MARKET REPORT

New tax reform is expected to drive positive economic growth in 2018, with many companies already earmarking their tax savings for employee wages or expansion, leading to the creation of new jobs. An increase in discretionary income is expected to propel consumer confidence, boding well for the Valley’s housing market. Still, concerns of reduced buying power following recent mortgage rate increases and the loss of homeowner tax breaks remain on the periphery. Affordability remains an issue, but more homebuilders are adapting with diversified product.

Demand for apartments keeping pace.

Resale inventory remains problematic.

Phoenix-Mesa-Scottsdale, AZ CBSA

East Valley primed for growth.

Over 8,800 rental units came to market during 2017, many in Southeast Valley cities like Gilbert and Tempe, while vacancy was down 10 basis points at year-end compared to 2016.

January was the 15th straight month of inventory declines, down 10.7% YOY to 21,226 units. Sales of existing homes were up just under 3% to nearly 6,200 units, making it the 3rd best January since before the recession.

The Greater Phoenix metro area is projected to reach a population of 7.75M people in 2050, with the East Valley expected to experience an increase of 1M people, with the addition of 400,00 new jobs.

1

673CBSA

559AZ

598USA

MEYERS INDEX

July 2011 Nov. 2017

EMPLOYMENT SUMMARY

2.6%52,700 jobs added YOY

4.1%Unemployment

2.2%54,720 jobs to be

added YOY

3.6%Unemployment

2,059,400 total jobs 2,103,770 total jobs

Jan. 2018 2019F

SUPPLY

TYPE PROJECTS REMAINING UNITS

PERMITS YOY CHANGE PEAK PERMITS

Single-Family 638 53,635 20,730 12.2% 60,926

Multifamily 111 4,271 9,469 -1.0% 37,924

57,906 11.2%30,199 98,850Totals: 749

TOP CITIES Active New Home Projects

Phoenix102

Mesa61

Peoria49

Buckeye47

Scottsdale44

Phoenix-Mesa-Scottsdale, AZ CBSA, Mar. 26, 2018 Economy

2

Salt Lake City-based Nikola Motor Co. is relocating its HQ and manufacturing plant to Buckeye, a move that is expected to create 2,000 jobs and a $1B capital investment. In return, the company is eligible to receive up to $46.5M in grants and tax credits. Nikola, which manufactures hydrogen-electric trucks, is expected to be operational in 2019.

Nearly 2,000 jobs will be coming to Chandler in 2018 following expansion announcements by Liberty Mutual Insurance and Wells Fargo. Liberty will be opening a new Chandler Airpark office this year with 750 jobs, while Wells Fargo plans to add 1,200 jobs to its expanded Price Rd corridor space.

JOB GROWTH

Jan. 2018 Job Growth:

new jobs52,7002018 Job Forecast:

54,720

Summary

UNEMPLOYMENT RATE

Jan. 2018 Unemployment:

↑4.1%Moody's Analytic 2018 Forecast:

Key Highlights

↑

2015

172,920

57,640

-172,920

-57,640-115,280

-230,560

115,280

0

1999

2011

1995

2007

2019

F19

9120

03

2014

4.0

8.0

12.0

2.0

6.0

10.0

0.01998 2010 2019F1994 20061990 2002

new jobs

Total nonfarm employment in the Phoenix-Mesa-Scottsdale, AZ metropolitan statistical area increased 2.6% from the same period last year to 2,059,400 payrolls in January 2018. There are approximately 52,700 more jobs than January of last year. The local unemployment rate increased to 4.1% in January 2018 compared to 3.8% in the previous month. January’s jobless rate is lower than it was this time last year when it stood at 4.2%. Forecasts from Moody’s Analytics show that the region’s unemployment rate will finish the year at 3.6%.

