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Is Retail The New Darling Of The CRE Industry?

A recent panel discussion at ICSC Las Vegas covered the state of the capital markets and during a morning session, where industry experts provided insights into the current situation, shedding light on the challenges and opportunities facing the market. Hessam Nadji, the president and CEO of Marcus & Millichap, kicked off the discussion by acknowledging the significant disruption caused by the movement of interest rates.

Nadji compared the situation to the financial crisis of 2008 and 2009, emphasizing that while the financial system was not on the brink of collapse this time, the impact on valuation and transaction velocity was similar. Sellers, Nadji noted, were hesitant to enter the market unless compelled by urgent circumstances. However, any products that did hit the market were attracting multiple offers, despite the tight financing conditions, with the intention of refinancing later, he said. Nadji also pointed out that retail, surprisingly, emerged as the new darling of the industry, outperforming other property types.

Glenn Rufrano, ICSC Chair and former CEO of VEREIT, moderator of the panel, expressed relief that the industry had moved away from the bottom of the economic downturn. This sentiment was echoed by other participants who acknowledged the progress made but also emphasized the need for more activity. Alex Nyhan, CEO of First Washington Realty and ICSC Trustee, for example, noted the changing composition of buyers for grocery-anchored shopping centers.

Nyhan explained that “caution had become prevalent in the market,” prompting a “wait for the debt market to stabilize approach” before putting more properties up for sale. However, he mentioned that demand from life companies remains strong.

Rufrano asked about the dynamics of buyers and sellers in the market where panelist Devin Murphy, president of Phillips, Edison & Co., responded that there was still considerable activity in the market. According to Murphy, while overall activity had declined, there were still opportunities to acquire assets. For example, Murphy’s company had successfully acquired four grocery-anchored centers in the first quarter, despite the challenging environment. The sellers encountered currently are primarily institutional investors motivated to sell due to the denominator effect, which aimed to rebalance their portfolios. Additionally, individual holders who were not willing to inject more equity into their assets are also ones who are seeking to sell. Despite the decline in overall activity, Murphy revealed that his company had managed to purchase nearly $100 million worth of assets in Q1.

Rufrano acknowledged the importance of understanding the motivations behind buyer and seller decisions. He expressed optimism, expecting to see more activity before the end of the year, indicating potential progress in the capital markets.

 

Source:  GlobeSt.

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Retail Landlords Urged To Embrace Flexibility In The Face Of Bankruptcies

Landlords are being urged to adopt an adaptable approach to their retail properties, according to Spence Mehl, a partner at RCS Real Estate Advisors. As the retail landscape undergoes significant transformations, we chatted with Mehl on the subject, where he shared his insights and thoughts on the current trends in the market surrounding the recent ICSC Las Vegas event.

Mehl points out that landlords have been displaying a high level of confidence in lease negotiations and amendments, fueled by a period of economic growth and a seemingly stable retail sector. However, recent bankruptcy filings from prominent big-box retailers and smaller chains, such as Bed Bath & Beyond, Buy Buy BABY, David’s Bridal, and Tuesday Morning, have sent shockwaves through the industry.

The wave of bankruptcies has raised concerns about the potential flood of vacant retail spaces hitting the market simultaneously, he tells GlobeSt.com. This, in turn, has prompted questions about how landlords will react and whether their bullish stance will remain unchanged in the face of such challenges.

The retail industry is no stranger to change, with online shopping, evolving consumer preferences, and the impact of the COVID-19 pandemic reshaping the way people shop. Landlords now find themselves at a critical juncture where they must adapt to the changing market dynamics to remain competitive. According to Mehl, it will be fascinating to see how landlords react and how bullish they remain if an influx of empty spaces floods the market simultaneously.

 

Source:  GlobeSt.

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Developers Plan Apartments On Allapattah Auto Dealership Site

A buildable property was purchased by Biscayne Companies and Etienne Equities in Miami’s Allapattah district.

The $3.5 million cash sale was completed last month. Used auto dealership Ocean Auto Sales presently occupies tge 0.7-acre location at 2951 NW 27th Avenue, just west of Melrose Park.

According to records, the dealership paid $2 million for the land in 2006.

The new owners want to start construction on a multifamily building with a retail component in two years. 114 units are permitted on the site.

The sale takes place as development in Allapattah, a working-class neighborhood west of Wynwood, is booming in response to Miami’s increasing real estate prices over the previous three years.

The proposal by NR Investments to construct a mixed-use complex at the GSA building at 1950 NW 20th Street is one of the largest projects currently under development. The designs call for 2,500 homes, a 300-room hotel, as well as shops and offices.

