Multifamily Rent Growth Continues to Outpace Inflation

 

JLL adds that inflation is also showing signs of slowing.

Real estate has long enjoyed the reputation as an inflation hedge. According to data and analysis from JLL, even with the spikes in CPI the US has been experiencing, that statement remains true, at least for multifamily. And as pressure builds on the ability to increase rents and allow continued profitable expansion, there’s evidence that the inflation rate has begun to slow.

“The national average rent growth for Class A multi-housing properties has surpassed inflationary growth by 198 basis points from 2010 to the first quarter of 2022,” according to JLL. “In fact, in the first quarter of 2022, national multi-housing rents increased 15 percent year-over-year, as rising inflation translated to significantly higher rents.”

Multifamily housing does have an ability to mark rents to market, increasing them both on an annual basis at renewal time and when there is turnover in units. According to Yardi Matrix, multifamily asking rents hit an all-time high in April of $1,659, with rents up 8.8% in all but one of the top 30 metropolitan areas.

That pricing strength has also enabled growing property values and cap rate compression. Walker & Dunlop’s latest multifamily outlook stated that nearly $290 billion in transactions were logged in 2021, more than double the total from 2020. “Part of the rebound in the multifamily market reflected a return by many renters who had vacated their urban apartments during the height of the pandemic, but vacancy levels were also flattened by the lack of new multifamily completions,” the report noted.

However, JLL’s framing does suggest that there might be limitations. Class A housing may be able to command continued rent growth from consumers with higher incomes. Whether that might be true for Class B or C housing, where consumers are likely to have more constrained financial resources, is far from clear.

Even for Class A, though, there are eventually limits. “The convergence of several trends over the pandemic, namely home buyer affordability issues, rapidly rising wages, population migration trends and a supply and demand imbalance have resulted in a level of rent growth that is unsustainable,” the JLL release quoted Geraldine Guichardo, JLL head of Americas living research and global head of research, hotels, as saying.

And negative leverage has emerged in multifamily, with shrinking returns for buyers despite rent hikes.

JLL is predicting that both inflation and rental growth will start moderating this year and through 2024, with rates eventually dropping below 5%.

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Source: Multifamily Rent Growth Continues to Outpace Inflation

https://www.creconsult.net/market-trends/multifamily-rent-growth-continues-to-outpace-inflation/

Consistent Rent Growth Continues in June | National Apartment Association

Slower than 2021, rent growth in 2022 still tops pre-pandemic years.

Rents continue their steady rise across the nation. According to the July 2022 Apartment List National Rent Report, the national index increased 1.3% during June. This consistent month-over-month (MoM) growth puts rent growth ahead by 14.1% year-over-year (YoY).

During the first half of 2022, rents are up 5.4%, yet that is considerably lower than the 8.8% increase during the first half of 2021. In the years leading up to the pandemic, rent growth during the first six months of the year averaged roughly 3.4%.

While the June increase this year was similar to last month’s growth, it is nearly half the increase seen in June 2021 but almost double what was typically seen in June prior to the pandemic.

Rents are also up in 97 of the 100 largest U.S. metros. During the past six months, San Jose, Calif., and Rochester, N.Y., have each seen 11% growth. Meanwhile, Miami, Orlando, Fla., Tucson, Ariz., Tampa, Fla., and San Diego have rent increases of at least 20% during the past year. Tampa, Rochester, and Tucson each have seen rent growth of at least 40% since March 2020.

Despite an 8% increase during the past 12 months, San Francisco is the only city with rent declines since March 2020. San Jose rents are up 3% since March 2020. Other slow-growing markets during the past six months include Phoenix, Las Vegas, and Sacramento, Calif.

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Source: Consistent Rent Growth Continues in June | National Apartment Association

https://www.creconsult.net/market-trends/consistent-rent-growth-continues-in-june-national-apartment-association/

What’s Up With the Crazy Housing Market?

 

Rising mortgage rates. Faltering home sales. Skyrocketing rents. Here’s how to make sense of a baffling real estate market.

After a two-year boom, the United States housing market finds itself at a pivotal moment — but pivoting to what, exactly?

This spring should have been a busy time for home sellers. Instead, the season was a dud, stalled by a dramatic spike in mortgage rates that stunned even industry experts with its chilling effect on the market.

The frenzied environment we had become accustomed to — with its eye-popping price increases and bidding wars that left buyers dejected and sellers giddy — suddenly seemed to be a thing of the past. While buyers stood on the sidelines, recalculating their much larger mortgage payments, sellers began to realize that offers of $100,000 or more over asking might not be forthcoming.

And over in the rental market, it’s “The Hunger Games,” as rents skyrocket and would-be renters in cities across the country compete with dozens of other applicants.

“Right now, we’re in this cauldron of uncertainty,” said Jonathan J. Miller, the president of Miller Samuel Real Estate Appraisers & Consultants. “Housing hates uncertainty. The biggest enemy of the housing market is uncertainty, and we have buckets full of uncertainty.”

We asked analysts, economists, and brokers to offer some clarity in this confusing time. Did they see this moment coming — and if so, what’s ahead for us in the near future? What would they do if they had to buy, sell or rent right now?

Jonathan J. Miller, the president of Miller Samuel Real Estate Appraisers & Consultants, said he is “thrilled” to see interest rates rise. “I’ve been saying for years that rates should be in the fives, because this is not sustainable,” he said.Credit...Jane Beiles for The New York Times

What’s Going on with Interest Rates?

Unless you’re paying in cash, buying a home just got a lot more expensive.

Since December, mortgage rates have nearly doubled — rising to around 6 percent, the highest they’ve been since 2008 — in response to moves by the Federal Reserve to control inflation. In January, a buyer would have paid around $2,100 a month in principal and interest for a $500,000 home loan. Today, that same loan would cost about $2,900 a month.

Many buyers simply cannot absorb that kind of increase, particularly when it’s combined with current home prices, which rose more than 20 percent from May 2021 to May 2022, according to Zillow.

“That’s a one-two punch that a lot of buyers can’t overcome,” said Rick Sharga, an executive vice president of market intelligence at ATTOM, a real estate data company.

Experts aren’t anticipating that rates will return to the elevated levels of the 1970s and 1980s — they peaked at 18.4 percent in 1981 — but until inflation recedes, they will keep rising.

“When inflation peaks, mortgage rates will have peaked, and that’s really the key ingredient,” said Greg McBride, the chief financial analyst at Bankrate.com. “If we get more inflation numbers as we did a couple of weeks ago, there is no telling how high mortgage rates could go.”

Buyers weren’t the only ones caught off-guard by the rapid change. Many industry experts have had to recalibrate their predictions for the months ahead.

“I don’t think anybody on the planet expected them to double in six months,” Mr. Miller said. “That’s thrown a monkey wrench, another calculation, into the mix.”

“We all had rose-colored glasses when the vaccine was rolling out and it seemed like everything was going to get better,” said Daryl Fairweather, the chief economist at Redfin. “It turns out it’s a bit of a rougher ride reopening the economy and getting things back to normal.”

