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Multifamily May Outperform Expectations in Q2

It is looking possible that multifamily’s fundamentals in the second quarter will finish stronger than a year ago. It is even possible that the quarter overall may outperform expectations. This is according to CoStar Group, which is basing this premise on April’s rental numbers that are showing every sign that the sector is beginning to stabilize.

“National year-over-year asking rent growth slowed to 2.1% at the end of April from 2.6% at the end of March, vacancy rates held steady and 34,000 units were absorbed, signaling a strong start to the second quarter,” says Jay Lybik, National Director of Multifamily Analytics at CoStar Group.

It is welcome news for the category, which CoStar had put on alert about a month ago that the following 90 days were critical for apartments. The firm’s hope was that absorption can match deliveries by the end of the second quarter to help stabilize this sector, Lybik said at the time. Yet, there’s no guarantee since risks are prevalent, including a potential weakening in the labor market and tighter financial conditions, he noted.

One month later and it appears multifamily may be over the hump.

“With the peak leasing season now underway, multifamily conditions started to show signs of stabilization,” Lybik said.

National average rents rose by 4% to $1,656 from $1,650 last month’s April, according to CoStar. And Heartland Indianapolis showed the highest year-over-year rent growth by a much bigger climb to 6.1%, which was ahead of the nearby Midwestern cities of Cincinnati, Columbus, St. Louis. In fact, the Midwest region took six of the top 10 rent growth spots in April. Fifth in place was San Diego, followed by Chicago, Boston. Northern New Jersey, Cleveland and with Miami coming in tenth.

In other markets, however, year-over-year rent growth slowed as demand for multifamily weakened. Among those are some in the Sun Belt where the uptick is headed down after those markets grew quickly when renters relocated in recent years.

 

Source:  GlobeSt.

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Are Multifamily Prices Coming Down Soon?

What a ride! For the past five years, apartment building owners hit the jackpot with their property values going up nationally by 37%, according to Marcus and Millichap. This was fueled by record rental increases of 13.5% in 2021 and 6.2% in 2022 and mortgage rates hitting their lowest ever in January 2021. But this trend is seemingly slowing. According to CBRE, the average multifamily cap rate went up by 38 basis points to 4.49% in the last quarter of 2022, which means prices are starting to come down. And thank goodness!

As a commercial mortgage banker specializing in multifamily financing nationally, 2022 was an extremely difficult year. It was a head-on collision between property values going up and mortgage rates going up. This produced smaller loan sizes, killing many of our deals. It wasn’t pleasant telling my client, “Sorry, 40% down is no longer going to cut it. Can you come up with 50%?” He replied, “Really? I was only getting a 4% cash-on-cash return, and now you want me to be happy with 2%.” I told him to negotiate the price down with the seller, who opted to take the property off the market instead.

Why Both Buyers And Sellers Have Their Brakes On

Although multifamily is the most sought-after asset class in the commercial real estate market today, prices remain high. This is a result of low supply and demand. In fact, the 4th quarter of 2022 hit the lowest level for both since 2009, according to Moody Analytics.

So, it’s no wonder that both buyers and sellers have their brakes on. Why? Because many buyers can’t figure out what a property is really worth today. Worse yet, they are afraid they are buying at the top of the market with a recession around the corner. And many sellers are in love with those high prices. They know that this is not a good time to sell with rates being so high. I’ve found that most are financially strong and don’t have to sell. They can just wait for rates to come down—snug in the comfort of the very low long-term rates they have on the property.

Why Multifamily Sales Prices Could Come Down Slowly In 2023

The good news for sellers is that the economy seems to be getting stronger, with wages climbing 6.3% for jobs posted on Indeed and 4.8 million jobs created in 2022. Even better, in January 2023, 517,000 new jobs were created, and unemployment hit a 53-year low at 3.4%. Many sellers, real estate brokers and property managers I talk with are arguing that this should justify today’s high multifamily prices and support more rental increases in 2023 as wages have gone up too.

But I think the data from the last quarter of 2022 supports a different argument—that multifamily prices must come down. According to CBRE, new investment in multifamily property fell by 70% (download required). Why? Because investors couldn’t make the numbers work, and the future did not look bright. According to Fannie Mae, there was a negative demand for multifamily units of -103,485 at the end of 2022. Now if we add to this the 783,000 new apartment units they report coming online in 2023, this is a recipe for rents remaining flat and rental concessions on the rise.

