Less than three weeks after being filed, a bill blocking China and six other “countries of concern” from buying or holding interest in land within range of strategic sites in Florida is heading to the Senate floor.
The Senate Rules Committee voted unanimously to advance the measure (SB 264), a priority of Agriculture Commissioner Wilton Simpson intended to safeguard state security against foreign threats.
Countries named in the legislation — which also includes provisions to protect Floridians’ health information — include China, Cuba, Iran, North Korea, Russia, Syria and Venezuela.
If passed, the bill would ban the governments of those nations and businesses based there from owning real property within 20 miles of “critical infrastructure.” That includes military bases, water treatment facilities, power plants, emergency operation centers, seaports, telecommunication facilities, police stations and other such structures.
Tampa Republican Sen. Jay Collins, a decorated Army Special Forces veteran and the bill’s sponsor, said the measure “does a very good job of protecting our strategic-level interests.”
“We’ve talked about the humanities issues around the world,” he said. “Frankly, there are people who just don’t believe in the American dream and the American way of life.”
As an added layer of protection, Collins’ bill — as well as a House version (HB 1355) by Republican Rep. David Borrero and Democratic Rep. Katherine Waldron — would require documentation from potential buyers attesting their good intent. Any entity purchasing agricultural or real property within 20 miles of a military base or critical infrastructure must provide an affidavit affirming compliance with the proposed law, which would go into effect July 1.
The bill also bars government agencies in Florida from entering into contracts with those seven countries for services that include access to personal information.
Similarly, it would also require health care providers to ensure that the repositories for their patients’ digitally kept records are located within the United States. An amendment the panel approved Wednesday expanded that proviso to also allow storage of that data in U.S. territories and Canada.
Beginning Jan. 1, 2024, any company bidding on government contracts involving access to Floridians’ personal information would have to provide a signed affidavit asserting a foreign country of concern does not own the company or hold a controlling interest in it.
Miami Springs Republican Sen. Bryan Ávila, a lieutenant in the Florida Army National Guard, co-introduced the bill.
According to the U.S. Department of Agriculture, 6.3% of nearly 22 million acres of privately held agricultural land in Florida was foreign-owned in 2021. Senate staff wrote in an analysis that while it is “unclear” how much of that land — roughly 1.4 million acres — belongs to China, “the (federal) department does report that (China) owns 96,975 acres in the ‘South Region,’ which includes Florida.”
SB 264, HB 1355 and a similar but more limited measure (SB 924) Boynton Beach Democratic Sen. Lori Berman filed last month — more than two months after Collins and Borrero announced their legislation — complement an executive order from President Joe Biden. The executive order, which Biden signed Sept. 15, defines additional national security factors the Committee on Foreign Investment in the U.S. must consider when evaluating transactions.
Biden acted in response to growing, bipartisan concern among government officials over protecting Americans’ data, enhancing U.S. supply chain resilience and safeguarding the country’s position as a tech leader.
“The United States’ commitment to open investment is a cornerstone of our economic policy, benefits millions of American workers employed by foreign firms operating in the United States, and helps to maintain our economic and technological edge,” the executive order said.
“However, the United States has long recognized that certain investments in the United States from foreign persons, particularly those from competitor or adversarial nations, can present risks to U.S. national security.”
Isabelle Garbarino, director of legislative affairs for the Florida Department of Agriculture and Consumer Services, signaled support for Collins’ bill Wednesday.
HB 1355 and SB 924 both await a committee hearing.
Source: Florida Politics
Bill Blocking China From Buying Land In Florida Coasts Through Last Senate Panel Stop
Less than three weeks after being filed, a bill blocking China and six other “countries of concern” from buying or holding interest in land within range of strategic sites in Florida is heading to the Senate floor.
The Senate Rules Committee voted unanimously to advance the measure (SB 264), a priority of Agriculture Commissioner Wilton Simpson intended to safeguard state security against foreign threats.
Countries named in the legislation — which also includes provisions to protect Floridians’ health information — include China, Cuba, Iran, North Korea, Russia, Syria and Venezuela.
