Grand Prairie 2nd

NEW LISTING: 4,408 SF Medical-Dental | Dallas-Fort Worth Market
eXp Commercial is pleased to present to the market a fully built-out, free-standing 4,408-square-foot medical/dental office building in Grand Prairie, Texas, centrally located 22 miles southwest of downtown Dallas and 26 miles southeast of downtown Fort Worth. Though the current use is for a dental office, the property is zoned PD267A (commercial development), allowing for a variety of medical and dental uses. The property is owner-occupied and will be vacated at closing, providing an ideal opportunity for another dental practice or any number of medical office users to utilize the property for their practice or an investor who works with medical office tenants to take advantage of an investment opportunity.
Listing Brokers:
Tyson Grona | tyson@tysongronagroup.com | 936.444.3635
Randolph Taylor | rtaylor@creconsult.net | 630.474.6441
https://properties.expcommercial.com/1253332-sale

23-Year High Mortgage Rates Bolstering Apartment Demand

Misaligned New and Existing Home Sales

Trends Depict a Market in Flux

Single-family debt costs eclipse long-standing high point. In the latter half of August 2023, the average 30-year fixed-rate mortgage surpassed 7.2 percent, up about 170 basis points from one year ago and the highest figure in more than two decades. With federal student loan obligations set to resume in October, taking on long-term debt at a 23-year high rate will continue to dissuade prospective first-time homebuyers, in turn bolstering apartment demand. Additionally, elevated mortgage rates deter existing homeowners from listing, providing pricing reinforcement amid a historic shortage of options, especially at the lower end of the cost spectrum. In July 2023, the number of existing homes for sale held about 40 percent below the trailing 10-year same month average. Concurrently, the median price ascended to a 13-month high at $396,700, the fourth-most expensive measure on record.

Gap between new and existing home prices is tightening. While the existing home market has been stalled by insufficient inventory and rising prices, newly-built houses comprise an increasingly large portion of total sales. In July, new homes accounted for roughly 16 percent of overall transactions, compared to a share of about 11 percent in the same month of 2022. This trend correlates with newly-built dwellings becoming comparatively less expensive. The gap between the median sale price of each segment tightened to $32,400 in July, a relative discount that helped push new home sales to a 17-month high. Purchases of newly-built houses are ramping up, yet it has not translated to existing homes coming to market, implying that a portion of this activity stems from first-time homeowners making a direct leap into newly-built houses.

New homes are still not attainable for many first-time buyers. While recent indicators signal that some residents are entering homeownership via a newly-built home, that is not expected to be a long-term trend. From a cost standpoint, new homes still command higher prices than existing options, limiting the number of residents that can afford to buy. Locational factors play a role as well, with many newly-built homes being constructed in outlying areas well distant of city centers and employment hubs.

Developing Trends

Multifamily project starts contract to 22-month low. The apartment sector is enduring historic construction activity at an inopportune time of soft demand, which has pushed up vacancy and curbed rent growth. Early signs of a medium-term development deceleration have begun to emerge, however, as multifamily project starts in July 2023 were at the lowest mark since September 2021. Multifamily permit issuance was also down more than 30 percent year-over-year in July, further hinting at apartment builders starting to tap the brakes. While the nation still faces a housing shortage not set to alleviate in the near term, a thinning construction pipeline could help stabilize the multifamily sector.

Material and insurance costs heighten development hurdles. The average insurance cost per apartment unit rose by 33 percent year-over-year in the second quarter, with several Florida, Texas and California metros noting much larger hikes. These added expenses, alongside the construction cost index jumping to an all-time high in August 2023, are cooling development. Single-family homebuilder confidence also dipped to a three-month low.

-16.3%	31.5%
Year-Over-Year Change in Existing Home Sales in July	Year-Over-Year Change in New Home Sales in July

Sources: Marcus & Millichap Research Services; Capital Economics; Freddie Mac; Moody’s Analytics; Mortgage Bankers Association; National Association of Home Builders; National Association of Realtors; RealPage, Inc.; U.S. Bureau of Labor Statistics; U.S. Census Bureau; Wells Fargo

Source: 23-Year High Mortgage Rates Bolstering Apartment Demand

https://www.creconsult.net/market-trends/23-year-high-mortgage-rates-bolstering-apartment-demand/

Insurance prices per apartment unit rise 33% YoY

Insurance costs are rising at an accelerated rate for commercial real estate, up 33% year-over-year, per apartment unit to $180, according to Marcus & Millichap’s new report.

Insurance now accounts for more than 8% of an owner’s quarterly per-unit operating expenses, nearly double the share from five years ago.

Property tax and payroll costs combined rose 9% in the past year and the national average effective rent rose 4%.

If that’s not difficult enough, providers are concurrently implementing new policy limitations to decrease their exposure, especially for multifamily hotbeds in Florida, California, and Texas.

In Houston and Fort Worth, the average cost to insure a unit rose more than 40% year-over-year in the second quarter, according to the report.

“This disparity and expectations for further operating cost increases and rent growth moderation will broadly influence development proposals, property valuations, and investors’ acquisition criteria moving forward,” Marcus & Millichap said.

“Developers react by paring back project starts. Spiking insurance premiums, along with elevated labor, materials and financing costs, are making it more difficult for developers to underwrite ground-up developments.

“This dynamic has the potential to facilitate a broad pullback in U.S. project starts, a trend that already appears to be taking shape” given that the value of all commercial starts fell 11%, while the number of permits issued for new multifamily projects in June represented the lowest level since late 2020.

Providers leaving key markets is the next shoe to drop.

In Florida, customers’ average rate hike could rise by 12%, given that Farmers Insurance’s departure will pressure the state-run Citizens Property Insurance Corporation. Citizens expects to have up to 1.7 million policies by year-end and in June, it requested the maximum premium increase allowed.

In California, State Farm and Allstate’s exodus may impact renewals in addition to new policies, a potential concern for owners of older buildings requiring seismic upgrades and assets in wildfire zones.

Multiple severe thunderstorms threw a vicious punch at the commercial real estate industry in the first half of 2023, leaving it with the highest spike in premiums at 18.3%.

