Opportunities Opening Up for Investors Looking for CRE Distress

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"Distressed U.S. Offices Jump to $24.8 Billion, Overtaking Malls" link

• Surge Surprise: Distressed U.S. office properties have spiked to $24.8 billion, overshadowing malls and hotels.

• Shifting Landscape: Data reveals a notable paradigm shift as office spaces face a downturn, outstripping malls for the first time.

• Crisis Context: Amidst ongoing pandemic effects and a surge in remote work, the distress experienced by U.S. office spaces reflects broader economic trends.

More Office Delinquencies On the Way, Says Moody’s Analytics link

• Inflation Juggle: Economists are exploring the possibility of a soft landing, a reduction of inflation without significant unemployment or recession. However, complications in the details urge caution.

• No Free Lunch: Improvements in June were largely due to easier factors. As EY-Parthenon chief economist Gregory Daco points out, the "free lunch is over." Future improvements will need to come from slower core services prices.

• Obsolete Office Properties at Risk: Moody’s Analytics suggests that CMBS data indicates an expected rise in delinquencies and a fall in values, especially for 'obsolete' office properties.

Class A Office Values Are 35% Down From Pre-Pandemic Peak link

• Plunge in Value: Class-A office values have seen a significant drop of 35% since pre-Covid highs.

• Bearing the Brunt: B-Class properties have been hit even harder, with their values falling much more than their Class-A counterparts.

• The Silver Lining: Despite the fall, it's notable that the average property type has managed to remain roughly flat from pre-pandemic times.

Rising insurance costs could force apartment sales, threaten new development link

• Skyrocketing Insurance: Insurance costs have surged over 100% in some states, making apartment ownership potentially unsustainable. This could lead to some owners having to sell their properties or even hand back the keys to the bank.

• Transaction Troubles: Rising premiums are complicating property transactions. Buyers are finding it difficult to get coverage, and some deals are falling through due to underestimation of insurance costs.

• Development Dilemma: Higher insurance costs are making it nearly impossible for new development projects to be financially viable. This is particularly problematic in Florida, where several new developments have been unable to start due to significant insurance increases.

Opportunities Open Up for Investors Looking for CRE Distress link

• Asset-Light Approach: Lenders are increasingly opting to sell the mortgage note rather than foreclose on properties, creating unique opportunities for savvy distressed investors.

• Capital Call: With a predicted 3,600 distressed deals in the next two years, now is the time for distressed investors to raise capital.

• Cycle Shift: The distressed cycle in 2023 and 2024 will be different, with high returns on capital expected from investing in distressed CRE assets.

These 10 states are America's strongest housing markets, offering buyers the best value (link)

• Sunshine Surge: Florida tops the list with a whopping 15.2% price appreciation, making it America's strongest housing market. However, rising foreclosures could indicate stress.

• Carolina Charm: North Carolina, this year's overall No. 1 State for Business, sees a housing demand boost with a solid 13.4% price appreciation. Yet, affordability remains a challenge due to the growing population.

• Peach State Prosperity: Georgia showcases solid housing numbers across the board, including a double-digit price appreciation of 11.4%, while remaining relatively affordable. Keep an eye on the rising foreclosures.

• 10 States are: Florida, South Carolina, Maine, North Carolina, Georgia, Indiana, New Jersey, Ohio, Wisconsin, Alabama

June home sales drop to the slowest pace in 14 years as short supply chokes the market link

• Supply Shortage: The housing market is experiencing a critical shortage with just 1.08 million homes for sale at the end of June, 13.6% less than June of 2022. This represents a 3.1-month supply, while a six-month supply is considered balanced.

• Price Pressure: The median price of an existing home sold in June was $410,200, the second highest price ever recorded. Limited supply is leading to multiple-offer situations, with one-third of homes getting sold above the list price.

• First-Time Buyer Struggle: The share of first-time buyers fell to 26% in June, down from 30% in June 2022. This is the lowest share since tracking began, indicating that affordability is a major issue for this group.

Apartment Markets with Record Supply Volumes link

• Surge in Supply: The U.S. apartment market saw a record supply with over 376,000 units completed in the 2nd quarter, marking the largest volume since the early 1990s. This increased the existing unit base by 2%.

• Southern Dominance: Three of the four markets hitting all-time high supply volumes are located in the southern part of the U.S. These include Phoenix, Atlanta, and Charlotte, with Phoenix leading the nation with approximately 16,800 units delivered.

• Nashville's Noteworthy Growth: Despite being the smallest market on the list, Nashville saw a significant increase in its apartment market by 6.2%, the biggest increase among the top 50 markets. This was due to the completion of around 10,400 units in the past year.

Small Apartment Markets with Big Apartment Construction link

• Boom in Colorado Springs: With around 8,800 units under construction, this market is experiencing a massive volume of growth. Nearly 6,700 of these units are expected to complete over the next 12 months, leading to a 12.3% inventory growth rate.

• Huntsville's Astounding Growth: Huntsville is building nearly 8,100 units, translating to an incredible 20.9% inventory growth rate - the highest total construction growth rate among RealPage markets.

• Florida's Flourishing Markets: North Port-Sarasota, Cape Coral-Fort Myers, and Lakeland are all seeing elevated construction volumes that will grow existing inventory by more than 11%.

Why are the homebuilders so happy? link

• Surge in Confidence: Homebuilders' confidence levels and stock prices have seen a significant rise since the end of 2022, with the NAHB/Wells Fargo Housing Market Index data showing a score above 50, indicating increased confidence to issue more housing permits.

• Building Momentum: Despite talks of a second housing bubble crash last year, builders are pushing growth in single-family permits. In June, single-family authorizations were at a rate of 922,000, a 2.2% increase from the revised May figure of 902,000.

• Profitable Strategy: Homebuilders are focusing on selling homes at the highest profit possible, despite the housing inventory shortage. This strategy has led to a 20% year-over-year increase in new home sales, while existing home sales are down by the same percentage.

U.S. Home Sales Hit New High in Second Quarter of 2023, With Median Price Reaching $410,000 link

• Skyrocketing Sales: U.S. home sales reached a new peak in Q2 2023, demonstrating the robustness of the real estate market.

• Pricey Properties: The median home price hit a staggering $410,000, a significant increase compared to previous years.

• Seller's Market: With properties typically sold within just 32 days, the market dynamics heavily favor sellers.

Housing Market Update: Home Prices Climb 2% From a Year Ago, With Low Supply Fueling Competition link

• Surge in Prices: The typical U.S. home sold for $382,500 during the four weeks ending July 16, marking a 2.1% increase from a year earlier. This is the biggest increase since December 2022 and the second consecutive price uptick after nearly five months of declines.

• Record High Payments: High home prices and mortgage rates have pushed the typical homebuyer’s monthly payment up to a record $2,656. Even with cooling inflation and slightly lower rates, housing payments are likely to remain elevated due to increased competition for the limited homes on the market.

• Supply-Demand Imbalance: Redfin’s Homebuyer Demand Index is up 2% from a year ago, indicating more demand than supply. With new listings down 25% and the total number of homes for sale down 16%, the biggest dip in a year and a half, prices are expected to continue rising in the foreseeable future.