Thank you to all who contributed to the making of this report. APARTMENT REPORT · PDF...

the A P A R T M E N T R E P O R T

Thank you to all who contributed to the making of this report.

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FALL 2008the A PA R T M E N T R E P O R T

16

2 0 0 8 M M H ABoard of Directors

Metro Multifamily Housing Association® 921 SW Washington, Suite 772 Portland, OR 97205 503 226 4533

policies. Our opinion surveys indicatethat landlords are still optimistic aboutfuture rent increases and their ability tofill vacancies.

Portland/Vancouver

Studio units have the lowest averagevacancy factor (1.1%) of all unit types,with 3BR/1 BTH at the high end (9.7%).The Hillsboro area is the softest market inthe Portland area, reporting an averagevacancy rate of 6.2% and averagenumber of days vacant pushing 30. EastVancouver is struggling and has seen thevacancy rate jump from 6.6% to 8.3%.Average rents have remained flat sinceour Spring report. Downtown Portlandstill has the highest rents ($1.27 s.f.) withOuter NE and Clackamas at the low end($.77 s.f.). Demand remains fairly strongin most of our surveyed areas and new,high-end, close-in projects are attainingrent rates in excess of $2.00 per sq. ft. Asignificant number of upper end units(2,100+) are scheduled to come on-linein the Pearl District, South Waterfront and Downtown areas between now andmid-2009.

Other Areas

The Eugene/Springfield and Salem areasare continuing to perform well, but Bend/Redmond is slipping. The collapse of thehousing market and the subsequent joblosses in the construction sector inDeschutes County is having an impact.Average rent rates remain very low ($.65s.f.). Average rents are pushing up inSalem and both Eugene and Salem areenjoying vacancy factors below 3.5%.

What’s InsideIn a comprehensive overview of thePortland area apartment market, MarkBarry, from Mark D. Barry and Associates,

NON-MEMBER ANNUAL SUBSCRIPTION $99

points out that “the credit crunch isclearly having an impact on apartmentsales activity due to tighter underwritingstandards, and more limited availabilityof financing”. However, apartmentfundamentals are remaining solid and he’sseeing noticeable increases in rents andincome.

The capital markets for commercial/multifamilyare experiencing a difficult period andthe fall-out from the Freddie and Fannie

TA B L E O F C O N T E N T S

PORTLAND METRO MAP..............................................2AVERAGE RENT PER SQ FTAVERAGE MARKET VACANCY RATE..........................3SURVEY RESULTS ..........................................................4AVERAGE DAYS VACANT ............................................7CLARK COUNTY ............................................................8EMPLOYMENT ..............................................................9CENTRAL OREGON....................................................10CAPITAL MARKETS UPDATE ....................................11OPINION SURVEY ......................................................12TREND REPORT ..........................................................13PORTLAND APARTMENT MARKET ........................14SOUTHERN WILLAMETTE VALLEY REPORT..........15This report would not be possible without the dedication and

commitment of the MMHA staff and the Apartment Report Committee.Thank you to the many contributors, writers and consultants who havegenerously taken the time to provide this information.

For more information on MMHA or to comment on this report, pleasevisit us on the web at www.metromultifamily.com. The opinions contained in this report are those of the authors and do not necessarilyrepresent the opinions or positions of MMHA.

SURVEY SAYS!Credit crunch having an impact

Shadow market of unsoldcondos/homes

New construction remains slow

Landlords optimistic

1

2

3 4

OREGON

SURVEYED AREAS

STABLE MARKET CONTINUES

Craig McConachie—C&R Real Estate Services,

Apartment Report Committee

Vacancy rates throughout the region arecontinuing to inch up, however theoverall apartment market remains strongand our region continues to enjoy ahealthy balance between supply anddemand. Average rent rates have seenvery little change since our Spring surveyand concessions are continuing to beoffered at properties located in softermarket areas. New apartment constructionremains slow, but has picked up from lastyear, with projections of approximately4,000 new units coming on-line in 2008.Utility costs throughout the state areescalating at a much faster rate than otheroperating expenses. Landlords who haveelected to sub-meter or implement RUBSprograms have significantly benefittedtheir bottom line.

The larger apartments and higher-endunits are experiencing the highestvacancy factors. This can be attributed tothe “shadow market” of unsold condo’sand single family homes that haveentered the rental market, therebyincreasing supply. It is also indicative ofthe slowing economy and the effect ofhigh gas prices, causing renters to choosesmaller, less expensive units, closer totheir employment.

On page 5 you’ll find a new graph thatwe will be including. It tracks the overallvacancy rate, by unit type, in thePortland/Vancouver area, from theinception of this report (July 2004). Thisreport also features new data regardingthe number of projects that are acceptingSection 8 vouchers, and the number ofprojects that have instigated non-smoking

continued on page 6

1. Portland & Vancouver2. Salem & Vicinity3. Eugene & Springfield4. Bend & Redmond

A Square, LLCA&G Rental Management, LLCAction Management Inc.Affinity Property ManagementAffinity RealtyAlan Marie Properties, LLCAlco PropertiesAllen Crossing ApartmentsAllied Group, Inc.Alpine Property Management &

MaintenanceAltamont Summit ApartmentsAmazon Properties, Inc.American Condominium HomesAmerican Property ManagementAndrews Management, LTD.Ankeny CourtAnnand PropertiesArcadia ManagementAshton Property ManagementAspen Square ManagementAsset Management, LLCAumsville Mini StorageAurora Tech/APW RentalsAutumn Park ApartmentsAvila Inspection Group, LLCB & B InvestmentsBarclay Square ApartmentsBarrington SquareBB Management Group, LLCBeaumont PropertiesBender PropertiesBill Lamb, Inc.Black Irish InvestmentsBluebird I, LLCBMS Properties Inc.BNS, LLCBorgensgard LPBoulders On The River IncBowen Property Management Co.Braun Pathways, LLCBrice PropertiesBrickey Properties, LLCBridgetown PropertiesBristol Equities, Inc.Bunting Management GroupC&R Real Estate ServicesC.R. Padot InvestmentsCalhoun, LLCCambridge Real Estate ServicesCanby Court Apartments, LLCCanyon Property Management, LLCCapital Property Management

Service, Inc.Capitola CommonsCareFree Property Management, Inc.Carla PropertiesCascade CrestCascadian Village ApartmentsCastleCrest Development, LLCCentral Bethany DevelopmentCentral Improvement EnterprisesCharholm Property ManagementChestnut Place ApartmentsChinook Way ApartmentsCircum Pacific PropertiesCK Property ManagementCmcyo Holdings,LLCCoast Real Estate ServicesColonial East ApartmentsColumbia EquitiesCommerce Investment IncCommonwealth Real Estate ServicesConifer GroupCourtyard PropertiesCrown Plaza ApartmentsCrown Point, LLCCrown Property ManagementCSM CorporationCTL Management, Inc.Cypress Management, LLCD & T PropertiesD&D DevelopmentDalton Management, Inc.DEBLAZE EnterprisesDeems, Inc.Dieringers Properties, Inc.Division Sunset ApartmentsDJ Investment HoldingsDoris & Co.DS & G Properties, LLCEberle-Sunset, LLCElkhorn Property Management, LLCElliott Associates, Inc.