Savvy property investors know that if they are going to buy high, they have to raise rents to achieve the return they need in the future. This goes right to their bottom line, raising the net operating income in the income approach of a commercial appraisal and raising property value. But as noted in the report above, Fannie Mae is expecting rents to only achieve a 1.5% increase in 2023.

Today’s high prices just don’t seem sustainable, or I should say, they are not based in reality. The reality is that too many units are available for rent, too many units are coming online and too many renters are already paying more than they can afford with inflation. The reality is what an investor is willing to put down on a loan with today’s high mortgage rates. The reality is that those rates are likely to go higher as the Fed struggles to lower inflation to their benchmark of 2%. It’s at 6.3% now. And the reality is what an investor needs to earn.

A client of mine recently summed it up perfectly: “If I buy at today’s prices, I will be paying what the property will be worth in two years. And that’s if I can raise rents enough. Why would I do that?”

What does all this mean? If you are a multifamily investor, you might be better off waiting until prices come down. I think they will by the last quarter of 2023, as appraisal valuations come down and more sellers must sell due to divorce, partnership breakup, loan maturity or death. Of course, those who have the time may want to make lowball offers on properties with under-market rents in good neighborhoods where renters can afford future rent increases and wait for one to stick.

If you are a seller or listing real estate broker, unless you want to wait for a cash buyer, it’s important to not only sell the property’s upsides and value adds but also think about the buyers’ expectations for earnings. Based on actual net operating income, current interest rates and down payment requirement, what sale price will bring the deal to the closing table?

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

 

Source:  Forbes

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The State Of Multifamily Investing In South Florida

South Florida’s apartment buildings have traded at record prices as rents continue to climb.

However, there will likely be fewer apartment building transactions this year compared to last year, according to a recent report from Cushman & Wakefield.

The report; authored by Calum Weaver, director of Cushman & Wakefield’s multifamily group in Florida; stated that sales volumes slowed this summer “and will likely be 20 to 30% lower than in 2021.”

That’s because higher interest rates have impacted the profitability of multifamily deals.

Despite the headwinds, multifamily sales activity remains strong as foreign and domestic buyers continue to “pour into South Florida,” Weaver said.

“Investors view it as a safe, stable, and strong asset class,” he added. “Especially compared to turbulent stock, Bitcoin, or exotic NFTs.”

South Florida’s apartment buildings traded at record highs in the first half of 2022, for an average of $345,000 a unit in Miami-Dade, $300,000 a unit in Broward, and $379,000 in Palm Beach County.

The deals add up to $4.96 billion in multifamily transactions, in “the second-highest six-month sales total in history.”

Forty-two percent of South Florida’s 367 multifamily transactions between January and July took place in Miami-Dade, while 34% were in Broward, and 24% were in Palm Beach County.

First-time investors made many of those purchases in a trend that’s expected to continue, according to the report.

Landlords’ net rental income, or effective rent, isn’t rising much as it did in 2021. But their profits continue to increase, the report stated. Over six months, rents increased 7.5% to $2,186 a month in Miami-Dade. In Broward, rent rose 5.3% to $2,326 a month during the same time.

In Palm Beach County, the rent increase was flat, with an increase of less than 1% to $2,326 a month.

It’s the first time average rents in all three counties exceeded $2,000 a month, Weaver wrote.

South Florida has led the nation in rent hikes since the pandemic as well-paid remote workers and executives moved to the region from other parts of the United States, brokers and developers have told the Business Journal.

There are signs, however, that rent increases are slowing down.

Ken H. Johnson, an economist at Florida Atlantic University, has theorized that asking rents will drop as some remote workers return to their points of origin due to employers’ demands that they spend more time in the office.

There is some anticipation that rent increases will stabilize as more apartment units are built in South Florida. A recent report from property technology company Yardi projected that 19,000 apartment units will be finished by year-end.

Weaver’s report noted that year-to-year vacancies increased in Broward to 4.4% from 3.5%. Vacancies also went up in Palm Beach County, to 6.4% from 4.5%.