If passed, the bill would ban the governments of those nations and businesses based there from owning real property within 20 miles of “critical infrastructure.” That includes military bases, water treatment facilities, power plants, emergency operation centers, seaports, telecommunication facilities, police stations and other such structures.
Tampa Republican Sen. Jay Collins, a decorated Army Special Forces veteran and the bill’s sponsor, said the measure “does a very good job of protecting our strategic-level interests.”
As an added layer of protection, Collins’ bill — as well as a House version (HB 1355) by Republican Rep. David Borrero and Democratic Rep. Katherine Waldron — would require documentation from potential buyers attesting their good intent. Any entity purchasing agricultural or real property within 20 miles of a military base or critical infrastructure must provide an affidavit affirming compliance with the proposed law, which would go into effect July 1.
The bill also bars government agencies in Florida from entering into contracts with those seven countries for services that include access to personal information.
Similarly, it would also require health care providers to ensure that the repositories for their patients’ digitally kept records are located within the United States. An amendment the panel approved Wednesday expanded that proviso to also allow storage of that data in U.S. territories and Canada.
Beginning Jan. 1, 2024, any company bidding on government contracts involving access to Floridians’ personal information would have to provide a signed affidavit asserting a foreign country of concern does not own the company or hold a controlling interest in it.
Miami Springs Republican Sen. Bryan Ávila, a lieutenant in the Florida Army National Guard, co-introduced the bill.
According to the U.S. Department of Agriculture, 6.3% of nearly 22 million acres of privately held agricultural land in Florida was foreign-owned in 2021. Senate staff wrote in an analysis that while it is “unclear” how much of that land — roughly 1.4 million acres — belongs to China, “the (federal) department does report that (China) owns 96,975 acres in the ‘South Region,’ which includes Florida.”
SB 264, HB 1355 and a similar but more limited measure (SB 924) Boynton Beach Democratic Sen. Lori Berman filed last month — more than two months after Collins and Borrero announced their legislation — complement an executive order from President Joe Biden. The executive order, which Biden signed Sept. 15, defines additional national security factors the Committee on Foreign Investment in the U.S. must consider when evaluating transactions.
Biden acted in response to growing, bipartisan concern among government officials over protecting Americans’ data, enhancing U.S. supply chain resilience and safeguarding the country’s position as a tech leader.
Isabelle Garbarino, director of legislative affairs for the Florida Department of Agriculture and Consumer Services, signaled support for Collins’ bill Wednesday.
HB 1355 and SB 924 both await a committee hearing.
Source: Florida Politics
Sale Leaseback Cap Rates Continue To Attract Investors
While pricing has widened, early indications in 2023 point to a growing return to confidence for the sale leaseback market, according to a market update report from SLB Capital Advisors.
The report cites “strong credits and robust business models achieving successful processes with large interest from investors”, even in non-core markets, particularly industrial.
Due to the current interest rate environment and companies’ overall cost of capital, the SLB cap rates offer a more attractive cost-of-capital solution than ever, according to the report.
There continues to be an attractive value arbitrage across various industry sectors driven by the delta between business and real estate multiples. The multiple implied by average SLB cap rates (i.e., 6.25% to 8.25%) implies a multiple of over 12x to 16x.
This compares favorably to general middle market transactions which averaged 6.9x LTM EBITDA for 2022. Attractive arbitrage opportunities are generally prevalent across many middle-market sub-sectors, the report said.
Source: GlobeSt.
Multifamily Keeps Benefiting From Hurting Housing Supply
In the 2022 US housing report from the National Association of Realtors and Move.com, which operates Realtor.com for the NAR, the big news is more of the same. The market is now, by their count, 6.5 million new single-family homes short of population and household formation growth. For multifamily, that turns into good economic news.
It’s impossible to look at multifamily independent of single-family homes because the two markets are intertwined with household formation. Between 2012 and 2022, there were 15.6 million household formations in the US, according to NAR, with nearly 2.1 million last year.
As formations happen, they need to live someplace, but there aren’t enough traditional single-family homes. During those 10 years between 2012 and 2022, 9.03 million single-family homes were started, with 8.5 million completed. That would be a 7.1-million-unit gap. There were also 4.2 million multifamily unit starts and 3.4 million completions.
