Scott Brinker

The government-sponsored enterprise is forecasting rent growth of just 2.7 percent, according to its new midyear outlook. It also projects the vacancy rate to jump six percent, equating to a rental income boost of just 2.5 percent. For context, rental income growth is 20 basis points lower than the average on record from 2000 to 2022, according to RealPage. Freddie refers to its projections as "muted" growth. While Freddie notes the economy is healthy overall, the high supply of new units, pegged at a 40-year-high, is not meeting the multifamily demand. A couple of other elements leading to volatility are high interest and cap rates.

1

CRE Values Likely at or Near Bottom, Election Over but are Rising Treasury Yields a New Wild Card?   Trends:   · Consensus is values are close of may have bottomed (excluding office), and we agree. · The Bid-Ask spread has narrowed. · In our conversations and work with lenders, they’re beginning to look at their pipeline again, issue term sheets, with the goal of increasing lending in 2025. · However, Capital Economics, in a recent report states that “The key takeaway is that if Trump were to follow through on his mooted trade, immigration and fiscal policies, we would expect US inflation to be higher and GDP growth weaker. That would mean a higher level of Treasury yields and, therefore, commercial property cap rates than in our current forecast.” · Regarding real estate values, Peter Rothemund, Co-Head of Strategic Research Green Street, also commented, “Property appreciation was set to accelerate, but then medium-term interest rates turned higher. If bond yields stay at current levels, I wouldn’t expect real estate prices to increase much.” Takeaways: · While there will there be more short-term interest rate cuts in 2025, there are now expectations Treasury yields could rise. · But we have much more stability in short term rates, and in values, just with a higher rate floor compared to recent years. · So, in deal structuring, a potentially higher treasury rate environment needs to be accepted, priced in, and values adjusted accordingly. · In many instances, extend and pretend won't work any more, especially with transitional assets as exit scenarios are often priced off of Treasuries, and need adjustment. · Restructuring debt and properties needs to account for the fact that these factors have duration. · These emerging trends are creating a “new normal.” · Challenges create enormous opportunities, and that is also where we are. · Creativity, structure and private capital are plentiful and available to provide solutions. · Proactive and collaborative strategies matter and are needed.   In navigating through these challenges, it’s important to understand all the complexities of the current capital markets, assets, and loans. EOS Real Estate has the multi-disciplinary expertise to guide you through to resolution.   We can help.   #CRE #realestatefinance #assetmanagement #distresseddebt # #maturitywall

6

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

Interesting #ForeclosureAuction pricing action going on. Wonder if we will see continued downward pressure going into the second part of the year. Here is an interesting question I heard recently: Will home values actually decline or improve with an interest-rate reduction before the end of the year? As more and more homes see price-reductions and more time on the market, will we see an overstaturation of the market? What do you think? Let's talk about it. I'd love to hear a private-investor (boots in the ground) take on the current state-of-affairs. #sharafreport #foreclosureauction #mortgageservicing #specialservicing #privatelending

7

FHFA puts out some good national real estate statistics. This one shows that the general trend has been upward for SFR and condo loans from Q2 2023 vs. Q2 2024 (based on appraised values), even though in Texas we were pretty flat. Nerdy stuff, but a good read and good evidence of the macro trends that we all hope will continue...

2

1 Comment

Real Estate CRE risk Amid concerns in the sector, Powell also told Congress that the commercial property industry may remain stressed for years. "Banks need to be honestly assessing what their risk is. They need to be assured that they have the capital and liquidity and the systems in place to manage this risk." Powell noted that Fed stress tests of U.S. banks this year concluded that large institutions can manage commercial real estate risk, as well as most small banks. Regulators are still keeping a close eye on those with higher exposure to CRE, as higher-for-longer rates are expected to push more banks to build loan loss reserves through 2024.

1

In contrast to the doomsday scenario reported in some papers, data shows that #condominium/townhome prices are not crashing in #MiamiDade County. In the first half of 2024, the median sales price of condominium/townhome sales rose from one year ago in 84% of 31 areas (with at least 5 sales per month), with 39% posting double-digit price growth. Yes, home sales have fallen in most markets, but prices have remained relatively firm. Supply is building up, especially in luxury coastal areas, but that has not translated to steep price prices on a broad level. #Cash buyers make up at least over 70% of buyers in million-dollar markets like Surfside (site of the Champlain Towers collapse), Sunny Isles, Bay Harbor, Key Biscayne, and Bal Harbour. The condo law passed in 2022 (SB 4-D) is meant to make condos safe for residents, and buyers need take the future costs of ensuring structural integrity into account. But the new condo rules have not led to a collapse in asset prices. Condo owners may even be incentivized to purchase condos knowing that these are safer than before under the new law. https://lnkd.in/e7eJsKXd Miami Association of Realtors

