The Complicated SFR and BTR Markets

By Lew Sichelman. via Multi-housing News (December 2021)

Photo by David McBee on Pexels.com

The single-family build-to-rent sector has been described during a panel at the National Association of Real Estate Editors conference in Miami as a growth business that is only just now findings its legs.

When Richard Ross of Quinn Residences founded his company a month prior to the start of the pandemic, his goal was to raise $250 million. The company recently closed out its capital raise at a whopping $900 million.

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“That’s indicative of the strength of the market,” said Ross, who predicted that the 29,000-a year run-rate of new BTR houses over the last decade is likely to double over the next five years.

Added Todd LaRue of RCLCO: “There is huge universe of demand for these alternative rental units.”

Growth Opportunities

Todd Wood of Christopher Todd Communities said his company’s on the verge of a major expansion. “We will be in every single region,” he told a session on the BTR boom. “If we are not there yet, we will be.”

But in an earlier session on the future of the post-COVID suburb, panelist Alex Kamkar of Bold Fox Development shared his negative thoughts on the BTR concept, essentially calling it perhaps the worst thing to hit the housing market.

“Housing is not a commodity, but the investment guys think it is,” said Kamkar, whose firm develops master-planned communities. “Houses are being taken offline to the benefit of Wall Street,” but to the determent of local home buyers.

The developer explained that some BTR companies are buying a large number of lots—maybe 300 at a time— and then hiring local builders to put up houses. In doing so, he said, they are not only adding to the scarcity of building sites but also taking builders away from producing market-rate, for-sale houses.

According to the National Association of Home Builders, the availability of building sites nationwide is at a multi-decade low. And housing blogger Bill McBride of Calculated Risk recently reported that a record 109,000 houses that have been permitted have yet to be started, almost double the normal level.

Questionable Future

“I know of at least three instances where builders have walked away from building single-family houses in order to build rental houses,” said Kamkar, who also is a city councilman in Pearland, Texas, where he has fought to block the development of SFR communities. “That’s artificially pressing down the market.”

The result: “We’re not building enough houses for Joe Six-Pack to own,” he said.

Adam Ducker of RCLCO agreed with the Texas developer, but only to a degree. “You are right,” Ducker said, “but hopefully this will only be temporary.” Architect Mark Meyer of TBG Partners was “a little more optimistic.”

Eventually, the market will work itself out, Kamkar conceded, “but a lot of people are going to get hurt. There’s only so many A-list renters and rents are never going to come down.”

Meyer suggested that BTR communities will eventually be traded among investors in the way apartment properties were swapped in the 1990s, and as they are dealt from one buyer to the other, they will be upgraded.

But Kamkar warned that there are only so many top-notch investors to go around. “The Blackstone Group is the creme-de-la-creme,” he told Multi-Housing News after the session, “but the next buyer won’t be Blackstone. “This thing is going to go broke eventually.” Blackstone owns Invitation Homes, one of the nation’s largest BTR companies.

For the complete article and others like it, visit Multi-Housing News here <——

To view some Multifamily assets available currently or connect to discuss your properties, visit Dreznin Pappas Commercial Real Estate by clicking Here <——

Some important news points from the week of October 24-28th. Pre Halloween Economic Indications

Majority of Americans are paycheck to paycheck

63% of Americans are living paycheck to paycheck, according to a recent report by LendingClub. The number is up from 57% last year, indicating consumers feel pinched by dogged inflation. What’s more, nearly half of six-figure earnings are living paycheck to paycheck.

Titan’s Takeaway

With the economy appearing to be barreling toward a recession, consumers are feeling the pain. Inflationary pressures seem more entrenched than ever, and consumers seem to be reaching into their savings or paying on credit to offset the increases in prices.

Chinese stocks plunge

Chinese stocks listed in the U.S. plunged as concerns over potential tighter restrictions by President Xi Jinping rattled markets. The Nasdaq’s Golden Dragon China, an index of 65 Chinese stocks, saw some $130 billion in market value vanish at one point. Even tech giants Alibaba and Tencent Music Entertainment fell dramatically on news of Jinping’s consolidation of power in Beijing.

