Stocks’ recent win streak

Last week stocks made their longest weekly gain since February with the Dow closing above 40,000, a fresh new record, and the S&P 500 hitting 5,300. Strong first quarter earnings and early signs that inflation is cooling have sent stocks higher. The short lived meme stock rally also contributed to increased trading volume from retail investors.

Analysts have been raising earnings forecasts for the current quarter at an unprecedented speed, as more and more believe a soft landing is in store. A number of factors will affect how markets perform through the rest of the year, including inflation, the Fed’s monetary policy, and the election. However, if the stars align and inflation cools faster than expected, it’s possible stocks could keep making all time highs, although not without ample volatility along the way.

NNN STNL on the brink?

I follow Daniel Herrold on X and LinkedIn and he’s quite knowledgeable on the markets he dominates. It’s interesting insights for certain.

NNN STNL on the brink?

I follow Daniel Herrold on X and LinkedIn and he’s quite knowledgeable on the markets he dominates. It’s interesting insights for certain.

Tampa Retail Real Estate Market Report

Article via Bounat.com – Click Here for complete story and others similar to it.

The commercial real estate brokers at Bounat work diligently to compile a comprehensive list of the top commercial real estate activity in the Florida region on a frequent basis.

Retail leasing fundamentals in Tampa remain solid despite headwinds caused by continued disruptions in the supply chain and lingering concerns post-pandemic. However, these factors are being counterbalanced with the fact that Florida is the fastest growing state in terms of population in the country, and many people are moving to Tampa specifically.

In general, retail demand in Tampa has been consistently strong over much of the past decade, driven by solid population gains, wage growth, and steady consumer spending. Current vacancy is 3.3%, which is up +0.2% compared to Q3 2023, and the vacancy rate for retail real estate in Tampa remained steady over the past year and is well below the national average, estimated at around 4.5%.

Rent growth has accelerated in recent quarters due to strengthening overall leasing fundamentals following the lifting of some pandemic safeguards. Average asking rents as of Q4 2023 are at $25.56/SF, which is up $0.35 from Q3 2023 when the asking rate was $25.21/SF, up over 2% during the past 3 months (quarter to quarter).

There is currently 563,141 SF of new retail space underway, and nearly 1 million SF has been delivered in the trailing 12-month period. While the pace of new development is falling short of previous years, an uptick in demand bodes well for future development.

Retail investment sales activity over the last year has totaled roughly $1.6 billion in total transaction volume, fueled by considerable investment volume in Q4 and Q2 2022. Q1 2022, from a little over a year ago, still holds records for transaction volume with nearly $600M in retail property sales. It was the second highest quarter of retail real estate sales in the area, illustrating just how feverish investor appetite has been over the last year.

Retail investors continue to target deals in secondary markets like Tampa and Orlando as they seek higher yields, which is becoming harder and harder to achieve. Increased competition for assets is forcing an acceleration in overall retail pricing with the average price per SF growing by 10% year over year and by nearly 15% in the last two years. CoStar’s forecast calls for pricing to continue to rise through 2023 before beginning to level out in early 2024.

The most significant single-property trade over the last year took place in Q2 2023 when the Brandon Town Center (303 – 675 Brandon Town Court) sold for $220M at a price of $296/SF with a vacancy rate of 0% at the time of sale. The Tampa shopping center was built in 1995.

If you would like to discuss the Commercial Real Estate Markets or discuss your asset and its future, let’s connect.

http://www.DP-CRE.com

Apartment Supply Surplus and Slowdown

Via Realpage.com and my main multifamily research man, Jay Parsons.

Here’s yet another sign that apartment supply will plunge in the second half of 2025 and into 2026: Multifamily permits continue to drop off, and in January 2024 hit the lowest levels since the COVID lockdown era. And there’s little reason to expect that storyline to change any time soon.

Permits had been somewhat stickily elevated through 2023, even if well below 2021-22 peaks. We heard many developers pushed forward on pulling permits for various reasons, primarily on projects that had been rapidly advancing to that stage prior to hitting the wall of rising rates, falling lease-up rents and diminishing capital interest in ground-up development. Some developers were pushing to be “shovel ready” once capital returned.