Emmert Development CompanyEP Property ManagementGroup, LLCEquity ResidentialErickson Properties/Pacifica

Properties, LLCExit Realty, Your Next Move /

McFeters Real EstateExum Group, LLCFaden & ChristopherFanno Creek VillageFatBack Properties, LLCFinama Manor, LLCFir Cones LimitedFirst Class Property ManagementFishback Engineering, LLCForest Hills ApartmentsForest View ApartmentsForsythe Development, LLCFort Vancouver Terrace ApartmentsFoudy Properties, LLCFRJ Development, LLCG&P Nelson Capital

Management, LLCG&S Estates, LLCGalewood CommonsGardenview EstatesGateway Village ApartmentsGCSGeorge & Alana’s Property

ManagementGlacier ManagementGLI Properties, Inc.GMC Properties CorporationGolden Star Invest, Inc.Golfside ApartmentsGrand Peaks Property

Management, Inc.GSL Properties, Inc.Guardian Management, LLCGuild ApartmentsGVE Apartments, LLCHall Equities GroupHallinan Property ManagementHanks PropertyHarprop, Inc.Harr PropertiesHarrington HomesHarsch Investment PropertiesHayden Group, LLCHazelton Las Brias, LLCHDT PropertiesHendricks & PartnersHigh Lakes ApartmentsHighland ParkHilltop Investment Co., LLCHNR Real EstateHogan Woods ApartmentsHomai Financial GroupHome Again PropertyManagement & Rentals, LLCHometown Property ManagementHouse of UsherHousing Authority of

Clackamas CountyHousing Authority of PortlandHousing Authority of

Washington CountyHSC Real Estate, Inc.Hughes Prop Ltd PartnershipICM ResourcesII by IV Urban DevelopmentILP CorporationImages PropertiesIncome Property ManagementInterwest Properties, Inc.Intution Real Estate Group, Inc.Isacson PropertiesJake Associates, LLCJeffrey A. Polk PropertiesJennings & Co.JK Management Co., Inc.JLW Property ManagementJohn Randolph PropertiesJohnson Heights CondosJoki PropertiesJPM Real Estate ServicesJudy DeLuca EnterpriseJunco Co.JWP Properties, LLCKBC ManagementKelsall Properties, LLCKenneth Alan ApartmentsKenton Hotel, LLC

Keppel & Winquist, LLCKingswood Investment Co.Kippie Investments, LLCKnoll West Properties, LLCK-StarKW Multi-Family

Management Group, Ltd.L&M RentalsL&R Properties and InvestmentsL.J. PropertiesLafayette Properties, LLCLake Crest Limited PartnerLamplighter ApartmentsLandmark Apartments, LLCLarry Grant InvestmentLawrence Investments Co., Inc.Ledart PropertiesLiberty Management GroupLloyd Place ApartmentsLorig Management Services, LLCLRG EnterprisesMacole, LLCMadison Park ApartmentsMagdefrau Properties, LLCMainlander Property

Management, CRMCMarilynn Adams Property

ManagementMark Lee ConstructionMarkram PropertiesMarsh Rental Properties, LLCMatrix HoldingsMatson Properties, LLCMB Rentals, LLCMcCann Properties, LLCMcKee EnterprisesMcKenzie CourtMcMonies, LLCMcWilliams Real Estate ServicesMetro-Solid Waste & RecyclingMid-Valley Property ManagementMike & Larry Kay, LLCMiller PropertiesMilligan Apartments NE, LLCMJP ManagementMonarch ApartmentsMuddy Creek Properties, LLCMudrick Family Limited PartnerMunoz Sanchez Properties, LLCMyers Property Management Inc.National Apartment AssociationNew Haven Apartments, LLCNguyen Asset Mangement, Inc.NorthshoreNorthwest Communities, LLCNorthwest Group Investments, LLCNorthwest Housing AlternativesNorthwest Plex GroupOak View TerraceOleson View ApartmentsOregon Housing &

Community ServicesOswald Properties, LLCOswego Gardens Apartments, LLCPacific Northwest Property

Services, LLCPalermo PropertiesParamount Apartments, LLCPardue ManagementPark Hollywood ApartmentsParker PropertiesParkrose PropertiesParkrose TerracePatterson PropertiesPEC Properties, LLCPeters & Co. Real Estate ManagementPeters EnPointe PropertiesPikes NW, Inc.Pilcher Properties, LLCPineview Properties IncPinewood ApartmentsPinnacle, an AMS

NW CompanyPortland CommunityReinvestment InitiativePortland ImpactPortland Towers Apartments, LLCPowell Court ApartmentsPremium Rental Properties, LLCPrime GroupPrinceton Property ManagementProfessional Property ManagementPrometheus Real Estate Group, Inc.Quail Ridge Apartments

Quantum ResidentialR. Lawrence Properties, LLCRaab Family LLCRailton PropertiesRaleigh Scholls Apartments IncRappold Property Management, LLCReach Community Development IncReal Estate SolutionsRealty Management AdvisorsRealvest Asset ManagementRegency Management, Inc.Regional Water Providers

ConsortiumResidential PropertyManagement, Inc.Resources NW, Inc.Riel & PillersRight-Of-Way Associates, Inc.Riva Properties, LLCRiverstone Residential GroupRKB PropertiesRock Realty GroupRockwood Holdings, LLCRogovoy Properties, LLCRomero & Sons Property

Management, LLCRose Place Apartments, LLCS.L.S. Properties, Inc.Sabin Community Development CorpSandycrest Partners, LLCSatellite Properties, LLCSchaeffer & Associates, LLCSchoen House ApartmentsSCR Management LLCSeamast Vista LLCSemler Building, LLCSequoia ApartmentsShangri-La CorporationShara Alexander, LLCSheldon DevelopmentShelter Management, Inc.Silverado Group, LLCSimpson Property GroupSKL Properties, LLCSkyNat Limited PartnershipSolares HomesSouth Park at BethanySouthpark Square ApartmentsSterling Management Group, Inc.Studehouse, LLCSubtext MediaSusbauer Properties, LLCTandem Property Management, Inc.Taylene Court, LLCTellco Property ManagementTerjeson InvestmentsThe Lodges at Lake Salish, LLCThe Management GroupThe Park at Fox Pointe, LLCThe Perotti GroupThe PinesThe RW Fullerton CompanyTheresa Terrace ApartmentsTokola PropertiesTree Crest ApartmentsTrevor Anthony ApartmentsTrinity Property ConsultantsTucci InvestmentsUDRUrban La ResidenceV.I.P. Property Management, Inc.Valentino Bonser Properties, LLCValley View EstatesVillage at SunriseVista HighlandsWalchae & AssociatesWalker Investment /

Hammond ResidentialWarner Pacific CollegeWells RentalsWestern States DevelopmentWestridge Properties, LLCWhispering Pines ApartmentsWigrich Farms, Inc.Wildwood, Inc.Wilfert InvestmentsWilkinson, LLCWilliam Chan Property ManagementWilliams Downing, LLCWilsonville SummitWindsor PropertiesWoodland Park EstatesWPL AssociatesWWL Corporation

Jill KeoppelIncome Property Management

PRESIDENT

Greg KnakalPrinceton Property Management

VICE PRESIDENT

Steve RoseBristol Equities

SECRETARY

Barb CaseyKennedy Restoration

TREASURER

Joan CarroRiverstone Residential GroupIMMEDIATE PAST PRESIDENT

Larry BrickerAmerican Property Management

DIRECTOR

Trisha FulwilerJ.D. Fulwiler & Co. Insurance

DIRECTOR

Andy HahsBittner & Hahs

DIRECTOR

David HalsethBackground Investigations

DIRECTOR

Chris HermanskiMainlander Property Management

DIRECTOR

Paul HoevetHD Supply Facilities Maintenance

DIRECTOR

Craig McConachieC&R Real Estate Services

DIRECTOR

Jeff ReingoldIncome Property Management

DIRECTOR

Deana SeuferlingGSL Properties, Inc.

DIRECTOR

Jami Sterling-CounardSterling Management Group, Inc.

DIRECTOR

Jim WiardGuardian Management LLC

DIRECTOR

Liz ZuanichPrinceton Property Management

DIRECTOR

mmha

3

MID YEAR 2008 PORTLAND AREAAPARTMENT MARKET UPDATE

Mark D. Barry, MAI

The big news impacting the real estate market in YTD 2008 hasbeen the problems in the single-family market, a much tougherreal estate lending environment, and an obvious slowdown inthe economy. So what has happened in the Portland areaapartment market? The purpose of this article is to provide anupdate on the Portland area apartment market as of mid 2008.

Portland Economy: In recent months, our economy hasstagnated. We have added just 3,000 non-farm payrollemployment jobs over the last year, and have seen ourunemployment rate increase from 4.9% in July 2007 to 5.5% inJuly 2008.

