High Rates Challenge Commercial Property Strategy

Commercial property owners are grappling with the reality that the anticipated interest rate cuts might not materialize. But it’s not just borrowers who are on the hook; lenders are in a tight spot, too.

A new reality: Persistently high-interest rates are challenging commercial property owners to rethink strategies; as Fed Chair Powell said last week, “Restrictive monetary policy needs more time to do its job.” Hopes for easing refinancing conditions in 2024 are diminishing amid stubborn inflation and strong economic data, shifting expectations in the real estate market.

Escalating costs: Investor expectations for the secured overnight financing rate (SOFR) have shifted significantly, now predicting it to stabilize at 4.825% by early 2025, with only two minor rate cuts anticipated this year, down from six expected in January. This change has sharply increased hedging costs for borrowers with floating-rate debt. The cost to extend an interest-rate cap on a $100M mortgage has surged from $1.3M to $2.1M, posing a new financial challenge for owners.

Zoom in: Lenders are also under pressure as persistent high interest rates lead to commercial real estate loans rolling over. MBA notes that $929 billion in property loans are maturing in 2024, up 41% due to extensions from 2023. Previously effective during the low-rate environment post-2008, the "extend-and-pretend" strategy now risks tying up significant capital with no imminent return to low rates. This affects not only banks, where these loans form over a fifth of portfolios but also investors in CMBS loans, who face disappointing returns as low as 3% on top-tier bonds.

Case in point: In New York, landlords like SL Green and Vornado have paid about $100M to extend a $1.08B loan for an office building, reflecting the lengths some property owners will go to avoid defaults. However, smaller owners might choose to relinquish their properties rather than invest further.

➥ THE TAKEAWAY

Big picture: Sustained high interest rates are freezing property transactions as elevated debt costs challenge buyers to meet lenders’ coverage requirements. Property owners face tough choices: either reduce prices or invest more capital into their properties to secure loan extensions. This new reality forces sellers and borrowers to navigate a constrained market with limited options.

https://www.creconsult.net/market-trends/high-interest-rates-commercial-property-challenges/

Multifamily Property Sales in Naperville and Aurora | eXp Commercial

Maximizing Your Success in Multifamily Property Sales in Naperville and Aurora

Introduction

Achieve unparalleled success in multifamily property sales in Naperville and Aurora with the strategic expertise of Randolph Taylor and the eXp Commercial team. Our dedicated approach ensures your property stands out in the competitive market. Discover innovative sales strategies on eXp Commercial's website and see how we can elevate your property's profile.

Why eXp Commercial is Your Ideal Partner

Tailored Expertise for the Naperville and Aurora Markets Randolph Taylor brings unparalleled insights into the multifamily property landscape of Naperville and Aurora. Leveraging his extensive experience, we position your property for maximum exposure and optimal sales outcomes. Dive deeper into our market analysis techniques here.

Comprehensive Marketing Strategies At eXp Commercial, we don't just list your property; we launch it. Our comprehensive marketing strategies ensure your listing reaches a wide, qualified audience. From digital marketing to traditional advertising, we cover all bases. Learn about our unique approach here.

The eXp Commercial Advantage

Our commitment to your success is unmatched. Partnering with us means gaining access to cutting-edge tools, detailed market insights, and a team that's dedicated to achieving the best possible outcome for your multifamily property sale in Naperville and Aurora.

Conclusion

Don't leave your multifamily property sale in Naperville and Aurora to chance. Let Randolph Taylor and the eXp Commercial team guide you to success. Our expertise, tailored strategies, and unwavering dedication are the keys to unlocking your property's potential.

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Sequence 5

RENT ANALYSIS
Current Market Rents For Your Multifamily Property
Estimate Potential Rental Income
REQUEST: https://www.creconsult.net/resources/
Randolph Taylor
Multifamily Investment Sales Broker - Chicago
eXp Commercial | National Multifamily Division
(630) 474-6441 | rtaylor@creconsult.net

Sequence 4

MARKET REPORT
Metro Chicago Multifamily Market Report
Providing Key Investment Metrics
REQUEST: https://www.creconsult.net/resources/
Randolph Taylor
Multifamily Investment Sales Broker - Chicago
eXp Commercial | National Multifamily Division
(630) 474-6441 | rtaylor@creconsult.net

924 Greenbrier

Just Listed: 24 Unit Multifamily Dekalb
Price: $1,200,000
Fully Occupied
Below-market rents
Solid Flexicore Construction
New Boiler/Newer Roof
Resurfaced Parking Lot
Listing Agent: Randolph Taylor
rtaylor@creconsult.net | 630.474.6441

https://www.creconsult.net/dekalb-il-multifamily-property-sale-924-greenbrier/

Multifamily Market 2024: Trends and Predictions for Stability

Multifamily Market Shows Early Signs of Stabilization

Following a challenging two years, 2024 has begun with some positive trends for the multifamily industry. In a recent webinar for Apartments.com, CoStar’s Jay Lybik painted a mixed but cautiously optimistic picture for the sector that has faced the brunt of high supply and weak demand in recent years. The national director of multifamily analytics highlighted the key takeaways from the first quarter and offered his predictions for the year ahead.

