Posts

How to Find Continued Value in Apartment Acquisitions

With concessions ticking up and rent growth slowing, is it time to question or finetune allocation levels and strategies in multifamily investing?

The stability, durability and continued capital flows into multifamily investing permeate today’s headlines, with industry pundits believing apartments to be the most popular product type with real estate investors in 2018, second only to industrial. Mixed signals abound among varying markets, and it’s important to dissect and triangulate the real data as the analytics don’t always tell the full story.

A first quarter report from Fannie Mae cited:

  • Positive, but slowing net absorption in 2018 compared with 2017 (CoStar)
  • Surging apartment development, peaking at over 440,000 units nationwide and up 16 percent from 2017 (Dodge Data & Analytics)
  • Rising nationwide vacancy rate predicted to approach recent historical average of six percent by year-end (Fannie Mae)

With concessions ticking up and rent growth slowing, is it time to question or finetune allocation levels and strategies in multifamily investing? Two principal factors are worthy of consideration here: geography and investment horizon.

Nationally, development is projected to keep pace with net absorption, as Fannie Mae projects net rental demand of 380,000 to 460,000 units in 2018. However, parsing geographies more discerningly reveals that new multifamily construction has been heavily concentrated in America’s largest cities, where pockets of oversupply are projected. New York, Boston, Washington, D.C., Chicago, Los Angeles and San Francisco present some of the highest unit construction per capita in the country, yet are all projected by Moody’s Analytics to experience job growth in 2018 that lags the national forecast of 1.5 percent.

All markets do not bear these metrics though, especially in select secondary markets where Fannie Mae reports the ratio of projected population and employment growth to rising apartment inventory is more favorable. Cities such as Houston, Dallas, Austin, Texas, Salt Lake City and Portland, Ore., even while seeing brisk construction, are forecast to increase job growth between two to three percent amid continued rental escalation. Two markets worth investigating include Phoenix, where projected 2.6 percent employment growth forecasts the demand for 10,000 units against projected 2018 delivery of 8,000 units, and Las Vegas, where projected 2018 absorption is double the number of units under construction.

Development nationwide should peak in 2018, as planned units in comparison to those under construction taper off, even in cities with the most active pipelines. This suggests that investors with a longer hold horizon may see their patience rewarded when new supply is absorbed and vacancy rates level off. Several long-term demographic trends also bode well for multifamily absorption and rental rates:

  • Householders continue to delay marriage and childbirth, thus tending to remain in apartments
  • Population growth in many areas, particularly in the Southwest, is being fueled by immigrants who tend to be renters
  • Real household income growth is occurring only in the upper 20 percent of earners, rendering home ownership less affordable for many
  • Student loan debt, which doubled as a percentage of GDP between 2006 and 2012, stymies home ownership for younger households
  • Conversely, the 65+ baby boomer generation, America’s most rapidly growing domestic cohort, is demanding more rental housing as they age out of owned homes and reevaluate their investment and retirement options

In our view, investors who choose their geographies wisely and take a long-game approach should see their properly selected multifamily investments buoyed by these market and demographic trends, while enjoying relatively predictable cash flows in the interim.

Read more from National Real Estate Investor

 

San Francisco’s homeless crisis is driving tourists away

San Francisco’s hotels are facing a serious problem.

The city’s idyllic image of the Golden Gate bridge and grandiose views of the bay are being replaced by concerns about needles and feces littering the streets, homeless citizens sleeping on sidewalks or in Bay Area Rapid Transit stations and aggression toward visitors by people with untreated mental illness. Visitors are noticing and rethinking booking events and vacations at hotels around the city.

San Francisco’s homeless population was down by 0.5% in 2017 compared to 2015, but is about 17% higher compared to 2013, according to SFist. While homelessness is nothing new for the city, hoteliers and local business say street conditions have worsened.

Within 153 blocks in downtown, there were over 300 piles of feces, 100 drug needles and trash on every block, a recent report by NBCBayArea revealed. Complaints of poor street conditions to 311 have skyrocketed in recent years. In 2016, 311, a city agency where visitors and residents can report issues or seek information about the city, received 44,000 complaints of encampments, human waste and needles, up from 6,300 complaints in 2011, according to the San Francisco Chronicle.

“[Visitors] are noticing it and hearing about it and saying, ‘well, why would I bring my conference here?’” Hotel Council of San Francisco Executive Director Kevin Carroll said.

Visitors often have rave reviews for the local restaurants and hotel service, but say they will not come back or will not bring their families here, he said.

San Francisco is not the only major West Coast city dealing with issues of homelessness and street conditions impacting tourism and hospitality. Anaheim, home to Disneyland with its spotless, litter-free Main Street, U.S.A., has the stark contrast of homeless people who live just outside the park. The city has been looking into ways to help its homeless population, such as providing emergency shelter and employment opportunities. Honolulu also took action in recent years on cleaning up the streets, including around its popular Waikiki area.

