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August 20, 2022 Weekly Investor Update

Life Bridge Capital Weekly Investor Update

August 20, 2022

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

 

MARKET INDICATORS SNAPSHOT

 

WEEKLY

Mortgage Rate (30-Year Fixed): 5.13% (as of 8/18)

MONTHLY

Existing Home Sales: -5.9% (July 2022)

New Residential Sales: +17.4% (June 2022)

Median Sales Price for New Houses Sold: $402,400 (June 2022)

Construction Spending: -1.1% MoM (June 2022)

New Residential Housing Starts: 1.45 million (July 2022)

New Residential Housing Completion: 1.42 million (July 2022)

QUARTERLY

Homeownership Rate: +65.4% (2Q22)

Rental Vacancy Rate: +4.5% (2Q22)

 

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.

 

TOP 10 STORIES OF THE WEEK

10. Alabama local apartment market sustains strong momentum

According to Colliers Multifamily, Alabama is poised to continue its strong multifamily performance with Birmingham’s Southside taking the lead in sales volumes. This year, more than $130 million of sales was made. Asking rents are currently at $1,260 per month with a total of 632 units already in the pipeline. The group expects the strong market health to be sustained despite the continued increase in interest rates and higher construction costs.

 

9. California joins adaptive reuse trend

The trend of commercial real estate properties into multifamily residential spaces isn’t limited to offices alone. Santa Ana, CA joins the growing list of metros where strip malls are being converted for adaptive reuse after the lingering impact of the pandemic brought high vacancies in these properties. For instance, La Placita Cinco, which opened in 2021, now hosts 50 apartment units . The developer was successful at raising $31.4 million for the conversion. More strip malls in the state, which have not rebounded from losses, are being considered for conversion as well in the coming year.

 

8. Commercial and multifamily markets post double-digit increases

Commercial and multifamily mortgage originations went up in 2Q22, thanks to solid demand that continued to positively impact lending activity, according to the Mortgage Bankers Association’s newest borrowing and lending survey. The MBA also stressed that despite investors operating in an uncertain economic period, multifamily originations increased 24% YoY. The group also forecasts lending and borrowing will take a momentary slowdown in the coming months.

 

7. More investors and renters remain looking for multifamily space

A recent interview with Greg Coulter of Income Property Organization reveals that there’s no signs of slowdown in the number of investors and renters searching for more multifamily properties in the country. According to Coulter, he observes that there are still a lot of investors with huge capital to spend on multifamily prospects. In addition, since monthly apartment rents continue to get higher, with 3% to 4% rise in Denver YoY, the long-term outlook of investors in this sector remains healthy. However, for renters, the competition to find the right property has become tougher. The National Multifamily Housing Council revealed that the country would need more than 4 million new apartment units to meet the very high demand for multifamily units from renters.

 

6. Multifamily green buildings to grow 20% globally

Eco-conscious developers that cater to more those renters who want to stay in environment-friendly spaces are expected to grow by $116.63 billion this year, reflecting a compound annual growth rate (CAGR) of 20%. Green buildings, particularly multifamily residential units, have become popular in recent years as more developers are recovering from the impact of the pandemic. With the growth in remote working setup, most renters have become more aware of the environmental impact of their dwelling units to pollution. As such, sustainability and long-term cost savings continue to influence the strong demand in this market.

 

5. Multifamily housing construction remains solid

The Census Bureau’s July residential construction report revealed that multifamily housing construction permits and completions remain strong despite property starts dropping in the same period. The number of permits issued for buildings with 5 or more units in July reached 693,000 units, up by 3% MoM. On the other hand, buildings with 2 to 4 units had additional 53,000 issued permits, up by 1,000 units MoM.

4. Multifamily rent growth slows but still strong

U.S. multifamily performance remains in good shape despite rent’s deceleration, according to the Yardi Matrix July 2022 report. National occupancy rates remain firm, but are declining in some metros with high-growth. This is because new deliveries are filling in the supply gap while net migration has somewhat slowed down. In addition, national asking rents rose 0.6%, 60 basis points lower on a MoM basis.

 

3. Multifamily lending highest in 2021 

The annual report from the Mortgage Bankers Association (MBA) showed record-breaking multifamily lending for 2021 with $487.3 billion in new mortgages for apartment buildings with 5 or more units. This is up by 35% YoY. The survey was participated in by more than 2,000 multifamily lenders. MBA attributes to the huge demand in lending due to the impressive property fundamentals, low interest rates and rising property values. 

 

2. Freddie Mac released midyear multifamily outlook

In its 2022 Midyear Multifamily Outlook Report, Freddie Mac noted rent growth remains very high, with even more metros experiencing record-breaking rent growth over the past 18 months. Since January 2021, Freddie Mac observed that every market saw rent increases of at least 10% and about two-thirds had rent growth of 20% or even higher. 

 

1. Apartment construction nears 50-year high

U.S. apartment construction is still in full steam as additional 420,000 new units are already in the pipeline and will be delivered by the end of the year, according to RentCafé, which used Yardi Matrix data. The last time that apartment completions surpassed the 400,000-unit level was back in 1972. The list of metros with the highest new apartments for delivery is led by New York, with Nashville, TN, and Portland, OR entering the list for the first time. The construction surge is expected to continue as apartment demand remains strong after more potential homeowners postpone their plans of purchase.

 

 

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