August 08 Ciaa Newsletter

“Our Profit is Your Success”

August 2008

An Affiliate Of

2nd Annual Golf Outing The second annual CIAA Golf Tournament was held on Friday, July11. To the delight of the members that participated and the vendors who sponsored the event, it was a huge success. There were 100 golfers, allowing Toad Valley Golf Course to shut down the course and make it a private affair for our members. Over 25 vendors sponsored the event in some way by either sponsoring golfers, hole sponsorships, beverage donations or just plain volunteering their time. The outing started at 12 noon and kept golfers amused and on their toes as they played the course. Unforgettable holes are not limited to, but certainly worth mentioning were: the drive through tunnel tent with Glen Waterhouse from State Farm, the big screen TV, music, videos and “Lemonade” served by ICS Advanced Technologies, and the Ring Toss game and hospitality at hole number one, hosted by the gals from Reliable Construction. There were over 35 giveaways including $400.00 cashola from Stew Hansen’s. Cash prizes were awarded to the top foursome in three flights. Top Prize went to the Stew Hansen team anchored by Jeff Crawford. Curious though if all the tee-offs from the Dixie cup counted? Brad Janssen from AQ Pest managed a hole-in-one; unfortunately it wasn’t on 16, so the new car prize donated by Stew Hansen’s will have to wait yet another year.

Upcoming Events General Membership Meeting Wednesday - August 13th Airport Holiday Inn “How to Succeed at Business and Still Have a Life” Registration Attached

Vendor Council Date TBD Chicken Coop, WDM Trade Show

Dinner was awesome with steaks done to perfection.

“Luau at the Pool”

On behalf of Tom Newton and Mary Spain, Vendor Council co-chairs, thanks to everyone that made this an awesome day. Special thanks to Furniture Options and AQ Allstate Pest Control for managing the registration desk and raffle. Other vendor sponsors not already mentioned include:

October 23 Airport Holiday Inn

Apartment Finder, Dewitt Painting, Cort Furniture Rental , A+ Lawn and Landscaping, First Advantage SafeRent, Gorman Roofing, Qwest, Sudzys Carpet Care, TubWrx, On The Spot Carpet Care, Des Moines Register/Apartments.com, Jetz Services, Stitzell Electric, Sherwin Williams, and RealPage.

and

We look forward to the event next year.

Inside Your Newsletter: • • • •

Committee Updates 2008 CIAA Board Members Letter from the President June Meeting Highlights

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New Members

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Vendor Spotlight - Tub Wrx

Promotions, Positions, and Postings Vendor Listings

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Golf Outing Pics August Meeting Registration NAA Connect NAA Special Reports Trade Show Preview

Winter Social Maintenance Olympics December 10th Airport Holiday Inn

Committee Announcements Legislative Committee This issue contains two special reports from NAA. The first report outlines how the recently passed housing bill is a victory for the apartment sector. The second, “Selected Economic Impacts on the Multifamily Housing Industry”, deals with current issues affecting our industry such as the housing market slump and subprime mortgage crisis among other factors. It was authored by Scot Haislip, NAA State and Local Policy Advisor, Scot addressed the CIAA membership at a meeting earlier this year. Be sure to check out these enlightening reports!

Membership Committee Do you know a vendor or property that may be interested in joining the CIAA? We have prepared a welcome packet that explains the benefits of CIAA and NAA membership. Contact any member of the Board of Directors if you are interested in obtaining these materials to share with a non-member. All board members have committed to help increase our membership and will gladly visit a community to present this information.

Vendor Council We will begin planning the Trade Show at the next Vendor Council meeting. Watch your email for the date and please plan on attending this very important meeting.

Vendor Trade Show ~ October 23rd ~ Airport Holiday Inn Winter Social and Maintenance Olympics ~ December 10th ~ Airport Holiday Inn

2008 Board Members and Committees President

Rick Koontz, Signature Place

Past President

Melissa Johnson, Olde English Village

Vice President

Education Committee Chair Mary Spain, Apartment Finder Legislative Committee Chair Rick Koontz, Signature Place

Jennifer O’Brien Konior, TAB Properties

Treasurer Lori Young, BH Management Secretary

Heather Benton, Bridlewood Apartments

Vendor Council Co-Chairs

Tom Newton, Gorman Roofing Mary Spain, Apartment Finder Page 2

Membership Committee Chair Position currently vacant Public Relations Committee Chair Jennifer O’Brien Konior, TAB Properties Trade Show Committee Chair Meredith Goodwin, Triple Crown

A positive attitude may not solve all your problems, but it will annoy enough people to make it worth the effort. Website: www.ciaahq.org