↓3.6%

year over year

Phoenix-Mesa-Scottsdale, AZ CBSA, Mar. 26, 2018

3

Phoenix ranks 11th for expected tech hiring growth during the first six months of 2018 according to Robert Half’s latest IT Hiring Forecast & Local Trend Report. The Valley has positioned itself as an emerging tech hub, with industry jobs growing by 48 % over the last five years.

Colliers International has named Phoenix a top 10 emerging industrial market for 2018, driven by relatively low rental rates compared to other regional markets and its logistical advantage in accessing major markets across the US and Mexico.

Co+Hoots will be anchoring the upcoming $59M mixed-use project “The Grid” in downtown Mesa, with a 13,500-square foot space that is expected to house hundreds of entrepreneurs and companies. The location is expected to open in late 2019. The company currently has a downtown Phoenix location.

The light rail has spurred substantial investment and growth along its transit lines since opening in 2008. Tempe has reaped its rewards, capturing 27% of the Valley’s office absorption since 2014, with only 8.4% of the region’s inventory. Demand has pushed rental rates to $45/SF in the city compared to $25/SF in the CBSA.

EMPLOYMENT BY SECTOR Key Highlights

JOBS BY SECTOR

TTU

10,200

3,400

-3,400

17,000

13,600

6,800

0

NRMPBSOMIHGFEHCON

Construction (CON)5.6%

Education & Health (EH)15.1%

Finance (F)9.0%

Government (G)11.7%

Hospitality (H)11.3%

Information (I)1.7%

Manufacturing (M)6.1%

Other (O)3.0%

Professional & Business Services (PBS)

17.2%

Natural Resource Mining (NRM)0.2%

Trade, Transport & Utilities (TTU)

19.2%

(YEAR-OVER-YEAR)

Phoenix-Mesa-Scottsdale, AZ CBSA, Mar. 26, 2018 Community

4

POPULATION GROWTH

2018 Median Age:

36

POPULATION BY AGE

2018E Population Growth:

1.8%YYYY Population Growth:

2010

3,845,300

4,998,890

3,460,770

4,614,360

3,076,240

4,229,830

2,691,710

2000

2018

E

85+

874,500

218,625

1,093,125

437,250655,875

0

75 to

84

65 to

74

55 to

64

45 to

54

35 to

44

25 to

34

15 to

24

Under 15

9

ETHNICITY

Raza Development Fund and JPMorgan have created a $1.1M lending program for small businesses in Phoenix’s South Central Ave corridor. The fund is designed to help underserved entrepreneurs gain access to capital to sustain and grow businesses, especially when construction on the light rail extension begins in 2019.

An Arizona Senate panel is proposing a bill that would freeze the minimum wage hike and eliminate mandatory paid sick time approved by voters in 2016.

Heightened investor and developer interest in downtown Mesa is expected to spur revitalization in the area following the recent purchase of several downtown buildings. New retail and office concepts could bring about a renaissance like that seen in the downtowns of Gilbert and Tempe.

monthyear

Others10.2%

Two Plus3.1%

American Indian2.0%

Pacific Islander0.2%

Asian3.1%

Black4.3%

White53.7%

Hispanic23.6%

Summary

There are approximately 1,755,039 households in the region which is up 1.6% year-over-year. Forecasts show that household formation is expected to increase by an annual growth rate of 1.8% for 2018. Median household income in the area increased 1.4% from the previous year to $59,843. Incomes are forecasted to increase 1.4% for the year in 2018.

Key Highlights

Phoenix-Mesa-Scottsdale, AZ CBSA, Mar. 26, 2018

5

Chandler is ranked as the No. 1 best city in the US (of 180 ranked) to find in a new WalletHub survey based on 26 job market and socioeconomic indicators. The city’s school system, low cost of living, and growing technology industry are prime drivers.

Banner Health is investing heavily in health centers across Arizona with 58 quick care facilities across the state. One of the newest will be the $10M, 30,000 square-foot health clinic located across the Desert Ridge Corporate Center in North Phoenix.

