When Will Building New Units Make Sense Again? Apartment Developers Remain Uncertain

Developers will likely delay starting new apartment projects until they see strong employment growth.

Some lucky multifamily developers will start work on new apartment projects at the perfect time, as the U.S. begins to recover from the economic crisis caused by the COVID pandemic.

They will likely pay far below last year’s prices for development sites. They should have an easy time negotiating with construction contractors. Their apartment units will open just as rents begin to rise again. That time—the right time to start new multifamily projects—is still months or even years in the future, according to many developers and economists.

“If I’m a developer, I am probably waiting untill the first part of next year to make a commitment,” says John Sebree, senior vice president and national director of the multi housing division with brokerage firm Marcus & Millichap. “Multifamily will come out of this in much better shape than the rest of the economy… But we’re going to be going through this for a while.”

The number of new apartments that developers will begin to build over the next few years might be less than half that of the years immediately prior to the pandemic, according Greg Willett, chief economist for RealPage Inc. a provider of property management software and services. “There’s certainly an interruption in development right in front of us,” he says.

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Housing market should ‘cool off’ later in year, Moody’s economist Zandi says

“The confluence of high unemployment and the end of the forbearance measures means that we’ll get more defaults and ultimately more foreclosures, more foreclosure sales, and that’ll put some weakness into the housing market,” economist Mark Zandi said on “Power Lunch.”

The housing sector has been one of the most resilient areas of the economy during the coronavirus downturn, but Mark Zandi, chief economist at Moody’s Analytics, said Tuesday that he expects the growth to moderate later in the year.

Sales of new homes last month rose nearly 13% year over year, according to the Census Bureau. But Zandi said the sector will weaken as some of the government aid and regulations used to prop up the economy expire.

“The confluence of high unemployment and the end of the forbearance measures means that we’ll get more defaults and ultimately more foreclosures, more foreclosure sales, and that’ll put some weakness into the housing market,” he said on CNBC’s “Power Lunch.”

Millions of homeowners have taken advantage of forbearance programs that allow borrowers to miss mortgage payments, helping to insulate the housing market from a historic rise in unemployment.

Meanwhile, concerns about the coronavirus have sparked increased interest for homes in suburban and rural areas, according to real estate firms, leading to demand outstripping supply. More construction, particularly in the lower and middle areas of the price distribution, is needed to help the supply issues, Zandi said.

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A New Approach for Real Estate Diversification

“Like-kind” exchanges may permit clients to defer capital gains taxes.

The forecast for real estate is highly uncertain in the COVID-19 era, with many experts expecting dramatic change in commercial, residential and industrial markets. However, this much is clear: the portfolios of many older Americans contain a respectable amount of investment real estate, and it’s something advisors need to consider as they help clients pivot their holdings toward an appropriate asset mix for retirement.

American households held $6.4 trillion in investment real estate, exclusive of the value of their primary home in 2016, according to analysis of Federal Reserve data by Realized Holdings, a company that manages investment property wealth. And Realized found that approximately 10.2 families with net worth ranging from $1 million to $15 million had more than 20% of their assets accumulated in investment properties.

This is an area where many financial advisors are outside their comfort zone, according to David Weiland, CEO of Realized. “It’s a giant pool of wealth that has gone unnoticed by most advisors and real estate professionals, generally because they don’t understand real estate at the granular level, and real estate professionals don’t understand wealth management.”

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A Rise in Distressed Hotel Deals Could Hit in Late Summer

Delinquencies have spiked quickly on hotel properties, but we are still a few months away from a wave of distressed deals hitting the market.

The hotel sector is sitting atop a cresting wave of growing loan delinquencies that may soon break and douse the market with distressed investment opportunities. Investors who have been lining up to capitalize on distress since the COVID-19 crisis began are now sizing up the extent of the coming buying opportunities, how soon deals will hit the market and how deeply prices will be discounted.

Hotel owners remain saddled with cashflows that have plummeted and face a prospect of a prolonged and painful recovery with both leisure and business travel unlikely to roar back until the virus is under control. Although hotel metrics show some signs of improvement along with phased reopening, occupancies remain at an anemic 39.3 percent, while RevPAR is still down some 65 percent at $33.43, according to the latest data from STR for the week ending June 6.

“Many hotel owners are currently reviewing their portfolios to evaluate the hotels they will continue to support while others may require too much capital to carry them through the duration of the downturn,” says Patrick Arangio, vice chairman of the national loan and portfolio sale advisory practice at CBRE.

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Mall Landlords, Authentic Brands in Talks to Buy J.C. Penney

Simon Property Group and Brookfield Property Partners are looking at buying another struggling retailer.

