Monday, December 5, 2022
Aurora Starts Process Of Creating TIF District For Hollywood Casino
Aurora is forming a tax increment financing district to help pay for $50 million in benefits for the development of a new complex for the Hollywood Casino.
Aldermen in the state’s second most populous city voted to begin the process of creating a TIF district on a property along Farnsworth Avenue and Bilter Road where Penn Entertainment will build a new $360 million casino resort, the Aurora Beacon-News reported.
Last month, city officials approved $50 million in financial assistance for Jay Snowden’s Penn to move the Hollywood Casino out of downtown to a location closer to Interstate 88. The new facility is set to include 900 slot machines, 50 live table games, and a sportsbook.
Aurora will borrow the $50 million by selling bonds, and the principal and interest will be repaid by the casino’s property taxes. Part of the site is located within an existing tax increment finance district, but the agreement also called for a new micro-TIF for the casino that would last about 23 years and prevent the additional value the new development brings to the property from being taxed for that period.
Under the new TIF district, which the property still needs to qualify for, part of the casino’s property taxes will go into a fund that will be used to retire the bonds each year.
The City Council approved paying $42,000 to Kane McKenna and Associates to do the necessary feasibility study for the TIF district.
Residents against the agreement said they don’t mind the casino moving, but they didn’t want the taxpayers to be on the hook for the bill. Opponents say that Penn Entertainment, which had $2.75 billion in gross profits in 2021, can afford to finance the move and redevelopment without money that would otherwise go to the city for public expenses.
Aside from gambling, Penn wants to build a 200-room hotel, a spa, and several restaurants on its new casino site across Farnsworth Avenue from the Chicago Premium Outlets Mall.
Source: Aurora Starts Process Of Creating TIF District For Hollywood Casino
https://www.creconsult.net/market-trends/aurora-starts-process-of-creating-tif-district-for-hollywood-casino/Sunday, December 4, 2022
People need more space fortunately for self-storage
City living comes with cons—and for many, it’s sacrificing square feet. Fortunately for the self-storage sector, less space in the home means more is needed outside of it, causing an increase in storage units near multifamily hotspots.
The decade marked high construction volumes across the U.S., with almost 350 million square feet of storage space delivered from 2012 to 2021, 22% of overall existing inventory. Over the same time, 3.1 million new apartments in 50+ unit buildings were added, and 427,000 new rentals were added to the national market last year alone. But not all metros were created equal—RentCafe and YardiMatrix recently analyzed the country’s largest metros to identify the places self-storage is doing the best, in correlation with a growing apartment market. Chicago was No. 4.
From 2012 to 2021, Chicago added 11.5 million square feet of storage space and almost 72,000 multifamily units, reaching a peak for self-storage construction in 2016 with 2.1 million square feet of space delivered. Yet it’s just the start of what’s to come.
Developers are currently amping up their construction efforts to keep up with demand, despite economic challenges, with 2.6 million square feet of storage space currently planned and under construction.
Still, Chicago’s numbers are low in comparison with metros like Dallas and Houston. People continue to relocate to the Lone Star State from hubs like San Francisco, New York City, and even Chicago, bolstering its economy more and more.
One of the most popular relocation destinations in the country—Dallas-Fort-Worth-Arlington—saw a 17% population growth over the past decade, based on the report, leading, naturally, to increased demand for both housing and self-storage, and the market was quick to respond. Nearly 200,000 new apartments and 20+ million square feet of storage space was delivered during the decade, the most in any metro across the U.S.
Of course, Dallas’s quick recovery post-pandemic allowed for the resuming of construction much sooner than other markets. Almost 2.4 million square feet of new storage space and 26,000 new apartments delivered in 2021, according to RentCafe.
As for Houston, RentCafe also found that young professionals continue to flood in with the likes of Hewlett Packard, Maddox Defense, Axiom Space and Sun Haven relocating to the metro in the past few years alone, resulting in 15 million square feet of new storage space and 142,000 apartments delivering during the decade.
Source: People need more space, fortunately for self-storage
https://www.creconsult.net/market-trends/people-need-more-space-fortunately-for-self-storage/Saturday, December 3, 2022
U.S. Apartment Rents Decline For Third Straight Month
U.S. Apartment Rents Decline For Third Straight Month
An apartment listing service has recorded the sharpest fall in rents since it started tracking the market five years ago, and it anticipates further declines through the winter.
