Your Weekly Wrap Up Newsletter #9

Strong Industry Fundamentals and Eager Capital Sources Point to a Record-Breaking Year
After two years of extraordinary liquidity, multifamily lending is on track for a record-breaking year that will give multifamily investors and sponsors a full menu of competitive options.

One big increase will come from the government-sponsored enterprises. The Federal Housing Finance Agency has increased the 2022 multifamily lending purchase caps for Fannie Mae and Freddie Mac by $8 billion each. That will bring the caps to $78 billion between the two agencies https://pcre.xyz/g7s.

How the Flex Space Business Model Will Change Next Year

Flex space will play an increasingly important role in the future of the office sector as occupiers demand more agility from physical office space, according to a new analysis from Yardi Matrix. Flex space is becoming increasingly en vogue among office occupiers: a CBRE survey of 77 global companies earlier this year reveals that 86% will include flex space as part of their real estate strategies.

At the same time, only 5.6% of office buildings have a flex space within their properties, according to Yardi Matrix, and most of those buildings are “highly clustered” in just five markets: Manhattan, Los Angeles, Washington, D.C., Dallas and Boston https://pcre.xyz/1ez.

Private Equity Sitting On $288B War Chest For CRE Deals
Private equity investors now have a total of $287.8B to invest in commercial real estate, up 11% from a year ago and up a whopping 57% compared with the end of 2019, Bloomberg reports, citing Preqin data. “Investors view real estate as a safe place to be in an inflationary and low-rate environment,” Blackstone Head of Real Estate Americas Nadeem Meghji told Bloomberg.

As of November, U.S. inflation measured by the consumer price index was running at 6.8%, the highest in about 40 years. https://pcre.xyz/s8q

But the so called “great resignation” which had reports of large and increasing amounts of workers staying on the sidelines and not returning to work, ostensibly because of the generous amounts of government stimulus or unemployment benefits from early in the year.

However, recent reports have clarified that Americans who are retiring early are impacting the labor force participation rate. According to CNN and BLS data, Workers in the prime employment ages of 25-54 years are on a steeper recovery track, and closer to their pre pandemic levels, than workers 55 and older, who saw labor participation fall to 38.4%, well below their pre-pandemic norms. https://pcre.xyz/2ol

Despite the tight labor market there are several downside risks that continue to persist from the pandemic which has created a confusing situation between the strong recovery and jobs market, a stock market that barely responds to pandemic related news https://pcre.xyz/bse, and the downside risks of consumers pulling back spending on services because of the ongoing pressures from the Omicron variant of COVID-19. https://pcre.xyz/p1a

In terms of real estate capital, even though the overall govt bond market has responded to the Fed’s acceleration of its bond purchase reduction policy as well as indications that interest rates will increase in 2022, the 2-year US Treasury (UST) rate, which responds to prices more rapidly to prices, has been steadily increasing to close the year at .73%.

But the 10 year UST (a commercial real estate benchmark index) has held fairly steady at 1.46%, giving confidence to the $16 Billion increase in 2022 Agency multifamily loan purchase caps (See chart above and here), and an approximate $15 Billion increase in CMBS issuance for next year. https://pcre.xyz/zi5

All said, with pandemic risks aside, there are deals out there in every asset class and even though multifamily and industrial seem to be the hot asset classes, investors seeking yield may find increased risk returns in other asset classes like office, medical, data centers ,self-storage or even retail redevelopments.