Read more from Bisnow

 

 

 

Could cryptocurrency be the future of real estate buying?

In August 2014, a secret buyer contacted the realty arm of Martis Camp, a luxury real estate community in North Lake Tahoe in California, with an unorthodox deal: a purchase of land for 2,739 Bitcoins. At the time, the cryptocurrency that recently turned the Brothers Winklevoss into a pair of Bitcoin billionaires was worth about $580 per coin. Multiply that 2,739 times over, and the buyer paid $1.6 million for a 1.4-acre piece of land.

“Many of our buyers are in the tech sector and are early adopters of Bitcoin. We understand the importance of adapting to cutting-edge purchasing methods,” said Martis Camp sales director Brian Hull, who described the buyer only as a “Silicon Valley entrepreneur.”

That Bitcoin-financed real estate transaction was one of the largest, but it was not the first. Five months earlier, in March 2014, another secret buyer purchased a villa in Bali for 800 Bitcoins, or roughly the equivalent of $500,000. Two months later, a suburban home in Kansas City, Missouri, sold for the same amount. Last September, a buyer—identified only as working in the tech industry—bought a single-family home in Austin, Texas.

Most of these transactions involved the buyer converting Bitcoin into U.S. dollars to make the purchase—a liquidation of assets, much in the same way a first-time homebuyer might use investment dollars to afford a down payment.

Then, in late December, what was considered to be the first Bitcoin-only real estate deal went down when Ivan “Paychecks” Pacheco, co-founder of cryptocurrency website Bits to Freedom, transferred 17.741 Bitcoins ($275,000) to a seller to buy a two-bedroom condo in Miami. In early February, Bitcoin investor Michael Komaransky sold his Miami mansion in a deal where the buyer—again, anonymous—paid the $6 million listing price almost entirely in Bitcoins (455, to be exact).

Read the full article from Curbed

20 Secondary Cities to Watch in 2018 (and Why)

It took about 7 years from the height of the housing collapse for primary markets to rebound.

Until 2016, they were still exceeding the appreciation rates of secondary markets, but then secondary markets surpassed them in the second half of 2016 and continue to outpace primary markets.

PwC (PricewaterhouseCoopers) and Urban Land Institute have highlighted secondary cities that are on the rise in their recent market outlooks. We take a look at which secondary cities we need to be paying attention to in 2018 and why they have become so popular with investors.

Why Secondary Cities?

In PwC’s survey, some of the top primary markets like San Francisco and Manhattan tumbled down to 27 and 46 respectively while secondary cities leapt into the top 20. There are several reasons for the surge in investor interest – chief among them is affordability. Other factors:

·      Investors have come to understand the complexities underlying the potential of secondary cities

·      Unlike typical real estate cycles, new construction in secondary cities has remained low, preventing the problems created by overbuilding

·      Hiring costs for businesses are 14% – 16% lower than in primary markets

·      Cost of living is much lower in secondary cities with housing a full 45% lower

·      Foreign investors are increasingly focusing on secondary cities, accounting for 10% of transactions involving secondary markets last year

Lower costs of living and of doing business in secondary cities enable investors to save more money on their investments while reaping more of the profits. On the opposite side of the coin, as real estate pricing continues to go up in primary markets, investors are pocketing less and less while also being constrained by limited inventories and interest waning in assets in places like New York, DC and LA. What is more, those macroeconomic factors are predicted to hold for years to come.

Read more from NAI Global

Why Silicon Valley isn’t headed for a recession any time soon, economist predicts

At least one respected economist has an uplifting message for the real estate community: stop worrying about a downturn.

Christopher Thornberg, founding partner of Los Angeles-based Beacon Economics, on Tuesday told the crowd at Colliers International’s 19th annual Trends event that it isn’t yet time to start collective hand wringing. In fact, he predicted the economy would be full steam ahead for another 24 months and that, in many ways, the economy may better in 2018, even as he warned that he did see signs of a new bubble that could impact the market in the long-term.

“When you look at the underlying indicators, not only is there no chance of a downturn over the course of the next 24 months, if anything, the economy is actually going to accelerate,” he said. “It’s going to be a good year.”

The message comes as a welcome reassurance in Silicon Valley, which has seen economic upswing for a nearly unprecedented stretch, bringing consistent gains in leasing activity, transaction dollar amounts and development across the Valley.

Read more from Silicon Valley Business Journals

‘Oakland Is Hot’ And Everyone Is Finally Noticing

Oakland is shedding its old reputation as a city once plagued with crime, and developers and investors are scrambling to secure a foothold.

Thousands of units of housing are in the works and more people want to live here.

“We’re like the girl in middle school who just got her braces off,” Oakland Mayor Libby Schaaf said during a Bisnow event Tuesday. “We’ve always been cute, but suddenly everyone’s noticed us. … Oakland is hot.”