Daryl Fairweather, the chief economist at Redfin, anticipates a bumpy road for the next two or three years. “I think a whole lot of buyers have been priced out of the market,” she said.Credit...Kevin Miyazaki for The New York Times

Can We Expect Home Prices to Fall?

Prices are unlikely to take a nosedive, but cracks are showing. In the four-week period ending June 26, the median asking price for newly listed homes was down 1.5 percent from its all-time high this spring, and, on average, 6.5 percent of listings dropped their prices each week, according to a Redfin report.

Demand is down, too. The same Redfin report found that fewer people were searching Google for homes and asking to tour properties. Mortgage applications were down 24 percent, and pending sales fell 13 percent from the same time a year earlier, the largest drop since May 2020, according to Redfin.

“The long-term outlook is still quite strong,” Dr. Fairweather said. “But in the short-term, because of all the volatility in the economy, home prices might fall between now and next spring.”

At least for now, however, the days of double-digit percentage price increases are likely over. Markets like Tampa and Phoenix, which saw some of the biggest price increases, may take a hit, dropping by margins of 5 to 10 percent. Others may stay flat or see modest increases, like the 6.6 percent Realtor.com is projecting for 2022.

But prices are unlikely to collapse — in part, because inventory is still low, and there are more people who want homes than there are homes to buy. Although the inventory of active listings increased by almost 19 percent in June from a year ago, it is still down by 53.2 percent from 2019, according to Realtor.com.

“People waiting for home prices to fall are probably going to be disappointed,” Mr. Sharga said. “This is not 2008 all over again — we’re not looking at a housing bubble.”

Leonard Steinberg, a corporate broker at Compass, hopes the market will soon be a saner one for buyers. “The last 24 months have been buyer torture,” he said.Credit...Jane Beiles for The New York Times

To Buy or Not to Buy?

It’s still a seller’s market, whether it feels that way or not.

In May, the median price of a home in the United States passed $400,000 for the first time, according to the National Association of Realtors. And bidding wars accounted for 55 percent of home sales in the four-week period ending June 19, up from 53 a year earlier, according to Redfin.

But with so many mixed signals, buyers may want to wait out the summer or even the spring of next year.

“Most likely, prices aren’t going to be going up between now and then, and there is a chance that they’ll fall,” said Dr. Fairweather, who described the current moment as a hibernation. “It’s not good for Redfin’s business, but that is what’s happening.”

But if you need a home now — and you can stomach the roller coaster — the world is looking a little brighter when you squint. Yes, your monthly payments will be higher than they would have been had you bought a few months ago. But the low rates of 2020 and 2021 weren’t entirely your friend: They fueled a runaway train of spiraling home prices, pushing the boundaries of affordability. Soon, buyers may be in a better position than they have been in a long time.

Mr. Miller, who said he was “thrilled” to see rates rise, pointed out that “5 percent mortgage rates are not a bad thing in terms of sustainable housing markets.”

And remember: Rates fluctuate. Unlike the price you pay for a home, which is permanent, the mortgage rate is not. Or, as Mr. Sharga put it, you “date the rate, but marry the home.”

Not surprisingly, real estate agents, who earn their income from home sales, are bullish about buying now, arguing that for the first time in a long time, buyers could get a deal.

“You have to be a little bit of a cowgirl,” said Bess Freedman, the chief executive of Brown Harris Stevens, which predicted in its second-quarter market report that Manhattan was shifting to a buyer’s market. While one buyer may be scared off by the volatility, another “may come in and say, ‘You know what, there’s a hell of an opportunity right now. I have the money, I’m going to go in, I’m going to negotiate, I’m going to get a great price.’”

As the market cools, it could return to one that resembles a prepandemic normal, with homes that take a few months to sell and prices that increase gradually. Buyers may be able to start making a few reasonable demands — for appraisals, inspections and mortgage contingencies. And as inventory increases, they may even be able to compare a few options before making a decision.

“I’m hopeful we’re in a point right now where we’re in a return to sanity,” said Leonard Steinberg, a corporate broker at Compass. “Getting things to a normal pace — or a more sane-paced balance — is good for everyone.”

“Only when mortgage rates stabilize will prices stabilize,” said Lawrence Yun, the chief economist for the National Association of Realtors.Credit...Jared Soares for The New York Times

If You’re Thinking of Selling …

The time has come for sellers to reset their expectations. List your house today, and it is unlikely that 24 hours from now you will get to pluck an all-cash bid that’s $150,000 over list price from a sea of contingency-free offers.

“Those days are over,” said Lawrence Yun, the chief economist for the National Association of Realtors. “Don’t expect multiple offers.”

Your home may sit on the market for a few weeks and, if priced well, sell for around the asking price — which will be more than you would have gotten a year ago.

Those planning to sell in the next year would be better off doing it sooner rather than later. But if you can wait until the market settles into a new rhythm, you may have a better sense of what to expect two or three years from now.

“If you can wait, keep waiting until the weirdness that’s happening in the economy goes away,” Dr. Fairweather said. “The long-term outlook is rosier than the short-term outlook.”

And there’s another reason to wait: If you sell now and plan to buy, you may be trading a low mortgage rate for a higher one, and shopping in an unpredictable environment.

“We’re not talking about selling a stock where there is a desire to pick the absolute top. This is the place you live,” Mr. McBride said. “Worthy of at least equal consideration is where are you going to go?”

Igor Popov, the chief economist for Apartment List, thinks the rental market will remain competitive. “Whether a restaurant has a waitlist of 10 people or 30 people, you’re still not getting in for dinner,” he said.Credit...Jason Henry for The New York Times

What if You Want to Rent?

Pick nearly any city across the country — Austin, Nashville, Seattle, New York — and the story is one of rents rising by double-digit percentages amid scant inventory.

Nationally, the vacancy rate is below 5 percent, with more than a dozen renters competing for any given vacant apartment, according to RentCafe. That translates to extraordinarily high rents. In Manhattan, the median rent reached a record $4,000 a month in May, according to data from Douglas Elliman. The same month, the typical U.S. asking rent passed $2,000 for the first time, according to Redfin.

The rental market has been on a wild ride since the spring of 2020, with no end in sight. Early in the pandemic, markets in cities like New York saw rents plunge, as residents left and vacancies soared. Concessions, including months of free rent, became the norm. But those discounts soon vanished, and rents in New York now eclipse 2019 levels. Other markets, like that in Miami, never experienced a sharp decline, as renters from other cities who were able to work remotely moved in.

“Everyone wanted more space, and a lot of people wanted their own space,” said Igor Popov, the chief economist for Apartment List. “Those renters all gobbled up the inventory at a time when it was really hard to build” and to buy.

As he put it, “It was this perfect storm of raging demand and tight inventory.”

With few good alternatives, renters who might have moved this year have decided to stay put: Almost 62 percent have renewed their leases, according to RentCafe. That means there is less available inventory in a market that has long suffered from a lack of new housing.

“A lot of renters feel like they’re on a very crowded subway car,” Mr. Popov said. “If you have a seat, you might be uncomfortable, but you’re not getting up.”

Joshua Clark, a senior economist at Zillow, said he is stunned by how fast rents have climbed: “There was a heating up, but the fact that we are at these numbers — I would have laughed at myself if I predicted that.”

