Why Farmland Investing is Booming

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Why farmland investing is becoming a big opportunity link

• Diversification Dynamo: Farmland investing offers a low correlation to traditional asset classes like stocks, bonds, and real estate, providing much-needed diversification for global investors amid heightened uncertainty.

• Resilience Rockstar: Farmland has consistently delivered double-digit returns over 30 years, demonstrating remarkable resilience and low volatility. In 2022, a challenging year for traditional portfolios, farmland returned 9.60%.

• Inflation Insulator: Farmland has proven to be a strong hedge against inflation. As food prices climb, so does the value of the land that nurtures them. The NCREIF Farmland Index has consistently outpaced inflation.

Blackstone Reaches $1 Trillion in Assets link

• Milestone Achievement: Blackstone Group, the world's largest commercial property owner, has hit $1 trillion in assets under management, becoming the first alternative asset manager to reach this landmark. This comes despite a nearly 39% drop in earnings for the second quarter due to higher interest rates and an uncertain economic outlook.

• Real Estate Performance: The real estate segment, Blackstone's largest unit, saw a 64% slump in distributable earnings to $639 million. Despite this, the firm managed to generate $5.5 billion in asset sales last quarter, including the sale of JW Marriott San Antonio Hill Country Resort & Spa and a portfolio of U.S. logistics to Prologis.

• Investment Opportunities: Despite challenges in the office real estate sector, Blackstone sees significant investment opportunities in areas such as global logistics, digital infrastructure, energy transition, life sciences, student housing, lending, and credit. The firm is also partnering with banks and lenders on offering financing for home improvement, autos, and environmentally friendly initiatives.

Hotel-to-Apartment Conversions Gaining in Numbers - link

• Adaptive Reuse Surge: Hotel-to-apartment conversions have seen a significant rise in 2022, accounting for 29% of the total inventory nationwide. This trend is a response to the increased housing demand and the availability of empty buildings suitable for conversion.

• Hotel Advantage: Hotels have an edge over office buildings for conversions due to their existing layout that closely resembles residential buildings. This similarity reduces the need for extensive structural changes, making the conversion process more straightforward and cost-effective.

• Affordable Housing Boost: The conversion of hotels into apartments has contributed to an increase in affordable housing units. Over the past three years, 54% of hotel conversions have been repurposed for low- and middle-income renters, providing a much-needed boost to the affordable housing sector.

Why the US Housing Market hasn't Crashed yet (repeat of 2008?) link

• Sky-High Prices: Home prices in America are 30% overvalued in 2023, with the Home Price to Income Ratio trading at 4.40x, 31% above the long-term norms. This suggests a massive downside for homebuyers and real estate investors.

• Resilient Market: Despite a collapse in buyer demand, home prices have only declined by 1% YoY on a national basis, and up to 15% in the hardest-hit markets. This indicates a modest correction rather than a crash, leading many to believe that the Housing Market won't ever crash.

• Inventory Shortage: The inventory of single-family homes for sale in 2023 is down 50% from its long-term norms, putting a floor on home prices. This low inventory is due to a combination of low mortgage rates for existing owners, a low mortgage default rate, and fear about keeping money in banks.

'Something very strange' explains why a US recession has been delayed link

• Debt Defiance: Despite the Federal Reserve hiking interest rates, corporate net interest payments have surprisingly fallen, a phenomenon unseen since 1975.

• Corporate Cleverness: Corporations have smartly refinanced their liabilities into long-term, low-rate, fixed debt during the period of near-zero interest rates, with 76% of S&P 500 companies' debt being long-term fixed.

• Recession Resistance: The strategic debt management by corporations has delayed the anticipated recession, contributing to a 5% increase in profits over the last year, instead of the usual 10%+ deduction.

U.S. Home Sales Report: Profit Margins Hit New High in Second Quarter of 2023 link

• Skyrocketing Profits: Home sellers in Q2 2023 saw an average profit of $94,500, a significant increase from previous years.

• Record-breaking Margins: Profit margins reached a new high of 44.9%, surpassing the previous record set in Q1 2023.

• Coastal Surge: Coastal markets led the way with 14 of the top 15 metros for seller profits located along the coast.

This Mid-Atlantic City Rises to the Top of Renters’ Preferred Places to Live link

• Shift in Preference: Arlington, Va., has now become the most preferred city for renters, displacing Kansas City, Mo., which slipped to fifth place.

• Summer Surge: With summer in full swing, more renters are considering their living options, some out of choice and others due to the unavailability or unaffordability of single-family houses.

• Data-Driven Insights: The findings are based on RentCafé's July report, which analyzed 30 in-demand cities for renters.

Malls Are Being Reborn As Next-Gen Mixed-Use Properties link

• Housing Crisis Solution: Malls, suffering from an abundance problem, are being repurposed into mixed-use projects to meet the housing demand. The U.S. is short of approximately 6.5 million homes, and these projects are seen as a viable solution.

• Retail and Residential Synergy: In the process of mall conversion, 85% of projects retain retail on the site, creating a symbiotic relationship between residential and retail spaces. This blend caters to modern living and shopping habits.

• Successful Transformations: Examples of successful transformations include The Westminster Mall in Orange County, California, which is being converted into a mixed-use complex with 3,000 residential units, 425 hotel rooms, and green space. Similar projects are likely to become more common with an estimated 1 billion square feet of obsolete retail in the U.S.

Fewer CRE loans being refinanced; extend and pretend observed link

• Rising Trend: Performing loans past maturity, negligible before the pandemic, reached 5.2% in Q1 of 2023 and 6.9% in Q2. This suggests borrowers are committed to their properties despite the loans maturing.

• Office Sector Woes: The office sector is experiencing a higher rate of delinquency with 27.6% of office loans scheduled to mature in Q2 2023 considered delinquent.

• Extend and Pretend: The industry practice of extending loan terms for properties facing a loss in value, known as "extend and pretend", is being observed. Moody's found 2.5% of performing conduit loans set to mature in Q2 2023 were extended, down from 5.6% in Q1 2023.

Multifamily Syndicators Come Under Scrutiny – link

• Rising Interest Rates Challenge Syndicators: In the 2020-2022 record-low interest rate environment, multifamily syndicators significantly increased their acquisitions, often with a value-add strategy. However, with the Federal Reserve's rate hikes, these syndicators are now facing a significantly higher interest rate environment, leading to an increased debt service burden.

• $3.6 Billion in Multifamily CRE Loans: The Trepp team examined the loan exposure for five multifamily syndicators - Tides Equities, GVA Investments, Nitya Capital, ZMR Capital, and Rise48 Equity. These syndicators have a total of $3.6 billion in multifamily commercial real estate (CRE) loans with maturities of 30 months or less in CRE collateralized loan obligations (CRE CLOs).

• Majority of Loans Maturing by 2024: About 80% of these multifamily loans are set to mature in the next 18 months, or by the end of 2024. The weighted average debt service coverage ratio (DSCR) of all CRE CLOs in this dataset is below 1.0x, indicating potential refinancing challenges for these loans.