2. Introduction.......................................................................................................................... 1
Is the Optimism Justified?...................................................................................................... 2
Credit Crisis and Shadow Inventory.................................................................................................2
Impact of Echo Boomer Generation................................................................................................6
Positive Perception of Renting.........................................................................................................6
What Happens Next?............................................................................................................. 8
Data Summary....................................................................................................................... 9
What Happens After Next?.................................................................................................. 10
Leasing Experience...........................................................................................................................10
Service Delivery ................................................................................................................................11
Conclusion........................................................................................................................... 13

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Demand for apartments generally is driven by
several factors including job growth, the
relationship of cost-to own versus cost-to-rent,
age demographics, household formation,
household income, overall economic well-being,
consumer confidence expectations and
governmental policies. Currently, several of
these factors are converging to create
unprecedented demand for apartments
although job growth continues to be sluggish.
While the housing crisis has been a drag on the
overall economic recovery, it has been the
catalyst for a boom in apartment development.
History shows us that when demand is
forecasted in a sector of real estate, prices rise
and cap rates decline, capital becomes readily
available followed by growth in development.
The apartment industry is experiencing strong
demand and new projects are being planned
and delivered. The short-term view is optimistic
as a result of demand for rentals from defaulted
homeowners, increased acceptance of renting
and positive demographic characteristics
associated with the Echo Boomer generation.
With all of the optimism present in the
apartment industry, it may be easy to overlook
the fundamentals of building a long-term,
profitable business model. It is likely that in the
next three years, the development boom in
apartments will require the need to create a
sustainable sales and service delivery model to
compete head-to-head with other apartment
communities. Will today's developers and
management companies be on the forefront of
implementing a sales and service delivery
model that provides a platform to acquire and
retain tenants in a competitive market?
The chart below reflects the likely phases
associated with the apartment industry with the
final phase and path to revenue and profit
maximization being the implementation of a
superior sales and service delivery model to
compete in a potentially overbuilt market.
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4. 113 116
105
147
163
89
50
80
110
140
170
2005 2006 2007 2008 2009 2010
There are a few key factors contributing to the
positive outlook for the apartment industry.
The primary impacts include the demand
generated from the following three sources
which are discussed further in the pages that
follow:
Credit Crisis and "Shadow Inventory"
Impact of the Echo Boomer Generation
Positive Perception of Renting
The credit crisis effectively shut down credit
markets for all sources of real estate funding in
2008. While the tightness in lending standards
within the residential sector are well
documented, the same was true for the
multifamily sector. With a one to two year
construction cycle for an apartment
community, the lack of funding beginning in
2007 through 2009 dramatically reduced the
delivery of new units in 2010. The chart below
depicts new Unfurnished Apartment Units per
year since 2005. The average number of new
units delivered during that time was 122,000
per year with a peak in 2009 of 163,000.
The credit freeze resulted in the completion of
only 89,000 units in 2010 or a drop of 45%. As
the delivery of new units has declined from the
lack of available capital, the demand generated
from the collapse of the housing market
correspondingly began to increase.
Beginning in 2009, the demand for apartment
living began to improve primarily related to the
following factors:
Single family residential "Shadow
Inventory"
Demographic shift related to the Echo
Boomer generation
Positive perception of renting
Historically, rental demand has increased or
decreased for a variety of reasons. However, at
no time has there been an impact on
the scale of the housing crisis that has
and will continue to funnel former
homeowners into the rental market.
The sheer number of people entering
the rental market that were once
homeowners is staggering.
With depressed levels of existing and
new home sales, there has been
limited ability for distressed
homeowners to sell their home and
preserve their credit. Consumers with
unsatisfactory credit ratings are
proving to be a captive market for the
apartment industry considering they
will be unable to leave the rental market and re-
enter the homeownership world for an
extended period of time.
The impact of lower home sales demand and
high unemployment leads to a steady flow of

5. 62.5%
64.5%
66.5%
68.5%
70.5%
1990 1995 2000 2005 2010
single family residential foreclosures. High
foreclosures have dominated headlines and the
ongoing impact of "Shadow Inventory" has
been addressed as well. However, in order to
get a full understanding of the scope of the
"Shadow Inventory" and the potential impact
on the rental market, it is important to look at
the change in the Homeownership rate and the
number of distressed homeowners.
