL)
Unemployment
10.0% (GA)
October data were moderately stronger. Losses
Vacancy Rate (Reis)
8.4%
RED 50 Rank
48th
Weak employment trends notwithstanding, demand for apartment space was exceptional during
the summer. Tenants absorbed 2,572 vacant
units, up 48% from 2Q’s level. While delivery of
1,386 units blunted the impact on overall occupancy, the average market occupancy rate increased 40 basis points to 91.6% nevertheless.
Annual Chg (Reis)
-2.2%
Reis YE11 Forecast
8.4%
Reis YE12 Forecast
7.9%
Reis YE13 Forecast
7.3%
RCR 2015 Forecast
8.9%
Only two submarkets suffered net sequential quarter tenant losses: Cherokee Co. (-8 units) and I-20
West (-17). By contrast, four submarkets absorbed
200 or more vacant units, led by Marietta (795)
3Q11 Rent Trends
Mean Rent (Reis)
$767
Annual Change
1.9%
RED 50 Rank
41st
Reis 2012 Forecast
2.8%
Reis 2013 Forecast
3.3%
Average metro rents increased at the fastest pace
in three years as metro owners took advantage of
healthy tenant demand to recoup Great Recession
losses. Asking rents rose $6 (0.7%) sequentially
to $863, $1 short of the historical series record,
while effective rents gained $5 (0.7%) to $767, $6
shy of the series high established three years ago.
Reis CAGR 2011 –15
3.5%
RCR CAGR 2011 –15
2.6%
Effective rents increased sequentially in every
submarket except South DeKalb and South Gwinnet counties. Gains of more than 1% were regis-
$10mm+ Sales
Sales of at least 17 apartments valued at $10mm
or more closed during 3Q11, and another 8 large
property sales were consummated in October and
November. Total proceeds topped $750mm July
to November, including $650mm+ derived from
the sale of institutional quality properties. The
average price per unit was approximately $80,500
in 3Q and more than $90,000 among 4Q trades.
Approx. Proceeds
17
$425mm
Cap Rate (T-6M Med) 6.9%
Avg. Price/Unit
$80,500
Expected Total Return 3.4%
RED 44 Rank
RAI 2.84
42nd
RAI Rank 41st
Earlier in the year, investors focused on distressed
and under-performing properties with up-
slowed to a 22,100-job y-o-y rate, the best metric
recorded since April; while seasonally-adjusted
figures showed a 3,300-job sequential month add.
RCR expect y-o-y payroll comparisons to stabilize
by 1Q12, leading to moderate net job gains for the
full year in the neighborhood of 20,000. Conditions should begin to resemble this growth market’s historical norm by 2013, when we expect net
job growth to rise to the 55,000-job level, with
gains approaching 80,000 jobs in store for 2014.
and South Gwinnett (377). Tenants also migrated
to infill locations, boosting occupancy in Buckhead
and Midtown by 70 and 120 bps, respectively.
Reis expect occupancy to rise further over the next
several years, advancing 50 bps by year-end, followed by 60, 40 and 30 bps gains in 2012, 2013
and 2014, respectively. RCR models are less optimistic, largely because of our slower job growth
forecast. Average metro occupancy is projected by
our models to decline moderately from the current
level to the low-91% area by 2015.
tered in four submarkets, most notably Buckhead
(1.0%) and South Fulton County (2.1%).
Reis project useful rent growth through 2015,
beginning with a moderate 2.8% advance in 2012,
but growing steadily thereafter; culminating in a
4.2% surge in 2015. By contrast, RCR models
foresee slower going. We project rents to rise at a
compound annual rate of 2.6% through 2015, 90
bps slower than Reis. Our weaker underlying employment outlook is the principal reason.
management/repositioning potential. Institutional
investors exhibited greater willingness to acquire
stabilized, class-A assets at lower cap rates recently, with A’s trading in the 5.5% to 6.5% range.
Employing a 5.5% acquisition cap rate, RCR estimate that the expected metro five-year un-levered
total return is about 3.4%, 42nd highest among
the RED 44. Returns are hampered by the model’s
forecast of a 2.6% compound annual rent growth
rate, the fourth slowest metric in the peer group.
Metro Apartment Vacancy Trends
Source: Reis, RCR Forecast
Metro Vacancy Rate
12%
11%
ATLANTA
FORECAST
U.S. TOP METRO AVG.
10%
9%
8.5%
8.3%
4. 9%
4. 9%
8.4%
8%
7%
5. 3%
6%
5%
4%
1Q 05
1Q 06
1Q 07
1Q 08
1Q 09
1Q 10
1Q 11
1Q 12
1Q 13
Sources: Fannie, Freddie, RCR, Reis & RCA
Average Cap Rate
9%
F NM / F M C U S
F NM / F M C SO A TLANTI C R EGI ON
R EI S A TLA NTA T- 6M
8%
7%
6%
5%
2Q 07 3Q 07 4Q 07 1Q 08 2Q 08 3Q 08 4Q 08 1Q 09 2Q 09 3Q 09 4Q 09 1Q 10 2Q 10 3Q 10 4Q 10 1Q 11 2Q 11 3Q11
Pa y r o l l Emp l o y me n t Gr o wth
A nn ua l Ch g (000)
100
So u r ce : B LS Da ta & R CG R e se a r ch F o r e ca st
50
0
- 50
- 100
- 150
A TLANTA
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010 2011f 2012f 2013f
61. 2
11. 7
(42. 7) (22. 5) 30. 3
69. 7
67. 0
49. 7
(26. 0) (136. 6 (31. 5) (16. 0) 22. 0
55. 0
NOTABLE RECENT TRANSACTIONS
Property Class
Date of
Transaction
Total Price
(in millions)
Price per unit
Estimated
Cap Rate
AMLI Barrett Lake (Marietta)
Oxford Oak (South Gwinnett)
AA
Oct-2011
Nov-2011
$47.5
$25.4
$106,502
$88,309
5.5%
6.5%
Oxford Springs (North DeKalb)
A
Nov-2011
$23.7
$88,309
6.5%
Century Perimeter Park (Sandy Spr)
A-
Nov-2011
$39.7
$133,221
5.5%
RED CAPITAL Research | December 2011
YoY Rent Trend
Source: Reis, Inc., RCG Forecasts
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
2. 6%
1. 3%
3. 0%
1. 4%
3. 5%
1. 6%
A TL A NTA
FOREC A ST
TOP 82 METRO A VG
TOP 82 FOREC A ST
1Q 05
1Q 06
1Q 07
1Q 08
1Q 09
1Q 10
1Q 11
1Q 12
1Q 13
Source: S&P Case-Shiller Home Price Index
10%
Y-o-Y % Change
5%
0%
-5%
-10%
-15%
-20%
CSX-20
-25%
2007
2008
2009
2010
ATLANTA
2011
4%
Source: BLS, RCG Research Forecasts
2%
Rate
0%
-2%
-4%
-6%
-8%
2007
2008
2009
2010
2011f
2012f
2013f
2014f
RED CAPITAL Research | December 2011
SUBMARKET TRENDS
Effective Rent
Submarket
Physical Vacancy
3Q10
3Q11
Change
3Q10
3Q11
$1,040
$777
$754
$628
$666
$747
$713
$662
$1,049
$804
$777
$633
$681
$744
$730
$676
0.9%
3.4%
3.1%
0.9%
2.2%
-0.5%
2.3%
2.1%
7.9%
15.1%
8.0%
12.3%
12.5%
10.9%
12.4%
13.4%
6.2%
10.9%
5.1%
12.9%
8.4%
10.5%
10.1%
13.2%
-170 bps
-420 bps
-290 bps
60 bps
-410 bps
-40 bps
-230 bps
-20 bps
Marietta
Midtown
$737
$987
$745
$990
1.0%
0.3%
9.3%
11.4%
7.0%
7.2%
-230 bps
-420 bps
North DeKalb
North Gwinnett
$811
$732
$835
$759
3.0%
3.7%
10.9%
9.3%
8.7%
7.8%
-220 bps
-150 bps
$804
$816
1.6%
6.2%
5.3%
-90 bps
Smyrna
$825
$694
$838
$718
1.5%
3.5%
6.6%
8.4%
5.1%
5.8%
-150 bps
-260 bps
South DeKalb
$556
$568
2.0%
17.9%
18.8%
90 bps
South Fulton
$667
$686
2.8%
16.4%
12.7%
-370 bps
South Gwinnett
$692
$692
-0.1%
8.2%
6.3%
-190 bps
$753
$767
1.9%
10.6%
8.4%
-220 bps
Bulkhead
Central I-75 West
Cherokee County
Clayton Co. / Henry Co.
Decatur / Avondale
I-20 East
I-20 West
Metro
RED CAPITAL GROUP
Daniel J. Hogan
[email protected]
614-857-1416
William T. Hinga
Business Development
[email protected]
614-857-1499
Change
Atlanta, Georgia
Multifamily Housing Update 2Q11 August 2011
Payroll Job Summary
Total Payrolls:
2,248.1mm
Annual Change:
- 21.3m
2011 Forecast
- 5.0m
2012 Forecast
+53.0m
2013 Forecast
+42.9m
Unemployment:
10.5% (June)
Atlanta payroll trends continued to disappoint,
falling at a 21,300-job, -0.9% year-over-year pace;
representing the weakest quarter since 2Q10.
The performance was largely attributable to accelerating payroll job cuts in the construction, finance
and government sectors, where employment
dropped at a combined 33,400-job, -5.9% pace,
down from 1Q11’s 25,600, -4.5% annual rate of
decline. Conversely, improving factory orders and
commerce flows boosted hiring in the manufacturing and transportation sectors. Manufacturers
Vacancy Rate (Reis)
8.7%
RED 50 Rank
48th
Annual Chg (Reis)
-2.6%
RCR YE11 Forecast
8.7%
RCR YE12 Forecast
8.6%
Poor job creation metrics notwithstanding, 2Q11
demand for metro apartments was exemplary.
Tenants leased a net of 1,667 units, up from 1Q’s
strong 1,395 tally. As there were no new additions to the Atlanta inventory for the second consecutive quarter, average occupancy surged 50
basis points sequentially and 260 bps year-overyear to 91.3%, a three-year high.
RCR YE13 Forecast
8.7%
Average occupancy was higher or stable in every
metro submarket. Two submarket posted net
absorption totals of 200 units or more: Clayton/
2Q11 Rent Trends
Mean Eff. Rent (Reis) $762
Owners raised rents cautiously, taking advantage
of robust tenant demand while encouraging further occupancy gains. Reis report that average
asking and effective rents increased $4 sequentially, reaching $853 and $762, respectively. The
latter figure is the highest metric reported since
late 2008 and comes within $11 of the prerecession peak.
Annual Change
1.7%
RED 50 Rank
38th
RCR 2011 Forecast
1.7%
RCR 2012 Forecast
1.7%
RCR 2012 Forecast
2.5%
Expressed on a year-over-year comparison basis,
effective rents increased 1.7%, up from 1.2% in
$5mm+ Sales 1H11
Investors were aggressive accumulators of Atlanta
assets in the first half of 2011. According to Real
Capital, a total of 66 properties valued at $2.5mm
or greater exchanged hands for total proceeds of
$978mm. This compares to only 17 transactions
for $330.7mm in the comparable period of 2010.
66
Approx. Proceeds $977.9mm
Median Cap Rate
7.5%
Avg. Price/Unit
$45,121
Expected Total Return 5.2%
RED 50 Rank
34th
Risk-adjusted Index
26th
The average price of unit was relatively low
($45,121), as distressed asset sales accounted
for a meaningful percentage of the trades. Moreover, there is further pruning to do, RCA report
added workers at a 3,800-job, 2.7% annual pace,
the strongest quarterly advance in 15 years.
Transportation establishments posted a 3,900job, 3.3% surge, the best quarter since 2006.
RED CAPITAL Research’s forecast, produced in
May, calls for a 5,000-job loss in 2011, preceding
gains of 53,000 and 42,900 jobs in 2012 and
2013. But July’s devastating 28,8000-job y-o-y
decline suggests that the ATL economy isn’t rebounding as quickly as expected in the spring.
Henry and North DeKalb. South DeKalb recorded
the largest sequential occupancy rate increase,
rising 110 bps to 80.5%. Close-in suburban areas
like Buchhead, Sandy Spring and Roswell reported
average a vacancy rates below 7%.
Reis models foresee steady occupancy gains, projecting a metro average 93% rate by YE13. RCR
models are not as optimistic, forecasting relatively
stable occupancy for the period holding stubbornly
below the 92% level through mid-decade.
the prior quarter. While the gain was the strongest in three years it trailed the 2.3% RED 50 average and ranked just 38th among the group.
Reis models are exceptionally optimistic for the
second half, projecting a $21 nominal increase in
effective rents, representing a 5.6% annualized
advance. The service foresees a 3.4% rise in
2012. RCR models foresee more modest gains,
projecting a 1.6% rate of 2H11 annualized growth
and a 1.7% increase in 2012.
that nearly $2bn of distressed Atlanta area multifamily assets remained unresolved at mid-year,
the fourth highest figure observed among major
metros after New York Las Vegas and Phoenix.
Using a 6.0% generic cap rate, our new integrated
model projects five-year un-levered returns of
5.2%, ranking 34th highest among the RED 46.
Weak NOI growth and a sharp 160 bps increase in
cap rates over the holding period are primarily
responsible for the below average performance.
MARKET OVERVIEW 2Q11 | ATLANTA
Source: Reis, Inc., RCR Forecasts
12%
ATLANTA
Metro Vacancy Rate
11%
U.S.A.
10%
9%
8%
7%
6%
5%
4%
1Q 06
1Q 07
1Q 08
1Q 09
1Q 10
1Q 11
1Q11
1Q12
1Q13
Source:s: Fannie, Freddie, RCR, Reis
7.50%
Average Cap Rate
7.25%
7.00%
6.75%
6.7%
6.5%
6.50%
6.25%
6.00%
6.1%
F N M / F M C US A A V G .
F N M / F M C SO UT H A T LA N T IC R E G IO N A V G .
R EIS A T LA N T A M E D IA N ( T 12 A V G )
5.75%
5.50%
2Q 07 3Q 07 4Q 07 1Q 08 2Q 08 3Q 08 4Q 08 1Q 09 2Q 09 3Q 09 4Q 09 1Q 10 2Q 10 3Q 10 4Q 10 1Q 11 2Q 11
Source: BLS Data & RCG Research Forecast
53.0
Annual Chg (000)
100
42.9
( 136.6)
50
0
-50
( 5.0)
( 26.0)
( 31.5)
-100
-150
00
01
02
03
04
05
06
07
08
09
10
11f
12f
13f
Property Class
Date of
Transaction
Greenhouse (Marietta)
B
May-2011
$30.7
$62,730
7.0%
Walden at Oakley (South Fulton)
A-
Jun-2011
$16.2
$67,292
7.2%
Windsor at Mt. Vernon (Sandy Sprs)
B+
Jun-2011
$30.2
$73,180
8.0%
B (Distressed)
Jul-2011
$39.3
$157,200
NA
The Paces (Buckhead)
Total Price
(in millions)
Price per unit
Estimated
Cap Rae
MARKET OVERVIEW 2Q11 | ATLANTA
YoY Rent Trend
Source: Reis, Inc., RCG Forecasts
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
ATLANTA
Line 2
U.S.A.
1Q 06
1Q 07
1Q 08
1Q 09
1Q 10
1Q 11
1Q12
1Q13
Metro Median Single Family Home Prices
Source: S&P Case-Shiller Index
10%
Y-o-Y % Change
5%
0%
-5%
-10%
-15%
ATLANTA
-20%
SPX20
-25%
2007
2008
2009
2010
2011
Source: BLS, RCG Research Forecast
4%
2%
Rate
0%
-2%
-4%
-6%
ATLANTA
USA
-8%
07
08
09
10
11f
12f
13f
SUBMARKET TRENDS
Submarket
Buckhead
Cherokee County
Decatur / Avondale
Interstate-20 East
Interstate-20 West
Marietta
Midtown
North DeKalb County
Effective Rent
Physical Vacancy
2Q10
2Q11
Change
2Q10
2Q11
Change
$1,027
$786
$746
$636
$668
$734
$713
$657
$1,039
$807
$774
$630
$673
$740
$719
$672
1.2%
2.7%
3.8%
-0.9%
0.7%
0.8%
0.8%
2.3%
9.3%
13.4%
9.2%
12.8%
12.7%
12.5%
14.2%
14.6%
6.9%
11.5%
4.9%
13.2%
9.0%
10.6%
11.0%
13.0%
-2.4%
-1.9%
-4.3%
0.4%
-3.7%
-1.9%
-3.2%
-1.6%
$725
$987
$802
$719
$791
$741
$988
$831
$749
$816
2.2%
0.1%
3.6%
4.2%
3.2%
10.9%
10.7%
11.8%
10.6%
6.8%
7.4%
8.4%
8.8%
7.8%
5.4%
-3.5%
-2.3%
-3.0%
-2.8%
-1.4%
$828
$834
0.7%
7.4%
5.3%
-2.1%
Smyrna
$700
$712
1.7%
8.3%
6.2%
-2.1%
South DeKalb County
$564
$567
0.5%
16.6%
19.5%
2.9%
South Fulton County
$658
$674
2.4%
17.4%
13.3%
-4.1%
$691
$693
0.3%
9.5%
6.2%
-3.3%
$749
$762
1.7%
11.3%
8.7%
-2.6%
Metro
RED CAPITAL GROUP
Daniel J. Hogan
[email protected]
614-857-1416
William T. Hinga
[email protected]
614-857-1499
RED CAPITAL GROUP®
Market Overview
Atlanta, Georgia
Multifamily Housing Update
May 2011
EXECUTIVE SUMMARY
E
ven as the US payroll employment growth accelerated,
conditions in the Atlanta
MSA job market deteriorated in the
first quarter. Indeed, metro headcount
declined –6,900 (-0.3%) year-overyear in 1Q11, the metro’s weakest
quarter observed since 2Q10 (-31,900
jobs). Similarly, data from the BLS’s
household survey show that total employment fell –15,631 (-0.7%) y-o-y
in the same time frame.
Deteriorating conditions among financial service firms were partially to
blame. The pace of annual payroll
job attrition decelerated from –6,200
jobs in the first nine months of 2010
to only –3,700 jobs in the fourth quarter. But the trend reversed as financial service concerns trimmed headcounts at a –7,100-job pace.
Conversely, professional, scientific
and technical service employers hired
workers at a healthy rate. Sector
firms cut –3,700 jobs last year before
adding workers for three consecutive
months from January to March. Y-oy hiring totaled 1,900 in January,
3,300 in February and 4,800 in
March.
Seasonally-adjusted job growth rebounded in the first quarter as 3,100
jobs were created in the first three
months of the year and data from the
Manpower Employment Outlook Survey suggests that growth will accelerate next quarter. The percentage of
firms that plan to add workers rose
from 11% in December (1Q11) to
19% in March (2Q11) and the share
of firms that plan to cut staffs remained stable at 8%.
The RED CAPITAL Research
(RCR) econometric payroll model
predicts that payroll gains will accelerate over the next couple of years.
Net job formation is expected to total
6,900 (0.3%) this year and 65,700
(2.9%) in 2012. Economy.com also
SNAP SHOT
predict a strong recovery as payrolls
rise 22,460 jobs in 2011 and 64,680
jobs in 2012.
Conditions in the Atlanta housing
market also were dismal. The National Association of Realtors report
that the median price of a singlefamily Atlanta MSA home dipped
below $100,000, falling –9.4% y-o-y
to $99,800. Additionally, metro sales
volume declined –6.5% in the twelvemonth period ended in March.
For the first time in the 21-year Reis
data history developers did not complete any units during the first quarter.
As a result, the metro occupancy rate
increased 60 basis points sequentially
to 90.9% in 1Q11. Tenants preferred
Class-A assets as positive net absorption totaled 1,326 units, outpacing the
161 Class B/C units absorbed during
the first quarter. As a result, occupancy averaged 92.8% among ClassA and 88.9% among Class B/C properties.
The pace of annual effective rent
growth was stable in the first quarter.
The figure advanced at a 1.2% y-o-y
rate in 4Q10 and rose at a commensurate rate in 1Q11. Effective rent gains
were largely fueled by falling concessions. The size of the average concession package declined from 11.5% of
asking rent in 1Q10 to 10.7%.
Multifamily investment activity was
robust since October. Real Capital
Analytics were aware of 52 investorgrade transactions totaling $606.5
million in sales proceeds in the sixmonth period ended in March. Moreover, RCR calculate a 10.4% expected rate of total return, above the
9.0% RED 50 average. Optimistic
rent and occupancy forecasts from
Reis contribute to the favorable return. On the other hand, elevated
levels of historic NOI growth trend
volatility produce the 36th ranked
measure of risk-adjusted return.
Vacancy
(9.1% - 1Q11)
Effective
Rents
Y-o-y
Projected
change
2011
240bps
100bps
1.2%
4.3%
($758 - 1Q11)
Cap Rate
(N/A - 1Q11)
N/A
Employment
(2,226.7m - 1Q11)
6.9m
6.9m
KEY POINTS
 The
metro vacancy rate decreased 60 basis
points sequentially and 240 basis points
year-over-year to 9.1% in 1Q11. Robust
apartment demand and weak supply were
responsible. Positive net absorption totaled
1,580 units and no units were completed
from January to March.
 At
1.2%, the pace of effective rent growth
observed in 1Q11 was unchanged from the
previous quarter. Conversely, the rate of
sequential quarter effective rent growth
accelerated from 0.2% in 4Q10 to 0.5%.
 Reis were aware of seven apartment projects,
containing 1,984 units under construction in
May.
 The
metro housing market weakened in the
first quarter. According to the National
Association of Realtors, the median price of
a single-family MSA home decreased –9.4%
year-over-year from $110,100 in 1Q10 to
$99,800 in 1Q11.
 Real
Capital Analytics estimate that sales
volume totaled $606.5 million in the sixmonth period ended in March. The average
price per unit was $76,435.
Atlanta-Sandy Springs-Marietta, Georgia MSA - Q1 2011
VACANCY TRENDS
 Property
 Only
two (Clarkston / Stone Mountain and South DeKalb) of the
metro’s 18 submarkets experienced higher vacancy during 1Q11 than
the comparable period of 2010.
 Public
Source: Reis, Inc.
14%
Metro Vacancy Rate
managers net leased 1,580 units during the first quarter,
producing a 60 basis point sequential decrease in vacancy from 9.7% in
4Q10 to 9.1% in 1Q11. Additionally, no units were completed and 96
units were removed from the rental inventory by way of condo
conversion.
REIT disclosure data covering 21,369 units show that samestore occupancy rose 10 basis points sequentially to 95.1% in 1Q11.
11.5%
12%
9.1%
10%
8%
6%
4%
Atlanta
U.S.A.
2%
0%
 Reis forecast vacancy to fall 100 basis points to 8.1% by year-end.
1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q
00 01 02 03 04 05 06 07 08 09 10 11
th
RANK: 48 out of 50
RENT TRENDS
Metro Rent Trends
Source: Reis, Inc.
 The average effective rent increased 1.2% year-over-year to $758, on
 Three
(North DeKalb, North Gwinnett and Cherokee County)
submarkets generated year-over-year effective rent growth above 4.0%
in the first quarter.
 According to REIT fillings, same-store average rent advanced at 0.7%
6%
Asking
Effective
4%
YoY Rent Trend
par with the annual increase observed in the fourth quarter. On the
other hand, the pace of sequential quarter effective rent growth
accelerated from 0.2% in 4Q10 to 0.5%.
sequential and 2.2% year-over-year rates in 1Q11 to $918.
1.2%
2%
0%
0.4%
-2%
-4%
-6%
-8%
 Reis predicts that the pace of effective rent growth will accelerate to
1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q
4.3% this year.
00 01 02 03 04 05 06 07 08 09 10 11
rd
RANK: 43 out of 50
Metro Multifamily Cap Rate Trend
PROPERTY MARKET & CAP RATE TRENDS
Source: Reis, Inc.
 Real Capital Analytics
 CB Richard Ellis estimate that cap rates for stabilized Class-A assets
10%
9%
Cap Rate
were aware of 52 investor-grade transactions
totaling $606.5 million in sales proceeds in the six-month period ended
in March. The source also calculates an average price per unit of
$76,435. Similarly, Loopnet.com count 13 trades involving properties
priced at or above $5 million year-to-date. Sales volume totaled
$171.2 million and the average price per unit was $55,522.
8%
7%
6%
ranged from 5.0% to 6.5% and stabilized Class-B cap rates were
between 6.0% and 7.0% in February.
5%
 Based on an assumed 6.0% cap rate, RCR calculate a 10.4% expected
4%
rate of total return, ranking 9th highest among the RED 50. On the
other hand, the metro posted the 36th ranked measure of risk-adjusted
return owing to elevated levels of historic NOI growth trend volatility.
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
09
09
09
09
10
10
10
10
11
Property Name
Bass Lofts (Midtown)
The Estates at Phipps (Buckhead)
660 Apartments (Midtown)
RED CAPITAL Research
Property Class
Date of
Transaction
Total Price
(in millions)
Price per unit
Estimated Cap
Rate
A
A
A
January 2011
March 2011
April 2011
$16.3
$32.5
$42.8
$122,180
$138,889
$142,027
6.4%
5.8%
4.6%
Atlanta-Sandy Springs-Marietta, Georgia MSA - Q1 2011
DEMOGRAPHICS & HOUSING MARKET
Source: National Association of Realtors
$220
MSA
Prices (000)
$200
 The
population of the Atlanta-Sandy Springs-Marietta metro area
increased at a 2.2% compound average annual rate from 2000 to 2010.
Similarly, Tactician Corp. predict 2.2% annual growth through 2015.
US
$180
 According to the National Association of Realtors, the median price of
$160
a single-family MSA home declined –9.4% year-over-year from
$110,100 in 1Q10 to $99,800 in 1Q11.
$140
 HousingTracker.net report that the number of single-family homes and
$120
condos listed for-sale declined –9.1% to 80,116 in the twelve-month
period ended in April. The source also notes that the median asking
price fell –15.8%.
$100
$80
08
09
10
Y
Y
Y
 RealtyTrac.com
1Q 2Q 3Q 4Q 1Q
10
10
10
10
calculate a 1.26% MSA foreclosure rate in 1Q11,
ranking 15th highest among the 206 markets tracked by the source.
11
EMPLOYMENT TRENDS
Annual Chg (000)
100
Non-Seasonally Adjusted
65.7
in 4Q10 employers cut –6,900 (-0.3%) jobs year-over-year in the first
quarter.
50
6.9
 Deteriorating conditions among construction, information and finan-
0
-50
cial service firms were partially responsible. The sectors cut –10,200
jobs year-over-year in 4Q10 and –17,700 jobs year-over-year in
1Q11.
-100
 On the other hand, manufacturing and business servicing hiring accelerated from 7,500 jobs in 1Q10 to 10,000 jobs in 1Q11.
-150
00 01 02 03 04 05 06 07 08 09 10 11f 12f
Source: BLS
6%
Atlanta
 Household survey data also were weak.
Total employment declined
–9,499 (-0.4%) year-over-year in March. But the metro unemployment rate improved from 10.1% in March 2010 to 9.8% in March
2011 as the size of the labor force declined –0.7% in the year-ended
in March.
Seasonally-Adjusted
 On a seasonally-adjusted basis metro headcounts decreased –21,500
USA
4%
during the fourth quarter. By contrast, employers added 3,100 net
new jobs from January to March.
2%
Rate
 After trimming –2,000 (-0.1%) positions from payrolls year-over-year
0%
Forecast
 RCR predict that Atlanta payrolls will increase 6,900 (0.3%) in 2011
-2%
-4%
and 65,700 (2.9%) in 2012.
-6%
 Economy.com project faster job growth (22,460) this year but foresee
-8%
similarly growth in 2012 (64,680 jobs).
00 01 02 03 04 05 06 07 08 09 10 11
RANK: 46th out of 50
RED Estimated Generic Unlevered Asset Total Return Probabilities
15%
10%
Atlanta
6.4%
6.3%
Charlotte
8.7%
8.5%
10.3%
10.0%
11.9%
11.5%
14.2%
13.4%
5%
0%
90%
70%
50%
30%
10%
SUBMARKET TRENDS
Effective Rent
Physical Vacancy
Submarket
1Q10
1Q11
Change
1Q10
1Q11
North Gwinnett
South Gwinnett
Decatur / Avondale
North DeKalb
Clayton / Henry
South Fulton
Marietta
Smyrna
I-20 West
$799
$825
$719
$696
$640
$733
$792
$668
$663
$731
$712
$663
$809
$828
$750
$692
$628
$735
$828
$666
$672
$738
$704
$665
1.3%
0.4%
4.2%
-0.6%
-2.0%
0.2%
4.5%
-0.3%
1.4%
0.8%
-1.2%
0.2%
7.1%
9.3%
11.8%
10.0%
12.7%
12.8%
11.7%
11.8%
17.4%
11.4%
8.3%
11.4%
6.0%
5.7%
7.8%
6.6%
13.7%
10.6%
9.4%
9.8%
13.3%
7.9%
6.8%
10.8%
-110 bps
-360 bps
-400 bps
-340 bps
100 bps
-220 bps
-230 bps
-200 bps
-410 bps
-350 bps
-150 bps
-60 bps
I-20 East
$711
$714
0.4%
13.8%
11.2%
-260 bps
South DeKalb
Change
$585
$564
-3.6%
17.0%
20.2%
320 bps
Buckhead
$1,034
$1,034
0.0%
10.2%
7.5%
-270 bps
Midtown
$966
$984
1.9%
9.2%
9.0%
-20 bps
Central I-75 West
$783
$790
0.9%
14.2%
12.1%
-210 bps
Cherokee County
$731
$763
4.3%
7.4%
5.1%
-230 bps
Metro
$749
$758
1.2%
11.5%
9.1%
-240 bps
Completions and Absorption
SUPPLY TRENDS
Source: Reis, Inc
 Developers did not complete any apartment units in the first quarter.
The previous low supply tally in the 21-year Reis data history was
recorded in 4Q10 (199 units).
12,000
 Seven apartment properties were under construction in May, totaling
 The five properties that were completed in 1Q10 were 93.4% occupied
in 1Q11 as average monthly absorption rates ranged from 10 units to
29 units per month.
 The development pipeline was stout in May, containing 38 apartment
developments (13,681 units) and 30 condo projects (6,936 units) in the
planned or proposed phase.
Daniel J. Hogan
[email protected]
614-857-1416
William T. Hinga
[email protected]
614-857-1499
Absorption
8,000
Units
1,984 units. Four assets (1,692 units) are scheduled to open this year
while the balance of the units will open in 2012 (234 units) or later (58
units).
Completions
10,000
6,000
4,000
2,000
0
-2,000
04
05
06 07
08
09 10 11f 12f
RED CAPITAL GROUP
Two Miranova Place
Columbus, OH 43215
www.redcapitalgroup.com
800.837.5100
©2010 RED CAPITAL GROUP
The information contained in this report was prepared for general information purposes only and is not intended as legal, tax, accounting or financial advice, or recommendations to
buy or sell currencies or securities or to engage in any specific transactions. Information has been gathered from third party sources and has not been independently verified or accepted by RED CAPITAL GROUP. RED makes no representations or warranties as to the accuracy or completeness of the information, assumptions, analyses or conclusions presented in the report. RED cannot be held responsible for any errors or misrepresentations contained in the report or in the information gathered from third party sources. Under no
circumstances should any information contained herein be used or considered as an offer or a solicitation of an offer to participate in any particular transaction or strategy. Any
reliance upon this information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other advisor regarding your specific situation. Any views
expressed herein are subject to change without notice due to market conditions and other factors.
RED CAPITAL GROUP®
Market Overview
Atlanta, Georgia
March 2011
EXECUTIVE SUMMARY
T
he Great Recession struck a
particularly hard blow to the
Atlanta economy, triggering a
-4.6% decline in metropolitan output
in 2009, nearly twice as severe as the
nation’s GDP decline. A sharp drop in
the value of commercial and residential construction was largely responsible for the magnitude of the decline
Although the construction industry
continued to languish in the ensuing
months, the broader Atlanta labor
market exhibited developing signs of
stability after mid-year 2010. By the
numbers, total payrolls fell at a 2,000job, -0.1% year-over-year rate in
4Q10, in line with 3Q’s -1,300-job
loss performance, but substantially
improved from 2Q10’s 31,900-job,
-1.4% rate of attrition. Healthier 2H10
results were largely attributable to the
reviving fortunes of the manufacturing; trade; transportation and leisure
services sectors: combined, the foregoing industries hired workers at an
8,300-job. 1.0% rate in 4Q10, up from
annual attrition at a 15,300-job, -1.7%
pace during the second quarter.
