Archives for January 2022

The commercial real estate market will surprisingly close with a bang in 2021 given the historic strong demand for multifamily and industrial space and the resiliency of brick and mortars in serving consumer demand off-premises. The strong growth in these sectors made up for the weak and tenuous recovery in the office market. The year 2021 is also poised to be the strongest year in terms of investment acquisitions, surpassing the peak sales volume of 2006 and the pre-pandemic level.

In 2022, sustained household formation, strong consumer spending amid slower inflation and sustained wage growth, continuing re-entry to the office even if mostly on a hybrid schedule, and the expansion of construction and investments in secondary/tertiary markets will drive leasing, construction, and sales. Interest rates are on a course to increase with the Federal Reserve winding down its $120 billion monthly asset purchases and eyeing three federal funds rate hikes. However, interest rates will still be low compared to the pre-pandemic level and even if the T-note hits 2.5% by end of 2022, this will still be lower than the average rate of nearly 3% in 2018. Strong economic property market fundamentals will drive the growth in net operating income, especially in the multifamily and industrial market, and will continue to attract equity capital and sustain price appreciation.

With improving market fundamentals, investor acquisitions of multifamily, office, retail, and industrial properties of at least $2.5 million totaled $523 billion in the first ten months of the year. NAR expects the full-year level of acquisitions to hit nearly $645 billion, surpassing the prior peak level of acquisitions in 2006 of $581 billion.

The multifamily market had a historic year, with 1.07 million units absorbed since the pandemic. The vacancy rate hit a record-low of 4.5% as of December 18 while the median asking rent growth hit a record high of 11% year-over-year. Rental demand soared amid the recovery in household formation and with home prices rising at a double-digit pace. Rental demand has increased across primary and secondary markets, with renters returning to the major metro areas of New York, Washington DC, Boston, Chicago, San Francisco, and Los Angeles. However, metro areas in the Sunbelt markets had the largest increase in net demand, led by Dallas, Houston, Charleston, Wilmington, Savannah, and several Florida metro areas.

With sustained demand for online shopping, the industrial property market also had a record year, with nearly 700 million square feet of space absorbed since the pandemic and with rents soaring to a historic high of 8.4% as vacancy fell to an all-time low of 4.1%.

The retail brick-and-mortars managed to survive broadly unscathed, except malls. Since 2020 Q2, 47.9 million square feet of space was absorbed, compared to just 29 million square feet of retail space absorbed in the 12 months before the pandemic hit. Malls saw a decline in occupancy, but that was offset by the positive net absorption from neighborhood centers, strip centers, and free-standing/single-tenant stores.

Hotel occupancy and revenues also recovered with increased personal and business travel. As of December, occupancy was at 57% compared to 42% one year ago.

Read the full issue here.

Source: “NAR Commercial Market Insights December 2021“

Engagement Apps and Hardware Options Take on New Services and Models.

The multifamily sector remains extremely robust, creating opportunities for multifamily property technology to expand not only into new amenities and services but also into new models. A growing number of players in tenant engagement apps are entering the multifamily space.

New Players in Tenant Engagement

One company recently launched its product, Sugar, with a slightly different focus. While Sugar offers traditional services like access control and visitor management, its primary focus is to build community. According to founder and CEO Fatima Dicko, “As residents spend more time at home, the demand for products that enhance in-building experiences will continue to grow.”

Another proptech company, HILO, offers a service that works across CRE and multifamily, with a tenant experience network that connects people to their building community, neighborhood, and city. The program allows people to access rewards, content, services, and other residents—whether they’re in the office, working from home, or mid-commute.

Hardware Options Based on Integration

Providers typically require hardware for services like access control and visitor management. To ensure adoption, tenant engagement apps must include a necessary utility, like access control. Without that component, the app may become just another overlooked icon on tenants’ phones. For example, tenants can order food delivery through most engagement apps, but if they’re not already using the app regularly, chances are they’ll go directly through a service like DoorDash or GrubHub. When you increase residents’ reliance on an engagement app, in theory, that should lead to greater use of other app features.

Some hardware manufacturers integrate with other solutions, like third-party access control providers. Others provide end-to-end solutions and choose not to integrate. ButterflyMX exemplifies an open system. Its intercom offers robust two-way audio and video communication, allowing residents to speak with visitors and unlock doors from their cell phone. Although ButterflyMX has its own end-to-end solution, it allows integrations with third-party systems. By contrast, Latch, which offers a suite of proprietary wireless locks and intercoms, chooses not to integrate with third parties. Although its operating system integrates with in-unit solutions like Google and Honeywell, the hardware doesn’t currently integrate with third-party tenant apps or other access control solutions.

What’s Next?

The next wave of advances in multifamily proptech services will most likely take place inside residential units. Amazon is testing services like grocery delivery where the delivery driver enters an apartment and puts food into the refrigerator. Assuming we can get comfortable with situations that are unfamiliar or even uncomfortable, the possibilities are endless. (For more on where proptech is heading, see “Future of Proptech Investment.”)

Source: “Multifamily Draws Proptech Advances“

With cryptocurrency prices hitting all-time highs in late 2021, blockchain technology is once again dominating the news headlines. At times like this, it’s a good idea to take a step back and look beyond the speculation surrounding crypto price actions. As the world continues to move increasingly digital, people are beginning to recognize the potential uses of blockchain-powered digital assets like NFTs (non-fungible tokens) and the impacts that they could have on industries such as real estate.

In an industry that is often the target of innovators, what real estate professionals should know about this technology is straightforward: Blockchains are simply a new way of thinking about how information regarding a transaction—any transaction—could be stored and shared. In their most basic form, blockchains are systems that maintain an ever-growing list of records or transactions—a list that is stored not in one location, but across a network of computers.

