Jason Probert

I know, not everyone is interested in CMBS loans. However, a CMBS resurgence could benefit CRE professionals. Rather than reading the entire article, allow me to extract and summarize four major themes you should be aware of. 1. The CMBS market has seen a significant rebound in 2024, with private-label CMBS issuance reaching $32.2 billion, compared to $13 billion during the same period in 2023. After dealing with CMBS loans and servicers for years, some of my clients refuse to consider another CMBS loan. What has changed? “If you need money and are (a) in position to refinance a loan and you don’t have an alternative, it becomes your go-to source and potentially your only source for financing.”  No other options! 2. The decline in commercial bank CRE lending, influenced by the regional banking crisis of 2023, has driven borrowers towards CMBS as a financing alternative. Yes, many banks are still on sidelines. “Banks are in retrenchment mode so there’s a huge liquidity crisis that’s going on, and CMBS is stepping to fill that liquidity crunch. It’s a combination of a gap in the market because of regulatory pressure, credit pressure and balance sheet pressure.” But someone must buy the CMBS bonds. Are they selling? 3. There is a strong demand for CMBS from investors, with $24.6 billion in new CMBS securities purchased year-to-date through May, nearly three times the amount in the same period in 2023. Why now? Are spreads better? “Spreads for CMBS were historically in the 50 bps range. If they’re making 250 basis point spreads (today), that’s a huge profit for them. Higher spreads are always lucrative for lenders, who charge interest paid on the loan based on the difference of what they’re buying the money for and what they’re selling it for" Even with higher spreads, are the loans attractive to borrowers? 4. CMBS offers competitive rates and terms compared to available options, because there are fewer. “Your options as a borrower, particularly from traditional banks, have dried up materially, compared to the CMBS market, which is still very liquid. While it does come with some headaches when dealing with an asset that underperforms, or goes into special servicing, overall CMBS is available and a better option than it was last year." A CMBS execution may not be your favorite, but it could be the best and only option for a less-than-stellar performing property. Look at it this way, still better than a foreclosure or capital injection.  #cre #commcap #crelending #creinvesting #CMBS

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Existing-home sales might've slowed this month, but prices keep climbing. Despite the rise in prices and mortgage interest rates, sellers still face favorable conditions: average of 3.2 offers, 27% sold above the list price, and just 26 days on market. All cash buyers may be one reason: they remain at 28% of the market.

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The 30-year fixed-rate #mortgage rose to 7.1% in the week of April 18, the first time the rate rose over 7% this year, according to the Freddie Mac survey. Yesterday, the Mortgage Bankers Association reported 30-year rates jumping to 7.13%. With the #inflation outlook becoming more uncertain due to geopolitical risks, mortgage rates are likely to hover in the low 7% through June or even through September. #Fed Chair Powell struck a more negative tone about the progress on inflation at yesterday's policy forum at the Wilson Center, stating "...a lack of further progress so far this year on returning to our 2% inflation goal.. the recent data have clearly not given us greater confidence ... and that it's likely to take longer to achieve that confidence.” (as reported in NBC News). #Housing market conditions will remain challenging, particularly for first-time #homebuyers, and market activity will continue to shift away from the lower end of the market to the higher end of the market that caters to higher #income and wealthier buyers who can tap into their financial savings or home equity to put down a #cash payment or a bigger #downpayment. Miami Association of Realtors

