Apartment Rents Forecast To Grow 0.8% Next Year

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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.

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Those New Office Building Amenities Come With Legal Risks

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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.

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Public Storage Chair: Self-Storage Sector Will Be ‘Recession Resistant’

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Public Storage Chair Ron Havner received an award as a REIT Visionary at NYU SPS Schack Institute of Real Estate’s annual REIT Symposium, held in NYC this week.

Havner has spent the past 25 years building Public Storage—the company’s first self-storage outlet was called Private Storage—into a leading self-storage sector REIT.

Public Storage (PSA), based in Glendale, CA, develops, owns and operates more than 2,800 self-storage facilities in the US, encompassing more than 200M SF in 38 states. The REIT also owns 35% of Shurgard Self-Storage SA, a European company it is preparing to spin off. PSA has a market cap estimated at more than $54B.

Last year, PSA acquired more than 44 self-storage facilities—primarily in one- to two-property deals—encompassing more than $500M in purchases, according to a regulatory filing. The REIT has been executing an acquisitions strategy of growing economies of scale from areas including third-party property management.

Before the award presentation, Havner, in a conversation with Adam Emmerich, a partner at Wachtel, Lipton, Rosen & Katz, described the development of the self-storage sector, which was originally highly fragmented and dominated by mom-and-pop shops.

“It doesn’t take a rocket scientist to build a self-storage facility. They’re easy to build and easy to operate—although it’s much harder to operate more than 2,000 of them,” Havner said.

“Our margins are 82% and maybe a mom-and-pop is 62%. Even at 62% it’s a great business,” he said. “There are no tenant improvements. You sweep up the floor and change the light bulbs. It just pukes cash.”

When Public Service first began accumulating self-storage properties two decades ago, the company had plans to adapt those facilities to other uses that were thought to be more profitable, including offices, apartments and parking garages.

“It turns out the cash flow from self-storage has outpaced all of those alternative uses, even apartments,” Havner said. “Self-storage and manufactured housing are the two best food groups in real estate.”

Havner said the self-storage sector is “ripe” for technology. Technical initiatives PSA introduced during the pandemic have slashed nearly a quarter of the company’s operating expenses, he said.

“We pioneered a lease online concept called e-rental. Now, 50% of our business is e-rental,” Havner said. “You don’t have to talk to anyone, you’re given an access code.”

“You go online, give us a credit card number, show up at your unit, open the door and the lease agreement, insurance agreement and lock are waiting for you,” he explained.

PSA also introduced a Public Service app that lets you access the property by holding up a smartphone.

When Havner stepped down from the dais with his award, we asked him how the self-storage sector will fare in the developing economic slowdown. Can he reassure investors that self-storage is recession-proof?

“I don’t think self-storage is recession-proof, I think it’s recession-resistant,” Havner told Globe St.

During the Great Recession that followed the GFC, the sector did not see a significant drop in the number of people leasing storage units, he said.

“During the GFC, we saw a reduction in demand of 2% to 3%. Look at the operator yields for the Great Recession and you’ll see that it had a di minimus impact on their profit,” he said.

If we have a recession this year, Havner told us he expects moving activity to slow down but does not expect a lot of people to give up their storage space—and many may increase it.

Havner suggested people may opt for smaller apartment units as they tighten budgets, ending up requiring more storage space.

“They may downsize their apartments and put more stuff in the storage units. If you go to a two-bedroom apartment and you need three [bedrooms], people typically put more stuff in storage,” he said.

“Self-storage is a space substitute. If you think of the decision, it’s about I need space,” Havner said. “It’s about, I need to put my stuff somewhere. I need to rotate my clothes, to store my winter clothes, then my summer clothes.”

Public Storage was the largest player in the self-storage sector, with an estimated 9% market share, in February when it made an unsolicited $11B takeover bid for Life Storage (LSI).

LSI rejected the bid and instead agreed to be acquired this month by Extra Space Storage for $12.4B. The deal creates a new industry leader with an estimated $47B in assets, including more than 3,500 self-storage facilities encompassing more than 264M SF.

 

Source:  GlobeSt.

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Florida Bill Restricting Foreign Real Estate Purchases A ‘Slippery Slope,’ Brokers Say

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A proposed bill in Florida that would dramatically restrict investment in real estate from Chinese buyers and those from other communist countries could have ripple effects on the rest of the foreign buyer market, experts say.