Letter from the President “It’s a cruel, cruel summer…” Well, perhaps not this one. We’re finally starting to see the positive effects of the housing crisis in the rental market; a more level paying field if you will. Occupancy is up, concessions are down. The soft rental market lasted so long that many professionals in our industry have settled into always having specials and offering concessions to keep occupancy up. Now is the time to really test your “teeth” by getting rid of those concessions and specials and increasing your rents. I recently spoke to an independent owner who told me he had a long wait list for his houses. After some discussion, he concluded that he has been keeping his rents low and now needs to raise them. In doing so he will be able to make necessary improvements to assure the health of his investments. We’ve had a rough ride for many years , but appearing, albeit slowly, is a light on the horizon. Our market seems stable compared to others across the country. Now may be the time to become a little more aggressive. Slow growth is the safest growth. Don’t jump too hard, but don’t hold back on the possibility of growing your own economy. Believe in your product , believe in your people, and believe in your talent. To quote Ralph Waldo Emerson - “Do not go where the path may lead, go instead where there is no path and leave a trail.” Happy Trails, Rick Koontz, CIAA President Signature Place Apartments

June General Membership Meeting Over 80 members were in attendance to hear Scott Moore discuss Fair Housing from a different point of view. Scott enlightened us with cases regarding Fair Housing violations and how they can and should be defended. Testing isn’t always equitable and before caving to pressures from agencies regarding alleged violations, make sure your documentation is in order. Discrimination in any form is simply wrong, but many companies have been wrongly accused and have been proven completely innocent. Although discrimination does occur, it is not prevalent. Making sure your employees are formally trained in Fair Housing laws will protect you and your company against unfair and unfounded accusations. CIAA offers accredited Fair Housing training; you can contact Mary Spain for more information on classes. Scott is available for consultation on Fair Housing violations. His contact information is as follows: Scott P. Moore, Baird Holm LLP, 1500 Woodmen Tower, Omaha, Nebraska 68102 Email: [email protected] 402.636.8268 Direct Dial Phone 402.344.0588 Direct Dial Fax

Make the most of your membership Join a Committee!

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Welcome New Members Welcome to our new Members and Vendor Members. It is a honor to have you join our growing organization.

New Vendor Members

New Property Members Metro Realty Advisors

Shelton Painting

Artisan Services, LLC

Hard Tops of Des Moines

Promotions, Positions and Postings Knapp Properties welcomes back Janie Richmond who is managing Brookside Condos, and Pete Marks who is managing Park West I & II. Sue Yates, currently managing Diamond Brooke and Ashworth Apartments is now also managing Woodland Place. Doug Robison of The Peterson Companies has earned the NATE certification from North American Technical Excellence for HVAC systems. Congratulations Doug! Michelle Maher joined Furniture Options in June. If you were at the golf outing, you probably met Michelle at the registration table. Michelle is new to the apartment industry and the furniture rental business, but she carries an extensive customer service background. Please join Furniture

Options in welcoming Michelle aboard when you see her visiting your properties. TAB Properties would like to congratulate the following employees on their recent promotions: Jenna Taylor and Melissa Bishop are now District Managers, leading the leasing and management teams for our properties in the Des Moines area. Tom Birnbaumer and Denny Messenger are now Maintenance Supervisors for the Des Moines properties. And last but certainly not least, Don Stephens is our Maintenance Manager over all maintenance activities in IA, NE and SD for TAB. Huge congrats to everyone! TAB Properties welcomes Missy Rude, Jessica Jones and Nicole Gering as leasing consultants in Des Moines.

GROUNDSKEEPER West Des Moines

The Peterson Companies are currently hiring for a Groundskeeper for their West Des Moines locations. Apply in person at Olde English Village, 1201 Office Park Road, West Des Moines.

Work (wʉrk): Employment, as in some form of industry, esp. as a means of earning one’s livelihood

Please send new hires, promotions, and job postings to [email protected] for inclusion in the newsletter Page 4

Email: [email protected]

Vendor Spotlight TubWrx TubWrx specializes in bathtub resurfacing. Resurfacing a tub can cost as little as 20% of replacement. The coatings and technology they use are the most advanced in the industry. While resurfacing has been done for decades, advancements in the last few years have increased both the look and durability over older technologies. As a tub gets older, protective coatings wear off and pores are exposed, making the tub difficult to clean and dirty-looking. In fact, the harder you scrub, the more protective coating wears off. Our exclusive resin process fills in those pores, causing the dirt to sit on the surface rather than in pores, making it simple to clean with a non-abrasive cleaner. The biggest reason our customers come to us is to improve the look of their rentals. Since the cost of resurfacing is a fraction of replacement, you can typically resurface 5 tubs for the price of a single replacement. And don’t worry - scratches, nicks, dents and holes can all be repaired! Most jobs can be done in less than a day; we typically reglaze two tubs in a day. Give Rocky Sposato a call today! TubWrx 2432 SW 9th Des Moines, IA 50320

Office: 515.232.4453 Fax: 515.244.7661 Email: [email protected]

Tub Repair and Refinishing

Need a Vendor? Call a Member First! A+ Lawn & Landscape

Goalsetter Systems, Inc.

