Brad Case, PhD, CFA, CAIA

The NAIOP Sentiment Index is designed to predict general conditions in the commercial real estate industry over the next 12 months by asking industry professionals to predict conditions for their own projects and markets. https://lnkd.in/eugDAfcH

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For years I’ve used some version of this chart as an indicator of the health of the housing market. The gist is that we used to have more housing per person in America, and we need more housing, 2.8 MM units right now, to get back to that average. When housing supply turned off post-GFC and the population had the impudence to keep growing, we became underhoused. The worst point was 2018, Q1, when we were 5.5 MM units underhoused. Supply has outpaced population growth since then, and hopefully that keeps up. In general, I trust the results of this chart because it meshes they mesh well with other data points. Rents have grown faster than incomes since the GFC. Every year the Harvard Joint Center For Housing Studies gently points out that some terrifying share of renter households are cost burdened - fifty percent as of the last reading, a new high. How can that happen in a competitive market? An undersupplied market allows for aggressive pricing. Housing prices are way up as well. For years you could pin that on ever-falling mortgage rates, but no longer. Prices continue to drift upwards, per the Case Shiller housing index, despite a two-plus-decade high in mortgage rates. The sudden spike in interest rates barely registered, and only a single month (May 2023) showed a year-over-year loss in prices before gains reasserted themselves. I’ll don't think that a shortage of 2.8MM is the right number; I suspect it’s too low. This is a national reading, so it’s hiding areas of oversupply. Detroit is actively tearing homes down, and units delivering in vacation destinations probably do little to ease the imbalance. There is also a big restatement of the Census data in 2003. I think I’m doing a reasonable job of smoothing it out, but it’s not perfect. Nevertheless, I do think this is a reasonable estimation and that there’s still a shortage of housing in America. While I’m still hopeful that it’ll correct eventually, it’s not happening quickly.

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Single-Tenant Net-Lease: The Backbone of Steady Performance in CRE In a dynamic commercial real estate landscape, single-tenant net-lease properties have proven to be remarkably resilient. Marcus & Millichap highlight that as of March 2024, major U.S. markets have maintained sub-4% vacancy rates, a stability that echoes five years ago. What's driving this impressive performance? • Strong Labor Market: Boosting retail spending beyond inflation • Real Wage Increases: Giving consumers more disposable income A new benchmark for core retail sales was set in Q1 2024, despite households prioritizing essentials. More people are spending on dining out and experiences, increasing foot traffic and patronage at net-leased retail spaces. Highlights: • Fast food, convenience stores, and restaurants report sub-3% vacancy rates • Primary, secondary, and tertiary markets show vacancies at 4.6%, 4.3%, and 3.5% respectively. This market tightness benefits owners in lease renewals and securing new tenants. Local and regional banks remain primary financing resources, supported by strong sector fundamentals. Among the 50 major U.S. retail markets, 34 have single-tenant vacancy rates at least 100 basis points below their long-term mean, with notable performance in the Midwest, South, and Texas metros. Single-tenant net-lease properties continue to demonstrate their strength and stability, making them a cornerstone of commercial real estate. Read the article: https://lnkd.in/eBWShGBw #CRE #RetailTrends #NetLease #CommercialRealEstate #MarketTrends #RealEstateInvesting

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In contrast to the doomsday scenario reported in some papers, data shows that #condominium/townhome prices are not crashing in #MiamiDade County. In the first half of 2024, the median sales price of condominium/townhome sales rose from one year ago in 84% of 31 areas (with at least 5 sales per month), with 39% posting double-digit price growth. Yes, home sales have fallen in most markets, but prices have remained relatively firm. Supply is building up, especially in luxury coastal areas, but that has not translated to steep price prices on a broad level. #Cash buyers make up at least over 70% of buyers in million-dollar markets like Surfside (site of the Champlain Towers collapse), Sunny Isles, Bay Harbor, Key Biscayne, and Bal Harbour. The condo law passed in 2022 (SB 4-D) is meant to make condos safe for residents, and buyers need take the future costs of ensuring structural integrity into account. But the new condo rules have not led to a collapse in asset prices. Condo owners may even be incentivized to purchase condos knowing that these are safer than before under the new law. https://lnkd.in/e7eJsKXd Miami Association of Realtors

