July 23, 2022 Weekly Investor Update

Life Bridge Capital Weekly Investor Update

July 23, 2022

The Latest in Commercial Real Estate (CRE), Economy & Markets





Mortgage Rate (30-Year Fixed): 5.54% (as of 7/23)


Existing Home Sales: -5.4% (June 2022)

New Residential Sales: +10.7% (May 2022)

Median Sales Price for New Houses Sold: $696,000 (May 2022)

Construction Spending: 0.1% MoM (June 2022)

New Residential Housing Starts: 1.56 million (June 2022)

New Residential Housing Completions: 996k (June 2022)


Homeownership Rate: +65.4% (1Q22)

Rental Vacancy Rate: +5.8% (1Q22)


Sources: NAR, BLS, Federal Reserve Bank, MBA

Note: Rates listed are estimates and may not reflect actual rates depending on term, sponsor location, and other factors involved.



10. Demand continues to outpace supply in multifamily housing market

Speaking to Nasdaq TradeTalks, Tess Gruenstein, SVP at Bailard, high construction costs are affecting single-family housing and multifamily development coupled with high mortgage rates. The rising costs are offset with increasing rent to soften the construction impact. Gruenstein also noted that the demand for multifamily continues to dwarf the available supply because of the migration to less urban environments that are still close to city centers and schools with affordable rates. She recommends increasing the supply of multifamily properties because there’s a dislocation in the market caused by COVID-19 and they want to be closer to areas such as Florida that offer better weather. 


9. Multifamily transaction volume in Chicago up 54% YoY

The Chicago multifamily market transaction volume in April reached $868 million, up 54% YoY, according to Yardi Matrix. A total of 16,640 units under development as of April was recorded with a huge 99,000 units still in the planning and permitting stages. Renters paid an average $1,749, which is $90 above the national average. Chicago’s expanding employment market is a major catalyst in the growing investments in multifamily property construction.


8. Chicago hotel-to-multifamily conversions very profitable according to study

Research by CoStar revealed that property developers whose projects now focus on converting distressed hotel buildings in Chicago into multifamily properties are heading into a profitable direction. CoStar estimates that about $200,000 per unit and $170 per sq ft differential could be profited from a stable multifamily investment. An average three-, four- or five-star apartment building sells at $313 per sq ft today compared to only $147 per sq ft for an average downtown Chicago hotel.


7. Class A multifamily tenants need higher incomes to afford rent

RealPage’s 2022 Market-Rate Apartment Affordability Report announced a 20.5% increase in median rent-to-income ratio for the luxury Class A segment and a 22.1% rise in the Class B segment. On the other hand, in the lowest-price Class C segment, it was registered at 24.5%. According to the company’s chief economist, Jay Parsons, that more expensive multifamily markets require higher incomes from renters. For instance, those in San Francisco, New York and San Jose have a median household income of $150,000 while those in Greensboro, New Orleans and Memphis only earn $42,000. The report is based on 7 million leases gathered from the company’s customers. 


6. Boston is still a tight multifamily rental market

Boston’s multifamily rental market is showing no signs of slowing down as the occupancy rate hit 96.6% YoY, increasing 110 basis points (bps), according to the Yardi Matrix June 2022 report. Deliveries and construction starts, however, slowed down with only 479 units being offered and 365 units breaking ground through April. A total of 17,820 units are already in the pipeline. Property investors offered $565 million in multifamily assets at $323,890 per unit on average.


5. Rent costs remain high in Maine

Rent costs in Maine increased 13% YoY in June and 39% since the start of the pandemic, according to Apartment List. The supply and demand factors have played a role in the high cost of renting after the rate of vacancies has been pushed down over the past months. Jay Lybik, a national real estate analyst for CoStar Group, opines that the case in Maine, like in most states, is a result of not building enough apartments in the past decade.


4. CEO of real estate investment platform: workers won’t return to city centers

In an interview by MarketWatch, the cost of living in cities and record-high rents would soon make the future of offices similar to that of shopping malls, according to Ben Miller, co-founder and CEO of Fundrise. The company has invested in 17,200 apartments across the country, especially in the Sun Belt areas where rental demand is higher. Moody’s Analytics senior economist, Thomas LaSalvia, however, doesn’t agree, saying the company’s data reveals that the pandemic-induced reduction in office demand is slowly recovering beyond post-2019 levels by 11%. Regardless, it is clear that urban areas have rebounded, and not just in New York City.


3. Multifamily homebuilders boost apartment constructions due to high rents

Redfin reported that the 14% YoY rise in median rent has brought about increased incentives for real estate developers to build more apartment units across areas where demand for multifamily is surging. Rent increases among top metros is highest in Cincinnati, Ohio where it rose 39% YoY, followed by Seattle, Austin, Nashville, and New York City. According to Doug Duncan, chief economist at Fannie Mae, many potential homebuyers are resorting to renting due to the cost of mortgage that has made homeownership less affordable. Duncan expects multifamily construction to remain resilient in the years to come.


2. Apartment amenities now influenced by work-from-home culture

In a report by The New York Times, many apartments are now focusing on providing work-from-home amenities to cater to remote work needs. This includes conference rooms, wall-mounted monitors, high-speed internet, private offices and even podcasting booths. According to Matt Vance, a senior economist at CBRE, compared to 10 years ago, the size of the average new apartment has increased 9.6% since the start of the pandemic, adding 90 sq ft for work space or bedroom. He also noticed that common areas such as cybercafes with booths and coffee machines have become more common in these buildings. Vance added that multifamily properties are experiencing stronger demand for these amenities and could likely persist in the long run.


1. Multifamily housing construction to be stronger in the summer

The Census Bureau’s June residential construction report revealed a recovering trend in multifamily permits and starts. Unit completions for properties with at least five units increased 13% on a YoY basis, at 666,000 units on a seasonally adjusted, annualized basis. Total permits rose 28% YoY and sustained its growth at 11% over the trailing 12-month average. In addition, buildings with two to four units totaled 52,000 permit issues, which is lower by 3,000 units from the previous month but up 6% YoY.


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