Residential Market: The Portland area single-family market was one of the last in the nation to head south. The mediansingle-family sales price is now down 7.3% over the last year,with a ten-month inventory of homes. The condo constructionand condo conversion market has come to a virtual halt, withinventories estimated at 2.5 to 3.5 years based on the slowerrecent sales activity.

Single Family and Apartment Construction: 2008 will be theslowest year for single-family construction in our market inthree decades! Permits have been issued for just under 2,500homes through July. Thus, we should see around 4,000 newsingle-family homes for the year, or well under half of theaverage number of homes added per year over the last decade.

Apartment construction remains slow by historical standards,but has been more active in YTD 2008 than in recent years dueto favorable fundamentals. Permits have been issued for 2,249apartment units in the four county metro area through July2008. Thus, we should see around 4,000 new apartment unitsfor the year. Around 83% of the YTD 2008 permits are inMultnomah County, with Trammel Crow Residential and somesubsidized projects accounting for well over half of theconstruction. The balance of the activity is concentrated inWashington County, with virtually no new apartmentconstruction activity in Clackamas County or Clark County.

Apartment Sales Activity: The first half of 2008 saw 65apartment sales. This is in comparison with 139 apartmentsales for the first half of 2007. Thus, the credit crunch is clearlyhaving an impact on apartment sales activity due to tighterunderwriting standards, and more limited availability of financing.

However, the first half of 2008 saw $360.7 million in apartmentsales volume vs. $389.7 million for the first half of 2007. The firsthalf of 2008 saw eight sales of $24 million or more vs. five suchtransactions in the first half of 2007. While the first half of 2008saw 52 sales of apartments with a price under $5.0 million, thisis in comparison with 127 such sales for the first half of 2007.Thus, the big slowdown in apartments sales activity in YTD2008 has been in apartments with 50 units and under.

Apartment Values: The median sales price per unit of anapartment in the first half of 2008 was $78,362 vs. $70,000 inthe first half of 2007, or almost a 12% increase. However, thisis misleading due to a high number of sales of larger, newerhigh-end apartments in YTD 2008. If one eliminates the salesof newer, larger apartment communities, and instead looks atall of the sales of apartments of 100 units and less and builtprior to 2001, the increase is closer to 3% over the last year. Inaddition, cap rates have declined by 5 to 15 basis points, witha median cap rate of 6.06% for the YTD 2008 sales.

APARTMENT FUNDAMENTALS

Vacancies: The Fall 2008 MMHA survey shows a slight up tickin apartment vacancies. I attribute this to a slower economy,some doubling up or moving home, many new row houses orcondominiums being converted to rentals, and some apartmentconstruction.

The apartment market in Portland and most other areas of thecountry has been immune to problems occurring in the singlefamily and condo market. In my opinion, the main reason thatthe apartment market here has been so healthy is that fewerpeople can afford to buy houses, and are forced to rent. The USCensus Bureau recently reported that around 66% of Oregonhouseholds are homeowners, which is a decline from the peakof 69% in 2004.

Rents and Income: The latest MMHA data as well asinformation from RealFacts shows an increase in rents of justover 5% in the last year on a per unit per month basis. Studiosand two bedroom townhouse units are showing the largestincreases, while one bedroom units are showing the smallestincrease. The actual income for YTD 2008 is clearly up all overthe metro area. Typical increases I see range from 3% to 6%.

Expenses: Most operating expenses, with the exception ofinsurance and advertising, are creeping up. Utility costs haveshown double digit increases on the majority of appraisals Ihave completed in YTD 2008. I expect 2009 to be a tough yearfor owners of apartments with central utilities.

In conclusion, a flat economy, increasing unemployment, veryslow single-family construction, high inventory levels ofresidential properties for sale, and a decline in the mediansingle-family prices characterize our market for YTD 2008. Inaddition, there has been a noticeable slowdown in apartmentsale transactions, which is partially offset by greater salesactivity of larger, high profile complexes. However, apartmentvalues are showing some increases, and cap rates are downslightly from a year ago. The apartment fundamentals remainsolid, with below normal vacancies, and noticeable increasesin rents and income. Increasing expenses continue to be achallenge, particularly utilities.

Mark D. Barry, MAI, is a real estate appraiser specializing in apartmentappraisal work in the Portland-Vancouver metropolitan area. He hascompleted almost 5,000 apartment appraisals since starting as a feeappraiser in 1983. He has a BA from University of California atBerkeley, and an MBA in Real Estate from American University inWashington, D.C.

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AVERAGE RENT PER SQUARE FOOT $—PORTLAND / VANCOUVER AREA

S A L E M E U G E N E S P R I N G F I E L D B E N D R E D M O N D}AVG RENT PER SQUARE FOOT }AVG MARKET VACANCY RATE

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PORTLAND / VANCOUVER METRO AREA

MAP AREA NAME# OF

DATA ALLSPRING 08

STUDIO1 BED 2 BED 2 BED 2 BED 3 BED 3 BED

PROP REPORTCHANGE

1 BATH 1 BATH 2 BATH TWNHS 1 BATH 2 BATH

O P I N I O N S U RV E Y

12

OTHER AREAS

*Includes: Troutdale, Fairview, Wood Village and Gresham

How do you expectrents in your

property to changein the next six

months ascompared with

now?

How do you ratethe number of

renters looking forapartments at this

property, ascompared to six

months ago?

*Surveys received from Sec 42, Sec 8 and other subsidized affordable housing programs are not included in the current survey data.How do you

rate filling yourvacancies today

for this property ascompared with six

months ago?

DECREASE SAME INCREASEEAS IER SAME HARDER

NW Portland

Hillsboro | N of Hwy26

Aloha

Beaverton

Downtown Portland

SW Portland

Tigard | Tualatin | Sherwood

Lake Oswego | West Linn

Wilsonville | Canby

OregonCity | Gladstone

Milwaukie

Clackamas

Inner & Central SE Portland

Outer SE Portland

Gresham

Outer NE Portland

Inner& Central NE Portland

N Portland | St. Johns

West Vancouver

East Vancouver

Bend | Redmond

Salem & Vicinity

Eugene | Springfield

NW Portland


Aloha

Beaverton

Downtown Portland

SW Portland



Wilsonville | Canby


Milwaukie

Clackamas

Inner & Central SE Ptld

Outer SE Portland

Gresham

Outer NE Portland



West Vancouver

East Vancouver

Bend | Redmond

Salem & Vicinity


EAS IER SAME HARDERFEWER SAME MORE

NW Portland


Aloha

Beaverton

Downtown Portland

SW Portland



Wilsonville | Canby


Milwaukie

Clackamas


Outer SE Portland

Gresham

Outer NE Portland



West Vancouver

East Vancouver

Bend | Redmond

Salem & Vicinity


NW Portland


Aloha

Beaverton

Downtown Portland

SW Portland



Wilsonville | Canby


Milwaukie

Clackamas


Outer SE Portland

Gresham

Outer NE Portland



West Vancouver

East Vancouver

Bend | Redmond

Salem & Vicinity


In looking ahead six months, as

compared to today,do you think filling

vacancies in yourproperty will be

OCT 04 APR 05 APR 06 OCT 06 APR 07 OCT 07 APR 08 OCT 08

14

12

10

8

6

4

2

0

VACANCY RATE SINCE 2004

STUDIO

1 BED/1 BATH

2 BED/1 BATH

2 BED/2 BATH

2 BED TH

3 BED/1 BATH

3 BED/2 BATH

16 OUTER NE (PORTLAND) 15 AVG MARKET VACANCY RATE % 3.10 3.17 -2.21% 0.00 2.68 4.29 1.80 0.00 6.25 6.25AVG RENT PER SQ FOOT $ 0.77 0.77 0.00 1.14 0.86 0.76 0.69 0.72 0.72 0.65AVG RENT PER UNIT TYPE $ 466 547 645 664 673 758 775SUM OF UNITS SURVEYED 484 642 15 149 140 111 21 32 16