Seasonally-adjusted data, on the other
hand, suggest that the Atlanta recovery hit a speed bump late in 2010,
temporarily derailing the economic
rebound. This series shows deteriorating trends following the spring’s
promising net gains, culminating in a
-27,300-job net loss during the October-to-January period, including disappointing 13,500-job and 6,800-job
month-to-month setbacks in December and January, respectively.
The RED Research econometric payroll model for Atlanta tends to discount recent weakness, producing a
promising forecast for 2011. The
model projects a solid 45,200-job,
2.0% average monthly advance this
year, ranking among the better performances anticipated for the largest
Sunbelt “Growth Metros.” The out-
SNAP SHOT
look for 2012 is even brighter as the
model projects a useful 59,600-job,
2.6% vintage for that year.
Apartment absorption cooled moderately from 3Q10’s white hot net of
4,307 units: tenants net leased 2,902
units during 4Q10. Still, it was the
strongest net demand recorded in a
December quarter in at least 12 years
and likely represented the largest 4Q
net in the last 21. Reis identify only
154 units added to the metro stock (a
21-year quarterly low), allowing average occupancy to skyrocket 90 basis
points sequentially and 200 bps y-o-y
to 90.3%, thus topping 90% for the
first time in more than two years. Occupancy in each of Atlanta’s 18 submarket increased quarter-to-quarter
with the exception of two of the highest (Buckhead, Roswell) and lowest
(Stone Mountain, South DeKalb) average rent neighborhoods in the area.
Rents increased sequentially as well,
but again the rate of growth was considerably slower than the previous
quarter. Average asking and effective
rents advanced $1 (0.1%) to $846 and
$2 (0.3%) to $755, respectively, down
from 0.5% and 0.6% gains during the
prior period. Effective rents were
higher in 10 of Atlanta’s submarkets,
led by the lower rent infill Central I75 West (1.1%) and DeKalb South
(0.9%) areas, as well as north suburban Cherokee Co. (0.9%) and Roswell / Alpharetta (0.9%).
Reis expect the market to exhibit robust demand and healthy rent growth
through 2015. The service forecasts a
100 bps occupancy rate gain to 92.3%
in 2011, followed by steady improvement to the 93% level at the end of
the forecast period. Rents are projected to rise 3.2% this year, followed
by 3.6% compound annual increases
from 2012 to 2015, closely comparable to the 4.0% and 3.7% rates projected for the top 80 U.S. metro areas.
Vacancy
(9.7% - 4Q10)
Effective
Rents
Y-o-y
Projected
change
2011
2.0%
1.0%
1.2%
3.2%
($755 -4Q10)
Median Cap Rate
(7.8% - 4Q10)
Employment
(2,267.1m - 4Q10)
1.0%
2.0m
0.8%
45.2m
KEY POINTS
 Atlanta owners enjoyed exceptional demand
for the second consecutive quarter. After net
leasing a record 4,307 units in 3Q10, tenants
occupied a net of 2,902 units in the
December quarter, which was likely a record
for a fourth quarter period.
 Rent trends decelerated slightly, slowing to a
0.3% sequential pace from 0.6% during 3Q.
On the other hand, the year-over-year rent
comparison (1.2%) was the strongest metric
posted in two years.
 The
Atlanta labor market stabilized in the
fall but exhibited renewed weakness during
the winter months. After recording yearover-year job growth from August to
November, gains evaporated in December
and January when payrolls fell 9,600 (-0.4%)
and 12,600 (-0.6%) jobs relative to yearearlier comparisons.
 RCR’s
econometric model remains bullish
on ATL prospects, forecasting 45,200- and
59,600-job gains in 2011 and 2012.
 Investors pursued Atlanta assets aggressively
in the second half, closing 52 transactions
valued at $876mm, according to Real
Capital. Cap rates ranged from 4.1% - 9.0%.
Atlanta - Sandy Springs - Marietta, GA MSA - Q4 2010
VACANCY TRENDS
 Atlanta renters continued to unleash three years of pent-up demand for
 Occupancy increased 90 basis points sequentially and 200 bps yearover-year to 90.3%, the highest metric posted in more than two years.
 Six publicly-traded trusts with 21,508 total metro units recorded a 40
bps unit-weighted average sequential occupancy advance to 95.5% .
Metro Vacancy Rate
independent housing arrangements. After 3Q’s record quarterly
absorption, owners net leased the greatest number of units (2,902) in a
fourth quarter period in the 12-year Reis quarterly data history, up from
756 units in the comparable year-earlier period.
9.7%
8%
6%
6.6%
4%
and the lowest overall vacancy rate (5.8%) in the fourth quarter.
RANK: 47 out of 50, up from 48
11.7%
ATL
U.S.A.
10%
 Cherokee County posted the largest sequential occupancy gain (2.2%)
th
Source: Reis, Inc.
12%
4Q 04 4Q 05 4Q 06 4Q 07 4Q 08 4Q 09 4Q 10
th
RENT TRENDS
Metro Rent Trends
Source: Reis, Inc.
 Owners focused on consolidating 3Q’s strong rent gains, implementing
4%
smaller 0.1% asking and 0.3% effective sequential quarter rent
increases after the prior quarter’s 0.5% and 0.6% gains.
the fastest growth observed in two years. The metro average remained
2.3% below the series high $773 established in 3Q08, however.
 Publicly-traded
trusts with 21,508 Atlanta units registered a $3.47
(0.4%) sequential quarter increase in average unit rent to $903.10.
 Rents
2%
YoY Rent Trend
 Effective rents increases 1.2% year-over-year to an average of $755,
3%
1%
0%
-1%
-2%
in the popular Sandy Springs submarket fell -0.3% y-o-y and
-0.4% sequentially to $822, but average occupancy rose 410 bps y-o-y.
-4%
4Q 04 4Q 05 4Q 06 4Q 07 4Q 08 4Q 09 4Q 10
Source: Reis, Inc.
 Interest in Atlanta apartment assets blossomed during the second half
8.0%
of 2010. Investors acquired only 10 properties in 1H10 for $214mm,
according to Real Capital Analytics, but trade in assets valued at
$2.5mm or more increased to 52 transactions valued at $878mm in 2H.
 An
affiliate of a global integrated commercial real estate brokerage
acquired two recent construction, class-A urban infill mid-rise
properties in November by way of distressed note purchases. The 91%
and 94% occupied properties were priced to yield about 7% at closing.
7.5%
Cap Rate
$50,598 and the average initial NOI yield was 8.2%.
0.1%
Asking
Effective
-3%
RANK: 42nd out of 50
Reis expect rents to rise 3.2% in 2011, and at a 3.6% compound rate 2012 to 2015.
 RCA report that the average price per unit of FY10 transactions was
1.2%
7.0%
6.5%
6.0%
5.5%
5.0%
 Employing a 6.0% generic institutional quality asset purchase cap rate, RCR
estimate that a generic Atlanta apartment investment would produce annual total
returns averaging 9.8% over 5 years, 80 bps above the mean of the RED 50.
2Q
4Q
2Q
4Q
2Q
4Q
08
08
09
09
10
10
Property Class
Date of
Transaction
Total Price
(in millions)
Price per unit
Estimated
Cap Rate
Park District (Midtown/Atl Stat)
Icon (Midtown / Atlantic Station)
Greenhouse Patio (Roswell)
Post Ridge (Marietta)
A (Distr Note)
A (Distr Note)
BB
03-Nov-2010
03-Nov-2010
18-Feb-2011
03-Dec-2010
$29.0
$29.3
$10.0
$51.0
$125,541
$121,036
$42,373
$117,512
6.8%
7.0%
8.4%
5.5%
Metro Home Value Appreciation
Source: S&P Case-Shiller Index
 The
10%
ATL
Y-o-Y % Change
5%
median price of an Atlanta metro home sold in 4Q10 was
$109,200, representing a -12.5% decrease from 2009 and a –33.5%
decline from 4Q07.
CSX20
0%
 The
S&P Case-Shiller index displayed a “double-dip” price decline
pattern. Year-over-year price comparisons returned to parity in the
spring but fell back deeply into negative territory in the fourth quarter.
In December, the service’s Atlanta index was down –6.2% from 2009.
-5%
-10%
-15%
 Buckhead
condo and single-family home values firmed in recent
months. The median price of North Buckhead homes sold December to
February was $550,000, up 15.2% y-o-y, according to Trulia.com.
-20%
-25%
Jan- Jun- Nov- Apr- Sep- Feb-
Jul- Dec-
08
10
08
08
09
09
10
10
Annual Chg (000)
59.6
45.2
50
RealtyTrac report that 4.42% of
metro households were embroiled in a mortgage default last year, representing
the 25th highest rate exhibited among the top 206 U.S. metropolitan areas.
EMPLOYMENT TRENDS
100
 Foreclosure rates remained elevated in 2010.
 Payroll jobs declined at a 2,000-job, -0.1% rate in the fourth quarter,
down slightly from 3Q’s 1,300-job decline. The decline was largely
attributable to slower hiring in the skilled service sectors. Financial,
business, health care and education service establishments added a net
of 15,500 workers in 3Q10 (year-on-year basis), but only 6,200 in 4Q.
0
 Weak conditions persisted in the construction sector.
Total payrolls
fell at a 6,500-job, -6.8% year-on-year pace in 4Q, down from a
5,200-job, -5.3% setback in 3Q. Total workers employed in the construction sector declined to 79,300 in January, the lowest aggregate
recorded since June 1994.
-50
-100
-150
00 01 02 03 04 05 06 07 08 09 10 11f 12f
 Manufacturing and wholesale trade concerns expanded in 4Q, hiring a
net of 3,000 (1.1%) workers y-o-y; the first advance since 3Q06.
 Metro unemployment stood at 10.2% in December, up 10 bps y-o-y.
 There were 1,499 fewer employed persons in the Atlanta area in De-
Source: BLS
cember than the year-earlier period, a substantial improvement from
Decembers -24,504 year-over-year loss as well as the best annual
comparison recorded since May 2008.
6%
4%
Seasonally-Adjusted
Rate
2%
 Data expressed on a seasonally-adjusted basis appeared weaker than
0%
the unadjusted figures. This series showed metro headcounts falling
-21,500 jobs between October 1 and December 31, while another
-6,800 jobs were lost during the month of January.
-2%
-4%
ATLANTA
USA
-6%
-8%
Forecast
 RCR’s payroll forecast model foresees better tidings to come in the
03 04 05 06 07 08 09 10 11f 12f
near future. The model indicates that metro establishments will increase payrolls by 45,200 jobs in 2011 and 59,600 jobs in 2012.
20%
10%
A T L ( R A I=3 .10 )
5.6%
7.1%
C LT ( R A I=3 .7 9 )
8.0%
9.3%
9.7%
10.8%
11.3%
12.3%
13.5%
14.4%
0%
90%
70%
50%
30%
Probability of Stated Return or Greater
10%
SUBMARKET TRENDS
Effective Rent
Physical Vacancy
Submarket
4Q09
4Q10
Change
4Q09
4Q10
$1,033
$787
$734
$637
$669
$730
$709
$663
$720
$950
$803
$722
$1,044
$786
$761
$624
$670
$735
$719
$661
$738
$986
$817
$735
1.1%
-0.2%
3.6%
-2.0%
0.2%
0.7%
1.4%
-0.3%
2.6%
3.8%
1.7%
1.8%
11.2%
15.7%
8.3%
13.1%
12.0%
11.8%
12.0%
12.4%
12.0%
9.6%
11.2%
11.0%
8.2%
13.1%
5.8%
12.3%
11.2%
10.3%
11.4%
11.9%
8.6%
10.2%
10.0%
8.4%
-300 bps
-260 bps
-250 bps
-80 bps
-80 bps
-150 bps
-60 bps
-50 bps
-340 bps
60 bps
-120 bps
-260 bps
Roswell /Alpharetta
$789
$811
2.8%
7.6%
6.4%
-120 bps
$825
$822
-0.3%
10.3%
6.2%
-410 bps
Smyrna
$700
$692
-1.1%
8.6%
7.4%
-120 bps
South DeKalb County
$570
$561
-1.5%
14.7%
19.0%
430 bps
South Fulton County
$649
$666
2.6%
17.5%
15.1%
-240 bps
$693
$691
-0.3%
10.4%
7.0%
-340 bps
$746
$755
1.2%
11.7%
9.7%
-200 bps
Buckhead
Central I-75 West
Cherokee County
Clayton / Henry
Decatur / Avondale
I-20 East
I-20 West
Marietta
Midtown
North DeKalb County
Metro
Change
SUPPLY TRENDS
 Only
154 units were completed in the Atlanta area during 4Q10,
perhaps the smallest one-quarter supply total recorded in the 21-year
Reis data series, and over the first ten weeks of 2011 no additions to
the stock were reported. The hiatus will be short lived, however; six
projects incorporating a total of 1,918 market-rate units were reported
under construction in March.
Ward in the Midtown submarket debuted in the fall 2009. By
December 2010, the property was 75% occupied at rents averaging
$1,275. Six properties (1,644 total units) completed in 2009 or 2010
located within 1.6 this property reported 74.2% average occupancy and
average contract rents of $1,387.
Daniel J. Hogan
[email protected]
614-857-1416
William T. Hinga
[email protected]
614-857-1499
12,000
Completions
Absorption
10,000
8,000
Units
 Reis project supply of 1,492 units in 2011 and 2,406 units in 2012.
 A 301-unit, four-story courtyard style mid-rise near the Old Fourth
Source: Reis, Inc
6,000
4,000
2,000
0
-2,000
04
05
06 07
08
09 10 11f 12f
RED CAPITAL GROUP
Two Miranova Place
Columbus, OH 43215
800.837.5100
buy or sell currencies or securities or to engage in any specific transactions. Information has been gathered from third party sources and has not been independently verified or accepted by RED CAPITAL GROUP. RED makes no representations or warranties as to the accuracy or completeness of the information, assumptions, analyses or conclusions presented
in the report. RED cannot be held responsible for any errors or misrepresentations contained in the report or in the information gathered from third party sources. Under no circumstances should any information contained herein be used or considered as an offer or a solicitation of an offer to participate in any particular transaction or strategy. Any reliance upon
this information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other advisor regarding your specific situation. Any views expressed herein are
subject to change without notice due to market conditions and other factors.
RED CAPITAL GROUP®
Market Overview
Atlanta, Georgia
December 2010
EXECUTIVE SUMMARY
L
ately, the state of Georgia
hasn’t exhibited the kind of
performance that made it the
economic heart of the New South.
Indeed, gross state product growth
trailed the nation in eight of the past
nine years; and according to data published by the UGA Selig Center for
Economic Growth the Peach State
will do well to keep pace with the
U.S. average in 2011. Much the same
can be said for Atlanta: metro output
growth comprehensively trailed the
nation’s in 2008 and 2009, and in all
likelihood lagged again in 2010, when
BLS data show that payroll employment fell at a -1.4% rate, more than
twice as fast as the -0.6% U.S. pace.
Payroll trends improved considerably
after mid-year, however, boding well
for 2011. To be specific, payroll employment declined at just a 3,400-job,
-0.2% pace in 3Q10, up sharply from
2Q’s 39,700-job retreat. Firmer conditions persisted into the fall, as exemplified by the 7,600-job advance recorded over the 12-month period
ended in October and the smaller yet
encouraging 2,300-job gain reflected
in preliminary November figures.
Goods producing industries were
largely responsible as the annual rate
of job attrition in the construction,
manufacturing and wholesale trade
sectors decelerated from a collective
-28,600 jobs in 2Q to -11,200 in 3Q
and an average of -4,250 in the twomonth period ended November. Material progress also was evident in the
skilled services as a surge in contract
labor usage, business consulting and
headquarters office hiring and health
care expansion powered a collective
17,300-job y-o-y 3Q10 advance.
RCR expect conditions to continue to
improve steadily through the end of
2012. Our econometric payroll model
forecasts a 25,700-job, 1.2% add next
year, followed by 70,000- to 80,000-
SNAP SHOT
job gains in 2012 and 2013. By way
of comparison, the Selig Center projects a 1.3% 2011 advance.
Sensing better times ahead metro
households unleashed a torrent of
pent-up housing demand. Tenants
absorbed 4,208 units during 3Q10,
representing the highest one-quarter
total recorded in eleven years. Property managers had plenty of vacant
units to lease, of course (nearly
41,000 according to Reis), as well as
1,481 new units completed over the
summer. Accounting for supply,
metro occupancy increased 80 basis
points sequentially to 89.5%, a 21month high. Virtually every submarket participated in the rally, although
two (Central I-75 West and Midtown)
experienced 170 and 70 bps supplyinduced average vacancy rate hikes.
Revenue trends also were constructive
as metro average asking and effective
rent increased $4 sequentially to $845
and $753, respectively, representing
0.5% and 0.6% gains. Submarket performance was mixed: 7 of 18 recorded further rent erosion and four
— Alpharetta, North Gwinnett, North
DeKalb and Decatur — accounted for
63% of metro Atlanta’s aggregate
sequential revenue growth.
The occupancy outlook is promising:
Reis project that the metro average
will rise 180 bps by 2012 and reach
92% in 2014. Conversely, rent growth
is expected to lag the average of our
peer group, rising about 2.4% annually over the next five years, trailing
the 2.8% RED 50 average.
Using a 6.5% cap rate, RCR estimate
that a generic Atlanta property would
offer investors an 8.1% expected 5year total return; a bit below the 8.2%
R50 mean. Making matters worse,
volatility is higher than average here,
limiting risk-adjusted returns to only
the 41st highest rate observed among
the RED 50 peer group.
Y-o-y
change
Projected
YE 2010
(10.5% - 3Q10)
80 bps
Unchd
Effective
Rents
0.5%
1.2%
20 bps
20 bps
3.4m
32.8m
Vacancy
($753 - 3Q10)
Cap Rate
(6.7% - 3Q10)
Employment
(2,261.6m - 3Q10)
KEY POINTS
 Metro
occupancy improved for the third
consecutive quarter, falling 80 basis points
sequentially to 89.5%. The quarterly advance
was the largest recorded since 2004.
 Rent trends rebounded from 2Q’s relatively
weak results. After falling steadily over the
prior 12 months, average asking rents gained
$4 (0.45%) sequentially, rising to $845.
 Effective rents increased 0.62% to $753.
 Market
conditions were strongest in the
northern suburbs but encouraging trends also
were observed in key infill submarkets,
especially Buckhead, Midtown and Decatur.
 Investment activity gained momentum in the
early fall.
According to Real Capital
Analytics, 16 larger apartment trades were
closed in September and October for total
proceeds of $186mm.
 Several recent construction trophy properties
exchanged hands after mid-year. Unit prices
ranged in the $115,000 to $145,000 area and
cap rates were in the low– to mid-6% range.
 Slow rent growth is likely to limit mediumterm un-levered total returns to about 8.1%.
Atlanta - Sandy Springs - Marietta, GA MSA Q3 2010
3Q10 VACANCY TRENDS
 Metro apartment vacancy rates continued to decline.
 Five publicly-traded REITs with 20,944 collective Atlanta area units
recorded a 40 bps sequential quarter occupancy rate gain to 95.9%.
 By contrast, MPF Research report sluggish retail demand that failed to
keep pace with supply. Consequently, this service published a 20 bps
sequential decline in average metro occupancy to 90.2%.
 According to
Source: Reis, Inc.
13%
12%
Metro Vacancy Rate
After reaching a
cycle-peak of 11.7% in December, average vacancy subsided to 10.5%
in 3Q10, including an 80 basis point decline from June to September.
Reis, 15 of Atlanta’s 18 submarkets posted sequential
occupancy rate gains and 17 recorded positive net unit absorption.
ATLANTA
U.S.A.
11%
10%
10.5%
9%
8%
7%
7.2%
6%
5%
4%
Reis expect occupancy to hold steady in 4Q before rising 100 bps to 90.5% in 2011.
3Q 04 3Q 05 3Q 06 3Q 07 3Q 08 3Q 09 3Q 10
3Q10 RENT TRENDS
Metro Rent Trends
Source: Reis, Inc.
 Average and effective rents in the metro area increased $4 sequentially,
4%
rising 0.45% and 0.62%, respectively, to about $845 and $753.
3%
real estate trusts reported sequential rent gains
averaging 0.9%. Weighted average real rents increased from $892
during the second quarter to $900 in the third.
 One
REIT reported a sequential quarter decline. The company
operates a largely class-B, value-priced portfolio. An Atlanta-based
company with a largely class-A portfolio registered a 1.2% advance.
 Rents remained underwater on a year-on-year basis, having declined
YoY Rent Trend
 Publicly-traded
2%
1%
-0.5%
0%
-1%
-2%
-3%
-0.5%. Atlanta is one of five RED 50 markets to post a y-o-y decrease.
-0.4%
ASKING
EFFECTIVE
-4%
Reis forecast rent growth equal to 1.7% in 2011 and 2.2% in 2012.
3Q 04 3Q 05 3Q 06 3Q 07 3Q 08 3Q 09 3Q 10
Source: Reis, Inc. Trade Composite
 Large institutional investors were active during the late summer and
 Expected
total returns are suppressed to some degree by the weak
revenue growth outlook. Reis project a 2.6% compound average
growth rate for effective rents between 2011 and 2014, about 20 bps
shy of the RED 50 mean. As a result, RCR estimate generic 5-year unlevered expected total returns to average 8.1% per year, based on a
6.5% cap rate, 30 bps below the U.S. norm, ranking 36th in the R50.
7.5%
7.0%
Cap Rate
early fall, bidding aggressively on trophy properties. A privately-held
real estate trust set the action in motion in July when it acquired a
foreclosed 337-unit, 2008-construction loft building in an historic
district east of Downtown. Reis estimate a 4.1% going-in yield. This
was followed by a series of trades valued at $35mm or more, including
a distressed student housing property servicing Georgia Tech, and two
luxury infill projects located in near north suburbs. Class-A and -A–
property cap rates gravitated toward the 6.0% - 6.5% range.
8.0%
6.5%
6.0%
5.5%
5.0%
4.5%
4.0%
1Q 08 3Q 08 1Q 09 3Q 09 1Q 10 3Q 10
Property Name
Property Class
Date of
Transaction
Total Price
(in millions)
Price per unit /
bed
Estimated Cap
Rate
MetroPointe Lofts (Midtown)
Alta Old 4th Ward (Midtown)
Distr. Stdnt. Hsg
A
10-Sep-2010
02-Jul-2010
$35.3
$45.5
$95,923 / $29,077
$135,015
7.5% @ 90% eo
Reserve at Lavista (Midtown)
A
09-Oct-2010
$40.4
$142,756
6.5%
W. Paces Ferry (Cent. I-75W)
B+
14-Sep-2010
$39.0
$115,727
6.0%
4.1%
Year-over-year Home Value Change
 Following
Source: S&P Case-Shiller Index, RCR
-5%
29 consecutive months of negative year-over-year price
comparisons, the Atlanta Case-Shilling repeat home sales index clawed
back above parity in March. But progress stalled following the expiry
of the homebuyer tax credit and price trends returned to negative
territory in July. In September, the index was –3.0% below the year
earlier level and down -1.2% relative to August.
-10%
 Data from the National Association of Realtors indicate that the median
Appreciation
5%
ATLANTA
CSX20
0%
price of an Atlanta area home sold during the third quarter was
$113,500, reflecting a sharp –12.3% discount from the comparable
period of 2009. The median price fell –7.5% from 2Q10 to 3Q10.
-15%
 According to RealtyTrac.com, 29,824
-20%
Atlanta households received a
notice of foreclosure or pending foreclosure during 3Q10 or 1.38% of
metro households. This rate was 26th highest observed among the 206
largest U.S. metros and reflected an 8% sequential quarter increase.
Mar- Jul- Nov- Mar- Jul- Nov- Mar- Jul08
08
08
09
09
09
10
10
EMPLOYMENT TRENDS
 Year-over-year
Annual Chg (000)
150
78.4
70.5
100
50
 Improving trends in the manufacturing sector were largely responsi-
25.7
ble. Factories producing transportation equipment hired a net of 500
workers y-o-y, representing a 4.2% annual advance, while non-food
related non-durable goods manufacturers added 1,100 workers to
achieve a 2.2% advance.
0
-50
-32.8
-100
-150
 Trends in the business and health care services super-sector also were
-136.1
99 00 01 02 03 04 05 06 07 08 09 10f11f12f13f
constructive. After managing a collective 2,700-job year-over-year
advance during 2Q, the foregoing establishments added to payrolls at
a full-throated 14,200-job rate during the third. Education service
establishments hired an additional 2,700 workers.
 According to data published by the Georgia Department of Labor, the
metro unemployment rate ballooned in November, rising from 9.6%
in October to 10.3%. First time claims by Atlanta workers for unemployment insurance increased 5.8% from month-to-month.
Source: BLS, IEC/UCF, RCR
6%
Rate
comparisons continued to improve. After posting
consecutive 84,100-job and 39,700-job losses during 1Q10 and 2Q10,
respectively, losses slowed sharply to 3,400 (-0.2%) jobs in 3Q.
4%
Seasonally-Adjusted
2%
 Payroll totals expressed on a seasonally-adjusted basis fell 100 jobs
0%
during the third quarter, down from a 9,700-job gain in 2Q. The second quarter advance was in part boosted by about 4,000 temporary
Census hires. This benefit was reversed during the third quarter.
-2%
-4%
A CTUA L
FORECA ST
USA A CTUA L
USA FORECA ST
-6%
-8%
 Establishments created 2,800 Atlanta jobs in October but counterbalanced the progress with 4,600 terminations during November.
Forecast
03 04 05 06 07 08 09 10 11f 12f 13f
 Payroll gains of about 5,000 jobs should be recorded during 4Q10, setting the
stage for a 25,700-job advance during calendar 2011. Annual gains ranging
from 70,000 to 80,000 jobs annual should evolve in 2012 and 2013.
ATL (RAI=2.35)
15%
10%
5%
5.4%
3.5%
6.2%
CLT (RAI=3.10)
8.0%
7.9%
9.5%
9.7%
11.0%
12.2%
13.2%
0%
90%
70%
50%
P ro ba bilit y o f A c hie v ing S t a t e d R e t urn o r G re a t e r
30%
10%
SUBMARKET TRENDS
Effective Rent
Physical Vacancy
Submarket
3Q09
3Q10
Change
3Q09
3Q10
North Gwinnett
South Gwinnett
Decatur / Avondale
North DeKalb
$800
$830
$737
$700
$646
$739
$829
$804
$825
$732
$692
$628
$747
$811
0.4%
-0.6%
-0.7%
-1.1%
-2.8%
1.1%
-2.2%
7.9%
10.8%
9.6%
9.9%
13.4%
11.1%
10.3%
6.2%
6.6%
9.3%
8.2%
12.3%
10.9%
10.9%
-170 bps
-420 bps
-30 bps
-170 bps
-110 bps
-20 bps
60 bps
Clayton / Henry
South Fulton
$677
$661
$666
$667
-1.6%
1.0%
10.9%
17.4%
12.5%
16.4%
160 bps
-100 bps
$741
$711
$674
$698
$570
$1,040
$970
$778
$745
$757
$737
$694
$662
$713
$556
$1,040
$987
$777
$754
$753
-0.5%
-2.4%
-1.8%
2.2%
-2.4%
0.0%
1.7%
-0.1%
1.2%
-0.5%
11.0%
7.9%
10.6%
11.5%
12.6%
11.8%
10.0%
13.7%
7.6%
11.3%
9.3%
8.4%
13.4%
12.4%
17.9%
7.9%
11.4%
15.1%
8.0%
10.5%
-170 bps
50 bps
280 bps
90 bps
530 bps
-390 bps
140 bps
140 bps
40 bps
-80 bps
Marietta
Smyrna
Interstate-20 West
Interstate-20 East
South DeKalb
Buckhead
Midtown
Cherokee County
Metro
SUPPLY TRENDS
Change
Source: Reis, Inc
institutional quality apartment projects received final
certificates of occupancy during 3Q10, according to Reis. The
properties encompass 1,697 total units. The Midtown submarket
absorbed the largest burden in the form of a massive 592-unit
courtyard style mid-rise near the Freedom Parkway. Rents at the
nationally-branded community ranged from $825 to $1,524 in
December, equating to about $1.20 to $1.50 per square foot.
 The
Reis pipeline report identifies six properties incorporating
1,918 units in the construction phase. The largest is a B+ 708-unit
resort-style garden project in the city of Marietta. The complex
appears to be predominately complete. Rents range from $825 to
$1,338 or $0.87 to $0.95 per square foot.
 The list of entitled projects on the shelf is long and deep.
Fortyfour projects are in the planning phase incorporating 12,700 units.
Ten incorporating 2,830 potential new units are sited in the
already supply burdened Midtown submarket. Four projects of
747 total market rate units are located in the Buckhead submarket.
Units
 Six
12,000
10,000
8,000
6,000
4,000
2,000
0
-2,000
Completions
Absorption
02 03 04 05 06 07 08 09 10f 11f
 Occupancy
in stabilized mid–rise and high-rise buildings
built since 2008 in Buckhead and Midtown submarkets
averaged 93.5% in September. Rents averaged $1,761.
 A 401-unit five- to eight-story Buckhead mid-rise was 76%
occupied in September after leasing for about 18-months.
Daniel J. Hogan
[email protected]
614-857-1416
William T. Hinga
[email protected]
614-857-1499
RED CAPITAL GROUP
Two Miranova Place
Columbus, OH 43215
800.837.5100
RED CAPITAL GROUP®
Market Overview
Atlanta, Georgia
September 2010
EXECUTIVE SUMMARY
W
hen the grizzled scribblers of the Fourth Estate turn their attention
to the crisis in for-sale housing, Las
Vegas and Phoenix garner most of the
ink. But when it comes to penning
copy on distressed office space, Atlanta seems to be the moment’s designated poster child. Developers were
keen on constructing class-A office
towers on spec in the run-up to the
economic run-down, and the city is
now over-populated with see-through
buildings and vacant office space.
Indeed, Atlanta sported the second
lowest office occupancy rate among
markets with 100 million square feet
of space or more, leading only Dallas.
This is an unfamiliar situation for the
quintessential boom town, and it may
be some time before the city attracts
enough new jobs to put a meaningful
dent in the vacancy rate. Indeed, at
mid-year metro payrolls were still in
decline measured on a year-over-year
basis, falling at a 39,700-job, -1.7%
rate in 2Q10, comprehensively trailing the Nation’s –0.5% mean pace.
Goods producing industries remained
the principal weak link. Combined
payrolls in construction, manufacturing and wholesale trade fell at a
28,600-job annual rate in 2Q10, accounting for 70% of metro attrition.
Fortunately, July and August data
exhibited distinct signs of stabilization, boding well for the future. After
hemorrhaging -28,500 jobs over the
12-month period ended in June, metro
payrolls were down only -10,800 jobs
y-o-y in July and essentially unchanged in August. The remarkable
turnaround was fueled by surging
business, health care and education
services hiring and worker recalls by
vehicle manufacturers and air carriers.
The Atlanta labor market is in a deep
hole but our econometric payroll
model indicates that it is ready to stop
SNAP SHOT
digging and begin the climb out. The
model foresees a net y-o-y gain in
4Q10 (9,000 jobs) and strong fivedigit job growth by 1Q11, culminating in a 49,100-job FY11 advance.
And if our bullish 2012 3.8% GDP
growth forecast comes to pass, the
model suggests that six-figure job
creation is in the offing for that year.
Apartment demand cooled moderately
from 1Q’s white hot pace but the
stream of young adults liberated from
their parents’ basements continued
unabated. Reis report that tenants
leased a net of 1,502 units in 2Q,
down from 1Q’s robust 1,934-unit
performance but still the best spring
quarter in three years. On the other
hand, developers were up to the challenge, delivering 1,212 new units,
limiting the sequential gain in occupancy to 10 basis points to 88.6%.
Conversely, competitive pressures
pushed rent levels lower. Average
asking rents plunged $4 (-0.5%) quarter-over-quarter, giving rise to sharp
deterioration in the y-o-y trend, which
declined -1.8% in 2Q after measuring
only –0.8% in the prior quarter. Concession offers were less generous,
however, limiting decay in effective
rent levels to only $1 (-0.1%).
Atlanta owners must contend with
delivery of 2,529 new units in 2H10,
a force that will blunt further occupancy gains this year. Reis remain
optimistic regarding the rent outlook,
however, projecting $7 and $3 face
and effective rent gains by year-end
and near RED 50 average compound
rent growth through 2014.
Investors returned to the hunt in the
summer and declining cap rates convinced owners that this may be the
time to head for the exit. At least six
trades valued at $10mm or more were
consummated after Independence Day
and brokers were actively flogging at
least six large projects on Labor Day.