These transactions could represent nearly anything, such as the deposits and withdrawals you make at your bank, the acquisition of a piece of art, or the real estate records that are created when a property is purchased, refinanced, or sold. What makes these systems different from a regular database, however, is that records added to this list are permanent, available to all parties involved, and therefore easily auditable.

Ideas in action

While this technology can sometimes be difficult to understand, the basic idea behind blockchains is not. A blockchain provides an independent, verifiable, and trustworthy record of events and transactions. In real estate, this technology could be used to provide the single source of truth for a given property or transaction.

Imagine a verifiable record of a property’s past ownership. Having access to this could enable the various parties to a pending deal—who typically don’t know each other—to trust that the seller has true ownership of that property and to see without any question that there are no claims against the property. This would clearly have massive implications on the title industry. Having a clear and undisputed history of record is incredibly important. While this may be possible without a blockchain, using this technology can help make these kinds of processes far more efficient and effective than they are today.

Current impact

While this technology has the potential to be completely transformative in real estate, adoption has been slow. Today, we’re seeing just two applications successfully gaining traction: as an investment portfolio diversification and as an alternative payment method.

You may be wondering, “But what is a cryptocurrency?” A cryptocurrency—or, simply, crypto—is a type of proprietary digital asset that “lives” on a blockchain. With the global market cap of cryptocurrencies growing from $500 billion to $2.5 trillion over the past 12 months alone, extraordinary amounts of new wealth have been created thanks to crypto. Now we are seeing many of these cryptocurrency investors diversifying out of their digital asset holdings and into physical real estate.

Beyond portfolio diversification, we’re also seeing a few hundred luxury real estate transactions each year being completed purely using cryptocurrencies like Bitcoin or Ether. In tech hubs like San Francisco and Miami, many agents are becoming specialists in facilitating this new type of property purchase method.

In addition to facilitating purchases and accepting rent, escrow, or down payments in cryptocurrency, this new technology could reduce settlement times to just seconds instead of days and eliminate the need for money wires, all while costing only pennies in transaction fees, even for international buyers. While the rate of adoption is slow so far in real estate, it has been accelerating in adjacent industries such as finance and lending. In 2021, UWM, the second largest mortgage lender in the United States, temporarily accepted Bitcoin for mortgage payments as part of a pilot program.

Future impact

Even though some industries have yet to fully embrace this new technology, there are many opportunities for blockchain to be utilized within the real estate industry in the near future.

• Title. In terms of recording ownership of property, there’s a potential impact on the world of title insurance. Blockchains could provide an indisputable and instantly verifiable proof of who owns a property.
• Fractional property ownership. By utilizing blockchain technology, it becomes possible to allow multiple parties to more easily own fractions of a single property, as opposed to today’s model, which is primarily based upon a single party owning it. This can increase accessibility to real estate by lowering the minimum amount of capital needed to get exposure to real estate as an asset class, while also allowing property owners to sell partial equity, providing greater access to liquidity. This is distinct from a real estate investment trust (REIT), which may create more opportunities for retail investors to gain exposure to the performance of the real estate sector but falls short of granting investors any actual ownership of the underlying investment properties. We are seeing this model become more popular in second-home markets, and it can be more easily managed using the blockchain.
• NFTs. Non-fungible tokens, or NFTs, have been used mostly to sell and represent digital art, where they act as an indisputable certificate of authenticity. But even though NFTs are primarily used to represent items in the digital world, it doesn’t mean they couldn’t be used to represent physical products, including real property. NFTs could be used to represent physical real estate assets on a blockchain, opening property investment opportunities to many more people. Recently, Sotheby’s auction house sold multiple NFTs for tens of millions of dollars.
• Decentralized finance (De-Fi). De-Fi has been referred to as “Wallstreet 2.0 on the blockchain.” For both institutional and retail customers, most of the traditional financial goods and services that depended on intermediary third parties such as banks and investment firms can now be accessed directly using innovations like smart contracts on blockchain protocols. Common aspects of real estate transactions like lending, borrowing, refinancing, and getting access to liquidity could all become equally open to anyone in the world. This is already becoming possible today without the need for backing by any central bank, relying instead on pieces of code and secure De-Fi protocols. It’s even possible to use your own cryptocurrency as collateral to issue yourself a negative-interest rate loan. De-Fi combined with NFTs or property titles on a blockchain could open the gates to tremendous financial opportunity for those who own real estate.

Despite the number of opportunities that it presents, it will likely be years before we see blockchain fully enter the real estate industry in the United States, though other countries may certainly reach that stage sooner. The technology is still gaining maturity. It’s challenging to find the necessary talent to build these new applications, and there are still many regulatory hurdles ahead.

An important point for real estate professionals to understand is that many of these powerful impacts will likely never be visible directly to the consumer, brokerage, or individual agent; they will simply become integrated into the underlying technology supporting the transactions that fuel the industry. Just as it isn’t necessary to be familiar on a deeply technical level with how the internet works in order to successfully use social media, blockchains will be providing value mostly behind the scenes.

The takeaways

While certain components of the blockchain technology like NFTs and cryptocurrencies have recently reached mainstream status, their impact on the real estate industry is still far out on the horizon. We’re still in the early days of this new era, but there is no doubt that blockchain will impact the real estate industry in the years ahead. Whether it’s the ability to have an independent, immutable, and verifiable record of the title of each property or new financial tools available to homeowners powered by decentralized finance, the ways in which blockchain technology will become an important part of our industry will only increase.

Source: “Recording History: An Introduction To Blockchain Technology For Real Estate Professionals“