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Although loans backing office properties are the most scrutinized these days, a wall of debt is also maturing within the multifamily sector in the coming years.

And while multifamily continues to be seen as one of the safer asset classes, already, there’ve been recent examples of loan defaults on multifamily portfolios, including four properties in Houston totaling 3,200 units that went to foreclosure last month.

Aaron Jodka, director of national capital-markets research at Colliers International Group Inc., said the multifamily market right now is an interesting test case — while rents aren’t growing as fast as they were 18 months ago, many markets continue to see positive growth and occupancy remains strong.

Looking strictly at the apartment market, nationally, net absorption was 19,243 in the first quarter of 2023, and occupancy stood at 94.7% in March, a drop from the peak of 97.6% in February 2022 but about the same as the average observed in the decade before the pandemic, according to RealPage Inc. Same-store effective asking rents for new apartment leases increased 0.3% in Q1.

But buyers and sellers continue to be at a stalemate, including within multifamily, a darling of the real estate investment world in recent years, Jodka said.

From the early 2000s through the global financial crisis and shortly thereafter, multifamily drove about 24% of all investment sales activity, according to Colliers. Between 2012 and 2020, that sector received about 33% of activity.

By 2020 to 2022, multifamily represented 43% of all investment.

“We’re increasingly seeing larger and larger investment flows, which means we have more and more maturities coming, as you’ve had additional volume,” Jodka said.

In particular, borrowers that recently financed multifamily deals with short-term floating-rate debt without anticipating the significant run-up in interest rates are facing higher loan payments now and could run into issues at refinancing, he added.

And a significant amount of loan maturities within multifamily are coming due soon. The Mortgage Bankers Association estimates, overall, there’s $2.6 trillion of loan maturities through 2027, with multifamily making up 38%.

Those who track the commercial real estate market say, like any property type, multifamily is likely to see a greater amount of distress in the coming months and years, but financing challenges are likely to be more episodic than widespread. Capital sources, both on the debt and equity side, are also likelier to provide capital to multifamily more broadly than other asset classes, and there continues to be a tremendous amount of uninvested capital sitting on the sidelines, Jodka said.


Source:  SFBJ

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Lending activity from banks on commercial real estate has slowed in the wake of higher interest rates, an expected recession, questions about specific sectors and the collapse of three regional banks this spring.

At the same time, commercial real estate investors are applying extra scrutiny to lenders amid recent banking turmoil, especially as some banks that have failed in recent weeks lent prominently to commercial real estate.

Even for established groups with longstanding relationships with banks, fewer quotes are being given for deals that a year ago may have seen as many as 10 or more quotes from lenders, industry sources say.

Buying and selling real estate has meant adjusting pricing expectations and being willing to accept more conservative debt terms.

Although regional and community banks have been in the spotlight with recent bank failures, commercial real estate groups say they’re still working with those lenders — but in a smaller way than previously.

Commercial real estate executives say there’s a new awareness within the industry about regional and community banks after the collapse of Silicon Valley Bank, Signature Bank and First Republic Bank. Most real estate investors have, since those bank failures, gone through and assessed their deposit relationships.

Nearly $1.5 trillion in commercial real estate debt is maturing by the end of 2025, Morgan Stanley analysts recently found. But, Morgan Stanley also found, banks with less than $250 billion in assets only account for 29.9% of commercial real estate debt, as opposed to up to 80%, as others have reported.

In the wake of slower lending from banks, other capital sources have stepped in to fill gaps, including life insurance companies.

For some capital sources, there’s potential opportunity to invest in projects or deals that, in more typical market conditions, would be more successful but are facing issues because of the recent surge in interest rates and cost of debt.


Source:  SFBJ

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With the trifecta of idling engines, diesel exhaust and the constant presence of 18-wheelers, industrial outdoor storage operators fight an uphill battle getting their projects approved by municipalities.

But rising demand — and the rising prices that come with it — has motivated developers to find ways forward despite community backlash.

Entitlement challenges, zoning difficulties and pushback from NIMBY-esque neighbors slow the production of IOS properties, causing developers to create strategies targeted at avoiding these pitfalls to get their deals done and meet a ballooning market need.

