A report from Bisnow. “A strong jobs report, the stock market performing at record highs and low interest rates continue to fuel U.S. commercial real estate’s prolonged growth cycle. But overall economic growth has fallen as the year progresses, raising commercial real estate’s favorite question: How much longer can it all last? ‘I still, to this moment, don’t get it, other than there’s still a significant hangover from the financial crisis,’ Walker & Dunlop CEO Willie Walker said. ‘You’d think people would stretch lending standards, but they haven’t.’”
From Education Dive. “Luxury student housing properties, complete with rooftop swimming pools and opulent lobbies, have been a hallmark of the current development cycle. Indeed, with capital flooding the sector, the post-Great Recession student housing boom has been held up as the category’s coming-of-age party, when it shed its mom-and-pop image to emerge as a true institutional asset class. As some evidence of that, student housing property prices hit an all-time high this summer.”
“But now, the converging trends of increased supply and declining enrollment at institutions across the country, paired with rising defaults on student housing-related commercial mortgage-backed securities (CMBS), are casting a shadow on the asset class. Student housing accounts for 40% of defaults in the multifamily sector, despite representing less than 6% of loans, according to Moody’s.”
“‘Following a decade where everybody was anxious to build, build, build — and not just dorms — this glut of real estate is going to have to be dealt with going forward,’ said Jean Close, an accountant and partner at The Bonadio Group, which performs audits for higher education institutions. ‘Is it going to be a problem? Absolutely. And it’s a little frightening.’”
From Brownstoner in New York. “Sales of apartment buildings have slowed in Brooklyn and beyond following the passage of new tenant protections in the state legislature, PropertyShark reported last week. Most dramatically, unit volume fell 74 percent in Brooklyn in September compared to a year earlier.”
The Commercial Observer in New York. “‘What we saw in 2014, 2015, 2016 was just unprecedented historically,’ said Nishant Shah, an associate director at Cushman & Wakefield. ‘Those were some of the biggest years commercial real estate has ever had. I don’t think the pace we saw in those years was sustainable.’”
“‘The multifamily market is as shot as I have ever seen it,’ said Andrew Sasson, a managing director at Ackman-Ziff, noting that, previously, rent-regulated buildings ‘were the ones that were flying off the shelf because they were what was seen as having the biggest opportunity. They had really low rents and you could go in there and either buy a tenant out or, if they moved, take the apartment over and increase the rent.’”
“One event on the horizon that could help break up the current logjam is debt coming due on properties purchased at high prices during the hot market of several years ago, said Victor Sozio, an executive vice president at Ariel Property Advisors. ‘If you look at how active the market was in [2015] and [2016], the pricing was pretty frothy, and a lot of those purchases were secured with five- to seven-year debt that will be coming up in the next one to three years,’ he said.”
From Westword on Colorado. “Almost everyone involved in affordable housing and real estate agrees that a massive shortage in stock is one cause of the affordable-housing crisis in Denver. But according to the U.S. Census Bureau’s 2017 estimates (the most recent available), there are about 19,452 unoccupied housing units in the city. At the same time, according to the 2019 Point in Time Survey, there are approximately 3,943 people experiencing homelessness in Denver on any given night.”
“That’s a whopping five empty housing units for every homeless person in Denver.”
The Post and Courier in South Carolina. “A Charleston-based rental housing giant has sealed its biggest investment pool to date, lining up another $2 billion for apartment acquisitions. It marks the 10th in what Greystar Real Estate Partners calls its ‘value-added series’ of funds, which collectively have raised more than $5.4 billion since 2011. The funds committed to Greystar Equity Partners X will likely be locked up for five to seven years, from the acquisition phase to the eventual sales of the properties, said CEO Bob Faith.”
“‘This is what we use to go buy things that are maybe mismanaged or need a little capital,’ Faith said. ‘We go in and spruce them up, apply our technology and people, and increase the cash flow.’ While some markets are showing signs of oversupply — downtown Charleston included — rental housing trends remain mostly favorable for investors, he added.”
From Curbed on Texas. “Houston will test what the market can bear in the next 12 to 18 months, as more new projects come online and open to renters. Todd Marix, an analyst at JLL expects the Inner Loop markets will see increased competition, which will result in amenity arms races and concessions to get tenants into new buildings. ‘It’s going to be especially competitive in 2021, when that second wave of buildings starts to hit,’ he says. ‘Our big issue now is jobs; we’ve had 80,000 new jobs over the last 12 months, which is great, but we need those higher-end jobs to fill those luxury apartments.’”
From Sparefoot. “Although new supply has tamped down rents, it isn’t deterring self-storage owners and operators from mining for new opportunities in the sector. New deliveries continue to weigh on street rates, according to Yardi Matrix, producing a 2.5 percent year-over-year decline in street rates for standard 10×10 non-climate controlled space. ‘In terms of a long-term investment strategy, we feel very comfortable with self-storage,’ said Matt Burk, CEO of Fairway America, ‘as it has demonstrated resistance to downturns. Like any investment in real estate, it comes down to whether you can withstand the market pressures. If you aren’t over-leveraged and you are in at the right basis then I love the asset class as an investment.’”
From Commercial Property Executive. “As self storage deliveries remained elevated, rent rates continued to decline in September. Nationally, projects under construction or in the planning stages accounted for 9.4 percent of total inventory, a 10-basis-point increase over the previous month. Despite the lingering rent decline, development activity is still elevated in several top markets. Nashville is leading the way, where projects under construction or in the planning stages represented 21 percent of existing stock. The top three is rounded out by Portland (20.6 percent) and Seattle (18.4 percent).”
“Although New York City is dealing with strict zoning regulations and has limited land available for new construction, the metro’s development pipeline is one of the highest in the country (17.7 percent)—there were 52 projects under construction and an additional 100 in the planning stages as of September.”
The Wall Street Journal. “Some pension-fund managers are venturing further into unusual investment territory as this year’s plunge in bond yields makes it even harder to find decent long-term returns. Funds are dabbling in riskier asset classes, including private markets, real-estate projects, infrastructure financing and direct lending. Some are making riskier fixed-income bets, buying volatile assets such as 100-year Argentine government bonds. Others are going farther afield, investing in greenhouses and waste management.”
“One U.K. pension-fund client placed a sliver of its assets in the 100-year Argentine bond sold in 2017, according to Con Keating, head of research at Brighton Rock Group, an insurance provider for pensions. The bond currently offers a 27.712% yield, according to FactSet. In August, the value of those ultralong bonds fell by nearly half because of political uncertainty.”
“‘This stuff really doesn’t belong in a pension fund,’ said Mr. Keating. Because of the search for better returns, ‘you see all sorts of deals being done for all sorts of credit that wouldn’t ordinarily be touched,’ he said.”