Florida lawmakers are advancing controversial House Bill 1355, which would ban Chinese nationals from purchasing real estate anywhere in the state. Chinese businesses and people who live in China and aren’t U.S. citizens or residents and who currently own real estate in Florida would not be able to buy additional property after July 1, if the bill becomes law as it is currently written.

They would also have to register their existing ownership of such properties with the state, which some critics have compared to Hitler’s 1938 decree requiring all Jews in Germany and Austria to register their properties.

The amount of Chinese investment in South Florida real estate has dwindled since before the pandemic. But Chinese investors still invest in commercial real estate, such as shopping centers and office buildings, and parents continue to buy condos for their children who attend colleges and universities in South Florida, brokers say.

“As it stands, the Florida bills could make it difficult for families to purchase homes for students studying in Florida,” said Ana Bozovic, founder of real estate data firm and brokerage Analytics Miami. “Is that something we really want to restrict?”

Rep. Katherine Waldron, a Democrat who co-sponsored the bill, said it would likely be changed to carve out Chinese students, the Miami Herald reported.

Waldron said, “We’re not trying to cause anybody harm who lives here.” 

The bill would also ban foreign nationals from Russia, Iran, North Korea, Cuba, Venezuela and Syria from purchasing agricultural land in the state. And it would ban foreigners from those countries from buying land within 20 miles of a U.S. military installation or critical infrastructure facility.

“I understand restricting farmland for purposes of national security, but I think we are on a potentially slippery slope of defining anything and anyone Chinese as potentially insidious,” Bozovic said. 

Lawmakers across the country have sounded the alarm on foreign influence over agricultural production and national security in the U.S., but a Forbes article published in March states that 18 other countries own more agricultural land nationwide than China.

In Florida, foreign nationals own about 6 percent of all private agricultural land, according to the state’s analysis of HB 1355. The analysis, published on Wednesday evening, said that the bill could have a major impact on property ownership because it would allow the state to “seize and sell illegally owned property.”

It’s important to note that the proposed law would likely not have an effect on foreign investors participating in the federal EB-5 real estate investment program, unlike what other publications have reported.

“The proposed bill should not have any effect on the EB-5 program, since the EB-5 investor invests in an entity that usually makes a loan to a business or project, which may or may not be real estate,” said attorney Ronnie Fieldstone, a partner at Saul Ewing in Miami. 

Craig Studnicky, CEO of the brokerages ISG World and Related ISG, agrees with the restrictions on land purchases near military installations and infrastructure facilities, but said the ban on all real estate deals for Chinese investors is going “too far” and “highly discriminatory.”

Several years ago, brokers were known to send real estate agents to China to sell South Florida condo developments — Studnicky’s ISG included. The brokerage partnered with a Chinese group in 2015 to court Chinese buyers, even adding a Mandarin-speaking member to its staff.

But that effort from South Florida brokers died down, and even major development sites purchased by China City Construction in Brickell and Miami Beach have since been sold.

Only seven properties in Miami-Dade County are owned by people or entities with Chinese mailing addresses, according to The Real Deal’s analysis of property appraiser information. That’s just a small fraction of the properties entirely or partially owned by Chinese investors. Many foreign investors will typically create a company in the U.S. and use that company to buy real estate, with a U.S. mailing address.

Chinese buyers accounted for 6 percent of all foreign U.S. residential real estate purchases from April 2021 to March 2022, according to the National Association of Realtors. Buyers from China, Hong Kong and Taiwan spent $6.1 billion on those deals.

Jason Damm, an assistant professor at the University of Miami’s business school, doesn’t think the restrictions would affect the real estate market. Latin Americans make up the majority of foreign investors in Miami real estate.

“It would be difficult to imagine it’s going to make a huge dent in our market,” Damm said. “It’s more of a political statement than anything.” 

Daniel Ettedgui, owner of Miami Beach-based lender and mortgage brokerage firm Financial Triangle, flew to Tallahassee on Wednesday to speak out against the proposed legislation, drawing parallels to Nazi Germany and calling the bill racist.

Ettedgui, who moved from France more than 30 years ago, expects the proposed law would send a message to people from other Asian countries to avoid investing in Florida real estate, and it could also discourage European investment.

“If you do that today with the Chinese, what’s next?” he said. “History is repeating itself.”