However, vacancies remain “at historic lows” in Miami-Dade County, at 3%, the report stated.

As more multifamily units are built, vacancies are expected to marginally increase in South Florida.

There are now 39,216 units being constructed in South Florida, including 9,192 apartments that recently broke ground in Miami’s Brickell Financial District and downtown areas, 3,657 units in Hialeah and Miami Lakes, as well as 3,611 units in West Palm Beach, Weaver wrote.

There could be a decrease in new projects as it becomes more difficult for developers to obtain construction loans, the report noted.

But demand for rentals is expected to remain high as home prices rise in tandem with rents.

The median price for a single-family home in South Florida rose to about 13% to $542,878, the report stated, adding that “average home values are increasing at a greater rate than rents, making ownership for many even tougher.”

Meanwhile, South Florida’s population grew by 47,000 people year to date.

“This was more than the 42,842 population increase for all of 2021,” the report declared, adding that the population hike was “equally split among the three counties.”

South Florida’s population is expected to continue to grow, according to Cushman & Wakefield.

“Household formations in South Florida are expected to increase to over 37,000 each year in the next five years,” the report stated.

If half of these new households are renters, “that represents over 18,500 new renters a year in South Florida.”

Rising rents may be a boon for landlords, but they could dissuade some professionals and companies from moving to South Florida, some experts have warned.

Their costs are rising, too, as insurance cost hikes “continue to be a challenge” with premiums per unit ranging from $1,000 to $1,800 a unit, the report stated.

However, Weaver’s report noted that South Florida is home to a strong job market, with unemployment at 3% or lower and salaries increasing by 6% over the last 12 months.

 

Source:  SFBJ

 

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Multifamily Developments In Pipeline Could Take Years To Finish

Feeding into a record-breaking in demand real estate market, multifamily developers have enough work in the pipeline to last into 2024.

With a tremendous amount of backlog, demand for multifamily development will not diminish any time soon, said Al Fernandez, president for ANF Group, a firm providing construction management in commercial, multi-family and education projects.

Like new multifamily buildings like St. Martin Place and Edison Place apartments in Miami, calls from either new developers or existing developers for multifamily projects in Miami-Dade will continue to be an increasing trend, he said.

“I would say that no one particular area in Miami-Dade has been isolated,” Mr. Fernandez said. “For these types of units (market rate rentals), I think they’re sprinkling it all over the county.”

In the past year, Miami delivered 7,400 units and had a net absorption of 13,900 units. The county also experienced year-over-year positive rent growth of 19.7%, according to CBRE Group’s multifamily end of 2021 market report.

Riding the multifamily construction trend wave is a soon-to-be luxury waterfront townhome community in North Miami Beach called Koya Bay.

Real estate firm Macken Companies has broken ground on the intracoastal waterway in the Eastern Shores neighborhood at 4098 NE 167th St. Koya Bay will feature 10 four-story residences in a gated community with three-, four- and five-bedroom floorplans ranging from 4,327-5,288 square feet.

With VCM Builders as general contractor, the project is expected to be completed in early 2023. Koya Bay is currently 60% sold and Macken predicts to sell out somewhere between $28 million and $32 million.

“We are thrilled to have reached this milestone and look forward to delivering an exceptional community to the City of North Miami Beach,” said Alan Macken, principal for Macken Companies.

Local developers are fortunate to be based in South Florida, which is the epicenter of growth, Mr. Fernandez added.

“I think that the reason that we’re having so much success with this multifamily product is because we have over 1,000 people a day moving to South Florida,” he said. “We’re going to continue to see this growth, even if there is a slowdown throughout the rest of our country, for several years to come.”

 

Source:  Miami Today

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Commercial Real Estate Trends And The Call For Creativity

The ripple effect of the pandemic’s impact on the commercial real estate (CRE) market is going to have a lasting effect on several market sectors. The remote workforce genie isn’t going back in the bottle, and the reliance on e-commerce and advances in technology for home delivery will continue to disrupt retail. However, there is reason for optimism, but not across all sectors, and there’s still a lot of emperors without clothes out there talking about how everything is going to be just fine. There are thriving CRE sectors, some that need only pivot to adjust to the new normal, and others that will have to completely reinvent themselves.