17 INNER & CENTRAL 26 AVG MARKET VACANCY RATE % 2.89 2.81 +2.85% 5.00 2.14 3.92 2.53 — 100 0.00NE (PORTLAND) AVG RENT PER SQ FOOT $ 1.00 1.01 -0.01 1.29 1.02 0.94 0.87 — 1.00 0.92

AVG RENT PER UNIT TYPE $ 611 635 780 768 — 850 1093SUM OF UNITS SURVEYED 899 1247 100 561 153 79 — 1 5

18 NORTH PORTLAND / 11 AVG MARKET VACANCY RATE % 1.04 1.25 -16.80% 0.00 0.00 3.28 — — 0.00 —ST. JOHNS AVG RENT PER SQ FOOT $ 0.90 0.87 +0.03 1.24 0.97 0.77 — — 0.69 —

AVG RENT PER UNIT TYPE $ 518 621 659 — — 625 —SUM OF UNITS SURVEYED 192 240 46 79 61 — — 6 —

19 WEST VANCOUVER 18 AVG MARKET VACANCY RATE % 2.37 3.43 -30.90% 0.00 2.37 2.41 2.13 0.00 0.00 4.76AVG RENT PER SQ FOOT $ 0.78 0.76 +0.02 1.14 0.87 0.78 0.76 0.63 0.64 0.73AVG RENT PER UNIT TYPE $ 580 602 710 834 565 600 935SUM OF UNITS SURVEYED 1226 1514 30 465 249 328 16 33 105

20 EAST VANCOUVER 6 AVG MARKET VACANCY RATE % 8.30 6.60 +25.76% 0.00 3.98 7.94 11.04 0.00 0.00 6.60AVG RENT PER SQ FOOT $ 0.78 .078 0.00 1.30 0.85 0.77 0.79 0.66 0.53 0.80AVG RENT PER UNIT TYPE $ 455 638 700 789 795 690 1009SUM OF UNITS SURVEYED 783 1363 4 176 126 335 30 2 110

TOTAL AVG MARKET VACANCY RATE 3.58 3.32 +7.73% 1.15 3.09 4.06 3.71 6.23 9.70 6.38

TOTAL AVG RENT PER SQ FOOT 0.86 0.87 -0.01 1.25 0.94 0.83 0.82 0.77 0.80 0.77

TOTAL AVG RENT PER UNIT TYPE 537 624 711 838 834 794 966

TOTAL SUM OF PROPERTIES SURVEYED 366 471 85 307 275 109 38 57 89

TOTAL SUM OF UNITS SURVEYED 24437 32845 1193 8441 7159 4782 618 536 1708

SALEM & VICINITY 20 AVG MARKET VACANCY RATE % 3.38 3.29 +2.74% 1.92 3.91 2.73 6.71 — 0.00 0.00AVG RENT PER SQ FOOT $ 0.77 0.70 +0.07 1.25 0.83 0.73 0.76 — 0.76 0.74AVG RENT PER UNIT TYPE $ 450 529 608 686 — 605 765SUM OF UNITS SURVEYED 1037 1761 52 179 587 164 — 13 42

EUGENE / SPRINGFIELD 18 AVG MARKET VACANCY RATE % 3.37 3.58 -5.87% 0.00 2.06 5.56 0.65 0.00 0.00 4.50AVG RENT PER SQ FOOT $ 0.86 0.87 -0.01 1.11 0.95 0.80 0.76 0.69 1.01 0.81AVG RENT PER UNIT TYPE $ 436 566 624 830 825 1040 1020SUM OF UNITS SURVEYED 1367 1730 25 486 468 155 30 3 200

BEND / REDMOND 13 AVG MARKET VACANCY RATE % 2.70 1.76 +53.41% 0.00 0.00 2.83 3.33 12.50 — 0.00AVG RENT PER SQ FOOT $ 0.65 0.63 +0.02 0.62 0.64 0.60 0.71 0.61 — 0.61AVG RENT PER UNIT TYPE $ 310 415 535 748 520 — 754SUM OF UNITS SURVEYED 185 170 1 12 106 30 8 — 28

TOTAL AVG MARKET VACANCY RATE 3.15 2.88 +9.38 0.64 1.99 3.71 3.56 6.25 0.00 1.50

TOTAL AVG RENT PER SQ FOOT 0.76 0.73 +0.03 0.99 0.81 0.71 0.74 0.65 0.89 0.72

TOTAL AVG RENT PER UNIT TYPE 399 503 589 755 673 823 847

TOTAL SUM OF PROPERTIES SURVEYED 45 48 8 23 35 19 2 4 14

TOTAL SUM OF UNITS SURVEYED 2589 3661 78 677 1161 349 38 16 270

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AVERAGE NUMBER OF DAYS VACANT—PORTLAND / VANCOUVER AREA

15.22 Wils

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19.14

12.96 12.72

18.51 17.07

11.7

23.46

39.46

10.73

23.22

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UNIT TYPESVACANCY AVG. RENTRATE (%) PER SQ FT ($)

SECTION 42 SURVEY RESULTS FALL 2008

TOTAL # OF PROPERTIES = 74 TOTAL # OF UNITS = 2860

STUDIO 2.73 1.05

1 BED / 1 BATH 4.38 0.89

2 BED / TH 0 0.57

2 BED / 1 BATH 13.67 0.73

2 BED / 2 BATH 2.87 0.76

3 BED / 1 BATH 3.92 0.63

3 BED / 2 BATH 5.51 0.62

TOTALS 5.21 0.73

GROUP HOME .75 263 439 527 702 878

0 1 351 585 703 936 1171

1 1.5 376 627 753 1003 1254

2 3 451 753 904 1204 1505

3 4.5 522 870 1044 1391 1739

4 6 583 970 1164 1553 1940

5 7.5 643 1071 1284 1713 2141

NO. OFBEDROOMS

HOUSEHOLD

SIZE

2006 HOUSING AFFORDABILITY MAXIMUM MONTHLY RENT

Including utilities by median family income with a housing burden of 30%

Figures are rounded to the nearest $1.00

30% 50% 60% 80% 100%

HOUSEHOLDSIZE 30% 50% 60% 80% 100%

MEDIAN INCOME FAMILY OF FOUR Portland $63,800

(Based on HUD Portland Area Median Income as of Dec. 31 2007:$66,900 for a family of four. Figures are rounded to the nearest $50.00)

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OUTLYING AREAS

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NATURAL RESOURCES, MINING AND CONSTRUCTIONEMPLOYMENT TAKES A HIT

Stephen C. Williams—Regional Economist,

Oregon Employment Department

Deschutes County’s over-the-year employment growth slowedto 1.0 percent in June. The slowdown began in 2007 when thecounty was dethroned as Oregon’s fastest growing county, atitle it held between 2004 and 2006. In 2007, Deschutes wasthe sixth fastest growing, adding 2,100 jobs. Although thecounty has cumulatively outperformed every other area inOregon over the past seven years, it is currently feeling theeffects of a drastically slower local housing market. As they say,the bigger they are the harder they fall, or in this case the fasterthey grow the greater the potential for decline.

The sector hurting the most from the currently slowing housingmarket is natural resources, mining, and construction. Thissector is heavily dominated by construction. In 2007, the sectorcomprised 11.6 percent of the county’s nonfarm payroll jobs—almost twice the share in Oregon (6.5%) or the nation(6.1%). The sector has long accounted for a larger share of thecounty’s jobs—going back to 1990 when natural resources,mining, and construction accounted for 7.2 percent, while inOregon the industry accounted for 5.3 percent.

The fortunes for employment in natural resources, mining, andconstruction turned in early 2006 when year-over-year growthpeaked at 24 percent (Graph 1). Since then there has been asteady decline in year-over-year employment growth, actuallygoing negative in early summer of 2007 and staying there ever

since. In 2007, the industry recorded 30 fewer jobs than in2006. This decline was followed by the state and national trend,with both peaking in early 2006 and going negative duringmiddle to late 2007.

