Month: December 2019

Multifamily Investors Are Spending More Capital in Secondary, Tertiary Markets

Slightly higher yields and still expanding economies are driving multifamily investors to smaller cities.

Multifamily investors are now more likely to spend their money on properties in secondary and tertiary markets rather than in primary markets.

“In secondary and tertiary markets… the number of offers that we are generating is much higher than what it was,” says John Sebree, Midwest-based first vice president and national director of the national multi housing group with brokerage firm Marcus & Millichap. “The level of sophistication of those buyers is much higher.”

After the more than a decade of expansion, investors are running out of attractive places to invest their capital. In secondary and tertiary markets, the yields are often only slightly higher than in primary markets; however, the local economies are strong enough to keep attracting more investors.

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    Medical Office Buildings Draw Stronger Interest From Institutional Investors in U.S.

    According to a new report from CBRE, strong fundamentals have increasingly made U.S. medical office real estate a favorite of institutional investors, keeping investment volumes at high levels and capitalization rates low this year in relation to conventional offices.

    CBRE’s report cites several factors behind the continued popularity of medical office, including a steady vacancy rate at 10.3 percent despite a 10-year high in construction completions in the second quarter, a sustained increase in average asking rents since 2013, and strong demand for health-care services due to an aging population and other demographic trends.

    As a result, transaction volume for medical office buildings stands 50 percent higher this year than before the recession, though it has receded from its early-2018 peak. Foreign investors, domestic institutions and real estate investment trusts are steadily getting more active the medical office market. Cap rates – a measure of a property’s income as a percentage of its price – for medical offices have pulled even with those of conventional offices after years of registering higher.

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      Industrial REITs Are Expected to Continue Outperforming Their Peers in 2020

      E-commerce will likely continue to drive strong returns for industrial REITs next year, while challenging mall REITs.

      Against the backdrop of this year’s Cyber Monday generating record-shattering online sales estimated at $9.2 billion, commercial real estate experts envision e-commerce-fueled industrial REITs being a shining star of the REIT show in 2020. Meanwhile, in tandem with the e-commerce explosion, regional mall REITs will continue to face challenges next year, experts say.

      “The e-commerce-driven demand … that has allowed industrial to stay in the sweet spot has pushed most retail into recession,” Green Street Advisors Inc., a Newport Beach, Calif.-based provider of real estate research and advisory services, noted in a November 2019 commercial real estate outlook.

      Despite the fact that commercial real estate services company CBRE predicts industrial supply in the U.S. will outpace demand by 20 million to 30 million sq. ft. next year (representing just 0.2 percent of industrial inventory), real estate observers predict the industrial REIT sector will remain vibrant in 2020. In fact, Green Street foresees an increase of 100 basis points in industrial rent growth next year; in the third quarter of 2019, industrial REITs posted an occupancy rate of 96.3 percent, according to trade group Nareit.

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        2020 Trends to Watch in Multifamily Property Management

        Fogelman Properties’ Justin Marshall details how operators can tackle industry’s ongoing challenges.

        Looking ahead at 2020, property managers and multifamily operators certainly have their hands full with the ongoing challenges of onboarding new technology, the struggle for solid on-site talent, and streamlining package management. As the industry continues to evolve with the start of a new decade, operators can stand out and take pride in their properties with opportunities for a higher level of service, clear and frequent communication, and a foundation of personalized customer service. We’re taking a moment to explore the emerging trends shaping multifamily property management next year. Here are five trends to watch in multifamily for 2020:

        1. Performance Starts with People

        Finding and retaining talent will remain a top priority for multifamily in 2020, particularly on the maintenance side. In 2019, turnover was up for nearly every role with leasing professionals and maintenance technicians topping out with a turnover rate of 20% and 22%, respectively, according to recent benchmark reports from Grace Hill.

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          Here’s how smaller multifamily markets did this economic cycle

          These small metros top the chart

          The multifamily housing sector has remained busy throughout this economic cycle, to say the least.

          Since 2010, there have been approximately 2 million new apartments built across the nation’s 150 major apartment markets.

          While the average size of multifamily properties built this past decade was around 200 units, there are some metros that have gone above and beyond in construction, according to RealPage.

          And not all of those metros are larger cities.

          The largest project developed this decade in a small market was in Omaha, Nebraska, with 732 units completed this year. According to RealPage, this project is also the state’s largest single structure of market-rate apartments.

          Oklahoma City notably has two ranked developments topping the list this cycle. Lincoln at Central Park is ranked No. 2, having completed 706 units in 2010, and Fountain Lake is ranked No. 7, with 530 units completed in 2011.

          RealPage said that this is the only small market to have two of the nation’s largest completions in any of the past 10 years.

          Fayetteville, Arkansas also stood out on the small town charts, with its population growing 18% from 2010 to 2018, significantly higher than the national average of 5.8%.

