eXp Commercial is one of the fastest-growing national commercial real estate brokerage firms. The Chicago Multifamily Brokerage Division focuses on listing and selling multifamily properties throughout the Chicago Area and Suburbs.
Limited multifamily construction will help sustain the sector even if demand cools.
Slowing construction will likely keep multifamily supply and demand in balance for some time despite fears of a recession, according to some analysts.
“Even if multifamily demand cools, limited multifamily construction will help sustain the sector,” a trio of economists from Moody’s write in a new report, adding that “housing substitutability” can transfer demand to the sector. Would-be owners of single-family homes are opting to rent instead of buy as the average property is now nearly 44% more expensive than in 2019—and that in turn is driving increased demand for multifamily units. It’s also being amplified by the rising short-term rate and the impact of those increases on mortgage rates, and Moody notes there are already signs of markets cooling in some of the cities where prices went up most quickly over the course of the pandemic.
“Although this may not lead to a widespread slashing of housing prices everywhere, housing price declines are a real possibility in the next few quarters or years depending on how severe and how long the next recession will be if there is one,” Moody’s report notes. “Multifamily rents, on the other hand, are generally slower to respond to rising interest rates and remain more stable. If the substitutability within housing matches the Great Recession’s strength, then multifamily rents may remain elevated for some time until single-family housing stabilizes. Based on the past few recessions, the effect on multifamily performance may not begin until near or after a recession ends.”
Low unemployment and a tight labor market are also likely to sustain multifamily demand—which was not the case in previous recessions (as in the 1980s, when unemployment topped 9%). But while household balance sheets are generally faring better than in previous downturns, disposable personal incomes are shrinking.
“As the multifamily and single-family home affordability crisis intensifies across more and more metros nationwide, this diminishing financial safety net is troubling, even for multifamily,” Moody notes. “Job losses or affordability issues could force some renters to find roommates or put off that move to single living.”
The Moody’s analysts also note that strengthened financial regulations “could be a blessing” for multifamily.
“Even if the Federal Reserve fails to engineer a soft landing this year or next, these rules will likely prevent the real estate market from sliding into a deep and long recession or suffering large aftershocks,” the trio writes. “While many single-family markets will likely see small to moderate prices decline in this situation, multifamily’s positive performance should hold up relatively longer, as in previous downturns. Overall, in a mild recessionary environment, we would expect only a moderate vacancy rate increase and rent growth to simply decelerate. A slight and short-lived dip into negative territory towards the end of the recession is possible, but a free fall is highly unlikely.”
Fiscal Year 2023 (FY23) appropriations are in full swing. The House has already quickly passed its proposals out of the subcommittee and full committee including the spending bill which includes funding for the U.S. Department of Housing and Urban Development (HUD).For 2023, the committee recommends an increase of $8.9 billion for the Department of Housing and Urban Development. Here are some key highlights:
Housing Affordability
Renewal of tenant-based vouchers ($26.1B);
Incremental vouchers to expand housing opportunities ($1.1B), adding more than 140,000 new incremental vouchers to expand affordable housing opportunities for low-income people in America including those experiencing or at risk of homelessness and approximately 5,600 new units for seniors and persons with disabilities.
Recently, our advocacy in support of legislation to improve the Housing Choice Voucher (HCV) program led more than 50 organizations to sign aletter of supportcalling on the House and Senate Appropriations committees to include it in the fiscal year (FY) 2023 appropriations bill funding alongside key policy provisions.
Additional Appropriations
Community Development Block Grant Program ($3.3B);
Lead hazard reduction and healthy homes ($65M). For competitive grants to reduce residential health hazards, including lead-based paint, carbon monoxide, mold, radon, and fire safety, of which not less than $25M for lead-based paint hazards;
Climate resiliency and utility efficiency ($75M). To further the Department’s goal of energy-efficient housing construction and climate resiliency;
Eviction Prevention ($20M). Providing competitive grants to nonprofit or governmental entities to provide legal assistance, including assistance related to pretrial activities, trial activities, post-trial activities, and alternative dispute resolution, at no cost to eligible low-income tenants at risk of or subject to eviction;
Department of Homeland Security: National Flood Insurance Program (NFIP): $222.5M for FY23.