Longtime Allapattah developer Lissette Calderone suggested constructing a 1,250-unit rental complex in March, closer to Miami International Airport and just west of the neighborhood.

 

Source:  Commercial Observer

 

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Multifamily May Outperform Expectations in Q2

It is looking possible that multifamily’s fundamentals in the second quarter will finish stronger than a year ago. It is even possible that the quarter overall may outperform expectations. This is according to CoStar Group, which is basing this premise on April’s rental numbers that are showing every sign that the sector is beginning to stabilize.

“National year-over-year asking rent growth slowed to 2.1% at the end of April from 2.6% at the end of March, vacancy rates held steady and 34,000 units were absorbed, signaling a strong start to the second quarter,” says Jay Lybik, National Director of Multifamily Analytics at CoStar Group.

It is welcome news for the category, which CoStar had put on alert about a month ago that the following 90 days were critical for apartments. The firm’s hope was that absorption can match deliveries by the end of the second quarter to help stabilize this sector, Lybik said at the time. Yet, there’s no guarantee since risks are prevalent, including a potential weakening in the labor market and tighter financial conditions, he noted.

One month later and it appears multifamily may be over the hump.

“With the peak leasing season now underway, multifamily conditions started to show signs of stabilization,” Lybik said.

National average rents rose by 4% to $1,656 from $1,650 last month’s April, according to CoStar. And Heartland Indianapolis showed the highest year-over-year rent growth by a much bigger climb to 6.1%, which was ahead of the nearby Midwestern cities of Cincinnati, Columbus, St. Louis. In fact, the Midwest region took six of the top 10 rent growth spots in April. Fifth in place was San Diego, followed by Chicago, Boston. Northern New Jersey, Cleveland and with Miami coming in tenth.

In other markets, however, year-over-year rent growth slowed as demand for multifamily weakened. Among those are some in the Sun Belt where the uptick is headed down after those markets grew quickly when renters relocated in recent years.

 

Source:  GlobeSt.

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JV Proposes 10-Story, 115-Key Hotel In Wynwood

Robert Finvarb Companies and Hidrock Properties are planning a 115-room branded hotel in Miami’s Wynwood, marking the joint venture’s third project in the artsy neighborhood.

An affiliate of Aventura-based Robert Finvarb and New York-based Hidrock bought a 0.2-acre site at 160 Northwest 28th Street for $6.7 million, records show. The seller, an entity managed by Maxmillian Beltrame Widmann in Miami, had paid $3 million for the vacant lot in 2016.

The proposed 10-story hotel will cost an estimated $20 million to build, said Hidrock CEO Abraham “Abie” Hidary.

“We are in the very early stages of planning it,” Hidary said. “There will be three food and beverage components on the ground-floor, the second floor and the rooftop.” 

The joint venture has not yet identified the brand for the hotel, Hidary added.

Hotels represent the next wave of development in Wynwood, Hidary said. The neighborhood’s first hotel, the 217-key Arlo Wynwood at 2217 Northwest Miami Court, built by Quadrum Global, was completed last year. A partnership involving Andres Klein, founder and principal of BH Investment Group, is developing One Eleven Wynwood Hotel by Sonder, a proposed 72-room project at 111 Northwest 26th Street. And in December, Aventura-based Turnberry Associates unveiled plans to build a mixed-use hotel project at 127 and 135 Northwest 24th Street and 128 and 138 Northwest 25th Street. Last year, Turnberry paid $13.1 million for the properties.

 

Source:  The Real Deal

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Apartment Rents Forecast To Grow 0.8% Next Year

If you’ve been dismayed by this year’s apartment rent growth trajectory, brace yourself for 2024. Next year, multifamily rent growth will clock in at 0.8%, according to a new forecast by Markerr, compared to this year’s relatively robust 4%.

The 2024 prediction marks the lowest rent growth since 2020, or shortly after the pandemic began.

But because markets reflect regional differences, a closer look at different areas is important. For example, in 2023, Sunbelt and Tertiary markets are expected to outperform the top100 average, while Coastal and Rustbelt areas will underperform the same group. But within a year, the Rustbelt and Tertiary markets are expected to outperform the top 100 average.

