Tag Archive for: multifamily

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When it comes to housing in South Florida, homebuyers and renters aren’t the only ones grappling with sticker shock.

Developers often face construction costs that are 20% to 30% higher than a year ago – a trend that’s already stalled some projects at a time when local residents struggle to secure housing. That means builders have to weigh whether to accept smaller profit margins, eschew some projects altogether or, in the case of affordable housing, seek more money from public funding sources to complete those jobs.

The tri-county region has become one of the most expensive U.S. metropolitan areas to live in due to the heated demand for housing and shortage of developable land. Much of that stems from the influx of out-of-state residents who flocked to the area in record numbers during the Covid-19 pandemic.

The rising cost of materials such as lumber, steel, fuel and iron, as well as tariffs, trade issues and surging labor costs have also driven up construction costs, resulting in higher rents for residential and commercial properties. And rising interest rates also are bringing down some sale prices, which impacts developers’ profit margins.

The spike in construction costs has led some developers to question the viability of taking on certain projects. For example, if construction estimates for condos come in too high, it may not make financial sense to build them, industry insiders say.

Developers and contractors must budget for construction cost increases and prepare for shortages in the supply chain. Items such as concrete, appliances, glass and steel are just some of the necessary staples that can delay the completion of the buildings.

“Construction costs have been as volatile as I’ve ever seen them in my 40 years in the market,” said Michael C. Taylor, CEO of Pompano Beach-based Current Builders. “From August of last year, we are seeing 20% to 25% increases. We don’t have any line items not increasing.”

Typically, Taylor tells developers his quotes are good for six months. But now he can only guarantee prices for 30 to 60 days, as delivery times on certain products have jumped from three months to nearly a year, he added.

Supply chain shortages and material costs are escalating at a pace he’s never seen, said Chris Long, president of Delray Beach-based Kaufman Lynn Construction.

“There’s great demand for housing as people continue moving to Florida, but this has led to affordability challenges,” Long said. “There’s some concern out there that we reached the peak and things need to normalize. They are trying to get deals done before the bubble bursts.”

Construction costs for commercial projects are up 7% to 10% a year, so it’s less severe than for residential projects, said Michael C. Brown, executive VP of Florida for Sweden-based construction firm Skanska. Nevertheless, many of its health care and education clients are scaling down the size of projects – an eight-story hospital wing instead of 10 stories, for instance – to move forward.

Contract Sticking Points

In many cases, the rise in construction costs has created friction between developers and general contractors.

Contracts inked a few years ago couldn’t factor in dramatic building cost increases or supply chain delays, so the parties have to determine who pays for those additional costs, said Lisa Colon, a construction attorney with Saul Ewing Arnstein & Lehr in Fort Lauderdale.

“Owners are making concessions because of supply chain issues that they would not have made two years ago,” Colon said. “Profit margins are less, but you can push it down to the consumer. The consumer will continue to see an increase in rent. Many developers and contractors are now adding price escalation clauses that specify a larger commitment from developers to cover cost overruns. It’s a false thought that contractors are making all this money as prices are going up. Nothing could be further from the truth. Their profit margins are being squeezed even tighter.”

Construction contracts should also address delays and whether material shortages should result in financial compensation, because most contractors will insist on avoiding liability when material shortages are out of their control, said Jordan Nadel, a construction attorney at Miami-based Mark Migdal & Hayden.

 

Source: SFBJ

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After a banner year of CRE investment in 2021, 2022 is off to a solid start.

Reports from both Colliers and CBRE for the first three months of this year found that investment in CRE is up and, by some accounts, setting records.

U.S. transaction volume hit $161B, a first-quarter all-time high, Colliers found. CBRE clocked total transaction volume at $150.4B, which was a 45% increase over the same time the year before.

Volume was up for all asset classes, but unsurprisingly, multifamily took the top spot, capturing $63B, according to Colliers. That amounts to a 56% increase year-over-year and sets a new record for multifamily, according to Colliers.

By CBRE’s count, multifamily also took the lead, but CBRE found it garnered $57B in investment volume, a 42% increase over the previous year’s first quarter. It is common for brokerages to have different numbers based on their research metrics, including size of deals tracked.

Greater New York and greater LA were in the No. 1 and No. 2 spots for transactions, respectively, CBRE found. New York saw $63B worth of deals, while greater LA trailed closely behind with $62B worth of transactions.