What’s Next
The Senate has yet to introduce its spending bills for FY23. It is unlikely that all of Congress will pass its spending bills by the end of this fiscal year (Sept. 30,2022); however, it is highly unlikely in an election year that there will be a government shutdown. We expect that Congress will pass a continuing resolution that will fund the government at current spending levels until sometime before the end of the year when the 117th Congress will adjourn or into 2023.NAA will continue to monitor and support spending priorities that will benefit housing providers.
eXp World Holdings Reports Record Second Quarter 2022 Revenue of $1.4 Billion
Q2 2022 Revenue Increased 42% Year over Year to $1.4 Billion With Agent Growth of 42%Company Declares Cash Dividend for Q3 2022 of $0.045 per Share of Common StockRepurchases $50 Million of Common Stock During the Second QuarterBELLINGHAM, Wash. — Aug. 3, 2022 — eXp World Holdings, Inc. (Nasdaq: EXPI), (or the “Company”), the holding company for eXp Realty®, Virbela and SUCCESS® Enterprises, today announced financial results for the second quarter ended June 30, 2022.
Second Quarter 2022 Financial Highlights as Compared to the Same Year-Ago Quarter:
Revenue increased 42% to $1.4 billion.
Gross profit increased 34% to $107.3 million.
Net income of $9.4 million, compared to net income of $37.0 million in the year-ago quarter. Year over year tax expense increased $22.3 million due to one-time VA allowance release in 2021 and reduction in excess stock-based compensation tax benefit. Earnings per diluted share of $0.06, compared to earnings per diluted share of $0.24 in the year-ago quarter.
Adjusted EBITDA (a non-GAAP financial measure) of $26.9 million.
As of June 30, 2022, cash and cash equivalents totaled $134.9 million, compared to $107.4 million as of June 30, 2021. The Company repurchased approximately $50 million of common stock during the second quarter of 2022.
The Company paid a cash dividend for the second quarter of 2022 of $0.04 per share of common stock on May 31, 2022. On July 29, 2022, the Company’s Board of Directors declared a cash dividend of $0.045 per share of common stock for the third quarter of 2022, a 13% increase, expected to be paid on Aug. 29, 2022, to shareholders of record on Aug. 12, 2022.
Management Commentary
“During the second quarter, eXp continued to increase its market share and revenue to record levels, reinforcing that our model was built for all market conditions and that our agent value proposition resonates around the world,” said Glenn Sanford, Founder, Chairman, and CEO of eXp World Holdings. “We are focused on strengthening our platform to provide even better support to our agents through technology, operations, training, coaching, and community. In the third quarter, we acquired Zoocasa, providing an exponential boost to Canadian agents that we expect to expand to a broader group of agents and real estate customers. We also further strengthened our management team with world-class hires focused on affiliated services and innovation of our proprietary technologies. We are leveraging our core strengths of agent satisfaction and innovation as we continue to redefine the real estate industry.”
“eXp delivered another record quarter with 42% revenue growth and solid profitability while returning a record $56 million to our shareholders through share repurchases and dividends,” said Jeff Whiteside, CFO and Chief Collaboration Officer of eXp World Holdings. “Looking ahead, we expect our agile model to result in ongoing market share gains as we navigate more challenging market conditions. We expect our focus on affiliated services and technology will further strengthen our agent and customer value proposition. Simultaneously, we will focus on increasing operating efficiencies for our business and our agents’ businesses. We remain confident in our ability to deliver profitable, sustainable growth over the long term.”
Second Quarter 2022 Operational Highlights as Compared to the Same Year-Ago Quarter:
eXp World Holdings and eXp Realty strengthened the leadership team with Shoeb Ansari, Chief Information Officer; Leo Pareja, President of Affiliated Services
Patrick O’Neill appointed Chief Operating Officer, eXp Realty beginning Aug. 4, 2022. Patrick brings more than 25 years of experience and a proven track record of building and optimizing high-growth technology businesses. More details to come.
Agents and brokers on the eXp Realty platform increased 42% to 82,856 as of June 30, 2022.
Real estate transactions closed increased 30% to 150,032.
Real estate transaction volume increased 44% to $57.9 billion.
eXp Realty expanded into New Zealand in the second quarter of 2022.
eXp Realty ended the second quarter of 2022 with a global Net Promoter Score of 68, a measure of agent satisfaction as part of the Company’s intense focus on improving the agent experience.
Second Quarter 2022 Results – Virtual Fireside Chat
The Company will hold a virtual fireside chat and investor Q&A on Wednesday, Aug. 3, 2022 at 8 a.m. PT / 11 a.m. ET with:
Glenn Sanford, Founder, Chairman, and CEO, eXp World Holdings
Jeff Whiteside, CFO, and Chief Collaboration Officer, eXp World Holdings
Shoeb Ansari, Chief Information Officer, eXp World Holdings
Leo Pareja, President of Affiliated Services, eXp Realty
The discussion will be moderated by Justin Ages, Equity Research Analyst at Berenberg Capital Markets.