Sherwin Williams

A.Q. Allstate Pest Control

Gorman Roofing Services

Snider Lawn Care

American Family Insurance

Hard Tops of Des Moines

State Farm Insurance

Jared Frank Agency

ICS Advanced Technologies

Glen Waterhouse III

Apartment Finder

Jetz Service Co.

Stew Hansen’s Dodge City-Jeep

Big Green Umbrella Media

Johnstone Supply

Stitzell Electric Supply Co.

Bragg Handywork

Lawns Plus

Sudzy’s Carpet Cleaning

Carpet Pro by Baker Interiors

Marsden Building Maintenance

Tenant Data

Nationwide Office Care

Tub Wrx

Cort Furniture Rental

On the Spot Carpet & Tile

Waste Connections

The Des Moines Register

Performance Leasing

Waste Management

DeWitt Painting

Phillips Floors

Diamond Vogel Paints

Qwest

First Advantage SafeRent

RealPage, Inc.

All Vendor Member contact

Furniture Options

Reliable Construction

Gallon, Inc.

Shelton Painting

information can be found on the CIAA website:

To Become A Vendor Member Contact: Tom Newton at 515-883-0838

www.ciaahq.org

[email protected]

If you would like featured in our Vendor Spotlight contact: Rick Koontz at 515-226-2100 [email protected]

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Golf Outing Fun

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Membership Meeting Registration August 13th, 12 Noon Airport Holiday Inn, Fleur Drive This month we will be presenting an audio/slide show presentation from the 2008 NAA Education Conference: “How to Succeed at Business and Still Have a Life” Speaker: Larry Mersereau Brace yourself for a swift kick in the cant’s! Yeah, it’s one dog-eat-dog world out there. But somebody’s going to get ahead, and it might as well be you. In this session you will: • • •

Apply Larry’s Three Dimensions of Success to any and all endeavors: Projects, Marketing Programs, Exercise Programs, Career Growth, Family…it’s a simple outline to help you accomplish more, no matter what you’re after. Identify key success factors for your career and life. There are always a few things that, if you do them right, will make everything else fall into place. You’ll be able to spot them and use them to your advantage from now on. Define what motivates people: Renters, employees, coworkers, family…yourself and how to get maximum performance in any situation.

Cost: $17.75 for buffet lunch - Fajita Bar Lunch includes fajitas, rice, beans, chips & salsa, and churros

Bring checks payable to CIAA or exact change PLEASE REGISTER EARLY TO ASSURE ENOUGH SEATING FOR EVERYONE Fax your reservations to Mary Spain at (515) 327-9104 No later than 12:00 pm on Monday, August 11th Registration Form: Name:

Name:

Name:

Name:

Company / Property Name: Address: Phone:

City: Fax:

Zip Email:

Connect With NAA GRIGIO Tempe Town Lake Named PARAGON Awards’ Community of the Year B y M i c h a e l To m p k i n s , C A P S , C P M , C C I M 2008 National Apartment Association Chairman of the Board Julian LeCraw & Co.

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RIGIO Tempe Town Lake, by Gray Development Group, received the 2008 NAA PARAGON Award for Community of the Year during a ceremony June 28 in Orlando, Fla. The luxury community in Tempe, Ariz., grabbed the top honors. It also was named Best Mid/High Rise Community, Post 2000 – Over 150 Units. In recognition of the multifamily housing industry’s top executives, employees, affiliate programs and communities, NAA’s presented its annual PARAGON Awards during the NAA Education Conference & Exposition held June 26-28 at the Gaylord Palms Resort & Convention Center in Orlando, Fla. GRIGIO Tempe Town Lake embodies a new luxury lifestyle experience known as “contemporary living,” inspired by the five-star service of the world’s most celebrated resorts. GRIGIO, which means “gray” in Italian, consists of 523 residential suites in five buildings with climate-controlled interior corridors, located on eight acres of lakefront property. Greater details about each winner and the Community of the Year will appear in the September 2008 issue of units magazine. I encourage you to check the NAA Web site for details on how to enter the 2009 PARAGON Awards competition.