The forecast does not look good for renters, in the short-term or the long-term. Rising mortgage rates will push some buyers out of the sales market, putting more pressure on the rental market. And as rents climb, even fewer people will move. With no relief in sight for the inventory shortage, renters have few options.

In New York City, Mr. Steinberg said, “I don’t see enough cranes. The best gauge for a city with rentals is: Are they building tall buildings with lots of apartments? I don’t see too many — it’s not enough.”

Economists predict that rents will continue climbing for the next two or three years, but not at the same clip. Push enough renters to the edge of affordability and they will double and triple up, or leave one market in search of a cheaper one.

“The breakneck pace that we were on in 2021 is just not sustainable,” Mr. Popov said. “We’re already starting to see renters respond to that in terms of more searches with roommates.”

So what should renters do? If you can renew your lease, even at a higher rent, the odds are that will be cheaper than moving. You could consider taking on roommates or looking at cheaper neighborhoods. But none of the options are pleasant, and no one has a crystal ball to predict what the future holds.

“The major X factor is going to be what is happening in the rest of the economy,” Mr. Popov said. “If we start to see major shifts in the economy, then all bets are off and we’re in a new world.”

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Source: What’s Up With the Crazy Housing Market?

https://www.creconsult.net/market-trends/whats-up-with-the-crazy-housing-market/

Multifamily Developers Prefer Suburbs Over Chicago City Center

 

Demand is on the rise for homes outside Chicago’s city center.

About 13,600 units were absorbed in 2021, even though just 4,250 rentals were completed, the Chicago Business Journal reported, citing Marcus & Millichap’s latest Chicago Multifamily Market Report.

Schaumburg and Arlington Heights-Palatine were the two best-performing suburbs. Vacancy rates in Schaumburg dropped 550 points from the previous year to 1.9 percent and rents rose 15 percent. In Arlington Heights-Palatine, vacancies rates fell 410 points and rents jumped 17 percent.

The shifts underscore ripple effects from the pandemic, as workers explore remote work models that crimp the need for downtown offices and seek more room in suburban settings.

“Multifamily is doing good and will only do better as the year goes on,” Toney Morton, chief financial officer at Independence, Ohio-based Redwood Living Inc., told the outlet. “Residential living is the alternative to buying a home, and even homeowners, especially seniors, are transitioning more to multifamily complexes as their lifestyles change.”

Morton said Redwood, which owns and develops multifamily properties, tends to prefer suburban areas for new projects as more land is usually available for construction.

“Our focus is suburban areas where there’s enough land for us to build our single-story apartment homes,” he said. “While we are new to the Chicago market, we are underway with new projects in Lockport, Oswego [to the southwest], and Crystal Lake [to the northwest].” Chicago-based Waterton plans to invest up to $150 million in building new multifamily properties across the Chicago area. The firm will focus on affordable, mid-rise developments in suburban neighborhoods. “The suburbs have been attractive in general, and there’s more demand for it now since Covid,”

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Source: Multifamily Developers Prefer Suburbs Over Chicago City Center

https://www.creconsult.net/market-trends/multifamily-developers-prefer-suburbs-over-chicago-city-center/

9 Things to Watch in the Commercial Real Estate Market

 

In eXp Commercial’s Real Estate Symposium held earlier in 2022, respected economist and eXp Commercial advisor KC Conway gave an insightful speech on a slew of conditions that are impacting commercial and industrial real estate today and in the future.

Conway is the CRE Chief Economist for the Certified Commercial Investment Member (CCIM) Institute, which specializes in ports, logistics, industrial real estate, adaptive reuse, and property tax. As the founder of Red Shoe Economics, he’s one of America’s most respected futurists and forecasters.

When eXp Commercial named Conway their economic advisor in February 2022, eXp Commercial and its growing division of brokers and ancillary partners benefited from his insight into trends and ability to connect the dots between the complex dynamics that affect industrial and commercial real estate.

“We are at the forefront of the fast-changing commercial real estate landscape and are committed to providing the best resources and training to our agents so they can deliver strong results to clients.” — eXp Commercial President James Huang

Here are 9 takeaways by Conway that are the key issues facing the commercial and industrial real estate market:

“Forget 8.9 Percent, Real Inflation Is Over 25%”

“The Flexible CPI is not the one that you do when you’re doing Zumba and yoga. This is one produced by the St. Louis Fed that looks at the repricing of those things that are repriced pretty quickly in our daily lives: Gasoline, energy, food, and groceries. What the current Flexible CPI is telling us is that we have already passed the record that was achieved in the 1980s. We’re over 25 percent … and the reason that’s important to look at is then look at what’s happening with interest rates.’’

“The Federal Reserve Doesn’t Understand That This Inflation Is Supply-Side Driven.”

“We’re not building more homes than we did in 2018 and 2019. We’re not consuming more than we did in 2018 and 2019. We’re paying more. And so it’s a supply issue that there’s not enough of it. The same demand means that the prices go up. This is not an excess demand where suddenly we have 3 million homes being built. We’re still in that 1.2, 1.3 million range of homes being built. The tools the Fed is using essentially demand inflation tools, not supply. That’s raising interest rates and cutting out the balance sheet … which affects demand. It doesn’t solve our supply problem. And the supply problems are only going to get worse, especially when you think about China with 45 of its largest cities that do manufacturing completely locked down because of another outbreak of COVID. And they manufacture about half of what we consume.’’

Accelerating the Supply Chain Is How to Correct This Economy

“The tools that the Fed is using are the wrong tools. Raising rates and pulling back on the balance sheet are inflationary. They are not deflationary. So what’s going to be deflationary is really addressing the supply chain. If we move quickly with Congress and leaders to accelerate that movement of our supply chain, getting more north/south (routes) and using more efficient rail and all that kind of stuff, we could pull ourselves out of this thing much quicker.‘’

Even With Volatility, There’s Plenty of Capital Coming to the U.S. CRE Market  

“I think this (inflation/recession) is probably a 2-year event, not a 4-to-6 year event. But it’s going to be a lot more volatile, so that’s why I say you don’t want to get scared. You want to get prepared. You want your clients to understand there’s a ton of capital out there. In fact, more than half the mortgages out there today are not done by the traditional mortgage platforms, they’re done by non-FDIC insured or Fed-regulated entities. “In commercial real estate, we have even more capital. We have international capital coming here. The whole Russia/Ukraine thing is accelerating foreign capital from places like Vietnam and South Korea coming here. So we have a lot of equity capital that can come into our deals. We have a lot of institutional capital that needs a return and think about why commercial real estate is an inflation hedge.”

Focus on Population Growth Centers & Commercial Activity

• Look at I-95 from North Carolina to Florida: “The most amount of commercial real estate activity, warehouse logistics, relocation, site selection is along the I-95 corridor from basically just North Carolina, Florida.”

• Look at I-85 from North Carolina to Alabama: “We’ve had announcements from Vietnamese automobile manufacturers, Toyota, Hyundai, Remington Firearms. It’s incredible what’s happening along the I-85 corridor from Greensboro, North Carolina, all the way down to Montgomery, Alabama.”

