More Tenants Working From Home Means New Expectations Of Landlords And Amenities

 

CLA's Carey Heyman, Universe Holdings' Henry Manoucheri, AXIS/GFA's Cory Creath, Roundtree Properties' Tammy Harpster and Greystar's Kesha Fisher

With more and more tenants working from home, multifamily landlords are making adjustments to interior design, property management and amenities to keep up.

Nearly 19 months after the onset of pandemic lockdowns, adjustments that might once have been predicted to be temporary — working from home, dealing with high package volumes — are still very much influencing the multifamily market and how owners approach attracting and retaining tenants, real estate industry professionals speaking at Bisnow’s Multifamily Annual Conference West event said Tuesday.

“I don't think that work-from-home is going anywhere,” Greystar Senior Director of Real Estate Operations Kesha Fisher said. “And so you're going to have to ensure that you have different types of amenities.”

Developers are designing spaces with the anticipation that tenants will be working from home through modern changes to common and private spaces. The shared business center of old has been replaced by a WeWork-type space with individual pods for working in, Fisher said. In-unit changes range from creating nooks that can function as workspaces or adding USB chargers to all the outlets, she said.

Resident services are also increasingly important, Fisher said. Greystar has started using third-party providers to accommodate higher package volumes that have increased exponentially in the wake of the coronavirus. Greystar has also noticed an 80% increase in pets across its portfolio, which has led landlords to introduce pet amenities — dog runs or so-called yappy hours — as a tenant retention tool.

“If I love my neighbor and our dogs are friends, I'm going to stay there longer,” Fisher said.

Residents working remotely and spending more time in their apartments has translated into some higher expenses for property owners. Roundtree Properties CEO Tammy Harpster said utility bills are higher, prompting the firm to look at solar panels as a possible mitigator to reduce some of the higher overhead costs.

Another owner side effect: Tenants are far more attentive to the time frame it takes for owners to respond to their requests for repairs. Because more people are spending more time in their homes, there is a greater urgency to respond to noncritical maintenance requests, Harpster said.

“It might not be an emergency, but when they see it all the time, it's an emergency for them,” Harpster said.

The rent debt that many tenants now carry in the wake of the coronavirus pandemic is still very much weighing on the minds and bottom lines of industry leaders.

Fisher, Harpster and Universe Holdings CEO Henry Manoucheri all said that money from more than $1B of state funds for rent relief has begun to flow in. Fisher said Greystar has received about $300K in rental relief for back rent at California properties. Manoucheri said he’d received about $600K so far, though he voiced a concern that many of his tenants who are receiving assistance don’t actually need it.

“You have to make sure that you're looking at the rental assistance portal, you have to make sure that you're talking to caseworkers, and we do see that that recovery in California is happening,” Fisher said. “It's happening slowly, but it is happening.”

AXIS/GFA Architecture + Design Founding Principal Architect Cory Creath also spoke on the panel, which was moderated by CLA Principal of Real Estate Carey Heyman.

 

Source: More Tenants Working From Home Means New Expectations Of Landlords And Amenities

https://www.creconsult.net/market-trends/more-tenants-working-from-home-means-new-expectations-of-landlords-and-amenities/

Is a Bubble Forming in Commercial Real Estate?

 

• The big question on many investors’ minds – “Is a bubble forming in CRE?”
• From a macro level, Retail, Urban Office and Suburban Office are clearly not in a bubble
  • -  Price growth has been moderate, and fundamentals have kept pace with price gains
• While Apartment values have climbed considerably, historically strong vacancy and rent growth support strong appreciation – Structural housing shortage also a strong tailwind
• Similarly, Self-Storage price gains are backed up by record property performance
  • -  Vacancy at all-time low and rent growth is strong
  • -  COVID helped quell overdevelopment risk, keeping supply and demand in balance over the short-term
• Even Industrial, where exuberance has been strongest, is likely not in bubble territory
  • -  Vacancy, rent growth and NOIs support the aggressive price appreciation
  • -  eCommerce and supply chain disruptions provide long-term tailwinds to the industry
• Investors should closely monitor the supply and demand outlook for the next 3 to 5 years

 

https://www.creconsult.net/market-trends/is-a-bubble-forming-in-commercial-real-estate/

Congress wants to kill the 'backdoor Roth IRA.' Here's what it means for you

 

 

Tax-free savings in retirement are great to have at your disposal. But provisions in the Build Back Better bill would limit some of the ways to accrue them in the future -- at least for high-income savers. The provisions are included in the version of the bill that recently passed the House, and is set to go to the Senate for consideration in December.