The NEW www.naahq.org It’s official. NAA has launched the redesigned member Web site at www.naahq.org. With the help of NAA members, affiliate association staff and volunteer leadership, NAA was able to determine what information its members sought the most. After compiling results from a member satisfaction survey, assembling a Web site working group and soliciting members’ feedback via a Web usability survey, NAA now proudly presents the industry’s most comprehensive apartment industry Web site. Top 10 Reasons to Visit the NEW www.naahq.org 1. A New Look. The site has received a facelift! After some

pinching, pulling, lifting and tweaking, we are looking sleeker, more colorful and more attractive overall. This improvement is more than skin deep—the new site is easier to navigate, friendlier to operate and full of cool new features. 2. Enhanced Search. Type a keyword into our new search engine and get accurate, relevant results in seconds. Find units articles, government issues updates, e-newsletter archives, economic data, NAA program information and more—all at the touch of a button. 3. Affiliate Web Site Links. Can’t find it on our site? The search box allows you to perform a search of NAA Affiliates’ Web sites to expand your results and find exactly what you are looking for. 4. Tremendous Content. The new www.naahq.org features more than 400 units magazine articles, 250 timely and relevant government affairs issues, NAA Education Institute designation information and enrollment, career opportunities, online registrations for all NAA events and so much more. 5. MemberExchange. Share your best practices, marketing material examples and other documents with other members. 6. IROExchange. Share best practices, marketing material examples and other documents with other independent rental owners. 7. Alerts. Sign up to receive notification in your e-mail inbox that new content has just been added to the Web site, the moment it is posted! 8. RSS Feeds. Don’t want more e-mails in your inbox? These feeds allow you to see the newly added content at a glance, in one place and on your own time. 9. Article Rating and Feedback. Let other members—and NAA—know what you think of our information. Post comments about any articles on the site and give them ratings, up to five stars. 10. Log-In Help. Need help logging in? Your NAA User ID can be found in the upper left corner of your units magazine address label. Retrieve your password online, or contact NAA directly at [email protected]. Web Editor’s Note: Each month in units magazine, greater details will be provided on these and other features or enhancements on the new www.naahq.org.

HOUSING BILL REPRESENTS VICTORY FOR APARTMENT SECTOR The housing bill passed by Congress and signed into law by President Bush represents a tremendous victory for the apartment industry and NAA/NMHC’s Government Affairs program. The bill has been one of our top priorities this year, and we are happy to report that as a result of our aggressive multi-month campaign, the final legislation represents a balanced approach to housing policy and includes several important victories for the apartment industry. Homeownership Incentives Trimmed Most importantly, NAA/NMHC successfully convinced lawmakers to significantly trim a number of homeownership incentives included in earlier versions of the legislation. Even where the bill does create new homeownership incentives, such as a one-year standard deduction for property taxes paid by non-itemizers, it pays for it by eliminating some tax breaks currently allowed for owners of second houses. •

FHA Zero Down Rejected. The final bill ends a multi-year effort by the Bush Administration to create a federally insured zero-downpayment program. Instead, the final bill actually raises the FHA downpayment requirement from 3.0 percent to 3.5 percent.

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Seller-Financed “Charitable” Downpayments Banned. The measure also bans seller-financed downpayment programs, such as the ones offered by Nehemiah Corp. and AmeriDream NAA/NMHC have long opposed these programs because of abuses in the program. The FHA has twice attempted to ban the programs through regulatory action, noting that they produce loans that are three times as likely to go into foreclosure. Such seller-assisted loans now account for a third of the agency’s portfolio.

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Homebuyer Tax Credit Trimmed Significantly. Lawmakers also wisely rejected calls for a $15,000 tax credit for people who buy foreclosed houses. NAA/NMHC joined critics from the right and the left arguing that such a credit would have likely increased foreclosures, accelerated housing price declines and done nothing to increase housing demand. Instead, the final measure includes a temporary $7,500 tax credit for first-time home buyers, which we believe will have a limited impact on the housing market or apartment demand because of the way it is structured; it is only available to households below certain income levels, it must be repaid, and it expires July 1, 2009.

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Miscellaneous Provisions. A controversial change to net operating loss (NOL) tax laws that was heavily criticized as a giveaway to the home building industry was also dropped, and a $15 billion grant program to states to buy foreclosed properties and rent or sell them was trimmed to just $4 billion.

