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

DC Leads the Apartment Boom with Two Zip Codes Ranking On Top

Plus: Rising interest rates are impacting NYC’s multifamily market, leading to lower transactions in Q3. 

DC Leads the Apartment Boom with Two Zip Codes Ranking On Top

Plus: Rising interest rates are impacting NYC's multifamily market, leading to lower transactions in Q3. 

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Good morning. Today, we dive into the top 50 zip codes boosted by recent apartment completions. Why Brookfield’s real estate returns underwhelm, and NYC's multifamily scene decelerates as the year wraps.

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Market Snapshot

S&P 500
GSPC
4,186.77
Pct Chg:
-1.4%
FTSE NAREIT
FNER
625.64
Pct Chg:
1.2%

;

10Y Treasury
TNX
4.821%
Pct Chg:
-0.4%
SOFR
1-month
5.30%
Pct Chg:
0.0%

*Data as of 10/25/2023 market close.

APARTMENT SURGE

Zip Codes With the Most Multifamily Construction

Map: RentCafeSource: Yardi Matrix

Research from RentCafe, an affiliate of Yardi Systems, indicates that about 1.2 million rental units have sprung up since 2018, benefiting specific zip codes characterized by above-average incomes and a younger demographic.

Leading the way: Washington, DC's zip codes 20002 and 20003 witnessed the most multifamily construction. Zip code 20002, home to the U.S. Capitol and the H Street Corridor, experienced a 73% increase in units over five years, with the new 7,378 units added. Neighboring zip code 20003 followed closely with a 122% growth, adding 7,225 units primarily of high-end rentals. In third place was Queens, NY's zip code 11101, with a 73.5% increase, adding up to 7,000 new apartments.

Top contenders: The Gulch/West End region in Nashville, with the zip code 37203, secured the fourth position by adding 6,806 new apartments. This spot, known for its vibrant cultural and musical life, virtually doubled its initial total. Texas wasn't left behind; Frisco's 75034 saw its apartment numbers surge by 70%, bringing the total to 5,872, predominantly high-end rentals.

Stellar growth: Four particular zip codes, three of which are in Florida, showcased remarkable percentage growth in their multifamily inventories. Miami's 33132 topped with an extraordinary 354% boost, thanks to its exceptional location and variety of housing choices. Orlando's neighboring area, Maitland's 32751, saw a 274% rise, while Panama City's 32405 enjoyed a 190% uptick. Outside Florida, Virginia's 23230 experienced a 235% increase, and North Carolina's 27526 grew by 216%.

➥ THE TAKEAWAY 

Big picture: This multifamily construction influx indicates not just a wider range of choices for potential renters but also presents opportunities for better deals. Modern amenities, designs, and more are becoming increasingly available to renters, enhancing urban living standards and lifestyles. As RentCafe remarks, this surge marks a significant shift in the residential rental landscape.

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DAILY HEADLINES

  • High-risk, high-reward: Bollywood star Vivek Oberoi aims to raise $160M for a luxury hotel on an island in the Ganges River, hoping to tap into the demand for wellness and sustainable travel.

  • Yields up, market down: Rising Treasury yields cause mortgage rates to surge, further damaging the stagnant housing market in the US.

  • From cloud to concrete: Google's (GOOGL) parent company is increasing real estate investments in anticipation of artificial intelligence-driven expansion.

  • Debt up, distress: The universe of commercial mortgages increased by $320.5B YoY, reaching $5.8T in 2Q23.

  • Write it off: Deutsche Bank holds $483M in loans on the former Howard Hughes Center near LAX, and Blackstone (BX) writes off its stake in the Playa District.

  • The real power players? New York magazine's list of the "50 most powerful New Yorkers" excludes prominent real estate figures like Rudin, Rechler, Roth, Ross, and more.

  • Senior sale: Fairfield Properties acquired a 55+ community in Suffolk County from B2K Development for over $90M, renaming it Fairfield Knolls at Deer Park.

  • Mortgage rates surge: US mortgage rates have reached a 23-year high at 8%, causing a decline in existing home sales and impacting the economy.

