Month: August 2019

What Is Innovative Living and Why Is It the Future of U.S. Real Estate?

The millennial generation’s preferences are driving a change in what types of multifamily and hotel assets are in demand.

Earlier this year, W5 Group committed $300 million to develop 1,300 co-living units across the U.S. and to increase the global reach of its brand for the co-living operator, QUARTERS. Co-living—and, more broadly, “innovating living”—has emerged as one of the most exciting opportunities in the real estate industry, and we’d like to share our insights as to why:

What is innovative living?

To understand what we mean by innovative living, and why it’s a core focus for us, it’s important to first look to the demographic and societal shifts that are influencing consumer demand. This can best be exemplified by examining the needs and wants of the largest generation in U.S. history: millennials.

Whatever your take on this oft-derided cohort, you need to understand them. They’re on track to be the most educated generation yet, and they currently comprise the largest segment of the American workforce at 35 percent. While they presently trail their predecessors in total expenditures, millennials are in fact on pace to achieve the most growth in spending of any segment.

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PMI gains as fewer first-time homebuyers use FHA

Most young buyers aren’t waiting to save for a 20% down payment

The share of first-time homebuyers using conventional mortgages that require private mortgage insurance, or PMI, to compensate for low down payments increased in the second quarter while the use of FHA loans fell.

Fannie Mae and Freddie Mac typically require buyers to purchase PMI if they’re using down payments smaller than 20% of a home’s value. While PMI allows buyers to get into a property earlier than if they waited to save for a larger down payment, it can add hundreds of dollars to a monthly mortgage bill. FHA loans also charge a monthly insurance premium which can be lower than PMI, depending on a borrower’s credit score.

The share of first timers using conventional mortgages with low down payments requiring PMI rose 6% from a year earlier, while the share using FHA mortgages fell 5%, according to a report from Genworth, one of the nation’s largest providers of PMI.

Overall, purchases of single-family homes by first-time buyers dropped 4% to 559,000 in the second quarter, the report said. The total share of first timers using some form of low down payment mortgages was about 80%, Genworth said.

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Housing for Today’s Students

Developers, and students, opting for more practical approaches when it comes to housing.

The Standard at Flagstaff in Flagstaff, Ariz., is just one of nine student housing properties being delivered this month by the Athens, Ga.-based Landmark Properties.
Top developers are scrambling to build or renovate student housing properties that include the new top amenity students want.

“What’s different for us in 2019 is the inclusion of more dedicated study areas,” says J.J. Smith, president of CA Student Living, based in Chicago. “Study-oriented spaces are trending up while party and game lounges are trending down.”

After years of building exorbitant features like massive swimming pools with cabana service and elaborate party spaces, developers are focusing more on providing places where students study and work in groups, in addition to fitness and wellness spaces.

Others top features include proximity to campus—students continue to be very interested in living within walking distance of the school they attend … though they will live farther away if the price is right. Students also are interested in housing designed to use less energy and water, according to leading developers.

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Yardi: Multifamily Rents Continue to Rise Through July 2019

Average rent rises $3 to $1,469; YOY rent growth rises to 3.4%.

The national average multifamily rent rose $3 to $1,469 in July 2019, while year-over-year rent growth rose to 3.4%, up 10 basis points from June. According to the latest Yardi Matrix Multifamily National Report, this marks the 13th month in which rent has risen over 3% on a year-over-year basis.
Most of the nation’s major metros are showing strong rent growth, apart from Houston and Miami, which have maintained their lower rates. Las Vegas showed the strongest rent growth once again this month at 8% YOY, followed by Phoenix at 7.1%. While Yardi notes these fast-growing Southwest metros are no longer as inexpensive relative to the rest of the country as they once were, their rent increases remain robust on a month-to-month basis.

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Life Companies Find CRE Lending Opportunities in a Volatile Market

Some life company lenders are offerings interest rates as low as 3 percent.

Life insurance companies have maintained a steady appetite for commercial real estate debt over the past several years. And some see recent interest rate volatility as an opportunity to edge out the competition.

A few life companies have tapped the brakes on lending amid interest rate volatility and are waiting for things to smooth out, but the majority remain active participants, notes Jeffrey Erxleben, executive vice president/regional managing director at NorthMarq Capital, a commercial real estate debt and equity provider. “A lot of life companies view some of the volatility in the market today as a good opportunity to pick up good commercial loans that are out there. So, we see them being pretty aggressive,” says Erxleben.

Interest rate volatility has given life companies an opportunity to distinguish themselves compared to other capital sources. Notably, life companies are being aggressive on rates, with some lenders offering rates as low as 3 percent. They have also added different options to create value for borrowers, such as pre-payment flexibility, notes Erxleben. Life company lenders bring certainty of close, along with an ability to rate-lock early so there is less interest rate risk for the borrower.