 

Source:  The Real Deal

 

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Ten Commonly Overlooked Investment Opportunities In Commercial Real Estate

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As the stock market continues to show volatility, many people are looking into other types of investment opportunities.

Compared to stock investing, commercial real estate has the potential to provide tax advantages and serve as a safeguard against inflation and market fluctuations.

Fortunately, there are many ways to invest in commercial real estate, and you can tailor your approach to fit your comfort level, budget and lifestyle—all while creating a dynamic portfolio.

Let’s look at 10 of the most commonly overlooked investment opportunities in commercial real estate.

1. Flex Warehouses

Industrial commercial real estate currently offers some of the best returns on the market. As organizations continue to work out complex supply chain issues, flex warehouses are becoming a crucial tool.

This type of warehousing offers a combination of storage and office space. It’s a way to deliver versatility for companies that need to store inventory and have a customer-facing area.

2. Parking Lots

With more than 282 million cars on U.S. roads, finding a parking spot is often a challenge. Parking lots are a low-maintenance commercial investment, and you can choose to operate the lot or lease it to a third-party operator. Dynamic pricing can capture the ebb and flow of demand to increase the return on investment.

3. Real Estate Investment Trusts

Real estate investment trusts, or REITs, are a great way to start off in commercial real estate investing. They allow you to skip the hands-on approach of dealing with a property.

Investing in a real estate investment trust (REIT) can offer a reliable source of income. Similar to real estate stocks, investors can buy and sell REITs on the market.

4. Self-Storage

Self-storage has outperformed other commercial real estate sectors for many years. Yet I see many people still overlooking self-storage. These properties can offer consistent, good returns even during downturns and recessions.

Remember to think strategically about the location, for this is critical when opting for this type of investment. In some areas, investors have seen some retraction due to oversaturation.

5. Cell Towers

Many people, especially those new to commercial investing, don’t realize that cell towers are a prime opportunity. They can become a source of steady income over time. As cell service expands into rural areas, investors can provide a much-needed service and a long-term return to their portfolios.

6. Senior Living Facilities

Senior living facilities are another commonly overlooked commercial property. As the number of U.S. adults 65 and older increases, more people are looking for long-term living in senior-specific residences. This creates a great investment opportunity for senior living facilities.

7. Mobile Home Parks

A growing number of homeowners are turning to flexible and budget-friendly mobile homes. And mobile homeowners have to park them somewhere. These areas can become a reliable source of passive income for investors. Lot rates have also increased in many markets recently, so now may be the perfect time to invest.

8. Commercial Multifamily Units

While residential multifamily properties only include two to four units, commercial multifamily properties include five or more. The increase in units can provide a larger stream of income, which could make this real estate opportunity a star performer in your portfolio.

Before investing in a commercial multifamily property, remember to do your due diligence. For instance, check the financial audit and property market reports, determine how the property will be managed and review service contracts, such as trash removal and lawn care.

9. Coin-Operated Laundry Shops

Getting into commercial real estate doesn’t always mean financing six-figure properties immediately. I find that coin-operated laundries are a simple way of investing in real estate for beginners.

One option is to convert an unused or overlooked space into an existing property. With this option, you can start small and even finance or lease equipment to avoid high out-of-pocket costs.

10. Undeveloped Land

All commercial real estate properties involve land. But sometimes, the investment opportunity is undeveloped land.

Investing in undeveloped land can be a little daunting if you’re unsure what your next step will be. Many commercial brokerages offer consulting or development partnerships to help you get the most out of your commercial land investment.

Adding Depth To Your Investment Portfolio

Investing in one or more forms of commercial real estate is an excellent way to improve your portfolio, and it can provide you with the versatility to withstand market and economic volatility.

A good tip is to explore commonly overlooked investment prospects, as they can offer entry points and create the right mix for your portfolio. One of the best ways to help you connect with these types of opportunities is by partnering with a brokerage.