Earlier this year, CBRE forecast that even after 2021’s record highs, CRE investment would continue to grow in 2022.

Though interest rates are moving upward and inflation is soaring, these factors haven’t had an impact on CRE yet, Colliers said, though it also noted those would likely be reflected in data later in the year because there is a lag between interest rates being hiked and deal flow effects.

CRE is often called an inflation hedge, and the interest in CRE this year could be seen as confirmation that investors view property as an investment that could withstand the uptick, but now some investors have begun to make moves that indicate they aren’t sure how much longer that will hold true.

 

Source: Bisnow

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Panelists representing the industrial, office, retail and multifamily sectors of commercial real estate made the case for investment in their respective sectors at NAIOP’s CRE.CONVERGE, the virtual conference recently taking place.

In a real-time audience poll, the attendees cited industrial as the sector they would be most likely to invest in.  However, much of the discussion pointed to the upsides in what, so far in 2020, has been mostly seen as a negative story for the other sectors.

“Retail may be the sector everyone loves to hate, but all that means is that it’s at the bottom of a cycle that is going to rebound,” said Wade Achenbach, executive vice president, Portfolio Management at Kite Realty Group. “The strip sector and the mall business were struggling for a lot of reasons, and COVID has dramatically made them the hardest hit. If you just look at that trend alone, that’s going to be short lived. You have to be very careful of what you’re looking at. There is no online-only retailer that’s making money today, nor has there ever been. What’s really happening when somebody says e-commerce?  It’s more of an omnichannel. Even Amazon realizes the value of stores with its purchase of Whole Foods.”

The old adage, buy low and sell high, applies.

“I think there is more of an opportunity (in retail) than any of the other sectors,” Achenbach said.

Speaking on behalf of the office sector, which many are questioning in light of the shift to work from home, George Hasenecz, senior vice president, Investments at Brandywine Realty Trust, said its demise has been incorrectly predicted in the past — just as it is now.

“When you think about all the economic events and social trends that have occurred, the dot com bust, September 11, the densification of the office and COVID, people have always said that office is dead. Office has always reinvented itself,” said Hasenecz. “Work from home has been successful in response to the crisis, but it’s very difficult to work in a collaborative environment. How do you maintain your culture, bring new employees on and recruit? Work from home really does go against people’s needs and desires to come together. We think that Class A office is going to be in high demand. Companies want to make sure their employees and their talent feel safe. There still is the competition for talent and office space will be used as a recruiting tool.”

A similar story is playing out in the multifamily sector, said John Drachman, co-founder at Waterford Property Company. The pandemic has driven many people out of dense urban areas and into suburban multifamily units. The turnaround has been sharp in large markets such as New York, San Francisco, Los Angeles and Chicago, where vacancies are increasing and rents are falling. One year ago, the main story line in these markets was a lack of affordable housing.

“As with retail and office, a wider perspective will benefit investors,” Drachman said. “People will move back to urban areas. If you can stomach a little bit of pain, over the long term there could be great buying opportunities for urban apartments.”

Rene Circ, senior managing director and COO at GID Industrial and GID Investment Advisors LLC, spoke on behalf of the industrial sector, which to no one’s surprise seems to be strong. He said there are essentially very few people who are not buying things online.

“I would argue that too much capital is allocated to multifamily and way too much is allocated to retail,” Circ said. “Investors will need to invest in industrial.”

The panel was moderated by Will McIntosh, head of Research at USAA Real Estate.

 

Source: GlobeSt.

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A key component of a successful real estate investment is choosing the right asset class to invest in within the given market.

Supply and demand is constantly changing, meaning what was a lucrative investment one, two, or 10 years ago may not be worthwhile today. See what types of real estate are in high demand right now and how investors can participate in the growing market.

Before we dive into where opportunity lies, note that just because there’s a general demand for these types of real estate doesn’t mean there’s opportunity for them in every market. Real estate is a very localized business that operates on a macro and micro level. For active investors, it’s important to identify what opportunities lie in your local market or participate in a more diversified investment portfolio specializing in these asset classes through a real estate investment trust (REIT).

1. Cold Storage

Cold storage is a type of industrial real estate responsible for the storage and transportation of cold goods, including food products. The global pandemic interrupted the food supply chain, making consumers and large grocery retailers adapt to the shift in consumer preferences for online grocery sales as well as the need for more cold storage as a whole.