No more 'backdoor' conversions to Roth IRAs

A key way to build tax-free savings is to contribute to a Roth IRA.

While you won't get a tax break for your contributions to a Roth IRA, the after-tax money you put in will then grow tax-free and can be withdrawn tax-free once you reach retirement age. In 2022 you can contribute up to $6,000 a year ($7,000 if you're 50 or older).

High earners, however, are prohibited from contributing directly to a Roth IRA if their modified adjusted gross income in 2022 is at least $144,000 ($214,000 if married).

But they can still create a Roth IRA through a so-called "backdoor" strategy that involves converting their other IRA savings.

Although high-income taxpayers are precluded from making deductible contributions to a traditional IRA, they are allowed to make non-deductible ones.

In transferring a non-deductible IRA to a Roth, you would owe tax on the gains that had accrued on your contributions. That's avoidable, however, if you make the conversion immediately after making your non-deductible IRA contribution, since there would be no time for the money to grow.

But this strategy may get the ax. Starting next year, the House-passed bill would prohibit all taxpayers from converting their after-tax contributions using this "backdoor" conversion method to a Roth IRA.

No more 'mega backdoor' conversions to a Roth 401(k) either

The bill would also prohibit a similar strategy that is currently permitted when it comes to Roth 401(k)s.

Roth 401(k)s are another great way to build tax-free retirement savings and they are now offered by a majority of employers that offer tax-deferred 401(k) plans. Unlike Roth IRAs, Roth 401(k)s do not have any income eligibility rules and they allow for much higher contributions -- up to the 401(k) limit of $20,500 starting next year ($27,000 if you're at least 50).

On top of that, your employer also may let you make after-tax contributions to your regular 401(k), the gains on which would be taxable when you withdraw them. Under current law, you may convert those pre-tax and after-tax savings from your 401(k) account into a Roth and thereby skip having to pay taxes on future withdrawals.

In total, savers effectively can sock away up to $61,000 next year ($67,500 if you're at least 50) -- once your contributions, your employer match and your after-tax contributions are counted.

So for high-income earners, it is possible to convert large sums of money into a Roth 401(k) through what's known as a 'mega backdoor' strategy. Under the bill, however, starting next year, taxpayers would be prohibited from converting the after-tax portion of their 401(k) savings into a Roth.

Then, a decade from now -- in 2032 -- anyone with modified AGI over $400,000 (or $450,000 if married and filing jointly) would also be prohibited from converting their pretax savings into a Roth. That would apply whether their pre-tax savings come from their 401(k) or a traditional, deductible IRA.

What won't change

There is no predicting whether lawmakers will preserve the Roth restrictions in the House-passed Build Back Better bill -- or even if the bill itself will become law. But if the prohibitions on backdoor Roth conversions do survive, Roth IRAs, Roth 401(k)s and Roth conversions will still be useful vehicles for the many savers who meet the income and other eligibility rules governing Roths.

And nothing likely will change for anyone when it comes to their 2021 savings strategies. "We're executing 2021 contributions [and] conversions by December 31 as our best thinking is the bill will have no effect on 2021. For 2022 and beyond, we're taking a wait-and-see approach," said New Jersey-based CPA and certified financial planner Joseph Doerrer.

But for his high-income clients, Doerrer said he is strategizing when and what portion of their savings it makes sense to convert to a Roth before the window potentially closes for them in 2032.

"We're modeling out smaller piecemeal conversions, if we have any favorable play in their tax brackets, to chip away at their pre-tax balances in the event there is the 10-year or so proposed window after which Roth conversions would be unavailable to higher income individuals."

For Florida-based certified financial planner Mari Adam, her advice to clients remains the same regardless of the fate of the Roth provisions in the bill.

"Save consistently, spend moderately and invest for the long-term," she said. "The only advice I would add? Stay nimble. Tax rules change, so stay flexible and avoid committing to any financial strategy that can't easily be undone when the tax regime changes."

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Source: Congress wants to kill the ‘backdoor Roth IRA.’ Here’s what it means for you

https://www.creconsult.net/market-trends/congress-wants-to-kill-the-backdoor-roth-ira-heres-what-it-means-for-you/

US Property Price Growth Breaks Records as Demand Swells

 

The headline rate of U.S. property price growth climbed to the fastest annual rate in the history of the RCA CPPI in October amid intense investor demand for commercial real estate. The RCA CPPI National All-Property Index rose 15.9% from a year ago and 1.7% from September, the latest RCA CPPI: US report shows.