Titan’s Takeaway

Investor pessimism in China is high as lingering scars from China’s zero-covid policy serve as a reminder of the market’s volatility. For the world’s second-largest economy, the risk may be too much to bear for investors as the government continues to inject itself into private enterprise.

This is the One. The Memphis Apartments in Palmetto, FL. Priced to Sell.

Dreznin Pappas Commercial Real Estate LLC is stoked to present this income producing opportunity to Investors and the Investing Markets.

You can learn more about this property here <—–

Located in the Heart of Palmetto, The Memphis is an asset with a pulse. This 16 Unit Complex is Concrete Block Construction and has some true value-add components to it.

Prospective purchasers are encouraged to visit the subject property prior to submitting offers.
However, all property tours must be arranged with the Dreznin Pappas commercial real estate listing agent. At no time shall the tenants, on-site management or staff be contacted without prior approval.

Some of those Value-Add points include;

@ The Memphis has Below Market Rents.
@ Located in a growing area with new Retail, Developments and Remodeled existing properties.
@ The Possible Pass Through of the Utilities (Electric through meters and Water through New Leases).
@ A 17th Bonus unit exists and produces income.
@ A stand-alone block building at the SE corner of the property may possibly be used as an additional income producing unit with approval.

Taking the upgrades ownership has made and improving upon those while adding your own vision to this income-producing property, the market tide has risen approximately $150/mo to $300/mo above the current rents being achieved.

Palmetto is a waterfront community located on the Gulf Coast of Florida, midway between Tampa / St. Petersburg to the north and Sarasota to the south.

Located in the middle of Palmetto, this ideal spot allows for access to many job centers, groceries, entertainment and recreation areas.

You are approximately
0.6 miles to Publix
0.7 miles from US-41
0.7 miles from Palmetto High School
1.3 miles from Super Wal-Mart
1.3 miles from ALDI Grocery
1.5 miles to Palmetto Historic District
1.5 miles from Bradenton Convention Center
1.5 miles from Palmetto Estuary Nature Preserve and Park
2.1 miles from Manatee School of the Arts
2.5 miles to Feld Entertainment
2.8 miles to Downtown Bradenton
3.0 miles to Ellenton
3.2 miles to Village of the Arts
3.4 miles from Manatee Memorial Hospital
3.9 miles to Snead Island / Emerson Point Preserve & Park
4.7 miles to I-75

Palmetto offers many enjoyable features, including:

12 city owned parks.
Numerous festivals including the Infamous Blues Festival and Fourth of July Fireworks.
Over 60 acres of green space.
Basketball and tennis courts.
Playgrounds and scenic spots to enjoy.
An estuary park abutting the Manatee River.

Memphis and Palmetto sit within Manatee County, FL.

Some statistics to shine a light on include; (Niche Rankings 2022)

99th percentile of Best Places to Retire in the United States
89th percentile of Best Places for Young Professionals in US
87th percentile of Healthiest Places in the Nation
85th percentile of Best Places to Live in the US

You can learn more about this property here <—–

You can view other properties for sale, discuss the market or get a complimentary property valuation by visiting us here

3 things for you today in the economy

Information and Summaries provided by Titan

CLICK HERE for access to Titan Articles and more content from Jared Schepis

1) Truss steps down: Liz Truss stepped down as prime minister of the U.K., officially serving the shortest tenure ever for a prime minister of the country. Her regime was marred by disordered policy, including her decision to institute a colossal tax cut reform and then reneging after market turmoil. Truss will stay as prime minister until October 28th, when the ruling Conservative party chooses a new leader. 

Titan’s Takeaway: It’s been economic chaos in the U.K since Truss was elected as premier, but her resignation seemed to bring a semblance of order with the pound rising on the news. However, regardless of any security a new PM will bring, the U.K’s economy still teeters on the brink, with suffocating inflation, energy shortages, and capital flight out of government bonds.