While Oakland still has more work to do, the city is safer than it once was, she said. Over the last five years, shootings have been reduced by 50%, armed robberies are down 55% and home burglaries are down 61%, according to Schaaf. She said Oakland is no longer on the top 10 list of most dangerous cities.

Despite the city’s growth, increased homelessness could undo some of the city’s progress.

“There’s something about how we develop housing that has not figured out how to adjust quickly to population shifts,” Schaaf said. “That’s not just an Oakland problem. That’s an international problem.”

Read more from Bisnow

Trailblazing commercial real estate brokerage NAI Northern California closes 2017 strong with revenue up 60%

Successful sales and leasing transactions across Bay Area multifamily, retail, and office  continue to accelerate growth

SAN FRANCISCO, CA – February 6, 2018 –  From offices in San Francisco, Oakland, and San Jose, the team at NAI Northern California has been working hard closing sales and leasing transactions for clients and assets across the Bay Area and beyond. 2017 was up 60% compared to 2016, and 2016 was up more than 30% from the previous year. Growth was spurred by the team’s successes in the multifamily, retail, and office investment property sectors and driven by a unique technology platform and collaborative culture.

“We have assembled talented teams and enabled them with unique technology tools, which along with our collaborative environment and code of ethics, really results in something special in the Bay Area commercial real estate landscape,” remarks President James Kilpatrick.

He adds, “As we kick off 2018, we have exciting plans to further leverage our competitive advantages: our collaborative Salesforce platform, lead generation, and cross-selling technology applications. Of course, we have more surprises to come.”

One of NAI Northern California’s strong suits, multifamily investment property sales accounted for 42% in 2017, placing the firm in the top two spot in the East Bay market. The firm’s notable multifamily transactions include the $26.5 million sale of an 88-unit apartment building in Fremont. Retail closings included the $27 million sale of South Valley Plaza in Gilroy. Office was also strong, including the $11.9 million sale of 1098 Valencia Street in San Francisco’s Mission District.

David Reed, Managing Director in the San Francisco office, points out, “Our success is all about empowering our team with a great brokerage platform from training workshops to marketing support to awesome events.”

NAI Northern California reflected on the past year of growth at the January Kick-Off Event hosted at the Bently Reserve in San Francisco’s Financial District. James Kilpatrick along with Managing Directors David Reed and Brett Stratton led the team in celebrating not only increased revenue but team growth with the addition of significant talent and launch of strategic initiatives. The highest honors went to 2017 #1 Top Producer Shivu Srinivasan as well as the President’s Club, which includes Shivu and the other highest sales performers — Mary Alam, Tony Alanis, Doug Sharpe, Grant Chappell, and Jordan Geller.

“I am proud of our accomplishments in growing production steadily year over year and am thrilled and grateful to watch our talent base execute,” says James Kilpatrick. “Many of these brokers have dramatically multiplied their production with hard work, backed by our tools and platform.”

 

About NAI Northern California

NAI Northern California is a full service commercial real estate firm serving the Northern California Bay Area. Our team delivers technology-enabled commercial real estate services that create value for our clients, industry, and communities.

NAI Northern California is a partner of NAI Global, the largest commercial real estate brokerage network with more than 400 offices worldwide and over 7,000 professionals completing in excess of $20 billion in commercial real estate transactions globally.

www.nainorcal.com

What Everyone Must Know About Industry 4.0

First came steam and the first machines that mechanized some of the work our ancestors did. 

Next was electricity, the assembly line and the birth of mass production. The third era of industry came about with the advent of computers and the beginnings of automation, when robots and machines began to replace human workers on those assembly lines.

And now we enter Industry 4.0, in which computers and automation will come together in an entirely new way, with robotics connected remotely to computer systems equipped with machine learning algorithms that can learn and control the robotics with very little input from human operators.

Industry 4.0 introduces what has been called the “smart factory,” in which cyber-physical systems monitor the physical processes of the factory and make decentralized decisions. The physical systems become Internet of Things, communicating and cooperating both with each other and with humans in real time via the wireless web.

Read more from Forbes

Next three years seen as largely favorable across Bay Area CRE market 

CRE professionals have a relatively positive outlook for Bay Area real estate for the next three years.

The recent Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate survey showed renewed optimism across multiple markets over that time frame, due in part to increased investor activity in the last half of 2017, the tax overhaul and a strong stock market. The biannual survey projects a three-year outlook for California’s commercial real estate markets.

Read more from Bisnow

Northern California cities remain prime locales for CRE investors

Investment activity in the Bay Area and Northern California remained strong in 2017.

San Francisco was reported as having one of the strongest office markets in the country, according to Avison Young’s 2018 North America and Europe Forecast. Industrial remains in high demand with low vacancies in Oakland and the East Bay. Investment activity remained strong throughout the Bay Area and capital markets continue to seek out additional opportunities in 2018.

Read more from Bisnow