“The lack of available supply for truck terminals has historically been driven by local zoning ordinances,” said Cresa broker Eric Rose, who is based in Omaha, Nebraska. “Most communities aren’t friendly and won’t really add any more of these locations unless it’s via a case-by-case, special-use approval process, which is time-consuming and costly.”

As the continued growth of e-commerce and a renewed domestic manufacturing sector add pressure to expand trucking to handle increased logistics demand, some developers are striking out and figuring out how to add new capacity. With IOS vacancy rates slipping to 3% in 2022, according to Marcus & Millichap research, the need is clear. And with the high rents and sales prices being fetched by existing IOS properties, ground-up development can offer a significant payday, especially from interested institutional investors or truck carriers.

Earlier this month, Industrial Outdoor Ventures announced plans to turn the Twin Lakes Travel Park in Davie, Florida, 24 miles north of Miami, into a 38-acre industrial service facility. Situated south of Interstate 595, between State Road 7 and Florida’s Turnpike, the ground-up development will include two buildings totaling 227K SF and outdoor storage yards that can hold 280 truck trailers.

“This is another great opportunity for IOV to meet market demand by developing the type of modern facilities that today’s end users require and in a location that has a scarcity of land available for this type of asset,” Industrial Outdoor Ventures Senior Vice President of Development and Acquisitions Eric Johnson said in a statement.

Turnbridge Equities also just picked up a 3.6-acre site in Rancho Dominguez, California, near Los Angeles, in a $25.5M buy.

“The deal, another 2.49-acre pickup in the South Bay, aligns perfectly with our strategic vision of expanding our Industrial Outdoor Storage strategy in port-adjacent, infill and high barrier-to-entry markets,” a Turnbridge executive said in a statement.

In nearby Perris, California, Alterra IOS spent $8.5M on a 7-acre towing yard in early May, with plans to renovate it and reintroduce it as an IOS property with easy access to the busy Inland Empire.

Chicago-based Dayton Street Partners has been busy with redevelopments and plans to create new trucking facilities, one of just a handful of ground-up IOS developments taking place. The firm just finished a 95-acre terminal with 500K SF of industrial space at 5800 Mesa Road in Houston, which is being leased to the carrier Maersk.

The firm also has a 47-acre, 1,000-trailer terminal set to open in Baytown, Texas, near Houston and less than 20 miles from two Gulf ports, set to open in June. The terminal includes a 24-foot-tall, 1,382-foot-long building meant for unloading and reloading truck cargo. In addition, Dayton Street acquired two truck maintenance facilities in Atlanta with plans to renovate and reopen.

“The difficulties of finding appropriate space and building new facilities — often renovating existing industrial or vehicle-focused real estate, such as mobile home parks or underutilized warehouse sites with vacant buildings and minimal need for rehabilitation — means it often isn’t worth it to seek out real estate on the fringes of a market,” Dayton Street principal Howard Wedren said. “Financing has been rocky lately so it is difficult to get access to capital compared to those with longstanding client relationships.”

It is key to find locations near big travel hubs and ports, spots already in high demand for industrial developers seeking storage space.

“We don’t go to the outskirts,” Wedren said. “We’re very much into the high-barrier-to-entry sites. That’s our model, and we don’t deviate.”

High barriers are common for IOS projects. In Long Beach, California, the firm Cargomatic received city council approval for an IOS storage site last month near the busy Pacific port, just overcoming significant backlash by business groups and local leaders concerned about additional pollution from heavy trucks.

“There are no guarantees at the end of the day,” Cresa’s Rose said. “So do you go through a multiyear development process, not 100% certain that you’re going to get those rezoning and entitlements you need? Or do you just bite the bullet and buy the existing facility, and you can activate your service immediately upon opening the facility?”

In the case of Industrial Outdoor Ventures’ project in Davie, Director of Construction and Properties Rob Chase said the firm had good relationships with local leaders. It helped that the older travel park was showing signs of age and wear, and many in town were happy to replace the site with something newer.

Even with the support, it is a long process. Properly and fairly relocating existing residents is time-consuming, and even with the relatively simple construction requirements of these kinds of projects, it will still take 14 months of site work and construction once the site is cleared.

On the flip side, an empty site in Jurupa Valley, California, near the Inland Empire, that Industrial Outdoor Ventures acquired on the precipice of gaining approvals for construction in a portfolio purchase, now has to restart the entitlement process.