All commercial real estate asset classes are seeing rising premiums, according to a recent report from The Council of Insurance Agents & Brokers, as reported by GlobeSt.com.

Repeated severe weather the past half-year left CRE with the highest spike in premiums at 18.3%, tops of any industry category.

 

Source: Insurance prices per apartment unit rise 33% YoY

https://www.creconsult.net/market-trends/insurance-prices-per-apartment-unit-rise-33-yoy/

Commercial Real Estate Loan Modifications Quadruple, With Multifamily Leading The Way

Modifications on commercial real estate-related collateralized loan obligations spiked in the second quarter to $4B as more property owners sought refuge from encroaching maturity dates and rising interest rates.

That figure is a 300% increase from the first quarter, when $1B in CLOs were modified, according to DBRS Morningstar.

The modifications represent a number of different strategies to buy time for landlords, Morningstar said in its quarterly CRE CLO report. Those include increasing a loan balance, changing an interest rate, deferring contractual payments, extending a maturity date or allowing a borrower to access existing reserves.

“In most cases, lenders appear to employ modification strategies to assist borrowers in achieving business plans that are behind schedule,” the Morningstar report says.

Modifications on CLOs backing apartment properties grew to 10.6% quarter-over-quarter with an unpaid loan balance of $5B, according to the report.

Apartment owners in the Sun Belt in particular are feeling the pinch, Bloomberg reported, as a glut of new supply hits the market, denting rent growth as loans approach renewal.

Office and retail modifications grew at a slower pace, but office still has a higher share than multifamily, with 14.5% of office-backed CLOs modified in Q2.

The surge in modifications doesn't point to immediate collapse, according to DBRS Morningstar Vice President Stephen Koehler, who oversees CRE CLOs.

“It’s kind of a ‘Keep your eyes on this. Don’t forget about this,’ but not like a siren going off,” Koehler told Bloomberg.

CLO delinquencies edged up, according to Morningstar. In June 2023, the overall delinquency rate for CRE CLOs came in at 3.14%, a 15-basis-point increase from 2.99% in March but up 2.25% from a year earlier.

Special servicing on CLOs, however, dipped by 27 basis points from Q1, the first quarterly decrease in more than a year, Morningstar said.

Source: Commercial Real Estate Loan Modifications Quadruple, With Multifamily Leading The Way

https://www.creconsult.net/market-trends/commercial-real-estate-loan-modifications-quadruple-with-multifamily-leading-the-way/

1120 E Ogden Ave

New Listing | Retail-Office For Sale Naperville IL
eXp Commercial is pleased to present to market 1120 E Ogden Avenue, a highly visible 10,860 square foot retail-office property on 1.26 acres in desirable affluent Naperville, Illinois, along the I-88 E-W corridor approximately 28 miles west of Chicago. The property is currently owner-occupied and will be fully vacated shortly after closing, with the seller seeking approximately 60 days of post-closing possession. Flexible B3 zoning allows for a number of retail and office uses, ideal for an investor, owner-user, or redevelopment of the property.
Listing Broker: Randolph Taylor | rtaylor@creconsult.net

https://www.creconsult.net/retail-office-for-sale-1120-e-ogden-ave-naperville-il-60563/

Mastering the Art of Expensing & Accelerating Depreciation Course

Join eXp Commercial's Cost Segregation Partner CSSI for a comprehensive exploration of the intricate world of cost segregation and gain valuable insights to demystify the application of Tangible Property Regulations, resulting in significant reductions in your taxable income.

COURSE DESCRIPTION

Prepare for a comprehensive exploration of the intricate world of cost segregation and gain valuable insights to demystify the application of Tangible Property Regulations, resulting in significant reductions in your taxable income.

Unlock the artistry behind these regulations to maximize their advantages. We will dissect the most prevalent depreciation and expensing opportunities for clients who own and develop commercial real estate and short-term rentals.

Whether it's Commercial Buildings, Apartment Complexes, Long-Term or Short- Term Rentals, Disposition of Materials, or Interior Renovations, each presents unique opportunities for expensing and accelerating depreciation, provided you have a foundational grasp of the regulations and access to the requisite cost data.

Rather than drowning in the complexities of regulations as is often the case in presentations, we will utilize real-world scenarios encountered by building and short-term rental owners to assist you in crafting a strategy for expensing and accelerating depreciation, including leveraging Bonus Depreciation.

An integral aspect of our sessions is addressing your specific queries to empower you in confidently applying these regulations to meet your client's precise requirements.

Hundreds of Tax Professionals have consistently rated CSSI's team of presenters and content as excellent. We cordially invite you to join us for an engaging 1.5- hour discussion filled with strategic insights and ample time for addressing your inquiries. CPE credits are available for CPAs through our NASBA certified provider.

LEARNING OBJECTIVES

By the end of this lesson, attendees will be able to discuss advanced depreciation and expensing strategies related to cost segregation, including:

·     Common scenarios for expensing and accelerating depreciation using the Tangible Property Regulations and Cost Segregation
·     Advantages of Short-Term Rentals
·     When to use Bonus Depreciation vs Section 179a
·     Renovation Depreciation -- When to use Partial Asset Disposition (PAD) and Qualified Improvement Property (QIP)
·     Grouping Opportunities

REGISTRATION INSTRUCTIONS

·     You must register for and attend the entire session to receive CPE credit.
·     A course evaluation must be completed to receive CPE credit.
·     Group attendance will not be recognized. Each attendee must be logged in individually to receive credit.

Cost:
None

Subject Area:
Tax

CPE Credits:
1.5 Hours

Who Should Attend:
CPA - small firm
CPA - medium firm
CPA - large firm

Instruction Method:
Live Webinar

Time:
10:00 am Central time

Instructors:
David Deshotels
Robert Taylor

Webinar Date:
December 5, 2023 | 10:00 am Central

Register Here

 

https://www.creconsult.net/events/mastering-the-art-of-expensing-accelerating-depreciation-course/

Multifamily Permits Down 32.2% From a Year Ago

The pipeline for multifamily development has slowed due to continued challenges of higher interest rates and difficulty securing funding, and that includes filings of permits, according to RealPage.

Specifically, the seasonally adjusted annual rate for multifamily permitting in July of this year fell 32.2% from a year ago, according to the latest release from the Census Bureau. July’s annual rate was almost unchanged from June and represents the lowest since October of 2020.