(Bloomberg)—The two largest mall landlords and Authentic Brands Group LLC are in talks to buy bankrupt department-store chain J.C. Penney Co., according to people familiar with the matter.

Authentic Brands may team up with Simon Property Group Inc. and Brookfield Property Partners LP to acquire the retailer as part of its court reorganization, said the people, who asked not to be identified because the talks are private. The discussions are still fluid and may ultimately end without a deal.

J.C. Penney, which filed for Chapter 11 protection in May, has been racing to firm up a business plan by a July 14 deadline, after which the company risks running out of cash to finance its reorganization and emerge from bankruptcy court.

For the landlords, buying J.C. Penney would ensure the survival of one of their most ubiquitous tenants amid a wave of retail distress that has seen thousands of stores close permanently. That’s in addition to the pandemic lockdown that shuttered most retailers for months nationwide.

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Homebuilder sentiment posts biggest monthly surge ever, a sign housing is rebounding from coronavirus

Builder sentiment jumped a striking 21 points in June to 58, the largest monthly increase ever in the National Association of Home Builders/Wells Fargo Housing Market Index.

A faster-than-expected turnaround in homebuyer demand, following a sharp drop-off at the start of the coronavirus pandemic, has the nation’s homebuilders bullish on their business again.

Builder sentiment jumped a striking 21 points in June to 58, the largest monthly increase ever in the National Association of Home Builders/Wells Fargo Housing Market Index. Any reading above 50 indicates a positive market. In April, it plunged a record 42 points to 30.

“As the nation reopens, housing is well-positioned to lead the economy forward,” said NAHB Chairman Dean Mon, a homebuilder and developer from Shrewsbury, New Jersey. “Inventory is tight, mortgage applications are increasing, interest rates are low and confidence is rising.”

Meanwhile, mortgage applications to purchase a newly built home jumped 10.9% annually in May, according to the Mortgage Bankers Association.

Of the homebuilder index’s three components, current sales conditions jumped 21 points to 63. Sales expectations in the next six months rose 22 points to 68. Buyer traffic more than doubled from May to June, from 22 to 43. This last component was surprising, given how many builders reported more online inquiries and virtual tours during the pandemic.

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Fixing and Flipping Multifamily Real Estate Investments

For any business you can think of, the end goal of the owner or investor or the entrepreneur, as it is commonly known, is to make profits. This is the same with multifamily real estate investments; every real estate investor wants to make an above average return on all the money that is invested.

This article aims to analyze all the issues relating to fixing and flipping multifamily real estate investments to make profits. Although this may not be ideal or appropriate for some real estate aficionados, those who can pull off the fixing and flipping arrangement do make substantial financial gains. The fix and the flip process can pose a significant challenge to certain real estate investors; however, to begin the process, there is a need for proper funding.

These can come in the form of loans, which is also made available in some instances for individual properties and even for more experienced investors who wants to flip more than one real estate property at once.

These loans come in a whole lot of forms which include:
Cash-out refinancing (which involves refinancing one property to fix and flip another one)
Home equity lines of credit
Bridge loans
Hard Money Loans
Permanent Loans (not typical in flipping)

It is worthy to note that the process of fixing and flipping real estate can be carried out with any property, no matter its enormity. The types of highlighted loans above are to help support the purchase of single or multifamily investments.

For fixing and flipping operations, funding is a real issue, and if you are a serious investor looking for a source of financing, hard money loans are a good source of funding. The hard money loan option may be more expensive than the other types of funding though.

The demand for fix and flip processes concerning multifamily real estate dwellings is only increasing these days. Many fix and flip professionals are choosing this path because the number of rental households has increased by more than 15%, and this upward growth is expected to continue.

This is because many teenagers are expected to leave their homes and become renters themselves, further boosting the multifamily real estate market. The need for independence from parents is real around this age, so it is not surprising.

Path to Fix and Flip Profits:

When it comes to multifamily real estate investments, fix and flip, investors have to compete with other buyers for the properties on the ground. Fixing and flipping has the sole principle of making use of a certain amount of money to make some brief renovations; in all, a general uplift to improve the valuation of a real estate property before selling it at an excellent price.

This way, an excellent profit is made. Concerning multifamily real estate, seasoned fix and flip investors still have to contend with repair and flip newbies in the industry; those who do not have the required skills and expertise.

These new entrants into the industry tend to make things difficult for experts. These newbies tend to buy existing properties for more, making it difficult for them to come across an affordable fix and flip property. On the path to fix and flip profits, you should seriously consider multifamily investments.

All you have to do at first is to be conservative enough in calculating the potential returns. The rule made is by seasoned investors is to estimate the property’s rental income, then subtract half of that amount for monthly expenses and then subtract the mortgage payment from what remains.