At the top of the MSA forecasts for this year is Albuquerque which is projected to climb to 7.4%, followed by Wichita at 7.3%, Tampa at 7%, North Port, Fla., at 6.9%, Spokane at 6.9%, El Paso at 6.5%, Tulsa at 6.4%, Ogden, Utah, at 6.2% and Palm Bay, Fla., at 6.1%. Then, come 2024, the MSA forecasts shift dramatically with Augusta, Ga., in the lead at 4.1%, followed by Albany, N.Y., at 3.9%, Syracuse at 3.8%, Baton Rouge at 3.8%, Sacramento at 3.6%, Grand Rapids at 3.4%, Jacksonville at 3.1%, Chattanooga at 3.1%, Cleveland at 3% and Harrisburg, Penn., at 3%. And the top10 markets from 2023 are expected to fall to an average rank of 73 out of 100 in 2024.

When MSAs are calculated on a two-year compounded growth basis, Winston-Salem, N.C., North Port, Fla., and Chattanooga are forecast to lead the top 100 markets at 8.6%, 8% and 8 % respectively.

Winston-Salem wasn’t in the top markets in either 2023 or 2024. But it’s expected to jump into first place with the largest contributors to its rent growth being home prices, multifamily permits, job growth and occupancy rate. According to Markerr, “Said differently, home prices, multifamily permits, job growth and occupancy rate are driving the forecast higher while median gross income is forcing the forecast lower.”

In contrast, New York City was in the bottom 10 of the compounded two-year growth forecast at -0.4% because of unfavorable conditions of population growth, historical multifamily rent growth and median gross income.

 

Source:  GlobeSt.

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Multifamily Series: How Affordable Housing Is Changing

The shortage of affordable multifamily housing continues nationwide. The good news is that developers and architects are bringing solutions to the multifamily market.

It’s no secret that affordable housing is in short supply. Both the single-family and multifamily market struggle to meet the need. According to the National Low Income Housing Coalition, not a single one of the 50 states has an adequate supply of rental housing that’s affordable and available to extremely low-income households—those who earn 20% to 60% of their area medium income. The Coalition pegs the shortage at 7 million homes.

When buildings become available for lease or sale, they fill quickly, and long waitlists result.

Still, multifamily developers and champions face myriad issues: construction, labor, and land costs; lengthy planning and building review processes; restrictive zoning codes that favor single-family residences; and less available funding through tax credits, subsidies and grants, says architect Steven Lee, senior associate with Page & Turnbull(link is external), an architecture, design, planning and preservation firm. Neighborhood resistance to development also remains a deterrent as well.

Yet, for multiple reasons, many real estate experts express cautious optimism.

Developer Jeff Klotz, whose firm, The Klotz Group of Companies, operates in the South and Southeast, is one of them.

“We’re getting people into new housing that’s more energy-efficient and constructed with more durable materials to meet tougher building codes,” he says.

When it comes to design, more widespread efficiencies in layouts pare wasted space and permit more units, while better choices about which common spaces are needed benefit residents—and often the community.

Architect Matt Duggan, with TA , an architecture, master planning, and interior design firm, sees more reason to err on the positive.

“The affordable market is embracing more cutting-edge, sustainable, aggressive goals than the market-rate is, in part because local authorities that offer low-income tax credits and other funding mandate or incentivize doing so, often through competitive requests for proposals,” he says.

Additionally, partnerships between developers, government agencies and nonprofits are on the rise, and more municipalities require new market-rate buildings to include a percentage of affordable units.

In short, dire need in the marketplace means increased calls for creativity and collaboration, and developers are using their industry knowledge, influence, innovations in the spaces and partnerships to make them happen.

Garnering Community Support

Progress on a multifamily project takes community buy-in. Experts agree that involving the larger community—through meetings or calls, for example—makes a difference. When community members have a change to offer feedback and then feel heard, they’re more likely to have an open mind about the project.

Good design that actively reflects the concerns and needs of the community leads to exceptional projects a community can be proud of, Duggan says. Architect Eugene Flotteron, principal and director of architecture at CetraRuddy, an architecture, planning and interior design firm, says another plus is to incorporate common spaces within the building.

Faster, Simpler Approval Processes

Project approval has long been arduous and time-consuming. Experts recommend simplifying the process to gain inventory. Florida’s State Housing Incentive Program requires local governments to establish an expedited permitting process for affordable housing. In St. Petersburg, certified projects qualify for a program that ensures a 10-day response time for initial plan review.

Carol Stricklin, director of Pinellas County Housing & Community Development, encourages developers to ensure they understand local policy priorities for affordable housing and have entitlements in place for a project before applying for funding.

Results are promising when this work is done up-front. In Pinellas County, six affordable developments opened last year, providing 227 new homes. An additional six projects, which will add 970 units, have been approved or are currently under construction. Once buildings are completed, inventory is listed online at Florida Housing Search.