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Freddie Mac's latest midyear outlook forecasts muted growth for the multifamily sector in 2024, with high supply and slow rent growth posing challenges. Despite a healthy economy, the vacancy rate is set to rise, and rent growth is expected to be just 2.7%. This tempered performance is a result of record-high new unit supply and economic volatility. However, long-term prospects remain strong due to housing shortages, high for-sale housing costs, and favorable demographics. Secondary and tertiary markets, particularly in the Sun Belt and southern plains, are likely to see more robust growth. https://lnkd.in/dUYcUevi Website: https://londonmoeder.com/ Facebook: https://lnkd.in/d7-qmPKb LinkedIn: https://lnkd.in/dsKSa7am TikTok: https://lnkd.in/dMJuxejJ Youtube: https://lnkd.in/d2rGGnCy #commercialrealestate #commercialproperty #CommercialLand #commerciallandforsale #warehousespace #officespace #flexspace #industrialspace #sandiegocommercialrealestate #sandiegorealestate #realestate #cre #realtor #realestateagent #realestateinvesting #property #commercial #commercialproperty #realestateinvestor #business #investment #propertymanagement #investmentproperty #residentialrealestate #forsale #retail #entrepreneur #construction #officespace #realestatebrokerage #housingshortage #housing #housingelements #housingmarket #housingcrisis #orangecountyrealestate #orangecounty #orangecountyhomes #latimes #lahousing #losangeleshousing #housingresearch

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According to a recent Bisnow article by Taylor Driscoll, the first half of this year was supposed to be when interest rates began coming down, providing a lifeline to struggling commercial real estate owners. But it now appears the Federal Reserve may not be coming to the rescue anytime soon. 📈 High-interest rates profoundly impact the commercial real estate sector, particularly influencing borrowing costs, investment returns, and overall market dynamics. As rates climb, the cost of financing or refinancing properties escalates, potentially stifling new projects and pressuring existing owners with variable-rate loans. Conversely, the enduring high rates can freeze less capitalized owners out, leading to distressed sales or foreclosures, which can alter market values and create opportunities for well-capitalized investors. Integrating artificial intelligence (AI) in this sector could be a game-changer, offering CRE owners and investors tools for better asset optimization. AI can enhance decision-making processes through predictive analytics, improve operational efficiencies, and enable more personalized tenant experiences, thereby maximizing asset values even in challenging economic climates. Trends in commercial real estate influenced by interest rates: 1️⃣ Increased adoption of AI and technology solutions for asset management. 2️⃣ Growth in distressed asset sales and foreclosure rates. 3️⃣ Shift in investor focus towards more resilient asset classes. Link to article: https://lnkd.in/gdkaATBH Learn more at realsage.com Tags: #proptech #cre #multifamily #ai

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Thomas LaSalvia PhD, Head of Moody's CRE Economics, explores the future direction of multifamily housing and its role in the broader economic landscape, discussing the latest trends and their influence on the commercial real estate sector in recent episode of the BiggerPockets Real Estate Podcast. Listen here: https://lnkd.in/ebcVJbwc

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Shadow and Substance: The Emerging Story of CRE Lending The prevailing narrative in commercial real estate (CRE) lending is reassuringly optimistic: offices are stable, and banks report non-performing loans (NPLs) of less than 1%. However, beneath this calm surface, a storm is brewing—a confluence of hidden challenges and emerging threats that starkly contrast with the mainstream account. Recent data indicates that distressed bank office loans could escalate to between 3% and 5% by year's end. This forecast, grounded in hard data and historical patterns observed in financial markets, is supported by the concept of "Shadow Inventory," which includes distressed debts and assets poised for recapitalization through loan sales. This inventory reveals figures about 2 to 3 times higher than the non-performing loans officially reported on bank balance sheets. Data from the Federal Reserve Board as of the end of 2023 shows that banks held the largest share of CRE debt, with 1.025% or $25.08 billion in total non-performing CRE loans across various sectors. More notably, in the non-owner occupied CRE sector, banks reported 1.593% or $18.69 billion in total non-performing CRE non-owner occupied loans as of March 31—substantially higher than the oft-cited figure of less than 1%. The total stressed loans in this category reached 2.46% or $28.87 billion, highlighting a significant disconnect between public perception and the harsher realities of financial data. This gap between perception and reality suggests a landscape fraught with financial instability, often overlooked in upbeat economic reports. The implications of such discrepancies are profound, impacting local businesses and the gig economy, as businesses cut hours or close and competition in freelance work increases. Managing financial distress in CRE involves the strategic use of Troubled Debt Restructurings (TDRs). Major banks have restructured over $8.6 billion of CRE loans as TDRs, which, while helping to contain the NPL figures, also mask the potential for future crises. These TDRs, intended to provide temporary relief, often falter within 18 to 24 months post-modification. The narrative surrounding CRE lending is not just about numbers and policies; it’s about the resilience and adaptability required in an ever-changing economic landscape. With a clear-eyed view of these challenges, stakeholders can better navigate the uncertain waters of commercial real estate lending, making informed decisions that foster long-term stability and growth. #CRE #Banking #Lending #CommercialRealEstate #RE #Equity #Debt #Fed #FederalReserve #PE #NYCRealEstate

