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Dallas Is Becoming the Wall Street of the South

Dallas surpassed Chicago and Los Angeles to become the No. 2 area for finance jobs.

Dallas Is Becoming the Wall Street of the South

Dallas surpassed Chicago and Los Angeles to become the No. 2 area for finance jobs.

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Good morning. Here we are with our second-to-last newsletter of the year. What a ride it's been in the commercial real estate world these past 12 months. Thanks for joining us each morning!

Today’s issue is brought to you by Bullpen. Fun fact: Bullpen was one of CRE Daily’s first sponsors, so it only feels right to end the year together. Show them some love by clicking on their ad below.

Now, back to the reason you are here. In today’s issue, we delve into the multifamily market's positive outlook for 2024 as optimism rises for the New Year. Plus, how Dallas is emerging as the new financial hub of the South, surpassing Chicago and Los Angeles in finance workforce.

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Market Snapshot

S&P 500
GSPC
4,783.35
Pct Chg:
+0.14%
FTSE NAREIT
FNER
764.96
Pct Chg:
+0.38%
10Y Treasury
TNX
3.883%
Pct Chg:
+0.033
SOFR
1-month
5.33%
Pct Chg:
0.0%

*Data as of 12/28/2023 market close.

SEISMIC SHIFT

Optimism for the 2024 Multifamily Market

The 2024 multifamily market is generating optimism, with the Federal Housing Finance Agency (FHFA), Federal Reserve, and Freddie Mac indicating a potential increase in transaction volume after a sluggish 2023.

Adjustments to lending caps: The FHFA has set the 2024 multifamily lending caps for Fannie Mae and Freddie Mac at $70 billion each, totaling $140 billion for the year. This adjustment is based on current market forecasts, with the possibility of cap increases if needed. Unlike in 2023, loans supporting workforce housing will be exempt from these volume caps, indicating an expectation of increased lending activity in this sector.

Increased transaction volume: Echoing this sentiment, industry experts like Scott Belsky from Partner Valuation Advisors predict a surge in multifamily transactions. This optimism is fueled by factors such as the maturing of loans issued between 2020 and 2022, the stabilization of interest rates, and a narrowing of the bid-ask spread in the market. The Mortgage Bankers Association supports this view, projecting a 26% increase in overall lending and a 19% rise specifically in multifamily transactions, hinting at an active and prosperous healthy landscape for the year ahead.

Freddie Mac's outlook: Despite predictions of persistently high interest rates, Freddie Mac anticipates stabilization is likely to catalyze lending activities. The multifamily market is also braced for sustained growth, driven by an overarching housing shortage, expensive for-sale housing market conditions, and a growing pool of new renters.

Supply surge: On the flip side, Yardi Matrix 2024 outlook for multifamily brings a unique perspective to this optimistic scenario, highlighting upcoming rent growth and occupancy challenges. With 1.2 million apartment units under construction at the beginning of 2024, a record-breaking 510,000 units are projected to be completed by year's end.

“We expect demand for multifamily to remain healthy in 2024, but headwinds that include slower job growth, increasing supply and waning affordability in some markets will keep rent growth restrained again,” state analysts, forecasting a tepid 1.5 percent rent growth nationally.”

Yardi Matrix

Top movers: Looking at regional trends, the Midwest is poised to lead in rent growth, while the Sunbelt and Western regions continue to draw both residents and businesses away from the coasts. However, in Sunbelt cities such as Austin, Nashville, Charlotte, and Orlando, the influx of new housing supply is expected to temper rent increases despite robust demographic and economic growth.

➥ THE TAKEAWAY

Zoom out: In 2024, the multifamily market is expected to remain robust, driven by strong demand and a resilient economy. However, challenges like rising interest rates and a surge of supply in some markets could temper growth. On the investment front, already down by 70% YoY, multifamily sales will likely pick up in 2024 due to the impact of interest rates and dry powder on the sidelines.

A MESSAGE FROM BULLPEN

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TRENDING

  • Struggling landlords: Community Preservation Corporation and FDIC are creating a $550 million fund to assist landlords of 35,000 rent-stabilized apartments with repairs and loan restructuring following the sale of a failed bank's loans.

  • REITs performance: In a challenging real estate environment, REITs overall recorded a net gain, with the FTSE Nareit All Equity REITs Index up 7.2%, despite varied performances among different REIT sectors.

  • Office loan risks: Declining demand and property values in the office sector could lead to a surge in loan defaults, with nearly $150 billion in loans maturing by next year and over $300 billion by 2026.

  • Congestion tolls: Manhattan's congestion tolls, slated for a 2024 launch, face growing opposition, with concerns about their impact on NYC's paramedic and EMT services.

  • Proptech decline: 2023 saw proptech funding decrease to $11.38 billion, down 42.38% from 2022 and 64.44% from 2021, reflecting investor caution, notes CRETI.

  • Major deal: UCLA is reportedly interested in purchasing a former shopping center on L.A.’s Westside, initially slated to be a large-scale office redevelopment for Google through 2036.

SEISMIC SHIFT

Dallas Surpasses Chicago and LA in Finance Jobs, Becoming New Wall Street of the South

Wall Street is experiencing a major shift, with Dallas emerging as a new financial hub, surpassing Chicago and Los Angeles.

Heading South: 2023 marked a landmark year for Dallas, as it hosted new campuses for three of Wall Street's largest banks. This move has propelled Dallas ahead of Chicago and Los Angeles regarding finance sector employment. Specifically, Dallas now houses over 380,000 finance workers, outstripping Chicago's 323,000 and Miami's 221,000. The influx of asset managers and financial institutions, drawn by the lack of state income tax and affordable housing, has significantly contributed to this growth.

The new financial mecca: Dallas's rise as a financial hub is not just in numbers. It has eclipsed traditional finance centers like Atlanta and Miami. The finance sector in Dallas occupies a staggering 28 million square feet of office space, second only to New York. Despite the lower average salaries in Dallas — with financial and investment analysts earning around $102,000, nearly 30% less than in New York — the city's cost of living and business-friendly environment continue to attract firms and talent.

Political challenges: Despite its growth, the Texas financial sector faces challenges from state politics, particularly laws impacting the oil and gas industry and gun manufacturers. These political factors could potentially affect the state's business-friendly image. Yet, development continues unabated, with significant investments like Wells Fargo’s $500 million campus in Irving and Bank of America's new high-rise near Goldman Sachs's campus.

➥ THE TAKEAWAY

Looking ahead: Dallas's strategic central location, complemented by two major airports, makes it an attractive destination for finance companies. The post-pandemic period has seen a surge in finance employment, with a 44% jump in the past decade. The city is expected to see an increase in executive and investment banking positions, moving beyond back-office roles, reflecting its growing status as a finance hub.

CHART OF THE DAY

Heading into 2024, the U.S. retail market is experiencing its tightest conditions ever, with only 4.6% of retail space available nationwide as of December 2023, marking the lowest availability since CoStar started monitoring in 2007.

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