Chase said he sees the value of existing and new IOS facilities continuing to rise, spurring more developers to attempt more conversions, but he acknowledged that the process is often difficult.

“Having the right zoning is absolutely critical,” Chase said. “An entitlement process I describe as being long and drawn out is nothing in comparison to trying to change the zoning. That’s even more of a hill to climb. You could easily flip these properties, but pushing, sticking with it through to the finish line, is worth it.”


Source: Bisnow

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Multifamily properties are still going strong in the commercial real estate (CRE) sector. But it’s not business as usual. Coming off record growth in 2021, the industry is recalibrating, which creates dynamic investment, valuation and risk environments for multifamily property investors.

Heading into 2023, inflation and rising interest rates prompted forecasts for a slight slowing of growth in the multifamily property sector. Through the first quarter, overall occupancy rates held steady, with a modest increase in vacancy rates to 6.7%, up from 5% one year ago. Rent income is still growing, but month-over-month increases are returning to pre-pandemic norms. Nationwide, demand for multifamily units remains strong, with plenty of inventory in the construction pipeline.

Looking ahead, multifamily properties continue to offer appealing and profitable opportunities for commercial real estate investors. However, today’s evolving market can’t be predicted based on past performance. For investors, keeping a pulse on key demographic, economic and risk-related trends is more important than ever.


1. Demographics and Demand

Demographic trends are favorable for increasing demand. Forty-five million Gen Z-ers, born between 1997 and 2013, will be in their peak years as renters by 2025. At the opposite end of the generational spectrum, an increasing number of Boomers are expected to opt for multifamily properties as they retire and downsize their homes.

Beyond the population numbers, other factors come into play. Inflation and rising interest rates may prompt Gen Z to live at home longer and Boomers to push back their timelines for downsizing from their single-family homes. At the same time, many Millennials are renting longer, having been priced out of the housing market due to a smaller inventory of starter homes and higher levels of personal debt compared to previous generations.


2. Inflation and Valuation

Inflation and higher interest rates have created a challenging near-term capital market environment for the multifamily sector. Capital is available but at a higher cost. With narrowing margins, lenders are taking a more cautious approach and loan-to-value ratios are down. With higher cap rates, the value of a stable multifamily property is lower. Similarly, value depreciation accelerates with slower rent growth and increased operating costs.

Inflation creates uncertainty about how much a property is worth, how much rental income will — or will not — grow and how much operating costs may increase. Digging into the details within a property’s valuation is critical in the current evolving market. An independent third-party valuation analyzes the historical performance of the property, comparable rental rates in the local market and expected operational expenses. The valuation projects the net operating income (NOI) and provides a benchmark of the property’s value over time.


3. Risk and Insurance

Insurance costs for multifamily properties are also on the rise. Over the past three years, property owners have seen double-digit increases in premium costs. Extreme weather events, such as wildfires, hurricanes and flooding, are a primary reason, with losses exceeding the premium collected. As a result, insurers are reducing their risk exposure in high-risk areas, which means property owners must often seek partial coverage from multiple carriers.

Inflation is also driving increased insurance costs. The cost of construction materials and labor has risen sharply since the start of the pandemic, with multifamily construction costs up 8% in 2023. An up-to-date valuation, which is required by many insurers at renewal, helps property owners to ensure their insurance covers the cost of rebuilding at current prices.

Liability insurance premiums have also increased in recent years, as several carriers exited the excess liability insurance business. Primary liability insurers are mitigating rising costs by increasing premium rates, deductibles and self-insurance limits. Many insurers are managing costs by implementing policy exclusions that may save property owners money in the short term but increase financial risk in the long term.

Insurance advisors can help property owners take a proactive approach to monitoring policy changes, conducting regular property assessments and calculating maximum probable losses in the event of a catastrophic event.

The dedicated commercial real estate team at CBIZ can help you optimize the valuation, insurance and tax strategies for your multifamily investment. Explore more resources and connect with a member of our team today.


This article includes input from John Rimar, Managing Director of CBIZ Valuation Group’s Real Estate Practice, and Greg Cryan, President of Southeast CBIZ Insurance Services, Inc. Their teams provide the initial and ongoing services needed to accurately assess and insure your real estate investments. 