Rental Housing Provisions Included In addition to trimming back the homeownership incentives originally proposed, the bill also expands and improves the Low-Income Housing Tax Credit program (LIHTC) and temporarily increases the tax-exempt privateactivity bond cap for multifamily and mortgage revenue bonds by $11 billion for 2008. The package also includes comprehensive GSE reform, an NAA/NMHC priority for more than six years that took on new urgency as investor fears over the financial health of the GSEs forced legislators to expedite passage of the measure and add new provisions to the measure to provide a federal backstop for the enterprises. Thanks to NAA/NMHC’s efforts the bill does not contain onerous provisions included in earlier versions that would have severely restricted the GSEs’ ability to purchase multifamily loans. Finally, the package also incorporates language from the REIT Investment Diversification and Empowerment Act of 2007 (H.R. 1147), which is designed to change tax law to allow REITs to better compete with other real estate companies in domestic and international markets. A detailed summary of the final measure is posted at http://tinyurl.com/5myq7d. Throughout our lobbying effort on this bill, NAA/NMHC urged Congress to rethink our housing policy in light of the foreseeable and preventable single family meltdown and to adopt a more balanced housing policy that encourages a vibrant rental market along with a functioning ownership market. We will continue to work with Congress to enact a more balanced housing policy that better meets our evolving housing needs and preferences.

Selected Economic Impacts on the Multifamily Housing Industry Authored by: Scot Haislip, NAA State and Local Policy Manager July 30, 2008 Alan Greenspan, ex-Chairman of the Federal Reserve, stated his belief that the current financial crisis occurring in the United States is likely to be judged as the most wrenching economic event since the end of World War II. On the other hand, Mark Zandi, chief economist at Moody's, and other eminent economists have stated policymakers will act in a concerted and aggressive way, stabilizing the financial markets over the next several months, allowing for a brief economic downturn, but that a long and harsh recession will not take place. Numerous factors have been cited for influencing the current economic situation including record gasoline, natural gas, and electricity prices, the historic weakness of the U.S. dollar, the sub-prime mortgage crisis, the stock market downturn, among others. The bursting of the housing market bubble and ensuing sub-prime mortgage crisis have caused panic in worldwide financial markets and encouraged investors to withdraw their investments in high risk mortgage securities and equities which they have replaced with investments in commodities as "stores of value." This movement of capital has triggered a liquidity crisis in the world financial markets which in turn has created a continuously cascading downward effect on other sectors of the national economy. A liquidity crisis places downward pressure on economic growth because fewer or more expensive loans cause a decrease in investment by businesses and lower consumer spending. Therefore, the purpose of this document is to give a snap shot of the current situation in certain sectors of the U.S. economy and in turn, how developments in those economic sectors may affect the multifamily housing industry both economically and politically. Housing Market Slump The U.S. homeownership rate peaked in 2004 at an all time high of 69.2 percent; this was up from 64 % in 1994, which was approximately where the rate had been since 1980. In a corresponding trend between 1997 and 2006, the average American home price increased by 124 percent. This large expansion of homeownership and escalation in home prices was due in part to the creation of the sub-prime loan market and record low interest rates resulting from loose fiscal policy at the Federal Reserve. Fueled by these low interest rates, homeowners used increased property value to refinance homes with even lower interest rates and take out second mortgages which were used to fund consumer spending. This expanding housing bubble abruptly burst in several U.S. markets during late summer 2005, and as of summer 2006 several markets were facing the issues of ballooning inventories, falling prices and sharply reduced sales volumes. Overbuilding during the boom period, increasing foreclosure rates and unwillingness of many homeowners to sell their homes at reduced market prices have significantly increased the supply of owner-occupied housing inventory available. As of January 2008, the average inventory of unsold new homes stands at a 9.8 month supply across the country based on December 2007 sales volume, the highest level since 1981. Further, a record of nearly four million unsold existing homes are available for sale. The bursting of the housing bubble and the resulting increase in home foreclosures were key factors in bringing about the sub-prime mortgage crisis discussed in the below section. Because multifamily housing rents have not fallen as much as home prices, perhaps the most direct economic effect the apartment industry has seen as a result of the housing bubble burst is the emergence of a shadow rental market. Within this market, single-family and condo units that were formerly owner-occupied are now being occupied by renters. This additional competition not only affects the apartment industry in terms of direct competition for occupancy, but also due to the fact that as residents now have additional rental options, many U.S. markets simply will not bear rent increases.