This specialized niche has several barriers for entry, making it a difficult asset class to invest in outside of Americold Realty Trust (NYSE: COLD). Americold is the only industrial REIT specializing in cold storage, owning more than 1 billion cubic feet of cold storage space. The company is well positioned financially to grow with the increased demand.

2. Data Centers

We are undoubtedly in the age of technology, with more people and products becoming reliant on the efficiency, ease, and convenience of technology. Data centers are responsible for safely storing and computing data for the government, large corporations, cloud companies, and even data used from phones.

Demand for data centers has been on the rise over the past decade, but COVID-19-related work-from-home orders have put even more pressure on this growing sector. While demand as a whole is up, certain markets are leading the sector, including northern Virginia and Atlanta.

Data centers are another unique sector to invest in with large barriers for entry, making any of the top data center REITs a wonderful way to participate in this industry.

3. Residential Housing, With Emphasis On Affordable Housing

A study conducted by Freddie Mac found that the U.S. is short 2.5 million to 3.3 million housing units in 29 states, with states like Oregon, California, Texas, Minnesota, Florida, and Colorado the leaders in the housing shortage. These states, among others, are also home to some top-tier markets, where housing prices far outpace wages for the area, putting affordable housing in serious demand.

This means multifamily properties, single-family homes, and new construction can potentially be good investments in the right markets. This asset class is the easiest point of entry for investors, with dozens of options available to participate in actively, like fix-and-flip or rental properties, or passively through residential REITs.

However, it’s important to note that with current eviction moratoriums and a record number of tenants being unable to pay rent, the rental industry is facing tough times, making this a volatile market to participate in right now as a smaller investor. However, this industry is fairly resilient, and while it’s currently facing unique challenges, this market clearly has long-term demand and should bounce back in time.

 

Source: The Motley Fool

Will the potential economic slowdown have a significant effect on the commercial real estate market in South Florida? Not really, says Nathan Perlmutter, vice president in commercial lending at TD Bank, in this podcast.

Listen to the podcast for more insights on:

  • Projections for the multifamily sector.
  • Miami office sector trends that CRE experts are watching in 2020.
  • The impact of the global trade war on the industrial sector’s growth.
  • How landlords are adjusting to major changes in the retail landscape.
  • The effect millennial preferences are having on the multifamily market.
  • The biggest CRE trend in South Florida in 2020.

 

 

Source:  SFBJ

Panelists spoke at the RealInsight’s Florida Commercial Real Estate Summit at the Hyatt Regency Miami on Wednesday, October 16, highlighting the potential for distribution centers, hotels, shopping malls, technology hub and sports stadiums in Florida’s major cities.

Despite years of continuous activity, Florida’s industrial and multifamily sectors still have room for growth,  said Crocker Partners Managing Partner Angelo Bianco, Mitchell Property Realty President Ed Mitchell and Merrimac Ventures President and CEO Dev Motwani.

“Industrial is where we get our stuff,” said Mitchell.

His company recently bought industrial warehouses in Fort Lauderdale and Tampa, and is soon closing on one in Miami.

“Capital lenders are all over you. It’s nice. Everybody wants to do industrial now,” Mitchell said when asked how capital partners influence his acquisition strategies. “But land costs present a challenge. It costs more to get land in Miami than to build.”

The average land acquisition price per square foot costs $60 to $70 a square foot.

In Boca Raton, Crocker is creating a campus with a food court and STEAM lab maker space, hoping to draw a tech company.

“The idea is to make the workplace like a hotel.” Bianco credited WeWork for the concept. “Their loss is our gain,” referring to the company’s recent woes.

The retail category drew little enthusiasm from panelists, especially at this time when national chains are flailing.

“The spaces are of interest only when there is a big box that you can tear down and add multifamily,” said Motwani. “Multifamily developments continue to generate strong returns, especially in the luxury market.”

As for why affordable projects don’t draw greater interests, Motwani pointed to the financial realities.

“Concrete costs what it costs. Land costs what it costs,” said Motwani. “From a financing perspective, it makes sense to get luxury condos done, not affordable housing.”

But municipalities can encourage affordable housing development through incentives, including fee relief, parking ratios and adding density bonuses, agreed Motwani and Bianco.

 

Source: Miami Herald