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/