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            Land Sales Maintain Steady Pace, But Remain Well Short of Pre-Recession Peak

            Developers are remaining careful on land acquisitions this time around.

            Land sales can be a fickle business. Prime development sites often disappear quickly, while other parcels can languish on the market for years waiting for the right buyer and use. Land sales can also be a good barometer to show what’s ahead for development pipelines and growth opportunities within markets.

            Annual transaction volume on land deals is still falling well short of the pre-recession peak that reached $31.2 billion in 2007. However, sales have been fairly steady over the past five years, with annual totals ranging between $19.3 billion and $25.0 billion, according to research firm Real Capital Analytics (RCA). Buyers have taken the foot off the gas a bit in 2019, with year-to-date sales at the end of the third quarter totaling $14.3 billion, which is down 16 percent compared to the same period in 2018, according to RCA.

            Overall, developers have been much more disciplined compared to past cycles when they were more aggressively grabbing land that was well ahead of growth. “We’re not seeing that now. They’re slowly marching with growth and not racing in front of it,” saysAshley Bloom, national land & development services product council chair for brokerage firm SVN in Sarasota, Fla.

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              Multifamily Investors Are Spending More Capital in Secondary, Tertiary Markets

              Slightly higher yields and still expanding economies are driving multifamily investors to smaller cities.

              Multifamily investors are now more likely to spend their money on properties in secondary and tertiary markets rather than in primary markets.

              “In secondary and tertiary markets… the number of offers that we are generating is much higher than what it was,” says John Sebree, Midwest-based first vice president and national director of the national multi housing group with brokerage firm Marcus & Millichap. “The level of sophistication of those buyers is much higher.”

              After the more than a decade of expansion, investors are running out of attractive places to invest their capital. In secondary and tertiary markets, the yields are often only slightly higher than in primary markets; however, the local economies are strong enough to keep attracting more investors.

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                Five 2020 Trends to Consider in Multifamily Investment

                With the new decade quickly approaching, Fogelman’s Mike Aiken breaks down why multifamily is a reliable bet.

                Cautious optimism is the proverbial tone many multifamily investors are taking as the start of a new decade is only a few weeks away. The whispers of a slowing economy have turned to a dull roar, but according to recent IMF reports, the U.S. economy is expected to steadily grow 2.1% over the next year. As economic pessimism lifts the outlook looks rosier for multifamily investment with continuing job growth. Without indication of a significant downturn, steady pace and predictability will be key performance indicators for multifamily investment as the balance of supply and demand level off and favorable financing conditions continue with the government-sponsored enterprises. Here are five trends to watch with the start of a new decade.

                1. Most Compelling Commercial Asset

                Considered an oasis of lower volatility investing and a safe haven for market unpredictability, multifamily remains the most reliable bet for commercial investors.

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                  Small multifamily loans: providing sustainable and affordable financing solution

                  How the GSEs are changing the multifamily market

                  The lack of affordable housing has reached crisis level in the nation’s cities and suburbs.

                  The squeeze has tightened across housing segments steadily for years. Between 2005 and 2017, the stock of single-family homes remained essentially flat, resulting in unattainable homeownership for many. Though expected wage increases and moderating home prices should offset some of this higher homeownership cost, the U.S. credit card debt being at an all-time high and the student debt load topping $1.5 trillion means that the down payment needed to purchase a home is simply not possible for many Americans.

                  With renter demand continuing unabated and many Americans being priced out of owning a home, the single-family market is feeling the pressure of higher interest rates, a lack of affordable single-family supply, and historically high debt loads. According to Harvard researchers, from 2001 to 2016 renters’ median housing costs rose by 11% while their income actually fell by 2%. Even though rental units grew 23% during that span, the rental market has also remained constrained and seen prices soar.

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                    Single-Tenant Net Lease Sales Volume Is on Pace for a Record Year, with Industrial Assets in the Lead

                    Industrial single-tenant net lease properties are highly coveted by institutional and private equity investors.

                    In a market rife with uncertainty, investors seeking risk-adjusted, recession-proof opportunities continue to be attracted to single-tenant, net-lease assets. As a result, total single-tenant net lease sales volume at the end of the third quarter had increased by 24 percent year-to-date, to $55.2 billion, according to a recent report from CBRE. It is now on pace to exceed last year’s sales record of $69.6 billion, according to the real estate services firm.

                    “This sector is growing and will probably total more than $70 billion this year in transaction volume,” says Will Pike, chairman and managing director of the CBRE net lease property group and corporate capital markets.

                    The industrial sector has been leading single-tenant net lease sales, with transactions totaling $22.3 billion year-to-date at the end of the third quarter, compared to $19.8 billion during the first three quarters of 2018. In the third quarter, single-tenant net lease industrial transactions jumped 48.5 jump to $10.2 billion, compared to $6.9 billion during the same period last year.

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