Buildings That Meet Code and Look Good

More buildings are wrapped in layers of insulation and have highly efficient systems to meet stricter codes that save energy costs and improve lives, says architect Carmi Bee, president of RKTB Architects, which designed the 100% affordable development 683 Thwaites Place in New York’s Bronx borough. The project includes insulation for energy efficiency and sound mitigation due to proximity to a subway line. Windows were minimized on the side facing the train and made prominent on the building’s other sides. Their arrangement can enhance a building’s aesthetics. That was the case at builder Structured Development‘s mixed-income Schiller Place Apartments. “Each of the 48 units has an attractive bank of windows,” says Principal Michael Drew.

Maximizing energy efficiency has been a driver for many buildings. Duggan’s firm was hired to design a 59-unit, income-restricted net-zero building in Tiverton, R.I., with the state and a utility partnering to see if the building might generate as much energy on site as it uses. The building, called Bourne Mill Phase 3, is all electric, with solar roof panels and thicker wall insulation.

Affordability shouldn’t come at the sacrifice of style, though. “Challenges such as affordability can make architecture better, something Frank Lloyd Wright expressed,” says architect Victor Body-Lawson of Body Lawson Associates.

Located in a historic mill complex, Bourne Mill Phase 3 has exterior cement fiber panels with lap siding that mimic the mill’s granite palette. TAT’s design for Station 25, an affordable 51-unit building under construction on a downtown Albany site, relates to an adjacent historic brick building in its choice of some materials and detailing. Both buildings incorporate brick stacked vertically rather than horizontally.

The new building also pays homage to horizontal stone bands in the historic building with a playful projecting ribbon that wraps its way around the new building and transforms from a canopy at the main entry to a cornice at the roofline, says Duggan. A courtyard lies between the two structures to create an outdoor “room” that connects the two, Duggan adds.

The Benefits of Combining Affordable and Market Rate

In Chicago, a 2022 change in the tax law provided a tax freeze on a building’s assessed valuation if a percentage of affordable units was included, says Drew. In Fremont, Calif., architecture firm KTGY designed two affordable-housing buildings within a larger master plan led by market-rate clients. The number of affordable units satisfied the city’s requirement for projects to be approved, says architect Jessica Musick, principal. “The buildings anchor the corner of the Metro Crossing master plan community and are designed so they look and feel market-rate,” she says.

The Marcus Garvey Village building in New York’s West Harlem neighborhood represents a similar approach. “It’s the second phase of a development from Carthage Advisors where a 161-unit, market-rate building was completed first,” says Body-Lawson. “The goal was not to have a ‘rich door, poor door’ look, so we made the affordable building as nice and gave it its own character and place,” he says. “Colors are different, but some similar materials such as stucco were used. Cities have to be sustainable to survive, and that includes having a diverse mix of people.”

Straightforward Design

A common mantra today encourages simpler design that translates to lowered expenses. Musick, for example, advocates limiting design decisions to help focus project costs. “Maybe, instead of choosing from 10 window sizes, there are three to consider,” she says. Other options are to limit the number of unit plan configurations for each plan type. This simplifies the list of both construction techniques and materials and should lead to better execution, she says.

In south St. Petersburg, The Shores, a 50-unit affordable complex funded by the city of St. Petersburg and Pinellas County, used quality but affordable touches such as wood vinyl plank flooring, ceiling fans and grab bars in apartments and common spaces.

Smart Locations

Affordability is about more than the building itself. Location is key to help residents get to jobs and services. Transit-oriented developments in particular eliminate or reduce the need for cars and parking. Station 25 in Albany, on an infill site with a bus stop, is within walking distance of an employment center and near Albany Medical Center.

Both the Schiller Apartments and another Structured Development building, The Seng, an affordable-condominium project, are near mass transit. Schiller Apartments is also adjacent to a public park. Klotz’s company likes locations near mixed-use options, so residents feel amenities are almost on their property. His company also scouts for sites where governments have determined a need for affordable housing. That way, he can approach those governments to help sponsor the development in those areas.

Function Over Trend

Affordable buildings might have fewer amenities than market-rate buildings due to their available square footage and budget. Therefore, functionality is prioritized.

“A café, mailroom and lounge may be combined, which encourages socializing,” Duggan says.

An apartment building at 535 W. 43rd Street in New York City developed by Flotteron’s CetraRuddy includes seating in the mailroom.

Another goal is to provide health and wellness benefits for residents and neighbors, he says. Features such as outdoor space are critical and must be protected and secure in an urban environment, Musick adds. At Marcus Garvey Village, residents and the community will have access to green space, a community facility, retail outlets, an LGBTQ center, below-grade parking, and bicycle storage.