What’s more, the more volatile multifamily starts rate almost matched that of permitting with July’s SAAR of 460,000 units equaling June’s starts rate. The annual rate of multifamily starts was about the same as a year ago.

Multifamily completions, meanwhile, plunged 38.8% from June to 297,000 units, down 23.3% from last July’s completion rate. The number of multifamily units authorized but not started decreased only 0.7% for the month to 133,000 units, down 10.7% from a year ago.

When looked at in different regions of the country, all four saw declines, with the biggest in the Northeast, which fell 42.7% to 47,0000 units. The South saw permitting slow 34.6% to 233,000 units; the Midwest was down 29.9% to 54,000 units and the West dropped 23.1% to 130,000 units. Starts were up only in the South from last year. Digging deeper, New York led the country in multifamily permitting, totaling 24,818 units through July or down by more than 16,000 units from a year ago. Houston followed in second place with 23,325 units permitted, an increase of 914 units from last year but 1,856 fewer than last month.

Single-family permitting and starts, by contrast, are inching up after bottoming at the beginning of this year. The SSAR for single-family permitting hit 930,000 units and increased slightly at 0.6% from June and 1.3% greater than a year ago. It was also a significant 24.3% higher than in January.

Single-family starts were also up to 983,000 units in July, up 6.7% from June and 9.5% up from last July. The starts rate improved almost 20% from its low point earlier in the year.

Single-family completions were up, too, 1.3% in July with the annual rate reaching 1.018 million units, up 1.4% for the year. And single-family units authorized but not started remained unchanged at 140,000 units from 141,000 units in June, down 5.4% from last year.

 

Source: Multifamily Permits Down 32.2% From a Year Ago

https://www.creconsult.net/market-trends/multifamily-permits-down-32-2-from-a-year-ago/

Multifamily demand is returning slowly leading to market stabilization

Multifamily demand is returning slowly leading to market stabilization; however, origination volumes will be below-average this year, reports Freddie Mac.

Multifamily investors are learning how to navigate a new reality. The market is returning to standard seasonal patterns, thanks largely to the strong labor market and increased household formations, which is supporting positive rent growth and stabilizing occupancy rates. Even better, the Federal Reserve has downgraded its expectation of a recession, a sign of broader economic optimism.

Healthy market fundamentals should help support multifamily investment in the second half of the year, though a high interest-rate environment continues to slow transaction activity. Freddie Mac’s Midyear Multifamily Outlook explains how despite macroeconomic headwinds impacting volume, positive momentum in the economy is helping to maintain multifamily market fundamentals.

Economic Optimism Encourages Multifamily Demand

Moody’s Analytics has downgraded its probability of a recession from 50% to 33% by the end of the year, and at the close of the July meeting, Federal Reserve chair Jerome Powell said that the staff is no longer expecting a recession this year. This renewed economic optimism, much of which has stemmed from a strong labor market and resilient consumer spending in the face of inflation, has supported a strong rental market.

“The idea that we can see some stability in the overall economy helps to lift expectations throughout the market, and we are seeing that with positive multifamily demand so far this year,” Sara Hoffmann, director of Multifamily Research at Freddie Mac, tells GlobeSt.com.

The strong labor market is driving household formation, which Hoffmann says is a key ingredient in supporting multifamily demand this year, despite broader market challenges. Low single-family housing inventory and high mortgage rates may also benefit multifamily demand this year.

Transaction and Origination Volumes May Continue to Lag

 

Although demand fundamentals may be enough to stimulate some investment activity, the high interest-rate environment will likely lower transaction volumes, and therefore loan origination volume, through the end of the year. Freddie Mac’s Midyear Multifamily Outlook expects origination volumes will fall 17% this year compared with 2022.

Origination volumes have been stymied by property valuations, which were down roughly 12% for the year. “Typically, we see property prices and origination volume move in tandem. When property prices are up, origination volume is up, and vice versa,” explains Hoffmann.

Freddie Mac’s report explains that national multifamily rents and occupancy levels will remain stable this year, but there is some concern regarding the high level of new supply entering the market.

However, Hoffmann explains that while multifamily fundamentals are expected to perform slightly below long-term averages this year, multifamily demand is slowly coming back. “The return of positive demand and modest rent growth indicate the multifamily market is stabilizing,” says Hoffmann.

Source: Multifamily demand is returning slowly leading to market stabilization

https://www.creconsult.net/market-trends/multifamily-demand-is-returning-slowly-leading-to-market-stabilization/

Office pain, multifamily gain: One million units built in three years, another million before 2025

The largest construction boom since the ‘70s. That’s right.

Considering the rental frenzy that ensued post pandemic, it’s no surprise apartment construction in the U.S. has seen groundbreaking numbers in the last few years. Since 2020, 1.2 million apartments were delivered, with over 460,000 more to be opened by the end of December, based on a new report by RentCafe.

Where does Chicago stand?

While New York City might have taken the lead this year, followed by Dallas and Austin, Texas, following close behind, Chicago had the 13th-highest number of new apartments completed in the last few years, adding 25,323 new apartments between 2020 and 2022.

Here’s where the largest number of apartments were opened during these years:

• Chicago: 15,356 units
• Warrenville: 865 units
• Kenosha: 585 units

But the momentum continues. Despite companies’ doubling down on in-office models, many employees aren’t ready to let go of the luxuries of working from home and still need the perfect place to do so. Luckily, there will soon be even more options. Here are the cities that will see the most apartments completed in 2023:

• Chicago: 1,857 units
• Vernon Hills: 748 units

Across the U.S., it’s been reported that the number of deliveries is expected to remain high until 2025 when the current economic headwinds will begin affecting construction, as wel

Source: Office pain, multifamily gain: One million units built in three years, another million before 2025

https://www.creconsult.net/market-trends/office-pain-multifamily-gain-one-million-units-built-in-three-years-another-million-before-2025/

Sale Leaseback Transaction Volume Rises 8.3%

Sale Leaseback Transaction Volume Rises 8.3%

Dollar volume of sale leaseback deals rose 8.3% to $5.1 billion in the second quarter over the first, while the transaction count remained in line with 165 versus 173 in comparing the same two quarters, according to SLB Capital Advisors.