Multifamily Real Estate: On The Rebound

As a leader in providing property management technology to the apartment industry, my company has seen firsthand how the multifamily real estate market has made a faster recovery than expected compared with other real estate sectors. It’s arguable that some markets felt almost no impact at all, and some sectors are actually stronger coming out of the lockdown. Yes, government aid has helped, but the overall market has gotten back on its feet quickly and will continue to do so in 2022. The multifamily market is seeing strong growth with low vacancies, steady rental rates and robust development for next year.

Investors agree: Recent data puts sales volume of market-rate apartments at $46.6 billion in the first half of 2021, which was up by 35% from a year ago. This is on pace with the average growth rate for the past five years. Apartments in secondary markets or further from major cities may benefit from this remote work trend since employees no longer need to be near their physical office location.

Industrial Real Estate: Thriving During Distress

The industrial market saw a huge boost during the pandemic due to the growth in e-commerce, and it looks like this will keep rolling through 2022. Year-over-year e-commerce growth surged to 44.5% in Q2 from 14.8% in Q1, which put pressure on retailers, wholesalers and third-party logistics companies (3PLs) to lower transportation costs. There is still healthy demand for industrial real estate, with 367.8 million square feet of industrial property under construction. Completions for 2021 are forecasted to top 250 million square feet, slightly above 2019’s total.

Rent increases were most significant in or adjacent to port areas where there was increased demand due to shipping problems exacerbating supply chain challenges. Vacancies remained steady at 6.1% compared to March 2020. Strong vacancy and rent growth figures show new space has easily been absorbed.

Office Real Estate: In Dire Trouble

Since approximately 50% of U.S. workers worked remotely during the pandemic, flexible work location is no longer a nice-to-have but often a requirement. Businesses have shifted from “always in-person” to a remote workforce, and a vast majority of that workforce likes it. In my opinion, this trend isn’t going anywhere; about 74% of the workforce is planning to permanently be working remotely. This spells a significant reduction in demand for office space. Companies are not re-upping leases and are significantly reducing their square footage, all signals of troubling trends for the CRE market. Not surprisingly, I’ve noticed that CRE owners aren’t talking about this exodus and are telling all who will listen that everyone’s coming back. They may even talk about the need for flex space but not about how flex space will require less space overall.

An overwhelming 72% of companies anticipate modest office space reductions, and 9% of large companies plan to make their office space “significantly smaller” in the next three years. Perhaps some CRE owners are working behind the curtain to stem the tide of companies leaving their buildings or designing new uses, but they have a cash crunch ahead to meet loan payments. Loans to keep CRE businesses afloat can be difficult or impossible to service because a reduction in 20% of topline revenue due to loss of tenants severely impacts a commercial loan, which is typically levered at 75-80%. Cash is only going to get tighter.

Adaptive Re-Use Will Be Key

One of the saving graces for the struggling office and retail real estate markets is the shift to a mixed-use property because apartments in a mixed-use environment command 13.9% higher rents than apartments that are not. I believe that this is the most significant opportunity in CRE and where one strong sector can bolster the struggling one.

There are a number of creative ways that CRE real estate executives can reuse a vacant structure to give a neighborhood a boost. Converting unused office space or retail buildings into apartments or nursing care facilities, for example, can make the best use of space and tap into needs in the market. You can add apartments on top of malls or earmark warehouse storage on the back of office spaces. Key factors that determine optimal reuse in a property include location, building structure, cultural significance, sustainability and ROI.

Cities and counties have also put into place adaptive re-use ordinances making permitting easier and construction easier and cheaper. In Los Angeles, for example, where my company is headquartered, CIM Group took advantage of the new adaptive re-use ordinance to renovate a downtown high-rise building.

One component to assist with the success of adaptive repurposing commercial real estate property is technology, which has grown by leaps and bounds over the course of the pandemic. Once considered a “tech-hesitant” industry, it is now embracing everything from automation software for remote property operations to AI that scans for changes in state and local code and compliance regulations. A recent survey showed that 80% of real estate owners and operators claimed new technology was already having a positive impact on their operations.

While some office building owners are awaiting a mass re-entry of people back into offices, others are thinking creatively to re-envision a future that combines the best of both worlds, solving a housing shortage and enlivening office and retail space.

