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

QOFs Continue on Pace for $10 Billion Year Fueled by Multifamily Investment

Multifamily and commercial investment is outpacing other types of real estate projects in QOFs by a 3-to-1 margin. An under-the-radar real estate sector is earning solid returns for savvy investors. A single-family rental giant is seeking a $1B joint venture partner to bail them out of trouble. And one particularly resilient real estate sector refuses to back down from rising interest rates and high inflation.

QOFs Continue on Pace for $10 Billion Year Fueled by Multifamily Investment

Multifamily and commercial investment is outpacing other types of real estate projects in QOFs by a 3-to-1 margin. An under-the-radar real estate sector is earning solid returns for savvy investors. A single-family rental giant is seeking a $1B joint venture partner to bail them out of trouble. And one particularly resilient real estate sector refuses to back down from rising interest rates and high inflation.

QOFs Continue on Pace for $10 Billion Year

Good morning, in today’s email: Multifamily investment is outpacing other types of real estate projects in QOFs by a 3-to-1 margin. An under-the-radar real estate sector is earning solid returns for savvy investors. A single-family rental giant is seeking a $1B joint venture partner to bail them out of trouble. And one particularly resilient real estate sector refuses to back down from rising interest rates and high inflation.

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📚 CRE 101: Leasing occupies its own particular corner of the commercial real estate landscape, but some can be more complex than others. In this article, Connect CRE highlights the basic types of commercial real estate leases and the building blocks that are commonly part of each agreement.

WHEN OPPORTUNITY KNOCKS

Qualified Opportunity Funds (QOFs) Continue on Pace for $10 Billion Year Led by Multifamily

More and more investors are pouring capital into qualified opportunity zone funds that focus exclusively on multifamily development, outpacing other types of projects by a 3-to-1 margin.

Building momentum: According to Novogradac & Co. tracking list, total investment in QOFs hit $32.69 billion as of Sept. 30 by 1,231 QOFs. The YTD fundraising compares to $24.40 billion at the end of 2021. The latest figures through the first nine months represent an $8.29 billion increase putting QOFs on the verge of breaking 2021’s record and going well beyond $10 billion.

Leading the way: Opportunity zone funds that focus exclusively on residential projects reported raising equity of about $5.9 billion YTD, according to Novogradac. It said that commercial-only funds had raised about $2 billion, while those focused strictly on hospitality, renewable energy and operating businesses have raised less than $700 million.

THE TAKEAWAY

Why it matters: The latest figures come as demand for multifamily property has surged. Higher interest rates are driving up home mortgage costs, resulting in more potential homebuyers choosing to stay put. The results come as some major cities already reported a housing shortage before the Federal Reserve began aggressively raising interest rates earlier this year.

TELECOM TITANS

Cell Phone Towers Just Keep Delivering Solid Returns

Long-time real estate investors, including several REITs, are doubling down on cell phone towers and antenna rays—profitable real estate assets with less competition.

Blue ocean, not red: Since the pandemic started, the most popular CRE sectors have been industrial and multifamily. But a profitable niche market of cell towers and antennas is flying under the radar and earning solid returns for some savvy investors. Buyers range from infrastructure REITs to telecommunications companies.

Divide and conquer: According to Hoya Capital, as of Q3 2022, four REITs controlled around 75% of the wireless communications infrastructure in the U.S., purchasing more than $557 million in assets during the first six months of 2022. The four REITs received 27.19% in total returns through the month of September.

THE TAKEAWAY

Getting more competitive: Some investors are negotiating longstanding relationships with landowners and antenna operators without the help of facilitators. But without 3rd parties, the market has grown harder to break into. The challenge is to find the right team with an established portfolio to “execute over time and grow to scale,” said Noi Spyratos, managing director of CBRE Investment Management.

BILLION-DOLLAR INVITATION

Invitation Homes Seeks $1B Joint Venture Partner

According to Bloomberg, single-family home rental giant, Invitation Homes (INVH), is eyeing potential partners for a $1B joint venture in anticipation of an impending market shift.