Two significant transactions helped spur the dollar volume in the second quarter: Realty Income’s acquisition of EG America’s convenience store portfolio for $1.5 billion and Benderson Development Company’s acquisition of Kiewit’s corporate offices for $500 million. But most deals continue at lower numbers or in the $2.5 million to $25 million range.

Specific sectors fared differently and are worth noting. Industrial property transactions decreased from historical levels and represented only 39% of all transactions for the quarter. In contrast, retail, which many observers have worried about, represented an uptick and increased to its highest contribution level since the pandemic. 

 

 

Pricing trends. Sale leaseback cap rates have moved up 100 to 200 basis points from two years ago in 2021. The cap rate increase has been more pronounced in non-core markets for smaller credits with lower quality facilities. The impact has been less pronounced in core markets for higher quality facilities with stronger credits. Financing headwinds and inflation have been the two primary drivers, which have resulted in a risk-off environment for most buyers. Because the cost of capital has increased in the last 18 to 24 months, sale leaseback cap rates remain well inside company weighted average cost of capital or WACCs.

M&A arbitrage opportunity. In the second quarter, average purchase price multiples dropped across all deal sizes. While the M&A valuations have declined, this provides increasingly attractive sale leaseback value arbitrage across various industry sectors driven by the delta between business and real estate multiples. Attractive arbitrage opportunities are prevalent for the most part across many middle-market sub-sectors.

North American M&A activity. Deal value fell in the second quarter for a total of those closed or announced at a combined value of $467 billion. But the report said it should not be viewed as a dead market, just below the average pre-pandemic first half levels. The key reasons for less M&A activity are a risk-off financing environment and a mismatch between seller and buyer valuation expectations. Yet, corporate buyers who have strong balance sheets and sizable platforms are likely to benefit in this climate. 

 

Net lease REIT snapshot. Net lease REITs reported $5.4 billion in acquisitions for the second quarter, a rebound from the first when they were $3.1 billion. The reason is attributed to REITs taking a good share of acquisition volume. The net lease REITs reported $2.8 billion of equity offerings in the second quarter, up from $1.6 billion in the first quarter. 

By region. The South led in sale-leaseback activity by deal count, comprising 40% of all transactions. The Northeast led in dollar volume with $1.6 billion. In comparing dollar volume, the West closely followed the Northeast with $1.4 billion, then the South came in with $1.3 billion. Last place went to the Midwest with $0.8 billion. When looking at last year’s results, the West experienced the biggest decline in activity, dropping from $7.4 billion to $1.4 billion. The markets that face the most challenges are tertiary rather than core markets. But the good news is that sale leaseback pricing continues to be attractive across all geographic areas for those with strong credit and who are experienced operators, the report said

 

Source: Sale Leaseback Transaction Volume Rises 8.3%

https://www.creconsult.net/market-trends/sale-leaseback-transaction-volume-rises-8-3/

1120 E Ogden Ave

New Listing | Retail-Office For Sale Naperville IL
eXp Commercial is pleased to present to market 1120 E Ogden Avenue, a highly visible 10,860 square foot retail-office property on 1.26 acres in desirable affluent Naperville, Illinois, along the I-88 E-W corridor approximately 28 miles west of Chicago. The property is currently owner-occupied and will be fully vacated shortly after closing, with the seller seeking approximately 60 days of post-closing possession. Flexible B3 zoning allows for a number of retail and office uses, ideal for an investor, owner-user, or redevelopment of the property.
Listing Broker: Randolph Taylor | rtaylor@creconsult.net

https://www.creconsult.net/retail-office-for-sale-1120-e-ogden-ave-naperville-il-60563/

Grand Prairie 2nd

NEW LISTING: 4,408 SF Medical-Dental | Dallas-Fort Worth Market
eXp Commercial is pleased to present to the market a fully built-out, free-standing 4,408-square-foot medical/dental office building in Grand Prairie, Texas, centrally located 22 miles southwest of downtown Dallas and 26 miles southeast of downtown Fort Worth. Though the current use is for a dental office, the property is zoned PD267A (commercial development), allowing for a variety of medical and dental uses. The property is owner-occupied and will be vacated at closing, providing an ideal opportunity for another dental practice or any number of medical office users to utilize the property for their practice or an investor who works with medical office tenants to take advantage of an investment opportunity.
Listing Brokers:
Tyson Grona | tyson@tysongronagroup.com | 936.444.3635
Randolph Taylor | rtaylor@creconsult.net | 630.474.6441
https://properties.expcommercial.com/1253332-sale

Expenses for Apartment Owners Continue to Outpace Rents

Expenses for Apartment Owners Continue to Outpace Rents

There was an 8.6% spike in expenses in Q2.

Operational costs for apartment companies grew by 8.6 percent on average year-over-year in the second quarter of 2023, according to a new report from Marcus & Millichap.

Effective rents rose at nearly twice the pace of expenses during the yearlong period ending in June 2022, but those trends inverted over the following 12 months due to “persistent inflationary pressures,” the report said.

Expense growth began to taper after peaking at the end of last year. 

Nonetheless, this is all adding up to higher debt costs, coupled with rapid insurance hikes, leading to stalled project proposals and delays at build sites. 

“Some developers may shorten hold times upon completion to tap cash after unexpected cost adjustments strained budgets,” the report said.

The cost hikes in the past year were most visible in turnover, marketing, and especially insurance costs, with each rising by more than 10 percent year-over-year.

Also factoring negatively to their bottom lines were rising costs in administrative, taxes, management, and payroll, which each grew more than 7 percent. 

Last month, GlobeSt.com reported that operating expenses on average had risen 28%.

In some worst cases, property owners and developers in Florida are bracing for potential insurance increases of more than 200 percent.

Indeed, ballooning insurance rates have been the primary catalyst for expense growth, increasing by 33 percent year-over-year on average in Q2 2023.

Nowhere is this worse than in natural disaster-prone metros, which command costlier insurance premiums, and yet, continue to attract renters and homeowners.