Creating Units for Long-Term Use

Unit sizes depend on the project and site, the number of units that make a project work financially, and the municipal requirements for securing financing. But a common goal is to make them look larger and wear better, since that helps to retain residents, Musick says. Design tricks help.

For more space in units, hallways might be eliminated in favor of open layouts or, instead of in-unit laundries, there may be common laundry rooms, Duggan says. For durability, luxury vinyl tile is easier to clean than carpet in units and public hallways. Good lighting expands space visually. Integrated lighting such as recessed cans help residents avoid having the expense of buying lamps, Flotteron says.

 

Source:  Realtor Magazine

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Developers Looking To Buy Commercial Sites Due To New Legislation

Developers are analyzing how to take advantage of Florida’s new legislation, which will set aside over $700 million in funding, create tax breaks, and provide zoning-related incentives for affordable and workforce housing developments.

The law could contribute to a new boom in housing development, from entirely affordable buildings to mixed-income towers on commercial sites that developers are now looking to purchase, experts say.

The Live Local Act, which Gov. Ron DeSantis signed aims to help fill financing gaps, making more developments economically feasible. What is still crucial, attorneys and developers said, is combining that with incentives on the local level.

“These incentive programs, in conjunction with working cities and municipalities — that’s the way you’re going to fill a void and a gap and a huge need,” said Brian Sidman, of Miami Beach-based Redwood Dev Co. “The problem isn’t going to be solved by developers buying private land. That ship has sailed due to the cost of private land.” 

Still, Sidman called the legislation “a great start,” and applauded DeSantis and the Florida Legislature.

“If we don’t fix our housing crisis, we’ll have other material programs that will trickle down,” he said.

Redwood is analyzing the SAIL (State Apartment Incentive Loan) program to see which of its projects could secure low-interest loans for workforce housing. Redwood, which has more than 1,500 units in the pipeline in South Florida, aims to build more than 5,000 affordable and/or workforce units over the next five to seven years. It recently broke ground on Mosaic, a 98-unit development in Opa-locka.

The new legislation sets aside $259 million in SAIL funds. It also promises $252 million in SHIP (State Housing Initiatives Program) funding to incentivize local governments to partner with developers preserving or building new housing.

The law goes into effect July 1. Developers are expected to apply for incentives this summer, and receive funds next year.

 

 

Source:  The Real Deal

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Developer Exploring Second Co-Living Project On Miami Beach

Rishi Kapoor is looking to develop a second Urbin-branded, co-living project on Washington Avenue in Miami Beach.

The Miami Beach City Commission on Monday granted preliminary approval to allow co-living units on Washington Avenue north of 12th Street, and to extend a deadline for Kapoor to obtain building permits until 2027.

Kapoor, CEO of Coconut Grove-based Location Ventures, is under contract to buy a retail building at 1509 Washington Avenue and a mixed-use apartment building at 1515 Washington Avenue, said Michael Larkin, a lawyer representing the developer.

Kapoor has submitted an application to redevelop the properties that will have to go before the Miami Beach planning and zoning and historic preservation boards, Larkin added.

The city has already approved Kapoor’s six-story co-living project at 1260 Washington Avenue (rendering pictured above), which he is developing under Location Ventures’ Urbin brand.

Under the proposed new legislation, the city would allow developers to build projects with co-living units north of 12th Street and Washington Avenue, but any proposed building cannot have hotel rooms or short-term rentals. In addition, only 50 percent of the project can be set aside for co-living units, and the apartments or condos must be a minimum of 275 square feet.

 

Source:  The Real Deal

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Sale Leaseback Cap Rates Continue To Attract Investors

While pricing has widened, early indications in 2023 point to a growing return to confidence for the sale leaseback market, according to a market update report from SLB Capital Advisors.

The report cites “strong credits and robust business models achieving successful processes with large interest from investors”, even in non-core markets, particularly industrial.

Due to the current interest rate environment and companies’ overall cost of capital, the SLB cap rates offer a more attractive cost-of-capital solution than ever, according to the report.

“SLB rates remain well inside of many companies’ WACCs and today, in more cases than not inside companies’ current cost of debt financing, making the sale leaseback an incredibly attractive financing alternative,” it stated.

There continues to be an attractive value arbitrage across various industry sectors driven by the delta between business and real estate multiples. The multiple implied by average SLB cap rates (i.e., 6.25% to 8.25%) implies a multiple of over 12x to 16x.

This compares favorably to general middle market transactions which averaged 6.9x LTM EBITDA for 2022. Attractive arbitrage opportunities are generally prevalent across many middle-market sub-sectors, the report said.

 

Source:  GlobeSt.

 

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