Source:  CBiz

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Sales of self-storage properties in the U.S. hit $10 billion in 2022 – outstripping prior years, with the exception of 2021, when a single $3 billion sale in New York pushed the year’s total to $12.3 billion. Nationally, transactions involving 73.4 million square feet of space were completed in 2022, and the sector is drawing close attention from REITs and other investors.

“The U.S. self-storage sector demonstrated familiar vigor and confidence in 2022,” commented StorageCafe, which produced the report and provides storage unit listings across the U.S.

New York City led the nation with over $565 million in sales generated by 16 transactions involving 1.6 million square feet. The Bronx was the biggest contributor to this total, followed by Brooklyn, Queens and Staten Island, while Westchester County’s Mount Vernon also fared well.

Phoenix ranked second nationally, closing $195 million in 11 transactions. The wider metro Phoenix market also performed well.

The biggest surprise was the city of Ocala, FL, with a population of 60,000, that saw sales totaling $166 million for 23 transactions. “The fact that Ocala is reported to be the U.S.’s sixth fastest growing city will surely be stimulating the storage sector there,” the report noted.

Other cities in the top 10 for sales value were Brooklyn, Alexandria, VA, San Jose, Miami, Denver, Houston and Baltimore.

Houston led the state of Texas and the nation in terms of self-storage square footage bought and sold. The transactions involved 73.4 million square feet of space, with a total of 3.8 million square feet acquired in the city – “way more than in any other U.S. city,” the report commented. Austin and Dallas also made the top 10 list for square footage traded, as did two Oklahoma towns, Oklahoma City and Tulsa.

Cities in Florida also performed well, especially Miami, where a 69,000 square foot facility sold for $33 million, or $474 per square foot, followed by a $422 per square foot sale near Jacksonville.

In the rest of the country, Alexandria scored a top-five spot with a total sales volume of $114 million spread across four deals with a high of $331 per square foot. In Kensington, MD a 225,000 square foot facility was sold for $76 million or $339 per square foot.

Who is doing the buying? REITs took the top three spots among investors, StorageCafe noted. By amounts paid, Utah’s Extra Space Storage, New York’s Life Storage, California’s Public Storage, and Colorado’s National Storage Affiliates headed the list.

“Self storage is ranked as one of the best performing risk-averse sectors of commercial real estate, but suitable land for building new stores is now increasingly hard to find,” Doug Ressler, business intelligence manager at Yardi Matrix, says in prepared remarks. “The attention this real estate segment received from these companies [REITs] demonstrates how highly appreciated it has become, both to clients and to investors, a situation that is likely to continue.”


Source:  GlobeSt.

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In terms of sales volume, multifamily is the largest asset class in commercial real estate, followed by industrial, office, and retail, per data from Real Capital Analytics. The segment currently has a national vacancy rate of 6.7%, according to CoStar, which projects that rent growth will moderate during the next 12 months from 3.7% to 1.8%. Still, many investors are standing by and watching as interest rates rise and recession fears swirl throughout the country.

Though it’s impossible to predict the future, multifamily has historically been known as a relatively safe investment compared to other commercial property types. Apartments, for instance, fulfill an ongoing need in society (giving workers a roof over their head!) and provide the potential of rent income from various streams, reducing overall risk. I often recommend it as a starting place for beginning investors looking to learn the ropes and build a portfolio.

In this article, the third of the series, “Making Investment Decisions in Today’s Real Estate Market,” we’ll explore the advantages of multifamily investments. (See the first article and second article of the series). I’ll also break down some of the disadvantages you may find in this asset class, along with ways to decipher your risk tolerance as you move forward. Understanding these elements before you jump in can increase your chances of ongoing success.

Here are five factors to consider as you think about multifamily assets:

1. Know what multifamily is.

Any property that is designed for two or more households is considered multifamily. Think duplexes, townhouses, condos, apartment buildings, and the like. The number of units in these properties can vary substantially, ranging from two to 10, 20, 40, or more. If you acquire one of these buildings and move into a space, it’s usually called a live plus investment property.

Regarding loans, you may be able to take out a residential loan if you purchase a multifamily with four or fewer units and reside in one of them. For commercial purposes, the focus tends to be on properties with five or more units. At this stage, you’ll need a commercial real estate loan, which will have different requirements and terms than home loans.