The six major Florida metros each saw insurance costs rise at a faster pace than the national mean over the past 12 months. Insurance rates per unit in these Florida markets exceeded the overall US metric by $35 to $175 on average in Q2 this year, according to the report.

Other locations with notable insurance hikes over the past year include Kansas City, Oakland, Orange County, and Phoenix. Midwest and select Sun Belt markets enjoy lower premiums. 

Marcus & Millichap reported that insurance costs per unit rose by less than 10 percent year-over-year on average in just five major US markets as of Q2 2023, including Columbus, Detroit, Milwaukee, Pittsburgh, and St. Louis.

Other metros such as Charlotte, Las Vegas, Raleigh, and Reno, meanwhile, had relatively mild adjustments and remained among the 10 lowest major markets for insurance costs per unit. Some developers and investors may shift their attention to these locations, according to the report.

 

Source: Expenses for Apartment Owners Continue to Outpace Rents

https://www.creconsult.net/market-trends/expenses-for-apartment-owners-continue-to-outpace-rents/

Here’s Why Deals Will Increase in Q4

Here’s Why Deals Will Increase in Q4

There is more certainty around valuations from both buyer and seller.

There is less buyer/seller disconnect in the marketplace as the frequency of interest rate hikes and the size of those hikes have decreased, according to Marcus & Millichap.

Buyers and sellers are beginning to better understand the value of the real estate, John Sebree, Senior Vice President, Multifamily Housing Division, Marcus & Millichap, said in a recent news video.

 

“Buyers and sellers are getting much closer to the middle ground or that common place where they can agree on the value,” he said.

“And as a result, combined with the amount of fundamental activity that we’ve seen increase over the past 90 days, we are looking at the fourth quarter and feeling pretty confident that the amount of transaction velocity and the number of closings we’re going to see in the marketplace will increase substantially.”

 

Because the number of buyers is somewhat limited, they can do deals with little competition, according to Sebree.

“We also know there are a tremendous amount of funds on the sidelines waiting for the opportunity to jump back in, which will increase the competition for available assets,” he said.

There’s been substantial uncertainty on underwriting lately, such as in taxes, insurance, and utilities. But that has calmed down a bit lately, he said.

 

“Looking ahead, we know the number of properties that are going to be coming to market is going to increase,” according to Sebree. “We know that simply from our BOV activity and our conversations with owners. We also know, based on our conversations, that the number of buyers in the marketplace is increasing and will continue to increase.”

He said interest rates are one factor that must be monitored because of its uncertainty. 

“But overall, I’m very optimistic about what I see on the horizon,” Sebree said.

 

Source: Here’s Why Deals Will Increase in Q4

https://www.creconsult.net/market-trends/heres-why-deals-will-increase-in-q4/

Multifamily Market Updates November 2023

Multifamily Market Updates November 2023
eXp Commercial Multifamily Division: Chicago

Cooling Future Deliveries Set the Stage for a Rent Growth Comeback

Cooling Future Deliveries Set the Stage for a Rent Growth Comeback

CALABASAS, Calif.--(BUSINESS WIRE)--Institutional Property Advisors (IPA), a division of Marcus & Millichap (NYSE:MMI), published a new national report, Pullback in Multifamily Construction Starts.

“As access to development capital across the country diminishes and rent growth slows, multifamily starts are cooling,” stated Greg Willett, first vice president and national director, research services, IPA. “Among the 15 markets that account for over half of the nation’s ongoing apartment construction, building starts in the second quarter of 2023 totaled just under half the average volume recorded during the previous two years.”

Pullback in Multifamily Construction Starts research report provides investors with the latest apartment construction research and analysis, including key findings such as:

• The largest declines are in Texas, with second quarter 2023 project initiations in Houston, Austin and Dallas-Fort Worth at less than one-third the earlier volume. Slowdowns are also pronounced in Philadelphia, Denver, and Washington, D.C.
• Pullbacks in new construction that mirror the average for the 15 markets under study are in Los Angeles at 52%, Seattle at 51% and Atlanta at 50%.
• Markets where the pullback in construction is somewhat slower to materialize are in Florida and the Carolinas. Raleigh-Durham is the single location in the analysis where apartment construction starts in Q2 2023 remained in line with the volume recorded in early 2021 through early 2023.
• Given that the typical apartment property takes 18 to 24 months to complete, delivery volumes should begin to wane in early 2025 and then drop notably during the last half of the year.

“Rent growth is likely to regain momentum as early as spring 2024, when the normal seasonal upturn in leasing velocity should coincide with obvious signs that today’s new supply excess is temporary,” added John Sebree, senior vice president and national director of the firm’s Multi Housing Division. “Price increases should prove robust during 2025.”

Just over one million apartment units are now under construction across the U.S. However, building is not booming everywhere. About half the total construction pipeline is in 15 markets, where a slowdown in local starts will impact overall statistics. Most of the primary building centers are in the Sun Belt, but there’s also notable activity in Washington, D.C., Los Angeles, Seattle and Philadelphia.

Apartment construction starts in the 15-market core building locations skidded to 30,800 units in the second quarter of 2023. That start volume is off 52 percent from the quarterly norm of 64,200 that was sustained for nine quarters from early 2021 through early 2023. Absolute peak quarterly starts totaled 81,500 units from April through June 2022.

Given that the typical apartment community takes 18 to 24 months to complete, delivery volumes should begin to wane in early 2025 and then drop notably during the last half of the year. Rent growth seems likely to regain momentum as early as spring 2024, when the normal seasonal upturn in leasing velocity should coincide with obvious signs that today’s new supply excess is temporary. Price increases should then prove robust during 2025.

https://www.creconsult.net/market-trends/institutional-property-advisors-releases-national-multifamily-construction-report/

Looking for signs of a sales boost in the multifamily sector

Like all commercial real estate sectors, the multifamily market has seen sales slow since the Federal Reserve Board started increasing its benchmark interest rate. But are there signs that sales activity might pick up next year? There might be.

Let’s start with the big question: How have higher interest rates impacted the multifamily sector?
Jeremy Morton: The interest rates have a direct effect on pricing and how buyers underwrite buildings. Sales activity has tightened. It’s more important than ever for buyers to have a good relationship with lenders, whether those lenders are local or national.

