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

Growing Pains: The Future of “Data Center Alley”

Residents of Loudoun County, VA—the data center capital of the U.S.—are pushing back against the new constructions dominating their hometown. Dallas investors just snatched up a 93%-occupied, 7-state multifamily portfolio of secondary and tertiary market properties. Meanwhile, small businesses priced out of warehouses are scrambling to find new places to stash their inventories.

Growing Pains: The Future of “Data Center Alley”

Residents of Loudoun County, VA—the data center capital of the U.S.—are pushing back against the new constructions dominating their hometown. Dallas investors just snatched up a 93%-occupied, 7-state multifamily portfolio of secondary and tertiary market properties. Meanwhile, small businesses priced out of warehouses are scrambling to find new places to stash their inventories.

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In today’s email: Residents of Loudoun County, VA—the data center capital of the U.S.—are pushing back against the new constructions dominating their hometown. Dallas investors just snatched up a 93%-occupied, 7-state multifamily portfolio of secondary and tertiary market properties. Meanwhile, small businesses priced out of warehouses are scrambling to find new places to stash their inventories.

DATA CENTER ALLEY

Loudoun County, the Data Center Capital of the World, Enacts Limits on Future Development

If you’re a resident of Loudoun County, VA, you probably don’t love the 200+ data centers that are slowly taking over your hometown. County officials have heard their complaints, and have passed new rules to limit where new data centers can be built as well as how existing ones can expand.

A new precedent: With 26M SF of data center space and counting, Loudoun County is the undisputed data center capital of the U.S. It’s also the first place to pass regs specific to regulating data center growth. What happens here could impact how data centers are regulated nationwide going forward.

Letter of the law: Loudoun is rewriting zoning ordinances so that new data centers can’t be built as close to residential areas anymore. Future data centers must also meet higher standards for eco-friendly design and environmental sustainability. Existing data centers that end up on the wrong size of the zoning laws will not be able to expand significantly, either.

THE TAKEAWAY

But money talks: The hundreds of data centers in Loudoun occupy only 1.5% of the county’s land but bring in 31% of all its revenue, or an estimated $575 million in 2022. Not to mention the price of undeveloped data center “land banks” is an eye-watering $3M per acre, up from just $500k per acre in 2017. It’s such a win-win situation for both Loudoun County officials and CRE investors that Loudoun County residents are likely just swimming against the tide.

MULTIFAMILY MOVES

A Trio of Investment Firms Snap Up Sunbelt Portfolio for $500M

Three Dallas-based investment firms, led by RREAF Holdings, inked a $500M deal for 10 multifamily properties in 7 states as part of a shotgun approach to securing in-demand rental properties in up-and-coming areas.

Searching far and wide: The 2,744-unit portfolio stretches across Arkansas, Georgia, Indiana, Mississippi, Oklahoma, and both North and South Carolina. The properties, which are all in major cities or college towns, are also 93% occupied.

Playing the long game: Everyone and their mom already knows that Florida, Texas, New York, California, etc. are great renter’s markets. But fewer investors are paying attention to rapidly growing secondary and tertiary multifamily markets like the ones in this deal.

THE TAKEAWAY

Finding value anywhere, anytime: Unsurprisingly, the same Dallas investors bought 21 properties last November for $543M, nine of which were in Georgia. According to the National Multifamily Housing Council (NMHC), the U.S. needs as many as 4.3 million more apartments by 2035 to meet growing rental demand, and savvy CRE investors are jumping on opportunities in less-competitive markets.

LOGISTICS REPORT

SMBs Are Losing Warehouse Space to Larger Companies

Small businesses are feeling the burn as a nationwide surge in demand for industrial spaces, like warehouses and manufacturing sites, prices them out of much-needed inventory space.

David vs. Goliath: As consumer demand slows down and inventory piles up, big retailers are parking more unsold goods in warehouses. They’re also pushing out smaller companies that can’t afford to pay rising labor and storage costs. Earlier in the pandemic, SMBs were also priced out of container ships for the same reason.

Beggars can’t be choosers: According to Cushman & Wakefield, nationwide quarterly vacancy rates for U.S. industrial real estate has fallen from a peak of slightly over 5% in 2020 down to just 3.2% in Q3 2022. In competitive metros like Inland Empire in SoCal, the vacancy rate is just 0.7%.

THE TAKEAWAY

Just business as usual: The current storage predicament facing SMBs is a textbook example of supply and demand at work. Growing demand for industrial space has driven Q3 industrial rental prices up to $8.70 per SF, compared with $7.13 per SF 12 months ago. With the end of the year fast approaching, smaller businesses will have to scramble to find places to park their holiday inventories.

Editors' Picks

  • No thanks: More homebuyers are waiting for a better deal as mortgage applications drop to their lowest level in 25 years and interest rates spike up to 7%—their highest level since 2006.

  • Financial exodus: Muriel Siebert & Co., founded by the first woman to buy her own seat on the NYSE, is the latest NYC finance firm to leave the Big Apple for Miami Beach

  • Paying it forward: As U.S. multifamily properties keep making investors richer, some wonder how their industry can help address the growing affordable housing shortage

  • Switching sides: Chicago plans to put up tens of millions in subsidies to help revitalize LaSalle Street by converting old office towers into thousands of new apartments.

  • Can’t afford it: Not too long after grocery-anchored retail centers saw signs of life, foot traffic is down again as ongoing inflation and economic uncertainty scare off shoppers.

  • Still in the clear: At $174.4B and counting, U.S. apartment sales over the last 9 months have outperformed the same period in 2021, but analysts aren’t sure if Q4 can sustain the momentum.

Deals & Dealmakers

  • No thanks: More homebuyers are waiting for a better deal as mortgage applications drop to their lowest level in 25 years and interest rates spike up to 7%—their highest level since 2006.

  • Financial exodus: Muriel Siebert & Co., founded by the first woman to buy her own seat on the NYSE, is the latest NYC finance firm to leave the Big Apple for Miami Beach

  • Paying it forward: As U.S. multifamily properties keep making investors richer, some wonder how their industry can help address the growing affordable housing shortage

  • Switching sides: Chicago plans to put up tens of millions in subsidies to help revitalize LaSalle Street by converting old office towers into thousands of new apartments.

  • Can’t afford it: Not too long after grocery-anchored retail centers saw signs of life, foot traffic is down again as ongoing inflation and economic uncertainty scare off shoppers.

  • Still in the clear: At $174.4B and counting, U.S. apartment sales over the last 9 months have outperformed the same period in 2021, but analysts aren’t sure if Q4 can sustain the momentum. 

  • Back to campus: Global Student Accommodation (GSA) acquired a 5-property, 1,600-bed student housing portfolio, with three assets in Austin, one in Flagstaff, and one in Charleston.

📈 Chart of the Day

🍸  Drink of the Week: Boston Cocktail

 

Ingredients1 1/2 ounces London dry gin, 1 1/2 ounces apricot brandy, 1/2 ounce lemon juice, 1/4 ounce grenadine

 How to: In a cocktail shaker (or similar), pour ingredients. Shake well. Strain into a chilled cocktail glass. Sip & enjoy!

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