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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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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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May 2024 Recap: Transaction volume on the rise, prices on the decline?   Nationwide, there remains a shortage of inventory compared to pre-pandemic; despite the recently realized price cuts and surge of new listings coming to market. So, while the scales are tipping further towards the favor of buyers, they’re still technically in seller’s territory for most regions.    As always, however, real estate is local and there are parts of the national and international landscape that are trending with more fervor than others.    Would-be buyers who witnessed intense competition in Florida markets over the past few years aren’t seeing such a frenzy now, as strong construction in many of these markets has helped restore inventory levels.    LUXURY MARKET Transaction volume in the luxury space has picked up; with major sales like 10 Tarpon Isle in Palm Beach ($152,000,000), and the mass market is likely to follow suit.   Luxury prices have increased at 2x the pace of non-luxury over the last twelve months. Much of this could be attributed to the stock market, as luxury home buyers tend to be well-diversified and have seen equity investments grow, thus creating the opportunity to leverage their portfolios or cash out and purchase hard assets like real estate. The DOW closed above 40,000 for the first time ever in mid-May while the S&P 500, and tech-heavy Nasdaq Composite also closed at new record highs after positive inflation news.    INTEREST RATES The latest Consumer Price Index read showed that prices were up 3.4% for the 12 months ended in April, easing from 3.5% the month before. Taken together with retail sales and the election cycle, this supports a Fed rate cut in the fall.   Rising gasoline and shelter costs accounted for more than 70% of the monthly increase in overall inflation, and grocery prices fell for the first time in a year, dropping 0.2% from March. The housing component of the CPI has proved frustrating because the government’s measurement of shelter costs come with a considerable lag, though private sources of real estate data have shown a cooling rental market.   A separate report mid-month showed that US retail sales were flat in April, which could be an indication of consumers getting tapped out. Retail softening is an indicator that could have a continuing moderating effect on inflation, and thus also support a rate cut in the coming months.    NEW CONSTRUCTION The new single-family home market has thrived given the lack of resale supply, the narrowing price spread between new and existing homes, and offer of builder incentives. Importantly, though, two different housing markets have emerged; that of larger, mostly public builders, and that of smaller and mid-sized builders. In the immediate market, larger builders have been able to be more aggressive with incentives, including buying down the mortgage interest rates well below what a smaller builder is willing and able to do.

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Annual rent growth and occupancy rate by #multifamily property. These visuals remind me of a few things. Before I get into that, this is what you are looking at. Each graph shows the current annual rent growth for new leases (y-axis) and occupancy rate (x-axis) of existing properties for the geography noted. Lease-ups are excluded. The orange dot is the average. You can see that individual property results are all over the board. I reference the 5-year average for U.S. rent growth at the end of the post. 1️⃣ Perspective of a market is often dictated by which dots are yours. I’ve met with groups in my career that based an entire market’s performance, and future investment worthiness, on their handful of assets in a market. “That market is terrible.” Maybe, or perhaps it was the submarket, the individual asset, or the timing for your select set of properties. I don’t mean to focus on the negative side, but nobody complains about their great markets. 😀 2️⃣ How forecast accuracy is judged. For the most part, forecast providers are trying to predict how the orange dot is going to move, whether the aggregation be for a market, submarket, or quality of asset (A/B/C). Being accurate on the orange dot isn’t easy, but it’s much simpler than it is for the blue dots. 3️⃣ The industry did not, does not, and cannot get together and collude on how to change rents and set occupancy rates. That effort would fail quickly. If that really happened, you’d see all the dots stacked up on top of each other for each market, submarket, and comp set. There are too many variables related to property attributes, location, operations, asset strategy, residents and the factors that influence their choices, and much more. This shouldn’t be a shock to anyone reading this, but perhaps the visual helps it hit home. Extra notes: ➡️ While individual property results vary significantly, the entire “blob” (technical term) will move based on economic factors of supply and demand. I’ll follow up separately with visuals on that in another post.   If there is too much supply, demand weakens, or rents increase more than they should…the dots will move down and to the left as occupancy falls and rents follow. Generally, they should move up and to the right in 2025. ➡️ Some properties on the chart have very strong rent growth. Remember, this is one point in time. The dots are sparse above 10% because that type of growth is not sustainable. The highest growth rates are often properties that had a very rough year in 2023 and are now rebounding to make up for the loss, or they are renovating units and the higher price reflects the upgrades. ➡️ Related to the above, Radix data shows that U.S. rents have increased an average of ~3% per year from the summer of 2019 to now (5 years). It was not a steady growth rate from point-to-point because the supply and demand drivers were not linear either. Over a long period of time, properties should trend closer to that pace. 