But that permitting pipeline is drying up. Total multifamily permits nationally fell below 34,000 units in January for the first time since April 2020 — which, of course, was during the height of COVID lockdowns, partially closed municipal offices and heightened uncertainty.

Starts also dropped off 40% in 2023 (compared to 2022), and developer surveys and declining permit volumes suggest even fewer starts in 2024. Some starts will continue (the pipeline isn’t totally dry), with many of those having some type of affordable housing or attainable housing component — where financing can still be available (though, of course, often quite complicated).

When will permits and starts take off again? Probably no time soon.

Think about what it would take. A material rise in permits and starts would first require rebounding apartment fundamentals — especially for lease-ups to stabilize and rents to start climbing again. Given peak supply hitting this year and early 2025, that probably won’t happen until mid-2025 at the very earliest… likely later. Additionally, construction lenders will need to see some eased regulatory pressure, and equity investors will want to see some decline in rates plus see market dynamics shift back where there’s better yield on ground-up development than on chasing recent lease-ups.

All that will take quite some time.

Bottom line: This is all more evidence apartment supply will drop substantially in the second half of 2025, into 2026 and likely into 2027. And that should give confidence to operators and lenders banking on a market rebound over that time period.

#multifamily #housing #apartments Activate to view larger image,

For information on Florida Gulf Coast markets and to discuss income producing asset information, visit DPCRE, LLC <—–

The Factors That help to Make Multifamily Real Estate Recession-Proof

(MENAFN– Evertise Digital) Sarasota, Florida, United States, November 22, 2023 – In real estate, where the winds of economic downturns can shift markets in unpredictable ways, one sector has proven to anchor stability: Multifamily Real Estate.

As investors navigate the complexities of the real estate market, the allure of multifamily properties becomes increasingly apparent, thanks to their remarkable resilience despite economic uncertainties. But what exactly makes them so recession-proof?

Here are just 5 reasons.

Demand and Essentiality

At the heart of the multifamily real estate’s recession-proof nature lies the perennial demand for housing. Irrespective of economic conditions, people require shelter, and multifamily units offer an affordable and adaptable solution to this fundamental need. This unwavering demand is not confined to a specific demographic, ranging from young professionals seeking flexibility to families and retirees desiring community living.

Moreover, the essential nature of housing provides a layer of insulation against economic storms. While other sectors may experience fluctuations in demand, the need for housing remains a constant, offering investors a reliable income stream. This consistent cash flow is a cornerstone of multifamily real estate’s recession resistance, acting as a financial buffer during challenging economic periods.

Cash Flow Consistency

Unlike some real estate investments that heavily rely on market appreciation, multifamily properties thrive on the steady cash flow generated through rental payments. This income stability provides investors a financial lifeline, allowing them to weather economic downturns more effectively. The resilience of cash flow in multifamily real estate is derived from the sector’s inherent stability – people always need a place to live, and renting multifamily units provides a cost-effective solution for a diverse range of individuals and families.

Furthermore, the consistency of cash flow contributes to a sense of predictability in the financial performance of multifamily investments. This predictability becomes a valuable asset in uncertain economic times, offering investors confidence and control over their financial outcomes. Counting on a reliable income stream enhances the appeal of multifamily real estate as a recession-resistant investment, providing a tangible advantage in navigating the ever-changing economic landscape.

Risk Mitigation Through Diversification

Another key factor contributing to the recession-proof nature of multifamily real estate is the strategic approach to risk management through diversification. Unlike single-family properties, where the financial fate is tightly linked to the economic stability of a single tenant, multifamily investments spread risk across multiple units and tenants. This diversification acts as a protective shield, minimizing vulnerability to the financial challenges of any individual tenant.

The diverse tenant base in multifamily properties, encompassing various demographics and income levels, adds an extra layer of stability. Economic downturns may impact specific industries or income brackets, but the broad spectrum of tenants in multifamily units ensures a more balanced and resilient investment portfolio. This risk-mitigation strategy is fundamental to why multifamily real estate stands strong even in tumultuous economic times.

Adaptability in Changing Markets

In the dynamic landscape of real estate, adaptability is a prized quality. Multifamily properties showcase a unique ability to adapt to changing market conditions. During economic downturns, the demand for homeownership may decline as potential buyers become more cautious. This shift in consumer behavior often increases demand for rental properties, particularly in the multifamily sector.

