LAS VEGAS RESIDENTIAL INVESTOR IQ

January 2012
Case-Shiller Home Price IndexLas Vegas, NV
250

CAPITALIZATION RATES, RENTS AND SALE PRICES (indexed)

Capitalization Rates, Sale & Rent Prices (Indexed)
12% 2.5

10%

200

2.0

Index Value (year 2000=100)

8%

150
Cap Rate
6%

1.5

100
4%

1.0

50

0.5
2%

Oct-03

Oct-06

Oct-09

Oct-10

Oct-01

Oct-02

Oct-04

Oct-05

Oct-07

Oct-08

Feb-03

Feb-06

Feb-09

Feb-02

Feb-04

Feb-05

Feb-07

Feb-08

Feb-10

Feb-11

Cap Rate

Rent Index

Sale Index

It is well known that home prices in Las Vegas have fallen substantially. After an unprecedented bubble in the early and mid-2000s, the subsequent crash has pushed prices below its long-run, pre-bubble trend. Based on the prior trend and metrics such as price/rent and price/income ratios, we believe that Las Vegas is in a severe undervalued condition.

Capitalization rates, or cash-on-cash returns (in the absence of leverage), have grown significantly in the post-bubble environment. This is largely a function of asset price declines rather than rent increases. Rents experienced a mild decline before stabilizing in 2010 and 2011. In some areas we are actually measuring rent increases. As a result, returns are exceeding many other asset classes with possible returns above 7%.

CAP RATESALES PRICE RELATIONSHIPSINGLE FAMILY Q4 2011

25%

Rental Days on Market

100
95

90
20%

80 70 66
Days on Market
60

15%

68 64 61

68

70
65

58 54 50 49 47

60 55 50 46 55 51 47 50 50 40 29

Cap Rate

57 50
46 42

57

55

10%

50 40
30

Oct-11

Jun-02

Jun-05

Jun-08

Jun-11

Jun-03

Jun-04

Jun-06

Jun-07

Jun-09

Jun-10

0%

0.0

54 47
48

44 40 36

42 35 33

Rent & Sale Price Index

42

5%

20
0%
$0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000 $500,000 $550,000 $600,000

10
0

-5%

Sale Price

Q1 2007

Q2 2007

Q3 2007

Q4 2007

Q1 2008

Q2 2008

Q3 2008

Q4 Q1 Q2 2008 2009 2009 Condominium

Q3 Q4 Q1 2009 2009 2010 Single Family

Q2 2010

Q3 2010

Q4 2010

Q1 2011

Q2 2011

Q3 2011

Q4 2011

Capitalization rates tend to be maximized at the lower end of the home price spectrum. The home prices are a function of age, location and other variables, however rents tend to not reflect these at the same level the asset value does. So, while much of the depreciation of the home is built into the asset value, rents remain fairly stable. Further, some of the lower priced homes do not have association or special improvement fees which cut into operation income. The graph above illustrates the typical tradeoff between sale prices and returns.

Buyers of rental property should have an idea of their probable lease-up period. The chart above illustrates days on market for condominiums and single family homes. Single family marketing times have been on a gradual downtrend since 2009, with condominium marketing times declining from mid-2010. In Q4, 2011, single family homes leased-up within an average slightly more than 1 month, while condominiums took nearly 50 days. When developing a pro-forma for a property, one should take these values into consideration.

United Van Lines & Atlas Inbound/Outbound Moves 2011

District of Columbia 62.5%
64.3%

Property Example

60.8%
Oregon

59.5%

56.9%
Nevada

54.8%

Actual Sale Sample Previous Sale Date Previous Sale Price Recent Sale Date Recent Sale Price Decrease in Price Current Rent (Mo)* Current Capitalization Rate

11949 Fairfax Ridge St Sep-05 $284,204 Dec-11 $96,000 -66% $1,150 9.5%

50% of Sales are to Investors*

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56.4% North Carolina 57.8%

55.1%

Florida 54.9%

*Existing rent per M LS. Tenant o ccupied at time o f Sale.

2011 Percentage of Inbound Shipments

2010 Percentage of Inbound Shipments

Source: Atlas

Source: United Van Lines.

Indicator New Residents (Drivers License Count) Active Residential Electric Meter Count

Change Q4 , 2011 Year Ago 13,882 11.4% 741,220 1.5%

Approx. 1,800 transactions per month during 2010-2011 (majority are cash)

Employment and household formation are the two requirements for absorbing housing supply. Employment in the Las Vegas Valley was greatly impacted by the recession. In the past several quarters, we have been measuring a gradual firming in the labor market, a strong positive for housing. Additionally, United Van Lines and Atlas Moving provide surveys of household moves throughout the country. In 2011, Nevada was considered balanced (with slightly more inbound migration in the UVL survey). Recent third fourth data on new residents and electric meters suggests a likely return to inbound migration.

The information and opinions in this report are believed to be reliable and has been obtained from sources believed to be reliable. Coldwell Banker Premier Realty makes no representation as to the accuracy or completeness of such information.