I did a handful of valuations in the spring in which interest rates were almost a point lower than where they are today. Those were brought to market and we slowly saw the interest rates tick up. Obviously, that has a correlation on pricing. There is a gap between buyer values and seller expectations. That’s why multifamily sales were slower in July and early August.

From what I understand, though, you have seen signs that we might see at least a small increase in sales activity in the coming months.
Morton: It is deal-specific. But in the last few weeks, we have seen an uptick in buyers interested in seeing buildings for sale and writing offers. That also has to do with sellers correcting their expectations. We have seen a few price reductions in listings in the last month. Buyers are active. It’s all about bridging the gap on the pricing.

We are still putting deals together. But things are moving a little slower. In terms of financing, it is taking more time to get everything lined up. No one is just slamming the financing together. Everyone is spending more time and due diligence on the front end, which is the key to getting deals done.

Activity is still solid, but there is a little more hesitation, a little more going over deals with a fine-tooth comb. Instead of touring a building and making an offer that afternoon, buyers might spend a solid week reviewing the deal with brokers and lenders, checking the numbers.

Are you seeing that gap between what buyers expect to pay and sellers want to sell for starting to tighten?
Morton: I definitely am. Previously as brokers, we could market these properties on future rental growth. We can still do that, but it has to check out on current cash flow. Six months ago, as long as buyers were breaking even on their current cash flow, that was fine. Now we need a little more cushion. Some lenders are requiring nine months of reserves to make sure there aren’t any delinquencies.

We are trying to be more transparent with everyone today, sellers in particular. Before sellers could shoot for a higher number and hope there would be a buyer who falls in love with the building. Today, you need to be more careful on how you underwrite buildings, otherwise you’ll be left with a stagnant building that won’t sell.

In the late spring and early summer, we had honest talks with sellers to help bridge that gap.

How strong is leasing activity in that sector? Interest rates haven’t slowed leasing demand, right?
Morton: Leasing is doing well. The new-construction multifamily buildings that I have been watching have been leasing out quickly with little to no concessions. The units with a greater number of bedrooms take a little longer to lease. There’s just a smaller number of renters looking for that size of a unit. But the one-bedroom and two-bedroom units are renting quickly while rental rates have gone up a little bit. Units are not staying vacant for long.

Back to sales activity. Are buyers and sellers waiting for some stability when it comes to interest rates? Are they waiting for the Fed to stop tweaking its benchmark rate?
Morton: That is the hope. I’ve talked to a good number of buyers. They want to buy right now. In their mind, they are confident that interest rates will go back down to some degree. When they go down, cap rates will follow. If they can buy at a higher interest rate and if they cover all their expenses and have some sort of return that they are comfortable with, they are happy. They are confident that in 12 months or so, if rates go down, the value of the property will go up. It is all about the relationship between interest rates and cap rates.

The multifamily sector has been one of the strongest commercial real estate performers for a long time. What are some of the reasons for this?
Morton: In Chicago, there is a great inventory of multifamily properties. But we still have not been able to keep up with rental demand. The higher interest rates have kept some people from buying single-family homes. There were people who planned to buy a home but instead are renting because rising interest rates makes buying a home too expensive. They are deciding to rent longer than they would have otherwise. Because there is less turnover with available rental units, there is a growing demand for apartments. Lenders are putting units up for rent and sometimes getting 20 or 30 people who want to rent that space.

As we saw through COVID, people put a focus on where they live. They pay their rent on time. More people are working remotely. They are in their homes longer during the day and they are prioritizing where they live. If they are struggling financially, they do everything they can to pay their rent first.  Collections are high. Lenders are friendly when it comes to multifamily. They like the sector, too.

 

Source: Looking for signs of a sales boost in the multifamily sector

https://www.creconsult.net/market-trends/looking-for-signs-of-a-sales-boost-in-the-multifamily-sector/

1120 E Ogden Ave

New Listing | Retail-Office For Sale Naperville IL
eXp Commercial is pleased to present to market 1120 E Ogden Avenue, a highly visible 10,860 square foot retail-office property on 1.26 acres in desirable affluent Naperville, Illinois, along the I-88 E-W corridor approximately 28 miles west of Chicago. The property is currently owner-occupied and will be fully vacated shortly after closing, with the seller seeking approximately 60 days of post-closing possession. Flexible B3 zoning allows for a number of retail and office uses, ideal for an investor, owner-user, or redevelopment of the property.
Listing Broker: Randolph Taylor | rtaylor@creconsult.net

https://www.creconsult.net/retail-office-for-sale-1120-e-ogden-ave-naperville-il-60563/

New Listing Indian Creek Apartments 1015-1025 N Farnsworth Ave Aurora IL 60505

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For Sale Multifamily

1015-1025 N Farnsworth Ave | Aurora, IL 60505

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$3,000,000

Sale Price

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Property Details

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Price

Total SF

Built

Units

Occupancy

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$3,000,000

23,652

1973

24

100%

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Price / SF

Price / Unit

Cap Rate
(Current)

Cap Rate
(Proforma)

 

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$127

$125,000

5.73%

8.66%

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Description

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eXp Commercial is pleased to present to market Indian Creek Apartments, a fully occupied 24-unit multifamily complex on the northeast side of Aurora, Illinois, bordering affluent Naperville, Illinois, just to the east. The property is in good condition, with considerable upside in rents with modest unit updates. All units have separately metered tenant-paid water, sewer, electricity, heat, and hot water. Also offered is an attractive low-interest assumable debt of $1.453 million at a 3.32 percent interest rate not due until December 2028. Note that additional debt is not allowed with Freddie Mac debt; therefore, this provides for an approximately 50% LTV. Assumable and new debt assumption scenarios are outlined in this offering memo as well.

 

The property is comprised of two adjacent three-story, 12-unit apartment buildings on three parcels with frontage along busy Farnsworth Ave., proving no-cost marketing. The central parcel is a buildable lot offering expansion opportunities for a third 12-unit multifamily building. The unit mix consists of 22 spacious two-bedroom, one-bath units and two one-bedroom, one-bath units, each with an eat-in kitchen, pantry, and large living room. Each building has an on-site laundry room with two sets of owned washers and dryers as an added amenity for tenant attraction and retention and added income.

