Archives for March 2021

House Introduces SAFE Banking Act

March 19, 2021 by CARNM

On Thursday, March 18, the “Secure and Faire Enforcement (SAFE) Banking Act of 2021” was introduced by Representatives Ed Perlmutter (D-CO), Steve Stivers (R-OH), Nydia M. Velazquez (D-NY), and Warren Davidson (R-OH). This bipartisan bill creates a safe harbor for federally-insured financial institutions to provide services to cannabis-related businesses in states that have legalized the substance.

Currently, thirty-six states, the District of Columbia, and all four U.S. territories have legalized cannabis for medicinal or recreational use, but it remains a Schedule-1 narcotic under the Controlled Substances Act. As a result, legitimate cannabis businesses in states that have legalized the substance, or businesses that derive any income from them – including real estate – can’t work with federally-insured financial institutions due to anti-money laundering laws. This means that many such businesses have to operate on a cash-only basis, which creates difficulty collecting taxes and enforcing regulations, as well as increases safety risks to the communities they are in. The SAFE Banking Act would create a safe harbor allowing financial institutions to work with legitimate cannabis businesses, thus resolving those issues.

NAR supports the rights of states and residents of those states to create laws aligned with state and resident interests. NAR supports allowing businesses that are properly registered and that are legitimate by state standards to have the ability to access banking services. NAR sent a letter of support to the cosponsors, thanking them for introducing this important legislation and expressing our hope to see it passed into law in this Congress.

View NAR’s Letter of Support for the SAFE Banking Act

Source: “House Introduces SAFE Banking Act“

The Suburbs’ Big Moment May Have Passed

March 15, 2021 by CARNM

Secondary and smaller cities are more likely to be the focus instead of the major markets’ suburbs.

Since the early days of the pandemic there has been talk about companies favoring suburban investments over urban ones and shifting their workplace strategies to the suburbs in a hub-and-spoke model. At least one survey from Seyfarth suggests that this strategy may be coursing in a new direction.

In the survey, Seyfarth asks respondents if their companies will shift their investment sights to suburban markets and relocate all or part of their workforce to other states. A vast majority, 67%, said no, while 23% are shifting their investment sights to suburban markets. Only 2% were moving their workforces to other states.

Also, a large number of respondents, 39%, see urban multifamily recovering faster than any other CRE product type.

Taken together, these data points suggest that the suburbs—especially neighborhoods outside of larger urban markets—will not receive the lion’s share of investment this year. Rather, sentiment is now pointing to secondary and smaller cities as more likely to be a major focus.

There have been many reports covering various CRE sectors that show the strength in these smaller markets.

A report on the office sector from Marcus & Millichap shows that momentum markets—cities like Atlanta, Charlotte, Minneapolis-St. Paul Raleigh, Tampa-St. Petersburg and West Palm Beach—are either outperforming the US average or holding steady as they contend with migration from denser urban areas. Most of the cities in this sector are in the Sunbelt and the South, in areas with lower-cost housing.

Another datapoint, this time for multifamily: 75.8% of investment happened outside of major metros last year, according to Newmark. This is the highest investment allocation outside of big cities on record.

A separate report from CrowdStreet lists several smaller-sized cities that are ripe for apartment acquisitions, as renters have moved en masse to these markets, abandoning pricey urban centers and coastal cities for the suburbs, the Sun Belt, and secondary gateway cities.

These include Raleigh-Durham, Austin, Charlotte, Salt Lake City, Phoenix, Atlanta, Dallas-Fort Worth, Orlando, Nashville and Tampa-St.Petersburg.

The overall outlook for these markets remains positive, according to CrowdStreet, especially as interest rates stay low and single-family values have spiked. The firm has a “strong conviction for 18-hour cities in growing secondary markets” that have favorable business climates, a strong stable of educated workers, and affordability.

While a recent Apartment List report points to rent stabilization in larger, coastal cities, a group of mid-sized markets experienced significant increases fueled by tightening supply and low vacancies. However, the growth may now be flattening out. Boise leads the way, with rents up 12.4% year-over-year, followed by Chesapeake, Va., which saw an increase of 8.4% during the same period.