• Look at the I-10 and I-20 corridors between Arizona and Texas: “These big active interstate corridors are where we’re seeing population, workforce, and commercial real estate activity go. If you’re along those, great. If you’re not, work with your clients to help maybe focus them (because) that’s where the buying or investment opportunity may be.”

Electric Vehicle Charging Stations Bring Value to Your Commercial Real Estate 

“We have about 150,000 charging outlets, but we have 275 million cars. And next year we’ll be producing over two million EV cars. Where are they all going to recharge? I go through the Atlanta airport every week. There are about 50,000 parked cars at the airport on any day and all the parking lots and decks. There are only 100 EV Recharging Stations. We have a tremendous mismatch. So when you’re looking at your office buildings and your retail and all those things, look at how you bring in EV Charging, because if we don’t do it, it could be a detriment to your value and your asset.“

High Cost of Materials Will Determine Your Client’s Ability to Move or Build New

“A year ago, we saw construction materials moving up just below 4% year over year. And labor is up 6%. Well, look what happened last fall when we went to 8 to 14%, and now we’re over 16%. Atlanta (25%) and Dallas (22%) have the two highest year-over-year construction cost numbers. So forget San Francisco and New York as the expensive places to build. It’s places like Dallas and Atlanta where Amazon has bought up all the structural steel in America, so nobody else can build anything.’’

Be Prepared to Advise Your Clients on Cost Benefits of Lease vs. New Build 

“You’re going to see a need for a lot of advisory work between you and your broker as more tenants ask: ‘I want to move into a new space or should I stay put and absorb a bit of a rent increase and just stay put?’ With the cost of moving and rebuilding new space, you might find you (have to tell clients) they can’t even get it done in the timeframe that you have to leave your existing building, and you might find that the costs are greater than a 10 or 20% increase in your rent. So doing that cost benefit analysis for those of you that do property management, leasing is going to be just as important as new construction.

eXp Is In a Position of Growth Despite Inflation 

“So when consumer confidence goes, when energy costs are up 50% when everything in Flexible CPI is up, these are the warning signs, these are the bellwethers before the Fed moves and before all this other stuff happens that really tell us, we’ve got to get ready, do things like eXp has done. (eXp) is debt-free and is in a position for survivability, a position for growth, and in a position to execute where eXp can outrun inflation.”

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Source: 9 Things to Watch in the Commercial Real Estate Market

https://www.creconsult.net/market-trends/9-things-to-watch-in-the-commercial-real-estate-market/

New Listing! Fully Occupied 23-Unit Multifamily Portfolio Kankakee IL

Listing Broker: Randolph Taylor
630.474.6441 | rtaylor@creconsult.net
Price: $995,000
Cap Rate: 7.35%

How the Current Real Estate Market is Affecting 1031

JTC Americas’ Justin Amos explains how investors are responding to market realities in order to successfully complete tax-deferred exchanges in 2022

It’s been impossible to ignore news reports that home prices have surged in the US as we emerge from the COVID-19 pandemic. With fewer homes on the market, rising interest rates, and supply chain issues slowing construction, demand is exceeding supply, and many are not anticipating a significant drop in prices soon.

These issues affect anyone buying or selling a home, but add further complications for those looking to execute a Section 1031-like-kind exchange, where property owners must sell a relinquished property and purchase replacement property in the same 180-day period in order to qualify for tax deferral. How should those hope to execute an exchange alter their strategies based on the current market?

We asked Justin Amos, National Sales Manager & Account Executive and 1031 Specialist at JTC Americas, about how investors are adjusting to this unique time in the real estate market, how successful exchanges are being completed in today’s climate, and what those hoping to perform a like-kind exchange should know in order to be prepared.

Have 1031 exchanges been taking longer because of the difficulty in securing a replacement property?

Amos: Just the opposite, actually. Exchangers are more prepared going into the transaction. Knowing that inventory is scarce, they are negotiating on the replacement properties prior to closing on the relinquished. We have seen most exchanges complete within 30-45 days.

Are seasoned investors identifying more replacement properties because of the likelihood that one or more will fall through?

Amos: We are always recommending and coaching clients to use all the given slots allowed for identification. That way the exchanger has the best opportunity for success in completing the transaction. As highlighted in the previous answer, most exchangers are coming in more prepared, so we haven’t seen them identify more properties. Instead, with the properties they do identify, they feel confident they could close on one or multiple of them to meet their exchange requirements.

Do reverse exchanges become more attractive in a competitive real estate market?

Amos: They definitely do. We have seen more and more exchangers ask about the reverse exchange option due to the competitive and low-inventory real estate market we are in. Exchangers feel more confident in the ability to sell a property than they do in finding one that meets their investment criteria within the 45-day identification period. With a reverse exchange, the replacement property is purchased first. So you’re taking care of the difficult part at the outset with the confidence that once you do, it will be easier to sell the relinquished property due to the high demand right now.

This is why a reverse exchange becomes intriguing, but that doesn’t mean it’s right for everyone. Often, exchangers are planning to use the funds from the sale to make the replacement purchase, which means they don’t have the excess capital up front to make the acquisition prior to selling. With interest rates trending upwards, this could make securing lending a lot more challenging for your average investor, especially if they have debt on the relinquished property that needs to be paid off.

How might a reverse exchange help an investor avoid the crunch of finding a replacement property within the time frame?

Amos: It helps an investor by securing the property they would like to purchase first. The exchange timeline remains the same, at 180 days, but now it’s 180 days to sell the relinquished property. In a seller’s market, this could be considered a smoother process.

However, there are some factors to consider before deciding to go down that path: there are more complexities involved with a reverse exchange. For instance, it requires the creation of an entity (SMLLC) to hold title throughout the exchange until the relinquished property is sold. In addition, it is far more expensive to the exchanger to facilitate. Always consult with your tax counsel to understand your specific tax liabilities before deciding to perform a 1031 exchange.

Select the best QI for your exchange

With more than 30 years of experience as a Qualified Intermediary and tens of thousands of successful transactions, JTC Americas is the nation’s most trusted 1031 exchange accommodator. Our team has expertise in all manner of exchange scenarios, including both forward and reverse exchanges. If you’re considering a 1031 exchange, talk to a JTC Americas representative today.

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Source: How the Current Real Estate Market is Affecting 1031

https://www.creconsult.net/market-trends/how-the-current-real-estate-market-is-affecting-1031/

From desperate times come desperate renters Especially in Suburban Chicago

 

Newcomers seeking warm weather, topped off by a sea of remote workers, have made Florida the most sought-after region by renters this year. But developers are struggling to keep up with the new wave, putting apartment seekers in a tight spot.

Of course, Florida renters aren’t the only ones to experience this. It’s happening across the U.S — and Suburban Chicago shares the list with Florida as one of the most competitive markets at No. 15, based on a new report by RentCafe.

This isn’t surprising. Competition among home-hungry renters has been especially fierce due mostly to high occupancy, low supply, and record-high lease renewal rates.

To break it down, Suburban Chicago reached a record-high occupancy rate of nearly 96%.

