Residential Forecast 2009Cindy Clare, CPM

President, Kettler Management

January 27, 2009

MARKET FOR 2009

• What a difference a year makes!

• Impact of the decline in the economy

• Impact of the election

• How will the credit crunch impact the apartment industry?

ECONOMY

• The implosion of the financial markets impacted everyone

• Renters are being more cautious, and much more price sensitive

• Renters are taking smaller units, but not doubling up “yet”

• Silver Lining – the bailout may bring more jobs to Washington

ELECTION

• The change in administration brought “hope” to the nation

• Immediate increase in leasing after the election

• Will it continue?

WHAT DOES THIS MEAN FOR RENTALS?

• Slower absorption pace at lease-up properties (average 15 per month) • Rental concessions will continue and will increase in 2009

• Increased vacancy in both product types • Limited to no rent growth in strong sub-markets, rent reductions in other sub-markets

2008 RENTAL RESULTS

• Vacancy increased in VA, MD, and DC

• Class A vacancy increased to 4.4%

• Small increase in rents of 1.3%, decrease in high-rise rents

• Class A absorption dropped from 17 to 15 units per month • There are currently 51 apartment communities in lease-up in the Washington Metropolitan Region

• Concessions continue to increase; Class A 5.7%

2008 RENTAL RESULTS

• Supply beginning to stabilize as reversions slow down and new construction is delayed

• Rentals in No. VA were up 1.5%

• Rentals in Rockville and Bethesda, MD were down 2.4%. However, rentals in Silver Spring, MD were up 5.1%

• Rentals in DC were down 0.7%

• Shadow market is not having as much impact in the outer suburbs

2009 RENTAL FORECAST – No. VA• Concessions will continue and will increase in all sub- markets. Additional spreading of concessions as absorption slows

• Rent growth is unlikely in any product type. Although there may be an opportunity to raise rents on particular unit types (smaller units)

• Vacancy will edge up everywhere

• Location and quality will be key for new product. Unique features will become increasingly important

• Properties located near mass transit will continue to hold up better than other product

• Pipeline may continue to be reduced as new construction is delayed due to lack of financing

• Turnover should slow as buyers will need more money down to buy. However, those that have cash may see 2009 as an “opportunity”

2009 RENTAL FORECAST - DC

• 25% increase in apartment supply in 2008 will impact occupancy in 2009

• There will not be rent growth

• Reversions will continue to impact the market and could affect absorption depending on timing

• Vacancy will increase slightly

• Concessions will continue to increase as lease-ups are introduced into the market

2009 RENTAL FORECAST - MD

• Concessions will increase and spreading of concessions will continue as absorption slows

• Rents will be flat

• Properties near mass transit and close in locations will do better than outlying suburbs

• Vacancy will continue to increase

2009 SUB-MARKET RECAP• Near-term pipeline is imposing but upon closer review some markets may perform better than others

• Currently Washington, D.C. itself is saturated with failed condo projects and new apartments

- Poor locations are forced to offer steep concessions, dragging down all new communities who are forced to match - Concessions and price cuts are bringing some communities inline with new product in Arlington—Ballpark vs. Pentagon City

• Most Fairfax County supply will be absorbed by the first half of 2010

• Arlington has been hard hit by condo reversions however virtually all of these projects will be leased up by early 2009

• Which will be followed by another 2,900 units delivering over the next 18 months—however most new deliveries are in secondary locations, many without Metro

ITEMS TO WATCH IN 2009

• Increase in delinquencies particularly in the B market

- Hold fast on credit standards in order to avoid the pitfalls of the “for sale” market

• “Let’s make a Deal” as absorption slows- Focus on retention of existing

residents

SUMMARY

• 2009 will be a slow market, but not a sharp decline

• The Washington Metro market will continue to be desirable due to a stronger economy than the majority of the country

• While the market will be declining from our standpoint, it is still much stronger than many areas of the country

THANK YOU