 

Source:  Forbes

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Sperry Commercial Global Affiliates | RJ Realty’s Ron Osborne Closes Two Property Sales Totaling $7.55 Million

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Ron Osborne, Managing Director/Broker of SperryCGA | RJ Realty, negotiated the sales of two properties – an office property and a boat/auto dealership – totaling $7,550,000

The first transaction included the sale of the 911 Building (pictured above), a 25,000-square-foot office building located at 911 E Atlantic Blvd in Pompano Beach. The property was in contract numerous times with potential owner/users and investors, but the ultimate buyer was JSA 911 POMPANO LLC, a group affiliated with Architect Yuri Gurfel who is well known for his multifamily projects in Pompano Beach. The new owners’ 2–3-year plan is to build approximately 60 multifamily units on the site. JSA 911 POMPANO LLC paid $3.6 million for the property. The seller, 911 Atlantic LLC, or an affiliated company held a short-term 50% mortgage. The transaction closed March 30.

1771 S State Road 7The second transactions included the sale of 1771 S State Road 7 in Ft. Lauderdale, a closed boat/auto dealership, for $3,950,000, marking a 38% gain in less than two years. The property last sold in June 2021 for $2.65 million to 1771 HOLDINGS LLC, which Osborne also negotiated. The seller never moved into the building due to internal issues. Osborne sourced a buyer at full asking price within days of putting the property on the market, going under contract with ELEVATOR CONSTRUCTORS LOCAL 71 HOLDING CO INC and closing in under 45 days. The transaction closed March 24. The buyer was represented by Gus Bergamini of The Keyes Company.

Ronald Osborne-SperryCGA RJ Realty“The market is a shifting from a Seller’s market to a market-in-equilibrium and depending on future interest rate increases, it could shift to a Buyer’s market,” commented Osborne. “Demand is high for all asset classes and certain property types that are harder to locate and in demand and are trading quickly at top values like the 1771 S State Road 7 property.”

Osborne also commented that properties that have loans coming due in the next 12 to 18 months will have a harder time refinancing as interest rates have increased dramatically since March of 2022 and lenders are being more conservative with higher debt coverage ratios and lower loan-to-value ratios.

“Many property owners do not have the required funds to pay down their loans and will need to consider all options including selling,” explained Osborne. “It is better to sell now than later if this becomes a Buyers’ market as it did during the savings and loan crises or the last recession from 2007 to 2009. The properties values will adjust accordingly.”

 

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Live Local Act: Top 3 Zoning and Land Use Benefits

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More Density, More Height and Less Bureaucracy

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The Live Local Act (“Live Local” or the “Act”) makes unprecedented changes to zoning law that impact and limit local government power. The Act requires counties and municipalities (“Local Government”) to administratively approve multifamily and mixed-use residential projects as permitted uses in any area zoned commercial, industrial, or mixed-use so long as 40% of the residential units are restricted as “affordable” for at least 30 years (a “Preemption Project”). In mixed-use projects, at least 65% of the total square footage of the project must be used for residential purposes to qualify as a Preemption Project.

Not only does the Act expand the areas where affordable multifamily and mixed use developments are statutorily permitted by right without a public hearing, but it also provides unit density and building height benefits for Preemption Projects as summarized below:

Preemption Project Maximum Unit Density: Preemption Project unit density is permitted to the maximum currently allowed unit density for residential development within the Local Government’s jurisdiction. For example, if the maximum unit density in the applicable jurisdiction is 500 units per acre, then the Preemption Project is allowed that same unit density regardless of the maximum unit density that would otherwise apply to that location.

Preemption Project Maximum Height: Local Government cannot restrict the height of a Preemption Project below the highest currently allowed height for a commercial or residential development located in its jurisdiction and within one mile of the Preemption Project, or three stories, whichever is higher.

Preemption Project Approval Process: Critically important, a Local Government cannot require a proposed Preemption Project to obtain a zoning or land use change, special exception, conditional use approval, variance or comprehensive plan amendment for building height, zoning, or densities permitted by Live Local. Further, Live Local also requires that Preemption Projects be approved administratively, without any further action by the Local Government, so long as the development (1) satisfies the Local Government’s land development regulations for multifamily developments in areas zoned for such multifamily use and (2) is otherwise consistent with the comprehensive plan, except of course for the preempted items of unit density, height, and land use.

Other Considerations:

• Beyond the unit density and height as per the Act, in order to obtain administrative approval, Preemption Projects must still comply with Local Government regulations, including but not limited to parking requirements, setbacks, and floor area limitations. Notwithstanding, the Act also requires a Local Government to consider reducing parking requirements for Preemption Projects located within one-half mile of a major transit stop, so long as such major transit stop is accessible from the development.

