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The ‘Incredible’ Flow Of Capital Into Multifamily Is Expected To Increase In 2020

The U.S. multifamily sector has emerged as a top investor target during this cycle, and despite concerns of a looming recession, industry leaders expect the flow of investment to only increase next year.

Top capital markets executives, speaking Wednesday at Bisnow’s Multifamily Annual Conference New England, said they expect equity and debt flow into the sector to continue to rise. They said they see institutional investors allocating more money toward multifamily, banks aggressively competing to provide loans for apartment and condo projects, and Fannie Mae and Freddie Mac beginning a new spending cycle next week with a combined $200B budget.

All of this competition to provide equity and debt for multifamily projects has narrowed the yields on these deals, but with uncertainty in other sectors of the economy, experts believe investors will be happy to accept slightly lower returns.   Gregory Bates, the chief operating officer of developer GID, said his firm manages money for some of the world’s largest pension funds and sovereign wealth funds. He said they remain bullish on the multifamily sector. GID’s portfolio comprises more than 30,000 residential units and it has a 10,000-unit construction pipeline.

“Real estate allocations are going to stay where they are or go up,” Bates said. “Apartments and industrial are at the top of everyone’s list … There are terrific tailwinds on the capital side.”

Walker & Dunlop Managing Director Andrew Gnazzo also foresees an increase in institutional investment.

“Life insurance companies this year have allocated more money to multifamily, and everything we’re hearing is they’re going to allocate more in 2020,” Gnazzo said.   In addition to large amounts of incoming equity, Gnazzo said debt providers are also clamoring to loan money on multifamily projects.   “There is an incredible amount of capital in the debt space,” Gnazzo said. “There is a really nice bucket of capital on both the debt and the equity side.”

The inflow of debt is not just seeking apartment projects, Cornerstone Realty Capital President Paul Natalizio said, but lenders are also bullish on condos, a sector they have had concerns about in the past.

“There is a surprisingly very strong market for condos,” Natalizio said. “It’s an entirely different market now. Lenders will tell you there are not enough condos … Banks have come a long way in that area, they’re very aggressive.”

Fannie Mae and Freddie Mac are also expected to pour more money into the multifamily space in the coming months.

The two government-sponsored enterprises pulled back on spending over the summer, experts said, but last month the Federal Housing Finance Agency announced new loan purchase caps that will allow Fannie Mae and Freddie Mac to spend a combined $200B over a 15-month period from the start of Q4 through the end of 2020.

“The clock starts Oct. 1,” National Multifamily Housing Council Vice President of Capital Markets Dave Borsos said of the Fannie and Freddie allocation. “From that point to the end of 2020, each enterprise will have $100B to purchase loans.”

Gnazzo said this is an encouraging sign for multifamily owners and developers who utilize debt from Fannie and Freddie.

“As Q4 goes on and into Q1 and Q2, I think [Fannie and Freddie] will put their foot on the gas; they have to spend $200B,” Gnazzo said. “It’s encouraging for all that have enjoyed agency debt.”

The inflow of money to real estate comes as economic indicators, such as the inverted yield curve, point to a coming recession. Investment managers and brokers said capital providers are looking to multifamily real estate as a more stable sector than other portions of the economy, and are willing to accept lower returns than they may have in previous years.   Bates said his firm, GID, believes there will be a “hitch” in the economy at some point and it will slow the net operating income growth of apartment buildings. He said this may hurt investors who buy projects with three- or- five-year sale horizons, but those with time to wait should still see positive returns. He thinks investors are adjusting their expectations accordingly and would be happy with returns in the 6% to 7% range.

“Every investor we know, they won’t tell you this today, but 10 years from now they’ll be tickled pink if they get 6[% returns],” Bates said. “They think there will be a scarcity of product and believe producing 6 or 7 is going to be incredibly attractive relative to other global options.”

The expected returns on a multifamily project vary in different markets, CBRE Capital Markets Senior Vice President Todd Trehubenko said.

In Boston, where Wednesday’s event was held, he said investors’ return expectations have dropped from the 9%-to-10% range to the 5%-to-6% range.

“The amount of money out there chasing deals is astounding, and you have groups willing to accept low returns,” Trehubenko said.

Weston Associates Head of Acquisitions Elliott White agreed that return expectations are down for the Boston market, leading his firm to look elsewhere.