2) Tesla slashes growth forecasts: Tesla cut its 2022 growth expectations as part of a vehicle shipping disparity and on the back of concerns over weakening demand. Despite the slash in the forecast, Tesla posted its largest quarterly revenue ever, rising to $21.5 billion but still lower than Wall Street estimates. Elon Musk doubled down on Tesla’s commitment to continue producing EVs, dubbing the car manufacturer “recession-resilient.”  

Titan’s Takeaway: Tesla has been walloped this year with fears of weakening demand as a recession looms, coupled with concerns over Elon Musk’s financing of Twitter. But amidst it all, the company’s valuation has stayed stunningly high. Is it true belief in the bombastic billionaire, or is the company simply too expensive? Time will tell. 

3) Travel demand stays hot: American Airlines announced its quarterly revenue was up 13% from 2019 in the same quarter, as travel demand remains resilient. Americans continue to travel despite darkening economic conditions. Flying capacity was down 9.6% as the airline reduced the number of flights. 

Titan’s Takeaway: The post-pandemic travel boom is still in full swing. American Airlines’s announcement comes after United Airlines commented that travel demand should drive profit until the end of the year. Maybe consumers are reigning in spending, but life’s too short to cancel your dream vacation. 

Keeping a finger on the pulse of Multifamily Lending w/ Beau Beery & Kenny Cutler (JLL)

An extremely well delivered synapsis of Lending today.

Some contact information and summary data

How to reach Kenny Cutler:

Director, JLL Capital Markets

1450 Brickell Avenue Suite 2110 Miami, FL 33131

T +1 305 421 6556 M +1 305 978 6890 Kenny.Cutler@am.jll.com us.jll.com/capitalmarkets

Debt Acronyms Explained:

–SOFR: Secured Overnight Financing Rate – a road measure of the cost of borrowing cash overnight collateralized by Treasury securities.

–DSCR: Debt Service Coverage Ratio: net income divided by annual debt service payments. measurement of a firm’s available cash flow to pay current debt obligations. -Agency debt: debt provided by a U.S. sponsored enterprise

–CMBS: Commercial mortgage backed security

–LTV: ratio of “Loan to Value”

–NOI: Net Operating Income or income minus expenses

–Treasure Rates: current interest rate that investors earn on debt securities issued by the U.S. Treasury

–Debt Funds: an investment pool, such as a mutual fund or exchange-traded fund, in which the core holdings comprise fixed income investments.

–I/O – means interest only

-a 3-1-1 mortgage: a loan that is fixed for the first three years, then the interest rate adjusts once for each of the next two years based on the index stated in the loan agreement.

-a 2-1-1 mortgage: a loan that is fixed for the two three years, then the interest rate adjusts once for each of the next two years based on the index stated in the loan agreement.

–Floating Rate: the rate of interest is subject to revision. –

Exit Cap: the hypothetical capitalization rate investors use to determine the future sale value of an asset.

–Basis points or “bips” – one one hundredth of one percent as it pertains to interest rates

If warranted, please consider liking and commenting on this video and subscribing to our channel at https://www.youtube.com/beauknowsmult….

• Podcast Interviews with Beau: https://www.youtube.com/playlist?list…

I’d love to connect with you:

• My Website: https://www.beaubeery.com/ and subscribe toward the bottom of page

11-Units * SOLD by DPCRE* in Charlotte County, FL – Waterfront * Future Vacation Destination * Value-Add

Proud to close this deal with patient Buyers and Sellers and a lot of work went into this deal.

If you have any curiousity about this transaction or would like to discuss the market or your property, let’s connect!

DPCRE

Sean Dreznin

941.961.8199

TritonCRE@gmail.com

www.DP-CRE.com

‘You gonna do something, or just stand there and bleed?’ ~ Wyatt Earp, Tombstone

Titan’s Daily Informative News

 IMF cuts forecast: The International Monetary Fund cut its 2023 global growth forecast, citing externalities, including inflation, war, and China, as drivers of the slowdown. The forecast predicts the global economy will grow 2.7% in 2023, down from 3.2% this year and 6% in 2021. The IMF projects that growth in one-third of global economies will decline in 2023. 