 

The property has recently completed its City of Aurora Building Inspection and is clear of all building code violations except for windows. A Buyer will be responsible post closing to be in compliance with this building code that every window, other than a fixed window, shall be easily openable and capable of being held in position by window hardware and all windows have insect screens.

 

The property is ideally situated minutes south of the Interstate 88 East-West Tollway near the intersection of North Farnsworth and East Indian Trail on the northeast side of Aurora, Illinois. Located 35 miles west of Chicago, Aurora is the second-largest city in Illinois and home to a number of major employers, including Farmers Insurance Group, Rush-Copley Medical Center, Waubonsee Community College, and Provena Medical Center.

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Highlights

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• Fully Occupied 24-Unit Multifamily Property

• Considerable Upside in Rents

• Assumable Low-Interest Debt

• All separate tenant-paid utilities

• Additional central buildable lot Included

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• Low-Maintenance Tenant-Paid Electric Baseboard Heating

• On-site Owned laundry facilities

• High-visibility site on a busy road for marketing

• Good condition with newer roofs and copper plumbing

• Desirable Northeast Side of Aurora, Near Affluent Naperville

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Map

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924 E Willow St Kankakee, IL 60901

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Broker

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Randolph Taylor

Senior Associate
eXp Commercial
C: 630.474.6441
E: rtaylor@creconsult.net

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[/ux_text] [ux_html] [/ux_html] [/col] [/row] [/section] https://www.creconsult.net/market-trends/new-listing-indian-creek-apartments-1015-1025-n-farnsworth-ave-aurora-il-60505/

Why Real Estate Investors Need Professional Property Management

As economic pressures grow, owners and investors increasingly look to professional property management for end-to-end solutions.

Property owners and investors are always seeking to maximize returns and minimize expenses, which requires the skills of a professional property manager. Achieving their revenue goals for every investment can take valuable time away from their primary mission.

“Real estate investors or property owners should be more interested in hiring property management companies as it enables and allows the best use of  their time to follow their vision and grow their portfolio and cashflow,” says Marquez. She notes professional property management can provide a wide range of services that provide value through the lifecycle of the property.

Property management has gone hi-tech and full-service. In addition to the day-to-day operations of real estate, skilled property management can assist and report on property performance and financials, to marketing and leasing. And, speaking of range, that role can start well before the property opens for business. Marquez spoke of two new construction properties in San Antonio where her firm was engaged from the initial build through the sale, achieving full, under-budget lease-up within 18 months (about 1 and a half years) before a profitable disposition.

“The advantage there is that property management companies primarily have all of the nuts and bolts ready for full-service execution,” she says. “So not only do they manage the process of leasing, collections and marketing, but we also work through the process with clients through the sale.”

Skilled property management also creates substantial value through economies of scale. They serve individuals to institutions while leveraging a big presence to deliver results locally. Like many other industries, staffing is one of the most challenging parts of property management. Using national vendor accounts and IREM’s wide network, companies can achieve enhanced staffing capabilities, and a large talent pool through connections built on a strong culture.

“Culture is extremely important,” Marquez says. “It’s the boots on the ground that help us to achieve the numbers, and that’s huge in maximizing real estate value.”

A Lifecycle of Value

Marquez advises that investors should consult property managers “in the very beginning” when considering an asset: a manager’s unique experience during ownership can also identify critical issues during the decision to buy.

“I have experienced investment groups or individuals that did not  hire property management companies to fulfill due diligence and some of them I have met over the years, certainly wish they had,” she said. “Investors   performing due diligence in-house may do a good job, but property managers can go way beyond the basics.”

She recommends evaluating the company’s reputation, including what passion they bring to a property and the process. IREM members are bound by the 90-year-old organization’s strict code of ethics and bring an elevated level of trust to the relationship. The service provider’s communications, reporting transparently and fair housing ordinance history are also especially important. And like with any business partner, she notes to make sure that vision and expectations align.

“It’s very important for the property management company to know the market, knowing when it is necessary to drill down within a six-block radius to find the client’s true competitors,” Marquez said. “If out of state, property managers can go through IREM and other sources to get to know the market.”

 

Source: Why Real Estate Investors Need Professional Property Management

https://www.creconsult.net/market-trends/why-real-estate-investors-need-professional-property-management/

Four Types of Property Ownership and the Transfer of Title

Little is more rewarding for a real estate agent than turning over the keys. You know that some new owners plan to live there for a lifetime and pass it on to their children, while others hope to build up enough equity to move on to something larger or at least establish that equity as the cornerstone of their estate. But what if an owner should die unexpectedly – or worse, without a will? How can owners assure that ownership of their home will be passed on as they wished?

The answer lies in how they hold title to the property. There may be slight variations on exactly how each ownership type works in different estates, but below is a general overview of the different ways to hold property.

• Sole Ownership – In this scenario, property is owned entirely by one person, who can do whatever he or she wishes with it without permission from another party. If the sole owner dies without a will, the property passes according to the state law where it is located. In some cases, the court that has jurisdiction will appoint an executor to oversee disposition of the estate.

• Joint Tenancy – As joint tenants, each person who has a share of ownership owns an equal share of the property. If one owner dies, that share passes automatically to the remaining owners.

• Tenants in Common – In this case, a property is owned by two or more people at the same time, but the proportionate interests and right to possess and enjoy the property need not be equal. The owners can sell their share of the property if they wish, and, upon death, the descendant’s interest passes to his/her heirs who then become new tenants in common with the surviving owners. (None of the tenants in common automatically receive the share of the descendant.)

• Community Property – In the nine states that recognize community property, including California, any property you acquire while married is considered community property, and is equally owned between you and your spouse. This becomes especially relevant in the event of divorce.

If there are detailed questions about ownership, you should consult a lawyer. However, it is a good idea to have a basic understanding of the different types of ownership.