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Taking into account the shadow market effect, analysts have predicted a low 2.2 percent average rent increase for 2008. However, in several areas such as Las Vegas, Phoenix and Miami where there is an overabundant amount of rentable shadow market property, rents can be expected to decline 2 to 3 percent. Due to the negative effects the shadow rental market is having on the multifamily housing industry, one may expect that the industry would support the housing stimulus package President Bush signed into law July 30th. However, that package could turn out to be a double-edged sword for the apartment industry. The housing stimulus package as enacted includes tax credits for the purchase of owneroccupied housing; this will hurt the industry as some renters will chose to purchase a house, however, some of the units purchased will be shadow market properties, thereby benefiting the industry. Therefore, the degree to which this stimulus package may benefit the multifamily housing industry will partially depend on the exact magnitude of the number of current renters who shift from apartment renting to single-family home ownership. Additionally, the industry may benefit from the following provisions of the package: expansion and improvement of the Low-Income Housing Tax Credit program, temporary increases to the tax-exempt private-activity bond cap for multifamily and mortgage revenue bonds, raising the FHA down payment requirement from 3.0 percent to 3.5 percent and comprehensive GSE reform. At the state and local government level the housing slump and general economic slowdown has had a major impact on the general revenue streams of 38 states, due to lower real estate transfer and sales tax receipts. Eighteen of these states have announced anticipated budgetary deficits in 2008, while twenty three states have announced anticipated shortfalls for FY 2009. This lost revenue will need to be replaced through other revenue streams. While lawmakers traditionally are loathe to raise taxes, it is unlikely that this fiscal situation can be resolved without some form of tax increase or restructuring. States and localities may choose to follow the examples of Ohio, Michigan and others who have increased or implemented new sales taxes. Of particular interest to the industry are taxes on previously untaxed services such as leasing apartments and apartment management services. In addition to the problems caused by the housing bust, states are also trying to find funding sources for infrastructure and transportation costs. Local governments may seek more taxing authority from the state governments to pay for such things. Sub-prime Mortgage Crisis During the housing boom many homebuyers, primarily those with sub-prime credit ratings, took out adjustable-rate mortgages (ARMs) which allowed buyers to purchase owner-occupied housing with low interest rate introductory periods. As the Federal Reserve Bank exercised a monetary contraction policy in 2005, many homeowners were stunned when their ARMs began to reset to much higher rates. As interest rates reset higher many homeowners’ monthly mortgage payments jumped far above what they were able to pay. Some homeowners began to default on their mortgages and the cracks in the U.S. housing financial markets began to appear. In March 2007, the United States' sub-prime mortgage industry collapsed due to higher-than-expected home foreclosure rates which had been mounting since 2005. The U.S. mortgage crisis has seen at least 100 mortgage companies shut down, suspend operations or sell off assets since the start of 2007. As of May 2008, financial institutions have recognized sub-prime-related losses or write-downs exceeding $387 billion. Profits at the 8,533 U.S. banks insured by the FDIC declined from $35.2 billion in the fourth quarter of 2006 to $646 million (89 percent) during the fourth quarter of 2007. Because of the global economy, and the huge sub-prime "pool" of mortgages that was bought by investors world wide, the International Monetary Fund (IMF) anticipates that the worldwide losses stemming from the US sub-prime mortgage crisis could run to $945 billion. In the period leading up to the sub-prime crisis many mortgage lenders had passed the rights to mortgage payments and related default risk to third-party investors via mortgage-backed securities (MBS). As the housing market slowed, corporate, individual and institutional investors holding MBS faced significant losses as the value of the underlying mortgage assets declined. As a result, investors began moving capital from riskier MBSs and stocks to safer investments, not as likely to lose their value, such as commodities. This mass exodus of capital from the world financial markets is consistent with a credit crunch, when combined with the massive monetary losses of financial institutions this has caused lenders to reduce lending activity or to make loans at higher interest rates. Similarly, the ability of corporations, in particular real estate companies, to obtain funds through the issuance of commercial paper has been affected. For this reason the multifamily housing industry should expect it to be harder and costlier to obtain both short and long term financing at least for the next several months. For some firms this may mean delaying planned projects. On the political front the government has responded to the sub-prime crisis in several ways. The Treasury Department and the Federal Reserve have implemented several new regulations on the banking industry that require the raising of lending standards. Further, for the first time in its history the Federal Reserve has directly bailed out a Wall Street firm as it financed the buyout of the struggling Bear Stearns. Additionally, many policymakers are touting the housing stimulus