Vacancy
(11.4% - 2Q10)
Effective
Rents
Y-o-y
change
Projected
YE 2010
10 bps
Unchd
0.1%
0.7%
80 bps
Unchd
39.7m
29.8m
($748 - 2Q10)
Cap Rate
(6.7% - 2Q10)
Employment
(2,264.3m - 2Q10)
KEY POINTS
•
Tenants absorbed another 1,502 units during
2Q10, raising the first half total to 3,436.
The metro occupancy rate hardly budged
though as developers added at least 1,212
units to Atlanta’s apartment stock.
•
Existing properties discounted rents in order
to compete with all the new boxes, trimming
an average of $4 (-0.5%) sequentially from
face rents quarter-to-quarter. Reis report,
surprisingly, that concession levels receded
moderately, limiting the effective rent
damage to only $1 (-0.1%).
•
Area home prices stabilized in the spring.
The median price of homes sold in 2Q rose
1.1% year-over-year (NAR), the first gain in
this series in three years. Case-Shiller Index
data concur, showing y-o-y advances April
to June, the first since September 2007.
•
Annual payroll comparisons rose above
parity in August (+200 jobs), representing
the first gain recorded in 28 months.
•
With cap rates for institutional quality assets
in the mid-6% range, RCR estimate that
generic Atlanta properties will yield annual
total returns of 7.5% over five years, 10 bps
higher than the RED 50 average.
Atlanta - Sandy Spring - Marietta, GA MSA Q2 2010
2Q10 VACANCY TRENDS
•
•
•
After filling a net of 4,733 boxes over the previous three quarters,
Atlanta owners managed to net lease only 1,502 units during 2Q, a
good but not great performance. Occupancy increased 10 bps
sequentially to 88.6%, as supply of 1,212 units offset the demand.
As usual, M/PF Research have a more bullish take. This service
reported that tenants absorbed 8,300 units, exceeding their supply
count by 5,400 units, enough to bump mean occupancy up to 90.3%.
Five publicly-held REITs with 20,516 metro units reported a 20 bps
sequential quarter occupancy decline, falling from 95.6% to 95.4%.
Source: Reis, Inc.
13%
11.4%
12%
Metro Vacancy Rate
•
ATL
U.S.A.
11%
10%
9%
8%
7%
7.8%
6%
5%
Three submarkets posted sequential 90bps+ occupancy rate advances:
Sandy Spring (0.9%), Buckhead (0.9%) and North Gwinnet (1.2%).
4%
2Q 04 2Q 05 2Q 06 2Q 07 2Q 08 2Q 09 2Q 10
2Q10 RENT TRENDS
•
•
•
Reis rent trend data show a significant deviation between asking and
effective rent trends. Asking rents declined -1.8% year-over-year after
falling only -0.8% in 1Q10. By contrast, effective rents decreased at a
–0.1% annual rate, the strongest performance in five quarters.
Average asking and effective rents fell $4 (-0.5%) and $1 (-0.1%)
sequentially to $841 and $748. The variance was attributable to a $3
(3.1%) decrease in the value of the average concessions offer, an
unusual phenomenon during a period of rapid stock expansion.
Publicly-trade REITs with more than 20,500 metro units also reported
a sequential quarter $1 (–0.1%) effective rent decrease to $920.
Source: Reis, Inc.
4%
3%
YoY Rent Trend
•
Metro Rent Trends
2%
1%
-0.1%
0%
-1%
-2%
ASKING
EFFECTIVE
-3%
2Q 04 2Q 05 2Q 06 2Q 07 2Q 08 2Q 09 2Q 10
•
•
•
Source: Reis, Inc.
Betting that Atlanta performance is poised to rebound as the rogue
wave of supply begins to crest, investors returned to the local market.
Ten institutional quality assets exchanged hands in 1H10 for a total of
$214 million, according to Real Capital Analytics, up from 7 sales for
$160 million in the same period of 2009.
Momentum accelerated after mid-year. Seven exchanges valued at
$9mm or more were closed in July and August for total proceeds of
roughly $150mm. And there was no fall chill in September. Another
two transactions valued at nearly $50mm were consummated by the
15th of the month, and at least six large properties were on the block.
Employing a 6.5% generic cap rate, RED Research estimate that a
typical Atlanta asset will generate expected 5-year unlevered total
returns of 7.5%, 10 bps above the RED 50 mean.
8.0%
7.5%
Cap Rate
•
-1.8%
-4%
M/PF report a 0.4% average sequential effective rent increase in 2Q.
7.0%
6.5%
6.0%
5.5%
5.0%
1Q
3Q
1Q
3Q
1Q
3Q
08
08
09
09
10
10
Property Class
Date of
Transaction
Total Price
(in millions)
Price per unit
Estimated Cap
Rate
Parc @ Dunwoody (Sandy Sprg)
Vinings Main Condo (Smyrna)
B
A+
07-Sep-2010
15-Jul-2010
$10.0
$24.0
$32,051
$165,500
12.0%
6.0% p.f.
Heights Cheshire Brdg (Midtwn)
A
02-Jul-2010
$33.0
$103,774
7.0%
10-Aug-2010
$16.7 purchase price +
$8 rehab budget
$29,558 / $43,717
8.0% pf @ 85%
Economic Occup.
Property Name (submarket)
Gwinnet Crossing (No. Gwinnet)
B-
Atlanta - Sandy Spring - Marietta, GA MSA - Q2 2010
Source: S&P Case-Shiller Index, RCR
Appreciation
5%
ATL
•
CSX20
0%
•
-5%
-10%
•
-15%
-20%
Jun-
Oct-
Feb-
Jun-
Oct-
Feb-
Jun-
08
08
09
09
09
10
10
Annual Chg (000)
150
•
49.1
50
0
•
-29.8
-100
-150
-136.1
99 00 01 02 03 04 05 06 07 08 09 10f11f12f
•
•
Source: BLS, Woodley Park Research, RCR
According to HousingTracker.net, the median September listing price
of metro homes fell -2.2% from August and –12.0% from 2009. The
number of homes listed for sale dipped -2.4% and –3.2%, respectively.
Metro payroll employment fell at a 39,700-job, -1.7% pace in the
second quarter, up from 1Q10’s 84,100-job, -3.6% performance.
Improvement was largely attributable to firmer conditions in the business service, government and retail trade sectors. Together, the foregoing super-sectors declined by only 100 jobs year-on-year in 2Q10,
up from attrition at a 25,400-job pace during the first quarter.
Momentum also was evident in the goods producing industries and
transportation. Construction, factory, wholesale trade and transportation employment declined at a 28,700-job rate in 2Q, up from a y-o-y
decline of 47,900 jobs recorded during the prior calendar quarter.
The financial services sector remains deeply troubled. Sector establishments trimmed headcounts at an 11,800-job, -8.0% rate in 2Q,
down from attrition at a 9,400-job, -6.4% pace during the first quarter.
The unemployment rate was 10.2% in July, the 12th 10% or greater
reading in the past 14 months of data (June 2009—July 2010).
Seasonally-Adjusted
8%
•
6%
4%
•
2%
Rate
RealtyTrac report that August home foreclosure activity in the state of
Georgia increased 30.1% from July and 37.0% year-over-year. The
incidence of foreclosure — one of every 246 households — was the
7th highest among the 50 U.S. states and the District of Columbia.
106.4
-50
The Case-Shiller repeat sales index for Atlanta was positive year-overyear in April (3.8%), May (5.3%) and June (4.2%). The June index
remained –28.4% below the July 2006 cycle peak level, however.
EMPLOYMENT TRENDS
100
•
The median price of metro homes sold in 2Q10 was $122,700,
according to the NAR, representing a 1.1% increase from 2009. This
marked the first year-over-year advance in this series since 2Q07.
0%
-2%
•
ATL ACTUAL
ATL FORECAST
USA ACTUAL
USA FORECAST
-4%
-6%
-8%
First half 2010 gains totaled 12,800 jobs, of which approximately
5,000 were attributable to temporary Census data collection jobs.
Atlanta added 2,700 net jobs during July and August.
Forecast: RCR’s econometric model suggests that the Atlanta labor
market is poised to enter a bullish expansion phase. The model projects
a 9,000-job 4Q10 year-on-year gain, accelerating to a 35,400-job pace by
2Q11. The model forecasts a 49,100-job add next year and a fullthroated 106,400-job advance in 2012, predicated on a bullish 3.8% projected rate of GDP growth by Woodley Park Research, the economics
consultancy upon whose forecasts we rely for these purposes.
03 04 05 06 07 08 09 10 11f 12f
RED Estimated Generic Unlevered Asset Total Return Probabilities 11.7%
10.5%
15%
ATL(RAI=2.15)
10%
5%
Expressed on a seasonally-adjusted basis, metro payrolls increased
sequentially in six of the first eight months of 2010.
4.8%
2.8%
5.5%
CLT (RAI=2.86)
7.4%
7.2%
8.9%
12.9%
9.2%
0%
90%
70%
50%
P ro ba bilit y o f A c hie v ing S t a t e d R e t urn o r G re a t e r
30%
10%
SUBMARKET TRENDS
Submarket
Effective Rent
Physical Vacancy
2Q09
2Q10
Change
2Q09
2Q10
$817
$823
$736
$794
$826
$718
-2.8%
0.4%
-2.4%
8.6%
11.4%
10.1%
6.8%
8.4%
10.6%
-180 bps
-300 bps
50 bps
Decatur / Avondale
North DeKalb County
South Fulton Co.
Marietta
Smyrna
Interstate-20 West
Interstate-20 East
South DeKalb Co.
Buckhead
Midtown
Cherokee County
Metro
$696
$643
$715
$814
$672
$651
$729
$713
$667
$695
$565
$1,038
$924
$766
$741
$749
$688
$633
$735
$803
$669
$659
$728
$700
$656
$715
$564
$1,030
$984
$785
$747
$748
-1.2%
-1.5%
2.8%
-1.3%
-0.4%
1.2%
-0.2%
-1.8%
-1.6%
2.9%
-0.1%
-0.8%
6.5%
2.5%
0.8%
-0.1%
9.7%
13.2%
10.9%
11.0%
10.8%
17.2%
11.3%
9.0%
10.3%
11.5%
13.9%
12.2%
10.2%
15.3%
8.1%
11.5%
9.5%
12.8%
12.5%
11.8%
12.7%
17.4%
10.9%
8.3%
14.6%
14.2%
16.6%
9.3%
10.7%
13.4%
9.2%
11.4%
-20 bps
-40 bps
160 bps
80 bps
190 bps
20 bps
-40 bps
-70 bps
430 bps
270 bps
270 bps
-290 bps
50 bps
-190 bps
110 bps
-10 bps
SUPPLY TRENDS
•
•
•
15,000
Reis identify eight large apartment complexes encompassing a
total of 2,317 units that received final certificates of occupancy
during 1H10. The North DeKalb County submarket accounted
for the lion’s share as three projects incorporating 1,058 units
(3.1% of stock) debuted there. Midtown submarket added 526
units, representing a 3.9% increase in stock.
10,000
Units
•
Construction was underway on seven projects encompassing a
total of 2,230 units in late September. Three communities (695
units) are projected to receive final CoO by the end of the year.
M/PF report that the in-process inventory consisted of “fewer
than 2,100 units” at mid-year. This figure compares to deliveries
totaling 2,900 units by their count in the year’s first six months.
William T. Hinga
[email protected]
614-857-1499
Source: Reis, Inc
Completions
Absorption
5,000
0
-5,000
Anther 1,481 units in five complexes were added to the metro
inventory in July, August and early September.
Daniel J. Hogan
[email protected]
614-857-1416
Change
02 03 04 05 06 07 08 09 10f 11f
•
Projects in the new “Midtown West” neighborhood near
Georgia Tech appear to be attracting solid tenant demand.
Two mid-rise properties that debuted in the spring and
summer 2009 were 80% and 60% occupied in June at
average rents ranging from $1,145 to $1,782. The pair
absorbed about 450 units over roughly a 15-month period.
RED CAPITAL GROUP
Two Miranova Place
Columbus, OH 43215
800.837.5100
RED CAPITAL GROUP®
Market Overview
Atlanta, Georgia
July 2010
EXECUTIVE SUMMARY
I
f hiring among temporary employment agencies is a precursor
to broader job creation, then Atlanta is poised for a robust recovery.
The sector created 9,200 net new jobs
in the twelve-month period ended in
May, the largest over-the-year advance since February 2005. Additionally, temporary workers employed by
the US Census Bureau contributed to
a 7,900-job year-over-year increase in
federal government payrolls in the
MSA.
Annual headline job trends were still
negative however, as job growth was
limited to only a few employment
sectors. In addition to private and
public sector temporary hiring, retail,
transportation / warehousing, education and health care firms created a
combined 9,100 jobs y-o-y in May,
following a monthly average y-o-y
decrease of -18,900 job in 2009. But
the modest gains were dwarfed by
continued job attrition among construction, manufacturing, wholesale,
information, finance and leisure service businesses. Combined, the sectors were responsible for a -47,700
job reduction y-o-y in May.
Seasonally-adjusted payroll data suggest that a recovery was underway as
headcounts rose 16,600 in the first
five months of 2010. In 2004, the
first year of the previous recovery,
employers added 10,800 jobs in the
first five months of the year. Moreover, survey data suggests that job
trends will strengthen in the third
quarter. According to the June edition of the Manpower Employment
Outlook Survey, more firms (16%)
plan to expand from July to September than expect to contract (8%).
Business sentiment was considerably
weaker in March, when 11% of surveyed business expected to cut staffs
and only 8% anticipated job growth.
RED CAPITAL Research (RCR)
SNAP SHOT
foresee mild job attrition this year, but
robust growth thereafter. Specifically, our econometric model produces point estimates of -26,500
(-1.1%) jobs lost in 2010 and gains of
73,300 (3.2%) and 116,900 (4.9%)
jobs in 2011 and 2012, respectively.
Home price trends remained weak in
the first quarter. According to the
National Association of Realtors, the
median price of a single-family MSA
home decreased -4.8% y-o-y to
$110,100.
Similarly, the Federal
Housing Finance Agency’s (FHFA)
purchase-only home price index revealed a -2.1% over-the-year decrease.
Although modest, economic improvements year-to-date still contributed to
stronger apartment demand. From
January to March property managers
net leased 1,641 units, resulting in a
10 basis point increase in occupancy
from 88.4% in 4Q09 to 88.5% in
1Q10. Developers remained active,
adding 1,233 units to the rental stock,
on par with the 1,182-unit quarterly
average observed last year.
According to Reis, rent trends were
relatively tame in the first quarter.
The average effective rent rose 0.4%
sequentially, comparing favorably to
the -1.5% decrease recorded in 4Q09.
Conversely, REIT disclosure data
reveal that same-store average rent
fell -0.8% sequentially and -7.2% y-oy to $889 in 1Q10.
Apartment pricing data were mixed.
According to Marcus & Millichap,
cap rates rose over the past year to a
range of 7.75% to 8.25% in the
twelve-month period ended in March.
But CBRE estimate that cap rates for
stabilized Class-A properties were
between 6.25% and 7.25% in March,
about 75 basis points lower than the
range observed in the same month of
2009.
Y-o-y
change
Projected
YE 2010
(11.5% - 1Q10)
90bps
40bps
Effective
Rents
1.7%
0.7%
Vacancy
($748 - 1Q10)
Cap Rate
(6.6% - 1Q10)
Employment
(2,238.8m - 1Q10)
200bps
84.1m
26.5m
KEY POINTS
•
Apartment demand (1,641 units) outpaced
supply (1,233 units) in the first quarter,
producing a 10 basis point decrease in
vacancy from 11.6% in 4Q09 to 11.5%.
Still, vacancy surged 90 basis points yearover-year, largely due to negative net
absorption of 1,645 in 2Q09.
•
Reis expect supply to remain elevated this
year.
Developers completed an annual
average of 5,058 units from 2005 to 2009
and are forecast to add 4,976 units to
inventory this year.
•
Reis report that the average effective rent
advanced 0.4% sequentially to $748. As a
result, the pace of annual effective rent
decline slowed to -1.7%.
Marcus &
Millichap calculate a -5.0% year-over-year
drop in Class-A asking rent and a -4.0%
decrease in Class B/C asking rent.
•
Real Capital Analytics identified ten
transactions totaling $158.3 million in sales
proceeds in the first five months of 2010.
The average price per unit was $62,619,
weighed down by sales of troubled assets.
Indeed, seven of the ten transactions
involved distressed properties.
Atlanta - Sandy Springs - Marietta, Georgia MSA - Q1 2010
VACANCY TRENDS
•
•
•
The metro vacancy rate decreased 10 basis points sequentially from
11.6% in 4Q09 to 11.5% in 1Q10. Positive net absorption totaled
1,641 units in the first quarter, comparing favorably to the 399 units
absorbed during the final nine months of 2009.
Likewise, same-store REIT disclosure data (covering 20,516 units)
reveal a 40 basis point increase in occupancy from 95.2% in 4Q09 to
95.6%.
Marcus & Millichap report that Class B/C vacancy rose 220 basis
points to 13.7% in March. By contrast, vacancy among Class-A assets
rose only 40 basis points to 10.0%.
Source: Reis, Inc.
14%
Metro Vacancy Rate
•
12%
10.6%
11.5%
10%
8%
6%
4%
Atlanta
U.S.A.
2%
0%
1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q
Reis expect increased supply to produce a 40 basis point increase in
vacancy by year-end.
00 01 02 03 04 05 06 07 08 09 10
Metro Rent Trends
RENT TRENDS
•
•
•
The average effective rent increased 0.4% sequentially from $745 in
4Q09 to $748 in 1Q10, following a -1.5% decline in 4Q09. As a result,
the pace of annual effective rent decline moderated from -3.1% to
-1.7%.
Same-store average REIT rent fell -0.8% sequentially and -7.2% yearover-year to $889.
According to Marcus & Millichap, Class-A properties cut asking rent
-5.0% year-over-year, worse than the -4.0% over-the-year decrease
observed among Class B/C assets.
Source: Reis, Inc.
6%
Asking
Effective
4%
YoY Rent Trend
•
2%
-0.8%
0%
-2%
-4%
-1.7%
-6%
-8%
Reis predict that effective rent will rise to $750 by December and then
advance at a 2.4% average annual pace from 2011 to 2014.
1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q
00 01 02 03 04 05 06 07 08 09 10
th
RANK: 37 out of 50
•
•
Real Capital Analytics were aware of ten transactions involving
properties priced at or above $5 million in the first five months of
2010. Sales of distressed properties dominated the transaction activity
accounting for seven of the ten transactions. The source calculates that
sales volume totaled $158.3 million, 39.8% higher than the tally
recorded in the first five months of 2009. Conversely, the average
price per unit fell -39.9% year-over-year to $62,619.
Owing to REO activity, Marcus & Millichap report that cap rates were
around 7.75% to 8.28% over the past year, 200 basis points above prerecession yields. By comparison, CB Richard Ellis calculate that cap
rates for stabilized Class-A properties ranged from 6.25% to 7.25% in
March, below the 7.0% to 8.0% range observed in March 2009.
Based on an assumed 6.5% going-in yield, RCR calculate a 7.4%
expected rate of total return, ranking 19th highest among the RED 50.
Source: Reis, Inc.
9%
8%
Cap Rate
•
7%
6%
5%
4%
3%
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
08
08
08
08
09
09
09
09
10
Property Name
Forest Hills at Vinings
Gables at Lenox Hills
Highland Grove
Eon at Lindberg (Built as condo)
Property Class
Date of
Transaction
Total Price
(in millions)
Price per unit
Estimated Cap
Rate
A
A
A
A
March 2010
January 2010
January 2010
January 2010
$15.1
$36.4
$13.4
$43.0
$50,000
$75,833
$50,000
$122,159
7.5%
6.5%
6.7%
N/A
Atlanta - Sandy Springs - Marietta, Georgia MSA - Q1 2010
$240
MSA
Prices (000)
$220
•
US
•
$200
$180
$160
$140
•
$120
$100
07
08
09
Y
Y
Y
•
1Q 2Q 3Q 4Q 1Q
09
09
09
09
10
•
Annual Chg (000)
100
73.3
50
0
•
-26.5
-100
-150
99 00 01 02 03 04 05 06 07 08 09 10f 11f
USA
The pace of payroll job attrition decelerated this year. Following a
-131,400 (-5.5%) year-over-year job decrease in 4Q09, payrolls fell at
a moderately slower -84,100 (-3.6%) job annual rate in 1Q10. Moreover, only -36,500 (-1.6%) jobs were lost in the twelve-month period
ended in May.
An improvement among business service hiring was partially responsible for the turnaround. The super-sector created 1,500 jobs in the
year-ended in May, owing to robust growth in the temporary employment subsector. Additionally, fewer jobs were lost among professional, technical and scientific service providers.
Likewise, retail, construction and manufacturing job trends stabilized
this year. The sectors lost a combined -58,700 jobs year-over-year in
4Q09. By comparison, the sectors lost only -17,800 jobs year-overyear in May.
On a seasonally-adjusted basis, metro headcounts advanced 16,600 in
the first five months of 2010, much better than the dismal -66,600 job
decline observed in the same period last year.
Forecast
2%
Rate
•
•
8%
Atlanta
Home sales velocity slowed -1.3% year-over-year from 13,943 sales in
1Q09 to 13,762 sales in 1Q10.
Seasonally-Adjusted
Source: BLS
4%
At $144,164, the 1Q10 median home price in Fulton County was 9.2%
above the figure from the comparable period of 2009. DataQuick,
however, note that none of the metro’s 13 other counties posted a gain.
150
6%
According to the National Association of Realtors, the median price of
a single-family MSA home decreased -4.8% year-over-year from
$115,600 in 1Q09 to $110,100 in 1Q10. On the other hand, Atlanta
registered a 0.2% year-over-year increase in the April Case-Shiller
home price index.
EMPLOYMENT TRENDS
-50
The pace of metro population growth decelerated from 2.2% in 2008 to
1.7% in 2009, owing to slower net domestic migration.
•
0%
-2%
-4%
-6%
-8%
99 00 01 02 03 04 05 06 07 08 09 10
15%
10%
5%
RCR predict that employment trends will remain negative this year as
-26,500 (-1.1%) positions are eliminated from payrolls. Growth will
resume next year. Our econometric model produces point estimates
of 73,300 (3.2%) net new jobs in 2011 and a robust gain of 116,900
(4.9%) jobs in 2012. Economy.com are less optimistic, forecasting
job growth tallies of 33,790 in 2011 and 104,180 in 2012.
RANK: 33rd out of 50
Atlanta
3.7%
2.6%
Charlotte
6.2%
5.4%
7.3%
7.9%
9.1%
9.7%
11.6%
12.0%
0%
90%
70%
50%
30%
10%
SUBMARKET TRENDS
Submarket
Effective Rent
Physical Vacancy
1Q09
1Q10
Change
1Q09
1Q10
North Gwinnett
South Gwinnett
Decatur / Avondale
North DeKalb
Clayton / Henry
South Fulton
Marietta
Smyrna
I-20 West
$816
$845
$757
$713
$649
$726
$823
$686
$666
$741
$718
$670
$799
$825
$719
$696
$640
$733
$792
$668
$663
$731
$712
$663
-2.1%
-2.4%
-5.0%
-2.4%
-1.3%
1.0%
-3.7%
-2.7%
-0.4%
-1.3%
-0.8%
-1.0%
8.3%
11.3%
9.4%
8.4%
12.1%
11.4%
11.0%
9.6%
14.6%
10.8%
7.2%
10.4%
7.1%
9.3%
11.8%
10.0%
12.7%
12.8%
11.7%
11.8%
17.4%
11.4%
8.3%
11.4%
-120 bps
-200 bps
240 bps
160 bps
60 bps
140 bps
70 bps
220 bps
280 bps
60 bps
110 bps
100 bps
I-20 East
$705
$711
0.9%
10.9%
13.8%
290 bps
South DeKalb
$578
$585
1.2%
14.6%
17.0%
240 bps
Buckhead
$1,047
$1,034
-1.2%
11.7%
10.2%
-150 bps
Midtown
$953
$966
1.3%
9.4%
9.2%
-20 bps
Central I-75 West
$780
$783
0.4%
13.2%
14.2%
100 bps
Cherokee County
$754
$731
-3.1%
8.1%
7.4%
-70 bps
Metro
$761
$748
-1.7%
10.6%
11.5%
90 bps
SUPPLY TRENDS
•
•
Source: Reis, Inc
Apartment developers completed 2,727 units in the first six months of
2010, representing a 0.8% increase in inventory. The North DeKalb
submarket experienced the largest addition to inventory as three
properties totaling 1,058 units were delivered during the period.
Developers remain active. As of June, Reis were aware of 11
apartment properties (3,543 units) under construction. Nine (2,5929
units) projects were scheduled to open by year-end.
Lease-up activity was modest over the past year. According to Reis, a
401-unit Buckhead property that was completed in July 2009 was
46.5% occupied in March, representing a 21 unit-per-month average
absorption rate. Additionally, a 68.0% occupancy rate was reported for
a property that was delivered to the South Fulton submarket in May,
yielding a 19 unit-per-month absorption rate.
Daniel J. Hogan
[email protected]
614-857-1416
William T. Hinga
[email protected]
614-857-1499
12,000
Completions
Absorption
10,000
8,000
6,000
Units
•
Change
4,000
2,000
0
-2,000
-4,000
02 03 04 05 06 07 08 09 10f 11f
RED CAPITAL GROUP
Two Miranova Place
Columbus, OH 43215
800.837.5100
The information contained in this report was prepared for general information purposes only and is not intended as legal, tax, accounting or financial advice, or recommendations to buy or
sell currencies or securities or to engage in any specific transactions. Information has been gathered from third party sources and has not been independently verified or accepted by RED
CAPITAL GROUP. RED makes no representations or warranties as to the accuracy or completeness of the information, assumptions, analyses or conclusions presented in the report. RED
cannot be held responsible for any errors or misrepresentations contained in the report or in the information gathered from third party sources. Under no circumstances should any information contained herein be used or considered as an offer or a solicitation of an offer to participate in any particular transaction or strategy. Any reliance upon this information is solely and
exclusively at your own risk. Please consult your own counsel, accountant or other advisor regarding your specific situation. Any views expressed herein are subject to change without notice
due to market conditions and other factors.
RED CAPITAL GROUP®
Market Overview
Atlanta, Georgia
April 2010
EXECUTIVE SUMMARY
D
uring the winter, the Atlanta
economy appeared to settle
to the bottom of its recessionary cycle. Expressed on a seasonally-adjusted basis, payroll jobs were
essentially unchanged over the fivemonth period ended in February, bobbing from 2,252,000 to 2,257,000: a
distinct improvement from a loss of
52,000 jobs from March to September
2009. Likewise, the three-month moving average unemployment rate was
at about the same level in February
(10.6%) as August, a welcome respite
following a 150-basis point surge
recorded from March to August.
By the same token, labor markets
exhibited few signs of meaningful
recovery. Although Atlanta workers
lost a net of only 6,200 jobs in 4Q09,
the lowest figure since 1Q08, job cuts
continued apace during January and
February, when 5,900 positions were
eliminated. Meanwhile, not seasonally-adjusted year-over-year comparisons badly trailed the national average, falling –3.7% in the year ended
February 2010, compared to –2.5%
for the U.S. labor market as a whole.
Goods producing industries remained
the worst offenders. Construction
headcounts fell by more than -20% yo-y and factory payrolls by more than
-10% for the 14th consecutive month
in February. Skilled service industry
trends were hardly better. The financial service sector posted its 31st consecutive negative annual comparison
(-6.2%) while professional and technical business services job cuts proceeded at a –6% annual pace or faster
for the eighth consecutive month.
RED Research’s econometric payroll
model indicates that a turnaround is
due in the fall. The model forecasts
five-digit y-o-y declines through midyear, giving way to a 16,900-job advance in 4Q10. Hiring is projected to
accelerate in 2011, when metro estab-
SNAP SHOT
lishments are forecast to hire a net of
54,700 new workers for a 2.4% gain.
Atlanta’s residential real estate markets firmed over the winter as existing
homes posted the smallest y-o-y value
decline in two years (N.A.R. and S&P
Case-Shiller). By contrast, commercial markets remained fragile. Rising
vacancies and tumbling rents in the
office and retail sectors eroded property cash flows and debt-service coverage, giving rise to a handful of highprofile mortgage defaults. Likewise,
weak sales of infill condo units persisted, propelling the sector’s construction loan delinquency rate to a
record 42%, according to Trepp, LLC.
Apartment owners encountered lukewarm demand, perhaps a small victory under the circumstances. Net
absorption slowed from 3Q’s robust
1,619-unit Reis count to a net loss of
–294 tenants. Occupancy declined as
a result, falling 40 bps sequentially
and 130 bps annually to 88.4%, establishing a new record low for the Reis
20-year Atlanta data series. Preliminary findings by M/PF Research suggest that 1Q10 brought better tidings.
This source reports a net gain of 3,100
leases in the period, pushing y-o-y
occupancy 30 bps higher to 88.5%.
Rent trends were another matter. Reis
recorded an $11 (-1.5%) 4Q sequential effective rent decline to $744,
following a 0.9% advance in 3Q. For
the year, effective rents fell $24 (3.1%), representing the worst 12month comparison in six years. M/PF
report even weaker 1Q10 results. The
service posted a –5.9% effective rent
decrease for the year ended March 31,
observing that rent trends exhibit no
indication of an incipient turnaround.
Reis expect absorption to return to the
plus side of the ledger in 2010, but it
won’t be strong enough to keep pace
with 2,214 new units. Occupancy and
rent are projected to decline again.
Y-o-Y
change
Projected
2010
130bps
30 bps
3.1%
0.3%
Vacancy
(11.6% - 4Q09)
Effective
Rents
($745 - 4Q09)
Median Cap Rate
(6.8% - 4Q09)
Employment
(2,269.3m - 4Q09)
50 bps
Neutral
131m
27.6m
KEY POINTS
•
After posting a robust 1,619-unit net positive
absorption performance during 3Q, Atlanta
owners saw demand slip to –294 net leased
units during the seasonally weaker 4Q.
•
Accounting for supply (1,396 units), vacancy
advanced 40 basis points sequentially and
130 basis points year-over-year to 11.6%,
Reis expect vacancy to reach 11.9% in 2010.
•
Owners continued to offer aggressive rent
discounts to attract and retain tenants.
Average asking rents declined $4 (-0.5%),
but the value of lease concessions increased
$7, producing an $11 (-1.5%) effective rent
decrease to $745. Reis foresee further rent
erosion in 2010, averaging about –0.3%.
•
Sales velocity was steady (there were 16
significant apartment trades in 4Q09, down
from 17 in 4Q08), but proceeds were sharply
lower ($176mm vs. $338mm). Cap rates
were mostly in the high-6% to 7% range.
•
Employing a generic 7.0% cap rate, RED
Research estimate expected 5-year total
returns for Atlanta MFH assets of 7.1%, 40
bps above the RED 50 mean. High historical
NOI volatility reduces risk-adjusted returns
below the peer group norm, however.
Atlanta - Sandy Spring - Marietta, GA MSA - 4Q 2009
VACANCY TRENDS
•
•
After posting surprisingly strong leasing in 3Q09, absorption weakened
again in 4Q. A net of 294 tenants vacated metro units, marking the
fourth quarter of the last five in which net absorption was negative..
Average metro occupancy fell 40 basis points sequentially to 88.4%.
Demand for class-A units remained fairly brisk, as first tier properties
chalked down 601 net move-ins. Space demand for older properties
was much weaker: tenants vacated a net of 894 class-BC units (-3,796
during FY09), pushing class vacancy to 13.5%, a record high.
Source: Reis, Inc.
16%
11.6%
14%
Metro Vacancy Rate
•
10.3%
12%
10%
8%
6%
8.0%
4%
ATLANTA
CL-A
2%
Demand for units in close-in suburbs and infill locations was
constructive. The Sandy Spring, Alpharetta, Midtown, Buckhead and
Central I-75 submarkets added 672 net new tenants in 4Q. Occupancy
rates increased sequentially in each submarket except Central I-75.
0%
4Q 4Q 4Q 4Q 4Q 4Q 4Q 4Q 4Q 4Q 4Q
99 00 01 02 03 04 05 06 07 08 09
th
RANK: 46 out of 50
Metro Rent Trends
RENT TRENDS
•
•
Asking rents declined quarter-to-quarter in the class-A and class-BC
segments, falling $4 (-0.4%) to $965 in the former and $5 (-0.7%) to
$716 in the latter. Overall, average face rents tumbled -0.5% to $844.
Pressure from new properties in lease-up forced property managers to
offer heftier lease concession packages, causing average effective rents
to plunge $11 (–1.5%) sequentially to a $745. For the year, effective
rents fell –3.1%, ranking 38th among the RED 50 markets.
