Your Weekly Wrap Up CRE Newsletter Inside

Weekly Wrap-Up CRE Newsletter

Please enjoy Prosperity CRE’s weekly newsletter designed to keep you informed and engaged with timely commercial real estate issues and data, and other points of interest.

Apartment Demand Increased in Q3, 2021

Multifamily commercial brokerage firm Berkadia released its Third Quarter, 2021 report. As hiring rebounds faster than anticipated, apartment demand vaulted so far this year. Accelerated leasing activity combined with a slowdown in construction due in part to the effects of the pandemic led to a sharp rise in apartment occupancy.

These factors contributed to apartment operators’ confidence in raising rent above and beyond pre-pandemic levels.

Covid Eviction Moratoriums and Slow Rental Aid

The U.S. Supreme Court overturned the Centers for Disease Control’s federal ban on evictions, ending the national eviction moratorium on August 26th. Some states, like New York have extended their eviction moratoriums. At the extreme end, the City of Los Angeles continues to prevent landlords from evicting nonpaying tenants for at least another year

Congress authorized more than $46.5 Billion in emergency federal rental aid nearly a year ago. To-date, less than a quarter has been disbursed to residents and landlords impacted by the pandemic. Landlords and resident advocacy groups are frustrated by the bureaucracy and slow release of funds.

Office Sector Continues to Outperform

According to Real Capital Analytics, office sector cap rates are continuing to sink to new all-time lows, reaching 6.3% in Q3 2021. In Year over Year price growth, according to a recent Marcus & Millichap report, Suburban office outperformed both multifamily and industrial.

Covid Eviction Moratoriums and Slow Rental Aid

The U.S. Supreme Court overturned the Centers for Disease Control’s federal ban on evictions, ending the national eviction moratorium on August 26th. Some states, like New York have extended their eviction moratoriums. At the extreme end, the City of Los Angeles continues to prevent landlords from evicting nonpaying tenants for at least another year

Congress authorized more than $46.5 Billion in emergency federal rental aid nearly a year ago. To date, less than a quarter has been disbursed to residents and landlords impacted by the pandemic. Landlords and resident advocacy groups are frustrated by the bureaucracy and slow release of funds.

Office Sector Continues to Outperform

According to Real Capital Analytics, office sector cap rates are continuing to sink to new all-time lows, reaching 6.3% in Q3 2021. In Year over Year price growth, according to a recent Marcus & Millichap report, Suburban office outperformed both multifamily and industrial.

Capital Corner

Multifamily agency debt received good news in October. The FHFA raised the loan purchase caps of Freddie Mac and Fannie Mae to $78B for 2022, an increase of $8B over 2021 origination cap levels. This means a positive outlook in multifamily rental housing and the FHFA's confidence that interest rates may not be rising significantly in the next year, despite the planned tapering of asset acquisitions by the Fed.

Loan rates have ticked up a bit with multifamily agency rates on 5, 7, and 10-year fixed debt between 3.05% - 3.45%. There's still an opportunity to receive sub 3% pricing on deals with the right mix of market, LTV, and Green or other rate enhancements that the agencies offer.

For commercial it is still possible to get sub 4% loans from Life Cos, but investors are settled on the reality of mid to high 4's in the best of possible scenarios for commercial deals like industrial and higher quality, stabilized office properties.

Overall, even with the increasing capital in the CRE markets, investors are bracing for a rising interest rate environment and lower yield expectations, even on value-add opportunities. The exchange is finding safer places to preserve capital in real assets with more stabilized, cash flowing opportunities and over longer periods.