The most lucrative locations for flips.

Read Time ~ 3 Minutes

Macro Trends

Heavy Truck Sales Hit New Record High; Up 18% Year-over-year in July link

• Heavy truck sales reached a new record high of 582 thousand SAAR in July 2023, up from 538 thousand in June.

• This represents an 18% increase from 491 thousand SAAR in July 2022.

• Despite the pandemic causing a sharp decline in sales to a low of 308 thousand SAAR in May 2020, the industry has rebounded strongly.

Private Employment Increased 324,000 in July link

• Private sector employment surged by 324,000 jobs in July, surpassing the consensus forecast of 185,000.

• Annual pay saw a significant increase, up by 6.2% year-over-year.

• Despite a slowdown in pay growth, the economy is performing better than expected with no broad-based job loss, according to ADP's chief economist, Nela Richardson.

Real Estate Market

Regional Mall Values Are Dropping More Than 70% link

• The value of older, low-end indoor malls has plummeted by at least 50%, and in some cases, more than 70% since mall valuations peaked in 2016.

• This decline in value is not just limited to urban office buildings affected by hybrid work patterns, but also extends to 1980s-era shopping centers.

• The commercial real estate market is experiencing a significant shift, with $14B in mall-backed CMBS coming due, and a fifth of the malls underwater.

What the 80s inflation crisis says about today's home market link

• The current depressed home market is largely due to the "rate lock-in" effect, where homeowners are reluctant to sell or buy due to the significantly lower mortgage rates on their current homes compared to new loans.

• The mortgage-rate environment today is so extreme that it's comparable to the inflationary period of the 1970s and 1980s. During that time, it took over half a decade for home sales to recover.

• The Federal Reserve's current inflation-fighting, rate-hiking course is seen as the first step towards market normalization. However, the Fed continues to signal future raises, making a quick recovery unlikely.

Hotels are slowing link

• Hotel fundamentals softened in Q2 with a 1.5% year-over-year drop in occupancy.

• The average daily rate (ADR) increased by 2.6% year-over-year, marking the slowest annual growth since Q1 2021.

• Revenue per available room (RevPAR) saw a mere 1.1% year-over-year increase, a significant slowdown from Q1's 15.9% pace.

Opportunities

Retail Alpha in Secondary and Tertiary Markets link

• Retail space is at an all-time low, pushing retailers to expand into secondary and tertiary markets. However, strategies used in primary markets may not be as effective in these smaller metros.

• Tertiary markets accounted for 62% of total net migration between 2019 and 2022, with significant population growth in secondary Sun Belt markets like Austin, Raleigh, and Jacksonville.

• Retail availability has significantly dropped over the past decade across all segments, with little development underway to alleviate the shortage. However, smaller markets have more available land, enabling retailers to expand using ground-up development.

Where Home Flips Are Most Common, Lucrative link

• Home flipping reached its second-highest level in nearly a century in Q1 2023, making up 9% of all sales.

• Gross profit from a typical flip in Q1 rose to $56,000, a decrease of 20% from $70,000 a year earlier, marking one of the lowest points since the housing market recovery in 2012.

• The most lucrative metros for home flipping are Shreveport, LA with an average ROI of 92%, Lafayette, LA with 72.8%, and Savannah, GA with 56.8%.

Why Family Offices Remain Aggressive on Multifamily Investment link

• Family offices are shifting their asset allocations, with a significant drop in direct private equity exposure from 24% to 14%, while allocation to hedge funds has risen from 4% to 7%.

• Approximately one-third of family offices plan to increase their exposure to real estate when capital becomes more available and valuations are lower.

• Family offices find multifamily residential real estate appealing, with about one-third planning to increase their investment in this asset class in the next year.