For the year through October, investors acquired $523.8 billion of commercial property assets, a 70% increase on the same period in 2021, as shown in the US Capital Trends report, also released this week.  Investors spent more than $200 billion on apartment properties in the first 10 months of 2021, almost double the activity seen at this point in 2020, and more than $100 billion on industrial properties.

Industrial prices rose 18.9% in October from a year ago and 1.9% from September, the fastest annual and monthly rates among the major property sectors. The apartment index climbed 16.8% from a year ago, the fastest rate in the history of the RCA CPPI for this sector. Apartment prices rose 1.4% from September.

The office index increased 13.7% year-over-year in October, a fourth consecutive month of double-digit growth. Suburban office prices continued to drive gains, increasing 15.6% from a year prior. The CBD office index rose 0.9% year-over-year, an improvement from the declines seen for most of 2021.

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Source: US Property Price Growth Breaks Records as Demand Swells

https://www.creconsult.net/market-trends/us-property-price-growth-breaks-records-as-demand-swells/

Here Are the Apartment Markets Attracting New Renters

 

Remote work continues to dominate renter migration patterns, according to data released this week by Apartment List—particularly in tech-hub markets such as San Jose, Raleigh, and Austin.

Dramatic rent increases have hit virtually all corners of the nation in 2021. Nationally, the median rent price is up over 16% since January, and in some cities rent growth is more than double that, Apartment List reported.

“Today, renters who are looking to move are not only dealing with this affordability crunch, but also navigating a tight market with historically low vacancy rates,” according to the report. “At the same time, migration patterns are also being impacted by one of the most significant societal shifts brought about by the COVID pandemic—remote work.”

Top Three ‘Revolving Door’ Markets

San Jose, Raleigh, and Austin are experiencing high turnover with many renters considering moving both in and out.

These three “revolving-door” metros are the only places that appear in the top 10 for both metrics. In San Jose and Raleigh specifically, the cross-metro rate exceeds 50% for both outbound and inbound searches.

These regions stand out as technology hubs heavily disrupted by the remote work revolution. In fact, they rank first (San Jose), fourth (Austin), and eighth (Raleigh) in terms of the share of their workforce that have remote-friendly occupations.

This quarter’s report incorporates the search preferences of users who registered with Apartment List between July 1 and Sept. 30, 2021.

“Newfound flexibility has likely given many residents of these three metros the opportunity to move somewhere new, which in turn creates vacancies that attract new renters from afar,” Apartment List reported. “We have seen this dynamic play out in local rent prices, where over the last 18 months these cities experienced dramatic rent declines followed by similarly-dramatic rent rebounds as residents cycle in and out of the rental market.”

Beyond these three, other technology-friendly markets that are experiencing high outbound migration this quarter (e.g., San Francisco, Boston, Denver, Baltimore) also rank high in terms of remote-friendly workforces and dramatic price swings.

Long-Distance Moves on the Increase

This collision of market trends and changing preferences may result in a greater number of longer-distance moves—in Q3 2021, 40% of Apartment List users were searching to move to a new metropolitan area, and 26% were searching in a different state altogether.

Despite being separated by more than 1,000 miles, Miami is the number one destination for New York City renters, narrowly edging out nearby Philadelphia. 6.1% of searches leaving the New York City metro are destined for Miami, and another 7.8% are destined for other parts of Florida, namely Tampa, Orlando, and Jacksonville metros.

California: A Major Exporter of Renters

As a large, expensive, and politically liberal state, California has long held a reputation for exporting residents across the country and altering economic and political landscapes along the way. This notion hit a major milestone in 2020, when for the first time in its 170-year history California experienced net population loss, losing over 182,000 residents in the wake of the COVID-19 pandemic.

Apartment List search data indicate that this trend may be continuing, as California supplies more search interest across the country than any other state. In the most recent quarter, eight states—Alaska, Hawaii, Washington, Oregon, Nevada, Arizona, Utah, and Texas—received more searches from California than any other state. In Nevada specifically, over half of all apartment searches came from California residents.

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Source: Here Are the Apartment Markets Attracting New Renters

https://www.creconsult.net/market-trends/here-are-the-apartment-markets-attracting-new-renters/

What is Class A Class B or Class C property?

