Brad Beile

While a pullback in tenant demand will increase the vacancy rate as new industrial developments are delivered to the market in the short-term, the lack of new supply coming to the market beyond 2024 will drive increased competition for available space in the long-term. Additionally, less competition from developers will present more opportunities for build-to-suit developments. What does this mean for occupiers of industrial real estate? In the attached Bisnow article, it mentions, “Space was just flying off the shelves. It was really a ‘if you build it, they will come’ mentality (over the past 3-4 years).” Occupiers of real estate certainly have more leverage in this market than in recent years, but the important question is:    How long is this going to last? Is this going to be short-lived?    #industrialrealestate #businessowners #entrepreneurs #tenantrep #buyerrep

24

Absorption continues across the U.S. as housing demand has remained elevated. Rents are down on an annual basis, but residents are absorbing new supply at a record rate. According to the Cushman and Wakefield report quoted in the article below, last quarter saw the strongest total absorption since 2000. With affordability issues hampering the for sale market, rental housing continues to experience strong demand. What may change the current demand patterns? Shifting policies around immigration could reduce the number of people entering the country and soften demand. Natural population growth has slowed dramatically in the past 20 years, and so U.S. born household formation is unlikely to change drastically. I will keep an eye on immigration, domestic migration, and housing starts as the leading indicators for housing performance in the next few years.

3

According to Altus Group's latest survey, over 80% of CRE professionals view the hospitality sector as fairly priced, with the retail sector also holding strong at 70%. About half of respondents said multifamily and industrial are priced about right.  What’s your take on the current pricing landscape? #CommercialRealEstate #MarketInsights

6

The value of distressed assets in the #CRE marketplace continued to grow in the U.S. into Q3'24. Still, the ramp up is not as rapid as that seen following the GFC as there are different forces at play in the current market. Read more about the source of distress and a chart on comparisons to the GFC by my colleague Alexis Maltin here: http://ms.spr.ly/6049WR4GN MSCI Real Assets

58

For real estate developers; I was contacted by one of our lending partners who is offering a unique senior construction loan + participation program to stretch leverage to 85%+.  Pretty unique in today's market. Obtaining construction financing is challenging enough in the current environment, but achieving sufficient leverage can present an even greater hurdle. While it seems that most lenders are focusing on bridge financing to service nearly the trillion dollars that was coming due this year, it’s refreshing that this lender has gotten aggressive for construction and value-add projects. If this program could help your project please feel free to get in touch. I’m happy to discuss further - - Check Size: $5MM - $50MM+ - Asset Type: Multifamily, Build for Rent, Industrial, Self Storage, Medical Office, Anchored Retail - Strategies: Ground-Up, Heavy Lift Value-Add - Leverage: 75% - 100% LTC, or 85% Stabilized LTV - Pricing: 6.00% - 7.00% senior construction, 30% - 40% equity participation - Markets: Primary, Secondary, Tertiary, open to destination locations - Geography: Nationwide

6

What does KKR and Blackstone know that the rest of us don't? The multifamily sector of has seen recent challenges that would make one question the wisdom of purchasing multifamily at this point in time. Are they buying at the peak of valuations or is this the plateau from where valuations climb skyward? Perhaps they feel emboldened by the Fed's recent signals that 2025 will see rate declines? Or, maybe it's the recent steps that equity funds have taken to restrict withdrawals? Quess we'll have to wait and see. What do you think?