 

Source:  Forbes

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‘Lowest Vacancies In Years’ Drive Up Prices For Multifamily Investors

For “the first time ever” the average price for a Class C apartment building averaged $150,000 a unit, according to a recent report on the South Florida multifamily market from Franklin Street, a Tampa-headquartered commercial and insurance brokerage.

But it isn’t just Class C apartment buildings — classified as multifamily structures more than 30 years old and in fair-to-poor condition — that are rising in value. Prices, rents, and vacancies for Class A apartments and Class B apartments are also becoming more expensive for investors in Miami-Dade, Broward, and Palm Beach counties.

According to the Franklin Street report, rents per square foot increased 23% year-over-year in the third quarter in Palm Beach County, 16.7% in Broward County, and 11.6% in Miami-Dade County. Miami-Dade still had the highest rents for Class A and Class C buildings, however, with Class As running an average of $2.42 a square foot and Class Cs at $1.57 a square foot. Palm Beach County had the highest rents for Class B buildings, which averaged $1.85 a square foot.

As for vacancies, the rates were 4% in Palm Beach County, 3.3% in Broward County, and 3.3% in Miami-Dade in the third quarter, “marking the lowest vacancies in years.”

As a result of its popularity, South Florida is luring more multifamily building investors, too. Sales volume was highest for Class As in all three South Florida counties, which totaled $1.6 billion in the third quarter. However, the largest segment in Class A sales volume came from Palm Beach County, which amounted to about $675.2 million. Class C multifamily buildings had the second-highest volume, totaling $586.5 million in all three counties. The sales volume for Class Bs in South Florida was $508.8 million.

The report noted that Class A properties in Palm Beach and Miami-Dade counties exceeded the average sales price per unit of $300,000. But Dratch found it particularly interesting that average units for Class Cs are at $150,000 each.

“Close to five or six years ago, in this same market, Class C units were selling for less than $100,000. It speaks to what has been happening across the board,” he said.

 

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Miami Ranks Among Top 5 Markets For Multifamily Development

Multifamily has been one of the best-performing industries throughout the pandemic. According to Yardi Matrix data, robust demand pushed rent growth to record highs, placing 2021 on track to be among the best years since the 2008 downturn.

Demand continues to fuel development and, following a moderate slope during the first weeks of the health crisis, construction activity has largely bounced back in 2021. Yardi Matrix expects deliveries to amount to roughly 334,000 units by year-end.

Consistent growth was registered in most fast-growing secondary markets, but also in several gateway metros. In the ranking below, MHN showcased the top five markets for deliveries in 2021 through July by the number of units, based on Yardi Matrix data. Combined, 44,168 units came online in these metros, which is slightly above the 38,275 units that were delivered last year during the same period.

In July, the construction pipeline in these markets comprised 170,913 units underway. Not surprisingly, four of these markets also held the top spots for transaction activity during the first half of 2021.

top 5 multifamily markets graph

The pandemic enhanced Miami’s appeal, attracting even more companies looking to relocate from New York City and California markets—this has spurred robust demand for multifamily projects.

Through July, 7,173 units came online in the metro, with more than 6,625 units delivered during the same period last year. The construction pipeline is second only to Dallas and Washington, D.C., with 38,147 units underway. Miami is one of the top markets for absorption, too, posting a 180-basis-point occupancy increase in stabilized properties in the 12 months ending in July, to 96.4 percent.

Deliveries were almost evenly distributed between Miami metro (2,391 units), Ft. Lauderdale (2,648 units) and West Palm Beach-Boca Raton (2,134 units). Occupancy increased the most in West Palm Beach-Boca Raton, climbing 250 basis points, to 96.6 percent. Miami Metro followed, with occupancy improving by 160 basis points, to 96.2 percent, while the rate increased 150 basis points in Fort Lauderdale, to 96.4 percent.

One of the largest projects delivered in the metro in 2021 through July was ZOM Living‘s Las Olas Walk, a 456-unit Lifestyle property completed in February in Fort Lauderdale at 106 S. Federal Highway.

 

Source:  MHN

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Report: Miami Multifamily Holds Steady

As Miami continues to navigate the health crisis and ensuing economic hardship, the metro became an example of resilience in the face of adversity, according to a study by the Atlantic Council’s Adrienne Arsht-Rockefeller Foundation Resilience Center.