2. Have the right team in place.

Before signing and closing on a multifamily property with five or more units, I always encourage investors to consider their bandwidth and area of expertise. How practical is it to manage 10 or more units? How will repairs be handled? Who will collect and monitor rent? How will you decide which renovations to make and what rents to list?

Herein lies the difference a strong team can make. You’ll want to know and work with players who are able to give you insider tips to get the returns you’re looking for (and even outperform the market if you play it right). Keep these professionals in mind as you build your network: investment sales brokers (full disclosure: this is my line of work), rental brokers, mortgage brokers, property managers, accountants, and attorneys.

3. Understand the pulse of your market.

Post Covid, we’re seeing an uptick in demand for residences with spaces to work, like built-in home offices. The trend could present an opportunity to purchase and reposition an existing property. Before diving in, check the local market. You don’t want to provide features that renters aren’t interested in. Even though work-from-home is a national trend, you could find that the neighborhood where you’re investing has workers that go to the office every day. Or they might be satisfied with foregoing the extra space to save on rent costs.

4. Evaluate your financials.

What are other properties in the neighborhood selling for? What rents are being charged? What do units down the street look like on the inside? Are tenants moving in—or is the neighborhood changing in other aspects?

Most investors check the cap rate before making a move. The cap rate is the income a property generates divided by its current market value. A higher cap rate typically signals more risk while a lower cap rate means the investment carries less risk.

5. Review your limits.

Every property will come with parameters regarding what you can do with it (and what you aren’t permitted to carry out). Check for rent regulation policies, which establish limits on rent adjustments from year to year. If you’re buying a property that only allows rents to be raised 5% every year, you’ll want to compare that to your debt service and other expenses to determine your return.

Rent regulation can vary from state to state, and even from one city to the next. In New York City, you’ll find rent stabilization and rent control, which limit how much landlords can ask for from tenants. States such as California and Oregon have implemented statewide caps on rent increases, limiting how much you can raise the amount that tenants owe each month. When buying in these areas, look for a higher return out of the gates to offset any rent limitations that are already established. If you’re interested in units that are free to be rented at market value, carry out due diligence and bring in a landlord tenant attorney to help with the process.

Overall, multifamily can serve as an incredible long-term investment. There are growth markets sprinkled in different areas of the country where rents are increasing from year to year. For best results, make sure your capital and your investor expectations align with your business plan.


By James Nelson.  I am also a serial real estate investor and have launched two real estate funds with total capitalizations of over $350 million. Now this far into my career, I find great joy in helping others achieve real estate success. I provide regular training through my podcast and Wall Street Journal best-selling book, The Insider’s Edge to Real Estate Investing (McGraw Hill Education 2023) which I co-authored with my writing partner Rachel Hartman. I give lectures at Columbia, Fordham, NYU, Wharton, and my alma mater Colgate, and share videos and resources at www.jamesnelson.com.


Source:  Forbes

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The Live Local Act will significantly change how real estate is developed in Florida, Miami land use attorneys said at a recent webinar.

Held May 4, the webinar was hosted by Bilzin Sumberg partners Anthony De YurreSara Barli Herald, and Carter McDowell. During the hour-long event, the attorneys urged developers to gather with their teams, consult with municipal planning staff, and take another look at their planned projects.

“This opens up a whole area of potential development that was not there before,” said Herald, who specializes in affordable housing and tax credits. “There are a lot of changes. This is probably the most significant land use change in decades.”

De Yurre, who specializes in zoning and complex land use, added “This is the Magna Carta.”

Also known as Senate Bill 102, the legislation was signed into law in late March, effective July 1. Among other things, the bill grants developers the ability to build the maximum amount of units a local jurisdiction allows – and at the maximum allowed height within a mile of a project’s site – on almost any property zoned commercial, industrial, or mixed-use. And that developer can obtain those rights without a public hearing.

The catch is that 40% of those units must be reserved for households earning up to 120% of a county’s area medium income (AMI) for the next 30 years. (A developer can seek the same rights with just 10% of the units reserved for affordable housing, but that will require approval from the jurisdiction’s elected body.)

In addition, SB 102 does not destroy other zoning rights reserved by states such as setbacks and parking requirements. However, the law states that cities and counties must consider reducing parking requirements for affordable projects built within a half-mile of a transit stop.