The flexibility of multifamily units to cater to varying lifestyle preferences positions them as a dynamic and responsive investment option. Investors can capitalize on this adaptability by adjusting rental strategies to meet evolving market demands. Whether providing shorter lease terms to accommodate a transient workforce or offering amenities that align with changing lifestyle preferences, multifamily real estate can pivot and thrive in response to market shifts.

The Financing Advantage

Financing plays a crucial role in real estate investments, and multifamily properties often benefit from more favorable terms, enhancing their recession-resistant profile. Government-backed loans and financing incentives are frequently available for multifamily investments, contributing to a more stable financial environment. This advantageous financing landscape reduces the upfront burden on investors and provides a buffer against interest rate fluctuations.

In times of economic uncertainty, interest rates can be a source of concern for investors. However, the financing advantages of multifamily real estate mitigate this concern, creating a more secure investment environment. Investors can easily navigate interest rate fluctuations, further solidifying the recession-resistant qualities of multifamily real estate.

This information was brought to you via MENAFN ( a PR service) by Rod Khleif pitching his current Real Estate teaching series/project. (see below)

Embrace the Knowledge to Thrive in the Multifamily Real Estate Market

To delve even deeper into the intricacies of navigating this resilient sector, consider exploring educational resources and courses tailored to multifamily real estate investments. And who better to guide you than the renowned multifamily investor and mentor, Rod Khleif ?

Rod Khleif’s courses and events are designed to equip you with the insights and skills needed to survive and thrive in any economic climate. Whether you’re a seasoned investor or just starting your real estate journey, Rod’s knowledge and practical strategies can elevate your understanding and success in multifamily real estate.

For those eager to expand their knowledge, Rod Khleif offers actionable advice and proven strategies for multifamily real estate success. Take the next step in your investment journey by exploring these resources, empowering yourself to navigate the real estate market with the guidance of a seasoned expert.

If you are actively looking for investment real estate (income-producing) assets, or considering selling and would like some guidance regarding valuation, where to begin, etc, visit Dreznin Pappas Commercial Real Estate LLC by clicking here <——

Very insightful and interesting podcast regarding 2023 Multifamily recap and a view into what you might expect in 2024.

Via Bigger Pockets Real Estate Podcast

With guests Brian Burke and Matt Faircloth

https://podcasts.apple.com/us/podcast/biggerpockets-real-estate-podcast/id594419649?i=1000642457225

Multifamily real estate has crashed, but we’re not at the bottom yet. With more debt coming due, expenses rising, incomes falling, and owners feeling desperate, there’s only so much longer that these high multifamily prices can last. Over the past year, expert multifamily investors like Brian Burke and Matt Faircloth have been sitting and waiting for a worthwhile deal to pop up, but after analyzing hundreds of properties, NOTHING would work. How bad IS the multifamily market right now?

Brian and Matt are back on the podcast to give their take on the multifamily real estate market. Brian sees a “day of reckoning” coming for multifamily owners as low-interest debt comes due, banks get desperate to be paid, and investors run out of patience. On the other hand, Matt is a bit more optimistic but still thinks price cuts are coming as inexperienced and overconfident investors get pushed out of the market. So, how does this information help you build wealth?

In this episode, Brian and Matt share the state of the 2024 multifamily market, explain exactly what they’ve been doing to find deals, and give their strategy for THIS year that you can copy to scoop up real estate deals at a steep discount. Wealth is built in the bad markets, so don’t skip out on this one!

In This Episode We Cover:

The state of multifamily real estate in 2024 and how low prices could go

A “day of reckoning” coming for inexperienced/overleveraged multifamily owners

Whether or not we’ve reached the bottom for multifamily price drops

What rookie real estate investors should do NOW to take advantage of this down market

Rising mortgage rates and how increased costs have KILLED many multifamily deals

Exactly what Brian and Matt are investing in during 2024 to make money no matter how the market moves

And So Much More!

The Science and Reality behind Multifamily Syndication and what it looks like in 2024.

The following are pieces of a report and update from a Multifamily syndication company and a peek behind the curtain of some of the their positive strides and trials and tribulations of staying on the path of success for investors and clients in 2024.

TAXES

Photo by Sean Dreznin

Tax season is upon us! 