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If you’re interested in investing in the South Florida rental market , check out our report. #absorption rates rose in April 2024 and the median asking #rents picked up in #vacation home and #affordable markets in April 2024 in the Southeast #Florida. After declining in the second half of 2023, #multifamily asking rents held at their current levels in April from the prior month in #MiamiDade, #Broward, #PalmBeach and #MartinCounty. However, multifamily #asking rents rose in zip codes associated with cities that are #vacation markets: #HobeSound (10.3%), North #PalmBeach (8.7%), #Boynton Beach (8.2%), Palm City 4.0%), Jupiter (3.4%), and #Boca Raton (2.8%). With #renters looking for #affordable homes, markets where the median asking rents of the zip codes were below $2,500 saw strong rent growth such as #Stuart (2.3%), #DelrayBeach (2.3%), #Homestead (1.3%), and #LakeWorth (0.6%). Asking rents are likely to continue to pick up in the affordable Class B/C apartments even with significant construction underway (Class A which where the median rents will be higher).   Check out the report in the link below. I've included lots of historical zip code level data from rental listings on the #MIAMI #MLS and Rental Beast (non-MLS data). Miami Association of Realtors MIAMI Commercial #miamiforwardfocus #miamiforwardthinking

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Tampa, Dallas, Nashville, Charlotte, Orlando, Phoenix, Raleigh, Atlanta, Austin are the bottom markets for multifamily, with negative Year-over-Year Rent Growth averaging at -3%. Tampa saw a -1.5% decrease while Austin experienced a -6.5% loss in rents. The SMILE Strategy (Southeast to Southwest US Cities) is displaying fundamental weaknesses, emphasizing the attraction of easy and affordable construction for developers. With 4-5% growth rates in supply, these markets face challenges due to cheap costs and abundant infrastructure for suburban development. Unfortunately many of the large asset managers in the apartment space have bought into this strategy heavily and now have to wait out the excess supply to get back to growth. Crossbeam advocates a development strategy focusing on high barriers to entry and areas with higher gross margins. This approach drives rent through scarcity, highlighting the Rockies as a prime example with constrained land, complicated limited access to water, and a growing population. We would rather not have to "time the market", especially in low-cost, low-barrier markets that are prone to cyclical swings. Crossbeam's preference for building in high barrier locations like ski towns ensures lower risk, volatility, and better margins, ultimately leading to higher Net Operating Income. Generally in these hard to reach places you don't see the volatility of the boom and bust SMILE markets. The data underscores the importance of strategic market timing and development choices, shedding light on the benefits of focusing on high barrier, supply-constrained markets for long-term success. For Crossbeam this has the right focus on capital preservation and protection while maintaining the total return profile long term. Learn more about Crossbeam and their KB Mountain West Housing Strategies Fund at www.crossbeamcapital.com

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The U.S. apartment market showed solid performance in many aspects during Q2 2024, driven by 532,000 new jobs and strong demand. This year, over 612,000 units are expected to be absorbed. While supply will peak at 629,000 units in 2024, it is projected to decrease by 20% in 2025. Rent growth has been modest at 1-3% but is expected to exceed 3% in many top markets by 2025 due to limited supply and continued high demand. Read more in our latest forecast: https://lnkd.in/gJj2TG9b

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NAHB predicts a significant pullback in multifamily starts for 2024. Are we surprised? Multifamily Developer Confidence is in Negative Territory. In the fourth quarter of 2023, multifamily developer confidence remained in negative territory, as revealed by the Multifamily Market Survey (MMS) conducted by the National Association of Home Builders (NAHB). The survey produces two key indices: the Multifamily Production Index (MPI) and the Multifamily Occupancy Index (MOI). The MPI, which gauges sentiment about current production conditions in the apartment and condo market, scored 41, below the break-even point of 50. Meanwhile, the MOI, measuring the industry’s perception of occupancies in existing apartments, registered 77. Tight lending standards and high development loan costs continue to hinder financing for new multifamily projects. Given the substantial supply of multifamily units under construction, NAHB predicts a significant pullback in multifamily starts for 2024 #realestatedevelopment #realestateinvesting #passiveincome #multifamily #realestate #multifamilyinvesting #multifamilyrealestate #firsttimedeveloper #raisemasters30 #cre #financialfreedom