HOUSEHOLD INCOME

2018E Median Household Income:

$59,843

HOUSEHOLD GROWTH

2018E Household Growth:

1.8%

Key Highlights

2018

E

64,005

48,945

60,240

45,180

56,475

41,415

52,710

2000

2010

1,121,6001,261,8001,402,0001,542,2001,682,4001,822,6001,962,800

2000

2018

E

Phoenix-Mesa-Scottsdale, AZ CBSA, Mar. 26, 2018 Supply

6

PERMITS

2018LTM Total Building Permits:

30,199 Single-family

HIGHLIGHTS

2018LTM

29,355

19,570

48,925

9,785

39,140

020152013201120092007

Multifamily

Communities Southwest was recently granted preliminary approval by the city of Casa Grande to subdivide 372 acres in the undeveloped portion of the Villago MPC into 1,198 lots. In November, K. Hovnanian received approval to build 142 homes in the developed portion of the community.

NexMetro Communities recently closed on a $100M construction lending agreement with Canadian company Trez Capital for its planned subdivisions targeted this year in Phoenix, Dallas, and Denver.

Meritage Homes will be building 197 homes in Palm Valley in Goodyear on land that once housed a portion of the Palm Valley golf course. The builder will feature of mix of SFR and duplex/triplex units near Litchfield Rd and Palm Valley Blvd.

In the Phoenix-Mesa-Scottsdale, AZ region, total residential building permit activity increased 7.7% year-over-year to an annualized rate of 30,199 units in January. In the twelve-month period ending January, single-family building permit issuance increased 12.2% to 20,730 units while multi-family permit issuance decreased 1.0% to

DAYS ON MARKET

Dec. 2017 Days on Market:

72

2014

60

120

75

135

90

45

105

2017

2012

2010

days

E/P RATIO

E/P Ratio:

1.5

2013

104,637

-244,153

-104,637

69,758

-209,274

-69,758

34,879

-313,911

-174,395

-34,879

-279,032

-139,516

0-2

4

-6-8

-10-12-14-16-18

-4

620

2018

F20

1120

0920

15

Tota

l Per

mits

/Job

Gro

wth

E/P

Ratio

Total Permits Non-Farm Annual Growth E/P Ratio

NUMBER OF LISTINGS

Jan. 2018 # of Listings:

19,524

2014

29,35519,570

48,925

9,785

39,140

0

2012

2018

CM20

1020

16

-

7

NUMBER OF ACTIVE PROJECTS

Total

565

Mar. 201

8

270

540

135

405

675

0

Jan. 201

8

Nov. 201

7

Sep. 201

7

July 20

17

May 201

7

Mar. 201

7

Jan. 201

7

Nov. 201

6

Sep. 201

6

July 20

16

May 201

6

Mar. 201

6

Jan. 201

6

Nov. 201

5

Sep. 201

5

July 20

15

May 201

5

Mar. 201

5

Jan. 201

5

Tota

l Num

ber O

f Pro

ject

s

Detached

481Attached

84

ACTIVE BUILDERS top 15 results

RANK BUILDER # OF PROJECTS

AVG SALES

563881 $370,738Lennar 3.1910.44%

233592 $256,807D.R. Horton, Inc. 6.149.66%

272753 $389,504PulteGroup Inc. 4.977.40%

272124 $446,987Taylor Morrison 3.685.70%

301905 $358,644Meritage Homes 3.445.11%

151656 $345,648Fulton Homes 5.244.44%

301557 $354,435Richmond American Homes 2.184.17%

141478 $400,504K. Hovnanian Homes 4.243.95%

251329 $485,503Shea Homes 3.093.55%

1011210 $250,140Garrett Walker Homes 4.563.01%

1510711 $383,517Mattamy Homes 3.772.88%

1410512 $411,485TRI Pointe Group 4.092.82%

510513 $355,550Robson Resort Communities 10.472.82%

1110414 $276,547Beazer Homes 3.562.80%

1610315 $267,855KB Home 3.872.77%

# OF YTD SALES

% MARKET SHARE

Phoenix-Mesa-Scottsdale, AZ CBSA, Mar. 26, 2018

AVG PRICE

Phoenix-Mesa-Scottsdale, AZ CBSA, Mar. 26, 2018 Sales

8

NEW HOME MARKET ANNUALIZED

Change from Previous Year:

-1.9%

Total Home Closings:

17,303

31-year Historical Average:

sales19,093

Feb. 2018 Detached:

15,922

Summary

EXISTING HOME MARKET ANNUALIZED

Change from Previous Year:

↓-0.7%31-year Historical Average:

sales80,373

Key Highlights

2014

57,320

14,330

71,650

28,660

42,990

02012201020082006 2018LTM2004 2016

Feb. 2018 Attached:

1,381

Total Home Closings:

108,309Feb. 2018 Detached:

90,431

2014

40,135

80,270

120,405

160,540

200,675

02012201020082006 2018LTM2004 2016

Feb. 2018 Attached:

17,878

New home closings in the Phoenix-Mesa-Scottsdale, AZ metropolitan area experienced a 1.9% year-over-year decrease to an annualized rate of 17,303 units in February. Of those home closings over the past 12 months, 1,381 were attached closings and 15,922 were detached closings. Existing home closings for the same period posted a year-over-year loss of 0.7% to an annualized rate of 108,309 units. Of those home closings over the past 12 months, 17,878 were attached and 90,431 were detached.

Robson Ranch in Eloy recently reached a milestone, closing on its 1,000th home. Since opening in 2005, the community has averaged about 7.65 sales per month. The Ranch is planned for 4,600 homes at build-out.

Phoenix resale activity started 2018 with a strong performance in January, up 2.8% YOY despite a continued downtrend (10.7%) in inventory.

Home buyers are displaying a willingness to drive to the outer fringes of the Valley if the price is right. Tartesso by Express Homes (a D.R. Horton brand) has been averaging 20 to 30 sales over the last few months, drawing entry-level and first-time buyers with pricing ranging from $175,990 to $237,990.

Phoenix-Mesa-Scottsdale, AZ CBSA, Mar. 26, 2018 Prices

9

NEW HOME

NEW DETACHED MEDIAN HOME PRICE

Change from Previous Year:

-0.9%

Change from Previous Year:

-18.2%

31-year Historical Average:

$187,770

31-year Historical Average:

$164,153

Summary

NEW ATTACHED MEDIAN HOME PRICE Key Highlights

2014

321,860

292,600263,340

234,080

146,300

204,820175,560

2012201020082006 2018LTM2004 2016

Feb. 2018 Median Attached Closing Home Price:

$304,032

Feb. 2018 Median Detached Closing Home Price:

$304,352

2014

227,700

189,750

151,800

113,850

341,550

303,600

265,650

2012201020082006 2018LTM2004 2016

The median closing price for a new detached home in the Phoenix-Mesa-Scottsdale, AZ region decreased 0.9% year-over-year to $304,352 in February while the median closing price for a new attached home decreased 18.2% from the same year-ago period to $304,032. Homes priced between $240,000 and $320,000 experienced the most closing activity over the past year. The new home affordability ratio for a detached home reached 51.0% in February.

↓

↓Phoenix ranks among one of the most difficult markets in the US for singles to purchase a new home. A new Zillow study indicates the average Phoenix single is taking more than 11 ½ years to save for a down payment for a typical Valley home. With an average income of $38,000 per year, the market for singles is about $194,090, which represents about a third of the homes in the region.

AV Homes recently grand-opened Sunleya, its 85-lot community on the border of West Sun City. Floorplans will range from 1,731 to 2,474 square feet with pricing from $239,900 to $279,900.

Taylor Morrison Homes is looking to capture first-time and entry-level buyers at its new 42-lot Greer Ranch community with prices between $239,990 to $266,990. Floorplans will range from 1,573 to 2,121 square feet.