The report commended Miami’s efforts to repurpose existing strategies—already tested against coastal vulnerabilities, disease outbreaks and economic difficulties. Despite the challenges, Miami real estate has endured, with multifamily rents up 0.4 percent to $1,704 on a trailing three-month basis as of December, above the $1,462 U.S. average.

Despite a slow pace, employers added some 24,400 jobs in the metro over the three months ending in November. But as a region heavily reliant on tourism, Miami has felt the full weight of job losses in the leisure and hospitality sector, which contracted by 19 percent and shed 63,300 position in the 12 months ending in November. On a positive note, following the $900 billion federal relief package passed in late December, many Floridians had already started receiving the extra $300 payments for the week ending Jan. 2.

Metro Miami had 35,969 units under construction as of December, with 87 percent of those aimed at high-income earners. The bulk of the pipeline (71 percent) is expected to come online through this year. More than $2.2 billion in assets traded in 2020, representing a 19 percent decline from 2019.

 

Source:  MHN

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Here’s What Industry Leaders Predict In 2021

There’s no doubt that 2020 was a wild year for real estate. From the Covid-19 pause that stopped showings and sales entirely, to the slow recovery and crashing rental market in condo-saturated Manhattan, to hot markets in metro-area suburbs, there were plenty of downs and ups.

From the Manhattan condo and rental recovery to what will happen with inventory, we gathered some predictions on what the market holds for 2021.

When Condos Will Recover

Eric Benaim, chief executive officer and founder of Queens, N.Y.-based brokerage Modern Spaces, says he expects to start seeing the condo market pick up by the second quarter of 2021.

“Many developers reduced pricing during COVID, so buyers will now see an opportunity to purchase a ‘value,’” Benaim says. “The FED has said it plans on holding the current interest rates until 2023, which will also help.”

Rental Recovery?

Andrew Barrocas, the chief executive officer of New York City brokerage MNS, thinks the New York City market will recover 50% of what was lost by the summer of 2021, though all experts say it depends on how many employees return to the office and how many businesses recruit new employees to work onsite.

“That’s contingent on 50% of people returning to the office,” Barrocas says. “If 75% return, the market will recover 75%. If it’s 25%, the market will recover 25%. We have 20,000 vacant apartments right now. It’s purely a supply and demand issue. There’s a direct correlation with the rental market and people retuning to the office and with the current trends, I feel 50% of people will be back in Summer 2021. It’s what makes New York, New York.”

Jared Antin, director of sales at New York City’s Elegran brokerage firm, thinks it will take at least 18 to 24 months for things to turn around.

“Although the amount of new leases being signed this fall are comparable to the amount signed this time last year, the non-renewal rate is through the roof, causing an incredible increase in inventory and pressure for landlords,” Antin says. “The vacancy rate in NYC has risen above 5% for the first time in at least 14 years, and landlords are dropping prices and increasing concessions to fill the vacancies. It will take 18 to 24 months, and at least two cycles of new employees coming to NYC, to absorb this inventory. During this time, we will see minimal new rental inventory in the pipeline. When the inventory does absorb, we will then see prices increase until new inventory can be built.”

Benaim of Modern Spaces agrees that the rental market in New York City has a long way to go to recovery.

“Available inventory is at a record high and new units that are hitting the market now will take some time to be absorbed,” Benaim says. “My hope is that as more and more people start to come back to work available inventory will be absorbed, and I believe if all goes well, then the rental market should be back to near pre-Coronavirus numbers by September when schools will open and there is more consumer certainty and confidence.”

Scott Meyer, chief investment officer at real estate investment and development firm PTM Partners, thinks the rental market may be buoyed by people who underestimated the challenges of homeownership.

“We have a couple at Watermark (in Washington, DC) who sold their single-family home to rent a two-bedroom after realizing they did not want to deal with the hassle of home maintenance and renovations,” Meyer says.

Even More Flexibility

Flexibility in lease terms is here to stay, and Will Lucas, founder and chief executive officer of Mint House, which provides high-end, short term rentals for business travelers, predicted that 5 to 10% of multifamily buildings in urban areas will sign agreements with a short-term rental or corporate housing company to combat a tough lease-up environment.