M/PF Research and trust data suggest that rent trends were weaker than
Reis’s estimate. M/PF report that effective rents fell –5.9% in the 12
months ended in March 2010, while 5 public REITs operating a total of
17,700 metro units reported –2.2% sequential quarter and –7.3% yearon-year unit weighted average rent decreases in the December quarter.
Source: Reis, Inc.
8%
6%
YoY Rent Trend
•
4%
-2.0%
2%
0%
-2%
-4%
-3.1%
Asking
Effective
-8%
Class-A Asking
Class-BC Asking
4Q 4Q 4Q 4Q 4Q 4Q 4Q 4Q 4Q 4Q 4Q
-6%
99 00 01 02 03 04 05 06 07 08 09
•
•
Source: Reis, Inc. Sales Comp Composite
Fourth quarter 2009 sales velocity was on par with the comparable
period of 2008, with 16 institutional quality trades closing during
4Q09, compared to 17 trades in the prior-year period.
Total proceeds were down sharply, however, falling from $338mm
during 4Q08 to $176mm this year. The proceeds decrease was
attributable to a slowdown in trophy property closings in the fall. Only
two projects valued at $20mm or more exchanged hands during 4Q,
down from six trophy trades closed in the year-earlier period.
Cap rates for high-quality assets hovered in the high-6% to low-7%
range, down slightly from 4Q08. Using a 7.0% rate as a proxy, RCR
estimate expected unlevered 5-year total returns from generic Atlanta
assets of 7.1%, 40 basis points above the RED 50 average. High levels
of historical NOI volatility, on the other hand, give rise to a belowaverage risk-adjusted return index of 1.97 (versus 2.29 R50 mean).
8.0%
7.5%
Cap Rate
•
U.S.A.
CL-BC
7.0%
6.5%
6.0%
5.5%
2Q
4Q
2Q
4Q
2Q
4Q
07
07
08
08
09
09
Property Name
Wood Hollow (Marietta)
Eon on Lindberg (Buckhead)
Lincoln Court (North DeKalb)
Highland Grove (So. Gwinnett)
Property Class
Date of
Transaction
Total Price
(in millions)
Price per unit
Est / (Quoted)
Cap Rate
B+
A+ (condo)
B
B
24-Nov-2009
05-Jan-2010
31-Jan-2010
06-Jan-2010
$18.3
$43.9
$36.4
$13.5
$58,494
$122,159
$75,833
$50,373
7.5% (7.0%)
Not stabilized
6.2% (6.5%)
6.5%
$240
ATLANTA
$220
•
US
$200
$180
•
$160
$140
•
$120
$100
2006 2007 2008
1Q
2Q
3Q
4Q
09
09
09
09
•
•
Annual Chg (000)
100
54.7
50
•
0
-27.6
•
-100
-150
99 00 01 02 03 04 05 06 07 08 09 10f11f
•
Source: BLS
ATLANTA
USA
Rate
6%
Metro Atlanta population stood at 5,475,213 on July 1, 2009, according
to the Census Bureau, an increase of 89,627 (1.67%) from 2008. The
gain was the smallest recorded in the current decade. The previous low
(117,566) was registered in the year ended July 1, 2003.
RealtyTrac report that 3.73% of Atlanta households were in default or
foreclosure at some point in 2009, 34th highest rate in the nation.
150
8%
The N.A.R. reports that the median price of an Atlanta home sold
during 4Q09 was $124,800, representing a y-o-y decrease of –3.4%.
EMPLOYMENT TRENDS
-50
Seasonally-adjusted data published by S&P Case-Shiller indicate that
Atlanta metro home prices declined for the fourth consecutive month in
January, dropping –1.4% from December. The January index stood at
107.04 (January 2000=100), representing decreases of –2.2% from
January 2009 and –21.6% from the September 2007 cycle peak.
Payroll trends improved marginally in the fourth quarter. After posting the largest quarterly year-over-year payroll loss metric ever in
3Q09 (153,300 jobs or -6.3%), job attrition in Atlanta MSA decelerated to a 131,400-job, -5.5% pace in 4Q09.
Job cuts in goods producing industries continued at a rapid rate in 4Q.
Construction firms trimmed payrolls at a –24.8% y-o-y pace, while
manufacturers contracted at a 22,900-job, -14.1% rate.
Trends in the financial and business services also were disquieting.
Payrolls in the former super-sector declined at a 12,300-job, -8.1% yo-y pace, down from a 9,800-job loss in 3Q. Headcount losses in the
business services sector declined from 3Q’s 38,200 jobs to 31,200
jobs in 4Q, but the gains were do entirely to an increase in the use of
contract and temporary employees. Losses in the critical professional, scientific and technical service sub-sector further deteriorated.
Early 2010 data were more encouraging. Year-over-year losses
slowed to 97,300 in January and 85,500 in February. The latter was
the smallest setback recorded since November 2008. Readers should
note that 2009 comparisons were exceptionally weak.
4%
Seasonally-Adjusted
2%
•
-6%
Seasonally-adjusted job losses in 4Q were down sharply from the
prior quarter. Aggregate losses in 3Q09 were 34,900 jobs, but cuts in
4Q09 totaled only 6,200. Unfortunately, preliminary BLS data for
January and February show no improvement as 5,900 jobs were lost
in the two-month period.
-8%
Forecast: RED’s econometric payroll model projects double digit year-on-year
0%
-2%
-4%
99 00 01 02 03 04 05 06 07 08 09 10
15%
10%
5%
losses through mid-year. Attrition is expected to slow in the summer and give
way to a solid 16,900-job advance in 4Q09. This will set the stage for a relatively
robust gain in 2011, when the RED Atlanta algorithm generates a projection of
54,700 new jobs, which will stand as the largest annual harvest in five years.
ATL (RAI=1.97)
3.6%
2.1%
CLT (RAI=2.43)
5.0%
6.3%
7.0%
8.1%
8.8%
9.9%
11.4%
12.2%
0%
90%
70%
50%
30%
10%
SUBMARKET TRENDS
Submarket
Effective Rent
Physical Vacancy
4Q08
4Q09
Change
4Q08
4Q09
$842
$768
$716
$653
$733
$836
$682
$656
$747
$734
$658
$701
$585
$789
$722
$693
$637
$730
$803
$669
$649
$720
$700
$663
$709
$570
-6.3%
-6.0%
-3.2%
-2.5%
-0.4%
-3.9%
-1.9%
-1.1%
-3.6%
-4.6%
0.8%
1.1%
-2.6%
7.6%
9.2%
7.9%
11.7%
10.9%
11.0%
9.3%
14.2%
10.5%
7.9%
9.7%
10.3%
13.6%
7.6%
11.0%
10.4%
13.1%
11.8%
11.2%
12.0%
17.5%
12.0%
8.6%
12.4%
12.0%
14.7%
Unchd
180 bps
250 bps
140 bps
90 bps
20 bps
270 bps
330 bps
150 bps
70 bps
270 bps
170 bps
110 bps
Buckhead
$1,063
$1,033
-2.8%
11.0%
11.2%
20 bps
Midtown
$970
$950
-2.1%
9.2%
9.6%
40 bps
Central I-75 / West Midtown
$800
$787
-1.6%
12.5%
15.7%
320 bps
Cherokee County
$774
$734
-5.2%
8.6%
8.3%
-30 bps
$769
$745
-3.1%
10.3%
11.6%
130 bps
Decatur / Avondale
North DeKalb County
South Fulton County
Marietta
Smyrna
Interstate-20 West
Interstate-20 East
South DeKalb County
Metro
SUPPLY TRENDS
•
•
Source: Reis, Inc
In spite of steadily rising vacancy rates and virtually no effective rent
growth over the past three years, apartment construction in the Atlanta
area continues at a vigorous clip. Reis report that presently 12 major
apartment projects are under construction encompassing a total of
3,768 units. Another 48 communities are in the planning phase, a
group incorporating 11,265 total units.
Infill sites account for a substantial percentage of the in-process
inventory. Four projects are underway in the Central I-75 West and
Midtown submarkets encompassing an aggregate of 1,368 units. The
balance are well diversified geographically, located in the South
Fulton submarket (615 units); North Fulton and Sandy Springs
submarkets (569 units) and the Marietta submarket (708 units).
While the trend among condo developers seems to be toward
repurposing buildings as rental apartments, two major condo projects
continue to soldier on in Buckhead. One is a 21-story, 221-unit tower
in the Lindbergh section, located about one mile from a condo that
was completed and repurposed in 2009. The other is a 32-story mixed
use project including 350 luxury condos. After discounting the price
of some units up to 33%, the developer reportedly moved 310 units.
Daniel J. Hogan
[email protected]
614-857-1416
William T. Hinga
[email protected]
614-857-1499
15,000
Completions
Absorption
10,000
Units
•
Change
5,000
0
-5,000
02 03 04 05 06 07 08 09 10f 11f
•
•
•
Average occupancy in apartments opened at least one year
in the Lindbergh section was 88.3% (Reis) in December.
Rents averaged $1,244 in Lindbergh’s 2,022-unit stock.
After leasing for about one year, an 18-story tower in the
heart of Buckhead was 63% occupied in December at
$2,658 average rents: highest in the submarket.
A West Midtown 282-unit infill project offering “B”
amenities at accessible rents debuted in 1Q10. In theory,
projects of this type should be in today’s “sweet spot.”
RED CAPITAL GROUP
Two Miranova Place
Columbus, OH 43215
800.837.5100
RED CAPITAL GROUP®
Market Overview
Atlanta, Georgia
December 2009
EXECUTIVE SUMMARY
T
he economic pain associated
with recessions often falls
hardest on “growth markets,”
metro areas in which the act of rapid
expansion itself forms a major industry. As Atlanta is one of the U.S.’s
quintessential growth markets, it
comes as no surprise that its experience with the Great Recession was
unusually difficult. Indeed, from peak
(August 2007) to trough (24 months
later) metro payrolls declined by a
staggering 186,000 jobs, representing
nearly 8% of the employment base.
Recent payroll data suggest that the
long-awaited recovery finally made
its way to Georgia in late summer.
Metro job loss trends peaked in August as year-on-year attrition reached
a record 147,600 jobs (-6.1%), and a
net of 21,400 (seasonally-adjusted)
were extinguished month-to-month,
the worst one-month job loss metric
in Atlanta’s often volatile history.
Conditions improved rapidly thereafter though, as YoY loss comparisons
declined to 117,100 jobs in the 12month period ended in November, a
month when seasonally-adjusted job
losses dropped to the lowest level
since February: -1,100 jobs.
The 4Q09 rebound was led by the
transportation, hospitality and retail
sectors, prompted by improved global
trade flows through Georgia ports and
increased spending and confidence on
the part of consumers. The foregoing
sectors, plus a retail-inspired surge of
temporary worker usage in November
were responsible for a 14,400-job net
improvement in year-on-year comparisons relative to August figures.
By contrast, the construction industry
won’t rebound with such alacrity,
leading RED CAPITAL Research to
expect the recovery to evolve rather
deliberately. Building is not likely to
return in earnest before 2011, leading
our econometric model to forecast
SNAP SHOT
year-on-year losses continuing
through the summer 2010, yielding a
net loss of jobs for FY10 (-11,400)
before giving way to a robust net
69,000-job add during 2011.
Strong summer apartment demand
was another sign that the metro economy was on the mend. After vacating
–4,714 units over the previous nine
months, tenants leased a net of 1,834
units in 3Q, according to Reis, the
best net absorption recorded in two
years. Average occupancy advanced
30 basis points from June to 88.9%,
the third strongest up move record by
a RED 50 market. Occupancy advanced in 10 of 17 metro submarkets,
with the largest gains recorded in
north suburban areas and the more
affordable urban submarkets, especially in the new Midtown West area.
Rising demand led owners to seek to
recover a portion of the -3.1% net
revenue loss suffered over the nine
months ended in June. Reis report that
landlords ceded $7 of asking rent
quarter-to-quarter but trimmed concession levels by $14, producing a $7
(0.9%) sequential quarter effective
rent increase, the best one-quarter
gain posted in two years. On this
basis, Atlanta ranked #2 in the
RED 50, trailing only Pittsburgh.
Year-on-year comparisons improved
accordingly, rising from –2.9% in the
previous quarter to –2.2% in 3Q09.
Reis models suggest that the rent rally
is unsustainable. Indeed, the remarkable recession of rent concessions
may reflect unreliable survey results
as much as anything. The service expects effective rents to drop $11 (1.5%) by YE2009 and a further -0.1%
in 2010. Properties are forecast to
give back 3Q’s occupancy gains in
the fourth quarter and suffer a further
30 bps vacancy rate setback in 2010
as projected new supply of 2,797
units outruns net leases of 1,472 units.
Y-o-y
change
Projected
YE09 Metric
(11.1% - 3Q09)
1.8%
0.3%
Effective
Rents
2.2%
3.0%
30 bps
20 bps
140m
127m
Vacancy
($756 - 3Q09)
Median Cap Rate
(6.9% - 3Q09)
Employment
(2,278.6m - 3Q09)
KEY POINTS
•
After suffering two years of wrenching
economic contraction the recession appears
to have run its course in Atlanta. Metro
payrolls fell at a 139,600-job year-on-year
rate in 3Q09, but losses are likely to recede
to 120,000 jobs in 4Q09, and yield to net
year-on-year job gains by summer 2010.
•
Apartment demand surged in 3Q09, allowing
owners to net lease 1,834 units, the strongest
result posted in two years. Occupancy
increased 30 basis points sequentially as a
result to an average of 88.9%.
•
Reis report that average asking rents fell $7
quarter-to-quarter to $849, but concession
levels plummeted by $14 producing an
unexpected $7 (0.9%) increase in average
effective rents. The performance was one of
the strongest observed among the RED 50.
•
Twelve institutional quality apartment
projects exchanged owners October 1—
December 23 for total proceeds of $130mm.
This compared to 15 trades for $307mm in
the comparable period of 2008.
•
Employing a 7.0% going-in cap rate, RCR
estimate that Atlanta assets will produce
annual total returns of 5.6% over five years.
VACANCY TRENDS
•
•
•
Stabilizing labor market conditions and continued uncertainty about the
strength of the for-sale housing market combined to produce firmer
apartment demand in 3Q. Household absorbed the most apartment
units in two years, sending occupancy up 30 basis points to 88.9%.
Marcus & Millichap (M&M) report 88.3% overall 3Q09 occupancy,
with class-A and class-BC rates of 89.2% and 86.8%, respectively.
Properties in northern suburban markets experienced brisk tenant
demand. The Roswell, Sandy Spring, North Gwinnett and North
DeKalb submarkets posted 50 bps to 70 bps occupancy gains in 3Q.
Source: Reis, Inc.
12%
9.3%
8%
6%
7.5%
4%
ATLANTA
U.S.A.
2%
0%
Central submarkets also attracted tenants. Midtown (20 bps), Buckhead
(40 bps) and Central I-75 West (160 Bps) scored occupancy advances.
3Q 3Q 3Q 3Q 3Q 3Q 3Q 3Q 3Q 3Q
RANK: 46th out of 50, up from 47th in 2Q09.
00
01 02
RENT TRENDS
•
•
•
Year-over-year comparisons improved from –2.9% in 2Q to –2.2%.
M&M dissent, reporting a –4.0% YoY effective rent decline, including
a –3.4% reduction year-to-date through September. Public trusts with
approximately 3,300 and 6,400 Atlanta units disclosed -2.1% and 2.8% sequential quarter effective rent decreases in the third quarter.
2%
•
07 08
09
0%
-2%
-2.2%
-4%
-1.7%
-6%
-8%
3Q 3Q 3Q 3Q 3Q 3Q 3Q 3Q 3Q 3Q
00
st
Following a strong third quarter in which 13 institutional quality assets
traded for $269mm, property market momentum dissipated to a degree
during the fourth quarter (through mid-December) when 12 properties
exchanged hands for total proceeds of $131mm.
Distressed property sales accounted for at least four 4Q09 trades.
Total proceeds were $14.9mm and the average unit sold for $16,900.
Cap rates for class-A and class-B projects were in the 7% to 7.5%
range. Distressed assets and class-B-/C properties traded at initial
yields in the 8% to 9.5% range.
01
02
03
04
05
06
07
08
09
Source: Reis, Inc. (Trade Median)
7.5%
Cap Rate
•
06
ASKING
EFFECTIVE
4%
•
05
Source: Reis, Inc.
RANK: 32 out of 50, up for 41 in 2Q09.
•
04
6%
Midtown effective rents surged $46 (5.0%) sequentially to $970 (Reis).
nd
03
Metro Rent Trends
Reis surveys found that owners discounted face rents further in 3Q09,
but recaptured the lost revenue and more by way of concession
recession. The service reported a $7 (-0.8%) quarter-to-quarter
decrease in average asking rent to $849. Conversely, the monthly
equivalent value of the typical concessions package declined $14 to
$93, producing a $7 (0.9%) sequential effective rent advance.
YoY Rent Trend
•
11.1%
10%
Metro Vacancy Rate
•
7.0%
6.5%
6.0%
Employing a generic 7.0% cap rate, RCR estimate that investors in Atlanta MFH
assets should expect to earn a 5.6% unlevered annual total return over five years, 20
bps above the RED 50 mean. Historical NOI volatility in Atlanta is high, however,
holding the risk-adjusted return index (RAI) to 1.75, below the 2.03 RED 50 mean.
3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
07 07 08 08 08 08 09 09 09 09
Property Class
Date of
Total Price
Price per unit
Estimated Cap
Wood Hollow (Marietta)
Lakes at Vinings (Smyrna)
B
B
14-Nov-2009
17-Nov-2009
$18.3
$24.8
$58,494
$53,341
7.1%
7.1%
The New Ashford (No. DeKalb)
B+
12-Nov-2009
$19.8
$89,367
6.5%
Lindberg Vista (Buckhead)
A
30-Sep-2009
$52.0
$165,486
6.0% p.f.
Source: Federal Housing Finance Agency HPI
•
and S&P Case-Shiller Index
15%
Appreciation
10%
5%
0%
•
-5%
-10%
U.S.
ATL (FHFA)
ATL (CASE-SHILLER)
-15%
-20%
•
3Q 2Q 1Q 4Q 3Q 2Q 1Q 4Q 3Q
03
04
05
05
06
07
08
08
09
Annual Chg (000)
100
•
50
•
0
-11.4
-100
•
-126.8
00 01 02 03 04 05 06 07 08 09f 10f 11f
Source: BLS
•
6%
4%
Rate
2%
0%
-3.9%
-2%
•
ATLANTA
USA
-6%
-8%
•
-5.8%
99 00 01 02 03 04 05 06 07 08 09
5%
Blue collar workers had the worst of it. Construction and manufacturing payrolls declined at -20.5% and –12.3% annual rates. Workers in
the business service sector hardly fared better as headcounts fell at a
37,200-job, -9.2% year-over-year rate, including a 19,000-job, -10.8%
decline at critical professional and scientific service establishments.
Seasonally-adjusted job losses peaked at 21,400 (-0.9%) in August,
the highest number of positions ever lost in a single month.
Conditions improved markedly in the fourth quarter. Year-over-year
payroll attrition slowed to 134,500 jobs in October and 117,100 jobs
in November, the smallest job loss figure since February.
A material increase in temporary employee usage was the largest
contributing factor. Temp service headcounts fell to a cycle low
72,300 workers in 2Q09, down -20.0% YoY. Employment service
payrolls rebounded to 79,200 in November, reflecting a small 1,600job year-over-year decline. A recovery of temp worker usage is often
a leading indicator of a prospective increase in permanent jobs.
Negative seasonally-adjusted month-to-month payroll metrics continued through November, but the pace of losses dissipated to 1,100.
After peaking at 10.6% in June and July, the unemployment rate retreated to 10.4% in September and October.
Forecast: RCR expect the positive trends observed in 4Q09 results to
strengthen though 2011. But Atlanta is in a deep hole and our models
indicate that positive YoY comparisons won’t reappear before 3Q10.
Metro payrolls will drop -11,400 jobs in 2010, but gain 69,800 in 2011.
15%
10%
Payroll trends reached rock bottom in 3Q09 when the year-over-year
comparison declined to an historic low –139,600 (-5.8%). Workers on
establishment payrolls fell to 2.28 million, the lowest level in 5 years.
October and November 2009
•
-4%
DQ News report that Fulton County home sales velocity fell -9.0%
YoY in 3Q09, but the median price increased 3.0% to $163,300.
Prices (-6.0%) and sales (-5.1%) fell in Cobb Co., while Gwinnett
recorded a 12.0% rise in sales but a -13.0% price decrease to $144,222.
Third Quarter 2009
69.8
-150
The S&P Case Shiller Index indicates that metro home values troughed
in March 2009 at 104.69 (Jan. 2000=100) and increased steadily
afterward. The index stood at 111.26 in September, up 6.3% from
March, but nevertheless down -9.3% form September 2008.
EMPLOYMENT TRENDS
Source: BLS Data, RCG Research Forecast
-50
Georgia population increased 131,373 (1.4%) during the 12 months
ended July 1, 2009, the slowest rate of the decade. Based on recent
demographic trends, the metric implies the Atlanta area added about
100,000 (1.9%) residents. In 2008, metro population increased by
114,989 (2.2%).
ATL (RAI=1.75)
2.2%
1.3%
CLT (RAI=2.03)
3.9%
4.8%
5.6%
6.5%
7.2%
8.2%
9.5%
10.5%
0%
90%
70%
50%
30%
10%
SUBMARKET TRENDS
Submarket
Effective Rent
Physical Vacancy
3Q08
3Q09
Change
3Q08
3Q09
North Gwinnett
South Gwinnett
$860
$863
$764
$720
$644
$800
$830
$737
$700
$646
-7.0%
-3.8%
-3.5%
-2.8%
0.3%
7.2%
10.4%
8.7%
7.4%
10.1%
7.9%
10.8%
9.6%
9.9%
13.4%
70 bps
40 bps
90 bps
250 bps
330 bps
Decatur / Avondale
North DeKalb County
$746
$836
$739
$829
-0.9%
-0.8%
8.9%
8.5%
11.1%
10.3%
220 bps
180 bps
$686
$664
$757
$742
$653
$694
$590
$1,065
$987
$677
$661
$741
$711
$674
$698
$570
$1,040
$970
-1.3%
-0.5%
-2.1%
-4.2%
3.2%
0.6%
-3.4%
-2.3%
-1.7%
8.8%
13.3%
9.4%
6.9%
9.0%
8.4%
12.9%
11.2%
9.8%
10.9%
17.4%
11.0%
7.9%
10.6%
11.5%
12.6%
11.8%
10.0%
210 bps
410 bps
160 bps
100 bps
160 bps
310 bps
-30 bps
60 bps
20 bps
South Fulton County
Marietta
Smyrna
Interstate-20 West
Interstate-20 East
South DeKalb
Buckhead
Midtown
Interstate-75 / Midtown West
Metro
Change
$812
$778
-4.2%
11.4%
13.7%
230 bps
$773
$756
-2.2%
9.3%
11.1%
180 bps
SUPPLY TRENDS
•
•
•
Reis identify 2,841 units under construction or rehab in eight
apartment projects in late December. About one-third of the
units are located in one Buckhead and two Midtown submarket
properties. Each is expected to be completed by September
2010. The total includes a substantial rehab of a 708-unit 1978vintage Marietta complex.
Source: Reis, Inc
Units
•
The under-construction tally does not include 1,000 units
attributed to a smart growth project in the Brookhaven section
of DeKalb County. Two projects totaling about 675 units in
this development are pre-leasing. Both are luxury mid-rise
structures. Asking rents range from $1,300 to $2,200 per
month, equating to roughly $1.40 to $1.50 per square foot.
A 360-unit high-rise in Buckhead is scheduled for a mid-year
2010 delivery. The project was initially intended for condo unit
sale but was subsequently repurposed as apartments.
Reis list 13,373 units in the planning phase. Of these, 5,260 are
in the Buckhead, Midtown and Midtown West submarkets.
Daniel J. Hogan
[email protected]
614-857-1416
William T. Hinga
[email protected]
614-857-1499
Completions
10,000
8,000
6,000
4,000
2,000
0
-2,000
-4,000
02
•
03
04
05
Absorption
06
07
08
09f
10f
A project near the Georgia Tech campus delivered summer
2008 was 95% occupied in September at asking rents averaging
approximately $1,350 ($1.20 to $1.40/sf). In late December,
property management offered a roughly 12% asking rent
discount on small one-bedroom units if leased by January 20.
RED CAPITAL GROUP
Two Miranova Place
Columbus, OH 43215
800.837.5100
RED CAPITAL GROUP®
Market Overview
Atlanta, Georgia
September 2009
EXECUTIVE SUMMARY
T
he Atlanta Fed’s September
Beige Book contribution contained a number of encouraging anecdotes relating to late summer
District VI economic trends, including statements by respondents that
factory orders and production increased; the velocity of home price
decline decelerated; and the pace of
layoffs slowed. But there was no corresponding good news in the Atlanta
jobs data. Indeed, metro payrolls tumbled to a 5-year low 2.27 million in
August, representing an all-time low –
150,400-job, -6.2% year-on-year
comparison, the fourth largest 12month job loss in America after Los
Angeles, Chicago and Detroit.
Establishments trimmed headcounts
at a 132,700-job, -5.4% rate in 2Q09,
down from a 108,700-job, -4.5% pace
in the first quarter. Deterioration in
business service industry trends was
largely responsible as sector firms
accelerated layoffs from the 1Q09’s
28,600-job rate to 40,700 jobs in 2Q.
Surprisingly, the professional, scientific and technical services component
was the catalyst, trimming 14,000
positions in the year ended in June
following 1Q09’s 7,000-job cut.
Layoffs at professional and technical
service firms gained momentum in
July and August, rising to an 18,700job annual pace, representing nearly
10% of the workforce. Conditions in
the retail sector also took a turn for
the worse when stores let 20,100 (7.5%) employees go relative to 2008,
down from 14,800 cuts in 2Q09.
RED Research’s latest forecast of
Atlanta job trends contains some optimistic elements. Our econometric
model anticipates that Atlanta will
begin to post year-on-year job gains
by 2Q10, about six months earlier
than the Nation. A net gain of 5,500
jobs is foreseen for 2010, followed by
a robust recovery in 2011, when At-
SNAP SHOT
lanta establishments are projected to
add 74,300 employees. Unfortunately,
this projection was based on BLS data
released in August which were revised down considerably in the latest
report, issued 09/18. Therefore, our
September update is likely to generate
a cloudier jobs outlook.
A number of markets enjoyed strong
spring leasing conditions despite adverse employment conditions, but
Atlanta wasn’t among them. Reis
report that metro properties lost a net
of -1,723 tenants, raising losses since
October 2008 to -4,495. Occupancy
slipped 60 bps sequentially and 240
bps y-o-y to 88.8%, just 10 bps above
the 20-year series low. Occupancy fell
at least 100 bps y-o-y in every submarket and five slipped 3.9% or more.
Reis expect slower attrition after June.
The service foresees another 30 bps
occupancy loss by YE09, followed by
a gradual recovery to 90.6% by 2013.
Rent trends were mixed. Owners
managed to push asking rent up $3
(0.4%) from March to $856, but marketing demands forced properties to
sweeten the typical concession package by $15 (12.5% of GRR) to $107,
the richest among the RED 50. Consequently, effective rents tumbled $12
(-1.6%) quarter-to-quarter to $749.
Reis expect real rents to drop another
$3 by YE10 before rebounding at a
compound rate of 2% through 2013.
Investors remained active in the Capital of the New South, closing on 11
2Q09 trades valued at more than $155
million. This represented a nice bump
from 1Q’s four asset sales value at
$11mm. Moreover, 3Q09 sales promise to be higher, having surpassed 2Q
metrics by early-September. Cap rates
for institutional quality assets were
mostly in the 7% - 8.5% range, but an
Atlanta-based trust was able to negotiate a mid-6% cap for a 10-year old
Marietta project sold in late July.
Y-o-y
change
Projected
YE09
240 bps
30 bps
2.9%
2.9%
60bp
Unchd
133m
111m
Vacancy
(11.2% - 2Q09)
Effective
Rents
($749 - 2Q09)
Cap Rate
(7.5%- 2Q09)
Employment
(2,312.8.m - 2Q09)
KEY POINTS
•
Payroll trends went from bad to worse
during the summer. Employers trimmed
132,700 names from payrolls in 2Q09,
measured on a year-over-year comparison
basis, before cutting more than 150,000
positions during the year ended in August.
•
Currently, RCR forecast metro payroll
growth to return by 2Q10, leading to a small
5,500-job net gain next year. Disappointing
July and August data may cause our models
to yield a dimmer projection when we
review the forecast later in September.
•
Apartment demand was soft as tenants
vacated a net of 1,723 units in 2Q. Although
developers brought no new product to
market, occupancy fell 60 bps to 88.8%, only
10 bps above the all-time series low.
•
Asking rents rose slightly, but concession
levels ballooned $15 on average to $107 or
12.5% of GRR. This was the highest
percentage among the RED 50 markets.
•
Using a 6.9% generic cap rate, RCR estimate
that an Atlanta apartment investment will
yield unlevered total returns of 5.6% over
five-years and a 1.69 risk-adjusted index.
This compares to 4.7% and 1.73 R50 means.
Atlanta-Sandy Springs-Marietta, GA MSA - 2Q 2009
VACANCY TRENDS
•
•
•
•
High unemployment and persistent job losses hurt apartment demand
in the spring. Reis counted a net of 1,723 net move-outs, raising the
total since October to 4,495. Occupancy fell 60 basis points
sequentially and 240 bps year-over-year to 88.8% as a result.
M/PF Research, an Atlanta specialist, reported positive absorption of
2,100 units in 2Q, but reported occupancy of only 88.4% in June.
Vacancy rates climbed over 2008 levels even in popular infill
submarkets like Buckhead (+280 bps) and Sandy Springs (+230 bps).
11.2%
Source: Reis, Inc.
11.3%
12%
Metro Vacancy Rate
•
8.8%
10%
8%
6%
4%
ATLANTA
U.S.A.
2%
Roswell / Alpharetta maintained the lowest vacancy rate in the metro
area (8.4%), but -4.9% y-o-y decline in effective rent was required.
0%
2Q 1Q 4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q 4Q 3Q 2Q
Reis believe Atlanta will reach the bottom of its occupancy cycle by year-end.
00 01 01 02 03 04 04 05 06 07 07 08 09
RENT TRENDS
•
•
•
Source: Reis, Inc.
Reis aver that asking rents increased $3 sequentially in 2Q09 to $856,
after falling $9 in 1Q09 and $11 since last September.
Concession levels surged, however, rising by an average of $15 to
$107 (12.5% of GRR, highest among the RED 50).
Effective rents tumbled $12 (-1.6%) sequentially and $22 (-2.9%) yearover-year to $749, ranking 42nd and 41st, respectively, among the
RED 50 on these bases. By way of comparison, M/PF report that rents
fell nearly -5% y-o-y, with 2Q09 losses accounting for half the total.
Only seven of 17 submarkets managed to hold y-o-y effective rent
losses under 2.0%. South Fulton held firm at a $649 average, but at the
cost of seeing average occupancy tumble 320 bps to 84.3%.
6%
4%
YoY Rent Trend
•
Metro Rent Trends
-0.5%
2%
0%
-2%
-4%
ASKING
EFFECTIVE
-6%
-8%
2Q 1Q 4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q 4Q 3Q 2Q
00 01 01 02 03 04 04 05 06 07 07 08 09
RANK: 41st out of 50
•
Although considerably slower than 2008, trade activity consistently
gained steam throughout 2009. After a credit-starved first quarter
when only four properties managed to close for total proceeds of
$11mm, trade accelerated to 11 transactions for $155mm+ in 2Q.
Third quarter velocity and volume metrics equaled 2Q tallies after only
10 weeks of trade, making it very likely that 3Q will surpass 2Q
activity by the time all transactions are accounted for.
Assets located in the Midtown and Marietta submarkets remained
popular candidates for divestiture in recent months. An Atlanta-based
investment company bought a 10-year old Marietta project from a
large trust for about $103,226/unit to yield about 6.7%. Meanwhile, an
acquisitions-minded Texas-based company snatched a 5-year old loft
project in Midtown that commands $1,500 average rents for just
$113,636/unit. RCR estimate a yield-rich 8.0% purchase cap rate.
Source: Reis, Inc.
8.0%
7.5%
Cap Rate
•
-2.9%
7.0%
6.5%
6.0%
1Q
3Q
1Q
3Q
1Q
3Q
07
07
08
08
09
09
Property Name
Mariposa Lofts (Mid-town)
AMLI @ Clairmont (No DeKalb)
Post Ridge (Marietta)
Clarion (Decatur)
Property Class
(Vintage)
Date of
Transaction
Total Price
(in millions)
Price per unit
Estimated Cap
Rate
A (2005)
A (1989)
A (1998)
BC (1990)
10-Sep-2009
5-Aug-2009
23-Jul-2009
16-Jul-2009
$28.8
$17.0
$44.8
$12.4
$113,636
$59,029
$103,226
$57,143
8.0% (est.)