Phoenix-Mesa-Scottsdale, AZ CBSA, Mar. 26, 2018

10

NEW HOME CLOSINGS BY PRICE RANGE

DETACHED AFFORDABILITY

640K

-4.7M

2,650

5,300

1,325

3,975

6,625

0

560K

-640K

480K

-560K

400K

-480K

320K

-400K

240K

-320K

160K

-240K

80K-16

0K0-8

0K

2018

88.0

64.0

40.0

72.0

48.0

80.0

56.0

201720162015201420132012201120102009

AttachedDetached

ExistingNew

Phoenix-Mesa-Scottsdale, AZ CBSA, Mar. 26, 2018

11

EXISTING HOME

EXISTING DETACHED MEDIAN HOME PRICE

Change from Previous Year:

5.5%

Change from Previous Year:

2.8%

31-year Historical Average:

$152,504

31-year Historical Average:

$111,064

Summary

EXISTING ATTACHED MEDIAN HOME PRICE Key Highlights

2014

181,500151,250121,000

90,750

272,250242,000211,750

2012201020082006 2018LTM2004 2016

Feb. 2018 Median Attached Closing Home Price:

$170,577

2014

115,000

230,000

143,750

57,500

172,500

86,250

201,250

2012201020082006 2018LTM2004 2016

Feb. 2018 Median Detached Closing Home Price:

$241,684

The median closing price for an existing detached home in the Phoenix-Mesa-Scottsdale, AZ region increased 5.5% year-over-year to $241,684 in February while the median closing price for an existing attached home increased 2.8% from the same year-ago period to $170,577. Homes priced between $160,000 and $240,000 experienced the most activity over the past year. The existing home affordability ratio reached 59.9% in February.

↑

↑Phoenix home values were up 5.6% YOY in December, according to the Case-Shiller index, placing the MSA in the bottom half of the top 20 US markets. Among the eight Mountain and Western markets on the index, Phoenix ranks at the bottom, trailing Portland at 6.8%.

Scottsdale startup FsboTech LLC is offering a low-cost listing service that could save sellers dollars in commissions. Launched in May 2017, the automated service guides “FSBO” sellers through the home-selling process, including title and escrow. Savings can amount to $9,000 on a $300,000 home.

Phoenix-Mesa-Scottsdale, AZ CBSA, Mar. 26, 2018

12

EXISTING CLOSINGS BY PRICE RANGE

DETACHED AFFORDABILITY

560K

-5M

17,980

35,960

8,990

26,970

44,950

0

480K

-560K

400K

-480K

320K

-400K

240K

-320K

160K

-240K

80K-16

0K0-8

0K

Median Attached New Home Price:

2018

88.0

64.0

40.0

72.0

48.0

80.0

56.0

201720162015201420132012201120102009

AttachedDetached

ExistingNew

Phoenix-Mesa-Scottsdale, AZ CBSA, Mar. 26, 2018 Distress

13

Foreclosure sales remain low across the metro area, accounting for only 2.7% of overall resale activity in January. This is the 10th consecutive month this sales segment has been under 3%.

PHH Mortage Corp is doling out $45M after reaching a settlement with 28 states over bad foreclosure practices. Over 2,000 Arizona homeowners who had homes foreclosed by PHH between 20009 and 2012 are eligible to participate in the settlement.

HOUSING TRANSACTION VOLUME BY TYPE Summary

NOTICES OF DEFAULT & FORECLOSURE

Feb. 2018 Notices of Default:

8,877Feb. 2018 Total Foreclosures:

3,359

Key Highlights

2017

107,160

26,790

133,950

53,580

80,370

02016 2018LTM

2018LTM

13,290

11,075

8,860

6,645

4,430

2,215

15,505

2017201620152014

Foreclosures in the Phoenix-Mesa-Scottsdale, AZ area have declined over the past year. There were 8,877 notices of default sent out in the region in the twelve-month period ending February which is a 3% decrease year-over-year. The region experienced 215 foreclosures in February. Over the past twelve months, there have been 3,359 foreclosures in the area which is lower than it was this time last year.