Looking at annual data Deschutes County’s natural resources,mining, and construction employment has grown by over 250percent since 1990, while the state’s has seen a respectable 70percent growth and the nation close to 40 percent (Graph 2).The remarkable thing here is that the industry’s employmentshot up over 150 percent from 2002 to 2006. That rate ofgrowth is likely unsustainable in any market and that, coupledwith a large inventory of homes on the market, is probably thereason employment leveled off in 2007. With the trend in thefirst half of the year, an even larger drop is expected in 2008.

If recent building permits are any indication, a further declineof employment in this industry can be expected. Through thefirst half of 2008 the county recorded 357 new single familypermits. That compares to 1,061 in the first three months of2003, 1,478 in 2004, 1,783 in 2005, 1,830 in 2006, and 974 in2007. That’s a decline of 63 percent from last year and just one-fifth of the permits issued in the first half of 2006.

Steve Williams is a Regional Economist for the Oregon EmploymentDepartment, covering Central Oregon. He produces and analyzesemployment statistics, including the unemployment rate and monthlyjob growth in the region’s major industries. Steve has an undergraduatedegree in Economics from Willamette University. He started his careerwith the Employment Department 5 years age, the last 3 of which havebeen spent analyzing and reporting on Central Oregon’s employmentand unemployment trends.

“I’ve had about 30 calls in the last month from people looking for Sec. 8 housing...”

29.16

13.75

7.69

Hill

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26

Alo

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Red

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“Filling vacanies is harder due to more applications denied based on property debt and negatie rental history.”

1 14,250 23,750 28,500 38,000 46,850

2 16,300 27,150 32,600 43,450 53,500

3 18,350 30,550 36,650 48,900 60,200

4 20,350 33,950 40,750 54,300 63,8005 22,000 36,650 44,000 58,650 72,250

6 23,650 39,400 47,250 63,000 77,600

7 25,250 42,100 50,500 67,350 82,950

8 26,900 44,800 53,800 71,700 88,300

GRAPH 2

GRAPH 1

11 MILWAUKIE12 CLACKAMAS13 INNER & CENTRAL SE (PORTLAND)14 OUTER SE (PORTLAND)15 TROUTDALE / FAIRVIEW / WOOD VILLAGE / GRESHAM16 OUTER NE (PORTLAND) 17 INNER & CENTRAL NE (PORTLAND) 18 NORTH PORTLAND / ST. JOHNS19 WEST VANCOUVER20 EAST VANCOUVER

1 NW PORTLAND2 HILLSBORO / NORTH OF HWY 263 ALOHA4 BEAVERTON5 DOWNTOWN PORTLAND6 SW PORTLAND7 TIGARD / TUALATIN / SHERWOOD8 LAKE OSWEGO / WEST LINN9 WILSONVILLE / CANBY10 OREGON CITY / GLADSTONE

2

P O R T L A N D M E T R O A R E A

15

SOUTHERN WILLAMETTE VALLEY REPORT

Brian K. Miles, CPM, CCIM

A snapshot of the Southern Valley today looks like this: low, lowvacancy; no concessions to speak of; rent increases more thenorm than not (although not substantial increases) and few newconstruction units in rent up.

The economic climate has tenants to settle down. Lendinginstitutions are now requiring real down payments andstraightforward qualifying to purchase a home. That has takenthe fun out of home buying for the time being. All this has thelandlords smiling and rightly so. Theirs has been a tumultuousmultiple-year run of turn over and concessions.

Landlords looking to push rents need to remember that theirrents are part of a budget process that is impacted by risingutilities, gas, food and credit costs. Six months ago I wrote abouthigher end units having vacancy and that was a reverse of theprevious history of the lower end units carrying most of thevacancy. With rent and vacancy stabilized, pushing rents toohard might cost more than it is worth. Vacancy or less thanqualified residents is expensive in the long run. Newconstruction should now become the existing landlord’s friendand they should wish them much success!

Salem/Keizer and Eugene/Springfield have several projects inthe planning stages of development. Albany also has units “inthe works”…finally. Corvallis does as well. As the new unitscome into the market place, they have to push rents to justifytheir existence. They need to have higher rents to get financedand to make any return on investment. If they need higher rents,they take your property with them in some fashion. Now, witha strong market and a very manageable amount of new units “inthe pipeline” or under construction, that is truer than ever.

Also affecting the rental market is apartment sales. Rarely has asale happened in the last 5-10 years that did not require a rent

increase to some degree. Some increases are more aggressivethan others. Those sales also helped to push the rental market.Sales have slowed down. They are occurring, but not at the ratethat we have seen over the last several years. The same issuesthat have hit the homebuyer have come to pass with theapartment investor. Financing is difficult in today’senvironment. We need to also recognize that these lendingconstraints will impact our properties with future loan calls andrefinance needs.

In summary; I believe that landlords now need to work asdiligently as they did in the lean, tougher, turnover times. Theyneed to be cautiously optimistic in their rents. They need toexercise good judgment with regard to spending andmaintaining their properties on the expense side of the ledger.Manage with long-term thinking and benefit now.

Your vacancy, your cash flow, your values and finally yourbanking needs depend on it.

Brian K. Miles, is the Principal Broker of SMI Commercial Real Estate, LLC. He is a Certified Commercial Investment Member (CCIM)amd Certified Property Manager (CPM) and has been involved inincome producing real estate since1990. A principal of Shelter Management, Inc. since 1993, he founded SMI CommercialReal Estate in 2004 and has listed and sold approximately$100,000,000 of real estate.

NW Portland

MAP AREA

Hillsboro/North of Hwy 26

Aloha

Beaverton

Downtown Portland

SW Portland

Tigard/Tualatin/Sherwood

Lake Oswego/West Linn

Wilsonville/Canby

Oregon City/Gladstone

Milwaukie

Clackamas

Inner & Central SE (Portland)

Outer SE (Portland)

Troutdale/Fairview/Wood Village/Gresham

Outer NE (Portland)

Inner & Central NE (Portland)

North Portland/St. Johns

West Vancouver

East Vancouver

Bend/Redmond

Salem/Vicinity

Eugene/Springfield

DO YOU OFFER INCENTIVES?

0%

FALL 2008

0%

36.84%

0%

0%

6.25%

16.92%

31.82%

17.39%

3.92%

1.75%

11.29%

6.06%

0%

0%

34.48%

0%

8.33%

0%

0%

SPRING 2008

0%

37.93%

10.00%

3.92%

0%

0%

7.89%

0%

7.14%

6.25%

32.50%

7.27%

18.52%

15.49%

25.77%

0%

14.29%

1.90%

2.94%

20.99%

21.74%

22.58%

16.33%

15.09%

34.69%

17.46%

pric

e pe

r SF

$110

$105

$100

$95

$90

$85

$80

$75

$70

$65

AVERAGE PRICE PER SF

134

PORTLAND / VANCOUVER METRO AREA

SURVEY RESULTS—SEPTEMBER 2008 TREND REPORT : PORTLAND METRO AREA

MAP AREA NAME# OF

DATA ALLSPRING 08

STUDIO1 BED 2 BED 2 BED 2 BED 3 BED 3 BED

PROP REPORT CHANGE 1 BATH 1 BATH 2 BATH TWNHS 1 BATH 2 BATH

CoStar: Search criteria—Research Status: Published; Market: Portland; PropType: Multi Family; Sale Date: 1/2003—6/2008; unit: 5 and over.

