May 2023: The Short and Long of It
Summers Run in Asheboro, NC, is set to close soon. We discuss our podcast appearances and the search for investment opportunities. Home and commercial real estate prices are declining due to interest rate hikes. Office lenders face challenges, while multifamily properties remain strong.
Upcoming Closing - Summers Run - Asheboro, NC
Summers Run is on the home stretch, and we're hoping to close it shortly. We're working through the last few items. We're looking forward to announcing our closing shortly.
In the Media
We recently appeared on the Rental Property Owner & Real Estate Investor Podcast, where we discussed Matheson Capital's history and outlook moving forward. You can listen to that here, and you can listen to our other media appearances here.
WHAT WE ARE LOOKING FOR
As we mentioned in our last update, we view now as a great time to buy. We're turning over every stone and looking at a wide array or assets, including many of the types we've listed before.
WHAT WE ARE FINDING
The short answer is, we aren't finding much, but that can all change in an instant. We're in communication with brokers throughout the southeast, and we still feel that we get access to a lot of off market opportunities. However, there is still a large disconnect between buyers and sellers. Even when we do find something compelling, the financing is difficult to find.
MARKET INSIGHTS
Prices are Going Down
After the past year of interest rate hikes, it's not terribly surprising to see prices going down. Per the Wall Street Journal, home prices posted the largest annual drop in more than 11 years. Not to be outdone, US commercial real estate prices dropped for the first time since 2011.
To be clear, I think an important distinction should be made. We are not seeing a wave of properties selling for less than they were purchased for. By some estimates, property values have reverted to mid-2021 values, which is still a significant increase from their 2019 values. As it pertains to multifamily and student housing specifically, the fundamentals are still very strong, as most stress on these properties appears to be a result of the financing.
Trouble Brewing for Lenders
There are new reports that show trouble for lenders. Office (the most troubled asset class out there right now) losses could reach 8%, while CMBS delinquencies recently reached a 14-month high. But here, not all asset classes are created equal.
From my conversations, lenders desperately do not want to take control of office properties due to the underlying shifts in the sector. However, they would be thrilled to take over multifamily properties because there is still a housing shortage in the country, so the underlying fundamentals remain strong.
Transactions are Down, Way Down
Per CoStar, transaction volume slipped to levels last seen in August 2020. Given that the whole commercial real estate world came to a halt in March of that year, it's amazing to think that these rate hikes have had the same impact as COVID. We're seeing this firsthand, as many sellers want prices that do not make sense.