Office Vacancy Rate Rises 30 Basis Points in 1 Month, rents surging 6 cities + more

How Lenders are Dealing with Distressed Commercial Real Estate So Far link

• Mounting Distress: The volume of distressed commercial real assets is increasing, with an estimated $64 billion worth of assets distressed as of the end of the first quarter, and another $155 billion’s worth of potentially troubled assets in the queue.

• Creative Solutions: Lenders and borrowers are coming up with innovative solutions to deal with distressed assets. This includes splitting loans into an A/B structure, where the borrower is not on the hook for the B note if they had to sell the property at a loss.

• Increased Vigilance: Lenders are keeping a close eye on their portfolios to stay ahead of potential problems. With the Federal Reserve considering rate increases, lenders are preparing for an uptick in delinquencies in the coming months.

New Home Sales increase to 763,000 Annual Rate in May; Median New Home Price is Down 16.2% from the Peak link

• Sales Surge: New home sales in May 2023 were up 20.0% from May 2022, indicating a significant surge in the housing market.

• Price Dip: Despite the sales increase, the median new home price has seen a decrease, down 16.2% from its peak.

• Inventory Shift: Builders have resold most of their previously cancelled homes, resulting in a decrease in finished standing inventory. This indicates a shift in the housing market dynamics.

Consumers’ Inability to Transition from Renting to Owning Supports SFR Industry link

• Mortgage Mayhem: Today's housing market is volatile with mortgage rates 300 basis points higher than a year ago.

• Price Plunge: Housing prices have started to slide lower due to lower transaction volumes and limited inventory.

• Rental Resurgence: The difficulty in transitioning from renting to owning is driving demand for single-family rentals.

Office Vacancy Rate Rises 30 Basis Points in One Month link

• Troubling Trends: The U.S. office market is facing challenges, with the national office vacancy rate rising to 17% in May, a 30 basis point increase from the previous month.

• Tech Turmoil: Tech hubs are experiencing even higher vacancy rates, with Austin at 20.6%, Denver at 20.24%, and San Francisco at 20%.

• Seattle Surge: Seattle's vacancy rates rose by a significant 3.8%, with a sublease vacancy rate of 4.3%

Rental housing could benefit from a softer for-sale market link

• Rising Tide: With record home prices and increasing interest rates, more individuals are opting to rent, particularly in high-cost markets like Boston.

• Historical Volatility: The cost of homebuying has traditionally been more unstable than renting due to quick shifts in interest rates. The last time it was cheaper to rent than buy was before the 2007 housing crash.

• Future Forecast: While the rental market faces macroeconomic challenges in the coming year, persistently high for-sale costs will likely continue to support rental prices in the medium-to-long term.

2023 Is a Significant Year for CMBS Multifamily Maturities link

• Auction Avalanche: Properties and mortgage notes securing nearly $600 million in outstanding CMBS debt were auctioned from January through mid-June 2023.

• Distress Sales Dominate: Of the 57 auctions with definitive bids, 25 involved distressed sales facilitated by a special servicer. The most protracted distressed sale was a March auction of Square 95, a 155,309-square-foot big-box retail outparcel of the Potomac Mills Mall in Woodbridge, Va. The high bid was roughly $15.2 million, 22% less than the property’s most recently reported appraisal value of $19.5 million.

• Vintage Variety: By securitization vintage, auctions since the start of 2023 were most prevalent among 2017 vintage deals. Approximately 43% of observed auctions were from 2017 securitizations, many from a 138-property lodging portfolio that used auctions to unencumber individual hotels from a single large-loan securitization.

Eviction filings are up more than 50% in some cities compared to pre-pandemic levels - link

• Spike in Evictions: Eviction filings have surged over 50% in some cities compared to pre-pandemic levels, largely due to the expiration of relief measures and economic instability.

• City-Specific Data: Houston saw evictions rise by 56% in April and 50% in May, while Minneapolis/St. Paul experienced a 106% increase in March, 55% in April, and 63% in May.

• Rent Hike: Rent prices have also escalated, being approximately 5% higher in 2023 than the previous year, and over 30% higher in 2023 compared to 2019.

Home prices continued to accelerate in April: Case-Shiller link

• Rising Momentum: Home prices rose for the third consecutive month in April, rebounding after seven months of decline. This indicates a resurgence in the housing market.

• Mixed Signals: Despite the monthly increase, the S&P CoreLogic Case-Shiller National Home Price Index was down 0.2% on a year-over-year basis. This contrast highlights the dynamic nature of the housing market.

• Regional Variations: The Southeast emerged as the country's strongest region with a 3.6% increase, while the West remained the weakest with a 6.9% decrease. This underscores the importance of regional factors in housing price trends.

Harvard’s 2023 State of the Nation’s Housing Report - Real Estate Investing Today link

• Cooling Down: Housing markets are cooling due to higher costs impacting both homeowners and renters.

• Slow Growth: Total household growth is expected to slow in the coming years due to released pent-up demand among young adults and deteriorating affordability.

• Rising Burdens: Despite reduced rent growth and rising vacancy rates, elevated home prices and rents from pre-pandemic levels are burdening millions.

Rents are coming down in the US, but they're still surging in these 6 cities as tenants flock to the Midwest link

• Midwest Magnet: Despite an overall decline in rent prices, the Midwest saw a surge of 4.5% in May, indicating a growing interest in the region.

• City Spotlight: Six major Midwestern cities experienced significant rent increases, with Columbus, Ohio leading the pack with a 9.3% rise in the past year.

• Affordability Exodus: Poor housing affordability across the country is driving renters towards more affordable markets like the Midwest, exacerbating the rent increase in these areas.

Legendary value investor Seth Klarman says he's looking at real estate as the next big opportunity ahead of a slowdown in the economy link

• Real Estate Revival: Seth Klarman, a renowned value investor, is eyeing real estate as the next big opportunity. Despite the sector's challenges, he sees potential in the urgent selling and pullback in lending.

• Distressed Assets Attraction: Klarman's Baupost Group, managing about $25 billion in assets, is ready to buy distressed assets and debts tied to the commercial real estate market. The firm's ability to move quickly and adapt to various asset forms and sizes makes it a preferred counterparty.

• Economic Slowdown Insight: Klarman predicts an economic slowdown by early 2024 as consumers spend down their excess savings and the Federal Reserve continues to tighten monetary policy. He believes the Fed's goal is to reduce the economy's heat, possibly triggering a recession.

NY times take on the housing market link

• Surprising Resilience: Despite interest rates at a 15-year high, the housing market shows remarkable resilience with a surge in home construction.

• Price Uptick: Prices have seen an upward trend, adding another surprising element to the housing market scenario.

• Economists Baffled: The robustness of the housing market, against the backdrop of high interest rates, has left some economists surprised.