There is not one single factor that caused the
credit crisis and it could be argued that the
history of the credit crisis goes back several
decades. The goal of several presidents was to
increase the homeownership rate in the US to
fulfill the American Dream of homeownership.
The emphasis on increasing homeownership led
to modified, new and creative funding vehicles
ultimately increasing the homeownership rate
to the highest level on record. However, the
credit crisis quickly reversed the trend (as
reflected in the chart above) thereby
significantly increasing the demand for rental
inventory through the current economic
downturn.
In order to gain a historical perspective on
homeownership, the following bullets reflect
the change in the homeownership rate for
various periods of time along with some factors
that contributed to the changes:
1900 to 1940 - homeownership in the US
ranged from 43.6% to 46.5%
1940 to 1950 - homeownership increased
11.4 percentage points to 55% primarily
due to the return of World War II soldiers
encouraged by the GI Bill
1950 to 1975 - homeownership rate
increased 9.5 percentage points from 55%
to 64.5%
1968 - Government National
Mortgage Association (“Ginnie Mae”)
was created to provide assistance to
Fannie Mae. As part of President
Johnson’s Great Society reform, much
of Fannie Mae became a privately
owned, government-sponsored
enterprise (“GSE”) with authority to
issue mortgage-backed securities and
ensure that funds were available to
institutions lending money to home
buyers
1970 - Congress authorized
Fannie Mae to purchase conventional
mortgages and created Freddie Mac
1975 to 1997 - homeownership increased
slightly from 64.5% to 65.7%
1977 - the Community Reinvestment
Act (“CRA”) was signed and
encouraged lenders to issue
mortgages to unqualified (low-income)
borrowers
1989 - the Financial Institutions
Reform Recovery and Enforcement Act
(“FIRREA”) was signed and mandating
the public to release data regarding
banks’ adherence to CRA
1991 to 1993 - the number of single-
family home starts jumped 22.6%
1997 - Bear Stearns & Co. launched the
first publicly available securitization of
CRA loans (guaranteed by Freddie
Mac)

6. 1997 to 2005 - homeownership increased
1.8 percentage points from 65.7% to a peak
of 69.2%
After 9/11, the U.S. Federal Reserve
began cutting interest rates to
encourage borrowing and mortgage
rates dropped to their lowest level in
40 years
The injection of subprime mortgages
(loans generally to those with poor
credit) into pools of asset-backed
public securities and the introduction
of teaser rates on adjustable-rate
mortgages created a homebuilding and
home-buying frenzy
2005 to present - homeownership rate
dropped from 69.2% to 66.5%
March 2007 - the value of subprime
mortgages was estimated to be $1.3
trillion
2004 to 2006 - the share of subprime
mortgages relative to total originations
ranged from 18% to 21%, versus less
than 10% between 2001 to 2003
4Q 2008 - the Federal Reserve and the
US government pumped hundreds of
billions of dollars into the financial
system to prevent wholesale financial
panic. Freddie and Fannie, which
owned or guaranteed nearly all of the
$10 trillion in the U.S. mortgage
market, were placed in
conservatorship.
To put the recent homeownership rate decline
in perspective, with every 1.0 percentage point
drop in the homeownership rate, 750,000
households leave the home ownership market.
Since the peak in homeownership in 2005, that
means over two million households are no
longer homeowners fueling the drop in
apartment vacancy rates nationwide. A drop in
the homeownership rate, such as one that has
happened in the last few years hasn't happened
since the Great Depression and creates a source
of tenants that the apartment industry has
never experienced. The drop in the
homeownership rate is expected to continue
with some economists predicting the rate could
drop below 60% (5 million more homeowners).
The amount of "Shadow Inventory" in the US is
staggering and will provide a steady stream of
renters over the next few years. Again, this has
never been a primary source of business for the
rental industry. Since it is a new source of
tenants, it may be difficult to predict exactly
how many of these former homeowners will
rent apartments, but it is safe to say the
number is significant.