Matchmaking: Invitation Homes is actively searching for a joint venture partner in an effort to raise equity after its stock price fell 28% this year. It’s a tempting offer for qualifying suitors. Invitation Homes owns upwards of 85K houses nationwide and is among the largest players in the single-family rental space.

Shifting strategies: In order to address the nationwide housing shortage, single-family rentals skyrocketed while built-to-rent homes turned into the fastest-growing housing sector in the country. But price growth and purchase volumes are slowing down. Homebuilders that stockpiled extra homes to meet expected future demand are now offering discounts of up to 15% to get rid of empty houses.

THE TAKEAWAY

Follow the lawyers: Invitation Homes was in the hot seat after being accused of using extreme and abusive tactics to evict tenants during the CDC’s eviction moratorium period. Senator Elizabeth Warren publicly condemned the company, claiming it was “taking advantage of the housing shortage.” The company was also accused of ignoring permits and doing poor repairs on its properties.

CAN’T STOP, WON’T STOP

Rising Interest Rates Barely Slow Down Data Center Investors

Data center investors are starting to feel the compound effects of increased capital costs, rising interest rates, soaring valuations, and falling cap rates—just not as much as other sectors.

Still in demand: The data center sector is flooded with new and existing investors. As demand continues to outpace supply, valuations keep rising, which could lead to an eventual price correction. But that isn’t stopping investors from closing deals, even if it means raising more capital and paying a premium to get the job done.

By the numbers: The higher cost of capital has compressed valuations and cap rates have climbed 200 basis points. A perfect storm of inflation, rising rates, and supply constraints have also hammered the sector. “There’s got to be a point here where there’s a repricing,” says Robert Walters, principal at Avison Young’s data center practice.

THE TAKEAWAY

Bullish euphoria? There was broad consensus at Bisnow’s DICE Capital Markets Summit that major data center players won’t see lower deal volumes anytime soon. In 2020 alone, the percentage of U.S. real estate investment in data centers doubled from 4–8%, and the trend is expected to continue. While rate hikes might impact individual valuations, the overall data center market remains resilient.

  • Fed loses billions: Falling bond prices, high inflation, and rising interest rates are bleeding central banks worldwide and have tipped the Fed into the red with growing operating losses.

  • Builder’s remorse: Only a year ago, a Nevada builder had 639 qualified buyers who wanted to buy new homes. Now, he has just 30 and says he’s learned his lesson…

  • Bleak forecast: Due to high interest rates and growing economic uncertainty, commercial and multifamily mortgage borrowing and lending is expected to fall by $766B this year.

  • Parched: Ongoing droughts have put the small rural town of Coalinga, CA between a rock and hard place. City officials estimate that the town will run out of water by December 1st.

  • Lame duck: As midterm elections loom on the horizon, there is a list of CRE tax issues that need to be addressed. But no one knows who will be in charge of policy next.

🤝 Deals & Dealmakers

  • If you can’t beat ‘em: Goldman Sachs (GS) has launched a real estate joint venture with Chinese logistics company Sunjade to boost investment in Chinese infrastructure.

  • Not too shabby: TPG Real Estate (TPGRE), the real estate platform of global asset firm TPG, announced that it closed its latest real estate equity fund with $6.8B.

  • Top housing markets: Home-buying demand remained strong in Q3, especially in these low-cost cities with robust local economies.

  • Midwestern expansion: Google (GOOG) is planning to spend $600M to expand its data center campus located in Council Bluffs, Iowa.

  • Can't use it? Rent it! Comcast has put more than 500K square feet on the market for sublease, including its new $25M G4 Studio in Burbank, CA.

📈 CHART OF THE DAY

LDI Chaos Likely to Hurt Private Equity and Property Allocations

💼 JOB BOARD

The CRE Daily Hiring Block

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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.

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