📊 Investors Hit Pause in 4Q23 per Burns + CRE Daily Fear and Greed Index. See the full report here.

Construction Boom Busts Austin Rents – Is Miami Next?

Amid a surge in multifamily construction, Miami’s real estate history is under the lens, sparking debates about South Florida’s stability.

Construction Boom Busts Austin Rents – Is Miami Next?

Amid a surge in multifamily construction, Miami's real estate history is under the lens, sparking debates about South Florida's stability.

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Good morning. Welcome to the first edition of CRE Daily on the weekend where we bring you the biggest stories of the week — plus the ones you might have missed.

Today’s issue is brought to you by RM Communities, a sister company to RealtyMogul, one of the leading real estate technology platforms.

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RENTAL MARKET

Austin's Surge in Construction Dampened Rents – Will Miami Be Next?

South Florida, especially Miami, faces scrutiny over its volatile real estate history and the current surge in multifamily construction, raising concerns about the region's stability and future.

Under pressure: South Florida, historically recognized as a U.S. housing market barometer, is under scrutiny due to its patterns of booms and busts, and recent pandemic-era surges in rents and home prices. While its vulnerability is apparent, especially if a U.S. recession occurs, some factors also provide a modest outlook for optimism.

Surge in supply: CoStar's multifamily rental data reveals a significant influx of new supply in the Miami area, particularly in Miami-Dade County, with approximately 32,700 units—representing 17.7% of the current inventory—under construction. A notable portion of these new units target the upper end of the market. Drawing parallels to Austin, Texas, where a significant rise in constructions led to a dip in asking rents a year later, Miami's current trajectory suggests it might be next in line for a similar pattern.

units under construction % to innventory

Historical context: The Miami region has historically been characterized by real estate booms and busts, dating back to the 1920s. Its economy is still largely driven by tourism, businesses susceptible to hype, and ongoing real estate momentum. For long-term stability, Miami needs to diversify its economic base, moving away from sheer speculation and toward solid, diverse industries. And while the recent move of financial heavyweights like Ken Griffin's Citadel and other finance firms from New York and California marks progress in the area, further diversification is essential for economic maturity.

Income gap: Although Miami has relatively low median family incomes, the trajectory suggests progress in closing the income gap. Looking at the income of households moving into the market, rather than those already there, reveals a more nuanced picture. Incomes in Miami have been rising, which could contribute to improved rent-to-income ratios and affordability in the future.

reported incomes in major metro markets

➥ THE TAKEAWAY

The big picture: Miami's rental market may become increasingly bifurcated, with high-end rentals experiencing price declines while less expensive inventory remains resilient. However, due to the limited availability of land in Miami, the extent of overbuilding seen in other areas, like Texas, is unlikely. CoStar projects that Miami's rent growth will remain modest in the coming quarters before potentially reaccelerating in 2024.

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THESIS-DRIVEN INSIGHT

Investors Are Still Bullish on These Proptech Sectors

Image Credits: Andriy Onufriyenko / Getty Images

I’m Brad Hargreaves, the editor of Thesis Driven, a newsletter that dives deep into topics at the forefront of innovation in real estate. I’m also a serial entrepreneur and the founder of Common and General Assembly. We are partnering with CRE Daily to bring Thesis Driven insights to your inbox every Sunday.

Investor perspectives: This week’s deep dive is a temperature check of major proptech investors: how they view a challenging market for VC funding and the technology sectors they see having the largest impact on the real estate industry over the next three to five years. We spoke to 11 investors spanning traditional venture firms, real estate strategies, and sector-specific seed-stage investors.

Here are a few highlights from our conversations:

Between the lines: Data and AI remains a hot topic for real estate technology investors, as real estate operators find applications for AI to make operations more efficient–such as with AI leasing bots–as well as generate superior insights to inform acquisitions and underwriting.

According to Dan Sachar, Douglas Elliman’s VP of Enterprise Innovation:

I think there's a lot of opportunity to use a variety of technologies, like AI, to be able to learn more about the unique things a client is looking for, and feed those insights to an agent and vice versa. This will make the searching process more efficient, and more personalized to each individual.

Other companies are making data more available and accessible to real estate investors. Casafari, for example, is building the MLS of Europe–which previously did not exist–unlocking new investment opportunities for institutional investors.

The tech stack: The integration of point solutions is another segment driving investor interest. Over the past 10 years, many proptech companies built “point solutions” only addressing a single need, leading to a patchwork of technologies at properties. But companies like Propify are seeing success in building platforms that help point solutions integrate with property management systems like Yardi and RealPage. This could have major implications on the future of real estate technology; the challenges of integrating with legacy property management systems were a major barrier to building new technology tools for real estate operators.

Do more with less: Finally, workflow automation is continuing to draw investor interest. With the real estate industry under pressure to cut operating expenses, tools like Colleen.ai and Bridgit that can enable operators to work more efficiently and reduce property-level operating expenses are in vogue.

➥ THE TAKEAWAY

Looking ahead: While the proptech venture market is cooling, strategic technology investors–such as DivcoWest’s Brian Birkhofer and Douglas Elliman’s Dan Sachar–continue to be bullish on technologies and sectors that will drive efficiencies and cost savings or additional revenue at the asset level. Continue reading at Thesis Driven here.

🧠 CRE TRIVIA

Q3 2023 marked the highest construction quarter since the 1980s. How many apartment units were added?

  • A. 90,800 units

  • B. 128,100 units

  • C. 460,000 units

  • D. 1 million units

Find your answer at the bottom of the newsletter.

✍️ TOP 10 STORIES OF THE WEEK

1️⃣ Seeking alpha: CRE valuations have experienced an overall downturn, making property debt more appealing for investors seeking higher returns and enhanced downside protection.

2️⃣ Office Apocalypse: According to a Bloomberg survey, two-thirds of respondents believe the US office market will only recover after a severe collapse, and CRE prices won't hit bottom until at least the second half of 2024.

3️⃣ Glittering Gala: The Real Estate Board of New York has chosen seven honorees for its annual gala on January 18th, 2024, including the outgoing chairman, Douglas Durst.

4️⃣ Bleeding cash: “Apartment King” investment guru Brad Sumrok taught syndication to thousands of students and claimed to have created over 600 millionaires, but recent loan data suggests Sumrok is facing financial distress.

5️⃣ Financial Fiasco: A $16.45M loan fast-approaching maturity puts the future of a 253KSF Uptown Dallas office building at risk.

6️⃣ From Boom to Bust: Higher interest rates and falling rents contribute to a 41% decline in apartment building starts compared to the previous year.

7️⃣ High-Flying Deception: Atlanta retail developer Stan Thomas is being sued for $7.3M in unpaid loans, allegedly hiding assets to avoid payment.

8️⃣ Barstool Boss: Dave Portnoy, founder of Barstool Sports, purchased a Nantucket compound for $42M, setting a new record in Massachusetts.

9️⃣ Preferred Equity: Scarcity of capital in multifamily is driving developers to preferred equity investments, attracting new investors with higher returns.

🔟 Thrown Out of Court: The US Supreme Court rejects a challenge to New York's rent stabilization law, preventing the dismantling of tenant protections.

📈 CHART OF THE DAY

Here's a graphical look at how U.S. payrolls have changed by sector since the start of 2021. Read more about September jobs report here.

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🧠 Trivia Answer: B. 128,100 units

In Q3, over 128,100 new units were introduced to the market, while slightly more than 90,800 units were occupied. The quarter saw a minor drop in occupancy by 10 basis points, settling at 94.4%, which is approximately the market's long-term average, as reported by RealPage.

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