YEAR 2003 2004 2005 2006 2007 1/01—9/10/2008

TOTAL SALES 273 287 225 228 258 69

TOTAL $ VOLUME $544,676,119 $606,594,805 $639,238,028 $853,605,202 $1,118,980,844 $385,187,767

TOTAL SQUARE FEET 9,044,710 9,185,625 9,926,050 11,295,396 10,957,763 3,513,222

TOTAL UNITS 9,844 9,555 9,172 11,825 11,951 3,774

TOTAL ACRES 461.55 463.43 411.72 511.84 829.48 187.60

AVERAGE SALE PRICE $2,221,959 $2,227,310 $3,793,801 $3,990,542 $4,337,135 $5,582,432

AVERAGE # OF SF 33,131 32,006 44,116 49,541 42,472 50,916

AVERAGE PRICE PER SF $67.07 $69.59 $86.00 $80.55 $102.12 $109.64

MEDIAN PRICE PER SF $65.30 $65.91 $73.50 $77.63 $81.44 $87.80

AVERAGE PRICE PER UNIT $55,251 $61,075 $69,549 $71,604 $84,613 $96,262

MEDIAN PRICE PER UNIT $53,000 $54,839 $59,911 $66,265 $69,917 $75,000

AVERAGE # OF UNITS 38 35 45 54 50 58

AVERAGE # OF ACRES 1.69 1.61 1.83 2.24 3.22 2.72

AVERAGE CAP RATE 7.6% 7.2% 6.6% 6.4% 6.1% 5.9%

AVERAGE GRM 7.7 8.2 8.7 9.0 9.7 8.8

1 NORTHWEST PORTLAND 27 AVG MARKET VACANCY RATE % 4.49 4.70 -4.47% 2.36 1.97 5.26 6.82 40.91 4.17 4.21AVG RENT PER SQ FOOT $ 1.13 1.09 +0.04 1.56 1.15 1.09 1.00 1.03 0.76 0.86AVG RENT PER UNIT TYPE $ 621 727 900 1005 1417 718 1297SUM OF UNITS SURVEYED 1293 2320 127 458 228 220 22 24 214

2 HILLSBORO | 12 AVG MARKET VACANCY RATE % 6.22 5.68 +9.51% 8.00 4.74 3.90 8.52 12.30 4.17 9.34NORTH OF HWY 26 AVG RENT PER SQ FOOT $ 0.83 0.84 -0.01 0.94 0.92 0.81 0.84 0.76 0.76 0.79

AVG RENT PER UNIT TYPE $ 457 616 703 881 749 847 968SUM OF UNITS SURVEYED 1848 1831 25 633 462 352 122 72 182

3 ALOHA 27 AVG MARKET VACANCY RATE % 4.05 3.84 +5.47% — 4.47 2.96 3.88 — 7.50 5.63AVG RENT PER SQ FOOT $ 0.82 0.85 -0.03 — 0.89 0.79 0.78 — 0.81 0.83AVG RENT PER UNIT TYPE $ — 618 674 778 — 783 891SUM OF UNITS SURVEYED 2590 3620 — 783 709 774 — 40 284

4 BEAVERTON 38 AVG MARKET VACANCY RATE % 2.64 2.86 -7.69% 1.30 3.85 1.88 3.02 2.44 2.25 2.88AVG RENT PER SQ FOOT $ 0.79 0.79 0.00 1.05 0.86 0.76 0.75 0.70 0.77 0.72AVG RENT PER UNIT TYPE $ 493 589 676 769 815 735 880SUM OF UNITS SURVEYED 2388 3080 77 728 1115 199 41 89 139

5 DOWNTOWN PORTLAND 16 AVG MARKET VACANCY RATE % 3.15 2.99 +5.35% 1.12 3.67 5.39 1.39 11.11 0.00 0.00AVG RENT PER SQ FOOT $ 1.27 1.28 -0.01 1.62 1.23 1.20 1.40 1.32 1.15 0.56AVG RENT PER UNIT TYPE $ 727 766 1026 1732 1488 1348 1130SUM OF UNITS SURVEYED 1493 1972 267 818 167 216 18 6 1

6 SW PORTLAND 25 AVG MARKET VACANCY RATE % 3.82 3.38 +13.02% 0.00 2.98 4.87 4.69 5.71 0.00 2.74AVG RENT PER SQ FOOT $ 0.84 0.87 -0.03 1.18 0.91 0.78 0.79 0.83 0.94 0.73AVG RENT PER UNIT TYPE $ 513 587 676 749 761 965 899SUM OF UNITS SURVEYED 1152 1333 30 369 349 213 35 10 146

7 TIGARD | TUALATIN | 34 AVG MARKET VACANCY RATE % 4.17 3.99 +4.51% 1.41 2.15 6.09 3.64 3.57 8.00 6.43SHERWOOD AVG RENT PER SQ FOOT $ 0.83 0.82 +0.01 1.29 0.90 0.79 0.83 0.80 0.78 0.80


8 LAKE OSWEGO | 6 AVG MARKET VACANCY RATE % 4.89 5.06 -3.36% 0.00 3.70 8.41 0.00 0.00 6.25 50.00WEST LINN AVG RENT PER SQ FOOT $ 0.84 0.88 -0.04 1.67 1.02 0.83 0.77 0.61 0.73 0.88


9 WILSONVILLE | CANBY 10 AVG MARKET VACANCY RATE % 2.25 1.91 +17.80% 0.00 1.75 3.11 1.69 — 0.00 2.25AVG RENT PER SQ FOOT $ 0.84 0.80 +0.04 1.26 0.84 0.81 0.81 — 0.94 0.91AVG RENT PER UNIT TYPE $ 480 634 748 835 — 850 1088SUM OF UNITS SURVEYED 979 1045 13 285 354 236 — 2 89

10 OREGON CITY | 9 AVG MARKET VACANCY RATE % 2.45 1.87 +31.02% — 5.49 1.50 1.00 11.11 12.50 2.08GLADSTONE AVG RENT PER SQ FOOT $ 0.78 0.83 -0.05 — 0.85 0.74 0.75 0.70 0.81 0.82

AVG RENT PER UNIT TYPE $ — 642 668 775 630 800 1025SUM OF UNITS SURVEYED 489 803 — 91 133 200 9 8 48

11 MILWAUKIE 21 AVG MARKET VACANCY RATE % 3.29 1.95 +68.72% 0.00 3.03 4.16 1.44 0.00 4.35 3.51AVG RENT PER SQ FOOT $ 0.79 0.78 +0.01 1.14 0.90 0.78 0.76 0.69 0.72 0.67AVG RENT PER UNIT TYPE $ 500 572 649 776 800 795 844SUM OF UNITS SURVEYED 1701 1334 34 595 794 139 59 23 57

12 CLACKAMAS 6 AVG MARKET VACANCY RATE % 2.62 1.46 +79.45% 0.00 1.30 0.62 5.66 — 16.67 11.11AVG RENT PER SQ FOOT $ 0.77 0.83 -0.06 1.20 0.95 0.77 0.75 — 0.71 0.72AVG RENT PER UNIT TYPE $ 548 689 676 799 — 780 853SUM OF UNITS SURVEYED 343 1918 18 77 162 53 — 6 27

13 INNER & CENTRAL 58 AVG MARKET VACANCY RATE % 2.18 1.91 +14.14% 0.40 2.69 1.04 5.56 1.47 14.29 0.00SE (PORTLAND) AVG RENT PER SQ FOOT $ 0.92 0.91 +0.01 1.22 1.00 0.84 0.81 0.70 0.83 0.78


14 OUTER SE (PORTLAND) 35 AVG MARKET VACANCY RATE % 3.95 4.11 -3.89% 0.00 3.16 6.93 2.11 1.64 7.50 0.00AVG RENT PER SQ FOOT $ 0.79 0.80 -0.01 0.99 0.85 0.76 0.74 0.75 0.76 0.81AVG RENT PER UNIT TYPE $ 515 560 626 681 659 762 829SUM OF UNITS SURVEYED 1317 1632 68 348 433 332 61 40 35

15 TROUTDALE | FAIRVIEW | 24 AVG MARKET VACANCY RATE % 3.66 3.47 +5.48% — 5.65 3.29 3.54 3.23 0.00 0.00WOOD VILLAGE | AVG RENT PER SQ FOOT $ 0.79 0.77 +0.02 — 0.93 0.78 0.76 0.68 0.90 0.71GRESHAM AVG RENT PER UNIT TYPE $ — 608 653 724 678 675 866

SUM OF UNITS SURVEYED 1285 2592 — 301 456 396 31 5 96

2003 2004 2005 2006 2007 2008

pric

e pe

r un

it in

thou

sand

s

$100

$95

$90

$85

$80

$75

$70

$65

$60

$55

AVERAGE PRICE PER UNIT

2003 2004 2005 2006 2007 2008

2003 2004 2005 2006 2007 2008

7.8%

7.6%

7.4%

7.2%

7.0%

6.8%

6.6%

6.4%

6.2%

6.0%

5.8%

CAP RATE

2003 2004 2005 2006 2007 2008

GRM9.8

9.6

9.4

9.2

9.0

8.8

8.6

8.4

8.2

8.0

7.8

7.6

6 11

CAPITAL MARKETS UPDATE FALL 2008

Adam Cassie—Cohen Financial

The summer hasn’t been kind to thecommercial/multifamily capital markets.