Source: “The Suburbs’ Big Moment May Have Passed“

Where the Apartment Market Stands One Year After COVID

March 12, 2021 by CARNM

While a now-improving economy might suggest that the worst is behind us for missed rent payments, there’s still some downside risk.

COVID-19 became a real thing for lots of people on March 11, 2020.

Over the past year, many of us at RealPage have referred to the date as Tom Hanks Day, since it’s when America’s Dad shared that he and wife Rita Wilson had contracted the virus. It’s also when the NBA shut down pro basketball play and when the World Health Organization first classified what was happening as a global pandemic.

As with so many things, then, the US apartment market entered a fundamentally different period one year ago today.

Starting on March 12 and then proceeding through most of April, many apartment renters froze in place. Searches for new accommodations dropped drastically from year-earlier levels, and new-resident lease signings plunged. At the same time, retention of existing renter households at initial lease expiration soared to record heights. Said bluntly, people stopped moving and hunkered down.

One year later, key stats for the apartment market are in much better shape than what was initially feared back in March 2020.

Demand Is Robust

After apartment leasing activity took a giant hit in Spring 2020, people began to move around once more around mid-year. Apartment demand soared in the 3rd quarter and held well above what’s seasonally normal as 2020 drew to a close. By the end of the year, absorption of market-rate units in the country’s 150 largest metros was up to roughly 296,000 units, only a hair under annual results in 2017 through 2019.

Demand remains above the seasonally typical volume in the first few months of 2021. More than 30,000 units were absorbed in January and February, a time period when cold weather normally limits the net increase in occupied apartments to just a handful of units.

With demand proving stronger than many expected, US apartment occupancy has avoided any damage. The February 2021 average occupancy rate of 95.4% for the U.S. is basically unchanged from the February 2020 figure of 95.5%.

Renters Are Paying (Mostly)

Unprecedented layoffs in March and April 2020 triggered fears that many households would no longer be able to pay their rent. That didn’t happen, at least not in the professionally managed apartment properties sector of the rental housing stock.

According to National Multifamily Housing Council research—to which RealPage contributes data—the share of households meeting their rent obligations ranges between 93% and 95% for each month since the initial U.S. outbreak, in most months off no more than 2 percentage points from year-earlier results.

While a now-improving economy might suggest that the worst is behind us for missed rent payments, there’s still some downside risk. Households suffering financial stress certainly need the rental assistance that is part of the Biden administration’s American Rescue plan. However, RealPage analysts have concerns that forgiveness of back rent owed could lead households to deprioritize meeting their rent payment obligations.

Pricing Power Is Mixed

Effective asking rents for new-resident leases generally dropped as COVID emerged, sliding a little in most locations but much more in select spots, especially expensive gateway cities.

How you feel about today’s pricing power is influenced by where you are, since there’s a huge spread in the results between the country’s top and bottom performers. Annual rent growth is great in metros like Riverside, Sacramento, Phoenix, Tampa and Atlanta. On the other hand, the hole remains deep in New York and the Bay Area, and there’s also lots of work to do in Seattle, Boston, Washington, DC and Los Angeles.

In the latest stats, month-over-month rent growth proved very solid during February. Markets that had displayed momentum previously are continuing to do quite well, and green shoots are beginning to show up in the places that had taken the biggest pricing hits earlier.

We’re Still Building

There is a lot of apartment product in the pipeline. Ongoing construction coming into 2020 totaled roughly 583,000 market-rate units, and this year’s scheduled deliveries reach just over 400,000 units, surpassing annual additions delivered throughout the past few years.

Activity has cooled off a little over the course of the past year, with both starts and new multifamily building permit approvals down by 10% to 15%. Still, that’s a minor dip compared to what happened in the 2008 to 2009 recession, with the numbers remaining high by long-term historical standards.