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CLOSED – CASH OUT REFINANCE: MUSCLE SHOALS, ALABAMA We wanted to share our latest achievement: a strategic refinancing deal for a property in Alabama, where we successfully secured $2.9 million in proceeds on a non-recourse loan. This distinctive transaction is structured with a 5-year term, featuring full-term interest-only payments, and a step-down prepayment schedule of 5, 4, 1, 1, 1. Moreover, we've locked in an attractive rate of 7.95%. This deal is especially noteworthy not only because of the property's lack of seasoning—a condition that typically necessitates agency financing—but also due to this lender’s ability to underwrite to interest only payments. By underwriting to IO payments, as opposed to the industry standard of Principal and Interest (P&I) or amortizing payments, we were able to raise an additional $300,000+ in loan proceeds, thereby maximizing financial leverage and benefitting our client’s investment strategy. Our innovative financing solution serves as an exemplary quasi-permanent, quasi-bridge program, presenting a significantly more cost-effective option compared to traditional bridge loans. The positive momentum in the market is undeniable, as we witness a surge in activity with an increasing number of requests and successfully executed deals. This transaction not only highlights our ability to navigate complex financing landscapes but also emphasizes our dedication to providing tailored solutions that meet the unique needs of our clients. In an era where adaptability and foresight are key, our team stands ready to leverage our expertise to assist you in achieving your real estate financial goals. Whether you're exploring refinancing options or aiming to capitalize on emerging opportunities, we're here to guide you through every step of the process. Special thanks to Michael Derk, Zack Metzner, Daizy Gomez, & Linsey Farrahi for helping to get this one across the finish line. For expert guidance and to learn how our innovative financing solutions can benefit your portfolio, contact us today. Let's make your real estate aspirations a reality. (916)719-9025 #AlabamaRealEstate, #Refinancing, #CommercialRealEstateFinancing, #InnovativeFinancing, #RealEstateInvesting, #BridgeLoanAlternative, #CREAlabama, #RealEstateFinance, #CREInvestmentAlabama, #AlabamaPropertyInvestment, #RealEstateMarketTrends, #EmergingMarkets, #RealEstateDeals, #CRECapitalMarkets.

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As we celebrate Earth Day, did you know NAR Research produces two reports dedicated to sustainability in real estate? One pertaining to the residential market and another dedicated to commercial real estate. 63% of residential practitioners said energy efficiency promotion in listings was very or somewhat valuable and 50% were directly involved with a property with green features, either on the buyer or seller side in the last 12 months. Residential report here: https://lnkd.in/edrcdYZf Thirty-nine percent of REALTORS® said buildings with green certifications, such as LEED, Green Globes, or the Living Building Challenge, had increased commercial property values. Commercial report here: https://lnkd.in/e-gsxaig Sidnee Holmes manages these reports for NAR.

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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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The predicted crash is not upon us yet. But we aren't out of the wood either. As I've said repeatedly, I have a lot of faith in Multi-family overall. Charge offs and delinquency rates are still sub 1% for Multi-Family and the charge offs appear to be decreasing since peaking in Q4 23. (I.E. the lenders aren't forced to write off bad debt in a foreclosure). That being said stresses in the overall CRE industry could cause some problems with the banks in the next 24 months if the Fed maintains it's hawkish stance. The good: LTV's (loan to value) on most loans are only around 66%, meaning assets have to fall a good deal before the banks will be underwater. Meaning the chance for massive defaults, cascading issues are pretty minimal in the short run. The bad: There are $900B of these loans set to mature by the end of this year. Out of a total $4.7T pie, of which U.S. banks hold around 38%. If those assets are underwater when those loans mature, someone has to take the losses. Even if they aren't sold the banks will require and injection of capital to issue new financing. The ugly: Moody's predicts that 70% of office loans will default at maturity. Since, the bulk of these are anticipated to roll in the next 24 months or less we aren't out of the woods yet. The takeaway. Although, multi-family, retail and industrial are all performing well, a large chunk of bad loans on bank books could inhibit further lending. Notwithstanding bank failures, this causes an issue as that credit is generally required for building and buying of assets. Which could put downward pressure on the entire CRE market, thus a causing a cascade effect on other loans that become underwater as a result. Not an immediate issue but one worth watching.

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Foreclosure: Brand new multifamily asset. 110 units delivered in 2022. 400 Florida Ave. NE in Washington DC. The $44.4mm mortgage ($404K per unit) was recently sold. It is unclear if the note sale transacted at or below par. Current NOI is ~$1mm, and stabilized is estimated to be ~$2mm. Even at the $2mm of NOI, debt yield is only ~4.5%. Assuming the $2mm stabilized NOI is accurate, the value of this asset is likely in the low to mid $30mm range. The foreclosure sale bypasses the Tenant Opportunity to Purchase Act—a law in DC that grants tenants the right of first refusal to buy their property, which would normally be activated during an open market sale. Foreclosure auction scheduled for May 23rd.

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