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Interesting #ForeclosureAuction pricing action going on. Wonder if we will see continued downward pressure going into the second part of the year. Here is an interesting question I heard recently: Will home values actually decline or improve with an interest-rate reduction before the end of the year? As more and more homes see price-reductions and more time on the market, will we see an overstaturation of the market? What do you think? Let's talk about it. I'd love to hear a private-investor (boots in the ground) take on the current state-of-affairs. #sharafreport #foreclosureauction #mortgageservicing #specialservicing #privatelending

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How can real asset investors leverage data intelligence to unlock additional value for clients? In the latest edition of Institutional Real Estate, Inc. PATRIZIA's PD Dr. Marcelo Cajias, Dr. Anett Wins and Rebecca Restle explore how the the availability of amenities has a direct influence on residential rental values, helping investors identify the optimum conditions for maintaining sustainable income. #PATRIZIA #RealAssets #DataIntelligence #Residential

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Investor preference is returning to the multifamily sector, according to a new survey by CBRE—but high interest rates and limited credit availability is stemming the optimism. Read Market Monitor for Origin’s Managing Director of Investment Management Marc Turner’s interpretation of the outlook. Link in our comments below. #multifamilyrealestate #realestateinvesting #interestrates 

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As the 2024 Presidential election approaches, will it shake up the commercial real estate market? Our latest findings reveal some surprising insights. Curious to know what really influences deal volumes? Click here to find out: https://lnkd.in/gU_5u3j4 #CRE #CommercialRealEstate #RealEstateInvesting #Election2024 #MarketInsights #InvestmentTrends #PropertyManagement #RealEstateNews #FriedmanRealEstate

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In last week’s post, you saw evidence of stabilizing multifamily underwriting assumptions. And now, we can say that the fundamentals are stabilizing and turning the corner as well. In CBRE’s Q1 2024 Multifamily Figures report (published today!... and linked below), we find there are many reasons for cautious optimism: ·      This year will be the peak for new deliveries in most markets (some have already peaked). ·      Absorption has been on the heels of new supply for several quarters. ·      Q1 absorption was no exception with the 3rd highest first quarter in more than 20 years. ·      Vacancy is plateauing (up just 10bps in Q1 to 5.5%). ·      Supply and demand are expected to reach parity this year and occupancy rates will improve slightly by year-end. ·      As projected, national rent growth stabilized and remained positive in Q1 at 0.4% year-over-year. ·      Alongside improving occupancy, we expect rent growth will begin accelerating in 2024 and beyond. Fundamentals vary by market and region. Rent growth remains negative in many high-supply markets across the Sun Belt and the Mountain States regions. However, improving rent growth in Q1 provides much needed evidence (particularly in the Southwest, West and Mountain States) that the bottom has formed for some markets. By contrast, the Midwest and the Northeast continue to outperform. All markets within these two regions (including major hubs like D.C., NYC, Boston, and Chicago) reported positive year-over-year rent growth in Q1. The shrinking supply pipeline combined with healthy renter demand is setting the stage for several years of improving multifamily occupancies and accelerating rent growth. https://lnkd.in/enGqejMZ #cbre #multifamily #capitalmarkets #research Travis Deese

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Negativity sells. Gloomy real estate headlines flood YouTube, TikTok, Instagram, and X (formerly Twitter), spreading stories of bubbles, crashes, and price collapses. These channels, often lacking economic expertise, misguide many consumers, discouraging potential buyers for years. Many dream of a market crash to finally afford a home. The pandemic caused prices to surge, and then rates surged higher, sparking more negative narratives. Distinguishing fact from fiction in these headlines is challenging but crucial. The latest report does just that. Subscribe today for the full report that debunks the myths of the current housing market! Subscribe by visiting our website at www.ReportsOnHousing.com Our reports are designed to set expectations. Invest in your business and subscribe. It will help you close more deals.

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Rising interest rates and an impending wave of new supply pose challenges for the U.S. multifamily housing sector. However, these challenges are cyclical and present opportunities for savvy investors to acquire high-quality properties below replacement cost, benefiting from long-term yields and the projected shortage of new supply in 2026 and beyond. #MultifamilyHousing #RealEstateInvestment #Opportunities https://lnkd.in/g3G6j2Yd

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An industry shift is underway, as macroeconomic volatility and extreme differentiation among sub-types of #CommercialRealEstate have created the need for data that is as specialized and current as possible. “By harnessing the power of big data through the lens of historical insights and forecasting tools and then marrying those interpretations with their broker’s market experience and foresight, firms can gain the most holistic picture of their markets,” says Chad Littell, CoStar’s National Director of US Capital Markets Analytics. Learn more about how your firm can gain insights that allow you to focus on the most promising opportunities: https://bit.ly/3UWtRfG

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