March 2023: Living in Interesting Times
Recent years brought real estate challenges. Summers Run advances with an assumable loan. Limited listings drive off-market search. Houston sees a $229M multifamily foreclosure with no bids. Lending tightens, rates at 8-9%.
"May you live in interesting times." That's seemingly been the story of the last three years. Though the crazy bidding wars of 2020-2021 to the massive rate hikes of 2022-2023, it's been an interesting few years. Our latest news and thoughts from March are summarized below.
LATEST NEWS
New Offering - Summers Run - Asheboro, NC
Summers run is still moving forward nicely. We've been approved for the loan assumption, so we're now working on finalizing the investor roster. If you or anybody you know is interested in investing and you haven't given a soft commitment yet, please reach out. The property highlights are summarized below:
- Cash Flowing Property with 3.32% Assumable Debt
- Proven Value-Add Upside
- Largest Floor Plans in the Market with Desirable Unit Mix
- Below Replacement Cost with Limited New Supply Scheduled
- Part of Rapidly Growing NC Triad MSA
- Amazing Accessibility to Jobs Throughout the Triad
WHAT WE ARE LOOKING FOR
The debt markets have really seized up recently, to the point where the only new financing option seems to be agency debt. Accordingly, we're looking at loan assumptions or agency financing. Banks are seemingly out of play for the time being.
WHAT WE ARE FINDING
No news on this front. Listings are few and far between. It's only anecdotal, but it seems that any A properties that hit the market are being swarmed by buyers, but C properties are being left on the vine.
Since we're increasingly wary of the C space, we're continuing to do most of our work off market.
MARKET INSIGHTS
Everything is Bigger in Texas
While a lot of focus has been on the struggles office properties are experiencing, we saw a massive foreclosure in the multifamily space recently. Ardor Realty Trust foreclosed on four multifamily properties in Houston valued at $229 million. What's even more amazing is that no bids were made for the property at the foreclosure auction, except for one credit bid by Ardor, which as $25 million less than the loan amount.
Ouch...
Where did the Banks Go?
As mentioned above, the lending market is upside down, leaving agency debt and assumptions as the only way to go right now. Lenders are bracing for a rise in bad real estate loans, and they are unsurprisingly tightening their standards and slowing lending activity.
Our most recent conversations with lenders all have their rates in the 8% or 9% range, which just makes Summers Run even better!
Slamming the Brakes
To say multifamily investment sales are down would be a slight understatement. Per Globe Street, sales plummeted 74% in the first quarter, while special servicing rates had their biggest jump since August 2020. On top of all of this, values are down 15% from last year.
All of this new information informs our decisions and valuations of properties. We are confident in our current portfolio because we have fixed rate debt and no loans coming due until 2025, and we feel well positioned to capitalize on this market as well.
Inflation Update
If you thought February's 6% was good, March's 5% is great! While it is still historically high, we're down nearly 5% from last summer's peak, and March's number represented the smallest gain since May 2021.
Will this lead the Fed to slowing the rate hikes, pausing them, or cutting? Only time will tell.