One-third of renters decided to move into a new apartment during the year, while 68% of people renting in Suburban Chicago chose to stay put and renew their leases, further contributing to the limited housing options for prospective tenants.

And for the lucky ones who did find an available unit in the area? There were, on average, 18 apartment seekers applying for it.

Unfortunately, this news is only followed by more not-so-great news…for renters.

RentCafe said Suburban Chicago is far from meeting demand, as it increased its apartment stock by only 0.3% in the first half of the year. Things in Urban Chicago, by comparison, are hardly better. Occupancy rates reached nearly 94%, the average number of prospective renters applying for one available unit being 12. Moreover, 56.5% of renters renewed their leases in the first part of the year, and the share of new apartments increased by 0.95%.

Other Midwest cities to make RentCafe’s list include Grand Rapids, MI, Milwaukee, WI, and Omaha, NE.

U.S. wide, RentCafe found that, in June, on average:

• 14 renters competed for a vacant apartment;
• 35 was the number of days rentals were vacant;
• 0.7% of the available apartments were built in the first part of the year;
• 61.7% of renters renewed their leases in the first part of the year;
• 95.5% of apartments were occupied at the start of the rental season.

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Source: From desperate times come desperate renters Especially in Suburban Chicago

https://www.creconsult.net/market-trends/from-desperate-times-come-desperate-renters-especially-in-suburban-chicago/

Home price appreciation will normalize

In 2021, home prices skyrocketed by nearly 19%, according to the S&P CoreLogic Case-Shiller home price index. And pros say we’re in for another year of price growth — but as for how much, pros diverge.

Some predict double-digit growth. Indeed, a report in January from Zillow noted that home values were expected to grow 16.4% between December 2021 and December 2022; Goldman Sachs, in October, forecast that home prices would rise 16% through 2022. Fannie Mae says home prices will climb 11.2% throughout this year, followed by a more modest increase in 2023. Others have more modest predictions: The National Association of Realtors, which surveyed more than 20 top economic and housing experts, predicts housing prices are expected to climb 5.7%  through the end of 2022, and Realtor.com predicts a 2.9% increase in 2022. “I believe home price appreciation will normalize in 2022 and home price growth will begin to more closely track inflation,” says Bill Dallas, president of Finance of America Mortgage. As of February 2022, Redfin predicted home-price growth to slow at an annual rate of 7% by the end of 2022. There is one thing that a few pros we spoke to said: In the next couple of months or so, as spring buying season picks up and supply remains low (it was at a record low as of January, according to the National Association of Realtors), you may see a price uptick. “Combine those two data points and it’s hard to see home prices going anywhere but up this month,” says Jeff Ostrowski, an analyst at Bankrate.  And for her part, Zillow economist Nicole Bachaud says: “The market thawed early this year as home value appreciation began to accelerate in December, well before it usually does in the spring and we expect that acceleration to continue into March and April.” One of the reasons home prices will continue to push upward in the short-term is because mortgage rates are falling temporarily (see the lowest mortgage rates you might qualify for here) [they fell in late February], which leads to a surge in offers for homes, says Holden Lewis, home and mortgage expert at NerdWallet. “This is happening during the opening weeks of what traditionally is the home-buying season. House prices have been rising steeply and they’ll keep doing that in March,” says Lewis. Dallas echoes the importance of mortgage rates in-home price estimates:  “It’s possible that demand and bidding wars will pick up in the short term as prospective buyers try to secure a house ahead of expected rate increases this year.”  Indeed, with a Fed meeting set for mid-March, Ostrowski says all eyes are on the Federal Reserve. “The Fed doesn’t directly control mortgage rates but it does set the overall tone for interest rates and they’re widely expected to raise rates this month,” says Ostrowski. And Realtor.com senior economist George Ratiu also says that buyers are trying to get ahead of potentially surging mortgage rates by snapping up homes as soon as they hit the market. (See the lowest mortgage rates you might qualify for here.) “With inventory continuing to shrink and the pace of transactions quickening, the median listing price reached $392,000 in February of this year, a new record high, signaling a competitive start to the spring season,” says Ratiu. The bottom line is that the economy does impact the value of real estate and home shoppers hoping for a surge of new inventory and relief from the heightened competition have so far been left disappointed. “It remains to be seen how long buyers can weather this storm, especially in the face of rising mortgage rates, and how long homeowners will watch values rise before deciding to list. Neither has blinked yet,” says Bachaud.

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Source: Home price appreciation will normalize https://www.creconsult.net/market-trends/home-price-appreciation-will-normalize/

Mortgage applications falling creating more demand for rental properties

With rates lately rising, the real estate market is slowing, most notably for residential properties. As expected, growth is slowing as loans get more expensive, but the housing market remains robust. This shift leaves many people renting and has the potential to create more demand for rental properties.

Real estate investors who are looking for a place to park their money may want to consider commercial real estate. The market for commercial real estate is not as directly impacted by higher interest rates as the single-family market and, as a result, may provide a more stable investment. Of course, this all depends on the specific property and location, so it’s important to do your research before making any decisions.

https://www.creconsult.net/market-trends/mortgage-applications-falling-creating-more-demand-for-rental-properties/

Just Sold! 21-Unit Multifamily Property Dixon IL

Dixon, IL, July 22nd, 2022 – eXp Commercial (NASDAQ: EXPI), the fastest growing national commercial real estate brokerage firm, announced today the sale of a 21-unit multifamily property located in Dixon, IL. The asset sold for a net sales price of $924,500.

The property is located at 1231 N Galena Ave in Dixon, IL The property consists of 21 multifamily rental units comprised of one studio apartment, ten one-bedroom units, nine two-bedroom units, and one three-bedroom two-bath unit.

The transaction was brokered and both Buyer and seller were represented by Randolph Taylor CCIM Senior Associate and Multifamily Investment Sales Broker with the Chicago-Naperville eXp Commercial office.

Randolph can be contacted at rtaylor@creconsult.net  (630) 474-6441

How Can We Help You?

Are you looking to Buy, Sell, or Finance Multifamily Property?

contact us

https://www.creconsult.net/market-trends/just-sold-21-unit-multifamily-property-dixon-il/

Housing supply has continued to shrink

Growth in the housing market has slowed, but prices have not fallen. This is due in large part to a limited supply of single-family homes. Construction ground to a halt during the coronavirus pandemic and again when the supply of construction materials dried up. 

The supply of homes hasn’t yet caught up to the demand for new housing, and it’s taking longer for buyers to find a home that meets their needs. In fact, it’s estimated that the US faces a shortage of roughly 5.5 million homes. Luckily, homebuyers are still willing to pay more than the list price when they do find a home that meets their needs. This is especially true in desirable neighborhoods and school districts.

The trend of rising prices and shrinking supply is expected to continue in the coming months as the economy reels from the impacts of inflation. Investors who are thinking about buying a property should do so soon to avoid paying too much. Those who already own investment properties should keep a close eye on market conditions and be prepared to make changes to their portfolios as needed.

https://www.creconsult.net/market-trends/housing-supply-has-continued-to-shrink/

What Is Holding Opportunity Zones Back? Industry Experts Weigh In

 

Investors aren’t always making the connection that Opportunity Zone investments are impact investments – so what can the industry do about it? In March 2022, JTC Americas and OpportunityDb released the results of an in-depth survey on Opportunity Zones. Titled, “Opportunity Zones in 2022: Perception vs. Reality,” the report provided insight into who is investing in OZ and why they do it.

