Minneapolis Climbs to Top Spot in Most In-Demand Cities for Renters

Plus: The FHFA reverses course on workforce housing lending limits for Fannie and Freddie.

Minneapolis Climbs to Top Spot in Most In-Demand Cities for Renters

Plus: The FHFA reverses course on workforce housing lending limits for Fannie and Freddie.

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Good morning. Minneapolis has become the top city for renters, leading rankings for the first time in six months. This week’s Thesis-Driven highlights six real estate niches where deals are still getting done. Meanwhile, the Federal Housing Finance Agency will exempt workforce housing loans from lending limits.

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Minneapolis Climbs to Top Spot in Most In-Demand Cities for Renters

In November, Minneapolis emerged as the hottest market for apartment demand, experiencing significant YoY growth, as Yardi's Rent Café reported

By the numbers: In November, Minneapolis witnessed a staggering 150% increase in traffic for apartment listings compared to last year. This growth is further underscored by a 162% rise in saved searches on RentCafe.com. The city is drawing attention from local residents and those in major cities like Chicago, Dallas, and St. Paul, attributed to Minnesota's robust employment scene, boasting a record-high working population of over 3 million in October.

Why the surge? The boom in the rental market, particularly in the Twin Cities, can be attributed to rising mortgage interest rates, which have made homeownership more costly. This shift has increased the attractiveness of renting, especially in areas like the Twin Cities, where construction is on fire. As the 19th largest multifamily market, the Twin Cities has over 243,000 completed units and 72,620 in development. New lease rents have risen 1.6% to $1,489, placing the area 68th in rent growth. Despite this, there's strong demand for multifamily housing, with 6,622 units absorbed in the past year.


Leading the way: The Midwest remains the leading region for renters, as evidenced by a surge in apartment searches compared to last year, according to RentCafe's report. The Sun Belt is also gaining popularity, adding seven cities to the top 30 destinations. Notably, Atlanta rose to second place, consistently staying in the top 10, while Detroit and Cincinnati ranked third and fourth, respectively, showcasing diverse and dynamic rental market trends across the U.S.


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Five Under-the-Radar Real Estate Sectors

This week’s Thesis Driven draws from insights gathered from the Thesis Driven Developer Database, a resource documenting nearly 3,000 real estate developers across 42 different sectors, offering a unique insight into the lesser-known niches of the real estate industry. 

Specifically, we highlight six under-appreciated real estate niches where deals are still getting done despite the tough interest rate environment:

Medical Office Buildings (MOBs):

  • MOBs, catering to healthcare services, have shown resilience and stability, maintaining low vacancy rates during economic downturns.

  • The sector has attracted significant investment, with $26B in 2022, and maintained high occupancy rates (~92%).

  • Key players include healthcare REITs and private investment funds, with emerging entities like MedCraft Investment Partners and Kayne Anderson Real Estate making substantial investments.

Military Housing:

  • Initiated by the Military Housing Privatization Initiative (MHPI) in 1996, this sector has seen construction and renovation of over 125K homes.

  • Military housing benefits from financial stability, backed by the Basic Allowance for Housing (BAH), reducing delinquency and bad debt.

  • Major developers like Balfour Beatty (BBY) have significant portfolios in this sector, though it's subject to federal scrutiny and management challenges.

Infrastructure Development:

  • Encompassing public works like transit, airports, and roads, this sector has grown, supported by government spending and the Infrastructure Investment and Jobs Act.

  • Infrastructure projects often involve complex RFP processes and require a track record in the field.

  • There are opportunities for new entrants, especially through set-aside programs for small, minority-, and women-owned businesses.

Land Development:

  • This includes land banking, covered land investing, and land development, each with distinct strategies but sharing the goal of capitalizing on underdeveloped land.

  • These ventures require local expertise and often involve navigating complex zoning laws and government regulations.

  • Despite being high-risk due to weak cash flow from raw land, these strategies can yield high returns.

Life Science:

  • This sector includes developing laboratory and R&D spaces for life sciences companies.

  • It requires significant investment due to the sophisticated infrastructure needed, with costs in key markets exceeding $1K PSF.