Besides zoning variances, the code grants developers property tax breaks if they constructed or substantially rehabbed a building in the past five years in which at least 71 units are affordable housing. If those units are reserved for people who earn between 80% to 120% AMI, the landowner is entitled to a tax reduction of 75% for those apartments. If the units are for households earning below 80%, a landlord can secure a 100% reduction on a property tax bill. The catch is rents must conform to HUD rent income restrictions or 90% of an area’s market rate, which ever is less, for the next three years.


Source: SFBJ

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It’s no secret that the commercial real estate industry is struggling.

The Federal Reserve has hiked interest rates to their highest levels since 2007. The collapse of First Republic Bank last week represented the second-largest commercial bank failure in American history.

But, through all the tumult, there may be opportunities for investors looking to take advantage of the distress, panelists said at Commercial Observer’s State of Commercial Real Estate forum, hosted in partnership with L&L Holding Company.

JPMorgan Chase’s decision to buy First Republic, at the behest of federal regulators, certainly weighed on the minds of the public and private sector experts gathered at 222 Broadwaythe morning of May 2. But not so for Andrew Farkas, CEO of Island Capital Group.

“Now that you’re all distressed investors, this is good,” Farkas said during a fireside chat. “Don’t be afraid of defaulting loans. Don’t be afraid of down markets.”

While “a recession is never really good for anything,” Farkas said that tough markets like today’s are when “fortunes are made,” because investors can buy on the cheap. A slowdown in the debt markets also could encourage sellers to provide financing for acquisitions themselves, he added.

Still, the turbulence in the banking sector is another concern in a long list of problems facing New York City’s office market. A “wave of defaults” looms for office property debt, Richard Barkham, CBRE’s global chief economist, said in the opening panel, titled “2023 Economic Outlook: Analyzing Key Stats & Data.

Office property values have dropped roughly 30 percent since the pre-pandemic peak of the market, and those buildings are unlikely to recover all of their value in the next five years, Barkham added.

But not every office building is in trouble. High-end, trophy properties are still seeing strong attendance, Jamil Lacourt, director of construction at L&L Holding, said in the “Office 2023: Where Occupier Innovations & Workplace Demand Meet” panel. Buildings that offer tenants data on their carbon footprint are more attractive to firms that are required to track their sustainability commitments, said Linda FoggieCitiGroup’s global head of real estate operations.

Landlords can also use data to measure how tenants use amenities and what types of benefits keep renters coming back to their buildings, said Chase Garbarino, founder of workplace experience software company HqO. Panelists were joined by Colliers’ Michael Cohen and the Rockefeller Group’s Bill Edwards.

“The market environment today is creating a really good opportunity for the larger commercial real estate market to be more data-driven,” Garbarino said. “Commercial real estate does a better job than any industry in assessing the financial viability of their customers. And they probably have the least understanding of how people use their product.”

Buildings that can’t survive as offices could be converted into housing, if the property is the right size, zoned properly and empty of tenants, said Michael Pestronk, co-founder of real estate development firm Post Brothers.

“You need a lot of stars to be aligned in order to convert an office building,” said Shimon Shkury, president and founder of Ariel Property Advisors, in the “Investment Sales, Conversions & The Rise of the Rental Market” panel. “The city and state, if possible, have to think about subsidies and help people that want to come here and convert office buildings.”

Gov. Kathy Hochul proposed a tax incentive to turn office space into housing in her initial budget in February, though most of the governor’s housing agenda was cut during budget negotiations. But Melissa Román Burch, CEO of the New York City Economic Development Corporation, said legislation to support conversions could be passed before the legislative session ends in June.

Not all commercial real estate properties need a complete redesign. Multifamily properties remain a strong asset class as rising rents outpace the impact of higher interest rates on owners’ bottom lines. (Farkas said he was “all-in” on single-family rentals. “Single-family home rental has been unbelievable,” Farkas said. “And 10 years ago, I told everybody they were going to lose their ask. Wrong!”)

Life sciences space and data centers are also still in demand, particularly thanks to the exponential growth in the amount of data collected by companies that utilize artificial intelligence technology, Rob Harper, head of real estate asset management in the Americas at Blackstone (BX), said in the panel “A Deep Dive Into the State of CRE Market: Paving the Road to Stabilization.”