Given the significance of the "Shadow
Inventory," the charts on the next page are
provided breaking down "Shadow Inventory"
into the following three areas :
In Foreclosure and Bank Owned Inventory
Delinquent Loans
Underwater Home Loans
While "Shadow Inventory" will continue to drive
the dynamics of the single family market, it will
also impact the market for rentals. A portion of
all homeowners in a distressed situation will
likely feed the demand for apartment rentals
for the foreseeable future.
As a side note, sales of foreclosed or distressed
homes represent a third of all single family
home sales nationwide. In some markets,
buyers are only looking at homes that are either
short sales or foreclosures. The price for bank
owned or foreclosed homes has been a little
more than 30% below non-distressed sales
prices. The charts on the next page support a
significant number of distressed homes in the
pipeline. As mentioned, the apartment
industry has never had as many former
homeowners entering the rental market. As a
result, developers and property managers will
need to plan for this type of renter.

7. 1,500,861
1,487,696
570,503
> 30 Days Past Due
90 Days +
60 Days
30 Days
816,302
474,713
332,703
REO Default Auction
The charts to the right highlight the
"Shadow Inventory" with the first
chart reflecting the number of
homes currently In Foreclosure and
Bank Owned. There are about 1.6
million homes in this category and if
they haven't already started, a large
percentage of these people will
begin renting.
The next component of "Shadow
Inventory" is Delinquent Loans or
loans that are more than 30 days
past due. There are an additional
3.6 million homes in this category as
the second chart to the right
indicates. Combining the first two
categories mentioned, leads to a
total of more than five million
homeowners representing over
12% of all outstanding mortgages in
the country in a distressed situation.
A large portion of these
homeowners will sadly lose their
homes and become rental
candidates over the course of time.
A final segment adding to the
decline in homeownership is the
number of homes where the loan is
considered underwater. It is
estimated that 27% of US homes
with loans are considered
significantly underwater or 12
million more homes. Significantly
underwater homes are loans
where the loan-to-value exceeds
125%. Owners of these homes may
choose to walk away from their
house even if they can pay the
mortgage since they do not believe
the asset will appreciate.
Together, the foreclosed, bank
owned, delinquent home loans and
underwater loans represent a
significant stream of demand for
the apartment industry.
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8. 2,000
3,500
5,000
6,500
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
2,500
3,000
3,500
4,000
4,500
1970 1975 1980 1985 1990 1995 2000 2005 2008
The demographic profile of the US has been
undergoing a transformation in the last 50
years, and the apartment industry has
benefited. As the latest data from the Census
Bureau indicates, the US population has hit
308.7 million, an almost 10% increase from
281.4 million in 2000.
The biggest trend that preoccupies most
apartment companies today is the entry of the
Echo Boomers into the rental market. This is the
generation born between 1980 and 1995 and
they number 80 million. The number of Echo
Boomers currently exceeds the number of Baby
Boomers (77 million). The “best estimate” is
that there are about 15 million Echo Boomers
that will enter the prime renter age of 18 to 34
this decade.
The housing crisis has contributed
to a shift from the view that
homeownership is mandatory in
the US to a preference towards
renting. The financial impacts of
the credit crisis have expanded to
a psychological perception
favoring apartment rentals.
Primarily due to the credit crisis,
sales of existing homes have
fallen dramatically. Sales of
existing homes fell nearly 30%
since the peak in 2005 to about
4.3 million units in 2010 and a
third of those sales were distressed properties.
This drop in home sales is despite record low
interest rates which, as mentioned, effectively
stimulated housing demand after 9/11. It is
likely the demand for housing will continue to
be sluggish unless the employment picture
improves. However, with tight loan
underwriting standards, it is not likely the
growth in homes sales will return to levels
experienced in the period of 2001 to 2006.
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9. 534
667
877
1,283
323
1990 1995 2000 2005 2010
12%
63%
25%
Echo Boomers
Own
Rent
Relatives
An even greater indication of the
negative consumer perception
towards housing is the demand for
new homes. New home sales have
dropped from a peak of 1.3 million
in 2005 to only 323,000 in 2010 and
2011 is on pace with 2010 or
slightly lower. Current levels of
new home sales are the lowest ever
recorded (since 1963). This is
especially alarming considering the
growth in population in the last 50
years. The chart to the right shows
the reverse "hockey stick" trend in
new home sales since 1990.