The home ownership rate oscillates between about 63% and, at its high point in the fourth quarter of 2004, 69.2%. The current level is 65.9%. That should have meant more like 10.3 million completed single-family homes.
However, there weren’t enough multifamily units created to accommodate 34.1% of the housing volume, which would be 5.4 million, far more than the 3.4 million delivered.
This is where the market turns interesting. In 2022, multifamily unit construction increased, “reaching 35.1% of all housing starts by the end of the year, a level not seen since 2015.” That is a rate at which the housing market could begin to catch up and hit a sustainable stride.
Looking at the NAR analysis, over the 10-year period, 340,000 multifamily units were delivered per year on average. A recent research brief from CBRE projected that 716,000 multifamily units will reach the market within the next 24 months, or 358,000 a year, or a roughly 5.2% increase over the baseline. That’s an improvement, but not enough to catch up in the short run.
One lesson for the multifamily industry to take — supported by the fuller CBRE analysis — is that the housing need is so great, worries about an oversupply overwhelming demand and leading to an undercutting of the market are probably unfounded.
Source: GlobeSt.
Are Multifamily Prices Coming Down Soon?
What a ride! For the past five years, apartment building owners hit the jackpot with their property values going up nationally by 37%, according to Marcus and Millichap. This was fueled by record rental increases of 13.5% in 2021 and 6.2% in 2022 and mortgage rates hitting their lowest ever in January 2021. But this trend is seemingly slowing. According to CBRE, the average multifamily cap rate went up by 38 basis points to 4.49% in the last quarter of 2022, which means prices are starting to come down. And thank goodness!
As a commercial mortgage banker specializing in multifamily financing nationally, 2022 was an extremely difficult year. It was a head-on collision between property values going up and mortgage rates going up. This produced smaller loan sizes, killing many of our deals. It wasn’t pleasant telling my client, “Sorry, 40% down is no longer going to cut it. Can you come up with 50%?” He replied, “Really? I was only getting a 4% cash-on-cash return, and now you want me to be happy with 2%.” I told him to negotiate the price down with the seller, who opted to take the property off the market instead.
Why Both Buyers And Sellers Have Their Brakes On
Although multifamily is the most sought-after asset class in the commercial real estate market today, prices remain high. This is a result of low supply and demand. In fact, the 4th quarter of 2022 hit the lowest level for both since 2009, according to Moody Analytics.
So, it’s no wonder that both buyers and sellers have their brakes on. Why? Because many buyers can’t figure out what a property is really worth today. Worse yet, they are afraid they are buying at the top of the market with a recession around the corner. And many sellers are in love with those high prices. They know that this is not a good time to sell with rates being so high. I’ve found that most are financially strong and don’t have to sell. They can just wait for rates to come down—snug in the comfort of the very low long-term rates they have on the property.
Why Multifamily Sales Prices Could Come Down Slowly In 2023
The good news for sellers is that the economy seems to be getting stronger, with wages climbing 6.3% for jobs posted on Indeed and 4.8 million jobs created in 2022. Even better, in January 2023, 517,000 new jobs were created, and unemployment hit a 53-year low at 3.4%. Many sellers, real estate brokers and property managers I talk with are arguing that this should justify today’s high multifamily prices and support more rental increases in 2023 as wages have gone up too.
But I think the data from the last quarter of 2022 supports a different argument—that multifamily prices must come down. According to CBRE, new investment in multifamily property fell by 70% (download required). Why? Because investors couldn’t make the numbers work, and the future did not look bright. According to Fannie Mae, there was a negative demand for multifamily units of -103,485 at the end of 2022. Now if we add to this the 783,000 new apartment units they report coming online in 2023, this is a recipe for rents remaining flat and rental concessions on the rise.
Savvy property investors know that if they are going to buy high, they have to raise rents to achieve the return they need in the future. This goes right to their bottom line, raising the net operating income in the income approach of a commercial appraisal and raising property value. But as noted in the report above, Fannie Mae is expecting rents to only achieve a 1.5% increase in 2023.