With bonus depreciation dropping to 60% this year, it will be more difficult to offset real estate income with depreciation losses.  However, on January 19, just a few days ago, the House Ways and Means Committee overwhelmingly approved the Tax Relief for American Families and Workers Act of 2024 by a 40-3 vote. The bill provides for increases in the child tax credit, delays the requirement to deduct research and experimentation expenditures over a five-year period, extends 100-percent bonus depreciation through 2025, and increases the Code Sec. 179 deduction limitation, among other business-friendly provisions.

Many of the important provisions in the bill will apply to past tax years. The aim is to have the bill signed by President Biden before the 2023 tax filing season begins. However, it is uncertain whether this is feasible given the House and Senate schedules in January. Nonetheless, the bill has bipartisan support in both chambers of Congress. Even if the bill is passed before the filing season starts, changes that are applied retroactively to the 2023 tax season could cause problems for the IRS and result in a delay in processing returns.

RENT GROWTH We started last year (2023) with a nearly 6% rent growth average nationwide.  Some of the leaders in that sector included Charlotte, Dallas, and Orlando.  During 2023 rent growth fell consistently to 0.4% in December 2023.  Some of the laggards included Dallas, Orland, Charlotte, and Orlando.  With assets in each of these markets, we’ve felt the effect of this across our portfolio as we’ve struggled to achieve our expected rent growth.  We underwrite our deals to the long term average of 3%.  Having gone from one extreme to the other over the past 12 months, we’re now at the low end of that scale. I’m not sure how long we’ll be in this downturn, but we can be fairly certain that at some point rent growth will return to the mean (or above).Here’s where we started 2023…

Graph via REM Capital

And here’s where we’re at today…

Graph via REM Capital

INSURANCE

We’ve succeeded in renewing about a quarter of our portfolio with admitted carriers at much lower rates.  Admitted carriers are the larger, more well-known carriers who are typically stricter with their underwriting criteria but also tend to offer lower rates.  Excess carriers are typically spinoffs of larger carriers and/or carriers looking to fill the gap in the market left by the admitted carriers who don’t cover riskier assets.  As we continue to push forward in this space, it does appear that the overall market has softened a little (i.e. pricing has come down somewhat) from last year (one of the worst on record).  Part of this is due to the lack of major fire and flood damage.  Obviously things can change quickly when it comes to natural disasters.

Thankfully admitted carriers also have lower deductibles (i.e. $25k vs $250k) and better coverage so we prefer to partner with them if possible.  We’ve also increased our average total loss limit from $115 per square foot to $135 per square foot.  This is a calculation of how much coverage we want to have based on a total loss scenario.  A higher price per square foot calculation is better because it protects us against the higher cost of construction should we need it. 

This is an interesting market and 2024 and 2025 should offer a lot of clarity for investors and syndicators.

To learn more about REM Capital, Visit them here <—–

If you would like to discuss our Gulf Coast of Florida market in greater detail, let’s connect.

www.DP-CRE.com

Sean Dreznin

TritonCRE@gmail.com

941.961.8199

Can you spare a tenant for a lonely office space?

via The Wall Street Journal

This article does a solid job of explaining where the country is today with the current state of the office market.

The Good: South Florida Office Market

Strong Recovery: Palm Beach and Fort Lauderdale, once plagued by high vacancy rates, have successfully rebounded. Palm Beach’s vacancy rate dropped from 28.8% in 1991 to 14.2% in 2023, marking the steepest decline among major markets. Fort Lauderdale also saw a significant drop, from 28.1% to 18.9%.

Office Construction Boom: West Palm Beach is currently experiencing an office construction boom. Developers are creating high-end, hurricane-proof offices with modern amenities, making it a desirable destination for major finance companies seeking low taxes and warm weather.

Adaptation to Modern Trends: The region has successfully adapted to changing office trends by offering updated, attractive office spaces that cater to the needs of contemporary businesses.

The Bad: General Overbuilding and Vacancies in Older Office Products

Decades of Overbuilding: The prevailing high vacancy rates across major U.S. cities are a consequence of decades of overbuilding, notably in the 1980s and early 1990s. Easy lending practices fueled speculative office projects, resulting in a surplus of buildings that struggled to find tenants during economic downturns.