• While a Local Government is not required to follow the Live Local Act if a project contains less than 40% affordable units, a Local Government may still elect to use the Live Local Act to approve the development of affordable housing, on any parcel zoned for commercial or industrial use so long as 10% of the units in the project are affordable. This provision also applies to mixed-use residential projects that meet the 10% affordable requirement. Importantly, the 10% affordable project language of the Live Local Act is self-executing and does not require a Local Government to adopt any ordinance or regulation before approving a 10% project under the Act.

How to Qualify as “Affordable” Under the Act

Live Local preemptions are mandated only for those projects with at least 40% of the project’s residential units as “affordable” for a minimum of 30 years. “Affordable” is defined in Section 420.0004(3), Florida Statutes, as monthly rents or monthly mortgage payments including taxes, insurance, and utilities that do not exceed 30% of that amount which represents the percentage of the median adjusted gross annual income for the households defined as: (1) extremely-low-income; (2) low-income; (3) moderate-income; or (4) very-low-income.

These “affordable” housing categories, are defined as:

“Extremely-low-income persons” means a household with a total annual household income that does not exceed 30% of the median annual adjusted gross income (“AMI”) for households within the state. It should be noted that the Act provides that the Florida Housing Finance Corporation may adjust this amount annually by rule to provide that in lower income counties, extremely low income may exceed 30% of AMI and that in higher income counties, extremely low income may be less than 30% of AMI.

“Very-low-income persons” means households with a total adjusted gross annual household income that does not exceed 50% of the AMI for households within the state, or 50% of the AMI for households within the metropolitan statistical area (“MSA”) or, if not within an MSA, within the county in which the person or family resides, whichever is greater.

“Low-income persons” means a household with total adjusted gross annual income that does not exceed 80% of the AMI for households within the state, or 80% of the AMI for households within the MSA or, if not within an MSA, within the county in which the person or family resides, whichever is greater.

“Moderate-income persons” means a household with a total adjusted gross annual income not exceeding 120% of the AMI for households within the state, or 120% of the AMI for households within the MSA or, if not within an MSA, within the county in which the person or family resides, whichever is greater.

The Act’s changes aim to significantly reduce the time (and related expense) associated with the entitlement process of qualifying projects. Allowing Preemption Projects in commercial and industrial areas has the potential for creative utilization of these properties in ways previously not possible.

 

Source:  Bilzin Sumberg

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Development In Every CRE Sector Is Slowing Except Multifamily

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Looking out to 2024, a recent Marcus & Millichap report expects commercial real estate development to slow, based on “elevated” interest rates.

Additionally, construction materials costs remain elevated on a historical basis (up 33.5% above pre-pandemic levels), despite a retreat in shipping costs and the average prices of steel and gasoline in recent quarters. Wage growth was up 5.8 percent in 2022.

Projects that have already broken ground or locked in financing are moving forward, but banks have been executing fewer construction loans relative to previous years. Lenders are tightening their underwriting in response to increased risk exposure. Loans that are secured loans are at rates well-above measures recorded prior to the health crisis.

Industrial sector development is needed, but it slowed in Q4 by 40% compared to the first three quarters and further slowing is likely. Amazon’s decision to halt its ambitious warehouse starts for the next three years is another indication.

The total amount of square footage set to be delivered for both office and retail properties is projected to increase year-over-year in 2023, but new proposals in these sectors are showing signs of deceleration.

“The limited competition from new supply should aid performance metrics at existing retail and office properties,” according to the report.

The apartment sector is an outlier, as it continues to see record inventory growth, according to the report – completions in 2023 are expected to reach the 400,000-unit mark for the first time in over 30 years.

Marcus & Millichap finds that multifamily project starts during February of this year reached the second-highest monthly measure in three decades.

 

Source:  GlobeSt.

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Sale-Leaseback Is Quickest Path to Debt Restructuring, Panel Says

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Sale-leaseback deals are offering property owners a stable, long-term solution to restructuring their debt when the lending window for refinancing mortgages has been slammed shut.

Increasingly, sellers are flocking to long-term net lease deals as the first step to cure their balance sheets, using the proceeds from the sale-leaseback to jump-start their debt restructuring, according to a panel of experts at the GlobeSt. Net Lease Spring 2023 conference in NYC this week.

“Sale-leasebacks are uniquely positioned to recapitalize existing mortgage yields,” said Bryan Huber, director of SAB Capital’s Sale-Leaseback Group.