The average new home sales per
year from 1990 to 1999 was
700,000 which increased to 1
million on average from 2000 to
2007. Some economists do not see
new home sales reaching the
1990's level for ten to 15 years.
Echo Boomers have watched their
parents get burned by the housing
crisis and, for the time being, are
not interested in jumping into long-
term commitments associated with
home ownership.
The Echo Boomer generation tends
to prefer urban versus suburban
living, wants to be in 24/7 cities, is used to
“college like” living quarters and does not have
enough savings or income to buy a home - all of
which supports a preference towards renting.
The Echo Boomer chart above shows the
housing choices for the Echo Boomer
generation. The majority - 63% - of the Echo
Boomers prefer to rent. With 80 million Echo
Boomers, the potential renters is significant and
their lifestyles are different from previous
generations. They will expect their residential
landlords to provide them with the lifestyle they
desire which includes:
Communal and collaborative areas
promoting social gathering
Green development
Simple and functional design
Technologically plugged in
Located in an urban core
Close to transit center and/or work
Near universities
Enhanced services providing assistance
with daily errands and chores

10. All indicators point to continued demand for
rental units nationwide. At this point, the
apartment sector continues to lead a generally
soft economic recovery. The forecast growth in
multifamily apartments is primarily the result of
the current credit/housing crisis and the
sluggish recovery in the housing market.
Combining the "Shadow Inventory" market with
general demographic changes from the impact
of the Echo Boomer generation and the
enhanced perception of renting, it is likely the
demand for apartments will be strong.
The following two charts reflect perceptions
about the apartment industry from surveys
conducted by the National Multi Housing
Council in July of 2011. The first chart supports
optimism with a sentiment towards ongoing
market tightness and strong institutional sales
volume. A reading in excess of 50 indicates a
positive outlook while a reading below 50
reflects a pessimistic outlook. Demand for
rentals turned around in 2009 and optimism
grew. The increase in consumer demand lagged
the rebound for apartment sales as institutions
recognized the forthcoming demand for
apartments and began purchasing properties
(also spurred on by distressed sales). All of the
demand factors previously mentioned have
impacted the apartment industry causing
increased sales, new construction and declining
cap rates.
As expected, demand for rentals has increased,
institutional sales of apartments have grown
and capital is available for apartments. The
chart on the next page shows the increase in
available debt and equity for apartments.
Consistent with the previous chart, a reading
above 50 indicates optimism and a reading
below 50 indicates pessimism. Note the dip in
the chart in October of 2008 when the reading
for both Equity and Debt was at a level of 4.
Equity financing appears to be more stable,
while debt financing has improved. However,
debt is less consistent than equity which is likely
due to the more stringent underwriting
requirements.
This data shows that investors are responding
favorably to the positive changes experienced in
apartment fundamentals and are once again
acquiring apartment properties for higher prices
than what was experienced during the
downturn.
0
25
50
75
100
Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11
Market Tightness Sales Volume Index

11. 50
100
150
200
250
300
350
400
Jan 1991 Jan 1994 Jan 1997 Jan 2000 Jan 2003 Jan 2006 Jan 2009
The demand for apartments and the
availability of capital has led to an
increase in multifamily construction
after experiencing a period of a virtual
standstill when the credit crisis began.
The chart to the right shows the drop
in Multifamily Housing Starts during
the credit crisis, but also reflects the
beginning of a sharp increase in early
2010 as investors and developers
were looking at the projected trends
in rental demand.
For the next three years, the
apartment industry will experience
significant expansion with new
projects planned and developed
moving the industry from one with excess
demand to a much more competitive
landscape.
To this point, the focus has been on providing
data supporting strong demand in the
apartment industry and attracting capital
leading to a rebound in new apartment
development. Due to the convergence of
strong demand from what historically has never
happened with the credit crisis ("Shadow
Inventory"), increase in the population of
apartment aged consumers (Echo Boomers) and
a psychological shift away from home
ownership to rentals, there is well deserved
optimism in the apartment industry. What will
happen next is the combination of demand and
available capital will lead to an expansion of
multifamily construction as developers attempt
to be the first one in position to capitalize on
the market. The question then becomes,' what
happens after next?'
