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News release

LOS ANGELES, CA

The Future Looks Bright as Multifamily Investment Fundamentals Hold Steady in 2012

Jones Lang LaSalle’s Apartments Outlook 2012 Survey finds cap rates, appetite for yields and rental preferences will all remain stable in the year ahead


LOS ANGELES, Dec. 5, 2011 — The future looks bright for multifamily owners and investors as cap rates stabilize, interest rates remain low, and home ownership rates decline.  Many investors expect demand to continue at a similar pace in 2012 and beyond for this highly desirable property sector—according  to respondents of RealShare/Jones Lang LaSalle’s Apartments Outlook 2012 Survey.   The survey was completed by more than 150 private investors, real estate brokers, developers, REIT and institutional investors this fall. 

The survey asked respondents where they anticipated multifamily cap rates trending in 2012 for the most competitive markets.  A majority of respondents (39 percent) said we’re in a holding pattern, with cap rates staying stable, while another 21 percent say they’ll decrease less than 50 basis points.  Another 15 percent felt cap rates will decrease more than 50 basis points, while the same amount (15 percent) say cap rates will rise by less than 50 basis points.

“I think cap rates are going to stay the same in 2012, for two reasons:  one is the economy—it’s going to basically stay the same next year and interest rates are the lowest we’ve ever seen and I just don’t see that changing soon, “ said Paul Belden, President and Principal, WLA Investments.

Watch Belden’s comments in his video blog: http://www.youtube.com/watch?v=A_UDIHOP3wA

What is changing is investors’ appetite for yield.  With interest rates hovering around four percent—respondents were asked to peg the breaking point for them to leave the market as cap rates fall.  Half of all respondents (50 percent) said that number falls between 5 and 6 percent, while another 26 percent say if cap rates fall to between four and five, they’re out.  Just 14 percent say cap rates below four percent is the only way they’ll leave the market. 

Jones Lang LaSalle’s Managing Director Faron Thompson says lending in 2012 will be prolific with plenty of opportunities, but the low cap rates could affect transaction rates.

“The first part of this year, supply and demand was very geared toward demand, without much supply.  Properties that came to market got bid up and very aggressively priced.  Folks saw that pricing, but now the market has flipped—there’s now more supply on the market so you’re not quite seeing the same high pricing parameters,” said Thompson.  “Moving into 2012, it will be an interesting dynamic to see how that balances out… there’s plenty of transactions to go around and lending will be very flush in 2012.”

Thompson shares his extended views in a video blog interview here:  http://www.youtube.com/watch?v=XswxBL0LdM0&list=PL9306D2EF0DD0305F&index=8&feature=plpp_video

The fallout from the subprime mortgage crisis made many wonder if Americans had given up on the “American Dream” of owning a home.  Jones Lang LaSalle’s survey asked respondents when the propensity of renting versus owning would likely shift back to home ownership.  A majority of respondents (44 percent) say that won’t happen until at least 2015 or later, while another 32 percent say the market will reach a balance in 2013—with a shift towards buying in 2013.  Just 15 percent say that market balance comes next year, with a shift to buy in 2013. 

Bob Hart, President of KW Multifamily Management Group, Kennedy Wilson, says multifamily in recent years has benefitted from the “echo boomer” effect of consumers not buying homes due to job loss and the desire to not bear the burden of owning a home. 

“Because of the dislocation in the market of subprime debt, we’ve seen a decline in home ownership from its peak of 69 percent, moving down to about 64 percent, and we’ve added about 4 million new renters to the rental market.  I think that will plateau and as soon as there’s absorption in the home ownership market, we’ll start to see people buying new homes again,” said Hart.  “Right now, the supply of new homes is at an all time low.  There are only about 300,000 new homes to buy in the whole country right now, so I think it’s going to take awhile for people to gain more confidence and then we’ll start to see them return.  I don’t think it’ll return to the levels of where it was at, but I think it will start to climb up again.”

View Hart’s comments here:  http://www.youtube.com/watch?v=_ucaZIf2DXc

Jones Lang LaSalle’s Multifamily team has closed more than $2.68 billion in transactions so far in 2011, and has nearly $2 billion more currently in the market.

Jones Lang LaSalle Capital Markets is a full-service global provider of capital solutions for real estate investors and occupiers. The firm’s in-depth local market and global investor knowledge delivers the best-in-class solutions for clients — whether a sale, financing, repositioning, advisory or recapitalization execution. In 2010 alone, Jones Lang LaSalle Capital Markets completed $43 billion in investment sale and debt and equity transactions globally. The firm’s dealmakers completed $33 billion in global investment sales and buy-side transactions, equating to nearly $140 million of investment trades completed every working day around the globe. In the United States, Jones Lang LaSalle grew its office broker volumes by 257 percent in 2010 and is quickly gaining market share across all property types. The firm’s Capital Markets team comprises approximately 800 specialists, operating in 185 major markets worldwide.

About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a financial and professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2010 global revenue of more than $2.9 billion, Jones Lang LaSalle serves clients in 60 countries from more than 1,000 locations worldwide, including 185 corporate offices. The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 1.8 billion square feet worldwide. LaSalle Investment Management, the company’s investment management business, is one of the world’s largest and most diverse in real estate with more than $47.9 billion of assets under management. For further information, please visit our website, www.joneslanglasalle.com.