7.5% (quoted)
6.7% (est.)
8.8% (‘08 NOI)
$240
ATL
$220
•
US
Prices (000)
$200
•
$180
$160
$140
$120
•
$100
$80
05
06
07
Y
Y
Y
1Q 2Q 3Q 4Q 1Q 2Q
08
08
08
08
09
09
•
Annual Chg (000)
100
•
50
5.5
0
•
-50
-100
-111.2
00 01 02 03 04 05 06 07 08 09f 10f 11f
•
Source: BLS
USA
4%
•
2%
Rate
There are 486 condos listed for sale in the 30327 zip code, perhaps a 3 to 4 year supply.
0%
-2%
-4%
-6%
-8%
Atlanta employers made 132,700 (-5.4%) workers redundant in the
second quarter relative to the year-before period. This was the worst
quarterly loss data ever posted in the Atlanta area, exceeding first
quarter losses by 24,000.
Double-digit percentage losses were recorded in the construction
(24,900/-19.1%) and durable goods manufacturing (12,300/-14.0%)
industries. Substantial setbacks also were posted by business service
(40,700/-9.9%) and trade (27,100/-6.8%) concerns. Losses in the
skilled business services sectors, a core competency, were disconcerting. Professional, technical and scientific service and financial service companies shed workers at a 24,000-job, -7.2% in the quarter.
Twelve Months ended August 2009
ATL
According to RealtyTrac.com, more than 2% of all Atlanta metro
households were embroiled in a mortgage foreclosure situation in
1H09, the 35th highest rate in the nation. Last year, Atlanta ranked
17th highest in the nation with a foreclosure rate of 3.26%.
Second Quarter 2009
74.3
6%
The National Association of Realtors report that the median price of an
Atlanta metro home sold in 2Q09 was $121,400, down -23.3% from
the same period of 2008. Prices were higher quarter-to-quarter,
however, rising 5.0% from 1Q09’s $115,600 median.
EMPLOYMENT TRENDS
-150
The S&P Case-Shiller Atlanta repeat sale index increased for the third
consecutive month in June, this time by 1.7%. Since March, values
increased by 2.5% but remain -13.7% below June 2008, and -21.2%
short of the record high index posted in July 2007.
Payrolls dropped to a five-year low 2,772,200 jobs in August, down at
a 150,400-job, -6.2% rate from 2008. This was the largest over-theyear job loss ever recorded in Atlanta and was one of the largest absolute figures posted in America. Only Los Angeles, Chicago, and Detroit suffered larger numbers of lost payroll positions. Of these, only
Detroit experienced a larger percentage decline.
In each of the financial and business services super-sectors, job cuts
proceeded at a –9.1% rate, representing job losses totaling 12,400 in
the former (vs. 10,000 in 2Q) and 35,200 (vs. 40,700 in 2Q) in the
latter. The improvement among business service establishments was
largely confined to the low wage employment services segment.
Trends in the professional services, including computer system design
and management consulting sub-sectors deteriorated from 2Q09.
Forecast
99 00 01 02 03 04 05 06 07 08 09
In August, the RCR econometric payroll model generated a forecast for a net decline of
111,200 jobs in 2009, rebounding to 5,500-job advance in 2010 and a 74,300-job surge in
2011. Unexpected weak conditions in the August and revised-July data suggest that the
outcome of our revised September forecast will be less optimistic.
15%
ATL (RAI=1.69)
DAL (RAI-1.11)
10%
5%
•
1.1%
3.8%
5.5%
1.8%
3.6%
7.1%
5.3%
9.5%
7.6%
0%
-5%
-0.8%
90%
70%
50%
30%
10%
SUBMARKET TRENDS
Submarket
Effective Rent
Physical Vacancy
2Q08
2Q09
Change
2Q08
2Q09
Roswell/Alpharetta
Sandy Spg/Dunwoody
$858
$850
$816
$820
-4.9%
-3.5%
6.9%
9.1%
8.4%
11.4%
150 bps
230 bps
North Gwinnett
$761
$733
-3.7%
9.0%
10.1%
110 bps
South Gwinnett
$719
$695
-3.3%
7.6%
9.7%
210 bps
Clarkston/Stn Mtn
$656
$641
-2.4%
9.1%
13.2%
410 bps
Decatur/Avondale
$743
$717
-3.5%
8.3%
10.8%
250 bps
North DeKalb
$840
$817
-2.7%
7.7%
10.4%
270 bps
Clayton/Henry
$679
$671
-1.3%
8.4%
10.8%
240 bps
South Fulton
$649
$649
0.0%
12.5%
15.7%
320 bps
Marietta
$756
$728
-3.7%
7.3%
11.3%
400 bps
Smyrna
$754
$714
-5.3%
7.3%
9.0%
170 bps
I-20 West
$672
$669
-0.5%
8.2%
10.3%
210 bps
I-20 East
$704
$696
-1.1%
7.6%
11.5%
390 bps
South DeKalb
$587
$562
-4.3%
10.0%
13.9%
390 bps
Buckhead
$1,055
$1,038
-1.6%
9.4%
12.2%
280 bps
Midtown
$1,005
$928
-7.7%
8.9%
10.2%
130 bps
$785
$765
-2.5%
10.9%
15.3%
440 bps
$771
$749
-2.9%
8.8%
11.2%
240 bps
Central I-75 West
Metro
SUPPLY TRENDS
•
•
•
Reis expect supply in 2H09 to be relatively heavy as 3,706 units debut
from July to December. Completions should recede after year-end,
however; Reis foresee delivery of only 1,725 units in 2010, the fewest
in the 20-year Reis data series, and 2,302 units in 2011, which would
be the third fewest in any year since 1990.
At this writing, two projects were added to inventory during the third
quarter. The first is a 111-unit repurposed condo located in Midtown.
Pricing information was not available at press time. The second
project is a 236-unit mid-rise in South Fulton. Rents range from
$1,075 to $1,800 per month.
A total of 3,064 units were under construction in late September,
according to Reis. Of these, two projects with 780 units are located in
the weak Midtown submarket. One is a five-story luxury mid-rise
leasing for $1.10 to $1.45/sf. The other is a class-A new-construction loft
offering units at rents ranging from $890 to $2,000 ($1.16 to $1.33/sf)
•
Source: Reis, Inc
Atlanta developers completed 491 units in the second quarter and
4,815 units during the 12 months ended in June.
A third project—a retail/residential development in Buckhead—also
is underway. The soft economy may push delivery back to 2010.
Daniel J. Hogan
[email protected]
614-857-1416
William T. Hinga
[email protected]
614-857-1499
12,000
Completions
Absorption
10,000
8,000
6,000
Units
•
Change
4,000
2,000
0
-2,000
-4,000
02
•
03
04 05
06
07 08 09f 10f
A 380-unit mid-rise project built near the Perimeter
Mall (Sandy Spring/Dunwoody) was 48% occupied in
June at rents averaging $1,347. The property was
added to the Reis inventory in August 2008.
RED CAPITAL GROUP
Two Miranova Place
Columbus, OH 43215
800.837.5100
©2008 RED CAPITAL GROUP (11/08)
CAPITAL GROUP. RED makes no representations or warranties as to the accuracy or completeness of the information, assumptions, analyses or conclusions presented in the
report. RED cannot be held responsible for any errors or misrepresentations contained in the report or in the information gathered from third party sources. Under no circumstances should
any information contained herein be used or considered as an offer or a solicitation of an offer to participate in any particular transaction or strategy. Any reliance upon this information is
solely and exclusively at your own risk. Please consult your own counsel, accountant or other advisor regarding your specific situation. Any views expressed herein are subject to change without notice due to market conditions and other factors.
RED CAPITAL GROUP®
Market Overview
Atlanta, Georgia
June 2009
EXECUTIVE SUMMARY
T
he Atlanta economy underperformed the national average
during the first five months of
2009 as each of its primary drivers—
construction, manufacturing, trade
and skilled services—struggled to
maintain even keel. Construction employment plunged at a 21,500-job, 16.5% rate in the first quarter after
homebuilding nearly ground to a halt
and a variety of commercial projects
were delayed or canceled. Factory
payrolls fell at a 17,000-job, -9.9%
pace as manufacturers struggled to
bring headcounts and production in
line with plummeting orders. Financial and business service concerns
trimmed headcounts at a 37,000-job
annual rate, while retail trade and
leisure service establishments let
14,000 workers go. In all, 1Q09 payrolls declined by 108,700 (-4.7%)
jobs year-over-year, comparing unfavorably to the -3.1% U.S. average.
Neither was there much to cheer
about in early second quarter data.
Indeed, the rate of job loss accelerated
to a new record, surging to a 136,800job, -5.6% pace in May. The weaker
results were attributable to faster job
cuts by employers in the goods producing and business service sectors.
On the other hand, evidence that the
Great Recession was running its
course began to emerge nationally
with positive implications for the
metro economy. The volume of existing home sales firmed, the pace of job
losses moderated and the availability
of bank credit improved. The majority of economists now believe that
positive GDP growth will return in
3Q09 and with it firmer conditions in
the Atlanta labor market.
RED CAPITAL Research is of the
mind that the second quarter will
mark the trough of the current downturn. The rate of Atlanta job loss will
begin to slow in the summer and may
SNAP SHOT
begin to yield to net job growth by
mid-year 2010. Our econometric payroll model predicts average monthly
losses of -115,600 jobs in 2009, improving to a loss of –19,300 in 2010.
Apartment market conditions were
relatively constructive under the circumstances. Tenants vacated a net of
96 units in 1Q (Reis), a dramatic improvement from 4Q08’s devastating
2,464-unit exodus. Supply moderated
as well, declining 75% quarter-toquarter to 222 units. Consequently,
average occupancy was essentially
unchanged from the 89.7% YE08
level. Buckhead reported the softest
leasing conditions, chalking down a
110 bps sequential decrease in average occupancy to 88.3%. Midtown
was firmer, by contrast, declining
only 20 bps to an average of 90.6%.
Owners cut rent levels in a bid to retain tenants. Face rents fell $8 (-0.9%)
to an average of $853. Reis surveys
detected a $1 reduction in the standard concession package (to $92/
month), producing a $7 (-0.9%) reduction in effective rent to $761.
Rent trends were weakest in suburban
submarkets north of downtown, especially Alpharetta and Smyrna. Buckhead rents were firm, but rents in adjoining Midtown tumbled for the third
consecutive quarter, in this case by
$28 (-2.8%). Rents in southern rim
suburbs, by contrast, were higher.
Reis expect metro occupancy to fall
another 110 bps to 88.6% by YE09
before easing supply pressures give
rise to more stable conditions next
year. Likewise, the service foresees a
further -1.1% decline in effective
rents (to $751) before owners recover
a degree of pricing power in 2011.
No major properties exchanged hands
in 1Q09, but trade resumed in the
spring. Six assets traded for about
$140mm in 1H09, down from 47 for
proceeds of $1.0 billion in 1H08.
Y-o-y
change
Projected
YE09
160 bps
110 bps
0.1%
2.0%
Vacancy
(10.3% - 1Q09)
Effective
Rents
($761 - 1Q09)
Cap Rate
(8.2% - 1Q09)
170bps
70bps
Employment
(2,332.0m - 1Q09)
109m
115m
KEY POINTS
•
Metro economic trends deteriorated in the
first half of 2009. After falling at a 108,700job pace in 1Q, attrition accelerated to a
record 136,800-job year-over-year rate in
May. The RCR econometric payroll model
forecasts losses averaging 115,000 jobs in
2009, with net payroll losses continuing on a
year-on-year basis through at least 2Q10.
•
Under the circumstances, apartment market
fundamentals were constructive. Metro
occupancy was unchanged in the seasonallysoft winter quarter, holding steady at 89.7%.
Effective rents declined $7 (-0.9%) to an
average of $761, disappointing in some
respects but in the end a better outcome than
21 of the RED 50 markets recorded in 1Q.
•
Reis expect fundamentals to be weak
through year end, a likely outcome in light of
our economic outlook. Occupancy and rent
should stabilize next year, however, setting
the stage for a moderate recovery in 2011.
•
Sales of Atlanta properties were materially
slower in 1H09, but investors retained an
appetite for metro assets. Cap rates ranged
from the high-5% area for class-A infill
mid–rise projects, to 8% - 9% for class-B
suburban garden complexes.
VACANCY TRENDS
•
•
Atlanta owners used rent discounting strategies to retain tenants and
were largely successful, holding 1Q negative net absorption to 96 units.
Atlanta households gravitated toward class-A apartment options as
mortgage credit requirements tightened and concerns regarding falling
home prices lingered. Class-A projects attracted a net of 179 net
tenants in 1Q09, nearly keeping pace with 222 units of net supply,
holding class average occupancy at 90.5%. The Great Recession
affected class-B&C segment tenants to a greater degree, giving rise to
270 net move-outs that lowered average occupancy 10 bps to 88.8%.
Source: Reis, Inc.
14%
12%
Metro Vacancy Rate
•
10.3%
8.7%
10%
8%
6%
ATLANTA
U.S.A.
CLASS A
CLASS BC
4%
2%
0%
Metro occupancy was steady quarter-to-quarter at an average of 89.7%.
Reis expect occupancy to decline by year-end, however, as owners
struggle to overcome the impact of 3,730 units of pending supply.
1Q 4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q
00 00 01 02 03 03 04 05 06 06 07 08 09
RENT TRENDS
•
•
•
Weak employment trends and competition from single-family homes
and condos in the shadow rental market exerted downward pressure on
rents in the northern suburbs. Roswell/Alpharetta, North Gwinnett,
North DeKalb and Sandy Springs rents declined -1.5% or more
quarter-to-quarter. Trends also were weak in Midtown and Smyrna.
Class-A asking rents dropped $14 (-1.4%) quarter-to-quarter in 1Q to
an average of $977. Class B&C segment rents were firmer, falling
only $3 (-0.4%) to a $724 average.
The effects of shadow market condo competition in Buckhead didn’t
materialize in 1Q09. Although submarket occupancy declined 1.1% to
88.3%, rent levels were firm, rising $6 (0.6%) to $1,045.
Source: Reis, Inc.
6%
ASKING
EFFECTIVE
4%
YoY Rent Trend
•
Metro Rent Trends
0%
-0.1%
-2%
-4%
-6%
-8%
1Q 4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q
Average metro effective rent fell $7 (-0.7%) sequentially to $771.
00 00 01 02 03 03 04 05 06 06 07 08 09
th
RANK: 36 out of 50
•
•
•
Property sales continued to decelerate in the first half of 2009. After
recording multifamily property acquisitions valued at $2.9 billion in
2H07, sales proceeds decreased to $1.0 billion in 1H08; $774 million
in 2H08 and $140 million in 1H09 (including a $33mm I/L property).
Only five significant apartment trades were recorded through June.
Three involved local investor/managers purchasing underperforming
properties from public Reit or large fiduciary holders. The other two
were distressed properties offered by lenders.
The most interesting transaction involved a 4-year old Midtown loft
property. A local investor purchased the 244-unit class-A mid-rise for
$25.8 million (5.8% initial yield), about $8.5 million less than the
seller (a Midwest-based money manager/fiduciary) paid in 2005.
Source: Reis, Inc.
8.5%
8.0%
Cap Rate
•
0.2%
2%
7.5%
7.0%
6.5%
6.0%
4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
06 07 07 07 07 08 08 08 08 09 09
Class-A cap rates are in the 7% - 8% range; class-B/C in the 8% - 9% area.
Property Name
The Block Lofts (Midtown)
Post Dunwoody (Sandy Springs)
Magnolia at Whitlock (Marietta)
Brookhaven Condo (Buckhead)
Property Class
Date of
Transaction
Total Price
(in millions)
Price per unit
Estimated Cap
Rate
A
A
BC
A
09-Apr-2009
25-Apr-2009
28-May-2009
11-Jun-2009
$25.8
$47.4
$6.3
$15.8
$105,738
$89,492
$41,197
$81,606
5.8%
7.5%
8.3%
8.5%
$240
ATLANTA
•
US
Prices (000)
$220
•
$200
$180
$160
$140
•
$120
$100
06
07
Y
Y
•
4Q 1Q 2Q 3Q 4Q 1Q
07
08
08
08
08
09
•
Annual Chg (000)
100
50
0
-19.3
-50
-100
•
-115.6
99 00 01 02 03 04 05 06 07 08 09f 10f
•
•
METRO
USA
2%
Rate
The March Atlanta Case-Shiller index dropped -1.6% from February
and -19.6% from March 2008 to 104.80, lowest in nearly nine years.
Economic activity and total employment continued to contract in
May. Consumer spending remained sluggish and price/value driven.
Businesses reported weak conditions but larger numbers expressed a
growing sense of stabilization and improved expectations for the future. Payroll trends deteriorated, however, as year-over-year losses
accelerated to a 136,800-job, -5.6% pace, down from a 96,300-job, 3.9% rate in December.
Seasonally-adjusted payroll data cast a thin ray of hope on the otherwise dark data array. According to the BLS, metro establishments
made only 7,500 workers redundant in May, making it the third consecutive month of sequential decreasing losses. By comparison, metro
payrolls fell 19,600 jobs in February, according to the BLS.
The unemployment rate was steady at 9.1% in April, unchanged from
March. By way of comparison, the April 2008 rate was 5.0%.
First Quarter 2009
Source: BLS
4%
Foreclosure figures were stable in the first quarter with about one of
every 97 metro households undergoing a default action. This ratio
ranked as the 32nd highest among the 203 largest metros in the U.S.
Past 12 Months
150
6%
The N.A.R. reported a sharp home price decline in the first quarter.
The median price of a metro home sold in the period dropped to
$115,600, a –24.9% plunge from last year. The price metric was the
lowest quarterly value recorded in 10 years or more.
EMPLOYMENT TRENDS
-150
Metro Atlanta population increased by 114,989 (2.2%) persons in
2008, the smallest advance recorded since 1993. Slower domestic inmigration flows were largely responsible.
•
0%
-2%
-4%
-6%
Total payrolls declined at a 108,700-job, -4.1% rate. Areas of notable
weakness included construction, manufacturing and business services.
Payroll aggregates in the foregoing sectors decreased 21,500, 17,000
and 28,600 jobs, respectively.
Deterioration in the critical professional, scientific and technical services sub-sector was of particular concern. Establishments trimmed
7,000 jobs year-over-year in this high wage sector, down from a loss
of 1,600 jobs in 4Q08. Attrition continued to accelerate in May when
a year-over-year losses stretched to 14,100 sub-sector workers.
Forecast
-8%
99 00 01 02 03 04 05 06 07 08 09
15%
10%
5%
0%
-5%
-10%
•
RED Research expect total payrolls to decline by 115,600 jobs in
2009. Year-over-year payroll losses are projected to continue through
mid-year 2010. Total payrolls next year should fall about 19,300.
3.7%
1.1%
-4.6%
90%
5.4%
0.3%
3.4%
Atlanta (RAI=1.69)
70%
7.1%
6.4%
9.5%
10.3%
Austin (RAI=0.63)
50%
30%
10%
SUBMARKET TRENDS
Submarket
Effective Rent
1Q08
Physical Vacancy
1Q09
Change
1Q08
1Q09
Change
$857
$813
-5.1%
7.0%
7.8%
80 bps
$838
$845
0.9%
7.9%
11.1%
320 bps
North Gwinnett
$748
$757
1.1%
9.2%
9.1%
-10 bps
South Gwinnett
$712
$714
0.3%
7.8%
8.4%
60 bps
$649
$647
-0.4%
9.1%
12.1%
300 bps
Decatur / Avondale
$740
$728
-1.6%
8.5%
11.2%
270 bps
North DeKalb
$823
$824
0.1%
8.0%
10.5%
250 bps
Clayton / Henry
$682
$688
0.8%
8.5%
9.6%
110 bps
South Fulton
$646
$668
3.4%
12.7%
14.1%
140 bps
Marietta
$744
$743
-0.2%
7.5%
10.5%
300 bps
Smyrna
$751
$715
-4.8%
7.5%
7.2%
-30 bps
Interstate-20 West
$659
$668
1.4%
8.5%
10.0%
150 bps
Interstate-20 East
$692
$702
1.5%
8.9%
10.6%
170 bps
South DeKalb
$582
$578
-0.8%
10.0%
14.1%
410 bps
Buckhead
$1,039
$1,045
0.6%
8.0%
11.7%
370 bps
Midtown
$978
$950
-2.8%
9.2%
9.4%
20 bps
$767
$783
2.1%
8.3%
13.2%
490 bps
$762
$761
-0.1%
8.7%
10.3%
160 bps
Metro
SUPPLY TRENDS
•
•
•
A 222-unit class-B garden project debuted in the South Fulton
submarket in January. Asking rents range from $615 to $921 for 1– to
4-bedroom units. Rents per square foot range from $0.68 to $0.90. A
class A– three-story garden complex in Doraville also entered lease up
during the winter. Face rents at this traditional wood frame and brick
face project range from $699 to $999, equating to $0.70 to $0.80/ft2.
Source: Reis, Inc
12,000
A 20-story Buckhead high-rise offering unique concierge services
began leasing in late winter. Developer reported 55 units of the 155unit building leased after six weeks. Rents start at $1,300 per month.
Reis identify 4,553 units under construction in the Atlanta area in late
June. Of these, 3,328 are expected to be delivered before year end. An
additional 14,000 units are on the drawing board but many are on hold.
Developers are shelving some projects in the northern rim suburbs until
economic and credit market conditions improve.
Supply pressures should ease next year. Fewer than 1,300 units
(including 1,000 units of a North DeKalb submarket project that are
likely to be delivered in phases) are under construction with 2010
scheduled debut dates. Another 720 units are in the planning stage for
possible 2010 completion. Reis expect 1,367 units of supply next year.
Completions will range from 2,500 to 3,200 units from 2011 to 2013.
Daniel J. Hogan
[email protected]
614-857-1416
William T. Hinga
[email protected]
614-857-1499
Completions
Absorption
10,000
8,000
6,000
Units
•
4,000
2,000
0
-2,000
-4,000
02
03
04 05
06
07 08 09f 10f
RED CAPITAL GROUP
Two Miranova Place
Columbus, OH 43215
800.837.5100
buy or sell currencies or securities or to engage in any specific transactions. Information has been gathered from third party sources and has not been independently verified or accepted by RED CAPITAL GROUP. RED makes no representations or warranties as to the accuracy or completeness of the information, assumptions, analyses or conclusions presented in the report. RED cannot be held responsible for any errors or misrepresentations contained in the report or in the information gathered from third party sources.
Under no circumstances should any information contained herein be used or considered as an offer or a solicitation of an offer to participate in any particular transaction or strategy.
Any reliance upon this information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other advisor regarding your specific situation. Any views
expressed herein are subject to change without notice due to market conditions and other factors.
RED CAPITAL GROUP®
Market Overview
Atlanta, Georgia
March 2009
EXECUTIVE SUMMARY
T
he Atlanta economy is among
the more volatile in the U.S.,
typically outperforming the
Nation in flush periods and underperforming during recessions. Recent
results fit comfortably within this rollercoaster pattern. After creating
191,300 (9.9%) payroll positions from
2005 - 2007, Atlanta establishments
trimmed 7,700 (-0.3%) jobs in 2008
and was hemorrhaging workers at a
65,300, -2.6% pace in 4Q08, comparing unfavorably to America’s –1.8%
average rate of attrition.
The primarily pillars of the Atlanta
economy—trade, construction and
business services—were among the
weakest 4Q08 performers. Builders
contracted at a 17,500-job, -12.6% as
single-family home permitting activity
dropped to a 4,000-unit annual pace, a
fraction of the more than 50,000
homes delivered in 2007. Retail and
wholesale trade payrolls dwindled at a
10,400-job, -2.4% year-over-year rate,
while headcounts in the business service sector shrunk by 16,700 (-4.0%).
Smaller 4Q08 job losses were recorded in the tourism, transportation
and financial services sectors. Lodging establishments and air carriers
trimmed payrolls at -7.8% and –4.3%
rates, respectively; warehouse and
transportation establishments cut payrolls at a –2.9% pace; and financial
institutions conserved capital by letting go 2,500 (-2.2%) workers.
SNAP SHOT
commensurate with broader metro
economic trends. Many tenants doubled up with roommates, returned to
parental domiciles or relocated to a
less costly shadow market rental alternative. Occupied stock tumbled as a
result, falling –2,382 units, according
to Reis, after a 232-unit net positive
performance recorded in 3Q08. New
supply of 916 units exacerbated the
impact of tenant losses, producing a
90 basis point sequential quarter average occupancy rate decrease to 89.8%.
Many owners trimmed face rents and
expanded concession offers to stem
the tide. Average asking rent dropped
$3 (-0.35%) to $861, and lease concessions increased $2 to the monthly
equivalent of $93, sending effective
rents tumbling $5 (-0.65%) to $768.
Effective rents fell in 13 of 17 submarkets quarter-to-quarter, and gains
were confined to submarkets with
below average rents, including I-20
East & West, North Gwinnett and
Clarkston/Stone Mountain.
Reis expect weak conditions to persist
in 2009. The service forecasts a 40bps
occupancy rate dip as supply of 2,148
units overwhelms 624 absorptions.
With regard to rents, Reis see effective rent falling $15 (-2.0%) under
competitive pressure from express
apartment and shadow rental supply.
The forecast ranks 17th worst among
the R50, 30bps below the group mean.
RED CAPITAL Research expect
adverse conditions to persist into the
2H09. The pace of job losses will
peak near mid-year at roughly a
100,000-job, -4% annual rate before
approaching stability near year end.
Job growth measured on a y-o-y basis
should return by 1Q2010. The RCR
payroll model predicts job losses totaling 102,500 this year, with net
gains in the 27m-job range for 2010.
Sales of Atlanta properties proceeded
at a brisk pace nonetheless, with 14
4Q08 trades for $384mm and 15 January trades reported by Real Capital
Analytics. Distressed property liquidations played an increasingly prominent role, especially in DeKalb and
Cobb County submarkets, putting
upward pressure on cap rates. Institutional quality assets traded in the mid7% range and distressed properties
required 10%+ yields to attract buyers.
Apartment market conditions were
Bumpy road ahead: caution advised.
Y-o-y
change
Projected
2009
200bps
40 bps
1.3%
2.0%
Vacancy
(10.2% - 4Q08)
Effective
Rents
($768 - 4Q08)
Cap Rate
(7.3% - 4Q08)
Employment
(2,422.7m - 4Q08)
50 bps
65.3m
102m
KEY POINTS
•
Slumping construction activity, weak
consumer and tourism spending and sharply
lower trade and commerce flows weighed on
the Atlanta job market. Metro payroll
employment fell at a 65,300-job pace in
4Q08, punctuated by an 82,000-job, -3.3%
year-over-year plunge in December.
•
Tenants responded to economic pressures by
doubling up, relocating or seeking lower
rents in the informal shadow market. The
resulting loss of 2,382 leased tenants,
coupled with supply totaling 916 units
produced a 90 bps sequential / 200 bps y-oy decrease in occupancy to 89.8%.
•
Owners tried to stay ahead of the curve by
discounting face rents and beefing up rent
concessions. Average asking and effective
rents fell $2 (0.3%) and $5 (0.7%),
respectively. Two public trusts operating
about 10,300 Atlanta units each reported –
0.8% sequential effective rent declines.
•
Employing a 5.8% generic going in cap rate,
RCR estimate 5-year holding period returns
for generic Atlanta assets at 4.7%, 50 bps
above the R50 mean. Risk-adjusted returns
are weaker than average. On balance,
relative value is improved from last quarter.
Atlanta-Sandy Springs-Marietta, Georgia MSA - 4Q 2008
VACANCY TRENDS
•
•
•
Leasing agents swam against a strong tide in the final quarter of 2008.
Economic pressures compelled some tenants to migrate from
apartments and the availability of hundreds of unsold new and used
single-family homes provided them with wherewithal to make it so.
Occupancy fell 40 basis points in 4Q08 to 89.8%, down 200 bps yearover-year. The rate was the lowest posted since June 2004.
Two public REITs with large Atlanta exposures saw sequential metro
occupancy rates fall 20 and 130 bps, respectively, in 4Q.
Source: Reis, Inc.
12%
Metro Vacancy Rate
•
10.2%
8.2%
10%
8%
6%
4%
ATLANTA
U.S.A.
2%
0%
According to Reis, occupancy fell sequentially in each Atlanta
submarket with the exceptions of Buckhead and Midtown.
4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q 4Q
99 00 01 02 02 03 04 05 05 06 07 08 08
COMMENT: Occupancy is projected to improve 160 bps from 4Q08 to 4Q13,
substantially better than the forecast RED 50 average (0 bps).
Metro Rent Trends
RENT TRENDS
•
•
•
Owners took such measures as they could to stay ahead of the
economic Tsunami crashing upon their shores. Many slashed asking
and effective rents: the former dropped $3 (-0.35%) and the latter $5 (0.65%) quarter-to-quarter. Effective rents increased $10 (1.3%) y-o-y.
Two public trusts that collectively own 10,300 units in the Atlanta area
each trimmed effective rents -0.8% quarter-to-quarter.
Effective rents fell q-o-q in 13 of 17 submarkets, with five submarkets
experiencing decreases of -1% or greater. The largest decrease was
observed in Roswell, where effective rent dropped $16 (-2.0%).
Asking
Effective
4%
YoY Rent Trend
•
Source: Reis, Inc.
6%
2%
0%
1.3%
-2%
-4%
-6%
-8%
Reis expect metro effective rent to decline -2% in 2009, -0.1% in 2010.
4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q 4Q
99 00 01 02 02 03 04 05 05 06 07 08 08
•
•
•
Source: Reis, Inc.
Trade in Atlanta assets remained among the most active in the country.
Real Capital Analytics recorded 14 fourth quarter acquisitions of metro
assets valued at $5mm or more for total proceeds of $384mm.
Cumulative garden apartment sales in 2008 added up to $1.5bn in total
proceeds, trailing only Dallas and Houston in this category.
RCA represent that the average cap rate in 2008 was 6.5%. The
average price per unit was $72,136. Comparable 2007 data were 6.1%
and $82,554 (-12.6%).
Distressed property sales are rising. Consequently, double-digit initial
yields become increasingly common in late-2008, early-2009 trade.
COMMENT: Current prices and yields enhance the relative value of ATL
properties. Consider making opportunistic investments when visibility improves.
7.5%
REIS TRADE COMPOSITE
NCREIF
7.0%
Cap Rate
•
2.0%
6.5%
6.0%
5.5%
5.0%
4.5%
4.0%
3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
06 06 07 07 07 07 08 08 08 08
Property Class
Date of
Transaction
Total Price
(in millions)
Price per unit
Estimated Cap
Rate
Windrush (Decatur / Avondale)
Glenbrook Apts (Marietta)
Dewberry Isle (Buckhead)
Woodland Hills (Decatur)
BC
AA-
Jan-2009
Dec-2009
Dec-2009
Dec-2009
$5.8
$7.0
$15.0
$16.7
$28,713
$22,436
$70,755
$73,246
10.6%
12.4%
7.5%
7.0%
$240
ATLANTA
•
US
Prices (000)
$220
$200
•
$180
$160
$140
•
$120
$100
05
06
07
Y
Y
Y
•
4Q 1Q 2Q 3Q 4Q
07
08
08
08
08
“Intown” Atlanta had 5,100 unsold new condo units for sale at year end.
Only 645 new units sold last year of which 66 sold in the second half.
Last year, 3.26% of all Atlanta households was touched by a foreclosure
action, according to RealtyTrac.com, the 17th highest rate among the
top 100 U.S. metros. The 2008 figure was a 33.3% increase from 2007.
Haddow & Co. report that only 106 new Buckhead condos sold last
year, while about 150 units in 10 sold out buildings are in foreclosure.
EMPLOYMENT TRENDS
Past 12 Months
•
150
Annual Chg (000)
Home prices fells sharply in 4Q08. The median price of an Atlanta
home fell –21.4% from 2007 to $129,200, according to National
Association of Realtors data. Atlanta statistics compared unfavorably to
the Nation’s –12.4% and Southeast Region’s -7.5% price decreases.
100
•
50
0
Sharp declines in the construction, leisure and hospitality and government sectors was principally responsible for the 2008 downturn.
Fourth Quarter 2008
-50
-27.5
•
-100
-102.5
-150
99 00 01 02 03 04 05 06 07 08 09f 10f
•
Source: BLS
6%
Atlanta
•
USA
4%
Rate
Total payrolls declined –7,700 (-0.3%) in 2008, down from a 54,600job advance in 2007.