“Lease terms will become more flexible as individuals travel and temporarily relocate given the work-from-home trends driven by the coronavirus pandemic,” Lucas says. “We have already seen an increase in guests signing on to stay with us anywhere from two months to nine months to avoid signing a full-year lease.”

Increased Inventory

Michael Nourmand, president of Los Angeles-based brokerage firm Nourmand & Associates, believes inventory should increase.

“Right now, inventory is very low because of economic and political uncertainty as well as health concerns,” Nourmand says. “In addition, you have rising prices so sellers are benefitting from holding off on selling their properties. …Price appreciation will level off. I think demand will remain strong because Los Angeles is a desirable place to live but supply will increase so price appreciation will slow down. In addition, low interest rates are already baked into the equation.” 

Second-Home Syndrome

After busy markets in vacation communities, Mark Durliat, chief executive officer and co-founder of Grace Bay Resorts, predicts even more vacation home purchases.

“People are vacationing differently now than ever before, and many are putting a bigger focus on privacy and cleanliness while still having the benefits of exclusivity and luxury,” Durliat says. “Vacation homes provide the confidence that travelers will always return to a clean and safe space. What’s more, vacation homes in a managed community … offer real potential for rental income that can offset ownership expenses.” 

Along with the rise of the vacation home, Hunter Frick, senior vice president of marketing at Brown Harris Stevens Development Marketing, predicts the rise of the “co-primary residence,” or an apartment near the office in the city.

“As executives who decamped to areas outside Manhattan ease into month nine of work from home, their mindset has changed indefinitely,” Frick says. “They will never abandon the unrivaled energy of Manhattan, but it’s a place where they will spend three days a week before they retreat to their homes upstate, in the Hamptons and Connecticut. Many will look to find new housing closer to the office, which will help the struggling Midtown residential market.”

“This lifestyle aligns with feedback we are receiving from our current buyer pool,” Frick continued. “Most anticipate the future of work as a much more fluid and flexible where work and life blend.”

Though it’s yet to be seen what the controversial resurfacing of the pied-à-terre tax will do to that market.

Increased Foreign Interest

While foreign investment has been slow this year, and some say it never left, some in the industry believe it’s coming back along with the continued opening of new developments.

“Condo demand won’t die long term,” Jim Cohen, president of residential for Florida-based FontaineBleau Development. “I’m in continuous communication with the 1% international buyer pool. People still want waterfront living in Miami and not just single-family homes. Waterfront investments mean a ton of maintenance and serious insurance policies. So while the pandemic has shown the importance of space and privacy through the increase of sales in the single-family home market —Miami-Dade sales jumped 16.6% year-over-year according to the Miami Association of Realtors — a mansion in the sky with a resort-style lifestyle sans the hassle of maintenance may be the better option. Our newest waterfront luxury project, Turnberry Ocean Club offers family-size duplex condos and 70,000 square feet of indoor/outdoor amenities that include a coffee lounge, two restaurants and a three-floor sky club. During the pandemic, we actually sold a number of units to international buyers, which make up 30% of our buyer pool. My takeaway, people still want the resort-style luxury experience.”

Dan Kodsi, chief executive officer of Florida-based Royal Palm Companies, thinks renewed foreign investment provides a market for smaller units.

“The foreign buyer is looking for resort-like homes that are practical and functional with a sense of sophistication and luxury that they can return to once or twice a year that can be maintained for them,” Kodsi says. “The new fully furnished microLUXE residences at Legacy Hotel and Residences offer micro floor plans with no rental restrictions. About 75% of Legacy Hotel and Residences’ buyers are international.”

Virtual And VIP 

Greg Willett, chief Economist at RealPage, a real estate technology and analytics firm, says the use of virtual leasing and communication tools will continue to expand, with functions moved offsite.

“Similarly, we will see more virtual leasing — not just virtual tours — and there will be expanded virtual resident engagement, including resident-to-resident interaction,” Willett says.

Elana Friedman, chief marketing officer for AKA, which offers long-stay hotel residences, says amenity spaces will be reservation-only for Covid-19 safety.

“At AKA, residents have the ability to book our shared common areas and amenities, like our cinema,” Friedman says.