Apartment List reported that its rent index fell by 1% nationally in November, the third straight month of declines. While rents typically dip this time of year, this is the second straight month of record declines, indicating a pricing correction due to changing economic conditions and cooling demand, according to the report.
"The timing of the recent cooldown in the rental market is consistent with the typical seasonal trend, but its magnitude has been notably sharper than what we’ve seen in the past, suggesting that the recent swing to falling rents is reflective of a broader shift in market conditions beyond seasonality alone," the report says.
Prices are up 4.6% year-over-year, a far cry from the record-setting pace of rent increases last year, according to Apartment List. In fact, rent growth has been slowing for months, and Realtor.com reported that it reached its slowest pace since early 2021 in September.
Third-quarter reports have also signaled that demand is shrinking. RealPage recorded 82,000 units returning to the market in Q3, the first time in 30 years that has happened, according to a report released in October.
"We did expect to see those numbers come down, but what was surprising is the level to which they did decelerate,” RealPage Head of Economics and Industry Principals Jay Parsons told Bisnow in October. "And then ultimately, seeing negative absorption in Q3 was a huge surprise."
The news of slowing growth is tempered by the fact that the overall pace of rent growth for 2022 is still higher than pre-pandemic rates, according to Apartment List. The firm's economists reported that vacancies are also lower than the pre-pandemic norm but may return to that benchmark in the spring of 2023.
Source: U.S. Apartment Rents Decline For Third Straight Month
https://www.creconsult.net/market-trends/u-s-apartment-rents-decline-for-third-straight-month/Friday, December 2, 2022
Intro to Commercial Real Estate - eXp Commercial Brokerage
Intro to Commercial Real Estate
December 6 @ 7:00 am - 10:00 am
The Intro to Commercial Real Estate event will focus on training new professionals the basic skills and knowledge needed for a successful career in commercial real estate, including a detailed look at the different product types and services, technology you need to succeed, industry trade groups you can tap into, and more.
Thursday, December 1, 2022
How Inflation Affects Commercial Real Estate
How Inflation Affects Commercial Real Estate
Multifamily, retail, office, industrial. How do you see each one of these being affected in this high inflationary environment with low credit and hard financing?
eXp Commercial Economist KC Conway Offers Insight and Tips on How to Pivot During Strong Economic Headwinds
As the U.S. confronts inflation and, increasingly, signs of a recession, eXp Commercial called on economist and futurist KC Conway for his take on what’s ahead. With 2022 Q4 in the headlights, and instability forecasted for 2023 and beyond, Conway delivers a master class on current and coming market conditions. His advice serves as a blueprint for all real estate agents – commercial and residential – on signs to look for and steps to take to navigate strong economic headwinds.
The following are key excerpts from this dynamic Q&A between eXp Commercial President James Huang and KC Conway:
There’s No Sugar-Coating It: A Challenging Period Is Ahead
The Federal Reserve is in panic mode on inflation. The inflation metrics are all coming in hotter and indicators for inflation are double the expectation at 8.5%. It would be a lot worse if we hadn't tapped the strategic petroleum reserve to bring gas prices down.
But inflation is not abating, mortgage rates have risen to 7%, throwing cold water on the residential real estate market. On the commercial side, banks are essentially being told by the Federal Reserve to quit lending. So you’re starting to see deals being canceled.
“I think we face a very, very challenging fourth quarter ahead of 2023. We're going to have to dust off some skills that take us back to the 1980’s. How do you finance and get the market moving in a high inflationary market?
“This is only about the fifth time since post-World War II that the global GDP is down to the 2% range. Each of those times have been very serious times not only for the global economy but for us here in the U.S. So the kind word to say is ‘it is not great.’ ”
Inflation Impacts Urban Retail Most, Multi-family Least
Residential real estate leads in a recession and commercial real estate follows because they are dependent. And right now “the rooftops” of residential real estate are telling us their problems.
So commercial lags. We're just starting to see all of the commercial property price indices starting to turn downward. In fact, they essentially were about 0% in the latest month. Other takeaways:
- Urban areas that have not gone back to work at 50% post-pandemic are being hit harder. That’s the barometer for a better urban commercial retail market: Workers back to the office at over 50%.
- The office is healthy in the suburbs. Smaller chunks of office space and adaptive re-use of a branch bank to an office building, for example. Smaller chunks of about 4,000 to 6,000 square feet where employees can come in, meet with a client, it’s in and out.