  • Teeing up: UnderPar Life (great name, by the way) plans to build numerous locations across the US, providing golf entertainment venues similar to Topgolf.

  • Shaky yet resilient: US market conditions are shaky yet resilient, with strong room rates and demand for travel, although inflation and layoffs pose challenges.

  • Building boom: New multifamily construction has led to 1.2M new rental units, benefiting neighborhoods with vibrant social scenes and good amenities.

  • Dropping deadweight: Dropbox (DBX) plans to surrender 165,250 SF of office space, paying $79M in termination fees, as it adjusts to a more flexible workforce.

RISING TIDES

The Debt Dilemma Within Canada's Brookfield Property Partners

Within Canada's Brookfield Corporation is a real estate unit, Brookfield Property Partners (BPY), that can't cover its debt costs.

Financial woes: For the first half of the year, BPY's income from real estate was insufficient to meet its interest expenses, leading to a warning from S&P Ratings about a potential downgrade of its credit rating. Despite the company's emphasis on its successful “trophy” assets, the real numbers from obscure filings indicate a different story.

Occupancy Discrepancies: There's a discrepancy in what constitutes "core" properties between Brookfield Corporation and BPY. The parent company views it as a collection of indispensable mixed-use properties in major global cities, while the rest is seen as "transitional and development." This distinction might lead to varied interpretations and expectations regarding property performance.

© Brookfield Property Partners

Financial strains: Records for the quarter showcase rising interest costs, almost doubling from the previous year. This increase has raised concerns as it's not adequately covered by property-related operating income. Analysts predict looming troubles for the US commercial real estate sector, suggesting that increased defaults could result in banks tightening their lending processes, leading to further defaults.

© Brookfield Property Partners

➥ THE TAKEAWAY

Why it matters: Real estate dynamics are cyclical. Though Brookfield emerged from a major financial crisis about three decades ago, it's facing another challenge with its current real estate business cycle. Regardless of BPY's financial strains, Flatt remains confident, attributing the issue to broader industry trends rather than the corporation's own mismanagement. Only time will tell how Brookfield navigates this debt balloon.

QUICK HITS

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TAKING A BREATHER

NYC's Multifamily Market Faces Slowdown in Q3

NYC multifamily transactions slowed to two-year low

(Photo Illustration by Steven Dilakian for The Real Deal with Getty)

Rising interest rates are impacting NYC's multifamily market, leading to lower transactions in Q3. Here’s the rundown on the latest numbers.

Decrease in transaction volume: Ariel Property Advisors reported that there were 227 multifamily transactions totaling $1.6B in sales from July to September, marking the slowest quarter of the year. This represents a significant 40% decrease compared to the previous year. The slowdown in transaction volume is attributed to the lowest quarterly dollar volume since the first quarter of 2021, before the Federal Reserve began raising interest rates.

Market-rate properties in focus: Nearly four out of every five closed deals in the third quarter were for properties with market-rate units or existing 421a exemptions. This indicates that relaxed regulations on raising rents, particularly for market-rate properties, have made them more attractive to investors despite the overall slowdown in the market.

Largest deals of the quarter: The two largest deals in terms of dollar volume during Q3 were Pacific Urban Investors $185M acquisition of 130 West 15th St. in Chelsea and the NYU Grossman School of Medicine's $210M purchase of 377 East 33rd Street in Kips Bay. These deals highlight the continued interest in high-value properties despite the market slowdown.

➥ THE TAKEAWAY

Market outlook: Despite the anticipated slowdown in the multifamily market following the Federal Reserve's decision to raise interest rates, the fundamentals of market-rate properties and those with existing 421a exemptions remain strong. Relaxed regulations on rent increases have made market-rate properties more appealing to some investors. However, the overall market slowdown is expected to continue until the Fed decides to cut interest rates, which might not occur in the near future.

📈 CHART OF THE DAY

Getting America Back to Work

The 10-city Back to Work Barometer showed that office attendance rose to 50.3% last week. Most cities saw a rise or stability in attendance levels. Houston and Austin exceed 70% on the highest occupied day of the week.

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