  • Major players include Alexandria Real Estate (ARE), healthcare REITs like Ventas (VTR) and Healthpeak (PEAK), and emerging firms like IQHQ and Tishman Speyer.

Car-Light Communities:

  • Focused on creating open, walkable spaces with reduced dependence on cars, these communities are gaining popularity, especially among younger generations.

  • Developers must find creative solutions for transportation and convince lenders of the viability of projects with limited parking.

  • This niche has attracted venture capital interest, with firms like Culdesac raising substantial funds.


Bottom line: Today’s difficult environment rewards developers willing to explore unconventional paths and adapt to changing market demands. From healthcare facilities to military housing, niche sectors offer unique challenges and rewards. Read more at Thesis Driven here.


  • For the people: The US Justice Department supports renters and landlords in the price-fixing lawsuit against RealPage and its pricing algorithm.

  • Housing hurdles: Sales of previously owned homes in October were 4.1% lower compared to September, reaching a rate of 3.79M units, the lowest since August 2010.

  • Resetting the city: The pandemic caused a reset in San Fran's real estate market, with office rents dropping from $100 to $70 PSF and sales prices falling from $800 to $300 PSF.

  • Private capital steps up: Private investors now hold a greater share of investment in retail, up to 15% in the EMEA region, according to JLL.

  • Real estate rollercoaster: Global unrest, economic uncertainty, and eroding home affordability are top issues facing real estate, according to CRE's annual report.

  • Canada's housing crisis: The Canadian housing market faces an affordability crisis after home values doubled since 2011, leading to high household debt and immigration backlash.

  • Navigating a new era: Financing now involves higher capital costs, volatile rates, and stricter underwriting, but multifamily can benefit from the dependability of life company lenders.

  • Tower power: KKR is reportedly close to purchasing a 327-unit apartment tower in Brooklyn, potentially becoming the borough's largest single-asset multifamily trade this year.


FHFA Encourages Workforce Housing With Lending Limit Exemptions

FHFA Encourages Workforce Housing With Lending Limit Exemptions


In response to escalating rent growth, the Federal Housing Finance Agency (FHFA) is promoting the development of workforce housing by exempting these loans from the 2024 lending limits imposed on Fannie Mae and Freddie Mac.

Policy shift: The FHFA has decided to exempt workforce housing loans from the lending caps for Fannie Mae and Freddie Mac in 2024, allowing these government-sponsored entities (GSEs) to exceed the $70B limit set for other property types. This move comes as part of an effort to address the "national housing affordability crisis." Workforce housing is defined as developments adhering to local or state affordability initiatives for at least ten years or the duration of the loan, with varying affordability thresholds based on regional cost burdens.

The criteria: While this exemption marks a significant policy shift from last year's inclusion of workforce housing loans under the annual caps, the FHFA does not anticipate a substantial change in the volume of workforce housing financed. For non-exempt financing, at least 50% of loans must be mission-driven, covering various affordable housing types and possibilities for case-by-case housing classification. In 2022, Fannie Mae and Freddie Mac financed a notable percentage of units within the 80% to 120% area median income (AMI) range, though not all under the workforce housing definition.

Fannie Mae's workforce housing program: Recently, Fannie Mae introduced a financing program to support the preservation and development of workforce housing, providing loans to borrowers who restrict a portion of unit rents to the 80% to 120% AMI range. This initiative aligns with FHFA's broader strategy to incentivize affordable housing development.


Step in the right direction: The FHFA's decision to exempt workforce housing loans from lending limits is a significant step toward addressing the national housing affordability crisis. While the exemption is expected to have a positive impact, the FHFA does not anticipate it to dramatically affect overall enterprise multifamily purchase volumes in 2024. If voluntary rent restrictions become more prevalent, Fannie and Freddie may exceed the lending caps and contribute more to workforce housing development.


Source: Redfin

In October, about 54,000 home purchases in the U.S. were aborted as buyers withdrew due to high prices or unmet demands from sellers. However, the rate of these cancellations may decrease this month, with buyers likely to capitalize on the recent drop in mortgage rates.

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