12

1 Comment

The Great Affordable Developer Exodus?!? (Part 5) Over the last few days, we have looked at how affordable developers are being pushed into the red. Starting with reduced/deferred fees at the time of award, through operations shortfalls, ending with little or sometimes negative equity at the end.  A process which is forcing many to exit stage left. However, even as we are seeing this possible exodus, there aren’t a ton of new viable candidates eagerly waiting in the wings to take up the mantle. Regardless of the motivation of the new developer, the process is expensive, bureaucratic and slow.   Due to length, I will have to split this up into a couple of posts. I've attached a link to a more comprehensive overview from HUD, which is interesting and frightening. Below is the lifecycle of an affordable deal to get to the point of receiving that developer fee. 1)    Look for land in a QCT/DDA (Qualified Census Tract) that meets the requirements of the QAP (Qualified Allocation Plan).  The QCT helps put more money in the deal (see my prior posts), the QAP is how the state dictates what projects they want and will award. Both the QCT and the QAP can change yearly. 2)    Check the zoning of the parcel, if not correct start the 12–36-month process to change it. Hopefully you can.   Hire an attorney to help make your case with the local zoning board. ($100k plus) 3)    Hire an engineer and an architect. Complete a Phase 1 environmental survey (hopefully it’s clean.) Complete geotechnical and environmental survey. (Around $50K) 4)    If all of the above checks out. Try and get that parcel bought or under contract. Knowing you are competing with every other LIHTC developer who needs the same unicorn piece of land. Normally with non-refundable funds of some sort. ($100k plus) 5)    Once parcel is secured (either purchase, lease or under long term contract) hire an architect and a GC. Develop a site development plan and a proposed budget. ($100k plus) 6)    Providing you can complete all of the above before the application deadline. Submit everything to the state housing authority. Pay more fees and complete a multi-page application. Include all your financials (you need at least a $5MM net worth or a partner). You must have built a LIHTC project in that state within the last few years or have a partner. Partners take a part of the developer fee. Tomorrow, I'll finish this lifecycle evaluation, along with its costs. Notwithstanding the difficulty, I hope those new developers either have deep pockets, or rich sponsors. https://lnkd.in/gZCtQyW2.

73

6 Comments

The Great Affordable Developer Exodus?!? As if we don't have enough to worry about with Affordable Housing availability, I am concerned about the exodus of a lot of our experienced developers. The slide below, which was from AHF Live, illustrates the concerns that are facing developers right now. The end result, it does not pay to build affordable housing, leaving many smaller developers exiting the field. That leaves only those developers that are larger and vertically integrated with the ability to remain viable. However, they do not have the capacity to meet the needs in every state. Here are some of the problems: 1) Aging Housing in need of major capex 2) Cash advances to support property 3) Depletion of property level reserves 4) Delayed developer fee payments 5) Increased Insurance Claims 6) Need to sell in order to have liquidity 7) Prolonged eviction process 8) Rising operating expenses 9) Skyrocketing insurance premiums 10) Staff turnover or challenges in staffing 11) Uncollected rents Let's discuss one of the bigger elephants in the room.... Deferred developer fees - Affordable developers make most of the money for the years they put into a project in the form of a developer fee. This fee normally does not get paid until the project is built and stabilized (i.e. folks are living there). Yet, if the construction budget for the project cannot support this fee it is increasingly common for them to get asked to defer 50% or more for as much as 13 years. If the property does not make enough to pay them back from cashflow over that period (not uncommon in affordable) they can then have unrealized gains. I.E. a tax bill on money they never received. Despite the fact that they may spend years and hundreds of thousands or millions of dollars to get to the point of building in the first place. In order to build a LIHTC project a developer must first find the site, buy it or at least control it, pay for architects for a design, engineers for surveys and environmental reports, plus fees to apply for a tax credit award. Finding the site is a challenge in and of itself, as only a few sites meet the shifting requirements of the state allocating those funds. Further, they often must be in a QAP/DDA for a basis boost. (See my earlier post regarding this.) IF they are lucky enough to receive said award, they then have to get the project built before they really see any return on that investment. Then they are asked to defer that return for the next 13+ years... That is a lot of time and effort for a pretty uncertain return. Based on this alone I know developers who are diversifying away from developing affordable housing. I know several others who have decided it's not a game they want to play. Even non-profits can't operate in the red for long. Development is HARD. If we force people out of the game altogether, the shortage of available properties will grow. This will take a couple of days. Consider this part 1.