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package mentioned above as a means of stemming more home foreclosures. A large piece of the stimulus package is also directly aimed at assisting and reforming Fannie Mae and Freddie Mac, the Government Sponsored Enterprises (GSE) that have seen their finances crash as a result of the subprime crisis. As a positive to our industry, the GSE piece of the legislation does not contain onerous provisions that were included in earlier versions that would have severely restricted the GSEs’ ability to purchase multifamily loans. Energy Crisis An energy crisis is any bottleneck in the supply of energy resources to an economy. A crisis can develop due to industrial actions like union organized strikes, government embargoes, supply shortages and ageing infrastructure. In terms of energy economics, the single largest factor currently driving high prices is the global supply for such goods as oil, natural gas and electricity in no way matches the current global demand. This is due to the increasing industrialization of previously undeveloped economies such as China, India and Brazil which are consuming massive amounts of energy resources that were previously available for use in the United States. This trend is expected to continue for the foreseeable future until alternative energy sources and green-friendly technology become more readily available. With regards to the energy crisis, the apartment industry is most directly affected by prices in the natural gas and electricity markets. Many figures in North America have spoken publicly about a North American natural gas crisis including former Secretary of Energy Spencer Abraham and Alan Greenspan. The natural gas crisis is typically described by the increasing price of natural gas in North America over the last few years, because of the decline in indigenous supply, the increase in demand for electricity generation and increased demand in overseas markets. Indigenous supply in the U.S. fell from 20,570,295 MMcf (one million cubic feet) in 2001 to 18,950,734 MMcf in 2005, this caused prices to peak that year at 15.37 per million British Thermal Units, however, prices still remain high when compared to historical data and continue to spike in reaction to changes in global supply and demand. Several policymakers have suggested that a solution to the natural gas crisis is the import of liquid natural gas. However, the recent record low exchange rate for the U.S. dollar has made it relatively expensive to buy foreign natural gas in bulk. For this reason, natural gas prices rose 19 percent in 2007. Further, increased demand from overseas markets such as China and Japan are expected to continue to drive prices higher for the foreseeable future. In a process parallel to the deregulation of natural gas markets, a retail electric market has developed as a result of end-use customers being able to choose their supplier from competing electricity retailers (utilities traditionally are regarded as “providers of last resort”.) However, notwithstanding the favorable light in which market solutions are viewed conceptually, if electricity prices were to move to the levels needed to incentivize new merchant (i.e., market-based) transmission and generation, the costs to consumers would be politically difficult. A separate issue effecting electricity markets is whether consumers face real-time pricing, prices based on the variable wholesale price, or a price that is set in some other way, such as average annual costs. In many markets, consumers do not pay based on the real-time price, and hence have no incentive to reduce demand at times of high (wholesale) prices or to shift their demand to other periods. Thus, the experience with the introduction of wholesale and retail competition has been mixed. Many regional markets have achieved some success and the ongoing trend continues to be towards deregulation and introduction of competition. However, major failures such as the California electricity crisis and the Enron scandal have caused a slow down in the pace of change and in some regions a move towards re-regulation and reduction in competition. This trend is widely regarded as a temporary one against the longer term trend toward more open and competitive markets. As demand for energy resources continues to soar worldwide and supply of those commodities remains stagnant or declines, the multifamily housing industry should expect energy prices to continue to rise, at least in the short run. Property managers/owners should expect higher energy bills for maintenance of common areas and those firms who do not sub-meter utilities to residents’ units will see profit losses due to spikes in utility costs not figured into established rents. Additionally, as energy prices persistently increase, property owners should expect this escalation to exert inflationary pressures on the prices of goods and services throughout the economy in general. This inflationary effect may lead to added expenses for such wide ranging basic apartment industry supplies as paint and landscape maintenance, just to name a few. Politically, in response to the energy crisis, the principles of alternative energy and sustainable living movements have been gaining popularity. The apartment industry can expect governments to continue to respond to the energy crisis by implementing green/sustainable building standards (possibly requiring the retrofit of green technology), mandating sub-