For companies that still want to do deals but find the current cost of debt prohibitive, sale-leasebacks offer a less expensive, alternative form of borrowing that can close faster, the experts said. Sale-leasebacks deals also don’t require back-end balloon payments that often come with traditional financing.

Ross Prindle, global head of Kroll’s Real Estate Advisory Group, said buyers are using their resources, including financing and cash deals, to make sale-leaseback transactions more attractive to sellers by making it less expensive to execute the deals.

“The winners will be [the buyers] who do the best underwriting,” Prindle said.

 

“Eight is the new six in cap rates,” said David Grazioli, president of US Realty Advisors. “The cost to capitalize these rates is making a 20-year deal with 3% bumps look a lot better.”

According to Grazioli, an increasing number of sellers are opting for sale-leaseback deals because they have an urgent need to rehabilitate their cash flow and can’t wait for cap rates to compress again.

However, several experts on our panel warned that buyers must take care to make sure sellers actually are creditworthy before they ink sale-leaseback deals, which are extending to terms as long as 25 years in the current environment.

During Tuesday morning’s State of the Industry roundup session, Gary Baumann, CEO of NJ-based ARCTRUST Properties said the current credit climate is creating opportunities for sale-leaseback transactions.

“Where the credit climate is creating an advantage for all of us now is that it’s opening the window for the sale-leaseback market, larger than it’s been for a long time,” Baumann said. “Because of what’s happening with the banks, we’re seeing opportunities to acquire net leases that weren’t there before.”

On the opening night of our annual Spring Net Lease conference, W. P. Carey announced the largest sale-leaseback transaction in the NYC-based company’s 50-year history, a $468M sale-leaseback of a portfolio of four pharmaceutical R&D and manufacturing campuses in the Greater Toronto Area (GTA).

The portfolio represents the lion’s share of the global operations of Apotex Pharmaceutical Holdings, the largest generic drug manufacturer in Canada.

“This deal would have been a lot tougher to do when there were $200m to $300M CMBS deals available that could close simultaneously,” Gino Sabatini, head of investments at W.P. Carey, said during our sale-leaseback panel discussion.

According to Zachary Pasanen, managing director, investments at W. P. Carey, sellers are flocking to sale-leaseback for a less-expensive cost of capital and extra liquidity during tough times. A sale-leaseback offers a “naturally accretive” alternative funding source, Pasanen told GlobeSt. last month.

Holders of fungible, mission-critical real estate that are willing to sign a long-term lease with market or better rental increases built in can establish an underlying rate that lets them monetize those assets and is inside the going long-term borrowing rate, Pasanen said.

 

Source:  GlobeSt.

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February’s CRE Sales Volume Up Nearly 34% From January

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Retail led an unbalanced sales volume month in February for commercial real estate’s asset classes, according to a report last week from Colliers.

Overall, February’s volume totaling $25.1 billion was up nearly 34% from January sales levels, an above-average month-to-month increase.

Retail was the most heavily traded asset class in February, with $9.1 billion of activity, buoyed by the take-private deal of STORES Capital REIT. (Without it, the volume would have been $2 billion, and it would have fallen to a similar extent as other asset classes).

Office volume in commercial and business centers (CBD) was short of the $1 billion mark for the second month in a row – and the first time since 2010.

CBD office cap rates are up 70 basis points over the past year, and MSCI notes pricing is down 2.2%, though “recent cap rate movement would suggest a far more rapid price adjustment.”

Industrial volume got back to where it was in 2015-18 by increasing 63% from January. The STORE Capital REIT deal was the main reason why.

MSCI reported a 4.4% annual drop based on January to February pricing.

Multifamily sales volume is moving downward at a faster pace, with February’s $4.8 billion traded was the lowest monthly total since February 2012. A darling for so long, it is now the third-least-traded asset class for the first time since January 2015.

MSCI’s repeat sale index shows an 8.7% annual price decline, the sharpest of any asset class.

Hospitality sales volume was volatile as it was down 53% compared to last year but up month-over-month.

MSCI reports the strongest price appreciation of any asset class over the past year at 5.4%, and unlike other asset classes, when annualizing monthly statistics, hospitality shows a 2.1% gain on $2 billion in trades for the month.

 

Source:  GlobeSt.

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