 

Source: Four Types of Property Ownership and the Transfer of Title

https://www.creconsult.net/market-trends/four-types-of-property-ownership-and-the-transfer-of-title/

Grand Prairie 2nd

NEW LISTING: 4,408 SF Medical-Dental | Dallas-Fort Worth Market
eXp Commercial is pleased to present to the market a fully built-out, free-standing 4,408-square-foot medical/dental office building in Grand Prairie, Texas, centrally located 22 miles southwest of downtown Dallas and 26 miles southeast of downtown Fort Worth. Though the current use is for a dental office, the property is zoned PD267A (commercial development), allowing for a variety of medical and dental uses. The property is owner-occupied and will be vacated at closing, providing an ideal opportunity for another dental practice or any number of medical office users to utilize the property for their practice or an investor who works with medical office tenants to take advantage of an investment opportunity.
Listing Brokers:
Tyson Grona | tyson@tysongronagroup.com | 936.444.3635
Randolph Taylor | rtaylor@creconsult.net | 630.474.6441
https://properties.expcommercial.com/1253332-sale

Four words that sum up the apartment search in Chicago? A real “suite” challenge

Apartment seekers in Chicago are in for quite the challenge (Seriously, I toured 10 units in the last few weeks alone). But what if we told you snagging a suburban rental is even harder?

Actually, the challenge persists all across the Midwest. And while it’s great for the regional economy, it’s not so great for renter morale—or their wallets.

Though Miami was the most competitive rental market during this summer’s peak moving season, the Midwest has been declared America’s hottest apartment region, due to the wide range of housing options and a lower cost of living compared to the coasts.

In their newest report, RentCafe analyzed 139 markets in the U.S. where data was available, by using five relevant metrics to rank the nation’s hottest renting spots in peak season: (1) the number of days apartments stayed vacant; (2) the percentage of apartments that were occupied by renters; (3) how many renters applied for the same available apartment; (4) the percentage of renters who renewed their leases; and (5) the share of new apartments opened recently. To determine the rental market’s competitiveness, they calculated a Rental Competitivity Index (RCI). In peak rental season, the national score was 60, which means that the apartment market was moderately competitive during the year’s busiest time for renting.

Let’s get into it.

First up on the list, Milwaukee, Wisconsin, emerged as the second most competitive rental market in the country in peak rental season, with a RCI score of 116. Available rental apartments here fill within a month, with 16 renters competing for each vacant unit.

Following as the fourth-hottest rental market in the country, Suburban Chicago boasted a RCI score of 112. Cities like Joliet, Aurora, Naperville, Elgin or Skokie in Illinois—stretching as far as Gary and Hammond in Indiana—offer more space and a less congested place to call home, driving competition, based on the report.

In fact, Suburban Chicago climbed six spots since the start of the rental season. And with less that 5% of the rentals here available and little to no apartments built recently, 67.3% of apartment dwellers in the area decided to just stay put.

Not to mention, RentCafe reported that those who are looking for a new home must compete with 14 other renters to secure an apartment. On average, a vacant unit in Suburban Chicago is occupied within 33 days.

Other Midwestern markets that are highly competitive include Grand Rapids, Michigan; Omaha, Nebraska; Kansas City, Kansas; Cincinnati; and Chicago.

 

Source: Four words that sum up the apartment search in Chicago? A real “suite” challenge

https://www.creconsult.net/market-trends/four-words-that-sum-up-the-apartment-search-in-chicago-a-real-suite-challenge/

1120 E Ogden Ave

New Listing | Retail-Office For Sale Naperville IL
eXp Commercial is pleased to present to market 1120 E Ogden Avenue, a highly visible 10,860 square foot retail-office property on 1.26 acres in desirable affluent Naperville, Illinois, along the I-88 E-W corridor approximately 28 miles west of Chicago. The property is currently owner-occupied and will be fully vacated shortly after closing, with the seller seeking approximately 60 days of post-closing possession. Flexible B3 zoning allows for a number of retail and office uses, ideal for an investor, owner-user, or redevelopment of the property.
Listing Broker: Randolph Taylor | rtaylor@creconsult.net

https://www.creconsult.net/retail-office-for-sale-1120-e-ogden-ave-naperville-il-60563/

Here's Where To Find the Nation's Strongest and Weakest Apartment Rent Growth

Chicago Posts Top Rent Growth, Outpacing Other Major Markets

For the first time in more than 20 years, Chicago’s apartment rent growth is the highest among its major market peers over the course of three consecutive quarters.

Apartment rents in Chicago are rising 3.6% annually, three times higher than the national average of 1.2%. Chicago’s annual rent growth also is more than five times the average of nearly 20 other major metropolitan areas.

Boston, with annual rent growth of 3.4%, is in second place. Philadelphia came in third with annual rent growth of 2.6% — almost 30% lower than Chicago’s. The markets with the lowest annual rent growth were Austin, Texas, then Phoenix, Arizona, and Atlanta, Georgia, all posting year-over-year respective losses of 3.9%, 2.5% and 2.3%.

While Chicago’s apartment rent growth rate may be tepid at times, it is frequently steady. As such, Chicago’s apartment rent gains never topped the 7.9% growth it posted during the first quarter of 2022, while other markets’ rents went sky high. Though the current 3.6% year-over-year rent growth rate is lower than the rate posted 20 months ago, it is above the market’s 2.3% all-time average.

Contrast with Phoenix, which recorded annual multifamily rent growth of almost 20%, while annual growth in Austin and Atlanta topped 17% during 2022's first quarter. These three markets may be settling into a period of price adjustment for area residents.

Chicago’s multifamily market is also balanced with a just-in-time inventory mindset. For example, the 13,000 units in the under-construction pipeline represent an inventory expansion of only 2.3%. To put this number into context, the national average for inventory growth is 5.2%, while the identified 20 major markets are expanding by 6.8% on average.

With no inventory boom putting outsized pressure on established area landlords to lower their rents to fill their units, owners of three-star apartments are in a unique position to raise their rents in response to demand in the market.

It is no wonder that with limited new inventory competition, three-star properties, which dominate Chicago’s landscape, can maintain their rent growth ascendency established almost a year ago. Therefore, CoStar’s multifamily rent growth forecast calls for three-star properties’ yearly dominance over one- and two-, as well as four- and five-star properties to persist through at least the second quarter of 2024.

 

Source: Here’s Where To Find the Nation’s Strongest and Weakest Apartment Rent Growth

https://www.creconsult.net/market-trends/heres-where-to-find-the-nations-strongest-and-weakest-apartment-rent-growth/