Today’s high prices just don’t seem sustainable, or I should say, they are not based in reality. The reality is that too many units are available for rent, too many units are coming online and too many renters are already paying more than they can afford with inflation. The reality is what an investor is willing to put down on a loan with today’s high mortgage rates. The reality is that those rates are likely to go higher as the Fed struggles to lower inflation to their benchmark of 2%. It’s at 6.3% now. And the reality is what an investor needs to earn.
A client of mine recently summed it up perfectly: “If I buy at today’s prices, I will be paying what the property will be worth in two years. And that’s if I can raise rents enough. Why would I do that?”
What does all this mean? If you are a multifamily investor, you might be better off waiting until prices come down. I think they will by the last quarter of 2023, as appraisal valuations come down and more sellers must sell due to divorce, partnership breakup, loan maturity or death. Of course, those who have the time may want to make lowball offers on properties with under-market rents in good neighborhoods where renters can afford future rent increases and wait for one to stick.
If you are a seller or listing real estate broker, unless you want to wait for a cash buyer, it’s important to not only sell the property’s upsides and value adds but also think about the buyers’ expectations for earnings. Based on actual net operating income, current interest rates and down payment requirement, what sale price will bring the deal to the closing table?
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
Source: Forbes
President Biden Looks To End ‘Sweetheart’ Deals For Real Estate And Billionaires
Real estate may not be America’s — or the federal government’s — sweetheart for long.
President Joseph Biden just released a proposed 2024 budget in which he pitched eliminating tax breaks for real estate and private equity firms as part of his efforts to cut the country’s budget deficits by nearly $3 trillion over the next decade.
The White House is aiming to recover about $19 billion by closing the loophole known as the “like-kind exchange,” or 1031 exchange. The loophole lets real estate firms put off paying capital gains taxes from income earned on property sales as long as they make an investment in a similar property elsewhere.
The Biden administration said the real estate industry was the only one getting a “sweetheart deal” from the federal government and equated the tax break to an interest-free loan.
Other items in the budget, such as a 25 percent minimum income tax on the top 0.01 percent of earners, also known as a billionaire’s tax, would also have implications for top real estate executives. Biden also called on Congress to raise the income tax rate from 37 percent to 39.6 percent for people making more than $400,000 and couples pulling in more than $450,000 per year.
Corporations in general could also have an income tax rate of 28 percent, an increase from the 21 percent they currently pay, but still a big reduction from the 35 percent that was expected from corporations before 2017.
Biden’s budget instead prioritizes making housing more affordable through programs such as the Neighborhood Homes Tax Credit, which his administration wants to fund with $16 billion over 10 years, and expanding the Low-Income Housing Tax Credit with a $28 billion infusion of funds.
The budget proposal also would set aside $10 billion for planning and housing capital grants for state and local governments to make reforms and streamline building new affordable housing projects on their own. Overall, the budget puts $175 billion toward programs that could facilitate the development and rehabilitation of affordable housing.
Transit in the tri-state region is also a big investment in Biden’s budget. Biden promised about $700 million for construction of the Hudson Tunnel Project — which could stabilize service in the long term on the Northeast Corridor — and $496 million for phase two of the Second Avenue Subway, an opportunity for transit-oriented development
Source: Commercial Observer
Powell’s Congressional Testimony Likely Means More Rate Hikes
As they say, if you don’t want the answer, don’t ask the question. But Congress did insist that Federal Reserve Chair Jerome Powell talk about the economy and the Fed’s take this morning. His testimony is probably not what most people want to hear, but certainly what businesspeople, especially in CRE, need to.
If, like an economic Dylan Thomas, you were concerned that the Fed’s policies might go gentle into that good night, don’t worry, they aren’t.
In the testimony, Powell quickly invoked the Fed’s dual mandate of promoting maximum employment and stable prices. Notice, there is no direct mention of easing business costs or supporting asset prices. Those are supposed to come as byproducts — boost business to indirectly promote employment and slow it to moderate prices.
Although inflation had seemed to be slowing, January was a jarring reminder that inexorable progress toward goals is unusual. Jobs, consumer spending, manufacturing numbers, and inflation “reversed the softening trends that we had seen in the data just a month ago.”