57

10 Comments

As the industrial market slows down it isn't surprising to see Prologis forecast less demand as vacancy rates begin climbing nationally. The industrial market saw unprecedented rent growth since the start of the pandemic but that was an unusual set of circumstances unlikely to be completed. Overall, the industrial market is healthy and not overbuilt in most markets. Here in South Florida we have a wave of new product delivering over the next few quarters which will push the average vacancy rate a little higher and even though deal velocity has slowed, the long term demand for industrial space is more than likely. #JLLindustrial #warehousing #logisticsproperties

7

1 Comment

For anyone wishing to be informed on the subject of rent control/rent caps, then look no farther than this super insightful summary by Jay Parsons:

13

Multifamily is reclaiming its momentum: ✔ $35.8 billion in Q3 sales, up 9% YOY ✔ Second straight quarter of year-over-year growth ✔ Portfolio transactions jumped 33%, while mid- and high-rise deals rose 26% While volumes may not hit the pandemic-era highs, the market has stabilized to pre-pandemic levels, creating consistent opportunities. #CREInsights #MultifamilyInvesting #MarketTrends

2

Nearly 80% of U.S. office markets have witnessed a decline in available sublease space over the past twelve months. Notably, Chicago (-19%), Seattle (-17%), Dallas (-15%), and San Francisco (-14%) have experienced the steepest declines of major markets, contributing to an overall national total sublease availability drop of 11%.

6

I'm genuinely thrilled by the strides Hines U.S. Property Partners, our core-plus, open-ended U.S. real estate fund, has made in cultivating an exceptional portfolio. Over the past year, the fund has strategically allocated nearly $800 million across a diverse array of sectors, including industrial, grocery-anchored retail, medical offices, build-to-rent, and select development projects. The recent acquisition of Blu South marks a significant milestone, augmenting the fund's investment in alternative assets—a pivotal strategic objective. Our unwavering confidence in the build-to-rent sector remains resolute, particularly in light of anticipated higher-for-longer rates, which are poised to moderate home purchasing. Build-to-rent offerings are intended to provide meticulously crafted, pedestrian-friendly living environments as an alternative to traditional homeownership. Read more about HUSPP’s progress: https://lnkd.in/eE2m5jxw #MarketingCommunication

162

1 Comment

Getting a lot of questions about this. In full transparency, we acknowledge that it's too soon to tell on many fronts where certain policy is headed. Any "impacts" are pure speculation, as a result (e.g., trade and resulting impacts on logistics). We give a comprehensive list of what we're watching, starting with the Omnibus bill that needs to get through Congress and the lifting the statutory debt ceiling that is scheduled to be reached on January 1, 2025. Stay tuned for more as we get greater clarity on what actual policy implementation may look like. #CRE #Economy #Policy #RealEstate

49

Listed REITs returned +2.1% this week, outperforming the market value weighted S&P by +255bp and the equal weighted S&P by +222bp. The sector has now risen five out of the past 6 weeks. Real estate was the 2nd best of the S&P sectors trailing only energy. Sixteen out of 18 subsectors were positive as cell towers (+4.9%), industrial (+4.4%), healthcare (+3.4%) and shopping centers (+3.4%) led while lodging (-0.7%), apartments (-0.6%), diversified (+0.1%) and specialty (+0.1%) lagged. While YTD returns stand at -4.3%, valuations have risen+6.4% since the YTD trough last month and are nearly 20% above the late October 2023 trough. Here's your pretty picture.

205

3 Comments

The Mortgage Bankers Association recently published their Quarterly Commercial/Multifamily Mortgage Bankers Originations Index (https://lnkd.in/g5gH-JCu). While origination volumes remain below historical averages in 2Q24, it shows a rebound compared to the prior quarter. CMBS stands at its highest level since 1Q22 and Life Co rose to levels seen in a year ago.

26

1 Comment