Existing Foreclosure Sale NODNew Foreclosure

Phoenix-Mesa-Scottsdale, AZ CBSA, Mar. 26, 2018 Market Health

14

2015 2016 2017 1 YR AGO FEB. 2018 % CHANGE

Job Growth (12-Month) 62,030 64,660 55,620 55,100 52,700 2.6% ↑

Unemployment Rate 5.1 4.5 4.2 4.2 4.1 -

ECONOMY

Median Age - - - - 36.9 -

Median Household Income 56,498 57,335 58,171 59,007 59,843 1.4% ↑

COMMUNITY

Days on Market 73 72 66 76 N/A N/A

E/P Ratio 2.8 2.3 1.5 1.5 3.4% ↑

Number of Listings 21,234 21,390 19,756 21,506 19,524 - 9.2% ↓

Total Permits 22,402 28,583 28,051 30,199 7.7% ↑

SUPPLY

Attached Existing 14,157 15,589 17,869 15,958 17,878 12.0% ↑

Attached New 941 1,152 1,450 1,286 1,381 7.4% ↑

Detached Existing 75,959 82,059 91,171 84,197 90,431 7.4% ↑

Detached New 11,906 15,248 16,188 15,581 15,922 2.2% ↑

Total Investor Sales 2,701 2,511 1,975 2,403 1,834 - 23.7% ↓

SALES

Phoenix-Mesa-Scottsdale, AZ CBSA, Mar. 26, 2018

15

*Current year-over-year job growth and unemployment rate are as of Jan. 2018.

2015 2016 2017 1 YR AGO FEB. 2018 % CHANGE

Affordability (%) 64.9 63.9 60.7 62.8 59.9 - 4.6% ↓

Attached Existing Median $144,000 $155,000 $169,000 $166,000 $170,577 2.8% ↑

Attached New Median $268,212 $281,137 $308,964 $371,782 $304,032 - 18.2% ↓

Detached Existing Median $214,000 $226,500 $239,900 $229,000 $241,684 5.5% ↑

Detached New Median $292,945 $299,258 $305,000 $307,096 $304,352 - 0.9% ↓

PRICES

Foreclosures 5,917 4,756 3,569 4,543 3,359 - 26.1% ↓

Notices of Default 10,825 9,523 8,751 9,196 8,877 - 3.5% ↓

DISTRESS

Phoenix-Mesa-Scottsdale, AZ CBSA, Mar. 26, 2018 Appendix

16

ABOUT

DEFINITIONS AND METHODOLOGY

Meyers Research, a Kennedy Wilson Company, combines experienced real estate and technology advisors with leading data to provide our clients with a clear perspective and a strategic path forward. Based in Beverly Hills, we are home to 80 experts in 10 offices across the country.

Experienced real estate and technology advisors.

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www.kennedywilson.com

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www.meyersresearchllc.com www.zonda.cozonda@meyersresearchllc.com

(877) 966-3210

All information presented involved the assembly of data sources that we consider to be reliable, including the Bureau of Labor Statistics, CBRE- EA, Nielsen Claritas, Public Record Data, Moody's Analytics, Great Schools, U.S. Bureau of the Census, Zillow, various regional Multiple Listing Service providers, Meyers Research and Zonda. We do not guarantee any data accuracy as all information is subject to human errors, omissions, and/or changes.

Meyers IndexThe Meyers Index is a proprietary index that produces a score ranging from 0 to 1,000 for a geographic area. A higher index score captures the desirability of housing development for the selected area and is calculated using specific data sets weighted

to interpret the strength of the market. Such metrics include price appreciation, sales activity, permit activity, demographic growth, household income levels, school scores, and affordability.

DefinitionsCM - Current Month E - Estimated F - Forecast LTM - Last 12 Months