0
25
50
75
100
Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11
Equity Finanancing Index Debt Financing Index

12. It is obvious to see that what happens next will
be a boom in apartment construction.
However, the real question is not, "What
happens next?" but "What happens after next?"
It will be important for developers and property
management companies to have some foresight
to recognize the amount of competitive product
that will be delivered and to have a plan in
place to compete head-to-head for a
prospective tenant that will have choices. Even
if a developer is successful with being the first
to complete a new community, when the first
renewal cycle comes, they will be faced with
the need to differentiate their product and
services from the new product that is delivered
across the street or in the same general
neighborhood.
According to the Sales Executive Council, the
two most important factors in renewing a lease
are the initial Leasing Experience and ongoing
Service Delivery. Given that soft assets and
human interaction play such a large role in the
long-term profitability of an apartment
community, why do some developers pull back
on creating a service based culture that begins
at hello and continues through every
interaction throughout the term of the lease?
In a tight rental market, prospective renters
seem to walk through the door and sign a
leasing application at the end of the initial tour.
The physical product does most of the selling
and the leasing agent's role is simply to tour the
prospective tenant around the property. On
the other hand, in a competitive market, the
amount of effort and planning necessary to
complete the initial lease-up of a building and
fill vacancies becomes much more focused.
Given the importance of the initial leasing
process in the overall success of a property both
at lease-up and at renewal, a thoughtfully
designed sales/leasing process will provide the
greatest opportunity for success.
The sales platform needed to succeed requires
a systematic and collaborative approach to
prospective and existing tenants. It is important
to understand that in today's world, word of
mouth is the currency of choice. Everything a
company does is open for review. It will be
important for the leasing team to speak the
same language that today's renters are
speaking in order to ensure positive reviews.
Today's renters are saying things like this:
"I am not a target; be real with me, be honest
with me, don't manipulate me."
"Friendship is earned not bought, I will like you
if you like me, I will follow you if you give me a
reason; friendship is good so give me the
reason."
In order to compete for tenants, prospective
tenants will do business with people they know,
like and trust. To establish a lifestyle and trust
based platform, all marketing materials should
be designed to accentuate the lifestyle that the
prospective tenants are pursuing. The following
traditional and digital marketing and sales
channels should be leveraged to implement a
message of connectivity and service:
Broker Programs
Print Advertisement
Signage
Digital Media
Social Media
Search Engine Optimization
Website Behavior Tracking
Lead Nurturing
Lead Scoring

13. Leasing offices should be designed to provide a
visual connection from the lifestyle oriented
marketing materials to the apartment
community and reflect the lifestyle that tenants
will have while living in the community.
Once the prospective tenants enter the leasing
office, they should get a sense of place and
quickly realize they have entered a comfortable
and trusting environment much like a setting
they would meet friends and family. To
compliment the marketing and visual
experience in the leasing office, the leasing
agent will need to execute on a structured sales
process designed to do the following:
Reduce tension
Establish trust
Identify tenant's lifestyle and living
expectations
Present product offering
Sign a lease application (if there is a fit)
The marketing and sales process should be
planned and delivered with a level of
professionalism that creates trust and leads to a
commitment (application) from prospective
tenants where there is a fit. In order to achieve
this level of professionalism, it will be necessary
to attract, hire, train and retain talented
professionals having the ability to interact and
relate to prospective tenants.
The value of the leasing agent is sometimes
overlooked when planning a new apartment
community or developing a proforma for the
property. However, the leasing team has as
much impact on the revenue and NOI of a
project as the type of appliances chosen or the
floor plan of a unit. If a professionally executed
structured sales presentation is implemented,
the economic value of the project in terms of
higher rents, enhanced retention and reduced
costs will likely pay off tenfold.
Many new rental communities in urban settings
have construction and development costs in
excess of $25 million. When looking at the total
investment of both capital and time, many
developers stop short of creating a world-class,
service oriented culture since most of the
emphasis is placed on design and construction.