Last, it was on to retail.

Retail leasing activity has started to trend up slightly, said Fred Posniak, senior vice president of leasing at Empire State Realty Trust. That could be because the retailers that survived the pandemic represent a stronger crop of businesses, Andrew Mandell, vice chairman at Ripco Real Estate, said in the “What’s Next for Retail: The Innovative Strategies Driving the Retail Revival” panel.

Still, retail is far from immune to inflation and the higher cost of debt, which can make it more difficult for retailers to raise funds to expand to new locations, Posniak said.


Source:  Commercial Observer



If you’ve been dismayed by this year’s apartment rent growth trajectory, brace yourself for 2024. Next year, multifamily rent growth will clock in at 0.8%, according to a new forecast by Markerr, compared to this year’s relatively robust 4%.

The 2024 prediction marks the lowest rent growth since 2020, or shortly after the pandemic began.

But because markets reflect regional differences, a closer look at different areas is important. For example, in 2023, Sunbelt and Tertiary markets are expected to outperform the top100 average, while Coastal and Rustbelt areas will underperform the same group. But within a year, the Rustbelt and Tertiary markets are expected to outperform the top 100 average.

At the top of the MSA forecasts for this year is Albuquerque which is projected to climb to 7.4%, followed by Wichita at 7.3%, Tampa at 7%, North Port, Fla., at 6.9%, Spokane at 6.9%, El Paso at 6.5%, Tulsa at 6.4%, Ogden, Utah, at 6.2% and Palm Bay, Fla., at 6.1%. Then, come 2024, the MSA forecasts shift dramatically with Augusta, Ga., in the lead at 4.1%, followed by Albany, N.Y., at 3.9%, Syracuse at 3.8%, Baton Rouge at 3.8%, Sacramento at 3.6%, Grand Rapids at 3.4%, Jacksonville at 3.1%, Chattanooga at 3.1%, Cleveland at 3% and Harrisburg, Penn., at 3%. And the top10 markets from 2023 are expected to fall to an average rank of 73 out of 100 in 2024.

When MSAs are calculated on a two-year compounded growth basis, Winston-Salem, N.C., North Port, Fla., and Chattanooga are forecast to lead the top 100 markets at 8.6%, 8% and 8 % respectively.

Winston-Salem wasn’t in the top markets in either 2023 or 2024. But it’s expected to jump into first place with the largest contributors to its rent growth being home prices, multifamily permits, job growth and occupancy rate. According to Markerr, “Said differently, home prices, multifamily permits, job growth and occupancy rate are driving the forecast higher while median gross income is forcing the forecast lower.”

In contrast, New York City was in the bottom 10 of the compounded two-year growth forecast at -0.4% because of unfavorable conditions of population growth, historical multifamily rent growth and median gross income.


Source:  GlobeSt.


For the past 12 to 18 months, office building owners have been energetically implementing new tactics to attract tenants back to their buildings as the pandemic becomes less impactful.  One growing trend among owners is hiring outside vendors to provide added-value building amenities for tenants, such as conference room services, fitness centers with nutritionists, and unique food and beverage offerings.  One of our landlord clients even enters each tenant traveling through the building lobby into a lottery for NFL tickets. These new amenity relationships, however, are complex and in some cases do raise certain legal issues.

In certain cases, these amenity operations may be structured as leases or license agreements, where the vendor bears all operating expenses and retains the revenue from the business–other than rent or fees payable to the building owner. However, in many cases, the structuring of these arrangements may find office tower landlords outside their comfort zone. Rather than using traditional lease documents to seal these deals, these arrangements are generally documented as management and consulting arrangements, akin to those used by hotels with their providers of spa and health services, restaurants, and catering.

In fact, landlords may find themselves negotiating with a counterparty that expects to apply provisions typically associated with the hospitality industry, which may concern a traditional office landlord. For instance, a hotel owner often gives an in-house manager a high degree of discretion, authority, and control to run operations at the owner’s expense. If an office vendor expects to mimic this structure, landlords will have to determine their comfort level with embarking outside their usual rental practices. Other vendors without hotel experience may have different expectations. So, landlords would be wise to expect a range of negotiation approaches from different vendors.