In order to help relevant stakeholders get the most out of the report, JTC Americas hosted a March webinar, “Getting Impact Right: A New Strategy For Opportunity Zones,” where a panel of industry experts discussed what the survey results tell us about investor motivations, how fund managers can raise more capital, and where the industry can take action to improve the perception of Opportunity Zones.

Connecting OZ and Impact

Environmental, Social, and Corporate Governance (ESG) criteria are becoming increasingly important to investors, and Impact Investing is a hot topic among institutional investors as well as individuals. Opportunity Zones are impact investments and should be attractive to investors interested in social impact. But do investors see it that way?

Only 27% of survey respondents, a group that includes both those who have invested in OZ and those who have not, said they were “Very familiar” with the relationship between impact investing and Opportunity Zones. While Opportunity Fund managers may think it’s obvious that OZ investments are impact investments, it seems it isn’t obvious to everyone.

Even among current investors, not everyone seems to realize that OZ and impact go hand in hand. At the webinar, Beth Mullen, CPA, and Partner at CohnReznick, LLP, expressed her belief that OZ and impact should “fit right in the same sentence,” and if that isn’t happening for investors, “maybe we have a little bit more explaining to do.”

So why aren’t investors making the connection? The panelists, analyzing the survey results, had a few suggestions about how the industry can do better.

Proactive Outreach from Fund Managers

One of the best aspects of the survey is how in-depth it is regarding respondents’ sources of information. Beyond just asking how they feel about impact and OZ, participants were asked how they learned about the fact that OZ investments are impact investments.

As you can see, the dominant answer was “Conducted my own research.” The survey report singles this out as a major factor as to why investors don’t understand how OZ relates to impact: fund managers aren’t talking about it enough.

“One reason why this might be the case is that many do not hear about impact proactively from OZ fund managers,” the report reads. “Only 4% cited proactive outreach by fund managers.” If an investor is strongly impact-oriented, and the fund manager doesn’t explain that Opportunity Zones are impact investments, they may miss out simply for lack of communication.

Jimmy Atkinson, the founder of OppportunityDb, agreed that this number is far too low. “I think we have a little bit of work to do as an industry to promote Opportunity Zones not just as a great tax benefit, but also as a really valid place for impact investing as well.”

For the types of investors who really care about impact, perhaps managers are waiting too long to discuss it with them:

Only 15% of respondents said the social impact was discussed in the first conversation. According to Louis Dubin of Redbrick LMD, that’s not fast enough for young investors who have high expectations for impact.

“Almost to a fault, the under-30, it’s their first question,” he said. Atkinson agreed: “During their conversation with investors, they should make some mention of impact – how is this impacting the local community? How is this driving jobs? How is this driving increased economic activity in a census tract that has been typically underserved?”

By proactively talking about impact, fund managers can make it clear that social impact is not just a byproduct of Opportunity Zones, but a central component, and a reason to invest in and of itself. However, direct conversations are not the only way people hear about OZ – they may learn negative things about the initiative before they ever talk about a specific fund.

Reporting in the Media About Opportunity Zones

When survey respondents were asked about what most influenced their perception of OZs, 70% said “Research reports or news articles,” putting it overwhelmingly in the top spot. If potential investors are reading news stories about OZ as a tax scheme for the rich, they may never listen to a fund manager explaining how Opportunity Zones really work.

“My guess is that this is an issue of branding,” said Richard L. Shamos, Counsel, Nixon Peabody LLP. The panelists largely agreed that there was a legislative intent to help communities, and the initiative was meant to do good, but unfortunately, the tax benefits have gotten more attention. So how can the industry combat this misconception?

One way to do so is to highlight success stories. As the survey report explains, “A 2020 report by the White House Council of Economic Advisors showed that OZ investments nationwide are on track to decrease the poverty rate by 11 percent and have created at least 500,000 new jobs. And though investments so far have occurred in only about 1,300 of over 8,700 OZ census tracts, this is much greater than some long-established incentives, like the New Markets Tax Credit program, which supported investment in only 400 during the same period.

“In other words, while the OZ program may not be perfect, it’s doing a lot of good in some of our hardest-hit communities. Fund managers and industry groups should continue to highlight these success stories.” What the survey has taught us is that many people don’t realize OZ investments are impact investments and have only been told about the tax benefits. That means there’s an opportunity if the full benefits of OZ are communicated to them, to attract impact-minded investors and grow the industry.

Making OZ More Attractive to Impact Investors Through Impact Reporting

When the survey was conducted, respondents were given the chance to write answers to the question of how to make OZ more valuable to impact investors. See if you notice a pattern here:

• “Awareness that there is such a program.”
• “Better reporting”
• “Better understanding of the purpose”
• “Clarity”
• “Better measurement and metrics across the whole program, not all OZ developers are reporting on impact”
• “Clear and improved guidelines on job creation, social impact measure required under OZ program”
• “Clearer metrics on the actual impact that is occurring”
• “Impact reporting”
• “Metrics based on a standardized reporting scheme”
• “More data”
• “More positive stories about the impact of OZ on operating businesses”
• “More transparency on individual projects and better visibility”
• “Press coverage in national media”
• “Required impact reporting”

It seems pretty clear that OZ stakeholders want an accurate measurement of impact. As the report states, “This is aligned with the findings that investors – especially aspirational ones – are compelled to invest in OZs in large part due to their impact on communities.”

There have been efforts to pass legislation that would require reporting on impact. This could help change the conversation around Opportunity Zones by drawing attention to proven success stories and demonstrating the impact OZ investments are having.

At the webinar, John Sciarretti of Novogradac & Company, LLP, stated his belief that by implementing impact reporting at the Congressional level, investors will be more likely to want to participate.

“I think that transparency will double interest in the program,” he said, adding that this will be especially true for institutional investors who have high standards for data and reports.

Shay Hawkins, Chairman and CEO, Opportunity Funds Association, agreed: “Until we can get clear transparency and reporting and impact requirements in place legislatively, we in the industry have to help folks make that connection.”

JTC Americas has been a leader in Opportunity Zones fund administration since the program’s inception. Our award-winning eSTAC technology platform provides real-time impact reporting along with 24/7 access to key documents, and we’ve pioneered methods for measuring and reporting on social impact. While we wait to see how successful legislative efforts will be, JTC is helping our clients stand out from the pack when it comes to impact reporting.

Other topics were covered at the webinar, including missed opportunities for private equity firms to invest in operating businesses in OZs and why impact reporting requirements were missing from the original bill. Watch the full webinar to hear from industry experts about the current state of OZ and read the full survey report online.