•
2%
0%
Conditions deteriorated dramatically in 4Q08 following a near freeze
in the credit markets and an estimated -6.2% decrease in U.S. GDP.
After posting payroll job losses at a 19,300-job pace in 3Q08, the rate
of layoffs, closings and cutbacks ballooned to 65,300 (-2.6%).
Slumping demand for housing all but shuttered the Atlanta-area home
construction industry. Permitting in the three months ended in January proceeded at a 4,000-unit annual pace, down from 30,000 units in
2007 and 53,000 units in 2006. Largely for this reason, construction
payrolls fell at a 17,500-job, -12.6% pace in the quarter and 20,500job, -14.8% year-over-year rate in December.
Contract labor usage also declined comprehensively, most likely due
to the housing slump as well. Employment services had 9,600 few
workers on jobs in 4Q08 than in the prior year period, a -10.1% drop.
The unemployment rate hit a 19-year high 7.6% in December, up 90
bps sequentially and 310 year-over-year.
Forecast
•
-2%
-4%
99 00 01 02 03 04 05 06 07 08 09
•
10%
RED CAPITAL Research expect Atlanta job trends to deteriorate
further during the first half of 2009 before making a gradual move to
stability in 2H09. Job losses will average 102,500 for the year, before
moderating to a smaller 27,500-job loss in 2010.
Unemployment will exceed 8.5% in 3Q09 before receding.
ATL (RAI=1.49)
5%
R-D (RAI=1.35)
2.9%
0.4%
4.5%
2.6%
6.2%
4.3%
8.4%
8.3%
6.0%
0.0%
0%
90%
70%
50%
30%
10%
SUBMARKET TRENDS
Submarket
North Gwinnett
South Gwinnett
Decatur / Avondale
North DeKalb
Clayton / Henry
South Fulton County
Marietta
Smyrna
I-20 West
I-20 East
South DeKalb
Buckhead
Midtown
Central I-75 West
Metro
Effective Rent
Physical Vacancy
4Q07
4Q08
Change
4Q07
4Q08
Change
$851
$837
$748
$709
$645
$737
$822
$677
$642
$738
$742
$664
$689
$579
$844
$859
$766
$714
$654
$734
$836
$680
$657
$748
$734
$659
$703
$587
-0.9%
2.6%
2.4%
0.7%
1.5%
-0.4%
1.7%
0.5%
2.3%
1.4%
-1.1%
-0.8%
2.1%
1.5%
5.8%
7.5%
8.1%
7.5%
8.7%
8.2%
7.3%
7.7%
12.0%
7.4%
7.1%
9.8%
9.1%
8.7%
7.6%
11.3%
9.2%
7.9%
11.7%
10.9%
11.0%
9.3%
14.2%
10.5%
7.9%
9.3%
10.3%
13.4%
180 bps
380 bps
110 bps
40 bps
30 bps
270 bps
370 bps
160 bps
220 bps
310 bps
80 bps
-50 bps
120 bps
470 bps
$1,030
$981
$1,058
$974
2.7%
-0.7%
8.2%
9.0%
10.6%
9.2%
240 bps
20 bps
$778
$802
3.1%
7.8%
12.5%
470 bps
$758
$768
1.3%
8.2%
10.2%
200 bps
SUPPLY TRENDS
•
•
The last thing the Atlanta market needs is more supply, but supply it
will receive. Reis report that more than 3,500 investor grade apartment
units are currently under construction. About 2,100 units are scheduled
for 2009 delivery, excluding 222 units delivered in January.
More than 13,000 units are in the planning stage. None are expected to
enter lease up in 2009, but the raw material inventory is well stocked to
prime the supply assembly line when market conditions improve and
construction credit availability returns.
Reis data suggest that the heavy supply of luxury buildings delivered to
Buckhead in 2H08 (1,087 units) was leasing well, having reached 75%
occupancy or higher by year end. This would be an excellent outcome
considering the state of the economy and the growing shadow market
of Buckhead condos offering vacant units for rent.
Daniel J. Hogan
[email protected]
614-857-1416
William T. Hinga
[email protected]
614-857-1499
Source: Reis, Inc
12,000
Completions
Absorption
10,000
8,000
Units
•
6,000
4,000
2,000
0
-2,000
-4,000
02
03
04
05
06
07
08 09f 10f
RED CAPITAL GROUP
Two Miranova Place
Columbus, OH 43215
800.837.5100
The information contained in this report was prepared for general information purposes only and is not intended as legal, tax, accounting or financial advice, or recommendations
to buy or sell currencies or securities or to engage in any specific transactions. Information has been gathered from third party sources and has not been independently verified or
accepted by RED CAPITAL GROUP. RED makes no representations or warranties as to the accuracy or completeness of the information, assumptions, analyses or
conclusions presented in the report. RED cannot be held responsible for any errors or misrepresentations contained in the report or in the information gathered from third party
sources. Under no circumstances should any information contained herein be used or considered as an offer or a solicitation of an offer to participate in any particular transaction or
strategy. Any reliance upon this information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other advisor regarding your specific situation.
Any views expressed herein are subject to change without notice due to market conditions and other factors.
RED CAPITAL GROUP®
Market Overview
Atlanta, Georgia
January 2009
EXECUTIVE SUMMARY
W
eak retail sales, especially
for big ticket items like
autos and luxury goods,
and falling demand for housing and
manufactured products contributed to
deteriorating economic conditions in the
Atlanta area. Tighter credit conditions
made home and car purchases more
difficult for consumers and curtailed
access to financing for commercial borrowers, putting particular stress on construction firms, franchisees and retailers.
Payroll growth plummeted in 3Q08,
falling from the relatively robust
23,400-job, 0.9% advance recorded in
2Q08 to a 19,300-job, -0.8% loss. Accelerating attrition in the goods producing sectors was partially responsible.
Construction, manufacturing and wholesale trade employers reduced headcounts at an 18,300-job pace following a
modest 1,300-job cut in the prior period.
Layoffs by business and hospitality service firms also contributed to the trend,
transforming a collective 2Q08 net gain
of 16,000 (1.6%) jobs into a -4,100-job ,
-0.4% net loss in 3Q08.
Job losses accelerated in the fall, led by
double-digit year-over-year percentage
declines in the construction and manufacturing industries. Preliminary payroll
data for November reveal a 68,700-job,
-2.7% net decline from 2007, the weakest annual comparison ever observed
here, while the unemployment rate
reached 7.0% in November, representing the highest level posted since 1990.
Further economic decline is likely. The
RED CAPITAL Research econometric
payroll model forecasts job losses at a
67,000, -2.7% y-o-y rate in 4Q08, followed by an 82,000-job, -3.3% setback
in 2009. Quarterly losses are expected
to peak at a 112,200-job, -4.5% rate in
2Q09, before subsiding to an approximate 29,000-job pace by 4Q09.
Apartment demand was constructive in
3Q08, when owners net leased 807
units. But absorption failed to keep
SNAP SHOT
pace with a torrent of new unit deliveries, 2,220 to be precise, forcing occupancy down 30 bps to 91.1%, lowest
level since 2Q05. Supply was particularly heavy in urban infill markets, contributing to higher vacancy in Sandy
Spring, Buckhead and Midtown. Conversely, robust leasing in Roswell and
Gwinnett submarkets added 20 to 60
bps to occupancy rates in those areas.
Average asking rents increased $4
(0.5%) sequentially, but one-half of the
advance was consumed by higher lease
concessions. The residual $2 (0.3%)
effective rent hike was the smallest recorded since 4Q06. Rent trends were
broadly mixed, as 7 of 17 submarkets
posted negative sequential effective rent
growth in 3Q. Trends in Midtown were
among the weakest, falling -1.7% q-o-q
despite delivery of 283 new units.
Reis expect supply pressures to suppress
occupancy and rent trends through
2009. The firm forecasts deliveries of
1,594 units in 4Q08, pushing vacancy
up 40bps by year-end, followed by a
smaller 2,638-unit vintage in 2009 that
will nonetheless raise vacancy to a 5year high 9.3%. Commensurately slow
rent trends are forecast, with gains held
to $1 in 4Q08 and $13 (1.7%) in 2009.
Sales of Atlanta properties continued at
a healthy pace in 3Q08 as 20 properties
valued at $5mm or more exchanged
hands for total proceeds of $406mm.
This compares to 46 trades valued to
$1.0bn in the same period of 2007. The
average price declined to $66,000 per
unit from $85,000 in 2007, while the
median cap rate declined 40bps to 6.5%.
RCR estimate generic Atlanta total returns at 5.8%, equal to the RED 50
mean. NOI volatility is considerably
higher than the norm however, producing below average risk-adjusted returns,
and near term economic risk is significant. Thus, we continue to view Atlanta
as the least strategic growth market and
maintain our “hold” investment rating
Y-o-y
change
Projected
YE2008
80 bps
40 bps
2.5%
2.0%
Vacancy
(8.9% - 3Q08)
Effective
Rents
($773 - 3Q08)
Cap Rate
(6.5% - 3Q08)
Employment
(2,441.5m - 3Q08)
40 bps
19.3m
80 bps
8.2m
KEY POINTS
•
Economic conditions deteriorated as deep
cuts in home building and manufacturing
activity gave rise to accelerating layoffs.
Total payrolls declined at a 19,300-job pace
in 3Q08, a dramatic about face after the
23,400-job advance recorded in 2Q.
•
Job trends took a sharp turn for the worse in
the fall. November payrolls dropped 68,700
jobs below the year-earlier level, the weakest
over-the-comparison ever recorded; and the
unemployment rate reached a 20-year high.
•
RCR expect the Big Peach to suffer a record
82,000 (-3.3%) net job losses in 2009.
•
Supply pressures sent Atlanta occupancy
tumbling 30bps to 91.1% in 3Q. Preliminary
data show a decline to 89.8% at year end.
•
After posting a robust $9 (1.2%) effective
rent gain in 2Q08, asking and effective rent
growth slowed to $4 (0.5%) and $2 (0.3%),
respectively, in the third quarter.
•
Tighter credit conditions and diminishing
prospects didn’t deter investors. At least 20
properties valued at $5mm or more
exchanged owners for a total of $406mm.
RCR aren’t compelled by prospective
Atlanta asset risk-adjusted returns. “Hold.”
Atlanta-Sandy Spring-Marietta, GA MSA - 3Q 2008
VACANCY TRENDS
•
•
•
Reis data reveal a fairly healthy degree of renter interest in metro
apartments, as tenants net leased a total of 807 units in 3Q08. But new
supply outweighed demand by a nearly 3:1 ratio, causing occupancy to
fall 30 basis points to 91.1%, the lowest level since 2005.
An alternative data source estimate absorption at 675 units and supply
of 2,785 units, producing a 50 bps vacancy rate hike to 10.0%.
Although supply is set to decline from 5,110 units in 2008 to 2,638 in
2009, weak demand will drop occupancy to 90.4% by YE2009;
however, preliminary data from Reis put the YE2008 figure at 89.8%.
Source: Reis, Inc.
14%
Metro Vacancy Rate
•
12%
10%
8%
8.1% 8.9%
6%
Atlanta-Reis
4%
U.S.A.
2%
Atlanta-ALT
0%
The alternative data source foresee supply of 5,750 units in 2009,
giving rise to a near 90bps increase in average metro vacancy.
2Q 1Q 4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q 4Q 3Q
00 01 01 02 03 04 04 05 06 07 07 08
th
RANK: 46 out of 50
RENT TRENDS
•
•
•
Rising vacancy, the impact of new supply in lease up and a growing
shadow inventory of homes for lease held rent growth down in 3Q08.
After posting constructive rent increases in 2Q, Atlanta owners pushed
asking rents up by an average of only $4 (0.5%), and countervailing
lease concession held effective rent growth to just $2 (0.3%).
A second data source reported weaker rent trends than Reis. This
service registered a $4.90 (-0.6%) decrease of average asking rents in
the third quarter, resulting in a $3.30 (-0.5%) reduction year-over-year.
Same store rents were generally lower. Only 10 of 17 submarkets
recorded sequential effective rent growth; just two (Roswell and North
Gwinnett) managed to achieve an increase on a same store basis.
Source: Reis, Inc.
6%
YoY Rent Trend
•
Metro Rent Trends
4%
2.5%
2%
3.0%
0%
-2%
-4%
-6%
-8%
Reis’s 2009 forecast of 1.7% rent growth now appears too optimistic.
Ask-Reis
Effective
Ask-ALT
2Q 1Q 4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q 4Q 3Q
00 01 01 02 03 04 04 05 06 07 07 08
•
•
Investors continued to bid enthusiastically for Atlanta properties.
RCR identified 20 $5mm+ 3Q08 sales for proceeds totaling $406mm
and 11 4Q08 sales totaling $287mm of proceeds. Cap rates for third
quarter sales were remarkable firm at about 6.5%, representing a
surprising 40 bps decrease from the very active year-earlier period.
Pricing appeared to weaken in the fourth quarter. Several large
projects were marketed by motivated publicly-held real estate trust
sellers seeking to reduce balance sheet leverage. On the whole, cap
rates increases averaged about 80bps from 3Q08 levels. It was not
immediately clear whether this represented a tangible re-pricing of
Atlanta real estate or merely reflected the large size of the properties
for sale and the relative shortage of available acquisition financing.
Source: Reis, Inc.
7.4%
7.2%
7.0%
Cap Rate
•
6.8%
6.6%
6.4%
6.2%
6.0%
3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
06 06 07 07 07 07 08 08 08 08
Atlanta assets continue to offer inadequate risk-adjusted returns by our
way of thinking. We maintain our “Hold” investment rating.
Property Name
(Submarket)
Property Class
Date of
Transaction
Total Price
(in millions)
Price per unit
Estimated Cap
Rate
Post Parkside (Midtown)
Post Lenox Park (N DeKalb)
A
A
Oct-2008
Dec-2008
$25.2
$22.7
$134,043
$110,194
9.8%
7.0%
Heights Northlake (N DeKalb)
A
Dec-2008
$42.0
$117,657
6.5%
Belmont Place (Marietta)
A
Oct-2008
$35.2
$107,975
6.2%
Atlanta-Sandy Spring-Marietta, GA MSA - 3Q 2008
$240
Atlanta
Prices (000)
$220
•
US
•
$200
$180
$160
•
$140
$120
•
•
$100
05
Y
06 1Q 2Q 3Q 4Q 1Q 2Q 3Q
Y
07 07
07
07 08
08
08
Annual Chg (000)
•
100
•
50
0
•
Source: BLS
Rate
The rate of home foreclosure in Atlanta was the 20th highest among
the 100 largest U.S. metro areas. It was the highest excepting the states
of California and Florida and the Detroit and Las Vegas metro areas.
Job trends turned negative in the third quarter, falling at a 19,300-job,
-0.8% year-over-year pace. It was the first loss recorded since 4Q03.
Accelerating job cuts in the goods producing industries played a major role in this development. Headcounts in the construction, manufacturing and wholesale trade industries dropped at an 18,200-job
annual rate, far worse than the 1,300-job loss recorded in 2Q08.
Trends in the formerly robust business services industry also took a
sharp turn for the worse. After posting a 4,600-job gain in 2Q08, sector employers trimmed headcounts at a 3,800-job, -0.9% pace in 3Q.
The losses were not limited to temporary employment services but
snared skilled service industries as well, including computer network
design shops and corporate headquarters management operations.
October and November 2008
-82
99 00 01 02 03 04 05 06 07 08f 09f
ATLANTA
USA
4%
State population growth slowed from 2.3% in 2007 to 1.7% last year.
•
-8
6%
New home sales declined -41.7% in 2008, falling from 37,700 units in
2007 to 22,000. Builders expect a moderate increase this year.
Third Quarter 2008
150
-100
The S&P/Case-Shiller index for Atlanta stood at 119.77 in October,
approximately equal to the March 2004 level. The index fell -10.5%
from October 2007, and –2.4% from September 2008.
EMPLOYMENT TRENDS
-50
Atlanta metro area home price continued their downward slide. The
median price of a property sold in 3Q08 dropped to $151,300,
according to the N.A.R., down -13.7% from 2007.
•
2%
•
0%
-2%
The tempo of job losses accelerated in the fall. Attrition in the durable goods manufacturing sector ran at faster than a 10% annual rate,
the first time in the history of the Atlanta data series that this was the
observed. Construction headcount losses also ran in the double-digits,
an event the last occurred during the 1991 real estate recession.
Overall, job cuts ran at a 67,800-job, -2.7% rate in November, the
largest over-the-year loss ever recorded by more than 10,000 jobs.
The unemployment rate reached the 7.0% level for the first time in 16
years. The rate was never higher in the 19-year Atlanta data series.
Forecast
•
-4%
99 00 01 02 03 04 05 06 07 08
12.0%
9.5%
ATLANTA (RAI=1.91)
7.0%
4.5%
2.0%
RCR anticipate faster job losses through the first half of 2009. Our
econometric model produces a -67,200-job loss forecast for 4Q08,
leading to a 8,200-job setback for FY2008. Losses will grow to a
maximum of 112,200 jobs in 2Q09, before moderating to 29,100-job
level in the fourth quarter. A FY09 loss of 82,000 jobs is expected.
HOUSTON (RAI=1.96)
4.1%
4.5%
5.7%
6.2%
7.3%
7.8%
9.4%
10.1%
2.0%
90%
70%
50%
30%
10%
SUBMARKET TRENDS
Submarket
Effective Rent
Physical Vacancy
3Q07
3Q08
Change
3Q07
3Q08
North Gwinnett
South Gwinnett
$837
$842
$760
$701
$627
$860
$862
$766
$716
$647
2.8%
2.4%
0.7%
2.2%
3.1%
5.9%
7.0%
8.7%
6.8%
8.3%
6.6%
10.4%
8.4%
7.4%
10.1%
70 bps
340 bps
-30 bps
60 bps
180 bps
Decatur / Avondale
North DeKalb
Clayton / Henry
South Fulton County
Marietta
Smyrna
$736
$815
$673
$633
$729
$748
$743
$838
$684
$663
$759
$740
0.9%
2.8%
1.6%
4.7%
4.1%
-1.0%
8.5%
7.7%
7.5%
11.7%
7.5%
7.9%
8.9%
7.6%
8.8%
12.4%
8.0%
6.9%
40 bps
-10 bps
130 bps
70 bps
50 bps
-100 bps
$650
$688
$584
$1,018
$979
$786
$650
$692
$590
$1,064
$987
$812
0.0%
0.6%
1.0%
4.5%
0.9%
3.3%
9.1%
9.9%
9.9%
6.7%
8.5%
8.5%
8.8%
8.4%
12.9%
10.9%
9.3%
11.4%
-30 bps
-150 bps
300 bps
420 bps
80 bps
290 bps
$754
$773
2.5%
8.1%
8.9%
80 bps
I-20 West
I-20 East
South DeKalb
Buckhead
Midtown
Central I-75 West
Metro
SUPPLY TRENDS
•
•
The forecasters at Reis are of the view that 2009 will not be
characterized by excessive apartment supply growth. The service
currently expects only 2,638 units to be delivered, an serving of leasable
product that was readily digested by Atlanta renters in 2003, 2004, 2005
and 2007.
Source: Reis, Inc
10,000
Reis don’t expect relief from supply pressures to arrive in the fourth
quarter. The service forecasts delivery of 1,595 units in the period.
Most of the supply is targeted at infill markets that already exhibit
evidence of saturation, namely Buckhead, Midtown and Central.
8,000
Completions
Absorption
6,000
Units
•
Change
4,000
2,000
0
An alternative service holds an entirely different view. The analysts at
this shop anticipate a relatively large ‘09 vintage consisting of 5,750
units, with 3,180 to follow in 2010. It true, Atlanta occupancy could
suffer a major blow, declining by 150 to 200 basis points by YE2010.
-2,000
02
03
04
05
06
07
08f 09f
RED CAPITAL GROUP
Two Miranova Place
Columbus, OH 43215
Daniel J. Hogan
[email protected]
614-857-1416
William T. Hinga
[email protected]
614-857-1499
800.837.5100
Columbus, OH_Boston, MA_Charlotte, NC_Chicago, IL
Denver, CO_Fredericksburg, TX_Irving, TX_Jupiter, FL_Linwood, NJ_Nashville, TN
Newport Beach,CA_Reston, VA_San Diego, CA_Syracuse, NY
Market Overview is a publication of RED CAPITAL GROUP. If you are interested in other metro areas we cover or would like to
read about the research methodology we apply in our reports, please visit us at www.redcapitalgroup.com/research.
RED CAPITAL GROUP®
Market Overview
Atlanta, Georgia
August 2008
EXECUTIVE SUMMARY
T
he downturn in the metro
housing market continued to
weigh heavily on local economic growth in 2Q08. A net of
23,500 (0.9%) jobs were added yearover-year, down from 30,200 (1.2%)
in the first quarter. The 18,100
(0.7%) job growth metric recorded in
June was the lowest since March
2004.
The influx of recent graduates into the
labor market contributed to a sharp
increase in the metro unemployment
rate. The rate rose from 4.9% in April
to 5.9% in June. By comparison, the
rate of unemployment was 4.5% in
June 2007.
Slower headcount payroll growth was
partially attributable to attrition
among housing-related employment
sectors. Finance and construction
firms cut a net of 3,700 positions from
payrolls y-o-y in 2Q08. Job cuts
among manufacturers contributed as
well.
Area producers eliminated
5,000 jobs in the twelve-month period
ended in June.
RED forecast job growth to decelerate to 21,000 (0.9%) in 2008. The
confidence interval ranges from
16,000 (0.7%) to 26,000 (1.1%). We
expect conditions to improve next
year as domestic economic growth
recovers. We estimate payroll growth
of 39,000 (1.6%) for 2009.
Metro home price trends were weak
in the first half of 2008. According to
the Case-Shiller home price index,
metro home prices fell 7.9% in the
twelve-month period ended in May.
Dating back to May 2003, metro
home appreciation totaled 6.4%, far
below the 20.3% rate for the composite index of 20 large metro areas.
The Atlanta occupancy rate remained
unchanged at 91.5% as tenant demand
rebounded in the second quarter.
Positive net absorption totaled 745
SNAP SHOT
units, recovering a portion of the
1,563 net move-outs recorded in the
previous period. Supply was relatively constrained as 829 units were
added to the apartment stock in 2Q08.
Apartment owners took advantage of
increased demand by raising rents at
an aggressive pace. The average effective rent increased 1.2% sequentially and 3.4% y-o-y to $771. But
concessions remained prevalent in the
market. The size of the average concession package was approximately
equal to 10.3% of asking rent. Only
two markets in the RED 50 (Denver
and Raleigh-Durham) offered larger
rent concessions.
Reis expect market conditions to deteriorate through year-end. Increased
supply is forecast to produce a 50
basis point decrease in the occupancy
rate. Much of the supply will be contained in the Buckhead, North
DeKalb, Cental I-75 West, Midtown
and Sandy Springs submarkets. In
addition to lost occupancy, Reis expect annual effective rent growth to
decelerate to 2.9%.
Metro property trade activity slowed
to a degree in 1H08, according to
Real Capital Analytics. The source
counts 43 trades involving properties
priced at or above $5 million. Sales
volume totaled $943.6 million, down
from over $2 billion in the six-month
period ended in March. The average
price per unit was $83,113 and the
average cap rate was 6.3%.
Utilizing the 5.7% metro average cap,
RED generate a 7.3% expected rate
of total return for generic metro investment. High historic rent trend
and occupancy volatility, largely a
product of sustained periods of oversupply, produced a comparatively low
measure of risk-adjusted returns.
Thus, we assign a rating of “Hold” to
metro assets until pricing reflects Atlanta’s inherent risks.
Y-o-y
change
Projected
2008
(8.5% - 2Q08)
20bps
50bps
Effective
Rents
3.4%
2.9%
60bps
unch
23.5k
21k
Vacancy
($771 - 2Q08)
Cap Rate
(6.8% - 2Q08)
Employment
(2,473.4k - 2Q08)
KEY POINTS
•
•
•
•
•
The metro vacancy rate rose 20 basis points
year-over-year to 8.5% in 2Q08 as tenant
demand of 2,585 units lagged supply of
3,978 units.
The vacancy rate was
unchanged sequentially.
Average effective rents increased 1.2%
sequentially and 3.4% year-over-year. The
rate of sequential growth outpaced the 1.1%
increase in asking rents. The value of the
average concession package improved from
10.5% of asking rent in 1Q08 to 10.3%.
According to the Case-Shiller index, home
prices fell 7.9% in the twelve-month period
ended in May. The decrease compared
favorably to the 15.8% decline in the
composite index of 20 large metro areas.
The pace of metro job growth slowed from
67,000 (2.9%) in 2006 to 54,600 (2.3%) in
2007. Our econometric model generates a
point estimate of 21,000 (0.9%) new jobs
this year and 39,000 (1.6%) in 2009.
At 7.3%, Atlanta’s generic metro asset fiveyear holding period total return ranks 22nd
among the RED 50. But high degrees of
occupancy and rent trend volatility hamper
risk-adjusted returns. “Hold”.
Atlanta - Sandy Springs - Marietta, Georgia MSA - 2Q 2008
VACANCY TRENDS
•
•
The metro vacancy rate remained unchanged at 8.5% in 2Q08 as tenant
demand of 745 units nearly kept pace with completions. The second
quarter absorption total recovered nearly half of the units vacated in the
previous quarter (-1,563 units).
Vacancy rose 20 basis points year-over-year largely attributable to
weak demand in 1Q08. Completions totaled 3,978 units in the twelvemonth period ended in June, representing only a 1.2% increase in
rental stock.
Source: Reis, Inc.
12%
Metro Vacancy Rate
•
10%
8.3% 8.5%
8%
6%
4%
Atlanta
U.S.A.
2%
Reis expect increased supply to result in a 50 basis point increase in the
metro vacancy rate in 2H08. The service forecasts vacancy to rise
another 20 basis points to 9.2% in 2009.
0%
1Q 4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q 4Q 3Q 2Q
00 00 01 02 03 03 04 05 06 06 07 08
RENT TRENDS
•
•
•
Source: Reis, Inc.
The average effective rent increased 1.2% sequentially and 3.4% yearover-year to $771 in 2Q08. The rent gains compare favorably to the
0.5% sequential and 3.1% annual advance recorded in 1Q08.
Asking rents rose at a moderately slower 1.1% sequential rate to $860.
The value of the typical concession package was 10.3% of asking rent
in 2Q08, ranking third highest among the RED 50.
The Decatur / Avondale and North Gwinnett submarkets posted the
slowest rates (0.8%) of year-over-year effective rent growth.
Reis expect year-over-year effective rent growth to decelerate to 2.9%
this year and 2.7% in 2009, partially due to slower household income
growth.
6%
Asking
Effective
4%
YoY Rent Trend
•
Metro Rent Trends
0%
-2%
-4%
-6%
-8%
1Q 4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q 4Q 3Q 2Q
00 00 01 02 03 03 04 05 06 06 07 08
•
Source: Reis, Inc.
8.0%
According to Real Capital Analytics, property sales volume totaled
$943.6 million in the first six-months of 2008. The average price was
$83,113 per unit and the average cap rate was 6.3%.
Loopnet identified 28 trades totaling $596 million in 2Q08.
average price per unit was $73,103.
The
At an assumed going-in yield of 5.7%, RED estimate a 7.3% five-year
holding period total return, ranking 22nd among the RED 50. But
above average rent trend and occupancy volatility gives rise to a below
average measure of risk adjusted returns. As investment returns do not
adequately compensate buyers for inherent risks, we assign a rating of
“Hold”.
7.5%
7.0%
Cap Rate
•
3.4%
2%
•
3.4%
6.5%
6.0%
5.5%
5.0%
4.5%
2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
06 06 06 07 07 07 07 08 08
Property Name
710 Peachtree
Addison Place
Glen Lake
Collier Ridge
Property Class
Date of
Transaction
Total Price
(in millions)
Price per unit
Estimated Cap
Rate
BC
A
A
A
May 2008
June 2008
June 2008
June 2008
$43.0
$60.0
$33.0
$33.1
$80,675
$148,883
$122,222
$110,444
5.5%
6.0%
4.9%
5.0%
Year-over-year Home Price Change
Source: Case-Shiller
•
20%
15%
10%
•
Rate
5%
0%
•
-5%
-10%
Atlanta
-15%
20 Metro Index
•
-20%
2004
2005
2006
2007
Single-family permit issuance fell 56.5% year-to-date, an indication
that supply pressure will ease.
Past 12 Months
•
120
Annual Chg (000)
HousingTracker.net report that the median asking price fell 1.1% in the
twelve-month period ended in July.
EMPLOYMENT TRENDS
100
80
60
39
•
21
The pace of payroll employment growth slowed to 54,600 (2.3%) in
2007 from 67,000 (2.9%) in the previous year. Year-over-year job
creation decelerated further this year, falling to 18,100 (0.7%) in June.
Metro unemployment rose to a non-seasonally adjusted 5.9% rate in
June, the metro’s highest mark since February 1993.
Second Quarter 2008
0
•
-20
-40
-60
99 00 01 02 03 04 05 06 07 08f 09f
•
Source: BLS
6%
Atlanta
•
USA
4%
Rate
According to the Case-Shiller home price index, single-family home
values fell 7.9% year-over-year in May. Prices were down 8.8% from
the July 2007 series peak.
2008
40
20
The rate of metropolitan population growth moderated to a degree in
2007, decelerating from 3.4% in 2006 to 2.9%. Reduced net domestic
migration was largely responsible.
•
2%
0%
Second quarter payrolls were 23,500 (0.9%) jobs higher than year-ago
levels. By comparison, 53,400 (2.2%) workers were added in the
same period of 2007.
The downturn in the metro housing market was partially responsible
for slower job formation. Builders and residential mortgage origination firms were forced to cut staffs due to reduced demand for housing. Combined, the construction and finance sectors in Atlanta eliminated 3,700 positions year-over-year.
Job trends in the hospitality sector remained positive this year but
pale in comparison to last year’s advance. The sector added 10,200
employees year-over-year in 2Q07 and 4,100 in 2Q08.
Likewise, business service hiring decelerate sharply. A monthly yearover-year average of 9,500 workers were hired last year, compared to
5,800 in the first six months of 2008.
Forecast
•
-2%
-4%
99 00
01
02 03
04 05
06 07
08
RED expect 2008 job growth to range from 16,000 (0.7%) to 26,000
(1.1%), with a point estimate of 21,000 (0.9%). Employment trends
should improve next year as 39,000 (1.6%) positions are added to
payrolls.
15%
10%
5%
Atlanta
4.0%
3.2%
Charlotte
5.6%
6.4%
7.2%
7.9%
8.8%
9.5%
10.9%
11.6%
0%
90%
70%
50%
30%
10%
SUBMARKET TRENDS
Effective Rent
Physical Vacancy
Submarket
North Gwinnett
South Gwinnett
Decatur / Avondale
North DeKalb
Clayton / Henry
South Fulton
Marietta
Smyrna
I-20 West
I-20 East
South DeKalb
Buckhead
Midtown
Central I-75 West
Metro
2Q07
2Q08
Change
2Q07
2Q08
$831
$834
$753
$700
$632
$740
$802
$663
$628
$722
$738
$644
$677
$580
$1,002
$964
$763
$858
$848
$759
$717
$655
$746
$838
$679
$651
$753
$755
$674
$707
$589
$1,058
$1,006
$786
3.2%
1.7%
0.8%
2.4%
3.6%
0.8%
4.5%
2.4%
3.7%
4.3%
2.3%
4.7%
4.4%
1.6%
5.6%
4.4%
3.0%
6.2%
7.5%
8.4%
7.2%
8.0%
9.8%
7.3%
7.9%
11.8%
8.1%
7.4%
10.0%
10.9%
12.6%
6.8%
8.7%
9.3%
6.9%
9.1%
9.0%
7.6%
9.1%
8.3%
7.7%
8.4%
12.5%
7.3%
7.3%
8.2%
7.6%
10.0%
9.4%
8.9%
10.9%
70 bps
160 bps
60 bps
40 bps
110 bps
-150 bps
40 bps
50 bps
70 bps
-80 bps
-10 bps
-180 bps
-330 bps
-260 bps
260 bps
20 bps
160 bps
$746
$771
3.4%
8.3%
8.5%
20 bps
SUPPLY TRENDS
•
•
•
Source: Reis, Inc
Developers added 829 units in 1H08, all of which were completed in
the second quarter. By comparison, 1,943 units were delivered in the
same period of 2007.
10,000
The development lull will not last long. Reis expect supply to total
5,040 in 2H08, the highest six-month total since April to September
2001. Supply is expected to recede to 4,072 in 2009.
6,000
A 249-unit property that was delivered in July 2007 and located in
Buckhead was 71.5% occupied in June 2008, for an average absorption
rate of 16 units per month.