Commercial banks are still in the midst of discovering the valueof what they have on their balance sheets that is collateral forexisting loans. This “price discovery” is also redefining what isappropriate leverage and pricing going forward on prospectiveloans. This daily flow of new information is causing dailydisruptions in what the lender thinks it can or will offer. Offeredloan terms shift from loan application through closing and goodsolid rate locks are hard to come by. A Survey conducted by theFederal Reserve Board polled senior lending officers acrosshundreds of banks. The majority of them said that credit is tighter now than during the real estate credit crunch of 1989-1992, and tighter than 2001, when the market wasweaker with tremendous excess supply and higher vacancies.Buyers and sellers are frustrated because the bid-ask gap is toowide. Lenders are defining value, not buyers and sellers.

Overall, multifamily debt originations are down 42% from Q22007 across the country according to the Mortgage BankersAssociation. Combined commercial and multifamily loanoriginations are down 63%. The lower number for multifamilyis due in part to the availability of debt from Fannie and Freddieamidst our credit crisis as well as the disappearance of a liquidCMBS market.

Fannie and Freddie’s cost of capital continues to rise as theirstock price declines. Earlier in August, Freddie Mac had to payan outrageous premium on a $3 billion issuance of 5-year debtto fund its operations. Freddie paid a rate of 113 bps over whatthe fed would pay, but earlier in Q1 it was only 60 bps over.This will continue to increase the spread premium they chargeover the corresponding treasuries to provide debt to multifamilyborrowers.

But for now, the agencies are still in business and have risen tothe top as the lender of choice for apartment refinances andacquisitions, and provide a capital source that isn’t available toother commercial borrowers. Life Companies and CommercialBanks are originating multifamily loans selectively but aredown nearly 30% from their records set in 2006 and 2007.Back then, the agencies were not as competitive and weremarginalized by the investment bank’s CMBS offerings. Today,CMBS is down 98%. Fannie and Freddie have helped to backfillthe void left by Wall Street CMBS and the others and haveincreased originations by 66%, which has helped increase theirmarket share to 31% of all multifamily mortgages outstanding.But the stabilization of these two multifamily mortgage giantshas not come to a conclusion and while they are the optiontoday, they may not be tomorrow.

DISTRESSED ASSETS

Since the beginning of the year, I have taken dozens of callsfrom investment sales brokers who want to get connected withthe special assets & loan work out departments of investmentbanks, commercial banks, and other lenders. They hear aboutall the bad news in the credit markets and want to get thelistings on properties that are being taken back by the banks.This is a great idea, but there are some things to consider:

If there is an over-abundance of capital right now in the fall of2008, it’s in the “opportunity capital” space. Many call themvulture funds, hard money lenders, mezz lenders, or preferredequity providers. These funds are flush with cash, looking forunleveraged returns in the mid to high teens, and are looking fordistressed deals. The trouble is that there isn’t enough distressout there. At least not on the property types these funds arelooking to purchase or lend on. They want performing; incomeproducing properties in great locations, but all that is availableright now for a deep discount is land and condos. The “bid-ask”gap that exists on performing assets will continue well into 2009.

In summary, the credit crunch is still unfolding. Transactions area fraction of what they were last year and Fannie and Freddie aregood financing options for the moment. The disappearance of theleveraged buyer has helped make the bidding process morerational and will give some negotiating strength to thesophisticated, cash buyers with solid reputations for execution.

Adam Cassie, [email protected] is Vice President of CapitalMarkets for the Portland office of Cohen Financial. Cohen Financial isa real estate investment bank that sources debt and equity forcommercial real estate developers and investors.

takeover has yet to be determined. In his article, Adam Cassie,with Cohen Financial, discusses the credit crunch and itsimpact on investors. He notes that “Offered loan terms shiftfrom loan application through closing and good solid rate locksare hard to come by”.

This issue features an excellent contribution from CarmenVillarma, with The Management Group Inc. She presents aninsiders take on the Vancouver/Clark County apartment marketfrom both a management and brokerage perspective. Sheexplains that “The solid performance of apartment communitiesin the Vancouver and greater Clark County market hascontinued to bring more investors to the north side of the river”.

Steve Williams, one of Oregon’s regional economists, examinesthe “drastically slower local housing market” in DeschutesCounty and its impact on employment in that area. We alsohave a contribution from Amy Vandervliet from the OregonEmployment Dept. Amy predicts that Portland’s economy“won’t see appreciable growth until the latter part of 2009”.

In an article submitted by Brian Miles, from CMI CommercialReal Estate, Brian provides his usual unabashed advice tolandlords and analysis of the Southern Willamette Valley

marketplace. He states that apartment sales are slow and thatfinancing is difficult, in spite of increasing rents and lowvacancy rates.

This issue contains results from 485 properties, representing29,900 units. All of the articles have been reprinted withoutediting the content, in order to present unbiased opinions. We’dlike to thank all of the management companies and propertyowners who have submitted information. Their participation iscritical in insuring the accuracy of our data and the continuedsuccess of this report.

STABLE MARKET CONTINUES continued from page 1

NW Portland

MAP AREA


Aloha

Beaverton

Downtown Portland

SW Portland



Wilsonville/Canby


Milwaukie

Clackamas


Outer SE (Portland)


Outer NE (Portland)



West Vancouver

East Vancouver

Bend/Redmond

Salem/Vicinity

Eugene/Springfield

IS YOUR BUILDING SMOKE FREE?

YES

0%

9%

18%

17%

24%

60%

6%

40%

50%

58%

13%

16%

12%

13%

4%

29%

0%

38%

4%

20%

8%

0%

28%

NW Portland

MAP AREA


Aloha

Beaverton

Downtown Portland

SW Portland



Wilsonville/Canby


Milwaukie

Clackamas


Outer SE (Portland)


Outer NE (Portland)



West Vancouver

East Vancouver

Bend/Redmond

Salem/Vicinity

Eugene/Springfield

DO YOU ACCEPT SEC 8 VOUCHERS?

YES

39%

24%

56%

64%

58%

27%

43%

83%

25%

47%

63%

27%

10%

0%

12%

67%

14%

30%

43%

33%

25%

100%

3%

SU

RV

EY

SA

YS

!

8 9

CLARK COUNTYAPARTMENT REPORT

Carmen Villarma, CPM—Principle, Battle Ground Village

President, The Management Group

For those of you who live and breathe the apartment market,you already know that the days of Vancouver/Clark Countybeing a step-sister to the greater Portland area have been rapidlydiminishing over the last few years. Other than the obviousboundary, the Columbia River, the lines between the twomarkets have continued to fade as rents, sales, and absorptionrates in Clark County are now keeping pace with most of thecommunities located on the south side of the river.Consequently, Clark County also continues to capture investordollars and speculators looking for new opportunities to buildadditional units.