- Big pension funds are starting to sell their office assets. They've already lost 15 to 20%. They don't want to lose 40% so they're moving aggressively to try to sell. That will be interesting to see how that plays out.
Suburban Commercial Markets Can Better Sustain Inflationary Forces
There is a term influence density. It’s where you have density of housing in the suburbs where the houses are actually occupied, and you have households that have good jobs. People can work and they’re doing pretty well. It’s in those pockets where you can do quite well in retail.
Supply Chain Rebuild Helps Defy Inflation in Certain Corridors
A shift is taking place from a West Coast-centric model to a supply chain that moved to Chicago and the East, and to a more North-South concentration. The Port of Savannah and other East Coast, Gulf Coast and South Atlantic ports are seeing great expansion of ships and goods.
Long Beach and Los Angeles used to dominate but that’s not the case now. We’re seeing shippers use the Panama Canal and come into Savannah and Charleston. We’ve also seen New York overtake California ports as the busiest container port in North America.
Additionally, those container ships are leaving East Coast ports loaded with grains, agricultural goods, durable goods and manufactured goods. That mitigates shipping costs vs. 60% of ships leaving California ports empty.
Highlights of Commercial Sectors That Can Do Well in 2023
- The efficiency of e-commerce facilities as big as 1 million square feet can close a 100 stores. That’s the metric that moves the needle as they build more of these.
- Multifamily is going to stay strong. The reason being, it now costs over $300,000 a unit to build a new stick-built apartment. Three years ago, that was the median price of a single-family home in the United States.
Housing Shortage + Young Workforce = Need for Housing Innovation
The young workforce – the Millennial workforce, the Gen Z – cannot buy housing. They have student loan debt. They don't have the credit. They don't have the cash savings, and they can't afford a 7% mortgage.
We're going to have to see some innovation on the mortgage side to bring them into housing. The supply will add maybe 450,000 to 470,000 new apartments this year, and that'll be a record since the 1980.
But if you look at the top 50 markets, that's a thousand units that does not make a dent in the supply shortage. So rents are going to continue to rise 6-8% and 10-12%, especially in markets like Texas and Florida and other inland markets where the workforce is going.
The Home-Building Industry Is In a Full-Out Recession
“They are shut down. They can't sell the homes because of the mortgage rates. They can't build them at the cost and the price point that work. So housing is completely shutting down. Look at the big public builders, especially with a lot of speculation inventory. They're in a lot more trouble.”
Foreign Money Will Continue to Flow to the U.S.
The United Arab Emirates, Israel, South Korea continue to look to the U.S. for cash, 401K and other asset investments. They are in a position to buy for cash deals that are falling out of escrow here.
“What's happening is that with our stronger dollar and because we're raising interest rates … our 4% looks very attractive to other parts of the world paying 1% or less. So we're seeing more of that money go into U.S. dollar denomination, and that further drives the demand for U.S. assets with such a strong dollar.’’
The Fed Needs to Be Careful With Europe
Conway on Europe’s woes: Europe is going to be very, very challenged. They're looking. Where can they go to a safe haven? They're going to have a tough winter this year with the energy issues and companies having to idle plants.
“The Fed has put the UK in the same position that we were in in 2008 and Lehman Brothers. They've locked up the capital market side, so we better be careful because Europe is a very important customer and ally for us. The Fed needs to take on a third mandate, which is do not destroy Europe.”
There Will Be No Soft Landing
There’s a lot of talk about a soft landing, about whether or not we’re already in a recession. There’s talk about two more quarters before some of these measures start to unwind inflation and housing costs. That’s not going to be the end of it.
“I don't think a soft landing is in the cards, and anybody that keeps talking about it, I think they're being very disingenuous to be honest with you.’’
Steve Forbes in the 1970s invented a phrase called the “Misery Index.” He took unemployment and inflation and put them together and we got to a peak of about 13%. That formula has been modernized. They added the S&P 500 because now almost 60% of American households own stock in some capacity.
“Right now, you end up with a Misery Index of 29 compared to 13 in the 1970’s.”
What the Federal Reserve does in November and December, and depending on whether energy costs go back up after the November midterm elections, and what kind of increase there is in unemployment:
“I think there is more pain ahead. There will be no recovery in 2023. We can get a real shock in mid-2023 and see we’re now 6-8 quarters into negative GDP. We’ll see the damage we've done to the housing industry, which is 40% of our GDP. We’ll see the damage we’ve done to our retail industry and to the consumer.”