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Low-income Housing Tax Credit Prices Remain Steady

Syndicators discuss income averaging, GSEs, and market concerns.

A little more than a year after “income averaging” was introduced into the low-income housing tax credit (LIHTC) program, the option is being pursued in a number of projects.

In sister publication Affordable Housing Finance’s annual midyear survey, syndicators reported closing on more than 65 income-averaging deals around the country, with more coming down the pipeline.

The option expands the reach of the LIHTC program to more families by allowing LIHTC-qualified units to serve households earning as much as 80% of the area median income (AMI) as long as the average income limit at the overall property is no more than 60% of the AMI, but these deals require additional scrutiny and underwriting.

Several syndicators are stressing the need for a buffer to make sure projects stay within the AMI requirements.

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Can the Apartment Market Sustain its Momentum?

Occupancy is at the highest level in years, but an economic downturn combined with high level of construction might be a threat.

The apartment sector is the strongest it’s been in years, according to industry experts.

“Terrific absorption has pushed occupancy upward to highs for this economic cycle,” say Greg Willett, chief economist for RealPage Inc., a provider of property management software and services.

That might seem strange. The occupancy rate in the U.S. has already been high for a very long time. Economists and apartment experts have been expecting more apartment units to become vacant for years, as more developers open new buildings. But demand from renters remain strong, despite growing worries that the U.S. economy may be weakening.

“You would think that the market would be mature… We’ve had 10 years now of really strong multifamily demand,” says Jeanette Rice, Americas head of multifamily research with real estate services firm CBRE. “It’s still positive as it has been for many years; in some ways, it is more positive.”

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Capital Economics: Expect home prices to increase as mortgage rates drop

Forecasts a 3% increase in prices by end of year

For the last two weeks Freddie Mac reported 30-year, fixed-rate mortgages averaging 3.6%, a three-year low.

For reference, the 2018 average from this time last year sat at 4.53%. These low rates, combined with a low housing inventory will lead to an increase in home prices, Capital Economics said in a report on Monday. The report predicts a 3% increase.

“As with any other asset, lower interest rates will act to boost home values,” Capital Economics reported. “Other things equal, with a given income and debt-to-income (DTI) ratio, a lower interest rate raises the amount a household can spend on a home.”

At the beginning of the year, Capital Economics originally predicted a rise in prices of 2% over 2019. The economic research consultancy admits it did not forsee the 30-year rate dropping below 4% this year. With the magnitude of the drop, Capital Economics is now edging home prices up a percentage point from its original forecast.

The report goes on to state that there are many more factors that play into home prices, and concedes that the previous relationship between house price growth and changes in interest rates is weak.

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Multifamily Midyear Review Shows Good News, Bad News

Renting remains strong, but deal activity is down.

Recent reports chronicling the economic condition of the multifamily marketplace at midyear shows a mix of good and bad news. According to Berkadia’s National Trends Multifamily Report for Second Quarter 2019, the current occupancy rate is 95.7%, which is up 30 basis points as compared with 2Q 2018 while effective rent is up 3.1% for the same period. Berkadia attributes the multifamily good news to the high cost of homeownership.

“As the cost of homeownership continued to rise across the United States, renting remained the preferred housing option. At $280,200 in May 2019, the median sales price of existing single-family homes advanced 4.6% year over year. At the same time, home sales velocity decelerated 1.1%, suggesting many Americans were priced out of homeownership.”

Berkadia also notes a rise in leasing activity as residents newly occupied 330,531 net units since mid-2018, up from 323,064 units absorbed during the year prior. Developers have been responding to the need for more apartments by adding nearly 290,000 new units to the nation’s multifamily housing stock, a rise of 3.6% higher than the number of units added during the previous five years.

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Bank or Private Loan: Which Financing Strategy Should You Choose?

What to consider when choosing a lender for your real estate investment.

Borrowers looking to increase their assets and diversify their portfolios have more financing options today than ever before. Yet securing the proper financing for a real estate project can prove to be challenging, especially considering investment strategy is not a one-size-fits-all approach. Investors can choose to borrow from a traditional bank or a private lender and it’s important to note the complexities of each to see how they fit into your overall plan. Let’s take a closer look at these two popular financing methods.

Borrowing from a bank

Bank lending is the most traditional and commonly sought-after financing strategy for commercial real estate professionals. According to a recently published report by the Mortgage Bankers Association (MBA), 2018 was another stellar year for commercial and multifamily mortgage originations with a 14 percent rise in borrowing reported at the close of the year. Additionally, a preliminary measure from the 2018 fourth quarter mortgage originations survey pointed to volume that was 3 percent higher than the record-breaking $530 million reported at the close of 2017. Multifamily, industrial, offices, hotels, and retail spaces ranked as the most in-demand properties contributing to this increase.

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