The investor Q&A is open to investors, current shareholders, and anyone interested in learning more about eXp World Holdings and its companies.
Date: Wednesday, Aug. 3, 2022
Time: 8 a.m. PT / 11 a.m. ET
Location: EXPI Campus. Join at https://expworldholdings.com/contact/download/Livestream:expworldholdings.com/eventsAbout eXp World Holdings, Inc.
eXp World Holdings, Inc. (Nasdaq: EXPI) is the holding company for eXp Realty®, Virbela, and SUCCESS® Enterprises.
eXp Realty is the fastest-growing real estate company in the world with more than 83,000 agents in the United States, Canada, the United Kingdom, Australia, South Africa, India, Mexico, Portugal, France, Puerto Rico, Brazil, Italy, Hong Kong, Colombia, Spain, Israel, Panama, Germany, Dominican Republic, Greece and New Zealand and continues to scale internationally. As a publicly traded company, eXp World Holdings provides real estate professionals the unique opportunity to earn equity awards for production goals and contributions to overall company growth. eXp World Holdings and its businesses offer a full suite of brokerage and real estate tech solutions, including its innovative residential and commercial brokerage model, professional services, collaborative tools and personal development. The cloud-based brokerage is powered by Virbela, an immersive 3D platform that is deeply social and collaborative, enabling agents to be more connected and productive. SUCCESS® Enterprises, anchored by SUCCESS® magazine and its related media properties, was established in 1897 and is a leading personal and professional development brand and publication.
For more information, visit https://expworldholdings.com.
Use of Non-GAAP Financial Measures
To provide investors with additional information regarding our financial results, this press release includes references to Adjusted EBITDA, which is a non-U.S. GAAP financial measure and may be different than similarly titled measures used by other companies. It is presented to enhance investors’ overall understanding of the company’s financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP.
The company’s Adjusted EBITDA provides useful information about financial performance, enhances the overall understanding of past performance and future prospects, and allows for greater transparency with respect to a key metric used by management for financial and operational decision-making. Adjusted EBITDA helps identify underlying trends in the business that otherwise could be masked by the effect of the expenses that are excluded in Adjusted EBITDA. In particular, the company believes the exclusion of stock and stock option expenses provides a useful supplemental measure in evaluating the performance of operations and provides better transparency into results of operations.
The company defines the non-U.S. GAAP financial measure of Adjusted EBITDA to mean net income (loss), excluding other income (expense), income tax benefit (expense), depreciation, amortization, impairment charges, stock-based compensation expense, and stock option expense. Adjusted EBITDA may assist investors in seeing financial performance through the eyes of management, and may provide an additional tool for investors to use in comparing core financial performance over multiple periods with other companies in the industry.
Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with U.S. GAAP. There are a number of limitations related to the use of Adjusted EBITDA compared to Net Income (Loss), the closest comparable U.S. GAAP measure. Some of these limitations are that:
Adjusted EBITDA excludes stock-based compensation expense and stock option expense, which have been, and will continue to be for the foreseeable future, significant recurring expenses in the business and an important part of the compensation strategy; and
Adjusted EBITDA excludes certain recurring, non-cash charges such as depreciation of fixed assets, amortization of acquired intangible assets, and impairment charges related to these long-lived assets, and, although these are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future.
Safe Harbor Statement
The statements contained herein may include statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Such forward-looking statements speak only as of the date hereof, and the company undertakes no obligation to revise or update them. These statements include, but are not limited to, statements about the continued growth of our agent and broker base; expansion of our residential real estate brokerage business into foreign markets; and revenue growth and financial performance. Such statements are not guarantees of future performance. Important factors that may cause actual results to differ materially and adversely from those expressed in forward-looking statements include changes in business or other market conditions; the difficulty of keeping expense growth at modest levels while increasing revenues; and other risks detailed from time to time in the company’s Securities and Exchange Commission filings, including but not limited to the most recently filed Quarterly Report on Form 10-Q and Annual Report on Form 10-K.
Media Relations Contact:
eXp World Holdings, Inc.
[email protected]Investor Relations Contact:
Denise Garcia
Managing Partner, Hayflower Partners
[email protected]
Source: eXp World Holdings Reports Record Second Quarter 2022 Revenue of $1.4 Billionhttps://www.creconsult.net/market-trends/exp-world-holdings-reports-record-second-quarter-2022-revenue-of-1-4-billion/
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%
SHOWINGS: Wednesday Aug 3rd 11 AM - 12 PM
Debt yield hasn’t traditionally been a primary commercial real estate loan underwriting metric, but more lenders are incorporating it into their criteria. In the current real estate market, measuring debt yield ratios provides lenders with a stable assessment regardless of unusual or changing conditions.