It was the “breadth of the reversal” that meant inflation was running hotter than during the last meeting of the Fed’s Federal Open Market Committee. And even then, the underlying message was not to expect immediate lower interest rates.
Inflation “remains well above the FOMC’s longer-run objective of 2 percent,” and Powell was talking not just the overall number, in which housing costs were a major driver. He specifically mentioned core personal consumption expenditures (PCE) inflation without the volatility of food and energy that push upwards, and core services without housing, which discounts that outlier.
So, continuation of maybe 25-basis point increases and also continued scaling down of the balance sheet, which means reducing purchases of bonds that help fuel home mortgages and, so, that entire part of the construction and sales ecosystem.
However, the maybe is not to be ignored.
Source: GlobeSt.
Florida Commercial Property In For Big Insurance Hikes This Year
Florida commercial property owners that have been dealing with escalating insurance costs for years are in for more bad news.
This year, insurance rates in the state are expected to go up by 45 percent to 50 percent, and a doubling of premiums won’t be out of the question, according to a new Yardi Matrix report. While coastal regions are most susceptible to hurricane damage, the increases apply to inland areas as well, the report says.
To many Florida real estate owners and insurance industry insiders, the cause is familiar: Hefty payouts from previous weather-related events left carriers insolvent. Most recently, Hurricane Ian ripped through the state’s Gulf Coast last September, and resulted in more than $50 billion in damage, the report says. Plus, some insurers are averse to covering real estate in the high-risk state, altogether. This leaves less competition for carriers that are left in the market, allowing them to raise rates.
Although skyrocketing premiums are a nationwide issue, states exposed to climate change-related risks will feel the most pain. Aside from Florida, the report points to Texas.
Florida lawmakers have pushed to tackle the insurance crisis for residential real estate. In a special session last December, they made it harder for homeowners to sue insurers, in an aim to entice carriers to return to the state.
But the crisis necessitates lender reform, industry experts argue in the Yardi Matrix report.
Mortgage lenders often require full wind and flood coverage on commercial real estate in flood zones. Also, many financiers tack on a requirement for coverage of business income losses caused by flooding.
Advocates say that properties are often overinsured to cover extreme losses that rarely occur,” writes Paul Fiorilla, author of the Yardi Matrix report.
Danielle Lombardo, chair of New York-based insurance and risk-management advisory firm Lockton Global Real Estate, said in the report that a potential workaround to lenders’ hefty requirements exists. Instead of requiring full coverage, insurance rates could be based on a “true probable maximum loss methodology,” or the maximum possible loss from a catastrophic event.
For example, lenders might require $40 million in coverage for wind damage, even though modeling would show that the maximum loss for the property would be closer to $10 million.
“The premium for $40 million of coverage might be $3.7 million annually, compared to $1 million for $10 million of coverage,” the report says, citing Lombardo. That is “a margin large enough that it could create a delinquency or distress for some properties.”
Source: The Real Deal
Private Investors Buy More Commercial Real Estate Than Institutions For First Time On Record
As macroeconomic turmoil has roiled financial markets and institutions retreat from real estate, wealthy individuals have become the dominant buying class.
Private investors were the most active buyers for worldwide commercial real estate last year, purchasing $455B in properties, or 41% of the global investment total, according to a Knight Frank global wealth report.
For the first time on record, private buyers’ share of the market eclipsed those of institutional investors, which bought a total of $440B last year, a 28% decline in their investment activity in 2021, the Knight Frank report found. Private wealth from the U.S. in particular is projected to be the most active of those investors this year as well. Private buying activity fell just 8% from last year, by comparison.
The hunt for value is evident in which asset classes the investors put money into. Private buyers bought $62.5B of retail properties last year, 9% more than in 2021, and $30.6B of hotels, a 17% increase. Office was the second-most-active asset class, with $84.1B of purchases, a 4% dip from 2021. Private investors spent $194.9B on apartment properties last year, a 13% decline from 2021, per Knight Frank.
