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Mogul Minute 06/29/2016
June 29 | 2016

Mogul Minute

Here at RealtyMogul.com, we keep our finger on the pulse of all things real estate, from finance to technology and everything in between. We make a point of sharing interesting articles and think pieces among RealtyMogul.com staff to help our team stay abreast of the market, and ahead of the curve.

So we thought, why not share some of these insights with you, our partners?

Got A Minute? Here’s some recommended reading with key points from the content:

Apartment Annual Effective Rent Growth Keeps Moderating in Second Quarter (Axiometrics)

  • Annual Effective rent growth for multifamily continues to moderate as it totaled 3.7% in the second quarter. This figure is down from the last year’s rate of 5.1% in the second quarter of 2015 and 43 basis points lower than the 4.1% from the first quarter of 2016.
  • Occupancy increased to over 95% after two quarters below the threshold.
  • Refer below for a chart of quarterly effective rent growth over the past three and a half years. We are on par with 2013-2014 and slightly below the 2015 pace:

  • Among the top 50 markets, only Houston experienced negative annual effective rent growth in the quarter. This is likely due to their strong concentration of the energy sector and continued high supply figures.
  • The markets with the strongest annual effective rent growth are as follows:

US Apartments Shrink to Smallest Size in a Decade (Multi-Housing News)

  • Apartment sizes are shrinking to its smallest levels in a decade as location and amenities have become the overriding main factors in apartment selection. Studios have seen the largest decline dropping from 614 square feet in 2006 down to an average of 504 square feet in 2016.
  • What perhaps is most interesting is that apartment sizes are shrinking while rents are rising:

10 Issues That Could Impact Commercial Real Estate (AZ Big Media)

  • This list is according to the CRE 2016-17 Top Ten Issues Affecting Real Estate, an annual list produced by The Counselors of Real Estate.
    • The Changing Global Economy – As GDP growth remains sluggish, exports decline, and energy prices remain low, there is potential for global economic deceleration.
    • Debt Capital Market Retrenchment – The first half of 2016 saw a major CMBS issuance slowdown and the upcoming risk retention rules could have a major impact on lending if these trends continue.
    • Demographic Shifts – The Baby Boomer generation is retiring at a rapid pace and CRE is adjusting to Millennial demands. There is likely to be ample opportunity for “experiential” retail but buyer power is limited due to slow wage growth.
    • Densification/Urbanization – A continuation of the rise of mixed use centers is likely to occur as there is pressure on suburbs to become more urban.
    • The Political Environment – As shown in last week’s Brexit, the political environment can have a significant impact on the financial world.
    • Housing Affordability and Credit Constraints – There will be continued demand for multifamily but rent growth is likely due for a slowdown following the rapid growth of the past few years. On the residential side, builders are beginning to target “starter homes.”
    • The Disappearing Middle Class – Middle-market retailers will continue to struggle and will likely see more store closings. There will be ample opportunity at both ends of the retail spectrum.
    • Energy – Regions with high energy concentrations will likely continue to struggle and energy will remain a very volatile market.
    • The Sharing/Virtual Economy – Sharing services will continue to be more widely accepted and traditional operators will have to adjust to the changing landscape.
    • The Rise of “Experiential Retail” – Anchor stores will be re-imagined and operators will search for unique uses that will differentiate themselves from others.

For the Second Year, Rents in Some Stabilized Apartments in New York City Will Not Increase (NY Times)

  • There will be no rent increases for rent-stabilized units for one-year leases while two-year leases will increase 2%. These rates mirror last year’s and this vote is consistent with Mayor de Blasio’s approach during his tenure.
  • Last year’s rent freeze was the first time the Board froze rents since 1969.

Appetite for Casual Restaurants Grows Among City Building Owners (WSJ)

  • Article from the Journal detailing the rise of fast-casual restaurants specifically in New York, however, this is a trend that is being seen throughout the nation in urban environments.
  • Among the factors driving the growth: continued focus on health and fitness, a strong demand for specialty fast-casual eateries from a large millennial workforce, and a dense, affluent population.
  • The fast-casual industry grew 11.5% to $44B nationwide from 2014 to 2015.
  • New York is also seeing a large increase in restaurant/fast casual leases being signed along with a decrease in apparel and drugstore leases signed. According to Amira Yunis, an executive VP at CBRE, “we are taking our hard-earned dollars and spending more of it on what we put in our bodies rather than what we put in our closets.”

A Cap Markets 'Pause,' Then a 'Flurry' (Globestreet)

  • A couple interesting quotes on the impact of Brexit on US CRE from a Q&A with Kevin Thorpe, the chief economist with Cushman & Wakefield:
    • “On the upside, what this vote likely means is that the Federal Reserve is going to be more accommodative with monetary policy and keeping interest rates lower for longer.  The other positive is the potential for a flight to quality, a flight to safety. So once the dust settles, we may see global capital pour into the United States even more aggressively, which would be driving interest rates down. I think it will be seeking core assets for the most part, primarily in the gateway cities. So you could see renewed upward pressure on commercial real estate values in the US.”
    • “Over the next couple of weeks, I think you’re going to see what I’ll call a big fat pause in the capital markets in general. You’re going to see investors go into wait-and-see mode; they want to understand just how significant this event really is and what the global implications are. . . That’s why I think that once this volatility has died down and is repriced into the market, you’re going to see a pause followed by, potentially, a flurry of sales activity.”

165M Financing Earmarked for LA Mixed-Use Project (Commercial Property Executive)

  • Broadbridge LA LLC (Joel Schreiber and Jackie Jangana) have secured financing from Jamestown for the renovation of the Broadway Trade Center (801 S. Broadway) in Downtown LA. The redevelopment is slated to be mixed use project including a food marketplace, bars & restaurants, retail, a hotel, and a rooftop park. The building will also include flexible office space. Rendering for the redevelopment is below:

 

 

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Written by , Associate - Commercial Equity at RealtyMogul.com

Tim evaluates investment opportunities as well as performs due diligence and writes content for various equity and debt transactions. Outside of the office, Tim is an avid sneaker collector, a passionate health and fitness advocate, and a dedicated podcast enthusiast.

 
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