“A ton of institutional capital is coming in and saying, ‘We can’t buy anything with less than [10% returns], so my advice would be don’t buy deals in Boston,” White said. “The Boston market is still strong and will stay strong, but it won’t be the same source of high-yield investments.”

White instead said he is looking at the Mid-Atlantic, Gulf Coast and Midwest regions as areas providing higher returns to investors. The Davis Cos. Vice President of Investments Rachel Edwards agreed that investors need to look south for better yields.

“I do have to leave [Massachusetts], and the Southeast is the place I’m focused on now, from the Mid-Atlantic to Florida,” Edwards said.

Her firm is far from alone in moving south to find yield.

“It’s getting pretty competitive down there,” she said.


Source:  Bisnow

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Rent Reform In New York, California Propels New Wave Of Multifamily Investors To Miami

First, it was tax reform that pushed CEOs, hedge fund managers and other high-net-worth individuals to South Florida. They were lured in by the favorable climate, luxury residential properties and most of all, substantial tax savings.

Now, it is the multifamily investors who are heading to South Florida, and for a different reason: rent control, something the Sunshine State lacks.

In June, New York state passed a sweeping rent reform law, expanding its protections for millions of rent stabilized tenants. The law dramatically limits how landlords can increase rents on stabilized apartments and opens the door for rent stabilization to expand outside of New York City. It stopped short of a rent cap, but that is expected to be on the table in some form in the next legislative session.

In Illinois, although rent control advocates lost a legislative battle earlier this year, they’re gearing up for a push to overturn the statewide ban on rent control in Springfield next year. And California is now poised to implement a statewide cap on annual rent increases.

Multifamily investors are moving quickly and making offers on properties in South Florida, brokers say. But they are also encountering a strong rental market and low supply, which have pushed up prices.

Eleventrust, a commercial brokerage in Miami, is working with investors from New York and Los Angeles who are looking to shift their focus to Florida because of the impact the new laws will have on their current investments.

Jose Ramos, a broker with Eleventrust, said at least 40 percent of the calls it’s getting have been from New York investors who want to close on properties in South Florida. “There’s a lot of confusion, a lot of focus on getting their money out of there and getting it into high-yield markets,” he said.

The brokerage is negotiating with two groups of investors to acquire apartment properties, via 1031 exchanges. One is for the River Lofts Apartments, a 43-unit complex at 500 to 522 Northeast 78th Street in Miami’s Upper East Side neighborhood, which hit the market with Ramos and Rafael Fermoselle, Eleventrust’s managing partner, earlier this year. It’s on the market for about $7.8 million.

Ramos and Fermoselle are showing investors properties in gentrifying markets like Little River, Little Havana and Allapattah. “The thing with Miami-Dade specifically is there’s not a lot of product that’s big enough,” Fermoselle said.

The investors they’re dealing with are looking for deals in the $5 million to $30 million range.

Deme Mekras, managing partner of MSP Group, has also received offers from New York buyers who plan to invest in South Florida multifamily properties because of the recent rent reform measures. New Yorkers especially, are more comfortable with properties in the urban cores, he said.

Rent reform is also becoming a national issue, as more than a third of Americans are considered rent-burdened. The problem is worse in South Florida, according to a report from Freddie Mac earlier this year, which found that Miami ranked as the most rent-burdened market in the U.S.

Vermont Sen. Bernie Sanders, a self-described Democratic socialist, is proposing a $2.5 trillion housing plan that would cap annual rent increases at 3 percent or one and a half times the consumer price index, whichever is higher.

Searching For Yield

Multifamily investors from out of state would prefer to spend their money on one large deal but are challenged by a lack of supply, brokers said. They’re non-institutional players, looking to spend in the range of $30 million and $40 million.

But because South Florida’s rental market has remained strong, some sellers aren’t willing to part with their property. And if they are, the prices are too high. Rents have increased by 15 to 20 percent over the last eight years, according to Hernando Perez, director of multifamily investment sales for residential brokerage Franklin Street. More people are also moving to Florida, in part because of the favorable tax climate.

“There are not a lot of deals that make sense and not a lot of deals to buy,” he said.

Perez said he is seeing a number of California buyers looking to use the proceeds of 1031 exchanges to buy in South Florida. They cited the pending statewide rent control legislation, known as AB 1482, as a reason. Perez said he is working with a group that wants to spend $10 million for a multifamily building. The group, which Perez declined to identify, is looking at properties in Hallandale Beach, Fort Lauderdale and Pompano Beach.