Then if the property cash flow does not cover these costs, you can either decide to negotiate a lower purchase price or look for a building in another area that supports higher rent payments.

Fix and Flipping MultiFamily Properties:

As mentioned earlier, projections have concluded on the path that rentals on properties are most likely to be on the increase. Many seasoned real estate investors have turned to multifamily real estate holdings, all in a bid to diversify their holdings and increase their profit.

As the demand for rental housing units continues to rise, the fix and flip experts are also noticing it is expected that with multifamily holdings, they will undoubtedly require more significant investment and more work for you to gain maximum benefits.

For a first time investor, they are seeking to make new inroads into the world of real estate investments. Getting to sell a multifamily holding can be very challenging. Even for experienced investors, the rules have to be followed. As it is the norm, the search for a buyer can be more challenging than for single family buyers.

For example, in America, property owners and investors alike are coming to terms with the fact that they can increase their profit by choosing to purchase multifamily units. This inadvertently opens up a new path for fix and flip real estate investors as there is a higher chance of success when you decide to fix and flip a multifamily property.

Funding for fixing and flipping multifamily real estate holdings, many platforms on the internet and even near you offer programs for this. Most only have programs designed for clients with strong credit scores. Also, those who have the needed experience with renovating and owning multifamily properties are given a chance.

Very strong net worth and liquidity also allow for flexibility to be exercised in the decision making. Some of the prerequisites which usually are considered include:
• The multifamily property must contain at least five (5) units of housing.
• In some instances, projects with at least 50% occupancy are also considered.
• At least a credit score of 670 is needed.
• Loans from 250,000 to $5,000,000 can be provided with no limit placed on the number of multifamily housing units you can flip.
• Finally, loans up to 80% of the purchase price with rates which are as low as 8.5% and a 24-month term.

But first this disclaimer, this is not a get rich quick method. If you are looking for a means of getting rich quickly, then real estate investing is certainly not for you.

An alternative to fixing and flipping real estate holdings is to buy properties in perfect locations where you are sure after doing the necessary valuations; the value is going to increase. Having a great strategy at this point is very crucial. This strategy is key to knowing when to improve property values and also knowing when to sell and reinvest the funds in other profitable properties. One very sure way to amass wealth and reach that dream milestone is to buy real estate rental properties, then fix and flip them accordingly.

• You can decide to flip ten (10) houses that make $100,000 of profit.
• Flip 20 houses that make $50,000 of profit on average.
• Or you can also decide to flip 40 houses that make $25,000 of profit on average.

Markets also influence these profits. As if you live in a market with lower property prices, the real strategy will be to flip smaller houses with smaller profits but at an increased volume. An excellent example of this is buying $50,000 homes that you can resell for $120,000 and can net you $25,000 to $30,000 after renovations, closing costs, or commission and taxes. This you can repeat about 3 to 4 times per year. If you live in a place like Los Angeles; it is more realistic to find flips with $100,000 t0 $200,000 of profit.

At this juncture, it is only ideal to find out the real reasons investors flip multifamily real estate units. In the real estate industry, there is a big market for single family homes. It is only natural for flippers out there to cater to the needs of this large population. However, in contemporary times, there is an increase in renting.

• It is usual for more people to have a hard time believing that investing in a home is the best option they have. They are beginning to see primary residences as more of liabilities than assets.
• Some have been burned in times past as they have bought homes that sunk considerably in value after a certain period; contrary to laws of real estate investment.
• The increasing proportion of the workforce is becoming mobile to the latest advancements in technology; hence, they are beginning to like the flexibility renting provides.

These reasons are highlighted as a result of accessing the opinions of industry experts on the latest realities facing rents and mortgages in developed societies. Multifamily properties are the ideal property to flip, but why decide to flip multifamily real estate holdings?

Reasons for Flipping Multifamily Properties:

Marketability: Much has been mentioned of the fact that many areas are seeing a rise in their rental rates, and the absolute economic crisis turned many people from homeowners to renters, and this has made it more difficult for single family flippers.

The markets for single family flippers have changed and shrunk considerably over time, and only fewer people qualify for mortgages. Higher rents also mean higher selling prices for investment properties, and this is a significant factor for commercial multifamily.

• The Exit Strategy: When talking about single family units compared to multifamily housing units, any experienced single family fixers and flippers will always tell you to plan your exit strategy properly. Part of the procedure is to determine the After-Repaired Value accurately.

You need to know the amount you can sell the place for after the repairs have been made.
It is common knowledge that with single family homes, the rent will barely cover the mortgage, which includes insurance and taxes. With the inclusion of maintenance items, you might be losing money.