17

3 Comments

Total Commercial Real Estate Borrowing and Lending Declined 47 Percent in 2023 WASHINGTON, D.C. (April 23, 2024) — Total commercial real estate (CRE) mortgage borrowing and lending is estimated to have totaled $429 billion in 2023, a 47 percent decrease from the $816 billion in 2022, and a 52 percent decrease from the record $891 billion in 2021. This is according to the Mortgage Bankers Association’s (MBA) 2023 Commercial Real Estate/Multifamily Finance Annual Origination Volume Summation. Excluding activity from smaller and mid-sized depositories not directly captured, MBA’s survey tracked $306 billion of loans closed by dedicated commercial mortgage bankers in 2023 -- 49 percent less than the $595 billion reported in 2022. “Higher interest rates, uncertainty about property values, and questions about some properties’ fundamentals led to a steep fall-off in borrowing and lending backed by commercial real estate last year,” said Jamie Woodwell, MBA’s Head of Commercial Real Estate Research. “The declines were broad-based, covering every major property type and capital source. The sustained growth in the amount of CRE mortgage debt outstanding signals that much of the drop in originations was driven by a decline in borrower demand stemming from slowdowns in sales transactions and refinances. If property owners had the ability to sit pat, they generally did.” Woodwell continued, “All indications are that 2024 is off to a slow start as well. While higher interest rates are likely to continue to act as a deterrent for many property owners, more than $900 billion of maturities – and perhaps acquiescence to those higher rates – are likely to bring some additional deals to the market this year.” Among different property types, multifamily properties saw the highest volume last year, with an estimated $264 billion of total lending and $178 billion directly tracked by dedicated mortgage bankers. First liens accounted for 96 percent of the mortgage bankers’ dollar volume closed. Dedicated mortgage banking firms reported closing $306 billion of CRE loans in their own names and serving as intermediaries on $225 billion. Firms reported serving as investment sales brokers for $225 billion of deals. Depositories were the leading capital source of CRE mortgage debt, followed by life insurance companies and pension funds, government-sponsored enterprises (Fannie Mae and Freddie Mac), private label CMBS, and investor-driven lenders. #commercialrealestate #commercialfinance #commerciallending #commercialbanking #commercialmortgage

2

Throughout the years, I've amassed a collection of over one hundred financial models related to commercial real estate. While some exhibit quality, most display flaws, and a handful are downright inadequate. Recently, I scrutinized an acquisition model designed for an industrial property and highlighted various issues. Whether it was questionable reporting, vague objectives, or a lack of supporting data, the model fell short on multiple fronts. Take a look at the detailed breakdown: https://lnkd.in/gfDzYTtX #RealEstate #CommercialProperty

12

#Multifamily property owners are finally getting a break.   Effectively immediately, HUD is raising the maximum permissible wind or named storm deductible for properties with FHA-insured mortgages to $50,000 or 5% of the insurable value per location, whichever is greater, up to a maximum of $475,000 per occurrence. Beforehand, the maximum #deductible was $50,000 or 1% of the insurable value, whichever was greater, up to a maximum of $250,000. Multifamily #insurance costs have risen dramatically over the past several years — up 27.7% over the 12 months ending in January and 129% since 2018, according to a recent Yardi Matrix report – so this news from HUD is more than welcome.

10

KKR paid $2.1B for over 5.2K units spread across various states, including California, Washington, Florida, Texas, Georgia, North Carolina, Colorado, and New Jersey.They’re banking on dwindling apartment construction leading to lower supply and rising rents by 2026. What do you think about this move? Do you think Multifamily will rebound soon? #investNowCapital #privateequity #multifamily #Passiveinvesting

15

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

Controlling the spread. In my last article I mentioned that we have still have some dark clouds on the horizon with office defaults impacting overall bank lending capacity. This article shows how many of those deals are being quietly shuffled off the books. Sold to private equity or family offices. The problem is this is just another version of "extend and pretend." Eventually, the resulting sales will impact the market even if they don't hit the lenders right now. It's important to understand that these deals are not marketed. So, the discounts that the lender is taking aren't public. They are selling the mortgage securing the property, not the property itself. The new owners can then foreclose on the asset and take possession at a discounted price. I recently listened to an interview with Barry Sternlicht, CEO of Starwood Capital, in which he mentioned that part of their strategy is to take over class A buildings at a deep enough discount that they can lower rents and stay full in a world of decreasing office demand. Starwood will thereby do fine. However, all of the other buildings, still overvalued, whose debt may be held by local, smaller lenders...those folks may be in trouble. Why do I care about office? Because, the same lenders also lend on multi-family. If they have to take massive losses, then they may not have the capital to put into my investors deal. Especially given that local banks are the primary sources for new development and often redevelopment capital. https://lnkd.in/e6MPvMzz

3

Multifamily cap rates rose to an average of 5.9% in 2Q24, up from 5.5% in 2Q23, signaling a recovery in investor activity. Transaction volumes rose to $16B in Q2, marking the first quarterly rise in over two years.

15