Struggle of Older Buildings: Many vacant spaces are in buildings constructed in the 1950s, ’60s, ’70s, and ’80s. These older structures face challenges in attracting tenants as companies opt for more modern facilities or reduce office space.
Shift in Office Design: The trend toward open floors and cubicles, starting in the early ’90s, has contributed to increased vacancies, signaling a shift away from traditional large offices. The pandemic accelerated this trend, with remote work reducing the need for extensive office space.

The Ugly: Overall Vacancy Rates and Troubled Markets

Record Vacancy Rates: The overall vacancy rate for major U.S. cities reached a staggering 19.6%, the highest since at least 1979. This reflects a combination of historical overbuilding, shifting work habits, and the impact of the COVID-19 pandemic.
Troubled Markets: Presently, the three major U.S. cities with the highest office vacancy rates are Houston, Dallas, and Austin, Texas. This mirrors the situation in 1991 when Palm Beach, Fort Lauderdale, and San Antonio faced similar challenges. California’s San Francisco, once boasting a low vacancy rate, now contends with some of the country’s emptiest offices due to the tech sector’s embrace of remote work.
Long-Term Empty Offices: Unlike the early ’90s, where the downturn ended abruptly, today’s challenges are more tied to the lasting impact of remote work than economic cycles. Analysts predict that offices may stay emptier for a more extended period, indicating a fundamental shift in how businesses approach office spaces.

#wsj #office #cre #cref #distresseddebt #cmbs

Multifamily lumped in with Office for 2024?

You have to appreciate this level of research and insights into the specific commercial real estate markets by Jay Parsons and RealPage. CLICK HERE for full article and others link it.

The FDIC issued an advisory this week that lumps multifamily in with office as potentially high-risk sectors. While there are certainly real risks, the pairing with office feels like a big oversell. Here’s why:

1) Unlike office, multifamily demand is healthy. Vacancy (while up) is back to the long-term average and showing signs of stabilizing. Absorption is still very healthy, even if “slowed” (in the FDIC’s wording) from 2021’s record pace.

2) Rents have cooled (not tanked) — and, unlike office’s demand challenges, it’s all about short-term supply for multifamily. That said, the FDIC’s memo used the word “overbuilding” — which is a bit wild because it’s contradicting the White House’s (correct) view that we’re still undersupplied, especially at the lower-rent levels. What the FDIC is really referring to is a short-term supply/demand imbalance that will almost certainly get corrected after 2024 due to 2023’s plunge in new starts.

Healthy demand + improving rent outlook should keep capital committed to multifamily and prevent a doomsday scenario.

3) Multifamily bank loans have the lowest delinquency rate of all major bank lending categories, according to the latest quarterly filings from FDIC-insured banks – a key factoid left out of the FDIC’s memo. Multifamily delinquency came in at 0.40%, according to BankRegData. Other real estate categories were 2-3x higher. Delinquency will probably increase in 2024, but we’re starting at a very low point.

In fairness, rate risk is obviously a bigger concern than fundamentals. That’s especially true for those with short-term, floating rate debt. BUT that doesn’t represent the bulk of *bank* loans. Most are the more-vanilla, less-leverage variety.

Some might still get challenged maintaining required DSCRs, while still making payments — which is likely the type of profile banks would be motivated to work with. And even if not, it’s unlikely most properties would be worth less than the senior bank debt — further protecting banks.

Of course, it’s also important to acknowledge that a small share of banks will have more exposure to higher-risk multifamily through debt funds, bridge loans and CMBS they’re backing. Those smaller categories are not categorized with traditional multifamily loans in regulatory filings.

Another potential challenge for CRE/MF borrowers of all types: While the regulators continue to encourage lenders to pursue workouts as needed, the FDIC is also telling banks to preserve more capital — which means bank lending/refinancing could remain limited.

Those two strategies somewhat counteract each other. So there are real risks, yes, even for multifamily. But – unlike office – multifamily benefits from a broader lender pool outside the bank, starting with Fannie and Freddie. The agencies seem very in tune with their importance at this stage in the cycle; and while that’s no panacea, it’s another reason why multifamily is unlikely to play out like office.Activate to view larger image,

Here is a link to the FDIC’s advisory memo — > CLICK HERE <—-