Titan’s Takeaway: While it may not be the starkest rate hike (Volcker in ’79), we are currently enmeshed in a period of the broadest monetary tightening in history. With central banks across the world all raising benchmark interest rates at the same time, there may be no precedent for such global monetary contraction and disinflation. 

Google permits cloud payments in crypto: Google will allow customers to pay for cloud services with digital currencies through Coinbase beginning next year. In turn, Coinbase will move from Amazon’s Web Services Cloud to Google’s data-related applications. For Alphabet, where advertising accounts for 9% of revenue, the move aims to shore up its cloud services business line and entice innovative companies to use Google’s services in an increasingly competitive cloud landscape.

 Titan’s Takeaway: While the use case for crypto in everyday transactions is still in the early days, this Coinbase and Google partnership, at its core, seems like a quid pro quo: we pave the way for institutional adoption of digital assets, you give us your cloud business. 

** Recent Sale ** 11-unit Multifamily Complex in SW Florida

Shell Creek Lodge in Punta Gorda, FL

11-Units in 5-Buildings in Charlotte County, FL

This gem of a complex may have a future as a vacation destination as the new owners have some spectacular visions in mind.

Both Buyers and Sellers are thrilled to get this transaction closed before Hurricane Ian and a lot of curveballs along the way. I am certainly proud to not only successfully close this transaction with both parties in good spirits, but this listing came to me as a referral from one of my very influential colleagues who flies at a much higher level regarding size and volume of multifamily properties. This happened to be in my backyard on the gulf coast and the size was right in my wheelhouse.

At the end of the day, I take great pride putting everything into these deals doing my best to meet the goals of my clients and customers. I feel like we definitely did that here!

If you have any questions regarding this deal or would like to connect to discuss the market or properties, I’m a text, email or phone call away.

Dreznin Pappas Commercial Real Estate LLC

Sean Dreznin

941.961.8199

tritonCRE@gmail.com

http://www.DP-CRE

The Suburban Rent Boom Has Been a Constant over the past couple of years and continues today.

By: Chris Salviati and Rob Warnock via Apartment List.com

In major metros across the U.S. rents have been growing faster in the suburbs than in the urban core

Analyzing our rent estimates across 39 large and medium-sized metropolitan areas, we find that since March 2020, rents in the suburbs of these metros have grown by 27.2 percent, on average, substantially outpacing the 19.8 percent average rent growth in the core cities that they surround.¹²

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This gap began to emerge quickly after the pandemic’s onset. With most urban amenities closed or operating in limited capacity during the lock-down phase of the pandemic, many workers who lost jobs or who no longer needed to be close to an office decided that it was no longer wise to pay a premium for downtown rentals. As existing renters gave up their leases without new renters to take their places, rents in core cities were discounted. This was especially true in the nation’s priciest cities, such as San Francisco, Seattle, Boston, and New York City, all of which saw their median rents plummet by at least 20 percent by the end of 2020. On average, rents in the core cities that we analyzed fell by 4.6 percent from March through December of 2020. Meanwhile, rents in the suburbs of these metros ticked up slightly, rising by an average of 0.7 percent. 

Conditions quickly changed in 2021 – the large cities where rents had been falling quickly turned a corner and began sharp rebounds, leading to a temporary narrowing of the rent growth gap between core cities and suburbs in early 2021. But suburban rent growth then proceeded to outpace core city rent growth again, even as prices skyrocketed in both sets of cities, driven by tight supply colliding with a surge in demand. And while rent growth has cooled somewhat in 2022, it has continued at an elevated pace in both core cities and suburbs. Throughout the past year and a half, the rent growth gap between core cities and suburbs has, for the most part, been continuing to gradually widen, as can be seen in the chart above. The continuation of this trend indicates that this gap is not solely an artifact of early pandemic disruption.