 

A common question we receive from our investors is what do properties marketed as Class A, Class B, and Class C mean, and why does it matter? To begin, investors, lenders, and brokers have developed property classifications to make it easier to communicate amongst themselves about the quality and rating of a property quickly. For investors, property class is an important factor to consider because each class represents a different level of risk and return. Investors can use these differences about property class types to consider how each property fits within their strategy of investing, such as return objectives and the amount of risk they are willing to accept in order to achieve those returns.

Each property classification reflects a different risk and return because the properties are graded according to a combination of geographical and physical characteristics. These letter grades are assigned to properties after considering a combination of factors such as the age of the property, location of the property, tenant income levels, growth prospects, appreciation, amenities, and rental income. There is no precise formula by which properties are placed into classes, but here is a breakdown of the most common classes, A, B, and C:

Class A

These properties represent the highest quality buildings in their market and area. They are generally newer properties built within the last 15 years with top amenities, high-income earning tenants, and low vacancy rates. Class A buildings are well-located in the market and are typically professionally managed. Additionally, they typically demand the highest rent with little or no deferred maintenance issues.

Class B

These properties are one step down from Class A and are generally older, tend to have lower-income tenants, and may or may not be professionally managed. Rental income is typically lower than Class A, and there may be some deferred maintenance issues. Mostly, these buildings are well-maintained and many investors see these as “value-add” investment opportunities because the properties can be upgraded to Class B+ or Class A through renovations and improvements to common areas. Buyers are generally able to acquire these properties at a higher CAP Rate than a comparable Class A property because these properties are viewed as riskier than Class A.

Class C

Class C properties are typically more than 20 years old and located in less than desirable locations. These properties are generally in need of renovation, such as updating the building infrastructure to bring it up-to-date. As a result, Class C buildings tend to have the lowest rental rates in a market with other Class A or Class B properties. Some Class C properties need significant reposting to get to steady cash flows for investors.

What does this mean for investors?

It is important for investors to understand that each class of property represents a different level of risk and reward. Class A provides investors with more security by knowing that they are investing in top-tier properties, with little or no outstanding issues requiring further capital expenditures. However, despite better property conditions, Class A can be sensitive in times of a recession if high-income earners suffer from increased unemployment.

Class B and C properties tend to be bought and sold at higher CAP rates than Class A, as investors are paid for taking on the additional risk of an investment in an older property with lower-income tenants, or a property in a lower-income neighborhood.

The property class investors choose can have a great deal of influence on the stability of an investment over time, as well as its growth appreciation. For investors looking for capital preservation, Class A may be the right investment. For investors looking for capital appreciation, Class B and C may be better investments for that specific risk profile.

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Source: What is Class A, Class B, or Class C property?

https://www.creconsult.net/market-trends/what-is-class-a-class-b-or-class-c-property/

Small Property Sales 'Easily Outpaced' Larger Assets This Year

Sales of properties valued between $5 million and $25 million have “easily” outpaced those from the same period in 2019 and 2020, according to a new report from Green Street, with $28.11 billion in smaller assets changing hands.

That’s an increase of 60%, according to Real Estate Alert data, and “roughly mirrors the hefty 62.3% rise in the institutional segment of deals over $25 million, reflecting a pandemic-induced slump in investment sales in the first half of 2020,” Green Street notes in its report. But “compared with the first half of 2019, however, smaller trades jumped 22.5% in the first half of this year, while aggregate sales over $25 million were up just 2.5%.”

On a year-over-year basis, sales of properties in that range rose among every property type, with industrial leading the way with a 98.9% increase in the first half. Multifamily sales were up 68.5% at $8.61 billion, and larger industrial deals increased by 120.9%. Retail sales increased by about 50% to $5.28 billion and “easily outperformed the over-$25 million marketplace,” which posted a 25.5% improvement.  And office sales increased 29.5% in the first half, while hotel trades rose 17.3%.

“The momentum is strong,” said John Chang, a senior vice president and national director of research services at Marcus & Millichap. “Even with this spike of rising pandemic levels, barring a major lockdown, the private investors that I’ve spoken to are aggressively trying to place capital. I think that carries us through the remainder of this year and into next year.”

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Source: Small Property Sales ‘Easily Outpaced’ Larger Assets This Year

https://www.creconsult.net/market-trends/small-property-sales-easily-outpaced-larger-assets-this-year/