Developers remain eager to build in the suburbs, especially across fast-growing Sun Belt areas. While there’s less capital available for urban core construction, don’t write off that segment of the stock. Conversations about building more downtown towers are in process, as a project that gets going in the immediate future is likely to be delivering in a much-improved leasing environment.

Property Trade Volumes Are Coming Back

Information from Real Capital Analytics shows a moderate decline in the nation’s apartment sales volume during 2020, mainly reflecting that trades paused during the summer months. There was a brief period when many took a wait-and-see position, holding off until some clarity on valuations could be established. However, sales came roaring back during the final quarter of 2020, and the typical sales price—about $176,000 a door—basically didn’t move from its pre-pandemic level. Cap rates even compressed by another couple of ticks during the course of the year.

The stack of capital available for apartment investment remains huge, probably even bigger than it was pre-pandemic as some money that had been designated for other types of real estate now could go to apartment buys. Anyone on the sidelines waiting for fire-sale prices on distressed assets appears to be out of luck, with maybe the exception of a few small properties with mom-and-pop owners.

Operations Continue to Evolve

Apartment operators had to move fast to adapt to the changes that COVID brought to day-to-day practices on site and in the back office. After addressing safety issues for both employees and residents, the first moves often were to introduce or expand virtual leasing capabilities and to address rent payment options.

Lots of changes continue, as operators are assessing how their resident profiles are evolving and how the needs and preferences of their customers are shifting. Use of technology to move processes offsite is accelerating, and many operators are taking a hard look at expenses and how those costs might be trimmed.

Greg Willett is the Chief Economist at RealPage

Source: “Where the Apartment Market Stands One Year After COVID”

A New “Untethered Class” of Workers Could Shake Up US Housing Markets

March 12, 2021 by CARNM

These workers are highly-educated, high-earning, and on the precipice of settling down at a median age of 32.

The WFH experiment of the past year has given rise to a so-called “untethered class” of workers who hold remote positions and are unencumbered by homeownership or family obligations, a new report from ApartmentList suggests.

These workers are highly-educated, high-earning, and “on the precipice of settling down” at a median age of 32. They rent their homes, live alone or with a spouse who is either not working or who is working in a remote-friendly occupation, and they have no school-age children. They are also more likely to live in a state other than where they were born. ApartmentList suggests this new untethered class consists of 8.7 million workers, or 5.6% of the total American workforce.

San Francisco has the highest share of untethered workers at 13.5%, followed by San Jose and cities known for high housing prices, including Los Angeles, New York City, Seattle, and Boston.

“Given that so many untethered workers are living in the nation’s most expensive housing markets, many may choose to relocate to markets where they can afford to purchase homes and raise families more comfortably,” housing economist Chris Salviati writes in the report. “While such a trend would be unlikely to lead to the demise of superstar cities, it has significant potential to reshape the markets that the untethered class moves to.”

Nearly one in three US jobs are in occupations that can be performed remotely, ApartmentList estimates, though the number is much higher in places like San Jose and Silicon Valley, where 46% of jobs are remote-friendly.

“Many Americans who worked in offices before the pandemic are likely to continue working remotely even after it subsides,” Salviati writes. “By severing the link between job choice and housing choice, remote work could have a profound impact on where Americans choose to live.”

Of course, it remains to be seen how companies will ultimately navigate a return to physical work as the pandemic wanes. For banks, pulling off a more permanent WFH option, even for a fraction of employees, may pose significant regulatory challenges. And for other industries (like media), current research suggests WFH may be reaching a saturation point.

But for Salviati, this much is clear: “the geographic preferences of remote workers could have significant ramifications for housing markets across the country,” he writes. “If the untethered class decides that they are fed up with the high housing costs in superstar cities, they could spur a wave of migration to more affordable markets. Although superstar cities are unlikely to face a mass exodus, even a modest outflow has the potential to disrupt smaller markets. At the same time, a growing number of cities are making concerted efforts to attract remote workers, seeing an opportunity for economic development.”

Source: “A New “Untethered Class” of Workers Could Shake Up US Housing Markets”