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Source: What Is Holding Opportunity Zones Back? Industry Experts Weigh In

https://www.creconsult.net/market-trends/what-is-holding-opportunity-zones-back-industry-experts-weigh-in/

Net Operating Income (NOI) & How To Calculate It

Real estate investors need information. The more information they have, the better the decisions they can make. There are a lot of tools to provide this information, but one of the most important is net operating income (NOI). Understanding what this calculation is and how to use it can help investors make decisions quickly regarding any property an investor is considering.

What Is Net Operating Income?

The NOI formula allows a real estate investor to determine how profitable a property could be. The formula is straightforward. Subtract all of the operating expenses for the property from the expected revenue it should generate. Expected income may include rental income but also any additional fees or income associated with the use of the space. Operating expenses may include any type of general expenses for the property, such as insurance costs, taxes, and repairs.

With this information, an investor can see if the cost of operating the property is more than the potential earnings from it, making it easy to determine if that investment is appropriate for their goals and financial needs. Often conducted prior to purchase, it may help in making buying decisions between multiple properties. For example, if there is a consideration for purchasing a convenience mart, this calculation would take into consideration all potential avenues of income from that convenience mart. That may include tenant rent as well as any income from the sale of goods. It would also consider all maintenance fees for the property and any other associated costs, such as the attorney the investor uses or the insurance on the property. This is what makes net operating income so valuable. It takes into consideration all of the income and expenditure opportunities for the property in one single calculation. As a result, the investor knows right away if this is the type of investment that fits the investor’s portfolio or not. NOI is calculated before tax. It is often presented on a property’s income and cash flow statement. Typically, it does not include principal and interest payments on loans, depreciation, capital expenditures, or amortization.

Why Is Net Operating Income Important?

The key to using NOI is to understand its value. When an investor uses this calculation, it will help provide insight as to the property owner if renting out the property is worth the expense of purchasing it as well as maintaining it over time.

Often, this information can help prospective investors determine which property available to them may offer the highest return or fit within their property investment strategy best. It allows the investor to compare several properties with the same metrics, making it easier to see the difference in each.

How to Calculate Net Operating Income

To calculate this information, it is necessary to have all data available (as much as possible). The simplest explanation is to subtract all of the operating expenses required for the property from the revenue the property could generate. Revenue may include:

• Rental income
• Service charges
• Vending machines
• Parking fees
• Other sources

The operating expenses could include:

• Property management fees
• Insurance costs
• Maintenance and upkeep costs
• Utility costs
• Property taxes
• Repairs

Net operating income formula:

Net operating income = RR – OE

RR: Real estate revenue OE: Operating expenses

Example of How NOI Works: Net Operating Income Formula Example

The NOI can be applied to many types of commercial real estate. In every situation, though, the prospective investor needs to consider all avenues for generating an income for that space.

Consider the use of a townhome. A prospective investor wants to learn how much of a potential profit they could generate from the rental of the townhome. The property features 4 townhomes under the same roof and would be leased to resident tenants. Here is a basic overview of what could occur.

Calculate the revenue

The first step is to add up all the revenue that comes from owning this townhome and renting it out on a yearly basis.

• The total rent collected ($1000 per month per unit equals $4000 per month, for a gross $48,000 in rental income for the 4 properties)
• Garage rental costs ($50 per month per unit, equaling $200 per month, or $2400 per year)
• Laundry machine use ($25 per month, per unit, equaling $100 per month, or $1200 per year.)

In this situation, the total income from the property could be $51,600.

Calculate the expenses

The next step is to determine the total cost of operating the townhome property. Some of the costs could include:

• Property management fees: $5000 a year
• Property taxes: $10,000 a year
• Maintenance on the property: $10,000 a year
• Expected repair costs: $15,000 a year
• Insurance: $8,000 per year

In this situation, the total operating expenses for the property are $34,500. To determine NOI, use the formula for NOI: $51,600 minus $34,500 equaling: $17,100 That means that the property would yield $17,100 in profit each year, assuming these figures hold up.

Evaluating the Potential of a Property

Not every situation produces a positive result. Suppose a property’s NOI shows a negative result. In that case, that could indicate the property would not be profitable to manage, especially if the costs cannot be lowered in any other way. Some potential investors may think of the long-term outlook after they’ve made repairs or updated the property to lease it at a higher rate. However, if that does not happen, the NOI may not be positive.

Borrowing to Buy Commercial Real Estate Relies on NOI Information

While NOI is a very important determinant of the value of any property for investors, it is also an essential factor for lenders. Most creditors and commercial lenders will rely on this information to determine the potential income generation for the property. Suppose the investors hope to secure a loan on the property. In that case, the lender needs to ensure that the income generation potential here meets the financial obligation the borrower is taking on.

It allows commercial lenders to assess the initial value of that property by getting a better idea – or for casting – cash flows for it. If the property presents a positive, profitable NOI, that indicates to the lenders there may be some stability in this loan, and they may be willing to make it. If the property shows a negative NOI, that may mean the lender will reject the loan request because of the high risk for the property. In some situations, property buyers may manipulate this information. For example, they may be able to defer some types of expenses while accelerating costs. This may include altering the rents and other fees they plan to charge to present a more positive outlook for the lender. However, it is critical to consider the accuracy here since this could play a role in just how profitable any investment could be over the long term. What is a good NOI? That depends on the specific situation. NOI is not a percentage but rather a dollar amount. Investors need to take into consideration what level is appropriate for their unique needs. The higher the NOI is, the more profit potential it has. The use of NOI is very important in nearly all commercial real estate investments. It does not take long to calculate once all of the information on operating expenses and potential income is available. It is essential for investors to be as accurate as possible.

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Source: Net Operating Income (NOI) & How To Calculate It

https://www.creconsult.net/market-trends/net-operating-income-noi-how-to-calculate-it/

Apartment Vacancy Has Ticked Up for Seven Consecutive Months

 

Vacancy rates won’t hit 6 percent until well into next year.

Vacancy levels bottomed in October 2021, and since then, the situation has eased gradually but the market remains historically tight.

Apartment List’s data show vacancy ticked up for seven consecutive months, reaching 5 percent in May. Its rent growth index shows a corresponding trend, as price growth has decelerated this year compared to 2021.

The rental listing site said it’s possible that the easing of vacancies could level off in the coming months due to rapidly rising rents that may incentivize many renters to stay put and renew existing leases rather than look for new ones.

“At the same time, the recent spike in mortgage rates has created yet another barrier to a historically difficult for-sale market, potentially sidelining would-be homebuyers and keeping them in the rental market,” the company said in a release.

Demand Leveling in Hottest Apt Markets

Markets that saw large spikes in vacancies in the early pandemic such as San Francisco, Boston, Seattle, and Washington, D.C., have since seen renters return.

Meanwhile, demand is leveling off in the nation’s hottest markets.

Seattle, Boston, and DC (as well as many other similar cities across the country that were greatly impacted by the pandemic) are seeing their rents back above pre-pandemic levels.

San Francisco is a rarity in that it still is experiencing a pandemic “discount,” but even there, rents are up 20 percent since January 2021.

Availability of vacant units nationally remains notably constrained compared to the pre-pandemic norm. “Even if vacancies continue their gradual easing, it won’t surpass 6 percent until well into next year on its current trajectory, the firm estimated.