Private buyers’ newfound perch atop the CRE investment pecking order reflects the aftermath of the Federal Reserve’s interest rate hikes, which have changed the risk calculus for investing. All-cash buyers were increasingly the last bidder standing for properties at the end of last year, Bisnow previously reported, as lending dried up.
Source: Bisnow
Mortgage Rates Keep Escalating
Mortgage Rates Keep Escalating
Mortgage rates have kept rising over the past month, with one outlet reporting 30-year loans averaging more than 7% this week for the first time since October.
Mortgage News Daily Thursday reported 30-year, fixed-rate mortgages averaging 7.1%, though a weekly lender survey by government-backed loan agency Freddie Mac put the 30-year loan average at 6.65% for the week ended March 2. Most mortgage rate reports are averages based on national lender surveys, and Freddie Mac has noted there is now a wide range of rate offerings.
Freddie Mac noted 30-year, fixed-rate loans averaged 3.76% and 15-year loans averaged 3.01% at the same point of 2022. “Now that rates are moving up, affordability is hindered and making it difficult for potential buyers to act, particularly for repeat buyers with existing mortgages at less than half of current rates,” Khater said.
Annual inflation remains near 40-year highs while declining in recent months to 6.4% in January. The Federal Reserve continues to raise its key lending rate in efforts to bring inflation closer to 2%, sparking rate hikes in many types of consumer and business loans.
It comes as the gap widened in the home ownership rate between Blacks and whites in the United States.
Freddie Mac noted 30-year, fixed-rate loans averaged 3.76% and 15-year loans averaged 3.01% at the same point of 2022. “Now that rates are moving up, affordability is hindered and making it difficult for potential buyers to act, particularly for repeat buyers with existing mortgages at less than half of current rates,” Khater said.
Annual inflation remains near 40-year highs while declining in recent months to 6.4% in January. The Federal Reserve continues to raise its key lending rate in efforts to bring inflation closer to 2%, sparking rate hikes in many types of consumer and business loans.
It comes as the gap widened in the home ownership rate between Blacks and whites in the United States.
Source: CoStar
Little Distress Likely For Multifamily As 2023 Continues
Multifamily will likely experience little distress this year, despite a deceleration in debt origination since the beginning of 2022.
Activity has “gradually decelerated” since Q1 2022, the second-best quarter on record for debt originations, according to an analysis from Newmark, which also notes that “preliminary loan figures overstate the severity of the slowdown” in Q4.
The Sun Belt accounted for 57.9% of overall multifamily investment in 2022, led by Dallas, Atlanta, Houston and Phoenix, which together accounted for 21.6% of annual volume. Of the top 25 markets by volume, New York, Nashville and Philadelphia posted double-digit year-over-year sales volume growth.
But while December 2022 may have experienced a greater-than-usual seasonal boost as borrowers sought to capitalize on sharp declines in Treasury yields and spreads, Newmark says the question remains as to whether that momentum carried into the first quarter of this year. With that said, wth the exception of loans originated in 2021, mark-to-market LTVs “are well-contained,” something that can’t be said for many office and retail vintages.
Banks leaned in heavily to the asset class in 2022, with bank exposure to loans secured by multifamily properties increasing by $11 billion from January 2022 to January 2023. But Newmark says this is unlikely to continue unabated, creating a liquidity gap in the market. Banks are also tightening lending standards and shrinking the profile of both assets and sponsors with whom they’re willing to lend.
The market may be also subject to more ups and downs as a result of lending caps on GSEs and a move by the entities to more “mission-driven” lending.
Record quantities of debt are on track to mature by 2024, and Newmark says borrowers will face markedly higher borrowing costs as loans mature.
Despite that, the asset class remains a top destination for capital globally. International investment in US multifamily assets as a percentage of total US commercial real estate totaled 40.3% in 2022, up 990 basis points from the 2015-2019 average of 30.4%. And among the US regions, total returns in the Southeast have outpaced the broader market on short, intermediate and long-term bases. Garden-style properties throughout the Southeast have been a particularly strong niche within the sector, outpacing the US multifamily index by 440 basis points over the past decade.
Source: GlobeSt.