However, with multifamily properties, these properties are unarguably cash cows. You can choose to cover the mortgage payments with rent from one or two units and receive pure profits from the other units. And if your multifamily flipping does not work, you can simply rent it out and make some money, with no loss on your part.

Tax Advantages: This should not be mistaken as tax advice coming from a professional. But the buyers of multifamily residential properties, especially the buyers who live in one unit, can take advantage of both the homeowner and tax deductions. In addition to the edge to buyers, there are excellent incentives for flippers who get to buy multifamily residential.

Finally, it should be known that fixing and flipping are done for the sole purpose of making a profit. However, real estate industry leaders believe that it is one niche that is fraught with challenges considering the many rules and special considerations to be made. However, you need to be experienced enough to pull this off with multifamily real estate units, so you do not run at a loss.

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Foreign Investors Have Stayed Away from U.S. Real Estate in Recent Months. That Trend Is Not Expected to Hold

Once the pandemic is over, foreign buyers will likely see attractive investment opportunities in core assets.>/h2>

As the U.S. crawls out from under the coronavirus lockdown and copes with a pandemic-inflicted recession, foreign investment in U.S. properties has largely stalled. Commercial real estate professionals say that lull could be short-lived, though.

Some industry observers say they’re already seeing at least a slight upturn in cross-border money coming into the U.S. real estate sector, although a number of deals that were in the works have fizzled. Looking ahead, some experts foresee a more significant surge in cross-border activity later this year and early the next.

What’s the source of this confidence? Some say that because the U.S. remains such an attractive market, foreign real estate investors seeking an American home for their capital can’t afford to hold off for too long.

“Some foreign investors from countries that are still reeling from the pandemic may sit out for the moment and reinvest in their own local markets,” says commercial real estate attorney Roman Petra, a partner in the Orlando, Fla. office of law firm Nelson Mullins Riley & Scarborough LLP. “However, the U.S. is a strong marketplace for foreign capital. As the U.S. economy continues to recover and grow, foreign capital will invest.”

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25,000 stores are predicted to close in 2020, as the coronavirus pandemic accelerates industry upheaval

U.S. retailers could announce between 20,000 and 25,000 closures this year, according to a tracking by Coresight Research, with 55% to 60% of those situated in America’s malls.

One result of the coronavirus pandemic could be as many as 25,000 store closures announced by retailers this year, as the crisis takes a toll on many businesses, and already has pushed some over the brink and into bankruptcy.

U.S. retailers could announce between 20,000 and 25,000 closures in 2020, according to a tracking by Coresight Research, with 55% to 60% of those situated in America’s malls. That would also mark a record — which was previously the more than 9,300 locations in 2019.

Coresight was earlier this year forecasting there could be more than 15,000 store closures announced by retailers in 2020.

A glut of vacant storefronts will leave landlords scrambling to fill those spaces or find new uses for their real estate. There are not many retailers still growing via bricks and mortar today. And if they are, many are looking to downsize to smaller shops.

In recent weeks, bankruptcy filings in retail have begun to mount. Coresight said it expects more liquidations, ticking up the closure tally. Department store chains Neiman Marcus, Stage Stores and J.C. Penney have filed for bankruptcy protection. So have the home goods chain Tuesday Morning and the apparel maker J.Crew. A number of these retailers will close some stores and begin operating again, but Stage Stores has warned it may need to shutter all of its locations if it doesn’t find a buyer.

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States Hardest Hit by Closures Could See Property Valuations Fall by Low Double Digits

A new report from Reonomy looks at where property valuations might dip the most.

It’s been made clear by now that the retail, restaurant, travel and energy sectors have been hit the hardest by the impact from the COVID-19 crisis. But a recent report from Reonomy, a data platform for the commercial real estate industry, also highlights that administrative work, arts, entertainment and recreation industries have seen outsized fallout. Across the U.S., all these industries account for approximately 14 percent of GDP, Reonomy researchers point out.

In addition, many of these industries are concentrated in specific states, leading Reonomy to conclude that Alaska, Nevada, New Mexico, Oklahoma and Wyoming will be among those that will suffer more from the pandemic. Firm closures in the impacted sectors can lead to higher unemployment rates and longer-lasting periods of unemployment for workers, and to decreased tax revenues for the states. And decreased economic activity will also weaken property valuations.

In addition to the above-mentioned states, states with high concentrations of at-risk jobs include those that rely heavily on tourism (Mississippi, Louisiana, South Carolina and Hawaii), states with high levels of energy production (Wyoming, North Dakota, South Dakota and Louisiana) and states with large manufacturing sectors (Indiana, South Carolina, Alabama and Kentucky).

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