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metering of utilities and imposing energy consumption taxes such as “carbon taxes. Even as the green building movement is nearing a tipping point, the movement and its associated techniques and technologies are still largely in their infancy. This being the case, green technology is still relatively expensive to implement when compared to methods currently being used. Green technologies are likely to remain more costly than standard building technologies for the foreseeable future, and therefore largely unemployed in apartment communities, and will remain so until the concerns of the multifamily housing industry regarding their use are addressed. First and fore most of these concerns is, that many facets of green policy and technology, such as retrofitting, remain impractical to implement from a business perspective or have unexpected negative consequences when the technologies are employed, thereby negating their practical usefulness in apartment communities. Only when these practicality issues are addressed and green technologies become more apartment industry friendly, will multifamily properties begin purchasing green goods in large enough quantities to draw larger amounts of investment capital to their makers to allow for economies of scale to take place in the field thereby lowering prices. Therefore, as more governments begin to adopt mandatory green building policies, the prudent multifamily housing firm will want to budget for these extra expenses until such time as green technology prices drop. Sprinkler-Based Fire Suppression System Retrofitting The general downturn in the U.S. economy has been accompanied by a marked slowing in new building construction. This construction slowdown has considerably cut into the number of available job contracts for many local construction unions. One reaction to this decrease in the number of employment opportunities has been the recently resurgent, and well funded, efforts of the United Association of Plumbers and Pipefitters Union and sprinkler system manufacturers to persuade state and local government agencies to mandate sprinkler system retrofits in apartment communities. Statistics prove apartment communities are already safe places to live, however, if the union is successful in getting these mandates passed, the outcome will be costly for the multifamily housing industry. Safe estimates from within the industry place the cost of completing a sprinkler retrofit project for a multi-floor apartment community in the area of $30 or more per linear foot installed. In 2007, the industry witnessed the Pipefitters’ Union press for a statewide sprinkler retrofit regulation in New Jersey. The New Jersey Apartment Association estimated that in order to complete the required retrofitting the cost to the industry in that state alone was approximately $2.5 billion. Very few rental markets could bear the rent increases necessary to cover the cost of such a program. Thus, the effect of such retrofit policies in many areas would be a contraction in affordable housing levels as apartment communities would go out of business due to no return on investment. The apartment industry should anticipate that the union will continue to push its retrofit agenda wherever and whenever it senses the opportunity to do so until new construction project starts have returned to normalcy. However, it should be noted that even a return to normal new construction start standards may not guarantee an end to the union’s push for retrofitting, as it knows government mandated sprinkler retrofitting will result in more jobs and clear economic gain for its members. Conclusion The apartment industry at this time is stable, with the exception of a few markets scattered across the country; but due to the factors discussed above and the general slowing of the U.S. economy, multifamily housing properties could experience operational difficulties and lower profits while both the government and the market work through current issues. While these conditions will cause short term industry financials to not be as bright as we would like, all is not lost as long-term projections for the industry are very good. Assuming there are no further shocks to the financial system, analysts predict that the credit crunch may begin to ease as early as the end of the summer. This return of liquidity to the market will benefit the multifamily housing industry by allowing consumers and investors to once again begin purchasing the excess supply of owner-occupied housing that is currently comprising the shadow rental market, thereby relieving pressure to keep rents low, as well as lowering interest rates, making it once again more affordable to finance planned projects. All things remaining the same, optimistic analysts are predicting the industry could see a return to normalcy within 9 to 12 months, while others are using an 18 to 24 month timetable. On an even longer timetable the multifamily housing industry may be in the best position it has ever been, as new resident markets could open in the next 5 to 10 years. Such markets will include student and privatized military housing, as well as the retiring Baby Boomer generation as they look to downsize from single-family homes to smaller more easily maintained living spaces. However, it is important for the multifamily housing industry to keep in mind that it only becomes economically feasible for us as an industry to bridge the time gap between the present and the profits of those emerging markets if we are continually able to mobilize our strength in numbers to guarantee that the issues addressed here within are resolved in our favor.

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Selected Resources: The Federal Reserve Board of Governors- www.federalreserve.gov Federal Energy Regulatory Commission- www.ferc.gov Energy Information Administration- www.eia.doe.gov Natural Gas Supply Association- www.naturalgas.org Census Bureau Reports on Residential Vacancies and Homeownership, U.S. Census Bureau, 26 October 2007 “Housing woes take bigger toll on economy than expected”, AFP, 17 October 2007 “Fed, Blamed for Asset-Price Inaction, Is Told `Tide Is Turning'”, Bloomberg, 4 September 2007 “Ultra-low Fed rates stoked US housing boom”, Reuters, 4 September 2007 “Putting a freeze to mortgage meltdown”, Marketplace, 6 December 2007 “H&R Block struck by subprime loss”, Financial Times, 21 June 2007 “Rate Rise Pushes Housing, Economy to `Blood Bath'", Bloomberg, 20 June 2007 “Egg Cracks Differ In Housing, Finance Shells", Wall Street Journal, 24 December 2007 “Subprime mortgage woes infect commercial paper market”, MarketWatch, 15 August 2007 Understanding the Subprime Mortgage Crisis, Yuliya Demyanyk (FRB St. Louis) and Otto Van Hemert (NYU Stern) December 10, 2007 “Surge in Natural Gas Price Stoked by Global Trade”, Wall Street Journal, 18 April 2008 The Trouble with Electricity Markets and Some Solutions, Severin Borenstein, January, 2001 “2008 Tipping Point or Turning Point”, Units, March 2008

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