And what if Florida was to enact similar statewide rent regulations? Simple, Perez said.

“It would crush the profitability of the real estate market.”


Source:  The Real Deal

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3 Healthcare Construction Trends To Keep An Eye On

Emerging trends are aiming to increase patient access, reduce project timelines, and focus on a more personal approach to healthcare. Here are three healthcare construction trends you are going to want to keep a close eye on:

  • Increased Levels of Patient Access. The construction of smaller healthcare centers such as walk-in clinics and urgent care facilities will promote patient accessibility as well as aim for a more personalized approach to healthcare. Patient access will shift to become one of the prime concerns of healthcare facilities, and the construction industry can be seen embracing this shift in ideals through the encouraged fabrication of small-scale facilities.


  • Modular Construction. Modular construction consists of a unique design strategy that builds prefabricated structures off-site only then to be later transported and assembled on-site. The method uses factory-like manufacturing techniques to make repeated sections of a building that can be made and delivered in half the normal construction time. Due to this reduced amount of build time, modular construction is extremely cost-effective and cuts major corners in labor costs.


  • Scalable, Accessible Healthcare Facilities. The increasing popularity of more acute healthcare facilities such as micro-hospitals and mixed-use medical facilities will become more and more apparent this upcoming year. Small-scale centers provide care that is extremely convenient while also offering quick and local treatment options for individuals. Scratch the extended wait at a major hospital since micro-hospitals and mixed-use medical facilities offer full hospital emergency services and are also located in accessible, favorable locations.



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Miami Adding 7,000 New Apartments This Year, More Than Any Other U.S. City

Miami is the top city in the U.S. for new apartment construction in 2019, according to new statistics from Rentcafe.

A total of 6,989 new apartments will be built in Miami by the end of the year, more than any other U.S. city.

The number of new apartments is more than double what was delivered last year. A total of 3,148 units were built in Miami in 2018.

Miami is unusual compared to other U.S. cities, since most new apartment construction is concentrated in the urban core (generally within city of Miami limits).

In the Miami Metro area, a total of 13,031 apartments are expected to be delivered in 2019, ranking fourth among metro areas nationwide.


Source:  The Next Miami

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Net-Lease Sector Sees High Demand

U.S. net-lease investment is outpacing the broader commercial real estate market in 2019, with increasing demand from both foreign and domestic investors for office and industrial assets, according to the latest research from CBRE.

Net-lease investment — comprising office, industrial and retail properties — climbed 17.2 percent year-over-year in the first half of 2019 to $33.4 billion, with total commercial real estate volume growth at 13.4 percent over the same period.

Net-lease investment volume in in Q2 2019 was the second-highest quarterly total on record at $20.6 billion and up by 33.8 percent year-over-year.

Net-lease investment volume for the year-ending Q2 2019 totaled $74.2 billion—the highest four-quarter total since CBRE began tracking the market in 2002.

“The high volume of net-lease activity has been a byproduct of an aggressive capital markets environment coupled with an influx of capital, both foreign and domestic, seeking compelling risk-adjusted returns,” said Will Pike, vice chairman of Net Lease Properties for Capital Markets at CBRE.

Net-lease investment volume in Q2 2019 was driven by gains in the office sector (65.7 percent year-over-year growth) and retail (52.2 percent), while industrial remained nearly unchanged (0.6%).

Investors are increasingly focused on net-lease investment opportunities in high-growth secondary markets. While gateway markets like San Francisco and Boston had the largest year-over-year gains in investment volume in Q2 2019, markets such as the Inland Empire, San Diego and the East Bay made the top-10 list.

The global search for yield and portfolio diversification is attracting global investors to the U.S. net-lease market. Cross-border capital for net-lease properties reached $3.9 billion in Q2 2019⁠—a 78.4 percent increase from Q2 2018 and the second-highest quarterly total on record.

International buyers accounted for 18.8 percent of net-lease transaction volume in Q2 2019—their highest share since 2015. New York City, San Francisco, Miami, Houston, Los Angeles and Chicago received the most foreign capital for net-lease investment.

Over the past two years, the top country sources of capital have been Canada, Germany and South Korea.