Some points to consider:

  1. Structure. Building amenity arrangements are sometimes structured as leasing relationships or even licenses—but not always.  A management or consulting arrangement is generally preferable if the vendor does not bear responsibility for its own expenses or retain the revenues, as a tenant or licensee would. Often the economics will consist of a fee paid by the landlord to the vendor, unlike rent that flows in the other direction to the building owner. Since no leasehold or other real estate interest is created, these relationships are theoretically easier to terminate.
  2. Employees. A building owner may expect the vendor to run the operation using the vendor’s own employees. However, some vendors may have the opposite expectation – that the building owner will be the employer. They may be accustomed to merely supervising and directing the employees of a third party, as they would with a hotel manager. However, unlike in a hotel, an office building management team may have little experience hiring employees for these services. This issue can be problematic if neither side is willing to assume employment obligations.
  3. Control Over Cash. As with any business operation, the owner or vendor must pay expenses from specifically designated funds. The parties should determine who can access bank accounts and cash and provide accounting support for all expenses and revenue. Regular financial reporting will be necessary for vendors paid based on revenue or profits. The parties should decide who is in the best position to provide this.
  4. Operating Expenses. Similarly, the parties will need to determine who bears the cost of these operations and the obligation to cover any possible funding shortfalls. In a lease, the answer is simple: it’s the tenant. But in a management or consulting context, a vendor may see its role as simply managing or advising an operation that draws on the owner’s funds. If that is the case, an annual budget process can serve as a mechanism to limit the vendors’ latitude in spending money that isn’t theirs.
  5. Concept and Intellectual Property. Is the vendor creating a new concept? If so, the parties must determine who owns and controls it. For example, the building owner will likely want to own it to ensure a competitor does not replicate it and that the owner can use it in other locations within its portfolio, with or without the vendor. Or perhaps the owner plans to implement a vendor’s pre-existing branding concepts, in which case the vendor may expect to control the concept. The agreement will need to address the question of who owns the branding concept and any limits on its replication.
  6. Building Rules and Regulations. The vendor should expect to be obligated to comply with insurance requirements and other standards, just as building tenants and contractors are. Amenity vendors may not be familiar with the coordination necessary with office building management that will arise daily, whether related to elevator usage, HVAC, access, loading docks, trash, or parking.  An agreed-upon percentage of the cost of building services should be allocated to the amenity’s operating expenses.
  7. Privacy. Amenity vendors may have access to personally identifiable information of building tenants and outside customers through their regular operations. Landlords should consider whether their vendors should comply with existing building policies or develop custom ones. Also essential is determining if they will be permitted to use the data for marketing purposes during or after the term of engagement.
  8. Tenant Expectations. The building owner may want to ensure that the offerings and pricing are appropriate for the building and commensurate with its tenant mix. In addition, various amenities may be located adjacent to each other and require coordination and integration, whether physically, such as seating areas, or conceptually, in terms of operational coordination and cross-promotions.
  9. Liquor License: Office building owners likely have never contemplated liquor licensing requirements within their buildings. Liquor licensing requirements vary from state to state and city to city and generally require extensive background checks. Landlords will want the counsel of a local attorney specializing in liquor licensing to ensure compliance before the first drop is poured.
  10. Key Personnel:  Consider whether a vendor’s principal employee or owner, such as the chef, is critical to the success of this operation. If so, the agreement should specify how much time the individual must dedicate to the facility and the ramifications of failure to do so.
  11. Franchise. It may come as a surprise to people outside the hotel and restaurant industries that if a vendor licenses its brand to a third party in exchange for a license fee and with some level of control over the operations, the contract structure could be deemed an inadvertent franchise agreement, thereby implicating onerous federal and perhaps local statutes and regulations. This could result in significant legal liability, including potentially voiding the agreement as illegal and a refund of fees paid. This can only be avoided by either complying with the onerous documentation and other requirements of the franchise statutes, determining if an exception to the statutes is applicable, or restructuring the deal itself.
  12. Termination Rights: Unlike standard leases, management contracts commonly have “no-cause” termination rights for convenience (perhaps with payment of a termination fee), termination on sale of the property, and/or termination for failure to hit certain revenue thresholds or other so-called performance tests. The parties should consider whether these are appropriate to include in their agreement.


Source:  GlobeSt.