Of course Clark County is not immune to the greater economicproblems that are impacting the region and the nation as awhole, such as bankruptcy, foreclosures, and unemployment.However, the biggest question from an ownership standpoint iswhether or not these economic factors are currently, or will inthe near future, have a negative impact on the apartmentmarket. To-date, most market experts agree that the economicclimate has not yet negatively impacted the market from arental standpoint except for the fact that rents are not increasingat the rate many projected at the onset of the housing decline.Local property management companies, appraisers, and marketpublications are in agreement that rents have increasedapproximately 2 to 4% in the Vancouver market during the firsthalf of 2008, and occupancies are holding strong at the 94-96percent range. Many of the properties experiencing thestrongest rent increases and lowest vacancies are located in theclose-in Vancouver market, while those properties experiencingthe lowest rent increases and highest vacancies are locatedgenerally in the outlying areas of Ridgefield, Battle Ground,Camas, and Washougal. The same is also true of concessions,with few “close-in” properties offering any significantconcessions, and concessions in the outlying areas rangingfrom one week to three weeks of free rent.

The solid performance of apartment communities in theVancouver and greater Clark County market has continued tobring more investors to the north side of the river. A total of sixarms-length apartment sales have closed during the first sevenmonths of 2008, and they are summarized on the followingchart at the top of page 9.

The number of sales that have taken place in Clark Countyduring the first seven months of 2008 is down from the sametime period in 2007 when 15 properties totaling 1,063 unitsclosed and equated to a total sales volume of $85,055,000. Thesmaller number of properties and units selling in the ClarkCounty market in 2008 vs. 2007 is due primarily to financing

constraints versus lack of investor interest. The average unitprice in 2008 of $71,977 is also lower than in 2007 ($77,541)due to the fact that the average year built was 1989, and at least three of the sales had deferred maintenance. The now non-existent condominium conversion market also inflatedsome of the individual sale prices in 2007. According to severallocal apartment brokers and appraisers in the area, thetightening financing market is also pushing capitalization ratesfor sales negotiated in 2008 up approximately one-quarter ofone percent.

PROPOSED MULTI-FAMILYDEVELOPMENTS OVER $1 MILLION

Proposed multi-family development in Clark County includeseight properties totaling roughly 1,142 new units. Of theproposed inventory, 454 units (40%) are proposed either in ornear the downtown core, 336 units (29%) are planned in theOrchards/Brush Prairie area, 272 units (24%) are proposed forEast Vancouver near the 162nd Avenue and 192nd Avenuecorridors, and the remaining 80 units are planned for BattleGround. Of the 8 properties planned, seven are market rateproperties. The ability for these properties to actually make itout of the ground will depend primarily on financing,construction costs, and the ability for the current economics tosupport increasing rents.

How will the current economic conditions impact theremainder of the year? Great question, and one that truly onlytime will tell. However, based on what we know today, thejobless rate continues to climb in Clark County and home salescontinue to soften. For example, Clark County's jobless ratereached a six-year high of 8.2 percent in August of 2008, whilethe jobless rate in Washington State and Oregon were both at6%. During the first seven months of 2008, the total singlefamily home sales volume was off 40%, and the average priceof new home in Clark County also decreased 17% to $323,396from the same time period in 2007. The silver lining is that theaverage price of an existing home remains unchanged at$302,947. While the housing issues continue to create barriers-to-entry for potential homebuyers, and also force many formerhomeowners into rentals, we cannot overlook the impact of theeconomy.

For the remainder of 2008, I see the challenge is in findingways to increase rents while the tenant pool becomesincreasingly impacted by joblessness, bankruptcies, and poorcredit. At the same time, finding ways to control expenses is, asalways, at the top of the list so that increases made in effectivegross income are not immediately eroded by increasingexpenses.

Carmen Villarma, CPM, is President of The Management Group, Inc.(TMG), a Washington based real estate services company. TMG isheadquartered in Vancouver with satellite offices in Portland & Albany,Oregon & Kennewick, WA. TMG is a multi service company managingover 14,000 residential units comprised of apartments, communityassociations and single family homes.

EMPLOYMENT

Amy Vander Vliet—Oregon Employment Department

HOLDING UP SURPRISINGLY WELL?

Portland’s economy has slowed dramatically, weakened by highenergy prices and a national mortgage meltdown that has nowevolved into a credit crisis. Annual job growth averaged just 0.4percent this past summer, compared to 1.5 percent at the startof the year and over 2 percent in 2007. Meanwhile, the metroarea’s unemployment rate has climbed to 5.5 percent; thehighest level in almost three years although still well belowwhat we experienced during the 2001-2003 recession, duringwhich rates neared nine percent.

A major issue still affecting the Portland metro area is thehousing situation. With significant weakness in residentialpermits, prices, and sales, construction employment hasdeclined five percent over the year; a loss of 3,500 jobs.Residential construction employment fell below year-ago levelsin February and is now down 10 percent over the year andfalling. Commercial construction held on through the summerbut is teetering on the brink. We’ll likely see declines in thecoming months as those cranes dotting the skyline of Portlanddisappear and future projects are put on hold due to anuncertain economy and lack of financing.

Weakness in construction continues to cause ripples, or waves,in other sectors of the economy, notably finance. The region’sbanks, mortgage companies, and other lending institutions havecut 1,200 jobs since the summer of 2007. Employment in retail,hit by both a decline in home equity and high energy costs, hasfallen below year-ago levels for the first time in five years.

The good news—or perhaps the less gloomy news—is thatPortland is faring better than the nation and outperformingabout half of the country’s largest metro areas. We benefit froma strong export market, where a weak dollar and rapid growthin Asia contributed to a 24 percent annual increase in Oregonexports in the first quarter of 2008. Additionally, our housingmarket is still holding up better than many other major metroareas (as measured by price appreciation and foreclosure rates).

On the other hand, we lack the economic drivers that arecurrently powering those metro areas which are handilyoutperforming us. Texas’s four largest metros are adding jobstwo to three times faster than Portland due to a booming energysector fueled by high gas and oil prices, and a relatively lowcost of living. Oklahoma City is also riding the energy wave, aswell as enjoying a strong agricultural sector fed by high wheat,corn, and beef prices. Closer to home, Seattle is up two percentover the year, owing to vibrant software and computer systemsdesign sectors and strength in aerospace. From Microsoft andBoeing to numerous smaller start-ups, our neighbor to the northis bucking the national trend.

Oregon’s Office of Economic Analysis’s latest forecastanticipates that the state economy will bottom out later thisyear, but we won’t see appreciable growth until the latter partof 2009. Portland will likely follow suit.

Amy Vander Vliet is an Economist for the Oregon EmploymentDepartment, covering the Portland metropolitan area. She produces andanalyzes employment trends, including the unemployment rate andmonthly job growth in the region’s major industries.

SALE PRICE SALE DATE NAME ADDRESS CITY YR BLT # UNITS $/UNIT

$2,030,000 07/15/2008 RIVER VIEW 225 NE SUMNER ST CAMAS 1999 28 $72,500

$3,500,000 06/12/2008 CORPORATE WOODS 4821 NE 110TH AVE VANCOUVER 2003 110 $74,468

$2,910,000 05/01/2008 CHERRYWOOD PARK 3205 NE 53RD ST VANCOUVER 1972 48 $60,625

$6,673,900 07/08/2008 ROLLING HILLS 7301 NE 13TH AVE VANCOUVER 1972 111 $60,125

$16,900,000 07/01/2008 POLO CLUB 4820 NE HAZEL DELL AVE VANCOUVER 1996 200 $84,500

$26,600,000 01/03/2008 MEADOWWOOD 6811 NE 121ST AVE VANCOUVER 1993 334 $79,641

MULTI-FAMILY APARTMENT SALES OVER $1 MILLION : CLARK COUNTY JAN–JULY 2008 (continued from page 8)

SUMMARY: 2008 APARTMENT SALES OVER $1MILLION CLARK COUNTY

TOTAL NUMBER OF TRANSACTIONS: ................................................6

TOTAL NUMBER OF UNITS: ..........................................................768

TOTAL SALES VOLUME: ..................................................$58,613,900

MEDIAN YEAR BUILT: ................................................................1995

AVERAGE YEAR BUILT: ..............................................................1989

AVERAGE PRICE PER UNIT: ....................................................$71,977

MEDIAN PRICE PER UNIT: ......................................................$73,484

Thank you to all who contributed to the making of this report. APARTMENT REPORT · PDF...

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