Completions
Absorption
8,000
Units
•
Change
4,000
2,000
0
Reis count 5,072 condo units under construction as of August 4th.
Nearly 12,000 additional units were in the planning stage.
-2,000
02
03
04
05
06
07
08f 09f
RED CAPITAL GROUP
Two Miranova Place
Columbus, OH 43215
Daniel J. Hogan
[email protected]
614-857-1416
William T. Hinga
[email protected]
614-857-1499
800_837_5100
Columbus, OH_Boston, MA_Bozeman, MT_Charlotte, NC_Chicago, IL
Denver, CO_Fredericksburg, TX_Irving, TX_Jupiter, FL_Linwood, NJ_Nashville, TN
Newport Beach,CA_Reston, VA_San Diego, CA_Syracuse, NY_Voorhees, NJ
©2006 RED CAPITAL GROUP (8/9/06)
RED CAPITAL GROUP®
Market Overview
Atlanta, Georgia
May 2008
EXECUTIVE SUMMARY
S
luggish domestic economic
growth and metro housing
market weakness contributed
to two consecutive quarters of below
trend payroll growth. Metro employers added 38,400 (1.6%) workers
year-over-year in 4Q07 and 30,200
(1.2%) in 1Q08. Both metrics fell
short of the 64,000 (2.7%) average
monthly advance recorded from January 2006 to September 2007.
Following a prolonged period of payroll expansion among construction
firms, diminished residential demand
forced builders to layoff workers.
The apprehensive approach adopted
by potential home buyers also reduced mortgage origination activity
and ultimately led to job attrition.
Combined, construction and finance
firms eliminated 4,200 jobs in 1Q08.
Results from the business service super sector were mixed. Establishments specializing in administrative
support and temporary staffing services accelerated hiring from 200 in
1Q07 to 2,500 in 1Q08. Accounting,
architectural, engineering and computer systems design establishments,
on the other hand, added a net of 500
workers in 1Q08. This compares to
the 6,800-job gain from 1Q07.
RED forecast job growth to decelerate to 28,000 (1.1%) in 2008. The
confidence interval ranges from
19,000 (0.8%) to 36,000 (1.5%). We
expect conditions to improve next
year as domestic economic growth
recovers. We estimate payroll growth
of 39,000 (1.6%) for 2009.
Atlanta home price trends were weak
in 1Q08. The National Association of
Realtors report a 9.6% y-o-y decrease
in the metro median home price from
$170,400 in 1Q07 to $154,000. The
Case-Shiller home price index suggests that home values fell 5.6% in
the twelve-months ended in February,
ranking 7th out of 20 markets.
SNAP SHOT
Anemic tenant demand was responsible for a 40 basis point decrease in the
metro occupancy rate from 91.9% in
4Q07 to 91.5% in 1Q08. Metro negative net absorption totaled -1,564
units. Conditions in the North Gwinnett (-345 units), Clayton / Henry (294 units), Roswell (-270 units) and
Sandy Springs (-255 units) submarkets were largely to blame.
The size of the average concession
package rose from 10.1% of asking
rent in 4Q07 to 10.6% in 1Q08 as
owners increased rent incentives in
response to sluggish unit demand.
Increased concessions cut into effective rent growth. Effective rents rose
0.4% sequentially and 3.1% y-o-y to
$762. The metrics compare to the
0.7% sequential and 3.7% y-o-y
growth rates posted in 4Q07.
Reis expect market conditions to deteriorate through year-end. Increased
supply is forecast to produce a 20
basis point decrease in the occupancy
rate. Consequently, effective rent
growth will decelerate to a 2.0% annual pace.
Based on data from Real Capital Analytics, investors remained relatively
enthusiastic about Atlanta.
The
source count 75 trades involving
properties priced at or above $5 million in the six-month period ended in
March. Sales volume totaled $2.151
billion, just off the 2007 pace. The
average price per unit was $83,235.
Utilizing the 5.0% metro average cap
rate reported by NCREIF, RED generate a 6.1% expected rate of total
return for generic metro investment.
High historic rent trend and occupancy volatility, largely a product of
sustained periods of oversupply, produced a comparatively low measure
of risk-adjusted returns. Thus, we
assign a rating of “Hold” to metro
assets until pricing reflects Atlanta’s
inherent risks.
Y-o-y
change
Projected
2008
(8.5% - 1Q08)
unch
20bps
Effective
Rents
3.1%
2.0%
Vacancy
($762 - 1Q08)
Cap Rate
(6.7% - 1Q08)
30bps
Employment
(2,462.3k - 1Q08)
30.2k
28k
KEY POINTS
•
The metro vacancy rate rose 40 basis points
sequentially to 8.5% due to negative net
absorption of 1,564 units. Vacancy was
unchanged year-over-year as solid demand
was recorded in the final three quarters of
2007.
•
Asking and effective rents increased at a
3.1% annual rate. On a sequential quarter
basis, the former posted a 0.9% growth rate
while the latter increased at a 0.4% pace.
•
Metro home price trends were weak in 1Q08.
The National Association of Realtors report
a median single-family home price of
$154,000 in 1Q08, the lowest figure since
1Q04. Using a same-store approach, the
Case-Shiller home price index suggests that
metro single-family home values fell 5.6%
year-over-year in February.
•
Property trade activity slowed to a degree in
1Q08. According to Loopnet, a total of 20
properties priced at or above $5 million
traded in 1Q08 for a total of $430 million in
sales proceeds. The average price per unit
was $78,894.
•
Market fundamentals do not support an
active buying program. Hold
VACANCY TRENDS
•
•
The vacancy rate in Atlanta increased 40 basis points sequentially due
to negative net absorption of 1,564 units; no additions to supply were
recorded. Same-store data from a sample of REITs with significant
exposure to Atlanta show a 30 basis point sequential decrease in the
average occupancy rate from 94.6% to 94.3%.
Vacancy was unchanged year-over-year as weak demand in the first
quarter reversed the improvements netted in the April to December
period last year.
Reis anticipate modest apartment absorption and increased supply to
produce a 20 basis point increase in the metro vacancy rate by yearend. Vacancy is forecast to rise to 9.0% next year.
Source: Reis, Inc.
12%
Metro Vacancy Rate
•
10%
8.5% 8.5%
8%
6%
4%
Atlanta
U.S.A.
2%
0%
3Q 2Q 1Q 4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q
00 01 02 02 03 04 05 05 06 07 08
RENT TRENDS
•
•
•
Source: Reis, Inc.
Effective rent growth slowed from 0.7% sequentially in 4Q07 to 0.4%
in 1Q08. On a year-over-year basis the average effective rent increased
3.1% to $762.
The average asking rent increased 0.9% sequentially and 3.1% yearover-year to $852. The size of the average concession package rose
from 10.1% of asking rent in 4Q07 to 10.6% in 1Q08.
Effective rents in the Roswell / Alpharetta submarket increased 5.2%
year-over-year, the fastest rate of growth among the metro’s 17
submarkets.
in 2008 but rise to 2.7% in 2009.
6%
Asking
Effective
4%
YoY Rent Trend
•
Metro Rent Trends
3.1%
2%
0%
-2%
-4%
-6%
-8%
3Q 2Q 1Q 4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q
00 01 02 02 03 04 05 05 06 07 08
•
•
Real Capital Analytics report 75 investor grade property trades in the
six-month period ended in March. Sales volume totaled $2.151 billion.
The average price per unit was $83,235 and the average cap rate was
6.0%. By comparison, the average cap rate in 2007 was 6.1% and the
average price was $82,554 per unit.
According to NCREIF, the metro average cap rate increased 20 basis
points sequentially to 5.0% in 1Q08. The cap rate decreased 20 basis
points year-over-year.
At an assumed going-in yield of 5.0%, we estimate generic metro asset
five-year holding period total returns of 6.1%, ranking 30th among the
RED 50. Investment returns are less attractive from a risk-adjusted
perspective, owing to high rent trend and occupancy volatility.
Source: Reis, Inc.
8.0%
7.6%
Cap Rate
•
3.1%
7.2%
6.8%
6.4%
6.0%
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
06 06 06 06 07 07 07 07 08
Property Name
Addison Place
The River Communities
Milstead Village
Veranda
Property Class
Date of
Transaction
Total Price
(in millions)
Price per unit
Estimated Cap
Rate
A
B
A
BC
May 2008
March 2008
January 2008
January 2008
$60.0
$72.0
$33.5
$32.0
$148,883
$101,695
$108,095
$80,000
6.5%
5.3%
5.5%
6.3%
$240
MSA
Prices (000)
$220
•
US
•
$200
$180
•
$160
$140
$120
•
$100
04
05
06
Y
Y
Y
1Q 2Q 3Q 4Q 1Q
07
07
07
07
08
•
Annual Chg (000)
100
80
60
28
39
The metro fared better in the OFHEO home price index, a measure that
excludes homes purchased with non-conforming mortgages. The
metro posted a 1.4% year-over-year price gain, ranking 153rd among
the 292 markets tracked by the source.
•
0
-20
-40
•
99 00 01 02 03 04 05 06 07 08f 09f
Source: BLS
•
6%
Metro establishments added 54,600 (2.3%) positions to payrolls in
2007, down from the 67,000 (2.9%) jobs created in 2006. Weaker
trends at the end of the year were largely to blame.
First Quarter 2008
-60
USA
4%
Rate
Atlanta registered a 5.6% year-over-year decrease in the Case-Shiller
home price index in February. Homes priced below $156,742 suffered
a 7.9% decrease.
Past 12 Months
120
Atlanta
According to the National Association of Realtors, the median price of
a single-family MSA home fell 9.6% year-over-year to $154,000. The
price was the metro’s lowest since 1Q04.
EMPLOYMENT TRENDS
40
20
The rate of population growth slowed to 2.9% last year as net domestic
migration fell from 96,748 in 2006 to 75,577 in 2007.
The pace of year-over-year job growth decelerated sharply 4Q07,
falling from 58,100 (2.4%) in 3Q07 to 38,400 (1.6%). The slowdown
continued in 1Q08 as 30,200 (1.2%) jobs were added year-over-year.
Sluggish growth was widespread in 1Q08. Wholesale and retail trade
firms combined to generate 2,400 new jobs year-over-year in 1Q08,
down from 14,800 in the comparable period of 2007. Similarly, professional service (accounting / payroll, engineering / architectural and
computer systems design services), finance and insurance companies
added 800 workers year-over-year in 1Q08 as compared to 10,100 in
1Q07. Even hospitality firms reduced hiring by nearly 50%, adding
5,300 positions to payrolls in 1Q08.
Builders began to cut staffs in July 2007 and year-over-year attrition
peaked at -2,000 in March. Still, construction headcounts as of April
were approximately equal to the June 2006 count, during a period of
intense building activity.
2%
Forecast
0%
•
-2%
-4%
99
00
01
02
03
04
05 06
07
RED remain optimistic regarding the resiliency of the metro economy. We expect job growth to decelerate to 28,000 (1.1%) this year
but rebound to 39,000 (1.6%) in 2009. By comparison, Economy.com project employment growth to cool to 13,950 (0.6%) in
2008 but surge to 57,460 (2.3%) in 2009.
08
15%
10%
5%
Atlanta
2.9%
2.0%
Charlotte
5.3%
4.4%
6.0%
6.8%
7.6%
8.3%
9.8%
10.5%
0%
90%
70%
50%
30%
10%
SUBMARKET TRENDS
Effective Rent
Submarket
Physical Vacancy
1Q07
1Q08
Change
1Q07
1Q08
North Gwinnett
South Gwinnett
Decatur / Avondale
North DeKalb
Clayton / Henry
South Fulton
Marietta
Smyrna
I-20 West
$816
$815
$748
$698
$634
$734
$790
$655
$618
$714
$724
$646
$859
$837
$745
$710
$646
$739
$820
$683
$645
$743
$752
$661
5.2%
2.8%
-0.5%
1.8%
1.9%
0.7%
3.8%
4.3%
4.4%
4.1%
3.8%
2.3%
6.1%
7.2%
9.1%
7.5%
8.2%
9.4%
7.8%
8.9%
11.4%
7.7%
7.8%
9.5%
7.0%
7.9%
9.2%
7.8%
9.1%
8.5%
8.0%
8.5%
12.7%
7.5%
7.5%
8.5%
90 bps
70 bps
10 bps
30 bps
90 bps
-90 bps
20 bps
-40 bps
130 bps
-20 bps
-30 bps
-100 bps
I-20 East
$681
$693
1.8%
12.2%
8.9%
-330 bps
South DeKalb
$576
$582
1.1%
14.7%
10.0%
-470 bps
Buckhead
$1,010
$1,043
3.2%
7.7%
8.0%
30 bps
Midtown
$967
$978
1.1%
6.5%
9.2%
270 bps
Central I-75 West
$766
$770
0.5%
9.0%
8.3%
-70 bps
Metro
$739
$762
3.1%
8.5%
8.5%
unchg
SUPPLY TRENDS
•
•
Source: Reis, Inc
According to Reis, no units were delivered in 1Q08 but supply is
forecast to total 5,645 from 2Q08 to 4Q09. The Buckhead (1,075
units), Midtown (996 units) and South Fulton (884 units) submarkets
are expected to add the most units to inventory over the period.
Developers of condo properties remained active. Reis count 18
projects containing 3,214 units scheduled to open in 2008 and another
11 developments totaling 2,252 units slated for delivery in 2009. The
Midtown and Buckhead submarkets are the favored locations.
10,000
8,000
6,000
Units
•
Change
4,000
2,000
Multifamily permit activity fell 15% year-over-year as 11,162 permits
were issued in the twelve-months ended in March.
0
Completions
-2,000
02
03
04
05
Absorption
06
07
08f 09f
RED CAPITAL GROUP
Two Miranova Place
Columbus, OH 43215
Daniel J. Hogan
[email protected]
614-857-1416
William T. Hinga
[email protected]
614-857-1499
800_837_5100
Columbus, OH_Boston, MA_Bozeman, MT_Charlotte, NC_Chicago, IL
Fredericksburg, TX_Irving, TX_Jupiter, FL_Linwood, NJ_Nashville, TN
Newport Beach,CA_Reston, VA_San Diego, CA_Syracuse, NY_Voorhees, NJ
RED CAPITAL GROUP®
Market Overview
Atlanta, Georgia
February 2008
EXECUTIVE SUMMARY
T
he pace of job creation slowed
from 60,100 (2.6%) in 2006 to
47,400 (2.0%) in 2007, partially attributable to housing market
weakness. Construction firms hired
3,700 workers in 2007, down from
6,000 hires in each of the previous
two years. Finance payrolls increased
by only 1,000 following a 4,400-job
gain in 2006; year-over-year growth
turned negative in September.
Conversely, business service and
health care hiring was robust. Business service firms added 9,600 workers y-o-y in 4Q07, up from 7,200 in
the comparable period of 2006. Similarly, health care establishments increased hiring efforts by adding 7,200
employees y-o-y in 4Q07.
Looking ahead, RED remain confident in Atlanta’s ability to create jobs
at a faster rate than the nation. Our
econometric model generates point
estimates of 48,000 (2.0%) jobs in
2008 and 40,000 (1.6%) jobs in 2009.
The confidence intervals range from
36,000 (1.5%) to 59,000 (2.4%) in
2008 and from 26,000 (1.0%) to
53,000 (2.1%) in 2009.
The metro population increased 3.3%
in 2006, up from 3.1% growth in
2005. Increased net domestic migration was largely responsible. Tactician Corp., a commercial demographer, forecast population growth to
average 2.4% per year from 2007 to
2012.
The 4Q07 metro occupancy rate was
up 10 basis points sequentially to
92.0%, ranking 47th among the RED
50. Stout demand easily absorbed the
984 units of supply that were delivered in the quarter. On a y-o-y basis,
the occupancy rate increased 30 basis
points due to positive net absorption
of 4,867 units that outpaced the 4,565
unit completions.
Effective rents increased 0.7% se-
SNAP SHOT
quentially and 3.6% y-o-y in 4Q07.
The latter represents the highest rate
of metro effective rent growth since
2Q01. Rapid rent growth was partially attributable to reduced concessions. The value of the typical concession package fell from 10.8% of
asking rent in 4Q06 to 10.2% in
4Q07.
Reis forecast weak demand in 2008 to
cause occupancy to tumble and effective rent growth to decelerate even as
construction slows. The service forecasts net absorption to fall from 4,867
units in 2007 to 1,616 units in 2008.
As a result, occupancy is expected to
fall 40 bps to 91.6%. Consequently,
owners will be less aggressive with
regard to pricing and effective rent
growth will slow to 2.4%.
RED believe that conditions will improve rather than deteriorate in 2008.
Demand should remain firm as payroll growth will hover around 2.0%
and conditions in the mortgage and
housing markets are unlikely to encourage mass migration of rental tenants to homeownership. By the same
token, the supply outlook is constructive as only 3,173 units are slated for
completion, the lowest total since ‘94.
Real Capital Analytics count 188 investor grade property trades in 2007
totaling $4.687 billion in sales volume. The average price rose 10% to
$82,554 per unit. The source estimate
an average cap rate of 6.1%, down 67
bps from 2006.
RED estimate generic metro asset 5year holding period total returns of
6.0%, ranking 32nd among the RED
50. The metro’s above average historic volatility gives rise to an even
lower measure of risk-adjusted returns. On this basis, RED assign a
rating of “Hold” for metro assets;
market fundamental do not support an
active buying program at current
prices.
Vacancy
(8.0% - 4Q07)
Effective
Rents
Y-o-y
change
Projected
2008
30bps
40bps
3.6%
2.4%
50bps
unch
53.2k
48k
($758 - 4Q07)
Cap Rate
(7.7% - 4Q07)
Employment
(2,481.5k - 4Q07)
KEY POINTS
•
The metro vacancy rate fell 10 basis points
sequentially to 8.0% in 4Q07. On a yearover-year basis, the vacancy rate decreased
30 basis points owing to stable demand and
slower supply growth.
•
Asking and effective rents increased 2.8%
and 3.6% year-over-year, respectively. Reis
forecast effective rent growth to decelerate to
2.4% in 2008 and 2.7% in 2009.
•
The median price of a single family MSA
home decreased 1.5% year-over-year to
$164,300 in 4Q07. This ranked 84th among
the 156 metros tracked by the NAR.
•
Atlanta ranked 4th among major apartment
markets for sales volume for the second
consecutive year as 188 properties traded for
total sales proceeds of $4,687 million. The
average price rose 10% from 2006 to
$82,554 per unit.
•
According to NCREIF, cap rates for
institutional quality assets in Atlanta fell 10
basis points from 5.0% in 3Q06 to 4.9% in
3Q07. At such low initial yields, we
recommend that investors remain on the
sidelines.
VACANCY TRENDS
•
•
The metro vacancy rate fell 10 basis points sequentially to 8.0% in
4Q07. The improvement was attributable to stout demand (1,110
units) and limited supply (984 units).
The vacancy rate decreased 30 basis points in 2007 as supply remained
below 5,000 units for the second consecutive year. Demand was
strong as 4,867 units were absorbed.
Marcus & Millichap forecasts a 20 basis point improvement in vacancy
this year. Reis are pessimistic, however, forecasting a 40 basis point
increase in average vacancy.
Source: Reis, Inc.
12%
Metro Vacancy Rate
•
10%
8.3%
8%
6%
4%
Atlanta
U.S.A.
2%
0%
COMMENT: We expect market conditions to improve rather than deteriorate
in 2008. The metro supply outlook is tame and we do not anticipate weak
demand.
2Q 1Q 4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q 4Q
00 01 01 02 03 04 04 05 06 07 07
RENT TRENDS
•
•
•
Metro Rent Trends
Source: Reis, Inc.
Effective rents increased 0.7% sequentially to $758 in 4Q07. The
metric rose 3.6% year-over-year, the fastest rate of growth since 2Q01.
Despite recent growth, the 4Q07 average effective rent remains $40
below the series high of $798, recorded in 3Q01.
Asking rents increased 2.8% year-over-year to $844. The value of the
average concession package fell from 10.8% of asking rent in 4Q06 to
10.2% in 4Q07.
Despite vacancy of 12.0% the South Fulton submarket posted the
fastest rate of effective rent growth (5.9%) among the metro’s 17
submarkets.
in 2008 before rebounding to 2.7% in 2009.
6%
Asking
Effective
4%
YoY Rent Trend
•
2.8%
0%
-2%
-4%
-6%
-8%
2Q 1Q 4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q 4Q
00 01 01 02 03 04 04 05 06 07 07
RANK: 33 out of 50
PROPERTY MARKET & CAP RATE TREND
•
•
Loopnet identify 49 trades involving properties priced at or above $5
million in 4Q07, totaling $1.3 billion in sales proceeds. The average
price was $83,432 per unit.
According to NCREIF, the metro cap rate fell 10 basis points from
5.0% in 3Q06 to 4.9% in 3Q07.
7.8%
7.6%
Cap Rate
•
Source: Reis, Inc.
th
According to Real Capital Analytics, Atlanta ranked 4 highest among
the largest US apartment markets in total sale volume and 2nd with
regard to the sale of garden apartment properties. A total of 188
investor grade apartment properties were sold for $4.687 billion. The
average price was $82,554 per unit.
3.6%
2%
rd
•
8.0%
7.4%
7.2%
7.0%
6.8%
4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
RED estimate generic metro asset 5-year holding period total returns
of 6.0%, ranking 32nd among the RED 50.
05 06 06 06 06 07 07 07 07
Property Name
Archstone Perimeter (Dunwoody)
Post Lindbergh (Buckhead)
Post Vinings (Smyrna)
Milstead Village Apts (Marietta)
Property Class
Date of
Transaction
Total Price
(in millions)
Price per unit
Estimated Cap
Rate
A
A
A
A
October 2007
December 2007
December 2007
January 2008
$70.2
$61.2
$44.8
$33.5
$116,335
$154,543
$111,166
$108,098
4.5%
5.0%
4.3%
5.0%
$240
MSA
Prices (000)
$220
•
US
$200
•
$180
$160
$140
•
$120
$100
Population growth accelerated to 3.3% in 2006. The contribution of
net domestic migration grew from 51,639 in 2005 to 90,520 in 2006.
Tactician Corp. forecast population growth to decelerate to an annual
average of 2.4% from 2007 to 2012.
The median price of a single family MSA home decreased 1.5% yearover-year to $164,300 in 4Q07. The median condo price fell 12.0%
year-over-year to $141,100.
Single-family residential permit issuance fell 43% in 2007 as only
30,075 permits were issued. By comparison, more than 52,000 singlefamily permits were issued in 2006.
03 04 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
Y
Y 05 06 06 06 06 07 07 07 07
EMPLOYMENT TRENDS
Past 12 Months
•
Annual Chg (000)
120
100
80
48
60
40
40
20
Fourth Quarter 2007
•
0
-20
-40
-60
99 00 01 02 03 04 05 06 07 08f 09f
6%
•
Atlanta
USA
4%
•
Year-over-year payroll growth among retailers accelerated in 4Q07 as
8,100 employees were added to staffs. This compares to only 1,300
new retail jobs in 4Q06. Similarly, state and local governments added
a combined 14,100 workers in 4Q07, up from 8,200 in 4Q06.
Business service establishments hired a net of 9,600 workers yearover-year in 4Q07, the largest metric posted among non-government
sectors. The leisure service sector ranked second, as 7,500 employees
were added year-over-year.
Forecast
Source: BLS
Rate
The rate of job formation fell from 60,100 (2.6%) in 2006 to 47,400
(2.0%) in 2007. Reduced hiring by construction firms and weakness
in the mortgage market were largely to blame. The unemployment
rate fell from a monthly average of 4.6% in 2006 to 4.3% in 2007.
•
2%
0%
•
-2%
National City Bank economist Dr. Richard DeKaser forecasts GDP
growth of 2.2% in 2008 and 2.5% in 2009.
RED expect Atlanta payroll growth to average 48,000 (2.0%) in 2008
before slowing to 40,000 (1.6%) in 2009. The confidence intervals
range from 36,000 (1.5%) to 59,000 (2.4%) in 2008 and from 26,000
(1.0%) to 53,000 (2.1%) in 2009.
Economy.com are less optimistic for 2008, forecasting only 32,330
(1.3%) net new jobs.
-4%
99
15%
10%
5%
00
01
02
03
04
05
06
RANK: 8th out of 50
07
Atlanta
2.8%
1.9%
Charlotte
4.3%
5.1%
5.9%
6.7%
7.4%
8.3%
9.6%
10.5%
0%
90%
70%
50%
30%
10%
SUBMARKET TRENDS
Effective Rent
Submarket
Physical Vacancy
4Q06
4Q07
Change
4Q06
4Q07
North Gwinnett
South Gwinnett
Decatur / Avondale
North DeKalb
Clayton / Henry
South Fulton
Marietta
Smyrna
I-20 West
$809
$818
$754
$690
$628
$731
$786
$650
$608
$702
$711
$643
$848
$840
$745
$707
$646
$739
$819
$677
$644
$740
$742
$662
4.8%
2.7%
-1.2%
2.4%
2.8%
1.1%
4.1%
4.2%
5.9%
5.4%
4.4%
3.0%
6.2%
5.8%
8.3%
6.9%
8.7%
9.3%
7.1%
9.0%
12.0%
7.9%
8.1%
9.9%
5.8%
6.8%
8.1%
7.3%
8.7%
8.2%
7.3%
7.7%
12.0%
7.4%
7.1%
9.8%
-40 bps
100 bps
-20 bps
40 bps
unch
-110 bps
20 bps
-130 bps
unch
-50 bps
-100 bps
-10 bps
I-20 East
$674
$690
2.4%
12.6%
9.1%
-350 bps
South DeKalb
$573
$579
1.1%
12.2%
8.7%
-350 bps
Buckhead
$999
$1,030
3.1%
8.2%
8.2%
unch
Midtown
$961
$981
2.1%
6.7%
8.0%
130 bps
Central I-75 West
$763
$778
2.0%
7.3%
7.8%
50 bps
Metro
$732
$758
3.6%
8.3%
8.0%
-30 bps
SUPPLY TRENDS
•
•
Source: Reis, Inc
Developers completed 984 units in 4Q07, bringing the 2007 total to a
manageable 4,565 units. By way of comparison, an average of 7,500
units were delivered annually from 1999 to 2006.
10,000
Reis forecast only 3,173 units of supply in 2008 and 3,354 units in
2009. The service count nearly 3,000 condo units that are slated for
completion in 2008.
6,000
Multifamily permit issuance decreased from 13,556 units in 2006 to
12,913 in 2007.
Completions
Absorption
8,000
Units
•
Change
4,000
2,000
COMMENT: The supply outlook is encouraging but risks remain if a
significant number of condo units are repurposed as rentals rather than face a
tough sales market.
0
-2,000
02
03
04
05
06
07
08f 09f
RED CAPITAL GROUP
Two Miranova Place
Columbus, OH 43215
Daniel J. Hogan
[email protected]
614-857-1416
William T. Hinga
[email protected]
614-857-1499
800_837_5100
Columbus, OH_Boston, MA_Bozeman, MT_Chicago, IL_Fredericksburg, TX
Irving, TX_Jupiter, FL_Linwood, NJ_Nashville, TN_Newport Beach,CA
Philadelphia, PA_Reston, VA_San Diego, CA_Syracuse, NY_Voorhees, NJ
Market Overview is a publication of RED CAPTIAL GROUP. If you are interested in other metro areas we cover or would like to
RED CAPITAL GROUP®
Market Overview
Atlanta, Georgia
June 2007
EXECUTIVE SUMMARY
A
t this time last year exuberance abounded in Atlanta as
the economy was producing
jobs at a pace not experienced since
the first months of the new millennia.
But after a strong first quarter when
76,000 (3.0%) positions were added
year-over-year, job growth decelerated, resulting in the creation of
60,100 (2.6%) jobs in 2006. Slower
hiring among retailers was partially to
blame. Sector employment increased
14,000 y-o-y in 1Q06, falling to an
average of 5,100 in the final three
quarters. Likewise, health care providers reduced hiring efforts from
9,400 in 1Q06 to 5,300.
The slowdown continued in 1Q07.
Establishments added 41,400 positions to payrolls, down from 45,700 in
the previous quarter. Construction,
business services and local government accounted for 20,200 or 44% of
first quarter job creation but added a
combined 1,500 fewer jobs, sequentially.
RED forecast moderately faster job
creation in remaining months of 2007,
culminating in a y-o-y monthly average of 46,000 (1.9%) new jobs. Our
econometric model generates a confidence interval of 40,000 (1.7%) to
52,000 (2.2%) around the point estimate. In 2008, RED expect job
growth to fall to 36,000 (1.5%).
The 1Q07 occupancy rate in Atlanta
decreased 10 basis points sequentially
to 91.4%, ranking 6th lowest among
the RED 50. Weak demand and
condo reversion were largely responsible for the decrease. Negative net
absorption totaled 479 units and 152
units that were previously converted
to condo returned to the rental stock.
Construction was limited to only 270
units. On a year-over-year basis, occupancy fell 20 basis points owing to
weak demand (1,004 units) and in-
SNAP SHOT
creased supply (3,211 units) in 2H06.
Reis anticipate stronger tenant demand to keep pace with supply in the
remaining quarters of 2007, resulting
in stable occupancy. The service
forecasts favorable conditions in
2008, allowing occupancy to rise 10
bps to 91.5%.
Effective rents increase 1.0% sequentially and 1.4% year-over-year to
$741 in 1Q07. By way of comparison, effective rent growth was 0.7%
y-o-y in 4Q06. Asking rents grew at
a slower 0.7% y-o-y pace to $831.
The value of the typical concession
package fell from 11.4% of asking
rent in 1Q06 to 10.8%, the 3rd highest
ratio among the RED 50. Reis forecast year-over-year effective rent
growth of 2.6% in 2007 and 2.8% in
2008.
Y-o-y
change
Projected
2007
(8.6% - 1Q07)
20bps
unch
Effective
Rents
1.4%
2.6%
50bps
unch
41.4k
46k
Vacancy
($741 - 1Q07)
Cap Rate
(7.7% - 1Q07)
Employment
(2,407.4k - 1Q07)
KEY POINTS
•
The metro vacancy rate increased 10 basis
points sequentially and 20 basis points yearover-year to 8.6%.
•
and 1.4% year-over-year, respectively.
•
The median price of a single family MSA
home increased 1.2% year-over-year to
$170,400 in 1Q07.
Real Capital Analytics identify 180
investor grade trades in 2006, totaling
$4,065 million in volume. The metrics fell to 172 trades and $3,851 million in volume in the 12-month period
ended in March.
•
According to Real Capital Analytics, 172
investor grade properties traded in the twelve
months ended in March, totaling $3,851
million in proceeds.
Prices averaged
$74,071 per unit with an average cap rate of
6.7%.
We estimate probable returns on generic metro assets of 7.1%, ranking
15th lowest among the RED 50. Atlanta’s above average historic volatility causes an even lower measure of
risk-adjusted returns. On this basis,
RED assign a rating of “Hold” for
metro assets. This indicates that market fundamentals do not support an
active buying program at current
prices.
•
RED forecast payroll growth of 46,000
(1.9%) in 2007 and 36,000 (1.5%) in 2008.
By way of comparison, Economy.com
project employment growth of 55,200
(2.3%) in 2007 and 48,140 (2.0%) in 2008.
Twenty properties priced at $10 million or more traded in 1Q07, yielding
$466 million in sales. The largest
trade involved a 504-unit “Class A”
community in the Sandy Springs /
Dunwoody submarket. The property
fetched a price of $70.3 million or
$139,484 per unit.
VACANCY TRENDS
•
•
The vacancy rate in Atlanta increased 10 basis points sequentially to
8.6% in 1Q07. Negative net absorption of 479 units was partially
responsible. Only 270 units were delivered in 1Q07 but 152 net
reversions were also recorded.
Vacancy increased 20 basis points year-over-year. Supply (3,708
units) outpaced demand (2,570 units) and net conversion activity fell
below 2,000 units.
Reis expect the vacancy rate to remain unchanged through the end of
2007 as demand nearly keeps pace with supply. In 2008, Reis
anticipate fewer completions, allowing vacancy to fall 10 basis points
to 8.5%.
Source: Reis, Inc.
12%
Metro Vacancy Rate
•
10%
8.4% 8.6%
8%
6%
4%
Atlanta
U.S.A.
2%
0%
2Q 1Q 4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q
2008 VACANCY RATE OUTLOOK: Small Decrease
00
01 01
RENT TRENDS
•
•
06 07
Asking rent growth averaged 0.7% sequentially and year-over-year to
$831. The value of the average concession package fell from 11.4% in
1Q06 to 10.8%, approximately 1.3 months free-rent on a twelve month
lease. The smallest concessions are found in the South Fulton
submarket where owners offer only 0.8 months free-rent.
Reis forecast year-over-year effective rent growth to accelerate to 2.6%
in 2007 and to 2.8% in 2008.