 

Source:  Forbes

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Resilient Multifamily Sector Holding Strong During Pandemic

The multifamily sector has long held strong against uncertainty and economic swings, and the Covid-19 pandemic has proven to be no exception. While investors may shift toward new product classes during the current downturn, multifamily as a whole continues to offer an attractive option for both private investors and institutions seeking protection from economic storms.

Why Investors Like Multifamily During Uncertain Times

Because people always need housing, multifamily properties historically perform better than other commercial real estate classes. In contrast to office and retail, which ebb and flow dramatically with supply-and-demand cycles, multifamily typically remains stable and often continues to grow when other parts of the market constrict.

In addition, demand for rentals has continued to grow over the past several years. Individuals and families, young professionals and baby boomers make up a growing renter demographic that spans generations and income levels. While many people rent out of necessity, a growing number of renters have chosen that option for the flexible and community-oriented lifestyle it offers. That trend has opened up a wide opportunity pool for properties across multifamily classes, from A-class luxury to C-class workforce housing.

An October 2020 report from Newmark Knight Frank describes Covid-19 as an accelerant for buyers preferring defensive property types including multifamily. The pandemic also enhanced targeting cities where there is room to grow — like less densely populated metros.

The report also points out that in the absence of for-sale opportunities in the industrial market, multifamily offers investors an attractive option due to its high level of liquidity. Data in that report supports the draw as multifamily investment sales volume accounted for 34.3% of CRE volume between April and August 2020 — a period with significant pandemic lockdown orders and business limitations or closures across the country.

How Covid-19 Impacted Multifamily Investment

An accelerated move toward suburban areas might become the most striking shift sparked by the pandemic. Although we have seen that trend in action for several years, the realities of social distancing appear to favor communities with less density and more features to meet the needs of renters not only working from home but spending more time there in general.

The report from Newmark Knight Frank bears out that shift, with data showing that 65.4% of multifamily property investment between April and August went to garden-style apartments. Newmark Knight Frank also points out that investors who typically place capital in safe haven-type markets are now open to suburban areas as a result of potential concerns generated by the pandemic — overcrowding and mass transit.

Throughout the pandemic slowdown, rent collections and occupancy rates have remained high in the sector. As of November 20, 90.3% of renters had paid rent in full or in part, according to the National Multifamily Housing Council’s Rent Tracker. That number sits only 1.6% below the same period last year. In a time of employment fluctuations and uncertainty, those figures paint a hopeful picture.

As of November, occupancy rates in urban core apartment towers sat at 92.7% compared to middle-market Class B properties, like garden-style or low-rise properties, which show an occupancy rate of 95.8%.

Gateway cities, such as San Francisco, New York and Seattle, have seen spikes in lease-originations; however, many of these new leases are existing renters who have been lured to new properties or units by pandemic-related concessions. Sun Belt cities have not experienced the same flight patterns among renters.

Investment Outlook

During Covid-19, mostly private investors have made moves in multifamily, but large investors have indicated their preference for multifamily and industrial moving into the last quarter of the year and for 2021. Newmark Knight Frank expects a $205 billion influx from the institutional side, which now sits in closed-end real estate funds. They report an expected $80 billion has been earmarked for the remaining two months of 2020.

As a private developer, the focus at my company for many years has been three- or four-story, surface-parked, garden-style multifamily properties in suburban submarkets of major cities in the Southeast and Texas. That experience has provided a lot of anecdotal data for assessing how the pandemic’s impact on the investment outlook. There are a few trends my company noted in 2020, based on the property portfolio it holds.

My company has maintained collections close to 98% across our multifamily portfolio, which aligns with the national numbers noted above. New development lease-up activity remains strong with levels unchanged from before the pandemic while many applications come from residents moving into our market from other states. My company — and others — offer concessions similar to those offered in other markets to encourage leasing, but they are coupled with steady rent growth. Buyer activity continues as does cap rate compression in our space — all while the region experienced supply constraints as a result of pandemic-induced cost increases in new development.

Both private and institutional investors continue to show interest in multifamily properties. As a result, I believe we can be optimistic about this asset class. Consumer behaviors and property performance in the midst of an uncertain economy as a result of the pandemic show this class as an important one. There may even be room for further demand growth as the impacts from the pandemic cool.

 

Source:  Forbes

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