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In large metros, the fastest rent growth is happening in the farthest-flung suburbs

The impact of remote work on these changing preferences would seem to be validated by an additional finding that emerges when we break down our suburban rent data into more granular categories. Namely, the fastest rent growth since March 2020 has been occurring in the suburbs that sit furthest from the urban core. For the purposes of this analysis, we have limited the data to 13 large metros where we have robust rent estimates for a wide swath of suburbs at varying distances from the core city.

Among these 13 metros, the first year of the pandemic brought an average rent decline of 5.2 percent in the core cities. Over that same year, the outer-ring suburbs that sit more than 30 miles from the core city saw the fastest rent growth, with an average increase of 4.8 percent, roughly proportional to the decline in the core cities. Looking over the full pandemic period, rents in the core cities have risen by an average of 16.8 percent since March 2020. Over the same period, the near suburbs that lie within 15 miles of the core cities saw rents increase by 23.5 percent. Meanwhile, the mid-distance suburbs (15 to 30 miles from the core city) experienced rent growth of 26.8 percent, and the farthest flung suburbs that are more than 30 miles from the urban core have seen the fastest rent growth at 30.1 percent.³ In other words, rent growth has been progressively hotter moving outward in concentric rings from the urban core. 

It seems highly likely that remote work is playing a role in this trend. Even as some companies have begun requiring employees to return to the office, many workers are still retaining the ability to work from home at least part-time. This sort of hybrid work arrangement is likely to alter decision making with regards to how far one is willing to live from the office. A long commute from the distant suburbs may seem much more reasonable if it only needs to be endured twice per week. It seems that some workers are choosing to forgo the convenience of being close to the city in favor of getting more space at a lower price point. And given that far flung suburbs have less rental inventory than large cities, these markets are ill-prepared for an influx of new renter households, leading to the disruption reflected in our rent growth estimates. 

Conclusion

The past two and half years have ushered in rapid changes to the ways that we live and work, driving significant shakeups to the housing market. One such disruption has been a spike in demand for suburban rentals. Even as large core cities have rebounded strongly from early-pandemic declines, rent growth has continued to be fastest in the suburbs. Even before the pandemic, increasingly unaffordable housing costs close to the urban core had been pushing more and more renters to the far peripheries of the nation’s large metro areas, resulting in a proliferation of “super commuters“. City living has proven resilient, and will surely retain its appeal going forward, but with a meaningful share of the workforce poised to maintain at least partial remote work flexibility going forward, the far flung suburbs of large metros may continue to experience elevated housing demand going forward. Even if these workers are only commuting part-time, this type of sprawl is at odds with making progress on climate goals. Crucially, spiking demand in the far suburbs appears to have more to do with affordability than with geographic preference – this trend should only emphasize the need for sustainable development with easy transit-oriented access to the urban core.

For the complete comprehensive article, CLICK HERE to visit Apartment List.com

To explore properties for sale or your property in greater detail, CLICK HERE to visit Dreznin Pappas Commercial Real Estate LLC

Global trade slowdown

Global trade slowdown: The World Trade Organization forecasts only a 1% increase in exports and imports, down from previous projections of 3.4% for 2023. The abrupt downturn in trade forecasts suggests that high inflation could ease next year but elevates recession risk. The prediction follows the U.S. trade report in August, where exports of goods and services fell by 0.3%.

Titan’s Takeaway: There are micro and macro headwinds factoring into a global slowdown in global trade, from weakening household demand to geopolitical crises threatening increases in tariffs and a pullback in globalization. It’s a fine line to tow when working to tamp down global inflation amid the possibility that rising rates may lead to global economic contraction.

Photo by Pixabay on Pexels.com

OPEC to cut oil production: OPEC announced that it would cut oil production by 2 million barrels a day in an effort to jump-start crude prices, which have fallen from over $120 a barrel in June to roughly $80 a barrel in September. The U.S. has been pushing OPEC and its allies to increase production, but the latest cut is the largest since 2020. 

Titan’s Takeaway: The production cuts will likely push crude prices higher as fears of a global recession and demand destruction seep into the organization’s oil policy. The decision is peculiar as global energy remains squeezed, and the new cut will likely put more pressure on supply and prices.