1. Wisconsin Apartment Market Investment and Appraisal Perspective

2. Overview Capitalization Rates/Other Stats Capitalization Rates/Other Stats Why are Apartments Different? Why are Apartments Different? Sales Activity/Marketing Times/Liquidation and Disposition Values Sales Activity/Marketing Times/Liquidation and Disposition Values What Does the Future Hold? What Does the Future Hold? Questions Questions

3. Apartment Investment Risk Levels Location Location Current Management/Condition Current Management/Condition Occupancy/Current Rents Occupancy/Current Rents –Two properties can have the same location, but have very different value indicators as a result of management factors – fragile market

4. Cap Rates – My Most Common Question Low Risk: 6.50%-7.50% Low Risk: 6.50%-7.50% Medium Risk: 7.25%-8.25% Medium Risk: 7.25%-8.25% High Risk: 8.25%-9.50% High Risk: 8.25%-9.50% Loan Terms Steady for the time being- They are a Big Factor! Loan Terms Steady for the time being- They are a Big Factor!

5. Vacancy/Collection Loss Rates Low Risk: 2-3% Low Risk: 2-3% Medium Risk: 4-5% Medium Risk: 4-5% High Risk: 6-15% High Risk: 6-15% What if Actual Vacancy exceeds 15%? What if Actual Vacancy exceeds 15%? –Higher Risk Factor in Cap Rate –Income Approach vacancy rate- combination of actual/market –Deduction for Rent Loss

6. Rent Levels All Over the Place! Many factors… All Over the Place! Many factors… Size, Amenities, Utility Inclusion and Condition All Matter Size, Amenities, Utility Inclusion and Condition All Matter Example: Milwaukee East Side Example: Milwaukee East Side –Studio: $325-$650 –1 Bedroom: $550-$1,100 –2 Bedrooms: $775-$2,100 –3 Bedrooms: Even higher

7. Expense Levels Considered with Stabilized Properties Considered with Stabilized Properties Owner Paid Heat Owner Paid Heat –Low Risk: 42.5%-47.5% –High Risk: 47.5%-55% Tenant Paid Heat Tenant Paid Heat –Low Risk: 37.5%-42.5% –High Risk: 42.5%-50%

8. Why Are Apartments Different? Vacancy – the Biggest Indicator Vacancy – the Biggest Indicator Only Investment where Rent Levels are Increasing Nearly Everywhere Only Investment where Rent Levels are Increasing Nearly Everywhere Banks are Lending! Banks are Lending!

9. Sales Activity/Marketing Times/ Liquidation Values Activity has Increased in 2012, especially at Year End – Cap Gains Tax Increase? Activity has Increased in 2012, especially at Year End – Cap Gains Tax Increase? Still Many Deal Seekers Still Many Deal Seekers Less Sellers Under Duress Less Sellers Under Duress Bank-Owned Properties- Special Financing Bank-Owned Properties- Special Financing Marketing Times – 6 months to 2 Years Marketing Times – 6 months to 2 Years –Most Unread Part of an Appraisal

10. Liquidation and Disposition Values Seller Need for Quicker Sale Seller Need for Quicker Sale Easy Addition to an Appraisal Easy Addition to an Appraisal Liquidation Value Liquidation Value –0-90 Days –20%-30% Value Discount Disposition Value Disposition Value –90-180 Days –10%-20% Value Discount

11. What Does the Future Hold? Interest Rate Increases? Interest Rate Increases? New Construction: New Construction: –Why it is happening? –What will be the effect? Oversupply of Apartments? Oversupply of Apartments? –High End Units –Low End Units

12. Questions?