Source:  Real Estate Weekly

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Growth On The Menu For Florida’s Restaurant Sector

The strong appetite of both local residents and tourists for fine dining should help South Florida’s restaurant industry grow in spite of the turmoil currently facing the retail sector.

A report released by commercial brokerage CBRE predicts a strong restaurant sector with spending increasing above non-food retail industries. The analysis also indicates that South Florida will remain a prime market for international restaurant expansions into the US.

“The food-and-beverage industry has helped diffuse the claims of the ‘retail apocalypse,’” says Brandon Isner, senior research analyst at CBRE. “Developers and landlords continue diversifying their tenant base to include food and beverage operators to drive foot traffic. South Florida has the added benefit of a strong, diverse tourism economy, bringing the region’s restaurants an entirely separate source of clientele.”

CBRE points to a number of key data points that back up its prediction of strong growth for the restaurant industry. For starters, restaurant spending now accounts for approximately 25% of all retail spending. Food-and-beverage has proven to be resilient to market conditions. Landlords are diversifying their assets with experience-driven retail, largely food and beverage tenants, in hopes of driving foot traffic and attract other retailers in South Florida.

The report also notes that tourism is providing a “turbo boost” of spending for the food and beverage sector in South Florida. CBRE adds that tourism affords the restaurant industry a level of resilience against future “economic hiccups.”

More than 44 million people visited South Florida in 2018 and spent an average of $315 per person on food and beverage during their visits, for an estimated total of $8.8 billion. This is more than double the restaurant spending from residents, CBRE notes.

“Restauranteurs, landlords and developers must stay abreast on the constantly changing factors, but consumer preferences and spending habits are among the most important,” says CBRE SVP Drew Schaul. “Consumers are influencing every facet of retail real estate, and identifying trends, shifting demographics and emerging urban neighborhoods are key to the success of food and beverage tenants.”

In a 2018 report, CBRE stated that not only is Miami the second largest international retailer market in the US, it’s 12th among global markets. Many international restaurant groups and chefs have chosen South Florida for their first location within their U.S. expansion strategy.

Based on those lofty rankings, CBRE predicts that South Florida will remain a prime market for international restaurant expansions into the U.S.

The report also predicts that Fort Lauderdale’s quiet boom will entice further restaurant expansion and that Palm Beach restaurants will take advantage of the region’s economic strength.


Source:  GlobeSt.

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Why Healthcare Is Returning To The Campus Model

For the past several years, healthcare operators have spread out ancillary services, like dialysis and oncology. Now, healthcare providers are returning to the campus model, consolidating services in a medical campus setting. Rising demand for these services and a customer preference to the campus model is fueling the new trend.

“The expansion has been fueled by the demand of the healthcare consumers to have their healthcare services located near their homes,” Bryan Lewitt, managing director at JLL, tells “In most cases healthcare consumers do not live close to the hospital campuses. This has forced the hospital systems operators other and other ancillaries service providers to relocate their services to the community where they want to serve.”

In addition to demand, the campus model is also more sustainable, particularly due to a changing regulatory environment.

“After being in the community in the past five to seven years the hospital system operators are finding it very difficult to run a profitable business off-campus. Due to all the regulations placed upon hospitals and reduced reimbursements most of their off-campus ventures are losing money,” says Lewitt. “However, in some instances where the hospital system has a very good market share in a very wealthy neighborhoods off campus locations work for them.”

This shift in strategy has had a major impact on leasing activity for both on- and off-campus medical buildings.

“There are many well located retail centers that have been beneficiaries of healthcare providers to their centers,” says Lewitt. “Currently 10% of all healthcare facilities in Southern California are located is in a retail center. This has doubled from only 10 years ago. Secondly, off-campus medical buildings have also benefited. The off-campus medical buildings have benefited because it is now acceptable for the investors and the financing world to value these off-campus buildings close to an on campus medical building due to the credit of these tenancies.”

Smaller medical start-up models will be most impacted by the new trend.

“The major shift is for the vacuum of hospital operators going back to the campuses for the disruptors. The disruptors have less regulations and they are not embroiled in a mission like many of the hospitals,” says Lewitt. “They also know how to make money. Therefore, we see smaller start-ups and publicly back companies looking for off-campus locations to fill the void of where the hospital operators wanted to be in the past.”


Source:  GlobeSt.

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