“Maybe at that point both political parties in this country will come together and say we’ve got to deal with this. Maybe they put things in place in early ‘24 or late 2023 to give us some hope. But the best case is the second half of 2024, but I honestly think we’re really at the year 2025 or 2026 before we start to see recovery.”
Conway’s Suggestions on Safe Places to Go and Opportunities
- REITS
- Workforce growth in places where companies are relocating: Tractor Supply in Little Rock, Arkansas; Hyundai going into Montgomery, Alabama.
- Florida: The rebuilding is going to be phenomenal.
- The Carolinas continue to be strong. Toyota, EV batteries, high tech, biosciences.
- South Korea and Vietnam are moving manufacturing away from North Korea due to threats to U.S. plants.
What eXp Commercial Agents Can Do In the Meantime
- Clean energy: Investigate states that have passed property assessment for clean energy. These assessing authorities have capital to tap for updating HVAC and other energy-efficient improvements.
“Those underutilized or vacant retail or restaurants that – if you had a little bit of capital and you could cloak it under a clean energy upgrading for efficiency. You can get all the capital, fix the building, never have to go to a bank and get turned down or wait six months”
- Reassessments: Big box retailers finally realized they're not worth 200 bucks a square foot, and the assessments are now in the $50 to $75 square-foot range. They're coming after the big industrial buildings and e-commerce. They're coming after the full-rent subdivisions and self storage, which was up 60%. So that’s going to be another pivot.
- ESG pressure: Every public company has to get an ESG score. They have to show what they’re doing. They have to deploy capital. An organization’s ESG score is a measure of how the company is perceived to be performing on a range of environmental, social and governance (ESG) criteria.
Multifamily Proposal Activity Stays Hot Single-Family Flattens
Multifamily Proposal Activity Stays Hot, Single-Family Flattens
Architecture, engineering, and construction firms express a telling forecast, according to PSM
Proposal activity for single-family homes and residential developments plummeted in the third quarter but remained solid for multifamily-for-rent and senior/assisted living properties, according to PSMJ Resources’ Quarterly Market Forecast (QMF) survey of architecture, engineering, and construction (A/E/C) firm leaders.
David Burstein, PE, director and senior consultant at PSMJ, an A/E/C industry consulting and publishing firm said he’s seeing a divergence in the A/E housing markets.
“The homeownership markets – new single-family homes, condos, and subdivisions – are feeling the effects of higher interest rates and tighter lending policies,” Burstein said. “The rental markets aren’t feeling the same pinch, at least not yet.”
Even Multifamily Index Cooling Some
Burstein often highlights the influence that the housing sector has on all markets served by A/E/C firms, estimating that it directly or indirectly impacts approximately 80 percent of the industry’s total revenue.
Even though multifamily proposal activity continues to be relatively strong, the index has cooled somewhat, likely due to the rising cost of borrowing money to finance new projects, says Burstein.
PSMJ created the net plus/minus index (NPMI) to measure proposal activity and assess the A/E/C market outlook when it began its QMF survey in 2003. The NPMI is the delta between the percentage of respondents in a given category seeing an increase in proposal activity for the quarter, and those experiencing a decrease.
For several quarters after the initial rebound from the COVID-19-related downturn in late 2020, all segments of the housing market reported proposal activity at elevated levels rarely seen in the history of the QMF.
In Q1 2020, the overall housing market’s NPMI fell well into the negative (minus 19.3), but rebounded to set its record-high index score of 77.4 one year later.
Single-Family and Condo Proposal Activity Sinking
Activity remained robust across the board in the first half of 2022, but the Q3 report saw housing’s NPMI fall 33.6 index points (from 55.0 to 21.4), quarter over quarter, and 49.1 points, year over year.
More telling are the results from the five submarkets measured in the survey. While multifamily (NPMI of 44.8) and senior/assisted living (17.0) remained positive in Q3, proposal activity for single-family individual homes (-2.4), single-family developments (-3.9), and condominiums (-6.8) all sank into negative territory.
PSMJ chose proposal activity because it is among the earliest stages of the design and construction project lifecycle, thereby offering a look at the longer-term outlook for markets, submarkets, and the overall industry.
Source: Multifamily Proposal Activity Stays Hot Single-Family Flattens
https://www.creconsult.net/market-trends/multifamily-proposal-activity-stays-hot-single-family-flattens/-
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