Category: Real Estate

Pending home sales spike a record 44.3% in May, as homebuyers rush back into the market

Pending home sales spiked a stunning 44.3% in May compared with April, according to the National Association of Realtors.

That is the largest one-month jump in the history of the survey, which dates to 2001. It beat expectations of a 15% gain. Sales were still 5.1% lower compared with May 2019, however.

Pending sales measure signed contracts on existing homes, so it shows that buyers were out shopping during the month of May. Sales had fallen 22% for the month in April, as the economy shut down to slow the spread of the coronavirus.

“This has been a spectacular recovery for contract signings, and goes to show the resiliency of American consumers and their evergreen desire for homeownership,” said Lawrence Yun, NAR’s chief economist. “This bounce back also speaks to how the housing sector could lead the way for a broader economic recovery.”

The market, however, still needs more supply, Yun noted. “Still, more home construction is needed to counter the persistent underproduction of homes over the past decade.”

The supply of existing homes for sale at the end of May was nearly 19% lower annually, according to the NAR. Single-family housing starts in May were not as strong as expected, although building permits, a measure of future construction, did gain some steam.

The supply of homes is still extremely low, but is improving in some markets. Active listings were up by more than 10% for the month in San Francisco, Denver and Colorado Springs, as well as Honolulu.

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Competition Lines Up to Buy Self-Storage Properties

Self-storage facilities were typically considered “essential” businesses and remained open even as most of their potential customers worked from home.

In the first week of June, Nick Walker listed a self-storage property for sale. The facility is fully-leased and producing income.

“We received 17 offers,” says Walker, executive vice president in the Los Angeles office of CBRE Capital Markets.

He is not alone. Across the U.S., self-storage properties are attracting interest from long lists of eager potential buyers. On average, self-storage properties have already performed well in the first few months of the economic crisis caused by the novel coronavirus—and most properties seem likely to continue to perform well once the U.S. economy starts to rebound. The strong performance of the self-storage sector has already broadened the interest of buyer types, including drawing interest from private equity funds along with more traditional investors like REITs and small, private investors.

“For cash-flowing self-storage properties, a wave of buyers is entering the space,” says Walker. “We have seen investment sales come roaring back.”

Strong performance, so far, for self-storage

Self-storage properties lost some business in the early months of the crisis as governors around the country ordered most non-essential businesses closed to slow the spread of the coronavirus. But self-storage properties have already begun to recover while other sectors lag due to how state reopening plans are playing out.

“The storage industry once again performed well, just as it did through the Great Financial Crisis,” says Brian Somoza, managing director for JLL.

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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 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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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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Seven CRE Economists Offer Their Advice and Predictions for the Sector

While there are still a lot of unknowns about how the pandemic will play out, we talked to seven commercial real estate economists about their views on the future of the industry.
As we move into the summer months, there are still a lot of unknowns around how the COVID-19 pandemic will play out, including how much worse the first wave of infections is going to get, whether there will be a second wave in the fall and how soon we might expect some type of vaccine or effective treatment. But with the full understanding that predictions about the future are not an exact science, especially in times of crisis, we asked seven commercial real estate executives with backgrounds in research and economics to offer their outlooks on what the current situation might mean for real estate investors.

In the following slides, they share their predictions and advice for commercial real estate insiders.

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