Slowing supply pipeline still continues to outpace demand

The first quarter of 2024 saw an increase in absorption and rebound in demand. A total of 104,000 units were absorbed in Q1, according to CoStar data. This marked the highest number since the third quarter of 2021.

However, this increase in demand is overshadowed by high supply. Even as it retreats from the 40-year high marked in 2023, new supply for 2024 remains above average. Dropping 15 percent from 583,000 last year, the 495,000 units projected to deliver this year are continuing to overwhelm demand, even as absorption picks up.

The vacancy rate is rising but stabilizing. The latest data shows a slight uptick from 7.7 percent at the end of 2023 to 7.8 percent in the first quarter of 2024. At the same time, rent growth deceleration appears to have slowed, hovering around the 1 percent range since mid-2023.

Luxury apartments struggle as mid-priced properties outperform

When broken out by price point, a clear divide emerges between luxury and mid-priced properties.

Luxury apartments, known as four- and five-star in the CoStar building rating system, make up 70 percent of new construction, which has suppressed rent growth to negative 0.2 percent.

Mid-priced, or three-star, apartments, on the other hand, are well above the national average for rent growth, posting 1.4 percent growth this year.

Absorption for this class in Q1 is significantly higher than in 2023. A total of 27,000 units were absorbed in the first 90 days of 2024, compared to the 17,000 during the same period last year.

The Sun Belt continues to struggle

From a regional perspective, the Sun Belt continues to bear the brunt of oversupply.  Seven of 10 markets with the highest supply/demand imbalance are in the Sun Belt: Austin, Dallas–Fort Worth, Houston, Atlanta, San Antonio, Charlotte, and Tampa.

Compared to a rent growth average of 0.8 percent nationwide, the Sun Belt has seen asking rents reverse, falling to negative 1.4 percent year over year. The five hardest hit major markets nationwide are all in the Sun Belt:

Largest year-over-year drops in rent growth

1. Austin (-5.7%)
2. Jacksonville (-3.6%)
3. Raleigh (-3.4%)
4. Atlanta (-3.0%)
5. San Antonio (-3.0%)

Midwest and Northeast pull ahead

Thanks to its healthy balance of supply and demand, the Midwest emerged in 2023 as a rent growth leader. Since then, the Northeast has been closing in on the Midwest’s lead. The Midwest saw a 2.5-percent increase in asking rent, as of the first quarter, while the Northeast wasn’t far behind, posting 2.1 percent in Q1.

All of the top 10 markets for rent growth are in the Midwest or Northeast. Coming in first is the Midwest’s Louisville, Kentucky, at 3.4 percent.

Greatest year-over-year increases in rent growth

1. Louisville, KY (3.4%)
2. Northern New Jersey (2.8%)
3. Cleveland, OH (2.4%)
4. Washington, D.C. (2.2%)
5. Norfolk, VA (2.1%)

2024 offers a mixed outlook

What’s ahead this year? Lybik painted a picture of a muted recovery. All but two major markets are projected to return to positive rent growth this year, though 40 percent will likely fall short of their five-year pre-pandemic average.

Midwestern and Northeastern markets are best positioned for success, as are three-star apartments. The road to recovery will be tougher for Sun Belt markets and luxury apartments.

Despite the positive trends of growing demand, slowing supply, and stabilizing vacancy, Lybik pointed to the health of the economy as a major wildcard.

High inflation and the potential for recession pose significant risk, he said.

“A recession is still possible, as stubborn inflation may force the Federal Reserve to resume hiking short-term interest rates,” Lybik said. “This represents a significant downside risk for multifamily fundamentals, right when demand appears the strongest in two years.”

Source: Apartmentology

https://www.creconsult.net/market-trends/multifamily-market-2024-stabilization-trends/

Multifamily Property Sales in Naperville and Aurora | eXp Commercial

Maximizing Your Success in Multifamily Property Sales in Naperville and Aurora

Introduction

Achieve unparalleled success in multifamily property sales in Naperville and Aurora with the strategic expertise of Randolph Taylor and the eXp Commercial team. Our dedicated approach ensures your property stands out in the competitive market. Discover innovative sales strategies on eXp Commercial's website and see how we can elevate your property's profile.

Why eXp Commercial is Your Ideal Partner

Tailored Expertise for the Naperville and Aurora Markets Randolph Taylor brings unparalleled insights into the multifamily property landscape of Naperville and Aurora. Leveraging his extensive experience, we position your property for maximum exposure and optimal sales outcomes. Dive deeper into our market analysis techniques here.

Comprehensive Marketing Strategies At eXp Commercial, we don't just list your property; we launch it. Our comprehensive marketing strategies ensure your listing reaches a wide, qualified audience. From digital marketing to traditional advertising, we cover all bases. Learn about our unique approach here.

The eXp Commercial Advantage

Our commitment to your success is unmatched. Partnering with us means gaining access to cutting-edge tools, detailed market insights, and a team that's dedicated to achieving the best possible outcome for your multifamily property sale in Naperville and Aurora.

Conclusion

Don't leave your multifamily property sale in Naperville and Aurora to chance. Let Randolph Taylor and the eXp Commercial team guide you to success. Our expertise, tailored strategies, and unwavering dedication are the keys to unlocking your property's potential.

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