What is Debt Yield?
Debt yield is a standardized way to measure net operating income (NOI) against total loan value. The ratio is simple to calculate, but it’s an accurate measure of risk that can be used to evaluate individual loans or compare different loans.
How to Calculate Debt Yield
The math required for a debt yield calculation is simple and easy. The debt yield formula is:
Debt Yield = Net Operating Income / Loan Amount
For example, consider the purchase of a property with $300,000 NOI and a loan of $3 million. In this example, the debt yield is 10 percent ($300,000 / $3,000,000 = 10%).
What Does Debt Yield Tell You?
Lenders use debt yield ratios to determine what their return would be if a buyer immediately defaulted on a commercial real estate loan. Loans with low debt yields are considered riskier, as the lender would receive a smaller return in the event of foreclosure. Higher debt yields are less risky because the lender would receive a larger return and could recoup their losses faster.
Once lenders know what annual return they’d receive, they can calculate how long it’d take to recoup the loss on a foreclosed property. This is done by dividing 100 percent by the debt yield ratio (annual return). The result is the number of years that it’d take to recoup all losses.
Recoup Time = 100 / Debt Yield
Assuming the above debt yield of 12 percent, the lender could recoup their investment in around 8.3 years (100% / 12% = 8.33 years).
Borrowers can alternatively use the ratio to calculate the maximum loan amount a property can qualify for. If the allowed debt yield and net operating income are known, then the loan amount is the NOI divided by the debt yield.
Maximum Loan Amount = Net Operating Income / Debt Yield
If a lender requires a minimum debt yield of 10 percent, the maximum amount that the above example could qualify for would be $1.2 million ($120,000 / 0.10 = $1,200.000).
(Of course, any maximum loan amount would also be subject to loan to value (LTV) and debt service coverage ratio (DSCR) requirements. If a lender considers all three of these ratios, whichever has the lowest permitted loan amount is the one that sets the maximum amount borrowed.)
How Debt Yield Applies to Commercial Real Estate
Lenders appreciate that debt yield ratio is insulated from variables that can skew loan to values, debt service coverages, and even cap rates. As extremely low-interest rates and spiking property values make accurate loan risk assessment more difficult, debt yield provides a consistent risk measurement when underwriting commercial real estate loans.
Debt Yield vs. Loan to Value
Loan-to-value ratios depend heavily on the value of a commercial property, and this ratio is susceptible to large swings in property values. Borrowers can potentially get much larger loans when property values increase drastically, and lenders can be underwriting an underwater loan if property values then drop drastically.
In contrast, debt yield ratios aren’t impacted by changes in property value. The loan itself is the underlying denominator, and not how much the property is worth. So long as net operating income doesn’t change, debt yield won’t change after a loan is underwritten.
Debt Yield vs. Debt Service Coverage
Debt service coverage is based on the annual debt payment, which is affected by interest rate and amortization schedule. Thus, DSCR can be skewed by extreme interest rates (currently extremely low) and/or long amortizations. The DSCR for variable-rate loans will also change as interest rates increase.
Debt yield is based on the loan amount, and thus won’t change with interest rates or amortization schedules. It is thus a more consistent measure in many situations, even though both measurements use net operating income.
Debt Yield vs. Cap Rate
Although cap rate also looks at net operating income, this is based on the value of a property. Cap rate is thus susceptible to some of the same issues as loan to value is, and which debt yield is insulated against.
What is an Acceptable Debt Yield?
The Comptroller’s Commercial Real Estate Lending booklet recommends a minimum debt yield of 10 percent, and most lenders that consider this metric follow that recommendation.
In certain situations, lenders may allow a 9 percent debt yield for desirable properties in major markets (e.g. New York City, Los Angeles). Ratios of 8 percent for truly exceptional properties are quite rare, although not altogether unheard of.
Notably, debt yield is based on current net operating income. Projected rent increases or NOI growth isn’t considered when calculating the ratio, so adjusting projections generally won’t have an impact on whether debt yield meets a lender’s minimum requirement.
Loan to value ratio is a standard metric that lenders use to assess default risk and qualify commercial real estate loans. While it’s far from the only data point lenders consider, it’s one of the most basic and often checked early on during the loan application process.
What is a Loan to Value Ratio?
Loan to value (LTV) ratio is a straightforward way to measure a commercial real estate loan’s size against the value of the financed property. The ratio is simple, yet considered one of the accurate ways to assess the risk that individual loans present.
Loan to Value Ratio = Loan Balance / Property Value
For example: a $400,000 loan on a $500,000 commercial property would have an LTV of 80% ($400,000 / $500,000 = 0.80).