The physical building and location play a key
role in attracting new prospective tenants;
however, the most important aspect of tenant
retention is how they are treated from the day
they move in until renewal time comes. It has
been said that you should do more after the
sale than you did to get the sale.
While services will vary from community to
community, the spirit of service should not
change. As was mentioned in the Leasing
Experience section, the service delivery model
should be structure and implemented by a
group of professionals who are passionate
about their work. A service mentality starts
during the recruiting process and becomes part
of the organization's culture. If done correctly,
prospective tenants and existing tenants will be
more likely to join and renew at higher rates.
The higher rates and enhanced efficiency will
more than cover the cost of hiring and training
a professional team. Additionally, satisfied
tenants will share their positive experiences
with others through their social networks
generating more leads and tenants at minimal
cost.
In the late 1990s and early 2000s, there was an
influx of branded hotels taking a leadership role
in the luxury condominium market. Well
respected names like The Ritz-Carlton, Four
Seasons, Rosewood and others entered the
condominium market. The simple concept was

14. to take a successful and well tested hotel based
service model and apply it to the condominium
market. The concept turned out to be very
successful and resulted in premium prices for
the developers and enhanced absorption.
While the concept of branded apartments may
not be the answer for the rental industry, the
service component of the branded
condominium model has strong application in
the apartment industry.
The Echo Boomer generation is interested in
maximizing their social time and does not
embrace tasks such as shopping, cooking,
running errands and other chores. Similarly,
former homeowners that are entering the
rental market as a result of the credit crisis have
grown up having services and while they may
be unable to purchase a full-service
condominium, they have not lost their
appreciation for service and quality.
At the top of the market, these services may
include items such as:
24 hour security
Valet parking
Periodic housekeeping
Personal concierge services
Grocery shopping
Restaurant food pick-up
General errand support
Pet services
Preferred vendor lists
Yoga studios (if not offered onsite)
Spa facilities
Restaurants
Wine shops
Car wash
Pet stores
Coffee shops
The list of services needs to be tailored to the
specific community and should be modified to
maximize benefits for each respective market.
While the list of services is important, the
success is based solely on the ability to execute
the service model with professionalism and
consistency. Similar to the Leasing Experience
model, the company's ability to attract, hire,
train and retain professionals that thrive in a
service environment plays a substantial role in
the outcome.
If properly implemented, the service delivery
model will become the foundation of the
culture within the community and rental rates
will be maximized and tenant retention will be
enhanced ultimately improving top line revenue
and NOI.
In summary, the primary point of this White
Paper is not to state the obvious that the rental
industry is at the beginning of an expansion
cycle, but to illustrate that the winners of this
cycle and the next cycle will win because of the
sales and service delivery model developed
today to support their properties in the future.
Said another way, it is not what happens next
that matters, it is what happens after next.

15. The last few years of economic hardship have devastated most sectors in real estate. The hardest hit of
all sectors has been single family residential. After an initial decline in the apartment industry following
the beginning of the credit crisis, investors began to see some positive indicators in the apartment
industry seemingly benefiting from the downturn in housing. As the forecast turned positive for the
apartment industry, occupancy rates improved and development capital followed.
The apartment industry is currently in an expansion phase with several new projects in the pipeline
throughout the US. As a result, it is likely this phase of expansion will be replaced with a competitive
market with developers and property managers competing head-to-head for the Echo Boomer market
and the former homeowners entering the rental market.
In order to be successful in a competitive market, it will be necessary to implement a sales and service
delivery model that tenants will value. Consequently, any project that is being considered, planned or in
the construction process should have a business model in place in order to compete within the
apartment industry. Once the model is set, effective implementation will be required beginning with
attracting professional talent who passionately embrace the sales and service culture. The professional
team will need to work in a structured environment supported by high standards and regular training.
If a comprehensive sales and service model is effectively planned and implemented, rental revenue will
be maximized, costs will be reduced and the project will compete favorably in a competitive market.
References
Housing Bust Worst Since Great Depression, NPR, October 6, 2011
Quarterly Survey of Apartment Market Conditions, National Multi Housing Council, July, 2011
US Census Bureau
2011 National Apartment Report, Marcus & Millichap Real Estate Services
Future of Apartment Living, CEL & Associates, Inc., June of 2009