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Source: Apartment Vacancy Has Ticked Up for Seven Consecutive Months

https://www.creconsult.net/market-trends/apartment-vacancy-has-ticked-up-for-seven-consecutive-months/

Tech Companies Cast Their Eyes on Apartment Portfolios

 

Two recent acquisitions have third-party managers’ and industry analysts’ attention.

When it comes to property management companies and technology supplier partners, the script has flipped for some this year as it’s tech companies that are showing greater interest in acquiring rather than serving these firms.

Looking to build their brand, these innovation firms are — “can gain an instant uptick in revenue growth from the acquisition,” as multifamily tool Lighthouse’s head of business development Sterling Weiss put it, having spoken recently with REITs who have been courted by such companies.

 

For now, technology companies are happy to transact with small- and mid-sized apartment owners and managers.

Twice this year, short-term housing platforms have made this happen. In January, The Guild purchased CREA Management and in March, Alfred purchased RKW Residential. The Brand Guild purchased CREA Management.

 

Both transactions turned the heads among a few in apartment management circles and many are looking to see what could happen next. Some industry observers see more such deals ahead.

It’s a potential win-win because these technology firms believe they can better drive net operating income at the property level.

They are finding the apartment industry is ripe for innovation and that there’s little better way to incorporate, help develop and test their technology through their own housing portfolio.

 

Data Scientists Find Niche in Property Management

Alfred reports that today on average, less than 1 percent of a property’s budget is put toward technology, unlike other innovative industries, which invest closer to 10 percent, based on recent research from Statista, McKinsey, and Deloitte.

For RKW Residential, the technology Alfred brought will make operations more efficient, RKW Residential’s Executive Vice President of Marketing, Joya Pavesi said.

“It’s been a bonus because we now have Alfred’s 40+ software engineers working on our behalf – that’s more engineers than what some of the biggest apartment operators employ,” she said.

The merger gives Alfred the chance to have executive oversight into how its technology is being used by its clients to ensure that its capabilities are being fully realized.

‘Keep A Very Close Eye’ on This Trend

Zain Jaffer, Investor, and Entrepreneur, Zain Ventures Jaffer says that these companies have strong incentives to acquire property management companies to scale their portfolios quickly.

“It’s clear that AI has the potential to completely reshape the nature of property management as we know it,” Jaffer said. “As more and more tech companies buy into the property management space, we will start to see some truly accelerated growth. I think this is a trend to keep a very close eye on.”

Todd Butler, Senior Vice President, Flexible Living, RealPage, focused on short-term rental platform Migo, points to “massive” NOI opportunities that owners demand – mixed with the residents’ need for flexibility to live/work/travel post-Covid – are now mutually at odds with “the way it’s always been done.”

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Source: Tech Companies Cast Their Eyes on Apartment Portfolios

https://www.creconsult.net/market-trends/tech-companies-cast-their-eyes-on-apartment-portfolios/

Apartment Players Are 'Holding Their Breath Despite Surging Rents

 

One leading apartment maintenance and construction distributor speaks out on pricing and inflation.

Even with the recent, steady rise in rents—by double-digits in many markets—that degree of revenue gains is unsustainable, apartment operator Mike Brewer, COO, RADCO Companies, Atlanta, recently said.

That brings the focus to expenses. And there’s not a lot of hope that prices will come down, or even what might bring them down, commented a vice president for one leading apartment maintenance and construction distributor last week.

 

“Distributors, manufacturers, and apartment operators are simply holding their breath right now,” they said. “There’s too much uncertainty with the economy, world events such as Ukraine and then some; and what happens if China suddenly shuts down and for how long. You might say things could get better with results from the 2024 US Presidential election, but even that’s too far and too much of a wild card.”

The distributor said that the supply chain is better but remains broken. Headwinds include recovery from events beyond just Covid, including weather, shortage of workers at ports and truck drivers; and not having the right technology needed to efficiently move containers along the path the best way possible.

Must Be Flexible on Brands

Apartment operators have said that they are left to be more flexible on product brands during this time, and this distributor described that predicament.

“You might want or need a Moen faucet, but then all of a sudden you can’t get it so you need to go with Pfister or some other brand. It’s unsettling, and appliances are the toughest product line to acquire right now, and for most of the past year or so.

 

“But we learned during the pandemic that our industry can be flexible and move on a dime. Manufacturers went from making a ton of faucets to making a ton of gloves.

“Let’s also remember that operators spent five years talking about self-guided tours, but didn’t do them. Then: Boom, they found a way to roll them out in a couple of weeks once lockdowns started back in 2020.

HVAC Systems Upgrades Coming

Upgrading and meeting changing regulations for HVAC systems and parts has created another difficulty.

“There are new regulations going into place right now where most jurisdictions are going to have to increase their SEER by one,” the distributor said. “Manufacturers are pausing some existing product-making as they transition to the new models. This will cause delays regardless of any other factor.”

And while pricing continues to be volatile, there are other factors in play that make pricing, availability, and now, budgeting, tough to figure.

“What we see is that the best customers can get the best prices,” they said. “Having existing strong relationships really does matter. We take care of our best customers, first.”

Passing on the Costs Hikes

The spokesperson said customers often ask how much of inflation the manufacturers and distributors pass along.

“If there’s a $40 item that now costs us $50, do we charge them that full extra $10,” they said. “And do we factor in other ongoing, rising inflation factors by pricing based on wages, gas prices, and anything else? The answer is, ‘It’s all variable, based on customer, item, and market?’

They said there also can be different prices for MRO vs renovation jobs.

“With a renovation job, we might have priced something six months ago and then that item goes way up in price,” they said. “Do we still honor it? If it’s a small customer or a small job, because we simply might not be able to eat that cost. It’s unfortunate.”

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Source: Apartment Players Are ‘Holding Their Breath’ Despite Surging Rents

https://www.creconsult.net/market-trends/apartment-players-are-holding-their-breath-despite-surging-rents/

2022 Multifamily REIT Results

Data as of May 5, 2022

Source: S&P Global Market Intelligence

US Equity REIT Average 2021 Q4 AFFO Payout Ratio Estimate

As of May 5, publicly traded U.S. equity REITs had an average 2021Q4 AFFO payout ratio estimate of 73.6 percent.

Among the sectors displayed in the chart, health care REITs had the highest average AFFO payout ratio estimate for the first quarter of 2022, at 84.4 percent. The multifamily and manufactured home sectors followed at 75.2 percent and 74.8 percent, respectively.

On the other end of the spectrum, self-storage REITs had a 73.9 percent average AFFO payout ratio estimate for the first quarter of 2022.

Among the multifamily REITs, Washington Real Estate Investment Trust was on top of the list with a 96.6 percent AFFO payout ratio estimate. Following next was Bluerock Residential Growth REIT Inc., with a 90.6 percent payout ratio estimate. Independence Realty Trust Inc. was at the bottom of the list with a 54.5 percent payout ratio estimate for 2021Q4.

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Source: 2022 Multifamily REIT Results – Multifamily Real Estate News

https://www.creconsult.net/market-trends/2022-multifamily-reit-results-multifamily-real-estate-news/