What Does LTV Tell You?
Lenders use loan to value ratios as a measure of the risk that different loans present. Higher LTVs are considered riskier than lower LTVs for a couple of reasons.
First, borrowers have less equity in their commercial property when the associated loan has a high LTV. Should a property become unprofitable, borrowers who have less equity may be more apt to walk away and default on their loan.
Second, properties are more likely to become underwater when their associated loan has a high LTV. Should the local real estate market crash, properties with high LTV ratios will more quickly become underwater. This not only increases the risk of default, but also may force lenders to take a loss if they foreclose and auction off a property.
In order to ensure that loans fall within their risk parameters, lenders have maximum LTVs that they’ll allow.
If borrowers know a loan program’s maximum allowed ratio, the LTV formula can be inverted to determine the maximum property value allowed or down-payment required.
What is a Combined Loan to Value Ratio?
When borrowers secure financing through multiple loan programs, lenders often consider the combined loan to value ratio (CLTV) in addition to the loan to value ratio.
CLTV measures all of the outstanding balances on a commercial property’s loans against the property’s value. Whereas LTV considers only one loan against the property, CLTV considers all loans that are secured with the property.
Combined Loan to Value Ratio = Σ All Loan Balances / Property Value
The combined ratio provides a more comprehensive measure when multiple loans and/or lines of credit are being used. It’s unnecessary when using only one loan.
How LTV Applies to Commercial Real Estate
Lenders appreciate how loan to value measures what portion of an investment property is financed. No other calculation considers loan balance and property value in such direct relation to each other.
Loan to Value vs. Debt Yield
Debt yield measures net operating income against loan balance, and thus shows the annual return on the amount borrowed. The metric doesn’t directly capture any property value change that results from building improvements or general market trends.
Because loan to value includes a property’s value within its calculation, LTV will capture any changes in property value that result from improvements or market trends.
Loan to Value vs. Debt Service Coverage
Debt service coverage ratio (DSCR) focuses on interest rates and amortization schedules. This metric is almost entirely insulated from changes in property value.
Loan to value doesn’t assess the financials of a loan itself in the same way that DSCR does, but instead examines the loan’s amount as it relates to the property.
Loan to Value vs. Cap Rate
Cap rate measures a property’s net operating income against the property’s value. While this is needed to assess how profitable a property is, it doesn’t say anything about the property’s financing.
Loan to value uses the same property value data point, but examines the property’s financing rather than its income.
What is an Acceptable Loan to Value Ratio?
Most commercial real estate loan programs allow a maximum loan to value ratio of 75-80%, but some programs differ from this range. Special federal loan programs (e.g. HUD/FHA 223(f)) allow ratios of 83.3-90%. Some private loans will only permit 65-70%.
Additionally, a few specialized programs (e.g. Freddie Mac Green Advantage) may amend the maximum LTV slightly. Any such amendments are usually specifically so that investors can install environmentally friendly or similar improvements.
While qualified investors can take advantage of a program’s maximum allowed LTV, sometimes it’s advantageous to reduce the LTV in order to get a lower interest rate.
Certain programs minorly reduce the interest rate when a borrower has more equity in their property. Even if such reductions are minor, the cumulative savings can be substantial considering the time and duration of commercial real estate loans.
How to Calculate LTV
The borrowed amount and property value are needed to calculate the loan to value ratio. A property’s appraised value is most often used, which is one reason why lenders typically require a recent appraisal during underwriting.
The formula to calculate LTV is:
Loan to Value Ratio = Loan Balance / Property Value
As another example, consider a $1.2 million property that’s being financed with a $1 million loan. The LTV would be 83.3%, and a specialize loan program that allows 80+% LTVs would likely be needed (1,000,000 / 1,200,000 = 83.3%).
The formula can be inverted to determine the maximum permitted loan balance or property value:
Property Value = Loan Balance / LTV ratio
Consider a borrower who knows they can qualify for a $350,000 loan through a program that allows a maximum LTV ratio of 75%. The borrower would be able to purchase a property worth up to about $467,000 ($350,000 / 0.75% = $466,667).
How to Use LTV for Commercial Real Estate
Loan-to-value ratios must be met in order to qualify for commercial real estate loans. After checking a loan program’s maximum LTV, the formula can be used to determine:
Whether a loan application will be denied based on this criterion
What the maximum property value that an investor can purchase is
What down-payment will be required for the purchase of a property
The maximum allowed LTV should be checked early on in the loan application process, so the borrower can check other loan programs if necessary and can determine what their purchasing parameters are.