Asking
Effective
4%
1.4%
2%
0%
0.7%
-2%
-4%
-6%
-8%
2Q 1Q 4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q
00
Loopnet identify 20 trades involving properties priced at $10 million or
more in 1Q07, totaling $466 million in sales proceeds. Prices averaged
$76,341 per unit.
of 7.1%, below the national average.
01
02
03
04
04
05
06
07
Source: Reis, Inc.
7.8%
7.6%
Cap Rate
According to Real Capital Analytics, sales volume increased 28% in
2006 to $4.065 billion, ranking 3rd among the top 35 markets tracked
by RCA. Volume fell to $3.85 billion in the twelve months ended in
March, although Atlanta maintained its ranking of 3rd most active
among the top 35 markets. The average price was $74,071 per unit and
cap rates averaged 6.7%.
01
•
05
6%
RANK: 48 out of 50
2008 RENT GROWTH RATE OUTLOOK: Increasing
•
04
Source: Reis, Inc.
Effective rents increased 1.0% sequentially and 1.4% year-over-year to
$741. The metric remains $57 below the previous high of $798,
recorded in 3Q01.
th
•
03 04
Metro Rent Trends
YoY Rent Trend
•
02
7.4%
7.2%
7.0%
6.8%
6.6%
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
05 05 05 05 06 06 06 06 07
2008 CAP RATE OUTLOOK: Stable
Property Name
St Andrews at Perimeter
Lakeside at White Oak
Dunwoody Club
Columns of River Parkway
Property Class
Date of
Transaction
Total Price
(in millions)
Price per unit
Estimated Cap
Rate
A
A
A
BC
March 2007
February 2007
June 2007
February 2007
$70.3
$55.0
$48.0
$47.0
$139,484
$119,241
$90,226
$110,070
4.3%
N/A
5.6%
5.3%
$240
MSA
Prices (000)
$220
•
US
•
$200
$180
•
$160
$140
•
$120
$100
03
Y
05
05
06 06
06 06
Past 12 Months
•
120
Annual Chg (000)
The metro registered a 4.0% increase in the Office of Federal Housing
Enterprise Oversight (OFHEO) home price index in 1Q07, ranking
140th out of 285 metros.
EMPLOYMENT TRENDS
100
80
46
36
40
20
Payroll growth slowed to 60,100 (2.6%) in 2006, following gains of
69,700 (3.1%) in the previous year. Reduced hiring among administrative support service firms was largely responsible. Sector employment increased 10,900 in 2005 and 3,000 in 2006.
First Quarter 2007
•
0
-20
-40
•
-60
99 00 01 02 03 04 05 06 07f 08f
•
Source: BLS
•
6%
Atlanta
USA
4%
The median price of a single family MSA home increased 1.2% yearover-year from $168,400 to $170,400 in 1Q07.
07
60
The rate of homeownership increased 150 basis points from 66.4% in
2005 to 67.9% in 2006.
2008 DEMOGRAPHIC OUTLOOK: Stable
04 3Q 4Q 1Q 2Q 3Q 4Q 1Q
Y
First quarter payrolls were up 41,400 (1.7%) year-over-year, down
from 45,700 (1.9%) in 4Q06. Preliminary data for May was a moderately weaker 40,700 (1.7%).
Automotive parts suppliers reduced payrolls in anticipation of Ford
and GM plant closures. Attrition totaled 2,900 year-over-year in
1Q07.
Job growth in the professional, scientific and technical service sector
cooled to 4,600 year-over-year in 1Q07 from 6,900 in 4Q06 and a
monthly average of 8,800 in 2006.
Local government hiring continued to accelerate as 8,000 positions
were added to payrolls in 1Q07. This compares to a monthly average
of 4,600 in 2005 and 7,700 in 2006.
Rate
Forecast
2%
•
0%
-2%
-4%
99
00
01
02
5%
04
05
06
RANK: 22nd out of 50
07
2008 EMPLOYMENT GROWTH RATE OUTLOOK: Decreasing
RED Estimated Generic Unlevered Asset Total Return Probabilites
15%
10%
03
RED project job creation of 46,000 (1.9%) in 2007 and 36,000
(1.5%) in 2008. The confidence intervals around the 2007 and 2008
point estimates range from 40,000 (1.7%) to 52,000 (2.2%) and
25,000 (1.0%) to 47,000 (1.9%), respectively.
Atlanta
4.1%
2.8%
Charlotte
6.5%
5.3%
7.0%
8.1%
8.6%
9.8%
10.9%
12.0%
0%
90%
70%
50%
30%
10%
RED CAPTIAL Research
SUBMARKET TRENDS
Effective Rent
Submarket
North Gwinnett
South Gwinnett
Decatur / Avondale
Atlanta / Fulton
North DeKalb
Clayton / Henry
South Fulton
Marietta
Smyrna
Physical Vacancy
1Q06
1Q07
Change
1Q06
1Q07
$785
$802
$730
$693
$630
$730
$908
$783
$652
$603
$701
$734
$816
$815
$748
$698
$634
$734
$935
$790
$655
$618
$714
$726
3.9%
1.6%
2.5%
0.7%
0.6%
0.5%
3.0%
0.9%
0.4%
2.5%
1.8%
-1.1%
6.6%
5.6%
7.7%
7.1%
7.2%
8.7%
8.8%
7.1%
9.9%
12.4%
8.2%
8.0%
6.1%
7.2%
9.1%
7.5%
8.2%
9.4%
8.5%
7.8%
8.9%
11.4%
7.7%
7.8%
-50 bps
160 bps
140 bps
40 bps
100 bps
70 bps
-30 bps
70 bps
-100 bps
-100 bps
-50 bps
-20 bps
I-20 West
$653
$646
-1.1%
10.3%
9.5%
-80 bps
I-20 East
$688
$681
-1.0%
11.7%
12.2%
50 bps
South DeKalb
$570
$576
1.0%
11.2%
14.7%
350 bps
Metro
$731
$741
1.4%
8.4%
8.6%
20 bps
SUPPLY TRENDS
•
•
Source: Reis, Inc
Completions totaled 4,085 units in 2006, a 1.4% increase in apartment
inventory. Factoring in net conversion activity, inventory increased
only 0.2%.
10,000
Developers delivered 270 units in 1Q07 and net reversion activity
added another 152 units to the rental stock. Reis expect the completion
of 3,670 units in the remaining months of 2007 and 3,940 in 2008.
6,000
Developers are active in the Sandy Springs / Dunwoody submarket.
Reis expect the delivery of 693 units in 2007 and 1,246 in 2008. In the
nearby North Dekalb submarket, 192 units were added in 1Q07 and
Reis expect an additional 650 completions by year-end.
Completions
Absorption
8,000
Units
•
Change
4,000
2,000
0
-2,000
2008 SUPPLY TREND OUTLOOK: Decreasing
02
03
04
05
06
07f
08f
RED CAPITAL GROUP
Two Miranova Place
Columbus, OH 43215
Daniel J. Hogan
[email protected]
614-857-1416
William T. Hinga
[email protected]
614-857-1499
800_837_5100
Columbus, OH_Boston, MA_Bozeman, MT_Chicago, IL_Fort Worth, TX
Fredericksburg, TX_Jupiter, FL_Nashville, TN_Newport Beach,CA
Philadelphia, PA_Reston, VA_San Diego, CA
RED CAPITAL GROUP®
Market Overview
Atlanta, Georgia
April 2007
EXECUTIVE SUMMARY
J
ob growth proceeded at rapid
pace in 2006, totaling 60,100
(2.6%), however; deceleration
in the second half of the year caused
the metric to fall below the previous
year’s mark of 69,700 (3.1%).
Slower growth was largely attributable to weakness in automotive manufacturing, retail trade and administrative support hiring. Combined the
sectors contributed a net of 21,500
jobs in 2005 and only 9,200 jobs in
2006. In fact, combined payrolls fell
year-over-year in 4Q06 by a count of
800 jobs.
Job growth fell to 45,700 year-overyear in 4Q06 from 54,800 in 3Q06.
Weaker employment conditions
among manufacturing firms contributed to the slowdown. Reduced hiring in the retail trade and business
services was also responsible. RED
forecast this trend to continue through
2007 and grow moderately worse in
2008. Our econometric model forecast payroll growth estimates of
42,000 (1.8%) jobs in 2007 and
32,000 (1.3%) jobs in 2008. Considering the announced layoffs at Ford
and GM, we hold a low-end bias for
2007 of 36,000 (1.5%) jobs.
Metro population expanded at a 3.3%
rate in 2006, benefiting from higher
than typical net domestic migration.
The homeownership rate advanced
150 basis points to 67.9%, but remained below the national metric of
68.8%. Single family home prices
grew moderately more affordable in
4Q06 as the median priced home fell
2.0% from $170,200 to $166,800,
year-over-year.
The metro occupancy rate fell 50 basis points from 92.0% to 91.5% yearover-year in 4Q06, ranking 46th
among the 50 metro areas tracked by
RED CAPITAL (RED 50). Supply
of 1,849 units in 4Q06 was largely
responsible for the increase. Weaker
tenant demand also contributed as
only 449 units were absorbed in
4Q06, bringing the annual total to
1,747.
SNAP SHOT
Reis forecast slower supply growth
and stronger demand in 2007 and
2008. The service expect occupancy
to rise 10 bps to 91.6% in 2007. In
2008, Reis anticipate a 30 bps occupancy gain, leading to a 91.9% rate at
year-end.
(8.5% - 4Q06)
50bps
Effective
Rents
0.7%
2.3%
10bps
unch
45.7k
42k
Effective rents increased 0.7% yearover-year from $729 to $734 in 4Q06.
Asking rents grew at a moderately
slower rate of 0.1% to $825. The
value of the average concession package fell to 11.0% of asking rent from
11.5% in 4Q05. Reis forecast yearover-year effective rent growth of
2.3% in 2007 and 2.9% in 2008.
Y-o-y
change
Vacancy
10bps
($734 - 4Q06)
Cap Rate
(7.2% - 4Q06)
Employment
(2,428.2k - 4Q06)
KEY POINTS
According to Real Capital Analytics,
180 investor grade properties traded
in 2006, totaling $4.065 billion in
sales proceeds. Volume increased
28% over 2005, while the average
price rose 5% to $73,838 per unit.
The average cap rate fell 10 bps to
6.6%.
•
The Reis average cap rate index decreased 10 bps to 7.2% in 4Q06. On
a trailing 12-month basis, the average
cap rate fell from a high of 7.9% in
3Q06 to 7.7%. Purchase yields for
investor grade properties were lower,
generally ranging from 4.5% to 5.5%.
•
We estimate probable returns on generic metro assets of 7.1%, below the
national average. Above average historic volatility gives rise to somewhat
unattractive risk-adjusted returns.
Therefore, RED assign a rating of
“Hold” for metro assets. This indicates that market fundamentals do not
support an active buying program at
current prices.
Projected
2007
•
•
•
Vacancy increased 40 basis points in 4Q06
to 8.5%. The metric is up 50 basis points
year-over-year.
and 0.7% year-over-year, respectively. Reis
forecast better performance going forward.
Multifamily property sales volume totaled
$4.065 billion in 2006, ranking 3rd among
the top 35 markets tracked by Real Capital
Analytics, up from 7th in 2005.
According to NCREIF the average cap rate
fell to 40 basis points year-over-year to 5.3%
in 3Q06.
RED forecast payroll job growth of 42,000
(1.8%) in 2007 and 32,000 (1.3%) in 2008.
Atlanta, Georgia MSA - 4Q 2006
VACANCY TRENDS
•
•
The metro vacancy rate increased 40 basis points sequentially and 50
basis points year-over-year to 8.5% in 4Q06. The rate is 260 basis
points above the national average and ranks 46th among the RED 50.
Net condo conversions slowed to 10 units in 4Q06, bringing the annual
total 2,460 units. Supply increased rapidly as 1,849 units were
completed in 4Q06, accounting for nearly half (47.3%) of the annual
total (3,908 units). Absorption measured 449 units, a dismal
performance in relation to the amount of supply in the fourth quarter.
Source: Reis, Inc.
12%
Metro Vacancy Rate
•
10%
8%
4%
Atlanta
U.S.A.
2%
Reis remain optimistic with respect to the supply and demand balance
going forward. The service forecast vacancy to fall 10 basis points to
8.4% in 2007 and 30 basis points to 8.1% in 2008.
0%
4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q 4Q
2008 VACANCY RATE OUTLOOK: Decreasing
00
01
RENT TRENDS
•
•
•
04
05
06
06
Owners reduced the value of the average concession package from $95
per month or 11.5% of asking rent in 4Q05 to $91 per month (11.0% of
asking rent) in 4Q06. The current value is approximately equal to 1.3
months free rent on a twelve-month lease.
Reis expect profound improvement in effective rent growth over the
forecast period. Reis forecast year-over-year effective rent growth of
2.3% in 2007 and 2.9% in 2008. The service anticipates that the
effective rent in 2010 ($825) will finally exceed the previous high of
$798, recorded in 3Q01.
Asking
Effective
4%
2%
0.7%
0%
0.1%
-2%
-4%
-6%
-8%
4Q 3Q 2Q 1Q
4Q 3Q 2Q 1Q 4Q
00
03
Loopnet identify 18 investor grade trades in 1Q07, totaling $389
million in sales proceeds. Prices averaged $72,398 per unit.
of 7.1%, below the national average.
02
03
04
05
06
06
Source: Reis, Inc.
7.4%
The Reis indexed average cap rate fell 10 basis points to 7.2% in 4Q06.
The metric is up 10 basis points from the comparable period of 2005.
According to Real Capital Analytics, sales volume increased 28% in
2006 to $4.065 billion, ranking 3rd among the top 35 markets tracked
by RCA. Velocity was up 22% as 180 properties traded. The average
price was $73,838 per unit, up 5% from 2005.
01
7.3%
Cap Rate
•
03
6%
•
03
Source: Reis, Inc.
Effective rents increased 0.7% year-over-year to $734 in 4Q06 and
remained unchanged quarter-over-quarter. Asking rents increased
0.1% year-over-year and fell 0.2% sequentially.
2008 RENT GROWTH RATE OUTLOOK: Increasing
•
02
Metro Rent Trends
YoY Rent Trend
•
8.5%
8.0%
6%
7.2%
7.1%
7.0%
6.9%
6.8%
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
05
2008 CAP RATE OUTLOOK: Stable
05
05
05
06
06
06
06
Property Name
Wellington Ridge
Post Valley
The Standard at Lenox Park
Roswell Gables
Property Class
Date of
Transaction
Total Price
(in millions)
Price per unit
Estimated Cap
Rate
A
A
A
A
March 2007
December 2006
November 2006
November 2006
$45.0
$43.7
$47.1
$72.1
$98,901
$88,199
$125,600
$107,934
4.7%
4.7%
5.5%
5.5%
$240
MSA
•
US
Prices (000)
$220
•
$200
$180
•
$160
$140
•
$120
$100
03
Y
04 2Q 3Q 4Q 1Q 2Q 3Q 4Q
Y
05
05
05 06
06 06
The metro registered a 4.3% increase in the Office of Federal Housing
Enterprise Oversight (OFHEO) home price index in 4Q06, up from
3.7% in 3Q06.
2008 DEMOGRAPHIC OUTLOOK: Stable
Past 12 Months
•
120
Annual Chg (000)
The median price of a single family MSA home decreased 2.0% yearover-year from $170,200 to $166,800 in 4Q06.
EMPLOYMENT TRENDS
100
80
42
40
20
•
32
0
Job growth totaled 60,100 (2.6%) in 2006, down from 69,700 (3.1%)
new jobs in 2005.
Weakness in the transportation equipment manufacturing industry
contributed to the slowdown. Automotive equipment suppliers cut
jobs in anticipation of plant closures at GM and Ford. Wholesalers
also cut staff due to reduced manufacturing activity.
Fourth Quarter 2006
-20
-40
•
-60
99 00 01 02 03 04 05 06 07f 08f
•
Source: BLS
6%
Rate
The rate of homeownership increased 150 basis points from 66.4% in
2005 to 67.9% in 2006.
06
60
Atlanta
USA
Aforementioned cuts in transportation equipment payrolls accelerated
in 4Q06. As a result, year-over-year total payroll growth fell to
45,700 from 54,800 in 3Q06.
Business service establishments added to payrolls at a slower pace in
4Q06. Job creation totaled 14,400 in 1H06, 8,900 in 3Q06 and 7,200
in the fourth quarter. The sector outlook is less promising as yearover-year growth fell to 5,800 in January before bouncing back to
7,200 in February. Year-over-year growth among consulting firms
fell from 2,100 in 2006 to 600 and 800 in January and February, respectively
4%
Forecast
2%
•
0%
•
-2%
-4%
99
00
01
02
03
04
05
06
07
RED forecast year-over-year growth of 42,000 (1.8%) jobs in 2007,
with a confidence interval of 36,000 (1.5%) to 49,000 (2.0%) jobs.
In 2008, RED predict job formation to fall to 32,000 (1.3%), with a
confidence band of 23,000 (0.9%) and 41,000 (1.7%) jobs.
2008 EMPLOYMENT GROWTH RATE OUTLOOK: Decreasing
RED Estimated Generic Unlevered Asset Total Return Probabilites
15%
10%
5%
Atlanta
4.1%
2.8%
Charlotte
5.3%
6.5%
7.0%
8.1%
8.6%
9.8%
10.9%
12.0%
0%
90%
70%
50%
30%
10%
SUBMARKET TRENDS
Effective Rent
Physical Vacancy
Submarket
North Gwinnett
South Gwinnett
Decatur / Avondale
Atlanta / Fulton
North DeKalb
Clayton / Henry
South Fulton
Marietta
Smyrna
4Q05
4Q06
Change
4Q05
4Q06
$789
$793
$734
$680
$620
$732
$920
$779
$651
$597
$699
$729
$809
$818
$754
$690
$628
$731
$920
$786
$650
$608
$702
$711
2.5%
3.2%
2.7%
1.5%
1.3%
-0.1%
0.0%
0.9%
-0.2%
1.8%
0.4%
-2.5%
5.4%
4.7%
7.1%
6.7%
7.3%
8.2%
8.4%
6.8%
9.0%
12.5%
8.3%
7.7%
6.2%
5.8%
8.3%
6.9%
8.7%
9.3%
8.7%
7.1%
9.0%
12.0%
7.9%
8.1%
$646
$643
-0.5%
10.1%
9.9%
-20 bps
I-20 East
$681
$674
-1.0%
11.1%
12.6%
150 bps
South DeKalb
$569
$573
0.7%
11.4%
12.2%
80 bps
Metro
$729
$734
0.7%
8.0%
8.5%
50 bps
•
Source: Reis, Inc
Supply totaled 3,908 units in 2006, 47.3% of which was delivered in
the fourth quarter. Net conversions totaled 2,460, up from 2,362 in
2005.
Reis project supply growth to slow in 2007 to 2,865 units. The North
DeKalb submarket will be the most active with 842 scheduled unit
completions, 408 of which are contained in the Archstone at Claremont
project that is slated for completion in August 2007.
11,000
Completions
Absorption
9,000
7,000
Units
•
80 bps
110 bps
120 bps
20 bps
140 bps
110 bps
30 bps
30 bps
0 bps
-50 bps
-40 bps
40 bps
I-20 West
SUPPLY TRENDS
•
Change
5,000
3,000
Reis forecast fewer completions in 2008, totaling 2,676. Nearly half of
the construction (46.6%) will occur in the Sandy Spring / Dunwoody
submarket.
1,000
-1,000
2008 SUPPLY TREND OUTLOOK: Small Decrease
02
03
04
05
06
07f
08f
RED CAPITAL GROUP
Two Miranova Place
Columbus, OH 43215
Daniel J. Hogan
[email protected]
614-857-1416
William T. Hinga
[email protected]
614-857-1499
800_837_5100
Columbus, OH_Boston, MA_Bozeman, MT_Fort Worth, TX
RED CAPITAL GROUP®
Market Overview
Atlanta, Georgia
September 2006
EXECUTIVE SUMMARY
E
mployment growth in Atlanta
slowed to a seasonally adjusted rate of 2.4% in 2Q06,
down from 2.9% in 1Q06 and an annual average of 3.0% in 2005. Payrolls were up 2.3% (54,000) yearover-year in July, slipping to fifth
among metro areas overall and the
slowest over-the-year growth recorded in sixteen months.
Particularly strong year-over-year
growth was noted in employment
services (5,900/6.1%) and construction (6,500/4.9%). Rapid growth also
was recorded in the health care and
social services and government sectors, which added 7,100 jobs and
6,800 jobs, respectively.
Unemployment fell 60 bps year-overyear to 4.9%, as employment growth
outpaced increases in the labor force.
Total unemployed job seekers fell
8.5% to 129,000.
RED forecast net job creation of
49,000 in 2006, and 36,000 next year.
Slower GDP and industrial production
growth contribute to the lower estimate for 2007.
Apartment vacancy trended in a favorable direction, decreasing 50 bps
in 2Q06 and 150 bps year-over-year
to 7.9%. Despite the trend, the vacancy rate ranks 10th highest among
the 50 metro areas tracked by RED
(RED 50), 230 bps above the national
average.
Resilient tenant demand and condo
conversion activity contributed to the
positive occupancy trend. Net absorption totaled 2,031 units in 2Q06
and 6,078 over the past four quarters,
according to Reis. In addition, conversions reduced inventory by 1,071
units in 2Q06 and 2,349 units in the
past twelve months.
RED forecast rental housing demand
to increase 2.4% in 2006 and 2.2% in
2007. Reis forecast absorption of
2,938 units in 2H06 and 3,436 units in
2007. The service anticipates a 10 bps
increase in vacancy by year end, falling back to 7.9% by the end of 2007.
Effective rents increased 1.7% between 2Q05 and 2Q06, marking the
6th consecutive quarter of positive
year-over-year rent growth. Owners
were unable to achieve meaningful
concession reductions, however,
which remain the 2nd highest as a
percentage of asking rents among the
RED 50.
Supply constraint is a prerequisite to
further performance improvement.
The volume of apartment product in
the pipeline is constructive, with
7,747 units forecasted for completion
for 3Q06 to 4Q07, less than the average of annual deliveries between 1996
and 2003 (9,943). The relatively
large condo pipeline (9,350 units)
poses a risk; however, as the recently
cooler condo market may compel
developers to offer units initially as
rentals. If this risk is realized, NOI
growth will be considerably lower
than anticipated.
Reis aver that cap rates averaged
7.3% in 2Q06, a 10 basis point increase sequentially and year-overyear. Contrary to the national and
regional market trend, Atlanta cap
rates have remained roughly constant
over the past two years, making metro
assets appear to be attractively priced
on a relative value basis. Improving
market fundamentals and reasonable
cap rates are restoring Atlanta’s appeal for real estate investors, meriting
the assignment of an “Opportunistic”
rating, reflecting the growing opportunities for in-fill development and
acquisition of market-rate properties
at attractive yields. Atlanta falls short
of achieving an outright Accumulate
ranking by virtue of persistent concerns regarding supply.
SNAP SHOT
Y-o-y
change
Projected
2007
Vacancy
(7.9% - 2Q06)
Effective
Rents
150bps
Unch
1.7%
1.3%
10bps
Unch
54.0k
36.0k
($733 - 2Q06)
Cap Rate
(7.3% - 2Q06)
Employment
(2,385.3k - 2Q06)
KEY POINTS
•
•
•
•
•
Despite the 150 basis point decline, vacancy
in Atlanta is the 10th highest among the 50
metro areas tracked by RED. Reis anticipate
little change in vacancy through 4Q07, as
absorption only keeps pace with supply.
Effective rents increased 1.7% between
2Q05 and 2Q06, outpacing asking rent
growth by 80 basis points. Concessions
diminished, but remain among the highest of
the 50 metros tracked by RED.
Cap rates remained relatively steady at 7.3%,
increasing 10 basis points both quarter-overquarter and year-over-year. Recent class A
transactions traded at yields above 6.0%,
according to Reis.
Year-over-year job growth slowed to 2.3%
(54,000 jobs) in July, following solid growth
in 2005 of 3.0% (69,100 jobs).
RED forecast the creation of 49,000 jobs
(2.1%) in 2006 and 36,000 jobs (1.5%) in
2007.
VACANCY TRENDS
•
•
Metro vacancy fell 150 basis points between 2Q05 and 2Q06 from
9.4% to 7.9%. Positive net absorption of 6,078 units, over the past four
quarters, contributed to the decline. Conversion of 2,349 units to
condo also gave rise to occupancy improvements.
Although metro vacancy is at its lowest level in nearly six years, the
vacancy rate remains 230 basis points above the US average of 5.6%.
RED forecast rental housing demand to increase 2.4% in 2006 and
2.2% in 2007. Reis project vacancy to increase 10 basis points by year
end and return to 7.9% in 2007.
Source: Reis, Inc.
12%
Metro Vacancy Rate
•
10%
8%
9.4%
4%
Atlanta
U.S.A.
2%
0%
st
RANK: 41 out of 50
VACANCY RATE OUTLOOK: Stable
QII
QI QIV QIII QII
QI
00
01
04
RENT TRENDS
•
•
04
05
06
Concessions in Atlanta are the second highest (as a percent of asking
rent) of the RED 50 and are burning-off slowly. In 2Q06 concessions
averaged 11.3% of asking rent, down from 11.4% in 1Q06.
At 1.7%, effective rent growth ranks 43rd in the RED 50. Rent growth
will decelerate slightly as RED forecast effective rent growth of 1.4%
in 2006 and 1.3% in 2007.
Asking
Effective
4%
1.7%
2%
0%
0.9%
-2%
-4%
-6%
-8%
QII QI QIV QIII QII QI QIV QIII QII
00
01
01
02
03
04
04
05
06
Source: Reis, Inc.
7.4%
According to Reis, cap rates increased 10 basis points on both a yearover-year and a sequentially basis from 7.2% to 7.3%.
In 1H06, 86 properties traded, according to Cushman & Wakefield,
representing a 17.8% increase over 1H05. Average price per unit
increased 9.6% between 1H05 and 1H06 from $66,274 to $72,637,
causing sales volume to increase $500 million to $1.7 billion.
Institutional investors turned their attention to Atlanta, purchasing five
assets priced above $125,000 per unit, in 1H06, according to Cushman
& Wakefield. On the total, 21 assets priced above $100,000 per unit
were sold in 1H06, 12 of them fetching a price tag over $125,000.
Average Cap Rate
•
03
6%
RANK: 43 out of 50
RENT GROWTH RATE OUTLOOK: Stable
•
02
Source: Reis, Inc.
Year-over-year effective rent growth outpaced increases in asking rents
for the sixth consecutive quarter. Effective rents increased 1.7% from
$721 to $733 between 2Q05 and 2Q06 while asking rents increased
0.9% to $826.
rd
•
01
QIV QIII QII
Metro Rent Trends
YoY Rent Trend
•
7.9%
6%
7.3%
7.2%
7.1%
7.0%
6.9%
6.8%
CAP RATE OUTLOOK: Stable
Current cap rates are above the regional average.
QI
QII
QIII
QIV
QI
QII
05
05
05
05
06
06
Property Name
Canlen Walk Apartments
Block Lofts
Summer Ridge
Five Oaks Apartments
Property Class
Date of
Transaction
Total Price
(in millions)
Price per unit
Estimated Cap
Rate
A
A
A
A
May 2006
March 2006
June 2006
March 2006
$60.5
$34.1
$41.0
$32.2
$143,026
$108,946
$96,698
$115,000
6.3%
7.7%
6.4%
6.8%
•
$240
MSA
Prices (000)
$220
US
$200
•
$180
•
$160
$140
$120
•
$100
03
04
QII
QIII
QIV
QI
QII
Y
Y
05
05
05
06
06
49
60
36
40
20
-20
-40
•
•
-60
02
03
04
Multifamily permit issuance (as of July) increased 25.2% over
multifamily permit activity during the same period of 2005.
Population growth accelerated in 2006 and will continue to increase rapidly.
0
01
The median price of a single family home increased 4.4% between
2Q05 and 2Q06 from $166,500 to $173,900. The median price of a
metro condo fell 5.1% year-over-year, from $154,300 to $146,500.
DEMOGRAPHIC OUTLOOK: Increasing
•
100
80
00
The homeownership rate decreased 130 basis points since 2000, to
66.4%. By comparison, the US homeownership rate is 68.9%
Past 12 Months
120
99
Metro population increased 2.5% between 2004 and 2005, ranking 3rd
among metro areas tracked by RED. According to the Atlanta
Regional Commission, population increased 2.9% in 2006.
EMPLOYMENT TRENDS
Annual Chg (000)
05
06f 07f
Job creation reached 69,100 or 3.0% in 2005, the highest single year
increase since 1999. Year-over-year growth slipped to 2.3% (54,000
jobs) in July.
Construction and local government year-over-year job growth accounted for nearly 25% of total growth, increasing 4.9% (6,500 jobs)
and 3.6% (6,800 jobs), respectively. Other significant contributors
were food services (5,100 jobs), health care and social assistance
(7,100 jobs) and financial activities (4,000 jobs).
Growth in durable goods manufacturing halted in the twelve months
ended in July, following a year of 1.7% growth (1,600 jobs) in 2005.
Air transportation lost 1,600 jobs (4.2%) year-over-year in July.
Year-to-Date
•
Source: BLS
•
6%
Atlanta
4%
USA
Year-over-year payroll growth averaged 2.7% (62,300) in the first
seven months of 2006.
Employment growth in 2Q06 increased at a seasonally adjusted annual rate of 2.4%, a slight deceleration compared to the 2.9% seasonally adjusted annual rate for 1Q06.
Rate
Forecast
2%
•
0%
•
-2%
RED forecast payrolls to increase between 42,000 (1.8%) and 57,000
(2.4%) in 2006.
In 2007, RED forecast payrolls to increase between 21,000 (0.9%)
and 51,000 (2.1%).
-4%
99
00
01
02
03
04
05
06
EMPLOYMENT GROWTH RATE OUTLOOK: Decreasing
SUBMARKET TRENDS
Effective Rent
Physical Vacancy
Submarket
2Q05
2Q06
Change
2Q05
2Q06
Roswell/Alpharetta
Sandy Spring/Dunwoody
North Gwinnett
South Gwinnett
Clarkston/Stone Mountain
$769
$796
$717
$673
$616
$815
$805
$740
$686
$620
6.0%
1.1%
3.2%
1.9%
0.6%
7.4%
6.1%
8.2%
8.4%
7.6%
5.7%
5.7%
7.0%
6.3%
6.8%
-170 bps
-40 bps
-120 bps
-210 bps
-80 bps
Decatur/Avondale
Atlanta/Fulton
North DeKalb
Clayton/Henry
South Fulton
Marietta
Smyrna
I-20 West
I-20 East
South DeKalb
$733
$904
$776
$639
$591
$690
$718
$644
$677
$566
$729
$921
$780
$650
$599
$695
$740
$647
$688
$567
-0.5%
1.9%
0.5%
1.7%
1.4%
0.7%
3.1%
0.5%
1.6%
0.2%
9.5%
10.5%
8.9%
10.5%
12.6%
9.7%
9.0%
11.6%
12.0%
10.5%
8.2%
8.1%
6.5%
8.9%
11.9%
8.0%
8.2%
9.7%
10.7%
11.6%
-130 bps
-240 bps
-240 bps
-160 bps
-70 bps
-170 bps
-80 bps
-190 bps
-130 bps
110 bps
Metro Average
$721
$733
1.7%
9.4%
7.9%
-150 bps
SUPPLY TRENDS
•
•
Source: Reis, Inc
Unit completions totaled 4,523 in 2005, an increase of 51.1% over
2004 deliveries but much lower than the average of 8,554 units added
annually between 2000 and 2003.
Reis anticipate the completion of 4,275 units by year end, a figure that
could rise considerably if condo developers opt to change their product
to apartments, given the softness exhibited in the condo market. Over
2,000 condo units are slated from completion in the second half of
2006 in the Atlanta / Fulton submarket alone.
10,000
Completions
Absorption
8,000
6,000
Units
•
Change
4,000
2,000
In 2007, Reis project apartment completions to fall to 3,472 and condo
deliveries to total 4,023.
0
-2,000
SUPPLY TREND OUTLOOK: Stable
Supply increases may exceed the 2004 - 2005 pace but will remain well below
the rapid supply growth observed between 2000 and 2003.
02
03
04
05
06f
07f
RED CAPITAL GROUP
Two Miranova Place
Columbus, OH 43215
Daniel J. Hogan
[email protected]
614-857-1416
William T. Hinga
[email protected]
614-857-1499
800_837_5100
Columbus, OH_Boston, MA_Bozeman, MT_Fort Worth, TX

atlanta, georgia - RED Capital Group

Transcription

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